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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 2000
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. D/B/A ARLINGTON HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3312434
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 S. ARLINGTON HEIGHTS RD., SUITE 400, ARLINGTON HEIGHTS, ILLINOIS 60005
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 228-5400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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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 |X| 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. |X|
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
14, 2001 (based upon an estimate that 89.5% of the shares are so owned by
non-affiliates and upon the closing price for the Common Stock of $3.063) was
$13,645,408.
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As of March 14, 2001, 4,979,244 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, 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. After
developing and operating the AmeriHost brand name for approximately 10 years,
the Company decided to begin franchising this brand in 1999. After limited
success in the franchising segment, in September 2000 the Company sold the
AmeriHost Inn and AmeriHost Inn & Suites brand names and franchising rights to
Cendant Corporation ("Cendant"). Cendant is the world's largest franchising
company with hotel brand names such as Days Inn, Super 8 and Wingate. All
AmeriHost Inn hotels designed and developed by the Company were constructed
using a standard 60 to 120 room, interior corridor and indoor pool prototype
design and are located in tertiary and secondary markets. The Company had also
developed a 3-story AmeriHost Inn & Suites prototype designed for larger
markets.
Effective September 30, 2000, the Company completed the sale of the AmeriHost
Inn and AmeriHost Inn & Suites brand names and franchising rights to Cendant
Corporation. The Company simultaneously entered into franchise agreements with
Cendant for its AmeriHost Inn hotels. The Company received an initial payment of
approximately $5.5 million upon closing and recorded a gain from this payment,
net of closing costs of approximately $5.2 million. The agreement with Cendant
provides for additional incentives to the Company as the AmeriHost Inn and
AmeriHost Inn & Suites brand names are expanded, including a fee when a hotel
owned by the Company is sold to an operator who enters into a franchise
agreement with Cendant, and royalty sharing for all AmeriHost Inn hotels. In
conjunction with this transaction, the Company has begun doing business as
Arlington Hospitality, Inc. and intends to legally change the name of the
Company to this name, subject to shareholder approval at its next regularly
scheduled shareholder meeting.
Since 1993, the Company's growth strategy has focused on the expansion of the
AmeriHost Inn hotel brand through new development and construction.
Historically, the AmeriHost Inn hotels achieved a revenue per available room
("RevPAR") higher than that 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 expanding
the development of AmeriHost Inn hotels, and is rewarded for this development
under the Cendant agreement.
As of December 31, 2000, the Company owned, operated, or managed 83 hotels
located in 17 states. Of these hotels, 72 hotels are operated or managed under
the AmeriHost Inn brand. Of the 83 hotels, the Company owns a 100% or majority
ownership or leasehold interest in 66 hotels and a minority equity interest,
ranging from 1% to 37.2%, in 15 hotels. Of the 81 hotels in which the Company
has an ownership interest, 72 are AmeriHost Inn hotels and 9 are other brands,
which in most cases were acquired, renovated and repositioned in their
respective marketplaces between 1987 and 1993. Unaffiliated third parties also
operated 10 AmeriHost Inn hotels under franchise agreements with Cendant as of
December 31, 2000, which were previously owned and operated by the Company. The
other brand hotels are franchised through Days Inn, Howard Johnson Express,
Holiday Inn and Ramada Inn. The Company also managed two non-AmeriHost Inn
hotels at December 31, 2000 for unaffiliated third parties. As of December 31,
2000, two additional AmeriHost Inn hotels were under construction which are 100%
owned by the Company.
2
The table below sets forth information regarding the hotels at December 31,
2000.
Open Under
Hotels Construction Total
---------------- ----------------- ---------------
Hotels Rooms Hotels Rooms Hotels Rooms
------- ------ ------ ------ ------ ------
100% or majority owned or leased:
AmeriHost Inn hotels 60 3,810 2 120 62 3,930
Other brands 6 820 - - 6 820
------- ------ ------ ------- ------ ------
66 4,630 2 120 68 4,750
------- ------ ------ ------- ------ ------
Minority ownership interest:
AmeriHost Inn hotels 12 780 - 12 780
Other brands 3 349 - - 3 349
------- ------ ------ ------- ------ ------
15 1,129 - - 15 1,129
------- ------ ------ ------- ------ ------
Managed only hotels:
AmeriHost Inn hotels - - - - - -
Other brands 2 249 - - 2 249
------- ------ ------ ------- ------ ------
2 249 - - 2 249
------- ------ ------ ------- ------ ------
Totals:
AmeriHost Inn hotels 72 4,590 2 120 74 4,710
Other brands 11 1,418 - - 11 1,418
------- ------ ------ ------- ------ ------
83 6,008 2 120 85 6,128
======= ====== ====== ======= ====== ======
For informational purposes:
Franchised AmeriHost Inn hotels 10 611 - - 10 611
======= ====== ====== ======= ====== ======
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 has used its development and construction expertise for
its own account, for joint ventures in which the Company has an ownership
interest, and for unaffiliated parties, and intends to use its expertise for
Cendant franchisees.
The Company believes that the AmeriHost Inn provides a strong brand affiliation
with an excellent reputation for consistency. The AmeriHost Inn franchise
agreements are long-term agreements and provide for a royalty fee, and a system
assessment fee based on the hotel's revenue. In addition, since the Company has
extensive experience in all facets of AmeriHost Inn hotel development and
operation, it can offer this expertise to other Cendant franchisees.
The Company offers complete operational and financial management services,
including sales, marketing, quality control, training, purchasing and
accounting. This expertise is used for the Company's own account, as well as for
joint ventures and unaffiliated entities pursuant to written management
contracts. However, under certain management contracts, the Company's joint
venture partners or co-managers 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 two 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. The Company has
developed centralized systems and procedures which it believes allow it to
manage the hotels effectively and efficiently. The Company intends to pursue
management contracts with additional third parties, including Cendant
franchisees, while continuing to manage hotels for current as well as future
joint ventures.
3
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, franchising
and employee leasing services with respect to hotels in which the Company has a
100% or majority ownership interest have been eliminated in consolidation.
AMERIHOST INN HOTELS
As a result of the Cendant transaction, all of the Company's AmeriHost Inn
hotels are operated pursuant to 20-year franchise agreements. Pursuant to these
agreements, the Company has access to the reservation system, marketing plans
and trademarks. The franchise agreements require the Company to maintain both
the quality and condition of the hotel, as well as specific operating
procedures.
The Company's AmeriHost Inn hotels have been designed and constructed using a
two- or three-story prototype, featuring 60 to 120 rooms, interior corridors and
an indoor pool area. The AmeriHost Inn hotel's amenities and services include an
indoor pool, whirlpool, exercise room, meeting room 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 a 25" color television with
premium cable service or movies on demand. In addition, each Amerihost Inn hotel
typically includes two to 12 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.
The Company's AmeriHost Inn hotels are operated or managed 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 the AmeriHost Inn hotels increase guest satisfaction
and repeat business. The quality of the AmeriHost Inn product and the
consistency of the amenities and services have assisted the chain in becoming
one of only a few hotel chains in the U.S. to have achieved an American
Automobile Association ("AAA") Three Diamond rating at all of its hotels. In
addition, the AmeriHost Inn brand maintains its Commitment Plus 100% guest
satisfaction guarantee program. This program guarantees that every guest will
leave satisfied. All AmeriHost Inn employees have the unconditional authority to
correct any oversight to the guest's satisfaction, or we will refund the guest's
money, up to 100%. This 100% satisfaction guarantee will help the brand maintain
its quality and consistency.
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. 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 $50 to $80 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. These factors assist the Company in maximizing its
return on invested capital, while offering an excellent value to its guests.
4
As part of the Company's strategy to develop additional AmeriHost Inn hotels,
while selling AmeriHost Inn hotels to Cendant franchisees, the Company intends
to pursue the sale of hotels in 2001 and beyond. During 2000, the Company sold
four AmeriHost Inn hotels to franchisees, while three joint ventures in which
the Company was a partner sold their AmeriHost Inn hotels to franchisees. During
1999, the Company sold three AmeriHost Inn hotels to franchisees. 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.
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, Howard Johnson Express, Holiday Inn, and Ramada Inn. The
Company believes that franchises in these 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 64
to 215 rooms, generate average daily rates ranging from $40 to $65 per night and
offer a variety of amenities and services. Approximately one-half of these
hotels 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 1999, the
Company sold one 100% owned other brand hotel. In addition, two joint ventures
in which the Company was a partner sold their other brand hotels. During 2000,
the Company sold one 100% owned other brand hotel. 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, 2000, the Company owned and/or managed 83 hotels in 17 states,
concentrated in the midwestern and southern United States. The Company had two
additional 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, 2000 by state:
Date
State Hotel (1) Rooms Operations Began
- ----- --------- ------- ----------------
California AmeriHost Inn Anderson 61 01/20/97
AmeriHost Inn Corning 60 05/29/98
AmeriHost Inn Yreka 61 08/04/97
------
182
------
Florida Howard Johnson Express Ft. Myers 123 09/30/92
------
5
Date
State Hotel (1) Rooms Operations Began
- ----- ----- ------- ----------------
Georgia AmeriHost Inn Eagles Landing, Stockbridge 60 08/08/95
AmeriHost Inn LaGrange 59 03/01/95
AmeriHost Inn Smyrna 60 12/21/95
Days Inn Northwest, Atlanta (3) 107 11/01/91
Days Inn Peachtree, Atlanta (3) 142 11/01/91
------
428
------
Illinois AmeriHost Inn & Suites Freeport 64 07/28/00
AmeriHost Inn Jacksonville 60 06/14/96
AmeriHost Inn Macomb 60 05/19/95
AmeriHost Inn Players Riverboat Hotel, Metropolis 120 02/25/94
AmeriHost Inn Rochelle 61 03/07/97
AmeriHost Inn Sycamore 60 05/31/96
AmeriHost Inn Tuscola 59 08/17/94
Days Inn Niles 149 01/01/90
------
633
------
Indiana AmeriHost Inn Columbia City 60 03/05/99
AmeriHost Inn Decatur 60 08/30/98
AmeriHost Inn Hammond 86 03/29/96
AmeriHost Inn Huntington 62 08/21/98
AmeriHost Inn Plainfield 60 09/01/92
Days Inn Plainfield 64 05/01/90
Ramada Inn Lafayette 144 02/02/94
------
536
------
Iowa AmeriHost Inn Boone 60 08/21/98
AmeriHost Inn Le Mars 63 01/07/98
AmeriHost Inn Mt. Pleasant 63 07/02/97
AmeriHost Inn Storm Lake 61 08/13/97
AmeriHost Inn Waverly 60 08/28/96
------
307
------
Kentucky AmeriHost Inn Murray 60 11/01/96
------
Michigan AmeriHost Inn Battle Creek 62 03/19/99
AmeriHost Inn Coopersville 59 12/31/95
AmeriHost Inn Grand Rapids North, Walker 60 07/05/95
AmeriHost Inn Grand Rapids South 61 06/11/97
AmeriHost Inn Hudsonville 61 11/24/97
AmeriHost Inn Ionia 60 04/22/98
AmeriHost Inn Monroe 63 09/19/97
AmeriHost Inn Port Huron 61 07/01/97
------
487
------
6
Date
State Hotel (1) Rooms Operations Began
- ----- ----- ------- ----------------
Mississippi AmeriHost Inn Batesville 60 04/26/96
AmeriHost Inn Tupelo 61 07/25/97
AmeriHost Inn Vicksburg Landing 89 05/13/95
------
210
------
Missouri AmeriHost Inn Fulton 62 01/21/99
AmeriHost Inn Mexico 61 12/06/97
AmeriHost Inn Warrenton 63 11/07/97
------
186
------
Ohio AmeriHost Inn Ashland 62 08/09/96
AmeriHost Inn Athens (2) 102 11/04/89
AmeriHost Inn Cambridge (2) 72 02/06/98
AmeriHost Inn Columbus Southeast (2) 60 04/17/98
AmeriHost Inn Delaware 73 05/16/97
AmeriHost Inn & Suites East Liverpool (2) 66 10/20/00
AmeriHost Inn Jeffersonville North (2) 60 07/20/96
AmeriHost Inn Jeffersonville South (2) 60 10/14/94
AmeriHost Inn Kenton (2) 60 08/02/96
AmeriHost Inn Lancaster (2) 60 09/04/92
AmeriHost Inn Logan (2) 60 04/16/93
AmeriHost Inn Mansfield 60 11/19/94
AmeriHost Inn Marysville 79 06/01/90
AmeriHost Inn Newark (2) 72 01/29/99
AmeriHost Inn Oxford (2) 62 12/04/00
AmeriHost Inn St. Mary's (2) 61 11/25/97
AmeriHost Inn Upper Sandusky 60 04/12/95
AmeriHost Inn Wilmington (2) 61 02/21/97
AmeriHost Inn Wooster East 58 01/18/94
AmeriHost Inn Wooster North 60 10/20/95
AmeriHost Inn Zanesville (2) 60 07/30/96
Days Inn New Philadelphia (2) 104 06/04/92
Ramada Inn Dayton Mall 215 01/20/92
Ramada Inn Middletown 120 07/03/92
------
1,807
------
Oklahoma AmeriHost Inn Enid 60 06/11/98
------
Pennsylvania AmeriHost Inn Shippensburg 60 08/09/96
Holiday Inn Altoona 144 08/31/92
Holiday Inn Oil City 106 12/02/92
------
310
------
Tennessee AmeriHost Inn Jackson 60 04/01/98
------
Texas AmeriHost Inn Allen 60 07/25/96
AmeriHost Inn McKinney 61 01/07/97
AmeriHost Inn San Marcos 61 05/23/97
------
182
------
7
Date
State Hotel (1) Rooms Operations Began
- ----- ----- ------- ----------------
West Virginia AmeriHost Inn New Martinsville (2) 60 05/03/96
AmeriHost Inn Parkersburg North (2) 79 06/26/95
AmeriHost Inn Parkersburg South (2) 61 12/30/96
------
200
------
Wisconsin AmeriHost Inn Kimberly 63 06/30/97
AmeriHost Inn & Suites Marshfield 60 09/06/00
AmeriHost Inn Mosinee 53 04/30/93
AmeriHost Inn Whitewater 61 09/08/97
------
237
------
TOTAL ROOMS 6,008
TOTAL PROPERTIES 83
(1) Unless otherwise noted, the Company owns a direct or indirect equity
or leasehold interest in the hotel.
(2) Indicates properties which are co-managed with an unaffiliated third
party.
(3) Indicates properties in which the Company does not have a direct or
indirect equity or leasehold interest.
The table below shows the average occupancy, average daily rate ("ADR") and
revenue per available room ("RevPAR") experienced by the Company in 2000 in
various locations. These statistics include all hotels open as of December 31,
2000.
Average Average Revenue Per
Occupancy Daily Rate Available Room
--------- ---------- --------------
Ohio (24 hotels) 57.3% $56.98 $32.69
Illinois, Iowa and Wisconsin (17 hotels) 57.9% $55.71 $32.27
Michigan and Pennsylvania (11 hotels) 56.7% $57.09 $32.39
Georgia, Mississippi and West Virginia (11 hotels) 59.3% $55.63 $33.00
Indiana and Kentucky (8 hotels) 53.4% $55.54 $29.70
Texas and California (6 hotels) 68.6% $54.83 $37.64
Other hotels (6 hotels located in Tennessee, Florida,
Missouri and Oklahoma) 50.9% $56.60 $28.85
All hotels 57.5% $56.23 $32.33
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. This growth in hotel room demand has resulted in
positive trends industry-wide for room revenues. Even as occupancy rates have
flattened over the past few years, the average daily rates have increased at a
strong pace, resulting in continued growth for the industry. The year 2000
showed even more promise as demand for room nights increased by more than the
supply growth for the first time in five years. Although industry analysts
expect industry-wide occupancy over the next few years to remain relatively
stable, they
8
still expect industry-wide revenues to expand given the anticipated demand
growth and strong average daily rate increases. According to Smith Travel
Research, the overall United States hotel room occupancy increased 0.3% in 2000,
while average daily rates increased 4.6%. For 2001, Smith Travel Research
expects industry-wide revenues to increase by 4.8%.
GROWTH STRATEGY
The Company's growth strategy is to increase cash flow (defined as net income
plus depreciation) and net income per share by: (i) developing, operating and
owning or leasing additional AmeriHost Inn hotels; (ii) selling AmeriHost Inn
hotels to Cendant franchisees; (iii) developing and managing hotels for
affiliated and unaffiliated parties; (iv) maintaining or enhancing occupancy and
average daily rate results at all of its hotels; and (v) controlling operating
and corporate overhead expenses. Cash flow (defined as net income plus
depreciation) is used by the Company as a supplemental performance measure along
with net income to report its operating results. Cash flow is defined as net
income, adjusted to eliminate the impact of depreciation and amortization.
The Company's primary growth strategy is to focus on the expansion of the
AmeriHost Inn brand. During 2000, the Company opened two wholly-owned AmeriHost
Inn hotels and three joint venture hotels, and had another two 100% owned
AmeriHost Inn hotels under construction at December 31, 2000. The Company may
seek to increase its ownership interest in additional existing AmeriHost Inn
hotels in which the Company has less than a 100% ownership interest, if
available on favorable economic terms.
Due to the expansion of the AmeriHost Inn brand over the past several years, and
the recognition the brand has received for the consistency of guest services and
amenities, the Company decided to begin selling franchises in 1999. After
limited success, the Company decided to sell the AmeriHost Inn name and
franchise rights to Cendant in September 2000. Although the Company had success
in selling its existing hotels to franchisees, it decided to form the
relationship with Cendant to help develop new franchisees on a much larger
scale, requiring resources which the Company did not have. As structured, the
Cendant transaction not only will help in expanding the brand for Cendant's
benefit, but it also is expected to significantly benefit the Company over the
long term. There are four basic deal points of the Cendant transaction:
(1) The Company continues to own all its existing hotels and operate them
under favorable franchise agreements with Cendant using the AmeriHost
Inn name.
(2) Cendant paid the Company an initial one-time fee of approximately $5.5
million, which was recorded in the third quarter of 2000. Additional
payments of $400,000 each are due on September 30 for the next three
years, as long as the Company maintains certain hotel lease agreements.
(3) For the next 15 years, Cendant will pay the Company a fee every time
the Company sells one of its existing AmeriHost Inn hotels to a buyer
who executes an AmeriHost Inn franchise agreement with Cendant. In
addition, this fee will also be paid to the Company for new hotels that
the Company develops which are then sold to a franchisee of Cendant.
This fee applies to the next 370 hotels sold by the Company during the
15-year term of the agreement.
(4) For the next 25 years, Cendant will pay the Company a portion of all
royalty fees they receive from all of their AmeriHost Inn franchisees.
While not expected to significantly impact the earnings of the Company
in the near term, this royalty sharing may be a major source of cash
flow and profits for the Company in the long term, if the Company and
Cendant are successful in growing the AmeriHost Inn brand.
Due to the significant benefits under the Cendant agreement, the Company's
growth strategy is also focused on selling AmeriHost Inn hotels to operators who
become Cendant franchisees. When a hotel is sold, the Company expects to realize
not only a gain on the sale, but also a development incentive fee and royalty
sharing payments pursuant to the Cendant agreement. Consequently, the building
and selling of a significant number of AmeriHost Inn hotels is expected to be
reflected in the Company's financial statements, in the normal course of
business, and consistent with the Company's growth strategy.
9
Additional potential benefits to the Company as a result of the transaction with
Cendant include referrals from a preferred manager and developer agreement,
whereby Cendant will refer the franchisees to the Company when expertise in
hotel development and management is needed. In addition, with a Fortune 500
company behind the AmeriHost Inn brand, operational advantages in name
recognition, purchasing leverage, and marketing opportunities may be
substantial.
The Company intends to continue using its hotel development and management
expertise to build and operate hotels for itself, as well as for future joint
ventures in which the Company holds a minority ownership interest and in some
instances, for Cendant franchisees. In addition, the Company is also pursuing
development contracts and management contracts with unaffiliated entities.
During 2000, the Company began construction on three AmeriHost Inn hotels, and
completed construction of five hotels, all 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. The Company either
hires a general contractor to construct the hotel for a fixed price, or acts as
the general contractor and enters into all sub-contracts directly. Since the
Company builds hotels pursuant to fixed contracts, in order to minimize its risk
associated with any cost overruns, the Company will also enter into fixed
contracts with the general contractor, if any, as well as any subcontractors,
prior to the commencement of construction. The Company's project superintendents
or managers oversee 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 for 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 or lease financing, with the equity
financing typically provided by the Company and/or its joint venture partners,
debt financing typically provided by local or regional banks, and leasing
arrangements with a REIT (PMC Commercial Trust). In 2001, the Company has also
secured a $20 million new construction facility with a lender who also holds the
mortgage on two existing hotels owned by the Company. All of the AmeriHost Inn
hotels under construction at December 31, 2000 are being financed through a
combination of debt and equity.
The Company intends to increase its cash flow (defined as net income plus
depreciation), and net income per share through the continued development and
sale of the AmeriHost Inn brand hotels and the continued implementation of its
operating and marketing strategies. The Company believes that it can develop,
operate and sell 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, through the Company as well as through Cendant, 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. The Company believes that leveraging its expertise in
hotel development and management by providing these services to unaffiliated
parties and Cendant franchisees will also assist the Company in reaching its
financial objectives.
10
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. Cendant has also adopted the standards and
procedures developed by the Company to be adhered to by all franchisees.
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 1,600 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.
In order to enhance this local marketing strategy, the Company became part of
the Global Distribution System ("GDS") in 1999. The GDS system is the airline
reservation system through which most travel agents make hotel bookings. GDS
offers tremendous exposure of the AmeriHost Inn brand to travel agents globally.
In addition, our guests are now able to book hotel reservations easily through
their preferred travel agent.
With respect to AmeriHost Inn hotels, the Company's primary marketing strategy
is to consistently develop and operate AmeriHost Inn hotels using its prototype
designs under the AmeriHost Inn diamond-shaped logo. The
11
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 designs 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.
Cendant also maintains a toll-free reservation number for the AmeriHost Inn
hotels. By dialing 800-434-5800, a guest can make a reservation at any one of
the AmeriHost Inn hotels throughout the country. In addition, the Company's
internet web site as well as the AmeriHost Inn web site are capable of accepting
reservations on-line, further improving our guests' ability to book rooms
easily. The Company anticipates that the reservation system will significantly
increase the number of reservations as the brand awareness increases. The
Company also periodically implements a regional marketing campaign using various
media including radio and newspaper. The markets and media selected for the
marketing activities are based on extensive research done by the Company and in
some cases, an advertising consultant. As part of its franchise agreements with
Cendant, the Company, as well as the other AmeriHost Inn franchisees, contribute
monthly to the AmeriHost Inn marketing fund. This fund is used by Cendant to
promote the brand on national and regional levels. Marketing fund contributions
are based on hotel revenues.
The Company targets independent hotel owners and developers to purchase the
Company's AmeriHost Inn hotels. The Company receives numerous inquiries and
offers for its existing hotels primarily through word-of-mouth and the Company's
web sites, including hotelsforsaleonline.com. The Company believes that the
consistency maintained by the AmeriHost Inn hotels with regard to amenities and
service will attract buyers, along with the brand's central reservation system
and marketing programs. With Cendant behind the brand, the interest in
purchasing the Company's AmeriHost Inn hotels is expected to remain significant.
JOINT VENTURES
The Company continued to develop new hotels through joint ventures in 2000
whereby the Company and other investors agree to jointly undertake the
development, construction, acquisition or renovation of a hotel property. As of
December 31, 2000, the Company had 18 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 or a limited liability
company, with a wholly-owned subsidiary of the Company as a general partner or
managing member with sole or joint management authority. The Company's
subsidiary, as general partner or managing member, has typically received an
ownership interest ranging from 1% to 30% for contributing the Company's
expertise. In certain cases, the subsidiary has also contributed a minimal
amount of cash. The limited partners or members (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 two 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 or managing member, the Company's subsidiary generally
has significant 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
12
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, 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
offer lesser 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 approximately 100 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 tertiary and secondary 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 staff 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, 2000, the Company had franchise agreements (collectively, the
"Franchise Agreements") with AmeriHost Inn Franchise Systems, Inc., Days Inn of
America, Inc., Howard Johnson's Franchise Systems, Inc., 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, except for the AmeriHost Inn hotels, 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. The
Company believes that it is 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.
13
EMPLOYEES
As of December 31, 2000, the Company and its subsidiaries had 1,661 full and
part-time employees:
Hotel Management:
Operations 33
Accounting and finance 15
Property general managers 86
Hotel Development: 10
Hotel Operations: 1,106
Corporate:
General and administrative 9
Officers 2
Employee Leasing:
General and administrative 3
Operations 397
-------
1,661
=======
To date, the Company has not experienced any work stoppages or significant
employee-related problems. The Company believes that its relationship with its
employees is good.
ITEM 2. PROPERTIES.
The Company's corporate offices and the offices of its wholly-owned subsidiaries
are located in approximately 19,000 square feet of space at 2355 South Arlington
Heights Road, Suite 400, Arlington Heights, Illinois 60005. These offices are
occupied under a lease that expires on December 19, 2011. The lease agreement
includes a purchase option, at a price approximating fair market value, for the
Company to acquire the office building.
At December 31, 2000, the Company had a 100% or majority ownership or leasehold
interest in 67 operating hotels located in 15 states. The land, building,
furniture, fixtures and equipment and construction in progress for these hotels
is reflected in the Company's Consolidated Balance Sheet at December 31, 2000.
These assets were substantially pledged to secure the related long-term mortgage
debt. See Item 1 and Notes 6 and 7 to the Consolidated Financial Statements
under Item 14.
In addition to the foregoing, the Company has an equity interest in partnerships
which own and/or lease property. See Note 4 to Consolidated Financial Statements
under Item 14.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of business.
In management's opinion, currently pending legal proceedings and claims against
the Company will not, individually or in the aggregate, have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
The Company currently has a receivable of approximately $275,000 held by a court
in connection with the construction of a hotel. The Company has received a
favorable court ruling with regard to this escrow, however the ruling is subject
to an appeal. The Company believes this escrow will be released to the Company
in full.
14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol HOST. As of March 14, 2001, there were 1,367 holders of record of the
Company's Common Stock. The following table shows the range of reported high and
low closing prices per share.
High($) Low($)
------- ------
FISCAL 1999
First quarter 3.81 3.00
Second quarter 4.25 3.00
Third quarter 4.13 3.00
Fourth quarter 3.94 2.69
FISCAL 2000
First quarter 3.75 2.88
Second quarter 3.94 3.00
Third quarter 3.94 3.00
Fourth quarter 4.13 2.31
FISCAL 2001
First quarter (through March 14, 2001) 3.75 2.75
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.
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.
15
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 certified public accountants, whose reports on such consolidated
financial statements for each of the three years in the period ended December
31, 2000 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."
(in thousands, except per share data)
(not covered by independent auditor's report)
Fiscal Year Ended December 31,
------------------------------------------------------
2000 1999 1998 1997 1996
-------- ------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Revenue $ 76,151 $76,058 $ 68,618 $ 62,666 $ 68,342
Operating costs and expenses 58,736 57,868 54,286 52,285 54,360
Depreciation and amortization expense 4,542 4,567 5,487 4,532 3,479
Leasehold rents - hotels 6,525 7,307 4,192 1,729 2,122
Corporate general and administrative 1,695 1,537 1,569 2,140 1,928
Operating income 4,653 4,780 3,084 1,980 6,453
Interest expense, net 4,819 5,155 5,592 3,299 2,142
Gain on sale of assets and franchising rights 6,663 553 305 1,698 907
Income (loss), before extraordinary item and
cumulative effect of change in accounting principle(1) $ 4,010 $ 201 $ (1,167) $ (966) $ 3,395
======== ======== ======== ======== ========
Net income (loss) $ 4,010 $ 201 $ (2,796) $ (966) $ 3,395
======== ======== ======== ======== ========
Income (loss) per share, before extraordinary item
and cumulative effect of change in accounting principle(1):
Basic $ 0.81 $ 0.04 $ (0.19) $ (0.15) $ 0.57
======== ======== ======= ======= ========
Diluted $ 0.74 $ 0.02 $ (0.20) $ (0.19) $ 0.49
======== ======== ======= ======= ========
Net income (loss) per share:
Basic $ .0.81 $ 0.04 $ (0.45) $ (0.15) $ 0.57
======== ======== ======= ======= ========
Diluted $ 0.74 $ 0.02 $ (0.45) $ (0.19) $ 0.49
======== ======== ======= ======= ========
Weighted average shares outstanding:
Basic 4,976 5,567 6,180 6,283 6,008
======== ======== ======== ======== ========
Diluted 5,272 5,857 6,513 6,659 6,839
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $ 98,143 $103,108 $115,281 $ 92,668 $ 66,901
Long-term debt, including current portion 58,604 60,349 71,841 60,235 34,339
Working capital (deficiency) (4,172) (6,817) (6,924) (2,208) (366)
Shareholders' equity 18,266 14,181 18,316 21,593 20,912
OTHER DATA:
Net income plus depreciation (2) $ 8,552 $ 4,768 $ 4,319 $ 3,566 $ 6,874
Cash provided by (used in) operating activities 1,143 (885) 5,408 1,858 7,558
Cash provided by (used in) investing activities 2,728 12,344 15,555 (28,463) (11,347)
Cash (used in) provided by financing activities (5,908) (12,187) (18,819) 25,926 5,447
Capital expenditures 10,434 2,103 42,183 29,343 14,049
16
(1) The Company recorded an extraordinary loss of $333,000 in 1998, net of
income taxes, relating to the early extinguishment of mortgage debt on
hotels sold in connection with a sale/leaseback transaction. The
Company recorded a cumulative effect of a change in accounting
principle of $1,296,000 in 1998, net of income taxes, relating to the
adoption of Statement of Position No. 98-5, "Reporting on the Costs of
Start-up Activities."
(2) "Net Income Plus Depreciation" is not defined by generally accepted
accounting principles ("GAAP"), 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. "Net Income Plus Depreciation" 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. "Net Income Plus
Depreciation" is defined as net income before extraordinary items and
cumulative effect of a change in accounting principle, adjusted to
eliminate the impact of depreciation and amortization.
17
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, and the
ownership, operation and management of AmeriHost Inn hotels and other mid-price
hotels. As of December 31, 2000, the Company had 72 AmeriHost Inn hotels open,
of which 59 were wholly-owned or leased, one was majority-owned, and 12 were
minority-owned. The Company intends to use the AmeriHost Inn brand when
expanding its hotel operations segment. As of December 31, 2000, two
wholly-owned AmeriHost Inn hotels were under construction. Same room revenues
for all AmeriHost Inn hotels (including minority owned and franchised) increased
approximately 5.9% during 2000, compared to 1999, attributable to an increase of
$0.31 in average daily rate, and a 5.2% increase in occupancy. These results
relate to the 77 AmeriHost Inn hotels that were operating for at least twelve
full months during the year ended December 31, 2000.
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.
Development and construction revenues consist of 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 Company recorded a net income of $4.0 million for 2000, or $0.74 per diluted
share, compared to a net income of $200,591, or $0.02 per diluted share for
1999. Total revenues increased 0.1% to $76.2 million during 2000, from $76.1
million during 1999. Revenues from Consolidated AmeriHost Inn hotels during 2000
were relatively flat, as revenues from new hotels and the increase in same room
revenues, were offset by the sale of hotels. Combined revenues from the hotel
management and employee leasing segments decreased slightly during 2000 compared
to 1999, due primarily to the sale of hotels under management contracts.
Revenues from Consolidated non-AmeriHost Inn hotels decreased 3.7% during 2000,
compared to 1999, as a result of the sale of three non-AmeriHost Inn hotels
offset by the renovation of one Consolidated non-AmeriHost Inn hotel and the
increased occupancy therefrom. Revenues from the hotel development segment
increased 8.6% during 2000, compared to 1999, due to the timing of three
construction projects which opened in 2000, offset by the sale of two AmeriHost
Inn hotels in the third quarter of 1999 which were included in the hotel
development segment.
After developing and operating the AmeriHost Inn brand name for approximately 10
years, the Company decided to begin franchising this brand in 1999. On September
30, 2000, after limited success in the franchising segment, the Company sold the
AmeriHost Inn and AmeriHost Inn & Suites brand names and franchising rights to
Cendant Corporation. Cendant is the world's largest franchising company with
hotel brand names such as Days Inn, Super 8 and Wingate. The Company received
$5.5 million upon closing and recorded a gain from this payment, net of closing
costs of approximately $5.2 million. The agreement with Cendant also provides
for additional incentives to the Company as the AmeriHost Inn brands are
expanded. In conjunction with this transaction, the Company has begun doing
business as Arlington Hospitality, Inc. and intends to legally adopt this name
pending shareholder approval at its next regularly scheduled shareholder
meeting.
The Company uses cash flow, defined as net income plus depreciation and
amortization, as a supplemental performance measure, along with net income, to
report its operating results. Net income plus depreciation is not defined by
Generally Accepted Accounting Principles ("GAAP"), 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. Cash flow, as defined, should not be considered as an alternative
to operating income (as determined in accordance 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. Cash flow, as
defined, increased 79.4% to $8.6 million during 2000, from $4.8 million during
1999.
The Company owned, operated, or managed 83 hotels at December 31, 2000, with an
ownership interest in 81 of these hotels. The Company owned, operated, or
managed 87 hotels as of December 31, 1999, with an ownership
18
interest in 84 of these hotels (excluding hotels under construction). The
decreased ownership of AmeriHost Inn hotels for the Company's own account and
for minority-owned entities was due to the sale of AmeriHost Inn hotels and
non-AmeriHost Inn hotels to unrelated third parties. These figures include a net
decrease of three Consolidated hotels, from 69 at December 31, 1999 to 66 at
December 31, 2000.
RESULTS OF OPERATIONS
The following table sets forth the percentages of revenues of the Company
represented by components of net income for 2000, 1999 and 1998.
Percentage of Total Revenue
Year Ended December 31, (unaudited)
------------------------------------------------
2000 1999 1998
-------- -------- --------
Revenue 100.0% 100.0% 100.0%
Operating costs and expenses 77.1 76.1 79.1
----- ----- -------
22.9 23.9 20.9
Depreciation and amortization 6.0 6.0 8.0
Leasehold rents - hotels 8.6 9.6 6.1
Corporate general and administrative 2.2 2.0 2.3
----- ----- -------
Operating income 6.1 6.3 4.5
Interest expense (7.4) (7.9) (8.9)
Interest and other income 1.5 1.9 1.1
Equity in income and losses of affiliates (0.1) (0.2) (0.4)
Gain on sale of assets 8.8 0.7 0.5
----- ----- -------
Income (loss) before minority interests and
income taxes 8.9 0.8 (3.2)
Minority interests in operations of consolidated
subsidiaries and partnerships (0.1) (0.3) 0.4
----- ----- -------
Income (loss) before income taxes 8.8 0.5 (2.8)
Income tax (expense) benefit (3.5) (0.2) 1.1
----- ----- -------
Income (loss) before extraordinary item and
cumulative effect of change in accounting principle 5.3% 0.3 % (1.7)%
====== ======== =========
2000 compared to 1999
Revenues increased 0.1% to $76.2 million during 2000, from $76.1 million during
1999. The increases in the hotel development and AmeriHost Inn franchising
segments were offset by decreases in the hotel operations segment.
Hotel operations revenue decreased 1.2% to $61.4 million during 2000, from $62.1
million during 1999. Revenues from Consolidated AmeriHost Inn hotels decreased
0.6% to $49.2 million during 2000, from $49.5 million during 1999. This decrease
was attributable primarily to the addition of seven Consolidated AmeriHost Inn
hotels which opened during 1999 and 2000, and an increase in same room revenues,
offset by the sale of seven Consolidated AmeriHost Inn hotels in 1999 and 2000.
Revenues from Consolidated non-AmeriHost Inn hotels decreased 3.7% during 2000,
compared to 1999. This decrease was primarily the result of the sale of three
19
Consolidated non-AmeriHost Inn hotels during 1999 and 2000. The hotel operations
segment included the operations of 66 Consolidated hotels (including 60
AmeriHost Inn hotels) comprising 4,630 rooms at December 31, 2000, compared to
69 Consolidated hotels (including 62 AmeriHost Inn hotels) comprising 4,867
rooms at December 31, 1999. After considering the Company's ownership interest
in the majority-owned Consolidated hotels, this translates to 4,391 and 4,624
equivalent owned rooms as of December 31, 2000 and 1999, respectively, or a
decrease of 5.0%. 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 and average daily rates. 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 activity is summarized as follows:
2000 1999 1998
-------------------------------------------------------------------------------------
Unaffiliated & Unaffiliated & Unaffiliated &
Minority- Consolidated Minority- Consolidated Minority- Consolidated
Owned (1) Hotels (2) Owned (1) Hotels (2) Owned (1) Hotels (2)
--------- ---------- --------- ---------- --------- ----------
Under construction at
beginning of year 4 - 1 5 4 4
Starts - 3 4 - 2 7
Completions 4 1 1 5 5 6
Under construction at
------ ------- ------ ------ ------ -------
end of year - 2 4 - 1 5
====== ====== ==== ====== ===== =====
(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
majority ownership interest
Hotel development revenue increased 8.6% to $7.0 million during 2000, from $6.4
million during 1999. The Company was constructing three hotels for
minority-owned entities during 2000, all of which began construction in 1999 and
opened during 2000. The majority of the revenues for these projects was
recognized in 2000, however the Company also sold two AmeriHost Inn hotels in
1999 and recognized related development segment revenues and expenses. The
Company also had several additional projects in various stages of
pre-construction development during these periods.
Hotel management revenue remained consistent at $1.3 million during both 2000
and 1999. The number of hotels managed for third parties and minority-owned
entities decreased from 18 hotels, representing 1,696 rooms, at December 31,
1999 to 17 hotels, representing 1,378 rooms, at December 31, 2000. The
fluctuation in revenue is primarily due to a 18.8% reduction in rooms under
contract offset by increases in same room revenues of those hotels.
Employee leasing revenue remained flat, at $6.0 million during both 2000 and
1999, due primarily to the reduction in hotels managed for minority-owned
entities and unrelated third parties as described above offset by increases in
payroll costs which is the basis for the employee leasing revenue.
Other revenue, consisting primarily of franchising revenue increased to $586,276
during 2000, from $222,187 during 1999. On September 30, 2000, the Company sold
the AmeriHost Inn franchising rights to Cendant Corporation. As a result, the
Company will no longer report franchising revenue.
Total operating costs and expenses increased 1.5% to $58.7 million (77.1% of
total revenues) during 2000, from $57.9 million (76.1% of total revenues) during
1999 primarily due to increases in operating costs and expenses from the
development segment as described below. Operating costs and expenses in the
hotel operations segment remained essentially flat as anticipated inflationary
increases were offset by the reduction in the number of
20
Consolidated hotels. Hotel operations segment operating costs and expenses as a
percentage of segment revenue remained consistent at 72.8% during 2000, from
72.7% during 1999, due primarily to inflationary increases and start up costs
associated with new hotels, offset by increased operational efficiencies.
Operating costs and expenses as a percentage of revenues for the Consolidated
AmeriHost Inn hotels changed only slightly during 2000, compared to 1999.
Operating costs and expenses for the hotel development segment increased 27.9%
to $6.9 million during 2000, from $5.4 million during 1999, consistent with the
8.6% increase in hotel development revenues for 2000. Operating costs and
expenses in the hotel development segment as a percentage of segment revenue
increased to 98.8% during 2000, from 83.9% during 1999. The third quarter of
1999 consisted primarily of the sale of two AmeriHost Inn hotels. The results
for 2000 consisted of a greater amount of construction activity, which resulted
in higher operating costs in relation to the revenue recognized.
Hotel management segment operating costs and expenses decreased 0.3% to $806,959
during 2000, from $809,061 during 1999. This decrease was primarily due to the
decrease in the number of hotels operated and managed for unrelated third
parties and minority-owned entities offset by increases in same room revenue.
Employee leasing operating costs and expenses increased 2.1% to $5.9 million
during 2000, from $5.7 million during 1999, which is the result of increased
payroll costs during 2000 compared to 1999.
Other operating costs and expenses, consisting primarily of franchising activity
operating costs and expenses decreased 37.8% to $489,064 during 2000, from
$786,658 during 1999. On September 30, 2000, the Company sold the AmeriHost Inn
brand names and franchising rights to Cendant Corporation. As a result, the
Company will no longer report franchising operating costs.
Depreciation and amortization expense decreased 0.5% to $4.5 million during
2000, from $4.6 million during 1999. This decrease was primarily attributable to
the sale of ten Consolidated hotels that closed in 1999 and 2000, partially
offset by the addition of eight Consolidated hotels to the hotel operations
segment opened during 1999 and 2000, and the resulting depreciation and
amortization therefrom.
Leasehold rents - hotels decreased 10.7% to $6.5 million during 2000, compared
to $7.3 million during 1999. The decrease was primarily attributable to the
termination of two leased hotels as a result of the lessor selling these hotels
during 1999 and 2000.
Corporate general and administrative expense increased 10.3% to $1.7 million
during 2000, from $1.5 million during 1999, and can be attributed primarily to
the overall growth of the Company and the allocation of certain general and
administrative expenses.
The Company's operating income decreased 2.6% to $4.7 million during 2000, from
$4.8 million during 1999. The following discussion of operating income by
segment is exclusive of any corporate general and administrative expense.
Operating income from Consolidated AmeriHost Inn hotels increased 10.3% to $5.7
million during 2000, from $5.2 million during 1999. These increases in operating
income were due to the increase in same room revenues as a significant number of
recently opened Consolidated AmeriHost Inn hotels were still operating in 1999
during their pre-stabilization period when revenues are typically lower, offset
by the sale of Consolidated AmeriHost Inn hotels during the past 12 months.
Operating income from the hotel development segment decreased to $62,872 during
2000, from $1.0 million during 1999. The decrease in hotel development operating
income was due to the sale of two AmeriHost Inn hotels open less than 12 months
during the third quarter 1999, offset by the greater number of hotels developed
and constructed for third parties and minority-owned entities during 2000,
compared with 1999. The hotel management segment had operating income of
$399,771 during 2000, from operating income of $448,710 during 1999. This
decrease was due primarily to a reduction in general and administrative costs
for the management segment, offset by fewer hotels managed during the past
twelve months for unrelated third parties and minority-owned properties.
Employee leasing operating income decreased to $108,812 during 2000, from
$242,309 during 1999, due primarily to the decrease in employee leasing
agreements with minority-owned entities and unrelated third parties.
21
Interest expense decreased 7.1% to $5.6 million during 2000, from $6.0 million
during 1999. This decrease was primarily attributable to the aforementioned
sales of hotels whereby the Company does not incur any interest expense on the
sold hotels after the sale dates, partially offset by the mortgage financing of
newly constructed Consolidated hotels.
The Company's share of equity in income (loss) of affiliates was ($101,872)
during 2000, compared to ($160,837) during 1999. The fluctuation in equity of
affiliates during 2000 was primarily attributable to the sale of minority-owned
properties in 1999 and 2000 at various gains. Distributions from affiliates were
$473,808 during 2000, compared to $278,096 during 1999.
The Company recorded gains on the sale of assets of $6.7 million in 2000,
compared to $553,298 in 1999. The increase in gain on sale was due to the sale
of the AmeriHost Inn name and franchising rights in 2000 for approximately $5.2
million. In addition, four consolidated hotels were sold in 2000, compared to
three consolidated hotels in 1999, where the Company recorded gains on the
sales. The Company expects to continue realizing gains from the sale of hotels
in 2001.
The Company recorded income tax expenses of $2.7 million in 2000, compared to
$160,000 in 1999, which are directly related to the pre-tax income incurred in
2000 and 1999, respectively
The Company reported net income of $4.0 million in 2000, compared to net income
of $200,591 in 1999, primarily due to the factors discussed above.
1999 compared to 1998
Revenues increased 10.8% to $76.1 million during 1999, from $68.6 million during
1998. The increase in revenue from the Consolidated AmeriHost Inn hotels was
partially offset by the decreases from the hotel management and employee leasing
segments, a decrease from the hotel development and construction segment, as
well as the decrease from non-AmeriHost Inn hotel operations.
Hotel operations revenue increased 31.2% to $62.1 million during 1999, from
$47.3 million during 1998. Revenues from Consolidated AmeriHost Inn hotels
increased 49.6% to $49.5 million during 1999, from $33.1 million during 1998.
These increases were attributable primarily to the net addition of 19
Consolidated AmeriHost Inn hotels from July 1, 1998 through December 31, 1999,
including the addition of seven newly constructed Consolidated AmeriHost Inn
hotels, and the acquisition of additional ownership interest in 16 existing
hotels causing them to become Consolidated AmeriHost Inn hotels, as well as an
increase in same room revenues, offset by the sale of four Consolidated
AmeriHost Inn hotels. The increase in Consolidated AmeriHost Inn hotel revenue
was offset by an 11.6% decrease in Consolidated other brand hotel revenue during
1999, compared to 1998. This decrease was primarily the result of the sale of
two non-AmeriHost Inn Consolidated hotels, partially offset by the acquisition
of one non-AmeriHost Inn Consolidated hotel. The hotel operations segment
included the operations of 69 Consolidated hotels (including 62 AmeriHost Inn
hotels) comprising 4,867 rooms at December 31, 1999, compared to 69 Consolidated
hotels (including 61 AmeriHost Inn hotels) comprising 4,916 rooms at December
31, 1998. After considering the Company's ownership interest in the
majority-owned Consolidated hotels, this translates to 4,624 and 4,647
equivalent owned rooms as of December 31, 1999 and 1998, respectively, or a
decrease of 0.5%. 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 and average
daily rates. 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 28.3% to $6.4 million during 1999, from $9.0
million during 1998. The Company was developing and constructing five hotels for
minority-owned entities during 1999, compared to six hotels during 1998. In
conjunction with the Company's objective of building a franchise segment, the
Company decided to develop AmeriHost Inn hotels to be held for sale to potential
franchisees. The Company sold two
22
AmeriHost Inn hotels for $5.3 million in the third quarter of 1999 to
franchisees, which was recognized as development revenue. The Company had
several additional projects in various stages of pre-construction development
during both years.
Hotel management revenue decreased 41.6% to $1.3 million during 1999, from $2.3
million during 1998. The number of hotels managed for third parties and
minority-owned entities decreased from 22 hotels, representing 1,930 rooms, at
December 31, 1998 to 18 hotels, representing 1,696 rooms, at December 31, 1999.
The addition of a management contract for one newly constructed hotel (72 rooms)
was more than offset by the termination of one management contract (60 rooms)
with a minority-owned entity as a result of the sale of the hotel (non-AmeriHost
Inn hotel), the termination of one management contract (64 rooms) with a
minority-owned hotel which became a Consolidated hotel due to the Company
acquiring additional ownership interest, and the termination of three management
contracts with unrelated third parties (182 rooms).
Employee leasing revenue decreased 40.5% to $6.0 million during 1999, from $10.1
million during 1998, due primarily to the reduction in hotels managed for
minority-owned entities and unrelated third parties as described above, and the
associated decrease in payroll costs which is the basis for the employee leasing
revenue.
Franchising realized revenues of $222,187 during its initial year of operation,
consisting primarily of initial franchise fees from newly franchised hotels and
the royalty fees from these franchised hotels which are based on the hotel's
operational revenue. As of December 31, 1999, the Company has three franchise
agreements with independent third parties, and has executed additional franchise
agreements with certain existing AmeriHost Inn hotel joint ventures.
Total operating costs and expenses increased 6.6% to $57.9 million (76.1% of
total revenues) during 1999, from $54.3 million (79.1% of total revenues) during
1998. Operating costs and expenses in the hotel operations segment increased
29.8% to $45.1 million during 1999, from $34.8 million during 1998. These
increases resulted primarily from the net addition of 18 Consolidated hotels to
this segment during the last eighteen months, and are directly related to the
31.2% increase in Consolidated hotel revenues during 1999. Hotel operations
segment operating costs and expenses as a percentage of segment revenue
decreased to 72.7% during 1999, from 73.5% during 1998. Operating costs and
expenses as a percentage of revenues for the Consolidated hotels decreased
slightly during 1999 due to fewer AmeriHost Inn hotels operating during their
pre-stabilization period in 1999 compared to 1998.
Operating costs and expenses for the hotel development segment decreased 36.2%
to $5.4 million during 1999, from $8.5 million during 1998, consistent with the
28.3% decrease in hotel development revenue for 1999. Operating costs and
expenses in the hotel development segment as a percentage of segment revenue
decreased to 83.9% during 1999, from 94.4% during 1998. In connection with the
Company's objective of developing AmeriHost Inn hotels held for sale to
potential franchisees, the Company recognized development costs of $4.3 million
in 1999, which resulted in a lower percentage of operating costs compared to
construction activity. The results for 1998 consisted of a greater amount of
construction activity, which resulted in higher operating costs in relation to
the revenue recognized.
Hotel management segment operating costs and expenses decreased 38.1% to
$809,061 during 1999, from $1.3 million during 1998. This decrease was due to
the decrease in the number of hotels operated and managed for unrelated third
parties and minority-owned entities. Employee leasing operating costs and
expenses decreased 41.0% to $5.7 million during 1999, from $9.7 million during
1998, which is consistent with the 40.5% decrease in segment revenue for 1999,
compared to 1998. Franchising had operating costs and expenses of $786,658
during 1999, which is its initial year of operations.
Depreciation and amortization expense decreased 16.8% to $4.6 million during
1999, from $5.5 million during 1998. The decrease was primarily attributable to
the sale and leaseback of 30 hotels, 26 of which closed on June 30, 1998 and
four of which closed in March 1999, and the sale of six additional hotels that
closed in 1999, partially offset by the addition of 24 Consolidated hotels to
the hotel operations segment during the past eighteen
23
months and the resulting depreciation and amortization therefrom. The Company
does not recognize any depreciation on the assets sold in the sale/leaseback
transaction.
Leasehold rents - hotels increased 74.3% to $7.3 million during 1999, compared
to $4.2 million during 1998. The increase is attributable to the sale and
leaseback transaction with PMC.
Corporate general and administrative expense decreased 2.0% to $1.5 million
during 1999, from $1.6 million during 1998, and can be attributed primarily to
efficiencies gained in the overall administration of the Company.
The Company's operating income increased 55.0% to $4.8 million during 1999 from
$3.1 million during 1998. The following discussion of operating income by
segment is exclusive of any corporate general and administrative expense.
Operating income from Consolidated AmeriHost Inn hotels increased 8.6% to $5.2
million during 1999, from $4.8 million during 1998. This increase in operating
income was due to the increased number of Consolidated AmeriHost Inn hotels and
the increase in same room revenues as a significant number of recently opened
Consolidated AmeriHost Inn hotels in 1998 were still operating during their
pre-stabilization period when revenues are typically lower. Operating income
from the hotel development segment increased 136.8% to $1.0 million during 1999
from $426,427 during 1998. The increase in hotel development operating income
was due to the timing of hotels developed and constructed for third parties and
minority-owned entities during 1998, compared with 1999, the overall decrease in
the number of hotels developed and constructed for third parties and
minority-owned entities during 1999, and the sale of two AmeriHost Inn hotels
held for sale during the third quarter of 1999 which were included in operating
income. The hotel management segment operating income decreased 17.5% to
$448,710 during 1999, from $543,747 during 1998. This decrease was due primarily
to fewer hotels managed during the past twelve months for unrelated third
parties and minority-owned properties, and the expensing of start-up costs as
incurred during 1999. Employee leasing operating income decreased 23.7% to
$242,309 during 1999, from $317,668 during 1998, due to the decrease in employee
leasing agreements with minority-owned entities and unrelated third parties.
Interest expense decreased 1.3% to $6.0 million during 1999, from $6.1 million
during 1998. This decrease was primarily attributable to the sale and leaseback
transaction with PMC, whereby the Company does not incur any interest expense on
the sold hotels after the sale dates, offset by the additional mortgage
financing of newly constructed and acquired Consolidated hotels.
The Company's share of equity in income (loss) of affiliates was ($160,837)
during 1999, compared to ($240,868) during 1998. The fluctuation in equity of
affiliates was primarily attributable to additional newly opened AmeriHost Inn
hotels operating during their initial stabilization period in 1999 when revenues
are typically lower, offset by the sale of one minority-owned property in the
second quarter of 1999 at a gain. Distributions from affiliates were $278,096
during 1999, compared to $831,113 during 1998.
The Company recorded income tax expense of $160,000 in 1999 compared to an
income tax benefit, before an extraordinary item and cumulative effect of a
change in accounting principal of $780,000 in 1998, which is directly related to
the pre-tax income (loss) incurred in 1999 and 1998, respectively.
The Company had net income of $200,591 in 1999 compared to a loss before
cumulative effect of change in accounting principle of $(1.2) million in 1998,
primarily due to the factors discussed above.
24
LIQUIDITY AND CAPITAL RESOURCES
The Company has five main sources of cash from operating activities: (i)
revenues from hotel operations; (ii) fees from development, construction and
renovation projects including the sale of hotel assets; (iii) fees from
management contracts; (iv) fees from employee leasing services; and (v)
incentive fees and royalty sharing pursuant to the Cendant transaction. 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 prior to the pay date.
During 2000, the Company received cash from operations of $1.2 million, compared
to cash used in operations of $885,080 during 1999, or an increase in cash
provided by operations of $2.1 million. The increase in cash flow from
operations during 2000, when compared to 1999, can be attributed to the
decreased amount of newly constructed Company-owned hotels in 2000. In addition,
1999 operations included the sale of two hotels in the development segment which
were open for less than twelve months.
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 2000, the Company received $2.7 million
from investing activities compared to receiving $12.3 million during 1999.
During 2000, the Company received $13.1 million from the sale of four hotels and
the AmeriHost brand names and franchising rights as previously described, used
$10.4 million to purchase property and equipment for Consolidated AmeriHost Inn
hotels, and received $2.7 million from distributions and collections from
affiliates, offset by $2.7 million for the purchase of investments in and
advances to affiliates. During 1999, the Company received $16.7 million from the
sale of hotels, used $2.1 million to purchase property and equipment for
Consolidated AmeriHost Inn hotels, used $2.1 million for investments in and
advances to affiliates, net of distributions and collections, and used $260,648
for the acquisition of hotel partnership interests, net of cash acquired. In
addition, the Company finalized the terms of an agreement to purchase the
remaining ownership interests from its partners in three existing joint ventures
for a total of $2.4 million. One of these acquisitions was consummated in
January 2001, while the remaining two acquisitions are to be completed prior to
December 31, 2001. The Company expects to fund these acquisitions, as well as
hotel purchases pursuant to the January 2001 amendment to the master lease
agreement with a REIT, with cash flow from operations, proceeds from the sale of
hotels, and new or assumed mortgage financing.
Cash used in financing activities was $6.0 million during 2000 compared to cash
used by financing activities of $12.2 million during 1999. In 2000, the primary
factors were principal repayments of $6.4 million, including the repayment of
mortgages in connection with the sale of hotels, offset by $4.7 million in
proceeds from the mortgage financing of Consolidated hotels, and net repayments
of $4.2 on the Company's operating line-of-credit. In 1999, the contributing
factors were principal repayments of $13.1 million on the mortgage financing of
Consolidated hotels, net of proceeds from the issuance of long-term debt, $5.6
million in net proceeds from the Company's operating line-of-credit and common
stock repurchases of $4.3 million.
The Company maintains an $8.5 million bank operating line-of-credit, of which
$3.4 million was outstanding at December 31, 2000. The operating line-of-credit
is collateralized by a security interest in certain of the Company's assets,
including its interest in various joint ventures, bears interest at an annual
rate equal to the bank's base lending rate (9.5% at December 31, 2000) plus
1/2%, with a minimum interest rate of 7.5%, and matures August 15, 2001. The
line-of-credit note contains financial covenants, requiring a minimum net worth,
a maximum debt to net worth ratio, and a minimum debt service coverage ratio.
The Company intends to repay the entire outstanding balance in 2001 with cash
flow from operations, proceeds from the sale of hotels, and incentive payments
received in connection with the Cendant agreement.
25
The Company expects cash from operations to be sufficient to pay all operating
and interest expenses in 2001.
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
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 has been amended by SFAS No. 137,
which delayed the effective date to periods beginning after June 15, 2000. The
Company, to date, has not engaged in derivative and hedging activities.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use, including the requirement to capitalize and amortize specific
costs. The adoption of this standard by the Company did not have a material
effect on its capitalization policy.
During 1998, the Company adopted Statement of Position (SOP) No. 98-5,
"Reporting on the Costs of Start-Up Activities," which requires start-up,
preopening and organization costs to be expensed as incurred. As a result of the
adoption of SOP 98-5, all previously capitalized costs, net of an income tax
benefit, were written off as a cumulative effect of a change in accounting
principle.
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.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt obligations. The Company has some cash
flow exposure on its long-term debt obligations to changes in market interest
rates. The Company primarily enters into long-term debt obligations in
connection with the development and financing of hotels. The Company maintains a
mix of fixed and floating debt to mitigate its exposure to interest rate
fluctuations.
The Company's management believes that fluctuations in interest rates in the
near term would not materially affect the Company's consolidated operating
results, financial position or cash flows as the Company has limited risks
related to interest rate fluctuations.
The table below provides information about financial instruments that are
sensitive to changes in interest rates, for each interest rate sensitive asset
or liability as of December 31, 2000. The carrying amounts reflected approximate
the estimated fair values. As the table incorporates only those exposures that
existed as of December 31, 2000, it does not consider those exposures or
positions which could arise after that date. Moreover, the information presented
therein is merely an estimate and has limited predictive value. As a result, the
ultimate realized gain or loss with respect to interest rate fluctuations will
depend on the exposures that arise during future periods, hedging strategies and
prevailing interest rates at the time.
Average Nominal
Carrying Value Interest Rate
-------------- ---------------
Operating line of credit - variable rate $ 3,408,133 10.00%
Mortgage debt - fixed rate $ 31,101,173 8.11%
Mortgage debt - variable rate $ 27,502,517 9.41%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements filed as part of this Form 10-K are
included under "Exhibits, Financial Statements and Reports on Form 8-K" under
Item 14. Selected quarterly financial data is presented in Note 17 to the
consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 5, 2000, the Company selected KPMG LLP ("KPMG") to serve as its
independent public accountants for fiscal 2000 and, accordingly, dismissed BDO
Seidman LLP ("BDO"). The decision to engage KPMG and dismiss BDO was approved by
the Audit Committee and the Board of Directors of the Company.
BDO's reports on the Company's consolidated financial statements for the two
most recent fiscal years did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles. During the two most recent fiscal years and through
October 5, 2000, there was no disagreement with BDO regarding any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
BDO, would have caused BDO to make reference thereto in their reports.
The Company had requested that BDO furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter, dated October 10, 2000, is filed as
Exhibit 16 to a Report on Form 8-K dated October 10, 2000.
There have been no disagreements with KPMG on accounting and financial
disclosure matters which are required to be described by Item 304 of Regulation
S-K.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's executive officers and directors are:
Name Age Position
---- --- --------
Michael P. Holtz 44 Chairman of the Board of Directors,
President and Chief Executive Officer
James B. Dale 37 Senior Vice President of Finance,
Secretary, Treasurer and Chief
Financial Officer
Russell J. Cerqua 44 Director
Reno J. Bernardo 69 Director
Salomon J. Dayan 55 Director
Jon K. Haahr 47 Director
Thomas J. Romano 48 Director
Michael P. Holtz has been a Director of the Company since August 1985. From 1985
to 1989, Mr. Holtz served as the Company's Treasurer and Secretary. In 1986, Mr.
Holtz was promoted to Chief Operating Officer of the Company with direct
responsibility for the Company's day-to-day operations. In 1989, Mr. Holtz was
elected President and Chief Executive Officer of the Company. In 1999, in
addition to his other responsibilities, Mr. Holtz was elected Chairman of the
Board of Directors. Mr. Holtz is responsible for development and implementation
of all Company operations including hotel development, finance and management.
Mr. Holtz has over 21 years experience in the operation, development and
management of hotel properties.
James B. Dale was promoted to Chief Financial Officer in 1998, in addition to
his responsibilities as Senior Vice President of Finance. Mr. Dale began his
employment with the Company in May 1994 as the Company's first Corporate
Controller. He has been responsible for overseeing all aspects of the Company's
property and corporate accounting departments, including preparation of all SEC
filings. In 1999, Mr. Dale was elected Secretary by the Board of Directors.
Prior to joining the Company, Mr. Dale was an Audit Manager with an
international public accounting firm, with nearly nine years of experience in
auditing, financial reporting and taxation. Mr. Dale is a Certified Public
Accountant and is a member of the American Institute of Certified Public
Accountants and the Illinois CPA Society.
Russell J. Cerqua served as the Executive Vice President of Finance, Chief
Financial Officer, Treasurer and Secretary of the Company from 1987 through
1998, where his primary responsibilities included internal and external
financial reporting, corporate financing, development of financial management
systems, and financial analysis. Mr. Cerqua continues to serve as a Director of
the Company. Mr. Cerqua is currently the Chief Financial Officer of Metro
Technologies, L.L.C., a computer consulting and web development company. Prior
to joining the Company, Mr. Cerqua was an audit manager with Laventhol &
Horwath, the Company's former independent certified public accountants. Mr.
Cerqua was involved in public accounting for over 9 years, with experience in
auditing, financial reporting and taxation. Mr. Cerqua is a Certified Public
Accountant.
Reno J. Bernardo served as the Senior Vice President of Construction of the
Company from 1987 through March 1994, when he retired. His primary
responsibilities included managing construction of new properties and directing
renovation projects. In 1989, Mr. Bernardo became a Director of the Company and
continues to serve in this capacity. From 1985 to 1986, Mr. Bernardo was Vice
President of Construction with Devcon Corporation, a hotel
28
construction company. From 1982 to 1985, Mr. Bernardo was Project Superintendent
with J.R. Trueman and Associates, a hotel construction company, and a subsidiary
of Red Roof Inns, where his responsibilities included supervision of the
development and construction of several Red Roof Inns.
Salomon J. Dayan, M.D. has been a director of the Company since August 1996.
Since 1980, Dr. Dayan, a physician certified in internal and geriatric medicine,
has been the Chief Executive Officer of Salomon J. Dayan Ltd., a multi-specialty
medical group which he founded and which is dedicated to the care of the elderly
in hospital and nursing home settings. Since 1986, Dr. Dayan has been the
Medical Director and Executive Director of Healthfirst, a corporation which
operates multiple medical ambulatory facilities in the Chicago, Illinois area,
and since 1994 he has also been an assistant professor at Rush Medical Center in
Chicago. Dr. Dayan is currently the Chairman of the Board of Directors of J. D.
Financial, a bank holding company owning Pan American Bank. Dr. Dayan also has
numerous investments in residential and commercial real estate.
Jon K. Haahr's background includes 14 years as an investment banker and more
than 20 years of capital markets experience. Most recently he was Co-head and
Managing Director of Real Estate Investment Banking of First Union Securities.
Prior to that, he was founder, Head and Managing Director of the same industry
group for EVEREN Securities. Mr. Haahr joined the Investment Banking Department
of Kemper Securities (EVEREN'S predecessor firm) in 1987 and, prior to
establishing the Real Estate Group, provided banking expertise to corporate
finance clients in the financial services sector and in the area of closed-end
funds. His experience also includes six years at Continental Bank in Chicago
where he was an officer of the bank providing corporate lending and capital
markets services to middle market companies. Mr. Haahr is a member of the Board
of Directors of the Center for Urban Land Economics Research at the University
of Wisconsin Real Estate School, and speaks regularly at a variety of real
estate industry events.
Thomas J. Romano has been a director of the Company since September 1999. Mr.
Romano is currently an Executive Vice President and Chief Credit Officer for the
Bridgeview Bank Group. Mr. Romano is a member of the Executive Management
Committee and is responsible for all lending activities for a significant loan
portfolio. His experience includes nineteen years with First of America Bank
where his responsibilities included the management of commercial lending
functions and numerous branch locations. Mr. Romano is currently a member of the
Lake County Muscular Dystrophy Association and a member of Robert Morris
Associates.
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, 2000, 1999 and 1998, of those persons who were, at
December 31, 2000: The chief executive officer and the other executive officer
of the Company (the "Named Officers"). See "Compensation of Directors" under
Item 11.
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)
- ------------------------ ------ -------- ---------- ----------- -------------- ---------------
Michael P. Holtz 2000 325,000 36,500 - 100,000 17,500
Chairman of the Board, President 1999 325,000 20,000 - - 17,500
and Chief Executive Officer 1998 325,000 20,000 - 256,000 12,633
James B. Dale 2000 125,000 5,000 - 21,000 1,300
Senior Vice President Finance, 1999 120,000 5,500 - 20,500 1,251
Secretary, Treasurer, and 1998 98,462 - - - 1,031
Chief Financial Officer
(1) All options were fully vested as of December 31, 2000, except for 50,000
options held by Mr. Holtz and 20,000 options held by Mr. Dale.
29
(2) Represents life insurance premiums paid by the Company on behalf of the
Named Officers and the Company's 401(k) matching contributions of $2,500,
$2,500 and $2,633 for Mr. Holtz, and $1,300, $1,251 and $1,031 for Mr.
Dale, for 2000, 1999 and 1998, respectively.
STOCK OPTIONS
The following table summarizes the number and terms of stock options granted to
each of the Named Officers during the year ended December 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------- ------------------------------
% of Total
Options
Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------- ---------------- --------------- ------------ ------------ ---------- -----------
Michael P. Holtz 100,000 45.3% $3.25 Mar. 2010 165,850 430,280
James B. Dale 21,000 9.5% $3.188 June 2010 36,979 94,240
The following table provides information concerning the exercise of stock
options during 2000, and the year-end value of unexercised options for each of
the Named Officers and Directors of the Company.
OPTION EXERCISES AND YEAR-END VALUE TABLE
Number of Unexercised Value of Unexercised
Options Held at in-the-Money Options at
Shares December 31, 2000 December 31, 2000 (1)
Acquired Value --------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- -------- ----------- ------------- ----------- -------------
Michael P. Holtz - - 776,100 50,000 $ 79,688 $ -
James B. Dale - - 42,000 20,000 - -
Russell J. Cerqua - - 199,958 3,500 24,902 -
Reno J. Bernardo - - 4,000 3,500 - -
Salomon J. Dayan - - 4,000 66,000 - -
Jon K. Haahr - - 1,000 3,500 - -
Thomas J. Romano - - - 3,500 - -
(1) The closing sale price of the Company's Common Stock on such date on the Nasdaq National Market was
$3.125.
EMPLOYMENT AGREEMENT
The Company's President and Chief Executive Officer, Michael P. Holtz, provides
services to the Company under the terms of an employment agreement dated January
1, 1995, amended February 4, 1997, amended November 23, 1999 and amended August
3, 2000. Pursuant to Amendment No. 3 dated November 23, 1999, the agreement
renewed for an additional three-year period ending December 31, 2003. On January
1, 1998, Mr. Holtz received options to purchase a minimum of 256,100 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 vested
immediately, 121,000 vested on July 1, 1999 and 25,100 vested on July 1, 2000.
Pursuant to Amendment No. 3, Mr. Holtz receives 100,000 options each year, with
50,000 vesting 90 days from the date of issuance and 50,000 vesting only if the
Company attains certain financial performance criteria. Amendment No. 3 also
provides for a cash bonus based upon financial performance and hotel operation
performance. Under the terms of the amended employment agreement, stock awards
were eliminated as a component of annual compensation.
30
The employment agreement entitles the executive officer to receive severance
payments, equal to two years' compensation, 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. Pursuant to
Amendment No. 4 dated August 3, 2000, for purposes of the employment agreement,
a change in control shall be defined as any simultaneous change in the Company's
Board of Directors such that a majority of the Board is composed of members who
were not members of the Board on the date of this Amendment No. 4. In addition,
a change of control means 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. The executive officer is also entitled to severance payments,
equal to one year's compensation, if he voluntarily terminates his employment
with the Company for a reason other than a "good reason" and provides
appropriate notice of such resignation.
COMPENSATION OF DIRECTORS
Each nonemployee Director of the Company received an annual retainer fee of
$9,000 ($750 per month) in 2000. Each nonemployee 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. Each Director is reimbursed for all out-of-pocket expenses
related to attendance at Board meetings. Non-employee Directors may elect to
receive their retainer fee in restricted common stock of the Company.
Each nonemployee Director of the Company receives an option to purchase 1,000
shares of Common Stock annually, pursuant to the 1996 Stock Option Plan for
Nonemployee Directors. In addition, beginning in 2000, each nonemployee Director
will receive 2,500 options annually which vest only if the Company meets certain
performance criteria, including earnings per share, EBITDA or net operating
income, as defined. All Director stock options are priced at the market price on
the date of issuance.
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 14, 2001, 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.
Shares Beneficially Owned
As of March 14, 2001
-----------------------------
Name Number Percent
- ----------------------------- ---------------- ---------
Michael P. Holtz 1,082,957 (1) 18.5%
Wellington Management Company 615,000 (2) 12.4
Massachusetts Financial Services Company 527,000 (3) 10.6
Kenneth M. Fell 451,420 (4) 9.1
Dimensional Fund Advisors, Inc. 397,100 (5) 8.0
H. Andrew Torchia 411,132 (6) 8.0
Salomon J. Dayan 409,882 (1) 7.9
Raymond and Liliane R. Dayan 388,988 (7) 7.8
Richard A. D'Onofrio 342,319 (6) 6.7
Russell J. Cerqua 260,913 (1) 5.0
James B. Dale 60,775 (1) 1.2
Reno J. Bernardo 38,112 (1) 0.8
Jon K. Haahr 8,723 (1) 0.2
Thomas J. Romano 7,200 (1) 0.2
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (7 PERSONS) 1,868,562 29.6%
========= ====
- -------------------
31
(1) Includes shares subject to options exercisable presently or within
60 days as follows: Mr. Holtz, 876,100 shares, Dr. Dayan, 193,676
shares, Mr. Cerqua, 202,458 shares, Mr. Dale, 59,500 shares, Mr.
Bernardo, 6,500 shares, Mr. Haahr, 3,500 shares, and Mr. Romano, 2,500
shares.
(2) Based upon information provided in its Schedule 13G dated December 31,
2000, Wellington Management Company ("WMC"), in its capacity as
investment advisor, may be deemed beneficial owner of 615,000 shares of
the Company which are owned by numerous investment counseling clients.
Of the shares shown above, WMC has shared voting power for 615,000
shares and shared investment power for 615,000 shares.
(3) Based upon information provided in its Schedule 13G dated February 12,
2001, Massachusetts Financial Services Company ("MFS"), in its capacity
as investment manager, may be deemed beneficial owner of 527,000 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 527,000
shares.
(4) Based upon information provided in his Schedule 13D dated November 3,
2000, Mr. Fell owns 451,420 shares of the Company. Mr. Fell has sole
voting and investment power for these shares.
(5) Based upon information provided in its Schedule 13G dated February 2,
2001, Dimensional Fund Advisors, Inc. ("DFA"), in its capacity as
investment advisor, may be deemed beneficial owner of 397,100 shares of
the Company which are owned by numerous investment counseling clients.
Of the shares shown above, DFA has sole voting and investment power for
397,100 shares.
(6) Based upon information provided in a 13D joint filing dated October 15,
1999. Includes 65,543 and 4,400 shares owned directly by Messrs.
Torchia and D'Onofrio, respectively, and 150,000 options each owned by
Messrs. Torchia and D'Onofrio which are currently exercisable. In
addition, it includes 383,508 shares owned by Urban 2000 Corp. Mr.
Torchia is the 51% stockholder of Urban 2000 Corp. and disclaims
beneficial ownership of all but an aggregate of 195,589 shares owned
directly, or indirectly, by Urban 2000 Corp. Mr. D'Onofrio is the 49%
stockholder of Urban 2000 Corp. and disclaims beneficial ownership
of all but an aggregate of 187,919 shares owned directly, or indirectly
by Urban 2000 Corp.
(7) Based upon information provided in their Schedule 13D dated October 23,
2000, Mr. and Mrs. Dayan beneficially own 388,988 shares of the
Company. Of the shares shown above, Mr. and Mrs. Dayan have sole
voting and investment power for 388,988 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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, 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. The Company issued
62,500 stock options to Dr. Dayan in 2000, and cancelled 30,000 options which
had been previously issued to Dr. Dayan in a prior year, in connection with an
agreement by the Company to purchase Dr. Dayan's ownership interest in three
hotel joint ventures.
Mr. Romano is an executive officer of Bridgeview Bank & Trust, which is the bank
that maintains the Company's operating line-of-credit.
32
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, 2000.
(a)(1) Financial Statements:
Reports of Independent Certified Public Accountants........ F-1
Consolidated Balance Sheets at December 31, 2000
and 1999.................................................. F-3
Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and1998..................... F-5
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998..... F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999, and 1998................... F-7
Notes to Consolidated Financial Statements................. F-9
(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 the
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
33
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
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
filed March 24, 1997; and are incorporated herein by reference:
Exhibit No. Description
----------- -----------
10.9 Amendment of Employment Agreement between Amerihost
Properties, Inc. and Michael P. Holtz
The following exhibit was included in the Registrant's Report on Form 10-K filed
March 30, 1999:
Exhibit No. Description
- ----------- -----------
10.5 Agreement of Purchase and Sale between PMC Commercial
Trust and Amerihost Properties, Inc., including
exhibits thereto
The following exhibits were included in the Registrant's Report on Form 10-K
filed March 23, 2000:
Exhibit No. Description
- ----------- -----------
10.6 Amendment No. 3 of Employment Agreement between
Amerihost Properties, Inc. and Michael P. Holtz
The following exhibits were included in the Registrant's Report on Form 10-Q
filed November 7, 2000:
Exhibit No. Description
- ----------- -----------
10.10 Asset Purchase Agreement
10.11 Royalty Sharing Agreement
10.12 Development Agreement
34
The following exhibits are included in this Report on Form 10-K filed March 19,
2001:
Exhibit No. Description
- ----------- -----------
10.13 Amendment No. 4 of Employment Agreement between
Amerihost Properties, Inc. and Michael P. Holtz
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of BDO LLP
Reports on Form 8-K:
The Company reported a change in accounting firms on a Form 8-K dated October
10, 2000.
The Company filed a report on Form 8-K on November 1, 2000, notifying that on
October 31, 2000, the Company released its earnings results for the three and
nine months ended September 30, 2000. The filing included the Company's press
release and related conference call outline for a call held on November 1, 2000,
and a letter to its shareholders issued on November 3, 2000.
35
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/ James B. Dale
-----------------------------
James B. Dale
Chief Financial Officer
March 15, 2001
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/ Michael P. Holtz /s/ Reno J. Bernardo
- -------------------------------------- --------------------------------
Michael P. Holtz, Director Reno J. Bernardo, Director
March 15, 2001 March 15, 2001
/s/ Russell J. Cerqua /s/ Jon K. Haahr
- -------------------------------------- --------------------------------
Russell J. Cerqua, Director Jon K. Haahr, Director
March 15, 2001 March 15, 2001
/s/ Salomon J. Dayan /s/ Thomas Romano
- -------------------------------------- --------------------------------
Salomon J. Dayan, Director Thomas Romano, Director
March 15, 2001 March 15, 2001
36
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Amerihost Properties, Inc.
We have audited the accompanying consolidated balance sheet of Amerihost
Properties, Inc. and subsidiaries as of December 31, 2000 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated balance sheets and related consolidated statements of operations,
shareholders' equity, and cash flows of Amerihost Properties, Inc. as of
December 31, 1999 and 1998 and for the two-year period ended December 31, 1999
were audited by other auditors whose report dated March 8, 2000 expressed an
unqualified opinion.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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, 2000, and the
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Chicago, Illinois
February 28, 2001
F-1
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, 1999 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999. 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, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1998 the
Company adopted Statement of Position (SOP) Number 98-5, "Reporting on the Costs
of Start-Up Activities."
BDO Seidman, LLP
Chicago, Illinois
March 8, 2000
F-2
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
==========================================================================================
December 31, December 31,
2000 1999
------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,728,869 $ 3,766,323
Accounts receivable, less an allowance of $100,000
at December 31, 2000 (including approximately
$361,000 and $214,000 from related parties) 2,663,825 2,901,615
Notes receivable, current portion (Note 2) 618,485 568,485
Prepaid expenses and other current assets 1,013,053 971,836
Refundable income taxes -- 56,876
Costs and estimated earnings in excess of billings on
uncompleted contracts with related parties (Note 3) 375,780 834,820
------------ ------------
Total current assets 6,400,012 9,099,955
------------ ------------
Investments in and advances to unconsolidated
hotel joint ventures (Notes 4 and 6) 7,031,982 7,332,806
------------ ------------
Property and equipment (Notes 6, 7 and 13):
Land 11,226,664 8,786,189
Buildings 60,122,758 56,670,991
Furniture, fixtures and equipment 21,393,936 17,758,161
Construction in progress 850,238 1,062,888
Leasehold improvements 2,875,379 1,990,822
Assets held for sale -- 7,967,318
------------ ------------
96,468,975 94,236,369
Less accumulated depreciation and amortization 18,666,279 15,466,013
------------ ------------
77,802,696 78,770,356
------------ ------------
Notes receivable, less current portion (Note 2) 801,346 692,662
Deferred income taxes (Note 9) 3,402,000 4,327,000
Other assets, net of accumulated amortization of
$885,000 and $1,871,000 (Note 5) 2,704,679 2,885,388
------------ ------------
6,908,025 7,905,050
$ 98,142,715 $103,108,167
============ ============
F-3
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
=================================================================================================================
December 31, December 31,
2000 1999
--------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,313,640 2,623,390
Bank line-of-credit (Note 6) 3,408,133 7,560,214
Accrued payroll and related expenses 775,714 777,725
Accrued real estate and other taxes 1,937,415 2,260,048
Other accrued expenses and current liabilities 306,146 1,127,504
Current portion of long-term debt (Note 7) 1,698,538 1,567,643
Income taxes payable 132,420 -
--------------- --------------
Total current liabilities 10,572,006 15,916,524
--------------- --------------
Long-term debt, net of current portion (Note 7) 56,905,152 58,781,609
--------------- --------------
Deferred income (Note 13) 12,196,330 14,001,231
--------------- --------------
Commitments and contingencies (Notes 8, 12 and 13)
Minority interests 203,449 228,235
--------------- --------------
Shareholders' equity (Notes 8 and 12):
Preferred stock, no par value; authorized 100,000 shares;
none issued - -
Common stock, $.005 par value; authorized 25,000,000
shares; issued and outstanding 4,979,244 shares at December 31,
2000, and 4,968,673 shares at December 31, 1999 24,896 24,843
Additional paid-in capital 13,125,324 13,050,069
Retained earnings 5,552,433 1,542,531
--------------- --------------
18,702,653 14,617,443
Less:
Stock subscriptions receivable (Note 8) (436,875) (436,875)
18,265,778 14,180,568
--------------- --------------
$ 98,142,715 $ 103,108,167
=============== ==============
See notes to consolidated financial statements.
F-4
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
=====================================================================================================================
2000 1999 1998
---------------- --------------- ------------
Revenue (NOTE 10):
Hotel operations:
AmeriHost Inn hotels $ 49,228,661 $ 49,508,745 $ 33,095,525
Other hotels 12,123,035 12,587,253 14,232,886
Development and construction 6,982,678 6,431,995 8,968,111
Management services 1,251,107 1,315,212 2,251,962
Employee leasing 5,979,363 5,992,580 10,069,705
Other 586,276 222,187 -
---------------- --------------- ------------
76,151,120 76,057,972 68,618,189
---------------- --------------- ------------
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels 34,811,649 34,866,053 23,419,321
Other hotels 9,858,175 10,260,074 11,348,680
Development and construction 6,901,617 5,398,384 8,463,341
Management services 806,959 809,061 1,306,864
Employee leasing 5,868,189 5,747,351 9,748,110
Other 489,064 786,658 -
---------------- --------------- ------------
58,735,653 57,867,581 54,286,316
---------------- --------------- ------------
17,415,467 18,190,391 14,331,873
Depreciation and amortization 4,542,461 4,567,030 5,486,529
Leasehold rents - hotels (Note 13) 6,524,930 7,306,691 4,192,348
Corporate general and administrative 1,694,611 1,537,052 1,568,561
Operating income 4,653,465 4,779,618 3,084,435
Other income (expense):
Interest expense (5,605,550) (6,031,759) (6,113,369)
Interest income 786,806 877,194 521,250
Other income 381,868 555,749 227,822
Equity in net income and (losses) from
unconsolidated joint ventures (101,872) (160,837) (240,868)
Gain on sale of assets and franchising rights 6,663,124 553,298 305,484
---------------- --------------- ------------
Income (loss) before minority interests and income taxes 6,777,841 573,263 (2,215,246)
Minority interests in operations of
consolidated subsidiaries and partnerships (60,939) (212,672) 267,801
---------------- --------------- ---------------
Income (loss) before income taxes 6,716,902 360,591 (1,947,445)
Income tax (expense) benefit (Note 9) (2,707,000) (160,000) 780,000
---------------- ---------------- ---------------
Net income (loss) before extraordinary item and
cumulative effect of change in accounting principle 4,009,902 200,591 (1,167,445)
Extraordinary item - early extinguishment of debt,
net of income tax benefit (Note 13) - - (332,738)
Cumulative effect of change in accounting principle,
net of income tax benefit (Note 1) - - (1,295,891)
--------------- --------------- --------------
Net income (loss) $ 4,009,902 $ 200,591 $ (2,796,074)
=============== =============== ==============
Income (loss) per share - Basic before
extraordinary item and accounting change $ 0.81 $ 0.04 $ (0.19)
Net income (loss) per share - Basic $ 0.81 $ 0.04 $ (0.45)
Income (loss) per share - Diluted, before
extraordinary item and accounting change $ 0.74 $ 0.02 $ (0.20)
Net income (loss) per share - Diluted $ 0.74 $ 0.02 $ (0.45)
See notes to consolidated financial statements.
F-5
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Stock
subscrip-
Common stock Additional tions Total
----------------------- paid-in Retained and notes shareholders'
Shares Amount capital earnings receivable equity
------ ------ ------- -------- ---------- ------
BALANCE AT JANUARY 1, 1998 6,212,925 $ 31,065 $17,860,655 $ 4,138,014 $(436,875) $21,592,859
Acquisition of common stock (Note 8) (123,550) (618) (480,810) - - (481,428)
Shares issued for compensation 175 1 450 - - 451
Net loss for the year ended December 31, 1998 - - - (2,796,074) - (2,796,074)
--------- --------- ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1998 6,089,550 $ 30,448 $17,380,295 $ 1,341,940 $(436,875) $18,315,808
Acquisition of common stock (Note 8) (1,121,002) (5,606) (4,330,558) - - (4,336,164)
Shares issued for compensation 125 1 332 - - 333
Net income for the year ended December 31, 1999 - - - 200,591 - 200,591
--------- --------- ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1999 4,968,673 $ 24,843 $13,050,069 $ 1,542,531 $(436,875) $14,180,568
Shares issued for compensation 10,571 53 75,255 - - 75,308
Net income for the year ended December 31, 2000 - - - 4,009,902 4,009,902
--------- --------- ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 2000 4,979,244 $ 24,896 $13,125,324 $ 5,552,433 $(436,875) $18,265,778
========= ========= =========== ============ ========= ===========
See notes to consolidated financial statements.
F-6
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
====================================================================================================================
2000 1999 1998
--------------- ---------------- ---------------
Cash flows from operating activities:
Cash received from customers $ 77,110,459 $ 80,716,593 $ 71,281,629
Cash paid to suppliers and employees (69,503,958) (76,876,079) (58,610,075)
Interest received 883,422 729,089 976,771
Interest paid (5,679,212) (6,076,002) (6,089,595)
Income taxes (paid) refunds received (1,592,704) 621,319 (2,150,460)
--------------- ---------------- ---------------
Net cash provided by (used in) operating activities 1,218,007 (885,080) 5,408,270
--------------- ---------------- ---------------
Cash flows from investing activities:
Distributions, and collections on advances,
from affiliates 2,712,840 967,465 2,805,517
Purchase of property and equipment (10,433,566) (2,102,832) (42,182,698)
Purchase of investments in, and advances
to, minority owned affiliates (2,715,495) (3,124,618) (2,790,036)
Acquisitions of partnership interests,
net of cash acquired - (260,648) (8,358,145)
Collections on notes receivable 91,315 138,876 1,465,378
Preopening and management contract costs - - (223,230)
Proceeds from sale of assets and franchising rights 13,072,813 16,726,198 64,838,108
--------------- ---------------- ---------------
Net cash provided by investing activities 2,727,907 12,344,441 15,554,894
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,696,807 7,203,482 31,593,918
Principal payments on long-term debt (6,442,369) (20,328,540) (49,875,365)
Net (repayments) borrowings of line of credit (4,152,081) 5,599,002 671,504
Distributions to minority interests (85,725) (324,985) (731,691)
Proceeds from issuance of common stock - 333 451
Common stock repurchases - (4,336,164) (477,650)
--------------- ---------------- ---------------
Net cash used in financing activities (5,983,368) (12,186,872) (18,818,833)
--------------- ---------------- ---------------
Net (decrease) increase in cash and cash equivalents (2,037,454) (727,511) 2,144,331
Cash and cash equivalents, beginning of year 3,766,323 4,493,834 2,349,503
--------------- ---------------- ---------------
Cash and cash equivalents, end of year $ 1,728,869 $ 3,766,323 $ 4,493,834
=============== =============== ===============
F-7
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
=====================================================================================================================
2000 1999 1998
--------------- -------------- -------------
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities:
Net income (loss) $ 4,009,902 $ 200,591 $ (2,796,074)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 4,542,461 4,567,030 5,486,529
Equity in net income (loss) of unconsolidated joint
ventures and amortization of deferred income 101,872 160,837 240,868
Minority interests in operations of consolidated
subsidiaries and partnerships 60,939 212,672 (267,801)
Amortization of deferred interest and loan discount - 34,045 45,393
Bad debt expense (recoveries) 192,351 (150,000) -
Issuance of common stock and common stock options 75,308 - -
Gains on sale of assets and franchising rights (6,663,124) (528,297) (305,484)
Deferred income taxes 925,000 (423,000) (4,012,000)
Amortization of deferred income (1,487,118) (1,462,096) (643,726)
Extraordinary item and cumulative effect of change
in accounting principle - - 2,157,195
Changes in assets and liabilities, net of effects
of acquisitions:
(Increase) decrease in accounts receivable 95,439 156,910 1,017,942
Increase in prepaid expenses and other
current assets (41,217) (211,565) (612,070)
Decrease in refundable income taxes 189,296 1,204,318 1,081,540
Decrease (increase) in costs and estimated earnings
in excess of billings 459,040 (184,962) 1,263,245
(Increase) decrease in other assets (72,303) (358,890) 1,494,948
Increase in assets held for sale - (959,002) -
Decrease in accounts payable (309,750) (3,035,113) (46,020)
(Decrease) increase in accrued payroll and other
accrued expenses and current liabilities (905,846) (37,645) 713,282
Decrease in accrued interest (73,852) (78,288) (21,619)
Increase in deferred income 119,609 7,375 612,122
--------------- -------------- -------------
Net cash provided by (used in) operating activities $ 1,218,007 $ (885,080) $ 5,408,270
=============== ============== =============
See notes to consolidated financial statements.
F-8
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business:
--------------------------
Amerihost Properties, Inc. and its subsidiaries (collectively, where
appropriate, "Amerihost," or the "Company") was incorporated under the
laws of Delaware on September 19, 1984. The Company is engaged in the
development, construction and sale of AmeriHost Inn hotels, and the
ownership, operation and management of both AmeriHost Inn hotels and
other hotels (Note 15). The AmeriHost Inn brand is used 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 a 60 to 120 room, interior corridor and
indoor pool prototype design and are located in tertiary and secondary
markets.
The Company's operations are 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.
Principles of consolidation:
----------------------------
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, and entities in which the
Company has a majority or controlling ownership interest. All
significant intercompany accounts and transactions have been
eliminated.
Construction accounting:
------------------------
Development fee revenue from construction/renovation projects with
unaffiliated third parties or entities in which the Company has a
minority ownership interest is recognized using the
percentage-of-completion method.
Construction fee revenue from construction/renovation projects with
unaffiliated third parties or entities in which the Company has a
minority ownership interest 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.
F-9
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Fair values of financial instruments:
-------------------------------------
The carrying values reflected in the consolidated balance sheet at
December 31, 2000 and 1999 reasonably approximate the fair values for
cash and cash equivalents, accounts and contracts receivable and
payable, and variable rate long-term debt. The carrying value of the
note receivable approximates its fair value based upon the estimated
fair value of the underlying collateral (Note 2). The Company estimates
that the fair value of its fixed rate long-term debt at December 31,
2000 approximates the carrying value considering the property specific
nature of the notes. 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-majority,
non-controlling ownership interest are accounted for using the equity
method, under which method the original investment is adjusted for the
Company's share of operations, and is reduced by 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 $100,275, $121,238 and
$176,920 was capitalized in 2000, 1999 and 1998, 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 3-28 years
The Company sells hotel assets in the ordinary course of business as
part of its hotel development strategy. However, due to the
uncertainties associated with pending sales, the Company does not
specifically identify hotel assets as held for sale, unless they are
actively marketed and expected to sell within one year. As of December
31, 1999, assets held for sale included specific hotels which had
opened within the previous twelve months and which were being actually
marketed to sell. Due to the Company's limited history in selling
hotels, the Company has classified the net gain from the sale of hotels
as gain on sale of assets in the accompanying consolidated financial
statements.
Other assets:
-------------
Deferred lease costs:
Deferred lease costs 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.
F-10
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Deferred loan costs:
Deferred loan costs represent the costs incurred in issuing mortgage
notes. These costs are being amortized by use of the interest method
over the life of the debt.
Initial franchise fees:
Initial franchise fees paid by the Company to franchisors for certain
hotels are capitalized and amortized by use of the straight-line method
over the terms of the franchise licenses, ranging from 10 to 20 years.
Preopening costs:
-----------------
The Company follows Statement of Position (SOP) No. 98-5, "Reporting on
the Costs of Start-Up Activities," which requires the preopening costs
to be expensed as incurred. The Company adopted SOP 98-5 in 1998,
resulting in the write-off of previously capitalized costs, net of an
income tax benefit of approximately $864,000, as a cumulative effect of
a change in accounting principle.
Deferred income:
----------------
Deferred income includes the gain from the sale of 29 hotels in 1998
and 1999 which were simultaneously leased-back (Note 13). This gain was
being recognized on a straight-line basis over the 10-year term of the
lease as an adjustment to leasehold rent expense (Note 16).
Deferred income also includes that portion of development, construction
and renovation fees earned from entities in which the Company holds an
ownership interest. The portion of fees deferred is equal to the
Company's proportional ownership interest in the entity and is being
recognized in income over the life of the operating assets. The balance
of the fees are recorded in income as earned.
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 and relate principally to depreciation of
property and equipment and deferred income.
Earnings per share:
-------------------
The Company calculates earnings per share in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 128, "Earnings Per
Share" (FAS 128). Basic earnings per share ("EPS") is calculated by
dividing the income (loss) available to common shareholders by the
weighted average number of common shares outstanding for the period,
without consideration for common stock equivalents. Diluted EPS gives
effect to all dilutive potential common shares outstanding for the
period. The Company excluded stock options which had an anti-dilution
effect on the EPS computations.
F-11
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The calculation of basic and diluted earnings per share for each of the
three years ended December 31 is as follows:
2000 1999 1998
--------------- ---------------- ----------------
Income (loss), before extraordinary
item and cumulative effect of change
in accounting principle $ 4,009,902 $ 200,591 $ (1,167,445)
Extraordinary item (Note 13) - - (332,738)
Accounting change (Note 1) - - (1,295,891)
------------ ------------- --------------- -
Net income (loss) 4,009,902 200,591 (2,796,074)
Impact of convertible partnership interests (117,028) (88,117) (157,333)
------------ --------------- --------------
Net income (loss) available to common
shareholders $ 3,892,874 $ 112,474 $ (2,953,407)
============= ============== ==============
Weighted average common shares
outstanding 4,976,236 5,566,957 6,180,279
Dilutive effect of:
Convertible partnership interests 249,350 249,350 332,579
Stock options 46,266 40,373 -
------------- -------------- --------------
Dilutive common shares outstanding 5,271,852 5,856,680 6,512,858
============= ============== ==============
Income (loss) per share - Basic, before
extraordinary item and accounting change $ 0.81 $ 0.04 $ (0.19)
Extraordinary item - - (0.05)
Accounting change - - (0.21)
------------ -------------- --------------
Net income (loss) per share - Basic $ 0.81 $ 0.04 $ (0.45)
============ ============== ==============
Income (loss) per share - Diluted, before
extraordinary item and accounting change $ 0.74 $ 0.02 $ (0.20)
Extraordinary item - - (0.05)
Accounting change - - (0.20)
------------ -------------- --------------
Net income (loss) per share - Diluted $ 0.74 $ 0.02 $ (0.45)
============ ============== ==============
Advertising:
------------
The costs of advertising, promotion and marketing programs are charged
to operations in the year incurred. These costs were approximately
$1,418,000, $1,514,000 and $1,883,000 for the years ended December 31,
2000, 1999 and 1998.
F-12
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Use of 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.
Asset impairments:
------------------
The Company periodically reviews the carrying value of certain of its
long-lived assets in relation to historical results, current business
conditions and trends to identify potential situations in which the
carrying value of assets may not be recoverable. If such reviews
indicate that the carrying value of such assets may not be recoverable,
the Company would estimate the undiscounted sum of the expected cash
flows of such assets to determine if such sum is less than the carrying
value of such assets to ascertain if an impairment exists. If an
impairment exists, the Company would determine the fair value by using
quoted market prices, if available for such assets, or if quoted market
prices are not available, the Company would discount the expected
future cash flows of such assets. During 2000, the Company reduced the
carrying value of an investment in a joint venture by approximately
$110,000 in connection with such review. The adjustment is reflected in
the equity in income of unconsolidated joint ventures line in the
accompanying consolidated financial statements.
2. NOTES RECEIVABLE:
Notes receivable consists of: 2000 1999
------------ ------------
Diversified Innkeepers, Inc. $ 1,069,831 $ 1,261,147
Other notes 350,000 -
------------ ------------
1,419,831 1,261,147
Less current portion 618,485 568,485
------------ ------------
Notes receivable, less current portion $ 801,346 $ 692,662
============ ============
In connection with the purchase of management contracts from
Diversified Innkeepers, Inc. ("Diversified") in a prior year, the
Company accepted notes to provide financing to the shareholders of
Diversified, 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 personal guarantees by the shareholders.
The notes provide for monthly payments of $16,250, including interest
at the rate of 10% per annum, and were due September 30, 2000. The
Company currently has an agreement with the shareholders of Diversified
whereby the current portion of this note will be repaid in 2001 upon
the sale of a hotel owned by the shareholders of Diversified, with the
remaining balance to be converted to an investment in another hotel
owned by the shareholders of Diversified. The Company will have a
preferred position with respect to the new partnership interest.
Management believes that the entire balance is collectible.
F-13
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS:
Information regarding contracts-in-progress is as follows at December
31, 2000 and 1999:
2000 1999
--------- ---------
Costs incurred on uncompleted contracts $ 206,108 $ 319,465
Estimated earnings 169,672 515,355
--------- ---------
375,780 834,820
Less billings to date - -
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 375,780 $ 834,820
========= =========
4. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED HOTEL JOINT VENTURES:
The Company has ownership interests, ranging from 1% to 37.2%, 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 15 hotels at December 31, 2000, with a total balance of
($1,462,234), and 18 hotels at December 31, 1999 with a total balance
of ($764,156).
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. The advances were $8,494,216 and
$8,096,963 at December 31, 2000 and 1999, respectively, and are
included in investments in and advances to unconsolidated hotel joint
ventures on the accompanying consolidated balance sheets.
During 1999, the Company acquired an additional partnership interest in
one hotel, resulting in this hotel being 100% owned by the Company
subsequent to the acquisition date. The following is a summary of the
acquisition:
1999
------------
Fair value of assets acquired $ 1,916,070
Cash paid, net of cash acquired,
and redemption of note receivable (260,648)
------------
Liabilities assumed $ 1,655,422
============
In addition, the Company purchased 11 hotels in 1998 from entities in
which the Company held a minority ownership position, for a total
purchase price of $26.7 million, including the assumption of $13.1
million in mortgage debt.
F-14
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
4. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED HOTEL JOINT VENTURES
(CONTINUED):
The following represents unaudited condensed financial information for
all of the Company's investments in affiliated companies accounted for
under the equity method at December 31, 2000, 1999 and 1998.
2000 1999 1998
-------------- --------------- -------------
Current assets $ 787,037 $ 1,211,864 $ 2,174,945
Noncurrent assets 32,703,002 35,420,633 38,398,391
Current liabilities 4,550,271 5,240,776 10,028,804
Noncurrent liabilities 31,282,189 31,494,212 27,363,973
Equity (deficit) (2,347,421) (102,491) 3,180,559
Gross revenue 14,253,813 15,210,884 14,995,050
Gross operating profit 3,944,469 4,853,626 4,787,471
Depreciation and amortization 2,201,762 2,422,002 2,653,699
Net loss (100,027) (1,586,557) (630,097)
5. OTHER ASSETS:
Other assets, net of accumulated amortization, at December 31, 2000 and
1999 are comprised of the following:
2000 1999
------------ -------------
Deposits, franchise fees and other assets $ 1,406,444 $ 1,552,639
Deferred loan costs 1,072,616 1,054,836
Deferred lease costs 225,619 277,913
------------ -------------
Total $ 2,704,679 $ 2,885,388
============ =============
6. BANK LINE-OF-CREDIT:
The Company has a $8,500,000 bank operating line-of-credit, of which
$3,408,133 and $7,560,214 was outstanding at December 31, 2000 and
1999, respectively. The operating line-of-credit is collateralized by a
security interest in certain of the Company's assets, including its
interests in various joint ventures, bears interest at an annual rate
equal to the bank's base lending rate (9.5% at December 31, 2000) plus
one-half of one percent with a floor of 7.5%, and matures August 15,
2001. The line-of-credit note contains financial covenants, requiring a
minimum net worth, a maximum debt to net worth ratio, and a minimum
debt service coverage ratio. The Company was in compliance with these
covenants as of December 31, 2000. The Company's intends to repay the
entire outstanding balance in 2001 with cash flow from operations,
proceeds from the sale of hotels, and incentive payments received in
connection with the Cendant agreement.
F-15
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
7. LONG-TERM DEBT:
Long-term debt consists of: 2000 1999
--------------- ---------------
Mortgage notes maturing 2002 through 2018, with a
weighted average interest rate of 8.40% $ 58,581,769 $ 60,265,543
Other 21,921 83,709
-------------- --------------
58,603,690 60,349,252
Less current portion 1,698,538 1,567,643
-------------- --------------
$ 56,905,152 $ 58,781,609
============== ==============
The mortgage notes are collateralized by certain hotel properties. The
notes provide for monthly payments of principal and interest, with
interest on the fixed rate notes ranging from 7.5% to 9.25% (weighted
average interest rate of 8.11% at December 31, 2000), and interest on
the floating rate notes ranging from prime minus 0.25% to prime plus
1.25% (weighted average interest rate of 9.41% at December 31, 2000).
Certain of the mortgage notes provide for financial covenants,
principally minimum net worth requirements and minimum debt to equity
ratios. At December 31, 2000, the Company was not in compliance with
the minimum debt service coverage ratio contained in two mortgage loans
aggregating approximately $2.5 million, however the Company has
obtained waivers with respect to the violations. In addition, two joint
ventures where the Company has guaranteed the mortgage debt were not in
compliance with the minimum debt service coverage ratio covenant
contained in the mortgage loans. The joint ventures have obtained
waivers from the lenders regarding these violations.
The aggregate maturities of long-term debt are approximately as
follows:
Year Ending December 31, Amount
------------------------ -----------------
2001 $ 1,698,538
2002 5,825,301
2003 9,148,155
2004 6,356,858
2005 2,083,206
Thereafter 33,491,632
-----------------
$ 58,603,690
=================
8. SHAREHOLDERS' EQUITY:
Authorized shares:
------------------
The Company's corporate charter authorizes 25,000,000 shares of Common
Stock with a par value of $0.005 per share 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.
Non-employee stock options and warrants:
----------------------------------------
In connection with a financial relations consulting agreement, the
Company issued options in 1998 to acquire 5,000 shares of common stock
at an exercise price of $4.50 per share, expiring March 2001.
F-16
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
8. SHAREHOLDERS' EQUITY (CONTINUED):
The Company has issued options to acquire shares of the Company's
common stock to certain of its partners in various hotel joint ventures
referred to in Note 4. At December 31, 2000, options to purchase
125,000 shares of common stock are outstanding with an exercise price
of $3.794 per share and are exercisable through October 2005. The
Company has accounted for these options in accordance with FASB
Statement No. 123. In connection with this issuance, the Company
cancelled previously issued options to purchase 60,000 shares of common
stock.
Limited partnership conversion rights:
--------------------------------------
The Company is a general partner in two partnerships where the limited
partners have the right at certain times and under certain conditions
to convert their limited partnership interests into 168,100 shares of
the Company's common stock. These conversion rights will expire in 2001
as the Company acquires these limited partner interests (Note 13).
Stock subscriptions receivable:
-------------------------------
In connection with the Diversified transaction (Note 2), the Company
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, collateralized by the 125,000 shares
of common stock issued upon the exercise of the options and limited
partnership interests. The total principal balance is due the earlier
of the date the stock is sold or the related management contracts are
terminated. This note receivable has been classified as a reduction of
shareholders' equity on the accompanying consolidated balance sheets.
9. TAXES ON INCOME:
The provision for income taxes (benefit) in the consolidated statements
of operations are as follows:
2000 1999 1998
-------------- --------------- --------------
Current $ 1,782,000 $ 583,000 $ 3,232,000
Deferred 925,000 (423,000) (4,012,000)
------------- -------------- -------------
Income tax expense (benefit), before
extraordinary item and cumulative
effect of change in accounting
principle 2,707,000 160,000 (780,000)
Extraordinary item - - (231,000)
Accounting change - - (864,000)
-------------- -------------- -------------
Income tax expense (benefit) $ 2,707,000 $ 160,000 $ (1,875,000)
============== ============== =============
F-17
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
9. TAXES ON INCOME (CONTINUED):
Temporary differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes that give
rise to a net deferred income tax asset relate to the following:
2000 1999
--------------- --------------
Deferred income recognized for tax purposes
and deferred for financial reporting purposes $ 420,000 385,000
Gain on sale/leaseback transaction recognized
for tax purposes and deferred for financial
reporting purposes 4,581,000 3,911,000
Start-up costs capitalized for tax purposes and
expensed for financial reporting purposes 192,000 292,000
Differences in the basis of investments, property and
equipment from partner acquisitions and due
to majority owned partnerships consolidated for
financial reporting purposes but not for tax purposes (612,000) 818,000
------------- ------------
4,581,000 5,406,000
Cumulative depreciation differences (1,179,000) (1,079,000)
-------------- -------------
-------------- -------------
Net deferred income tax asset $ 3,402,000 $ 4,327,000
============== =============
A valuation allowance has not been recorded to reduce the deferred tax
assets, as the Company expects to realize all components of the
deferred tax asset in future periods.
The following reconciles income tax expense for 2000 at the federal
statutory tax rate with the effective rate:
2000 1999 1998
-------------- --------------- --------------
Income taxes at the
federal statutory rate 34.0% 34.0% (34.0%)
State taxes, net of federal tax benefit 6.3% 10.4% (6.0%)
----------- ------------ -----------
Effective tax rate 40.3% 44.4% (40.0%)
=========== ============= ===========
10. RELATED PARTY TRANSACTIONS:
The following table summarizes related party revenue recorded in 2000
from various unconsolidated partnerships in which the Company has an
ownership interest:
2000 1999 1998
-------------- --------------- --------------
Development revenue $ 6,982,678 $ 1,173,054 $ 8,968,111
Hotel management revenue 1,025,632 1,005,201 1,705,202
Employee leasing revenue 4,275,476 4,001,188 7,763,485
Other 586,276 41,313 -
Interest income 516,511 601,477 530,364
The Company eliminates its proportionate ownership interest in these
revenues in consolidation.
F-18
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
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 100% or majority 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, which is the information utilized by the Company's
decision makers in managing the business:
Revenues 2000 1999 1998
-------- ------------ ------------- ------------
Hotel operations $ 61,351,696 $ 62,095,998 $ 47,328,411
Hotel development 6,982,678 6,431,995 8,968,111
Hotel management 1,251,107 1,315,212 2,251,962
Employee leasing 5,979,363 5,992,580 10,069,705
Other 586,276 222,187 -
------------- -------------- -------------
$ 76,151,120 $ 76,057,972 $ 68,618,189
============= ============== =============
Operating costs and expenses
----------------------------
Hotel operations $ 44,669,824 $ 45,126,127 $ 34,768,011
Hotel development 6,901,617 5,398,384 8,463,341
Hotel management 806,959 809,061 1,306,864
Employee leasing 5,868,189 5,747,351 9,748,110
Other 489,064 786,658 -
------------- -------------- --------------
$ 58,735,653 $ 57,867,581 $ 54,286,316
============= ============== =============
Operating income
----------------
Hotel operations $ 5,737,820 $ 5,249,019 $ 3,467,430
Hotel development 62,871 1,009,720 426,426
Hotel management 399,771 448,710 543,748
Employee leasing 108,812 242,309 317,668
Other 92,812 (566,857) -
Corporate (1,748,621) (1,603,283) (1,670,837)
------------- -------------- -------------
$ 4,653,465 $ 4,779,618 $ 3,084,435
============= ============== =============
F-19
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
11. BUSINESS SEGMENTS (CONTINUED):
Identifiable assets 2000 1999 1998
-------------------- ------------ ------------- ------------
Hotel operations $ 92,406,355 $ 94,606,864 $ 104,076,512
Hotel development 660,620 1,272,184 2,309,240
Hotel management (42,842) 674,489 899,660
Employee leasing 329,833 494,806 978,985
Other - 164,485 -
Corporate 4,788,749 5,895,339 7,016,391
------------- -------------- -------------
$ 98,142,715 $ 103,108,167 $ 115,280,788
============= ============== =============
Capital Expenditures
--------------------
Hotel operations $ 10,253,713 $ 1,920,734 $ 42,039,772
Hotel development 7,942 2,091 54,065
Hotel management 34,161 69,697 58,659
Employee leasing 5,831 - 3,288
Other 17,422 29,335 -
Corporate 114,497 80,975 26,914
------------- -------------- -------------
$ 10,433,566 $ 2,102,832 $ 42,182,698
============= ============== =============
Depreciation/Amortization
-------------------------
Hotel operations $ 4,419,121 $ 4,414,161 $ 4,900,632
Hotel development 18,189 23,891 78,343
Hotel management 44,377 57,441 401,351
Employee leasing 2,362 2,921 3,927
Other 4,400 2,387 -
Corporate 54,012 66,229 102,276
------------- -------------- -------------
$ 4,542,461 $ 4,567,030 $ 5,486,529
============= ============== =============
12. STOCK BASED COMPENSATION:
The Company applies APB No. 25, Accounting for Stock Issued to
Employees, and related interpretations, in accounting for options
granted to employees.
The Company established qualified incentive stock option plans for
employees and directors. Under the plan for employees, on an annual
basis, options for up to 3% of its common stock, as defined, can be
granted. Under the plan for directors, a total of 50,000 options can be
granted. The exercise price per share may not be less than the fair
market value per share on the date the options are granted. Generally,
options vest over a period of up to two years and are exercisable for a
period of ten years from the date of grant.
The Company has granted to various key employees, non-qualified options
to purchase shares of common stock with exercise prices ranging from
$3.56 to $6.50 per share. The exercise price is the market price on the
date of grant. At December 31, 2000, options to purchase 1,029,333
shares of common stock are outstanding. These options are currently
exercisable and expire through September 2007.
F-20
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
12. STOCK BASED COMPENSATION (CONTINUED):
In 1997, the Company granted to two officers, options to purchase
65,625 shares of common stock with an exercise price of $1.53 per
share. These options are currently exercisable and expire in February
2007. Pursuant to APB Opinion 25, the Company recognized $301,465 in
compensation expense in 1997 as a result of this below-market grant.
The following table summarizes the employee stock options granted,
exercised and outstanding:
Weighted Average
Shares Exercise Price
------------- ----------------
Options outstanding January 1, 1998 1,245,958 $ 4.42
Forfeitures (129,000) 5.82
Options granted 488,600 5.72
------------- ----------
Options outstanding December 31, 1998 1,605,558 4.71
Forfeitures (156,500) 5.30
Options granted 157,000 3.44
------------- ----------
Options outstanding December 31, 1999 1,606,058 4.52
Forfeitures (80,000) 3.57
Options granted 238,500 3.23
------------- ----------
Options outstanding December 31, 2000 1,764,558 $ 4.39
============= ==========
Options exercisable December 31, 2000 1,593,391 $ 4.52
============== ==========
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 employee stock options under Statement
of Financial Accounting Standards No. 123 are as follows:
2000 1999 1998
-------------- -------------- ------------------
Grant-date fair value per share:
Options issued at market $ 1.67 $ 1.47 $ 2.76
Weighted average exercise prices:
Options issued at market $ 3.38 $ 3.47 $ 5.72
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 6.50% 5.17% 5.74%
Expected stock price volatility 0.30 0.40 0.41
Expected dividend payout n/a n/a n/a
Expected option life (years) (a) 8.28 6.00 6.00
Net income (loss):
As reported $ 4,009,902 $ 200,591 $ (2,796,074)
Pro forma $ 3,757,451 $ (30,927) $ (3,422,385)
Net income (loss) per share - Basic:
As reported $ 0.81 $ 0.04 $ (0.45)
Pro forma $ 0.76 $ (0.01) $ (0.55)
Net income (loss) per share - Diluted:
As reported $ 0.74 $ 0.02 $ (0.45)
Pro forma $ 0.69 $ (0.02) $ (0.55)
(a) The expected option life considers historical option exercise
patterns and future changes to those exercise patterns
anticipated at the date of grant.
F-21
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
12. STOCK BASED COMPENSATION (CONTINUED):
The following table summarizes information about employee stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$ 1.53 to 4.38 1,145,125 7.04 Years $3.44 973,958 $3.48
$ 5.75 to 7.81 619,433 6.71 6.15 619,433 6.15
-------------- ------- ---- ---- ------- ----
$ 1.53 to 7.81 1,764,558 6.91 $4.39 1,593,391 $4.52
============== ========= ==== ===== ========= =====
13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Office lease:
-------------
The Company entered into an operating lease for its existing office
facilities which expires December 2011. The lease provides for monthly
payments of approximately $28,500 plus common area maintenance and real
estate tax prorations beginning in Janaury 2002. The lease also
provides for an exclusive, two-year option to purchase the building at
the estimated fair value of $6,400,000.
Sale/leaseback of hotels:
-------------------------
On June 30, 1998, the Company completed the sale of 26 AmeriHost Inn
hotels to a Real Estate Investment Trust ("REIT") for $62.2 million.
The Company completed the sale of four additional AmeriHost Inn hotels
to the same REIT in March 1999. Upon the respective sales to the REIT,
the Company entered into agreements to lease back the hotels for an
initial term of ten years, with two five year renewal options. The
lease payments are fixed at 10% of the sale price for the first three
years. Thereafter, the lease payments are subject to a CPI increase
with a 2% annual maximum. In 1998, the Company recorded an
extraordinary loss of $333,000, net of income tax benefit of
approximately $231,000, relating to the early extinguishment of
mortgage debt on hotels sold in connection with the sale/leaseback
transaction. On June 16, 2000, one hotel owned by the REIT was sold.
Accordingly, the lease with the REIT for this hotel was terminated. The
remaining unamortized gain of approximately $402,000 was recognized as
a gain on sale of property in the accompanying consolidated financial
statements.
Hotel leases:
-------------
Including the hotels leased from the REIT, the Company leases 32 hotels
as of December 31, 2000, the operations of which are included in the
Company's consolidated financial statements. All of these leases are
triple net and provide for monthly base rent payments ranging from
$14,000 to $27,000. The Company subleases one of these hotels from a
partnership in which the Company owns an equity interest of 16.33%.
This lease also provides for additional rent payments of $74,000 per
annum, plus percentage rents computed on room revenues in excess of
stipulated amounts. The leases expire through March 2014.
The three leases, other than the REIT leases, provide for an option to
purchase the hotel. The purchase prices are based upon a fixed amount
approximately the fair value at the lease commencement, subject to
increases in the CPI index. At December 31, 2000, the aggregate
purchase price for these leased hotels was approximately $11,500,000.
F-22
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED):
Total rent expense for all operating leases was approximately
$6,892,000, $7,542,000, and $4,407,000 in 2000, 1999, and 1998,
respectively, including approximately $686,000, $811,000, and $993,000
in 2000, 1999, and 1998, respectively, to entities in which the Company
has a minority ownership interest. Minimum future rent payments under
all operating leases are as follows:
Year Ending December 31,
------------------------
2001 $ 7,709,000
2002 7,730,000
2003 7,654,000
2004 7,489,000
2005 7,497,000
Thereafter 23,643,000
--------------
$ 61,722,000
=============
Limited partnership guaranteed distributions:
---------------------------------------------
The Company is a general partner in three partnerships where the
Company has guaranteed minimum annual distributions to the limited
partners in the amount of 10% of their original capital contributions.
On September 18, 2000, the Company finalized the terms of the purchase
of the remaining ownership interests from its partners in these three
existing joint ventures for a total of $2,444,800. One of these
acquisitions was completed in January 2001, with the remaining two to
be completed on or before December 31, 2001.
Guarantees:
-----------
The Company has provided approximately $12.4 million in guarantees as
of December 31, 2000 on mortgage loan obligations for nine joint
ventures in which the Company holds a minority equity interest, which
expire at various dates through February 2019. Other partners have also
guaranteed portions of the same obligations. The partners of one of the
partnerships have entered into a cross indemnity agreement whereby each
partner has agreed to indemnify the others for any payments made by any
partner in relation to the guarantee 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:
-------------------------
As of December 31, 2000, the Company had entered into non-cancelable
sub-contracts for approximately $565,000 in connection with the
construction of one hotel, representing a portion of the total
estimated construction costs for this hotel. These commitments will be
funded through construction and long-term mortgage financing currently
in place.
F-23
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED):
Employment agreements:
----------------------
The Company has entered into an employment agreement with an executive
officer expiring December 31, 2003, providing for an annual base salary
of $325,000. The employment agreement provides for a cash bonus based
upon financial performance and hotel operations performance; stock
options, a portion of which vest only if the Company achieves certain
financial performance criteria; 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. The Company
currently has a receivable of approximately $275,000 held by a court in
connection with the construction of a hotel. The Company has received a
favorable court ruling with regard to this escrow, however, is waiting
an appeal. The Company believes this escrow will be released to the
Company in full.
14. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing
and financing activities for the years ended December 31:
2000 1999 1998
-------------- --------------- --------------
Sale of assets and franchising rights:
Cost basis of assets sold $ 8,200,961
Accumulated depreciation at sale (1,172,929)
Deferred assets 83,747
Deferred income (402,090)
Notes received, less $50,000 allowance (300,000)
Gain on sale 6,663,124
-------------
Net cash proceeds $ 13,072,813
=============
Reduction of notes receivable and related
interest in exchange for common stock $ 3,779
=============
Liabilities assumed in connection with
acquisition of hotel partnership interests $ 1,655,422 $ 31,093,530
============== =============
15. SALE OF AMERIHOST INN BRAND NAMES AND FRANCHISING RIGHTS:
Effective September 30, 2000, the Company completed the sale of the
AmeriHost Inn and AmeriHost Inn & Suites brand names and franchising
rights to Cendant Corporation ("Cendant"). The Company simultaneously
entered into franchise agreements with Cendant for its AmeriHost Inn
hotels. The Company received an initial payment of approximately $5.5
million upon closing and recorded a gain from this payment, net of
closing costs of approximately $5.2 million. The agreement with Cendant
also provides for additional incentives to the Company as the AmeriHost
Inn and AmeriHost Inn & Suites brand names are expanded. In conjunction
with this transaction, the Company began doing business as Arlington
Hospitality, Inc. and intends to legally change the name of the Company
to this name, subject to shareholder approval at its next regularly
scheduled shareholder meeting.
F-24
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
================================================================================
16. SUBSEQUENT EVENTS:
In January 2001, the Company amended the master lease with a REIT for
29 hotels to provide for the purchase of eight unidentified hotels from
the lessor under specified terms, and to extend the initial lease term
by five years. The amendment provides for four increases in rent
payments of 0.25% each, if these hotels are not purchased by the
Company by the dates specified.
In February 2001, the Company secured a $20 million new construction
loan facility with a lender who also holds the mortgage on two existing
hotels owned by the Company. This facility provides for both
construction financing as well as long-term permanent mortgage
financing.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data (in thousands, except per share
amounts) for 2000 and 1999 is summarized below. The sum of the
quarterly earnings (loss) per share amounts may not equal the annual
earnings per share amounts due primarily to changes in the number of
common shares and common share equivalents outstanding from quarter to
quarter.
Three Months Ended Year Ended
------------------------------------------------------
3/31 6/30 9/30 12/31 12/31
---------- ----------- --------- ---------- -------------
2000:
Total revenue $ 15,867 $ 21,805 $ 23,868 $ 14,612 $ 76,151
Operating income (loss) (651) 2,511 3,534 (741) 4,653
Gains on sale of assets and
franchising rights 172 840 5,507 144 6,663
Net income (loss) (904) 1,206 4,642 (934) 4,010
Net income (loss) per share:
Basic $ (0.18) $ 0.24 $ 0.93 $ (0.19) $ 0.81
Diluted $ (0.18) $ 0.23 $ 0.87 $ (0.19) $ 0.74
1999:
Total revenue $ 14,719 $ 19,088 $ 25,794 $ 16,457 $ 76,058
Operating income (loss) (1,385) 1,921 3,911 333 4,780
Gains on sale of assets - - 283 270 553
Net income (loss) (1,765) 798 1,542 (374) 201
Net income (loss) per share:
Basic $ (0.29) $ 0.14 $ 0.30 $ (0.07) $ 0.04
Diluted $ (0.29) $ 0.13 $ 0.27 $ (0.07) $ 0.02