View:
As filed with the Securities and Exchange Commission on October 11, 1994.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission File No. 1-10410
THE PROMUS COMPANIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1411755
(State of Incorporation) (I.R.S. Employer
Identification No.)
1023 Cherry Road
Memphis, Tennessee 38117
(Address of principal executive offices)
(901) 762-8600
(Registrant's telephone number, including area code)
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
------- -------
At March 31, 1994, there were outstanding 102,346,082 shares
of the Company's Common Stock.
Page 1 of 29
Exhibit Index Page 28
Items 1 and 2 of Part I, and Item 6 of Part II for the fiscal quarter ended
March 31, 1994, are hereby amended to read as follows:
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited consolidated condensed financial statements of
The Promus Companies Incorporated (Promus or the Company), a Delaware
corporation, have been prepared in accordance with the instructions to Form
10-Q, and therefore do not include all information and notes necessary for
complete financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect
all adjustments (consisting only of normal recurring adjustments) which
management considers necessary for a fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative of a
full year of operations. These consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in Promus' 1993 Annual Report to Stockholders.
The accompanying financial information has been amended and restated to
reflect the impact of a change in accounting policy for preopening costs. (See
Note 2.)
-2-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, Dec. 31,
(In thousands, except share amounts) 1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 54,960 $ 61,962
Receivables, including notes receivable of
$4,206 and $2,197, less allowance for
doubtful accounts of $10,964 and $10,864 44,600 47,448
Deferred income taxes 23,011 21,024
Supplies 12,519 12,996
Prepayments and other 21,623 20,128
---------- ----------
Total current assets 156,713 163,558
---------- ----------
Land, buildings, riverboats and equipment 1,866,994 1,824,433
Less: accumulated depreciation (504,624) (486,231)
---------- ----------
1,362,370 1,338,202
Investments in and advances to
nonconsolidated affiliates 77,361 70,050
Deferred costs and other 218,376 221,308
---------- ----------
$1,814,820 $1,793,118
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 48,518 $ 60,530
Construction payables 8,235 26,345
Accrued expenses 165,907 162,969
Current portion of long-term debt 2,153 2,160
---------- ----------
Total current liabilities 224,813 252,004
Long-term debt 853,894 839,804
Deferred credits and other 93,800 86,829
Deferred income taxes 60,086 63,460
---------- ----------
1,232,593 1,242,097
---------- ----------
Minority interest 21,490 14,984
---------- ----------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity
Common stock, $0.10 par value,
authorized - 360,000,000 shares,
outstanding - 102,346,082 and 102,258,442
shares (net of 8,942 and 25,251 shares
held in treasury) 10,235 10,226
Capital surplus 348,982 344,197
Retained earnings 207,487 187,203
Deferred compensation related to
restricted stock (5,967) (5,589)
---------- ----------
560,737 536,037
---------- ----------
$1,814,820 $1,793,118
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
First Quarter Ended
(In thousands, March 31, March 31,
except per share amounts) 1994 1993
Revenues
Casino $243,010 $166,180
Rooms 51,110 57,172
Food and beverage 38,406 33,196
Franchise and management fees 15,820 12,920
Other 26,439 21,427
Less: casino promotional allowances (28,998) (21,688)
-------- --------
Total revenues 345,787 269,207
-------- --------
Operating expenses
Departmental direct costs
Casino 112,634 82,637
Rooms 21,792 25,047
Food and beverage 20,185 16,939
Depreciation of buildings, riverboats
and equipment 21,392 18,208
Other 82,916 71,254
-------- --------
Total operating expenses 258,919 214,085
-------- --------
86,868 55,122
Property transactions (198) (265)
-------- --------
Operating income 86,670 54,857
Corporate expense (5,538) (6,709)
Interest expense, net of interest
capitalized (25,737) (27,945)
Interest and other income 431 356
-------- --------
Income before income taxes and
minority interest 55,826 20,559
Provision for income taxes (22,887) (8,594)
Minority interest (4,723) -
-------- --------
Income before extraordinary item and
cumulative effect of change in
accounting policy 28,216 11,965
Extraordinary loss on extinguishment
of debt, net of tax benefit of $679 - (1,009)
Cumulative effect of change in accounting
policy, net of tax benefit of $4,317 (7,932) -
-------- --------
Net income $ 20,284 $ 10,956
======== ========
Earnings per share before extraordinary
item and cumulative effect of change
in accounting policy $ 0.28 $ 0.12
Extraordinary item, net - (0.01)
Cumulative effect of change in accounting
policy, net (0.08) -
-------- --------
Earnings per share $ 0.20 $ 0.11
======== ========
Average common shares outstanding 102,907 102,059
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
First Quarter Ended
March 31, March 31,
(In thousands) 1994 1993
Cash flows from operating activities
Net income $ 20,284 $ 10,956
Adjustments to reconcile net income
to cash flows from operating activities
Extraordinary item, before income taxes - 1,688
Cumulative effect of change in accounting
policy, before income taxes 12,249 -
Depreciation and amortization 25,725 23,282
Other noncash items (3,140) 5,344
Minority interest share of net income 4,723 -
Net losses of and distributions from
nonconsolidated affiliates 4,373 732
Net losses from property transactions 163 120
Net change in long-term accounts 285 (1,261)
Net change in working capital accounts 569 2,249
Tax indemnification payments to Bass (4,282) (157)
-------- ---------
Cash flows provided by operating
activities 60,949 42,953
-------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment
additions (45,644) (30,852)
Decrease in construction payables (18,110) -
Investments in and advances (to) from
nonconsolidated affiliates (12,652) 46
Other (3,222) (4,898)
-------- ---------
Cash flows used in investing activities (79,628) (35,704)
-------- ---------
Cash flows from financing activities
Net borrowings under Revolving Credit
Facility 15,000 -
Proceeds from issuance
of senior subordinated
notes, net of issue costs of $4,000 - 196,000
Debt retirements (989) (204,261)
Minority interest (distributions) contributions (2,334) 2,001
-------- ---------
Cash flows provided by (used in)
financing activities 11,677 (6,260)
-------- ---------
Net change in cash and cash equivalents (7,002) 989
Cash and cash equivalents, beginning
of period 61,962 43,756
-------- ---------
Cash and cash equivalents, end of period $ 54,960 $ 44,745
======== =========
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
Note 1 - Basis of Presentation
- ------------------------------
Promus is a hospitality company with two primary business segments: casino
entertainment and hotels. Promus owns and operates casino entertainment hotels
and riverboats under the brand name Harrah's. Harrah's casino hotels are in all
five major Nevada and New Jersey gaming markets: Reno, Lake Tahoe, Las Vegas and
Laughlin, Nevada; and Atlantic City, New Jersey. Harrah's riverboat casinos are
in Joliet, Illinois; Shreveport, Louisiana; and Tunica and Vicksburg,
Mississippi. Harrah's also has an ownership interest in and manages two limited
stakes casinos in Black Hawk and Central City, Colorado. The hotel segment is
composed of three hotel brands targeted to specific market segments: Embassy
Suites, Hampton Inn and Homewood Suites.
The consolidated condensed financial statements include all the accounts of
Promus and its subsidiaries after elimination of all significant intercompany
accounts and transactions. 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 of these nonconsolidated affiliates in revenues and
operating income. Promus' proportionate share of the interest expense of such
nonconsolidated affiliates is included in interest expense. (See Note 8.)
Certain amounts for the prior year first quarter have been reclassified to
conform with the presentation for first quarter 1994.
Note 2 - Change in Accounting Policy
- ------------------------------------
On October 3, 1994, Promus changed its accounting policy effective
January 1, 1994, relating to preopening costs incurred during development
of new casino entertainment and hotel projects. Promus' new policy is
to capitalize preopening costs as incurred prior to opening and to expense
them upon opening of each project. Previously, Promus' policy had been to
capitalize such costs and amortize them to expense over 36 months from the
date of opening. Operating results for the first quarter 1994 have been
restated to reflect the cumulative charge against earings, net of income taxes,
for this change in accounting policy of approximately $7.9 million or $0.08 per
share.
Note 3 - Long-Term Debt
- -----------------------
Interest Rate Agreements
------------------------
Promus has entered into interest rate swap agreements, as summarized in the
following table:
Effective Next Semi-
Swap Rate at Annual Rate
Rate March 31, Adjustment Swap Agreement
Associated Debt (LIBOR+) 1994 Date Expiration Date
- --------------- ------- --------- ----------- ----------------
10 7/8% Notes
$200 million 4.731% 8.143% April 15 October 15, 1997
8 1/4% Notes
$50 million 3.42% 6.929% May 15 May 15, 1998
$50 million 3.22% 6.688% July 15 July 15, 1998
In accordance with the terms of the interest rate swap agreements, the effective
interest rate on the 10 7/8% Notes was adjusted on April 15, 1994, to 9.159%.
This rate will remain in effect until October 15, 1994.
-6-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
- ----------------------------------
Promus maintains interest rate protection, in the form of a rate collar
transaction entered into in June 1990, on $140 million of its variable rate bank
debt. The interest rate protection expires in 1995 and currently holds Promus'
interest rate in a range between 9.3% and 12.5%.
Note 4 - Stockholders' Equity
- -----------------------------
On April 29, 1994, Promus' stockholders approved an amendment to the
Certificate of Incorporation which increased the number of authorized common
shares from 120 million to 360 million and reduced the par value per common
share from $1.50 to $0.10. As a result of the change in par value,
approximately $143.3 million and $143.2 million has been transferred as of March
31, 1994, and December 31, 1993, respectively, from common stock to capital
surplus on the consolidated condensed balance sheets.
In addition to its common stock, Promus has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 5,000,000 shares authorized -
Series B, $1.125 par value
-7-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 5 - Supplemental Disclosure of Cash Paid for Interest and Taxes
- --------------------------------------------------------------------
The following table reconciles Promus' interest expense, net of interest
capitalized, per the consolidated condensed statements of income, to cash paid
for interest:
First Quarter Ended
March 31, March 31,
(In thousands) 1994 1993
Interest expense, net of interest capitalized $25,737 $27,945
Adjustments to reconcile to cash paid for
interest
Promus' share of interest expense of
nonconsolidated affiliates (2,945) (3,190)
Net change in accruals (3,965) (2,864)
Amortization of deferred finance charges (814) (1,293)
Net amortization of discounts and premiums (54) (546)
------- -------
Cash paid for interest, net of amount
capitalized $17,959 $20,052
======= =======
Cash payments for income taxes, net of refunds $ 4,454 $(2,129)
======= =======
Note 6 - Commitments and Contingent Liabilities
- -----------------------------------------------
Contractual Commitments
-----------------------
Promus is pursuing many casino development opportunities that may require,
individually and in the aggregate, significant commitments of capital, up-front
payments to third parties, guarantees by Promus of third party debt and
development completion guarantees. As of March 31, 1994, Promus has guaranteed
third party loans of $65 million, which are secured by certain assets, and has
contractual agreements to construct riverboat casino facilities of $44 million,
excluding amounts previously recorded.
Promus manages certain hotels for others under agreements which provide for
payments/loans to the hotel owners if stipulated levels of financial performance
are not maintained. In addition, Promus is liable under certain lease
agreements where it has assigned the direct obligation to third party interests.
Promus believes the likelihood is remote that material payments will be required
under these agreements. Promus' estimated maximum exposure under such
agreements is currently less than $41 million over the next 30 years.
-8-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 6 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
Guarantee of Insurance Contract
-------------------------------
Promus' defined contribution savings plan includes a $12.9 million
guaranteed investment contract with an insurance company. Promus has agreed to
provide non-interest-bearing loans to the plan to fund, on an interim basis,
withdrawals from this contract by retired or terminated employees. Promus'
maximum exposure on this guarantee as of March 31, 1994, is approximately $7.8
million.
Self-Insurance
--------------
Promus is self-insured for various levels of general liability, workers'
compensation and employee medical coverage. Insurance claims and reserves
includes the accrual of estimated settlements for known and anticipated claims.
Severance Agreements
--------------------
Promus has severance agreements with twelve of its senior executives which
provide for payments to the executives in the event of their termination after a
change in control, as defined, of Promus. These agreements provide, among other
things, for a compensation payment equal to 2.99 times the average annual
compensation paid to the executive for the five preceding calendar years, as
well as for accelerated payment or accelerated vesting of any compensation or
awards payable to the executive under any of Promus' incentive plans. The
estimated amount, computed as of March 31, 1994, that would have been payable
under the agreements to these executives based on earnings and stock options
aggregated approximately $38 million.
Tax Sharing Agreement
---------------------
In connection with the February 7, 1990 spin-off (the Spin-off) of the
stock of Promus to stockholders of Holiday Corporation (Holiday), Promus is
liable, with certain exceptions, for taxes of Holiday and its subsidiaries for
all pre-Spin-off tax periods. Bass PLC (Bass) is obligated under the terms of
the Tax Sharing Agreements to pay Promus the amount of any tax benefits realized
from pre-Spin-off tax periods of Holiday and its subsidiaries. Negotiations
with the IRS to resolve disputed issues for the 1985 and 1986 tax years were
concluded and settlement reached during fourth quarter 1993. Final payment of
the federal income taxes and related interest due under the settlement was made
during second quarter 1994. The IRS has completed its examination of Holiday's
federal income tax returns for 1987 through the Spin-off date and has issued its
proposed adjustments to those returns. Federal income taxes and related
interest assessed on agreed issues were paid during first quarter 1994. A
protest of all unagreed issues for the 1987 through Spin-off periods was filed
with the IRS during the third quarter of 1993 and negotiations to resolve
disputed issues are currently expected to begin during the second half of 1994.
Final resolution of the disputed issues is not expected to have a materially
adverse effect on Promus' consolidated financial position or its results of
operations.
-9-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 7 - Litigation
- -------------------
In February 1992, Bass and certain affiliates filed suit against Promus
generally alleging breaches of representations and warranties under the Merger
Agreement with respect to the 1990 Spin-off of Promus and acquisition of the
Holiday Inn hotel business by Bass, violation of federal securities laws due to
such alleged breaches, and breaches of the Tax Sharing Agreement between Bass
and Promus entered into at the closing of the Merger Agreement. The complaint
seeks an unspecified amount of damages, unspecified punitive or exemplary
damages, and declaratory relief. Promus believes that it has complied with all
applicable laws and agreements with Bass in connection with the Merger and is
defending its position vigorously. Promus has filed (a) an answer denying, and
asserting affirmative defenses to, the substantive allegations of the complaint
and (b) counterclaims alleging that Bass has breached the Tax Sharing Agreement,
the Merger Agreement and agreements ancillary to the Merger Agreement. The
counterclaims request unspecified compensatory damages, injunctive and
declaratory relief and Promus' costs, including reasonable attorneys fees and
expenses. Discovery has begun, but no trial date has been set.
In addition to the matter described above, Promus is also involved in
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.
-10-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 8 - Nonconsolidated Affiliates
- -----------------------------------
Combined summarized income statements of nonconsolidated affiliates which
Promus accounted for on the equity basis for the first quarter ended March 31,
1994 were as follows:
First Quarter Ended
March 31, March 31,
(In thousands) 1994 1993
Revenues $217,880 $206,591
======== ========
Operating income $ (6,666) $ 5,986
======== ========
Net income (loss) $(20,420) $(11,592)
======== ========
Promus' share of nonconsolidated affiliates' combined net operating results
are reflected in the accompanying consolidated condensed statements of income as
follows:
First Quarter Ended
March 31, March 31,
(In thousands) 1994 1993
Pre-interest operating income (included in
Revenues-other) $ 660 $ 3,402
======== ========
Interest expense (included in Interest
expense) $ (2,945) $ (3,190)
======== ========
March 31, Dec. 31,
(In thousands) 1994 1993
Promus' investments in and advances to
nonconsolidated affiliates
At equity $42,562 $35,893
At cost 34,799 34,157
------- -------
$77,361 $70,050
======= =======
The values of certain of 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 on the consolidated condensed balance
sheets was $4.7 million and $5.1 million at March 31, 1994, and December 31,
1993, respectively.
-11-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 9 - Summarized Financial Information
- -----------------------------------------
Embassy is a wholly-owned subsidiary and the principal asset of Promus.
Summarized financial information of Embassy as of March 31, 1994 and
December 31, 1993, and for the first quarter ended March 31, 1994 and 1993,
prepared on the same basis as Promus, was as follows:
March 31, Dec. 31,
(In thousands) 1994 1993
Current assets $ 157,673 $ 165,753
Land, buildings, riverboats and
equipment, net 1,362,370 1,338,202
Other assets 295,101 290,454
---------- ----------
1,815,144 1,794,409
---------- ----------
Current liabilities 212,458 240,438
Long-term debt 853,894 839,804
Other liabilities 154,243 150,646
Minority interest 21,490 14,984
---------- ----------
1,242,085 1,245,872
---------- ----------
Net assets $ 573,059 $ 548,537
========== ==========
First Quarter Ended
March 31, March 31,
(In thousands) 1994 1993
Revenues $345,185 $268,767
======== ========
Operating income $ 84,963 $ 54,809
======== ========
Income before income taxes and
minority interest $ 54,119 $ 20,614
======== ========
Income before extraordinary items
and cumulative effect of change in
accounting policy $ 27,106 $ 12,001
======== ========
Net income $ 19,174 $ 10,992
======== ========
The agreements governing the terms of Promus' debt contain certain covenants
which, among other things, place limitations on Embassy's ability to pay
dividends and make other restricted payments, as defined, to Promus. Pursuant
to the terms of the most restrictive covenant regarding restricted payments,
approximately $562.2 million of Embassy's net assets were not available for
payment of dividends to Promus as of March 31, 1994.
-12-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Note 10 - Operating Segment Information
- ---------------------------------------
Operating results for Promus' operating segments for the first quarter ended
March 31, 1994 and 1993, were as follows:
First Quarter Ended
March 31, March 31,
(In thousands) 1994 1993
Casino Entertainment Segment Operating Data
Revenues
Casino $243,010 $166,180
Food and beverage 36,415 31,090
Rooms 23,779 22,677
Management fees 258 -
Other 14,250 10,509
Less: casino promotional allowances (28,998) (21,688)
-------- --------
Total revenues 288,714 208,768
-------- --------
Operating expenses
Departmental direct costs
Casino 112,634 82,637
Food and beverage 18,324 14,800
Rooms 8,063 7,099
Other 83,259 66,351
-------- --------
Total operating expenses 222,280 170,887
-------- --------
Operating income $ 66,434 $ 37,881
======== ========
Hotel Segment Operating Data
Revenues
Rooms $ 27,331 $ 34,495
Franchise and management fees 15,562 12,920
Food and beverage 1,991 2,106
Other 10,446 9,421
-------- --------
Total revenues 55,330 58,942
-------- --------
Operating expenses
Departmental direct costs
Rooms 13,729 17,948
Food and beverage 1,861 2,139
Other 20,027 21,843
-------- --------
Total operating expenses 35,617 41,930
-------- --------
19,713 17,012
Property transactions (198) (265)
-------- --------
Operating income $ 19,515 $ 16,747
======== ========
Other Operations Segment Operating Data
Revenues $ 1,743 $ 1,497
Operating expenses 1,022 1,268
-------- --------
Operating income $ 721 $ 229
======== ========
-13-
Item 2. Management's Discussion and Analysis
---------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
The following discussion and analysis of The Promus Companies Incorporated's
(Promus) financial position and operating results for first quarter 1994 and
1993 complements and updates the Management's Discussion and Analysis of
Financial Position and Results of Operations (MD&A) presented in Promus' 1993
Annual Report. The following information should be read in conjunction with the
1993 Annual Report MD&A disclosure. References to Promus include its
consolidated subsidiaries where the context requires.
Promus operates four leading hospitality brands comprising two business
segments: a casino entertainment segment consisting of Harrah's, one of the
world's premier names in the casino entertainment industry, and a hotel segment
composed of three established brands, Embassy Suites, Hampton Inn and Homewood
Suites (collectively Promus Hotels), targeted at specific market segments. A
fourth hotel brand, Hampton Inn & Suites, was introduced in late 1993 and is
designed to target a new development segment not addressed by the existing
brands.
Unit growth in both business segments, particularly the addition of four
riverboat casinos, and reduced interest expense contributed to a 41.9% increase
in cash flow from operations for first quarter 1994 over the comparable prior
year period. The extension of debt maturities to 1998 and beyond achieved by a
debt refinancing strategy completed in 1993 allows Promus to invest its
increasing cash flows from operations in opportunities to further grow its
businesses, either through development of new projects or expansion of existing
facilities.
CAPITAL SPENDING AND DEVELOPMENT
- --------------------------------
From six land-based casinos in operation in the traditional markets of
Nevada and New Jersey at the end of first quarter 1993, Promus' casino
entertainment segment has grown to include thirteen properties located in six
states, including the latest riverboat casino addition, Harrah's Shreveport. In
recognition of the additional opportunities presented by the proliferation of
casino gaming, Promus continues to focus the majority of its capital spending on
casino development opportunities.
Casino Entertainment
- --------------------
To maintain its leading position in the casino entertainment industry and to
further build the value of Harrah's as a national casino brand, Promus is
continuing its development of previously announced projects and its
investigation and pursuit of additional development opportunities in emerging
markets throughout the U.S. and, to a lesser extent, abroad.
-14-
Harrah's New Orleans
--------------------
On July 21, 1993, the Louisiana Economic Development and Gaming Corporation
(LEDGC) issued its second Request for Qualifications and Proposals (1993 RFP) to
own and operate the sole land-based casino permitted by law to operate in
Orleans Parish (permanent casino). On August 11, 1993, LEDGC selected a
partnership comprised of a Promus subsidiary and a corporation owned by
Louisiana investors (First Partnership) as the winning proposer, under the 1993
RFP, to own and operate the permanent casino. After this selection, it was
necessary that the First Partnership secure control of the site of the Rivergate
Convention Center (Rivergate), the legally mandated site of the permanent
casino. To obtain this control, a new partnership (Second Partnership) was
formed among the partners of the First Partnership and the holder of the
sublease of the Rivergate, design changes to the proposed permanent casino were
made in order to obtain zoning approval and governmental approvals to the
assignment of the Rivergate sublease, and the sublease for the Rivergate was
assigned to Second Partnership. Additional properties were acquired by the
Second Partnership and a sublease was entered into with the City of New Orleans'
Rivergate Development Corporation to enable the Second Partnership to provide a
temporary casino at the City of New Orleans' Municipal Auditorium.
Documentation was delivered to LEDGC by the First Partnership describing and
requesting approval of the design, cost, financing and ownership modifications
incidental to obtaining control of the Rivergate. On April 22, 1994, the
Louisiana Attorney General issued an opinion that LEDGC could not accept these
modifications under the Louisiana Economic Development and Gaming Corporation
Law. On April 27, 1994, LEDGC cancelled the 1993 RFP. On April 29, 1994, LEDGC
issued a new Request for Qualifications and Proposals (Applications) (the 1994
RFP).
First Partnership has appealed to state courts for judicial review of the
action of LEDGC and also has requested a rehearing by LEDGC. Second Partnership
intends to submit an application in response to the 1994 RFP. The 1994 RFP
requires a phased response, the first phase response due May 13, 1994, and the
second and final phase due May 20, 1994. LEDGC will review applications, hold
public hearings, and select an applicant based upon LEDGC's evaluation of its
proposal with respect to stated evaluation factors. The Company believes that
this process will be completed by the end of second quarter 1994 absent changes
occasioned by rehearing or judicial intervention. Because of the 1994 RFP,
negotiations toward a casino operating contract between First Partnership and
LEDGC have been suspended. As a result of these unanticipated delays and
assuming that the 1994 RFP proceeds without interruption, the application of the
Second Partnership is selected by LEDGC and the satisfaction of other
contingencies discussed below, the projected opening dates for the temporary
casino and permanent casino will be delayed until fourth quarter 1994 and fourth
quarter 1995, respectively. Opening of the casino facilities by the Second
Partnership may be precluded if its application is not selected by LEDGC.
The estimated cost of the project is $730 million, which is expected to be
financed through a combination of partner capital contributions, public debt
securities, bank debt and operating cash flow from the temporary casino. The
Second Partnership is currently in process of registering a public offering of
$425 million of debt and arranging $200 million of bank debt. The total
-15-
capital contribution of Promus' subsidiary is expected to be $23.3 million.
Promus has agreed to provide completion guarantees for the project, subject to
certain conditions and exceptions, in exchange for a fee to be paid by the
Second Partnership. Before the Second Partnership can begin construction of
either the planned 76,000 square foot temporary casino or the proposed 400,000
square foot permanent casino (200,000 square feet of casino space), other
conditions and legal issues pertinent to the transaction must be satisfied,
including obtaining the casino operating contract from LEDGC, obtaining
financing, and satisfying other governmental requirements.
Litigation concerning title to a portion of the land underlying the
permanent casino site was decided favorably at the trial court level. An appeal
of the trial court decision was filed on May 2, 1994. If this appeal is decided
unfavorably, it may delay or prevent opening of the casino facilities or
otherwise adversely affect their operations.
Riverboat Casino Development
----------------------------
During January 1994, Promus launched its second Joliet, Illinois-based
riverboat casino, the Harrah's Southern Star, which shares shoreside facilities
with its sister ship, the Northern Star. On April 18, 1994, Promus christened
the Shreveport Rose, a dockside riverboat casino located in downtown Shreveport,
Louisiana, and the fifth floating casino to join Promus' growing fleet. In
addition to the five riverboat casinos now operating, Promus has previously
announced two riverboat casino projects to be developed in the state of
Missouri. Following the failure of a statewide referendum that would have
approved games of chance for proposed casino developments in Missouri and would
have resolved the uncertainty which resulted earlier this year when a state
court ruling cast doubt on the permissibility of offering certain types of games
in casinos, Promus is reevaluating its development plans and opportunities in
this state, as discussed in the following paragraphs.
In North Kansas City, Promus is developing a classic sternwheeler-designed
riverboat casino featuring approximately 33,000 square feet of casino space.
Approximately $27.4 million of the total estimated project cost of $82.6 million
had been spent as of the end of first quarter 1994. Development of the North
Kansas City project is proceeding and the project is expected to open on
schedule during third quarter 1994 featuring certain types of games determined
to have an element of skill under the court ruling. Various factors may affect
this determination including legislative initiatives, regulatory interpretation
and, ultimately, judicial action.
Promus' second Missouri riverboat casino is to be located in Maryland
Heights, a suburb of St. Louis. $14.3 million of the total announced project
cost of $82.0 million had been spent as of the end of first quarter 1994,
primarily related to construction of the riverboat casino, which will feature
27,500 square feet of casino space. Although construction of the riverboat is
continuing, construction of the related shoreside facilities has not yet
commenced and a decision concerning the fourth quarter 1994 scheduled opening of
this property has not been made.
The opening of both Missouri projects is subject to the approval of various
regulatory bodies.
-16-
Subsequent to the end of first quarter, Promus executed its option to
acquire an additional interest in the joint venture which owns and operates the
riverboat casino in Shreveport, Louisiana. As a result of this transaction,
Promus' ownership interest in the joint venture will increase from approximately
86% to 96%, subject to the approval of state regulators.
Indian Lands
------------
Promus has entered into management and development agreements for a planned
$24.7 million casino entertainment facility near Phoenix, Arizona, to be owned
by the Ak-Chin Indian Community of the Maricopa Indian Reservation. Promus does
not expect to fund this development, although it has agreed to guarantee the
related bank financing. Commencement of construction, expected to begin during
second quarter 1994, and the opening of the facility are subject to the receipt
of approvals from various regulatory agencies, including the National Indian
Gaming Commission. Promus will manage the facility for a fee. The Tribal/State
Compact between the Ak-Chin Community and the State of Arizona has received
approval from the U.S. Department of the Interior.
Promus is in various stages of negotiations with a number of other Indian
communities to develop and/or manage facilities on Indian lands.
International
-------------
Promus and its local partner are constructing a casino in Auckland, New
Zealand. Promus will contribute $15 million in exchange for a 20% interest in
the partnership and will manage the facility for a fee. Construction of the
$150 million project, to be financed through a combination of partner
contributions and non-recourse debt, is expected to be completed and the
facility to be in operation in first quarter 1996.
Existing Land-Based Facilities
------------------------------
On-going refurbishment and maintenance of Promus' existing casino
entertainment facilities in Nevada and New Jersey continues to maintain the
quality standards set for these properties. No major additions of casino square
footage or hotel rooms are currently under way at these properties.
Overall
-------
In addition to the projects discussed above, Promus is also aggressively
pursuing additional casino entertainment development opportunities in various
new jurisdictions across the United States and abroad, although no definitive
development agreements have been signed and no material capital commitments to
construct additional facilities have been made to third parties at this time.
Until all necessary approvals to proceed with development of a project are
obtained from the relevant regulatory bodies, the costs of pursuing casino
entertainment projects are expensed as incurred. Construction-related costs
incurred after the receipt of necessary approvals are capitalized and
depreciated over the estimated useful life of the resulting asset.
-17-
A number of these casino entertainment development projects, if they go
forward, may require, individually and in the aggregate, a significant capital
commitment and, if completed, may result in significant additional revenues.
The commitment of capital, the timing of completion and the commencement of
operations of casino entertainment development projects are contingent upon,
among other things, negotiation of final agreements and receipt of approvals
from the appropriate political and regulatory bodies.
Hotel
- -----
Promus' three established hotel brands continued their steady growth during
first quarter 1994 with the opening of ten additional franchised properties. An
additional 55 franchised properties, comprised of 49 Hampton Inns, four Embassy
Suites and two Homewood Suites, were under construction or conversion to Promus
brands at March 31, 1994.
Construction of a company-owned prototype of a downsized Homewood Suites
property suitable for smaller markets will begin during second quarter 1994.
The prototype is expected to be completed by the end of 1994 at a cost of less
than $6 million. Three Hampton Inn & Suites hotels, a new concept combining
rooms and suites in a single property introduced by Promus hotels in late 1993,
were approved for development during first quarter 1994. The first Hampton Inn
& Suites property is expected to open in first quarter 1995.
To increase distribution and awareness of its Homewood Suites brand,
subsequent to the end of first quarter 1994 Promus announced plans to expand the
brand by developing 20 to 25 additional properties over the next three years. A
total of up to $150 million is expected to be required over the three year
period to fund this development.
Summary
- -------
Cash needed to finance projects currently under development as well as
additional projects being pursued by Promus will be made available from
operating cash flows, the Bank Facility (see DEBT REFINANCING ACTIVITIES
section), joint venture partners, specific project financing, guarantees by
Promus of third party debt, sales of existing hotel assets and, if necessary,
Promus debt and/or equity offerings. Including $58.3 million spent during first
quarter 1994, Promus currently estimates $325 million to $375 million of cash
from all sources will be required during 1994 to fund project development,
including the projects discussed in this CAPITAL SPENDING AND DEVELOPMENT
section, refurbishment of existing facilities and other projects.
-18-
DEBT AND LIQUIDITY
- ------------------
Bank Facility
- -------------
At March 31, 1994, $185.0 million in borrowings were outstanding under
Promus' reducing revolving and letter of credit facility (the Bank Facility).
An additional $220.5 million of the Bank Facility was committed to back certain
letters of credit, including a $204.7 million letter of credit supporting the
existing 9% Notes. After consideration of these borrowings, $244.5 million was
available to Promus under the Bank Facility as of March 31, 1994. Subsequent to
the end of the first quarter, Promus funded the scheduled retirement of
$39.1 million of 10 1/2% notes using borrowings under the Bank Facility.
Debt Rating Upgrade
- -------------------
A primary financial objective was fulfilled subsequent to the end of the
quarter with the announcement by Standard and Poor's that it had upgraded
Promus' implied senior debt rating to investment grade status. As a result of
achieving investment grade status, the interest rate on Promus' Bank Facility
will be reduced by 1/4 of 1% during third quarter 1994. This reduction in the
interest rate will remain in force so long as the investment grade status is
maintained.
Interest Rate Agreements
- ------------------------
In prior years, Promus entered into various interest rate swap agreements as
summarized in the following table:
Next Semi-
Swap Rate at Annual Rate
Associated Rate Mar. 31, Adjustment Swap Agreement
Debt (LIBOR+) 1994 Date Expiration Date
- -------------- -------- -------- ----------- ----------------
10 7/8% Notes
$200 million 4.731% 8.143% April 15 October 15, 1997
8 3/4% Notes
$50 million 3.42% 6.929% May 15 May 15, 1998
$50 million 3.22% 6.688% July 15 July 15, 1998
In accordance with the terms of the interest rate swap agreements, the effective
interest rate on the 10 7/8% Notes was adjusted on April 15, 1994, to 9.159%.
This rate will remain in effect until October 15, 1994.
Promus maintains interest rate protection, in the form of a rate collar
transaction entered into in June 1990, on $140 million on its variable rate bank
debt. The interest rate protection expires in 1995 and currently holds Promus'
interest rate in a range between 9.3% and 12.5%.
-19-
Shelf Registration
- ------------------
Promus, through its wholly-owned subsidiary Embassy Suites, Inc. (Embassy),
has registered up to $200 million of new debt securities pursuant to a shelf
registration declared effective by the Securities and Exchange Commission. The
terms and conditions of these debt securities, which will be unconditionally
guaranteed by Promus, will be determined by market conditions at the time of
issuance.
EQUITY TRANSACTIONS
- -------------------
On April 29, 1994, Promus' stockholders approved an amendment to the
Certificate of Incorporation which increased the number of authorized common
shares from 120 million to 360 million and reduced the par value per common
share from $1.50 to $0.10. As a result of the change in the par value,
approximately $143 million has been transferred from common stock to capital
surplus on the balance sheet.
RESULTS OF OPERATIONS
- ---------------------
Overall
- -------
First Quarter Percent
(in millions, except -------------- Increase/
earnings per share) 1994 1993 (Decrease)
------ ------ ----------
Revenues $345.8 $269.2 28.5 %
Operating income 86.7 54.9 57.9 %
Net income 20.3 11.0 84.5 %
Earnings per share 0.20 0.11 81.8 %
Operating margin 25.1% 20.4% 4.7 pts
First quarter 1994's record revenues, operating income and earnings per
share are due primarily to unit growth attained in both segments, especially the
addition of the riverboat casino properties, and lower overall cost of debt,
which continues favorable operating trends noted during 1993. A summary of
Promus' operating segments performance for the first quarter ended March 31,
1994 and 1993 is presented in Note 8 to the consolidated condensed financial
statements.
First quarter 1994 operating results have been restated to reflect the
cumulative effect of a change in accounting policy. On October 3, 1994,
Promus changed its accounting policy effective January 1, 1994, for preopening
costs to expense those costs upon opening of the new casino entertainment
or hotel project. Previously, Promus had amortized preopening costs
to expense over 36 months following the opening of the project. As a result of
this change, Promus' first quarter 1994 results have been restated to include
the write off of the unamortized preopening costs balances related to projects
opened in prior years. The effect of this change on reported net income and
earnings per share is as follows:
First Quarter 1994
------------------
As
Reported Restated
-------- --------
Net income $27,372 $20,284
Earnings per share 0.27 0.20
The mix of Promus' operating income among the casino entertainment
divisions, including the contribution now made by the Riverboat Casino
Entertainment Division, and the growth experienced by the hotel segment reflect
the increasing diversification of Promus' operations. The following table
summarizes operating income before property transactions for the twelve month
periods ended March 31, 1994, 1993 and 1992 in million of dollars and as a
percent of the total for each of Promus' casino entertainment divisions and
primary business segments:
-20-
Operating Income Contributions for the
Twelve Months Ended March 31,
-------------------------------------------
In Millions of Dollars Percent of Total
---------------------- --------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ------
Casino Entertainment
Southern Nevada $ 79 $ 69 $ 59 24 % 28 % 28 %
Northern Nevada 79 69 61 24 % 28 % 27 %
Atlantic City 68 63 68 20 % 25 % 31 %
Riverboat 60 - - 18 % - -
New Orleans (3) - - (1)% - -
Other (19) (13) (7) (6)% (5)% (3)%
---- ---- ---- --- --- ---
Total 264 188 181 79 % 76 % 83 %
Hotel 68 57 37 20 % 23 % 17 %
Other 3 1 (1) 1 % 1 % -
---- ---- ---- --- --- ---
Total Promus $335 $246 $217 100 % 100 % 100 %
==== ==== ==== === === ===
Casino Entertainment
- --------------------
Promus' casino entertainment segment includes the combined results of
Promus' casino entertainment properties located in Colorado, Illinois,
Mississippi, Nevada and New Jersey. Overall revenues and operating income for
the segment increased 38.3% and 75.4%, respectively, for first quarter 1994 over
the comparable prior year period. This growth is primarily a result of the
first quarter 1994 operating contributions made by the Riverboat Casino
Entertainment Division, partially offset by the recognition of Promus' pro-rata
share of Harrah's New Orleans preopening-related costs. Included in both
periods are development costs related to Promus' pursuit of additional casino
entertainment projects. The amounts of these development costs charged to
casino entertainment segment other operating expense for first quarter 1994 and
1993 were $3.6 million and $1.4 million, respectively.
-21-
Riverboat Division
------------------
First
Quarter
(in millions) 1994
-------
Revenues $ 83.1
Operating income 31.5
Operating margin 37.9%
Gaming volume $790.5
The Riverboat Division includes the operations of four riverboats, all of
which opened subsequent to the end of first quarter 1993, as well as the results
of the Division's group staff function. The higher operating margin achieved by
this Division reflects operational differences between a riverboat facility and
a conventional land-based property and limited competition currently faced by
facilities opening in new, emerging markets.
Southern Nevada
---------------
First Quarter Percent
-------------- Increase/
(in millions) 1994 1993 (Decrease)
------ ------ ----------
Revenues $ 71.4 $ 69.7 2.4 %
Operating income 18.3 18.8 (2.7)%
Operating margin 25.6% 26.9% (1.3)pts
Gaming volume $754.9 $742.3 1.7 %
The increase in first quarter revenues for the Southern Nevada region is due
to record revenue at Harrah's Las Vegas, which benefited from the increased
visitation to the market prompted by the late-1993 openings of three "mega"
properties. However, total operating income and operating margin for the region
declined due to lower results posted by Harrah's Laughlin as the Laughlin market
continues to absorb new capacity and as its traditional customers tried some of
the new Las Vegas properties.
Northern Nevada
---------------
First Quarter Percent
-------------- Increase/
(in millions) 1994 1993 (Decrease)
------ ------ ----------
Revenues $ 70.3 $ 67.6 4.0 %
Operating income 13.1 10.9 20.2 %
Operating margin 18.6% 16.1% 2.5 pts
Gaming volume $808.6 $775.5 4.3 %
All three Northern Nevada properties reported first quarter operating income
records. The region's continuing emphasis on costs savings and operating
efficiencies enabled it to again achieve disproportionate growth in operating
income and margins versus revenue growth. The revenue and gaming volume growth
achieved by the region can be partially attributed to better weather compared to
last year.
-22-
Atlantic City
-------------
First Quarter Percent
-------------- Increase/
(in millions) 1994 1993 (Decrease)
------ ------ ----------
Revenues $ 65.8 $ 70.4 (6.5)%
Operating income 10.4 10.4 -
Operating margin 15.7% 14.7% 1.0 pts
Gaming volume $684.6 $650.1 5.3 %
The decline in revenues for Atlantic City reflects the impact of inclement
weather, construction on the casino floor, a decline in table game volume and a
lower table hold percentage. The increase in total gaming volume reflects an
increase in slot volume, which more than offset the decline in table play. An
emphasis on managing expenses and targeting marketing dollars towards more
profitable customer segments enabled the property to achieve a 1.0 percentage
point increase in operating margin and match its prior year operating income,
despite the decrease in revenues.
Harrah's New Orleans
--------------------
Revenues and operating income for the casino entertainment segment include a
loss of $3.2 million representing the equity pick-up of Promus' pro-rata share
of preopening-related costs incurred by the joint venture developing Harrah's
New Orleans. (See CAPITAL SPENDING AND DEVELOPMENT section.)
Hotel
- -----
First Quarter Percent
(in millions, except ---------------- Increase/
rooms/hotels data) 1994 1993 (Decrease)
------- ------- ----------
Revenues $55.3 $58.9 (6.1)%
Operating income
before property
transactions 19.7 17.0 15.9 %
Operating margin 35.6% 28.9% 6.7 pts
Number of rooms 73,433 68,881 6.6 %
Number of hotels 511 462 10.6 %
Hotel segment revenues for first quarter 1994 declined from the comparable
prior year period due to a decrease in the number of company-owned Embassy
Suites properties. Despite the decline in revenues, the segment reported
increased operating income for first quarter 1994 due to increases in franchise
and management fees reflecting growth in the combined hotel systems and
increased revenue per available room (suite) (RevPAR/S). Compared to the prior
year period, total system RevPAR/S for the first quarter increased 6.2% at
Hampton Inn, 5.4% at Embassy Suites and 5.4% at Homewood Suites. The number of
room/suites at franchised properties and RevPAR/S significantly affects hotel
segment results since franchise royalty fees are based upon rooms/suites
revenues at franchised hotels. Also contributing to the operating income and
margin improvements for the hotel segment are overhead cost savings being
achieved as a result of consolidation of hotel brand management into a single
organization structure announced in third quarter 1993.
-23-
Other Factors Affecting Income Per Share
- ----------------------------------------
First Quarter Percent
(in millions) -------------- Increase/
1994 1993 (Decrease)
------ ------ ----------
Property transaction
(gains) losses, net $ 0.2 $ 0.3 NM
Corporate expense 5.5 6.7 (17.9)%
Interest expense 25.7 27.9 (7.9)%
Interest and other
income (0.4) (0.4) -
Effective tax rate 41.0% 41.8% (0.8)pts
Minority interest $ 4.7 $ - -
Extraordinary loss,
net - 1.1 NM
Cumulative effect of
change in accounting
policy, net (7.9) - NM
Corporate expense decreased primarily due to timing and reimbursement of
certain expenses. The decrease in interest expense is due to the impact of
lower interest rates on Promus' variable rate debt and lower overall levels of
debt. Minority interest reflects joint venture partners' shares of income at
joint venture riverboat casinos. The extraordinary loss recorded in the prior
year related to the write-off of unamortized deferred finance charges due to the
early retirement of the related debt. The cumulative effect of change in
accounting policy reflects the write-off of unamortized preopening costs
associated with projects opened in prior years.
Tax Matters
- -----------
The effective tax rate for both periods is higher than the federal statutory
rate due primarily to state income taxes.
In connection with the spin-off of Promus' stock (the Spin-off) to Holiday
Corporation (Holiday) stockholders on February 7, 1990, Promus is liable, with
certain exceptions, for the taxes of Holiday and subsidiaries for all pre-Spin-
off tax periods. Negotiations with the Internal Revenue Service (IRS) to
resolve disputed issues for the 1985 and 1986 tax years were concluded and a
settlement reached during fourth quarter 1993. Final payment of the federal
income taxes and related interest due under the settlement was made during
second quarter 1994. The IRS has completed its examination of Holiday's federal
income tax returns for 1987 through the Spin-off date and has issued its
proposed adjustments to those returns. Federal income taxes and related
interest assessed on agreed issues were paid during first quarter 1994. A
protest defending the taxpayer's position on all unagreed issues for the 1987
through Spin-off periods was filed with the IRS during third quarter 1993 and
negotiations to resolve disputed issues are currently expected to begin during
the second half of 1994. Final resolution of the disputed issues is not
expected to have a materially adverse effect on Promus' consolidated financial
position or its results of operations.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
The casino entertainment industry is experiencing expansion in both existing
markets and new jurisdictions. In the Las Vegas market, three competitors
opened new casino "mega" facilities during fourth quarter 1993
-24-
adding more than 350,000 square feet of casino space and 10,000 rooms to the
market. In Laughlin, expansions by competitors completed in 1993 increased the
number of rooms available in that market by 12%. In Reno, competitors have
announced new projects which, if constructed, will add significant additional
casino space and hotel rooms to that market. In addition, the proliferation of
casino gaming activity in many new jurisdictions continues due to the widespread
growing acceptance of casino gaming as a form of entertainment and as an
alternative tax revenue source for municipalities and states. Also furthering
the proliferation of casino gaming has been the Indian Gaming Regulatory Act of
1988 which, as of May 10, 1994, had resulted in the approval of 107 compacts for
the development of casinos on Native American lands in 19 states. Promus is not
able to determine the impact, whether favorable or unfavorable, that these
developments will have on the markets in which it currently operates. However,
management believes that the current balance of its operations among the
existing casino entertainment divisions and the hotel segment as discussed
above, combined with the further geographic diversification and the continuing
pursuit of the Harrah's national brand strategy presently underway in its casino
entertainment segment, have well-positioned Promus to face the challenges
presented by these developments and will reduce the potentially negative impact
these new developments may have on Promus' overall operations.
INTERCOMPANY DIVIDEND RESTRICTION
- ---------------------------------
Agreements governing the terms of its debt require Promus to abide by
covenants which, among other things, limit Embassy's ability to pay dividends
and make other restricted payments, as defined, to Promus. The amount of
Embassy's restricted net assets, as defined, computed in accordance with the
most restrictive of these covenants regarding restricted payments, was
approximately $562.2 million at March 31, 1994. Promus' principal asset is the
stock of Embassy, a wholly-owned subsidiary. Embassy holds, directly and
through subsidiaries, the principal assets of Promus' businesses. Given this
ownership structure, these restrictions should not impair Promus' ability to
conduct its business through its subsidiaries or to pursue its development
plans.
-25-
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------------------
(a) Exhibits
EX-3.1 Certificate of Incorporation of The Promus Companies
Incorporated.*
EX-3.2 Certificate of Amendment of Certificate of
Incorporation of The Promus Companies Incorporated
dated April 29, 1994.*
EX-3.3 Bylaws of The Promus Companies Incorporated, as
amended April 29, 1994.*
EX-10.1 The Promus Companies Incorporated 1990 Stock Option
Plan, as amended April 29, 1994.*
EX-10.2 Second Amendment dated March 31, 1994 to the Amended
and Restated Partnership Agreement of Harrah's Jazz
Company.*
EX-11 Computation of per share earnings.**
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
* Previously filed.
** Filed herewith.
-26-
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PROMUS COMPANIES INCORPORATED
October 11, 1994 BY: MICHAEL N. REGAN
------------------------------
Michael N. Regan
Vice President and Controller
(Chief Accounting Officer)
-27
Exhibit Index
-------------
Exhibit No. Description Sequential Page No.
- ----------- ------------ ------------------
EX-3.1 Certificate of Incorporation of The Promus
Companies Incorporated.* N/A
EX-3.2 Certificate of Amendment of Certificate of
Incorporation of The Promus Companies
Incorporated dated April 29, 1994.* N/A
EX-3.3 Bylaws of The Promus Companies Incorporated,
as amended April 29, 1994.* N/A
EX-10.1 The Promus Companies Incorporated 1990
Stock Option Plan, as amended April 29,
1994.* N/A
EX-10.2 Second Amendment dated March 31, 1994 to
the Amended and Restated Partnership Agreement
of Harrah's Jazz Company.* N/A
EX-11 Computation of per share earnings.** 29
* Previously filed.
** Filed herewith.
-28-
EX-11
THE PROMUS COMPANIES INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
First Quarter Ended
March 31, March 31,
1994 1993
Income before extraordinary items $ 28,216,000 $ 11,965,000
Extraordinary items, net - (1,009,000)
Cumulative effect of change in accounting
policy, net (7,932,000) -
------------ ------------
Net income $ 20,284,000 $ 10,956,000
============ ============
Primary earnings per share (1)
Weighted average number of common
shares outstanding 101,503,574 99,375,771
Common stock equivalents
Additional shares based on average
market price for period
applicable to:
Restricted stock 459,462 1,484,790
Stock options 944,198 391,314
------------ ------------
Average number of primary common and
common equivalent shares outstanding 102,907,234 101,251,875
============ ============
Primary earnings per common and
common equivalent share
Income before extraordinary items $ 0.28 $ 0.12
Extraordinary items - (0.01)
Change in accounting policy (0.08) -
------ ------
Net income $ 0.20 $ 0.11
====== ======
Fully diluted earnings per share (1)
Average number of primary common and
common equivalent shares outstanding 102,907,234 101,251,875
Additional shares based on period-
end price applicable to:
Restricted stock 11,618 32,616
Stock options - 100,635
------------ ------------
Average number of fully diluted common
and common equivalent shares
outstanding 102,918,852 101,385,126
============ ============
Fully diluted earnings per common
and common equivalent share
Income before extraordinary items $ 0.28 $ 0.12
Extraordinary items - (0.01)
Change in accounting policy (0.08) -
------ ------
Net income $ 0.20 $ 0.11
====== ======
(1) March 31, 1993 amounts have been retroactively adjusted for three-for-two
stock split approved by Promus' Board of Directors on October 29, 1993.
-29-