-----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, B0I7c80dguFA+FUVQYWXlBgj6u/Dgj/GU1qsy6VUSLy6wD0ZwWzH9dRU+L42ZahR OE6mX4aMoanPNpKOqh88mg== 0000914760-97-000196.txt : 19971114 0000914760-97-000196.hdr.sgml : 19971114 ACCESSION NUMBER: 0000914760-97-000196 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIHOST PROPERTIES INC CENTRAL INDEX KEY: 0000778423 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363312434 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-15291 FILM NUMBER: 97714861 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-K405/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A-1 [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1996 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.) 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 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of Each Class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.005 per share (Title of class) 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 _ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _ While it is difficult to determine the number of shares owned by non-affiliates (within the meaning of the term under the applicable regulations of the Securities and Exchange Commission), the registrant estimates that the aggregate market value of the registrant's Common Stock held by non-affiliates on March 24, 1997 (based upon an estimate that 86% of the shares are so owned by non- affiliates and upon the closing price of the Common Stock of $7.8) was $39,981,752. As of March 24, 1997, 6,292,197 shares of the Registrant's Common Stock were outstanding. The following documents are incorporated into this Form 10-K by reference: None PART I Item 1. Business. General Amerihost Properties, Inc. and its subsidiaries (collectively, where appropriate, "Amerihost," or the "Company") is engaged in the development and construction of AmeriHost Inn hotels, its proprietary hotel brand, and the ownership, operation and management of both AmeriHost Inn hotels and other hotels. The AmeriHost Inn brand was created by the Company to provide for the consistent, cost-effective development and operation of mid-price hotels in various markets. All AmeriHost Inn hotels are designed and developed using the Company's 60 to 80 room, interior corridor and indoor pool prototype design and are located in tertiary and secondary markets. As of December 31, 1996, the Company owned, operated or managed 72 hotels located in 16 states. Of these hotels, 38 hotels are operated or managed under the Company's proprietary brand, the AmeriHost Inn. Of the 72 hotels, the Company owns a 100% or controlling ownership interest in 28 hotels and a participating equity interest, ranging from 5% to 50%, in 33 hotels. Of the 61 owned hotels, 36 are AmeriHost Inn hotels and 25 are other brands, which in most cases were acquired, renovated and repositioned in their respective marketplaces between 1987 and 1993. The majority of the other brand hotels are franchised through Days Inn, Hampton Inn, Holiday Inn and Ramada Inn. The Company also managed 11 hotels at December 31, 1996, for unaffiliated third parties whereby the Company has no ownership interest. Two of the 11 managed hotels operate as AmeriHost Inn hotels. As of December 31, 1996, an additional 19 AmeriHost Inn hotels were under construction. The Company has 100% ownership in 12 of these hotels, a minority ownership interest in six of these hotels, and is constructing one for an unaffiliated third party. The table below sets forth information regarding the hotels at December 31, 1996.
Open Under Hotels Construction Total Hotels Rooms Hotels Rooms Hotels Rooms 100% or controlling ownership: AmeriHost Inn hotels 14 896 12 732 26 1,628 Other brands 14 1,807 - - 14 1,807 28 2,703 12 732 40 3,435 Minority ownership interest: AmeriHost Inn hotels 22 1,430 6 366 28 1,796 Other brands 11 932 - - 11 932 33 2,362 6 366 39 2,728 Managed only hotels: AmeriHost Inn hotels 2 121 1 61 3 182 Other brands 9 1,262 - - 9 1,262 11 1,383 1 61 12 1,444 Total 72 6,448 19 1,159 91 7,607
Since 1993, the Company's growth strategy has focused on the expansion and increased ownership of the AmeriHost Inn hotel brand through new development and construction. The AmeriHost Inn hotels have achieved occupancy and average daily rates which are higher than those realized by the Company's other owned hotels, including those operated under national franchise affiliations. These favorable operating results experienced by the AmeriHost Inn hotels led to the Company's decision to focus on expanding this brand rather than acquiring or developing hotels under other brand affiliations. The Company intends to continue this growth strategy and to aggressively expand its development, ownership and operation of AmeriHost Inn hotels. Implementing this strategy will allow the Company to rely less on the one-time transactional fees associated with hotel development and construction while generating long-term revenues and potential profits from hotel operations. In addition to the development, construction and operation of hotels in which the Company has a controlling ownership interest, the Company provides development, construction and renovation services to hotels in which the Company has a minority ownership interest and to unaffiliated third parties. For new construction projects, the Company offers "turn-key" development services, having the in-house expertise to manage a project from inception through completion, including market research, site selection, architectural services, the securing of financing and construction management. The construction contracts entered into between the Company and the entities owning the hotels have generally been one of two types, providing either for the Company to receive costs plus developer's and construction overhead fees or a fixed fee. The Company also provides management services to minority owned hotels and other hotels owned by unaffiliated third parties. Under its management contracts with such hotels, the Company typically provides complete operational and financial management services, including sales, marketing, quality control, training, purchasing and accounting. However, under certain management contracts, the Company's joint venture partners are responsible for the day-to-day operational management, while the Company provides full financial management and operational consulting and assistance. The Company is currently managing or co-managing all of the hotels in which it has a minority ownership interest, and is also managing 11 hotels for unaffiliated third parties. These hotels are managed under contracts ranging from 1 to 10 years, with optional renewal periods of equal length, and contain provisions under which the Company is paid fees equal to a percentage of total gross revenues for its services and, in some instances, additional incentive fees based upon hotel performance. The Company has developed centralized systems and procedures which it believes allow it to manage the hotels effectively and efficiently. While the Company does not intend to actively pursue management contracts with third parties, it does intend to continue managing hotels for third parties under its current management contracts and may manage additional hotels for third parties if the terms are favorable. The Company also provides employee leasing services to hotels in which the Company has a minority ownership interest and to hotels owned by unaffiliated third parties which are managed by the Company. Under its employee leasing program, the Company employs all of the personnel working at the participating hotels and leases them to the hotels pursuant to written agreements. Employee leasing affords the Company greater control over payroll costs and allows the participating hotels to benefit from economies of scale on personnel-related costs. The Company's employee leasing agreements typically provide for one year terms, with automatic one year renewals. The Company generally receives fees from each participating hotel in an amount equal to the gross payroll costs for the leased employees, including all related taxes and benefits, plus a percentage of the gross payroll. All revenues attributable to development, construction, management and employee leasing services with respect to hotels in which the Company has a 100% or controlling ownership interest have been eliminated in consolidation. AmeriHost Inn Hotels AmeriHost Inn hotels, the Company's proprietary brand, are designed and constructed using the Company's 60 to 80 room, interior corridor and indoor pool prototype design. The AmeriHost Inn hotel's amenities and services include 24- hour front desk and message service, facsimile machines, whirlpool and sauna area, exercise room, meeting room, a covered entrance and extensive exterior lighting for added security. The standard AmeriHost Inn guest room features an electronic card-key lock, in-room safe, in-room coffee maker, telephone with data port for personal computer, a work area and color television with premium cable service or movies on demand. In addition, each Amerihost Inn hotel typically includes 2 to 6 whirlpool suites which, in addition to the standard amenities, include in-room whirlpools, microwave ovens, compact refrigerators and an expanded sitting area. AmeriHost Inn hotels do not contain food and beverage facilities normally associated with full-service hotels. Food service for hotel guests is generally available from adjacent or nearby free-standing restaurants which are independently owned and operated. All AmeriHost Inn hotels are operated or managed by the Company in accordance with strict guidelines designed to provide guests with a consistent lodging experience. The Company believes the quality and consistency of the amenities and services provided by its AmeriHost Inn hotels increase guest satisfaction and repeat business. Further, through its use of the AmeriHost Inn prototype design, the Company believes that it is able to operate profitable hotels while offering an excellent value to its guests. The Company targets smaller communities in tertiary and secondary markets with established demand generators such as major traffic arteries, office complexes, industrial parks, shopping malls, colleges and universities or tourist attractions, as the principal location for the development and construction of AmeriHost Inn hotels. Generally, these markets have minimal competition or a lack of recent hotel development. An AmeriHost Inn hotel is typically positioned to attract both business and leisure travelers seeking consistent amenities and quality rooms at reasonable rates, generally ranging from $40 to $65 per night. The Company's in-house design staff, centralized purchasing program, strict cost controls, and low average land costs all contribute to a favorable cost structure in developing and constructing new AmeriHost Inn hotels. Furthermore, due to the centralization of all accounting, purchasing, payroll and other administrative functions, each hotel is operated efficiently and effectively with a minimal on-site staff. AmeriHost Inn hotels are not subject to franchise, royalty and marketing fees, which generally range from 8% to 10% of a hotel's gross room revenues. These factors assist the Company in maximizing its return on invested capital. Other Owned Hotels The Company's non-AmeriHost Inn hotels were primarily acquired by the Company through joint ventures prior to 1993, in most instances at prices below estimated replacement costs. The other hotels have been owned, operated and managed by the Company independently, or as part of a national franchise system such as Days Inn, Hampton Inn, Holiday Inn, and Ramada Inn. The Company believes that franchises in certain locations are important in maintaining occupancy levels, which are supported by the Franchisor's national reservation systems and marketing efforts and brand name recognition. The Company's non-AmeriHost Inn hotels typically are also located in secondary and tertiary markets, with nearby demand generators such as airports, major traffic arteries, office complexes, industrial parks, shopping malls, colleges and universities or tourist attractions. The non-AmeriHost Inn hotels contain 53 to 209 rooms, generate average daily rates ranging from $35 to $65 per night, offer a variety of amenities and services and generally do not contain food and beverage facilities. As part of the Company's strategy to focus its ownership primarily on AmeriHost Inn hotels, the Company intends to pursue selective sales of certain of these other hotels, if and when attractive terms are available. During 1996, four hotel partnerships in which the Company was a general partner sold their hotels, resulting in cash distributions to the Company upon their sale. Two additional hotels have been sold in 1997. These proceeds were, and any proceeds from future sales, if and when completed, are expected to be used by the Company to develop additional AmeriHost Inn hotels. Hotel Properties At December 31, 1996, the Company owned and/or managed 72 hotels in 16 states, concentrated in the midwestern and southern United States. The Company had an additional 19 hotels under construction located generally in the same geographical areas. Because the hotel industry is seasonal, the revenues generated by the hotels managed by the Company will increase or decrease depending upon the time of year. Since the Company's management fees are based upon a percentage of the hotels' total gross revenues, the Company is further susceptible to these seasonal variations. Given the location of the properties the Company manages, the revenues are typically lower in the first and fourth quarters of each year. The following is a list of hotel properties under the Company's management at December 31, 1996 by state:
DATE COMPANY OPERATIONS STATE HOTEL ROOMS BEGAN Florida Hampton Inn Ft. Myers (1) 123 09/30/92 Georgia AmeriHost Inn Eagles Landing, Stockbridge (1) 60 08/08/95 AmeriHost Inn LaGrange (1) 59 03/01/95 AmeriHost Inn Smyrna (1) 60 01/08/96 Days Inn Northwest, Atlanta 107 11/01/91 Days Inn Peachtree, Atlanta 142 11/01/91 Days Inn Dalton 152 11/01/91 Days Inn Jekyll Island 162 11/01/91 Jekyll Estates Inn, Jekyll Island 37 11/01/91 779 Illinois AmeriHost Inn Harvard (1) 60 07/01/96 AmeriHost Inn Jacksonville (1) 60 06/14/96 AmeriHost Inn Macomb (1) 60 05/19/98 AmeriHost Inn Players Riverboat Hotel, Metropolis (1) 120 02/25/94 AmeriHost Inn Sycamore (1) 60 05/31/96 AmeriHost Inn Tuscola (1) 59 08/17/94 Days Inn Elgin (1)(3) 96 12/16/93 Days Inn Melrose Park (1) 123 07/01/88 Days Inn Niles (1) 153 01/01/90 Days Inn O'Hare South, Schiller Park (1) 145 04/01/89 Days Inn Shorewood (1) 182 10/01/89 Palwaukee Motor Inn, Wheeling 138 04/21/95 1,256 Indiana AmeriHost Inn Hammond (1) 86 03/29/96 AmeriHost Inn Muncie 60 04/07/95 AmeriHost Inn Plainfield (1)(2) 60 09/01/92 Days Inn Cloverdale (1)(2) 60 11/04/88 Days Inn Crawfordsville (1)(2) 60 01/30/89 Days Inn Plainfield (1)(2) 64 05/01/90 Days Inn Portage (1) 120 04/01/91 Days Inn Sullivan (1) 60 08/14/87 Ramada Inn Lafayette (1) 145 02/02/94 715 Iowa AmeriHost Inn Waverly (1) 60 08/28/96 Kentucky AmeriHost Inn Murray (1) 60 11/01/96 Louisiana Days Inn Kenner, New Orleans 324 11/01/91 Michigan AmeriHost Inn Coopersville (1) 60 01/09/96 AmeriHost Inn Grand Blanc (1) 60 07/17/96 AmeriHost Inn Grand Rapids North, Walker (1) 60 07/05/96 AmeriHost Inn Muskegon, Norton Shores (1) 61 11/04/96 241 Mississippi AmeriHost Inn Batesville (1) 60 04/26/96 Days Inn Vicksburg Landing (1)(2) 89 05/13/95 149 Ohio AmeriHost Inn Ashland (1) 62 08/09/96 AmeriHost Inn Athens (1)(2) 102 11/04/89 AmeriHost Inn Jeffersonville North (1)(2) 60 07/20/96 AmeriHost Inn Jeffersonville South (1)(2) 60 10/14/94 AmeriHost Inn Kenton (1)(2) 60 08/02/96 AmeriHost Inn Lancaster (1)(2) 60 09/04/92 AmeriHost Inn Logan (1)(2) 60 04/16/93 AmeriHost Inn Mansfield (1) 60 11/19/94 AmeriHost Inn Marysville (1)(2) 79 06/01/90 AmeriHost Inn Oxford 61 02/01/91 AmeriHost Inn Upper Sandusky (1) 60 04/12/95 AmeriHost Inn Wooster East (1) 58 01/18/94 AmeriHost Inn Wooster North (1) 60 10/21/95 AmeriHost Inn Zanesville (1)(2) 60 07/30/96 Days Inn Athens (1)(2) 60 01/16/88 Days Inn Akron/Kent, Brimfield (1)(2) 67 08/04/89 Days Inn Dayton South (1) 209 01/20/92 Days Inn Findlay (1)(3) 115 05/06/91 Days Inn New Philadelphia (1)(2) 102 06/04/92 Oakbrook Inn Middletown (1) 120 07/03/92 1,575 Oregon Wildhorse Resort Hotel, Pendleton (4) 100 03/23/96 Pennsylvania AmeriHost Inn Shippensburg (1) 60 08/09/96 Holiday Inn Altoona (1) 143 08/31/92 Holiday Inn Oil City (1) 106 12/02/92 309 Texas AmeriHost Inn Allen (1) 60 07/25/96 Vermont Holiday Inn White River Junction (1)(2) 140 06/24/93 West Virginia AmeriHost Inn New Martinsville (1)(2) 60 05/03/96 AmeriHost Inn Mineral Wells (1)(2) 61 12/30/96 AmeriHost Inn Parkersburg (1)(2) 79 06/26/95 200 Wisconsin AmeriHost Inn Green Bay (1) 60 10/12/96 AmeriHost Inn Mosinee (1) 53 04/30/93 Menominee Casino-Bingo-Hotel, Keshena 100 09/14/94 Oakbrook Inn Menomonee Falls (1)(3) 144 08/07/92 357 Total Rooms 6,448 Total Properties 72 (1) Indicates properties in which the Company owns a direct or indirect equity or leasehold interest. (2) Indicates properties which are co-managed with partners. (3) Property was sold, or lease was terminated, in 1997. (4) Management contract was terminated in 1997.
The table below shows the average occupancy, average daily rate ("ADR") and revenue per available room ("REVPAR") experienced by the Company in 1996 in various locations. These statistics include all hotels open as of December 31, 1996.
Average Occupancy ADR REVPAR Ohio (20 hotels) 58.7% $49.18 $28.88 Illinois, Iowa and Wisconsin (17 hotels) 59.1% $45.97 $27.15 Georgia (8 hotels) 58.6% $52.20 $30.59 Indiana and Kentucky (10 hotels) 63.1% $47.25 $29.83 Michigan (4 hotels) 53.5% $51.90 $27.69 Pennsylvania (3 hotels) 62.2% $50.09 $31.16 West Virginia (3 hotels) 61.6% $53.39 $32.91 Mississippi (2 hotels) 69.8% $54.02 $37.70 Other hotels (located in Florida, Louisiana, Oregon, Texas and Vermont) 57.7% $46.88 $27.04 All hotels 59.5% $48.56 $28.92
Lodging Industry The United States lodging industry's performance is strongly correlated to economic activity, with changes in gross national product growth affecting both room supply and demand, resulting in cyclical changes in average occupancy rates, average daily rates, and revenue per available room. The general downturn in the economy and the oversupply of rooms during the late 1980's and early 1990's resulted in decreased economic performance in the lodging industry. Since the early 1990's, the United States lodging industry has shown significant improvement. The primary element contributing to the industry's improved performance has been increased economic activity, which has resulted in growth in the demand for hotel rooms exceeding the growth in the available supply of hotel rooms. The more rapid growth in hotel room demand, compared to growth in hotel room supply, has resulted in positive trends industry-wide for occupancy and average daily rates. According to Coopers & Lybrand L.L.P., the overall United States hotel room occupancy growth was 0.9% in 1996, while average daily rates increased 6.4%, resulting in a 7.4% increase in revenue per available room ("RevPAR"). Growth Strategy The Company's growth strategy is to increase revenues, EBITDA and net income per share by: (i) developing, operating and owning additional AmeriHost Inn hotels; (ii) maintaining or enhancing occupancy and average daily rate results at all of its hotels; and (iii) controlling operating and corporate overhead expenses. EBITDA is used by the Company 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) interest and other income; (iii) leasehold rents for hotels, which the Company considers to be financing costs similar to interest; (iv) income tax expense; (v) depreciation and amortization; (vi) gains or losses from property transactions; and (vii) non-recurring charges. The Company's primary growth strategy is to focus on the expansion of its proprietary brand, the AmeriHost Inn, through continued development, construction and operation of 100% owned AmeriHost Inn hotels. During 1996, the Company opened three wholly-owned AmeriHost Inn hotels and had another 12 under construction at December 31, 1996. The Company may also continue the development of AmeriHost Inn hotels through joint ventures with partners. During 1996, such joint ventures opened 15 AmeriHost Inn hotels. The Company may seek to increase its ownership interest in existing AmeriHost Inn hotels in which the Company has less than a 100% ownership interest, if available on favorable economic terms. The Company acquired additional ownership interests during 1996 in two hotels in which the Company already held a minority ownership interest, resulting in majority ownership positions. In addition, the Company and certain joint ventures converted five hotels from other brands to the AmeriHost Inn brand during 1996. These conversions were hotels which had been built by the Company as wholly-owned hotels or through joint ventures in prior years using the AmeriHost Inn standard prototype. From time to time, the Company may also continue to provide development, construction and, to a lesser extent, management services to unaffiliated third parties on a fee-for-service basis. During 1996, the Company began construction on a record 21 AmeriHost Inn hotels, and completed construction of 19 hotels, 18 of which were AmeriHost Inn hotels. The Company intends to continue developing and constructing AmeriHost Inn hotels in communities located in tertiary and secondary markets which already have established demand generators, such as major traffic arteries, office complexes, industrial parks, shopping malls, colleges and universities or tourist attractions. Typically, the Company seeks communities where an active economic development program is in place, which suggests long-term growth potential for additional lodging demand. In most cases, the local community is interested in a new hotel because existing facilities are dated or inconvenient. The Company provides comfortable, professionally managed accommodations which are typically not available in that community. The Company has an in-house development staff dedicated to identifying and evaluating new development opportunities. Once a market has been identified and a site has been selected, the Company initiates its due diligence process prior to the construction of one of its hotels. Such due diligence typically consists of environmental surveys, feasibility and engineering studies and the securing of zoning and building permits. The Company also maintains an in-house construction and design department, which enables it to manage all phases of construction. The Company's in-house architects and design personnel prepare the blueprints for each AmeriHost Inn hotel through the use of computer assisted drafting equipment, thereby reducing architectural fees. In most cases, the Company hires a general contractor to construct the hotel for a fixed price, eliminating much of the risk typically associated with construction. The Company's project managers oversee the general contractor through each phase of construction in order to assure the quality and timing of the construction. With few exceptions, such as the interior color scheme, each AmeriHost Inn hotel is the same in every detail, including the overall layout, the room sizes and the indoor pool area. The replication of its prototype design allows accurate budgeting of its construction and overhead costs. Historically, the Company has financed its hotel development and construction through a combination of equity and debt financing, with the equity financing typically provided by the Company and/or its joint venture partners, and the debt financing typically provided by local or regional banks. All of the AmeriHost Inn hotels currently under construction are being financed in this manner, except for one joint venture which intends to lease the land. The Company intends to increase its revenue, EBITDA and net income per share through the continued development of its AmeriHost Inn brand hotel and the continued implementation of its operating and marketing strategies. The Company believes that it can develop and operate additional AmeriHost Inn hotels having occupancies and average daily rates similar to those the Company has achieved at its existing AmeriHost Inn hotels. Moreover, the Company believes that the development of additional AmeriHost Inn hotels and expanded geographic diversity will continue to enhance the awareness of the AmeriHost Inn brand and thus improve revenues at existing, as well as future, AmeriHost Inn hotels. Operating Strategy The Company's operating strategy is to provide its customers with a consistent lodging experience by offering a package of amenities and services which meet or exceed the customer's expectations during each stay. The Company has developed uniform standards and procedures for each aspect of the development, construction, operation and marketing of its AmeriHost Inn hotels, from site selection to operational management. The Company's operational management activities are overseen by a Senior Vice President of Operations who supervises regional and area managers, who in turn oversee the general managers of the hotels. Each regional manager is responsible for 6 to 10 hotels, depending on each hotel's size and location. In addition to having responsibilities as the general manager of a specific hotel, each area manager is responsible for overseeing the general managers at 1 to 2 additional hotels. In addition to these managers, the Company has centralized sales and marketing personnel who assist and direct the general managers and other on-site personnel in their marketing efforts. The Company also has internal auditors who perform audits of each hotel at least two times each year, including tests of financial items such as cash and receivables, as well as operational, security and ADA (Americans with Disabilities Act) compliance matters, and who are also responsible for developing and conducting a variety of educational and training seminars for general managers and other on-site personnel. The Company has designed a financial management system whereby all accounting and operating information is processed in the Company's centralized accounting office at its headquarters. The system includes cash management, accounts payable and the generation of daily financial and operating information and monthly financial statements which allow senior management and the regional, area and general managers to closely monitor performance and to quickly react to changes in operational conditions. The Company provides each hotel with standardized forms and procedures to ensure uniform and efficient financial reporting. The Company's financial management system relieves certain management and reporting burdens from the individual hotel managers, enabling them to focus on the operation and marketing of the hotel. The centralized financial management system also enhances the quality and timing of internal financial reports. All payroll functions are also centralized at the Company's headquarters through its employee leasing subsidiary, allowing the Company to have greater control over payroll costs. In addition, since all of the approximately 1,400 hotel personnel are employed by the same company, the costs of certain payroll related expenses are lower than if each hotel maintained its own employees, and the Company is able to offer a more attractive health insurance program to its employees. Marketing Strategy The Company believes it has a unique marketing strategy which is to actively seek involvement in and ties to the local communities in which its hotels are located. The local businesses and residential communities are each hotel's best referral source. When staying in smaller communities where the Company's hotels are located, visitors typically seek recommendations from family, friends and business associates. The general managers of the hotels are expected to devote a majority of their time toward marketing activities with local businesses and the community. In an effort to promote community awareness and build strong relationships with business leaders and local residents, general managers are very active in local civic groups and frequently sponsor special events. In addition, the hotels typically sponsor various local social and community events and permit the use of their facilities by local clubs and civic organizations. This community involvement, combined with a professional marketing program, allows the hotel to showcase its facilities for both business and leisure purposes. By focusing on the local community as its primary referral source, the Company believes that each hotel can build a strong sales force of local residents. With respect to AmeriHost Inn hotels, the Company's primary marketing strategy is to consistently develop and operate AmeriHost Inn hotels using its prototype design under the trademarked AmeriHost Inn diamond-shaped logo. The Company believes that a consistent product offering, including the same design features, amenities and quality guest services, will promote guest loyalty, referrals and repeat business. The amenities and services featured in the AmeriHost Inn prototype design are not consistently found in the hotels of competitors in the markets which the Company targets. By providing amenities and services on a consistent basis, along with centralized administrative and financial reporting systems, the Company believes it is able to operate profitable hotels while offering an excellent value to its guests. Joint Ventures The Company continued to develop new hotels through joint ventures in 1996, whereby the Company and other investors agree to jointly undertake the development, construction, acquisition or renovation of a hotel property. As of December 31, 1996, the Company had 47 projects with joint venture partners, including multiple projects with certain joint venture partners. The Company's joint ventures have taken various forms, including general partnerships, limited partnerships, and limited liability companies. Each joint venture has been formed with respect to a particular hotel project and reflects the characteristics of that project, including the relative contributions, in cash, property or services, of its partners. In most instances, the joint venture has taken the form of a limited partnership, with a wholly-owned subsidiary of the Company as a general partner with sole or joint management authority. The Company's subsidiary, as general partner, has typically received a partnership interest ranging from 15% to 30% for contributing the Company's expertise. In certain cases, the subsidiary has also contributed a minimal amount of cash. The limited partners (which may include the Company or its affiliates in some instances) have typically contributed the cash equity required to fund the project and have received interests proportionate to their contributions. A typical joint venture agreement provides that the profits and losses of the entity will be allocated among the partners in proportion to their respective interests. However, the distribution of operating cash flow and asset sale proceeds to the Company in proportion to its ownership interest is often subordinate to the prior return of capital and other distributions payable to the other joint venture partners. In addition, in five recent joint venture arrangements, the equity interests held by the joint venture partners are exchangeable into shares of the Company's common stock and the Company has guaranteed minimum annual distributions to the joint venture partners. As the general partner, the Company's subsidiary generally has the sole or primary management authority with respect to the joint venture. However, in some instances, the joint venture agreement or applicable law may provide to the other joint venture partners the right to amend the joint venture agreement, approve a transfer of the general partner's partnership interest, remove the general partner for cause, or dissolve the joint venture. The joint venture agreements do not typically restrict the right of the Company or its affiliates to engage in related or competitive business activities. Competition There is significant competition in the mid-price lodging industry. There are numerous hotel chains that operate on a national or regional basis, as well as other hotels, motor inns and other independent lodging establishments throughout the United States. Competition is primarily in the areas of price, location, quality, services and amenities. Many of the Company's competitors have recognized trade names, national reservation systems, greater resources and longer operating histories than the Company. However, the Company believes that its management is sufficiently experienced, and the markets which the Company targets for development typically contain minimal competition, enabling the Company to compete successfully. There are a number of companies which develop, construct and renovate hotels. Some of these companies perform these services only for their own account, while others actively pursue contracts for these services with third party owners. The Company believes that it can develop, construct and renovate hotels at costs which are competitive. The Company believes that its use of a well developed prototype, significant experience (the Company has managed the development and construction of more than 50 hotels) and volume purchasing of furniture and amenities result in development costs which are lower than those experienced by many competitors building comparable hotels. The Company also believes that its ability to offer additional services, such as hotel management, provides some competitive advantages. There are many hotel management companies which provide management services to hotels similar to the services provided by the Company. While the quantity of competition may be high, the Company believes that the quality of its services, including its information and management systems and employee leasing operations, will enable the Company to compete successfully. The Company believes that its focus on secondary and tertiary markets also lessens competition for the types of services provided by the Company. The Company believes that the relationship between the development and construction costs and the average daily rates achieved by the AmeriHost Inn hotels is more favorable than that experienced by many of the Company's competitors. In addition, a significant portion of the purchasing and accounting functions related to the hotels is handled in the Company's headquarters, thus enabling the local general managers and their staffs to focus their efforts on marketing and sales. The centralization of many functions also assists in keeping costs lower due to certain economies of scale. This allows the AmeriHost Inn hotels to operate efficiently and compete effectively. Franchise Agreements At December 31, 1996, the Company had franchise agreements (collectively, the "Franchise Agreements") with Days Inn of America, Inc., Promus Hotels, Inc. (regarding Hampton Inns), Holiday Inns, Inc., Holiday Inns Franchising, Inc. and Ramada Franchise Systems, Inc. Although the terms of the various Franchise Agreements differ, each requires the Company to pay a monthly royalty fee for the right to operate the hotel under the "flag" of that Franchisor and to have access to the other benefits provided by such Franchisor, including access to reservation systems, marketing plans and use of trademarks. The royalty fees are typically based on gross revenues attributable to room rentals, plus marketing and reservation contributions, and typically range between 8% and 10% of gross room revenues. In addition, the Company and/or the joint venture which owns a hotel operated pursuant to a Franchise Agreement will have ongoing obligations to maintain the quality and condition of the hotel to the standards required by the Franchisor. The term of a Franchise Agreement typically is between 10 and 20 years, with a substantial penalty for early termination by the Company with either party typically having the right to terminate after five years. The Company believes that it is generally in compliance with its Franchise Agreements, and the loss of any one of the Franchise Agreements would not have a material impact on the Company. Employees As of December 31, 1996, the Company and its subsidiaries had approximately 1,500 full and part-time employees:
Hotel Management: Operations 25 Accounting and finance 17 Property general managers 73 Hotel Development: 16 Hotel Operations: 549 Corporate: General and administrative 10 Officers 4 Employee Leasing: General and administrative 5 Operations(1) 806 1,505 (1) Does not include 622 employees who are employed by ASI and leased to other subsidiaries of the Company. These employees are reflected in the table under hotel management and hotel operations.
At December 31, 1996 approximately 20 of the Company s housekeeping employees (at the Company s Days Inn Melrose Park and Days Inn O Hare South, Schiller Park) were members of the Hotel, Motel, Club, Cafeteria, Restaurant Employees and Bartenders Union, Local 450 AFL-CIO, and were covered by collective bargaining agreements which were in place with such union until November 30, 1997. The Company sold its interests in the Days Inn O Hare South, Schiller Park in July 1997. The Company expects to renew the collective bargaining agreement with regard to its approximately 10 housekeeping employees at its Days Inn Melrose Park when such agreement expires. To date, the Company has not experienced any work stoppages or significant employee-related problems. The Company believes that its relationship with its union and other employees is good. Item 14. Exhibits, Financial Statements and Reports on Form 8-K. Financial Statements: The following consolidated financial statements are filed as part of this Report on Form 10-K for the fiscal year ended December 31, 1996. (a)(1) Financial Statements: Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets at December 31, 1996 and 1995 F-2 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-8 (a)(2) Financial Statement Schedules: No financial statement schedules are submitted as part of this report because they are not applicable or are not required under regulation S-X or because they required information is included in the financial statements or notes thereto. (a)(3) Exhibits: The following exhibits were included in the Registrant's Report on Form 10-K filed on March 26, 1993, and are incorporated by reference herein: Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation of Amerihost Properties, Inc. 3.2 By-laws of Amerihost Properties, Inc. 4.2 Specimen Common Stock Purchase Warrant for Employees 4.3 Specimen 7% Subordinated Note 4.4 Specimen Common Stock Purchase Warrant for 7% Subordinated Noteholders 4.5 Form of Registration Rights Agreement for 7% Subordinated Noteholders The following exhibits were included in the Registrant's Amendment No. 1 to Form S-2 filed on July 3, 1996, and are incorporated by reference herein: Exhibit No. Description 10.4 Employment Agreement between Amerihost Properties, Inc. and Michael P. Holtz 10.6 Employment Agreement between Amerihost Properties, Inc. and Russell J. Cerqua The following exhibits were included in the Registrant's Proxy Statement for Annual Meeting of Shareholders filed on July 25, 1996, and are incorporated by reference herein: Exhibit No. Description 10.2 1996 Omnibus Incentive Stock Plan (Annex A) 10.3 1996 Stock Option Plan for Nonemployee Directors (Annex B) The following exhibits were included in the Registrant s Report on Form 10-K dated March 24, 1997, and are incorporated by reference herein: Exhibit No. Description 10.7 Urban 2000 Corp. Termination Agreement 10.8 Richard A. D'Onofrio Termination Agreement 10.9 Amendment of Employment Agreement between Amerihost Properties, Inc. and Michael P. Holtz 10.10 Amendment of Employment Agreement between Amerihost Properties, Inc. and Russell J. Cerqua 21.1 Subsidiaries of the Registrant 23.1 Consent of BDO Seidman, LLP 27.0 Financial Data Schedule The following exhibits were included in the Registrant s Report on Form 10-K/A dated September 19, 1997: Exhibit No. Description 23.1 Consent of BDO Seidman, LLP The following exhibits are included in this Report on Form 10-K/A-1 dated November 12, 1997: Exhibit No. Description 23.1 Consent of BDO Seidman, LLP Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended December 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERIHOST PROPERTIES, INC. By: /s/ Michael Holtz Michael P. Holtz Chief Executive Officer By: /s/ Russell J. Cerqua Russell J. Cerqua Chief Financial Officer By: /s/ James B. Dale James B. Dale Corporate Controller November 12, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ H. Andrew Torchia /s/ Michael P. Holtz H. Andrew Torchia, Director Michael P. Holtz, Director November 12, 1997 November 12, 1997 /s/ Russell J. Cerqua /s/ Reno J. Bernardo Russell J. Cerqua, Director Reno J. Bernardo, Director November 12, 1997 November 12, 1997 /s/ Salomon J. Dayan /s/ Richard A. Chaifetz Salomon J. Dayan, Director Richard A. Chaifetz November 12, 1997 November 12, 1997 EX-23.1 2 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Amerihost Properties, Inc. Des Plaines, Illinois We hereby consent to the incorporation by reference in the Company's previously filed Registration Statement (file no. 33-72742) of our report dated March 20, 1997 relating to the consolidated financial statements of Amerihost Properties, Inc. appearing in the Company's Annual Report on Form 10-K/A-1 for the year ended December 31, 1996. BDO Seidman, LLP Chicago, Illinois November __, 1997 -----END PRIVACY-ENHANCED MESSAGE-----