SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1995
OR
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File No. 2-90939C
AMERIHOST PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3312434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 EAST DEVON AVE., SUITE 280, DES PLAINES, ILLINOIS 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 298-4500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
As of November 3, 1995, 5,935,165 shares of the Registrant's Common Stock
were outstanding.
AMERIHOST PROPERTIES, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
INDEX
PART I: Financial Information Page
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994 4
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1995 and 1994 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis 14
Schedule of Earnings Before Interest/Rent, Taxes
and Depreciation/Amortization for the Three
and Nine Months Ended September 30, 1995 and 1994 19
PART II: Other Information
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 20
Part I: Financial Information
Item 1: Financial Statements
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,754,253 $ 3,026,029
Accounts receivable (including $429,057
and $703,465 from related parties) 2,832,257 2,457,233
Notes receivable (including $1,414,060
and $1,687,178 from related parties) 1,606,790 1,834,908
Prepaid expenses and other current assets 383,147 370,471
Costs and estimated earnings in excess of
billings on uncompleted contracts
(including $2,008,561 and
$1,315,707 from related parties) 2,700,767 2,005,274
Total current assets 9,277,214 9,693,915
Investments 2,472,601 2,995,234
Property and equipment:
Land 4,079,860 2,240,952
Buildings 18,305,920 9,124,901
Furniture, fixtures and equipment 7,737,784 3,784,608
Construction in progress 2,803,139 2,253,456
Leasehold improvements 1,568,671 791,800
34,495,374 18,195,717
Less accumulated depreciation and
amortization 4,406,734 1,729,611
30,088,640 16,466,106
Long-term notes receivable (including
$1,092,960 and $1,272,612 from related
parties) 2,536,571 2,737,882
Costs of management contracts acquired,
net of accumulated amortization of $870,982
and $768,324 644,175 492,253
Other assets (including deferred taxes of
$547,000 and $487,000), net of accumulated
amortization of $993,822 and $769,669 2,786,366 2,018,192
5,967,112 5,248,327
$ 47,805,567 $ 34,403,582
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,847,623 $ 3,224,973
Bank line-of-credit 1,127,727 -
Accrued payroll and related expenses 634,917 679,971
Accrued real estate and other taxes 671,016 362,409
Other accrued expenses and current
liabilities 570,157 262,331
Current portion of long-term debt 925,148 566,808
Income taxes payable 819,203 415,197
Total current liabilities 7,595,791 5,511,689
Long-term debt, net of current portion 20,936,183 12,975,226
Deferred income 827,373 1,051,457
Commitments
Minority interests 1,452,378 1,192,925
Shareholders' equity:
Preferred stock, no par value; authorized
100,000 shares; none issued - -
Common stock, $.005 par value; authorized
15,000,000 shares; issued 5,935,165 shares
at September 30, 1995, and
5,570,013 shares at December 31, 1994 29,676 27,850
Additional paid-in capital 16,661,066 15,465,891
Retained earnings (deficit) 1,696,267 (428,289)
18,387,009 15,065,452
Less:
Stock subscriptions receivable (436,875) (436,875)
Notes receivable (956,292) (956,292)
16,993,842 13,672,285
$ 47,805,567 $ 34,403,582
See notes to consolidated financial statements.
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue:
Hotel operations $ 7,962,043 $ 5,259,973 $ 18,181,769 $ 11,626,413
Development and
construction 2,200,908 3,842,522 9,978,271 7,979,676
Management services 925,774 783,335 2,295,847 2,029,939
Employee leasing 3,437,391 3,417,273 9,514,220 10,156,703
14,526,116 13,303,103 39,970,107 31,792,731
Operating costs and expenses:
Hotel operations 4,953,488 3,045,249 12,363,519 7,752,834
Development and
construction 1,294,928 3,331,151 8,130,754 7,462,999
Management services 565,900 546,088 1,531,478 1,531,428
Employee leasing 3,371,864 3,355,615 9,352,484 10,028,313
10,186,180 10,278,103 31,378,235 26,775,574
4,339,936 3,025,000 8,591,872 5,017,157
Depreciation and
amortization 556,659 358,889 1,469,585 896,688
Leasehold rents - hotels 511,868 454,497 1,507,414 1,315,101
Corporate general and
administrative 545,869 526,665 1,538,915 1,620,608
Operating income 2,725,540 1,684,949 4,075,958 1,184,760
Other income (expense):
Interest expense (474,712) (237,575) (1,144,439) (587,275)
Interest income 160,859 70,961 412,762 239,600
Other income 4,368 4,989 23,850 30,365
Equity in net income
and losses
of affiliates 310,426 270,223 223,549 190,740
Income before minority
interests
and income taxes 2,726,481 1,793,547 3,591,680 1,058,190
Minority interests in
(income) loss of
consolidated subsidiaries
and partnerships (170,603) (97,091) (148,124) (110,923)
Income before income tax 2,555,878 1,696,456 3,443,556 947,267
Income tax expense 992,000 679,000 1,319,000 379,000
Net income $ 1,563,878 $ 1,017,456 $ 2,124,556 $ 568,267
Earnings per share $ 0.25 $ 0.18 $ 0.35 $ 0.10
See notes to consolidated financial statements.
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 39,234,882 $ 30,804,990
Cash paid to suppliers and employees (34,534,996) (29,884,023)
Interest received 389,934 289,920
Interest paid (1,124,393) (555,320)
Income taxes (paid) received (974,994) 183,861
Net cash provided by operating activities 2,990,433 839,428
Cash flows from investing activities:
Distributions from affiliates 376,915 308,299
Purchase of property and equipment (9,564,901) (5,528,897)
Purchase of investments (225,050) (371,102)
Increase in notes receivables (1,080,286) (705,589)
Collections on notes receivables 818,695 907,528
Preopening and management contract costs (254,580) (245,520)
Sale of investments 55,000 -
Leasehold interest acquisition costs (5,000) -
Increase in organization costs (1,797) (12,824)
Net cash used in investing activities (9,881,004) (5,648,105)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,186,628 5,883,565
Principal payments of long-term debt (570,750) (251,840)
Proceeds from line of credit 1,871,874 1,460,000
Payments on line of credit (744,147) (1,460,000)
Distributions to minority interests (124,810) -
Contributions from minority interests - 690,056
Net cash provided from financing activities 5,618,795 6,321,781
Net increase (decrease) in cash (1,271,776) 1,513,104
Cash and cash equivalents, beginning of
period 3,026,029 1,885,335
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 2,124,556 $ 568,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,469,585 896,688
Equity in net loss of affiliates before
amortization of deferred income (147,272) (132,749)
Minority interests in net (income) losses
of subsidiaries 148,124 110,923
Amortization of deferred income (76,277) (57,991)
Amortization of deferred interest (4,226) (6,429)
Amortization of loan discount 34,045 34,044
Decrease in deferred tax asset (60,000) -
Compensation paid through issuance of
common stock 213,991 65,084
Changes in assets and liabilities net of effects
of acquisitions:
Increase in accounts receivable (82,167) (1,307,320)
Increase in interest receivable (18,602) (32,688)
Decrease (increase) in prepaid expenses and
other current assets 45,220 (14,638)
(Increase) decrease in costs and estimated
earnings in excess of billings (695,493) 414,886
Decrease in refundable income taxes - 376,000
Increase in other assets (373,313) (469,793)
Decrease in accounts payable (372,156) (695,753)
Increase in accrued expenses and other
current liabilities 394,411 895,829
Decrease in accrued interest (13,999) (2,089)
Increase in accrued income taxes 404,006 186,861
Increase in deferred income - 10,296
Net cash provided by operating activities $ 2,990,433 $ 839,428
See notes to consolidated financial statements.
</TABLE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PREPARATION:
The financial statements included herein have been prepared by the Company,
without audit. In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments, which consist only of
recurring adjustments necessary to present fairly the financial position of
Amerihost Properties, Inc. and subsidiaries as of September 30, 1995 and
December 31, 1994 and the results of its operations for the three and nine
month periods ended September 30, 1995 and 1994, and statements of cash
flows for the nine months ended September 30, 1995 and 1994. The results
of operations for the three and nine months ended September 30, 1995, are
not necessarily indicative of the results to be expected for the full year.
It is suggested that the accompanying financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1994 Annual Report on Form 10-K.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and the following partnerships with
ownership as indicated: Sullivan Motel Associates, Ltd. (56.0%), White
River Junction, VT 393 Limited Partnership (83.3%), Metropolis, IL 1292
Limited Partnership (54.9%), Tuscola, Illinois 593 Limited Partnership
(68.75%), Dayton, Ohio 1291 Limited Partnership (60.0%), Bowling Green,
Ohio 590 Limited Partnership (63.3%), Findlay, Ohio 391 Limited Partnership
(51.3%), and Altoona, PA 892 Limited Partnership (62.8%). Significant
intercompany accounts and transactions have been eliminated.
CONSTRUCTION ACCOUNTING:
Development fee revenue from construction/renovation projects is recognized
over the period beginning with the execution of contracts and ending with
the commencement of construction/renovation.
Construction fee revenue from construction/renovation projects is
recognized on the percentage-of-completion method, generally based on the
ratio of costs incurred to estimated total contract costs. Revenue from
contract change orders is recognized to the extent costs incurred are
recoverable. Profit recognition begins when construction reaches a
progress level sufficient to estimate the probable outcome. Provision is
made for anticipated future losses in full, at the time they are
identified.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments, accounts receivable and notes receivable. The Company invests
in temporary cash balances in financial instruments of highly rated
financial institutions generally with maturities of less than three months.
A substantial portion of accounts receivable are from hotels located in the
midwestern United States, where collateral is generally not required, and
from hotel operators for the development and construction of hotels
pursuant to written contracts. Notes receivable are primarily from hotel
operating entities generally located in the midwestern and southern United
States, and two of the Company's officers.
CASH EQUIVALENTS:
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
INVESTMENTS:
Investments in affiliates are accounted for using the equity method, under
which method the original investment is increased (decreased) by the
Company's share of affiliates' earnings (losses), and is reduced by
dividends or distributions when received. Other investments are recorded
at cost.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is being provided
for assets placed in service by use of the straight-line and accelerated
methods over their estimated useful lives. Leasehold improvements are
being amortized by use of the straight-line method over the term of the
lease.
For each classification of property and equipment, depreciable periods are
as follows:
Building 31.5-39 years
Furniture, fixture and equipment 5-7 years
Leasehold improvements 3-10 years
COST OF MANAGEMENT CONTRACTS ACQUIRED:
The costs of management contracts acquired includes amounts paid to acquire
management contracts and pre-opening costs incurred in connection with new
management contracts. These amounts are being amortized by use of the
straight-line method over periods ranging from two to five years.
OTHER ASSETS:
Costs in excess of net assets of subsidiary
Costs in excess of net assets of subsidiary are amortized on a
straight-line basis over a period of 31.5 years.
Organization costs
Organization costs are being amortized by use of the straight-line method
over a period of five years.
Investment in leases
Investment in leases represents the amounts paid for the acquisition of
leasehold interests for certain hotels. These costs are being amortized by
use of the straight-line method over the lives of the leases.
Deferred subordinated note costs
Deferred subordinated note costs represents the costs incurred in obtaining
the 7% subordinated notes. These costs are being amortized by use of the
straight-line method over the life of the debt.
Franchise fees
Franchise fees represent the initial franchise fees paid to franchisors for
certain hotels and are being amortized by use of the straight-line method
over the term of the franchise license, ranging from 10 to 20 years.
DEFERRED INCOME:
Deferred income represents that portion of fees earned from entities in
which the Company holds an ownership interest which is equal to the
Company's proportional ownership interest in the entity. The balance of
the fees are recorded in income as earned. The deferred income is being
amortized over the life of the operating assets owned by the affiliated
entity.
Also included in deferred income is the unamortized portion of loan points
collected from a loan made to an unaffiliated party in connection with the
acquisition of management contracts. These are being amortized into
interest income over the life of the loan.
INCOME TAXES:
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities determined for tax and financial reporting
purposes. Deferred income taxes have been calculated under the liability
method as prescribed by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes."
EARNINGS PER SHARE:
Computations of earnings per share of common stock are computed by dividing
net income by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding. Common stock equivalents
include stock options and warrants. The weighted average number of shares
used in the computations were 6,307,471 and 6,060,496 for the three and
nine months ended September 30, 1995, and 5,573,409 and 5,606,016 for the
three and nine months ended September 30, 1994, respectively.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1994 financial statements
in order to conform with the 1995 presentation.
2. SHAREHOLDERS' EQUITY:
REVERSE STOCK SPLIT:
During 1989, the Company effected a 1-for-50 reverse stock split. Each
holder of the Company's Common Stock was entitled to receive one new share
for every 50 shares held as of the close of business on August 22, 1989.
Any fractional shares resulting from the reverse split were acquired by the
Company and retired. Through September 30, 1995, 19.06 of aggregate
fractional shares were acquired by the Company at $4.63 per share and
retired.
AUTHORIZED SHARES:
The Company's corporate charter authorizes 15,000,000 shares of Common
Stock and 100,000 shares of Preferred Stock without par value. The
Preferred Stock may be issued in series and the Board of Directors shall
determine the voting powers, designations, preferences and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof.
DIVIDEND RESTRICTIONS:
Pursuant to the terms of the Company's subordinated notes (Note 3), no
dividends may be paid on any capital stock of the Company until such notes
have been paid in full.
REGISTRATION OF COMMON STOCK:
Pursuant to agreements with certain shareholders who executed agreements
not to sell in connection with a public offering of 1,550,000 shares of the
Company's Common Stock in May 1993, the Company filed a shelf registration
statement on Form S-3 with the Securities and Exchange Commission. This
filing registered a total of 1,359,084 shares and became effective on
December 28, 1993.
3. SUBORDINATED DEBENTURES:
On October 9, 1992, the Company completed the private placement of
$4,500,000 7% Subordinated Notes. The notes are unsecured, and
subordinated in right of payment to all senior indebtedness, which includes
all indebtedness outstanding on October 9, 1992. The Notes are due October
9, 1999, with interest payable quarterly at the rate of 7% per annum. The
proceeds to the Company, net of commissions, legal and accounting fees and
other costs of the offering were $4,030,346. During 1993, in accordance
with certain provisions on the Notes, the Company prepaid 50% of the
principal amount, resulting in a principal balance of $2,250,000 as of
September 30, 1995.
For each $1,000 principal amount loaned to the Company, the noteholder also
received common stock purchase warrants, representing the right to purchase
375 shares of the Company's Common Stock at an exercise price of $4.00 per
share for a period of five years from the date of issuance of the warrants.
Warrants to purchase a total of 46,875 shares are outstanding at September
30, 1995.
4. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the nine months ended September 30, 1995 and 1994:
Nine Months Ended
September 30,
1995 1994
Purchase of investments through issuance of
common stock and decrease in notes
receivable $ 749,659 $ 198,000
Reduction of accounts payable through
issuance of common stock $ 233,351
Reduction in accounts receivable in exchange
for note receivable $ 142,219
The Company acquired additional partnership interests in four hotels for
244,015 shares of the Company's common stock. In conjunction with the
acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ 6,070,768
Issuance of common stock (818,345)
Liabilities assumed $ 5,252,423
Proforma financial information has not been given reflecting the
acquisitions since it is not considered material to the overall financial
statement presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is primarily engaged in the development and ownership/operation
of mid-market hotels, with a focus on its own AmeriHost Inn brand. The
consolidated financial statements include the operations of all hotels in
which the Company has a 100% or controlling ownership interest ("Consolidated
Hotels"). Investments in other entities in which the Company has a minority
ownership interest are accounted for using the equity or cost method. The
Company also provides hotel development, hotel management and employee
leasing services to unrelated third parties and entities in which the Company
has a minority ownership interest on a fee-for-service or contract basis.
The third quarter of 1995 resulted in record revenues, net income, operating
income and earnings before interest/rents, taxes and
depreciation/amortization ("EBITDA"). Revenues increased to $14.5 million,
or 9.2% from $13.3 million in the third quarter of 1994. Net income for the
third quarter increased to $1.6 million in 1995 from $1.0 million in 1994,
while earnings per share increased from 18 cents to 25 cents. Operating
income increased from $1.7 million in the third quarter of 1994 to $2.7
million in the 1995 third quarter, while EBITDA increased to $4.1 million in
the third quarter of 1995 from $2.7 million in the third quarter of 1994, or
an increase of $1.4 million.
The improved performance was primarily attributable to hotel operations and
hotel development. Amerihost had an ownership interest in 47 hotels at
September 30, 1995 versus 40 hotels at September 30, 1994 (excluding hotels
under construction), increasing equivalent owned rooms by 26.2%. These
figures include an increase in Consolidated Hotels from 13 at September 30,
1994 to 20 at September 30, 1995. This increased ownership had a significant
impact on the hotel operations segment's revenues and profit. Excluding
Consolidated Hotels, the Company was constructing three hotels in the third
quarter of 1995 and completed the pre-construction development stage of
several additional projects which broke ground in the fourth quarter of 1995
or are expected to break ground by the end of 1995.
The Company intends for the AmeriHost Inn brand to be used whenever feasible
in expanding its hotel operations segment. In addition, the AmeriHost Inn
prototype is the primary product being developed through the hotel
development segment. The AmeriHost Inn brand features several amenities
including an indoor pool area, whirlpool suites, an exercise room, and a full
complimentary continental breakfast which assists the property in obtaining
favorable occupancy and average daily rates, and an efficient layout designed
to control operating costs. Same room revenues for all AmeriHost Inns
increased approximately 8.3% in the third quarter of 1995 compared to the
third quarter of 1994, attributable to an increase of $2.14 in average daily
rate and a 4.3% increase in occupancy. For all hotels in which the Company
has an ownership interest, same room revenues increased 2.7% in the third
quarter of 1995 compared to the third quarter of 1994, as occupancy increased
1.0% and average daily rate increased $1.14.
During the third quarter of 1995, the Company was constructing ten hotels,
including Consolidated Hotels, three of which were completed during the
quarter. The Company has an ownership position in eight of these ten hotels,
including 100% ownership of seven. Eight of these ten hotels are AmeriHost
Inns. Several additional hotels were also in various stages of the pre-
construction development process. Going forward, the Company plans to
continue to develop and construct hotels for both itself, which will
contribute to the hotel operations segment, and unrelated third parties and
entities in which the Company has a minority equity interest, which will
contribute to the hotel development segment.
RESULTS OF OPERATIONS
Record revenues of $14.5 million for the three months ended September 30,
1995 increased 9.2% from revenues of $13.3 million for the three months ended
September 30, 1994. This increase was due primarily to a significant
increase in the Company's hotel operations segment as well as an increase in
the hotel management segment, partially offset by a decrease in the hotel
development segment.
Hotel operations revenue increased 51.4% to $8.0 million in the third quarter
of 1995, as compared to $5.3 million in the third quarter of 1994. This
increase was primarily attributable to the addition of seven Consolidated
Hotels to the hotel operations segment since September 30, 1994. The Company
held a minority ownership position in four of these seven hotels prior to
these hotels becoming Consolidated Hotels in 1995 when additional ownership
interests were acquired. The third quarter of 1995 included the operations
of 20 Consolidated Hotels comprising 2,231 rooms compared to 13 Consolidated
Hotels comprising 1,482 rooms in the third quarter of 1994 or an increase of
50.5% in total rooms. Excluding minority interests in the Consolidated
Hotels, this translates to 1,880 and 1,354 equivalent owned rooms as of
September 30, 1995 and 1994, respectively, or an increase of 38.8%.
Hotel management and employee leasing revenues are recognized from hotels
which are owned by unrelated third parties and entities in which the Company
holds a minority ownership interest. While the number of Consolidated Hotels
increased from 13 to 20, the number of hotels managed for third parties and
minority owned entities decreased from 38 hotels at September 30, 1994 to 37
hotels at September 30, 1995. The addition of six management contracts from
October 1, 1994 to September 30, 1995 was offset by the loss of three
management contracts with third parties and by the four minority owned hotels
which became Consolidated Hotels in the first and second quarters of 1995 due
to the Company acquiring additional ownership interests in these hotels.
Management and employee leasing revenues from the Consolidated Hotels are not
recognized by the Company. Hotel management revenues increased 18.2% from
$783,335 in the third quarter of 1994 to $925,774 in the third quarter of
1995 as a result of an increase in same room revenues for managed hotels and
incentive management fees received from certain managed hotels in the 1995
third quarter which were not present in the 1994 third quarter. Employee
leasing revenue remained consistent at $3.4 million during the third quarters
of 1994 and 1995.
Excluding the construction of Consolidated Hotels, the Company was
constructing three hotels in the third quarter of 1995, versus six hotels in
the third quarter of 1994, and had several projects in various stages of pre-
construction development. A greater number of projects under construction
during the 1994 third quarter resulted in a decrease in revenues from the
Company's hotel development segment, from $3.8 million in the third quarter
of 1994 to $2.2 million in the third quarter of 1995. In addition, one of
the three hotels under construction during the third quarter of 1995 was
opened during the quarter, and another began construction later in the third
quarter, resulting in the recognition of construction revenues for only part
of the quarter for these two projects. Conversely, most of the hotels under<PAGE>
construction in the third quarter of 1994 were under construction for the
entire or a significant portion of the quarter with revenues recognized
accordingly.
Total operating costs and expenses decreased slightly to $10.2 million (70.1%
of total revenues) in the third quarter of 1995 from $10.3 million (77.3% of
total revenues) in the third quarter of 1994. Operating costs and expenses
for the hotel development segment decreased from $3.3 million in the third
quarter of 1994 to $1.3 million in the third quarter of 1995, due to the
lower level of construction activity, as the Company had the majority of its
projects in the pre-construction development stage in the third quarter of
1995 versus the third quarter of 1994. Pre-construction development activity
has lower associated operating costs and expenses than construction activity.
Operating costs and expenses in the hotel operations segment increased 62.7%
from $3.0 million in the third quarter of 1994 to $5.0 million in the third
quarter of 1995, resulting primarily from the addition of seven Consolidated
Hotels to this segment and is directly related to the 51.4% increase in
segment revenue. Hotel management segment operating costs and expenses
increased 3.6% in the third quarter from $546,088 in 1994 to $565,900 in 1995
due to a decrease in pre-opening costs associated with new hotels and
management contracts, partially offset by efficiencies achieved in the
management of all hotels operated and/or managed, which increased from 51
hotels at September 30, 1994 to 57 hotels at September 30, 1995, or 11.8%.
Employee leasing operating costs and expenses remained relatively unchanged
in the third quarter at $3.4 million in both 1994 and 1995 and is consistent
with the stable employee leasing revenues.
Depreciation and amortization expense increased 55.1% to $556,659 in the
third quarter of 1995 from $358,889 in the third quarter of 1994. This
increase was primarily attributable to the addition of seven Consolidated
Hotels to the hotel operations segment and the resulting depreciation and
amortization therefrom.
Leasehold rents - hotels increased 12.6% to $511,868 in the third quarter of
1995 from $454,497 in 1994. The increase was due to the addition of two
leased Consolidated Hotels to the hotel operations segment (the Company had
held a minority ownership position in these hotels prior to 1995 when
additional ownership interests were acquired), partially offset by a decrease
in leasehold rents for four other Consolidated Hotels pursuant to a lease
amendment which provided for reduced lease payments and extended the
termination date to December 31, 1999.
Corporate general and administrative expense increased 3.7% from $526,665 in
the third quarter of 1994 to $545,869 in the third quarter of 1995, and can
be attributed to the Company's overall growth.
The Company's operating income in the third quarter increased $1.0 million,
from $1.7 million in 1994 to a record $2.7 million in 1995, or 61.8%.
Operating income from the hotel operations segment increased 34.0% from $1.5
million in the third quarter of 1994 to $2.0 million in the third quarter of
1995, resulting primarily from an increase in Consolidated Hotels from 13 to
20. Operating income from the hotel operations segment as a percentage of
segment revenue decreased during the third quarter of 1995 compared to the
third quarter of 1994, due to a greater number of newly constructed
Consolidated Hotels operating during their initial stabilization period, when
revenues are generally lower, during the third quarter of 1995. The hotel
development segment generated operating income of $902,934 in the third
quarter of 1995 compared to $508,690 in 1994, despite higher revenues in the
third quarter of 1994. This increase is due to a larger volume of
construction activity during the third quarter of 1994 which has higher
revenue and a lower gross profit margin than pre-construction development
activity. The third quarter of 1995 contained a larger portion of pre-
construction development activity. The hotel management segment generated
operating income of $348,823 in the third quarter of 1995 compared to
$187,405 in 1994, due primarily to the achievement of operational
efficiencies, offset by a decrease in the allocation of pre-opening costs
associated with new hotels and management contracts. Employee leasing
operating income increased slightly during the third quarter, from $60,383 in
1994 to $63,952 in 1995.
The Company uses a supplemental performance measure along with net income to
report its operating results. EBITDA is not defined by generally accepted
accounting principles, but the Company believes it provides relevant
information about its operations and is necessary for an understanding of the
Company's operations. For purposes of EBITDA, the Company considers
leasehold rents for hotels to be financing costs similar to interest. EBITDA
for the third quarter of 1995 was a record $4.1 million as compared to $2.7
million in the third quarter of 1994. The significant changes resulting in
the increase in EBITDA from the third quarter of 1994 to 1995 are discussed
above. An EBITDA schedule is included herein.
Interest expense was $474,712 in the third quarter of 1995 as compared to
$237,575 in the third quarter of 1994. This increase is primarily
attributable to the increase in Consolidated Hotels with mortgage financing.
The Company's share of equity in net income of affiliates increased from
$270,223 in the third quarter of 1994 to $310,426 in the same quarter of
1995. This increase in equity in income of affiliates is due to a 6.6%
increase in same room revenues for all minority owned hotels, which
translated into a 13.4% increase in net income for these hotels. This
increase was partially offset by four hotels which had been accounted for by
the equity method in 1994, and became Consolidated Hotels during the first
and second quarters of 1995 pursuant to the acquisition of additional
ownership interests. Distributions from affiliates increased to $172,753 in
the third quarter of 1995 from $125,457 in 1994.
In the third quarter of 1995, the Company recorded an income tax expense of
$992,000 compared to $679,000 in the third quarter of 1994, which increase is
directly attributable to the increase in net income.
LIQUIDITY AND CAPITAL RESOURCES
Over the years, the Company has financed its growth through a combination of
cash provided from operations, long-term debt financing and public and
private issuances of Common Stock. During the third quarter of 1995, the
Company experienced an increase in cash from operations of $1.6 million,
compared to an increase of $853,689 in the third quarter of 1994, or an
improvement of $786,546 from 1994 to 1995. The increase in cash flow from
operations during the third quarter of 1994 to 1995 can be attributed to the
increased hotel ownership and operation activity and improvements in
occupancy and average daily rates over the third quarter of 1994, which
contributed to the increase in net income from $1.0 million in the third
quarter of 1994 to $1.6 million in the third quarter of 1995. During the
first nine months of 1995, the Company reported positive cash flow from
operations of $3.0 million and received $4.6 million through the financing of
Consolidated Hotel projects, net of principal repayments, and net proceeds of
$1.1 million from the Company's line-of-credit. These increases to cash were
more than offset by the use of $9.9 million in cash for investing activities
during the first nine months of 1995, primarily for the construction of
Consolidated Hotel properties. As a result, cash decreased $1.3 million
during the nine months ended September 30, 1995.
The Company has four main sources of cash from operating activities: fees
from development, construction and renovation projects; revenues from hotel
operations; fees from management contracts; and fees from employee leasing. <PAGE>
Fees from development, construction and renovation projects are typically
received within 15 to 45 days from billing. Due to the procedures in place
for processing its construction draws, the Company typically does not pay its
contractors until the Company receives its draw. During the third quarter of
1995, development, construction and renovation projects contributed $902,934
to the Company's operating income compared to $508,690 in the third quarter
of 1994. Cash from hotel operations is typically received at the time the
guest checks out of the hotel. A portion of the Company's hotel operations
revenues is generated through other businesses and contracts and are usually
paid within 30 to 45 days from billing. Hotel operations experienced
operating income of $2.0 million during the third quarter of 1995 compared to
$1.5 million during the third quarter of 1994. Management fee revenues are
typically received by the Company within five working days from the end of
each month. The hotel management segment contributed $348,823 to the
Company's operating income in the third quarter of 1995 compared to $187,405
in 1994. Cash from the Company's employee leasing segment is typically
received 24 to 48 hours prior to the pay date. The employee leasing segment
contributed $63,952 and $60,383 in operating income during the third quarter
of 1995 and 1994, respectively.
During the third quarter of 1995, the Company used $4.8 million in investing
activities compared to $1.7 million during the third quarter of 1994. The
Company invests cash in three principal areas: the purchase of property and
equipment through the construction and renovation of Consolidated Hotels; the
purchase of minority equity interests in hotels; and loans to affiliated and
non-affiliated hotels for the purpose of construction, renovation and working
capital. In the third quarter of 1994, the Company used cash primarily for
the purchase of $1.8 million in property and equipment for Consolidated
Hotels. In the third quarter of 1995, the Company used $4.3 million to
purchase property and equipment for Consolidated Hotels, and used $690,785 in
loans to affiliates, net of loan collections. The Company enters into
agreements with contractors for the construction of Consolidated Hotels,
including hotels under construction at September 30, 1995, after both the
construction and long-term mortgage financing is in place. Typically,
investments in hotels generate positive cash flow after a stabilization
period ranging from 90 to 180 days depending upon the geographic location of
the hotel and time of year the hotel is opened. As an equity holder,
additional cash proceeds can be realized by the Company upon the sale of the
properties.
Cash received from financing activities was $3.1 million in the third quarter
of 1995 compared to $2.9 million in the 1994 third quarter. In 1994, the
contributing factor was proceeds of $3.1 million from the mortgage financing
of Consolidated Hotels. In 1995, the primary factors were proceeds of $3.0
from the mortgage financing of Consolidated Hotels and $383,580 in net
proceeds from the Company's operating line-of-credit. The Company's
operating line-of-credit had a balance of $1,127,727 at September 30, 1995.
During 1995, the Company utilized its operating line-of-credit as well as
operating cash flow to finance the construction of the wholly-owned AmeriHost
Inn in Walker, Michigan, in order to eliminate the construction draw process
on the mortgage which it has secured with the same bank. A portion of the
mortgage was used to purchase the land for the hotel. It is expected that
the balance of mortgage proceeds of approximately $1,325,000 will be drawn
from the bank and used to reduce the line-of-credit prior to December 31,
1995. The Company's line-of-credit was increased effective May 1, 1995 to
$3,500,000 and expires on May 1, 1996. In addition, in September of 1995,
the Company secured a $7.5 million construction line-of-credit with the same
bank as the Company's operating line-of-credit, none of which was used as of
September 30, 1995.
The Company expects cash from operations to be sufficient to pay all
operating and interest expenses in 1995.
SEASONALITY
Revenues from all of the Company's business segments are heavily dependent on
hotel occupancy, which results in significant seasonal variations in the
Company's revenues, with lower revenues usually in the first and fourth
quarters of each year. The impact of seasonality may be diminished as the
Company expands into warmer climates.
INFLATION
Management does not believe that inflation has had, or is expected to have,
any significant adverse impact on the Company's financial condition or
results of operations for the periods presented.
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE OF EARNINGS BEFORE INTEREST/RENT,
TAXES AND DEPRECIATION/AMORTIZATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue $ 14,526,116 $ 13,303,103 $ 39,970,107 $ 31,792,731
Operating costs and
expenses 10,186,180 10,278,103 31,378,235 26,775,574
4,339,936 3,025,000 8,591,872 5,017,157
Corporate general and
administrative (545,869) (526,665) (1,538,915) (1,620,608)
Interest income 160,859 70,961 412,762 239,600
Other income 4,368 4,989 23,850 30,365
Equity in net income and losses
of affiliates 310,426 270,223 223,549 190,740
Earnings before minority
interests 4,269,720 2,844,508 7,713,118 3,857,254
Minority interests in earnings of
consolidated subsidiaries and
partnerships (170,603) (97,091) (148,124) (110,923)
Earnings before interest/rent,
taxes and depreciation/
amortization $ 4,099,117 $ 2,747,417 $ 7,564,994 $ 3,746,331
</TABLE>
PART II - OTHER INFORMATION<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The annual shareohlders' meeting was held on July 6, 1995. Two
matters were voted as follows:
Matter 1: Election of directors
Director For Against Abstain
H. Andrew Torchia 4,228,555 3,761 11,855
Michael P. Holtz 4,212,955 19,361 11,855
Richard A. D'Onofrio 4,228,155 4,161 11,855
Russell J. Cerqua 4,227,305 5,011 11,855
Reno J. Bernardo 4,226,705 5,611 11,855
Robert L. Barney 4,228,245 4,071 11,855
Matter 2: Ratification of Auditors
For Against Abstain
Retention of BDO Seidman 4,230,845 8,181 5,145
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 27 - Financial Statement Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during this period
covered by this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amerihost Properties, Inc.
Registrant
Date: November 3, 1995
By: /s/ Russell J. Cerqua
Russell J. Cerqua
Treasurer/Senior Vice President,
Finance
By: /s/ James B. Dale
James B. Dale
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Amerihost
Properties, Inc.'s Form 10-Q and is qualified in its entirety by reference to
such Form 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,754,253
<SECURITIES> 0
<RECEIVABLES> 7,139,814
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,277,214
<PP&E> 34,495,374
<DEPRECIATION> 4,406,734
<TOTAL-ASSETS> 47,805,567
<CURRENT-LIABILITIES> 7,595,791
<BONDS> 0
<COMMON> 29,676
0
0
<OTHER-SE> 16,964,166
<TOTAL-LIABILITY-AND-EQUITY> 47,805,567
<SALES> 14,526,116
<TOTAL-REVENUES> 14,526,116
<CGS> 10,186,180
<TOTAL-COSTS> 10,186,180
<OTHER-EXPENSES> 1,614,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474,71278
<INCOME-PRETAX> 2,555,878
<INCOME-TAX> 992,000
<INCOME-CONTINUING> 1,563,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,563,878
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
