ITEM 3. LEGAL PROCEEDINGS.
Bass Public Limited Company, Bass International Holdings N.V., Bass (U.S.A.) Incorporated, Holiday Corporation and Holiday Inns, Inc. (collectively "Bass") v. The Promus Companies Incorporated ("Promus"). A complaint was filed in the United States District Court for the Southern District of New York against Promus on February 6, 1992, under Civil Action No. 92 Civ. 0969 (SWK). On March 17, 1995, the Company signed a settlement agreement (the "Settlement") with Bass that will settle all claims and counterclaims in this litigation (including the resolution of certain tax issues). The Settlement is subject to approval of the court. As a result of the Settlement, $53.4 million has been charged against the Company's 1994 earnings, including $4.3 million for legal fees previously reported in corporate expense.
Certain tax matters. In connection with the 1990 spin-off (the "1990 Spin-off") of Promus and acquisition of the Holiday Inn hotel business by Bass, Promus was liable, with certain exceptions, for taxes of Holiday and its subsidiaries for all pre-1990 Spin-off tax periods. Bass was obligated under the terms of the Tax Sharing Agreement to pay Promus the amount of any tax benefits realized by Holiday as a result of adjustments to pre-1990 Spin-off tax periods of Holiday and its subsidiaries. All examinations for tax years prior to 1987 have been completed and any taxes and related interest regarding those years have been paid. A protest of all unagreed issues for the IRS examination of 1987 through the 1990 Spin-off date was filed with the IRS during the third quarter of 1993 and negotiations to resolve disputed issues continue.
Under the terms of the Settlement between Bass and the Company, the Tax Sharing Agreement will be terminated. Pursuant to the Settlement, the Company will remain obligated for certain tax issues related to Promus' subsidiaries for pre-1990 Spin-off tax periods and for certain other items related to the final resolution of the disputed issues for 1987 through the 1990 Spin-off date. Final resolution of the disputed issues is not expected to have a material adverse effect on Promus' consolidated financial position or its results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
ITEM 5.
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 "PRI". The stock is also listed on the Midwest 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 the last two years:
HIGH LOW ---- --- 1993* First Quarter......................................... 25 17 15/32 Second Quarter........................................ 32 22 29/32 Third Quarter......................................... 53 31/32 31 11/32 Fourth Quarter........................................ 55 39
First Quarter......................................... 55 1/4 36 1/2 Second Quarter........................................ 41 27 1/8 Third Quarter......................................... 38 27 3/4 Fourth Quarter........................................ 34 1/8 25 7/8
- ------------
* Retroactively adjusted for stock splits that occurred in 1993.
The approximate number of holders of record of the Company's Common Stock as of January 31, 1995, is as follows:
APPROXIMATE NUMBER OF HOLDERS OF TITLE OF CLASS RECORD - --------------------------------------------------------- ------------------ Common Stock, Par Value $0.10 per share.................. 16,993
The Company does not presently intend to declare cash dividends. The terms of the Company's Bank Facility substantially limit the Company's ability to pay cash dividends on Common Stock and limitations are also contained in agreements covering other debt of the Company. See "Management's Discussion and Analysis--Intercompany Dividend Restriction" on page 49 herein and Note 16 to the financial statements on page 74 herein. When permitted under the terms of the Bank Facility and the other debt, 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1990 through 1994 set forth under "Selected Financial and Statistical Data" on page 50 herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Since its creation on February 7, 1990, The Promus Companies Incorporated (Promus) has been a leader in the hospitality industry, operating four major brands: Harrah's, one of the premier names in the casino entertainment industry, and Embassy Suites, Hampton Inn and Homewood Suites, each leading hotel brands. On January 30, 1995, Promus announced a planned spin-off, expected to be completed by the end of second quarter 1995, that will split the Company into two independent public
corporations, one for conducting its casino entertainment business and one for conducting its hotel business. Promus, which is expected to be renamed Harrah's Entertainment, Inc., will retain ownership of the casino entertainment business. Promus' hotel operations will be transferred to a new entity, expected to be named Promus Hotel Corporation (PHC), the stock of which is to be distributed to Promus' stockholders on a one-for-two basis (the PHC Spin-off).
As a result of this announcement, Promus' historical financial statements have been restated to reflect the hotel business as discontinued operations. The PHC Spin-off is subject to a number of conditions, including regulatory, bondholder, bank lender and other third-party consents, receipt of an opinion from outside legal counsel regarding the tax-free status of the transaction, market conditions, final approval of the Board of Directors and stockholder approval.
RESULTS OF OPERATIONS
Overall
Promus' operating results include the combined results of its ownership and/or management of 15 casino entertainment properties located in Arizona, Colorado, Illinois, Louisiana, Mississippi, Missouri, Nevada and New Jersey. Most of 1994's growth occurred within the riverboat division as Promus entered new gaming markets. In January 1994, Harrah's opened a second riverboat casino in Joliet, Illinois. Harrah's also opened new riverboat casinos in Shreveport, Louisiana and North Kansas City, Missouri in April and September, respectively. Harrah's Phoenix Ak-Chin, the Company's first managed Indian gaming operation, opened on December 27, 1994. 1994 also represented the first full year of operations for Promus' initial three riverboat casinos, the first of which opened in May 1993. This increase in the number of casinos, in particular riverboat casinos, resulted in record consolidated revenues and operating income.
The increases in operating income provided by the new riverboat casinos were partially offset by increased development costs, the write-off of preopening costs related to those projects opened during the year reflecting a change in accounting policy, and the recognition of Promus' pro-rata share of Harrah's New Orleans preopening related costs. Promus expects the level of development costs to be lower in 1995. The Company continues to actively pursue additional casino development. However, development costs in 1994 included significant expenditures related to referenda in Missouri, Florida and Arkansas that are not expected to recur in 1995.
Income from continuing operations and net income for 1994 declined from the prior year due to the inclusion in 1994's financial results of a $53.4 million provision for the settlement of litigation, related legal fees and other expenses, as discussed further below. Excluding this amount from the comparison, 1994 income from continuing operations and net income increased 37.4% and 52.0%, respectively, over the prior year.
Promus' overall operating margin declined 0.5 percentage points for 1994 as compared to the prior year due to the impact of the increased development costs, the write-off of preopening costs and the equity pick-up of the Harrah's New Orleans project pre-operating losses. If the impact of these three items is excluded from the comparison, Promus' operating margin would have increased 2.2 percentage points over the prior year, to 22.8%.
The following table summarizes operating income before preopening costs and corporate expense for 1994, 1993 and 1992 in millions of dollars and as a percent of the total for each of Promus' casino entertainment divisions:
Riverboat Division
As of the end of 1994, the Riverboat Division included the operations of six riverboat casinos, as compared to three in operation at the end of 1993. The growth in the number of operating riverboat casinos, coupled with the inclusion in 1994 of a full year of operations for the three riverboats opened during 1993, resulted in increased revenues and operating income for the Division.
The higher operating margin achieved by this Division versus the other divisions reflects the operational differences between a riverboat facility and a conventional land-based property, the economies of scale derived from the centralization of certain Division support functions and limited competition initially faced by facilities opening in new, emerging markets. Overall operating margin for the Division declined slightly during the year, reflecting primarily decreased operating margins at Promus' Mississippi casinos due to increasingly intense competition faced in those markets. Although Promus has taken actions in these markets in response to the changing operating environment and to improve operating efficiency, operating margins are not expected to return to the levels achieved during the period of limited competition.
Southern Nevada Division
As a result of capacity increases in both the Las Vegas and Laughlin markets, gaming volume for the Division decreased from 1993 levels. The decreased gaming revenue resulting from the lower volume was offset by higher Las Vegas non-gaming revenue, particularly lodging. Operating income and margins decreased from 1993 due to higher promotional costs and the lower margins inherent in non-gaming revenue.
1993 operating results reflected growth in both revenues and operating income due to increased gaming volume at both the Las Vegas and Laughlin properties. The Las Vegas property continued to benefit from the name change to Harrah's, completed in 1992, and the Laughlin property attracted more customers as a result of a third hotel tower, completed in third quarter 1992.
Northern Nevada Division
Lower gaming volume during 1994 resulted in a slight decline in revenues and operating income for the year. The decrease in volume may be attributed to the trial by traditional Northern Nevada customers of the new "mega" properties in the Las Vegas market, which opened in the fall of 1993, and severe winter weather experienced during fourth quarter 1994.
Despite lower gaming volume in 1994, the Division achieved a slight improvement in its operating margin over the prior year by continuing its emphasis on cost savings and operating efficiencies. These efforts also contributed to the 2.6 percentage points increase in operating margin for 1993 versus 1992.
Atlantic City
Atlantic City's revenue increased in 1994 as a result of slot volume growth. This increased volume can be attributed to highly focused marketing efforts undertaken in 1994, as well as to a casino renovation substantially completed during the year. Cost management initiatives kept 1994 operating expenses consistent with those of 1993, resulting in operating margin improvement.
1993 revenues were essentially even with 1992 revenues, as Harrah's Atlantic City successfully met the demands of a highly competitive market. Operating income increased slightly in 1993 over 1992 as a result of cost management measures.
Harrah's New Orleans
Revenues and operating income for 1994 include a loss of $8.5 million related to Promus' investment in Harrah's Jazz Company. This loss represents Promus' pro-rata share of preoperating losses incurred by the partnership developing Harrah's New Orleans. (See Capital Spending and Development section for further discussion of the current status of this development project.)
Other Factors Affecting Income Per Share
Corporate expense in 1994 increased from the 1993 level, following a slight increase in 1993 versus 1992, reflecting the impact of Promus' growth on the corporate staff functions. Interest expense increased in 1994 as a result of increasing debt levels and interest rates on variable rate debt over the course of the year. 1993 interest expense decreased from the prior year due to the refinancing completed in July 1993 and favorable variable interest rates.
The provision for settlement of litigation and related costs includes a charge of $49.2 million to accrue the estimated cost, including related legal fees and other expenses, of the March 1995, settlement of certain litigation associated with the 1990 Spin-off of Promus and acquisition of the Holiday Inn business by Bass PLC. In addition to these costs, this expense category also includes legal fees and other expenses incurred related to Promus' defense of this litigation, which amounted to $4.3 million, $0.4 million and $1.8 million in 1994, 1993 and 1992, respectively. The settlement payment is expected to be made in March 1995 using funds provided by Promus' revolving credit facility and operations.
Effective January 1, 1994, Promus changed its accounting policy related to preopening costs incurred during development of new projects. Promus' new policy is to defer preopening costs as incurred prior to opening and to expense them upon opening of each project. Previously, Promus had capitalized such costs and amortized them to expense over 36 months from the date of opening. Preopening costs for 1994 primarily represent those costs charged to expense upon the opening of Harrah's Shreveport in April and Harrah's North Kansas City in September, as well as the write-off of costs related to Promus' St. Louis project (see Capital Spending and Development section). Operating results for 1994 also reflect the cumulative charge against earnings, net of income taxes, of $7.9 million, or $0.08 per share, to write off the unamortized preopening costs balances related to projects opened in prior years (see Note 4 to the accompanying consolidated financial statements).
The effective tax rate for 1994 is higher than the federal statutory rate primarily due to the inclusion in Promus' 1994 operating results of the provision for settlement of litigation, which is not expected to be deductible for federal income tax purposes, and state income taxes. The effective tax rates for 1993 and 1992 are higher than the federal statutory rate due primarily to state income taxes.
Minority interest reflects joint venture partners' shares of income at joint venture riverboat casinos, and has increased as additional joint venture casinos open.
As previously discussed, on January 30, 1995, Promus announced its plans to split the Company into two independent public corporations. Accordingly, the operating results of Promus' hotel business have been segregated and reported as discontinued operations in the accompanying consolidated financial statements of income. Promus' prior year consolidated income statements have been restated to conform to the 1994 presentation.
The extraordinary losses recorded in 1993 represent write-offs of unamortized deferred finance charges due to early retirements of debt. During 1992, Promus incurred three extraordinary items, including a $2.7 million extraordinary gain, net of tax, representing Promus' equity share of the forgiveness of debt recognized by a hotel joint venture. A second extraordinary gain of $1.8 million, net of tax, represented a discount realized by Promus upon early extinguishment of a mortgage on a company-owned hotel property. Partially offsetting these extraordinary gains was a $3.4 million extraordinary loss, net of tax, on the early extinguishment of debt, including a premium paid to holders of notes tendered under a fixed spread tender offer and the write-off of related deferred finance charges.
CAPITAL SPENDING AND DEVELOPMENT
Promus continues to pursue development opportunities within the casino entertainment industry. These opportunities include traditional land-based casinos, riverboat casinos, Indian gaming projects and international casino projects.
Harrah's New Orleans
Harrah's Jazz Company (Harrah's Jazz), in which a Promus subsidiary is one of three partners, was selected in May 1994 by the Louisiana Economic Development and Gaming Corporation (LEDGC) to negotiate for the right to own and operate the sole land-based casino permitted by law to operate in Orleans Parish, Louisiana. This selection was made pursuant to a public bidding process involving three public solicitations of proposals by the LEDGC dating back to May 1993. The negotiations with the LEDGC culminated with the execution in July 1994 of a casino operating contract with the LEDGC. In March 1994, Harrah's Jazz reached agreement with the City to lease from the City's Rivergate Development Corporation the sites of the Rivergate Convention Center, the legally mandated site of the permanent casino, and the Municipal Auditorium, the site of the temporary casino. In October 1994, Harrah's Jazz executed additional agreements with the City concerning such matters.
The estimated project cost of $815 million will be financed through a combination of partner capital contributions, public debt securities, bank debt and operating cash flow from the temporary casino. In November 1994 the Partnership sold $435 million of first mortgage notes and obtained a $175 million bank facility, $75 million of which was outstanding at December 31, 1994. At closing, the Promus subsidiary contributed a total of $90 million, including $33.3 million contributed on behalf of another partner. As a result of the Promus subsidiary's contribution on its partner's behalf, Promus currently holds an approximate 53% equity interest in the Partnership. The partner has the option to reacquire a portion of the incremental ownership percentage by making capital contributions within 120 days of the opening of the temporary casino. Because Promus' ownership of this majority interest is expected to be temporary and voting control continues to be shared equally by each partner during the option period, Harrah's Jazz is not consolidated into Promus' financial statements. Upon repayment of the capital contribution by Promus' partner, Promus' subsidiary's equity interest in the Partnership will be approximately 38.3%. If the funds available from the partner capital contributions, public debt securities, bank debt and operating cash flows are insufficient to meet the costs of developing, constructing and opening the temporary and permanent casinos, Promus has also agreed to loan Harrah's Jazz the funds necessary to complete the project, subject to certain conditions and exceptions, in exchange for a fee to be paid by Harrah's Jazz.
Construction is currently underway on the 76,000 square foot temporary casino, expected to open during second quarter 1995. Construction of the 400,000 square foot permanent casino facility (200,000 square foot casino space) is also proceeding with a targeted opening date of second quarter 1996, but the timing of completion remains subject to certain pending legal issues, including various litigation proceedings affecting the project.
Riverboat Casino Development
Three new riverboat casino entertainment projects opened in 1994. In January, Harrah's added a second riverboat casino in Joliet, Illinois. The addition of the Southern Star followed the May 1993 opening of the Northern Star, and increased Harrah's Joliet's casino square footage by more than 85%.
On April 18, 1994, Harrah's began operations aboard the Shreveport Rose, a dockside casino property located in downtown Shreveport, Louisiana. In addition to serving the Shreveport market, the facility draws customers from the Dallas, Texas metropolitan area and East Texas. The property was developed as a joint venture, with Harrah's owning an 86% interest at the property's opening. Promus has since acquired the interests of various minority partners and currently owns 99% of the project.
Harrah's North Kansas City, a 33,000 square foot riverboat and Promus' first Missouri casino, began operations on September 22, 1994. At the date of opening, traditional reel-type slot machines and other games of chance were not allowed under Missouri law; as a result, the property was initially configured with 94 table games and 807 video poker and video blackjack machines. On November 8, 1994, Missouri voters approved a statewide referendum allowing traditional slot machines and other games of chance. The property has since reconfigured its product mix to include slot machines. This reconfiguration is expected to result in higher gaming volume, operating income and operating margins for the property.
In addition to the six riverboat casinos now operating, Promus previously announced a second riverboat casino project in the state of Missouri to be located in Maryland Heights, a suburb of St. Louis. Approximately $39 million had been incurred on the project as of the end of 1994, of which $13 million is expected to be paid during 1995. Following the failure in April 1994 of a statewide referendum that would have approved games of chance for proposed casino developments in Missouri, Promus reevaluated its development plans for this project and postponed construction of the shoreside facilities at the Maryland Heights site. As a result of the voter approval of a similar referendum in November 1994, Promus resumed its development planning for this project. Subsequent to the end of the year, Promus announced plans to form a joint venture with another casino entertainment company to jointly develop a riverboat casino entertainment complex in Maryland Heights. Each company will develop and operate its separately branded riverboat casino, and Promus and its partner will jointly develop the related shoreside facilities. Subject to the receipt of the necessary approvals, construction is expected to begin in second quarter 1995 and be completed in second quarter 1996.
A 30,000 square foot riverboat casino was moved to Shreveport, Louisiana, in February 1995 and placed in service as a replacement vessel for the existing Shreveport Rose, which contained 19,500 square feet. This exchange resulted in approximately 27% more gaming positions at Harrah's Shreveport. The Shreveport Rose was moved from Shreveport to a dockyard in Louisiana and will be available for use at another as yet undetermined site. The costs associated with exchanging the boats and with maintaining the Shreveport Rose until it is returned to service are not material.
Indian Lands
Promus opened its first Indian gaming facility on Native American land on December 27, 1994. Harrah's Ak-Chin Phoenix is located on the Maricopa Indian Reservation approximately 25 miles south of Phoenix and 90 miles north of Tucson. The casino entertainment facility is owned by the Ak-Chin tribe and is managed by Promus for a fee under terms of a management contract with a five year term. Though Promus did not fund the development, it has guaranteed the related bank financing.
Promus is in various stages of negotiations or agreements with a number of other Indian communities to develop and/or manage facilities on Indian lands, which would require approvals from various government agencies to proceed.
International
Promus and its local partner began construction of a casino in Auckland, New Zealand, during second quarter 1994. Promus will own a 20% interest in the partnership and will manage the facility for a fee. Of Promus' total expected capital contribution of US$30.5 million, US$1.4 million had been contributed at December 31, 1994. Construction of the US$331 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.
Acquisition of Station Square
During August 1994, a general partnership in which Promus is a 75% partner completed its acquisition of Station Square, an entertainment, business and retail center in Pittsburgh, Pennsylvania. The approximately 52-acre Station Square site includes approximately 25 acres of land available for development and extends along the Monongahela River, across from the Golden Triangle of Pittsburgh.
If casino gaming is legalized in this jurisdiction, the partnership plans to pursue development of a casino entertainment facility at the Station Square site. Such development could require significant additional funding for design and construction of a casino entertainment facility. The project would also be contingent upon approval by necessary regulatory and governmental authorities and obtaining the required licenses to operate a gaming facility.
Existing Casino Facilities
Promus has begun construction of a $28.6 million company-owned hotel, being developed under a license agreement with Hampton Inn, on the site of Harrah's Reno. The 408-room, 26-story hotel is expected to begin operations in fourth quarter 1995. Although Promus is considering additions of casino square footage or hotel rooms at certain of its other existing casino entertainment properties, no major additions are currently underway. On-going refurbishment and maintenance of Promus' casino entertainment facilities continues to maintain the quality standards set for these properties.
Overall
In addition to the projects discussed above, Promus continues to pursue additional casino entertainment development opportunities in various possible jurisdictions across the United States and abroad. Until 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. Other preopening costs are deferred as incurred and expensed at the respective property's opening.
A number of these 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. 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 and Liquidity section), joint venture partners, specific project financing, guarantees by Promus of third party debt and, if necessary, Promus debt and/or equity offerings. Promus' capital spending totalled $316 million during 1994. Anticipated 1995 capital expenditures are estimated at $250 million to $275 million, including the projects discussed in this Capital Spending and Development section, refurbishment of existing facilities and other projects.
DEBT AND LIQUIDITY
Bank Facility Available Borrowing Capacity
Promus currently has in place a $650 million reducing revolving and letter of credit facility (the Facility). At December 31, 1994, $288.6 million in borrowings was outstanding under the Facility. An additional $226.4 million of the Facility was committed to back certain letters of credit, including a $204.7 million letter of credit supporting the existing 9% Notes. These facility commitments resulted in $135.0 million of the Facility being available to Promus as of December 31, 1994. In connection with the proposed PHC Spin-off, Promus is negotiating a new $350 million bank facility (the PHC Facility) to be secured by the stock of PHC and its material subsidiaries. Prior to the PHC Spin-off, it is expected that approximately $210 million will be drawn on the PHC Facility and used to retire a portion of Promus' existing outstanding debt. The PHC Facility will be assumed by PHC, and Promus will be released from liability, upon consummation of the PHC Spin-off. As a result, Promus is negotiating amendments to the Facility which are expected to include, among other things, a reduction in its borrowing capacity available under the Facility, in recognition of its reduced capital needs after the PHC Spin-off, and modifications to certain financial covenants.
The maturity of the 9% Notes in February 1995 resulted in a reduction of the letter of credit facility portion to $50 million. Because the Bank Facility was used to retire the Notes, the total committed and total available Bank Facility balances remained substantially unchanged as a result of the 9% Notes' maturity.
Interest Rate Reduction
As a result of achieving investment grade status during second quarter 1994, the interest rate on Promus' Bank Facility was reduced by 1/4 of 1%. At December 31, 1994, the interest rate had also been reduced by an additional 3/8 of 1% due to Promus' exceeding a defined financial covenant requirement.
Interest Rate Agreements
To manage the relative mix of its debt between fixed and variable rate instruments, Promus enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt without an exchange of the underlying principal amount. As of December 31, 1994, Promus was a party to the following interest rate swap agreements on certain fixed rate debt:
In accordance with the terms of the interest rate swap agreements, the effective interest rate on $50 million of the 8 3/4% Notes was adjusted on January 15, 1995, to 10.01%.
Promus also 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, which at December 31, 1994, held Promus' interest rate in a range between 8.7% and 11.9%, expires in June 1995 and is not expected to be renewed.
During January 1995, Promus entered into four additional interest rate swap agreements to effectively convert a total of $200 million in variable rate debt to a fixed rate in expectation of the scheduled retirement of $200 million of Promus' outstanding 9% Notes using borrowings under the
variable rate Bank Facility. During March 1995, Promus entered into two additional interest rate swap agreements to effectively convert an additional $100 million in variable rate debt to a fixed rate reflecting Promus' on-going management of the relative mix of its debt between fixed and variable rates in light of an increased level of borrowings under the Bank Facility. All six swaps, which are summarized in the following table, reset on a quarterly basis.
The differences to be paid or received under the terms of the interest rate swap agreements and the rate collar transaction described above are accrued as interest rates change and recognized 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. These agreements contain a credit risk that the counterparties may be unable to meet the terms of the agreements. Promus minimizes that risk exposure by evaluating the creditworthiness of its counterparties, which are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties.
As a component of a transaction whereby Promus effectively secured an option to a site for a potential casino, Promus has guaranteed a third party's $25 million variable rate bank loan. Promus also entered into an interest rate swap agreement in which Promus receives a fixed interest rate of 7% from the third party and pays the variable interest rate of the subject debt (LIBOR plus 1.75% at December 31, 1994) to the bank. The negative value of the swap, which is marked to market by the Company and included in interest expense, was approximately $1.1 million at December 31, 1994. Promus' guarantee and the swap agreement expire December 1, 1996, and are also subject to earlier termination upon the occurrence of certain events.
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. The shelf registration expires in August 1995. The name of the Embassy legal entity will be changed in connection with the PHC Spin-off and the re-named entity will remain a subsidiary of Promus.
INCOME TAX MATTERS
Under the terms of the Settlement between Promus and Bass PLC (Bass), the Tax Sharing Agreement entered into in connection with the February 7, 1990, spin-off (the 1990 Spin-off) of the stock of Promus to stockholders of Holiday Corporation will be terminated. Under the Tax Sharing Agreement, Promus was liable, with certain exceptions, for taxes of Holiday and its subsidiaries for all pre-1990 Spin-off tax periods. Bass was obligated under the same agreement to pay Promus the amount of any tax benefits realized from pre-1990 Spin-off tax periods of Holiday and its subsidiaries. Under the provisions of the Settlement, Promus will remain obligated for certain tax issues related to Promus and its subsidiaries for the pre-Spin-off tax periods and certain other items related to the final resolution
of disputed issues from the Internal Revenue Service (IRS) examination of income tax returns for 1987 through the 1990 Spin-off date. A protest defending the taxpayers' position on all disputed issues for these periods was filed with the IRS during third quarter 1993 and negotiations to resolve these issues continue. Final resolution of the disputed issues is not expected to have a material adverse effect on Promus' consolidated financial position or its results of operations.
EQUITY TRANSACTIONS
On April 29, 1994, Promus' stockholders approved an amendment to the Certificate of Incorporation which increased the number of authorized shares from 120 million to 360 million and reduced the par value per share from $1.50 to $0.10. As a result, previously reported amounts for prior years in the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity have been restated to reclassify amounts from common stock to capital surplus to retroactively reflect the impact of the change in par value.
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 adding more than 350,000 square feet of casino space and 10,000 rooms to the market. Since that time, plans for several new facilities have been announced. In Laughlin, expansions by competitors completed in 1993 increased the number of rooms available in that market by 12%. In Reno, competitors continue the development of new projects which are expected to add additional casino space and hotel rooms to that market during 1995.
In addition, the expansion of casino gaming activity into new jurisdictions is continuing due to the growing acceptance of casino gaming as a form of entertainment and as an alternative tax revenue source for municipalities and states. Certain jurisdictions have restrictions on entry into the market, either through limitations on number of licenses granted or required minimum initial capital investment, which serve to limit capacity as well as to limit competition within those jurisdictions. In other jurisdictions, such as Mississippi, there are no constraints on market entry, which has created over- capacity in the market. In such markets, operating performance may suffer due to oversupply and as competing casinos engage in high cost marketing and promotional activities that increase costs for all market participants. The proliferation of casino gaming has also been furthered by the Indian Gaming Regulatory Act of 1988 which, as of February 23, 1995, had resulted in the approval of 114 compacts for the development of casinos on Native American lands in 22 states.
Promus is not able to determine the long-term 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 as discussed above, combined with the further geographic diversification and the continuing pursuit of the Harrah's national brand strategy, have well-positioned Promus to face the challenges presented by these developments and help to 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 $628.0 million at December 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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE PROMUS COMPANIES INCORPORATED
SELECTED FINANCIAL AND STATISTICAL DATA (IN MILLIONS, EXCEPT STOCK DATA AND STATISTICAL DATA) (SEE NOTES 1 AND 2)
- ------------
(a) 1994 includes a $53.4 million provision for settlement of litigation and related costs (see Note 13).
(b) Retroactively adjusted for stock splits (see Note 5).
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated balance sheets.
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 5, 14 AND 15) (IN THOUSANDS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 11) (IN THOUSANDS)
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 1--BASIS OF PRESENTATION AND ORGANIZATION
The Promus Companies Incorporated (Promus), a Delaware corporation, is a hospitality company with two primary business segments: casino entertainment and hotels. On January 30, 1995, Promus announced a planned spin-off, expected to be completed by the end of second quarter 1995, that will split the Company into two independent public corporations, one for conducting its casino entertainment business and one for conducting its hotel business. Promus, which is expected to be renamed Harrah's Entertainment, Inc., will retain ownership of the casino entertainment business. Promus' hotel operations, which include the Embassy Suites, Hampton Inn and Homewood Suites hotel brands, will be transferred to a new entity, expected to be named Promus Hotel Corporation (PHC), the stock of which is to be distributed to Promus' stockholders on a one-for-two basis (the PHC Spin-off). As a result of this announcement, Promus' historical financial statements have been restated to reflect the hotel business as discontinued operations (see Note 2). The PHC Spin-off is subject to a number of conditions, including regulatory, bondholder, bank lender and other third party approvals, receipt of an opinion from outside legal counsel regarding the tax-free status of the transaction, market conditions, final approval of the Board of Directors and stockholder approval.
Promus owns and operates 15 casino entertainment facilities in eight states 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; Tunica and Vicksburg, Mississippi; and North Kansas City, Missouri. In addition, Harrah's has an ownership interest in and manages two limited stakes casinos in Black Hawk and Central City, Colorado, and manages a casino on Indian lands near Phoenix, Arizona.
NOTE 2--DISCONTINUED OPERATIONS
As discussed in Note 1, on January 30, 1995, Promus announced a planned spin-off of its hotel operations. Accordingly, the financial position, results of operations and cash flows of Promus' hotel business have been reported as discontinued operations for all periods presented in the consolidated financial statements. Summarized financial information of the discontinued operations is presented in the following tables:
Net assets of discontinued hotel operations: DECEMBER 31, ---------------------- 1994 1993 --------- --------- Current assets...................................... $ 25,565 $ 24,259 Current liabilities................................. (34,461) (37,941) --------- --------- Net current liabilities........................... (8,896) (13,682) Land, buildings and equipment, net.................. 322,140 336,701 Other assets........................................ 72,860 85,266 Long-term debt, including allocated debt (Note 8)... (189,943) (174,645) Other liabilities and deferred taxes................ (53,153) (53,118) --------- --------- Net assets of discontinued hotel operations....... $ 143,008 $ 180,522 --------- --------- --------- ---------
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED) Earnings from discontinued hotel operations: FISCAL YEAR ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 --------- --------- ---------
Revenues................................. $ 242,724 $ 231,210 $ 218,681 Costs and expenses....................... (148,470) (163,758) (174,852) --------- --------- --------- Operating income......................... 94,254 67,452 43,829 Interest expense......................... (31,148) (33,482) (40,711) Other expense............................ 11 (3,175) 124 --------- --------- --------- Income before income taxes............... 63,117 30,795 3,242 Provision for income taxes............... (26,798) (13,869) (1,401) --------- --------- --------- Earnings from discontinued hotel operations............................... $ 36,319 $ 16,926 $ 1,841 --------- --------- --------- --------- --------- ---------
In connection with its hotel business, Promus manages certain hotels for others under agreements that 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 $38 million over the next 30 years. It is expected that PHC will assume these commitments upon consummation of the PHC Spin-off, at which time Promus will be released from any obligation.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include 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. Promus' proportionate share of interest expense of such nonconsolidated affiliates is included in interest expense (see Note 15).
Fiscal Year
As of the beginning of 1992, Promus changed from a fiscal year to a calendar year for financial reporting purposes. The impact of this change on Promus' financial statements was immaterial. For years prior to fiscal 1992, Promus' fiscal year ended on the Friday nearest to December 31. Fiscal year 1992 began on January 4, 1992.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of less than three months and are stated at the lower of cost or market value.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Supplies
Supplies inventories, which consist primarily of food, beverage and operating supplies, are stated at average cost.
Land, Buildings, Riverboats and Equipment
Land, buildings, riverboats and equipment are stated at cost. Land includes land held for future development or disposition which totaled $45.9 million and $30.4 million at December 31, 1994 and 1993, respectively. Improvements and extraordinary repairs that extend the life of the asset are capitalized. Maintenance and repairs are expensed as incurred. Interest expense is capitalized on internally constructed assets at Promus' overall weighted average borrowing rate of interest. Capitalized interest amounted to $3.8 million, $3.1 million and $2.3 million in 1994, 1993 and 1992, respectively.
Depreciation of buildings, riverboats and equipment is 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................................. 16 to 40 years Riverboats................................................. 30 years Furniture, fixtures and equipment.......................... 2 to 15 years
Treasury Stock
Shares of Promus' common stock held in treasury are reflected in the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity as if they were retired.
Revenue Recognition
Casino revenues consist of net gaming wins. Food and beverage and rooms revenues include the aggregate amounts generated by those departments at all company-owned casinos and casino hotels.
Casino promotional allowances consist principally of the retail value of complimentary food and beverages, accommodations and entertainment provided to casino patrons. The estimated costs of providing such complimentary services, classified as casino expenses through interdepartmental allocations, were as follows:
1994 1993 1992 ------- ------- ------- Food and beverage............................. $63,414 $52,057 $51,235 Rooms......................................... 13,875 13,140 12,658 Other......................................... 2,634 1,541 1,657 ------- ------- ------- $79,923 $66,738 $65,550 ------- ------- ------- ------- ------- -------
Amortization
The excess of costs over net assets of businesses acquired and other intangibles are amortized on a straight-line basis over periods up to 40 years. Deferred financing charges are amortized using the interest method based on the terms of the related debt agreements.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Preopening Costs
Preopening costs, representing primarily direct salaries and other operating costs incurred prior to the opening of new facilities, are deferred as incurred and expensed upon the opening of the related facility (see Note 4).
Earnings Per Share
Earnings per share is computed by dividing Net income by the number of weighted average common shares outstanding during the year, including common stock equivalents and adjusted for stock splits (see Note 5).
Reclassifications
Certain amounts for prior fiscal years have been reclassified to conform with the presentation for fiscal year 1994.
NOTE 4--CHANGE IN ACCOUNTING POLICY
Effective January 1, 1994, Promus changed its accounting policy relating to preopening costs incurred during development of new casino entertainment and hotel projects. Promus' new policy is to defer preopening costs as incurred prior to opening and to expense them upon opening of each project. Previously, Promus had capitalized such costs and amortized them to expense over 36 months from the date of opening. As a result of this change, operating results for the year ended December 31, 1994, reflect the cumulative charge against earnings, net of income taxes, of $7.9 million, or $0.08 per share, to write off the unamortized preopening costs related to projects opened in prior years. Operating results for 1994 also include preopening costs charged to expense of $15.3 million, primarily related to projects opened during 1994.
NOTE 5--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, previously reported amounts for prior years in the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity have been restated to reclassify amounts from common stock to capital surplus to retroactively reflect the impact of the change in par value.
On October 29, 1993, Promus' Board of Directors approved a three-for-two stock split, in the form of a stock dividend, effected by a distribution on November 29, 1993, of one additional share for each two shares owned by stockholders of record on November 8, 1993. This October 1993 split followed a two-for-one stock split, also effected as a stock dividend, approved by Promus' Board on February 26, 1993, and distributed on March 29, 1993. The par value of the additional shares issued as a result of these splits was capitalized into common stock on the balance sheet by means of a transfer from capital surplus. All references in these financial statements to numbers of common shares and earnings per share have been restated to give retroactive effect to both stock splits.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED) 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
Under the terms of employee compensation programs previously approved by the stockholders, Promus has reserved shares of its common stock for issuance under the Restricted Stock and Stock Option Plans. (See Note 14 for a description of the plans.) The following table summarizes the total number of shares authorized for issuance under each of these plans and the remaining unissued shares as of December 31, 1994:
RESTRICTED STOCK STOCK PLAN OPTION PLAN ---------- ----------- Total shares authorized for issuance under the plans............................................ 4,800,000 5,850,000 Shares issued and options granted.................. (4,300,307) (3,358,035) ---------- ----------- Shares held in reserve for issuance or grant under the plans as of December 31, 1994................ 499,693 2,491,965 ---------- ----------- ---------- -----------
Promus' Board of Directors has authorized that one-third of a special right be 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 B at a purchase price of $125 per unit, subject to adjustment. The rights also, under certain conditions, entitle the holders to purchase $250 worth of common stock for $125. These rights expire on October 5, 1996, unless Promus decides to redeem them earlier at $0.05 per right or upon the occurrence of certain other events.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 6--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Deferred costs and other consisted of the following:
1994 1993 --------- --------- Excess of cost over net assets of businesses acquired.......................................... $ 48,880 $ 50,719 Cash surrender value of life insurance (Note 14).... 44,243 40,258 Deferred finance charges............................ 12,265 15,065 Receivables due after one year, net of allowance for doubtful accounts of $75 in 1994.................. 3,941 19,966 Preopening costs (Note 4)........................... - 22,825 Other............................................... 67,020 25,378 --------- --------- $ 176,349 $ 174,211 --------- --------- --------- ---------
Accrued expenses consisted of the following:
1994 1993 --------- --------- Insurance claims and reserves....................... $ 49,448 $ 39,859 Payroll and other compensation...................... 41,937 31,573 Accrued interest payable............................ 12,884 13,388 Deposits and customer funds......................... 12,815 12,315 Taxes, including income taxes....................... (4,419) 30,946 Other accruals...................................... 43,781 17,562 --------- --------- $ 156,446 $ 145,643 --------- --------- --------- ---------
As of December 31, 1993, Receivables due after one year and Taxes, including income taxes, included $16.4 million and $29.1 million, respectively, for estimated amounts receivable from and payable to Bass PLC (Bass) as of that date pursuant to terms of the Tax Sharing Agreement (see Note 12). At December 31, 1994, pursuant to the terms of the Settlement with Bass, all amounts receivable from or payable to Bass have been reclassified in the Consolidated Balance Sheet to Accrued litigation settlement and related costs (see Note 13).
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 7--EXTRAORDINARY ITEMS
The components of the net extraordinary items for fiscal 1993 and 1992 were as follows:
1993 1992 --------- --------- Losses on early extinguishments of debt............. $ (8,862) $ (5,558) Income tax benefit.................................. 3,415 2,112 --------- --------- (5,447) (3,446) --------- --------- Extraordinary items related to discontinued hotel operations Gain on forgiveness of joint venture debt......... - 4,353 Gain due to discounting of debt at extinguishment.................................. - 3,032 --------- --------- - 7,385 Income tax provision.............................. - (2,865) --------- --------- - 4,520 --------- --------- Extraordinary items, net of income taxes............ $ (5,447) $ 1,074 --------- --------- --------- ---------
There were no extraordinary items reported in fiscal 1994.
NOTE 8--LONG-TERM DEBT
Long-term debt consisted of the following:
1994 1993 --------- --------- Secured Bank Facilities Revolving Credit Facility, 4.7%-8.5% at December 31, 1994, maturity 1998................ $ 288,550 $ 170,000 9% Notes, backed by letter of credit, maturity 1995............................................ 199,977 199,790 Unsecured Senior Subordinated Notes 8 3/4%, maturity 2000............................. 200,000 200,000 10 7/8%, maturity 2002............................ 200,000 200,000 Unsecured Notes Payable 8 3/8%-15%, maturities to 2001.................... 27,862 68,148 Debt allocated to discontinued hotel operations..... (187,860) (171,777) --------- --------- 728,529 666,161 Current portion of long-term debt................... (1,036) (1,002) --------- --------- $ 727,493 $ 665,159 --------- --------- --------- ---------
Promus is negotiating a new $350 million bank facility (Hotel Facility), to be secured by the stock of PHC and its material subsidiaries. Prior to the PHC Spin-off, it is expected that approximately $210 million will be drawn on the Hotel Facility and used to retire a portion of Promus' existing outstanding debt. The Hotel Facility will be assumed by PHC, and Promus will be released from liability, upon consummation of the PHC Spin-off. Promus' outstanding corporate debt is not specifically related to either its casino entertainment or hotel business. Therefore, in anticipation of these transactions, a pro-rata portion of Promus' historical outstanding debt balance, unamortized deferred finance charges and interest expense has been allocated to the discontinued hotel operations for all periods presented. The
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 8--LONG-TERM DEBT (CONTINUED) amounts allocated are based on the percentage of Promus' existing debt expected to be retired using proceeds from the Hotel Facility and, together with debt specifically related to PHC of $3.3 million and $4.0 million at December 31, 1994 and 1993, respectively, are included in net assets of discontinued hotel operations.
As of December 31, 1994, annual principal requirements, net of the debt allocated to the discontinued hotel operations, for the four years subsequent to 1995 were: 1996, $1.6 million; 1997, $1.6 million; 1998, $302.7 million; and 1999, $19.4 million. Promus funded the scheduled retirement of the 9% Notes which matured on February 15, 1995 using funds drawn under the long-term revolving credit facility. Therefore, these Notes are considered to be retired in 1998 for purposes of this disclosure.
Revolving Credit Facility
Promus' secured bank facility consists of a $650 million reducing revolving and letter of credit facility (the Facility). Reductions of the borrowing capacity available under the Facility are as follows: $50 million, July 1996; $75 million, January 1997; $75 million, July 1997; and $450 million, July 1998. Of the $650 million available under the Facility, there is a sub-limit of $255 million for letters of credit. The Facility originally provided for borrowings at a base rate of either the Eurodollar rate plus 1 1/2% or prime rate plus 1/2%. As a result of achieving certain defined financial objectives contained in the Facility agreement, the interest rate on the Facility was reduced during 1994 to the Eurodollar rate plus 7/8% as of December 31, 1994. The annual fees on letters of credit and commitment fees on the unutilized portion under the Facility, at December 31, 1994, were 1 1/8% and 3/8%, respectively.
The Facility is secured by the assets of Promus' Nevada and New Jersey casino properties, the stock of its principal subsidiary, Embassy Suites, Inc. (Embassy), and certain other subsidiaries and certain other casino entertainment segment trademarks. The Facility agreement contains financial covenants requiring Promus to maintain a specific tangible net worth and to meet other financial ratios. Its covenants limit Promus' ability to pay dividends and to repurchase its outstanding shares. Approval from the banks providing the Facility will be required prior to consummation of the PHC Spin-off. In connection with the PHC Spin-off, Promus is negotiating amendments to the Facility which are expected to include, among other things, a reduction in the aggregate principal amount available under the Facility and modifications to certain financial covenants.
As of December 31, 1994, Promus' borrowings under the Facility, including amounts allocated to the discontinued hotel operations, were $288.6 million and an additional $226.4 million was committed to back certain letters of credit, including a $204.7 million letter of credit backing the 9% Notes. After consideration of these borrowings, $135.0 million of the Facility was available to Promus at December 31, 1994.
Senior Subordinated Notes
During 1993, Embassy, a wholly-owned subsidiary of Promus, completed an offering of $200 million principal amount of 8 3/4% Senior Subordinated Notes due 2000 (8 3/4% Notes). The 8 3/4% Notes are unsecured and contain covenants which, among other things, place limitations on Embassy's ability to pay dividends and make restricted payments, as defined, to Promus (see Note 16), and limit Embassy's ability to incur additional debt. The 8 3/4% Notes have essentially the same financial covenants as, and are pari passu in right of payment to, the 10 7/8% Senior Subordinated Notes due 2002 (10 7/8% Notes) issued during 1992.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 8--LONG-TERM DEBT (CONTINUED) Promus has unconditionally guaranteed Embassy's obligations under both the 8 3/4% Notes and the 10 7/8% Notes.
Interest Rate Agreements
To manage the relative mix of its debt between fixed and variable rate instruments, Promus enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt without an exchange of the underlying principal amount. At December 31, 1994 and 1993, Promus was a party to certain interest rate swap agreements pursuant to which it pays a variable interest rate in exchange for receiving a fixed interest rate. The average variable rate paid by Promus was 5.8% and 3.4% at December 31, 1994 and 1993, respectively, and the average fixed interest rate received was 5.9% at both dates. The impact of these interest rate swap agreements on the effective interest rates of the associated debt was as follows:
In accordance with the terms of the interest rate swap agreements, the effective interest rate on $50 million of the 8 3/4% Notes was adjusted on January 15, 1995 to 10.01%.
Promus also 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 June 1995 and at December 31, 1994, held Promus' interest rate in a range between 8.7% and 11.9%.
On January 24, 1995, Promus entered into additional interest rate swap agreements to effectively convert $200 million in variable rate debt to a fixed rate in expectation of using borrowings under the variable rate bank facility to fund the scheduled retirement of the $200 million 9% Notes. On March 16, 1995, Promus entered into two additional interest rate swap agreements to effectively convert an additional $100 million in variable rate debt to a fixed rate. Pursuant to the terms of these
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 8--LONG-TERM DEBT (CONTINUED) swaps, Promus will receive variable payments tied to LIBOR in exchange for Promus' payments at a fixed interest rate. The fixed rates to be paid by Promus are summarized in the following table:
The differences to be paid or received under the terms of the interest rate swap agreements and the rate collar transaction 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. 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.
As a component of a transaction whereby Promus effectively secured an option to a site for a potential casino, Promus has guaranteed a third party's $25 million variable rate bank loan. Promus also has entered into an interest rate swap agreement in which Promus receives a fixed interest rate of 7% from the third party and pays the variable interest rate of the subject debt (LIBOR plus 1.75%). The negative value of the swap, which is marked to market by Promus and included in interest expense, was approximately $1.1 million at December 31, 1994. Promus' guarantee and the swap agreement expire December 1, 1996 and are also subject to earlier termination upon the occurrence of certain events. As with the other interest rate swap agreements entered into by Promus, this agreement contains an element of risk that the counterparty may be unable to meet the terms of the agreement. Promus has minimized such exposure by obtaining a security interest in certain assets of the third party.
Shelf Registration
Embassy has an effective shelf registration with the Securities and Exchange Commission for up to $200 million of new debt securities. 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. The shelf registration expires in August 1995.
Fair Market Value
Based on the borrowing rates currently available for debt with similar terms and maturities and market quotes of its publicly traded debt, the fair value of Promus' long-term debt, including the
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 8--LONG-TERM DEBT (CONTINUED) interest rate agreements and excluding debt allocated to the discontinued hotel operations, at December 31, 1994 and 1993 was as follows:
The amounts reflected as the "carrying value" of the interest rate agreements represent the accrual balance as of the date reported. The "market value" of the interest rate agreements represent the estimated amount, considering the prevailing interest rates, that Promus would receive (or pay) to terminate the agreement as of the date reported. The above table excludes the interest rate swap agreements entered into subsequent to year-end.
NOTE 9--LEASES
Promus leases both real estate and equipment used in its operations through operating and capital leases. Leases which transfer substantially all benefit and risk incidental to the ownership of property are capitalized. In addition to minimum rentals, many leases provide for contingent rents based on percentages of revenue. Real estate operating leases range from five to 10 years with various automatic extensions totaling up to 30 years. The average remaining term for other operating leases, which generally contain renewal options, extends approximately five 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:
1994 1993 1992 ------- ------- ------- Noncancelable Minimum..................................... $ 9,919 $ 9,052 $ 8,504 Contingent.................................. - 122 - Sublease.................................... (11) (4) (26) Other......................................... 2,195 5,297 2,677 ------- ------- ------- $12,103 $14,467 $11,155 ------- ------- ------- ------- ------- -------
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 9--LEASES (CONTINUED) The future minimum rental commitments as of December 31, 1994, were as follows:
NONCANCELABLE OPERATING LEASES ------------- 1995.......................................................... $ 12,397 1996.......................................................... 9,223 1997.......................................................... 6,729 1998.......................................................... 5,550 1999.......................................................... 5,220 Thereafter.................................................... 62,132 ------------- Total minimum lease payments.................................. $ 101,251 ------------- -------------
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 10--INCOME TAXES
Promus' federal and state income tax provision (benefit) allocable to identified income statement and balance sheet line items was as follows:
1994 1993 1992 ------- -------- ------- Income before income taxes and minority interest.................................... $75,391 $ 59,394 $35,479 Discontinued operations....................... 26,798 13,869 1,401 Extraordinary items........................... - (3,415) 753 Cumulative effect of change in accounting policy...................................... (4,317) - - Stockholders' equity Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes........................ (3,252) (10,467) (3,726) Pro-rata share of proceeds from equity investee's initial public offering........ - 2,662 - ------- -------- ------- $94,620 $ 62,043 $33,907 ------- -------- ------- ------- -------- -------
Income tax expense attributable to Income before income taxes and minority interest consisted of the following:
1994 1993 1992 -------- ------- ------- Current Federal.................................... $103,264 $44,557 $25,224 State...................................... 4,992 4,424 5,361 Deferred..................................... (32,865) 10,413 4,894 -------- ------- ------- $ 75,391 $59,394 $35,479 -------- ------- ------- -------- ------- -------
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 10--INCOME TAXES (CONTINUED) The differences between the statutory federal income tax rate and the effective tax rate expressed as a percentage of Income before income taxes and minority interest were as follows:
1994 1993 1992 ---- ---- ---- Statutory tax rate................................. 35.0% 35.0% 34.0% Increases (decreases) in tax resulting from: State taxes, net of federal tax benefit.......... 3.2 2.4 7.3 Provision for settlement of litigation and related costs (Note 13)........................ 13.3 0.1 0.4 Minority interest in partnership earnings........ (3.5) (1.2) - Adjustment of valuation of deferred tax assets and liabilities due to change in tax rate...... - 0.7 - Targeted jobs tax credit......................... (1.0) (0.6) (0.5) Goodwill amortization............................ 0.5 0.4 0.7 Other............................................ 6.6 5.9 (0.2) ---- ---- ---- 54.1% 42.7% 41.7% ---- ---- ---- ---- ---- ----
The components of Promus' net deferred tax balance included in the Consolidated Balance Sheets were as follows:
1994 1993 -------- -------- Deferred tax assets Compensation........................................ $ 19,478 $ 17,874 Self-insurance reserves............................. 10,346 9,456 Preopening expenses................................. 6,515 - Investments in nonconsolidated affiliates........... 4,967 - Bad debt reserve.................................... 4,051 3,280 Deferred income..................................... 908 113 Tax credits......................................... - 618 Other............................................... 3,967 3,264 -------- -------- 50,232 34,605 -------- -------- Deferred tax liabilities Property............................................ (38,391) (50,372) Investments in nonconsolidated affiliates........... - (1,571) Other............................................... - (3,686) -------- -------- (38,391) (55,629) -------- -------- Net deferred tax asset (liability)................ $ 11,841 $(21,024) -------- -------- -------- --------
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 11--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:
1994 1993 1992 -------- ------- -------- Long-term accounts Deferred costs and other assets............ $ 1,413 $(2,534) $ (6,580) Deferred credits and other long-term liabilities.............................. (5,860) 3,129 (9,759) -------- ------- -------- Net change in long-term accounts......... $ (4,447) $ 595 $(16,339) -------- ------- -------- -------- ------- -------- Working capital accounts Receivables................................ $(15,256) $(5,185) $ (9,396) Supplies................................... 369 (1,319) (454) Prepayments................................ (1,868) (885) 6,017 Other current assets....................... (798) (7,545) (8,312) Accounts payable........................... 22,552 7,988 (2,419) Accrued expenses........................... 25,884 35,664 18,888 -------- ------- -------- Net change in working capital accounts... $ 30,883 $28,718 $ 4,324 -------- ------- -------- -------- ------- --------
Supplemental Disclosure of Cash Paid for Interest and Taxes
The following table reconciles Promus' Interest expense, net of interest capitalized, per the Consolidated Statements of Income, to cash paid for interest:
1994 1993 1992 ------- -------- ------- Interest expense, net of amount capitalized (Note 3).................................... $78,322 $ 73,080 $77,571 Adjustments to reconcile to cash paid for interest: Promus' share of interest expense of nonconsolidated affiliates (Note 15)...... (1,959) - - Net change in accruals...................... (4,923) (10,708) (5,264) Amortization of deferred finance charges.... (2,844) (3,261) (4,661) Net amortization of discounts and premiums.................................. (176) (172) (194) ------- -------- ------- Cash paid for interest, net of amount capitalized................................. $68,420 $ 58,939 $67,452 ------- -------- ------- ------- -------- -------
Cash payments, net of refunds, for income taxes, including amounts paid on behalf of the discontinued hotel operations, amounted to $116,093, $49,771 and $28,038 for 1994, 1993 and 1992, respectively (see Note 10).
NOTE 12--COMMITMENTS AND CONTINGENCIES
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 December 31, 1994, Promus
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED) has guaranteed third party loans and leases of $57 million, which are secured by certain assets, and has other contractual commitments of $64 million, excluding amounts previously recorded.
See Note 15 for discussion of the completion guarantee provided to Harrah's Jazz Company by Promus related to development of the New Orleans' casino.
Guarantee of Insurance Contract
Promus has guaranteed the value of a guaranteed investment contract with an insurance company held by Promus' defined contribution savings plan. Promus has also 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 December 31, 1994, is $8.0 million.
Self-Insurance
Promus is self-insured for various levels of general liability, workers' compensation and employee medical coverage. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims.
Severance Agreements
Promus has severance agreements with 11 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 December 31, 1994, that would have been payable under the agreements to these executives based on earnings and stock options aggregated approximately $27.7 million.
Tax Sharing Agreements
Under the terms of the Settlement between Promus and Bass PLC (Bass) (see Note 13), the Tax Sharing Agreement entered into in connection with the February 7, 1990, spin-off (the 1990 Spin-off) of the stock of Promus to stockholders of Holiday Corporation will be terminated. Under the Tax Sharing Agreement, Promus was liable, with certain exceptions, for taxes of Holiday and its subsidiaries for all pre-1990 Spin-off tax periods. Bass was obligated under the same agreement to pay Promus the amount of any tax benefits realized by Holiday as a result of adjustments to pre-1990 Spin-off tax periods of Holiday and its subsidiaries. Under the provisions of the Settlement, Promus will remain obligated for certain tax issues related to Promus and its subsidiaries for the pre-1990 Spin-off tax periods and certain other items related to the final resolution of disputed issues from the Internal Revenue Service (IRS) examination of income tax returns for 1987 through the 1990 Spin-off date. A protest defending the taxpayers' position on all disputed issues for these periods was filed with the IRS during third quarter 1993 and negotiations to resolve these issues continue. Final resolution of the disputed issues is not expected to have a material adverse effect on Promus' consolidated financial position or its results of operations.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 13--LITIGATION
In March 1995, Promus entered into a settlement agreement (the Settlement) with Bass of all claims related to the Merger Agreement and Tax Sharing Agreement arising from the 1990 Spin-off of Promus and acquisition of the Holiday Inn hotel business by Bass. As a result of the Settlement, which is subject to approval of the court, a charge of $49.2 million was recorded in 1994 to accrue the estimated cost of the Settlement, the related legal fees and other associated expenses. In addition to these costs, legal fees and other expenses incurred related to Promus' defense of this litigation are included in the Provision for settlement of litigation and related costs in the Consolidated Statements of Income for all periods presented. Such costs amounted to $4.3 million, $0.4 million and $1.8 million in 1994, 1993 and 1992, respectively. Payments for the Settlement are not expected to be deductible for federal income tax purposes (see Note 10).
Promus is 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 material adverse effect upon Promus' consolidated financial position or its results of operations.
NOTE 14--EMPLOYEE BENEFIT PLANS
Savings and Retirement Plan
Promus maintains a defined contribution savings and retirement plan, which, among other things, allows pre-tax and after-tax contributions to be made by employees to the plan. Under the plan, participating employees may elect to contribute 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 company stock fund, a diversified stock fund, an aggressive stock fund, a long-term bond fund, an income fund and a treasury fund. Participants become vested in Promus' matching contribution over seven years of credited service. Promus' contribution expense for this plan was $11.4 million, $10.2 million and $8.9 million in 1994, 1993 and 1992, respectively.
Employee Stock Ownership Plan
Promus has an employee stock ownership plan, which is a noncontributory stock bonus plan covering employees of Promus and its affiliates. Promus' contributions to the plan are discretionary and are made only if approved by the Human Resources Committee of Promus' Board of Directors. Contributions of $0.5 million, $0.7 million and $0.8 million were approved for the plan years 1994, 1993 and 1992, respectively.
Restricted Stock and Stock Option Plans
As a component of Promus' retention and long-term compensation packages, key employees may be granted shares of common stock under the Promus Restricted Stock Plan (RSP) and/or options to purchase shares of Promus common stock under the Promus Stock Option Plan (SOP). Shares granted under the RSP are restricted as to transfer and subject to forfeiture during a specified period or periods prior to vesting. The shares generally vest over staggered periods ranging from two to four years. No awards of RSP shares may be made under the current plan after November 1999. The deferred compensation related to the RSP shares is generally amortized to expense over the vesting period. This expense totaled $4.4 million, $4.8 million and $4.3 million in 1994, 1993 and 1992, respectively.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 14--EMPLOYEE BENEFIT PLANS (CONTINUED) 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. No options may be granted under the SOP after November 1999. A summary of stock option transactions during 1994 follows:
Deferred Compensation Plans
Promus maintains deferred compensation plans under which certain employees and its directors may defer a portion of their compensation. Amounts deposited into these plans are unsecured liabilities of Promus and earn interest at rates approved by the Human Resources Committee of the Board of Directors. The total liability included in Deferred credits and other liabilities for these plans at December 31, 1994 and 1993 was $35.9 million and $31.0 million, respectively. In connection with the administration of one of these plans, Promus has purchased company-owned life insurance policies insuring the lives of certain directors, officers and key employees.
Multi-Employer Pension Plan
Approximately 2,600 of Promus' employees are covered by union sponsored, collectively bargained multi-employer pension plans. Promus contributed and charged to expense $1.9 million, $2.0 million and $1.8 million in 1994, 1993 and 1992, respectively, for such plans. The plans' administrators do not provide sufficient information to enable Promus to determine its share, if any, of unfunded vested benefits.
NOTE 15--NONCONSOLIDATED AFFILIATES
Harrah's Jazz Company
A Promus subsidiary owns an approximate 53% equity interest in Harrah's Jazz Company (Harrah's Jazz), the partnership developing the sole land-based casino permitted by law to operate in Orleans Parish, Louisiana. One of Promus' partners in Harrah's Jazz has an option to purchase an additional equity interest of approximately 14.6% from Promus for $33.3 million at any time until 120 days after opening of the temporary casino. Due to the existence of this option and its likelihood of being exercised, Promus' ownership of a majority interest in Harrah's Jazz is expected to be temporary. As a result, Harrah's Jazz is not consolidated into Promus' financial statements.
Summarized balance sheet and income statement information for Harrah's Jazz, which Promus accounted for using the equity method, as of December 31, 1994 and 1993, and for the period from
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 15--NONCONSOLIDATED AFFILIATES (CONTINUED) November 29, 1993 (date of inception) through December 31, 1993, and the year ended December 31, 1994 were as follows:
The estimated cost of the project is $815 million, of which approximately $251 million had been incurred as of December 31, 1994, and is being financed through a combination of partner capital contributions, public debt securities, bank debt and operating cash flow from the temporary casino to be operated by Harrah's Jazz during construction of the permanent casino. If the funds available from these sources are insufficient to meet the costs of developing, constructing and opening the temporary and permanent casinos, Promus has agreed to loan Harrah's Jazz the funds necessary to complete the project, subject to certain important conditions and exceptions, in exchange for a $12.2 million fee to be paid by Harrah's Jazz.
Other
Condensed financial information relating to a foreign casino property currently under development and a restaurant subsidiary has not been presented since their operating results and financial position are not material to Promus either individually or in the aggregate.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 15--NONCONSOLIDATED AFFILIATES (CONTINUED) Promus' share of nonconsolidated affiliates' net income (losses), including Harrah's Jazz, is reflected in the accompanying Consolidated Statements of Income as follows:
During 1993, an equity investee of Promus completed an initial public offering of its common stock. As required by equity accounting rules, Promus increased the carrying value of its investment by an amount equal to its pro- rata share of the proceeds of the investee's offering, approximately $6.4 million. A corresponding increase was recorded in the combination of Promus' capital surplus and deferred income tax liability accounts. As a result of this offering, Promus' ownership interest fell below 20% and, accordingly, the investment is no longer accounted for on the equity method.
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
NOTE 16--SUMMARIZED FINANCIAL INFORMATION
Embassy is a wholly owned subsidiary and the principal asset of Promus. Summarized financial information of Embassy as of December 31, 1994 and 1993 and for each of the three fiscal years ended December 31, 1994, prepared on the same basis as Promus, was as follows:
1994 1993 1992 ---------- ---------- -------- Current assets.......................... $ 171,445 $ 141,494 Land, buildings, riverboats and equipment, net........................ 1,129,841 1,001,502 Net assets of discontinued hotel operations............................ 143,008 180,522 Other assets............................ 293,015 205,188 ---------- ---------- 1,737,309 1,528,706 ---------- ---------- Current liabilities..................... 280,295 202,496 Long-term debt.......................... 727,492 665,159 Other liabilities....................... 74,043 98,178 Minority interest....................... 18,267 14,336 ---------- ---------- 1,100,097 980,169 ---------- ---------- Net assets........................ $ 637,212 $ 548,537 ---------- ---------- ---------- ---------- Revenues................................ $1,337,110 $1,018,776 $890,650 ---------- ---------- -------- ---------- ---------- -------- Operating income........................ $ 267,742 $ 207,931 $160,056 ---------- ---------- -------- ---------- ---------- -------- Income from continuing operations....... $ 49,044 $ 74,867 $ 49,577 ---------- ---------- -------- ---------- ---------- -------- Net income.............................. $ 77,430 $ 85,167 $ 52,184 ---------- ---------- -------- ---------- ---------- --------
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. 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 $628.0 million at December 31, 1994.
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 which 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 Promus officers or employees. The Audit Committee meets from time to time with the independent public accountants, management and the internal auditors. Promus' internal auditors report directly to the Audit Committee pursuant to gaming regulations. The independent public accountants have direct access to the Audit Committee, with and without the presence of management representatives.
MICHAEL D. ROSE MICHAEL N. REGAN Chairman of the Board Vice President, Controller and Chief Accounting Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Promus Companies Incorporated:
We have audited the accompanying consolidated balance sheets of The Promus Companies Incorporated (a Delaware corporation) and subsidiaries (Promus) as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years ended December 31, 1994. 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, 1994 and 1993 and the results of its operations and its cash flows for each of the three years ended December 31, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed under Item 14(a)2 on page 79 are the responsibility of Promus' 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.
As explained in Note 4 to the consolidated financial statements, effective January 1, 1994, Promus changed its method of accounting for preopening costs.
ARTHUR ANDERSEN LLP
Memphis, Tennessee, March 20, 1995.
THE PROMUS COMPANIES INCORPORATED
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ------------
(1) Fourth quarter 1994 includes a $53.4 million provision for settlement of litigation and related costs (see Note 13).
(2) 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 and common equivalent shares outstanding.
(3) Retroactively adjusted for stock splits (see Note 5).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS. DIRECTORS
See the information regarding the names, ages, positions and prior business experience of the directors of the Company set forth in the subsection "Nominees" under "Election of Promus Directors" in the Proxy Statement which subsection is incorporated herein by reference.
EXECUTIVE OFFICERS
See "Executive Officers of the Registrant" on page 38 in Part I hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the subsections "Compensation of Directors", "Executive Officer Compensation" and "Certain Employment Arrangements" under "Election of Promus Directors" in the Proxy Statement which subsections are incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information set forth in the subsection "Ownership of Promus Securities" under "Election of Directors" in the Proxy Statement which subsection is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information set forth in the subsection "Certain Transactions" under "Election of Directors" in the Proxy Statement which subsection is incorporated herein by reference.
PART IV
ITEM 14.
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, 1994 and 1993.
Consolidated Statements of Income for the Fiscal Years Ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1994, 1993 and 1992.
2. Schedules for the fiscal years ended December 31, 1994, 1993 and 1992, 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.
3. Exhibits (footnotes appear on pages 86 and 87):
- ------------
** Filed 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.
- ------------
+ 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.
- ------------
** Filed 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.
- ------------
+ 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
- ------------
** Filed 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 the Company's Registration Statement on Form 10, File No. 1-10410, filed on December 13, 1989.
(2) Incorporated by reference from the Company's Current Report on Form 8-K dated February 16, 1990, File No. 1-10410.
(3) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 1988, filed March 31, 1988, File No. 1-8900.
(4) Incorporated by reference from Amendment No. 3 to Form S-1 Registration Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No. 33-73370, filed August 4, 1994.
(5) Incorporated by reference from Holiday Inns, Inc's Registration Statement on Form S-3, File No. 33-11163, filed December 31, 1986.
(6) Incorporated by reference from the Company's and Embassy Suites, Inc.'s Amendment No. 2 to Form S-4 Registration Statement, File No. 33-49509-01, filed July 16, 1993.
(7) Incorporated by reference from Holiday Inns, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 30, 1983, filed March 21, 1984, File No. 1-4804.
(8) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended December 30, 1988, filed March 30, 1989, File No. 1-8900.
(9) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1986, filed March 28, 1986, File No. 1-8900.
(10) 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.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(12) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1989, filed March 28, 1990, File No. 1-10410.
(13) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1990, filed March 21, 1991, File No. 1-10410.
(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1991, filed November 8, 1991, File No. 1-10410.
(15) Incorporated by reference from Amendment No. 2 to the Company's and Embassy's Registration Statement on Form S-1, File No. 33-43748, filed March 18, 1992.
(16) Incorporated by reference from Harrah's Jazz Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, filed December 21, 1994, File No. .
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(18) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, filed March 12, 1993, File No. 1-10410.
(19) Incorporated by reference from the Company's Current Report on Form 8-K filed August 6, 1993, File No. 1-10410.
(20) Incorporated by reference from Post-Effective Amendment No. 1 to the Company's Form S-8 Registration Statement, File No. 33-32864-01, filed July 22, 1993.
(21) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, filed August 12, 1993, File No. 1-10410.
(22) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, filed November 12, 1993, File No. 1-10410.
(23) Incorporated by reference from Amendment No. 5 to Form S-1 Registration Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No. 33-73370, filed October 26, 1994.
(24) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed March 28, 1994, File No. 1-10410.
(25) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, filed May 12, 1994, File No. 1-10410.
(26) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, filed August 11, 1994, File No. 1-10410.
(27) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, filed November 14, 1994, File No. 1-10410.
(28) Incorporated by reference from Amendment No. 4 to Form S-1 Registration Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No. 33-73370, filed October 12, 1994.
(b) No Reports on Form 8-K were filed during the fourth quarter of 1994 and thereafter through March 20, 1995.
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.
THE PROMUS COMPANIES INCORPORATED
Dated: March 21, 1995 By: 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.
SCHEDULE I
THE PROMUS COMPANIES INCORPORATED CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS (IN THOUSANDS)
The accompanying Notes to Financial Statements are an integral part of these balance sheets.
S-1
SCHEDULE I (CONTINUED) THE PROMUS COMPANIES INCORPORATED CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME (IN THOUSANDS)
The accompanying Notes to Financial Statements are an integral part of these statements.
S-2
SCHEDULE I (CONTINUED) THE PROMUS COMPANIES INCORPORATED CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS (IN THOUSANDS)
The accompanying Notes to Financial Statements are an integral part of these statements.
S-3
SCHEDULE I (CONTINUED)
THE PROMUS COMPANIES INCORPORATED CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO FINANCIAL STATEMENTS
NOTE 1--BASIS OF ORGANIZATION
The Promus Companies Incorporated (Promus), a Delaware corporation, is a holding company, the principal assets of which are the capital stock of two subsidiaries, Embassy Suites, Inc. (Embassy) and Aster Insurance Ltd. (Aster). These condensed financial statements should be read in conjunction with the consolidated financial statements of Promus and subsidiaries.
On January 30, 1995, Promus announced a planned spin-off, expected to be completed by the end of second quarter 1995, that will split the company into two independent public corporations, one for conducting its casino entertainment business and one for conducting its hotel business. Promus, which is expected to be renamed Harrah's Entertainment, Inc., will retain ownership of the casino entertainment business. Promus' hotel operations, which include the Embassy Suites, Hampton Inn and Homewood Suites hotel brands, will be transferred to a new entity, expected to be named Promus Hotel Corporation (PHC), the stock of which is to be distributed to Promus' stockholders on a one-for-two basis (the PHC Spin-off). As a result of this announcement, Promus' historical financial statements have been restated to reflect the hotel business as discontinued operations. The PHC Spin-off is subject to a number of conditions, including regulatory, bondholder, bank lender and other third party consents, receipt of an opinion from outside legal counsel regarding the tax-free status of the transaction, market conditions, final approval of the Board of Directors and stockholder approval.
NOTE 2--FISCAL YEAR
As of the beginning of fiscal 1992, Promus changed from a fiscal year to a calendar year for financial reporting purposes. The impact of this change on Promus' financial statements was immaterial.
NOTE 3--ORGANIZATIONAL COSTS
Organizational costs are being amortized on a straight-line basis over a five year period.
NOTE 4--OWNERSHIP OF ASTER
The value of Promus' investment in Aster has been reduced below zero. Promus' negative investment in Aster at December 31, 1994 and 1993 was $13.4 million and $12.8 million, respectively, and is included in investments in and advances to subsidiaries on the balance sheet. In addition, Promus has guaranteed the future payment by Aster of certain insurance-related liabilities.
NOTE 5--LONG-TERM DEBT
Promus has no long-term debt obligations. Promus has guaranteed certain long-term debt obligations of Embassy.
NOTE 6--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, previously reported amounts
S-4
SCHEDULE I (CONTINUED)
THE PROMUS COMPANIES INCORPORATED CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO FINANCIAL STATEMENTS
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED) for the prior year in the consolidated condensed balance sheets have been restated to reclassify amounts from common stock to capital surplus to retroactively reflect the impact of the change in par value.
On October 29, 1993, Promus' Board of Directors approved a three-for-two stock split, in the form of a stock dividend, effected by a distribution on November 29, 1993, of one additional share for each two shares owned by stockholders of record on November 8, 1993. This October 1993 split followed a two-for-one split, also effected as a stock dividend, approved by the Board on February 26, 1993, and distributed on March 29, 1993. The $1.50 par value per share of Promus' common stock was unchanged by these splits. The par value of the additional shares issued as a result of these splits was capitalized into common stock on the balance sheet by means of a transfer from capital surplus. All references in these financial statements to numbers of common shares and earnings per share have been restated to give retroactive effect to both stock splits.
During 1993 an equity investee of Promus completed an initial public offering of its common stock. As required by equity accounting rules, Promus increased the carrying value of its investment by an amount equal to its pro- rata share of the proceeds of the investee's offering, approximately $6.4 million. A corresponding increase was recorded in the combination of Promus' capital surplus and deferred income tax liability accounts. As a result of this offering, Promus increased its capital surplus by approximately $3.8 million.
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
NOTE 7--INCOME TAXES
Promus files a consolidated tax return with its subsidiaries.
NOTE 8--EXTRAORDINARY ITEMS
Promus' equity in Embassy's net extraordinary items for fiscal 1993 and 1992 were as follows:
1993 1992 ------- ------- Loss on early extinguishments of debt................... $(8,862) $(5,558) Gain on forgiveness of joint venture debt............... - 4,353 Gain due to discontinuing of debt at extinguishment..... - 3,032 ------- ------- (8,862) 1,827 Income tax benefit (provision).......................... 3,415 (753) ------- ------- Extraordinary items, net of income taxes................ $(5,447) $ 1,074 ------- ------- ------- -------
S-5
SCHEDULE I (CONTINUED)
THE PROMUS COMPANIES INCORPORATED CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO FINANCIAL STATEMENTS
NOTE 9--CHANGE IN ACCOUNTING POLICY
Effective January 1, 1994, Promus changed its accounting policy relating to preopening costs incurred during development of new casino entertainment and hotel projects. Promus' new policy is to defer preopening costs as incurred prior to opening and to expense them upon opening of each project. Previously, Promus had capitalized such costs and amortized them to expense over 36 months from the date of opening. As a result of this change, operating results for the year ended December 31, 1994, reflect the cumulative charge against earnings, net of income taxes, of $7.9 million, or $0.08 per share, to write off the unamortized preopening costs related to projects opened in prior years.
NOTE 10--COMMITMENTS AND CONTINGENCIES
A Promus subsidiary is one of three partners in Harrah's Jazz Company (Harrah's Jazz), a partnership developing a land-based casino entertainment facility in New Orleans, Louisiana. The estimated cost of the project is $815 million, of which approximately $251 million had been incurred as of December 31, 1994, is being financed through a combination of partner capital contributions, public debt securities, bank debt and operating cash flow from a temporary casino to be operated by Harrah's Jazz during construction of the permanent casino. If the funds available from these sources are insufficient to meet the costs of developing, construction and opening the temporary and permanent casinos, Promus has agreed to loan Harrah's Jazz the funds necessary to complete the project, subject to certain important conditions and exceptions, in exchange for a $12.2 million fee to be paid by Harrah's Jazz.
NOTE 11--LITIGATION
In March 1995, Promus entered into a settlement agreement (the Settlement) with Bass PLC (Bass) of all claims related to the Merger Agreement and Tax Sharing Agreement from the 1990 Spin-off of Promus and acquisition of the Holiday Inn hotel business by Bass. As a result of the Settlement, which is subject to approval of the court, a charge of $53.4 million was recorded in 1994 on the books of Embassy to accrue the estimated cost of the settlement, the related legal fees and other associated expenses.
S-6
SCHEDULE II
THE PROMUS COMPANIES INCORPORATED CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
- ------------
(A) Uncollectible accounts written off, net of amounts recovered.
S-7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report dated March 20, 1995, included in this Form 10-K for the year ended December 31, 1994, into the Company's previously filed Registration Statements File Nos. 33-32863, 33-32864 and 33-32865.
ARTHUR ANDERSEN LLP
Memphis, Tennessee, March 20, 1995.
EXHIBIT INDEX
- ------------
** Filed 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.
- ------------
+ 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.
- ------------
** Filed 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.
- ------------
+ 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
- ------------
** Filed 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 the Company's Registration Statement on Form 10, File No. 1-10410, filed on December 13, 1989.
(2) Incorporated by reference from the Company's Current Report on Form 8-K dated February 16, 1990, File No. 1-10410.
(3) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 1988, filed March 31, 1988, File No. 1-8900.
(4) Incorporated by reference from Amendment No. 3 to Form S-1 Registration Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No. 33-73370, filed August 4, 1994.
(5) Incorporated by reference from Holiday Inns, Inc's Registration Statement on Form S-3, File No. 33-11163, filed December 31, 1986.
(6) Incorporated by reference from the Company's and Embassy Suites, Inc.'s Amendment No. 2 to Form S-4 Registration Statement, File No. 33-49509-01, filed July 16, 1993.
(7) Incorporated by reference from Holiday Inns, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 30, 1983, filed March 21, 1984, File No. 1-4804.
(8) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended December 30, 1988, filed March 30, 1989, File No. 1-8900.
(9) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1986, filed March 28, 1986, File No. 1-8900.
(10) 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.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(12) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1989, filed March 28, 1990, File No. 1-10410.
(13) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1990, filed March 21, 1991, File No. 1-10410.
(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1991, filed November 8, 1991, File No. 1-10410.
(15) Incorporated by reference from Amendment No. 2 to the Company's and Embassy's Registration Statement on Form S-1, File No. 33-43748, filed March 18, 1992.
(16) Incorporated by reference from Harrah's Jazz Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, filed December 21, 1994, File No. .
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(18) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, filed March 12, 1993, File No. 1-10410.
(19) Incorporated by reference from the Company's Current Report on Form 8-K filed August 6, 1993, File No. 1-10410.
(20) Incorporated by reference from Post-Effective Amendment No. 1 to the Company's Form S-8 Registration Statement, File No. 33-32864-01, filed July 22, 1993.
(21) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, filed August 12, 1993, File No. 1-10410.
(22) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, filed November 12, 1993, File No. 1-10410.
(23) Incorporated by reference from Amendment No. 5 to Form S-1 Registration Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No. 33-73370, filed October 26, 1994.
(24) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed March 28, 1994, File No. 1-10410.
(25) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, filed May 12, 1994, File No. 1-10410.
(26) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, filed August 11, 1994, File No. 1-10410.
(27) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, filed November 14, 1994, File No. 1-10410.
(28) Incorporated by reference from Amendment No. 4 to Form S-1 Registration Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No. 33-73370, filed October 12, 1994.