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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 March 31, 1998
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
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Common Stock, Par Value $.01 per share New York Stock Exchange
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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 May 8, 1998 was 43,806,401.
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BRISTOL HOTEL COMPANY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION. PAGE NO.
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<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997................................................................... 3
Condensed Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997...................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997...................................................... 5
Notes to Condensed Consolidated Financial Statements.................................. 6
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...................................................... 15
SIGNATURE ...................................................................................... 16
</TABLE>
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ................................................... $ 79,649 $ 86,167
Accounts receivable, net .................................................... 36,407 31,305
Inventory ................................................................... 8,393 8,286
Deposits and other current assets ........................................... 10,673 9,298
---------- ----------
Total current assets ............................................. 135,122 135,056
Property and equipment (net of accumulated depreciation
of $88,356 and $76,172, respectively) ........................................ 1,468,407 1,439,167
Other assets
Restricted cash ............................................................. 8,670 9,283
Investments in joint ventures, net .......................................... 12,659 12,396
Goodwill (net of accumulated amortization of $1,226
and $891, respectively) .................................................. 52,394 52,773
Deferred charges and other non-current assets, net .......................... 15,915 17,963
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Total assets ..................................................... $1,693,167 $1,666,638
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................................... $ 8,025 $ 8,455
Accounts payable and accrued expenses ....................................... 45,957 29,852
Accrued property, sales and use taxes ....................................... 13,230 15,911
Accrued insurance reserves .................................................. 10,773 9,530
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Total current liabilities ........................................ 77,985 63,748
Long-term debt, excluding current portion ....................................... 706,865 708,864
Deferred income taxes ........................................................... 243,751 242,530
Other liabilities ............................................................... 2,693 2,702
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Total liabilities ................................................ 1,031,294 1,017,844
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Common stock ($.01 par value; 150,000,000 shares authorized, 45,734,472 shares
issued, and 43,804,901 and 43,641,401 shares outstanding at March 31, 1998
and December 31, 1997, respectively) ......................................... 438 436
Additional paid-in capital ...................................................... 608,529 606,935
Cumulative translation adjustment ............................................... 406 286
Retained earnings ............................................................... 52,500 41,137
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Total stockholders' equity ....................................... 661,873 648,794
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Total liabilities and stockholders' equity ....................... $1,693,167 $1,666,638
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
March 31,
------------------------------
1998 1997
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<S> <C> <C>
REVENUE
Rooms .................................................................... $ 120,372 $ 41,731
Food and beverage ........................................................ 28,050 12,475
Management fees .......................................................... 1,516 85
Other .................................................................... 8,864 3,970
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Total revenue ................................................. 158,802 58,261
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OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms ................................................................ 33,424 9,888
Food and beverage .................................................... 21,239 8,409
Other ................................................................ 2,455 1,207
Undistributed operating expenses:
Administrative and general ........................................... 15,737 5,116
Marketing ............................................................ 11,380 3,838
Property occupancy costs ............................................. 24,474 8,326
Depreciation and amortization ........................................ 12,906 5,164
Corporate expense .................................................... 6,290 3,012
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Operating income ............................................................. 30,897 13,301
Other (income) expense:
Interest expense ......................................................... 12,513 6,278
Equity in income of joint ventures ....................................... (554) --
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Income before income taxes ................................................... 18,938 7,023
Income taxes ................................................................. 7,576 2,613
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Net income ................................................................... $ 11,362 $ 4,410
============ ============
Earnings per common and common equivalent share:
Net income:
Basic ................................................................ $ 0.26 $ 0.18
Diluted .............................................................. $ 0.26 $ 0.17
Weighted average number of common and common equivalent shares outstanding:
Basic ................................................................ 43,718,751 24,848,760
Diluted .............................................................. 44,535,273 25,796,808
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited, in thousands)
<TABLE>
<CAPTION>
March 31,
----------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................................... $ 11,362 $ 4,410
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................................... 12,906 5,164
Amortization of deferred financing costs .................................................... 1,257 528
Equity in earnings of joint ventures ........................................................ (554) --
Non-cash portion of foreign currency translation ............................................ 120 --
Compensation expense recognized for employee stock options .................................. 73 64
Changes in working capital ...................................................................... 7,413 (3,628)
Increase in advance deposits .................................................................... 714 286
(Increase) decrease in restricted cash .......................................................... 613 (190)
Deferred income taxes provision ................................................................. 1,221 624
Distribution from joint ventures ................................................................ 175 --
Decrease in other liabilities ................................................................... (9) (1,062)
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Cash provided by operating activities ................................................ 35,291 6,196
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CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment .......................................................... (40,820) (6,156)
Purchase of property and equipment .............................................................. -- (35,000)
-------- --------
Cash used in investing activities .................................................... (40,820) (41,156)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt .................................................................... (2,429) (1,665)
Proceeds from senior term facility .............................................................. -- 41,200
Proceeds from exercise of employee stock options ................................................ 1,523 --
Increase in deferred charges and other non-current assets ....................................... (83) (3,262)
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Cash provided by (used in) financing activities ...................................... (989) 36,273
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Net increase (decrease) in cash and cash equivalents ................................................ (6,518) 1,313
Cash and cash equivalents at beginning of period .................................................... 86,167 4,666
-------- --------
Cash and cash equivalents at end of period .......................................................... $ 79,649 $ 5,979
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Bristol Hotel Company (the "Company" or "Bristol") is a Delaware
corporation which was incorporated in November 1994 and began
operations after the acquisitions of Harvey Hotel Company, Ltd. and its
subsidiaries and United Inns, Inc. At March 31, 1998, the Company owned
86 hotels and managed 15 additional hotels, two of which are owned by
joint ventures in which the Company owns a 50% interest. The
properties, which contain approximately 28,800 rooms, are located in 22
states, the District of Columbia and Canada. The Company acquired the
ownership and/or management of 60 of these properties on April 28, 1997
(the "Holiday Inn Acquisition").
The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited balance sheet at that date. The condensed
consolidated balance sheet at March 31, 1998, the condensed
consolidated statements of income for the three months ended March 31,
1998 and 1997, and the condensed consolidated statements of cash flow
for the three months ended March 31, 1998 and 1997 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 March 31, 1998, and the results of operations and
cash flows for the three months ended March 31, 1998 and 1997 have been
made. Interim results are not necessarily indicative of fiscal year
performance because of seasonal and short-term variations.
2. SUBSEQUENT EVENTS
On April 21, 1998, the Company acquired the 187-room Sheraton Four
Points Hotel in Leominster, Massachusetts for $9.0 million. The
purchase price was funded with borrowings from the FelCor Facility (as
described below).
On April 30, 1998 the Company acquired 20 midwestern hotels (the "Omaha
Acquisition"). The total consideration for these assets was $40 million
of assumed debt (of which $24.9 million was paid off at closing), $20
million in cash and 1.43 million shares of the Company's common stock.
The portfolio consists of nine full-service Holiday Inns, five Holiday
Inn Express hotels, five Hampton Inns and one Homewood Suites, with
locations in Omaha, Nebraska; Moline, Illinois; Davenport, Iowa;
central Kansas and Midland/Odessa, Texas. The Company funded the cash
portion of the purchase price and the $24.9 million of debt prepayments
with borrowings under the FelCor Facility (as described below).
On April 21, 1998, the Company entered into an interim credit facility
with FelCor Suite Hotels, Inc. ("FelCor") pursuant to which the Company
can borrow up to $120 million to fund acquisitions and redevelopment
costs and for other corporate purposes (the "FelCor Facility"). The
FelCor Facility bears interest at a rate of LIBOR plus 2% and will
mature on December 31, 2003.
On May 11, 1998, the Company refinanced its existing $455 million loan
from Nomura Asset Capital Corporation and Bankers Trust Company with a
new $455 million loan from Bankers Trust Company (the "BT Loan"). The
BT Loan is secured by a pledge of stock in the subsidiaries of the
Company, bears interest at LIBOR plus 1-3/4% and will mature on May 11,
2001. The Company incurred approximately $34 million in yield
maintenance costs and prepayment penalties related to the payoff of the
existing facility, which, along with approximately $6.8 million of
deferred financing charges, will be recognized as an extraordinary loss
in the second quarter of 1998.
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. PROPOSED MERGER WITH FELCOR SUITE HOTELS, INC.
On March 24, 1998, the Company announced a proposed merger with FelCor,
subject to approval by shareholders of both companies. Under the terms
of the proposed merger (the "FelCor Merger"), Felcor will acquire the
real estate holdings and assume the associated debt of the Company in
return for 31.7 million shares of newly issued FelCor stock. Prior to
the FelCor Merger, the Company will spin-off, as a taxable dividend,
its hotel operating business as a separate publicly traded hotel
operating company to be known as Bristol Hotels & Resorts ("New
Bristol"). The spin-off will be followed by the merger of Bristol into
Felcor, with Felcor acquiring all of Bristol's remaining assets,
including its 110 owned hotels (giving effect to acquisitions closed
subsequent to quarter end).
Each of the Company's hotels acquired by FelCor in the merger will be
leased to and operated by New Bristol. The merged company, which will
be renamed FelCor Lodging Trust, Ltd., will be the largest non-paired
share lodging REIT and New Bristol will be the largest independent
hotel operating company in the U.S. The two companies will be
separately owned and managed, but are expected to work together in the
acquisition and leasing of additional hotels.
In the spin-off, Bristol stockholders will receive one common share of
New Bristol for every two of their existing Bristol common shares. In
the merger, Bristol stockholders will receive 0.685 FelCor common
shares for each of their existing Bristol common shares. FelCor
stockholders will continue to hold their current FelCor common shares.
As a result of these transactions, existing Bristol stockholders will
own all of New Bristol's equity and 44% of FelCor's outstanding common
equity. The spin-off will be taxable to Bristol and its stockholders,
while the merger will be tax-free.
The following unaudited pro forma statements of income of New Bristol
give effect to Bristol's contribution of its hotel operating business
to New Bristol, the Holiday Inn Acquisition, the spin-off, the merger
and the Omaha Acquisition as if each event had occurred on January 1 of
the periods presented. The pro forma statements of income are presented
for illustrative purposes only and do not purport to be indicative of
the results that would have actually been obtained had such
transactions been completed for the periods presented or that may be
obtained in the future.
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. PROPOSED MERGER WITH FELCOR SUITE HOTELS, INC. (CONTINUED)
<TABLE>
<CAPTION>
Pro Forma for the Three
Months Ended March 31,
1998 1997
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(unaudited, in thousands
except per share amounts)
-------------------------
<S> <C> <C>
Total revenue ....................................... $ 170,410 $ 160,448
Departmental expenses ............................... 62,206 60,240
Undistributed operating expenses (including tenant
lease expense) ................................... 105,457 97,562
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Operating income .................................... 2,747 2,646
Interest expense .................................... 205 205
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Income before income taxes .......................... 2,542 2,441
Income taxes ........................................ 1,017 974
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Net income .......................................... $ 1,525 $ 1,467
========== ==========
Earnings per common and common
equivalent share ................................. $ 0.09 $ 0.10
========== ==========
Weighted average number of common and
common equivalent shares outstanding ............. 17,565,343 15,101,288
========== ==========
</TABLE>
4. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma statement of income gives effect to
the Holiday Inn Acquisition and related debt refinancings as if each
event had occurred on January 1, 1997. The pro forma statement of
income is presented for illustrative purposes only and does not purport
to be indicative of the results that would have actually been obtained
had such transactions been completed as of the assumed dates and for
the period presented or that may be obtained in the future. This pro
forma statement of income is used for comparison to the actual
operating results for the three months ended March 31, 1998 in
"Management's Discussion and Analysis of Results of Operations and
Financial Condition."
8
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BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
Pro Forma for the
Three Months Ended
March 31, 1997
-----------------
(unaudited, in thousands
except per share amounts)
<S> <C>
Total revenue ............................................ $ 148,684
Departmental expenses .................................... 55,152
Undistributed operating expenses ......................... 66,074
-----------
Operating income ......................................... 27,458
Other (income) expenses:
Interest expense ....................................... 14,809
Equity in income of joint ventures ..................... (339)
-----------
Income before income taxes ............................... 12,988
Income taxes ............................................. 5,012
-----------
Net income ............................................... $ 7,976
===========
Earnings per common and common
equivalent share ...................................... $ 0.20
===========
Weighted average number of common and
common equivalent shares outstanding .................. 39,838,770
===========
</TABLE>
NOTE TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
A. Bristol acquired the Allerton Hotel in Chicago (the
"Allerton") on January 31, 1997. There were no adjustments
made to the pro forma condensed consolidated statement of
income for this property. Results of operations for this
property are included from the acquisition date.
9
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BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this 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 intent, belief or
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
Historical results for the three months ended March 31, 1998 reflect the
operations of the 86 hotels owned by the Company as of March 31, 1998 and the
joint venture ownership and/or management of 15 additional hotels. Historical
results for the three months ended March 31, 1997 reflect the operations of the
37 hotels owned by the Company as of March 31, 1997 (the "Original Bristol
Portfolio"), the operations of the Allerton from its acquisition date, January
31, 1997, and the management of one additional hotel. Pro forma results for the
three months ended March 31, 1997 include the Original Bristol Portfolio, the
Allerton from its acquisition date and the assets (the "Holiday Inn Assets")
acquired by the Company in the Holiday Inn Acquisition completed in April 1997.
The 45 owned hotels included in the Holiday Inn Assets are referred to below as
the "Acquired Hotels".
The 86 hotels owned by the Company as of March 31, 1998 are comprised of the
Original Bristol Portfolio, the Allerton, the Holiday Inn - St. Louis ("St.
Louis") purchased in October 1997, the Holiday Inn - Philadelphia Independence
Mall ("Philadelphia") purchased in December 1997 and the Acquired Hotels.
Collectively, Allerton, St. Louis and Philadelphia are referred to below as the
"1997 Single Asset Purchases".
The redevelopment and rebranding program (the "Redevelopment and Rebranding
Program") started by the Company in November 1997 impacted the Company's 1998
first quarter results. The Company had approximately 85,000 room nights
out-of-service or approximately 3.8% of the total available. The Redevelopment
and Rebranding Program, which entails exterior and interior reconstruction of
and renovations to a substantial number of the Company's hotels as well as the
rebranding of certain hotels operated under the Company's own brand names, is
expected to be substantially complete by the end of 1999.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1997
Total revenue increased 172.6% to $158.8 million for the three months ended
March 31, 1998, as compared to 1997 as a result of the inclusion of the Holiday
Inn Assets, and the 1997 Single Asset Purchases as well as the improved
operating performance of the Original Bristol Portfolio. Revenue
10
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BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1997 (CONTINUED)
per available room ("RevPAR") for the Original Bristol Portfolio was $50.56 for
the three months ended March 31, 1998, compared to $48.31 for 1997, representing
a 4.7% increase. 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 room rate ("ADR") for the
Original Bristol Portfolio was 67.8% and $74.60, respectively, for the three
months ended March 31, 1998, compared to 70.3% and $68.73, respectively, for the
three months ended March 31, 1997. The 2.5 percentage point ("pp") decline in
occupancy is primarily attributable to an increase in rooms out of service as a
result of the Redevelopment and Rebranding Program. RevPar increased 8.9% for
the three months ended March 31, 1998 compared to the three months ended March
31, 1997, for the hotels in the Original Bristol Portfolio which were not
undergoing renovations during 1998.
Rooms revenue as a percent of total revenue was 75.8% for the three months ended
March 31, 1998, as compared to 71.6% for the three months ended March 31, 1997,
resulting from the Acquired Hotels having proportionally lower food and beverage
business than the Original Bristol Portfolio. This is also evidenced by the
188.4% increase in rooms revenue for the three months ended March 31, 1998,
compared to the same period in 1997 as compared to a 124.8% increase in food and
beverage revenue.
Food and beverage revenue increased primarily due to the increase in the number
of hotels and 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 March 31, 1998 was $13.5 million, representing a 7.9%
increase over first quarter 1997. This increase is primarily attributable to the
effective redevelopment of several hotels in the Original Bristol Portfolio.
The increase in management fees relates primarily to the addition of the 15
management contracts acquired in the Holiday Inn Acquisition offset by the loss
of a management contract previously held by Bristol in the first half of 1997.
Gross operating margin (consisting of total revenue less department expenses,
administrative and general, marketing and property operating costs divided by
total revenue) was 31.5% for the three months ended March 31, 1998, compared to
36.9% for the three months ended March 31, 1997. The 5.4 pp decrease in gross
operating margin is primarily attributable to declines in departmental operating
margins and higher property operating 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 $7.7 million for the three months ended
March 31, 1998, compared to 1997 as a result of the Holiday Inn Acquisition and
the 1997 Single Asset Purchases. Depreciation expense also increased as a result
of the substantial capital improvements at several hotels in the Original
Bristol Portfolio.
11
<PAGE> 12
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1997 (CONTINUED)
Corporate expenses for the three months ended March 31, 1998, were $6.3 million
compared to $3.0 million for 1997. The increase relates primarily to the
increase in the number of corporate employees and related costs and increased
travel expenses as a result of the Holiday Inn Acquisition.
Interest expense for the three months ended March 31, 1998, increased $6.2
million to $12.5 million from $6.3 million for the three months ended March 31,
1997. The increase relates primarily to the additional debt incurred to finance
the Holiday Inn Acquisition. The increase was offset by capitalized interest on
assets under redevelopment of approximately $2.7 million during the three months
ended March 31, 1998.
Equity in income of joint ventures of $.6 million for the three months ended
March 31, 1998 represents the Company's 50% interest in the earnings of two
joint ventures acquired in the Holiday Inn Acquisition.
As a result of the factors described above, net income increased 157.6% to $11.4
million for the three months ended March 31, 1998, compared to the three months
ended March 31, 1997 and diluted earnings per share increased 52.9% to $.26 for
the three months ended March 31, 1998, compared to $.17 for 1997.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH
PRO FORMA THREE MONTHS ENDED MARCH 31, 1997
Total revenue increased $10.1 million, or 6.8%, to $148.7 million for the three
months ended March 31, 1998, compared to the pro forma three months ended March
31, 1997, reflecting increases in rooms revenue and food and beverage revenue
offset by a decrease in other revenue. Rooms revenue and food and beverage
revenue increased 9.0% and 4.4%, respectively, for the three months ended March
31, 1998 compared to the pro forma three months ended March 31, 1997. Other
revenue declined $1.1 million for the three months ended March 31, 1998 compared
to the pro forma three months ended March 31, 1997 representing an 11.2%
decrease. Revenue increases reflect the addition of the 1997 Single Asset
Purchases and improvements in RevPAR offset by the impact of having
approximately 3.8% of total available rooms out-of-service as a result of the
Redevelopment and Rebranding Program. The decrease in other revenue is primarily
related to a decrease in long distance telephone revenue as a result of the
increased trend towards use of calling cards by hotel guests.
RevPAR for the Company, excluding the 1997 Single Asset Purchases, was $54.45
for the three months ended March 31, 1998, compared to $52.46 for the pro forma
three months ended March 31, 1997. This RevPAR increase is primarily
attributable to the successful repositioning and/or redevelopment of several
hotels in the Original Bristol Portfolio as well as the strength of the Holiday
Inn brand name and reservation system. Occupancy and ADR for the Company,
excluding the 1997 Single Asset Purchases, for the three months ended March 31,
1998, was 68.3% and $79.73, respectively, compared to 71.6% and $73.31,
respectively, for pro forma three months ended March 31, 1997. The 3.3 pp
decline in occupancy is primarily a result of the Redevelopment and Rebranding
Program.
Operating income margin improved by 5% as the improvement in revenues outpaced
cost increases due to good cost control and a relatively high level of fixed and
semi-fixed expenses. Operating income margin for the three months ended March
31, 1998 was 19.5% compared to 18.5% for the pro forma three months ended March
31, 1997.
12
<PAGE> 13
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH
PRO FORMA THREE MONTHS ENDED MARCH 31, 1997 (CONTINUED)
Interest expense decreased $2.3 million to $12.5 million for the three months
ended March 31, 1998, compared to the pro forma three months ended March 31,
1997. The decrease relates primarily to capitalized interest on assets under
redevelopment of approximately $2.7 million during the three months ended March
31, 1998.
Equity in income of joint ventures increased $0.2 million for the three months
ended March 31, 1998, compared to pro forma three months ended March 31, 1997.
The increase is due to improvements in the operating results for the two hotels
owned by the joint ventures offset by the conversion of one joint venture to an
owned asset resulting from the Company's acquisition of the remaining 50%
partnership interest in the Holiday Inn - San Jose in December 1997. The Company
had acquired its original 50% partnership interest in connection with the
Holiday Inn Acquisition.
As a result of the factors described above, net income increased 42.4% to $11.4
million for the three months ended March 31, 1998, compared to the pro forma
three months ended March 31, 1997 and diluted earnings per share increased 30.0%
to $.26 for the three months ended March 31, 1998, compared to $.20 for the pro
forma three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of capital to fund its operational and capital
needs is cash flow from operations, which it typically measures in terms of
EBITDA (earnings before interest, taxes, depreciation and amortization). 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
generally accepted accounting principles ("GAAP"), and is not necessarily
indicative of cash available to fund all cash flow needs and should not be
considered an alternative to net income for purposes of evaluating the Company's
operating performance. Management believes that cash flow from operations along
with the FelCor Facility will be sufficient to cover the Company's reasonably
foreseeable working capital, capital expenditure and debt service requirements.
EBITDA totaled $44.4 million for the three months ended March 31, 1998, compared
to $18.5 million for the three months ended March 31, 1997, an increase of
140.0%.
The Company's net cash provided by operations totaled $35.3 million for the
three months ended March 31, 1998, compared to $6.2 million for the same period
in 1997. The Company's cash and cash equivalent assets were $79.6 million and
$86.2 million at March 31, 1998 and December 31, 1997, respectively. The $29.1
million increase in net cash provided by operating activities from 1997 to 1998
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 real estate taxes and capital expenditures deposited
in accordance with the terms of various debt agreements.
13
<PAGE> 14
BRISTOL HOTEL COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In the second quarter of 1998, the Company entered into the FelCor Facility
pursuant to which the Company can borrow up to $120 million to fund
acquisitions, redevelopment costs and other corporate purposes. The Company
borrowed $54 million in the second quarter of 1998 to fund the Omaha Acquisition
and the purchase of the Sheraton Four Points in Leominster, Massachusetts. The
Company has borrowed an additional $33.2 million to fund the Redevelopment and
Rebranding Program and $32.8 million to fund into escrow the redemption of all
the Company's 11.22% Senior Secured Notes due 2000. The escrow will be released
on June 15, 1998.
On May 11, 1998, the Company incurred approximately $34 million in yield
maintenance costs and prepayment penalties related to the payoff of its existing
$455 million loan from Nomura Asset Capital Corporation and Bankers Trust
Company, and approximately $975,000 of financing costs related to the BT Loan.
Both amounts were funded out of available cash.
The Company anticipates using cash on hand and cash from operations, along with
the FelCor Facility to fund the Redevelopment and Rebranding Program and planned
capital projects scheduled for completion up to the date of the proposed merger,
at which time FelCor will assume responsibility for funding capital
expenditures.
14
<PAGE> 15
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 March 30, 1998 containing
the December 31, 1997 financial statements of Bristol Hotel
Asset Company.
15
<PAGE> 16
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: May 14, 1998 By /s/ John D. Bailey
----------------------------------
John D. Bailey
Vice President, Controller and
Chief Accounting Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 79,649
<SECURITIES> 0
<RECEIVABLES> 38,590
<ALLOWANCES> (2,183)
<INVENTORY> 8,393
<CURRENT-ASSETS> 135,122
<PP&E> 1,556,763
<DEPRECIATION> (88,356)
<TOTAL-ASSETS> 1,693,167
<CURRENT-LIABILITIES> 77,985
<BONDS> 706,865
0
0
<COMMON> 438
<OTHER-SE> 608,529
<TOTAL-LIABILITY-AND-EQUITY> 1,693,167
<SALES> 0
<TOTAL-REVENUES> 158,802
<CGS> 0
<TOTAL-COSTS> 108,709
<OTHER-EXPENSES> 19,196
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,513
<INCOME-PRETAX> 18,938
<INCOME-TAX> 7,576
<INCOME-CONTINUING> 11,362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,362
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
