SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission File No. 1-10410
THE PROMUS COMPANIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1411755
(State of Incorporation) (I.R.S. Employer
Identification No.)
1023 Cherry Road
Memphis, Tennessee 38117
(Address of principal executive offices)
(901) 762-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
At September 30, 1994, there were outstanding 102,391,415
shares of the Company's Common Stock.
Page 1 of 103
Exhibit Index Page 38
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited consolidated condensed financial
statements of The Promus Companies Incorporated (Promus or the
Company), a Delaware corporation, have been prepared in
accordance with the instructions to Form 10-Q, and therefore do
not include all information and notes necessary for complete
financial statements in conformity with generally accepted
accounting principles. The results for the periods indicated are
unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a
fair presentation of operating results. Results of operations
for interim periods are not necessarily indicative of a full year
of operations. These consolidated condensed financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in Promus' 1993 Annual
Report to Stockholders.
-2-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
Sept. 30, Dec. 31,
(In thousands, except share amounts) 1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 61,607 $ 61,962
Receivables, including notes receivable of
$2,264 and $2,197, less allowance for
doubtful accounts of $11,258 and $10,864 46,352 47,448
Deferred income taxes 23,961 21,024
Supplies 12,282 12,996
Prepayments and other 25,141 20,128
---------- ----------
Total current assets 169,343 163,558
---------- ----------
Land, buildings, riverboats and equipment 1,981,820 1,824,433
Less: accumulated depreciation (539,631) (486,231)
---------- ----------
1,442,189 1,338,202
Investments in and advances to
nonconsolidated affiliates 86,330 70,050
Deferred costs and other 215,219 221,308
---------- ----------
$1,913,081 $1,793,118
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 45,586 $ 60,530
Construction payables 6,976 26,345
Accrued expenses 175,043 162,969
Current portion of long-term debt 2,441 2,160
---------- ----------
Total current liabilities 230,046 252,004
Long-term debt 853,535 839,804
Deferred credits and other 116,086 86,829
Deferred income taxes 48,529 63,460
---------- ----------
1,248,196 1,242,097
---------- ----------
Minority interests 18,045 14,984
---------- ----------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity
Common stock, $0.10 par value,
authorized - 360,000,000 shares,
outstanding - 102,391,415 and 102,258,442
shares (net of 33,477 and 25,251 shares
held in treasury) 10,239 10,226
Capital surplus 348,775 344,197
Retained earnings 291,546 187,203
Deferred compensation related to
restricted stock (3,720) (5,589)
---------- ----------
646,840 536,037
---------- ----------
$1,913,081 $1,793,118
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Third Quarter Ended Nine Months Ended
(In thousands, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except per share amounts) 1994 1993 1994 1993
Revenues
Casino $304,892 $229,707 $ 831,376 $596,507
Rooms 58,561 57,287 164,618 175,171
Food and beverage 46,739 40,845 127,144 111,386
Franchise and
management fees 22,695 16,084 58,296 44,246
Other 33,445 31,009 92,898 78,890
Less: casino promotional
allowances (34,015) (28,222) (93,883) (74,036)
-------- -------- ---------- --------
Total revenues 432,317 346,710 1,180,449 932,164
-------- -------- ---------- --------
Operating expenses
Direct
Casino 139,808 94,384 368,217 265,875
Rooms 23,540 24,635 68,140 77,799
Food and beverage 22,982 24,769 68,822 66,888
Depreciation of
buildings, riverboats
and equipment 24,464 18,673 68,965 56,326
Other 98,935 85,597 283,600 236,273
-------- -------- ---------- --------
Total operating
expenses 309,729 248,058 857,744 703,161
-------- -------- ---------- --------
122,588 98,652 322,705 229,003
Preopening costs (10,172) - (15,313) -
Property transactions 2,321 2,019 1,924 1,769
-------- -------- ---------- --------
Operating income 114,737 100,671 309,316 230,772
Corporate expense (8,551) (5,456) (21,582) (19,636)
Interest expense, net of
interest capitalized (26,287) (25,361) (78,859) (81,688)
Interest and other
income 401 353 1,295 1,129
-------- -------- ---------- --------
Income before income
taxes and minority
interests 80,300 70,207 210,170 130,577
Provision for income taxes (34,419) (31,537) (88,216) (56,588)
Minority interests (1,698) (1,613) (9,679) (2,152)
-------- -------- ---------- --------
Income before
extraordinary items
and cumulative effect
of change in accounting
policy 44,183 37,057 112,275 71,837
Extraordinary losses on
extinguishments of debt,
net of income tax benefit
of $2,525 and $3,415 - (4,122) - (5,447)
Cumulative effect of change
in accounting policy, net
of tax benefit of $4,317 - - (7,932) -
-------- -------- ---------- --------
Net income $ 44,183 $ 32,935 $ 104,343 $ 66,390
======== ======== ========== ========
Earnings per share before
extraordinary items and
cumulative effect of
change in accounting
policy $ 0.43 $ 0.36 $ 1.09 $ 0.70
Extraordinary items, net - (0.04) - (0.05)
Cumulative effect of change
in accounting policy, net - - (0.08) -
-------- -------- ---------- --------
Earnings per share $ 0.43 $ 0.32 $ 1.01 $ 0.65
======== ======== ========== ========
Average common shares
outstanding 102,818 102,565 102,831 102,335
======== ======== ========== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1994 1993
Cash flows from operating activities
Net income $ 104,343 $ 66,390
Adjustments to reconcile net income
to cash flows from operating activities
Extraordinary items, before income taxes - 8,862
Cumulative effect of change in accounting
policy, before income taxes 12,249 -
Depreciation and amortization 84,064 73,128
Preopening costs charged to expense 15,313 -
Other noncash items 3,788 18,589
Minority interests share of net income 9,679 2,152
Net losses of and distributions from
nonconsolidated affiliates 8,679 1,266
Net gains from property transactions (103) (1,614)
Net change in long-term accounts (25,997) (46)
Net change in working capital accounts 36,026 15,938
Tax indemnification payments to Bass (26,466) (8,084)
--------- ---------
Cash flows provided by operating
activities 221,575 176,581
--------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment
additions (184,694) (120,084)
Investments in and advances to
nonconsolidated affiliates (26,382) (5,398)
Decrease in construction payables (19,369) -
Proceeds from property transactions 25,568 25,445
Other (23,590) (15,049)
--------- ---------
Cash flows used in investing activities (228,467) (115,086)
--------- ---------
Cash flows from financing activities
Net borrowings under revolving credit
facilities, net of issue costs of $12,500 in 1993 54,250 91,500
Proceeds from issuance
of senior subordinated
notes, net of issue costs of $4,000 - 196,000
Debt retirements (41,609) (357,741)
Minority interests (distributions) contributions (6,104) 2,867
--------- ---------
Cash flows provided by (used in)
financing activities 6,537 (67,374)
--------- ---------
Net change in cash and cash equivalents (355) (5,879)
Cash and cash equivalents, beginning
of period 61,962 43,756
--------- ---------
Cash and cash equivalents, end of period $ 61,607 $ 37,877
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
Note 1 - Basis of Presentation
------------------------------
Promus is a hospitality company with two primary business
segments: casino entertainment and hotels. Promus owns and
operates casino entertainment hotels and riverboats under the
brand name Harrah's. Harrah's casino hotels are in all five
major Nevada and New Jersey gaming markets: Reno, Lake Tahoe, Las
Vegas and Laughlin, Nevada; and Atlantic City, New Jersey.
Harrah's riverboat casinos are in Joliet, Illinois; Shreveport,
Louisiana; Tunica and Vicksburg, Mississippi; and North Kansas
City, Missouri. Harrah's also has an ownership interest in and
manages two limited stakes casinos in Black Hawk and Central
City, Colorado. The hotel segment is composed of three hotel
brands targeted to specific market segments: Embassy Suites,
Hampton Inn and Homewood Suites.
The consolidated condensed financial statements include all
the accounts of Promus and its subsidiaries after elimination of
all significant intercompany accounts and transactions.
Investments in 50% or less owned companies and joint ventures
over which Promus has the ability to exercise significant
influence are accounted for using the equity method. Promus
reflects its share of income before interest expense of these
nonconsolidated affiliates in revenues and operating income.
Promus' proportionate share of the interest expense of such
nonconsolidated affiliates is included in interest expense. (See
Note 8.)
Certain amounts for the third quarter and nine months ended
September 30, 1993, have been reclassified to conform with the
presentation for the third quarter and nine months ended
September 30, 1994.
Note 2 - Change in Accounting Policy
------------------------------------
On October 3, 1994, Promus changed its accounting policy
effective January 1, 1994, relating to preopening costs incurred
during development of new casino entertainment and hotel
projects. Promus' new policy is to capitalize preopening costs
as incurred prior to opening and to expense them upon opening of
each project. Previously, Promus 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
nine months ended September 30, 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
balances related to projects opened in prior years. Operating
results for the third quarter and the first nine months of 1994
also include preopening costs charged to expense of $10.2 million
and $15.3 million, respectively, primarily related to projects
opened during 1994.
Note 3 - Long-Term Debt
-----------------------
Interest Rate Agreements
------------------------
In order to benefit from favorable interest rates in recent
years, Promus entered into several interest rate swap agreements
on certain fixed rate debt, as summarized in the following table:
-6-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
----------------------------------
Effective Next Semi-
Swap Rate at Annual Rate
Rate Sept. 30, Adjustment Swap Agreement
Associated Debt (LIBOR+) 1994 Date Expiration Date
--------------- ------- --------- ------------ -----------------
10 7/8% Notes
$200 million 4.73% 9.16% October 15 October 15, 1997
8 3/4% Notes
$50 million 3.42% 8.85% November 15 May 15, 1998
$50 million 3.22% 8.71% January 15 July 15, 1998
In accordance with the terms of the interest rate swap
agreements, the effective interest rate on $200 million of the
10 7/8% Notes was adjusted on October 15, 1994, to 10.68%. This
rate will remain in effect until April 15, 1995.
Promus maintains interest rate protection, in the form of a
rate collar transaction entered into in June 1990, on $140 million
of its variable rate bank debt. As a result of achieving certain
financial covenant requirements during third quarter 1994, the
interest rate collar was adjusted on October 21, 1994 from a range
between 8.8% and 12.0% to a range of 8.7% to 11.9%. The interest
rate protection expires in June 1995.
The differences to be paid or received under the terms of the
interest rate swap agreements and the rate collar transaction
described above are included in interest expense as payments are
made or received. These agreements contain an element of risk
that the counterparties may be unable to meet the terms of the
agreements. Promus minimizes such risk exposure by limiting the
counterparties to major international banks and financial
institutions.
As a component of a transaction whereby Promus effectively
secured an option to a site for a potential casino, Promus has
guaranteed third party debt of $25 million and has entered into
an interest rate swap with the third party in which Promus
exchanged a fixed interest rate of 7% for 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, was
approximately $500,000 at September 30, 1994. The swap agreement
expires December 1, 1996 and is also subject to earlier
termination upon the occurrence of certain events.
Note 4 - Stockholders' Equity
-----------------------------
On April 29, 1994, Promus' stockholders approved an amendment
to the Certificate of Incorporation which increased the number of
authorized common shares from 120 million to 360 million and
reduced the par value per common share from $1.50 to $0.10. As a
result, approximately $143.2 million was transferred as of
December 31, 1993, from common stock to capital surplus on the
consolidated condensed balance sheets to retroactively reflect
the impact of the change in par value.
-7-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 4 - 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
Note 5 - Supplemental Disclosure of Cash Paid for Interest and
Taxes
-----------------------------------------------------------------
The following table reconciles Promus' interest expense, net
of interest capitalized, per the consolidated condensed
statements of income, to cash paid for interest:
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1994 1993
Interest expense, net of interest capitalized $78,859 $81,688
Adjustments to reconcile to cash paid for
interest
Promus' share of interest expense of
nonconsolidated affiliates (9,454) (9,693)
Net change in accruals (1,123) (6,019)
Amortization of deferred finance charges (2,721) (4,148)
Net amortization of discounts and premiums (164) (1,194)
------- -------
Cash paid for interest, net of amount
capitalized $65,397 $60,634
======= =======
Cash payments for income taxes, net of refunds $74,545 $34,636
======= =======
Note 6 - Commitments and Contingent Liabilities
-----------------------------------------------
Harrah's New Orleans
--------------------
A Promus subsidiary is a one-third partner in a partnership (the
Partnership) developing the sole land-based casino permitted by law
to operate in Orleans Parish, Louisiana. The estimated cost of the
project is $815 million, which is expected to be financed through a
combination of partner capital contributions, public debt securities,
bank debt and operating cash flow from the temporary casino to be
operated by the Partnership during construction of the permanent
casino. The Partnership has executed an underwriting agreement for
the sale of $435 million of first mortgage notes and a credit
agreement for a $175 million bank facility. Closing of these
agreements is expected to occur on or about November 16, 1994.
-8-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 6 - Commitments and Contingent Liabilities (Continued)
-----------------------------------------------------------
Promus has committed to provide a total capital contribution to
the Partnership at closing ranging from $56.7 million (Promus'
proportionate share of total expected capital contributions of $170
million) to $123.3 million, depending on the amount of capital
contributions made by the other partners in the Partnership. Promus
has also agreed to provide completion guarantees for the project,
subject to certain conditions and exceptions, in exchange for a fee
to be paid by the Partnership.
Contractual Commitments
-----------------------
Promus is pursuing many additional 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 September 30, 1994, Promus has
guaranteed third party debts of $67 million and has contractual
agreements, primarily related to riverboat casino facilities
construction, of $39 million, excluding amounts previously
recorded.
Promus manages certain hotels for others under agreements
which provide for payments/loans to the hotel owners if
stipulated levels of financial performance are not maintained.
In addition, Promus is liable under certain lease agreements
where it has assigned the direct obligation to third party
interests. Promus believes the likelihood is remote that
material payments will be required under these agreements.
Promus' estimated maximum exposure under such agreements is
currently less than $41 million over the next 30 years.
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
September 30, 1994, is approximately $8.1 million.
Self-Insurance
--------------
Promus is self-insured for various levels of general
liability, workers' compensation and employee medical coverage.
Insurance claims and reserves include the accrual of estimated
settlements for known and anticipated claims.
Severance Agreements
--------------------
As of September 30, 1994, Promus has severance agreements
with eleven 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
-9-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 6 - Commitments and Contingent Liabilities (Continued)
-----------------------------------------------------------
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 September 30, 1994, that
would have been payable under the agreements to these executives
based on earnings and stock options aggregated approximately
$29.3 million.
Tax Sharing Agreement
---------------------
In connection with the February 7, 1990 spin-off (the Spin-
off) of the stock of Promus to stockholders of Holiday
Corporation (Holiday), Promus is liable, with certain exceptions,
for taxes of Holiday and its subsidiaries for all pre-Spin-off
tax periods. Bass PLC (Bass) is obligated under the terms of the
Tax Sharing Agreements to pay Promus the amount of any tax
benefits realized from pre-Spin-off tax periods of Holiday and
its subsidiaries. Negotiations with the IRS to resolve disputed
issues for the 1985 and 1986 tax years were concluded and a
settlement reached during fourth quarter 1993. Final payment of
the federal income taxes and related interest due under the
settlement was made during second quarter 1994. The IRS has
completed its examination of Holiday's federal income tax returns
for 1987 through the Spin-off date and federal income taxes and
related interest assessed on agreed issues were paid during first
quarter 1994. A protest of all unagreed issues for the 1987
through Spin-off periods was filed with the IRS during the third
quarter of 1993 and negotiations to resolve those issues
continue. Final resolution of the disputed issues is not
expected to have a materially adverse effect on Promus'
consolidated financial position or its results of operations.
-10-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 7 - Litigation
-------------------
In February 1992, Bass and certain affiliates filed suit
against Promus generally alleging breaches of representations and
warranties under the Merger Agreement with respect to the 1990
Spin-off of Promus and acquisition of the Holiday Inn hotel
business by Bass, violation of federal securities laws due to
such alleged breaches, and breaches of the Tax Sharing Agreement
between Bass and Promus entered into at the closing of the Merger
Agreement. The complaint seeks an unspecified amount of damages,
unspecified punitive or exemplary damages, and declaratory
relief. Promus believes that it has complied with all applicable
laws and agreements with Bass in connection with the Merger and
is defending its position vigorously. Promus has filed (a) an
answer denying, and asserting affirmative defenses to, the
substantive allegations of the complaint and (b) counterclaims
alleging that Bass has breached the Tax Sharing Agreement, the
Merger Agreement and agreements ancillary to the Merger
Agreement. The counterclaims request unspecified compensatory
damages, injunctive and declaratory relief and Promus' costs,
including reasonable attorneys fees and expenses. Discovery has
begun, but no trial date has been set.
In addition to the matter described above, Promus is also
involved in various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other
matters arising in the normal course of business. While any
proceeding or litigation has an element of uncertainty,
management believes that the final outcome of these matters will
not have a materially adverse effect upon Promus' consolidated
financial position or its results of operations.
-11-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 8 - Nonconsolidated Affiliates
-----------------------------------
Combined summarized income statements of nonconsolidated
affiliates which Promus accounted for on the equity basis for the
third quarter and nine months ended September 30, 1994 and 1993
were as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Revenues $280,595 $273,068 $766,937 $746,982
======== ======== ======== ========
Operating income $ 24,862 $ 29,302 $ 38,779 $ 57,891
======== ======== ======== ========
Net income (loss) $ 434 $ 11,837 $(19,095) $ 4,709
======== ======== ======== ========
Promus' share of nonconsolidated affiliates' combined net
operating results is reflected in the accompanying consolidated
condensed statements of income as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Pre-interest operating
income (included in
Revenues-other) $ 2,579 $ 4,642 $ 5,922 $ 12,563
======== ======== ======== ========
Interest expense
(included in Interest
expense) $ (3,302) $ (3,293) $ (9,454) $ (9,693)
======== ======== ======== ========
Sept. 30, Dec. 31,
(In thousands) 1994 1993
Promus' investments in and advances to
nonconsolidated affiliates
At equity $51,706 $35,893
At cost 34,624 34,157
------- -------
$86,330 $70,050
======= =======
The September 30, 1994 balance includes a total investment in and
advances to the partnership developing Harrah's New Orleans of
approximately $24.1 million.
The values of certain of Promus' joint venture investments have
been reduced below zero due to Promus' intention to fund its share
of operating losses in the future, if needed. The total amount of
these negative investments included in deferred credits and other
liabilities on the consolidated condensed balance sheets was
$4.5 million and $5.1 million at September 30, 1994, and
December 31, 1993, respectively.
-12-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 9 - Summarized Financial Information
-----------------------------------------
Embassy Suites, Inc. (Embassy), is a wholly-owned subsidiary
and the principal asset of Promus. Summarized financial
information of Embassy as of September 30, 1994 and December 31,
1993, and for the third quarter and nine months September 30,
1994 and 1993, prepared on the same basis as Promus, was as
follows:
Sept. 30, Dec. 31,
(In thousands) 1994 1993
Current assets $ 170,644 $ 165,753
Land, buildings, riverboats and
equipment, net 1,442,189 1,338,202
Other assets 301,218 290,454
---------- ----------
1,914,051 1,794,409
---------- ----------
Current liabilities 217,112 240,438
Long-term debt 853,535 839,804
Other liabilities 164,973 150,646
Minority interest 18,045 14,984
---------- ----------
1,253,665 1,245,872
---------- ----------
Net assets $ 660,386 $ 548,537
========== ==========
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Revenues $431,624 $346,211 $1,178,641 $930,836
======== ======== ========== ========
Operating income $115,128 $100,423 $ 308,401 $229,361
======== ======== ========== ========
Income before income taxes
and minority interests $ 80,691 $ 70,065 $ 209,255 $129,480
======== ======== ========== ========
Income before
extraordinary items and
cumulative effect of
change in accounting
policy $ 44,437 $ 37,131 $ 111,680 $ 71,281
======== ======== ========== ========
Net income $ 44,437 $ 33,009 $ 103,748 $ 65,834
======== ======== ========== ========
The agreements governing the terms of Promus' debt contain
certain covenants which, among other things, place limitations on
Embassy's ability to pay dividends and make other restricted
payments, as defined, to Promus. Pursuant to the terms of the
most restricted covenant regarding restricted payments,
approximately $651.3 million of Embassy's net assets were not
available for payment of dividends to Promus as of September 30,
1994.
-13-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 10 - Operating Segment Information
- ---------------------------------------
Operating results for Promus' operating segments for the third quarter and
nine months ended September 30, 1994 and 1993, were as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Casino Entertainment Segment
Operating Data
Revenues
Casino $304,892 $229,707 $831,376 $596,507
Food and beverage 44,948 39,185 121,236 105,438
Rooms 30,291 29,417 80,451 78,060
Management fees 257 - 702 -
Other 19,007 18,304 51,578 43,007
Less: casino promotional
allowances (34,015) (28,222) (93,883) (74,036)
-------- -------- -------- --------
Total revenues 365,380 288,391 991,460 748,976
-------- -------- -------- --------
Operating expenses
Departmental direct costs
Casino 139,808 94,384 368,217 265,875
Food and beverage 21,192 22,948 62,999 60,682
Rooms 8,942 9,365 25,420 26,043
Other 100,554 81,469 284,260 219,001
-------- -------- -------- --------
Total operating
expenses 270,496 208,166 740,896 571,601
-------- -------- -------- --------
94,884 80,225 250,564 177,375
Preopening costs (10,172) - (15,313) -
-------- -------- -------- --------
Operating income $ 84,712 $ 80,225 $235,251 $177,375
======== ======== ======== ========
Hotel Segment Operating Data
Revenues
Rooms $ 28,270 $ 27,870 $ 84,167 $ 97,111
Franchise and
management fees 22,438 16,084 57,594 44,246
Food and beverage 1,791 1,660 5,908 5,948
Other 12,754 11,170 36,197 31,364
-------- -------- -------- --------
Total revenues 65,253 56,784 183,866 178,669
-------- -------- -------- --------
Operating expenses
Departmental direct costs
Rooms 14,598 15,270 42,720 51,756
Food and beverage 1,790 1,821 5,823 6,206
Other 20,360 21,594 62,857 70,762
-------- -------- -------- --------
Total operating
expenses 36,748 38,685 111,400 128,724
-------- -------- -------- --------
28,505 18,099 72,466 49,945
Property transactions 2,321 2,019 1,924 1,769
-------- -------- -------- --------
Operating income $ 30,826 $ 20,118 $ 74,390 $ 51,714
======== ======== ======== ========
Other Operations Segment
Operating Data
Revenues $ 1,684 $ 1,535 $ 5,123 $ 4,519
Operating expenses 2,485 1,207 5,448 2,836
-------- -------- -------- --------
Operating income (loss) $ (801) $ 328 $ (325) $ 1,683
======== ======== ======== ========
-14-
Item 2. Management's Discussion and Analysis
---------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
The following discussion and analysis of The Promus Companies
Incorporated's (Promus) financial position and operating results
for third quarter and the first nine months of 1994 and 1993
complements and updates the Management's Discussion and Analysis
of Financial Position and Results of Operations (MD&A) presented
in Promus' 1993 Annual Report. The following information should
be read in conjunction with Promus' 1993 Annual Report MD&A
disclosure. References to Promus include its consolidated
subsidiaries where the context requires.
Promus operates four leading hospitality brands comprising
two business segments: a casino entertainment segment consisting
of Harrah's, one of the world's premier names in the casino
entertainment industry, and a hotel segment composed of three
established brands, Embassy Suites, Hampton Inn and Homewood
Suites (collectively Promus Hotels), targeted at specific market
segments. A fourth hotel product, Hampton Inn & Suites, was
introduced in late 1993 and is designed to target a new
development segment not addressed by the existing brands.
Promus' casino entertainment segment has grown significantly
within the past 12 months. From six land-based casinos in the
traditional markets of Nevada and New Jersey and one riverboat
casino in Joliet, Illinois, in operation at the end of third
quarter 1993, the segment has grown to include 14 properties
located in seven states as of the end of third quarter 1994. The
latest addition, Harrah's North Kansas City, opened on September
22. The hotel segment has continued its steady growth during
1994, surpassing the 550 unit milestone during the third quarter.
As a result of the growth of the Riverboat Casino Entertainment
Division and the hotel segment, Promus' consolidated revenues and
cash flows for the nine months ended September 30, 1994,
increased 27% and 25%, respectively, over the corresponding prior
year period. Increasing competition in several gaming markets,
higher casino entertainment project development costs and the
writeoff during third quarter 1994 of certain preopening costs
reflecting a change in accounting policy (see discussion below)
resulted in a decrease of 2.5 percentage points in Promus'
overall operating margin for third quarter 1994 as compared with
the comparable prior year period; for the first nine months of
1994, however, overall operating margins increased 1.4 percentage
points over the prior year period.
-15-
RESULTS OF OPERATIONS
---------------------
Overall
-------
Third Quarter Percent First Nine Months Percent
(in millions, except -------------- Increase/ ----------------- Increase/
earnings per share) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- --------- ------- ----------
Revenues $432.3 $346.7 24.7 % $1,180.4 $932.2 26.6 %
Operating income 114.7 100.7 13.9 % 309.3 230.8 34.0 %
Net income 44.1 32.9 34.0 % 104.3 66.4 57.1 %
Earnings per share 0.43 0.32 34.4 % 1.01 0.65 55.4 %
Operating margin 26.5% 29.0% (2.5)pts 26.2% 24.8% 1.4 pts
Revenues, operating income and earnings per share increased
to record levels in both third quarter 1994 and for the nine
month period ended September 30, 1994. These increases were
primarily the result of an increase in the number of operating
casinos during the respective periods and positive hotel
operating trends. The hotel segment contributed record operating
income due to unit growth and revenue per available room/suite
(RevPAR/S) increases achieved by all three brands. A summary of
Promus' operating segments' performance for the third quarter and
the nine months ended September 30, 1994 and 1993 is presented in
Note 10 to the accompanying consolidated condensed financial
statements.
On October 3, 1994, Promus changed its accounting policy,
effective January 1, 1994, related to preopening costs incurred
during development of new casino entertainment and hotel
projects. Promus' new policy is to capitalize preopening costs
as incurred prior to opening and to expense them upon opening of
each project. Previously, Promus 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
nine months ended September 30, 1994, reflect the cumulative
charge against earnings, net of income taxes, of $7.9 million, or
$.08 per share, to write off the unamortized preopening costs
balances related to projects opened in prior years. Operating
results for the third quarter and the first nine months of 1994
also include preopening costs charged to expense of $10.2 million
and $15.3 million, respectively, primarily related to projects
opened during 1994.
The mix of Promus' operating income among the casino
entertainment divisions, including the contribution now made by
the Riverboat Casino Entertainment Division, and the continuing
growth achieved by the hotel segment have resulted in an
increasing diversification of Promus' operations. The following
table summarizes operating income before preopening costs and
property transactions for the twelve-month periods ended
September 30, 1994, 1993 and 1992 in millions of dollars and as a
percent of the total for each of Promus' casino entertainment
divisions and primary business segments:
-16-
Operating Income Contributions for the
Twelve Months Ended September 30,
--------------------------------------------
In Millions of Dollars Percent of Total
---------------------- --------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ------
Casino Entertainment
Riverboat $114 $ 12 $ - 29 % 4 % - %
Northern Nevada 77 73 67 19 % 27 % 28 %
Southern Nevada 75 77 65 19 % 28 % 27 %
Atlantic City 70 68 66 18 % 25 % 28 %
New Orleans (7) - - (2)% - -
Other, including
project development
costs (21) (17) (8) (5)% (6)% (4)%
---- ---- ---- --- --- ---
Total 308 213 190 78 % 78 % 79 %
Hotel 88 58 50 22 % 21 % 21 %
Other 1 2 - - 1 % -
---- ---- ---- --- --- ---
Total Promus $397 $273 $240 100 % 100 % 100 %
==== ==== ==== === === ===
CASINO ENTERTAINMENT
--------------------
Promus' casino entertainment segment includes the combined
results of Promus' 14 casino entertainment properties located in
Colorado, Illinois, Louisiana, Mississippi, Missouri, Nevada and
New Jersey. During the past twelve months, the Company has added
a second riverboat in Joliet, Illinois, and has begun riverboat
operations in Tunica and Vicksburg, Mississippi; Shreveport,
Louisiana; and North Kansas City, Missouri. In addition, the
Company assumed management of two limited stakes casinos in the
Colorado markets of Black Hawk and Central City. This increase in
the number of casinos, in particular the riverboat casinos, has
resulted in record revenues and operating income for the casino
entertainment division.
Third quarter casino entertainment revenues exceeded
$365 million, an increase of over 26% from third quarter 1993.
Operating income before preopening costs for the casino
entertainment segment increased over 18% to a record $94.9 million
for third quarter 1994. For the nine month period ended
September 30, 1994, total revenues for the casino entertainment
segment increased 32.4% to $991.5 million, while operating income
before preopening costs increased 41.3% to a record $250.5 million.
Both increases are directly related to the increase in the number
of casinos owned and operated by Promus during the respective
periods. The increases in operating income provided by the new
riverboat casinos were partially offset by increased development
costs and the recognition of Promus' pro-rata share of Harrah's
New Orleans preopening related costs.
-17-
Development costs incurred related to Promus' pursuit of
additional casino entertainment projects and charged to casino
entertainment segment other operating expense were as follows:
Third Quarter Ended First Nine Months
------------------- -------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 1994 1993 1994 1993
-------- -------- -------- --------
Development costs
charged to expense $7.4 $3.6 $14.5 $7.6
Promus expects the trend of an increasing level of development
costs as compared to the prior year to continue over the
remainder of 1994 as Promus continues to pursue additional
casino development opportunities.
Riverboat Division
------------------
Third Quarter Percent First Nine Months Percent
----------------- Increase/ ----------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
-------- ------ --------- -------- ------ ----------
Revenues $ 103.7 $ 28.5 NM* $ 296.7 $ 41.9 NM
Operating income 27.6 9.0 NM 98.0 12.0 NM
Operating margin 26.6% 31.6% (5.0)pts 33.0% 28.6% 4.4 pts
Gaming volume $1,205.9 $246.5 NM $3,138.3 $358.1 NM
--------
* Not Meaningful
As of the end of third quarter 1994, the Riverboat Division
included the operations of six riverboats, as compared to one
riverboat in operation at the end of third quarter 1993. The
latest addition to the Riverboat Division is Harrah's North
Star, which opened in North Kansas City, Missouri on
September 22, 1994. As a result of the additional riverboat
properties, which initially have operated in an environment of
limited competition, revenues and operating income have
increased dramatically for third quarter 1994 and the nine month
period ended September 30, 1994, as compared with the respective
prior year periods.
Third quarter operating margins are lower than those
achieved in the first and second quarters of 1994 primarily as a
result of intense competition in the Mississippi gaming markets
in which Promus has operations. During third quarter 1994, in
reaction to the increased Mississippi competition, Promus
implemented limited work force reductions at both Mississippi
properties in response to the changing operating environment and
to improve operating efficiency. The estimated one-time charge
to Promus of these actions was not material. Despite these
measures, operating margins are not expected to return to the
levels achieved during the period of limited competition
experienced in late 1993 and early 1994.
-18-
Southern Nevada
---------------
Third Quarter Percent First Nine Months Percent
-------------- Increase/ ------------------ Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 74.5 $ 76.1 (2.1)% $ 220.5 $ 222.4 (0.9)%
Operating income 18.8 20.1 (6.5)% 57.1 61.0 (6.4)%
Operating margin 25.2% 26.4% (1.2)pts 25.9% 27.4% (1.5)pts
Gaming volume $728.2 $763.5 (4.6)% $2,237.8 $2,287.4 (2.2)%
Both revenues and operating income were down slightly for
the third quarter and the nine month period as compared to the
respective prior year periods. This decline is consistent with
those noted in the first and second quarters and is directly
related to a decline in gaming volume due to the large capacity
increases in both the Las Vegas and Laughlin markets within the
past year. The addition of three "mega" properties during the
fourth quarter 1993 added substantial casino space to the Las Vegas
market. The Laughlin market has been impacted not only by a
significant capacity increase in its market, but also by its
traditional customers visiting the new Las Vegas properties.
Northern Nevada
---------------
Third Quarter Percent First Nine Months Percent
----------------- Increase/ ------------------ Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
-------- -------- ---------- -------- -------- ----------
Revenues $ 95.7 $ 95.1 0.6% $ 241.3 $ 243.9 (1.1)%
Operating income 31.7 31.7 - 62.8 62.7 0.2 %
Operating margin 33.1% 33.3% (0.2)pts 26.0% 25.7% 0.3pts
Gaming volume $1,153.2 $1,129.0 2.1% $2,888.7 $2,896.9 (0.3)%
Revenue and operating income for the third quarter 1994 were
consistent with those of third quarter 1993. Year to date
revenues remain slightly behind those of 1993 due to the openings
of new "mega" properties in the Las Vegas market, which continue
to draw some traditional Northern Nevada customers. Despite
slightly lower year to date gaming volume and revenues, the
Northern Nevada casinos have improved their operating margins
and maintained a consistent level of operating income for the
nine month period.
-19-
Atlantic City
-------------
Third Quarter Percent First Nine Months Percent
-------------- Increase/ ------------------ Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 92.7 $ 88.4 4.9% $ 236.6 $ 239.0 (1.0)%
Operating income 26.9 25.0 7.6% 55.5 53.8 3.2%
Operating margin 29.0% 28.3% 0.7pts 23.5% 22.5% 1.0pts
Gaming volume $925.3 $840.5 10.1% $2,410.6 $2,249.0 7.2%
Third quarter revenue and operating income increased over
the comparable prior year period as a result of both growth
within the Atlantic City market as a whole and the growth of
Harrah's market share. The first phase of a casino renovation
project was recently completed, contributing to an increase in
gaming volume of 10% during the third quarter. The economies of
scale achieved as a result of the higher gaming volume are
reflected in the property's improved operating margins.
Harrah's New Orleans
--------------------
Revenues and operating income for the casino entertainment
segment include a loss of $2.1 million for third quarter 1994,
and $6.9 million for the first nine months of 1994, representing
Promus' pro-rata share of preoperating losses incurred by the
joint venture developing Harrah's New Orleans. (See CAPITAL
SPENDING AND DEVELOPMENT section for further discussion of the
current status of this development project.)
HOTEL
-----
Third Quarter Percent First Nine Months Percent
(in millions, except -------------- Increase/ ----------------- Increase/
rooms/hotel and 1994 1993 (Decrease) 1994 1993 (Decrease)
RevPAR/S data) ------ ------ ---------- ------ ------ ----------
Revenues $ 65.3 $ 56.8 15.0% $183.9 $178.7 2.9%
Operating income
before property
transactions 28.5 18.1 57.5% 72.5 49.9 45.3%
Operating margin 43.6% 31.9% 11.7pts 39.4% 27.9% 11.5pts
Number of rooms 76,987 71,592 7.5%
Number of hotels 553 487 13.6%
Total System RevPAR/S
Embassy Suites $76.12 $70.29 8.3% $74.82 $69.84 7.1%
Hampton Inn 44.84 42.09 6.5% 40.86 38.23 6.9%
Homewood Suites 65.50 60.08 9.0% 60.88 56.52 7.7%
-20-
Hotel segment revenues and operating income increased to
record levels for both third quarter 1994 and the nine months
ended September 30, 1994. The increase in revenue is due to both
an increase in the number of properties and an increase in
RevPAR/S across all three brands. During the past twelve months,
there has been a shift in the hotel segment's revenue sources
toward additional management and franchise fees. For the nine
month period ended September 30, 1994, management and franchise
fees represent 31.3% of total revenues, compared with 24.8% for
the corresponding 1993 period. Included in 1994 management fee
income is a one time fee of $2.3 million. This was received
during third quarter 1994 due to the termination and replacement
of certain management contracts related to six properties sold by
a franchisee to a real estate investment trust (REIT). Promus
continues to manage the properties purchased by the REIT.
Exclusive of this fee, management fees for the nine month period
ended September 30, 1994 would have represented 30.5% of total
hotel segment revenues. As a result of the increasing proportion
of franchised and managed properties and the resulting cost
efficiencies achieved, operating margins for the nine months
ended September 30, 1994, increased by 11.5 percentage points over
the comparable prior year period.
Other Factors Affecting Income Per Share
----------------------------------------
Third Quarter Percent First Nine Months Percent
(Income)/Expense -------------- Increase/ ----------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- ------ ------ ----------
Preopening costs $10.2 $ - NM $15.3 $ - NM
Property transaction
gains, net (2.3) (2.0) (15.0)% (1.9) (1.8) (5.6)%
Corporate expense 8.6 5.5 56.4 % 21.6 19.6 10.2 %
Interest expense 26.3 25.4 3.5 % 78.9 81.7 (3.4)%
Interest and other
income (0.4) (0.4) - (1.3) (1.1) 18.2 %
Effective tax rate 42.9% 44.9% (2.0)pts 42.0% 43.3% (1.3)pts
Minority interests $ 1.7 $ 1.6 6.3 % $ 9.7 $ 2.2 NM
Extraordinary loss,
net - 4.1 NM - 5.4 NM
Cumulative effect of
change in accounting
policy, net - - NM 7.9 - NM
Preopening costs for third quarter 1994 primarily represent
those costs charged to expense upon the opening of Harrah's North
Kansas City in September, as well as the writeoff of approximately
$2.0 million of costs related to Promus' St. Louis project (see
CAPITAL SPENDING AND DEVELOPMENT section). Year to date preopening
costs also includes the costs charged to expense upon the opening
-21-
of Harrah's Shreveport in April 1994. Third quarter 1994
property transaction gains include the recognition of previously
deferred income related to prior year sales of certain hotel
assets and a gain from the September 1994 sale of a company-owned
Hampton Inn hotel. Third quarter 1993 included the gain on the
sale of an Embassy Suites property. Interest expense decreased
for the nine months ended September 30, 1994, as compared with
the prior year as a result of the impact of lower interest rates
on Promus' variable rate debt; interest expense in third quarter
1994 was slightly higher than for third quarter 1993 due to
higher levels of debt. The effective tax rate remains higher
than the federal statutory rate due primarily to state income
taxes. Minority interests reflect joint venture partners' shares
of income at joint venture riverboat casinos, and has increased
as additional joint venture casinos open. The extraordinary
losses recorded in the prior year periods represent writeoffs of
unamortized deferred finance charges due to early retirements of
debt. The cumulative effect of a change in accounting policy
recorded in 1994 relates to a change in the Company's accounting
policy for preopening costs. This one-time charge represents the
writeoff of capitalized preopening costs at January 1, 1994, for
properties opened prior to that date (see Note 2 to the
accompanying consolidated condensed financial statements).
CAPITAL SPENDING AND DEVELOPMENT
--------------------------------
Casino Entertainment
--------------------
To maintain its leading position in the casino entertainment
industry and to further build the value of Harrah's as a national
casino brand, Promus continues its development of previously
announced projects and its investigation and pursuit of
additional development opportunities in emerging markets
throughout the U.S. and, to a lesser extent, abroad. Promus
focused the majority of its capital spending during the first
nine months of 1994 on casino development opportunities.
Harrah's New Orleans
--------------------
A Promus subsidiary is a one-third partner in a partnership
(the Partnership) 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, the
-22-
Partnership reached agreement with the City of New Orleans
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 the Partnership
executed additional agreements with the City concerning such matters.
The estimated cost of the project is $815 million, which is
expected to be financed through a combination of partner capital
contributions, public debt securities, bank debt and operating
cash flow from the temporary casino. The Partnership has
executed an underwriting agreement for the sale of $435 million
of first mortgage notes and a credit agreement for a $175 million
bank facility. Closing of these agreements is expected to occur
on or about November 16, 1994.
The total capital contribution to the Partnership at closing
by Promus' subsidiary is expected to range from $56.7 million
(Promus' proportionate share of total expected partner capital
contributions of $170 million) to $123.3 million, depending on
the amount of capital contributions made by the other partners in
the Partnership. If Promus' subsidiary makes capital
contributions in excess of its proportionate share, then an
additional proportionate ownership interest will be transferred
to such subsidiary from each partner failing to contribute its
proportionate share. Such partner has the option to reacquire
substantially all of its transferred interest by making its
capital contribution after closing within a certain time period.
If Promus' subsidiary contributes at closing a majority of
the total partner capital contributions, and thereby acquires a
majority ownership interest in the Partnership, the debt of the
Partnership will be deemed debt of Promus and its subsidiaries
for purposes of Promus' public debt indentures, unless and until
such ownership interest is reduced to 50% or less pursuant to the
exercise of the options discussed above. However, since Promus'
ownership of a majority interest in the Partnership in such a case
is expected to be temporary and voting control of the Partnership
will in any event continue to be shared equally by each partner
during the option period, the Partnership would not be consolidated
into Promus' financial statements for accounting purposes under such
circumstances.
Promus has also agreed to provide completion guarantees for
the project, subject to certain conditions and exceptions, in
exchange for a fee to be paid by the Partnership. Before the
Partnership can begin construction of either the planned 76,000
square foot temporary casino or the proposed 400,000 square foot
permanent casino facility (200,000 square foot casino space),
other conditions and legal issues pertinent to the transaction
must be satisfied, including, without limitation, completion of
the project financing and satisfying other governmental
requirements, including obtaining requisite preopening approvals.
Assuming the timely satisfaction of the conditions and legal issues
discussed above, the projected opening dates of the temporary casino
and permanent casino are expected to be early second quarter 1995
and early second quarter 1996, respectively.
-23-
A Registration Statement (Amendment No. 8 to Form S-1) of
Harrah's Jazz Company filed with the Securities and Exchange
Commission on November 9, 1994, describes the New Orleans project
in greater detail including risk factors that could affect the
project.
Riverboat Casino Development
----------------------------
During the first nine months of 1994, Promus opened three
additional riverboat casinos. In January 1994, Promus' second
Joliet, Illinois based riverboat casino, the Harrah's Southern
Star, began operations. The Southern Star shares shoreside
facilities with its sister ship, the Northern Star. On April 18,
1994, Promus began operations of the Shreveport Rose, a dockside
Harrah's riverboat casino located in downtown Shreveport,
Louisiana. On September 22, 1994, in North Kansas City,
Missouri, Harrah's began operations of the North Star, a classic
sternwheeler designed riverboat casino featuring approximately
31,000 square feet of casino space and certain types of casino
games and poker machines allowed under Missouri law. The passage
of a statewide referendum in Missouri on November 8 permits the
addition of traditional reel-type slot machines to the casino
entertainment offerings on the North Kansas City riverboat.
As a result of the favorable election results, Promus expects
to reconfigure its casino to include reel-type slot machines
after the vote is certified and appropriate regulatory approvals
are received. When the reconfiguration is completed, the facility
will offer approximately 800 reel-type slot machines, 200 video
gaming devices, and 65 table games.
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. Following the failure earlier this year 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 passage of the November 8, 1994 statewide
referendum in Missouri to approve offering games of chance in
casinos, the Company will move forward to finalize design on the
project, which is now expected to be completed during fourth
quarter 1995 at a cost of $115 million. The timetable for
construction is subject to receipt of pending regulatory approvals
and resolution of related matters. Opening of the casino is subject
to state licensing and satisfying other requirements normal for a
project of this size. $22.7 million had been spent on the project,
primarily to acquire the site for the facility, as of the end of
third quarter 1994.
-24-
Construction of the casino riverboat originally intended for use
at the Maryland Heights site was recently completed at a cost of
$15 million. Promus intends to move this riverboat to Shreveport as
a significantly larger replacement vessel for the current
Shreveport Rose. The exchange will result in approximately 50%
more gaming space at the Shreveport facility, a move which is
expected to increase Harrah's Shreveport's gaming volume and
revenue. The current Shreveport Rose will be maintained and will
be available for use at another as yet undetermined site. Promus
does not believe that the costs associated with exchanging the
boats or with maintaining the current Shreveport Rose will be
material.
Indian Lands
------------
Promus has entered into management and development agreements
with the Ak-Chin Indian Community of the Maricopa Indian
Reservation for a $24.7 million casino entertainment facility
currently under construction near Phoenix, Arizona. Promus is
not funding this development, although it has guaranteed the
related bank financing. This 33,000 square foot casino is
expected to open in December 1994, subject to the receipt of
approvals from various regulatory agencies, including the
National Indian Gaming Commission. Promus will manage the
facility, which is owned by the Ak-Chin Indian Community, for a
fee. The Tribal/State Compact between the Ak-Chin Community and
the State of Arizona has received approval from the U.S.
Department of the Interior.
Promus is in various stages of negotiations 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 $27.0 million, $1.4 million had been contributed
at September 30, 1994. Construction of the $270 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
-----------------------------
On August 31, 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
-25-
development and extends along the Monongahela River, across from
the Golden Triangle of Pittsburgh. At closing, Promus provided
approximately $23.5 million to the partnership in the form of a
capital contribution. If casino gaming is legalized in this
jurisdiction, the partnership plans to pursue development of a
casino entertainment facility at the Station Square site, which
would require additional funding if such development proceeded.
Existing Casino Facilities
--------------------------
Promus has begun construction of a $28.6 million company-
owned Hampton Inn hotel on the site of Harrah's Reno. The 408-
room, 26-story hotel is expected to open in January 1996. No
major additions of casino square footage or hotel rooms are
currently planned at Promus' other existing casino entertainment
properties. 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 new jurisdictions across the United
States and abroad, although no material definitive development
agreements have been completed and no material capital
commitments to construct additional facilities have been made to
third parties at this time. Until all necessary approvals to
proceed with development of a project are obtained from the
relevant regulatory bodies, the costs of pursuing casino
entertainment projects are expensed as incurred. Construction-
related costs incurred after the receipt of necessary approvals
are capitalized and depreciated over the estimated useful life of
the resulting asset. Other preopening costs are capitalized as
incurred and expensed at the respective property's opening.
A number of these casino entertainment development projects,
if they go forward, may require, individually and in the
aggregate, a significant capital commitment and, if completed,
may result in significant additional revenues. The commitment of
capital, the timing of completion and the commencement of
operations of casino entertainment development projects are
contingent upon, among other things, negotiation of final
agreements and receipt of approvals from the appropriate
political and regulatory bodies.
-26-
Hotel
-----
The hotel segment's three established hotel brands continued
their steady growth during the first nine months of 1994 with the
net addition of 50 franchised properties to the combined system.
An additional 68 franchised properties, comprised of 57 Hampton
Inn and Hampton Inn and Suites hotels, eight Embassy Suites
hotels and three Homewood Suites hotels, were under construction
or conversion to Promus brands at September 30, 1994.
Earlier this year Promus announced plans to expand the
Homewood Suites brand by developing 20 to 25 additional
properties over the next three years. A total of up to
$150 million is expected to be required over a three year period
to fund this development. Construction on the first of these
properties commenced in October 1994. The property will be a
company-owned prototype of a downsized Homewood Suites property,
suitable for smaller markets, and is expected to be completed
during third quarter 1995 at an estimated cost of approximately
$6 million.
Construction on the first Hampton Inn and Suites hotel, a
new concept combining rooms and suites within a single property,
began in September 1994. The hotel is being developed by a
franchisee and is expected to open in second quarter 1995.
Summary
-------
Cash needed to finance projects currently under development
as well as additional projects being pursued by Promus will be
made available from operating cash flows, the Bank Facility (see
DEBT AND LIQUIDITY section), joint venture partners, specific
project financing, guarantees by Promus of third party debt,
sales of existing hotel assets and, if necessary, Promus debt
and/or equity offerings. Including $211 million spent during the
first nine months of 1994, Promus currently estimates $275 million
to $325 million of cash from all sources will be required during
1994, and an additional $250 million to $300 million during 1995,
to fund project development, including the projects discussed in
this CAPITAL SPENDING AND DEVELOPMENT section, refurbishment of
existing facilities and other projects.
-27-
DEBT AND LIQUIDITY
------------------
Bank Facility
-------------
Available Borrowing Capacity
----------------------------
Promus has in place a $650 million reducing revolving and
letter of credit facility (the Bank Facility). At September 30,
1994, $224.3 million in borrowings was outstanding under the Bank
Facility. An additional $223.4 million of the Bank Facility was
committed to back certain letters of credit, including a
$204.7 million letter of credit supporting the existing 9% Notes.
These facility commitments resulted in $202.3 million of the
total facility being available to Promus as of September 30,
1994.
Interest Rate Reduction
-----------------------
A primary financial objective was fulfilled during second
quarter 1994 with the announcement by Standard and Poor's that it
had upgraded Promus' implied senior debt rating to investment
grade status. As a result of achieving investment grade status,
the interest rate on Promus' Bank Facility has been reduced by
1/4 of 1%. The interest rate has also been reduced by an
additional 3/8 of 1% due to Promus' exceeding a defined minimum
financial covenant requirement. These interest rate reductions
will remain in force so long as the investment grade status is
maintained and the minimum financial covenant is exceeded.
Interest Rate Agreements
------------------------
In order to benefit from favorable interest rates in recent
years, Promus entered into several interest rate swap agreements
on certain fixed rate debt, as summarized in the following table:
Next Semi-
Swap Rate at Annual Rate
Associated Rate Sept. 30, Adjustment Swap Agreement
Debt (LIBOR+) 1994 Date Expiration Date
-------------- -------- -------- ----------- ----------------
10 7/8% Notes
$200 million 4.73% 9.16% October 15 October 15, 1997
8 3/4% Notes
$50 million 3.42% 8.85% November 15 May 15, 1998
$50 million 3.22% 8.71% January 15 July 15, 1998
In accordance with the terms of the interest rate swap
agreements, the effective interest rate on $200 million of 10
7/8% Notes was adjusted on October 15, 1994 to 10.68%. This rate
will remain in effect until April 15, 1995.
-28-
Promus maintains interest rate protection, in the form of a
rate collar transaction entered into in June 1990, on
$140 million on its variable rate bank debt. As a result of
achieving certain financial covenant requirements during third
quarter 1994, the interest rate collar was adjusted on
October 21, 1994, from a range between 8.8% and 12.0% to a range
of 8.7% to 11.9%. The interest rate protection expires in June
1995.
The differences to be paid or received under the terms of
the interest rate swap agreements and the rate collar transaction
described above are included in interest expense as payments are
made or received. These agreements contain an element of risk
that the counterparties may be unable to meet the terms of the
agreements. Promus minimizes such risk exposure by limiting the
counterparties to major international banks and financial
institutions.
As a component of a transaction whereby Promus effectively
secured an option to a site for a potential casino, Promus has
guaranteed third party debt of $25 million and has entered into
an interest rate swap with the third party in which Promus
exchanged a fixed interest rate of 7% for the variable interest
rate of the subject debt (LIBOR plus 1.75%). The negative value
of the swap, which is marked to market by the Company, was
approximately $500,000 at September 30, 1994. The swap agreement
expires December 1, 1996, and is 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.
INCOME TAX MATTERS
------------------
In connection with the spin-off of Promus' stock (the Spin-
off) to Holiday Corporation (Holiday) stockholders on February 7,
1990, Promus is liable, with certain exceptions, for the taxes of
Holiday and subsidiaries for all pre-Spin-off tax periods.
Negotiations with the Internal Revenue Service (IRS) to resolve
disputed issues for the 1985 and 1986 tax years were concluded
and a settlement reached during fourth quarter 1993. Final
payment of the federal income taxes and related interest due
under the settlement was made during second quarter 1994. The
IRS has completed its examination of Holiday's federal income tax
returns for 1987 through the Spin-off date and federal income
taxes and related interest assessed on agreed issues were paid
during first quarter 1994. A protest defending the taxpayer's
position on all
-29-
unagreed issues for the 1987 through Spin-off periods was filed
with the IRS during third quarter 1993 and negotiations to
resolve disputed issues continue. Final resolution of the
disputed issues is not expected to have a materially adverse
effect on Promus' consolidated financial position or its results
of operations.
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 of the
change in the par value, approximately $143 million was
transferred from the common stock account to capital surplus on
the balance sheet.
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 and plans for
several additional 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 have begun or announced new projects which will add
significant additional casino space and hotel rooms to that
market. In addition, the proliferation of casino gaming activity
in many new jurisdictions is continuing due to the widespread
growing acceptance of casino gaming as a form of entertainment
and as an alternative tax revenue source for municipalities and
states. 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, creating
the potential for 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 October 21,
1994, had resulted in the approval of 110 compacts for the
development of casinos on Native American lands in 20 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 and the hotel segment as
discussed above, combined with the further geographic
-30-
diversification and the continuing pursuit of the Harrah's
national brand strategy presently underway in its casino
entertainment segment, have well-positioned Promus to face the
challenges presented by these developments and 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 $651.3 million at September 30, 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.
-31-
PART II - OTHER INFORMATION
---------------------------
Item 1. 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). The complaint alleges violation of Rule 10b-5 of
the federal securities laws, intentional and negligent
misrepresentation, breach of express warranties, breach of
contract, and express and equitable indemnification. The
complaint generally alleges breaches of representations and
warranties under the Merger Agreement with respect to the 1990
spin-off of Promus and acquisition of the Holiday Inn hotel
business by Bass, violation of the federal securities laws due to
such alleged breaches, and breaches of the Tax Sharing Agreement
between Bass and Promus entered into at the closing of the Merger
Agreement. The complaint seeks an unspecified amount of damages,
unspecified punitive or exemplary damages, and declaratory
relief. The Company believes that it has complied with all
applicable laws and agreements with Bass in connection with the
Merger and is defending its position vigorously. Promus has
filed (a) an answer denying, and asserting affirmative defenses
to, the substantive allegations of the complaint and (b)
counterclaims alleging that Bass has breached the Tax Sharing
Agreement and agreements ancillary to the Merger Agreement. The
counterclaims request unspecified compensatory damages,
injunctive and declaratory relief and Promus' costs, including
reasonable attorneys fees and expenses. On April 17, 1992, Bass
filed a motion seeking to disqualify the Company's outside
counsel in the litigation, Latham & Watkins, on various grounds.
That motion was denied by the trial court on January 7, 1994.
Discovery has begun, but no trial date has been set.
Certain tax matters. In connection with the Spin-off,
Promus is liable, with certain exceptions, for taxes of Holiday
and its subsidiaries for all pre-merger tax periods. Bass is
obligated under the terms of the Tax Sharing Agreement to pay
Promus the amount of any tax benefits realized from pre-merger
tax periods of Holiday and its subsidiaries. The disputed issues
from the Internal Revenue Service audit of the 1985 and 1986 tax
years have been settled and the payment of taxes and interest
with respect thereto was made during second quarter 1994. The
IRS has completed its examination of Holiday's federal income tax
returns for 1987 through the Spin-off date and has issued its
proposed adjustments to those returns. Federal income taxes and
related interest assessed on agreed issues were paid in first
quarter 1994. A protest of all unagreed issues for the 1987
through Spin-off periods was filed with the IRS during the third
quarter of 1993 and negotiations to resolve disputed issues
continue. Final resolution of the disputed issues is not
expected to have a materially adverse effect on Promus'
consolidated financial position or its results of operations.
-32-
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------------------
(a) Exhibits
*EX-10.1 Employment Agreement dated as of February 25,
1994, and effective April 29, 1994, between The
Promus Companies Incorporated and Philip G. Satre
including exhibits thereto.
*EX-10.2 Amendment dated as of August 31, 1994 to The
Promus Companies Incorporated Savings and
Retirement Plan.
*EX-10.3 Consent dated as of October 7, 1994, among The
Promus Companies Incorporated, Embassy Suites,
Inc., the Banks and Agents parties thereto, Marina
Associates and Bankers Trust Company, as
Administrative Agent.
EX-10.4 Form of Amended and Restated Third Amendment to the
Amended and Restated Partnership Agreement of
Harrah's Jazz Company.(1)
EX-10.5 Form of Fourth Amendment to the Amended and Restated
Partnership Agreement of Harrah's Jazz Company.(1)
EX-10.6 Form of Indenture dated , 1994
between Harrah's Jazz Company, Harrah's Jazz
Finance Corp. and First National Bank of Commerce
as Trustee for the First Mortgage Notes including
form of First Mortgage Note.(1)
EX-10.7 Form of Intercreditor Agreement between the Bank
Lenders and the First National Bank of Commerce as
Trustee dated , 1994.(1)
EX-10.8 Form of Notes Completion Guarantee among Embassy
Suites, Inc., The Promus Companies Incorporated and
First National Bank of Commerce as Trustee dated
, 1994.(1)
EX-10.9 Form of Cash Collateral and Disbursement
Agreement.(1)
EX-10.10 Form of Collateral Mortgage Note by Harrah's Jazz
Company.(1)
EX-10.11 Form of Act of Collateral Mortgage and Collateral
Assignment of Proceeds by Harrah's Jazz
Company.(1)
EX-10.12 Form of Collateral Assignment of Leases and Rents
between Harrah's Jazz Company and First National
Bank of Commerce as Collateral Agent dated
, 1994.(1)
-33-
EX-10.13 Form of Act of Security Agreement and Pledge
between Harrah's Jazz Company and First National
Bank of Commerce as Collateral Agent dated
, 1994.(1)
EX-10.14 Form of Pledge Agreement between Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and First
National Bank of Commerce as Collateral Agent
dated , 1994.(1)
EX-10.15 Form of Security Agreement among Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and First
National Bank of Commerce as Collateral Agent
dated , 1994.(1)
EX-10.16 Form of Security Agreement among Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and First
National Bank of Commerce as Trustee
dated , 1994.(1)
EX-10.17 Form of Manager Subordination Agreement (First
Mortgage Notes) among Harrah's Jazz Company,
Harrah's New Orleans Management Company and First
National Bank of Commerce as Trustee dated
, 1994.(3)
EX-10.18 Form of Consultant Subordination Agreement (First
Mortgage Notes) among Harrah's Jazz Company, Grand
Palais Management Company, New Orleans/Louisiana
Development Corporation and First National Bank of
Commerce as Trustee dated , 1994.(2)
EX-10.19 Form of Completion Guarantor Subordination
Agreement (First Mortgage Notes) among Harrah's
Jazz Company, The Promus Companies Incorporated,
Embassy Suites, Inc. and First National Bank of
Commerce as Trustee dated ,
1994.(2)
EX-10.20 Amended Lease Agreement between the Rivergate
Development Corporation, as Landlord and Harrah's
Jazz Company, as Tenant and City of New Orleans,
as Intervenor dated March 15, 1994.(4)
EX-10.21 Amended General Development Agreement between
Rivergate Development Corporation and Harrah's
Jazz Company and City of New Orleans, as
Intervenor.(5)
EX-10.22 Temporary Casino Lease between Rivergate
Development Corporation, as Landlord and Harrah's
Jazz Company, as Tenant and City of New Orleans,
as Intervenor dated March 15, 1994.(5)
EX-10.23 Amendment to Amended Lease Agreement between
Rivergate Development Corporation, as Landlord and
Harrah's Jazz Company, as Tenant and City of New
Orleans, as Intervenor dated October 5, 1994.(4)
-34-
EX-10.24 Agreement between the City of New Orleans and
Harrah's Jazz Company, dated October 5, 1994 (the
"Separate City Agreement").(4)
EX-10.25 Agreement among the Rivergate Development
Corporation, the City of New Orleans and Embassy
Suites, Inc. and Harrah's Jazz Company, as
intervenor, dated October 5, 1994 (the "Embassy
Access Agreement").(4)
EX-10.26 Casino Operating Contract between the Louisiana
Economic Development and Gaming Corporation and
Harrah's Jazz Company dated July 15, 1994.(5)
EX-10.27 First Amendment to Casino Operating Contract
between the Louisiana Economic Development and
Gaming Corporation and Harrah's Jazz Company dated
August 31, 1994.(4)
EX-10.28 Amended and Restated Management Agreement between
Harrah's New Orleans Management Company and
Harrah's Jazz Company dated March 14, 1994.(5)
EX-10.29 Construction Agreement between Harrah's Jazz
Company and Centex Landis Construction Co., Inc.
dated October 10, 1994, for the construction of
the Permanent Casino.(4)
EX-10.30 Construction Agreement between Harrah's Jazz
Company and Harvey Honore Construction Company,
Inc. and Broadmoor dated October 10, 1994, for the
construction of the Temporary Casino.(4)
EX-10.31 Design and Construction Agreement between Harrah's
Jazz Company and Broadmoor dated October 10, 1994,
for the construction of the parking structure.(4)
EX-10.32 Form of Credit Agreement among Harrah's Jazz
Company, Harrah's Jazz Finance Corp., Various
Banks and Bankers Trust Company as Administrative
Agent dated as of , 1994.(1)
EX-10.33 Owner's Policy issued March 16, 1994 by First
American Title Insurance Company to Harrah's Jazz
Company.(4)
EX-10.34 Form of Lender's Title Insurance Commitment issued
, 1994 by First American Title
Insurance Company.(2)
EX-10.35 Completion Loan Agreement among Harrah's Jazz
Company, Embassy Suites, Inc., The Promus
Companies Incorporated, New Orleans/Louisiana
Development Corporation, Grand Palais Casino,
Inc., and Grand Palais Management Company, L.L.C.
dated October 12, 1994.(3)
-35-
EX-10.36 Form of First Amendment to the Completion Loan
Agreement.(1)
EX-10.37 Construction Lien Indemnity Obligation Agreement
between Harrah's Jazz Company and Embassy Suites,
Inc. dated October 12, 1994.(3)
EX-10.38 Form of First Amendment to the Construction Lien
Indemnity Obligation Agreement.(1)
EX-10.39 Form of Option Agreement between Harrah's New
Orleans Investment Company and New Orleans/
Louisiana Development Corporation dated
, 1994.(1)
EX-10.40 Form of Option Agreement between Harrah's New
Orleans Investment Company and Grand Palais
Casino Inc. dated , 1994.(1)
EX-10.41 Form of Put Agreement between Harrah's New
Orleans Investment Company and New Orleans/
Louisiana Development Corporation dated
, 1994.(1)
EX-10.42 Form of Put Agreement between Harrah's New
Orleans Investment Company and Grand Palais
Casino Inc. dated , 1994.(1)
EX-10.43 Form of Underwriting Agreement among
Donaldson, Lufkin and Jenrette Securities
Corporation, Salomon Brothers Inc., BT
Securities, Harrah's Jazz Company, and Harrah's
Jazz Finance Corp. dated , 1994.(1)
*EX-11 Computation of per share earnings.
*EX-18 Letter from independent accountant re change in
accounting principles.
*EX-27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1994.
------------
*Filed herewith.
FOOTNOTES
---------
(1) Incorporated by reference from Amendment No. 7 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 8,
1994.
(2) Incorporated by reference from Amendment No. 6 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 4,
1994.
(3) 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.
(4) 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.
(5) 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.
-36-
Signature
---------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE PROMUS COMPANIES INCORPORATED
November 10, 1994 BY: MICHAEL N. REGAN
------------------------------
Michael N. Regan
Vice President and Controller
(Chief Accounting Officer)
-37-
Exhibit Index
-------------
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
*EX-10.1 Employment Agreement dated as of 44
February 25, 1994, and effective
April 29, 1994, between The Promus
Companies Incorporated and Philip G.
Satre including exhibits thereto.
*EX-10.2 Amendment dated as of August 31, 1994 85
to The Promus Companies Incorporated
Savings and Retirement Plan.
*EX-10.3 Consent dated as of October 7, 1994, 91
among The Promus Companies
Incorporated, Embassy Suites, Inc.,
the Banks and Agents parties thereto,
Marina Associates and Bankers Trust
Company, as Administrative
Agent.
EX-10.4 Form of Amended and Restated Third
Amendment to the Amended and
Restated Partnership Agreement of
Harrah's Jazz Company.(1)
EX-10.5 Form of Fourth Amendment to the Amended
and Restated Partnership Agreement of
Harrah's Jazz Company.(1)
EX-10.6 Form of Indenture dated ,
1994 between Harrah's Jazz Company,
Harrah's Jazz Finance Corp., and First
National Bank of Commerce as Trustee for
the First Mortgage Notes including form
of First Mortgage Note.(1)
EX-10.7 Form of Intercreditor Agreement between
the Bank Lenders and the First National
Bank of Commerce as Trustee dated
, 1994.(1)
EX-10.8 Form of Notes Completion Guarantee among
Embassy Suites, Inc., The Promus Companies
Incorporated and First National Bank of
Commerce as Trustee dated ,
1994.(1)
EX-10.9 Form of Cash Collateral and Disbursement
Agreement.(1)
EX-10.10 Form of Collateral Mortgage Note by
Harrah's Jazz Company.(1)
-38-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.11 Form of Act of Collateral Mortgage
and Collateral Assignment of
Proceeds by Harrah's Jazz
Company.(1)
EX-10.12 Form of Collateral Assignment of
Leases and Rents between Harrah's
Jazz Company and First National
Bank of Commerce as Collateral
Agent dated , 1994.(1)
EX-10.13 Form of Act of Security Agreement
and Pledge between Harrah's Jazz
Company and First National Bank of
Commerce as Collateral Agent dated
, 1994.(1)
EX-10.14 Form of Pledge Agreement between
Harrah's Jazz Company, Harrah's
Jazz Finance Corp. and First
National Bank of Commerce as
Collateral Agent dated ,
1994.(1)
EX-10.15 Form of Security Agreement among
Harrah's Jazz Company, Harrah's
Jazz Finance Corp. and First
National Bank of Commerce as
Collateral Agent dated ,
1994.(1)
EX-10.16 Form of Security Agreement among Harrah's
Jazz Company, Harrah's Jazz Finance Corp.
and First National Bank of Commerce as
Trustee dated , 1994.(1)
EX-10.17 Form of Manager Subordination
Agreement (First Mortgage Notes)
among Harrah's Jazz Company,
Harrah's New Orleans Management
Company and First National Bank of
Commerce as Trustee dated
, 1994.(3)
-39-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.18 Form of Consultant Subordination
Agreement (First Mortgage Notes)
among Harrah's Jazz Company,
Grand Palais Management Company,
New Orleans/Louisiana Development
Corporation and First National
Bank of Commerce as Trustee dated
, 1994.(2)
EX-10.19 Form of Completion Guarantor
Subordination Agreement (First
Mortgage Notes) among Harrah's
Jazz Company, The Promus Companies
Incorporated, Embassy Suites, Inc.
and First National Bank of Commerce
as Trustee dated , 1994.(2)
EX-10.20 Amended Lease Agreement between the
Rivergate Development Corporation,
as Landlord and Harrah's Jazz Company,
as Tenant and City of New Orleans, as
Intervenor dated March 15, 1994.(4)
EX-10.21 Amended General Development Agreement
between Rivergate Development
Corporation and Harrah's Jazz
Company and City of New Orleans, as
Intervenor.(5)
EX-10.22 Temporary Casino Lease between Rivergate
Development Corporation, as Landlord
and Harrah's Jazz Company, as Tenant
and City of New Orleans, as Intervenor
dated March 15, 1994.(5)
EX-10.23 Amendment to Amended Lease Agreement
between Rivergate Development
Corporation, as Landlord and Harrah's
Jazz Company, as Tenant and City of
New Orleans, as Intervenor dated
October 5, 1994.(4)
EX-10.24 Agreement between the City of New
Orleans and Harrah's Jazz Company,
dated October 5, 1994 (the "Separate
City Agreement").(4)
-40-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.25 Agreement among the Rivergate
Development Corporation, the
City of New Orleans and Embassy
Suites, Inc. and Harrah's Jazz
Company, as intervenor, dated
October 5, 1994 (the "Embassy
Access Agreement").(4)
EX-10.26 Casino Operating Contract between
the Louisiana Economic Development
and Gaming Corporation and Harrah's
Jazz Company dated July 15, 1994.(5)
EX-10.27 First Amendment to Casino Operating
Contract between the Louisiana
Economic Development and Gaming
Corporation and Harrah's Jazz Company
dated August 31, 1994.(4)
EX-10.28 Amended and Restated Management
Agreement between Harrah's New
Orleans Management Company and
Harrah's Jazz Company dated
March 14, 1994.(5)
EX-10.29 Construction Agreement between
Harrah's Jazz Company and Centex
Landis Construction Co., Inc.
dated October 10, 1994, for the
construction of the Permanent
Casino.(4)
EX-10.30 Construction Agreement between
Harrah's Jazz Company and Harvey
Honore Construction Company, Inc.
and Broadmoor dated October 10,
1994, for the construction of
the Temporary Casino.(4)
EX-10.31 Design and Construction Agreement
between Harrah's Jazz Company and
Broadmoor dated October 10, 1994,
for the construction of the
parking structure.(4)
-41-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.32 Form of Credit Agreement among
Harrah's Jazz Company, Harrah's
Jazz Finance Corp., Various Banks
and Bankers Trust Company as
Administrative Agent dated as of
, 1994.(1)
EX-10.33 Owner's Policy issued March 16, 1994
by First American Title Insurance
Company to Harrah's Jazz Company.(4)
EX-10.34 Form of Lender's Title Insurance
Commitment issued ,
1994 by First American Title
Insurance Company.(2)
EX-10.35 Completion Loan Agreement among
Harrah's Jazz Company, Embassy
Suites, Inc., The Promus Companies
Incorporated, New Orleans/Louisiana
Development Corporation, Grand
Palais Casino, Inc., and Grand
Palais Management Company, L.L.C.
dated October 12, 1994.(3)
EX-10.36 Form of First Amendment to the
Completion Loan Agreement.(1)
EX-10.37 Construction Lien Indemnity
Obligation Agreement between Harrah's
Jazz Company and Embassy Suites,
Inc. dated October 12, 1994.(3)
EX-10.38 Form of First Amendment to the
Construction Lien Indemnity
Obligation Agreement.(1)
EX-10.39 Form of Option Agreement between
Harrah's New Orleans Investment
Company and New Orleans/Louisiana
Development Corporation dated
, 1994.(1)
EX-10.40 Form of Option Agreement between
Harrah's New Orleans Investment
Company and Grand Palais Casino Inc.
dated , 1994.(1)
EX-10.41 Form of Put Agreement between
Harrah's New Orleans Investment
Company and New Orleans/Louisiana
Development Corporation dated
, 1994.(1)
EX-10.42 Form of Put Agreement between
Harrah's New Orleans Investment
Company and Grand Palais Casino Inc.
dated , 1994.(1)
EX-10.43 Form of Underwriting Agreement among
Donaldson, Lufkin and Jenrette Securities
Corporation, Salomon Brothers Inc., BT
Securities, Harrah's Jazz Company, and
Harrah's Jazz Finance Corp.
dated , 1994.(1)
*EX-11 Computation of per share earnings. 101
*EX-18 Letter from independent accountant 102
re change in accounting principles.
*EX-27 Financial Data Schedule. 103
------------
*Filed herewith.
-42-
FOOTNOTES
---------
(1) Incorporated by reference from Amendment No. 7 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 8,
1994.
(2) Incorporated by reference from Amendment No. 6 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 4,
1994.
(3) 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.
(4) 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.
(5) 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.
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