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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997
BRISTOL HOTEL COMPANY
14295 Midway Road
Dallas, Texas 75244
972-391-3910
Commission File No. 1-14062
Incorporated in Delaware IRS No. 75-2584227
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, Par Value $.01 per share New York Stock Exchange
----------------
The Company (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.
The number of shares of common stock, par value $.01 per share, outstanding
at November 13, 1997 was 43,635,401.
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BRISTOL HOTEL COMPANY
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements:
-----------------------------
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the three months
ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Income for the nine months
ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
----------------------------------------------------------
Operations and Financial Condition 10
----------------------------------
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 16
-----------------------------------------
SIGNATURE 17
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 53,791 $ 4,666
Marketable securities 152 116
Accounts receivable, net 32,188 10,501
Inventory 7,411 3,320
Deposits and other current assets 12,229 6,354
---------- ----------
Total current assets 105,771 24,957
Property and equipment, net 1,354,314 552,564
Other assets
Restricted cash 17,674 3,069
Goodwill, net 52,188 --
Investments in joint ventures, net 12,878 --
Deferred charges and other non-current assets, net 26,686 12,198
---------- ----------
Total assets $1,569,511 $ 592,788
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 7,042 $ 15,769
Accounts payable and accrued expenses 60,641 15,701
Accrued property, sales and use taxes 17,511 7,346
Accrued insurance reserves 8,181 6,920
---------- ----------
Total current liabilities 93,375 45,736
---------- ----------
Long-term debt, excluding current portion 582,701 216,925
Deferred income taxes 238,950 75,619
Other liabilities 1,872 2,351
---------- ----------
Total liabilities 916,898 340,631
---------- ----------
Common stock ($.01 par value; 150,000,000 shares
authorized, 45,734,472 shares issued,
43,635,401 shares outstanding) 436 166
Additional paid-in capital 606,753 231,181
Retained earnings 45,424 20,810
---------- ----------
Total stockholders' equity 652,613 252,157
---------- ----------
Total liabilities and stockholders' equity $1,569,511 $ 592,788
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30,
-------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE
Rooms $ 125,686 $ 43,578
Food and beverage 25,709 9,717
Management fees 2,007 437
Other 9,603 4,839
--------- ---------
Total revenue 163,005 58,571
--------- ---------
OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms 36,182 10,518
Food and beverage 21,232 7,437
Other 2,898 1,174
Undistributed operating expenses:
Administrative and general 14,384 4,576
Marketing 11,173 3,963
Property occupancy costs 26,135 7,312
Depreciation and amortization 12,899 4,983
Corporate expense 5,850 2,535
--------- ---------
Operating income 32,252 16,073
Other (income) expense:
Interest expense 13,116 5,258
Equity in income of joint ventures (808) --
--------- ---------
Income before income taxes 19,944 10,815
Provision for income taxes 7,878 3,980
--------- ---------
NET INCOME $ 12,066 $ 6,835
========= =========
Net income per common and common equivalent share $ 0.27 $ 0.27
========= =========
Weighted average number of common and common
equivalent shares outstanding 44,643 25,529
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30,
-------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE
Rooms $ 266,787 $ 114,846
Food and beverage 62,059 31,115
Management fees 3,305 1,524
Other 20,731 12,000
--------- ---------
Total revenue 352,882 159,485
--------- ---------
OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms 72,871 28,325
Food and beverage 47,026 22,618
Other operating departments 6,432 3,462
Undistributed operating expenses:
Administrative and general 29,750 13,377
Marketing 23,542 11,480
Property occupancy costs 54,647 21,109
Depreciation and amortization 28,437 13,392
Corporate expense 17,716 8,049
--------- ---------
Operating income 72,461 37,673
Other (income) expense:
Interest expense 31,040 13,824
Equity in income of joint ventures (1,319) --
--------- ---------
Income before income taxes and extraordinary item 42,740 23,849
Provision for income taxes 16,642 8,776
--------- ---------
Income before extraordinary item 26,098 15,073
Extraordinary loss on early extinguishment of debt, net of tax (1,338) --
--------- ---------
NET INCOME $ 24,760 $ 15,073
========= =========
Earnings per common and common equivalent share:
Income before extraordinary item 0.72 0.59
Extraordinary item, net of tax (0.04) --
--------- ---------
Net income $ 0.68 $ 0.59
========= =========
Weighted average number of common and
common equivalent shares outstanding 36,213 25,524
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited, in thousands)
<TABLE>
<CAPTION>
September 30,
-------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,760 $ 15,073
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,437 13,392
Amortization of deferred financing costs and other
non-current assets 2,154 1,224
Unrealized gain on marketable securities -- (341)
Non-cash portion of extraordinary item, net of tax 1,046 --
Compensation expense recognized for
employee stock options 227 86
Equity in earnings of joint ventures (1,319) --
Changes in working capital 18,633 (5,880)
Increase (decrease) in advance deposits 1,290 (5)
Increase in restricted cash (14,605) (2,952)
Distribution from joint ventures 100 --
Deferred income tax provision 1,645 6,931
Decrease in other liabilities (479) (308)
--------- ---------
Cash provided by operating activities 61,889 27,220
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment (28,008) (79,327)
Holiday Inn Acquisition and related costs (400,159) --
Purchase of property and equipment (35,000) (6,300)
Sale of marketable securities -- 726
--------- ---------
Cash used in investing activities (463,167) (84,901)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Offering, net of costs 107,852 --
Proceeds from Credit Facility 560,000 --
Repayment of Credit Facility with proceeds of Offering (108,000) --
Proceeds from issuance of other long-term debt 2,210 --
Repayments of long-term debt (138,361) (3,969)
Proceeds from senior term facility 41,200 64,602
Payment of costs related to initial public offering -- (1,342)
Increase in deferred charges and other non-current assets (14,498) (22)
--------- ---------
Cash provided by financing activities 450,403 59,269
--------- ---------
Net increase in cash and cash equivalents 49,125 1,588
Cash and cash equivalents at beginning of period 4,666 7,906
--------- ---------
Cash and cash equivalents at end of period $ 53,791 $ 9,494
========= =========
Supplemental cash flow information:
Common Stock issued
in Holiday Inn Acquisition $ 267,967 $ --
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
At September 30, 1997, Bristol Hotel Company (the "Company") had a
portfolio of 99 properties, of which 83 were owned by the Company and 16
were managed. Of the managed properties, three properties were owned by
joint ventures in which the Company owns a 50% interest.
The Company acquired the ownership of 45 full-service Holiday Inn hotels
and the management of an additional 15 Holiday Inn hotels in a business
combination accounted for as a purchase on April 28, 1997 (the "Holiday
Inn Acquisition"). Accordingly, the condensed consolidated statements of
income for the three and nine months ended September 30, 1996 do not
include any of the operating results of the properties acquired in the
Holiday Inn Acquisition.
The condensed consolidated balance sheet at December 31, 1996 has been
derived from the audited balance sheet at that date. The condensed
consolidated balance sheet at September 30, 1997, the condensed
consolidated statements of income for the three and nine months ended
September 30, 1997 and 1996, and the condensed consolidated statements of
cash flow for the nine months ended September 30, 1997 and 1996 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, in all material respects, the financial
position of the Company as of September 30, 1997, and the results of
operations and cash flows for the three and nine months ended September
30, 1997 and 1996 have been made. Interim results are not necessarily
indicative of fiscal year performance because of seasonal and short-term
variations.
2. STOCK SPLIT
On June 23, 1997, the Company's Board of Directors declared a
three-for-two stock split, effective in the form of a stock dividend for
shareholders of record June 30, 1997, which was distributed July 15, 1997
(the "Stock Split"). All per share data and the average common and common
equivalent shares outstanding have been adjusted to reflect the Stock
Split for all periods presented. The number of common shares issued and
outstanding as of September 30, 1997 have been adjusted to reflect this
Stock Split.
3. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
The following pro forma condensed consolidated statements of income give
effect to the Holiday Inn Acquisition, the refinancing of the
indebtedness in connection with the Holiday Inn Acquisition (the "Credit
Facility"), the issuance of 3.2 million shares of the Company's common
stock (the "Offering") and the Stock Split (collectively, the "Pro Forma
Transactions") as if these transactions had occurred on January 1 of each
period presented. The Holiday Inn Acquisition has been accounted for
under the purchase method of accounting. The following unaudited pro
forma financial data are not necessarily indicative of the results that
actually would have occurred had the Pro Forma Transactions been
consummated on the dates indicated or that may occur in the future.
Amounts are presented in thousands, except per share amounts and the
accompanying notes are an integral part of these statements.
7
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenue $ 163,005 $ 153,954 $ 474,411 $ 432,527
Departmental expenses 60,312 55,464 172,661 159,698
Undistributed operating expenses 70,441 65,530 206,556 187,145
--------- --------- --------- ---------
Operating income 32,252 32,960 95,194 85,684
Other (income) expense:
Interest expense 13,116 11,737 39,128 34,316
Equity in income of joint ventures (808) (677) (1,843) (1,112)
--------- --------- --------- ---------
Income before income taxes 19,944 21,900 57,909 52,480
Income taxes 7,878 8,498 22,684 20,260
--------- --------- --------- ---------
Net income $ 12,066 $ 13,402 $ 35,225 $ 32,220
========= ========= ========= =========
Earnings per common and common
equivalent share: $ 0.27 $ 0.30 $ 0.79 $ 0.73
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 44,643 44,353 44,604 44,341
========= ========= ========= =========
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
A. The Holiday Inn - Stamford (a Holiday Inn Asset) was acquired by
Holiday Corporation (the previous owner) in July 1996. The pro
forma results of operations include the operation of the Stamford
property as if it was acquired as of January 1, 1996.
B. Bristol acquired the Holiday Inn - Plano in May 1996 and the
Allerton Hotel in Chicago (the "Allerton") in January 1997. There
were no adjustments made to the pro forma condensed consolidated
statements of income for these properties. Results of operations
for these properties are included from the respective acquisition
dates.
C. Pro forma results of operations include the impact of the Atlanta
Olympics in 1996. (See Note 5).
8
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. NEW ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128") in the fourth
quarter of 1997. The adoption of SFAS No. 128 is not expected to have a
material effect on the Company's consolidated financial statements.
Therefore, pro forma results for SFAS No. 128 have not been presented.
The Company is also required to adopt SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in fiscal year 1998. The adoption of
these statements is not expected to have a material effect on the
Company's consolidated financial statements.
5. IMPACT OF ATLANTA OLYMPICS
The Company estimated that the Summer Olympic Games held in Atlanta in
July 1996 had a positive impact on operating profit of approximately $3.4
million. The Company's Atlanta hotels, which represented approximately
25% of the Company's total rooms in July 1996, experienced 100% occupancy
during the twenty days of the Olympic Games. Recurring net income, when
adjusted for the impact of the Atlanta Olympics, the effect of a
litigation settlement in the same period and the gain on marketable
securities in the second quarter of 1996, was $4.1 million and $12.1
million for the three and nine months ended September 30, 1996,
respectively.
6. SUBSEQUENT EVENTS
The Company acquired the 318 room Holiday Inn - Westport in St. Louis,
Missouri on October 2, 1997 for $18 million, of which $8.4 million was
financed by the assumption of the existing mortgage on the property and
the balance paid in cash.
On October 28, 1997, the Company completed the refinancing of its
existing $560 million Credit Facility (of which $452 million was
outstanding at September 30, 1997). The new financing (the "Refinancing")
has two tranches: (a) $145 million at a fixed interest rate of 7.46%, a
term of 10 years, and secured by 15 hotel properties; and, (b) $455
million at a fixed interest rate of 7.66%, a term of 12 years, and
secured by 63 hotel properties. The Company received $500 million of the
Refinancing proceeds at closing and will receive the remaining $100
million on December 1, 1997. Additionally, the Company entered into a new
$250 million secured line of credit (the "Acquisition Line"), which will
be available to fund future acquisitions and for other corporate
purposes. The Company anticipates recognizing an extraordinary loss of
approximately $9.0 million, net of tax, related to the early
extinguishment of debt repaid with proceeds of the Refinancing, primarily
due to the write-off of deferred financing fees associated with the
Credit Facility.
9
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BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements
within the meaning of the Private Litigation Reform Act of 1995 and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Company to be
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Although the Company believes the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
attained. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
OVERVIEW
As discussed in Note 1 to the Company's Notes to Condensed Consolidated
Financial Statements, the Company completed the Holiday Inn Acquisition on April
28, 1997. Historical results for the three and nine months ended September
30,1997 include the 36 original hotels owned by the Company as of January 1,
1996 (the "Original Bristol Portfolio"), Holiday Inn - Plano, the Allerton (as
of January 31, 1997), five months of operations for the 45 hotels acquired in
the Holiday Inn Acquisition (the "Acquired Hotels") as well as five months of
management of the 15 hotels under management contracts. Historical results for
the three and nine months ended September 30, 1996 include the Original Bristol
Portfolio and Holiday Inn - Plano (as of May 31, 1996). Pro forma income
statements for the applicable periods are presented in Note 3 to the Company's
Notes to Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared with
- ---------------------------------------------------
Three Months Ended September 30, 1996
-------------------------------------
Actual Results
- --------------
Total revenue increased 178.3% to $163.0 million for the three months ended
September 30, 1997 as compared to $58.6 million for the same period in 1996.
Approximately $102.0 million of the $104.4 million increase is a result of the
inclusion of the Holiday Inn Acquisition and the addition of the Allerton offset
by the favorable impacts of the Atlanta Olympics and a litigation settlement in
1996. The remaining increase in total revenue relates primarily to increases in
room, food and beverage revenue for the Original Bristol Portfolio.
Room revenue for the Original Bristol Portfolio including the Holiday Inn -
Plano for the quarter ended September 30, 1997 decreased $1.7 million to $41.8
million, representing a 4% decrease compared to the same period in 1996. The
decrease in 1997 is primarily attributable to the positive impact of the
Atlanta Olympics in July 1996, in which approximately 25% of the Company's
hotels experienced 20 days of 100% occupancy. REVPAR (rooms revenue divided by
average available rooms), occupancy and average daily rate ("ADR") for the
Original Bristol Portfolio plus the Holiday Inn - Plano was $47.55, 70.7% and
$67.25, respectively, for the three months ended September 30, 1997 compared to
$50.22, 68.4% and $73.42, respectively, for the same period in 1996.
10
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BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Actual Results (continued)
- --------------
Food and beverage revenue increased due to the increase in the number of hotels
but also due to higher food and beverage revenue for the Original Bristol
Portfolio. Food and beverage revenue for the Original Bristol Portfolio plus the
Holiday Inn - Plano for the three months ended September 30, 1997 was $11.6
million representing a 19% increase over the same period in 1996. This increase
is primarily attributable to the effective redevelopment of several hotels in
the Original Bristol Portfolio.
The increase in management fees reflects the addition of the fifteen management
contracts acquired in the Holiday Inn Acquisition offset by the loss of two
management agreements previously held by Bristol during 1996. The increase in
other income reflects the Holiday Inn Acquisition and the addition of the
Allerton offset by a $.9 million litigation settlement recorded in the third
quarter of 1996.
Gross operating margin (consisting of total revenue less department expenses,
administrative and general, marketing and property occupancy costs divided by
total revenue) was 31.3% for the three months ended September 30, 1997 compared
to 40.3% for the three months ended September 30, 1996. The 9.0 percentage point
("pp") decrease in gross operating margin is primarily attributable to a
decrease in rooms departmental profit and higher property occupancy costs
related to property taxes and land rentals. Rooms departmental profit decreased
primarily due to the integration of the Acquired Hotels, which historically has
had lower rooms margins. Property tax increases relate to increased valuations
as a result of the significant capital improvements for several hotels in the
Original Bristol Portfolio as well as an increase in tax rates for certain
hotels. Increased land rentals relate to the Acquired Hotels having a higher
proportion of ground leases than the Original Bristol Portfolio.
Depreciation and amortization increased $7.9 million for the three months ended
September 30, 1997 compared to 1996 as a result of the Holiday Inn Acquisition
and the addition of the Allerton. Depreciation expense also increased as a
result of the substantial capital improvements at several hotels in the Original
Bristol Portfolio.
Corporate expense for the three months ended September 30, 1997 was $5.8 million
compared to $2.5 million for the same period in 1996. The increase relates to
the Holiday Inn Acquisition and the resulting increases in salaries and wages,
operating expenses and rent expense due to the increase in the number of
corporate employees. Increased travel costs related to the more geographically
diverse portfolio as well as significant training and integration activity also
contributed to higher corporate expenses in 1997.
Interest expense for the three months ended September 30, 1997 increased $7.9
million to $13.1 million primarily as a result of additional debt incurred to
finance the Holiday Inn Acquisition.
Equity in income of joint ventures of $.8 million for the three months ended
September 30, 1997 represents the Company's 50% interest in the earnings of the
three joint ventures acquired in the Holiday Inn Acquisition.
As a result of the factors described above, net income increased 76.5% to $12.1
million for the three months ended September 30, 1997 compared to the three
months ended September 30, 1996. Recurring earnings for the three months ended
September 30, 1997 of $12.1 million, represents a 195.1% increase over recurring
earnings for the three months ended 1996 of $4.1 million, which excludes the
one-time impact of the Atlanta Olympics ($2.2 million, net of tax) and the
litigation settlement ($.6 million, net of tax). Recurring earnings per share of
$.27 for the three months ended September 30, 1997 represents a 63.8%
improvement over the same period in 1996.
11
<PAGE> 12
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Pro Forma Results
- -----------------
Revenues increased $9.1 million, or 5.9%, to $163 million for 1997, reflecting
increases in rooms revenue and food and beverage revenue. Revenue increases
reflect the addition of the Allerton and improvements in REVPAR offset by the
positive impact during 1996 of the Atlanta Olympics and a litigation
settlement. The Original Bristol Portfolio plus the Holiday Inn - Plano
achieved a REVPAR of $47.55 for the three months ended September 30, 1997
compared to $50.22 for the comparable period in 1996 representing a 5.3%
decline as a result of the positive impact of the Atlanta Olympics during 1996.
Occupancy and ADR for the three months ended September 30, 1997, for the
Original Bristol Portfolio plus Holiday Inn - Plano was 70.7% and $67.25,
respectively, compared to 68.4% and $73.42, respectively for 1996. The
Acquired Hotels experienced a REVPAR of $61.35 for the pro forma three months
ended September 30, 1997, up from $58.36 for the comparable period in 1996.
This 5.1% increase in REVPAR for the Acquired Hotels (resulting from an
increase in ADR of 8.2% offset by a slight decrease in occupancy of 2.2pp) is
primarily attributable to favorable market conditions in the mid-scale with
food and beverage sector as well as the strength of the Holiday Inn brand name
and reservation system.
Operating income margin for the pro forma three months ended September 30, 1997
was 19.8% compared to 21.4% for the pro forma three months ended September 30,
1996. The 1.6pp decrease is due primarily to increases in property occupancy
costs and depreciation. Increases in property occupancy costs relate primarily
to increases in land rent expense (primarily calculated as a percentage of
revenues) as well as increased property taxes. Property taxes and depreciation
have increased due to the addition of the Allerton as well as the significant
capital improvements at several of the hotels in the Original Bristol Portfolio.
Interest expense increased by $1.4 million to $13.1 million for the pro forma
three months ended September 30, 1997, compared to the pro forma three months
ended September 30, 1996. This increase was due primarily to borrowings
increasing ratably during 1996 to fund acquisitions and redevelopment costs.
Equity in income from joint ventures increased $.1 million for the pro forma
three months ended September 30, 1997, compared to the pro forma three months
ended September 30, 1996. The increase is due to improvements in the operating
results for the three hotels owned by the joint ventures.
As a result of the factors described above, net income decreased to $12.1
million for the pro forma three months ended September 30, 1997, from $13.4
million for the pro forma three months ended September 30, 1996 and earnings per
share decreased to $.27 for the pro forma three months ended September 30, 1997
compared to $.30 for the same period in 1996. Excluding the positive impact of
the Atlanta Olympics ($2.2 million, net of tax) and the litigation settlement
($.6 million, net of tax) pro forma net income and earnings per share for the
three months ended September 30, 1996 would have been $10.6 million and $.24,
respectively.
12
<PAGE> 13
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Nine Months Ended September 30, 1997 Compared With
- --------------------------------------------------
Nine Months Ended September 30, 1996
------------------------------------
Actual Results
- --------------
Total revenue increased 121.3% to $352.9 million for the nine months ended
September 30, 1997 as compared to the same period in 1996 as a result of the
inclusion of the Holiday Inn Acquisition from April 28, 1997, the addition of
the Allerton and the improved operating performance of the Original Bristol
Portfolio offset by the positive impact of the Atlanta Olympics. REVPAR for the
Original Bristol Portfolio was $49.01 for the nine months ended September 30,
1997, compared to $48.91 for the same period in 1996. The improvement in REVPAR
is primarily attributable to the successful repositioning and/or redevelopment
of several hotels in the Original Bristol Portfolio. Occupancy and ADR for the
Original Bristol Portfolio was 72.1% and $67.97, respectively, for the nine
months ended September 30, 1997 compared to 72.3% and $67.67, respectively, for
the same period in 1996.
Rooms revenue increased for the reasons noted above as well as a change in the
mix of business. Rooms revenue as a percent of total revenue was 75.6% for the
nine months ended September 30, 1997 as compared to 72.0% for the nine months
ended September 30, 1996 resulting from the Acquired Hotels having
proportionally lower food and beverage business than the Original Bristol
Portfolio. This is also evidenced by the 132.3% increase in rooms revenue for
the nine months ended September 30, 1997 compared to the same period in 1996 as
compared to a 99.5% increase in food and beverage revenue.
Food and beverage revenue increased due to the increase in the number of hotels
but also due to higher food and beverage revenues for the Original Bristol
Portfolio. Food and beverage revenue for the Original Bristol Portfolio for the
nine months ended September 30, 1997 was $36.3 million representing a 17%
increase over the same period in 1996. This increase is primarily attributable
to the effective redevelopment of several hotels in the Original Bristol
Portfolio.
The increase in management fees reflects the addition of the fifteen management
contracts acquired in the Holiday Inn Acquisition offset by the loss of two
management agreements previously held by Bristol in 1996.
Gross operating margin (consisting of total revenue less department expenses,
administrative and general, marketing and property occupancy costs divided by
total revenue) was 33.6% for the nine months ended September 30, 1997 compared
to 37.1% for the nine months ended September 30, 1996. The 3.5pp decrease in
gross operating margin is primarily attributable to declines in departmental
operating margins and higher property occupancy costs related to property taxes
and land rentals. Declines in departmental margins relate primarily to the
integration of the Acquired Hotels, which have had historically lower margins.
Property tax increases relate to increased valuations as a result of the
significant capital improvements for several hotels in the Original Bristol
Portfolio as well as an increase in tax rates for certain hotels. Increased land
rentals relate to the Acquired Hotels having a proportionately higher number of
ground leases than the Original Bristol Portfolio.
Depreciation and amortization increased $15.0 million for the nine months ended
September 30, 1997 compared to 1996 as a result of the Holiday Inn Acquisition
and the addition of the Allerton. Depreciation expense also increased as a
result of the substantial capital improvements at several hotels in the Original
Bristol Portfolio.
13
<PAGE> 14
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Actual Results (continued)
- --------------
Corporate expenses for the nine months ended September 30, 1997 were $17.7
million compared to $8.0 million for the same period in 1996. Approximately $3.1
million of the increase relates to one-time costs incurred during the second
quarter of 1997 for the closing and integration of the Holiday Inn Acquisition.
The remaining increase relates primarily to the increase in the number of
corporate employees and related costs and increased travel expenses as a result
of the acquisition.
Interest expense for the nine months ended September 30, 1997 increased $17.2
million to $31.0 million primarily as a result of additional debt incurred to
finance the Holiday Inn Acquisition as well as an increase in borrowings ratably
in 1996 to fund acquisitions and certain redevelopment costs.
Equity in income of joint ventures of $1.3 million for the nine months ended
September 30, 1997 represents the Company's 50% interest in the earnings of the
three joint ventures acquired in the Holiday Inn Acquisition.
As a result of the factors described above, net income increased 64.3% to $24.8
million for the nine months ended September 30, 1997 compared to the nine months
ended 1996 and earnings per share increased 15.2% to $.68 for the nine months
ended September 30, 1997 compared to $.59 for the same period in 1996. Recurring
earnings for the nine months ended September 30, 1997 of $28.0 million, which
exclude the extraordinary item of $1.3 million and the one-time costs ($1.8
million, net of tax), represents a 132.0% increase over recurring earnings for
the nine months ended September 30, 1996 of $12.1 million, which excludes a
one-time gain related to the sale of marketable securities ($.3 million, net of
tax), the impact of the Atlanta Olympics ($2.2 million, net of tax), and the
litigation settlement ($.6 million, net of tax). Recurring earnings per share of
$.77 for the nine months ended September 30, 1997 represents a 63.8% improvement
over the same period in 1996.
Pro Forma Results
- -----------------
Revenues increased $41.9 million, or 9.7%, to $474.4 million for the pro forma
nine months ended September 30, 1997 compared to the same period in 1996,
reflecting increases in rooms revenue and food and beverage revenue. Revenue
increases reflect the addition of the Allerton and improvements in REVPAR,
offset by the favorable impact of the Atlanta Olympics in 1996. REVPAR for the
Original Bristol Portfolio was $49.01 for the nine months ended September 30,
1997 compared to $48.91 for the nine months ended September 30, 1996. This
REVPAR increase is primarily attributable to the successful repositioning
and/or redevelopment of several hotels in the Original Bristol Portfolio. The
Acquired Hotels achieved a 7.7% improvement in REVPAR for the nine months ended
September 30, 1997 compared to 1996 primarily as a result of favorable results
in the mid-scale with food and beverage sector as well as the strength of the
Holiday Inn brand name and reservation system. REVPAR, occupancy and ADR for
the Acquired Hotels for the nine months ended September 30, 1997 was $59.44,
75.7% and $78.52, respectively, compared to $55.18, 75.8% and $72.80,
respectively, for the comparable period in 1996.
Operating income margin remained relatively consistent on a year-to-date basis.
Operating income margin for the pro forma nine months ended September 30, 1997
was 20.0% compared to 19.8% for the pro forma nine months ended September 30,
1996.
Interest expense increased by $4.8 million to $39.1 million in the pro forma
nine months ended September 30, 1997, compared to the pro forma nine months
ended September 30, 1996. This increase was due primarily to borrowings
increasing ratably during 1996 to fund acquisitions and certain redevelopment
costs.
14
<PAGE> 15
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Actual Results (continued)
- --------------
Equity in income of joint ventures increased $.7 million for the pro forma nine
months ended September 30, 1997, compared to the pro forma nine months ended
September 30, 1996. The increase is due to improvements in the operating results
for the three hotels owned by the joint ventures.
As a result of the factors described above, income increased to $35.2 million
for the pro forma nine months ended September 30, 1997, from $32.2 million for
the pro forma nine months ended September 30, 1996, an increase of 9.3% and
earnings per share increased 8.2% to $.79 for the pro forma nine months ended
September 30, 1997 compared to $.73 the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has two principal sources of capital to fund its operational and
capital needs: (1) cash flow from operations, which it typically measures in
terms of EBITDA (earnings before interest, taxes, depreciation and
amortization), and (2) financing (the Refinancing and the Acquisition Line).
EBITDA is considered to be principally available to pay income taxes, fund
routine capital maintenance and to pay debt service, both interest and
principal. Management believes that EBITDA is an effective measure of operating
performance because it is industry practice to evaluate hotel properties using
multiples of EBITDA. EBITDA is unaffected by the debt and equity structure of
the property owner. EBITDA does not represent cash flow from operations as
defined by GAAP, and is not necessarily indicative of cash available to fund all
cash flow needs and should not be considered as an alternative to net income for
purposes of evaluating the Company's operating performance. Management believes
that cash flow from operations and financing available to the Company will be
sufficient to cover the Company's foreseeable working capital, capital
expenditure and debt service requirements. EBITDA totaled $102.2 million for the
nine months ended September 30, 1997, compared to $51.1 million for the nine
months ended September 30, 1996, an increase of 100%.
Cash provided by operating activities was $61.9 million for the nine months
ended September 30, 1997, as compared to $27.2 million for the same period in
1996. The $34.7 million increase from 1996 to 1997 relates primarily to the
increase in income before depreciation and amortization and an increase in
working capital offset by an increase in restricted cash. The increase in
working capital relates primarily to the Holiday Inn Acquisition and the
resulting increases in accounts receivable offset by the increases in accounts
payable and accrued expenses. The increase in restricted cash relates primarily
to reserves for capital expenditures deposited in accordance with the terms of
the Credit Facility.
After receiving the final $100 million of Refinancing Proceeds on December 1,
1997, the Company anticipates having cash on hand of approximately $150 million,
which will be used, along with cash generated by operations, to fund the
approximately $288 million of redevelopment activity scheduled from 1998 to
2000. This activity includes approximately $227 million to redevelop a
significant number of the Acquired Hotels, $22 million to renovate and
reposition several of the hotels in the Original Bristol Portfolio, and $39
million for the redevelopment of recently acquired single hotel assets. The
Company anticipates spending $175 million in 1998, approximately $100 million
in 1999 and the remainder thereafter to fund this redevelopment. The
redevelopment program for the Acquired Hotels was begun in the fourth quarter
of 1997 and has an estimated total cost of $245 million. In addition, the
Company is actively pursuing acquisitions of single and portfolio hotels, and
expects to fund these acquisitions from cash available, cash generated from
operations and borrowings from the Acquisition Line.
15
<PAGE> 16
PART II.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed August 14, 1997 containing the
June 30, 1997 financial statements of Bristol Hotel Asset
Company.
16
<PAGE> 17
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 13, 1997 By /s/ Jeffrey P. Mayer
--------------------- ---------------------------
Jeffrey P. Mayer
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 53,791
<SECURITIES> 152
<RECEIVABLES> 33,774
<ALLOWANCES> (1,586)
<INVENTORY> 7,411
<CURRENT-ASSETS> 105,771
<PP&E> 1,413,154
<DEPRECIATION> (58,840)
<TOTAL-ASSETS> 1,569,511
<CURRENT-LIABILITIES> 93,375
<BONDS> 582,701
0
0
<COMMON> 436
<OTHER-SE> 606,753
<TOTAL-LIABILITY-AND-EQUITY> 1,569,511
<SALES> 0
<TOTAL-REVENUES> 352,882
<CGS> 0
<TOTAL-COSTS> 234,268
<OTHER-EXPENSES> 46,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,040
<INCOME-PRETAX> 42,740
<INCOME-TAX> 16,642
<INCOME-CONTINUING> 26,098
<DISCONTINUED> 0
<EXTRAORDINARY> (1,338)
<CHANGES> 0
<NET-INCOME> 24,760
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
