-----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, I0mGJnFp2MIOg99Ql3xxsc43JQIzFBlWixO4NAr5Z3KekoVfs6xU9ZIE8LzNnTKN bapBYL444O51EDgbUccqPw== 0000914760-96-000251.txt : 19961203 0000914760-96-000251.hdr.sgml : 19961203 ACCESSION NUMBER: 0000914760-96-000251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIHOST PROPERTIES INC CENTRAL INDEX KEY: 0000778423 STANDARD INDUSTRIAL CLASSIFICATION: 7011 IRS NUMBER: 363312434 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15291 FILM NUMBER: 96659924 BUSINESS ADDRESS: STREET 1: 2400 E DEVON AVE STE 280 CITY: DES PLAINES STATE: IL ZIP: 60018 BUSINESS PHONE: 7082984500 MAIL ADDRESS: STREET 1: 2400 E DEVON AVE STREET 2: SUITE 280 CITY: DES PLAINES STATE: IL ZIP: 60018 FORMER COMPANY: FORMER CONFORMED NAME: AMERICA POP INC DATE OF NAME CHANGE: 19871111 10-Q 1 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 For the quarterly period ended SEPTEMBER 30, 1996 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 2-90939C AMERIHOST PROPERTIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-3312434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2400 EAST DEVON AVE., SUITE 280, DES PLAINES, ILLINOIS 60018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 298-4500 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 As of November 11, 1996, 6,023,521 shares of the Registrant's Common Stock were outstanding. AMERIHOST PROPERTIES, INC. FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 INDEX PART I: Financial Information Page Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 4 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1996 and 1995 6 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 7 Notes to Consolidated Financial Statements 9 Management's Discussion and Analysis 11 Schedule of Earnings Before Interest/Rent, Taxes and Depreciation/Amortization for the Three and Nine Months Ended September 30, 1996 and 1995 17 PART II: Other Information Item 4 - Submission to a Vote of Securities Holders 18 Item 6 - Exhibits and Reports on Form 8-K 19 Signatures 19 Part I: Financial Information Item 1: Financial Statements AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1996 1995 ASSETS Current assets: Cash and cash equivalents $ 2,116,182 $ 1,371,278 Accounts receivable (including $2,625,448 and $802,164 from related parties) 5,697,638 3,270,094 Notes receivable (including $1,895,273 and $1,752,126 from related parties) 2,063,195 1,965,048 Prepaid expenses and other current assets 349,623 188,163 Refundable income taxes - 230,530 Costs and estimated earnings in excess of billings on uncompleted contracts (including $3,928,847 and $3,574,939 from related parties) 3,948,847 3,900,879 Total current assets 14,175,485 10,925,992 Investments 2,958,397 2,388,999 Property and equipment: Land 5,481,311 4,236,309 Buildings 27,962,393 22,075,629 Furniture, fixtures and equipment 11,225,402 9,204,377 Construction in progress 1,290,588 662,159 Leasehold improvements 2,249,576 2,050,654 48,209,270 38,229,128 Less accumulated depreciation and amortization 7,697,241 5,404,102 40,512,029 32,825,026 Long-term notes receivable (including $1,787,755 and $1,450,616 from related parties) 3,208,332 2,863,580 Costs of management contracts acquired, net of accumulated amortization of $1,073,393 and $913,393 879,710 664,110 Other assets (including deferred taxes of $383,000), net of accumulated amortization of $1,887,356 and $1,451,715 2,966,200 2,785,595 7,054,242 6,313,285 $ 64,700,153 $ 52,453,302 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,040,201 $ 3,751,097 Bank line-of-credit 2,242,909 2,317,036 Accrued payroll and related expenses 866,499 688,648 Accrued real estate and other taxes 816,447 606,468 Other accrued expenses and current liabilities 1,036,379 666,352 Current portion of long-term debt 1,139,918 1,042,847 Income taxes payable 412,391 - Total current liabilities 11,554,744 9,072,448 Long-term debt, net of current portion 30,366,410 23,971,481 Deferred income 854,645 686,388 Commitments Minority interests 1,223,638 1,456,226 Shareholders' equity: Preferred stock, no par value; authorized 100,000 shares; none issued - - Common stock, $.005 par value; authorized 15,000,000 shares; issued 6,023,521 shares at September 30, 1996, and 5,977,213 shares at December 31, 1995 30,118 29,886 Additional paid-in capital 17,094,874 16,920,237 Retained earnings 4,968,891 1,709,803 22,093,883 18,659,926 Less: Stock subscriptions receivable (436,875) (436,875) Notes receivable (956,292) (956,292) 20,700,716 17,266,759 $ 64,700,153 $ 52,453,302 See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Revenue: Hotel operations: AmeriHost Inn hotels $ 2,876,756 $ 325,820 $ 6,370,553 $ 462,161 Other hotels 6,980,912 7,636,223 17,023,696 17,719,608 Development and construction 5,175,044 2,200,908 17,366,142 9,978,271 Management services 830,965 925,774 2,014,795 2,295,847 Employee leasing 3,445,429 3,437,391 8,996,227 9,514,220 19,309,106 14,526,116 51,771,413 39,970,107 Operating costs and expenses: Hotel operations: AmeriHost Inn hotels 1,452,075 235,108 3,514,603 298,282 Other hotels 4,424,247 4,718,380 12,093,802 12,065,237 Development and construction 4,370,118 1,294,928 14,681,704 8,130,754 Management services 547,773 565,900 1,416,808 1,531,478 Employee leasing 3,363,985 3,371,864 8,765,724 9,352,484 14,158,198 10,186,180 40,472,641 31,378,235 5,150,908 4,339,936 11,298,772 8,591,872 Depreciation and amortization 916,049 556,659 2,575,221 1,469,585 Leasehold rents - hotels 587,782 511,868 1,552,084 1,507,414 Corporate general and administrative 475,679 545,869 1,482,325 1,538,915 Operating income 3,171,398 2,725,540 5,689,142 4,075,958 Other income (expense): Interest expense (701,417) (474,712) (1,985,714) (1,144,439) Interest income 162,955 160,859 478,590 412,762 Other income 505 4,368 57,491 23,850 Gain on sale of land 129,833 - 534,089 - Equity in net income and losses of affiliates 838,850 310,426 875,240 223,549 Income before minority interests and income taxes 3,602,124 2,726,481 5,648,838 3,591,680 Minority interests in (income) loss of consolidated subsidiaries and partnerships (167,957) (170,603) (125,750) (148,124) Income before income tax 3,434,167 2,555,878 5,523,088 3,443,556 Income tax expense 1,407,000 992,000 2,264,000 1,319,000 Net income $ 2,027,167 $ 1,563,878 $ 3,259,088 $ 2,124,556 Earnings per share $ 0.30 $ 0.25 $ 0.48 $ 0.35 See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Nine Months Ended September 30, 1996 1995 Cash flows from operating activities: Cash received from customers $ 49,820,329 $ 39,234,882 Cash paid to suppliers and employees (41,971,677) (34,534,996) Interest received 230,395 389,934 Interest paid (1,935,589) (1,124,393) Income taxes paid (1,621,079) (974,994) Net cash provided by operating activities 4,522,379 2,990,433 Cash flows from investing activities: Distributions from affiliates 431,876 376,915 Purchase of property and equipment (8,384,989) (9,564,901) Purchase of investments (720,105) (225,050) Increase in notes receivable (3,312,644) (1,080,286) Collections on notes receivable 2,730,788 818,695 Pre-opening and management contract costs (375,600) (254,580) Sale of investments - 55,000 Sale of land 755,356 - Acquisition of leasehold interest (100,000) (5,000) Increase in organization costs - (1,797) Net cash used in investing activities (8,975,318) (9,881,004) Cash flows from financing activities: Proceeds from issuance of long-term debt 6,439,569 5,186,628 Increase in deferred offering costs (144,625) - Principal payments of long-term debt (1,133,133) (570,750) Proceeds from issuance of common stock 202,966 - Proceeds from line-of-credit 10,662,364 1,871,874 Payments on line-of-credit (10,736,491) (744,147) Distributions to minority interests (92,807) (124,810) Net cash provided from financing activities 5,197,843 5,618,795 Net increase (decrease) in cash 744,904 (1,271,776) Cash and cash equivalents, beginning of period 1,371,278 3,026,029 Cash and cash equivalents, end of period $ 2,116,182 $ 1,754,253 Reconciliation of net income to net cash provided by operating activities: Net income $ 3,259,088 $ 2,124,556 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,575,221 1,469,585 Equity in net loss (income) of affiliates before amortization of deferred income (811,697) (147,272) Minority interests in net income of subsidiaries 125,750 148,124 Amortization of deferred income (63,543) (76,277) Amortization of deferred interest (4,224) (4,226) Amortization of loan discount 34,044 34,045 Increase in deferred income 256,948 - Gain on sale of land (534,089) - Increase in deferred tax asset - (60,000) Compensation paid through issuance of common stock 29,676 213,991 Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable (2,217,445) (82,167) Increase in interest receivable (243,971) (18,602) (Increase) decrease in prepaid expenses and other current assets (161,300) 45,220 Increase in costs and estimated earnings in excess of billings on uncompleted contracts (47,968) (695,493) Increase in other assets (308,036) (373,313) Decrease in refundable income taxes 230,530 - Increase (decrease) in accounts payable 1,269,557 (372,156) Increase in accrued expenses and other current liabilities 705,366 394,411 Increase in accrued income taxes 412,391 404,006 Increase (decrease) in accrued interest 16,081 (13,999) Net cash provided by operating activities $ 4,522,379 $ 2,990,433 See notes to consolidated financial statements.
1. BASIS OF PREPARATION: The financial statements included herein have been prepared by the Company, without audit. In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments, which consist only of recurring adjustments necessary to present fairly the financial position of Amerihost Properties, Inc. and subsidiaries as of September 30, 1996 and December 31, 1995 and the results of its operations for the three and nine months ended September 30, 1996 and 1995 and cash flows for the nine months ended September 30, 1996 and 1995. The results of operations for the three and nine months ended September 30, 1996, are not necessarily indicative of the results to be expected for the full year. It is suggested that the accompanying financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 1995 Annual Report on Form 10-K. Certain reclassifications have been made to the 1995 financial statements in order to conform with the 1996 presentation. 2. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and partnerships in which the Company has a controlling ownership interest. Significant intercompany accounts and transactions have been eliminated. 3. INCOME TAXES: Deferred income taxes are provided on the differences in the bases of the Company's assets and liabilities determined for tax and financial reporting purposes. The income tax expense for the three and nine months ended September 30, 1996 and 1995 was based on the Company's estimate of the effective tax rate expected to be applicable for the full year. The Company expects the effective tax rate to approximate the Federal and state statutory rates. 4. EARNINGS PER SHARE: Earnings per share of common stock is computed by dividing adjusted net income by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. The weighted average number of shares used in the computations were 6,756,913 and 6,708,365 for the three and nine months ended September 30, 1996, and 6,307,471 and 6,060,496 for the three and nine months ended September 30, 1995, respectively. 5. SUPPLEMENTAL CASH FLOW DATA: The following represents the supplemental schedule of noncash investing and financing activities for the nine months ended September 30, 1996 and 1995: Nine Months Ended September 30, 1996 1995 Purchase of investments through issuance of common stock and decrease in notes and accrued interest receivable $143,929 $ 749,659 Reduction of accounts payable through issuance of common stock $ 233,351 During the first nine months of 1995, the Company acquired additional partnership interests in four hotels for 244,015 shares of the Company's common stock. During the first nine months of 1996, the Company acquired the remaining partnership interest in one hotel for $447,558. In conjunction with the acquisitions, liabilities were assumed as follows: 1996 1995 Fair value of assets acquired $ 1,656,095 $ 6,070,768 Cash paid or issuance of common stock (447,558) (818,345) Liabilities assumed $ 1,208,537 $ 5,252,423 Proforma financial information has not been given reflecting the acquisitions since it is not considered material to the overall financial statement presentation. 6. HOTEL LEASES: The Company, through its subsidiaries and consolidated partnerships, has leasehold interests ranging from 50.35% to 100% in nine hotels, the operations of which are included in the Company's consolidated financial statements. All of these leases provide for an option to purchase the hotel. Some of the purchase prices are based upon a multiple of gross room revenues for the preceding twelve months and the others are based upon a fixed amount, typically with annual increases based upon the change in the consumer price index. At September 30, 1996, the aggregate purchase price for these nine hotels was approximately $25,800,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is engaged in the development of AmeriHost Inn hotels, its proprietary brand, and the ownership, operation and management of AmeriHost Inn hotels and other mid-price hotels. As of September 30, 1996, there were 34 AmeriHost Inn hotels open, of which 12 were wholly-owned, one was majority owned, 19 were minority-owned, and two were managed for unrelated third parties. The Company intends to use primarily the AmeriHost Inn brand when expanding its hotel operations segment. All of the hotels currently under construction will be AmeriHost Inn hotels. As of September 30, 1996, 13 AmeriHost Inn hotels were under construction, of which four will be wholly-owned with the remainder being minority-owned. Same room revenues for all AmeriHost Inns increased approximately 14.4% in the third quarter of 1996 compared to the third quarter of 1995, attributable to an increase of $0.67 in average daily rate and a 13.1% increase in occupancy. Revenues from hotel operations consist of the revenues from all hotels in which the Company has a 100% or controlling ownership or leasehold interest ("Consolidated Hotels"). Investments in other entities in which the Company has a minority ownership interest are accounted for using the equity or cost method. As a result of the Company's focus on increasing the number of Consolidated Hotels, the Company expects that revenues from the hotel operations segment will increase over time as a percentage of the Company's overall revenues. Development and construction revenues consist of one-time fees for new construction, acquisition and renovation activities performed by the Company for minority-owned hotels and unrelated third parties. The Company also receives management services revenues for management services provided to minority-owned hotels and unrelated third parties. Employee leasing revenues consist of revenues the Company receives for leasing its employees to minority-owned hotels and unrelated third parties. All revenues attributable to development, construction, management and employee leasing services with respect to Consolidated Hotels have been eliminated in consolidation. The third quarter and first nine months of 1996 resulted in record revenues, net income, and EBITDA (as defined below). Revenues increased 32.9% and 29.5% to $19.3 million and $51.8 million during the three and nine months ended September 30, 1996, respectively, from $14.5 million and $40.0 million during the three and nine months ended September 30, 1995, due primarily to expanded hotel operations and significant hotel development and construction activity. Net income for the third quarter increased 29.6% to $2.0 million, or $0.30 per share in 1996, from $1.6 million, or $0.25 per share in 1995. Net income for the first nine months increased 53.4% to $3.3 million, or $0.48 per share in 1996, from $2.1 million, or $0.35 per share in 1995. The Company sold two parcels of excess land adjacent to Consolidated Hotels in 1996, including one parcel which was sold in the third quarter. The gains from the sale of these parcels, net of minority interests and income taxes, increased earnings per share by $0.01 and $0.04 for the three and nine months ended September 30, 1996, respectively. Operating income increased 16.4% and 39.6% to $3.2 million and $5.7 million during the three and nine months ended September 30, 1996, respectively, from $2.7 million and $4.1 million during the three and nine months ended September 30, 1995. The Company uses EBITDA as a supplemental performance measure along with net income to report its operating results. EBITDA is defined as net income, adjusted to eliminate the impact of (i) interest expense; (ii) leasehold rents for hotels, which the Company considers to be financing costs similar to interest; (iii) income tax expense (benefit), (iv) depreciation; and (v) amortization of intangibles. EBITDA should not be considered as an alternative to net income or cash flows from operating activities as a measure of liquidity. EBITDA for the third quarter of 1996 was $5.5 million, of which $4.9 million or 89.0% was generated by hotel operations and management, with the remainder generated from hotel development. This represents a 34.4% increase over the 1995 third quarter total EBITDA of $4.1 million. For the nine months ended September 30, 1996, EBITDA was $11.2 million, of which $9.1 million or 81.5% was generated by hotel operations and management, with the remainder generated from hotel development. This represents a 48.1% increase over the 1995 total nine month EBITDA of $7.6 million. An EBITDA schedule is included herein. Amerihost had an ownership interest in 60 hotels at September 30, 1996 versus 47 hotels at September 30, 1995 (excluding hotels under construction). This increased ownership was achieved primarily through the development of AmeriHost Inn hotels for the Company's own account and for minority-owned entities. These figures include an increase in Consolidated Hotels from 20 at September 30, 1995 to 28 at September 30, 1996. RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenues increased 32.9% and 29.5% to $19.3 million and $51.8 million during the three and nine months ended September 30, 1996, respectively, from revenues of $14.5 million and $40.0 million during the three and nine months ended September 30, 1995. These increases were due primarily to significant increases in the Company's hotel development and hotel operations segments. Hotel operations revenue increased 23.8% and 28.7% to $9.9 million and $23.4 million during the three and nine months ended September 30, 1996, respectively, as compared to $8.0 million and $18.2 million during the three and nine months ended September 30, 1995. This increase was primarily attributable to the addition of eight Consolidated Hotels to the hotel operations segment from October 1, 1995 through September 30, 1996. The Company held a minority ownership position in two of these eight hotels prior to them becoming Consolidated Hotels when additional ownership interests were acquired. The hotel operations segment included the operations of 28 Consolidated Hotels comprising 2,743 rooms at September 30, 1996, compared to 20 Consolidated Hotels comprising 2,231 rooms at September 30, 1995 or an increase of 22.9% in total rooms. After considering the Company's ownership interest in the majority-owned Consolidated Hotels, this translates to 2,370 and 1,880 equivalent owned rooms as of September 30, 1996 and 1995, respectively, or an increase of 26.1%. Hotel development revenue increased 135% and 74.0% to $5.2 million and $17.4 million during the three and nine months ended September 30, 1996, respectively, from $2.2 million and $10.0 million during the three and nine months ended September 30, 1995. These increases were due primarily to the significant increase in hotel construction activity performed for entities in which the Company holds a minority ownership interest. The Company was constructing 15 and 21 hotels for minority-owned entities or unrelated third parties during the third quarter and first nine months of 1996, compared to three and eight hotels during the three and nine months ended September 30, 1995, respectively. The Company also had several additional projects in various stages of pre- construction development during both nine month periods. Hotel management revenue decreased 10.2% and 12.2% to $830,965 and $2.0 million during the three and nine months ended September 30, 1996, respectively, from $925,774 and $2.3 million during the three and nine months ended September 30, 1995. The number of hotels managed for third parties and minority-owned entities increased from 37 hotels, representing 3,693 rooms, at September 30, 1995 to 43 hotels, representing 3,833 rooms, at September 30, 1996. The addition of management contracts for 12 newly constructed hotels (790 rooms) was partially offset by the termination of six management contracts (650 rooms) with minority-owned entities as a result of hotel sales or closing for renovation, or in two of the six cases, minority-owned hotels which became Consolidated Hotels due to the Company acquiring additional ownership interests in these hotels. Six of the 12 new management contracts were added throughout the third quarter of 1996, resulting in the recognition of management fee revenues for only a portion of the quarter. In addition, hotels which opened during the second and third quarters of 1996 were operating during their initial stabilization period when revenues are typically lower. The management contracts terminated, all of which were for hotels other than the AmeriHost Inn brand, were for larger hotels compared to the 12 hotels added during the twelve months ended September 30, 1996. Consequently, the decrease in management fee revenue from the terminated management contracts was greater than the revenues added from the 12 newly constructed hotels during the three and twelve month period. The Company does not recognize management fees from Consolidated Hotels. Employee leasing revenue remained stable at $3.4 million during the three months ended September 30, 1996 and 1995, while decreasing 5.4% to $9.0 million during the nine months ended September 30, 1996 from $9.5 million during the nine months ended September 30, 1995, as the timing of the twelve hotels added and the six management contracts terminated from October 1, 1995 through September 30, 1996 as discussed above, resulted in similar total payroll costs for the third quarter of 1996 compared to the third quarter of 1995 and lower payroll costs during the nine months ended September 30, 1996 compared to the same 1995 period. Total operating costs and expenses increased 39.0% and 29.0% to $14.2 million (73.3% of total revenues) and $40.5 million (78.2% of total revenue) during the three and nine months ended September 30, 1996, respectively, from $10.2 million (70.1% of total revenues) and $31.4 million (78.5% of total revenues) during the three and nine months ended September 30, 1995. Operating costs and expenses in the hotel operations segment increased 18.6% and 26.2% to $5.9 million and $15.6 million during the three and nine months ended September 30, 1996, respectively, from $5.0 million and $12.4 million during the three and nine months ended September 30, 1995, resulting primarily from the addition of eight Consolidated Hotels to this segment and are directly related to the 23.8% and 28.7% increase in segment revenue during the three and nine months ended September 30, 1996. Hotel operations segment operating costs and expenses as a percentage of segment revenue decreased to 59.6% and 66.7% during the three and nine months ended September 30, 1996, respectively, from 62.2% and 68.0% during the three and nine months ended September 30, 1995, due primarily to improvements in operating efficiency and the increase in newly constructed AmeriHost Inn hotels, whose operating costs are typically lower than the older, acquired hotels. Operating costs and expenses from hotels other than AmeriHost Inn hotels increased to 63.4% and 71.0% of hotel revenues during the three and nine months ended September 30, 1996 from 61.8% and 68.1% of hotel revenues during the three and nine months ended September 30, 1995, due primarily to the conversion of four Consolidated Hotels to AmeriHost Inn hotels and higher expenses associated with the severe weather conditions in the first quarter of 1996. Operating costs and expenses for the hotel development segment increased 237% and 80.6% to $4.4 million and $14.7 million during the three and nine months ended September 30, 1996, respectively, from $1.3 million and $8.1 million during the three and nine months ended September 30, 1995, consistent with the increase in hotel development revenues. Operating costs and expenses in the hotel development segment as a percentage of segment revenue increased to 84.4% and 84.5% during the three and nine months ended September 30, 1996, respectively, from 58.8% and 81.5% during the three and nine months ended September 30, 1995. The third quarter and first nine months of 1996 contained a significant level of construction activity which has higher operating costs than pre-construction development activity. The third quarter and first nine months of 1995 contained a relatively higher portion of pre-construction development activity which has lower associated operating costs. Hotel management segment operating costs and expenses decreased 3.2% and 7.5% to $547,773 and $1.4 million during the three and nine months ended September 30, 1996, respectively, from $565,900 and $1.5 million during the three and nine months ended September 30, 1995 due to an increase in capitalized pre-opening costs associated with new hotels and management contracts, and efficiencies achieved in the management of all hotels operated and/or managed. Employee leasing operating costs and expenses decreased 0.2% and 6.3% to $3.4 million and $8.8 million during the three and nine months ended September 30, 1996, respectively, from $3.4 million and $9.4 million during the three and nine months ended September 30, 1995, and are consistent with the stable segment revenue during the third quarter of 1996 compared to 1995 and 5.4% decrease in segment revenue during the nine month periods. Depreciation and amortization expense increased 64.6% and 75.2% to $916,049 and $2.6 million during the three and nine months ended September 30, 1996, respectively, from $556,659 and $1.5 million during the three and nine months ended September 30, 1995. This increase was primarily attributable to the addition of eight Consolidated Hotels to the hotel operations segment and the resulting depreciation and amortization therefrom. Leasehold rents - hotels increased 14.8% and 3.0% to $587,782 and $1.6 million during the three and nine months ended September 30, 1996, respectively, from $511,868 and $1.5 million during the three and nine months ended September 30, 1995. The increase during the third quarter of 1996 compared to the third quarter of 1995 was due primarily to the addition of one leased Consolidated Hotel to the hotel operations segment in the fourth quarter of 1995 (the Company had held a minority ownership position in this hotel prior to acquiring additional ownership interests which resulted in a majority ownership position). The smaller increase during the nine months ended September 30, 1996 compared to the same period in 1995 was also due primarily to the addition of the one leased Consolidated Hotel in the fourth quarter of 1995, partially offset by the termination of another leased Consolidated Hotel in the second quarter of 1995 as a result of the sale of the hotel. Corporate general and administrative expense decreased 12.9% and 3.7% to $475,679 and $1.5 million during the three and nine months ended September 30, 1996 and 1995, respectively, from $545,869 and $1.5 million during the three and nine months ended September 30, 1996 and 1995. The decreases were due primarily to operational efficiencies and the allocation of costs associated with increased hotel development activity. The Company's operating income increased $445,858 and $1.6 million, or 16.4% and 39.6%, to $3.2 million and $5.7 million during the three and nine months ended September 30, 1996, respectively, from $2.7 million and $4.1 million during the three and nine months ended September 30, 1995. Operating income from the hotel operations segment increased to $2.6 million and $4.0 million during the three and nine months ended September 30, 1996 from $2.0 million and $3.1 million during the three and nine months ended September 30, 1995, resulting primarily from the addition of eight Consolidated Hotels from October 1, 1995 to September 30, 1996. Operating income from the hotel development segment decreased to $787,799 during the third quarter of 1996 compared to $902,934 during the third quarter of 1995. Although more hotels were under construction during the third quarter of 1996, the Company recognized a greater portion of pre-construction development fees in the third quarter of 1995 which have significantly lower associated operating costs. Operating income from hotel development increased 43.2%, to $2.6 million during the nine months ended September 30, 1996 from $1.8 million during the nine months ended September 30, 1995, due to the increased level of hotel development and construction activity. The hotel management segment generated operating income of $211,644 and $409,187 during the three and nine months ended September 30, 1996 compared to $348,823 and $640,270 during the three and nine months ended September 30, 1995. These decreases were due primarily to the termination of six hotel management contracts with minority- owned entities and unrelated third parties during the twelve month period ended September 30, 1996 as well as the elimination of management fees from Consolidated Hotels. Employee leasing operating income increased slightly during the third quarter, to $79,869 in 1996 from $63,952 in 1995. During the nine month period, employee leasing operating income increased to $225,779 in 1996 from $157,012 in 1995. Interest expense was $701,417 and $2.0 million during the three and nine months ended September 30, 1996, respectively, as compared to $474,712 and $1.1 million during the three and nine months ended September 30, 1995. These increases are primarily attributable to the increase in mortgage financing for newly constructed Consolidated Hotels. The Company's share of equity in income (loss) of affiliates increased 170% and 292% to $838,850 and $875,240 during the three and nine months ended September 30, 1996, respectively, from $310,426 and $223,549 during the three and nine months ended September 30, 1995. The increases in equity in operations of affiliates are primarily due to the sale of two hotels in 1996 and the acquisition of additional ownership interests in two additional hotels causing them to become Consolidated Hotels, both of which had been accounted for by the equity method. Distributions from affiliates were $172,076 in the third quarter of 1996 compared to $172,753 in the third quarter of 1995. Distributions from affiliates increased to $431,876 during the nine months ended September 30, 1996, compared to $376,915 during the same period in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has four main sources of cash from operating activities: (i) revenues from hotel operations; (ii) fees from development, construction and renovation projects; (iii) fees from management contracts; and (iv) fees from employee leasing services. Cash from hotel operations is typically received at the time the guest checks out of the hotel. A portion of the Company's hotel operations revenues is generated through other businesses and contracts and are usually paid within 30 to 45 days from billing. Fees from development, construction and renovation projects are typically received within 15 to 45 days from billing. Due to the procedures in place for processing its construction draws, the Company typically does not pay its contractors until the Company receives its draw from the equity or lending source. Management fee revenues are typically received by the Company within five working days from the end of each month. Cash from the Company's employee leasing segment is typically received 24 to 48 hours prior to the pay date. During the first nine months of 1996, the Company received cash from operations of $4.5 million, compared to $3.0 million in the first nine months of 1995, or an increase in cash provided by operations of $1.5 million. The increase in cash flow from operations during the first nine months of 1996, when compared to 1995, can be attributed to the significant level of hotel ownership and operation activity as the number of Consolidated Hotels increased from 20 hotels at September 30, 1995 to 28 hotels and September 30, 1996. In addition, a significant number of projects were under construction during the first nine months of 1996 compared to the same period in 1995, including several which began construction in the fourth quarter of 1995 and completed in 1996, resulting in a significant amount of construction fees received during the first nine months of 1996. The Company invests cash in three principal areas: (i) the purchase of property and equipment through the construction and renovation of Consolidated Hotels; (ii) the purchase of equity interests in hotels; and (iii) loans to affiliated and non-affiliated hotels for the purpose of construction, renovation and working capital. During the first nine months of 1996, the Company used $9.0 million in investing activities compared to $9.9 million in the first nine months of 1995. During the first nine months of 1996, the Company used $8.4 million to purchase property and equipment for Consolidated Hotels, used $720,105 for the purchase of equity interests in hotels, used $581,856 for loans, net of loan collections, and received $755,356 from the sale of assets. During the first nine months of 1995, the Company used cash primarily for the purchase of $9.6 million in property and equipment for Consolidated Hotels, used $225,050 for the purchase of minority equity interests in hotels, and used $261,591 for loans, net of repayments from minority-owned hotels. In addition, the Company received distributions from investments in minority-owned hotels of $431,876 in the first nine months of 1996, compared to $376,915 in the first nine months of 1995. Cash received from financing activities was $5.2 million during the first nine months of 1996 compared to $5.6 million during the first nine months of 1995. In 1996, the primary factors were net proceeds of $5.3 million from the mortgage financing of Consolidated Hotels, net of principal repayments, and $74,127 in net reductions to the Company's operating line-of-credit. In 1995, the contributing factors were proceeds of $4.6 million from the mortgage financing of Consolidated Hotels, net of principal repayments, and net proceeds of $1.1 million from the Company's operating line-of-credit. At September 30, 1996, the Company had $2.2 million outstanding under its operating line-of-credit. The Company's line-of-credit was renewed and increased effective May 1, 1996 to $5,000,000. The operating line-of-credit (i) is collateralized by a security interest in certain of the Company's assets, including its interest in various joint ventures; (ii) bears interest at an annual rate equal to the lending bank's base rate plus 1/2% (with a minimum interest rate of 7.5%); and (iii) matures May 1, 1997. The same bank providing the operating line-of-credit also provides a $7.5 million line-of-credit to be used for construction financing on hotel projects, of which $5.0 million must be used on contracts which have firm commitments for permanent mortgage financing when the construction is completed. There was no balance outstanding on the construction line-of-credit at September 30, 1996. At September 30, 1996, the Company also had outstanding $2.25 million of its 7% Subordinated Notes which are unsecured obligations due October 9, 1999 and which pay interest quarterly. Pursuant to the terms of the 7% Subordinated Notes, no dividends may be paid on any capital stock of the Company until the 7% Subordinated Notes have been paid in full. At the Company's sole discretion, the 7% Subordinated Notes may be prepaid at any time without prepayment penalty. The Company expects cash from operations to be sufficient to pay all operating and interest expenses in 1996. SEASONALITY The lodging industry, in general, is seasonal in nature. The Company's hotel revenues are generally greater in the second and third calendar quarters than in the first and fourth quarters due to weather conditions in the markets in which the Company's hotels are located and general business and leisure travel trends. This seasonality can be expected to continue to cause quarterly fluctuations in the Company's revenues. Quarterly earnings may also be adversely affected by events beyond the Company's control such as extreme weather conditions, economic factors and other factors affecting travel. In addition, hotel construction is seasonal, depending upon the geographic location of the construction projects. Construction activity in the Midwest may be slower in the first and fourth calendar quarters due to weather conditions. INFLATION Management does not believe that inflation has had, or is expected to have, any significant adverse impact on the Company's financial condition or results of operations for the periods presented. IMPACT OF NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted this standard on January 1, 1996, the impact of which was not material. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 All statements contained herein that are not historical facts, including but not limited to, statements regarding the Company's hotels under construction and the operation of AmeriHost Inn hotels are based on current expectations. These statements are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: the availability of sufficient capital to finance the Company's business plan on terms satisfactory to the Company; competitive factors, such as the introduction of new hotels or renovation of existing hotels in the same markets; changes in travel patterns which could affect demand for the Company's hotels; changes in development and operating costs, including labor, construction, land, equipment, and capital costs; general business and economic conditions; and other risk factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and as such, speak only as of the date made. AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES SCHEDULE OF EARNINGS BEFORE INTEREST/RENT, TAXES AND DEPRECIATION/AMORTIZATION (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Revenue $ 19,309,106 $ 14,526,116 $ 51,771,413 $ 39,970,107 Operating costs and expenses 14,158,198 10,186,180 40,472,641 31,378,235 5,150,908 4,339,936 11,298,772 8,591,872 Corporate general and administrative (475,679) (545,869) (1,482,325) (1,538,915) Interest income 162,955 160,859 478,590 412,762 Other income (expense) 505 4,368 57,491 23,850 Equity in net income and losses of affiliates 838,850 310,426 875,240 223,549 Earnings before minority interests 5,677,539 4,269,720 11,227,768 7,713,118 Minority interests in earnings of consolidated subsidiaries and partnerships, excluding minority interest in gain on sale of land (167,957) (170,603) (26,707) (148,124) Earnings before interest/rent, taxes and depreciation/amortization $ 5,509,582 $ 4,099,117 $ 11,201,061 $ 7,564,994
PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders The annual shareholders' meeting was held August 29, 1996. Five matters were voted as follows: Matter 1: Election of directors Director For Against Abstain H. Andrew Torchia 4,142,082 3,280 17,945 Michael P. Holtz 4,073,732 71,630 17,945 Richard A. D'Onofrio 4,142,082 3,280 17,945 Russell J. Cerqua 4,141,082 4,280 17,945 Reno J. Bernardo 4,063,432 81,930 17,945 Salomon J. Dayan 4,126,372 18,990 17,945 Matter 2: Amendment of the Company's Certificate of Incorporation For Against Abstain Increase in number of shares of Common Stock authorized 3,514,441 637,718 11,148 Matter 3: Approval of the Amerihost Properties, Inc. 1996 Omnibus Incentive Stock Plan
Broker For Against Abstain Non Votes Approval of Plan 2,029,960 926,217 18,235 1,188,895
Matter 4: Approval of the Amerihost Properties, Inc. 1996 Stock Option Plan for Nonemployee Directors
Broker For Against Abstain Non Votes Approval of Plan 2,661,963 296,840 15,609 1,188,895
Matter 5: Ratification of Auditors For Against Abstain Retention of BDO Seidman, LLP 4,153,994 3,210 6,103 Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: Exhibit 27 - Financial Statement Schedule (b) Reports on Form 8-K: There were no reports on Form 8-K filed during this period covered by this report. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERIHOST PROPERTIES, INC. Registrant Date: November 12, 1996 By: /s/ Russell J. Cerqua Russell J. Cerqua Treasurer/Executive Vice President, Finance By: /s/ James B. Dale James B. Dale Corporate Controller EX-27 2
5 This schedule contains summary financial information extracted from Amerihost Properties, Inc.'s Form 10-Q and is qualified in its entirety by reference to such Form 10-Q filing. 9-MOS DEC-31-1996 SEP-30-1996 2,116,182 0 11,709,680 0 0 14,175,485 48,209,270 7,697,241 64,700,153 11,554,744 0 0 0 30,118 20,670,598 64,700,153 51,771,413 51,771,413 40,472,641 40,472,641 5,609,630 0 1,985,714 5,523,088 2,264,000 3,259,088 0 0 0 3,259,088 0.48 0.48
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