-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q3m3Mw5uampdFZ/ZWnXykfvfJziJBq8lxT452gO1ZO9WMzY9unxYM7erWnxBrLqz mWXJLVLyu7q+CTDDUuK+9A== 0000950123-99-004694.txt : 19990517 0000950123-99-004694.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950123-99-004694 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222640625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06869 FILM NUMBER: 99622867 BUSINESS ADDRESS: STREET 1: 700 RTE 46 E CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 9738821010 MAIL ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: PRIME MOTOR INNS INC DATE OF NAME CHANGE: 19920609 FORMER COMPANY: FORMER CONFORMED NAME: PRIME EQUITIES INC DATE OF NAME CHANGE: 19731120 10-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ________________ Commission File No. 1-6869 PRIME HOSPITALITY CORP. (Exact name of registrant as specified in its charter) Delaware 22-2640625 (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 700 Route 46 East, Fairfield, New Jersey 07004 (Address of principal executive offices) (973) 882-1010 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [x] No [ ] The registrant had 51,338,212 shares of common stock, $.01 par value outstanding, as of May 7, 1999. 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX
PAGE PART I. FINANCIAL INFORMATION NUMBER ------ Item 1. Financial Statements Consolidated Balance Sheets December 31, 1998 and March 31, 1999..................... 1 Consolidated Statements of Income Three Months Ended March 31, 1998 and March 31, 1999....................................... 2 Consolidated Statements of Cash Flows Three Months Ended March 31, 1998 and March 31, 1999....................................... 3 Notes to Interim Consolidated Financial Statements.......... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................ 16 Signatures ......................................................... 17
3 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31, 1998 1999 ----------- ----------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ........................... $ 12,534 $ 17,956 Marketable securities available for sale ............ 12,460 5,965 Accounts receivable, net of reserves ................ 20,816 24,429 Current portion of mortgages and notes receivable ................................. 797 683 Other current assets ................................ 28,791 21,775 ----------- ----------- Total current assets .......................... 75,398 70,808 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization .... 1,281,378 1,289,455 Mortgages and notes receivable, net of current portion ..................................... 14,688 14,611 Other assets ............................................ 36,934 26,271 ----------- ----------- TOTAL ASSETS .................................. $ 1,408,398 $ 1,401,145 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of debt ............................. $ 15,762 $ 19,818 Other current liabilities ........................... 82,767 85,822 ----------- ----------- Total current liabilities ..................... 98,529 105,640 Long-term debt, net of current portion .................. 582,031 586,567 Other liabilities ....................................... 6,240 5,111 Deferred income ......................................... 80,553 78,558 ----------- ----------- Total liabilities ............................. 767,353 775,876 Commitments and contingencies Stockholders' equity: Preferred stock, par value $.10 per share; 20,000,000 shares authorized; none issued ........ -- -- Common stock, par value $.01 per share; 75,000,000 shares authorized; 55,202,253 and 55,254,530 shares issued and outstanding at December 31, 1998 and March 31, 1999, respectively ..................................... 552 552 Capital in excess of par value ...................... 511,981 513,044 Retained earnings ................................... 159,584 165,785 Accumulated other comprehensive loss, net of taxes ..................................... (4,993) (2,235) Treasury stock (1,470,439 shares at December 31, 1998 and 3,982,639 shares at March 31, 1999) .......... (26,079) (51,877) ----------- ----------- Total stockholders' equity .................... 641,045 625,269 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 1,408,398 $ 1,401,145 =========== ===========
See Accompanying Notes to Interim Consolidated Financial Statements. -1- 4 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1998 1999 --------- --------- Revenues: Lodging ...................................... $ 86,601 $ 116,313 Food and beverage ............................ 11,643 13,225 Management, franchise and other fees ......... 3,469 3,025 Interest on mortgages and notes receivable .......................... 1,575 737 --------- --------- Total revenues ......................... 103,288 133,300 Costs and expenses: Direct hotel operating expenses: Lodging ................................... 20,501 28,388 Food and beverage ......................... 9,440 9,442 Selling and general ....................... 22,151 29,530 Occupancy and other operating ................ 12,588 17,897 General and administrative ................... 6,583 8,186 Depreciation and amortization ................ 10,900 12,680 Other charges ................................ -- 2,500 --------- --------- Total costs and expenses ............... 82,163 108,623 Operating income ................................. 21,125 24,677 Investment income ................................ 1,261 522 Interest expense ................................. (5,787) (8,642) Other income ..................................... -- 2,321 --------- --------- Income before income taxes and cumulative effect of a change in accounting principle ......................... 16,599 18,878 Provision for income taxes ....................... 6,308 7,362 --------- --------- Income before the cumulative effect of a change in accounting principle ......................... 10,291 11,516 Cumulative effect of a change in accounting principle, net of taxes ........... -- (5,315) --------- --------- Net income ....................................... $ 10,291 $ 6,201 ========= ========= Earnings per common share: Basic: Income before cumulative effect of a change in accounting principle ....................... $ 0.22 $ 0.22 Cumulative effect of a change in accounting principle .................................. -- (0.10) --------- --------- Net earnings ..................................... $ 0.22 $ 0.12 ========= ========= Diluted: Income before cumulative effect of a change in accounting principle ....................... $ 0.20 $ 0.22 Cumulative effect of a change in accounting principle .................................. -- (0.10) --------- --------- Net earnings ..................................... $ 0.20 $ 0.12 ========= =========
See Accompanying Notes to Interim Consolidated Financial Statements. -2- 5 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 1998 1999 --------- -------- Cash flows from operating activities: Net income ................................... $ 10,291 $ 6,201 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............. 10,900 12,680 Valuation adjustments ..................... -- 2,500 Amortization of deferred financing costs .. 826 764 Business interruption insurance revenue ... (1,575) -- Utilization of net operating loss carryforwards .......................... 1,614 830 Cumulative effect of net accounting change -- 8,713 Net loss on asset disposals ............... -- 1,677 Deferred income taxes ..................... -- 978 Amortization of deferred gain ............. (2,156) (2,507) Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable .................... (4,434) (3,613) Other current assets ................... 1,425 645 Other liabilities ...................... (7,109) 147 --------- -------- Net cash provided by operating activities .......................... 9,782 29,015 Cash flows from investing activities: Net proceeds from mortgages and notes receivable ................................ 621 190 Proceeds from sales of property, equipment and leasehold improvements ................ 115,280 26,650 Construction of new hotels ................... (88,281) (44,799) Purchases of property, equipment and leasehold improvements .................... (14,203) (4,385) (Increase) decrease in restricted cash ....... (6,234) 5,187 Proceeds from sales of marketable securities . -- 7,725 Purchases of marketable securities ........... (350) (1,652) Proceeds from officer's life insurance ....... -- 4,706 Other ........................................ (1,423) 431 --------- -------- Net cash (used in) provided by investing activities .......................... 5,410 (5,947) Cash flows from financing activities: Net proceeds from issuance of debt ........... 39,150 9,326 Payments of debt ............................. (15,956) (1,409) Proceeds from the exercise of stock options and warrants .............................. 896 233 Treasury stock purchases ..................... (9,145) (25,798) Other ........................................ (52) 2 --------- -------- Net cash provided by (used in) financing activities .......................... 14,893 (17,646) --------- -------- Net increase in cash and cash equivalents .... 30,085 5,422 Cash and cash equivalents at beginning of period ................................. 5,013 12,534 --------- -------- Cash and cash equivalents at end of period ... $ 35,098 $ 17,956 ========= ========
See Accompanying Notes to Interim Consolidated Financial Statements. -3- 6 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying interim unaudited consolidated financial statements of Prime Hospitality Corp. and subsidiaries (the "Company") contain all material adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 1999 and the results of its operations for the three months ended March 31, 1998 and 1999 and cash flows for the three months ended March 31, 1998 and 1999. The consolidated financial statements for the three months ended March 31, 1998 and 1999 were prepared on a consistent basis with the audited consolidated financial statements for the year ended December 31, 1998. Certain reclassifications have been made to the March 31, 1998 consolidated financial statements to conform them to the March 31, 1999 presentation. The consolidated results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. NOTE 2 - ACCOUNTING POLICIES In 1999, the Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). The Company has recorded a $5.3 million charge, net of taxes, for the cumulative effect of a change in accounting principle to write off any unamortized pre-opening costs that remained on the balance sheet at the date of adoption. Additionally, on a prospective basis subsequent to the adoption of this new standard, all future pre-opening costs will be expensed as incurred. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) which is effective for fiscal years beginning after June 15, 1999. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company has not yet quantified the impact of adopting SFAS 133 on its financial statements, however, the Company expects the impact to be immaterial due to its limited derivative activity. The Company believes that the adoption of SFAS 133 will not have a material effect on its financial condition or results of its operations. - 4 - 7 NOTE 3 - HOTEL DISPOSITIONS During the three months ended, March 31, 1999, the Company sold three AmeriSuites hotels, located in Houston, TX, San Antonio, TX and Portland, ME for $27.2 million. The Company will generate franchise fees under ten-year franchise agreements. The transactions generated net gains of $3.1 million. The Company also had a contract to sell and lease back nine additional full-service hotels to MeriStar Hospitality Corp. not later than March 31, 1999. In February 1999, MeriStar informed the Company that it was unable to fulfill its contractual obligation. Under the terms of the contract, the Company received a $4.0 million contract termination fee in February 1999. NOTE 4 - EARNINGS PER COMMON SHARE Basic earnings per common share was computed based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares used in computing basic earnings per share was 46.9 million and 52.3 million for the three months ended March 31, 1998 and 1999, respectively. Diluted earnings per share reflects adjustments to basic earnings per share for the dilutive effect of stock options and warrants and the elimination of interest expense and, in 1998, the issuance of additional common shares from the assumed conversion of the 7% convertible subordinated notes. The weighted average number of common shares used in computing diluted earnings per share was 55.4 million and 53.6 million for the three months ended March 31, 1998 and 1999, respectively. NOTE 5 - INTEREST EXPENSE The Company capitalized $7.2 million and $5.4 million for the three months ended March 31, 1998 and 1999, respectively, of interest related to borrowings used to finance hotel construction. Also included in interest expense is the amortization of deferred financing fees of $826,000 and $764,000 for the three months ended March 31, 1998 and 1999, respectively. - 5 - 8 NOTE 6 - TREASURY STOCK Under its stock repurchase program, in 1999 the Company purchased 2.5 million shares of its common stock at an average price of $10.27 per share. Under the terms of the Company's $200 Million Revolving Credit Facility (the "Revolving Credit Facility"), the Company may purchase shares in an aggregate amount not to exceed $50 million through December 1999. NOTE 7 - COMPREHENSIVE INCOME For the three months ended March 31, 1999, comprehensive income consisted of the following (in thousands):
THREE MONTHS ENDED MARCH 31, --------------------- 1998 1999 ------- ------- Net income ................... $10,291 $ 6,201 Unrealized loss on marketable securities, net of taxes ..... -- (2,758) ------- ------- Total ....... $10,291 $ 3,443 ======= =======
NOTE 8 - OTHER INCOME Other income consists of property transactions and other asset sales and retirements. For the three months ended March 31, 1999, other income consisted of net gains on property transactions of $3.1 million, contract termination fees of $4.0 million (See Note 3) and losses on sales of marketable securities of $4.8 million. NOTE 9 - OTHER CHARGES For the three months ended March 31, 1999, the Company established a $2.5 million valuation reserve related to seven non-prototype HomeGate hotels. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company has reduced the carrying value of the assets to reflect current market conditions. NOTE 10 - GEOGRAPHIC AND BUSINESS INFORMATION The Company's hotels serve four major lodging industry segments: the all-suites segment, under its AmeriSuites brand: the extended-stay segment, under its HomeGates brand; the limited-service segment, primarily under its Wellesley Inns brand and the full-service segment under major national franchises. The following table presents revenues and other financial information by business segment for the three months ended March 31, 1998 and 1999. Three months ended March 31, 1999 All- Extended Limited Full Suites Stay Service Service Consolidated ------ -------- ------- ------- ------------ Revenues......................$ 57,182 $ 13,345 $ 13,228 $ 45,783 $ 129,538 Hotel EBITDA.................. 20,216 5,445 6,355 9,903 41,919 Depreciation and amortization. 5,750 1,982 1,430 3,305 12,467 Capital expenditures.......... 27,853 18,130 1,132 1,808 48,923 Total Assets.................. 622,916 287,855 113,598 230,214 1,254,583 Three months ended March 31, 1998 All- Extended Limited Full Suites Stay Service Service Consolidated ------ -------- ------- ------- ------------ Revenues......................$ 39,562 $ 4,135 $ 13,263 $ 41,284 $ 98,244 Hotel EBITDA.................. 16,201 1,467 6,787 8,913 33,368 Depreciation and amortization. 5,238 996 1,301 3,199 10,734 Capital expenditures.......... 50,193 40,357 722 10,764 102,036 Total Assets.................. 508,251 123,125 114,732 238,454 984,562 - 6 - 9 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company is an owner, manager and franchisor of hotels throughout the United States and the U.S. Virgin Islands. The Company operates three proprietary brands, AmeriSuites (all-suites), HomeGate Studios & Suites (extended-stay) and Wellesley Inns (limited-service). Also within its portfolio are owned and/or managed hotels operated under franchise agreements with national hotel chains. As of May 2, 1999, the Company owned 155 hotels (the "Owned Hotels"), operated 28 hotels under lease agreements primarily with Real Estate Investment Trusts ("REITS") (the "Leased Hotels"), managed 10 hotels for third parties (the "Managed Hotels") and franchised four hotels, which it does not operate (the "Franchised Hotels"). The Company has significant equity interests in the Owned Hotels and has economic interests limited to a percentage of revenues (generally between 2.5% to 5.0%) on the Leased Hotels, Managed Hotels and Franchised Hotels. The Company consolidates the results of operations of its Owned Hotels and Leased Hotels and records management fees (including incentive management fees) on the Managed Hotels and franchise revenue on the Franchised Hotels. The Company's strategy is to develop its proprietary AmeriSuites and Wellesley Inns brands both through corporate development and franchising. Through the development of its proprietary brands, the Company is transforming itself from an owner/operator into a franchisor and manager and has positioned itself to generate additional revenues with minimal capital investment. The Company intends to convert 38 of its extended-stay HomeGate hotels into its limited-service Wellesley Inns brand. The Company expects to complete this conversion in the fourth quarter of 1999 and currently anticipates a conversion cost of approximately $3.0 to $5.0 million. The conversion will change the hotels' customer base from extended-stay to transient. The Company believes this will enhance the value of its existing hotels and improve its franchising prospects for the Wellesley brand. For the three months ended March 31, 1999, earnings before asset transactions and other charges increased by 13% over the same period in 1998. The earnings gains resulted from growth in revenue per available room ("REVPAR") of 5.2% for the comparable Owned Hotels, and significant new AmeriSuites unit growth over the prior period. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 24.5% to $39.9 million for the three months ended March 31, 1999. Hotel EBITDA increased by 25.7% to $41.9 million for the three month period. Hotel EBITDA represents EBITDA generated from the operations of Owned Hotels and excludes management fee income, interest income from mortgages and notes receivable, general and administrative expenses and other revenues and expenses which do not directly relate to the operations of Owned Hotels. The changes in EBITDA and Hotel - 7 - 10 EBITDA are attributable to the growth at comparable hotels and the addition of new hotels offset by rent expense associated with the sale/leaseback of hotels. The Company's hotels currently operate in four segments of the industry: the upscale all-suites segment, under the Company's proprietary AmeriSuites brand; the mid-price extended-stay segment, under the Company's proprietary HomeGate Studios & Suites brand; the upscale full-service segment, under major national franchises; and the midprice limited-service segment, primarily under the Company's proprietary Wellesley Inns brand. The following table illustrates the Hotel EBITDA contribution from each segment (in thousands):
THREE MONTHS ENDED MARCH 31, 1998 1999 ---- ---- Amount % of Total Amount % of Total ------ ---------- ------ ---------- All-suites .......... $16,201 48.6 $20,216 48.3% Full-service ........ 8,913 26.7 9,903 23.6% Limited-service ..... 6,787 20.3 6,355 15.2% Extended-Stay ....... 1,467 4.4 5,445 12.9% ------- ----- ------- ----- Total ......... $33,368 100.0% $41,919 100.0% ======= ===== ======= =====
Hotel EBITDA for the three months ended March 31, 1999 reflects the shifting mix in the Company's hotel portfolio toward its proprietary brands. Based on the Company's development plans, Prime expects the relative contribution from its proprietary brands to continue to increase in 1999. Additionally, with the conversion of 38 extended-stay HomeGate hotels into the limited-service Wellesley Inns brand in the fourth quarter of 1999, the Company's hotels will effectively operate in three segments. EBITDA and Hotel EBITDA are not measures of financial performance under generally accepted accounting principles and should not be considered as alternatives to net income as an indicator of the Company's operating performance or as alternatives to cash flows as a measure of liquidity. Certain statements in this Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. - 8 - 11 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999 The following table presents the components of operating income, operating expense margins and other data for the Company and the Company's comparable Owned Hotels for the three months ended March 31, 1998 and 1999. The results of the three hotels divested in 1999 are not material to an understanding of the results of the Company's operations in such periods and, therefore, are not separately discussed.
TOTAL COMPARABLE OWNED HOTELS(2) THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, (IN THOUSANDS, EXCEPT ADR AND REVPAR) 1998 1999 1998 1999 -------- -------- ---------- ---------- INCOME STATEMENT DATA: Revenues: Lodging ...................................... $ 86,601 $116,313 $ 55,680 $ 58,688 Food and beverage ............................ 11,643 13,225 5,587 5,651 Management, franchise and other .............. 3,469 3,025 Interest on mortgages and notes receivable ... 1,575 737 -------- -------- Total revenues ....................... 103,288 133,300 Direct hotel operating expenses: Lodging ...................................... 20,501 28,388 13,232 14,419 Food and beverage ............................ 9,440 9,442 4,585 4,635 Selling and general .......................... 22,151 29,530 13,371 13,751 Occupancy and other operating .................. 12,588 17,897 General and administrative ..................... 6,583 8,186 Depreciation and amortization .................. 10,900 12,680 Other charges .................................. -- 2,500 -------- -------- Total costs and expenses ............. 82,163 108,623 Operating income ............................... 21,125 24,677 OPERATING EXPENSE MARGINS: Direct hotel operating expenses: Lodging, as a percentage of lodging revenue .. 23.7% 24.4% 23.8% 24.6% Food and beverage, as a percentage of food and beverage revenue .......................... 81.1% 71.4% 82.1% 82.0% Selling and general, as a percentage of lodging and food and beverage revenue ..... 22.5% 22.8% 21.8% 21.4% Occupancy and other operating, as a percentage of lodging and food and beverage revenue ..... 12.8% 13.8% General and administrative, as a percentage of total revenue ................................ 6.4% 6.1% Other Data(1): Occupancy ...................................... 60.6% 61.7% 62.6% 65.2% Average daily rate ("ADR") ..................... $ 83.20 $ 82.12 $ 79.73 $ 80.42 Revenue per available room ("REVPAR") .......... $ 50.42 $ 50.65 $ 49.88 $ 52.45 Gross operating profit ......................... $ 46,152 $ 62,178 $ 30,079 $ 31,534
(1) For purposes of showing operating trends, the three hotels divested in 1999 have been excluded from the other data section of the tables. (2) Comparable Owned Hotels refers to the 92 Owned Hotels which were open for the full period in both 1998 and 1999 excluding the Frenchman's Reef which is currently marketed for sale. - 9 - 12 Lodging revenues, which include room revenues and other related revenues such as telephone and vending, increased by $29.7 million, or 34.3%, respectively, for the three months ended March 31, 1999, as compared to the same period in 1998. Lodging revenues for the three months ended March 31, 1999 increased due to incremental revenues of $24.4 million from new hotels and higher revenues for comparable Owned Hotels, which increased by $3.0 million, or 5.4%. The following table sets forth hotel operating data for the comparable Owned Hotels, for the three months ended March 31, 1999 as compared to the same period in 1998, by product type:
THREE MONTHS ENDED MARCH 31, 1998 1999 %CHANGE ---- ---- ------- AMERISUITES OCCUPANCY 62.6% 66.2% ADR $ 81.97 $ 82.54 REVPAR $ 51.34 $ 54.66 6.5% HOMEGATE OCCUPANCY 50.1% 57.2% ADR $ 53.02 $ 54.46 REVPAR $ 26.58 $ 31.15 17.2% FULL-SERVICE OCCUPANCY 59.8% 59.1% ADR $ 96.24 $102.92 REVPAR $ 57.52 $ 60.78 5.7% WELLESLEY INNS OCCUPANCY 70.0% 72.5% ADR $ 70.93 $ 68.53 REVPAR $ 49.65 $ 49.65 0% TOTAL OCCUPANCY 62.6% 65.2% ADR $ 79.73 $ 80.42 REVPAR $ 49.88 $ 52.45 5.2%
- 10 - 13 The REVPAR increases at comparable hotels reflect the growing recognition of AmeriSuites as a leading brand in the fast-growing all-suites segment and favorable industry trends in the full service segment which is concentrated in the Northeast. The improvements in REVPAR at comparable Owned Hotels were generated by increases in occupancy percentage and ADR, which rose by 4.2% and 0.9%, respectively, for the three month period. Food and beverage revenues increased by $1.6 million, or 13.6%, for the three months ended March 31, 1999 as compared to the same period in 1998 primarily attributable to increased revenues at the company-owned Marriott's Frenchman's Reef in St. Thomas U.S.V.I. (the "Frenchman's Reef"). Food and beverage revenues for comparable Owned Hotels increased by $64,000, or 1.1%, for the three month period. Management, franchise and other revenue consists primarily of base, incentive and other fees earned under management agreements, royalty fees earned under franchise agreements, rental income and business interruption insurance related to the Frenchman's Reef. Management, franchise and other revenue, excluding business interruption insurance, increased by $1.0 million, or 51.3%, for the three months ended March 31, 1999 as compared to the same period in 1998 due to increases in franchise royalty fees related to the Franchised Hotels and base and incentive management fees associated with the Managed Hotels. Business interruption insurance revenue of $1.5 million was recorded during the three months ended March 31, 1998 and was based on a settlement in March 1998 of the Company's claim related to the damage at the Frenchman's Reef caused by Hurricane Bertha in July 1996. No business interruption insurance revenue was recorded during the three months ended March 31, 1999. Interest on mortgages and notes receivable primarily relates to mortgages secured by certain Managed Hotels. Interest on mortgages and notes receivable decreased by $838,000 for the three months ended March 31, 1999, or 53.2%, as compared to the same period in 1998 primarily due to the settlement of various cash flow mortgages and notes receivables in 1998. Direct lodging expenses increased by $7.9 million, or 38.5%, for the three months ended March 31, 1999, as compared to the same period in 1998 due primarily to the addition of new hotels. Direct lodging expenses as a percentage of lodging revenue increased from 23.7% to 24.4% for the three month period. For comparable Owned Hotels, direct lodging expenses as a percentage of lodging revenues increased from 23.8% to 24.6% for the three month period. Direct food and beverage expenses for the three months ended March 31, 1999 remained flat at $9.4 million, as compared to the same period in 1998. As a percentage of food and beverage revenues, direct food and beverage expenses decreased from 81.1% to 71.4% for the three month period ended March 31, 1999 compared to the same period in the prior year, primarily due to the higher margins generated at the Frenchman's Reef. For comparable Owned Hotels, food and beverage expenses as a percentage of food and beverage revenues remained constant at approximately 82.0% for the three month periods. Direct hotel selling and general expenses consist primarily of hotel expenses for Owned Hotels which are not specifically allocated to rooms or food and beverage activities, such as - 11 - 14 administration, selling and advertising, utilities, repairs and maintenance. Direct hotel selling and general expenses increased by $7.4 million, or 33.3%, for the three months ended March 31, 1999 as compared to the same period in 1998 primarily due to the addition of new hotels. As a percentage of hotel revenues (defined as lodging and food and beverage revenues), direct hotel selling and general expenses increased slightly from 22.5% to 22.8% for the three month period due to increased expenses at the Frenchman's Reef. For the comparable Owned Hotels, direct hotel selling and general as a percentage of hotel revenues decreased slightly from 21.8% to 21.4% for the three month period. Occupancy and other operating expenses consist primarily of insurance, real estate and other taxes and rent expense. Occupancy and other operating expenses increased by $5.3 million, or 42.2%, for the three months ended March 31, 1999, as compared to the same period in 1998 due to the rent expense associated with the sale/leaseback of hotels to MeriStar and Equity Inns and the addition of new hotels. Occupancy and other operating expenses as a percentage of hotel revenues increased from 12.8% to 13.8% for the three month period. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating both the Owned Hotels and Managed Hotels and general corporate expenses. General and administrative expenses increased by $1.6 million, or 24.4%, for the three months ended March 31, 1999 as compared to the same period in 1998 due to increased advertising, personnel and training costs associated with opening the new AmeriSuites and HomeGate hotels and costs associated with the Company's franchising efforts. As a percentage of total revenues, general and administrative expenses decreased from 6.4% to 6.1% for the three month period due to increased operating leverage. Depreciation and amortization expense increased by $1.8 million, or 16.3%, for the three months ended March 31, 1999 as compared to the same period in 1998 due to the impact of new hotel properties. Other charges for the three months ended March 31, 1999 consisted of a reserve of $2.5 million related to seven non-prototype HomeGate hotels. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company has reduced the carrying value of the assets to reflect current market conditions. Investment income decreased by $739,000, or 58.6% for the three months ended March 31, 1999 as compared to the same period in 1998 due to a decrease in dividend income of $480,000 attributable to sales of marketable securities and a decrease in weighted average cash balances. Interest expense increased by $2.9 million, or 49.3% for the three months ended March 31, 1999 as compared to the same period in 1998, primarily due to increased borrowings under the Company's Revolving Credit Facility and a reduction in the amount of interest capitalized during the three month period ended March 31, 1999. Capitalized interest decreased from $7.2 million to $5.4 million for the three month periods due to a decrease in construction spending. - 12 - 15 Other income consists of property transactions and other asset sales and retirements. For the three months ended March 31, 1999, other income consisted of net gains on property transactions of $3.1 million, contract termination fees of $4.0 million and losses on sales of marketable securities of $4.8 million. LIQUIDITY AND CAPITAL RESOURCES Prime's external growth focuses on the expansion of its proprietary brands through new construction both directly by the Company and by franchisees. At March 31, 1999, the Company had cash, cash equivalents and current marketable securities of $23.9 million. In addition, at March 31, 1999, the Company had $25.0 million available under the Revolving Credit Facility. The Company's major sources of cash for the three months ended March 31, 1999 were net proceeds from the sale of three AmeriSuites hotels of $26.7 million, borrowings under the Revolving Credit Facility of $10.0 million and cash flow from operations of $29.0 million. The Company's major uses of cash during the period were capital expenditures of $49.2 million relating primarily to the development of new hotels and the repurchase of its common stock of $25.8 million. For the three months ended March 31, 1998 and 1999, cash flow from operations was positively impacted by the utilization of net operating loss carryforwards ("NOLs") and other tax basis differences of $1.6 million and $830,000, respectively. At March 31, 1999, the Company had federal NOLs relating primarily to its predecessor, Prime Motor Inns, Inc. ("PMI"), of approximately $67.7 million which are subject to annual utilization limitations and expire beginning in 2005 and continuing through 2006. Sources of Capital. The Company has undertaken a strategic initiative to dispose of hotel real estate and to invest the proceeds in the growth of its proprietary brands. Due to the uncertainty in the hotel divestiture markets, the Company's business plan does not depend on any material proceeds from asset sales in 1999. During the quarter, Prime sold three AmeriSuites hotels and realized $26.7 million in cash proceeds. The Company also began marketing the sale of its Frenchman's Reef hotel and expects to receive offers in the second quarter. The Company has a $200.0 million Revolving Credit Facility which bears interest at LIBOR plus 2%. The facility is available through 2001 and may be extended for an additional year. Borrowings under the facility are secured by certain of the Company's hotels with recourse to the Company. Additional properties may be added subject to the approval of the lenders. Availability under the facility is subject to a borrowing base test and certain other covenants. As of March 31, 1999, the Company had outstanding borrowings of $175.0 million under the facility and further availability of $25.0 million. The Company had a contract to sell and lease back nine additional full-service hotels to MeriStar not later than March 31, 1999. In February 1999, MeriStar informed the Company that it - 13 - 16 was unable to fulfill its contractual obligation. Under the terms of its contract, the Company received a $4.0 million contract termination fee in February 1999. Uses of Capital. The Company's capital spending is focused on completing the development of its AmeriSuites and HomeGate hotels currently under construction. For the three months ended March 31, 1999, the Company spent $27.3 million on new construction of AmeriSuites and $17.5 million on new construction of HomeGates. The Company expects to spend an additional $15.0 million in 1999 to complete its current construction pipeline and an additional $30 million on new AmeriSuites construction to begin in mid-1999 on six land sites it owns (amounts include capitalized interest). These amounts are to be funded by borrowings under the Revolving Credit Facility and internally generated cash flow. For the three months ended March 31, 1999, the Company spent approximately $4.4 million on capital improvements at its Owned Hotels. During the quarter, the Company purchased 2.5 million shares of its common stock at an average price of $10.27 per share. Under the terms of the Revolving Credit Facility, the Company may purchase shares in an aggregate amount not to exceed $50 million through December 1999. In order to facilitate future tax-deferred exchanges of hotel properties, the Company from time to time enters into arrangements with an unaffiliated third party under Section 1031 of the Internal Revenue Code of 1986, as amended. As of March 31, 1999, the Company had advances of approximately $229.5 million to such third party which advances are classified as property, equipment and leasehold improvements. Year 2000 Readiness. The Company has initiated a program to prepare the Company's computer systems and applications for the year 2000. This is necessary because certain computer programs have been written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process normal business transactions. In addition, many of the Company's vendors and service providers are also faced with similar issues related to the year 2000. In connection with the Company program related to year 2000, the Company's management has assessed the Company's information systems, including its hardware and software systems and embedded systems contained in the Company's hotels and corporate headquarters. Based on the findings of this assessment, the Company has commenced a plan to upgrade or replace the Company's hardware or software for year 2000 readiness as well as to assess the year 2000 readiness of the Company's vendors and service providers. In addition, the Company's management is currently formulating contingency plans, which, in the event that the Company is unable to fully achieve year 2000 readiness in a timely manner, or any of the Company's vendors or service providers fails to achieve year 2000 readiness, may be implemented to minimize the risks of interruptions of the Company's business. - 14 - 17 Based on its assessment to date of the year 2000 readiness of the Company's vendors, service providers and other third parties on which the Company relies for business operations, the Company believes that its principal vendors, service providers and other third parties are taking action for year 2000 compliance. However, the Company has limited ability to test and control such third parties' year 2000 readiness, and the Company cannot provide assurance that failure of such third parties to address the year 2000 issue will not cause an interruption of the Company's business. As of March 31, 1999, the Company believes that approximately 75% of its information systems are year 2000 ready. The Company estimates that the total costs associated with implementing year 2000 readiness since the project's commencement will be in the range of $1 million. The Company anticipates that it will finance the cost of its year 2000 remediation using its existing sources of liquidity. The Company expects to complete its year 2000 remediation by October 1999. However, the Company's ability to execute its plan in a timely manner may be adversely affected by a variety of factors, some of which are beyond the Company's control including turnover of key employees, availability and continuity of consultants and the potential for unforeseen implementation problems. The Company's business could be interrupted if the year 2000 plan is not implemented in a timely manner, if the Company's vendors, service providers or other third parties are not year 2000 ready or if the Company's contingency plans are not successful. Based on currently available information, and although no assurance can be given, the Company does not believe that any such interruptions are likely to have a material adverse effect on the Company's results of operations, liquidity or financial condition. - 15 - 18 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit 11 Computation of Earnings Per Share Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K None. - 16 - 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRIME HOSPITALITY CORP. Date: May 14, 1999 By: /s/ A.F. Petrocelli --------------------------------------- A.F. Petrocelli President and Chief Executive Officer Date: May 14, 1999 By: /s/ Douglas Vicari ------------------------------------- Douglas Vicari Senior Vice President and Chief Financial Officer - 17 - EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 COMPUTATION OF EARNINGS PER COMMON SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1998 1999 ------- -------- BASIC EARNINGS Income before the cumulative effect of a change in accounting principles ...................... $10,291 $ 11,516 Cumulative effect of a change in in accounting principles ...................... -- (5,315) ------- -------- Net earnings ............................... $10,291 $ 6,201 ======= ======== Shares: Weighted average number of common shares outstanding ......................... 46,867 52,342 ======= ======== Basic earnings per common share: Income before the cumulative effect of a change in accounting principles ................... $ 0.22 $ 0.22 Cumulative effect of a change in accounting principles ...................... -- (0.10) ------- -------- Net earnings ............................ $ 0.22 $ 0.12 ======= ======== DILUTED EARNINGS Income before the cumulative effect of a change in accounting principles ...................... $10,291 $ 11,516 Assumed conversion of convertible debt ........... 996 -- ------- -------- Income before the cumulative effect of a change in accounting principles, as adjusted ......... 11,287 11,516 Cumulative effect of a change in accounting principles ......................... -- (5,315) ------- -------- Net earnings as adjusted ................... $11,287 $ 6,201 ======= ======== Shares: Weighted average number of common shares outstanding ......................... 46,867 52,342 Options and warrants issued ................... 1,362 1,217 Assumed conversion of convertible debt ........ 7,188 -- ------- -------- Weighted average number of common shares outstanding as adjusted ............. 55,417 53,559 ======= ======== Diluted earnings per common share: Income before the cumulative effect of a change in accounting principles ................... $ 0.20 $ 0.22 Cumulative effect of a change in accounting principles ...................... -- (0.10) ------- -------- Net earnings ............................ $ 0.20 $ 0.12 ======= ========
EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 17,956 5,965 25,159 730 0 70,822 1,397,557 108,102 1,401,448 105,049 586,566 0 0 552 624,717 1,401,448 133,299 133,299 0 108,623 0 0 8,642 18,878 7,363 11,516 0 0 (5,314) 6,201 .12 .12
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