FORM 10-Q
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(973) 882-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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The registrant had 45,078,430 shares of common stock, $.01 par value,
outstanding as of May 9, 2002.
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2002 (Unaudited) and December 31, 2001............ 1
Consolidated Statements of Income
Three months ended March 31, 2002 and 2001 (Unaudited)...... 2
Consolidated Statements of Cash Flows
Three months ended March 31, 2002 and 2001 (Unaudited)...... 3
Notes to Interim Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 7
Item 3. Quantitative and Qualitative
Disclosures About Market Risk................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 13
Item 2. Changes in Securities and Use of Proceeds..................... 13
Item 3. Defaults upon Senior Securities............................... 13
Item 4. Submission of Matters to a Vote of Security Holders........... 13
Item 5. Other Information............................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
Signatures.............................................................. 14
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2002 2001
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 36,626 $ 30,091
Accounts receivable (net of allowances of $758 and $1,065
in 2002 and 2001, respectively) ...................... 18,286 19,486
Current portion of mortgages and
notes receivable ..................................... 452 460
Other current assets .................................... 37,164 34,371
----------- -----------
Total current assets ................................. 92,528 84,408
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization ........ 1,000,119 989,009
Properties held for sale ................................... -- 32,106
Mortgages and notes receivable, net of
current portion ......................................... 12,074 11,953
Other assets ............................................... 40,577 39,294
----------- -----------
TOTAL ASSETS ......................................... $ 1,145,298 $ 1,156,770
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt ................................. $ 1,001 $ 10,296
Current portion of deferred income ...................... 3,766 4,022
Other current liabilities ............................... 51,612 51,123
----------- -----------
Total current liabilities ............................ 56,379 65,441
Long-term debt, net of current portion ..................... 309,709 309,736
Other liabilities .......................................... 6,486 10,564
Deferred income taxes ...................................... 44,620 44,620
Deferred income ............................................ 17,682 18,468
----------- -----------
Total liabilities .................................... 434,876 448,829
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share;
20,000,000 shares authorized; none issued
Common stock, par value $.01 per share;
75,000,000 shares authorized; 56,384,401
and 56,221,567 shares issued and outstanding
at March 31, 2002 and December 31, 2001,
respectively ......................................... 564 562
Capital in excess of par value .......................... 526,771 525,068
Retained earnings ....................................... 297,934 297,159
Accumulated other comprehensive loss,
net of taxes ......................................... -- (1)
Treasury stock (11,507,078 shares at March 31, 2002
and December 31, 2001) ............................... (114,847) (114,847)
----------- -----------
Total stockholders' equity ........................ 710,422 707,941
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 1,145,298 $ 1,156,770
=========== ===========
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 2001
---------- ----------
Revenues:
Hotel revenues ................................................ $ 94,762 $ 125,087
Management, franchise and other fees .......................... 2,750 3,675
Rental and other revenues ..................................... 612 898
---------- ----------
Total revenues .......................................... 98,124 129,660
Costs and expenses:
Hotel operating expenses ...................................... 52,289 66,111
Rent and other occupancy ...................................... 21,407 23,286
General and administrative .................................... 6,566 7,334
Depreciation and amortization ................................. 9,990 9,264
---------- ----------
Total costs and expenses ................................ 90,252 105,995
Operating income ................................................. 7,872 23,665
Investment income ................................................ 485 576
Interest expense ................................................. (7,753) (8,908)
Other income, net ................................................ -- --
---------- ----------
Income before income taxes and discontinued operations ........... 604 15,333
Provision for income taxes ....................................... 236 5,903
---------- ----------
Income before discontinued operations ............................ 368 9,430
Discontinued operations:
(Loss) income from discontinued operations, net of income taxes (25) 176
Gain on disposal, net of income taxes ......................... 431 --
---------- ----------
Net income ....................................................... $ 774 $ 9,606
========== ==========
Earnings per common share:
Basic:
Income before discontinued operations ......................... $ 0.01 $ 0.21
Income from discontinued operations, net of income taxes ...... 0.01 0.00
---------- ----------
Net earnings ..................................................... $ 0.02 $ 0.21
========== ==========
Diluted:
Income before discontinued operations ......................... $ 0.01 $ 0.21
Income from discontinued operations, net of income taxes ...... 0.01 0.00
---------- ----------
Net earnings ..................................................... $ 0.02 $ 0.21
========== ==========
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(IN THOUSANDS)
2002 2001
-------- --------
Cash flows from operating activities:
Net income ...................................................................... $ 774 $ 9,606
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 9,990 9,427
Amortization of deferred financing costs ..................................... 811 763
Utilization of net operating loss carryforwards .............................. 495 764
Net gain on asset disposals .................................................. (706) --
Deferred income taxes ........................................................ -- 977
Amortization of deferred income .............................................. (882) (2,538)
Increase (decrease) from changes in other operating assets and liabilities:
Accounts receivable ....................................................... 1,200 (5,226)
Other current assets ...................................................... (2,772) (1,644)
Other liabilities ......................................................... (3,969) (3,404)
-------- --------
Net cash provided by operating activities ................................. 4,941 8,725
Cash flows from investing activities:
Proceeds from mortgages and notes receivable .................................... 98 1,452
Disbursements for mortgages and notes receivable ................................ (243) (201)
Proceeds from sales of property, equipment and leasehold improvements ........... 15,022 4,664
Construction and conversion of hotels ........................................... (2,836) (2,734)
Purchases of property, equipment and leasehold improvements ..................... (697) (3,953)
Other ........................................................................... (1,640) (935)
-------- --------
Net cash provided by (used in) investing activities ....................... 9,704 (1,707)
Cash flows from financing activities:
Net proceeds from issuance of debt .............................................. -- 8,965
Payments of debt ................................................................ (9,322) (5,833)
Proceeds from the exercise of stock options ..................................... 1,212 637
-------- --------
Net cash (used in) provided by financing activities ....................... (8,110) 3,769
Net increase in cash and cash equivalents ....................................... 6,535 10,787
Cash and cash equivalents at beginning of period ................................ 30,091 1,735
-------- --------
Cash and cash equivalents at end of period ...................................... $ 36,626 $ 12,522
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES OF NON-CASH ACTIVITIES:
Reclassification of Assets Held for Sale to Property ............................ $ 17,483 $ --
Land acquired in exchange for notes receivable .................................. $ -- $ 1,952
OTHER CASH FLOW DISCLOSURES:
Interest paid ................................................................... $ 5,685 $ 6,943
Income taxes paid ............................................................... $ 42 $ 390
See Accompanying Notes to Interim Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 2002 and the results of its operations for the three months
ended March 31, 2002 and 2001 and cash flows for the three months ended March
31, 2002 and 2001.
The consolidated financial statements for the three months ended March 31,
2002 and 2001 were prepared on a consistent basis with the audited consolidated
financial statements for the year ended December 31, 2001. Certain
reclassifications have been made to the March 31, 2001 consolidated financial
statements to conform them to the March 31, 2002 presentation.
The consolidated results of operations for the three months ended March
31, 2002 are not necessarily indicative of the results to be expected for the
full year. These interim unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
NOTE 2 - ACCOUNTING POLICIES
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" which supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Disposed of"; however it
retains the fundamental provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and used". In
addition, the Statement provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset or asset
group to be disposed of other than by sale (e.g. abandoned) be classified as
"held and used" until it is disposed of, and establishes more restrictive
criteria to classify an asset or asset group as "held for sale". The Company
adopted the Statement in the first quarter of this year. Management does not
anticipate that the adoption of this Statement will have an effect on earnings
or the financial position of the Company.
NOTE 3 - HOTEL DISPOSITIONS
During the three months ended March 31, 2002, the Company sold a Radisson
Hotel in Trevose, PA and a Wellesley Inn in Miami, FL for gross proceeds of
$15.4 million, realizing gains of approximately $700,000. These gains are
included in "Gain on disposal, net of income taxes" in the Consolidated
Statement of Income.
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NOTE 4 - EARNINGS PER COMMON SHARE
Basic earnings per common share was computed based on the weighted average
number of common shares outstanding during each period. The weighted average
number of common shares used in computing basic earnings per common share was
44.9 million for both the three months ended March 31, 2002 and 2001.
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
46.8 million and 46.3 million for the three months ended March 31, 2002 and
2001, respectively.
NOTE 5 - COMPREHENSIVE INCOME
For the three months ended March 31, 2002 and 2001, comprehensive income
consisted of the following (in thousands):
THREE MONTHS ENDED MARCH 31,
2002 2001
----------------------------
Net income $ 774 $ 9,606
Unrealized gain on marketable securities
available for sale, net of income taxes -- 452
----------------------------
Total $ 774 $ 10,058
============================
NOTE 6 - GEOGRAPHIC AND BUSINESS INFORMATION
The Company's hotels primarily operate in three major lodging industry
segments: the all-suites segment, under its AmeriSuites brand; the
limited-service segment, primarily under its Wellesley Inns & Suites brand; and
the full-service segment under major national franchises. The Company's 141
AmeriSuites are upscale hotels located in 31 states throughout the United
States. The 73 Wellesley Inns & Suites hotels compete in the mid-price segment,
and are primarily located in the Northeast, Texas and Florida regions of the
United States. The Company also operates 20 non-proprietary brand hotels, which
compete primarily in the upscale full-service segment, with food service and
banquet facilities under franchise agreements with national hotel brands. The
Company's non-proprietary hotels are primarily located in the northeastern
region of the United States.
The Company evaluates the performance of its segments based primarily on
earnings before interest, taxes and depreciation and amortization ("EBITDA")
generated by the operations of its owned hotels. Interest expense is primarily
related to debt incurred by the Company through its corporate obligations and
collateralized by certain of its hotel properties. The Company's taxes are
included in the consolidated Federal income tax return and are allocated based
upon the relative contribution to the Company's consolidated taxable
income/losses and changes in temporary differences. Other income, net consist of
property transactions, which are not part of the recurring operation of the
Company. The allocation of interest expense, taxes and other income, net are not
evaluated at the segment level and therefore, would be necessary in order to
reconcile EBITDA to consolidated net income on the consolidated financial
statements.
The following table presents revenues and other financial information for
the owned and leased hotels by business segment for the three months ended March
31, 2002 and 2001 (in thousands):
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THREE MONTHS ENDED MARCH 31, 2002 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED
- --------------------------------- ---------- --------------- ------------ --------------- ------------
Hotel revenues $ 58,255 $ 20,881 $ 15,707 $ 3,317 $ 98,160
EBITDA(1) 7,036 4,687 2,378 3,721 17,822
Depreciation and amortization 4,848 3,207 1,418 517 9,990
Capital expenditures 1,785 874 175 699 3,533
Total Assets $518,100 $348,044 $ 88,323 $ 45,652 $1,000,119
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2001 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED
- --------------------------------- ---------- --------------- ------------ --------------- ------------
Hotel revenues $ 67,667 $ 27,433 $ 32,135 $ 4,507 $ 131,742
EBITDA(1) 14,543 9,637 4,826 4,372 33,378
Depreciation and amortization 4,615 2,993 1,465 354 9,427
Capital expenditures 1,453 3,667 705 862 6,687
Total Assets $583,958 $383,613 $107,896 $ 92,072 $1,167,539
- ----------------------------------------------------------------------------------------------------------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization and includes the EBITDA on properties included in discontinued
operations.
NOTE 7 - SUBSEQUENT EVENTS
In April 2002, the Company completed the issuance of $200 million 8 3/8%
Senior Subordinated Notes due in 2012. On April 29, 2002 (the "Consent Date")
the Company received the tenders and consents required to eliminate or modify
certain covenants and related provisions in the indenture governing its
outstanding 9-3/4% Senior Subordinated Notes due 2007 (the "Notes"). As of the
Consent Date, tenders and consents representing approximately 99.8% of the $190
million aggregate principal amount outstanding of the Notes were received by the
depository and accepted for payment by the Company.
Prime paid the total consideration of $1,050 per $1,000 principal amounts
of the Notes validly tendered on or prior to the Consent Date by delivery to the
depository. The Company paid for the Notes with the net proceeds of the $200
million 8 3/8% Senior Subordinated Notes due 2012 and cash on hand.
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Prime Hospitality Corp. ("Prime" or "the Company") is an owner, operator
and franchisor of hotels, with 234 hotels in operation containing 29,706 rooms
located in 33 states (the "Portfolio") as of March 31, 2002. Prime controls two
hotel brands -- AmeriSuites(R) and Wellesley Inn & Suites(R) -- as well as a
portfolio of non-proprietary brand hotels which are primarily upscale,
full-service hotels operated under franchise agreements with national hotel
chains.
The following table sets forth information with respect to the Portfolio
as of March 31, 2002:
OWNED LEASED MANAGED FRANCHISED TOTAL
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
AmeriSuites 65 8,384 27 3,306 25 3,222 24 2,963 141 17,875
Wellesley Inns & Suites 54 6,376 6 668 13 1,195 73 8,239
Non-Proprietary Brands 10 1,923 1 160 9 1,509 20 3,592
---------------------------------------------------------------------------------------------
Total 129 16,683 28 3,466 40 5,399 37 4,158 234 29,706
=============================================================================================
In addition to the above, through May 10, 2002, Prime added one franchised
AmeriSuites, one franchised Wellesley Inn and one managed non-proprietary brand
hotel. There are also six AmeriSuites and two Wellesley Inns under construction.
The Company's strategy is to develop its proprietary AmeriSuites and
Wellesley Inns & Suites brands. Through the development of its proprietary
brands, the Company has positioned itself as a diversified hotel operating
company with ownership, franchise and management interests. The Company believes
that this diversification allows it to generate additional revenues with minimal
capital investment. The Company's strategy is also focused on growing the
operating profits of its Portfolio. With approximately 200 hotels in operation,
Prime believes it possesses the hotel management expertise to maximize the
profitability and value of its hotel assets.
Operating results for the first quarter of 2002 continued to be impacted
by the weakness in the economy which has had a significant negative impact on
business travel. As a result, revenues for comparable hotels declined by 13.3%
and gross operating profits at these hotels decreased by 21.9%. Overall, for the
three months ended March 31, 2002 revenue declined by 24.3% and EBITDA decreased
by 45.8% due to the results of the comparable hotels and the impact of asset
sales and lease termination.
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
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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.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2001
Hotel revenues consist of lodging revenues (which consist primarily of
room, telephone and vending revenues) and food and beverage revenues. Hotel
revenues decreased by $30.3 million, or 24.2%, for the three months ended March
31, 2002 compared to the same period in 2001, primarily due to a 13.3% decline
in revenues from comparable hotels and the impact of asset sales and lease
terminations in 2001.
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 non-proprietary brand hotels
which are primarily upscale full-service hotels.
The following table illustrates the REVPAR ("revenue per available room")
change for the quarter, by segment for all owned, leased and managed hotels
where Prime has a significant financial interest which were operated for
comparable three-month periods in 2002 and 2001.
THREE MONTHS ENDED MARCH 31,
2002 2001 % CHANGE
------- ------- --------
AMERISUITES
Occupancy 60.8% 60.9%
ADR $ 73.63 $ 83.24
REVPAR $ 44.78 $ 50.70 (11.7)%
WELLESLEY INNS & SUITES
Occupancy 57.8% 61.3%
ADR $ 61.83 $ 68.90
REVPAR $ 35.72 $ 42.26 (15.5)%
NON-PROPRIETARY BRANDS
Occupancy 54.8% 60.7%
ADR $103.32 $112.58
REVPAR $ 56.65 $ 68.95 (17.8)%
TOTAL
Occupancy 59.5% 61.1%
ADR $ 73.14 $ 82.15
REVPAR $ 43.54 $ 50.19 (13.3)%
The REVPAR at comparable hotels was impacted in the three-month period by
the slowdown in the economy which has affected business travel. The decline was
primarily driven by a decrease in ADR of 11.0%. Key markets which contributed to
the decline were Atlanta, Chicago, Dallas, Northern New Jersey and South
Florida.
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 $0.9 million, or
25.2%, for the three months ended March 31, 2002 compared to the same period in
2001. The decrease was due to a decline in the number of managed hotels
partially offset by franchise royalty fees derived from hotels sold to
franchisees and new hotel openings.
Rental and other revenues consists of rental income, interest on mortgages
and notes receivable
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and other miscellaneous operating income. Rental and other revenues decreased by
$0.3 million, or 31.9%, for the three months ended March 31, 2002 compared to
the same period in 2001 due to the retirement of a note receivable.
Hotel operating expenses consist of all direct costs related to the
operation of the Company's properties (lodging, food & beverage, administration,
selling and advertising, utilities and repairs and maintenance). Hotel operating
expenses decreased by $13.8 million, or 20.9%, for the three months ended March
31, 2002 compared to the same period in 2001 due to the decline in revenues. For
the comparable three-month periods, hotel operating expenses, as a percentage of
hotel revenues, increased from 52.9% in 2001 to 55.2% in 2002 due to the decline
in ADR.
Rent and other occupancy expenses consist primarily of rent expense,
property insurance and real estate and other taxes. Rent and other occupancy
expenses decreased by $1.9 million, or 8.1%, for the three months ended March
31, 2002 as compared to the same period in 2001, primarily due to the
termination of eight hotel leases with MeriStar Hospitality in 2001.
General and administrative expenses consist primarily of centralized
management expenses associated with operating the hotels, corporate expenses and
national brand advertising expenses. General and administrative expenses
decreased by $0.8 million, or 10.5%, for the three months ended March 31, 2002
compared to the same period in 2001, due primarily to the timing of brand
advertising expenditures.
Depreciation and amortization expense increased by $0.7 million, or 7.8%,
for the three months ended March 31, 2002 compared to the same period in 2001.
This increase was due to depreciation associated with maintenance capital
additions in 2001 partially offset by the impact of asset sales in 2001.
Investment income decreased by $0.1 million, or 15.8%, for the
three-months ended March 31, 2002 compared to the same period in 2001 primarily
due to lower interest rates in 2002.
Interest expense decreased by $1.2 million, or 13.0%, for the three months
ended March 31, 2002 compared to the same period in 2001 primarily due to the
retirement of debt resulting from asset sales and operating cash flow.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had cash and cash equivalents of $36.6
million. In addition, at March 31, 2002, the Company had $85.4 million available
to it under its Revolving Credit Facility.
The Company's major sources of cash for the three months ended March 31,
2002 were cash flows from operations of $4.9 million and net proceeds from asset
sales of $15.0 million. The Company's major uses of cash during the period were
debt repayments of $9.3 million and capital expenditures of $3.5 million.
Sources of Capital. The Company has undertaken a strategic initiative to
diversify its operations. As part of this strategy, the Company has disposed of
certain hotel real estate while retaining the franchise rights. Prime has used
the proceeds primarily to reduce debt and fund brand growth. The combination of
these asset sales and operating cash flow continues to strengthen the Company's
overall financial condition. At March 31, 2002, the Company's debt to EBITDA
ratio was 3.2 times and its debt
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to book capitalization was 30.4%.
During the quarter ended March 31, 2002, the Company sold a Radisson Hotel
in Trevose, PA and a Wellesley Inn in Miami, FL for gross proceeds of $15.4
million. The Company retained the franchise rights to the Wellesley Inn under a
20-year franchise agreement.
The Company has a $125.0 million Revolving Credit Facility (the
"Facility"), which bears interest at LIBOR plus 2.0%. Borrowings under the
Facility are secured by first liens on certain of the Company's hotels with
recourse to the Company. Additional properties may be added subject to the
approval of the lenders. Availability under the Facility is subject to a
borrowing base test and certain other covenants. During the quarter, the Company
had no borrowings under this facility and, based on the borrowing base at March
31, 2002, had $85.4 million available. The Facility expires in December 2002.
The Company intends to enter into a new revolving credit facility in 2002.
The Facility contains covenants requiring the Company to maintain certain
financial ratios and limitations on the incurrence of debt, liens, dividend
payments, stock repurchases, certain investments, transactions with affiliates,
asset sales, mergers and consolidations and any change of control of the
Company.
In April 2002, the Company completed the issuance of $200 million 8 3/8%
Senior Subordinated Notes due in 2012. On April 29, 2002 (the "Consent Date")
the Company received the tenders and consents required to eliminate or modify
certain covenants and related provisions in the indenture governing its
outstanding 9-3/4% Senior Subordinated Notes due 2007 (the "Notes"). As of the
Consent Date, tenders and consents representing approximately 99.8% of the $190
million aggregate principal amount outstanding of the Notes were received by the
depository and accepted for payment by the Company.
Prime paid the total consideration of $1,050 per $1,000 principal amounts
of the Notes validly tendered on or prior to the Consent Date by delivery to the
depository. The Company paid for the Notes with the net proceeds of the $200
million 8 3/8% Senior Subordinated Notes due 2012 and cash on hand.
Uses of Capital. During the three months ended March 31, 2002, the Company
retired $9.3 million of debt scheduled to mature in 2002. The Company now has no
significant maturities of debt until 2006.
The Company intends to continue the growth of its brands primarily through
franchising and, therefore, its corporate brand development will be limited.
During the quarter, the Company spent $2.8 million on new construction and
expects to spend an additional $5 million to complete the construction of an
AmeriSuites hotel. In addition, during the quarter, the Company also spent $.7
million on maintenance capital and expects to spend a total of $20 million in
2002 on capital at its owned and leased hotels and related operating systems.
The Company plans to fund both its corporate development and capital
improvements primarily with internally generated cash flow.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not currently exposed to changes in interest rates as it
has virtually no floating rate debt arrangements. Therefore, a hypothetical 100
basis point adverse move (increase) in interest rates along the entire rate
curve would not adversely affect the Company's annual interest cost.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The Company does not believe that its
liabilities relating to any of the legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Exhibit 4.1 Indenture Agreement dated April 29, 2002 by and
between the Company and Wells Fargo Bank Minnesota,
NA, as Trustee re: 8 3/8% Senior Subordinated Notes
due 2012.
Exhibit 4.2 Registration Rights Agreement dated April 29, 2002 by
and between the Company and Bear, Stearns & Co., Inc.
Exhibit 4.3 Second Supplemental Indenture dated April 30, 2002 by
and among the Company, Alpine Holding Corp. and U.S.
Bank National Association, as Trustee re: $200 million
9-3/4% Senior Subordinated Notes due 2007.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
(b) Reports on Form 8-K
On May 8, 2002, the Company filed a Form 8-K announcing the
completion of the issuance of $200 million 8 3/8% Senior
Subordinated Notes due 2012 and the retirement of 99.8% of its $190
million outstanding Senior Subordinated Notes due 2007.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME HOSPITALITY CORP.
Date: May 15, 2002 By: /s/ A.F. Petrocelli
--------------------------------
A.F. Petrocelli
President and Chief Executive
Officer
Date: May 15, 2002 By: /s/ Douglas Vicari
--------------------------------
Douglas Vicari
Senior Vice President and Chief
Financial Officer
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