-----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, QfBQNACklDKSRVpBZk4ecSfMaf43r234VvAmL5G7RB2cY7ngRaSp3z+26oj9im4c gwtXaFKAQY0hvMNHQcwHzw== 0000950123-03-012723.txt : 20031114 0000950123-03-012723.hdr.sgml : 20031114 20031114121240 ACCESSION NUMBER: 0000950123-03-012723 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 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: 1934 Act SEC FILE NUMBER: 001-06869 FILM NUMBER: 031001866 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 y91809e10vq.txt 10-Q FORM 10-Q SECURITIES AND 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, 2003 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 is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). 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 44,726,103 shares of common stock, $.01 par value, outstanding as of November 12, 2003. PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets September 30, 2003 (Unaudited) and December 31, 2002................... 1 Consolidated Statements of Operations Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited).... 2 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2003 and 2002 (Unaudited) ............. 3 Notes to Interim Consolidated Financial Statements (Unaudited)............. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 16 Item 4. Disclosure Controls and Procedures.................................................... 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................................... 17 Item 2. Changes in Securities and Use of Proceeds.................................. 17 Item 3. Defaults upon Senior Securities............................................ 17 Item 4. Submission of Matters to a Vote of Security Holders........................ 17 Item 5. Other Information.......................................................... 18 Item 6. Exhibits and Reports on Form 8-K........................................... 18 Signatures ........................................................................... 18
PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents ............................................................ $ 18,386 $ 25,850 Accounts receivable (net of allowances of $1,100 and $611 in 2003 and 2002, respectively) ............................................... 20,020 18,178 Restricted cash ...................................................................... 1,865 5,140 Hotel inventories .................................................................... 10,455 11,989 Income tax receivable ................................................................ 11,270 10,923 Other current assets ................................................................. 3,974 10,534 ------------ ------------ Total current assets ....................................................... 65,970 82,614 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization ..................................... 916,588 949,730 Assets held for sale ..................................................................... 8,787 8,787 Investments in unconsolidated joint ventures ............................................. 12,016 23,140 Mortgages and notes receivable, net of current portion ...................................................................... 12,367 13,021 Other assets ............................................................................. 28,098 42,357 ------------ ------------ TOTAL ASSETS ............................................................... $ 1,043,826 $ 1,119,649 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ................................................ $ 20,359 $ 21,189 Current portion of debt .............................................................. 1,102 1,052 Current portion of deferred income ................................................... 3,542 3,527 Other current liabilities ............................................................ 19,925 20,985 ------------ ------------ Total current liabilities .................................................. 44,928 46,753 Long-term debt, net of current portion ................................................... 242,550 284,017 Deferred income .......................................................................... 10,641 13,338 Deferred income taxes .................................................................... 61,362 61,362 Other liabilities ........................................................................ 2,106 7,503 ------------ ------------ Total liabilities .......................................................... 361,587 412,973 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; 56,606,381 shares issued and outstanding at September 30, 2003 and December 31, 2002 ................................... 566 566 Capital in excess of par value ....................................................... 527,792 527,787 Retained earnings .................................................................... 270,865 293,292 Treasury stock (11,880,878 and 11,522,878 shares at September 30, 2003 and December 31, 2002, respectively) .................... (116,984) (114,969) ------------ ------------ Total stockholders' equity ................................................. 682,239 706,676 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,043,826 $ 1,119,649 ============ ============
See Accompanying Notes to Interim Consolidated Financial Statements. -1- PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Revenues: Hotel revenues .......................................................... $ 83,311 $ 95,350 $ 263,263 $ 288,599 Management, franchise and other fees .................................... 5,511 3,502 16,404 10,534 Rental and other revenues ............................................... 386 903 1,393 2,508 ---------- ---------- ---------- ---------- Total revenues ................................................ 89,208 99,755 281,060 301,641 Costs and expenses: Hotel operating expenses ................................................ 45,760 53,479 150,538 157,229 Rent and other occupancy ................................................ 15,290 19,922 57,939 60,581 Brand and administrative ................................................ 9,988 7,690 29,562 21,898 Depreciation and amortization ........................................... 10,254 9,530 30,549 29,235 ---------- ---------- ---------- ---------- Total costs and expenses ...................................... 81,292 90,621 268,588 268,943 Operating income ............................................................ 7,916 9,134 12,472 32,698 Investment income ........................................................... 103 637 974 1,820 Interest expense ............................................................ (4,908) (6,709) (15,901) (22,075) Gains (losses) on retirement of debt ........................................ - (6,449) 1,622 (19,341) Other income (loss) ......................................................... (110) 302 (35,456) (4,198) ---------- ---------- ---------- ----------- Income (loss) before equity in earnings of unconsolidated joint ventures, income taxes and discontinued operations ..................... 3,001 (3,085) (36,289) (11,096) Equity in earnings of unconsolidated joint ventures ......................... 322 - 775 - ---------- ---------- ---------- ---------- Income (loss) before income taxes and discontinued operations ............... 3,323 (3,085) (35,514) (11,096) Provision (benefit) for income taxes ........................................ 1,296 (1,203) (13,850) (4,327) ---------- ---------- ---------- ---------- Income (loss) before discontinued operations ................................ 2,027 (1,882) (21,664) (6,769) Discontinued operations: Income (loss) from discontinued operations, net of income taxes ......... - 346 (181) 1,094 Gain (loss) on disposal, net of income taxes ............................ - 4,320 (582) 4,748 ---------- ---------- ---------- ---------- Net income (loss) ........................................................... $ 2,027 $ 2,784 ($ 22,427) ($ 927) ========== ========== ========== ========== Earnings (loss) per common share: Basic: Income (loss) before discontinued operations ............................ $ 0.05 ($ 0.04) ($ 0.48) ($ 0.15) Income (loss) from discontinued operations, net of income taxes .............................................. - 0.10 (0.02) 0.13 ---------- ---------- ---------- ---------- Net income (loss) ........................................................... $ 0.05 $ 0.06 ($ 0.50) ($ 0.02) ========== ========== ========== ========== Diluted: Income (loss) before discontinued operations ............................ $ 0.05 ($ 0.04) ($ 0.48) ($ 0.15) Income (loss) from discontinued operations, net of income taxes .............................................. - 0.10 (0.02) 0.13 ---------- ---------- ---------- ---------- Net income (loss) ........................................................... $ 0.05 $ 0.06 ($ 0.50) ($ 0.02) ========== ========== ========== ==========
See Accompanying Notes to Interim Consolidated Financial Statements. -2- PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (IN THOUSANDS)
2003 2002 ------------ ------------ Cash flows from operating activities: Net income (loss) ......................................................................... $ (22,427) $ (927) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ......................................................... 30,645 29,992 Amortization of deferred financing costs .............................................. 917 1,994 Income tax benefit .................................................................... (14,339) (302) Non-cash portion of other income (loss) ............................................... 35,015 - (Gains) losses on retirement of debt .................................................. (1,622) 19,333 Amortization of deferred income ....................................................... (2,983) (2,645) Equity in earnings of unconsolidated joint ventures ................................... (775) - (Gains) losses on disposals of discontinued operations ................................ 954 (8,326) Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable ................................................................ (1,842) (2,740) Other current assets ............................................................... 4,731 (479) Other liabilities .................................................................. (490) (15,065) ------------ ------------ Net cash provided by operating activities .......................................... 27,784 20,835 Cash flows from investing activities: Proceeds from mortgages and notes receivable .............................................. 986 382 Disbursements for mortgages and notes receivable .......................................... (631) (792) Proceeds from sales of property, equipment and leasehold improvements ..................... 17,400 56,026 Construction and conversion of hotels ..................................................... - (5,085) Purchases of property, equipment and leasehold improvements ............................... (18,759) (15,443) Investments in unconsolidated joint ventures .............................................. (6,580) - Proceeds from sales and financings of interests in unconsolidated joint ventures ........................................................................ 18,465 - Restricted cash and other ................................................................. (1,079) 845 ------------ ------------ Net cash provided by investing activities .......................................... 9,802 35,933 Cash flows from financing activities: Net proceeds from issuance of debt ........................................................ 13,000 288,586 Payments of debt .......................................................................... (56,039) (329,092) Purchase of common stock .................................................................. (2,015) - Proceeds from the exercise of stock options ............................................... 4 2,657 Premium on early retirement of debt ....................................................... - (12,705) ------------ ------------ Net cash used in financing activities .............................................. (45,050) (50,554) ------------ ------------ Net increase (decrease) in cash and cash equivalents ...................................... (7,464) 6,214 Cash and cash equivalents at beginning of period .......................................... 25,850 26,475 ------------ ------------ Cash and cash equivalents at end of period ................................................ $ 18,386 $ 32,689 ============ ============ OTHER CASH FLOW DISCLOSURES: Interest paid ............................................................................. $ 11,513 $ 23,323 Income taxes paid ......................................................................... - $ 190
See Accompanying Notes to Interim Consolidated Financial Statements. -3- PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying interim unaudited consolidated financial statements of Prime Hospitality Corp. and its subsidiaries ("Prime" or 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, 2003 and the results of its operations for the three and nine months ended September 30, 2003 and 2002 and cash flows for the nine months ended September 30, 2003 and 2002. The consolidated financial statements for the three and nine months ended September 30, 2003 and 2002 were prepared on a consistent basis with the audited consolidated financial statements for the year ended December 31, 2002. Certain reclassifications have been made to the September 30, 2002 consolidated financial statements to conform them to the September 30, 2003 presentation. The consolidated results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year. The hotel and leisure industry is seasonal in nature; however, the periods during which the Company's properties experience higher hotel revenue activities vary from property to property and depend principally upon location. The Company's revenues historically have generally been lower in the first and fourth quarters than in the second and third quarters. 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, 2002. The balance sheet at December 31, 2002 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 GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT In April 2002, the Financial Accounting Standards Board (the "FASB") issued Statement No. 145 which rescinded FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt". FASB Statement No. 145 requires, among other things, the reporting of gains and losses from the early extinguishments of debt as a component of continuing operations. The Company adopted Statement No. 145 on January 1, 2003 and reclassified prior years' extraordinary gains and losses from early extinguishments of debt to continuing operations. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In November of 2002, the FASB issued Interpretation No. 45, "Guarantors' Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". The Interpretation elaborates on the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in -4- issuing the guarantee. This Interpretation does not prescribe a specific approach for subsequently measuring the guarantor's recognized liability over the term of the related guarantee. The disclosure provisions of this Interpretation were effective for the Company's December 31, 2002 financial statements. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. In April 2003, the Company guaranteed a portion of the debt of an unconsolidated joint venture (See Note 4). Based on the guaranteed amount and other facts and circumstances, including an analysis of the underlying collateral, the fair value of the obligation was not material. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities". This Interpretation clarifies the application of existing accounting pronouncements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of the Interpretation are immediately effective for all variable interests in variable interest entities created after January 31, 2003, and the Company will need to apply its provisions to any existing variable interests in variable interest entities by no later than December 31, 2003. The Company does not believe that this Interpretation will have a significant impact on the Company's financial statements. NOTE 3 - ACCOUNTING FOR STOCK-BASED COMPENSATION In December 2002, the FASB issued Statement No. 148 to amend alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement No. 148 amends the disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. However, the Company has continued to account for options in accordance with the provision of APB Opinion No. 25, "Accounting for Stock Issues to Employees" and related interpretations. Accordingly, no compensation expense has been recognized for stock option plans. The following table sets forth the Company's pro forma information for its common stockholders for the three and nine months ended September 30, 2003 and 2002 (in thousands except earnings per share data):
THREE MONTHS ENDED, NINE MONTHS ENDED, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Net income (loss) as reported $ 2,027 $ 2,785 $ (22,427) $ (927) Add: Stock option expense included in net income (loss) ........ - - - - Less: Stock option expense determined under fair value recognition method for all awards ................... (865) (919) (2,789) (2,849) ------------ ------------ ------------ ------------ Pro forma net income (loss) .................................... $ 1,162 $ 1,866 $ (25,216) $ (3,776) ------------ ------------ ------------ ------------ Net income (loss) per share as reported: Basic ..................................................... $ 0.05 $ 0.06 $ (0.50) $ (0.02) Diluted ................................................... $ 0.05 $ 0.06 $ (0.50) $ (0.02) Pro forma net income (loss) per share: Basic ..................................................... $ 0.03 $ 0.04 $ (0.56) $ (0.08) Diluted ................................................... $ 0.03 $ 0.04 $ (0.56) $ (0.08)
The fair value for those options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three and nine months ended September 30, 2003 and 2002: risk-free interest rate of 5%; dividend yields of 0%; volatility factors of -5- the expected market price of the Company's common stock of 46.6% and a weighted-average expected life of the option of 6.5 years. For purposes of pro forma disclosures, the estimated fair value of stock options is amortized to expense over the options' vesting period. NOTE 4 - INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES In January 2003, Nova Scotia Company, an entity in which a subsidiary of Prime held a 50% interest, acquired the Quebec City Holiday Inn Select (the "Quebec Venture"). Prime's partner in the acquisition was a subsidiary of United Capital Corp. ("UCC"), an entity in which A.F. Petrocelli, Prime's Chairman and Chief Executive Officer, has a controlling ownership interest. Pursuant to the operating agreement, all significant operating and capital decisions are made jointly and operating profits and losses are allocated based on ownership interest. In addition, Prime manages the hotel. In March 2003, subsidiaries of Prime and UCC each sold a ten percent interest in the Quebec Venture at cost to Ark Quebec Inc., an unrelated third party, decreasing each of their respective equity interests to 40%. In July 2003, the Quebec Venture obtained an $8.2 million (CDN) first mortgage loan at a fixed rate of 6.26% due in 2008. The loan is recourse to the hotel only. Prime received $2.5 million of the loan proceeds. In March 2003, subsidiaries of Prime and UCC each sold a ten percent interest in East Rutherford Group, L.L.C., an entity which purchased the Sheraton Meadowlands hotel in December 2002 (the "Meadowlands Venture"). The interests were sold to Ark Meadowlands, Inc., an unrelated third party, at cost decreasing Prime's and UCC's equity interests in the Meadowlands Venture to 40% each. In April 2003, the Meadowlands Venture entered into a $25.0 million mortgage loan secured by the hotel. The loan bears interest at LIBOR+2.75% and is due in April 2006. The proceeds of the loan were distributed to the partners based on their ownership interests with Prime receiving approximately $10.0 million in April 2003. Under a guaranty agreement, Prime and UCC jointly and severally guaranteed $4.0 million which will be reduced by scheduled principal payments. NOTE 5 - HOTEL DISPOSITIONS During the nine months ended September 30, 2003, the Company sold one AmeriSuites and one Wellesley Inn for total proceeds of $17.4 million. The Company retained the franchise rights to the hotels under 20-year franchise agreements and signed a management agreement on the AmeriSuites hotel. During the nine months ended September 30, 2002, the Company sold three AmeriSuites, three Wellesley Inns and a Radisson Hotel for gross proceeds of $59.0 million. The Company retained the franchise rights to the AmeriSuites and Wellesley Inns hotels under 20-year franchise agreements and the management agreements on two AmeriSuites. The operations and gains on sales of the hotels, net of tax, in which Prime did not retain management are included in the Consolidated Statements of Operations as part of discontinued operations. NOTE 6 - DEBT During the nine months ended September 30, 2003, Prime purchased $21.3 million of its 8 3/8% Senior Subordinated Notes due 2012 (the "8 3/8 Notes") for $19.7 million, realizing gains of $1.6 million. -6- NOTE 7 - LEASE AGREEMENTS Glen Rock Holding Corp, a subsidiary of the Company, did not make its scheduled July 1 rent payment of approximately $2.0 million to Hospitality Properties Trust (NYSE:HPT) and received a default notice from HPT. The lease covers 24 AmeriSuites hotels owned by HPT. Over the past twelve months, cash flow was negatively impacted by $11.5 million as rent payments exceeded operating cash flow by $9.0 million and approximately $2.5 million was required to be set aside for capital improvements. The termination of the lease would result in the forfeiture of certain deposits and, accordingly, Prime has taken a $35.0 million non-cash charge against the net book value of the assets associated with the lease. Prime is managing the hotels in the interim as AmeriSuites and the results of operations after July 1, 2003 are not consolidated. HPT has the right to change the management and franchise agreements on the hotels which are subordinated to the lease obligations to HPT. On April 3, 2003, a wholly owned subsidiary of the Company terminated lease agreements on three hotels owned by ShoLodge, Inc. ("ShoLodge") due to operating shortfalls which approximated $1.1 million in the past twelve months. In accordance with the lease termination, Prime will forfeit its rights to receive a $3.1 million payment in 2011 which was due at the end of the lease as compensation for executing the lease agreement. ShoLodge has assumed management of the hotels and is operating the hotels under new ten-year franchise agreements with Prime, under the AmeriSuites flag. These franchise agreements permit ShoLodge to terminate the agreements without termination fees upon proper notice. The results of operations for these hotels are reflected in discontinued operations, net of tax, in the accompanying financial statements. In addition, a loss of $1.5 million, net of tax, was recorded in the three months ended March 31, 2003 in gain (loss) on disposal from discontinued operations for the net assets associated with the lease. NOTE 8 - COMMON STOCK During the nine months ended September 30, 2003, Prime repurchased 358,000 shares of its common stock at an average price of $5.63 per share. NOTE 9 - 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 44.7 million and 45.1 million for the three months ended September 30, 2003 and 2002 and 44.7 million and 45.0 million for the nine months ended September 30, 2003 and 2002. Diluted earnings per common share reflect adjustments to basic earnings per common share for the dilutive effect of stock options. For the three months ended September 30, 2003 and 2002, the weighted average number of diluted shares was 45.1 million and 46.0 million, respectively. For the nine months ended September 30, 2003 and September 30, 2002, stock options were antidilutive and were not included in the calculation of diluted earnings per share. NOTE 10 - GEOGRAPHIC AND BUSINESS INFORMATION The Company's hotels primarily operate in three major lodging industry segments: the all-suites segment, under its AmeriSuites brand; the limited-service segment, primarily under its Wellesley Inns & -7- Suites brand; and the full-service segment primarily under major national franchises. The Company's AmeriSuites are upscale hotels located in 32 states throughout the United States. The Wellesley Inns & Suites hotels compete in the mid-price segment, and are primarily located in the Northeast, Texas and Florida regions of the United States. The Company also operates full-service hotels, with food and beverage service and banquet facilities primarily under franchise agreements with national hotel brands in the upscale segment. The Company's full-service hotels are primarily located in the northeastern region of the United States. The Company evaluates the performance of its segments based primarily on earnings before interest, taxes and depreciation and amortization ("EBITDA") generated by the operations of its owned and leased hotels. Interest expense, taxes and other income (loss) are not allocated at the segment level. The following table presents revenues and other financial information for the owned and leased hotels by business segment for the three and nine months ended September 30, 2003 and 2002 (in thousands):
ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED ---------- --------------- ------------ --------------- ------------- THREE MONTHS ENDED SEPTEMBER 30, 2003 Revenues ................................. $ 45,345 $ 21,979 $ 15,987 $ 5,897 $ 89,208 EBITDA ................................... 10,505 4,921 4,656 (1,912) 18,170 Depreciation and amortization ............ 4,824 3,864 808 758 10,254 Capital expenditures ..................... 3,664 679 307 727 5,377 Property, equipment and leasehold Improvements .......................... 486,196 332,199 70,154 28,039 916,588 THREE MONTHS ENDED SEPTEMBER 30, 2002 Revenues ................................. 59,178 21,435 14,737 4,405 99,755 EBITDA ................................... 8,459 5,264 4,952 (11) 18,664 Depreciation and amortization ............ 4,711 3,109 1,302 408 9,530 Capital expenditures ..................... 5,305 641 544 2,893 9,383 Property, equipment and leasehold Improvements .......................... 505,777 335,645 86,747 22,193 950,362 NINE MONTHS ENDED SEPTEMBER 30, 2003 Revenues ................................. 155,518 64,604 43,141 17,797 281,060 EBITDA ................................... 20,406 13,684 11.032 (2,101) 43,021 Depreciation and amortization ............ 14,572 10,622 3,186 2,169 30,549 Capital expenditures ..................... 9,789 1,956 1,357 5,657 18,759 Property, equipment and leasehold Improvements .......................... 486,196 332,199 70,154 28,039 916,588 NINE MONTHS ENDED SEPTEMBER 30, 2002 Revenues ................................. 180,572 63,999 44,028 13,042 301,641 EBITDA ................................... 28,792 15,057 13,420 4,664 61,933 Depreciation and amortization ............ 14,776 9,440 4,140 879 29,235 Capital expenditures ..................... 9,908 2,059 1,233 7,328 20,528 Property, equipment and leasehold Improvements .......................... 505,777 335,645 86,747 22,193 950,362
-8- The following table reconciles EBITDA to income (loss) before discontinued operations for the three and nine months ended September 30, 2003 and 2002 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2003 2002 2003 2002 ------------ ------------ ------------ ------------ EBITDA ................................................ $ 18,170 $ 18,664 $ 43,021 $ 61,933 (Provision) benefit for income taxes .................. (1,296) 1,203 13,850 4,327 Equity in earnings of joint ventures .................. 322 - 775 - Other income (loss) .................................. (110) 302 (35,456) (4,198) Gains (losses) on retirement of debt .................. - (6,449) 1,622 (19,341) Interest expense ...................................... (4,908) (6,709) (15,901) (22,075) Investment income ..................................... 103 637 974 1,820 Depreciation and amortization ......................... (10,254) (9,530) (30,549) (29,235) ------------ ------------ ------------ ------------ Income (loss) before discontinued operations .......... $ 2,027 $ (1,882) $ (21,664) $ (6,769) ============ ============ ============ ============
NOTE 11 - LITIGATION The Company is involved in certain legal proceedings incidental to the normal conduct of its business. The Company does not believe that its 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. On June 13, 2003, Southeast Texas Inns, Inc. ("Southeast Texas Inns") filed a Complaint against the Company, May-Ridge, L.P. ("May-Ridge") and Ridgewood Holdings Corp. ("Ridgewood"), which is now pending before the United States District Court for the Middle District of Tennessee. The Complaint alleges that May-Ridge has defaulted under a Lease Agreement, dated as of July 9, 2000, with Southeast Texas Inns pursuant to which May-Ridge leased three properties located in Texas (the "Three Properties") that were operated as AmeriSuites Hotels. On April 2, 2003, Southeast Texas Inns, as landlord, terminated the Lease Agreement for default and May-Ridge surrendered the three properties to Southeast Texas Inns. In the Complaint, Southeast Texas Inns seeks actual and liquidated damages in an amount in excess of $10 million against May-Ridge and Ridgewood, which is the sole general partner of May-Ridge. Southeast Texas Inns also seeks to hold the Company jointly liable for all damages under the Lease Agreement, to which the Company is not a party. The Company filed a motion to dismiss the Complaint against the Company on August 19, 2003, which was granted subject to no new evidence being brought by Southeast Texas Inns. -9- 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 247 hotels in operation containing 31,781 rooms located in 34 states (the "Portfolio") as of September 30, 2003. Prime controls three hotel brands -- AmeriSuites (R), Wellesley Inn & Suites (R) and Prime Hotels and Resorts (R) -- and operates a portfolio of full-service hotels primarily under franchise agreements with national hotel chains. The following table sets forth information with respect to the Portfolio as of September 30, 2003:
HOTELS ROOMS ------ ----- AMERISUITES Owned 62 8,024 Leased 24 2,923 Managed 27 3,480 Franchised 35 4,084 --- ------ Total 148 18,511 WELLESLEY INNS & SUITES Owned 56 6,906 Leased - - Managed 6 668 Franchised 19 1,837 --- ------ Total 81 9,411 PRIME HOTELS & RESORTS Owned 1 240 --- ------ Total 1 240 NON-PROPRIETARY BRANDS Owned 4 860 Leased 1 160 Managed 10 1,934 Joint Venture 2 665 --- ------ Total 17 3,619 TOTAL PORTFOLIO Owned 123 16,030 Leased 25 3,083 Managed 43 6,082 Franchised 54 5,921 Joint Venture 2 665 --- ------ Total 247 31,781
The Company's growth has been focused on the development of its proprietary brands. Through the development of its proprietary brands, Prime has transformed itself from an owner/operator into a more diversified company with ownership, franchise and management interests and has positioned itself to generate additional revenues with minimal capital investment. Prime's strategy is also focused on opportunistic hotel acquisitions to take advantage of depressed values while leveraging the Company's operating infrastructure. With approximately 200 hotels under management, Prime believes it possesses the hotel management expertise to maximize the profitability and value of its hotel assets. The hotel and leisure industry is seasonal in nature; however, the periods during which the Company's properties experience higher hotel revenue activities vary from property to property and depend principally upon location. The Company's revenues historically have generally been lower in the first and fourth quarters than in the second and third quarters. Operating results for the three and nine months ended September 30, 2003 were impacted by the weakness in the economy which had a significant negative impact on business travel and the demand for hotel rooms. Results were further impacted by the war with Iraq and concerns about airline safety. -10- These factors have resulted in weaker pricing power which has caused the average daily room rate ("ADR") to decline. As a result, for the three and nine months ended September 30, 2003, revenues from comparable owned and leased hotels increased by 0.3% for the three month period and decreased by 3.5% for the nine month period and gross operating profits on these hotels declined by 4.4% and 12.7%, respectively. Overall, for the three and nine months ended September 30, 2003, revenue declined by $10.5 million and $20.6 million, respectively, and EBITDA decreased by $0.5 million and $18.9 million, respectively, due to the results of the comparable owned and leased hotels and the effect of asset sales and lease terminations. See Note 10 of Notes to Interim Consolidated Financial Statements for a reconciliation of EBITDA to net income (loss) from continuing operations. 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, including its Form 10-K. Although the Company believes the expectations reflected in these forward-looking 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. -11- RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 The Company operates three product types: its proprietary AmeriSuites which are upscale all-suites hotels; its proprietary Wellesley Inns & Suites which are mid-price limited service hotels; and its full-service hotels which are upscale hotels operated primarily under national franchise agreements. Hotel revenues consist of lodging revenues (which consist primarily of room, telephone and vending revenues) and food and beverage revenues. Hotel revenues decreased by $12.0 million and $25.3 million, or 12.6% and 8.8%, respectively, for the three and nine months ended September 30, 2003 compared to the same periods in 2002, primarily due to a decline in revenue per available room ("REVPAR") at comparable hotels for the nine month period and the de-consolidation of the HPT hotels which are currently managed on an interim basis. The following table illustrates the REVPAR change, by segment for all owned and leased hotels and for managed hotels where Prime has a significant financial commitment, which were operated for comparable three and nine month periods in 2003 and 2002.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2003 2002 % CHANGE 2003 2002 % CHANGE ---- ---- -------- ---- ---- -------- AMERISUITES Occupancy 68.7% 64.0% 65.9% 63.4% ADR $ 67.31 $ 72.89 $ 67.47 $ 73.84 REVPAR $ 46.24 $ 46.65 (0.9%) $ 44.45 $ 46.84 (5.1%) WELLESLEY INNS & SUITES Occupancy 63.1% 54.8% 64.2% 56.0% ADR $ 54.39 $ 60.53 $ 54.60 $ 61.80 REVPAR $ 34.34 $ 33.14 3.6% $ 35.03 $ 34.58 1.3% FULL-SERVICE Occupancy 71.5% 69.5% 65.7% 65.6% ADR $ 118.73 $ 122.34 $ 109.57 $ 115.62 REVPAR $ 84.95 $ 85.00 (0.1%) $ 71.96 $ 75.87 (5.2%) TOTAL Occupancy 66.9% 61.1% 65.2% 61.0% ADR $ 67.17 $ 73.31 $ 66.30 $ 73.50 REVPAR $ 44.92 $ 44.80 0.3% $ 43.25 $ 44.82 (3.5%)
The slight REVPAR increase for the three months ended September 30, 2003 was attributed to increased leisure and group travel in July and August partially offset by a decline in transient business travel. This resulted in high occupancies but lower ADR. REVPAR increases were reported in Cincinnati, Oklahoma City, Richmond and Phoenix with decreases in Chicago, Denver and the Northeast. The REVPAR decrease for the nine months ended September 30, 2003 was primarily attributed to weak business travel trends due to the sluggish economy combined with the war with Iraq. The decline was driven by a decrease in ADR due to competitive pressure on room rates. Key markets which -12- contributed to the revenue decline were Chicago, Dallas, Denver, Northern New Jersey and South Florida. The hotels in the Houston and Phoenix markets reported increases primarily due to increased occupancy at the Wellesley Inns & Suites hotels. Management, franchise and other fees consist primarily of base and incentive fees earned under management agreements, royalties earned under franchise agreements and sales commissions earned by the Company's national sales group. Management, franchise and other fees increased by $2.0 million and $5.9 million, or 57.4% and 55.7%, respectively, for the three and nine months ended September 30, 2003 compared to the same periods in 2002. The increase was due to additional franchised and managed hotels arising from hotels sold to franchisees and new hotel openings, termination fees on three AmeriSuites hotels in the second quarter in 2003, interim management and franchise fees on the HPT hotels in the third quarter of 2003 and fees charged to franchisees for providing reservation services. In November 2002, Prime opened a new reservation center near its headquarters in Fairfield, NJ. Previously, these reservation services were provided by a third party. Rental and other revenues consists of rental income, interest on notes receivable and other miscellaneous operating income. Rental and other revenues for the three and nine months ended September 30, 2003 decreased by $0.5 million and $1.1 million, or 57.3% and 44.5%, respectively, compared to the same periods in 2002 due to condemnation proceeds and other miscellaneous revenue in 2002. Hotel operating expenses consist of all direct costs related to the operation of the Company's properties (lodging, food & beverage, administration, selling and advertising, utilities and repairs and maintenance). Hotel operating expenses decreased by $7.7 million and $6.7 million, or 14.4% and 4.3%, for the three and nine months ended September 30, 2003 compared to the same periods in 2002. For the comparable three and nine month periods, hotel operating expenses, as a percentage of hotel revenues, were 56.1% and 54.5% in 2002 and 54.9% and 57.2%, respectively, in 2003. Margins were impacted by the increase in occupancy and a decrease in reservation costs as Prime is now providing this service and the costs are now recorded as brand and administrative expenses versus hotel operating expenses in 2002. Rent and other occupancy expenses consist primarily of rent expense, property insurance and real estate and other taxes. Rent and other occupancy expenses decreased by $4.6 million and $2.6 million, or 23.3% and 4.4%, respectively, for the three and nine months ended September 30, 2003 as compared to the same periods in 2002, primarily due to the de-consolidation of the HPT hotels partially offset by higher property insurance costs and costs of terminating franchise agreements on five Ramada hotels which were converted to the Wellesley brand in the second quarter of 2003. Brand and administrative expenses consist primarily of centralized management expenses associated with operating the hotels, corporate expenses, national brand advertising expenses and reservation costs. Brand and administrative expenses increased by $2.3 million and $7.6 million, or 29.9% and 35.0%, for the three and nine months ended September 30, 2003 compared to the same periods in 2002, due primarily to the timing of brand advertising expenditures and the operation of the new reservation center which opened in November 2002. Depreciation and amortization increased by $0.7 million, and $1.3 million, or 7.6% and 4.5%, for the three and nine months ended September 30, 2003 compared to the same periods in the prior year due to depreciation associated with capital additions on existing hotels partially offset by hotel sales. Investment income decreased by $0.5 million and $0.8 million, or 83.8% and 46.5%, for the -13- three and nine months ended September 30, 2003 compared to the same periods in 2002 due to lower cash and security deposit balances and interest rates. Interest expense decreased by $1.8 million and $6.2 million, or 26.8% and 28.0%, respectively, for the three and nine months ended September 30, 2003 compared to the same periods in 2002 primarily due to debt reductions and the retirement of 9 1/4% First Mortgage Notes in August 2002 with borrowings under the Company's $125 Million Revolving Credit Facility (the "Credit Facility") at a lower interest rate. Gains (losses) on retirement of debt for the nine months ended September 30, 2003 related to the retirement of $21.3 million of the 8?% Notes. For the three and nine months ended, September 30, 2002, gains (losses) on retirement of debt related to premiums on the retirement of the 9 3/4% Senior Subordinated Notes (the "9 3/4% Notes") and the writeoff of deferred loan fees on both the 9 3/4% Notes and the Company's former revolving credit facility. Other income (loss) for the nine months ended September 30, 2003 is primarily comprised of a write-off of assets associated with the HPT lease. For the nine months ended, June 30, 2002, other income (loss) relates to a litigation charge. Equity in earnings from joint ventures for the three and nine months ended September 30, 2003 related to the Meadowlands Venture and the Quebec Venture. Discontinued operations for the three and nine months ended September 30, 2003 and 2002 reflect the operations of hotels no longer operated by Prime and the associated gain or loss on the disposal of these hotels. LIQUIDITY AND CAPITAL RESOURCES Sources. The Company's major sources of cash for the nine months ended September 30, 2003 were operating cash flow of $27.8 million, asset sales of $17.4 million, borrowings of $13.0 million and sales and financings of joint venture interests of $18.5 million. The Company's major uses of cash during the period were debt retirements of $56.0 million, capital expenditures of $18.8 million and an investment in a joint venture of $6.6 million. The Company had borrowings of $50.0 million under its Credit Facility at LIBOR +2.50%, or approximately 3.6%, as of September 30, 2003. The Credit Facility consists of a $125 million revolving line of credit which expires in 2006 and is secured by the equity interests of certain of Prime's subsidiaries. The Credit Facility contains loan covenants customary for a credit facility of this size and nature, including but not limited to, limitations on making capital expenditures, selling or transferring assets, making certain investments (including acquisitions), repurchasing shares and incurring liens. In addition, the Credit Facility requires that the Company must maintain a debt to EBITDA ratio of 4.25 times and an EBITDA to interest ratio of 2.50 times. As of September 30, 2003, the Company's debt to EBITDA ratio was 4.00 times and its EBITDA to interest ratio was 3.00 times and the Company was in compliance with its covenants. However, there can be no assurance that the Company will continue to be in compliance with these covenants. During the nine months ended September 30, 2003, the Company sold one AmeriSuites and one Wellesley Inn for the total proceed of $17.4 million. The Company retained the franchise rights to the hotels under 20-year franchise agreements. -14- In March 2003, subsidiaries of Prime and UCC each sold a ten percent interest in the Quebec Venture at cost to Ark Quebec Inc., an unrelated third party, decreasing each of their respective equity interests to 40%. In July 2003, the Quebec Venture obtained an $8.2 million (CDN) first mortgage loan at a fixed rate of 6.26% due in 2008. The loan is recourse to the hotel only. Prime received $2.5 million of the loan proceeds. In March 2003, subsidiaries of Prime and UCC each sold a ten percent interest in the Meadowlands Venture. The interests were sold to Ark Meadowlands, Inc., an unrelated third party, at cost decreasing Prime's and UCC's equity interests in the Meadowlands Venture to 40% each. In April 2003, the Meadowlands Venture entered into a $25.0 million mortgage loan secured by the hotel. The loan bears interest at LIBOR+2.75% and is due in April 2006. The proceeds of the loan were distributed to the partners based on their ownership interests with Prime receiving approximately $10.0 million in April 2003. Under a guaranty agreement, Prime and UCC jointly and severally guaranteed $4.0 million which will be reduced by scheduled principal payments. Uses. The Company intends to continue the growth of its brands primarily through franchising and, therefore, new construction spending will be limited. There are currently no new construction projects underway. During the nine months ended September 30, 2003, the Company spent $18.8 million on capital additions which primarily consisted of capital improvements at its owned and leased hotels. The Company plans to fund capital improvements at existing hotels primarily with internally generated cash flow. During the nine months ended September 30, 2003, Prime purchased $21.3 million of its 8?% Notes for $19.7 million, realizing a gain of $1.6 million. During the nine months ended September 30, 2003, Prime repurchased 358,000 shares of its common stock at an average price of $5.63 per share. In January 2003, Nova Scotia Company, an entity in which a subsidiary of Prime held a 50% interest, acquired the Quebec Venture. Prime's partner in the acquisition was a subsidiary of UCC, an entity in which A.F. Petrocelli, Prime's Chairman and Chief Executive Officer, has a controlling ownership interest. Pursuant to the operating agreement, all significant operating and capital decisions are made jointly and operating profits and losses are allocated based on ownership interest. In addition, Prime manages the hotel. Glen Rock Holding Corp, a subsidiary of the Company, did not make its scheduled July 1 rent payment of approximately $2.0 million to Hospitality Properties Trust (NYSE:HPT) and received a default notice from HPT. The lease covers 24 AmeriSuites hotels owned by HPT. Over the past twelve months, cash flow was negatively impacted by $11.5 million as rent payments exceeded operating cash flow by $9.0 million and approximately $2.5 million was required to be set aside for capital improvements. The termination of the lease would result in the forfeiture of certain deposits and, accordingly, Prime has taken a $35.0 million non-cash charge against the net book value of the assets associated with the lease. Prime is managing the hotels as AmeriSuites on an interim basis. HPT has the right to change the management and franchise agreements on the hotels which are subordinated to the lease obligations to HPT. On April 3, 2003, a wholly owned subsidiary of the Company terminated lease agreements on three hotels owned by ShoLodge, Inc. ("ShoLodge") due to operating shortfalls which approximated $1.1 million in the past twelve months. In accordance with the lease termination, Prime forfeited its rights to receive a $3.1 million payment in 2011 which was due at the end of the lease as compensation for -15- executing the lease agreement. ShoLodge has assumed management of the hotels and is operating the hotels under new ten-year franchise agreements with Prime, under the AmeriSuites flag. These franchise agreements permit ShoLodge to terminate the agreements without termination fees upon proper notice. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changes in interest rates from its floating rate debt arrangements. At September 30, 2003, the Company had $243.7 million of debt outstanding of which $193.7 million bears interest at fixed rates. The interest rate on the Company's Credit Facility, under which $50.0 million was outstanding at September 30, 2003, is variable at a rate of LIBOR + 2.50%. A hypothetical 100 basis point adverse move (increase) on short-term interest rates on the floating rate debt outstanding at September 30, 2003 would adversely affect Prime's annual interest cost by approximately $0.5 million assuming borrowed amounts under the Credit Facility remained at $50.0 million. SUMMARY OF INDEBTEDNESS Combined aggregate principal maturities of debt as of September 30, 2003, are as follows (in thousands):
8 3/9% CREDIT SCHEDULED NOTES FACILITY AMORTIZATION TOTAL ---------- ---------- ------------ ----------- 2003 $ $ $ 617 $ 617 2004 1,102 1,102 2005 229 229 2006 50,000 250 50,250 2007 272 272 THEREAFTER 178,725 12,457 191,182 ---------- ---------- ------------ ----------- $ 178,725 $ 50,000 $ 14,927 $ 243,652 ========== ========== ============ ===========
ITEM 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the filing of this Quarterly Report on Form 10-Q, the Company under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Exchange Act). Based upon that evaluation, the Company's Chief Executive and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to timely alert them to material information relating to the Company (including its consolidated subsidiaries) required to be included in Company's Exchange Act filings. There have been no significant changes in our internal controls subsequent to the date the Company completed its evaluation. -16- 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 its 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. On June 13, 2003, Southeast Texas Inns, Inc. ("Southeast Texas Inns") filed a Complaint against the Company, May-Ridge, L.P. ("May-Ridge") and Ridgewood Holdings Corp. ("Ridgewood"), which is now pending before the United States District Court for the Middle District of Tennessee. The Complaint alleges that May-Ridge has defaulted under a Lease Agreement, dated as of July 9, 2000, with Southeast Texas Inns pursuant to which May-Ridge leased three properties located in Texas (the "Three Properties") that were operated as AmeriSuites Hotels. On April 2, 2003, Southeast Texas Inns, as landlord, terminated the Lease Agreement for default and May-Ridge surrendered the three properties to Southeast Texas. In the Complaint, Southeast Texas Inns seeks actual and liquidated damages in an amount in excess of $10 million against May-Ridge and Ridgewood, which is the sole general partner of May-Ridge. Southeast Texas Inns also seeks to hold the Company jointly liable for all damages under the Lease Agreement, to which the Company is not a party. The Company filed a motion to dismiss the Complaint as against the Company on about August 19, 2003, which was granted subject to no new evidence being brought by Southeast Texas Inns. On August 18, 1999, plaintiff Nick Pourzal, a former employee of the Company, filed a complaint against the Company in the United States District Court for the Virgin Islands. The complaint alleges that the Company contracted in 1978 to pay plaintiff ten percent of the pre-tax earning on any use or sale of a 16.354-acre property on St. Thomas, U.S. Virgin Islands known as the "Gilbert Land," and that the Company breached this contract by making commercial use of the Gilbert Land without paying the plaintiff. On January 13, 2003, plaintiff filed a motion for leave to file a second amended complaint, to add claims for (i) conspiracy to violate the Virgin Islands Plant Closing Act, (ii) prima facie tort and (iii) confirmation of arbitration award relating to the Company's termination of plaintiff's employment in 1999. The complaint seeks compensatory, incidental and consequential damages, interest and costs, a declaratory judgment that the Company is liable for payment of ten percent of pre-tax earnings on the use or sale of the Gilbert Land, and attorneys' fees and expenses. The Company believes that the plaintiff's action is without merit and intends to vigorously defend this case. 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. -17- ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 Exhibit 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 Exhibit 32.1 Certification of CEO pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 Exhibit 32.2 Certification of CFO pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 (b) Reports on Form 8-K On July 31, 2003, the Company issued a press release regarding earnings for the second quarter of 2003. -18- 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 13, 2003 By: /s/ A.F. Petrocelli ------------------- A. F. Petrocelli A.F. Petrocelli President and Chief Executive Officer Date: November 13, 2003 By: /s/ Richard T. Szymanski ------------------------ Richard T. Szymanski Senior Vice President and Chief Financial Officer -19- EX-31.1 3 y91809exv31w1.txt CERTIFICATION CEO EXHIBIT 31.1 CERTIFICATIONS I, A.F. Petrocelli, Chief Executive Officer of Prime Hospitality Corp. (the "registrant"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ A.F. Petrocelli -------------------------- A.F. Petrocelli Chief Executive Officer EX-31.2 4 y91809exv31w2.txt CERTIFICATION CFO EXHIBIT 31.2 CERTIFICATIONS I, Richard T. Szymanski, Chief Financial Officer of Prime Hospitality Corp. (the "registrant"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Richard T. Szymanski -------------------------- Richard T. Szymanski Chief Financial Officer EX-32.1 5 y91809exv32w1.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Prime Hospitality Corp. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, A.F. Petrocelli, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, aS adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ A.F. Petrocelli - ------------------------ A.F. Petrocelli President and Chief Executive Officer November 13, 2003 EX-32.2 6 y91809exv32w2.txt CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Prime Hospitality Corp. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard T. Szymanski, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Richard T. Szymanski - ------------------------ Richard T. Szymanski Senior Vice President and Chief Financial Officer November 13, 2003 -----END PRIVACY-ENHANCED MESSAGE-----