<PAGE> 1
FORM 10-Q
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(201) 882-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
--- ---
The registrant had 39,955,816 shares of common stock, $.01 par value
outstanding, as of May 7, 1997.
<PAGE> 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets-
December 31, 1996 and March 31, 1997................. 1
Consolidated Statements of Income
Three Months Ended March 31, 1996
and March 31, 1997................................... 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996
and March 31, 1997................................... 3
Notes to Interim Consolidated Financial Statements....... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 17
Signatures ......................................................... 18
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 15,997 $113,459
Marketable securities available for sale .................. 238 238
Restricted cash ........................................... 2,637 10,406
Accounts receivable, net of reserves ...................... 12,653 13,507
Current portion of mortgages and
notes receivable ........................................ 1,338 2,686
Other current assets ...................................... 11,228 13,664
-------- --------
Total current assets .................................. 44,091 153,960
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization .......... 695,253 746,385
Mortgages and notes receivable, net of
current portion ........................................... 24,195 22,470
Other assets ................................................ 22,559 28,149
-------- --------
TOTAL ASSETS .......................................... $786,098 $950,964
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ................................... $ 3,419 $ 3,228
Other current liabilities ................................. 45,887 42,032
-------- --------
Total current liabilities ............................. 49,306 45,260
Long-term debt, net of current portion ...................... 298,875 459,757
Other liabilities ........................................... 18,022 16,193
-------- --------
Total liabilities ..................................... 366,203 521,210
-------- --------
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; 39,804,917 and
39,926,662 shares issued and outstanding
at December 31, 1996 and March 31,1997,
respectively ............................................ 398 399
Capital in excess of par value ............................ 338,825 339,986
Retained earnings ......................................... 80,672 89,369
-------- --------
Total stockholders' equity ............................ 419,895 429,754
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $786,098 $950,964
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
-------- --------
<S> <C> <C>
Revenues:
Lodging ........................................ $ 41,974 $ 58,120
Food and beverage .............................. 8,024 9,450
Management and other fees ...................... 1,692 1,162
Interest on mortgages and
notes receivable ............................. 2,681 1,729
Business interruption insurance ................ 3,739 4,990
Rental and other ............................... 504 629
-------- --------
Total revenues ............................. 58,614 76,080
-------- --------
Costs and expenses:
Direct hotel operating expenses:
Lodging ...................................... 10,624 14,729
Food and beverage ............................ 6,914 7,965
Selling and general .......................... 14,010 16,989
Occupancy and other operating .................. 3,482 5,543
General and administrative ..................... 4,219 4,976
Depreciation and amortization .................. 4,874 7,421
-------- --------
Total costs and expenses ................... 44,123 57,623
-------- --------
Operating income ................................. 14,491 18,457
Investment income ................................ 1,265 231
Interest expense ................................. (6,201) (4,230)
Other income ..................................... 3,432 --
-------- --------
Income before income taxes
and extraordinary items ........................ 12,987 14,458
Provision for income taxes ....................... 5,195 5,783
-------- --------
Income before extraordinary items ................ 7,792 8,675
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes) ............. 149 22
-------- --------
Net income ....................................... $ 7,941 $ 8,697
======== ========
Earnings per common share:
Primary:
Income before extraordinary items ............ $ .24 $ .21
Extraordinary items .......................... -- --
-------- --------
Net earnings ................................... $ .24 $ .21
======== ========
Fully diluted:
Income before extraordinary items ............ $ .22 $ .20
-------- --------
Extraordinary items .......................... -- --
Net earnings ................................... $ .22 $ .20
======== ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS
Cash flows from operating activities:
Net income ................................................. $ 7,941 $ 8,697
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............................ 4,874 7,421
Amortization of deferred financing costs ................. 350 550
Business interruption insurance revenue .................. (3,739) (4,990)
Utilization of net operating loss
carryforwards .......................................... 1,958 911
Gains on settlements of notes receivable ................. (1,778) --
Gains on discharges of indebtedness ...................... (249) (37)
Gains on sales of assets ................................. (1,956) --
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable .................................... (1,179) (854)
Other current assets ................................... 1,883 (1,308)
Other liabilities ...................................... 550 (1,290)
--------- ---------
Net cash provided by operating
activities ........................................... 8,655 9,100
--------- ---------
Cash flows from investing activities:
Net proceeds from mortgages and notes
receivable ............................................... 8,275 377
Disbursements for mortgages and
notes receivable ......................................... (800) --
Proceeds from sales of property, equipment
and leasehold improvements ............................... 3,706 14,910
Construction costs of new hotels ........................... (27,850) (55,407)
Purchases of property, equipment and
leasehold improvements ................................... (75,798) (18,616)
Proceeds from insurance settlement ......................... -- 571
Increase in restricted cash ................................ (461) (7,769)
Proceeds from sales of marketable securities ............... 4,856 --
Proceeds from retirement of debt securities ................ -- 177
Other ...................................................... (129) (927)
--------- ---------
Net cash used in investing activities .................. (88,201) (66,684)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of debt ......................... 114,979 261,543
Payments of debt ........................................... (61,494) (106,938)
Proceeds from the exercise of stock options
and warrants ............................................. 157 441
--------- ---------
Net cash provided by financing activities .............. 53,642 155,046
--------- ---------
Net (decrease) increase cash and
cash equivalents ......................................... (25,904) 97,462
Cash and cash equivalents at beginning of perio ............ 49,533 15,997
--------- ---------
Cash and cash equivalents at end of period ................. $ 23,629 $ 113,459
========= =========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 6
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 1997 and the results of its operations for the three months
ended March 31, 1996 and 1997 and cash flows for the three months ended March
31, 1996 and 1997.
The consolidated financial statements for the three months ended March
31, 1996 and 1997 were prepared on a consistent basis with the audited
consolidated financial statements for the year ended December 31, 1996. Certain
reclassifications have been made to the March 31, 1996 consolidated financial
statements to conform them to the March 31, 1997 presentation.
The consolidated results of operations for the three months ended March
31, 1997 are not necessarily indicative of the results to be expected for the
full year. These interim unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
NOTE 2 - ACQUISITIONS
In February 1997, the Company acquired the Monroe Township, NJ Holiday
Inn for approximately $11.2 million in cash. The acquisition was accounted for
as a purchase and, accordingly, the revenues and expenses 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, 1997,
reported results would not have been materially different.
NOTE 3 - DEBT
In March 1997, the Company issued $200.0 million of 9 3/4% Senior
Subordinated Notes due 2007 ("Senior Subordinated Notes") in reliance upon Rule
144A under the Securities Act of 1933, as amended. Interest on the notes is paid
semi-annually on April 1 and October 1. The notes are unsecured obligations of
the Company and contain certain covenants including limitations on the
incurrence of debt, dividend payments, certain investments, transactions with
affiliates, asset sales and mergers and consolidations. These notes are
redeemable, in whole or in part, at the option of the Company on or after April
1, 2002 at premiums to principal which
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<PAGE> 7
decline on each anniversary date. The Company utilized a portion of the proceeds
to pay $101.1 million of debt and intends to utilize the remainder to finance
its AmeriSuites expansion.
The Company established a revolving credit facility (the "Revolving
Credit Facility") in 1996 with a group of financial institutions providing for
availability of funds up to the lesser of $100.0 million and a borrowing base
determined under the agreement. The Revolving Credit Facility is secured by
certain of the Company's hotels with recourse to the Company. The Revolving
Credit Facility bears interest at LIBOR plus 2.25% and is available through June
2001. During the three months ended March 31, 1997, the Company borrowed $67.5
million under the Revolving Credit Facility and proceeds were used primarily for
the development of AmeriSuites hotels. In March 1997, the Company repaid the
outstanding borrowings under the Revolving Credit Facility with the proceeds
from the issuance of the Senior Subordinated Notes. As of March 31, 1997, the
Company has borrowing availability of $100.0 million under the Revolving Credit
Facility.
NOTE 4 - EARNINGS PER COMMON SHARE
Primary earnings per common share was computed based on the weighted
average number of common shares and common share equivalents (dilutive stock
options and warrants) outstanding during each period. The weighted average
number of common shares used in computing primary earnings per share was 32.9
million and 41.7 million for the three months ended March 31, 1996 and 1997,
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 40.3 million and 48.9 million for the three months ended March 31,
1996 and 1997, respectively.
NOTE 5 - BUSINESS INTERRUPTION INSURANCE REVENUE
In September 1995, the Company-owned Marriott's Frenchman's Reef Hotel
(the "Frenchman's Reef") in St. Thomas, U.S. Virgin Islands suffered damage 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
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<PAGE> 8
with its insurance carrier and is in the process of preparing a claim under its
business interruption insurance with regard to Hurricane Bertha.
Although the Company continued to operate the hotel through March 31,
1997, the impact of the hurricanes has caused operating profits to decline from
prior years' levels. In addition to recording the operating revenues and
expenses of the Frenchman's Reef, the Company also recorded business
interruption insurance revenue of $3.7 million and $5.0 million for the three
months ended March 31, 1996 and 1997, respectively. The 1997 amount includes an
estimated recovery of insurance proceeds arising out of Hurricane Bertha.
The Company has begun the redevelopment of the Frenchman's Reef.
Redevelopment plans provide for significant hurricane-related renovations and
certain enhancements. Due to the extent of the renovations, the Company closed
the hotel on April 1, 1997 and plans to reopen it in December 1997.
NOTE 6 - INTEREST EXPENSE
For the three months ended March 31, 1996 and 1997, the Company
capitalized $1.3 million and $3.6 million, respectively, of interest related to
borrowings used to finance hotel construction. Also included in interest expense
is the amortization of deferred financing fees of $350,000 and $550,000,
respectively, for the three months ended March 31, 1996 and 1997.
NOTE 7 - OTHER INCOME
Other income consists of items which are not considered part of the
Company's recurring operations. For the three months ended March 31, 1996, other
income consisted of a gain on the settlement of a note receivable of $1.8
million and a gain on the sale of a hotel of $1.6 million.
- 6 -
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company is a leading hotel owner/operator which, as of April 30, 1997,
owned or leased 96 hotels (the "Owned Hotels") and managed 13 hotels for third
parties (the "Managed Hotels"). 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.
For the three months ended March 31, 1997, earnings from recurring
operations increased by 51.3% over the same period in 1996. The earnings gain
reflects an 11.7% increase in revenue per available room ("REVPAR") at
comparable Owned Hotels, resulting in a 17.8% increase in gross operating profit
and an improvement in gross operating margins from 38.9% to 41.9% The earnings
growth was also enhanced by the addition of 39 hotels since January 1, 1996. The
Company's EBITDA increased by $6.5 million, or 33.6%, from $19.4 million in 1996
to $25.9 million in 1997, and Hotel EBITDA increased by $8.7 million, or 46.2%,
from $18.8 million in 1996 to $27.6 million in 1997. 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
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<PAGE> 10
Wellesley Inns brand. The Company's Hotel EBITDA reflects the shifting mix in
the Company's portfolio toward its proprietary brand AmeriSuites. The Hotel
EBITDA contribution from AmeriSuites hotels is expected to increase in future
years as a result of the Company's AmeriSuites expansion plans. The following
table illustrates the Hotel EBITDA contribution from each segment (in
thousands):
<TABLE>
<CAPTION>
HOTEL EBITDA (1)
----------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1997
---- ----
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
All-suites ............. $ 4,589 24.3% $ 8,678 31.5%
Full-service ........... 8,853 47.0 12,052 43.7
Limited-service ........ 5,406 28.7 6,824 24.8
------- ----- ------- -----
Total ........ $18,848 100.0% $27,554 100.0%
======= ===== ======= =====
</TABLE>
(1) 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.
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
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<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1996
The following table presents the components of operating income, operating
expense margins and other data for the Company and the Company's comparable
Owned Hotels for the three months ended March 31, 1996 and 1997. The results of
the seven hotels divested during 1996 and 1997 are not material to an
understanding of the results of the Company's operations in such periods and,
therefore, are not separately discussed.
<TABLE>
<CAPTION>
COMPARABLE OWNED
TOTAL HOTELS(1)
----- ---------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1997 1996 1997
---- ---- ---- ----
(IN THOUSANDS, EXCEPT ADR AND REVPAR)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Lodging ...................................... $41,974 $58,120 $33,432 $36,826
Food and Beverage ............................ 8,024 9,450 6,050 6,345
Management and Other Fees .................... 1,692 1,162
Interest on Mortgages and Notes Receivable ... 2,681 1,729
Business Interruption Insurance .............. 3,739 4,990
Rental and Other ............................. 504 629
------- -------
Total Revenues ....................... 58,614 76,080
Direct Hotel Operating Expenses:
Lodging ...................................... 10,624 14,729 8,619 9,257
Food and Beverage ............................ 6,914 7,965 5,012 5,219
Selling and General .......................... 14,010 16,989 10,495 10,600
Occupancy and Other Operating .................. 3,482 5,543
General and Administrative ..................... 4,219 4,976
Depreciation and Amortization .................. 4,874 7,421
Operating Income ............................... 14,491 18,457
Operating Expense Margins:
Direct Hotel Operating Expenses:
Lodging, as a percentage of lodging revenue .. 25.3% 25.3% 25.8% 25.1%
Food and Beverage, as a percentage of food and
beverage revenue .......................... 86.2% 84.3% 82.8% 82.3%
Selling and General, as a percentage of
lodging and food and beverage revenue ..... 28.0% 25.1% 26.6% 24.6%
Occupancy and Other Operating, as a percentage
of lodging and food and beverage revenue ..... 7.0% 8.2%
General and Administrative, as a percentage of
total revenue ................................ 7.2% 6.5%
Other Data(1):
Occupancy ...................................... 65.9% 63.9% 66.2% 67.8%
Average Daily Rate ("ADR") ..................... $ 70.33 $ 77.03 $ 71.04 $ 77.48
Revenue per Available Room ("REVAPR") .......... $ 46.31 $ 49.22 $ 47.03 $ 52.51
Gross Operating Profit ......................... $16,538 $26,883 $15,356 $18,095
</TABLE>
- ----------
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<PAGE> 12
(1) For purposes of showing operating trends, the results of the Frenchman's
Reef, which were impacted by hurricane damage, and seven hotels disposed in
1996 and 1997 have been excluded from the Other Data section of the table.
Comparable Owned Hotels refers to 54 Owned Hotels that were owned or leased
by the Company during all of the three months ended March 31, 1996 and 1997
(excluding the Frenchman's Reef).
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $16.1 million, or 38.5%, for the
three months ended March 31, 1997 as compared to the same period in 1996.
Lodging revenues increased due to incremental revenues of $15.0 million from the
39 hotels added during 1996 and 1997 and higher revenues for comparable Owned
Hotels, which increased by $3.4 million, or 10.2%. The revenue gains were
partially offset by a decrease of $1.4 million at the Frenchman's Reef
attributable to hurricane-related damage and a decrease $900,000 related to
revenue of disposed hotels.
The following table sets forth hotel operating data for the comparable Owned
Hotels for the three months ended March 31, 1997 as compared to the same period
in 1996, by product type:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1997 % CHANGE
---- ---- --------
<S> <C> <C> <C> <C>
AMERISUITES
Occupancy 66.8% 67.4%
ADR $66.74 $71.44
REVPAR $44.56 $48.17 8.1%
FULL-SERVICE
Occupancy 58.2% 62.0%
ADR $81.06 $89.77
REVPAR $47.15 $55.70 18.1%
WELLESLEY INNS
Occupancy 80.8% 78.0%
ADR $65.83 $71.42
REVPAR $53.19 $55.74 4.8%
TOTAL
Occupancy 66.2% 67.8%
ADR $71.04 $77.48
REVPAR $47.03 $52.51 11.7%
</TABLE>
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<PAGE> 13
The Company achieved solid growth in all three of its 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 AmeriSuites as a leading brand in the fast-growing all-suites segment. The
improvements in REVPAR were generated by increases in ADR, which rose by 9.1%,
and occupancy gains of 1.6 percentage points.
Food and beverage revenues increased by $1.4 million, or 17.8%, for the
three months ended March 31, 1997 as compared to the same period in 1996. The
increase was primarily due to the additional revenues from three full-service
hotels added in the past year and strong growth at comparable Owned Hotels. Food
and beverage revenues for comparable Owned Hotels increased by $300,000 or 4.9%,
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 $500,000 or
31.3%, for the three months ended March 31, 1997 as compared to the same period
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.
Interest on mortgages and notes receivable primarily relate to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
decreased by $1.0 million, or 35.5%, for the three months ended March 31, 1997
as compared to the same period in 1996, primarily due to conversions of notes
receivable into operating hotel assets or cash in 1996.
Business interruption insurance revenue is based on the settlement of the
Company's claim related to the hurricane damage at the Frenchmen's Reef caused
by Hurricane Marilyn in September 1995 and an estimate of lost profits
attributed to damage caused by Hurricane Bertha in July 1996. The Company is
currently preparing a claim under its business interruption insurance with
respect to Hurricane Bertha. Business interruption insurance revenue increased
by $1.3 million or 33.5%, for the three months ended March 31, 1997 as compared
to the same period in 1996 due to higher operating profits in 1996 attributable
to federal emergency business.
Direct lodging expenses increased by $4.1 million, or 38.6%, for the three
months ended March 31, 1997 as compared to the same period in 1996, due
primarily to the addition of new hotels. Direct lodging expenses, as a
percentage of lodging revenue,remained constant at 25.3%. For comparable Owned
Hotels, direct lodging expenses as a percentage of lodging revenues decreased
from 25.8% in 1996 to 25.1% in 1997, primarily due to increases in ADR which had
lower corresponding increases in expenses.
Direct food and beverage expenses increased by $1.1 million, or 15.2%, for
the three months ended March 31, 1997 as compared to the same period in 1996,
primarily due to the addition of three
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<PAGE> 14
full-service hotels in the past year. As a percentage of food and beverage
revenues, direct food and beverage expenses decreased from 86.2% in 1996 to
84.3% in 1997 for all hotels and decreased from 82.8% in 1996 to 82.3% in 1997
for comparable Owned Hotels. The decreases were 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 $3.0 million, or 21.3%, for the three months ended March 31, 1997
as compared to the same period 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
28.0% in 1996 to 25.1% in 1997 for all hotels and decreased from 26.6% in 1996
to 24.6% in 1997 for comparable Owned Hotels. The decreases were primarily due
to the ADR improvements and decreases in snow removal and other weather-related
costs.
Occupancy and other operating expenses consist primarily of insurance, real
estate and other taxes and rent expense. Occupancy and other operating expenses
increased by $2.1 million, or 59.2%, for the three months ended March 31, 1997
as compared to the same period 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 7.0% in 1996 to 8.2% in 1997 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 $800,000 or 17.9%, for the three months ended March 31,
1997 as compared to the same period 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 7.2% in 1996 to 6.5% in 1997 due to increased operating leverage.
Depreciation and amortization expense increased by $2.5 million, or 52.3%,
for the three months ended March 31, 1997 as compared to the same period in
1996, due to the impact of new hotel properties and refurbishment efforts at
several hotels.
Investment income decreased by $1.0 million, or 81.7%, for the three months
ended March 31, 1997 as compared to the same period in 1996, due to lower
weighted average cash balances in 1997.
Interest expense decreased by $2.0 million, or 31.8%, for the three months
ended March 31, 1997 as compared to the same period in 1996, primarily due to
capitalized interest related to new AmeriSuites construction. Capitalized
interest increased by $2.3 million from $1.3 million in 1996 to $3.6 million in
1997.
- 12 -
<PAGE> 15
Other income consists of items which are not part of the Company's recurring
operations. For 1996, other income consisted of a gain on the settlement of a
note receivable of $1.8 million and a gain on the sale of a hotel of $1.6
million.
Pretax extraordinary gains of approximately $248,000 and $37,000 for the
three months ended March 31, 1996 and 1997 relate to the retirement of debt.
LIQUIDITY AND CAPITAL RESOURCES
Prime's external growth focuses on the accelerated expansion of its
AmeriSuites brand through new construction. As of April 30, 1997, Prime had 44
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) net proceeds of $92.4, after expenses and debt repayments, related
to the issuance of 9 3/4% Senior Subordinated Notes due 2007 (the "Senior
Subordinated Notes") in March 1997; (ii) borrowings under the Company's $100
million Revolving Credit Facility; and (iii) 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.
At March 31, 1997, the Company had cash, cash equivalents and current
marketable securities of $113.7 million. In addition, at March 31, 1997, the
Company had $100.0 million available under the Revolving Credit Facility.
The Company's major sources of cash for the three months ended March 31,
1997 were net proceeds, after expenses, of approximately $193.5 million from the
issuance of the $200 million Senior Subordinated Notes in March 1997, gross
borrowings under the Revolving Credit Facility of $67.5 million, proceeds from
sales of hotels of $14.9 million and cash flow from operations of $9.1 million.
The Company's major uses of cash during the period were capital expenditures of
$74.0 million relating primarily to acquisitions and development and debt
repayments of $106.9 million, including repayments of $80.0 million under the
Revolving Credit Facility.
Cash flow from operations was positively impacted by the utilization of net
operating loss carryforwards ("NOLs") and other tax basis differences of
$900,000 in 1997 and $2.0 million in 1996, respectively. At March 31, 1997, the
Company had federal NOLs relating to its predecessor, Prime Motor Inns, Inc.
("PMI"), of approximately $90.0 million which are subject to annual utilization
limitations and expire beginning in 2005 and continuing through 2007.
Debt. In January 1996, the Company issued $200.0 million of Senior
Subordinated Notes in reliance upon Rule 144A under the Securities Act of 1933,
as amended. Interest on the Senior Subordinated Notes is payable semi-annually
on April 1 and October 1 at the rate of 9 3/4% per year. The Notes are general
unsecured obligations and contain certain covenants including limitations on
- 13 -
<PAGE> 16
the incurrence of debt, liens, dividend 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 $101.1 million of indebtedness, with the remainder of the
proceeds used to finance the development of AmeriSuites hotels. Until used, the
net proceeds will be invested in short-term investment grade marketable
securities or money market funds. The indebtedness repaid with the proceeds from
the Senior Subordinated Notes included $75.6 million of borrowings outstanding
under the Revolving Credit Facility, $10.8 million of 10% Senior Secured Notes
and $13.9 million of debt secured by the Frenchmen's Reef. The Company is
currently in negotiation to obtain new financing in connection with the
refurbishment plans at the Frenchman's Reef.
The Company established a Revolving Credit Facility in 1996 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. During the three months ended March 31, 1997, the Company borrowed $67.5
million under the Revolving Credit Facility. The proceeds were used primarily
for the development of AmeriSuites hotels. In March 1997, the Company repaid the
total outstanding borrowings of $80.0 million under the Revolving Credit
Facility primarily with the proceeds from the issuance of the Senior
Subordinated Notes. The Company currently has $100.0 million available under the
Revolving Credit Facility.
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. In April
1997, the Company terminated the agreement for a gain of $500,000 which will be
amortized as a reduction of interest expense over a seven year period.
Capital Investments. The Company's capital spending in 1996 was focused
primarily on the development of its AmeriSuites hotel chain. For the three
months ended March 31, 1997, the Company spent $55.4 million on new construction
funded primarily by existing cash balances, internally generated cash flow,
proceeds from borrowings under the Revolving Credit Facility and the issuance of
the Senior Subordinated Notes.
- 14 -
<PAGE> 17
The Company intends to rapidly expand its AmeriSuites chain through new
construction. The Company has opened nine new AmeriSuites hotels since January
1, 1997 bringing the total to 44 hotels as of April 30, 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 April 30, 1997, the Company had 44 AmeriSuites hotels under
development, including 26 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.
In March 1997, the Company completed a $9.0 million renovation of the 14
Wellesley Inns acquired in 1996. The Company believes that the renovations
position the Wellesley Inns chain for strong growth in 1997, with a high degree
of consistency and product quality.
In February 1997, the Company acquired a Holiday Inn in Monroe Township, NJ
for $11.2 million in cash. The Company intends to spend an additional $3.5
million relating to the refurbishing of the hotel. 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.
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. 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
with regard to Hurricane Bertha.
The Company is currently underway with plans to refurbish the Frenchman's
Reef. Redevelopment plans provide for significant hurricane-related renovations,
and certain enhancements. The Company estimates that the cost of refurbishment
will be approximately $30.0 to $35.0 million. Due to the extent of the
renovations, the Company closed the hotel on 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.
For the three months ended March 31, 1997, the Company spent
approximately $7.4 million on capital improvements at its Owned Hotels, of which
approximately $3.3 million related to refurbishments and repositionings of
hotels.
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
- 15 -
<PAGE> 18
Code of 1986, as amended. As of March 31, 1997, the Company had advanced
approximately $27.5 million to such third party which advances are classified as
property, equipment and leasehold improvements.
Asset Realizations. The Company intends to sell a number of its 7
limited-service hotels operated under franchise agreements and certain other
hotel assets which are not consistent with the Company's brand development
strategy. Through March 31, 1997, the Company received $14.9 million in cash on
sales of four hotel properties.
- 16 -
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 4.1 Reference is made to an Indenture, dated March 26, 1997,
between the Company and the Trustee related to the 9 3/4%
Senior Subordinated Notes due 2007, filed as an Exhibit to Form
S-4 dated April 2, 1997 which is incorporated herein by
reference.
4.2 Reference is made to a Registration Rights Agreement, dated
March 26, 1997, between the Company and the Trustee related to
the 9 3/4% Senior Subordinated Notes due 2007, filed as an
Exhibit to Form S-4 dated April 2, 1997 which is incorporated
herein by reference.
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) On March 7, 1997 a report on Form 8-K was filed announcing the
Company's intention to issue $200 million of 9 3/4% Senior Subordinated
Notes due 2007.
- 17 -
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME HOSPITALITY CORP.
Date: May 9, 1997 By: /s/ David A. Simon
---------------------------------
David A. Simon, President and
Chief Executive Officer
Date: May 9, 1997 By: /s/ John M. Elwood
---------------------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
- 18 -
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description
11 Computation of Earnings Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1997
---- ----
<S> <C> <C>
PRIMARY EARNINGS
Income before extraordinary items $ 7,792 $ 8,675
Extraordinary items 149 22
---------------------
Net Earnings $ 7,941 $ 8,697
=====================
Shares:
Weighted average number of common
shares outstanding 32,865 41,721
=====================
Primary earnings per common share:
Income before extraordinary items $ 0.24 $ 0.21
Extraordinary items -- --
---------------------
Net Earnings $ 0.24 $ 0.21
=====================
FULLY DILUTED EARNINGS
Income before extraordinary items $ 7,941 $ 8,697
Net interest expense related to convertible debt 906 906
---------------------
Income before extraordinary items
as adjusted 8,847 9,603
Extraordinary items 149 22
---------------------
Net Earnings $ 8,996 $ 9,625
=====================
Shares:
Weighted average number of common
shares outstanding 33,158 41,721
Assuming conversion of convertible debt 7,188 7,188
---------------------
Weighted average number of common
shares outstanding, as adjusted 40,346 48,909
=====================
Fully diluted earnings per common share:
Income before extraordinary items $ 0.22 $ 0.20
Extraordinary items -- --
---------------------
Net Earnings $ 0.22 $ 0.20
=====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 113,459
<SECURITIES> 238
<RECEIVABLES> 12,653
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 153,960
<PP&E> 804,321
<DEPRECIATION> 57,736
<TOTAL-ASSETS> 950,964
<CURRENT-LIABILITIES> 45,260
<BONDS> 459,757
0
0
<COMMON> 340,385
<OTHER-SE> 89,369
<TOTAL-LIABILITY-AND-EQUITY> 950,964
<SALES> 67,570
<TOTAL-REVENUES> 76,080
<CGS> 39,683
<TOTAL-COSTS> 57,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,230
<INCOME-PRETAX> 14,458
<INCOME-TAX> 5,783
<INCOME-CONTINUING> 8,675
<DISCONTINUED> 0
<EXTRAORDINARY> 22
<CHANGES> 0
<NET-INCOME> 8,697
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
