-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, e2IpWOS8+sgAZxAv46ZHM38XfShCElw4H82Q97dL0yNWyo38qiw2HcPhliOeBTzm yYwpzufX7zffXYZoVuESBg== 0000950123-94-001841.txt : 19941116 0000950123-94-001841.hdr.sgml : 19941116 ACCESSION NUMBER: 0000950123-94-001841 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: 7011 IRS NUMBER: 221890234 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: 94558976 BUSINESS ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2018821010 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 PRIME HOSPITALITY CORP. 1 FORM 10-Q SECURITIES EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 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) incorporation or organization) identification no.) 700 Route 46 East, Fairfield, New Jersey 07004 (Address of principal executive offices) (201) 882-1010 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ----- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ----- ----- The registrant had 29,594,247 shares of common stock, $.01 par value, as of November 8, 1994. 2 PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX
PAGE PART I. FINANCIAL INFORMATION NUMBER ------ Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets September 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . 1 Consolidated Statements of Operations Three and Nine Months Ended September 30, 1994 and September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1994 and September 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Notes to Interim Consolidated Financial Statements . . . . . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 18 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
September 30, December 31, 1994 1993 ------------- ------------ ASSETS (Unaudited) ------ Current assets: Cash and cash equivalents. . . . . . . . . . $24,623 $41,569 Restricted cash . . . . . . . . . . . . . . 7,615 10,993 Accounts receivable, net of reserves . . . . 6,438 6,266 Current portion of mortgages and other notes receivable . . . . . . . . . . . . . 2,754 2,275 Accrued interest receivable . . . . . . . . 2,374 3,954 Other current assets . . . . . . . . . . . . 2,308 3,145 ------------- ------------ Total current assets . . . . . . . . . . 46,112 68,202 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization . . . . . . . 211,032 172,786 Mortgages and other notes receivable, net of current portion . . . . . . . . . . . . . . 132,471 163,033 Other assets . . . . . . . . . . . . . . . . . 11,514 5,006 ------------- ------------ TOTAL ASSETS . . . . . . . . . . . . . . $401,129 $409,027 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of debt . . . . . . . . . . $3,862 $19,282 Other current liabilities . . . . . . . . . 23,192 20,787 ------------- ------------ Total current liabilities . . . . . . . 27,054 40,069 Long-term debt, net of current portion . . . . 157,866 168,618 Other liabilities . . . . . . . . . . . . . . 27,264 28,976 ------------- ------------ Total liabilities . . . . . . . . . . . 212,184 237,663 ------------- ------------ 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; 50,000,000 shares authorized; 30,353,282 and 29,988,880 shares issued and outstanding at September 30, 1994 and December 31, 1993, respectively . . . . . 304 331 Capital in excess of par value . . . . . . . 161,086 157,476 Retained earnings . . . . . . . . . . . . . 27,555 13,557 ------------- ------------ Total stockholders' equity . . . . . . . 188,945 171,364 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . $401,129 $409,027 ============= ============
See Accompanying Notes to Interim Consolidated Financial Statements. -1- 4 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 ------- ------- ------- ------- Revenues: Rooms . . . . . . . . . . . . $24,911 $19,949 $64,832 $52,295 Food and beverage . . . . . . 4,228 2,987 11,883 8,352 Management and other fees . . 2,602 2,604 7,505 8,029 Interest on mortgages and other notes receivable . . 3,977 3,556 12,134 11,104 Rental and other . . . . . . 345 384 982 1,174 ------- ------- ------- ------- Total revenues . . . . . 36,063 29,480 97,336 80,954 ------- ------- ------- ------- Costs and expenses: Direct hotel operating expenses: Rooms . . . . . . . . . . . 6,762 5,435 17,647 14,190 Food and beverage . . . . . 3,524 2,625 9,488 7,262 Selling and general . . . . 7,250 5,575 19,070 14,821 Occupancy and other operating . . . . . . . . . 2,967 2,852 8,699 8,492 General and administrative. . 3,901 3,642 11,269 11,421 Depreciation and amortization . . . . . . . 2,265 1,806 6,287 5,266 ------- ------- ------- ------- Total costs and expenses . . . . . . . 26,669 21,935 72,460 61,452 ------- ------- ------- ------- Operating income . . . . . . . 9,394 7,545 24,876 19,502 Interest income on cash and other investments . . . . . . 461 253 1,492 912 Interest expense . . . . . . . (3,408) (3,936) (10,397) (12,247) Other income . . . . . . . . . 531 1,769 7,463 1,769 ------- ------- ------- ------- Income before income taxes and extraordinary items . . . 6,978 5,631 23,434 9,936 Provision for income taxes . . 2,861 2,252 9,608 3,974 ------- ------- ------- ------- Income before extraordinary items . . . . . . . . . . . . 4,117 3,379 13,826 5,962 Extraordinary items - Gains on discharges of indebtedness, net of income taxes . . . . . 3 -- 172 4,057 ------- ------- ------- ------- Net income . . . . . . . . . . $4,120 $3,379 $13,998 $10,019 ======= ====== ======= ======= Net income per common share: Income before extraordinary items . . . . . . . . . . . $.13 $.11 $.43 $.19 Extraordinary items . . . . . -- -- .01 .14 ------- ------- ------- ------- Net income per common share . . $.13 $.11 $.44 $.33 ======= ====== ======= =======
See Accompanying Notes to Interim Consolidated Financial Statements. -2- 5 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In Thousands)
Nine Months Ended September 30, 1994 1993 -------- --------- CASH FLOWS - ---------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . $13,998 $10,019 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . 6,287 5,266 Gain on settlement of note receivable . . . (5,894) -- Utilization of net operating loss carryforwards . . . . . . . . . . . . . . 2,295 2,978 Gains on discharges of indebtedness . . . . (291) (6,761) Gain on disposal of assets . . . . . . . . (1,099) (1,769) Compensation expense related to stock options . . . . . . . . . . . . . . . . . 43 225 Increase (decrease) from changes in other operating assets and liabilities: Accounts receivable . . . . . . . . . . . (564) (2,146) Accrued interest receivable . . . . . . . 1,580 393 Other current assets . . . . . . . . . . 784 23 Other liabilities . . . . . . . . . . . . 1,030 4,568 -------- --------- Net cash provided by operating activities . . . . . . . . . . . . . . 18,169 12,796 -------- --------- Cash flows from investing activities: Proceeds from mortgages and other notes receivable . . . . . . . . . . . . . . . . 33,799 6,609 Disbursements for mortgages and other notes receivable . . . . . . . . . . . . . (1,100) (354) Proceeds from sales of property, equipment and leasehold improvements . . . . . . . . 1,053 3,736 Purchases of property, equipment and leasehold improvements . . . . . . . . . . (28,303) (8,325) Decrease in restricted cash . . . . . . . . . 3,378 9,443 Proceeds from retirement of debt securities 1,082 -- Purchase of debt and other securities . . . . (5,885) -- Other . . . . . . . . . . . . . . . . . . . . (1,516) 759 -------- --------- Net cash provided by investing activities. . . . . . . . . . . . . . . 2,508 11,868 -------- ---------
See Accompanying Notes to Interim Consolidated Financial Statements. -3- 6 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (In Thousands)
Nine Months Ended September 30, 1994 1993 -------- -------- Cash flows from financing activities: Proceeds from issuance of debt . . . 3,725 1,500 Payments of debt . . . . . . . . . . (42,479) (28,017) Proceeds from the exercise of stock options and warrants . . . . . . . 1,056 -- Principal proceeds from federal income tax refund . . . . . . . . 189 -- Reorganization items . . . . . . . . (114) (5,350) -------- -------- Net cash used in financing activities . . . . . . . . . . . . (37,623) (31,867) -------- -------- Net decrease in cash and cash equivalents . . . . . . . . . . . (16,946) (7,203) Cash and cash equivalents at beginning of period . . . . . . . 41,569 36,616 -------- -------- Cash and cash equivalents at end of period. . . . . . . . . . . $24,623 $29,413 ======== ========
See Accompanying Notes to Interim Consolidated Financial Statements. -4- 7 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying interim unaudited consolidated financial statements of Prime Hospitality Corp. and subsidiaries (the "Company") contain all material adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 1994 and the results of its operations for the three and nine months ended September 30, 1994 and 1993 and the cash flows for the nine months ended September 30, 1994 and 1993. The financial statements for the three and nine months ended September 30, 1994 and 1993 were prepared on a consistent basis with the audited consolidated financial statements for the year ended December 31, 1993. Certain reclassifications have been made to the December 31, 1993 consolidated financial statements to conform them to the September 30, 1994 presentation. The consolidated results of operations for the three and nine months ended September 30, 1994 are not necessarily indicative of the results to be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. Note 2 - MORTGAGES AND OTHER NOTES RECEIVABLE During April 1994, the Company received a favorable ruling from the U.S. Bankruptcy Court for the Southern District of Florida in its litigation with Financial Security Assurance, Inc. ("FSA") to recover a payment to be made under a settlement agreement with Allan V. Rose and Arthur G. Cohen ("Rose and Cohen"). In 1993, the Company reached a settlement with Rose and Cohen of an adversary proceeding regarding a promissory note and personal guarantee, which had been commenced by a subsidiary of the Company's predecessor, Prime Motor Inns, Inc. ("PMI") during 1991. The settlement provided for Rose or his affiliate to pay the Company the sum of $25,000,000, all of which was paid into escrow in February 1994, plus proceeds from the sale of approximately 1,100,000 shares of the Company's common stock held by Rose. FSA asserted that it was entitled to receive the settlement proceeds under the terms of a certain intercreditor agreement. In April 1994, the Court approved the settlement and ruled that the Company had an exclusive right to the settlement proceeds. Upon receipt of the order, the Company used the $25,000,000 of settlement proceeds to retire certain secured notes (see Note 3). On April 21, 1994, FSA filed its notice of appeal of the Court's order. On May 4, 1994, Rose sold approximately 1,000,000 shares of the Company's stock under the terms of the settlement for net proceeds of $5,894,000. Subject to further court order, the Company plans to use the stock proceeds principally to retire certain secured notes. - 5 - 8 The Rose and Cohen note had a book value of $25,000,000 on the date the proceeds were received. Therefore, $5,894,000 was recorded as income in the Company's statement of operations for the second quarter of 1994. Note 3 - DEBT During the first quarter of 1994, the Company repurchased $6,527,000 of its adjustable rate senior secured notes, $217,000 of its 8.20% senior secured notes and $461,000 of its 9.20% junior secured notes for an aggregate purchase price of $7,018,000. The repurchases resulted in pretax extraordinary gains of $187,000. During the first quarter of 1994, the Company purchased through a third party agent approximately $5,200,000 of its senior and junior secured notes for aggregate consideration of approximately $4,800,000. These notes are held by the third party agent and were not retired due to certain restrictions under the note agreements. The purchases were recorded as investments on the Company's balance sheet and no gain will be recorded on these transactions until the notes mature or are redeemed. In April 1994, approximately $1,100,000 of the notes were retired from the proceeds of the Rose and Cohen settlement (See Note 2) resulting in a pretax extraordinary gain of approximately $100,000. In August 1994, approximately $37,000 were retired resulting in a pretax extraordinary gain of $5,000. In April 1994, the Company retired its senior secured notes with a prepayment of $26,408,000 funded by the proceeds of the settlement with Rose and Cohen (See Note 2) and other collections from the collateral for these notes. In July 1994, the Company received consents from the required holders of its junior secured notes to remove certain debt covenants which placed limitations on the Company's hotel development spending. In consideration of the amendment consent, the Company agreed to increase the coupon interest rate from 9.2% to 10.0%, and to shorten the maturity by one year from July 31, 2000 to July 31, 1999. Note 4 - INCOME TAXES At September 30, 1994, the Company had available federal net operating loss carryforwards of approximately $116,000,000 which will expire beginning in 2005 and continuing through 2007. Of this amount, $107,000,000 is subject to an annual limitation of $8,735,000 under the Internal Revenue Code due to a change in ownership of the Company upon consummation of PMI's plan of reorganization. For the nine months ended September 30, 1994, the Company recognized $2,295,000 of such tax benefits as a contribution to stockholders' equity. The Company also has potential state income tax benefits relating to net operating loss carryforwards of approximately $9,400,000 which will expire during various periods from 1995 to 2007. Certain of these potential benefits are subject - 6 - 9 to annual limitations similar to federal requirements due to a change in ownership. The utilization is further dependent on such factors as the level of business conducted in each state and the amount of income subject to tax within each state's carryforward period. In January 1994, the Company received a $189,000 tax refund relating to PMI. In accordance with the American Institute of Certified Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company recorded the tax refund as a contribution to additional paid in capital. Note 5 - NET INCOME PER COMMON SHARE The Company has restated net income per common share for all periods to reflect a 9.4% reduction in the number of shares to be distributed under the plan of reorganization ("the Plan") of PMI. The financial statements had previously given effect to the maximum amount of 33,000,000 shares to be issued under the Plan. The Company estimates the number of shares ultimately distributed under the Plan will be reduced to 29,913,000. The final scheduled distribution of shares under the Plan is expected to occur during the fourth quarter of 1994. Net income per common share was computed based on the weighted average number of common shares and common share equivalents (dilutive stock options and warrants) outstanding during each period. The weighted average number of common shares used in computing primary and fully diluted net income per share was 32,118,000 and 31,969,000 for the three and nine months ended September 30, 1994, respectively, and 30,266,000 for the three and nine months ended September 30, 1993. Note 6 - OTHER INCOME Other income for the nine months ended September 30, 1994 consists of proceeds from the settlement of the Rose and Cohen note receivable of $5,894,000, gains on sales of land and hotel assets of $1,099,000, gain on the settlement of a note receivable of $131,000, proceeds from the surrender of former officers' life insurance policies of $286,000 and $53,000 of interest income related to tax refunds. - 7 - 10 PART I. FINANCIAL INFORMATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations Three and Nine Months Ended September 30, 1994 Compared to Three and Nine Months Ended September 30, 1993. The following discussion and analysis is based on the historical results of operations of the Company for the three and nine months ended September 30, 1994 and 1993. The financial information set forth below should be read in conjunction with the consolidated financial statements of the Company included elsewhere in this report and in its Annual Report on Form 10-K for the year ended December 31, 1993. The Company has restated net income per common share for all periods to reflect a 9.4% reduction in the number of shares to be distributed under the plan of reorganization ("the Plan") of the Company's predecessor, Prime Motor Inns, Inc. The financial statements had previously given effect to the maximum amount of 33,000,000 shares to be issued under the Plan. The Company estimates the number of shares ultimately distributed under the Plan will be reduced to 29,913,000. The final scheduled distribution of shares under the Plan is expected to occur during the fourth quarter of 1994. The following table presents the gross operating profit, as defined, of the Company's owned and leased hotel properties for the three and nine months ended September 30, 1994 and 1993. The hotel properties are classified into three categories: comparable hotels; new hotels; and divested hotels. At September 30, 1994, the Company owned or leased 45 hotel properties of which 31 hotel properties were owned or leased by the Company during the entire two periods presented and are classified as comparable hotels. The fourteen hotels classified as new hotels are composed of four new AmeriSuites hotels and three new Wellesley Inns which were opened after December 31, 1992, two full service hotels purchased within the past year and five hotels acquired through note receivable settlements or lease terminations within the past year. The hotel properties classified as divested hotels consist of two full-service hotels and one limited-service hotel sold in the past year. - 8 - 11 Owned and Leased Properties (In thousands, except for statistical information)
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 ------------ ------------ ------------ ------------ Gross operating profit (1): Comparable hotels . . . . . . . $8,989 $8,280 $25,338 $22,839 New hotels . . . . . . . . . . . 2,596 534 5,125 732 Divested hotels . . . . . . . . 18 487 47 803 ------ ------- -------- ------- Total . . . . . . . . . . . 11,603 9,301 30,510 24,374
(1) Gross operating profit is defined as room and food and beverage revenues less direct room, food and beverage and selling and general expenses. These components are presented in the following table.
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 ------------ ------------ ------------ ------------ Room revenues: Comparable hotels . . . . . . . $18,326 $17,243 $50,961 $47,604 New hotels . . . . . . . . . . . 6,466 1,372 13,135 1,758 Divested hotels . . . . . . . . 119 1,334 736 2,933 ------- -------- -------- ------- Total . . . . . . . . . . . 24,911 19,949 64,832 52,295 Food and beverage revenues: Comparable hotels . . . . . . . 2,672 2,604 8,284 7,650 New hotels . . . . . . . . . . . 1,551 260 3,553 260 Divested hotels . . . . . . . . 5 123 46 442 ------- ------- -------- ------- Total . . . . . . . . . . . 4,228 2,987 11,883 8,352 Direct room expenses: Comparable hotels . . . . . . . 4,685 4,599 13,014 12,614 New hotels . . . . . . . . . . . 1,897 428 4,051 532 Divested hotels . . . . . . . . 180 408 582 1,044 ----- ------- -------- ------- Total . . . . . . . . . . . 6,762 5,435 17,647 14,190 Direct food and beverage expenses: Comparable hotels . . . . . . . 2,240 2,251 6,743 6,540 New hotels . . . . . . . . . . . 1,283 221 2,720 221 Divested hotels . . . . . . . . 1 153 25 501 ----- ------- ------- ------ Total . . . . . . . . . . . 3,524 2,625 9,488 7,262
- 9 - 12
Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 ------------ ------------ ------------ ------------ Direct hotel selling and general expenses: Comparable hotels . . . . . . . 5,084 4,717 14,150 13,261 New hotels . . . . . . . . . . . 2,241 449 4,792 533 Divested hotels . . . . . . . . (75) 409 128 1,027 ----- ------- -------- ------- Total . . . . . . . . . . . 7,250 5,575 19,070 14,821
The following table presents statistical information related to the Company's occupancy percentages, average daily rates and REVPAR (Revenue per available room) for comparable and new hotels, as defined, for the three and nine months ended September 30, 1994 and 1993. The hotel properties have been classified into the four categories of hotels owned by the Company: Full-Service Franchised, Wellesley Inns, AmeriSuites and Limited-Service Franchised.
As of September 30, 1994 Three Months Ended Nine Months Ended Number Number September 30, September 30, of Hotels of Rooms 1994 1993 1994 1993 --------- -------- -------- -------- -------- -------- Statistical information - Comparable hotels: ----------------- Full-Service Franchised . 9 1,427 Occupancy % . . . . . . 74.8% 79.4% 72.3% 73.2% Average daily rate . . . $87.24 $77.91 $79.43 $72.25 REVPAR . . . . . . . . . $65.27 $61.86 $57.43 $52.89 Wellesley Inns . . . . . . 10 1,052 Occupancy % . . . . . . 81.4% 86.0% 83.0% 85.8% Average daily rate . . . $42.96 $40.14 $48.81 $45.64 REVPAR . . . . . . . . . $34.97 $34.52 $40.51 $39.16 AmeriSuites . . . . . . . 6 747 Occupancy % . . . . . . 81.7% 76.5% 73.3% 68.9% Average daily rate . . . $61.57 $57.24 $59.07 $56.07 REVPAR . . . . . . . . . $50.30 $43.79 $43.30 $38.63 Limited-Service Franchised 6 656 Occupancy % . . . . . . 72.0% 69.0% 66.1% 64.5% Average daily rate . . . $46.17 $44.77 $46.54 $46.24 REVPAR . . . . . . . . . $33.24 $30.89 $30.76 $29.83 Total . . . . . . . . . . 31 3,882 Occupancy % . . . . . . 77.5% 78.9% 74.3% 74.3% Average daily rate . . . $62.96 $58.00 $61.36 $57.22 REVPAR . . . . . . . . . $48.79 $45.76 $45.59 $42.51
- 10 - 13
As of September 30, 1994 Three Months Ended Nine Months Ended Number Number September 30, September 30, of Hotels of Rooms 1994 1993 1994 1993 --------- -------- -------- -------- -------- -------- New hotels: ---------- Full-Service Franchised . . . 4 794 Occupancy % . . . . . . . . 71.2% 73.0% 65.0% 73.0% Average daily rate . . . . . $62.36 $51.31 $59.92 $51.31 REVPAR . . . . . . . . . . . $44.40 $37.46 $38.95 $37.46 Wellesley Inns . . . . . . . . 3 315 Occupancy % . . . . . . . . 68.9% -- 76.6% -- Average daily rate . . . . . $46.93 -- $45.44 -- REVPAR . . . . . . . . . . . $32.34 -- $34.81 -- AmeriSuites . . . . . . . . . 4 496 Occupancy % . . . . . . . . 65.9% 55.7% 60.5% 57.2% Average daily rate . . . . . $64.66 $58.30 $61.29 $57.99 REVPAR . . . . . . . . . . . $42.61 $32.47 $37.08 $33.17 Limited-Service Franchised . . 3 316 Occupancy % . . . . . . . . 28.2% 37.6% 28.7% 37.6% Average daily rate . . . . . $33.76 $24.52 $32.07 $24.52 REVPAR . . . . . . . . . . . $9.52 $9.22 $9.20 $9.22 Total . . . . . . . . . . . . 14 1,921 Occupancy % . . . . . . . . 62.1% 62.2% 56.9% 61.5% Average daily rate . . . . . $58.60 $51.70 $55.19 $52.94 REVPAR . . . . . . . . . . . $36.39 $32.16 $31.40 $32.56
Total room revenues increased by $5.0 million and $12.5 million or 24.9% and 24.0% for the three and nine months ended September 30, 1994 over the same periods in the prior year due to improved revenues at comparable hotels and the acquisition or construction of new hotels in the past year. Room revenues for comparable hotels increased by 6.3% and 7.1% for the three and nine months ended September 30, 1994 compared to the same periods of the prior year. The increases were due to improvements in average daily rate which increased by $4.96 and $4.14 or 8.6% and 7.2% for the three and nine month periods reflecting repositioning and refurbishment efforts at several hotels and improving industry fundamentals. The strongest average daily rate growth was achieved in the Company's Full-Service Franchised hotels where most of the refurbishing projects have been performed. Occupancy rates for comparable hotels decreased by approximately one percentage point for the three month period as a result of the Company's strategy to increase average daily rates, particularly at the Full-Service Franchised hotels. For the nine months ended September 30, 1994, the comparable hotels' occupancy rates were even with the prior year. Food and beverage revenues increased by 41.5% and 42.3% for the three and nine months ended September 30, 1994 as compared to the same periods of the prior year primarily due to the impact of three Full-Service Franchised hotels acquired in the past year. Food and beverage revenues - 11 - 14 for comparable hotels increased by 2.6% and 8.3% for the three and nine months ended September 30, 1994 compared to the same period of the prior year primarily as a result of improved banquet sales and three new sports lounges. The increases were offset by lower food revenues at other Company owned restaurants. Management and other fees consist of base and incentive fees earned under management agreements, fees for additional services rendered to managed hotels and sales commissions earned by the Company's national sales group, Market Segments, Inc. The Company currently manages 39 hotels for third parties. Management and other fees decreased by 6.5% for the nine months ended September 30, 1994 as compared to the same period of the prior year primarily due to the Company's acquisition of four of its managed hotels since August 1993. In addition, while the Company has added three new management contracts in the past year, independent owners have divested six hotels during that period. The decreases have been partially offset by increases in management fees attributable to improved hotel revenues in the remaining properties. Interest income for the three and nine months ended September 30, 1994 and 1993 primarily related to mortgages secured by 11 managed hotels including the Marriott's Frenchman's Reef Beach Resort ("Frenchman's Reef"). Interest income on mortgages and notes increased by 11.8% and 9.3% for the three and nine months ended September 30, 1994 as compared to the same periods of the prior year primarily due to interest recognized on subordinated or junior mortgages which remit payment based on hotel cash flow ("cash flow notes"). For the three and nine months ended September 30, 1994, interest income recognized on cash flow notes increased to $479,000 and $1.6 million from $201,000 and $517,000 for the same periods of the prior year primarily due to the execution of new cash flow note agreements on three hotels. During the nine months ended September 30, 1994, the Company also received $181,000 of interest income on its note receivable from Rose and Cohen. During 1993, the Company recorded no interest income on this note. Approximately $3.6 million and $3.2 million of interest income for the nine months ended September 30, 1994 and 1993, respectively, was derived from the Company's $50 million note receivable secured by the Frenchman's Reef. Under the terms of a proposed restructuring of the note, the Company will obtain ownership and control of the Frenchman's Reef (see Liquidity and Capital Resources). If consummated, the impact of this restructuring on operating income is expected to be minimal, as direct revenues, expenses and depreciation will increase and interest income and management fees will decrease. Direct room expenses increased by 24.4% for both the three and nine months ended September 30, 1994 over the same periods of the prior year due to the impact of the new hotels. Direct room expenses for comparable hotels increased by 1.9% and 3.2% for the three and nine months ended September 30, 1994 over the prior year periods which was slightly lower than the general inflation rate. For comparable hotels, margins improved to approximately 74% for the three and nine months ended September 30, 1994 from 73% in the prior year periods due to higher average daily rates which have risen faster than expenses. - 12 - 15 Direct food and beverage expenses increased by 34.2% and 30.7% for the three and nine months ended September 30, 1994 due to the impact of new hotels. Direct food and beverage margins increased to approximately 17% and 20% for the three and nine months ended September 30, 1994 as compared to 12% and 13% in the prior year periods. The improvements in gross margins are attributable to increased revenues in the higher margin areas such as banquet departments and sports lounges. Direct hotel selling and general expenses consist primarily of hotel expenses which are not specifically allocated to rooms or food and beverage activities such as administration, selling and advertising, utilities and repairs and maintenance. Direct hotel selling and general expenses increased by 30.0% and 28.7% for the three and nine months ended September 30, 1994 over prior year periods due to the new hotels and increased expenses at comparable hotels. Direct hotel selling and general expenses for comparable hotels increased by 7.8% and 6.7% for the three and nine months ended September 30, 1994 over the same periods of the prior year primarily due to expenses associated with the increased revenues such as marketing expenses, incentive payments and franchise fees. For the nine months ended September 30, 1994 direct selling and general expenses also increased due to higher utility and snow removal costs in the first quarter as a result of the severe winter in the Northeast. Occupancy and other operating expenses increased by 4.0% and 2.4% for the three and nine months ended September 30, 1994 over the prior year periods due to the impact of new hotels. The increases were partially offset by decreased property and liability insurance charges based on favorable claims experience and reductions in real estate taxes as a result of tax appeals on certain properties. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating both the owned and managed hotels and general corporate expenses. For the nine months ended September 30, 1994 and 1993, general and administrative expenses decreased by 1.3% as compared to the prior year periods primarily due to savings realized from the restructuring of the Company's centralized management operations in 1993. For the three months ended September 30, 1994, general and administrative expenses increased by 7.1% primarily due to increased corporate marketing expenses. Depreciation and amortization expense increased by 25.4% and 19.4% for the three and nine months ended September 30, 1994 as compared to the same periods of the prior year due to the impact of new hotel properties acquired in the past year and refurbishment efforts at several hotels. Interest expense decreased by 13.4% and 15.1% for the three and nine months ended September 30, 1994 as compared to the same periods of the prior year primarily due to the net reduction of approximately $28 million of debt over the past twelve months. - 13 - 16 Other income for the three months ended September 30, 1994 consisted of gains on sales of land and hotel assets of $241,000 and proceeds from the surrender of former officers' life insurance policies of $286,000. Other income for the nine months ended September 30, 1994 also consists of a gain of approximately $5,900,000 related to the settlement of the Rose and Cohen note receivable and other gains on sales of hotels of approximately $1 million.For the three and nine months ended September 30, 1993, other income consisted of gains on sales of land and hotels of $1,144,000 and the settlement of closing adjustments of $625,000 related to the sale of a hotel in a prior year. Pretax extraordinary gains of approximately $5,000 and $291,000 for the three and nine months ended September 30, 1994 relate to the retirement of secured notes with a face value of $8.3 million. Pretax extraordinary gains of approximately $6.8 million for the nine months ended September 30, 1993 relate to the retirement of debt with a face value of $25.8 million. Liquidity and Capital Resources The Company believes that it has sufficient financial resources to provide for its working capital needs, capital expenditures and debt service obligations. The Company anticipates meeting its future capital needs through a combination of existing cash balances, projected cash flow from operations, conversion of other assets to cash and proceeds from potential debt or equity financings. The Company also intends to incur mortgage or sale/leaseback financing on unencumbered properties to provide additional funds for the development and acquisition of hotels. At September 30, 1994, the Company had cash and cash equivalents of $24.6 million and restricted cash of $7.6 million, which was primarily collateral for various debt obligations. Cash flow from operations was approximately $18.2 million for the nine months ended September 30, 1994. Cash flow from operations was positively impacted by the utilization of net operating loss carryforwards ("NOL's") of $2.3 million. At September 30, 1994, the Company has federal NOL's relating to its predecessor, PMI, of approximately $116 million which are subject to annual utilization limitations and expire beginning in 2005 and continuing through 2007. The Company's other major sources of cash for the nine months ended September 30, 1994 were a settlement of the Rose and Cohen note receivable for $30.9 million, borrowings under a secured demand credit agreement of $3.7 million and other collections of mortgages and notes receivable of $2.9 million. The Company's major uses of cash for the nine months ended September 30, 1994 were payments of debt of $42.5 million, capital expenditures of $28.3 million and purchases of debt and other securities of $5.9 million. Debt. In April 1994, the Company retired its senior secured notes with a prepayment of $26.4 million from proceeds of the settlement of a note from Rose and Cohen and other collections from - 14 - 17 the collateral for these notes. The Company issued the notes on July 31, 1992 and retired the issue in advance of its stated maturity of July 31, 1997. In July 1994, the Company received consents from the required holders of its junior secured notes in the amount of $53 million to remove certain debt covenants which placed limitations on the Company's hotel development spending. In consideration of the amendment consent, the Company agreed to increase the coupon interest rate from 9.2% to 10% and to shorten the maturity by one year from July 31, 2000 to July 31, 1999. The Company has entered into an agreement to obtain mortgage financing of $11 million on two of its unencumbered properties in order to fund its acquisition and development program. The Company had originally contemplated including ten additional properties in this financing but revised the agreement due to the availability of alternative sources of financing. Interest will be payable at a fixed rate based on the 10-year Treasury bond at closing plus 3.15%. Principal will be payable based on a 20-year amortization with a final maturity in 10 years. The Company has also entered into an agreement to sell and leaseback seven of its hotels which the Company anticipates will provide cash proceeds in the range of $28 to $40 million to be utilized for development and acquisition purposes. The agreement provides for a fifteen year lease term and a repurchase obligation equal to the unamortized portion of the sales price. Rentals will be calculated based on interest at the prime rate plus 1% on the buyer's investment and will also include a percentage rental in excess of net profit, as defined. The transaction is subject to contingencies including the buyer's ability to obtain financing. In July 1994, the Company withdrew its Form S-3 Registration Statement filed with the SEC in March 1994 for purposes of registering a $100,000,000 Senior Subordinated Notes offering. The Company had planned to use the proceeds from the offering to refinance its senior and junior secured notes and to fund hotel development and acquisition. The Company elected to withdraw the offering due to rising interest rates, the availability of alternative sources of financing and the Company's ability to obtain consents to remove certain debt covenants contained in its secured notes. During the first quarter of 1994, the Company purchased at a discount $7.2 million of its secured notes for an aggregate purchase price of $7.0 million. During the first quarter of 1994, the Company purchased through a third party agent approximately $5.2 million of its secured notes for aggregate consideration of $4.8 million. These notes were held by the third party agent and were not retired due to certain restrictions under the note agreements. The purchases were recorded as investments on the Company's balance sheet and no gain will be recorded on these transactions until the notes mature or are redeemed. In April 1994, approximately $1.1 million of these notes were retired with a portion of the proceeds from the Rose and Cohen settlement resulting in a pre-tax gain of approximately $100,000. In August, approximately $37,000 were retired resulting in a pretax gain of $5,000. - 15 - 18 As of September 30, 1994, the Company's wholly-owned subsidiary, Suites of America, Inc. ("SOA"), has $34.0 million of debt obligations, all of which is owed to ShoLodge, Inc. ("ShoLodge"). In April 1994, SOA refinanced the $9.2 million of the debt due to ShoLodge in 1994 by extending the maturities to April 1998 and ShoLodge provided financing to retire $5.1 million of bank debt due in 1994 under the same terms. Upon the occurrence of certain events including the exercise of an option by either the Company or ShoLodge under a joint venture agreement, ShoLodge will contribute its fee or mortgage interests on six hotels to SOA and hold a 50% equity interest in SOA which will then consist of twelve AmeriSuites hotels. The $14.3 million of refinanced debt owed to ShoLodge will become debt of the joint venture and the $19.7 million of remaining debt will be converted into debt or equity of the joint venture. The Company has $34.9 million of debt obligations related to the Frenchman's Reef due in December 1996. The Company intends to seek an extension of the maturity of such debt or refinance it. The debt is secured by a first mortgage note receivable held by the Company with a book value of $50.0 million. Capital Investments. The Company is implementing a hotel development and acquisition program, which focuses on its proprietary limited-service brands, Wellesley Inns and AmeriSuites, and on strategically positioned full-service hotels. The Company has spent $19.0 million on its development and acquisition program through September 30, 1994 and anticipates that capital spending for its hotel development and acquisition programs in 1994 will range between $50 and $55 million. During the quarter, new Wellesley Inns were opened in Lakeland, Florida and the Sawgrass section of Ft. Lauderdale, Florida. The Company is on schedule to open a newly constructed AmeriSuites hotel in Tampa, Florida and to complete the conversion of an existing Howard Johnson hotel to a Wellesley Inn in Penns Grove, New Jersey in November. The Company also has entered into contracts to develop additional AmeriSuites in Atlanta, Georgia; Greensboro, North Carolina; Miami, Florida and Altamonte Springs, Florida. Additionally, the Company is evaluating opportunities to acquire and rehabilitate existing full-service hotels either for its own portfolio or with investors. As part of the Company's full-service acquisition program, the Company acquired the Ramada Inn in Trevose, Pennsylvania in March and will acquire the 340 room Sheraton Hotel in Hasbrouck Heights, New Jersey and the 225 room Sheraton hotel in Mahwah, New Jersey in the fourth quarter. Both prospective acquisition agreements are subject to certain contingencies. The Company is pursuing a program of refurbishing certain of its owned hotels and repositioning them in order to meet the local market's demand characteristics. In some instances, this may involve a change in franchise affiliation. The refurbishment and repositioning program primarily involves hotels which the Company has recently acquired through mortgage foreclosures or settlements, lease evictions/terminations or acquisitions. During the nine months ended September 30, 1994, the Company spent approximately $8.6 million on capital improvements at its owned hotels, of which approximately $6.8 million related to refurbishments and repositionings on thirteen owned hotels. The Company intends to spend a total of approximately $10 million on capital improvements related to its refurbishment and repositioning program in 1994. - 16 - 19 Asset Realizations. The Company continues to negotiate settlements with mortgage and note obligors, from which it anticipates receiving cash or operating hotel assets. The Company intends to use the cash proceeds from asset conversions for debt repayments and general corporate purposes. In April 1994, the Company received a favorable ruling from the U.S. Bankruptcy Court for the Southern District of Florida in its litigation with FSA to recover a payment to be made under a settlement agreement with Rose and Cohen. In 1993, the Company reached a settlement with Rose and Cohen of an adversary proceeding regarding a promissory note and personal guarantee, commenced by a subsidiary of PMI during 1991. The settlement provided for Rose or his affiliate to pay the Company the sum of $25 million, all of which was paid into escrow in February 1994, plus proceeds from approximately 1.1 million shares of the Company's common stock held by Rose. FSA asserted that it was entitled to receive the settlement proceeds under the terms of a certain intercreditor agreement. In April 1994, the Court approved the settlement and ruled that the Company had an exclusive right to the settlement proceeds. Upon receipt of the order, the Company used the $25,000,000 of settlement proceeds to retire certain senior secured notes. On April 21, 1994, FSA filed its notice of appeal of the Court's order. On May 4, 1994, Rose sold approximately 1.0 million shares of the Company's common stock under the terms of the settlement for net proceeds of approximately $5.9 million. Subject to further court order, the Company plans to use the stock proceeds principally to retire certain secured notes. As the Rose and Cohen note had a book value of $25 million on the Company's balance sheet, approximately $5.9 million was recorded as income in the Company's statement of operations. In 1993, the Company reached an agreement to restructure its mortgage notes receivable secured by the Frenchman's Reef with the general partner of Frenchman's Reef Beach Associates ("FRBA"), the owner of the hotel. In conjunction with the agreement, FRBA filed a pre-negotiated chapter 11 petition in September 1993. The plan of reorganization dated October 21, 1993, as amended on December 21, 1993 (the "FRBA Plan"), provides for the Company to receive ownership and control of the hotel through a 100% equity interest in the reorganized FRBA. A group purporting to hold proxies for a majority of limited partners filed an objection to the disclosure statement related to the FRBA Plan. On July 11, 1994, the Company filed the Company Plan which provides for the Company to obtain sole ownership of Frenchman's Reef. The Company Plan was later revised to reflect a settlement reached with the limited partners. The revised disclosure statement for the Company Plan was approved by the bankruptcy court on October 18, 1994. A confirmation hearing is scheduled for November 29, 1994. The Company is currently receiving cash payments on its mortgage notes receivable under a cash collateral order approved by the bankruptcy court. In May 1994, the Company acquired a full-service Ramada hotel in Clifton, New Jersey for cancellation of a note held by the Company. The Company had formerly operated the hotel under a management agreement. - 17 - 20 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. - 18 - 21 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 9, 1994 By: /s/ David A. Simon ------------------------- David A. Simon, President and Chief Executive Officer Date: November 9, 1994 By: /s/ John M. Elwood ------------------------- John M. Elwood, Executive Vice President and Chief Financial Officer - 19 - 22 EXHIBIT INDEX Exhibit 27 - Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 2,341 22,282 141,858 195 326 46,112 226,162 (15,130) 401,129 27,054 161,748 304 0 0 188,641 401,129 0 97,336 0 72,460 0 60 10,397 23,434 9,608 13,826 0 172 0 13,998 .44 .44
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