<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-6869
------------------------
PRIME HOSPITALITY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2640625
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
700 ROUTE 46 EAST, 07004
FAIRFIELD, NEW JERSEY (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 882-1010
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------------------------------------------------------------
<S> <C>
PAR VALUE $.01 PER SHARE, COMMON STOCK NEW YORK STOCK EXCHANGE
7% CONVERTIBLE SUBORDINATED NOTES DUE 2002 NEW YORK STOCK EXCHANGE
9 1/4% FIRST MORTGAGE NOTES DUE 2006 NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Warrants to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's common stock held by
non-affiliates on February 28, 1997 based on the last sale price as reported by
the National Quotation Bureau, Inc. on that date was approximately $658,485,300,
, .
The Registrant had 39,908,230 shares of Common Stock outstanding as of
February 28, 1997.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
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 [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement prepared for the 1997 annual meeting of
shareholders are incorporated by reference into Part III of this report.
================================================================================
<PAGE> 2
References in this report to the "Company" or "Prime" are to Prime
Hospitality Corp. and its subsidiaries. EBITDA represents earnings before
extraordinary items, interest expense, provision for income taxes and
depreciation and amortization and excludes interest income on cash investments
and other income. EBITDA is used by the Company for the purpose of analyzing its
operating performance, leverage and liquidity. Hotel EBITDA represents EBITDA
generated from the operations of owned hotels. Hotel EBITDA excludes management
fee income, interest income from mortgages and notes receivable, general and
administrative expenses and other revenues and expenses which do not directly
relate to operations of owned hotels. EBITDA and Hotel EBITDA are not measures
of financial performance under generally accepted accounting principles and
should not be considered as alternatives to net income as an indicator of the
Company's operating performance or as alternatives to cash flows as a measure of
liquidity. Unless otherwise indicated, industry data is based on reports of
Smith Travel Research.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Prime is a leading national hotel company, with a portfolio of 108 hotels
containing 15,479 rooms located in 25 states and the U.S. Virgin Islands (the
"Portfolio"). Prime controls two high-quality hotel brands -- AmeriSuites(R) and
Wellesley Inns(R) -- as well as a portfolio of upscale full-service hotels. One
of the country's largest hotel owner/operators, Prime has positioned itself to
benefit significantly from favorable lodging industry fundamentals that have
prevailed in recent years. From 1994 to 1996, the Company's EBITDA has grown at
a compound annual rate of 44.0%, from $42.8 million in 1994 to $88.8 million in
1996, while recurring net income has grown at a compound annual rate of 48.7%,
from $12.8 million to $28.3 million over the same period.
The Company's strategy is to capitalize on two lodging industry trends: (i)
favorable industry fundamentals, which are producing strong earnings growth due
to the operating leverage inherent in hotel ownership and (ii) growing consumer
preferences for newer all-suite accommodations with strong brand identities.
Reflecting this strategy, the Company owns and operates 95 of the 108 hotels in
the Portfolio and holds financial or equity interests in 8 of the remaining 13
hotels managed by the Company for third parties. Furthermore, more than 85% of
the Company's capital spending in 1995 and 1996 was dedicated to the growth of
the Company's proprietary AmeriSuites and Wellesley Inns brands. Through its
focus on hotel equity ownership, the Company is benefiting from the operating
leverage inherent in the lodging industry. Through its development of
proprietary brands, the Company is positioning itself to generate additional
revenue not dependent on investment in real estate.
Prime's Portfolio is modern and well-maintained, with an average hotel age
of approximately 11 years. Over the past three years, the Company has achieved
rapid growth in the Portfolio, from 5,092 owned rooms at January 1, 1994 to
12,802 owned rooms at February 28, 1997. At the same time, the Company has
focused on brand development, with the number of Owned Hotels operated under
Prime's proprietary AmeriSuites and Wellesley Inns brands increasing from 19 of
the 41 Owned Hotels at January 1, 1994 to 68 of the 95 Owned Hotels at February
28, 1997.
The Company's hotels serve three major lodging industry segments: the
all-suites segment, under the Company's proprietary AmeriSuites brand; the
upscale full-service segment, under major national franchises; and the
limited-service segment, primarily under the Company's proprietary Wellesley
Inns brand.
All-Suites: Prime owns and operates 40 all-suite hotels under the
AmeriSuites brand name, and currently has another 45 AmeriSuites under
development, including 27 under construction. AmeriSuites are upper mid-price,
all-suite hotels containing approximately 128 suites and located primarily near
suburban commercial centers, corporate office parks and other travel
destinations, with close proximity to dining,
1
<PAGE> 3
shopping and entertainment amenities. Since January 1, 1995, AmeriSuites has
been one of the fastest growing domestic hotel chains, expanding from 13 hotels
to 40 hotels at February 28, 1997, an increase of 208%. In 1996, AmeriSuites
contributed approximately $26.0 million, or 28.6%, of the Company's Hotel
EBITDA, a percentage which the Company believes will increase significantly in
1997.
Full-Service: Prime operates 32 upscale full-service hotels with food
service and banquet facilities under franchise agreements with national hotel
brands such as Marriott, Radisson, Sheraton, Crowne Plaza, Holiday Inn and
Ramada. In 1996, the Company's full-service hotels contributed approximately
$44.5 million, or 48.9%, of the Company's Hotel EBITDA.
Limited-Service: Prime operates 36 limited-service hotels, 28 of which are
Wellesley Inns. The Company owns all of the Wellesley Inns, which compete
primarily in the mid-price segment with hotels such as Hampton Inns and La
Quinta Inns. The remaining eight limited-service hotels are operated under
franchise agreements with well-known national chains. In accordance with its
brand development strategy, the Company expects to divest a number of these
eight hotels within the next several years. In 1996, the Company's
limited-service hotels contributed approximately $20.5 million, or 22.5%, of the
Company's Hotel EBITDA.
OPERATING PERFORMANCE AND INTERNAL GROWTH
Prime seeks to achieve internal growth through the use of sophisticated
operating, marketing and financial systems at its hotels. Prime has demonstrated
its ability to operate its hotels effectively in each of its three segments,
achieving revenue per available room ("REVPAR") increases in 1996 at its
comparable AmeriSuites, full-service and limited-service hotels of 11.7%, 15.8%
and 5.2%, respectively, versus 1995 results. Management believes that: (i) the
AmeriSuites chain is positioned to benefit from increased critical mass and name
recognition resulting from the chain's rapid growth, expanded marketing
initiatives and product improvements; (ii) the upscale full-service segment,
located principally in the Northeast, is positioned to benefit from strong
regional and segment fundamentals, including significant barriers to entry; and
(iii) the Company's Wellesley Inns are positioned to benefit from a $9.0 million
renovation and reimaging program to be completed in March 1997.
The Company's emphasis on efficient operations has increased operating
margins, thus translating its top-line REVPAR growth into increased earnings for
each of its three industry segments. In 1996, gross operating profit increased
by 17.0%, 25.9% and 10.4%, respectively, for comparable AmeriSuites,
full-service and limited-service hotels, versus 1995 results. The Company
expects to further improve its operating performance in 1997 through the
implementation of a new proprietary yield management system, an enhanced central
reservations system serving the AmeriSuites and Wellesley Inns chains, digital
telecommunications conversions, improved telephone call accounting systems and
significant increases in employee training programs.
AMERISUITES EXPANSION
Prime's external growth focuses on the accelerated expansion of its
AmeriSuites brand through the construction of new AmeriSuites hotels. The
Company believes that AmeriSuites, which offers an excellent guest experience
and desirable suite accommodations at mid-scale prices, is well-positioned to
become a preeminent brand in the rapidly growing all-suites segment. Prime plans
to have 69 AmeriSuites open by the end of 1997 and 100 AmeriSuites open by the
end of 1998. At present, 40 AmeriSuites are open, with an additional 45 hotels
under development, including 27 under construction. At these levels, the Company
believes that it is approaching the critical mass necessary to begin development
of franchising programs, which would further leverage the value of its
proprietary brands.
AmeriSuites are positioned in the upper mid-price segment of the lodging
industry, competing predominantly with other mid-price and upscale brands such
as Courtyard by Marriott and Holiday Inn. The Company markets AmeriSuites as
"America's All-Suite Hotel," emphasizing superior price/value relative to
traditional mid-price hotels by focusing on the chain's spacious suites, upscale
facilities and attractive amenity package. The Company is committed to the
expansion of the AmeriSuites brand due to its attractive investment returns,
rapid stabilization, broad customer appeal and positioning in the fast-growing
all-suites segment.
2
<PAGE> 4
Management believes that the growing AmeriSuites infrastructure, consisting
of elements such as improved frequency programs, an enhanced central
reservations system, increased advertising and marketing programs and the
increased visibility from the doubling of the chain's number of hotels in the
past year will permit AmeriSuites to achieve critical mass and outperform its
older, more established competitors. Additionally, management believes that
recent product improvements such as a larger, more upscale lobby and arrival
area, standardized indoor pools in Northern climates and specially designed
business suites will continue to enhance operating performance.
Prime believes that it has access to sufficient resources to implement its
planned expansion of the AmeriSuites brand, including capital from the following
sources: (i) borrowings under the Company's $100 million Revolving Credit
Facility; and (ii) internally generated free cash flow from hotel operations.
With a significant hotel asset base, Prime also expects to seek additional debt
or equity financing or enter into sale/leaseback agreements with respect to
certain of its properties.
INDUSTRY OVERVIEW
The lodging industry as a whole has experienced five consecutive years in
which the growth in room demand has exceeded the growth in supply. In 1996,
industry-wide percentage growth in demand for hotel rooms exceeded industry-wide
percentage growth in supply of hotel rooms by 34.8% (3.1% versus 2.3%). The
excess of demand growth over supply growth in the past several years has led to
industry-wide increases in occupancy percentages and average daily rate ("ADR"),
with occupancy rising to 65.7% in 1996 from 65.1% in 1995, and ADR increasing
6.7% in 1996 over 1995 levels.
The following table was compiled from industry operating data as reported
by Smith Travel Research and highlights industry data for the United States and
the regions in which most of the Company's hotels are located: the Middle
Atlantic region, which is comprised of New Jersey, New York and Pennsylvania;
and the South Atlantic region, which is comprised of Florida, Georgia, South
Carolina, North Carolina, Virginia, West Virginia, Maryland and Delaware. The
table also includes operating data concerning the three price levels (of the
five price levels classified by Smith Travel Research) in which the Company
competes: upscale, mid-price and economy. REVPAR data was calculated by the
Company based on occupancy and ADR data supplied by Smith Travel Research.
<TABLE>
<CAPTION>
% CHANGE IN:
---------------------------------------------------------------------------------------
ROOM SUPPLY ROOM DEMAND REVPAR
--------------------------- --------------------------- ---------------------------
1994 V. 1995 V. 1996 V. 1994 V. 1995 V. 1996 V. 1994 V. 1995 V. 1996 V.
1993 1994 1995 1993 1994 1995 1993 1994 1995
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States.................. 1.4% 1.6% 2.3% 4.7% 3.0% 3.1% 7.3% 6.1% 7.8%
BY REGION:
Middle Atlantic................ 0.4 1.1 1.0 4.0 1.2 3.3 10.5 5.8 10.1
South Atlantic................. 1.1 1.3 2.0 3.2 3.6 3.3 4.9 6.9 7.9
BY SERVICE (PRICE LEVEL):
Upscale........................ 2.0 1.9 3.4 3.8 2.6 3.4 5.0 4.7 5.4
Mid-Price...................... 2.0 2.4 3.3 4.2 3.8 3.3 5.5 5.9 6.7
Economy........................ 1.1 2.0 2.3 2.6 3.0 2.4 5.0 6.2 6.7
</TABLE>
3
<PAGE> 5
PRIME'S LODGING OPERATIONS
The following table sets forth information with respect to the Owned Hotels
and Managed Hotels as of February 28, 1997:
<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED(1) INTEREST(2) OTHER MANAGED TOTAL
---------------- --------------- --------------- ----------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All-Suites:
AmeriSuites.................. 40 5,012 0 0 0 0 40 5,012
Full-Service:
Marriott..................... 1 517 0 0 1 525 2 1,042
Radisson..................... 3 627 0 0 0 0 3 627
Sheraton..................... 3 589 0 0 0 0 3 589
Crowne Plaza................. 3 717 0 0 0 0 3 717
Holiday Inn.................. 2 390 3 690 0 0 5 1,080
Ramada....................... 8 1,256 3 672 1 125 12 2,053
Howard Johnson............... 1 210 1 116 1 115 3 441
Independent.................. 1 149 0 0 0 0 1 149
------ ----- ----- --- ------
-- - -
Total Full-Service... 4,455 1,478 765 32 6,698
22 7 3
Limited-Service:
Wellesley Inn................ 28 2,823 0 0 0 0 28 2,823
Howard Johnson............... 4 372 1 149 2 285 7 806
Other........................ 1 140 0 0 0 0 1 140
------ ----- ----- --- ------
-- - -
Total
Limited-Service.... 3,335 149 285 36 3,769
33 1 2
------ ----- ----- --- ------
-- - -
Total........... 12,802 1,627 1,050 108 15,479
95 8 5
====== ===== ===== === ======
== = =
</TABLE>
- ---------------
(1) Of the 95 Owned Hotels, 14 are operated under lease agreements. The leases
covering the Company's leased hotels provide for fixed lease rents and, in
most instances, additional percentage rents based on a percentage of room
revenues. The leases also generally require the Company to pay the cost of
repairs, insurance and real estate taxes. In addition, some of the Company's
Owned Hotels are located on land subject to long-term leases, generally for
terms in excess of the depreciable lives of the improvements.
(2) Eight Managed Hotels in which the Company holds a mortgage or profit
participation on the property.
4
<PAGE> 6
The following table sets forth the location of the Company's hotels as of
February 28, 1997:
<TABLE>
<CAPTION>
MANAGED WITH
FINANCIAL
OWNED INTEREST OTHER MANAGED TOTAL
----------------- ---------------- ---------------- -----------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona................ 1 118 -- -- -- -- 1 118
Arkansas............... 1 130 -- -- -- -- 1 130
California............. -- -- -- -- 1 96 1 96
Connecticut............ 4 589 -- -- -- -- 4 589
Florida................ 23 2,551 -- -- 1 115 24 2,666
Georgia................ 6 803 -- -- 1 189 7 992
Illinois............... 3 369 -- -- -- -- 3 369
Indiana................ 1 126 -- -- -- -- 1 126
Kansas................. 1 126 -- -- -- -- 1 126
Kentucky............... 1 123 -- -- -- -- 1 123
Maryland............... 1 128 -- -- 1 525 2 653
Michigan............... 1 128 -- -- -- -- 1 128
Minnesota.............. 1 128 -- -- -- -- 1 128
Nevada................. 2 350 -- -- -- -- 2 350
New Jersey............. 17 2,674 7 1,489 1 125 25 4,288
New York............... 8 941 -- -- -- -- 8 941
North Carolina......... 2 254 -- -- -- -- 2 254
Ohio................... 4 508 -- -- -- -- 4 508
Oklahoma............... 1 128 -- -- -- -- 1 128
Oregon................. 1 161 -- -- -- -- 1 161
Pennsylvania........... 2 377 1 138 -- -- 3 515
South Carolina......... 1 111 -- -- -- -- 1 111
Tennessee.............. 4 507 -- -- -- -- 4 507
Texas.................. 5 640 -- -- -- -- 5 640
U.S. Virgin Islands.... 1 517 -- -- -- -- 1 517
Virginia............... 3 315 -- -- -- -- 3 315
------ ----- ----- --- ------
-- - -
Total........ 12,802 1,627 1,050 108 15,479
95 8 5
====== ===== ===== === ======
== = =
</TABLE>
5
<PAGE> 7
The following table sets forth for the five years ended December 31, 1996
operating data for the hotels in the Company's portfolio as of December 31,
1996. Operating data for the Owned Hotels built or acquired during the period
are presented from the dates such hotels commenced operations or became Owned
Hotels. For purposes of showing operating trends, the results of the Frenchman's
Reef, which were impacted by hurricane damage, have been excluded from the
table. For purposes of showing operating trends, the results of 25 Owned Hotels
that were managed by the Company prior to their acquisition by the Company are
presented as if they had been Owned Hotels from the dates the Company began
managing the hotels.
<TABLE>
<CAPTION>
MANAGED WITH
OWNED FINANCIAL INTEREST OTHER MANAGED TOTAL
--------------------------- --------------------------- --------------------------- ---------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS
--------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992.................. 55 7,087 9 1,747 2 650 66
1993.................. 59 7,576 9 1,747 3 765 71
1994.................. 66 8,642 9 1,747 5 1,050 80
1995.................. 74 9,616 9 1,747 5 1,050 88
1996.................. 90 11,645 9 1,747 5 1,050 104
<CAPTION>
ROOMS
------
<S> <C> <C>
1992.................. 9,484
1993.................. 10,088
1994.................. 11,439
1995.................. 12,413
1996.................. 14,442
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR OCCUPANCY
--------- ------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992.................. 69.2% $56.04 $38.75 70.7% $58.50 $41.33 64.9% $87.81 $56.96 69.2%
1993.................. 71.4 57.11 40.77 72.9 60.72 44.26 64.9 86.91 56.41 71.2
1994.................. 69.9 60.59 42.35 72.1 66.42 47.88 68.2 73.66 50.27 70.1
1995.................. 69.6 64.26 44.70 73.5 69.55 51.09 70.5 77.58 54.71 70.2
1996.................. 69.6 70.39 48.97 75.6 73.92 55.88 76.9 83.06 63.83 71.0
<CAPTION>
ADR REVPAR
------ ------
<S> <C> <C>
1992.................. $58.58 $40.51
1993.................. 59.63 42.48
1994.................. 62.84 44.05
1995.................. 66.28 46.54
1996.................. 71.99 51.08
</TABLE>
All-Suite Hotels
The Company currently owns 40 AmeriSuites hotels and has 45 AmeriSuites
hotels under development, including 27 under construction. Prime plans to have
69 AmeriSuites open by the end of 1997 and 100 AmeriSuites open by the end of
1998. AmeriSuites are all-suites, upper mid-price hotels which offer guests an
attractively designed suite with a complimentary continental breakfast in a
spacious lobby cafe, remote-control cable television, fully-equipped business
centers, fitness centers and pool facilities. The hotels provide group meeting
space, but do not include restaurant or lounge facilities. AmeriSuites attract
customers principally because of the quality of the guest suites, which offer
distinct living, sleeping and kitchen areas and the consistency of product
quality. AmeriSuites hotels also offer business suites marketed under the name
"TCB (Taking Care of Business) Suites." TCB Suites were developed specifically
for the business traveler and feature a well-equipped in-suite office including
an oversized desk with executive chair, dual phone lines, easy chair and
ottoman, in addition to voice mail, data ports and other amenities. Each
AmeriSuites contains approximately 128 suites, including 24 TCB Suites, and two
to four meeting rooms. AmeriSuites are primarily located near suburban
commercial centers, corporate office parks and other travel destinations, with
close proximity to dining, shopping and entertainment amenities. The target
customer is primarily the business traveler, with an average length of stay of
two to three nights, and leisure or weekend travelers. AmeriSuites are marketed
primarily through direct sales, national marketing programs and a central
reservation system.
On January 31, 1997, the Company converted its central reservation system
for its AmeriSuites and Wellesley Inns brands to a new system developed and
operated by Anasazi Travel Resources, Inc. The new reservation system will
broaden access to travel agents through additional global distribution systems
and immediately increased the number of agent terminals by 23%. Through a
real-time interface connecting the hotels with the central reservation system
and global distribution systems, the Company will be able to swiftly implement
marketing and yield management strategies. Additionally, the system will provide
the Company with detailed guest history data for new marketing initiatives such
as frequent traveler programs. The system also has the capability to provide
automatic linkage with other reservation systems which may facilitate new
marketing alliances with strategic partners.
The Company believes it has outlined a comprehensive strategy for the rapid
development of the AmeriSuites brand while maintaining control of the
development process.
6
<PAGE> 8
Detailed Site Selection. The Company undertakes an extensive review
process in selecting sites for new AmeriSuites. Key factors in the selection of
sites include close proximity to demand generators, superior visibility, ease of
access and nearby guest amenities. Sites are initially identified with the
assistance of a nationwide network of brokers. Once identified, the Company
qualifies the sites before entering into a letter of intent. After a letter of
intent is signed, the Company assesses the feasibility of the sites, which
includes extensive reconnaissance by the Company's operations and sales and
marketing staffs as well as independent consultants. Upon satisfactory
completion of economic feasibility, the Company will enter into a contract for
the site and commence legal, engineering and environmental due diligence. The
entire process, from site selection to completion of construction and opening,
takes approximately 18 months.
Suburban Market Focus. The Company believes that suburban markets offer a
number of features which permit the rapid expansion of AmeriSuites. As opposed
to major metropolitan markets, suburban markets offer ample land to construct
new hotels. More importantly, the Company believes that suburban locations
appeal to multiple demand generators. In addition to the business traveler, who
is the target customer for AmeriSuites, the weekend/leisure traveler is
attracted by the close proximity to nearby dining, shopping and entertainment
amenities.
Cluster Strategy. The Company intends to expand into new regions by first
developing hotels in cities which it has targeted as "key" cities. The Company
will then add additional hotels in that region in cities which are logical
destinations from the "key" cities. This strategy permits the Company to quickly
build brand recognition of AmeriSuites in a particular region. Key cities where
AmeriSuites are open or under development include Atlanta (7), Chicago (6),
Miami/Ft. Lauderdale (5), Dallas/Ft. Worth (5) and Denver (3).
The following table sets forth for the five years ended December 31, 1996
certain data with respect to AmeriSuites hotels, all of which are owned by the
Company. Operating data for the hotels built during the period are presented
from the dates such hotels commenced operations. For purposes of showing
operating trends, comparable data has also been presented for the AmeriSuites
hotels which have been in operation for all of 1995 and 1996.
<TABLE>
<CAPTION>
COMPARABLE TOTAL
------------------------------- -------------------------------
HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
1992......................... 6 749 6 749
1993......................... 8 993 8 993
1994......................... 12 1,494 12 1,494
1995......................... 12 1,494 19 2,319
1996......................... 12 1,494 35 4,348
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1992......................... 60.0% $54.99 $32.97 60.0% $54.99 $32.97
1993......................... 64.1 56.21 36.01 64.1 56.21 36.01
1994......................... 65.9 59.90 39.50 65.9 59.90 39.50
1995......................... 68.5 65.70 45.03 67.2 65.45 43.98
1996......................... 70.9 70.90 50.28 65.6 72.12 47.28
</TABLE>
The Company believes that the all-suites segment will continue to be a high
growth segment of the industry. During the 1992-1996 period, demand for
all-suites rooms grew at more than triple the rate of demand growth experienced
by the lodging industry as a whole, and exceeded all-suites supply growth by
17.7%. The operating performance of the AmeriSuites hotels is benefiting from
this favorable trend. For the 12 owned AmeriSuites hotels which were open for
all of 1996 and 1995, REVPAR increased by 11.7% during 1996.
The Company plans to develop the AmeriSuites brand primarily through new
construction to assure product consistency and quality. The average age of the
AmeriSuites hotels as of February 28, 1997 was approximately three years. The
Company believes that AmeriSuites provide attractive investment returns due
7
<PAGE> 9
to their reasonable cost and rapid stabilization rate. In 1996, AmeriSuites
which were in operation for at least one year generated an average EBITDA of
$1.26 million, representing an average unleveraged 18.1% return on total
invested capital. The Company believes that returns from AmeriSuites development
have generally equaled or exceeded those prevalent in the hotel acquisition
markets. Since January 1, 1996 the Company has opened 21 new AmeriSuites hotels,
bringing the number of AmeriSuites owned and operated by the Company to 40.
Full-Service Hotels
The Company operates 32 upscale full-service hotels with food service and
banquet facilities under franchise agreements with Marriott, Radisson, Sheraton,
Crowne Plaza, Holiday Inn, Ramada and Howard Johnson. The full-service hotels
are concentrated in the Northeast. The hotels are generally positioned along
major highways within close proximity to corporate headquarters, office parks,
airports, convention or trade centers and other major facilities. The customer
base for full-service hotels consists primarily of business travelers.
Consequently, the Company's sales force markets to companies which have a
significant number of employees traveling in the Company's operating regions who
consistently produce a high volume demand for hotel room nights. In addition,
the Company's sales force actively markets meeting and banquet services to
groups and individuals for seminars, business meetings, holiday parties and
weddings. The hotels are also marketed through national franchisor programs and
central reservation systems.
The Company's full-service hotels generally have between 150 and 300 rooms
and pool, restaurant, lounge, banquet and meeting facilities. Other amenities
include fitness rooms, room service, remote-control cable television and
facsimile services. In order to enhance guest satisfaction, the Company also has
theme concept lounges in a number of its hotels. In recent years, the Company
has received recognition from various franchisors and associations for its hotel
quality and service.
The Company owns and operates one resort hotel, the Marriott's Frenchman's
Reef Hotel (the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands. The
Frenchman's Reef is a 517-room resort hotel which includes a 421-room
eight-story building and 96 rooms in the adjacent Morningstar Beach Resort. The
Frenchman's Reef has seven restaurants, extensive convention facilities,
complete sports and beach facilities and a self-contained total energy system.
Certain of these facilities suffered hurricane damage as described in the
following paragraph. The Frenchman's Reef is marketed directly through its own
sales force in New York City and at the hotel, and through the Marriott
reservation system. The Frenchman's Reef market includes tour groups, corporate
meetings, conventions and individual vacationers.
In September 1995, the Frenchman's Reef suffered hurricane damage when
Hurricane Marilyn struck the U.S. Virgin Islands. In 1996, the Company and its
insurance carrier settled the Company's property and business interruption
insurance claim for $25.0 million. In addition, in July 1996, Hurricane Bertha
struck the island and caused further damage to the island. The Company is
currently reviewing its claim for property damage with its insurance carrier.
The Company is currently underway with plans to refurbish and upgrade the
Frenchman's Reef. In addition to hurricane-related renovations, the plan
provides for structural enhancements, redesigned guestrooms, increased banquet
and meeting space and new landscaping. The Company estimates that the cost of
refurbishment will be approximately $30.0 million. The Company has continued to
operate the hotel. However, due to the extent of the renovations and the
additional damage caused by Hurricane Bertha, the Company expects to close the
hotel around April 1, 1997 and plans to reopen the hotel in December 1997,
although there can be no assurance that the Frenchman's Reef will reopen at such
time or that the cost of refurbishment will not exceed the Company's estimate.
The Company does not believe that the closing of the Frenchman's Reef will have
a material impact on its cash flow due to the seasonality of the hotel's
operations and its business interruption insurance.
8
<PAGE> 10
The following table sets forth for the five years ended December 31, 1996,
operating data for the full-service hotels in the Company's portfolio as of
December 31, 1996. For purposes of showing operating trends, the results of the
Frenchman's Reef, which were impacted by hurricane damage, have been excluded
from the table. Operating data for the hotels built or acquired during the
period are presented from the dates such hotels commenced operations or became
Owned Hotels. For purposes of showing operating trends, the results of nine
Owned Hotels that were managed by the Company prior to their acquisition by the
Company during the five-year period are presented as if they had been Owned
Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
---------------------------- ---------------------------
HOTELS ROOMS HOTELS ROOMS
--------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
1992................... 18 3,284 28 5,532
1993................... 18 3,284 29 5,647
1994................... 19 3,639 30 6,002
1995................... 20 3,788 31 6,151
1996................... 20 3,788 31 6,151
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1992................... 66.1% $67.58 $44.64 67.5% $67.29 $45.45
1993................... 68.0 69.57 47.29 69.4 69.04 47.90
1994................... 67.2 75.31 50.64 69.0 74.31 51.27
1995................... 65.9 78.06 51.46 68.7 77.49 53.21
1996................... 69.9 85.74 59.93 72.4 83.89 60.77
</TABLE>
The Company has taken advantage of opportunities for acquisitions of
full-service hotels at attractive multiples of cash flow or at significant
discounts to replacement values. In 1996, the Company acquired the 151 room
Ramada Plaza Suites in Secaucus, NJ and repositioned the hotel as a Radisson
Suite hotel. In February 1997, the Company acquired the 150-room Holiday Inn in
Monroe Township, NJ.
The majority of the Company's repositioning efforts have been performed at
the full-service hotels. Since 1994, the Company successfully completed the
repositioning of 13 of its full-service hotels which included changing the
franchise affiliations of 6 such hotels. The Company recently completed the
repositioning of the Hasbrouck Heights, NJ Sheraton Hotel to a Crowne Plaza.
Limited-Service Hotels
The Company's limited-service hotels consist of 28 Wellesley Inns and 8
other hotels operated under franchise agreements, primarily with Howard Johnson.
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 28 Wellesley Inns owned and operated
by the Company. The acquisition provides the Company with significant new
opportunities to maximize the value of its brand.
Of the Company's 28 Wellesley Inns, 15 are located in Florida and the
remainder in the Middle Atlantic and Northeast United States. The prototypical
Wellesley Inn has 105 rooms and is distinguished by its classic stucco exterior,
spacious lobby and amenities such as pool facilities, complimentary continental
breakfast, remote control cable television and facsimile services. In connection
with the acquisition of the 16 Wellesley Inns, the Company has refurbished five
of these hotels and expects to complete renovations on nine other hotels by
March 1997 to ensure consistent product quality throughout the chain. Marketing
efforts for the Wellesley Inns chain will continue to rely heavily on direct
marketing and billboard advertising. In addition, the Wellesley Inns, along with
the Company's AmeriSuites, are marketed under the new reservation system
developed by Anasazi Travel Resources, Inc. In Florida, where the population has
grown rapidly and development opportunities continue to exist, the Company has
built a geographically concentrated group of Wellesley Inns, thereby developing
regional brand name recognition in Florida. The majority of the Florida
Wellesley Inns were constructed within the past five years.
9
<PAGE> 11
The Company's other limited-service hotels have an average of between 100
and 120 rooms and offer complimentary continental breakfast, remote control
cable television, pool facilities and facsimile services, generally with
restaurant facilities within a short distance of the hotel. They are designed to
appeal primarily to business travelers. In accordance with its strategy, the
Company expects to divest a number of these hotels within the next several
years.
The following table sets forth for the five years ended December 31, 1996
operating data for the limited-service hotels as of December 31, 1996. Operating
data for the Owned Hotels built or acquired during the period are presented from
the dates such hotels commenced operations or became Owned Hotels. For purposes
of showing operating trends, the results of 16 Owned Hotels that were managed by
the Company prior to their acquisition by the Company are presented as if they
had been Owned Hotels from the dates the Company began managing the hotels.
<TABLE>
<CAPTION>
OWNED TOTAL
------------------------------- -------------------------------
HOTELS ROOMS HOTELS ROOMS
--------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
1992........... 31 3,054 32 3,203
1993........... 33 3,299 34 3,448
1994........... 35 3,509 38 3,943
1995........... 35 3,509 38 3,943
1996........... 35 3,509 38 3,943
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR
--------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1992........... 74.7% $44.83 $33.49 74.0% $44.86 $33.21
1993........... 77.1 45.69 35.22 76.4 45.71 34.90
1994........... 73.8 47.77 35.27 73.0 47.47 34.67
1995........... 74.6 51.01 38.04 74.0 50.73 37.54
1996........... 72.6 53.13 38.59 72.7 53.43 38.87
</TABLE>
OPERATIONS
As a leading domestic hotel operating company, the Company enjoys a number
of operating advantages over other lodging companies. With 108 hotels covering a
number of price points and broad geographic regions, the Company possesses the
critical mass to support sophisticated operating, marketing and financial
systems. The Company believes that its broad array of central services permits
on-site hotel general managers to effectively focus on providing guest services,
results in economies of scale and leads to above-market hotel profit margins. As
a result of these operating strategies, the Company's hotels generated average
operating profit margins that exceeded comparable industry averages for 1995,
the most current data available from industry sources, by approximately 3% for
all-suites hotels, 16% for full-service hotels and 4% for limited-service
hotels.
The Company's operating strategy combines operating service and guidance
from its central management team with decentralized decision-making authority
delegated to each hotel's on-site management. The on-site hotel management teams
consist of a general manager and, depending on the hotel's size and market
positioning, managers of sales and marketing, food and beverage, front desk
services, housekeeping and engineering. The Company's operating objective is to
exceed guest expectations by providing quality services and comfortable
accommodations at a fair value. On-site hotel management is responsible for
efficient expense controls and uses operating standards provided by the Company.
Within parameters established in the operating and capital planning process,
on-site management possesses broad decision-making authority on operating issues
such as guest services, marketing strategies, hiring practices and incentive
programs. Each hotel's management team is empowered to take all necessary steps
to ensure guest satisfaction within established guidelines. Key on-site
personnel participate in an incentive program based on hotel revenues and
profits.
10
<PAGE> 12
The central management team is located in Fairfield, New Jersey, with an
AmeriSuites office in Atlanta, Georgia. Central management provides four major
categories of services: (i) operations management, (ii) sales and marketing
management, (iii) financial reporting and control and (iv) hotel support
services.
Operations Management. Operations management consists of the development,
implementation and monitoring of hotel operating standards and is provided by a
network of regional operating officers who are each responsible for the
operations of 10 to 30 hotels. They are supported by training, food and beverage
and human resources departments, each staffed full-time by specialized
professionals. The cornerstone of operations management is employee training,
with a staff of professionals dedicated to training in sales, housekeeping, food
service, front desk services and leadership. The Company believes these efforts
increase employee effectiveness, reduce turnover and improve the level of guest
services.
The Company's cost-effective centralized management services benefit not
only its existing operations but also provide additional opportunities for
growth and development from acquisitions. In all of the recently acquired
hotels, the Company's central management has assumed certain of the operational
responsibilities which previously had been performed by the on-site hotel
management. In addition, the Company believes it has improved operating
efficiencies for each of the hotels that it has acquired.
Sales and Marketing Management. Aggressive sales and marketing is a top
operating priority. Sales and marketing management is directed by a corporate
staff of 20 professionals, including regional marketing directors who are
responsible for each hotel's sales and marketing strategies, and the Company's
national sales group, Market Segments, Inc. ("MSI"). In cooperation with the
regional marketing staff, on-site sales management develops and implements
shortand intermediate-term marketing plans. The Company focuses on yield
management techniques, which optimize the relationship between hotel rates and
occupancies and seek to maximize profitability. The Company is in the process of
initiating a new internally developed proprietary yield management system which
will be implemented in all of the Company's hotels. In addition, the Company
assumes prominent roles in franchise marketing associations to obtain maximum
benefit from franchise affiliations. The Company's in-house creative department
develops hotel advertising materials and programs at cost-effective rates.
Complementing regional and on-site marketing efforts, MSI's marketing team
targets specific hotel room demand generators including tour operators, major
national corporate accounts, athletic teams, religious groups and others with
segment-specialized sales initiatives. MSI's primary objective is to book hotel
rooms at the Company's hotels and its secondary objective is to market its
services on a commission basis to hotels throughout the industry. Sales
activities on behalf of non-affiliated hotels increase the number of hotels
where bookings can be made to support marketing efforts and defray the costs of
the marketing organization.
Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on site.
Centralized accounting personnel produce detailed financial and operating
reports for each hotel. Additionally, central management directs budgeting and
analysis, processes payroll, handles accounts payable, manages each hotel's
cash, oversees credit and collection activities and conducts on-site hotel
audits.
Hotel Support Services. The Company's hotel support services combine a
number of technical functions in central, specialized management teams to attain
economies of scale and minimize costs. Central management handles purchasing,
directs construction and maintenance and provides design services. Technical
staff teams support each hotel's information and communication systems needs.
The technical support staff is currently implementing digital telecommunications
conversions and call accounting system upgrades in all of the Company's hotels.
Additionally, the Company directs safety/risk management activities and provides
central legal services.
REFURBISHMENT PROGRAM
The Company continuously refurbishes its Owned Hotels in order to maintain
consistent quality standards. The Company generally spends approximately 4% to
6% of hotel revenue on capital improvements at its Owned Hotels and typically
refurbishes each hotel approximately every five years. The Company
11
<PAGE> 13
believes that its Owned Hotels are in generally good physical condition, with
over half of the Owned Hotels being five years old or less. The Company
recommends the refurbishment and repair projects on its Managed Hotels although
spending amounts vary based on the plans of such hotels' owners and the
significance of the Company's interest as a mortgagee.
In addition to making normal capital improvements, the Company reviews on
an on-going basis each hotel's competitive position in the local market in order
to decide the types of product that will best meet the market's demand
characteristics. During the past three years, the Company has implemented a
program of repositioning its Owned Hotels. Repositioning a hotel generally
requires renovation and refurbishment of the exterior and interior of the
building and may result in a change of brand name. In 1994, 1995 and 1996, the
Company spent $8.9 million, $13.7 million and $16.8 million respectively, on the
repositioning of 34 of its Owned Hotels, which included changing the franchise
affiliation of 12 of such hotels. In 1996, the Company completed the
repositioning of the Hasbrouck Heights Crowne Plaza and five of the recently
acquired Wellesley Inns. The Company intends to spend approximately $7.0 million
in 1997 relating to the refurbishing of nine other recently acquired Wellesley
Inns and the Monroe Township Holiday Inn.
MORTGAGES AND NOTES RECEIVABLE
As of December 31, 1996, mortgages and notes receivable totaled $25.5
million (including the current portion) and consisted primarily of an aggregate
principal amount of $8.6 million of mortgages and notes secured by Managed
Hotels and $13.6 million of mortgages secured by hotels that are leased by the
Company from third parties. The Company has pursued a strategy of converting its
mortgage and notes receivable into cash or operating hotel assets and has
received $54.8 million in cash and added five operating hotel assets through
note settlements over the past three years. In 1996, the Company obtained
control of the 210-room Howard Johnson Hotel in Cocoa Beach, FL and the 204-room
Radisson Hotel in Fairfield, NJ by converting these mortgage notes receivable
into operating hotel assets. See Note 6 to Consolidated Financial Statements.
MANAGEMENT AGREEMENTS
As of February 28, 1996, the Company provided hotel management services to
third party hotel owners of 13 Managed Hotels. Management fees are based on
fixed percentages of the property's total revenues and incentive payments based
on certain measures of hotel income. Additional fees are also generated from the
rendering of specific services such as accounting services, construction
services, design services and sales commissions. The Company's fixed management
fee percentages range from 1.0% to 5.0% and average 3.5% of total revenues
before giving consideration to performance related incentive payments. The base
and incentive fees comprised 58.5%, or $3.9 million, of the total management and
other fees for 1996. Terms of the management agreements vary but the majority
are short-term and, therefore, there are risks associated with termination of
these agreements. Although management agreements may be terminated in connection
with a change in ownership of the underlying hotels, such risks may be limited
due to the Company's other financial interests in these hotels. The Company
holds financial interests in the form of mortgages or profit participations in 8
of the 13 Managed Hotels.
FRANCHISE AGREEMENTS
The Company enters into non-exclusive franchise licensing agreements with
franchisors, which agreements typically have a ten year term and allow the
Company to benefit from franchise brand recognition and loyalty. The
nonexclusive nature of the franchise agreement allows the Company the
flexibility to continue to develop properties with the brands that have shown
success in the past or to develop in conjunction with other brand names. This
flexibility also plays an important role in the Company's repositioning
strategy, which emphasizes proper positioning of its properties within their
respective markets to maximize their return on investment. Over the past three
years, the Company has repositioned several hotels. These repositionings include
the Portland, Oregon Crowne Plaza (formerly Howard Johnson), the Las Vegas,
Nevada Crowne Plaza (formerly Howard Johnson), the Fairfield, New Jersey
Radisson (formerly Sheraton), the Orlando, Florida Shoney's Inn (formerly Howard
Johnson), the Trevose, Pennsylvania Radisson (formerly Ramada), the Princeton,
New Jersey Holiday Inn (formerly Ramada) and the Hasbrouck Heights Crowne Plaza
12
<PAGE> 14
(formerly Sheraton) and the Secaucus, New Jersey Radisson Suite hotel (formerly
Ramada Plaza). The Company believes its relationships with numerous nationally
recognized franchisors provides significant benefits for both its existing hotel
portfolio and prospective hotel acquisitions. While the Company currently enjoys
good relationships with its franchisors, there can be no assurance that a
desirable replacement would be available if any of the franchise agreements were
to be terminated.
The franchise agreements require the Company to pay annual fees, to
maintain certain standards and to implement certain programs which require
additional expenditures by the Company such as remodeling or redecorating. The
payment of annual fees, which typically total 7% to 8% of room revenues, cover
royalties and the costs of marketing and reservation services provided by the
franchisors. Franchise agreements, when initiated, generally provide for an
initial fee in addition to annual fees payable to the franchisor.
WORKING CAPITAL
The Company has financed its operations and capital needs principally
through a combination of cash flow from operations and proceeds from debt or
equity offerings. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
SEASONALITY
The impact of seasonality on the Company as a whole is insignificant due to
the seasonal balance achieved from the geographical location of the Company's
hotel properties.
COMPETITION
The Company operates and manages hotel properties in areas that contain
numerous other hotels, some of which are affiliated with national or regional
brands. The Company competes with other hotels primarily on the basis of price,
physical facilities and customer service.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 5,800
employees. Certain of the Company's employees are covered by collective
bargaining agreements. The Company believes that relations with its employees
are good.
ENVIRONMENTAL MATTERS
The Hotels are subject to environmental regulations under Federal, state
and local laws. Certain of these laws may require a current or previous owner or
operator of real estate to clean up designated hazardous or toxic substances or
petroleum product releases affecting the property. In addition, the owner or
operator may be held liable to a governmental entity or to third parties for
damages or costs incurred by such parties in connection with the contamination.
The Company does not believe that it is subject to any material environmental
liability.
ITEM 3. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
arising in the ordinary course of its business. The Company does not believe
that it is involved in any litigation that will, individually or in the
aggregate, have a material adverse effect on its financial condition or results
of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December 31, 1996
to a vote of the security holders of the Company.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share, commenced trading on
the New York Stock Exchange (the "NYSE") on August 3, 1992 under the symbol
"PDQ." As of February 28, 1997 there were 39,908,230 shares of common stock
outstanding. In addition, warrants to purchase an aggregate of 975,707 shares of
common stock were outstanding as of February 28, 1997. The warrants are not
listed on any exchange.
The following table sets forth the reported high and low closing sales
prices of the common stock on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND/SHARE
---- --- --------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter............................................ $10 3/8 $ 7 3/8 -0-
Second Quarter........................................... 10 5/8 9 1/4 -0-
Third Quarter............................................ 11 9 1/2 -0-
Fourth Quarter........................................... 10 1/4 9 3/8 -0-
YEAR ENDED DECEMBER 31, 1996
First Quarter............................................ 13 5/8 9 5/8 -0-
Second Quarter........................................... 17 1/4 12 -0-
Third Quarter............................................ 19 7/8 16 3/8 -0-
Fourth Quarter........................................... 17 1/4 14 -0-
</TABLE>
As of February 28, 1997, the closing sales price of the common stock on the
NYSE was $16 1/2 per share, and there were approximately 2,328 holders of record
of common stock.
The Company has not declared any cash dividends on its common stock during
the two prior fiscal years and does not currently anticipate paying any
dividends on the common stock in the foreseeable future. The Company currently
anticipates that it will retain any future earnings for use in its business. The
Company is prohibited by the terms of certain debt agreements from paying cash
dividends.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY AND ITS PREDECESSOR
The Company is the successor in interest to PMI ("Prime Motor Inns, Inc."),
which emerged from chapter 11 reorganization on July 31, 1992 (the "Effective
Date"). PMI had filed for protection under chapter 11 of the United States
Bankruptcy Code in September 1990. The Company implemented "fresh start"
reporting pursuant to the Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" of the American Institute
of Certified Public Accountants, as of the Effective Date. Accordingly, the
consolidated financial statements of the Company are not comparable in all
material respects to any such financial statement as of any date or any period
prior to the Effective Date. Subsequent to the Effective Date, the Company
changed its fiscal year end from June 30 to December 31. The table below
presents selected consolidated financial data derived from: (i) the Company's
historical financial statements for the years ended December 31, 1993, 1994,
1995 and 1996, (ii) the Company's historical financial statements as of and for
the five-month period ended December 31, 1992, (iii) the Company's "fresh start"
balance sheet as of the Effective Date, and (iv) the historical consolidated
financial statements of PMI for the one month ended July 31, 1992 and for the
year ended June 30, 1992. This data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
PRE-REORGANIZATION POST-REORGANIZATION
-------------------- ------------------------------------------------------------------
AS OF AND FOR AS OF AND
FOR THE THE ONE FOR THE AS OF AND FOR
YEAR MONTH FIVE MONTHS THE YEAR ENDED
ENDED ENDED AS OF ENDED DECEMBER 31,
JUNE 30, JULY 31, JULY 31, DEC. 31, -----------------------------------------
1992(1) 1992(1) 1992(1) 1992 1993 1994 1995 1996
--------- -------- -------- ----------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................. $134,190 $ 8,793 -- $ 41,334 $108,860 $134,303 $205,628 $268,868
Valuation writedowns and
reserves..................... (62,123) (13,000) -- -- -- -- -- --
Reorganization items........... (23,194) 1,796 -- -- -- -- -- --
Income (loss) from continuing
operations before
extraordinary items(2)....... (71,965) (10,274) -- 1,393 8,175 18,258 17,465 30,914
Extraordinary items-gains on
discharge of indebtedness
(net of income taxes)........ -- 249,600 -- -- 3,989 172 104 202
Net income (loss).............. (71,965) 239,326 -- 1,393 12,164 18,430 17,569 31,116
BALANCE SHEET DATA:
Total assets................... $554,118 -- $468,650 $ 403,314 $410,685 $434,932 $573,241 $786,098
Long-term debt, net of current
portion...................... 8,921 -- 204,438 192,913 168,618 178,545 276,920 298,875
Stockholders' equity
(deficiency)................. (229,292) -- 135,600 137,782 171,364 204,065 232,916 419,895
</TABLE>
- ---------------
(1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at
which time it owned or managed 141 hotels. During its approximately two-year
reorganization, PMI restructured its assets, operations and capital
structure. On the Effective Date, the Company emerged from chapter 11
reorganization with 75 Owned or Managed Hotels, $135.6 million of
stockholders' equity and $266.4 million of total debt.
(2) Approximately $2.3 million and $28.0 million of contractual interest expense
during the one month ended July 31, 1992 and for the fiscal year ended June
30, 1992, respectively, was not accrued and was not paid due to the Chapter
11 proceeding.
15
<PAGE> 17
ITEM 6. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONTINUED)
Quarterly financial data for the years ending December 31, 1995 and 1996 is
presented as follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
JUNE
MARCH 31, 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
--------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenue.................................... $48,238 $51,703 $52,703 $ 52,984
Operating income............................... 10,600 12,058 12,141 11,012
Net income before extraordinary items.......... 4,208 4,915 4,060 4,282
Extraordinary items (net of tax)............... 7 54 12 31
Net income..................................... 4,215 4,969 4,072 4,313
Earnings per common share:
Primary:
Income before extraordinary items.............. 0.13 0.15 0.13 0.13
Extraordinary items............................ -- -- -- --
------- ------- ------- -------
Earnings per share............................. $ 0.13 $ 0.15 $ 0.13 $ 0.13
======= ======= ======= =======
Earnings per common share:
Fully diluted:
Income before extraordinary items.............. 0.13 0.15 0.13 0.13
Extraordinary items............................ -- -- -- --
------- ------- ------- -------
Earnings per share............................. $ 0.13 $ 0.15 $ 0.13 $ 0.13
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
JUNE
MARCH 31, 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenue.................................... $58,614 $69,893 $68,847 $ 71,514
Operating income............................... 14,141 16,778 16,139 15,861
Net income before extraordinary items.......... 7,792 7,163 8,095 7,864
Extraordinary items (net of tax)............... 149 27 7 19
Net income..................................... 7,941 7,190 8,102 7,883
Earnings per common share:
Primary:
Income before extraordinary items.............. 0.24 0.22 0.21 0.18
Extraordinary items............................ -- -- -- --
------- ------- ------- -------
Earnings per share............................. $ 0.24 $ 0.22 $ 0.21 $ 0.18
======= ======= ======= =======
Earnings per common share:
Fully diluted:
Income before extraordinary items.............. 0.22 0.20 0.20 0.18
Extraordinary items............................ -- -- -- --
------- ------- ------- -------
Earnings per share............................. $ 0.22 $ 0.20 $ 0.20 $ 0.18
======= ======= ======= =======
</TABLE>
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading hotel owner/operator which, as of February 28,
1997, owned or leased 95 hotels and managed 13 hotels for third parties. The
Company has a financial interest in the form of mortgages or profit
participations (primarily incentive management fees) in eight 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 strategy is to capitalize on two lodging industry trends: (i)
favorable industry fundamentals, which are producing strong earnings growth due
to the operating leverage inherent in hotel ownership and (ii) growing consumer
preferences for newer all-suite accommodations with strong brand identities.
Through its focus on hotel equity ownership, the Company is benefiting from the
operating leverage inherent in the lodging industry. Through its development of
proprietary brands, the Company is positioning itself to generate additional
revenue not dependent on investment in real estate. The Company seeks to achieve
internal growth through the use of sophisticated operating, marketing and
financial systems at its hotels. The Company's external growth focuses on the
accelerated expansion of its proprietary AmeriSuites brand through new
construction. Although future results of operations may be adversely affected in
the short term by the costs associated with the construction and acquisition of
new hotels, it is expected that this impact will be offset, after an initial
period, by revenues generated by such new hotels.
In 1996, earnings from recurring operations increased by 62.4%, reflecting
a 12.0% REVPAR increase at comparable hotels, the addition of 44 hotels
primarily through acquisition or construction over the past two years and the
impact of increased operating leverage. The Company's EBITDA increased by $29.2
million, or 49.1%, from $59.6 million in 1995 to $88.8 million in 1996, and
Hotel EBITDA increased by $35.1 million, or 62.9%, from $55.8 million in 1995 to
$90.9 million in 1996. EBITDA represents earnings before interest, taxes,
depreciation and amortization. Hotel EBITDA represents EBITDA generated from the
operations of Owned Hotels. Hotel EBITDA excludes management fee income,
interest income from mortgages and notes receivable, general and administrative
expenses and other revenues and expenses which do not directly relate to the
operations of Owned Hotels. The Company's hotels operate in three segments of
the industry: the all-suites segment, under the Company's proprietary
AmeriSuites brand; the upscale full-service segment, under major national
franchises; and the midprice limited-service segment, primarily under the
Company's proprietary Wellesley Inns brand. The following table illustrates the
Hotel EBITDA contribution from each segment (in thousands):
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
All-suites................................ $13,663 24.5% $25,987 28.6%
Full-service.............................. 30,286 54.3 44,460 48.9
Limited-service........................... 11,840 21.2 20,452 22.5
------- ----- ------- -----
Total........................... $55,789 100.0% $90,899 100.0%
======= ===== ======= =====
</TABLE>
Hotel EBITDA for 1996 reflects the shifting mix in the Company's hotel
portfolio toward its proprietary brand AmeriSuites and the acquisition of 16
Wellesley Inns in March 1996.
17
<PAGE> 19
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
COMPARED TO THE YEAR ENDED DECEMBER 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 years ended December 31, 1995 and 1996. The results of the
four 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)
--------------------- ---------------------
1995 1996 1995 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging....................................... $146,184 $198,947 $110,565 $124,164
Food and Beverage............................. 37,955 41,437 25,867 28,636
Management and Other Fees..................... 8,115 6,729
Interest on Mortgages and Notes Receivable.... 11,895 6,090
Business Interruption Insurance............... -- 13,562
Rental and Other.............................. 1,479 2,103
-------- --------
Total Revenues........................ 205,628 268,868
Direct Hotel Operating Expenses:
Lodging....................................... 38,383 51,577 29,877 31,731
Food and Beverage............................. 28,429 32,053 19,296 21,090
Selling and General........................... 49,753 61,789 34,938 37,352
Occupancy and Other Operating................... 11,763 16,833
General and Administrative...................... 15,515 17,813
Depreciation and Amortization................... 15,974 25,884
Other Expense................................... 2,200 --
Operating Income................................ 43,611 62,919
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue... 26.3% 25.9% 27.0% 25.6%
Food and Beverage, as a percentage of food and
beverage revenue........................... 74.9% 77.4% 74.6% 73.6%
Selling and General, as a percentage of
lodging and food and beverage revenue...... 27.0% 25.7% 25.6% 24.4%
Occupancy and Other Operating, as a percentage
of
lodging and food and beverage revenue......... 6.4% 7.0%
General and Administrative, as a percentage of
total revenue................................. 7.5% 6.6%
OTHER DATA(1):
Occupancy....................................... 69.0% 69.7% 69.9% 71.9%
ADR............................................. $ 65.77 $ 70.22 $ 65.40 $ 71.14
REVPAR.......................................... $ 45.41 $ 48.95 $ 45.68 $ 51.16
Gross Operating Profit.......................... $ 67,574 $ 94,965 $ 52,321 $ 62,627
</TABLE>
- ---------------
(1) For purposes of showing operating trends, the results of the Frenchman's
Reef, which were impacted by hurricane damage, and four hotels disposed of
in 1995 and 1996 have been excluded from the Other Data section of the
table. Comparable Owned Hotels refers to 46 Owned Hotels that were owned or
leased by the Company during all of 1995 and 1996 (excluding the Frenchman's
Reef).
18
<PAGE> 20
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $52.7 million, or 36.1%, from $146.2
million in 1995 to $198.9 million in 1996. Lodging revenues increased due to
incremental revenues of $52.6 million from the 44 new hotels added during 1995
and 1996 and higher revenues for comparable Owned Hotels, which increased by
$13.6 million, or 12.3%, in 1996 as compared to 1995. The revenue gains were
offset by a decrease of $13.8 million at the Frenchman's Reef attributable to
hurricane-related damage.
The Company operates in three major segments of the industry: all-suites,
full-service and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for 1996, as compared to 1995, by industry
segment:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
All-suites................................... 11.7%
Full-service................................. 15.8%
Limited-service.............................. 5.2%
Total.............................. 12.0%
</TABLE>
The REVPAR growth at comparable Owned Hotels reflects strong results in
each of the Company's industry segments. The REVPAR increases reflect the
results of several repositionings and continued favorable industry trends in the
full-service segment, and growing recognition of the AmeriSuites brand in the
fast-growing all-suites segment. The improvements in REVPAR were generated by
increases in ADR, which rose by 8.8% and gains in occupancy of 2.9%.
Food and beverage revenues increased by $3.4 million, or 9.2%, from $38.0
million in 1995 to $41.4 million in 1996. The increase was primarily due to the
strong growth at comparable hotels and additional revenues from four new hotels
in 1996. The increases were partially offset by lower food and beverage revenues
at the Frenchman's Reef, which declined by $5.1 million due to the hurricane
damage. Food and beverage revenues for comparable Owned Hotels increased by $2.8
million, or 10.7%, due to increased banquet business.
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 $1.4 million, or
17.1%, from $8.1 million in 1995 to $6.7 million in 1996, primarily due to the
conversions of Managed Hotels into Owned Hotels. Partially offsetting these
decreased management fees were increased base and incentive management fees
associated with the remaining Managed Hotels and increased revenues generated by
MSI.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
decreased by $5.8 million, or 48.8%, from $11.9 million in 1995 to $6.1 million
in 1996, primarily due to conversions of notes receivable into operating hotel
assets or cash in 1995 and 1996.
Business interruption insurance revenue of $13.6 million in 1996 is based
on the settlement of the Company's claim related to the hurricane damage caused
by Hurricane Marilyn in September 1995 at the Frenchman's Reef. The Company is
currently preparing a claim under its business interruption insurance with
respect to Hurricane Bertha, which caused damage to the hotel in July 1996.
Direct lodging expenses increased by $13.2 million, or 34.4%, from $38.4
million in 1995 to $51.6 million in 1996, due primarily to the addition of new
hotels. Direct lodging expenses, as a percentage of lodging revenue, decreased
from 26.3% in 1995 to 25.9% in 1996. This decrease was primarily due to
increases in ADR which had minimal corresponding increases in expenses. For
comparable Owned Hotels, direct lodging expenses as a percentage of lodging
revenues decreased from 27.0% in 1995 to 25.6% in 1996.
Direct food and beverage expenses increased by $3.7 million, or 12.7%, from
$28.4 million in 1995 to $32.1 million in 1996, due to the increased revenues at
comparable hotels and the addition of four full-service
19
<PAGE> 21
hotels in 1996. As a percentage of food and beverage revenues, direct food and
beverage expenses increased from 74.9% in 1995 to 77.4% in 1996, due to lower
margins at the Frenchman's Reef attributable to the hurricane damage. For
comparable Owned Hotels, direct food and beverage expenses as a percentage of
food and beverage revenue decreased from 74.6% in 1995 to 73.6% in 1996,
primarily due to the higher margins associated with the increased banquet
business.
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 $12.0 million, or 24.2%, from $49.8 million in 1995 to $61.8
million in 1996, 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 27.0% in 1995 to 25.7% in 1996 due
primarily to the impact of the increases in ADR. For comparable Owned Hotels,
direct selling and general expenses as a percentage of revenues decreased from
25.6% in 1995 to 24.4% in 1996 due primarily to the ADR increases.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. Occupancy and other operating expenses
increased by $5.0 million, or 43.1%, from $11.8 million in 1995 to $16.8 million
in 1996 due to the addition of new hotels, including several leased hotels.
Occupancy and other operating expenses as a percentage of hotel revenues
increased from 6.4% in 1995 to 7.0% in 1996 due to rent expense associated with
the new leased hotels.
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 $2.3 million, or 14.8%, from $15.5 million in 1995 to
$17.8 million in 1996, due to increased advertising, personnel and training
costs associated with opening the new AmeriSuites hotels. As a percentage of
total revenues, general and administrative expenses decreased from 7.5% in 1995
to 6.6% in 1996 due to operating leverage.
Depreciation and amortization expense increased by $9.9 million, or 62.0%,
from $16.0 million in 1995 to $25.9 million in 1996, due to the impact of new
hotel properties and refurbishment efforts at several hotels.
Other expense of $2.2 million for 1995 consisted of a reserve for insurance
deductibles related to hurricane damage caused by Hurricane Marilyn at the
Frenchman's Reef hotel in St. Thomas, U.S. Virgin Islands.
Investment income decreased by $251,000, or 5.2%, from $4.9 million in 1995
to $4.6 million in 1996, due to lower weighted average cash balances in 1996.
Interest expense decreased by $1.3 million, or 6.0%, from $21.6 million in
1995 to $20.3 million in 1996, primarily due to capitalized interest related to
new AmeriSuites construction. Capitalized interest increased by $4.9 million
from $2.6 million in 1995 to $7.5 million in 1996. The decrease in interest
expense was partially offset by interest associated with higher average
borrowings in 1996.
Other income consists of items which are not part of the Company's
recurring operations. For 1996, other income consisted of gains on the sales of
land and hotel properties of $2.5 million and a gain on the settlement of a note
receivable of $1.8 million. Other income for 1995 consisted of a gain on the
settlement of a note receivable of $822,000 and gains on property sales of $1.4
million.
Pretax extraordinary gains of approximately $174,000 and $337,000 for 1995
and 1996 relate to the retirement of debt.
20
<PAGE> 22
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
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 years ended December 31, 1995 and 1994. The results of the
four hotels divested during 1994 and 1995 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)
--------------------- ---------------------
1994 1995 1994 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging....................................... $ 88,753 $146,184 $ 76,604 $ 83,190
Food and Beverage............................. 18,090 37,955 13,601 13,299
Management and Other Fees..................... 10,021 8,115
Interest on Mortgages and Notes Receivable.... 15,867 11,895
Rental and Other.............................. 1,572 1,479
-------- --------
Total Revenues........................ 134,303 205,628
Direct Hotel Operating Expenses:
Lodging....................................... 25,490 38,383 20,722 21,908
Food and Beverage............................. 13,886 28,429 10,634 10,467
Selling and General........................... 27,244 49,753 23,009 24,338
Occupancy and Other Operating................... 9,799 11,763
General and Administrative...................... 15,089 15,515
Depreciation and Amortization................... 9,427 15,974
Other Expense................................... -- 2,200
Operating Income................................ 33,368 43,611
OPERATING EXPENSE MARGINS:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue... 28.7% 26.3% 27.1% 26.3%
Food and Beverage, as a percentage of food and
beverage revenue........................... 76.8% 74.9% 78.2% 78.7%
Selling and General, as a percentage of
lodging and food and beverage revenue...... 25.5% 27.0% 25.5% 25.2%
Occupancy and Other Operating, as a percentage
of
lodging and food and beverage revenue......... 9.2% 6.4%
General and Administrative, as a percentage of
total revenue.............................. 11.2% 7.5%
OTHER DATA:
Occupancy....................................... 68.0% 69.2% 70.4% 72.3%
ADR............................................. $ 60.36 $ 73.28 $ 59.92 $ 63.97
REVPAR.......................................... $ 41.04 $ 50.71 $ 42.21 $ 46.22
Gross Operating Profit.......................... $ 40,223 $ 67,605 $ 35,824 $ 39,926
</TABLE>
- ---------------
(1) For purposes of this discussion of results of operations, comparable Owned
Hotels refers to the 37 Owned Hotels that were owned or leased by the
Company during all of 1994 and 1995.
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $57.4 million, or 64.7%, from $88.8
million in 1994 to $146.2 million in 1995. The increase was due to $52.1 million
of lodging revenues generated by the conversion of the Company's interest in the
Frenchman's Reef from a mortgage note receivable to a hotel asset and the 19 new
hotels added during
21
<PAGE> 23
1994 and 1995, with the balance coming from growth in revenues at comparable
Owned Hotels. Lodging revenues for comparable Owned Hotels increased by $6.6
million, or 8.6%, in 1995 as compared to 1994.
The Company operates in three major segments of the industry: all-suites,
full-service and limited-service. The following table sets forth the growth in
REVPAR at the comparable Owned Hotels for 1995, as compared to 1994, by industry
segment:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
All-suites................................... 11.9%
Full-service................................. 8.7%
Limited-service.............................. 9.2%
Total.............................. 9.5%
</TABLE>
The REVPAR growth at comparable Owned Hotels reflects strong results in
each of the Company's industry segments. Repositioning efforts at both
full-service and limited-service hotels also contributed to the REVPAR
increases. The improvements in REVPAR were generated by increases in ADR, which
rose by 6.8% and gains in occupancy of 2.7%.
Food and beverage revenues increased by $19.9 million, or 109.8%, from
$18.1 million in 1994 to $38.0 million in 1995. The increase was primarily due
to the additional food and beverage operations related to the Frenchman's Reef
and six other full-service hotels acquired since January 1, 1994. Food and
beverage revenues for comparable Owned Hotels decreased by $302,000 in 1995
compared to 1994. The decrease was primarily due to decreased banquet business
and lower beverage revenues at the Company's sports lounges.
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, MSI.
Management and other fees decreased by $1.9 million, or 19.0%, from $10.0
million in 1994 to $8.1 million in 1995. The decrease was primarily due to the
loss of management fees on five Managed Hotels acquired by the Company during
1994 and 1995 and six additional hotels which were sold by a third party hotel
owner in 1994. Partially offsetting these decreased management fees were
increased base and incentive management fees associated with the remaining
Managed Hotels and increased revenues generated by MSI.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
decreased by $4.0 million, or 25.0%, from $15.9 million in 1994 to $11.9 million
in 1995, primarily due to the Company's conversion of a $50.0 million note
receivable secured by the Frenchman's Reef into an operating hotel asset in
December 1994. Partially offsetting the decrease was interest income related to
the purchase of $17.4 million of first mortgages secured by two hotels for $12.7
million in June 1995.
Direct lodging expenses increased by $12.9 million, or 50.6%, from $25.5
million in 1994 to $38.4 million in 1995, due primarily to the addition of new
hotels. Direct lodging expenses, as a percentage of lodging revenue, decreased
from 28.7% in 1994 to 26.3% in 1995. This decrease was primarily due to
increases in ADR which had minimal corresponding increases in expenses. For
comparable Owned Hotels, direct lodging expenses as a percentage of lodging
revenues decreased from 27.1% in 1994 to 26.3% in 1995.
Direct food and beverage expenses increased by $14.5 million, or 104.7%,
from $13.9 million in 1994 to $28.4 million in 1995, primarily due to the
addition of seven new full-service hotels. As a percentage of food and beverage
revenues, direct food and beverage expenses decreased from 76.8% in 1994 to
74.9% in 1995. The decrease was primarily due to increased revenues in higher
margin areas such as banquet departments at the new hotels. For comparable Owned
Hotels, direct food and beverage expenses as a percentage of food and beverage
revenue increased slightly from 78.2% in 1994 to 78.7% in 1995.
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 $22.6
22
<PAGE> 24
million, or 82.6%, from $27.2 million in 1994 to $49.8 million in 1995, 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 increased from 25.5% in 1994 to 27.0% in 1995 due to the
addition of new full-service properties which generally require higher levels of
unallocated expenses. For comparable Owned Hotels, direct selling and general
expenses as a percentage of revenues decreased slightly from 25.5% in 1994 to
25.2% in 1995.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. Occupancy and other operating expenses
increased by $2.0 million, or 20.0%, from $9.8 million in 1994 to $11.8 million
in 1995 as the additional costs associated with the new hotels were offset by
real estate tax refunds of approximately $600,000 during the year. As a
percentage of hotel revenues, occupancy and other operating expenses decreased
from 9.2% in 1994 to 6.4% in 1995, 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 Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $426,000, or 2.8%, from $15.1 million in 1994 to $15.5
million in 1995, due to ordinary inflationary increases which were partially
offset by central office payroll reductions. As a percentage of total revenues,
general and administrative expenses decreased from 11.2% in 1994 to 7.5% in 1995
due to operating leverage.
Other expense of $2.2 million for the year ended December 31, 1995 consists
of a reserve for insurance deductibles related to damage caused by Hurricane
Marilyn at the Frenchman's Reef.
Depreciation and amortization expense increased by $6.6 million, or 69.4%,
from $9.4 million in 1994 to $16.0 million in 1995, due to the impact of new
hotel properties acquired in the past year and refurbishment efforts at several
hotels.
Interest expense increased by $7.6 million, or 54.4%, from $14.0 million in
1994 to $21.6 million in 1995, primarily due to new mortgage borrowings of $39.0
million incurred in February 1995 and $86.3 million of 7% Convertible
Subordinated Notes due 2002 (the "Convertible Notes") issued in April 1995.
Investment income increased by $2.9 million from $2.0 million in 1994 to $4.9
million in 1995 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. For the year ended December 31, 1995, other income
consisted of a gain on the settlement of a note receivable of $822,000 and gains
on the sale of land parcels of $1.4 million. Other income for the year ended
December 31, 1994 consisted primarily of a gain on the settlement of the Rose
and Cohen note receivable of $6.4 million, gains on property sales of $1.1
million and rebates of prior years' insurance premiums of $1.6 million.
Pretax extraordinary gains of approximately $174,000 for the year ended
December 31, 1995 relate to the retirement of secured notes with a face value of
$22.2 million. Pretax extraordinary gains of approximately $292,000 for the year
ended December 31, 1994 relate to the retirement of debt with a face value of
$8.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Prime's external growth focuses on the accelerated expansion of its
AmeriSuites brand through new construction. As of February 28, 1997, Prime had
40 AmeriSuites in operation and plans to have 69 AmeriSuites hotels open by the
end of 1997 and 100 AmeriSuites open by the end of 1998.
Prime believes that it has access to sufficient resources to implement its
planned expansion of the AmeriSuites brand, including capital from the following
sources: (i) borrowings under the Company's $100 million Revolving Credit
Facility; and (ii) internally generated free cash flow from hotel operations.
With a significant hotel asset base, Prime also expects to seek additional debt
or equity financing or enter into sale/leaseback agreements with respect to
certain of its properties.
23
<PAGE> 25
At December 31, 1996, the Company had cash, cash equivalents and current
marketable securities of $16.2 million. At December 31, 1996, the Company had
$87.5 million available under the Revolving Credit Facility, of which $47.5
million was borrowed as of February 28, 1997. As of February 28, 1997, the
Company had $40.0 million available under the Revolving Credit Facility.
The Company's major sources of cash for 1996 were net proceeds of
approximately $115.5 million from the issuance of the $120.0 million First
Mortgage Notes in January 1996, gross borrowings under the Revolving Credit
Facility of $52.5 million, net proceeds of $141.4 million from the issuance of
8.3 million shares of Common Stock and cash flow from operations of $65.9
million. The Company's major uses of cash during the period were capital
expenditures relating primarily to acquisitions and development of $286.5
million and debt repayments of $184.7 million, including repayments of $40.0
million under the Revolving Credit Facility.
Cash flow from operations was $65.9 million in 1996 as compared to $38.6
million in 1995. Cash flow from operations was positively impacted by the
utilization of net operating loss carryforwards ("NOLs") and other tax basis
differences of $11.8 million in 1996 and $9.5 million in 1995, respectively. At
December 31, 1996, the Company had federal NOLs relating to its predecessor,
Prime Motor Inns, Inc. ("PMI"), of approximately $90.7 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 utilized the net proceeds
from the offering of approximately $141.4 million to fund AmeriSuites
development, to reduce indebtedness of $40.0 million under the Revolving Credit
Facility and to repay certain other indebtedness of $26.7 million, thereby
increasing availability for further AmeriSuites development.
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 or 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 or
substituted subject to the approval of the lenders. The Revolving Credit
Facility bears interest at LIBOR plus 2.25% and is available through June 2001.
The Revolving Credit Facility contains covenants requiring the Company to
maintain certain financial ratios and also contains covenants which limit the
incurrence and payment of debt, liens, dividend payments, stock repurchases,
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 December 31, 1996, the Company
had borrowed $12.5 million under the Revolving Credit Facility. The Company
borrowed an additional $47.5 million through February 28, 1997 and has borrowing
availability of approximately $40.0 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. The
loans were due in February 2000 and bore interest at LIBOR plus 4.25%. The
hotels formerly used as collateral for this debt were added to the collateral
for the Revolving Credit Facility.
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.
In January 1996, the Company issued $120.0 million of 9 1/4% First Mortgage
Notes due 2006. 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, liens, dividend
24
<PAGE> 26
payments, certain investments, transactions with affiliates, asset sales and
mergers and consolidations. The 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 purchase of the Wellesley
Inns described below and the development of AmeriSuites hotels.
During 1996, the Company prepaid and retired $1.4 million of its 10% Senior
Secured Notes resulting in pre-tax extraordinary gains of $151,000. The Company
also retired $2.4 million of mortgage debt in conjunction with the sale of a
hotel which resulted in a pre-tax extraordinary gain of $186,000.
As of December 31, 1996, the Company had $13.9 million of debt related to
the Frenchman's Reef which was originally scheduled to mature in December 1996.
The Company and the lender entered into an agreement to extend the maturity of
the loan to January 1998. The amended loan bears interest at the same rate
currently in effect and principal payments were waived until maturity. All other
terms and conditions of the loan remained in effect. The Company is currently in
negotiation to obtain new financing in connection with the refurbishment plans
at the Frenchman's Reef.
In October 1996, the Company entered into a six-month interest rate
contract with a major financial institution to hedge its interest rate exposure
on the anticipated financing of its development program in 1997. Under the
agreement, the Company effectively fixed interest rates for approximately seven
years at a Treasury yield of 6.4% on a $98.4 million notional principal amount.
Capital Investments. The Company's capital spending in 1996 was focused on
the development of its AmeriSuites hotel chain and the consolidation of
ownership of its Wellesley Inns chain. In 1996, the Company spent $184.6 million
on new construction and $69.4 million on acquisitions funded primarily by
existing cash balances, internally generated cash flow, the issuance of Common
Stock and proceeds from borrowings under the Revolving Credit Facility and the
issuance of the First Mortgage Notes.
The Company intends to rapidly expand its AmeriSuites chain through new
construction. The Company has opened 21 new AmeriSuites hotels since January 1,
1996 bringing the total to 40 hotels as of February 28, 1997. The Company plans
to have 69 AmeriSuites open by the end of 1997 and 100 AmeriSuites open by the
end of 1998. As of February 28, 1997, the Company had 45 AmeriSuites hotels
under development, including 27 under construction. The Company expects to spend
a total of approximately $300 million on development of new AmeriSuites hotels
in each of 1997 and 1998.
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. Subsequently, the Company sold two of the Wellesley Inns, which were
converted to another brand affiliation, and the two other limited-service
hotels, which were not consistent with the Company's strategy, for aggregate
proceeds of $11.4 million. The acquisition enabled the Company to establish full
control over its proprietary Wellesley Inns brand with all 28 Wellesley Inns
owned and operated by the Company. In order to ensure consistent quality and
enhance the value of its brand, the Company refurbished five of these acquired
hotels in 1996 and expects to complete the renovation of nine other acquired
Wellesley Inns hotels by March 1997 at a total renovation cost for 1996 and 1997
of approximately $9.0 million.
In September 1996, the Company acquired the Ramada Plaza Suite Hotel in
Secaucus, NJ, which was repositioned as a Radisson Suite Hotel. The acquisition
price of $16.5 million included the assumption of $12.2 million of debt. In
February 1997, the Company acquired a Holiday Inn in Monroe Township, NJ for
$11.2 million in cash. The Company may from time to time acquire full-service
hotels having operating synergies with other Company hotels, although no such
acquisitions are currently pending.
During 1996, the Company spent approximately $30.8 million on capital
improvements at its Owned Hotels, of which approximately $16.8 million related
to refurbishments and repositionings of recently acquired hotels. In 1996, the
Company completed the refurbishment and repositioning of the Hasbrouck Heights,
NJ, Crowne Plaza, the Las Vegas St. Tropez Hotel and five of the recently
acquired Wellesley Inns. The Company
25
<PAGE> 27
intends to spend approximately $7.0 million in 1997 relating to the refurbishing
of nine other recently acquired Wellesley Inns and the Monroe Township Holiday
Inn.
In September 1995, the Frenchman's Reef in St. Thomas U.S. Virgin Islands
suffered damage when Hurricane Marilyn struck the island. The Company and its
insurance carrier settled the Company's property and business interruption
insurance claim with respect to Hurricane Marilyn 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 utilized all insurance
proceeds to reduce the Frenchman's Reef mortgage loan to $13.9 million. In
addition, in July 1996, Hurricane Bertha struck the island and caused further
damage to the hotel. The Company is currently reviewing its claim for property
damage with its insurance carrier and is in the process of preparing a claim
under its business interruption insurance.
The Company is currently underway with plans to refurbish and upgrade the
Frenchman's Reef. In addition to hurricane-related renovations, the plan
provides for structural enhancements, redesigned guestrooms, increased banquet
and meeting space and new landscaping. The Company estimates that the cost of
refurbishment will be approximately $30.0 million. The Company has continued to
operate the hotel. However, due to the extent of the renovations and the
additional damage caused by Hurricane Bertha, the Company expects to close the
hotel around April 1, 1997 and plans to reopen the hotel in December 1997,
although there can be no assurance that the Frenchman's Reef will reopen at such
time or that the cost of refurbishment will not exceed the Company's estimate.
The Company does not believe the closing of the Frenchman's Reef will have a
material impact on its cash flow due to the seasonality of the hotel's
operations and its business interruption insurance coverage.
In order to facilitate future tax-free exchanges of hotel properties, the
Company from time to time enters into arrangements with an unaffiliated third
party under Section 1031 of the Internal Revenue Code of 1986, as amended. As of
February 28, 1997, the Company had advanced approximately $22.0 million to such
third party which advances are classified as property, equipment and leasehold
improvements.
Asset Realizations. The Company has pursued a strategy of converting
mortgage notes receivable and other assets into cash or operating hotel assets.
During 1996, the Company received $7.9 million in cash in settlement of notes
receivable and $13.0 million in cash on sales of properties resulting in gains
of $4.3 million. In January 1996, the Company obtained control of the 210-room
Howard Johnson Hotel in Cocoa Beach, FL and the 204-room Radisson Hotel in
Fairfield, NJ by converting its mortgage notes receivable into operating hotel
assets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements included in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
26
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
--------------------------- --- ------------------------------------------------------
<S> <C> <C>
David A. Simon............. 44 President, Chief Executive Officer and Chairman of the
Board of Directors
John M. Elwood............. 42 Executive Vice President, Chief Financial Officer and
Director
Howard M. Lorber(1)........ 48 Director
Herbert Lust, II(1)........ 70 Director
Jack H. Nusbaum............ 56 Director
Allen J. Ostroff(1)........ 60 Director
A.F. Petrocelli(1)......... 53 Director
Paul H. Hower.............. 62 Executive Vice President
Timothy E. Aho............. 53 Senior Vice President/Development
Denis W. Driscoll.......... 52 Senior Vice President/Human Resources
John H. Leavitt............ 44 Senior Vice President/Sales and Marketing
Joseph Bernadino........... 50 Senior Vice President, Secretary and General Counsel
Richard T. Szymanski....... 39 Vice President and Corporate Controller
Douglas W. Vicari.......... 37 Vice President and Treasurer
</TABLE>
- ---------------
(1) Member of the Compensation and Audit Committee.
The following is a biographical summary of the experience of the directors
and executive officers of the Company:
David A. Simon has been President, Chief Executive Officer and a Director
since 1992 and Chairman of the Board of Directors of the Company since 1993. Mr.
Simon was Chief Executive Officer and a director of PMI during 1992.
John M. Elwood has been a Director and Executive Vice President of the
Company since 1992 and Chief Financial Officer since 1993. Mr. Elwood was the
Director of Reorganization of PMI during 1992.
Howard M. Lorber has been a Director and a member of the Compensation and
Audit Committee since 1994. Mr. Lorber is Chairman of the Board of Directors of
Nathan's Famous, Inc. and Hallman & Lorber Associates, Inc. and a director of
New Valley Corporation, United Capital Corp. and Alpine Lace Brands, Inc. Mr.
Lorber has been Chief Executive Officer of Hallman & Lorber Associates, Inc. for
more than the past five years, President and Chief Operating Officer of New
Valley Corporation since 1994 and Chief Executive Officer of Nathan's Famous,
Inc. since 1993. Mr. Lorber has also been a general partner or shareholder of a
corporate general partner of various limited partnerships organized to acquire
and operate real estate properties.
Herbert Lust, II has been a Director since 1992 and Chairman of the
Compensation and Audit Committee of the Company since 1993. Mr. Lust was a
member of the Committee of Unsecured Creditors of PMI through 1992. Mr. Lust has
been a private investor and President of Private Water Supply Inc. for more than
the past five years. Mr. Lust is a director of BRT Realty Trust.
Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum is the Chairman
of the law firm of Willkie Farr & Gallagher, where he has been a partner for
more than the past twenty-five years. He also is a
27
<PAGE> 29
director of Pioneer Companies, Inc., W.R. Berkley Corporation, Strategic
Distribution, Inc., The Topps Company, Inc. and Fine Host Corporation.
Allen J. Ostroff has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Ostroff has been a Managing
Director of the Prudential Realty Group, a subsidiary of The Prudential
Insurance Company of America, since June 1994 and was a Senior Vice President of
the Prudential Realty Group from 1992 to June 1994.
A.F. Petrocelli has been a Director since 1992 and a member of the
Compensation and Audit Committee since 1993. Mr. Petrocelli has been the
Chairman of the Board of Directors and Chief Executive Officer of United Capital
Corp. for more than the past five years. He is also a director of Nathan's
Famous, Inc.
Paul H. Hower has been an Executive Vice President of the Company since
1993. Mr. Hower was President of Integrity Hospitality Services from 1991 to
1993 and prior to such time was Vice President and Hotel Division Manager of
B.F. Saul Co.
Timothy E. Aho has been a Senior Vice President of the Company since 1994.
Mr. Aho was a Senior Vice President of Development for Boykin Management Company
from 1993 to 1994 and Vice President of Development for Interstate Hotels
Corporation from 1992 to 1993.
Denis W. Driscoll has been a Senior Vice President of the Company since
1993. Mr. Driscoll was President of Driscoll Associates, a human resources
consulting organization, from 1992 to 1993.
John H. Leavitt has been a Senior Vice President of the Company since 1992.
Mr. Leavitt was a Senior Vice President of PMI during 1992 and a Senior Vice
President of Medallion Hotel corporation prior to such time.
Joseph Bernadino has been Senior Vice President, Secretary and General
Counsel of the Company since 1992. Mr. Bernadino was an Assistant Secretary and
Assistant General Counsel of PMI during 1992.
Richard T. Szymanski has been a Vice President and Corporate Controller of
the Company since 1992. Mr. Szymanski was Corporate Controller of PMI during
1992.
Douglas W. Vicari has been a Vice President and Treasurer of the Company
since 1992 and was Vice President and Treasurer of PMI during 1992.
ITEM 11. EXECUTIVE COMPENSATION
There are incorporated in this Item 11 by reference those portions of the
Company's definitive Proxy Statement, which the Company intends to file not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
appearing under the captions "Executive Compensation," "Compensation Pursuant to
Plans," "Other Compensation," "Compensation of Directors," and "Termination of
Employment and Change of Control Agreements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are incorporated in this Item 12 by reference those portions of the
Company's definitive Proxy Statement, which the Company intends to file not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
appearing under the captions "Principal Shareholders" and "Security Ownership of
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are incorporated in this Item 13 by reference those portions of the
Company's definitive Proxy Statement, which the Company intends to file not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
appearing under the caption "Certain Relationships and Related Transactions."
28
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Financial Statements listed in the accompanying index to
financial statements are filed as part of this Annual Report.
2. Exhibits
(2) (a)
Reference is made to the Disclosure Statement for Debtors'
Second Amended Joint Plan of Reorganization, dated January
16, 1992, which includes the Debtors' Second Amended Plan of
Reorganization as an exhibit thereto filed as an Exhibit to
the Company's Form 10-K dated September 25, 1992, which is
incorporated herein by reference.
(b)
Reference is made to the Contract of Purchase and Sale
between Hillsborough Associates, Meriden Hotel Associates,
L.P., Wellesley I, L.P., Multi-Wellesley Limited Partnership
and the Company, dated March 6, 1996, filed as an Exhibit to
the Company's 8-K dated March 21, 1996, which is
incorporated herein by reference.
(c)
Reference is made to Consent of the Holders Thereof to the
Purchase by the Company of the Outstanding First Mortgage
Notes filed as an Exhibit to the Company's 8-K, dated March
21, 1996, which is incorporated herein by reference.
(3) (a)
Reference is made to the Restated Certificate of
Incorporation of the Company, dated June 5, 1992, filed as
an Exhibit to the Company's Form 10-K dated September 25,
1992, which is incorporated herein by reference.
(b)
Reference is made to the Restated Certificate of
Incorporation, As Amended, filed as an Exhibit to the
Company's Form 10-QA, dated April 30, 1996, which is
incorporated herein by reference.
(c)
Reference is made to the Restated Bylaws of the Company
filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by
reference.
(4) (a)
Reference is made to the Form of 9.20% Junior Secured Note
of the Company filed as an Exhibit to the Company's Form
10-K, dated September 25, 1992, which is incorporated herein
by reference.
(b)
Reference is made to the Form of 8.20% Tax Note of the
Company filed as an Exhibit to the Company's Form 10-K,
dated September 25, 1992, which is incorporated herein by
reference.
(c)
Reference is made to the Form of 10.20% Secured UND
Restructured Note of the Company filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(d)
Reference is made to the Form of 8% Secured UND Restructured
Note of the Company filed as an Exhibit to the Company's
Form 10-K, dated September 25, 1992, which is incorporated
herein by reference.
(e)
Reference is made to the Form of 9.20% OVR Restructured Note
of the Company filed as an Exhibit to the Company's Form
10-K, dated September 25, 1992, which is incorporated herein
by reference.
29
<PAGE> 31
(f)
Reference is made to the Collateral Agency Agreement among
the Company, U.S. Trust and the Secured Parties, dated as of
July 31, 1992 filed as an Exhibit to the Company's Form
10-K, dated September 25, 1992, which is incorporated herein
by reference.
(g)
Reference is made to the Security Agreement between the
Company and U.S. Trust, dated as of July 31, 1992, filed as
an Exhibit to the Company's Form 10-K, dated September 25,
1992, which is incorporated herein by reference.
(h)
Reference is made to the Subsidiary Guaranty from FR
Delaware, Inc. to United States Trust Company of New York,
dated as of July 31, 1992, filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(i)
Reference is made to the Security Agreement between FR
Delaware, Inc. and United States Trust Company of New York,
dated as of July 31, 1992, filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(j)
Reference is made to the Subsidiary Guaranty from Prime Note
Collections Company, Inc. to United States Trust Company of
New York, dated as of July 31, 1992, filed as an Exhibit to
the Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(k)
Reference is made to the Security Agreement between Prime
Note Collections Company, Inc. and United States Trust
Company of New York, dated as of July 31, 1992, filed as an
Exhibit to the Company's Form 10-K, dated September 25,
1992, which is incorporated herein by reference.
(l)
Reference is made to a Form 8-A of the Company as filed on
June 5, 1992 with the Securities and Exchange Commission, as
amended by Amendment No. 1 and Amendment No. 2, which is
incorporated herein by reference.
(m)
Reference is made to an Indenture, dated April 26, 1995,
between the Company and the Trustee related to the issuance
of 7% Convertible Subordinated Notes due 2002, filed as an
Exhibit to the Company's Form 10-K dated March 21, 1996,
which is incorporated herein by reference.
(n)
Reference is made to an Indenture, dated January 23, 1996,
between the Company and the Trustee related to 9 1/4% First
Mortgage Notes due 2006, filed as an Exhibit to the
Company's Form 10-K dated March 21, 1996, which is
incorporated herein by reference.
(o)
Reference is made to the Senior Secured Revolving Credit
Agreement, dated as of June 26, 1996, among the Company and
the Lenders Party hereto, and 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 dated July 26, 1996, which is incorporated
herein by reference.
(p)
Master Repurchase Agreement, dated as of October 23, 1996,
between BT Securities Corporation and Prime Hospitality
Corp.
(10) (a)
Reference is made to the Agreement of Purchase and Sale
between Flamboyant Investment Company, Ltd. and VMS Realty,
Inc., dated June 3, 1985, and its related agreements, each
of which was included as Exhibits to the Form 8-K dated
August 14, 1985 of PMI, which are incorporated herein by
reference.
(b)
Reference is made to PMI's Flexible Benefit Plan, filed as
an Exhibit to the Form 10-Q, dated February 12, 1988 of PMI,
which is incorporated herein by reference.
30
<PAGE> 32
(c)
Reference is made to the 1992 Performance Incentive Stock
Option Plan of the Company, dated as of July 31, 1992, filed
as an Exhibit to the Company's Form 10-K dated September 25,
1992, which is incorporated herein by reference.
(d)
Reference is made to the 1992 Stock Option Plan of the
Company filed as an Exhibit to the Company's Form 10-K,
dated September 25, 1992, which is incorporated herein by
reference.
(e)
Reference is made to the 1992 Non-Qualified Stock Option
Agreement between the Company and David A. Simon filed as an
Exhibit to the Company's Form 10-K, dated September 25,
1992, which is incorporated herein by reference.
(f)
Reference is made to the 1992 Non-Qualified Stock Option
Agreement between the Company and John Elwood filed as an
Exhibit to the Company's Form 10-K, dated March 26, 1993,
which is incorporated herein by reference.
(g)
Reference is made to the Employment Agreement, dated as of
May 18, 1993, between Paul Hower filed as an Exhibit to the
Company's Form 10-K, dated March 25, 1994, which is
incorporated herein by reference.
(h)
Reference is made to the Consolidated and Amended Settlement
Agreement, dated as of October 12, 1993, between Allan V.
Rose and the Company filed as an Exhibit to the Company's
Form 10-K, dated March 25, 1994, which is incorporated
herein by reference.
(i)
Reference is made to the Consent and Amendment to Prime
Hospitality Corp. 9.20% Junior Secured Notes filed as an
Exhibit to the Company's Form 10-K, dated March 10, 1995.
(j)
Reference is made to the Agreement, dated February 6, 1995,
among Suites of America, Inc., ShoLodge, Inc. and the
Company filed as an Exhibit to the Company's Form 10-K,
dated March 10, 1995.
(k)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between David A. Simon and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(l)
Reference is made to the Change of Control Agreement dated,
February 15, 1995, between John M. Elwood and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(m)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Paul H. Hower and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(n)
Reference is made to the Change of Control Agreement dated,
February 15, 1995, between John H. Leavitt and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(o)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Denis W. Driscoll and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(p)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Timothy E. Aho and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(q)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Joseph Bernadino and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
31
<PAGE> 33
(r)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Richard T. Szymanski and the
Company filed as an Exhibit to the Company's Form 10-K,
dated March 10, 1995.
(s)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Douglas W. Vicari and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(t)
Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Richard Moskal and the Company
filed as an Exhibit to the Company's Form 10-K, dated March
10, 1995.
(u)
Reference is made to the Employment Agreement, dated May 15,
1995, between John Elwood and the Company, filed as an
Exhibit to the Company's Form 10-K, dated March 21, 1996.
(v)
Reference is made to the Employment Agreement, dated August
1, 1995, between David Simon and the Company, filed as an
Exhibit to the Company's Form 10-K, dated March 21, 1996.
(11) Statement regarding computation of per share earnings.
(21) Subsidiaries of the Company are as follows:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
--------------------------------------------------- ---------------
<S> <C>
Caldwell Holding Corp. ............................ Delaware
Dynamic Marketing Group, Inc. ..................... Delaware
Fairfield Holding Corp. ........................... Delaware
Fairfield-Meridian Claims Service, Inc. ........... Delaware
FR Delaware, Inc. (Subsidiary of FR Management
Corporation)..................................... Delaware
FR Management Corporation.......................... Virginia
KSA Management, Inc. .............................. Kansas
Mahwah Holding Corp. .............................. Delaware
Market Segments, Incorporated...................... Delaware
PHC Construction Corp. ............................ Delaware
PHC Hotels, Inc. .................................. Delaware
Prime-American Realty Corp. ....................... Delaware
Prime Note Collections Company, Inc. .............. Delaware
Prime-O-Lene, Inc. ................................ New Jersey
Republic Motor Inns, Inc. ......................... Virginia
</TABLE>
(23) Consent of Arthur Andersen LLP
(27) Financial data schedule.
Certain instruments defining the rights of holders of long-term debt of the
Company and its subsidiaries have not been filed in accordance with Item
601(b)(4)(iii) of Regulation S-K. The Company hereby agrees to finish a copy of
such instruments to the Commission upon request.
32
<PAGE> 34
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM 14(A))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Financial Statements:
Balance Sheets at December 31, 1995 and 1996........................................ F-3
Statements of Income for the Years Ended December 31, 1994, 1995 and 1996........... F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and
1996............................................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996....... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Separate financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because such entities considered in the
aggregate as a single subsidiary would not constitute a significant subsidiary.
F-1
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
We have audited the accompanying consolidated balance sheets of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as
of December 31, 1995 and 1996 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime Hospitality Corp. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 28, 1997
F-2
<PAGE> 36
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 49,533 $ 15,997
Marketable securities available for sale............................. 11,929 238
Restricted cash...................................................... 8,973 2,637
Accounts receivable, net of reserves of $213 and $420
in 1995 and 1996, respectively.................................... 13,139 12,653
Current portion of mortgages and notes receivable.................... 1,533 1,338
Other current assets................................................. 8,070 11,228
-------- --------
Total current assets.............................................. 93,177 44,091
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization........................................ 398,201 695,253
Mortgages and notes receivable, net of current portion................. 64,962 24,195
Other assets........................................................... 16,901 22,559
-------- --------
Total Assets...................................................... $573,241 $786,098
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt.............................................. $ 5,731 $ 3,419
Other current liabilities............................................ 38,961 45,887
-------- --------
Total current liabilities......................................... 44,692 49,306
Long-term debt, net of current portion................................. 276,920 298,875
Other liabilities...................................................... 18,713 18,022
-------- --------
Total liabilities................................................. 340,325 366,203
-------- --------
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
31,004,499 and 39,804,917 shares issued and outstanding in 1995
and 1996, respectively............................................ 310 398
Capital in excess of par value....................................... 183,050 338,825
Retained earnings.................................................... 49,556 80,672
-------- --------
Total stockholders' equity........................................ 232,916 419,895
-------- --------
Total Liabilities and Stockholders' Equity................... $573,241 $786,098
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 37
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Lodging.................................................. $ 88,753 $146,184 $198,947
Food and beverage........................................ 18,090 37,955 41,437
Management and other fees................................ 10,021 8,115 6,729
Interest on mortgages and notes receivable............... 15,867 11,895 6,090
Business interruption insurance.......................... -- -- 13,562
Rental and other......................................... 1,572 1,479 2,103
-------- -------- --------
Total revenues................................... 134,303 205,628 268,868
-------- -------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging............................................... 25,490 38,383 51,577
Food and beverage..................................... 13,886 28,429 32,053
Selling and general................................... 27,244 49,753 61,789
Occupancy and other operating............................ 9,799 11,763 16,833
General and administrative............................... 15,089 15,515 17,813
Depreciation and amortization............................ 9,427 15,974 25,884
Other expense............................................ -- 2,200 --
-------- -------- --------
Total costs and expenses......................... 100,935 162,017 205,949
-------- -------- --------
Operating income........................................... 33,368 43,611 62,919
Investment income.......................................... 1,966 4,861 4,610
Interest expense........................................... (13,993) (21,603) (20,312)
Other income............................................... 9,089 2,239 4,306
-------- -------- --------
Income before income taxes and extraordinary items......... 30,430 29,108 51,523
Provision for income taxes................................. 12,172 11,643 20,609
-------- -------- --------
Income before extraordinary items.......................... 18,258 17,465 30,914
Extraordinary items -- gains on discharges of indebtedness
(net of income taxes of $120, $70 and $135 in 1994, 1995
and 1996, respectively).................................. 172 104 202
-------- -------- --------
Net income................................................. $ 18,430 $ 17,569 $ 31,116
======== ======== ========
Earnings per common share:
Primary:
Income before extraordinary items........................ $ .57 $ .54 $ .85
Extraordinary items...................................... .01 -- --
-------- -------- --------
Earnings per common share.................................. $ .58 $ .54 $ .85
======== ======== ========
Fully diluted:
Income before extraordinary items........................ $ .57 $ .54 $ .80
Extraordinary items...................................... .01 -- --
-------- -------- --------
Earnings per common share.................................. $ .58 $ .54 $ .80
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 38
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993..................... 29,988,674 $300 $ 157,507 $ 13,557 $171,364
Net income.................................... -- -- -- 18,430 18,430
Utilization of net operating loss
carryforwards............................... -- -- 5,861 -- 5,861
Amortization of pre-fresh start tax basis
differences................................. -- -- 6,954 -- 6,954
Federal income tax refund..................... -- -- 200 -- 200
Compensation expense related to stock option
plan........................................ -- -- 60 -- 60
Proceeds and tax benefits from exercise of
stock options............................... 216,080 2 640 -- 642
Proceeds from exercise of stock warrants...... 204,617 2 552 -- 554
---------- ---- -------- ------- --------
Balance December 31, 1994..................... 30,409,371 304 171,774 31,987 204,065
Net income.................................... -- -- -- 17,569 17,569
Utilization of net operating loss
carryforwards............................... -- -- 3,370 -- 3,370
Amortization of pre-fresh start tax basis
differences................................. -- -- 6,167 -- 6,167
Compensation expense related to stock option
plan........................................ -- -- 16 -- 16
Proceeds and tax benefits from exercise of
stock options............................... 220,159 2 705 -- 707
Proceeds from exercise of stock warrants...... 374,969 4 1,018 -- 1,022
---------- ---- -------- ------- --------
Balance December 31, 1995..................... 31,004,499 310 183,050 49,556 232,916
Net income.................................... -- -- -- 31,116 31,116
Utilization of net operating loss
carryforwards............................... -- -- 10,590 -- 10,590
Amortization of pre-fresh start tax basis
differences................................. -- -- 1,243 -- 1,243
Compensation expense related to stock option
plan........................................ -- -- 5 -- 5
Proceeds from issuance of stock............... 8,250,000 83 141,337 -- 141,420
Proceeds and tax benefits from exercise of
stock options............................... 148,492 1 1,516 -- 1,517
Proceeds from exercise of stock warrants...... 401,926 4 1,084 -- 1,088
---------- ---- -------- ------- --------
Balance December 31, 1996..................... 39,804,917 $398 $ 338,825 $ 80,672 $419,895
========== ==== ======== ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 39
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 18,430 $ 17,569 $ 31,116
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 9,427 15,974 25,884
Utilization of net operating loss carryforwards....... 5,861 3,370 10,590
Gains on settlements of notes receivable.............. (6,224) (822) (1,774)
Gains on discharges of indebtedness................... (292) (174) (337)
Gains on sales of assets.............................. (1,099) (1,957) (4,349)
Amortization of pre-fresh start tax basis
differences......................................... 6,954 6,167 1,243
Deferred income taxes................................. (205) 1,557 1,386
Compensation expense related to stock options......... 60 16 5
Increase (decrease) from changes in other operating
assets and liabilities:
Accounts receivable................................... (1,945) (5,320) 486
Other current assets.................................. 127 (887) (3,158)
Other liabilities..................................... (2,760) 3,135 4,844
------- -------- ---------
Net cash provided by operating activities............. 28,334 38,628 65,936
------- -------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and other notes receivable... 36,198 27,603 8,933
Disbursements for mortgages and notes receivable......... (1,100) (12,704) (800)
Proceeds from sales of property, equipment and leasehold
improvements.......................................... 1,480 8,167 12,962
Purchases of property, equipment and leasehold
improvements.......................................... (48,473) (74,758) (101,891)
Construction of new hotels............................... (14,549) (37,518) (184,566)
Decrease in restricted cash.............................. 1,268 752 6,336
Proceeds from insurance settlement....................... -- 7,500 1,500
Proceeds from sales of marketable securities............. 1,116 2,928 15,023
Purchase of marketable securities........................ (5,885) (11,520) --
Other.................................................... (3,965) 846 1,546
------- -------- ---------
Net cash used in investing activities................. (33,910) (88,704) (240,957)
------- -------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt....................... 19,026 119,360 182,196
Payments of debt......................................... (43,771) (33,961) (184,740)
Proceeds from the exercise of stock options and
warrants.............................................. 1,196 1,729 2,605
Proceeds from issuance of common stock................... -- -- 141,420
Other.................................................... 80 (43) 4
------- -------- ---------
Net cash provided by (used in) financing activities... (23,469) 87,085 141,485
------- -------- ---------
Net increase (decrease) in cash and cash equivalents....... (29,045) 37,009 (33,536)
Cash and cash equivalents at beginning of period........... 41,569 12,524 49,533
------- -------- ---------
Cash and cash equivalents at end of period................. $ 12,524 $ 49,533 $ 15,997
======= ======== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 40
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Prime Hospitality Corp. (the "Company") is a hotel owner/operator with a
portfolio of 108 hotels, as of February 28, 1997, located in 25 states and the
U. S. Virgin Islands. The Company owns and operates 95 hotels and manages the
remaining 13 hotels for third parties. The Company operates its hotels under its
proprietary AmeriSuites and Wellesley Inns brand names and under franchise
agreements with national hotel chains including Marriott, Radisson, Sheraton,
Crowne Plaza, Holiday Inn, Ramada and Howard Johnson.
BASIS OF PRESENTATION
The Company emerged from the Chapter 11 reorganization proceeding of its
predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"),
which consummated its Plan of Reorganization ("the Plan") on July 31, 1992.
Pursuant to the American Institute of Certified Public Accountant's
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start
reporting as of July 31, 1992. Under fresh start reporting, the reorganization
value of the entity was allocated to the reorganized Company's assets on the
basis of the purchase method of accounting. The reorganization value (the
approximate fair value) of the assets of the emerging entity was determined by
consideration of many factors and various valuation methods, including
discounted cash flows and price/earnings and other applicable ratios believed by
management to be representative of the Company's business and industry.
Liabilities were recorded at face values, which approximate the present values
of amounts to be paid determined at appropriate interest rates. Under fresh
start reporting, the consolidated balance sheet as of July 31, 1992 became the
opening consolidated balance sheet of the emerging Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents are highly liquid unrestricted investments with a maturity
of three months or less when acquired.
MARKETABLE SECURITIES
Marketable securities consist primarily of commercial paper and other
corporate debt and equity securities which mature or are available for sale
within one year. Marketable securities are valued at current market value, which
approximates cost.
F-7
<PAGE> 41
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTED CASH
Restricted cash consists primarily of highly liquid investments that serve
as collateral for debt obligations due within one year.
MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are reflected at their fair value as of July
31, 1992, adjusted for payments and other advances since that date. The amount
of interest income recognized on mortgages and notes receivable is generally
based on the stated interest rate and the carrying value of the notes. The
Company has a number of subordinated or junior mortgages which remit payment
based on hotel cash flow. Because there was substantial doubt that the Company
would recover any value, these mortgages were assigned no value in the Company's
consolidated financial statements when the Company adopted fresh-start reporting
on July 31, 1992. Interest on cash flow mortgages and delinquent loans is
generally recognized when cash is received.
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") 114, "Accounting by Creditors for Impairment of a Loan (SFAS 114)" and
SFAS 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures (SFAS 118)." Following these standards, the Company
measures impairment of a loan based on the present value of expected future cash
flows (net of estimated costs to sell) discounted at the loan's effective
interest rate. Impairment can also be measured based on a loan's observable
market price or the fair value of collateral, if the loan is collateral
dependent. If the measure of the impaired loan is less than the recorded
investment in the loan, the Company will establish a valuation allowance, or
adjust existing valuation allowances, with a corresponding charge or credit to
operations. Based upon its evaluation, the Company determined that no impairment
had occurred as of December 31, 1996.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at their fair market value as of July 31, 1992
plus the cost of acquisitions subsequent to that date less accumulated
depreciation and amortization from August 1, 1992. Provision is made for
depreciation and amortization using the straight-line method over the estimated
useful lives of the assets. Properties identified for disposal are stated at
their estimated net realizable value.
During 1995, the Company adopted SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121)".
Following this standard, the Company evaluates whether impairment has occurred
at each of its properties based upon the future cash flows (undiscounted and
before interest charges) as compared to the carrying value of the property.
Based upon its evaluation as of December 31, 1996, the Company has determined
that no impairment has occurred.
OTHER ASSETS
Other assets consist primarily of deferred issuance costs related to the
Company's debt obligations. Deferred issuance costs are amortized over the
respective terms of the loans using the effective interest method.
SELF-INSURANCE PROGRAMS
The Company uses an incurred loss retrospective insurance plan for general
and auto liability and workers' compensation. Predetermined loss limits have
been arranged with insurance companies to limit the Company's per occurrence and
aggregate cash outlay.
F-8
<PAGE> 42
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is partially funded
by payroll deductions. Payments for major medical and hospitalization below
specified aggregate annual amounts are self-insured by the Company. Claims for
benefits in excess of these amounts are covered by insurance purchased by the
Company.
Provisions have been made in the consolidated financial statements which
represent the expected future payments based on the estimated ultimate cost for
incidents incurred through the balance sheet date.
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax
return. For financial reporting purposes, the Company follows SFAS No. 109
"Accounting for Income Taxes". In accordance with SFAS 109, as well as SOP 90-7,
income taxes have been provided at statutory rates in effect during the period.
Tax benefits associated with net operating loss carryforwards and other
temporary differences that existed at the time fresh start reporting was adopted
are reflected as a contribution to stockholders' equity in the period in which
they are realized.
EARNINGS PER COMMON SHARE
Primary earnings per share is computed based on the weighted average number
of common shares and common share equivalents (dilutive stock options and
warrants) outstanding during each year. The weighted average number of common
shares used in computing primary earnings per share was 32,022,000, 32,461,000
and 36,501,000 for the years ended December 31, 1994, 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 37,423,000 and 43,794,000 for the years ended December 31, 1995 and
1996, respectively.
PRE-OPENING COSTS
Non-capital expenditures incurred prior to opening new or renovated hotels
such as payroll and operating supplies are deferred and expensed within one year
after opening. Pre-opening costs charged to expense were $86,000, $364,000 and
$1.3 million for the years ended December 31, 1994, 1995 and 1996. As of
December 31, 1996, $2.1 million of pre-opening costs are included in other
current assets.
INTEREST RATE AGREEMENTS
The Company has an interest rate swap agreement with a major financial
institution which reduces the Company's exposure to interest rate fluctuations
on its variable rate debt. The accounting treatment for this agreement is to
accrue net interest to be received or to be paid as an adjustment to interest
expense as incurred.
The Company has an interest rate hedge agreement with a major financial
institution which terminates in April 1997 to reduce its interest rate exposure
on the anticipated financing of its development program in 1997. Gains or losses
resulting from this hedge will be deferred and amortized to interest expense
over the life of the anticipated obligation.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1994 and 1995
consolidated financial statements to conform them to the December 31, 1996
presentation.
F-9
<PAGE> 43
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- HOTEL 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 28 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
a related party. In connection with the transaction, the Company also terminated
its management agreements and junior subordinated mortgages related to the 18
hotels. In September 1996, the Company acquired the Ramada Plaza Suite in
Secaucus, NJ and repositioned the hotel as a Radisson Suite Hotel. The
acquisition price was $16.5 million, which included the assumption of $12.2
million of debt.
The 1996 acquisitions have been accounted for as purchases and,
accordingly, the revenues and expenses of those 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.
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 remaining AmeriSuites hotel not already owned by
the Company. In 1993, the Company and its wholly-owned subsidiary, Suites of
America, Inc. ("SOA") 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 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 based upon the fair market value of the
properties. The consideration totaled $19.7 million and was comprised of (I)
$16.1 million in cash, which was paid in 1995, plus (ii) $18.5 million in notes
maturing in 1997, less (iii) $14.9 million of existing debt on five hotels,
which was forgiven at face value. The transaction resulted in a net increase of
approximately $3.6 million 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.
In August 1995, the Company entered into an agreement to purchase four
Bradbury Suites hotels for $18.7 million. The hotels, comprising 447 rooms, were
subsequently converted to the Company's proprietary AmeriSuites brand. In August
1995, the Company also purchased the 149 room all-suite St. Tropez Hotel and
Shopping Center in Las Vegas for $15.2 million. Revenues and expenses from these
transactions have been included in reported results from the date of
acquisition. If these operations had been included in the consolidated financial
statements for the full year, reported results would not have been materially
different.
NOTE 3 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Cash..................................................... $ 4,312 $ 5,079
Commercial paper and other cash equivalents.............. 45,221 10,918
------- -------
Totals......................................... $49,533 $15,997
======= =======
</TABLE>
F-10
<PAGE> 44
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- MARKETABLE SECURITIES
Marketable securities are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- ----
<S> <C> <C>
Equity securities.......................................... $ 3,796 $238
Corporate debt securities.................................. 8,133 --
------- ----
Totals........................................... $11,929 $238
======= ====
</TABLE>
During 1996, the Company realized $1.8 million in gains on sales of
marketable securities which is included in investment income.
NOTE 5 -- OTHER CURRENT ASSETS/LIABILITIES
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------ -------
<S> <C> <C>
Hotel inventories......................................... $2,686 $ 4,762
Pre-opening expense....................................... 261 2,088
Accrued interest receivable............................... 2,803 2,082
Prepaid expense........................................... 1,616 1,868
Other..................................................... 704 428
------ -------
Totals.......................................... $8,070 $11,228
====== =======
</TABLE>
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable......................................... $ 4,717 $ 5,990
Construction payables.................................... 2,223 6,643
Interest................................................. 3,616 7,734
Accrued payroll and related benefits..................... 3,151 4,590
Accrued expenses......................................... 4,303 4,944
Insurance reserves....................................... 6,007 7,146
Hurricane damage reserve................................. 8,718 2,438
Other.................................................... 6,226 6,402
------- -------
Totals......................................... $38,961 $45,887
======= =======
</TABLE>
F-11
<PAGE> 45
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- MORTGAGES AND NOTES RECEIVABLE
Mortgages and notes receivable are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Properties operated by the Company(a).................... $57,171 $22,194
Other(b)................................................. 9,324 3,339
------- -------
Total.......................................... 66,495 25,533
Less current portion..................................... (1,533) (1,338)
------- -------
Long-term portion........................................ $64,962 $24,195
======= =======
</TABLE>
- ---------------
(a) At December 31, 1996, the Company is the holder of mortgage notes receivable
with a book value of $8.6 million secured primarily by two hotel properties
operated by the Company under management agreements and $13.6 million in
mortgages secured primarily by four properties operated under lease
agreements. These notes bear interest at rates ranging from 8.0% to 13.5%
and mature through 2015. The mortgages were derived from the sales of hotel
properties.
The loans secured by hotel properties operated under management agreements
pay interest and principal based upon available cash and include a
participation in the future excess cash flow of such hotel properties. One
of these mortgages has been structured to include a "senior portion"
featuring defined payment terms, and a "junior portion" payable annually
based on cash flow.
In addition to the mortgage positions referred to above, the Company holds
junior or cash flow mortgages and subordinated interests on six other hotel
properties operated by the Company under management agreements. Pursuant to
these mortgage agreements, the Company is entitled to receive the majority
of excess cash flow generated by these hotel properties and to participate
in any future sales proceeds. With regard to these properties, third parties
hold significant senior mortgages. The junior mortgages mature on various
dates from 1999 through 2002.
In accordance with the adoption of fresh start reporting under SOP 90-7, no
value was assigned to the junior portions of the notes or the junior
mortgages and subordinated interests on the other hotels as there was
substantial doubt at the time of valuation that the Company would recover
any of their value. As a result, interest income on these junior or cash
flow mortgages is recognized when cash is received. During 1994, 1995 and
1996, the Company recognized $2.0 million, $2.0 million and $2.9 million,
respectively, of interest income related to these mortgages. Future
recognition of interest income on these mortgages is dependent primarily
upon the net cash flow of the underlying hotels after debt service, which is
senior to the Company's junior positions.
(b) Other notes receivable currently bear interest at effective rates ranging
from 4.0% to 10.0%, mature through 2011 and are secured primarily by hotel
properties not currently managed by the Company.
F-12
<PAGE> 46
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- YEARS OF
1995 1996 USEFUL LIFE
-------- -------- -----------
<S> <C> <C> <C>
Land and land leased to others(a).................. $ 69,765 $119,654
Hotels............................................. 246,278 387,631 20 to 40
Furniture, fixtures and autos...................... 67,001 103,899 3 to 10
Leasehold improvements............................. 26,038 58,340 3 to 40
Construction in progress........................... 22,667 78,266
-------- --------
Sub-total..................................... 431,749 747,790
Less accumulated depreciation and amortization..... (33,548) (52,537)
-------- --------
Totals................................... $398,201 $695,253
======== ========
</TABLE>
- ---------------
(a) Included in land at December 31, 1995 and 1996 was $8.9 million and $32.7
million, respectively, of land associated with hotels under construction.
At December 31, 1996, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $5.4 million pursuant to noncancelable operating leases expiring on
various dates through 2013. Minimum future rentals under such leases are $7.4
million, of which $3.7 million is scheduled to be received in the aggregate
during the five-year period ending December 31, 2001.
Depreciation and amortization expense on property, equipment and leasehold
improvements was $9.3 million, $14.8 million and $22.0 million for the years
ended December 31, 1994, 1995 and 1996, respectively.
During the years ended December 31, 1994, 1995 and 1996, the Company
capitalized $.8 million, $2.6 million and $7.5 million, respectively, of
interest related to borrowings used to finance hotel construction.
NOTE 8 -- DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
9.25% First Mortgage Notes(a).......................... $ -- $120,000
Revolving Credit Facility(b)........................... -- 12,500
7% Convertible Subordinated Notes(c)................... 86,250 86,250
Mortgages and other notes payable(d)................... 158,904 71,414
10% Senior Secured Notes(e)............................ 30,374 10,867
Capitalized lease obligations(f)....................... 7,123 1,263
-------- --------
Total debt............................................. 282,651 302,294
Less current maturities................................ (5,731) (3,419)
-------- --------
Long-Term debt, net of current portion................. $276,920 $298,875
======== ========
</TABLE>
- ---------------
(a) On January 23, 1996, the Company issued $120 million of 9.25% 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
F-13
<PAGE> 47
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(b) 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 million or 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.
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 and also contains
certain covenants which limit the incurrence of debt, liens, dividend
payments, stock repurchases, 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 million under
the Revolving Credit Facility and proceeds were used to retire $20 million
of interim financing with the remainder utilized principally for 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 15). As of December 31, 1996, the Company
had borrowed $12.5 million under this facility and had additional borrowing
capacity of $87.5 million.
(c) In 1995, the Company sold $86.3 million of 7% Convertible Subordinated Notes
due 2002. The notes are convertible into common stock at a price of $12 per
share at the option of the holder and mature on April 15, 2002. The notes
are redeemable, in whole or in part, at the option of the Company after
April 17, 1998 at premiums to principal which decline on each anniversary
date.
(d) The Company has mortgage and other notes payable of approximately $71.4
million that are secured by mortgage notes receivable and hotel properties
with a book value of $137.7 million. Principal and interest on these
mortgages and notes are generally paid monthly. At December 31, 1996 these
notes bear interest at rates ranging from 6.4% to 10.5%, with a weighted
average interest rate of 8.4%, and mature from 1998 through 2008.
The Company has $13.9 million of debt secured by the Marriott's Frenchman's
Reef Hotel (the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands which
was originally scheduled to mature in December 1996. The Company and the
lender have entered into an agreement to extend the maturity of the loan to
January 1998. The loan continues to bear interest at the same rate and
principal payments are waived until maturity. All other terms and conditions
of the loan remain in effect.
Additionally, the Company's debt related to the Frenchman's Reef is further
secured by an assignment of property insurance proceeds related to the
hurricane damage (See Note 11). The Company utilized the net insurance
proceeds of $22.8 million to reduce the Frenchman's Reef mortgage loan to
$13.9 million. The Company is currently in negotiation to obtain new
financing in connection with the refurbishment plans at the Frenchman's
Reef.
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
15). The loans were due in February 2000 and bore interest at LIBOR plus
4.25%. The hotels formerly used as collateral for this loan are now part of
the collateral securing the Revolving Credit Facility described in (b)
above.
(e) The 10% Senior Secured Notes were issued pursuant to the Plan, and mature on
July 31, 1999. The collateral for the 10% Senior Secured Notes consists
primarily of mortgages and notes receivable and real property, net of
related liabilities (the "10% Senior Secured Note Collateral"), with a book
value of $62.2 million as of December 31, 1996.
F-14
<PAGE> 48
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest on the 10% Senior Secured Notes is payable semi-annually. The 10%
Senior Secured Notes require that 85% of the cash proceeds from the 10% Senior
Secured Note Collateral be applied first to interest then to prepayment of
principal. Aggregate principal payments on the 10% Senior Secured Notes are
required in order that one-third of the principal balance outstanding on
December 31, 1996 is paid by July 31, 1998 and all of the balance is paid by
July 31, 1999. To the extent the cash proceeds from the 10% Senior Secured
Note Collateral are insufficient to pay interest or required principal
payments on the 10% Senior Secured Notes, the Company will be obligated to
pay any deficiency out of its general corporate funds.
The 10% Senior Secured Notes contain covenants which, among other things,
require the Company to maintain a net worth of at least $100 million, and
preclude cash distributions to stockholders, including dividends and
redemptions, until the 10% Senior Secured Notes have been paid in full. As
of December 31, 1996, the Company was in compliance with all covenants
applicable to the 10% Senior Secured Notes.
The Company has $1.4 million of its 10% Senior Secured Notes which it
repurchased but did not retire due to certain restrictions under the note
agreement. These notes are currently held by a third party agent and are
recorded as investments on the Company's balance sheet. As of December 31,
1996, the Company had unrecognized holding gains of approximately $26,000
related to these securities.
(f) At December 31, 1996, the Company had a capital lease obligation in the
amount of $1.3 million. Principal and interest on this obligation is paid
monthly. This lease matures in 2000 and bears interest at Prime plus 3%.
In August 1995, the Company entered into an interest rate protection
agreement with a major financial institution which reduces the Company's
exposure to fluctuations in interest rates by effectively fixing interest rates
on $40.0 million of variable interest rate debt. Under the agreement, on a
monthly basis the Company pays a fixed rate of interest of 6.18% and receives a
floating interest rate payment equal to the 30 day LIBOR rate on a $40.0 million
notional principal amount. The agreement commenced in October 1995 and expires
in 1999.
In October 1996, the Company entered into a six month interest rate hedge
agreement with a major financial institution to reduce its interest rate
exposure on the anticipated financing of its development program in 1997. Under
the agreement, the Company effectively fixed interest rates at a Treasury yield
of 6.4% for approximately seven years on a $98.4 million notional principal
amount.
Maturities of long-term debt for the next five years ending December 31 are
as follows (in thousands):
<TABLE>
<S> <C>
1997...................................................... $ 3,419
1998...................................................... 17,645
1999...................................................... 25,052
2000...................................................... 12,289
2001...................................................... 14,138
Thereafter................................................ 229,751
--------
Total........................................... $302,294
========
</TABLE>
NOTE 9 -- LEASE COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 1998 through 2061. The Company has options to
renew certain of the leases for periods ranging from 1 to 99 years. Rental
payments are based on minimum rentals plus a percentage of the hotel properties'
revenues in excess of stipulated amounts.
F-15
<PAGE> 49
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule, by year, of future minimum lease payments
required under the remaining operating leases that have terms in excess of one
year as of December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 4,833
1998............................................................... 4,787
1999............................................................... 4,828
2000............................................................... 4,717
2001............................................................... 4,326
Thereafter......................................................... 47,023
-------
Total......................................................... $ 70,514
=======
</TABLE>
Rental expense for all operating leases, including those with terms of less
than one year, consist of the following for the years ended December 31, 1994,
1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Rentals.......................................... $4,654 $4,630 $6,652
Contingent rentals............................... 823 745 1,250
------ ------ ------
Rental expense.............................. $5,477 $5,375 $7,902
====== ====== ======
</TABLE>
Employee Benefits
The Company does not provide any material post employment benefits to its
current or former employees.
NOTE 10 -- INCOME TAXES
The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the years ended December 31,
1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal..................................... $ 970 $ 320 $ 5,147
State....................................... 28 299 563
------- ------- -------
998 619 5,710
Deferred:
Federal..................................... 9,780 9,929 13,005
State....................................... 1,514 1,165 2,029
------- ------- -------
11,294 11,094 15,034
------- ------- -------
Total............................... $12,292 $11,713 $20,744
======= ======= =======
</TABLE>
Income taxes are provided at the applicable federal and state statutory
rates.
F-16
<PAGE> 50
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the years ended December 31,
1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Utilization of net operating loss............................. $ 5,861 $ 3,370 $11,714
Amortization of pre-fresh start basis
differences -- properties and notes......................... 5,632 6,167 1,243
Depreciation.................................................. 200 1,400 830
Compensation expense.......................................... -- 604 691
Other......................................................... (399) (447) 556
------- ------- -------
Total............................................... $11,294 $11,094 $15,034
======= ======= =======
</TABLE>
At December 31, 1996, the Company had available federal net operating loss
carryforwards of approximately $90.7 million which will expire beginning in 2005
and continuing through 2007. Of this amount, $87.3 million is subject to an
annual limitation of $8.7 million under the Internal Revenue Code due to a
change in ownership of the Company upon consummation of the Plan. The Company
also has potential state income tax benefits relating to net operating loss
carryforwards of approximately $5.9 million which will expire during various
periods from 1997 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.
In accordance with SFAS 109, the Company has not recognized the future tax
benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $31.7 million against the deferred tax asset as of
December 31, 1996. To the extent any available carryforwards or other tax
benefits are utilized, the amount of tax benefit realized will be treated as a
contribution to stockholders' equity and will have no effect on the income tax
provision for financial reporting purposes. For the years ended December 31,
1994, 1995 and 1996, the Company recognized $5.9 million, $3.4 million and $10.6
million, respectively, of such benefits as a contribution to stockholders'
equity.
Additionally, the Company recognized $7.0 million, $6.2 million and $1.2
million as a contribution to stockholders' equity for the years ended December
31, 1994, 1995 and 1996, respectively, which represents the amortization of
pre-fresh start tax basis differences related to properties and notes
receivable. As a result of reflecting substantially all of the deferred tax
provisions as a contribution to stockholders' equity, the Company had no
material deferred tax assets or liabilities as of December 31, 1995 and 1996.
NOTE 11 -- BUSINESS INTERRUPTION INSURANCE
In September 1995, the Frenchman's Reef suffered damages when Hurricane
Marilyn struck the U.S. Virgin Islands. 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. In addition, in July 1996, Hurricane Bertha struck the
island and caused further damage to the hotel. The Company is currently
reviewing its claim for property damage with its insurance carrier and is in the
process of preparing a claim under its business interruption insurance.
Although the Company has continued to operate the hotel, the impact of the
hurricanes has caused operating profits to decline from prior year levels. In
1996 and 1995, the Company continued to record the operating revenues and
expenses of the Frenchman's Reef. In addition, the Company recorded business
F-17
<PAGE> 51
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interruption insurance revenue of $13.6 million in 1996 based on the claim
settlement which is included in operating revenues. The Company is currently
underway with plans to refurbish and upgrade the Frenchman's Reef. In addition
to the hurricane-related renovations, the plan provides for structural
enhancements, redesigned guestrooms, increased banquet and meeting space and new
landscaping.
Other expense of $2.2 million for the year ended December 31, 1995 consists
of a reserve for insurance deductibles related to hurricane damage caused by
Hurricane Marilyn at the Frenchman's Reef.
NOTE 12 -- OTHER INCOME
Other income consists of items which are not considered part of the
Company's recurring operations and is composed of the following as of December
31, 1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Gains on settlements of notes receivable................. $6,355 $ 822 $1,774
Gains on sales of properties............................. 1,099 1,417 2,532
Rebates of prior years' insurance premiums............... 1,579 -- --
Other.................................................... 56 -- --
------ ------ ------
Total.......................................... $9,089 $2,239 $4,306
====== ====== ======
</TABLE>
NOTE 13 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The fair values of non-current financial assets and liabilities and other
financial instruments are shown below (in thousands). The fair values of current
assets and current liabilities are assumed to be equal to their reported
carrying amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Mortgage and notes receivable........... $ 64,962 $ 76,058 $ 24,195 $ 38,928
Long-term debt.......................... 276,920 278,899 298,875 343,039
Interest rate swap agreement............ -- (15) -- (173)
Interest rate hedge agreement........... -- -- -- (620)
</TABLE>
The fair value for mortgages and notes receivable is based on the valuation
of the underlying collateral utilizing discounted cash flows and other methods
applicable to the industry. Valuations for long-term debt are based on quoted
market prices or at current rates available to the Company for debt of the same
maturities. The fair values of the interest rate swap and hedge agreements are
based on the estimated amounts the Company would pay to terminate the
agreements.
The Company's mortgages and other notes receivable (See Note 6) are derived
primarily from and are secured by hotel properties, which constitutes a
concentration of credit risk. These notes are subject to many of the same risks
as the Company's operating hotel assets. A significant portion of the collateral
is located in the Northeastern United States.
F-18
<PAGE> 52
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- RELATED PARTY TRANSACTIONS
The following summarizes significant financial information with respect to
transactions with present and former officers, directors, their relatives and
certain entities they control or in which they have a beneficial interest for
the years ended December 31, 1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Management and other fee income(a)....................... $ 1,165 $ 1,427 $ 1,040
Interest income(a)....................................... 1,283 518 582
Management fee expense(b)................................ 679 -- --
Interest expense(b)...................................... 461 -- --
Reservation fee expense(b)............................... 317 -- --
</TABLE>
- ---------------
(a) At December 31, 1996, the Company managed six hotels for partnerships in
which related parties own various interests. The income amounts shown above
primarily include transactions related to these hotel properties. On March
6, 1996, the Company acquired nine hotels owned by related parties. (See
Note 2).
(b) In 1991, the Company entered into an agreement with ShoLodge, a company
controlled by a former director, whereby ShoLodge was appointed the
exclusive agent to develop and manage certain hotel properties.
In March 1995, the Company acquired ShoLodge's option to purchase the
remaining 50% interest in all eleven hotels developed by ShoLodge and also
acquired the ownership interest of the remaining AmeriSuites hotel not
already owned by the Company (See Note 2).
NOTE 15 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
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 utilized the proceeds from the offering of
approximately $141.4 million (net of underwriting discounts and expenses of $7.2
million) to fund AmeriSuites development, to reduce indebtedness of $40.0
million under the Revolving Credit Facility and to repay certain other
indebtedness of $26.7 million, thereby increasing availability for further
AmeriSuites development.
STOCK OPTIONS
The Company has adopted various stock option and performance incentive
plans under which options to purchase shares of common stock may be granted to
directors, officers or key employees under terms determined by the Board of
Directors. A total of 200,000 options were reserved under these plans (net of
amounts granted to date) as of December 31, 1996.
Under the 1995 Employee Stock Option Plan, options to purchase shares of
common stock may be granted at the fair market value of the common stock at the
date of grant. Options can generally be exercised during a participant's
employment with the Company in equal annual installments over a three-year
period and expire ten years from the date of grant. During 1995 and 1996,
respectively, options to purchase 648,000 and 595,000 shares of common stock
were granted under this plan.
Under the 1995 Non-Employee Director Stock Option Plan, options to purchase
10,000 shares of common stock are automatically granted to each non-employee
director at the fair market value of the common stock at the date of grant. All
options will be fully vested and exercisable one year after the date of grant
and will expire ten years after the date of grant, or earlier if the
non-employee director ceases to be a director. Options to purchase 50,000 shares
of common stock were granted under this plan in both 1995 and 1996.
F-19
<PAGE> 53
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Company's 1992 Stock Option and Performance Incentive Plans,
options to purchase 367,000 and 15,000 shares of common stock were issued to
employees in 1994 and 1995, respectively. The options were granted at prices
which approximate fair market value at the date of grant. Generally, these
options can be exercised during a participant's employment in equal annual
installments over a three year period and expire six years from the date of
grant.
Options to purchase 30,000 and 60,000 shares of common stock were issued to
non-employee directors of the Company in 1994 and 1995, respectively, under the
Company's 1992 Stock Option Plan. The options were granted at prices which
approximate fair market value at the date of grant. Generally, one-third of
these options were exercisable at the date of grant and the remaining options
vest in equal annual installments over a two-year period. The options expire six
years after the date of grant.
During 1992, options to purchase 350,000 shares were granted to employee
officers and directors under the Company's 1992 Stock Option Plan. All 350,000
shares are currently exercisable at December 31, 1996. In addition, options to
purchase 330,000 shares were granted to a former officer in 1992, all of which
were exercised. The exercise prices of the remaining exercisable options are
based on the average market price one year from the date of grant which was
determined to be $2.71 per share with respect to 330,000 shares and $3.81 per
share with respect to the other 20,000 shares. Based on this exercise price, the
amount of compensation expense attributable to these options was $60,000,
$16,000 and $5,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Effective January 1, 1996, the Company adopted the provisions of SFAS 123,
Accounting for Stock-Based Compensation. As permitted by the Statement, the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans other than for performance-based awards,
which was not significant. Had the fair value method of accounting been applied
to the Company's stock plans, which requires recognition of compensation cost
ratably over the vesting period of the underlying equity instruments, net income
would have been reduced by $1.3 million, or $.03 per share in 1995 and $2.3
million, or $.05 per share in 1996. This pro forma impact only takes into
account options granted since January 1, 1995 and is likely to increase in
future years as additional options are granted and amortized ratably over the
vesting period. The average fair value of options granted during 1995 and 1996
was $4.46 and $7.33, respectively.
The fair value was estimated using the Black-Scholes option-pricing model
based on the weighted average market price at grant date of $9.59 in 1995 and
$16.51 in 1996 and the following weighted average assumptions: risk-free
interest rate of 6.22% for 1995 and 6.43% in 1996, volatility of 42.39% for 1995
and 38.64% for 1996, and dividend yield of 0.0% for 1995 and 1996.
F-20
<PAGE> 54
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the various stock option plans:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
---------- --------------
<S> <C> <C>
Outstanding at December 31, 1994.................................. 1,442,000
Granted........................................................... 773,000 $ 9.25-$10.88
Exercised......................................................... (222,000) $ 2.71-$ 7.63
Canceled.......................................................... (165,000) $ 3.63-$ 9.63
---------
Outstanding at December 31, 1995.................................. 1,828,000
---------
Granted........................................................... 646,000 $14.75-$18.00
Exercised......................................................... (149,000) $ 3.63-$10.81
Canceled.......................................................... (59,000) $ 3.63-$16.63
---------
Outstanding at December 31, 1996.................................. 2,266,000
=========
Exercisable at December 31, 1996.................................. 1,101,000 $ 2.71-$10.88
=========
</TABLE>
WARRANTS
Pursuant to the Plan, warrants to purchase 2,053,583 shares of the
Company's common stock were issued to former shareholders of the Company's
predecessor, PMI, in partial settlement of their bankruptcy interests. The
warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per
share and expire five years after the date of grant. The exercise price was
determined from the average per share daily closing price of the Company's
common stock during the year following its reorganization on July 31, 1992. As
of December 31, 1996 warrants to purchase 1,027,392 shares have been exercised
and 1,026,191 remain outstanding.
NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes non-cash investing and financing activities for
the years ended December 31, 1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Assumption of mortgages and notes payable in connection with
the acquisitions of hotels................................... $ 18,718 $ 5,120 $ 12,222
Hotels received in settlements of mortgage notes receivable.... 54,521 2,702 35,306
Note receivable received in exchange for the sale of a hotel... $ 1,497 $ -- $ --
</TABLE>
Cash paid for interest was $15.5 million, $22.4 million and $22.4 million
for the years ended December 31, 1994, 1995 and 1996, respectively.
Cash paid for income taxes was $1.9 million, $1.2 million and $8.0 million
for the years ended December 31, 1994, 1995 and 1996, respectively.
F-21
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ DAVID A. SIMON
------------------------------------
David A. Simon, Chairman of the
Board of Directors, President and
Chief Executive Officer
DATE: February 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 28, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -------------------------------------------------
<C> <S>
/s/ DAVID A. SIMON Chairman of Board of Directors, President, Chief
- ------------------------------------------ Executive Officer and Director (Principal
David A. Simon Executive Officer)
/s/ JOHN M. ELWOOD Chief Financial Officer, Executive Vice President
- ------------------------------------------ and Director (Principal, Financial and
John M. Elwood Accounting Officer)
/s/ ALLEN J. OSTROFF Director
- ------------------------------------------
Allen J. Ostroff
/s/ HERBERT LUST, II Director
- ------------------------------------------
Herbert Lust, II
/s/ A.F. PETROCELLI Director
- ------------------------------------------
A.F. Petrocelli
/s/ JACK H. NUSBAUM Director
- ------------------------------------------
Jack H. Nusbaum
/s/ HOWARD M. LORBER Director
- ------------------------------------------
Howard M. Lorber
</TABLE>
<PAGE> 56
Exhibit Index
-------------
Exhibit No Exhibit
- ----------- -------
(2)(a) Reference is made to the Disclosure Statement for Debtors' Second
Amended Joint Plan of Reorganization, dated January 16, 1992, which
includes the Debtors' Second Amended Plan of Reorganization as an
exhibit thereto filed as an Exhibit to the Company's Form 10-K
dated September 25, 1992, which is incorporated herein by
reference.
(b) Reference is made to the Contract of Purchase and Sale between
Hillsborough Associates, Meriden Hotel Associates, L.P., Wellesley
I, L.P., Multi-Wellesley Limited Partnership and the Company, dated
March 6, 1996, filed as an Exhibit to the Company's 8-K dated March
21, 1996, which is incorporated herein by reference.
(c) Reference is made to Consent of the Holders Thereof to the Purchase
by the Company of the Outstanding First Mortgage Notes filed as an
Exhibit to the Company's 8-K, dated March 21, 1996, which is
incorporated herein by reference.
(3)(a) Reference is made to the Restated Certificate of Incorporation of
the Company, dated June 5, 1992, filed as an Exhibit to the
Company's Form 10-K dated September 25, 1992, which is incorporated
herein by reference.
(b) Reference is made to the Restated Bylaws of the Company filed as an
Exhibit to the Company's Form 10-K, dated September 25, 1992, which
is incorporated herein by reference.
(4)(a) Reference is made to the Form of 9.20% Junior Secured Note of the
Company filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
(b) Reference is made to the Form of 8.20% Tax Note of the Company
filed as an Exhibit to the Company's Form 10-K, dated September 25,
1992, which is incorporated herein by reference.
(c) Reference is made to the Form of 10.20% Secured UND Restructured
Note of the Company filed as an Exhibit to the Company's Form 10-K,
dated September 25, 1992, which is incorporated herein by
reference.
(d) Reference is made to the Form of 8% Secured UND Restructured Note
of the Company filed as an Exhibit to the Company's Form 10-K,
dated September 25, 1992, which is incorporated herein by
reference.
(e) Reference is made to the Form of 9.20% OVR Restructured Note of the
Company filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
(f) Reference is made to the Collateral Agency Agreement among the
Company, U.S. Trust and the Secured Parties, dated as of July 31,
1992 filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
<PAGE> 57
Exhibit No Exhibit
- ----------- -------
(g) Reference is made to the Security Agreement between the Company and
U.S. Trust, dated as of July 31, 1992, filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(h) Reference is made to the Subsidiary Guaranty from FR Delaware, Inc.
to United States Trust Company of New York, dated as of July 31,
1992, filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
(i) Reference is made to the Security Agreement between FR Delaware,
Inc. and United States Trust Company of New York, dated as of July
31, 1992, filed as an Exhibit to the Company's Form 10-K, dated
September 25, 1992, which is incorporated herein by reference.
(j) Reference is made to the Subsidiary Guaranty from Prime Note
Collections Company, Inc. to United States Trust Company of New
York, dated as of July 31, 1992, filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(k) Reference is made to the Security Agreement between Prime Note
Collections Company, Inc. and United States Trust Company of New
York, dated as of July 31, 1992, filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(l) Reference is made to a Form 8-A of the Company as filed on June 5,
1992 with the Securities and Exchange Commission, as amended by
Amendment No. 1 and Amendment No. 2, which is incorporated herein
by reference.
(m) Reference is made to an Indenture, dated April 26, 1995, between
the Company and the Trustee related to the issuance of 7%
Convertible Subordinated Notes due 2002, filed as an Exhibit to the
Company's Form 10-K dated March 21, 1996, which is incorporated
herein by reference.
(n) Reference is made to an Indenture, dated January 23, 1996, between
the Company and the Trustee related to 9 1/4% First Mortgage Notes
due 2006, filed as an Exhibit to the Company's Form 10-K dated
March 21, 1996, which is incorporated herein by reference.
(o) Reference is made to the Senior Secured Revolving Credit Agreement,
dated as of June 26, 1996, among the Company and the Lenders Party
hereto, and 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 dated July 26, 1996, which
is incorporated herein by reference.
(p) Master Repurchase Agreement, dated as of October 23, 1996, between
BT Securities Corporation and Prime Hospitality Corp.
(10)(a) Reference is made to the Agreement of Purchase and Sale between
Flamboyant Investment Company, Ltd. and VMS Realty, Inc., dated
June 3, 1985, and its related agreements, each of which was
included as Exhibits to the Form 8-K dated August 14, 1985 of PMI,
which are incorporated herein by reference.
(b) Reference is made to PMI's Flexible Benefit Plan, filed as an
Exhibit to the Form 10-Q, dated February 12, 1988 of PMI, which is
incorporated herein by reference.
(c) Reference is made to the 1992 Performance Incentive Stock Option
Plan of the Company, dated as of July 31, 1992, filed as an Exhibit
to the Company's Form 10-K dated September 25, 1992, which is
incorporated herein by reference.
<PAGE> 58
Exhibit No Exhibit
- ----------- -------
(d) Reference is made to the 1992 Stock Option Plan of the Company
filed as an Exhibit to the Company's Form 10-K, dated September 25,
1992, which is incorporated herein by reference.
(e) Reference is made to the 1992 Non-Qualified Stock Option Agreement
between the Company and David A. Simon filed as an Exhibit to the
Company's Form 10-K, dated September 25, 1992, which is
incorporated herein by reference.
(f) Reference is made to the 1992 Non-Qualified Stock Option Agreement
between the Company and John Elwood filed as an Exhibit to the
Company's Form 10-K, dated March 26, 1993, which is incorporated
herein by reference.
(g) Reference is made to the Employment Agreement, dated as of May 18,
1993, between Paul Hower filed as an Exhibit to the Company's Form
10-K, dated March 25, 1994, which is incorporated herein by
reference.
(h) Reference is made to the Consolidated and Amended Settlement
Agreement, dated as of October 12, 1993, between Allan V. Rose and
the Company filed as an Exhibit to the Company's Form 10-K, dated
March 25, 1994, which is incorporated herein by reference.
(i) Reference is made to the Consent and Amendment to Prime Hospitality
Corp. 9.20% Junior Secured Notes filed as an Exhibit to the
Company's Form 10-K, dated March 10, 1995.
(j) Reference is made to the Agreement, dated February 6, 1995, among
Suites of America, Inc., ShoLodge, Inc. and the Company filed as an
Exhibit to the Company's Form 10-K, dated March 10, 1995.
(k) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between David A. Simon and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(l) Reference is made to the Change of Control Agreement dated,
February 15, 1995, between John M. Elwood and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(m) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Paul H. Hower and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(n) Reference is made to the Change of Control Agreement dated,
February 15, 1995, between John H. Leavitt and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(o) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Denis W. Driscoll and the Company filed
as an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(p) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Timothy E. Aho and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(q) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Joseph Bernadino and the Company filed
as an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(r) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Richard T. Szymanski and the Company
filed as an Exhibit to the Company's Form 10-K, dated March 10,
1995.
<PAGE> 59
Exhibit No Exhibit
- ----------- -------
(s) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Douglas W. Vicari and the Company filed
as an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(t) Reference is made to the Change of Control Agreement, dated
February 15, 1995, between Richard Moskal and the Company filed as
an Exhibit to the Company's Form 10-K, dated March 10, 1995.
(u) Reference is made to the Employment Agreement, dated May 15, 1995,
between John Elwood and the Company, filed as an Exhibit to the
Company's Form 10-K, dated March 21, 1996.
(v) Reference is made to the Employment Agreement, dated August 1,
1995, between David Simon and the Company, filed as an Exhibit to
the Company's Form 10-K, dated March 21, 1996.
(11) Statement regarding computation of per share earnings.
(21) Subsidiaries of the Company are as follows:
(23) Consent of Arthur Andersen LLP
(27) Financial data schedule.
<PAGE> 1
EXHIBIT 4(P)
MASTER REPURCHASE AGREEMENT
DATED AS OF OCTOBER 23, 1996
BETWEEN:
BT SECURITIES CORPORATION
AND
PRIME HOSPITALITY CORP.
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in which
one party ("Seller") agrees to transfer to the other ("Buyer") securities or
other assets ("Securities") against the transfer of funds by Buyer, with a
simultaneous agreement by Buyer to transfer to Seller such Securities at a date
certain or on demand, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "Transaction" and, unless otherwise
agreed in writing, shall be governed by this Agreement, including any
supplemental terms or conditions contained in Annex I hereto and in any other
annexes identified herein or therein as applicable hereunder.
2. DEFINITIONS
(a) "Act of Insolvency", with respect to any party, (i) the commencement by
such party as debtor of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, moratorium, dissolution, delinquency or similar
law, or such party seeking the appointment or election of a receiver,
conservator, trustee, custodian or similar official for such party or any
substantial part of its property, or the convening of any meeting of creditors
for purposes of commencing any such case or proceeding or seeking such an
appointment or election, (ii) the commencement of any such case or proceeding
against such party, or another seeking such an appointment or election, or the
filing against a party of an application for a protective decree under the
provisions of the Securities Investor Protection Act of 1970, which (A) is
consented to or not timely contested by such party, (B) results in the entry of
an order for relief, such an appointment or election, the issuance of such a
protective decree or the entry of an order having a similar effect, or (C) is
not dismissed within 15 days, (iii) the making by such party of a general
assignment for the benefit of creditors, or (iv) the admission in writing by
such party of such party's inability to pay such party's debts as they become
due;
(b) "Additional Purchased Securities", Securities provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof:
(c) "Buyer's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of the Buyer's Margin Percentage to the
Repurchase Price for such Transaction as of such date:
(d) "Buyer's Margin Percentage", with respect to any Transaction as of any
date, a percentage (which may be equal to the Seller's Margin Percentage) agreed
to by Buyer and Seller or, in the absence of any such agreement, the percentage
obtained by dividing the Market Value of the Purchased Securities on the
Purchase Date by the Purchase Price on the Purchase Date for such Transaction;
(e) "Confirmation", the meaning specified in Paragraph 3(b) hereof;
(f) "Income", with respect to any Security at any time, any principal
thereof and all interest, dividends or other distributions thereon;
(g) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;
(h) "Margin Excess", the meaning specified in Paragraph 4(b) hereof;
(i) "Margin Notice Deadline", the time agreed to by the parties in the
relevant Confirmation, Annex I hereto or otherwise as the deadline for giving
notice requiring same-day satisfaction of margin maintenance
<PAGE> 2
obligations as provided in Paragraph 4 hereof (or, in the absence of any such
agreement, the deadline for such purposes established in accordance with market
practice);
(j) "Market Value", with respect to any Securities as of any date, the
price for such Securities on such date obtained from a generally recognized
source agreed to by the parties or the most recent closing bid quotation from
such a source, plus accrued Income to the extent not included therein (other
than any Income credited or transferred to, or applied to the obligations of,
Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to
market practice for such Securities);
(k) "Price Differential", with respect to any Transaction as of any date,
the aggregate amount obtained by daily application of the Pricing Rate for such
Transaction to the Purchase Price for such Transaction on a 360-day-per-year
basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the date of determination (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction);
(l) "Pricing Rate", the per annum percentage rate for determination of the
Price Differential;
(m) "Prime Rate", the prime rate of U.S. commercial banks as published in
The Wall Street Journal (or, if more than one such rate is published, the
average of such rates);
(n) "Purchase Date", the date on which Purchased Securities are to be
transferred by Seller to Buyer;
(o) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter,
except where Buyer and Seller agree otherwise, such price increased by the
amount of any cash transferred by Buyer to Seller pursuant to Paragraph 4(b)
hereof and decreased by the amount of any cash transferred by Seller to Buyer
pursuant to Paragraph 4(a) hereof or applied to reduce Seller's obligations
under clause (ii) of Paragraph 5 hereof;
(p) "Purchased Securities", the Securities transferred by Seller to Buyer
in a Transaction hereunder, and any Securities substituted therefor in
accordance with Paragraph 9 hereof. The term "Purchased Securities" with respect
to any Transaction at any time also shall include Additional Purchased
Securities delivered pursuant to Paragraph 4(a) hereof and shall exclude
Securities returned pursuant to Paragraph 4(b) hereof;
(q) "Repurchase Date", the date on which Seller is to repurchase the
Purchased Securities from Buyer, including any date determined by application of
the provisions of Paragraph 3(c) or 11 hereof;
(r) "Repurchase Price", the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction, which will
be determined in each case (including Transactions terminable upon demand) as
the sum of the Purchase Price and the Price Differential as of the date of such
determination;
(s) "Seller's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of the Seller's Margin Percentage to
the Repurchase Price for such Transaction as of such date;
(t) "Seller's Margin Percentage", with respect to any Transaction as of any
date, a percentage (which may be equal to the Buyer's Margin Percentage) agreed
to by Buyer and Seller or, in the absence of any such agreement, the percentage
obtained by dividing the Market Value of the Purchased Securities on the
Purchase Date by the Purchase Price on the Purchase Date for such Transaction.
3. INITIATION; CONFIRMATION; TERMINATION
(a) An agreement to enter into a Transaction may be made orally or in
writing at the initiation of either Buyer or Seller. On the Purchase Date for
the Transaction, the Purchased Securities shall be transferred to Buyer or its
agent against the transfer of the Purchase Price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller
(or both), as shall be agreed, shall promptly deliver to the other party a
written confirmation of each Transaction (a "Confirmation"). The Confirmation
shall describe the Purchased Securities (including CUSIP number, if any),
identify Buyer and
<PAGE> 3
Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the
Repurchase Date, unless the Transaction is to be terminable on demand, (iv) the
Pricing Rate or Repurchase Price applicable to the Transaction, and (v) any
additional terms or conditions of the Transaction not inconsistent with this
Agreement. The Confirmation, together with this Agreement, shall constitute
conclusive evidence of the terms agreed between Buyer and Seller with respect to
the Transaction to which the Confirmation relates, unless with respect to the
Confirmation specific objection is made promptly after receipt thereof. In the
event of any conflict between the terms of such Confirmation and this Agreement,
this Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior to the
business day on which such termination will be effective. On the date specified
in such demand, or on the date fixed for termination in the case of Transactions
having a fixed term, termination of the Transaction will be effected by transfer
to Seller or its agent of the Purchased Securities and any Income in respect
thereof received by Buyer (and not previously credited or transferred to, or
applied to the obligations of, Seller pursuant to Paragraph 5 hereof) against
the transfer of the Repurchase Price to an account of Buyer.
4. MARGIN MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Buyer is less than the aggregate Buyer's Margin Amount for all such Transactions
(a "Margin Deficit"), then Buyer may by notice to Seller require Seller in such
Transactions, at Seller's option, to transfer to Buyer cash or additional
Securities reasonably acceptable to Buyer ("Additional Purchased Securities"),
so that the cash and aggregate Market Value of the Purchased Securities,
including any such Additional Purchased Securities, will thereupon equal or
exceed such aggregate Buyer's Margin Amount (decreased by the amount of any
Margin Deficit as of such date arising from any Transactions in which such Buyer
is acting as Seller).
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Seller exceeds the aggregate Seller's Margin Amount for all such Transactions at
such time (a "Margin Excess"), then Seller may by notice to Buyer require Buyer
in such Transactions, at Buyer's option, to transfer cash or Purchased
Securities to Seller, so that the aggregate Market Value of the Purchased
Securities, after deduction of any such cash or any Purchased Securities so
transferred, will thereupon not exceed such aggregate Seller's Margin Amount
(increased by the amount of any Margin Excess as of such date arising from any
Transactions in which such Seller is acting as Buyer).
(c) If any notice is given by Buyer or Seller under subparagraph (a) or (b)
of this Paragraph at or before the Margin Notice Deadline on any business day,
the party receiving such notice shall transfer cash or Additional Purchased
Securities as provided in such subparagraph no later than the close of business
in the relevant market on such day. If any such notice is given after the Margin
Notice Deadline, the party receiving such notice shall transfer such cash or
Securities no later than the close of business in the relevant market on the
next business day following such notice.
(d) Any cash transferred pursuant to this Paragraph shall be attributed to
such Transactions as shall be agreed upon by Buyer and Seller.
(e) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer or Seller (or both) under
subparagraphs (a) and (b) of this Paragraph may be exercised only where a Margin
Deficit or a Margin Excess, as the case may be, exceeds a specified dollar
amount or a specified percentage of the Repurchase Prices for such Transactions
(which amount or percentage shall be agreed to by Buyer and Seller prior to
entering into any such Transactions).
(f) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer and Seller under subparagraphs
(a) and (b) of this Paragraph to require the elimination of a Margin Deficit or
a Margin Excess, as the case may be, may be exercised whenever such a Margin
Deficit or a Margin Excess exists with respect to any single Transaction
hereunder (calculated without regard to any other Transaction outstanding under
this Agreement).
<PAGE> 4
5. INCOME PAYMENTS
Seller shall be entitled to receive an amount equal to all Income paid or
distributed on or in respect of the Securities that is not otherwise received by
Seller, to the full extent it would be so entitled if the Securities had not
been sold to Buyer. Buyer shall, as the parties may agree with respect to any
Transaction (or, in the absence of any such agreement, as Buyer shall reasonably
determine in its discretion), on the date such Income is paid or distributed
either (i) transfer to or credit to the account of Seller such Income with
respect to any Purchased Securities subject to such Transaction or (ii) with
respect to Income paid in cash, apply the Income payment or payments to reduce
the amount, it any, to be transferred to Buyer by Seller upon termination of
such Transaction. Buyer shall not be obligated to take any action pursuant to
the preceding sentence (A) to the extent that such action would result in the
creation of a Margin Deficit, unless prior thereto or simultaneously therewith
Seller transfers to Buyer cash or Additional Purchased Securities sufficient to
eliminate such Margin Deficit, or (B) if an Event of Default with respect to
Seller has occurred and is then continuing at the time such Income is paid or
distributed.
6. SECURITY INTEREST
Although the parties intend that all Transactions hereunder be sales and
purchases and not loans, in the event any such Transactions are deemed to be
loans, Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and shall
be deemed to have granted to Buyer a security interest in, all of the Purchased
Securities with respect to all Transactions hereunder and all Income thereon and
other proceeds thereof.
7. PAYMENT AND TRANSFER
Unless otherwise mutually agreed, all transfers of funds hereunder shall be
in immediately available funds. All Securities transferred by one party hereto
to the other party (i) shall be in suitable form for transfer or shall be
accompanied by duly executed instruments of transfer or assignment in blank and
such other documentation as the party receiving possession may reasonably
request. (ii) shall be transferred on the book-entry system of a Federal Reserve
Bank, or (iii) shall be transferred by any other method mutually acceptable to
Seller and Buyer.
8. SEGREGATION OF PURCHASED SECURITIES
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its possession
and shall be identified as subject to this Agreement. Segregation may be
accomplished by appropriate identification on the books and records of the
holder, including a financial or securities intermediary or a clearing
corporation. All of Seller's interest in the Purchased Securities shall pass to
Buyer on the Purchase Date and, unless otherwise agreed by Buyer and Seller,
nothing in this Agreement shall preclude Buyer from engaging in repurchase
transactions with the Purchased Securities or otherwise selling, transferring,
pledging or hypothecating the Purchased Securities, but no such transaction
shall relieve Buyer of its obligations to transfer Purchased Securities to
Seller pursuant to Paragraph 3, 4 or 11 hereof, or of Buyer's obligation to
credit or pay Income to, or apply Income to the obligations of, Seller pursuant
to Paragraph 5 hereof.
Required Disclosure for Transactions in Which the Seller Retains Custody of
the Purchased Securities
Seller is not permitted to substitute other securities for those subject to
this Agreement and therefore must keep Buyer's securities segregated at all
times, unless in this Agreement Buyer grants Seller the right to substitute
other securities. If Buyer grants the right to substitute, this means that
Buyer's securities will likely be commingled with Seller's own securities during
the trading day. Buyer is advised that, during any trading
<PAGE> 5
day that Buyer's securities are commingled with Seller's securities, they
[will]* [may]** be subject to liens granted by Seller to [its clearing bank]*
[third parties]** and may be used by Seller for deliveries on other securities
transactions. Whenever the securities are commingled, Seller's ability to
resegregate substitute securities for Buyer will be subject to Seller's ability
to satisfy [the clearing]* [any]** lien or to obtain substitute securities.
9. SUBSTITUTION
(a) Seller may, subject to agreement with and acceptance by Buyer,
substitute other Securities for any Purchased Securities. Such substitution
shall be made by transfer to Buyer of such other Securities and transfer to
Seller of such Purchased Securities. After substitution, the substituted
Securities shall be deemed to be Purchased Securities.
(b) In Transactions in which Seller retains custody of Purchased
Securities, the parties expressly agree that Buyer shall be deemed, for purposes
of subparagraph (a) of this Paragraph, to have agreed to and accepted in this
Agreement substitution by Seller of other Securities for Purchased Securities;
provided, however, that such other Securities shall have a Market Value at least
equal to the Market Value of the Purchased Securities for which they are
substituted.
10. REPRESENTATIONS
Each of Buyer and Seller represents and warrants to the other that (i) it
is duly authorized to execute and deliver this Agreement, to enter into
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing, in the form of an annex hereto or otherwise, in advance of
any Transaction by the other party hereto, as agent for a disclosed principal),
(iii) the person signing this Agreement on its behalf is duly authorized to do
so on its behalf (or on behalf of any such disclosed principal), (iv) it has
obtained all authorizations of any governmental body required in connection with
this Agreement and the Transactions hereunder and such authorizations are in
full force and effect and (v) the execution, delivery and performance of this
Agreement and the Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by which it is bound
or by which any of its assets are affected. On the Purchase Date for any
Transaction Buyer and Seller shall each be deemed to repeat all the foregoing
representations made by it.
11. EVENTS OF DEFAULT
In the event that (i) Seller fails to transfer or Buyer fails to purchase
Purchased Securities upon the applicable Purchase Date, (ii) Seller fails to
repurchase or Buyer fails to transfer Purchased Securities upon the applicable
Repurchase Date, (iii) Seller or Buyer fails to comply with Paragraph 4 hereof,
(iv) Buyer fails, after one business day's notice, to comply with Paragraph 5
hereof, (v) an Act of Insolvency occurs with respect to Seller or Buyer, (vi)
any representation made by Seller or Buyer shall have been incorrect or untrue
in any material respect when made or repeated or deemed to have been made or
repeated, or (vii) Seller or Buyer shall admit to the other its inability to, or
its intention not to, perform any of its obligations hereunder (each an "Event
of Default"):
(a) The nondefaulting party may, at its option (which option shall be
deemed to have been exercised immediately upon the occurrence of an Act of
Insolvency), declare an Event of Default to have occurred hereunder and, upon
the exercise or deemed exercise of such option, the Repurchase Date for each
Transaction hereunder shall, if it has not already occurred, be deemed
immediately to occur (except that, in the event that the Purchase Date for any
Transaction has not yet occurred as of the date of such exercise or
- ---------------
* Language to be used under 17 C.F.R. sec.403.4(e) if Seller is a government
securities broker or dealer other than a financial institution.
** Language to be used under 17 C.F.R. sec.403.5(d) if Seller is a financial
institution.
<PAGE> 6
deemed exercise, such Transaction shall be deemed immediately canceled). The
nondefaulting party shall (except upon the occurrence of an Act of Insolvency)
give notice to the defaulting party of the exercise of such option as promptly
as practicable.
(b) In all Transactions in which the defaulting party is acting as Seller,
if the nondefaulting party exercises or is deemed to have exercised the option
referred to in subparagraph (a) of this Paragraph, (i) the defaulting party's
obligations in such Transactions to repurchase all Purchased Securities, at the
Repurchase Price therefor on the Repurchase Date determined in accordance with
subparagraph (a) of this Paragraph, shall thereupon become immediately due and
payable, (ii) all Income paid after such exercise or deemed exercise shall be
retained by the nondefaulting party and applied to the aggregate unpaid
Repurchase Prices and any other amounts owing by the defaulting party hereunder,
and (iii) the defaulting party shall immediately deliver to the nondefaulting
party any Purchased Securities subject to such Transactions then in the
defaulting party's possession or control.
(c) In all Transactions in which the defaulting party is acting as Buyer,
upon tender by the nondefaulting party of payment of the aggregate Repurchase
Prices for all such Transactions, all right, title and interest in and
entitlement to all Purchased Securities subject to such Transactions shall be
deemed transferred to the nondefaulting party, and the defaulting party shall
deliver all such Purchased Securities to the nondefaulting party.
(d) If the nondefaulting party exercises or is deemed to have exercised the
option referred to in subparagraph (a) of this Paragraph, the nondefaultlng
party, without prior notice to the defaulting party, may;
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market (or otherwise in a
commercially reasonable manner) at such price or prices as the
nondefaulting party may reasonably deem satisfactory, any or all Purchased
Securities subject to such Transactions and apply the proceeds thereof to
the aggregate unpaid Repurchase Prices and any other amounts owing by the
defaulting party hereunder or (B) in its sole discretion elect, in lieu of
selling all or a portion of such Purchased Securities, to give the
defaulting party credit for such Purchased Securities in an amount equal to
the price therefor on such date, obtained from a generally recognized
source or the most recent closing bid quotation from such a source, against
the aggregate unpaid Repurchase Prices and any other amounts owing by the
defaulting party hereunder; and
(ii) as to Transactions in which the defaulting party is acting as
Buyer, (A) immediately purchase, in a recognized market (or otherwise in a
commercially reasonable manner) at such price or prices as the
nondefaulting party may reasonably deem satisfactory, securities
("Replacement Securities") of the same class and amount as any Purchased
Securities that are not delivered by the defaulting party to the
nondefaulting party as required hereunder or (B) in its sole discretion
elect, in lieu of purchasing Replacement Securities, to be deemed to have
purchased Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent closing
offer quotation from such a source.
Unless otherwise provided in Annex I, the parties acknowledge and agree
that (1) the Securities subject to any Transaction hereunder are instruments
traded in a recognized market, (2) in the absence of a generally recognized
source for prices or bid or offer quotations for any Security, the nondefaulting
party may establish the source therefor in its sole discretion and (3) all
prices, bids and offers shall be determined together with accrued Income (except
to the extent contrary to market practice with respect to the relevant
Securities).
(e) As to Transactions in which the defaulting party is acting as Buyer,
the defaulting party shall be liable to the nondefaulting party for any excess
of the price paid (or deemed paid) by the nondefaulting party for Replacement
Securities over the Repurchase Price for the Purchased Securities replaced
thereby and for any amounts payable by the defaulting party under Paragraph 5
hereof or otherwise hereunder.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is acting as
Buyer shall not increase above the amount of such Repurchase Price for such
Transaction determined as of the date of the exercise or deemed exercise by the
nondefaulting party of the option referred to in subparagraph (a) of this
Paragraph.
<PAGE> 7
(g) The defaulting party shall be liable to the nondefaulting party for (i)
the amount of all reasonable legal or other expenses incurred by the
nondefaulting party in connection with or as a result of an Event of Default,
(ii) damages in an amount equal to the cost (including all fees, expenses and
commissions) of entering into replacement transactions and entering into or
terminating hedge transactions in connection with or as a result of an Event of
Default, and (iii) any other loss, damage, cost or expense directly arising or
resulting from the occurrence of an Event of Default in respect of a
Transaction.
(h) To the extent permitted by applicable law, the defaulting party shall
be liable to the nondefaulting party for interest on any amounts owing by the
defaulting party hereunder, from the date the defaulting party becomes liable
for such amounts hereunder until such amounts are (i) paid in full by the
defaulting party or (ii) satisfied in full by the exercise of the nondefaulting
party's rights hereunder. Interest on any sum payable by the defaulting party to
the nondefaulting party under this Paragraph 11(h) shall be at a rate equal to
the greater of the Pricing Rate for the relevant Transaction or the Prime Rate.
(i) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement or
applicable law.
12. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions hereunder and
(iii) that payments, deliveries and other transfers made by either of them in
respect of any Transaction shall be deemed to have been made in consideration of
payments, deliveries and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.
13. NOTICES AND OTHER COMMUNICATIONS
Any and all notices, statements, demands or other communications hereunder
may be given by a party to the other by mail, facsimile, telegraph, messenger or
otherwise to the address specified in Annex II hereto, or so sent to such party
at any other place specified in a notice of change of address hereafter received
by the other. All notices, demands and requests hereunder may be made orally, to
be confirmed promptly in writing, or by other communication as specified in the
preceding sentence.
14. ENTIRE AGREEMENT; SEVERABILITY
This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
15. NON-ASSIGNABILITY; TERMINATION
(a) The rights and obligations of the parties under this Agreement and
under any Transaction shall not be assigned by either party without the prior
written consent of the other party, and any such assignment without the prior
written consent of the other party shall be null and void. Subject to the
foregoing, this Agreement and any Transactions shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
This Agreement may be terminated by either party upon giving written notice to
the other, except that this Agreement shall, notwithstanding such notice, remain
applicable to any Transactions then outstanding.
<PAGE> 8
(b) Subparagraph (a) of this Paragraph 15 shall not preclude a party from
assigning, charging or otherwise dealing with all or any part of its interest in
any sum payable to it under Paragraph 11 hereof.
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
17. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Without limitation on any of the foregoing, the failure to give
a notice pursuant to Paragraph 4(a) or 4(b) hereof will not constitute a waiver
of any right to do so at a later date.
18. USE OF EMPLOYEE PLAN ASSETS
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be
used by either party hereto (the "Plan Party") in a Transaction, the Plan Party
shall so notify the other party prior to the Transaction. The Plan Party shall
represent in writing to the other party that the Transaction does not constitute
a prohibited transaction under ERISA or is otherwise exempt therefrom, and the
other party may proceed in reliance thereon but shall not be required so to
proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph, any
such Transaction shall proceed only if Seller furnishes or has furnished to
Buyer its most recent available audited statement of its financial condition and
its most recent subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller shall
be deemed (i) to represent to Buyer that since the date of Seller's latest such
financial statements, there has been no material adverse change in Seller's
financial condition which Seller has not disclosed to Buyer, and (ii) to agree
to provide Buyer with future audited and unaudited statements of its financial
condition as they are issued, so long as it is a Seller in any outstanding
Transaction involving a Plan Party.
19. INTENT
(a) The parties recognize that each Transaction is a "repurchase agreement"
as that term is defined in Section 101 of Title 11 of the United States Code, as
amended (except insofar as the type of Securities subject to such Transaction or
the term of such Transaction would render such definition inapplicable), and a
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended (except insofar as the type of assets subject to
such Transaction would render such definition inapplicable).
(b) It is understood that either party's right to liquidate Securities
delivered to it in connection with Transactions hereunder or to exercise any
other remedies pursuant to Paragraph 11 hereof is a contractual right to
liquidate such Transaction as described in Sections 555 and 559 of Title 11 of
the United States Code, as amended.
(c) The parties agree and acknowledge that if a party hereto is an "insured
depository institution," as such term is defined in the Federal Deposit
Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a
"qualified financial contract," as that term is defined in FDIA and any rules,
orders or policy statements thereunder (except insofar as the type of assets
subject to such Transaction would render such definition inapplicable).
<PAGE> 9
(d) It is understood that this Agreement constitutes a "netting contract"
as defined in and subject to Title IV of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement and
payment obligation under any Transaction hereunder shall constitute a "covered
contractual payment entitlement" or "covered contractual payment obligation",
respectively, as defined in and subject to FDICIA (except insofar as one or both
of the parties is not a "financial institution" as that term is defined in
FDICIA).
20. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a broker or
dealer registered with the Securities and Exchange Commission ("SEC") under
Section 15 of the Securities Exchange Act of 1934 ("1934 Act"), the Securities
Investor Protection Corporation has taken the position that the provisions of
the Securities Investor Protection Act of 1970 ("SIPA") do not protect the other
party with respect to any Transaction hereunder;
(b) in the case of Transactions in which one of the parties is a government
securities broker or a government securities dealer registered with the SEC
under Section 15C of the 1934 Act, SIPA will not provide protection to the other
party with respect to any Transaction hereunder; and
(c) in the case of Transactions in which one of the parties is a financial
institution, funds held by the financial institution pursuant to a Transaction
hereunder are not a deposit and therefore are not insured by the Federal Deposit
Insurance Corporation or the National Credit Union Share Insurance Fund, as
applicable.
<TABLE>
<S> <C>
BT SECURITIES CORPORATION PRIME HOSPITALITY CORP.
By: By:
- --------------------------------------------- ---------------------------------------------
Title: Vice President Title: Executive Vice President
- --------------------------------------------- ---------------------------------------------
Date: 10/23/96 Date: 10/23/96
- --------------------------------------------- ---------------------------------------------
</TABLE>
<PAGE> 10
ANNEX I
SUPPLEMENTAL TERMS AND CONDITIONS
1. MARGIN MAINTENANCE
a. Paragraph 4(e) of the Agreement is replaced by the following:
Seller and Buyer agree that the respective rights of Buyer and Seller under
the subparagraphs (a) and (b) of this Paragraph may be exercised only where a
Margin Excess equals or exceeds $2,000,000. In the event that a Margin Excess
equals or exceeds $2,000,000, Buyer and Seller agree that:
(1) Where the Margin Excess exceeds the Seller's Margin Amount but is equal
to or less than $2,500,000, than Seller may be notice to Buyer require Buyer in
such Transaction to transfer to Seller $500,000 in cash in satisfaction of such
Margin Excess.
(2) Where the Margin Excess exceeds $2,500,000, then, in addition to the
amount required by subparagraph (e)(1) of this Paragraph, Seller may by notice
to Buyer require Buyer in such Transaction to transfer to Seller additional cash
in an amount equal to such Margin Excess minus $2,500,000 rounded upward to the
nearest $500,000, in satisfaction of such Margin Excess.
2. COVENANT
The financial covenants contained in Section 6.1 to 6.19 of the Senior
Secured Revolving Credit Agreement date June 26, 1996 between Prime Brokerage
Corp., Credit Lyonnais New York Branch, as Documentation Agent, Bankers Trust
Company, as Agent, and the Lenders Party Thereto, are hereby incorporated by
reference and made a part of this Agreement to the same extent as if such
covenants were fully set forth herein, such covenants to apply, mutatis
mutandis, to this Agreement (together with the relevant provisions of any other
Section or Sections or Schedule or Schedules to which they refer, including
definitions)(the "Credit Agreement"). If for any reason Prime Hospitality Corp.
or Bankers Trust Company ceases to be a party to the Credit Agreement or if such
Credit Agreement should for any reason terminate, such provisions will be
incorporated herein as they existed immediately prior to such event. Each such
incorporated covenant will be deemed a representation for purposes of this
Agreement."
<PAGE> 11
ANNEX II
NAMES AND ADDRESSES FOR COMMUNICATIONS BETWEEN PARTIES
BT SECURITIES CORPORATION
OPERATIONS -- 32ND FLOOR
130 LIBERTY STREET
NEW YORK, N.Y. 10008
TELEPHONE: (212) 250-7789
FAX: (212) 250-1292
ATTN: MR. FRANK IUELE
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Income before extraordinary items...................................... $17,465 $30,914
Extraordinary items.................................................... 104 202
------- -------
Net Income........................................................ $17,569 $31,116
======= =======
Shares:
Weighted average number of common shares outstanding................ 32,461 36,501
======= =======
Primary earnings per common share:
Income before extraordinary items................................... $ 0.54 $ 0.85
Extraordinary items................................................. -- --
------- -------
Earnings per share................................................ $ 0.54 $ 0.85
======= =======
FULLY DILUTED EARNINGS PER SHARE
Income before extraordinary items...................................... $17,465 $30,914
Interest expense related to convertible debt........................... 2,566 3,902
------- -------
Income before extraordinary items, as adjusted......................... 20,031 34,816
Extraordinary items.................................................... 104 202
------- -------
Net income, as adjusted........................................... $20,135 $35,018
======= =======
Shares:
Weighted average number of common shares outstanding................ 32,461 36,606
Assumed conversion of convertible debt.............................. 4,962 7,188
------- -------
Weighted average number of common shares outstanding, as adjusted... 37,423 43,794
======= =======
Fully diluted earnings per common share:
Income before extraordinary items................................... $ 0.54 $ 0.80
Extraordinary items................................................. -- --
------- -------
Earnings per share................................................ $ 0.54 $ 0.80
======= =======
</TABLE>
<PAGE> 1
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of Prime Hospitality Corp.:
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement No. 33-54995.
/s/ Arthur Andersen LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,997
<SECURITIES> 238
<RECEIVABLES> 13,073
<ALLOWANCES> 420
<INVENTORY> 0
<CURRENT-ASSETS> 44,091
<PP&E> 747,790
<DEPRECIATION> 52,537
<TOTAL-ASSETS> 786,098
<CURRENT-LIABILITIES> 49,306
<BONDS> 298,875
0
0
<COMMON> 398
<OTHER-SE> 419,497
<TOTAL-LIABILITY-AND-EQUITY> 786,098
<SALES> 240,384
<TOTAL-REVENUES> 268,868
<CGS> 0
<TOTAL-COSTS> 205,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,312
<INCOME-PRETAX> 51,523
<INCOME-TAX> 20,609
<INCOME-CONTINUING> 30,914
<DISCONTINUED> 0
<EXTRAORDINARY> 202
<CHANGES> 0
<NET-INCOME> 31,116
<EPS-PRIMARY> .85
<EPS-DILUTED> .80
</TABLE>
