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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
-------- TO
Commission File No. 1-6869
PRIME HOSPITALITY CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-2640625
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 Route 46 East, Fairfield, New Jersey 07004
(Address of principal executive offices)
(973) 882-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
The registrant had 44,608,182 shares of common stock, $.01 par value,
outstanding as of August 2, 2004.
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2004 (Unaudited) and December 31, 2003.................. 1
Consolidated Statements of Operations
Three and Six months ended June 30, 2004 and 2003 (Unaudited).... 2
Consolidated Statements of Cash Flows
Six months ended June 30, 2004 and 2003 (Unaudited).............. 3
Notes to Interim Consolidated Financial Statements (Unaudited)....... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 9
Item 3. Quantitative and Qualitative
Disclosures About Market Risk........................................ 15
Item 4. Disclosure
Controls and Procedures.............................................. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 16
Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases
of Equity Securities.......................................... 16
Item 3. Defaults upon Senior Securities...................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................. 17
Item 5. Other Information.................................................... 17
Item 6. Exhibits and Reports on Form 8-K..................................... 17
Signatures...................................................................... 18
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2004 2003
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 12,182 $ 12,901
Accounts receivable (net of allowances of $1,218 and $1,463
in 2004 and 2003, respectively) 25,481 18,165
Restricted cash 1,999 2,272
Hotel inventories 10,325 11,570
Income tax receivable 410 568
Other current assets 4,806 4,988
--------- ----------
Total current assets 55,203 50,464
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization 901,283 916,594
Assets held for sale 7,514 8,787
Investments in unconsolidated joint ventures 12,444 12,595
Mortgages and notes receivable, net of current portion 11,830 12,293
Other assets 7,453 6,572
--------- ----------
TOTAL ASSETS $ 995,727 $1,007,305
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,231 $ 21,577
Current portion of debt 1,134 1,067
Current portion of deferred income 5,578 3,115
Other current liabilities 20,775 19,411
--------- ----------
Total current liabilities 42,718 45,170
Long-term debt, net of current portion 221,507 227,535
Deferred income, net of current portion 8,748 10,306
Deferred income taxes 39,633 39,633
Other liabilities 2,968 3,647
--------- ----------
Total liabilities 315,574 326,291
Stockholders' Equity:
Preferred stock, par value $.10 per share; 20,000,000 shares authorized;
none issued - -
Common stock, par value $.01 per share; 75,000,000 shares authorized;
56,852,960 and 56,632,904 shares issued and outstanding in 2004
and 2003, respectively 568 566
Capital in excess of par value 530,087 528,055
Retained earnings 269,531 268,817
Accumulated other comprehensive income, net of taxes of $306 and $357
respectively 479 560
Treasury stock at cost (12,244,778 and 11,880,878 shares respectively) (120,512) (116,984)
--------- ----------
Total stockholders' equity 680,153 681,014
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 995,727 $1,007,305
========= ==========
See Accompanying Notes to Interim Consolidated Financial Statements.
- 1 -
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
2004 2003 2004 2003
---------- ---------- ---------- -----------
Revenues:
Owned hotels $ 69,903 $ 71,966 $ 131,090 $ 134,234
Cash flow hotels 38,126 23,380 73,384 44,179
Management, franchise and other fees 7,335 8,147 13,665 13,641
Cost reimbursements 8,730 7,754 16,625 14,960
--------- --------- --------- ----------
Total revenues 124,094 111,247 234,764 207,014
Costs and expenses:
Owned hotels 44,585 47,046 88,234 92,289
Cash flow hotels 38,937 26,089 75,950 51,559
Brand operating 4,224 5,422 8,430 8,953
General and administrative 6,850 7,013 14,081 13,913
Depreciation and amortization 10,363 9,662 20,618 20,295
Reimbursable costs 8,730 7,754 16,625 14,960
---------- ---------- ---------- -----------
Total costs and expenses 113,689 102,986 223,938 201,969
Operating income (loss) 10,405 8,261 10,826 5,045
Investment income 26 429 51 871
Interest expense (4,773) (5,365) (9,591) (10,993)
Gains (losses) on retirement of debt - 822 - 1,622
Other income (loss) 303 (35,346) 314 (35,346)
---------- ---------- ---------- -----------
Income (loss) before equity in earnings of unconsolidated joint
ventures, income taxes and discontinued operations 5,961 (31,199) 1,600 (38,801)
Equity in earnings of unconsolidated joint ventures 94 263 168 453
---------- ---------- ---------- -----------
Income (loss) before income taxes and discontinued operations 6,055 (30,936) 1,768 (38,348)
Provision (benefit) for income taxes 2,362 (12,065) 690 (14,956)
---------- ---------- ---------- -----------
Income (loss) before discontinued operations 3,693 (18,871) 1,078 (23,392)
Discontinued operations:
Income (loss) from discontinued operations, net of income taxes - 85 (126) (480)
Gain (loss) on disposal, net of income taxes (117) 964 (238) (582)
---------- ---------- ---------- -----------
Net income (loss) $ 3,576 ($ 17,822) $ 714 ($ 24,454)
========== ========== ========== ===========
Earnings (loss) per common share:
Basic:
Income (loss) before discontinued operations $ 0.08 ($ 0.42) $ 0.02 ($ 0.53)
Income (loss) from discontinued operations, net of income taxes - 0.02 - (0.02)
---------- ---------- ---------- -----------
Net income (loss) $ 0.08 ($ 0.40) $ 0.02 ($ 0.55)
========== ========== ========== ===========
Diluted:
Income (loss) before discontinued operations $ 0.08 ($ 0.42) $ 0.02 ($ 0.53)
Income (loss) from discontinued operations, net of income taxes - 0.02 - (0.02)
---------- ---------- ---------- -----------
Net income (loss) $ 0.08 ($ 0.40) $ 0.02 ($ 0.55)
========== ========== ========== ===========
See Accompanying Notes to Interim Consolidated Financial Statements.
- 2 -
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS)
2004 2003
--------- ------------
Cash flows from operating activities:
Net income (loss) $ 714 $ (24,454)
Adjustments to reconcile net income to net cash provided by operating activites:
Depreciation and amortization 20,618 20,871
Amortization of deferred financing costs 595 584
Income tax provision (benefit) 457 (15,146)
(Gains) losses on retirement of debt - (1,622)
Equity in (earnings) loss of unconsolidated joint ventures (168) (453)
Gains (losses) on disposals of discontinued operations (391) 582
Net (gains) losses on sales of assets and lease terminations (383) 35,346
Amortization of deferred income (1,558) (2,218)
Increase (decrease) from changes in other operating assets and
liabilities:
Accounts receivable (7,316) (6,095)
Other assets 253 3,229
Other liabilities (2,879) 501
-------- -----------
Net cash provided by operating activities 9,942 11,125
Cash flows from investing activities:
Net proceeds from mortgages and notes receivable 676 755
Disbursements for mortgages and notes receivable (243) (335)
Purchases of property, equipment and leasehold improvements (5,707) (13,382)
Proceeds from sales of property, equipment and leasehold improvements 2,068 17,400
Investments in unconsolidated joint ventures - (6,580)
Proceeds from sales and financings of interests in unconsolidated joint ventures - 15,722
Other - (1,557)
-------- -----------
Net cash (used in) providing by investing activities (3,206). 12,023
Cash flows from financing activities:
Net proceeds from issuance of debt 5,000 13,000
Payments of debt (10,961) (45,810)
Proceeds from the exercise of stock options 2,034 -
Purchase of treasury stock (3,528) (1,961)
-------- -----------
Net cash (used in) financing activities (7,455) (34,771)
Net (decrease) in cash and cash equivalents (719) (11,623)
Cash and cash equivalents at beginning of period 12,901 25,850
-------- -----------
Cash and cash equivalents at end of year $ 12,182 $ 14,227
========- ===========
OTHER CASH FLOW DISCLOSURES:
Interest paid $ 9,172 $ 10,598
Income taxes paid $ 337 $ -
See Accompanying Notes to Interim Consolidated Financial Statements.
- 3 -
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying interim unaudited
consolidated financial statements of Prime Hospitality Corp. and its
subsidiaries ("Prime" or the "Company") contain all material adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of June 30, 2004 and the results of its
operations for the three and six months ended June 30, 2004 and 2003 and cash
flows for the six months ended June 30, 2004 and 2003.
The consolidated financial statements for the three and six months ended
June 30, 2004 and 2003 were prepared on a consistent basis with the audited
consolidated financial statements for the year ended December 31, 2003. Certain
reclassifications have been made to the June 30, 2003 consolidated financial
statements to conform them to the June 30, 2004 presentation.
The consolidated results of operations for the three and six months ended
June 30, 2004 are not necessarily indicative of the results to be expected for
the full year. The hotel and leisure industry is seasonal in nature; however,
the periods during which the Company's properties experience higher hotel
revenue activities vary from property to property and depend principally upon
location. The Company's revenues historically have generally been lower in the
first and fourth quarters than in the second and third quarters. These interim
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.
The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
NOTE 2 - ACCOUNTING POLICIES
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In response to a FASB staff announcement in November 2001, and in
accordance with the Emerging Issues Task Force ("EITF") Abstract 01-14 "Income
Statement Characterization of Reimbursements received for "Out-Of-Pocket
Expenses incurred" which was issued in January 2002, the Company began recording
the reimbursements of costs incurred on behalf of managed hotel properties and
franchisees received as other revenues from managed and franchised properties
and the costs incurred on behalf of managed hotel property owners and
franchisees as other expenses from managed and franchised properties in the
first quarter of 2002. These costs relate primarily to payroll costs at managed
properties where the Company is the employer. Since the reimbursements are made
based upon the costs incurred with no added margin, the adoption of this
guidance has no effect on the operating income, total or per share net income,
cash flows or financial position of the Company.
NOTE 3 - ACCOUNTING FOR STOCK-BASED COMPENSATION
In December 2002, the FASB issued Statement No. 148 to amend alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, Statement No. 148
amends the disclosures in both annual and interim
- 4 -
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. However, the
Company has continued to account for options in accordance with the provision of
APB Opinion No. 25, "Accounting for Stock Issues to Employees" and related
interpretations. Accordingly, no compensation expense has been recognized for
stock option plans.
The following table sets forth the Company's pro forma information for its
common stockholders for the three and six months ended June 30, 2004 and 2003
(in thousands except earnings per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2004 2003 2004 2003
---------- --------- ---------- ----------
Net income (loss) as reported $3,576 $(17,822) $ 714 $ (24,454)
Add: Stock option expense included in net income (loss) --- --- --- ---
Less: Stock option expense determined under fair
value recognition method for all awards (956) (981) (1,904) (1,925)
--------- -------- --------- ---------
Pro forma net income (loss) $2,620 $(18,803) $ (1,190) $ (26,379)
--------- -------- --------- ---------
Net income (loss) per share as reported:
Basic $ 0.08 $ (0.40) $ 0.02 $ (0.55)
--------- -------- --------- ---------
Diluted $ 0.08 $ (0.40) $ 0.02 $ (0.55)
--------- -------- --------- ---------
Pro forma net income (loss) per share:
Basic $ 0.06 $ (0.42) $ (0.03) $ (0.59)
--------- -------- --------- ---------
Diluted $ 0.06 $ (0.42) $ (0.03) $ (0.59)
--------- -------- --------- ---------
The fair value for those options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for the six months ended June 30, 2004 and 2003: risk-free interest
rate of 4.93%; dividend yields of 0%; volatility factors of the expected market
price of the Company's common stock of 42.7% and a weighted-average expected
life of the option of 4.7 years.
For purposes of pro forma disclosures, the estimated fair value of stock
options is amortized to expense over the options' vesting period.
NOTE 4 - OTHER INCOME/DISCONTINUED OPERATIONS
Other income (loss) for the six months ended June 30, 2003 includes a
$35.0 million charge to write-off the assets associated with the HPT lease
termination.
During the six months ended June 30, 2004, the Company terminated the
lease on one non-proprietary brand hotel. The results of operations, and loss on
the lease termination, net of tax, are included in the Consolidated Statements
of Operations as discontinued operations.
In April 2004, we sold a parcel of vacant land for net proceeds of $1.6
million, which resulted in a gain of approximately $350,000, included in the
consolidated statements of operations as part of other income.
During the six months ended June 30, 2003, the Company sold one
AmeriSuites and one Wellesley Inn for total proceeds of $17.4 million. The
Company retained the franchise rights to the hotels under 20 year franchise
agreements and signed a management agreement on the AmeriSuites hotel. The
operations and gains on sale, net of tax, of the hotel in which Prime did not
retain management are included in the consolidated statements of operations as
part of discontinued operations.
NOTE 5 - DEBT
During the six months ended June 30, 2003, Prime purchased $21.3 million
of its 8 3/8% Senior Subordinated Notes due 2012 the ("Senior Subordinated
Notes") for $19.7 million realizing a gain of
- 5 -
$1.6 million.
NOTE 6 - EARNINGS PER COMMON SHARE
Basic earnings per common share was computed based on the weighted average
number of common shares outstanding during each period. The weighted average
number of common shares used in computing basic earnings per common share was
44.8 million and 44.7 million for the three months ended June 30, 2004 and 2003,
and 44.8 million and 44.8 million for the six months ended June 30, 2004 and
2003.
Diluted earnings per common share reflect adjustments to basic earnings
per common share for the dilutive effect of stock options. The weighted average
number of common shares used in computing diluted earnings per common share was
46.0 million and 46.1 million for the three and six months ended June 30, 2004.
For the three and six months ended June 30, 2003, stock options were
antidilutive and were not included in the calculation of diluted earnings per
share.
NOTE 7 - COMMON STOCK
During the six months ended June 30, 2004, Prime repurchased 363,900
shares of its common stock at an average price of $9.66 per share.
NOTE 8 - GEOGRAPHIC AND BUSINESS INFORMATION
Our hotels primarily operate in three major lodging industry segments: the
all-suites segment, under our AmeriSuites brand; the limited-service segment,
primarily under our Wellesley Inns & Suites brand and the full-service segment
under major national franchises and the Prime Hotels and Resorts brand. The
AmeriSuites are upscale, all-suite limited service hotels containing
approximately 128 suites and are located in 33 states throughout the United
States. The Wellesley Inns & Suites hotels compete in the mid-price segment, and
are primarily located in the Northeast, Texas and Florida regions of the United
States. A Wellesley Inn & Suites hotel has between 100 to 130 rooms and suites.
Full-service hotels compete primarily in the upscale segment, with food and
beverage service and banquet facilities under our Prime Hotels and Resorts
brand, and under franchise agreements with national hotel brands. The recently
completed conversion of 12 former Wyndham hotels to the Prime Hotels and Resorts
brand brings the chains hotel count to 15 properties in major markets including
Atlanta, Seattle, Minneapolis, Nashville, San Diego, Phoenix and Northern New
Jersey.
Our full-service hotels operated under non-proprietary brands are located
primarily in the northeastern region of the United States.
We evaluate the performance of each segment based primarily on operating
earnings before depreciation and amortization generated by our owned hotels
("Owned Hotels"). Interest expense is primarily related to debt incurred by the
Company through our corporate obligations and collateralized by certain of our
hotel properties. The hotel operations are included in the consolidated Federal
income tax return of the Company and the taxes are allocated based upon the
relative contribution to the Company's consolidated taxable income/losses and
changes in temporary differences. Other income consists of property
transactions, which are not part of the recurring operation of the Company. The
allocation of interest expense, taxes and other income, are not evaluated at the
segment level.
The following table presents revenues and other financial information for
the owned and leased hotels by business segment for the three and six months
ended June 30, 2004 and 2003 (in thousands):
- 6 -
THREE MONTHS ENDED JUNE 30, 2004 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED
- -------------------------------------- ---------- --------------- ------------ --------------- ------------
Revenues ............................. $60,745 $25,046 $30,968 $7,335 $124,094
Operating income plus depreciation ... 8,975 3,933 3,579 4,281 20,768
Depreciation and amortization ........ 4,710 3,540 1,145 968 10,363
Capital expenditures ................. 845 649 370 487 2,351
Total assets ......................... 488,067 339,310 74,431 93,919 995,727
THREE MONTHS ENDED JUNE 30, 2003 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED
- -------------------------------------- ---------- --------------- ------------ --------------- ------------
Revenues ............................. $63,115 $24,442 $14,784 $8,906 $111,247
Operating income plus depreciation ... 8,095 4,040 4,215 1,573 17,923
Depreciation and amortization ........ 4,874 3,551 905 332 9,662
Capital expenditures ................. 2,816 604 495 1,367 5,282
Total assets ......................... 560,406 346,858 77,337 74,676 1,059,277
MONTHS ENDED JUNE 30, 2004 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED
- -------------------------------------- ---------- --------------- ------------ --------------- ------------
Revenues $114,217 $49,572 $57,310 $13,665 $234,764
Operating income plus depreciation ... 15,483 7,387 4,174 4,400 31,444
Depreciation and amortization ........ 9,361 7,053 2,264 1,940 20,618
Capital expenditures ................. 1,642 1,710 1,273 1,082 5,707
Total assets ......................... 488,067 339,310 74,431 93,919 995,727
MONTHS ENDED JUNE 30, 2004 ALL-SUITES LIMITED-SERVICE FULL-SERVICE CORPORATE/OTHER CONSOLIDATED
- -------------------------------------- ---------- --------------- ------------ --------------- ------------
Revenues ............................. $114,960 $46,215 $32,198 $13,641 $207,014
Operating income plus depreciation ... 9,901 8,763 5,920 756 25,340
Depreciation and amortization ........ 9,748 6,758 2,378 1,411 20,295
Capital expenditures ................. 6,125 1,277 1,050 4,930 13,382
Total assets ......................... 560,406 346,858 77,337 74,676 1,059,277
We believe that operating income plus depreciation should be considered in
conjunction with net income, as presented in the statement of operations, to
facilitate a clearer understanding of the operating results of the Company. We
believe that operating income plus depreciation is helpful to investors along
with cash flow from operating activities, financing activities and investing
activities as a measure of the Company's ability to incur and service debt and
to fund its cash needs. We add back depreciation to operating income as theses
are non-cash expenses and they are based on historical cost accounting, which
assumes that the value of real estate assets diminishes on a fixed basis each
year rather than due to market conditions.
The following table details consolidated operating income plus
depreciation for the three and six months ended June 30, 2004 and 2003 (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
-------- -------- ------- --------
Operating income $10,405 $ 8,261 $10,826 $ 5,045
Depreciation and amortization 10,363 9,662 20,618 20,295
------- ------- ------- -------
Operating income plus depreciation $20,768 $17,923 $31,444 $25,340
======= ======= ======= =======
NOTE 9 - LITIGATION
Currently, and from time to time, we are involved in litigation arising in
the ordinary course of business. We do not believe that we are involved in any
litigation, that is likely, individually or in the aggregate, to have a material
adverse effect on our financial condition or results of operations or cash
flows.
- 7 -
On August 18, 1999, plaintiff Nick Pourzal, a former employee of Prime,
filed a complaint against the Company in the United States District Court for
the Virgin Islands. The complaint alleges that the Company contracted in 1978 to
pay plaintiff ten percent of the pre-tax earnings on any use or sale of a
16.354-acre property on St. Thomas, U.S. Virgin Islands known as the "Gilbert
Land," and that the Company breached this contract by making commercial use of
the Gilbert Land without paying the plaintiff. On January 13, 2003, plaintiff
filed a motion for leave to file a second amended complaint, to add claims for
(i) conspiracy to violate the Virgin Islands Plant Closing Act, (ii) prima facie
tort and (iii) to confirm an arbitration award relating to the Company's
termination of plaintiff's employment in 1999. The complaint seeks compensatory,
incidental and consequential damages, interest and costs, a declaratory judgment
that the Company is liable for payment of ten percent of pre-tax earnings on use
or sale of the Gilbert Land, and attorneys' fees and expenses. We believe that
the plantiff's action is without merit and intend to vigorously defend this
case.
In June 2004, Marriott named Prime a third party defendant in a case
captioned Nick Pourzal vs. Marriott International, Inc. vs. Prime Hospitality
Corp., in the United States District Court for the Virgin Islands. The suit
raises a claim against Prime based on an indemnity contained in the purchase
agreement between Marriott and Prime for the sale of the Frenchman's Reef Hotel,
St. Thomas, Virgin Islands. We have moved to dismiss this third party action and
intend to vigorously defend this claim if necessary.
On June 13, 2003, Southeast Texas Inns, Inc. ("Southeast Texas Inns")
filed a Complaint against the Company, May-Ridge, L.P. ("May-Ridge") and
Ridgewood Holdings Corp. ("Ridgewood"), which is now pending before the United
States District Court for the Middle District of Tennessee. The Complaint
alleges that May-Ridge has defaulted under a Lease Agreement, dated as of July
9, 2000, with Southeast Texas Inns pursuant to which May-Ridge leased three
properties located in Texas that were operated as AmeriSuites Hotels. On April
2, 2003, Southeast Texas Inns, as landlord, terminated the Lease Agreement for
default and May-Ridge surrendered the three properties to Southeast Texas Inns.
In the Complaint, Southeast Texas Inns seeks actual and liquidated damages in an
amount in excess of $10 million against May-Ridge and Ridgewood, which is the
sole general partner of May-Ridge. Southeast Texas Inns also seeks to hold Prime
jointly liable for all damages under the Lease Agreement, to which the Company
is not a party. We filed a motion to dismiss the Complaint against the Company
on August 19, 2003, which was granted subject to no new evidence being brought
by Southeast Texas Inns. On April 21, 2004, Southeast Texas Inns filed a second
complaint against the Company seeking to reinstate its claim for damages under
the Lease Agreement.
- 8 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
We are an owner, manager and franchisor of limited-service and
full-service hotels. We have 256 hotels in operation containing 33,605 rooms
located in 36 states and Canada (the "Portfolio") as of June 30, 2004. We
control three hotel brands -- AmeriSuites (R), Wellesley Inns & Suites (R) and
Prime Hotels and Resorts (R) -- and operate a portfolio of full-service hotels
under franchise agreements with national hotel chains. We operate and have
ownership or leasehold interests in 123 hotels (the "Owned Hotels"), operate 54
hotels for real estate investment trusts which have cash flow guarantees and
participations (the "Cash Flow Hotels"), manage 22 hotels for third parties (the
"Managed Hotels"), and franchise 55 hotels which we do not operate (the
"Franchised Hotels"). The Portfolio is comprised of 148 AmeriSuites hotels, 81
Wellesley Inns & Suites hotels, 15 Prime Hotels and Resorts hotels and 12
non-proprietary brand hotels.
The following table sets forth information with respect to the
Portfolio as of June 30, 2004:
AMERISUITES HOTELS ROOMS
----------- ------ ------
Owned 62 8,024
Managed Cash Flow 42 5,214
Managed 8 1,077
Franchised 36 4,189
---- ------
Total 148 18,504
WELLESLEY INNS & SUITES
Owned 56 6,901
Managed 6 667
Franchised 19 1,926
---- ------
Total 81 9,494
PRIME HOTELS & RESORTS
Owned 3 595
Managed Cash Flow 12 2,321
---- ------
Total 15 2,916
NON-PROPRIETARY BRANDS
Owned 2 505
Managed 8 1,521
Joint Venture 2 665
---- ------
Total 12 2,691
TOTAL PORTFOLIO
Owned 123 16,025
Managed Cash Flow 54 7,535
Managed 22 3,265
Franchised 55 6,115
Joint Venture 2 665
---- ------
Total 256 33,605
Our growth has been focused on the development of our proprietary brands.
Through the development of our proprietary brands, we have transformed our
Company from an owner/operator into a more diversified company with ownership,
franchise and management interests, and have positioned the Company to generate
additional revenues with minimal capital investment.
The hotel and leisure industry is seasonal in nature; however, the periods
during which the Company's properties experience higher hotel revenue activities
vary from property to property and depend principally upon location. The
Company's revenues historically have generally been lower in the first and
fourth quarters than in the second and third quarters.
- 9 -
Operating results for the three and six months ended June 30, 2004 were
impacted by a change in marketing strategy to reduce the number of lower priced
rooms available through third party internet sites, which were increasing
occupancy but negatively impacting average daily rates ("ADR"). As a result, for
the three and six months ended June 30, 2004, while occupancy declined by 5.4%
and 3.3%, respectively, the ADR rate increased by 8.1% and 6.0% for comparable
owned and cash flow hotels. Overall, for the three and six months ended June 30,
2004, revenue increased by 11.5% and 13.4% to $124.1 million and $234.8 million,
and operating income increased by $2.1 million and $5.8 million to $10.4 million
and $10.8 million, respectively.
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Forward-looking statements include the information about Prime's possible
or assumed future results of operations and statements preceded by, followed by
or that include the words "believe," "except," "anticipate," "intend," "plan,"
"estimate," or similar expressions, or the negative thereof. Actual results may
differ materially from those expressed in these forward-looking statements.
Readers of this Form 10-Q are cautioned not to unduly rely on any
forward-looking statements.
The following important factors, in addition to those discussed elsewhere
in this Form 10-Q or incorporated herein by reference, could cause results to
differ materially from those expressed in such forward-looking statements:
competition within each of the Company's business segments in areas such as
access, location, quality or accommodations and room rate structures; the
balance between supply of and demand for hotel rooms and accommodations; the
Company's continued ability to obtain new operating contracts and franchise
agreements; the Company's ability to develop and maintain positive relations
with current and potential hotel owners and other industry participants; the
level of rates and occupancy that can be achieved by such properties and the
availability and terms of financing; changes in travel patterns, taxes and
government regulations which influence or determine wages, prices, construction
procedures and costs; the effect of national and regional economic conditions
that will affect, among other things, demand for products and services at the
Company's hotels; government approvals, actions and initiatives including the
need for compliance with environmental and safety requirements, and change in
laws and regulations or the interpretation thereof and the potential effects of
tax legislative action; and other risks described from time to time in the
Company's filings with the SEC, including its Form 10-K.
Although the Company believes the expectations reflected in these
forward-looking statements are based upon reasonable assumptions, no assurance
can be given that Prime will attain these expectations or that any deviations
will not be material. Except as otherwise required by the federal securities
laws, the Company disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in its expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
- 10 -
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
The Company operates three product types: its proprietary AmeriSuites
which are upscale all-suites hotels; its proprietary Wellesley Inns & Suites
which are mid-price limited service hotels; and its full-service hotels which
are upscale hotels operated under our Prime Hotels and Resorts brand and
national franchise agreements.
Owned and cash flow hotel revenues consist of lodging revenues (which
consist primarily of room, telephone and vending revenues) and food and beverage
revenues. Cash flow hotels are those that are managed and operated by Prime
under management agreements which provide for a guaranteed minimum cash flow to
the owners. At June 30, 2004, cash flow hotels include 36 HPT properties (see
Note 8) and 18 hotels managed for Equity Inns.
Revenues from owned hotels decreased by $2.1 million and $3.1 million or
2.9% and 2.3%, respectively, for the three and six months ended June 30, 2004
compared to the same period in 2003, due to a decline in occupancy partially
offset by 7.2% and 5.5% increases in ADR of comparable hotels.
Revenues from cash flow hotels increased by $14.7 million and $29.2
million or 63.1% and 66.1%, respectively, due to the addition of twelve full
service hotels.
The following table illustrates the REVPAR change, by segment for all
owned and managed-cash flow hotels which were operated for comparable three and
six month periods in 2004 and 2003, "comparable hotels."
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 % CHANGE 2004 2003 % CHANGE
-------- -------- -------- -------- -------- ---------
AMERISUITES
Occupancy 66.3% 71.8% 62.4% 64.7%
ADR $ 70.87 $ 64.84 $ 70.41 $ 66.51
REVPAR $ 46.98 $ 46.55 0.9% $ 43.91 $ 43.01 2.1%
WELLESLEY INNS & SUITES
Occupancy 60.7% 66.3% 59.1% 64.5%
ADR $ 57.63 $ 54.04 $ 58.82 $ 55.03
REVPAR $ 35.01 $ 35.81 (2.2%) $ 34.78 $ 35.50 (2.0%)
FULL-SERVICE
Occupancy 65.7% 69.9% 58.9% 62.0%
ADR $115.49 $111.43 $114.89 $111.82
REVPAR $ 75.85 $ 77.89 (2.6%) $ 67.63 $ 69.37 (2.5%)
TOTAL
Occupancy 64.5% 69.9% 61.1% 64.4%
ADR $ 70.10 $ 64.86 $ 69.86 $ 65.93
REVPAR $ 45.20 $ 45.34 (0.3%) $ 42.67 $ 42.48 0.4%
For the second quarter of 2004, we reported a 0.9% REVPAR increase at our
comparable AmeriSuites hotels, as occupancy decreased by 5.5 percentage point to
66.3% and ADR increased by 9.0% to $70.87. Increases were reported in Miami,
Nashville, Orlando and Richmond while decreases were reported in Albuquerque,
Austin, Chicago and Detroit.
For the second quarter of 2004, we reported a 2.2% REVPAR decrease at our
comparable Wellesley Inns & Suites hotels, ADR increased by 6.6% to $57.63 and
occupancy decreased by 5.6 percentage points to 60.7%. The Austin, Orlando and
South Florida markets reported increases while
- 11 -
revenues decreased in Atlanta, Dallas, Houston and the Northeast.
Prime's upscale full-service hotels, of which the comparable hotels are
located in the Northeast, reported a 2.6% REVPAR decrease for the second quarter
of 2004 as occupancy decreased by 4.2 percentage points to 65.7% and ADR
increased by 3.6% to $115.49. The full-service hotels were impacted by a
decrease in group business in Northern New Jersey.
Management, franchise and other fees consist primarily of base and
incentive fees earned under management agreements, royalties earned under
franchise agreements and sales commissions earned by the Company's national
sales group. Management, franchise and other fees decreased by $0.8 million or
10.0% for the three months ended June 30, 2004 compared to the same period in
2003. The decrease was primarily due to termination fees of $1.5 million on
three AmeriSuites hotels received in the second quarter of 2003.
Hotel operating expenses consist of all direct costs related to the
operation of the Company's properties (lodging, food & beverage, administration,
selling and advertising, utilities and repairs and maintenance). Operating
expenses for our Owned Hotels decreased by $2.5 and $4.1 million or 5.2% and
4.4%, for the three and six months ended June 30, 2004 compared to the same
period in 2003. For the comparable three and six months periods, hotel operating
expenses, as a percentage of hotel revenues, for the Owned Hotels were 63.8% and
67.3% in 2004 and 65.4% and 68.8% in 2003. Margins improved due to the increase
in ADR and operating cost efficiencies.
Operating expenses for cash-flow hotels increased by $12.8 million and
$24.4 million or 49.3% and 47.3% due to the addition of twelve full service
hotels for the three and six months ended June 30, 2004 versus 2003.
Brand operating expenses consist primarily of national brand advertising
expenses, reservation costs, costs of our frequent guest program and franchise
sales and support. Brand operating expenses decreased by $1.2 million and $0.5
million or 22.1% and 5.8%, for the three and six months ended June 30, 2004
compared to the same period in 2003, due primarily to lower advertising costs.
General and administrative expense consists primarily of centralized
management expenses associated with operating the hotels, and corporate expense.
General and administrative expense decreased by $0.2 million or 2.3% for the
three months ended June 30, 2004 due to savings in payroll and benefits costs.
General and administration costs increased by $0.2 million or 1.2% for the six
month period compared to the same period in 2003, primarily due to normal
inflationary increases.
Depreciation and amortization increased by $0.7 million and $0.3 million
or 7.3% and 1.6% for the three and six months ended June 30, 2004 compared to
the same period in the prior year due to asset purchases partially offset by the
sale of hotels in the first quarter of 2003.
Investment income decreased by $0.4 million and $0.8 million or 93.9% and
94.1%, for the three and six months ended June 30, 2004 compared to the same
period in 2003 due to the forfeiture of security deposits upon termination of
the HPT leases in December 2003.
Interest expense decreased by $0.6 million and $1.4 million or 11.0% and
12.8%, for the three and six months ended June 30, 2004 compared to the same
periods in 2003 due to debt reductions and lower borrowings under the Company's
$125 Million Revolving Credit Facility (the "Credit Facility") than in the
comparable period last year.
For the three and six months ended June 30, 2003, gains on retirement of
debt related to the
- 12 -
retirement of 8 3/8% Senior Subordinated Notes.
Other income (loss) for the six months ended June 30, 2003, includes a
$35.0 million charge to write-off the assets associated with the HPT lease
termination.
Equity in earnings from joint ventures for the three and six months ended
June 30, 2004 and 2003 related to two unconsolidated joint ventures, East
Rutherford Group, L.L.C. ("Meadowlands Venture") and Nova Scotia Company
("Quebec Venture").
Discontinued operations for the three and six months ended June 30, 2004
and 2003 reflect the operations of hotels no longer operated by Prime and the
associated gain or loss on the disposal of these hotels.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that the effect of inflation has not been material
during the six month periods ended June 30, 2004 and 2003.
At June 30, 2004, we had cash and cash equivalents of $12.2 million. We
may utilize any excess cash flow to grow our brands either through acquisitions
or new construction, to retire debt and/or repurchase shares.
Our major sources of cash for the six months ended June 30, 2004 were
operating cash flow of $9.9 million, borrowings of $5.0 million, asset sales of
$2.0 million, and proceeds from the exercise of stock options of $2.0 million.
Our major uses of cash during the period were debt payments of $11.0 million,
and capital expenditures of $5.7 million.
As of June 30, 2004, we had borrowings of $30.0 million under our Credit
Facility at LIBOR +2.50%, or approximately 3.7%. In July 2004, we paid down
$10.0 million, reducing our borrowings to $20.0 million. The Credit Facility
consists of a $125 million revolving line of credit which expires in 2006 and is
secured by the equity interests of certain of Prime's subsidiaries. The Credit
Facility contains loan covenants customary for a credit facility of this size
and nature, including but not limited to, limitations on making capital
expenditures, selling or transferring assets, making certain investments
(including acquisitions), repurchasing shares and incurring liens. In addition,
the Credit Facility requires that the Company must maintain a debt to EBITDA
ratio of 4.25 times and an EBITDA to interest ratio of 2.50 times. As of June
30, 2004, our debt to last twelve months EBITDA ratio was 3.59 times, our EBITDA
to interest ratio was 3.39 times and the Company was in compliance with these
covenants. However, there can be no assurance that the Company will continue to
be in compliance with these covenants.
In April 2004, we sold a parcel of vacant land for net proceeds of $1.6
million, which resulted in a gain of approximately $350,000.
The Company intends to continue the growth of its brands primarily through
franchising and, therefore, new construction spending will be limited. There are
currently no new construction projects underway. During the six months ended
June 30, 2004, we spent $5.7 million on capital additions which primarily
consisted of capital improvements at our owned hotels. We plan to fund capital
improvements at existing hotels primarily with internally generated cash flow.
At June 30, 2004, the Company had net operating loss carry forwards of
approximately $91.5 million which expire in the years 2006 through 2024 and are
available to offset future Federal taxable income. Included in the net operating
loss carry forwards at December 31, 2003, the Company had
- 13 -
approximately $52.4 million relating to Prime Motor Inns, which expires in the
year 2006 and is subject to an annual limitation of $8.7 million under the
Internal Revenue Code due to a change in ownership of the Company upon
consummation of the reorganization plan on July 31, 1992.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes to the Company's off-balance sheet
arrangements and aggregate contractual obligations since the filing of the
Company's 2003 Form 10-K Annual Report.
OFF-BALANCE SHEET ARRANGEMENTS
Prime is a partner in two unconsolidated joint ventures, east Rutherford
group, L.L.C. ("Meadowlands venture") and Nova Scotia Company ("Quebec
venture"). Prime accounts for its investments in unconsolidated joint ventures
under the equity method of accounting as the Company exercises significant
influence, but does not control these entities. These investments are recorded
initially at cost, as investments in unconsolidated joint ventures, and
subsequently adjusted for equity in earnings (loss) and cash contributions and
distributions. Any difference between the carrying amount of these investments
on the balance sheet of the Company and the underlying equity in net assets is
amortized as an adjustment to equity in earnings (loss) of unconsolidated joint
ventures over the lesser of the joint venture term or 40 years. As of June 30,
2004, investments in unconsolidated joint ventures consisted of the Company's
40% ownership interests in the Meadowlands Venture and the Quebec Venture.
CONTRACTUAL OBLIGATIONS
In July 2003, a subsidiary of the Company did not make its scheduled July
1 rent payment of approximately $2.0 million on 24 AmeriSuites hotels and
received a default notice from Hospitality Properties Trust ("HPT"). Over the
previous twelve months, cash flow was negatively impacted by $11.5 million as
rent payments exceeded operating cash flow by $9.0 million and approximately
$2.5 million was required to be set aside for capital improvements. In December
2003, we terminated our lease agreement for 24 AmeriSuites hotels with HPT and
entered into a management agreement with HPT for the 24 AmeriSuites hotels and
12 full-service hotels to be re-branded under our Prime Hotels & Resorts chain.
We recorded a $35.0 million loss due to the write-off of assets associated with
the HPT lease agreement. The management agreement became effective on January 1,
2004 for the AmeriSuites hotels and February 1, 2004 for the Prime Hotels &
Resorts hotels. The term is 15 years and we have two renewal options of 15 years
each.
Under the agreement, HPT will receive an owner's priority return of $26
million per year. This return is guaranteed by Prime under a limited guarantee
which caps the maximum cash outlay by Prime over the life of the agreement at
$30 million. Based on the guaranteed amount and other facts and circumstances,
the fair value of the obligation was not material. Cash flow generated by the
hotels in excess of $26 million per year will be split 50/50 between HPT and
Prime with Prime's share counting as its royalty and management fee. Also, as
part of the agreement, HPT will provide $25 million during the first two years
to pay for re-branding and other capital improvements on the 36 hotels.
On January 1, 2002, the Company converted its leases on 18 AmeriSuites it
leased from Equity Inns into management agreements. These management agreements
run for the unexpired term of the leases they replaced and require Prime to
guarantee a certain minimum level of cash flow. The lease agreements expire in
2007 and 2008 and will then be converted to 20-year franchise agreement provided
that we are in compliance with the cash flow guarantee requirements under the
current agreements.
- 14 -
Below is a schedule of the future minimum cash flow levels (in thousands):
OPERATING MANAGEMENT
LEASES AGREEMENTS TOTAL
--------- ---------- --------
Balance of 2004 $ 2,255 $ 22,630 $ 24,885
2005 4,733 46,661 51,394
2006 4,668 46,661 51,329
2007 4,672 46,661 51,333
2008 2,955 33,550 36,505
Thereafter 37,536 260,000 297,536
------- -------- --------
TOTAL $56,819 $456,163 $512,982
======= ======== ========
SUMMARY OF INDEBTEDNESS
Combined aggregate principal maturities of debt as of June 30, 2004, are as
follows (in thousands):
8 3/8% CREDIT SCHEDULED
NOTES FACILITY AMORTIZATION TOTAL
----------- ----------- -------------- ----------
2004 106 106
2005 1,144 1,144
2006 30,000 250 30,250
2007 272 272
2008 294 294
THEREAFTER 178,725 11,850 190,575
---------- ---------- -------- --------
$178,725 $30,000 $13,916 $222,641
========== ========== ======== ========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates from its floating rate
debt arrangements. At June 30, 2004, the Company had $222.6 million of debt
outstanding of which $192.6 million bears interest at fixed rates. The interest
rate on the Company's Credit Facility, under which $30.0 million was outstanding
at June 30, 2004, is variable at a rate of LIBOR + 2.50%. A hypothetical 100
basis point adverse move (increase) on short-term interest rates on the floating
rate debt outstanding at June 30, 2004 would adversely affect Prime's annual
interest cost by approximately $0.3 million assuming borrowed amounts under the
Credit Facility remained at $30.0 million.
The Company had $178.7 million of its 8 3/8% notes outstanding at June 30,
2004. A hypothetical 100 basis point adverse move (increase) in interest rates
would decrease the fair value of our fixed rate debt by approximately $20.0
million, and a 100 basis point favorable move (decrease) in interest rates would
increase the fair value of our fixed rate debt by approximately $20.0 million.
ITEM 4. CONTROLS AND PROCEDURES
The Company under the supervision and with the participation of
management, including the Chief Executive Officer and the Chief Financial
Officer, evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act),
as of the end of the period covered by this report. Based upon that evaluation,
the Company's Chief Executive and the Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are effective to timely
alert them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in Company's Exchange Act
filings.
There have been no changes in our internal control over financial
reporting during the last fiscal
- 15 -
quarter that have materially affected, or are reasonably likely to affect, the
Company's internal control over financial reporting.
- 16 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently and from time to time we are involved in litigation arising in
the ordinary course of its business. We do not believe that we are involved in
any litigation, that is likely, individually or in the aggregate, to have a
material adverse effect on our financial condition or results of operations or
cash flows.
On August 18, 1999, plaintiff Nick Pourzal, a former employee of Prime,
filed a complaint against the Company in the United States District Court for
the Virgin Islands. The complaint alleges that the Company contracted in 1978 to
pay plaintiff ten percent of the pre-tax earnings on any use or sale of a
16.354-acre property on St. Thomas, U.S. Virgin Islands known as the "Gilbert
Land," and that the Company breached this contract by making commercial use of
the Gilbert Land without paying the plaintiff. On January 13, 2003, plaintiff
filed a motion for leave to file a second amended compliant, to add claims for
(i) conspiracy to violate the Virgin Islands Plant Closing Act, (ii) prima facie
tort and (iii) to confirm an arbitration award relating to the Company's
termination of plaintiff's employment in 1999. The complaint seeks compensatory,
incidental and consequential damages, interest and costs, a declaratory judgment
that the Company is liable for payment of ten percent of pre-tax earnings on use
or sale of the Gilbert Land, and attorneys' fees and expenses. We believe that
the plantiff's action is without merit and intend to vigorously defend this
case.
In June 2004, Marriott named Prime a third party defendant in a case
captioned Nick Pourzal vs. Marriott International, Inc. vs. Prime Hospitality
Corp., in the United States District Court for the Virgin Islands. The suit
raises a claim against Prime based on an indemnity contained in the purchase
agreement between Marriott and Prime for the sale of the Frenchman's Reef Hotel,
St. Thomas, Virgin Islands. We have moved to dismiss this third party action and
intend to vigorously defend this claim if necessary.
On June 13, 2003, Southeast Texas Inns, Inc. ("Southeast Texas Inns")
filed a Complaint against the Company, May-Ridge, L.P. ("May-Ridge") and
Ridgewood Holdings Corp. ("Ridgewood"), which is now pending before the United
States District Court for the Middle District of Tennessee. The Complaint
alleges that May-Ridge has defaulted under a Lease Agreement, dated as of July
9, 2000, with Southeast Texas Inns pursuant to which May-Ridge leased three
properties located in Texas (the "Three Properties") that were operated as
AmeriSuites Hotels. On April 2, 2003, Southeast Texas Inns, as landlord,
terminated the Lease Agreement for default and May-Ridge surrendered the three
properties to Southeast Texas Inns. In the Complaint, Southeast Texas Inns seeks
actual and liquidated damages in an amount in excess of $10 million against
May-Ridge and Ridgewood, which is the sole general partner of May-Ridge.
Southeast Texas Inns also seeks to hold Prime jointly liable for all damages
under the Lease Agreement, to which the Company is not a party. We filed a
motion to dismiss the Complaint against the Company on August 19, 2003, which
was granted subject to no new evidence being brought by Southeast Texas Inns. On
April 21, 2004, Southeast Texas filed a second complaint against the Company
seeking to reinstate its claim for damages under the Lease Agreement.
- 17 -
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITY
SECURITIES
TOTAL
NUMBER TOTAL NUMBER OF SHARES APPROXIMATE DOLLAR VALUE
OF SHARES AVERAGE PURCHASED AS PART OF OF SHARES THAT MAY YET
PERIOD PURCHASED PRICE PUBLICLY ANNOUNCED PLAN BE PURCHASED UNDER THE PLAN
- -------- --------- ------- ----------------------- ---------------------------
May 2004 363,900 $9.66 363,900 $55,567,000
On October 29, 1999, our Board of Directors authorized a plan to
purchase up to $100 million of its common stock on the open market.
This repurchase plan does not have an expiration date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 20, 2004
(the "Annual Meeting"). The Company's stockholders were asked to
take the following action at the meeting:
Elect two Class III Directors to serve until the 2007 Annual Meeting
of Stockholders.
With respect to the Board Proposal, the two individuals
nominated for director were both elected by the affirmative
vote of a majority of shares of common stock present at the
Annual Meeting. The nominees and the votes received by each
are as follows:
FOR WITHHELD
---------- ---------
Howard M. Lorber 38,868,479 2,657,866
Richard Szymanski 38,869,279 2,657,066
A.F. Petrocelli, Howard M. Lorber, Lawrence N. Friedland, Richard
Reitman and Allen S. Kaplan will continue to serve as directors of
the Company. Stephen Seltzer was appointed by the Board of Directors
at the April 27, 2004 meeting, to fill a Class I vacancy.
ITEM 5. OTHER INFORMATION
None.
- 18 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 31.1 Certification of CEO pursuant to Section 302 of
the Sarbanes - Oxley Act of 2002
Exhibit 31.2 Certification of CFO pursuant to Section 302 of
the Sarbanes - Oxley Act of 2002
Exhibit 32.1 Certification of CEO pursuant to Section 906 of
the Sarbanes - Oxley Act of 2002
Exhibit 32.2 Certification of CFO pursuant to Section 906 of
the Sarbanes - Oxley Act of 2002
(b) Reports on Form 8-K
On April 29, 2004, the Company issued a press release regarding
earnings for the first quarter of 2004. This Form 8-K was filed
under Items 7 and 12.
On July 29, 2004, the Company issued a press release regarding
earnings for the second quarter of 2004. This form 8-K was filed
under Items 7 and 12.
- 19 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME HOSPITALITY CORP.
Date:August 6, 2004 By: /s/ A.F. Petrocelli
-------------------
A.F. Petrocelli
President and Chief Executive
Officer
Date:August 6, 2004 By: /s/ Richard T. Szymanski
-------------------------------
Richard T. Szymanski
Senior Vice President and Chief
Financial Officer