<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, 1996
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 39,715,854 shares of common stock, $.01 par value
outstanding, as of August 9, 1996.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-
December 31, 1995 and June 30, 1996.............. 1
Consolidated Statements of Income
Three and Six Months Ended June 30, 1995
and June 30, 1996................................ 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995
and June 30, 1996................................ 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..................... 19
Signatures ................................................. 20
</TABLE>
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 49,533 $ 40,645
Marketable securities available for sale .................................. 11,929 2,400
Restricted cash ........................................................... 8,973 3,098
Accounts receivable, net of reserves ...................................... 13,139 14,710
Current portion of mortgages and
notes receivable ...................................................... 1,533 994
Other current assets ...................................................... 8,070 12,677
-------- --------
Total current assets ............................................... 93,177 74,524
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization .......................... 398,201 561,908
Mortgages and notes receivable, net of
current portion ........................................................... 64,962 25,053
Other assets ................................................................... 16,901 21,700
-------- --------
TOTAL ASSETS ....................................................... $573,241 $683,185
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of debt ................................................... $ 5,731 $ 4,097
Other current liabilities ................................................. 38,961 45,171
-------- --------
Total current liabilities .......................................... 44,692 49,268
Long-term debt, net of current portion ......................................... 276,920 363,132
Other liabilities .............................................................. 18,713 18,156
-------- --------
Total liabilities .................................................. 340,325 430,556
-------- --------
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;
75,000,000 shares authorized; 31,049,512 and
31,141,898 shares issued and outstanding
at December 31, 1995 and June 30, 1996,
respectively .......................................................... 310 311
Capital in excess of par value ............................................ 183,050 187,631
Retained earnings ......................................................... 49,556 64,687
-------- --------
Total stockholders' equity ......................................... 232,916 252,629
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $573,241 $683,185
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 4
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Lodging ................................... $35,750 $52,274 $70,125 $ 94,248
Food and beverage ......................... 10,691 11,456 19,575 19,479
Management and other fees ................. 2,044 1,791 3,681 3,484
Interest on mortgages and
notes receivable ...................... 2,888 1,023 5,914 3,704
Business interruption insurance ........... -- 2,891 -- 6,629
Rental and other .......................... 330 458 646 962
------- ------- ------- --------
Total revenues ..................... 51,703 69,893 99,941 128,506
------- ------- ------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging ............................... 9,595 13,526 18,293 24,150
Food and beverage ..................... 7,774 8,675 14,431 15,589
Selling and general ................... 12,109 15,734 23,933 29,743
Occupancy and other operating ............. 2,781 4,102 5,392 7,584
General and administrative ................ 3,589 4,538 7,461 8,757
Depreciation and amortization ............. 3,797 6,540 7,773 11,764
------- ------- ------- --------
Total costs and expenses ........... 39,645 53,115 77,283 97,587
------- ------- ------- --------
Operating income ............................... 12,058 16,778 22,658 30,919
Investment income .............................. 1,415 856 1,929 2,121
Interest expense ............................... (5,886) (5,696) (9,986) (11,547)
Other income ................................... 605 -- 605 3,432
------- ------- ------- --------
Income before income taxes
and extraordinary items ................... 8,192 11,938 15,206 24,925
Provision for income taxes ..................... 3,277 4,775 6,083 9,970
------- ------- ------- --------
Income before extraordinary items .............. 4,915 7,163 9,123 14,955
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes) ........ 54 27 61 176
------- ------- ------- --------
Net income ..................................... $ 4,969 $ 7,190 $ 9,184 $ 15,131
======= ======= ======= ========
Earnings per common share:
Primary:
Income before extraordinary items ......... $ .15 $ .22 $ .28 $ .45
Extraordinary items ....................... -- -- -- .01
------- ------- ------- --------
Net earnings ................................... $ .15 $ .22 $ .28 $ .46
======= ======= ======= ========
Fully diluted:
Income before extraordinary items ......... $ .15 $ .20 $ .28 $ .42
Extraordinary items ....................... -- -- -- --
------- ------- ------- --------
Net earnings ................................... $ .15 $ .20 $ .28 $ .42
======= ======= ======= ========
</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, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 9,184 $ 15,131
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................ 7,773 11,764
Business interruption insurance revenue ...... -- (6,629)
Utilization of net operating loss
carryforwards ............................. 2,836 4,131
Gain on settlement of a note receivable ...... -- (1,771)
Gains on discharges of indebtedness .......... (102) (293)
Gain on disposal of assets ................... (605) (2,879)
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable ....................... (2,558) (1,571)
Other current assets ...................... (1,148) 2,023
Other liabilities ......................... 2,263 4,944
-------- ---------
Net cash provided by operating
activities .............................. 17,643 24,850
-------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and notes
receivable ................................... 3,543 8,407
Disbursements for mortgages and
notes receivable ............................. (12,704) (800)
Proceeds from sales of property, equipment
and leasehold improvements ................... 1,671 3,706
Purchases of property, equipment and
leasehold improvements ....................... (36,462) (142,256)
Decrease in restricted cash ...................... 5,994 5,875
Proceeds from sales of marketable securities ..... 1,012 10,752
Purchases of marketable securities ............... (18,460) --
Proceeds from retirement of debt securities ...... -- 1,068
Other ............................................ 918 1,302
-------- ---------
Net cash used in investing activities ..... (54,488) (111,946)
-------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt ............... 120,802 152,992
Payments of debt ................................. (15,697) (75,233)
Proceeds from the exercise of stock options
and warrants ................................. 1,133 449
Other ............................................ (52) --
-------- ---------
Net cash provided by financing
activities ............................. 106,186 78,208
-------- ---------
Net increase (decrease) in cash and
cash equivalents ............................. 69,341 (8,888)
Cash and cash equivalents at beginning
of period .................................... 12,524 49,533
-------- ---------
Cash and cash equivalents at end of period ....... $ 81,865 $ 40,645
======== =========
</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 June 30, 1996 and the results of its operations for the three and six
months ended June 30, 1995 and 1996 and cash flows for the six months ended June
30, 1995 and 1996.
The financial statements for the three and six months ended June 30,
1995 and 1996 were prepared on a consistent basis with the audited consolidated
financial statements for the year ended December 31, 1995.
The consolidated results of operations for the three and six months
ended June 30, 1996 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, 1995.
Note 2 - SALE OF COMMON STOCK
In August 1996, the Company sold 8.3 million shares of Common Stock at
a price of $18 per share. The Company intends to use the net proceeds from the
offering of approximately $141.3 million to finance, in part, the development of
its proprietary AmeriSuites brand.
Note 3 - DEBT
On January 23, 1996, the Company issued $120 million of 9 1/4% First
Mortgage Notes due 2006. Interest on the notes is payable semi-annually on
January 15 and July 15. The notes are secured by 15 hotels and contain certain
covenants including limitations on the incurrence of debt, dividend payments,
certain investments, transactions with affiliates, asset sales and mergers and
consolidations. These notes are redeemable, in whole or in part, at the option
of the Company after January 15, 2001 at premiums to principal which decline on
each anniversary date. The Company utilized a portion of the proceeds to pay
down $51.6 million of debt.
On June 28, 1996, the Company established a revolving credit facility
(the "Revolving Credit Facility") with a group of financial institutions
providing for availability of funds up to the lesser of $100.0 million and a
borrowing base determined under the agreement. The Revolving Credit Facility is
secured by certain of the Company's hotels with recourse to the Company.
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Additional hotels may be added subject to the approval of the lenders. The
Revolving Credit Facility bears interest at LIBOR plus 2.25% and is available
for five years. The Revolving Credit Facility contains covenants requiring the
Company to maintain certain financial ratios. The Revolving Credit Facility also
contains certain covenants which limit the incurrence of debt, liens, dividend
payments, certain investments, transactions with affiliates, asset sales,
mergers and consolidations and any change of control of the Company. The
aggregate amount of the Revolving Credit Facility will be reduced to $87.0
million on June 28, 1999 and $75.0 million on June 28, 2000. On June 28, 1996,
the Company borrowed $40.0 million under the Revolving Credit Facility and
proceeds were used to retire $20.0 million of interim financing with the
remainder utilized principally for the development of AmeriSuites hotels. On
August 5, 1996, the Company repaid the full amount of this borrowing under the
Revolving Credit Facility with proceeds from the issuance of Common Stock (See
Note 2). As of August 10, 1996, the Company has borrowing availability of
approximately $63 million under the Revolving Credit Facility.
On August 2, 1996, the Company prepaid in full $26.7 million of debt
secured by 10 hotels with the proceeds from the issuance of Common Stock (See
Note 2). The loans were due in February 2000 and bore interest at LIBOR plus
4.25%. The Company intends to utilize these hotels as additional collateral for
the Revolving Credit Facility thereby increasing the borrowing availability
under this facility.
Note 4 - ACQUISITIONS
On March 6, 1996, the Company acquired 18 hotels consisting of 16
Wellesley Inns and two other limited-service hotels for approximately $65.1
million in cash. The acquisition enabled the Company to establish full control
over its proprietary Wellesley Inns brand, with all 30 Wellesley Inns now owned
and operated by the Company. The acquisition price was comprised of
approximately $60.4 million to purchase the first mortgages on the 18 hotels,
with a face value of approximately $70.5 million, and $4.7 million to purchase
the interests of the three partnerships which owned the hotels. Approximately
$1.9 million of the total purchase price was paid to a partnership in which a
general partner is the father of the Company's President and Chief Executive
Officer. In connection with the transaction, the Company also terminated its
management agreements and junior subordinated mortgages related to the 18
hotels. The transaction has been accounted for as a purchase and, accordingly,
the revenues and expenses of these hotels have been included in reported results
from the date of acquisition. If these operations had been included in the
consolidated financial statements since January 1, 1996, reported results would
not have been materially different.
Note 5 - BUSINESS INTERRUPTION INSURANCE REVENUE
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered hurricane
damage. The Company and its insurance carrier settled the Company's property and
business interruption
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<PAGE> 8
insurance claim with respect to the Frenchman's Reef for $25.0 million. In July
1996, the Company received the final installment under its settlement, bringing
the net proceeds to $22.8 million, net of deductibles, for which the Company
provided a reserve of $2.2 million in 1995. Although the Company has repaired a
majority of the damaged rooms on an interim basis and has continued to operate
the hotel, the impact of the hurricane has caused operating profits to decline
from the prior year level. For the three and six months ended June 30, 1996 and
1995, the Company continued to record the operating revenues and expenses of the
Frenchman's Reef. In addition, the Company recorded business interruption
insurance revenue based on the claim settlement which is included in operating
revenues. The Company is currently reviewing plans for further refurbishment of
the Frenchman's Reef.
Note 6 - EARNINGS PER COMMON SHARE
Primary earnings 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 earnings per share was 32.6
million and 33.2 million for the three months ended June 30, 1995 and 1996,
respectively, and 32.4 million and 33.0 million for the six months ended June
30, 1995 and 1996, respectively.
Fully diluted earnings per share, in addition to the adjustments for
primary earnings per share, reflects the elimination of interest expense and the
issuance of additional common shares from the assumed conversion of the 7%
convertible subordinated notes from their issuance in April 1995. The weighted
average number of common shares used in computing fully diluted earnings per
share was 37.8 million and 40.5 million for the three months ended June 30, 1995
and 1996, respectively, and 35.1 million and 40.5 million for the six months
ended June 30, 1995 and 1996, respectively.
Note 7 - OTHER INCOME
Other income consists of items which are not considered part of the
Company's recurring operations. For the six months ended June 30, 1996, other
income consisted of gains on the settlements of notes receivable of $1.8
million and a gain on the sale of a hotel of $1.6 million. Other income of
$605,000 for the three and six months ended June 30, 1995 relates to a gain on
the sale of a land parcel.
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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 82
hotels (the "Owned Hotels") and manages 16 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 9 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's growth strategy focuses on the accelerated expansion of
its proprietary AmeriSuites brand through new construction. For the three and
six months ended June 30, 1996, earnings from recurring operations increased by
57.4% and 47.2%, reflecting an 11.7% and 11.4% increase in revenue per available
room ("REVPAR") at comparable hotels, respectively, due primarily to the
addition of 35 hotels primarily through acquisition or construction in the past
two years and the impact of increased operating leverage. 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.
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered hurricane
damage. The Company and its insurance carrier settled the Company's property and
business interruption insurance claim with respect to the Frenchman's Reef for
$25.0 million. In July 1996, the Company received the final installment under
its settlement bringing the net proceeds to $22.8 million, net of deductibles,
for which the Company provided a reserve of $2.2 million in 1995. Although the
Company has repaired a majority of the damaged rooms on an interim basis and has
continued to operate the hotel, the impact of the hurricane has caused operating
profits to decline from the prior year level. For the three and six months ended
June 30, 1996 and 1995, the Company continued to record the operating revenues
and expenses of the Frenchman's Reef. In addition, the Company recorded business
interruption insurance revenue based on the claim settlement which is included
in operating revenues. The Company is currently reviewing plans for further
refurbishment of the Frenchman's Reef.
The matters discussed in this Form 10-Q contain forward-looking
statements that involve risks and uncertainties, including risks associated with
the hospitality industry
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and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
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RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 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 and six months ended June 30, 1996 and
1995. The results of the two hotels divested during 1995 and 1996 are not
material to an understanding of the results of the Company's operations in such
periods and, therefore, are not separately discussed.
<TABLE>
<CAPTION>
Comparable Owned
Total Hotels(1)
----- ---------
Three Months Ended Three Months Ended
June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
INCOME STATEMENT DATA: (Dollars in thousands, except ADR and REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Lodging ............................................... $35,750 $52,274 $28,529 $31,958
Food and Beverage ..................................... 10,691 11,456 7,360 7,925
Management and Other Fees ............................. 2,044 1,791
Interest on Mortgages and Notes Receivable ............ 2,888 1,023
Business Interruption Insurance ....................... -- 2,891
Rental and Other ...................................... 330 458
------- -------
Total Revenues ..................................... 51,703 69,893
Direct Hotel Operating Expenses:
Lodging ............................................... 9,595 13,526 7,551 8,023
Food and Beverage ..................................... 7,774 8,675 5,357 5,708
Selling and General ................................... 12,109 15,734 8,633 8,993
Occupancy and Other Operating ........................... 2,781 4,102
General and Administrative .............................. 3,589 4,538
Depreciation and Amortization ........................... 3,797 6,540
Operating Income ........................................ 12,058 16,778
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue ........... 26.8% 25.9% 26.5% 25.1%
Food and Beverage, as a percentage of food and
beverage revenue ................................... 72.7% 75.7% 72.7% 72.0%
Selling and General, as a percentage of lodging and
food and beverage revenue .......................... 26.1% 24.6% 24.1% 22.6%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue .............. 6.0% 6.4%
General and Administrative, as a percentage of total
revenue ............................................ 7.0% 6.5%
OTHER DATA(2):
Occupancy ............................................... 72.5% 73.6% 73.2% 75.6%
Average daily rate ("ADR") .............................. $ 64.60 $ 68.58 $ 64.82 $ 70.08
Revenue per available room ("REVPAR") ................... $ 46.81 $ 50.48 $ 47.46 $ 52.99
Gross Operating Profit .................................. $15,212 $26,266 $14,348 $17,159
</TABLE>
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<TABLE>
<CAPTION>
Comparable Owned
Total Hotels(1)
----- ---------
Six Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
INCOME STATEMENT DATA: (Dollars in thousands, except ADR and REVPAR)
<S> <C> <C> <C> <C>
Revenues:
Lodging ............................................... $70,125 $ 94,248 $53,562 $60,237
Food and Beverage ..................................... 19,575 19,479 12,695 13,833
Management and Other Fees ............................. 3,681 3,484
Interest on Mortgages and Notes Receivable ............ 5,914 3,704
Business Interruption Insurance ....................... -- 6,629
Rental and Other ...................................... 646 962
------- -------
Total Revenues ..................................... 99,941 128,506
Direct Hotel Operating Expenses:
Lodging ............................................... 18,293 24,150 14,383 15,263
Food and Beverage ..................................... 14,431 15,589 9,740 10,592
Selling and General ................................... 23,933 29,743 16,907 18,231
Occupancy and Other Operating ........................... 5,392 7,584
General and Administrative .............................. 7,461 8,757
Depreciation and Amortization ........................... 7,773 11,764
Operating Income ........................................ 22,658 30,919
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue ........... 26.1% 25.6% 26.9% 25.3%
Food and Beverage, as a percentage of food and
beverage revenue ................................... 73.7% 80.0% 76.7% 76.6%
Selling and General, as a percentage of lodging and
food and beverage revenue .......................... 26.7% 26.2% 25.5% 24.6%
Occupancy and Other Operating, as a percentage of
lodging and food and beverage revenue .............. 6.0% 6.7%
General and Administrative, as a percentage of total
revenue ............................................ 7.5% 6.8%
OTHER DATA(2):
Occupancy ............................................... 67.9% 70.1% 68.5% 71.2%
Average daily rate ("ADR") .............................. $ 64.90 $ 69.04 $ 65.35 $ 70.06
Revenue per available room ("REVPAR") ................... $ 44.06 $ 48.36 $ 44.75 $ 49.87
Gross Operating Profit .................................. $26,112 $ 43,466 $25,227 $29,984
</TABLE>
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<PAGE> 13
(1) For purposes of this discussion of results of operations for 1996
compared to 1995, comparable Owned Hotels refers to 46 Owned Hotels
that were owned or leased by the Company during all of the three and
six months ended June 30, 1995 and 1996. The Frenchman's Reef has not
been classified as a comparable Owned Hotel due to the effect of the
hurricane damage.
(2) For purposes of showing operating trends, the results of the
Frenchman's Reef and the two disposed hotels have been excluded from
the Other Data section of the table.
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $16.5 million and $24.1
million, or 46.1% and 34.4%, during the three and six months ended June 30,
1996, respectively over the same period of the prior year. The increase was
primarily due to incremental lodging revenues of $17.5 million and $26.4 million
for the three and six months, respectively from the 35 new hotels added during
1995 and 1996 with the balance coming from growth in revenues at comparable
Owned Hotels. Lodging revenues for comparable Owned Hotels increased by $3.4
million and $6.6 million, or 12.0% and 12.5%, for the three and six months ended
June 30, 1996 as compared to the same periods of the prior year driven by strong
results at the Company's AmeriSuites hotels. The revenue gains were offset by a
decrease of $2.9 million and $6.6 million for the three and six months,
respectively, at the Frenchman's Reef attributable to the impact of the 1995
hurricane.
The Company operates in three major segments of the industry:
all-suites, full-service and limited-service. The following table illustrates
the growth in REVPAR for the comparable Owned Hotels for the six months ended
June 30, 1996 as compared to the same period in the prior year by industry
segment:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1996
---- ----
<S> <C> <C>
All-suites............ 15.9% 17.6%
Full-service.......... 11.6% 10.9%
Limited-service....... 11.1% 9.0%
Total........ 11.7% 11.4%
</TABLE>
The REVPAR growth at comparable Owned Hotels reflects strong results in
all of the Company's industry segments: its all-suite AmeriSuites, full-service
and its limited-service Wellesley Inns. Repositioning efforts at both
full-service and limited-service hotels contributed to the foregoing REVPAR
increases. The improvements in REVPAR were generated by increases in ADR, which
rose by 8.1% and 7.2% for the three and six month periods, respectively, and
occupancy gains of 3.3% and 4.0% for
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<PAGE> 14
the three and six month periods, respectively, as compared to the same periods
in the prior year.
Food and beverage revenues increased by $765,000 or 7.2% for the three
months ended June 30, 1996 compared to the same period in the prior year. This
increase was due primarily to increased banquet business and additional revenues
from new hotels. This increase was offset by lower food and beverage revenues at
the Frenchman's Reef which declined by $1.5 million for the same period in the
prior year due to the hurricane damage. For the six months ended June 30, 1996,
food and beverage revenues decreased by $100,000 compared to the same period in
the prior year due to lower food and beverage revenues at the Frenchman's Reef.
Food and beverage revenues for comparable Owned Hotels increased by $565,000 and
$1.1 million or 7.7% and 9.0%, for the three and six months ended June 30, 1996
as compared to the same periods in the prior year, due primarily to increased
banquet business at several 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. ("MSI"). Management and other fees decreased by $253,000
and $197,000, or 12.4% and 5.4%, for the three and six months ended June 30,
1996 as compared to the same periods in the prior year, due primarily to the
conversions of Managed Hotels into Owned Hotels.
Interest on mortgages and notes receivable during the period primarily
related to mortgages secured by certain Managed Hotels. Interest on mortgages
and notes receivable decreased by $1.9 million and $2.2 million, or 64.6% and
37.4%, for the three and six months ended June 30, 1996 as compared to the same
periods in the prior year, primarily due to the Company's conversions of notes
receivable into cash or hotel assets during 1995 and 1996.
Direct lodging expenses increased by $3.9 million and $5.9 million, or
41.0% and 32.0%, for the three and six months ended June 30, 1996 compared to
the same periods in the prior year due primarily to the addition of new hotels.
Direct lodging expenses, as a percentage of lodging revenue, decreased from
26.8% to 25.9% for the three month period and from 26.1% to 25.6% for the six
month period due primarily to increased ADR which has a minimal corresponding
increase in expenses. For comparable Owned Hotels, direct lodging expenses as a
percentage of lodging revenues decreased from 26.5% to 25.1% for the three month
period and from 26.9% to 25.3% for the six month period due primarily to
increases in ADR.
Direct food and beverage expenses increased by $901,000 and $1.2
million, or 11.6% and 8.0%, for the three and six months ended June 30, 1996,
respectively, as compared to the same period in the prior year primarily due to
increased banquet business. As a percentage of food and beverage revenues,
direct food and beverage
- 12 -
<PAGE> 15
expenses increased from 72.7% to 75.7% for the three month period and from 73.7%
to 80.0% for the six month period. The increase was primarily due to the impact
of decreased revenues from the food and beverage operations at the Frenchman's
Reef. For comparable Owned Hotels direct food and beverage expenses, as a
percentage of food and beverage revenue, decreased from 26.5% to 25.1% for the
three month period and 26.9% to 25.3% for the six month period. The decrease was
primarily to the higher margins associated with the increased banquet revenues.
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 $3.6 million and $5.8 million, or 29.9% and 24.3%, for the three
and six months ended June 30, 1996, as compared to the same periods in the prior
year due primarily to the addition of new hotels. As a percentage of hotel
revenues (defined as lodging and food and beverage revenues), direct hotel
selling and general expenses decreased from 26.1% to 24.6% for the three month
period and from 26.7% to 26.2% for the six month period due primarily to the
impact of increases in ADR. For comparable Owned Hotels, direct selling and
general expenses as a percentage of revenues decreased from 24.1% to 22.6% for
the three month period and from 25.5% to 24.6% for the six month period due to
the ADR increases.
Occupancy and other operating expenses consist primarily of insurance,
real estate and other taxes and rent expense. For the three and six months ended
June 30, 1996, occupancy and other operating expenses increased by $1.3 million
and $2.2 million or 47.5% and 40.6%, as compared to the same periods in the
prior year primarily due to the addition of new hotels and increased real estate
taxes on certain hotels which were partially assessed in the prior year. As a
result, occupancy and other operating expenses as a percentage of hotel revenues
increased from 6.0% to 6.4% for the three month period and 6.0% to 6.7% for the
six month period.
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 Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $900,000 and $1.3 million, or 26.5% and 17.4%, for the
three and six months ended June 30, 1996, primarily due to increased
advertising, personnel and training costs associated with opening new hotels. As
a percentage of total revenues, general and administrative expenses decreased
from 6.9% to 6.5% for the three month period and from 7.5% to 6.8% for the six
month period due to operating leverage.
Depreciation and amortization expense increased by $2.7 million and
$4.0 million, or 72.2% and 51.3%, for the three and six months ended June 30,
1996 as compared to the same period in the prior year due to the impact of new
hotel
- 13 -
<PAGE> 16
properties acquired or opened in the past year and refurbishment efforts at
several hotels.
Interest expense decreased by $190,000, or 3.2%, for the three months
ended June 30, 1996 as compared to the same period in the prior year primarily
due to increased capitalized interest associated with the construction of
AmeriSuites hotels. Interest expense increased by $1.6 million for the six
months ended June 30, 1996 due to the issuance of $86.3 million of 7%
Convertible Subordinated Notes due 2002 (the "Convertible Notes") in April 1995
and a net increase of $68.4 million in debt, after application of the proceeds
to repay indebtedness, from the $120.0 million First Mortgage Notes due 2006
("the First Mortgage Notes") issued in January 1996. Investment income increased
by $559,000 and $192,000 for the three and six month periods primarily due to
higher average cash balances generated by the new borrowings.
Other income consists of items which are not part of the Company's
recurring operations. Other income for the three and six months ended June 30,
1996 consisted of gains on the settlements of notes receivable of $1.8 million
and a gain on the sale of a hotel of $1.6 million. Other income of $605,000 for
the three and six months ended June 30, 1995 relates to a gain on the sale of a
land parcel.
Pretax extraordinary gains of approximately $44,000 and $293,000 for
the three and six months ended June 30, 1996, respectively, relate to the
retirement of secured notes with a face value of $13.1 million. Pretax
extraordinary gains of approximately $91,000 and $102,000 for the three and six
months ended June 30, 1995 relate to the retirement of debt with a face value of
$12.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Prime's principal growth strategy is the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. Prime
expects to have 39 AmeriSuites in operation by the end of 1996 and seeks to have
more than 70 AmeriSuites open by the end of 1997.
Prime believes it has sufficient resources available to fund its
AmeriSuites growth strategy, including capital from the following sources: (i)
net proceeds from the sale of 8.3 million shares of Common Stock in August 1996,
(ii) borrowings under its five-year secured Revolving Credit Facility and (iii)
internally generated free cash flow from its portfolio of 98 hotels. In
addition, Prime may enter into sale/leaseback transactions involving certain of
its mid-priced limited-service and upscale full-service hotels, or seek
additional debt financing secured by the Company's hotels.
At June 30, 1996, the Company had cash and cash equivalents of $40.6
million, current marketable securities of $2.4 million and restricted cash,
which is primarily collateral for various debt obligations, of $3.1 million.
Cash and cash equivalents and current marketable securities
- 14 -
<PAGE> 17
decreased by $18.4 million during the six months ended June 30, 1996 primarily
due to the acquisition and development of hotels, offset by new borrowings.
The Company's major sources of cash for the six months ended June 30,
1996 were net proceeds of approximately $115.0 million from the issuance of the
$120.0 million First Mortgage Notes in January 1996, net proceeds from
borrowings under the Revolving Credit Facility of $38.0 million, cash flow from
operations of $24.9 million and collections of mortgage and notes receivable of
$8.4 million. The Company's major uses of cash during the quarter were capital
expenditures relating primarily to acquisitions and development of $142.3
million and debt payments of $75.2 million.
Cash flow from operations increased to $24.9 million for the six months
ended June 30, 1996 as compared to $16.2 million for the same period in the
prior year due to the improved operating results. Cash flow from operations was
positively impacted by the utilization of net operating loss carry forwards
("NOLs") of $4.1 million for the six months ended June 30, 1996 as compared to
$2.8 million for the same period in the prior year. At June 30, 1996, the
Company had federal NOLs relating to its predecessor, PMI, of approximately
$104.3 million which are subject to annual utilization limitations and expire
beginning in 2005 and continuing through 2007.
Common Stock. On August 2, 1996, the Company sold 8.3 million shares of
Common Stock at a price of $18 per share. The Company intends to use the net
proceeds from the offering of approximately $141.3 million to finance, in part,
the development of its proprietary AmeriSuites brand.
Debt. On June 28, 1996, the Company established a Revolving Credit
Facility with a group of financial institutions providing for availability of
funds up to the lesser of $100.0 million and a borrowing base determined under
the agreement. The Revolving Credit Facility is secured by certain of the
Company's hotels with recourse to the Company. Additional hotels may be added
subject to the approval of the lenders. The Revolving Credit Facility bears
interest at LIBOR plus 2.25% and is available for five years. The Revolving
Credit Facility contains covenants requiring the Company to maintain certain
financial ratios. The Revolving Credit Facility also contains certain covenants
which limit the incurrence of debt, liens, dividend payments, certain
investments, transactions with affiliates, asset sales, mergers and
consolidations and any change of control of the Company. The aggregate amount of
the Revolving Credit Facility will be reduced to $87.0 million on June 28, 1999
and $75.0 million on June 28, 2000. On June 28, 1996, the Company borrowed $40.0
million under the Revolving Credit Facility and the proceeds were used to retire
$20.0 million of interim financing with the remainder utilized principally for
the development of AmeriSuites hotels. On August 5, 1996, the Company repaid the
full amount of this borrowing under the Revolving Credit Facility with the
proceeds from the issuance of Common Stock. As of August 10, 1996, the Company
has borrowing availability of approximately $63.0 million under the Revolving
Credit Facility.
- 15 -
<PAGE> 18
In May 1996, the Company borrowed $20.0 million from a financial
institution with interest at LIBOR plus 2.25%. Proceeds were utilized for the
development of AmeriSuites hotels. The borrowing was subsequently repaid with
the proceeds from the Revolving Credit Facility.
On August 2, 1996, the Company prepaid in full $26.7 million of debt
secured by 10 hotels. The loans were due in February 2000 and bore interest at
LIBOR plus 4.25%. The Company intends to utilize these hotels as additional
collateral for the Revolving Credit Facility thereby increasing the borrowing
availabilty under this facility.
In January 1996, the Company issued $120.0 million of First Mortgage
Notes. Interest on the First Mortgage Notes is payable semi-annually on January
15 and July 15. The notes are secured by 15 hotels and contain certain covenants
including limitations on the incurrence of debt, dividend payments, certain
investments, transactions with affiliates, asset sales and mergers and
consolidations. The First Mortgage Notes are redeemable, in whole or in part, at
the option of the Company on or after January 15, 2001 at premiums to principal
which decline on each anniversary date thereafter. The Company utilized a
portion of the proceeds to pay down approximately $51.6 million of indebtedness,
with the remainder of the proceeds used to finance the development or
acquisition of hotels or hotel portfolios.
During the first quarter, the Company prepaid and retired $6.0 million
of its senior secured notes resulting in pre-tax extraordinary gains of $60,000.
The Company also retired $2.4 million of debt in conjunction with the sale of a
hotel which resulted in a pre-tax extraordinary gain of $189,000. In April 1996,
the Company, utilizing the proceeds from the settlement of a note receivable,
prepaid and retired $6.5 million of senior secured notes. A pre-tax
extraordinary gain of $45,000 was recorded in the second quarter.
The Company has $29.1 million of debt related to the Frenchman's Reef
which was scheduled to mature in December 1996. In March 1996, the Company and
the lender entered into an agreement to extend the maturity of the loan to July
1997. The loan continues to bear interest at the same rate and principal
payments are waived until July 1997. All other terms and conditions of the loan
remain in effect. See "--Capital Investments."
Capital Investments. The Company's capital spending in the first half
of 1996 was focused on the development of its AmeriSuites hotel chain and the
consolidation of its Wellesley Inns chain. The Company spent approximately
$125.8 million through June 1996 on acquisitions and construction funded
primarily by a combination of existing cash balances, cash flow from
operations, the issuance of the First Mortgage Notes and borrowings under the
Revolving Credit Facility.
The Company intends to rapidly expand its AmeriSuites chain through new
construction. The Company has opened six new AmeriSuites hotels to date in 1996,
in Miami (2), Dallas (2), Cleveland and Detroit, bringing the number of
AmeriSuites to 25 as of July 1, 1996. The Company currently has 20 AmeriSuites
hotels under construction and 25 additional AmeriSuites
- 16 -
<PAGE> 19
sites under contract. The Company expects to have 39 AmeriSuites in operation by
the end of 1996 and seeks to have more than 70 AmeriSuites open by the end of
1997. During the first half of 1996, the Company spent $60.7 million on
constructing new AmeriSuites hotels. The Company expects to spend a total of
approximately $250 million on constructing new AmeriSuites hotels in 1996.
On March 6, 1996, the Company acquired 18 hotels consisting of 16
Wellesley Inns and two other limited service hotels for approximately $65.1
million in cash. The acquisition enabled the Company to establish full control
over its proprietary Wellesley Inns brand with all 30 Wellesley Inns now owned
and operated by the Company. The Company intends to spend approximately $7
million to $8 million to refurbish these hotels to ensure consistent quality and
enhance the value of its brand.
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas U.S. Virgin Islands suffered hurricane
damage. The Company and its insurance carrier settled the Company's property and
business interruption insurance claim with respect to the Frenchman's Reef for
$25.0 million. In July 1996, the Company received the final installment under
its settlement, bringing the net proceeds to $22.8 million, net of deductibles,
for which the Company provided a reserve of $2.2 million in 1995. The Company is
currently reviewing plans for further refurbishment of the Frenchman's Reef. The
Company has utilized insurance proceeds received through June 30, 1996 in the
amount of $7.8 million to reduce the Frenchman's Reef mortgage loan to $29.1
million and anticipates using a portion of the final insurance payment of $15.0
million to further reduce the loan. Under certain circumstances, the Company
believes that the lender will re-lend these amounts for property refurbishment;
however, the lender has sole discretion concerning such refurbishment loans. The
Company is discussing with the lender the terms under which the lender may make
such funds available.
During the first half of 1996, the Company spent approximately $16.5
million on capital improvements at its Owned Hotels, of which approximately $6.7
million related to refurbishments and repositionings of recently acquired
hotels. During the second quarter, the Company completed the repositioning of
the Hasbrouck Heights Crowne Plaza. The Company intends to spend a total of $7
million to $8 million in 1996 and 1997 relating to the refurbishing and
repositioning of the 16 recently acquired Wellesley Inns.
Asset Realizations. The Company has pursued a strategy of converting
mortgage notes receivable and other assets into cash or operating hotel assets.
Since July 31, 1992, the Company has received $122.9 million in cash and added
ten operating hotel assets through note settlements, lease terminations and
property sales. During the first half of 1996, the Company received $8.3 million
in cash in settlement of notes receivable and $3.7 million in cash on sales of
properties resulting in gains of $3.4 million. In January 1996, the Company
obtained control of the 210-room Cocoa Beach Howard Johnson Hotel by converting
its $9.7 million mortgage note receivable into a long-term lease. On March 31,
1996, the Company obtained control of the 204-
- 17 -
<PAGE> 20
room Fairfield Radisson by converting its $22.4 million mortgage note receivable
into a long-term lease.
- 18 -
<PAGE> 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Reference is made to the Senior Secured Revolving Credit
Agreement, dated as of June 26, 1996, among the Company, the
lenders party thereto, Credit Lyonnais New York Branch, as
Documentation Agent, and Bankers Trust Company, as Agent filed
as an Exhibit to the Company's Amendment No. 1 to Form S-3
Registration Statement No. 333-7431 dated July 26, 1996, which
is incorporated herein by reference.
Exhibit 11 - Computation of Earnings per Common Share
(b) Reports on Form 8-K.
On May 20, 1996, a report on Form 8-K/A, amending the
Company's report on Form 8-K dated March 6, 1996, was filed
for purposes of filing the financial statements of the 18
hotels (including 16 Wellesley Inns) acquired by the Company
in March 1996.
On July 17, 1996, a report on Form 8-K was filed announcing
the Company's earnings for the second quarter of 1996.
- 19 -
<PAGE> 22
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: August 12, 1996 By: /s/ David A. Simon
------------------
David A. Simon, President and
Chief Executive Officer
Date: August 12, 1996 By: /s/ John M. Elwood
------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
- 20 -
<PAGE> 23
EXHIBIT INDEX
-------------
Exhibit 11 - Computation of Earnings per Common Share
Exhibit 27 - Financial Data Schedule
<PAGE> 1
COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary Earnings
Income before extraordinary items .................. $ 4,915 $ 7,163 $ 9,123 $14,955
Extraordinary items ................................ 54 27 61 176
------- ------- ------- -------
Net Earnings ................................ $ 4,969 $ 7,190 $ 9,184 $15,131
======= ======= ======= =======
Shares:
Weighted average number of
common shares outstanding ................... 32,584 33,208 32,401 33,003
======= ======= ======= =======
Primary earnings per common share:
Income before extraordinary items .............. $ 0.15 $ 0.22 $ 0.28 $ 0.45
Extraordinary items ............................ -- -- -- 0.01
------- ------- ------- -------
Net Earnings ................................ $ 0.15 $ 0.22 $ 0.28 $ 0.46
======= ======= ======= =======
Fully Diluted Earnings
Income before extraordinary items .................. $ 4,915 $ 7,163 $ 9,123 $14,955
Net interest expense related to convertible debt ... 668 975 668 1,950
------- ------- ------- -------
Income before extraordinary items
as adjusted .................................... 5,583 8,138 9,791 16,905
Extraordinary items ................................ 54 27 61 176
------- ------- ------- -------
Net earnings as adjusted .................... $ 5,637 $ 8,165 $ 9,852 $17,081
======= ======= ======= =======
Shares:
Weighted average number of common
shares outstanding .......................... 32,584 33,303 32,456 33,272
Assuming conversion of convertible debt ........ 5,213 7,188 2,622 7,188
------- ------- ------- -------
Weighted average number of common
shares outstanding as adjusted .............. 37,797 40,491 35,078 40,460
======= ======= ======= =======
Fully diluted earnings per common share:
Income before extraordinary items .............. $ 0.15 $ 0.20 $ 0.28 $ 0.42
Extraordinary items ............................ -- -- -- --
------- ------- ------- -------
Net earnings ................................ $ 0.15 $ 0.20 $ 0.28 $ 0.42
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 40,645
<SECURITIES> 2,400
<RECEIVABLES> 15,063
<ALLOWANCES> 353
<INVENTORY> 0
<CURRENT-ASSETS> 74,524
<PP&E> 605,092
<DEPRECIATION> 43,184
<TOTAL-ASSETS> 683,185
<CURRENT-LIABILITIES> 45,171
<BONDS> 367,229
0
0
<COMMON> 311
<OTHER-SE> 252,318
<TOTAL-LIABILITY-AND-EQUITY> 683,185
<SALES> 0
<TOTAL-REVENUES> 128,506
<CGS> 0
<TOTAL-COSTS> 97,587
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 88
<INTEREST-EXPENSE> 11,547
<INCOME-PRETAX> 24,925
<INCOME-TAX> 9,970
<INCOME-CONTINUING> 14,955
<DISCONTINUED> 0
<EXTRAORDINARY> 176
<CHANGES> 0
<NET-INCOME> 15,131
<EPS-PRIMARY> .46
<EPS-DILUTED> .42
</TABLE>
