-----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, WTKfAJchLELSwRn4nIb608mYM9fe0aMdZJ0+TKB/byYYjRglgQyoB+rN61VPOzBy ynsFelGv6CBBpdAdxMg/zQ== 0000914760-99-000209.txt : 19991115 0000914760-99-000209.hdr.sgml : 19991115 ACCESSION NUMBER: 0000914760-99-000209 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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-Q SEC ACT: SEC FILE NUMBER: 000-15291 FILM NUMBER: 99747991 BUSINESS ADDRESS: STREET 1: 2400 E DEVON AVE STE 280 CITY: DES PLAINES STATE: IL ZIP: 60018 BUSINESS PHONE: 7082984500 MAIL ADDRESS: STREET 1: 2400 E DEVON AVE STREET 2: SUITE 280 CITY: DES PLAINES STATE: IL ZIP: 60018 FORMER COMPANY: FORMER CONFORMED NAME: AMERICA POP INC DATE OF NAME CHANGE: 19871111 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended SEPTEMBER 30, 1999 -------------------------- 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 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No As of November 10, 1999, 5,106,573 shares of the Registrant's Common Stock were outstanding. ================================================================================ AMERIHOST PROPERTIES, INC. FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 INDEX PART I: Financial Information Page ------------------------------ ---- Item 1 - Financial Statements - Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 4 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998 6 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 7 Notes to Consolidated Financial Statements 9 Item 2 - Management's Discussion and Analysis 13 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 19 Schedule of Earnings Before Interest/Rent, Taxes and Depreciation/Amortization for the Nine Months Ended September 30, 1999 and 1998 20 PART II: Other Information --------------------------- Item 4 - Submission of Matters to a Vote of Securities Holders 21 Item 6 - Exhibits and Reports on Form 8-K 21 Signatures 21 Part I: Financial Information Item 1: Financial Statements AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
================================================================================================================= September 30, December 31, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 6,456,726 $ 4,493,834 Accounts receivable (including $487,345 and $290,859 from related parties) 2,959,404 2,931,216 Notes receivable, current portion 68,061 168,061 Prepaid expenses and other current assets 909,331 902,457 Refundable income taxes 510,167 1,261,194 Costs and estimated earnings in excess of billings on uncompleted contracts with related parties 393,030 649,858 --------------- -------------- Total current assets 11,296,719 10,406,620 --------------- -------------- Investments in and advances to unconsolidated hotel joint ventures 5,963,328 5,331,247 --------------- -------------- Property and equipment: Land 8,941,205 9,926,105 Buildings 59,329,294 65,506,004 Furniture, fixtures and equipment 17,427,785 14,799,111 Construction in progress 231,579 6,094,542 Leasehold improvements 849,591 1,156,174 Assets held for sale 7,998,632 9,075,179 --------------- -------------- 94,778,086 106,557,115 Less accumulated depreciation and amortization 15,472,466 15,219,135 --------------- -------------- 79,305,620 91,337,980 --------------- -------------- Notes receivable, less current portion 1,148,779 1,181,962 Deferred income taxes 4,417,000 3,904,000 Other assets, net of accumulated amortization of $1,359,565 and $1,602,338 2,877,885 3,118,979 --------------- -------------- 8,443,664 8,204,941 $ 105,009,331 $ 115,280,788 =============== ============== (continued) AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ================================================================================================================= September 30, December 31, 1999 1998 ------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,504,663 $ 5,638,250 Bank line-of-credit 4,687,437 1,961,213 Accrued payroll and related expenses 825,722 1,180,674 Accrued real estate and other taxes 2,485,510 2,285,333 Other accrued expenses and current liabilities 1,125,404 756,308 Current portion of long-term debt 3,792,438 5,508,498 --------------- -------------- Total current liabilities 15,421,174 17,330,276 --------------- -------------- Long-term debt, net of current portion 59,816,658 66,332,566 --------------- -------------- Deferred income 14,543,234 13,164,007 --------------- -------------- Commitments Minority interests 279,754 138,131 --------------- -------------- 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 5,106,573 shares at September 30, 1999, and 6,089,550 shares at December 31, 1998 25,533 30,448 Additional paid-in capital 13,443,376 17,380,295 Retained earnings 1,916,477 1,341,940 --------------- -------------- 15,385,386 18,752,683 Less: Stock subscriptions receivable (436,875) (436,875) --------------- -------------- 14,948,511 18,315,808 --------------- -------------- $ 105,009,331 $ 115,280,788 =============== ============== See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
================================================================================================================== Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ---------------------------------- 1999 1998 1999 1998 ------------ ------------- --------------- ------------ Revenue: Hotel operations: AmeriHost Inn(R)hotels $14,681,959 $10,788,132 $37,879,605 $22,631,705 Other hotels 3,912,792 3,920,469 10,011,222 11,481,208 Development and construction 5,287,436 1,459,851 5,847,468 7,932,438 Management services 287,128 621,839 942,202 1,925,652 Employee leasing 1,532,218 2,639,266 4,749,234 8,389,197 Franchising 92,066 - 171,066 - -------------- -------------- --------------- --------------- 25,793,599 19,429,557 59,600,797 52,360,200 -------------- -------------- --------------- --------------- Operating costs and expenses: Hotel operations: AmeriHost Inn(R)hotels 9,175,390 6,741,697 25,924,588 15,524,658 Other hotels 2,851,594 2,639,719 7,931,951 8,741,737 Development and construction 4,493,261 1,474,314 5,064,816 7,510,058 Management services 206,080 316,815 717,255 1,055,271 Employee leasing 1,501,205 2,552,712 4,635,138 8,176,611 Franchising 295,420 - 488,036 - -------------- -------------- --------------- --------------- 18,522,950 13,725,257 44,761,784 41,008,335 7,270,649 5,704,300 14,839,013 11,351,865 Depreciation and amortization 1,115,039 1,196,026 3,658,440 3,993,447 Leasehold rents - hotels 1,840,290 1,548,878 5,552,409 2,477,094 Corporate general and administrative 404,259 402,905 1,181,454 1,133,625 -------------- -------------- --------------- --------------- Operating income 3,911,061 2,556,491 4,446,710 3,747,699 Other income (expense): Interest expense (1,630,309) (1,160,534) (4,801,889) (4,719,408) Interest income 167,711 133,707 783,704 392,721 Other income 36,046 30,471 542,013 129,026 Gain on sale of property 283,187 - 283,187 161,191 Equity in net income and losses of affiliates (45,735) (38,410) (6,019) 6,647 -------------- -------------- --------------- --------------- Income (loss) before minority interests and income taxes 2,721,961 1,521,725 1,247,706 (282,124) Minority interests in (income) loss of consolidated subsidiaries and partnerships (152,142) (90,489) (242,169) 142,639 Income (loss) before income taxes 2,569,819 1,431,236 1,005,537 (139,485) Income tax expense (benefit) 1,028,000 587,000 431,000 (57,000) Income (loss) before extraordinary item 1,541,819 844,236 574,537 (82,485) Extraordinary item - early extinguishment of debt, net of income tax (Note 8) - - - (332,738) -------------- -------------- --------------- ---------------- Net income (loss) $ 1,541,819 $ 844,236 $ 574,537 $ (415,223) ============== ============== =============== =============== Income (loss) per share - Basic, before extraordinary item $ 0.30 $ 0.14 $ 0.10 $ (0.02) Net income (loss) per share - Basic $ 0.30 $ 0.14 $ 0.10 $ (0.07) Income (loss) per share - Diluted, before extraordinary item $ 0.27 $ 0.13 $ 0.08 $ (0.03) Net income (loss) per share - Diluted $ 0.27 $ 0.13 $ 0.08 $ (0.08)
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
================================================================================================================= 1999 1998 ------------------ ---------------- Cash flows from operating activities: Cash received from customers $ 64,800,453 $ 53,259,648 Cash paid to suppliers and employees (61,027,151) (44,809,729) Interest received 705,234 685,895 Interest paid (4,824,844) (4,578,698) Income taxes paid (192,973) (2,725,656) Net cash (used in) provided by operating activities (539,281) 1,831,460 ---------------- --------------- Cash flows from investing activities: Distributions, and collections on advances, from affiliates 823,723 1,977,894 Purchase of property and equipment (940,969) (32,915,711) Purchase of investments in, and advances to, minority owned affiliates (1,517,500) (2,306,697) Acquisitions of partnership interests, net of cash acquired (260,648) (7,779,175) Collections on notes receivable 133,183 130,478 Preopening and management contract costs - (184,962) Proceeds from sale of assets 15,445,757 64,443,899 Net cash provided by investing activities 13,683,546 23,365,726 --------------- --------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 7,203,482 26,860,036 Principal payments on long-term debt (17,068,698) (49,808,945) Net proceeds from line of credit 2,726,224 1,261,039 Decrease in minority interest (100,546) (353,876) Common stock repurchases (3,941,835) (158,961) Net cash used in financing activities (11,181,373) (22,200,707) Net increase in cash 1,962,892 2,996,479 Cash and cash equivalents, beginning of year 4,493,834 2,349,503 Cash and cash equivalents, end of period $ 6,456,726 $ 5,345,982 =============== ===============
(continued) AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
================================================================================================================= 1999 1998 ------------------- ----------- Reconciliation of net income (loss) to net cash (used in) provided by operating activities: Net income (loss) $ 574,537 $ (415,223) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 3,658,440 3,993,447 Equity in net (income) loss of affiliates and amortization of deferred income 6,019 (6,647) Minority interests in operations of subsidiaries 242,169 (142,639) Amortization of deferred interest and loan discount 34,045 34,044 Amortization of deferred gain (1,085,393) (341,629) Deferred income taxes (513,000) (3,427,000) Gain on sale of investments, property and equipment (283,187) (161,191) Extraordinary item - early extinguishment of debt, net of tax - 332,738 Changes in assets and liabilities, net of effects of acquisition: Decrease in accounts receivable 85,117 328,033 (Increase) Decrease in prepaid expenses and other current assets (85,056) 46,859 Decrease in reserve on note receivable (75,000) - Decrease in refundable income taxes 751,027 644,344 Decrease in costs and estimated earnings in excess of billings 256,828 228,517 (Increase) Decrease in other assets (298,302) 1,408,367 Increase in assets held for sale (934,003) - Decrease in accounts payable (3,153,840) (2,532,485) Increase in accrued payroll and other accrued expenses and current liabilities 220,168 1,252,495 (Increase) Decrease in accrued interest (57,000) 106,666 Increase in deferred income 117,150 482,764 Net cash (used in) provided by operating activities $ (539,281) $ 1,831,460 ============== ============== See notes to consolidated financial statements.
AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 ================================================================================ 1. BASIS OF PREPARATION: --------------------- The financial statements included herein have been prepared by the Company, without audit. In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments, which consist only of recurring adjustments necessary to present fairly the financial position of Amerihost Properties, Inc. and subsidiaries as of September 30, 1999 and December 31, 1998 and the results of its operations and cash flows for the three and nine months ended September 30, 1999 and 1998. The results of operations for the three and nine months ended September 30, 1999 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 1998 Annual Report on Form 10-K. Certain reclassifications have been made to the 1998 financial statements in order to conform with the 1999 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: ------------------------ Basic income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted income (loss) per share of common stock is computed by dividing the adjusted net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. The Company is a general partner in three partnerships where the limited partners have the right at certain times and under certain conditions to convert their limited partner interests into 249,350 shares of the Company's common stock. The following are the calculations of basic and diluted earnings per share: Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------ ---------------------------------- 1999 1998 1999 1998 ----------- --------------- --------------- --------------- Income (loss) before extraordinary item$ 1,541,819 $ 844,236 $ 574,537 $ (82,485) Extraordinary item - - - (332,738) -------------- -------------- --------------- -------------- Net income (loss) 1,541,819 844,236 574,537 (415,223) Impact of convertible partnership interests (32,218) (1,698) (79,377) (127,787) -------------- --------------- --------------- -------------- Net income (loss) available to common shareholders $ 1,509,601 $ 842,538 $ 495,160 $ (543,010) ============== =============== =============== =============== Weighted average common shares outstanding 5,200,253 6,181,544 5,718,862 6,196,147 Dilutive effect of convertible partnership interests and common stock equivalents 307,426 413,049 292,408 349,767 Dilutive common shares outstanding 5,507,679 6,594,593 6,011,270 6,545,914 ============== =============== =============== ==============
AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 ================================================================================ 3. INCOME (LOSS) PER SHARE (CONTINUED): ------------------------------------ Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------ ---------------------------------- 1999 1998 1999 1998 ----------- --------------- --------------- --------------- Income (loss) per share - Basic, before extraordinary item $ 0.30 $ 0.14 $ 0.10 $ (0.02) Extraordinary item - - - (0.05) Net income (loss) per share - Basic $ 0.30 $ 0.14 $ 0.10 $ (0.07) ============== =============== =============== ============= Income (loss) per share - Diluted, before extraordinary item $ 0.27 $ 0.13 $ 0.08 $ (0.03) Extraordinary item - - - (0.05) Net income (loss) per share - Diluted $ 0.27 $ 0.13 $ 0.08 $ (0.08) ============== ============== =============== =============
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. The income tax expense (benefit) for the nine months ended September 30, 1999 and 1998 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 34 hotels as of September 30, 1999 (including 30 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 $9,500 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. 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 September 30, 1999, 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 $ 1,570,109 Cash acquired 85,314 -------------- Liabilities assumed $ 1,655,423 ============== AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 ================================================================================ 8. SALE/LEASEBACK OF HOTELS: ------------------------- On September 30, 1998, the Company completed the sale of 26 AmeriHost Inn(R) hotels to PMC Commercial Trust ("PMC") for $62.2 million. The company completed the sale of four additional AmeriHost Inn(R) hotels to PMC during March 1999 for $10.8 million. Upon the sales to PMC, 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. In connection with the sale of the 26 hotels in 1998, the Company expensed deferred loan costs in the amount of $332,738, net of income taxes, associated with the early extinguishment of mortgage debt. 9. BUSINESS SEGMENTS: ------------------ Effective in 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way companies report information about operating segments in both interim and annual financial statements and related disclosures. The adoption did not change the Company's reportable 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 franchising, (3) hotel development, consisting of development, construction and renovation activities, (4) hotel management, consisting of hotel management activities and (5) employee leasing, consisting of the leasing of employees to various hotels. 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 nine months ended September 30, 1999 and 1998, for each business segment, which is the information utilized by the Company's decision makers in managing the business: Revenues 1999 1998 -------- --------------- -------------- Hotel operations $ 47,890,827 $ 34,112,913 Hotel franchising 171,066 - Hotel development 5,847,468 7,932,438 Hotel management 942,202 1,925,652 Employee leasing 4,749,234 8,389,197 -------------- ------------- $ 59,600,797 $ 52,360,200 ============== ============= Operating costs and expenses ---------------------------- Hotel operations $ 33,856,539 $ 24,266,395 Hotel franchising 488,036 - Hotel development 5,064,816 7,510,058 Hotel management 717,255 1,055,271 Employee leasing 4,635,138 8,176,611 -------------- ------------- $ 44,761,784 $ 41,008,335 ============== ============= AMERIHOST PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 ================================================================================ 9. BUSINESS SEGMENTS (CONTINUED): ------------------------------ Operating income 1999 1998 ---------------- ------------- -------------- Hotel operations $ 4,945,547 $ 3,785,549 Hotel franchising (317,357) - Hotel development 760,491 363,216 Hotel management 188,843 593,868 Employee leasing 111,087 209,886 Corporate (1,241,901) (1,204,820) --------------- -------------- $ 4,446,710 $ 3,747,699 ============== ============= Identifiable assets Hotel operations $ 95,096,124 $ 104,076,512 Hotel franchising 143,042 - Hotel development 760,484 2,309,240 Hotel management 2,494,268 899,660 Employee leasing 195,530 978,985 Corporate 6,319,883 7,016,391 -------------- ------------- $ 105,009,331 $ 115,280,788 ============== ============= Capital Expenditures Hotel operations $ 6,048,973 $ 32,797,549 Hotel franchising 17,882 - Hotel development 2,091 54,065 Hotel management 62,534 39,635 Employee leasing - 1,380 Corporate 17,040 23,082 -------------- ------------- $ 6,148,520 $ 32,915,711 ============== ============= Depreciation/Amortization Hotel operations $ 3,536,333 $ 3,583,875 Hotel franchising 387 - Hotel development 22,161 59,164 Hotel management 36,103 276,513 Employee leasing 3,009 2,700 Corporate 60,447 71,195 -------------- ------------- $ 3,658,440 $ 3,993,447 ============== ============= 10. SHAREHOLERS' EQUITY: -------------------- The Company has repurchased and retihares of its common stock during the nine months ended September 30, 1999, for the total amount of approximately $3.9 million. 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 September 30, 1999, there were 77 AmeriHost Inn(R) hotels open, of which 61 were wholly-owned or leased, one was majority-owned, 12 were minority-owned, and three were owned by franchisees. A total of six AmeriHost Inn(R) hotels were opened during the past twelve months. The Company intends to use the AmeriHost Inn(R) brand when expanding its hotel operations segment. Same room revenues for all AmeriHost Inn(R) hotels (including minority-owned, managed-only, and franchised) increased approximately 5.6% and 6.3% during the third quarter and first nine months of 1999, compared to the third quarter and first nine months of 1998, respectively, primarily attributable to an increase of $3.08 and $2.64 in average daily rate. These results relate to the 71 AmeriHost Inn(R) hotels that were operating for at least thirteen full months during the three and nine month periods ended September 30, 1999. After approximately 10 years of developing and using the AmeriHost Inn(R) name exclusively for the Company's own account and for joint ventures in which the Company maintains an ownership interest, the Company has begun to franchise the AmeriHost Inn(R) brand name. Currently, the Company is qualified to sell AmeriHost Inn(R) hotel franchises in all 50 states and Canada and Mexico. To date, the Company has entered into nine AmeriHost Inn(R) franchise agreements, including six with entities in which the Company has a partial ownership interest. However, the Company does not anticipate the franchising activity to have a significant impact on the operations of the Company in 1999, and there can be no assurance that the Company will be successful in selling AmeriHost Inn(R) franchises in the future. 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. As a result of the Company's focus on increasing the number of Consolidated hotels, the revenues from the hotel operations segment have increased as a percentage of the Company's overall revenues. The Company has begun to realize revenues in 1999 from its newly formed AmeriHost Inn(R) franchising segment. Franchise fees are recognized pursuant to franchise agreements with minority-owned entities and unrelated third parties. 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, as well as the sale of wholly-owned properties which have been built by the company and held for sale for less than one year. The Company also receives revenue from management and employee leasing services provided to minority-owned hotels and unrelated third parties. The results for the first nine months of 1999 were consistent with the Company's objective of establishing the AmeriHost Inn(R) hotel franchising department. In addition, due to the Company's focus on developing and constructing a significant number of Consolidated AmeriHost Inn(R) hotels during 1998 and the first part of 1999, as well as acquiring the remaining ownership interests in a significant number of AmeriHost Inn(R) hotels which were previously minority-owned, the Company recognized lower revenues from the development and construction of hotels for minority-owned and unrelated third parties during 1999. In conjunction with the Company's objective of building a franchising segment, the Company decided to develop AmeriHost Inn hotels to be held for sale to potential franchisees. The sale of these hotels held for sale are included in the Company's hotel development segment. During the third quarter of 1999, the Company sold three of its Consolidated AmeriHost Inn(R) hotels to franchisees, two of which were recorded as operational transactions in the hotel development segment. This strategy has a short-term positive impact on revenues and earnings from the sale, while allowing the Company to benefit from a long-term franchise agreement. Revenues from Consolidated AmeriHost Inn(R) hotels increased 36.1% and 67.4% to $14.7 million and $37.9 million during the third quarter and first nine months of 1999, respectively, from revenues of $10.8 million and $22.6 million during the third quarter and first nine months of 1998, due to the net addition of 19 Consolidated AmeriHost Inn(R) hotels during the past fifteen months. Revenues from the hotel management and employee leasing segments decreased by 44.2% and 44.8% in total during the third quarter and first nine months of 1999, due primarily to the acquisition of the remaining ownership interest in 17 minority-owned joint venture hotels during the last fifteen months, 16 of which are AmeriHost Inn(R) hotels. Revenues from Consolidated non-AmeriHost Inn(R) hotels decreased .2% and 12.8% during the third quarter and first nine months of 1999, compared to 1998, primarily as a result of the disposition of one Consolidated non-AmeriHost Inn(R) hotel during the second quarter of 1998 and the disposition of another in the third quarter of 1999. Total revenues increased 32.7% and 13.8% to $25.8 million and $59.6 million during the third quarter and first nine months of 1999, respectively, from $19.4 million and $52.4 million during the third quarter and first nine months of 1998. The Company recorded a net income of $1.5 million for the third quarter of 1999, or $0.27 per diluted share, compared to net income of $844,236, or $0.13 per diluted share in 1998. 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 increased 28.9% and 29.3% to $6.7 million and $13.4 million during the three and nine months ended September 30, 1999, respectively, from $5.2 million and $10.4 million during the three and nine months ended September 30, 1998. An EBITDAR schedule is included herein. On June 30, 1998, the Company completed the sale of 26 AmeriHost Inn(R) hotels to PMC Commercial Trust ("PMC") for $62.2 million. The Company sold an additional four AmeriHost Inn(R) hotels to PMC during March 1999 for $10.8 million. Upon the sale to PMC, 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. Amerihost had an ownership interest in 85 hotels at September 30, 1999 versus 86 hotels at September 30, 1998 (excluding hotels under construction). These figures include a net increase of three Consolidated hotels, from 67 at September 30, 1998 to 70 at September 30, 1999. RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 Revenues increased 32.7% and 13.8% to $25.8 million and $59.6 million during the three and nine months ended September 30, 1999, respectively, from $19.4 million and $52.4 million during the three and nine months ended September 30, 1998. The increase in revenue from the Consolidated AmeriHost Inn(R) hotels was partially offset by the decreases from the hotel management and employee leasing segments, a decrease from the hotel development and construction segment, as well as the decrease from non-AmeriHost Inn(R) hotel operations. Hotel operations revenue increased 26.4% and 40.4% to $18.6 million and $47.9 million during the three and nine months ended September 30, 1999, respectively, from $14.7 million and $34.1 million during the three and nine months ended September 30, 1998. Revenues from Consolidated AmeriHost Inn(R) hotels increased 36.1% and 67.4% to $14.7 million and $37.9 million during the three and nine months ended September 30, 1999, respectively, from $10.8 million and $22.6 million during the three and nine months ended September 30, 1998. These increases were attributable primarily to the net addition of 19 Consolidated AmeriHost Inn(R) hotels from July 1, 1998 through September 30, 1999, including the addition of seven newly constructed Consolidated AmeriHost Inn(R) hotels, and the acquisition of additional ownership interest in 16 existing hotels causing them to become Consolidated AmeriHost Inn(R) hotels, as well as an increase in same room revenues, offset by the sale of four Consolidated AmeriHost Inn(R) hotels. The increase in Consolidated AmeriHost Inn(R) hotel revenue was offset by a .2% and 12.8% decrease in Consolidated other brand hotel revenue during the three and nine month periods, respectively. This decrease was primarily the result of the sale of one non-AmeriHost Inn(R) Consolidated hotel, partially offset by the acquisition of one non-AmeriHost Inn(R) Consolidated hotel. The hotel operations segment included the operations of 70 Consolidated hotels (including 62 AmeriHost Inn(R) hotels) comprising 4,922 rooms at September 30, 1999, compared to 67 Consolidated hotels (including 59 AmeriHost Inn(R) hotels) comprising 4,784 rooms at September 30, 1998. After considering the Company's ownership interest in the majority-owned Consolidated hotels, this translates to 4,653 and 4,515 equivalent owned rooms as of September 30, 1999 and 1998, respectively, or an increase of 3.1%. 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 262.2% and decreased 26.3% to $5.3 million and $5.8 million during the three and nine months ended September 30, 1999, respectively, from $1.5 million and $7.9 million during the three and nine months ended September 30, 1998. The Company was not constructing any hotels for minority-owned entities or unrelated third parties during the third quarter of 1999, compared to five hotels during the three months ended September 30, 1998. However, the Company sold two AmeriHost Inn(R) hotels for $5.2 million in the third quarter of 1999 to franchisees which was recognized as development revenue. The Company had several additional projects in various stages of pre-construction development during both nine-month periods. Hotel management revenue decreased 53.8% and 51.1% to $287,128 and $942,202 during the three and nine months ended September 30, 1999, respectively, from $621,839 and $1.9 million during the three and nine months ended September 30, 1998. The number of hotels managed for third parties and minority-owned entities decreased from 26 hotels, representing 2,222 rooms, at September 30, 1998 to 18 hotels, representing 1,696 rooms, at September 30, 1999. The addition of a management contract for one newly constructed hotel (72 rooms) was more than offset by the termination of two management contracts (120 rooms) with minority-owned entities as a result of the sale of the hotels (non-AmeriHost Inn(R) hotels), the termination of three management contracts (196 rooms) with minority-owned hotels which became Consolidated hotels due to the Company acquiring additional ownership interests, and the termination of four management contracts with unrelated third parties (282 rooms). Employee leasing revenue decreased 41.9% and 43.4% to $1.5 million and $4.7 million during the three and nine months ended September 30, 1999, respectively, from $2.6 million and $8.4 million during the three and nine months ended September 30, 1998, due primarily to the reduction in hotels managed for minority-owned entities and unrelated third parties as described above, and the associated decrease in payroll costs which is the basis for the employee leasing revenue. Franchising realized revenues of $171,066 during its initial nine months of operation through the third quarter of 1999, consisting primarily of initial franchise fees from newly franchised hotels and the royalty fees from these franchised hotels which are based on the hotel's operational revenue. As of September 30, 1999, the Company has three franchise agreements with independent third parties, and has executed additional franchise agreements with certain existing AmeriHost Inn hotel joint ventures. Total operating costs and expenses increased 35.0% and 9.1% to $18.5 million (71.8% of total revenues) and $44.8 million (75.1% of total revenues) during the three and nine months ended September 30, 1999, respectively, from $13.7 million (70.6% of total revenues) and $41.0 million (78.3% of total revenues) during the three and nine months ended September 30, 1998. Operating costs and expenses in the hotel operations segment increased 28.2% and 39.5% to $12.0 million and $33.9 million during the three and nine months ended September 30, 1999, respectively, from $9.4 million and $24.3 million during the three and nine months ended September 30, 1998. These increases resulted primarily from the net addition of 19 Consolidated hotels to this segment during the last fifteen months, and are directly related to the 26.4% and 40.4% increase in Consolidated hotel revenues during the three and nine months ended September 30, 1999, respectively. Hotel operations segment operating costs and expenses as a percentage of segment revenue increased to 64.7% during the three months ended September 30, 1999, from 63.8% during the three months ended September 30, 1998. Hotel operations segment operating costs and expenses as a percentage of segment revenue decreased to 70.7% during the nine months ended September 30, 1999, from 71.1% during the nine months ended September 30, 1998. Operating costs and expenses as a percentage of revenues for the Consolidated hotels increased slightly during the three month period ended September 30, 1999 due primarily to higher operating costs for the non-AmeriHost Inn(R) properties. Operating costs and expenses as a percentage of revenues for the Consolidated hotels decreased slightly during the nine month period ended September 30, 1999 due to fewer AmeriHost Inn(R) hotels operating during their pre-stabilization period in the first nine months of 1999 compared to the first nine months of 1998. Operating costs and expenses for the hotel development segment increased 204.8% to $4.5 million during the three months ended September 30, 1999, from $1.5 million during the three months ended September 30, 1998, consistent with the 262.2% increase in hotel development revenues for the three months ended September 30, 1998. Operating costs and expenses for the hotel development segment decreased 32.6% to $5.1 million during the nine months ended September 30, 1999, from $7.5 million during the nine months ended September 30, 1998, consistent with the 26.3% decrease in hotel development revenues for the nine months ended September 30, 1999. Operating costs and expenses in the hotel development segment as a percentage of segment revenue decreased to 85.0% during the three months ended September 30, 1999, from 101.0% during the three months ended September 30, 1998. The third quarter of 1999 consisted primarily of the sale of two AmeriHost Inn(R) hotels to franchisees, which results in a lower percentage of operating costs compared to construction activity. The third quarter of 1998 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 86.6% during the nine months ended September 30, 1999, from 94.7% during the nine months ended September 30, 1998, as a result of the sale of two hotels described above in relation to actual construction activity that has higher operating costs. Hotel management segment operating costs and expenses decreased 35.0% and 32.0% to $206,080 and $717,255 during the three and nine months ended September 30, 1999, respectively, from $316,815 and $1.1 million during the three and nine months ended September 30, 1998. This decrease was 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 decreased 41.2% and 43.3% to $1.5 million and $4.6 million during the three and nine months ended September 30, 1999, respectively, from $2.6 million and $8.2 million during the three and nine months ended September 30, 1998, which is consistent with the 42.0% and 43.4% decrease in segment revenue for the three and nine months ended September 30, 1999. Franchising had operating costs and expenses of $295,420 and $488,036 during the three and nine months ended September 30, 1999, which is the initial nine months of operations. Depreciation and amortization expense decreased 6.8% and 8.4% to $1.1 million and $3.7 million during the three and nine months ended September 30, 1999, respectively, from $1.2 million and $4.0 million during the three and nine months ended September 30, 1998. The decrease was primarily attributable to the sale and leaseback of 30 hotels, 26 of which closed on June 30, 1998 and four of which closed in March 1999, and the sale of five additional hotels that closed in 1999, partially offset by the addition of 24 Consolidated hotels to the hotel operations segment and the resulting depreciation and amortization therefrom. The Company does not recognize any depreciation on the assets sold in the sale/leaseback transaction. Leasehold rents - hotels increased 18.8% and 124.2% to $1.8 million and $5.6 million during the three and nine months ended September 30, 1999, respectively, compared to $1.5 million and $2.5 million during the three and nine months ended September 30, 1998. The increase is attributable to the sale and leaseback transaction with PMC. The Company anticipates leasehold rents - hotels to increase significantly in comparison to 1998, but to remain relatively constant after 1999. Corporate general and administrative expense increased 0.3% and 4.2% to $404,259 and $1.2 million during the three and nine months ended September 30, 1999, respectively, from $402,905 and $1.1 million during the three and nine months ended September 30, 1998, and can be attributed primarily to the overall growth of the Company. The Company's operating income increased 53.0% to $3.9 million during the three months ended September 30, 1999 from $2.6 million during the three months ended September 30, 1998. The Company's operating income increased by 18.7% during the nine months ended September 30, 1999 to $4.4 million from $3.7 million for the nine months ended September 30, 1998. 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 62.9% and 50.7% to $3.2 million and $4.7 million during the three and nine months ended September 30, 1999, respectively, from $1.9 million and $3.1 million during the three and nine months ended September 30, 1998. These increases in operating income were due to the increased number of Consolidated AmeriHost Inn(R) hotels and the increase in same room revenues as a significant number of recently opened Consolidated AmeriHost Inn(R) hotels were still operating in 1998 during their pre-stabilization period when revenues are typically lower. Operating income from the hotel development segment increased to $785,093 during the three months ended September 30, 1999, from a loss of ($35,849) during the three months ended September 30, 1998 and increased to $760,491 during the first nine months of 1999 from $363,216 during the first nine months of 1998. 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 third quarter and first nine months of 1998, compared with the third quarter and first nine months of 1999, the overall decrease in the number of hotels developed and constructed for third parties and minority-owned entities during 1999, and the sale of two AmeriHost Inn(R) hotels held for sale during the third quarter of 1999 which were included in operating income. The hotel management segment had operating income of $67,025 and $188,844 during the three and nine months ended September 30, 1999, from operating income of $210,902 and $593,868 during the three and nine months ended September 30, 1998. This decrease was due primarily to fewer hotels managed during the past twelve months for unrelated third parties and minority-owned properties, and the expensing of start-up costs as incurred during 1999. Employee leasing operating income decreased 65.0% and 47.1% to $30,009 and $111,087 during the three and nine months ended September 30, 1999, respectively, from $85,654 and $209,886 during the three and nine months ended September 30, 1998, due to the decrease in employee leasing agreements with minority-owned entities and unrelated third parties. Interest expense increased 40.5% and 1.8% to $1.6 million and $4.8 million during the three and nine months ended September 30, 1999, respectively, from $1.2 million and $4.7 million during the three and nine months ended September 30, 1998. This increase was primarily attributable to the additional mortgage financing of newly constructed and acquired Consolidated hotels, offset by the sale and leaseback transaction with PMC, whereby the Company does not incur any interest expense on the sold hotels after the sale dates. The Company's share of equity in income (loss) of affiliates was ($45,735) during the three months ended September 30, 1999, compared to ($38,410) during the three months ended September 30, 1998. The Company's share of equity in income (loss) of affiliates was ($6,019) during the nine months ended September 30, 1999, compared to $6,647 during the nine months ended September 30, 1998. The changes in equity of affiliates were primarily attributable to additional newly opened AmeriHost Inn(R) hotels operating during their initial stabilization period when revenues are typically lower, offset by the sale of one minority-owned property in the second quarter of 1999 at a significant gain. Distributions from affiliates were $246,754 during the nine months ended September 30, 1999, compared to $1.1 million during the nine months ended September 30, 1998. 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 proceeds from the sale of assets held for sale; (iii) fees from management contracts; (iv) fees from employee leasing services; and (v) fees from franchise agreements. 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 are typically received within ten days from the end of each month. During the first nine months of 1999, the Company used cash for operations of $539,281, compared to cash provided from operations of $1.8 million during the first nine months of 1998, or an increase in cash used by operations of $2.4 million. The decrease in cash flow from operations during the first nine months of 1999, when compared to 1998, can be attributed to the increasing impact of seasonality as the number of Consolidated hotels increased from 67 hotels at September 30, 1998 to 70 hotels at September 30, 1999, a significant number of hotels still operating during their pre-stabilization period. In addition, the first nine 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; (iii) the making of loans to affiliated and non-affiliated hotels for the purpose of construction, renovation and working capital; and (iv) the purchase of property and equipment held for sale. During the first nine months of 1999, the Company received $13.7 million from investing activities compared to receiving $23.4 million during the first nine months of 1998. During the first nine months of 1999, the Company received $15.4 million from the sale of four hotels, used $940,969 to purchase property and equipment for Consolidated hotels, and used $693,777 for investments in and advances to affiliates, net of distributions and collections, and used $260,648 for the acquisition of a hotel partnership interest, net of cash acquired. During the first nine months of 1998, the Company received $64.4 million from the sale of hotels, used $32.9 million to purchase property and equipment for Consolidated hotels, used $328,803 for investments in and advances to affiliates, net of distributions and collections, and used $7.8 million for the acquisition of hotel partnership interests, net of cash acquired. Cash used in financing activities was $11.2 million during the first nine months of 1999 compared to cash used by financing activities of $22.2 million during the first nine months of 1998. In 1999, the primary factors were principal repayments of $17.1 million, including the repayment of mortgages in connection with the sale of hotels, offset by $7.2 million in proceeds from the mortgage financing of Consolidated hotels, and net proceeds of $2.7 million on the Company's operating line-of-credit. Also, the Company used cash of $3.9 million to repurchase its own common stock. In 1998, the contributing factors were repayments of $22.9 million from the mortgage financing of Consolidated hotels, net of principal repayments, and $1.3 million in net proceeds from the Company's operating line-of-credit. At September 30, 1999, the Company had $4.7 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 May 15, 2000. At September 30, 1999, the Company also had outstanding $2.25 million of unsecured 7% Subordinated Notes. The 7% Subordinated Notes matured on October 9, 1999 and were paid in full by the Company with operational cash flow and proceeds from its line-of-credit. The Company expects cash from operations to be sufficient to pay all operating and interest expenses in 1999. YEAR 2000 The Year 2000 issue is the result of computer systems that use two digits rather than four to define the applicable year, which may prevent such systems from accurately processing dates ending in the year 2000 and after. This could result in system failures or in miscalculations causing disruption of operations, including, but not limited to, an inability to process transactions, to send and receive electronic data, or to engage in routine business activities and operations. In 1997, the Company established a Year 2000 task force to develop and implement a Year 2000 compatibility program. The Company developed a Year 2000 compatibility plan, and has completed the audit, assessment and scope phases of the plan. The Company's compatibility plan included purchasing and installing software releases which are Year 2000 compatible as well as testing these systems. In addition, the Company has evaluated computer hardware, such as personal computers, as well as critical equipment used at the Company's hotels. The Company is presently in the process of finalizing the remediation of any critical systems which are not Year 2000 compatible. The Company's goal is to complete the remediation of these systems by November 30, 1999. In addition to reviewing its internal systems, the Company has had formal communications with its significant vendors concerning Year 2000 compliance, including electronic commerce. There can be no assurance that the systems of other companies that interact with the Company will be sufficiently Year 2000 compatible so as to avoid an adverse impact on the Company's operations, financial condition and results of operations. The Company does not believe that its products and services involve any Year 2000 risks. The Company does not presently anticipate that the costs to address the Year 2000 issue will have a material adverse effect on the Company's financial condition, results of operation or liquidity. The Company presently anticipates that it will complete its Year 2000 assessment and remediation by November 30, 1999. However, there can be no assurance that the Company will be successful in implementing its Year 2000 remediation plan according to the anticipated schedule. In addition, the Company may be adversely affected by the inability of other companies who have not provided Year 2000 readiness information, whose systems interact with the Company to become Year 2000 compatible, and by potential interruptions of utility, communication or transportation systems as a result of Year 2000 issues. Although the Company expects its internal systems to be Year 2000 compliant as described above, the Company has prepared a contingency plan that specifies what it plans to do if it or important external companies are not Year 2000 compatible in a timely manner. THIS IS A YEAR 2000 READINESS DISCLOSURE STATEMENT WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT (P.L. 105-271). This report contains certain forward-looking statements which involve risks and uncertainties. When used in this report, the words "believe," "anticipate," "think," "intend," "goal," "forecast," "expect," and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning anticipated income from operations and net income for fiscal 1999. Such statements are subject to certain risks and uncertainties which would cause actual results to differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements which speak only as of the date of this report. 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 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 no 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. AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES SCHEDULE OF EARNINGS BEFORE INTEREST/RENT, TAXES AND DEPRECIATION/AMORTIZATION (UNAUDITED)
===================================================================================================================== Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------ --------------------------------- 1999 1998 1999 1998 ----------- ----------- --------------- -------------- Revenue $ 25,793,599 $19,429,557 $ 59,600,797 $ 52,360,200 Operating costs and expenses 18,522,950 13,725,257 44,761,784 41,008,335 -------------- ----------- --------------- -------------- 7,270,649 5,704,300 14,839,013 11,351,865 Corporate general and administrative (404,259) (402,905) (1,181,454) (1,133,625) Equity in net income and losses of affiliates (45,735) (38,410) (6,019) 6,647 -------------- ----------- --------------- -------------- Earnings before minority interests 6,820,655 5,262,985 13,651,540 10,224,887 Minority interests in earnings of consolidated subsidiaries and partnerships (152,142) (90,489) (242,169) 142,639 -------------- ----------- --------------- -------------- Earnings before interest/rent, taxes and depreciation/amortization $ 6,668,513 $ 5,172,496 $ 13,409,371 $ 10,367,526 ============== =============== =============== ==============
PART II: Other Information Item 4. Submission of Matters to a Vote of Securities Holders: - ------ There were no matters submitted to a vote of securities holders during the three months ended September 30, 1999. 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: November 10, 1999 By: /s/ James B. Dale ---------------------------------------- James B. Dale Treasurer/Senior Vice President, Finance By: /s/ Michael E. Kirk ---------------------------------------- Michael E. Kirk Corporate Controller EX-27 2
5 9-MOS 9-MOS DEC-31-1999 DEC-31-1998 SEP-30-1999 SEP-30-1998 6,456,726 5,345,982 0 0 2,959,404 3,586,917 0 0 0 0 11,296,719 13,920,794 94,778,086 95,844,746 15,472,466 13,876,489 105,009,331 112,212,012 15,421,174 15,070,288 0 0 0 0 0 0 25,533 30,889 14,922,978 20,984,007 105,009,331 112,212,012 59,600,797 52,360,200 59,600,797 52,360,200 44,761,784 41,008,335 44,761,784 41,008,335 10,392,303 7,604,166 0 0 4,801,889 4,719,408 1,005,537 (139,485) 431,000 (57,000) 574,537 (82,485) 0 0 0 (332,738) 0 0 547,537 (415,223) 0.10 (0.07) 0.08 (0.08)
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