<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996 Commission File No. 1-14062
BRISTOL HOTEL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-2584227
(State of Incorporation) (I.R.S. Employer
Identification Number)
14285 Midway Road, Suite 300
Dallas, Texas 75244
(Address of principal executive offices)
214-788-0001
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares of common stock, par value $.01 per share, outstanding
at November 14, 1996, was 16,565,840.
================================================================================
<PAGE>
BRISTOL HOTEL COMPANY
INDEX
-----
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
-----------------------------------------
BRISTOL HOTEL COMPANY
Condensed Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995 and pro forma
for the three months ended September 30, 1995 4
Condensed Consolidated Statements of Income for the nine
months ended September 30, 1996 and the eight months
ended September 30, 1995 and pro forma for the nine
months ended September 30, 1995 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and the eight months ended
September 30, 1995 6
Notes to Condensed Consolidated Financial Statements 7-8
BRISTOL HOTEL ASSET COMPANY
Condensed Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 9
Condensed Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995 10
Condensed Consolidated Statements of Income for the nine
months ended September 30, 1996 and the eight months
ended September 30, 1995 11
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and the eight months ended
September 30, 1995 12
Notes to Condensed Consolidated Financial Statements 13
Item 2. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition 14-16
----------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
------------------------------------------
SIGNATURE 17
2
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 9,494 $ 7,906
Marketable securities...................... 79 726
Accounts receivable, net................... 11,436 10,959
Inventory.................................. 3,300 2,880
Deposits and other current assets.......... 7,455 9,661
-------- --------
Total current assets..................... 31,764 32,132
Property and equipment, net.................. 542,940 470,705
Other assets:
Restricted cash............................ 3,572 620
Deferred charges and other non-current
assets, net.............................. 7,916 9,444
-------- --------
Total assets............................. $586,192 $512,901
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.......... $ 6,939 $ 6,582
Accounts payable and accrued expenses...... 9,806 17,091
Accrued construction costs................. 3,359 4,457
Accrued property, sales and use taxes...... 6,294 6,110
Accrued insurance reserves................. 7,024 6,014
Advance deposits........................... 299 304
-------- --------
Total current liabilities................ 33,721 40,558
Long-term debt, excluding current portion.... 224,238 163,962
Deferred income taxes........................ 76,379 69,448
Other liabilities............................ 2,503 2,811
-------- --------
Total liabilities........................ 336,841 276,779
-------- --------
Common stock ($.01 par value; 75,000,000 shares
authorized, 16,565,840 shares issued and
outstanding)............................... 166 166
Additional paid-in capital................... 231,051 232,633
Unrealized gain on marketable securities, net -- 262
Retained earnings............................ 18,134 3,061
-------- --------
Total stockholders' equity................. 249,351 236,122
-------- --------
Total liabilities and stockholders' equity. $586,192 $512,901
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND
PRO FORMA FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------- -------------
Three Months
Ended
Three Months Ended September 30, September 30,
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C>
Revenue:
Rooms................................. $ 43,578 $ 32,873 $ 32,931
Food and beverage..................... 9,717 9,228 9,234
Other operating departments........... 5,276 4,104 4,102
-------- -------- --------
Total revenue........................ 58,571 46,205 46,267
-------- -------- --------
Operating costs and expenses:
Departmental expenses:
Rooms................................ 10,518 9,673 9,658
Food and beverage.................... 7,437 7,608 7,587
Other operating departments.......... 1,174 1,295 1,285
Undistributed operating expenses:
Administrative and general........... 4,576 5,586 4,776
Marketing............................ 3,963 4,035 3,686
Property occupancy costs............. 7,312 7,415 7,340
Depreciation and amortization........ 4,983 3,866 3,586
Corporate expense.................... 2,535 1,243 2,366
-------- -------- --------
Operating income....................... 16,073 5,484 5,983
Other expenses:
Interest expense...................... 5,258 5,686 4,165
Other................................. -- 204 4
------- -------- --------
Net income (loss) before income taxes.. 10,815 (406) 1,814
Income taxes........................... 3,980 (116) 653
------- --------- --------
Net income (loss)...................... $ 6,835 $ (290) $ 1,161
======= ======== ========
Net income (loss) per common share..... $ 0.40 $ (.02) $ .07
======= ======== ========
Weighted average number of common and
common equivalent shares outstanding. 17,019 11,653 16,872
======= ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE EIGHT MONTHS ENDED
SEPTEMBER 30, 1995 AND PRO FORMA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- -------------
Nine Months Eight Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
1996 1995 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Rooms............................ $ 114,846 $ 85,259 $ 97,158
Food and beverage................ 31,115 24,575 28,140
Other operating departments...... 13,524 9,321 10,344
----------- --------- ---------
Total revenue................. 159,485 119,155 135,642
----------- --------- ---------
Operating costs and expenses:
Departmental expenses:
Rooms.......................... 28,325 24,133 27,681
Food and beverage.............. 22,618 18,729 21,401
Other operating departments.... 3,462 3,076 3,340
Undistributed operating expenses:
Administrative and general..... 13,377 11,598 12,883
Marketing...................... 11,480 8,481 9,446
Property occupancy costs....... 21,109 18,339 20,405
Depreciation and amortization.. 13,392 9,482 10,364
Corporate expense.............. 8,049 5,596 6,252
----------- --------- ---------
Operating income................... 37,673 19,721 23,870
Other expenses:
Interest expense................. 13,824 12,931 11,971
Other............................ -- 411 74
----------- --------- ---------
Net income before income taxes..... 23,849 6,379 11,825
Income taxes....................... 8,776 2,345 4,257
----------- --------- ---------
Net income......................... $ 15,073 $ 4,034 $ 7,568
=========== ========= =========
Net income per common share........ $ .89 $ 0.33 $ 0.45
=========== ========= =========
Weighted average number of common
and common equivalent shares
outstanding...................... 17,016 12,313 16,872
=========== ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
THE EIGHT MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Eight Months
Ended Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 15,073 $ 4,034
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization.............. 13,392 9,482
Amortization of deferred financing costs... 1,224 --
Other...................................... (269) 173
Changes in working capital..................... (4,825) (454)
Decrease in advance deposits................... (5) (630)
Increase in restricted cash.................... (2,952) (1,549)
Increase in deferred income taxes.............. 6,931 155
Decrease in other liabilities.................. (308) (691)
--------- ---------
Cash provided by operating activities....... 28,261 10,520
--------- ---------
Cash flows from investing activities:
Improvements to property
and equipment................................. (79,327) (48,953)
Sale (purchase) of
property and equipment........................ (6,300) 4,711
--------- ---------
Cash used in investing activities........... (85,627) (44,242)
--------- ---------
Cash flows from financing activities:
Proceeds from short-term
loan from affiliate........................... -- 16,500
Repayments of long-term debt................... (4,284) (10,930)
Proceeds from line of credit and
long-term borrowings.......................... 64,602 33,988
Payment of offering costs...................... (1,342) --
Increase in deferred charges and
other non-current assets...................... (22) (2,150)
Decrease in accounts receivable - affiliate.... -- 536
Decrease in distributions payable.............. -- (4,140)
--------- ---------
Cash provided by financing activities...... 58,954 33,804
--------- ---------
Net increase in cash and cash equivalents........ 1,588 82
Cash and cash equivalents at beginning of period. 7,906 5,413
--------- ---------
Cash and cash equivalents at end of period....... $ 9,494 $ 5,495
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Bristol Hotel Company (the "Company") began operations in February 1995 to
act as a holding company in connection with the acquisitions of Harvey Hotel
Company, Ltd. and its subsidiaries (together, "Harvey Hotel Companies") and
United Inns, Inc. ("United Inns"). The Company owns and/or operates 39 hotels
located primarily in the southern United States. Prior to February 1995, ten of
the hotels had been owned or operated by Harvey Hotel Companies and 26 hotels
were owned by United Inns. Two additional hotels were acquired by the Company
subsequent to June 1995 and in May, 1996 the Company acquired the Holiday Inn in
Plano, Texas. In December 1995, the Company completed an initial public offering
of its common stock (the "Offering") raising approximately $88.6 million in net
proceeds. Concurrently, the Company refinanced approximately $138 million of
mortgage indebtedness with proceeds of the Offering and the private issuance of
$70 million aggregate principal amount of senior secured notes ("Senior Notes").
The condensed pro forma statements of income for the three months and the nine
months ended September 30, 1995, reflect the operations and/or management of all
hotels excluding the Holiday Inn - Plano for the entire periods and excludes the
operations of the Holiday Inn-Silber which was sold by the Company in July,
1995. Interest expense in the pro forma income statements reflect the
refinancing of the mortgage indebtedness.
The condensed consolidated balance sheet at December 31, 1995, has been
condensed from the audited balance sheet at that date. The condensed
consolidated balance sheet at September 30, 1996, the condensed consolidated
statements of income for the three and nine months ended September 30, 1996, and
the three and eight months ended September 30, 1995, and the condensed
consolidated statements of cash flow for the nine months ended September 30,
1996 and the eight months ended September 30, 1995, have been prepared by the
Company and are unaudited. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at September 30, 1996,
and for the periods presented have been made. Interim results are not
necessarily indicative of fiscal year performance because of seasonal and short-
term variations.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the eleven months ended December 31,
1995.
2. MARKETABLE SECURITIES
Prior to May, 1996, the Company classified equity securities as Available-
for-Sale Securities (per FAS 115 -Accounting for Certain Investments in Debt and
Equity Securities) and the unrealized gains were reported as a separate
component of shareholders' equity. In May 1996, management resolved to sell the
equity securities during 1996, and accordingly, the securities were reclassified
as Trading Securities and an unrealized gain of approximately $0.45 million was
recorded in earnings in the second quarter of 1996. Substantially all of the
securities were sold in the third quarter of 1996.
3. LITIGATION SETTLEMENTS
In August, 1996, the Company settled all remaining litigation with one of
the daughters of H.K. Huie, Jr., the founder of the Harvey Hotels business,
related to the purchase by the Company of the Harvey Hotel Companies (the
"Chenault Litigation"). The Company had reserved $1.65 million related to this
litigation. The Company paid $0.75 million in final settlement of this
litigation during the third quarter. As a result, the Company recognized $0.9
million ($0.6 million after tax) as other income during the third quarter of
1996.
7
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. LONG-TERM DEBT
Included in long-term debt for the Company are Senior Notes totaling $70
million. These notes, which bear interest at 11.22% and mature December 18,
2000, are secured by a first-priority pledge of all outstanding shares of
capital stock of Bristol Hotel Asset Company, a Delaware corporation and wholly
owned subsidiary of the Company.
The following financial statements are for Bristol Hotel Asset Company,
which is a guarantor of the Senior Notes.
8
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,494 $ 7,906
Marketable securities............................. 79 726
Accounts receivable, net.......................... 11,436 10,959
Inventory......................................... 3,300 2,880
Deposits and other current assets................. 7,455 9,661
-------- -------
Total current assets........................... 31,764 32,132
Property and equipment, net......................... 542,940 470,705
Other assets:
Restricted cash................................... 3,572 620
Deferred charges and other non-current assets, net 7,916 9,444
-------- --------
Total assets................................... $586,192 $512,901
======== ========
LIABILITES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................. $ 6,939 $ 6,582
Accounts payable and accrued expenses............. 9,698 16,911
Accrued construction costs........................ 3,359 4,457
Accrued property, sales and use taxes............. 6,294 6,110
Accrued insurance reserves........................ 7,024 6,014
Advance deposits.................................. 299 304
-------- --------
Total current liabilities...................... 33,613 40,378
Long-term debt, excluding current portion........... 156,003 96,062
Deferred income taxes............................... 76,379 69,448
Other liabilities................................... 2,503 2,811
-------- --------
Total liabilities.............................. 268,498 208,699
-------- --------
Common stock ($.01 par value; 1,000 shares
authorized, 1,000 shares issued and outstanding) -- --
Additional paid-in capital.......................... 295,586 300,699
Unrealized gain on marketable securities, net....... -- 262
Retained earnings................................... 22,108 3,241
-------- --------
Total stockholder's equity..................... 317,694 304,202
-------- --------
Total liabilities and stockholder's equity..... $586,192 $512,901
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
9
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Revenue:
Rooms......................................... $ 43,578 $ 32,873
Food and beverage............................. 9,717 9,228
Other operating departments................... 5,276 4,104
--------- ---------
Total revenue.............................. 58,571 46,205
--------- ---------
Operating costs and expenses:
Departmental expenses:
Rooms....................................... 10,518 9,673
Food and beverage........................... 7,437 7,608
Other operating departments................. 1,174 1,295
Undistributed operating expenses:
Administrative and general.................. 4,576 5,586
Marketing................................... 3,963 4,035
Property occupancy costs.................... 7,312 7,415
Depreciation and amortization............... 4,983 3,866
Corporate expense........................... 2,535 1,243
--------- ---------
Operating income................................ 16,073 5,484
Other expenses:
Interest expense.............................. 3,179 5,686
Other......................................... -- 204
---------- ---------
Net income (loss) before income taxes........... 12,894 (406)
Income taxes.................................... 4,745 (116)
---------- ---------
Net income (loss)............................... $ 8,149 $ (290)
========== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
10
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
THE EIGHT MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Eight Months
Ended Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Revenue:
Rooms......................................... $ 114,846 $ 85,259
Food and beverage............................. 31,115 24,575
Other operating departments................... 13,524 9,321
---------- ---------
Total revenue.............................. 159,485 119,155
---------- ---------
Operating costs and expenses:
Departmental expenses:
Rooms....................................... 28,325 24,133
Food and beverage........................... 22,618 18,729
Other operating departments................. 3,462 3,076
Undistributed operating expenses:
Administrative and general.................. 13,377 11,598
Marketing................................... 11,480 8,481
Property occupancy costs.................... 21,109 18,339
Depreciation and amortization............... 13,392 9,482
Corporate expense........................... 8,049 5,596
---------- ---------
Operating income................................ 37,673 19,721
Other expenses:
Interest expense.............................. 7,820 12,931
Other......................................... -- 411
---------- ---------
Net income before income taxes.................. 29,853 6,379
Income taxes.................................... 10,986 2,345
---------- ---------
Net income...................................... $ 18,867 $ 4,034
========== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
11
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
THE EIGHT MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Eight Months
Ended Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 18,867 $ 4,034
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 13,392 9,482
Amortization of deferred financing costs..... 1,224 --
Other........................................ (604) 173
Changes in working capital...................... (4,753) (454)
Decrease in advance deposits.................... (5) (630)
Increase in restricted cash..................... (2,952) (1,549)
Increase in deferred income taxes............... 6,931 155
Decrease in other liabilities................... (308) (691)
--------- --------
Cash provided by operating activities........ 31,792 10,520
--------- --------
Cash flows from investing activities:
Improvements to property and equipment.......... (79,327) (48,953)
Sale (purchase) of property and equipment....... (6,300) 4,711
--------- --------
Cash used in investing activities............ (85,627) (44,242)
-------- --------
Cash flows from financing activities:
Payments on behalf of Parent Company............ (3,531) --
Proceeds from short-term loan from affiliate.... -- 16,500
Payments of long-term debt...................... (4,284) (10,930)
Proceeds from line of credit and
long-term borrowings........................... 64,602 33,988
Payment of offering costs....................... (1,342) --
Increase in deferred charges and other
non-current assets............................. (22) (2,150)
Decrease in accounts receivable - affiliate..... -- 536
Decrease in distributions payable............... -- (4,140)
--------- --------
Cash provided by financing activities........ 55,423 33,804
--------- ---------
Net increase in cash and cash equivalents......... 1,588 82
Cash and cash equivalents at beginning of period.. 7,906 5,413
--------- --------
Cash and cash equivalents at end of period........ $ 9,494 $ 5,495
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
12
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Bristol Hotel Asset Company (the "Asset Company") was formed in November
1995 as a wholly owned subsidiary of Bristol Hotel Company (the "Parent
Company"). Upon formation, the equity interests of several entities owned by, or
under common control with, the Parent Company, were contributed to the Asset
Company. In December 1995, 15 entities (previously owned by United Inns, Inc.),
owning 24 hotels were merged into the Asset Company. The operating results of
the Asset Company are substantially the operating results of the Parent Company.
However, the Parent Company rather than the Asset Company, is the obligor on the
$70 million Senior Notes as discussed in Note 3 below.
The condensed consolidated balance sheet at December 31, 1995, has been
condensed from the audited balance sheet at that date. The condensed
consolidated balance sheets at September 30, 1996 and 1995, the condensed
consolidated statements of income for the three months and the nine months ended
September 30, 1996, and the three months and eight months ended September 30,
1995, and the condensed consolidated statements of cash flow for the nine months
ended September 30, 1996, and eight months ended September 30, 1995, have been
prepared by the Asset Company and are unaudited. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
September 30, 1996 and for the periods presented have been made. Interim results
are not necessarily indicative of fiscal year performance because of the impact
of seasonal and short-term variations.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the Parent
Company's Annual Report on Form 10-K for the eleven months ended December 31,
1995.
2. MARKETABLE SECURITIES
Prior to May, 1996, the Company classified equity securities as Available-
for-Sale Securities (per FAS 115 -Accounting for Certain Investments in Debt and
Equity Securities) and the unrealized gains were reported as a separate
component of shareholders' equity. In May, 1996, management resolved to sell the
equity securities during 1996, and accordingly, the securities were reclassified
as Trading Securities and an unrealized gain of approximately $0.45 million was
recorded in earnings in the second quarter of 1996. Substantially all of the
securities were sold during the third quarter of 1996.
3. COMMITMENTS AND CONTINGENCIES
The Asset Company is guarantor of the $70 million Senior Notes of the
Parent Company, which are also secured by a first-priority pledge of all
outstanding shares of capital stock of Asset Company. See Note 4 of the Parent
Company's Notes to Consolidated Condensed Financial Statements.
13
<PAGE>
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
- --------
As discussed in Note 1 to the Company's Notes to Condensed Consolidated
Financial Statements, the Company began operations in February 1995. Historical
results for 1995 include eight months of operations and/or management of the
original 36 hotels. The pro forma results for the three and nine months ended
September 30, 1995, include operations and/or management of the hotels currently
owned or managed by the Company except for Holiday Inn -Plano, which was
purchased in the second quarter 1996. Management believes that, due to the
substantial difference in comparability between the Company's historical results
for 1995 and 1996, the use of the pro forma results for 1995 provides a more
meaningful basis for comparison to 1996.
Results of Operations
- ---------------------
Three Months Ended September 30, 1996 Compared with Pro Forma Three Months Ended
- --------------------------------------------------------------------------------
September 30, 1995
- ------------------
Revenues increased $12.3 million, or 26.6%, to $58.6 million for 1996,
reflecting increases in all revenue categories, as discussed below.
Room revenues were $43.6 million for the three months ended September 30,
1996, an increase of $10.6 million, or 32.3%, from the comparable pro forma
period in 1995, due primarily to improved occupancy and average daily room rates
of 69.6% and $73.62, respectively, for the three months ended September 30,
1996, as compared to 67.4% and $61.61, respectively, for the same pro forma
period in 1995. The improvements in occupancy and average daily room rates are
primarily attributable to the successful repositioning and/or redevelopment of
many of the former United Inns hotels. It is estimated that the Summer Olympic
Games which were held in Atlanta in July, 1996 had a positive impact on
operating profit of approximately $3.4 million. The Company's Atlanta hotels,
representing approximately 25% of total rooms, experienced 100% occupancy during
the twenty days of the Olympic Games. The positive impact of the Olympics was
somewhat less than the Company had anticipated due to the interruption of
regular business travel patterns before and after the Olympics as well as
reduced food and beverage business during the Olympic Games.
Food and beverage revenues increased by $0.5 million to $9.7 million for
the three months ended September 30, 1996, from $9.2 million for the pro forma
three months ended September 30, 1995, due primarily to the higher occupancy
levels in the Company's hotels and increased sales effort in the banquet and
catering departments of the 26 hotels formerly owned by United Inns. Other
operating revenues increased 28.6% or by $1.2 million, to $5.3 million for the
three months ended September 30, 1996, due primarily to improved occupancy, the
increased emphasis on maximizing telephone revenue for the former United Inns
hotels and the gain related to the Chenault Litigation settlement discussed in
Note 3 of the Parent Company's Notes to Condensed Consolidated Financial
Statements.
Gross operating margin (consisting of total revenues less departmental
expenses, administrative and general expenses, marketing expenses and property
occupancy costs as a percentage of total revenues) for the three months ended
September 30, 1996 was 40.3% compared to 25.8% for the pro forma three months
ended September 30, 1995. The 14.5% point increase is due in part to increased
operating efficiencies in the property operations departments and the settlement
of the Chenault Litigation, offset slightly by increases in marketing expenses
and property occupancy costs. The increases in marketing expenses reflect the
restaffing and increased direct sales effort for the former United Inns hotels.
Property occupancy cost increases are due to increases in property taxes
primarily as a result of capital improvements and increases in land rentals
calculated as a percentage of revenues.
Depreciation increased $1.4 million for the three months ended September
30, 1996, compared to the pro forma three months ended September 30, 1995, as a
result of the significant capital improvements at several of the former United
Inn hotels.
14
<PAGE>
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Continued)
Three Months Ended September 30, 1996 Compared with Pro Forma Three Months Ended
- --------------------------------------------------------------------------------
September 30, 1995 (cont'd)
- ---------------------------
Interest expense increased by $1.1 million to $5.3 million in the three
months ended September 30, 1996, compared to the pro forma three months ended
September 30, 1995. This increase was due primarily to increased borrowings
during 1996 for renovation costs.
As a result of the factors described above, net income increased to $6.8
million for the three months ended September 30, 1996, from $1.2 million for the
pro forma three months ended September 30, 1995, an increase of 488.7%.
Nine Months Ended September 30, 1996 Compared with Pro Forma Nine Months Ended
- ------------------------------------------------------------------------------
September 30, 1995
- ------------------
Revenues increased $23.8 million, or 17.6%, to $159.5 million for 1996,
reflecting increases in all revenue categories, as discussed below.
Room revenues were $114.8 million for the nine months ended September 30,
1996, an increase of $17.7 million, or 18.2%, from the comparable pro forma
period in 1995, due primarily to improved occupancy and average daily room
rates. Occupancy for the three months ended March 31, 1996, the three months
June 30, 1996, and the three months ended September 30, 1996 increased over the
comparable pro forma periods of 1995, by a 3.2%, a 4.8%, and a 2.2% point
change, respectively. Average daily room rates for the three months ended March
31, 1996, the three months ended June 30, 1996, and the three months ended
September 30, 1996, increased over the comparable pro forma periods of 1995, by
7.9%, 5.0%, and 19.5% respectively. The improvements in occupancy and average
daily room rates are primarily attributable to the successful repositioning
and/or redevelopment of many of the former United Inns hotels, as well as the
impact of the Summer Olympics.
Food and beverage revenues improved by $3.0 million to $31.1 million for
the nine months ended September 30, 1996, from $28.1 million for the pro forma
nine months ended September 30, 1995, due primarily to the higher occupancy
levels in the Company's hotels and increased sales effort in the banquet and
catering departments of the 26 hotels formerly owned by United Inns.
Other operating revenues increased 30.7% or by $3.2 million, to $13.5
million for the nine months ended September 30, 1996, due primarily to improved
occupancy , the increased emphasis on maximizing telephone revenue for the
former United Inns hotels, the unrealized gain on marketable securities, and the
gain related to the settlement of the Chenault Litigation (see Notes 2 and 3 to
the Notes to the Condensed Consolidated Financial Statements, respectively, for
the discussions of the gain on marketable securities and the Chenault
Litigation).
Gross operating margin (consisting of total revenues less departmental
expenses, administrative and general expenses, marketing expenses and property
occupancy costs as a percentage of total revenues) for the nine months ended
September 30, 1996, was 37.1% compared to 29.8% for the pro forma nine months
ended September 30, 1995. The 7.3% percentage increase is due primarily to
increased operating efficiencies in the property operations departments, the
unrealized gain on marketable securities and the Chenault Litigation offset
slightly by increases in marketing expenses and property occupancy costs. The
increases in marketing expenses reflect the restaffing and increased direct
sales effort for the former United Inns hotels. Property occupancy cost
increases are due to increases in property taxes primarily as a result of
capital improvements and increases in land rentals calculated as a percentage of
revenues.
Depreciation increased $3.0 million for the nine months ended September 30,
1996, compared to the pro forma nine months ended September 30, 1995, primarily
as a result of the significant capital improvements at several of the former
United Inn hotels.
15
<PAGE>
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Continued)
Nine Months Ended September 30, 1996 Compared with Pro Forma Nine Months Ended
- ------------------------------------------------------------------------------
September 30, 1995 (cont'd)
- ---------------------------
Corporate expenses increased $1.8 million for the nine months ended
September 30, 1996 compared to the pro forma nine months ended September 30,
1995, primarily as a result of acquisition activities and additional costs
incurred in the first three months of 1996 to establish the Company as a public
entity.
Interest expense increased by $1.9 million to $13.8 million in the nine
months ended September 30, 1996, compared to the pro forma nine months ended
September 30, 1995. This increase was due primarily to increased borrowings
during 1996 for renovations and the purchase of the Holiday Inn -Plano.
As a result of the factors described above, net income increased to $15.1
million for the nine months ended September 30, 1996, from $7.6 million for the
pro forma nine months ended September 30, 1995, an increase of 99.2%.
Cash Flows and Financial Condition
- ----------------------------------
Cash provided from operating activities was $28.3 million for the nine
months ended September 30, 1996, as compared to $10.5 million for the eight
months ended September 30, 1995. The increase is attributable to the additional
one month reported in 1996 and improved operating results. This cash was
combined with cash available at the start of the year and borrowings under the
Term Agreement to fund over $79.3 million in renovation costs for properties in
the second and third phases of the Company's redevelopment program. Borrowings
under the Term Agreement were also used to fund the purchase of the Holiday Inn-
Plano in May, 1996.
EBITDA totaled $51.1 million for the nine months ended September 30, 1996,
compared to $28.8 million for the eight months ended September 30, 1995. EBITDA
was $16.9 million (49.4%) over the pro forma nine months ended September 30,
1995, primarily due to improved performance as a result of the successful
repositioning and/or redevelopment of many of the former United Inns hotels and
improved operating efficiencies.
The Company expects to finalize its redevelopment program in early 1997
with the completion of the Harvey Atlanta Airport in December, 1996 and the
Colorado Springs North in early 1997. The Company believes that funds from
operations combined with approximately $1.7 million available under the Term
Agreement will be more than adequate to fund the remaining costs to complete the
Harvey Atlanta Airport and the Colorado Springs North of approximately $7
million and $2.5 million, respectively. The Company plans to complete $1.9
million in renovations on the Holiday Inn-Plano in December, 1996, which will be
funded from available cash or from the $53.7 million available under the Term
Agreement to fund acquisitions and related refurbishments. The Company is
pursuing several other potential acquisitions and believes that other hotels
will be acquired during the next few quarters.
16
<PAGE>
PART II
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRISTOL HOTEL COMPANY
Date: November 14, 1996 By /s/ Jeffrey P. Mayer
------------------------------------------
Jeffrey P. Mayer
Vice President and Chief Financial Officer
(Chief Accounting Officer)
17
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