<PAGE> 1
FORM 10-Q
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
---------------- -----------------
Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer)
incorporation or organization) identification no.)
</TABLE>
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(201) 882-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
----- -----
The registrant had 29,433,219 shares of common stock, $.01 par value, as of
July 27, 1994.
<PAGE> 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Interim Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- ---------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $26,114 $41,569
Restricted cash . . . . . . . . . . . . . . . . . 9,251 10,993
Accounts receivable, net of reserves . . . . . . . 6,885 6,266
Current portion of mortgages and other
notes receivable . . . . . . . . . . . . . . . . 2,034 2,275
Accrued interest receivable . . . . . . . . . . . . 1,750 3,954
Other current assets . . . . . . . . . . . . . . . 1,652 3,145
-------- --------
Total current assets . . . . . . . . . . . . . 47,686 68,202
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization. . 205,227 172,786
Mortgages and other notes receivable, net of
current portion . . . . . . . . . . . . . . . . . . 134,431 163,033
Other assets . . . . . . . . . . . . . . . . . . . . 11,572 5,006
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . $398,916 $409,027
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt . . . . . . . . . . . . . $3,880 $19,282
Other current liabilities . . . . . . . . . . . . 24,341 20,787
-------- --------
Total current liabilities. . . . . . . . . . . 28,221 40,069
Long-term debt, net of current portion . . . . . . . 160,417 168,618
Other liabilities. . . . . . . . . . . . . . . . . . 26,736 28,976
-------- --------
Total liabilities . . . . . . . . . . . . . . . 215,374 237,663
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share;
20,000,000 shares authorized; none issued . . . . -- --
Common stock, par value $.01 per share;
50,000,000 shares authorized; 33,273,435 and
33,075,880 shares issued and outstanding
at June 30, 1994 and December 31, 1993,
respectively . . . . . . . . . . . . . . . . . . 333 331
Capital in excess of par value . . . . . . . . . . 159,777 157,476
Retained earnings . . . . . . . . . . . . . . . . . 23,432 13,557
-------- --------
Total stockholders' equity . . . . . . . . . . 183,542 171,364
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . $398,916 $409,027
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 4
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rooms . . . . . . . . . . . . . . . $21,900 $16,981 $39,921 $32,346
Food and beverage . . . . . . . . . 4,717 2,925 7,655 5,365
Management and other fees . . . . . 2,586 2,704 4,903 5,425
Interest on mortgages and
other notes receivable . . . . . 3,677 3,722 8,157 7,556
Rental and other . . . . . . . . . 314 362 637 786
-------- -------- -------- --------
Total revenues . . . . . . . . 33,194 26,694 61,273 51,478
-------- -------- -------- --------
Costs and expenses:
Direct hotel operating expenses:
Rooms . . . . . . . . . . . . . 5,989 4,660 10,885 8,756
Food and beverage . . . . . . . 3,458 2,481 5,964 4,636
Selling and general . . . . . . 6,173 4,650 11,820 9,245
Occupancy and other operating . . 3,137 2,976 5,732 5,641
General and administrative . . . . 3,724 3,811 7,368 7,779
Depreciation and amortization . . . 2,081 1,750 4,022 3,460
-------- -------- -------- --------
Total costs and expenses . . . 24,562 20,328 45,791 39,517
-------- -------- -------- --------
Operating income . . . . . . . . . . 8,632 6,366 15,482 11,961
Interest income on cash investments 473 287 1,031 654
Interest expense . . . . . . . . . . (3,357) (4,006) (6,989) (8,310)
Other income . . . . . . . . . . . . 5,894 -- 6,932 --
-------- -------- -------- --------
Income before income taxes
and extraordinary items . . . . . 11,642 2,647 16,456 4,305
Provision for income taxes . . . . . 4,773 1,059 6,747 1,722
-------- -------- -------- --------
Income before extraordinary items . . 6,869 1,588 9,709 2,583
Extraordinary items - Gains on
discharges of indebtedness,
net of income taxes . . . . . . . . 58 631 169 4,057
-------- -------- -------- --------
Net income . . . . . . . . . . . . . $6,927 $2,219 $9,878 $6,640
======== ======== ======== ========
Net income per common share:
Income before extraordinary items . $.20 $.05 $.28 $.08
Extraordinary items . . . . . . . . -- .02 -- .12
-------- -------- -------- --------
Net income per common share . . . . . $.20 $.07 $.28 $.20
======== ======== ======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 5
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1994 1993
------ ------
<S> <C> <C>
CASH FLOWS
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . $9,878 $6,640
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 4,022 3,460
Gain on settlement of note receivable . . . . . . . (5,894)
Utilization of net operating loss
carryforwards . . . . . . . . . . . . . . . . . . 1,530 2,805
Gains on discharges of indebtedness . . . . . . . . (286) (6,761)
Gain on disposal of assets. . . . . . . . . . . . . (985) --
Compensation expense related to stock
options . . . . . . . . . . . . . . . . . . . . . 25 206
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . (1,010) 1,030
Accrued interest receivable . . . . . . . . . . . 2,204 (880)
Other current assets. . . . . . . . . . . . . . . 1,493 1,691
Other liabilities . . . . . . . . . . . . . . . . 1,621 4,658
-------- --------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . . 12,598 12,849
-------- --------
Cash flows from investing activities:
Proceeds from mortgages and other notes
receivable . . . . . . . . . . . . . . . . . . . . 32,559 5,909
Disbursements for mortgages and other
notes receivable . . . . . . . . . . . . . . . . . (1,100) --
Proceeds from sales of property, equipment
and leasehold improvements . . . . . . . . . . . . 1,088 1,417
Purchases of property, equipment and
leasehold improvements . . . . . . . . . . . . . . (19,420) (3,549)
Decrease in restricted cash . . . . . . . . . . . . . 1,742 3,752
Proceeds from retirement of debt securities . . . . . 1,082 --
Purchase of debt and other securities . . . . . . . . (5,885) --
Other . . . . . . . . . . . . . . . . . . . . . . . . (1,808) 137
-------- --------
Net cash provided by investing activities . . . . 8,258 7,666
-------- --------
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
-3-
<PAGE> 6
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1994 1993
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of debt . . . . . . . . . . . 3,725 1,500
Payments of debt . . . . . . . . . . . . . . . . . . (40,701) (23,556)
Proceeds from the exercise of stock options
and warrants . . . . . . . . . . . . . . . . . . . 558 --
Principal proceeds from federal income
tax refund . . . . . . . . . . . . . . . . . . . . 189 --
Reorganization items after emergence
from bankruptcy . . . . . . . . . . . . . . . . . (82) (4,998)
-------- --------
Net cash used in financing activities . . . . . (36,311) (27,054)
-------- --------
Net decrease in cash and cash equivalents . . . . . (15,455) (6,539)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . . . . 41,569 36,616
-------- --------
Cash and cash equivalents at end of period . . . . . $26,114 $30,077
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 7
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of June 30, 1994 and the results of its operations for the three
and six months ended June 30, 1994 and 1993 and the cash flows for the six
months ended June 30, 1994 and 1993.
The financial statements for the three and six months ended June 30,
1994 and 1993 were prepared on a consistent basis with the audited consolidated
financial statements for the year ended December 31, 1993. Certain
reclassifications have been made to the December 31, 1993 consolidated
financial statements to conform them to the June 30, 1994 presentation.
The consolidated results of operations for the three and six months
ended June 30, 1994 are not necessarily indicative of the results to be
expected for the full year. These interim unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
Note 2 - MORTGAGES AND OTHER NOTES RECEIVABLE
During April 1994, the Company received a favorable ruling from the
U.S. Bankruptcy Court for the Southern District of Florida in its litigation
with Financial Security Assurance, Inc. ("FSA") to recover a payment to be made
under a settlement agreement with Allan V. Rose and Arthur G. Cohen ("Rose and
Cohen"). In 1993, the Company reached a settlement with Rose and Cohen of an
adversary proceeding regarding a promissory note and personal guarantee, which
had been commenced by a subsidiary of the Company's predecessor, Prime Motor
Inns, Inc. ("PMI") during PMI's bankruptcy case. The settlement provided for
Rose or his affiliate to pay the Company the sum of $25,000,000, all of which
was paid into escrow in February 1994, plus proceeds from the sale of
approximately 1,100,000 shares of the Company's common stock held by Rose to be
liquidated by Rose over a period of time. FSA asserted that it was entitled to
receive the settlement proceeds under the terms of a certain intercreditor
agreement. In April 1994, the Bankruptcy Court approved the settlement and
ruled that the Company had an exclusive right to the settlement proceeds. Upon
receipt of the order, the Company used the $25,000,000 of settlement proceeds
to retire certain senior secured notes (see Note 3). On April 21, 1994, FSA
filed its notice of appeal of the Bankruptcy Court's order. On May 4, 1994,
Rose sold approximately 1,000,000 shares of the Company's stock under the
terms of the settlement for net proceeds of approximately $5,900,000.
- 5 -
<PAGE> 8
Subject to further court order, the Company plans to use the stock
proceeds principally to retire certain secured notes. The Rose and Cohen note
had a book value of $25,000,000 on the date the proceeds were received,
therefore, approximately $5,900,000 was recorded as income in the Company's
statement of operations for the second quarter of 1994.
Note 3 - DEBT
During the first quarter of 1994, the Company repurchased $6,527,000
of its adjustable rate senior secured notes, $217,000 of its 8.20% senior
secured notes and $461,000 of its 9.20% junior secured notes for an aggregate
purchase price of $7,018,000. The repurchases resulted in pretax extraordinary
gains of $187,000.
During the first quarter of 1994, the Company purchased through a
third party agent approximately $5,200,000 of its senior and junior secured
notes for aggregate consideration of approximately $4,800,000. These notes are
held by the third party agent and were not retired due to certain restrictions
under the note agreements. The purchases were recorded as investments on the
Company's balance sheet and no gain will be recorded on these transactions
until the notes mature or are redeemed. In April 1994, approximately
$1,100,000 of the notes were retired from the proceeds of the Rose and Cohen
settlement (See Note 2) resulting in a pretax extraordinary gain of
approximately $100,000.
In April 1994, the Company retired its senior secured notes with a
prepayment of $26,408,000 funded by the proceeds of the settlement with Rose
and Cohen (See Note 2) and other collections from the collateral for these
notes. The Company issued the notes on July 31, 1992 and retired the issue in
advance of its stated maturity of July 31, 1997.
In July 1994, the Company received consents from the required holders
of its junior secured notes to remove certain debt covenants which placed
limitations on the Company's hotel development spending. In consideration of
the amendment consent, the Company agreed to increase the coupon interest rate
from 9.2% to 10.0%, and to shorten the maturity by one year from July 31, 2000
to July 31, 1999.
Note 4 - INCOME TAXES
At June 30, 1994, the Company had available federal net operating loss
carryforwards of approximately $116,000,000 which will expire beginning in 2005
and continuing through 2007. Of this amount, $109,000,000 is subject to an
annual limitation of $8,735,000 under the Internal Revenue Code due to a change
in ownership of the Company upon consummation of PMI's plan of reorganization.
For the six months ended June 30, 1994, the Company recognized $1,530,000 of
such tax benefits as a contribution to stockholders' equity. The Company
also has potential state income tax benefits relating to net operating loss
carryforwards of approximately $9,400,000 which
- 6 -
<PAGE> 9
will expire during various periods from 1995 to 2006. Certain of these
potential benefits are subject to annual limitations similar to federal
requirements due to a change in ownership. The utilization is further
dependent on such factors as the level of business conducted in each state and
the amount of income subject to tax within each state's carryforward period.
In January 1994, the Company received a $189,000 tax refund relating
to PMI. In accordance with the American Institute of Certified Public
Accountant's Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", the Company recorded the tax refund
as a contribution to additional paid in capital.
Note 5 - NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average
number of common shares and common share equivalents (dilutive stock options
and warrants) outstanding during each period. The weighted average number of
common shares used in computing primary and fully diluted net income per share
was 34,972,000 and 35,048,000 for the three and six months ended June 30, 1994,
respectively, and 33,000,000 for the three and six months ended June 30, 1993.
Note 6 - OTHER INCOME
Other income for the six months ended June 30, 1994 consists of
proceeds from the settlement of the Rose and Cohen note receivable of
$5,894,000, gain on the sale of a hotel of $985,000 and $53,000 of interest
income related to tax refunds.
- 7 -
<PAGE> 10
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Three and Six Months Ended June 30, 1994 Compared to Three and Six Months Ended
June 30, 1993.
The following discussion and analysis is based on the historical
results of operations of the Company for the three and six months ended June
30, 1994 and 1993. The financial information set forth below should be read in
conjunction with the consolidated financial statements of the Company included
elsewhere in this report and in its Annual Report on Form 10-K for the year
ended December 31, 1993.
The following table presents the gross operating profit, as defined,
of the Company's owned and leased hotel properties for the three and six months
ended June 30, 1994 and 1993. The hotel properties are classified into three
categories: comparable hotels; new hotels; and divested hotels. The Company
currently owns or leases 44 hotel properties of which 32 hotel properties were
owned or leased by the Company during the entire two periods presented and are
classified as comparable hotels. The twelve hotels classified as new hotels
are composed of four new AmeriSuites hotels and a new Wellesley Inn which were
opened after December 31, 1992, two full service hotels acquired within the
past year and five hotels acquired through note receivable settlements or lease
terminations within the past year. The hotel properties classified as divested
hotels consist of two full-service hotel properties sold in the past year.
Owned and Leased Properties
(In thousands, except for statistical information)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross operating profit (1):
Comparable hotels . . . . . . . . . . $9,111 $7,728 $16,478 $14,635
New hotels . . . . . . . . . . . . 1,939 197 2,547 197
Divested hotels . . . . . . . . . . (53) 190 (118) 242
------- ------- ------- -------
Total . . . . . . . . . . . . . 10,997 8,115 18,907 15,074
</TABLE>
(1) Gross operating profit is defined as room and food and beverage revenues
less direct room, food and beverage and selling and general expenses.
These components are presented in the following table.
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<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Room revenues:
Comparable hotels . . . . . . . . . $17,343 $15,919 $33,078 $30,761
New hotels . . . . . . . . . . . . 4,544 385 6,670 385
Divested hotels . . . . . . . . . . 13 677 173 1,200
--------- -------- -------- -------
Total . . . . . . . . . . . . 21,900 16,981 39,921 32,346
Food and beverage revenues:
Comparable hotels . . . . . . . . . 3,212 2,788 5,612 5,046
New hotels . . . . . . . . . . . . 1,497 -- 2,002 --
Divested hotels . . . . . . . . . . 8 137 41 319
-------- ------- ------- -------
Total . . . . . . . . . . . . 4,717 2,925 7,655 5,365
Direct room expenses:
Comparable hotels . . . . . . . . . 4,464 4,304 8,493 8,198
New hotels . . . . . . . . . . . . 1,421 104 2,150 104
Divested hotels . . . . . . . . . . 104 252 242 454
------ ------- -------- -------
Total . . . . . . . . . . . . 5,989 4,660 10,885 8,756
Direct food and beverage expenses:
Comparable hotels . . . . . . . . . 2,378 2,319 4,503 4,290
New hotels . . . . . . . . . . . . 1,080 -- 1,430 --
Divested hotels . . . . . . . . . . -- 162 31 346
--------- ------- ------- ------
Total . . . . . . . . . . . . 3,458 2,481 5,964 4,636
Direct hotel selling and general expenses:
Comparable hotels . . . . . . . . . 4,602 4,356 9,216 8,684
New hotels . . . . . . . . . . . . 1,601 84 2,545 84
Divested hotels . . . . . . . . . . (30) 210 59 477
------ ------- --------- -------
Total . . . . . . . . . . . . 6,173 4,650 11,820 9,245
Statistical information -
Comparable hotels:
Occupancy % . . . . . . . . . 76.1% 74.9% 72.3% 71.4%
Average daily rate . . . . . . $59.47 $55.62 $60.19 $56.59
New hotels:
Occupancy% . . . . . . . . . . 56.8% -- 53.1% --
Average daily rate . . . . . . $55.62 -- $52.22 --
</TABLE>
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<PAGE> 12
Room revenues increased by $4.9 million and $7.6 million or 29.0% and
23.4% for the three and six months ended June 30, 1994 over the same periods in
the prior year due to improved room rates at comparable hotels and the
acquisition or construction of twelve new hotels over the past year. Room
revenues for comparable hotels increased by 9.0% and 7.5% for the three and six
months ended June 30, 1994 compared to the same periods of the prior year. The
increases were primarily due to improvements in average daily rate which
increased by $3.85 and $3.60 or 6.9% and 6.4% for the three and six month
periods reflecting repositioning and refurbishment efforts at several hotels
and improving industry fundamentals. The Company was also able to achieve
slight increases in occupancy rates while achieving its average daily rate
increases.
The Company's comparable full-service hotels reported increases in
average daily room rates to $78 and $75 for the three and six months ended June
30, 1994 as compared to $70 and $69 in the same periods of the prior year.
Average occupancy rates were slightly higher than the prior year. The sizeable
increases in room rates at the comparable full-service hotels were primarily a
result of the repositioning and refurbishment efforts which have been focused
primarily on the full-service hotels. The Company's seven comparable Florida
Wellesley Inns also posted average daily room rate increases to $45 and $54 for
the three and six months ended June 30, 1994 versus $43 and $51 in the same
periods of the prior year. Average occupancy rates were down slightly from the
prior year to 86% and 89% for the three and six month periods. The Company's
three comparable Wellesley Inns located in the Northeast reported average daily
room rates of $45 and $44 for the three and six month periods ended June 30,
1994 reflecting 12% and 10% increases over the prior year. Average occupancy
remained stable despite the room rate increases. The Company's six comparable
AmeriSuites hotels registered gains in both occupancy and room rates reflecting
stabilization of these hotels and their increased recognition in the market.
For the three and six months ended June 30, 1994, the average daily room rate
at the comparable AmeriSuites hotels increased to $59 and $58 from $57 and $55
and the average occupancy rate increased to 76% and 69% from 70% and 65%.
Food and beverage revenues increased by 61.3% and 42.7% for the three
and six months ended June 30, 1994 as compared to the same periods of the prior
year primarily due to the impact of three full-service hotels acquired in the
past year. Food and beverage revenues for comparable hotels increased by 15.2%
and 11.2% for the three and six months ended June 30, 1994 compared to the same
period of the prior year primarily as a result of higher banquet revenues and
increased beverage revenues due to the opening of new sports lounges in two of
the Company's franchised hotels.
Management and other fees consist of base and incentive fees earned
under management agreements, fees for additional services rendered to managed
hotels and sales commissions earned by the Company's national sales group,
Market Segments, Inc. The Company currently manages 45 hotels for third
parties. Management and other fees decreased by 4.4% and 9.6% for
the three and six months ended June 30, 1994 as compared to the same periods of
the prior year primarily due to a decrease in fees for additional services and
the Company's acquisition of four of its managed properties. In addition,
while the Company has added three new management contracts since December
1993, independent owners have divested four other hotels.
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<PAGE> 13
The decreases have been partially offset by increases in management fees
attributable to increased hotel occupancies and room rates and higher
incentive related performance fees.
Interest income for the three and six months ended June 30, 1994 and
1993 primarily related to mortgages secured by 12 managed hotels including the
Marriott's Frenchman's Reef Beach Resort ("Frenchman's Reef"). Interest income
on mortgages and notes increased by 8.0% for the six months ended June 30, 1994
as compared to the same period of the prior year primarily due to interest
recognized on subordinated or junior mortgages which remit payment based on
hotel cash flow ("cash flow notes") and interest recognized on the Rose and
Cohen note. For the six months ended June 30, 1994, interest income recognized
on cash flow notes increased to $1.1 million from $316,000 for the same period
of the prior year primarily due to the addition of new cash flow note
agreements on three hotels. During the six months ended June 30, 1994, the
Company also received $181,000 of interest income on its note receivable from
Rose and Cohen. During 1993, the Company had not recorded interest income on
this note as no payments were received. For the three months ended June 30,
1994, interest income declined slightly due to settlements of note receivables
from which the Company received cash or hotel operating assets.
Approximately $2.4 million and $2.2 million of interest income for the
six months ended June 30, 1994 and 1993, respectively, was derived from the
Company's $50 million note receivable secured by the Frenchman's Reef. The
Company continues its efforts to restructure this mortgage with the intent of
providing the Company with ownership and control of the Frenchman's Reef (see
Liquidity and Capital Resources). If consummated, the impact of this
restructuring on operating income is expected to be minimal as direct revenues,
expenses and depreciation would increase and interest income and management
fees would decrease.
Direct room expenses increased by 28.5% and 24.3% for the three and
six months ended June 30, 1994 over the same periods of the prior year due to
the impact of the new hotels. Direct room expenses for comparable hotels
increased by 3.7% and 3.6% for the three and six months ended June 30, 1994
over the prior year periods which approximated the general inflation rate. For
comparable hotels, direct room expenses as a percentage of room revenues
declined to approximately 26% for the three and six months ended June 30, 1994
versus 27% in the prior year periods as room rates have risen faster than
expenses.
Direct food and beverage expenses increased by 39.4% and 28.7% for the
three and six months ended June 30, 1994 due to the impact of new hotels.
Direct food and beverage expenses as a percentage of food and beverage revenues
decreased to 73.3% and 77.9% for the three and six months ended June 30, 1994
as compared to 84.8% and 86.4% for the three and six months ended June 30,
1993. The improvements in gross margins are attributable to increased
revenues in the higher margin areas such as banquets and sports lounges.
Direct hotel selling and general expenses consist primarily of hotel
expenses which are not specifically allocated to rooms or food and beverage
activities such as administration, selling and advertising, utilities and
repairs and maintenance. Direct hotel selling and general expenses increased
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<PAGE> 14
by 32.8% and 27.9% for the three and six months ended June 30, 1994 over prior
year periods due to the new hotels and increased expenses at comparable hotels.
Direct hotel selling and general expenses for comparable hotels increased by
5.7% and 6.1% for the three and six months ended June 30, 1994 over the same
periods of the prior year primarily due to increased marketing and franchise
fees associated with the increased revenues and increased utility and snow
removal costs in the first quarter as a result of the severe winter in the
Northeast.
Occupancy and other operating expenses increased by 5.4% and 1.6% for
the three and six months ended June 30, 1994 over the prior year periods due to
the impact of new hotels. The increases were partially offset by decreased
property and liability insurance charges based on favorable claims experience
and reductions in real estate taxes as a result of tax appeals on certain
properties.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the owned and managed
hotels and general corporate expenses. For the three and six months ended June
30, 1994 and 1993, general and administrative expenses decreased by 2.3% and
5.3% as compared to the prior year periods primarily due to savings realized
from the restructuring of the Company's centralized management operations in
February 1993.
Depreciation and amortization expense increased by 18.9% and 16.2% for
the three and six months ended June 30, 1994 as compared to the same periods of
the prior year due to the impact of twelve new hotel properties acquired in the
past year and refurbishment efforts at several other hotels.
Interest expense decreased by 16.2% and 15.9% for the three and six
months ended June 30, 1994 as compared to the same periods of the prior year
primarily due to the net reduction of approximately $25 million of debt over
the past twelve months.
Other income for the three and six months ended June 30, 1994 consists
of a gain of approximately $5,900,000 related to the settlement of the Rose and
Cohen note receivable. Other income for the six months ended June 30, 1994
also consists of a gain on the sale of a hotel of $985,000 and $53,000 of
interest income related to tax refunds.
Pretax extraordinary gains of approximately $100,000 and $286,000 for
the three and six months ended June 30, 1994 relate to the retirement of
secured notes with a face value of $8.3 million.
Liquidity and Capital Resources
The Company believes that it has sufficient financial resources to
provide for its working capital needs, capital expenditures and debt service
obligations in 1994. The Company anticipates meeting its future capital needs
through a combination of existing cash balances, projected cash flow
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<PAGE> 15
from operations, conversion of other assets to cash, and a portion of the
proceeds from potential debt or equity financings. The Company intends to
incur mortgage financing on unencumbered properties to provide additional
funds for the development and acquisition of hotels. Additionally, the Company
may also fund its growth by entering into alliances with capital partners to
the extent such financing is available. At June 30, 1994, the Company had cash
and cash equivalents of $26.1 million and restricted cash of $9.3 million,
which was primarily collateral for various debt obligations.
Cash flow from operations was approximately $12.6 million for the six
months ended June 30, 1994. Cash flow from operations was positively impacted
by the utilization of net operating loss carryforwards ("NOL's") of $1.5
million. At June 30, 1994, the Company has federal NOL's relating to its
predecessor, PMI, of approximately $116 million which, subject to annual
limitations, expire beginning in 2005 and continuing through 2007.
The Company's other major sources of cash for the six months ended
June 30, 1994 were a settlement of a note receivable for $30.9 million,
borrowings under a secured demand credit agreement of $3.7 million and
scheduled collections of mortgages and notes receivable of $1.7 million.
The Company's major uses of cash for the six months ended June 30,
1994 were payments of debt of $40.7 million, capital expenditures of $19.4
million and purchases of debt and other securities of $5.9 million.
Debt. In April 1994, the Company retired its senior secured notes
with a prepayment of $26.4 million from proceeds of the settlement of a note
from Rose and Cohen and other collections from the collateral for these notes.
The Company issued the notes on July 31, 1992 and retired the issue in advance
of its stated maturity of July 31, 1997.
In July 1994, the Company received consents from the required holders
of its junior secured notes to remove certain debt covenants which placed
limitations on the Company's hotel development spending. In consideration of
the amendment consent, the Company agreed to increase the coupon interest rate
from 9.2% to 10% and to shorten the maturity by one year from July 31, 2000 to
July 31, 1999. The notes, currently outstanding in the amount of approximately
$53 million, are now designated the 10% Senior Secured Notes of the Company.
In July 1994, the Company entered into an agreement to obtain mortgage
financing on certain of its unencumbered properties in order to fund its
acquisition and development program. The agreement provides for two separate
debt issues. Pursuant to the first issue, the Company anticipates borrowing
approximately $35 to $40 million secured by 12 hotels. Interest will be
payable at a fixed rate based on the 12 year Treasury bond at closing plus
2.75%. Principal will be payable based on a 20 year amortization with a final
maturity in 15 years. Under the second issue, the Company expects to borrow
approximately $7 to $8 million secured by 6 hotel properties. Interest will be
payable based on a floating interest rate of LIBOR plus 3.0%. The loan will
mature in 18 months. The agreement is subject to due diligence and final
approval by the lender.
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<PAGE> 16
In July 1994, the Company withdrew its Form S-3 Registration Statement
filed with the SEC in March 1994 for purposes of registering a $100,000,000
Senior Subordinated Notes offering. The Company had planned to use the
proceeds from the offering to refinance its senior and junior secured notes and
to fund hotel development and acquisition. The Company elected to withdraw the
offering due to rising interest rates, the availability of alternative sources
of financing and the Company's ability to obtain consents to remove certain
debt covenants contained in its secured notes.
During the first quarter of 1994, the Company purchased at a discount
$7.2 million of its secured notes for an aggregate purchase price of $7.0
million.
During the first quarter of 1994, the Company purchased through a
third party agent approximately $5.2 million of its secured notes for aggregate
consideration of $4.8 million. These notes were held by the third party agent
and were not retired due to certain restrictions under the note agreements.
The purchases were recorded as investments on the Company's balance sheet and
no gain will be recorded on these transactions until the notes mature or are
redeemed. In April 1994, approximately $1.1 million of these notes were
retired with a portion of the proceeds from the Rose and Cohen settlement
resulting in a pre-tax gain of approximately $100,000.
As of June 30, 1994, the Company's wholly-owned subsidiary, Suites of
America, Inc. ("SOA"), has $34.8 million of debt obligations, of which $14.3
million is owed to ShoLodge, Inc. ("ShoLodge"). In April 1994, SOA refinanced
the $9.2 million of the debt due to ShoLodge by extending the maturities to
April 1998 and ShoLodge provided financing to retire $5.1 million of bank debt
due in 1994 under the same terms. Upon the occurrence of certain events
including the exercise of an option by either the Company or ShoLodge under a
joint venture agreement, ShoLodge will contribute its fee or mortgage interests
on six hotels to SOA and hold a 50% equity interest in SOA. The $14.3 million
of debt owed to ShoLodge will become debt of the joint venture and the $20.5
million of remaining debt which is due in 1995 and 1996 will be converted into
equity of the joint venture.
The Company has $34.9 million of debt obligations related to the
Frenchman's Reef due in December 1996. The Company believes it will be
required to seek an extension of the maturity of such debt or refinance it.
The debt is secured by a first mortgage note receivable held by the Company
with a book value of $50.0 million.
Capital Investments. The Company is implementing a hotel development
and acquisition program, which focuses on its proprietary limited-service
brands, Wellesley Inns and AmeriSuites, and on strategically positioned
full-service hotels. In July 1994, the Company opened a new Wellesley Inn in
the Sawgrass section of Fort Lauderdale, Florida and is constructing another
Wellesley Inn in Lakeland, Florida. The Company has begun conversion of a
Howard Johnson hotel in Penns Grove, New Jersey to a Wellesley Inn and plans to
convert or acquire one additional Wellesley Inn in 1994. The Company has also
begun construction of an AmeriSuites hotel in Tampa, Florida and plans to
develop two additional AmeriSuites in 1994. Additionally, the Company is
evaluating opportunities to acquire and rehabilitate existing full-service
hotels either for its own
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<PAGE> 17
portfolio or with investors. As part of the Company's full-service acquisition
program, the Company acquired the Ramada Inn in Trevose, Pennsylvania in March
1994 for $7.5 million. The Company has spent $13.3 million on its development
and acquisition program through June 30, 1994 and anticipates that capital
spending for its hotel development and acquisition programs in 1994 will range
between $35 and $40 million. No assurance can be given that the Company will
locate suitable acquisitions and thereby complete such capital expenditures in
1994.
The Company is pursuing a program of refurbishing certain of its owned
hotels and repositioning them in order to meet the local market's demand
characteristics. In some instances, this may involve a change in franchise
affiliation. The refurbishment and repositioning program primarily involves
hotels which the Company has recently acquired through mortgage foreclosures or
settlements, lease evictions/terminations or acquisitions. During the six
months ended June 30, 1994, the Company spent approximately $5.4 million on
capital improvements at its owned hotels, of which approximately $4.0 million
related to refurbishments and repositionings on eleven owned hotels. The
Company intends to spend a total of approximately $10 million on capital
improvements related to its refurbishment and repositioning program at its
owned hotels in 1994.
Asset Realizations. The Company continues to negotiate settlements
with mortgage and note obligors, from which it anticipates receiving cash or
operating hotel assets. The Company intends to use the cash proceeds from
asset conversions for debt repayments and general corporate purposes.
In April 1994, the Company received a favorable ruling from the U.S.
Bankruptcy Court for the Southern District of Florida in its litigation with
FSA to recover a payment to be made under a settlement agreement with Rose and
Cohen. In 1993, the Company reached a settlement with Rose and Cohen of an
adversary proceeding regarding a promissory note and personal guarantee,
commenced by a subsidiary of PMI during PMI's bankruptcy case. The settlement
provided for Rose or his affiliate to pay the Company the sum of $25 million,
all of which was paid into escrow in February 1994, plus proceeds from
approximately 1.1 million shares of the Company's common stock held by Rose
which will be liquidated by Rose over a period of time. FSA has asserted that
it was entitled to receive the settlement proceeds under the terms of a certain
intercreditor agreement. In April 1994, the Bankruptcy Court approved the
settlement and ruled that the Company had an exclusive right to the settlement
proceeds. Upon receipt of the order, the Company used the $25,000,000 of
settlement proceeds to retire certain senior secured notes. On April 21, 1994,
FSA filed its notice of appeal of the Bankruptcy Court's order. On May 4,
1994, Rose sold approximately 1.0 million shares of the Company's common stock
under the terms of the settlement for net proceeds of approximately $5.9
million. Subject to further court order, the Company plans to use the stock
proceeds principally to retire certain secured notes. As the Rose and Cohen
note had a book value of $25 million on the Company's balance sheet,
approximately $5.9 million was recorded as income in the Company's statement of
operations.
In 1993, the Company reached an agreement to restructure its mortgage
notes receivable secured by the Frenchman's Reef with the general partner of
Frenchman's Reef Beach Associates ("FRBA"), the owner of the hotel. In
conjunction with the agreement, FRBA filed a pre-negotiated
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<PAGE> 18
chapter 11 petition in September 1993. The plan of reorganization dated
October 21, 1993, as amended on December 21, 1993 (the "FRBA Plan"), provides
for the Company to receive ownership and control of the hotel through a 100%
equity interest in the reorganized FRBA. A group purporting to hold proxies
for a majority of limited partners has filed an objection to the disclosure
statement related to the FRBA Plan. These equity holders have indicated that
they intend to seek to replace the Frenchman's Reef's general partner with a
new general partner that will challenge the priority and validity of the
Company's mortgages. In addition, although the Company's management agreement
with respect to the Frenchman's Reef has been assumed in connection with the
bankruptcy case, a new general partner could seek to terminate this agreement
resulting in a damage claim assertable by the Company. The Company believes
that the general partner of FRBA has ceased its efforts to effect confirmation
of the FRBA Plan as a result of this opposition. In light of these events, the
Company is pursuing a foreclosure of its mortgages and filed a motion with the
bankruptcy court seeking to lift the automatic stay to permit the commencement
of a foreclosure action and filed its own competing plan of reorganization (the
"Company Plan"). The motion for relief from stay was granted by the
bankruptcy court on May 13, 1994, to permit the Company to obtain a judgment of
foreclosure, but not to hold a foreclosure sale. Further, on July 11, 1994,
the Company filed the Company Plan which provides for the Company to obtain
sole ownership of Frenchman's Reef. A hearing on the disclosure statement for
the Company Plan is scheduled for August 30, 1994. The Company is currently
receiving cash payments on its mortgage notes receivable under a cash
collateral order approved by the bankruptcy court. As of June 30, 1994, the
Company owed $38.9 million of debt secured by the Company's mortgage on the
Frenchman's Reef. The Company does not intend to obtain ownership of the
Frenchman's Reef unless the lender of such debt consents.
In May 1994, the Company acquired a full-service Ramada hotel in
Clifton, New Jersey for cancellation of a note held by the Company. The
Company had formerly operated the hotel under a management agreement.
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<PAGE> 19
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
PRIME HOSPITALITY CORP.
-----------------------
Date: July 28, 1994 By: /s/ David A. Simon
-------------------------
David A. Simon, President and
Chief Executive Officer
Date: July 28, 1994 By: /s/ John M. Elwood
-------------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
</TABLE>
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