-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GqIVohIDalbj3zE5fAcH40jrbVN0G3qsAb+wrMyqhu5tsewCn2/rG/TqdsYyO/8/ prOBlj3FezXkH/qg8y9ovg== 0000905038-97-000003.txt : 19970513 0000905038-97-000003.hdr.sgml : 19970513 ACCESSION NUMBER: 0000905038-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970328 FILED AS OF DATE: 19970512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMC ACQUISITION PROPERTIES INC /DE CENTRAL INDEX KEY: 0001007076 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 521888825 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-00768 FILM NUMBER: 97601043 BUSINESS ADDRESS: STREET 1: 10400 FERNWOOD RD CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3013809000 MAIL ADDRESS: STREET 1: 10400 FERNWOOD RD CITY: BETHESDA STATE: MD ZIP: 20817 10-Q 1 HMC ACQUISITION PROPERTIES, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 28, 1997 Commission File No. 333-00768 HMC ACQUISITION PROPERTIES, INC. 10400 Fernwood Road Bethesda, Maryland 20817 (301) 380-9000 Delaware 52-1888825 (State of Incorporation) (I.R.S. Employer Identification Number) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No HMC ACQUISITION PROPERTIES INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION (Unaudited): Condensed Consolidated Balance Sheets - 3 March 28, 1997 and January 3, 1997 Condensed Consolidated Statements of Operations - 4 Twelve Weeks Ended March 28, 1997 and March 22, 1996 Condensed Consolidated Statements of Cash Flows - 5 Twelve Weeks Ended March 28, 1997 and March 22, 1996 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Results of 8 Operations and Financial Condition PART II. OTHER INFORMATION AND SIGNATURE 11 - 2 - HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
March 28, January 3, 1997 1997 ----------- ------------ ASSETS (unaudited) Property and equipment, net.................................................... $ 528,007 $ 529,130 Due from hotel managers........................................................ 14,592 16,050 Other assets................................................................... 8,711 7,799 Cash and cash equivalents...................................................... 42,329 33,282 ------------- ------------- $ 593,639 $ 586,261 ============= ============= LIABILITIES AND SHAREHOLDER'S EQUITY Debt ........................................................................ $ 350,000 $ 350,000 Deferred income taxes.......................................................... 15,876 15,676 Other liabilities.............................................................. 13,667 4,419 ------------- ------------- Total liabilities........................................................ 379,543 370,095 ------------- ------------- Shareholder's equity Common stock, 100 shares issued and outstanding, no par value............................................................. -- -- Additional paid-in capital................................................. 214,374 214,374 Retained earnings (deficit)................................................ (278) 1,792 ------------- ------------- Total shareholder's equity .............................................. 214,096 216,166 ------------- ------------- $ 593,639 $ 586,261 ============= =============
See Notes to Condensed Consolidated Financial Statements. - 3 - HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Twelve Weeks Ended March 28, 1997 and March 22, 1996 (unaudited, in thousands)
1997 1996 --------- --------- REVENUES.............................................................................. $ 29,531 $ 22,459 --------- --------- OPERATING COSTS AND EXPENSES Depreciation and amortization....................................................... 6,395 4,205 Base and incentive management fees (including Marriott International management fees of $4,035 and $3,058 in 1997 and 1996, respectively)..................................................................... 4,659 3,273 Property taxes...................................................................... 1,976 1,875 Ground rent, insurance and other.................................................... 1,225 489 --------- --------- Total operating costs and expenses................................................ 14,255 9,842 --------- --------- OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST..................................................... 15,276 12,617 Corporate expenses.................................................................... (804) (1,146) Interest expense...................................................................... (7,466) (7,531) Interest income....................................................................... 461 1,134 --------- --------- INCOME BEFORE INCOME TAXES............................................................ 7,467 5,074 Provision for income taxes............................................................ (3,000) (2,151) --------- --------- NET INCOME............................................................................ $ 4,467 $ 2,923 ========= =========
See Notes to Condensed Consolidated Financial Statements. - 4 - HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Twelve Weeks Ended March 28, 1997 and March 22, 1996 (unaudited, in thousands)
1997 1996 ---------- --------- OPERATING ACTIVITIES Net income........................................................................... $ 4,467 $ 2,923 Adjustments to reconcile to cash provided by operations: Depreciation and amortization..................................................... 6,395 4,205 Income taxes...................................................................... 3,000 2,151 Changes in operating accounts..................................................... 6,831 4,698 Other............................................................................. 178 168 ---------- --------- Cash provided by operations.................................................... 20,871 14,145 ---------- --------- INVESTING ACTIVITIES Acquisitions......................................................................... -- (44,561) Capital expenditures................................................................. (3,595) (9,583) Other................................................................................ (1,692) (1,456) ---------- --------- Cash used in investing activities.............................................. (5,287) (55,600) ---------- --------- FINANCING ACTIVITIES Dividend to Host Marriott Corporation................................................ (6,537) -- Other................................................................................ -- (606) ---------- --------- Cash used in financing activities.............................................. (6,537) (606) ---------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... $ 9,047 $ (42,061) ========== =========
See Notes to Condensed Consolidated Financial Statements. - 5 - HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying consolidated financial statements of HMC Acquisition Properties, Inc. and subsidiaries (the "Company"), a wholly-owned indirect subsidiary of Host Marriott Corporation ("Host Marriott"), have been prepared by the Company without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. However, the condensed consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended January 3, 1997. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 28, 1997 and January 3, 1997 and the results of operations and cash flows for the twelve weeks ended March 28, 1997 and March 22, 1996. Interim results are not necessarily indicative of fiscal year performance because of the impact of seasonal and short-term variations. 2. Revenues represent house profit from the Company's hotel properties. House profit reflects the net revenues flowing to the Company as property owner and represents hotel operating results less property-level expenses excluding depreciation and amortization, property taxes, ground rent, insurance, management fees and certain other costs which are classified as operating costs and expenses. House profit generated by the Company's hotels for 1997 and 1996 consists of:
Twelve Weeks Ended ------------------------ March 28, March 22, 1997 1996 ---------- --------- (in thousands) Sales Rooms.............................................................. $ 51,674 $ 42,476 Food & Beverage.................................................... 24,195 19,667 Other.............................................................. 4,538 3,841 --------- --------- Total Hotel Sales............................................... 80,407 65,984 --------- --------- Department Costs Rooms.............................................................. 11,908 10,022 Food & Beverage.................................................... 18,432 15,210 Other.............................................................. 2,546 2,294 --------- --------- Total Department Costs.......................................... 32,886 27,526 --------- --------- Department Profit.................................................... 47,521 38,458 Other Deductions..................................................... 17,990 15,999 --------- --------- House Profit.................................................... $ 29,531 $ 22,459 ========= =========
-6- HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. During the first quarter of 1997, a $6.5 million dividend was paid to Host Marriott, as permitted under the senior notes indenture. 4. On May 12, 1997, the Company commenced a consent solicitation (the "Consent Solicitation") for the amendment of certain provisions of its senior notes indenture. The Consent Solicitation, if successful, would facilitate, among other things, the merger of the Company with and into HMH Properties, Inc. ("Properties"), a wholly-owned indirect subsidiary of Host Marriott which owns 32 full-service hotel properties, (the "Merger") and the ability of Properties after the Merger to acquire, through certain subsidiaries, additional properties subject to non-recourse indebtedness and less than majority controlling interests in corporations, partnerships and other entities holding attractive properties. In connection with the Merger, Host Marriott will make a capital contribution of $50 million to Properties. The Consent Solicitation is conditioned upon the approval by at least 66 2/3% of the Company's senior notes holders and the completion of a similar consent solicitation being currently conducted by Properties. As part of the Consent Solicitation, the Company will make a payment of $875,000 which will be allocated pro rata by the Company to each registered senior notes holder who consents to the proposed amendments prior to the execution of a supplemental indenture adopting the proposed amendments. The Consent Solicitation will expire at 5:00 p.m., New York City time on May 23, 1997, unless extended by the Company. 5. All direct and indirect subsidiaries of the Company guarantee the senior notes. The separate financial statements of each guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not presented because the Company's management has concluded that such financial statements are not material to investors. The guarantee of each Guarantor Subsidiary is full and unconditional and joint and several and each Guarantor Subsidiary is a wholly-owned subsidiary of the Company. Combined summarized operating results of the Guarantor Subsidiaries are as follows:
Twelve Weeks Ended ----------------------- March 28, March 22, 1997 1996 --------- --------- (in thousands) Revenues...................................................................... $ 5,116 $ 2,926 Operating profit before corporate expenses and interest................................................................ 3,143 1,895 Net income.................................................................... 1,034 405
Combined summarized balance sheet information of the Guarantor Subsidiaries is as follows:
March 28, January 3, 1997 1997 ----------- ----------- (in thousands) Property and equipment, net.................................................... $ 96,234 $ 94,427 Other assets................................................................... 7,735 6,853 ----------- ----------- Total assets................................................................. $ 103,609 $ 101,280 =========== =========== Debt........................................................................... $ 60,465 $ 60,465 Other liabilities.............................................................. 10,903 8,387 ----------- ----------- Total liabilities............................................................ 71,368 68,852 Equity......................................................................... 32,241 32,428 ----------- ----------- Total liabilities and equity................................................. $ 103,609 $ 101,280 =========== ===========
-7- HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The operating results and balance sheet information include the pushed-down effect of that portion of the Company's senior notes allocated to the Guarantor Subsidiaries. FORWARD-LOOKING STATEMENTS Certain matters discussed in this Form 10-Q are forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 and as such may involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be different from any future results, performance or achievements expressed or implied by such forward- looking statements. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. These risks are detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. RESULTS OF OPERATIONS Revenues. Revenues represent house profit from the Company's hotel properties. The Company's first quarter 1997 revenues of $30 million represented a $7 million, or 31%, increase from the first quarter of 1996. The Company's revenues were impacted by improved lodging results and the addition of two full-service hotel properties in 1996. The Company's hotels reported strong growth in revenue per available room ("REVPAR") for comparable hotels. REVPAR is a commonly used indicator of market performance for hotels which represents the combination of the average daily room rate charged and the average daily occupancy achieved. REVPAR does not include food and beverage or other ancillary revenues generated by the property. Improved results were driven by strong increases in REVPAR of 16% for comparable units for the quarter. Hotel sales increased $14 million, or 22%, to $80 million for the quarter, reflecting REVPAR increases for comparable units and the addition of two full-service properties in 1996. The Company's 1997 first quarter results were substantially impacted by the exclusion of the New Year's holiday from the 1997 results due to the timing of the Company's fiscal year end and the milder winter weather in 1997. On a comparable basis, average room rates increased 12%, while average occupancy increased approximately three percentage points reflecting the completion of the conversion of several properties to the Marriott brand. Results for the quarter were further enhanced by an approximate four percentage point increase in the house profit margin for comparable properties. Management believes REVPAR will continue to grow in the near future through steady increases in average room rates, combined with less significant increases in occupancy rates. However, there can be no assurance that REVPAR will continue to grow in the future. Operating Costs and Expenses. Operating costs and expenses consist of depreciation and amortization, management fees, property taxes, ground rent, insurance and certain other costs. The Company's operating costs and expenses for the first quarter of 1997 increased $4.4 million to $14.3 million. As a percentage of revenues, operating costs and expenses represented 48% and 44% of revenues for the first quarter of 1997 and 1996, respectively. Operating Profit. As a result of the changes in revenues and operating costs and expenses discussed above, the Company's operating profit increased nearly $3 million to $15 million, or 52% of revenues, in the first quarter of 1997 from $13 million, or 56% of revenues, in the first quarter of 1996. Several hotels, including the San Francisco Airport Marriott, the Westfields Conference Resort, the Denver Marriott Tech Center, the Charlotte Marriott Executive Park and the Napa Valley Marriott posted particularly significant improvements in operating profit for the quarter, which were partially offset by a decrease in the results for the Atlanta Marriott Northwest due to higher activity in 1996 related to the Summer Olympics. -8- HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Corporate Expenses. Corporate expenses decreased $.3 million to $.8 million in the first quarter of 1997 primarily due to higher average assets for Host Marriott during the quarter, which resulted in a decrease in the allocation of corporate expenses to the Company. As a percentage of revenues, corporate expenses were 3% of revenues for the first quarter of 1997 and 5% of revenues for the first quarter of 1996. Interest Expense. Interest expense remained unchanged at $7.5 million in the first quarter of 1997. Interest Income. Interest income decreased $.7 million to $.5 million for the 1997 first quarter primarily due to the use of available proceeds from the December 1995 debt offering for the acquisition of two full- service hotels in 1996. Net Income. The Company's net income for the first quarter of 1997 increased $1.5 million to $4.5 million, or 15% of revenues, principally due to improved lodging results discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company reported an increase in cash and cash equivalents of $9 million in the twelve weeks ended March 28, 1997 compared to a decrease of $42 million for the twelve weeks ended March 22, 1996. Cash provided by operations increased $7 million to $21 million for 1997 primarily due to improved hotel operating results. Cash used in investing activities was $5 million for the twelve weeks ended March 28, 1997 compared to $56 million for the twelve weeks ended March 22, 1996. The first quarter 1997 results primarily reflect capital expenditures of $4 million for the renovation of certain properties and renewals and replacements on other properties. Cash used in financing activities was $6.5 million for the twelve weeks ended March 28, 1997 compared to $.6 million for the twelve weeks ended March 22, 1996 reflecting a dividend to Host Marriott as permitted under the senior notes indenture. -9- HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION EBITDA The Company's consolidated Earnings Before Interest Expense, Taxes, Depreciation, Amortization and other non-cash items ("EBITDA"), increased $5 million, or 27%, to $22 million for the first quarter of 1997. On a comparable basis, hotel EBITDA increased 26% on a REVPAR increase of 16%. The Company believes that EBITDA is a meaningful measure of the Company's operating performance due to the significance of the Company's long-lived assets (and the related depreciation thereon) and because EBITDA can be used to measure the Company's ability to service debt, fund capital expenditures and expand its business and is used in the senior note indenture as part of the tests determining the Company's ability to incur debt and to make certain restricted payments. EBITDA information should not be considered as an alternative to net income, operating profit, cash from operations, or any other operating or liquidity performance measure prescribed by generally accepted accounting principles. The following is a reconciliation of EBITDA to net income:
Twelve Weeks Ended -------------------------- March 28, March 22, 1997 1996 ------------- ---------- (in thousands) EBITDA ......................................................................... $ 21,691 $ 17,094 Interest expense................................................................... (7,466) (7,531) Depreciation and amortization...................................................... (6,395) (4,205) Income taxes....................................................................... (3,000) (2,151) Other non-cash charges, net........................................................ (363) (284) ----------- --------- Net income................................................................... $ 4,467 $ 2,923 =========== =========
The Company interest coverage, defined as EBITDA divided by cash interest expense, for the quarter improved to 3.0 times from 2.3 times for the 1996 first quarter and 2.4 times for full year 1996. The ratio of earnings to fixed charges was 1.9 to 1.0 and 1.6 to 1.0 for the twelve weeks ended March 28, 1997 and March 22, 1996, respectively, and 1.6 to 1.0 for fiscal year 1996. - 10 - PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is from time to time the subject of, or involved in, judicial proceedings. Management believes that any liability or loss resulting from such matters will not have a material adverse effect on the financial position or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a. Exhibits: None. b. Reports on Form 8-K: None. - 11 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HMC ACQUISITION PROPERTIES, INC. May 9, 1997 /s/ DONALD D. OLINGER - ----------- --------------------------------- Date Donald D. Olinger Vice President and Corporate Controller - 12 - -----END PRIVACY-ENHANCED MESSAGE-----