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, 2000
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 45,001,804 shares of common stock, $.01 par value,
outstanding as of November 10, 2000.
<PAGE>
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1999 and September 30, 2000 ..................1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1999 and 2000....2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 2000 .............3
Notes to Interim Consolidated Financial Statements ............4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................9
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................18
Item 2. Changes in Securities and Use of Proceeds....................18
Item 3. Defaults upon Senior Securities..............................18
Item 4. Submission of Matters to a Vote of Security Holders..........18
Item 5. Other Information............................................19
Item 6. Exhibits and Reports on Form 8-K.............................19
Signatures .............................................................20
<PAGE>
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents ............................................................ $ 7,240 $ 19,109
Marketable securities available for sale ............................................. 8,262 3,594
Accounts receivable, net of reserves ................................................. 21,379 30,427
Current portion of mortgages and
notes receivable................................................................... 1,920 3,553
Other current assets.................................................................. 16,879 19,337
----------- -----------
Total current assets ........................................................... 55,680 76,020
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization ..................................... 1,093,123 1,015,507
Properties held for sale ................................................................. 134,596 53,023
Mortgages and notes receivable, net of
current portion ...................................................................... 11,750 12,344
Other assets ............................................................................. 33,630 59,055
----------- -----------
TOTAL ASSETS ................................................................... $ 1,328,779 $ 1,215,949
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of debt .............................................................. $ 5,547 $ 2,021
Current portion of deferred income ................................................... 10,322 12,028
Other current liabilities ............................................................ 61,225 79,237
----------- -----------
Total current liabilities....................................................... 77,094 93,286
Long-term debt, net of current portion ................................................... 543,485 385,929
Other liabilities ........................................................................ 5,223 15,747
Deferred income .......................................................................... 70,977 64,244
----------- -----------
Total liabilities .............................................................. 696,779 559,206
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; 55,757,340 and 55,909,409 shares issued and
outstanding at December 31, 1999 and September 30, 2000, respectively ............. 557 559
Capital in excess of par value ....................................................... 519,834 523,361
Retained earnings .................................................................... 194,466 244,972
Accumulated other comprehensive loss,
net of taxes ...................................................................... (2,694) (2,674)
Treasury stock (7,263,578 shares at December 31, 1999
and 10,972,478 shares at September 30, 2000) ...................................... (80,163) (109,475)
----------- -----------
Total stockholders' equity ..................................................... 632,000 656,743
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 1,328,779 $ 1,215,949
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Lodging ........................................................ $ 124,079 $ 131,715 $ 365,842 $ 374,600
Food and beverage .............................................. 11,171 9,666 40,157 34,637
Management, franchise and other fees ........................... 4,813 5,097 11,918 15,167
Interest on mortgages and
notes receivable ............................................ 769 293 2,235 899
--------- --------- --------- ---------
Total revenues ........................................... 140,832 146,771 420,152 425,303
Costs and expenses:
Direct hotel operating expenses:
Lodging ..................................................... 32,256 34,587 91,816 96,655
Food and beverage ........................................... 8,801 7,133 28,799 24,530
Selling and general ......................................... 29,517 29,423 87,605 85,306
Occupancy and other operating .................................. 17,266 24,619 53,816 62,233
General and administrative ..................................... 6,092 6,554 21,632 23,818
Depreciation and amortization .................................. 11,710 9,999 36,614 31,781
Other charges .................................................. 24,545 -- 28,456 --
--------- --------- --------- ---------
Total costs and expenses ................................. 130,187 112,315 348,738 324,323
Operating income ................................................... 10,645 34,456 71,414 100,980
Investment income .................................................. 539 720 1,260 1,285
Interest expense ................................................... (11,663) (9,562) (31,046) (32,855)
Other income,net ................................................... 2,763 47 6,197 13,881
--------- --------- --------- ---------
Income before income taxes and cumulative effect of a
change in accounting principle and extraordinary items ......... 2,284 25,661 47,825 83,291
Provision for income taxes ......................................... 891 10,008 18,652 32,484
--------- --------- --------- ---------
Income before the cumulative effect of a change in
accounting principle and extraordinary items ................... 1,393 15,653 29,173 50,807
Cumulative effect of a change in
accounting principle, net of income taxes ...................... -- -- (5,315) --
Extraordinary items - loss on discharge
of indebtedness, net of income taxes ........................... -- -- -- (302)
--------- --------- --------- ---------
Net income ......................................................... $ 1,393 $ 15,653 $ 23,858 $ 50,505
========= ========= ========= =========
Earnings per common share:
Basic:
Income before the cumulative effect of a change in
accounting principle and extraordinary items ................ $ 0.03 $ 0.35 $ 0.56 $ 1.10
Cumulative effect of a change in accounting principle .......... -- -- (0.10) --
Extraordinary items - loss on discharge
of indebtedness ............................................. -- -- -- --
--------- --------- --------- ---------
Net earnings ....................................................... $ 0.03 $ 0.35 $ 0.46 $ 1.10
========= ========= ========= =========
Diluted:
Income before the cumulative effect of a change in
accounting principle and extraordinary items ................ $ 0.03 $ 0.34 $ 0.55 $ 1.08
Cumulative effect of a change in accounting principle .......... -- -- (0.10) --
Extraordinary items - loss on discharge
of indebtedness ............................................. -- -- -- --
--------- --------- --------- ---------
Net earnings ....................................................... $ 0.03 $ 0.34 $ 0.45 $ 1.08
========= ========= ========= =========
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
2
</TABLE>
<PAGE>
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................ $ 23,858 $ 50,505
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ...................................................... 36,614 31,781
Extraordinary item - loss on discharge of indebtedness ............................. -- 496
Valuation adjustments .............................................................. 27,045 --
Amortization of deferred financing costs ........................................... 2,337 2,526
Utilization of net operating loss carryforwards .................................... 2,293 2,293
Cumulative effect from a change in accounting principle ............................ 8,713 --
Net gain on asset disposals ........................................................ (2,207) (13,881)
Deferred income taxes .............................................................. 2,933 2,920
Amortization of deferred items ..................................................... (7,521) (7,903)
Increase (decrease) from changes in other operating assets and liabilities:
Accounts receivable ............................................................. (3,012) (9,047)
Other current assets ............................................................ 2,258 (5,198)
Other liabilities ............................................................... (24,811) 11,335
--------- ---------
Net cash provided by operating activities ....................................... 68,500 65,827
Cash flows from investing activities:
Proceeds from mortgages and notes receivable .......................................... 596 1,112
Disbursements for mortgages and notes receivable ...................................... -- (668)
Proceeds from sales of property, equipment and leasehold improvements ................. 73,500 162,934
Construction of new hotels ............................................................ (74,937) (15,951)
Purchases of property, equipment and leasehold improvements ........................... (15,355) (14,578)
Decrease in restricted cash ........................................................... 9,393 --
Proceeds from sales of marketable securities .......................................... 7,725 --
Purchases of marketable securities .................................................... (1,652) --
Proceeds from officer's life insurance ................................................ 4,706 --
Security deposits ..................................................................... -- (16,500)
Other ................................................................................. (517) (1,381)
--------- ---------
Net cash provided by investing activities ....................................... 3,459 114,968
Cash flows from financing activities:
Net proceeds from issuance of debt .................................................... 22,599 30,817
Payments of debt ...................................................................... (47,526) (171,667)
Proceeds from the exercise of stock options ........................................... 3,590 1,235
Treasury stock purchases .............................................................. (36,431) (29,311)
--------- ---------
Net cash (used in) financing activities ......................................... (57,768) (168,926)
--------- ---------
Net increase in cash and cash equivalents ............................................. 14,191 11,869
Cash and cash equivalents at beginning of period ...................................... 12,534 7,240
--------- ---------
Cash and cash equivalents at end of period ............................................ $ 26,725 $ 19,109
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES OF NON-CASH ACTIVITIES:
Hotels sold in exchange for assumption of debt ........................................ -- $ 17,364
Note receivable and equity interests received from the sale of hotels.. ............... -- $ 3,348
OTHER CASH FLOW DISCLOSURES:
Interest paid ......................................................................... $ 29,439 $ 31,171
Income taxes paid ..................................................................... $ 24,834 $ 18,582
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(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, 2000 and the results of its operations for the three and
nine months ended September 30, 1999 and 2000 and cash flows for the nine months
ended September 30, 1999 and 2000.
The consolidated financial statements for the three and nine months
ended September 30, 1999 and 2000 were prepared on a consistent basis with the
audited consolidated financial statements for the year ended December 31, 1999.
Certain reclassifications have been made to the September 30, 1999 consolidated
financial statements to conform them to the September 30, 2000 presentation.
The consolidated results of operations for the three and nine months
ended September 30, 2000 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, 1999.
The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
NOTE 2 - ACCOUNTING POLICIES
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, amending Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which extended the required date of
adoption to 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 anticipates no impact as a result of
its limited derivative activity.
In January 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (SOP 98-5). The Company recorded
a $5.3 million charge, net of taxes, for the cumulative effect of a change in
accounting principle to write off any unamortized
4
<PAGE>
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.
The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin ("SAB") 101 "Revenue Recognition in Financial Statements" in December
1999. The SAB summarizes certain of the SEC's staff's views in applying
generally accepted accounting principles to revenue recognition in the financial
statements. In June 2000, the SEC issued SAB 101B, which delays the
implementation of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. The Company does not believe
that adoption of this SAB will have a significant impact on its financial
statements.
NOTE 3 - HOTEL ACQUISITION
On July 10, 2000, the Company acquired the leasehold interests on 24 Sumner
Suites hotels owned by Hospitality Properties Trust ("HPT") from Sholodge, Inc.
("Sholodge") and entered into lease agreements on three additional Sumner Suites
hotels owned by Sholodge for $1.6 million. On November 1, 2000, the Company
converted all 27 hotels to its AmeriSuites brand. The leases provide for a fixed
annual minimum rent of approximately $27 million plus 8% of revenues in excess
of base levels. The leases with HPT and Sholodge expire in 2013 and 2011,
respectively, and are renewable at the Company's option for various periods
through 2048 and 2061, respectively. Under the terms of the lease with HPT, the
Company posted a $16.5 million cash deposit which will be returned to the
Company at the earliest of the end of the lease term or when the hotels achieve
a 1.3 to 1.0 cash flow coverage. The Company also received the rights to $28.5
million of other security deposits due upon the expiration of the leases.
In addition, pursuant to the transaction, Sholodge is constructing
three additional AmeriSuites, two of which will be funded by Sholodge and one by
the Company. The 27 existing hotels along with the three hotels under
construction are located in 14 states primarily in the Southeast, Midwest and
Southwest regions of the United States and have an average age of approximately
three years. The transaction increases the size of the AmeriSuites brand by
almost 30% over its previous level.
NOTE 4 - HOTEL DISPOSITIONS
In February 2000, the Company's five remaining HomeGate hotels and the
Company's rights to the HomeGate brand name were sold for approximately $17.7
million, including the assumption of debt by the purchaser of approximately
$17.4 million related to these properties. During the nine months ended
September 30, 1999, the Company had reduced the carrying value of the assets by
$2.5 million to reflect the estimated fair value of the hotels.
In March 2000, the Company sold its Frenchman's Reef hotel in St.
Thomas, U.S.V.I. ("Frenchman's Reef") for $73.0 million. During the nine months
ended September 30, 1999, the Company had reduced the carrying value of the
assets by $24.5 million to reflect the estimated fair value of the hotels. The
Company utilized $40.0 million of the proceeds to retire debt encumbering the
hotel. Upon repayment of the debt associated with this hotel, the Company also
expensed unamortized deferred financing costs of approximately $546,000, which
is included in
5
<PAGE>
extraordinary items, net of income taxes, in the accompanying consolidated
financial statements.
During the nine months ended September 30, 2000, the Company also sold
four AmeriSuites hotels for $46.6 million, seven Wellesley Inns for $31.8
million, one full-service hotel for $18.2 million and four land parcels for $4.8
million. On November 8, 2000, the Company sold an additional Wellesley Inn for
$3.7 million.
The asset sales generated net gains of approximately $13.9 million for
the nine months ended September 30, 2000, which are included in other income,
net in the accompanying consolidated financial statements. The Company also
retained the franchise rights on the AmeriSuites and Wellesley Inns under
20-year franchise agreements. In addition, the Company entered into management
agreements on one of the sold AmeriSuites and three of the sold Wellesley Inns.
NOTE 5 - DEBT
During the nine months ended September 30, 2000 the Company retired
$15.2 million of its $120 million First Mortgage Notes due 2006 ("First Mortgage
Notes"). Included in the accompanying consolidated financial statements is an
extraordinary gain on the discharge of indebtedness of approximately $51,000
related to this retirement.
NOTE 6 - 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 common
share was 51.1 million and 44.9 million for the three months ended September 30,
1999 and 2000, respectively, and 51.6 million and 46.0 million for the nine
months ended September 30, 1999 and 2000, respectively.
Diluted earnings per common share reflect adjustments to basic earnings
per common share for the dilutive effect of stock options. The weighted average
number of common shares used in computing diluted earnings per common share was
52.1 million and 45.8 million for the three months ended September 30, 1999 and
2000, respectively, and 52.8 million and 46.8 million for the nine months ended
September 30, 1999 and 2000, respectively.
NOTE 7 - TREASURY STOCK
Under its stock repurchase program, the Company purchased approximately
3.7 million shares of its common stock during the nine months ended September
30, 2000 for $29.3 million at an average cost of $7.90 per share. The Company's
$200 Million Revolving Credit Facility (the "Revolving Credit Facility") allows
for stock repurchases equal to 50% of net proceeds from asset sales with
repurchases not to exceed $100.0 million. As of November 10, 2000, the Company
has repurchased $32.1 million of its shares under this covenant and has $37.0
million of availability based on the proceeds from asset sales.
6
<PAGE>
NOTE 8 - INTEREST EXPENSE
The Company capitalizes interest related to borrowings used to finance
hotel construction. Capitalized interest was approximately $1.7 million and
$645,000 for the three months ended September 30, 1999 and 2000, respectively,
and $10.2 million and $1.7 million for the nine months ended September 30, 1999
and 2000, respectively. Also included in interest expense is the amortization of
deferred financing fees of $784,000 and $826,000 for the three months ended
September 30, 1999 and 2000, respectively, and $2.3 million and $2.5 million for
the nine months ended September 30, 1999 and 2000, respectively.
NOTE 9 - COMPREHENSIVE INCOME
For the three and nine months ended September 30, 1999 and 2000,
comprehensive income consisted of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,393 $15,653 $23,858 $50,505
Unrealized gain (loss) on
marketable securities available for
sale, net of income taxes (109) 253 2,835 20
------- ------- ------- -------
Total $ 1,284 $15,906 $26,693 $50,525
======= ======= ======= =======
</TABLE>
NOTE 10 - GEOGRAPHIC AND BUSINESS INFORMATION
The Company's hotels currently service three major lodging industry
segments: the all-suites segment, under its AmeriSuites brand; the
limited-service segment, primarily under its Wellesley Inn & Suites brand; and
the full-service segment under major national franchises. The Company's
AmeriSuites are upscale hotels located in 31 states throughout the United
States. The Wellesley Inn & Suites hotels compete in the mid-price segment, and
are primarily located in Texas and Florida and in the northeastern region of the
United States. The Company's full-service hotels are primarily located in the
northeastern region of the United States. On November 1, 1999, the Company
converted 38 of its 43 extended-stay HomeGate hotels into its limited-service
Wellesley Inn & Suites brand. The conversion changed the customer base from
extended-stay to transient. In March 2000, the Company sold the remaining five
HomeGate hotels and its rights to the HomeGate brand name and no longer operates
in the extended-stay segment. As a result, segment information for the prior
period has been restated to conform to this change.
The Company evaluates the performance of its segments based primarily
on earnings before interest, taxes and depreciation and amortization ("Hotel
EBITDA") generated by the operations of its owned hotels. Interest expense is
primarily related to debt incurred by the Company through its corporate
obligations and collateralized by certain of its hotel properties. The Company
files a consolidated Federal income tax return and therefore taxes are
calculated based upon the Company's consolidated taxable income/losses and
changes in temporary differences. The allocation of interest expense and taxes
is not evaluated at the segment level and is not believed to be material to
these consolidated statements. The difference between segment data and
consolidated financial information relates to corporate activity not specific to
the Company's reportable segments.
7
<PAGE>
The following table presents revenues and other financial information
for the owned hotels by business segment for the three and nine months ended
September 30, 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CONSOLIDATED
------------------------------------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues (1) ....................... $ 63,384 $ 26,974 $ 44,892 $ 135,250
Hotel EBITDA (2) ................... 24,515 10,511 10,866 45,892
Depreciation and amortization ...... 5,776 3,444 2,277 11,497
Capital expenditures ............... 3,909 5,898 3,619 13,426
Total Assets ....................... $609,717 $424,162 $209,546 $1,243,425
------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CONSOLIDATED
------------------------------------- ---------- --------------- ------------ ------------
Revenues (1) ....................... $ 74,004 $ 26,446 $ 40,931 $ 141,381
Hotel EBITDA (2) ................... 22,433 10,069 9,801 42,303
Depreciation and amortization ...... 4,834 3,344 1,520 9,698
Capital expenditures ............... 5,053 2,761 1,561 9,375
Total Assets ....................... $618,736 $385,961 $118,107 $1,122,804
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CONSOLIDATED
------------------------------------ ---------- --------------- ------------ ------------
Revenues (1) ....................... $184,187 $ 80,128 $141,684 $ 405,999
Hotel EBITDA (2) ................... 71,331 32,970 36,524 140,825
Depreciation and amortization ...... 17,356 10,249 8,368 35,973
Capital expenditures ............... 47,393 33,461 8,415 89,269
Total Assets ....................... $609,717 $424,162 $209,546 $1,243,425
------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CONSOLIDATED
------------------------------------ ---------- --------------- ------------ ------------
Revenues (1) ....................... $193,360 $ 85,033 $130,844 $ 409,237
Hotel EBITDA (2) ................... 65,650 33,951 32,013 131,614
Depreciation and amortization ...... 14,995 10,083 5,879 30,957
Capital expenditures ............... 16,118 6,880 4,588 27,586
Total Assets ....................... $618,736 $385,961 $118,107 $1,122,804
</TABLE>
(1) Revenues represent lodging and food & beverage related revenues only.
(2) Hotel EBITDA represents earnings before interest, income taxes,
depreciation and amortization from the hotels.
8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Prime Hospitality Corp. ("Prime" or "the Company") is an owner,
operator and franchisor of hotels, with 236 hotels in operation containing
30,406 rooms located in 33 states (the "Portfolio") as of November 10, 2000.
Prime controls two hotel brands -- AmeriSuites (R) and Wellesley Inn & Suites
(R) -- as well as a portfolio of upscale, full-service hotels operated under
franchise agreements with national hotel chains. Prime's portfolio consists
primarily of new, well-maintained hotels, with an average age of approximately
7 years.
The following table sets forth information with respect to the
Portfolio as of November 10, 2000:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED FRANCHISED TOTAL
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AmeriSuites 66 8,537 46 5,710 3 414 16 1,926 131 16,587
Wellesley Inn & Suites 60 6,941 3 294 5 503 68 7,738
Full-Service 11 2,195 9 1,464 8 1,464 28 5,123
Other Limited Service 2 188 7 770 9 958
---------------------------------------------------------------------------------------------------------
Total 139 17,861 55 7,174 21 2,942 21 2,429 236 30,406
=========================================================================================================
</TABLE>
In addition to the above, as of November 10, 2000, Prime has two
AmeriSuites comprising 275 rooms under construction, while franshisees are
constructing an additional 7 AmeriSuites comprising 877 rooms and one Wellesley
Inn & Suites comprising 65 rooms.
The Company's strategy is to develop its proprietary AmeriSuites and
Wellesley Inn & Suites brands primarily through 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. In addition to the
current franchised AmeriSuites and Wellesley Inn & Suites, the Company currently
has 64 executed franchise agreements for new AmeriSuites and three executed
franchise agreements for new Wellesley Inn & Suites to be built. In 2000, the
first six franchisee constructed AmeriSuites were opened. All other franchise
agreements related to opened hotels were generated pursuant to asset sales.
Prime's strategy is also focused on growing the operating profits of
its Portfolio. With over 200 hotels in operation, Prime believes it possesses
the hotel management expertise to maximize the profitability and value of its
hotel assets.
For the three months ended September 30, 2000, net income increased by
$14.3 million, to $15.7 million from $1.4 million for the same three-month
period in 1999. These results were impacted by the effect of hotel divestitures,
reserves and other charges and capitalized interest. Earnings before asset
transactions and other charges for the three months ended September 30, 2000
grew by 6.4% over the same three-month period in the prior year to $15.6
million. Earnings per share before asset transactions and other charges for the
three months ended September 30, 2000 grew by 21% to $.34 per share from $.28
per share due to the increase in income and a reduction in shares outstanding.
The Company's earnings before interest, taxes and depreciation and
amortization ("EBITDA") decreased by 5.2% to $44.5 million for the three months
ended September 30, 2000 compared to the same three-month period in 1999.
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The decrease is primarily attributable to the Company's continual effort to
divest itself of its hotel assets, utilizing the proceeds from such sales to
reduce its existing debt and repurchase its outstanding shares of common stock.
Excluding the impact from hotel acquisitions and divestitures in the
past year, revenues grew over the same three and nine-month periods in the prior
year by 7.5% and 9.3%, respectively and EBITDA also grew during the same
periods by 7.4% and 8.1%, respectively. EBITDA represents earnings before
extraordinary items, interest, taxes, depreciation and amortization.
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.
Forward-looking statements include the information about Prime's
possible or assumed future results of operations and statements preceded by,
followed by or that include the words "believe," "except," "anticipate,"
"intend," "plan," "estimate," or similar expressions, or the negative thereof.
Actual results may differ materially from those expressed in these
forward-looking statements. Readers of this Form 10-Q are cautioned not to
unduly rely on any forward-looking statements.
The following important factors, in addition to those discussed
elsewhere in this Form 10-Q or incorporated herein by reference, could cause
results to differ materially from those expressed in such forward-looking
statements: competition within each of the Company's business segments in areas
such as access, location, quality or accommodations and room rate structures;
the balance between supply of and demand for hotel rooms and accommodations; the
Company's continued ability to obtain new operating contracts and franchise
agreements; the Company's ability to develop and maintain positive relations
with current and potential hotel owners and other industry participants; the
level of rates and occupancy that can be achieved by such properties and the
availability and terms of financing; changes in travel patterns, taxes and
government regulations which influence or determine wages, prices, construction
procedures and costs; the effect of national and regional economic conditions
that will affect, among other things, demand for products and services at the
Company's hotels; government approvals, actions and initiatives including the
need for compliance with environmental and safety requirements, and change in
laws and regulations or the interpretation thereof and the potential effects of
tax legislative action; and other risks described from time to time in the
Company's filings with the SEC.
Although the Company believes the expectations reflected in these
forward-looking
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statements are based upon reasonable assumptions, no assurance can be given that
Prime will attain these expectations or that any deviations will not be
material. Except as otherwise required by the federal securities laws, the
Company disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in its expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
Lodging revenues, which include room revenues and other related
revenues such as telephone and vending, increased by $7.6 million, or 6.2%, for
the three months ended September 30, 2000, as compared to the same period in
1999. The increase was primarily due to additional revenues generated by the
acquisition of the 27 Sumner Suites, which contributed $13.8 million,
incremental revenues of $3.2 million from the converted Wellesley Inn & Suites
hotels and higher revenues for comparable Owned Hotels, which increased by $3.7
million, or 5.2%. These increases were offset by the disposition of 18
properties, which were disposed of subsequent to September 30, 1999. Lodging
revenues for the nine months ended September 30, 2000 increased by $8.8 million,
or 2.4%, as compared to the same period in 1999 due to incremental revenues of
$17.3 million from new and converted hotels, revenues generated by the newly
acquired Sumner Suites hotels and higher revenues from comparable Owned Hotels,
which increased by $7.6 million, or 4.1%. Revenues associated with hotels sold
subsequent to September 30, 1999 offset this increase.
The following table sets forth hotel operating data for the comparable
Owned Hotels for the three and nine months ended September 30, 2000 as compared
to the same periods in 1999, by product type:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 2000 %CHANGE 1999 2000 %CHANGE
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
AMERISUITES
OCCUPANCY 68.0% 71.7% 67.0% 70.6%
ADR $ 81.36 $ 80.52 $ 82.39 $ 81.38
REVPAR $ 55.32 $ 57.74 4.4% $ 55.17 $ 57.48 4.2%
FULL-SERVICE
OCCUPANCY 78.1% 79.9% 71.6% 73.7%
ADR $111.49 $118.41 $107.03 $111.94
REVPAR $ 87.12 $ 94.57 8.5% $ 76.61 $ 82.47 7.7%
WELLESLEY INN
OCCUPANCY 69.7% 72.1% 74.1% 73.2%
ADR $ 55.95 $ 55.74 $ 60.81 $ 62.48
REVPAR $ 39.00 $ 40.21 3.1% $ 45.05 $ 45.72 1.5%
TOTAL
OCCUPANCY 69.7% 73.1% 68.8% 71.5%
ADR $ 82.81 $ 83.42 $ 82.88 $ 83.58
REVPAR $ 57.74 $ 61.00 5.6% $ 57.03 $ 59.79 4.8%
</TABLE>
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The improvements in REVPAR at comparable Owned Hotels were generated by
higher occupancy percentages, which rose by approximately 4.9% and 3.0%, for the
three and nine-month periods, respectively, and ADR growth of 1.0% and .7% for
the three and nine-month periods, respectively. The REVPAR increases reflect the
growing recognition of the AmeriSuites and Wellesley brands and favorable
industry trends in the Northeast where the full-service hotels are located.
The Company's 38 Wellesley Inn & Suites, which were converted from the
HomeGate brand and are classified as non-comparable, achieved a 65.1% and 62.9%
occupancy rate, respectively, and a $58.06 and $59.13 ADR, respectively for the
three and nine months ended September 30, 2000, which reflects a 22.4% and 19.0%
increase from the comparable periods of 1999.
Food and beverage revenues for the three and nine months ended
September 30, 2000 decreased by $1.5 million and $5.5 million, or 13.5% and
13.7%, respectively, as compared to the same period in the prior year primarily
due to the sale of the Frenchman's Reef Marriott hotel, which was sold on March
15, 2000. Food and beverage revenues at comparable hotels for the three and
nine-month periods increased by $200,000 and $600,000, or 3.7% and 3.6%,
respectively, due to increased banquet business.
Management, franchise and other fees consists primarily of base,
incentive and other fees earned under management agreements, royalty fees earned
under franchise agreements, sales commissions earned by the Company's national
sales group and rental income. Management, franchise and other fees increased by
$284,000 and $3.2 million, or 5.9% and 27.2%, respectively, for the three and
nine months ended September 30, 2000 as compared to the same period in 1999, due
to additional Managed and Franchised Hotels.
Interest on mortgages and notes receivable decreased by $477,000 and
$1.3 million, respectively, for the three and nine months ended September 30,
2000 as compared to the same period in 1999 due to the settlement of various
cash flow notes during 1999.
Direct lodging expenses increased by $2.3 million, or 7.2%, for the
three months ended September 30, 2000, as compared to the same period in 1999,
due primarily to the addition of newly acquired or converted hotels. For the
nine months ended September 30, 2000, direct lodging expenses increased by $4.8
million, or 5.3%, as compared to the same period in 1999. As a percentage of
lodging revenue, direct lodging expenses also increased from 26.0% to 26.3% and
from 25.1% to 25.8% for the three and nine-month periods, respectively, as
compared to the same periods in the prior year. The increases were primarily due
to higher travel agent commissions and hotel payroll costs, particularly at the
staff level.
Direct food and beverage expenses for the three and nine months ended
September 30, 2000 decreased by $1.7 million and $4.3 million, or 18.9% and
14.8%, respectively, as compared to the same periods in 1999, due primarily to
the sale of the Frenchman's Reef. As a percentage of food and beverage revenues,
direct food and beverage expenses decreased from 78.8% to 73.8% for the
three-month period and from 71.7% to 70.8% for the nine-month period as
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compared to the same periods in the prior year. The increases were attributed
to the higher margins associated with increased banquet business.
Direct hotel selling and general expenses consist primarily of hotel
expenses for Owned Hotels, which are not specifically allocated to rooms or food
and beverage activities, such as administration, selling and advertising,
utilities, repairs and maintenance. Direct hotel selling and general expenses
decreased by $94,000 and $2.3 million, or 0.3% and 2.6%, respectively, for the
three and nine months ended September 30, 2000, as compared to the same periods
in 1999, due primarily to hotel divestitures. As a percentage of hotel revenues
(defined as lodging and food and beverage revenues), direct hotel selling and
general expenses decreased from 21.8% to 20.8% for the three-month
period and from 21.6% to 20.8% for the nine-month period as compared to the same
periods in 1999 due to lower liability insurance costs.
Occupancy and other operating expenses consist primarily of property
insurance, real estate and other taxes and rent expense. Occupancy and other
operating expenses for the three and nine months ended September 30, 2000
increased by $7.4 million and $8.4 million or 42.6% and 15.6%, respectively, as
compared to the same period in 1999 due to additional Leased Hotels.
General and administrative expenses consist primarily of centralized
management expenses such as operations management, sales and marketing, finance
and hotel support services associated with operating the Owned, Leased and
Managed Hotels and general corporate expenses. General and administrative
expenses increased by $462,000 and $2.2 million, or 7.6% and 10.1%,
respectively, for the three and nine months ended September 30, 2000 as compared
to the same periods in 1999, primarily due to increased advertising and other
costs associated with the Company's franchising efforts.
Depreciation and amortization expense decreased by $1.7 million and
$4.8 million, or 14.6% and 13.2%, respectively, for the three and nine months
ended September 30, 2000 as compared to the same periods in 1999 due to asset
dispositions.
Other charges for the three months ended September 30, 1999 consist of
valuation reserves of $4.5 million and $20.0 million, respectively, related to
the Company's non-prototype HomeGates and its Frenchman's Reef Marriott Beach
Resort. The Company had recorded these charges in order to reduce 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 its non-prototype HomeGates and the Frenchman's Reef, as well
as $1.4 million of severance charges related to the costs associated with the
Company's restructuring of its corporate and regional offices.
Investment income increased by $181,000 and $25,000, or 33.5% and 2.0%,
respectively, for the three and nine months ended September 30, 2000 as compared
to the same periods in 1999, primarily due to an overall increase in the
Company's weighted average cash balances due to proceeds from the increased
number of hotel divestitures.
Interest expense decreased by $2.1 million, or 18%, for the three
months ended September 30, 2000 as compared to the same period in 1999,
primarily due to a lower weighted
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<PAGE>
average debt balance in 2000 offset by a reduction in the amount of interest
capitalized during the three-month period as compared to the same period in
1999. Interest expense increased by $1.8 million or 5.8% for the nine months
ended September 30, 2000 as compared to the same period in 1999 primarily due to
a reduction in the amount of interest capitalized in 2000. Capitalized interest
decreased from $1.7 million to $645,000 for the three-month period ended
September 30, 1999 and 2000, respectively, and from $10.2 million to $1.7
million for the nine-month period ended September 30, 2000, respectively.
Other income, net consists of income and losses from property
transactions and other asset sales and retirements. For the three and nine
months ended September 30, 2000, other income, net consisted of $47,000 and
$13.9 million, respectively, related to net gains on property transactions. For
the three months ended September 30, 1999, other income, net consisted of $2.8
million related to net gains on property transactions. For the nine months ended
September 30, 1999, other income, net consisted of net gains on property
transactions of $7.0 million, losses on the sales of marketable securities of
$4.8 million and income from a contract termination fee of $4.0 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash, cash equivalents and
current marketable securities of $22.7 million. In addition, at September 30,
2000, the Company had $106.4 million available under the Revolving Credit
Facility.
The Company's major sources of cash for the nine months ended September
30, 2000 were net proceeds from the sales of hotels of $162.9 million,
borrowings of $30.8 million and cash flow from operations of $65.8 million. The
Company's principal uses of cash during the period were $171.7 million of debt
repayments, primarily related to the Revolving Credit Facility and the
retirement of debt related to the Frenchman's Reef, repurchases of its common
stock totaling $29.3 million and capital expenditures of $30.5 million.
For the nine months ended September 30, 2000, cash flow from operations
was positively impacted by the utilization of net operating loss carry forwards
("NOLs") of $2.3 million. At September 30, 2000, the Company had federal NOLs
relating primarily to its predecessor, Prime Motor Inns, Inc., of approximately
$54.6 million, which are subject to annual utilization limitations and will
expire in 2006.
SOURCES OF CAPITAL. The Company has undertaken a strategic initiative to dispose
of certain hotel real estate while retaining the franchise rights and to invest
the proceeds in the growth of its proprietary brands, the repurchase of the
Company's common stock or the reduction of debt.
During the nine months ended September 30, 2000, the Company sold
$192.1 million of assets. These were comprised of the sale of the Frenchman's
Reef hotel for $73.0 million, the remaining five HomeGate hotels and all rights
to the HomeGate brand name for $17.7 million, four AmeriSuites for $46.6
million, seven Wellesley Inn and Suites for $31.8 million and one full service
property for $18.2 million. The Company also sold four land parcels for $4.8
million. On November 8, 2000, the Company sold an additional Wellesley Inn for
$3.7 million.
The Company has a $200.0 million Revolving Credit Facility, which bears
interest at
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LIBOR plus 2.0%. The facility is available through 2001 and may be
extended for an additional year. The aggregate amount of the Revolving Credit
Facility will be reduced to $175.0 million in December 2000 and to $125.0
million in December 2001. Borrowings under the facility are secured by first
liens on 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. During the nine months ended September 30, 2000, the Company
borrowed $31.0 million and repaid $114.5 million under this facility reducing
the outstanding borrowings from $125.0 million to $41.5 million with further
availability of $106.4 million.
The Revolving Credit Facility contains covenants requiring the Company
to maintain certain financial ratios and limitations on the incurrence of debt,
liens, dividend payments, stock repurchases, certain investments, transactions
with affiliates, asset sales, mergers and consolidations and any change of
control of the Company. In October 1999, the Revolving Credit Facility was
amended to allow an additional $100.0 million of share repurchases to be funded
by 50% of the proceeds from asset sales. In April 2000, the Revolving Credit
Facility was amended to allow for additional retirements of other debt owed by
the Company.
USES OF CAPITAL. The Company utilized the proceeds from asset sales along with
its cash flow from operations, to reduce its debt balance during the year by
$161.1 million to $387.9 million at September 30, 2000. This reduction of debt
was primarily comprised of the gross payments or transfers of $62.2 million of
mortgage debt on assets sold, the reduction in the outstanding Revolving Credit
Facility debt of $83.5 million and the retirement of $15.3 million of the
Company's $120 million First Mortgage Notes due 2006 ("First Mortgage Notes").
The Company had repurchased $12.2 million of these notes during the first
quarter ended March 31, 2000 at a purchase price, which approximated the par
value of the notes. In December 1999, the Company had repurchased $3.1 million
of these notes for a purchase price of $3.0 million and subsequently retired
these notes during 2000.
The Company also purchased approximately 3.7 million shares of its
common stock during the nine months ended September 30, 2000 for $29.3 million
at a total average cost of $7.90 per share. The purchases of these shares are
limited by the Revolving Credit Facility to 50% of the proceeds from asset sales
not to exceed $100 million. As of November 10, 2000, the Company has repurchased
$32.1 million of its shares under this covenant and has $37.0 million of
availability based on the proceeds from asset sales.
The Company intends to continue the growth of its brands primarily
through franchising and, therefore, its corporate development will be limited.
The Company opened two owned AmeriSuites in 2000 and has spent $15.9 million
during the nine months ended September 30, 2000 on new construction. The Company
plans to spend an additional $5.0-$6.0 million during the remainder of 2000 on
two additional AmeriSuites, which are currently under construction. In addition,
during the nine months ended September 30, 2000, the Company also spent
approximately $14.6 million on capital improvements at its Owned Hotels and
expects to spend an additional $6.0-$8.0 million on its Owned Hotels in the
fourth quarter of 2000. This spending includes the conversion of two
limited-service hotels to Wellesley Inn & Suites and approximately $2.0 million
for the conversion of the 27 Sumner Suites to the AmeriSuites brand. The Company
plans to fund its corporate development and capital improvements with internally
generated cash flow.
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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. At September 30, 2000, the Company had advances of
approximately $144.9 million to such third party, which advances are classified
as property, equipment and leasehold improvements in the Company's accompanying
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its
floating rate debt arrangements. A hypothetical 100 basis point adverse move
(increase) in interest rates along the entire rate curve would adversely affect
the Company's annual interest cost by approximately $592,000 annually.
In October 1999, the Company entered into an interest rate protection
agreement with a major financial institution, which reduces the Company's
exposure to fluctuations in interest rates by effectively fixing interest rates
on $40.0 million of variable interest rate debt. Under this agreement, on a
monthly basis the Company pays a fixed rate of interest of 6.03% and receives a
floating interest rate payment equal to the 30 day LIBOR rate on a $40.0 million
notional principal amount. The agreement commenced in October 1999 and expired
in October 2000. Due to the reduction in the amount of floating rate debt to
approximately $59.1 million at September 30, 2000, the Company has not entered
into a new interest rate protection agreement.
17
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The Company does not believe that any
liabilities relating to any of the legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
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.
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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 14, 2000 By: /S/ A.F. PETROCELLI
-------------------
A. F. Petrocelli
President and Chief Executive
Officer
Date:November 14, 2000 By: /S/ DOUGLAS VICARI
------------------
Douglas Vicari
Senior Vice President and Chief
Financial Officer
20
