SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-15291
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: (847) 298-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.005 per share
(Title of class)
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 _ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. _
While it is difficult to determine the number of shares owned by non-affiliates
(within the meaning of the term under the applicable regulations of the
Securities and Exchange Commission), the registrant estimates that the aggregate
market value of the registrant's Common Stock held by non-affiliates on March
24, 1997 (based upon an estimate that 86% of the shares are so owned by non-
affiliates and upon the closing price of the Common Stock of $7.8) was
$39,981,752.
As of March 24, 1997, 6,292,197 shares of the Registrant's Common Stock were
outstanding.
The following documents are incorporated into this Form 10-K by reference: None
PART I
ITEM 1. BUSINESS.
GENERAL
Amerihost Properties, Inc. and its subsidiaries (collectively, where
appropriate, "Amerihost," or the "Company") is engaged in the development and
construction of AmeriHost Inn hotels, its proprietary hotel brand, and the
ownership, operation and management of both AmeriHost Inn hotels and other
hotels. The AmeriHost Inn brand was created by the Company to provide for the
consistent, cost-effective development and operation of mid-price hotels in
various markets. All AmeriHost Inn hotels are designed and developed using the
Company's 60 to 80 room, interior corridor and indoor pool prototype design and
are located in tertiary and secondary markets.
As of December 31, 1996, the Company owned, operated or managed 72 hotels
located in 16 states. Of these hotels, 38 hotels are operated or managed under
the Company's proprietary brand, the AmeriHost Inn. Of the 72 hotels, the
Company owns a 100% or controlling ownership interest in 28 hotels and a
participating equity interest, ranging from 5% to 50%, in 33 hotels. Of the 61
owned hotels, 36 are AmeriHost Inn hotels and 25 are other brands, which in most
cases were acquired, renovated and repositioned in their respective marketplaces
between 1987 and 1993. The majority of the other brand hotels are franchised
through Days Inn, Hampton Inn, Holiday Inn and Ramada Inn. The Company also
managed 11 hotels at December 31, 1996, for unaffiliated third parties whereby
the Company has no ownership interest. Two of the 11 managed hotels operate as
AmeriHost Inn hotels. As of December 31, 1996, an additional 19 AmeriHost Inn
hotels were under construction. The Company has 100% ownership in 12 of these
hotels, a minority ownership interest in six of these hotels, and is
constructing one for an unaffiliated third party.
The table below sets forth information regarding the hotels at December 31,
1996.
<TABLE>
<CAPTION>
Open Under
Hotels Construction Total
Hotels Rooms Hotels Rooms Hotels Rooms
<S> <C> <C> <C> <C> <C> <C>
100% or controlling ownership:
AmeriHost Inn hotels 14 896 12 732 26 1,628
Other brands 14 1,807 - - 14 1,807
28 2,703 12 732 40 3,435
Minority ownership interest:
AmeriHost Inn hotels 22 1,430 6 366 28 1,796
Other brands 11 932 - - 11 932
33 2,362 6 366 39 2,728
Managed only hotels:
AmeriHost Inn hotels 2 121 1 61 3 182
Other brands 9 1,262 - - 9 1,262
11 1,383 1 61 12 1,444
Total 72 6,448 19 1,159 91 7,607
</TABLE>
Since 1993, the Company's growth strategy has focused on the expansion and
increased ownership of the AmeriHost Inn hotel brand through new development and
construction. The AmeriHost Inn hotels have achieved occupancy and average
daily rates which are higher than those realized by the Company's other owned
hotels, including those operated under national franchise affiliations. These
favorable operating results experienced by the AmeriHost Inn hotels led to the
Company's decision to focus on expanding this brand rather than acquiring or
developing hotels under other brand affiliations. The Company intends to
continue this growth strategy and to aggressively expand its development,
ownership and operation of AmeriHost Inn hotels. Implementing this strategy
will allow the Company to rely less on the one-time transactional fees
associated with hotel development and construction while generating long-term
revenues and potential profits from hotel operations.
In addition to the development, construction and operation of hotels in which
the Company has a controlling ownership interest, the Company provides
development, construction and renovation services to hotels in which the Company
has a minority ownership interest and to unaffiliated third parties. For new
construction projects, the Company offers "turn-key" development services,
having the in-house expertise to manage a project from inception through
completion, including market research, site selection, architectural services,
the securing of financing and construction management. The construction
contracts entered into between the Company and the entities owning the hotels
have generally been one of two types, providing either for the Company to
receive costs plus developer's and construction overhead fees or a fixed fee.
The Company also provides management services to minority owned hotels and other
hotels owned by unaffiliated third parties. Under its management contracts with
such hotels, the Company typically provides complete operational and financial
management services, including sales, marketing, quality control, training,
purchasing and accounting. However, under certain management contracts, the
Company's joint venture partners are responsible for the day-to-day operational
management, while the Company provides full financial management and operational
consulting and assistance. The Company is currently managing or co-managing all
of the hotels in which it has a minority ownership interest, and is also
managing 11 hotels for unaffiliated third parties. These hotels are managed
under contracts ranging from 1 to 10 years, with optional renewal periods of
equal length, and contain provisions under which the Company is paid fees equal
to a percentage of total gross revenues for its services and, in some instances,
additional incentive fees based upon hotel performance. The Company has
developed centralized systems and procedures which it believes allow it to
manage the hotels effectively and efficiently. While the Company does not
intend to actively pursue management contracts with third parties, it does
intend to continue managing hotels for third parties under its current
management contracts and may manage additional hotels for third parties if the
terms are favorable.
The Company also provides employee leasing services to hotels in which the
Company has a minority ownership interest and to hotels owned by unaffiliated
third parties which are managed by the Company. Under its employee leasing
program, the Company employs all of the personnel working at the participating
hotels and leases them to the hotels pursuant to written agreements. Employee
leasing affords the Company greater control over payroll costs and allows the
participating hotels to benefit from economies of scale on personnel-related
costs. The Company's employee leasing agreements typically provide for one year
terms, with automatic one year renewals. The Company generally receives fees
from each participating hotel in an amount equal to the gross payroll costs for
the leased employees, including all related taxes and benefits, plus a
percentage of the gross payroll.
All revenues attributable to development, construction, management and employee
leasing services with respect to hotels in which the Company has a 100% or
controlling ownership interest have been eliminated in consolidation.
AMERIHOST INN HOTELS
AmeriHost Inn hotels, the Company's proprietary brand, are designed and
constructed using the Company's 60 to 80 room, interior corridor and indoor pool
prototype design. The AmeriHost Inn hotel's amenities and services include 24-
hour front desk and message service, facsimile machines, whirlpool and sauna
area, exercise room, meeting room, a covered entrance and extensive exterior
lighting for added security. The standard AmeriHost Inn guest room features an
electronic card-key lock, in-room safe, in-room coffee maker, telephone with
data port for personal computer, a work area and color television with premium
cable service or movies on demand. In addition, each Amerihost Inn hotel
typically includes 2 to 6 whirlpool suites which, in addition to the standard
amenities, include in-room whirlpools, microwave ovens, compact refrigerators
and an expanded sitting area. AmeriHost Inn hotels do not contain food and
beverage facilities normally associated with full-service hotels. Food service
for hotel guests is generally available from adjacent or nearby free-standing
restaurants which are independently owned and operated.
All AmeriHost Inn hotels are operated or managed by the Company in accordance
with strict guidelines designed to provide guests with a consistent lodging
experience. The Company believes the quality and consistency of the amenities
and services provided by its AmeriHost Inn hotels increase guest satisfaction
and repeat business. Further, through its use of the AmeriHost Inn prototype
design, the Company believes that it is able to operate profitable hotels while
offering an excellent value to its guests.
The Company targets smaller communities in tertiary and secondary markets with
established demand generators such as major traffic arteries, office complexes,
industrial parks, shopping malls, colleges and universities or tourist
attractions, as the principal location for the development and construction of
AmeriHost Inn hotels. Generally, these markets have minimal competition or a
lack of recent hotel development. An AmeriHost Inn hotel is typically
positioned to attract both business and leisure travelers seeking consistent
amenities and quality rooms at reasonable rates, generally ranging from $40 to
$65 per night.
The Company's in-house design staff, centralized purchasing program, strict cost
controls, and low average land costs all contribute to a favorable cost
structure in developing and constructing new AmeriHost Inn hotels. Furthermore,
due to the centralization of all accounting, purchasing, payroll and other
administrative functions, each hotel is operated efficiently and effectively
with a minimal on-site staff. AmeriHost Inn hotels are not subject to
franchise, royalty and marketing fees, which generally range from 8% to 10% of a
hotel's gross room revenues. These factors assist the Company in maximizing its
return on invested capital.
OTHER OWNED HOTELS
The Company's non-AmeriHost Inn hotels were primarily acquired by the Company
through joint ventures prior to 1993, in most instances at prices below
estimated replacement costs. The other hotels have been owned, operated and
managed by the Company independently, or as part of a national franchise system
such as Days Inn, Hampton Inn, Holiday Inn, and Ramada Inn. The Company
believes that franchises in certain locations are important in maintaining
occupancy levels, which are supported by the Franchisor's national reservation
systems and marketing efforts and brand name recognition.
The Company's non-AmeriHost Inn hotels typically are also located in secondary
and tertiary markets, with nearby demand generators such as airports, major
traffic arteries, office complexes, industrial parks, shopping malls, colleges
and universities or tourist attractions. The non-AmeriHost Inn hotels contain
53 to 209 rooms, generate average daily rates ranging from $35 to $65 per night,
offer a variety of amenities and services and generally do not contain food and
beverage facilities.
As part of the Company's strategy to focus its ownership primarily on AmeriHost
Inn hotels, the Company intends to pursue selective sales of certain of these
other hotels, if and when attractive terms are available. During 1996, four
hotel partnerships in which the Company was a general partner sold their hotels,
resulting in cash distributions to the Company upon their sale. Two additional
hotels have been sold in 1997. These proceeds were, and any proceeds from
future sales, if and when completed, are expected to be used by the Company to
develop additional AmeriHost Inn hotels.
HOTEL PROPERTIES
At December 31, 1996, the Company owned and/or managed 72 hotels in 16 states,
concentrated in the midwestern and southern United States. The Company had an
additional 19 hotels under construction located generally in the same
geographical areas.
Because the hotel industry is seasonal, the revenues generated by the hotels
managed by the Company will increase or decrease depending upon the time of
year. Since the Company's management fees are based upon a percentage of the
hotels' total gross revenues, the Company is further susceptible to these
seasonal variations. Given the location of the properties the Company manages,
the revenues are typically lower in the first and fourth quarters of each year.
The following is a list of hotel properties under the Company's management at
December 31, 1996 by state:
<TABLE>
<CAPTION>
DATE COMPANY
OPERATIONS
STATE HOTEL ROOMS BEGAN
<S> <C> <C> <C>
Florida
Hampton Inn Ft. Myers (1) 123 09/30/92
Georgia
AmeriHost Inn Eagles Landing,
Stockbridge (1) 60 08/08/95
AmeriHost Inn LaGrange (1) 59 03/01/95
AmeriHost Inn Smyrna (1) 60 01/08/96
Days Inn Northwest, Atlanta 107 11/01/91
Days Inn Peachtree, Atlanta 142 11/01/91
Days Inn Dalton 152 11/01/91
Days Inn Jekyll Island 162 11/01/91
Jekyll Estates Inn, Jekyll Island 37 11/01/91
779
Illinois
AmeriHost Inn Harvard (1) 60 07/01/96
AmeriHost Inn Jacksonville (1) 60 06/14/96
AmeriHost Inn Macomb (1) 60 05/19/98
AmeriHost Inn Players Riverboat Hotel,
Metropolis (1) 120 02/25/94
AmeriHost Inn Sycamore (1) 60 05/31/96
AmeriHost Inn Tuscola (1) 59 08/17/94
Days Inn Elgin (1)(3) 96 12/16/93
Days Inn Melrose Park (1) 123 07/01/88
Days Inn Niles (1) 153 01/01/90
Days Inn O'Hare South, Schiller Park (1) 145 04/01/89
Days Inn Shorewood (1) 182 10/01/89
Palwaukee Motor Inn, Wheeling 138 04/21/95
1,256
Indiana
AmeriHost Inn Hammond (1) 86 03/29/96
AmeriHost Inn Muncie 60 04/07/95
AmeriHost Inn Plainfield (1)(2) 60 09/01/92
Days Inn Cloverdale (1)(2) 60 11/04/88
Days Inn Crawfordsville (1)(2) 60 01/30/89
Days Inn Plainfield (1)(2) 64 05/01/90
Days Inn Portage (1) 120 04/01/91
Days Inn Sullivan (1) 60 08/14/87
Ramada Inn Lafayette (1) 145 02/02/94
715
Iowa
AmeriHost Inn Waverly (1) 60 08/28/96
Kentucky
AmeriHost Inn Murray (1) 60 11/01/96
Louisiana
Days Inn Kenner, New Orleans 324 11/01/91
Michigan
AmeriHost Inn Coopersville (1) 60 01/09/96
AmeriHost Inn Grand Blanc (1) 60 07/17/96
AmeriHost Inn Grand Rapids North,
Walker (1) 60 07/05/96
AmeriHost Inn Muskegon, Norton Shores (1) 61 11/04/96
241
Mississippi
AmeriHost Inn Batesville (1) 60 04/26/96
Days Inn Vicksburg Landing (1)(2) 89 05/13/95
149
Ohio
AmeriHost Inn Ashland (1) 62 08/09/96
AmeriHost Inn Athens (1)(2) 102 11/04/89
AmeriHost Inn Jeffersonville North (1)(2) 60 07/20/96
AmeriHost Inn Jeffersonville South (1)(2) 60 10/14/94
AmeriHost Inn Kenton (1)(2) 60 08/02/96
AmeriHost Inn Lancaster (1)(2) 60 09/04/92
AmeriHost Inn Logan (1)(2) 60 04/16/93
AmeriHost Inn Mansfield (1) 60 11/19/94
AmeriHost Inn Marysville (1)(2) 79 06/01/90
AmeriHost Inn Oxford 61 02/01/91
AmeriHost Inn Upper Sandusky (1) 60 04/12/95
AmeriHost Inn Wooster East (1) 58 01/18/94
AmeriHost Inn Wooster North (1) 60 10/21/95
AmeriHost Inn Zanesville (1)(2) 60 07/30/96
Days Inn Athens (1)(2) 60 01/16/88
Days Inn Akron/Kent, Brimfield (1)(2) 67 08/04/89
Days Inn Dayton South (1) 209 01/20/92
Days Inn Findlay (1)(3) 115 05/06/91
Days Inn New Philadelphia (1)(2) 102 06/04/92
Oakbrook Inn Middletown (1) 120 07/03/92
1,575
Oregon
Wildhorse Resort Hotel, Pendleton (4) 100 03/23/96
Pennsylvania
AmeriHost Inn Shippensburg (1) 60 08/09/96
Holiday Inn Altoona (1) 143 08/31/92
Holiday Inn Oil City (1) 106 12/02/92
309
Texas
AmeriHost Inn Allen (1) 60 07/25/96
Vermont
Holiday Inn White River Junction (1)(2) 140 06/24/93
West Virginia
AmeriHost Inn New Martinsville (1)(2) 60 05/03/96
AmeriHost Inn Mineral Wells (1)(2) 61 12/30/96
AmeriHost Inn Parkersburg (1)(2) 79 06/26/95
200
Wisconsin
AmeriHost Inn Green Bay (1) 60 10/12/96
AmeriHost Inn Mosinee (1) 53 04/30/93
Menominee Casino-Bingo-Hotel, Keshena 100 09/14/94
Oakbrook Inn Menomonee Falls (1)(3) 144 08/07/92
357
TOTAL ROOMS 6,448
TOTAL PROPERTIES 72
(1) Indicates properties in which the Company owns a direct or indirect equity or leasehold interest.
(2) Indicates properties which are co-managed with partners.
(3) Property was sold, or lease was terminated, in 1997.
(4) Management contract was terminated in 1997.
</TABLE>
LODGING INDUSTRY
The United States lodging industry's performance is strongly correlated to
economic activity, with changes in gross national product growth affecting both
room supply and demand, resulting in cyclical changes in average occupancy
rates, average daily rates, and revenue per available room. The general
downturn in the economy and the oversupply of rooms during the late 1980's and
early 1990's resulted in decreased economic performance in the lodging industry.
Since the early 1990's, the United States lodging industry has shown significant
improvement. The primary element contributing to the industry's improved
performance has been increased economic activity, which has resulted in growth
in the demand for hotel rooms exceeding the growth in the available supply of
hotel rooms. The more rapid growth in hotel room demand, compared to growth in
hotel room supply, has resulted in positive trends industry-wide for occupancy
and average daily rates. According to Coopers & Lybrand L.L.P., the overall
United States hotel room occupancy growth was 0.9% in 1996, while average daily
rates increased 6.4%, resulting in a 7.4% increase in revenue per available room
("RevPAR").
GROWTH STRATEGY
The Company's growth strategy is to increase revenues, EBITDA and net income per
share by: (i) developing, operating and owning additional AmeriHost Inn hotels;
(ii) maintaining or enhancing occupancy and average daily rate results at all of
its hotels; and (iii) controlling operating and corporate overhead expenses.
EBITDA is used by the Company as a supplemental performance measure along with
net income to report its operating results. EBITDA is defined as net income,
adjusted to eliminate the impact of (i) interest expense; (ii) interest and
other income; (iii) leasehold rents for hotels, which the Company considers to
be financing costs similar to interest; (iv) income tax expense; (v)
depreciation and amortization; (vi) gains or losses from property transactions;
and (vii) non-recurring charges.
The Company's primary growth strategy is to focus on the expansion of its
proprietary brand, the AmeriHost Inn, through continued development,
construction and operation of 100% owned AmeriHost Inn hotels. During 1996, the
Company opened three wholly-owned AmeriHost Inn hotels and had another 12 under
construction at December 31, 1996. The Company may also continue the
development of AmeriHost Inn hotels through joint ventures with partners.
During 1996, such joint ventures opened 15 AmeriHost Inn hotels. The Company
may seek to increase its ownership interest in existing AmeriHost Inn hotels in
which the Company has less than a 100% ownership interest, if available on
favorable economic terms. The Company acquired additional ownership interests
during 1996 in two hotels in which the Company already held a minority ownership
interest, resulting in majority ownership positions. In addition, the Company
and certain joint ventures converted five hotels from other brands to the
AmeriHost Inn brand during 1996. These conversions were hotels which had been
built by the Company as wholly-owned hotels or through joint ventures in prior
years using the AmeriHost Inn standard prototype. From time to time, the
Company may also continue to provide development, construction and, to a lesser
extent, management services to unaffiliated third parties on a fee-for-service
basis.
During 1996, the Company began construction on a record 21 AmeriHost Inn hotels,
and completed construction of 19 hotels, 18 of which were AmeriHost Inn hotels.
The Company intends to continue developing and constructing AmeriHost Inn hotels
in communities located in tertiary and secondary markets which already have
established demand generators, such as major traffic arteries, office complexes,
industrial parks, shopping malls, colleges and universities or tourist
attractions. Typically, the Company seeks communities where an active economic
development program is in place, which suggests long-term growth potential for
additional lodging demand. In most cases, the local community is interested in
a new hotel because existing facilities are dated or inconvenient. The Company
provides comfortable, professionally managed accommodations which are typically
not available in that community.
The Company has an in-house development staff dedicated to identifying and
evaluating new development opportunities. Once a market has been identified and
a site has been selected, the Company initiates its due diligence process prior
to the construction of one of its hotels. Such due diligence typically consists
of environmental surveys, feasibility and engineering studies and the securing
of zoning and building permits. The Company also maintains an in-house
construction and design department, which enables it to manage all phases of
construction. The Company's in-house architects and design personnel prepare
the blueprints for each AmeriHost Inn hotel through the use of computer assisted
drafting equipment, thereby reducing architectural fees. In most cases, the
Company hires a general contractor to construct the hotel for a fixed price,
eliminating much of the risk typically associated with construction. The
Company's project managers oversee the general contractor through each phase of
construction in order to assure the quality and timing of the construction.
With few exceptions, such as the interior color scheme, each AmeriHost Inn hotel
is the same in every detail, including the overall layout, the room sizes and
the indoor pool area. The replication of its prototype design allows accurate
budgeting of its construction and overhead costs.
Historically, the Company has financed its hotel development and construction
through a combination of equity and debt financing, with the equity financing
typically provided by the Company and/or its joint venture partners, and the
debt financing typically provided by local or regional banks. All of the
AmeriHost Inn hotels currently under construction are being financed in this
manner, except for one joint venture which intends to lease the land.
The Company intends to increase its revenue, EBITDA and net income per share
through the continued development of its AmeriHost Inn brand hotel and the
continued implementation of its operating and marketing strategies. The Company
believes that it can develop and operate additional AmeriHost Inn hotels having
occupancies and average daily rates similar to those the Company has achieved at
its existing AmeriHost Inn hotels. Moreover, the Company believes that the
development of additional AmeriHost Inn hotels and expanded geographic diversity
will continue to enhance the awareness of the AmeriHost Inn brand and thus
improve revenues at existing, as well as future, AmeriHost Inn hotels.
OPERATING STRATEGY
The Company's operating strategy is to provide its customers with a consistent
lodging experience by offering a package of amenities and services which meet or
exceed the customer's expectations during each stay. The Company has developed
uniform standards and procedures for each aspect of the development,
construction, operation and marketing of its AmeriHost Inn hotels, from site
selection to operational management.
The Company's operational management activities are overseen by a Senior Vice
President of Operations who supervises regional and area managers, who in turn
oversee the general managers of the hotels. Each regional manager is
responsible for 6 to 10 hotels, depending on each hotel's size and location. In
addition to having responsibilities as the general manager of a specific hotel,
each area manager is responsible for overseeing the general managers at 1 to 2
additional hotels. In addition to these managers, the Company has centralized
sales and marketing personnel who assist and direct the general managers and
other on-site personnel in their marketing efforts. The Company also has
internal auditors who perform audits of each hotel at least two times each year,
including tests of financial items such as cash and receivables, as well as
operational, security and ADA (Americans with Disabilities Act) compliance
matters, and who are also responsible for developing and conducting a variety of
educational and training seminars for general managers and other on-site
personnel.
The Company has designed a financial management system whereby all accounting
and operating information is processed in the Company's centralized accounting
office at its headquarters. The system includes cash management, accounts
payable and the generation of daily financial and operating information and
monthly financial statements which allow senior management and the regional,
area and general managers to closely monitor performance and to quickly react to
changes in operational conditions. The Company provides each hotel with
standardized forms and procedures to ensure uniform and efficient financial
reporting. The Company's financial management system relieves certain
management and reporting burdens from the individual hotel managers, enabling
them to focus on the operation and marketing of the hotel. The centralized
financial management system also enhances the quality and timing of internal
financial reports. All payroll functions are also centralized at the Company's
headquarters through its employee leasing subsidiary, allowing the Company to
have greater control over payroll costs. In addition, since all of the
approximately 1,400 hotel personnel are employed by the same company, the costs
of certain payroll related expenses are lower than if each hotel maintained its
own employees, and the Company is able to offer a more attractive health
insurance program to its employees.
MARKETING STRATEGY
The Company believes it has a unique marketing strategy which is to actively
seek involvement in and ties to the local communities in which its hotels are
located. The local businesses and residential communities are each hotel's best
referral source. When staying in smaller communities where the Company's hotels
are located, visitors typically seek recommendations from family, friends and
business associates. The general managers of the hotels are expected to devote
a majority of their time toward marketing activities with local businesses and
the community. In an effort to promote community awareness and build strong
relationships with business leaders and local residents, general managers are
very active in local civic groups and frequently sponsor special events. In
addition, the hotels typically sponsor various local social and community events
and permit the use of their facilities by local clubs and civic organizations.
This community involvement, combined with a professional marketing program,
allows the hotel to showcase its facilities for both business and leisure
purposes. By focusing on the local community as its primary referral source,
the Company believes that each hotel can build a strong sales force of local
residents.
With respect to AmeriHost Inn hotels, the Company's primary marketing strategy
is to consistently develop and operate AmeriHost Inn hotels using its prototype
design under the trademarked AmeriHost Inn diamond-shaped logo. The Company
believes that a consistent product offering, including the same design features,
amenities and quality guest services, will promote guest loyalty, referrals and
repeat business. The amenities and services featured in the AmeriHost Inn
prototype design are not consistently found in the hotels of competitors in the
markets which the Company targets. By providing amenities and services on a
consistent basis, along with centralized administrative and financial reporting
systems, the Company believes it is able to operate profitable hotels while
offering an excellent value to its guests.
JOINT VENTURES
The Company continued to develop new hotels through joint ventures in 1996,
whereby the Company and other investors agree to jointly undertake the
development, construction, acquisition or renovation of a hotel property. As of
December 31, 1996, the Company had 47 projects with joint venture partners,
including multiple projects with certain joint venture partners.
The Company's joint ventures have taken various forms, including general
partnerships, limited partnerships, and limited liability companies. Each joint
venture has been formed with respect to a particular hotel project and reflects
the characteristics of that project, including the relative contributions, in
cash, property or services, of its partners. In most instances, the joint
venture has taken the form of a limited partnership, with a wholly-owned
subsidiary of the Company as a general partner with sole or joint management
authority. The Company's subsidiary, as general partner, has typically received
a partnership interest ranging from 15% to 30% for contributing the Company's
expertise. In certain cases, the subsidiary has also contributed a minimal
amount of cash. The limited partners (which may include the Company or its
affiliates in some instances) have typically contributed the cash equity
required to fund the project and have received interests proportionate to their
contributions. A typical joint venture agreement provides that the profits and
losses of the entity will be allocated among the partners in proportion to their
respective interests. However, the distribution of operating cash flow and
asset sale proceeds to the Company in proportion to its ownership interest is
often subordinate to the prior return of capital and other distributions payable
to the other joint venture partners. In addition, in five recent joint venture
arrangements, the equity interests held by the joint venture partners are
exchangeable into shares of the Company's common stock and the Company has
guaranteed minimum annual distributions to the joint venture partners.
As the general partner, the Company's subsidiary generally has the sole or
primary management authority with respect to the joint venture. However, in
some instances, the joint venture agreement or applicable law may provide to the
other joint venture partners the right to amend the joint venture agreement,
approve a transfer of the general partner's partnership interest, remove the
general partner for cause, or dissolve the joint venture. The joint venture
agreements do not typically restrict the right of the Company or its affiliates
to engage in related or competitive business activities.
COMPETITION
There is significant competition in the mid-price lodging industry. There are
numerous hotel chains that operate on a national or regional basis, as well as
other hotels, motor inns and other independent lodging establishments throughout
the United States. Competition is primarily in the areas of price, location,
quality, services and amenities. Many of the Company's competitors have
recognized trade names, national reservation systems, greater resources and
longer operating histories than the Company. However, the Company believes that
its management is sufficiently experienced, and the markets which the Company
targets for development typically contain minimal competition, enabling the
Company to compete successfully.
There are a number of companies which develop, construct and renovate hotels.
Some of these companies perform these services only for their own account, while
others actively pursue contracts for these services with third party owners.
The Company believes that it can develop, construct and renovate hotels at costs
which are competitive. The Company believes that its use of a well developed
prototype, significant experience (the Company has managed the development and
construction of more than 50 hotels) and volume purchasing of furniture and
amenities result in development costs which are lower than those experienced by
many competitors building comparable hotels. The Company also believes that its
ability to offer additional services, such as hotel management, provides some
competitive advantages.
There are many hotel management companies which provide management services to
hotels similar to the services provided by the Company. While the quantity of
competition may be high, the Company believes that the quality of its services,
including its information and management systems and employee leasing
operations, will enable the Company to compete successfully. The Company
believes that its focus on secondary and tertiary markets also lessens
competition for the types of services provided by the Company.
The Company believes that the relationship between the development and
construction costs and the average daily rates achieved by the AmeriHost Inn
hotels is more favorable than that experienced by many of the Company's
competitors. In addition, a significant portion of the purchasing and
accounting functions related to the hotels is handled in the Company's
headquarters, thus enabling the local general managers and their staffs to focus
their efforts on marketing and sales. The centralization of many functions also
assists in keeping costs lower due to certain economies of scale. This allows
the AmeriHost Inn hotels to operate efficiently and compete effectively.
FRANCHISE AGREEMENTS
At December 31, 1996, the Company had franchise agreements (collectively, the
"Franchise Agreements") with Days Inn of America, Inc., Promus Hotels, Inc.
(regarding Hampton Inns), Holiday Inns, Inc., Holiday Inns Franchising, Inc. and
Ramada Franchise Systems, Inc. Although the terms of the various Franchise
Agreements differ, each requires the Company to pay a monthly royalty fee for
the right to operate the hotel under the "flag" of that Franchisor and to have
access to the other benefits provided by such Franchisor, including access to
reservation systems, marketing plans and use of trademarks. The royalty fees
are typically based on gross revenues attributable to room rentals, plus
marketing and reservation contributions, and typically range between 8% and 10%
of gross room revenues. In addition, the Company and/or the joint venture which
owns a hotel operated pursuant to a Franchise Agreement will have ongoing
obligations to maintain the quality and condition of the hotel to the standards
required by the Franchisor. The term of a Franchise Agreement typically is
between 10 and 20 years, with a substantial penalty for early termination by the
Company with either party typically having the right to terminate after five
years. The Company believes that it is generally in compliance with its
Franchise Agreements, and the loss of any one of the Franchise Agreements would
not have a material impact on the Company.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries had approximately
1,500 full and part-time employees:
Hotel Management:
Operations 25
Accounting and finance 17
Property general managers 73
Hotel Development: 16
Hotel Operations: 549
Corporate:
General and administrative 10
Officers 4
Employee Leasing:
General and administrative 5
Operations(1) 806
1,505
(1) Does not include 622 employees who are employed by ASI and leased to
other subsidiaries of the Company. These employees are reflected in the table
under hotel management and hotel operations.
At December 31, 1996 approximately 20 of the Company's housekeeping employees
(at the Company's Days Inn Melrose Park and Days Inn O'Hare South, Schiller
Park) were members of the Hotel, Motel, Club, Cafeteria, Restaurant Employees
and Bartenders Union, Local 450 AFL-CIO, and were covered by collective
bargaining agreements which were in place with such union until November 30,
1997. The Company sold its interests in the Days Inn O'Hare South, Schiller
Park in July 1997. The Company expects to renew the collective bargaining
agreement with regard to its approximately 10 housekeeping employees at its Days
Inn Melrose Park when such agreement expires. To date, the Company has not
experienced any work stoppages or significant employee-related problems. The
Company believes that its relationship with its union and other employees is
good.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol HOST. As of March 24, 1997, there were 1,514 holders of record of the
Company's Common Stock. The following table shows the range of reported high
and low closing prices per share.
High($) Low($)
FISCAL 1995
First quarter 4.88 3.56
Second quarter 5.75 4.31
Third quarter 7.50 5.63
Fourth quarter 7.25 6.13
FISCAL 1996
First quarter 8.25 6.25
Second quarter 9.94 8.50
Third quarter 8.63 5.88
Fourth quarter 7.63 6.06
FISCAL 1997
First quarter
(through March 24, 1997) 7.63 5.31
The Company has not declared or paid any cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business and
therefore does not anticipate paying any cash dividends in the foreseeable
future. Any future determination to pay cash dividends will be made by the
Board of Directors in light of the Company's earnings, financial position,
capital requirements and such other factors as the Board of Directors deems
relevant. In addition, pursuant to the terms of the Company's 7% Subordinated
Notes (the "7% Notes"), no dividends may be paid on any capital stock of the
Company until the 7% Notes have been paid in full. (See Notes 7 and 8 to the
Consolidated Financial Statements under Item 14.)
The Board of Directors has the authority to issue up to 100,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued shares of
Preferred Stock, including without limitation, dividend rates, conversion
rights, voting rights, redemption and sinking fund provisions, and liquidation
provisions, and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
shareholders. The Board of Directors, without shareholder approval, may issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plans to issue any Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented below have been derived from
the Company's consolidated financial statements. The consolidated financial
statements for all years presented have been audited by the Company's
independent auditors, whose report on such consolidated financial statements for
the three years ended December 31, 1996, 1995 and 1994 is included herein under
Item 14. The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto under Item 14 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
(in thousands, except per share data)
Fiscal Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 68,342 $ 51,962 $ 43,347 $ 34,274 $ 29,411
Operating costs and expenses 54,360 41,317 37,076 30,389 25,445
Depreciation and amortization expense 3,479 2,268 1,141 928 421
Leasehold rents - hotels 2,122 1,976 1,661 1,652 1,149
Corporate general and administrative 1,928 2,111 2,013 1,783 1,399
Operating income (loss) 6,453 4,290 1,456 (478) 997
Interest expense, net 2,142 1,195 427 596 220
Net income (loss) $ 3,395 $ 2,138 $ 571 $ (761) $ 511
Earnings (loss) per share $ 0.50 $ 0.35 $ 0.10 $ 0.15) $ 0.22
Weighted average shares outstanding(1) 6,729 6,125 5,624 5,038 2,347
BALANCE SHEET DATA:
Total assets $ 66,901 $ 52,453 $ 34,404 $ 24,174 $ 13,837
Long-term debt, including current
portion 34,339 25,014 13,542 6,408 6,012
Working capital 953 1,854 4,182 5,048 3,329
Shareholders' equity 20,912 17,267 13,672 12,781 3,856
OTHER DATA:
EBITDA (2) $ 12,447 $ 8,862 $ 4,143 $ 1,608 $ 2,476
Cash provided by operating activities 7,558 1,918 2,215 693 1,267
Cash used in investing activities (11,347) (13,506) (8,764) (10,737) (4,065)
Cash provided by financing activities 5,447 9,933 7,690 10,651 3,735
Capital expenditures 14,049 12,539 7,872 8,292 296
(1) During the first quarter of 1993, the Company issued an additional
1,718,915 shares of Common Stock in connection with the conversion and
redemption of the Company's 12% Notes, the cashless exercise of warrants and the
exercise of warrants to purchase Common Stock by Diversified Innkeepers, Inc.
During the second quarter of 1993, the Company issued an additional 1,550,000
shares of Common Stock in connection with the public offering completed in May
1993.
(2) Earnings before interest/rent, taxes and depreciation/amortization
("EBITDA") is not defined by generally accepted accounting principles, however
the Company believes it provides relevant information about its operations and
is necessary for an understanding of the Company's operations, given its
significant investment in real estate. EBITDA should not be considered as an
alternative to operating income (as determined in accordance with GAAP) as an
indicator of the Company's operating performance or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of liquidity.
EBITDA for 1996 when calculated to exclude a non-recurring charge for costs
associated with a public offering of common stock which was not consummated
would have been approximately $12.9 million. EBITDA for 1993 when calculated to
exclude a non-cash debt acceleration charge of $485,411 relating to the
prepayment of subordinated debt would have been approximately $2.1 million.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company is engaged in the development of AmeriHost Inn hotels, its
proprietary brand, and the ownership, operation and management of AmeriHost Inn
hotels and other mid-price hotels. As of December 31, 1996 there were 38
AmeriHost Inn hotels open, of which 12 were wholly-owned, two were majority
owned, 22 were minority owned, and two were managed for unrelated third parties.
The Company intends to use primarily the AmeriHost Inn brand when expanding its
hotel operations segment. All of the hotels currently under construction will
be AmeriHost Inn hotels. As of December 31, 1996, 19 AmeriHost Inn hotels were
under construction, of which 12 will be wholly owned, six will be minority-
owned, and one will be managed for a third party. Same room revenues for all
AmeriHost Inn hotels increased 14.5% in 1996 compared to 1995, attributable to
an increase of $1.71 in average daily rate and a 10.7% increase in occupancy.
Revenues from hotel operations consist of the revenues from all hotels in which
the Company has a 100% or controlling ownership or leasehold interest
("Consolidated Hotels"). Investments in other entities in which the Company has
a minority ownership interest are accounted for using the equity method. As a
result of the Company's focus on increasing the number of Consolidated Hotels,
the Company expects that revenues from the hotel operations segment will
increase over time as a percentage of the Company's overall revenues.
Development and construction revenues consist of one-time fees for new
construction, acquisition and renovation activities performed by the Company for
minority owned hotels and unrelated third parties. The Company also receives
management services revenues for management services provided to minority-owned
hotels and unrelated third parties. Employee leasing revenues consist of
revenues the Company receives for leasing its employees to minority-owned hotels
and unrelated third parties. All revenues attributable to development,
construction, management and employee leasing services with respect to
Consolidated Hotels have been eliminated in consolidation.
The year ended December 31, 1996 resulted in record revenues, net income,
operating income and EBITDA (as defined below). Revenues increased 31.5% to
$68.3 million in 1996 from $52.0 million in 1995, due primarily to expanded
hotel operations and significant hotel development and construction activity.
Net income increased 58.8% to $3.4 million, or $0.50 per share in 1996 from $2.1
million, or $0.35 per share in 1995. The Company recognized gains from the sale
of one Consolidated Hotel and two parcels of excess land in 1996. In addition,
during the fourth quarter of 1996, the Company recognized approximately
$238,000, net of income taxes, in expenses associated with a public offering of
the Company's common stock which was not consummated. Excluding the gains from
the sales of the hotel and excess parcels of land, and the expenses associated
with the public offering of common stock, net of minority interests and income
taxes, net income would have been $3.1 million, or $0.45 per share. Operating
income increased $2.2 million, or 50.4% to $6.5 million in 1996 from $4.3
million in 1995.
The Company uses EBITDA as a supplemental performance measure along with net
income to report its operating results. EBITDA is defined as net income,
adjusted to eliminate the impact of (i) interest expense; (ii) interest and
other income; (iii) leasehold rents for hotels, which the Company considers to
be financing costs similar to interest; (iv) income tax expense; (v)
depreciation and amortization; and (vi) gains or losses from property
transactions. This definition differs from the traditional EBITDA definition
which does not include adjustments for extraordinary items, partners' equity in
earnings and losses, gains or losses on property transactions and other non-
recurring cash and non-cash charges. EBITDA should not be considered as an
alternative to operating income (as determined in accordance with GAAP) as an
indicator of the Company's operating performance or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of liquidity.
EBITDA, as defined by the Company is included herein due to numerous requests by
investors and analysts. Management believes that investors and analysts find it
to be a useful tool for measuring the Company's ability to service debt. EBITDA
increased 40.4% to a record $12.4 million in 1996 from $8.9 million in 1995, or
an increase of $3.5 million. During 1996, 81.3% of EBITDA was generated by
hotel operations and management activities, compared to 85.3% in 1995. After
eliminating non-recurring charges, EBITDA increased 45.0% to a record $12.9
million in 1996 from $8.9 million in 1995, or an increase of $4.0 million.
Amerihost had an ownership interest in 79 hotels at December 31, 1996 versus 64
hotels at December 31, 1995 and 50 hotels at December 31, 1994 (including hotels
under construction). The number of Consolidated Hotels open or under
construction increased to 40 at December 31, 1996 from 27 at December 31, 1995
and 17 at December 31, 1994. Excluding hotels under construction, the Company
increased equivalent owned rooms by 9.9% in 1996 to 2,929 at December 31, 1996
from 2,666 at December 31, 1995, which increased 27.8% in 1995 from 2,086
equivalent owned rooms at December 31, 1994. This increased ownership was
achieved primarily through the development of hotels for the Company's own
account and for minority-owned entities.
RESULTS OF OPERATIONS
The following table sets forth the percentages of revenues of the Company
represented by components of net income for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Percentage of Total Revenue
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Operating costs and expenses 79.5 79.5 85.5
20.5 20.5 14.5
Depreciation and amortization 5.2 4.4 2.6
Leasehold rents - hotels 3.1 3.8 3.8
Corporate general and administrative 2.8 4.0 4.7
Operating income 9.4 8.3 3.4
Interest expense ( 4.0) ( 3.4) ( 2.0)
Interest and other income 1.1 1.2 1.1
Equity in income and losses of affiliates 1.2 0.7 -
Gain on sale of assets 1.9 - -
Public offering not consummated ( 0.6) - -
Income before minority interests and
income taxes 9.0 6.8 2.5
Minority interests in operations of subsidiaries
and consolidated partnerships ( 0.6) ( 0.1) ( 0.3)
Income before income taxes 8.4 6.7 2.2
Income tax expense 3.4 2.6 0.9
Net income 5.0% 4.1% 1.3%
</TABLE>
1996 compared to 1995
Revenues increased 31.5% to a record $68.3 million in 1996 from revenues of
$52.0 million in 1995. This increase was due primarily to significant increases
in revenues from hotel operations and hotel development.
Hotel operations revenue increased 25.7% to a record $30.6 million in 1996,
compared to $24.4 million in 1995. This increase was attributable to the net
addition of four Consolidated Hotels to the hotel operations segment during
1996, and the net addition of ten Consolidated Hotels during 1995, the majority
of which were opened during the second half of 1995. The Company held a
minority ownership position in two of the four hotels which became Consolidated
Hotels in 1996 when additional ownership interests were acquired. The hotel
operations segment included 28 Consolidated Hotels comprising 2,703 rooms at the
end of 1996, compared to 24 Consolidated Hotels comprising 2,516 rooms at the
end of 1995, and 14 Consolidated Hotels comprising 1,543 rooms at the end of
1994, or an increase of 75.2% in total rooms from December 31, 1994 to December
31, 1996. Same room revenues for the Consolidated Hotels increased slightly, by
0.3% in 1996.
Hotel development activity is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Unaffiliated & Unaffiliated & Unaffiliated &
Minority- Consolidated Minority- Consolidated Minority- Consolidated
Owned (1) Hotels (2) Owned (1) Hotels (2) Owned (1) Hotels (2)
<S> <C> <C> <C> <C> <C> <C>
Under construction at
beginning of year 14 3 6 3 0 2
Starts 9 12 14 6 10 5
Completions 16 3 6 6 4 4
Under construction at
end of year 7 12 14 3 6 3
(1) hotels developed/constructed for unaffiliated third parties and
entities in which the Company holds a minority ownership interest
(2) hotels developed/constructed for the Company's own account and for
entities in which the Company holds a controlling ownership interest
</TABLE>
Hotel development revenue increased 87.4% to a record $22.9 million in 1996 from
$12.2 million in 1995. Excluding the Consolidated Hotels, the Company had 23
hotels under construction during 1996, versus 20 hotels in 1995. Although the
number of hotels under construction was only slightly greater in 1996, total
segment revenues increased significantly since 12 of the 14 hotels which began
construction in 1995 were not started until the fourth quarter, resulting in the
recognition in 1996 of a large portion of total contracted revenues for these
projects. In addition to the hotel projects under construction, the Company had
several projects in various stages of pre-construction development at the end of
both 1995 and 1996. The Company does not recognize revenues from the
development and construction of Consolidated Hotels.
Hotel management revenues decreased 7.5% to $2.8 million in 1996 from $3.0
million in 1995. 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. The number of hotels managed for
third parties and minority owned entities increased from 34 hotels (3,261 rooms)
at December 31, 1995 to 44 hotels (3,745 rooms) at December 31, 1996. The
addition of 16 management contracts in 1996 was offset by the loss of four
management contracts with minority-owned entities as a result of a
hotel/investment sale, and two minority-owned hotels which became Consolidated
Hotels in 1996 due to the Company acquiring additional ownership interests in
these hotels. All 16 management contracts added during 1996 were for newly
constructed hotels opened throughout 1996. Management fees recognized in 1996
from these hotels was lower due to their partial year of operation and the
impact of their initial stabilization period when hotel revenues are typically
lower. The terminated management contracts, all of which were for hotels other
than the AmeriHost Inn brand, were for larger hotels compared to the 16 hotels
added during 1996. Consequently, the decrease in management fee revenue from
the terminated management contracts was greater than the revenues added from the
16 newly constructed hotels during 1996. The Company anticipates an increase in
management fee revenues in 1997 based on the current portfolio of minority owned
and managed hotels. The Company does not recognize management fees from
Consolidated Hotels.
Employee leasing revenue, which is based on actual employee payroll costs,
decreased 2.8% to $12.0 million in 1996 from $12.4 million in 1995 as the timing
of the 16 hotels added and six hotel management contracts terminated as
discussed above, resulted in slightly lower payroll costs during 1996 compared
to 1995.
Operating costs and expenses increased 31.6% to $54.4 million (79.5% of total
revenues) in 1996 from $41.3 million (79.5% of total revenues) in 1995.
Operating costs and expenses in the hotel operations segment increased 23.6% to
$21.1 million in 1996 from $17.1 million in 1995, resulting primarily from the
net addition of four Consolidated Hotels to this segment and is directly related
to the 25.7% increase in segment revenue. Hotel operations segment operating
costs and expenses as a percentage of segment revenue decreased to 68.9% in 1996
from 70.1% in 1995, due primarily to improvements in operating efficiency and
the increase in newly constructed AmeriHost Inn hotels, whose operating costs
are typically lower than the older, acquired hotels. Operating costs and
expenses for the Consolidated AmeriHost Inn hotels were 57.6% of hotel revenue
in 1996. Operating costs and expenses for the non-AmeriHost Inn Consolidated
Hotels were 73.3% of hotel revenues in 1996, compared to 69.9% of hotel revenues
in 1995, which increase was due primarily to the conversion of four Consolidated
Hotels to AmeriHost Inn hotels and higher expenses associated with the severe
weather conditions in the first quarter of 1996.
Operating costs and expenses in the hotel development segment increased 94.2% to
$19.7 million in 1996 from $10.1 million in 1995, consistent with the 87.4%
increase in hotel development revenues. Operating costs and expenses in the
hotel development segment as a percentage of segment revenue increased to 85.7%
in 1996 from 82.7% in 1995. There was significant construction activity in
1996, with a greater number of hotels under construction in 1996 as compared to
1995. Additionally, a significant number of hotels began construction in the
fourth quarter of 1995, whereby the majority of the associated construction
costs were incurred in 1996. Hotel construction activity has significantly
higher associated operating costs compared to the pre-construction hotel
development activity, translating to a higher percentage of segment revenue.
Hotel management segment operating costs and expenses decreased 3.7% to $1.9
million in 1996 from $2.0 million in 1995, due primarily to efficiencies
achieved in the management of all hotels operated and/or managed. Employee
leasing operating costs and expenses decreased 3.6% to $11.7 million in 1996
from $12.1 million in 1995, attributable to the 2.8% decrease in segment revenue
as well as operational efficiencies.
Depreciation and amortization expense increased 53.4% to $3.5 million in 1996
from $2.3 million in 1995. This increase was primarily attributable to the net
addition of four Consolidated Hotels in 1996 and ten Consolidated Hotels in
1995, the majority of which were opened during the second half of 1995, to the
hotel operations segment and the resulting depreciation and amortization
therefrom.
Leasehold rents - hotels increased 7.4% to $2.1 million in 1996 from $2.0
million in 1995. This increase was primarily due to the addition of one leased
Consolidated Hotel in the fourth quarter of 1995, partially offset by the
termination of another leased Consolidated Hotel in the second quarter of 1995
as a result of the sale of the hotel.
Corporate general and administrative expenses decreased 8.7% to $1.9 million in
1996 from $2.1 million in 1995. The decrease was due primarily to operational
efficiencies and the allocation of costs associated with increased hotel
development activity.
The Company's operating income increased 50.4% to $6.5 million in 1996 from $4.3
million in 1995, or an increase of $2.2 million. Operating income from the
hotel operations segment increased 30.6% to $4.4 million in 1996 from $3.4
million in 1995, resulting primarily from the addition of 14 Consolidated Hotels
during 1995 and 1996. Operating income from the hotel development segment
increased 53.8% to $3.2 million in 1996 from $2.1 million in 1995, due to the
increased level of hotel development and construction activity. Hotel
development operating income as a percentage of segment revenues decreased to
14.0% in 1996 from 17.1% in 1995 due to the higher level of construction
activity in 1996 which has higher revenues and a lower gross margin than pre-
construction development activity. Hotel management segment operating income
decreased 31.2% to $571,680 in 1996 from $831,007 in 1995, due primarily to the
termination of four hotel management contracts with minority-owned entities and
unrelated third parties during 1996, as well as the elimination of management
fees from Consolidated Hotels. Employee leasing operating income increased to
$309,805 in 1996 from $216,075 in 1995.
Interest expense increased 57.6% to $2.8 million in 1996 versus $1.8 million in
1995, primarily attributable to the additional, permanent mortgage financing
obtained for newly constructed Consolidated Hotels.
The Company's share of equity in income (loss) of affiliates increased 108.9% to
$809,443 in 1996 from $387,439 in 1995. This increase was due primarily to
gains on the sale of three minority owned hotels in 1996 and an increase in same
room revenue. Distributions from affiliates increased 253% to $1.8 million in
1996 from $505,410 in 1995, due primarily to the distributions received from the
three minority owned partnerships in 1996 in connection with the sale of their
hotels.
The Company recorded income tax expense of $2.4 million in 1996 compared to
income tax expense of $1.3 million in 1995, which increase is directly
attributable to the increase in pre-tax income.
1995 compared to 1994
Record revenues of $52.0 million in 1995 increased 19.9% from revenues of $43.3
million in 1994. This increase was due primarily to a significant increase in
revenues from hotel operations.
Hotel operations revenue increased 57.9% to $24.4 million in 1995, compared to
$15.4 million in 1994. This increase was attributable to the net addition of 10
Consolidated Hotels to the hotel operations segment during 1995, and a 2.4%
increase in same room revenue realized by the Consolidated Hotels. The Company
held a minority ownership position in five of these 10 hotels prior to these
hotels becoming Consolidated Hotels in 1995 when additional ownership interests
were acquired. The hotel operations segment included 24 Consolidated Hotels
comprising 2,516 rooms at the end of 1995, compared to 14 Consolidated Hotels
comprising 1,543 rooms at the end of 1994, or an increase of 63.1% in total
rooms. Same room occupancy for all Consolidated Hotels increased 2.8% in 1995,
while same room average daily rate increased $1.19, or 2.5%.
The Company does not recognize revenues from the development and construction of
Consolidated Hotels. Excluding the Consolidated Hotels, the Company had 20
hotels under construction during 1995, versus 10 hotels in 1994 for unaffiliated
parties and entities in which the Company holds a minority ownership interest.
In addition, the Company had several projects in various stages of pre-
construction development at the end of 1994 and 1995. Hotel development revenue
increased 1.7% in 1995 from $12.0 million in 1994 to $12.2 million in 1995.
Although the number of hotels under construction was significantly greater in
1995, total segment revenues did not increase accordingly since 12 of the 14
hotels which began construction in 1995 were not started until the fourth
quarter, resulting in the recognition of only a minor portion of the total
contracted revenues on these projects.
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 14 to 24, the number of hotels managed for third parties and minority owned
entities decreased from 39 hotels at the end of 1994 to 34 hotels at the end of
1995. The addition of four management contracts in 1995 was offset by the loss
of one management contract with an unaffiliated third party, three management
contracts with minority-owned entities as a result of a hotel/investment sale or
temporary closing during renovation, and the five minority-owned hotels which
became Consolidated Hotels in 1995 due to the Company acquiring additional
ownership interests in these hotels. The Company does not recognize management
and employee leasing revenues from Consolidated Hotels. Hotel management
revenues increased 11.0% from $2.7 million in 1994 to $3.0 million in 1995. The
decrease resulting from the changes noted above, were more than offset by an
increase in same room revenue for managed hotels and incentive management fees
received in 1995 which were not present in 1994 from certain managed hotels.
Employee leasing revenues, which are based on actual employee costs, decreased
6.2% from $13.2 million in 1994 to $12.4 million in 1995 as a result of the
decrease in employee leasing contracts with minority-owned entities and an
unaffiliated third party as noted above.
Operating costs and expenses increased 11.4% to $41.3 million (79.5% of total
revenues) in 1995 from $37.1 million (85.5% of total revenues) in 1994.
Operating costs and expenses in the hotel operations segment increased 63.2%
from $10.5 million in 1994 to $17.1 million in 1995, resulting primarily from
the net addition of 10 Consolidated Hotels to this segment and is directly
related to the 57.9% increase in segment revenue. Operating costs and expenses
in the hotel development segment decreased from $11.3 million in 1994 to $10.1
million in 1995, due to the lower level of construction costs recognized in 1995
relative to 1994, as the Company had started construction on a significant
number of hotels in the fourth quarter of 1995 which had not yet incurred
significant construction costs in 1995. Hotel management segment operating
costs and expenses decreased 12.5% to $2.0 million in 1995 from $2.3 million in
1994, primarily due to the write-off of a contract termination fee note
receivable in 1994. Employee leasing operating costs and expenses decreased
6.8% from $13.0 million in 1994 to $12.1 million in 1995. This decrease is
attributable to the decrease in segment revenue as well as operational
efficiencies.
Depreciation and amortization expense increased 98.8% to $2.3 million in 1995
compared to $1.1 million in 1994. This increase was primarily attributable to
the addition of 10 Consolidated Hotels to the hotel operations segment and the
resulting depreciation and amortization therefrom.
Leasehold rents - hotels increased 19.0% to $2.0 million in 1995 from $1.7
million in 1994. This increase was due to the addition of three 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 the termination of a
lease agreement for one hotel.
Corporate general and administrative expenses increased 4.9% from $2.0 million
in 1994 to $2.1 million in 1995, and can be attributed to the Company's overall
growth.
The Company had $4.3 million in operating income in 1995 increasing 194.7% from
$1.5 million in 1994, or an increase of $2.8 million. Operating income from the
hotel operations segment increased 36.8% from $2.5 million in 1994 to $3.4
million in 1995, resulting primarily from an increase in Consolidated Hotels
from 14 at December 31, 1994 to 24 at December 31, 1995. Operating income from
the hotel operations segment as a percentage of segment revenue decreased during
1995 compared to 1994 due to a greater number of newly constructed Consolidated
Hotels operating during their initial stabilization period, when revenues are
generally lower. The hotel development segment operating income increased
194.2% from $711,032 in 1994 to $2.1 million in 1995 as operating income as a
percentage of segment revenues also increased due to a higher level of pre-
construction development activity realized in 1995 which has lower revenues and
a higher gross margin than construction activity. Hotel management segment
operating income increased from $250,118 in 1994 to $831,007 in 1995, due
primarily to the increase in same room revenues for managed hotels, incentive
management fees received in 1995, and the write-off of a contract termination
fee note receivable in 1994. Employee leasing operating income increased from
$149,305 in 1994 to $216,075 in 1995, or $66,770, due primarily from operational
efficiencies.
EBITDA increased $4.7 million to a record $8.9 million in 1995 compared to $4.1
million in 1994, or an increase of 113.9%. The significant changes resulting in
the increase in EBITDA from 1994 to 1995 are discussed above.
Interest expense increased to $1.8 million in 1995 versus $854,880 in 1994,
primarily attributable to an increase in Consolidated Hotels with mortgage
financing.
The Company's share of equity in the operating results of affiliates increased
to $387,439 in 1995 from $31,511 in 1994. This increase was due primarily to a
10.2% increase in same room revenues for all minority owned hotels and the gain
on the sale of one hotel, which translated into a 392% increase in net income
for these hotels. Distributions from affiliates increased 32.2% to $505,410 in
1995 from $382,229 in 1994.
The Company recorded income tax expense of $1.3 million in 1995 compared to
income tax expense of $381,000 in 1994, which increase is directly attributable
to the increase in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has four main sources of cash from operating activities: (i)
revenues from hotel operations; (ii) fees from development, construction and
renovation projects; (iii) fees from management contracts; and (iv) fees from
employee leasing services. Cash from hotel operations is typically received at
the time the guest checks out of the hotel. Approximately 10% of the Company's
hotel operations revenues is generally collected within 30 to 45 days from
billing, pursuant to contracts or other arrangements. 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. 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 from the equity
or lending source. The Company enters into agreements with contractors for the
construction of Consolidated Hotels, including hotels under construction at
December 31, 1996, after both the construction and long-term mortgage financing
is in place. A significant portion of the notes receivable from affiliates is
for construction advances which will be collected as the construction of the
hotels progresses and the equity and debt financing becomes available to the
affiliate through the draw process. Management fee revenues are typically
received by the Company within five working days from the end of each month.
Cash from the Company's employee leasing segment is typically received 24 to 48
hours prior to the employee pay date.
During 1996, the Company received cash from operations of $7.6 million, compared
to $1.9 million in 1995, or an increase in cash provided by operating activities
of $5.7 million. The increase in cash flow from operations during 1996 can be
attributed to the significant level of hotel ownership and operation activity as
the number of Consolidated Hotels increased by 10 hotels in 1995 and four hotels
in 1996. In addition, a significant number of hotels were under construction
during 1996 compared to 1995, including several which began construction in the
fourth quarter of 1995 and completed in 1996, resulting in a significant amount
of construction fees received during 1996.
The Company invests cash in three principal areas: (i) the purchase of property
and equipment through the construction and renovation of Consolidated Hotels;
(ii) the purchase of equity interests in hotels; and (iii) loans to affiliated
and non-affiliated hotels for the purpose of construction, renovation and
working capital. During 1996, the Company used $11.3 million in investing
activities compared to $13.5 million during 1995. During 1996, the Company used
$14.0 million to purchase property and equipment for Consolidated Hotels, used
$866,908 for the purchase of equity interests in hotels net of cash acquired,
collected $637,891 from loans, net of advances, and received $1.8 million from
the sale of assets. In 1995, the Company used cash primarily for the purchase
of $12.5 million in property and equipment for Consolidated Hotels, used
$258,676 for the purchase of equity interests in hotels net of cash acquired,
and used $946,857 for loans, net of collections. In addition, the Company
received distributions from investments in minority owned hotels of $1.8 million
in 1996 compared to $505,410 in 1995.
Cash received from financing activities was $5.4 million in 1996 compared to
$9.9 million in 1995. In 1996, the primary factors were net proceeds of $6.5
million from the mortgage financing of Consolidated Hotels, net of principal
repayments, and $609,612 in net reductions to the Company's operating line-of-
credit. In 1995, the contributing factors were proceeds of $7.8 million from
the mortgage financing of Consolidated Hotels, net of principal repayments, and
net proceeds of $2.3 million from the Company's operating line-of-credit.
At December 31, 1996, the Company had $1.7 million outstanding under its
operating line-of-credit. The Company's operating line-of-credit was renewed
and increased effective May 1, 1996 to $5,000,000. The operating line-of-credit
(i) is collateralized by a security interest in certain of the Company's assets,
including its interest in various joint ventures; (ii) bears interest at an
annual rate equal to the lending bank's base rate plus 1/2% (with a minimum
interest rate of 7.5%); and (iii) matures May 1, 1997. The same bank providing
the operating line-of-credit also provides a $7.5 million line-of-credit to be
used for construction financing on hotel projects, of which $5.0 million must be
used on contracts which have firm commitments for permanent mortgage financing
when the construction is completed. There was no outstanding balance on the
construction line-of-credit as of December 31, 1996. At December 31, 1996, the
Company also had outstanding $2.1 million of its 7% Subordinated Notes which are
unsecured obligations due October 9, 1999 and which pay interest quarterly.
Pursuant to the terms of the 7% Subordinated Notes, no dividends may be paid on
any capital stock of the Company until the 7% Subordinated Notes have been paid
in full. At the Company's sole discretion, the 7% Subordinated Notes may be
prepaid at any time without prepayment penalty.
The Company expects cash from operations to be sufficient to pay all operating
expenses and interest expenses in 1997.
SEASONALITY
The lodging industry, in general, is seasonal in nature. The Company's hotel
revenues are generally greater in the second and third calendar quarters than in
the first and fourth quarters due to weather conditions in the markets in which
the Company's hotels are located and general business and leisure travel trends.
This seasonality can be expected to continue to cause fluctuations in the
Company's quarterly revenues. Quarterly earnings may also be adversely affected
by events beyond the Company's control such as extreme weather conditions,
economic factors and other factors affecting travel. In addition, hotel
construction activity is seasonal, depending upon the geographic location of the
construction projects.
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.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." The new standard simplifies the methods for computing
earnings per share and requires the presentation of two new amounts, basic and
diluted earnings per share. When the Company adopts SFAS No. 128, it expects to
report the following restated amounts:
1996 1995 1994
Basic $ 0.57 $ 0.37 $ 0.10
Diluted $ 0.49 $ 0.34 $ 0.10
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts, including but not
limited to, statements regarding the Company's hotels under construction and the
operation of AmeriHost Inn hotels are based on current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plan on
terms satisfactory to the Company; competitive factors, such as the introduction
of new hotels or renovation of existing hotels in the same markets; changes in
travel patterns which could affect demand for the Company's hotels; changes in
development and operating costs, including labor, construction, land, equipment
and capital costs; general business and economic conditions; and other risk
factors described from time to time in the Company's reports filed with the
Securities and Exchange Commission. The Company wishes to caution readers not
to place undue reliance on any such forward looking statements, which statements
are made pursuant to the Private Securities Litigation Reform Act of 1995, and
as such, speak only as of the date made.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation for services as officers to the Company for the fiscal
years ended December 31, 1996, 1995 and 1994, of those persons who were, at
December 31, 1996 (i) the Chairman of the Board of Directors, (ii) the chief
executive officer, and (iii) the other two most highly compensated executive
officers of the Company (the "Named Officers"). See "Compensation of Directors"
under Item 11.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Restricted Securities
Name and Principal Stock Underlying All Other
Position Year Salary Bonus Awards Options(#)(1) Compensation(2)
<S> <C> <C> <C> <C> <C> <C>
H. Andrew Torchia (3) 1996 $ 0 $ 0 $ 0 0 $ 15,000
Chairman of the Board 1995 0 0 0 120,000 15,000
1994 0 0 0 30,000 15,000
Michael P. Holtz 1996 375,000 0 0 0 10,000
President and Chief 1995 322,115 0 196,927 360,000 10,000
Executive Officer 1994 244,913 75,000 75,000 60,000 10,000
Russell J. Cerqua 1996 160,000 0 0 0 10,000
Executive Vice President 1995 149,423 0 56,690 153,333 10,000
Finance, Secretary, Treasurer 1994 132,692 15,000 15,000 30,000 10,000
and Chief Financial Officer
Richard A. D'Onofrio (4) 1996 144,000 36,000 0 0 15,000
Executive Vice President 1995 137,500 27,500 0 120,000 15,000
1994 162,528 0 0 30,000 15,000
(1) Options for the purchase of 100,000, 320,000, 133,333 and 100,000 shares of
Common Stock granted to Messrs. Torchia, Holtz, Cerqua and D'Onofrio were vested
as of December 31, 1996. Options for the purchase of 50,000, 100,000, 50,000
and 50,000 shares of Common Stock granted to Messrs. Torchia, Holtz, Cerqua and
D'Onofrio, respectively, vest as of January 1, 1997.
(2) Represents life insurance premiums paid by the Company on behalf of the
Named Officers.
(3) Mr. Torchia, Chairman of the Board and a Director of the Company, received
no annual compensation for services as an officer of the Company in 1994, 1995
or 1996. For a discussion of the fees paid to Urban, a hotel development
consulting firm in which Mr. Torchia owns a 51% interest and Mr. D'Onofrio owns
a 49% interest, pursuant to a consulting agreement between the Company and Urban
which was terminated in 1997, see "Certain Transactions."
(4) Mr. D'Onofrio resigned from the Company in January 1997.
</TABLE>
BONUS PLANS
In April of each year, the Company issues restricted Common Stock to its
employees as an incentive for their continued employment. The Company's
management determines those employees who are entitled to receive such Common
Stock bonus. During 1996, the Company issued 5,455 shares of Common Stock, none
of which were issued to the Named Officers reflected above.
OPTIONS
The were no options issued to or exercised by the Named Officers in 1996.
<TABLE>
<CAPTION>
OPTION EXERCISES AND YEAR-END VALUE TABLE
Number of Unexercised Options Value of Unexercised in-the-Money
Held at December 31, 1996 Options at December 31, 1996 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
H. Andrew Torchia 245,062 50,000 $ 485,459 $ 132,813
Michael P. Holtz 430,000 100,000 722,687 265,625
Richard A. D'Onofrio 293,688 50,000 482,924 132,813
Russell J. Cerqua 177,708 50,000 323,332 132,813
Reno J. Bernardo 44,375 1,000 74,582 -
Salomon J. Dayan 30,000 1,000 1,406 -
_______________
(1) The closing sale price of the Company's Common Stock on such date on the
Nasdaq National Market was $6.22.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company's two executive officers, Michael P. Holtz, President and Chief
Executive Officer, and Russell J. Cerqua, Secretary, Treasurer, Executive Vice
President of Finance and Chief Financial Officer, provide services to the
Company under the terms of employment agreements dated January 1, 1995 and
amended February 4, 1997.
Mr. Holtz's annual base cash compensation for 1997 was reduced to $325,000
from $425,000 pursuant to an amendment dated February 4, 1997. On April 22,
1997, Mr. Holtz exercised his option to renew his agreement for an additional
three-year period ending December 31, 2000. On January 1, 1998, Mr. Holtz will
be entitled to receive options to purchase a minimum of 364,100 shares of the
Company's common stock at the market price on date of issuance under the
Company's 1996 Omnibus Incentive Stock Plan, of which 110,000 will vest upon
issuance, 121,000 will vest on January 1, 1999 and 133,100 will vest on January
1, 2000. In December of each year, the Compensation Committee will determine
(i) a performance bonus to be paid for the then-current year and (ii) Mr.
Holtz's base salary for the following year, which base salary will not be less
than Mr. Holtz's then-existing base salary. In lieu of the 40,000 shares of
common stock Mr. Holtz was to receive in April 1997 under the terms of his
employment agreement, Mr. Holtz received non-qualified options to purchase
50,000 shares of the Company's common stock at an exercise price of $1.53.
Under the terms of the amended employment agreement, all stock awards were
eliminated.
Mr. Cerqua's annual base cash compensation for 1997 was reduced to $165,000
from $175,000 pursuant to an amendment dated February 4, 1997. His agreement
was extended for a two-year period ending December 31, 1999. On January 1,
1998, Mr. Cerqua will be entitled to receive options to purchase a minimum of
115,500 shares of the Company's common stock at the market price on date of
issuance under the Company's 1996 Omnibus Incentive Stock Plan of which 55,000
will vest upon issuance and 60,500 will vest on January 1, 1999. In December of
each year, the Compensation Committee will determine (i) a performance bonus to
be paid for the then-current year and (ii) Mr. Cerqua's base salary for the
following year, which base salary will not be less than Mr. Cerqua's then-
existing base salary. In lieu of the 12,500 shares of common stock Mr. Cerqua
was to receive in April 1997 under the terms of his employment agreement, Mr.
Cerqua received non-qualified options to purchase 15,625 shares of the Company's
common stock at an exercise price of $1.53. Under the terms of the amended
employment agreement, all stock awards were eliminated.
Each employment agreement entitles the executive officer to receive
severance payments, equal to two years' compensation with regard to Mr. Holtz
and one year's compensation with regard to Mr. Cerqua, if his employment is
terminated by the Company without cause or if he elects to terminate such
employment for a "good reason," including a change of control of the Company.
For purposes of the employment agreements, a change of control means (i) any
change in the Company's Board of Directors such that a majority of the Board of
Directors is composed of members who were not members of the Board of Directors
on the date the employment agreements were made or (ii) removal of the executive
from membership on the Board of Directors by a vote of a majority of the
shareholders of the Company or failure of the Board of Directors to nominate the
executive for re-election to Board membership. Each executive officer is also
entitled to severance payments, equal to one year's compensation with regard to
Mr. Holtz and six month's compensation with regard to Mr. Cerqua, if he
voluntarily terminates his employment with the Company for a reason other than a
"good reason" and provides appropriate notice of such resignation.
In January 1997, Mr. D'Onofrio resigned from his positions as Executive
Vice President and a director of the Company. In connection therewith, Mr.
D'Onofrio will continue to receive his 1997 salary through December 1997. In
addition, Mr. D'Onofrio received a lump-sum payment of $195,000.
COMPENSATION OF DIRECTORS
Each Director of the Company received an annual retainer fee of $9,000 ($750 per
month) in 1996. Each Director of the Company also received $250 for each Board
of Directors meeting attended in person, $150 for each Board of Directors
meeting conducted by telephone and $150 for each committee meeting. As of
January 31, 1997, the annual retainer fees and all meeting fees were eliminated
for all Directors except nonemployee Directors. Each Director is reimbursed for
all out-of-pocket expenses related to attendance at Board meetings.
Mr. Torchia, a Director of the Company, also indirectly received fees through a
consulting agreement between the Company and Urban which commenced in January
1991. Under the terms of the consulting agreement, Urban received a monthly
consulting fee of $20,000 for the provision of business development services to
the Company. The Company also paid Urban $206,154 in additional fees in 1996,
for transactions brought to the Company. The Urban consulting agreement was
terminated as of January 31, 1997. See "Certain Relationships and Related
Transactions" under Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 24, 1997, by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each of the Company's Directors, (iii) each of the Named
Officers and (iv) all Directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned
As of March 24, 1997
Name Number Percent
<S> <C> <C>
Michael P. Holtz 877,091 (1) 12.9%
H. Andrew Torchia (5) 721,658 (1)(2) 11.0
Wellington Management Company 596,300 (3) 9.5
Massachusetts Financial
Services Company 522,000 (4) 8.3
Russell J. Cerqua 316,305 (1) 4.9
Salomon J. Dayan 309,659 (1) 4.8
Reno J. Bernardo 93,458 (1) 1.5
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (5 PERSONS) 2,318,171 30.9%
(1) Includes shares subject to options exercisable presently or within 60
days as follows: Mr. Holtz, 535,000 shares, Mr. Torchia, 283,750
shares (including options for 68,750 shares owned by Urban 2000 Corp.,
see (2) below), Mr. Cerqua, 223,333 shares, Dr. Dayan, 154,676 shares,
and Mr. Bernardo, 24,375 shares.
(2) Includes 375,832 shares owned by Urban 2000 Corp., options to purchase
68,750 shares owned by Urban which are exercisable presently or within
60 days, and 7,676 shares owned by Niles 1290 Corp., a wholly-owned
subsidiary of Urban 2000 Corp. Mr. Torchia is the President and 51%
stockholder of Urban 2000 Corp. Mr. Torchia disclaims beneficial
ownership of all but an aggregate of 195,589 shares and options
exercisable into 35,063 shares owned directly, or indirectly, by
Urban.
(3) Based upon information provided in its Schedule 13G dated January 24,
1997, Wellington Management Company ("WMC"), in its capacity as
investment advisor, may be deemed beneficial owner of 596,300 shares
of the Company which are owned by numerous investment counselling
clients. Of the shares shown above, WMC has shared voting power for
342,000 shares and shared investment power for 596,300 shares.
(4) Based upon information provided in its Schedule 13G dated February 12,
1997, Massachusetts Financial Services Company ("MFS"), in its
capacity as investment manager, may be deemed beneficial owner of
522,000 shares of the Company which are also beneficially owned by MFS
Series Trust II - MFS Emerging Growth Stock Fund, shares of which are
owned by numerous investors. MFS has sole voting and investment power
for the 522,000 shares.
(5) The address of this stockholder is c/o Amerihost Properties, Inc.,
2400 East Devon, Suite 280, Des Plaines, Illinois.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Urban 2000 Corp. ("Urban") is owned 51% by H. Andrew Torchia, the Chairman of
the Board of Directors of the Company. Urban, a hotel development consulting
firm, and Mr. Torchia provided business development and consulting services to
the Company under a consulting agreement (the "Consulting Agreement") with Urban
which commenced in January 1994. Urban, pursuant to the Consulting Agreement,
has agreed to not engage in business activities that directly compete with the
business activities of the Company; provided, however, that Urban may pursue
business opportunities which the Company decides not to pursue. Under the terms
of the Consulting Agreement, Urban received (i) a monthly consulting fee of
$20,000, (ii) a residual fee based on the management fees the Company received
from management arrangements or relationships which resulted from contacts
initiated for the Company by Urban and (iii) transaction fees, based on an
established fee schedule and consistent with industry practice, for transactions
introduced by Urban. The Company also provided Urban with use of the Company's
telephone system. No additional amounts were paid to Urban for the
reimbursement of expenses. As part of this arrangement, Mr. Torchia did not
receive compensation for the services he provides to the Company, other than
warrants and other non-cash compensation for his services as Chairman. During
1994, 1995 and 1996, Urban received an annual consulting fee of $240,000 plus
aggregate additional fees of $289,915, $236,138 and $206,154, respectively, from
the Company and received $28,200 and $82,400, in 1994 and 1995, respectively, in
other transactional fees directly from joint ventures in which the Company is a
general partner. The Urban Consulting Agreement was terminated as of January
31, 1997.
The Company currently has a note receivable outstanding from each of Mr. Holtz,
a director and the President and Chief Executive Officer of the Company, and Mr.
Cerqua, a director and the Chief Financial Officer, Executive Vice President of
Finance, Secretary and Treasurer of the Company. These notes (the "Officer
Notes") arose initially when, in 1992, the Company entered into agreements with
Grand American Hotel Management, Inc. ("Grand"), its shareholders and certain
other entities owned by the shareholders of Grand to acquire seven management
contracts for, among other consideration, a loan of $800,000 to the shareholders
of Grand (the "Original Note"). The Original Note was collateralized by 165,784
shares of the Company's Common Stock and bore interest at a rate of 10.5% per
annum. During 1993, the Company and Grand agreed to revise the terms of the
Original Note to, among other things, reduce its interest rate. The Company did
not receive any payments of principal or interest in 1994.
Due to this default by Grand, in November 1994, the Company notified Grand of
its intention to take the 165,784 shares of Common Stock in lieu of the Original
Note and related receivables. In December 1994, and prior to the Company's
taking possession of such shares, Messrs. Holtz and Cerqua executed notes in the
amounts of $756,292 and $200,000, respectively, to the Company for the purchase
of the Original Note and related receivables and the 165,784 shares of the
Common Stock held as collateral on the Original Note. Following the purchase,
each of Messrs. Holtz and Cerqua pledged as collateral for the Officer Notes the
shares of Common Stock received upon the purchase of the Original Note together
with additional shares of the Company's Common Stock which each individually
owned. As originally drafted, the Officer Notes provided for annual payments of
interest at 8% per annum commencing on December 31, 1995, with the principal
balance due December 31, 1997, and were collateralized by an aggregate of
273,369 shares of the Company's Common Stock. The Company and Messrs. Holtz and
Cerqua have amended the terms of the Officer Notes to provide that the annual
payments of interest shall be payable commencing August 1, 1997. Messrs. Holtz
and Cerqua each have the option to pay interest and principal with shares of the
Company's Common Stock, with the shares tendered being valued at the fair market
value at time of payment. The Officer Notes receivable have been classified as
a reduction of shareholders' equity on the Company's Consolidated Financial
Statements.
In the past, certain of the Company's directors and executive officers have,
directly or indirectly, invested in joint ventures with the Company. For
example, Mr. Torchia, through Urban, has invested an aggregate of approximately
$144,000 as limited partners and approximately $49,000 as a general partner in
three joint ventures since 1991. In addition, Dr. Dayan, a director of the
Company, has invested approximately $1.6 million in seven joint ventures since
1988. Dr. Dayan and each of the Company's directors and executive officers who
have made such investments have done so on the same terms as all other investors
in such joint ventures. In addition to his investments in certain joint
ventures, Dr. Dayan also holds an interest in a mortgage on one of the joint
ventures. The mortgage, which has been in place since 1989, (i) has a current
outstanding balance of approximately $460,000, (ii) bears interest at an annual
rate of prime plus 4% (with a minimum annual interest rate of 12%), and (iii) is
payable in monthly installments through 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
Financial Statements:
The following consolidated financial statements are filed as part of this Report
on Form 10-K for the fiscal year ended December 31, 1996.
(a)(1) Financial Statements:
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at December 31, 1996
and 1995 F-2
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-8
(a)(2) Financial Statement Schedules:
No financial statement schedules are submitted as part of this report because
they are not applicable or are not required under regulation S-X or because they
required information is included in the financial statements or notes thereto.
(a)(3) Exhibits:
The following exhibits were included in the Registrant's Report on Form 10-K
filed on March 26, 1993, and are incorporated by reference herein:
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of Amerihost
Properties, Inc.
3.2 By-laws of Amerihost Properties, Inc.
4.2 Specimen Common Stock Purchase Warrant for Employees
4.3 Specimen 7% Subordinated Note
4.4 Specimen Common Stock Purchase Warrant for 7% Subordinated
Noteholders
4.5 Form of Registration Rights Agreement for 7% Subordinated
Noteholders
The following exhibits were included in the Registrant's Amendment No. 1 to Form
S-2 filed on July 3, 1996, and are incorporated by reference herein:
Exhibit No. Description
10.4 Employment Agreement between Amerihost Properties, Inc. and
Michael P. Holtz
10.6 Employment Agreement between Amerihost Properties, Inc. and
Russell J. Cerqua
The following exhibits were included in the Registrant's Proxy Statement for
Annual Meeting of Shareholders filed on July 25, 1996, and are incorporated by
reference herein:
Exhibit No. Description
10.2 1996 Omnibus Incentive Stock Plan (Annex A)
10.3 1996 Stock Option Plan for Nonemployee Directors (Annex B)
The following exhibits were included in the Registrant's Report on Form 10-K
dated March 24, 1997, and are incorporated by reference herein:
Exhibit No. Description
10.7 Urban 2000 Corp. Termination Agreement
10.8 Richard A. D'Onofrio Termination Agreement
10.9 Amendment of Employment Agreement between Amerihost Properties,
Inc. and Michael P. Holtz
10.10 Amendment of Employment Agreement between Amerihost Properties,
Inc. and Russell J. Cerqua
21.1 Subsidiaries of the Registrant
23.1 Consent of BDO Seidman, LLP
27.0 Financial Data Schedule
The following exhibits are included in this Report on Form 10-K/A dated
September 19, 1997:
Exhibit No. Description
23.1 Consent of BDO Seidman, LLP
Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended December 31,
1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Michael P. Holtz
Michael P. Holtz
Chief Executive Officer
By: /s/ Russell J. Cerqua
Russell J. Cerqua
Chief Financial Officer
By: /s/ James B. Dale
James B. Dale
Corporate Controller
September 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ H. Andrew Torchia /s/ Michael P. Holtz
H. Andrew Torchia, Director Michael P. Holtz, Director
September 19, 1997 September 19, 1997
/s/ Russell J. Cerqua /s/ Reno J. Bernardo
Russell J. Cerqua, Director Reno J. Bernardo, Director
September 19, 1997 September 19, 1997
/s/ Salomon J. Dayan /s/ Richard A. Chaifetz
Salomon J. Dayan, Director Richard A. Chaifetz
September 19, 1997 September 19, 1997
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors of
Amerihost Properties, Inc.
We have audited the accompanying consolidated balance sheets of Amerihost
Properties, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Amerihost Properties, Inc. and subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Chicago, Illinois
March 20, 1997
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,029,039 $ 1,371,278
Accounts receivable (including $3,119,905 and $802,164
from related parties) (Note 10) 5,083,973 3,270,094
Notes receivable (including $1,354,461 and $1,752,126
from related parties) (Note 2) 1,507,276 1,965,048
Prepaid expenses and other current assets 223,136 188,163
Refundable income taxes 30,629 230,530
Costs and estimated earnings in excess of billings on
uncompleted contracts (including $2,048,259 and
$3,574,939 from related parties) (Notes 3 and 10) 2,083,259 3,900,879
Total current assets 11,957,312 10,925,992
Investments (Notes 4 and 6) 1,595,858 2,388,999
Property and equipment (Notes 6, 7 and 13):
Land 7,334,562 4,236,309
Buildings 27,885,463 22,075,629
Furniture, fixtures and equipment 10,984,572 9,204,377
Construction in progress 4,709,064 662,159
Leasehold improvements 2,404,060 2,050,654
53,317,721 38,229,128
Less accumulated depreciation and amortization 7,481,889 5,404,102
45,835,832 32,825,026
Long-term notes receivable (including $1,120,888 and
$1,450,616 from related parties) (Note 2) 3,831,504 2,863,580
Costs of management contracts acquired, net of accumulated
amortization of $1,158,379 and $913,393 907,404 664,110
Other assets (including deferred taxes of $171,000 and $383,000),
net of accumulated amortization of $2,082,450 and $1,451,715
(Notes 5 and 9) 2,773,246 2,785,595
7,512,154 6,313,285
$ 66,901,156 $ 52,453,302
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,293,184 $ 3,751,097
Bank line-of-credit (Note 6) 1,707,424 2,317,036
Accrued payroll and related expenses 935,120 688,648
Accrued real estate and other taxes 685,796 606,468
Other accrued expenses and current liabilities 828,596 666,352
Current portion of long-term debt (Note 7) 1,554,200 1,042,847
Total current liabilities 11,004,320 9,072,448
Long-term debt, net of current portion (Note 7) 32,785,108 23,971,481
Deferred income 630,899 686,388
Commitments (Notes 8, 12 and 13)
Minority interests 1,569,200 1,456,226
Shareholders' equity (Notes 8, 10, and 12):
Preferred stock, no par value; authorized 100,000 shares;
none issued - -
Common stock, $.005 par value; authorized 25,000,000 shares;
issued 6,036,921 shares at December 31, 1996, and
5,977,213 shares at December 31, 1995 30,185 29,886
Additional paid-in capital 17,170,154 16,920,237
Retained earnings 5,104,457 1,709,803
22,304,796 18,659,926
Less:
Stock subscriptions receivable (Note 2) (436,875) (436,875)
Notes receivable (Note 2) (956,292) (956,292)
20,911,629 17,266,759
$ 66,901,156 $ 52,453,302
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenue (NOTE 10):
Hotel operations:
AmeriHost Inn hotels $ 8,526,923 $ 876,025 $ -
Other hotels 22,088,368 23,483,974 15,428,022
Development and construction 22,937,267 12,238,128 12,036,918
Management services 2,784,031 3,010,935 2,711,637
Employee leasing 12,005,759 12,353,355 13,169,942
68,342,348 51,962,417 43,346,519
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels 4,908,624 644,900 -
Other hotels 16,180,182 16,420,141 10,457,154
Development and construction 19,651,500 10,117,782 11,315,973
Management services 1,930,229 2,003,310 2,288,765
Employee leasing 11,689,461 12,131,262 13,014,542
54,359,996 41,317,395 37,076,434
13,982,352 10,645,022 6,270,085
Depreciation and amortization 3,478,878 2,268,181 1,140,801
Leasehold rents - hotels 2,121,876 1,976,154 1,660,903
Corporate general and administrative 1,928,134 2,110,939 2,012,710
Operating income 6,453,464 4,289,748 1,455,671
Other income (expense):
Interest expense (2,767,828) (1,755,745) (854,880)
Interest income 625,386 560,724 428,353
Other income 141,941 44,099 37,836
Equity in net income and losses of
affiliates 809,443 387,439 31,511
Gain on sale of assets 1,279,349 - -
Public offering not consummated (403,657) - -
Income before minority interests
and income taxes 6,138,098 3,526,265 1,098,491
Minority interests in operations of
consolidated subsidiaries and partnerships (385,444) (59,173) (146,070)
Income before income taxes 5,752,654 3,467,092 952,421
Income tax expense 2,358,000 1,329,000 381,000
Net income $ 3,394,654 $ 2,138,092 $ 571,421
Net income per share $ 0.50 $ 0.35 $ 0.10
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Stock
subscrip-
Common stock Additional tions Total
paid-in Retained Earnings and notes shareholders'
Shares Amount capital (Deficit) receivable equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994
5,475,704 $ 27,379 $ 15,179,959 $ (999,710) $ (1,426,875) $ 12,780,753
Authorized shares
issued for compensa-
tion and investment 94,309 471 285,932 - - 286,403
Sale of note and
receivables to
officers (Note 2) - - - - 990,000 990,000
Collateralized notes
receivable from
officers (Note 2) - - - - (956,292) (956,292)
Net income for the year
ended December 31, 1994 - - - 571,421 - 571,421
BALANCE AT DECEMBER 31, 1994
5,570,013 27,850 15,465,891 (428,289) (1,393,167) 13,672,285
Authorized shares
issued for compensation
and investment 407,200 2,036 1,454,346 - - 1,456,382
Net income for the
year ended
December 31, 1995 - - - 2,138,092 - 2,138,092
BALANCE AT DECEMBER 31, 1995
5,977,213 29,886 16,920,237 1,709,803 (1,393,167) 17,266,759
Authorized shares
issued for compensation
and investment 10,583 53 47,194 - - 47,247
Exercise of common
stock options 49,125 246 202,723 - - 202,969
Net income for the
year ended
December 31, 1996 - - - 3,394,654 - 3,394,654
BALANCE AT DECEMBER 31, 1996
6,036,921 $ 30,185 $ 17,170,154 $ 5,104,457 $ (1,393,167) $ 20,911,629
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 68,751,159 $ 49,673,144 $ 42,775,919
Cash paid to suppliers and employees (57,127,365) (44,715,078) (40,282,468)
Interest received 546,369 491,749 313,128
Interest paid (2,665,921) (1,660,803) (803,054)
Income taxes refunded (paid) (1,946,099) (1,870,727) 211,197
Net cash provided by operating activities 7,558,143 1,918,285 2,214,722
Cash flows from investing activities:
Distributions from affiliates 1,783,687 505,410 382,229
Purchase of property and equipment (14,049,010) (12,539,148) (7,872,269)
Purchase of minority investments (286,099) (332,800) (349,015)
Acquisitions of partnership interests,
net of cash acquired (580,809) 74,124 -
Increase in notes receivable (4,236,968) (2,332,472) (1,568,266)
Collections on notes receivable 4,874,859 1,385,615 961,041
Preopening and management contract costs (488,280) (316,926) (279,000)
Proceeds from sale of assets 1,762,221 - -
Proceeds from sale of investments - 55,000 25,000
Other (127,058) (5,000) (63,938)
Net cash used in investing activities (11,347,457) (13,506,197) (8,764,218)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 8,822,046 8,478,903 7,444,998
Principal payments on long-term debt (2,367,671) (724,709) (388,844)
Proceeds from line of credit 12,433,212 4,461,182 1,290,000
Repayment on line of credit (13,042,824) (2,144,146) (1,290,000)
(Decrease) increase in minority interest (197,000) (138,069) 634,036
Proceeds from issuance of common stock 202,969 - -
Public offering not consummated (403,657) - -
Net cash provided from financing activities 5,447,075 9,933,161 7,690,190
Net increase (decrease) in cash 1,657,761 (1,654,751) 1,140,694
Cash and cash equivalents, beginning of year 1,371,278 3,026,029 1,885,335
Cash and cash equivalents, end of year $ 3,029,039 $ 1,371,278 $ 3,026,029
</TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 3,394,654 $ 2,138,092 $ 571,421
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,478,878 2,268,181 1,140,801
Equity in net (income) loss of affiliates and
amortization of deferred income (809,443) (387,439) (31,511)
Minority interests in net income of subsidiaries 385,444 59,173 146,070
Amortization of deferred interest and loan discount 39,760 39,760 36,822
Decrease (increase) in deferred tax asset, net of
valuation allowance 212,000 104,000 (199,000)
Compensation paid through issuance of common stock 30,210 212,843 98,832
(Gain) loss on sale of investments, property
and equipment (1,279,349) 18,585 (24,572)
Public offering not consummated 403,657 - -
Write-off of note receivable - - 190,000
Changes in assets and liabilities, net of effects
of acquisitions:
(Increase) decrease in accounts receivable (1,797,183) (519,695) 72,554
(Increase) decrease in prepaid expenses and
other current assets (107,006) 251,305 (197,373)
Decrease (increase) in refundable income taxes 199,901 (230,530) 376,000
Decrease (increase) in costs and estimated
earnings in excess of billings 1,817,620 (1,895,605) (907,658)
Increase in other assets (604,246) (547,318) (467,661)
Increase in accounts payable 1,506,912 471,881 278,059
(Decrease) increase in income taxes payable - (415,197) 415,197
Increase in accrued payroll and other accrued
expenses and current liabilities 383,277 300,700 565,292
Increase in accrued interest 56,514 49,549 6,433
Increase in deferred income 246,543 - 145,016
Net cash provided by operating activities $ 7,558,143 $ 1,918,285 $ 2,214,722
</TABLE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Chicagoland Concessions, Inc. (the "Company") was incorporated under the
laws of Delaware on September 19, 1984, to operate concession stands in the
Chicago metropolitan area. On September 19, 1985, the Company changed its name
to America Pop, Inc.
In December, 1986, the Company ceased its operations of all concession
stand facilities and during 1987, repositioned itself into hotel/motel
development, construction and ownership/operation. In order to more
appropriately reflect the nature of the Company's business, on August 21, 1987,
the Company changed its name to Amerihost Properties, Inc.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and partnerships in which the Company has a
controlling ownership interest. Significant intercompany accounts and
transactions have been eliminated.
Construction accounting:
Development fee revenue from construction/renovation projects is recognized
using the percentage-of-completion method 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.
Cash equivalents:
The Company considers all investments with an initial maturity of three
months or less to be cash equivalents.
Concentrations 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 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.
Fair values of financial instruments:
The carrying values reflected in the consolidated balance sheet at December
31, 1996 reasonably approximate the fair values for cash and cash equivalents,
accounts and contracts receivable and payable, and variable rate long-term debt.
The majority of the notes receivable are collateralized by shares of the
Company's common stock, investments in hotels, a second mortgage on a hotel
property, and personal guarantees. Construction/renovation and working capital
notes are repaid to the Company within a relatively short period after their
origination. The notes receivable bear interest at rates approximating the
current market rates and the carrying value approximates their fair value. The
Company estimates that the fair value of its fixed rate long-term debt at
December 31, 1996 approximates the carrying value considering the property
specific nature of the notes and in certain cases, the subordinated nature of
the debt. In making such assessments, the Company considered the current rate
at which the Company could borrow funds with similar remaining maturities and
discounted cash flow analyses as appropriate.
Investments:
Investments in entities in which the Company has a non-controlling
ownership interest, generally less than 50%, are accounted for using the equity
method, under which method the original investment is increased (decreased) by
the Company's share of earnings (losses), and is reduced by dividends or
distributions when received.
Property and equipment:
Property and equipment are stated at cost. Repairs and maintenance are
charged to expense as incurred and renewals and betterments are capitalized.
Depreciation is being provided for assets placed in service, principally by use
of the straight-line method over their estimated useful lives. Leasehold
improvements are being amortized by use of the straight-line method over the
term of the lease. Construction period interest in the amount of $167,433,
$119,749 and $37,222 was capitalized in 1996, 1995 and 1994, respectively, and
is included in property and equipment.
For each classification of property and equipment, depreciable periods are
as follows:
Building 31.5-39 years
Furniture, fixtures and equipment 5-7 years
Leasehold improvements 3-10 years
Costs 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:
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 terms of the leases.
Deferred loan costs:
Deferred loan costs represent the costs incurred in issuing the 7%
subordinated notes and other mortgage notes. These costs are being amortized by
use of the interest 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 terms of the franchise licenses, ranging from 10 to 20 years.
Deferred income:
Deferred income represents that portion of development, construction and
renovation 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 (Note 2).
Income taxes:
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities as determined for tax and financial reporting
purposes.
Earnings per share:
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. Common stock equivalents include stock options and warrants. The
weighted average number of shares used in the computations of earnings per share
were equal to 6,729,054, 6,124,750 and 5,624,478 for the years ended December
31, 1996, 1995 and 1994, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." The new
statement simplifies the standards for computing earnings per share and requires
the presentation of two new amounts, basic and diluted earnings per share. The
Company will be required to retroactively adopt this standard when it reports
its operating results for the fiscal quarters and year ending December 31, 1997.
When the Company adopts SFAS No. 128, it expects to report the following
restated amounts:
1996 1995 1994
Basic $ 0.57 $ 0.37 $ 0.10
Diluted $ 0.49 $ 0.34 $ 0.10
Advertising:
The costs of advertising, promotion and marketing programs are charged to
operations in the year incurred. These costs were approximately $686,000,
$462,000 and $218,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the statements
and reported amounts of revenue and expenses during the reported periods.
Actual results may differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the 1994 and 1995 financial
statements in order to conform to the 1996 presentation.
2. NOTES RECEIVABLE:
<TABLE>
<CAPTION>
Notes receivable consists of:
1996 1995
<S> <C> <C>
Advances to affiliated entities for working capital
and construction purposes (a) $ 2,440,349 $ 1,917,289
Diversified Innkeepers, Inc. (b) 1,421,804 1,467,886
Mortgage note receivable (c) 1,396,627 -
Hammond 490 Partnership (d) - 122,493
Euless, TX 1192 General Partnership (e) - 1,162,960
Other notes 80,000 158,000
5,338,780 4,828,628
Less current portion 1,507,276 1,965,048
Notes receivable, less current portion $ 3,831,504 $ 2,863,580
</TABLE>
(a) The Company advances funds to hotels in which the Company has a
minority ownership interest for working capital and construction purposes. The
advances bear interest ranging from the prime rate to 10% per annum and are due
on demand. The Company expects the partnerships to repay these advances through
cash flow generated from hotel operations and mortgage financing.
(b) In connection with the purchase of management contracts from
Diversified Innkeepers, Inc. in 1991, the Company executed notes to provide
financing to the shareholders of Diversified in the amount of $1,500,000,
collateralized by 125,000 shares of the Company's common stock, a limited
partnership interest in a hotel, a second mortgage on another hotel property,
and a personal guarantee by the shareholders. The note provided for interest
only payments to be made at the rate of 12% per annum for a period of two years
ending January 1995. Beginning February 6, 1995, the note provided for monthly
payments of principal and interest in accordance with a fifteen-year
amortization schedule, with all remaining principal and accrued interest due on
December 31, 1999. In October, 1995, the note was modified to reduce the
interest rate to 10% per annum and extend the term to the earlier of the
termination of the related management contracts or September 30, 2000. The
monthly payments of principal and interest were also modified to $16,250 per
month.
In connection with the Diversified transaction, the Company also
issued 125,000 stock options which were exercised in January 1993, in
consideration for a secured promissory note in the amount of $436,875 with
interest at 6.5% per annum. The total principal balance is due April 30, 1997,
unless the stock is sold, and is collateralized by limited partnership
interests. This note receivable has been classified as a reduction of
shareholders' equity on the accompanying balance sheets.
(c) Promissory note received in the amount of $1,400,000 in connection
with the sale of the Days Inn Bowling Green, Ohio. The note provides for
monthly payments of $15,040 including interest at the rate of 10% per annum, and
a final balloon payment at maturity on October 6, 1998 of approximately $1.3
million. The note is collateralized by a mortgage on the Days Inn Bowling
Green, Ohio.
(d) In March 1996, the Company exchanged the note receivable for an
additional 49% ownership interest in the Hammond, Indiana 490 Partnership.
(e) In December 1996, the note was repaid in connection with the sale of
the Company's partnership interest in the Euless, TX 1192 General Partnership.
Officers
In connection with the acquisition of seven management contracts in 1992,
the Company received an $800,000 note receivable, collateralized by 165,784
shares of the Company's Common Stock. In 1993, the management contracts were
terminated and the note receivable was revised to provide for maturity in April
1995. In addition, the Company received a $190,000 termination note receivable
which was written off in 1994.
In November 1994, the Company notified the noteholder of its intention to
take the 165,784 shares of common stock in lieu of the $800,000 note and
$156,292 in related receivables. Prior to taking possession of the stock, in
December 1994, two of the Company's officers executed notes in the amount of
$956,292 to the Company for the purchase of the note and related receivables,
and the 165,784 shares of the Company's stock held as collateral. The officer
notes provide for annual payments of interest only at 8% per annum, with the
principal balance due December 31, 1997 and are collateralized by a total of
273,369 shares of the Company's Common Stock. The officers have the option to
pay interest and principal with shares of the Company's Common Stock, whereby
the number of shares offered must have a fair market value at time of payment
equal to the amount then due. These notes receivable have been classified as a
reduction of shareholders' equity on the accompanying balance sheets.
3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS:
Information regarding contracts-in-progress is as follows at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Costs incurred on uncompleted contracts $ 7,362,250 $ 3,637,650
Estimated earnings 2,434,673 2,360,089
9,796,923 5,997,739
Less billings to date 7,713,664 2,096,860
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 2,083,259 $ 3,900,879
</TABLE>
4. INVESTMENTS:
The Company has ownership interests, ranging from 5.0% to 50.0%, in general
partnerships, limited partnerships and limited liability companies formed for
the purpose of owning and operating hotels. These investments are accounted for
using the equity method. The Company had investments in 44 hotels at December
31, 1996 with a total balance of $1,595,858, and investments in 33 hotels at
December 31, 1995 with a total balance of $2,388,999.
During 1996, the Company acquired additional partnership interests in two
hotels for cash and the redemption of a note receivable from the seller. During
1995, the Company acquired additional partnership interests in five hotels for a
total of 278,081 shares of the Company's common stock. The following is a
summary of the acquisitions:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Fair value of assets acquired $ 3,459,301 $ 6,952,183
Cash and redemption of note receivable (547,558) -
Issuance of common stock - (932,306)
Liabilities assumed $ 2,911,743 $ 6,019,877
</TABLE>
The following represents tax basis unaudited condensed financial
information for all of the Company's investments in affiliated companies
accounted for under the equity method at December 31, 1996, 1995 and 1994. The
tax basis information approximates GAAP basis information. The difference
between tax basis information and GAAP basis information is primarily due to
depreciation for furniture, fixtures and equipment which has been computed using
accelerated methods for tax purposes. The Company has adjusted for these
differences when recording their share of the investment's net income or net
loss.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current assets $ 3,893,360 $ 3,135,884 $ 4,020,792
Noncurrent assets 86,363,804 55,760,025 55,480,430
Current liabilities 5,060,920 5,137,164 5,295,653
Noncurrent liabilities 64,218,232 39,676,033 42,329,384
Equity 20,978,012 14,082,712 11,876,185
Gross revenue 28,990,672 31,128,888 30,386,457
Gross operating profit 13,175,668 12,137,897 10,655,515
Depreciation and
amortization 4,296,057 3,591,929 3,446,013
Net income (loss) 1,585,133 2,337,969 (412,375)
</TABLE>
5. OTHER ASSETS:
Other assets, net of accumulated amortization, at December 31, 1996 and
1995 are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred loan costs $ 728,866 $ 561,310
Franchise fees and other assets 1,167,221 1,131,007
Investment in leases 706,159 710,278
Deferred taxes (Note 11) 171,000 383,000
Total $ 2,773,246 $ 2,785,595
</TABLE>
6. BANK LINES-OF-CREDIT:
The Company has a $5,000,000 bank operating line-of-credit, of which
$1,707,424 and $2,317,036 was outstanding at December 31, 1996 and 1995,
respectively. The operating line-of-credit (i) is collateralized by a security
interest in certain of the Company's assets, including its interests in various
joint ventures; (ii) bears interest at an annual rate equal to the bank's base
lending rate (8.25% at December 31, 1996) plus one-half of one percent with a
floor of 7.5%; and (iii) matures May 1, 1997. The same bank providing the
operating line-of-credit also provides a $7.5 million line-of-credit to be used
for construction financing on hotel projects, of which $5.0 million must be used
on contracts which have firm commitments for permanent mortgage financing when
the construction is completed. Interest on the construction line-of-credit is
payable at the bank's base lending rate plus one percent. There was no
outstanding balance on the construction line-of-credit as of December 31, 1996
and 1995.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
Long-term debt consists of:
1996 1995
<S> <C> <C>
Mortgage notes maturing 1998 through 2014, with a
weighted average effective interest rate of 9.36% $ 31,407,030 $ 22,217,784
7% Subordinated Notes ($2,250,000 face amount) due
October 1999, with an effective interest rate of 9%,
net of unamortized discount of $124,830 2,125,170 2,079,777
Other notes and capitalized leases 807,108 716,767
34,339,308 25,014,328
Less current portion 1,554,200 1,042,847
$ 32,785,108 $ 23,971,481
</TABLE>
The mortgage notes are collateralized by the related hotel properties, and
in certain cases, have been guaranteed by the Company. The notes generally
provide for monthly payments of principal and interest based on loan
amortization schedules, with interest at fixed rates ranging from 7.25% to 10.5%
(weighted average interest rate of 9.0% at December 31, 1996), and floating
rates ranging from prime plus 0.5% to prime plus 2.25% (weighted average
interest rate of 9.51% at December 31, 1996). Construction loans of $2,681,226
at December 31, 1996 provide for interest only during the construction period
and convert to long-term permanent mortgage notes upon completion of the hotels.
Construction loans of $2,330,545 at December 31, 1995 converted to permanent
mortgage notes during 1996. The construction loans have been included in the
mortgage note balances at December 31, 1996 and 1995.
The aggregate maturities of long-term debt, excluding construction loans,
are approximately as follows:
Year Ending December 31, Amount
1997 $ 1,554,000
1998 5,873,000
1999 8,225,000
2000 3,242,000
2001 3,637,000
Thereafter 9,127,000
$ 31,658,000
8. SHAREHOLDERS' EQUITY:
Authorized shares:
The Company's corporate charter authorizes 25,000,000 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 7), no
dividends may be paid on any capital stock of the Company until such notes have
been paid in full.
Limited partnership conversion:
The Company is a general partner in five partnerships where the limited
partners have the right at certain times and under certain conditions to convert
their limited partnership interests into 376,225 shares of the Company's common
stock. The Company has also guaranteed minimum distributions to the limited
partners based on a percentage of their original contribution ranging from 10%
to 15%.
9. TAXES ON INCOME:
The provisions for income taxes in the consolidated statements of income
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $ 2,146,000 $ 1,225,000 $ 580,000
Deferred 212,000 220,000 (155,000)
Valuation allowance decrease - (116,000) (44,000)
Total taxes on income $ 2,358,000 $ 1,329,000 $ 381,000
</TABLE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to a net deferred tax asset
relate to the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred income, recognized
currently for tax purposes $ 244,000 $ 264,000
Property, primarily due to majority
owned partnerships consolidated for
financial reporting purposes but not
for tax purposes 664,000 654,000
Gain from installment sale (121,000) -
Accumulated depreciation differences (488,000) (407,000)
299,000 511,000
Valuation allowance (128,000) (128,000)
$ 171,000 $ 383,000
</TABLE>
The following reconciles income tax expense at the federal statutory tax
rate with the effective rate:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income taxes at the federal
statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal
tax benefit 7.0% 7.6% 10.6%
Decrease in valuation allowance - (3.3%) (4.6%)
Effective tax rate 41.0% 38.3% 40.0%
</TABLE>
10. RELATED PARTY TRANSACTIONS:
The following table summarizes related party revenue from various
unconsolidated partnerships in which the company has an ownership interest:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Development/acquisition revenue $ 21,500,972 $ 9,316,810 $ 6,126,781
Renovation revenue - 83,925 519,626
Hotel management revenue 1,841,588 1,825,202 1,782,033
Employee leasing revenue 5,937,611 5,979,522 6,708,462
</TABLE>
In January 1991, the Company entered into an agreement with Urban 2000
Corp. ("Urban"), a company owned by the Chairman and another Officer/Director of
the Company who resigned in 1997. This agreement provided for monthly payments
to Urban of $20,000 for business development consulting services. No additional
amounts were paid to Urban for reimbursement of expenses. Consistent with its
standard industry practice, the Company also paid additional fees for
transactions brought to the Company by Urban. Urban received $206,154,
$236,138, and $289,915 from the Company in 1996, 1995 and 1994, respectively,
and also received $82,400 and $28,200 in 1995 and 1994, respectively in other
transactional fees directly from partnerships in which the Company is a general
partner. The Chairman was not compensated by the Company in his capacity as an
officer.
As of January 31, 1997, the Company and Urban agreed to terminate this
consulting agreement. Also in January 1997, an officer resigned resulting in
the termination of his employment agreement (Note 13). In connection with the
termination of these agreements, the Company will recognize approximately $1.7
million in related termination and severance costs in the first quarter of 1997.
11. BUSINESS SEGMENTS:
The Company's business is primarily involved in four segments: (1) hotel
operations, consisting of the operations of all hotels in which the Company has
a controlling ownership or leasehold interest, (2) hotel development, consisting
of development, construction and renovation activities, (3) hotel management,
consisting of hotel management activities and (4) employee leasing, consisting
of the leasing of employees to various hotels.
Results of operations of the Company's business segments are reported in
the consolidated statements of operations. The following represents revenues,
operating costs and expenses, operating income, identifiable assets, capital
expenditures and depreciation and amortization for each business segment:
<TABLE>
<CAPTION>
Revenues 1996 1995 1994
<S> <C> <C> <C>
Hotel operations $ 30,615,291 $ 24,359,999 $ 15,428,022
Hotel development 22,937,267 12,238,128 12,036,918
Hotel management 2,784,031 3,010,935 2,711,637
Employee leasing 12,005,759 12,353,355 13,169,942
$ 68,342,348 $ 51,962,417 $ 43,346,519
Operating costs and expenses 1996 1995 1994
Hotel operations $ 21,088,806 $ 17,065,041 $ 10,457,154
Hotel development 19,651,500 10,117,782 11,315,973
Hotel management 1,930,229 2,003,310 2,288,765
Employee leasing 11,689,461 12,131,262 13,014,542
$ 54,359,996 $ 41,317,395 $ 37,076,434
Operating income
Hotel operations $ 4,385,720 $ 3,359,383 $ 2,455,221
Hotel development 3,217,224 2,091,480 711,032
Hotel management 571,680 831,007 250,118
Employee leasing 309,805 216,075 149,305
Corporate (2,030,965) (2,208,197) (2,110,005)
$ 6,453,464 $ 4,289,748 $ 1,455,671
Identifiable assets
Hotel operations $ 55,456,702 $ 41,835,019 $ 25,056,800
Hotel development 6,228,166 5,447,715 2,583,355
Hotel management 1,640,692 1,163,671 1,082,978
Employee leasing 1,169,755 825,468 690,265
Corporate 2,405,841 3,181,429 4,990,184
$ 66,901,156 $ 52,453,302 $ 34,403,582
Capital Expenditures
Hotel operations $ 13,856,662 $ 12,065,286 $ 7,804,040
Hotel development 57,036 377,296 4,572
Hotel management 62,756 29,634 29,582
Employee leasing 4,956 1,602 6,461
Corporate 67,600 65,330 27,614
$ 14,049,010 $ 12,539,148 $ 7,872,269
Depreciation/Amortization
Hotel operations $ 3,018,890 $ 1,959,421 $ 854,743
Hotel development 68,545 28,866 9,915
Hotel management 282,121 176,618 172,753
Employee leasing 6,493 6,018 6,095
Corporate 102,829 97,258 97,295
$ 3,478,878 $ 2,268,181 $ 1,140,801
</TABLE>
12. STOCK OPTIONS AND WARRANTS:
In August 1996, the Company adopted the 1996 Omnibus Incentive Stock Plan
for key employees and the 1996 Stock Option Plan for Nonemployee Directors. For
each fiscal year, the Company shall reserve for issuance under the 1996 Omnibus
Incentive Stock Plan 3% of the average Common Stock outstanding used to compute
fully diluted earnings per share for the preceding fiscal year. A total of
50,000 shares of Common Stock has been reserved for issuance under the 1996
Stock Option Plan for Nonemployee Directors. As of December 31, 1996, no
options have been issued under the 1996 Omnibus Incentive Stock Plan and options
to purchase 2,000 shares of Common Stock have been issued under the 1996 Stock
Option Plan for Nonemployee Directors.
On January 2, 1992, the Board of Directors authorized the issuance of
200,000 stock options expiring January 2, 1997 to certain employees of the
Company. Prior to expiration, 185,000 of these options were exercised in 1997
at a price of $3.00 per share, with the remaining 15,000 options forfeited.
On June 1, 1992, the Board of Directors authorized the issuance of 103,125
stock options to Urban and a former director in connection with loans made to
the Company. These options are exercisable at any time prior to October 9, 1999
at an option price of $4.375 per share. The shares issued upon exercise of
these options will be Rule 144 restricted common stock.
On February 12, 1992, in connection with a financial advisory agreement
executed in 1992 with a former director, the Board of Directors authorized the
issuance of 75,000 stock options at an option price of $3.521 per share which
were exercised in 1997. The option holder has the right to require the Company
to file a registration statement with the Securities and Exchange Commission to
register the shares.
In connection with the execution of the subordinated notes (Note 7), the
Company issued options to purchase a total of 1,687,500 shares at a price of
$4.00 per share, all of which have been exercised as of December 31, 1996.
On December 16, 1992, the Board of Directors authorized the issuance of
268,750 stock options to certain employees of the Company, exercisable at any
time through September 16, 1997. Options to purchase 53,750 shares are
exercisable at a price of $5.00 and options to purchase 215,000 shares are
exercisable at a price of $6.00. These options are fully vested at December 31,
1996 and, except for 12,500 shares, all of the shares issued in connection with
these options will be registered.
On March 22, 1993, the Board of Directors authorized the issuance of 40,419
stock options to certain shareholders who executed agreements not to sell their
shares of common stock in connection with a public offering completed by the
Company in May 1993. During 1996, 2,250 options were exercised. The remaining
38,169 options are exercisable through March 22, 1998, at an exercise price of
$6.875.
On October 5, 1994, the Board of Directors authorized the issuance of
150,000 stock options to certain employees of the Company, exercisable through
October 5, 2004, at an option price of $4.125 per share. The shares issued upon
exercise of these options will be registered.
On October 5, 1994, the Board of Directors authorized the issuance of
33,500 stock options to certain employees of the Company. These options are
exercisable through October 5, 1999, at an option price of $4.75 per share.
Except for 2,500 shares, the shares issued upon exercise of these options will
be registered.
On January 1, 1995, the Board of Directors authorized the issuance of
620,000 stock options to officers of the Company. As of December 31, 1996,
370,000 options were vested, with the remaining 250,000 options vesting January
1, 1997. The options are exercisable at a price of $3.5625, expiring January 1,
2005 through January 1, 2007. Except for 120,000 shares, the shares issued upon
exercise of these options will be registered.
On January 1, 1995, the Board of Directors authorized the issuance of
20,000 stock options to a co-partner in seven of the Company's hotel
investments, exercisable through January 1, 1998 at an option price of $7.125
per share. The shares issued upon exercise of these options will be Rule 144
restricted common stock.
On January 6, 1995, the Board of Directors authorized the issuance of
10,000 stock options to a co-partner in four of the Company's hotel investments,
exercisable through January 6, 2000, at an option price of $3.56 per share. The
shares issued upon exercise of these options will be Rule 144 restricted common
stock.
On September 27, 1995, the Board of Directors authorized the issuance of
134,000 stock options, net of subsequent forfeitures, to certain employees of
the Company exercisable through September 27, 2005 at a price of $6.375 per
share. At December 31, 1996, 92,500 options are vested, with the remaining
41,500 options vesting on September 27, 1997. Except for 6,500 shares, the
shares issued upon exercise of these options will be registered.
On December 1, 1995, the Board of Directors authorized the issuance of
133,333 stock options to certain employees of the Company, exercisable through
December 1, 2005, at an option price of $6.50 per share. The shares issued upon
exercise of these options will be registered.
On January 17, 1996, the Board of Directors authorized the issuance of
30,000 stock options to co-partners in one of the Company's hotel investments,
exercisable through January 17, 2001, at an option price of $6.125 per share.
The shares issued upon exercise of these options will be Rule 144 restricted
common stock.
On April 26, 1996, the Board of Directors authorized the issuance of 30,000
stock options to co-partners in two of the Company's hotel investments,
exercisable through April 26, 2001, at option prices of $6.625 and $8.00 per
share. The shares issued upon exercise of these options will be Rule 144
restricted common stock.
On August 30, 1996, the Board of Directors authorized the issuance of 2,000
stock options to outside directors pursuant to the 1996 Stock Option Plan for
Nonemployee Directors. The options vest on August 30, 1997 and are exercisable
through August 30, 2006, at an option price of $7.8125 per share. The shares
issued upon exercise of these options will be registered.
The following table summarizes the options granted, exercised and
outstanding:
<TABLE>
<CAPTION>
Wtd Avg
Shares Exercise Price
<S> <C> <C>
Options outstanding January 1, 1994 734,169 $ 4.55
Options granted 183,500 4.24
Options outstanding December 31, 1994 917,669 4.49
Options granted 928,833 4.50
Options outstanding December 31, 1995 1,846,502 4.49
Options exercised (49,125) 4.13
Forfeitures (11,500) 6.38
Options granted 62,000 6.75
Options outstanding December 31, 1996 1,847,877 $ 4.57
Options exercisable December 31, 1996 1,554,377 $ 4.68
</TABLE>
The Company applies APB No. 25, Accounting for Stock Issued to Employees,
and related interpretations, in accounting for options. Under APB Opinion 25,
because the exercise price of the options equals the market price of the
underlying stock on the measurement date, no compensation expense is recognized.
The weighted-average grant-date fair value of stock options granted to
employees during the year and the weighted-average significant assumptions used
to determine those fair values, using a modified Black-Sholes option pricing
model, and the pro forma effect on earnings of the fair value accounting for
stock options under Statement of Financial Accounting Standards No. 123 are as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Grant-date fair value per share $ 4.45 $ 6.75
Significant assumptions (weighted-average)
Risk-free interest rate at grant date 6.04% 5.51%
Expected stock price volatility 0.79 0.62
Expected dividend payout - -
Expected option life (years) (a) 4.24 2.50
Net income
As reported $ 3,394,654 $ 2,138,092
Pro forma 2,994,790 1,514,818
Net income per share
As reported $ 0.50 $ 0.35
Pro forma 0.45 0.25
(a) The expected option life considers historical option exercise
patterns and future changes to those exercise patterns anticipated at the date
of grant.
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Wtd Avg Number
Range of Outstanding Remaining Wtd Avg Exercisable Wtd Avg
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 3.00 to 4.75 1,191,625 6.08 Years $ 3.64 941,625 $ 3.66
$ 5.00 to 8.00 656,252 4.59 6.25 612,752 6.24
$ 3.00 to 8.00 1,847,877 5.55 $ 4.57 1,554,377 $ 4.68
</TABLE>
The Company issued 5,555, 60,450, and 32,246 shares of Common Stock to
employees in 1996, 1995 and 1994, respectively, as incentive bonuses. The
Company recognized compensation expense of $30,210, $212,843, and $98,832 in
1996, 1995, and 1994.
13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Office lease:
The Company entered into an operating lease for its existing office
facilities which expires December 2000. The Company may cancel the lease
effective December 1, 1998 with a 180-day notice and a cancellation penalty
payment of approximately $71,000. Rent expense, including real estate taxes,
insurance and repair costs associated with the operating lease was approximately
$200,000, $181,000 and $145,000 in 1996, 1995 and 1994, respectively. Total
future minimum rent due under the operating lease is approximately as follows:
Year ending December 31, Amount
1997 $ 201,000
1998 205,000
1999 209,000
2000 214,000
$ 829,000
Hotel leases:
The Company, through its subsidiaries and consolidated partnerships, leases
nine hotels, the operations of which are included in the Company's consolidated
financial statements. The terms of these leases are described as follows:
The Company leases or sub-leases four Days Inn hotels located in Schiller
Park, Shorewood, and Niles, Illinois and Portage, Indiana from four partnerships
which currently own the hotels or lease the hotels from unrelated third parties.
The Company owns an equity interest in these partnerships, ranging from 5% to
16.33%. The leases and sub-leases are triple net leases and provide for monthly
base rent payments ranging from $9,500 to $33,028, plus additional rent
payments ranging from zero to $72,000 per annum, plus percentage rents equal to
5% of room revenues in excess of stipulated amounts. The leases and sub-leases
expire December 31, 1999.
In July 1992, the Company entered into a triple net lease agreement for a
Holiday Inn in Menomonee Falls, Wisconsin. The lease was revised effective
November 1, 1996 eliminating the monthly lease payment and providing for
termination as of March 28, 1997. The rent payments prior to the revision were
based upon percentages of gross room revenues ranging from 15% to 20%, with a
monthly minimum of $14,583.
The Company entered into an agreement to lease a Ramada Inn hotel in
Lafayette, Indiana, effective August 1, 1996, replacing an existing lease
agreement. The new lease provides for monthly lease payments of $21,617, and
expires August 31, 2003.
The Days Inn Findlay operates under a triple net lease calling
for payments of $7,500 per month expiring March 31, 1996. The Company
exercised its five year renewal option, extending the termination date to
March 31, 2001. The lease provides for monthly payments of $8,500 for the
first three years of the renewal term, increasing to $10,000 for the final
two years, plus additional rent payments of 5% of annual guest room
revenues in excess of $750,000.
On January 1, 1995, the Days Inn Dayton amended its triple net lease
providing for an additional term of ten years expiring December 31, 2004.
The lease provides for monthly payments ranging from $17,000 to $23,000
through December 31, 1998. Beginning in 1999, monthly payments are the
greater of $23,000 or 15% of room revenue. The Company has agreed to
guarantee the hotel's performance under the lease up to $50,000.
The Days Inn New Philadelphia operates under a triple net lease
expiring June 3, 1997 which provides for minimum monthly payments of
$6,000, plus additional rent of 12.5% of annual gross room revenue in
excess of $550,000.
All of the aforementioned hotel leases provide for an option to
purchase the hotel. Some of the purchase prices are based upon a multiple
of gross room revenues for the preceding twelve months with a specified
maximum, and the others are based on a fixed amount. At December 31, 1996,
the aggregate purchase price for these leased hotels was approximately
$23,355,000, excluding the hotel lease which was terminated as of March 28,
1997.
Minimum rent payments under hotel leases are as follows:
Year Ending December 31, Amount
1997 $ 1,747,000
1998 1,735,000
1999 1,749,000
2000 655,000
2001 565,000
Thereafter 1,260,000
$ 7,711,000
Guarantees:
The Company has provided approximately $30.2 million in guarantees as of
December 31, 1996 on mortgage loan obligations for 23 of its affiliated
partnerships. Other partners have also guaranteed portions of the same
obligations. The partners of two of the partnerships have entered into cross
indemnity agreements whereby each partner has agreed to indemnify the others for
any payments made by any partner in relation to these guarantees in excess of
their ownership interest.
The Company is secondarily liable for the obligations and liabilities of
the limited partnerships and limited liability corporations in which it holds a
general partnership or managing member ownership interest as described in Note
4.
Construction in progress:
At December 31, 1996, the Company had approximately $17.0 million remaining
to pay contractors for the construction of 27 hotels, a portion of which is
included in accounts payable. These commitments will be funded through
construction and long-term mortgage financing currently in place.
Employment agreements:
The Company entered into three year employment agreements with three
executive officers expiring December 31, 1997, one of which includes an
automatic three year renewal option. One of the executive officers resigned in
January 1997, resulting in the termination of his employment agreement (Note
10). The remaining two agreements were amended in January 1997 to provide for
(i) a one year extension until December 31, 1998 for the executive officer whose
contract does not provide for automatic renewal; (ii) annual base salaries
totaling $490,000; and (iii) options to purchase 65,625 shares of common stock
to be issued in 1997 in lieu of common stock awards as provided in the original
agreements. The employment agreements provide for cash bonuses to be determined
annually by the compensation committee of the Board of Directors, stock options
and severance pay should the officer be terminated without cause.
Legal matters:
The Company and certain of its subsidiaries are defendants in various
litigation matters arising in the ordinary course of business. In the opinion
of management, the ultimate resolution of all such litigation matters is not
likely to have a material effect on the Company's financial condition, results
of operation or liquidity.
14. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Purchase of investments and
other assets through issuance
of common stock, assumption and
issuance of notes payable, and
reduction of notes receivable $ 549,556 $ 1,010,188 $ 369,571
Reduction of notes receivable and related
interest in exchange for common stock $ 52,860
Exchange of limited partnership interests
and note receivable $ 90,000
Reduction of accounts and
note payable through issuance
of common stock and warrants $ 233,351
</TABLE>
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following table summarizes the unaudited quarterly financial data (in
thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Revenues $ 12,645 $ 19,818 $ 19,309 $ 16,571
Operating income 160 2,358 3,171 764
Net income (loss) (148) 1,380 2,027 136
Net income (loss) per common share $ (0.02) $ 0.20 $ 0.30 $ 0.01
Year Ended December 31, 1995
Revenues $ 13,157 $ 12,287 $ 14,526 $ 11,992
Operating income (loss) (207) 1,557 2,726 214
Net income (loss) (284) 844 1,564 14
Net income (loss) per common share $ (0.05) $ 0.14 $ 0.25 $ -
</TABLE>
During the fourth quarter of 1996, the Company expensed approximately
$404,000 in costs associated with a public offering of the Company's Common
Stock which was not consummated.
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Amerihost Properties, Inc.
Des Plaines, Illinois
We hereby consent to the incorporation by reference in the Company's previously
filed Registration Statement (file no. 33-72742) of our report dated March 20,
1997 relating to the consolidated financial statements of Amerihost Properties,
Inc. appearing in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996.
BDO Seidman, LLP
Chicago, Illinois
September 19, 1997
