<PAGE> 1
FORM 10-Q
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1999
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 identification no.)
incorporation or organization)
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(973) 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 51,338,212 shares of common stock, $.01 par value
outstanding, as of May 7, 1999.
<PAGE> 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1998 and March 31, 1999..................... 1
Consolidated Statements of Income
Three Months Ended March 31, 1998
and March 31, 1999....................................... 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998
and March 31, 1999....................................... 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............................ 16
Signatures ......................................................... 17
</TABLE>
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ........................... $ 12,534 $ 17,956
Marketable securities available for sale ............ 12,460 5,965
Accounts receivable, net of reserves ................ 20,816 24,429
Current portion of mortgages and
notes receivable ................................. 797 683
Other current assets ................................ 28,791 21,775
----------- -----------
Total current assets .......................... 75,398 70,808
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization .... 1,281,378 1,289,455
Mortgages and notes receivable, net of
current portion ..................................... 14,688 14,611
Other assets ............................................ 36,934 26,271
----------- -----------
TOTAL ASSETS .................................. $ 1,408,398 $ 1,401,145
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ............................. $ 15,762 $ 19,818
Other current liabilities ........................... 82,767 85,822
----------- -----------
Total current liabilities ..................... 98,529 105,640
Long-term debt, net of current portion .................. 582,031 586,567
Other liabilities ....................................... 6,240 5,111
Deferred income ......................................... 80,553 78,558
----------- -----------
Total liabilities ............................. 767,353 775,876
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; 55,202,253 and
55,254,530 shares issued and outstanding
at December 31, 1998 and March 31, 1999,
respectively ..................................... 552 552
Capital in excess of par value ...................... 511,981 513,044
Retained earnings ................................... 159,584 165,785
Accumulated other comprehensive loss,
net of taxes ..................................... (4,993) (2,235)
Treasury stock (1,470,439 shares at December 31, 1998
and 3,982,639 shares at March 31, 1999) .......... (26,079) (51,877)
----------- -----------
Total stockholders' equity .................... 641,045 625,269
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 1,408,398 $ 1,401,145
=========== ===========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 4
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Revenues:
Lodging ...................................... $ 86,601 $ 116,313
Food and beverage ............................ 11,643 13,225
Management, franchise and other fees ......... 3,469 3,025
Interest on mortgages and
notes receivable .......................... 1,575 737
--------- ---------
Total revenues ......................... 103,288 133,300
Costs and expenses:
Direct hotel operating expenses:
Lodging ................................... 20,501 28,388
Food and beverage ......................... 9,440 9,442
Selling and general ....................... 22,151 29,530
Occupancy and other operating ................ 12,588 17,897
General and administrative ................... 6,583 8,186
Depreciation and amortization ................ 10,900 12,680
Other charges ................................ -- 2,500
--------- ---------
Total costs and expenses ............... 82,163 108,623
Operating income ................................. 21,125 24,677
Investment income ................................ 1,261 522
Interest expense ................................. (5,787) (8,642)
Other income ..................................... -- 2,321
--------- ---------
Income before income taxes
and cumulative effect of a change in
accounting principle ......................... 16,599 18,878
Provision for income taxes ....................... 6,308 7,362
--------- ---------
Income before the cumulative effect of a change in
accounting principle ......................... 10,291 11,516
Cumulative effect of a change in
accounting principle, net of taxes ........... -- (5,315)
--------- ---------
Net income ....................................... $ 10,291 $ 6,201
========= =========
Earnings per common share:
Basic:
Income before cumulative effect of a change in
accounting principle ....................... $ 0.22 $ 0.22
Cumulative effect of a change in accounting
principle .................................. -- (0.10)
--------- ---------
Net earnings ..................................... $ 0.22 $ 0.12
========= =========
Diluted:
Income before cumulative effect of a change in
accounting principle ....................... $ 0.20 $ 0.22
Cumulative effect of a change in accounting
principle .................................. -- (0.10)
--------- ---------
Net earnings ..................................... $ 0.20 $ 0.12
========= =========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
-2-
<PAGE> 5
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................... $ 10,291 $ 6,201
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............. 10,900 12,680
Valuation adjustments ..................... -- 2,500
Amortization of deferred financing costs .. 826 764
Business interruption insurance revenue ... (1,575) --
Utilization of net operating loss
carryforwards .......................... 1,614 830
Cumulative effect of net accounting change -- 8,713
Net loss on asset disposals ............... -- 1,677
Deferred income taxes ..................... -- 978
Amortization of deferred gain ............. (2,156) (2,507)
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable .................... (4,434) (3,613)
Other current assets ................... 1,425 645
Other liabilities ...................... (7,109) 147
--------- --------
Net cash provided by operating
activities .......................... 9,782 29,015
Cash flows from investing activities:
Net proceeds from mortgages and notes
receivable ................................ 621 190
Proceeds from sales of property, equipment
and leasehold improvements ................ 115,280 26,650
Construction of new hotels ................... (88,281) (44,799)
Purchases of property, equipment and
leasehold improvements .................... (14,203) (4,385)
(Increase) decrease in restricted cash ....... (6,234) 5,187
Proceeds from sales of marketable securities . -- 7,725
Purchases of marketable securities ........... (350) (1,652)
Proceeds from officer's life insurance ....... -- 4,706
Other ........................................ (1,423) 431
--------- --------
Net cash (used in) provided by investing
activities .......................... 5,410 (5,947)
Cash flows from financing activities:
Net proceeds from issuance of debt ........... 39,150 9,326
Payments of debt ............................. (15,956) (1,409)
Proceeds from the exercise of stock options
and warrants .............................. 896 233
Treasury stock purchases ..................... (9,145) (25,798)
Other ........................................ (52) 2
--------- --------
Net cash provided by (used in) financing
activities .......................... 14,893 (17,646)
--------- --------
Net increase in cash and cash equivalents .... 30,085 5,422
Cash and cash equivalents at beginning
of period ................................. 5,013 12,534
--------- --------
Cash and cash equivalents at end of period ... $ 35,098 $ 17,956
========= ========
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
-3-
<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, 1999 and the results of its operations for the three months
ended March 31, 1998 and 1999 and cash flows for the three months ended March
31, 1998 and 1999.
The consolidated financial statements for the three months ended March 31,
1998 and 1999 were prepared on a consistent basis with the audited consolidated
financial statements for the year ended December 31, 1998. Certain
reclassifications have been made to the March 31, 1998 consolidated financial
statements to conform them to the March 31, 1999 presentation.
The consolidated results of operations for the three months ended March
31, 1999 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,
1998.
NOTE 2 - ACCOUNTING POLICIES
In 1999, the Company adopted Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" (SOP 98-5). The Company has recorded a $5.3
million charge, net of taxes, for the cumulative effect of a change in
accounting principle to write off any unamortized pre-opening costs that
remained on the balance sheet at the date of adoption. Additionally, on a
prospective basis subsequent to the adoption of this new standard, all future
pre-opening costs will be expensed as incurred.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) which is effective for fiscal
years beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company has
not yet quantified the impact of adopting SFAS 133 on its financial statements,
however, the Company expects the impact to be immaterial due to its limited
derivative activity. The Company believes that the adoption of SFAS 133 will not
have a material effect on its financial condition or results of its operations.
- 4 -
<PAGE> 7
NOTE 3 - HOTEL DISPOSITIONS
During the three months ended, March 31, 1999, the Company sold three
AmeriSuites hotels, located in Houston, TX, San Antonio, TX and Portland, ME for
$27.2 million. The Company will generate franchise fees under ten-year franchise
agreements. The transactions generated net gains of $3.1 million.
The Company also had a contract to sell and lease back nine additional
full-service hotels to MeriStar Hospitality Corp. not later than March 31, 1999.
In February 1999, MeriStar informed the Company that it was unable to fulfill
its contractual obligation. Under the terms of the contract, the Company
received a $4.0 million contract termination fee in February 1999.
NOTE 4 - EARNINGS PER COMMON SHARE
Basic earnings per common share was computed based on the weighted average
number of common shares outstanding during each period. The weighted average
number of common shares used in computing basic earnings per share was 46.9
million and 52.3 million for the three months ended March 31, 1998 and 1999,
respectively.
Diluted earnings per share reflects adjustments to basic earnings per
share for the dilutive effect of stock options and warrants and the elimination
of interest expense and, in 1998, the issuance of additional common shares from
the assumed conversion of the 7% convertible subordinated notes. The weighted
average number of common shares used in computing diluted earnings per share was
55.4 million and 53.6 million for the three months ended March 31, 1998 and
1999, respectively.
NOTE 5 - INTEREST EXPENSE
The Company capitalized $7.2 million and $5.4 million for the three months
ended March 31, 1998 and 1999, respectively, of interest related to borrowings
used to finance hotel construction. Also included in interest expense is the
amortization of deferred financing fees of $826,000 and $764,000 for the three
months ended March 31, 1998 and 1999, respectively.
- 5 -
<PAGE> 8
NOTE 6 - TREASURY STOCK
Under its stock repurchase program, in 1999 the Company purchased 2.5
million shares of its common stock at an average price of $10.27 per share.
Under the terms of the Company's $200 Million Revolving Credit Facility (the
"Revolving Credit Facility"), the Company may purchase shares in an aggregate
amount not to exceed $50 million through December 1999.
NOTE 7 - COMPREHENSIVE INCOME
For the three months ended March 31, 1999, comprehensive income consisted
of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------------
1998 1999
------- -------
<S> <C> <C>
Net income ................... $10,291 $ 6,201
Unrealized loss on marketable
securities, net of taxes ..... -- (2,758)
------- -------
Total ....... $10,291 $ 3,443
======= =======
</TABLE>
NOTE 8 - OTHER INCOME
Other income consists of property transactions and other asset sales and
retirements. For the three months ended March 31, 1999, other income consisted
of net gains on property transactions of $3.1 million, contract termination fees
of $4.0 million (See Note 3) and losses on sales of marketable securities of
$4.8 million.
NOTE 9 - OTHER CHARGES
For the three months ended March 31, 1999, the Company established a $2.5
million valuation reserve related to seven non-prototype HomeGate hotels. In
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," the Company has reduced the
carrying value of the assets to reflect current market conditions.
NOTE 10 - GEOGRAPHIC AND BUSINESS INFORMATION
The Company's hotels serve four major lodging industry segments: the
all-suites segment, under its AmeriSuites brand: the extended-stay segment,
under its HomeGates brand; the limited-service segment, primarily under its
Wellesley Inns brand and the full-service segment under major national
franchises.
The following table presents revenues and other financial information by
business segment for the three months ended March 31, 1998 and 1999.
Three months ended March 31, 1999
All- Extended Limited Full
Suites Stay Service Service Consolidated
------ -------- ------- ------- ------------
Revenues......................$ 57,182 $ 13,345 $ 13,228 $ 45,783 $ 129,538
Hotel EBITDA.................. 20,216 5,445 6,355 9,903 41,919
Depreciation and amortization. 5,750 1,982 1,430 3,305 12,467
Capital expenditures.......... 27,853 18,130 1,132 1,808 48,923
Total Assets.................. 622,916 287,855 113,598 230,214 1,254,583
Three months ended March 31, 1998
All- Extended Limited Full
Suites Stay Service Service Consolidated
------ -------- ------- ------- ------------
Revenues......................$ 39,562 $ 4,135 $ 13,263 $ 41,284 $ 98,244
Hotel EBITDA.................. 16,201 1,467 6,787 8,913 33,368
Depreciation and amortization. 5,238 996 1,301 3,199 10,734
Capital expenditures.......... 50,193 40,357 722 10,764 102,036
Total Assets.................. 508,251 123,125 114,732 238,454 984,562
- 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 an owner, manager and franchisor of hotels throughout the
United States and the U.S. Virgin Islands. The Company operates three
proprietary brands, AmeriSuites (all-suites), HomeGate Studios & Suites
(extended-stay) and Wellesley Inns (limited-service). Also within its portfolio
are owned and/or managed hotels operated under franchise agreements with
national hotel chains. As of May 2, 1999, the Company owned 155 hotels (the
"Owned Hotels"), operated 28 hotels under lease agreements primarily with Real
Estate Investment Trusts ("REITS") (the "Leased Hotels"), managed 10 hotels for
third parties (the "Managed Hotels") and franchised four hotels, which it does
not operate (the "Franchised Hotels"). The Company has significant equity
interests in the Owned Hotels and has economic interests limited to a percentage
of revenues (generally between 2.5% to 5.0%) on the Leased Hotels, Managed
Hotels and Franchised Hotels. The Company consolidates the results of operations
of its Owned Hotels and Leased Hotels and records management fees (including
incentive management fees) on the Managed Hotels and franchise revenue on the
Franchised Hotels.
The Company's strategy is to develop its proprietary AmeriSuites and
Wellesley Inns brands both through corporate development and franchising.
Through the development of its proprietary brands, the Company is transforming
itself from an owner/operator into a franchisor and manager and has positioned
itself to generate additional revenues with minimal capital investment.
The Company intends to convert 38 of its extended-stay HomeGate hotels
into its limited-service Wellesley Inns brand. The Company expects to complete
this conversion in the fourth quarter of 1999 and currently anticipates a
conversion cost of approximately $3.0 to $5.0 million. The conversion will
change the hotels' customer base from extended-stay to transient. The Company
believes this will enhance the value of its existing hotels and improve its
franchising prospects for the Wellesley brand.
For the three months ended March 31, 1999, earnings before asset
transactions and other charges increased by 13% over the same period in 1998.
The earnings gains resulted from growth in revenue per available room ("REVPAR")
of 5.2% for the comparable Owned Hotels, and significant new AmeriSuites unit
growth over the prior period.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased by 24.5% to $39.9 million for the three months ended March 31, 1999.
Hotel EBITDA increased by 25.7% to $41.9 million for the three month period.
Hotel EBITDA represents EBITDA generated from the operations of Owned Hotels and
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 changes in
EBITDA and Hotel
- 7 -
<PAGE> 10
EBITDA are attributable to the growth at comparable hotels and the addition of
new hotels offset by rent expense associated with the sale/leaseback of hotels.
The Company's hotels currently operate in four segments of the industry:
the upscale all-suites segment, under the Company's proprietary AmeriSuites
brand; the mid-price extended-stay segment, under the Company's proprietary
HomeGate Studios & Suites 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>
THREE MONTHS ENDED
MARCH 31,
1998 1999
---- ----
Amount % of Total Amount % of Total
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
All-suites .......... $16,201 48.6 $20,216 48.3%
Full-service ........ 8,913 26.7 9,903 23.6%
Limited-service ..... 6,787 20.3 6,355 15.2%
Extended-Stay ....... 1,467 4.4 5,445 12.9%
------- ----- ------- -----
Total ......... $33,368 100.0% $41,919 100.0%
======= ===== ======= =====
</TABLE>
Hotel EBITDA for the three months ended March 31, 1999 reflects the shifting
mix in the Company's hotel portfolio toward its proprietary brands. Based on the
Company's development plans, Prime expects the relative contribution from its
proprietary brands to continue to increase in 1999. Additionally, with the
conversion of 38 extended-stay HomeGate hotels into the limited-service
Wellesley Inns brand in the fourth quarter of 1999, the Company's hotels will
effectively operate in three segments.
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.
- 8 -
<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1999
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, 1998 and 1999. The results of
the three hotels divested in 1999 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>
TOTAL COMPARABLE OWNED HOTELS(2)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
(IN THOUSANDS, EXCEPT ADR AND REVPAR) 1998 1999 1998 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging ...................................... $ 86,601 $116,313 $ 55,680 $ 58,688
Food and beverage ............................ 11,643 13,225 5,587 5,651
Management, franchise and other .............. 3,469 3,025
Interest on mortgages and notes receivable ... 1,575 737
-------- --------
Total revenues ....................... 103,288 133,300
Direct hotel operating expenses:
Lodging ...................................... 20,501 28,388 13,232 14,419
Food and beverage ............................ 9,440 9,442 4,585 4,635
Selling and general .......................... 22,151 29,530 13,371 13,751
Occupancy and other operating .................. 12,588 17,897
General and administrative ..................... 6,583 8,186
Depreciation and amortization .................. 10,900 12,680
Other charges .................................. -- 2,500
-------- --------
Total costs and expenses ............. 82,163 108,623
Operating income ............................... 21,125 24,677
OPERATING EXPENSE MARGINS:
Direct hotel operating expenses:
Lodging, as a percentage of lodging revenue .. 23.7% 24.4% 23.8% 24.6%
Food and beverage, as a percentage of food and
beverage revenue .......................... 81.1% 71.4% 82.1% 82.0%
Selling and general, as a percentage of
lodging and food and beverage revenue ..... 22.5% 22.8% 21.8% 21.4%
Occupancy and other operating, as a percentage
of lodging and food and beverage revenue ..... 12.8% 13.8%
General and administrative, as a percentage of
total revenue ................................ 6.4% 6.1%
Other Data(1):
Occupancy ...................................... 60.6% 61.7% 62.6% 65.2%
Average daily rate ("ADR") ..................... $ 83.20 $ 82.12 $ 79.73 $ 80.42
Revenue per available room ("REVPAR") .......... $ 50.42 $ 50.65 $ 49.88 $ 52.45
Gross operating profit ......................... $ 46,152 $ 62,178 $ 30,079 $ 31,534
</TABLE>
(1) For purposes of showing operating trends, the three hotels divested in 1999
have been excluded from the other data section of the tables.
(2) Comparable Owned Hotels refers to the 92 Owned Hotels which were open for
the full period in both 1998 and 1999 excluding the Frenchman's Reef which is
currently marketed for sale.
- 9 -
<PAGE> 12
Lodging revenues, which include room revenues and other related revenues
such as telephone and vending, increased by $29.7 million, or 34.3%,
respectively, for the three months ended March 31, 1999, as compared to the same
period in 1998. Lodging revenues for the three months ended March 31, 1999
increased due to incremental revenues of $24.4 million from new hotels and
higher revenues for comparable Owned Hotels, which increased by $3.0 million, or
5.4%.
The following table sets forth hotel operating data for the comparable
Owned Hotels, for the three months ended March 31, 1999 as compared to the same
period in 1998, by product type:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999 %CHANGE
---- ---- -------
<S> <C> <C> <C>
AMERISUITES
OCCUPANCY 62.6% 66.2%
ADR $ 81.97 $ 82.54
REVPAR $ 51.34 $ 54.66 6.5%
HOMEGATE
OCCUPANCY 50.1% 57.2%
ADR $ 53.02 $ 54.46
REVPAR $ 26.58 $ 31.15 17.2%
FULL-SERVICE
OCCUPANCY 59.8% 59.1%
ADR $ 96.24 $102.92
REVPAR $ 57.52 $ 60.78 5.7%
WELLESLEY INNS
OCCUPANCY 70.0% 72.5%
ADR $ 70.93 $ 68.53
REVPAR $ 49.65 $ 49.65 0%
TOTAL
OCCUPANCY 62.6% 65.2%
ADR $ 79.73 $ 80.42
REVPAR $ 49.88 $ 52.45 5.2%
</TABLE>
- 10 -
<PAGE> 13
The REVPAR increases at comparable hotels reflect the growing recognition of
AmeriSuites as a leading brand in the fast-growing all-suites segment and
favorable industry trends in the full service segment which is concentrated in
the Northeast. The improvements in REVPAR at comparable Owned Hotels were
generated by increases in occupancy percentage and ADR, which rose by 4.2% and
0.9%, respectively, for the three month period.
Food and beverage revenues increased by $1.6 million, or 13.6%, for the
three months ended March 31, 1999 as compared to the same period in 1998
primarily attributable to increased revenues at the company-owned Marriott's
Frenchman's Reef in St. Thomas U.S.V.I. (the "Frenchman's Reef"). Food and
beverage revenues for comparable Owned Hotels increased by $64,000, or 1.1%, for
the three month period.
Management, franchise and other revenue consists primarily of base,
incentive and other fees earned under management agreements, royalty fees earned
under franchise agreements, rental income and business interruption insurance
related to the Frenchman's Reef. Management, franchise and other revenue,
excluding business interruption insurance, increased by $1.0 million, or 51.3%,
for the three months ended March 31, 1999 as compared to the same period in 1998
due to increases in franchise royalty fees related to the Franchised Hotels and
base and incentive management fees associated with the Managed Hotels. Business
interruption insurance revenue of $1.5 million was recorded during the three
months ended March 31, 1998 and was based on a settlement in March 1998 of the
Company's claim related to the damage at the Frenchman's Reef caused by
Hurricane Bertha in July 1996. No business interruption insurance revenue was
recorded during the three months ended March 31, 1999.
Interest on mortgages and notes receivable primarily relates to mortgages
secured by certain Managed Hotels. Interest on mortgages and notes receivable
decreased by $838,000 for the three months ended March 31, 1999, or 53.2%, as
compared to the same period in 1998 primarily due to the settlement of various
cash flow mortgages and notes receivables in 1998.
Direct lodging expenses increased by $7.9 million, or 38.5%, for the three
months ended March 31, 1999, as compared to the same period in 1998 due
primarily to the addition of new hotels. Direct lodging expenses as a
percentage of lodging revenue increased from 23.7% to 24.4% for the three month
period. For comparable Owned Hotels, direct lodging expenses as a percentage of
lodging revenues increased from 23.8% to 24.6% for the three month period.
Direct food and beverage expenses for the three months ended March 31,
1999 remained flat at $9.4 million, as compared to the same period in 1998. As a
percentage of food and beverage revenues, direct food and beverage expenses
decreased from 81.1% to 71.4% for the three month period ended March 31, 1999
compared to the same period in the prior year, primarily due to the higher
margins generated at the Frenchman's Reef. For comparable Owned Hotels, food and
beverage expenses as a percentage of food and beverage revenues remained
constant at approximately 82.0% for the three month periods.
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
- 11 -
<PAGE> 14
administration, selling and advertising, utilities, repairs and maintenance.
Direct hotel selling and general expenses increased by $7.4 million, or 33.3%,
for the three months ended March 31, 1999 as compared to the same period in 1998
primarily due 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 slightly from 22.5% to 22.8% for the three month
period due to increased expenses at the Frenchman's Reef. For the comparable
Owned Hotels, direct hotel selling and general as a percentage of hotel revenues
decreased slightly from 21.8% to 21.4% for the three month period.
Occupancy and other operating expenses consist primarily of insurance,
real estate and other taxes and rent expense. Occupancy and other operating
expenses increased by $5.3 million, or 42.2%, for the three months ended March
31, 1999, as compared to the same period in 1998 due to the rent expense
associated with the sale/leaseback of hotels to MeriStar and Equity Inns and the
addition of new hotels. Occupancy and other operating expenses as a percentage
of hotel revenues increased from 12.8% to 13.8% for the three month period.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating both the Owned Hotels and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $1.6 million, or 24.4%, for the three months ended March
31, 1999 as compared to the same period in 1998 due to increased advertising,
personnel and training costs associated with opening the new AmeriSuites and
HomeGate hotels and costs associated with the Company's franchising efforts. As
a percentage of total revenues, general and administrative expenses decreased
from 6.4% to 6.1% for the three month period due to increased operating
leverage.
Depreciation and amortization expense increased by $1.8 million, or 16.3%,
for the three months ended March 31, 1999 as compared to the same period in
1998 due to the impact of new hotel properties.
Other charges for the three months ended March 31, 1999 consisted of a
reserve of $2.5 million related to seven non-prototype HomeGate hotels. In
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," the Company has reduced the
carrying value of the assets to reflect current market conditions.
Investment income decreased by $739,000, or 58.6% for the three months
ended March 31, 1999 as compared to the same period in 1998 due to a decrease in
dividend income of $480,000 attributable to sales of marketable securities and a
decrease in weighted average cash balances.
Interest expense increased by $2.9 million, or 49.3% for the three months
ended March 31, 1999 as compared to the same period in 1998, primarily due to
increased borrowings under the Company's Revolving Credit Facility and a
reduction in the amount of interest capitalized during the three month period
ended March 31, 1999. Capitalized interest decreased from $7.2 million to $5.4
million for the three month periods due to a decrease in construction
spending.
- 12 -
<PAGE> 15
Other income consists of property transactions and other asset sales and
retirements. For the three months ended March 31, 1999, other income consisted
of net gains on property transactions of $3.1 million, contract termination fees
of $4.0 million and losses on sales of marketable securities of $4.8 million.
LIQUIDITY AND CAPITAL RESOURCES
Prime's external growth focuses on the expansion of its proprietary brands
through new construction both directly by the Company and by franchisees.
At March 31, 1999, the Company had cash, cash equivalents and current
marketable securities of $23.9 million. In addition, at March 31, 1999, the
Company had $25.0 million available under the Revolving Credit Facility.
The Company's major sources of cash for the three months ended March 31,
1999 were net proceeds from the sale of three AmeriSuites hotels of $26.7
million, borrowings under the Revolving Credit Facility of $10.0 million and
cash flow from operations of $29.0 million. The Company's major uses of cash
during the period were capital expenditures of $49.2 million relating primarily
to the development of new hotels and the repurchase of its common stock of $25.8
million.
For the three months ended March 31, 1998 and 1999, cash flow from
operations was positively impacted by the utilization of net operating loss
carryforwards ("NOLs") and other tax basis differences of $1.6 million and
$830,000, respectively. At March 31, 1999, the Company had federal NOLs relating
primarily to its predecessor, Prime Motor Inns, Inc. ("PMI"), of approximately
$67.7 million which are subject to annual utilization limitations and expire
beginning in 2005 and continuing through 2006.
Sources of Capital. The Company has undertaken a strategic initiative to
dispose of hotel real estate and to invest the proceeds in the growth of its
proprietary brands. Due to the uncertainty in the hotel divestiture markets, the
Company's business plan does not depend on any material proceeds from asset
sales in 1999. During the quarter, Prime sold three AmeriSuites hotels and
realized $26.7 million in cash proceeds. The Company also began marketing the
sale of its Frenchman's Reef hotel and expects to receive offers in the second
quarter.
The Company has a $200.0 million Revolving Credit Facility which bears
interest at LIBOR plus 2%. The facility is available through 2001 and may be
extended for an additional year. Borrowings under the facility are secured by
certain of the Company's hotels with recourse to the Company. Additional
properties may be added subject to the approval of the lenders. Availability
under the facility is subject to a borrowing base test and certain other
covenants. As of March 31, 1999, the Company had outstanding borrowings of
$175.0 million under the facility and further availability of $25.0 million.
The Company had a contract to sell and lease back nine additional
full-service hotels to MeriStar not later than March 31, 1999. In February 1999,
MeriStar informed the Company that it
- 13 -
<PAGE> 16
was unable to fulfill its contractual obligation. Under the terms of its
contract, the Company received a $4.0 million contract termination fee in
February 1999.
Uses of Capital. The Company's capital spending is focused on completing
the development of its AmeriSuites and HomeGate hotels currently under
construction. For the three months ended March 31, 1999, the Company spent $27.3
million on new construction of AmeriSuites and $17.5 million on new construction
of HomeGates. The Company expects to spend an additional $15.0 million in 1999
to complete its current construction pipeline and an additional $30 million on
new AmeriSuites construction to begin in mid-1999 on six land sites it owns
(amounts include capitalized interest). These amounts are to be funded by
borrowings under the Revolving Credit Facility and internally generated cash
flow.
For the three months ended March 31, 1999, the Company spent approximately
$4.4 million on capital improvements at its Owned Hotels.
During the quarter, the Company purchased 2.5 million shares of its common
stock at an average price of $10.27 per share. Under the terms of the Revolving
Credit Facility, the Company may purchase shares in an aggregate amount not to
exceed $50 million through December 1999.
In order to facilitate future tax-deferred 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 March 31, 1999, the Company had advances of approximately $229.5 million
to such third party which advances are classified as property, equipment and
leasehold improvements.
Year 2000 Readiness. The Company has initiated a program to prepare the
Company's computer systems and applications for the year 2000. This is necessary
because certain computer programs have been written using two digits rather than
four to define the applicable year. Any of the Company's computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process normal business transactions. In addition, many
of the Company's vendors and service providers are also faced with similar
issues related to the year 2000.
In connection with the Company program related to year 2000, the Company's
management has assessed the Company's information systems, including its
hardware and software systems and embedded systems contained in the Company's
hotels and corporate headquarters. Based on the findings of this assessment, the
Company has commenced a plan to upgrade or replace the Company's hardware or
software for year 2000 readiness as well as to assess the year 2000 readiness of
the Company's vendors and service providers. In addition, the Company's
management is currently formulating contingency plans, which, in the event that
the Company is unable to fully achieve year 2000 readiness in a timely manner,
or any of the Company's vendors or service providers fails to achieve year 2000
readiness, may be implemented to minimize the risks of interruptions of the
Company's business.
- 14 -
<PAGE> 17
Based on its assessment to date of the year 2000 readiness of the
Company's vendors, service providers and other third parties on which the
Company relies for business operations, the Company believes that its principal
vendors, service providers and other third parties are taking action for year
2000 compliance. However, the Company has limited ability to test and control
such third parties' year 2000 readiness, and the Company cannot provide
assurance that failure of such third parties to address the year 2000 issue will
not cause an interruption of the Company's business.
As of March 31, 1999, the Company believes that approximately 75% of its
information systems are year 2000 ready. The Company estimates that the total
costs associated with implementing year 2000 readiness since the project's
commencement will be in the range of $1 million. The Company anticipates that it
will finance the cost of its year 2000 remediation using its existing sources of
liquidity.
The Company expects to complete its year 2000 remediation by October 1999.
However, the Company's ability to execute its plan in a timely manner may be
adversely affected by a variety of factors, some of which are beyond the
Company's control including turnover of key employees, availability and
continuity of consultants and the potential for unforeseen implementation
problems. The Company's business could be interrupted if the year 2000 plan is
not implemented in a timely manner, if the Company's vendors, service providers
or other third parties are not year 2000 ready or if the Company's contingency
plans are not successful. Based on currently available information, and although
no assurance can be given, the Company does not believe that any such
interruptions are likely to have a material adverse effect on the Company's
results of operations, liquidity or financial condition.
- 15 -
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
- 16 -
<PAGE> 19
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 14, 1999 By: /s/ A.F. Petrocelli
---------------------------------------
A.F. Petrocelli
President and Chief Executive
Officer
Date: May 14, 1999 By: /s/ Douglas Vicari
-------------------------------------
Douglas Vicari
Senior Vice President and Chief
Financial Officer
- 17 -
<PAGE> 1
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
------- --------
<S> <C> <C>
BASIC EARNINGS
Income before the cumulative effect of a change
in accounting principles ...................... $10,291 $ 11,516
Cumulative effect of a change in
in accounting principles ...................... -- (5,315)
------- --------
Net earnings ............................... $10,291 $ 6,201
======= ========
Shares:
Weighted average number of common
shares outstanding ......................... 46,867 52,342
======= ========
Basic earnings per common share:
Income before the cumulative effect of a change
in accounting principles ................... $ 0.22 $ 0.22
Cumulative effect of a change in
accounting principles ...................... -- (0.10)
------- --------
Net earnings ............................ $ 0.22 $ 0.12
======= ========
DILUTED EARNINGS
Income before the cumulative effect of a change
in accounting principles ...................... $10,291 $ 11,516
Assumed conversion of convertible debt ........... 996 --
------- --------
Income before the cumulative effect of a change
in accounting principles, as adjusted ......... 11,287 11,516
Cumulative effect of a change in
accounting principles ......................... -- (5,315)
------- --------
Net earnings as adjusted ................... $11,287 $ 6,201
======= ========
Shares:
Weighted average number of common
shares outstanding ......................... 46,867 52,342
Options and warrants issued ................... 1,362 1,217
Assumed conversion of convertible debt ........ 7,188 --
------- --------
Weighted average number of common
shares outstanding as adjusted ............. 55,417 53,559
======= ========
Diluted earnings per common share:
Income before the cumulative effect of a change
in accounting principles ................... $ 0.20 $ 0.22
Cumulative effect of a change in
accounting principles ...................... -- (0.10)
------- --------
Net earnings ............................ $ 0.20 $ 0.12
======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,956
<SECURITIES> 5,965
<RECEIVABLES> 25,159
<ALLOWANCES> 730
<INVENTORY> 0
<CURRENT-ASSETS> 70,822
<PP&E> 1,397,557
<DEPRECIATION> 108,102
<TOTAL-ASSETS> 1,401,448
<CURRENT-LIABILITIES> 105,049
<BONDS> 586,566
0
0
<COMMON> 552
<OTHER-SE> 624,717
<TOTAL-LIABILITY-AND-EQUITY> 1,401,448
<SALES> 133,299
<TOTAL-REVENUES> 133,299
<CGS> 0
<TOTAL-COSTS> 108,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,642
<INCOME-PRETAX> 18,878
<INCOME-TAX> 7,363
<INCOME-CONTINUING> 11,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (5,314)
<NET-INCOME> 6,201
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
