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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
/X/ FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-11463
PROMUS HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE I.R.S. NO. 62-1596939
(State of Incorporation) (I.R.S. Employer Identification No.)
755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 374-5000
850 RIDGE LAKE BLVD., SUITE 400
MEMPHIS, TENNESSEE 38120
(Former address of Registrant)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH REGISTERED
TITLE OF EACH CLASS -----------------------------------------
- ------------------- NEW YORK STOCK EXCHANGE
Common Capital Stock, CHICAGO STOCK EXCHANGE
Par Value $0.10 per share* PACIFIC STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE
- ------------
* Common Capital Stock also has special stock purchase rights listed on each of
the same exchanges
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $26.00 for the Common Stock as
reported on the New York Stock Exchange Composite Tape on March 1, 1996, is
$1,309,186,736.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 1, 1996.
Common Capital Stock ..................................... 51,380,405 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1995, are incorporated by reference into Parts I and II
hereof and portions of the definitive Proxy Statement for the 1996 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Material from the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 (the "Annual Report") of Promus Hotel Corporation (referred to
herein, together with its subsidiaries where the context requires, as the
"Company" or "Promus") is incorporated by reference in Parts I and II hereof
where referred to herein. Material from the Company's Proxy Statement, prepared
and mailed to stockholders in accordance with Section 14 of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder, for the Annual
Meeting of Stockholders of the Company to be held on April 24, 1996 (the "Proxy
Statement") is incorporated by reference in Part III hereof where referred to
therein.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Promus Hotel Corporation is one of the leading hotel companies in the United
States. The Company operates the Embassy Suites, Hampton Inn, Hampton Inn &
Suites and Homewood Suites hotel brands.
Promus was incorporated on March 2, 1995 under Delaware law and conducts its
business through its wholly-owned subsidiary, Promus Hotels, Inc. ("PHI"), and
PHI's subsidiaries. The principal asset of Promus is the stock of PHI, which
holds, directly or indirectly through subsidiaries, substantially all of the
assets of the Company's businesses. The principal executive offices of Promus
are currently located at 755 Crossover Lane, Memphis, Tennessee 38117, telephone
(901) 374-5000.
Operating data for the three most recent fiscal years, together with
interest expense, interest and other income, and extraordinary items, is set
forth on pages 31 and 37 of the Annual Report. Information as to assets is set
forth on the inside front cover of the Annual Report and pages 36, 40, 41, and
46 through 48 of the Annual Report. All of the foregoing pages of the Annual
Report are incorporated herein by reference.
For information on operating results and a discussion of those results, see
"Financial and Statistical Highlights" on the inside front cover and
"Performance Statistics" on pages 28 and 29 of the Annual Report, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 30 through 35 and page 37 of the Annual Report, which pages are
incorporated herein by reference.
GENERAL
On June 30, 1995, The Promus Companies Incorporated ("PCI") split into two
independent public corporations, one for conducting its casino entertainment
business and one for conducting its hotel business. The stockholders of PCI
retained their shares of PCI (now known as Harrah's Entertainment, Inc.) and
received one share of Promus Hotel Corporation for each two shares of PCI they
owned prior to the split.
The Company operates, owns and licenses hotels bearing the Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites names. Each brand is
targeted to a specific market segment.
Embassy Suites hotels, of which there were 114 hotels in operation on
December 31, 1995, appeal to the traveler who has a need or desire for greater
space and more focused services than are available in traditional upscale
hotels. Embassy Suites hotels compose the largest all-suite upscale hotel system
in the United States by number of suites and system revenues.
Hampton Inn hotels are moderately priced hotels designed to attract the
business and leisure traveler desiring quality accommodations at affordable
prices. Since 1984, when the brand was introduced, the system has grown to 520
hotels in operation as of December 31, 1995.
Homewood Suites hotels, of which there were 30 in operation on December 31,
1995, represent the Company's entry in the extended stay market and target the
traveler who stays five or more consecutive nights, as well as the traditional
business and leisure traveler.
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Announced in December, 1993 the Company's newest brand, Hampton Inn & Suites
hotels incorporate the best features of the Hampton Inn and Homewood Suites
brands, offering both traditional hotel room accommodations and apartment-style
suites within one property. There were five Hampton Inn & Suites hotels in
operation as of December 31, 1995.
As of December 31, 1995, the Company's hotel brands included 564 properties
licensed by the Company, 73 properties licensed and managed by the Company, and
32 properties owned and operated by the Company. These properties contained
88,117 rooms and suites.
All of the Company's hotel brands are managed by a single senior management
team. The Company pursues a strategy of growing its hotel brands by minimizing
its ownership of hotel real estate and concentrating on obtaining new franchise
or management contracts. As part of this strategy, the Company seeks to sell
owned hotels to realize the value of the underlying assets and to increase its
return on investment. Following such sales, the hotels typically are operated
either by the Company under management contracts or by the purchasers directly.
In both cases such hotels typically receive franchise licenses from the Company.
Each of the Company's hotel brands uses a business system that includes
centralized reservations and marketing systems, as well as local property
management and revenue management systems. This sophisticated business system is
fully integrated and linked to the Promus hotels network, a communications
network which connects all Promus hotels to the Company's central reservation
office and more than 300,000 travel agents worldwide. The Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites business systems'
reservation modules receive reservation requests entered on terminals located at
all of their respective hotels and reservation centers, major domestic and
international airlines via their global distribution systems, and direct from
consumers via computer access to each brand's Internet site. The systems
immediately confirm reservations or indicate accommodations available at
alternate Promus hotels. Reservations are transmitted automatically to the hotel
for which the reservation is made. The Company's data centers that house all of
the satellite and reservation, marketing and revenue management computers are
located in Memphis, Tennessee. A second central reservation office is scheduled
to open in Tampa, Florida by January 1997. See page 36 of the Annual Report,
which page is incorporated herein by reference, for "Investment in Franchise
System."
A major element of the Company's business strategy is an unconditional 100%
guarantee of service satisfaction. All of the Company's hotel brands offer
suites/rooms exclusively for non-smoking guests.
LICENSING AND MANAGEMENT CONTRACT OPERATIONS
LICENSING
The Company's revenues from licensing operations for all Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites hotels consist of initial
license application fees and continuing royalties. Effective April 1, 1996, the
initial license application fee for an Embassy Suites hotel is $500 per room,
with a minimum of $100,000, and $450 per room, with a minimum of $45,000, for
each Hampton Inn, Hampton Inn & Suites and Homewood Suites hotel. The license
agreements provide for a four percent royalty based upon gross rooms/suites
revenues and also provide for a separate marketing and reservation contribution.
In screening applicants for license agreements, the Company evaluates the
character, operations ability, experience and financial responsibility of each
applicant or its principals; the Company's prior business dealings, if any, with
the applicant; suitability of the proposed hotel location and other factors. The
license agreement establishes requirements for service and quality of
accommodations. The Company provides certain training for licensee management
and makes regular inspections of licensed hotels.
License agreements for new hotels generally have a 20-year term. The Company
may terminate a license agreement if the licensee fails to cure a breach of the
license agreement in a timely manner. In
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certain instances, a license agreement may be terminated by the licensee, but
such termination generally requires a payment to the Company.
MANAGEMENT CONTRACTS
The Company's revenues from management contracts consist primarily of
management fees which are up to five percent of adjusted gross revenues of the
hotel. The contract terms governing management fees vary depending on the size
and location of the hotel and other factors relative to the property.
Under the Company's management contracts, the Company, as the manager,
operates or supervises all aspects of the hotel's operations. The hotel owner is
generally responsible for all costs, expenses and liabilities incurred in
connection with operating the hotel, including the expenses and salaries of all
hotel employees. The hotel owner also enters into a license agreement with the
Company and pays the royalty and marketing/reservation contribution as provided
in the license agreement. In addition, the hotel owner is often required to set
aside a certain percentage of hotel revenues for capital replacement. The
Company's management contracts typically have a term of ten years and most give
the Company specified renewal rights. The management contract may be terminated
by either party due to an uncured default by the other party.
See "Franchise and Management Fees" on page 37 of the Annual Report, which
page is incorporated herein by reference, for revenues from licensing and
management contract operations.
EMBASSY SUITES HOTELS
The following table sets forth information regarding all Embassy Suites
hotels, including company owned hotels, hotels operated by the Company under
management contracts or joint venture arrangements and hotels operated by
licensees:
<TABLE>
<CAPTION>
MANAGEMENT
CONTRACTS/
LICENSED OWNED JOINT VENTURES
--------------- --------------- ------------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF
HOTELS SUITES HOTELS SUITES HOTELS SUITES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year-End 1992......................... 45 10,712 15 3,450 43 11,228
1993 Activity:
Additions.................................. 5 938 - - - (3)
Conversions, net(a)........................ 3 900 (6) (1,423) 3 523
Sales/Terminations......................... (1) (196) - - - -
---- ------ ---- ------ ---- ------
Fiscal Year-End 1993......................... 52 12,354 9 2,027 46 11,748
1994 Activity:
Additions.................................. 1 177 - - 2 410
Conversions, net(a)........................ - (15) - (2) - 15
Sales/Terminations......................... (2) (760) - - (1) (239)
---- ------ ---- ------ ---- ------
Fiscal Year-End 1994......................... 51 11,756 9 2,025 47 11,934
1995 Activity:
Additions.................................. 6 1,052 - - 2 191
Conversions, net(a)........................ (1) (56) - - 1 56
Sales/Terminations......................... (1) (223) - - - -
---- ------ ---- ------ ---- ------
Fiscal Year-End 1995......................... 55 12,529 9(b) 2,025 50(c) 12,181
==== ====== ==== ====== ==== ======
</TABLE>
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(a) Conversions consist of transfers of properties among the licensed, managed
and owned categories.
(b) Includes one property in which the Company owns more than a 50% interest.
(This property is under a license agreement to a third party and is managed
by Promus.)
(c) Includes 48 hotels that are also licensed to third parties. Excludes four
Crown Sterling Suites properties with 1,076 suites being managed by Promus,
but not yet converted to the Embassy Suites brand as of December 31, 1995.
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On December 31, 1995, 23 Embassy Suites hotels were under construction or
conversion, four of which will be licensee operated, 19 of which will be company
managed.
Embassy Suites hotels are located in 34 states, the District of Columbia,
Canada and Colombia. One hotel is under construction in each of: Thailand,
Chile, Puerto Rico and Mexico. Embassy Suites hotels have an average of 235
suites per hotel. Each guest suite has a separate living room and dining/work
area, with a console television, refrigerator and wet bar, as well as a
traditional bedroom (with a king size bed or two double beds). Most Embassy
Suites hotels are built around a landscaped atrium. All hotels offer a free,
cooked-to-order breakfast and, where local law allows, complimentary evening
cocktails.
In May 1995, PCI entered into a Subscription Agreement, assumed by Promus on
June 30, 1995, with FelCor Suite Hotels, Inc. and FelCor Suites Limited
Partnership ("FelCor") whereby Promus agreed to purchase up to $25 million in
FelCor limited partnership interests to help fund the partnership's acquisition
of all-suite upscale hotels to be converted to the Embassy Suites brand.
In September 1995, Promus entered into a second agreement with FelCor in
connection with FelCor's Agreement to acquire the Crown Sterling Suites hotel
chain. FelCor plans to convert up to 16 of the Crown Sterling Suites hotels to
the Embassy Suites brand. In consideration, Promus agreed to make up to
$50 million available to FelCor for the conversions through investments in
FelCor common stock. Hotels converted to the Embassy Suites brand under
either of these agreements will operate under 20-year license agreements and
10-year management contracts will be awarded to Promus. As of December 31,
1995, closings on four hotels had occurred. All remaining closings are
expected to occur in 1996.
Subject to some restrictions, the limited partnership interests may be
converted to shares of FelCor common stock on a one-for-one basis, and the
common stock interests may be sold on the open market.
As of December 31, 1995, Promus had funded approximately $30 million of the
total $75 million commitment and had loaned an additional $7.5 million to
FelCor, representing one-half of the deposit required for the Crown Sterling
Suites acquisition. The total commitment will be reduced by the amount of such
loans outstanding.
In connection with these agreements, Promus will guarantee a third party
loan to FelCor, not to exceed $25 million. As of December 31, 1995, that
facility was not yet in place, and therefore no amounts had been drawn.
The following table sets forth information concerning system occupancy,
average daily rate per occupied suite and revenue per available suite for all
Embassy Suites hotels:
<TABLE>
<CAPTION>
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
FISCAL YEAR RATE OCCUPIED SUITE AVAILABLE SUITE
- -------------------------------------- --------- -------------- ---------------
<S> <C> <C> <C>
1995.................................. 74.2% $ 101.90 $ 75.61
1994.................................. 74.9% $ 97.28 $ 72.86
1993.................................. 73.0% $ 93.91 $ 68.58
</TABLE>
The Company also licenses time sharing resorts in Orlando, Florida and
Kauai, Hawaii under the name "Embassy Vacation Resort" and will consider other
such developments as opportunities arise in the future. The Company manages the
Orlando, Florida resort.
4
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HAMPTON INN HOTELS
The following table sets forth information regarding all Hampton Inn and
Hampton Inn & Suites hotels, including company owned hotels, hotels operated
under management contracts or joint venture arrangements and hotels operated by
licensees:
<TABLE>
<CAPTION>
MANAGEMENT
CONTRACTS/
LICENSED OWNED JOINT VENTURES
----------------- ---------------- ----------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year-End 1992...................... 289 35,242 15 2,048 23 2,910
1993 Activity:
Additions............................... 46 4,147 - - 1 51
Sales/Terminations...................... (2) (236) - - - -
------ ------- ---- ------ ------ ------
Fiscal Year-End 1993...................... 333 39,153 15 2,048 24 2,961
1994 Activity:
Additions............................... 67 6,149 - - - -
Sales/Terminations...................... (1) (118) - (1) (1) (121)
------ ------- ---- ------ ------ ------
Fiscal Year-End 1994...................... 399 45,184 15 2,047 23 2,840
1995 Activity:
Additions............................... 92(a) 8,760(b) - - - -
Conversions, net (c).................... 1 131 (1) (131) - -
Sales/Terminations...................... (4) (544) - - - -
------ ------- ---- ------ ------ ------
Fiscal Year-End 1995...................... 488(d) 53,531 14 1,916 23(e) 2,840
====== ====== ==== ====== ====== ======
</TABLE>
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<TABLE>
<C> <S>
(a) Includes five Hampton Inn & Suites hotels.
(b) Includes 573 suites/rooms from Hampton Inn & Suites hotels.
(c) Conversions consist of transfers of properties among the licensed, managed and owned
categories.
(d) Includes one property open only on a seasonal basis.
(e) These hotels are also licensed to third parties.
</TABLE>
On December 31, 1995, 80 Hampton Inn hotels, including 10 Hampton Inn &
Suites hotels, were under construction. Seventy-nine of these hotels will be
licensee operated. One Hampton Inn & Suites hotel will be managed by the
Company.
Hampton Inn hotels are currently located in 45 states, as well as Canada,
Costa Rica and Mexico. One additional hotel is under construction in Thailand.
An average Hampton Inn hotel has 111 rooms. The Hampton Inn hotel's standardized
concept provides for a guest room featuring a color television, free in-room
movies, free local telephone calls and complimentary continental breakfast.
Unlike full-service hotels, Hampton Inn hotels do not feature restaurants,
lounges or large public spaces.
Hampton Inns also uses a modified lodging property in communities supporting
hotels of fewer than 90 rooms. The building design for these smaller communities
has the same features as a standard Hampton Inn hotel, but with fewer rooms and
a smaller lobby. Over 130 of these modified design hotels are open and 42 are
currently under construction.
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The following table sets forth information concerning system occupancy,
average daily rate per occupied room and revenue per available room for all
Hampton Inn hotels (excluding Hampton Inn & Suites):
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
FISCAL YEAR RATE OCCUPIED ROOM AVAILABLE ROOM
- ----------- --------- ------------- --------------
1995 73.7% $ 56.97 $42.01
1994 74.3% $ 53.46 $39.74
1993 73.0% $ 50.81 $37.10
In December 1993, the Company announced the Hampton Inn & Suites hotel
concept, which combines standard guest rooms with a significant block of
two-room suites in a single property. Development of this product is targeted
for commercial and suburban markets, as well as destination and resort markets.
Each property contains a centrally located, expanded lobby and complimentary
services area and includes an exercise room, convenience shop,
meeting/hospitality room and coin-laundry. An expanded complimentary continental
breakfast buffet is offered. The first Hampton Inn & Suites hotel opened June 6,
1995. The Hampton Inn & Suites system occupancy was 59.4% and average daily rate
per occupied room was $70.13 for a 1995 revenue per available room/suite of
$41.65.
HOMEWOOD SUITES HOTELS
The following table sets forth information regarding all Homewood Suites
hotels, including company owned hotels and hotels operated by licensees:
<TABLE>
<CAPTION>
LICENSED OWNED
---------------- ----------------
NUMBER NUMBER NUMBER NUMBER
OF OF OF OF
HOTELS SUITES HOTELS SUITES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Fiscal Year-End 1992....................................... 16 1,754 8 932
1993 Activity:
Additions................................................ - 40 - -
---- ------ ---- ------
Fiscal Year-End 1993....................................... 16 1,794 8 932
1994 Activity:
Additions................................................ 2 155 - -
---- ------ ---- ------
Fiscal Year-End 1994....................................... 18 1,949 8 932
1995 Activity:
Additions................................................ 4 266 1 92
Sales/Terminations....................................... (1) (144) - -
---- ------ ---- ------
Fiscal Year-End 1995....................................... 21 2,071 9 1,024
==== ====== ==== ======
</TABLE>
On December 31, 1995, eight Homewood Suites hotels were under construction,
six of which will be licensee operated, and two of which will be company owned.
Promus currently plans to spend approximately $110 million to expand the
Homewood Suites hotel brand by developing as many as 14 additional company owned
properties over the next three to five years. During 1995, the Company acquired
land and incurred construction costs of $16.2 million to develop new Homewood
Suites hotels. The Company anticipates spending an additional $70 million in
1996 for identified and approved projects.
Homewood Suites hotels which have an average of 103 suites are currently
located in 18 states. Homewood Suites hotels feature residential-style
accommodations, which include a living room area (some with fireplaces),
separate bedroom (with a king size bed or two double beds) and a separate
bathroom, and a fully-equipped kitchen. The hotel is centered around a central
community building,
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called the Lodge, which affords guests a high level of social interaction.
Amenities include a complimentary breakfast and an evening social hour, a
convenience store, shopping service, business center, outdoor pool, exercise
center and limited meeting facilities.
The following table sets forth information concerning system occupancy,
average daily rate per occupied suite and revenue per available suite for all
Homewood Suites hotels:
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
FISCAL YEAR RATE OCCUPIED SUITE AVAILABLE SUITE
- ------------ --------- -------------- ---------------
1995 76.9% $82.42 $63.37
1994 78.1% $76.38 $59.67
1993 75.8% $72.47 $54.91
OTHER
AUDUBON WOODS BUSINESS CAMPUS
In January 1995, the Company acquired property in Memphis, Tennessee, known
as Audubon Woods Business Campus, in order to establish its corporate
headquarters for a purchase price of $21.7 million. This office complex consists
of four office buildings containing approximately 360,000 square feet of office
space and is located on 31 acres of land. The Company will occupy 50% of the
office space while leasing the remaining space, spending approximately
$9.4 million for renovations. Remodeling of the new headquarters has begun
and is expected to be completed during 1996.
TRADEMARKS
The following trademarks used herein are owned by the Company: Promus(R);
Embassy Suites(R); Embassy Vacation Resort(R); Hampton Inn(R); Hampton Inn &
Suites(R) and Homewood Suites(R). The names "Embassy Suites," "Embassy Vacation
Resort," "Hampton Inn," "Hampton Inn & Suites," and "Homewood Suites" are
registered as service marks in the United States and in certain foreign
countries. The Company considers all of these marks, and the associated name
recognition, to be valuable to its business.
COMPETITION
The Company encounters strong competition as a hotel owner, manager and
franchisor with other lodging related companies. As of December 31, 1995, there
were more than 150 hotel brands (chains with more than one hotel). Although most
of these companies are privately owned firms, several large national chains own
and operate their own hotels and also franchise their brands. There is no single
competitor which is dominant in the industry.
Affiliation with a national or regional brand is a major trend in the U.S.
lodging industry. In 1995 66% of U.S. hotel rooms were brand-affiliated,
compared to 62% in 1989. Most of the branded properties are franchised, under
which the operator pays the franchisor a fee for use of its system
identification and reservation system.
The Company believes that its brands are attractive to hotel owners seeking
a management company or franchise affiliation because its hotels typically
generate higher occupancies and revenue per available room (RevPAR) than direct
competitors in most market areas. The Company attributes this performance
premium to its success in achieving and maintaining strong customer preference.
Repeat guest business is enhanced by the Company's unconditional service
guarantee. Customer preference for the Company's brands means the Company does
not have to rely on frequent stay programs.
The lodging industry in general, including the Company's brands, may be
adversely affected by national and regional economic conditions. The demand for
accommodations at a particular hotel may
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be adversely affected by many factors including changes in travel patterns,
local and regional economic conditions and the degree of competition with other
hotels in the area.
GOVERNMENTAL REGULATION
HOTEL LICENSING
A number of states regulate the licensing of hotels and restaurants and the
granting of liquor licenses by requiring registration, disclosure statements and
compliance with specific standards of conduct. In addition, various federal and
state regulations mandate certain disclosures and other practices with respect
to the sales of license agreements and the licensor/licensee relationship. The
Company's operations have not been materially affected by such legislation and
regulations, but the Company cannot predict the effect of future legislation.
EMPLOYEE RELATIONS
Promus, through its subsidiaries, has approximately 8,100 employees, of
which 1,250 are based in Memphis, Tennessee. Promus' subsidiaries have
collective bargaining agreements covering fewer than 100 employees. The Company
considers its relations with employees to be very good.
ITEM 3. LEGAL PROCEEDINGS.
Actions for negligence or other tort claims occur routinely as ordinary
incident to the Company's business. Several lawsuits are pending against the
Company which have arisen in the ordinary course of business, but none of these
proceedings involves a claim for damages (in excess of applicable excess
umbrella insurance coverages) involving more than 10% of current assets of the
Company. The Company does not anticipate any amounts which it may be required to
pay as a result of an adverse determination of such legal proceedings,
individually or in the aggregate, or any other relief granted by reason thereof,
will have a material adverse effect on the Company's financial position or
results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ----------------------------- ------------------------------------------------------------
<S> <C>
Michael D. Rose (54)......... Chairman of the Board of Promus since April 1995. Chairman
of the Board (1989-1995) of PCI. Chief Executive Officer
(1989-1994) and President (1989-1991) of PCI. Mr. Rose
also is Chairman of the Board of Harrah's Entertainment,
Inc. and is a director of Ashland, Inc., Darden
Restaurants, Inc., First Tennessee National Corporation
and General Mills, Inc.
Raymond E. Schultz (62)...... Director, President and Chief Executive Officer of Promus
since April 1995. President and Chief Executive Officer of
the Hotel Division of PCI (1993-1995). President and Chief
Executive Officer of Hampton Inn/Homewood Suites Hotel
Division of PCI (1991-1993). President and Chief Executive
Officer of Hampton Inn Hotel Division of PCI (1983-1991).
David C. Sullivan (56)....... Director, Executive Vice President and Chief Operating
Officer of Promus since April 1995. Executive Vice President
and Chief Operating Officer of the Hotel Division of PCI
(1993-1995). Senior Vice President of Development and
Operations of Hampton Inn/Homewood Suites Hotel Division
of PCI (1991-1993). Vice President of Development, Hampton
Inn Hotel Division of PCI (1990-1991).
Donald H. Dempsey (51)....... Senior Vice President and Chief Financial Officer of Promus
since April 1995. Senior Vice President of Finance &
Administration of the Hotel Division of PCI (1993-1995).
Vice President, Finance of Hampton Inn/Homewood Suites
Hotel Division of PCI (1991-1993). Vice President, Finance
of Hampton Inn Hotel Division of PCI (1990-1991).
Ralph B. Lake (51)........... Senior Vice President, General Counsel and Secretary of
Promus since April 1995. Vice President and General Counsel
of Gaming Development of PCI (1992-1995). Associate
General Counsel-International of PCI (1991-1992). Vice
President and General Counsel of Homewood Suites Hotel
Division of PCI (1988-1991).
Thomas L. Keltner (49)....... Senior Vice President, Development of Promus since April
1995. Senior Vice President, Development of the Hotel
Division of PCI (1993-1995). President, Golf Training
Systems, Inc., (1991-1993). Senior Vice President and
Chief Operating Officer, Franchise Division of Holiday Inn
Worldwide (1990). President and Managing Director, Holiday
Inns International (1988-1990).
Mark C. Wells (46)........... Senior Vice President, Marketing of Promus since April 1995.
Senior Vice President, Marketing of the Hotel Division of
PCI (1993-1995). Senior Vice President, Marketing of
Hampton Inn/Homewood Suites Hotel Division of PCI (July
1993-October 1993). Senior Vice President, Marketing of
Embassy Suites Hotel Division of PCI (1991-1993). Vice
President, Marketing of Hampton Inn Hotel Division of PCI
(1986-1991).
</TABLE>
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock
Exchange and traded under the ticker symbol "PRH". The stock is also listed on
the Chicago Stock Exchange, the Pacific Stock Exchange and the Philadelphia
Stock Exchange.
The following table sets forth the high and low price per share of the
Company's Common Stock for 1995:
1995 High Low
---- ---- ---
First Quarter. . . . . . N/A N/A
Second Quarter . . . . . $26.375* $21.00*
Third Quarter. . . . . . $25.00 $20.375
Fourth Quarter . . . . . $24.125 $20.75
*Trading on a "when issued" basis
The approximate number of holders of record of the Company's Common Stock
as of March 1, 1996 is as follows:
Approximate Number
Title of Class of Holders or Record
-------------- ---------------------
Common Stock, Par Value $.10 per share 12,975
The Company does not presently intend to declare cash dividends. The terms
of the Company's existing bank credit facility limit the Company's ability to
pay cash dividends on Common Stock. See "Management's Discussion and
Analysis--Liquidity and Capital Resources" on pages 33 and 34 of the Annual
Report and Note 4 to the financial statements on pages 41 through 43 of the
Annual Report. When permitted under the terms of the existing credit facility,
the declaration and payment of dividends is at the discretion of the Board of
Directors of the Company. The Board of Directors of the Company intends to
reevaluate its dividend policy in the future in light of the Company's results
of operations, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors. All of the foregoing
pages of the Annual Report are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1991 through 1995 set forth under
"Selected Financial Data" in the Annual Report on page 50, which page is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information set forth in the Annual Report on pages 30 through 35,
which pages are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth in the Annual Report on pages 36 through 50,
which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
See the information regarding the names, ages, positions and prior business
experience of the directors of the Company set forth on pages 4 through 6 of the
Proxy Statement, which pages are incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers of the Registrant" on page 9 in Part I hereof.
10
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the Proxy Statement on page 7 thereof
entitled "Compensation of Directors" and the information on pages 14 through 18
thereof. The information on page 7 of the Proxy Statement entitled "Compensation
of Directors" and the information on pages 14 through 18 of the Proxy Statement
entitled "Summary Compensation Table," "Options Granted in the Last Fiscal
Year," "Aggregated Option Exercises in 1995 and December 31, 1995, Option
Values," and "Certain Employment Arrangements" are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information set forth in the Proxy Statement on pages 2 and 3
thereof entitled "Ownership of the Capital Stock of the Company" which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information set forth in the Proxy Statement entitled "Certain
Transactions" on pages 18 and 19 thereof, which information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements (including related notes to consolidated financial
statements) filed as part of this report are listed below:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1994.
Consolidated Statements of Income for the Years Ended December 31,
1995, December 31, 1994 and December 31, 1993.
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, December 31, 1994, and December 31, 1993.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, December 31, 1994, and December 31, 1993.
(a) 2. Financial Statement Schedules for the years ended December 31, 1995,
December 31, 1994, and December 31, 1993, are as follows:
NO.
----
I Condensed financial information of registrant.
II Valuation and qualifying accounts.
Schedules III, IV, and V are not applicable and have therefore
been omitted.
(a) 3. Exhibits (footnotes appear on page 14):
<TABLE>
<CAPTION>
NO.
- ---------
<C> <S>
3(1) Amended and Restated Certificate of Incorporation of Promus Hotel
Corporation dated June 30, 1995. (14)
*3(2) Bylaws of Promus Hotel Corporation, as amended and restated dated
May 26, 1995.
4(1) Form of Rights Agreement, dated as of June 30, 1995, between Promus
Hotel Corporation and Continental Stock Transfer & Trust Company.
(12)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NO.
- ---------
<C> <S>
*10(1) Form of Indemnification Agreement entered into by Promus Hotel Corporation
and each of its directors and executive officers.
+10(2) Promus Hotel Corporation 1995 Stock Option Plan. (5)
+10(3) Promus Hotel Corporation 1995 Restricted Stock Plan. (6)
+10(4) Promus Hotel Corporation Savings and Retirement Plan. (13)
*+10(5) Form of Amendment to Promus Hotel Corporation Savings and Retirement
Plan effective as of June 30, 1995.
*+10(6) Form of Amendment to the Promus Hotel Corporation Savings and
Retirement Plan dated November 15, 1995.
+10(7) Promus Hotel Corporation Non-Management Directors Stock Incentive Plan.
(8)
+10(8) Promus Hotel Corporation Key Executive Officer Annual Incentive Plan. (7)
+10(9) Promus Hotel Corporation Executive Deferred Compensation Plan. (9)
+10(10) Promus Hotel Corporation Deferred Compensation Plan. (9)
+10(11) Promus Hotel Corporation Savings and Retirement Plan Trust Agreement,
dated as of May 26, 1995, among Promus Hotel Corporation and Robert S.
Davis, Donald H. Dempsey, Patricia R. Ferguson, Jeffery M. Jarvis, Kelly
R. Jenkins, Frederick G. Schultz and Mark C. Wells, as trustees. (9)
+10(12) Form of Severance Agreement, dated as of June 30, 1995, entered into with
Donald H. Dempsey, Thomas L. Keltner, Ralph B. Lake, David C. Sullivan,
Mark C. Wells, Vincent C. Ciaramitaro, Patricia R. Ferguson and James T.
Harvey. (10)
+10(13) Form of Severance Agreement, dated June 30, 1995, entered into with
Michael D. Rose and Raymond E. Schultz. (10)
+10(14) Employment Agreement, dated as of June 30, 1995, between Michael D. Rose
and Promus Hotel Corporation. (10)
+10(15) Employment Agreement, dated as of July 1, 1995, between Raymond E. Schultz
and Promus Hotel Corporation. (11)
*+10(16) Form of Letter of Amendment, dated February 22, 1996, to the Employment
Agreement between Raymond E. Schultz and Promus Hotel Corporation.
+10(17) Financial Counseling Plan of The Promus Companies Incorporated, as amended
February 25, 1993, as adopted by Promus Hotel Corporation on April 5,
1995. (2)
+10(18) Summary Plan Description of Executive Term Life Insurance Plan adopted by
Promus Hotel Corporation on April 5, 1995. (4)
+10(19) Administrative Regulations, Long Term Compensation Plan (Restricted Stock
Plan and Stock Option Plan), dated as of January 1, 1992, adopted by
Promus Hotel Corporation on April 5, 1995. (3)
10(20) Plan of Reorganization and Distribution Agreement, dated as of June 30,
1995, between The Promus Companies Incorporated and Promus Hotel
Corporation. (10)
10(21) Tranche A Credit Agreement, dated as of June 7, 1995, among Embassy
Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the
Subsequent Borrower, certain subsidiaries and related parties from time
to time party thereto, as Guarantors, the several lenders from time to
time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9)
10(22) First Amendment to Tranche A Credit Agreement, dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A.
(Carolinas). (10)
10(23) Tranche A Assignment and Assumption Agreement, dated as of June 30, 1995,
among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies
Incorporated and NationsBank, N.A. (Carolinas). (10)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NO.
- ---------
<C> <S>
10(24) Tranche B Credit Agreement, dated as of June 7, 1995, among Embassy
Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the
Subsequent Borrower, certain subsidiaries and related parties from time
to time party thereto, as Guarantors, the several lenders from time to
time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9)
10(25) First Amendment to Tranche B Credit Agreement, dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A.
(Carolinas). (10)
10(26) Tranche B Assignment and Assumption Agreement, dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated and Nations Bank, N.A. (Carolinas). (10)
10(27) Pledge Agreement, dated as of June 30, 1995, by and among Promus Hotel
Corporation, Promus Hotels, Inc., certain subsidiaries which may now be
owners of Credit Parties and NationsBank, N.A. (Carolinas). (10)
10(28) Escrow Agreement, dated as of June 30, 1995, among Promus Hotel
Corporation, Promus Hotels, Inc. and NationsBank. (9)
10(29) Employee Benefits and Other Employment Matters Allocation Agreement, dated
as of June 30, 1995, between The Promus Companies Incorporated and
Promus Hotel Corporation. (10)
10(30) Risk Management Allocation Agreement, dated as of June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation. (10)
10(31) Tax Sharing Agreement, dated as of June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (10)
10(32) International Swap Dealers Association, Inc. Master Agreement, dated as of
June 30, 1995, among Promus Hotels, Inc. and NationsBank, N.A.
(Carolinas). (10)
10(33) Transfer Agreement, dated as of June 30, 1995, among Embassy Suites, Inc.,
Promus Hotels, Inc., and NationsBank, N.A. (Carolinas). (10)
10(34) Subscription Agreement, dated as of October 17, 1995, by and among Promus
Hotels, Inc. and FelCor Suites Hotels, Inc. and FelCor Suites Limited
Partnership. (11)
10(35) Management Agreement, dated as of December 17, 1986, between Hampton Inns,
Inc. and Hampton/GHI Associates No. 1. (1)
10(36) Form of Management Agreement between Embassy Suites, Inc. and affiliates
of General Electric Pension Trust. (1)
*10(37) Form of Assignment and Assumption of Manager's Interest in Management
Agreement (General Electric Pension Trust), dated June 30, 1995, between
Embassy Suites, Inc. and Promus Hotels, Inc.
*10(38) Form of Aircraft Agreement, dated August 4, 1995, between Promus Hotels,
Inc., and Harrah's Operating Company, Inc.
*10(39) Form of Interest Swap Confirmations, between NationsBank, N.A. and Promus
Hotels, Inc., dated December 11, 1995.
*10(40) Form of Interest Swap Confirmation between NationsBank, N.A. and Promus
Hotels, Inc., dated January 24, 1995, as amended on December 6, 1995.
*11(1) Computation of per share earnings.
*12(1) Computations of ratios.
*13(1) Portions of Annual Report to Stockholders for the fiscal year ended
December 31, 1995.
*21(1) List of subsidiaries of Promus Hotel Corporation.
*23(1) Consent of Arthur Andersen LLP.
*27(1) Financial Data Schedule.
</TABLE>
- ------------
* Included herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K
(Footnotes on following page)
13
<PAGE>
(Footnotes for preceding page)
Footnotes
(1) Incorporated by reference from Holiday Corporation's Annual Report on Form
10-K for the fiscal year ended January 2, 1987, filed March 27, 1987, File
No. 1-8900.
(2) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(3) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(4) Incorporated by reference from PCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, filed March 17, 1993, File No.
1-10410.
(5) Incorporated by reference from PCI's Proxy Statement, Annex III-A, dated
April 25, 1995, File No. 1-11463.
(6) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated
April 25, 1995, File No. 1-11463.
(7) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated
April 25, 1995, File No. 1-11463.
(8) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated
April 25, 1995, File No. 1-11463.
(9) Incorporated by reference from the Company's Current Report on Form 8-K,
filed June 14, 1995, File No. 1-11463.
(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 1995, filed August 11, 1995, File No.
1-11463.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended September 30, 1995, filed November 13, 1995, File No.
1-11463.
(12) Incorporated by reference from the Company's Form 8-A, filed June 6, 1995,
File No. 1-11463.
(13) Incorporated by reference from the Company's Registration Statement No.
33-59997 on Form S-8 for the Promus Hotel Corporation Savings & Retirement
Plan, filed June 6, 1995.
(14) Incorporated by reference from PCI's Proxy Statement, Annex II-A, dated
April 25, 1995, File No. 1-11463.
(b) No Reports on Form 8-K were filed during the fourth quarter of 1995 and
thereafter through March 1, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROMUS HOTEL CORPORATION
DATED: MARCH 12, 1996 By: /s/ MICHAEL D. ROSE
..................................
(Michael D. Rose, Chairman)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ U. BERTRAM ELLIS, JR. Director March 12, 1996
........................................
(U. Bertram Ellis, Jr.)
/s/ DEBRA J. FIELDS Director March 12, 1996
........................................
(Debra J. Fields)
/s/ CHRISTOPHER W. HART Director March 12, 1996
........................................
(Christopher W. Hart)
/s/ C. WARREN NEEL Director March 12, 1996
........................................
(C. Warren Neel)
/s/ BEN C. PETERNELL Director March 12, 1996
........................................
(Ben C. Peternell)
/s/ MICHAEL D. ROSE Director and Chairman March 12, 1996
........................................
(Michael D. Rose)
/s/ MICHAEL I. ROTH Director March 12, 1996
........................................
(Michael I. Roth)
/s/ RAYMOND E. SCHULTZ Director, President and March 12, 1996
........................................ Chief Executive Officer
(Raymond E. Schultz)
/s/ JAY STEIN Director March 12, 1996
........................................
(Jay Stein)
/s/ DAVID C. SULLIVAN Director March 12, 1996
........................................
(David C. Sullivan)
/s/ RONALD TERRY Director March 12, 1996
........................................
(Ronald Terry)
/s/ DONALD H. DEMPSEY Chief Financial Officer March 12, 1996
........................................
(Donald H. Dempsey)
/s/ JEFFERY M. JARVIS Controller and Chief March 12, 1996
........................................ Accounting Officer
(Jeffery M. Jarvis)
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Promus Hotel Corporation:
We have audited in accordance with generally accepted auditing standards the
financial statements included in the Promus Hotel Corporation annual report to
stockholders, incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 6, 1996. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedules listed
under Item 14(a)2 on page 11 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements, and in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Memphis, Tennessee
March 8, 1996.
16
<PAGE>
SCHEDULE I
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
Cash and cash equivalents........................................... $ -
Deferred income taxes............................................... 180
Investments in and advances to subsidiaries (eliminated in
consolidation).................................................... 166,412
Organizational costs................................................ 775
--------
$167,367
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies (Note 4)
Stockholders' equity
Common stock, $0.10 par value, 360,000,000 shares authorized,
51,371,152 shares outstanding, net of 2,626 shares held
in treasury..................................................... $ 5,137
Capital surplus................................................... 136,057
Retained earnings................................................. 25,349
Unrealized gain on marketable equity securities of affiliates,
net of related deferred tax liability of $1,165................. 1,822
Deferred compensation related to restricted stock................. (998)
--------
167,367
--------
$167,367
========
The accompanying notes are an integral part of this balance sheet.
S-1
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME
FOR THE PERIOD FROM JUNE 30, 1995 (DATE OF REGISTRATION)
THROUGH DECEMBER 31, 1995
(IN THOUSANDS)
Revenues............................................................. $ -
Costs and expenses................................................... 547
-------
Loss before income taxes and equity in subsidiaries' earnings........ (547)
Income tax benefit................................................... 231
-------
Loss before equity in subsidiaries' earnings......................... (316)
Equity in subsidiaries' earnings before extraordinary items.......... 22,846
-------
Income before extraordinary items.................................... 22,530
Extraordinary items, net of income tax expense of $1,635............. 2,819
-------
Net income........................................................... $25,349
=======
The accompanying notes are an integral part of this financial statement.
S-2
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 30, 1995 (DATE OF REGISTRATION)
THROUGH DECEMBER 31, 1995
(IN THOUSANDS)
Cash flows from operating activities
Net income........................................................ $ 25,349
Adjustments to reconcile net income to cash flows from
operating activities
Extraordinary items........................................... (2,819)
Amortization.................................................. 547
Equity in earnings of subsidiary.............................. (22,846)
Other......................................................... (231)
--------
Cash flows provided by operating activities................. -
--------
Net change in cash and cash equivalents............................. -
Cash and cash equivalents, beginning of period...................... -
--------
Cash and cash equivalents, end of period............................ $ -
========
The accompanying notes are an integral part of this financial statement.
S-3
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--BASIS OF ORGANIZATION
Promus Hotel Corporation, a Delaware corporation, is a holding company, the
principal assets of which are capital stock in a subsidiary, Promus Hotels,
Inc., (PHI). These condensed financial statements should be read in conjunction
with the consolidated financial statements of Promus and subsidiaries.
On June 30, 1995, The Promus Companies Incorporated (Parent) completed the
transfer of the operations, assets and liabilities of its hotel business (the
Hotel Business) composed of three hotel brands targeted at specific market
segments: Embassy Suites, Hampton Inn and Homewood Suites, to a new publicly
traded entity, Promus Hotel Corporation (Promus or the Company). As approved by
Parent's Board of Directors and stockholders on May 26, 1995, this entity was
spun-off (the Spin-Off) from the Parent and its stock was distributed to
Parent's stockholders on a one-for-two basis effective June 30, 1995 (the
Distribution). Concurrent with the Distribution, Parent changed its name to
Harrah's Entertainment, Inc.
NOTE 2--ORGANIZATIONAL COSTS
Organizational costs are being amortized on a straight-line basis over a
five year period.
NOTE 3--LONG-TERM DEBT
Promus has no long-term debt obligations, but has guaranteed certain
long-term obligations of PHI.
NOTE 4--COMMITMENTS AND CONTINGENCIES
The Company is a party to various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the final outcome of these matters will
not have a materially adverse effect upon Promus' consolidated financial
position or its results of operations.
NOTE 5--STOCKHOLDERS' EQUITY
In addition to its common stock, the Company has the following classes of
stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock--Series A, $1.125 par value, 5,000,000 shares authorized
One special right is attached to each outstanding share of common stock.
These rights entitle the holders to purchase, under certain conditions, units
consisting of fractional shares of Special stock-Series A at a purchase price of
$120 per unit, subject to adjustment. The rights also, under certain conditions,
entitle certain holders to purchase $240 worth of common stock for $120. These
rights expire
S-4
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--STOCKHOLDERS' EQUITY--(CONTINUED)
on May 1, 2005, unless Promus decides to redeem them earlier at $0.01 per right
or upon the occurrence of certain other events.
NOTE 6--INCOME TAXES
Promus files a consolidated tax return with its subsidiaries.
NOTE 7--EXTRAORDINARY ITEMS
Promus' equity in PHI's net extraordinary items relates to the early payoff
and forgiveness of a portion of existing debt attributable to two of PHI's
equity investments.
NOTE 8--SUPPLEMENTAL CASH FLOW INFORMATION
Concurrent with the Spin-Off, the historical assets of the Hotel Business
were transferred to Promus by Parent, and the issuance of Promus common stock
was completed in connection with the Distribution. This noncash transaction has
been excluded from the statement of cash flows.
S-5
<PAGE>
<TABLE><CAPTION>
SCHEDULE II
PROMUS HOTEL CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- ---------- ----------------------- ---------- ---------
ADDITIONS
----------------------- BALANCE
BALANCE AT CHARGED TO CHARGED TO AT END
BEGINNING COSTS AND OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1995
Allowance for doubtful accounts
Current.............................. $ 855 $ - $ 349(b) $ 32(a) $1,172
====== ====== ====== ====== ======
Self-insurance reserves................ $ - $6,206 $8,674(b)(c) $5,946 $8,934
====== ====== ====== ====== ======
Fiscal Year Ended December 31, 1994
Allowance for doubtful accounts
Current.............................. $1,089 $ 28 $ - $ 262(a) $ 855
====== ====== ====== ====== ======
Long-term............................ $ 644 $ - $ - $ 644 $ -
====== ====== ====== ====== ======
Fiscal Year Ended December 31, 1993
Allowance for doubtful accounts
Current.............................. $1,362 $1,246 $ - $1,519(a) $1,089
====== ====== ====== ====== ======
Long-term............................ $ 644 $ - $ - $ - $ 644
====== ====== ====== ====== ======
Allowance for losses on property
dispositions......................... $2,681 $ - $ - $2,681(a) $ -
====== ====== ====== ====== ======
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Includes uncollectible accounts written off, net of amounts recovered, and balances
transferred to other accounts.
(b) Includes balances received from Parent in connection with the Spin-Off that had not
been previously allocated.
(c) Includes employee contributions to insurance programs.
</TABLE>
S-6
<PAGE>
<TABLE><CAPTION>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
3(1) Amended and Restated Certificate of Incorporation of Promus Hotel
Corporation dated June 30, 1995. (14)
*3(2) Bylaws of Promus Hotel Corporation, as amended and restated dated May 26,
1995. 26
4(1) Form of Rights Agreement, dated as of June 30, 1995, between Promus Hotel
Corporation and Continental Stock Transfer & Trust Company. (12)
*10(1) Form of Indemnification Agreement entered into by Promus Hotel Corporation
and each of its directors and executive officers. 35
+10(2) Promus Hotel Corporation 1995 Stock Option Plan. (5)
+10(3) Promus Hotel Corporation 1995 Restricted Stock Plan. (6)
+10(4) Promus Hotel Corporation Savings and Retirement Plan. (13)
*+10(5) Amendment to Promus Hotel Corporation Savings and Retirement Plan
effective as of June 30, 1995. 42
*+10(6) Amendment to the Promus Hotel Corporation Savings and Retirement Plan
dated November 15, 1995. 46
+10(7) Promus Hotel Corporation Non-Management Directors Stock Incentive Plan.
(8)
+10(8) Promus Hotel Corporation Key Executive Officer Annual Incentive Plan. (7)
+10(9) Promus Hotel Corporation Executive Deferred Compensation Plan. (9)
+10(10) Promus Hotel Corporation Deferred Compensation Plan. (9)
+10(11) Promus Hotel Corporation Savings and Retirement Plan Trust Agreement,
dated as of May 26, 1995, among Promus Hotel Corporation and Robert S.
Davis, Donald H. Dempsey, Patricia R. Ferguson, Jeffery M. Jarvis, Kelly
R. Jenkins, Frederick G. Schultz and Mark C. Wells, as trustees. (9)
+10(12) Form of Severance Agreement, dated as of June 30, 1995, entered into with
Donald H. Dempsey, Thomas L. Keltner, Ralph B. Lake, David C. Sullivan,
Mark C. Wells, Vincent C. Ciaramitaro, Patricia R. Ferguson and James T.
Harvey. (10)
+10(13) Form of Severance Agreement, dated June 30, 1995, entered into with
Michael D. Rose and Raymond E. Schultz. (10)
+10(14) Employment Agreement, dated as of June 30, 1995, between Michael D. Rose
and Promus Hotel Corporation. (10)
+10(15) Employment Agreement, dated as of July 1, 1995, between Raymond E. Schultz
and Promus Hotel Corporation. (11)
*+10(16) Form of Letter of Amendment, dated February 22, 1996, to the Employment
Agreement between Raymond E. Schultz and Promus Hotel Corporation. 47
+10(17) Financial Counseling Plan of The Promus Companies Incorporated, as amended
February 25, 1993, as adopted by Promus Hotel Corporation on April 5,
1995. (2)
+10(18) Summary Plan Description of Executive Term Life Insurance Plan adopted by
Promus Hotel Corporation on April 5, 1995. (4)
+10(19) Administrative Regulations, Long Term Compensation Plan (Restricted Stock
Plan and Stock Option Plan), dated as of January 1, 1992, adopted by
Promus Hotel Corporation on April 5, 1995. (3)
10(20) Plan of Reorganization and Distribution Agreement, dated as of June 30,
1995, between The Promus Companies Incorporated and Promus Hotel
Corporation. (10)
10(21) Tranche A Credit Agreement, dated as of June 7, 1995, among Embassy
Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the
Subsequent Borrower, certain subsidiaries and related parties from time
to time party thereto, as Guarantors, the several lenders from time to
time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9)
10(22) First Amendment to Tranche A Credit Agreement, dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A.
(Carolinas). (10)
10(23) Tranche A Assignment and Assumption Agreement, dated as of June 30, 1995,
among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies
Incorporated and NationsBank, N.A. (Carolinas). (10)
10(24) Tranche B Credit Agreement, dated as of June 7, 1995, among Embassy
Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the
Subsequent Borrower, certain subsidiaries and related parties from time
to time party thereto, as Guarantors, the several lenders from time to
time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9)
10(25) First Amendment to Tranche B Credit Agreement, dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A.
(Carolinas). (10)
10(26) Tranche B Assignment and Assumption Agreement, dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated and Nations Bank, N.A. (Carolinas). (10)
10(27) Pledge Agreement, dated as of June 30, 1995, by and among Promus Hotel
Corporation, Promus Hotels, Inc., certain subsidiaries which may now be
owners of Credit Parties and NationsBank, N.A. (Carolinas). (10)
10(28) Escrow Agreement, dated as of June 30, 1995, among Promus Hotel
Corporation, Promus Hotels, Inc. and NationsBank. (9)
10(29) Employee Benefits and Other Employment Matters Allocation Agreement, dated
as of June 30, 1995, between The Promus Companies Incorporated and
Promus Hotel Corporation. (10)
10(30) Risk Management Allocation Agreement, dated as of June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation. (10)
<PAGE>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10(31) Tax Sharing Agreement, dated as of June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (10)
10(32) International Swap Dealers Association, Inc. Master Agreement, dated as of
June 30, 1995, among Promus Hotels, Inc. and NationsBank, N.A.
(Carolinas). (10)
10(33) Transfer Agreement, dated as of June 30, 1995, among Embassy Suites, Inc.,
Promus Hotels, Inc., and NationsBank, N.A. (Carolinas). (10)
10(34) Subscription Agreement, dated as of October 17, 1995, by and among Promus
Hotels, Inc. and FelCor Suites Hotels, Inc. and FelCor Suites Limited
Partnership. (11)
10(35) Management Agreement, dated as of December 17, 1986, between Hampton Inns,
Inc. and Hampton/GHI Associates No. 1. (1)
10(36) Form of Management Agreement between Embassy Suites, Inc. and affiliates
of General Electric Pension Trust. (1)
*10(37) Form of Assignment and Assumption of Manager's Interest in Management
Agreement (General Electric Pension Trust), dated June 30, 1995, between
Embassy Suites, Inc. and Promus Hotels, Inc. 48
*10(38) Form of Aircraft Agreement, dated August 4, 1995, between Promus Hotels,
Inc., and Harrah's Operating Company, Inc. 53
*10(39) Form of Interest Swap Confirmations, between NationsBank, N.A. and Promus
Hotels, Inc., dated December 11, 1995. 58
*10(40) Form of Interest Swap Confirmation between NationsBank, N.A. and Promus
Hotels, Inc., dated January 24, 1995, as amended on December 6, 1995. 64
*11(1) Computation of per share earnings. 66
*12(1) Computations of ratios. 67
*13(1) Portions of Annual Report to Stockholders for the fiscal year ended
December 31, 1995. 69
*21(1) List of subsidiaries of Promus Hotel Corporation. 97
*23(1) Consent of Arthur Andersen LLP. 98
*27(1) Financial Data Schedule. 99
</TABLE>
------------
* Included herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K
Footnotes
(1) Incorporated by reference from Holiday Corporation's Annual Report on Form
10-K for the fiscal year ended January 2, 1987, filed March 27, 1987, File
No. 1-8900.
(2) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(3) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(4) Incorporated by reference from PCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, filed March 17, 1993, File No.
1-10410.
(5) Incorporated by reference from PCI's Proxy Statement, Annex III-A, dated
April 25, 1995, File No. 1-11463.
(6) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated
April 25, 1995, File No. 1-11463.
(7) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated
April 25, 1995, File No. 1-11463.
(8) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated
April 25, 1995, File No. 1-11463.
(9) Incorporated by reference from the Company's Current Report on Form 8-K,
filed June 14, 1995, File No. 1-11463.
(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 1995, filed August 11, 1995, File No.
1-11463.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended September 30, 1995, filed November 13, 1995, File No.
1-11463.
(12) Incorporated by reference from the Company's Form 8-A, filed June 6, 1995,
File No. 1-11463.
(13) Incorporated by reference from the Company's Registration Statement No.
33-59997 on Form S-8 for the Promus Hotel Corporation Savings & Retirement
Plan, filed June 6, 1995.
(14) Incorporated by reference from PCI's Proxy Statement, Annex II-A, dated
April 25, 1995, File No. 1-11463.
Exhibit 3(2)
AMENDED
RESTATED BYLAWS
OF
PROMUS HOTEL CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Promus
Hotel Corporation (the "Corporation") shall be at The Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New
Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors of the Corporation (the "Board of Directors") may from time to
time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. The annual meeting of stockholders shall
be held on the last Wednesday in April in each year or on such other date
and at such time as may be fixed by the Board of Directors and stated in
the notice of the meeting, for the purpose of electing directors and for
the transaction of only such other business as is properly brought before
the meeting in accordance with these Bylaws.
Written notice of an annual meeting stating the place, date and hour
of the meeting, shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
To be properly brought before the annual meeting, business must be
either (i) specified in the notice of annual meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors,
(ii) otherwise brought before the annual meeting by or at the direction of
the Board of Directors, or (iii) otherwise properly brought before the
annual meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal
executive offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy (70) days notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders, notice by
a stockholder, to be timely, must be received no later than the close of
business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure was
made,
<PAGE>
whichever first occurs. A stockholder's notice to the Secretary shall set
forth (a) as to each matter the stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, and (ii) any material interest of the
stockholder in such business, and (b) as to the stockholder giving the
notice (i) the name and record address of the stockholder and (ii) the
class, series and number of shares of capital stock of the Corporation
which are beneficially owned by the stockholder. Notwithstanding anything
in these Bylaws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures set forth in this
Article II, Section 2. The officer of the Corporation presiding at an
annual meeting shall, if the facts warrant,determine and declare to the
annual meeting that business was not properly brought before the annual
meeting in accordance with the provisions of this Article II, Section 2,
and if such officer should so determine, such officer shall so declare to
the annual meeting and any such business not properly brought before the
meeting shall not be transacted.
SECTION 3. Special Meetings. Unless otherwise prescribed by law or by
the Certificate of Incorporation, special meetings of stockholders, for
any purpose or purposes, may only be called by a majority of the entire
Board of Directors or by the Chairman or the President.
Written notice of a special meeting stating the place, date and hour
of the meeting, shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
SECTION 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital
stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings
of the stockholders for the transaction of business. If, however, such
quorum shall not be present or represented at any meeting of the
stockholders, the holders of a majority of the votes entitled to be cast by
the stockholders entitled to vote thereat, present in person or represented
by proxy may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented by proxy. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder entitled to vote at the meeting.
SECTION 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders shall be decided by the vote of the holders of
a majority of the stock represented and entitled to vote thereat. Each
stockholder represented at a meeting of stockholders shall be entitled to
cast one vote for each share of the capital stock entitled to vote thereat
held by such stockholder, unless otherwise provided by the Certificate of
Incorporation. Such votes may be cast in person or by proxy but no proxy
shall be voted after three years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the
officer of the Corporation presiding at a meeting of stockholders, in his
discretion, may require that any votes cast at such meeting shall be cast
by written ballot.
SECTION 6. List of Stockholders Entitled to Vote. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of
- 3 -
<PAGE>
shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder of
the Corporation who is present.
SECTION 7. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 6 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. Nomination of Directors. Nominations of persons for election
to the Board of Directors of the Corporation at the annual meeting may be made
at such meeting by or at the direction of the Board of Directors, by any
committee or persons appointed by the Board of Directors or by any
stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth
in this Article III, Section 1. Such nominations by any stockholder shall
be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
meeting; provided however, that in the event that less than seventy (70)
days notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder, to be timely, must be
received no later than that the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever first occurs. Such
stockholder's notice to the Secretary shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, (a) the name, age, business address and residence address of the
person, (b) the principal occupation or employment of the person, (c) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the person, and (d) any other information relating to
the person that is required to be disclosed in solicitations for proxies
for election of directors pursuant to the Rules and Regulations of the
Securities and Exchange Commission under Section 14 of the Securities
Exchange Act of 1934, as amended; and (ii) as to the stockholder giving the
notice (a) the name and record address of the stockholder and (b) the class
and number of shares of capital stock of the Corporation which are
beneficially owned by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. The officer of the
Corporation presiding at an annual meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded. The directors shall be elected at the annual meeting of the
stockholders, except as provided in the Certificate of Incorporation, and
each director elected shall hold office until his successor is elected and
qualified; provided, however, that unless otherwise restricted by the
Certificate of Incorporation or by law, any director or the entire Board of
Directors may be removed, either with or without cause, from the Board of
Directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote thereat.
- 4 -
<PAGE>
SECTION 2. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be
determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President or a
majority of the entire Board of Directors. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either
by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
SECTION 3. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors. If a quorum shall not
be present at any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present.
SECTION 4. Actions of Board of Directors. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if all the
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes
of proceedings of the Board of Directors or committee.
SECTION 5. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the
Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 5 of Article III shall constitute presence
in person at such meeting.
SECTION 6. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or
more committees, each committee to consist of one or more of the directors
of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of any such committee. In the absence
or disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. Any committee, to the extent allowed by law and provided in the
resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation. Each committee shall keep regular
minutes and report to the Board of Directors when required.
SECTION 7. Compensation. The directors may be paid their expenses,
if any, of attendance at each
- 5 -
<PAGE>
meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation
for attending committee meetings.
SECTION 8. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purpose if (i) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known
to the Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the shareholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the
shareholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of
the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assisant Treasurers and other officers.
Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these Bylaws. The
officers of the Corporation need not be stockholders of the Corporation
nor, except in the case of the Chairman of the Board of Directors, need
such officers be directors of the Corporation.
SECTION 2. Election. The Board of Directors at its first meeting
held after each annual meeting of stockholders shall elect the officers of
the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority
of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers who are directors of the Corporation shall be fixed by the Board
of Directors.
SECTION 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed
in the name of and on behalf of the Corporation by the President or any
Vice President and any such officer may, in the name and on behalf of the
Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting
- 6 -
<PAGE>
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and
which, as the owner thereof, the Corporation might have exercised and
possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
SECTION 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the
signature of the President is required, the Chairman of the Board of
Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may
be authorized by the Board of Directors. During the absence or disability
of the President, the Chairman of the Board of Directors shall exercise all
the powers and discharge all the duties of the President. The Chairman of
the Board of Directors shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by
these Bylaws or by the Board of Directors.
SECTION 5. President. The President shall, subject to the control
of the Board of Directors and, if there be one, the Chairman of the Board
of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and
other instruments of the Corporation requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be otherwise
signed and executed and except that the other officers of the Corporation
may sign and execute documents when so authorized by these Bylaws, the
Board of Directors or the President. In the absence or disability of the
Chairman of the Board of Directors, or if there be none, the President
shall preside at all meetings of the stockholders and the Board of
Directors. The President shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by
these Bylaws or by the Board of Directors.
SECTION 6. Vice Presidents. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if
there be no Chairman of the Board of Directors), the Vice President or the
Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. Each Vice President shall perform such other duties and
have such other powers as the Board of Directors from time to time may
prescribe. If there be no Chairman of the Board of Directors and no Vice
President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President.
SECTION 7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he shall be. If
the Secretary shall be unable or shall refuse to cause to be given notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board of
Directors or the President may choose another officer to cause such notice
to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same
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<PAGE>
to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or
filed are properly kept or filed, as the case may be.
SECTION 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money
and other property of whatever kind in his possession or under his control
belonging to the Corporation.
SECTION 9. Assistant Secretaries. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall
perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of his disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
SECTION 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
SECTION 11. Controller. The Controller shall establish and maintain
the accounting records of the Corporation in accordance with generally
accepted accounting principles applied on a consistent basis, maintain
proper internal control of the assets of the Corporation and shall perform
such other duties as the Board of Directors, the President or any Vice
President of the Corporation may prescribe.
SECTION 12. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board
of Directors may delegate to any other officer of the Corporation the power
to choose such other officers and to prescribe their respective duties and
powers.
- 8 -
<PAGE>
ARTICLE V
STOCK
SECTION 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or
a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by him in the Corporation.
SECTION 2. Signatures. Any or all of the signatures on the
certificate may be a facsimile, including, but not limited to, signatures
of officers of the Corporation and countersignatures of a transfer agent or
registrar. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued
by the Corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a
new certificate, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate, or his legal representative, to
advertise the same in such manner as the Board of Directors shall require
and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers
of stock shall be made on the books of the Corporation only by the person
named in the certificate or by his attorney lawfully constituted in writing
and upon the surrender of the certificate therefor, which shall be
cancelled before a new certificate shall be issued.
SECTION 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to express consent
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a record date, which shall not be more
than sixty days nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
- 9 -
<PAGE>
ARTICLE VI
NOTICES
SECTION 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time
when the same shall be deposited in the United States mail. Written notice
may also be given personally or by telegram, telex or cable.
SECTION 2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in
writing, signed, by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may
be declared by the Board of Directors at any regular or special meeting,
and may be paid in cash, in property, or in shares of the capital stock.
Before payment of any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any
proper purpose, and the Board of Directors may modify or abolish any such
reserve.
SECTION 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to
time designate.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall
end on December 31, unless the fiscal year is otherwise changed by
affirmative resolution of the entire Board of Directors.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
(As amended May 26, 1995 - Effective as of the Date of Distribution)
- 10 -
Exhibit 10(1)
PROMUS HOTEL CORPORATION
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of __________________, 19___, between Promus Hotel
Corporation, a Delaware corporation (the "Company"), and ____________________,
(the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors, officers and key employees the most capable persons available;
WHEREAS, Indemnitee is a director, officer, or key employee of the
Company or one of its subsidiaries;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors, officers and key
employees of public companies in today's environment;
WHEREAS, basic protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable costs, but as a result of
substantial changes in the marketplace for such insurance it has become
increasingly more difficult to obtain such insurance on terms providing
reasonable protection at reasonable cost;
WHEREAS, except in the case of litigation in which Indemnitee is
successful, Indemnification of Indemnitee is discretionary rather than mandatory
under the Company's Certificate of Incorporation;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, the inadequacy of the Company's directors
and officers liability insurance coverage and the uncertainty of indemnification
inherent in the indemnity provisions contained in the Company's Certificate of
Incorporation, the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the full
extent (whether partial or complete) permitted by law and as set forth in this
Agreement, and, if Indemnitee is a director or officer of the Company or any
subsidiary of the Company, and to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies;
NOW, THEREFORE, in consideration of the above premises and of Indemnitee
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Certain Definitions:
(a) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation
<PAGE>
owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the total voting power represented by
the Company's then outstanding Voting Securities, or (ii) during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
(b) Claim: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might
lead to the institution of any such action, suit or proceeding, whether
civil, criminal, administrative, investigative or other.
(c) Expenses: attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing
to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity.
(e) Potential Change in Control: shall be deemed to have occurred if
(i) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to
consider taking actions which if consummated would constitute a Change in
Control; (iii) any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then
2
<PAGE>
outstanding Voting Securities (before giving effect to the reduction in
votes prescribed in Section D of Article FOURTH of the Company's
Certificate of Incorporation) or (iv) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in Control
has occurred.
(f) Reviewing Party: any appropriate person or body consisting
of a member or members of the Company's Board of Directors or any other
person or body appointed by the Board (including the special,
independent counsel referred to in Section 3) who is not a party to the
particular Claim for which Indemnitee is seeking indemnification.
(g) Voting Securities: with respect to the Company or any other
corporation, any securities of the Company or such other corporation
which vote generally in the election of directors.
2. Basic Indemnification Arrangement.
(a) In the event Indemnitee was, is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness
or other participant in, a Claim by reason of (or arising in part out of)
an Indemnifiable Event, the Company shall indemnify Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than thirty days after written demand is presented to the Company by
Indemnitee, against any and all Expenses, judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties or amounts paid in settlement) of such Claim.
Notwithstanding anything in this Agreement to the contrary, prior to a
Change in Control, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by
Indemnitee against the Company or any director or officer of the Company
unless the Company has joined in or consented to the initiation of such
Claim. If so requested by Indemnitee, the Company shall advance (within
two business days of such request) any and all Expenses to Indemnitee (an
"Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the
Company under Section 2(a) shall be subject to the condition that the
Reviewing Party shall not have determined (in a written opinion, in any
case in which the special, independent counsel referred to in Section 3 is
involved) that indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance pursuant to Section 2(a) shall be subject to the condition that,
if, when and to the extent that the Reviewing Party determines that
Indemnitee would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Indemnitee (who
hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, that if Indemnitee has commenced legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee
should be indemnified under applicable law, any determination made by the
Reviewing Party that Indemnitee would not be permitted to be indemnified
under applicable law shall not be binding and Indemnitee shall not be
required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). If there has
not been a Change in Control, the Reviewing Party shall be selected by the
Board of Directors, and if there has been a Change in Control, the
3
<PAGE>
Reviewing Party shall be the special, independent counsel referred to in
Section 3. If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that Indemnitee would not be permitted to
be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the states of
Tennessee or Delaware having subject matter jurisdiction thereof and in
which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
3. Change in Control.
The Company agrees that if there is a Change in Control (other than
a Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control) then with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnity payments and Expense Advances under
this Agreement or any other agreement or Company Bylaw or the Company's
Certificate of Incorporation now or hereafter in effect relating to Claims
for Indemnifiable Events, the Company shall seek legal advice only from
special, independent counsel selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to
pay the reasonable fees of the special, independent counsel referred to
above and to fully indemnify such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out
of or relating to this Agreement or its engagement pursuant hereto.
4. Establishment of Trust.
In the event of a Potential Change in Control, the Company shall,
upon written request by Indemnitee, create a Trust for the benefit of the
Indemnitee and from time to time upon written request of Indemnitee shall
fund such Trust in an amount sufficient to satisfy any and all Expenses
reasonably anticipated at the time of each such request to be incurred in
connection with investigating, preparing for and defending any Claim
relating to an Indemnifiable Event, and any and all judgments, fines,
penalties and settlement amounts of any and all Claims relating to an
Indemnifiable Event from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited
in the Trust pursuant to the foregoing funding obligation shall be
determined by the Reviewing Party. The Trust shall provide that upon a
Change in Control (i) the Trust shall not be revoked or the principal
thereof invaded without the written consent of the Indemnitee, (ii) the
Trustee shall advance, within two business days of a request by the
Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee
hereby agrees to reimburse the Trust under the circumstances under which
the Indemnitee would be required to reimburse the Company under Section
2(b)), (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above, (iv) the Trustee
shall promptly pay to the Indemnitee all amounts for which the Indemnitee
4
<PAGE>
shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in such Trust shall revert to the
Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been
fully indemnified under the terms of this Agreement. The Trustee shall be
chosen by the Indemnitee. Nothing in this Section 4 shall relieve the
Company of any of its obligations under this Agreement.
5. Indemnification for Additional Expenses.
The Company shall indemnify Indemnitee against any and all expenses
(including attorneys' fees) and, if requested by Indemnitee, shall (within
two business days of such request) advance such expenses to Indemnitee,
which are incurred by Indemnitee in connection with any claim asserted
against or action brought by Indemnitee for (i) indemnification or advance
payment of Expenses by the Company under this Agreement or any other
agreement or Company Bylaw or the Company's Certificate of Incorporation
now or hereafter in effect relating to Claims for Indemnifiable Events, or
(ii) recovery under any directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advance
expense payment or insurance recovery, as the case may be.
6. Partial Indemnity, Etc.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses,
judgments, fines, penalties and amounts paid in settlement of a Claim but
not for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the
extent that Indemnitee has been successful on the merits or otherwise in
defense of any Claim relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter therein, including dismissal
without prejudice, Indemnitee shall be indemnified against all Expenses
incurred in connection therewith. In connection with any determination by
the Reviewing Party or otherwise as to whether Indemnitee is entitled to
be indemnified hereunder the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
7. No Presumption.
For purposes of this Agreement, the termination of any claim,
action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is
not permitted by applicable law.
5
<PAGE>
8. Non-exclusivity, Etc.
The rights of the Indemnitee hereunder shall be in addition to any
other rights Indemnitee may have under the Company's Certificate of
Incorporation and the Delaware General Corporation Law or otherwise. To
the extent that a change in the Delaware General Corporation Law (whether
by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Certificate
of Incorporation and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by virtue of this Agreement the greater
benefits so afforded by such change.
9. Liability Insurance.
If Indemnitee is a director or officer of the Company or any
subsidiary of the Company, then to the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any company director or officer.
10. Period of Limitations.
No legal action shall be brought and no cause of action shall be
asserted by or on behalf of the Company or any affiliates of the Company
against Indemnitee, Indemnitee's spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company or its affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year
period; provided that if any shorter period of limitations is otherwise
applicable to any such cause of action such shorter period shall govern.
11. Amendments, Etc.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
12. Subrogation.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery
of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the
execution of such documents as may be necessary to enable the Company
effectively to bring suit to enforce such rights.
13. No Duplication of Payments.
The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has
6
<PAGE>
otherwise actually received payment (under any insurance policy, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
14. Binding Effect, Etc.
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors,
assigns (including any direct or indirect successor or assign by purchase,
merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), spouses, heirs, and personal and
legal representatives. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as an officer, director or
employee of the Company or of any other enterprise at the Company's
request.
15. Severability.
The provisions of this Agreement shall be severable in the event
that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent
permitted by law.
16. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts
made and to be performed in such state without giving effect to Delaware
principles of conflicts of laws.
Executed as of this _________ day of ______________, 19____.
PROMUS HOTEL CORPORATION
By: ________________________________
Name: Ralph B. Lake
Title: Senior Vice President
____________________________________
7
Exhibit 10(5)
AMENDMENT TO
PROMUS HOTEL CORPORATION SAVINGS AND RETIREMENT PLAN
Whereas, Promus Hotel Corporation (the "Company"), a Delaware corporation, finds
it necessary to amend the Promus Hotel Corporation Savings and Retirement Plan
(the "Plan") in order to clarify the meaning intended to be ascribed to certain
provisions of the Plan by the Board of Directors, pursuant to Section 11.1 of
the Plan, the Plan is hereby amended, effective as of June 30, 1995 as follows.
1. Section 2.27(f) of the Plan is hereby amended to read in its
entirety as follows:
(F) SPECIAL RULE FOR FORMER EMPLOYEES OF THE PROMUS COMPANIES
-----------------------------------------------------------
INCORPORATED.
-------------
(1) Notwithstanding any other provision of this Section
2.27, for purposes of Sections 2.49 and 2.50, with respect
to an Employee who was an employee of The Promus Companies
Incorporated or one of its affiliates (as defined in the
Predecessor Plan), including for purposes of this Section
2.27(f) Harrah's Entertainment, Inc. or any of its
subsidiaries, at any time prior to the Spin-Off Date and who
became an Employee of the Company or an Affiliate under
either of the circumstances described below, "Hour of
Service" shall include each "Hour of Service" credited to
such Employee under the Predecessor Plan through the date
determined in accordance with the following:
(A) any such employee who was employed by The Promus
Companies Incorporated or one of its affiliates (as
defined in the Predecessor Plan) on the day immediately
preceding the Spin-Off Date and who becomes employed by
the Company or any Affiliate on or after the Spin-Off
Date but prior to January 1, 1996, or who becomes
concurrently employed by The Promus Companies
Incorporated or one of its affiliates (as defined in the
Predecessor Plan) and the Company or an Affiliate as of
the Spin-Off Date, shall be credited with such "Hours of
Service" through the date of commencement of such
Employee's employment or concurrent employment with the
Company or Affiliate; or
(B) any such employee who becomes employed by the
Company or any Affiliate after December 31, 1995 but
within five years after the Spin-Off Date shall be
credited with such "Hours of Service" through the
Spin-Off Date only.
<PAGE>
(2) Notwithstanding any other provision of this Section
2.27, for purposes of Section 2.49 and 2.50, with respect to
an Employee who (i) is a former employee of The Promus
Companies Incorporated or one of its affiliates (as defined
in the Predecessor Plan) participating in the Predecessor
Plan, (ii) was, on the Spin-Off Date, employed by The Promus
Companies Incorporated in a position in its Administrative
Systems Department or Computer Operations Department in a
capacity supporting the Human Resources and Financial
Computer Systems for the hotel business of The Promus
Companies Incorporated, (iii) terminates employment with The
Promus Companies Incorporated or one of its affiliates (as
defined in the Predecessor Plan) within thirty months
following the Spin-Off Date and (iv) within thirty days
following such termination is employed by the Company or one
of its Affiliates in a capacity substantially similar to the
capacity in which such employee was employed by The Promus
Companies Incorporated or one of its affiliates (as defined
in the Predecessor Plan), "Hour of Service" shall include,
in addition to each "Hour of Service" credited to such
employee during the period preceding and including the
Spin-Off Date, each "Hour of Service" credited to such
Employee under the Predecessor Plan during the period
following Spin-Off Date until the date of such termination
of employment, to the extent that such service is
determinable by the Company.
2. Section 4.9 of the Plan is hereby amended to read in its entirety
as follows:
4.9 ROLLOVER CONTRIBUTIONS.
(a) Any Eligible Employee, including an individual who has not
satisfied the service requirements of Article III, may, with
the approval of the Plan Administrator, contribute cash
amounts attributable to qualifying rollover distributions
within the meaning of Code Sections 402(a)(5), 403(a)(4), or
408(d)(3); provided, however, that if such amounts are not
contributed to the Plan in a direct transfer within the
meaning of Code Section 401(a)(31), such amounts shall be
contributed to the Plan within sixty days following the day
on which the Employee received the distribution from a
qualified trust, annuity plan, individual retirement account
or individual retirement annuity. Such amounts shall be
credited to the Employee Account 7 established for the
Employee. An Eligible Employee who has not yet satisfied the
service requirements of Article III shall be treated as a
Member solely with regard to his Employee Account 7.
<PAGE>
(b) In the sole discretion of the Plan Administrator (exercised
in a nondiscriminatory manner), the Plan will accept the
direct transfer from the Predecessor Plan of an amount which
if paid to the Participant instead of the Plan would have
constituted a lump sum distribution within the meaning of
Code Section 402(e). Such a plan-to-plan transfer must be
for a person who has been admitted or readmitted to the Plan
and be received by the Trustee within two months after the
participant's admission or re-admission to the Plan. To the
extent possible as determined in the sole discretion of the
Plan Administrator, such amounts shall be credited to the
accounts of this Plan which are analogous to the accounts of
the Predecessor Plan in which such amounts were held
immediately prior to such transfer; otherwise, the
transferred amount shall be credited to the Participant's
Rollover Account. To the extent permitted by applicable law,
the provisions of this Section 4.9(b) shall also be
applicable to former employees of The Promus Companies
Incorporated or its Affiliates (i) who were participants in
the Predecessor Plan and (ii) who terminated their
employment with The Promus Companies Incorporated or its
Affiliates on or prior to the Spin-Off Date and (iii) whose
unvested account balances under the Predecessor Plan were
retained by the Predecessor Plan after the Spin-Off Date and
(iv) who became Eligible Employees under the Plan before
incurring five consecutive break years as defined in the
Predecessor Plan since termination of their employment with
The Promus Companies Incorporated.
3. Section 9.10 of the Plan is hereby amended to read in its
entirety as follows:
9.10 PLAN TO PLAN TRANSFER. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election under this
Article IX, subject to the approval of the Plan Administrator in its sole
discretion (exercised in a nondiscriminatory manner) and at the time and in the
manner prescribed by the Plan Administrator, a Participant who is entitled to a
lump sum distribution within the meaning of Code Section 402(e) from the Plan
may elect instead to have the amount of such distribution transferred to the
Predecessor Plan if the Participant becomes employed by a participating employer
in the Predecessor Plan. If elected by the Participant and authorized by the
Plan Administrator, such a plan-to-plan transfer must be made to the recipient
plan by the Trustee within two months after the Participant's admission or
re-admission to the Predecessor Plan. To the extent permitted by applicable law,
the provisions of this Section 9.10 shall also be applicable to former employees
of The Promus Companies Incorporated (i) who were participants in the
Predecessor Plan and (ii) who terminated their employment with The Promus
Companies Incorporated or its affiliates prior to the Spin-Off Date and (iii)
whose unvested account balance under the Predecessor Plan were transferred to
the Plan on or after the Spin-Off Date
<PAGE>
and (iv) who are reemployed by Harrah's Entertainment, Inc. or any of its
subsidiaries after the Spin-Off Date and based upon such reemployment are
Eligible Employees under the Predecessor Plan before incurring five consecutive
Break Years (as defined in the Predecessor Plan) since termination of their
employment with The Promus Companies Incorporated.
Executed this ____ day of _______________, 1996.
--------------------------------
Raymond E. Schultz
Chief Executive Officer
Exhibit 10(6)
Amendment dated November 15, 1995 to the
Promus Hotel Corporation ("the Company")
Savings and Retirement Plan ("the Plan")
Pursuant to Section 11.1 of the Plan, this Amendment to the Plan, upon the
recommendation of the Human Resources Committee, has been adopted on November
15, 1995 by an action of the Board of Directors of the Company, effective as of
December 31, 1995 and after the spin-off of the Company's Employee Stock
Ownership Plan.
1. Section 3.3 of the Plan is hereby amended by adding the following
phrase to the end of such section:
; provided, however, that no Employee who is employed in the
capacity of an (1) Embassy Suitekeeper, (2) Hampton Room
Attendant or (3) Homewood Suitekeeper shall be an Eligible
Employee; and provided, further, that any Employee hired after
December 31, 1995 shall not be an Eligible Employee until such
Employee attains age 21.
.
* * * *
I certify that this amendment was adopted by the Promus Hotel Corporation
Board of Directors upon recommendation of the Human Resources Committee on
November 15, 1995.
___________________________________
Ralph B. Lake, Secretary
Exhibit 10(16)
February 22, 1996
Mr. Raymond E. Schultz, President
Promus Hotel Corporation
785 Crossover Lane, Suite 141
Memphis, Tennessee 38117
Dear Ray:
This will confirm that on November 15, 1995 the Human Resources Committee of the
Board of Directors of Promus Hotel Corporation approved amending your Employment
Agreement to provide that 14,325 stock options of The Promus Companies
Incorporated scheduled to vest in 1997 as part of a 1992 grant would (after
being converted into the appropriate number of Promus Hotel Corporation options)
vest and become exercisable on January 1, 1996. I understand you will be
provided a revised award certificate by the Employee Benefits and Compensation
Department reflecting the vesting of those options.
Sincerely,
Ralph B. Lake
RBL:cll
Exhibit 10(37)
ASSIGNMENT AND ASSUMPTION OF MANAGER'S INTEREST
IN MANAGEMENT AGREEMENT
(GENERAL ELECTRIC PENSION TRUST)
THIS ASSIGNMENT AND ASSUMPTION OF MANAGER'S INTEREST IN MANAGEMENT
AGREEMENT (GENERAL ELECTRIC PENSION TRUST) (this "Assignment") is made and
entered into this 30th day of June, 1995, by and between EMBASSY SUITES, INC., a
Delaware corporation ("Assignor"), and PROMUS HOTELS, INC., a Delaware
corporation ("Assignee"), with reference to the following facts and
circumstances:
RECITALS
--------
A. Assignor is the manager of the Embassy Suites hotels listed on
Schedule A, attached hereto and made part hereof by this reference,
(collectively, the "Hotels") pursuant to those certain Management Agreements
listed on Schedule A hereto (the "Management Agreements") by and between
Assignor and the Limited Partnerships which own the Hotels, as listed on
Schedule A hereto (collectively, the "Owners").
B. Assignor is currently a wholly owned subsidiary of The Promus
Companies Incorporated ("Promus"), a publicly-traded New York stock exchange
listed company, and is the owner of the Embassy Suites hotel business.
C. Assignee is a direct, wholly owned subsidiary of Promus Hotel
Corporation ("Promus Hotels"), which is a wholly owned subsidiary of Assignor.
D. As described in that certain Proxy Statement filed with the
Securities and Exchange Commission and dated April 25, 1995, and as approved by
Promus' stockholders at The Promus Companies Incorporated Annual Meeting of
Stockholders held in Memphis, Tennessee on May 26, 1995, the stock of Promus
Hotels is being dividended to Promus' stockholders (the "Spinoff").
E. Prior to the Spinoff, the Embassy Suites hotel business will be
transferred to Assignee. After the Spinoff, Assignee will be a direct, wholly
owned subsidiary of Promus Hotels, a publicly-traded New York stock exchange
listed company, and will be the owner of the Embassy Suites hotel business. The
hotel management team of the Embassy Suites hotel business will become the hotel
management team of Assignee.
F. Assignee's financial statements will reflect significant
financial substance and include, among other assets, the assets of the Embassy
Suites hotel business.
G. Pursuant to that certain letter dated April 11, 1995, from
Assignor to Owners, Owners have consented to Assignor's transfer to Assignee of
all of its interest in the Management Agreements. Pursuant to the certain
letter dated May 4, 1995, Aetna Life Insurance Company, as the lender to the
Owners, has consented to said transfer and assignment to Assignee.
<PAGE>
H. Assignor desires to assign all of its right, title and interest
in the Management Agreements to Assignee, and Assignee desires to accept such
assignment, all on the terms and conditions contained in this Assignment.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the parties hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Assignment, Acceptance and Consent. Assignor hereby assigns to
----------------------------------
Assignee all of its right, title and interest in the Management Agreements,
including, without limitation, Assignor's rights to any management fees,
reimbursements, or other amounts payable to Assignor under the Management
Agreements, and ceases to act as manager of Hotels. Assignee hereby accepts
such assignment, elects and agrees to become a substituted manager under the
Management Agreements, agrees to be bound by all the terms and provisions of the
Management Agreements, and assumes all of Assignor's obligations under the
Management Agreements required to be performed from and after the date first
above written. From and after the date first above written, Assignor shall have
no power or authority to take any action relating to the Hotels' management,
other than actions necessary or appropriate to effect the substitution of
Assignee as the manager and to carry out the provisions of this Assignment.
2. No Release of Assignor. Assignor hereby acknowledges and agrees
----------------------
that the transfer effected pursuant to this Assignment shall not release
Assignor from its obligations to Owners.
3. Notices. All notices or other communications provided for herein
-------
shall be in writing and may be personally served or sent by Federal Express or
other overnight courier, by telecopier or by postage prepaid Registered or
Certified Mail at the following addresses until such time as written notice, as
provided hereby, of a change of address with a new address to be used thereafter
is given the other party:
ASSIGNEE: Promus Hotels, Inc.
850 Ridge Lake Boulevard
Suite 400
Memphis, Tennessee 38120
Attention: Chief Financial Officer
Telecopier: (901) 680-7220
With a copy to the same address, Attention:
General Counsel
Telecopier: (901) 762-8695
2
<PAGE>
ASSIGNOR: Harrah's Operating Company, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attention: Chief Financial Officer
Telecopier: (901) 762-8695
With a copy to the same address, Attention:
General Counsel
Telecopier: (901) 537-3039
Notices shall be deemed given upon receipt.
4. Further Assurances. The parties each agree to execute such other
------------------
documents and to perform such other acts as may be reasonably necessary or
appropriate to carry out the provisions of this Assignment. Without limiting
the generality of the foregoing provision, Assignor shall execute all such
documents and take all such actions as may be reasonably necessary or
appropriate to cause Assignee to be substituted in place of Assignor as the
manager under the Management Agreements.
5. Successors and Assigns. This Assignment shall be binding upon,
----------------------
enforceable by, and shall inure to the benefit of successors and assigns of each
of the parties.
6. Delivery. Assignor and Assignee have delivered a copy of this
--------
Assignment to Owners and to Aetna Life Insurance Company, as the lender to the
Owners.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Assignment on the
date first above written.
Assignor: EMBASSY SUITES, INC., a Delaware corporation
By: __________________________________
Name: ____________________________
Title: _____________________________
Assignee: PROMUS HOTELS, INC., a Delaware corporation
By: __________________________________
Name: ____________________________
Title: _____________________________
4
<PAGE>
SCHEDULE A
----------
Management Agreements
by and between
Hotel Owner
and Embassy Suites, Inc.
Date of
Hotel Owner Location of Hotel Agreement
----------- ----------------- ---------
EPT San Antonio 7750 Briaridge December 12, 1986
Limited Partnership San Antonio, TX
EPT Kansas City 220 West 43rd Street December 10, 1986
Limited Partnership Kansas City, MO
EPT Bloomington 2800 West 80th Street December 12, 1986
Limited Partnership Bloomington, MN
EPT Austin 5901 North IH-35 December 12, 1986
Limited Partnership Austin, TX
EPT Covina 1211 East Garvey Street December 12, 1986
Limited Partnership Covina, CA
EPT Omaha 7270 Cedar Street December 12, 1986
Limited Partnership Omaha, NE
EPT Meadowlands 455 Plaza Drive December 15, 1988
Limited Partnership Secaucus, NJ
EPT Atlanta-Perimeter 1030 Crown Pointe Parkway December 15, 1987
Center Atlanta, GA
Limited Partnership
EPT Raleigh 4700 Creedmoor Road December 15, 1987
Limited Partnership Raleigh, NC
EPT Overland Park 10601 Metcalf Road December 15, 1987
Limited Partnership Overland Park, KS
5
Exhibit 10(38)
AIRCRAFT AGREEMENT
AGREEMENT dated as of August 4, 1995 between Harrah's Operating
Company, Inc. ("Harrah's") and Promus Hotels, Inc. ("Hotels").
WITNESSETH:
WHEREAS, the parties have jointly acquired a 1989 BAe 125-800 (Hawker 800)
Aircraft, serial number NA0426 (the "Aircraft"); and
WHEREAS, the parties wish to provide for the sharing of such Aircraft
and for certain other matters;
NOW THEREFORE, in consideration of the mutual promises contained in this
Agreement, and intending to be legally bound, the parties agree as follows:
Section 1. Ownership and Use of the Aircraft
(a) The Aircraft. Harrah's and Hotels each own an undivided one-half
interest in the Aircraft. The parties will share use of the Aircraft on an equal
priority basis. It is the intent of the parties to the extent possible each will
use 50% of the available flight hours of the Aircraft. In the case of Hotels,
the flight hours may be on Harrah's other aircraft by interchange as described
in Section 1(b).
(b) Other Aircraft. Harrah's will allow Hotels to use other Aircraft owned
by Harrah's (the "Harrah's Aircraft") in exchange for additional flight hours on
the Aircraft by Harrah's. Hotels' use of the Harrah's Aircraft will be at a
priority second to that of Harrah's. The variable cost of such use will be an
hourly fee which is equal to the actual variable hourly cost of operation of
such aircraft calculated as per Appendix 1 of this Agreement.
(c) Scheduling. The Harrah's Aviation Department (the "Aviation
Department") will schedule use of the Aircraft based on requests of the parties.
If a conflict should arise, the Aviation Department may recommend that one party
use a Harrah's Aircraft. The parties will cooperate to resolve scheduling
conflicts whenever possible. If a conflict cannot be resolved, use of the
Aircraft will go to the party who was first to request it.
Section 2. Services for the Aircraft
(a) Harrah's will provide or arrange for all of the services appurtenant
to the operation of the Aircraft including hangaring, maintaining the Aircraft,
1
<PAGE>
scheduling use of the Aircraft and maintenance and flight personnel. When
operating the Aircraft or the Harrah's Aircraft for Hotels, flight personnel
will be under Hotels' exclusive control, subject to their discretion regarding
safety issues.
(b) Hotels will pay 50% of the fixed costs of the services described in
this Section 2 and shall pay the actual variable costs and direct costs of the
operation of the Aircraft (including services rendered to Hotels by Harrah's
pursuant to this Section 2). The fixed costs (other than costs pertaining
specifically to the Aircraft, which will be split 50/50) shall generally be
equal to 1/6 of the total fixed cost for the operation of the Harrah's Aviation
Department in Memphis, Tennessee and are more specifically described on Appendix
1 to this Agreement. (Hotels' 1/6 share of the costs is based on three aircraft
currently operated by the Aviation Department and may be modified if the number
of Aircraft changes.) The variable costs shall be the actual variable cost of
the operation of the Aircraft (including services provided to Hotels by Harrah's
for the services described in this Section 2) for both the Aircraft and for the
Harrah's Aircraft that Hotels may from time to time utilize. The variable costs
and direct costs shall be paid by each party based on its use of the Aircraft
and are more specifically described in Appendix 1 to this Agreement.
(c) The services shall be performed at the times specified in this
Agreement or as shall be mutually convenient for Harrah's and Hotels, if not so
specified. The scope of the services provided with respect to the Aircraft shall
be comparable to the scope of the services heretofore provided by the Aviation
Department to The Promus Companies Incorporated.
(d) No capital expenditures relating to the Aircraft will be made without
the approval of both parties.
Section 3. Term
(a) This Agreement shall continue for so long as the parties jointly
own the Aircraft.
(b) Either Harrah's may, at any time during the term hereof, by written
notice to Hotels, or Hotels may, at any time, by written notice to Harrah's
(whichever party gives such notice, is referred to in this Section 3 as the
"Offeror Owner", and whichever party receives such notice is referred to as the
"Offeree Owner," and such notice is referred to as the "Offer Notice"),
designate an all cash purchase price (in excess of all liens thereon) for its
interest in the Aircraft which the Offeror Owner would accept as an offer to be
made by a bona fide third party purchaser. The Offeree Owner shall have the
right to elect to (i) purchase the entire interest of the Offeror Owner at such
price, or (ii) purchase the entire interest of the Offeror Owner at a price to
be determined pursuant to Section 3(c) hereof, or (iii) to sell the Aircraft to
the highest third party bidder.
2
<PAGE>
(c) The consideration payable by the party obligated to buy as a result of
the operation of Section 3 (b)(ii) hereof shall be the fair market value of the
Offeror Owner's interest in the Aircraft as determined by a third party valuer
to be selected by agreement of the parties. If the parties have not agreed to a
valuer within thirty (30) days of the Offeree's election pursuant to Section 3
(b), then at the Offeree Owner's option, (i) the Offeree Owner must proceed
pursuant to either 3 (b)(i) or 3 (b)(iii) of this Agreement, or (ii) the parties
shall each choose a valuer and the two valuers thus chosen shall select a third
valuer. The third valuer shall determine the amount to be paid by the Offeree
Owner pursuant to Section 3(b)(ii).
Section 4. Insurance
(a) Insurance Coverage. The Aircraft shall at all times be covered
by insurance in accordance with the following:
(i) Risk of Loss or Damage. The parties shall obtain aircraft
physical damage insurance coverage in the joint names of Harrah's
and Hotels which shall insure the Aircraft against all risk of loss
or damage for not less than the full market value thereof, and the
premium therefor shall be a fixed cost to be shared equally by the
parties pursuant to Section 2 of this Agreement. The amount of any
deductible under such policy will be agreeable to both parties, and
in the event of a claim, each party will be responsible for payment
of one-half of the deductible amount. The proceeds of any such
insurance shall be (A) applied toward the replacement, restoration,
or repair of the Aircraft including any airplane equipment, or (B)
if the parties so agree, distributed to each party in accordance
with its interest in the Aircraft.
(ii) Public Liability and Property Damage.
(A) The parties shall obtain aircraft liability insurance
coverage in the joint names of Harrah's and Hotels which shall
insure the parties against all risk of loss or damage for
bodily injury and property damage including bodily injury to
passengers in an amount not less than $100,000,000.00 per
occurrence, and the premium therefor shall be a fixed cost to
be shared equally by the parties pursuant to Section 2 of this
Agreement. The amount of any deductible under such policy will
be agreeable to both parties, and in the event of a claim, the
party who was using the Aircraft at the time the claim was
incurred will be responsible for payment of the deductible
amount.
3
<PAGE>
(B) Harrah's and Hotels will each carry public liability and
property damage insurance insuring against any and all damages
and liabilities arising out of, connected with, or resulting
from the possession, use and operation of the Aircraft by such
party which is not covered under the joint aircraft liability
policy. Harrah's insurance (including any self-insured
retention) will cover any claims incurred as a result of the
use of the Aircraft by Harrah's, and Hotels' insurance
(including any self-insured retention) will cover any and all
claims incurred as a result of the use of the Aircraft by
Hotels. Such insurance shall be in form and amount and with
companies acceptable to the other party to this Agreement, and
the premiums therefor shall be paid by the responsible party
unless otherwise provided herein.
With respect to all policies of insurance hereinabove required to be obtained
that are not issued in the joint names of Harrah's and Hotels, such policies
shall, at either party's election, effectively provide that the insurer in such
policies shall give the other party 30 days' written notice before the policy in
question shall be altered or canceled.
(b) Waiver of Subrogation Rights. Harrah's and Hotels agree that all
policies of insurance required herein shall contain a waiver of subrogation
clause (unless such would void applicable insurance coverage) as to insurable
claims or demands which either party may have or acquire arising out of damage
to or destruction of the Aircraft or any part thereof occasioned by fire or
other casualty, whether such claim or demand may arise because of the negligence
or fault of either party. Harrah's and Hotels agree to look to the insurance
coverage only in the event of such loss.
Section 6. Confidential Information. Each party to this Agreement shall
protect all confidential information relating to the other party furnished to or
obtained pursuant to this Agreement and shall not disclose to any person such
confidential information, except information which at the time is known
generally to the public.
Section 7. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party hereto, except that either
party may assign this Agreement to its parent corporation or a wholly-owned
subsidiary without such consent.
Section 8. Notices. All notices and other communications shall be in
writing and shall be deemed to have been duly given if delivered personally or
mailed, registered or certified mail, postage prepaid, return receipt requested,
as follows:
4
<PAGE>
To Harrah's:
Harrah's Operating Company, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Attention: Corporate Secretary
To Hotels:
Promus Hotels, Inc.
785 Crossover Lane
Suite 141
Memphis, Tennessee 38117
Attention: Corporate Secretary
or to any other address may be furnished to the other in writing as set forth
above.
Section 9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties relating to the Services and supersedes all
prior agreements or understandings between the parties on the subject hereof.
Section 10. Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of Tennessee, without
regard to its conflicts of law principles.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
as of the date first above written.
PROMUS HOTELS, INC.
By: ________________________________
Title: _____________________________
HARRAH'S OPERATING COMPANY, INC.
By: ________________________________
Title: _____________________________
5
Exhibit 10(39)
CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION
UNDER EXISTING 1992 MASTER AGREEMENT
TO: PROMUS HOTELS, INC.
ATTN: CAROL CHAMPION
TEL: 901-762-4052
FAX: 901-680-7220
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
JEFF MCNEIL / JIM O'DONNELL
Date: 06DEC95 ***REVISED 11DEC95***
Our Reference No. 434460
The purpose of this letter agreement is to confirm the terms and conditions
of the Swap Transaction entered into between us on the Trade Date specified
below (the "Swap Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.)
("Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the ISDA
Master Agreement dated as of 30JUN95, as amended and supplemented from time
to time (the "Agreement"), between you and us. All provisions contained in
the Agreement shall govern this Confirmation except as expressly modified
below.
2. The terms of the Swap Transaction to which this Confirmation
relates are as follows:
Notional Amount: USD 12,500,000.00
Trade Date: 05DEC95
Effective Date: 15DEC95
Termination Date: 15DEC99, subject to adjustment in
accordance with the Modified Following
Business Day Convention.
<PAGE>
FIXED AMOUNTS:
Fixed Rate Payer: PROMUS HOTELS, INC.
Fixed Rate Payer
Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15,
AND DECEMBER 15, COMMENCING MARCH 15, 1996
AND ENDING DECEMBER 15, 1999, SUBJECT TO
ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED
FOLLOWING BUSINESS DAY CONVENTION.
Fixed Rate Payer Business
Day Convention: MODIFIED FOLLOWING BUSINESS DAY
Fixed Rate Payer
Business Days: NEW YORK, LONDON
Fixed Rate: 6.68%
Fixed Rate Payer Day
Count Fraction: ACTUAL/360
FLOATING AMOUNTS:
Floating Rate Payer: NATIONSBANK, N.A.
Floating Rate Payer
Reset Dates: First Day of Each Calculation Period
Floating Rate Payer
Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15,
AND DECEMBER 15, COMMENCING MARCH 15, 1996
AND ENDING DECEMBER 15, 1999, SUBJECT TO
ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED
FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Payer
Business Days: NEW YORK, LONDON
Floating Rate Payer
Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 3 MONTH
Spread: NONE
Floating Rate for Initial
Calculation Period: TO BE SET
Floating Rate Payer
Day Count Fraction: ACTUAL/360
<PAGE>
Averaging: INAPPLICABLE
Rounding Factor: One-Hundred-Thousandth of One Percent
Calculation Agent: NationsBank, N.A.
Assignment: This Swap Transaction may be assigned
only with prior written consent.
Legal and Out-of-Pocket
Expenses: For each party's own account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
PAYMENT INSTRUCTIONS:
Payment to NationsBank: Payment to PROMUS HOTELS, INC.:
NATIONSBANK N.A.(CAROLINAS), PLEASE ADVISE
CHARLOTTE
ABA 053000196
ACCT: 10852016511
ATTN: DERIVATIVE OPERATIONS
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding with three (3) Business Days by
either (i) returning via telecopier an executed copy of this Confirmation to
the attention of Marge Szymczak, Fax No. (312) 234-3160; Telephone No. (312)
234-2934, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469,
answerback: CRT CGO) substantially to the following effect: "We acknowledge
receipt of your fax dated 06DEC95 with respect to a Swap Transaction between
PROMUS HOTELS, INC. and NationsBank, N.A. with an initial Notional Amount of
USD 12,500,000.00 and a Termination Date of 15DEC99 and confirm that such fax
correctly sets forth the terms of our agreement relating to the Swap
Transaction described therein. Very truly yours________________, by (specify
name and title of authorized officer)." Failure to respond within such period
shall not affect the validity or enforceability of this Swap Transaction, and
shall be deemed to be an affirmation of the terms and conditions contained
herein, absent manifest error.
Yours Sincerely,
NationsBank, N.A.
By:______________________
Nick Kolick, Vice President
Authorized Signatory
Confirmed as of the date first written above:
PROMUS HOTELS, INC.
By:______________________
Authorized Signatory
<PAGE>
CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION
UNDER EXISTING 1992 MASTER AGREEMENT
TO: PROMUS HOTELS, INC.
ATTN: CAROL CHAMPION
TEL: 901-762-4052
FAX: 901-680-7220
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
JEFF MCNEIL / JIM O'DONNELL
Date: 06DEC95 ***REVISED 11DEC95***
Our Reference No. 434450
The purpose of this letter agreement is to confirm the terms and conditions
of the Swap Transaction entered into between us on the Trade Date specified
below (the "Swap Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.)
("Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the ISDA
Master Agreement dated as of 30JUN95, as amended and supplemented from time
to time (the "Agreement"), between you and us. All provisions contained in
the Agreement shall govern this Confirmation except as expressly modified
below.
2. The terms of the Swap Transaction to which this Confirmation
relates are as follows:
Notional Amount: USD 12,500,000.00
Trade Date: 05DEC95
Effective Date: 15DEC95
Termination Date: 15DEC98, subject to adjustment in
accordance with the Modified Following
Business Day Convention.
<PAGE>
FIXED AMOUNTS:
Fixed Rate Payer: PROMUS HOTELS, INC.
Fixed Rate Payer
Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15, AND
DECEMBER 15, COMMENCING MARCH 15, 1996 AND
ENDING DECEMBER 15, 1998, SUBJECT TO
ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED
FOLLOWING BUSINESS DAY
CONVENTION.
Fixed Rate Payer Business
Day Convention: MODIFIED FOLLOWING BUSINESS DAY
Fixed Rate Payer
Business Days: NEW YORK, LONDON
Fixed Rate: 6.92%
Fixed Rate Payer Day
Count Fraction: ACTUAL/360
FLOATING AMOUNTS:
Floating Rate Payer: NATIONSBANK, N.A.
Floating Rate Payer
Reset Dates: First Day of Each Calculation Period
Floating Rate Payer
Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15,
AND DECEMBER 15, COMMENCING MARCH 15, 1996
AND ENDING DECEMBER 15, 1998, SUBJECT TO
ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED
FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Payer
Business Days: NEW YORK, LONDON
Floating Rate Payer
Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 3 MONTH
Spread: NONE
Floating Rate for Initial
Calculation Period: TO BE SET
Floating Rate Payer
Day Count Fraction: ACTUAL/360
<PAGE>
Averaging: INAPPLICABLE
Rounding Factor: One-Hundred-Thousandth of One Percent
Calculation Agent: NationsBank, N.A.
Assignment: This Swap Transaction may be assigned
only with prior written consent.
Legal and Out-of-Pocket
Expenses: For each party's own account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
PAYMENT INSTRUCTIONS:
Payment to NationsBank: Payment to PROMUS HOTELS, INC.:
NATIONSBANK N.A.(CAROLINAS), PLEASE ADVISE
CHARLOTTE
ABA 053000196
ACCT: 10852016511
ATTN: DERIVATIVE
OPERATIONS
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding with three (3) Business Days by
either (i) returning via telecopier an executed copy of this Confirmation to
the attention of Marge Szymczak, Fax No. (312) 234-3160; Telephone No. (312)
234-2934, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469,
answerback: CRT CGO) substantially to the following effect: "We acknowledge
receipt of your fax dated 06DEC95 with respect to a Swap Transaction between
PROMUS HOTELS, INC. and NationsBank, N.A. with an initial Notional Amount of
USD 12,500,000.00 and a Termination Date of 15DEC98 and confirm that such fax
correctly sets forth the terms of our agreement relating to the Swap
Transaction described therein. Very truly yours________________, by (specify
name and title of authorized officer)." Failure to respond within such period
shall not affect the validity or enforceability of this Swap Transaction, and
shall be deemed to be an affirmation of the terms and conditions contained
herein, absent manifest error.
Yours Sincerely,
NationsBank, N.A.
By:______________________
Nick Kolick, Vice President
Authorized Signatory
Confirmed as of the date first written above:
PROMUS HOTELS, INC.
By:______________________
Authorized Signatory
Exhibit 10(40)
CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION
UNDER EXISTING 1992 MASTER AGREEMENT
To: Promus Hotels, Inc.
Attn: Carol Champion
Fax: (901) 762-4060
From: NationsBank, N.A.
Jeff McNeill/Sean Doyle
Date: December 6, 1995
Our Reference # am291790
At your request we have amended the Transaction (reference number 291790) dated
January 24, 1995 with an original Notional Amount of USD 50,000,000 and a Fixed
Rate of 7.8625%. Pursuant to the terms hereof, we have reduced the Notional
Amount of the original transaction from USD 50,000,000 to USD 25,000,000 in
consideration of entering into the Swap Transaction (reference number 434460)
and the Swap Transaction (reference number 434450) dated December 5, 1995, as
such terms and provisions are defined therein. The parties agree hereto as
follows:
The purpose of this letter is to amend and restate the terms and conditions of
the Rate Swap Transaction entered into between Embassy Suites, Inc., (which was
transferred to Promus Hotels, Inc. on June 30, 1995) and NationsBank, N.A.
(formerly known as NationsBank, N.A. (Carolinas)) on the original trade date of
January 24, 1995 (See Attached Exhibit I). All previously stated terms will
remain the same except as expressly modified below.
This Confirmation supplements, forms part of, and is subject to, the ISDA Master
Agreement dated as of 30JUN95, as amended and supplemented from time to time
(the "Agreement"), between you and us. All provisions contained in the Agreement
shall govern this Confirmation except as expressly modified below.
The terms of this Swap Rate Transaction have been amended to reflect the
following:
The Currency/Notional Amount will be amended to USD 25,000,000, commencing
December 15, 1995 to and including the Termination Date.
<PAGE>
- 2 -
Please confirm that the foregoing correctly sets forth the terms and conditions
of our agreement by responding within three (3) Business Days by either (i)
returning via telecopier an executed copy of this Confirmation to the attention
of Marge Szymczak, (Fax No. (312) 234-3160 Telephone No. (312) 234-2934), or
(ii) sending a telex to Marge Szymczak (telex no. 4330469, answerback: CRT CGO)
substantially to the following effect: "We acknowledge receipt of your fax dated
December 6, 1995 with respect to an amended Swap Rate Transaction between
Embassy Suites Inc. and NationsBank, N.A. and confirm that such fax correctly
sets forth the terms of our agreement relating to the Amended Swap Transaction
described therein."
NATIONSBANK, N.A. PROMUS HOTELS, INC.
By:_________________________ By:_________________________
Nick Kolick, Vice President Authorized Signatory
Authorized Signatory
<TABLE><CAPTION>
EXHIBIT 11(1)
PROMUS HOTEL CORPORATION
COMPUTATION OF PER SHARE EARNINGS (1)
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income before extraordinary items................... $43,760,000 $36,319,000 $16,926,000
Extraordinary items, net of income tax.............. 2,819,000 - -
----------- ----------- -----------
Net income.......................................... $46,579,000 $36,319,000 $16,926,000
=========== =========== ===========
PRIMARY EARNINGS PER SHARE
Weighted average number of common shares
outstanding....................................... 51,365,016 51,360,013 51,360,013
Common stock equivalents
Additional shares based on average market price
for the period applicable to
Restricted stock.............................. (26,295) (39,090) (39,090)
Stock options................................. 229,839 252,002 252,002
----------- ----------- -----------
Average number of primary common and
common equivalent shares outstanding.............. 51,568,560 51,572,925 51,572,925
=========== =========== ===========
Primary earnings per common and common
equivalent share
Income before extraordinary items............... $ 0.85 $ 0.70 $ 0.33
Extraordinary items, net of income tax.......... 0.05 - -
----------- ----------- -----------
Net income...................................... $ 0.90 $ 0.70 $ 0.33
=========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE
Average number of primary common and
common equivalent shares outstanding.............. 51,568,560 51,572,925 51,572,925
Change in shares based on period-end price
applicable to
Restricted stock................................ (1,218) - -
Stock options................................... (3,473) - -
----------- ----------- -----------
Average number of fully diluted common
and common equivalent shares outstanding.......... 51,563,869 51,572,925 51,572,925
=========== =========== ===========
Fully diluted earnings per common and
common equivalent share
Income before extraordinary items............... $ 0.85 $ 0.70 $ 0.33
Extraordinary items, net of income tax.......... 0.05 - -
----------- ----------- -----------
Net income...................................... $ 0.90 $ 0.70 $ 0.33
=========== =========== ===========
</TABLE>
- ------------
(1) For purposes of computing earnings per share on a comparable basis, the
weighted average number of common shares outstanding and common stock
equivalents are assumed to be equal to those actually outstanding on June
30, 1995.
EXHIBIT 12(1)
PROMUS HOTEL CORPORATION
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
RETURN ON REVENUES
Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926
Revenues..................................................... 236,020 222,561 214,565
Return...................................................... 18.5% 16.3% 7.9%
RETURN ON AVERAGE INVESTED CAPITAL
Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926
Add interest expense after tax............................... 18,029 17,686 18,184
---------- -------- --------
$ 61,789 $ 54,005 $ 35,110
========== ======== ========
Average invested capital..................................... $ 424,861 $395,365 $441,401
========== ======== ========
Return...................................................... 14.5% 13.7% 8.0%
RETURN ON AVERAGE EQUITY
Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926
Average equity............................................... 155,188 161,765 196,376
Return...................................................... 28.2% 22.5% 8.6%
RATIO OF EARNINGS TO FIXED CHARGES
Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926
Add
Provisions for income taxes................................. 31,819 26,798 13,869
Interest expense............................................ 31,138 30,759 33,061
Interest included in rental expense......................... 1,848 1,310 1,284
Amortization of capitalized interest........................ 610 319 469
Dividends received from equity investments.................. 877 790 441
Income from equity investments.............................. (1,452) (1,675) (1,540)
---------- -------- --------
Earnings as defined....................................... $ 108,600 $ 94,620 $ 64,510
========== ======== ========
Fixed charges
Interest expense............................................ $ 31,138 $ 30,759 $ 33,061
Capitalized interest........................................ 1,428 4 -
Interest included in rental expense......................... 1,848 1,310 1,284
---------- -------- --------
Total fixed charges....................................... $ 34,414 $ 32,073 $ 34,345
========== ======== ========
Ratio of earnings to fixed charges...................... 3.2 3.0 1.9
CURRENT RATIO
Current assets............................................... $ 23,426 $ 18,772 $ 17,471
Current liabilities.......................................... 54,851 28,544 32,050
Ratio....................................................... 0.4 0.7 0.5
RATIO OF BOOK EQUITY TO DEBT
Book equity as of December 31................................ $ 167,367 $143,008 $180,522
Total debt................................................... 229,757 189,258 173,378
Ratio....................................................... 0.7 0.8 1.0
RATIO OF MARKET EQUITY TO DEBT
Market equity as of December 31.............................. $1,143,008 - -
Total debt................................................... 229,757 - -
Ratio....................................................... 5.0 - -
</TABLE>
<PAGE>
EXHIBIT 12(1) (CONTINUED)
PROMUS HOTEL CORPORATION
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
RATIO OF EBITDA TO INTEREST PAID
Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926
Add/(less)
Income tax provision........................................ 31,819 26,798 13,869
Interest expense............................................ 31,138 30,759 33,061
Interest expense of nonconsolidated affiliates.............. (12,899) (12,749) (12,707)
Depreciation and amortization............................... 25,263 21,326 25,028
Deferred finance charge amortization........................ (785) (733) (846)
Amortization of debt discounts and premiums................. (8) (45) (869)
Net earnings of and distributions from nonconsolidated
affiliates................................................ (61) 2,969 2,819
---------- -------- --------
Earnings before interest, taxes, depreciation and
amortization (EBITDA)................................... $ 118,227 $104,644 $ 77,281
========== ======== ========
Interest expense............................................. $ 31,138 $ 30,759 $ 33,061
Add/(less)
Interest expense of nonconsolidated affiliates.............. (12,899) (12,749) (12,707)
Capitalized interest........................................ 1,428 4 -
Net change in accruals...................................... (1,117) - 125
Deferred finance charge amortization........................ (785) (733) (846)
Amortization of debt discounts and premiums................. (8) (45) (869)
Other....................................................... (246) (143) (128)
---------- -------- --------
Interest paid............................................. $ 17,511 $ 17,093 $ 18,636
========== ======== ========
Ratio of EBITDA to interest paid........................ 6.8 6.1 4.1
RATIO OF DEBT TO EBITDA
Total debt................................................... $ 229,757 $189,258 $173,378
========== ======== ========
Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926
Add/(less)
Income tax provision........................................ 31,819 26,798 13,869
Interest expense............................................ 31,138 30,759 33,061
Interest expense of nonconsolidated affiliates.............. (12,899) (12,749) (12,707)
Depreciation and amortization............................... 25,263 21,326 25,028
Deferred finance charge amortization........................ (785) (733) (846)
Amortization of debt discounts and premiums................. (8) (45) (869)
Net earnings of and distributions from nonconsolidated
affiliates................................................ (61) 2,969 2,819
---------- -------- --------
Earnings before interest, taxes, depreciation and
amortization (EBITDA)................................... $ 118,227 $104,644 $ 77,281
========== ======== ========
Ratio of total debt to EBITDA........................... 1.9 1.8 2.2
</TABLE>
Exhibit 13(1)
<TABLE><CAPTION>
Compound
Annual
(In thousands, except percentages and ratios) 1995 1994 1993 Growth Rate
------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Revenues ...................................... $236,020 $222,561 $214,565 4.9%
Operating income before property transactions.. 101,648 91,762 64,758 25.3%
Operating income .............................. 103,590 92,388 66,103 25.2%
Income before income taxes and extraordinary
items ....................................... 75,579 63,117 30,795 56.7%
Net income .................................... 46,579 36,319 16,926 65.9%
EBITDA(a) ..................................... 118,227 104,644 77,281 23.7%
FINANCIAL POSITION
Total assets .................................. $519,809 $413,308 $438,016 8.9%
Current portion of long-term debt ............. 278 533 1,052 (48.6)%
Long-term debt(b) ............................. 229,479 188,725 172,326 15.4%
Total equity .................................. 167,367 143,008 180,522 (3.7)%
CASH FLOWS
Provided by (used in) .........................
Operating activities ....................... $ 79,035 $ 58,287 $ 54,168
Investing activities ....................... (104,037) 1,471 (720)
Financing activities
Advances from (to) Parent ............... 14,840 (60,975) (51,367)
Other ................................... 10,609 (219) (667)
Capital expenditures .......................... 115,714 18,379 20,885
FINANCIAL PERCENTAGES AND RATIOS
Operating margin before property transactions.. 43.1% 41.2% 30.2%
Operating margin .............................. 43.9% 41.5% 30.8%
Return on revenues ............................ 18.5% 16.3% 7.9%
Return on average invested capital ............ 14.5% 13.7% 8.0%
Return on average equity ...................... 28.2% 22.5% 8.6%
Ratio of earnings to fixed charges ............ 3.2 3.0 1.9
Current ratio ................................. 0.4 0.7 0.5
Ratio of book equity to total debt ............ 0.7 0.8 1.0
Ratio of market equity to total debt .......... 5.0 - -
Ratio of EBITDA to interest paid .............. 6.8 6.1 4.1
Ratio of debt to EBITDA ....................... 1.9 1.8 2.2
</TABLE>
(a) EBITDA, consisting of income before extraordinary items plus interest,
taxes, depreciation, amortization and net earnings of, or distributions
from, nonconsolidated affiliates, is a supplemental financial measurement
used by management, as well as by industry analysts, to evaluate Promus
Hotel Corporation's operations. However, EBITDA should not be construed as
an alternative to operating income (as an indicator of operating
performance) or to cash flows from operating activities (as a measure of
liquidity) as determined in accordance with generally accepted accounting
principles.
(b) Includes debt allocated to Promus Hotel Corporation by its Parent for
periods prior to the Spin-Off.
(Inside Front Cover)
<PAGE>
<TABLE><CAPTION>
PERFORMANCE STATISTICS
Compound Compound
Number of Hotels Annual Number of Rooms/Suites Annual
---------------- Growth ---------------------- Growth
1995 1994 1993 Rate 1995 1994 1993 Rate
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Embassy Suites
Company owned ........ 9 9 9 - 2,025 2,025 2,027 -
Joint venture ........ 23 23 23 - 5,901 5,912 5,913 (0.1)%
Management contract(a) 27 24 23 8.3% 6,280 6,022 5,835 3.7%
Franchised ........... 55 51 52 2.8% 12,529 11,756 12,354 0.7%
---------------- ------------------------
114 107 107 3.2% 26,735 25,715 26,129 1.2%
================ ========================
Hampton Inn
Company owned ........ 14 15 15 (3.4)% 1,916 2,047 2,048 (3.3)%
Joint venture ........ 19 19 19 - 2,376 2,376 2,376 -
Management contract .. 4 4 5 (10.6)% 464 464 585 (10.9)%
Franchised (b) ....... 488 399 333 21.1% 53,531 45,184 39,153 16.9%
---------------- ------------------------
525 437 372 18.8% 58,287 50,071 44,162 14.9%
================ ========================
Homewood Suites
Company owned ........ 9 8 8 6.1% 1,024 932 932 4.8%
Franchised ........... 21 18 16 14.6% 2,071 1,949 1,794 7.4%
---------------- -----------------------
30 26 24 11.8% 3,095 2,881 2,726 6.6%
================ =======================
Total System
Company owned ........ 32 32 32 - 4,965 5,004 5,007 (0.4)%
Joint venture ........ 42 42 42 - 8,277 8,288 8,289 (0.1)%
Management contract .. 31 28 28 5.2% 6,744 6,486 6,420 2.5%
Franchised ........... 564 468 401 18.6% 68,131 58,889 53,301 13.1%
---------------- ------------------------
669 570 503 15.3% 88,117 78,667 73,017 9.9%
================ ========================
<FN>
(a) Excludes four Crown Sterling Suites properties with 1,076 suites being managed by Promus,
but not yet converted to the Embassy Suites brand as of December 31, 1995.
(b) 1995 includes five Hampton Inn & Suites hotels with 573 rooms and suites.
</TABLE>
28
<PAGE>
PERFORMANCE STATISTICS (continued)
<TABLE><CAPTION>
Compound Compound
Comparable System Hotels(a) Annual Total System Hotels Annual
--------------------------- Growth --------------------------- Growth
1995 1994 1993 Rate 1995 1994 1993 Rate
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Embassy Suites
Occupancy ........ 74.6% 75.4% 73.8% 0.5% 74.2% 74.9% 73.0% 0.8%
ADR .............. $102.64 $96.96 $92.78 5.2% $101.90 $97.28 $93.91 4.2%
RevPAS ........... 76.60 73.10 68.48 5.8% 75.61 72.86 68.58 5.0%
Hampton Inn
Occupancy ........ 75.3% 75.5% 73.6% 1.1% 73.7% 74.3% 73.0% 0.5%
ADR .............. $ 56.95 $53.51 $50.92 5.8% $ 56.97 $53.46 $50.81 5.9%
RevPAR ........... 42.87 40.41 37.47 7.0% 42.01 39.74 37.10 6.4%
Homewood Suites
Occupancy ........ 78.2% 78.9% 76.6% 1.0% 76.9% 78.1% 75.8% 0.7%
ADR .............. $ 81.82 $75.92 $73.01 5.9% $ 82.42 $76.38 $72.47 6.6%
RevPAS ........... 64.01 59.89 55.91 7.0% 63.37 59.67 54.91 7.4%
Hampton Inn & Suites
Occupancy ........ - - - - 59.4% - - -
ADR .............. - - - - $ 70.13 - - -
RevPAS ........... - - - - 41.65 - - -
<FN>
(a) Includes results for only those hotels open for all three years.
</TABLE>
<TABLE>
Compound
Total System Room Revenues Annual
-------------------------------------- Growth
(In thousands) 1995 1994 1993 Rate
--------------------------------------------------
<S> <C> <C> <C> <C>
Hampton Inn ..................................... $ 823,247 $ 677,803 $ 565,842 20.6%
Embassy Suites .................................. 719,378 687,670 638,115 6.2%
Homewood Suites ................................. 68,353 62,080 54,646 11.8%
Hampton Inn & Suites ............................ 2,901 - - -
--------------------------------------
$1,613,879 $1,427,553 $1,258,603 13.2%
======================================
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On June 30, 1995, The Promus Companies Incorporated (Parent) completed the
transfer of the operations, assets and liabilities of its hotel business (the
Hotel Business), composed of three hotel brands targeted at specific market
segments: Embassy Suites, Hampton Inn and Homewood Suites, to a new publicly
traded entity, Promus Hotel Corporation (Promus or the Company). As approved by
Parent's Board of Directors and stockholders on May 26, 1995, this entity was
spun-off (the Spin-Off) from the Parent and its stock was distributed to
Parent's stockholders on a one-for-two basis effective June 30, 1995 (the
Distribution). Concurrent with the Distribution, Parent changed its name to
Harrah's Entertainment, Inc. The following is a discussion and analysis of the
financial condition and results of operations of Promus as a stand-alone
business.
RESULTS OF OPERATIONS
The principal factors affecting Promus' results are: continued growth in the
number of hotels; occupancies and room rates achieved by the hotel brands;
number and relative mix of owned, managed and franchised hotels; and Promus'
ability to manage costs. The number of rooms/suites at franchised and managed
properties and revenue per available room/suite (RevPAR/S) significantly affect
Promus' results because franchise royalty and management fees are based upon a
percentage of rooms/suites revenues. Increases in franchise and management fee
revenues have a disproportionate favorable impact on Promus' operating margin
due to lower incremental costs associated with these revenues.
As of December 31, 1995, Promus' combined hotel system had grown to 669
properties, resulting in a two-year compound annual growth rate of 15.3%. Total
system room revenues have grown to $1.6 billion, which is a two-year compound
annual rate of 13.2%. Although comparable system (which includes only those
hotels open for all three years) occupancy rates grew at a two-year compound
annual rate of approximately 1.0%, increases in the average daily rate (ADR),
which contributed to higher RevPAR/S, and the addition of new (primarily
franchised) hotels, resulted in significantly improved financial results over
the past three years. The continued unit growth of the franchise systems,
coupled with a continued focus on rate growth and cost management, were the
primary contributors to the Company's higher revenues, margins and operating
income.
Actual historical results of operations for all three years were as follows
(in millions, except percentages and per share data):
<TABLE>
Percentage
Increase/(Decrease)
---------------------------------------------------
1995 1994 1993 95 vs 94 94 vs 93
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $236.0 $222.6 $214.6 6.0% 3.7%
Operating income before property transactions 101.6 91.8 64.8 10.7 41.7
Operating income ............................ 103.6 92.4 66.1 12.1 39.8
Net income .................................. 46.6 36.3 16.9 28.4 114.8
Operating margin ............................ 43.9% 41.5% 30.8% 2.4pts 10.7pts
Earnings per share (a) ...................... $ 0.90 $ 0.70 $ 0.33 28.6% 112.1%
Weighted average shares outstanding (a) ..... 51.6 51.6 51.6 - -
<FN>
(a) For purposes of computing earnings per share on a comparable basis, the
weighted average shares outstanding for periods prior to the Spin-Off are
assumed to be equal to the actual common and common equivalent shares
outstanding on June 30, 1995.
</TABLE>
Since Promus began operations as a public company on July 1, 1995,
comparison of historical results is difficult. The most notable differences
between years relate to the incremental stand alone public company costs
incurred in the last six months of 1995, and that prior to the Spin-Off,
interest was allocated to Promus from Parent at Parent's higher overall
borrowing rate. In order to recompute the Company's results of operations on a
pro forma basis to achieve better comparability between years, the following
30
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS (continued)
adjustments were made (in millions):
1995 1994 1993
-------------------------
Incremental stand alone public company costs ..... $(3.2) $(8.1) $(8.1)
Net reduction in interest expense ................ 2.2 1.1 1.2
Net revenues and expenses related to the
purchase of the corporate office complex ....... - 0.1 0.1
Decrease in tax provision related to the
above adjustments .............................. 0.4 2.9 3.1
-------------------------
Total adjustments to net income .................. $(0.6) $(4.0) $(3.7)
=========================
Results of operations on a pro forma basis for all three years were as follows
(in millions, except percentages and per share data):
<TABLE><CAPTION>
Percentage
Increase/(Decrease)
----------------------------------------------------------
1995 1994 1993 95 vs 94 94 vs 93
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .............................. $236.1 $224.1 $216.1 5.4% 3.7%
Operating income before property
transactions ........................ 98.4 83.7 56.7 17.6 47.6
Operating income ...................... 100.4 84.4 58.1 19.0 45.3
Net income before property transactions
and extraordinary items, net of tax . 42.1 32.0 12.5 31.6 156.0
Net income ............................ 46.0 32.4 13.2 42.0 145.5
Operating margin ...................... 42.5% 37.7% 26.9% 4.8pts 10.8pts
Earnings per share .................... $ 0.89 $ 0.63 $ 0.26 41.3% 142.3%
Weighted average shares outstanding ... 51.6 51.6 51.6 - -
</TABLE>
The 1995 increases in operating income and margins are primarily a function
of the addition of new franchised hotels, system-wide increases in ADR and cost
containment. On a comparable basis, 1995 RevPAR/S increased 4.8%, 6.1% and 6.9%
over 1994 at Embassy Suites, Hampton Inn and Homewood Suites hotels,
respectively. Company owned hotel revenues for 1995 increased approximately 4.0%
or $5.0 million over 1994, while the related operating expenses actually
decreased. Excluding the impact of management and franchise terminations and
other one-time items, 1995 franchise and management fees increased nearly
$9.0 million over 1994, while adding only minimal incremental operating costs.
In 1993, several company owned hotels were sold to a franchisee,
contributing to the 1994 decrease in company owned hotel revenues of
approximately $11.3 million, and related expenses of approximately
$10.0 million. However, the sale of these hotels resulted in an increase
in franchise and management fee income, which, along with the addition of
other franchise properties, improved operating margins as the increase in
operating expenses was not proportionate to the increase in revenues.
The following comparison of expenses and other items is based on actual
historical results (in millions):
<TABLE><CAPTION>
Percentage
Increase/(Decrease)
----------------------------------------------------------
1995 1994 1993 95 vs 94 94 vs 93
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate expense .................... $ 16.7 $ 10.2 $ 13.1 63.7% (22.1)%
Property transactions ................ 1.9 0.6 1.3 N/M N/M
Interest expense ..................... (31.1) (30.8) (33.1) 1.0 (6.9)
Interest and other income
(expense), net ..................... 3.1 1.5 (2.2) N/M N/M
Extraordinary gains, net of
income tax ......................... 2.8 - - N/M N/M
Effective tax rate ................... 42.1% 42.5% 45.0% (0.4)pts (2.5)pts
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Corporate expense reflects the cost of specific Promus staff functions that
support all hotel brands, as well as stand alone public company costs of
approximately $5.0 million for the last six months of 1995. The decrease between
1993 and 1994 reflects the 1993 consolidation of all hotel brand
management into a single organizational structure.
During 1995, the Company sold a Hampton Inn hotel to a franchisee, which
resulted in a pretax property transaction gain of $2.3 million. The property
transaction gain recorded in 1994 was primarily the result of the expiration of
certain guarantees and contingencies that had caused a portion of prior year's
property transaction gains to be deferred, and the sale of a Hampton Inn hotel,
both of which were partially offset by the impact of miscellaneous asset
write-offs. Property transactions for 1993 included the gain on the sale of an
Embassy Suites property. The five other company owned Embassy Suites hotels sold
in 1993 referred to herein did not result in the recognition of a property
transaction gain or loss.
Interest expense through June 30, 1995 includes the pro rata allocation of
corporate interest by Parent related to the debt that was expected to be retired
in connection with the Spin-Off using funds drawn on the Company's new
$350 million bank credit facility (the Promus Facility), in addition to
Promus' share of interest expense attributable to its nonconsolidated
affiliates (including joint ventures) and other specific hotel-related debt.
1995 interest expense increased slightly over 1994 due primarily to higher
average debt balances and an increase in the interest expense related to
deferred compensation balances. This was offset by a decrease attributable to
lower actual interest rates obtained under the Promus Facility as compared to
Parent's overall borrowing rate used to allocate corporate interest expense
before the Spin-Off. The decrease in interest expense between 1994 and 1993
was due largely to the transfer of ownership in five Embassy Suites properties
to a third party, which included the assumption of mortgage debt on these
properties by the third party.
Interest and other income (expense), net for 1995 increased over 1994 due
primarily to interest charged on total net advances to the franchise system
funds, as well as increased interest income on mezzanine loans to franchisees
and dividend income associated with the Company's investments (see Development
and Capital Spending). 1993 included a $3.2 million payment related to the
settlement of an issue concerning the guarantee of a land lease associated with
an Embassy Suites franchised property.
During 1995, two Embassy Suites hotels in which the Company has a
50 percent interest realized extraordinary gains related to the early payoff
and forgiveness of a portion of their existing debt. The cash to fund the early
debt payoffs was made available through additional capital contributions to the
joint ventures of approximately $10 million from each of its partners. Promus'
share of these nonconsolidated affiliates' gains, net of applicable income tax
expense, was $2.8 million.
The effective tax rate for all periods is higher than the federal statutory
rate primarily due to state income taxes.
DEVELOPMENT AND CAPITAL SPENDING
Hotel Development
There were 99 net hotel additions in the Promus hotel system during 1995,
96 of which were franchised properties, compared to 67 in 1994. This development
growth is particularly impressive when one considers that, per Smith Travel
Research as of December 31, 1995, Promus hotel brands had a 2.6% share of the
entire United States room supply, but accounted for an industry leading 16.6%
share of new rooms added to the market from ground-up construction during 1995.
This growth occurred primarily in the Hampton Inn brand. As of December 31,
1995, 111 properties were under construction, 109 of which will operate under
franchise agreements as Promus brands: 70 Hampton Inn hotels; 23 Embassy Suites
hotels; 10 Hampton Inn & Suites hotels and six Homewood Suites hotels. These 111
properties will add 14,284 rooms or suites to the Promus hotel system. The
Company had 79 properties under construction at the same time last year. In
addition, Promus had 181 hotels in the design phase at December 31, 1995.
Promus opened five Hampton Inn & Suites hotels in 1995. Hampton Inn &
Suites is the newest Promus hotel brand and combines, in a single hotel,
Hampton-style rooms with two-room suites and a common lodge in the center. Of
the 181 hotels in the design phase at December 31, 1995, 25 were Hampton Inn &
Suites. To encourage system growth, Promus currently plans to spend
approximately $110 million to expand the Homewood Suites hotel brand by
developing as many as 14 additional company owned properties over the next
three to five years. The Company, however, plans to continue its general
strategy of growing its systems primarily through franchise and management
contracts. As in the past, company owned hotels and new development projects may
be sold to franchisees and the proceeds used to fuel additional system growth,
develop new concepts or for other corporate purposes.
FelCor Agreements
In May 1995, Promus entered into a Subscription Agreement with FelCor Suite
Hotels, Inc. and FelCor Suites Limited Partnership
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
(FelCor) whereby Promus agreed to purchase up to $25 million in FelCor limited
partnership interests to help fund the partnership's acquisition of all-suite
upscale hotels to be converted to the Embassy Suites brand. In September 1995,
Promus entered into a second agreement with FelCor in connection with FelCor's
agreement to acquire the Crown Sterling Suites hotel chain. FelCor plans to
convert up to 16 of the Crown Sterling Suites hotels (over 4,000 suites) to the
Embassy Suites brand. In consideration, Promus agreed to make up to $50 million
available to FelCor for the conversions through investments in FelCor common
stock. Hotels converted to the Embassy Suites brand under either of these
agreements will operate under 20-year license agreements, and 10-year management
contracts will be awarded to Promus.
Subject to some restrictions, the limited partnership interests may be
converted to shares of FelCor common stock on a one-for-one basis and the common
stock interests may be sold on the open market.
As of December 31, 1995, Promus had funded approximately $30 million of the
total $75 million commitment, and had loaned an additional $7.5 million to
FelCor, representing one-half of the deposit required for the Crown Sterling
Suites acquisition. The total commitment will be reduced by the amount of such
loans outstanding. An additional $30 million was funded in January 1996, and the
entire commitment is expected to be funded by the end of the first quarter 1996.
In connection with these agreements, Promus also guaranteed a third party
loan to FelCor, not to exceed $25 million. As of December 31, 1995, that
facility was not yet in place, and therefore no amounts had been drawn.
As of December 31, 1995, FelCor had acquired nine hotels pursuant to both
agreements, eight of which Promus managed, although five had not yet been
converted to the Embassy Suites brand. On January 3, 1996, an additional nine
Crown Sterling Suites properties were acquired, and are in the process of being
converted to Embassy Suites hotels. Effective with the January closing, Promus
managed all 18 properties and earned related management fees. However, franchise
fees will be earned on these properties only after the conversion to the Embassy
Suites brand is complete. Acquisition and conversion of all hotels subject to
these agreements is expected to be complete by mid-year 1996.
Mezzanine Financing Program
To encourage growth (primarily in the Hampton Inn & Suites and Homewood
Suites brands) in light of the lack of available financing for new hotel
construction, Promus developed a mezzanine financing program. Under the program
Promus provides conservatively underwritten secondary financing to franchisees.
A minimum of 20 percent equity is required by the borrower, and the investment
must meet certain defined underwriting criteria. The terms of the mezzanine
financing must be consistent with the terms of the first mortgage lender, with
whom Promus will enter into an inter-creditor agreement. Promus provided
$7.9 million in mezzanine loans during 1995, and anticipates providing an
additional $19.6 million during 1996. Outstanding loans bear interest at rates
ranging from 10.0% to 10.5%.
Other
Ongoing refurbishment of Promus' existing company owned hotel properties to
maintain the quality standards set for those properties will continue in 1996 at
an estimated annual cost of approximately $11 million. In early 1995, Promus
acquired for $21.7 million an office complex in Memphis, Tennessee, which will
serve as its future corporate headquarters.
Cash necessary to finance projects currently under development, as well as
additional projects to be developed by Promus, will be made available from
operating cash flows, the Promus Facility (see "Liquidity and Capital
Resources"), joint venture partners, specific project financing, sales of
existing hotel assets and, if necessary, Promus debt and equity offerings.
Promus' capital expenditures totaled $115.7 million during 1995. The Company
expects to spend between $140 million and $160 million during 1996 to fund
project development, including those projects discussed above, as well as to
refurbish existing facilities and for other corporate related projects.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements represent the portion of Parent's
historical revenues, expenses, assets, liabilities and cash flows associated
with the Hotel Business through June 30, 1995, and actual results as a
stand-alone company beginning July 1, 1995. The year to date results of
operations and cash flows are not necessarily indicative of Promus' future
results as a separate corporation. The most significant items that will affect
liquidity and capital resources as a result of the Spin-Off are incremental
costs associated with operating as a stand-alone company, a decrease in the
Company's average borrowing rate, and Promus' payment of state and federal
income taxes subsequent to the Distribution (Parent historically paid Promus'
taxes).
Cash flows from operating activities for the year ended December 31, 1995
were $79.0 million, compared with $58.3 million for
33
<PAGE>
MANAGMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
the same period last year, representing a 35.5% increase. EBITDA, consisting of
income before extraordinary items plus interest, taxes, depreciation,
amortization and net earnings of, or distributions from, nonconsolidated
affiliates, was $118.2 million for 1995, compared with $104.6 million for the
comparable period in 1994, representing a 13% increase. EBITDA is a supplemental
financial measurement used by management as well as by industry analysts to
evaluate operations, but should not be construed as an alternative to operating
income (as an indicator of operating performance) or to cash flows
from operating activities (as a measure of liquidity) as determined in
accordance with generally accepted accounting principles.
On December 31, 1995, the Company had a working capital deficit of
$31.4 million, which resulted primarily from Promus' cash management program
that calls for the Company to pay down amounts outstanding under the Promus
Facility with any excess cash. Therefore, the Company does not believe that
the current ratio is an appropriate measure of its short-term liquidity
without considering availability under the Promus Facility.
During 1995, Promus entered into the Promus Facility, which is secured by
the stock of certain of its material subsidiaries. The Promus Facility consists
of two agreements, the significant terms of which are as follows:
<TABLE><CAPTION>
Total Maturity Interest Facility
Facility Date Rate Fees
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Five-Year Revolver $300,000,000 June 30, 2000 Base Rate, as defined, or 0.20% of the total facility
LIBOR + 35 basis points
Extendible Revolver $ 50,000,000 June 6, 1996 Base Rate, as defined, or 0.15% of the total facility
LIBOR + 40 basis points
</TABLE>
The Extendible Revolver is a 364-day facility with annual renewals and may
be converted into a two-year term loan with equal amortizing payments over such
two-year period. Facility fees and interest on Base Rate loans are paid
quarterly. The agreements contain a tiered scale for facility fees and the
applicable LIBOR spread (current rates for both reflected above) that is based
on the more favorable of Promus' current credit rating (Investment Grade per
Standard & Poor's) or leverage ratio, as defined. They also contain provisions
that restrict certain investments, limit the Company's ability to incur
additional indebtedness and pay dividends, and require that certain performance
ratios be maintained. As of December 31, 1995, Promus was in compliance with all
such covenants.
The Five-Year Revolver includes a sublimit for letters of credit of
$20 million. At December 31, 1995, approximately $9.5 million in letters of
credit were outstanding under this agreement (related primarily to the Company's
self-insurance reserves). There was approximately $112 million of availability
under the Promus Facility as of December 31, 1995. The remaining borrowing
capacity available under the Promus Facility is available for working capital,
hotel development and other general corporate purposes.
As of December 31, 1995, Promus was a party to several interest rate swap
agreements that bear a total notional amount of $100 million. The effect of the
swap agreements was to convert a portion of the Company's variable rate debt
under the Promus Facility to a fixed rate. The weighted average effective fixed
rate pursuant to the agreements, which expire between July 1997 and March 2000,
was approximately 7.7% at the end of the year.
RELATIONSHIP WITH PARENT
For the purpose of governing certain of the ongoing relationships between
Promus and Parent after the Distribution and to provide mechanisms for an
orderly transition, Parent and Promus have entered into various agreements and
adopted policies governing their future relationship. Management believes the
agreements are fair to both parties and contain terms comparable to those which
would have been reached in arm's-length negotiations with unaffiliated parties
(although comparisons are difficult with respect to certain agreements that
relate to the specific circumstances of the Distribution).
TAX SHARING AGREEMENT
In connection with the Spin-Off, Promus and Parent entered into a tax
sharing agreement that defines each company's rights and obligations with
respect to deficiencies and refunds of federal, state and other income or
franchise taxes relating to Promus' business for tax years prior to the
Distribution and with respect to certain tax attributes of Promus after the
Distribution. In general,
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
with respect to periods ending on or before December 31, 1995, Parent is
responsible for (i) filing federal tax returns for Parent and Promus for the
periods such companies were members of the same consolidated group, and (ii)
paying the taxes relating to such returns (to include any subsequent adjustments
resulting from the redetermination of such tax liabilities by the applicable
taxing authorities; Promus will reimburse Parent for the portion of such
adjustments relating to the Hotel Business). Promus is responsible for filing
returns and paying taxes for periods beginning after the Spin-Off.
EFFECTS OF INFLATION AND CURRENT ECONOMIC CONDITION
Generally, Promus has not experienced any significant negative effect on
its hotels and food and beverage operations because of inflation. To date,
Promus has been able to increase rates and prices and thereby pass on the
effects of inflationary cost increases. Although competitive conditions may
limit the industry's future ability to raise room rates at the rate of
inflation, management believes that each of its hotel brands has rate growth
potential in excess of the inflation rate. Promus will continue to emphasize
cost containment and productivity improvement programs. Inflation tends to
increase the underlying value of Promus' real estate, and management and
franchise contracts.
Although significant growth in the general economy is not expected for
1996, moderate but stable growth is anticipated in the hotel industry, as demand
is increasing at a greater rate than supply. Promus hotel brands lead the
industry in the percentage of guests who intend to make return visits, and in
guest satisfaction, due largely to the 100% Satisfaction Guarantee offered
unconditionally throughout the entire Promus hotel system.
ADOPTION OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENT
Effective for fiscal year 1996, Promus will adopt Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Management intends to adopt the disclosure-only option provided for by this
pronouncement.
35
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of December 31
(In thousands, except share amounts)
1995 1994
----------------------
ASSETS
Current assets
Cash and cash equivalents .......................... $ 2,668 $ 2,221
Receivables, including notes receivable
of $497 and $53, less allowance for
doubtful accounts of $1,172 and $855 ............. 14,837 12,065
Deferred income taxes (Note 6) ..................... 3,492 2,844
Prepayments and other (Note 3) ..................... 2,429 1,642
----------------------
Total current assets ............................ 23,426 18,772
----------------------
Land, buildings, furniture and equipment
Land ............................................... 61,651 60,025
Buildings and improvements ......................... 264,961 237,044
Furniture, fixtures and equipment .................. 110,275 86,042
----------------------
436,887 383,111
Less: accumulated depreciation ....................... (104,993) (81,368)
----------------------
331,894 301,743
Investments in and advances to nonconsolidated
affiliates (Note 11) ............................... 90,506 35,731
Investment in franchise system (Note 2) .............. 31,652 28,718
Deferred costs and other ............................. 42,331 28,344
----------------------
$ 519,809 $413,308
======================
1995 1994
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................... $ 18,202 $ 11,124
Accrued expenses (Note 3) .......................... 36,371 16,887
Current portion of long-term debt (Note 4) ......... 278 533
----------------------
Total current liabilities ...................... 54,851 28,544
----------------------
Long-term debt (Note 4) .............................. 229,479 188,725
Deferred credits and other ........................... 36,282 28,527
Deferred income taxes (Note 6) ....................... 31,830 24,504
----------------------
352,442 270,300
----------------------
Commitments and contingencies (Notes 5 through 7)
Stockholders' equity (Note 9)
Common stock, $0.10 par value, 360,000,000
shares authorized, 51,371,152 shares
outstanding, net of 2,626 shares held in
treasury ......................................... 5,137 -
Capital surplus .................................... 136,057 -
Retained earnings .................................. 25,349 -
Unrealized gain on marketable equity securities,
net of related deferred tax liability of $1,165 .. 1,822 -
Deferred compensation related to restricted stock .. (998) -
Parent company investment .......................... - 143,008
----------------------
167,367 143,008
----------------------
$ 519,809 $413,308
======================
The accompanying notes are an integral part of these consolidated balance
sheets.
36
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31
<TABLE><CAPTION>
(In thousands) 1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Revenues
Company owned hotels
Rooms ...................................... $116,094 $110,205 $121,104
Food and beverage .......................... 7,180 8,001 8,094
Other ...................................... 6,805 6,879 7,207
Franchise and management fees ................ 79,935 76,874 60,359
Other ........................................ 26,006 20,602 17,801
----------------------------------
Total revenues 236,020 222,561 214,565
----------------------------------
Operating expenses
Company owned hotels
Rooms ...................................... 56,228 56,952 65,529
Food and beverage .......................... 6,832 7,760 8,235
Other ...................................... 12,946 12,547 13,488
Other operating expenses ..................... 20,110 24,434 29,419
Depreciation of buildings and equipment ...... 21,582 18,929 20,069
Corporate expense ............................ 16,674 10,177 13,067
----------------------------------
Total operating expenses ................. 134,372 130,799 149,807
----------------------------------
Operating income before property transactions .. 101,648 91,762 64,758
Property transactions .......................... 1,942 626 1,345
----------------------------------
Operating income ............................... 103,590 92,388 66,103
Interest expense, net of interest
capitalized (Note 4) ......................... (31,138) (30,759) (33,061)
Interest and other income (expense), net ....... 3,127 1,488 (2,247)
----------------------------------
Income before income taxes and extraordinary
items ........................................ 75,579 63,117 30,795
Provision for income taxes (Note 6) ............ (31,819) (26,798) (13,869)
----------------------------------
Income before extraordinary items .............. 43,760 36,319 16,926
Extraordinary items, net of income tax of $1,635
(Note 10) .................................... 2,819 - -
----------------------------------
Net income ..................................... $ 46,579 $ 36,319 $ 16,926
==================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
37
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31
(Notes 1 and 9)
<TABLE><CAPTION>
Deferred
Unrealized Compensation
Gain on Related to
Common Stock Marketable Restricted Parent
--------------- Capital Retained Equity Stock Company
(In thousands) Shares Amount Surplus Earnings Securities (Note 8) Investment Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1992 .............. - $ - $ - $ - $ - $ - $ 212,229 $212,229
Net income .............................. - - - - - - 16,926 16,926
Intercompany activity with Parent ....... - - - - - (48,633) (48,633)
--------------------------------------------------------------------------------------
Balance--December 31, 1993 .............. - - - - - - 180,522 180,522
Net income .............................. - - - - - - 36,319 36,319
Intercompany activity with Parent ....... - - - - - - (73,833) (73,833)
--------------------------------------------------------------------------------------
Balance--December 31, 1994 .............. - - - - - - 143,008 143,008
Net income--January 1, 1995 through
June 30, 1995 ......................... - - - - - - 21,230 21,230
Intercompany activity with Parent--
January 1, 1995 through June 30,
1995 .................................. - - - - - - (24,656) (24,656)
Spin-Off of the Company ................. 51,352 5,135 135,801 - - (1,354) (139,582) -
Shares issued under incentive
compensation plan ..................... 8 1 174 - - (175) - -
--------------------------------------------------------------------------------------
Balance--June 30, 1995 .................. 51,360 5,136 135,975 - - (1,529) - 139,582
Net income--July 1, 1995 through
December 31, 1995 ..................... - - - 25,349 - - - 25,349
Net shares issued under incentive
compensation plans, including
income tax benefit of $97 ............. 11 1 82 - - 531 - 614
Unrealized gain on marketable
equity securities, net of deferred
income tax liability of $1,165......... - - - - 1,822 - - 1,822
--------------------------------------------------------------------------------------
Balance--December 31, 1995 .............. 51,371 $5,137 $136,057 $25,349 $1,822 $ (998) $ - $167,367
======================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
38
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(Note 12)
<TABLE><CAPTION>
(In thousands) 1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ............................... $ 46,579 $ 36,319 $ 16,926
Adjustments to reconcile net income to
cash flows from operating activities
Extraordinary items .................. (4,454) - -
Depreciation and amortization ........ 25,263 21,326 25,028
Other noncash items .................. (2,217) (2,762) 3,382
Equity in earnings, net of
distributions from, nonconsolidated
affiliates ......................... (61) 2,969 2,819
Net gains from property transactions . (2,159) (280) (1,677)
Net change in long-term accounts ..... 2,089 5,637 2,868
Net change in working capital accounts 13,995 (4,922) 4,822
-----------------------------------
Cash flows provided by operating
activities ....................... 79,035 58,287 54,168
-----------------------------------
Cash flows from investing activities
Land, buildings, furniture and equipment
additions .............................. (55,872) (13,626) (12,801)
Investments in and advances to
nonconsolidated affiliates ............. (47,832) (1,657) 32
Advances under mezzanine loan agreements . (7,899) (1,000) (1,545)
Proceeds from property transactions ...... 7,843 19,164 16,921
Net investments in franchise system ...... (4,111) (2,096) (6,571)
Recovery of investment in franchise
system ................................. 3,049 3,407 2,892
Other .................................... 785 (2,721) 352
-----------------------------------
Cash flows (used in) provided by
investing activities ............. (104,037) 1,471 (720)
-----------------------------------
Cash flows from financing activities
Net borrowings under revolving credit
facility ............................... 10,600 - -
Debt retirements ......................... (284) (219) (667)
Advances from (to) Parent ................ 14,840 (60,975) (51,367)
Other .................................... 293 - -
-----------------------------------
Cash flows provided by (used in)
financing activities ............. 25,449 (61,194) (52,034)
-----------------------------------
Net increase (decrease) in cash and cash
equivalents .............................. 447 (1,436) 1,414
Cash and cash equivalents, beginning of
period ................................... 2,221 3,657 2,243
-----------------------------------
Cash and cash equivalents, end of period ... $ 2,668 $ 2,221 $ 3,657
===================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE 1--BASIS OF PRESENTATION AND ORGANIZATION
On June 30, 1995, The Promus Companies Incorporated (Parent) completed the
transfer of the operations, assets and liabilities of its hotel business (the
Hotel Business), composed of three hotel brands targeted at specific market
segments: Embassy Suites, Hampton Inn and Homewood Suites, to a new publicly
traded entity, Promus Hotel Corporation (Promus or the Company). As approved by
Parent's Board of Directors and stockholders on May 26, 1995, this entity was
spun-off (the Spin-Off) from the Parent and its stock was distributed to
Parent's stockholders on a one-for-two basis effective June 30, 1995 (the
Distribution). Concurrent with the Distribution, Parent changed its name to
Harrah's Entertainment, Inc.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Promus operates the Embassy Suites, Hampton Inn, Homewood Suites and
Hampton Inn & Suites hotel brands primarily through three lines of business:
franchise; hotel operations, including management contracts; and hotel real
estate and joint venture investments. Embassy Suites is a full-service hotel
brand that management believes comprises the largest all-suite upscale hotel
system in the United States by number of suites and system revenue. Hampton Inn
is a limited-facility hotel and Homewood Suites offers residential-style
accommodations designed for the extended stay traveler. Hampton Inn & Suites is
the newest Promus hotel brand and combines, in a single hotel, Hampton-style
rooms with two-room suites and a common lodge in the center.
Promus' primary focus is to develop, grow and support its franchise
business for all brands. Promus hotel brands are located in virtually every
state, the District of Columbia and four foreign countries. Promus charges each
franchisee royalty fees of generally four percent of suite or room rentals.
Royalty fees for 1995, 1994 and 1993 were based on system-wide reported room
revenues of $1.6 billion, $1.4 billion and $1.3 billion, respectively. In
addition, Promus earns a licensing fee for new licenses granted to franchisees
when the franchise is approved.
Promus operates more than 100 Promus-brand hotels. Company operated
properties include wholly-owned, partially owned through joint ventures and
hotels managed for third parties. Promus has followed an asset strategy to own
and manage a mix of Promus hotel brands that can impact profits and enhance its
role as franchisor for the respective brands. Management fee income is based on
a percentage of gross revenues, profits, or both at the related managed
property.
Principles of Consolidation
The accompanying consolidated financial statements include the assets,
liabilities, revenues, expenses and cash flows of Parent's Hotel Business on a
stand-alone basis for 1993 and 1994, and through the six months ended June 30,
1995, as well as actual results of the Company for the six months ended
December 31, 1995. The preparation of these financial statements required the
use of certain estimates by management in determining the Company's assets,
liabilities, revenues and expenses.
All significant intercompany accounts and transactions have been
eliminated. Investments in 50% or less owned companies and joint ventures over
which Promus has the ability to exercise significant influence are accounted for
using the equity method. Promus reflects its share of income before interest
expense and extraordinary gain of these nonconsolidated affiliates in revenues-
other. Promus' proportionate share of interest expense and extraordinary gain on
forgiveness of debt of such nonconsolidated affiliates is included in interest
expense and extraordinary items, respectively, in the consolidated statements of
income (see Note 11 for combined summarized financial information regarding
these nonconsolidated affiliates). Management believes Promus' inclusion of its
proportionate share of the interest expense of its equity investees in interest
expense is the preferable presentation due to the nature of its equity
investments.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of less than
three months and are stated at the lesser of cost or market.
Land, Buildings, Furniture and Equipment
Land, buildings, furniture and equipment are stated at cost. Land includes
land held for future development or disposition, which totaled $9.6 million at
December 31, 1995 and 1994. Improvements and extraordinary repairs that extend
the life of the asset are capitalized. Maintenance and repairs are expensed as
incurred. Construction in progress, which is reflected in buildings and
improvements in the consolidated balance sheets, was $20.2 million and
$3.1 million at December 31, 1995 and 1994, respectively.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)
Interest expense is capitalized on constructed assets at Promus' overall
weighted average borrowing rate. The Company capitalized interest of
$1.4 million in 1995, due largely to the acquisition of the corporate office
complex that is still under construction. No material amounts of capitalized
interest were recorded during 1994 or 1993.
Depreciation of buildings, furniture and equipment are calculated
using the straight-line method over the estimated useful life of the assets or
over the related lease term, as follows:
Buildings and improvements ................................... 10 to 40 years
Furniture, fixtures and equipment ............................ 2 to 15 years
Investment in Franchise System
Promus' investment in franchise system includes the necessary computer
systems to operate the centralized marketing and reservation center, and a
property management system that interacts with several operational software
packages which are available to each franchised hotel. These costs are
reimbursed from the respective brand system fund over their estimated useful
lives. Generally, the owner of each hotel, including Promus' company owned
hotels, contributes 3.5 to 4.0 percent of suite or room revenues to its brand's
fund.
Revenue Recognition
Room revenue represents revenue derived from the rental of rooms and suites
for hotels majority owned by Promus. Food and beverage revenues represent
revenues from company owned restaurants and lounges.
Amortization
Deferred management and franchise contract costs are amortized on a
straight-line basis over the term of the related contract, generally 10 to 20
years. Deferred finance charges are amortized over the term of the related debt
(see Note 4).
Property Transactions
Property transactions include gains and losses from asset sales, including
sales of joint venture equity interests, write-downs of assets to net realizable
value and the ongoing costs of Promus' asset management staff. The operations of
properties sold are included in the financial statements through the date of
sale.
Reclassifications
Certain amounts for prior years have been reclassified to conform with the
presentation for 1995.
NOTE 3--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepayments and other consisted of the following (in thousands):
1995 1994
----------------------
Prepayments .................................... $1,557 $ 425
Supplies ....................................... 206 237
Other current assets ........................... 666 980
----------------------
$2,429 $1,642
======================
Accrued expenses consisted of the following (in thousands):
1995 1994
-----------------------
Self-insurance reserves ........................ $ 8,934 $ -
Payroll and other compensation ................. 7,424 5,985
Deposits and customer funds .................... 4,794 2,461
Income taxes ................................... 4,290 106
Taxes, other than income taxes ................. 3,658 3,690
Other .......................................... 7,271 4,645
-----------------------
$36,371 $16,887
=======================
NOTE 4--LONG-TERM DEBT
Parent Debt Allocation
The Company's financial position at December 31, 1994, and its results of
operations through June 30, 1995, reflect all indebtedness, together with
related interest expense, specifically identified with Promus entities, as well
as a pro rata portion of Parent's historical corporate debt balance, unamortized
deferred finance charges and interest expense. Allocations of those amounts to
Promus from Parent were based on the percentage of Parent's historical corporate
debt that was expected to be retired using proceeds from Promus' new
$350 million bank credit facility (the Promus Facility). The accompanying
consolidated balance sheet as of December 31, 1994 reflects corporate debt
allocated to Promus from Parent of $187.9 million, together with debt
specifically associated with Promus entities of $1.4 million, as well as the
unamortized deferred finance charges allocated to Promus of $3.2 million.
Parent's corporate interest expense, including amortization of deferred finance
costs, allocated to Promus was $17.2 million and $17.0 million, for 1994 and
1993, respectively, and $10.5 million for 1995 (which represents interest
allocated from Parent before the Spin-Off).
New Bank Facility
The Promus Facility consists of a $300 million revolving credit arrangement
with a maturity of five years (the Five-Year Revolver) and a $50 million
annually extendible revolving credit facility with an initial maturity of 364
days (the Extendible Revolver). The Extendible Revolver is convertible into a
two-year term loan with
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equal amortizing payments over such two-year period. Interest on the drawn
portion of the Promus Facility is, at the option of the Company, equal to
either (i) the Base Rate, as defined, or (ii) LIBOR plus the applicable spread,
which was approximately 7.7% (including the LIBOR spread, facility fees and the
impact of interest rate swaps) on a weighted average basis for the last six
months of 1995. Both agreements incorporate a tiered scale that defines the
applicable LIBOR spread and a facility fee based upon the more favorable of the
Company's current debt rating or leverage ratio, as defined. Currently, the
LIBOR spread on the Five-Year Revolver and the Extendible Revolver is 0.35%
and 0.40%, respectively, and the facility fee required on the total amount of
the Five-Year Revolver and the Extendible Revolver is 0.20% and 0.15%,
respectively. The Promus Facility is secured by the stock of Promus'
material subsidiaries and contains provisions that restrict certain investments,
limit the Company's ability to incur additional indebtedness and pay dividends,
and require that certain performance ratios be maintained. As of December 31,
1995, Promus was in compliance with all such covenants.
The Five-Year Revolver also provides a sublimit for letters of credit of
$20 million. At December 31, 1995, approximately $9.5 million in letters of
credit were outstanding under this agreement. As of December 31, Promus'
indebtedness consisted of the following (in thousands):
1995 1994
-----------------------
Amounts outstanding under the Promus Facility .... $228,600 $ -
Notes payable and other-unsecured,
13%, maturities to 1999 ........................ 776 976
Mortgages, 8.0%-8.75%, maturities to 2005 ........ 271 297
Capital lease obligations, 8.2%-13.4%,
maturities to 1999 ............................. 110 125
Corporate debt allocated by Parent ............... - 187,860
-----------------------
229,757 189,258
Current portion of long-term debt ................ (278) (533)
-----------------------
$229,479 $188,725
=======================
Aggregate annual maturities of long-term debt subsequent to December 31,
1995 were: 1996, $278,000; 1997, $306,000; 1998, $330,000; 1999, $94,000; 2000,
$228,636,000, and $113,000 thereafter.
Interest Rate Agreements
As of December 31, 1995, Promus was a party to several interest rate swap
agreements that help the Company manage the relative mix of its debt between
fixed and variable rate instruments. These agreements effectively modify the
interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. Pursuant to the agreements, Promus receives a
variable interest rate tied to LIBOR in exchange for its payments at a fixed
interest rate. The fixed rates to be paid by Promus are summarized in the
following table.
<TABLE><CAPTION>
Next
Quarterly
Notional Amount Variable
(All Associated Effective Rate
with The Promus Swap Rate Rate at Adjustment Swap
Facility) Paid (Fixed) December 31 Date Maturity
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$50.0 million 6.99% 7.54% 3/20/1996 03/20/2000
$25.0 million 7.86% 8.41% 3/15/1996 07/28/1997
$12.5 million 6.92% 7.47% 3/15/1996 12/15/1998
$12.5 million 6.68% 7.23% 3/15/1996 12/15/1999
</TABLE>
The differences to be paid or received under the terms of the interest rate
swap agreements described above are accrued as an adjustment to interest expense
for the related debt. Changes in the effective interest rates to be paid by
Promus pursuant to the terms of its interest rate agreements will have a
corresponding effect on its future cash flows. On January 22, 1996, the
above-mentioned $25 million swap was amended and effectively split into two
separate agreements, each with a notional amount of $12.5 million. The amended
swaps have effective rates of 7.29% and 7.07% maturing in January 1999 and 2000,
respectively. These agreements contain a credit risk that the counterparties may
be unable to meet the terms of the agreements. Promus minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
Fair Market Value
Because the terms of the Promus Facility provide that borrowings
outstanding under those agreements bear interest at current market rates,
management believes that the related liabilities reflected in the
consolidated balance sheet as of December 31, 1995 approximate fair market
value. The fair market value of the Company's other material financial
instruments as of December 31, 1995 were as follows (in thousands):
Carrying Market
Value Value
- --------------------------------------------------------------------------------
Interest rate swaps (used for hedging purposes) ....... $55 $(5,056)
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amount reflected as the "carrying value" of the interest rate
agreements represents the accrual balance as of the date reported. The "market
value" represents the estimated amount, considering the prevailing interest
rates, that Promus would pay to terminate the agreement as of the date reported.
NOTE 5--COMMITMENTS AND CONTINGENCIES
Contractual Commitments
Promus is liable under certain lease agreements pursuant to which it has
assigned the direct obligation to third party interests. Additionally, Promus
manages certain hotels for others under agreements that provide for payments or
loans to the hotel owners if stipulated levels of financial performance are not
maintained. The Company has also provided guarantees for certain loans related
to joint venture investments. Promus believes the likelihood is remote that
material payments will be required under these agreements. Promus' estimated
maximum exposure under such agreements is approximately $39 million over the
next 30 years.
FelCor Agreements
In May 1995, Promus entered into a Subscription Agreement with FelCor Suite
Hotels, Inc. and FelCor Suites Limited Partnership (FelCor) whereby Promus
agreed to purchase up to $25 million in FelCor limited partnership interests to
help fund the partnership's acquisition of all-suite upscale hotels to be
converted to the Embassy Suites brand. In September 1995, Promus entered into a
second agreement with FelCor in connection with FelCor's agreement to acquire
the Crown Sterling Suites hotel chain. FelCor plans to convert up to 16 of the
Crown Sterling Suites hotels to the Embassy Suites brand. In consideration,
Promus agreed to make up to $50 million available to FelCor for the conversions
through investments in FelCor common stock. Hotels converted to the Embassy
Suites brand under either of these agreements will operate under 20-year license
agreements, and 10-year management contracts will be awarded to Promus.
Subject to some restrictions, the limited partnership interests may be
converted to shares of FelCor common stock on a one-for-one basis and the common
stock interests may be sold on the open market.
As of December 31, 1995, Promus had funded approximately $30 million of the
total $75 million commitment, and had loaned an additional $7.5 million to
FelCor, representing one-half of the deposit required for the Crown Sterling
Suites acquisition. The total commitment will be reduced by the amount of such
loans outstanding. An additional $30 million was funded in January 1996, and the
entire commitment is expected to be funded by the end of the first quarter 1996.
In connection with these agreements, Promus will guarantee a third party
loan to FelCor, not to exceed $25 million. As of December 31, 1995, that
facility was not yet in place, and therefore no amounts had been drawn.
Litigation
The Company is a party to various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the final outcome of these matters will
not have a materially adverse effect upon Promus' consolidated financial
position or its results of operations.
Employment and Severance Agreements
Promus has severance agreements with 13 senior officers of the Company that
provide for a payment of 2.99 times the average annual cash compensation (salary
and bonus) paid to each such executive for the five preceding calendar years,
including such compensation paid during service with Parent. The agreements
also provide for accelerated payment of any compensation or awards payable
to such executive under any Promus incentive compensation or stock option
plan in the event of termination of an executive's employment, as described
in the agreements, subsequent to a change in control of Promus, as defined.
The maximum amount of compensation that would be payable under all agreements
if a change in control occurred and if such executives were terminated as of
December 31, 1995 would be approximately $16.6 million.
Self-Insurance Reserves
Promus self-insures various levels of general liability, workers'
compensation and employee medical coverage. All self-insurance reserves include
accruals of estimated settlements for known claims, as well as accruals of
actuarial estimates of incurred but not reported claims. These estimates are
based on historical information along with certain assumptions about future
events. Changes in assumptions for such things as medical costs and legal
expenses, as well as changes in actual experience, could cause these estimates
to change in the near term.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INCOME TAXES
Income tax expense attributable to income before income taxes and
extraordinary items consisted of the following (in thousands):
1995 1994 1993
---------------------------------
Current
Federal .................................. $22,252 $25,396 $12,087
State .................................... 2,889 1,154 1,186
Deferred
Federal .................................. 3,004 248 596
State .................................... 3,674 - -
---------------------------------
$31,819 $26,798 $13,869
=================================
In addition to taxes provided for income before income taxes and
extraordinary items, during 1995 Promus provided $1.6 million for extraordinary
items and $1.2 million for unrealized gains on marketable equity securities. The
differences between the statutory federal income tax rate and the effective tax
rate expressed as a percentage of income before income taxes were as follows:
1995 1994 1993
-------------------------------
Statutory tax rate ......................... 35.0% 35.0% 35.0%
Increases in tax resulting from
State taxes, net of federal tax benefit .. 5.6 1.8 3.9
Other .................................... 1.5 5.7 6.1
-------------------------------
42.1% 42.5% 45.0%
===============================
Components of Promus' net deferred tax liability included in the
consolidated balance sheets were as follows (in thousands):
1995 1994
--------------------
Deferred tax assets
Deferred income .......................... $ 4,760 $ 4,643
Compensation ............................. 4,581 3,623
State income taxes ....................... 1,295 -
Bad debt reserve ......................... 703 593
Self-insurance reserves .................. 562 -
Other .................................... 270 534
--------------------
12,171 9,393
--------------------
Deferred tax liabilities
Property and equipment ................... (23,896) (19,494)
Investments in nonconsolidated affiliates. (14,430) (8,813)
Franchise system fund prepayments ........ (1,333) (2,746)
Basis difference in other assets ......... (850) -
--------------------
(40,509) (31,053)
--------------------
Net deferred tax liability ........... $(28,338) $(21,660)
====================
Tax Sharing Agreement
In connection with the Spin-Off, Promus and Parent entered into a tax
sharing agreement that defines each company's rights and obligations with
respect to deficiencies and refunds of federal, state and other income or
franchise taxes relating to Promus' business for tax years prior to the
Distribution and with respect to certain tax attributes of Promus after the
Distribution. In general, with respect to periods ending on or before December
31, 1995, Parent is responsible for (i) filing federal tax returns for Parent
and Promus for the periods such companies were members of the same consolidated
group, and (ii) paying taxes relating to such returns (to include any subsequent
adjustments resulting from the redetermination of such tax liabilities by the
applicable taxing authorities; Promus will reimburse Parent for the portion of
such adjustments relating to the Hotel Business). Promus is responsible for
filing returns and paying taxes for periods beginning after the Spin-Off.
NOTE 7--LEASES
Promus leases both real estate and equipment used in its operations through
operating and capital leases. Leases that transfer substantially all benefits
and risks incidental to ownership of the property are capitalized. In addition
to minimum rentals, many leases provide for contingent rents based on
percentages of revenue. The average remaining term for operating leases, which
generally contain renewal options, extends approximately eight years. The costs
of leased assets are amortized over periods not in excess of the lease terms.
Rental expense associated with operating leases included in the
consolidated statements of income was as follows (in thousands):
1995 1994 1993
--------------------------------
Noncancelable rental expense
Minimum .................................. $3,828 $2,400 $2,286
Contingent ............................... 852 740 601
Other ...................................... 863 790 967
--------------------------------
$5,543 $3,930 $3,854
================================
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The future minimum rental commitments as of December 31, 1995 were as
follows (in thousands):
Noncancelable
Operating
Leases
-------------
1996 ....................................................... $ 2,187
1997 ....................................................... 1,485
1998 ....................................................... 1,100
1999 ....................................................... 938
2000 ....................................................... 878
Thereafter ................................................. 10,319
-------
$16,907
=======
Minimum rental commitments exclude contingent rentals, which may be paid
under certain leases based on a percentage of revenues in excess of specified
amounts.
NOTE 8--EMPLOYEE BENEFIT PLANS
Savings and Retirement Plan
Promus has a defined contribution savings and retirement plan (Promus S&RP)
in which participating employees may elect to make pretax and after-tax
contributions of up to 16 percent of their eligible earnings, the first six
percent of which Promus will match fully. Amounts contributed to the plan are
invested, at the participant's option, in a Promus common stock fund, an
aggressive stock fund, a diversified stock fund, a long-term bond fund, an
income fund and/or a treasury fund. Participants become vested in Promus'
matching contributions over seven years of credited service, including any
previous credited service under Parent's plan. Promus recognized contribution
expense related to the Promus S&RP of $1.4 million in 1995 (which represents
expense incurred subsequent to the Spin-Off).
Restricted Stock
Promus has a restricted stock plan (RSP) under which executives and key
employees may be awarded shares of Promus common stock. Shares granted under the
Promus RSP are restricted as to transfer, are subject to forfeiture prior to
vesting and will generally vest evenly over periods from two to four years. The
deferred compensation expense is amortized over the vesting period. This expense
totaled $0.5 million in 1995 (which represents expense incurred subsequent to
the Spin-Off).
Stock Option Plan
Promus has a stock option plan (SOP) under which options may be granted to
Promus key management personnel. Promus' SOP allows an option holder to purchase
Promus common stock over specified periods of time, generally ten years, at a
fixed price equal to the market value at the date of grant. A summary of stock
option transactions during 1995 follows:
Number of Common Shares
Option Price -------------------------
Range Options Available
(per share) Outstanding for Grant
----------------------------------------
Balance--June 30, 1995 ............. $ 2.41-$30.70 1,238,839 2,361,161
1995 grants ........................ $22.56-$24.56 711,150 (711,150)
Exercised .......................... $ 2.41-$ 9.62 (13,763) -
Canceled ........................... $ 9.62-$30.35 (24,171) 24,171
----------------------------------------
Balance--December 31, 1995 ......... $ 2.41-$30.70 1,912,055 1,674,182
========================================
Exercisable at December 31, 1995 ... $ 2.41-$30.70 262,660
==========================
Effective for fiscal year 1996, Promus will adopt Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Management intends to adopt the disclosure-only option provided for by this
pronouncement.
Deferred Compensation Plans
Promus has deferred compensation plans under which certain employees may
defer a portion of their compensation. Amounts deposited into these plans are
unsecured and earn interest at rates approved by the Human Resources Committee
of the Board of Directors. In connection with the administration of the
executive deferred compensation plan, company owned life insurance policies
insuring the lives of certain directors, officers and key employees have been
purchased. As of December 31, 1995, the total liability under these plans was
$8.4 million, and the related cash surrender value of life insurance policies
was $11.3 million.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Incentive Plan
The Company established a Promus 1996 Non-Management Directors Stock
Incentive Plan under which (i) directors will automatically receive each
February 1, May 1, August 1 and November 1, in lieu of cash payments, shares of
Promus common stock based upon one-half of the meeting and retainer fees earned
and the fair market value of Promus common stock and (ii) may elect to receive
the remaining one-half of compensation due in the form of a cash payment or as
Promus common stock. Shares issued under the plan are restricted as to transfer
for at least six months after the date of grant. The plan becomes effective as
of the date of the 1996 Promus Annual Meeting of Stockholders.
NOTE 9--STOCKHOLDERS' EQUITY
In addition to its common stock, the Company has the following classes of
stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock--Series A, $1.125 par value, 5,000,000 shares authorized
One special right is attached to each outstanding share of common stock.
These rights entitle the holders to purchase, under certain conditions, units
consisting of fractional shares of Special stock--Series A at a purchase price
of $120 per unit, subject to adjustment. The rights also, under certain
conditions, entitle certain holders to purchase $240 worth of common stock for
$120. These rights expire on May 1, 2005, unless Promus decides to redeem them
earlier at $0.01 per right or upon the occurrence of certain other events.
NOTE 10--EXTRAORDINARY ITEMS
During 1995, two Embassy Suites hotels, in which the Company has a 50 percent
interest, realized extraordinary gains related to the early payoff and
forgiveness of a portion of their existing debt. Promus' share of these
nonconsolidated affiliates' gains was $2.8 million, net of income tax expense of
$1.6 million. There were no extraordinary items reported in 1994 or 1993.
NOTE 11--NONCONSOLIDATED AFFILIATES
Combined summarized balance sheet and income statement information of
nonconsolidated affiliates that Promus accounted for using the equity method as
of December 31, 1995 and 1994, and for the three fiscal years ended December 31,
1995, were as follows (in thousands):
1995 1994 1993
------------------------------
Combined Summarized Balance Sheet Information
Current assets .............................. $ 33,578 $ 26,178
Land, buildings, furniture and equipment, net 366,624 376,480
Other assets ................................ 18,435 26,097
-------------------
Total assets .............................. 418,637 428,755
-------------------
Current portion of long-term debt ........... 187,339 6,019
Other current liabilities ................... 13,059 15,207
Long-term debt .............................. 86,292 297,537
Other liabilities ........................... 1,696 633
-------------------
Total liabilities ......................... 288,386 319,396
-------------------
Net assets .............................. $130,251 $109,359
===================
Combined Summarized Income Statements
Revenues .................................... $157,748 $157,686 $150,431
==============================
Operating income ............................ $ 35,161 $ 32,240 $ 27,613
==============================
Net income .................................. $ 16,438 $ 5,221 $ 559
==============================
Several of Promus' nonconsolidated affiliates have debt maturities in 1996.
These affiliates are in the process of renegotiating this nonrecourse debt.
Promus management does not anticipate any material cash outlays in connection
with these refinancings. Promus' share of its nonconsolidated affiliates'
combined net income is reflected in the accompanying consolidated statements of
income as follows (in thousands):
1995 1994 1993
------------------------------
Pre-interest operating income
(included in revenues--other) ............... $ 19,569 $ 18,077 $ 15,503
==============================
Interest expense (included in
interest expense) ........................... $(12,899) $(12,749) $(12,707)
==============================
Pretax extraordinary gain on
forgiveness of debt (included
in extraordinary items, net) ................ $ 4,454 $ - $ -
==============================
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of investments in and advances to nonconsolidated affiliates
as of December 31 were as follows (in thousands):
1995 1994
-------------------
At equity .................................. $39,868 $25,551
At cost .................................... 17,622 10,180
At market .................................. 33,016 -
-------------------
$90,506 $35,731
===================
Certain Promus joint venture investments have been reduced below zero due
to Promus' intention to fund its share of operating losses in the future, if
needed. The total amount of these negative investments included in deferred
credits and other liabilities in the consolidated balance sheets was
$5.2 million and $5.0 million at December 31, 1995 and 1994, respectively.
NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION
The increase (decrease) in cash and cash equivalents due to the changes in
long-term and working capital accounts was as follows (in thousands):
1995 1994 1993
-------------------------------
Long-term accounts
Deferred credits and other long-term
liabilities ............................ $ 4,597 $ 6,792 $ 2,437
Deferred charges and other assets ........ (2,508) (1,155) 431
-------------------------------
Net change in long-term accounts ...... $ 2,089 $ 5,637 $ 2,868
===============================
Working capital accounts
Accrued expenses ......................... $ 9,725 $ 744 $ 564
Accounts payable ......................... 7,824 (4,410) 672
Receivables .............................. (3,206) (859) 3,127
Prepayments .............................. (378) (164) (2,879)
Supplies ................................. 30 133 41
Other current assets ..................... - (366) 3,297
-------------------------------
Net change in working capital accounts. $13,995 $(4,922) $ 4,822
===============================
Supplemental Disclosure of Noncash Investing and Financing Activities
Concurrent with the Spin-Off, the historical assets and liabilities of the
Hotel Business were transferred to Promus by Parent, and the issuance of Promus
common stock was completed in connection with the Distribution.
During 1993, Promus transferred its ownership interest in five hotel
properties to a third party in exchange for cash, the assumption by the third
party of the related existing mortgage debt totaling $42.2 million and the
issuance of $10 million in notes receivable maturing in three to five years. In
an unrelated 1993 transaction, Promus sold a hotel property to a third party for
cash and assumption by the third party of the related existing $3.3 million
mortgage debt.
These noncash transactions have been excluded from the consolidated
statements of cash flows.
Supplemental Disclosure of Cash Paid for Interest and Taxes
The following table reconciles Promus' interest expense, net of interest
capitalized, to cash paid for interest (in thousands):
1995 1994 1993
--------------------------------
Interest expense, net of amount
capitalized (Note 4) ..................... $ 31,138 $ 30,759 $ 33,061
Adjustments to reconcile to cash paid for
interest
Promus' share of interest expense of
nonconsolidated affiliates (Note 11) . (12,899) (12,749) (12,707)
Net change in accruals ................. (1,117) - 125
Amortization of deferred finance
charges .............................. (785) (733) (846)
Net amortization of discounts and
premiums ............................. (8) (45) (869)
Other .................................. (246) (143) (128)
--------------------------------
Cash paid for interest, net of amount
capitalized .............................. $ 16,083 $ 17,089 $ 18,636
================================
Cash paid for income taxes ................. $ 15,075 $ - $ -
================================
For purposes of this presentation, interest expense allocated to Promus by
Parent is assumed to have been paid in the year allocated. Parent was
responsible for the payment of Promus' income taxes for periods prior to the
Spin-Off (Note 6).
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION
Promus Hotels, Inc. (PHI) is a wholly-owned subsidiary of Promus and the
primary entity through which the operations of Promus are conducted. PHI is also
Promus' principal asset. Summarized financial information for PHI, prepared on
the same basis as Promus, as of and for the years ended December 31, is as
follows (in thousands):
1995 1994 1993
------------------------------
ASSETS
Current assets ................................ $ 23,246 $ 18,772
Land, buildings, furniture and equipment,
net ......................................... 331,894 301,743
Other assets .................................. 163,714 92,793
-------------------
518,854 413,308
-------------------
LIABILITIES
Current liabilities ........................... 54,851 28,544
Long-term debt ................................ 229,479 188,725
Other liabilities ............................. 68,112 53,031
-------------------
352,442 270,300
-------------------
Net assets ................................ $166,412 $143,008
===================
Revenues ...................................... $236,020 $222,561 $214,565
==============================
Operating income .............................. $104,137 $ 92,388 $ 66,103
==============================
Net income .................................... $ 46,895 $ 36,319 $ 16,926
==============================
NOTE 14--RELATIONSHIP BETWEEN PROMUS AND PARENT AFTER THE DISTRIBUTION
For the purpose of governing certain ongoing relationships between Promus
and Parent after the Distribution and to provide mechanisms for an orderly
transition, Parent and Promus have entered into various agreements and have
adopted policies governing their future relationship. Management believes the
agreements are fair to both parties and contain terms comparable to those which
would have been reached in arm's-length negotiations with unaffiliated parties
(although comparisons are difficult with respect to certain agreements that
relate to the specific circumstances of the Distribution).
48
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Promus is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly its financial position, its results of operations and
its cash flows in conformity with generally accepted accounting principles. In
preparing its financial statements, Promus is required to include amounts based
on estimates and judgments that it believes are reasonable under the
circumstances.
Promus maintains accounting and other control systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed through a
program of audits by an internal auditing staff. Limitations exist in any
internal control system, recognizing that the system's cost should not exceed
the benefits derived.
The Board of Directors pursues its responsibility for Promus' financial
statements through its Audit Committee, which is composed solely of directors
who are not officers or employees of Promus. The Audit Committee meets from time
to time with the independent public accountants, management and the internal
auditors. Promus' internal auditors report directly to, and the independent
public accountants have access to, the Audit Committee, with and without the
presence of management representatives.
Michael D. Rose
Chairman of the Board
Jeffery M. Jarvis
Vice President, Controller &
Chief Accounting Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Promus Hotel Corporation:
We have audited the accompanying consolidated balance sheets of Promus
Hotel Corporation (a Delaware corporation) and subsidiaries (Promus) as of
December 31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years ended
December 31, 1995. These financial statements are the responsibility of
Promus' 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 financial statements referred to above present fairly,
in all material respects, the financial position of Promus as of December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years ended December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
February 6, 1996.
49
<PAGE>
<TABLE><CAPTION>
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
First Second Third Fourth Fiscal
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter Year
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Revenues ............................ $ 56,487 $ 61,073 $ 61,618 $ 56,842 $236,020
Operating income .................... 24,645 27,725 31,380 19,840 103,590
Net income .......................... 9,604 11,626 15,761 9,588 46,579
Earnings per share (a and b) ........ 0.19 0.23 0.31 0.19 0.90
Weighted average shares outstanding (b) 51,573 51,573 51,570 51,579 51,569
1994
Revenues ............................ $ 50,915 $ 58,255 $ 60,102 $ 53,289 $222,561
Operating income .................... 19,194 23,761 30,643 18,790 92,388
Net income .......................... 6,131 10,207 13,592 6,389 36,319
Earnings per share (a and b) ........ 0.12 0.20 0.26 0.12 0.70
Weighted average shares outstanding (b) 51,573 51,573 51,573 51,573 51,573
<FN>
(a) The sum of the quarterly per share amounts may not equal the annual amount reported, as per
share amounts are computed independently for each quarter while the full year is based on
the annual weighted average common equivalent shares outstanding.
(b) For purposes of computing earnings per share on a comparable basis, the weighted average
shares outstanding for periods prior to the Spin-Off are assumed to be equal to the actual
common and common equivalent shares outstanding on June 30, 1995.
</TABLE>
<TABLE><CAPTION>
SELECTED FINANCIAL DATA
(In thousands) 1995 1994 1993 1992 1991
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Revenues ........................ $ 236,020 $ 222,561 $ 214,565 $ 206,513 $ 158,004
Operating income before property
transactions .................. 101,648 91,762 64,758 49,610 35,206
Operating income ................ 103,590 92,388 66,103 43,897 33,852
Income (loss) before income taxes
and extraordinary items ....... 75,579 63,117 30,795 3,242 (6,871)
Net income (loss) ............... 46,579 36,319 16,926 6,361 (4,488)
Total assets ...................... 519,809 413,308 438,016 506,111 496,235
Long-term debt (a) ................ 229,479 188,725 172,326 216,386 220,609
<FN>
(a) Includes debt allocated to Promus Hotel Corporation by its Parent for periods prior to the Spin-Off.
</TABLE>
50
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Michael D. Rose(2)
Chairman of the Board,
Promus Hotel Corporation.
Memphis, Tennessee
Director since April 1995.
U. Bertram Ellis, Jr.(1)
President, Chief Executive Officer & Director,
Ellis Communications, Inc.
Atlanta, Georgia
Director since June 1995.
Debra J. Fields(1)
Chairman of the Board,
Mrs. Fields, Inc.
Salt Lake City, Utah
Director since June 1995.
Christopher W. Hart(3)
President,
Spire Group, Ltd.
Brookline, Massachusetts
Director since June 1995.
C. Warren Neel(1,2)
Dean, College of Business Administration,
University of Tennessee.
Knoxville, Tennessee
Director since June 1995.
Ben C. Peternell(2)
Senior Vice President,
Human Resources & Communications,
Harrah's Entertainment, Inc.
Memphis, Tennessee
Director since April 1995.
Michael I. Roth(1)
Chairman of the Board & Chief Executive Officer,
Mutual of New York.
New York, New York
Director since June 1995.
Raymond E. Schultz(2)
President & Chief Executive Officer,
Promus Hotel Corporation.
Memphis, Tennessee
Director since April 1995.
Jay Stein(3)
Chairman of the Board & Chief Executive Officer,
Stein Mart, Inc.
Jacksonville, Florida
Director since June 1995.
David C. Sullivan
Executive Vice President & Chief Operating Officer,
Promus Hotel Corporation.
Memphis, Tennessee
Director since April 1995.
Ronald Terry(2,3)
Former Chairman of the Board,
First Tennessee National Corporation.
Memphis, Tennessee
Director since June 1995.
(1) Audit Committee
(2) Executive Committee
(3) Human Resources Committee
CORPORATE EXECUTIVE OFFICERS
Michael D. Rose
Chairman of the Board
Raymond E. Schultz
President & Chief Executive Officer
David C. Sullivan
Executive Vice President & Chief Operating Officer
Donald H. Dempsey
Senior Vice President & Chief Financial Officer
Thomas L. Keltner
Senior Vice President, Development
Ralph B. Lake
Senior Vice President, General Counsel & Secretary
Mark C. Wells
Senior Vice President, Marketing
<PAGE>
OTHER CORPORATE OFFICERS
Carol G. Champion
Vice President & Treasurer
Vincent C. Ciaramitaro
Vice President, Financial Services
Patricia R. Ferguson
Vice President, Human Resources
M. Ronald Halpern
Vice President & Deputy General Counsel
James T. Harvey
Vice President, Information Technology
Jeffery M. Jarvis
Vice President & Controller
INVESTOR INFORMATION
STOCK LISTINGS
Promus Hotel Corporation common stock trades on the New York Stock Exchange
under the ticker symbol PRH. The stock is also listed on the Chicago,
Philadelphia and Pacific regional stock exchanges.
ANNUAL MEETING DATE
Promus Hotel Corporation will conduct its 1996 Annual Meeting of stockholders
on April 24, 1996, 11 a.m. (CDT) at the Embassy Hall, Embassy Suites Hotel,
1022 South Shady Grove Road, Memphis, TN.
SHAREHOLDER ACCOUNT ASSISTANCE
For address changes, account consolidation, registration changes, lost stock
certificates and other shareholder services, contact: Continental Stock
Transfer & Trust Company, 2 Broadway, New York, NY 10004 or call 800-509-5586.
INVESTOR RELATIONS
Financial community information requests and requests for financial reports
should be directed to: Gregg A. Swearingen, Director, Investor Relations, at
755 Crossover Lane, Memphis, TN 38117, or by calling (901) 680-7222.
FORM 10-K
A shareholder may receive without charge a copy of the Form 10-K Annual Report
filed with the Securities and Exchange Commission by written request to
Investor Relations at the address provided in this section or by calling
(901) 680-7222.
CORPORATE COMMUNICATIONS
All media inquiries or requests for copies of this report should be directed
to: John C. Hawkins, Director, Corporate Communications, at 755 Crossover
Lane, Memphis, TN 38117 or by calling (901) 680-7332.
CORPORATE HEADQUARTERS
755 Crossover Lane
Memphis, TN 38117
(901) 374-5000
AUDITORS
Arthur Andersen LLP
165 Madison Avenue
Memphis, TN 38103
RESERVATION INFORMATION
Guests wishing to make reservations at our properties may do so by calling the
following toll-free numbers:
EMBASSY SUITES HOTELS
1-800-EMBASSY
HAMPTON INN HOTELS
1-800-HAMPTON
HAMPTON INN & SUITES HOTELS
1-800-HAMPTON
HOMEWOOD SUITES HOTELS
1-800-CALL-HOME
<PAGE>
INTERNET COMMUNICATIONS
A company overview, financial highlights, statistical data, operating
philosophy and reservations information can be found on the Internet by
accessing World Wide Web http://www.promus-hotel.com.
TRADEMARKS
The following trademarks are used in this report to identify products and
services of Promus Hotel Corporation, its subsidiaries and affiliates: Embassy
Suites, Hampton Inn, Hampton Inn & Suites, Homewood Suites, People Pledged to
Excellence and 1-800-CALL-HOME.
(C) 1996, Promus Hotel Corporation
51
Exhibit 21(1)
SUBSIDIARIES
PROMUS HOTEL CORPORATION
Jurisdiction Percentage Date
of of of
Name Incorporation Ownership Incorporation
- ---- ------------- --------- -------------
Ziwa Insurance, Inc.* Vermont 100%
(Wholly-Owned Insurance Company)
Promus Hotels, Inc. Delaware 100% 05/10/95
Buckleigh, Inc. Delaware 100% 08/24/87
Compass, Inc. Tennessee 100% 11/16/94
EJP Corporation Delaware 100% 10/31/91
Suite Life, Inc. Delaware 100% 07/11/86
Embassy Development Corporation Delaware 100% 08/24/87
Embassy Equity Development Corp. Delaware 100% 08/24/87
Embassy Syracuse Development Delaware 100% 03/06/91
Corporation
Southfield Hotel Management, Florida 100% 09/10/91
Inc.
Embassy Memphis Corporation Tennessee 100% 12/03/92
Embassy Pacific Equity Corporation Delaware 100% 01/24/89
Embassy Suites Club No. 1, Inc. Kansas 100% 01/19/84
Embassy Suites Club No. Two, Inc. Texas 49% 03/13/84
Embassy Suites Club No. Three, Inc. Louisiana 100% 11/03/94
Embassy Suites De Mexico, S.A.DE** Mexico 96% 08/01/90
Embassy Suites (Isla Verde), Inc. Delaware 100% 12/21/93
Embassy Suites (Puerto Rico), Inc. Delaware 100% 05/25/89
Embassy Vacation Resorts, Inc. Delaware 100% 03/03/94
EPAM Corporation Delaware 100% 01/24/89
ESI Development, Inc. Tennessee 100% 12/06/84
ESI Mortgage Development Delaware 100% 04/10/89
Corporation
ESI Mortgage Development Delaware 100% 03/24/92
Corporation II
Hampton Inns, Inc. Delaware 100% 03/23/84
GOL (Texas), Inc. Texas 49% 02/28/89
Old Town Hotel Corporation Delaware 100% 08/17/94
Pacific Hotels, Inc. Tennessee 100% 11/03/88
ATM Hotels Pty Limited*** Australia 100% 05/25/90
Promus Hotel Services, Inc. Delaware 100% 05/12/95
Promus Hotels Florida, Inc. Delaware 100% 05/12/95
Promus Hotels Minneapolis, Inc. Delaware 100% 10/31/95
* In process of being formed
** In process of being dissolved
*** 50% Pacific Hotels, Inc., 50% Promus Hotels, Inc.
Exhibit 23(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independant public accountants, we hereby consent to the incorporation of our
reports dated February 6, 1996, included or incorporated by reference in this
Form 10-K for the year ended December 31, 1995, into the Company's previously
filed Registration Statements File Nos. 33-59967; 33-59977; 33-59997 and
33-59973.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Memphis, Tennessee
March 8, 1996.
Exhibit 27(1)
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[CASH] 2,668
[SECURITIES] 0
[RECEIVABLES] 16,009
[ALLOWANCES] 1,172
[INVENTORY] 206
[CURRENT-ASSETS] 23,426
[PP&E] 436,887
[DEPRECIATION] 104,993
[TOTAL-ASSETS] 519,809
[CURRENT-LIABILITIES] 54,851
[BONDS] 229,479
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 5,137
[OTHER-SE] 162,230
[TOTAL-LIABILITY-AND-EQUITY] 519,809
[SALES] 0
[TOTAL-REVENUES] 236,020
[CGS] 0
[TOTAL-COSTS] 134,372
[OTHER-EXPENSES] (1,942)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 31,138
[INCOME-PRETAX] 75,579
[INCOME-TAX] 31,819
[INCOME-CONTINUING] 43,760
[DISCONTINUED] 0
[EXTRAORDINARY] 2,819
[CHANGES] 0
[NET-INCOME] 46,579
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
