SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended MARCH 31, 1998
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
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
As of May 12, 1998, 6,192,675 shares of the Registrant's Common Stock were
outstanding.
AMERIHOST PROPERTIES, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998
INDEX
PART I: Financial Information Page
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 4
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis 11
Schedule of Earnings Before Interest/Rent, Taxes
and Depreciation/Amortization for the Three
Months Ended March 31, 1998 and 1997 17
PART II: Other Information
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 18
Part I: Financial Information
Item 1: Financial Statements
<TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,924,579 $ 2,349,503
Accounts receivable (including $1,166,156
and $1,375,936 from related parties) 3,445,976 3,440,241
Notes receivable, current portion 1,448,619 1,459,986
Prepaid expenses and other current assets 288,199 209,779
Refundable income taxes 3,230,125 2,342,734
Costs and estimated earnings in excess
of billings on uncompleted contracts
with related parties 1,407,003 1,913,103
Total current assets 12,744,501 11,715,346
Investments in and advances to unconsolidated
hotel joint ventures 5,895,375 5,319,689
Property and equipment:
Land 10,985,842 10,365,676
Buildings 53,156,842 49,156,742
Furniture, fixtures and equipment 16,642,641 15,366,291
Construction in progress 4,919,047 3,549,408
Leasehold improvements 1,262,293 1,223,206
86,966,665 79,661,323
Less accumulated depreciation and amortization 10,732,697 9,345,991
76,233,968 70,315,332
Notes receivable, less current portion 1,340,685 1,355,395
Other assets, net of accumulated amortization of
$4,668,606 and $4,255,609 4,089,647 3,962,336
5,430,332 5,317,731
$ 100,304,176 $ 92,668,098
(continued)
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,488,510 $ 4,780,444
Bank line-of-credit 5,057,923 1,289,709
Accrued payroll and related expenses 937,170 1,004,265
Accrued real estate and other taxes 1,040,299 885,610
Other accrued expenses and current liabilities 623,756 843,805
Current portion of long-term debt 5,188,433 5,119,194
Total current liabilities 17,336,091 13,923,027
Long-term debt, net of current portion 60,558,502 55,116,028
Deferred income taxes 108,000 108,000
Deferred income 1,067,700 927,444
Commitments
Minority interests 773,894 1,000,740
Shareholders' equity:
Preferred stock, no par value; authorized 100,000 shares;
none issued - -
Common stock, $.005 par value; authorized 25,000,000 shares;
issued and outstanding 6,212,275 shares at March 31, 1998,
and 6,212,925 shares at December 31, 1997 31,061 31,065
Additional paid-in capital 17,856,880 17,860,655
Retained earnings 3,008,923 4,138,014
20,896,864 22,029,734
Less:
Stock subscriptions receivable (436,875) (436,875)
20,459,989 21,592,859
$ 100,304,176 $ 92,668,098
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<CAPTION>
1998 1997
<S> <C> <C>
Revenue:
Hotel operations:
AmeriHost Inn hotels $ 4,160,006 $ 2,396,566
Other hotels 3,330,680 4,032,034
Development and construction 2,964,577 6,133,742
Management services 602,150 604,643
Employee leasing 2,980,296 2,902,305
14,037,709 16,069,290
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels 3,544,474 1,862,554
Other hotels 2,994,890 3,682,857
Development and construction 2,810,991 5,175,470
Management services 543,093 412,390
Employee leasing 2,907,667 2,831,611
12,801,115 13,964,882
1,236,594 2,104,408
Depreciation and amortization 1,253,489 1,156,293
Leasehold rents - hotels 393,612 534,632
Corporate general and administrative 342,260 582,150
Operating loss (752,767) (168,667)
Other income (expense):
Interest expense (1,471,089) (810,007)
Interest income 101,122 135,449
Other income 57,977 3,810
Gain on sale of property, net of minority interests - 1,697,999
Contractual termination expenses - (1,697,448)
Equity in net income and losses of affiliates (55,921) (241,101)
Loss before minority interests and income taxes (2,120,678) (1,079,965)
Minority interests in (income) loss of
consolidated subsidiaries and partnerships 207,587 205,313
Loss before income tax (1,913,091) (874,652)
Income tax benefit 784,000 409,000
Net loss $ (1,129,091) $ (465,652)
Net loss per share:
Basic $ (0.18) $ (0.08)
Diluted $ (0.19) $ (0.09)
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 14,711,995 $ 14,664,611
Cash paid to suppliers and employees (14,390,331) (15,466,686)
Interest received 186,090 72,956
Interest paid (1,466,921) (814,297)
Income taxes paid (103,391) (110,352)
Contract termination costs -
(1,443,891)
Net cash used in operating activities (1,062,558) (3,097,659)
Cash flows from investing activities:
Purchase of property and equipment (3,933,390) (5,238,136)
Purchase of investments in, and advances
to, minority owned affiliates (1,001,157) (1,129,014)
Distributions, and collections on advances,
from affiliates 353,599 1,058,534
Acquisitions of partnership interests,
net of cash acquired (731,107) -
Collections on notes receivable 26,077 -
Preopening and management contract costs (76,536) (116,865)
Proceeds from sale of assets - 3,390,576
Net cash used in investing activities (5,362,514) (2,034,905)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,876,229 3,348,584
Principal payments on long-term debt (2,625,036) (1,581,144)
Proceeds from line of credit 7,668,214 4,828,244
Repayment on line of credit (3,900,000) (2,200,000)
Decrease in minority interest (19,259) (31,759)
Proceeds from issuance of common stock - 789,075
Net cash provided from financing activities 7,000,148 5,153,000
Net increase in cash and cash equivalents 575,076 20,436
Cash and cash equivalents, beginning of year 2,349,503 3,029,039
Cash and cash equivalents, end of period $ 2,924,579 $ 3,049,475
(continued)
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
<S> <C> <C>
Reconciliation of net loss to net
cash used in operating activities:
Net loss $ (1,129,091) $ (465,652)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,253,489 1,156,293
Equity in net (income) loss of affiliates and
amortization of deferred income 55,921 241,101
Minority interests in net income of subsidiaries (207,587) (205,313)
Amortization of deferred interest and loan discount 9,940 9,940
Compensation recognized through issuance of common
stock and common stock options - 302,065
(Gain) loss on sale of investments, property
and equipment - (1,697,999)
Deferred income taxes - (50,000)
Unpaid contractual termination costs - 253,557
Changes in assets and liabilities, net of effects
of acquisitions:
Decrease in accounts receivable 57,461 1,220,036
Increase in prepaid expenses and
other current assets (91,570) (358,160)
Increase in refundable income taxes (887,391) (469,352)
Decrease (increase) in costs and estimated
earnings in excess of billings 506,100 (2,631,950)
Increase in other assets (223,776) (274,164)
Decrease in accounts payable (360,136) (12,179)
Decrease in accrued payroll and other accrued
expenses and current liabilities (192,208) (103,669)
Decrease in accrued interest (7,180) (15,638)
Increase in deferred income 153,470 3,425
Net cash used in operating activities $ (1,062,558) $ (3,097,659)
See notes to consolidated financial statements.
</TABLE>
1. BASIS OF PREPARATION:
The financial statements included herein have been prepared by the Company,
without audit. In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments, which consist only of recurring
adjustments necessary to present fairly the financial position of Amerihost
Properties, Inc. and subsidiaries as of March 31, 1998 and December 31, 1997
and the results of its operations for the three months ended March 31, 1998
and 1997 and cash flows for the three months ended March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year. It
is suggested that the accompanying financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1997 Annual Report on Form 10-K. Certain reclassifications
have been made to the 1997 financial statements in order to conform with the
1998 presentation.
2. 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
majority ownership interest. Significant intercompany accounts and
transactions have been eliminated.
3. LOSS PER SHARE:
Basic loss per share of common stock is computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Diluted loss
per share of common stock is computed by dividing the adjusted net loss by
the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding. The following are the calculations of basic
and diluted earnings per share for the three months ended March 31,:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net loss $ (1,129,091) $ (465,652)
Impact of convertible partnership interests (95,158) (109,463)
$ (1,224,249) $
(575,115)
Weighted average common shares outstanding 6,212,762 6,190,878
Dilutive effect of convertible partnership interests 376,225 376,225
Dilutive common shares outstanding 6,588,987 6,567,103
Net loss per share:
Basic $ (0.18) $ (0.08)
Diluted $ (0.19) $ (0.09)
</TABLE>
4. INCOME TAXES:
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities determined for tax and financial reporting
purposes.
The income tax benefit for the three months ended March 31, 1998 and 1997
was based on the Company's estimate of the effective tax rate expected to
be applicable for the full year. A $50,000 reduction in the deferred tax
asset reserve was made during the three months ended March 31, 1997. The
Company expects the effective tax rate to approximate the Federal and state
statutory rates.
5. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the three months ended March 31:
1998 1997
Reduction of receivable in exchange
for common stock $ 3,779 $ -
6. HOTEL LEASES:
The Company leases five hotels, the operations of which are included in the
Company's consolidated financial statements. All of these 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 and
the others are based upon a fixed amount. At March 31, 1998, the aggregate
purchase price for these five hotels was approximately $16,230,000.
7. INVESTMENTS:
During the first quarter of 1998, the Company acquired the remaining
ownership interest in a hotel joint venture. The following is a summary of
this acquisition:
Fair value of assets acquired $ 3,116,810
Cash paid, net of cash acquired (731,107)
Liabilities assumed $ 2,385,703
Subsequent to March 31, 1998, the Company acquired the remaining ownershp
interest in seven additional hotel joint ventures for cash of approximately
$3,647,000.
ITEM 2.
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 March 31, 1998, there were 65
AmeriHost Inn hotels open, of which 29 were wholly-owned, two were majority-
owned, 31 were minority-owned, and three were managed for unrelated third
parties. A total of 20 AmeriHost Inn hotels were opened during the past twelve
months. The Company intends to use the AmeriHost Inn brand when expanding its
hotel operations segment. All of the hotels currently under construction will
be AmeriHost Inn hotels. As of March 31, 1998, ten AmeriHost Inn hotels were
under construction, of which six will be wholly-owned, and four will be
minority-owned. Same room revenues for all AmeriHost Inn hotels increased
approximately 12.0% in the first quarter of 1998 compared to the first quarter
of 1997, attributable to an increase of $0.36 in average daily rate and a 11.1%
increase in occupancy. These results relate to the 44 AmeriHost Inn hotels that
were operating for at least thirteen full months at March 31, 1998.
Revenues from hotel operations consist of the revenues from all hotels in which
the Company has a 100% or majority 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 and renovation activities performed by the Company for minority-
owned hotels and unrelated third parties. The Company also receives revenue
from management and employee leasing services provided to minority-owned hotels
and unrelated third parties.
The results for the first quarter of 1998 were consistent with the Company's
primary objective of increasing the number of wholly-owned, Consolidated
AmeriHost Inn hotels. Due to the Company's focus on developing and constructing
a significant number of Consolidated AmeriHost Inn hotels during 1997 and the
first quarter of 1998, the Company recognized lower revenues and profits from
the development and construction of hotels for minority-owned and unrelated
third parties during these periods. In addition, the Company disposed of
several non-AmeriHost Inn hotels during the past twelve months, as part of the
Company's plan to invest all available resources into the AmeriHost Inn hotel
brand. Although this strategy has a short-term negative impact on revenues and
earnings, the Company believes that the long-term benefits will be substantial.
Revenues from consolidated AmeriHost Inn hotels increased 73.6% to $4.2 million
in the first quarter of 1998, from revenues of $2.4 million in the first quarter
of 1997, due to the addition of 13 Consolidated AmeriHost Inn hotels during the
past twelve months. Revenues from the hotel management and employee leasing
segments increased by 2.2% in total during the first quarter due primarily to
the net addition of five minority-owned and unrelated third party hotels. These
increases were offset by a decrease in non-AmeriHost Inn hotel revenues as a
result of the disposition of three Consolidated hotels during the past thirteen
months and a decrease in hotel development and construction revenue from joint
ventures, resulting in a decrease in total revenues of 12.6% to $14.0 million
during the three months ended March 31, 1998, from $16.1 million during the
three months ended March 31, 1997. Net loss for the first quarter increased to
$1.1 million, or $0.19 per diluted share in 1998, from $465,652, or $0.09 per
diluted share in 1997. The Company sold two Consolidated hotels during the
first quarter of 1997, resulting in a total gain, net of minority interests, of
$1.7 million. These gains were offset by a non-recurring charge of $1.7 million
from the termination of a consulting agreement with Urban 2000 Corp. (a company
owned by the Company's Chairman of the Board and a former officer/director) and
the severance fees paid in connection with the departure of an officer/director.
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 (benefit), (v)
depreciation and amortization; and (vi) gains or losses from property
transactions. EBITDA should not be considered as an alternative to operating
income (as determined in accordance with Generally Accepted Accounting
Principles, "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 from a loss of ($210,978) during the
first quarter of 1997 to $1.0 million during the first quarter of 1998. After
eliminating the impact of the non-recurring charges, EBITDA decreased 29.6%
during the three months ended March 31, 1998, compared to the three months ended
March 31, 1997. An EBITDA schedule is included herein.
Amerihost had an ownership interest in 80 hotels at March 31, 1998 versus 63
hotels at March 31, 1997 (excluding hotels under construction). This increased
ownership was achieved primarily through the development of AmeriHost Inn hotels
for the Company's own account and for minority-owned entities. These figures
include a net increase of 13 Consolidated hotels, from 28 at March 31, 1997 to
41 at March 31, 1998.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997
Revenues decreased 12.6% to $14.0 million during the three months ended March
31, 1998, from revenues of $16.1 million during the three months ended March 31,
1997. The increase in revenue from the Consolidated AmeriHost Inn hotels was
more than offset by the decreases in the hotel development and construction
segment, and the non-AmeriHost Inn hotel operations segment.
Hotel operations revenue increased 16.5% to $7.5 million during the three months
ended March 31, 1998, from $6.4 million during the three months ended March 31,
1997. Revenue from Consolidated AmeriHost Inn hotels increased 73.6% during the
three months ended March 31, 1998, compared to the three months ended March 31,
1997. These increases were attributable primarily to the addition of 13
Consolidated AmeriHost Inn hotels from April 1, 1997 through March 31, 1998,
including the addition of twelve newly constructed Consolidated AmeriHost Inn
hotels, and the acquisition of additional ownership interest in one existing
hotel causing it to become a Consolidated AmeriHost Inn hotel. The increase in
AmeriHost Inn hotel revenue during the three month period was offset by a
decrease of 17.4% in other brand hotel revenue. This decrease was the result
of the sale of two non-AmeriHost Inn Consolidated hotels, and the termination of
the lease for another non-AmeriHost Inn hotel. The hotel operations segment
included the operations of 41 Consolidated hotels (including 31 AmeriHost Inn
hotels) comprising 3,275 rooms at March 31, 1998, compared to 28 Consolidated
hotels (including 18 AmeriHost Inn hotels) comprising 2,531 rooms at March 31,
1997. After considering the Company's ownership interest in the majority-owned
Consolidated hotels, this translates to 2,955 and 2,216 equivalent owned rooms
as of March 31, 1998 and 1997, respectively, or an increase of 33.3%. Recently,
the Company has experienced an increase in competition in certain markets,
primarily from newly constructed hotels. As a result, there is increased
downward pressure on occupancy levels. The average daily rates continue to
remain strong. The Company believes that as the number of AmeriHost Inn hotels
increases, the greater the benefits will be at all locations from marketplace
recognition and repeat business. In addition, the Company typically builds new
hotels in growing markets where it anticipates a certain level of additional
hotel development.
Hotel development revenue decreased 51.7% to $3.0 million during the three
months ended March 31, 1998, from $6.1 million during the three months ended
March 31, 1997. The decrease was due to the decrease in hotel development and
construction activity performed for unrelated entities or entities in which the
Company holds a minority ownership interest. The Company was constructing five
hotels for minority-owned entities or unrelated third parties during the first
quarter of 1998, compared to eight hotels during the three months ended March
31, 1997. The Company also had several additional projects in various stages of
pre-construction development during both three month periods.
Hotel management revenue remained relatively unchanged, decreasing 0.4% to
$602,150 during the three months ended March 31, 1998, from $604,643 during the
three months ended March 31, 1997. The number of hotels managed for third
parties and minority-owned entities increased from 45 hotels, representing 3,767
rooms, at March 31, 1997 to 47 hotels, representing 3,655 rooms, at March 31,
1998. The addition of management contracts for eight newly constructed hotels
(511 rooms) was partially offset by the termination of one management contract
(123 rooms) with a minority-owned entity as a result of the sale of the hotel
(non-AmeriHost Inn hotel), the termination of two management contracts (149
rooms) with minority-owned hotels which became Consolidated hotels due to the
Company acquiring additional ownership interests, and the termination of three
management contracts for non-AmeriHost Inn hotels with unrelated third parties
(351 rooms) as a result of the sale of the hotels. The management contracts
terminated, all of which were for hotels other than the AmeriHost Inn brand,
were typically for larger hotels compared to the eight hotels added during the
twelve months ended March 31, 1998. As a result, even though the number of
management contracts increased, total segment revenue was relatively unchanged
during the first quarter of 1998 compared to the first quarter of 1997.
Employee leasing revenue increased 2.7% to $3.0 million during the three months
ended March 31, 1998, from $2.9 million during the three months ended March 31,
1997, due primarily to the addition of hotels managed for minority-owned
entities as described above, and the associated increase in payroll costs which
is the basis for the employee leasing revenue.
Total operating costs and expenses decreased 8.3% to $12.8 million (91.2% of
total revenues) during the three months ended March 31, 1998, from $14.0 million
(86.9% of total revenues) during the three months ended March 31, 1997.
Operating costs and expenses in the hotel operations segment increased 17.9% to
$6.5 million during the three months ended March 31, 1998, from $5.5 million
during the three months ended March 31, 1997. This increase resulted primarily
from the net addition of 13 Consolidated hotels to this segment and is directly
related to the 73.6% increase in Consolidated AmeriHost Inn hotel revenue during
the three months ended March 31, 1998, offset by the 17.4% decrease in non-
AmeriHost Inn hotel revenue. Hotel operations segment operating costs and
expenses as a percentage of segment revenue increased to 87.3% during the three
months ended March 31, 1998, from 86.3% during the three months ended March 31,
1997. The increase was due primarily from a greater number of Consolidated
AmeriHost Inn hotels operating during their pre-stabilization period in the
first quarter of 1998. Operating costs from non-AmeriHost Inn hotels as a
percentage of revenue decreased slightly as a result of the sale/disposition of
hotels.
Operating costs and expenses for the hotel development segment decreased 45.7%
to $2.8 million during the three months ended March 31, 1998, from $5.2 million
during the three months ended March 31, 1997, consistent with the 51.7% decrease
in hotel development revenues for the three months ended March 31, 1998.
Operating costs and expenses in the hotel development segment as a percentage of
segment revenue increased to 94.8% during the three months ended March 31, 1998,
from 84.4% during the three months ended March 31, 1997. The first quarter of
1998 consisted primarily of construction activity which has higher operating
costs in relation to the revenue recognized. The first quarter of 1997 also
consisted of a significant level of construction activity, however also included
a greater level of development activity which has lower operating costs in
relation to the revenue recognized. Hotel management segment operating costs
and expenses increased 31.7% to $543,093 during the three months ended March 31,
1998, from $412,390 during the three months ended March 31, 1997. This increase
was due to the increase in the number of hotels managed, the allocation of
certain general and administrative expenses and preopening costs associated with
the hotels opened during the three months ended March 31, 1998 and 1997.
Employee leasing operating costs and expenses increased 2.7% to $2.9 million
during the three months ended March 31, 1998, from $2.8 million during the three
months ended March 31, 1997, which is consistent with the 2.7% increase in
segment revenue for the three months ended March 31, 1998.
Depreciation and amortization expense increased 8.4% to $1.3 million during the
three months ended March 31, 1998, from $1.2 million during the three months
ended March 31, 1997. The increase was primarily attributable to the net
addition of thirteen Consolidated hotels to the hotel operations segment and the
resulting depreciation and amortization therefrom, offset by the decrease in
depreciation from non-AmeriHost Inn hotels as a result of the sale/dispositions.
Leasehold rents - hotels decreased 26.4% to $393,612 during the three months
ended March 31, 1998, from $534,632 during the three months ended March 31,
1997. This decrease was primarily due to the sale of two leased Consolidated
non-AmeriHost Inn hotels and the termination of the lease for another
Consolidated non-AmeriHost Inn hotel in the first and second quarters of 1997.
Corporate general and administrative expense decreased 41.2% to $342,260 during
the three months ended March 31, 1998, from $582,150 during the three months
ended March 31, 1997, and can be attributed primarily to the recognition of
compensation expense in the first quarter of 1997 for options issued at an
exercise price below the then current market price, operational efficiencies and
the allocation of certain expenses.
The Company's operating loss increased 346% to $752,767 during the three months
ended March 31, 1998, from $168,667 during the three months ended March 31,
1997. The following discussion of operating income by segment is exclusive of
any corporate overhead cost allocation. Consolidated AmeriHost Inn hotels
incurred an operating loss of ($160,028) during the three months ended March 31,
1998, compared to operating income of $136,354 during the three months ended
March 31, 1997. This decrease in operating income was due to the increased
impact of seasonality in the first quarter of 1998 associated with a greater
number of Consolidated AmeriHost Inn hotels and the impact of the significant
number of recently opened Consolidated AmeriHost Inn hotels still operating in
the first three months of 1998 during their pre-stabilization period when
revenues are typically lower. Operating income from the hotel development
segment decreased 85.8% to $133,864 during the three months ended March 31,
1998, from $940,214 during the three months ended March 31, 1997. The decrease
in hotel development operating income was due to the decrease in hotels
developed and constructed for third parties and minority-owned entities during
the first quarter of 1998, compared with the first quarter of 1997. The hotel
management segment incurred an operating loss of ($30,171) during the three
months ended March 31, 1998, from operating income of $115,014 during the three
months ended March 31, 1997. This decrease was due primarily to the increase in
expenses associated with the increased number of hotels managed and operated
during the past twelve months and the allocation of certain costs. Employee
leasing operating income increased 2.8% to $71,729 during the three months ended
March 31, 1998, from $69,795 during the three months ended March 31, 1997, due
to the increase in employee leasing agreements with minority-owned entities.
Interest expense increased 81.6% to $1.5 million during the three months ended
March 31, 1998, from $810,007 during the three months ended March 31, 1997.
This increase was primarily attributable to the additional mortgage financing of
newly constructed Consolidated AmeriHost Inn hotels.
The Company's share of equity in income (loss) of affiliates decreased 76.8% to
($55,921) during the three months ended March 31, 1998, from ($241,101) during
the three months ended March 31, 1997. This improvement in equity of affiliates
during the first quarter of 1998 compared to 1997, was primarily due to the
sale of one minority owned hotel at a significant gain, offset by the
significant number of newly constructed minority-owned hotels which were
operating during their pre-stabilization period, and the increasing impact of
seasonality as the number of minority-owned hotels increases. Distributions
from affiliates were $238,332 during the first three months of 1998 compared to
$21,515 during the first three months of 1997.
The Company expensed $1.7 million in the first quarter of 1997 in costs
associated with the termination of a consulting agreement with a company owned
by the Chairman of the Board of Directors and a former director, and the
termination of an employment agreement with this former director. The Company
considers these costs non-recurring in nature.
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 generated through other businesses and contracts
and is usually paid within 30 to 45 days from billing. 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. Management fee revenues
typically are received by the Company within five working days from the end of
each month. Cash from the Company's employee leasing segment typically is
received 24 to 48 hours prior to the pay date.
During the first three months of 1998, the Company used cash for operations of
$1.1 million, compared to $3.1 million during the first three months of 1997, or
a decrease in cash used for operations of $2.0 million. The increase in cash
flow from operations during the first three months of 1998, when compared to
1997, can be attributed to the non-recurring payment of $1.4 million during the
first quarter of 1997 and the timing of collections from hotel development and
construction activity for minority-owned entities, offset by the increasing
impact of seasonality and the significant number of hotels operating during
their pre-stabilization period as the number of Consolidated hotels increased
from 28 hotels at March 31, 1997 to 41 hotels at March 31, 1998.
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) the making of loans
to affiliated and non-affiliated hotels for the purpose of construction,
renovation and working capital. During the first three months of 1998, the
Company used $5.4 million in investing activities compared to $2.0 million in
the first three months of 1997. During the first three months of 1998, the
Company used $3.9 million to purchase property and equipment for Consolidated
AmeriHost Inn hotels, and used $1.4 million for investments in and advances to
affiliates, net of distributions and collections. During the first three months
of 1997, the Company used cash primarily for the purchase of $5.2 million in
property and equipment for Consolidated AmeriHost Inn hotels, used $70,480 for
investments in and advances to affiliates, net of distributions and collections,
and received $3.4 million from the sale of hotels.
Cash received from financing activities was $7.0 million during the first three
months of 1998 compared to $5.2 million during the first three months of 1997.
In 1998, the primary factors were proceeds of $3.3 million from the mortgage
financing of Consolidated hotels, net of principal repayments, and net proceeds
of $3.8 million from the Company's operating line-of-credit. In 1997, the
contributing factors were proceeds of $1.8 million from the mortgage financing
of Consolidated hotels, net of principal repayments, net proceeds of $789,075
from the exercise of common stock purchase options, and $2.6 million in net
proceeds from the Company's operating line-of-credit.
At March 31, 1998, the Company had $5.1 million outstanding under its operating
line-of-credit. The operating line-of-credit (i) has a limit of $10.0 million
(ii) is collateralized by a security interest in certain of the Company's
assets, including its interest in various joint ventures; (iii) 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 (iv) matures August 1, 1998. At March 31,
1998, the Company also had outstanding $2.25 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 penalty.
In March 1998, the Company's Board of Directors authorized the repurchase, from
time to time on the open market, of up to $1.0 million of Common Stock over the
next year. During April and May of 1998, the Company repurchased 19,600 shares
of the Company's Common Stock for approximately $94,000.
The Company expects cash from operations to be sufficient to pay all operating
and interest expenses in 1998.
YEAR 2000
As is the case with other companies using computers in their operations, the
Company has to address the Year 2000 compliance issue. The Year 2000 issue
arises from the widespread use of computer programs that rely on two-digit date
codes to perform computations or decision-making functions. The Company has
begun its review of its computer programs to identify the systems that would be
affected by the Year 2000 issue, and is in the process of reviewing any exposure
the Company may have from vendors and financial institutions. However, the
majority of the Company's critical computer applications are contracted out to a
third-party provider. We have received written confirmation from this provider
that they will be fully Year 2000 compliant by December 31, 1998. The Company
believes that the cost, if any, to correct any Year 2000 issues in regards to
its other systems will not be material.
SEASONALITY
The lodging industry, in general, is seasonal by 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, as well as general business and leisure travel
trends. This seasonality can be expected to continue to cause quarterly
fluctuations in the Company's revenues, and is expected to have a greater impact
as the number of Consolidated hotels increases. Quarterly earnings may also be
adversely affected by events beyond the Company's control such as extreme
weather conditions, economic factors and other general factors affecting travel.
In addition, hotel construction is seasonal, depending upon the geographic
location of the construction projects. Construction activity in the Midwest may
be slower in the first and fourth calendar quarters due to weather conditions.
INFLATION
Management does not believe that inflation has had, or is expected to have, any
significant adverse impact on the Company's financial condition or results of
operations for the periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about
Segments of an Enterprise and Related Information, which supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, establishes standards
for the way that public enterprises report information about operating segments
in annual and interim financial statements. It also establishes new standards
for disclosures regarding products and services, geographic areas and major
customers. This Statement is effective for the Company for the year end
December 31, 1998 and requires comparative information for earlier years to be
restated. The Company's consolidated balance sheets and the related
consolidated statements of income, changes in shareholder's equity and cash
flows will not be affected by the implementation of SFAS No. 131.
Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up
Activities, provides guidance on the financial reporting of start-up costs and
organization costs. This Statement requires costs of start-up activities and
organization costs to be expensed as incurred. This SOP is effective for the
Company for 1999, and will require the Company to report the cumulative effect
of this change in accounting principle as of January 1, 1999, in accordance with
Accounting Principles Board Opinion No. 20, Accounting Changes. The Company
anticipates this cumulative effect will have a material impact on the Company's
consolidated financial statements.
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.
<TABLE>
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE OF EARNINGS BEFORE INTEREST/RENT,
TAXES AND DEPRECIATION/AMORTIZATION
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Revenue $ 14,037,709 $ 16,069,290
Operating costs and expenses 12,801,115 13,964,882
1,236,594 2,104,408
Corporate general and administrative (342,260) (582,150)
Equity in net income and losses
of affiliates (55,921) (241,101)
Earnings before minority interests 838,413 1,281,157
Minority interests in earnings of
consolidated subsidiaries and
partnerships 207,587 205,313
Earnings before interest/rent, taxes
and depreciation/amortization, before
non-recurring charges 1,046,000 1,486,470
Non-recurring charges - 1,697,448
Earnings before interest/rent, taxes
and depreciation/amortization $ 1,046,000 $ (210,978)
</TABLE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit No.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during this period
covered by this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIHOST PROPERTIES, INC.
Registrant
Date: May 13, 1998
By: /s/ Russell J. Cerqua
Russell J. Cerqua
Treasurer/Executive Vice President, Finance
By: /s/ James B. Dale
James B. Dale
Vice President, Finance/Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997<F1>
<CASH> 2,924,579 3,049,475
<SECURITIES> 0 0
<RECEIVABLES> 6,301,598 8,793,047
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,744,501 13,106,859
<PP&E> 86,966,665 55,584,103
<DEPRECIATION> 10,732,697 7,000,865
<TOTAL-ASSETS> 100,304,176 72,190,598
<CURRENT-LIABILITIES> 17,336,091 13,326,233
<BONDS> 0 0
0 0
0 0
<COMMON> 31,061 31,461
<OTHER-SE> 20,428,928 21,749,798
<TOTAL-LIABILITY-AND-EQUITY> 100,304,176 72,190,598
<SALES> 14,037,709 16,069,290
<TOTAL-REVENUES> 14,037,709 16,069,290
<CGS> 12,801,115 13,964,882
<TOTAL-COSTS> 12,801,115 13,964,882
<OTHER-EXPENSES> 1,989,361 2,273,075
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,471,089 810,007
<INCOME-PRETAX> (1,913,091) (874,652)
<INCOME-TAX> (784,000) (409,000)
<INCOME-CONTINUING> (1,129,091) (465,652)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,129,091) (465,652)
<EPS-PRIMARY> (0.18) (0.08)
<EPS-DILUTED> (0.19) (0.09)
<FN>
<F1>Restated.
</FN>
</TABLE>
