10-Q 1 0001.txt 10Q - JUNE 30, 2000 ================================================================================ 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 JUNE 30, 2000 --------------------- OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 0-15291 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.) 2355 S. ARLINGTON HEIGHTS ROAD, SUITE 400, ARLINGTON HEIGHTS, ILLINOIS 60005 ---------------------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 228-5400 -------------- 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 August 4, 2000, 4,979,244 shares of the Registrant's Common Stock were outstanding. ================================================================================ AMERIHOST PROPERTIES, INC. FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 INDEX PART I: Financial Information Page ----------------------------- ---- Item 1 - Financial Statements - Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 4 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 7 Notes to Consolidated Financial Statements 9 Item 2 - Management's Discussion and Analysis 13 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18 Schedule of Earnings Before Interest/Rent, Taxes and Depreciation/Amortization for the Six Months Ended June 30, 2000 and 1999 19 PART II: Other Information -------------------------- Item 4 - Submission of Matters to a Vote of Securities Holders 20 Item 6 - Exhibits and Reports on Form 8-K 20 Signatures 20 2 Part I: Financial Information Item 1: Financial Statements 3 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) =================================================================================================================
June 30, December 31, 2000 1999 -------------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 3,097,070 $ 3,766,323 Accounts receivable (including $1,370,372 and $213,911 from related parties) 3,989,003 2,480,039 Interest receivable 308,469 471,576 Notes receivable, current portion 518,485 518,485 Prepaid expenses and other current assets 846,803 971,836 Refundable income taxes 377,700 56,876 Costs and estimated earnings in excess of billings on uncompleted contracts with related parties 1,048,456 834,820 --------------- -------------- Total current assets 10,185,986 9,099,955 --------------- -------------- Investments in and advances to unconsolidated hotel joint ventures 7,176,899 7,332,806 --------------- -------------- Property and equipment: Land 10,231,416 8,786,189 Buildings 58,509,141 56,670,991 Furniture, fixtures and equipment 20,540,132 17,758,161 Construction in progress 821,214 1,062,888 Leasehold improvements 3,222,944 1,990,822 Assets held for sale - 7,967,318 --------------- -------------- 93,324,847 94,236,369 Less accumulated depreciation and amortization 17,023,525 15,466,013 --------------- -------------- 76,301,322 78,770,356 --------------- -------------- Notes receivable, less current portion 720,530 692,662 Deferred income taxes 3,779,000 4,327,000 Other assets, net of accumulated amortization of $835,770 and $755,547 2,758,507 2,885,388 --------------- -------------- 7,258,037 7,905,050 --------------- -------------- $ 100,922,244 $ 103,108,167 =============== ==============
4 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) =================================================================================================================
June 30, December 31, 2000 1999 --------------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,868,034 $ 2,623,390 Bank line-of-credit 7,626,096 7,560,214 Accrued payroll and related expenses 853,819 777,725 Accrued real estate and other taxes 2,329,071 2,260,048 Other accrued expenses and current liabilities 742,384 1,127,504 Current portion of long-term debt 1,518,033 1,567,643 --------------- -------------- Total current liabilities 16,937,437 15,916,524 --------------- -------------- Long-term debt, net of current portion 56,266,394 58,781,609 --------------- -------------- Deferred income 12,996,758 14,001,231 --------------- -------------- Commitments Minority interests 212,081 228,235 --------------- -------------- Shareholders' equity: Preferred stock, no par value; authorized 100,000 shares; none issued - - Common stock, $.005 par value; authorized 25,000,000 shares; issued and outstanding 4,979,244 shares at June 30, 2000 and 4,968,673 shares at December 31, 1999 24,896 24,843 Additional paid-in capital 13,077,324 13,050,069 Retained earnings 1,844,229 1,542,531 --------------- -------------- 14,946,449 14,617,443 Less: Stock subscriptions receivable (436,875) (436,875) --------------- -------------- 14,509,574 14,180,568 --------------- -------------- $ 100,922,244 $ 103,108,167 =============== ============== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ====================================================================
Three Months Ended June 30, Six Months Ended June 30, ------------------------------- -------------------------------- 2000 1999 2000 1999 ------------- -------------- -------------- --------------- Revenue: Hotel operations: AmeriHost Inn(R)hotels $ 13,346,621 $ 13,189,350 $ 23,758,124 $ 23,197,646 Other hotels 3,281,511 3,663,335 5,754,300 6,098,430 Development and construction 2,990,247 189,287 4,086,765 560,032 Management services 323,395 340,418 613,238 655,074 Employee leasing 1,643,580 1,626,861 3,072,451 3,217,016 Franchising 219,329 79,000 386,854 79,000 -------------- -------------- --------------- --------------- 21,804,683 19,088,251 37,671,732 33,807,198 -------------- -------------- --------------- --------------- Operating costs and expenses: Hotel operations: AmeriHost Inn(R)hotels 8,842,746 8,625,997 17,026,443 16,749,198 Other hotels 2,468,283 2,700,418 4,832,229 5,080,357 Development and construction 2,859,650 168,004 3,774,381 571,555 Management services 188,455 226,354 408,258 511,175 Employee leasing 1,630,607 1,613,840 3,027,587 3,133,933 Franchising 160,441 105,235 397,995 192,616 -------------- -------------- --------------- --------------- 16,150,182 13,439,848 29,466,893 26,238,834 -------------- -------------- --------------- --------------- 5,654,501 5,648,403 8,204,839 7,568,364 Depreciation and amortization 1,022,847 1,388,882 2,126,671 2,543,401 Leasehold rents - hotels 1,716,679 1,943,844 3,415,041 3,712,119 Corporate general and administrative 404,216 394,660 803,169 777,195 -------------- -------------- --------------- --------------- Operating income 2,510,759 1,921,017 1,859,958 535,649 Other income (expense): Interest expense (1,442,870) (1,617,993) (2,942,586) (3,171,580) Interest income 201,983 382,190 433,740 615,993 Other income 11,096 490,172 111,957 505,967 Gain on sale of property 840,257 - 1,011,836 - Equity in net income and losses of affiliates (57,140) 204,931 11,611 39,716 -------------- -------------- --------------- --------------- Income (loss) before minority interests and income taxes 2,064,085 1,380,317 486,516 (1,474,255) Minority interests in (income) loss of consolidated subsidiaries and partnerships (20,307) (51,608) (1,818) (90,027) -------------- -------------- --------------- --------------- Income (loss) before income taxes 2,043,778 1,328,709 484,698 (1,564,282) Income tax expense (benefit) 838,000 531,000 183,000 (597,000) -------------- -------------- --------------- --------------- Net income (loss) $ 1,205,778 $ 797,709 $ 301,698 $ (967,282) ============== ============== =============== =============== Net income (loss) per share - Basic $ 0.24 $ 0.14 $ 0.06 $ (0.16) Net income (loss) per share - Diluted $ 0.23 $ 0.13 $ 0.05 $ (0.16)
6 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (UNAUDITED) ====================================================================
2000 1999 ------------------ ---------------- Cash flows from operating activities: Cash received from customers $ 36,209,343 $ 34,598,891 Cash paid to suppliers and employees (33,192,522) (34,581,069) Interest received 594,030 541,586 Interest paid (3,020,809) (3,194,130) Income taxes received (paid) 44,176 (38,415) --------------- --------------- Net cash provided by (used in) operating activities 634,218 (2,673,137) --------------- --------------- Cash flows from investing activities: Distributions, and collections on advances, from affiliates 2,280,584 526,215 Purchase of property and equipment (4,067,133) (5,223,273) Purchase of investments in, and advances to, minority owned affiliates (2,122,277) (967,500) Acquisitions of partnership interests, net of cash acquired - 260,648 Collections on notes receivable 72,133 127,537 Proceeds from sale of assets 5,023,020 12,795,197 --------------- --------------- Net cash provided by investing activities 1,186,327 6,997,528 --------------- --------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 1,224,439 7,115,492 Principal payments on long-term debt (3,789,455) (9,429,852) Net proceeds from line of credit 65,882 2,149,182 Decrease in minority interest (17,972) (94,874) Common stock repurchases - (3,378,759) Other 27,308 - --------------- --------------- Net cash used in financing activities (2,489,798) (3,638,811) --------------- --------------- Net (decrease) increase in cash (699,253) 685,580 Cash and cash equivalents, beginning of year 3,766,323 4,493,834 --------------- --------------- Cash and cash equivalents, end of period $ 3,097,070 $ 5,179,414 =============== =============== (continued) 7 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (UNAUDITED) ==================================================================== 2000 1999 --------------- --------------- Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Net income (loss) $ 301,698 $ (967,282) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,126,671 2,543,401 Equity in net (income) loss of affiliates and amortization of deferred income (11,611) (42,531) Minority interests in net income of subsidiaries 1,818 90,027 Amortization of deferred interest and loan discount - 22,696 Amortization of deferred gain (755,994) (701,100) Deferred income taxes 548,000 (665,000) Gain on sale of investments, property and equipment (1,011,836) - Changes in assets and liabilities, net of effects of acquisition: (Increase) decrease in accounts receivable (1,508,964) 120,686 Decrease (increase) in prepaid expenses and other current assets 285,353 (46,838) Decrease in reserve on note receivable - (75,000) (Increase) decrease in refundable income taxes (320,824) 29,585 (Increase) decrease in costs and estimated earnings in excess of billings (213,636) 315,837 Decrease (increase) in other assets 23,107 (316,033) Increase (decrease) in accounts payable 1,244,644 (3,244,094) (Decrease) increase in accrued payroll and other accrued expenses and current liabilities (161,595) 383,552 Decrease in accrued interest (78,223) (45,246) Increase (decrease) in deferred income 165,640 (75,797) ------------- --------------- Net cash provided by (used in) operating activities $ 634,218 $ (2,673,137) ============= =============== See notes to consolidated financial statements.
8 AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ==================================================================== 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 June 30, 2000 and December 31, 1999 and the results of its operations and cash flows for the six months ended June 30, 2000 and 1999. The results of operations for the six months ended June 30, 2000 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 1999 Annual Report on Form 10-K. Certain reclassifications have been made to the 1999 financial statements in order to conform with the 2000 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 majority ownership interest. Significant intercompany accounts and transactions have been eliminated. 3. INCOME (LOSS) PER SHARE: ------------------------ The Company calculates earnings per share in accordance with Financial Accounting Standards Board ("FASB") Statement No. 128, "Earnings Per Share" (FAS 128). Basic earnings per share ("EPS") is calculated by dividing the income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. The Company excluded stock options which had an anti-dilution effect on the EPS computations. Diluted EPS gives effect to all dilutive potential common shares outstanding for the period. The following are the calculations of basic and diluted earnings per share:
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- --------------------------------- 2000 1999 2000 1999 -------------- --------------- --------------- -------------- Net income (loss) $ 1,205,778 $ 797,709 $ 301,698 $ (967,282) Impact of convertible partnership interests (15,894) (13,730) (49,226) (47,945) -------------- --------------- --------------- -------------- Net income (loss) available to common shareholders $ 1,189,884 $ 783,979 $ 252,472 $ (1,015,227) ============== =============== =============== =============== Weighted average common shares outstanding 4,974,984 5,846,627 4,973,658 5,947,294 Dilutive effect of convertible partnership interests and common stock equivalents 289,540 299,371 292,720 249,350 -------------- --------------- --------------- -------------- Dilutive common shares outstanding 5,264,524 6,145,998 5,266,378 6,196,644 ============== =============== =============== ============== Net income (loss) per share - Basic $ 0.24 $ 0.14 $ 0.06 $ (0.16) ============== =============== =============== ============= Net income (loss) per share - Diluted $ 0.23 $ 0.13 $ 0.05 $ (0.16) ============== =============== =============== =============
9 AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ==================================================================== 4. 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 and relate principally to depreciation of property and equipment and deferred income. The income tax expense (benefit) for the six months ended June 30, 2000 and 1999 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. 5. HOTEL LEASES: ------------- The Company leases 33 hotels as of June 30, 2000 (including 29 sale/leaseback hotels - Note 8), the operations of which are included in the Company's consolidated financial statements. All of these leases are triple net and provide for monthly base rent payments ranging from $14,000 to $26,667. The Company leases or subleases two of these hotels from partnerships in which the Company owns equity interests of up to 16.33%. These two leases also provide for additional rent payments ranging from approximately $37,000 to $74,000 per annum, plus percentage rents equal to 10% of room revenues in excess of stipulated amounts. The leases and sub-leases expire through March 23, 2009, except for the two leases from partnerships in which the Company owns an equity interest which expired December 31, 1999. The Company is continuing to operate these hotels under the same terms as provided in the original lease. The four leases, other than the sale/leaseback hotels, 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 with a specified maximum, and the others are based on a fixed amount. At June 30, 2000, the aggregate purchase price for these leased hotels was approximately $14,030,000. 6. LIMITED PARTNERSHIP GUARANTEED DISTRIBUTIONS: --------------------------------------------- The Company is a general partner in three partnerships where the Company has guaranteed minimum annual distributions to the limited partners in the amount of 10% of their original capital contributions. 7. INVESTMENTS: ------------ Effective January 1, 1999, the Company acquired the remaining ownership interest in one hotel joint venture. The following is a summary of this acquisition:
Fair value of assets acquired $ 1,916,070 Cash acquired (260,648) -------------- Liabilities assumed $ 1,655,423 ==============
8. SALE/LEASEBACK OF HOTELS: ------------------------- On June 30, 1998, the Company completed the sale of 26 AmeriHost Inn(R) hotels to a Real Estate Investment Trust ("REIT") for $62.2 million. The company completed the sale of four additional AmeriHost Inn(R) hotels to the same REIT during March 1999 for $10.8 million. Upon the sales to the REIT, the Company entered into agreements to lease back the hotels for an initial term of ten years, with two five year renewal options. The lease payments are fixed at 10% of the sale price for the first three years. Thereafter, the lease payments are subject to a CPI increase with a 2% annual maximum. The Company has deferred the gain on the sale of these hotels pursuant to sale/leaseback accounting. This deferral will be recognized over the initial term of the lease as a reduction of leasehold rent expense. On June 16, 2000, one hotel owned by the REIT was sold. Accordingly, the lease with the REIT for this hotel was terminated. The remaining unamortized gain of approximately $402,000 was recognized as a gain on sale of property in the accompanying financial statements. 10 AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ==================================================================== 9. BUSINESS SEGMENTS: ------------------ The Company's business is primarily involved in five segments: (1) hotel operations, consisting of the operations of all hotels in which the Company has a 100% or majority ownership or leasehold interest, (2) hotel development, consisting of development, construction and renovation activities, as well as the sale of newly constructed hotels held for sale, (3) hotel management, consisting of hotel management activities and (4) employee leasing, consisting of the leasing of employees to various hotels, and (5) AmeriHost Inn(R) hotel franchising. Results of operations of the Company's business segments are reported in the consolidated statements of operations. The following represents revenues, operating costs and expenses, operating income, identifiable assets, capital expenditures and depreciation and amortization for the six months ended June 30, 2000 and 1999, for each business segment, which is the information utilized by the Company's decision makers in managing the business:
Revenues 2000 1999 -------- --------------- -------------- Hotel operations $ 29,512,424 $ 29,296,076 Hotel development 4,086,765 560,032 Hotel management 613,238 655,074 Employee leasing 3,072,451 3,217,016 Hotel franchising 386,854 79,000 -------------- -------------- $ 37,671,732 $ 33,807,198 ============== ============= Operating costs and expenses ---------------------------- Hotel operations $ 21,858,672 $ 21,829,555 Hotel development 3,774,381 571,555 Hotel management 408,258 511,175 Employee leasing 3,027,587 3,133,933 Hotel franchising 397,995 192,616 -------------- ------------- $ 29,466,893 $ 26,238,834 ============== ============= Operating income ---------------- Hotel operations $ 2,155,315 $ 1,280,699 Hotel development 302,871 (24,601) Hotel management 181,300 121,818 Employee leasing 43,706 81,078 Hotel franchising (14,075) (113,616) Corporate (809,159) (809,729) -------------- ------------- $ 1,859,958 $ 535,649 ============== ============= Identifiable assets ------------------- Hotel operations $ 91,591,369 $ 101,605,819 Hotel development 2,371,539 576,480 Hotel management 149,742 630,718 Employee leasing 978,064 710,875 Hotel franchising 119,390 155,198 Corporate 5,712,140 7,447,225 --------------- ------------- $ 100,922,244 $ 111,126,315 ============== =============
11 AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 ==================================================================== 9. BUSINESS SEGMENTS (CONTINUED): ------------------------------
Capital Expenditures 2000 1999 -------------------- -------------- -------------- Hotel operations $ 3,901,214 $ 5,279,232 Hotel development 7,942 144 Hotel management 28,875 51,017 Employee leasing - - Hotel franchising 21,839 6,598 Corporate 107,263 17,913 --------------- ------------- $ 4,067,133 $ 5,354,904 ============== ============= Depreciation/Amortization ------------------------- Hotel operations $ 2,083,396 $ 2,473,703 Hotel development 9,513 13,078 Hotel management 23,680 22,080 Employee leasing 1,158 2,006 Hotel franchising 2,934 - Corporate 5,990 32,534 --------------- ------------- $ 2,126,671 $ 2,543,401 ============== =============
10. SUPPLEMENTAL CASH FLOW DATA: ----------------------------- The following represents the supplemental schedule of noncash and financing activities for the period ended June 30, 2000: Notes receivable from sale of hotel $ 100,000 ========= 12 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(R) hotels, its proprietary brand, and the ownership, operation and management of AmeriHost Inn(R) hotels and other mid-price hotels. As of June 30, 2000, there were 77 AmeriHost Inn(R) hotels open, of which 58 were wholly-owned or leased, one was majority-owned, 10 were minority-owned, and eight were owned and operated by franchisees. A total of six AmeriHost Inn(R) hotels were opened during the past eighteen months. The Company intends to use the AmeriHost Inn(R) brand when expanding its hotel operations segment. As of June 30, 2000, one wholly-owned AmeriHost Inn(R) hotel and four minority-owned AmeriHost Inn(R) hotels were under construction. Same room revenues for all AmeriHost Inn(R) hotels (including minority owned and franchised) increased approximately 8.5% and 8.1% during the second quarter and first six months of 2000, compared to the second quarter and first six months of 1999, respectively, attributable to a decrease of $0.14 and an increase of $0.36 in average daily rate, and a 8.9% and 6.9% increase in occupancy, respectively. These results relate to the 77AmeriHost Inn(R) hotels that were operating for at least thirteen full months during the three and six months ended June 30, 2000. Revenues from hotel operations consist of the revenues from all hotels in which the Company has a 100% or majority 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 method. Development and construction revenues consist of one-time fees for new construction and renovation activities performed by the Company for minority-owned hotels and unrelated third parties. The Company also receives revenue from management and employee leasing services provided to minority-owned hotels and unrelated third parties. Revenues from Consolidated AmeriHost Inn(R) hotels increased 1.2% and 2.4% to $13.3 and $23.8 million during the second quarter and first six months of 2000, from revenues of $13.2 and $23.2 million during the second quarter and first six months of 1999, due primarily to an increase in same room revenues, offset by the sale of hotels to franchisees. Combined revenues from the hotel management and employee leasing segments were flat during the second quarter of 2000 compared to the second quarter of 1999, and decreased by 4.8% during the first six months of 2000, due primarily to the sale of hotels under management contracts. Revenues from Consolidated non-AmeriHost Inn(R) hotels decreased 10.4% and 5.6% during the second quarter and first six months of 2000, compared to 1999, as a result of the sale of two non-AmeriHost Inn(R) hotels offset by the renovation of one Consolidated non-AmeriHost Inn(R) hotel and the increased occupancy therefrom. Total revenues increased 14.2% and 11.4% to $21.8 and $37.7 million during the second quarter and first six months of 2000, from $19.1 and $33.8 million during the second quarter and first six months of 1999. The Company recorded a net income of $1.2 million and $301,698 for the second quarter and first six months of 2000, or $0.23 and $0.05 per diluted share, compared to a net income of $797,709 and a net loss of $(967,282) for the second quarter and first six months of 1999, or $0.13 and ($0.16) per diluted share in 1999. In 1999, the Company began to franchise the AmeriHost Inn(R) brand name. Currently, the Company is qualified to sell AmeriHost Inn(R) franchises in all states, Canada and Mexico. To date, the Company has entered into 30 AmeriHost Inn(R) franchise agreements. However, the Company does not anticipate the franchising activity to have a significant impact on the operations of the Company in 2000, and there can be no assurance that the Company will be successful in selling AmeriHost Inn(R) franchises in the future. The results for the first six months of 2000 were consistent with the Company's primary objective of increasing the number of franchised AmeriHost Inn(R) hotels, including the sale of five AmeriHost Inn(R) hotels owned or operated by the Company to franchisees. The Company uses EBITDAR as a supplemental performance measure, along with net income, to report its operating results. EBITDAR is defined as net income before extraordinary items, adjusted to eliminate the impact of (i) interest expense; (ii) interest and other income; (iii) leasehold rents for hotels, which the Company considers to be financing costs similar to interest; (iv) income tax expense (benefit), (v) depreciation and amortization; and (vi) gains or losses from property transactions. EBITDAR should not be considered as an alternative to operating income (as determined in accordance with Generally Accepted Accounting Principles, "GAAP") as an indicator of the Company's operating performance or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. EBITDAR, as defined by the Company, is included herein due to numerous requests by investors and analysts. Management believes that investors and analysts find it to be a useful tool for measuring the Company's ability to service debt. EBITDAR decreased 4.3% and increased 9.9% to $5.2 and $7.4 million during the second quarter and six months 13 ended June 30, 2000, respectively, from $5.4 and $6.7 million during the second quarter and six months ended June 30, 1999. An EBITDAR schedule is included herein. Amerihost had an ownership interest in 79 hotels at June 30, 2000 versus 89 hotels at June 30, 1999 (excluding hotels under construction). The decreased ownership of AmeriHost Inn(R) hotels for the Company's own account and for minority-owned entities was due to the sale of AmeriHost Inn(R) hotels to franchisees and non-AmeriHost Inn(R) hotels to unrelated third parties. These figures include a net decrease of eight Consolidated hotels, from 74 at June 30, 1999 to 66 at June 30, 2000. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 Revenues increased 14.2% and 11.4% to $21.8 million and $37.7 million during the three and six months ended June 30, 2000, respectively, from $19.1 million and $33.8 million during the three and six months ended June 30, 1999. The increase in revenue was primarily due to an increase in hotel development revenues. Hotel operations revenue decreased 1.3% and increased 0.7% to $16.6 million and $29.5 million during the three and six months ended June 30, 2000 respectively, from $16.9 million and $29.3 million during the three and six months ended June 30, 1999. Revenues from Consolidated AmeriHost Inn(R) hotels increased 1.2% and 2.4% to $13.3 million and $23.8 million during the three and six months ended June 30, 2000, respectively, from $13.2 million and $23.2 million during the three and six months ended June 30, 1999. These changes were attributable primarily to an increase in same room revenues, offset by the sale of eight Consolidated AmeriHost Inn(R) hotels. The change in Consolidated AmeriHost Inn(R) hotel revenue was offset by a 10.4% and 5.6% decrease in Consolidated other brand hotel revenue during the three and six month periods, respectively. This decrease was primarily the result of the sale of two non-AmeriHost Inn(R) Consolidated hotels. The hotel operations segment included the operations of 66 Consolidated hotels (including 59 AmeriHost Inn(R) hotels) comprising 4,686 rooms at June 30, 2000, compared to 74 Consolidated hotels (including 65 AmeriHost Inn(R) hotels) comprising 5,220 rooms at June 30, 1999. After considering the Company's ownership interest in the majority-owned Consolidated hotels, this translates to 4,443 and 4,951 equivalent owned rooms as of June 30, 2000 and 1999, respectively, or a decrease of 10.3%. Recently, the Company has experienced an increase in competition in certain markets, primarily from newly constructed hotels. As a result, there is increased downward pressure on occupancy levels and average daily rates. The Company believes that as the number of AmeriHost Inn(R) hotels increases, the greater the benefits will be at all locations from marketplace recognition and repeat business. In addition, the Company typically builds new hotels in growing markets where it anticipates a certain level of additional hotel development. Hotel development revenue increased 1,479.7% and 629.7% to $3.0 million and $4.1 million during the three and six months ended June 30, 2000, respectively, from $189,287 and $560,032 during the three and six months ended June 30, 1999. The Company was not constructing any hotels for minority-owned entities or unrelated third parties during the second quarter of 1999, compared to four hotels during the three months ended June 30, 2000. However, the Company also had several additional projects in various stages of pre-construction development during both six-month periods. Hotel management revenue decreased 5.0% and 6.4% to $323,395 and $613,238 during the three and six months ended June 30, 2000, respectively, from $340,418 and $655,074 during the three and six months ended June 30, 1999. The number of hotels managed for third parties and minority-owned entities decreased from 18 hotels, representing 1,696 rooms, at June 30, 1999 to 16 hotels, representing 1,574 rooms, at June 30, 2000. The decrease in revenue is primarily due to a 7.2% reduction in rooms under contract partially offset by increases in same room revenues of those hotels. Employee leasing revenue increased 1.0% and decreased 4.5% to $1.6 million and $3.0 million during the three and six months ended June 30, 2000, respectively, from $1.6 million and $3.2 million during the three and six months ended June 30, 1999, due primarily to the reduction in hotels managed for minority-owned entities and unrelated third parties as described above offset by increases in payroll costs which is the basis for the employee leasing revenue. Franchising revenue increased 177.6% and 389.7% to $219,329 and $386,854 during the three and six months ended June 30, 2000, respectively, from $79,000 in revenues during the three and six months ended June 30, 1999, due primarily to 2000 being the first full year of operations for this segment. Total operating costs and expenses increased 20.2% and 12.3% to $16.1 million (74.1% of total revenues) and $29.5 million (78.2% of total revenues) during the three and six months ended June 30, 2000, respectively, from $13.4 million 14 (70.4% of total revenues) and $26.2 million (77.6% of total revenues) during the three and six months ended June 30, 1999 primarily due operating costs and expenses from the development segment as described below. Operating costs and expenses in the hotel operations segment remained essentially flat as anticipated inflationary increases were offset by the reduction in the number of Consolidated hotels. Hotel operations segment operating costs and expenses as a percentage of segment revenue increased to 68.0% during the three months ended June 30, 2000, from 67.2% during the three months ended June 30, 1999, due primarily to increased labor costs in certain markets. Hotel operations segment operating costs and expenses as a percentage of segment revenue decreased to 74.1% during the six months ended June 30, 2000, from 74.5% during the six months ended June 30, 1999. Operating costs and expenses as a percentage of revenues for the Consolidated AmeriHost Inn(R) hotels changed only slightly during both the three and six month periods ended June 30, 2000. Operating costs and expenses for the hotel development segment increased 1,602.1% to $2.9 million during the three months ended June 30, 2000, from $168,004 during the three months ended June 30, 1999, consistent with the 1,479.7% increase in hotel development revenues for the three months ended June 30, 2000. Operating costs and expenses for the hotel development segment increased 560.4% to $3.8 million during the six months ended June 30, 2000, from $571,555 during the six months ended June 30, 1999, consistent with the 629.7% increase in hotel development revenues for the six months ended June 30, 2000. Operating costs and expenses in the hotel development segment as a percentage of segment revenue increased to 95.6% during the three months ended June 30, 1999, from 88.8% during the three months ended June 30, 1999. The second quarter of 1999 consisted primarily of hotel pre-construction development activity, which results in a lower percentage of operating costs compared to construction activity. The second quarter of 2000 consisted of a greater amount of construction activity, which resulted in higher operating costs in relation to the revenue recognized. Operating costs and expenses in the hotel development segment as a percentage of segment revenue decreased to 92.4% during the six months ended June 30, 2000, from 102.1% during the six months ended June 30, 1999, as a result of the increased hotel development and construction activity. Hotel management segment operating costs and expenses decreased 16.7% and 20.1% to $188,455 and $408,258 during the three and six months ended June 30, 2000, respectively, from $226,354 and $511,175 during the three and six months ended June 30, 1999. This decrease was primarily due to the decrease in the number of hotels operated and managed for unrelated third parties and minority-owned entities. Employee leasing operating costs and expenses increased 1.0% and decreased 3.4% to $1.6 million and $3.0 million during the three and six months ended June 30, 2000, respectively, from $1.6 million and $3.1 million during the three and six months ended June 30, 1999, which is consistent with the 1.0% increase and 4.5% decrease in segment revenue for the three and six months ended June 30, 2000. Franchising segment operating costs and expenses increased 52.5% and 106.6% to $160,441 and $397,995 during the three and six months ended June 30, 2000, respectively, from $105,235 and $192,616 during the three and six months ended June 30, 1999, which was the initial six months of operations. Depreciation and amortization expense decreased 26.4% and 16.4% to $1.0 million and $2.1 million during the three and six months ended June 30, 2000, respectively, from $1.4 million and $2.5 million during the three and six months ended June 30, 1999. The decrease was primarily attributable to the sale of nine consolidated hotels that closed in 1999 and the first six months of 2000, partially offset by the net addition of six Consolidated hotels to the hotel operations segment opened during 1999, and the resulting depreciation and amortization therefrom. Leasehold rents - hotels decreased 11.7% and 8.0% to $1.7 million and $3.4 million during the three and six months ended June 30, 2000, respectively, compared to $1.9 million and $3.7 million during the three and six months ended June 30, 1999. The decrease was primarily attributable to the termination of two leased hotels as a result of the lessor selling these hotels during the past twelve months. Corporate general and administrative expense increased 2.4% and 3.3% to $404,216 and $803,169 during the three and six months ended June 30, 2000, respectively, from $394,660 and $777,195 during the three and six months ended June 30, 1999, and can be attributed primarily to the overall growth of the Company. The Company's operating income increased 30.7% and 247.2% to $2.5 million and $1.9 million during the three and six months ended June 30, 2000, respectively, from $1.9 million and $535,649 during the three and six months ended June 30, 1999. The following discussion of operating income by segment is exclusive of any corporate general and administrative expense. Operating income from Consolidated AmeriHost Inn(R) hotels increased 16.4% and 38.7% to $2.3 million and $2.2 million during the three and six months ended June 30, 1999, respectively, from $1.9 million and $1.6 million during the three and six months ended June 30, 1999. These increases in operating income were due to the increase in same room revenues as a significant number of recently opened Consolidated AmeriHost Inn(R) hotels were still operating in 1999 during their 15 pre-stabilization period when revenues are typically lower. Operating income from the hotel development segment increased to $125,840 during the three months ended June 30, 2000, from $14,744 during the three months ended June 30, 1999 and increased to $302,870 during the first six months of 2000 from ($24,601) during the first six months of 1999. The fluctuations in hotel development operating income were due to the timing of hotels developed and constructed for third parties and minority-owned entities during the second quarter and first six months of 2000, compared with the second quarter and first six months of 1999, and the overall increase in the number of hotels developed and constructed for third parties and minority-owned entities during 2000. The hotel management segment had operating income of $123,101 and $181,300 during the three and six months ended June 30, 2000, from operating income of $103,023 and $121,818 during the three and six months ended June 30, 1999. This increase was due primarily to a reduction in general and administrative costs for the management segment partially offset by fewer hotels managed during the past twelve months for unrelated third parties and minority-owned properties. Employee leasing operating income increased 4.0% and decreased 46% to $12,394 and $43,706 during the three and six months ended June 30, 2000, respectively, from $11,916 and $81,077 during the three and six months ended June 30, 1999, due primarily to the decrease in employee leasing agreements with minority-owned entities and unrelated third parties. Interest expense decreased 10.8% and 7.2% to $1.4 million and $2.9 million during the three and six months ended June 30, 2000, respectively, from $1.6 million and $3.2 million during the three and six months ended June 30, 1999. This decrease was primarily attributable to the aforementioned sales of hotels whereby the Company does not incur any interest expense on the sold hotels after the sale dates, partially offset by the mortgage financing of newly constructed Consolidated hotels. The Company's share of equity in income (loss) of affiliates decreased to ($57,140) during the three months ended June 30, 2000, from $204,431 during the three months ended June 30, 1999. The Company's share of equity in income (loss) of affiliates decreased 70.8% to $11,611 during the six months ended June 30, 2000, from $39,716 during the six months ended June 30, 1999. The decrease in equity of affiliates during the second quarter and first six months of 2000 was primarily attributable to the sale of one minority-owned property in the second quarter of 1999 at a significant gain. Distributions from affiliates were $282,389 during the six months ended June 30, 2000, compared to $126,756 during the six months ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company has five main sources of cash from operating activities: (i) revenues from hotel operations; (ii) fees from development, construction and renovation projects including the sale of hotel assets held for sale; (iii) fees from management contracts; (iv) fees from employee leasing services; and (v) fees from franchisees. Cash from hotel operations is typically received at the time the guest checks out of the hotel. Approximately 10% of the Company's hotel operations revenues is generated through other businesses and contracts and is 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 typically are received by the Company within five working days from the end of each month. Cash from the Company's employee leasing segment typically is received 24 to 48 hours prior to the pay date. Franchise fees consist of up-front fees that are received at the time of receiving the franchise application or at the time of signing the franchise agreement and franchise royalty fees are typically received 10 to 30 days from billing. During the first six months of 2000, the Company provided cash from operations of $634,218, compared to cash used in operations of $2.7 million during the first six months of 1999, or an increase in cash provided by operations of $3.3 million. The increase in cash flow from operations during the first six months of 2000, when compared to 1999, can be attributed to the increasing stability of Consolidated hotels as a greater number began to emerge from the pre-stabilization period, and increase in cash flow from the hotel development. The first six months of 1999 had significantly less revenue from the development and construction of hotels for minority-owned entities. 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) the making of loans to affiliated and non-affiliated hotels for the purpose of construction, renovation and working capital. During the first six months of 2000, the Company received $1.2 million from investing activities compared to receiving $7.0 million during the first six months of 1999. During the first six months of 2000, the Company received $5.0 million from the sale of three hotels, used $4.1 million to purchase property and equipment for Consolidated AmeriHost Inn(R) hotels, and provided $158,307 from distributions and collections from affiliates, net of investments in and advances to affiliates. During the first six months of 1999, the Company received $12.8 million from the sale of hotels, 16 used $5.2 million to purchase property and equipment for Consolidated AmeriHost Inn(R) hotels, used $441,285 for investments in and advances to affiliates, net of distributions and collections, and used $260,648 for the acquisition of hotel partnership interests, net of cash acquired. Cash used in financing activities was $2.5 million during the first six months of 2000 compared to cash used by financing activities of $3.6 million during the first six months of 1999. In 2000, the primary factors were principal repayments of $3.8 million, including the repayment of mortgages in connection with the sale of hotels, offset by $1.2 million in proceeds from the mortgage financing of Consolidated hotels, and net proceeds of $65,882 on the Company's operating line-of-credit. In 1999, the contributing factors were principal repayments of $2.3 million on the mortgage financing of Consolidated hotels, net of proceeds from the issuance of long-term debt, $2.1 million in net proceeds from the Company's operating line-of-credit and common stock repurchases of $3.4 million. At June 30, 2000, the Company had $7.6 million outstanding under its operating line-of-credit. The operating line-of-credit (i) has a limit of $8.5 million; (ii) is collateralized by a security interest in certain of the Company's assets, including its interest in various joint ventures; (iii) 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 (iv) matures August 15, 2000. The lender has indicated the line-of-credit will be extended for an additional one-year period. The Company expects cash from operations to be sufficient to pay all operating and interest expenses in 2000. YEAR 2000 The following disclosure is a Year 2000 readiness disclosure statement pursuant to the Year 2000 Readiness Disclosure Act. In order to minimize or eliminate the effect of the Year 2000 risk on our business systems and applications, we identified, evaluated, implemented and tested changes to our computer systems, applications and software necessary to achieve Year 2000 compliance. Our computer systems and equipment successfully transitioned to the Year 2000 with no significant issues. Costs incurred to achieve Year 2000 compliance were not material. We continue to keep our Year 2000 project management in place to monitor latent problems that could surface at key dates or events in the future. We do not anticipate any significant problems related to these events. SEASONALITY The lodging industry, in general, is seasonal by 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, as well as general business and leisure travel trends. This seasonality can be expected to continue to cause quarterly fluctuations in the Company's revenues, and is expected to have a greater impact as the number of Consolidated hotels increases. Quarterly earnings may also be adversely affected by events beyond the Company's control, such as extreme weather conditions, economic factors and other general 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. 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(R) 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 17 are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -------- The Company's exposure to market risk for changes in interest rates relates primarily to the Company's long-term debt obligations. The Company has some cash flow exposure on its long-term debt obligations to changes in market interest rates. The Company primarily enters into long-term debt obligations in connection with the development and financing of hotels. The Company maintains a mix of fixed and floating debt to mitigate its exposure to interest rate fluctuations. The Company's management believes that fluctuations in interest rates in the near term would not materially affect the Company's consolidated operating results, financial position or cash flows as the Company has limited risks related to interest rate fluctuations. 18 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES SCHEDULE OF EARNINGS BEFORE INTEREST/RENT, TAXES AND DEPRECIATION/AMORTIZATION (UNAUDITED) ====================================================================
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- --------------------------------- 2000 1999 2000 1999 -------------- -------------- --------------- -------------- Revenue $ 21,804,683 $ 19,088,251 $ 37,671,732 $ 33,807,198 Operating costs and expenses 16,150,182 13,439,848 29,466,893 26,238,834 -------------- -------------- --------------- -------------- 5,654,501 5,648,403 8,204,839 7,568,364 Corporate general and administrative (404,216) (394,660) (803,169) (777,195) Equity in net income and losses of affiliates (57,140) 204,931 11,611 39,716 -------------- -------------- --------------- -------------- Earnings before minority interests 5,193,145 5,458,674 7,413,281 6,830,885 Minority interests in earnings of consolidated subsidiaries and partnerships (20,307) (51,608) (1,818) (90,027) -------------- -------------- --------------- -------------- Earnings before interest/rent, taxes and depreciation/amortization $ 5,172,838 $ 5,407,066 $ 7,411,463 $ 6,740,858 ============== =============== =============== ==============
19 PART II: Other Information Item 4. Submission of Matters to a Vote of Securities Holders: ------- The annual shareholders' meeting was held on June 1, 2000. One matter was voted as follows: Matter 1: Election of Directors
Director For Against Abstain -------- --- ------- ------- Michael P. Holtz 3,606,461 1,589 343,448 Russell J. Cerqua 3,607,786 264 343,448 Reno J. Bernardo 3,607,677 373 343,448 Salomon J. Dayan 3,607,902 148 343,448 Jon K. Haahr 3,607,902 148 343,448 Thomas J. Romano 3,607,902 148 343,448
Item 6. Exhibits and Reports on Form 8-K: ------- (a) Exhibits: Exhibit No. ----------- 27.0 Financial Data 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: August 4, 2000 By: /s/ James B. Dale ---------------------------------------- James B. Dale Treasurer/Senior Vice President, Finance By: /s/ Michael E. Kirk ---------------------------------------- Michael E. Kirk Corporate Controller 20