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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
MARCH 31, 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 29,269,114 shares of common stock, $.01 par value, as of May
6, 1994.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations
Three Months Ended March 31, 1994
and March 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994
and March 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Interim Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
MARCH 31, DECEMBER 31,
1994 1993
------------ ------------
ASSETS (Unaudited)
------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $26,937 $41,569
Restricted cash . . . . . . . . . . . . . . . . . . 7,963 10,993
Accounts receivable, net of reserves . . . . . . . 6,233 6,266
Current portion of mortgages and other
notes receivable . . . . . . . . . . . . . . . . 2,135 2,275
Accrued interest receivable . . . . . . . . . . . . 3,740 3,954
Other current assets . . . . . . . . . . . . . . . 2,347 3,145
------------ ------------
Total current assets . . . . . . . . . . . . . 49,355 68,202
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization . . 182,603 172,786
Mortgages and other notes receivable, net of
current portion . . . . . . . . . . . . . . . . . 164,196 163,033
Other assets . . . . . . . . . . . . . . . . . . . . 11,508 6,664
------------ ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . $407,662 $410,685
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of debt . . . . . . . . . . . . . . $8,162 $19,282
Other current liabilities . . . . . . . . . . . . . 20,606 22,445
------------ ------------
Total current liabilities . . . . . . . . . . . 28,768 41,727
Long-term debt, net of current portion . . . . . . . . 175,245 168,618
Other liabilities . . . . . . . . . . . . . . . . . . 27,994 28,976
------------ ------------
Total liabilities . . . . . . . . . . . . . . . 232,007 239,321
------------ ------------
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; 33,213,122 and
33,075,880 shares issued and outstanding
at March 31, 1994 and December 31, 1993,
respectively . . . . . . . . . . . . . . . . . . 332 331
Capital in excess of par value . . . . . . . . . . 158,815 157,476
Retained earnings . . . . . . . . . . . . . . . . . 16,508 13,557
------------ ------------
Total stockholders' equity . . . . . . . . . . 175,655 171,364
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $407,662 $410,685
============ ============
See Accompanying Notes to Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED
MARCH 31,
1994 1993
--------- ---------
Revenues:
Rooms . . . . . . . . . . . . . . . . . . . $18,021 $15,365
Food and beverage . . . . . . . . . . . . . 2,938 2,440
Management and other fees . . . . . . . . . 2,317 2,721
Interest on mortgages and
other notes receivable . . . . . . . . . 4,480 3,834
Rental and other . . . . . . . . . . . . . 323 423
--------- ---------
Total revenues . . . . . . . . . . . . 28,079 24,783
--------- ---------
Costs and expenses:
Direct hotel operating expenses:
Rooms . . . . . . . . . . . . . . . . . . 4,896 4,096
Food and beverage . . . . . . . . . . . . 2,506 2,155
Selling and general . . . . . . . . . . . 5,647 4,595
Occupancy and other operating . . . . . . . 2,595 2,665
General and administrative . . . . . . . . 3,644 3,968
Depreciation and amortization . . . . . . . 1,941 1,710
--------- ---------
Total costs and expenses . . . . . . . 21,229 19,189
--------- ---------
Operating income. . . . . . . . . . . . . . . 6,850 5,594
Interest income on cash investments . . . . . 558 368
Interest expense. . . . . . . . . . . . . . . (3,632) (4,304)
Other income . . . . . . . . . . . . . . . . 1,038 --
--------- ---------
Income before income taxes
and extraordinary items . . . . . . . . . . 4,814 1,658
Provision for income taxes . . . . . . . . . 1,974 663
--------- ---------
Income before extraordinary items . . . . . . 2,840 995
Extraordinary items - Gains on discharges of
indebtedness (net of income taxes of $66
and $2,284 in 1994 and 1993, respectively). 111 3,426
--------- ---------
Net income. . . . . . . . . . . . . . . . . . $2,951 $4,421
========= =========
Net income per common share:
Income before extraordinary items . . . . . $.08 $.03
Extraordinary items . . . . . . . . . . . . -- .10
--------- ---------
Net income per common share . . . . . . . . . $.08 $.13
========= =========
See Accompanying Notes to Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(In Thousands)
Three Months Ended
March 31,
1994 1993
--------- ---------
CASH FLOWS
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . $2,951 $4,421
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . 1,941 1,710
Utilization of net operating loss
carryforwards . . . . . . . . . . . . . 764 2,505
Gains on discharges of indebtedness . . . (177) (5,710)
Gain on disposal of assets . . . . . . . . (985) --
Compensation expense related to stock
options . . . . . . . . . . . . . . . . 15 150
Increase (decrease) from changes in other
operating assets and liabilities:
Accounts receivable . . . . . . . . . . 33 1,702
Accrued interest receivable . . . . . . 214 (916)
Other current assets . . . . . . . . . . 798 2,318
Other liabilities . . . . . . . . . . . (2,571) (2,801)
--------- ---------
Net cash provided by operating
activities . . . . . . . . . . . . . 2,983 3,379
--------- ---------
Cash flows from investing activities:
Proceeds from mortgages and other notes
receivable . . . . . . . . . . . . . . . 955 529
Disbursements for mortgages and other
notes receivable . . . . . . . . . . . . (700) --
Proceeds from sales of property, equipment
and leasehold improvements . . . . . . . 403 --
Purchases of property, equipment and
leasehold improvements . . . . . . . . . (12,502) (1,025)
Decrease in restricted cash . . . . . . . . 3,030 8,529
Purchase of debt securities . . . . . . . . (4,768) --
Other . . . . . . . . . . . . . . . . . . . (243) 312
--------- ---------
Net cash provided by (used in)
investing activities . . . . . . . . (13,825) 8,345
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt . . . . . . . 3,725 1,500
Payments of debt . . . . . . . . . . . . . . (8,042) (17,027)
Proceeds from the exercise of stock options
and warrants . . . . . . . . . . . . . . . 372 --
Principal proceeds from federal income
tax refund . . . . . . . . . . . . . . . . 189 --
Reorganization items after emergence
from bankruptcy . . . . . . . . . . . . . (34) (3,745)
--------- ---------
Net cash used in financing activities . (3,790) (19,272)
--------- ---------
Net decrease in cash and cash equivalents . (14,632) (7,548)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . 41,569 36,616
--------- ---------
Cash and cash equivalents at end of period $26,937 $29,068
========= =========
See Accompanying Notes to Consolidated Financial Statements.
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PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and subsidiaries
(the "Company") contain all material adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of March 31, 1994 and the results of its operations and cash
flows for the three months ended March 31, 1994 and 1993.
The financial statements for the three months ended March 31, 1994 and
1993 were prepared on a consistent basis with the audited financial statements
for the year ended December 31, 1993.
The consolidated results of operations for the three months ended
March 31, 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 PMI's bankruptcy case. 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 to be
liquidated by Rose over a period of time. FSA asserted that it was entitled to
receive the settlement proceeds under the terms of a certain intercreditor
agreement. In April 1994, the Bankruptcy 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 (see Note 3). On April 21, 1994, FSA
filed its notice of appeal of the Bankruptcy 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 approximately $5,900,000. 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 has a book value of
$25,000,000 in the
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Company's balance sheet at March 31, 1994, approximately $5,900,000 will be
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, net of related costs, of $177,000.
During the first quarter of 1994, the Company purchased through a
third party agent approximately $5,200,000 of its senior secured and junior
secured notes for aggregate consideration of $4,800,000. As of March 31, 1994,
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 $1,100,000 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 $60,000. The gain will be recorded in the Company's statement
of operations in the second quarter of 1994.
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. By retiring the senior secured notes, the Company has eliminated
certain covenants including the restrictions on cash expenditures for the
development of new hotels. Under the terms of its junior secured notes, total
capital expenditures are limited to specified levels through 1996.
Note 4 - INCOME TAXES
At March 31, 1994, the Company had available federal net operating
loss carryforwards of approximately $119,000,000 which will expire beginning in
2005 and continuing through 2007. Of this amount, $111,000,000 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 three months ended March 31, 1994, the Company
recognized $764,000 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 $9,900,000 which will expire
during various periods from 1995 to 2006. Certain of these potential benefits
are subject 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.
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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 - INCOME PER COMMON SHARE
Net income per common share is 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 35,037,000 and 33,000,000 for the three months ended March 31, 1994 and
1993, respectively.
Note 6 - OTHER INCOME
Other income consists of a gain on the sale of a hotel of $985,000 and
$53,000 of interest income related to tax refunds.
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PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Three Months Ended March 31, 1994 Compared to Three Months Ended March 31,
1993.
The following discussion and analysis is based on the historical
results of operations of the Company for the three months ended March 31, 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 following table presents the direct revenues and expenses of the
Company's owned and leased hotel properties for the three months ended March
31, 1994 and 1993. The hotel properties are classified into three categories:
comparable hotels; new hotels; and divested hotels. The Company currently owns
or leases 41 hotel properties of which 32 hotel properties were owned or leased
by the Company during the entire two periods presented and are classified as
comparable hotels. The nine hotels classified as new hotels are composed of
two new AmeriSuites hotels and a new Wellesley Inn which were opened after
December 31, 1992, two full service hotels acquired within the past year and
four 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 hotel properties sold in the past year.
Owned and Leased Properties
(In thousands, except for statistical information)
Three Months Ended
March 31,
1994 1993
--------- ----------
Room revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . $15,735 $14,842
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 523
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,021 15,365
Food and beverage revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400 2,258
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 182
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,938 2,440
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Three Months Ended
March 31,
1994 1993
--------- ----------
Direct room expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,107 3,894
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 202
------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,896 4,096
Direct food and beverage expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,125 1,971
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 184
------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,506 2,155
Direct hotel selling and general expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,614 4,328
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 944 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 267
------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,647 4,595
Statistical information -
Comparable hotels:
Occupancy % . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.5% 67.9%
Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . $60.99 $57.67
New hotels:
Occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.6% --
Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . $46.21 --
Room revenues increased by $2.7 million or 17.3% for the three months
ended March 31, 1994 over the same period in the prior year due to the impact
of new hotels and improved occupancy and room rates at comparable hotels. Room
revenues for comparable hotels increased by $893,000 or 6.0% for the three
months ended March 31, 1994 compared to the same period of the prior year. The
increase was primarily due to improvements in average daily rate which
increased by $3.32 or 5.8% reflecting improved economic conditions, the limited
new construction of hotels and product improvements. Occupancy increased
slightly despite the adverse impact of the severe winter storms in the
Northeast. The Company's comparable full-service hotels reported a 7.5%
increase in room rates to $72 versus $67 and maintained occupancy levels at
65%. The increase in room rates at the comparable full-service hotels is
primarily due to the repositioning and refurbishment efforts at several hotels.
Average room rates increased to $63 from $59 at the seven comparable Florida
Wellesley Inns while occupancy decreased slightly from 95% to 92%. The
Company's occupancy at three comparable Wellesley Inns located in the Northeast
improved to 68% from 64% and average room
- 8 -
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rate increased to $42 from $39 primarily as a result of improved direct
marketing efforts. The Company's six comparable AmeriSuites hotels registered
gains in both occupancy and room rates reflecting stabilization of these hotels
and their increased recognition in the market. Occupancy at the comparable
AmeriSuites hotel increased to 62% from 60% and average daily rate increased to
$56 from $53.
Food and beverage revenues increased by $498,000 or 20.4% for the
three months ended March 31, 1994 as compared to the same period of the prior
year primarily due to the addition of a full service hotel in August 1993.
Food and beverage revenues for comparable hotels increased by $142,000 or 6.3%
for the three months ended March 31, 1994 compared to the same period of the
prior year primarily as a result of increased beverage revenues due to the
opening of new sports lounges in two of the Company's franchised hotels.
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. Management and other fees decreased by $404,000 or 14.8%
for the three months ended March 31, 1994 as compared to the same period in the
prior year primarily due to a decrease in fees for additional services. In
addition, while the Company has added three new management contracts since
December 1993, the number of managed hotels as compared to the prior period
declined by three due to divestitures of six hotels by independent owners, of
which two hotels were acquired by the Company. The decreases have been
partially offset by increases in management fees attributable to increased
hotel occupancies and room rates and higher incentive related performance fees.
Interest income on mortgages and notes increased by $646,000 or 16.8%
for the three months ended March 31, 1994 as compared to the same period 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") and
interest recognized on the Rose and Cohen note. Interest income recognized on
cash flow notes increased to $535,000 for the three months ended March 31, 1994
from $171,000 for the same period of the prior year primarily due to new cash
flow note agreements on three hotels. None of the Company's cash flow notes
have been assigned a value on the Company's balance sheet due to substantial
doubt as to their recoverability. The interest income generated by these
mortgages is primarily due to declines in interest rates on the variable rate
mortgages senior to the Company's positions on certain of these hotels and
improved operating results. If interest rates continue to rise, the amount of
income recognized in future periods may decrease. During the three months
ended March 31, 1994, the Company received $181,000 of interest income on its
note receivable from Rose and Cohen. During 1993, the Company had not recorded
interest income on this note as no payments were received. Interest income for
the three months ended March 31, 1994 and 1993 primarily related to mortgages
secured by 12 managed hotels including the Marriott's Frenchman's Reef Beach
Resort ("Frenchman's Reef"). Approximately $1.4 million and $1.1 million of
interest income in 1994 and 1993, respectively, is derived from the Company's
$50 million note receivable secured by the Frenchman's Reef. The Company
continues its efforts to restructure this mortgage with the intent of providing
the Company with ownership and control of the Frenchman's Reef (see Liquidity
and
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Capital Resources). If consummated, the impact of this restructuring on
operating income is expected to be minimal as direct revenues, expenses and
depreciation would increase and interest income and management fees would
decrease.
Direct room expenses increased by $800,000 or 19.5% for the three
months ended March 31, 1994 over the same period of the prior year, as the
increased occupancy of the comparable hotels combined with the new hotels more
than offset the impact of the divested full-service hotels. Direct room
expenses for comparable hotels increased by 5.5% for the three months ended
March 31, 1994 over the prior year primarily due to increased expenses
associated with the higher occupancy levels including payroll costs, guest room
supplies and reservation fees. Direct room expenses as a percentage of room
revenues increased to 27.2% for the three months ended March 31, 1994 as
compared to 26.7% for the same period in the prior year primarily due to the
impact of the new hotels. Direct room expenses as a percentage of room
revenues for comparable hotels were approximately 26% during both periods as
the Company was able to increase room rates to offset the increases in costs.
Direct food and beverage expenses increased by $351,000 or 16.3% due
to the impact of new hotels and the additional volume at the comparable hotels.
Direct food and beverage expenses for comparable hotels increased by 7.8% for
the three months ended March 31, 1994 over the same period in the prior year
due to the increased volume associated with the sports lounges. Direct food
and beverage expenses as a percentage of food and beverage revenues for
comparable hotels increased to 88.5% for the three months ended March 31, 1994
as compared to 87.3% for the three months ended March 31, 1993. This reflects
labor and other start-up costs associated with the new 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 selling and general expenses increased by $1.1
million or 22.9% due to the new hotels and increased expenses at comparable
hotels. Direct selling and general expenses for comparable hotels increased by
$286,000 or 6.6% for the three months ended March 31, 1994 over the same period
of the prior year primarily due to increased utility and snow removal costs as
a result of the severe winter in the Northeast.
Occupancy and other operating expenses decreased by $70,000 or 2.6% as
compared to the same period of the prior year primarily due to 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 three months ended March 31,
1994 and 1993, general and administrative expenses consisted of $2.4 million
and $3.0 million of centralized management expenses and $1.2 million and $1.0
million of
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general corporate expenses, respectively. General and administrative expenses
decreased by $324,000 or 8.2% for the three months ended March 31, 1994 as
compared to the prior year primarily due to the restructuring of the Company's
centralized management operations in February 1993.
Depreciation and amortization expense increased for the three months
ended March 31, 1994 as compared to the same period of the prior year due to
the impact of eight new hotel properties acquired in the past year.
Interest expense decreased by $672,000 or 15.6% for the three months
ended March 31, 1994 as compared to the same period of the prior year primarily
due to the retirement of approximately $40 million of debt during 1993 and the
first three months of 1994.
Other income consists of a gain on the sale of a hotel of $985,000 and
$53,000 of interest income related to tax refunds.
During the first quarter of 1994, the Company purchased at a discount
$6.7 million of its senior secured notes and approximately $500,000 of its
junior secured notes for an aggregate purchase price of $7.0 million. These
purchases resulted in pretax extraordinary gains of $177,000.
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 in 1994. 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 a portion of the proceeds
from potential debt or equity financings. Additionally, the Company may in the
future incur mortgage financing on certain of its 17 unencumbered properties or
enter into alliances with capital partners to provide additional funds for the
development and acquisition of hotels to the extent such financing is
available. At March 31, 1994, the Company had cash and cash equivalents of
$26.9 million and restricted cash of $8.0 million, which was primarily
collateral for various debt obligations.
Cash flow from operations was approximately $3.0 million for the three
months ended March 31, 1994. Cash flow from operations was positively impacted
by the utilization of net operating loss carryforwards ("NOL's") of $764,000.
At March 31, 1994, the Company has federal NOL's relating to its predecessor,
PMI, of approximately $119 million which, subject to annual limitations, expire
beginning in 2005 and continuing through 2007.
The Company's other major sources of cash for the three months ended
March 31, 1994 were borrowings under a secured demand credit agreement of $3.7
million and scheduled collections of mortgages and notes receivable of $1.0
million.
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The Company's major uses of cash for the three months ended March 31,
1994 were payments of debt of $8.0 million, purchases of debt securities of
$4.8 million and capital expenditures of $12.5 million.
Debt. The Company has a fully-secured demand credit agreement which
permits borrowing of up to $5.0 million. This facility is supported by a
certificate of deposit which is maintained by the lender. As of March 31,
1994, the facility was fully utilized.
During the three months ended March 31, 1994, the Company purchased at
a discount $7.2 million of its senior secured notes and junior 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 senior secured and junior
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.
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 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. By retiring the senior secured notes,
the Company has eliminated certain covenants including the restrictions on cash
expenditures for development of new hotels. Under the terms of its junior
secured notes, total capital expenditures are limited to specified levels
through 1996.
As of March 31, 1994, the Company's wholly-owned subsidiary, Suites of
America, Inc. ("SOA"), had $23.4 million of debt obligations, of which $9.2
million is owed to ShoLodge, Inc. ("ShoLodge") and was due in April 1994 and
$5.1 million is owed to a bank and is due in May 1994. In April 1994, SOA
refinanced the $9.2 million of debt due to ShoLodge by extending the maturities
to April 1998 and ShoLodge agreed to acquire or provide financing to retire the
remaining $5.1 million of 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. The $14.3 million of debt owed to ShoLodge and the bank will
become debt of the joint venture and the $9.1 million of remaining debt which
is due in 1995 and 1996 will be converted into 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 believes it will be
required to seek an extension of the maturity of
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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 is constructing new Wellesley Inns in the
Sawgrass section of Fort Lauderdale, Florida and in Lakeland, Florida. The
Company has begun conversion of a Howard Johnson hotel in Penns Grove, New
Jersey to a Wellesley Inn and plans to convert or acquire one additional
Wellesley Inn in 1994. The Company has also begun construction of an
AmeriSuites hotel in Tampa, Florida and plans to develop two additional
AmeriSuites in 1994. The Company is also 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 1994 for $7.5
million. The Company has spent $9.5 million on its development and acquisition
program through March 31, 1994 and anticipates that capital spending for its
hotel development and acquisition programs in 1994 will range between $35 and
$40 million. No assurance can be given that the Company will locate suitable
acquisitions and thereby complete such capital expenditures in 1994.
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 three
months ended March 31, 1994, the Company spent approximately $2.5 million on
capital improvements at its owned hotels, of which $1.7 million related to
refurbishments and repositionings on eight owned hotels. The Company intends
to spend approximately $9 million on capital improvements related to its
refurbishment and repositioning program at its owned hotels in 1994.
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 PMI's bankruptcy case. 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
which will be liquidated by Rose over a period of time. FSA has asserted that
it was entitled to receive the settlement proceeds under the terms of a certain
intercreditor agreement. In April 1994, the Bankruptcy Court approved the
settlement and ruled that the Company had an
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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
Bankruptcy 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 at March 31, 1994, approximately $5.9 million will be
recorded as income in the Company's statement of operations for the second
quarter of 1994.
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, provides for the Company to receive ownership and
control of the hotel through a 100% equity interest in the reorganized FRBA.
The plan also provides for the existing equity holders and any other impaired
claim holders to participate in excess cash flow above specified levels. Under
the plan, all administrative and unsecured trade claims incurred in the
ordinary course of business are to be paid in full. There can be no assurance
that the plan will become effective. The Company is currently receiving cash
payments on its mortgage notes receivable under a cash collateral order
approved by the bankruptcy court. A group purporting to hold proxies and
represent a majority of limited partners has filed an objection to the
disclosure statement related to such plan. While these equity holders have
indicated that they do not intend to challenge the general partner's authority
to act on behalf of the partnership in negotiating the restructuring agreement,
they do intend to seek to replace the Frenchman's Reef's general partner with a
new general partner that will challenge the priority and validity of the
Company's mortgages. In addition, although the Company's management agreement
with respect to the Frenchman's Reef has been assumed in connection with the
bankruptcy case, a new general partner could seek to terminate this agreement
resulting in a damage claim assertable by the Company. In light of these
events, the Company intends to pursue a foreclosure of its mortgages and has
filed a motion with the bankruptcy court seeking to lift the automatic stay to
permit the commencement of a foreclosure action. The motion is subject to
approval by the bankruptcy court. Due to, among other factors, the contingent
nature of bankruptcy proceedings, there can be no assurance of when and if any
court approval will be obtained. The Company had, as of March 31, 1994, $39.1
million of debt secured by the Company's mortgage on the Frenchman's Reef. The
Company does not intend to obtain ownership of the Frenchman's Reef unless the
lender of such debt consents. The Company has entered into discussions with
the lender regarding revising the terms of such debt.
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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.
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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 11, 1994 By: /s/ David A. Simon
-------------------------
David A. Simon, President and
Chief Executive Officer
Date: May 11, 1994 By: /s/ John M. Elwood
-------------------------
John M. Elwood, Executive
Vice President and Chief
Financial Officer
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