-----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, MCYhv4DVxz3JYyFNe1f1IBh0vk7xTMgXjIYzkht4zxPunrGSP8QI8rZul2+UAXWr 2/gTk6OP0OH21TYlbLBMgA== 0000950123-04-009355.txt : 20040806 0000950123-04-009355.hdr.sgml : 20040806 20040806124605 ACCESSION NUMBER: 0000950123-04-009355 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 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: 04957028 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 y99921e10vq.txt PRIME HOSPITALITY CORP. 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 JUNE 30, 2004 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 44,608,182 shares of common stock, $.01 par value, outstanding as of August 2, 2004. PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 2004 (Unaudited) and December 31, 2003.................. 1 Consolidated Statements of Operations Three and Six months ended June 30, 2004 and 2003 (Unaudited).... 2 Consolidated Statements of Cash Flows Six months ended June 30, 2004 and 2003 (Unaudited).............. 3 Notes to Interim Consolidated Financial Statements (Unaudited)....... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................ 15 Item 4. Disclosure Controls and Procedures.............................................. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................... 16 Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities.......................................... 16 Item 3. Defaults upon Senior Securities...................................... 16 Item 4. Submission of Matters to a Vote of Security Holders.................. 17 Item 5. Other Information.................................................... 17 Item 6. Exhibits and Reports on Form 8-K..................................... 17 Signatures...................................................................... 18
PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2004 2003 ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,182 $ 12,901 Accounts receivable (net of allowances of $1,218 and $1,463 in 2004 and 2003, respectively) 25,481 18,165 Restricted cash 1,999 2,272 Hotel inventories 10,325 11,570 Income tax receivable 410 568 Other current assets 4,806 4,988 --------- ---------- Total current assets 55,203 50,464 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization 901,283 916,594 Assets held for sale 7,514 8,787 Investments in unconsolidated joint ventures 12,444 12,595 Mortgages and notes receivable, net of current portion 11,830 12,293 Other assets 7,453 6,572 --------- ---------- TOTAL ASSETS $ 995,727 $1,007,305 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 15,231 $ 21,577 Current portion of debt 1,134 1,067 Current portion of deferred income 5,578 3,115 Other current liabilities 20,775 19,411 --------- ---------- Total current liabilities 42,718 45,170 Long-term debt, net of current portion 221,507 227,535 Deferred income, net of current portion 8,748 10,306 Deferred income taxes 39,633 39,633 Other liabilities 2,968 3,647 --------- ---------- Total liabilities 315,574 326,291 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; 56,852,960 and 56,632,904 shares issued and outstanding in 2004 and 2003, respectively 568 566 Capital in excess of par value 530,087 528,055 Retained earnings 269,531 268,817 Accumulated other comprehensive income, net of taxes of $306 and $357 respectively 479 560 Treasury stock at cost (12,244,778 and 11,880,878 shares respectively) (120,512) (116,984) --------- ---------- Total stockholders' equity 680,153 681,014 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 995,727 $1,007,305 ========= ==========
See Accompanying Notes to Interim Consolidated Financial Statements. - 1 - PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, 2004 2003 2004 2003 ---------- ---------- ---------- ----------- Revenues: Owned hotels $ 69,903 $ 71,966 $ 131,090 $ 134,234 Cash flow hotels 38,126 23,380 73,384 44,179 Management, franchise and other fees 7,335 8,147 13,665 13,641 Cost reimbursements 8,730 7,754 16,625 14,960 --------- --------- --------- ---------- Total revenues 124,094 111,247 234,764 207,014 Costs and expenses: Owned hotels 44,585 47,046 88,234 92,289 Cash flow hotels 38,937 26,089 75,950 51,559 Brand operating 4,224 5,422 8,430 8,953 General and administrative 6,850 7,013 14,081 13,913 Depreciation and amortization 10,363 9,662 20,618 20,295 Reimbursable costs 8,730 7,754 16,625 14,960 ---------- ---------- ---------- ----------- Total costs and expenses 113,689 102,986 223,938 201,969 Operating income (loss) 10,405 8,261 10,826 5,045 Investment income 26 429 51 871 Interest expense (4,773) (5,365) (9,591) (10,993) Gains (losses) on retirement of debt - 822 - 1,622 Other income (loss) 303 (35,346) 314 (35,346) ---------- ---------- ---------- ----------- Income (loss) before equity in earnings of unconsolidated joint ventures, income taxes and discontinued operations 5,961 (31,199) 1,600 (38,801) Equity in earnings of unconsolidated joint ventures 94 263 168 453 ---------- ---------- ---------- ----------- Income (loss) before income taxes and discontinued operations 6,055 (30,936) 1,768 (38,348) Provision (benefit) for income taxes 2,362 (12,065) 690 (14,956) ---------- ---------- ---------- ----------- Income (loss) before discontinued operations 3,693 (18,871) 1,078 (23,392) Discontinued operations: Income (loss) from discontinued operations, net of income taxes - 85 (126) (480) Gain (loss) on disposal, net of income taxes (117) 964 (238) (582) ---------- ---------- ---------- ----------- Net income (loss) $ 3,576 ($ 17,822) $ 714 ($ 24,454) ========== ========== ========== =========== Earnings (loss) per common share: Basic: Income (loss) before discontinued operations $ 0.08 ($ 0.42) $ 0.02 ($ 0.53) Income (loss) from discontinued operations, net of income taxes - 0.02 - (0.02) ---------- ---------- ---------- ----------- Net income (loss) $ 0.08 ($ 0.40) $ 0.02 ($ 0.55) ========== ========== ========== =========== Diluted: Income (loss) before discontinued operations $ 0.08 ($ 0.42) $ 0.02 ($ 0.53) Income (loss) from discontinued operations, net of income taxes - 0.02 - (0.02) ---------- ---------- ---------- ----------- Net income (loss) $ 0.08 ($ 0.40) $ 0.02 ($ 0.55) ========== ========== ========== ===========
See Accompanying Notes to Interim Consolidated Financial Statements. - 2 - PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS)
2004 2003 --------- ------------ Cash flows from operating activities: Net income (loss) $ 714 $ (24,454) Adjustments to reconcile net income to net cash provided by operating activites: Depreciation and amortization 20,618 20,871 Amortization of deferred financing costs 595 584 Income tax provision (benefit) 457 (15,146) (Gains) losses on retirement of debt - (1,622) Equity in (earnings) loss of unconsolidated joint ventures (168) (453) Gains (losses) on disposals of discontinued operations (391) 582 Net (gains) losses on sales of assets and lease terminations (383) 35,346 Amortization of deferred income (1,558) (2,218) Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable (7,316) (6,095) Other assets 253 3,229 Other liabilities (2,879) 501 -------- ----------- Net cash provided by operating activities 9,942 11,125 Cash flows from investing activities: Net proceeds from mortgages and notes receivable 676 755 Disbursements for mortgages and notes receivable (243) (335) Purchases of property, equipment and leasehold improvements (5,707) (13,382) Proceeds from sales of property, equipment and leasehold improvements 2,068 17,400 Investments in unconsolidated joint ventures - (6,580) Proceeds from sales and financings of interests in unconsolidated joint ventures - 15,722 Other - (1,557) -------- ----------- Net cash (used in) providing by investing activities (3,206). 12,023 Cash flows from financing activities: Net proceeds from issuance of debt 5,000 13,000 Payments of debt (10,961) (45,810) Proceeds from the exercise of stock options 2,034 - Purchase of treasury stock (3,528) (1,961) -------- ----------- Net cash (used in) financing activities (7,455) (34,771) Net (decrease) in cash and cash equivalents (719) (11,623) Cash and cash equivalents at beginning of period 12,901 25,850 -------- ----------- Cash and cash equivalents at end of year $ 12,182 $ 14,227 ========- =========== OTHER CASH FLOW DISCLOSURES: Interest paid $ 9,172 $ 10,598 Income taxes paid $ 337 $ -
See Accompanying Notes to Interim Consolidated Financial Statements. - 3 - PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (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 June 30, 2004 and the results of its operations for the three and six months ended June 30, 2004 and 2003 and cash flows for the six months ended June 30, 2004 and 2003. The consolidated financial statements for the three and six months ended June 30, 2004 and 2003 were prepared on a consistent basis with the audited consolidated financial statements for the year ended December 31, 2003. Certain reclassifications have been made to the June 30, 2003 consolidated financial statements to conform them to the June 30, 2004 presentation. The consolidated results of operations for the three and six months ended June 30, 2004 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, 2003. The balance sheet at December 31, 2003 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 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In response to a FASB staff announcement in November 2001, and in accordance with the Emerging Issues Task Force ("EITF") Abstract 01-14 "Income Statement Characterization of Reimbursements received for "Out-Of-Pocket Expenses incurred" which was issued in January 2002, the Company began recording the reimbursements of costs incurred on behalf of managed hotel properties and franchisees received as other revenues from managed and franchised properties and the costs incurred on behalf of managed hotel property owners and franchisees as other expenses from managed and franchised properties in the first quarter of 2002. These costs relate primarily to payroll costs at managed properties where the Company is the employer. Since the reimbursements are made based upon the costs incurred with no added margin, the adoption of this guidance has no effect on the operating income, total or per share net income, cash flows or financial position of the Company. 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 - 4 - 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 six months ended June 30, 2004 and 2003 (in thousands except earnings per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 2004 2003 2004 2003 ---------- --------- ---------- ---------- Net income (loss) as reported $3,576 $(17,822) $ 714 $ (24,454) Add: Stock option expense included in net income (loss) --- --- --- --- Less: Stock option expense determined under fair value recognition method for all awards (956) (981) (1,904) (1,925) --------- -------- --------- --------- Pro forma net income (loss) $2,620 $(18,803) $ (1,190) $ (26,379) --------- -------- --------- --------- Net income (loss) per share as reported: Basic $ 0.08 $ (0.40) $ 0.02 $ (0.55) --------- -------- --------- --------- Diluted $ 0.08 $ (0.40) $ 0.02 $ (0.55) --------- -------- --------- --------- Pro forma net income (loss) per share: Basic $ 0.06 $ (0.42) $ (0.03) $ (0.59) --------- -------- --------- --------- Diluted $ 0.06 $ (0.42) $ (0.03) $ (0.59) --------- -------- --------- ---------
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 six months ended June 30, 2004 and 2003: risk-free interest rate of 4.93%; dividend yields of 0%; volatility factors of the expected market price of the Company's common stock of 42.7% and a weighted-average expected life of the option of 4.7 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 - OTHER INCOME/DISCONTINUED OPERATIONS Other income (loss) for the six months ended June 30, 2003 includes a $35.0 million charge to write-off the assets associated with the HPT lease termination. During the six months ended June 30, 2004, the Company terminated the lease on one non-proprietary brand hotel. The results of operations, and loss on the lease termination, net of tax, are included in the Consolidated Statements of Operations as discontinued operations. In April 2004, we sold a parcel of vacant land for net proceeds of $1.6 million, which resulted in a gain of approximately $350,000, included in the consolidated statements of operations as part of other income. During the six months ended June 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. The operations and gains on sale, net of tax, of the hotel in which Prime did not retain management are included in the consolidated statements of operations as part of discontinued operations. NOTE 5 - DEBT During the six months ended June 30, 2003, Prime purchased $21.3 million of its 8 3/8% Senior Subordinated Notes due 2012 the ("Senior Subordinated Notes") for $19.7 million realizing a gain of - 5 - $1.6 million. NOTE 6 - EARNINGS PER COMMON SHARE Basic earnings per common share was computed based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares used in computing basic earnings per common share was 44.8 million and 44.7 million for the three months ended June 30, 2004 and 2003, and 44.8 million and 44.8 million for the six months ended June 30, 2004 and 2003. Diluted earnings per common share reflect adjustments to basic earnings per common share for the dilutive effect of stock options. The weighted average number of common shares used in computing diluted earnings per common share was 46.0 million and 46.1 million for the three and six months ended June 30, 2004. For the three and six months ended June 30, 2003, stock options were antidilutive and were not included in the calculation of diluted earnings per share. NOTE 7 - COMMON STOCK During the six months ended June 30, 2004, Prime repurchased 363,900 shares of its common stock at an average price of $9.66 per share. NOTE 8 - GEOGRAPHIC AND BUSINESS INFORMATION Our hotels primarily operate in three major lodging industry segments: the all-suites segment, under our AmeriSuites brand; the limited-service segment, primarily under our Wellesley Inns & Suites brand and the full-service segment under major national franchises and the Prime Hotels and Resorts brand. The AmeriSuites are upscale, all-suite limited service hotels containing approximately 128 suites and are located in 33 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. A Wellesley Inn & Suites hotel has between 100 to 130 rooms and suites. Full-service hotels compete primarily in the upscale segment, with food and beverage service and banquet facilities under our Prime Hotels and Resorts brand, and under franchise agreements with national hotel brands. The recently completed conversion of 12 former Wyndham hotels to the Prime Hotels and Resorts brand brings the chains hotel count to 15 properties in major markets including Atlanta, Seattle, Minneapolis, Nashville, San Diego, Phoenix and Northern New Jersey. Our full-service hotels operated under non-proprietary brands are located primarily in the northeastern region of the United States. We evaluate the performance of each segment based primarily on operating earnings before depreciation and amortization generated by our owned hotels ("Owned Hotels"). Interest expense is primarily related to debt incurred by the Company through our corporate obligations and collateralized by certain of our hotel properties. The hotel operations are included in the consolidated Federal income tax return of the Company and the taxes are allocated based upon the relative contribution to the Company's consolidated taxable income/losses and changes in temporary differences. Other income consists of property transactions, which are not part of the recurring operation of the Company. The allocation of interest expense, taxes and other income, are not evaluated 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 six months ended June 30, 2004 and 2003 (in thousands): - 6 -
THREE MONTHS ENDED JUNE 30, 2004 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED - -------------------------------------- ---------- --------------- ------------ --------------- ------------ Revenues ............................. $60,745 $25,046 $30,968 $7,335 $124,094 Operating income plus depreciation ... 8,975 3,933 3,579 4,281 20,768 Depreciation and amortization ........ 4,710 3,540 1,145 968 10,363 Capital expenditures ................. 845 649 370 487 2,351 Total assets ......................... 488,067 339,310 74,431 93,919 995,727
THREE MONTHS ENDED JUNE 30, 2003 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED - -------------------------------------- ---------- --------------- ------------ --------------- ------------ Revenues ............................. $63,115 $24,442 $14,784 $8,906 $111,247 Operating income plus depreciation ... 8,095 4,040 4,215 1,573 17,923 Depreciation and amortization ........ 4,874 3,551 905 332 9,662 Capital expenditures ................. 2,816 604 495 1,367 5,282 Total assets ......................... 560,406 346,858 77,337 74,676 1,059,277
MONTHS ENDED JUNE 30, 2004 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED - -------------------------------------- ---------- --------------- ------------ --------------- ------------ Revenues $114,217 $49,572 $57,310 $13,665 $234,764 Operating income plus depreciation ... 15,483 7,387 4,174 4,400 31,444 Depreciation and amortization ........ 9,361 7,053 2,264 1,940 20,618 Capital expenditures ................. 1,642 1,710 1,273 1,082 5,707 Total assets ......................... 488,067 339,310 74,431 93,919 995,727
MONTHS ENDED JUNE 30, 2004 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED - -------------------------------------- ---------- --------------- ------------ --------------- ------------ Revenues ............................. $114,960 $46,215 $32,198 $13,641 $207,014 Operating income plus depreciation ... 9,901 8,763 5,920 756 25,340 Depreciation and amortization ........ 9,748 6,758 2,378 1,411 20,295 Capital expenditures ................. 6,125 1,277 1,050 4,930 13,382 Total assets ......................... 560,406 346,858 77,337 74,676 1,059,277
We believe that operating income plus depreciation should be considered in conjunction with net income, as presented in the statement of operations, to facilitate a clearer understanding of the operating results of the Company. We believe that operating income plus depreciation is helpful to investors along with cash flow from operating activities, financing activities and investing activities as a measure of the Company's ability to incur and service debt and to fund its cash needs. We add back depreciation to operating income as theses are non-cash expenses and they are based on historical cost accounting, which assumes that the value of real estate assets diminishes on a fixed basis each year rather than due to market conditions. The following table details consolidated operating income plus depreciation for the three and six months ended June 30, 2004 and 2003 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 2004 2003 -------- -------- ------- -------- Operating income $10,405 $ 8,261 $10,826 $ 5,045 Depreciation and amortization 10,363 9,662 20,618 20,295 ------- ------- ------- ------- Operating income plus depreciation $20,768 $17,923 $31,444 $25,340 ======= ======= ======= =======
NOTE 9 - LITIGATION Currently, and from time to time, we are involved in litigation arising in the ordinary course of business. We do not believe that we are involved in any litigation, that is likely, individually or in the aggregate, to have a material adverse effect on our financial condition or results of operations or cash flows. - 7 - On August 18, 1999, plaintiff Nick Pourzal, a former employee of Prime, 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 earnings 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) to confirm an 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 use or sale of the Gilbert Land, and attorneys' fees and expenses. We believe that the plantiff's action is without merit and intend to vigorously defend this case. In June 2004, Marriott named Prime a third party defendant in a case captioned Nick Pourzal vs. Marriott International, Inc. vs. Prime Hospitality Corp., in the United States District Court for the Virgin Islands. The suit raises a claim against Prime based on an indemnity contained in the purchase agreement between Marriott and Prime for the sale of the Frenchman's Reef Hotel, St. Thomas, Virgin Islands. We have moved to dismiss this third party action and intend to vigorously defend this claim if necessary. 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 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 Prime jointly liable for all damages under the Lease Agreement, to which the Company is not a party. We 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. On April 21, 2004, Southeast Texas Inns filed a second complaint against the Company seeking to reinstate its claim for damages under the Lease Agreement. - 8 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL We are an owner, manager and franchisor of limited-service and full-service hotels. We have 256 hotels in operation containing 33,605 rooms located in 36 states and Canada (the "Portfolio") as of June 30, 2004. We control three hotel brands -- AmeriSuites (R), Wellesley Inns & Suites (R) and Prime Hotels and Resorts (R) -- and operate a portfolio of full-service hotels under franchise agreements with national hotel chains. We operate and have ownership or leasehold interests in 123 hotels (the "Owned Hotels"), operate 54 hotels for real estate investment trusts which have cash flow guarantees and participations (the "Cash Flow Hotels"), manage 22 hotels for third parties (the "Managed Hotels"), and franchise 55 hotels which we do not operate (the "Franchised Hotels"). The Portfolio is comprised of 148 AmeriSuites hotels, 81 Wellesley Inns & Suites hotels, 15 Prime Hotels and Resorts hotels and 12 non-proprietary brand hotels. The following table sets forth information with respect to the Portfolio as of June 30, 2004:
AMERISUITES HOTELS ROOMS ----------- ------ ------ Owned 62 8,024 Managed Cash Flow 42 5,214 Managed 8 1,077 Franchised 36 4,189 ---- ------ Total 148 18,504 WELLESLEY INNS & SUITES Owned 56 6,901 Managed 6 667 Franchised 19 1,926 ---- ------ Total 81 9,494 PRIME HOTELS & RESORTS Owned 3 595 Managed Cash Flow 12 2,321 ---- ------ Total 15 2,916 NON-PROPRIETARY BRANDS Owned 2 505 Managed 8 1,521 Joint Venture 2 665 ---- ------ Total 12 2,691 TOTAL PORTFOLIO Owned 123 16,025 Managed Cash Flow 54 7,535 Managed 22 3,265 Franchised 55 6,115 Joint Venture 2 665 ---- ------ Total 256 33,605
Our growth has been focused on the development of our proprietary brands. Through the development of our proprietary brands, we have transformed our Company from an owner/operator into a more diversified company with ownership, franchise and management interests, and have positioned the Company to generate additional revenues with minimal capital investment. 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. - 9 - Operating results for the three and six months ended June 30, 2004 were impacted by a change in marketing strategy to reduce the number of lower priced rooms available through third party internet sites, which were increasing occupancy but negatively impacting average daily rates ("ADR"). As a result, for the three and six months ended June 30, 2004, while occupancy declined by 5.4% and 3.3%, respectively, the ADR rate increased by 8.1% and 6.0% for comparable owned and cash flow hotels. Overall, for the three and six months ended June 30, 2004, revenue increased by 11.5% and 13.4% to $124.1 million and $234.8 million, and operating income increased by $2.1 million and $5.8 million to $10.4 million and $10.8 million, respectively. 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. - 10 - RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 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 under our Prime Hotels and Resorts brand and national franchise agreements. Owned and cash flow hotel revenues consist of lodging revenues (which consist primarily of room, telephone and vending revenues) and food and beverage revenues. Cash flow hotels are those that are managed and operated by Prime under management agreements which provide for a guaranteed minimum cash flow to the owners. At June 30, 2004, cash flow hotels include 36 HPT properties (see Note 8) and 18 hotels managed for Equity Inns. Revenues from owned hotels decreased by $2.1 million and $3.1 million or 2.9% and 2.3%, respectively, for the three and six months ended June 30, 2004 compared to the same period in 2003, due to a decline in occupancy partially offset by 7.2% and 5.5% increases in ADR of comparable hotels. Revenues from cash flow hotels increased by $14.7 million and $29.2 million or 63.1% and 66.1%, respectively, due to the addition of twelve full service hotels. The following table illustrates the REVPAR change, by segment for all owned and managed-cash flow hotels which were operated for comparable three and six month periods in 2004 and 2003, "comparable hotels."
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 % CHANGE 2004 2003 % CHANGE -------- -------- -------- -------- -------- --------- AMERISUITES Occupancy 66.3% 71.8% 62.4% 64.7% ADR $ 70.87 $ 64.84 $ 70.41 $ 66.51 REVPAR $ 46.98 $ 46.55 0.9% $ 43.91 $ 43.01 2.1% WELLESLEY INNS & SUITES Occupancy 60.7% 66.3% 59.1% 64.5% ADR $ 57.63 $ 54.04 $ 58.82 $ 55.03 REVPAR $ 35.01 $ 35.81 (2.2%) $ 34.78 $ 35.50 (2.0%) FULL-SERVICE Occupancy 65.7% 69.9% 58.9% 62.0% ADR $115.49 $111.43 $114.89 $111.82 REVPAR $ 75.85 $ 77.89 (2.6%) $ 67.63 $ 69.37 (2.5%) TOTAL Occupancy 64.5% 69.9% 61.1% 64.4% ADR $ 70.10 $ 64.86 $ 69.86 $ 65.93 REVPAR $ 45.20 $ 45.34 (0.3%) $ 42.67 $ 42.48 0.4%
For the second quarter of 2004, we reported a 0.9% REVPAR increase at our comparable AmeriSuites hotels, as occupancy decreased by 5.5 percentage point to 66.3% and ADR increased by 9.0% to $70.87. Increases were reported in Miami, Nashville, Orlando and Richmond while decreases were reported in Albuquerque, Austin, Chicago and Detroit. For the second quarter of 2004, we reported a 2.2% REVPAR decrease at our comparable Wellesley Inns & Suites hotels, ADR increased by 6.6% to $57.63 and occupancy decreased by 5.6 percentage points to 60.7%. The Austin, Orlando and South Florida markets reported increases while - 11 - revenues decreased in Atlanta, Dallas, Houston and the Northeast. Prime's upscale full-service hotels, of which the comparable hotels are located in the Northeast, reported a 2.6% REVPAR decrease for the second quarter of 2004 as occupancy decreased by 4.2 percentage points to 65.7% and ADR increased by 3.6% to $115.49. The full-service hotels were impacted by a decrease in group business in Northern New Jersey. 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 decreased by $0.8 million or 10.0% for the three months ended June 30, 2004 compared to the same period in 2003. The decrease was primarily due to termination fees of $1.5 million on three AmeriSuites hotels received in the second quarter of 2003. 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). Operating expenses for our Owned Hotels decreased by $2.5 and $4.1 million or 5.2% and 4.4%, for the three and six months ended June 30, 2004 compared to the same period in 2003. For the comparable three and six months periods, hotel operating expenses, as a percentage of hotel revenues, for the Owned Hotels were 63.8% and 67.3% in 2004 and 65.4% and 68.8% in 2003. Margins improved due to the increase in ADR and operating cost efficiencies. Operating expenses for cash-flow hotels increased by $12.8 million and $24.4 million or 49.3% and 47.3% due to the addition of twelve full service hotels for the three and six months ended June 30, 2004 versus 2003. Brand operating expenses consist primarily of national brand advertising expenses, reservation costs, costs of our frequent guest program and franchise sales and support. Brand operating expenses decreased by $1.2 million and $0.5 million or 22.1% and 5.8%, for the three and six months ended June 30, 2004 compared to the same period in 2003, due primarily to lower advertising costs. General and administrative expense consists primarily of centralized management expenses associated with operating the hotels, and corporate expense. General and administrative expense decreased by $0.2 million or 2.3% for the three months ended June 30, 2004 due to savings in payroll and benefits costs. General and administration costs increased by $0.2 million or 1.2% for the six month period compared to the same period in 2003, primarily due to normal inflationary increases. Depreciation and amortization increased by $0.7 million and $0.3 million or 7.3% and 1.6% for the three and six months ended June 30, 2004 compared to the same period in the prior year due to asset purchases partially offset by the sale of hotels in the first quarter of 2003. Investment income decreased by $0.4 million and $0.8 million or 93.9% and 94.1%, for the three and six months ended June 30, 2004 compared to the same period in 2003 due to the forfeiture of security deposits upon termination of the HPT leases in December 2003. Interest expense decreased by $0.6 million and $1.4 million or 11.0% and 12.8%, for the three and six months ended June 30, 2004 compared to the same periods in 2003 due to debt reductions and lower borrowings under the Company's $125 Million Revolving Credit Facility (the "Credit Facility") than in the comparable period last year. For the three and six months ended June 30, 2003, gains on retirement of debt related to the - 12 - retirement of 8 3/8% Senior Subordinated Notes. Other income (loss) for the six months ended June 30, 2003, includes a $35.0 million charge to write-off the assets associated with the HPT lease termination. Equity in earnings from joint ventures for the three and six months ended June 30, 2004 and 2003 related to two unconsolidated joint ventures, East Rutherford Group, L.L.C. ("Meadowlands Venture") and Nova Scotia Company ("Quebec Venture"). Discontinued operations for the three and six months ended June 30, 2004 and 2003 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 The Company believes that the effect of inflation has not been material during the six month periods ended June 30, 2004 and 2003. At June 30, 2004, we had cash and cash equivalents of $12.2 million. We may utilize any excess cash flow to grow our brands either through acquisitions or new construction, to retire debt and/or repurchase shares. Our major sources of cash for the six months ended June 30, 2004 were operating cash flow of $9.9 million, borrowings of $5.0 million, asset sales of $2.0 million, and proceeds from the exercise of stock options of $2.0 million. Our major uses of cash during the period were debt payments of $11.0 million, and capital expenditures of $5.7 million. As of June 30, 2004, we had borrowings of $30.0 million under our Credit Facility at LIBOR +2.50%, or approximately 3.7%. In July 2004, we paid down $10.0 million, reducing our borrowings to $20.0 million. 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 June 30, 2004, our debt to last twelve months EBITDA ratio was 3.59 times, our EBITDA to interest ratio was 3.39 times and the Company was in compliance with these covenants. However, there can be no assurance that the Company will continue to be in compliance with these covenants. In April 2004, we sold a parcel of vacant land for net proceeds of $1.6 million, which resulted in a gain of approximately $350,000. 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 six months ended June 30, 2004, we spent $5.7 million on capital additions which primarily consisted of capital improvements at our owned hotels. We plan to fund capital improvements at existing hotels primarily with internally generated cash flow. At June 30, 2004, the Company had net operating loss carry forwards of approximately $91.5 million which expire in the years 2006 through 2024 and are available to offset future Federal taxable income. Included in the net operating loss carry forwards at December 31, 2003, the Company had - 13 - approximately $52.4 million relating to Prime Motor Inns, which expires in the year 2006 and is subject to an annual limitation of $8.7 million under the Internal Revenue Code due to a change in ownership of the Company upon consummation of the reorganization plan on July 31, 1992. OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS There have been no material changes to the Company's off-balance sheet arrangements and aggregate contractual obligations since the filing of the Company's 2003 Form 10-K Annual Report. OFF-BALANCE SHEET ARRANGEMENTS Prime is a partner in two unconsolidated joint ventures, east Rutherford group, L.L.C. ("Meadowlands venture") and Nova Scotia Company ("Quebec venture"). Prime accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the Company exercises significant influence, but does not control these entities. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in earnings (loss) and cash contributions and distributions. Any difference between the carrying amount of these investments on the balance sheet of the Company and the underlying equity in net assets is amortized as an adjustment to equity in earnings (loss) of unconsolidated joint ventures over the lesser of the joint venture term or 40 years. As of June 30, 2004, investments in unconsolidated joint ventures consisted of the Company's 40% ownership interests in the Meadowlands Venture and the Quebec Venture. CONTRACTUAL OBLIGATIONS In July 2003, a subsidiary of the Company did not make its scheduled July 1 rent payment of approximately $2.0 million on 24 AmeriSuites hotels and received a default notice from Hospitality Properties Trust ("HPT"). Over the previous 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. In December 2003, we terminated our lease agreement for 24 AmeriSuites hotels with HPT and entered into a management agreement with HPT for the 24 AmeriSuites hotels and 12 full-service hotels to be re-branded under our Prime Hotels & Resorts chain. We recorded a $35.0 million loss due to the write-off of assets associated with the HPT lease agreement. The management agreement became effective on January 1, 2004 for the AmeriSuites hotels and February 1, 2004 for the Prime Hotels & Resorts hotels. The term is 15 years and we have two renewal options of 15 years each. Under the agreement, HPT will receive an owner's priority return of $26 million per year. This return is guaranteed by Prime under a limited guarantee which caps the maximum cash outlay by Prime over the life of the agreement at $30 million. Based on the guaranteed amount and other facts and circumstances, the fair value of the obligation was not material. Cash flow generated by the hotels in excess of $26 million per year will be split 50/50 between HPT and Prime with Prime's share counting as its royalty and management fee. Also, as part of the agreement, HPT will provide $25 million during the first two years to pay for re-branding and other capital improvements on the 36 hotels. On January 1, 2002, the Company converted its leases on 18 AmeriSuites it leased from Equity Inns into management agreements. These management agreements run for the unexpired term of the leases they replaced and require Prime to guarantee a certain minimum level of cash flow. The lease agreements expire in 2007 and 2008 and will then be converted to 20-year franchise agreement provided that we are in compliance with the cash flow guarantee requirements under the current agreements. - 14 - Below is a schedule of the future minimum cash flow levels (in thousands):
OPERATING MANAGEMENT LEASES AGREEMENTS TOTAL --------- ---------- -------- Balance of 2004 $ 2,255 $ 22,630 $ 24,885 2005 4,733 46,661 51,394 2006 4,668 46,661 51,329 2007 4,672 46,661 51,333 2008 2,955 33,550 36,505 Thereafter 37,536 260,000 297,536 ------- -------- -------- TOTAL $56,819 $456,163 $512,982 ======= ======== ========
SUMMARY OF INDEBTEDNESS Combined aggregate principal maturities of debt as of June 30, 2004, are as follows (in thousands):
8 3/8% CREDIT SCHEDULED NOTES FACILITY AMORTIZATION TOTAL ----------- ----------- -------------- ---------- 2004 106 106 2005 1,144 1,144 2006 30,000 250 30,250 2007 272 272 2008 294 294 THEREAFTER 178,725 11,850 190,575 ---------- ---------- -------- -------- $178,725 $30,000 $13,916 $222,641 ========== ========== ======== ========
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 June 30, 2004, the Company had $222.6 million of debt outstanding of which $192.6 million bears interest at fixed rates. The interest rate on the Company's Credit Facility, under which $30.0 million was outstanding at June 30, 2004, 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 June 30, 2004 would adversely affect Prime's annual interest cost by approximately $0.3 million assuming borrowed amounts under the Credit Facility remained at $30.0 million. The Company had $178.7 million of its 8 3/8% notes outstanding at June 30, 2004. A hypothetical 100 basis point adverse move (increase) in interest rates would decrease the fair value of our fixed rate debt by approximately $20.0 million, and a 100 basis point favorable move (decrease) in interest rates would increase the fair value of our fixed rate debt by approximately $20.0 million. ITEM 4. CONTROLS AND PROCEDURES 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-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. 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 changes in our internal control over financial reporting during the last fiscal - 15 - quarter that have materially affected, or are reasonably likely to affect, the Company's internal control over financial reporting. - 16 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Currently and from time to time we are involved in litigation arising in the ordinary course of its business. We do not believe that we are involved in any litigation, that is likely, individually or in the aggregate, to have a material adverse effect on our financial condition or results of operations or cash flows. On August 18, 1999, plaintiff Nick Pourzal, a former employee of Prime, 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 earnings 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 compliant, to add claims for (i) conspiracy to violate the Virgin Islands Plant Closing Act, (ii) prima facie tort and (iii) to confirm an 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 use or sale of the Gilbert Land, and attorneys' fees and expenses. We believe that the plantiff's action is without merit and intend to vigorously defend this case. In June 2004, Marriott named Prime a third party defendant in a case captioned Nick Pourzal vs. Marriott International, Inc. vs. Prime Hospitality Corp., in the United States District Court for the Virgin Islands. The suit raises a claim against Prime based on an indemnity contained in the purchase agreement between Marriott and Prime for the sale of the Frenchman's Reef Hotel, St. Thomas, Virgin Islands. We have moved to dismiss this third party action and intend to vigorously defend this claim if necessary. 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 Prime jointly liable for all damages under the Lease Agreement, to which the Company is not a party. We 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. On April 21, 2004, Southeast Texas filed a second complaint against the Company seeking to reinstate its claim for damages under the Lease Agreement. - 17 - ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITY SECURITIES
TOTAL NUMBER TOTAL NUMBER OF SHARES APPROXIMATE DOLLAR VALUE OF SHARES AVERAGE PURCHASED AS PART OF OF SHARES THAT MAY YET PERIOD PURCHASED PRICE PUBLICLY ANNOUNCED PLAN BE PURCHASED UNDER THE PLAN - -------- --------- ------- ----------------------- --------------------------- May 2004 363,900 $9.66 363,900 $55,567,000
On October 29, 1999, our Board of Directors authorized a plan to purchase up to $100 million of its common stock on the open market. This repurchase plan does not have an expiration date. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of stockholders on May 20, 2004 (the "Annual Meeting"). The Company's stockholders were asked to take the following action at the meeting: Elect two Class III Directors to serve until the 2007 Annual Meeting of Stockholders. With respect to the Board Proposal, the two individuals nominated for director were both elected by the affirmative vote of a majority of shares of common stock present at the Annual Meeting. The nominees and the votes received by each are as follows:
FOR WITHHELD ---------- --------- Howard M. Lorber 38,868,479 2,657,866 Richard Szymanski 38,869,279 2,657,066
A.F. Petrocelli, Howard M. Lorber, Lawrence N. Friedland, Richard Reitman and Allen S. Kaplan will continue to serve as directors of the Company. Stephen Seltzer was appointed by the Board of Directors at the April 27, 2004 meeting, to fill a Class I vacancy. ITEM 5. OTHER INFORMATION None. - 18 - 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 April 29, 2004, the Company issued a press release regarding earnings for the first quarter of 2004. This Form 8-K was filed under Items 7 and 12. On July 29, 2004, the Company issued a press release regarding earnings for the second quarter of 2004. This form 8-K was filed under Items 7 and 12. - 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:August 6, 2004 By: /s/ A.F. Petrocelli ------------------- A.F. Petrocelli President and Chief Executive Officer Date:August 6, 2004 By: /s/ Richard T. Szymanski ------------------------------- Richard T. Szymanski Senior Vice President and Chief Financial Officer EX-31.1 2 y99921exv31w1.txt CERTIFICATION 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: August 6, 2004 ----------------------- A.F. Petrocelli Chief Executive Officer EX-31.2 3 y99921exv31w2.txt CERTIFICATION 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: August 6, 2004 ----------------------- Richard T. Szymanski Chief Financial Officer EX-32.1 4 y99921exv32w1.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, 2004 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. - ----------------------- A.F. Petrocelli President and Chief Executive Officer August 6, 2004 EX-32.2 5 y99921exv32w2.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, 2004 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. - ----------------------- Richard T. Szymanski Senior Vice President and Chief Financial Officer August 6, 2004 -----END PRIVACY-ENHANCED MESSAGE-----