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 MARCH 31, 1995
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. 1-11463
PROMUS HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1596939
(State of Incorporation) (I.R.S. Employer
Identification No.)
6800 Poplar Avenue, Suite 200
Memphis, Tennessee 38138
(Address of principal executive offices)
(901) 758-3100
(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 No X
------- -------
At April 30, 1995, there were outstanding 100 shares of the Company's
Common Stock.
Page 1 of 19
Exhibit Index Page 18
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
As discussed in Note 1, on January 30, 1995, The Promus Companies
Incorporated (Parent) announced a planned spin-off (the Spin-off) that will
split Parent into two independent public corporations, one for conducting
its casino entertainment business and one for conducting its hotel
business. As part of the Spin-off, Parent will transfer its interests in
the Embassy Suites, Hampton Inn and Homewood Suites hotel divisions and
certain other hotel-related assets and liabilities to Promus Hotel
Corporation (PHC or the Company). The historical financial statements of
Parent have been disaggregated and the accompanying combined condensed
financial statements of PHC include the assets and liabilities, revenues
and expenses of PHC as a stand-alone business.
The accompanying unaudited combined condensed financial statements of
PHC, 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
combined condensed financial statements should be read in conjunction with
the PHC combined financial statements and notes thereto included in the PHC
Registration Statement on Form 10/A as declared effective on May 3, 1995.
2
PROMUS HOTEL CORPORATION
COMBINED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, Dec. 31,
(in thousands) 1995 1994
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 2,087 $ 2,222
Receivables, including notes receivable of
$581 and $66, less allowance for doubtful
accounts of $1,272 and $1,270 21,650 18,148
Deferred income taxes 2,863 2,844
Supplies 3,114 1,095
Prepayments and other 1,661 1,256
-------- --------
Total current assets 31,375 25,565
-------- --------
Land, buildings and equipment 441,485 410,751
Less: accumulated depreciation (94,978) (88,611)
-------- --------
346,507 322,140
Investments in and advances to nonconsolidated
affiliates (Note 7) 35,740 35,856
Deferred costs and other 44,208 37,004
-------- --------
$457,830 $420,565
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,928 $ 14,437
Accrued expenses 14,870 18,769
Current portion of long-term debt 1,073 1,255
-------- --------
Total current liabilities 32,871 34,461
Long-term debt (Note 3) 211,458 189,943
Deferred credits and other 29,421 28,649
Deferred income taxes 23,748 24,504
-------- --------
297,498 277,557
Commitments and contingencies (Notes 5 and 6)
Parent company investment (Note 2) 160,332 143,008
-------- --------
$457,830 $420,565
======== ========
See accompanying Notes to Combined Condensed Financial Statements.
3
PROMUS HOTEL CORPORATION
COMBINED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
First Quarter Ended
March 31, March 31,
(in thousands) 1995 1994
-------- --------
Revenues
Rooms $29,469 $27,331
Food and beverage 1,892 1,990
Franchise and management fees 17,496 15,562
Other (Note 7) 14,361 10,671
------- -------
Total revenues 63,218 55,554
------- -------
Operating expenses
Direct
Rooms 13,600 13,729
Food and beverage 1,702 1,861
Depreciation of buildings and equipment 6,760 5,520
Other 15,047 13,743
------- -------
Total operating expenses 37,109 34,853
------- -------
26,109 20,701
General and administrative (868) (763)
Property transactions (298) (198)
------- -------
Operating income 24,943 19,740
Interest expense, net of interest
capitalized (Notes 3 and 7) (8,407) (7,700)
Interest and other income 51 27
------- -------
Income before income taxes 16,587 12,067
Provision for income taxes (6,983) (5,936)
------- -------
Net income $ 9,604 $ 6,131
======= =======
See accompanying Notes to Combined Condensed Financial Statements.
4
PROMUS HOTEL CORPORATION
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
First Quarter Ended
March 31, March 31,
(in thousands) 1995 1994
-------- --------
Cash flows from operating activities
Net income $ 9,604 $ 6,131
Adjustments to reconcile net income
to cash flows from operating activities
Depreciation and amortization 6,964 6,008
Other noncash items 299 (235)
Equity in losses and distributions of
nonconsolidated affiliates 152 391
Net losses from property transactions 93 163
Net change in long-term accounts (860) 660
Net change in working capital accounts (7,825) (14,194)
-------- --------
Cash flows provided by (used in)
operating activities 8,427 (1,076)
-------- --------
Cash flows from investing activities
Land, buildings and equipment additions (30,881) (3,831)
Other (2,878) (319)
-------- --------
Cash flows used in investing activities (33,759) (4,150)
-------- --------
Cash flows from financing activities
Debt retirements (174) (229)
Advances from parent 25,371 4,125
-------- --------
Cash flows provided by financing
activities 25,197 3,896
-------- --------
Net decrease in cash and cash equivalents (135) (1,330)
Cash and cash equivalents, beginning of period 2,222 3,653
-------- --------
Cash and cash equivalents, end of period $ 2,087 $ 2,323
======== ========
See accompanying Notes to Combined Condensed Financial Statements.
5
PROMUS HOTEL CORPORATION
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
Note 1 - Basis of Presentation and Organization
- -----------------------------------------------
On January 30, 1995, The Promus Companies Incorporated (Parent) announced a
plan to transfer the operations, assets and liabilities of its hotel business
(the Hotel Business), composed of three different hotel brands targeted at
specific market segments: Embassy Suites, Hampton Inn and Homewood Suites, to a
new entity, named Promus Hotel Corporation (PHC). As approved by Parent's Board
of Directors and stockholders on May 26, 1995, this entity will be spun-off (the
Spin-off) from the Parent and its stock distributed to the Parent's
stockholders on a one-for-two basis effective June 30, 1995 (the Distribution).
The Spin-off is still subject to certain conditions.
The accompanying combined condensed financial statements include the assets,
liabilities, revenues and expenses of the Hotel Business. All significant
intercompany accounts and transactions among PHC entities have been eliminated
from these combined condensed financial statements. Investments in 50% or less
owned companies and joint ventures over which PHC has the ability to exercise
significant influence are accounted for using the equity method. PHC reflects
its share of income before interest expense and extraordinary gain of these
nonconsolidated affiliates in Revenues - other. PHC's proportionate share of
interest expense of such nonconsolidated affiliates is included in interest
expense in the combined statements of income (see Note 7 for combined summarized
financial information regarding these nonconsolidated affiliates). Management
believes PHC's inclusion of its proportionate share of the interest expense is
the preferable presentation due to the nature of PHC's equity investments.
Note 2 - Parent Company Investment
- ----------------------------------
Changes in Parent company investment consisted of the following:
First Quarter Ended
March 31, March 31,
(in thousands) 1995 1994
-------- --------
Beginning balance $143,008 $180,522
Net income 9,604 6,131
Intercompany activity with Parent, net 7,720 10,583
-------- --------
Ending balance $160,332 $197,236
======== ========
6
PROMUS HOTEL CORPORATION
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
(UNAUDITED)
Note 3 - Long-term Debt
- -----------------------
All indebtedness, together with related interest expense, specifically
identified with a PHC entity is included in the accompanying combined condensed
financial statements. In addition, a pro-rata portion of Parent's historical
corporate debt balance, unamortized deferred finance charges and interest
expense have been allocated to PHC and are included in these combined condensed
financial statements for all periods presented based on the percentage of
Parent's existing corporate debt expected to be retired using proceeds from a
new $350 million bank facility to be secured by the stock of PHC's material
subsidiaries (the PHC Bank Credit Facilities). The corporate debt allocated to
PHC of $209.3 million and $187.8 million at March 31, 1995 and December 31,
1994, respectively, together with debt specifically related to PHC of
$3.2 million and $3.3 million at March 31, 1995 and December 31, 1994,
respectively, are included in long-term debt in the accompanying Combined
Condensed Balance Sheets. The unamortized deferred finance charges allocated to
PHC of $3.2 million at March 31, 1995 and December 31, 1994 are included in
deferred costs in the accompanying Combined Condensed Balance Sheets.
Immediately prior to the Distribution, Parent will draw through its wholly owned
subsidiary Embassy Suites, Inc. approximately $210 million on the PHC Bank
Credit Facilities and retire a portion of Parent's existing corporate debt,
which is not specifically related to either Parent's casino entertainment or
hotel segment. However, Parent's corporate debt service requirements have been
met using cash flows provided by both segments.
The PHC Bank Credit Facilities are expected to provide PHC with revolving
credit facilities consisting of a $300 million revolving credit facility with a
maturity of five years (the Five-Year Revolver) and a $50 million annually
extendible revolving credit facility with an initial maturity of 364 days (the
Extendible Revolver). The Extendible Revolver is convertible into a two-year
term loan with equal amortizing payments over such two-year period. Interest on
the drawn portion of the PHC Bank Credit Facilities will be, at the option of
PHC, equal to either (i) the Base Rate, as defined, or (ii) the LIBOR rate plus
55 basis points at closing. Upon completion of the Distribution, the PHC Bank
Credit Facilities will be assumed by a wholly-owned subsidiary of PHC, and
Parent will be released from liability.
The amounts of Parent's corporate interest expense allocated to PHC for
first quarter 1995 and 1994 were $5.0 million and $4.6 million, respectively.
The amounts of Parent's corporate interest allocated to PHC are in addition to
the interest expense included in PHC's financial statements on indebtedness
specifically identified with a PHC entity and PHC's proportionate share of
interest expense of its nonconsolidated affiliates (see Note 7). Total interest
expense included in PHC's financial statements from all sources, including the
amounts allocated from Parent, for first quarter 1995 and 1994 was $8.4 million
and $7.7 million, respectively.
7
PROMUS HOTEL CORPORATION
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
(UNAUDITED)
Note 3 - Long-term Debt (Continued)
- ----------------------------------
Upon completion of the Distribution, it is expected that PHC will assume two
of Parent's existing interest rate swaps, with a combined notional amount of
$100 million, the effect of which is to convert to a fixed rate that amount of
variable rate debt which will be outstanding under the PHC Bank Credit
Facilities.
Note 4 - Supplemental Disclosure of Cash Paid for Interest and Taxes
- --------------------------------------------------------------------
The following table reconciles PHC's Interest expense, net of interest
capitalized, to cash paid for interest:
First Quarter Ended
March 31, March 31,
(in thousands) 1995 1994
-------- --------
Interest expense, net of amount capitalized
(Note 3) $ 8,407 $ 7,700
Adjustments to reconcile to cash paid for
interest
PHC's share of interest expense of
nonconsolidated affiliates (Note 7) (3,261) (2,945)
Amortization of deferred finance charges (194) (167)
Net amortization of discounts and premiums (6) (11)
Other (38) (35)
------- -------
Cash paid for interest, net of amount
capitalized $ 4,908 $ 4,542
======= =======
For purposes of this presentation, interest expense allocated to PHC by
Parent is assumed to be paid in the quarter allocated. No income taxes were
paid by PHC as these payments were the responsibility of Parent.
Note 5 - Commitments and Contingencies
- --------------------------------------
Contractual Commitments
-----------------------
PHC manages certain hotels for others under agreements that provide for
payments/loans to the hotel owners if stipulated levels of financial performance
are not maintained. In addition, PHC is liable under certain lease agreements
where it has assigned the direct obligation to third party interests. PHC
believes the likelihood is remote that material payments will be required under
these agreements. PHC's estimated maximum exposure under such agreements is
currently less than $37 million over the next 30 years.
8
PROMUS HOTEL CORPORATION
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
(UNAUDITED)
Note 5 - Commitments and Contingencies (Continued)
- -------------------------------------------------
Investment in Real Estate Investment Trust
------------------------------------------
On May 3, 1995, Parent entered into a Subscription Agreement whereby Parent
agreed to purchase up to $25 million in limited partnership interests. A real
estate investment trust (REIT) is the general partner and holds a 73.6% interest
in the limited partnership. Parent's commitment is subject to various
conditions which include, but are not limited to, the limited partnership's
acquisition of additional hotels that may be converted to the Embassy Suite
hotel brand. Subject to some limitations, the limited partnership interests are
convertible into the REIT's common stock. PHC will assume this obligation upon
completion of the Distribution.
Relationship Between PHC and Parent after the Distribution
----------------------------------------------------------
For the purpose of governing certain of the ongoing relationships between
PHC and Parent after the Distribution and to provide mechanisms for an orderly
transition, Parent and PHC will enter into various agreements and will adopt
policies governing their future relationship. Parent and PHC believe that the
agreements are fair to both parties and contain terms which generally are
comparable to those which would have been reached in arm's-length negotiations
with unaffiliated parties (although comparisons are difficult with respect to
certain agreements that relate to the specific circumstances of this
transaction). In some cases the agreements are comparable to those used by
other companies in similar transactions.
Note 6 - Litigation
- -------------------
Upon completion of the Distribution, PHC will assume responsibility for
various inquiries, administrative proceedings and litigation relating to
contracts, sales of property and other matters arising in the normal course of
the Hotel 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 PHC's combined financial position or
its results of operations.
9
PROMUS HOTEL CORPORATION
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates
- -----------------------------------
Combined summarized income statements of nonconsolidated affiliates, which
PHC accounted for using the equity method for the first quarter ended March 31,
1995 and 1994, were as follows:
First Quarter Ended
March 31, March 31,
(in thousands) 1995 1994
-------- --------
Combined Summarized Income Statements
Revenues $37,973 $37,875
======= =======
Operating income $ 7,971 $ 6,960
======= =======
Net income $ 981 $ 747
======= =======
PHC's share of nonconsolidated affiliates' combined net income are reflected
in the accompanying Combined Condensed Statements of Income as follows:
First Quarter Ended
March 31, March 31,
(in thousands) 1995 1994
-------- --------
Pre-interest operating income (included in
Revenues - other) $ 4,480 $ 3,886
======= =======
Interest expense (included in Interest expense) $(3,261) $(2,945)
======= =======
PHC's investments in and advances to
nonconsolidated affiliates
At equity $25,524 $25,551
At cost 10,216 10,305
------- -------
$35,740 $35,856
======= =======
10
Item 2. Management's Discussion and Analysis
--------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
On January 30, 1995, The Promus Companies Incorporated (Parent)
announced a planned spin-off, expected to be completed on June 30, 1995,
that will split the company into two independent public corporations, one
for conducting its casino entertainment business and one for conducting its
hotel business (the Spin-off). Parent's hotel operations will be transferred
to a new entity, to be named Promus Hotel Corporation (PHC), the stock of
which is to be distributed to Parent's stockholders on a one-for-two basis
(the Distribution). The Spin-off is still subject to certain conditions. The
following is a discussion and analysis of the financial condition and results
of operations of PHC as a stand-alone business.
RESULTS OF OPERATIONS
- ---------------------
Percentage
First Quarter Increase/
(in millions, except rates and hotels) 1995 1994 (Decrease)
----- ----- ----------
Revenues $63.2 $55.6 13.7%
Operating profit before general and
administrative expenses and property
transactions 26.1 20.7 26.1%
Operating income 24.9 19.7 26.4%
Net income 9.6 6.1 57.4%
Operating margin 39.4% 35.4% 4.0 pts
System-wide RevPAR/S
Embassy Suites $75.88 $72.26 5.0%
Hampton Inn 37.97 35.14 8.1%
Homewood Suites 59.34 55.28 7.3%
Number of Hotels
Company-owned
Embassy Suites 9 9
Hampton Inn 15 15
Homewood Suites 8 8
Franchised, including managed
properties
Embassy Suites 100 98
Hampton Inn 439 363
Homewood Suites 19 18
11
RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------
The principal factors affecting PHC results are: the continued growth
in the number of hotels; the occupancies and room rates achieved by the
three hotel brands; the number and relative mix of owned, managed and
franchised hotels; and PHC's ability to manage costs. The number of
rooms/suites at franchised properties and revenue per available room/suite
("RevPAR/S") significantly affect PHC results since franchise royalty fees
are based upon rooms/suites revenues of franchised hotels. Increases in
franchise and management fee revenues have a disproportionate impact on
PHC's operating margin due to lower incremental costs associated with these
revenues. In the first quarter, each of these factors contributed to
improved financial results over the prior year.
As of March 31, 1995, PHC's combined hotel systems had grown to include
590 properties, a net increase of 79 properties over the 511 hotels in the
combined systems at March 31, 1994. Embassy Suites, Hampton Inn and
Homewood Suites improved their RevPAR/S measurement by over 5%, 7% and 8%,
respectively. The continued growth of the hotel management and franchise
systems, coupled with a continued focus on rate growth and cost management,
contributed to higher operating income and operating margins.
Operating profit before general and administrative expenses and property
transactions increased in the first quarter of 1995 over the prior year
primarily due to the impact of increased franchise and management fees.
Percentage
First Quarter Increase/
(in millions) 1995 1994 (Decrease)
----- ----- ----------
General and administrative expense $ 0.9 $ 0.8 13.9 %
Property transactions 0.3 0.2 50.3 %
Interest expense 8.4 7.7 9.2 %
Effective tax rate 42.1% 49.2% (7.1) pts
General and administrative expense reflects the cost of staff functions
which support all three hotel brands. The Distribution will result in the
division of certain of Parent's existing corporate support functions
between the two resulting entities. Historically, Parent allocated to its
operating units all corporate overhead expenses specifically identified
with those operations. The amounts of such costs allocated to the entities
comprising PHC and included in PHC financial results were $3.1 million and
$3.0 million in first quarter 1995 and 1994, respectively. Since these
allocations will be discontinued after the Distribution and responsibility
for these support functions will be assumed by PHC, general and
administrative expense in the historical financial statements may not be
indicative of such costs in the future. In addition, PHC's historical
operating results do not reflect any estimated incremental costs expected
to be incurred by PHC to support its operations as a stand-alone entity
after the Distribution.
12
RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------
Interest expense for both quarters includes the pro rata allocation of
corporate interest by Parent related to the debt expected to be retired in
connection with the Distribution using funds drawn on the PHC Bank Credit
Facilities. See "Liquidity and Capital Resources." Interest expense
also includes PHC's share of interest expense of its nonconsolidated
affiliates. Interest expense has increased due to higher debt levels,
primarily due to the purchase of an office building for the PHC corporate
offices and higher interest rates on variable rate debt. The effective tax
rate for all periods is higher than the federal statutory rate primarily
due to state income taxes.
CAPITAL SPENDING AND DEVELOPMENT
- --------------------------------
PHC had net additions of 15 franchised properties during the first
quarter of 1995, compared to 10 in the first quarter 1994. The growth
occurred in the Hampton Inn division. As of March 31, 1995, 84 properties
were under construction and will operate under franchise agreements as PHC
brands: 73 Hampton Inns (including three Hampton Inn & Suites); five
Homewood Suites; and six Embassy Suites. These 84 properties under
construction will add 8,689 rooms/suites to the PHC hotel system.
On May 3, 1995, Parent entered into a Subscription Agreement whereby
Parent agreed to purchase up to $25 million in limited partnership interests.
A real estate investment trust (REIT) is the general partner and holds a 73.6%
interest in the limited partnership. Parent's commitment is subject to
various conditions which include, but are not limited to, the limited
partnership's acquisition of additional hotels that may be converted to the
Embassy Suites hotel brand. Subject to some limitations, the limited
partnership interests are convertible into the REIT's common stock. PHC will
assume this obligation upon completion of the Distribution.
In June 1995, the opening of PHC's first Hampton Inn & Suites hotel is
scheduled. This franchise built hotel is the newest PHC hotel product
which combines, as a single hotel, Hampton-style rooms with Homewood-style
suites with a common lodge in the center. In May 1994, PHC announced plans
to spend up to $150 million to expand the Homewood Suites hotel brand by
developing as many as 20 to 25 additional company-owned properties over the
next three to five years.
To encourage growth, primarily in the Hampton Inn & Suites and Homewood
Suites franchise segment of the business, PHC provided $3.2 million in
mezzanine loans (secondary financing) to franchisees during first quarter
1995. PHC anticipates providing an additional $15.6 million in mezzanine
financing during the remainder of 1995. On-going refurbishment of PHC's
existing company-owned hotel properties to maintain the quality standards
set for those
13
CAPITAL SPENDING AND DEVELOPMENT (CONTINUED)
- -------------------------------------------
properties will continue in 1995 at an estimated cost of $11.8 million. In
early 1995, PHC acquired for approximately $22.0 million an office complex
in Memphis, Tennessee, which will serve as its future corporate
headquarters.
Cash needed to finance the projects currently under development, as
well as additional projects to be developed by PHC, will be made available
from operating cash flows, the PHC Bank Credit Facilities (see "Liquidity
and Capital Resources"), joint venture partners, specific project financing,
sales of existing hotel assets and, if necessary, PHC debt and equity
offerings. PHC capital expenditures totaled $34.0 million during first
quarter 1995. An additional $80 million to $100 million is expected to be
spent during the remainder of 1995 to fund project development, including
those projects discussed above, to refurbish existing facilities and for
other corporate related projects.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Parent, through its wholly owned subsidiary Embassy Suites, Inc., is
currently negotiating the $350 million PHC Bank Credit Facilities to be
secured by the stock of certain material subsidiaries of PHC. Concurrent
with the Distribution, approximately $210 million will be drawn by Parent
under this facility and used by Parent to retire existing debt which is not
specifically related to either Parent's casino entertainment or hotel
segment. However, Parent's corporate debt service requirements have been
met using cash flows provided by both segments. In anticipation of these
transactions, a pro rata portion of Parent's historical outstanding debt
balance, unamortized deferred finance charges and interest expense have been
allocated to PHC for all periods presented. In addition to amounts
allocated by Parent, all indebtedness together with related interest
expense, specifically identified with a PHC entity are included in the
accompanying combined financial statements. The amounts allocated by
Parent are based on the percentage of Parent's existing debt expected to be
retired using proceeds from the PHC Bank Credit Facilities. The amounts of
Parent's corporate interest expense allocated to PHC for first quarter 1995
and 1994 were $5.0 million and $4.6 million, respectively. The amounts of
Parent's corporate interest allocated to PHC is in addition to the interest
expense included in PHC's financial statements on indebtedness specifically
identified with a PHC entity and PHC's proportionate share of interest
expense of its nonconsolidated affiliates (see Note 7). The PHC Bank
Credit Facilities will be included among the liabilities transferred by
Parent and its subsidiaries to PHC, and Parent will be released from its
liability under the PHC Bank Credit Facilities in connection with the
Distribution. PHC will use the remaining borrowing capacity available to
it under the PHC Bank Credit Facilities for working capital, hotel
development and other general corporate purposes. In addition, it is
expected that PHC will assume two of Promus' existing interest rate swaps,
with a notional amount of $100 million, the effect of which is to convert
to a fixed rate that amount of variable rate debt which will be outstanding
under the PHC Bank Hotel Facilities.
14
RELATIONSHIP BETWEEN PHC AND PARENT AFTER THE DISTRIBUTION
- ----------------------------------------------------------
For the purpose of governing certain of the ongoing relationships
between PHC and Parent after the Distribution and to provide mechanisms for
an orderly transition, Parent and PHC will enter into various agreements
and will adopt policies to govern their future relationship. Parent and
PHC believe that the agreements are fair to both parties and contain terms
which generally are comparable to those which would have been reached in
arm's-length negotiations with unaffiliated parties (although comparisons
are difficult with respect to certain agreements that relate to the
specific circumstances of this transaction). In some cases the agreements
are comparable to those used by other companies in similar transactions.
15
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibit and Reports on Form 8-K
----------------------------------------
(a) Exhibits
EX-10.1 Promus Hotel Corporation Savings and Retirement Plan. (1)
EX-10.2 Promus Hotel Corporation 1995 Stock Option Plan. (2)
EX-10.3 Promus Hotel Corporation Restricted Stock Plan. (2)
EX-10.4 Promus Hotel Corporation Non-management Directors Stock
Incentive Plan. (2)
EX-27 Financial Data Schedule. (3)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
- -------------
(1) Incorporated by reference from Promus Hotel Corporation's Form S-8 for the
Promus Hotel Corporation 1995 Stock Option Plan, filed June 6, 1995.
(2) Incorporated by reference from Promus Hotel Corporation Form 10/A, filed
May 3, 1995, File No. 1-11463.
(3) Filed herewith.
16
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PROMUS HOTEL CORPORATION
June 6, 1995 By: JEFFERY M. JARVIS
-----------------------------
Jeffery M. Jarvis
Vice President and Controller
(Chief Accounting Officer)
17
Exhibit Index
-------------
Exhibit No. Description Sequential Page No.
- ---------- ----------- ------------------
EX-10.1 Promus Hotel Corporation Savings and Retirement
Plan. (1)
EX-10.2 Promus Hotel Corporation 1995 Stock Option Plan. (2)
EX-10.3 Promus Hotel Corporation Restricted Stock Plan. (2)
EX-10.4 Promus Hotel Corporation Non-management Directors
Stock Incentive Plan. (2)
EX-27 Financial Data Schedule (3) 19
- ----------
(1) Incorporated by reference from Promus Hotel Corporation's Form S-8 for the
Promus Hotel Corporation 1995 Stock Option Plan, filed June 6, 1995.
(2) Incorporated by reference from Promus Hotel Corporation Form 10/A, filed
May 3, 1995, File No. 1-11463.
(3) Filed herewith.
18