<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 SEPTEMBER 30, 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 48,864,826 shares of common stock, $.01 par value
outstanding, as of November 4, 1999.
<PAGE> 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1998 and September 30, 1999.......................... 1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1998
and September 30, 1999............................................ 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998
and September 30, 1999............................................ 3
Notes to Interim Consolidated Financial Statements.................. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................. 20
Item 6. Exhibits and Reports on Form 8-K.................................... 20
Signatures ................................................................ 21
</TABLE>
<PAGE> 3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $12,534 $26,725
Marketable securities available for sale................................ 12,460 6,091
Accounts receivable, net of reserves.................................... 20,816 23,828
Current portion of mortgages and
notes receivable................................................... 797 2,010
Other current assets ................................................... 28,791 19,573
-------------------- --------------------
Total current assets .......................................... 75,398 78,227
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization........................ 1,281,378 1,150,783
Properties held for sale..................................................... - 90,542
Mortgages and notes receivable, net of
current portion......................................................... 14,688 10,078
Other assets................................................................. 36,934 21,887
-------------------- --------------------
TOTAL ASSETS................................................... $1,408,398 $1,351,517
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ................................................ $15,762 $6,697
Other current liabilities .............................................. 82,767 63,585
-------------------- --------------------
Total current liabilities...................................... 98,529 70,282
Long-term debt, net of current portion....................................... 582,031 565,522
Other liabilities............................................................ 6,240 5,040
Deferred income.............................................................. 80,553 73,484
-------------------- --------------------
Total liabilities.............................................. 767,353 714,328
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 55,680,953 shares issued and outstanding at December
31, 1998 and September 30, 1999,
respectively ...................................................... 552 557
Capital in excess of par value ......................................... 511,981 517,858
Retained earnings ...................................................... 159,584 183,442
Accumulated other comprehensive loss,
net of taxes....................................................... (4,993) (2,158)
Treasury stock (1,470,439 shares at December 31, 1998
and 5,085,379 shares at September 30, 1999)........................ (26,079) (62,510)
-------------------- --------------------
Total stockholders' equity .................................... 641,045 637,189
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,408,398 $1,351,517
==================== ====================
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 4
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
-------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Lodging................................................... $105,008 $124,079 $292,003 $365,842
Food and beverage......................................... 11,297 11,171 37,622 40,157
Management, franchise and other fees...................... 4,185 4,813 14,175 11,918
Interest on mortgages and
notes receivable .................................... 555 769 3,479 2,235
-------------- --------------- ------------- ---------------
Total revenues .................................. 121,045 140,832 347,279 420,152
Costs and expenses:
Direct hotel operating expenses:
Lodging.............................................. 26,505 32,256 71,128 91,816
Food and beverage ................................... 9,094 8,801 28,980 28,799
Selling and general ................................. 26,773 29,517 72,976 87,605
Occupancy and other operating ............................ 16,551 17,266 42,564 53,816
General and administrative ............................... 6,705 6,092 19,687 21,632
Depreciation and amortization............................. 10,109 11,710 30,871 36,614
Other charges............................................. 6,400 24,545 16,400 28,456
-------------- --------------- ------------- ---------------
Total costs and expenses ........................ 102,137 130,187 282,606 348,738
Operating income............................................... 18,908 10,645 64,673 71,414
Investment income.............................................. 887 539 2,874 1,260
Interest expense............................................... (5,557) (11,663) (17,045) (31,046)
Other income................................................... -- 2,763 18,353 6,197
-------------- --------------- ------------- ---------------
Income before income taxes
and cumulative effect of a change in accounting principle. 14,238 2,284 68,855 47,825
Provision for income taxes .................................... 5,295 891 26,049 18,652
-------------- --------------- ------------- ---------------
Income before the cumulative effect of a change in
accounting principle...................................... 8,943 1,393 42,806 29,173
Cumulative effect of a change in
accounting principle, net of taxes........................ -- -- -- (5,315)
-------------- --------------- ------------- ---------------
Net income..................................................... $8,943 $1,393 $42,806 $23,858
============== =============== ============= ===============
Earnings per common share:
Basic:
Income before the cumulative effect of a change in
accounting principle................................. $0.17 $0.03 $0.84 $0.56
Cumulative effect of a change in accounting principle..... -- -- -- (0.10)
-------------- --------------- ------------- ---------------
Net earnings................................................... $0.17 $0.03 $0.84 $0.46
============== =============== ============= ===============
Diluted:
Income before the cumulative effect of a change in
accounting principle................................. $0.17 $0.03 $0.80 $0.55
Cumulative effect of a change in accounting principle..... -- -- -- (0.10)
-------------- --------------- ------------- ---------------
Net earnings................................................... $0.17 $0.03 $0.80 $0.45
============== =============== ============= ===============
</TABLE>
See Accompanying Notes to Interim Consolidated Financial Statements.
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<PAGE> 5
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $42,806 $23,858
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................................ 30,871 36,614
Valuation adjustments.................................................... 10,000 27,045
Amortization of deferred financing costs................................. 2,330 2,337
Utilization of net operating loss carryforwards.......................... 4,841 2,293
Gain on settlement of notes receivable................................... (18,353) -----
Cumulative effect of accounting change................................... ----- 8,713
Net gain on asset disposals.............................................. ----- (2,207)
Deferred income taxes.................................................... (5,226) 2,933
Amortization of deferred gain............................................ (6,875) (7,521)
Reserve for contract termination......................................... 574 -----
Reserve for hurricane damage 1,000 -----
Reserve for employee severance 300 -----
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable.................................................. (6,062) (3,012)
Other current assets................................................. (2,893) 2,258
Other liabilities ................................................... 18,507 (24,811)
---------------- ---------------
Net cash provided by operating activities............................ 71,820 68,500
Cash flows from investing activities:
Net proceeds from mortgages and notes receivable............................. 26,011 596
Disbursements for mortgages and notes receivable............................. (1,541) -----
Proceeds from sales of property, equipment
and leasehold improvements .............................................. 211,747 73,500
Construction of new hotels................................................... (309,749) (74,937)
Purchases of property, equipment and
leasehold improvements .................................................. (27,222) (15,355)
Net proceeds from insurance settlement....................................... 3,782 -----
(Increase) decrease in restricted cash....................................... (5,805) 9,393
Proceeds from sales of marketable securities................................. ----- 7,725
Purchases of marketable securities........................................... (350) (1,652)
Proceeds from former officer's life insurance................................ ----- 4,706
Other........................................................................ (3,858) (517)
---------------- ---------------
Net cash (used in) provided by investing activities.................. (106,985) 3,459
Cash flows from financing activities:
Net proceeds from issuance of debt........................................... 119,932 22,599
Payments of debt............................................................. (67,088) (47,526)
Proceeds from the exercise of stock options and warrants..................... 3,591 3,590
Treasury stock purchases..................................................... (25,041) (36,431)
---------------- ---------------
Net cash provided by (used in) financing activities.................. 31,394 (57,768)
---------------- ---------------
Net (decrease) increase in cash and cash equivalents......................... (3,771) 14,191
Cash and cash equivalents at beginning
of period ............................................................... 5,013 12,534
---------------- ---------------
Cash and cash equivalents at end of period .................................. $1,242 $26,725
================ ===============
</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 September 30, 1999 and the results of its operations for the three and
nine months ended September 30, 1998 and 1999 and cash flows for the nine months
ended September 30, 1998 and 1999.
The consolidated financial statements for the three and nine months
ended September 30, 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 September 30, 1998 consolidated
financial statements to conform them to the September 30, 1999 presentation.
The consolidated results of operations for the three and nine months
ended September 30, 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 January 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,
subsequent to the adoption of this new standard, all future pre-opening costs
are 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, 2000. 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 believes that the adoption of SFAS 133 will not have a
material effect on its financial condition or results of its operations.
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<PAGE> 7
NOTE 3 - HOTEL DISPOSITIONS
During the nine months ended September 30, 1999, the Company sold
seven AmeriSuites hotels, located in Austin, TX, Chicago, IL, Houston, TX,
Irving, TX, San Antonio, TX, Portland, ME and Dublin, CA, for $70.3 million. The
transactions generated net gains of $8.0 million and provide for the Company to
generate franchise fees under ten to twenty year franchise agreements.
During the nine months ended September 30, 1999, the Company also
sold one HomeGate Studios and Suites hotel located in Grand Prairie, TX, an
apartment building in Charlotte, NC and a vacant land parcel located in Chicago,
IL for total proceeds of $3.2 million. The transactions generated a net loss of
$967,000.
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.
This fee is included in other income for the nine months ended September 30,
1999.
During the quarter ended September 30, 1999, the Company entered into
a contract to sell its Frenchman's Reef Marriott Resort Hotel ("Frenchman's
Reef") located in St. Thomas U.S.V.I. to Marriott International, Inc. The
closing of the transaction is subject to certain conditions which are required
to be satisfied during the fourth quarter 1999.
During the quarter ended September 30, 1999, the Company entered into
a contract to sell its remaining five HomeGate hotels. The closing of this
transaction is expected to occur during the fourth quarter 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
53.7 million and 51.1 million for the three months ended September 30, 1998 and
1999, respectively, and 51.1 million and 51.6 million for the nine months ended
September 30, 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 in 1998, the
elimination of interest expense and the issuance of additional common shares
from the conversion of the Company's 7% convertible subordinated notes. The
weighted average number of common shares used in computing diluted earnings per
share was 54.2 million and 52.1 million for the three months ended September 30,
1998 and 1999, respectively, and 54.9 million and 52.8 million for the nine
months ended September 30, 1998 and 1999, respectively.
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<PAGE> 8
NOTE 5 - INTEREST EXPENSE
The Company capitalizes interest related to borrowings used to
finance hotel construction. Capitalized interest was approximately $6.4 million
and $1.7 million for the three months ended September 30, 1998 and 1999,
respectively, and $20.3 million and $10.2 million for the nine months ended
September 30, 1998 and 1999, respectively. Also included in interest expense is
the amortization of deferred financing fees of $763,000 and $784,000 for the
three months ended September 30, 1998 and 1999, respectively, and approximately
$2.3 million for each of the nine month periods ended September 30, 1998 and
1999.
NOTE 6 - TREASURY STOCK
Under its stock repurchase program, the Company purchased
approximately 3.6 million shares of its common stock at an average price of
$10.08 per share during the nine months ended September 30, 1999. In October
1999, the Company purchased an additional 1.8 million shares of its common stock
for $14.7 million, bringing the total purchases in 1999 to 5.4 million shares at
a total cost of $50.0 million. In October 1999, the Company's Board of Directors
approved the repurchase of an additional $100.0 million of its common stock.
Under the terms of the Company's $200 Million Revolving Credit Facility (the
"Revolving Credit Facility"), the Company was allowed to repurchase shares in an
aggregate amount not to exceed $50 million through December 1999. In October
1999, the Revolving Credit Facility was amended to allow an additional $100
million of share repurchases. The purchase of these additional shares are
limited to 50% of the proceeds from asset sales.
NOTE 7 - COMPREHENSIVE INCOME
For the three and nine month periods ended September 30, 1998 and
1999, comprehensive income consisted of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $8,943 $1,393 $42,806 $23,858
Unrealized gain (loss) on marketable
securities, net of taxes (3,019) (109) (5,631) 2,835
------- ----- ----- ------- -----
Total $5,924 $1,284 $37,175 $26,693
====== ====== ======= =======
</TABLE>
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<PAGE> 9
NOTE 8 - OTHER CHARGES
Other charges for the three and nine months ended September 30, 1998 and 1999
consists of the following:
<TABLE>
<CAPTION>
THREE NINE MONTHS
MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Valuation reserve - $24,545 $10,000 $27,045
Severance charges 1,400 - 1,400 1,411
Development termination costs 4,000 - 4,000 -
Reserve for uninsured hurricane loans 1,000 - 1,000 -
====== ======= ======= =======
Total $6,400 $24,545 $16,400 $28,456
====== ======= ======= =======
</TABLE>
During the quarter ended September 30, 1999, the Company entered into
contracts to sell its Frenchman's Reef Marriott Resort hotel and five
non-prototype HomeGate hotels. In accordance with SFAS 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of," the Company has reduced the
carrying value of the these assets to reflect their estimated fair value.
NOTE 9 - OTHER INCOME
Other income consists of income from property transactions and other
asset sales and retirements. For the three months ended September 30, 1999,
other income consisted of $2.8 million related to net gains on property
transactions. For the nine months ended September 30, 1999, other income
consisted of net gains on property transactions of $7.0 million, losses on the
sales of marketable securities of $4.8 million and a contract termination fee
income of $4.0 million (See Note 3). For the three and nine months ended
September 30, 1998, other income consisted of gains on the settlement of notes
receivable of $18.4 million.
NOTE 10 - GEOGRAPHIC AND BUSINESS INFORMATION
Through October 31, 1999, the Company's hotels operated in 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. As of November 1, 1999, the Company ceased its
extended-stay operations as it converted 38 of its 43 HomeGate hotels to its
Wellesley Inn and Suites brand and signed a contract to sell its five remaining
HomeGate hotels.
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<PAGE> 10
The following table presents revenues and other financial information
by business segment for the three and nine months ended September 30, 1998 and
1999:
THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EXTENDED- LIMITED- FULL- CONSOLIDATED
ALL-SUITES STAY SERVICE SERVICE SEGMENTS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 40,480 $ 8,510 $11,417 $55,898 $ 116,305
Hotel EBITDA (2) 18,908 2,805 4,583 10,554 36,850
Depreciation and amortization 2,868 936 1,355 4,745 9,904
Capital expenditures 69,425 47,661 1,604 3,572 122,262
Total Assets 512,075 224,177 112,250 232,124 1,080,626
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
EXTENDED- LIMITED- FULL- CONSOLIDATED
ALL-SUITES STAY SERVICE SERVICE SEGMENTS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues(1) $ 63,384 $ 15,212 $ 11,762 $ 44,892 $ 135,250
Hotel EBITDA (2) 24,515 5,851 4,660 10,866 45,892
Depreciation and amortization 5,776 1,952 1,492 2,277 11,497
Capital expenditures 3,909 4,940 958 3,619 13,426
Total Assets 609,717 309,010 115,152 209,546 1,243,425
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EXTENDED- LIMITED- FULL- CONSOLIDATED
ALL-SUITES STAY SERVICE SERVICE SEGMENTS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues(1) $ 131,045 $18,722 $36,462 $143,396 $329,625
Hotel EBITDA (2) 58,127 6,375 16,528 34,426 115,456
Depreciation and amortization 13,479 2,307 3,733 10,820 30,339
Capital expenditures 180,536 138,410 3,131 16,433 338,510
Total Assets 512,075 224,177 112,250 232,124 1,080,626
</TABLE>
-8-
<PAGE> 11
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
EXTENDED- LIMITED- FULL- CONSOLIDATED
ALL-SUITES STAY SERVICE SERVICE SEGMENTS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues(1) $184,187 $ 43,284 $ 36,844 $ 141,684 $ 405,999
Hotel EBITDA (2) 71,331 16,984 15,986 36,524 140,825
Depreciation and amortization 17,356 5,877 4,372 8,368 35,973
Capital expenditures 47,393 30,351 3,110 8,415 89,269
Total Assets 609,717 309,010 115,152 209,546 1,243,425
</TABLE>
(1)Revenue represent lodging and food & beverage related revenues, only.
(2)Hotel EBITDA represents earnings before interest, income taxes, depreciation
and amortization from the hotels.
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<PAGE> 12
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 owns two proprietary
brands, AmeriSuites (all-suites), and Wellesley Inn & Suites (limited-service).
Also within its portfolio are owned and/or managed hotels operated under
franchise agreements with national hotel chains. As of October 31, 1999, the
Company owned 157 hotels (the "Owned Hotels"), operated 28 hotels under lease
agreements primarily with real estate investment trusts ("REITS") (the "Leased
Hotels"), managed 16 hotels for third parties (the "Managed Hotels") and
franchised 8 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 Inn and Suites brands both through corporate development and
franchising. The Company currently has 97 AmeriSuites and 66 Wellesley Inn and
Suites in operation. 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. Since it received approval to begin franchising in mid 1998,
Prime has executed 27 new AmeriSuites franchise agreements and has 32
applications (30 AmeriSuites) pending. In addition, construction is currently
underway on six of these sites with construction scheduled to begin on three
additional franchised sites in the fourth quarter.
On November 1, 1999, the Company converted 38 of its 43 extended-stay
HomeGate hotels into its limited-service Wellesley Inn and Suites brand. The
Company also signed a contract to sell the remaining five HomeGate hotels. 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, create efficiencies by adding critical mass to the chain and improve its
franchising prospects for the Wellesley Inn and Suites brand.
For the three months ended September 30, 1999, earnings before asset
transactions and other charges increased from $13.0 million in 1998 to $14.6
million in 1999. The results were impacted by the effect of capitalized interest
which was $4.7 million less during the period than the same period in 1998 due
to the lower levels of construction activity in 1999.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) increased by 32.4% to $ 46.9 million for the three months ended
September 30, 1999. Hotel EBITDA increased by 24.5% to $45.9 million for the
three month period. Hotel EBITDA represents EBITDA generated
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<PAGE> 13
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 EBITDA are primarily
attributable to the growth at comparable hotels and the addition of new hotels
and are offset by rent expense associated with the sale/leaseback of hotels.
During the nine months ended September 30 1998 and 1999, the
Company's hotels operated in four segments of the industry: the upscale
all-suites segment, under the Company's proprietary AmeriSuites brand; the
upscale full-service segment, under major national franchises; the mid-price
limited-service segment, primarily under the Company's proprietary Wellesley Inn
& Suites brand; and the mid-price extended-stay segment, under the Company's
proprietary HomeGate Studios & Suites brand. The following table illustrates the
Hotel EBITDA contribution from each segment (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
% OF % OF % OF % OF
AMT. TOTAL AMT. TOTAL AMT. TOTAL AMT. TOTAL
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All-suites $18,908 51.3% $24,515 53.4% $58,127 50.3% $71,331 50.7%
Full-service 10,554 28.6% 10,866 23.7% 34,426 29.8% 36,524 25.9%
Ltd-service 4,583 12.4% 4,660 10.2% 16,528 14.3% 15,986 11.4%
Extd-Stay 2,805 7.7% 5,851 12.7% 6,375 5.6% 16,984 12.0%
----- ---- ----- ----- ----- ---- ------ -----
Total $36,850 100.0% $45,892 100.0% $115,456 100.0% $140,825 100.0%
======= ====== ======= ====== ======== ====== ======== ======
</TABLE>
Hotel EBITDA for the three and nine months ended September 30, 1999
continued to reflect the shifting mix in the Company's hotel portfolio toward
its proprietary brands. Based on the number of new hotels opened during 1999,
the Company expects the relative contribution from its proprietary brands to
continue to increase. Additionally, with the conversion of 38 of its 43
extended-stay HomeGate hotels into the limited-service Wellesley Inn and Suites
brand and the sale of its remaining five HomeGate hotels, the Company's hotels
will no longer operate in the extended-stay segment.
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.
-11-
<PAGE> 14
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1998 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September 30, 1998
and 1999. The results of the six hotels divested in 1998 and 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>
COMPARABLE HOTELS
TOTAL OWNED (2)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT ADR AND REVPAR) 1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging.................................... $105,008 $124,079 $65,029 $66,483
Food and beverage.......................... 11,297 11,171 6,405 5,973
Management, franchise and other............ 4,185 4,813
Interest on mortgages and notes
receivable............................... 555 769
--- ---
Total revenues..................... 121,045 140,832
Direct hotel operating expenses:
Lodging.................................... 26,505 32,256 16,115 16,709
Food and beverage.......................... 9,094 8,801 5,055 4,793
Selling and general........................ 26,773 29,517 15,245 14,817
Occupancy and other operating................ 16,551 17,266
General and administrative................... 6,705 6,092
Depreciation and amortization................ 10,109 11,710
Other charges................................ 6,400 24,545
----- ------
Total costs and expenses........... 102,137 130,187
Operating income............................. 18,908 10,645
OPERATING EXPENSE MARGINS:
Direct hotel operating expenses:
Lodging, as a percentage of lodging
revenue................................. 25.2% 26.0% 24.8% 25.1%
Food and beverage, as a percentage of
food and beverage revenue............... 80.5% 78.8% 78.9% 80.3%
Selling and general, as a percentage of
lodging and food and beverage revenue... 23.0% 21.8% 21.3% 20.4%
Occupancy and other operating, as a
percentage of lodging and food and
beverage revenue........................... 14.2% 12.8%
General and administrative, as a percentage
of total revenue........................... 5.5% 4.3%
Other Data(1):
Occupancy.................................... 67.0% 65.3% 71.4% 72.1%
Average daily rate ("ADR")................... $75.97 $77.53 $80.83 $81.89
Revenue per available room ("REVPAR")........ $50.91 $50.59 $57.71 $59.07
Gross operating profit....................... $53,933 $64,676 $35,019 $36,137
</TABLE>
(1) For purposes of showing operating trends, the eight hotels divested in 1998
and 1999 have been excluded from the other data section of the tables.
(2) Comparable Owned Hotels refers to the 91 Owned Hotels which were open for
the full period in both 1998 and 1999, excluding the Frenchman's Reef property
which is currently marketed for sale and HomeGatesStudios and Suites which are
currently being converted into Wellesley Inns and Suites.
-12-
<PAGE> 15
<TABLE>
<CAPTION>
COMPARABLE HOTELS
TOTAL OWNED (2)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT ADR AND REVPAR) 1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Lodging.................................... $292,003 $365,842 $170,691 $174,435
Food and beverage.......................... 37,622 40,157 19,435 18,935
Management, franchise and other............ 14,175 11,918
Interest on mortgages and notes receivable. 3,479 2,235
----- -----
Total revenues..................... 347,279 420,152
Direct hotel operating expenses:
Lodging.................................... 71,128 91,816 41,214 42,991
Food and beverage.......................... 28,980 28,799 15,187 14,788
Selling and general........................ 72,976 87,605 39,512 40,100
Occupancy and other operating................ 42,564 53,816
General and administrative................... 19,687 21,632
Depreciation and amortization................ 40,871 36,614
Other charges................................ 6,400 28,456
----- ------
Total costs and expenses........... 282,606 348,738
Operating income............................. 64,673 71,414
OPERATING EXPENSE MARGINS:
Direct hotel operating expenses:
Lodging, as a percentage of lodging revenue 24.4% 25.1% 24.1% 24.6%
Food and beverage, as a percentage of food and
beverage revenue........................ 77.0% 71.7% 78.1% 78.1%
Selling and general, as a percentage of
lodging and food and beverage revenue... 22.1% 21.6% 20.8% 20.7%
Occupancy and other operating, as a percentage
of lodging and food and beverage revenue... 12.9% 13.3%
General and administrative, as a percentage of
total revenue.............................. 5.7% 5.1%
Other Data(1):
Occupancy.................................... 67.0% 64.4% 69.4% 70.3%
Average daily rate ("ADR")................... $75.97 $79.39 $80.77 $81.37
Revenue per available room ("REVPAR")........ $50.91 $51.15 $56.05 $57.22
Gross operating profit....................... $156,541 $197,779 $94,213 $95,491
</TABLE>
(1) For purposes of showing operating trends, the nine hotels divested in 1998
and 1999 have been excluded from the other data section of the tables.
(2) Comparable Owned Hotels refers to the 83 Owned Hotels which were open for
the full period in both 1998 and 1999, excluding the Frenchman's Reef property
which is currently marketed for sale.
-13-
<PAGE> 16
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $19.1 million and $73.8
million, or 18.2% and 25.3%, respectively, for the three and nine months ended
September 30, 1999, as compared to the same periods in 1998. Lodging revenues
for the three months ended September 30, 1999 increased due to incremental
revenues of $16.9 million from new hotels and higher revenues for comparable
Owned Hotels, which increased by $1.5 million, or 2.2%. Lodging revenues for the
nine months ended September 30, 1999 also increased due to incremental revenues
of $59.2 million from new hotels and higher revenues for comparable Owned
Hotels, which increased by $3.7 million or 2.2%.
The following table sets forth hotel operating data for the
comparable Owned Hotels for the three and nine months ended September 30, 1999
as compared to the same periods in 1998, by product type:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 %CHANGE 1998 1999 %CHANGE
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
AMERISUITES
OCCUPANCY 69.8% 71.4% 68.3% 69.9%
ADR $80.73 $80.91 $81.32 $81.29
REVPAR $56.38 $57.76 2.5% $55.51 $56.83 2.4%
FULL-SERVICE
OCCUPANCY 76.9% 77.7% 71.6% 71.2%
ADR $107.53 $110.22 $102.10 $106.3
REVPAR $82.72 $85.68 3.6% $73.10 $75.71 3.6%
WELLESLEY INN
OCCUPANCY 71.2% 70.5% 71.3% 72.6%
ADR $57.69 $58.31 $62.45 $61.29
REVPAR $41.06 $41.11 .1% $44.50 $44.48 0.0%
TOTAL
OCCUPANCY 71.4% 72.1% 69.4% 70.3%
ADR $80.83 $81.89 $80.77 $81.37
REVPAR $57.71 $59.07 2.4% $56.05 $57.22 2.1%
</TABLE>
-14-
<PAGE> 17
The results for the three months ended September 30, 1999 were
impacted by Hurricane Floyd, which the Company estimates resulted in lost
revenues of approximately $2.0 million. Excluding the effects of Hurricane
Floyd, the Company estimates its REVPAR growth would have approximated 3.6%.
The improvements in REVPAR at comparable Owned Hotels were generated
by higher occupancy percentages which rose by approximately 1%, for the three
and nine month periods, and increases in ADR of 1.3% and .7% for the three and
nine month periods, respectively.
Food and beverage revenues for the three months ended September 30,
1999 decreased by $100,000, or 1.1%, as compared to the same period in the prior
year due to decreased lounge and restaurant business. Food and beverage revenues
for the nine months ended September 30, 1999 increased by $2.5 million, or 6.7%,
as compared to the same period in 1998 primarily attributable to an increase in
revenues of $2.8 million at the Frenchman's Reef Marriott hotel in St. Thomas
U.S.V.I. (the "Frenchman's Reef"). Food and beverage revenues for comparable
Owned Hotels was also slightly down for the three and nine month periods, due to
a decrease in the lounge and restaurant business.
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
revenue in 1998 related to hurricane damage at the Frenchman's Reef. Management,
franchise and other revenue excluding business interruption insurance increased
by $1.5 million and $1.7 million, or 45.5% and 16.7%, for the three and nine
months ended September 30, 1999 as compared to the same periods in 1998 due to
additional Managed Hotels and Franchised Hotels. Business interruption insurance
revenue of $900,000 and $4.0 million were recorded for the three and nine months
ended September 30, 1998 and were based on a settlement in March 1998 of the
Company's claim related to the damage at the Frenchmen's Reef caused by
Hurricane Bertha in July 1996.
Interest on mortgages and notes receivable primarily relates to
mortgages secured by certain Managed Hotels. Interest on mortgages and notes
receivable increased by $200,000 for the three months ended September 30, 1999
as compared to the same period in 1998 due to the settlement of various cash
flow notes during the quarter. Interest on mortgages and notes receivable
decreased by $1.2 million or 35.8%, for the nine months ended September 30, 1999
as compared to the same period in 1998 primarily due to the settlement of
various cash flow mortgages and notes receivable in 1998.
Direct lodging expenses increased by $5.8 million and $20.7 million,
or 21.7% and 29.1%, respectively, for the three and nine months ended September
30, 1999, respectively, as compared to the same periods in 1998 due primarily to
the addition of new hotels. Direct lodging expenses, as a percentage of lodging
revenue, increased from 25.2% to 26.0% for the three month period and from 24.4%
to 25.1% for the nine month period. For comparable Owned Hotels, direct lodging
expenses as a percentage of lodging revenues increased from 24.8% to 25.1% for
the three month period and from 24.1% to 24.6% for the nine month period. The
increases were primarily due to higher travel agent commissions and hotel
payroll.
Direct food and beverage expenses for the three and nine months ended
September 30, 1999 decreased by approximately $300,000 and $200,000, or 3.2% and
0.6%, respectively, as compared to the same periods in 1998. As a percentage of
food and beverage revenues, direct food and beverage expenses decreased from
80.5% to 78.8% for the three month period and decreased from 77.0% to 71.7% for
the nine month period.
-15-
<PAGE> 18
For comparable Owned Hotels, food and beverage expenses as a percentage of food
and beverage revenues increased from 78.9% to 80.3% for the three month period
and remained at 78.1% for the nine month period. The decreases were attributed
to the higher margins generated at the Frenchman's Reef.
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 $2.7 million and $14.6 million, or 10.2% and 20.0%, respectively,
for the three and nine months ended September 30, 1999 as compared to the same
periods in 1998 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 23.0% to 21.8% for the three month
period and from 22.1% to 21.6% for the nine month period. For the comparable
Owned Hotels, direct hotel selling and general as a percentage of hotel revenues
decreased from 21.3% to 20.4% for the three month period and from 20.8% to 20.7%
for the nine month period. The decreases in the total and comparable expense
margins were primarily due to lower liability insurance costs and, in the first
quarter, decreases in 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 $700,000 and $11.3 million, or 4.3% and 26.4%,
respectively, as compared to the same periods in 1998 due to the rent expense
associated with the sale/leaseback of hotels in 1998 and the addition of new
hotels. Occupancy and other operating expenses as a percentage of hotel revenues
decreased from 14.2% to 12.8% for the three month period and increased from
12.9% to 13.3% for the nine month period due to rent expense associated with the
sale/leasebacks.
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 decreased by $600,000, or 9%, for the three months ended September 30,
1999 as compared to the same period in 1998 primarily due to a restructuring of
the Company's corporate and regional hotel operations. For the nine months ended
September 30, 1999, general and administrative expenses increased by $1.9
million, or 10%, as compared to the same period in 1998 due to increased
advertising, personnel and training costs associated with opening the new
AmeriSuites hotels and costs associated with the Company's franchising efforts.
As a percentage of total revenues, general and administrative expenses decreased
from 5.5% to 4.3% for the three month period and from 5.7% to 5.1% for the nine
month period. These decreases were primarily due to the Company's corporate
restructuring.
Depreciation and amortization expense increased by $1.6 million and
$5.7 million, or 15.8% and 18.6%, respectively, for the three and nine months
ended September 30, 1999 as compared to the same periods in 1998 due to the
impact of new hotel properties.
Other charges for the three months ended September 30, 1999 consist
of valuation reserves of $4.5 million and $20.0 million related to the Company's
non-prototype HomeGates and its Frenchman's Reef Marriott Beach Resort. In
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets to
be Disposed of," the Company has reduced the carrying value of the assets to
reflect their estimated fair value. For the nine months ended September 30,
1999, other charges consisted of valuation reserves of $27.0 million related to
the non-prototype HomeGates and the Frenchman's Reef and severance charges of
$1.4
-16-
<PAGE> 19
million related to the costs associated with the Company's restructuring of
its corporate and regional offices. Other charges for the three months ended
September 30, 1998 consisted of a reserve of $4.0 million associated with the
cost of terminating hotel development projects under contract, $1.4 million for
severance charges related primarily to the resignation of the Company's former
CEO and $1.0 million for hurricane damage at the Frenchman's Reef Marriott
hotel. For the nine months ended September 30, 1998, other charges also includes
a $10.0 million valuation reserve related to its non-prototype HomeGate hotels.
Investment income decreased by $300,000 and $1.6 million, or 39.3%
and 56.2%, respectively, for the three and nine months ended September 30, 1999
as compared to the same periods in 1998 due to a decreases in dividend income of
$ 81,000 and $910,000, respectively, attributed to the sales of marketable
securities and an overall decrease in the Company's weighted average cash
balance.
Interest expense increased by $6.1 million and $14.0 million, or
109.9% and 82.1%, respectively, for the three and nine months ended September
30, 1999 as compared to the same periods in 1998, primarily due to a reduction
in the amount of interest capitalized. Capitalized interest decreased from $6.4
million to $1.7 million for the three month periods ended September 30, 1998 and
1999, and from $20.3 million to $10.2 million for the nine month periods ended
September 30, 1998 and 1999 due to the lower levels of construction activity in
1999.
Other income consists of income from property transactions and other
asset sales and retirements. For the three months ended September 30, 1999,
other income consisted of $2.8 million related to net gains on property
transactions. For the nine months ended September 30, 1999, other income
consisted of net gains on property transactions of $7.0 million, losses on the
sales of marketable securities of $4.8 million and million contract termination
fee income of $4.0 million. For the three and nine months ended September 30,
1998, other income consisted of gains on the settlement of notes receivable of
$18.4 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash, cash equivalents and
current marketable securities of $32.8 million. In addition, at September 30,
1999, the Company had $53.5 million available under the Revolving Credit
Facility.
The Company's major sources of cash for the nine months ended
September 30, 1999 were net proceeds from the sale of seven AmeriSuites hotels
and certain other assets, of $73.5 million, borrowings of $22.6 million and cash
flow from operations of $68.5 million. The Company's principal uses of cash
during the period were capital expenditures of $90.3 million relating primarily
to the development of new hotels, repurchases of its common stock totaling $36.4
million and $47.5 million of debt repayment, primarily related to the Revolving
Credit Facility.
For the nine months ended September 30, 1998 and 1999, cash flow from
operations was positively impacted by the utilization of net operating loss
carryforwards ("NOLs") of $4.8 million and $2.3 million, respectively. At
September 30, 1999, the Company had federal NOLs relating primarily to its
predecessor, Prime Motor Inns, Inc., of approximately $65.5 million which are
subject to annual utilization limitations and will expire in 2006.
-17-
<PAGE> 20
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. During the nine months ended September 30, 1999, the Company sold seven
AmeriSuites hotels, one HomeGate hotel and a vacant land parcel and realized
$73.5 million in cash proceeds. The Company is currently negotiating additional
sales of AmeriSuites hotels and has signed contracts to sell the Frenchman's
Reef hotel and its remaining five HomeGate hotels.
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. At September 30, 1999, the Company had outstanding borrowings of
$146.5 million under the facility and further availability of $53.5 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 was unable to fulfill its contractual
obligation. Under the terms of its contract, the Company received a one-time
$4.0 million contract termination fee in February 1999.
Uses of Capital. The Company's capital spending has been focused on
the completion of its 1998 AmeriSuites and HomeGate development pipeline. In
October 1999, the Company completed its 1998 development pipeline with the
opening of its first Wellesley Inn and Suites hotel in Columbia, SC. For the
nine months ended September 30, 1999, the Company opened 21 new hotels and spent
$74.9 million on new construction. Prime has resumed new corporate development
with the commencement of construction of two AmeriSuites hotel in the Baltimore
and Orlando markets and is reviewing plans to construct AmeriSuites on sites it
already owns in the Detroit, San Jose and San Francisco areas. The Company plans
to spend approximately $5.0 million on these new AmeriSuites during the last
quarter of 1999 and approximately $40 million in 2000. These amounts are to be
funded by internally generated cash flow. In addition, for the nine months ended
September 30, 1999, the Company spent approximately $15.4 million on capital
improvements at its Owned Hotels, which includes the Company's conversion of its
HomeGates Studios and Suites to Wellesley Inn and Suites.
Under its stock repurchase program, the Company purchased
approximately 3.6 million shares of its common stock at an average price of
$10.08 per share during the nine months ended September 30, 1999. In October
1999, the Company purchased an additional 1.8 million shares of its common stock
for $14.7 million, bringing the total purchases in 1999 to 5.4 million shares at
a total cost of $50.0 million. In October 1999, the Company's Board of Directors
approved the repurchase of an additional $100.0 million of its common stock.
Under the terms of the Company's $200 Million Revolving Credit Facility (the
"Revolving Credit Facility"), the Company was allowed to repurchase shares in an
aggregate amount not to exceed $50 million through December 1999. In October
1999, the Revolving Credit Facility was amended to allow an additional $100
million of share repurchases. The purchase of these additional shares are
limited to 50% of the proceeds from asset sales.
-18-
<PAGE> 21
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 September 30, 1999, the Company had advances of
approximately $ 242.9 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 digits 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 has formulated 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.
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 September 30, 1999, the Company believes that approximately 95%
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 $1.0 to $2.0 million.
The Company expects to complete the remainder of its year 2000
remediation by November 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.
-19-
<PAGE> 22
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
On August 17, 1999, a report on Form 8-K was filed announcing a
change in the Company's certifying accountants.
-20-
<PAGE> 23
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: November 10, 1999 By: /s/ A.F. Petrocelli
-------------------------------
A. F. Petrocelli
President and Chief Executive
Officer
Date: November 10, 1999 By: /s/ Douglas Vicari
-------------------------------
Douglas Vicari
Senior Vice President and Chief
Financial Officer
-21-
<PAGE> 1
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Prime THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
----------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS
Income before the cumulative effect of
a change in accounting principles...... $8,943 $1,393 $42,806 $29,173
Cumulative effect of a change in
in accounting principles............... -- -- -- (5,315)
----------------- ---------------- ------------------- ------------------
Net earnings........................ $8,943 $1,393 $42,806 $23,858
================= ================ =================== ==================
Shares:
Weighted average number of common
shares outstanding.................. 53,661 51,059 51,072 51,568
================= ================ =================== ==================
Basic earnings per common share:
Income before the cumulative effect of
a change in accounting principles...... $0.17 $0.03 $0.84 $0.56
Cumulative effect of a change in
accounting principles............... -- -- -- ($0.10)
----------------- ---------------- ------------------- ------------------
Net earnings...................... $0.17 $0.03 $0.84 $0.46
================= ================ =================== ==================
DILUTED EARNINGS
Income before the cumulative effect of
a change in accounting principles...... $8,943 $1,393 $42,806 $29,173
Assumed conversion of convertible debt.... 146 -- 1,142 --
----------------- ---------------- ------------------- ------------------
Income before the cumulative effect of
a change in accounting principles,
as adjusted............................ 9,089 1,393 43,948 29,173
Cumulative effect of a change in
accounting principles.................. -- -- -- (5,315)
----------------- ---------------- ------------------- ------------------
Net earnings as adjusted............ $9,089 $1,393 $43,948 $23,858
================= ================ =================== ==================
Shares:
Weighted average number of common
shares outstanding................. 53,661 51,059 51,072 51,568
Options and warrants issued........... 532 1,030 990 1,209
Assumed conversion of convertible
debt.................................. --- 2,818 ---
----------------- ---------------- ------------------- ------------------
Weighted average number of common
shares outstanding as adjusted..... 54,193 52,089 54,880 52,777
================= ================ =================== ==================
Diluted earnings per common share:
Income before the cumulative effect of
a change in accounting
principles......................... $0.17 $0.03 $0.80 $0.55
Cumulative effect of a change in
accounting principles.............. -- -- -- ($0.10)
----------------- ---------------- ------------------- ------------------
Net earnings..................... $0.17 $0.03 $0.80 $0.45
================= ================ =================== ==================
</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> SEP-30-1999
<CASH> 26,725
<SECURITIES> 6,091
<RECEIVABLES> 24,558
<ALLOWANCES> 730
<INVENTORY> 0
<CURRENT-ASSETS> 78,227
<PP&E> 1,368,481
<DEPRECIATION> 127,156
<TOTAL-ASSETS> 1,351,517
<CURRENT-LIABILITIES> 70,282
<BONDS> 565,522
0
0
<COMMON> 557
<OTHER-SE> 636,632
<TOTAL-LIABILITY-AND-EQUITY> 1,351,517
<SALES> 420,152
<TOTAL-REVENUES> 420,152
<CGS> 0
<TOTAL-COSTS> 348,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,046
<INCOME-PRETAX> 47,825
<INCOME-TAX> 18,652
<INCOME-CONTINUING> 29,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (5,315)
<NET-INCOME> 23,858
<EPS-BASIC> .46
<EPS-DILUTED> .45
</TABLE>
