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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
- ---- ENDED DECEMBER 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
TRANSITION PERIOD FROM -------- TO --------
COMMISSION FILE NO. 1-6869
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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) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(201)882-1010
SECURITIES REGISTERED PURSUANT TO
SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
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Common Stock, New York Stock Exchange
Par Value $.01 Per Share
Securities registered pursuant to Section 12(g) of the Act: Warrants
To Purchase Common Stock
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
-----
The aggregate market value of the registrant's common stock held by
non-affiliates on March 10, 1994 based on the last sale price as reported by
the National Quotation Bureau, Inc. on that date was approximately
$208,050,000.
The Registrant had 29,200,204 shares of Common Stock outstanding as of
March 10, 1994.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
------ ------
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THIS ANNUAL REPORT ON FORM 10-K IS SUBMITTED FOR THE FISCAL YEAR ENDED DECEMBER
31, 1993 FOR PRIME HOSPITALITY CORP., A DELAWARE CORPORATION, ("THE COMPANY")
AND ITS PREDECESSOR CORPORATION PRIME MOTOR INNS, INC. ("PMI"). ON JULY 31,
1992 (THE "EFFECTIVE DATE"), PMI MERGED WITH AND INTO THE COMPANY, WHICH PRIOR
TO SUCH MERGER HAD BEEN A WHOLLY-OWNED SUBSIDIARY OF PMI. THE COMPANY WAS THE
SURVIVING CORPORATION IN THE MERGER. THE COMPANY IMPLEMENTED "FRESH START
REPORTING" ON JULY 31, 1992 AND CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO
DECEMBER 31.
THIS REPORT CONTAINS THE (A) COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1993 AND 1992 AND JULY 31, 1992 AND THE CONSOLIDATED STATEMENTS OF
INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1993 AND THE FIVE MONTHS ENDED DECEMBER 31, 1992 AND (B) PMI'S CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1992 AND THE CONSOLIDATED STATEMENTS OF INCOME,
STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE ONE MONTH ENDED JULY 31, 1992 AND
THE YEARS ENDED JUNE 30, 1992 AND 1991.
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY PRESENTED HEREIN WILL VARY
SIGNIFICANTLY FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF PMI. ACCORDINGLY,
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AS OF AND SUBSEQUENT TO
JULY 31, 1992 ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS TO STATEMENTS OF PMI
AS OF ANY DATE PRIOR TO JULY 31, 1992. THE HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS OF PMI AND ITS SUBSIDIARIES HAVE BEEN PREPARED IN ACCORDANCE WITH
THE AICPA STATEMENT OF POSITION 90-7.
PART I and PART II
Items 1 and 2. Business and Properties
General
Business
The Company is a leading independent hotel operating company with
ownership or management of 86 full-service and limited-service hotels in 19
states and one resort hotel in the U.S. Virgin Islands (the "Hotels"). The
Company's Hotels are generally moderately priced hotels which are designed to
attract business and leisure travelers desiring quality accommodations at
affordable prices. Located primarily in secondary and tertiary markets, the
Hotels typically contain 100 to 200 guest rooms or suites and operate under
franchise agreements with national hotel chains (the "Franchised Hotels") or
under the Company's proprietary Wellesley Inns or AmeriSuites trade names (the
"Proprietary Hotels"). The Company owns or leases 40 of the Hotels (the "Owned
Hotels") and
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manages the remaining 47 Hotels for others (the "Managed Hotels"). The Company
holds significant mortgages or other financial interests in 12 of the 47
Managed Hotels.
Wellesley Inns and AmeriSuites are limited-service hotels that
primarily target the business traveler. Wellesley Inns are upper- economy
hotels located in Florida, the Middle Atlantic and the Northeast United States,
generally within short distances from restaurant facilities. AmeriSuites are
all-suites hotels mainly situated near corporate office parks and major
attractions in locations in the Southern and Central United States. The
Company has entered into an agreement in which it or its joint venture partner
may, if certain conditions are met, contribute its eight AmeriSuites to a joint
venture of which it will be a 50% owner.
As a leading domestic hotel operating company, the Company enjoys a
number of operating advantages over other lodging companies. With 87 Hotels
covering a number of price points and a broad geographic range, the Company
possesses the critical mass to support sophisticated operating, marketing and
financial systems. The Company believes that its array of central services
permits on-site hotel general managers to focus effectively on providing guest
services, results in economies of scale and helps generate above-market hotel
profit margins. As a result of these operating efficiencies, the Company's
Hotels generated average operating profit margins that exceeded comparable
industry standards for 1992, as reported by industry sources, by approximately
six percent for limited-service hotels and 16 percent for full-service hotels.
In addition to its hotel operations, the Company owns a portfolio of
notes and real estate (the "Other Assets"). As of December 31, 1993, the Other
Assets included $115.3 million in notes related to the Managed Hotels, $50.0
million in other notes and $23.6 million in real estate. The Company intends
over time to convert certain of these Other Assets to cash and hotel assets.
In 1992 and 1993, the Company converted $46.2 million and $14.6 million,
respectively, of Other Assets to cash and added six operating hotel assets
through settlements and lease terminations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Lodging
Operations--Franchised Hotels" and "Business--Other Assets."
Lodging Industry
As of December 31, 1993, there were approximately 3 million hotel
rooms in the United States. During the past decade, approximately 742,000
rooms were added to the hotel industry, producing a 3.1% annual growth rate.
However, subsequent to 1990,
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the growth rate of new construction diminished significantly, with only an
estimated 40,000 rooms added in 1992 (for a growth rate of 1.3%) and 31,000
rooms added in 1993 (for a growth rate of 1.0%). Such decreases in supply,
coupled with increases in demand in 1992 and 1993 generally have resulted in
improved operating results for domestic hotels. The improvement in industry
fundamentals has contributed to higher occupancy percentages and room rates for
the domestic hotel industry, including the Company. Over the next three years
industry analysts project national demand for hotel rooms to grow at a 3% to 4%
annual rate due to an improved economic environment while supply growth will be
negligible. Such projections also call for increases in occupancy and room
rates.
The following table sets forth industry data for 1992 and 1993 as to
(i) the average occupancy, (ii) the average room rate, (iii) REVPAR and (iv)
the percentage change of supply and demand. The table includes further
industry information relative to the Company's principal operating regions and
types of accommodations.
Lodging Industry Profile
Average Average % Change
Occupancy Room Rate REVPAR(2) 1992-1993
Segment 1992 1993 1992 1993 1992 1993 Supply Demand
- ------- ---- ---- ---- ---- ---- ---- ------ ------
U.S. Industry . . . . . 61.9% 63.7% $59.62 $60.99 $36.90 $38.85 1.0% 4.0%
By Region:
Middle Atlantic(1) . 61.8% 64.4% $77.03 $77.48 $47.60 $49.90 0.6% 4.8%
South Atlantic . . . 62.7% 64.8% $59.29 $60.92 $37.17 $39.48 0.7% 4.1%
By Service:
Luxury . . . . . . . 67.4% 69.6% $104.77 $106.86 $70.61 $74.37 2.0% 5.2%
Upscale . . . . . . 64.7% 66.0% $73.11 $74.47 $47.30 $49.15 0.9% 2.9%
Mid-Price . . . . . 62.9% 63.9% $53.98 $54.77 $33.95 $35.00 1.4% 2.9%
Economy . . . . . . 61.4% 61.9% $43.76 $43.68 $26.87 $27.04 0.8% 1.6%
Budget . . . . . . . 59.9% 59.3% $33.07 $33.68 $19.81 $19.97 0.3% -0.7%
- -------------------
Source: Smith Travel Lodging Outlook, February 1994.
(1) Middle Atlantic includes New Jersey, New York and Pennsylvania.
(2) REVPAR means revenues per available room and is equal to the amount of
room revenue divided by the total number of rooms available for sale.
Strategy
The Company believes that its equity ownership in the Hotels has
generated attractive yields and therefore it seeks to expand its role as equity
owner. As an owner/operator of hotels, the Company has control over hotel
product quality and service and benefits directly from both improving industry
fundamentals and its ability to improve individual hotel operating performance.
The Company's strategy to meet the foregoing objective and achieve sustainable
earnings growth has five key elements:
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- Expand Proprietary Hotel Chains. The Company believes that
its two proprietary hotel brands, Wellesley Inns and
AmeriSuites, are well positioned in attractive segments of the
lodging industry. The Company plans to continue the expansion
of the Wellesley Inns chain in the Southeast, the Middle
Atlantic and the Northeast United States through development
of new hotels and the acquisition and conversion of existing
hotels. The Company also intends to expand the AmeriSuites
chain through development of new hotels in business and
corporate markets throughout the country.
- Acquire and Reposition Hotels. The Company believes short-term
opportunities exist to acquire and reposition hotels at
attractive multiples of cash flow or at significant discounts
to replacement values. Generally, this strategy requires
investment of additional capital to improve product quality
and implementation of marketing and operating systems to
enhance market position and improve operating performance.
- Refurbish and Improve Operations at Existing Company-owned
Hotels. During the last two years, the Company has acquired
operating control of six Hotels through mortgage foreclosures,
lease termination/evictions or acquisitions. The Company is
pursuing a program of refurbishing, repositioning and, in some
instances, changing the franchise affiliation of these
recently acquired Hotels as well as other Hotels in the
Company's portfolio.
- Expand Management Service Operations. The Company seeks to
expand the number of Managed Hotels as a complement to its
core hotel ownership operations. The Company believes that
its management services business provides profit opportunities
without significant capital investment or incremental costs.
- Monetize or Convert Other Assets. The Company is currently
seeking to monetize or convert Other Assets to hotel operating
assets and cash. The Company converted $46.2 million and
$14.6 million of other assets in 1992 and 1993 to cash and
added six operating hotels through settlements and lease
terminations. The Company presently is attempting to convert
Other Assets which presently carry a book value of $75.0
million, to approximately $50.0 million in operating assets
with respect to the Marriott's Frenchman's Reef hotel in St.
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Thomas, U.S. Virgin Islands ("the Frenchman's Reef") and $32.0
million in cash from the settlement of notes with Allan V.
Rose and Arthur G. Cohen (the "Rose and Cohen Settlement"), of
which $25.0 million represents cash held in escrow as
settlement for notes receivable and an estimated $7.0 million
from the proceeds of the sale of 1.1 million shares of the
Company's common stock held by Rose. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Lodging Operations--Franchised Hotels"
and "Business--Other Assets."
Lodging Operations
The Hotels are located in 19 states and the U.S. Virgin Islands and
contain a total of 13,011 rooms. Hotel size generally ranges between 100 to
200 guest rooms or suites. The Hotels are operated primarily under franchise
agreements with national chains including Marriott, Radisson, Sheraton, Holiday
Inn, Ramada and Howard Johnson trade names and under the proprietary trade
names Wellesley Inns and AmeriSuites. The Hotels generally serve secondary and
tertiary markets and focus primarily on the business traveler customer base.
The following table sets forth information with respect to the Owned and
Managed Hotels as of March 1, 1994:
Owned(1) Managed with
----------------- Significant Interest (2) Other Managed Total
------------------------ ------------------- -----------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ----- --------- ------ -------- ------- ------ ------
Wellesley Inn . . . 11 1,157 5 478 11 1,031 27 2,666
AmeriSuites (3) . . 8 993 0 0 0 0 8 993
Marriott . . . . . 0 0 1 517 1 525 2 1,042
Radisson . . . . . 0 0 1 204 1 192 2 396
Sheraton . . . . . 2 364 0 0 1 225 3 589
Holiday Inn . . . . 2 363 1 158 4 827 7 1,348
Ramada . . . . . . 7 1,031 2 423 12 2,483 21 3,937
Howard Johnson . . 8 846 2 361 4 515 14 1,722
Other . . . . . . . 2 228 0 0 1 90 3 318
-- ----- -- ----- -- ----- -- ------
TOTAL . . . . . 40 4,982 12 2,141 35 5,888 87 13,011
== ===== == ===== == ===== == ======
- --------------
(1) Of the 40 Owned Hotels, ten are leased.
(2) Twelve Managed Hotels in which the Company holds a significant mortgage on
the property.
(3) The AmeriSuites presently owned by the Company are managed by ShoLodge.
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The following table sets forth information with respect to the Owned
Hotels as of March 1, 1994:
- --------------------------------------------------------------------------------------------------------------------
Wellesley Inn AmeriSuites Sheraton Holiday Inn Ramada Inn
State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
- --------------------------------------------------------------------------------------------------------------------
Arizona 1 118
Arkansas 1 130
California
Connecticut 1 105 3 486
Delaware
Florida 8 845
Georgia 1 114
Indiana 1 126
Nevada 1 202
New Jersey 1 101 1 124 2 304
New York 1 240 2 241
Ohio 2 254
Oregon 1 161
Tennessee 2 251
Virginia 1 106
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Total 11 1,157 8 993 2 364 2 363 7 1,031
===============================================================================================
- --------------------------------------------------------------------------------------------------
Howard Johnson Other Total
State Hotels Rooms Hotels Rooms Hotels Rooms
- --------------------------------------------------------------------------------------------------
Arizona 1 118
Arkansas 1 130
California 1 94 1 94
Connecticut 4 591
Delaware 1 142 1 142
Florida 1 96 2 228 11 1,169
Georgia 1 114
Indiana 1 126
Nevada 1 202
New Jersey 4 418 8 947
New York 1 96 4 577
Ohio 2 254
Oregon 1 161
Tennessee 2 251
Virginia 1 106
------------------------------------------------------------------------
Total 8 846 2 228 40 4,982
========================================================================
The following table sets forth information with respect to Managed Hotels
as of March 1, 1994:
- ----------------------------------------------------------------------------------------------------------
Wellesley Inn Marriott Radisson Sheraton Holiday Inn
State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
- ----------------------------------------------------------------------------------------------------------
California
Connecticut
Florida 6 597
Maryland 1 84 1 525
Massachusetts
Nebraska
New Jersey 2 179 2 396 1 225 2 550
New York 5 461
Ohio
Pennsylvania 1 105 2 320
Virginia 1 83 1 115
Virgin Islands 1 517
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Total 16 1,509 2 1,042 2 396 1 225 5 985
=====================================================================================
- ------------------------------------------------------------------------------------------------------
Ramada Inn Howard Johnson Other Total
State Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
- ------------------------------------------------------------------------------------------------------
California 1 260 1 95 2 355
Connecticut 1 199 1 199
Florida 2 325 8 922
Maryland 1 189 3 798
Massachusetts 1 196 1 196
Nebraska 1 215 1 215
New Jersey 7 1,372 2 267 16 2,989
New York 5 461
Ohio 1 191 1 191
Pennsylvania 1 280 1 90 5 795
Virginia 1 193 3 391
Virgin Islands 1 517
---------------------------------------------------------------------------------
Total 14 2,906 6 876 1 90 47 8,029
=================================================================================
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The following table sets forth for the five years ended December 31,
1993 the number of hotels and rooms and the occupancy and ADR ("average room
rate") of the Owned and Managed Hotels. The data includes full year operating
results for hotels that the Company had previously managed and then acquired
during the year.
Year Ended Managed with
December 31, Owned Significant Interest Other Managed Total
- ------------ ---------------- -------------------- ---------------- ----------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ----- ------ ----- ------ ----- ------ -----
1989 . . . . . . . 21 2,687 12 2,141 31 5,245 64 10,073
1990 . . . . . . . 31 3,941 12 2,141 31 5,245 74 11,327
1991 . . . . . . . 32 4,071 12 2,141 32 5,489 76 11,701
1992 . . . . . . . 35 4,419 12 2,141 32 5,489 79 12,049
1993 . . . . . . . 41 5,092 12 2,141 33 5,604 86 12,837
Occupancy ADR Occupancy ADR Occupancy ADR Occupancy ADR
--------- --- --------- --- --------- --- --------- ---
1989 . . . . . 67.7% $59.19 71.0% $82.29 71.1% $58.53 70.3% $64.41
1990 . . . . . 65.9% $55.88 69.1% $78.63 66.3% $60.99 66.6% $63.19
1991 . . . . . 66.6% $53.60 64.1% $78.14 61.4% $59.15 63.7% $60.80
1992 . . . . . 68.0% $54.83 64.9% $80.45 66.3% $58.64 66.6% $61.16
1993 . . . . . 70.0% $56.02 68.8% $84.36 68.4% $59.88 69.1% $62.74
The leases covering the Company's leased Hotels provide for fixed
lease rents and, in most instances, additional percentage rents based on a
percentage of room revenues. The leases also generally require the Company to
pay the cost of repairs, insurance and real estate taxes. In addition, some of
the Company's Owned Hotels are located on land subject to long-term leases,
generally for terms in excess of the depreciable lives of the improvements.
The Company continuously refurbishes its Owned Hotels in order to
maintain consistent quality standards. The Company generally spends
approximately 4% to 6% of hotel revenue on capital improvements at its Owned
Hotels and typically refurbishes each hotel approximately every five years.
The Company believes that its Owned Hotels are in generally good physical
condition, with over half of the Owned Hotels being less than five years old.
The Company recommends the refurbishment and repair projects on its Managed
Hotels although spending amounts vary based on the financial strength of the
hotel and its owner and the significance of the Company's interest as a
mortgagee.
Franchised Hotels
The Company currently operates 36 full-service Hotels and 15
limited-service Hotels under franchise agreements with Marriott, Radisson,
Sheraton, Holiday Inn, Ramada and Howard Johnson. Additionally, the Company
owns one independent hotel. The Franchised Hotels are mostly located in the
Northeast, Middle Atlantic and Western regions in the United States. The
hotels are generally positioned along major highways within close proximity to
corporate headquarters, office parks, airports, convention or trade
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centers and other major facilities. The customer base for Franchised Hotels
consists primarily of business travelers as well as tourists. The Company's
sales force markets to companies which have a significant number of employees
traveling in the Company's operating regions who consistently produce a high
volume demand for hotel room nights. Full-service hotels generally have pool,
restaurant, lounge, banquet and meeting facilities, whereas limited-service
hotels generally only have a pool and, in some instances, meeting facilities.
The Company manages one resort hotel, Marriott's Frenchman's Reef in
St. Thomas, U.S. Virgin Islands. The Frenchman's Reef is a 517- room resort
hotel which includes a 421-room eight-story building and 96 rooms in the
adjacent Morningstar Beach Resort. The Frenchman's Reef has seven restaurants,
extensive convention facilities, complete sports and beach facilities and a
self-contained total energy and desalinization system. The Frenchman's Reef is
marketed directly through its own sales force in New York City and at the
Hotel, and through the Marriott reservation system. The Frenchman's Reef
markets primarily to tour groups, corporate meetings, conventions and
individual vacationers. The Company currently manages the Frenchman's Reef
for an independent owner, although the Company holds a significant interest in
the property through a first mortgage that the Company acquired when it sold
the Frenchman's Reef in 1985. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The full-service Franchised Hotels generally are larger Hotels and
have between 150 and 300 rooms, pool, restaurant, lounge, banquet and meeting
facilities. Other amenities include fitness rooms, room service,
remote-control cable television and facsimile services. In order to improve
guest satisfaction, the Company has recently introduced or expanded theme
concept lounges such as sports bars, fifties clubs and country and western bars
in six of its Hotels. The hotels actively market meeting and banquet services
to groups and individuals for seminars, business meetings, holiday parties and
weddings. The full-service Franchised Hotels are operated under agreements
with Marriott, Radisson, Sheraton, Holiday Inn (including Crowne Plaza Hotels)
and Ramada. The Company received recognition in 1993 as a highly awarded
Ramada franchisee for hotel quality and service and received awards from other
franchisors and associations as well.
The following table sets forth for the five years ended December 31,
1993, with respect to the full-service Franchised Hotels that were Owned and
Managed Hotels, the number of locations, number of rooms, occupancy percentage
and ADR. The data includes full year operating results for hotels that the
Company had previously managed and then acquired during the year.
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Number of
------------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . 34 7,032 68.3 $72.41
1990 . . . . . . . . . . . . 36 7,389 64.3 $72.48
1991 . . . . . . . . . . . . 37 7,633 61.4 $69.57
1992 . . . . . . . . . . . . 37 7,633 64.7 $70.31
1993 . . . . . . . . . . . . 37 7,633 67.0 $73.00
The Company's limited-service Franchised Hotels generally have an
average of between 100 and 120 rooms and offer complimentary continental
breakfast, remote control cable television, pool facilities and facsimile
services, generally with restaurant facilities within a short distance of the
hotel. They are designed to appeal primarily to business travelers and
secondarily to tourists. The following table sets forth for the five years
ended December 31, 1993, with respect to the limited-service Franchised Hotels
that were Owned and Managed Hotels, the number of locations, number of rooms,
occupancy percentage and ADR. The data includes full year operating results
for hotels that the Company had previously managed and then acquired during the
year.
Number of
-----------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . . 9 1,010 69.1 $52.02
1990 . . . . . . . . . . . . . 9 1,010 61.8 $52.17
1991 . . . . . . . . . . . . . 9 1,010 54.4 $49.42
1992 . . . . . . . . . . . . 10 1,106 57.4 $47.01
1993 . . . . . . . . . . . . 13 1,465 60.4 $45.67
The Company reviews on an on-going basis each Franchised Hotel's
competitive position in its local market in order to decide the types of
product that will best meet the market's demand characteristics. Repositioning
a hotel generally requires renovation and refurbishment of the exterior and
interior of the building and may result in a change in brand name. In 1993,
the Company changed the franchise affiliations of four of its Hotels and will
continue to do so where appropriate. The Company has completed or is in the
process of repositioning eight of its Franchised Owned Hotels.
The Company believes short-term opportunities exist for acquisitions
of full-service Franchised Hotels at attractive multiples of cash flow or at
significant discounts to replacement values. Due to competition among hotel
buyers, the Company cannot predict when or if it will acquire additional
hotels. The Company seeks to complement its acquisition objectives by adding
Managed Hotels. The Company believes there is a market for experienced
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hotel operators to manage for hotel equity holders such as banks, insurance
companies and other capital investors.
Wellesley Inns
The Company's proprietary Wellesley Inns chain consists of 27
limited-service hotels, 14 of which are located in Florida and the remainder in
the Middle Atlantic and Northeast United States. The Company owns and operates
11 Wellesley Inns and manages 16 Wellesley Inns for independent owners. The
Company has developed separate strategies for the Wellesley Inns located in
Florida and the northern Wellesley Inns. In Florida, where the population has
grown rapidly and development opportunities continue to exist, it has built a
geographically concentrated group of Wellesley Inns thereby developing brand
name recognition in Florida. In 1993, the Florida Wellesley Inns average
occupancy was approximately 90% and gross operating profits averaged over 50%
of hotel revenues. The prototypical Florida Wellesley Inn has 105 rooms and is
distinguished by its classic stucco exterior, spacious lobby and amenities such
as continental breakfast, remote control cable television and facsimile
services. The Florida properties are operated through the Company's Florida
regional office. Marketing efforts rely heavily on direct marketing and
billboard advertising. In the Middle Atlantic and Northeast where the Company
believes new development opportunities are limited, the Company has focused on
building the Wellesley Inns system through acquisition and conversion of
existing properties. In 1993, the northern Wellesley Inns average occupancy
was over 72% and gross operating profits averaged approximately 46% of hotel
revenues. The Company owns eight Florida Wellesley Inns and three northern
Wellesley Inns.
The following table sets forth for the five years ended December 31,
1993, with respect to the Wellesley Inns that are Owned and Managed Hotels, the
number of locations, number of rooms, occupancy percentage and the average
daily rate ADR. The data includes full year operating results for hotels that
the Company had previously managed and then acquired during the year.
Number of
------------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . 21 2,031 78.8 $43.54
1990 . . . . . . . . . . . . 26 2,561 78.4 $43.75
1991 . . . . . . . . . . . . 26 2,561 76.5 $43.75
1992 . . . . . . . . . . . . 26 2,561 78.0 $43.74
1993 . . . . . . . . . . . . 27 2,666 81.2 $45.28
The majority of the Florida Wellesley Inns were constructed within the
past five years. Historically, the Company has built
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Florida Wellesley Inns at a cost of approximately $35,000 to $40,000 per room,
depending on land costs. Florida Wellesley Inns have a low cost structure and
have had rapid stabilization periods generally within six to 18 months of
opening. The Company has begun construction of one Wellesley Inn in the
Sawgrass section of Fort Lauderdale, Florida and one Wellesley Inn in Lakeland,
Florida. The Company plans to expand the Northern portion of the Wellesley Inn
chain through conversion of existing mid-priced limited-service hotels rather
than through new construction.
AmeriSuites
The Company owns eight AmeriSuites hotels, which are positioned in the
all-suites segment of the hotel industry. AmeriSuites hotels offer guests an
attractively designed suite unit with a complimentary continental breakfast in
a spacious lobby cafe, remote control cable television and facsimile service.
AmeriSuites is a limited-service concept which offers group meeting space, but
does not include restaurant or lounge facilities. AmeriSuites attract
customers which typically stay in mid-market limited-service and full-service
hotels principally because of the quality of the guest suites, which offer
distinct living, sleeping and kitchen areas. AmeriSuites contain approximately
125 suites and two to four meeting rooms. AmeriSuites are primarily located
near corporate office parks and major attractions in the South and Central
parts of the United States. The target market is primarily the business
traveler with an average length of stay of two to three nights and secondarily
traveling families. The Company's eight AmeriSuites are managed by ShoLodge.
The Company currently intends to manage the AmeriSuites it is planning to build
in Tampa, Florida and any other AmeriSuites owned by the Company outside the
ShoLodge joint venture. AmeriSuites are marketed on a local level primarily
through direct sales and use the ShoLodge reservation system.
The following table sets forth for the five years ended December 31,
1993, with respect to AmeriSuites that are Owned Hotels, the number of
locations, number of rooms, occupancy percentage and the ADR. The data
includes full year operating results for hotels that the Company had previously
managed and then acquired during the year.
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Number of
------------------------
Locations Rooms Occupancy % ADR
--------- ----- ----------- ---
1989 . . . . . . . . . . . . 0 0 0.0 $0.00
1990 . . . . . . . . . . . . 3 367 37.9 $60.23
1991 . . . . . . . . . . . . 4 497 48.5 $55.33
1992 . . . . . . . . . . . . 6 749 60.0 $54.99
1993 . . . . . . . . . . . . 8 993 64.1 $56.21
In 1993, the Company, through Suites of America, Inc., a wholly owned
subsidiary ("Suites of America"), entered into a joint venture agreement with
ShoLodge designed to increase the number of AmeriSuites from the six hotels
owned at that time by adding six hotels to be built and financed by ShoLodge.
ShoLodge has completed development of three hotels, two of which the Company
has acquired subject to ShoLodge mortgages, bringing to eight the total number
of AmeriSuites owned by the Company. In addition, ShoLodge has three hotels
currently under construction. Upon the occurrence of certain events and the
exercise of an option by either ShoLodge or the Company, Suites of America will
own 12 AmeriSuites, ShoLodge will own a 50% interest in Suites of America and
Suites of America will enter into a 20 year management agreement with ShoLodge.
The Company will retain ownership of and all rights to license and develop the
brand name for its own account, regardless of whether the Company or ShoLodge
executes such option.
The Company plans to develop the AmeriSuites chain through new
construction for its own account outside the joint venture. The Company has
begun development of a site in Tampa, Florida and has other sites currently
under review. All of the AmeriSuites were constructed within the past four
years. The Company has historically built AmeriSuites at a cost of
approximately $45,000 to $48,000 per room, depending on land costs.
AmeriSuites have a low cost structure and have had stabilization periods,
generally of 24 to 36 months of opening. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Other Assets
On the December 31, 1993 balance sheet, Other Assets totalled
approximately $188.9 million and consisted of an aggregate principal amount of
$115.3 million of mortgages and notes secured by Managed Hotels, $50.0 million
of other mortgages and notes and $23.6 million of real property not related to
Owned Hotels (approximately $12 million of which consisted of office
buildings). The Company intends to convert certain of these Other Assets to
cash and hotel assets. In 1992 and 1993, the Company converted
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$46.2 million and $14.6 million, respectively, of Other Assets to cash and
added six operating hotel assets through settlements and lease terminations.
The Company's mortgage notes secured by hotel properties consist
primarily of notes with a book value of $100.2 million secured by mortgages on
12 Managed Hotels. These notes currently bear interest at rates ranging from
8.5% to 14.0% per annum and have various maturities through 2014. The
mortgages were primarily derived from the sales of hotel properties. The
largest of the 12 is the Frenchman's Reef mortgage, which the Company is
seeking to restructure. The Frenchman's Reef accounts for $50.0 million of the
mortgage notes and has a face value of approximately $79.0 million (excluding
accrued interest). The Company has restructured approximately $36.5 million of
the remaining mortgages and notes to receive the majority of available cash
flow and a participation in the future excess cash flow of such hotel
properties. The restructurings generally include senior mandatory-payment
notes and junior notes payable annually based on cash flow. The Company
believes that, taken together, the restructured senior and junior mortgage
notes often exceed the value of the properties they encumber. As a result,
these junior notes bear many of the characteristics and risks of operating
hotel equity investments and are not reflected on the Company's balance sheet.
Earnings on the Other Assets totaled 14.9% of Company's revenues in 1993. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
In addition to the 12 significant mortgage positions referred to
above, the Company also holds the junior, accruing or cash flow notes and other
interests on 19 other properties managed by the Company. With regard to these
19 properties, third parties generally hold significant senior mortgages.
Because there is substantial doubt that the Company will recover any of their
value, none of these subordinated financial interests are valued on the
Company's balance sheet.
In 1993, the Company recognized $3.8 million of interest income from
the senior, mandatory payment notes and $1.0 million of interest income related
to the junior, accruing or cash flow-based notes. The ability to collect on
these junior notes is affected by interest rates on other hotel debt owed to
third parties that is senior to the Company's mortgages and notes on the hotel
properties. The junior, accruing or cash flow notes have benefitted recently
from lower floating interest rates on the more senior debt. Approximately $4.3
million or 28.8% of the 1993 interest income on mortgages and notes was derived
from the Company's note receivable secured by the Frenchman's Reef. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's other notes receivable consist primarily of a note with
a book value of $25 million related to loans its predecessor made to entities
controlled by Rose and Cohen. The Company has collected $25.0 million from
Rose, which amount has been placed in escrow in settlement of the note from
Rose and Cohen. The entire amount of the settlement is subject to a claim by
Financial Security Assurance, Inc. ("FSA"). The Rose and Cohen Settlement
will include an additional amount from the liquidation of approximately 1.1
million shares of the Company's common stock held by Rose. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
Realizations."
Management Agreements
The Company provides hotel management services to third party hotel
owners of 47 Managed Hotels. Management fees are derived from the Managed
Hotels based on fixed percentages of the property's total revenues. Additional
fees are also generated from the rendering of specific services such as
accounting services, construction services, design services and sales
commissions and performance related incentive payments based on certain
measures of hotel income. The Company's fixed management fee percentages range
from 0.5% to 5.0% and average 3.5% of the Managed Hotel's total revenues before
giving consideration to performance related incentive payments. The base and
incentive fees comprised approximately 60.1%, or $6.5 million, of the total
management and other fees in 1993. Terms of the management agreements vary but
the majority are considered short-term and, therefore, there are risks
associated with termination of these agreements. However, the Company believes
these risks are mitigated due to its role as lender or provider of trade names
in many of these instances. The Company seeks to expand the number of hotels
under management agreements for third parties as a complement to its core hotel
ownership operation. In the first quarter of 1994 the Company added two
Managed Hotels in Santa Clara, California and Atlanta, Georgia. It believes
that the management service business provides gross revenue opportunities
without the investment of significant capital expenses and operating costs.
Operations
As a leading domestic hotel operating company, the Company enjoys a
number of operating advantages over other lodging companies. With 87 Hotels
covering a number of price points and broad geographic regions, the Company
possesses the critical mass
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to support sophisticated operating, marketing and financial systems. The
Company believes that its broad array of central services permits on-site hotel
general managers to effectively focus on providing guest services, results in
economies of scale and leads to above-market hotel profit margins. As a result
of these operating strategies, the Company's Hotels generated average operating
profit margins that exceeded comparable industry standards for 1992, as
reported by industry sources, by approximately six percent for limited-service
hotels and 16 percent for full-service hotels.
The Company's operating strategy combines operating service and
guidance from its central management team, with decentralized decision-making
authority delegated to each hotel's on-site management. On-site hotel managers
focus on providing guest services. The on- site hotel management teams focus
on providing guest services and consist of a general manager and, depending on
the hotel's size and market positioning, managers of sales and marketing, food
and beverage, front desk services, housekeeping and engineering. The Company's
operating objective is to exceed guest expectations by providing quality
services and comfortable accommodations at the lowest cost consistent with each
hotel's market position. On-site hotel management is responsible for efficient
expense controls and uses operating standards provided by the Company. Within
parameters established in the operating and capital planning process, on-site
management possesses broad decision-making authority on operating issues such
as guest services, marketing strategies, hiring practices and incentive
programs. Each hotel's management team is empowered to take all necessary
steps to ensure guest satisfaction within established guidelines. Key on-site
personnel participate in an incentive program based on hotel revenues and
profits.
The central management team, located in Fairfield, New Jersey,
provides four major categories of services: (i) operations management, (ii)
sales and marketing management, (iii) financial reporting and control and (iv)
hotel support services.
Operations Management. Operations management consists of the
development, implementation and monitoring of hotel operating standards and is
provided by a network of regional operating officers who are each responsible
for the operations of 10-15 hotels. Supporting them are training, food and
beverage and human resources departments, each staffed full-time by specialized
professionals. The cornerstone of operations management is employee training,
with a staff of professionals dedicated to training in sales, housekeeping,
food service, front desk services and leadership. The Company believes these
efforts increase
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employee effectiveness, reduce turnover and improve the level of guest
services.
The Company's cost-effective centralized management services benefit
not only its existing operations but also provide additional opportunities for
growth and development from acquisitions. In all of the recently acquired
Hotels, the Company's headquarters have assumed certain of the operational
responsibilities which previously had been performed by the on-site Hotel
management. In addition, the Company believes it has improved operating
efficiencies for each of these Hotels that it has acquired.
Sales and Marketing. Aggressive sales and marketing is a top
operating priority. Sales and marketing management is directed by a corporate
staff of 20 professionals, including regional marketing directors who are
responsible for each Hotel's sales and marketing strategies, and the Company's
12-member national sales group, Market Segments, Inc. ("MSI"). In cooperation
with the regional marketing and organization staff, on-site sales management
develops and implements short- and intermediate-term marketing plans. The
Company focuses on yield management techniques, which optimize the relationship
between hotel rates and occupancies and seek to maximize profitability. In
addition, the Company assumes prominent roles in franchise marketing
associations to obtain maximum benefit from franchise affiliations. The
Company's in-house creative department creates hotel advertising materials and
programs at cost-effective rates.
Complementing regional and on-site marketing efforts, MSI's marketing
team targets specific hotel room demand generators including tour operators,
major national corporate accounts, athletic teams, religious groups and others
with segment-specialized sales initiatives. MSI's primary objective is to book
hotel rooms at the Company's Hotels and its secondary objective is to market
its services on a commission basis to major operators throughout the industry.
Sales activities on behalf of non-affiliated hotels increase the number of
hotels where bookings can be made to support marketing efforts and defray the
costs of the marketing organization.
Financial Reporting and Control. The Company's system of centralized
financial reporting and control permits management to closely monitor
decentralized hotel operations without the cost of financial personnel on site.
Centralized accounting personnel produce detailed financial and operating
reports for each Hotel. Additionally, central management directs budgeting and
analysis, processes payroll, handles accounts payable, manages each Hotel's
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cash, oversees credit and collection activities and conducts on-site hotel
audits.
Hotel Support Services. The Company's hotel support services combine
a number of technical functions in central, specialized management teams to
attain economies of scale and minimize costs. Central management handles
purchasing, directs construction and maintenance and provides design services.
Technical staff teams support each hotel's information and communication
systems needs. Additionally, the Company directs safety/risk management
activities and provides central legal services.
Franchise Agreements
The Company enters into non-exclusive franchise licensing agreements
with various franchisors, which agreements typically have a ten year term and
allow the Company to benefit from franchise brand recognition and loyalty. The
non-exclusive nature of the franchise agreement allows the Company the
flexibility to continue to develop properties with the brands that have shown
success in the past or to develop in conjunction with other brand names. While
the Company currently has a good relationship with its franchisors, there can
be no assurance that a desirable replacement would be available if any of the
franchise agreements were to be terminated.
The franchise agreements require the Company to pay annual fees, to
maintain certain standards and to implement certain programs which require
additional expenditures by the Company such as remodeling or redecorating. The
payment of annual fees, which typically total 7% to 8% of room revenues, cover
royalty fees and the costs of marketing and reservation services provided by
the franchisors. The use of franchisor reservation systems typically result in
increased occupancy. Franchise agreements, when initiated, generally provide
for an initial fee in addition to annual fees payable to the franchisor.
Working Capital
The Company currently funds its working capital needs principally
through a combination of existing cash balances, cash flow from operations and
cash from Other Asset settlements. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation - Financial
Condition."
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Seasonality
The impact of seasonality on the Company as a whole is insignificant
due to the seasonal balance achieved from the geographical location of the
Company's hotel properties in the Northeast and Southeast.
Competition
The Company operates and manages hotel properties in areas that
contain numerous other hotels, some of which are affiliated with national or
regional chains. The Company competes with other hotels primarily on the basis
of price, physical facilities and customer service.
The Company also competes with other management companies for the
management of hotel properties owned by third parties. Due to the abundance of
management companies, the percentage of gross sales which the Company earns as
a manager has decreased in certain instances and the terms of the management
agreements, have been reduced. In order to retain existing management
contracts, the Company may have to reduce further the fees which it receives.
Employees
As of December 31, 1993, the Company employed approximately 4,900
employees. Certain of the Company's employees are covered by collective
bargaining agreements. The Company believes that relations with its employees
are good.
Environmental Matters
The Hotels are subject to environmental regulations under Federal,
state and local laws. Certain of these laws may require a current or previous
owner or operator of real estate to clean up designated hazardous or toxic
substances or petroleum product releases affecting the property. In addition,
the owner or operator may be held liable to a governmental entity or to third
parties for damages or costs incurred by such parties in connection with the
contamination. The Company does not believe that it is subject to any material
environmental liability.
Item 3. Legal Proceedings.
On September 3, 1993 Frenchmen's Reef Beach Resorts ("FRBA") filed for
protection under chapter 11 of the Bankruptcy Code. FRBA is the owner of the
Marriott Hotel, St. Thomas. U.S. Virgin Islands (the "Hotel"). The Company
holds mortgages encumbering the Hotel which secure obligations of FRBA to the
Company. In addition, the
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Company manages the Hotel for FRBA pursuant to a written agreement. FRBA has
filed with the bankruptcy court a Disclosure Statement setting forth a Plan of
Reorganization which, among other things, provides for the conveyance of the
Hotel to the Company. The limited partners of FRBA have filed an objection to
the Disclosure Statement. The Company has pending before the bankruptcy court
a motion for permission to commence and pursue a foreclosure of its mortgages
through the receipt of a judgement of foreclosure.
In a proceeding captioned PMI Investment, Inc. vs. Allan V. Rose and
Arthur Cohen et al. brought before the bankruptcy court the Company seeks to
recover amounts owed by Rose and Cohen under a guaranty. In that same
proceeding, the Company also seeks a determination that FSA has no claim to the
proceeds of any recovery from Rose and Cohen.
The Company has reached a settlement in that proceeding with Rose and
Cohen. Under the settlement, the Company will receive $25.0 million in cash,
which Rose has deposited in escrow, and the cash proceeds of the sale of
approximately 1.1 million shares of the Company's stock owned by Rose under the
Prime Motor Inns, Inc. Second Amended Plan of Reorganization. Disbursal of the
settlement proceeds is subject to the bankruptcy court's approval of the
settlement and the bankruptcy court's determination that FSA has no claim to
the settlement proceeds. A trial was held in January, 1994 on both issues and
the Company is awaiting the decision of the bankruptcy court.
PMI has responded to informal requests for information by the United
States Securities and Exchange Commission's Division of Enforcement relating to
certain of PMI's significant transactions for the years 1985 through 1990.
PMI has not submitted its Annual Report on Form 10-K for the fiscal
year ended June 30, 1990 and Quarterly Reports on Form 10-Q during the pendency
of its reorganization, except for its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992.
Contingent Claims
As of March 1, 1994 unresolved bankruptcy claims of approximately
$437,000,000 have been asserted against PMI. The Company has disputed
substantially all of these unresolved bankruptcy claims and has filed
objections to such claims. Management and its counsel believe that
substantially all of these claims will be dismissed and disallowed. Any claims
not disallowed will be satisfied by issuance of the Company's common stock. In
accordance with SOP 90-7, the consolidated financial statements have given full
effect to the issuance of the Company's common
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stock. The Company believes that the resolution of these claims will not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
In addition to the foregoing legal proceedings, the Company is
involved in various other proceedings incidental to the normal course of its
business. Management does not expect that any of such other proceedings will
have a material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fiscal quarter ended December 31,
1993 to a vote of the security holders of the Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock, par value $.01 per share, commenced
trading on the New York Stock Exchange (the "NYSE") on August 3, 1992 under
the symbol "PDQ." As of March 10, 1994 there were 29,200,204 shares of common
stock outstanding. The Company's Plan of Reorganization ("the Plan") provided
for the issuance of 33,000,000 shares of common stock to holders of claims
under the Plan. The number of shares ultimately distributed under the Plan
could be less than 33,000,000 shares depending on the final outcome of
disputed claims. In addition, the Company has issued warrants to purchase an
aggregate of 2,106,000 shares of common stock. The warrants are not listed on
any exchange.
The following table sets forth the reported high and low closing sales
prices of the common stock on the NYSE.
Five Months Ended
December 31, 1992 High Low Dividend/Share
- ----------------- ---- ----- --------------
Third Quarter (August 3, . . . . . . . . . . . . . . . . . 2-1/8 1-1/2 -0-
1992 - September 30, 1992)
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 2-1/4 1-1/2 -0-
Year Ended
December 31, 1993
- -----------------
First Quarter . . . . . . . . . . . . . . . . . . . . . . . 3-5/8 2-1/8 -0-
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 4-1/2 3-1/2 -0-
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 4-3/4 3-1/8 -0-
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 6 4-3/8 -0-
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As of March 10, 1994, the closing sales price of the common stock on
the NYSE was $7 1/8. As of March 10, 1994, there were approximately 3,422
holders of record of common stock.
Prime does not anticipate paying any dividends on the common stock in
the foreseeable future. Covenants contained in certain of the Company's debt
securities prohibit Prime from paying cash dividends.
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Item 6. Selected Financial Data
The Company is the successor in interest to PMI. The Company
implemented "fresh start" reporting pursuant to the Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
of the American Institute of Certified Public Accountants, as of the Effective
Date. Accordingly, the consolidated financial statements of the Company are
not comparable in all material respects to any such financial statement as of
any date or any period prior to the Effective Date. Subsequent to the
Effective Date, the Company changed its fiscal year end from June 30 to
December 31. The table below presents selected consolidated financial data
derived from: (i) the Company's historical financial statements for the year
ended December 31, 1993, (ii) the Company's historical financial statements as
of and for the five month period ended December 31, 1992, (iii) the Company's
"fresh start" balance sheet as of the Effective Date, and (iv) the historical
consolidated financial statements of PMI for the one month ended July 31, 1992
and for each of the four years in the period ended June 30, 1992. This data
should be read in conjunction with the Consolidated Financial Statements.
Post-Reorganization Pre-Reorganization
--------------------------- ----------------------------------------
As of and for the
--------------------------
As of and for Five Months | One Month As of and for the
the Year Ended Ended | Ended Year Ended June 30,
December 31, December 31, | July 31, -----------------------
1993 1992 | 1992(1) 1992(1) 1991(1)
---------------- ------------- | ------------ -------- -------
(IN THOUSANDS)
|
STATEMENT OF OPERATIONS DATA: |
Total revenues . . . . . . . . . . . $108,860 $ 41,334 | $ 8,793 $134,190 $205,699
Valuation writedowns |
and reserves . . . . . . . . . . . -- -- | (13,000) (62,123) (59,149)
Reorganization items . . . . . . . . -- -- | 1,796 (23,194) (181,655)
Income(loss) from |
continuing operations before |
extraordinary items (3) . . . . . . 8,175 1,393 | (10,274) (71,965) (246,110)
Extraordinary items - gains |
on discharge of indebtedness |
(net of income taxes) . . . . . . 3,989 -- | 249,600 -- --
Net income (loss) . . . . . . . . . . . . 12,164 1,393 | 239,326 (71,965) (227,188)
|
BALANCE SHEET DATA: |
Total assets . . . . . . . . . . . . 410,685 403,314 | 468,650 554,118 679,916
Long-term debt, net of |
current portion . . . . . . . . . 168,618 192,913 | 204,438 8,921 2,851
Sotckholders' equity |
(deficiency) . . . . . . . . . . . 171,364 137,782 | 135,600 (229,292) (157,327)
Pre-Reorganization
------------------------
As of and for the
Year Ended June 30,
------------------------
1990 (1)(2) 1989
------------ ----------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Total revenues . . . . . . . . . . . $277,239 $ 315,189
Valuation writedowns
and reserves . . . . . . . . . . . (240,855) (9,398)
Reorganization items . . . . . . . . -- --
Income(loss) from
continuing operations before
extraordinary items (3) . . . . . . (280,387) (6,630)
Extraordinary items - gains
on discharge of indebtedness
(net of income taxes) . . . . . . -- --
Net income (loss) . . . . . . . . . . (267,075) (6,630)
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . 934,116 1,079,682
Long-term debt, net of
current portion . . . . . . . . . 368,925 422,828
Sotckholders' equity
(deficiency) . . . . . . . . . . . 66,681 334,014
- ----------------
(1) PMI filed for chapter 11 bankruptcy protection on September 18, 1990, at
which time it owned or managed 141 hotels. During its approximately
two-year reorganization, PMI restructured its assets, operations and
capital structure. On the Effective Date, the Company emerged from chapter
11 reorganization with 75 owned or managed hotels (as compared to 141 owned
or managed hotels prior to the chapter 11 reorganization) $135.6 million of
stockholders' equity and $266.4 million of long-term debt.
(2) PMI effectively discontinued the operations of its franchise segment on
July 1, 1990, with the sales of the Howard Johnson, Ramada and Rodeway
franchise businesses in July 1990.
(3) Approximately $2.3 million, $28.0 million and $25.3 million of contractual
interest expense during the one month ended July 31, 1992 and for the
fiscal years ended June 30, 1992 and 1991, respectively, was not accrued
and was not paid due to the chapter 11 proceeding.
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Item 6. (Continued) Selected Quarterly Financial Data (Unaudited)
Quarterly financial data for the years ending December 31, 1993 and 1992 is
presented as follows (in thousands, except per share amounts).
Three Months Ended
----------------------------------------------------------------------
December 31, September 30 June 30, March 31, December 31,
1993 1993 1993 1993 1992
----------------------------------------------------------------------
Net revenue . . . . . . $27,906 $29,480 $26,689 $24,785 $23,781
Gross profit(a) . . . . . 5,394 7,545 6,393 5,594 4,553
Net income(loss) before
extraordinary items. . 2,213 3,379 1,588 995 281
Extraordinary items
(net of tax) . . . . (68) -- 631 3,426 --
Net income(loss) . . . . . 2,145 3,379 2,219 4,421 281
Income(loss) per
common share:
Income(loss) before
extraordinary items 0.06 0.10 0.05 0.03 0.01
Extraordinary items -- -- 0.02 0.10 --
----------------------------------------------------------------------
Net income(loss) . . . . . $0.06 $0.10 $0.07 $0.13 $0.01
======================================================================
Two Months One Month Three Months Ended
Ended Ended ------------------------
September 30, July 31, June 30, March 31,
1992 1992 1992 1992
------------------------------------------------------
Net revenue . . . . . . $17,553 $8,793 $29,378 $29,683
Gross profit(a) . . . . . 4,793 1,709 4,137 5,188
Net income(loss) before
extraordinary items. . 1,112 (10,274) (74,344) 351
Extraordinary items
(net of tax) . . . . -- 249,600 -- --
Net income(loss) . . . . . 1,112 (239,326) (74,344) 351
Income(loss) per
common share:
Income(loss) before
extraordinary items 0.03 (0.31) (2.25) 0.01
Extraordinary items -- 7.56 -- --
------------------------------------------------------
Net income(loss) . . . . . $0.03 $7.25 ($2.25) $0.01
======================================================
(a) Gross profit is defined as net revenues less direct operating expenses,
other operating and general expenses and depreciation and amortization
expense.
(b) Certain quarterly data has been reclassified to conform with the December
31, 1993 presentation.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company is the successor in interest to PMI, which emerged from
chapter 11 reorganization on the Effective Date. During its approximately
two-year reorganization, PMI restructured its assets, operations and capital
structure. As a result, the Company (i) eliminated numerous unprofitable lease
and management agreements, (ii) revalued its assets to reflect the then
approximate current fair market value of such assets on its financial
statements and (iii) reduced its liabilities by approximately $500 million. On
the Effective Date, the Company emerged from chapter 11 reorganization with 75
owned or managed hotels (as compared to 141 hotels prior to the chapter 11
reorganization), $135.6 million of total equity and $266.4 million of long-term
debt.
Since the Effective Date, the Company has taken the following actions
to further strengthen its operations and financial condition:
- Reduced overhead costs, reconstituted its management team and
recruited new senior management to the Company that is
responsible to a new, independent board of directors;
- Converted a portion of its notes, mortgages and other assets
to cash or hotel operating assets that provided the Company
with approximately $61.0 million in cash and six operating
hotel properties obtained through settlements or lease
expiration;
- Repaid approximately $87.0 million of its long-term debt using
the cash proceeds from conversions of other assets, tax
refunds and income generated from Hotel operations;
- Formulated and began implementing a hotel development and
improvement plan pursuant to which the Company purchased one
full- service hotel and built one new Wellesley Inn in 1993;
and
- Allocated more than 6.0% of its hotel revenues during this
period to enhance the product quality and market position of
its existing Hotels, including repositioning eight Hotels and
changing the franchise affiliations of four of such Hotels.
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The following table sets forth certain operating data for the five
year period ended December 31, 1993 with respect to the 41 Owned Hotels that
were in the Company's portfolio on December 31, 1993 since the later of the
year in which they were acquired or January 1, 1989. The data includes full
year operating results for hotels that the Company previously managed and then
acquired during the year.
1989(1) 1990(1) 1991(1) 1992(1) 1993(1)
------- ------- ------- ------- -------
Number of locations
at year end . . . . . . . . . . . . . . 21 31 32 35 41
Number of rooms
at year end . . . . . . . . . . . . . 2,545 3,953 4,083 4,425 5,145
Occupancy% . . . . . . . . . . . . . . . . 67.8% 65.9% 66.6% 68.0% 70.0%
ADR . . . . . . . . . . . . . . . . . . . $59.19 $55.88 $53.60 $54.83 $56.01
REVPAR . . . . . . . . . . . . . . . . . . $40.10 $36.80 $35.68 $37.30 $39.19
Room revenues . . . . . . . . . . . . . . . $29,809 $44,101 $51,774 $57,992 $66,721
Total hotel revenues . . . . . . . . . . . $43,090 $59,437 $68,137 $74,162 $83,652
Gross operating profit(1) . . . . . . . . . $17,741 $25,312 $26,798 $26,607 $31,997
Gross operating profit% . . . . . . . . . . 41.2% 42.6% 39.3% 35.9% 38.2%
(1) Gross operating profit is defined as total hotel revenues less direct
hotel operating expenses including room, food and beverage and selling
and general expenses.
- --------------
The Company's operating results for the five-year period from 1989 to
1993 were principally impacted by the overall trends in the U.S. lodging
industry. In 1990 and 1991, occupancy and ADR declined due to the oversupply
of hotel rooms and the weakness in demand due to the general slowdown in the
U.S. economy. Beginning in 1992, the demand for hotel rooms increased
primarily due to improved economic conditions in the United States. Coupled
with the lack of new hotel supply, occupancy, ADR and REVPAR improved. In
1993, occupancy, ADR and REVPAR continued to rise due to improving industry
fundamentals, the stabilization of the Company's Wellesley Inns and AmeriSuites
and the positive effects of the capital investments made by the Company to
improve product quality through repositionings of hotels.
Over the five-year period ended December 31, 1993, gross operating
profit was most affected by (i) the mix of the Company's limited- service
hotels as compared to full-service hotels, (ii) labor and related costs and
(iii) strategic marketing initiatives. The five Wellesley Inns added to the
Company's portfolio generated high gross operating margins and allowed the
Company to increase margins in 1990 despite a difficult economic environment.
In 1991 and 1992, the positive impact on gross operating profits from the
addition of the Wellesley Inns were offset by (i) above inflation
25
27
rate increases in direct hotel labor and related expenses (including wages,
health care benefits and workman's compensation), (ii) the Company's decision
to increase advertising and promotions (including hiring additional sales
staff, providing additional guest services such as enhanced continental
breakfasts and increasing outdoor advertising and direct mail marketing
campaigns) and (iii) the reallocation of previously centralized costs to
specific hotels. In 1993, gross operating profit improved primarily due to the
stabilization of labor and related costs and increased sales volumes. Given
the current positive industry fundamentals and the Company's proposed new hotel
development and acquisition refurbishment programs, the Company believes it
will continue to benefit from operating leverage.
Results of Operations for Year Ended December 31, 1993 Compared to Year Ended
December 31, 1992
The Company implemented "fresh start" reporting in accordance with
Statement of Position 90-7 of the American Institute of Certified Public
Accountants upon its emergence from reorganization on the Effective Date.
Under "fresh start" reporting, the purchase method of accounting was used and
the assets and liabilities of the Company were restated to reflect their
approximate fair value at the Effective Date. In addition, during the
reorganization period (September 18, 1990 to the Effective Date), the Company's
financial statements were prepared under accounting principles for entities in
reorganization which includes reporting interest expense only to the extent
paid and recording transactions and events directly associated with the
reorganization proceedings. Accordingly, the consolidated financial statements
of the Company are not comparable in all material respects to any such
financial statement as of any date or for any period prior to the Effective
Date. Subsequent to the Effective Date, the Company elected to change its
fiscal year end from June 30 to December 31.
For purposes of an analysis of the results of operations, comparisons
of the Company's results of operations for the year ended December 31, 1993 to
the prior year are made only when, in management's opinion, such comparisons
are meaningful. Prior to the Effective Date, the Company did not employ "fresh
start" reporting thereby making comparisons of certain financial statement data
prior to such date less meaningful. The financial information set forth below
presents the revenues and expenses which can be compared. The table excludes
the items which were impacted by the changes in accounting such as interest
expense, occupancy and other operating expense and depreciation expense for the
years ended December 31, 1992 and 1993. The financial information should be
read in conjunction with the consolidated financial statements of the Company
included elsewhere in this report. Since the Company
26
28
changed its fiscal year in 1992, management has compiled unaudited data for the
calendar year ended December 31, 1992.
The direct revenues and expenses of the Owned Hotels are classified
into three categories: comparable hotels, new hotels and divested hotels. The
following discussion focuses primarily on the 29 comparable hotel properties
which were owned or leased by the Company during the entire two years
presented. The 12 hotels classified as new hotels are composed of four new
AmeriSuites hotels which were opened after December 31, 1991, a full-service
Ramada Inn in Meriden, Connecticut which was purchased in July 1993, a newly
constructed Wellesley Inn in Orlando, Florida which opened in November 1993 and
six hotel properties which were added through settlements of mortgages and
notes receivable and lease expirations. The hotels classified as divested
hotels are composed of three hotel properties divested primarily as a result of
property restructurings in 1992 and the Holiday Inn in Milford, Connecticut
which was sold in September 1993.
Years Ended
December 31,
1993 1992
------ ------
(In thousands, except for statistical information)
Room revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,219 $51,679
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,941 2,001
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,327 8,699
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,487 62,379
Food and beverage revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,055 9,549
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 91
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 3,422
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,270 13,062
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,831 11,452
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,765 20,063
Rental and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,507 2,232
Direct room expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,848 14,003
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,115 574
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 3,281
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,456 17,858
Direct food and beverage expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,480 8,278
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,504 78
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 3,046
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,230 11,402
27
29
Years Ended
December 31,
1993 1992
------ ------
Direct selling and general hotel expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 16,004
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,860 541
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369 5,574
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,429 22,119
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . 15,685 17,162
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,809 --
Extraordinary items (pre-tax) . . . . . . . . . . . . . . . . . . . . . . . . . 6,761 --
Statistical information:
Comparable hotels:
Average occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . 72.15% 68.11%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55.96 $54.66
New hotels:
Average occupancy% . . . . . . . . . . . . . . . . . . . . . . . . . . 63.86% 50.67%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57.17 $55.59
Room revenues increased by $7.1 million or 11.4% for the year ended
December 31, 1993 over the prior year due to the impact of new hotels and
improved occupancy and room rates at comparable hotels. The increase was
partially offset by a decrease in room revenues as a result of the divestiture
of hotels. Room revenues for comparable hotels increased by $3.5 million or
6.8% for the year ended December 31, 1993 compared to the prior year. The
increase was primarily due to improved occupancy which increased 5.9% in 1993
reflecting improved economic conditions and the limited new construction of
hotels. Average daily room rates were slightly higher in the year ended
December 31, 1993 compared to the prior year, increasing by $1.30 or 2.4% over
the prior year. The Company's comparable full-service hotels had an average
occupancy of 69.3% for the year ended December 31, 1993 as compared to 65.2% in
1992. Average occupancy at the seven comparable Wellesley Inns in Florida
remained relatively stable at approximately 90% while average occupancy at the
three comparable Wellesley Inns in the Northeast increased to 73.4% for the
year ended December 31, 1993 from 61.3% in 1992 primarily as a result of
improved direct marketing efforts. Significant occupancy increases were also
reported at the four comparable AmeriSuites hotels all of which were opened
within the past four years. The average occupancy at the comparable
AmeriSuites hotels increased to 67.7% for the year ended December 31, 1993 from
63.7% in 1992 reflecting stabilization of these hotels and their increased
recognition in the market.
Food and beverage revenues decreased by $792,000 or 6.1% for the year
ended December 31, 1993 as compared to 1992 because all of
28
30
the divested hotels contained food and beverage operations while many of the
new hotels are limited-service hotels. Food and beverage revenues for
comparable hotels increased by 5.3% for the year ended December 31, 1993
compared to the prior year primarily as a result of increased beverage revenues
at the Company's sports lounges located in two 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, MSI.
The base and incentive fees comprise approximately 60% or $6.5 million of total
management and other fees for the year ended December 31, 1993. Management and
other fees decreased by $621,000 for the year ended December 31, 1993 as
compared to the prior year primarily due to a decrease in charges for
additional services. In addition, during the year ended December 31, 1993, the
number of Managed Hotels declined by five due to property divestitures by
independent owners, two of which were acquired by the Company. The decreases
have been partially offset by increases in management fees attributable to
increased hotel occupancies and higher incentive related performance fees.
Interest income on mortgages and notes decreased by $5.3 million for
the year ended December 31, 1993 as compared to the prior year primarily due to
the Company's early collection of a note receivable with a face amount of $58.0
million in August 1992. Interest income for the year ended December 31, 1993
primarily related to mortgages secured by 12 Managed Hotels. Approximately
$4.3 million or 28.8% of interest income is derived from the Company's $50
million note receivable secured by the Frenchman's Reef. For the year ended
December 31, 1993, operating profits improved for the Frenchman's Reef over the
prior year due to the stronger economy, the new affiliation with Marriott and
product improvements and cost controls at the hotel. The Company's proposed
mortgage restructuring is intended to provide the Company with ownership and
control of the Frenchman's Reef. 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 would decrease.
In the year ended December 31, 1993, interest income also includes $976,000
recognized on subordinated mortgages which have been assigned no value on the
Company's balance sheet due to substantial doubts as to their recoverability.
These subordinated mortgages generated interest income primarily due to
declines in interest rates on the variable rate mortgages senior to the
Company's positions on these hotels.
29
31
Direct room expenses increased by $1.6 million or 9.0% for the year
ended December 31, 1993 over 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 6.0% for the year ended December 31, 1993 over the prior year
primarily due to increased expenses associated with the higher occupancy levels
including payroll costs, guest room supplies and reservation fees. In
addition, the increase is also attributable to higher health benefits and
worker's compensation expenses which have risen faster than the general
inflation rate over the past three years. Direct room expenses as a percentage
of room revenues decreased to 28.0% in 1993 as compared to 28.6% in 1992
primarily due to the impact of the divested hotels. Direct room expenses as a
percentage of room revenues for comparable hotels were approximately 27% in
1993 and 1992 as the Company was able to increase room rates to offset the
increases in costs.
Direct food and beverage expenses decreased by $1.2 million or 10.3%
primarily due to the impact of divested full-service hotels. Direct food and
beverage expenses for comparable hotels increased by 2.4% for the year ended
December 31, 1993 over the prior year. Direct food and beverage expenses as a
percentage of food and beverage revenues for comparable hotels decreased to
84.3% for the year ended December 31, 1993 as compared to 86.7% for the year
ended December 31, 1992. This improvement reflects the increase in beverage
sales which have a lower cost of sales percentage versus food sales.
Direct 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 decreased by $1.7
million or 7.6% as the divested hotels were all full-service operations which
generally require increased overhead to support food and beverage operations.
Direct selling and general expenses for comparable Hotels increased by only
1.2% for the year ended December 31, 1993 over the prior year primarily due to
the restructuring of the Company's centralized operations which eliminated
certain allocated central office charges. These cost savings were offset by
higher utility charges as a result of the unusually warm summer in 1993.
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 year ended December 31, 1993,
general and administrative expenses consisted of $11.7 million of
30
32
centralized management expenses and $4.0 million in general corporate expenses.
General and administrative expenses decreased by $1.5 million or 8.6% for the
year ended December 31, 1993 as compared to the prior year primarily due to the
restructuring of the Company's centralized management operations in February
1993 which eliminated approximately $2.5 million of annual costs.
Other income consists primarily of a gain on the sale of a hotel of
$1.0 million, settlement of closing adjustments of $625,000 related to the sale
of a hotel in a prior year, interest of $1.2 million received as part of a
federal tax refund and $500,000 received in settlement of prior year's fees on
a Managed Hotel.
The pre-tax extraordinary gains of $6.8 million in 1993 relate to the
repurchase of debt. Pre-tax extraordinary gains of approximately $187,000 will
be recognized in the first quarter of 1994 related to additional repurchases.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation- Liquidity and Capital Resources."
Six Months Ended December 31, 1992 Compared to Six Months Ended December 31,
1991
The following discussion and analysis is based on the historical
results of operations of the Company for the six-month periods ended December
31, 1992 and 1991. For purposes of the following discussion, comparisons of
the Company's results of operations for the six-month period ended December 31,
1992 to the same period in the prior year are made only when, in management's
opinion, such comparisons are meaningful. The financial information set forth
below should be read in conjunction with the consolidated financial statements
of the Company included elsewhere in this report.
The following table presents the Company's condensed income statements
for the six months ended December 31, 1992 and 1991 (in thousands):
Six Months Ended
December 31,
1992 1991
-------- --------
Owned and Leased Hotel Properties:
Total direct revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,063 $55,545
Total direct expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,409) (38,497)
------ ------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,654 17,048
Other Revenues and Expenses:
Management fees received . . . . . . . . . . . . . . . . . . . . . . . . . . 5,785 5,364
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,977 12,348
31
33
Six Months Ended
December 31,
1992 1991
-------- --------
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1,872
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,497) (5,622)
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,867) (28,982)
Valuation writedowns and reserves . . . . . . . . . . . . . . . . . . . . . (13,000) --
------ ------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . $(7,953) $ 2,028
====== ======
The Company's results of operations for the six months ended December
31, 1992 changed dramatically from the comparable period of the prior year. As
a result of the Chapter 11, hotel properties were disposed of through lease
rejection, lease expiration, contract termination or sale.
The following table presents the direct revenues and expenses of the
Company's owned and leased hotel properties for the six months ended December
31, 1992 and 1991. The hotel properties are classified into three categories:
comparable hotels; new hotels; and divested hotels. The following discussion
focuses on the 29 comparable hotel properties which were owned or leased by the
Company during the two periods presented. At December 31, 1992, the Company
owned or leased 34 hotel properties. Three new hotel properties which were
opened after June 30, 1991 and two hotel properties which were added through
note receivable settlements in 1992 are classified as "New Hotels". The hotel
properties divested primarily as a result of the Chapter 11 are classified as
"Divested Hotels".
Owned and Leased Properties
(In thousands, except for statistical information)
Six Months Ended
December 31,
1992 1991
-------- --------
Room Revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,672 $25,618
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,668 115
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 16,742
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,772 42,475
Food and Beverage Revenues:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,200 5,156
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 7,914
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,291 13,070
32
34
Six Months Ended
December 31,
1992 1991
-------- --------
Direct Room Expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,473 6,896
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786 56
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 5,255
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,373 12,207
Direct Food and Beverage Expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,630 4,064
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 --
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,324
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,708 10,388
Selling and General Expenses:
Comparable hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,546 7,692
New hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689 47
Divested hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8,163
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,328 $15,902
Statistical Information:
Comparable hotels:
Occupancy % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.30% 68.52%
Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.41 $54.17
Room revenues for comparable hotels increased by $1.1 million or 4.1%
for the six months ended December 31, 1992 compared to the same period in the
prior year. The increase was due to improved occupancy while average daily
rate remained even with the prior year. The gain in occupancy was primarily
attributable to the improved results at three AmeriSuites hotels, which were
opened in the second half of 1990. In addition, occupancy increased at six
Wellesley Inns located in Florida partially, as a result of Hurricane Andrew.
The Company's inability to increase room rates was caused by the slowdown in
the economy, particularly in the Northeast and increased competition.
Food and beverage revenues for comparable hotels for the six months
ended December 31, 1992 were relatively even with the same period in the prior
year, as a result of the recession in the Northeast where the majority of the
Company's food and beverage outlets are located.
Room expenses as a percentage of room revenues for comparable hotels
increased to 28.0% for the six months ended December 31, 1992 from 26.9% for
the same period in the prior year. Food and beverage expenses as a percentage
of food and beverage revenues for comparable hotels increased to 89.0% from
78.8% for the same period
33
35
in the prior year. The increases in the percentage of expenses to revenues
were primarily attributable to increased labor-related operating costs. In
particular, health benefits and workers' compensation costs have increased at
rates greater than inflation.
Selling and general expenses for comparable hotels increased by 11.1%
for the six months ended December 31, 1992 over the same period in the prior
year primarily due to hiring of additional sales staff, sales training programs
and increased advertising and sales promotion expenses.
The following table presents the Company's other revenues and expenses
for the six months ended December 31, 1992 and 1991 which are not considered
direct operating revenues and expenses of the owned and leased hotels and which
were not affected by accounting changes due to the reorganization and,
therefore, can be compared.
Other Revenues and Expenses
(In thousands)
Six Months Ended
December 31,
1992 1991
-------- --------
Management and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,785 $ 5,364
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,977 12,348
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995 1872
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 7,637 9,905
The Company derived management fees from the hotel properties it
managed based on a fixed percentage of gross revenues and charges for certain
other services rendered. Under certain agreements, the Company was also
eligible to receive performance-related incentive payments. The Company
managed 28 of its 34 owned and leased hotel properties and managed 50 hotel
properties for third party owners. Management fees increased by $0.4 million
for the six months ended December 31, 1992 as compared to the same period of
the prior year primarily due to incentive payments. The Company had a
concentration of short-term management agreements with a limited number of
related and third party owners. Fees derived from these agreements were
approximately $3.3 million or 57% of the total management and other fees
recognized during the six months ended December 31, 1992.
Interest and dividend income decreased for the six months ended
December 31, 1992 as compared to the same period of the prior year primarily
due to a $58 million reduction in the principal amount of a note receivable
arising from a note prepayment by New World Development Co., Ltd. in August
1992.
34
36
General and administrative expenses decreased by 22.9% for the six
months ended December 31, 1992 as compared to the same period of the prior year
primarily due to staff reductions in administrative areas.
Based on settlement negotiations and declines in cash flow generated
by a hotel property, the Company recorded $13.0 million in valuation writedowns
and reserves in July 1992 related to mortgages and notes receivable.
Fiscal Year Ended June 30, 1992 Compared to Fiscal Year Ended June 30, 1991
PMI's results of operations for the years ended June 30, 1992 and 1991
changed dramatically from the prior years. On September 18, 1990 (the
"Petition Date"), PMI and certain subsidiaries filed voluntary petitions in the
Bankruptcy Court. Immediately after the Petition Date, the Company performed a
detailed analysis of the operating performance of the 141 hotel properties that
it operated either through ownership, lease or management. The 141 hotel
properties were comprised of 81 owned or leased hotel properties and 60 hotel
properties managed by PMI for third parties. As a result of the analysis 54
owned and leased hotel properties and 15 managed hotel properties were
identified for disposal through lease rejection, lease expiration, contract
termination or sale. The majority of the disposals occurred during the second
and third quarters of fiscal 1991.
In 1991, management segregated its hotel properties into Core
Properties (those properties which PMI intended to retain) and Non-Core
Properties (those properties intended for disposition).
The following table presents the direct revenues and expenses of PMI's
owned and leased Core and Non-Core Properties as shown in the accompanying
consolidated statements of operations for the years ended June 30, 1992 and
1991. The discussion and analysis of direct revenues and expenses that follows
the table focuses solely on the 30 owned and leased Core Properties that will
continue to be owned or leased.
Owned and Leased Properties
(In thousands of dollars, except for statistical information)
35
37
Years Ended
June 30,
1992 1991
-------- --------
Room revenues:
Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,020 $ 45,805
Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,062 76,097
------- -------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,082 121,902
Food and beverage revenues:
Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,448 9,025
Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,393 28,898
------- -------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,841 37,923
Direct room expenses:
Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,721 11,152
Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,971 18,174
------- -------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,692 29,326
Direct food and beverage expenses:
Core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,723 7,197
Non-core Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,359 23,935
------- -------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,082 $ 31,132
Statistical Information -
Core Properties only:
Occupancy % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.69% 65.73%
Average daily rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54.89 $ 55.68
Room revenues for the 30 owned and leased Core Properties increased by
$3.2 million in 1992 as compared to the prior year. Food and beverage revenues
for such properties increased by $.4 million in 1992 as compared to the prior
year. The increases were due to the opening of 3 new hotel properties in 1992
and the full year impact of 7 hotel properties opened in the first half of
fiscal 1991. PMI experienced a decline in average daily rate which was offset
by increased occupancy in 1992. The results were impacted by the slowdown in
the economy, particularly in the Northeast, and increased competition resulting
from the oversupply of hotels.
Direct expenses as a percentage of revenues for rooms for the 30 owned
and leased Core Properties increased to 26% in 1992 from 24% in 1991. Direct
expenses as a percentage of revenues for food and beverage increased to 82% in
1992 from 80% in 1991. The increases were attributable to payroll and other
fixed expenses which increased at inflation rates while revenues remained
relatively stable.
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PMI derived management fees from the hotel properties it manages based
on a fixed percentage of gross revenues and charges for services rendered.
Under certain agreements, PMI was also eligible to receive performance-related
incentive payments. PMI managed 24 of its 30 owned and leased Core Properties
and managed 48 hotel properties for third parties as part of its core business.
Management fees increased by $2.2 million in 1992, as compared to the prior
year, primarily due to the increased level of services billed to third party
owners.
Interest income was derived primarily from PMI's portfolio of mortgage
notes and other notes receivable. Certain of the notes held by PMI were
received as part of the consideration for the sale of hotel properties, for
services rendered or in connection with the development of hotel properties.
PMI generally obtained contracts to manage the hotel properties securing the
mortgages and notes and guaranteed that certain hotel properties would generate
specific levels of cash flows which would enable the owners and investors to
meet various obligations, including interest on the mortgage notes receivable.
Other notes arose from loans to developers and operators of hotel properties
and from transactions related to PMI's discontinued franchise operations. As a
result of the oversupply of hotels and the slowdown of the economy, certain of
the properties securing the notes experienced decreased operating cash flows
and have been unable to pay some or all of the interest and principal due on
the notes. Most of PMI's obligations to the owners and investors under
financial guarantees were terminated as a result of PMI's bankruptcy filing.
Accordingly, PMI suspended the accrual of interest on the related notes during
September 1990 and began recognizing interest income only as cash was received.
Interest and dividend income decreased by $7.0 million in 1992, versus the
prior year, primarily as a result of the suspension of the accrual of interest
in September 1990.
Other operating and general expense decreased throughout 1992
primarily due to the elimination of expenses associated with properties
disposed of as part of the Chapter 11. The most significant decrease is
attributable to rent expense as properties operated under lease agreements with
an annual rent expense of approximately $47 million were rejected as part of
the Chapter 11 in 1991.
Depreciation and amortization expense decreased in 1992 due to the
impact of the disposition of hotel properties during 1991 and 1992. This was
offset by the depreciation related to the new hotel properties.
Interest expense declined in 1992, versus the prior year, as PMI
discontinued accruing interest on certain debt obligations
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subject to compromise as of the Petition Date. Interest expense would have
been higher by $28 million for the year ended June 30, 1992 had the Debtors'
not filed for Chapter 11. If such interest expense had been recorded, the
reported losses in 1992 would have increased. These debt obligations included
$230 million aggregate principal amount of convertible subordinated debentures,
the $110 million remaining balance under a bank credit agreement, and certain
other notes to banks and others of approximately $58 million. Interest expense
also decreased due to the reduction in interest rates throughout the year.
Reorganization expenses consisted primarily of professional fees and
other expenses of $19.3 million, estimated claims arising from bankruptcy of
$6.0 million and losses on the disposal of assets of $2.3 million, offset by
interest earned of $4.4 million on accumulated cash resulting from the Chapter
11.
PMI also recorded $62.1 million in valuation writedowns and reserves
in 1992 as part of the restructuring of its business. These items relate to
mortgages and notes receivable of $49.5 million, land and buildings of $9.0
million, and other items of $3.6 million.
The disproportionate tax rates in 1992 and 1991 resulted primarily
from accounting losses for which deferred income tax credits cannot be
recognized and state income taxes.
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 debt or equity offerings. Additionally, the Company may in the future
incur mortgage financing on certain of its 15 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 December 31, 1993, the Company had cash and cash equivalents of
$41.6 million and restricted cash of $11.0 million, which was primarily
collateral for various debt obligations.
Cash flow from operations was approximately $19.7 million for the year
ended December 31, 1993. Cash flow from operations exceeded income before
extraordinary items of $8.2 million due to non-cash items such as depreciation
and amortization of $7.1 million and the utilization of net operating loss
carryforwards
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("NOL's") of $4.5 million. At December 31, 1993, the Company has NOL's
relating to its predecessor, PMI, of approximately $121.0 million which,
subject to annual limitations, expire beginning in 2005 and continuing through
2008.
The Company's other major sources of cash for the year ended December
31, 1993 were proceeds from asset settlements and scheduled collections of
mortgages and notes receivable of $10.9 million and refunds of Federal income
taxes of $17.7 million (of which approximately $1.2 million related to interest
and was recorded as other income) related to PMI.
The Company's major uses of cash for the year ended December 31, 1993
were debt repurchases and required principal payments of $30.9 million and
capital expenditures of $14.3 million. During 1993, the Company repurchased
$500,000 of its Senior Secured Notes, $16.5 million of its Junior Secured Notes
and $8.8 million of its mortgage notes payable for an aggregate purchase price
of $19.0 million. The repurchases were funded through internal sources of
$17.5 million and additional borrowings of $1.5 million. As of March 15, 1994,
the Company had repurchased during 1994 $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 also 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 are currently
held by the third party agent and have not been retired due to certain
restrictions under the note agreements. The purchases will be recorded as
investments on the Company's balance sheet and no gain will be recorded on
these transactions by the Company until the notes mature or are redeemed.
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.
The Company currently has debt obligations of $19.3 million, $8.9
million and $42.8 million due in 1994, 1995, and 1996, respectively.
Approximately $14.3 million, $5.0 million and $4.1 million of the debt due in
1994, 1995 and 1996, respectively, is owed by Suites of America. Of the
approximately $14.3 million of Suites of America's debt due in 1994,
approximately $9.2 is owed to ShoLodge and scheduled to mature in April 1994.
The Company believes it will be able to refinance that debt with ShoLodge due
to its relationship as a potential joint venture partner. Upon exercise of an
option by either the Company or ShoLodge under a joint venture agreement,
ShoLodge will hold a 50% equity interest in Suites of America and $9.1 million
of its debt will be converted into equity of the joint
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41
venture. The remaining debt owed to ShoLodge will become debt of the joint
venture with a five-year maturity. In addition, the Company has $34.0 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
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. See
"Business--Lodging Operations--Franchised Hotels," "Business--Lodging
Operations--AmeriSuites" and Note 9 to the Notes to the Consolidated Financial
Statements.
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. In November 1993, the Company opened its newly
constructed Wellesley Inn in Orlando, Florida. The Company is constructing a
new Wellesley Inn in the Sawgrass section of Fort Lauderdale, Florida and has
begun development of a Wellesley Inn site in Lakeland, Florida. The Company
plans to acquire and convert two additional Wellesley Inns in 1994. The
Company has also purchased a site in Tampa, Florida for planned construction of
an AmeriSuites hotel. The Company 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 Meriden, Connecticut in July 1993. The
Company spent $7.8 million on its development and acquisition program in 1993.
The Company anticipates 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
therefore will complete such capital expenditures in 1994.
The Company is pursuing a program of refurbishing 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. In 1993, the Company spent
approximately $5.0 million on capital improvements at its Owned Hotels, of
which $2.5 million related to refurbishments and repositionings on eight Owned
Hotels. The Company intends to spend approximately $7.1 million on capital
improvements related to its refurbishment and repositioning program at its
Owned Hotels in 1994. Of this amount, $5.1 million relates to refurbishments
and
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repositionings on eight Owned Hotels, which includes five hotels that were
being refurbished in 1993 and will continue to be refurbished 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 June 1993, the Company reached a settlement of an adversary
proceeding regarding a note and promissory guarantee commenced by a subsidiary
of PMI during PMI's bankruptcy case (the "Rose and Cohen Settlement") with
Allan V. Rose ("Rose") and Arthur G. Cohen ("Cohen"). The settlement provided
for Rose or his affiliate to pay the Company the sum of $25.0 million, all of
which was paid into escrow on February 25, 1994, plus proceeds from
approximately 1.1 million shares of the Company's common stock held by Rose
which will be liquidated over a period of time. The Rose and Cohen Settlement
is subject to a claim on the entire amount by Financial Security Assurance,
Inc. ("FSA"). All proceeds from the Rose and Cohen Settlement must continue
to be held in escrow until the Company receives an order of the U.S.
Bankruptcy Court for the Southern District of Florida determining the Company's
exclusive right to the settlement proceeds. A trial was held on such claim in
such court in January 1994. The Company expects an order to be issued by that
court in the near future, which order will be subject to appeal. Upon receipt
of a favorable order, substantially all of the net proceeds will be used to
repay the Senior Secured Notes and Junior Secured Notes.
The Company has entered into a restructuring agreement relating to 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
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 and all administrative and unsecured
trade claims incurred in the ordinary course of business to be paid in full.
There can be no assurance that the plan will become effective. A group
purporting to represent a significant number of limited partners has filed an
objection to the disclosure statement related to such plan and seeks to replace
the Frenchman's Reef's general partner with a new general partner that may seek
to
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redirect the bankruptcy proceedings in a way that may be materially adverse to
the Company. In light of this uncertainty, the Company intends to pursue a
foreclosure of its mortgages and has filed a motion with the bankruptcy court
seeking to lift the stay of relief under the chapter 11 petition to permit a
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. Certain equity holders of the Frenchman's Reef have
challenged the authority of the current general partner of the Frenchman's Reef
and requested to replace it as general partner. If these equity holders were
to become general partner, they have indicated through court filings that they
would investigate the validity and priority of the Company's mortgages. In
addition, the Company's management agreement with respect to the Frenchman's
Reef could be rejected in connection with the bankruptcy case. The Company
had, as of December 31, 1993, $39.6 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 discussion with the lender regarding revising the
terms of such debt. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," "Business--Lodging
Operations--Franchised Hotels" and Note 3 to Notes to Consolidated Financial
Statements.
During 1993, the Company also collected a $5.0 million installment
obligation related to the Baltimore Marriott hotel and received $4.0 million in
settlement of a mortgage note secured by the East Brunswick, New Jersey
Sheraton hotel. During 1993, the Company received the fee interest in a Ramada
hotel in Danbury, Connecticut in settlement of its mortgage note receivable.
The Company also acquired three hotels through lease expiration or foreclosure,
one of which it is presently converting to a Shoney's Inn in Orlando, Florida.
In September 1993, the Company sold the Holiday Inn in Milford, Connecticut for
a net sales price of $2.4 million. After retiring the property's debt of $1.4
million, the Company received net cash proceeds of $1.0 million from the
transaction.
Item 8. Financial Statements and Supplementary Data.
See Index to Financial Statements and Financial Statement Schedules
included in Item 14.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
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Name Age Position
- ---- --- --------
David A. Simon 41 President, Chief Executive Officer and Chairman of the Board of Directors
John M. Elwood 39 Executive Vice President, Chief Financial Officer and Director
Herbert Lust, II 65 Director
Leon Moore 52 Director
Allen J. Ostroff 57 Director
A.F. Petrocelli 49 Director
Paul H. Hower 59 Executive Vice President
Denis W. Driscoll 49 Senior Vice President
John H. Leavitt 40 Senior Vice President
John E. Stetz 52 Senior Vice President
Joseph Bernadino 47 Senior Vice President, Secretary and
General Counsel
Richard T. Szymanski 36 Vice President and Corporate Controller
Douglas W. Vicari 34 Vice President and Treasurer
The following is a biographical summary of the experience of the
directors and executive officers of the Company:
David A. Simon has been President, Chief Executive Officer and a
Director since 1992 and Chairman of the Board of the Company since 1993. Mr.
Simon was a director of PMI from 1988 to 1992. Mr. Simon was the Chief
Operating Officer of PMI from 1988 to 1989 and Chief Executive Officer of PMI
from 1989 to 1992 and was an executive officer in September 1990 when PMI filed
for protection under Chapter 11 of the United States Bankruptcy Code.
John M. Elwood has been a Director and Executive Vice President of the
Company since 1992, Chief Financial Officer since 1993 and the Director of
Reorganization of the Company during 1992. Mr. Elwood was the Director of
Reorganization of PMI from 1990 to 1992. Mr. Elwood was the director of
Reorganization of Allegheny International, Inc. from 1988 to 1990 and a Vice
President of Mellon Bank, N.A. during 1988.
Herbert Lust, II has been a Director since 1992 and Chairman of the
Compensation and Audit Committee of the Company since 1993 and Chairman of the
Compensation Committee and a member of the Audit Committee of the Company from
1992 to 1993. Mr. Lust was a member of the Committee of Unsecured Creditors of
PMI from 1990 to 1992. Mr. Lust is a director of BRT Realty Trust.
Leon Moore has been a Director of the Company since 1992 and a member
of the Audit and Compensation Committee since 1993. From 1992 to 1993, Mr.
Moore was a member of the Compensation Committee. Mr. Moore has been the
President, Chief Executive Officer and
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Chairman of the Board of Directors of ShoLodge, Inc. for more than the past
five years. Mr. Moore is a director of the Bank of Nashville.
Allen J. Ostroff has been a Director since 1992. Mr. Ostroff was
Chairman of the Board of the Company and a member of the Audit Committee from
1992 to 1993. Mr. Ostroff has been a Senior Vice President of the Prudential
Realty Group, a subsidiary of the Prudential Insurance Company of America, for
more than the last five years.
A. F. Petrocelli has been a Director since 1992 and a member of the
Compensation and Audit Committee of the Company since 1993 and of the
Compensation Committee of the Company from 1992 to 1993. Mr. Petrocelli has
been the Chairman of the Board of Directors and Chief Executive Officer of
United Capital Corp. for more than the past five years.
Paul H. Hower has been an Executive Vice President of the Company
since 1993. Mr. Hower was President of Integrity Hospitality Services from
1992 to 1993 and Vice President and Hotel Division Manager of B. F. Saul Co.
from 1988 to 1991.
Denis W. Driscoll has been a Senior Vice President of the Company
since 1993. Mr. Driscoll was President of Driscoll Associates, a human
resources consulting organization from 1988 to 1993.
John H. Leavitt has been a Senior Vice President of the Company since
1992. Mr. Leavitt was a Senior Vice President of PMI from 1991 to 1992 and a
Senior Vice President of Medallion Hotel Corporation from 1988 to 1991.
John E. Stetz has been a Senior Vice President of Development of the
Company since 1993. Mr. Stetz was a Vice President - Development of Choice
Hotels International from 1988 to 1992.
Joseph Bernadino has been Senior Vice President, Secretary and General
Counsel of the Company since 1993. Mr. Bernadino was an Assistant Secretary
and Assistant General Counsel of PMI from 1988 to 1992.
Richard T. Szymanski has been a Vice President and Corporate
Controller of the Company since 1992. Mr. Szymanski was Corporate Controller
of PMI from 1989 to 1992, and Division Controller from 1988 to 1989.
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Douglas W. Vicari has been a Vice President and Treasurer of the
Company since 1992 and was Vice President and Treasurer of PMI during 1992.
Mr. Vicari was the Director of Budget and Financial Analysis of PMI from 1989
to 1992, and Budget Manager from 1988 to 1989.
Item 11. Executive Compensation
The following summary compensation table sets forth information
concerning compensation for services in all capacities awarded to, earned by or
paid to the persons who were, at December 31, 1993, the Company's Chief
Executive Officer and the five other most highly compensated executive officers
of the Company. The information shown reflects compensation for services in
all capacities awarded to, earned by or paid to these persons for the fiscal
year ending December 31, 1993.
Summary Compensation Table
--------------------------
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Principal Other Annual Stock All Other
Position Year Salary Bonus Compensation Options Compensation
----------------- ---- ------ -------- ------------ ------- ------------
David A. Simon 1993 $303,853 $ -0- $-0- 45,000 $ 6,211
President and Chief 1992 298,175 665,045 -0- 330,000 1,402
Executive Officer 1991 282,565 -0- -0- -0- 66
John M. Elwood 1993 240,000 -0- -0- 45,000 21,981
Executive Vice President 1992 295,170 554,205 -0- 20,000 252
and Chief Financial Officer 1991 307,980 -0- -0- -0- -0-
John H. Leavitt 1993 127,500 4,000 -0- 8,000 1,273
Senior Vice President 1992 125,000 -0- -0- -0- 299
1991 67,438 -0- -0- -0- 131
Joseph Bernadino 1993 120,750 -0- -0- 8,000 87
Senior Vice President, 1992 114,648 43,125 -0- -0- 252
Secretary and General Counsel 1991 114,648 -0- -0- -0- 51
Richard T. Szymanski 1993 105,000 -0- -0- 5,000 44
Vice President and 1992 101,956 25,000 -0- -0- 27
Corporate Controller 1991 99,931 -0- -0- -0- 27
Douglas W. Vicari 1993 105,000 -0- -0- 5,000 27
Vice President and 1992 101,304 25,000 -0- -0- 27
Treasurer 1991 79,904 -0- -0- -0- -0-
Stock option grants during fiscal year ended December 31, 1993
The following table sets forth information concerning individual
grants of stock options made during the fiscal year ending December 31, 1993 to
each of the officers listed below. The Company did not grant any stock
appreciation rights during such period.
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Potential
Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation
Individual Grants For Option Terms
-------------------------------------------------------- ----------------
% of Total
Options
Granted to Exercise
Employees Price
Options in Fiscal Per Expiration
Name Granted Year Share Date 5% 10%
- ---- ------- ---------- -------- ---------- ------ -------
David A. Simon . . . . . . . 45,000(1) 6.2% $3.20 8/4/99 $82,141 $154,951
John M. Elwood . . . . . . . 45,000(2) 6.2% $3.20 8/4/99 $82,141 $154,951
John H. Leavitt . . . . . . . 8,000(3) 1.1% $3.625 6/18/99 $13,883 $27,690
Joseph Bernadino . . . . . . 8,000(4) 1.1% $3.625 (4) $12,878 $26,361
Richard T.Szymanski . . . . . 5,000(3) 0.7% $3.625 6/18/99 $8,677 $17,306
Douglas W. Vicari . . . . . . 5,000(3) 0.7% $3.625 6/18/99 $8,677 $17,306
(1) These stock options were granted to David A. Simon as a director of
the Company in connection with a grant of options to the directors.
These stock options vest with respect to 15,000 shares on each of
August 4, 1993, 1994 and 1995 and will continue to be exercisable
through August 4, 1999, subject to the provisions of the Company's
1992 Stock Option Plan.
(2) These stock options were granted to John M. Elwood as a director of
the Company in connection with a grant of options to the directors.
These stock options vest with respect to 15,000 shares on each of
August 4, 1993, 1994, and 1995 and will continue to be exercisable
through August 4, 1999, subject to the provisions of the Company's
1992 Stock Option Plan.
(3) These stock options vest with respect to one third of the grant on
each of June 18, 1994, 1995, and 1996 and will continue to be
exercisable through June 18, 1999, subject to the provisions of the
Company's 1992 Stock Option Plan.
(4) Joseph Bernadino received separate stock option grants of 5,000 shares
and 3,000 shares each. One third of the 5,000 share grant vests on
each of June 18, 1994, 1995 and 1996 and will continue to be
exercisable through June 18, 1999. One third of the 3,000 share grant
vests on each of September 1, 1994, 1995 and 1996 and will continue to
be exercisable through September 1, 1999. Both grants are subject to
the Company's 1992 Stock Option Plan.
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Aggregated option in fiscal year ended December 31, 1993 and year-end option
values
Number of Value of
Unexercised Unexercised
Shares Options at in the
Acquired Year-End Money Options
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---- -------- -------- -------------------- ---------------------
David A. Simon . . . . . . . -0- -0- 125,000 250,000 $450,475 $901,550
John M. Elwood . . . . . . . -0- -0- 35,000 30,000 98,565 95,250
John H. Leavitt . . . . . . . -0- -0- -0- 8,000 -0- 22,000
Joseph Bernadino . . . . . . -0- -0- -0- 8,000 -0- 22,000
Richard T.Szymanski . . . . . -0- -0- -0- 5,000 -0- 13,750
Douglas W. Vicari . . . . . . -0- -0- -0- 5,000 -0- 13,750
Employment Agreement Under the Plan
As provided in the Plan, Mr. David A. Simon and the Company executed
an employment agreement which provides for an initial term of three years, with
automatic successive one-year extensions unless a prior election is made by
either party not to extend the agreement.
The employment agreement provides for an annual base salary of
$300,000 (which will increase annually based upon increases in the consumer
price index), a discretionary annual bonus based on attainment of performance
objectives set by the Board of Directors, a life insurance policy in an amount
not less than $1,000,000, an automobile and other customary welfare benefits,
including medical and disability insurance. The agreement also provides that,
to the extent payments made by the Company for disability insurance, life
insurance and the use of the automobile are subject to federal, state or local
income taxes, the Company will pay Mr. Simon the amount of such additional
taxes plus such additional amount as will be reasonable to hold him harmless
from the obligation to pay such taxes.
Pursuant to this employment agreement, Mr. Simon was granted stock
options on July 31, 1992 to purchase 330,000 shares of Common Stock. Such
stock options are exercisable with respect to 110,000 shares at the end of each
of the first, second and third years of his employment, provided his employment
has not been terminated by such date.
This employment agreement may be terminated by the Company at any
time, with or without cause. If the agreement is terminated by the Company
prior to the expiration of the initial three-year term
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without cause, or if Mr. Simon resigns because of circumstances amounting to
constructive termination of employment, severance would be paid in a single
lump sum equal to one-year's base salary or, if greater, the base salary that
would have been payable over the remainder of the initial term. All stock
options would become fully vested and remain exercisable for 90 days after
termination or, if longer, until the expiration of the initial three year term.
Any bonus awarded for the year of termination would be prorated. If the
Company does not terminate the agreement prior to the expiration thereof, but
elects not to extend the agreement beyond the initial term, severance would be
payable in a single lump sum equal to one-year's base salary. If the agreement
is terminated by the Company for cause (as such term is defined in the
employment agreement), or if Mr. Simon resigns voluntarily under circumstances
not amounting to a constructive termination of employment, no benefits are
payable other than accrued but unpaid salary.
Employment Agreements Subsequent to the Plan
As of December 31, 1992, Mr. Elwood and the Company executed an
employment agreement which has a term of one year. This employment agreement
provides for an annual base salary of $240,000, a discretionary annual bonus
based on attainment of performance objectives set by the Board of Directors, a
life insurance policy in an amount not less than $480,000 (of which the Company
will not pay premiums which exceed $5,000), moving expenses, an automobile, and
other customary welfare benefits, including medical and disability insurance.
Pursuant to the agreement, Mr. Elwood was granted stock options to purchase
20,000 shares of Common Stock which are now fully vested. The agreement
expired on December 31, 1993 by its terms, but was extended on a day to day
basis pending negotiation of a new contract.
As of May 18, 1993, Mr. Paul H. Hower and the Company executed an
employment agreement which has a term commencing June 23, 1993 and ending June
30, 1994. This employment agreement provides for an annual base salary of
$180,000, a cash bonus of $10,000. a discretionary annual bonus based on
attainment of performance objectives set by the Board of Directors, a life
insurance policy in an amount not less than $360,000, moving expenses, an
automobile, and other customary welfare benefits, including medical and
disability insurance.
Pursuant to the agreement, Mr. Hower was granted stock options as of
June 23, 1993 to purchase 20,000 shares of Common Stock. Such stock options
vest on June 30, 1994 provided his employment has not been terminated by such
date.
48
50
The agreement may be terminated by the Company at any time, with or
without cause. If the agreement is terminated by the Company prior to the
expiration of the one year term without cause, or if Mr. Hower resigns because
of circumstances amounting to constructive termination of employment, severance
would be paid in a single lump sum equal to six month's base salary or, if
greater, the base salary that would have been payable over the remainder of the
term. All other benefits, any bonus (subject to adjustment) and any non-vested
stock options (subject to adjustment) will terminate. If the agreement is
terminated by the Company for cause (as such term is defined in the agreement),
or if Mr. Hower resigns voluntarily under circumstances not amounting to a
constructive termination of employment, no benefits are payable other than
accrued but unpaid salary.
As of March 1, 1993, Mr. John Stetz and the Company executed an
employment agreement which has a term of one year. This employment agreement
provides for an annual base salary of $115,000, an annual bonus equal to 10% of
the first year base management fee for each management agreement obtained, and
other customary welfare benefits, including medical and disability insurance.
The Agreement expired on February 28, 1994.
Stock Option Plans
1992 Stock Option Plan
As provided in the Plan, the Company adopted the 1992 Stock Option
Plan (the "SOP"), providing for the grant of non-qualified stock options to key
employees, officers and directors. The SOP (but not outstanding options) will
terminate on July 31, 2002 and is administered by the Audit and Compensation
Committee of the Board of Directors (the "Committee"). The Company has
reserved 1,320,000 shares of common stock for issuance upon the exercise of
stock options under the SOP. During the fiscal year ended December 31, 1993
options covering 728,000 shares of common stock were granted.
Recipients of options under the SOP are selected by the Committee.
The Committee determines the terms of each option grant including the purchase
price of shares subject to options, the dates on which options become
exercisable and the expiration date of each option (which may not exceed six
years from the date of grant).
Of the 728,000 shares covered by option grants under the SOP, 45,000
were granted to Mr. David A. Simon and 45,000 were granted to Mr. John M.
Elwood. Options to purchase 152,000 shares of common stock were granted to all
current executive officers as a
49
51
group. The terms of these option grants are described above under the heading
"Stock option grants during fiscal year ended December 31, 1993".
Recipients of option grants under the SOP will have no voting,
dividend or other rights as stockholders with respect to shares of common stock
covered by stock options prior to becoming the holders of record of such stock.
All stock option grants will permit the exercise price to be paid in cash, by
tendering stock or by cashless exercise. The number of shares covered by stock
options will be appropriately adjusted in the event of any merger,
recapitalization or similar corporate event.
The Board of Directors may at any time terminate the SOP or from time
to time make such modifications or amendments to the SOP as it may deem
advisable; provided that the Board may not, without the approval of
stockholders, increase the maximum number of shares of common stock for which
options may be granted under the SOP.
1992 Performance Incentive Plan
As provided in the Plan, the Company adopted the 1992 Performance
Incentive Plan (the "PIP") under which stock options covering an additional
330,000 shares of common stock were reserved for grants to one or more other
executives, including those newly hired, at the discretion of Mr. David A.
Simon. No options have been granted under the PIP.
Mr. Simon will determine the terms of each option grant under the PIP
including the purchase price of shares subject to options, the dates on which
options become exercisable and the expiration date of each option (which may
not exceed six years from the date of grant).
Recipients of stock option grants under the PIP will have no voting,
dividend or other rights as stockholders with respect to shares of Common Stock
covered by stock options prior to becoming the holders of record of such stock.
All stock option grants under the PIP will permit the exercise price to be paid
in cash, by tendering stock or by cashless exercise. The number of shares
covered by stock options under the PIP will be appropriately adjusted in the
event of any merger, recapitalization or similar corporate event.
The Board of Directors may at any time terminate the PIP or from time
to time make such modifications or amendments to the PIP as it may deem
advisable; provided that the Board may not, without the approval of
stockholders, increase the maximum number of shares of Common Stock for which
options may be granted under the PIP or
50
52
change the class of persons eligible to receive options under the PIP.
Audit and Compensation Committee Report on Executive Compensation
All members of the Audit and Compensation Committee are independent,
non-employee Directors.
As provided in the Plan, Mr. Simon and the Company are parties to an
employment agreement which provides for an initial term of three years, with
automatic successive one-year extensions unless a prior election is made by
either party not to extend the agreement. The agreement provides for an annual
base salary of $300,000 (which will increase annually based upon increases in
the consumer price index) and a discretionary annual bonus based on attainment
of performance objectives to be set by the Board of Directors. Pursuant to the
Plan and his employment agreement, Mr. Simon was granted options to purchase
330,000 shares of Common Stock. Mr. Simon's employment agreement and option
grants were approved by the former directors of the Company. During 1993, no
bonus was paid to Mr. Simon pursuant to his employment agreement.
The Company's compensation policy is designed to help the Company
achieve its business objectives by:
- setting levels of compensation designed to attract and retain
qualified executive in a highly competitive business
environment;
- providing incentive compensation that varies directly with
both the Company's financial performance and individual
initiative and achievement contributing to such performance;
and
- linking compensation to elements which effect the Company's
annual and long-term share performance.
The Company intends to compensate executives and to grant stock
options pursuant to the SOP in order to provide executives with a competitive
total compensation package and reward them for their contribution to the
Company's annual and long-term share performance.
Compensation Committee Interlocks and Insider Participation
Mr. Moore and Mr. Petrocelli have certain business relationships with
the Company, which are described under the heading "Certain Relationships and
Related Transactions."
51
53
AUDIT AND COMPENSATION COMMITTEE
Herbert Lust, II (Chairman)
Leon Moore
A. F. Petrocelli
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth as of March 10, 1994, information with
respect to the beneficial ownership of the Company's common stock by (i) each
person known by the Company to own beneficially 5% or more of the Company's
common stock, (ii) each director of the Company, (iii) the Company's Chief
Executive Officer and each of the five remaining most highly compensated
executive officers, and (iv) all executive officers and directors of the
Company as a group.
Amount and
Name and Address Nature Percent of
of Beneficial Owner of Ownership Class (g)
- -------------------- ------------ -----------
Ingalls & Snyder
61 Broadway
New York, New York 10006(a) 2,506,123 8.6
David A. Simon(b) 108,895 *
John M. Elwood(c) 42,122 *
Herbert Lust, II(d) 20,700 *
Leon Moore 50,000 *
Allen J. Ostroff 5,000 *
A.F. Petrocelli(e) 161,026 *
John H. Leavitt(f) 111 *
Joseph Bernadino 1,000 *
Richard T. Szymanski -0- *
Douglas W. Vicari -0- *
All directors and executive officers
as a group (13 persons) 395,140 1.4
(a) Ingalls & Snyder filed a Schedule 13G, dated February 1, 1994, with the
Securities and Exchange Commission (the "SEC")
52
54
reporting ownership of 2,506,123 shares of common stock, with sole voting
power with respect to 208,754 shares and sole dispositive power with
respect to 2,506,123 shares.
(b) Includes 101,726 shares owned by David A. Simon, 146 shares owned by his
wife and 249 shares held by Mr. Simon as custodian for his children. Mr.
Simon disclaims beneficial ownership of the shares owned by his wife and
held as custodian for his children. Also includes warrants to purchase
6,774 shares with an exercise price of $2.71 a share, of which Mr. Simon
disclaims beneficial ownership of 467 warrants owed by his wife and 697
warrants held as custodian for his children.
(c) Includes warrants to purchase 12,122 shares with an exercise price of $2.71
a share.
(d) Held by a trust under which Mr. Lust and his wife are co-trustees and
beneficiaries.
(e) These shares are owned by United Capital Corp. Mr. Petrocelli is Chairman
of the Board of Directors and Chief Executive Officer of United Capital
Corp.
(f) Includes warrants to purchase 85 shares with an exercise price of $2.71.
(g) The Directors and executive officers each own less than one percent of the
outstanding common stock and own approximately one percent of the
outstanding common stock as a group. Percentages were based on 29,200,204
shares outstanding as of March 10, 1994.
Item 13. Certain Relationships and Related Transactions.
Leon Moore, a Director of the Company, is the President, Chief
Executive Officer and Chairman of the Board of ShoLodge, Inc. ("ShoLodge").
Pursuant to an agreement with the Company and Suites of America, Inc. ("SOA"),
a wholly owned subsidiary of the Company, ShoLodge was appointed the exclusive
agent to develop certain AmeriSuites hotel properties. ShoLodge is entitled to
receive fees for each hotel property developed. In addition, ShoLodge may
receive, among other things, a profit sharing interest in certain sites.
During the fiscal year ended December 31, 1993, ShoLodge earned development
fees of $-0- and loan origination fees of $40,349.
As of December 31, 1993, the Company and SOA have outstanding loans in
the amount of $18,361,000 owed to ShoLodge and in the
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55
amount of $5,066,000 owed to the Bank of Nashville. Mr. Leon Moore is a
director of The Bank of Nashville. The foregoing loans are secured by hotel
properties owned by SOA.
ShoLodge manages eight AmeriSuites hotel properties for the Company.
During the fiscal year ended December 31, 1993, ShoLodge earned management fees
and incentive fees totalling $468,000 from these AmeriSuites hotel properties.
The Company and SOA are parties to agreements with ShoLodge which
provide that, under certain circumstances, ShoLodge will contribute hotels to
SOA, receive 50% ownership interest, and manage the AmeriSuites hotels owned by
SOA pursuant to a new management agreement.
In April 1993, the Company sold land located in Flagstaff, Arizona to
an affiliate of Mr. Moore for the sum of $1.3 million. Upon its completion of
the construction of an AmeriSuites hotel on the land in October 1993, Mr.
Moore's affiliate sold the completed hotel to SOA for the sum of $5,875,000.
ShoLodge financed a portion of the purchase price and received a mortgage on
the hotel in the principal sum of $5,045,000. ShoLodge manages the hotel for
SOA. In addition, in May 1993, the Company sold to an affiliate of Mr. Moore
land located in Overland Park, Kansas on which the affiliate will build an
AmeriSuites hotel for sum of $486,000.
During 1993, the Company paid $2,376,000 in cash and cancelled its
note receivable of $486,000 in full satisfaction of the profit participation of
ShoLodge in four AmeriSuites hotel owned by SOA.
An affiliate of Mr. Moore has entered into a contract to build a hotel
for the Company in Tampa, Florida for $3,587,900.
In April 1993, an affiliate of Mr. Moore completed construction of an
AmeriSuites hotel located in Brentwood, Tennessee on land it leased from SOA
and sold it to SOA for the sum of $4,035,000. ShoLodge financed the full
purchase price and received a deed of trust on the hotel. The lease from SOA
to the affiliate was terminated. ShoLodge manages the property for SOA.
The Company uses the ShoLodge reservation system for its AmeriSuites
and Wellesley Inn hotel properties. The total amount of reservation fees paid
to ShoLodge for the fiscal year ended December 31, 1993 was approximately
$222,000.
A.F. Petrocelli, a Director of the Company, is the Chairman of the
Board and Chief Executive Officer of United Capital Corp. In March 1994, the
Company entered into management agreements with the corporate owners of two
hotels who are affiliates of United Capital
54
56
Corp.
During 1993, the Company managed and held a nonrecourse junior note
and mortgage on a hotel property owned partially by a partnership comprised of
David A. Simon and certain former officers and directors of the Company. In
connection with a settlement in lieu of foreclosure between the first mortgagee
and the owners in which the hotel was conveyed to the first mortgagee, the
Company discharged its junior mortgage.
During 1989, a partnership in which Peter E. Simon, father of David A.
Simon, is a partner acquired an interest in three hotels from PMI. In partial
payment PMI received nonrecourse junior loans aggregating $21,590,000. As of
December 31, 1993, the aggregate balance owed on these loans was $21,472,766.
The Company is currently in the process of restructuring these loans. Due to
the nonrecourse junior nature of these loans and the insufficient cash
generated by the hotels, no debt payments were made on these loans during 1993.
During 1989, this same partnership acquired PMI's interest in eight
hotel properties. In partial payment PMI received a junior non- recourse
mortgage note in the principal amount of $9,647,450. The Company restructured
this transaction as of December 1, 1992 by (i) conveying to the partnership its
interest in one hotel property, and (ii) amending the principal amount and
interest rate of the note to $8,103,362 and 8.2% per annum, respectively. No
debt payments were made on these loans during 1993.
During February 1990, this same partnership purchased from PMI a note
owing from a third party in the original principal amount of $3,255,380. This
partnership paid PMI $488,318 in cash and granted PMI an 85% note
participation. In partial settlement of its claim on the note, the Company
acquired a hotel located in Miami, Florida in which the partnership has a 15%
interest.
In December 1993, the Company entered into a management agreement with
the corporate owner of a hotel in which Peter E. Simon is a stockholder.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) 1. Financial Statements
The Financial Statements listed in the accompanying
index to financial statements are filed as part of
this Annual Report.
55
57
2. Financial Statement Schedules
The Financial Statement Schedules listed in the
accompanying index to financial statements are filed
as part of this Annual Report.
3. Exhibits
(2) (a) Reference is made to the Disclosure
Statement for Debtors' Second
Amended Joint Plan of Reorganization
dated January 16, 1992, which
includes the Debtors' Second Amended
Plan of Reorganization as an exhibit
thereto filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(3) (a) Reference is made to the Restated
Certificate of Incorporation of the
Company dated June 5, 1992 filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(b) Reference is made to the Restated
Bylaws of the Company filed as an
Exhibit to the Company's Form 10-K
dated September 25, 1992, which is
incorporated herein by reference.
(4) (a) Reference is made to the Form of
8.20% Fixed Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the Form of
Adjustable Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(c) Reference is made to the Form of
9.20% Junior Secured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is
56
58
incorporated herein by reference.
(d) Reference is made to the Form of
8.20% Tax Note of the Company filed
as an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(e) Reference is made to the Form of
10.20% Secured UND Restructured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(f) Reference is made to the Form of 8%
Secured UND Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the Form of
9.20% OVR Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(h) Reference is made to the Collateral
Agency Agreement among the Company,
U.S. Trust and the Secured Parties,
dated as of July 31, 1992 filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(i) Reference is made to the Security
Agreement between the Company and
U.S. Trust, dated as of July 31,
1992, filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(j) Reference is made to the Subsidiary
Guaranty from FR Delaware, Inc. to
United States Trust Company of New
York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated
57
59
herein by reference.
(k) Reference is made to the Security
Agreement between FR Delaware, Inc.
and United States Trust Company of
New York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(l) Reference is made to the Subsidiary
Guaranty from Prime Note Collections
Company, Inc. to United States Trust
Company of New York, dated as of
July 31, 1992, filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(m) Reference is made to the Security
Agreement between Prime Note
Collections Company, Inc. and United
States Trust Company of New York,
dated as of July 31, 1992, filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(n) Reference is made to a Form 8-A of
the Company as filed on June 5, 1992
with the Securities and Exchange
Commission, as amended by Amendment
No. 1 and Amendment No. 2, which is
incorporated herein by reference.
(10) (a) Reference is made to the Agreement
of Purchase and Sale between
Flamboyant Investment Company, Ltd.
and VMS Realty, Inc. dated June 3,
1985, and its related agreements,
each of which was included as
Exhibits to the Form 8-K dated
August 14, 1985 of PMI, which are
incorporated herein by reference.
(b) Reference is made to PMI's Flexible
Benefit Plan, filed as an Exhibit to
the Form 10-Q dated February 12,
1988 of PMI, which is incorporated
herein by reference.
58
60
(c) Reference is made to the Employment
Agreement dated as of July 31, 1992,
between David A. Simon and the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(d) Reference is made to the 1992
Performance Incentive Stock Option
Plan of the Company dated as of July
31, 1992, filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(e) Reference is made to the 1992 Stock
Option Plan of the Company filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(f) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David A.
Simon filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David L.
Barsky filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(i) Reference is made to the Employment
Agreement dated as of December 31,
1992 between John Elwood and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 26,
1993, which is incorporated herein by
reference.
(j) Reference is made to the 1992
Non-Qualified Stock Option
Agreement between the Company and
John Elwood filed as an Exhibit
to the Company's Form 10-K dated
March 26, 1993, which is
incorporated herein by reference.
(k) Employment Agreement dated as of
March 1, 1993 between John Stetz and
the Company.
(l) Employment Agreement dated as of
May 18, 1993 between Paul Hower.
(m) Consolidated and Amended Settlement
Agreement dated as of October 12,
1993
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61
between Allan V. Rose and the
Company.
(11) Computation of Earnings Per Common Share.
(21) Subsidiaries of the Company.
(23) (a) Consent of Arthur Andersen & Co.
(b) Consent of J.H. Cohn & Co.
(b) Reports on Form 8-K: None
62
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14 (A))
PAGE
-----
FINANCIAL STATEMENTS:
Report of Arthur Andersen & Co..................................................... F-2
Consolidated:
Balance Sheets at December 31, 1993 and 1992.................................... F-3
Statements of Income for the Year Ended December 31, 1993 and the Five Months
Ended December 31, 1992........................................................ F-4
Statements of Stockholders' Equity for the Year Ended December 31, 1993 and the
Five Months Ended December 31, 1992............................................ F-5
Statements of Cash Flows for the Year Ended December 31, 1993 and the Five
Months Ended December 31, 1992................................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
Report of Arthur Andersen & Co. ................................................... F-20
Report of J.H. Cohn & Company...................................................... F-21
Consolidated:
Balance Sheets at July 31, 1992 and June 30, 1992............................... F-23
Statements of Operations for the One Month Ended July 31, 1992 and the Years
Ended June 30, 1992 and 1991................................................... F-24
Statements of Stockholders' Equity (Deficiency) for the One Month Ended July 31,
1992 and the Years Ended June 30, 1992 and 1991................................ F-25
Statements of Cash Flows for the One Month Ended July 31, 1992 and the Years
Ended June 30, 1992 and 1991................................................... F-26
Notes to Consolidated Financial Statements......................................... F-27
Financial Statement Schedules:
II Amounts Receivable from Related Parties, Underwriters, Promoters, and
Employees Other than Related Parties.................................... F-50
V Property, Equipment and Leasehold Improvements............................ F-53
VI Accumulated Depreciation, Depletion and Amortization of Property,
Equipment and Leasehold Improvements.................................... F-56
IX Short-Term Borrowings..................................................... F-58
X Supplementary Income Statement Information................................ F-59
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Separate financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because such entities considered in the
aggregate as a single subsidiary would not constitute a significant subsidiary.
F-1
63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
We have audited the accompanying consolidated balance sheets of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as
of December 31, 1993 and 1992 and the related consolidated statements of income,
stockholders' equity and cash flows for the year ended December 31, 1993 and the
five months ended December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prime Hospitality Corp. and
subsidiaries as of December 31, 1993 and 1992 and the results of their
operations and their cash flows for the year ended December 31, 1993 and the
five months ended December 31, 1992 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and financial statement schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. The schedules have been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 17, 1994
F-2
64
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS, EXCEPT SHARE DATA)
1993 1992
-------- --------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 41,569 $ 36,616
Restricted cash..................................................... 10,993 12,896
Accounts receivable, net of reserves................................ 6,266 6,395
Current portion of mortgages and other notes receivable............. 2,275 6,898
Accrued interest receivable......................................... 3,954 3,038
Other current assets................................................ 3,145 2,661
-------- --------
Total current assets........................................ 68,202 68,504
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization.................................... 172,786 162,797
Mortgages and other notes receivable, net of current portion........ 163,033 165,654
Other assets........................................................ 6,664 6,359
-------- --------
TOTAL ASSETS................................................ $410,685 $403,314
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt............................................. $ 19,282 $ 18,275
Other current liabilities........................................... 22,445 23,011
-------- --------
Total current liabilities................................... 41,727 41,286
Long-term debt, net of current portion................................ 168,618 192,913
Other liabilities..................................................... 28,976 31,333
-------- --------
Total liabilities........................................... 239,321 265,532
-------- --------
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; 33,075,880 and 33,000,000 shares issued and
outstanding in 1993 and 1992, respectively...................... 331 330
Capital in excess of par value...................................... 157,476 136,059
Retained earnings................................................... 13,557 1,393
-------- --------
Total stockholders' equity.................................. 171,364 137,782
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $410,685 $403,314
-------- --------
-------- --------
See Accompanying Notes to Consolidated Financial Statements.
F-3
65
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIVE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
-------- -------
Revenues:
Rooms........................................................... $ 69,487 $24,639
Food and beverage............................................... 12,270 4,598
Management and other fees....................................... 10,831 5,000
Interest on mortgages and other notes receivable................ 14,765 6,335
Rental and other................................................ 1,507 762
-------- -------
Total revenues.......................................... 108,860 41,334
-------- -------
Costs and expenses:
Direct hotel operating expenses:
Rooms........................................................ 19,456 6,952
Food and beverage............................................ 10,230 4,027
Selling and general.......................................... 20,429 7,811
Occupancy and other operating................................... 11,047 4,351
General and administrative...................................... 15,685 5,929
Depreciation and amortization................................... 7,117 2,918
-------- -------
Total costs and expenses................................ 83,964 31,988
-------- -------
Operating income.................................................. 24,896 9,346
Interest income on cash investments............................... 1,267 693
Interest expense.................................................. (16,116) (7,718)
Other income...................................................... 3,809 --
-------- -------
Income before income taxes and extraordinary items................ 13,856 2,321
Provision for income taxes........................................ 5,681 928
-------- -------
Income before extraordinary items................................. 8,175 1,393
Extraordinary items -- Gains on discharges of indebtedness (net of
income taxes of $2,772)......................................... 3,989 --
-------- -------
Net income........................................................ $ 12,164 $ 1,393
-------- -------
-------- -------
Net income per common share:
Income before extraordinary items............................... $ .24 $ .04
Extraordinary items............................................. .12 --
-------- -------
Net income per common share....................................... $ .36 $ .04
-------- -------
-------- -------
See Accompanying Notes to Consolidated Financial Statements.
F-4
66
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
CAPITAL
IN
EXCESS
COMMON STOCK OF
------------------ PAR RETAINED
SHARES AMOUNT VALUE EARNINGS TOTAL
--------- ---- -------- ------- --------
Balance August 1, 1992................. 33,000,000 $330 $135,270 $ -- $135,600
Net income............................. -- -- -- 1,393 1,393
Utilization of net operating loss
carryforwards........................ -- -- 789 -- 789
--------- ---- -------- ------- --------
Balance December 31, 1992.............. 33,000,000 330 136,059 1,393 137,782
Net income............................. -- -- -- 12,164 12,164
Utilization of net operating loss
carryforwards........................ -- -- 4,525 -- 4,525
Federal income tax refund.............. -- -- 16,462 -- 16,462
Compensation expense related to stock
option plan.......................... -- -- 225 -- 225
Proceeds from exercise of stock
options.............................. 30,000 -- 81 -- 81
Proceeds from exercise of stock
warrants............................. 45,880 1 124 -- 125
--------- ---- -------- ------- --------
Balance December 31, 1993.............. 33,075,880 $331 $157,476 $13,557 $171,364
--------- ---- -------- ------- --------
--------- ---- -------- ------- --------
See Accompanying Notes to Consolidated Financial Statements.
F-5
67
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FIVE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
-------- --------
Cash flows from operating activities:
Net income......................................................... $ 12,164 $ 1,393
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 7,117 2,918
Utilization of net operating loss carryforwards................. 4,525 789
Deferred income taxes........................................... 1,541 --
Gains on discharges of indebtedness............................. (6,761) --
Gains on disposals of assets.................................... (1,769) --
Compensation expense related to stock options................... 225 --
Increase (decrease) from changes in other operating assets and
liabilities:
Accounts receivable............................................. 269 320
Other current assets............................................ (1,791) (1,445)
Other liabilities............................................... 4,208 (248)
-------- --------
Net cash provided by operating activities.................. 19,728 3,727
-------- --------
Cash flows from investing activities:
Proceeds from mortgages and other notes receivable................. 10,861 46,165
Disbursements for mortgages and other notes receivable............. (515) --
Proceeds from sales of property, equipment and leasehold
improvements.................................................... 3,715 --
Purchases of property, equipment and leasehold improvements........ (14,346) (1,803)
Decrease in restricted cash........................................ 1,903 9,939
Other.............................................................. 663 (506)
-------- --------
Net cash provided by investing activities.................. 2,281 53,795
-------- --------
Cash flows from financing activities:
Payments of debt................................................... (30,890) (56,592)
Proceeds from issuance of debt..................................... 2,771 --
Proceeds from the exercise of stock options and warrants........... 206 --
Principal proceeds from federal income tax refund.................. 16,462 --
Reorganization items after emergence from bankruptcy............... (5,605) (3,807)
-------- --------
Net cash used in financing activities...................... (17,056) (60,399)
-------- --------
Net increase (decrease) in cash and cash equivalents................. 4,953 (2,877)
Cash and cash equivalents at beginning of period..................... 36,616 39,493
-------- --------
Cash and cash equivalents at end of period........................... $ 41,569 $ 36,616
-------- --------
-------- --------
See Accompanying Notes to Consolidated Financial Statements.
F-6
68
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Prime Hospitality Corp. (the "Company") is a leading independent hotel
operating company with ownership or management of full-service and
limited-service hotels in the United States and one resort hotel in the U.S.
Virgin Islands. The Company's hotels primarily provide moderately priced,
quality accommodations in secondary or tertiary markets, and operate under
franchise agreements with national hotel chains or under the Company's
proprietary Wellesley Inns or AmeriSuites trade names.
In addition to its hotel operations, the Company has a portfolio of
financial assets including mortgages and notes receivable secured by hotel
properties and owns real estate that is not part of its hotel operations.
The Company emerged from the Chapter 11 reorganization case of its
predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"),
which consummated its Plan of Reorganization ("the Plan") on July 31, 1992 (the
"Effective Date"). PMI and certain of its subsidiaries had filed for protection
under Chapter 11 of the United States Bankruptcy Code in September of 1990.
During the reorganization, PMI renegotiated most of its leases, management
agreements and debt commitments, resulting in the elimination of a substantial
number of unprofitable contract relationships and excessive debt obligations.
Basis of presentation
Pursuant to the American Institute of Certified Public Accountant's
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start
reporting as of July 31, 1992. Under fresh start reporting, the reorganization
value of the entity was allocated to the reorganized Company's assets on the
basis of the purchase method of accounting. The reorganization value (the
approximate fair value) of the assets of the emerging entity was determined by
consideration of many factors and various valuation methods, including
discounted cash flows and price/earnings and other applicable ratios believed by
management to be representative of the Company's business and industry.
Liabilities were recorded at face values, which approximate the present values
of amounts to be paid determined at appropriate interest rates. Under fresh
start reporting, the consolidated balance sheet as of July 31, 1992 became the
opening consolidated balance sheet of the emerging Company.
In accordance with SOP 90-7, financial statements covering periods prior to
July 31, 1992 are not presented because such statements have been prepared on a
different basis of accounting and are thus not comparable.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
Cash equivalents
Cash equivalents are highly liquid unrestricted investments with a maturity
of three months or less when acquired.
Restricted cash
Restricted cash consists primarily of highly liquid investments that serve
as collateral for debt obligations due within one year.
F-7
69
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
Mortgages and other notes receivable
Mortgages and other notes receivable are reflected at their fair value as
of July 31, 1992, adjusted for payments and other advances since that date. The
amount of interest income recognized on mortgages and other notes receivable is
generally based on the stated interest rate and the carrying value of the notes.
The Company has a number of subordinated or junior mortgages which remit payment
based on hotel cash flow. Because there is substantial doubt that the Company
will recover their face value, these mortgages have not been valued in the
Company's consolidated financial statements. Interest on cash flow mortgages and
delinquent loans is only recognized when cash is received.
Property, equipment and leasehold improvements
Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at their fair market value as of July 31, 1992
plus the cost of acquisitions subsequent to that date less accumulated
depreciation and amortization from August 1, 1992. Provision is made for
depreciation and amortization using the straight-line method over the estimated
useful lives of the assets. Properties identified for disposal are stated at
their estimated net realizable value.
Income taxes
The Company and its subsidiaries file a consolidated Federal income tax
return. For financial reporting purposes, the Company follows Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109
("FAS 109"). In accordance with FAS 109, as well as SOP 90-7, income taxes have
been provided at statutory rates in effect during the period. Tax benefits
associated with net operating loss carryforwards and other temporary differences
that existed at the time fresh start reporting was adopted are reflected as a
contribution to stockholders' equity in the period in which they are realized.
Income per common share
Net income per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding during each
period. The weighted average number of common shares used in computing primary
net income per share was 33,808,000 for the year ended December 31, 1993 and
33,000,000 for the five months ended December 31, 1992. The dilutive effect of
stock warrants and options during the year ended December 31, 1993 and the five
months ended December 31, 1992 was not material (see Note 10).
Reclassifications
Certain reclassifications have been made to the December 31, 1992
consolidated financial statements to conform them to the December 31, 1993
presentation.
NOTE 2 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in thousands):
DECEMBER 31,
--------------------
1993 1992
------- -------
Cash................................................... $ 3,013 $ 1,526
Commercial paper and other cash equivalents............ 38,556 35,090
------- -------
Totals....................................... $41,569 $36,616
------- -------
------- -------
F-8
70
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 3 -- MORTGAGES AND OTHER NOTES RECEIVABLE
Mortgages and other notes receivable are comprised of the following (in
thousands):
DECEMBER 31,
---------------------
1993 1992
-------- --------
Frenchman's Reef resort hotel (a)..................... $ 50,000 $ 50,000
Rose and Cohen entities (b)........................... 25,000 25,000
Other properties managed by the Company (c)........... 65,323 62,070
Other (d)............................................. 24,985 35,482
-------- --------
Total....................................... 165,308 172,552
Less current portion.................................. 2,275 6,898
-------- --------
Long-term portion..................................... $163,033 $165,654
-------- --------
-------- --------
- ---------------
(a) These mortgage notes are secured by the Marriott Frenchman's Reef resort
hotel, which is managed by the Company, and consist of first and second
mortgages with face values of $53,383,000 and $25,613,000, respectively,
with final scheduled principal payments of $51,976,000 and $25,613,000 due
on July 31, 1995. The notes bear interest at a stated rate of 13%. Interest
and principal payments on the first mortgage are payable in monthly
installments. Interest and scheduled principal payments on the second
mortgage note are payable only to the extent of available cash flow, as
defined, with any unpaid interest due at maturity. In connection with the
adoption of fresh start reporting, the Company valued the notes at
$50,000,000.
During the year ended December 31, 1993 and five months ended December 31,
1992, the Company recognized $4,250,000 and $1,770,000 of interest income
on these notes, respectively (an effective rate of approximately 8.5%),
based on the current level of cash flows generated from the hotel property
available to service the notes.
During 1993, the Company entered into a restructuring agreement related to
these notes 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
disclosure statement setting forth the plan of reorganization dated October
21, 1993 provided for the Company to receive ownership and control of the
hotel through a 100% equity interest in the reorganized FRBA. The plan also
provided for the existing equity holders and any other impaired claim
holders to participate in excess cash flow above specified levels and all
administrative and unsecured trade claims incurred in the ordinary course
of business to be paid in full. A group purporting to represent a
significant number of limited partners has filed an objection to the
disclosure statement and has challenged the authority of the general
partner. These holders have also indicated that they intend to challenge
the validity of the Company's lien. In light of this uncertainty, the
Company intends to defend its position and pursue a foreclosure of its
mortgages and has filed a motion to lift the stay of relief under the
Chapter 11 petition to permit a commencement of a foreclosure action. The
motion is subject to approval by the Bankruptcy Court.
In the event that the Company is successful in its foreclosure proceedings
and obtains title to the property, the assets and liabilities of the
Frenchman's Reef resort hotel will be included in the consolidated
financial statements of the Company at an initial net carrying value equal
to the carrying value of the notes.
(b) From 1988 through 1990, PMI loaned entities controlled by Allan Rose and
Arthur Cohen (the "Rose and Cohen entities"), an aggregate of $100,890,000
which was initially fully secured by property and/or
F-9
71
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
personal guarantees. PMI was committed to make additional loans, also on a
fully secured basis, to the Rose and Cohen entities of up to an aggregate
of $130,000,000 if values of, and/or revenues generated by, certain hotel
properties controlled by the Rose and Cohen entities attained specified
levels. PMI was to receive a minimum annual return of 10% on all loans made
to the Rose and Cohen entities and a maximum return of 20%. All loans and
unpaid interest are payable on December 31, 1997.
In 1992, certain of the Rose and Cohen entities owning a portion of the
collateral that secures the loans filed for Chapter 11 protection in the
United States Bankruptcy Court, Southern District of New York. Also during
1992, PMI commenced an adversary proceeding against Rose and Cohen to
recover jointly and severally on the personal guarantees of $50,000,000
given by Rose and Cohen as part of the loan agreement. The accrual of
interest on the Rose and Cohen note was discontinued in fiscal 1990 and the
notes were reflected at their estimated net realizable value.
In June 1993, the Company reached a settlement with Allan Rose and Arthur
Cohen. The settlement provided for an affiliate of Rose to purchase the
notes for the sum of $25,000,000 in cash, which was fully funded into
escrow by Rose on February 25, 1994. The Company is also to receive the
cash proceeds from approximately 1,100,000 shares of the Company's common
stock owned by Rose which will be liquidated over a period of time. In
addition, pursuant to the settlement, certain bankruptcy claims against PMI
have been withdrawn (see Note 7).
The settlement is subject to a claim on the entire amount of the proceeds
by Financial Security Assurance, Inc. ("FSA"). A trial was held in the
United States Bankruptcy Court for the Southern District of Florida in
January 1994 to approve the settlement agreement and resolve FSA's claim on
the settlement proceeds. The Company expects an order to be issued by that
court in the near future, which may be subject to appeal. All proceeds
received pursuant to the settlement must be held in escrow until such order
is received. The Company believes that FSA is unlikely to prevail on its
claim, and as a result, does not believe it will have a material impact on
the financial statements. Upon receipt of a favorable order from the court,
substantially all of the net proceeds will be used to retire debt (see Note
6).
(c) The Company is the holder of mortgage notes receivable with a book value of
$50,670,000 secured primarily by 11 hotel properties operated by the
Company under management agreements and $14,653,000 in mortgages secured
primarily by 4 properties operated under lease agreements. These notes
currently bear interest at rates ranging from 8.5% to 14.0% and mature
through 2003. The mortgages were primarily derived from the sales of hotel
properties. Many of the 11 managed properties were unable to pay in full
the annual debt service required under the terms of the original mortgages.
The Company has restructured approximately $36,500,000 of these loans to
pay based upon available cash and a participation in the future excess cash
flow of such hotel properties. The restructurings generally include a
"senior portion" featuring defined payment terms, and a "junior portion"
payable annually based on cash flow. The junior portion represents the
difference between the original mortgage and the new senior portion and
provides the Company the opportunity to recover that difference if the
hotel's performance improves. In addition to the junior portions of the
restructured mortgages, the Company holds junior or other cash flow
mortgages and subordinated interests in 19 other hotel properties operated
by the Company under management agreements.
The Company's consolidated balance sheets do not reflect any value related
to the junior portion of the restructured notes or the junior mortgages and
subordinated interests on the 19 other hotels as there is substantial doubt
that the Company will recover any of their face value. During 1993, the
Company recognized $976,000 of interest income related to these mortgages
due to excess cash flow on certain properties attributable to decreased
interest expense on variable rate borrowings senior to the Company's
positions on these hotels.
F-10
72
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
(d) Other notes receivable currently bear interest at effective rates ranging
from 4% to 11%, mature through 2011 and are secured primarily by hotel
properties not currently managed by the Company.
NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following (in
thousands):
DECEMBER 31, YEARS OF
-------------------- USEFUL
1993 1992 LIFE
-------- -------- --------
Land and land leased to others............... $ 29,407 $ 26,074
Hotels....................................... 109,671 97,179 20 to 40
Furniture, fixtures and autos................ 21,879 18,333 3 to 10
Leasehold improvements....................... 10,222 15,771 3 to 40
Construction in progress..................... 2,555 --
Properties held for sale..................... 8,355 8,000
-------- --------
Sub-total............................... 182,089 165,357
Less accumulated depreciation and
amortization.......................... (9,303) (2,560)
-------- --------
Totals............................. $172,786 $162,797
-------- --------
-------- --------
At December 31, 1993, the Company was the lessor of land and certain
restaurant facilities in Company-owned hotels with an approximate aggregate book
value of $8,676,000 pursuant to noncancelable operating leases expiring on
various dates through 2013. Minimum future rentals under such leases are
$10,730,000, of which $3,939,000 is scheduled to be received in the aggregate
during the five-year period ending December 31, 1998.
Depreciation and amortization expense on property, equipment and leasehold
improvements was $7,015,000 for the year ended December 31, 1993 and $2,784,000
for the five months ended December 31, 1992.
NOTE 5 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
DECEMBER 31,
-------------------
1993 1992
------- -------
Accounts payable........................................ $ 2,025 $ 1,626
Interest................................................ 4,454 4,933
Accrued payroll and related benefits.................... 2,190 3,181
Insurance reserves...................................... 6,206 2,103
Reorganization reserve.................................. 676 5,497
Other................................................... 6,894 5,671
------- -------
Totals........................................ $22,445 $23,011
------- -------
------- -------
F-11
73
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 6 -- DEBT
Debt consists of the following (in thousands):
DECEMBER 31,
---------------------
1993 1992
-------- --------
Senior secured notes(a)............................... $ 33,152 $ 37,009
Junior secured notes(a)............................... 53,531 69,999
Mortgages and other notes payable(b).................. 99,946 104,180
Borrowings under credit agreement(c).................. 1,271 --
-------- --------
Total debt............................................ 187,900 211,188
Less current maturities............................... 19,282 18,275
-------- --------
Debt, net of current portion................ $168,618 $192,913
-------- --------
-------- --------
- ---------------
(a) Pursuant to the Plan, the Company issued two classes of Secured Notes which
are identified as "Senior Secured Notes" and "Junior Secured Notes". Senior
Secured Notes were issued in two series of notes which are identified as the
"8.20% Fixed Rate Senior Secured Notes" and the "Adjustable Rate Senior
Secured Notes". Each series is identical except that the interest rate on
the Adjustable Rate Senior Secured Notes will be periodically adjusted to
one-half of one percent over the prime rate, with a maximum interest rate of
10.0% per annum. The aggregate principal amount of Senior Secured Notes
issued under the Plan was $91,300,000, comprised of $30,100,000 of 8.20%
Fixed Rate Senior Secured Notes and $61,200,000 of Adjustable Rate Senior
Secured Notes. On August 11, 1992, the Company prepaid $17,900,000 of the
8.20% Fixed Rate Senior Secured Notes and $36,400,000 of the Adjustable Rate
Senior Secured Notes from the proceeds of collections of portions of the
collateral for the Senior Secured Notes.
The other class of Secured Notes issued to satisfy claims was comprised of
Junior Secured Notes that bear interest at a rate of 9.20% per annum and
will mature on July 31, 2000. The aggregate principal amount of Junior
Secured Notes issued under the Plan was approximately $70,000,000.
The collateral for the Secured Notes consists primarily of mortgages and
other notes receivable and real property, net of related liabilities, (the
"Secured Note Collateral") with a book value of $104,790,000 as of December
31, 1993.
Interest on the Secured Notes is payable semi-annually commencing January
31, 1993. The Secured Notes require that 85% of the cash proceeds from the
Secured Note Collateral be applied first to interest, second to prepayment
of the Senior Secured Notes and third to prepayment of the Junior Secured
Notes. Any remaining principal balance of the Senior Secured Notes is due
July 31, 1997. Aggregate principal payments on the Junior Secured Notes are
required in order that one-third of the principal balance outstanding on
December 31, 1996 is paid by July 31, 1998; two-thirds of the balance is
paid by July 31, 1999; and all of the balance is paid by July 31, 2000. To
the extent the cash proceeds from the Secured Note Collateral are
insufficient to pay interest or required principal payments on the Secured
Notes, the Company will be obligated to pay any deficiency out of its
general corporate funds.
The Secured Notes contain covenants which, among other things, require the
Company to maintain a net worth of at least $100,000,000, limit
expenditures related to the development of hotel properties through
December 31, 1996 and preclude cash distributions to stockholders,
including dividends and redemptions, until the Secured Notes have been paid
in full.
F-12
74
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
During 1993, the Company repurchased $513,000 of its 8.2% Senior Secured
Notes and $16,467,000 of its 9.2% Junior Secured Notes for an aggregate
purchase price of $13,249,000. The Company recorded pre-tax extraordinary
gains of $3,731,000 related to these repurchases.
During the first quarter of 1994, the Company repurchased $6,527,000 of its
Adjustable Rate Senior Secured Notes, $217,000 of its 8.20% Senior Secured
Notes and $461,000 of its 9.20% Junior Secured Notes for an aggregate
purchase price of $7,018,000. The repurchases resulted in pretax
extraordinary gains of $187,000, which will be reflected in the Company's
first quarter 1994 consolidated financial statements. These notes have been
classified as long-term debt at December 31, 1993, in accordance with their
terms, as repurchase was not contemplated at the balance sheet date.
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 are
currently held by the third party agent and have not been retired due to
certain restrictions under the note agreements. The purchases will be
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.
(b) The Company has mortgage and other notes payable of approximately
$66,039,000 that are secured by mortgage notes receivable and hotel
properties with a book value of $104,324,000. Principal and interest on
these mortgages and notes are generally paid monthly. At December 31, 1993
these notes bear interest at rates ranging from 4.68% to 10.5% and mature
through 2008.
At December 31, 1993, the Company has outstanding loans in the amount of
$18,361,000 payable to ShoLodge, Inc. ("ShoLodge"), a company controlled by
a director. The foregoing loans are secured by AmeriSuites hotel properties
with an aggregate book value of $35,588,000. Interest is payable monthly at
rates ranging from 8% (the prime rate plus 2%) to 9.5% (Note 9) and mature
through April 1996.
The Company has $11,665,000 of notes restructured under the Plan which bear
interest at rates ranging from 8.00% to 9.50% per annum payable
semi-annually. Prior to maturity, principal amounts outstanding will be
paid semi-annually based on a thirty-year amortization schedule. Each note
matures on July 31, 2002 and is secured by a lien on mortgage notes
receivable and hotel properties with a book value of $11,074,000 at
December 31, 1993. During 1993, the Company repurchased $8,828,000 of these
notes for an aggregate purchase price of $5,799,000. The repurchase
resulted in a pre-tax extraordinary gain of $3,030,000.
The Company has other notes payable of $3,881,000, which bear interest at
rates ranging from 8.0% to 8.2% and mature through 1999.
(c) The Company has a fully-secured demand credit agreement which permits
borrowing of up to $5,000,000 and bears interest at the prime rate plus 2%.
This facility is supported by a certificate of deposit which is maintained
by the bank.
Maturities of long-term debt for the next five years ending December 31 are
as follows (in thousands):
1994.............................................. $ 19,282
1995.............................................. 8,931
1996.............................................. 42,754
1997.............................................. 34,903
1998.............................................. 19,586
Thereafter........................................ 62,444
--------
Total................................... $187,900
--------
--------
F-13
75
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 7 -- LEASE COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 1994 through 2015. The Company has options to
renew certain of the leases for periods ranging from 1 to 94 years. Rental
payments are based on minimum rentals plus a percentage of the hotel properties'
revenues in excess of stipulated amounts.
The following is a schedule, by year, of future minimum lease payments
required under the remaining operating leases that have terms in excess of one
year as of December 31, 1993 (in thousands):
1994............................................... $ 4,028
1995............................................... 3,989
1996............................................... 3,957
1997............................................... 3,925
1998............................................... 3,756
Thereafter......................................... 38,817
-------
Total.................................... $58,472
-------
-------
Rental expense for all operating leases, including those with terms of less
than one year, consist of the following for the year ended December 31, 1993 and
the five months ended December 31, 1992 (in thousands):
1993 1992
------ ------
Rentals................................................... $5,009 $1,844
Contingent rentals........................................ 764 266
------ ------
Rental expense.................................. $5,773 $2,110
------ ------
------ ------
Employee Benefits
The Company does not provide any material post employment benefits to its
current or former employees.
Contingent Claims
As of March 1, 1994, unresolved bankruptcy claims of approximately
$437,000,000 have been asserted against PMI. The Company has disputed
substantially all of these unresolved claims and has filed objections to such
claims. The Company believes that substantially all of these claims will be
dismissed and disallowed. Any claims not disallowed will be satisfied through
the distribution of the Company's common stock. In accordance with SOP 90-7, the
consolidated financial statements have given full effect to the maximum
distribution, pursuant to the Plan of the Company's common stock (see Note 10).
The Company has responded to informal requests for information by the Staff
of the United States Securities and Exchange Commission's Division of
Enforcement relating to a number of the significant transactions of PMI, for the
years 1985 through 1991. However, no formal allegations have been made by the
Staff.
In addition to the foregoing legal proceedings, the Company is involved in
various other proceedings incidental to the normal course of its business.
F-14
76
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
The Company believes that the resolution of these contingencies will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
Financial Instruments and Concentration of Credit Risk
The Company's accounts receivable and mortgages and other notes receivable
(see Note 3) are derived primarily from and are secured by hotel properties,
which constitutes a concentration of credit risk. These notes are subject to
many of the same risks as the Company's operating hotel assets. A significant
portion of the collateral is located in the Northeastern and Southeastern United
States.
In addition to the hotel property related receivables referred to above,
the Company's financial instruments include (i) assets; cash and cash
equivalents and restricted cash investments and (ii) liabilities; trade and
notes payable and long-term debt (see Note 6). As described in Note 1, in
connection with the adoption of fresh start accounting as of July 31, 1992, the
Company revalued its assets and liabilities at amounts approximating fair market
value. Since there have been no substantive changes in market conditions since
the date of the revaluation and on the basis of market quotes and experience on
recent redemption offers for the Company's long-term debt, the Company believes
that the carrying amount of these financial instruments approximated their fair
market value as of December 31, 1993 and 1992.
As a result of the reorganization proceedings and the rejection of certain
leases, management contracts and other guarantees, the Company has no other
material off-balance-sheet liabilities or credit risk as of December 31, 1993.
NOTE 8 -- INCOME TAXES
The provision for income taxes (including amounts applicable to
extraordinary items) consisted of the following for the year ended December 31,
1993 and the five months ended December 31, 1992 (in thousands):
DECEMBER 31,
----------------
1993 1992
------ ----
Current:
Federal.................................................. $2,167 $ --
State.................................................... 220 139
------ ----
2,387 139
Deferred:
Federal.................................................. 5,049 789
State.................................................... 1,017 --
------ ----
6,066 789
------ ----
Total............................................ $8,453 $928
------ ----
------ ----
Income taxes are provided at the applicable federal and state statutory
rates.
F-15
77
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions for the year ended December 31, 1993
and the five months ended December 31, 1992 (in thousands):
DECEMBER 31,
----------------
1993 1992
------ ----
Utilization of net operating loss.......................... $4,525 $789
Basis difference -- properties and notes................... 1,356 --
Allowance for doubtful accounts............................ (545) --
Depreciation............................................... 415 --
Gains on property sales.................................... (366) --
Property transactions...................................... 348 --
Other...................................................... 333 --
------ ----
Total............................................ $6,066 $789
------ ----
------ ----
At December 31, 1993, the Company had available federal net operating loss
carryforwards of approximately $121,000,000 which will expire beginning in 2005
and continuing through 2008. Of this amount, $114,000,000 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 the Plan. 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.
In accordance with FAS 109, the Company has not recognized the future tax
benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $42,000,000 against the deferred tax asset as of
December 31, 1993. To the extent any available carryforwards or other tax
benefits are utilized, the amount of tax benefit realized will be treated as
contribution to stockholders' equity and will have no effect on the income tax
provision for financial reporting purposes. For the year ended December 31, 1993
and the five months ended December 31, 1992, the Company recognized $4,525,000
and $789,000, respectively, of such tax benefits as a contribution to
stockholders' equity.
The Company's federal income tax returns for the years 1987 through 1991
were examined by the Internal Revenue Service. The Company received a
$17,700,000 federal income tax refund, including interest relating to its
predecessor, PMI. In accordance with SOP 90-7, the Company recorded the tax
refund and the interest related to its predecessor as a contribution to
additional paid in capital ($16,462,000). The remaining amount of $1,238,000,
which represents interest since July 31, 1992, is included in other income in
the accompanying financial statements.
F-16
78
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 9 -- RELATED PARTY TRANSACTIONS
The following summarizes significant financial information with respect to
transactions with present and former officers, directors, their relatives and
certain entities they control or in which they have a beneficial interest for
the year ended December 31, 1993 and the five months ended December 31, 1992 (in
thousands):
DECEMBER 31,
--------------
1993 1992
---- ----
Management and other fee income (a)......................... $810 $312
Interest income (a)......................................... 14 72
Management fee expense (b).................................. 222 162
Interest expense (b)........................................ 475 332
Reservation fee expense (b)................................. $468 $101
- ------------
(a) The Company manages 12 hotels for partnerships in which a related party owns
various interests. The income amounts shown above primarily include
transactions related to these hotel properties.
(b) In 1991, PMI entered into an agreement (the "Development Agreement") with
ShoLodge, whereby ShoLodge was appointed the exclusive agent to develop and
manage certain hotel properties. The Company has loans payable to ShoLodge
of $18,361,000 at December 31, 1993 related to the development of Hotels
(see Note 6).
In January 1993, the Company and its wholly-owned subsidiary, Suites of
America, Inc. ("SOA") entered into agreements with ShoLodge designed to
enhance the growth of its AmeriSuites hotel chain from the six hotels owned
at that time by adding an additional six hotels to be built and financed by
ShoLodge. ShoLodge has completed development of three hotels, two of which
the Company has acquired subject to mortgages with ShoLodge. In addition,
ShoLodge has three hotels currently under construction. Upon completion of
the new hotels and the exercise of an option by either ShoLodge or the
Company, ShoLodge will contribute its fee or mortgage interests on six
hotels to SOA and will own a 50% interest in SOA. Upon exercise of this
option, the Development Agreement will terminate and ShoLodge will manage
all 12 hotels in SOA pursuant to a new management agreement. The Company
will retain ownership of the AmeriSuites brand name and all rights to
license and develop the name for its own account. In conjunction with the
agreement, ShoLodge has also relinquished its profit sharing interests of
$2,862,000 on the initial six hotels for cash and the cancellation of a
note receivable.
The Company uses the ShoLodge reservation system for its Wellesley and
AmeriSuites hotel properties.
NOTE 10 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
Pursuant to the Plan, on July 31, 1992 the Company began distributing
shares of common stock to certain claimants and holders of PMI stock. The Plan
provided for issuance of 33,000,000 shares of common stock and as of March 10,
1994, 29,124,324 shares of common stock were distributed. The remaining shares
are to be distributed semi-annually to holders of previously allowed claims and
pending final resolution of disputed claims (see Note 7). The consolidated
financial statements have given full effect to the issuance of the maximum
amount of 33,000,000 shares under the Plan. The number of shares ultimately
distributed under the Plan could be less than 33,000,000 depending on the final
outcome of the disputed claims. In addition to the shares distributed under the
Plan, warrants to purchase 2,100,000 shares of the Company's common stock were
issued to former shareholders of the Company's predecessor, PMI, in partial
settlement of their bankruptcy interests. The warrants became exercisable on
August 31, 1993 at an exercise price of $2.71 per share. The exercise price was
determined from the average per share daily closing price of the Company's
F-17
79
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
common stock during the year following its reorganization on July 31, 1992. As
of December 31, 1993, 45,880 shares have been exercised.
On July 31, 1992, the Company adopted various stock option and performance
incentive plans under which options to purchase up to 1,320,000 shares of common
stock may be granted to directors, officers or key employees under terms
determined by the Board of Directors. During 1993 and 1992, options to purchase
20,000 and 350,000 shares, respectively, were granted to officers and directors,
130,000 of which are exercisable at December 31, 1993. In addition, options to
purchase 330,000 shares were granted to a former officer in 1992. Such options
are currently exercisable and expire on July 31, 1995. During 1993, 30,000 of
these options were exercised. The exercise prices of the above options are based
on the average market price one year from the date of grant and have been
determined to be $2.71 per share. Based on this exercise price, the amount of
compensation expense attributable to these options was $225,000 for the year
ended December 31, 1993.
In June 1993, options to purchase 393,000 shares of common stock were
granted to employees under the Company's stock option plan. The options were
granted at $3.625, which approximates the fair market value at the date of
grant. Generally, options can be exercised during a participant's employment
with the Company in equal annual installments over a three-year period and
expire six years after the date of grant.
In August 1993, options to purchase 315,000 shares of common stock were
granted to the members of the Company's Board of Directors. The options were
granted at $3.20, which approximates the fair market value at the date of grant.
One-third of these options became exercisable at the date of grant and the
remaining options can be exercised in equal annual installments over a two year
period. The options expire six years after the date of grant.
Summary of the stock option plans are as follows:
OPTION
NUMBER PRICE
OF SHARES PER SHARE
--------- -----------
Outstanding -- July 31, 1992....................... --
Granted............................................ 680,000 $2.71
---------
Outstanding -- December 31, 1992................... 680,000 2.71
Granted............................................ 728,000 $2.71-$3.63
Exercised.......................................... (30,000) $2.71
Cancelled.......................................... (77,000) $2.71-$3.63
---------
Outstanding at December 31, 1993................... 1,301,000
---------
---------
F-18
80
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 11 -- TRANSITION PERIOD FINANCIAL INFORMATION (UNAUDITED)
Following the Effective Date, the Company elected to change its fiscal year
end from June 30 to December 31. As described in Note 1, financial statements
for periods prior to the Effective Date have been prepared on a different basis
of accounting and are thus not comparable. Selected financial information for
the six months ended December 31, 1992 and 1991, prepared on a pro-forma basis
as if the Plan became effective on June 30, 1991, are as follows (in thousands,
except per share amounts):
SIX MONTHS ENDED
DECEMBER 31,
-------------------
1992 1991
------- -------
Revenues................................................ $50,820 $73,379
Income before income taxes.............................. 2,068 1,038
Net income.............................................. 1,241 623
Net income per common share............................. $ .04 $ .02
NOTE 12 -- SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes non-cash investing and financing activities for
the year ended December 31, 1993 and the five months ended December 31, 1992 (in
thousands):
DECEMBER 31,
------------------
1993 1992
------ ------
Hotels acquired in exchange for the assumption of
mortgage notes payable................................. $9,161 $ --
Hotels received in settlement of mortgage notes
receivable............................................. 3,500 7,800
Sale of hotel in exchange for a mortgage note
receivable............................................. $6,500 $ --
Cash paid for interest was $16,347,000 for the year ended December 31, 1993
and $2,981,000 for the five months ended December 31, 1992.
Cash paid for income taxes was $2,697,000 for the year ended December 31,
1993 and $0 for the five months ended December 31, 1992.
F-19
81
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Prime Hospitality Corp.:
We have audited the accompanying consolidated balance sheet of Prime
Hospitality Corp. (a Delaware corporation) and subsidiaries ("the Company") as
of July 31, 1992 and the related consolidated statements of operations,
stockholders' equity and cash flows for the one month then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prime Hospitality Corp. and
subsidiaries as of July 31, 1992 and the results of their operations and their
cash flows for the one month then ended in conformity with generally accepted
accounting principles.
As discussed in Note 8, the Company held an investment in a mortgage note
receivable from certain entities with a face value of $100,890,000 that is
valued at $25,000,000 at July 31, 1992. The realization of this investment is
dependent primarily on the ability of the Company to recover such amount
pursuant to the personal guarantees provided by two individuals who control the
entities that are the obligors under the mortgage note and own the hotel
properties that serve as the underlying collateral for the note. The Company has
commenced a legal action to recover pursuant to such guarantees; however, the
financial statements do not include any adjustments that might result from the
outcome of this matter.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and financial statement schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. The schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 10, 1993
F-20
82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Prime Motor Inns, Inc. (Debtor-in-Possession)
We have audited the consolidated balance sheet of Prime Motor Inns, Inc.
and Subsidiaries (Debtors-in-Possession) as of June 30, 1992, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the years ended June 30, 1992 and 1991. In connection with our
audits of the consolidated financial statements, we also have audited the
accompanying financial statement schedules for the years ended June 30, 1992 and
1991. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Prime Motor
Inns, Inc. and Subsidiaries (Debtors-in-Possession) as of June 30, 1992, and
their results of operations and cash flows for the years ended June 30, 1992 and
1991, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein for the years ended
June 30, 1992 and 1991.
As discussed in Note 8, the Company held an investment in a mortgage note
receivable from certain entities with a face value of $100,890,000 that had been
written down to $30,000,000 at June 30, 1992. The realization of the carrying
value is dependent primarily on the ability of the Company to recover such
amount pursuant to the personal guarantees provided by the two individuals who
control the entities that are the obligors under the mortgage note and the
owners of the hotel properties that serve as the underlying collateral for the
loan. The Company has commenced a legal action to recover pursuant to such
guarantees; however, the outcome of this action is not presently determinable.
As discussed in Note 12, the Company has reflected pre-petition and certain
post-petition claims in the consolidated balance sheet as of June 30, 1992 as
liabilities subject to compromise based on its estimate of the aggregate amount
that will ultimately be allowable for settlement upon consummation of the plan
of reorganization; however, the aggregate amount claimed by creditors is
substantially in excess of the liability recorded by the Company. The actual
aggregate amount of allowable pre and post-petition claims cannot presently be
determined.
As discussed in Note 15, the Company and certain of its present and former
officers and directors are defendants in certain consolidated class action
complaints alleging federal securities law violations and other claims. The
ultimate outcome of such litigation cannot presently be determined.
The eventual outcome of the matters discussed in the three preceding
paragraphs is not presently determinable and the consolidated financial
statements as of June 30, 1992 and for the years ended June 30, 1992 and 1991 do
not include any adjustments relating to the resolution of those uncertainties.
As discussed in Note 2, the Company's plan of reorganization became
effective on July 31, 1992, and it will implement the guidance as to the
accounting for entities emerging from Chapter 11 set forth in Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("Fresh Start Reporting") as of that date. The Company has not
presently determined the amounts that will be recorded under Fresh Start
Reporting. However, the implementation of Fresh Start Reporting as a result of
the Company's emergence from Chapter 11 will materially change the amounts
reported in consolidated
F-21
83
financial statements as of and for periods ending subsequent to July 31, 1992.
As a result of the reorganization and the implementation of Fresh Start
Reporting, assets and liabilities will be recorded at fair values and
outstanding obligations relating to the claims of creditors will be discharged
primarily in exchange for cash, new indebtedness and equity. The accompanying
consolidated financial statements as of June 30, 1992 and for the years ended
June 30, 1992 and 1991 do not give effect to any adjustments that will be made
as a result of the Company's reorganization and emergence from Chapter 11.
J.H. COHN & CO.
Roseland, New Jersey
September 24, 1992
F-22
84
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
FRESH START REPORTING WAS IMPLEMENTED AND THE PURCHASE METHOD OF ACCOUNTING
WAS APPLIED TO RECORD THE FAIR VALUE OF ASSETS AND ASSUMED LIABILITIES OF THE
REORGANIZED COMPANY AT JULY 31, 1992. ACCORDINGLY, THE ACCOMPANYING BALANCE
SHEET AS OF JULY 31, 1992 IS NOT COMPARABLE IN ALL MATERIAL RESPECTS TO SUCH
STATEMENT AS OF ANY DATE PRIOR TO JULY 31, 1992 SINCE THE BALANCE SHEET IS THAT
OF A NEW ENTITY.
JULY 31, JUNE 30,
1992 1992
-------- --------
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 39,493 $ 60,142
Restricted cash..................................................... 22,835 --
Accounts receivable, net of reserves................................ 9,115 7,962
Current portion of mortgages and other notes receivable............. 48,006 63,506
Other current assets................................................ 4,254 1,895
-------- --------
Total current assets........................................ 123,703 133,505
Restricted cash....................................................... 1,232 43,947
Property, equipment and leasehold improvements, net of accumulated
depreciation and reserves........................................... 160,417 179,472
Mortgages and other notes receivable, net of current portion,
writedowns and valuation reserves................................... 178,543 194,443
Other assets.......................................................... 4,755 2,751
-------- --------
TOTAL ASSETS................................................ $468,650 $554,118
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Notes payable....................................................... $ 5,971 $ 5,971
Current portion of long-term debt................................... 61,917 81
Other current liabilities........................................... 31,136 25,944
-------- --------
Total current liabilities................................... 99,024 31,996
Long-term debt, net of current portion................................ 204,438 8,921
Deferred income....................................................... -- 36,243
Other liabilities..................................................... 29,588 --
-------- --------
Total liabilities not subject to compromise................. 333,050 77,160
Liabilities subject to compromise..................................... -- 706,250
-------- --------
Total liabilities........................................... 333,050 783,410
-------- --------
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, par value $1.00 per share; 5,000,000 shares
authorized; none issued; cancelled July 31, 1992................. -- --
Preferred stock, par value $.10 per share; 20,000,000 shares
authorized; none issued.......................................... -- --
Common stock; par value $.05 per share; 100,000,000 shares
authorized; 33,662,334 shares issued; cancelled July 31, 1992.... -- 1,683
Common stock, par value $.01 per share; 50,000,000 shares
authorized; 33,000,000 shares issued and outstanding............. 330 --
Capital in excess of par value...................................... 135,270 311,355
Retained earnings (accumulated deficit)............................. -- (539,125)
Treasury stock, 634,535 shares at cost; cancelled July 31, 1992..... -- (3,205)
-------- --------
Total stockholders' equity (deficiency)..................... 135,600 (229,292)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)..... $468,650 $554,118
-------- --------
-------- --------
See Accompanying Notes to Consolidated Financial Statements.
F-23
85
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ONE
MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -----------------------
1992 1992 1991
-------- -------- ---------
Revenues:
Rooms................................................. $ 5,133 $ 75,082 $ 121,902
Food and beverage..................................... 693 20,841 37,923
Management and other fees............................. 785 11,031 8,833
Interest and dividend income.......................... 1,949 24,127 31,115
Other................................................. 233 3,109 5,926
-------- -------- ---------
Total revenues................................ 8,793 134,190 205,699
-------- -------- ---------
Costs and expenses:
Direct operating expenses:
Rooms.............................................. 1,421 21,692 29,326
Food and beverage.................................. 681 17,082 31,132
Other operating and general expenses.................. 4,302 65,184 129,980
Depreciation and amortization......................... 680 7,635 8,887
Interest (contractual interest of $3,079 for July
1992, $36,252 for fiscal 1992 and $44,582 for
fiscal 1991)....................................... 779 8,245 19,331
Valuation writedowns and reserves..................... 13,000 62,123 59,149
Loss on sale of securities............................ -- -- 6,695
-------- -------- ---------
Total costs and expenses...................... 20,863 181,961 284,500
-------- -------- ---------
Loss before reorganization items, income taxes,
discontinued operations and extraordinary items....... (12,070) (47,771) (78,801)
Reorganization items.................................... 1,796 (23,194) (181,655)
-------- -------- ---------
Loss before income taxes, discontinued operations and
extraordinary items................................... (10,274) (70,965) (260,456)
Provision (credit) for income taxes..................... -- 1,000 (14,346)
-------- -------- ---------
Loss before discontinued operations and extraordinary
items................................................. (10,274) (71,965) (246,110)
Discontinued operations:
Gain on disposal of franchise segment, net of income
taxes of $5,300.................................... -- -- 18,922
-------- -------- ---------
Loss before extraordinary items......................... (10,274) (71,965) (227,188)
Extraordinary items:
Gain on discharge of indebtedness....................... 249,600 -- --
-------- -------- ---------
Net income (loss)....................................... $239,326 $(71,965) $(227,188)
-------- -------- ---------
-------- -------- ---------
Income (loss) per common share:
Primary:
Continuing operations.............................. $ (.31) $ (2.18) $ (7.45)
Discontinued operations............................ -- -- .57
Extraordinary items................................ 7.56 -- --
-------- -------- ---------
Net income (loss)....................................... $ 7.25 $ (2.18) $ (6.88)
-------- -------- ---------
-------- -------- ---------
See Accompanying Notes to Consolidated Financial Statements.
F-24
86
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
NET
UNREALIZED
CAPITAL LOSS ON
IN RETAINED NON-CURRENT TOTAL
COMMON STOCK EXCESS EARNINGS MARKETABLE TREASURY STOCK STOCKHOLDERS'
--------------------- OF PAR ACCUMULATED EQUITY ------------------ EQUITY
SHARES AMOUNT VALUE DEFICIT) SECURITIES SHARES AMOUNT (DEFICIENCY)
----------- ------- --------- --------- ------- -------- ------- ---------
Balance June 30, 1990...... 33,662,334 $ 1,683 $ 311,355 $(239,972) $(3,180) (634,535) $(3,205) $ 66,681
Net realized loss.......... -- -- -- -- 3,180 -- -- 3,180
Net loss................... -- -- -- (227,188) -- -- -- (227,188)
----------- ------- --------- --------- ------- -------- ------- ---------
Balance June 30, 1991...... 33,662,334 1,683 311,355 (467,160) -- (634,535) (3,205) (157,327)
Net loss................... -- -- -- (71,965) -- -- -- (71,965)
----------- ------- --------- --------- ------- -------- ------- ---------
Balance June 30, 1992...... 33,662,334 1,683 311,355 (539,125) -- (634,535) (3,205) (229,292)
Net income................. -- -- -- 239,326 -- -- -- 239,326
Cancellation of former
equity interests in
connection with emergence
from bankruptcy.......... (33,662,334) (1,683) (311,355) -- -- 634,535 3,205 (309,833)
Issuance of new equity
interests in connection
with emergence from
bankruptcy............... 33,000,000 330 135,270 -- -- -- -- 135,600
Elimination of accumulated
deficit in connection
with emergence from
bankruptcy............... -- -- -- 299,799 -- -- -- 299,799
----------- ------- --------- --------- ------- -------- ------- ---------
Balance July 31, 1992...... 33,000,000 $ 330 $ 135,270 $ -- $ -- -- $ -- $ 135,600
----------- ------- --------- --------- ------- -------- ------- ---------
----------- ------- --------- --------- ------- -------- ------- ---------
See Accompanying Notes to Consolidated Financial Statements.
F-25
87
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, ----------------------
1992 1992 1991
-------- -------- ---------
Cash flows from operating activities:
Net income (loss)....................................... $239,326 $(71,965) $(227,188)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities before
reorganization items:
Depreciation and amortization........................ 680 7,635 8,887
Valuation writedowns and reserves.................... 13,000 62,123 59,149
Loss on sale of securities........................... -- -- 6,695
Provisions for lease rejection damages, guarantees of
third party debt and other bankruptcy related
claims............................................. -- 6,017 141,912
Loss on disposal of assets........................... -- 2,307 18,963
Write-off of assets in connection with bankruptcy.... -- -- 11,833
Reorganization items................................. 604 9,072 8,947
Gain on sale of discontinued operations.............. -- -- (24,222)
Gain on discharge of indebtedness.................... (249,600) -- --
Increase (decrease) from changes in other operating
assets and liabilities:
Accounts receivable................................ (1,153) 2,200 2,740
Tax refund receivable.............................. -- 30,874 29,322
Other operating assets............................. (2,359) 5,075 5,413
Other operating liabilities........................ (4,857) (5,797) 20,262
Deferred income.................................... -- -- (1,930)
-------- -------- ---------
Net cash provided by (used in) operating
activities before reorganization items........ (4,359) 47,541 60,783
-------- -------- ---------
Reorganization items:
Interest earned on accumulated cash resulting from
Chapter 11 proceedings............................... 298 4,427 2,950
Decrease in liabilities subject to compromise........... (677) (17,183) --
Professional fees and other expenses for services
rendered in connection with Chapter 11 proceedings... (902) (13,499) (11,897)
-------- -------- ---------
Net cash used in reorganization activities...... (1,281) (26,255) (8,947)
-------- -------- ---------
Net cash provided by (used in) operating
activities.................................... (5,640) 21,286 51,836
-------- -------- ---------
Cash flows from investing activities:
Proceeds from mortgages and other notes receivable...... (70) 10,160 11,238
Disbursements for mortgages and other notes
receivable........................................... -- (42) (2,571)
Sale of property, net................................... -- 4,168 11,270
Purchases of property, equipment and leasehold
improvements......................................... (692) (14,141) (21,913)
Sales of marketable investment securities............... -- -- 9,997
Additions to restricted cash............................ -- (5,746) (13,708)
Decrease in restricted cash............................. 19,880 -- --
Proceeds from sale of discontinued operations, net...... -- -- 182,850
Increase (decrease) in net assets of discontinued
operations and other assets.......................... 196 -- (178)
-------- -------- ---------
Net cash provided by (used in) investing
activities.................................... 19,314 (5,601) 176,985
-------- -------- ---------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt.......... -- 9,613 11,917
Payments of notes payable and long-term debt............ (34,323) (25,905) (201,953)
-------- -------- ---------
Net cash used in financing activities........... (34,323) (16,292) (190,036)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (20,649) (607) 38,785
Cash and cash equivalents at beginning of period.......... 60,142 60,749 21,964
-------- -------- ---------
Cash and cash equivalents at end of period................ $ 39,493 $ 60,142 $ 60,749
-------- -------- ---------
-------- -------- ---------
See Accompanying Notes to Consolidated Financial Statements.
F-26
88
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
NOTE 1 -- REORGANIZATION AND EMERGENCE FROM CHAPTER 11
Prime Hospitality Corp. became the successor corporation to Prime Motor
Inns, Inc. on July 31, 1992. As used herein, the "Company" refers to Prime
Hospitality Corp. and subsidiaries, "PMI" refers to Prime Motor Inns, Inc. and
subsidiaries and "Prime Motor Inns" refers to Prime Motor Inns, Inc., the parent
company only. The accompanying consolidated financial statements and notes
thereto reflect the activities of the Company as of and subsequent to July 31,
1992 and PMI prior to July 31, 1992.
On September 18, 1990, Prime Motor Inns (predecessor to and former parent
of the Company) and fifty of its subsidiaries (together with Prime Motor Inns,
the "Debtors") filed voluntary petitions under title 11 of the United States
Code ("Chapter 11") in the United States Bankruptcy Court, Southern District of
Florida, Miami Division (the "Bankruptcy Court") and began operating as
Debtors-In-Possession.
On September 23, 1991, the Debtors filed their Joint Plan of
Reorganization. The Debtors filed their Disclosure Statement for Debtors'
Amended Joint Plan of Reorganization and their Amended Joint Plan of
Reorganization on November 15, 1991. These plans and the disclosure statement
were further amended and restated by the Disclosure Statement and the Second
Amended Joint Plan of Reorganization of the Debtors dated January 16, 1992 (the
"Plan"). The Plan was confirmed by the Bankruptcy Court on April 6, 1992.
On July 31, 1992 (the "Effective Date"), the Debtors consummated the Plan
and emerged from bankruptcy. On the Effective Date, Prime Motor Inns merged with
and into the Company, which had been a wholly-owned subsidiary of Prime Motor
Inns. The Company was the surviving corporation in the merger. In addition,
certain of the Debtors and other subsidiaries of Prime Motor Inns that did not
file petitions under Chapter 11 merged, consolidated or contributed
substantially all of their assets to the Company or subsidiaries of the Company.
On the Effective Date, the Company assumed the obligations of each
combining Debtor under the Plan. The Company has distributed Secured Notes and
Restructured Notes and is in the process of distributing cash, Tax Notes, Common
Stock and Warrants in settlement of pre-petition claims and interests as such
claims and interests are processed and settled.
The American Institute of Certified Public Accountants has issued Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial reporting
by Chapter 11 debtors during and following their Chapter 11 cases. The
accompanying historical consolidated financial statements of PMI for the period
from September 18, 1990 to the Effective Date have been prepared in accordance
with SOP 90-7 on the following basis:
- Liabilities subject to compromise are segregated.
- Transactions and events directly associated with the
reorganization proceedings are reported separately.
- Interest expense is reported only to the extent it will be
paid.
Also pursuant to SOP 90-7, the Company implemented Fresh Start Reporting
(hereinafter defined) upon the emergence of the Debtors from bankruptcy as of
the Effective Date (see Note 2).
NOTE 2 -- FRESH START REPORTING
SOP 90-7 provides for the implementation of Fresh Start Reporting upon the
emergence of debtors from bankruptcy if the reorganization value (the
approximate fair value) of the assets of the emerging entity immediately prior
to emergence is less than the total of all post-petition liabilities and allowed
pre-petition claims, and if the holders of existing voting shares immediately
before the emergence from bankruptcy receive less than 50% of the voting shares
of the emerging entity. A Fresh Start balance sheet reflects assets at their
F-27
89
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
estimated fair value upon the emergence from bankruptcy and liabilities, other
than deferred taxes, at the present value of amounts to be paid determined at
appropriate current interest rates. The Company met the criteria for
implementation of, and implemented Fresh Start Reporting as of the Effective
Date.
Under Fresh Start Reporting, the consolidated balance sheet as of July 31,
1992 became the opening consolidated balance sheet of the Company. Since Fresh
Start Reporting has been reflected in the accompanying consolidated balance
sheet as of July 31, 1992, this consolidated balance sheet is not comparable in
all material respects to any such financial statements as of any prior date or
for any period prior to July 31, 1992, since the consolidated balance sheet as
of July 31, 1992 is that of a new entity.
The estimated reorganization value (the approximate fair value) of the
assets of the emerging entity was determined by consideration of many factors
and various valuation methods, including discounted cash flows and
price/earnings and other applicable ratios believed by management to be
representative of the Company's business and industry.
Reorganization liabilities, consisting of Tax Notes, Restructured and
Reinstated Notes, Senior Secured Notes and Junior Secured Notes distributed as
of the Effective Date, have been recorded based on face values, which
approximate the present values of amounts to be paid determined at appropriate
current interest rates. Common Stock has been valued at the excess of the fair
value of identifiable assets of the Company over the present value of
liabilities.
Other current liabilities, consisting of those arising from post-petition
operating and other expenses not paid as of the Effective Date and obligations
arising from certain loans to finance construction, will be paid in full under
their original terms and have been presented in the following balance sheet at
their historical carrying values.
F-28
90
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
The effects of consummating the Plan and implementing Fresh Start Reporting
are set forth on PMI's historical consolidated balance sheet as of July 31, 1992
as follows:
CONSOLIDATED FRESH START BALANCE SHEET
AS OF JULY 31, 1992
(IN THOUSANDS, EXCEPT SHARE DATA)
ADJUSTMENTS TO RECORD PLAN
--------------------------------------------------- FRESH
HISTORICAL START
BALANCE BALANCE
SHEET EXCHANGE FRESH SHEET
7/31/92 DISTRIBUTIONS OF STOCK START 7/31/92
-------- --------- --------- --------- --------
ASSETS
Current assets:
Cash and cash equivalents...... $ 39,500 $ -- $ -- $ -- $ 39,500
Restricted cash................ 27,800 (5,000)(a) -- -- 22,800
Accounts receivable, net....... 9,100 -- -- -- 9,100
Current portion of mortgages
and other notes
receivable.................. 64,000 (16,000)(b) -- -- 48,000
Other current assets........... 4,300 -- -- -- 4,300
-------- --------- --------- --------- --------
144,700 (21,000) -- -- 123,700
Restricted cash.................. 35,000 (33,800)(a) -- -- 1,200
Property, equipment and leasehold
improvements, net.............. 179,400 (3,400)(b) -- (15,600)(f) 160,400
Mortgages and other notes
receivable, net................ 180,600 (9,300)(b) -- 7,200(f) 178,500
Other assets..................... 2,500 -- -- 2,300(f) 4,800
-------- --------- --------- --------- --------
TOTAL ASSETS........... $542,200 $ (67,500) $ -- $ (6,100) $468,600
-------- --------- --------- --------- --------
-------- --------- --------- --------- --------
F-29
91
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
CONSOLIDATED FRESH START BALANCE SHEET
AS OF JULY 31, 1992
(IN THOUSANDS, EXCEPT SHARE DATA)
ADJUSTMENTS TO RECORD PLAN
--------------------------------------------------- FRESH
HISTORICAL START
BALANCE BALANCE
SHEET EXCHANGE FRESH SHEET
7/31/92 DISTRIBUTIONS OF STOCK START 7/31/92
-------- --------- --------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Notes payable and current
portion of long-term debt... $ 6,100 $ 61,800(c) $ -- $ -- $ 67,900
Other current liabilities...... 24,600 (3,800)(a) -- 10,300(f) 31,100
-------- --------- --------- --------- --------
Total current
liabilities.......... 30,700 58,000 -- 10,300 99,000
Long-term debt, net of current
portion........................ 8,900 195,500(c) -- -- 204,400
Deferred income.................. 36,200 -- -- (36,200)(f) --
Other liabilities................ -- 2,600(c) -- 27,000(f) 29,600
-------- --------- --------- --------- --------
Total liabilities not
subject to
compromise............. 75,800 256,100 -- 1,100 333,000
Liabilities subject to
compromise..................... 706,000 (35,000)(a) -- -- --
(28,700)(b)
(266,400)(c)
(375,900)(d)
-------- --------- --------- --------- --------
Total liabilities......... 781,800 (449,900) -- 1,100 333,000
-------- --------- --------- --------- --------
Stockholders' equity
(deficiency):
Common stock (33,000,000 shares
issued; $0.05 par value)
(old)....................... 1,700 -- (1,700)(e) -- --
Capital in excess of par value
(old)....................... 311,300 -- (311,300)(e) -- --
Common stock (33,000,000 shares
issued and outstanding;
$0.01 par value) (new)....... -- 300(d) --(e) 300
Capital in excess of par value
(new).......................... -- 132,500(d) 309,800(e) (307,000)(e) 135,300
Retained earnings (accumulated
deficit)....................... (549,400) 6,500(c) -- 299,800(f) --
243,100(d)
Treasury stock................... (3,200) -- 3,200(a) -- --
-------- --------- --------- --------- --------
Total stockholders' equity
(deficiency)........... (239,600) 382,400 -- (7,200) 136,600
-------- --------- --------- --------- --------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIENCY).... $542,200 $ (67,500) $ -- $ (6,100) $468,600
-------- --------- --------- --------- --------
-------- --------- --------- --------- --------
F-30
92
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
NOTES TO CONSOLIDATED FRESH START BALANCE SHEET
(a) Reflects cash payments of $38,800,000 to creditors on or after the
Effective Date in accordance with the terms of the Plan.
(b) Represents mortgage notes, other notes receivable and property, which are
offset against creditor claims on the Effective Date in accordance with the
terms of the Plan.
(c) Represents long-term debt in the principal amount of $257,300,000
distributed to creditors on or after the Effective Date in accordance with
the terms of the Plan and the recognition of $6,500,000 of related gain on
discharge of indebtedness. As part of the Plan, the Company distributed
approximately $1,400,000 of Tax Notes, approximately $94,600,000 of
Restructured and Reinstated Notes, approximately $91,300,000 of Senior
Secured Notes and approximately $70,000,000 of Junior Secured Notes.
Additionally, approximately $15,000,000 of construction financing related
to hotel property development outstanding prior to consummation will be
paid based on original terms.
(d) Represents 32,300,000 shares of Common Stock with an estimated fair value
of $132,800,000, which will be distributed to creditors on or after the
Effective Date in accordance with the terms of the Plan and the recognition
of $249,600,000 of related gain on discharge of indebtedness.
(e) Represents 700,000 shares of Common Stock with an estimated fair value of
$2,800,000, which was exchanged for all of the shares of Prime's old common
stock outstanding on the Effective Date.
(f) Represents adjustments to: record at fair value operating property,
equipment and leasehold improvements, certain mortgages and other notes
receivable and certain other assets and related liabilities; eliminate
deferred income; and eliminate accumulated deficit in accordance with the
provisions of SOP 90-7 for Fresh Start Reporting.
The gain on discharge of indebtedness of $249,600,000 has been presented as
an "Extraordinary Item" in the accompanying consolidated statement of
operations for the one month ended July 31, 1992.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used by the Company and
PMI in the preparation of the accompanying consolidated financial statements
follows:
Business activities
The Company focuses on three types of business activities: operation of
owned and leased hotel properties; management services provided to hotel
properties owned by third parties; and management of its portfolio of mortgages,
notes and other financial assets. The Company retains all the revenues and pays
all the expenses with respect to the owned and leased hotel properties. The
Company derives management fees from the hotel properties it manages based on a
fixed percentage of gross revenues, fees for services rendered and
performance-related incentive payments. The Company's portfolio of mortgages,
notes and other assets primarily are associated with hotel properties currently
managed or formerly owned by the Company and PMI.
The majority of the Company's hotel properties are moderately priced hotels
comprised of 100 to 150 rooms primarily located in the Northeast and Florida,
which are designed to attract business and leisure travelers desiring quality
accommodations at affordable prices. The Company operates or manages many of the
restaurants and cocktail lounges at its full service hotels. Its limited service
hotels, such as Wellesley Inns and AmeriSuite hotels, generally do not have
restaurants or cocktail lounges.
F-31
93
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
Most of the hotel properties are operated or managed by the Company in
accordance with franchise agreements with national hotel chains, including
Howard Johnson, Ramada, Marriott, Holiday Inn, Sheraton, Days Inn and Radisson.
Additionally, the Company operates or manages the Wellesley hotel properties
under its trademark "Wellesley Inns." The Company owns the trademark
"AmeriSuites", and all of these hotel properties are managed for the Company by
a related party.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and PMI and all of their majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Cash equivalents
Cash equivalents are highly liquid unrestricted investments with a maturity
of three months or less when acquired.
Restricted cash
Restricted cash consists primarily of highly liquid investments that serve
as collateral for debt obligations included in liabilities subject to compromise
and is classified as either short-term or long-term depending on the date the
obligation is due.
Mortgages and other notes receivable
Mortgages and other notes receivable are reflected at the lower of face or
market value at July 31, 1992. Generally, the carrying amount of the portfolio
of mortgages and other notes receivable is reduced through write-offs and by
maintaining an aggregate loan valuation reserve at a level that, in the opinion
of management, is adequate to absorb potential losses in the portfolio. To
determine the appropriate level for the loan valuation reserve, management
evaluates various factors including: general and regional economic conditions;
the credit worthiness of the borrower; the nature and level of any delinquencies
in the payment of principal or interest; and the adequacy of the collateral.
Interest on delinquent loans (including impaired loans that have required
writedowns or specific reserves) is only recognized when cash is received. The
amount of interest income recognized on mortgages and other notes receivable is
generally based on the loan's effective interest rate and adjusted carrying
value of the note.
Property, equipment and leasehold improvements
Property, equipment and leasehold improvements that the Company intends to
continue to operate are stated at cost less accumulated depreciation and
amortization at June 30, 1992 and 1991 and at fair market value as of July 31,
1992. Provision is made for depreciation and amortization using the straightline
method over the estimated useful lives of the assets.
The Company intends to sell or otherwise dispose of those remaining
operating and non-operating properties that have generated losses or
insufficient returns on investment. Properties identified for disposal are
stated at their estimated net realizable value through valuation reserves or
writedowns.
Income recognition on property sales and deferred income
Income is generally recognized when properties used in the hotel business
are sold. However, income is deferred and recognized under installment or other
appropriate methods when collectibility of the sales price is
F-32
94
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
not reasonably assured or other criteria for immediate profit recognition under
generally accepted accounting principles are not satisfied. Gains from sales of
properties under sale and leaseback transactions that are generally deferred
pursuant to applicable accounting rules are amortized over the lives of the
related leases. Gains from sales of properties and certain other assets acquired
through business combinations accounted for as purchases are generally offset
against the carrying value of the remaining purchased assets if the sale takes
place within the allocation period (generally a period of one year or less)
following the purchase.
Construction income recognition and deferred income
Revenues under long-term construction contracts are generally recognized
under the percentage-of-completion method and include a portion of the earnings
expected to be realized on the contract in the ratio of costs incurred to
estimated total costs. Under certain circumstances, the recognition of income is
deferred until continuing involvement, in the form of operating guarantees made
to the owners of the hotel property subject to the contract, has expired.
Income taxes
The Company and its subsidiaries file a consolidated Federal income tax
return. PMI adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes, "by
applying FAS 109 to its consolidated financial statements commencing July 1,
1991. PMI used the "deferred method" of accounting for income taxes through June
30, 1991. Adoption of FAS 109 did not have a material effect on the consolidated
financial statements. Deferred taxes have not been provided as of July 31, 1992
and June 30, 1992 due to the availability of significant net operating loss
carryforwards and the uncertainty surrounding the ultimate realization of the
future benefits, if any, to be derived from the temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.
Income (loss) per common share
Primary net income (loss) per common share is computed based on the
weighted-average number of common shares and common share equivalents (stock
options) outstanding during each year. The weighted-average number of common
shares and common share equivalents used in computing primary net income (loss)
per share was 33,028,000 for the month ended July 31, 1992 and the years ended
June 30, 1992 and 1991. Fully diluted net income (loss) per common share
includes, when dilutive, the effects of the elimination of interest expense and
the issuance of additional common shares from the assumed conversion of the
6 5/8% convertible subordinated debentures due 2011 and the 7% convertible
subordinated debentures due 2013 (collectively, the "Debentures"). The
Debentures are included in the consolidated balance sheets as of June 30, 1992
and 1991 as liabilities subject to compromise. The effects of assuming the
conversion of the Debentures were not dilutive in each of the two years in the
period ended June 30, 1992, and for the one month ended July 31, 1992.
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements to conform them to the July 31, 1992 classifications.
NOTE 4 -- ACQUISITIONS AND DISPOSITIONS
In December 1989, PMI consummated its agreement with New World Development
Co. Ltd. ("New World") to participate with and assist New World in its
acquisition of the hotel business of Ramada, Inc.
F-33
95
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
("Ramada"). Under the agreement, PMI loaned approximately $58,000,000 to New
World (see Note 8) and acquired certain real estate, notes receivable, the
Rodeway International Franchise System ("Rodeway") and certain other assets, and
assumed certain liabilities, for aggregate cash consideration of approximately
$54,000,000 plus closing adjustments. Such assets were sold in fiscal 1991 (see
Note 5). PMI entered into a license agreement to operate the domestic Ramada
franchise system and agreed to indemnify New World for certain potential tax
liabilities associated with the license. The potential tax liabilities to New
World, and all other claims by New World and PMI against each other, were
settled on August 4, 1992 (see Note 8).
NOTE 5 -- DISCONTINUED OPERATIONS
On July 2, 1990, PMI consummated the sale of its Howard Johnson and Ramada
franchise businesses (the "franchise segment") to an affiliate of Blackstone
Capital Partners, L.P. for $170,000,000 in cash. On July 5, 1990, PMI sold its
Rodeway franchise business and two Rodeway hotel properties to Manor Care, Inc.
for $14,900,000 in cash. As a result, PMI effectively discontinued the
operations of its franchise segment as of July 1, 1990. The gain on sale of the
discontinued segment has been shown separately in the accompanying 1991
consolidated statement of operations, net of the related state income tax
provision.
NOTE 6 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following (in thousands):
JULY 31, JUNE 30,
1992 1992
------- -------
Cash.................................................... $10,479 $ 1,744
Commercial paper and other cash equivalents............. 29,014 58,398
------- -------
Totals........................................ $39,493 $60,142
------- -------
------- -------
NOTE 7 -- RESTRICTED CASH -- LONG TERM
Restricted cash consists of cash in bank of $360,000 and commercial paper
of $872,000 at July 31, 1992. At June 30, 1992, restricted cash consists
primarily of commercial paper of $43,947,000.
NOTE 8 -- MORTGAGES AND OTHER NOTES RECEIVABLE
Mortgages and other notes receivable are comprised of the following and are
stated at face value, net of writedowns and valuation reserves as of June 30,
1992. As of July 31, 1992, these assets have been valued at their fair market
value (in thousands):
JULY 31, JUNE 30,
1992 1992
-------- --------
Frenchman's Reef resort hotel(a)............................... $ 50,000 $ 78,996
Rose and Cohen entities(b)..................................... 25,000 100,890
FCD and Servico(c)............................................. 19,756 29,899
New World(d)................................................... 42,000 58,000
Properties managed by the Company(e)........................... 70,089 198,441
Other(f)....................................................... 19,704 52,308
-------- --------
Totals............................................... 226,549 518,534
Less writedowns and valuation reserves......................... -- 260,585
-------- --------
Totals............................................... 226,549 257,949
Less current portion........................................... 48,006 63,506
-------- --------
Long-term portion.............................................. $178,543 $194,443
-------- --------
-------- --------
F-34
96
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
- ---------------
(a) The mortgage notes are secured by the Frenchman's Reef resort hotel, which
is managed by the Company, and consist of first and second mortgages with
face values of $53,383,000 and $25,613,000, respectively, with final
scheduled principal payments of $51,976,000 and $25,613,000 due on July 31,
1995. The notes bear interest at a stated rate of 13%. Interest and
principal payments on the first mortgage are payable in monthly
installments. Interest and scheduled principal payments on the second
mortgage note are payable only to the extent of available cash flow, as
defined, with any unpaid interest due at maturity. Based on a valuation of
the property, PMI wrote down the second mortgage to $11,400,000 as of June
30, 1990 and discontinued the accrual of interest. As a result of the
continuing decline in economic conditions and operating cash flows, the
balance of the second mortgage was written off in fiscal 1992. In
connection with the adoption of Fresh Start Reporting at July 31, 1992, the
Company has valued these notes at $50,000,000.
During the one month ended July 31, 1992, the Company recognized $345,000
of interest income on these notes (an effective rate of approximately
8.3%), based on the current levels of cash flows generated from the
property available to service the notes. The Company is in the process of
renegotiating the terms of these notes based on the current level of cash
flow generated by the property.
(b) From 1988 through 1990, PMI loaned entities controlled by Allan Rose and
Arthur Cohen (the "Rose and Cohen entities"), who at such time were
significant Howard Johnson franchisees, an aggregate of $100,890,000 fully
secured initially by property and/or personal guarantees. PMI was committed
to make additional loans, also on a fully secured basis, to the Rose and
Cohen entities of up to an aggregate of $130,000,000 if values of, and/or
revenues generated by, certain hotel properties controlled by the Rose and
Cohen entities attained specified levels. PMI was to receive a minimum
annual return of 10% on all loans made to the Rose and Cohen entities and a
maximum return of 20%. All loans and unpaid interest are payable on
December 31, 1997.
Due to the decline in value of the hotel properties pledged as collateral
for the loan and the continuing decline in the hotel real estate market,
PMI discontinued funding additional loans in fiscal 1990. Further, based on
PMI's estimate of the value of the collateral and the personal guarantees
of Rose and Cohen and discussions related to the possible early payment of
the loan, PMI wrote down the loan to $50,000,000 as of June 30, 1990 and
discontinued the accrual of interest.
In 1992, certain of the Rose and Cohen entities owning a portion of the
collateral that secures the loans filed for Chapter 11 protection in the
United States Bankruptcy Court, Southern District of New York. Also during
1992, the Company commenced an adversary proceeding against Rose and Cohen.
The complaint seeks to recover jointly and severally on the personal
guarantees of $50,000,000 given by Rose and Cohen as part of the loan
agreement. As a result of further evaluation of the collateral and the
personal guarantees, PMI wrote down the loan to $30,000,000 as of June 30,
1992 and $25,000,000 as of July 31, 1992.
(c) In April 1989, PMI loaned FCD Hospitality, Inc. ("FCD"), an unaffiliated
company, approximately $74,000,000 in cash for the purpose of financing
FCD's acquisition of the outstanding common stock of Servico, Inc.
("Servico"), an operator of hotels. The loan was secured by the common
stock of Servico, FCD and certain FCD affiliates, and was originally due
prior to June 30, 1990. Interest was due at the prime rate plus 1%. PMI
also entered into an agreement with FCD pursuant to which PMI would provide
management consulting services for approximately $63,000,000 through June
1990. Additionally, in April 1989, PMI purchased approximately $80,000,000
of Servico's outstanding 12 1/4% subordinated notes due April 15, 1997 for
approximately $64,000,000 (80% of par value).
F-35
97
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
Subsequent to April 1989, PMI entered into certain other transactions
including working capital loans and the sale of certain hotels to Servico.
Servico also pledged a substantial portion of its hotel properties and
mortgage notes receivable on hotel properties as collateral and/or in
satisfaction of its commitments on the loan to FCD and the consulting
agreement.
On September 18, 1990, Servico and certain of its subsidiaries filed for
Chapter 11 protection. After an extensive valuation and recovery analysis
performed by PMI and Servico, PMI agreed to settle all claims and disputes
with Servico and FCD in June 1991. Under the terms of the agreement, which
was approved by the Bankruptcy Court, the FCD loan, the subordinated notes,
loans related to sales of properties and working capital and all accrued
interest relating to these notes and loans with a face value of
$166,210,000 were forgiven. As part of the settlement, PMI retained
ownership of certain mortgage notes receivable with a face value of
approximately $30,000,000 that are secured by three hotel properties. The
entity that owns one of the properties filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in December 1990.
Subsequent to July 31, 1992, the Company has restructured the note
receivable to receive payments based on the property's available cash flow.
Based on the valuation of the mortgage notes on the three properties, PMI
wrote down the FCD Loan and Servico notes to $16,757,000 as of June 30,
1990 and discontinued the accrual of interest. In connection with the
adoption of Fresh Start Reporting, the Company has valued the notes at
$19,756,000 at July 31, 1992.
(d) In connection with the Ramada acquisition in December 1989, PMI agreed to
loan New World $58,000,000 (see Note 4). Interest was payable quarterly at
a rate of 11%. Principal was to be paid in installments beginning in 1995
with a final scheduled payment of $55,499,000 due on March 31, 2005. On
August 4, 1992, after extensive negotiation and approval of a settlement by
the Bankruptcy Court, the Company collected net proceeds of $42,000,000
plus accrued interest in full satisfaction of the $58,000,000 loan balance
offset by liabilities subject to compromise related to the Ramada
acquisition with a net carrying value of $16,000,000. The net proceeds were
used to prepay a portion of the Senior Secured Notes issued on the
Effective Date.
(e) At July 31, 1992, the Company held mortgages and other notes receivable
secured by 33 hotel properties operated by the Company under management or
lease agreements. These notes currently bear interest at rates ranging from
8.5% to 14% and mature through 2014.
The mortgages were primarily derived from the sales of hotel properties.
Many of these properties had been unable to pay in full the annual debt
service required under the terms of the original mortgages. The Company has
restructured $33,530,000 of these mortgages to receive the majority of
available cash and to receive a participation in the future excess cash
flow of such hotel properties. The Company is also in process of
restructuring another $9,500,000 of these mortgages.
(f) Other notes receivable bear interest at effective rates ranging from 8% to
12%, mature through 2001 and are secured primarily by hotel properties.
F-36
98
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
NOTE 9 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following and
are stated at cost (other than properties held for sale) at June 30, 1992 and at
fair market value as of July 31, 1992 (in thousands):
JULY 31, JUNE 30, YEARS OF
1992 1992 USEFUL LIFE
-------- -------- -----------
Land and land leased to others........................ $ 24,855 $ 25,963
Hotels................................................ 95,942 116,192 20 to 45
Furniture, fixtures and autos......................... 16,192 25,346 2 to 10
Leasehold improvements................................ 15,428 13,425 3 to 45
Property and equipment under capital leases........... -- 93 2 to 33
-------- --------
152,417 181,019
-------- --------
Properties held for sale, at net realizable value:
Development properties.............................. 8,000 15,544
Non-core properties................................. -- 7,019
Properties acquired for resale...................... -- 248
-------- --------
8,000 22,811
-------- --------
Less accumulated depreciation and amortization........ -- (24,358)
-------- --------
Totals......................................... $160,417 $179,472
-------- --------
-------- --------
At July 31, 1992, the Company was the lessor of land and certain restaurant
facilities in Company-owned hotels with an approximate aggregate book value of
$12,338,000 pursuant to noncancelable operating leases expiring on various dates
through 2013. Minimum future rentals under such leases are $8,095,000, of which
$3,449,000 is to be received during the five year period ending June 30, 1997.
Depreciation and amortization expense on property, equipment and leasehold
improvements was $569,000, $6,867,000 and $7,867,000, for the one month ended
July 31, 1992 and for the years ended June 30, 1992 and 1991, respectively.
Capitalized interest was $0, $139,000 and $1,000,000 for the one month
ended July 31, 1992 and for the years ended June 30, 1992 and 1991,
respectively.
F-37
99
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
NOTE 10 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of obligations for the following (in
thousands):
JULY 31, JUNE 30,
1992 1992
------- -------
Accounts payable................................................... $ 1,801 $ 1,803
Bankruptcy claims reserve.......................................... 6,591 --
Rent............................................................... 945 1,355
Interest........................................................... 196 3,824
Accrued payroll and related benefits............................... 3,385 3,484
Managed property reserve........................................... 3,333 2,042
Insurance reserve.................................................. 756 1,732
Professional fees.................................................. 6,522 4,798
Other.............................................................. 7,607 6,906
------- -------
Totals........................................................ $31,136 $25,944
------- -------
------- -------
NOTE 11 -- NOTES PAYABLE
Notes payable consist of the following (in thousands):
JULY 31, JUNE 30,
1992 1992
-------- --------
Notes payable to related party (a)................................. $ 5,706 $ 5,706
Other notes payable (b)............................................ 265 265
-------- --------
Totals........................................................ $ 5,971 $ 5,971
-------- --------
-------- --------
- ---------------
(a) Notes payable to related party are payable to ShoLodge, Inc. ("ShoLodge"), a
company controlled by a director. The notes are secured by three hotel
properties with a book value of $17,354,000 that were constructed in 1992
and 1991. Interest is payable monthly at variable rates ranging from the
prime interest rate (6% at July 31, 1992) plus 1% to the prime rate plus
2%. One promissory note for $3,000,000 is due in May 1993 and the remainder
is due on demand (see Note 22).
(b) Other notes payable are secured by a hotel property. Interest is payable at
the prime rate plus 2%. The notes are due in May 1993.
NOTE 12 -- LIABILITIES SUBJECT TO COMPROMISE
As a result of the Chapter 11 filing (see Note 1), enforcement of certain
unsecured claims against the Debtors in existence prior to the petition date
were stayed while the Debtors continued business operations as
debtors-in-possession. These claims are reflected in the accompanying
consolidated balance sheets as of June 30, 1992, as liabilities subject to
compromise. Additional unsecured claims classified as liabilities subject to
compromise arose subsequent to the Petition Date resulting from rejection of
executory contracts, including lease, management and franchise agreements, and
from the determination by the Bankruptcy Court (or agreements by the parties in
interest) to allow claims for contingencies and other disputed amounts.
Enforcement of claims secured against the Debtors' assets ("secured claims")
were also stayed although the holders of such claims have the right to move the
Court for relief from the stay. Secured claims are secured primarily by liens on
the Debtors' property, equipment and leasehold improvements and certain
mortgages and other notes receivable.
F-38
100
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
Creditors have asserted pre-and post-petition claims against the Debtors
alleging liabilities of approximately $9 billion plus unliquidated amounts. The
Company projects that the claims asserted against the Debtors will be resolved
and reduced to an amount that approximates PMI's estimate of $706,250,000
recognized as liabilities subject to compromise as of June 30, 1992. PMI has
filed motions objecting to those claims that are: (a) duplicative; (b)
superseded by amended claims; (c) erroneously asserted against multiple Debtors;
(d) not obligations of any of the Debtors; or (e) filed after the Bar Date (as
hereinafter defined). Additionally, PMI otherwise has disputed a substantial
number of the claims asserted against the Debtors and has filed objections to
such claims. The Bankruptcy Court established May 15, 1991 (the "Bar Date") as
the deadline for filing proofs of claim, except certain specified claims,
against the Debtors.
A significant number of the bankruptcy claims have been resolved. As of
March 1, 1993, unresolved bankruptcy claims of approximately $1 billion have
been asserted against PMI. Approximately $767 million of these unresolved claims
were filed by entities controlled by Allan Rose and Arthur Cohen (see Note 8).
The Company has disputed a substantial number of these unresolved
bankruptcy claims and has filed objections to such claims. In addition, a number
of these claims have been resolved with the claimant and are awaiting approval
by the Bankruptcy Court.
The Company believes that substantially all of these claims will be
dismissed, disallowed or deemed paid pursuant to the Plan and estimates that
unresolved bankruptcy claims will be allowed in the amount of approximately $27
million. These claims will be settled as follows: claims of $18 million will be
satisfied through the issuance of Secured Notes, Restructured Notes and Tax
Notes; claims of $8 million will be satisfied through the distribution of the
Company's Common Stock; and claims of $1 million will be satisfied through cash
payments.
In accordance with SOP 90-7, the July 31, 1992 consolidated financial
statements have given full effect to the issuance of these Secured Notes,
Restructured Notes and Tax Notes and the distribution of the Company's Common
Stock. Liabilities have been provided for the anticipated cash payments.
PMI's liabilities subject to compromise, stated at management's estimate of
the total amount of allowed claims and not at the amounts for which claims will
be settled, consist of the following (in thousands):
JUNE 30,
1992
--------
Estimated claims:
Trade accounts payable.................................................. $ 28,858
Lease rejection damages................................................. 97,856
Guarantees of third party debt.......................................... 30,529
Other liabilities....................................................... 79,943
--------
Total estimated claims.......................................... 237,186
Long-term debt (Note 13).................................................. 469,064
--------
Total........................................................... $706,250
--------
--------
The amounts listed above may be subject to future adjustments depending on
further developments with respect to disputes or unresolved claims. Information
as to the terms of the settlement of liabilities subject to compromise under the
Plan as of or subsequent to the Effective Date through the distribution of cash,
new indebtedness, new equity securities and/or offset against certain assets
reflected in the accompanying consolidated balance sheets is set forth in Note
2.
F-39
101
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
PMI discontinued accruing interest on certain debt obligations as of the
date such obligations were determined to be subject to compromise. Contractual
interest not accrued and not reflected as an expense in the consolidated
statements of operations, as a result of the Debtors' Chapter 11 filing,
amounted to approximately $2,300,000 for the one month ended July 31, 1992 and
$28,000,000 and $25,300,000 for the years ended June 30, 1992 and 1991,
respectively. Total contractual interest is disclosed in the accompanying
consolidated statements of operations.
NOTE 13 -- LONG-TERM DEBT
As a result of the Chapter 11 filing (see Notes 1 and 12), all long-term
obligations of the Debtors in existence prior to the Petition Date were stayed
and have been classified as liabilities subject to compromise at June 30, 1992.
Long-term debt consists of the following (in thousands):
JULY 31, JUNE 30,
1992 1992
-------- --------
Senior secured notes(a)........................................ $ 91,300 $ --
Junior secured notes(a)........................................ 69,999 --
Tax settlement notes(b)........................................ 1,422 --
Mortgage notes and bonds payable(c)............................ 94,639 --
Construction financing(d)...................................... 8,995 9,002
-------- --------
Total debt........................................... 266,355 9,002
Pre-petition liabilities:
7% convertible subordinated debentures due 2013(e)........... -- 115,000
6 5/8% convertible subordinated debentures due 2011(e)....... -- 115,000
Notes payable to banks under bank credit agreement(f):
Tranche A and B.............................................. -- 31,848
Tranche C.................................................... -- 60,000
Mortgage notes and bonds due through 2008(g)................... -- 143,676
Other(h)....................................................... -- 3,540
-------- --------
Total debt........................................... 266,355 478,066
Less: Liabilities subject to compromise........................ -- 469,064
Current portion.............................................. 61,917 81
-------- --------
Long-term debt....................................... $204,438 $ 8,921
-------- --------
-------- --------
- ---------------
(a) Pursuant to the Plan, the Company issued two classes of Secured Notes which
are identified as "Senior Secured Notes" and "Junior Secured Notes". Senior
Secured Notes were issued in two series of notes which are identified as
the "8.20% Fixed Rate Senior Secured Notes" and the "Adjustable Rate Senior
Secured Notes" (collectively the "Senior Secured Notes"). Each series is
identical except that the interest rate on the Adjustable Rate Senior
Secured Notes will be periodically adjusted to one-half of one percent over
the daily "prime rate" reported by Chemical Bank, with a maximum interest
rate of 10.0% per annum. The aggregate principal amount of Senior Secured
Notes issued under the Plan was $91,300,000, comprised of $30,100,000 of
8.20% Fixed Rate Secured Notes and $61,200,000 of Adjustable Rate Senior
Notes. On August 11, 1992, the Company prepaid $17,900,000 of the 8.20%
Fixed Rate Senior Secured Notes and $36,400,000 of the Adjustable Rate
Senior Secured Notes from the proceeds of collections of portions of the
collateral for the Senior Secured Notes. The prepaid amounts of $54,300,000
have been classified as current at July 31, 1992.
F-40
102
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
The other class of Secured Notes issued to satisfy claims was comprised of
Junior Secured Notes that bear interest at a rate of 9.20% per annum and
will mature on July 31, 2000. The aggregate principal amount of Junior
Secured Notes issued under the Plan was $70,000,000.
The collateral for the Secured Notes consists primarily of mortgages and
other notes receivable and real property (the "Secured Note Collateral")
with a book value of $143,191,000 as of July 31, 1992.
Interest on the Secured Notes is payable semi-annually commencing January
31, 1993. The Secured Notes require that 85% of the cash proceeds from the
Secured Note Collateral be applied first to interest, second to prepayment
of the Senior Secured Notes and third to prepayment of the Junior Secured
Notes. Any remaining principal balance of the Senior Secured Notes is due
July 31, 1997. Aggregate principal payments on the Junior Secured Notes are
required in order that one-third of the principal balance outstanding on
December 31, 1996 is paid by July 31, 1998; two-thirds of that balance is
paid by July 31, 1999; and all of that balance is paid by July 31, 2000. To
the extent the cash proceeds from the Secured Note Collateral are
insufficient to pay interest or required principal payments on the Secured
Notes, the Company will be obligated to pay any deficiency out of its
general corporate funds.
The Secured Notes contain covenants which, among other things, require the
Company to maintain a net worth of at least $100,000,000, limit
expenditures related to the development of hotel properties through
December 31, 1996 and preclude cash distributions to stockholders,
including dividends and redemptions, until the Secured Notes have been paid
in full.
During March 1993, the Company repurchased $9,500,000 of the Junior Secured
Notes for a purchase price of $7,400,000. The repurchase resulted in an
extraordinary gain of $2,100,000, which will be reflected in the Company's
first quarter 1993 consolidated financial statements. These notes have been
classified as long-term debt at July 31, 1992 in accordance with their
terms as repurchase was not contemplated at the balance sheet date.
(b) Claims of taxing authorities were paid in Tax Notes or cash. Each Tax Note
is in a face amount equal to the allowed claim and provides for annual
payments of principal and interest until maturity on July 31, 1998. Such
payments will be made in equal principal installments, plus simple interest
from July 31, 1992 at the rate of 8.20% per annum, with payments to
commence on July 31, 1993 and with additional payments to be made on each
July 31 thereafter.
(c) The Company has $20,734,000 of restructured notes issued to holders of
oversecured and undersecured bankruptcy claims. Each restructured note
matures on July 31, 2002 and is secured by a lien on the collateral which
secured the underlying claim prior to bankruptcy. The notes are secured by
mortgage notes receivable and hotel properties with a book value of
$16,981,000 at July 31, 1992.
The oversecured restructured notes bear interest at a rate of 9.20% per
annum payable semi-annually in cash. Prior to maturity, principal amounts
outstanding will be paid semi-annually based on a thirty-year amortization
schedule. The Company has approximately $7,173,000 of these notes
outstanding at July 31, 1992.
During January 1993, the Company repurchased $1,700,000 of the oversecured
restructured notes for a purchase price of $1,300,000. The repurchase
resulted in an extraordinary gain of $400,000, which will be reflected in
the Company's first quarter 1993 consolidated financial statements. These
notes have been classified as current at July 31, 1992.
The undersecured restructured notes bear interest at a rate of 8% per annum
with interest payable semi-annually in cash. Semi-annual principal payments
begin on July 31, 1996 based on a thirty-year
F-41
103
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
amortization schedule. The Company has approximately $13,561,000 of these
notes outstanding at July 31, 1992.
The Company has other mortgage notes and bonds payable of approximately
$73,905,000 which are due through April 1, 2008 and bear interest at rates
ranging from 4.68% to 10.5% at July 31, 1992. The notes are secured by
mortgage notes receivable and hotel properties with a book value of
$83,577,000 at July 31, 1992.
(d) Construction financing obligations primarily consist of two loans payable to
banks with an aggregate balance of $5,193,000 and a loan payable to
ShoLodge of $3,570,000 at July 31, 1992. The loans payable to banks are
secured by mortgages on two hotel properties with a book value of
$13,963,000 at July 31, 1992. Principal is payable in monthly installments
with the balances due by June 1994. Interest is payable monthly at the
prime rate plus 2%. The loan payable to ShoLodge is secured by a hotel with
a book value of $7,670,000 at July 31, 1992. Principal is payable in
September 1993. Interest is payable monthly at the prime rate plus 2% (see
Note 22).
(e) At June 30, 1992, PMI's 6 5/8% convertible subordinated debentures due 2011
and 7% convertible subordinated debentures due 2013 were convertible at any
time prior to maturity into common stock at $40.568 per share and $43.95
per share, respectively, and 5,451,342 shares of common stock were reserved
for issuance upon such conversion. Sinking fund payments of $5,750,000
annually were required commencing April 1, 1997 for the 6 5/8% Debentures
and June 1, 1999 for the 7% Debentures. All Debentures were subordinated to
all existing and future senior indebtedness of PMI.
(f) In April 1989, PMI borrowed approximately $140,000,000 from Morgan Bank
pursuant to a demand note (the "Morgan Loan") with interest at the prime
rate. The note was secured by the notes receivable from FCD and Servico and
certain other assets.
In September 1989, PMI entered into a $263,000,000 secured bank credit
agreement (the "Credit Agreement"), expiring March 1991, in which
borrowings (the "Bank Group Loan") were fully utilized by December 1989.
Borrowings bear interest at the prime rate plus 1/2%. The borrowings were
principally incurred to extinguish the Morgan Loan issued in connection
with the Servico transaction ("Tranche A") and to finance PMI's portion of
the Ramada acquisition ("Tranche B"). The Bank Group Loan was secured by
the notes receivable from FCD and Servico, the net assets and common stock
of subsidiaries acquired in the Ramada acquisition, the New World note,
certain other mortgage notes receivable and certain other assets.
In March 1990, PMI prepaid $1,000,000 of the Bank Group Loan with the
proceeds of previously pledged mortgage notes receivable.
In May 1990, PMI prepaid $40,000,000 of the Bank Group Loan from proceeds
from the collection of a receivable related to the sale of a hotel property
in fiscal 1989. In June 1990, PMI prepaid $1,000,000 of the Bank Group Loan
with the proceeds of certain previously pledged mortgage notes receivable.
In July 1990, PMI prepaid approximately $171,200,000 of the Bank Group Loan
from the proceeds of the sale of the Howard Johnson, Ramada and Rodeway
franchise businesses. In July 1990, the Credit Agreement was amended to
convert $60,000,000 of $65,000,000 of unsecured demand loans then
outstanding, which had been borrowed in fiscal 1990 to fund construction,
into secured term loans ("Tranche C"). In addition, certain unsecured
letter of credit reimbursement obligations were converted into Tranche C
secured obligations. PMI also pledged additional collateral and certain
then-existing defaults under the Bank Credit Agreement were waived.
In July 1990, PMI paid the remaining $5,000,000 of unsecured demand notes
then outstanding.
F-42
104
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
(g) Other mortgage notes and bonds payable consist of debt secured by properties
operated by PMI or notes receivable held by PMI. Principal is due in
installments through 2009. Interest rates are generally variable ranging
from 5% to 15% at June 30, 1992.
(h) Other debt as of June 30, 1992 consists of an unsecured note bearing
interest at the rate of 17%.
At July 31, 1992, maturities of long-term debt for the next five years
ending July 31 are as follows (in thousands):
1993...................................................................... $ 61,917
1994...................................................................... 13,849
1995...................................................................... 3,429
1996...................................................................... 8,010
1997...................................................................... 72,285
Thereafter................................................................ 106,865
--------
Total........................................................... $266,355
--------
--------
NOTE 14 -- LEASE COMMITMENTS
The Company leases various hotels under lease agreements with initial terms
expiring at various dates from 1998 through 2019. The Company has options to
renew certain of the leases for periods ranging from 1 to 94 years. Rental
payments are based on minimum rentals plus a percentage of the hotel's revenues
in excess of stipulated amounts. As a result of the Chapter 11 filing, all lease
contracts were reviewed during 1991 and a determination was made as to whether
to accept or reject these contracts. The commitments shown below reflect those
lease contracts which the Company has assumed.
The following is a schedule by year of future minimum lease payments
required under the remaining operating leases for core properties that have
terms in excess of one year as of July 31, 1992 (in thousands):
1993....................................................................... $ 4,079
1994....................................................................... 4,047
1995....................................................................... 4,003
1996....................................................................... 3,970
1997....................................................................... 3,938
Thereafter................................................................. 48,125
-------
Total............................................................ $68,162
-------
-------
Rental expense for all operating leases, including those with terms of less
than one year, is comprised as follows (in thousands):
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, ------------------
1992 1992 1991
--------- ------ -------
Rentals............................................... $ 520 $6,866 $23,535
Contingent rentals.................................... 53 814 1,365
--------- ------ -------
Gross rental expense(a)............................... 573 7,680 24,900
Rental income from subleases.......................... (6) (61) (628)
--------- ------ -------
Net rental expense............................... $ 567 $7,619 $24,272
--------- ------ -------
--------- ------ -------
F-43
105
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
- ---------------
(a) Rentals include approximately $6,769,000 of rent recognized under the leases
with related parties in 1991.
NOTE 15 -- CONTINGENCIES
PMI and certain of its present and former officers and directors were named
as defendants in purported class action lawsuits on behalf of purchasers of
PMI's common stock and debentures. The lawsuits allege that PMI made materially
false and misleading statements and omissions regarding its financial condition
in violation of Federal securities laws and other claims. A settlement was
consummated in February 1993 which was funded through insurance proceeds.
The Company has responded to informal requests for information by the Staff
of the United States Securities and Exchange Commission's Division of
Enforcement relating to a number of significant transactions of PMI for the
years 1985 through 1991. However, no formal allegations have been made by the
Staff.
In addition to the foregoing legal proceedings, the Company is involved in
various other proceedings incidental to the normal course of its business.
The Company believes that the resolutions of these contingencies will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
NOTE 16 -- REORGANIZATION EXPENSES
The net expenses incurred as a result of the Debtors' Chapter 11 filing on
September 18, 1990 and subsequent reorganization efforts have been segregated
from normal operating expenses and presented as reorganization expenses in the
accompanying consolidated statements of operations for the one month ended July
31, 1992 and for the years ended June 30, 1992 and 1991.
Reorganization expenses are comprised of the following (in thousands):
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -----------------------
1992 1992 1991
---------- --------- ---------
Professional fees and other expenses................ $902 $ 19,297 $ 11,897
Lease rejection damages............................. -- 981 112,785
Guarantees of third party debt...................... -- 3,250 27,279
Other claims arising from bankruptcy................ -- 1,786 1,848
Loss on disposal of assets.......................... -- 2,307 18,963
Writeoff of unamortized debt issue costs on debt
obligations subject to compromise................. -- -- 7,123
Writeoff of other assets in connection with
bankruptcy........................................ -- -- 4,710
Interest earned on accumulated cash resulting from
Chapter 11 proceedings............................ (298) (4,427) (2,950)
Insurance recovery proceeds......................... (2,400) -- --
---------- --------- ---------
Totals.................................... $(1,796) $ 23,194 $ 181,655
---------- --------- ---------
---------- --------- ---------
F-44
106
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
NOTE 17 -- VALUATION WRITEDOWNS AND RESERVES
Valuation writedowns and reserves have been recorded in order to adjust the
carrying value of assets and liabilities resulting from the restructuring of
PMI's business and general economic conditions and primarily consist of the
following (in thousands):
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -------------------
1992 1992 1991
--------- ------- -------
Accounts receivable.................................. $ -- $ 2,722 $ 7,378
Mortgages and notes receivable....................... 13,000 49,479 13,531
Property, equipment and leasehold improvements....... -- 9,000 36,767
Other items.......................................... -- 922 1,473
--------- ------- -------
Totals..................................... $13,000 $62,123 $59,149
--------- ------- -------
--------- ------- -------
The valuation writedowns and reserves for the year ended June 30, 1992
shown above were all recognized in the fourth quarter.
In addition to the above, valuation writedowns and reserves of $-0-,
$20,578,000 and $-0-were charged against deferred income for the one month ended
July 31, 1992 and for the years ended June 30, 1992 and 1991, respectively.
NOTE 18 -- INCOME TAXES
Income taxes (credits) have been provided as follows (in thousands):
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -------------------
1992 1992 1991
--------- ------ --------
Current:
Continuing operations:
Federal......................................... $ -- $ -- $(14,846)
State........................................... -- 1,000 500
--------- ------ --------
Totals..................................... $ -- $1,000 $(14,346)
--------- ------ --------
--------- ------ --------
F-45
107
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
The difference between total income taxes (credits) and the amount computed
by applying the Federal statutory income tax rate of 34% to income (loss) from
continuing and discontinued operations before income taxes are as follows (in
thousands):
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -----------------------
1992 1992 1991
--------- --------- ---------
Federal income tax credit at statutory rates....... $(3,493) $ (24,128) $ (80,320)
Increase (decrease) in tax resulting from:
Accounting losses for which deferred Federal
income tax cannot be recognized............... 3,493 24,468 67,777
State income taxes............................... -- 660 3,828
Dividends received credit........................ -- -- (331)
--------- --------- ---------
Totals................................... $ -- $ 1,000 $ (9,046)
--------- --------- ---------
--------- --------- ---------
The tax effects of the temporary differences in the areas listed below
resulted in deferred income tax provisions (credits) (in thousands):
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -----------------
1992 1992 1991
--------- ----- -------
Reserve for doubtful accounts......................... $ -- $(736) $ 1,160
Reserve for property valuations....................... -- (127) (2,953)
Net temporary differences without tax benefit......... -- 359 1,276
Lease rejection damages............................... -- 423 (2,922)
Interest income....................................... -- -- 193
Depreciation and amortization......................... -- 14 116
Gains on property sales............................... -- (33) 2,202
Other................................................. -- 100 928
--------- ----- -------
Totals...................................... $ -- $ -- $ --
--------- ----- -------
--------- ----- -------
No Federal income tax was payable at July 31, 1992 due primarily to the
utilization of net operating loss carryforwards.
At July 31, 1992, the Company had net operating loss carryforwards of
approximately $347,000,000 for Federal income tax purposes. Such tax net
operating loss carryforwards, if not used as offsets to future taxable income,
will expire beginning in 2005 and continuing through 2007. The amount of net
operating loss carryforwards available for future utilization is limited to
$130,500,000 during the carryforward period as a result of the change in
ownership of the Company upon consummation of the Plan.
In accordance with FAS 109, the Company has not recognized the future tax
benefits associated with the net operating loss carryforwards or with other
temporary differences. Accordingly, the Company has provided a valuation
allowance of approximately $44,000,000 against the deferred tax assets as of
July 31, 1992 and June 30, 1992. To the extent any available carryforwards or
other benefits are utilized in periods subsequent to July 31, 1992, the tax
benefit realized will be treated as a contribution to stockholders' equity and
will have no effect on the income tax provision for financial reporting
purposes.
F-46
108
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
PMI's Federal income tax returns for the years 1987 through 1991 are
currently under examination by the Internal Revenue Service. The Company does
not believe there will be any material adverse effects on the consolidated
financial statements as a result of this examination.
NOTE 19 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS
Pursuant to the Plan, on July 31, 1992, the Company began distributing
33,000,000 shares of Common Stock to certain claimants and holders of PMI stock.
At March 2, 1993, 22,623,100 shares of Common Stock were distributed. The
remaining shares are to be distributed semi-annually to holders of previously
allowed claims and pending final resolution of disputed claims (see Note 12). In
addition, holders of PMI stock will receive Warrants to purchase Common Stock
exercisable into an aggregate of approximately 2,100,000 shares at an exercise
price equal to the average per share daily closing price during the year ending
July 31, 1993.
On July 31, 1992, the Company adopted a stock option plan under which
options to purchase up to 1,320,000 shares of Common Stock may be granted to
directors, officers or key employees under terms determined by the Board of
Directors. During 1992, options to purchase 350,000 shares were granted to
officers and directors none of which are exercisable at July 31, 1992. In
addition, options to purchase 330,000 shares were granted to a former officer.
Such options are currently exercisable and expire on July 31, 1995. The exercise
prices of the above options are dependent on the average market price one year
from the date of grant and are, therefore, currently undeterminable.
On July 31, 1992, the Company adopted a performance incentive plan under
which stock options covering an additional 330,000 shares of Common Stock were
reserved for grants to key employees at the discretion of management. No options
have been issued under this plan.
PMI had an employee incentive stock option plan which provided for grants
of stock options covering an aggregate of 3,520,000 shares of common stock to
officers and key employees. Under the terms of the plan, which expired on
November 23, 1991, options were granted at a price not less than 100% of fair
market value on the date of grant. Options generally were exercisable in
cumulative installments of 33 1/3% after the option has been outstanding 18, 32
and 46 months from the date of grant and expired five years after the date of
grant.
A summary of the transactions under this plan follows:
NUMBER OPTION PRICE
OF SHARES PER SHARE
---------- ------------
Outstanding -- June 30, 1990................................ 2,155,910 $8.25-$40.45
Cancelled................................................... (1,205,336) $8.25-$40.45
----------
Outstanding -- June 30, 1991................................ 950,574 $8.25-$40.45
Cancelled................................................... (950,574) $8.25-$40.45
----------
Outstanding and exercisable --
June 30, 1992............................................. --
Outstanding and exercisable --
July 31, 1992............................................. --
----------
----------
F-47
109
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
NOTE 20 -- INTEREST AND DIVIDEND INCOME
Included in interest and dividend income are the following (in thousands):
ONE MONTH YEARS ENDED
ENDED JUNE 30,
JULY 31, ------------------
1992 1992 1991
--------- ------- -------
Interest on:
Mortgages and other notes receivable.................. $ 1,949 $24,117 $30,067
Short-term and other investments...................... -- -- 503
Dividend income......................................... -- 10 545
--------- ------- -------
Totals........................................... $ 1,949 $24,127 $31,115
--------- ------- -------
--------- ------- -------
NOTE 21 -- OTHER REVENUES
Included in other revenues are the following (in thousands):
ONE MONTH YEARS ENDED
ENDED JUNE 30,
JULY 31, ----------------
1992 1992 1991
--------- ------ ------
Rentals of properties..................................... $ 144 $1,649 $2,232
Other..................................................... 89 1,460 3,694
--------- ------ ------
Totals............................................. $ 233 $3,109 $5,926
--------- ------ ------
--------- ------ ------
NOTE 22 -- RELATED PARTY TRANSACTIONS
The following summarizes significant financial information with respect to
transactions with present and former officers, directors, their relatives and
certain entities they control or in which they have a beneficial interest (in
thousands):
ONE MONTH YEARS ENDED
ENDED JUNE 30,
JULY 31, ----------------
1992 1992 1991
--------- ------ ------
Management and other fee income(a)........................ $56 $ 746 $1,249
Interest income(a)........................................ 74 1,231 1,955
Rental income(a).......................................... -- 657 624
Management fee expense(b)................................. 37 216 --
Interest expense(b)....................................... 66 250 --
Reservation fee expense(b)................................ 20 10 --
- ---------------
(a) During 1990, PMI sold eight hotel properties to partnerships controlled by
former officers and/or directors for aggregate consideration of $52,500,000
resulting in deferred gains of $4,000,000. The Company held mortgages and
other notes receivable with a face value of $44,992,000 at July 31, 1992,
which arose primarily from those hotel sales. The mortgages mature through
2005 and bear interest at rates ranging from 9.5% to 12.5%. At July 31,
1992, the carrying value of those mortgages was reduced to $6,081,000. The
income amounts shown above primarily include transactions related to these
properties.
F-48
110
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(CONTINUED)
(b) In 1991, PMI entered into an agreement with ShoLodge, whereby Sholodge was
appointed the exclusive agent to develop and manage certain hotel
properties. Six hotels have been developed and opened to date. Development
fees earned by ShoLodge of $-0-, $586,000 and $527,000 have been
capitalized into property, equipment and leasehold improvements for the
month ended July 1992, and the years ended June 1992 and June 1991,
respectively. The Company has demand notes and loans payable to ShoLodge of
$2,706,000 and $3,570,000, respectively, at July 31, 1992 concerning the
development of hotels.
Effective June 1992, the Company commenced using the ShoLodge reservation
system for its Wellesley and AmeriSuite hotels.
NOTE 23 -- SUPPLEMENTAL CASH FLOW INFORMATION
PMI generally received mortgages and other notes as a portion of the total
consideration paid by purchasers in connection with sales of hotel properties
and as consideration for certain construction and development activities. Such
noncash consideration is not reflected in the accompanying consolidated
statements of cash flows. Investing activities involving such noncash proceeds
are summarized below (in thousands):
ONE MONTH YEARS ENDED
ENDED JUNE 30,
JULY 31, -----------------
1992 1992 1991
--------- ------ -------
Net book value of assets sold............................ $ -- $1,539 $15,664
Net realized gains on property transactions.............. -- 15 --
Liabilities assumed...................................... -- -- 5,799
Cash proceeds, net of selling costs...................... -- (249) (6,829)
--------- ------ -------
Noncash proceeds.................................. $ -- $1,305 $14,634
--------- ------ -------
--------- ------ -------
Noncash proceeds consisted of the following (in thousands):
ONE MONTH YEARS ENDED
ENDED JUNE 30,
JULY 31, -----------------
1992 1992 1991
--------- ------ -------
Mortgage and other notes receivable...................... $ -- $1,305 $14,634
--------- ------ -------
--------- ------ -------
Cash paid for interest net of amounts capitalized, was $4,407,000 for the
one month ended July 31, 1992 and $6,432,000 and $16,802,000 for the years ended
June 30, 1992 and 1991, respectively.
Cash paid for income taxes was $2,000 for the one month ended July 31, 1992
and $1,460,000 and $2,100,000 for the years ended June 30, 1992 and 1991,
respectively.
F-49
111
SCHEDULE II
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
COLUMN E
COLUMN D ------------------
----------------------
BALANCE AT
COLUMN B DEDUCTIONS END OF PERIOD
---------- ---------------------- ------------------
COLUMN A BALANCE AT COLUMN C (1) (2) (1) (2)
- -------------------------------------- BEGINNING -------- AMOUNTS VALUATION NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED RESERVES CURRENT CURRENT
- -------------------------------------- ---------- -------- --------- --------- ------- -------
YEAR ENDED DECEMBER 31, 1993:
We-Haven Associates(a)................ $818 -- $ 5 $-- $-- $ 813
FIVE MONTHS ENDED DECEMBER 31, 1992:
We-Haven Associates(a)................ 828 -- 10 -- 32 786
Gerald Bohm(b)........................ 134 -- 10 -- 28 96
- ---------------
(a) 11%; secured by real property; payable in monthly installments of $16,994
including interest. During 1993, the Company began foreclosure proceedings
on this receivable.
(b) 10%; secured by real property; due September 1, 1996.
F-50
112
SCHEDULE II
PAGE 1 OF 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
COLUMN E
COLUMN D ------------------
----------------------
BALANCE AT
COLUMN B DEDUCTIONS END OF PERIOD
---------- ---------------------- ------------------
COLUMN A BALANCE AT COLUMN C (1) (2) (1) (2)
- ------------------------------------- BEGINNING -------- AMOUNTS VALUATION NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED RESERVES CURRENT CURRENT
- ------------------------------------- ---------- -------- --------- --------- ------- -------
ONE MONTH ENDED JULY 31, 1992:
We-Haven Associates(a)............... $ 1,331 $ 1 $ 502 $30 $ 798
Gerald Bohm(b)....................... 134 27 107
Monroe Property Associates(c)........ 5,950 950 5,000
Hillsborough Associates(d)........... 536 536
Jeffrey Halpern(e)................... 71 1 70
Joel Hecht(f)........................ 7 7
John Leavitt(g)...................... 41 1 40
YEAR ENDED JUNE 30, 1992:
We-Haven Associates(a)............... 1,378 47 1,331
Gerald Bohm(b)....................... 161 27 25 109
Monroe Property Associates(c)........ 8,080 175 1,955 5,950
Hillsborough Associated(d)........... 7,917 7,381 536
Jeffrey Halpern(e)................... 72 1 1 70
Joel Hecht(f)........................ 10 3 1 6
John Leavitt(g)...................... $ 42 1 1 40
YEAR ENDED JUNE 30, 1991:
We-Haven Associates(a)............... 1,437 59 1,378
Gerald Bohm(b)....................... 184 23 25 136
Monroe Property Associates(c)........ 8,125 45 8,080
Hillsborough Associates(d)........... 13,177 67 5,193 7,917
Joel Simon(h)........................ 430 430
Jeffrey Halpern(e)................... 73 1 1 71
Joel Hecht(f)........................ 10 1 9
Taub and Taub(i)..................... 6 6
F-51
113
SCHEDULE II
PAGE 2 OF 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
(CONTINUED)
(a) 11%; secured by real property; payable in monthly installments of $16,994
including interest.
(b) 10%; secured by real property; due September 1, 1996.
(c) 10%; secured by real and personal property; due December 1, 1998; payable in
monthly installments of $115,859 including interest. In January 1993, the
Company restructured the note as follows: (i) a senior note of $5,000,000
at 8.5%; due January 1, 2003; payable in monthly installments of $38,446
and (ii) a junior note of $5,950,000 at 6.0% due January 1, 2008; payable
to the extent of available cash flow. The notes are owed by a partnership
in which a former director of PMI has a controlling interest. Subsequent to
July 31, 1992, this note is no longer classified as a related party
receivable.
(d) 9.5% to 11%; secured by real and personal property; due from March 1, 1999
to December 1, 2019; payable in total monthly installments of $277,252
including interest. In December 1992, the Company restructured these notes
to receive the majority of available cash flow.
(e) 9.25%; secured by real property; payable in monthly installments of $590;
due July 1, 2017.
(f) Prime rate; unsecured; payable on demand.
(g) 9%; secured by real property; due September 5, 2011.
(h) Prime rate; unsecured; payable on demand.
(i) 11%; secured by personal property; payable in quarterly installments of
$2,307 including interest; due January 1, 1991.
F-52
114
SCHEDULE V
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
COLUMN B COLUMN E COLUMN F
---------- COLUMN C ------------ ----------
COLUMN A BALANCE AT -------- COLUMN D OTHER BALANCE AT
- ---------------------------------------- BEGINNING ADDITIONS ----------- CHANGES ADD CLOSE OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD
- ---------------------------------------- ---------- -------- ----------- ------------ ----------
YEAR ENDED DECEMBER 31, 1993:
Land.................................... $ 26,074 $ 4,115 $ 1,422 $ 640(a) $ 29,407
Hotels.................................. 97,179 10,693 818 2,617(a) 109,671
Furniture, fixtures, autos.............. 18,333 4,585 1,183 144(a) 21,879
Leasehold improvements.................. 15,771 1,101 21 (6,629)(c) 10,222
Construction in progress................ -- 2,555 -- -- 2,555
---------- -------- ----------- ------------ ----------
157,357 23,049 3,444 (3,228) 173,734
Property held for sale.................. 8,000 355 -- -- 8,355
---------- -------- ----------- ------------ ----------
Totals........................ $ 165,357 $23,404 $ 3,444 $ (3,228) $ 182,089
---------- -------- ----------- ------------ ----------
---------- -------- ----------- ------------ ----------
FIVE MONTHS ENDED DECEMBER 31, 1992:
Land.................................... $ 24,855 $ 133 -- $ 1,086(a) $ 26,074
Hotels.................................. 95,942 5 -- 5,732(a) 97,179
(4,500)(b)
Furniture, fixtures, autos.............. 16,192 1,272 231 1,100(a) 18,333
Leasehold improvements.................. 15,428 393 50 -- 15,771
---------- -------- ----------- ------------ ----------
152,417 1,803 281 3,418 157,357
Property held for sale.................. 8,000 -- -- -- 8,000
---------- -------- ----------- ------------ ----------
Totals........................ $ 160,417 $ 1,803 $ 281 $ 3,418 $ 165,357
---------- -------- ----------- ------------ ----------
---------- -------- ----------- ------------ ----------
- ---------------
(a) Transfer from notes receivable to land, hotels and furniture, fixtures and
autos.
(b) Represents a hotel conveyed to a third party in return for the assumption of
the related debt by the third party.
(c) Represents a transfer in exchange for a note receivable.
See Notes to Consolidated Financial Statements as to depreciation method and
useful lives.
F-53
115
SCHEDULE V
PRIME HOSPITALITY CORP. AND SUBSIDIARIES PAGE 1 OF 2
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
COLUMN B COLUMN F
---------- COLUMN C COLUMN E ----------
COLUMN A BALANCE AT ---------- COLUMN D ------------- BALANCE AT
- -------------------------------------- BEGINNING ADDITIONS ----------- OTHER CHANGES CLOSE OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD (DEDUCT) PERIOD
- -------------------------------------- ---------- ---------- ----------- ------------- ----------
ONE MONTH ENDED JULY 31, 1992:
Land................................ $ 25,309 $ -- $ -- $ 2,292(a) $ 24,201
3,400(b)
Land leased to others............... 654 -- -- -- 654
Hotels.............................. 116,192 -- -- (20,250)(a) 95,942
Furniture, fixtures and autos....... 25,346 571 274 (9,451)(a) 16,192
Leasehold improvements.............. 13,425 121 -- 1,882(a) 15,428
Leased equipment under capital
leases........................... 93 -- -- (93)(a) --
---------- ---------- ----------- ------------- ----------
181,019 692 274 (29,020) 152,417
Property held for sale.............. 22,811 -- -- (14,811)(a) 8,000
---------- ---------- ----------- ------------- ----------
Totals........................... $ 203,830 $ 692 $ 274 $ (43,831) $ 160,417
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
YEAR ENDED JUNE 30, 1992:
Land................................ $ 25,664 $ 7 $ 362 $ -- $ 25,309
Land leased to others............... 654 -- -- -- 654
Hotels.............................. 98,551 95 -- 17,546(c) 116,192
Furniture, fixtures and autos....... 22,391 3,918 963 -- 25,346
Leasehold improvements.............. 13,454 512 541 -- 13,425
Leased equipment under capital
leases........................... 243 -- 150 -- 93
Construction in progress............ 8,074 9,472 -- (17,546)(c) --
---------- ---------- ----------- ------------- ----------
169,031 14,004 2,016 -- 181,019
Property held for sale.............. 50,565 137 18,891 (9,000)(d) 22,811
---------- ---------- ----------- ------------- ----------
Totals........................... $ 219,596 $ 14,141 $20,907 $ (9,000) $ 203,830
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
YEAR ENDED JUNE 30, 1991:
Land................................ $ 39,823 $ -- $ 2,209 $ 8,079(c) $ 25,664
(19,423)(e)
(606)(d)
Land leased to others............... 1,209 -- -- (555)(d) 654
Hotels.............................. 86,163 628 4,804 39,258(c) 98,551
(21,671)(e)
(1,023)(d)
Furniture, fixtures and autos....... 34,962 695 9,831 3,573(c) 22,391
(6,938)(e)
(70)(d)
Leasehold improvements.............. 37,020 829 22,780 (1,495)(e) 13,454
(120)(d)
Leased equipment under capital
leases........................... 677 -- 191 (243)(e) 243
Construction in progress............ 64,998 18,446 13,228 (50,911)(c) 8,074
(9,954)(e)
(1,277)(d)
---------- ---------- ----------- ------------- ----------
264,852 20,598 53,043 (63,376) 169,031
Property held for sale.............. 22,643 1,315 -- 59,723(e) 50,565
(33,116)(d)
---------- ---------- ----------- ------------- ----------
Totals........................... $ 287,495 $ 21,913 $53,043 $ (36,769) $ 219,596
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
F-54
116
SCHEDULE V
PAGE 2 OF 2
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
(CONTINUED)
(a) Fresh-start reporting adjustments.
(b) Distributions under the Plan.
(c) Transfer from construction in progress to hotels, leasehold improvements and
furniture, fixtures and autos.
(d) Writeoffs and/or writedowns to net realizable value.
(e) Transfer from operating land, hotels, furniture, fixtures and autos and/or
construction in progress to property held for sale.
See Notes to Consolidated Financial Statements as to depreciation method and
useful lives.
F-55
117
SCHEDULE VI
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
COLUMN B COLUMN E COLUMN F
---------- COLUMN C ------------ ----------
COLUMN A BALANCE AT ---------- COLUMN D OTHER BALANCE AT
- --------------------------------------- BEGINNING ADDITIONS ----------- CHANGES ADD CLOSE OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD
- --------------------------------------- ---------- ---------- ----------- ------------ ----------
YEAR ENDED DECEMBER 31, 1993:
Hotels................................. $1,065 $2,936 $ 28 $ 30 $4,003
Furniture, fixtures, autos............. 1,028 3,430 327 262 4,393
Leasehold improvements................. 467 649 -- 209 907
Construction in progress............... -- -- -- -- --
---------- ---------- ----------- ------------ ----------
Totals............................ $2,560 $7,015 $ 355 $ 83 $9,303
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
FIVE MONTHS ENDED DECEMBER 31, 1992:
Hotels................................. $ -- $1,065 $ -- $ -- $1,065
Furniture, fixtures, autos............. -- 1,252 224 -- 1,028
Leasehold improvements................. -- 467 -- -- 467
---------- ---------- ----------- ------------ ----------
Totals............................ $ -- $2,784 $ 224 $ -- $2,560
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
F-56
118
SCHEDULE VI
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
COLUMN B COLUMN C COLUMN F
---------- ---------- COLUMN D ----------
COLUMN A BALANCE AT CHARGED TO -------- COLUMN E BALANCE AT
- ---------------------------------------- BEGINNING COSTS AND RETIRE- ----------- CLOSE OF
CLASSIFICATION OF PERIOD EXPENSES MENTS ADJUSTMENTS PERIOD
- ---------------------------------------- ---------- ---------- -------- ----------- ----------
ONE MONTH ENDED JULY 31, 1992:
Hotels................................ $ 8,689 $ 239 $ -- $ (8,928)(a) $ --
Furniture, fixtures and auto.......... 10,624 254 153 (10,725)(a) --
Leasehold improvements................ 4,961 76 -- (5,037)(a) --
Leased equipment under capital
leases............................. 84 -- -- (84)(a) --
---------- ---------- -------- ----------- ----------
Totals........................ $ 24,358 $ 589 $ 153 $ (24,774) $ --
---------- ---------- -------- ----------- ----------
---------- ---------- -------- ----------- ----------
YEAR ENDED JUNE 30, 1992:
Hotels................................ $ 9,142 $ 2,537 $ 2,990 $ -- $ 8,689
Furniture, fixtures and auto.......... 12,956 3,054 5,386 -- 10,624
Leasehold improvements................ 4,469 1,268 776 -- 4,961
Leased equipment under capital
leases............................. 346 8 270 -- 84
---------- ---------- -------- ----------- ----------
Totals........................ $ 26,913 $ 6,867 $ 9,422 $ -- $ 24,358
---------- ---------- -------- ----------- ----------
---------- ---------- -------- ----------- ----------
YEAR ENDED JUNE 30, 1991:
Hotels................................ $ 8,136 $ 2,854 $ 1,848 $ -- $ 9,142
Furniture, fixtures and auto.......... 14,950 3,415 5,409 -- 12,958
Leasehold improvements................ 6,438 1,569 3,538 -- 4,469
Leased equipment under capital
leases............................. 499 29 182 -- 346
---------- ---------- -------- ----------- ----------
Totals........................ $ 30,023 $ 7,867 $10,977 $ -- $ 26,913
---------- ---------- -------- ----------- ----------
---------- ---------- -------- ----------- ----------
- ---------------
(a) Fresh start reporting adjustments.
F-57
119
SCHEDULE IX
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
COLUMN C COLUMN F
-------- COLUMN D COLUMN E ----------
WEIGHTED ----------- ----------- WEIGHTED
COLUMN B AVERAGE MAXIMUM AVERAGE AVERAGE
---------- INTEREST AMOUNT AMOUNT INTEREST
COLUMN A BALANCE AT RATE AT OUTSTANDING OUTSTANDING RATE
- -------------------------------------- END OF END OF DURING THE DURING THE DURING THE
CATEGORY PERIOD PERIOD PERIOD PERIOD(A) PERIOD(B)
- ------------------------------------------------ -------- ----------- ----------- ----------
One month ended July 31, 1992......... $5,971 7.8% $ 5,971 $ 5,971 7.8%
---------- -------- ----------- ----------- ----------
---------- -------- ----------- ----------- ----------
Year ended June 30, 1992.............. $5,971 8.3% $ 5,971 $ 4,054 9.0%
---------- -------- ----------- ----------- ----------
---------- -------- ----------- ----------- ----------
Year ended June 30, 1991.............. $2,556 9.8% $ 2,556 $ 627 10.4%
---------- -------- ----------- ----------- ----------
---------- -------- ----------- ----------- ----------
- ---------------
(a) The average amount outstanding during the period was computed on the basis
of the outstanding daily principal balances.
(b) The weighted average interest rate was computed by dividing the total
interest expense on these obligations by the average balance of short-term
obligations outstanding.
F-58
120
SCHEDULE X
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
FIVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
Maintenance and repairs.................................... $4,163 $1,460
Real estate taxes.......................................... 4,170 1,847
Royalties.................................................. 1,239 429
Advertising and sales promotion costs...................... 5,010 1,947
F-59
121
SCHEDULE X
PRIME HOSPITALITY CORP. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
JULY 31, 1992 AND JUNE 30, 1992 AND 1991
(IN THOUSANDS)
ONE MONTH
ENDED YEARS ENDED JUNE 30,
JULY 31, -----------------------
1992 1992 1991
--------- --------- ---------
Maintenance and repairs........................................ $ 290 $ 5,330 $ 6,134
Taxes, other than payroll and income taxes:
Real estate taxes............................................ 494 6,151 6,740
Royalties...................................................... 87 1,628 4,262
Advertising costs.............................................. 374 5,513 4,066
F-60
122
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 24, 1994. By: /s/ David A. Simon
------------------------
David A. Simon, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 24, 1994.
Signature Title
--------- -----
/s/ David A. Simon Chairman of Board of Directors,
- -------------------------- President, Chief Executive Officer
David A. Simon and Director (Principal Executive Officer)
/s/ John M. Elwood Chief Financial Officer, Executive
- -------------------------- Vice President and Director
John M. Elwood
/s/Allen J. Ostroff Director
- --------------------------
Allen J. Ostroff
/s/ Herbert Lust, II Director
- --------------------------
Herbert Lust, II
/s/ Leon Moore Director
- --------------------------
Leon Moore
/s/ A. F. Petrocelli Director
- --------------------------
A.F. Petrocelli
123
Exhibit Index
(2) (a) Reference is made to the Disclosure
Statement for Debtors' Second
Amended Joint Plan of Reorganization
dated January 16, 1992, which
includes the Debtors' Second Amended
Plan of Reorganization as an exhibit
thereto filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(3) (a) Reference is made to the Restated
Certificate of Incorporation of the
Company dated June 5, 1992 filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(b) Reference is made to the Restated
Bylaws of the Company filed as an
Exhibit to the Company's Form 10-K
dated September 25, 1992, which is
incorporated herein by reference.
(4) (a) Reference is made to the Form of
8.20% Fixed Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(b) Reference is made to the Form of
Adjustable Rate Senior Secured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(c) Reference is made to the Form of
9.20% Junior Secured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is
124
incorporated herein by reference.
(d) Reference is made to the Form of
8.20% Tax Note of the Company filed
as an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(e) Reference is made to the Form of
10.20% Secured UND Restructured Note
of the Company filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(f) Reference is made to the Form of 8%
Secured UND Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the Form of
9.20% OVR Restructured Note of the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(h) Reference is made to the Collateral
Agency Agreement among the Company,
U.S. Trust and the Secured Parties,
dated as of July 31, 1992 filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(i) Reference is made to the Security
Agreement between the Company and
U.S. Trust, dated as of July 31,
1992, filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(j) Reference is made to the Subsidiary
Guaranty from FR Delaware, Inc. to
United States Trust Company of New
York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated
125
herein by reference.
(k) Reference is made to the Security
Agreement between FR Delaware, Inc.
and United States Trust Company of
New York, dated as of July 31, 1992,
filed as an Exhibit to the Company's
Form 10-K dated September 25, 1992,
which is incorporated herein by
reference.
(l) Reference is made to the Subsidiary
Guaranty from Prime Note Collections
Company, Inc. to United States Trust
Company of New York, dated as of
July 31, 1992, filed as an Exhibit
to the Company's Form 10-K dated
September 25, 1992, which is
incorporated herein by reference.
(m) Reference is made to the Security
Agreement between Prime Note
Collections Company, Inc. and United
States Trust Company of New York,
dated as of July 31, 1992, filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(n) Reference is made to a Form 8-A of
the Company as filed on June 5, 1992
with the Securities and Exchange
Commission, as amended by Amendment
No. 1 and Amendment No. 2, which is
incorporated herein by reference.
(10) (a) Reference is made to the Agreement
of Purchase and Sale between
Flamboyant Investment Company, Ltd.
and VMS Realty, Inc. dated June 3,
1985, and its related agreements,
each of which was included as
Exhibits to the Form 8-K dated
August 14, 1985 of PMI, which are
incorporated herein by reference.
(b) Reference is made to PMI's Flexible
Benefit Plan, filed as an Exhibit to
the Form 10-Q dated February 12,
1988 of PMI, which is incorporated
herein by reference.
126
(c) Reference is made to the Employment
Agreement dated as of July 31, 1992,
between David A. Simon and the
Company filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(d) Reference is made to the 1992
Performance Incentive Stock Option
Plan of the Company dated as of July
31, 1992, filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(e) Reference is made to the 1992 Stock
Option Plan of the Company filed as
an Exhibit to the Company's Form
10-K dated September 25, 1992, which
is incorporated herein by reference.
(f) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David A.
Simon filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(g) Reference is made to the 1992
Non-Qualified Stock Option Agreement
between the Company and David L.
Barsky filed as an Exhibit to the
Company's Form 10-K dated September
25, 1992, which is incorporated
herein by reference.
(i) Reference is made to the Employment
Agreement dated as of December 31,
1992 between John Elwood and the
Company filed as an Exhibit to the
Company's Form 10-K dated March 26,
1993, which is incorporated herein by
reference.
(j) Reference is made to the 1992
Non-Qualified Stock Option
Agreement between the Company and
John Elwood filed as an Exhibit
to the Company's Form 10-K dated
March 26, 1993, which is
incorporated herein by reference.
(k) Employment Agreement dated as of
March 1, 1993 between John Stetz and
the Company.
(l) Employment Agreement dated as of
May 18, 1993 between Paul Hower.
(m) Consolidated and Amended Settlement
Agreement dated as of October 12,
1993
127
between Allan V. Rose and the
Company.
(11) Computation of Earnings Per Common Share.
(21) Subsidiaries of the Company are as follows:
Jurisdiction of
Name Incorporation
---- -------------
A.J.& R. Motor Inns, Inc. North Carolina
Civic Motor Inns, Inc. Virginia
Coliseum Motor Inns, Inc. Maryland
Dynamic Marketing, Inc. Delaware
Fairfield-Meridian Claims Service, Inc. Delaware
FR Delaware, Inc. Delaware
FR Management Corporation Virginia
Hartford Motor Inns, Inc. Virginia
Market Segments, Incorporated Delaware
Prime-American Realty Corp. Delaware
Prime Hotel Real Estate
Investments, Inc. Delaware
Prime Note Collections Company, Inc. Delaware
Prime-O-Lene, Inc. New Jersey
Prime-Trevose Enterprises, Inc. Pennsylvania
Republic Motor Inns, Inc. Virginia
Suites of America, Inc. Delaware
York Motor Inns, Inc. Virginia
(23) (a) Consent of Arthur Andersen & Co.
(b) Consent of J.H. Cohn & Co.