<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 ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______ TO __________
Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer)
incorporation or organization) identification no.)
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 30,776,292 shares of common stock, $.01 par value, as of May
8, 1995.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-
December 31, 1994 and March 31, 1995................................ 1
Consolidated Statements of Income
Three Months Ended March 31, 1994
and March 31, 1995.................................................. 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994
and March 31, 1995.................................................. 3
Notes to Interim Consolidated Financial Statements.................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 15
Signatures ................................................................... 16
</TABLE>
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $12,524 $42,394
Restricted cash.................................... 9,725 10,309
Accounts receivable, net of reserves............... 7,819 9,784
Current portion of mortgages and
notes receivable................................. 1,925 1,864
Accrued interest receivable........................ 1,539 1,789
Other current assets............................... 5,657 5,875
-------- --------
Total current assets.......................... 39,189 72,015
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization... 299,291 327,823
Mortgages and notes receivable, net of
current portion.................................... 81,260 78,193
Other assets......................................... 15,192 14,407
-------- --------
TOTAL ASSETS.................................. $434,932 $492,438
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt............................ $5,284 $5,600
Installment payable................................ -- 10,000
Other current liabilities.......................... 23,904 22,945
-------- --------
Total current liabilities..................... 29,188 38,545
Long-term debt, net of current portion............... 178,545 221,726
Other liabilities.................................... 23,134 21,991
-------- --------
Total liabilities............................. 230,867 282,262
-------- --------
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; 30,409,371 and
30,578,065 shares issued and outstanding
at December 31, 1994 and March 31, 1995,
respectively..................................... 304 306
Capital in excess of par value..................... 171,774 173,668
Retained earnings.................................. 31,987 36,202
-------- --------
Total stockholders' equity.................... 204,065 210,176
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $434,932 $492,438
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
------- -------
<S> <C> <C>
Revenues:
Room........................................... $18,021 $34,375
Food and beverage.............................. 2,938 8,884
Management and other fees...................... 2,317 1,637
Interest on mortgages and
notes receivable............................. 4,480 3,026
Rental and other............................... 323 316
------- -------
Total revenues............................. 28,079 48,238
------- -------
Costs and expenses:
Direct hotel operating expenses:
Room......................................... 5,083 8,698
Food and beverage............................ 2,506 6,657
Selling and general.......................... 5,804 11,824
Occupancy and other operating.................. 2,251 2,611
General and administrative..................... 3,644 3,872
Depreciation and amortization.................. 1,941 3,976
------- -------
Total costs and expenses................... 21,229 37,638
------- -------
Operating income................................. 6,850 10,600
Interest income on cash investments.............. 558 514
Interest expense................................. (3,632) (4,100)
Other income..................................... 1,038 --
------- -------
Income before income taxes
and extraordinary items........................ 4,814 7,014
Provision for income taxes....................... 1,974 2,806
------- -------
Income before extraordinary items................ 2,840 4,208
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes of $66
and $4 in 1994 and 1995, respectively)......... 111 7
------- -------
Net income....................................... $2,951 $4,215
======= =======
Net income per common share:
Income before extraordinary items.............. $.09 $.13
Extraordinary items............................ -- --
------- -------
Net income per common share...................... $.09 $.13
======= =======
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
------ ------
<S> <C> <C>
CASH FLOWS
Cash flows from operating activities:
Net income........................................ $2,951 $4,215
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 1,941 3,976
Utilization of net operating loss
carryforwards................................. 764 1,418
Gains on discharges of indebtedness............. (177) (11)
Gain on disposal of assets...................... (985) --
Compensation expense related to stock
options....................................... 15 12
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable........................... 33 (1,965)
Accrued interest receivable................... 214 (320)
Other current assets.......................... 798 (218)
Other liabilities............................. (2,571) (2,228)
-------- --------
Net cash provided by operating
activities.................................. 2,983 4,879
-------- --------
Cash flows from investing activities:
Proceeds from mortgages and notes
receivable...................................... 955 3,211
Disbursements for mortgages and
notes receivable................................ (700) --
Proceeds from sales of property, equipment
and leasehold improvements...................... 403 13
Purchases of property, equipment and
leasehold improvements.......................... (12,502) (16,072)
Decrease (increase) in restricted cash............ 3,030 (585)
Proceeds from retirement of debt securities -- 100
Purchase of debt securities....................... (4,768) --
Other............................................. (243) 415
-------- --------
Net cash used in investing.................... (13,825) (12,918)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt.................... 3,725 39,000
Payments of debt.................................. (8,042) (1,533)
Proceeds from the exercise of stock options
and warrants.................................... 372 472
Principal proceeds from federal income
tax refund...................................... 189 --
Other............................................. (34) (30)
-------- --------
Net cash provided by (used in) financing
activities................................. (3,790) 37,909
-------- --------
Net increase (decrease) in cash and
cash equivalents................................ (14,632) 29,870
Cash and cash equivalents at beginning
of period....................................... 41,569 12,524
-------- --------
Cash and cash equivalents at end of period........ $26,937 $42,394
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 6
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 March 31, 1995 and the results of its operations and cash flows for the
three months ended March 31, 1994 and 1995. Certain reclassifications have been
made to the March 31, 1994 consolidated financial statements to conform them to
the March 31, 1995 presentation.
The financial statements for the three months ended March 31, 1994 and
1995 were prepared on a consistent basis with the audited financial statements
for the year ended December 31, 1994.
The consolidated results of operations for the three months ended March
31, 1995 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/A for the fiscal year ended December
31, 1994.
Note 2 - MORTGAGES AND NOTES RECEIVABLE
The Company received a second favorable ruling in its litigation with
Financial Security Assurance, Inc. ("FSA") in which FSA sought approximately
$31,200,000 previously received by the Company in settlement of a note and
guaranty from Allen V. Rose and Arthur Cohen ("Rose and Cohen"). In an order
dated April 25, 1995, the U.S. District Court for the Southern District of
Florida (the "U.S. District Court") affirmed a lower court ruling approving the
Company's settlement with Rose and Cohen and finding that the Company alone was
entitled to the settlement proceeds. The Company had previously reached a
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25,000,000 plus proceeds from the sale of approximately
1,100,000 shares of the Company common stock held by Rose, bringing the total
settlement proceeds to approximately $31,200,000. FSA asserted that it was
entitled to receive the settlement proceeds otherwise payable to the Company
under the terms of an intercreditor agreement. The U.S. Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") ruled in favor of the
Company in April 1994, and immediately thereafter, the Company used $25,000,000
of the settlement proceeds to retire certain senior secured notes. FSA appealed
to the U.S. District Court, which affirmed the Bankruptcy Court's ruling. On May
12, 1995, the Company used the remaining proceeds plus accrued interest to
prepay senior secured notes.
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Note 3 - DEBT
In April and May 1995, the Company sold $86,250,000 of Convertible
Subordinated Notes due April 15, 2002. The notes bear interest at 7% and are
convertible into common stock at a price of $12 per share at the option of the
holder. The notes are redeemable, in whole or in part, at the option of the
Company after three years at premiums to principal which decline on each
anniversary date.
In February 1995, Prime obtained $39,000,000 of mortgage financing on
eleven of its unencumbered hotels under two separate loan agreements. Both loans
bear interest at variable rates (approximately 10.5% at March 31, 1995) and have
five-year maturities.
During the first quarter of 1995, the Company retired $388,000 of its
senior secured notes, resulting in an extraordinary gain of $11,000. In April
1995, the Company prepaid $4,200,000 of its senior secured notes at face value
with a payment funded by collections from the collateral for these notes. In May
1995, the Company prepaid approximately $7,900,000 of its senior secured notes
at face value funded primarily by the remaining proceeds from the Rose and Cohen
settlement (See Note 2). No gains or losses will be recognized on the second
quarter transactions.
Note 4 - INCOME TAXES
At March 31, 1995, the Company had available federal net operating loss
carryforwards of approximately $117,500,000 which will expire beginning in 2005
and continuing through 2007. Of this amount, $104,800,000 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.
The Company also has potential state income tax benefits relating to net
operating loss carryforwards of approximately $8,800,000 which 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 factors
such as the level of business conducted in each state and the amount of income
subject to tax within each state's carryforward period. For the three months
ended March 31, 1995 the Company recognized $1,418,000 of tax benefits as a
contribution to stockholders' equity.
Note 5 - ACQUISITIONS
In March 1995, the Company acquired the option of ShoLodge, Inc.
("ShoLodge") to purchase a 50% interest in eleven of the Company's AmeriSuites
hotels and also acquired the ownership interest of the remaining AmeriSuites
hotel not already owned by the Company. In 1993, the Company and its
wholly-owned subsidiary, Suites of America, Inc. ("SOA") previously entered into
agreements with ShoLodge, a company controlled by a former director, designed to
further the growth of its AmeriSuites hotels from the six hotels owned by the
Company at that time. Pursuant to these agreements, (i) ShoLodge agreed to build
and finance six additional AmeriSuites hotels and received an option to purchase
a 50% interest in SOA and (ii) the Company received an option pursuant to which
it could require ShoLodge to purchase a 50% interest in SOA. The exercise of
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<PAGE> 8
the option by ShoLodge was scheduled to occur in January 1995, when the Company
and ShoLodge began to negotiate the Company's buyout of ShoLodge's option. The
consideration payable by the Company was determined on an arm's-length basis and
was based upon the fair market value of the properties. The consideration totals
$19,700,000 and is comprised of (i) $16,100,000 in cash, of which $6,100,000 was
paid on March 31, 1995 and $10,000,000 was paid on May 5, 1995, plus (ii)
$18,500,000 which will be paid in notes maturing in 1997, less (iii) $14,900,000
of existing debt on five hotels, which was forgiven at face value. The
transaction resulted in a net increase of approximately $3,600,000 of long-term
debt. No gain or loss was recorded on the forgiveness of debt. As a result of
this transaction, the Company assumed management of these hotels.
Note 6 - NET INCOME PER COMMON SHARE
The Company has restated net income per common share for the three
months ended March 31, 1994 to reflect a 9.4% reduction in the number of shares
distributed under the plan or reorganization (the "Plan") of the Company's
predecessor, Prime Motor Inns, Inc. ("PMI"). The financial statements had
previously given effect to the maximum amount of 33,000,000 shares to be issued
under the Plan whereas the Company ultimately distributed 29,913,000 shares
under the Plan.
Net income per common share was 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
31,950,000 and 32,365,000 for the three months ended March 31, 1994 and 1995,
respectively.
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<PAGE> 9
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company is a leading hotel owner/operator which owns or leases 51
hotels (the "Owned Hotels") and manages 36 hotels (the "Managed Hotels") for
third parties. The Company has a financial interest in the form of mortgages or
profit participations (primarily incentive management fees) in 16 of the Managed
Hotels. The Company consolidates the results of operations of its Owned Hotels
and records management fees (including incentive management fees) and interest
income, where applicable, on the Managed Hotels.
The Company has implemented a growth strategy which focuses on
improving results at existing hotels through increased operating efficiencies,
acquiring full-service hotels and expanding its AmeriSuites hotel brand in the
all-suites segment. Operating results have continued to improve at comparable
hotels due to repositioning efforts, yield management programs and overall
improvements in the industry. The Company also added 12 Owned Hotels in the past
year through acquisition, construction or settlements of notes receivable,
thereby increasing its Owned Hotel rooms by approximately 40%. Although future
results of operations may be adversely affected in the short-term by the costs
associated with the acquisition and construction of new hotels, it is expected
that this impact will be offset, after an initial period, by revenues generated
by these new hotels. The Company believes that it is well positioned to benefit
from the expected continued improvements in the lodging industry due to its
hotel equity ownership position and its growth strategy.
The Company has restated net income per common share for the three
months ended March 31, 1994 to reflect a 9.4% reduction in the number of shares
distributed under the plan of reorganization (the "Plan") of the Company's
predecessor, Prime Motor Inns, Inc. ("PMI"). The financial statements for the
three months ended March 31, 1994 had previously given effect to the maximum
amount of 33,000,000 shares of common stock issuable under the Plan, whereas the
Company in total distributed only 29,913,000 shares under the Plan.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1995
The following table presents the components of operating income,
operating expense margins and other data for the Company and the Company's
comparable Owned Hotels for the three months ended March 31, 1994 and 1995. The
results of the two hotels divested during 1994 are not material to an
understanding of the results of the Company's operations in such periods and,
therefore, are not separately discussed.
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<TABLE>
<CAPTION>
Comparable Owned
Total Hotels(1)
-------------------- -------------------
Three Months Ended Three Months Ended
March 31, March 31,
1994 1995 1994 1995
------- ------- ------- -------
(Dollars in thousands, except ADR and REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Room ....................................................... $18,021 $34,375 $17,535 $18,849
Food and Beverage .......................................... 2,938 8,884 2,904 2,805
Management Fees ............................................ 2,317 1,637
Interest on Mortgages and Notes Receivable ................. 4,480 3,026
Rental and Other ........................................... 323 316
----- ------
Total Revenues .......................................... 28,079 48,238
Direct Hotel Operating Expenses:
Room ....................................................... 5,083 8,698 4,709 5,114
Food and Beverage .......................................... 2,506 6,657 2,475 2,378
Selling and General ........................................ 5,804 11,824 5,653 5,847
Occupancy and Other Operating ................................ 2,251 2,611
General and Administrative ................................... 3,644 3,872
Depreciation and Amortization ................................ 1,941 3,976
Operating Income ............................................. 6,850 10,600
Operating Expense Margins:
Direct Hotel Operating Expenses:
Room, as a percentage of room revenue ...................... 28.2% 25.3% 26.9% 27.1%
Food and Beverage, as a percentage of food and
beverage revenue ........................................ 85.3% 74.9% 85.2% 84.8%
Selling and General, as a percentage of room and
food and beverage revenue ............................... 27.7% 27.3% 27.7% 27.0%
Occupancy and Other Operating, as a percentage of
room and food and beverage revenue ......................... 10.7% 6.0%
General and Administrative, as a percentage of total
revenue .................................................... 13.0% 8.0%
Other Data:
Occupancy..................................................... 64.0% 64.7% 64.6% 65.3%
Average daily rate ("ADR") ................................... $58.63 $ 79.29 $59.44 $ 63.80
Revenue per available rooms ("REVPAR") ....................... $37.52 $ 51.30 $38.40 $ 41.66
Gross Operating Profit........................................ $7,566 $16,080 $7,602 $ 8,315
</TABLE>
(1) For purposes of this discussion of results of operations for 1994
compared to 1995, comparable Owned Hotels refers to the 38 Owned Hotels
that were owned or leased by the Company during all of the three months
ended March 31, 1994 and 1995.
Room revenues increased by $16.4 million, or 90.8%, from $18.0 million
during the three months ended March 31, 1994 to $34.4 million for the three
months ended March 31, 1995. This increase was primarily due to incremental room
revenues of $15.5 million from hotels acquired or built in 1994 including the
Marriott's Frenchman's Reef Resort Hotel (the "Frenchman's Reef") which records
a significant portion of its annual revenues during the first quarter of the
year. Room revenues for comparable Owned
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Hotels increased by $1.3 million, or 7.5%, for the three months ended March 31,
1995 as compared to the same period in the prior year due to improvements in
ADR. For all Owned Hotels, ADR increased by $20.66, or 35.2%, primarily due to
the impact of five full-service hotels added in the past year. ADR increased by
$4.36 or 7.3% for comparable Owned Hotels due to repositioning and refurbishment
efforts at several full-service hotels and continued improvements in the lodging
industry. The industry continued its recovery in the first quarter of 1995, as
demand growth continued to outpace new hotel supply growth, resulting in higher
occupancy levels which have allowed the industry to increase room rates. The
Company has pursued a strategy of increasing ADR, which has a greater impact on
net operating income than changes in occupancy. Occupancy rates for all Owned
Hotels increased from 64.0% for the three months ended March 31, 1994 to 64.7%
for the same period in the current year. Occupancy rates for comparable Owned
Hotels increased slightly from 64.6% to 65.3% during the three months periods
ended March 31, 1994 and 1995, respectively.
Food and beverage revenues increased by $6.0 million, or 202.4%, from
$2.9 million for the three months ended March 31, 1994 to $8.9 million for the
same period in 1995. This increase was primarily due to the additional food and
beverage operations related to the five full-service hotels acquired during the
past year. Food and beverage revenues for comparable Owned Hotels decreased by
$99,000, or 3.4% for the three months ended March 31, 1995 compared to the same
period in the prior year primarily due to decreased banquet business and lower
beverage revenues.
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. Management and other fees decreased by $680,000, or 29.4%,
from $2.3 million for the three months ended March 31, 1994 to $1.6 million in
the current period. The decrease was primarily due to the loss of management
fees on four Managed Hotels acquired by the Company during 1994 and six
additional hotels which were sold by a third party hotel owner in 1994.
Partially offsetting these decreased management fees were increased revenues
associated with the remaining Managed Hotels.
Interest on mortgages and notes receivable during the periods primarily
related to mortgages secured by certain Managed Hotels. Interest income on
mortgages and notes receivable decreased by $1.5 million, or 32.5%, from $4.5
million for the three months ended March 31, 1994 to $3.0 million for the same
period of the current year primarily due to the Company's conversion of a $50
million note receivable secured by the Frenchman's Reef into an operating hotel
asset in December 1994. During the three months ended March 31, 1994, the
Company recognized $1.4 million of interest income related to the Frenchman's
Reef note receivable.
Direct room expenses increased by $3.6 million, or 71.1%, from $5.1
million for the three months ended March 31, 1994 to $8.7 million for the same
period in 1995 due
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<PAGE> 12
primarily to the addition of new hotels. During the three month periods, direct
room expenses, as a percentage of room revenue, decreased from 28.2% to 25.3%
primarily due to increases in ADR which had minimal corresponding increases in
expenses. For comparable Owned Hotels, direct room expenses increased $405,000,
or 8.6%, but increased slightly as a percentage of comparable room revenue from
26.9% to 27.1%.
Direct food and beverage expenses increased by $4.2 million, or 165.6%,
from $2.5 million for the three months ended March 31, 1994 to $6.7 million for
the same period in 1995 due primarily to the addition of new full-service
hotels. As a percentage of food and beverage revenue, direct food and beverage
expenses decreased from 85.3% to 74.9% primarily due to increased revenues in
higher margin areas at the new hotels such as banquet departments. For
comparable Owned Hotels, direct food and beverage expenses decreased $97,000, or
3.9%, and decreased slightly as a percentage of food and beverage revenue from
85.2% to 84.8%.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
increased by $6.0 million, or 103.7%, from $5.8 million for the three months
ended March 31, 1994 to $11.8 million for the same period in 1995 due primarily
to the addition of new hotels. As a percentage of hotel revenues (defined as
rooms and food and beverage revenues), direct hotel selling and general expenses
decreased slightly from 27.7% to 27.3% for the three months ended March 31, 1994
and 1995. For comparable Owned Hotels, direct selling and general expenses
increased by $194,000, or 3.4%, but decreased slightly as a percentage of
comparable Owned Hotel revenues from 27.7% to 27.0%.
Occupancy and other operating expenses which consist primarily of
insurance, real estate and other taxes, and rent expense, increased by $360,000,
or 16.0% from $2.3 million for the three months ended March 31, 1994 to $2.6
million for the same period of the current year due to the addition of new
hotels. As a percentage of hotel revenues, occupancy and other operating
expenses decreased from 10.7% to 6.0% primarily due to operating leverage.
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. General and administrative expenses
increased by $228,000, or 6.3%, from $3.6 million to $3.9 million primarily due
to increased corporate marketing expenses. As a percentage of total revenues,
general and administrative expenses decreased from 13.0% to 8.0% due to
operating leverage.
Depreciation and amortization expense increased by $2.1 million, or
104.8%, from $1.9 million for the three months ended March 31, 1994 to $4.0
million for the same
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<PAGE> 13
period in the current year, due to the impact of new hotel properties acquired
in the past year and refurbishment efforts at several hotels.
Interest expense increased by $468,000, or 12.9%, from $3.6 million for
the three month period in 1994 to $4.1 million for the same period in 1995,
primarily due to new borrowings of $39.0 million incurred in February 1995.
Interest income on cash investments decreased by $44,000, or 7.9%, due to higher
average cash balances in 1994.
Pretax extraordinary gains of approximately $11,000 for the three
months ended March 31, 1995 relate to the retirement of secured notes with a
face value of $388,000. Pretax extraordinary gains of approximately $177,000 for
the three months ended March 31, 1994 relate to the retirement of debt with a
face value of $7.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital needs through a
combination of cash flow from operations, conversion of non-operating assets to
cash and proceeds from mortgage financings. The Company believes that its cash
flow from operations is sufficient to fund its anticipated working capital
needs, routine capital expenditures and debt service obligations due through
1995. An important component of the Company's growth strategy is to increase its
equity ownership in hotels, particularly in the full-service and all-suites
segments of the market. The Company intends to actively pursue acquisitions of
full-service hotels or hotel portfolios which may also require additional
capital for the costs of any necessary renovation or refurbishment.
Additionally, the Company plans to expand its AmeriSuites hotel brand by opening
or commencing construction on ten AmeriSuites hotels in 1995. The Company plans
to fund its development and acquisition program in 1995 with the proceeds from
the $86.3 million Convertible Subordinated Notes issued in the second quarter of
1995, mortgage financings of $42.6 million incurred in the first quarter of 1995
and additional mortgage financings on its unencumbered properties, as well as,
potentially, on any properties acquired. The Company believes that these sources
will be adequate to fund the implementation of its growth strategy in 1995.
At March 31, 1995, the Company had cash and cash equivalents of $42.4
million and restricted cash of $10.3 million, which was primarily collateral for
various debt obligations. Cash and cash equivalents increased by $29.9 million
during three months ended March 31, 1995 primarily due to new mortgage
financings.
Cash flow from operations was approximately $4.9 million for the three
months ended March 31, 1995 as compared to $3.0 million for the same period of
the prior year. Cash flow from operations was positively impacted by the
utilization of net operating loss carryforwards ("NOLs") of $764,000 and $1.4
million for the three months ended March 31, 1994 and 1995, respectively. At
March 31, 1995, the Company had federal NOLs relating to its predecessor, PMI,
of approximately $117.5 million which are subject to annual utilization
limitations and expire beginning in 2005 and continuing through 2007.
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<PAGE> 14
The Company's other major sources of cash for the three months ended
March 31, 1995 were mortgage financings of $39.0 million and collections of
mortgages and notes receivable of $3.2 million. The Company's major uses of cash
for the three months ended March 31, 1995 were capital expenditures of $16.1
million and debt payments of $1.5 million.
Debt. In April and May 1995, the Company sold $86.3 million of
Convertible Subordinated Notes due April 15, 2002. The notes bear interest at 7%
and are convertible into common stock at a price of $12 per share at the option
of the holder. The notes are redeemable, in whole or in part, at the option of
the Company after three years at premiums to principal which decline on each
anniversary date. The Company plans to use the proceeds primarily to finance the
development and acquisition of hotels or hotel portfolios.
In February 1995, the Company obtained $39.0 million of mortgage
financing on 11 of its unencumbered hotels under two separate loan agreements.
Both loans bear interest at variable rates (approximately 10.5% at March 31,
1995) and have five-year maturities. The funds will be used to finance the
Company's acquisition and development program. The Company incurred an
additional $3.6 million of debt in connection with the ShoLodge Transaction. See
"-- Capital Investments."
During the first quarter of 1995, the Company retired $388,000 of its
senior secured notes resulting in a gain of $11,000. In April 1995, the Company
prepaid $4.2 million of its senior secured notes at face value with a payment
funded by collections from the collateral for these notes. In May 1995, the
Company prepaid approximately $7.9 million of its senior secured notes at face
value funded primarily by the remaining proceeds from the settlement of a note
from Allen Rose and Arthur Cohen ("Rose and Cohen").
The Company has $34.9 million of debt obligations related to the
Frenchman's Reef due in December 1996. The Company intends to seek an extension
of the maturity of such debt or refinance it. The debt is secured by the
property which has a book value of $50.0 million.
At March 31, 1995, as adjusted to give effect to the $86.3 of
Convertible Subordinated Notes issued in the second quarter of 1995, the Company
would have had $313.6 million in debt outstanding. Of this debt, approximately
$83.7 million will bear interest at floating rates. The Company has not entered
into interest rate protection agreements with respect to its floating rate debt,
and, accordingly, the interest the Company pays on such debt will increase or
decrease depending on the movement of interest rates generally.
Capital Investments. The Company has implemented a hotel development
and acquisition program which focuses on the acquisition of strategically
positioned full-service hotels or hotel portfolios and the development of
AmeriSuites hotels. The Company spent approximately $12.5 million and assumed
$3.6 million of debt in connection with its development and acquisition program
in the first quarter of 1995. The cash portion was funded by a combination of
existing cash balances, cash flow from operations and mortgage financings.
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<PAGE> 15
The Company currently plans to spend approximately $70.0 million to
open or commence construction on 10 new AmeriSuites hotels in 1995. The Company
has begun construction at sites in Atlanta, Greensboro and Miami and already
owns additional sites for new AmeriSuites in the Baltimore, Cleveland and
Detroit areas and a second site in the Miami area.
In March 1995, the Company purchased an AmeriSuites hotel in Richmond,
Virginia and ShoLodge Inc.'s option to acquire a 50% interest in 11 of the
Company's 12 AmeriSuites hotels. The total consideration payable by the Company
in the ShoLodge Transaction is $19.7 million and is comprised of (i) $6.1
million which was paid on March 31, 1995 and $10.0 million which was paid on May
5, 1995 plus (ii) $18.5 million which will be paid in notes maturing in 1997
less (iii) $14.9 million of existing debt on five hotels which was forgiven at
face value. The transaction results in a net increase of $3.6 million of
long-term debt. As a result of the transaction, the Company now manages these 12
AmeriSuites bringing to 13 the number of AmeriSuites hotels owned and operated
by the Company.
The Company continues to pursue its program of refurbishing certain of
its Owned Hotels and repositioning them in order to meet the local markets'
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 first quarter of 1995, the Company spent approximately $3.3 million
on capital improvements at its Owned Hotels, of which approximately $1.4 million
related to refurbishments and repositionings on recently acquired hotels. In
1995, the Company intends to spend a total of approximatell $18.0 million on
capital improvements, of which $10.8 million relates to the refurbishing and
repositioning of recently acquired hotels.
Asset Realizations. The Company has pursued a strategy of converting
the mortgage notes receivable and other assets that it owns into cash or
operating hotel assets. Since July 31, 1992, the Company has received $101.7
million in cash and added eight operating hotel assets through note settlements
and lease terminations. The Company will continue to pursue settlement with
mortgage and note obligors and will utilize the cash for debt repayments or
general corporate purposes. During the first quarter of 1995, the Company
received $2.7 million in cash in settlement of a note receivable. No gain or
loss was recognized in the transaction. In May 1995, the Company obtained
control of the 240 room Princeton Holiday Inn by converting its $2.7 million
mortgage note receivable into a long-term leasehold position. The hotel was
recently repositioned to a Holiday Inn from a Ramada Inn and is currently being
refurbished.
The Company received a second favorable ruling in its litigation with
Financial Security Assurance, Inc. ("FSA") in which FSA sought approximately
$31.2 million previously received by the Company in settlement of a note and
guaranty from Rose and Cohen. In an order dated April 25, 1995, the U.S.
District Court for the Southern District of Florida (the "U.S. District Court")
affirmed a lower court ruling approving the Company's settlement with Rose and
Cohen and finding that the Company a lone was entitled to the settlement
proceeds. The Company had previously reached a
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<PAGE> 16
settlement in 1993 with Rose and Cohen which provided for Rose or his affiliate
to pay the Company $25 million plus proceeds from the sale of approximately 1.1
million shares of the Company common stock held by Rose, bringing the total
settlement proceeds to approximately $31.2 million. FSA asserted that it was
entitled to receive the settlement proceeds otherwise payable to the Company
under the terms of an intercreditor agreement. The U.S. Bankruptcy Court for the
Southern District of Florida (the "Bankruptcy Court") ruled in favor of the
Company in April 1994, and immediately thereafter, the Company used $25.0
million of the settlement proceeds to retire certain senior secured notes. FSA
appealed to the U.S. District Court, which affirmed the Bankruptcy Court's
ruling. On May 12, 1995, the Company used the remaining proceeds plus accrued
interest to prepay senior secured notes.
-14-
<PAGE> 17
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) On April 25, 1995 a report on Form 8-K was filed announcing
the Company's first quarter earnings.
-15-
<PAGE> 18
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.
PRIME HOSPITALITY CORP.
Date: May 12, 1995 By: /s/ David A. Simon
-----------------------------
David A. Simon, President and
Chief Executive Officer
Date: May 12, 1995 By: /s/ John M. Elwood
-----------------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
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<PAGE> 19
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 42,394
<SECURITIES> 0
<RECEIVABLES> 9,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,015
<PP&E> 327,823
<DEPRECIATION> 0
<TOTAL-ASSETS> 492,438
<CURRENT-LIABILITIES> 22,945
<BONDS> 221,726
<COMMON> 306
0
0
<OTHER-SE> 209,870
<TOTAL-LIABILITY-AND-EQUITY> 492,438
<SALES> 0
<TOTAL-REVENUES> 48,238
<CGS> 0
<TOTAL-COSTS> 37,638
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,100
<INCOME-PRETAX> 7,014
<INCOME-TAX> 2,806
<INCOME-CONTINUING> 4,208
<DISCONTINUED> 0
<EXTRAORDINARY> 7
<CHANGES> 0
<NET-INCOME> 4,215
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
