-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NC3N25UfhOtSDaO9aYMNaz6FAqZo1YV9Wz4wwH7k0P++Sw9D9BzVsU2PrjiYFDrP XPj+eHGQFXtw5d9OZxESQQ== 0000950112-96-000763.txt : 19960314 0000950112-96-000763.hdr.sgml : 19960314 ACCESSION NUMBER: 0000950112-96-000763 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960312 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROMUS HOTEL CORP CENTRAL INDEX KEY: 0000944647 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 621596939 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11463 FILM NUMBER: 96534082 BUSINESS ADDRESS: STREET 1: 6800 POPLAR AVENUE STREET 2: STE 200 CITY: MEMPHIS STATE: TN ZIP: 38138 MAIL ADDRESS: STREET 1: 6800 POPLAR AVENUE STREET 2: STE 200 CITY: MEMPHIS STATE: TN ZIP: 38138 10-K 1 PROMUS HOTEL CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K ------------------- (MARK ONE) /X/ FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-11463 PROMUS HOTEL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE I.R.S. NO. 62-1596939 (State of Incorporation) (I.R.S. Employer Identification No.) 755 CROSSOVER LANE MEMPHIS, TENNESSEE 38117 (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 374-5000 850 RIDGE LAKE BLVD., SUITE 400 MEMPHIS, TENNESSEE 38120 (Former address of Registrant) ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH REGISTERED TITLE OF EACH CLASS ----------------------------------------- - ------------------- NEW YORK STOCK EXCHANGE Common Capital Stock, CHICAGO STOCK EXCHANGE Par Value $0.10 per share* PACIFIC STOCK EXCHANGE PHILADELPHIA STOCK EXCHANGE - ------------ * Common Capital Stock also has special stock purchase rights listed on each of the same exchanges SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting stock held by non-affiliates of the registrant based upon the closing price of $26.00 for the Common Stock as reported on the New York Stock Exchange Composite Tape on March 1, 1996, is $1,309,186,736. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 1, 1996. Common Capital Stock ..................................... 51,380,405 Shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1995, are incorporated by reference into Parts I and II hereof and portions of the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Material from the Annual Report to Stockholders for the fiscal year ended December 31, 1995 (the "Annual Report") of Promus Hotel Corporation (referred to herein, together with its subsidiaries where the context requires, as the "Company" or "Promus") is incorporated by reference in Parts I and II hereof where referred to herein. Material from the Company's Proxy Statement, prepared and mailed to stockholders in accordance with Section 14 of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder, for the Annual Meeting of Stockholders of the Company to be held on April 24, 1996 (the "Proxy Statement") is incorporated by reference in Part III hereof where referred to therein. PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES. Promus Hotel Corporation is one of the leading hotel companies in the United States. The Company operates the Embassy Suites, Hampton Inn, Hampton Inn & Suites and Homewood Suites hotel brands. Promus was incorporated on March 2, 1995 under Delaware law and conducts its business through its wholly-owned subsidiary, Promus Hotels, Inc. ("PHI"), and PHI's subsidiaries. The principal asset of Promus is the stock of PHI, which holds, directly or indirectly through subsidiaries, substantially all of the assets of the Company's businesses. The principal executive offices of Promus are currently located at 755 Crossover Lane, Memphis, Tennessee 38117, telephone (901) 374-5000. Operating data for the three most recent fiscal years, together with interest expense, interest and other income, and extraordinary items, is set forth on pages 31 and 37 of the Annual Report. Information as to assets is set forth on the inside front cover of the Annual Report and pages 36, 40, 41, and 46 through 48 of the Annual Report. All of the foregoing pages of the Annual Report are incorporated herein by reference. For information on operating results and a discussion of those results, see "Financial and Statistical Highlights" on the inside front cover and "Performance Statistics" on pages 28 and 29 of the Annual Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 30 through 35 and page 37 of the Annual Report, which pages are incorporated herein by reference. GENERAL On June 30, 1995, The Promus Companies Incorporated ("PCI") split into two independent public corporations, one for conducting its casino entertainment business and one for conducting its hotel business. The stockholders of PCI retained their shares of PCI (now known as Harrah's Entertainment, Inc.) and received one share of Promus Hotel Corporation for each two shares of PCI they owned prior to the split. The Company operates, owns and licenses hotels bearing the Embassy Suites, Hampton Inn, Hampton Inn & Suites and Homewood Suites names. Each brand is targeted to a specific market segment. Embassy Suites hotels, of which there were 114 hotels in operation on December 31, 1995, appeal to the traveler who has a need or desire for greater space and more focused services than are available in traditional upscale hotels. Embassy Suites hotels compose the largest all-suite upscale hotel system in the United States by number of suites and system revenues. Hampton Inn hotels are moderately priced hotels designed to attract the business and leisure traveler desiring quality accommodations at affordable prices. Since 1984, when the brand was introduced, the system has grown to 520 hotels in operation as of December 31, 1995. Homewood Suites hotels, of which there were 30 in operation on December 31, 1995, represent the Company's entry in the extended stay market and target the traveler who stays five or more consecutive nights, as well as the traditional business and leisure traveler. 1 Announced in December, 1993 the Company's newest brand, Hampton Inn & Suites hotels incorporate the best features of the Hampton Inn and Homewood Suites brands, offering both traditional hotel room accommodations and apartment-style suites within one property. There were five Hampton Inn & Suites hotels in operation as of December 31, 1995. As of December 31, 1995, the Company's hotel brands included 564 properties licensed by the Company, 73 properties licensed and managed by the Company, and 32 properties owned and operated by the Company. These properties contained 88,117 rooms and suites. All of the Company's hotel brands are managed by a single senior management team. The Company pursues a strategy of growing its hotel brands by minimizing its ownership of hotel real estate and concentrating on obtaining new franchise or management contracts. As part of this strategy, the Company seeks to sell owned hotels to realize the value of the underlying assets and to increase its return on investment. Following such sales, the hotels typically are operated either by the Company under management contracts or by the purchasers directly. In both cases such hotels typically receive franchise licenses from the Company. Each of the Company's hotel brands uses a business system that includes centralized reservations and marketing systems, as well as local property management and revenue management systems. This sophisticated business system is fully integrated and linked to the Promus hotels network, a communications network which connects all Promus hotels to the Company's central reservation office and more than 300,000 travel agents worldwide. The Embassy Suites, Hampton Inn, Hampton Inn & Suites and Homewood Suites business systems' reservation modules receive reservation requests entered on terminals located at all of their respective hotels and reservation centers, major domestic and international airlines via their global distribution systems, and direct from consumers via computer access to each brand's Internet site. The systems immediately confirm reservations or indicate accommodations available at alternate Promus hotels. Reservations are transmitted automatically to the hotel for which the reservation is made. The Company's data centers that house all of the satellite and reservation, marketing and revenue management computers are located in Memphis, Tennessee. A second central reservation office is scheduled to open in Tampa, Florida by January 1997. See page 36 of the Annual Report, which page is incorporated herein by reference, for "Investment in Franchise System." A major element of the Company's business strategy is an unconditional 100% guarantee of service satisfaction. All of the Company's hotel brands offer suites/rooms exclusively for non-smoking guests. LICENSING AND MANAGEMENT CONTRACT OPERATIONS LICENSING The Company's revenues from licensing operations for all Embassy Suites, Hampton Inn, Hampton Inn & Suites and Homewood Suites hotels consist of initial license application fees and continuing royalties. Effective April 1, 1996, the initial license application fee for an Embassy Suites hotel is $500 per room, with a minimum of $100,000, and $450 per room, with a minimum of $45,000, for each Hampton Inn, Hampton Inn & Suites and Homewood Suites hotel. The license agreements provide for a four percent royalty based upon gross rooms/suites revenues and also provide for a separate marketing and reservation contribution. In screening applicants for license agreements, the Company evaluates the character, operations ability, experience and financial responsibility of each applicant or its principals; the Company's prior business dealings, if any, with the applicant; suitability of the proposed hotel location and other factors. The license agreement establishes requirements for service and quality of accommodations. The Company provides certain training for licensee management and makes regular inspections of licensed hotels. License agreements for new hotels generally have a 20-year term. The Company may terminate a license agreement if the licensee fails to cure a breach of the license agreement in a timely manner. In 2 certain instances, a license agreement may be terminated by the licensee, but such termination generally requires a payment to the Company. MANAGEMENT CONTRACTS The Company's revenues from management contracts consist primarily of management fees which are up to five percent of adjusted gross revenues of the hotel. The contract terms governing management fees vary depending on the size and location of the hotel and other factors relative to the property. Under the Company's management contracts, the Company, as the manager, operates or supervises all aspects of the hotel's operations. The hotel owner is generally responsible for all costs, expenses and liabilities incurred in connection with operating the hotel, including the expenses and salaries of all hotel employees. The hotel owner also enters into a license agreement with the Company and pays the royalty and marketing/reservation contribution as provided in the license agreement. In addition, the hotel owner is often required to set aside a certain percentage of hotel revenues for capital replacement. The Company's management contracts typically have a term of ten years and most give the Company specified renewal rights. The management contract may be terminated by either party due to an uncured default by the other party. See "Franchise and Management Fees" on page 37 of the Annual Report, which page is incorporated herein by reference, for revenues from licensing and management contract operations. EMBASSY SUITES HOTELS The following table sets forth information regarding all Embassy Suites hotels, including company owned hotels, hotels operated by the Company under management contracts or joint venture arrangements and hotels operated by licensees:
MANAGEMENT CONTRACTS/ LICENSED OWNED JOINT VENTURES --------------- --------------- ------------------ NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER OF OF OF OF OF OF HOTELS SUITES HOTELS SUITES HOTELS SUITES ------ ------ ------ ------ ------ ------ Fiscal Year-End 1992......................... 45 10,712 15 3,450 43 11,228 1993 Activity: Additions.................................. 5 938 - - - (3) Conversions, net(a)........................ 3 900 (6) (1,423) 3 523 Sales/Terminations......................... (1) (196) - - - - ---- ------ ---- ------ ---- ------ Fiscal Year-End 1993......................... 52 12,354 9 2,027 46 11,748 1994 Activity: Additions.................................. 1 177 - - 2 410 Conversions, net(a)........................ - (15) - (2) - 15 Sales/Terminations......................... (2) (760) - - (1) (239) ---- ------ ---- ------ ---- ------ Fiscal Year-End 1994......................... 51 11,756 9 2,025 47 11,934 1995 Activity: Additions.................................. 6 1,052 - - 2 191 Conversions, net(a)........................ (1) (56) - - 1 56 Sales/Terminations......................... (1) (223) - - - - ---- ------ ---- ------ ---- ------ Fiscal Year-End 1995......................... 55 12,529 9(b) 2,025 50(c) 12,181 ==== ====== ==== ====== ==== ======
- ------------ (a) Conversions consist of transfers of properties among the licensed, managed and owned categories. (b) Includes one property in which the Company owns more than a 50% interest. (This property is under a license agreement to a third party and is managed by Promus.) (c) Includes 48 hotels that are also licensed to third parties. Excludes four Crown Sterling Suites properties with 1,076 suites being managed by Promus, but not yet converted to the Embassy Suites brand as of December 31, 1995. 3 On December 31, 1995, 23 Embassy Suites hotels were under construction or conversion, four of which will be licensee operated, 19 of which will be company managed. Embassy Suites hotels are located in 34 states, the District of Columbia, Canada and Colombia. One hotel is under construction in each of: Thailand, Chile, Puerto Rico and Mexico. Embassy Suites hotels have an average of 235 suites per hotel. Each guest suite has a separate living room and dining/work area, with a console television, refrigerator and wet bar, as well as a traditional bedroom (with a king size bed or two double beds). Most Embassy Suites hotels are built around a landscaped atrium. All hotels offer a free, cooked-to-order breakfast and, where local law allows, complimentary evening cocktails. In May 1995, PCI entered into a Subscription Agreement, assumed by Promus on June 30, 1995, with FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership ("FelCor") whereby Promus agreed to purchase up to $25 million in FelCor limited partnership interests to help fund the partnership's acquisition of all-suite upscale hotels to be converted to the Embassy Suites brand. In September 1995, Promus entered into a second agreement with FelCor in connection with FelCor's Agreement to acquire the Crown Sterling Suites hotel chain. FelCor plans to convert up to 16 of the Crown Sterling Suites hotels to the Embassy Suites brand. In consideration, Promus agreed to make up to $50 million available to FelCor for the conversions through investments in FelCor common stock. Hotels converted to the Embassy Suites brand under either of these agreements will operate under 20-year license agreements and 10-year management contracts will be awarded to Promus. As of December 31, 1995, closings on four hotels had occurred. All remaining closings are expected to occur in 1996. Subject to some restrictions, the limited partnership interests may be converted to shares of FelCor common stock on a one-for-one basis, and the common stock interests may be sold on the open market. As of December 31, 1995, Promus had funded approximately $30 million of the total $75 million commitment and had loaned an additional $7.5 million to FelCor, representing one-half of the deposit required for the Crown Sterling Suites acquisition. The total commitment will be reduced by the amount of such loans outstanding. In connection with these agreements, Promus will guarantee a third party loan to FelCor, not to exceed $25 million. As of December 31, 1995, that facility was not yet in place, and therefore no amounts had been drawn. The following table sets forth information concerning system occupancy, average daily rate per occupied suite and revenue per available suite for all Embassy Suites hotels:
AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER FISCAL YEAR RATE OCCUPIED SUITE AVAILABLE SUITE - -------------------------------------- --------- -------------- --------------- 1995.................................. 74.2% $ 101.90 $ 75.61 1994.................................. 74.9% $ 97.28 $ 72.86 1993.................................. 73.0% $ 93.91 $ 68.58
The Company also licenses time sharing resorts in Orlando, Florida and Kauai, Hawaii under the name "Embassy Vacation Resort" and will consider other such developments as opportunities arise in the future. The Company manages the Orlando, Florida resort. 4 HAMPTON INN HOTELS The following table sets forth information regarding all Hampton Inn and Hampton Inn & Suites hotels, including company owned hotels, hotels operated under management contracts or joint venture arrangements and hotels operated by licensees:
MANAGEMENT CONTRACTS/ LICENSED OWNED JOINT VENTURES ----------------- ---------------- ---------------- NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER OF OF OF OF OF OF HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ------- ------ ------ ------ ------ Fiscal Year-End 1992...................... 289 35,242 15 2,048 23 2,910 1993 Activity: Additions............................... 46 4,147 - - 1 51 Sales/Terminations...................... (2) (236) - - - - ------ ------- ---- ------ ------ ------ Fiscal Year-End 1993...................... 333 39,153 15 2,048 24 2,961 1994 Activity: Additions............................... 67 6,149 - - - - Sales/Terminations...................... (1) (118) - (1) (1) (121) ------ ------- ---- ------ ------ ------ Fiscal Year-End 1994...................... 399 45,184 15 2,047 23 2,840 1995 Activity: Additions............................... 92(a) 8,760(b) - - - - Conversions, net (c).................... 1 131 (1) (131) - - Sales/Terminations...................... (4) (544) - - - - ------ ------- ---- ------ ------ ------ Fiscal Year-End 1995...................... 488(d) 53,531 14 1,916 23(e) 2,840 ====== ====== ==== ====== ====== ======
- ------------ (a) Includes five Hampton Inn & Suites hotels. (b) Includes 573 suites/rooms from Hampton Inn & Suites hotels. (c) Conversions consist of transfers of properties among the licensed, managed and owned categories. (d) Includes one property open only on a seasonal basis. (e) These hotels are also licensed to third parties.
On December 31, 1995, 80 Hampton Inn hotels, including 10 Hampton Inn & Suites hotels, were under construction. Seventy-nine of these hotels will be licensee operated. One Hampton Inn & Suites hotel will be managed by the Company. Hampton Inn hotels are currently located in 45 states, as well as Canada, Costa Rica and Mexico. One additional hotel is under construction in Thailand. An average Hampton Inn hotel has 111 rooms. The Hampton Inn hotel's standardized concept provides for a guest room featuring a color television, free in-room movies, free local telephone calls and complimentary continental breakfast. Unlike full-service hotels, Hampton Inn hotels do not feature restaurants, lounges or large public spaces. Hampton Inns also uses a modified lodging property in communities supporting hotels of fewer than 90 rooms. The building design for these smaller communities has the same features as a standard Hampton Inn hotel, but with fewer rooms and a smaller lobby. Over 130 of these modified design hotels are open and 42 are currently under construction. 5 The following table sets forth information concerning system occupancy, average daily rate per occupied room and revenue per available room for all Hampton Inn hotels (excluding Hampton Inn & Suites): AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER FISCAL YEAR RATE OCCUPIED ROOM AVAILABLE ROOM - ----------- --------- ------------- -------------- 1995 73.7% $ 56.97 $42.01 1994 74.3% $ 53.46 $39.74 1993 73.0% $ 50.81 $37.10 In December 1993, the Company announced the Hampton Inn & Suites hotel concept, which combines standard guest rooms with a significant block of two-room suites in a single property. Development of this product is targeted for commercial and suburban markets, as well as destination and resort markets. Each property contains a centrally located, expanded lobby and complimentary services area and includes an exercise room, convenience shop, meeting/hospitality room and coin-laundry. An expanded complimentary continental breakfast buffet is offered. The first Hampton Inn & Suites hotel opened June 6, 1995. The Hampton Inn & Suites system occupancy was 59.4% and average daily rate per occupied room was $70.13 for a 1995 revenue per available room/suite of $41.65. HOMEWOOD SUITES HOTELS The following table sets forth information regarding all Homewood Suites hotels, including company owned hotels and hotels operated by licensees:
LICENSED OWNED ---------------- ---------------- NUMBER NUMBER NUMBER NUMBER OF OF OF OF HOTELS SUITES HOTELS SUITES ------ ------ ------ ------ Fiscal Year-End 1992....................................... 16 1,754 8 932 1993 Activity: Additions................................................ - 40 - - ---- ------ ---- ------ Fiscal Year-End 1993....................................... 16 1,794 8 932 1994 Activity: Additions................................................ 2 155 - - ---- ------ ---- ------ Fiscal Year-End 1994....................................... 18 1,949 8 932 1995 Activity: Additions................................................ 4 266 1 92 Sales/Terminations....................................... (1) (144) - - ---- ------ ---- ------ Fiscal Year-End 1995....................................... 21 2,071 9 1,024 ==== ====== ==== ======
On December 31, 1995, eight Homewood Suites hotels were under construction, six of which will be licensee operated, and two of which will be company owned. Promus currently plans to spend approximately $110 million to expand the Homewood Suites hotel brand by developing as many as 14 additional company owned properties over the next three to five years. During 1995, the Company acquired land and incurred construction costs of $16.2 million to develop new Homewood Suites hotels. The Company anticipates spending an additional $70 million in 1996 for identified and approved projects. Homewood Suites hotels which have an average of 103 suites are currently located in 18 states. Homewood Suites hotels feature residential-style accommodations, which include a living room area (some with fireplaces), separate bedroom (with a king size bed or two double beds) and a separate bathroom, and a fully-equipped kitchen. The hotel is centered around a central community building, 6 called the Lodge, which affords guests a high level of social interaction. Amenities include a complimentary breakfast and an evening social hour, a convenience store, shopping service, business center, outdoor pool, exercise center and limited meeting facilities. The following table sets forth information concerning system occupancy, average daily rate per occupied suite and revenue per available suite for all Homewood Suites hotels: AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER FISCAL YEAR RATE OCCUPIED SUITE AVAILABLE SUITE - ------------ --------- -------------- --------------- 1995 76.9% $82.42 $63.37 1994 78.1% $76.38 $59.67 1993 75.8% $72.47 $54.91 OTHER AUDUBON WOODS BUSINESS CAMPUS In January 1995, the Company acquired property in Memphis, Tennessee, known as Audubon Woods Business Campus, in order to establish its corporate headquarters for a purchase price of $21.7 million. This office complex consists of four office buildings containing approximately 360,000 square feet of office space and is located on 31 acres of land. The Company will occupy 50% of the office space while leasing the remaining space, spending approximately $9.4 million for renovations. Remodeling of the new headquarters has begun and is expected to be completed during 1996. TRADEMARKS The following trademarks used herein are owned by the Company: Promus(R); Embassy Suites(R); Embassy Vacation Resort(R); Hampton Inn(R); Hampton Inn & Suites(R) and Homewood Suites(R). The names "Embassy Suites," "Embassy Vacation Resort," "Hampton Inn," "Hampton Inn & Suites," and "Homewood Suites" are registered as service marks in the United States and in certain foreign countries. The Company considers all of these marks, and the associated name recognition, to be valuable to its business. COMPETITION The Company encounters strong competition as a hotel owner, manager and franchisor with other lodging related companies. As of December 31, 1995, there were more than 150 hotel brands (chains with more than one hotel). Although most of these companies are privately owned firms, several large national chains own and operate their own hotels and also franchise their brands. There is no single competitor which is dominant in the industry. Affiliation with a national or regional brand is a major trend in the U.S. lodging industry. In 1995 66% of U.S. hotel rooms were brand-affiliated, compared to 62% in 1989. Most of the branded properties are franchised, under which the operator pays the franchisor a fee for use of its system identification and reservation system. The Company believes that its brands are attractive to hotel owners seeking a management company or franchise affiliation because its hotels typically generate higher occupancies and revenue per available room (RevPAR) than direct competitors in most market areas. The Company attributes this performance premium to its success in achieving and maintaining strong customer preference. Repeat guest business is enhanced by the Company's unconditional service guarantee. Customer preference for the Company's brands means the Company does not have to rely on frequent stay programs. The lodging industry in general, including the Company's brands, may be adversely affected by national and regional economic conditions. The demand for accommodations at a particular hotel may 7 be adversely affected by many factors including changes in travel patterns, local and regional economic conditions and the degree of competition with other hotels in the area. GOVERNMENTAL REGULATION HOTEL LICENSING A number of states regulate the licensing of hotels and restaurants and the granting of liquor licenses by requiring registration, disclosure statements and compliance with specific standards of conduct. In addition, various federal and state regulations mandate certain disclosures and other practices with respect to the sales of license agreements and the licensor/licensee relationship. The Company's operations have not been materially affected by such legislation and regulations, but the Company cannot predict the effect of future legislation. EMPLOYEE RELATIONS Promus, through its subsidiaries, has approximately 8,100 employees, of which 1,250 are based in Memphis, Tennessee. Promus' subsidiaries have collective bargaining agreements covering fewer than 100 employees. The Company considers its relations with employees to be very good. ITEM 3. LEGAL PROCEEDINGS. Actions for negligence or other tort claims occur routinely as ordinary incident to the Company's business. Several lawsuits are pending against the Company which have arisen in the ordinary course of business, but none of these proceedings involves a claim for damages (in excess of applicable excess umbrella insurance coverages) involving more than 10% of current assets of the Company. The Company does not anticipate any amounts which it may be required to pay as a result of an adverse determination of such legal proceedings, individually or in the aggregate, or any other relief granted by reason thereof, will have a material adverse effect on the Company's financial position or results of operation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. 8 EXECUTIVE OFFICERS OF THE REGISTRANT
POSITIONS AND OFFICES HELD AND PRINCIPAL NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS - ----------------------------- ------------------------------------------------------------ Michael D. Rose (54)......... Chairman of the Board of Promus since April 1995. Chairman of the Board (1989-1995) of PCI. Chief Executive Officer (1989-1994) and President (1989-1991) of PCI. Mr. Rose also is Chairman of the Board of Harrah's Entertainment, Inc. and is a director of Ashland, Inc., Darden Restaurants, Inc., First Tennessee National Corporation and General Mills, Inc. Raymond E. Schultz (62)...... Director, President and Chief Executive Officer of Promus since April 1995. President and Chief Executive Officer of the Hotel Division of PCI (1993-1995). President and Chief Executive Officer of Hampton Inn/Homewood Suites Hotel Division of PCI (1991-1993). President and Chief Executive Officer of Hampton Inn Hotel Division of PCI (1983-1991). David C. Sullivan (56)....... Director, Executive Vice President and Chief Operating Officer of Promus since April 1995. Executive Vice President and Chief Operating Officer of the Hotel Division of PCI (1993-1995). Senior Vice President of Development and Operations of Hampton Inn/Homewood Suites Hotel Division of PCI (1991-1993). Vice President of Development, Hampton Inn Hotel Division of PCI (1990-1991). Donald H. Dempsey (51)....... Senior Vice President and Chief Financial Officer of Promus since April 1995. Senior Vice President of Finance & Administration of the Hotel Division of PCI (1993-1995). Vice President, Finance of Hampton Inn/Homewood Suites Hotel Division of PCI (1991-1993). Vice President, Finance of Hampton Inn Hotel Division of PCI (1990-1991). Ralph B. Lake (51)........... Senior Vice President, General Counsel and Secretary of Promus since April 1995. Vice President and General Counsel of Gaming Development of PCI (1992-1995). Associate General Counsel-International of PCI (1991-1992). Vice President and General Counsel of Homewood Suites Hotel Division of PCI (1988-1991). Thomas L. Keltner (49)....... Senior Vice President, Development of Promus since April 1995. Senior Vice President, Development of the Hotel Division of PCI (1993-1995). President, Golf Training Systems, Inc., (1991-1993). Senior Vice President and Chief Operating Officer, Franchise Division of Holiday Inn Worldwide (1990). President and Managing Director, Holiday Inns International (1988-1990). Mark C. Wells (46)........... Senior Vice President, Marketing of Promus since April 1995. Senior Vice President, Marketing of the Hotel Division of PCI (1993-1995). Senior Vice President, Marketing of Hampton Inn/Homewood Suites Hotel Division of PCI (July 1993-October 1993). Senior Vice President, Marketing of Embassy Suites Hotel Division of PCI (1991-1993). Vice President, Marketing of Hampton Inn Hotel Division of PCI (1986-1991).
9 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange and traded under the ticker symbol "PRH". The stock is also listed on the Chicago Stock Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange. The following table sets forth the high and low price per share of the Company's Common Stock for 1995: 1995 High Low ---- ---- --- First Quarter. . . . . . N/A N/A Second Quarter . . . . . $26.375* $21.00* Third Quarter. . . . . . $25.00 $20.375 Fourth Quarter . . . . . $24.125 $20.75 *Trading on a "when issued" basis The approximate number of holders of record of the Company's Common Stock as of March 1, 1996 is as follows: Approximate Number Title of Class of Holders or Record -------------- --------------------- Common Stock, Par Value $.10 per share 12,975 The Company does not presently intend to declare cash dividends. The terms of the Company's existing bank credit facility limit the Company's ability to pay cash dividends on Common Stock. See "Management's Discussion and Analysis--Liquidity and Capital Resources" on pages 33 and 34 of the Annual Report and Note 4 to the financial statements on pages 41 through 43 of the Annual Report. When permitted under the terms of the existing credit facility, the declaration and payment of dividends is at the discretion of the Board of Directors of the Company. The Board of Directors of the Company intends to reevaluate its dividend policy in the future in light of the Company's results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. All of the foregoing pages of the Annual Report are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. See the information for the years 1991 through 1995 set forth under "Selected Financial Data" in the Annual Report on page 50, which page is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See the information set forth in the Annual Report on pages 30 through 35, which pages are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the information set forth in the Annual Report on pages 36 through 50, which pages are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS See the information regarding the names, ages, positions and prior business experience of the directors of the Company set forth on pages 4 through 6 of the Proxy Statement, which pages are incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT See "Executive Officers of the Registrant" on page 9 in Part I hereof. 10 ITEM 11. EXECUTIVE COMPENSATION. See the information set forth in the Proxy Statement on page 7 thereof entitled "Compensation of Directors" and the information on pages 14 through 18 thereof. The information on page 7 of the Proxy Statement entitled "Compensation of Directors" and the information on pages 14 through 18 of the Proxy Statement entitled "Summary Compensation Table," "Options Granted in the Last Fiscal Year," "Aggregated Option Exercises in 1995 and December 31, 1995, Option Values," and "Certain Employment Arrangements" are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. See the information set forth in the Proxy Statement on pages 2 and 3 thereof entitled "Ownership of the Capital Stock of the Company" which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See the information set forth in the Proxy Statement entitled "Certain Transactions" on pages 18 and 19 thereof, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements (including related notes to consolidated financial statements) filed as part of this report are listed below: Report of Independent Public Accountants. Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994. Consolidated Statements of Income for the Years Ended December 31, 1995, December 31, 1994 and December 31, 1993. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, December 31, 1994, and December 31, 1993. Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, December 31, 1994, and December 31, 1993. (a) 2. Financial Statement Schedules for the years ended December 31, 1995, December 31, 1994, and December 31, 1993, are as follows: NO. ---- I Condensed financial information of registrant. II Valuation and qualifying accounts. Schedules III, IV, and V are not applicable and have therefore been omitted. (a) 3. Exhibits (footnotes appear on page 14):
NO. - --------- 3(1) Amended and Restated Certificate of Incorporation of Promus Hotel Corporation dated June 30, 1995. (14) *3(2) Bylaws of Promus Hotel Corporation, as amended and restated dated May 26, 1995. 4(1) Form of Rights Agreement, dated as of June 30, 1995, between Promus Hotel Corporation and Continental Stock Transfer & Trust Company. (12)
11
NO. - --------- *10(1) Form of Indemnification Agreement entered into by Promus Hotel Corporation and each of its directors and executive officers. +10(2) Promus Hotel Corporation 1995 Stock Option Plan. (5) +10(3) Promus Hotel Corporation 1995 Restricted Stock Plan. (6) +10(4) Promus Hotel Corporation Savings and Retirement Plan. (13) *+10(5) Form of Amendment to Promus Hotel Corporation Savings and Retirement Plan effective as of June 30, 1995. *+10(6) Form of Amendment to the Promus Hotel Corporation Savings and Retirement Plan dated November 15, 1995. +10(7) Promus Hotel Corporation Non-Management Directors Stock Incentive Plan. (8) +10(8) Promus Hotel Corporation Key Executive Officer Annual Incentive Plan. (7) +10(9) Promus Hotel Corporation Executive Deferred Compensation Plan. (9) +10(10) Promus Hotel Corporation Deferred Compensation Plan. (9) +10(11) Promus Hotel Corporation Savings and Retirement Plan Trust Agreement, dated as of May 26, 1995, among Promus Hotel Corporation and Robert S. Davis, Donald H. Dempsey, Patricia R. Ferguson, Jeffery M. Jarvis, Kelly R. Jenkins, Frederick G. Schultz and Mark C. Wells, as trustees. (9) +10(12) Form of Severance Agreement, dated as of June 30, 1995, entered into with Donald H. Dempsey, Thomas L. Keltner, Ralph B. Lake, David C. Sullivan, Mark C. Wells, Vincent C. Ciaramitaro, Patricia R. Ferguson and James T. Harvey. (10) +10(13) Form of Severance Agreement, dated June 30, 1995, entered into with Michael D. Rose and Raymond E. Schultz. (10) +10(14) Employment Agreement, dated as of June 30, 1995, between Michael D. Rose and Promus Hotel Corporation. (10) +10(15) Employment Agreement, dated as of July 1, 1995, between Raymond E. Schultz and Promus Hotel Corporation. (11) *+10(16) Form of Letter of Amendment, dated February 22, 1996, to the Employment Agreement between Raymond E. Schultz and Promus Hotel Corporation. +10(17) Financial Counseling Plan of The Promus Companies Incorporated, as amended February 25, 1993, as adopted by Promus Hotel Corporation on April 5, 1995. (2) +10(18) Summary Plan Description of Executive Term Life Insurance Plan adopted by Promus Hotel Corporation on April 5, 1995. (4) +10(19) Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan and Stock Option Plan), dated as of January 1, 1992, adopted by Promus Hotel Corporation on April 5, 1995. (3) 10(20) Plan of Reorganization and Distribution Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(21) Tranche A Credit Agreement, dated as of June 7, 1995, among Embassy Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the Subsequent Borrower, certain subsidiaries and related parties from time to time party thereto, as Guarantors, the several lenders from time to time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9) 10(22) First Amendment to Tranche A Credit Agreement, dated as of June 30, 1995, by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A. (Carolinas). (10) 10(23) Tranche A Assignment and Assumption Agreement, dated as of June 30, 1995, among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated and NationsBank, N.A. (Carolinas). (10)
12
NO. - --------- 10(24) Tranche B Credit Agreement, dated as of June 7, 1995, among Embassy Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the Subsequent Borrower, certain subsidiaries and related parties from time to time party thereto, as Guarantors, the several lenders from time to time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9) 10(25) First Amendment to Tranche B Credit Agreement, dated as of June 30, 1995, by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A. (Carolinas). (10) 10(26) Tranche B Assignment and Assumption Agreement, dated as of June 30, 1995, by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated and Nations Bank, N.A. (Carolinas). (10) 10(27) Pledge Agreement, dated as of June 30, 1995, by and among Promus Hotel Corporation, Promus Hotels, Inc., certain subsidiaries which may now be owners of Credit Parties and NationsBank, N.A. (Carolinas). (10) 10(28) Escrow Agreement, dated as of June 30, 1995, among Promus Hotel Corporation, Promus Hotels, Inc. and NationsBank. (9) 10(29) Employee Benefits and Other Employment Matters Allocation Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(30) Risk Management Allocation Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(31) Tax Sharing Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(32) International Swap Dealers Association, Inc. Master Agreement, dated as of June 30, 1995, among Promus Hotels, Inc. and NationsBank, N.A. (Carolinas). (10) 10(33) Transfer Agreement, dated as of June 30, 1995, among Embassy Suites, Inc., Promus Hotels, Inc., and NationsBank, N.A. (Carolinas). (10) 10(34) Subscription Agreement, dated as of October 17, 1995, by and among Promus Hotels, Inc. and FelCor Suites Hotels, Inc. and FelCor Suites Limited Partnership. (11) 10(35) Management Agreement, dated as of December 17, 1986, between Hampton Inns, Inc. and Hampton/GHI Associates No. 1. (1) 10(36) Form of Management Agreement between Embassy Suites, Inc. and affiliates of General Electric Pension Trust. (1) *10(37) Form of Assignment and Assumption of Manager's Interest in Management Agreement (General Electric Pension Trust), dated June 30, 1995, between Embassy Suites, Inc. and Promus Hotels, Inc. *10(38) Form of Aircraft Agreement, dated August 4, 1995, between Promus Hotels, Inc., and Harrah's Operating Company, Inc. *10(39) Form of Interest Swap Confirmations, between NationsBank, N.A. and Promus Hotels, Inc., dated December 11, 1995. *10(40) Form of Interest Swap Confirmation between NationsBank, N.A. and Promus Hotels, Inc., dated January 24, 1995, as amended on December 6, 1995. *11(1) Computation of per share earnings. *12(1) Computations of ratios. *13(1) Portions of Annual Report to Stockholders for the fiscal year ended December 31, 1995. *21(1) List of subsidiaries of Promus Hotel Corporation. *23(1) Consent of Arthur Andersen LLP. *27(1) Financial Data Schedule.
- ------------ * Included herewith. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K (Footnotes on following page) 13 (Footnotes for preceding page) Footnotes (1) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended January 2, 1987, filed March 27, 1987, File No. 1-8900. (2) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410. (3) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410. (4) Incorporated by reference from PCI's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, filed March 17, 1993, File No. 1-10410. (5) Incorporated by reference from PCI's Proxy Statement, Annex III-A, dated April 25, 1995, File No. 1-11463. (6) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated April 25, 1995, File No. 1-11463. (7) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated April 25, 1995, File No. 1-11463. (8) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated April 25, 1995, File No. 1-11463. (9) Incorporated by reference from the Company's Current Report on Form 8-K, filed June 14, 1995, File No. 1-11463. (10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 1995, filed August 11, 1995, File No. 1-11463. (11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1995, filed November 13, 1995, File No. 1-11463. (12) Incorporated by reference from the Company's Form 8-A, filed June 6, 1995, File No. 1-11463. (13) Incorporated by reference from the Company's Registration Statement No. 33-59997 on Form S-8 for the Promus Hotel Corporation Savings & Retirement Plan, filed June 6, 1995. (14) Incorporated by reference from PCI's Proxy Statement, Annex II-A, dated April 25, 1995, File No. 1-11463. (b) No Reports on Form 8-K were filed during the fourth quarter of 1995 and thereafter through March 1, 1996. 14 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROMUS HOTEL CORPORATION DATED: MARCH 12, 1996 By: /s/ MICHAEL D. ROSE .................................. (Michael D. Rose, Chairman) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------- --------------- /s/ U. BERTRAM ELLIS, JR. Director March 12, 1996 ........................................ (U. Bertram Ellis, Jr.) /s/ DEBRA J. FIELDS Director March 12, 1996 ........................................ (Debra J. Fields) /s/ CHRISTOPHER W. HART Director March 12, 1996 ........................................ (Christopher W. Hart) /s/ C. WARREN NEEL Director March 12, 1996 ........................................ (C. Warren Neel) /s/ BEN C. PETERNELL Director March 12, 1996 ........................................ (Ben C. Peternell) /s/ MICHAEL D. ROSE Director and Chairman March 12, 1996 ........................................ (Michael D. Rose) /s/ MICHAEL I. ROTH Director March 12, 1996 ........................................ (Michael I. Roth) /s/ RAYMOND E. SCHULTZ Director, President and March 12, 1996 ........................................ Chief Executive Officer (Raymond E. Schultz) /s/ JAY STEIN Director March 12, 1996 ........................................ (Jay Stein) /s/ DAVID C. SULLIVAN Director March 12, 1996 ........................................ (David C. Sullivan) /s/ RONALD TERRY Director March 12, 1996 ........................................ (Ronald Terry) /s/ DONALD H. DEMPSEY Chief Financial Officer March 12, 1996 ........................................ (Donald H. Dempsey) /s/ JEFFERY M. JARVIS Controller and Chief March 12, 1996 ........................................ Accounting Officer (Jeffery M. Jarvis)
15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Promus Hotel Corporation: We have audited in accordance with generally accepted auditing standards the financial statements included in the Promus Hotel Corporation annual report to stockholders, incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed under Item 14(a)2 on page 11 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ----------------------- ARTHUR ANDERSEN LLP Memphis, Tennessee March 8, 1996. 16 SCHEDULE I PROMUS HOTEL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEET AS OF DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS Cash and cash equivalents........................................... $ - Deferred income taxes............................................... 180 Investments in and advances to subsidiaries (eliminated in consolidation).................................................... 166,412 Organizational costs................................................ 775 -------- $167,367 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Commitments and contingencies (Note 4) Stockholders' equity Common stock, $0.10 par value, 360,000,000 shares authorized, 51,371,152 shares outstanding, net of 2,626 shares held in treasury..................................................... $ 5,137 Capital surplus................................................... 136,057 Retained earnings................................................. 25,349 Unrealized gain on marketable equity securities of affiliates, net of related deferred tax liability of $1,165................. 1,822 Deferred compensation related to restricted stock................. (998) -------- 167,367 -------- $167,367 ======== The accompanying notes are an integral part of this balance sheet. S-1 SCHEDULE I (CONTINUED) PROMUS HOTEL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF INCOME FOR THE PERIOD FROM JUNE 30, 1995 (DATE OF REGISTRATION) THROUGH DECEMBER 31, 1995 (IN THOUSANDS) Revenues............................................................. $ - Costs and expenses................................................... 547 ------- Loss before income taxes and equity in subsidiaries' earnings........ (547) Income tax benefit................................................... 231 ------- Loss before equity in subsidiaries' earnings......................... (316) Equity in subsidiaries' earnings before extraordinary items.......... 22,846 ------- Income before extraordinary items.................................... 22,530 Extraordinary items, net of income tax expense of $1,635............. 2,819 ------- Net income........................................................... $25,349 ======= The accompanying notes are an integral part of this financial statement. S-2 SCHEDULE I (CONTINUED) PROMUS HOTEL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JUNE 30, 1995 (DATE OF REGISTRATION) THROUGH DECEMBER 31, 1995 (IN THOUSANDS) Cash flows from operating activities Net income........................................................ $ 25,349 Adjustments to reconcile net income to cash flows from operating activities Extraordinary items........................................... (2,819) Amortization.................................................. 547 Equity in earnings of subsidiary.............................. (22,846) Other......................................................... (231) -------- Cash flows provided by operating activities................. - -------- Net change in cash and cash equivalents............................. - Cash and cash equivalents, beginning of period...................... - -------- Cash and cash equivalents, end of period............................ $ - ======== The accompanying notes are an integral part of this financial statement. S-3 SCHEDULE I (CONTINUED) PROMUS HOTEL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1--BASIS OF ORGANIZATION Promus Hotel Corporation, a Delaware corporation, is a holding company, the principal assets of which are capital stock in a subsidiary, Promus Hotels, Inc., (PHI). These condensed financial statements should be read in conjunction with the consolidated financial statements of Promus and subsidiaries. On June 30, 1995, The Promus Companies Incorporated (Parent) completed the transfer of the operations, assets and liabilities of its hotel business (the Hotel Business) composed of three hotel brands targeted at specific market segments: Embassy Suites, Hampton Inn and Homewood Suites, to a new publicly traded entity, Promus Hotel Corporation (Promus or the Company). As approved by Parent's Board of Directors and stockholders on May 26, 1995, this entity was spun-off (the Spin-Off) from the Parent and its stock was distributed to Parent's stockholders on a one-for-two basis effective June 30, 1995 (the Distribution). Concurrent with the Distribution, Parent changed its name to Harrah's Entertainment, Inc. NOTE 2--ORGANIZATIONAL COSTS Organizational costs are being amortized on a straight-line basis over a five year period. NOTE 3--LONG-TERM DEBT Promus has no long-term debt obligations, but has guaranteed certain long-term obligations of PHI. NOTE 4--COMMITMENTS AND CONTINGENCIES The Company is a party to various inquiries, administrative proceedings and litigation relating to contracts, sales of property and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management believes that the final outcome of these matters will not have a materially adverse effect upon Promus' consolidated financial position or its results of operations. NOTE 5--STOCKHOLDERS' EQUITY In addition to its common stock, the Company has the following classes of stock authorized but unissued: Preferred stock, $100 par value, 150,000 shares authorized Special stock--Series A, $1.125 par value, 5,000,000 shares authorized One special right is attached to each outstanding share of common stock. These rights entitle the holders to purchase, under certain conditions, units consisting of fractional shares of Special stock-Series A at a purchase price of $120 per unit, subject to adjustment. The rights also, under certain conditions, entitle certain holders to purchase $240 worth of common stock for $120. These rights expire S-4 SCHEDULE I (CONTINUED) PROMUS HOTEL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--STOCKHOLDERS' EQUITY--(CONTINUED) on May 1, 2005, unless Promus decides to redeem them earlier at $0.01 per right or upon the occurrence of certain other events. NOTE 6--INCOME TAXES Promus files a consolidated tax return with its subsidiaries. NOTE 7--EXTRAORDINARY ITEMS Promus' equity in PHI's net extraordinary items relates to the early payoff and forgiveness of a portion of existing debt attributable to two of PHI's equity investments. NOTE 8--SUPPLEMENTAL CASH FLOW INFORMATION Concurrent with the Spin-Off, the historical assets of the Hotel Business were transferred to Promus by Parent, and the issuance of Promus common stock was completed in connection with the Distribution. This noncash transaction has been excluded from the statement of cash flows. S-5
SCHEDULE II PROMUS HOTEL CORPORATION CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------- ---------- ----------------------- ---------- --------- ADDITIONS ----------------------- BALANCE BALANCE AT CHARGED TO CHARGED TO AT END BEGINNING COSTS AND OTHER OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ----------------------------------------- ---------- ---------- ---------- ---------- -------- Fiscal Year Ended December 31, 1995 Allowance for doubtful accounts Current.............................. $ 855 $ - $ 349(b) $ 32(a) $1,172 ====== ====== ====== ====== ====== Self-insurance reserves................ $ - $6,206 $8,674(b)(c) $5,946 $8,934 ====== ====== ====== ====== ====== Fiscal Year Ended December 31, 1994 Allowance for doubtful accounts Current.............................. $1,089 $ 28 $ - $ 262(a) $ 855 ====== ====== ====== ====== ====== Long-term............................ $ 644 $ - $ - $ 644 $ - ====== ====== ====== ====== ====== Fiscal Year Ended December 31, 1993 Allowance for doubtful accounts Current.............................. $1,362 $1,246 $ - $1,519(a) $1,089 ====== ====== ====== ====== ====== Long-term............................ $ 644 $ - $ - $ - $ 644 ====== ====== ====== ====== ====== Allowance for losses on property dispositions......................... $2,681 $ - $ - $2,681(a) $ - ====== ====== ====== ====== ======
- ------------ (a) Includes uncollectible accounts written off, net of amounts recovered, and balances transferred to other accounts. (b) Includes balances received from Parent in connection with the Spin-Off that had not been previously allocated. (c) Includes employee contributions to insurance programs.
S-6
EXHIBIT INDEX Exhibit No. Description Page - ----------- ----------- ---- 3(1) Amended and Restated Certificate of Incorporation of Promus Hotel Corporation dated June 30, 1995. (14) *3(2) Bylaws of Promus Hotel Corporation, as amended and restated dated May 26, 1995. 26 4(1) Form of Rights Agreement, dated as of June 30, 1995, between Promus Hotel Corporation and Continental Stock Transfer & Trust Company. (12) *10(1) Form of Indemnification Agreement entered into by Promus Hotel Corporation and each of its directors and executive officers. 35 +10(2) Promus Hotel Corporation 1995 Stock Option Plan. (5) +10(3) Promus Hotel Corporation 1995 Restricted Stock Plan. (6) +10(4) Promus Hotel Corporation Savings and Retirement Plan. (13) *+10(5) Amendment to Promus Hotel Corporation Savings and Retirement Plan effective as of June 30, 1995. 42 *+10(6) Amendment to the Promus Hotel Corporation Savings and Retirement Plan dated November 15, 1995. 46 +10(7) Promus Hotel Corporation Non-Management Directors Stock Incentive Plan. (8) +10(8) Promus Hotel Corporation Key Executive Officer Annual Incentive Plan. (7) +10(9) Promus Hotel Corporation Executive Deferred Compensation Plan. (9) +10(10) Promus Hotel Corporation Deferred Compensation Plan. (9) +10(11) Promus Hotel Corporation Savings and Retirement Plan Trust Agreement, dated as of May 26, 1995, among Promus Hotel Corporation and Robert S. Davis, Donald H. Dempsey, Patricia R. Ferguson, Jeffery M. Jarvis, Kelly R. Jenkins, Frederick G. Schultz and Mark C. Wells, as trustees. (9) +10(12) Form of Severance Agreement, dated as of June 30, 1995, entered into with Donald H. Dempsey, Thomas L. Keltner, Ralph B. Lake, David C. Sullivan, Mark C. Wells, Vincent C. Ciaramitaro, Patricia R. Ferguson and James T. Harvey. (10) +10(13) Form of Severance Agreement, dated June 30, 1995, entered into with Michael D. Rose and Raymond E. Schultz. (10) +10(14) Employment Agreement, dated as of June 30, 1995, between Michael D. Rose and Promus Hotel Corporation. (10) +10(15) Employment Agreement, dated as of July 1, 1995, between Raymond E. Schultz and Promus Hotel Corporation. (11) *+10(16) Form of Letter of Amendment, dated February 22, 1996, to the Employment Agreement between Raymond E. Schultz and Promus Hotel Corporation. 47 +10(17) Financial Counseling Plan of The Promus Companies Incorporated, as amended February 25, 1993, as adopted by Promus Hotel Corporation on April 5, 1995. (2) +10(18) Summary Plan Description of Executive Term Life Insurance Plan adopted by Promus Hotel Corporation on April 5, 1995. (4) +10(19) Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan and Stock Option Plan), dated as of January 1, 1992, adopted by Promus Hotel Corporation on April 5, 1995. (3) 10(20) Plan of Reorganization and Distribution Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(21) Tranche A Credit Agreement, dated as of June 7, 1995, among Embassy Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the Subsequent Borrower, certain subsidiaries and related parties from time to time party thereto, as Guarantors, the several lenders from time to time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9) 10(22) First Amendment to Tranche A Credit Agreement, dated as of June 30, 1995, by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A. (Carolinas). (10) 10(23) Tranche A Assignment and Assumption Agreement, dated as of June 30, 1995, among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated and NationsBank, N.A. (Carolinas). (10) 10(24) Tranche B Credit Agreement, dated as of June 7, 1995, among Embassy Suites, Inc., as Initial Borrower, Promus Hotels, Inc., as the Subsequent Borrower, certain subsidiaries and related parties from time to time party thereto, as Guarantors, the several lenders from time to time party thereto, and NationsBank, N.A. (Carolinas), as Agent. (9) 10(25) First Amendment to Tranche B Credit Agreement, dated as of June 30, 1995, by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation and NationsBank, N.A. (Carolinas). (10) 10(26) Tranche B Assignment and Assumption Agreement, dated as of June 30, 1995, by and among Embassy Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated and Nations Bank, N.A. (Carolinas). (10) 10(27) Pledge Agreement, dated as of June 30, 1995, by and among Promus Hotel Corporation, Promus Hotels, Inc., certain subsidiaries which may now be owners of Credit Parties and NationsBank, N.A. (Carolinas). (10) 10(28) Escrow Agreement, dated as of June 30, 1995, among Promus Hotel Corporation, Promus Hotels, Inc. and NationsBank. (9) 10(29) Employee Benefits and Other Employment Matters Allocation Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(30) Risk Management Allocation Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) Exhibit No. Description Page - ----------- ----------- ---- 10(31) Tax Sharing Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus Hotel Corporation. (10) 10(32) International Swap Dealers Association, Inc. Master Agreement, dated as of June 30, 1995, among Promus Hotels, Inc. and NationsBank, N.A. (Carolinas). (10) 10(33) Transfer Agreement, dated as of June 30, 1995, among Embassy Suites, Inc., Promus Hotels, Inc., and NationsBank, N.A. (Carolinas). (10) 10(34) Subscription Agreement, dated as of October 17, 1995, by and among Promus Hotels, Inc. and FelCor Suites Hotels, Inc. and FelCor Suites Limited Partnership. (11) 10(35) Management Agreement, dated as of December 17, 1986, between Hampton Inns, Inc. and Hampton/GHI Associates No. 1. (1) 10(36) Form of Management Agreement between Embassy Suites, Inc. and affiliates of General Electric Pension Trust. (1) *10(37) Form of Assignment and Assumption of Manager's Interest in Management Agreement (General Electric Pension Trust), dated June 30, 1995, between Embassy Suites, Inc. and Promus Hotels, Inc. 48 *10(38) Form of Aircraft Agreement, dated August 4, 1995, between Promus Hotels, Inc., and Harrah's Operating Company, Inc. 53 *10(39) Form of Interest Swap Confirmations, between NationsBank, N.A. and Promus Hotels, Inc., dated December 11, 1995. 58 *10(40) Form of Interest Swap Confirmation between NationsBank, N.A. and Promus Hotels, Inc., dated January 24, 1995, as amended on December 6, 1995. 64 *11(1) Computation of per share earnings. 66 *12(1) Computations of ratios. 67 *13(1) Portions of Annual Report to Stockholders for the fiscal year ended December 31, 1995. 69 *21(1) List of subsidiaries of Promus Hotel Corporation. 97 *23(1) Consent of Arthur Andersen LLP. 98 *27(1) Financial Data Schedule. 99
------------ * Included herewith. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K Footnotes (1) Incorporated by reference from Holiday Corporation's Annual Report on Form 10-K for the fiscal year ended January 2, 1987, filed March 27, 1987, File No. 1-8900. (2) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410. (3) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410. (4) Incorporated by reference from PCI's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, filed March 17, 1993, File No. 1-10410. (5) Incorporated by reference from PCI's Proxy Statement, Annex III-A, dated April 25, 1995, File No. 1-11463. (6) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated April 25, 1995, File No. 1-11463. (7) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated April 25, 1995, File No. 1-11463. (8) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated April 25, 1995, File No. 1-11463. (9) Incorporated by reference from the Company's Current Report on Form 8-K, filed June 14, 1995, File No. 1-11463. (10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 1995, filed August 11, 1995, File No. 1-11463. (11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1995, filed November 13, 1995, File No. 1-11463. (12) Incorporated by reference from the Company's Form 8-A, filed June 6, 1995, File No. 1-11463. (13) Incorporated by reference from the Company's Registration Statement No. 33-59997 on Form S-8 for the Promus Hotel Corporation Savings & Retirement Plan, filed June 6, 1995. (14) Incorporated by reference from PCI's Proxy Statement, Annex II-A, dated April 25, 1995, File No. 1-11463. EX-3.(2) 2 Exhibit 3(2) AMENDED RESTATED BYLAWS OF PROMUS HOTEL CORPORATION ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of Promus Hotel Corporation (the "Corporation") shall be at The Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. Annual Meetings. The annual meeting of stockholders shall be held on the last Wednesday in April in each year or on such other date and at such time as may be fixed by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these Bylaws. Written notice of an annual meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. To be properly brought before the annual meeting, business must be either (i) specified in the notice of annual meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the annual meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the annual meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by a stockholder, to be timely, must be received no later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth (a) as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, and (ii) any material interest of the stockholder in such business, and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Article II, Section 2. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant,determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Article II, Section 2, and if such officer should so determine, such officer shall so declare to the annual meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 3. Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation, special meetings of stockholders, for any purpose or purposes, may only be called by a majority of the entire Board of Directors or by the Chairman or the President. Written notice of a special meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. SECTION 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote thereat, present in person or represented by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. SECTION 5. Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder, unless otherwise provided by the Certificate of Incorporation. Such votes may be cast in person or by proxy but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 6. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of - 3 - shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 7. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 6 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. ARTICLE III DIRECTORS SECTION 1. Nomination of Directors. Nominations of persons for election to the Board of Directors of the Corporation at the annual meeting may be made at such meeting by or at the direction of the Board of Directors, by any committee or persons appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article III, Section 1. Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be received no later than that the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person, and (d) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to the stockholder giving the notice (a) the name and record address of the stockholder and (b) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. The directors shall be elected at the annual meeting of the stockholders, except as provided in the Certificate of Incorporation, and each director elected shall hold office until his successor is elected and qualified; provided, however, that unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, either with or without cause, from the Board of Directors at any meeting of stockholders by a majority of the stock represented and entitled to vote thereat. - 4 - SECTION 2. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President or a majority of the entire Board of Directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 3. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 4. Actions of Board of Directors. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 5. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 5 of Article III shall constitute presence in person at such meeting. SECTION 6. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. SECTION 7. Compensation. The directors may be paid their expenses, if any, of attendance at each - 5 - meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 8. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS SECTION 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assisant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. SECTION 2. Election. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers who are directors of the Corporation shall be fixed by the Board of Directors. SECTION 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting - 6 - of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. SECTION 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors. SECTION 5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors. SECTION 6. Vice Presidents. At the request of the President or in his absence or in the event of his inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. SECTION 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same - 7 - to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. SECTION 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 9. Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. SECTION 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 11. Controller. The Controller shall establish and maintain the accounting records of the Corporation in accordance with generally accepted accounting principles applied on a consistent basis, maintain proper internal control of the assets of the Corporation and shall perform such other duties as the Board of Directors, the President or any Vice President of the Corporation may prescribe. SECTION 12. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. - 8 - ARTICLE V STOCK SECTION 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. SECTION 2. Signatures. Any or all of the signatures on the certificate may be a facsimile, including, but not limited to, signatures of officers of the Corporation and countersignatures of a transfer agent or registrar. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. SECTION 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. - 9 - ARTICLE VI NOTICES SECTION 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable. SECTION 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII GENERAL PROVISIONS SECTION 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. SECTION 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 3. Fiscal Year. The fiscal year of the Corporation shall end on December 31, unless the fiscal year is otherwise changed by affirmative resolution of the entire Board of Directors. SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (As amended May 26, 1995 - Effective as of the Date of Distribution) - 10 - EX-10.(1) 3 Exhibit 10(1) PROMUS HOTEL CORPORATION INDEMNIFICATION AGREEMENT AGREEMENT, effective as of __________________, 19___, between Promus Hotel Corporation, a Delaware corporation (the "Company"), and ____________________, (the "Indemnitee"). WHEREAS, it is essential to the Company to retain and attract as directors, officers and key employees the most capable persons available; WHEREAS, Indemnitee is a director, officer, or key employee of the Company or one of its subsidiaries; WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors, officers and key employees of public companies in today's environment; WHEREAS, basic protection against undue risk of personal liability of directors and officers heretofore has been provided through insurance coverage providing reasonable protection at reasonable costs, but as a result of substantial changes in the marketplace for such insurance it has become increasingly more difficult to obtain such insurance on terms providing reasonable protection at reasonable cost; WHEREAS, except in the case of litigation in which Indemnitee is successful, Indemnification of Indemnitee is discretionary rather than mandatory under the Company's Certificate of Incorporation; WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the inadequacy of the Company's directors and officers liability insurance coverage and the uncertainty of indemnification inherent in the indemnity provisions contained in the Company's Certificate of Incorporation, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the full extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, if Indemnitee is a director or officer of the Company or any subsidiary of the Company, and to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies; NOW, THEREFORE, in consideration of the above premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Certain Definitions: (a) Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (b) Claim: any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (c) Expenses: attorneys' fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event. (d) Indemnifiable Event: any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (e) Potential Change in Control: shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then 2 outstanding Voting Securities (before giving effect to the reduction in votes prescribed in Section D of Article FOURTH of the Company's Certificate of Incorporation) or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (f) Reviewing Party: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board (including the special, independent counsel referred to in Section 3) who is not a party to the particular Claim for which Indemnitee is seeking indemnification. (g) Voting Securities: with respect to the Company or any other corporation, any securities of the Company or such other corporation which vote generally in the election of directors. 2. Basic Indemnification Arrangement. (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company by Indemnitee, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. Notwithstanding anything in this Agreement to the contrary, prior to a Change in Control, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim. If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses to Indemnitee (an "Expense Advance"). (b) Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the special, independent counsel referred to in Section 3 is involved) that indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been a Change in Control, the 3 Reviewing Party shall be the special, independent counsel referred to in Section 3. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the states of Tennessee or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. 3. Change in Control. The Company agrees that if there is a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or Company Bylaw or the Company's Certificate of Incorporation now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the special, independent counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 4. Establishment of Trust. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Claim relating to an Indemnifiable Event, and any and all judgments, fines, penalties and settlement amounts of any and all Claims relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party. The Trust shall provide that upon a Change in Control (i) the Trust shall not be revoked or the principal thereof invaded without the written consent of the Indemnitee, (ii) the Trustee shall advance, within two business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 2(b)), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee 4 shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. 5. Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees) and, if requested by Indemnitee, shall (within two business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Company Bylaw or the Company's Certificate of Incorporation now or hereafter in effect relating to Claims for Indemnifiable Events, or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 6. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Claim relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. 7. No Presumption. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 5 8. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Certificate of Incorporation and the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by virtue of this Agreement the greater benefits so afforded by such change. 9. Liability Insurance. If Indemnitee is a director or officer of the Company or any subsidiary of the Company, then to the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any company director or officer. 10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliates of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 11. Amendments, Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. 13. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has 6 otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 14. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor or assign by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), spouses, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer, director or employee of the Company or of any other enterprise at the Company's request. 15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. 16. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to Delaware principles of conflicts of laws. Executed as of this _________ day of ______________, 19____. PROMUS HOTEL CORPORATION By: ________________________________ Name: Ralph B. Lake Title: Senior Vice President ____________________________________ 7 EX-10.(5) 4 Exhibit 10(5) AMENDMENT TO PROMUS HOTEL CORPORATION SAVINGS AND RETIREMENT PLAN Whereas, Promus Hotel Corporation (the "Company"), a Delaware corporation, finds it necessary to amend the Promus Hotel Corporation Savings and Retirement Plan (the "Plan") in order to clarify the meaning intended to be ascribed to certain provisions of the Plan by the Board of Directors, pursuant to Section 11.1 of the Plan, the Plan is hereby amended, effective as of June 30, 1995 as follows. 1. Section 2.27(f) of the Plan is hereby amended to read in its entirety as follows: (F) SPECIAL RULE FOR FORMER EMPLOYEES OF THE PROMUS COMPANIES ----------------------------------------------------------- INCORPORATED. ------------- (1) Notwithstanding any other provision of this Section 2.27, for purposes of Sections 2.49 and 2.50, with respect to an Employee who was an employee of The Promus Companies Incorporated or one of its affiliates (as defined in the Predecessor Plan), including for purposes of this Section 2.27(f) Harrah's Entertainment, Inc. or any of its subsidiaries, at any time prior to the Spin-Off Date and who became an Employee of the Company or an Affiliate under either of the circumstances described below, "Hour of Service" shall include each "Hour of Service" credited to such Employee under the Predecessor Plan through the date determined in accordance with the following: (A) any such employee who was employed by The Promus Companies Incorporated or one of its affiliates (as defined in the Predecessor Plan) on the day immediately preceding the Spin-Off Date and who becomes employed by the Company or any Affiliate on or after the Spin-Off Date but prior to January 1, 1996, or who becomes concurrently employed by The Promus Companies Incorporated or one of its affiliates (as defined in the Predecessor Plan) and the Company or an Affiliate as of the Spin-Off Date, shall be credited with such "Hours of Service" through the date of commencement of such Employee's employment or concurrent employment with the Company or Affiliate; or (B) any such employee who becomes employed by the Company or any Affiliate after December 31, 1995 but within five years after the Spin-Off Date shall be credited with such "Hours of Service" through the Spin-Off Date only. (2) Notwithstanding any other provision of this Section 2.27, for purposes of Section 2.49 and 2.50, with respect to an Employee who (i) is a former employee of The Promus Companies Incorporated or one of its affiliates (as defined in the Predecessor Plan) participating in the Predecessor Plan, (ii) was, on the Spin-Off Date, employed by The Promus Companies Incorporated in a position in its Administrative Systems Department or Computer Operations Department in a capacity supporting the Human Resources and Financial Computer Systems for the hotel business of The Promus Companies Incorporated, (iii) terminates employment with The Promus Companies Incorporated or one of its affiliates (as defined in the Predecessor Plan) within thirty months following the Spin-Off Date and (iv) within thirty days following such termination is employed by the Company or one of its Affiliates in a capacity substantially similar to the capacity in which such employee was employed by The Promus Companies Incorporated or one of its affiliates (as defined in the Predecessor Plan), "Hour of Service" shall include, in addition to each "Hour of Service" credited to such employee during the period preceding and including the Spin-Off Date, each "Hour of Service" credited to such Employee under the Predecessor Plan during the period following Spin-Off Date until the date of such termination of employment, to the extent that such service is determinable by the Company. 2. Section 4.9 of the Plan is hereby amended to read in its entirety as follows: 4.9 ROLLOVER CONTRIBUTIONS. (a) Any Eligible Employee, including an individual who has not satisfied the service requirements of Article III, may, with the approval of the Plan Administrator, contribute cash amounts attributable to qualifying rollover distributions within the meaning of Code Sections 402(a)(5), 403(a)(4), or 408(d)(3); provided, however, that if such amounts are not contributed to the Plan in a direct transfer within the meaning of Code Section 401(a)(31), such amounts shall be contributed to the Plan within sixty days following the day on which the Employee received the distribution from a qualified trust, annuity plan, individual retirement account or individual retirement annuity. Such amounts shall be credited to the Employee Account 7 established for the Employee. An Eligible Employee who has not yet satisfied the service requirements of Article III shall be treated as a Member solely with regard to his Employee Account 7. (b) In the sole discretion of the Plan Administrator (exercised in a nondiscriminatory manner), the Plan will accept the direct transfer from the Predecessor Plan of an amount which if paid to the Participant instead of the Plan would have constituted a lump sum distribution within the meaning of Code Section 402(e). Such a plan-to-plan transfer must be for a person who has been admitted or readmitted to the Plan and be received by the Trustee within two months after the participant's admission or re-admission to the Plan. To the extent possible as determined in the sole discretion of the Plan Administrator, such amounts shall be credited to the accounts of this Plan which are analogous to the accounts of the Predecessor Plan in which such amounts were held immediately prior to such transfer; otherwise, the transferred amount shall be credited to the Participant's Rollover Account. To the extent permitted by applicable law, the provisions of this Section 4.9(b) shall also be applicable to former employees of The Promus Companies Incorporated or its Affiliates (i) who were participants in the Predecessor Plan and (ii) who terminated their employment with The Promus Companies Incorporated or its Affiliates on or prior to the Spin-Off Date and (iii) whose unvested account balances under the Predecessor Plan were retained by the Predecessor Plan after the Spin-Off Date and (iv) who became Eligible Employees under the Plan before incurring five consecutive break years as defined in the Predecessor Plan since termination of their employment with The Promus Companies Incorporated. 3. Section 9.10 of the Plan is hereby amended to read in its entirety as follows: 9.10 PLAN TO PLAN TRANSFER. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article IX, subject to the approval of the Plan Administrator in its sole discretion (exercised in a nondiscriminatory manner) and at the time and in the manner prescribed by the Plan Administrator, a Participant who is entitled to a lump sum distribution within the meaning of Code Section 402(e) from the Plan may elect instead to have the amount of such distribution transferred to the Predecessor Plan if the Participant becomes employed by a participating employer in the Predecessor Plan. If elected by the Participant and authorized by the Plan Administrator, such a plan-to-plan transfer must be made to the recipient plan by the Trustee within two months after the Participant's admission or re-admission to the Predecessor Plan. To the extent permitted by applicable law, the provisions of this Section 9.10 shall also be applicable to former employees of The Promus Companies Incorporated (i) who were participants in the Predecessor Plan and (ii) who terminated their employment with The Promus Companies Incorporated or its affiliates prior to the Spin-Off Date and (iii) whose unvested account balance under the Predecessor Plan were transferred to the Plan on or after the Spin-Off Date and (iv) who are reemployed by Harrah's Entertainment, Inc. or any of its subsidiaries after the Spin-Off Date and based upon such reemployment are Eligible Employees under the Predecessor Plan before incurring five consecutive Break Years (as defined in the Predecessor Plan) since termination of their employment with The Promus Companies Incorporated. Executed this ____ day of _______________, 1996. -------------------------------- Raymond E. Schultz Chief Executive Officer EX-10.(6) 5 Exhibit 10(6) Amendment dated November 15, 1995 to the Promus Hotel Corporation ("the Company") Savings and Retirement Plan ("the Plan") Pursuant to Section 11.1 of the Plan, this Amendment to the Plan, upon the recommendation of the Human Resources Committee, has been adopted on November 15, 1995 by an action of the Board of Directors of the Company, effective as of December 31, 1995 and after the spin-off of the Company's Employee Stock Ownership Plan. 1. Section 3.3 of the Plan is hereby amended by adding the following phrase to the end of such section: ; provided, however, that no Employee who is employed in the capacity of an (1) Embassy Suitekeeper, (2) Hampton Room Attendant or (3) Homewood Suitekeeper shall be an Eligible Employee; and provided, further, that any Employee hired after December 31, 1995 shall not be an Eligible Employee until such Employee attains age 21. . * * * * I certify that this amendment was adopted by the Promus Hotel Corporation Board of Directors upon recommendation of the Human Resources Committee on November 15, 1995. ___________________________________ Ralph B. Lake, Secretary EX-10.(16) 6 Exhibit 10(16) February 22, 1996 Mr. Raymond E. Schultz, President Promus Hotel Corporation 785 Crossover Lane, Suite 141 Memphis, Tennessee 38117 Dear Ray: This will confirm that on November 15, 1995 the Human Resources Committee of the Board of Directors of Promus Hotel Corporation approved amending your Employment Agreement to provide that 14,325 stock options of The Promus Companies Incorporated scheduled to vest in 1997 as part of a 1992 grant would (after being converted into the appropriate number of Promus Hotel Corporation options) vest and become exercisable on January 1, 1996. I understand you will be provided a revised award certificate by the Employee Benefits and Compensation Department reflecting the vesting of those options. Sincerely, Ralph B. Lake RBL:cll EX-10.(37) 7 Exhibit 10(37) ASSIGNMENT AND ASSUMPTION OF MANAGER'S INTEREST IN MANAGEMENT AGREEMENT (GENERAL ELECTRIC PENSION TRUST) THIS ASSIGNMENT AND ASSUMPTION OF MANAGER'S INTEREST IN MANAGEMENT AGREEMENT (GENERAL ELECTRIC PENSION TRUST) (this "Assignment") is made and entered into this 30th day of June, 1995, by and between EMBASSY SUITES, INC., a Delaware corporation ("Assignor"), and PROMUS HOTELS, INC., a Delaware corporation ("Assignee"), with reference to the following facts and circumstances: RECITALS -------- A. Assignor is the manager of the Embassy Suites hotels listed on Schedule A, attached hereto and made part hereof by this reference, (collectively, the "Hotels") pursuant to those certain Management Agreements listed on Schedule A hereto (the "Management Agreements") by and between Assignor and the Limited Partnerships which own the Hotels, as listed on Schedule A hereto (collectively, the "Owners"). B. Assignor is currently a wholly owned subsidiary of The Promus Companies Incorporated ("Promus"), a publicly-traded New York stock exchange listed company, and is the owner of the Embassy Suites hotel business. C. Assignee is a direct, wholly owned subsidiary of Promus Hotel Corporation ("Promus Hotels"), which is a wholly owned subsidiary of Assignor. D. As described in that certain Proxy Statement filed with the Securities and Exchange Commission and dated April 25, 1995, and as approved by Promus' stockholders at The Promus Companies Incorporated Annual Meeting of Stockholders held in Memphis, Tennessee on May 26, 1995, the stock of Promus Hotels is being dividended to Promus' stockholders (the "Spinoff"). E. Prior to the Spinoff, the Embassy Suites hotel business will be transferred to Assignee. After the Spinoff, Assignee will be a direct, wholly owned subsidiary of Promus Hotels, a publicly-traded New York stock exchange listed company, and will be the owner of the Embassy Suites hotel business. The hotel management team of the Embassy Suites hotel business will become the hotel management team of Assignee. F. Assignee's financial statements will reflect significant financial substance and include, among other assets, the assets of the Embassy Suites hotel business. G. Pursuant to that certain letter dated April 11, 1995, from Assignor to Owners, Owners have consented to Assignor's transfer to Assignee of all of its interest in the Management Agreements. Pursuant to the certain letter dated May 4, 1995, Aetna Life Insurance Company, as the lender to the Owners, has consented to said transfer and assignment to Assignee. H. Assignor desires to assign all of its right, title and interest in the Management Agreements to Assignee, and Assignee desires to accept such assignment, all on the terms and conditions contained in this Assignment. AGREEMENT --------- NOW, THEREFORE, in consideration of the premises and the respective undertakings of the parties hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Assignment, Acceptance and Consent. Assignor hereby assigns to ---------------------------------- Assignee all of its right, title and interest in the Management Agreements, including, without limitation, Assignor's rights to any management fees, reimbursements, or other amounts payable to Assignor under the Management Agreements, and ceases to act as manager of Hotels. Assignee hereby accepts such assignment, elects and agrees to become a substituted manager under the Management Agreements, agrees to be bound by all the terms and provisions of the Management Agreements, and assumes all of Assignor's obligations under the Management Agreements required to be performed from and after the date first above written. From and after the date first above written, Assignor shall have no power or authority to take any action relating to the Hotels' management, other than actions necessary or appropriate to effect the substitution of Assignee as the manager and to carry out the provisions of this Assignment. 2. No Release of Assignor. Assignor hereby acknowledges and agrees ---------------------- that the transfer effected pursuant to this Assignment shall not release Assignor from its obligations to Owners. 3. Notices. All notices or other communications provided for herein ------- shall be in writing and may be personally served or sent by Federal Express or other overnight courier, by telecopier or by postage prepaid Registered or Certified Mail at the following addresses until such time as written notice, as provided hereby, of a change of address with a new address to be used thereafter is given the other party: ASSIGNEE: Promus Hotels, Inc. 850 Ridge Lake Boulevard Suite 400 Memphis, Tennessee 38120 Attention: Chief Financial Officer Telecopier: (901) 680-7220 With a copy to the same address, Attention: General Counsel Telecopier: (901) 762-8695 2 ASSIGNOR: Harrah's Operating Company, Inc. 1023 Cherry Road Memphis, Tennessee 38117 Attention: Chief Financial Officer Telecopier: (901) 762-8695 With a copy to the same address, Attention: General Counsel Telecopier: (901) 537-3039 Notices shall be deemed given upon receipt. 4. Further Assurances. The parties each agree to execute such other ------------------ documents and to perform such other acts as may be reasonably necessary or appropriate to carry out the provisions of this Assignment. Without limiting the generality of the foregoing provision, Assignor shall execute all such documents and take all such actions as may be reasonably necessary or appropriate to cause Assignee to be substituted in place of Assignor as the manager under the Management Agreements. 5. Successors and Assigns. This Assignment shall be binding upon, ---------------------- enforceable by, and shall inure to the benefit of successors and assigns of each of the parties. 6. Delivery. Assignor and Assignee have delivered a copy of this -------- Assignment to Owners and to Aetna Life Insurance Company, as the lender to the Owners. 3 IN WITNESS WHEREOF, the parties have executed this Assignment on the date first above written. Assignor: EMBASSY SUITES, INC., a Delaware corporation By: __________________________________ Name: ____________________________ Title: _____________________________ Assignee: PROMUS HOTELS, INC., a Delaware corporation By: __________________________________ Name: ____________________________ Title: _____________________________ 4 SCHEDULE A ---------- Management Agreements by and between Hotel Owner and Embassy Suites, Inc. Date of Hotel Owner Location of Hotel Agreement ----------- ----------------- --------- EPT San Antonio 7750 Briaridge December 12, 1986 Limited Partnership San Antonio, TX EPT Kansas City 220 West 43rd Street December 10, 1986 Limited Partnership Kansas City, MO EPT Bloomington 2800 West 80th Street December 12, 1986 Limited Partnership Bloomington, MN EPT Austin 5901 North IH-35 December 12, 1986 Limited Partnership Austin, TX EPT Covina 1211 East Garvey Street December 12, 1986 Limited Partnership Covina, CA EPT Omaha 7270 Cedar Street December 12, 1986 Limited Partnership Omaha, NE EPT Meadowlands 455 Plaza Drive December 15, 1988 Limited Partnership Secaucus, NJ EPT Atlanta-Perimeter 1030 Crown Pointe Parkway December 15, 1987 Center Atlanta, GA Limited Partnership EPT Raleigh 4700 Creedmoor Road December 15, 1987 Limited Partnership Raleigh, NC EPT Overland Park 10601 Metcalf Road December 15, 1987 Limited Partnership Overland Park, KS 5 EX-10.(38) 8 Exhibit 10(38) AIRCRAFT AGREEMENT AGREEMENT dated as of August 4, 1995 between Harrah's Operating Company, Inc. ("Harrah's") and Promus Hotels, Inc. ("Hotels"). WITNESSETH: WHEREAS, the parties have jointly acquired a 1989 BAe 125-800 (Hawker 800) Aircraft, serial number NA0426 (the "Aircraft"); and WHEREAS, the parties wish to provide for the sharing of such Aircraft and for certain other matters; NOW THEREFORE, in consideration of the mutual promises contained in this Agreement, and intending to be legally bound, the parties agree as follows: Section 1. Ownership and Use of the Aircraft (a) The Aircraft. Harrah's and Hotels each own an undivided one-half interest in the Aircraft. The parties will share use of the Aircraft on an equal priority basis. It is the intent of the parties to the extent possible each will use 50% of the available flight hours of the Aircraft. In the case of Hotels, the flight hours may be on Harrah's other aircraft by interchange as described in Section 1(b). (b) Other Aircraft. Harrah's will allow Hotels to use other Aircraft owned by Harrah's (the "Harrah's Aircraft") in exchange for additional flight hours on the Aircraft by Harrah's. Hotels' use of the Harrah's Aircraft will be at a priority second to that of Harrah's. The variable cost of such use will be an hourly fee which is equal to the actual variable hourly cost of operation of such aircraft calculated as per Appendix 1 of this Agreement. (c) Scheduling. The Harrah's Aviation Department (the "Aviation Department") will schedule use of the Aircraft based on requests of the parties. If a conflict should arise, the Aviation Department may recommend that one party use a Harrah's Aircraft. The parties will cooperate to resolve scheduling conflicts whenever possible. If a conflict cannot be resolved, use of the Aircraft will go to the party who was first to request it. Section 2. Services for the Aircraft (a) Harrah's will provide or arrange for all of the services appurtenant to the operation of the Aircraft including hangaring, maintaining the Aircraft, 1 scheduling use of the Aircraft and maintenance and flight personnel. When operating the Aircraft or the Harrah's Aircraft for Hotels, flight personnel will be under Hotels' exclusive control, subject to their discretion regarding safety issues. (b) Hotels will pay 50% of the fixed costs of the services described in this Section 2 and shall pay the actual variable costs and direct costs of the operation of the Aircraft (including services rendered to Hotels by Harrah's pursuant to this Section 2). The fixed costs (other than costs pertaining specifically to the Aircraft, which will be split 50/50) shall generally be equal to 1/6 of the total fixed cost for the operation of the Harrah's Aviation Department in Memphis, Tennessee and are more specifically described on Appendix 1 to this Agreement. (Hotels' 1/6 share of the costs is based on three aircraft currently operated by the Aviation Department and may be modified if the number of Aircraft changes.) The variable costs shall be the actual variable cost of the operation of the Aircraft (including services provided to Hotels by Harrah's for the services described in this Section 2) for both the Aircraft and for the Harrah's Aircraft that Hotels may from time to time utilize. The variable costs and direct costs shall be paid by each party based on its use of the Aircraft and are more specifically described in Appendix 1 to this Agreement. (c) The services shall be performed at the times specified in this Agreement or as shall be mutually convenient for Harrah's and Hotels, if not so specified. The scope of the services provided with respect to the Aircraft shall be comparable to the scope of the services heretofore provided by the Aviation Department to The Promus Companies Incorporated. (d) No capital expenditures relating to the Aircraft will be made without the approval of both parties. Section 3. Term (a) This Agreement shall continue for so long as the parties jointly own the Aircraft. (b) Either Harrah's may, at any time during the term hereof, by written notice to Hotels, or Hotels may, at any time, by written notice to Harrah's (whichever party gives such notice, is referred to in this Section 3 as the "Offeror Owner", and whichever party receives such notice is referred to as the "Offeree Owner," and such notice is referred to as the "Offer Notice"), designate an all cash purchase price (in excess of all liens thereon) for its interest in the Aircraft which the Offeror Owner would accept as an offer to be made by a bona fide third party purchaser. The Offeree Owner shall have the right to elect to (i) purchase the entire interest of the Offeror Owner at such price, or (ii) purchase the entire interest of the Offeror Owner at a price to be determined pursuant to Section 3(c) hereof, or (iii) to sell the Aircraft to the highest third party bidder. 2 (c) The consideration payable by the party obligated to buy as a result of the operation of Section 3 (b)(ii) hereof shall be the fair market value of the Offeror Owner's interest in the Aircraft as determined by a third party valuer to be selected by agreement of the parties. If the parties have not agreed to a valuer within thirty (30) days of the Offeree's election pursuant to Section 3 (b), then at the Offeree Owner's option, (i) the Offeree Owner must proceed pursuant to either 3 (b)(i) or 3 (b)(iii) of this Agreement, or (ii) the parties shall each choose a valuer and the two valuers thus chosen shall select a third valuer. The third valuer shall determine the amount to be paid by the Offeree Owner pursuant to Section 3(b)(ii). Section 4. Insurance (a) Insurance Coverage. The Aircraft shall at all times be covered by insurance in accordance with the following: (i) Risk of Loss or Damage. The parties shall obtain aircraft physical damage insurance coverage in the joint names of Harrah's and Hotels which shall insure the Aircraft against all risk of loss or damage for not less than the full market value thereof, and the premium therefor shall be a fixed cost to be shared equally by the parties pursuant to Section 2 of this Agreement. The amount of any deductible under such policy will be agreeable to both parties, and in the event of a claim, each party will be responsible for payment of one-half of the deductible amount. The proceeds of any such insurance shall be (A) applied toward the replacement, restoration, or repair of the Aircraft including any airplane equipment, or (B) if the parties so agree, distributed to each party in accordance with its interest in the Aircraft. (ii) Public Liability and Property Damage. (A) The parties shall obtain aircraft liability insurance coverage in the joint names of Harrah's and Hotels which shall insure the parties against all risk of loss or damage for bodily injury and property damage including bodily injury to passengers in an amount not less than $100,000,000.00 per occurrence, and the premium therefor shall be a fixed cost to be shared equally by the parties pursuant to Section 2 of this Agreement. The amount of any deductible under such policy will be agreeable to both parties, and in the event of a claim, the party who was using the Aircraft at the time the claim was incurred will be responsible for payment of the deductible amount. 3 (B) Harrah's and Hotels will each carry public liability and property damage insurance insuring against any and all damages and liabilities arising out of, connected with, or resulting from the possession, use and operation of the Aircraft by such party which is not covered under the joint aircraft liability policy. Harrah's insurance (including any self-insured retention) will cover any claims incurred as a result of the use of the Aircraft by Harrah's, and Hotels' insurance (including any self-insured retention) will cover any and all claims incurred as a result of the use of the Aircraft by Hotels. Such insurance shall be in form and amount and with companies acceptable to the other party to this Agreement, and the premiums therefor shall be paid by the responsible party unless otherwise provided herein. With respect to all policies of insurance hereinabove required to be obtained that are not issued in the joint names of Harrah's and Hotels, such policies shall, at either party's election, effectively provide that the insurer in such policies shall give the other party 30 days' written notice before the policy in question shall be altered or canceled. (b) Waiver of Subrogation Rights. Harrah's and Hotels agree that all policies of insurance required herein shall contain a waiver of subrogation clause (unless such would void applicable insurance coverage) as to insurable claims or demands which either party may have or acquire arising out of damage to or destruction of the Aircraft or any part thereof occasioned by fire or other casualty, whether such claim or demand may arise because of the negligence or fault of either party. Harrah's and Hotels agree to look to the insurance coverage only in the event of such loss. Section 6. Confidential Information. Each party to this Agreement shall protect all confidential information relating to the other party furnished to or obtained pursuant to this Agreement and shall not disclose to any person such confidential information, except information which at the time is known generally to the public. Section 7. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party hereto, except that either party may assign this Agreement to its parent corporation or a wholly-owned subsidiary without such consent. Section 8. Notices. All notices and other communications shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, registered or certified mail, postage prepaid, return receipt requested, as follows: 4 To Harrah's: Harrah's Operating Company, Inc. 1023 Cherry Road Memphis, Tennessee 38117 Attention: Corporate Secretary To Hotels: Promus Hotels, Inc. 785 Crossover Lane Suite 141 Memphis, Tennessee 38117 Attention: Corporate Secretary or to any other address may be furnished to the other in writing as set forth above. Section 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties relating to the Services and supersedes all prior agreements or understandings between the parties on the subject hereof. Section 10. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Tennessee, without regard to its conflicts of law principles. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of the date first above written. PROMUS HOTELS, INC. By: ________________________________ Title: _____________________________ HARRAH'S OPERATING COMPANY, INC. By: ________________________________ Title: _____________________________ 5 EX-10.(39) 9 Exhibit 10(39) CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION UNDER EXISTING 1992 MASTER AGREEMENT TO: PROMUS HOTELS, INC. ATTN: CAROL CHAMPION TEL: 901-762-4052 FAX: 901-680-7220 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 JEFF MCNEIL / JIM O'DONNELL Date: 06DEC95 ***REVISED 11DEC95*** Our Reference No. 434460 The purpose of this letter agreement is to confirm the terms and conditions of the Swap Transaction entered into between us on the Trade Date specified below (the "Swap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) ("Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 30JUN95, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 12,500,000.00 Trade Date: 05DEC95 Effective Date: 15DEC95 Termination Date: 15DEC99, subject to adjustment in accordance with the Modified Following Business Day Convention. FIXED AMOUNTS: Fixed Rate Payer: PROMUS HOTELS, INC. Fixed Rate Payer Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15, AND DECEMBER 15, COMMENCING MARCH 15, 1996 AND ENDING DECEMBER 15, 1999, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Fixed Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Fixed Rate Payer Business Days: NEW YORK, LONDON Fixed Rate: 6.68% Fixed Rate Payer Day Count Fraction: ACTUAL/360 FLOATING AMOUNTS: Floating Rate Payer: NATIONSBANK, N.A. Floating Rate Payer Reset Dates: First Day of Each Calculation Period Floating Rate Payer Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15, AND DECEMBER 15, COMMENCING MARCH 15, 1996 AND ENDING DECEMBER 15, 1999, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Floating Rate Payer Business Days: NEW YORK, LONDON Floating Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 MONTH Spread: NONE Floating Rate for Initial Calculation Period: TO BE SET Floating Rate Payer Day Count Fraction: ACTUAL/360 Averaging: INAPPLICABLE Rounding Factor: One-Hundred-Thousandth of One Percent Calculation Agent: NationsBank, N.A. Assignment: This Swap Transaction may be assigned only with prior written consent. Legal and Out-of-Pocket Expenses: For each party's own account. Governing Law: The Laws of the State of New York. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. PAYMENT INSTRUCTIONS: Payment to NationsBank: Payment to PROMUS HOTELS, INC.: NATIONSBANK N.A.(CAROLINAS), PLEASE ADVISE CHARLOTTE ABA 053000196 ACCT: 10852016511 ATTN: DERIVATIVE OPERATIONS Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding with three (3) Business Days by either (i) returning via telecopier an executed copy of this Confirmation to the attention of Marge Szymczak, Fax No. (312) 234-3160; Telephone No. (312) 234-2934, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469, answerback: CRT CGO) substantially to the following effect: "We acknowledge receipt of your fax dated 06DEC95 with respect to a Swap Transaction between PROMUS HOTELS, INC. and NationsBank, N.A. with an initial Notional Amount of USD 12,500,000.00 and a Termination Date of 15DEC99 and confirm that such fax correctly sets forth the terms of our agreement relating to the Swap Transaction described therein. Very truly yours________________, by (specify name and title of authorized officer)." Failure to respond within such period shall not affect the validity or enforceability of this Swap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NationsBank, N.A. By:______________________ Nick Kolick, Vice President Authorized Signatory Confirmed as of the date first written above: PROMUS HOTELS, INC. By:______________________ Authorized Signatory CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION UNDER EXISTING 1992 MASTER AGREEMENT TO: PROMUS HOTELS, INC. ATTN: CAROL CHAMPION TEL: 901-762-4052 FAX: 901-680-7220 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 JEFF MCNEIL / JIM O'DONNELL Date: 06DEC95 ***REVISED 11DEC95*** Our Reference No. 434450 The purpose of this letter agreement is to confirm the terms and conditions of the Swap Transaction entered into between us on the Trade Date specified below (the "Swap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) ("Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 30JUN95, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 12,500,000.00 Trade Date: 05DEC95 Effective Date: 15DEC95 Termination Date: 15DEC98, subject to adjustment in accordance with the Modified Following Business Day Convention. FIXED AMOUNTS: Fixed Rate Payer: PROMUS HOTELS, INC. Fixed Rate Payer Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15, AND DECEMBER 15, COMMENCING MARCH 15, 1996 AND ENDING DECEMBER 15, 1998, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Fixed Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Fixed Rate Payer Business Days: NEW YORK, LONDON Fixed Rate: 6.92% Fixed Rate Payer Day Count Fraction: ACTUAL/360 FLOATING AMOUNTS: Floating Rate Payer: NATIONSBANK, N.A. Floating Rate Payer Reset Dates: First Day of Each Calculation Period Floating Rate Payer Payment Dates: EACH MARCH 15, JUNE 15, SEPTEMBER 15, AND DECEMBER 15, COMMENCING MARCH 15, 1996 AND ENDING DECEMBER 15, 1998, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Floating Rate Payer Business Days: NEW YORK, LONDON Floating Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 MONTH Spread: NONE Floating Rate for Initial Calculation Period: TO BE SET Floating Rate Payer Day Count Fraction: ACTUAL/360 Averaging: INAPPLICABLE Rounding Factor: One-Hundred-Thousandth of One Percent Calculation Agent: NationsBank, N.A. Assignment: This Swap Transaction may be assigned only with prior written consent. Legal and Out-of-Pocket Expenses: For each party's own account. Governing Law: The Laws of the State of New York. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. PAYMENT INSTRUCTIONS: Payment to NationsBank: Payment to PROMUS HOTELS, INC.: NATIONSBANK N.A.(CAROLINAS), PLEASE ADVISE CHARLOTTE ABA 053000196 ACCT: 10852016511 ATTN: DERIVATIVE OPERATIONS Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding with three (3) Business Days by either (i) returning via telecopier an executed copy of this Confirmation to the attention of Marge Szymczak, Fax No. (312) 234-3160; Telephone No. (312) 234-2934, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469, answerback: CRT CGO) substantially to the following effect: "We acknowledge receipt of your fax dated 06DEC95 with respect to a Swap Transaction between PROMUS HOTELS, INC. and NationsBank, N.A. with an initial Notional Amount of USD 12,500,000.00 and a Termination Date of 15DEC98 and confirm that such fax correctly sets forth the terms of our agreement relating to the Swap Transaction described therein. Very truly yours________________, by (specify name and title of authorized officer)." Failure to respond within such period shall not affect the validity or enforceability of this Swap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NationsBank, N.A. By:______________________ Nick Kolick, Vice President Authorized Signatory Confirmed as of the date first written above: PROMUS HOTELS, INC. By:______________________ Authorized Signatory EX-10.(40) 10 Exhibit 10(40) CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION UNDER EXISTING 1992 MASTER AGREEMENT To: Promus Hotels, Inc. Attn: Carol Champion Fax: (901) 762-4060 From: NationsBank, N.A. Jeff McNeill/Sean Doyle Date: December 6, 1995 Our Reference # am291790 At your request we have amended the Transaction (reference number 291790) dated January 24, 1995 with an original Notional Amount of USD 50,000,000 and a Fixed Rate of 7.8625%. Pursuant to the terms hereof, we have reduced the Notional Amount of the original transaction from USD 50,000,000 to USD 25,000,000 in consideration of entering into the Swap Transaction (reference number 434460) and the Swap Transaction (reference number 434450) dated December 5, 1995, as such terms and provisions are defined therein. The parties agree hereto as follows: The purpose of this letter is to amend and restate the terms and conditions of the Rate Swap Transaction entered into between Embassy Suites, Inc., (which was transferred to Promus Hotels, Inc. on June 30, 1995) and NationsBank, N.A. (formerly known as NationsBank, N.A. (Carolinas)) on the original trade date of January 24, 1995 (See Attached Exhibit I). All previously stated terms will remain the same except as expressly modified below. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 30JUN95, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. The terms of this Swap Rate Transaction have been amended to reflect the following: The Currency/Notional Amount will be amended to USD 25,000,000, commencing December 15, 1995 to and including the Termination Date. - 2 - Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by either (i) returning via telecopier an executed copy of this Confirmation to the attention of Marge Szymczak, (Fax No. (312) 234-3160 Telephone No. (312) 234-2934), or (ii) sending a telex to Marge Szymczak (telex no. 4330469, answerback: CRT CGO) substantially to the following effect: "We acknowledge receipt of your fax dated December 6, 1995 with respect to an amended Swap Rate Transaction between Embassy Suites Inc. and NationsBank, N.A. and confirm that such fax correctly sets forth the terms of our agreement relating to the Amended Swap Transaction described therein." NATIONSBANK, N.A. PROMUS HOTELS, INC. By:_________________________ By:_________________________ Nick Kolick, Vice President Authorized Signatory Authorized Signatory EX-11.(1) 11
EXHIBIT 11(1) PROMUS HOTEL CORPORATION COMPUTATION OF PER SHARE EARNINGS (1) 1995 1994 1993 ----------- ----------- ----------- Income before extraordinary items................... $43,760,000 $36,319,000 $16,926,000 Extraordinary items, net of income tax.............. 2,819,000 - - ----------- ----------- ----------- Net income.......................................... $46,579,000 $36,319,000 $16,926,000 =========== =========== =========== PRIMARY EARNINGS PER SHARE Weighted average number of common shares outstanding....................................... 51,365,016 51,360,013 51,360,013 Common stock equivalents Additional shares based on average market price for the period applicable to Restricted stock.............................. (26,295) (39,090) (39,090) Stock options................................. 229,839 252,002 252,002 ----------- ----------- ----------- Average number of primary common and common equivalent shares outstanding.............. 51,568,560 51,572,925 51,572,925 =========== =========== =========== Primary earnings per common and common equivalent share Income before extraordinary items............... $ 0.85 $ 0.70 $ 0.33 Extraordinary items, net of income tax.......... 0.05 - - ----------- ----------- ----------- Net income...................................... $ 0.90 $ 0.70 $ 0.33 =========== =========== =========== FULLY DILUTED EARNINGS PER SHARE Average number of primary common and common equivalent shares outstanding.............. 51,568,560 51,572,925 51,572,925 Change in shares based on period-end price applicable to Restricted stock................................ (1,218) - - Stock options................................... (3,473) - - ----------- ----------- ----------- Average number of fully diluted common and common equivalent shares outstanding.......... 51,563,869 51,572,925 51,572,925 =========== =========== =========== Fully diluted earnings per common and common equivalent share Income before extraordinary items............... $ 0.85 $ 0.70 $ 0.33 Extraordinary items, net of income tax.......... 0.05 - - ----------- ----------- ----------- Net income...................................... $ 0.90 $ 0.70 $ 0.33 =========== =========== ===========
- ------------ (1) For purposes of computing earnings per share on a comparable basis, the weighted average number of common shares outstanding and common stock equivalents are assumed to be equal to those actually outstanding on June 30, 1995. EX-12.(1) 12 EXHIBIT 12(1) PROMUS HOTEL CORPORATION COMPUTATIONS OF RATIOS (IN THOUSANDS, EXCEPT RATIO AMOUNTS)
FISCAL YEAR ---------------------------------- 1995 1994 1993 ---------- -------- -------- RETURN ON REVENUES Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926 Revenues..................................................... 236,020 222,561 214,565 Return...................................................... 18.5% 16.3% 7.9% RETURN ON AVERAGE INVESTED CAPITAL Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926 Add interest expense after tax............................... 18,029 17,686 18,184 ---------- -------- -------- $ 61,789 $ 54,005 $ 35,110 ========== ======== ======== Average invested capital..................................... $ 424,861 $395,365 $441,401 ========== ======== ======== Return...................................................... 14.5% 13.7% 8.0% RETURN ON AVERAGE EQUITY Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926 Average equity............................................... 155,188 161,765 196,376 Return...................................................... 28.2% 22.5% 8.6% RATIO OF EARNINGS TO FIXED CHARGES Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926 Add Provisions for income taxes................................. 31,819 26,798 13,869 Interest expense............................................ 31,138 30,759 33,061 Interest included in rental expense......................... 1,848 1,310 1,284 Amortization of capitalized interest........................ 610 319 469 Dividends received from equity investments.................. 877 790 441 Income from equity investments.............................. (1,452) (1,675) (1,540) ---------- -------- -------- Earnings as defined....................................... $ 108,600 $ 94,620 $ 64,510 ========== ======== ======== Fixed charges Interest expense............................................ $ 31,138 $ 30,759 $ 33,061 Capitalized interest........................................ 1,428 4 - Interest included in rental expense......................... 1,848 1,310 1,284 ---------- -------- -------- Total fixed charges....................................... $ 34,414 $ 32,073 $ 34,345 ========== ======== ======== Ratio of earnings to fixed charges...................... 3.2 3.0 1.9 CURRENT RATIO Current assets............................................... $ 23,426 $ 18,772 $ 17,471 Current liabilities.......................................... 54,851 28,544 32,050 Ratio....................................................... 0.4 0.7 0.5 RATIO OF BOOK EQUITY TO DEBT Book equity as of December 31................................ $ 167,367 $143,008 $180,522 Total debt................................................... 229,757 189,258 173,378 Ratio....................................................... 0.7 0.8 1.0 RATIO OF MARKET EQUITY TO DEBT Market equity as of December 31.............................. $1,143,008 - - Total debt................................................... 229,757 - - Ratio....................................................... 5.0 - -
EXHIBIT 12(1) (CONTINUED) PROMUS HOTEL CORPORATION COMPUTATIONS OF RATIOS (IN THOUSANDS, EXCEPT RATIO AMOUNTS)
FISCAL YEAR ---------------------------------- 1995 1994 1993 ---------- -------- -------- RATIO OF EBITDA TO INTEREST PAID Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926 Add/(less) Income tax provision........................................ 31,819 26,798 13,869 Interest expense............................................ 31,138 30,759 33,061 Interest expense of nonconsolidated affiliates.............. (12,899) (12,749) (12,707) Depreciation and amortization............................... 25,263 21,326 25,028 Deferred finance charge amortization........................ (785) (733) (846) Amortization of debt discounts and premiums................. (8) (45) (869) Net earnings of and distributions from nonconsolidated affiliates................................................ (61) 2,969 2,819 ---------- -------- -------- Earnings before interest, taxes, depreciation and amortization (EBITDA)................................... $ 118,227 $104,644 $ 77,281 ========== ======== ======== Interest expense............................................. $ 31,138 $ 30,759 $ 33,061 Add/(less) Interest expense of nonconsolidated affiliates.............. (12,899) (12,749) (12,707) Capitalized interest........................................ 1,428 4 - Net change in accruals...................................... (1,117) - 125 Deferred finance charge amortization........................ (785) (733) (846) Amortization of debt discounts and premiums................. (8) (45) (869) Other....................................................... (246) (143) (128) ---------- -------- -------- Interest paid............................................. $ 17,511 $ 17,093 $ 18,636 ========== ======== ======== Ratio of EBITDA to interest paid........................ 6.8 6.1 4.1 RATIO OF DEBT TO EBITDA Total debt................................................... $ 229,757 $189,258 $173,378 ========== ======== ======== Net income before extraordinary items........................ $ 43,760 $ 36,319 $ 16,926 Add/(less) Income tax provision........................................ 31,819 26,798 13,869 Interest expense............................................ 31,138 30,759 33,061 Interest expense of nonconsolidated affiliates.............. (12,899) (12,749) (12,707) Depreciation and amortization............................... 25,263 21,326 25,028 Deferred finance charge amortization........................ (785) (733) (846) Amortization of debt discounts and premiums................. (8) (45) (869) Net earnings of and distributions from nonconsolidated affiliates................................................ (61) 2,969 2,819 ---------- -------- -------- Earnings before interest, taxes, depreciation and amortization (EBITDA)................................... $ 118,227 $104,644 $ 77,281 ========== ======== ======== Ratio of total debt to EBITDA........................... 1.9 1.8 2.2
EX-13.(1) 13 Exhibit 13(1)
Compound Annual (In thousands, except percentages and ratios) 1995 1994 1993 Growth Rate ------------------------------------------ OPERATING RESULTS Revenues ...................................... $236,020 $222,561 $214,565 4.9% Operating income before property transactions.. 101,648 91,762 64,758 25.3% Operating income .............................. 103,590 92,388 66,103 25.2% Income before income taxes and extraordinary items ....................................... 75,579 63,117 30,795 56.7% Net income .................................... 46,579 36,319 16,926 65.9% EBITDA(a) ..................................... 118,227 104,644 77,281 23.7% FINANCIAL POSITION Total assets .................................. $519,809 $413,308 $438,016 8.9% Current portion of long-term debt ............. 278 533 1,052 (48.6)% Long-term debt(b) ............................. 229,479 188,725 172,326 15.4% Total equity .................................. 167,367 143,008 180,522 (3.7)% CASH FLOWS Provided by (used in) ......................... Operating activities ....................... $ 79,035 $ 58,287 $ 54,168 Investing activities ....................... (104,037) 1,471 (720) Financing activities Advances from (to) Parent ............... 14,840 (60,975) (51,367) Other ................................... 10,609 (219) (667) Capital expenditures .......................... 115,714 18,379 20,885 FINANCIAL PERCENTAGES AND RATIOS Operating margin before property transactions.. 43.1% 41.2% 30.2% Operating margin .............................. 43.9% 41.5% 30.8% Return on revenues ............................ 18.5% 16.3% 7.9% Return on average invested capital ............ 14.5% 13.7% 8.0% Return on average equity ...................... 28.2% 22.5% 8.6% Ratio of earnings to fixed charges ............ 3.2 3.0 1.9 Current ratio ................................. 0.4 0.7 0.5 Ratio of book equity to total debt ............ 0.7 0.8 1.0 Ratio of market equity to total debt .......... 5.0 - - Ratio of EBITDA to interest paid .............. 6.8 6.1 4.1 Ratio of debt to EBITDA ....................... 1.9 1.8 2.2
(a) EBITDA, consisting of income before extraordinary items plus interest, taxes, depreciation, amortization and net earnings of, or distributions from, nonconsolidated affiliates, is a supplemental financial measurement used by management, as well as by industry analysts, to evaluate Promus Hotel Corporation's operations. However, EBITDA should not be construed as an alternative to operating income (as an indicator of operating performance) or to cash flows from operating activities (as a measure of liquidity) as determined in accordance with generally accepted accounting principles. (b) Includes debt allocated to Promus Hotel Corporation by its Parent for periods prior to the Spin-Off. (Inside Front Cover)
PERFORMANCE STATISTICS Compound Compound Number of Hotels Annual Number of Rooms/Suites Annual ---------------- Growth ---------------------- Growth 1995 1994 1993 Rate 1995 1994 1993 Rate ------------------------------------------------------------------ Embassy Suites Company owned ........ 9 9 9 - 2,025 2,025 2,027 - Joint venture ........ 23 23 23 - 5,901 5,912 5,913 (0.1)% Management contract(a) 27 24 23 8.3% 6,280 6,022 5,835 3.7% Franchised ........... 55 51 52 2.8% 12,529 11,756 12,354 0.7% ---------------- ------------------------ 114 107 107 3.2% 26,735 25,715 26,129 1.2% ================ ======================== Hampton Inn Company owned ........ 14 15 15 (3.4)% 1,916 2,047 2,048 (3.3)% Joint venture ........ 19 19 19 - 2,376 2,376 2,376 - Management contract .. 4 4 5 (10.6)% 464 464 585 (10.9)% Franchised (b) ....... 488 399 333 21.1% 53,531 45,184 39,153 16.9% ---------------- ------------------------ 525 437 372 18.8% 58,287 50,071 44,162 14.9% ================ ======================== Homewood Suites Company owned ........ 9 8 8 6.1% 1,024 932 932 4.8% Franchised ........... 21 18 16 14.6% 2,071 1,949 1,794 7.4% ---------------- ----------------------- 30 26 24 11.8% 3,095 2,881 2,726 6.6% ================ ======================= Total System Company owned ........ 32 32 32 - 4,965 5,004 5,007 (0.4)% Joint venture ........ 42 42 42 - 8,277 8,288 8,289 (0.1)% Management contract .. 31 28 28 5.2% 6,744 6,486 6,420 2.5% Franchised ........... 564 468 401 18.6% 68,131 58,889 53,301 13.1% ---------------- ------------------------ 669 570 503 15.3% 88,117 78,667 73,017 9.9% ================ ======================== (a) Excludes four Crown Sterling Suites properties with 1,076 suites being managed by Promus, but not yet converted to the Embassy Suites brand as of December 31, 1995. (b) 1995 includes five Hampton Inn & Suites hotels with 573 rooms and suites.
28 PERFORMANCE STATISTICS (continued)
Compound Compound Comparable System Hotels(a) Annual Total System Hotels Annual --------------------------- Growth --------------------------- Growth 1995 1994 1993 Rate 1995 1994 1993 Rate -------------------------------------------------------------------------------- Embassy Suites Occupancy ........ 74.6% 75.4% 73.8% 0.5% 74.2% 74.9% 73.0% 0.8% ADR .............. $102.64 $96.96 $92.78 5.2% $101.90 $97.28 $93.91 4.2% RevPAS ........... 76.60 73.10 68.48 5.8% 75.61 72.86 68.58 5.0% Hampton Inn Occupancy ........ 75.3% 75.5% 73.6% 1.1% 73.7% 74.3% 73.0% 0.5% ADR .............. $ 56.95 $53.51 $50.92 5.8% $ 56.97 $53.46 $50.81 5.9% RevPAR ........... 42.87 40.41 37.47 7.0% 42.01 39.74 37.10 6.4% Homewood Suites Occupancy ........ 78.2% 78.9% 76.6% 1.0% 76.9% 78.1% 75.8% 0.7% ADR .............. $ 81.82 $75.92 $73.01 5.9% $ 82.42 $76.38 $72.47 6.6% RevPAS ........... 64.01 59.89 55.91 7.0% 63.37 59.67 54.91 7.4% Hampton Inn & Suites Occupancy ........ - - - - 59.4% - - - ADR .............. - - - - $ 70.13 - - - RevPAS ........... - - - - 41.65 - - - (a) Includes results for only those hotels open for all three years.
Compound Total System Room Revenues Annual -------------------------------------- Growth (In thousands) 1995 1994 1993 Rate -------------------------------------------------- Hampton Inn ..................................... $ 823,247 $ 677,803 $ 565,842 20.6% Embassy Suites .................................. 719,378 687,670 638,115 6.2% Homewood Suites ................................. 68,353 62,080 54,646 11.8% Hampton Inn & Suites ............................ 2,901 - - - -------------------------------------- $1,613,879 $1,427,553 $1,258,603 13.2% ======================================
29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On June 30, 1995, The Promus Companies Incorporated (Parent) completed the transfer of the operations, assets and liabilities of its hotel business (the Hotel Business), composed of three hotel brands targeted at specific market segments: Embassy Suites, Hampton Inn and Homewood Suites, to a new publicly traded entity, Promus Hotel Corporation (Promus or the Company). As approved by Parent's Board of Directors and stockholders on May 26, 1995, this entity was spun-off (the Spin-Off) from the Parent and its stock was distributed to Parent's stockholders on a one-for-two basis effective June 30, 1995 (the Distribution). Concurrent with the Distribution, Parent changed its name to Harrah's Entertainment, Inc. The following is a discussion and analysis of the financial condition and results of operations of Promus as a stand-alone business. RESULTS OF OPERATIONS The principal factors affecting Promus' results are: continued growth in the number of hotels; occupancies and room rates achieved by the hotel brands; number and relative mix of owned, managed and franchised hotels; and Promus' ability to manage costs. The number of rooms/suites at franchised and managed properties and revenue per available room/suite (RevPAR/S) significantly affect Promus' results because franchise royalty and management fees are based upon a percentage of rooms/suites revenues. Increases in franchise and management fee revenues have a disproportionate favorable impact on Promus' operating margin due to lower incremental costs associated with these revenues. As of December 31, 1995, Promus' combined hotel system had grown to 669 properties, resulting in a two-year compound annual growth rate of 15.3%. Total system room revenues have grown to $1.6 billion, which is a two-year compound annual rate of 13.2%. Although comparable system (which includes only those hotels open for all three years) occupancy rates grew at a two-year compound annual rate of approximately 1.0%, increases in the average daily rate (ADR), which contributed to higher RevPAR/S, and the addition of new (primarily franchised) hotels, resulted in significantly improved financial results over the past three years. The continued unit growth of the franchise systems, coupled with a continued focus on rate growth and cost management, were the primary contributors to the Company's higher revenues, margins and operating income. Actual historical results of operations for all three years were as follows (in millions, except percentages and per share data): Percentage Increase/(Decrease) --------------------------------------------------- 1995 1994 1993 95 vs 94 94 vs 93 --------------------------------------------------- Revenues .................................... $236.0 $222.6 $214.6 6.0% 3.7% Operating income before property transactions 101.6 91.8 64.8 10.7 41.7 Operating income ............................ 103.6 92.4 66.1 12.1 39.8 Net income .................................. 46.6 36.3 16.9 28.4 114.8 Operating margin ............................ 43.9% 41.5% 30.8% 2.4pts 10.7pts Earnings per share (a) ...................... $ 0.90 $ 0.70 $ 0.33 28.6% 112.1% Weighted average shares outstanding (a) ..... 51.6 51.6 51.6 - - (a) For purposes of computing earnings per share on a comparable basis, the weighted average shares outstanding for periods prior to the Spin-Off are assumed to be equal to the actual common and common equivalent shares outstanding on June 30, 1995.
Since Promus began operations as a public company on July 1, 1995, comparison of historical results is difficult. The most notable differences between years relate to the incremental stand alone public company costs incurred in the last six months of 1995, and that prior to the Spin-Off, interest was allocated to Promus from Parent at Parent's higher overall borrowing rate. In order to recompute the Company's results of operations on a pro forma basis to achieve better comparability between years, the following 30 MANAGEMENTS DISCUSSION AND ANALYSIS (continued) adjustments were made (in millions): 1995 1994 1993 ------------------------- Incremental stand alone public company costs ..... $(3.2) $(8.1) $(8.1) Net reduction in interest expense ................ 2.2 1.1 1.2 Net revenues and expenses related to the purchase of the corporate office complex ....... - 0.1 0.1 Decrease in tax provision related to the above adjustments .............................. 0.4 2.9 3.1 ------------------------- Total adjustments to net income .................. $(0.6) $(4.0) $(3.7) ========================= Results of operations on a pro forma basis for all three years were as follows (in millions, except percentages and per share data):
Percentage Increase/(Decrease) ---------------------------------------------------------- 1995 1994 1993 95 vs 94 94 vs 93 ---------------------------------------------------------- Revenues .............................. $236.1 $224.1 $216.1 5.4% 3.7% Operating income before property transactions ........................ 98.4 83.7 56.7 17.6 47.6 Operating income ...................... 100.4 84.4 58.1 19.0 45.3 Net income before property transactions and extraordinary items, net of tax . 42.1 32.0 12.5 31.6 156.0 Net income ............................ 46.0 32.4 13.2 42.0 145.5 Operating margin ...................... 42.5% 37.7% 26.9% 4.8pts 10.8pts Earnings per share .................... $ 0.89 $ 0.63 $ 0.26 41.3% 142.3% Weighted average shares outstanding ... 51.6 51.6 51.6 - -
The 1995 increases in operating income and margins are primarily a function of the addition of new franchised hotels, system-wide increases in ADR and cost containment. On a comparable basis, 1995 RevPAR/S increased 4.8%, 6.1% and 6.9% over 1994 at Embassy Suites, Hampton Inn and Homewood Suites hotels, respectively. Company owned hotel revenues for 1995 increased approximately 4.0% or $5.0 million over 1994, while the related operating expenses actually decreased. Excluding the impact of management and franchise terminations and other one-time items, 1995 franchise and management fees increased nearly $9.0 million over 1994, while adding only minimal incremental operating costs. In 1993, several company owned hotels were sold to a franchisee, contributing to the 1994 decrease in company owned hotel revenues of approximately $11.3 million, and related expenses of approximately $10.0 million. However, the sale of these hotels resulted in an increase in franchise and management fee income, which, along with the addition of other franchise properties, improved operating margins as the increase in operating expenses was not proportionate to the increase in revenues. The following comparison of expenses and other items is based on actual historical results (in millions):
Percentage Increase/(Decrease) ---------------------------------------------------------- 1995 1994 1993 95 vs 94 94 vs 93 ---------------------------------------------------------- Corporate expense .................... $ 16.7 $ 10.2 $ 13.1 63.7% (22.1)% Property transactions ................ 1.9 0.6 1.3 N/M N/M Interest expense ..................... (31.1) (30.8) (33.1) 1.0 (6.9) Interest and other income (expense), net ..................... 3.1 1.5 (2.2) N/M N/M Extraordinary gains, net of income tax ......................... 2.8 - - N/M N/M Effective tax rate ................... 42.1% 42.5% 45.0% (0.4)pts (2.5)pts
31 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) Corporate expense reflects the cost of specific Promus staff functions that support all hotel brands, as well as stand alone public company costs of approximately $5.0 million for the last six months of 1995. The decrease between 1993 and 1994 reflects the 1993 consolidation of all hotel brand management into a single organizational structure. During 1995, the Company sold a Hampton Inn hotel to a franchisee, which resulted in a pretax property transaction gain of $2.3 million. The property transaction gain recorded in 1994 was primarily the result of the expiration of certain guarantees and contingencies that had caused a portion of prior year's property transaction gains to be deferred, and the sale of a Hampton Inn hotel, both of which were partially offset by the impact of miscellaneous asset write-offs. Property transactions for 1993 included the gain on the sale of an Embassy Suites property. The five other company owned Embassy Suites hotels sold in 1993 referred to herein did not result in the recognition of a property transaction gain or loss. Interest expense through June 30, 1995 includes the pro rata allocation of corporate interest by Parent related to the debt that was expected to be retired in connection with the Spin-Off using funds drawn on the Company's new $350 million bank credit facility (the Promus Facility), in addition to Promus' share of interest expense attributable to its nonconsolidated affiliates (including joint ventures) and other specific hotel-related debt. 1995 interest expense increased slightly over 1994 due primarily to higher average debt balances and an increase in the interest expense related to deferred compensation balances. This was offset by a decrease attributable to lower actual interest rates obtained under the Promus Facility as compared to Parent's overall borrowing rate used to allocate corporate interest expense before the Spin-Off. The decrease in interest expense between 1994 and 1993 was due largely to the transfer of ownership in five Embassy Suites properties to a third party, which included the assumption of mortgage debt on these properties by the third party. Interest and other income (expense), net for 1995 increased over 1994 due primarily to interest charged on total net advances to the franchise system funds, as well as increased interest income on mezzanine loans to franchisees and dividend income associated with the Company's investments (see Development and Capital Spending). 1993 included a $3.2 million payment related to the settlement of an issue concerning the guarantee of a land lease associated with an Embassy Suites franchised property. During 1995, two Embassy Suites hotels in which the Company has a 50 percent interest realized extraordinary gains related to the early payoff and forgiveness of a portion of their existing debt. The cash to fund the early debt payoffs was made available through additional capital contributions to the joint ventures of approximately $10 million from each of its partners. Promus' share of these nonconsolidated affiliates' gains, net of applicable income tax expense, was $2.8 million. The effective tax rate for all periods is higher than the federal statutory rate primarily due to state income taxes. DEVELOPMENT AND CAPITAL SPENDING Hotel Development There were 99 net hotel additions in the Promus hotel system during 1995, 96 of which were franchised properties, compared to 67 in 1994. This development growth is particularly impressive when one considers that, per Smith Travel Research as of December 31, 1995, Promus hotel brands had a 2.6% share of the entire United States room supply, but accounted for an industry leading 16.6% share of new rooms added to the market from ground-up construction during 1995. This growth occurred primarily in the Hampton Inn brand. As of December 31, 1995, 111 properties were under construction, 109 of which will operate under franchise agreements as Promus brands: 70 Hampton Inn hotels; 23 Embassy Suites hotels; 10 Hampton Inn & Suites hotels and six Homewood Suites hotels. These 111 properties will add 14,284 rooms or suites to the Promus hotel system. The Company had 79 properties under construction at the same time last year. In addition, Promus had 181 hotels in the design phase at December 31, 1995. Promus opened five Hampton Inn & Suites hotels in 1995. Hampton Inn & Suites is the newest Promus hotel brand and combines, in a single hotel, Hampton-style rooms with two-room suites and a common lodge in the center. Of the 181 hotels in the design phase at December 31, 1995, 25 were Hampton Inn & Suites. To encourage system growth, Promus currently plans to spend approximately $110 million to expand the Homewood Suites hotel brand by developing as many as 14 additional company owned properties over the next three to five years. The Company, however, plans to continue its general strategy of growing its systems primarily through franchise and management contracts. As in the past, company owned hotels and new development projects may be sold to franchisees and the proceeds used to fuel additional system growth, develop new concepts or for other corporate purposes. FelCor Agreements In May 1995, Promus entered into a Subscription Agreement with FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership 32 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) (FelCor) whereby Promus agreed to purchase up to $25 million in FelCor limited partnership interests to help fund the partnership's acquisition of all-suite upscale hotels to be converted to the Embassy Suites brand. In September 1995, Promus entered into a second agreement with FelCor in connection with FelCor's agreement to acquire the Crown Sterling Suites hotel chain. FelCor plans to convert up to 16 of the Crown Sterling Suites hotels (over 4,000 suites) to the Embassy Suites brand. In consideration, Promus agreed to make up to $50 million available to FelCor for the conversions through investments in FelCor common stock. Hotels converted to the Embassy Suites brand under either of these agreements will operate under 20-year license agreements, and 10-year management contracts will be awarded to Promus. Subject to some restrictions, the limited partnership interests may be converted to shares of FelCor common stock on a one-for-one basis and the common stock interests may be sold on the open market. As of December 31, 1995, Promus had funded approximately $30 million of the total $75 million commitment, and had loaned an additional $7.5 million to FelCor, representing one-half of the deposit required for the Crown Sterling Suites acquisition. The total commitment will be reduced by the amount of such loans outstanding. An additional $30 million was funded in January 1996, and the entire commitment is expected to be funded by the end of the first quarter 1996. In connection with these agreements, Promus also guaranteed a third party loan to FelCor, not to exceed $25 million. As of December 31, 1995, that facility was not yet in place, and therefore no amounts had been drawn. As of December 31, 1995, FelCor had acquired nine hotels pursuant to both agreements, eight of which Promus managed, although five had not yet been converted to the Embassy Suites brand. On January 3, 1996, an additional nine Crown Sterling Suites properties were acquired, and are in the process of being converted to Embassy Suites hotels. Effective with the January closing, Promus managed all 18 properties and earned related management fees. However, franchise fees will be earned on these properties only after the conversion to the Embassy Suites brand is complete. Acquisition and conversion of all hotels subject to these agreements is expected to be complete by mid-year 1996. Mezzanine Financing Program To encourage growth (primarily in the Hampton Inn & Suites and Homewood Suites brands) in light of the lack of available financing for new hotel construction, Promus developed a mezzanine financing program. Under the program Promus provides conservatively underwritten secondary financing to franchisees. A minimum of 20 percent equity is required by the borrower, and the investment must meet certain defined underwriting criteria. The terms of the mezzanine financing must be consistent with the terms of the first mortgage lender, with whom Promus will enter into an inter-creditor agreement. Promus provided $7.9 million in mezzanine loans during 1995, and anticipates providing an additional $19.6 million during 1996. Outstanding loans bear interest at rates ranging from 10.0% to 10.5%. Other Ongoing refurbishment of Promus' existing company owned hotel properties to maintain the quality standards set for those properties will continue in 1996 at an estimated annual cost of approximately $11 million. In early 1995, Promus acquired for $21.7 million an office complex in Memphis, Tennessee, which will serve as its future corporate headquarters. Cash necessary to finance projects currently under development, as well as additional projects to be developed by Promus, will be made available from operating cash flows, the Promus Facility (see "Liquidity and Capital Resources"), joint venture partners, specific project financing, sales of existing hotel assets and, if necessary, Promus debt and equity offerings. Promus' capital expenditures totaled $115.7 million during 1995. The Company expects to spend between $140 million and $160 million during 1996 to fund project development, including those projects discussed above, as well as to refurbish existing facilities and for other corporate related projects. LIQUIDITY AND CAPITAL RESOURCES The accompanying financial statements represent the portion of Parent's historical revenues, expenses, assets, liabilities and cash flows associated with the Hotel Business through June 30, 1995, and actual results as a stand-alone company beginning July 1, 1995. The year to date results of operations and cash flows are not necessarily indicative of Promus' future results as a separate corporation. The most significant items that will affect liquidity and capital resources as a result of the Spin-Off are incremental costs associated with operating as a stand-alone company, a decrease in the Company's average borrowing rate, and Promus' payment of state and federal income taxes subsequent to the Distribution (Parent historically paid Promus' taxes). Cash flows from operating activities for the year ended December 31, 1995 were $79.0 million, compared with $58.3 million for 33 MANAGMENT'S DISCUSSION AND ANALYSIS (CONTINUED) the same period last year, representing a 35.5% increase. EBITDA, consisting of income before extraordinary items plus interest, taxes, depreciation, amortization and net earnings of, or distributions from, nonconsolidated affiliates, was $118.2 million for 1995, compared with $104.6 million for the comparable period in 1994, representing a 13% increase. EBITDA is a supplemental financial measurement used by management as well as by industry analysts to evaluate operations, but should not be construed as an alternative to operating income (as an indicator of operating performance) or to cash flows from operating activities (as a measure of liquidity) as determined in accordance with generally accepted accounting principles. On December 31, 1995, the Company had a working capital deficit of $31.4 million, which resulted primarily from Promus' cash management program that calls for the Company to pay down amounts outstanding under the Promus Facility with any excess cash. Therefore, the Company does not believe that the current ratio is an appropriate measure of its short-term liquidity without considering availability under the Promus Facility. During 1995, Promus entered into the Promus Facility, which is secured by the stock of certain of its material subsidiaries. The Promus Facility consists of two agreements, the significant terms of which are as follows:
Total Maturity Interest Facility Facility Date Rate Fees ----------------------------------------------------------------------------------------- Five-Year Revolver $300,000,000 June 30, 2000 Base Rate, as defined, or 0.20% of the total facility LIBOR + 35 basis points Extendible Revolver $ 50,000,000 June 6, 1996 Base Rate, as defined, or 0.15% of the total facility LIBOR + 40 basis points
The Extendible Revolver is a 364-day facility with annual renewals and may be converted into a two-year term loan with equal amortizing payments over such two-year period. Facility fees and interest on Base Rate loans are paid quarterly. The agreements contain a tiered scale for facility fees and the applicable LIBOR spread (current rates for both reflected above) that is based on the more favorable of Promus' current credit rating (Investment Grade per Standard & Poor's) or leverage ratio, as defined. They also contain provisions that restrict certain investments, limit the Company's ability to incur additional indebtedness and pay dividends, and require that certain performance ratios be maintained. As of December 31, 1995, Promus was in compliance with all such covenants. The Five-Year Revolver includes a sublimit for letters of credit of $20 million. At December 31, 1995, approximately $9.5 million in letters of credit were outstanding under this agreement (related primarily to the Company's self-insurance reserves). There was approximately $112 million of availability under the Promus Facility as of December 31, 1995. The remaining borrowing capacity available under the Promus Facility is available for working capital, hotel development and other general corporate purposes. As of December 31, 1995, Promus was a party to several interest rate swap agreements that bear a total notional amount of $100 million. The effect of the swap agreements was to convert a portion of the Company's variable rate debt under the Promus Facility to a fixed rate. The weighted average effective fixed rate pursuant to the agreements, which expire between July 1997 and March 2000, was approximately 7.7% at the end of the year. RELATIONSHIP WITH PARENT For the purpose of governing certain of the ongoing relationships between Promus and Parent after the Distribution and to provide mechanisms for an orderly transition, Parent and Promus have entered into various agreements and adopted policies governing their future relationship. Management believes the agreements are fair to both parties and contain terms comparable to those which would have been reached in arm's-length negotiations with unaffiliated parties (although comparisons are difficult with respect to certain agreements that relate to the specific circumstances of the Distribution). TAX SHARING AGREEMENT In connection with the Spin-Off, Promus and Parent entered into a tax sharing agreement that defines each company's rights and obligations with respect to deficiencies and refunds of federal, state and other income or franchise taxes relating to Promus' business for tax years prior to the Distribution and with respect to certain tax attributes of Promus after the Distribution. In general, 34 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) with respect to periods ending on or before December 31, 1995, Parent is responsible for (i) filing federal tax returns for Parent and Promus for the periods such companies were members of the same consolidated group, and (ii) paying the taxes relating to such returns (to include any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities; Promus will reimburse Parent for the portion of such adjustments relating to the Hotel Business). Promus is responsible for filing returns and paying taxes for periods beginning after the Spin-Off. EFFECTS OF INFLATION AND CURRENT ECONOMIC CONDITION Generally, Promus has not experienced any significant negative effect on its hotels and food and beverage operations because of inflation. To date, Promus has been able to increase rates and prices and thereby pass on the effects of inflationary cost increases. Although competitive conditions may limit the industry's future ability to raise room rates at the rate of inflation, management believes that each of its hotel brands has rate growth potential in excess of the inflation rate. Promus will continue to emphasize cost containment and productivity improvement programs. Inflation tends to increase the underlying value of Promus' real estate, and management and franchise contracts. Although significant growth in the general economy is not expected for 1996, moderate but stable growth is anticipated in the hotel industry, as demand is increasing at a greater rate than supply. Promus hotel brands lead the industry in the percentage of guests who intend to make return visits, and in guest satisfaction, due largely to the 100% Satisfaction Guarantee offered unconditionally throughout the entire Promus hotel system. ADOPTION OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENT Effective for fiscal year 1996, Promus will adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Management intends to adopt the disclosure-only option provided for by this pronouncement. 35 CONSOLIDATED BALANCE SHEETS As of December 31 (In thousands, except share amounts) 1995 1994 ---------------------- ASSETS Current assets Cash and cash equivalents .......................... $ 2,668 $ 2,221 Receivables, including notes receivable of $497 and $53, less allowance for doubtful accounts of $1,172 and $855 ............. 14,837 12,065 Deferred income taxes (Note 6) ..................... 3,492 2,844 Prepayments and other (Note 3) ..................... 2,429 1,642 ---------------------- Total current assets ............................ 23,426 18,772 ---------------------- Land, buildings, furniture and equipment Land ............................................... 61,651 60,025 Buildings and improvements ......................... 264,961 237,044 Furniture, fixtures and equipment .................. 110,275 86,042 ---------------------- 436,887 383,111 Less: accumulated depreciation ....................... (104,993) (81,368) ---------------------- 331,894 301,743 Investments in and advances to nonconsolidated affiliates (Note 11) ............................... 90,506 35,731 Investment in franchise system (Note 2) .............. 31,652 28,718 Deferred costs and other ............................. 42,331 28,344 ---------------------- $ 519,809 $413,308 ====================== 1995 1994 ---------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable ................................... $ 18,202 $ 11,124 Accrued expenses (Note 3) .......................... 36,371 16,887 Current portion of long-term debt (Note 4) ......... 278 533 ---------------------- Total current liabilities ...................... 54,851 28,544 ---------------------- Long-term debt (Note 4) .............................. 229,479 188,725 Deferred credits and other ........................... 36,282 28,527 Deferred income taxes (Note 6) ....................... 31,830 24,504 ---------------------- 352,442 270,300 ---------------------- Commitments and contingencies (Notes 5 through 7) Stockholders' equity (Note 9) Common stock, $0.10 par value, 360,000,000 shares authorized, 51,371,152 shares outstanding, net of 2,626 shares held in treasury ......................................... 5,137 - Capital surplus .................................... 136,057 - Retained earnings .................................. 25,349 - Unrealized gain on marketable equity securities, net of related deferred tax liability of $1,165 .. 1,822 - Deferred compensation related to restricted stock .. (998) - Parent company investment .......................... - 143,008 ---------------------- 167,367 143,008 ---------------------- $ 519,809 $413,308 ====================== The accompanying notes are an integral part of these consolidated balance sheets. 36 CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31
(In thousands) 1995 1994 1993 ---------------------------------- Revenues Company owned hotels Rooms ...................................... $116,094 $110,205 $121,104 Food and beverage .......................... 7,180 8,001 8,094 Other ...................................... 6,805 6,879 7,207 Franchise and management fees ................ 79,935 76,874 60,359 Other ........................................ 26,006 20,602 17,801 ---------------------------------- Total revenues 236,020 222,561 214,565 ---------------------------------- Operating expenses Company owned hotels Rooms ...................................... 56,228 56,952 65,529 Food and beverage .......................... 6,832 7,760 8,235 Other ...................................... 12,946 12,547 13,488 Other operating expenses ..................... 20,110 24,434 29,419 Depreciation of buildings and equipment ...... 21,582 18,929 20,069 Corporate expense ............................ 16,674 10,177 13,067 ---------------------------------- Total operating expenses ................. 134,372 130,799 149,807 ---------------------------------- Operating income before property transactions .. 101,648 91,762 64,758 Property transactions .......................... 1,942 626 1,345 ---------------------------------- Operating income ............................... 103,590 92,388 66,103 Interest expense, net of interest capitalized (Note 4) ......................... (31,138) (30,759) (33,061) Interest and other income (expense), net ....... 3,127 1,488 (2,247) ---------------------------------- Income before income taxes and extraordinary items ........................................ 75,579 63,117 30,795 Provision for income taxes (Note 6) ............ (31,819) (26,798) (13,869) ---------------------------------- Income before extraordinary items .............. 43,760 36,319 16,926 Extraordinary items, net of income tax of $1,635 (Note 10) .................................... 2,819 - - ---------------------------------- Net income ..................................... $ 46,579 $ 36,319 $ 16,926 ================================== The accompanying notes are an integral part of these consolidated financial statements.
37 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31 (Notes 1 and 9)
Deferred Unrealized Compensation Gain on Related to Common Stock Marketable Restricted Parent --------------- Capital Retained Equity Stock Company (In thousands) Shares Amount Surplus Earnings Securities (Note 8) Investment Total -------------------------------------------------------------------------------------- Balance--December 31, 1992 .............. - $ - $ - $ - $ - $ - $ 212,229 $212,229 Net income .............................. - - - - - - 16,926 16,926 Intercompany activity with Parent ....... - - - - - (48,633) (48,633) -------------------------------------------------------------------------------------- Balance--December 31, 1993 .............. - - - - - - 180,522 180,522 Net income .............................. - - - - - - 36,319 36,319 Intercompany activity with Parent ....... - - - - - - (73,833) (73,833) -------------------------------------------------------------------------------------- Balance--December 31, 1994 .............. - - - - - - 143,008 143,008 Net income--January 1, 1995 through June 30, 1995 ......................... - - - - - - 21,230 21,230 Intercompany activity with Parent-- January 1, 1995 through June 30, 1995 .................................. - - - - - - (24,656) (24,656) Spin-Off of the Company ................. 51,352 5,135 135,801 - - (1,354) (139,582) - Shares issued under incentive compensation plan ..................... 8 1 174 - - (175) - - -------------------------------------------------------------------------------------- Balance--June 30, 1995 .................. 51,360 5,136 135,975 - - (1,529) - 139,582 Net income--July 1, 1995 through December 31, 1995 ..................... - - - 25,349 - - - 25,349 Net shares issued under incentive compensation plans, including income tax benefit of $97 ............. 11 1 82 - - 531 - 614 Unrealized gain on marketable equity securities, net of deferred income tax liability of $1,165......... - - - - 1,822 - - 1,822 -------------------------------------------------------------------------------------- Balance--December 31, 1995 .............. 51,371 $5,137 $136,057 $25,349 $1,822 $ (998) $ - $167,367 ====================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
38 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31 (Note 12)
(In thousands) 1995 1994 1993 ----------------------------------- Cash flows from operating activities Net income ............................... $ 46,579 $ 36,319 $ 16,926 Adjustments to reconcile net income to cash flows from operating activities Extraordinary items .................. (4,454) - - Depreciation and amortization ........ 25,263 21,326 25,028 Other noncash items .................. (2,217) (2,762) 3,382 Equity in earnings, net of distributions from, nonconsolidated affiliates ......................... (61) 2,969 2,819 Net gains from property transactions . (2,159) (280) (1,677) Net change in long-term accounts ..... 2,089 5,637 2,868 Net change in working capital accounts 13,995 (4,922) 4,822 ----------------------------------- Cash flows provided by operating activities ....................... 79,035 58,287 54,168 ----------------------------------- Cash flows from investing activities Land, buildings, furniture and equipment additions .............................. (55,872) (13,626) (12,801) Investments in and advances to nonconsolidated affiliates ............. (47,832) (1,657) 32 Advances under mezzanine loan agreements . (7,899) (1,000) (1,545) Proceeds from property transactions ...... 7,843 19,164 16,921 Net investments in franchise system ...... (4,111) (2,096) (6,571) Recovery of investment in franchise system ................................. 3,049 3,407 2,892 Other .................................... 785 (2,721) 352 ----------------------------------- Cash flows (used in) provided by investing activities ............. (104,037) 1,471 (720) ----------------------------------- Cash flows from financing activities Net borrowings under revolving credit facility ............................... 10,600 - - Debt retirements ......................... (284) (219) (667) Advances from (to) Parent ................ 14,840 (60,975) (51,367) Other .................................... 293 - - ----------------------------------- Cash flows provided by (used in) financing activities ............. 25,449 (61,194) (52,034) ----------------------------------- Net increase (decrease) in cash and cash equivalents .............................. 447 (1,436) 1,414 Cash and cash equivalents, beginning of period ................................... 2,221 3,657 2,243 ----------------------------------- Cash and cash equivalents, end of period ... $ 2,668 $ 2,221 $ 3,657 ===================================
The accompanying notes are an integral part of these consolidated financial statements. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 NOTE 1--BASIS OF PRESENTATION AND ORGANIZATION On June 30, 1995, The Promus Companies Incorporated (Parent) completed the transfer of the operations, assets and liabilities of its hotel business (the Hotel Business), composed of three hotel brands targeted at specific market segments: Embassy Suites, Hampton Inn and Homewood Suites, to a new publicly traded entity, Promus Hotel Corporation (Promus or the Company). As approved by Parent's Board of Directors and stockholders on May 26, 1995, this entity was spun-off (the Spin-Off) from the Parent and its stock was distributed to Parent's stockholders on a one-for-two basis effective June 30, 1995 (the Distribution). Concurrent with the Distribution, Parent changed its name to Harrah's Entertainment, Inc. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Promus operates the Embassy Suites, Hampton Inn, Homewood Suites and Hampton Inn & Suites hotel brands primarily through three lines of business: franchise; hotel operations, including management contracts; and hotel real estate and joint venture investments. Embassy Suites is a full-service hotel brand that management believes comprises the largest all-suite upscale hotel system in the United States by number of suites and system revenue. Hampton Inn is a limited-facility hotel and Homewood Suites offers residential-style accommodations designed for the extended stay traveler. Hampton Inn & Suites is the newest Promus hotel brand and combines, in a single hotel, Hampton-style rooms with two-room suites and a common lodge in the center. Promus' primary focus is to develop, grow and support its franchise business for all brands. Promus hotel brands are located in virtually every state, the District of Columbia and four foreign countries. Promus charges each franchisee royalty fees of generally four percent of suite or room rentals. Royalty fees for 1995, 1994 and 1993 were based on system-wide reported room revenues of $1.6 billion, $1.4 billion and $1.3 billion, respectively. In addition, Promus earns a licensing fee for new licenses granted to franchisees when the franchise is approved. Promus operates more than 100 Promus-brand hotels. Company operated properties include wholly-owned, partially owned through joint ventures and hotels managed for third parties. Promus has followed an asset strategy to own and manage a mix of Promus hotel brands that can impact profits and enhance its role as franchisor for the respective brands. Management fee income is based on a percentage of gross revenues, profits, or both at the related managed property. Principles of Consolidation The accompanying consolidated financial statements include the assets, liabilities, revenues, expenses and cash flows of Parent's Hotel Business on a stand-alone basis for 1993 and 1994, and through the six months ended June 30, 1995, as well as actual results of the Company for the six months ended December 31, 1995. The preparation of these financial statements required the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. All significant intercompany accounts and transactions have been eliminated. Investments in 50% or less owned companies and joint ventures over which Promus has the ability to exercise significant influence are accounted for using the equity method. Promus reflects its share of income before interest expense and extraordinary gain of these nonconsolidated affiliates in revenues- other. Promus' proportionate share of interest expense and extraordinary gain on forgiveness of debt of such nonconsolidated affiliates is included in interest expense and extraordinary items, respectively, in the consolidated statements of income (see Note 11 for combined summarized financial information regarding these nonconsolidated affiliates). Management believes Promus' inclusion of its proportionate share of the interest expense of its equity investees in interest expense is the preferable presentation due to the nature of its equity investments. Cash Equivalents Cash equivalents are highly liquid investments with a maturity of less than three months and are stated at the lesser of cost or market. Land, Buildings, Furniture and Equipment Land, buildings, furniture and equipment are stated at cost. Land includes land held for future development or disposition, which totaled $9.6 million at December 31, 1995 and 1994. Improvements and extraordinary repairs that extend the life of the asset are capitalized. Maintenance and repairs are expensed as incurred. Construction in progress, which is reflected in buildings and improvements in the consolidated balance sheets, was $20.2 million and $3.1 million at December 31, 1995 and 1994, respectively. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED) Interest expense is capitalized on constructed assets at Promus' overall weighted average borrowing rate. The Company capitalized interest of $1.4 million in 1995, due largely to the acquisition of the corporate office complex that is still under construction. No material amounts of capitalized interest were recorded during 1994 or 1993. Depreciation of buildings, furniture and equipment are calculated using the straight-line method over the estimated useful life of the assets or over the related lease term, as follows: Buildings and improvements ................................... 10 to 40 years Furniture, fixtures and equipment ............................ 2 to 15 years Investment in Franchise System Promus' investment in franchise system includes the necessary computer systems to operate the centralized marketing and reservation center, and a property management system that interacts with several operational software packages which are available to each franchised hotel. These costs are reimbursed from the respective brand system fund over their estimated useful lives. Generally, the owner of each hotel, including Promus' company owned hotels, contributes 3.5 to 4.0 percent of suite or room revenues to its brand's fund. Revenue Recognition Room revenue represents revenue derived from the rental of rooms and suites for hotels majority owned by Promus. Food and beverage revenues represent revenues from company owned restaurants and lounges. Amortization Deferred management and franchise contract costs are amortized on a straight-line basis over the term of the related contract, generally 10 to 20 years. Deferred finance charges are amortized over the term of the related debt (see Note 4). Property Transactions Property transactions include gains and losses from asset sales, including sales of joint venture equity interests, write-downs of assets to net realizable value and the ongoing costs of Promus' asset management staff. The operations of properties sold are included in the financial statements through the date of sale. Reclassifications Certain amounts for prior years have been reclassified to conform with the presentation for 1995. NOTE 3--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS Prepayments and other consisted of the following (in thousands): 1995 1994 ---------------------- Prepayments .................................... $1,557 $ 425 Supplies ....................................... 206 237 Other current assets ........................... 666 980 ---------------------- $2,429 $1,642 ====================== Accrued expenses consisted of the following (in thousands): 1995 1994 ----------------------- Self-insurance reserves ........................ $ 8,934 $ - Payroll and other compensation ................. 7,424 5,985 Deposits and customer funds .................... 4,794 2,461 Income taxes ................................... 4,290 106 Taxes, other than income taxes ................. 3,658 3,690 Other .......................................... 7,271 4,645 ----------------------- $36,371 $16,887 ======================= NOTE 4--LONG-TERM DEBT Parent Debt Allocation The Company's financial position at December 31, 1994, and its results of operations through June 30, 1995, reflect all indebtedness, together with related interest expense, specifically identified with Promus entities, as well as a pro rata portion of Parent's historical corporate debt balance, unamortized deferred finance charges and interest expense. Allocations of those amounts to Promus from Parent were based on the percentage of Parent's historical corporate debt that was expected to be retired using proceeds from Promus' new $350 million bank credit facility (the Promus Facility). The accompanying consolidated balance sheet as of December 31, 1994 reflects corporate debt allocated to Promus from Parent of $187.9 million, together with debt specifically associated with Promus entities of $1.4 million, as well as the unamortized deferred finance charges allocated to Promus of $3.2 million. Parent's corporate interest expense, including amortization of deferred finance costs, allocated to Promus was $17.2 million and $17.0 million, for 1994 and 1993, respectively, and $10.5 million for 1995 (which represents interest allocated from Parent before the Spin-Off). New Bank Facility The Promus Facility consists of a $300 million revolving credit arrangement with a maturity of five years (the Five-Year Revolver) and a $50 million annually extendible revolving credit facility with an initial maturity of 364 days (the Extendible Revolver). The Extendible Revolver is convertible into a two-year term loan with 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) equal amortizing payments over such two-year period. Interest on the drawn portion of the Promus Facility is, at the option of the Company, equal to either (i) the Base Rate, as defined, or (ii) LIBOR plus the applicable spread, which was approximately 7.7% (including the LIBOR spread, facility fees and the impact of interest rate swaps) on a weighted average basis for the last six months of 1995. Both agreements incorporate a tiered scale that defines the applicable LIBOR spread and a facility fee based upon the more favorable of the Company's current debt rating or leverage ratio, as defined. Currently, the LIBOR spread on the Five-Year Revolver and the Extendible Revolver is 0.35% and 0.40%, respectively, and the facility fee required on the total amount of the Five-Year Revolver and the Extendible Revolver is 0.20% and 0.15%, respectively. The Promus Facility is secured by the stock of Promus' material subsidiaries and contains provisions that restrict certain investments, limit the Company's ability to incur additional indebtedness and pay dividends, and require that certain performance ratios be maintained. As of December 31, 1995, Promus was in compliance with all such covenants. The Five-Year Revolver also provides a sublimit for letters of credit of $20 million. At December 31, 1995, approximately $9.5 million in letters of credit were outstanding under this agreement. As of December 31, Promus' indebtedness consisted of the following (in thousands): 1995 1994 ----------------------- Amounts outstanding under the Promus Facility .... $228,600 $ - Notes payable and other-unsecured, 13%, maturities to 1999 ........................ 776 976 Mortgages, 8.0%-8.75%, maturities to 2005 ........ 271 297 Capital lease obligations, 8.2%-13.4%, maturities to 1999 ............................. 110 125 Corporate debt allocated by Parent ............... - 187,860 ----------------------- 229,757 189,258 Current portion of long-term debt ................ (278) (533) ----------------------- $229,479 $188,725 ======================= Aggregate annual maturities of long-term debt subsequent to December 31, 1995 were: 1996, $278,000; 1997, $306,000; 1998, $330,000; 1999, $94,000; 2000, $228,636,000, and $113,000 thereafter. Interest Rate Agreements As of December 31, 1995, Promus was a party to several interest rate swap agreements that help the Company manage the relative mix of its debt between fixed and variable rate instruments. These agreements effectively modify the interest characteristics of its outstanding debt without an exchange of the underlying principal amount. Pursuant to the agreements, Promus receives a variable interest rate tied to LIBOR in exchange for its payments at a fixed interest rate. The fixed rates to be paid by Promus are summarized in the following table.
Next Quarterly Notional Amount Variable (All Associated Effective Rate with The Promus Swap Rate Rate at Adjustment Swap Facility) Paid (Fixed) December 31 Date Maturity - ---------------------------------------------------------------------------------- $50.0 million 6.99% 7.54% 3/20/1996 03/20/2000 $25.0 million 7.86% 8.41% 3/15/1996 07/28/1997 $12.5 million 6.92% 7.47% 3/15/1996 12/15/1998 $12.5 million 6.68% 7.23% 3/15/1996 12/15/1999
The differences to be paid or received under the terms of the interest rate swap agreements described above are accrued as an adjustment to interest expense for the related debt. Changes in the effective interest rates to be paid by Promus pursuant to the terms of its interest rate agreements will have a corresponding effect on its future cash flows. On January 22, 1996, the above-mentioned $25 million swap was amended and effectively split into two separate agreements, each with a notional amount of $12.5 million. The amended swaps have effective rates of 7.29% and 7.07% maturing in January 1999 and 2000, respectively. These agreements contain a credit risk that the counterparties may be unable to meet the terms of the agreements. Promus minimizes that risk by evaluating the creditworthiness of its counterparties, which are limited to major banks and financial institutions, and does not anticipate nonperformance by the counterparties. Fair Market Value Because the terms of the Promus Facility provide that borrowings outstanding under those agreements bear interest at current market rates, management believes that the related liabilities reflected in the consolidated balance sheet as of December 31, 1995 approximate fair market value. The fair market value of the Company's other material financial instruments as of December 31, 1995 were as follows (in thousands): Carrying Market Value Value - -------------------------------------------------------------------------------- Interest rate swaps (used for hedging purposes) ....... $55 $(5,056) 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amount reflected as the "carrying value" of the interest rate agreements represents the accrual balance as of the date reported. The "market value" represents the estimated amount, considering the prevailing interest rates, that Promus would pay to terminate the agreement as of the date reported. NOTE 5--COMMITMENTS AND CONTINGENCIES Contractual Commitments Promus is liable under certain lease agreements pursuant to which it has assigned the direct obligation to third party interests. Additionally, Promus manages certain hotels for others under agreements that provide for payments or loans to the hotel owners if stipulated levels of financial performance are not maintained. The Company has also provided guarantees for certain loans related to joint venture investments. Promus believes the likelihood is remote that material payments will be required under these agreements. Promus' estimated maximum exposure under such agreements is approximately $39 million over the next 30 years. FelCor Agreements In May 1995, Promus entered into a Subscription Agreement with FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership (FelCor) whereby Promus agreed to purchase up to $25 million in FelCor limited partnership interests to help fund the partnership's acquisition of all-suite upscale hotels to be converted to the Embassy Suites brand. In September 1995, Promus entered into a second agreement with FelCor in connection with FelCor's agreement to acquire the Crown Sterling Suites hotel chain. FelCor plans to convert up to 16 of the Crown Sterling Suites hotels to the Embassy Suites brand. In consideration, Promus agreed to make up to $50 million available to FelCor for the conversions through investments in FelCor common stock. Hotels converted to the Embassy Suites brand under either of these agreements will operate under 20-year license agreements, and 10-year management contracts will be awarded to Promus. Subject to some restrictions, the limited partnership interests may be converted to shares of FelCor common stock on a one-for-one basis and the common stock interests may be sold on the open market. As of December 31, 1995, Promus had funded approximately $30 million of the total $75 million commitment, and had loaned an additional $7.5 million to FelCor, representing one-half of the deposit required for the Crown Sterling Suites acquisition. The total commitment will be reduced by the amount of such loans outstanding. An additional $30 million was funded in January 1996, and the entire commitment is expected to be funded by the end of the first quarter 1996. In connection with these agreements, Promus will guarantee a third party loan to FelCor, not to exceed $25 million. As of December 31, 1995, that facility was not yet in place, and therefore no amounts had been drawn. Litigation The Company is a party to various inquiries, administrative proceedings and litigation relating to contracts, sales of property and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management believes that the final outcome of these matters will not have a materially adverse effect upon Promus' consolidated financial position or its results of operations. Employment and Severance Agreements Promus has severance agreements with 13 senior officers of the Company that provide for a payment of 2.99 times the average annual cash compensation (salary and bonus) paid to each such executive for the five preceding calendar years, including such compensation paid during service with Parent. The agreements also provide for accelerated payment of any compensation or awards payable to such executive under any Promus incentive compensation or stock option plan in the event of termination of an executive's employment, as described in the agreements, subsequent to a change in control of Promus, as defined. The maximum amount of compensation that would be payable under all agreements if a change in control occurred and if such executives were terminated as of December 31, 1995 would be approximately $16.6 million. Self-Insurance Reserves Promus self-insures various levels of general liability, workers' compensation and employee medical coverage. All self-insurance reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims. These estimates are based on historical information along with certain assumptions about future events. Changes in assumptions for such things as medical costs and legal expenses, as well as changes in actual experience, could cause these estimates to change in the near term. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--INCOME TAXES Income tax expense attributable to income before income taxes and extraordinary items consisted of the following (in thousands): 1995 1994 1993 --------------------------------- Current Federal .................................. $22,252 $25,396 $12,087 State .................................... 2,889 1,154 1,186 Deferred Federal .................................. 3,004 248 596 State .................................... 3,674 - - --------------------------------- $31,819 $26,798 $13,869 ================================= In addition to taxes provided for income before income taxes and extraordinary items, during 1995 Promus provided $1.6 million for extraordinary items and $1.2 million for unrealized gains on marketable equity securities. The differences between the statutory federal income tax rate and the effective tax rate expressed as a percentage of income before income taxes were as follows: 1995 1994 1993 ------------------------------- Statutory tax rate ......................... 35.0% 35.0% 35.0% Increases in tax resulting from State taxes, net of federal tax benefit .. 5.6 1.8 3.9 Other .................................... 1.5 5.7 6.1 ------------------------------- 42.1% 42.5% 45.0% =============================== Components of Promus' net deferred tax liability included in the consolidated balance sheets were as follows (in thousands): 1995 1994 -------------------- Deferred tax assets Deferred income .......................... $ 4,760 $ 4,643 Compensation ............................. 4,581 3,623 State income taxes ....................... 1,295 - Bad debt reserve ......................... 703 593 Self-insurance reserves .................. 562 - Other .................................... 270 534 -------------------- 12,171 9,393 -------------------- Deferred tax liabilities Property and equipment ................... (23,896) (19,494) Investments in nonconsolidated affiliates. (14,430) (8,813) Franchise system fund prepayments ........ (1,333) (2,746) Basis difference in other assets ......... (850) - -------------------- (40,509) (31,053) -------------------- Net deferred tax liability ........... $(28,338) $(21,660) ==================== Tax Sharing Agreement In connection with the Spin-Off, Promus and Parent entered into a tax sharing agreement that defines each company's rights and obligations with respect to deficiencies and refunds of federal, state and other income or franchise taxes relating to Promus' business for tax years prior to the Distribution and with respect to certain tax attributes of Promus after the Distribution. In general, with respect to periods ending on or before December 31, 1995, Parent is responsible for (i) filing federal tax returns for Parent and Promus for the periods such companies were members of the same consolidated group, and (ii) paying taxes relating to such returns (to include any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities; Promus will reimburse Parent for the portion of such adjustments relating to the Hotel Business). Promus is responsible for filing returns and paying taxes for periods beginning after the Spin-Off. NOTE 7--LEASES Promus leases both real estate and equipment used in its operations through operating and capital leases. Leases that transfer substantially all benefits and risks incidental to ownership of the property are capitalized. In addition to minimum rentals, many leases provide for contingent rents based on percentages of revenue. The average remaining term for operating leases, which generally contain renewal options, extends approximately eight years. The costs of leased assets are amortized over periods not in excess of the lease terms. Rental expense associated with operating leases included in the consolidated statements of income was as follows (in thousands): 1995 1994 1993 -------------------------------- Noncancelable rental expense Minimum .................................. $3,828 $2,400 $2,286 Contingent ............................... 852 740 601 Other ...................................... 863 790 967 -------------------------------- $5,543 $3,930 $3,854 ================================ 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The future minimum rental commitments as of December 31, 1995 were as follows (in thousands): Noncancelable Operating Leases ------------- 1996 ....................................................... $ 2,187 1997 ....................................................... 1,485 1998 ....................................................... 1,100 1999 ....................................................... 938 2000 ....................................................... 878 Thereafter ................................................. 10,319 ------- $16,907 ======= Minimum rental commitments exclude contingent rentals, which may be paid under certain leases based on a percentage of revenues in excess of specified amounts. NOTE 8--EMPLOYEE BENEFIT PLANS Savings and Retirement Plan Promus has a defined contribution savings and retirement plan (Promus S&RP) in which participating employees may elect to make pretax and after-tax contributions of up to 16 percent of their eligible earnings, the first six percent of which Promus will match fully. Amounts contributed to the plan are invested, at the participant's option, in a Promus common stock fund, an aggressive stock fund, a diversified stock fund, a long-term bond fund, an income fund and/or a treasury fund. Participants become vested in Promus' matching contributions over seven years of credited service, including any previous credited service under Parent's plan. Promus recognized contribution expense related to the Promus S&RP of $1.4 million in 1995 (which represents expense incurred subsequent to the Spin-Off). Restricted Stock Promus has a restricted stock plan (RSP) under which executives and key employees may be awarded shares of Promus common stock. Shares granted under the Promus RSP are restricted as to transfer, are subject to forfeiture prior to vesting and will generally vest evenly over periods from two to four years. The deferred compensation expense is amortized over the vesting period. This expense totaled $0.5 million in 1995 (which represents expense incurred subsequent to the Spin-Off). Stock Option Plan Promus has a stock option plan (SOP) under which options may be granted to Promus key management personnel. Promus' SOP allows an option holder to purchase Promus common stock over specified periods of time, generally ten years, at a fixed price equal to the market value at the date of grant. A summary of stock option transactions during 1995 follows: Number of Common Shares Option Price ------------------------- Range Options Available (per share) Outstanding for Grant ---------------------------------------- Balance--June 30, 1995 ............. $ 2.41-$30.70 1,238,839 2,361,161 1995 grants ........................ $22.56-$24.56 711,150 (711,150) Exercised .......................... $ 2.41-$ 9.62 (13,763) - Canceled ........................... $ 9.62-$30.35 (24,171) 24,171 ---------------------------------------- Balance--December 31, 1995 ......... $ 2.41-$30.70 1,912,055 1,674,182 ======================================== Exercisable at December 31, 1995 ... $ 2.41-$30.70 262,660 ========================== Effective for fiscal year 1996, Promus will adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Management intends to adopt the disclosure-only option provided for by this pronouncement. Deferred Compensation Plans Promus has deferred compensation plans under which certain employees may defer a portion of their compensation. Amounts deposited into these plans are unsecured and earn interest at rates approved by the Human Resources Committee of the Board of Directors. In connection with the administration of the executive deferred compensation plan, company owned life insurance policies insuring the lives of certain directors, officers and key employees have been purchased. As of December 31, 1995, the total liability under these plans was $8.4 million, and the related cash surrender value of life insurance policies was $11.3 million. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock Incentive Plan The Company established a Promus 1996 Non-Management Directors Stock Incentive Plan under which (i) directors will automatically receive each February 1, May 1, August 1 and November 1, in lieu of cash payments, shares of Promus common stock based upon one-half of the meeting and retainer fees earned and the fair market value of Promus common stock and (ii) may elect to receive the remaining one-half of compensation due in the form of a cash payment or as Promus common stock. Shares issued under the plan are restricted as to transfer for at least six months after the date of grant. The plan becomes effective as of the date of the 1996 Promus Annual Meeting of Stockholders. NOTE 9--STOCKHOLDERS' EQUITY In addition to its common stock, the Company has the following classes of stock authorized but unissued: Preferred stock, $100 par value, 150,000 shares authorized Special stock--Series A, $1.125 par value, 5,000,000 shares authorized One special right is attached to each outstanding share of common stock. These rights entitle the holders to purchase, under certain conditions, units consisting of fractional shares of Special stock--Series A at a purchase price of $120 per unit, subject to adjustment. The rights also, under certain conditions, entitle certain holders to purchase $240 worth of common stock for $120. These rights expire on May 1, 2005, unless Promus decides to redeem them earlier at $0.01 per right or upon the occurrence of certain other events. NOTE 10--EXTRAORDINARY ITEMS During 1995, two Embassy Suites hotels, in which the Company has a 50 percent interest, realized extraordinary gains related to the early payoff and forgiveness of a portion of their existing debt. Promus' share of these nonconsolidated affiliates' gains was $2.8 million, net of income tax expense of $1.6 million. There were no extraordinary items reported in 1994 or 1993. NOTE 11--NONCONSOLIDATED AFFILIATES Combined summarized balance sheet and income statement information of nonconsolidated affiliates that Promus accounted for using the equity method as of December 31, 1995 and 1994, and for the three fiscal years ended December 31, 1995, were as follows (in thousands): 1995 1994 1993 ------------------------------ Combined Summarized Balance Sheet Information Current assets .............................. $ 33,578 $ 26,178 Land, buildings, furniture and equipment, net 366,624 376,480 Other assets ................................ 18,435 26,097 ------------------- Total assets .............................. 418,637 428,755 ------------------- Current portion of long-term debt ........... 187,339 6,019 Other current liabilities ................... 13,059 15,207 Long-term debt .............................. 86,292 297,537 Other liabilities ........................... 1,696 633 ------------------- Total liabilities ......................... 288,386 319,396 ------------------- Net assets .............................. $130,251 $109,359 =================== Combined Summarized Income Statements Revenues .................................... $157,748 $157,686 $150,431 ============================== Operating income ............................ $ 35,161 $ 32,240 $ 27,613 ============================== Net income .................................. $ 16,438 $ 5,221 $ 559 ============================== Several of Promus' nonconsolidated affiliates have debt maturities in 1996. These affiliates are in the process of renegotiating this nonrecourse debt. Promus management does not anticipate any material cash outlays in connection with these refinancings. Promus' share of its nonconsolidated affiliates' combined net income is reflected in the accompanying consolidated statements of income as follows (in thousands): 1995 1994 1993 ------------------------------ Pre-interest operating income (included in revenues--other) ............... $ 19,569 $ 18,077 $ 15,503 ============================== Interest expense (included in interest expense) ........................... $(12,899) $(12,749) $(12,707) ============================== Pretax extraordinary gain on forgiveness of debt (included in extraordinary items, net) ................ $ 4,454 $ - $ - ============================== 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The components of investments in and advances to nonconsolidated affiliates as of December 31 were as follows (in thousands): 1995 1994 ------------------- At equity .................................. $39,868 $25,551 At cost .................................... 17,622 10,180 At market .................................. 33,016 - ------------------- $90,506 $35,731 =================== Certain Promus joint venture investments have been reduced below zero due to Promus' intention to fund its share of operating losses in the future, if needed. The total amount of these negative investments included in deferred credits and other liabilities in the consolidated balance sheets was $5.2 million and $5.0 million at December 31, 1995 and 1994, respectively. NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION The increase (decrease) in cash and cash equivalents due to the changes in long-term and working capital accounts was as follows (in thousands): 1995 1994 1993 ------------------------------- Long-term accounts Deferred credits and other long-term liabilities ............................ $ 4,597 $ 6,792 $ 2,437 Deferred charges and other assets ........ (2,508) (1,155) 431 ------------------------------- Net change in long-term accounts ...... $ 2,089 $ 5,637 $ 2,868 =============================== Working capital accounts Accrued expenses ......................... $ 9,725 $ 744 $ 564 Accounts payable ......................... 7,824 (4,410) 672 Receivables .............................. (3,206) (859) 3,127 Prepayments .............................. (378) (164) (2,879) Supplies ................................. 30 133 41 Other current assets ..................... - (366) 3,297 ------------------------------- Net change in working capital accounts. $13,995 $(4,922) $ 4,822 =============================== Supplemental Disclosure of Noncash Investing and Financing Activities Concurrent with the Spin-Off, the historical assets and liabilities of the Hotel Business were transferred to Promus by Parent, and the issuance of Promus common stock was completed in connection with the Distribution. During 1993, Promus transferred its ownership interest in five hotel properties to a third party in exchange for cash, the assumption by the third party of the related existing mortgage debt totaling $42.2 million and the issuance of $10 million in notes receivable maturing in three to five years. In an unrelated 1993 transaction, Promus sold a hotel property to a third party for cash and assumption by the third party of the related existing $3.3 million mortgage debt. These noncash transactions have been excluded from the consolidated statements of cash flows. Supplemental Disclosure of Cash Paid for Interest and Taxes The following table reconciles Promus' interest expense, net of interest capitalized, to cash paid for interest (in thousands): 1995 1994 1993 -------------------------------- Interest expense, net of amount capitalized (Note 4) ..................... $ 31,138 $ 30,759 $ 33,061 Adjustments to reconcile to cash paid for interest Promus' share of interest expense of nonconsolidated affiliates (Note 11) . (12,899) (12,749) (12,707) Net change in accruals ................. (1,117) - 125 Amortization of deferred finance charges .............................. (785) (733) (846) Net amortization of discounts and premiums ............................. (8) (45) (869) Other .................................. (246) (143) (128) -------------------------------- Cash paid for interest, net of amount capitalized .............................. $ 16,083 $ 17,089 $ 18,636 ================================ Cash paid for income taxes ................. $ 15,075 $ - $ - ================================ For purposes of this presentation, interest expense allocated to Promus by Parent is assumed to have been paid in the year allocated. Parent was responsible for the payment of Promus' income taxes for periods prior to the Spin-Off (Note 6). 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--SUMMARIZED FINANCIAL INFORMATION Promus Hotels, Inc. (PHI) is a wholly-owned subsidiary of Promus and the primary entity through which the operations of Promus are conducted. PHI is also Promus' principal asset. Summarized financial information for PHI, prepared on the same basis as Promus, as of and for the years ended December 31, is as follows (in thousands): 1995 1994 1993 ------------------------------ ASSETS Current assets ................................ $ 23,246 $ 18,772 Land, buildings, furniture and equipment, net ......................................... 331,894 301,743 Other assets .................................. 163,714 92,793 ------------------- 518,854 413,308 ------------------- LIABILITIES Current liabilities ........................... 54,851 28,544 Long-term debt ................................ 229,479 188,725 Other liabilities ............................. 68,112 53,031 ------------------- 352,442 270,300 ------------------- Net assets ................................ $166,412 $143,008 =================== Revenues ...................................... $236,020 $222,561 $214,565 ============================== Operating income .............................. $104,137 $ 92,388 $ 66,103 ============================== Net income .................................... $ 46,895 $ 36,319 $ 16,926 ============================== NOTE 14--RELATIONSHIP BETWEEN PROMUS AND PARENT AFTER THE DISTRIBUTION For the purpose of governing certain ongoing relationships between Promus and Parent after the Distribution and to provide mechanisms for an orderly transition, Parent and Promus have entered into various agreements and have adopted policies governing their future relationship. Management believes the agreements are fair to both parties and contain terms comparable to those which would have been reached in arm's-length negotiations with unaffiliated parties (although comparisons are difficult with respect to certain agreements that relate to the specific circumstances of the Distribution). 48 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS Promus is responsible for preparing the financial statements and related information appearing in this report. Management believes that the financial statements present fairly its financial position, its results of operations and its cash flows in conformity with generally accepted accounting principles. In preparing its financial statements, Promus is required to include amounts based on estimates and judgments that it believes are reasonable under the circumstances. Promus maintains accounting and other control systems designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for and safeguarded. Compliance with these systems and controls is reviewed through a program of audits by an internal auditing staff. Limitations exist in any internal control system, recognizing that the system's cost should not exceed the benefits derived. The Board of Directors pursues its responsibility for Promus' financial statements through its Audit Committee, which is composed solely of directors who are not officers or employees of Promus. The Audit Committee meets from time to time with the independent public accountants, management and the internal auditors. Promus' internal auditors report directly to, and the independent public accountants have access to, the Audit Committee, with and without the presence of management representatives. Michael D. Rose Chairman of the Board Jeffery M. Jarvis Vice President, Controller & Chief Accounting Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Promus Hotel Corporation: We have audited the accompanying consolidated balance sheets of Promus Hotel Corporation (a Delaware corporation) and subsidiaries (Promus) as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years ended December 31, 1995. These financial statements are the responsibility of Promus' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Promus as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Memphis, Tennessee February 6, 1996. 49
QUARTERLY RESULTS OF OPERATIONS (Unaudited) First Second Third Fourth Fiscal (In thousands, except per share amounts) Quarter Quarter Quarter Quarter Year ---------------------------------------------------- 1995 Revenues ............................ $ 56,487 $ 61,073 $ 61,618 $ 56,842 $236,020 Operating income .................... 24,645 27,725 31,380 19,840 103,590 Net income .......................... 9,604 11,626 15,761 9,588 46,579 Earnings per share (a and b) ........ 0.19 0.23 0.31 0.19 0.90 Weighted average shares outstanding (b) 51,573 51,573 51,570 51,579 51,569 1994 Revenues ............................ $ 50,915 $ 58,255 $ 60,102 $ 53,289 $222,561 Operating income .................... 19,194 23,761 30,643 18,790 92,388 Net income .......................... 6,131 10,207 13,592 6,389 36,319 Earnings per share (a and b) ........ 0.12 0.20 0.26 0.12 0.70 Weighted average shares outstanding (b) 51,573 51,573 51,573 51,573 51,573 (a) The sum of the quarterly per share amounts may not equal the annual amount reported, as per share amounts are computed independently for each quarter while the full year is based on the annual weighted average common equivalent shares outstanding. (b) For purposes of computing earnings per share on a comparable basis, the weighted average shares outstanding for periods prior to the Spin-Off are assumed to be equal to the actual common and common equivalent shares outstanding on June 30, 1995.
SELECTED FINANCIAL DATA (In thousands) 1995 1994 1993 1992 1991 --------------------------------------------------------- Operating Results Revenues ........................ $ 236,020 $ 222,561 $ 214,565 $ 206,513 $ 158,004 Operating income before property transactions .................. 101,648 91,762 64,758 49,610 35,206 Operating income ................ 103,590 92,388 66,103 43,897 33,852 Income (loss) before income taxes and extraordinary items ....... 75,579 63,117 30,795 3,242 (6,871) Net income (loss) ............... 46,579 36,319 16,926 6,361 (4,488) Total assets ...................... 519,809 413,308 438,016 506,111 496,235 Long-term debt (a) ................ 229,479 188,725 172,326 216,386 220,609 (a) Includes debt allocated to Promus Hotel Corporation by its Parent for periods prior to the Spin-Off.
50 DIRECTORS AND OFFICERS BOARD OF DIRECTORS Michael D. Rose(2) Chairman of the Board, Promus Hotel Corporation. Memphis, Tennessee Director since April 1995. U. Bertram Ellis, Jr.(1) President, Chief Executive Officer & Director, Ellis Communications, Inc. Atlanta, Georgia Director since June 1995. Debra J. Fields(1) Chairman of the Board, Mrs. Fields, Inc. Salt Lake City, Utah Director since June 1995. Christopher W. Hart(3) President, Spire Group, Ltd. Brookline, Massachusetts Director since June 1995. C. Warren Neel(1,2) Dean, College of Business Administration, University of Tennessee. Knoxville, Tennessee Director since June 1995. Ben C. Peternell(2) Senior Vice President, Human Resources & Communications, Harrah's Entertainment, Inc. Memphis, Tennessee Director since April 1995. Michael I. Roth(1) Chairman of the Board & Chief Executive Officer, Mutual of New York. New York, New York Director since June 1995. Raymond E. Schultz(2) President & Chief Executive Officer, Promus Hotel Corporation. Memphis, Tennessee Director since April 1995. Jay Stein(3) Chairman of the Board & Chief Executive Officer, Stein Mart, Inc. Jacksonville, Florida Director since June 1995. David C. Sullivan Executive Vice President & Chief Operating Officer, Promus Hotel Corporation. Memphis, Tennessee Director since April 1995. Ronald Terry(2,3) Former Chairman of the Board, First Tennessee National Corporation. Memphis, Tennessee Director since June 1995. (1) Audit Committee (2) Executive Committee (3) Human Resources Committee CORPORATE EXECUTIVE OFFICERS Michael D. Rose Chairman of the Board Raymond E. Schultz President & Chief Executive Officer David C. Sullivan Executive Vice President & Chief Operating Officer Donald H. Dempsey Senior Vice President & Chief Financial Officer Thomas L. Keltner Senior Vice President, Development Ralph B. Lake Senior Vice President, General Counsel & Secretary Mark C. Wells Senior Vice President, Marketing OTHER CORPORATE OFFICERS Carol G. Champion Vice President & Treasurer Vincent C. Ciaramitaro Vice President, Financial Services Patricia R. Ferguson Vice President, Human Resources M. Ronald Halpern Vice President & Deputy General Counsel James T. Harvey Vice President, Information Technology Jeffery M. Jarvis Vice President & Controller INVESTOR INFORMATION STOCK LISTINGS Promus Hotel Corporation common stock trades on the New York Stock Exchange under the ticker symbol PRH. The stock is also listed on the Chicago, Philadelphia and Pacific regional stock exchanges. ANNUAL MEETING DATE Promus Hotel Corporation will conduct its 1996 Annual Meeting of stockholders on April 24, 1996, 11 a.m. (CDT) at the Embassy Hall, Embassy Suites Hotel, 1022 South Shady Grove Road, Memphis, TN. SHAREHOLDER ACCOUNT ASSISTANCE For address changes, account consolidation, registration changes, lost stock certificates and other shareholder services, contact: Continental Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004 or call 800-509-5586. INVESTOR RELATIONS Financial community information requests and requests for financial reports should be directed to: Gregg A. Swearingen, Director, Investor Relations, at 755 Crossover Lane, Memphis, TN 38117, or by calling (901) 680-7222. FORM 10-K A shareholder may receive without charge a copy of the Form 10-K Annual Report filed with the Securities and Exchange Commission by written request to Investor Relations at the address provided in this section or by calling (901) 680-7222. CORPORATE COMMUNICATIONS All media inquiries or requests for copies of this report should be directed to: John C. Hawkins, Director, Corporate Communications, at 755 Crossover Lane, Memphis, TN 38117 or by calling (901) 680-7332. CORPORATE HEADQUARTERS 755 Crossover Lane Memphis, TN 38117 (901) 374-5000 AUDITORS Arthur Andersen LLP 165 Madison Avenue Memphis, TN 38103 RESERVATION INFORMATION Guests wishing to make reservations at our properties may do so by calling the following toll-free numbers: EMBASSY SUITES HOTELS 1-800-EMBASSY HAMPTON INN HOTELS 1-800-HAMPTON HAMPTON INN & SUITES HOTELS 1-800-HAMPTON HOMEWOOD SUITES HOTELS 1-800-CALL-HOME INTERNET COMMUNICATIONS A company overview, financial highlights, statistical data, operating philosophy and reservations information can be found on the Internet by accessing World Wide Web http://www.promus-hotel.com. TRADEMARKS The following trademarks are used in this report to identify products and services of Promus Hotel Corporation, its subsidiaries and affiliates: Embassy Suites, Hampton Inn, Hampton Inn & Suites, Homewood Suites, People Pledged to Excellence and 1-800-CALL-HOME. (C) 1996, Promus Hotel Corporation 51 EX-21.(1) 14 Exhibit 21(1) SUBSIDIARIES PROMUS HOTEL CORPORATION Jurisdiction Percentage Date of of of Name Incorporation Ownership Incorporation - ---- ------------- --------- ------------- Ziwa Insurance, Inc.* Vermont 100% (Wholly-Owned Insurance Company) Promus Hotels, Inc. Delaware 100% 05/10/95 Buckleigh, Inc. Delaware 100% 08/24/87 Compass, Inc. Tennessee 100% 11/16/94 EJP Corporation Delaware 100% 10/31/91 Suite Life, Inc. Delaware 100% 07/11/86 Embassy Development Corporation Delaware 100% 08/24/87 Embassy Equity Development Corp. Delaware 100% 08/24/87 Embassy Syracuse Development Delaware 100% 03/06/91 Corporation Southfield Hotel Management, Florida 100% 09/10/91 Inc. Embassy Memphis Corporation Tennessee 100% 12/03/92 Embassy Pacific Equity Corporation Delaware 100% 01/24/89 Embassy Suites Club No. 1, Inc. Kansas 100% 01/19/84 Embassy Suites Club No. Two, Inc. Texas 49% 03/13/84 Embassy Suites Club No. Three, Inc. Louisiana 100% 11/03/94 Embassy Suites De Mexico, S.A.DE** Mexico 96% 08/01/90 Embassy Suites (Isla Verde), Inc. Delaware 100% 12/21/93 Embassy Suites (Puerto Rico), Inc. Delaware 100% 05/25/89 Embassy Vacation Resorts, Inc. Delaware 100% 03/03/94 EPAM Corporation Delaware 100% 01/24/89 ESI Development, Inc. Tennessee 100% 12/06/84 ESI Mortgage Development Delaware 100% 04/10/89 Corporation ESI Mortgage Development Delaware 100% 03/24/92 Corporation II Hampton Inns, Inc. Delaware 100% 03/23/84 GOL (Texas), Inc. Texas 49% 02/28/89 Old Town Hotel Corporation Delaware 100% 08/17/94 Pacific Hotels, Inc. Tennessee 100% 11/03/88 ATM Hotels Pty Limited*** Australia 100% 05/25/90 Promus Hotel Services, Inc. Delaware 100% 05/12/95 Promus Hotels Florida, Inc. Delaware 100% 05/12/95 Promus Hotels Minneapolis, Inc. Delaware 100% 10/31/95 * In process of being formed ** In process of being dissolved *** 50% Pacific Hotels, Inc., 50% Promus Hotels, Inc. EX-23.(1) 15 Exhibit 23(1) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independant public accountants, we hereby consent to the incorporation of our reports dated February 6, 1996, included or incorporated by reference in this Form 10-K for the year ended December 31, 1995, into the Company's previously filed Registration Statements File Nos. 33-59967; 33-59977; 33-59997 and 33-59973. /s/ Arthur Andersen LLP ----------------------- ARTHUR ANDERSEN LLP Memphis, Tennessee March 8, 1996. EX-99.27.(1) 16 Exhibit 27(1) [ARTICLE] 5 [MULTIPLIER] 1,000 [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] DEC-31-1995 [PERIOD-END] DEC-31-1995 [CASH] 2,668 [SECURITIES] 0 [RECEIVABLES] 16,009 [ALLOWANCES] 1,172 [INVENTORY] 206 [CURRENT-ASSETS] 23,426 [PP&E] 436,887 [DEPRECIATION] 104,993 [TOTAL-ASSETS] 519,809 [CURRENT-LIABILITIES] 54,851 [BONDS] 229,479 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 5,137 [OTHER-SE] 162,230 [TOTAL-LIABILITY-AND-EQUITY] 519,809 [SALES] 0 [TOTAL-REVENUES] 236,020 [CGS] 0 [TOTAL-COSTS] 134,372 [OTHER-EXPENSES] (1,942) [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 31,138 [INCOME-PRETAX] 75,579 [INCOME-TAX] 31,819 [INCOME-CONTINUING] 43,760 [DISCONTINUED] 0 [EXTRAORDINARY] 2,819 [CHANGES] 0 [NET-INCOME] 46,579 [EPS-PRIMARY] 0 [EPS-DILUTED] 0
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