<PAGE> 1
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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 June 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 August 11, 1997 was 43,635,372.
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BRISTOL HOTEL COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 3
Condensed Consolidated Statements of Income for the three months ended
June 30, 1997 and 1996 4
Condensed Consolidated Statements of Income for the six months ended
June 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the six months
ended June 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
</TABLE>
<PAGE> 3
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 34,187 $ 4,666
Marketable securities 126 116
Accounts receivable, net 31,746 10,501
Inventory 6,020 3,320
Deposits and other current assets 13,896 6,354
---------- --------
Total current assets 85,975 24,957
Property and equipment, net 1,353,693 552,564
Other assets
Restricted cash 11,970 3,069
Goodwill, net 52,782 --
Investments in joint ventures, net 12,347 --
Deferred charges and other non-current assets, net 22,973 12,198
---------- --------
Total assets $1,539,740 $592,788
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 8,047 $ 15,769
Accounts payable and accrued expenses 50,189 15,701
Accrued property, sales and use taxes 14,518 7,346
Accrued insurance reserves 7,647 6,920
---------- --------
Total current liabilities 80,401 45,736
Long-term debt, excluding current portion 584,411 216,925
Deferred income taxes 232,593 75,619
Other liabilities 1,864 2,351
---------- --------
Total liabilities 899,269 340,631
---------- --------
Common stock ($.01 par value; 150,000,000 shares
authorized, 45,734,472 shares issued,
43,635,372 shares outstanding) 436 166
Additional paid-in capital 606,676 231,181
Retained earnings 33,359 20,810
---------- --------
Total stockholders' equity 640,471 252,157
---------- --------
Total liabilities and stockholders' equity $1,539,740 $592,788
========== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------- -------
<S> <C> <C>
REVENUE
Rooms $ 99,370 $35,814
Food and beverage 23,875 10,799
Management fees 1,213 950
Other 7,157 3,674
--------- -------
Total revenue 131,615 51,237
--------- -------
OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms 26,784 9,234
Food and beverage 17,355 7,988
Other 2,327 1,143
Undistributed operating expenses:
Administrative and general 10,668 4,167
Marketing 8,160 3,786
Property occupancy costs 20,185 6,664
Depreciation and amortization 10,373 4,421
Corporate expense 8,854 2,552
--------- -------
Operating income 26,909 11,282
Other (income) expense:
Interest expense 11,646 4,360
Equity in income of joint ventures (511) --
--------- -------
Income before income taxes and extraordinary item 15,774 6,922
Provision for income taxes 6,152 2,547
--------- -------
Income before extraordinary item 9,622 4,375
Extraordinary loss on early extinguishment of debt, net of tax (1,338) --
--------- -------
NET INCOME $ 8,284 $ 4,375
========= =======
Earnings per common and common equivalent share:
Income before extraordinary item $ 0.25 $ 0.17
Extraordinary item, net of income taxes (0.03) --
--------- -------
Net income $ 0.22 $ 0.17
========= =======
Weighted average number of common and common
equivalent shares outstanding 37,998 25,545
========= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------- --------
<S> <C> <C>
REVENUE
Rooms $ 141,102 $ 71,268
Food and beverage 36,349 21,398
Management fees 1,298 950
Other 11,128 7,298
--------- --------
Total revenue 189,877 100,914
--------- --------
OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms 36,689 17,808
Food and beverage 25,794 15,181
Other 3,535 2,288
Undistributed operating expenses:
Administrative and general 15,366 8,800
Marketing 12,369 7,516
Property occupancy costs 28,512 13,797
Depreciation and amortization 15,537 8,409
Corporate expense 11,866 5,514
--------- --------
Operating income 40,209 21,601
Other (income) expense:
Interest expense 17,924 8,566
Equity in income of joint ventures (511) --
--------- --------
Income before income taxes and extraordinary item 22,796 13,035
Provision for income taxes 8,764 4,797
--------- --------
Income before extraordinary item 14,032 8,238
Extraordinary loss on early extinguishment of debt, net of tax (1,338) --
--------- --------
NET INCOME $ 12,694 $ 8,238
========= ========
Earnings per common and common equivalent share:
Income before extraordinary item $ 0.44 $ 0.32
Extraordinary item, net of income taxes (0.04) --
--------- --------
Net income $ 0.40 $ 0.32
========= ========
Weighted average number of common and
common equivalent shares outstanding 31,931 25,526
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE> 6
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited, in thousands)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,694 $ 8,238
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,537 8,409
Amortization of deferred financing costs and other
non-current assets 1,373 825
Compensation expense recognized for employee
stock options 151 57
Unrealized gain on marketable securities -- (447)
Non-cash portion of extraordinary item, net of tax 1,046 --
Equity in earnings of joint ventures (511) --
Changes in working capital 6,064 10,479
Increase in advance deposits 454 6,391
Increase in restricted cash (8,901) (1,253)
Deferred income tax provision (5,355) 2,481
Decrease in other liabilities (487) (277)
--------- --------
Cash provided by operating activities 22,065 34,903
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment (15,290) (63,754)
Holiday Inn Acquisition and related costs (400,159) --
Purchase of property and equipment (35,000) (6,300)
--------- --------
Cash used in investing activities (450,449) (70,054)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (2,106) (3,562)
Proceeds from common stock offering, net of costs 107,852 --
Early extinguishment of long-term debt (133,540) --
Proceeds from New Credit Facility 560,000 --
Repayment of New Credit Facility from proceeds of Offering (108,000) --
Proceeds of issuance of other long-term debt 2,210 --
Proceeds from senior term facility 41,200 37,721
Increase in deferred charges and other non-current assets (9,711) (427)
--------- --------
Cash provided by financing activities 457,905 33,732
--------- --------
Net increase (decrease) in cash and cash equivalents 29,521 (1,419)
Cash and cash equivalents at beginning of period 4,666 7,906
--------- --------
Cash and cash equivalents at end of period $ 34,187 $ 6,487
========= ========
Supplemental cash flow information:
Non-cash investing activities
Common Stock issued in Holiday Inn Acquisition $ 267,967 $ --
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE> 7
BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
At June 30, 1997, Bristol Hotel Company (the "Company") had a portfolio
of 98 properties, of which 83 were owned by the Company and 15 were
managed. Of the managed properties, three properties were owned by joint
ventures in which the Company owns a 50% interest.
As discussed in Note 2, 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 six months
ended June 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 June 30, 1997, the condensed consolidated
statements of income for the three and six months ended June 30, 1997
and 1996, and the condensed consolidated statements of cash flow for the
six months ended June 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 June 30, 1997, and the results of operations and cash flows for
the three and six months ended June 30, 1997 and 1996 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 year ended December 31, 1996.
2. HOLIDAY INN ACQUISITION
On April 28, 1997, the Company acquired the ownership of 45 full-service
Holiday Inns and the management of an additional 15 Holiday Inn
properties, of which three are owned by joint ventures in which the
Company acquired a 50% interest (the owned hotels, management contracts
and joint venture interests, collectively referred to as the "Holiday
Inn Assets"). As consideration for the Holiday Inn Acquisition, the
Company paid $398 million in cash and issued 9,381,308 shares of its
common stock. The acquisition has been accounted for as a purchase and
the results of operations of the Holiday Inn Assets have been included
in the consolidated financial statements since April 28, 1997. The
purchase price, including liabilities assumed in the acquisition
(principally deferred tax liabilities), was allocated to the assets
acquired, based upon their estimated fair market values. The excess of
the purchase price over the estimated fair market value of the net
assets acquired was recorded as goodwill to be amortized over a 40-year
life.
7
<PAGE> 8
BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. NEW CREDIT FACILITY
The Company obtained the financing for the Holiday Inn Acquisition
under a new senior term facility which provides for up to $560 million
aggregate amount of term loan borrowings (the "New Credit Facility").
The New Credit Facility was utilized to repay existing debt of
approximately $134 million, to fund the cash portion of the Holiday Inn
Acquisition and to pay closing costs.
The New Credit Facility will mature in three years, subject to the
Company's option to extend the maturity for up to two additional years.
Outstanding principal amounts under the New Credit Facility bear
interest at a rate equal to, at the Company's election, one-, two-,
three-, or six-month LIBOR plus 2.00%, subject to adjustment downward to
1.50% if certain ratings and financial tests are satisfied. The Company
has purchased an interest rate cap whereby the LIBOR rate is capped at a
rate of 6% in the notional amount of $300 million. The agreements were
effective June 30, 1997 and terminate April 30, 1998. The Company's
obligations under the New Credit Facility are secured principally by a
pledge of the outstanding capital stock of the Company's subsidiaries
and mortgages on certain hotels.
The Company repaid $108 million of borrowings from the New Credit
Facility in May 1997 with proceeds from the Offering (as defined in Note
5).
4. EXTRAORDINARY ITEM
The Company recognized an extraordinary loss of $1.3 million (net of tax
effect of $.9 million) in the current quarter, related to the early
extinguishment of debt repaid with proceeds from the New Credit
Facility. The loss on extinguishment reflects the write-off of deferred
financing fees of approximately $1.7 million and prepayment penalties
and other costs of $.5 million.
5. EQUITY OFFERING
On May 16, 1997, the Company completed the issuance of 2,750,000 shares
of its common stock at a price of $36 per share (the "Offering"). The
Company issued an additional 412,500 shares on May 28, 1997 pursuant to
an over-allotment agreement with the underwriters of the Offering.
Proceeds from the issuances of approximately $108 million (net of costs
of $6.3 million) were used to repay borrowings under the New Credit
Facility.
6. 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 June 30, 1997 has been adjusted to reflect
this Stock Split.
7. EARNINGS PER SHARE
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.
8
<PAGE> 9
BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. 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 pursuant to borrowings under the New Credit Facility, 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.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue $ 162,722 $ 144,823 $ 311,406 $ 278,573
Departmental expenses 57,150 53,876 112,349 104,234
Undistributed operating expenses 70,009 60,411 136,115 121,615
--------- --------- --------- ---------
Operating Income 35,563 30,536 62,942 52,724
Other (income) expense:
Interest expense 13,194 11,387 26,012 22,579
Equity in income of joint ventures (696) (293) (1,035) (435)
--------- --------- --------- ---------
Income before income taxes 23,065 19,442 37,965 30,580
Provision for income taxes 9,057 7,558 14,806 11,762
--------- --------- --------- ---------
Net income $ 14,008 $ 11,884 $ 23,159 $ 18,818
========= ========= ========= =========
Earnings per common and common
equivalent share: $ 0.31 $ 0.27 $ 0.52 $ 0.42
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 44,591 44,338 44,587 44,311
========= ========= ========= =========
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
1. 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.
2. 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.
9
<PAGE> 10
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. These risks are detailed from time to time in the Company's filings
with the Securities and Exchange Commission. 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 2 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 six months ended June
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), two months of operations for the 45 hotels acquired in
the Holiday Inn Acquisition (the "Acquired Hotels") as well as two months of
management of the 15 hotels under management contracts. Historical results for
the three and six months ended June 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 8 to the Company's
Notes to Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared with
Three Months Ended June 30, 1996
Actual Results
Total revenue increased 156.9% to $131.6 million for the three months ended
June 30, 1997 as compared to the same period in 1996 as a result of the
inclusion of the Holiday Inn Acquisition and the addition of the Allerton and
the Holiday Inn - Plano as well as improved operating performance for the
Original Bristol Portfolio. Revenue per available room (rooms revenue divided
by average available rooms) ("REVPAR") for the Original Bristol Portfolio was
$50.29 for the three months ended June 30, 1997, compared to $42.29 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 average daily rate ("ADR") for the Original
Bristol Portfolio increased to 74.4% and $67.60, respectively, for the three
months ended June 30, 1997 compared to 64.1% and $65.97, 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 75.5% for the
three months ended June 30, 1997 as compared to 69.9% for the three months
ended June 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 177% increase in rooms revenue for the three months ended
June 30, 1997 compared to the same period in 1996 versus a 121% 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
three months ended June 30, 1997 was $12.5 million representing a 16.9%
increase over the same period in 1996. This increase is primarily attributable
to the effective redevelopment of several hotels in the Original Bristol
Portfolio.
10
<PAGE> 11
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Actual Results (continued)
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 the Company during 1996.
Gross operating margin (consisting of total revenue less department expenses,
administrative and general, marketing and property occupancy costs divided by
total revenue) was 35.1% for the three months ended June 30, 1997 compared to
35.6% for the three months ended June 30, 1996. The .5 percentage point
decrease in gross operating margin is primarily attributable to higher property
occupancy costs related to property taxes and land rentals. 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 $6.0 million for the three months ended
June 30, 1997 compared to 1996 as a result of the Holiday Inn Acquisition and
the addition of the Allerton and the Holiday Inn - Plano. 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 June 30, 1997 was $8.9 million
compared to $2.6 million for the same period in 1996. Approximately $3.1
million of the increase relates to costs incurred for the closing and
integration of the Holiday Inn Acquisition including professional fees for
compensation and benefit consulting, travel expenses, accounting fees and other
one-time costs. The remaining increase relates primarily to the increase in the
number of corporate employees prior to and in anticipation of the acquisition
and related takeover from the previous owner.
Interest expense for the three months ended June 30, 1997 increased $7.3
million to $11.6 million primarily as a result of additional debt incurred to
finance the Holiday Inn Acquisition.
Equity in income of joint ventures of $.5 million for the three months ended
June 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 89.3% to $8.3
million for the three months ended June 30, 1997 compared to the three months
ended 1996 and earnings per share increased 29.4% to $.22 for the three months
ended June 30, 1997 compared to $.17 for the same period in 1996. Recurring
earnings for the three months ended June 30, 1997 of $11.5 million, which
exclude the extraordinary item of $1.3 million and the one-time costs ($1.9
million, net of tax), represents an 180% increase over recurring earnings for
the three months ended 1996 of $4.1 million, which excludes a one-time gain
related to the sale of marketable securities ($.3 million, net of tax).
Recurring earnings per share of $.30 for the three months ended June 30, 1997
represents an 88% improvement over the same period in 1996.
Proforma Results
Revenues increased $17.9 million, or 12.4%, to $162.7 million for 1997,
reflecting increases in rooms revenue and food and beverage revenue. Revenue
increases reflect the addition of the Allerton and the Holiday Inn - Plano as
well as improvements in REVPAR. The Original Bristol Portfolio achieved a
REVPAR of $50.29 for the three months ended June 30, 1997, representing an
18.9% improvement over the same period in 1996. The increase in REVPAR
resulting from increases in occupancy and ADR of 10.3 percentage points ("pp")
and 2.5%, respectively, is primarily attributable to the successful
repositioning and/or redevelopment of several of the hotels in the Original
Bristol Portfolio. The Acquired Hotels experienced a REVPAR of $61.92 for the
pro forma three months ended June 30, 1997, up from $56.95 for the comparable
period in 1996. This 8.7%
11
<PAGE> 12
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Proforma Results (continued)
increase in REVPAR (resulting from increases in occupancy and ADR of .4pp and
8.2%, respectively) is primarily attributable to favorable market conditions in
the mid-scale 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 June 30, 1997 was
21.9% compared to 21.1% for the pro forma three months ended June 30, 1996. The
.8% point increase is due primarily to improved departmental profit margins
offset by 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 and the Holiday Inn - Plano as well as the significant
capital improvements at several of the hotels in the Original Bristol
Portfolio.
Interest expense increased by $1.8 million to $13.2 million for the pro forma
three months ended June 30, 1997, compared to the pro forma three months ended
June 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 $.4 million for the pro forma
three months ended June 30, 1997, compared to the pro forma three months ended
June 30, 1996. The increase is due to improvements in the operating results for
the three hotels operated as joint ventures.
As a result of the factors described above, net income increased to $14.0
million for the pro forma three months ended June 30, 1997, from $11.9 million
for the pro forma three months ended June 30, 1996, an increase of 17.9% and
earnings per share increased 14.8% to $.31 for the pro forma three months ended
June 30, 1997 compared to $.27 for the same period in 1996.
Six Months Ended June 30, 1997 Compared With
Six Months Ended June 30, 1996
Actual Results
Total revenue increased 88% to $189.9 million for the six months ended June 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 and the addition of the Allerton
and the Holiday Inn - Plano as well as improved operating performance of the
Original Bristol Portfolio. REVPAR for the Original Bristol Portfolio was
$49.44 for the six months ended June 30, 1997, compared to $42.27 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
increased to 72.5% and $68.19, respectively, for the six months ended June 30,
1997 compared to 63.0% and $67.09, 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 74.3% for the
six months ended June 30, 1997 as compared to 70.6% for the six months ended
June 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 98% increase in rooms revenue for the six months ended June
30, 1997 compared to the same period in 1996 as compared to a 70% increase in
food and beverage revenue.
12
<PAGE> 13
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 revenues for the Original Bristol
Portfolio. Food and beverage revenue for the Original Bristol Portfolio for the
six months ended June 30, 1997 was $24.8 million representing a 16.4% 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 held by the Company during 1996.
Gross operating margin (consisting of total revenue less department expenses,
administrative and general, marketing and property occupancy costs divided by
total revenue) was 35.6% for the six months ended June 30, 1997 compared to
35.2% for the six months ended June 30, 1996. The .4% point increase in gross
operating margin is primarily attributable to an improvement in departmental
operating margins offset by higher property occupancy costs related to property
taxes and land rentals. 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 $7.1 million for the six months ended
June 30, 1997 compared to 1996 as a result of the Holiday Inn Acquisition and
the addition of the Allerton and the Holiday Inn - Plano. Depreciation expense
also increased as a result of the substantial capital improvements at several
hotels in the Original Bristol Portfolio.
Corporate expenses for the six months ended June 30, 1997 was $11.9 million
compared to $5.5 million for the same period in 1996. Approximately $3.1
million of the increase relates to one-time costs incurred for the closing and
integration of the Holiday Inn Acquisition. The remaining increase relates
primarily to the increase in the number of corporate employees prior to and in
anticipation of the acquisition and related takeover from the previous owner.
Interest expense for the six months ended June 30, 1997 increased $9.4 million
to $17.9 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 $.5 million for the six months ended June
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 54.1% to $12.7
million for the six months ended June 30, 1997 compared to the six months ended
1996 and earnings per share increased 25% to $.40 for the six months ended June
30, 1997 compared to $.32 for the same period in 1996. Recurring earnings for
the six months ended June 30, 1997 of $15.9 million, which exclude the
extraordinary item of $1.3 million and the one-time costs ($1.9 million, net of
tax), represents a 99% increase over recurring earnings for the six months
ended 1996 of $8.0 million, which excludes a one-time gain related to the sale
of marketable securities ($.3 million, net of tax). Recurring earnings per
share of $.50 for the six months ended June 30, 1997 represents a 61%
improvement over the same period in 1996.
13
<PAGE> 14
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (continued)
Pro Forma Results
Revenues increased $32.8 million, or 11.8%, to $311.4 million for the pro forma
six months ended June 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 the Holiday Inn - Plano as well as
improvements in REVPAR. REVPAR for the Original Bristol Portfolio was $49.44
for the six months ended June 30, 1997 compared to $42.27 for the six months
ended June 30, 1996, representing a 17% increase. This REVPAR increase was a
result of improvements in both occupancy and ADR which were primarily
attributable to the successful repositioning and/or redevelopment of several
hotels in the Original Bristol Portfolio. The Acquired Hotels achieved a 9.1%
improvement in REVPAR for the six months ended June 30, 1997 compared to 1996
primarily as a result of favorable market conditions and the strength of the
Holiday Inn brand and reservation system. REVPAR, occupancy and ADR for the
Acquired Hotels for the six months ended June 30, 1997 was $58.45, 75.3% and
$77.62, respectively, compared to $53.56, 74.3% and $72.09, respectively, for
the comparable period in 1996.
Operating income margin for the pro forma six months ended June 30, 1997 was
20.2% compared to 18.9% for the pro forma six months ended June 30, 1996. The
1.3% point increase is due primarily to improved departmental profit margins
offset by 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 and the Holiday Inn - Plano as well as the significant
capital improvements at several hotels in the Original Bristol Portfolio.
Interest expense increased by $3.4 million to $26.0 million in the pro forma
six months ended June 30, 1997, compared to the pro forma six months ended June
30, 1996. This increase was due primarily to borrowings increasing ratably
during 1996 to fund acquisitions and certain redevelopment costs.
Equity in income of joint ventures increased $.6 million for the pro forma six
months ended June 30, 1997, compared to the pro forma six months ended June 30,
1996. The increase is due to improvements in the operating results for the
three hotels operated as joint ventures.
As a result of the factors described above, income increased to $23.2 million
for the pro forma six months ended June 30, 1997, from $18.8 million for the
pro forma six months ended June 30, 1996, an increase of 23.1% and earnings per
share increased 23.8% to $.52 for the pro forma six months ended June 30, 1997
compared to the same period in 1996.
14
<PAGE> 15
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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) the New Credit Facility. 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 $56.3 million for the six months ended June 30,
1997, compared to $30.0 million for the six months ended June 30, 1996, an
increase of 87.7%.
Cash provided by operating activities was $22.1 million for the six months
ended June 30, 1997, as compared to $34.9 million for the same period in 1996.
The $12.8 million decrease from 1996 to 1997 relates primarily to advance
deposits, changes in working capital and an increase in restricted cash. In the
first half of 1996, the Company collected over $6 million in advance deposits
from reservations for Olympics-related business scheduled for the second half
of 1996. Changes in working capital are primarily related to the increase in
accounts receivable as a result of the addition of the Acquired Hotels and the
increase in restricted cash relates primarily to reserves for capital
expenditures deposited in accordance with the terms of the New Credit Facility.
In connection with the Holiday Inn Acquisition, which was financed with the New
Credit Facility (discussed in Notes 2 and 3), the Company announced that it
expects to spend at least $200 million to redevelop a substantial number of the
Acquired Hotels. In addition, the Company has adopted a growth-oriented
strategy that contemplates additional acquisitions. The Company presently
expects to fund redevelopment costs and future acquisitions principally with
cash generated by operations and borrowings under the New Credit Facility.
As more fully discussed in Note 5 to the Company's Notes to Condensed
Consolidated Financial Statements, the Company completed an equity offering in
May 1997. Net proceeds of approximately $108 million were used to repay
borrowings under the New Credit Facility. The outstanding balance under the New
Credit Facility as of June 30, 1997 was $452 million.
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 May 14, 1997 containing the
March 31, 1997 financial statements of Bristol Hotel Asset
Company.
Current Report on Form 8-K filed May 14, 1997 disclosing the
underwriting agreement with Merrill Lynch, et. al. for the
Offering.
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: August 14, 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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 34,187
<SECURITIES> 126
<RECEIVABLES> 33,188
<ALLOWANCES> (1,442)
<INVENTORY> 6,020
<CURRENT-ASSETS> 85,975
<PP&E> 1,400,436
<DEPRECIATION> (46,743)
<TOTAL-ASSETS> 1,539,740
<CURRENT-LIABILITIES> 80,401
<BONDS> 584,411
0
0
<COMMON> 436
<OTHER-SE> 606,676
<TOTAL-LIABILITY-AND-EQUITY> 1,539,740
<SALES> 0
<TOTAL-REVENUES> 189,877
<CGS> 0
<TOTAL-COSTS> 122,265
<OTHER-EXPENSES> 27,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,924
<INCOME-PRETAX> 22,796
<INCOME-TAX> 8,764
<INCOME-CONTINUING> 14,032
<DISCONTINUED> 0
<EXTRAORDINARY> (1,338)
<CHANGES> 0
<NET-INCOME> 12,694
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
