UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission File Number: 0-23054
HOSPITALITY WORLDWIDE SERVICES, INC.
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(exact name of registrant as specified in its charter)
NEW YORK 11-3096379
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 PARK AVENUE, SUITE 2603, NEW YORK, NY 10022
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(Address of principal executive offices) (Zip Code)
(212) 223-0699
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(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports 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.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 12,113,856 as of August 12, 1998.
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997.............................................3
Consolidated Statements of Operations for the three
months ended June 30, 1998 and 1997 and six months
ended June 30, 1998 and 1997......................................4
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1998.....................5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 ..............................6
Notes to Consolidated Financial Statements .......................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................................11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security holders..............14
Item 6. Exhibits and Reports on Form 8-K.................................15
Signatures..................................................................16
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995.
Except for historical information contained herein, the Report on Form 10-Q
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which involve certain risks and uncertainties. The
Company's actual results or outcomes may differ materially from those
anticipated. In assessing forward-looking statements contained herein, readers
are urged to carefully read those statements. When used in the Report on Form
10-Q, the words "estimate," "anticipate," "expect," "believe" and similar
expressions are intended to identify forward-looking statements.
2
HOSPITALITY WORLDWIDE SERVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
UNAUDITED
CURRENT ASSETS:
Cash and cash equivalents $14,053 $11,964
Marketable securities --- 18,916
Accounts receivable, less allowance for 49,857 21,933
doubtful accounts of $366 and $268
Current portion of note receivable --- 342
Costs and estimated earnings in excess of billings 1,614 3,421
Advances to vendors 5,617 4,255
Prepaid and other current assets 4,535 1,037
-------- -------
Total current assets 75,676 61,868
Property and equipment, less accumulated 8,511 3,548
depreciation of $649 and $338
Goodwill and other intangibles, less 25,579 17,078
accumulated amortization of $2,019 and
$1,490
Deferred taxes 1,059 739
Other assets 5,404 1,035
-------- --------
$116,229 $84,268
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable - bank 4,450 ---
Current portion of notes payable and 655 ---
capital lease obligations
Accounts payable 26,765 16,374
Accrued and other liabilities 4,347 2,540
Billings in excess of costs and 293 296
estimated earnings
Customer deposits 13,943 13,324
Income taxes payable 619 8
-------- -------
Total current liabilities 51,072 32,542
Notes payable and capital lease
obligations, net of current portion 3,296 ---
-------- -------
Total liabilities 54,368 32,542
-------- -------
STOCKHOLDERS' EQUITY:
Convertible preferred stock,$.01 par 5,000 5,000
value, $25 stated value, 3,000,000
shares authorized, 200,000 shares
issued and outstanding, $5,000,000
liquidation preference
Common stock, $.01 par value, 121 113
50,000,000 shares authorized,
12,105,522 and 11,345,572 shares
issued and outstanding
Additional paid-in capital 54,996 47,520
Retained earnings (deficit) 1,744 (907)
-------- -------
Total stockholders' equity 61,861 51,726
-------- -------
$116,229 $84,268
======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Net revenues $52,359 $19,513 $93,649 $37,708
Cost of revenues 43,639 14,958 77,537 29,694
------- ------- ------- -------
Gross profit 8,720 4,555 16,112 8,014
Selling, general and administrative expenses 6,206 3,617 11,695 6,260
------- ------- ------- -------
Income from operations 2,514 938 4,417 1,754
------- ------- ------- -------
Other income (expense):
Interest income 366 78 730 141
Interest expense (115) (164) (260) (256)
------- ------- ------- -------
251 (86) 470 (115)
------- ------- ------- -------
Income before provision for income taxes 2,765 852 4,887 1,639
Provision for income taxes 1,182 422 2,086 817
------- ------- ------- -------
Net income $1,583 $430 $2,801 $822
======= ======= ======= =======
Basic earnings per common share $0.13 $0.04 $0.22 $0.08
======= ======= ======= =======
Diluted earnings per common share $0.12 $0.04 $0.20 $0.08
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,920 8,138 11,870 7,991
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 13,746 9,992 13,862 9,838
======= ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(in thousands)
Unaudited
Preferred Stock Common Stock
-------------------------------------------------------
Number Addt'l Retained Total
Number of Stated of Par Paid In Earnings Stockholders'
Shares Valued Shares Value Capital (Deficit) Equity
------ ------ ------- ----- ------- --------- ------
BALANCE, JANUARY 1, 1998 200 $5,000 11,346 $113 $47,520 $(907) $51,726
Exercise of stock options
and warrants --- --- 246 2 731 --- 733
Stock issued in
connection with
acquisition --- --- 514 6 6,166 --- 6,172
Warrants issued for
services --- --- --- --- 579 --- 579
Net income --- --- 2,801 2,801
Preferred dividends --- --- --- --- --- (150) (150)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 200 $5,000 12,106 $121 $54,996 $1,744 $61,861
====================================================================================================
The accompanying notes to consolidated financial statements notes are an
integral part of these statements.
5
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
Six Months ended
June 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITES:
Net income $2,801 $822
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 839 550
Stock based compensation charge 268 22
Deferred income tax benefit (320) 25
(Increase) decrease in current assets:
Accounts receivable (24,762) (2,304)
Notes receivable 342 25
Costs in excess of billings 1,807 126
Advances to vendors (1,362) (1,627)
Prepaid and other current assets (1,025) (384)
(Increase) in other assets (1,090) (109)
Increase (decrease) in current liabilities:
Accounts payable 8,844 (1,082)
Accrued and other liabilities 1,020 205
Billings in excess of costs 3 263
Customer deposits 619 2,846
Income taxes payable 611 (25)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (11,423) (647)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short term marketable securities 18,916 ---
Purchase price of acquisition (1,500) ---
Investment ING Joint Venture (2,359) ---
Cash acquired, upon acquisition,
net of acquisition costs (62) 689
Purchase of property and equipment (2,477) (714)
Investment in mortgages receivable (3,203) ---
--------- --------
NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES 9,315 (25)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loan payable (7,300) ---
Proceeds from borrowings on loan payable 11,750 3,295
Repayment of notes payable and capital
lease obligations (986) (15)
Proceeds from exercise of stock options and warrants 733 761
Purchase of treasury stock --- (2,210)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,197 1,831
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,089 1,159
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,964 276
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $14,053 $1,435
======== ========
6
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 1,442 $ 725
Interest $ 268 $ 148
NON-CASH INVESTING & FINANCING ACTIVITIES:
Fair value (including goodwill) of net
assets acquired $ 6,232 $11,166
Stock issued for assets acquired $ 6,172 $11,953
Preferred stock dividends not paid in lieu
of purchase price reduction for LPC $ --- $ 150
acquisition
The accompanying notes to consolidated financial statements are an integral part
of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CONSOLIDATION
The consolidated financial statements of Hospitality Worldwide Services, Inc.
and Subsidiaries (the "Company") and related notes thereto as of June 30, 1998
and for the three months and six months ended June 30, 1998 and 1997 are
presented as unaudited, but in the opinion of management include all adjustments
necessary to present fairly the information set forth therein. These adjustments
consist solely of normal recurring adjustments. The consolidated balance sheet
information for December 31, 1997 was derived from the audited consolidated
financial statements included in the Company's Form 10-K. These interim
consolidated financial statements should be read in conjunction with that
report. The interim results are not necessarily indicative of the results for
any future period.
NOTE 2: ACQUISITIONS
On January 9, 1998, the Company completed the acquisition of Bekins Distribution
Services, Inc. ("Bekins"), a leading provider of transportation, warehousing and
installation services to a variety of customers worldwide. Founded in 1969,
Bekins is a logistical services company that serves clients who are opening,
renovating or relocating facilities by assuring that materials, fixtures,
furniture and merchandise are moved from multiple vendor locations to their
ultimate destinations in a controlled orderly sequence so that each item can be
installed on schedule. The purchase price of Bekins of approximately $11,000,000
consisted of 514,117 shares of Common Stock and the assumption of certain
Bekins' debt. The purchase agreement contains a make-whole adjustment whereby,
on a formula-basis, additional shares will be transferred if the price of the
Company's common stock for the 20 days prior to the one year anniversary date is
less than 85% of the share price on the date of acquisition. The acquisition was
accounted for as a purchase with the results of Bekins included in the
consolidated financial statements of the Company from the acquisition date.
On February 9, 1998, the Company purchased the assets of the real estate
advisory business, consisting primarily of development contracts, from
7
Watermark Limited, LLC, an international management company that is the general
partner and manages Watertone Holdings LP, a shareholder of the Company. The
resulting wholly owned subsidiary of the Company is named HWS Real Estate
Advisory Group, Inc. ("HWS REAG"). The purchase price of HWS REAG was $1,500,000
and their results are included in the consolidated financial statements of the
Company from the acquisition date.
On March 6, 1998, in conjunction with a joint venture formed with ING Realty
Partners ("ING Joint Venture"), the Company acquired the Clarion Quality Hotel
in Chicago, Illinois. A wholly-owned subsidiary of the Company will renovate and
refurbish this property pursuant to a contract with the ING Joint Venture, which
is expected to generate approximately $15 million of revenue for the Company in
1998.
NOTE 3: EARNINGS PER SHARE OF COMMON STOCK
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share are very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
prior periods have been restated to conform to the new requirements.
Basic earnings per common share are based on net income less preferred stock
dividends divided by the weighted average number of common shares outstanding.
Diluted earnings per common share are adjusted to reflect the assumed conversion
of convertible preferred stock and the elimination of the preferred stock
dividends, if such conversion is dilutive, and the weighted average number of
common share equivalents from stock options and warrants.
NOTE 4: PRO FORMA INFORMATION
The following pro forma consolidated financial information has been prepared to
reflect the acquisition of the assets and business of Bekins. The pro forma
financial information is based on the historical financial statements of the
Company and Bekins, and should be read in conjunction with the accompanying
footnotes. The accompanying pro forma financial information is presented as if
the transaction occurred January 1, 1997. The pro forma financial information is
unaudited and is not necessarily indicative of what the actual results of
operation of the Company would have been assuming the transaction had been
completed as of January 1, 1997, and neither is it necessarily indicative of the
results of operations for future periods.
Six Months Ended June 30, 1997
-----------------------------------------------------------------------
(amounts in thousands, except share data) (Unaudited)
Net revenues $48,454
Net income $948
Basic earnings per common share $0.11
The above unaudited pro forma statements have been adjusted to reflect the
amortization of goodwill, as generated by the acquisition over a 30-year period,
adjustments to reflect historical compensation per employment agreements entered
into at the date of acquisition, additional income taxes on pro forma income and
the 514,117 common shares issued as consideration in the transaction.
8
NOTE 5: RECENT DEVELOPMENTS
On June 5, 1998, the Company signed a master development agreement with Prime
Hospitality Corp. ("Prime") to develop twenty hotel properties over a two-year
period under the AmeriSuites brand name. Under the agreement, the Company will
provide the site identification, development, construction and purchasing
services required for each project and Prime will provide project design and
management and franchise services once each property is complete. The Company
and Prime will be equally responsible for the financing requirements (up to $30
million each) and will each have a 50% interest in the new hotels.
NOTE 6: COMPREHENSIVE INCOME
In July 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a separate
financial statement. Comprehensive income generally includes net income as
reported by the Company adjusted for cumulative foreign translation adjustments
and unrealized gains and losses on marketable securities that are
available-for-sale, which are currently reported in the stockholders' equity
section of the balance sheet. The statement is effective for fiscal years
beginning after December 15, 1997. The Company has adopted the standard at the
beginning of 1998. The differences between net income as reported and
comprehensive income is immaterial for the three and six months ended June 30,
1998 and 1997.
NOTE 7: DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement requires that the Company
report financial and descriptive information about its reportable operating
segments in financial statements issued to shareholders for interim and annual
periods. The Statement also establishes standards for related disclosures about
products and services, geographic areas and major customers. Under this
Statement, operating segments are components of an enterprise about which
separate financial information is available that is regularly evaluated by the
enterprise's chief operational decision-maker in deciding how to allocate
resources and in assessing performance. This statement is effective for fiscal
years beginning after December 15, 1997. The Company will conform with the new
standard as of December 31, 1998.
NOTE 8: YEAR 2000
In July 1996, the Emerging Issues Task Force reached a consensus, on Issue
96-14, "Accounting for the Costs Associated with Modifying Computer Software for
the Year 2000," which requires that costs associated with modifying computer
software for the year 2000 be expensed as incurred. Management has evaluated the
impact of Year 2000 issues on the Company's business and operations. The Company
believes, based upon its internal reviews and other factors, that future
external and internal costs to be incurred relating to the modification of
internal-use software for the year 2000 will not have a material effect on the
Company's results of operations or financial position.
9
NOTE 9: EARNINGS PER SHARE
The following table reconciles the components of basic and diluted earnings per
common share for the three and six months ended June 30, 1998 and 1997 (in
thousands).
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
Net income $1,583 $430 $2,801 $822
Preferred stock dividends (75) (75) (150) (150)
------ ---- ------ ----
Basic earnings per common share - 1,508 355 2,651 672
Net income available to common
shareholders
Effect of dilutive securities 75 75 150 150
Preferred stock dividends ------ ---- ------ ----
Diluted earnings per common share - $1,583 $430 $2,801 $822
Net income available to common
stockholders
Denominator:
Basic earnings per common share - weighted
average common shares outstanding 11,920 8,138 11,870 7,991
Effect of dilutive securities
Stock-based compensation plans 826 854 992 847
Preferred stock 1,000 1,000 1,000 1,000
------ ---- ------ ----
Diluted earnings per common share -
Weighted average common and common
equivalent shares outstanding 13,746 9,992 13,862 9,838
10
HOSPITALITY WORLDWIDE SERVICES INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS/OVERVIEW
From its inception in 1991 to August 1995, the Company's only source of revenues
was its decorative energy-efficient lighting fixture design, manufacturing and
installation business. The Company acquired its renovation business in August
1995 and disposed of its lighting business in February 1996. As part of its
strategy to further its position as one of the leading providers of services for
the hospitality industry on a global basis, the Company acquired its procurement
and reorder businesses in January 1997, its transportation, warehousing and
installation business in January 1998 and its real estate advisory business in
February 1998. As a result of this significant change in the Company's business
focus, period to period historical comparisons are not considered meaningful.
Additionally, historical comparisons are not considered meaningful because
revenue recognition methodologies vary across the Company's businesses. The
Company recognizes all revenues associated with a renovation, transportation,
warehousing or installation project on a percentage of completion basis. As part
of this process, the Company develops a complete scope of work to be performed
and invoices its clients on a monthly or bi-monthly basis as work is performed.
The Company's cost of services has been relatively stable over the past two
years. In contrast to the Company's recognition of renovation, transportation,
warehousing or installation revenues, the Company recognizes procurement
revenues in three ways: (i) when the Company is a principal, during which it
functions as a purchaser and reseller of products, the Company recognizes all
revenues associated with the products it purchases at the time of shipment of
the respective product, (ii) when the Company acts as an agent only, service fee
income is recognized as revenue at the time the service is provided and (iii)
when the Company provides these services under long-term contracts, earnings are
recognized under the percentage of completion method, based on efforts expended
over the life of the contract. In each case, the Company charges its clients a
procurement fee based upon the amount of time and effort it expects to spend on
a project. The Company intends to continue to expand its role as a purchaser and
reseller because the Company believes that it can enter into more advantageous
arrangements with its vendors when acting as principal rather than agent. Under
each method of procurement revenue recognition, profits primarily include only
procurement service fees. The Company realizes reorder and real estate advisory
revenue based on the fees it charges its clients for services rendered.
RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 1998 vs. SIX MONTHS ENDED JUNE
30, 1997.
The Company experienced a significant increase in its net revenues to
$93,649,000 for the six months ended June 30, 1998 in comparison to $37,708,000
for the six months ended June 30, 1997, due in large part to increased revenues
for the renovation and procurement businesses which have increased over last
year due to continued growth in their customer base, attributed to increased
sales and marketing efforts, and the further establishment of the Company's name
in the hospitality industry. In addition, the acquisitions of Bekins and HWS
REAG have contributed approximately $11,800,00 to such revenues.
Cost of revenues for the six months ended June 30, 1998 were $77,537,000,
compared to $29,694,000 for the same period last year. This increase is due
mainly to the additions of Bekins and HWS REAG, which incurred costs of
11
approximately $8,500,000 for the six months ended June 30, 1998 and the result
of revenue growth. Gross profit, as a percent of revenue was 17.2% for the six
months ended June 30, 1998 as compared to 21.3% for the same period last year
due to expansion into businesses which have different pricing structures as well
as increased volume of activity in the procurement businesses which historically
has lower gross margins as compared to the renovation business.
Selling, general and administrative expenses for the six months ended June 30,
1998 have increased to $11,695,000, compared to $6,260,000 for the same period
last year. Contributing to this increase are the acquisitions of Bekins and HWS
REAG, which incurred expenses of approximately $2,200,000 and an investment in
the infrastructure of the Company to support the revenue growth. Additionally,
selling, general and administrative expenses include $526,000 and $394,000 of
goodwill amortization for the periods ended June 30, 1998 and 1997,
respectively. As a percentage of net revenues, selling, general and
administrative expenses for the six months ended June 30, 1998 have decreased to
12.5% from 16.6% for the same period last year. This reduction is the result of
greater economies of scale provided by growth and the acquisitions. Given the
decreased percentage of selling, general and administrative expenses to net
revenues, the Company was able to achieve the same percentage of income from
operations to net revenues, 4.7% for the six months ended June 30, 1998 and
1997.
Interest income increased from $141,000 to $730,000 in the six months ended June
30, 1998 due to the investment of the proceeds received from the Company's
public offering in September 1997. Interest expense increased in the six months
ended June 30, 1998 as compared to the same period last year primarily due to
the acquisition of Bekins which carries approximately $3,900,000 of long-term
debt.
The provision for income taxes for the six months ended June 30, 1998 was
$2,086,000, compared to $817,000 for the six months ended June 30, 1997. The
increase in the provision for income taxes was primarily due to an increase in
income before income taxes.
As a result of the above, net income for the six month period ended June 30,
1998 was $2,801,000 compared to net income of $822,000 for the same period last
year.
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1998 vs. THREE MONTHS ENDED
JUNE 30, 1997
The Company's net revenues increased substantially in the three months ended
June 30, 1998 to $52,359,000 as compared to $19,513,000 for the three months
ended June 30, 1997. The increase was due primarily to increased revenues for
the procurement and renovation businesses which have utilized sales and
marketing efforts and further establishment of the Company's name in the
hospitality industry to continue growth in their customer base. Additionally,
the acquisition of Bekins and HWS REAG have contributed approximately $5,550,000
to revenue to the quarter ended June 30, 1998.
Cost of revenues for the three months ended June 30, 1998 were $43,639,000,
compared to $14,958,00 for the three months ended June 30, 1997. This increase
is due to revenue growth and the additions of Bekins and HWS REAG, which
incurred cost of revenues of approximately $4,000,000 in the quarter ended June
30, 1998. As a percent of revenues, gross profit was 16.7% for the three months
ended June 30, 1998 as compared to 23.3% for the same period last year. The
change in gross profit percent was primarily due to an increased volume of
activity in the procurement businesses which historically have lower gross
margins as compared to the renovation business.
12
Selling, general and administrative expenses for the quarter ended June 30, 1998
were $6,206,000, compared to $3,617,000 for the same period last year. The
primary contributors to this increase were the acquisitions of Bekins and HWS
REAG, which incurred expenses of approximately $1,200,000 and an investment in
the infrastructure of the Company to support the revenue growth, Additionally,
selling, general and administrative expenses include $264,000 and $197,000 of
goodwill amortization for the three months ended June 30, 1998 and 1997,
respectively. As a result of greater economies of scale from growth and
acquisitions, selling, general and administrative expenses as a percentage of
net revenues declined to 11.9% in the quarter ended June 30, 1998 from 18.5% in
the same quarter a year ago. Given this decreased percentage, the Company was
able to achieve the same percentage of income from operations to net revenues,
4.8% for the three months ended June 30, 1998 and 1997.
Interest income increased from $78,000 to $366,000 in the quarter ended June 30,
1998 due to the investment of the proceeds received from the Company's public
offering in September, 1997. Interest expense decreased in the three months
ended June 30, 1998 as a result of a lower level of borrowings outstanding in
the current quarter as compared to the same period last year.
The provision for income taxes for the three months ended June 30, 1998 was
$1,182,000 compared to $422,000 for the same period last year. The increase was
primarily due to the increase in income before income taxes.
As a result of the above, net income for the three month period ended June 30,
1998 increased to $1,583,000, compared to net income of $430,000 for the same
period last year.
LIQUIDITY AND CAPITAL RESOURCES
In March 1998, the Company obtained a new unsecured line of credit with Marine
Midland Bank, which provides the Company a maximum borrowing of $7,000,000.
Borrowings under the line of credit bear interest at the bank's prime lending
rate. Proceeds from the borrowing are utilized to fund short-term cash
requirements. At June 30, 1998, there were $4,450,000 in outstanding borrowings
under the line of credit.
In July 1998, the Company obtained a new unsecured line of credit with
NationsBank, which provides the Company a maximum borrowing of $6,000,000.
Borrowings under the line of credit bear interest at the bank's prime lending
rate. Proceeds from the borrowing are utilized to fund short-term cash
requirements. At June 30, 1998 there were no outstanding borrowings under the
line of credit.
The Company's short-term and long-term liquidity requirements generally consist
of operating capital for its businesses and selling, general and administrative
expenses. The Company continues to satisfy its short-term and long-term
liquidity requirements with cash generated from operations, borrowings under
lines of credit and funds from a public offering of its Common Stock in
September 1997. Due to the nature of its resources allocated to personnel for
performance of its services, capital requirements are insignificant.
Net cash used by operating activities was ($11,423,000) for the six months ended
June 30, 1998, compared to ($647,000) for the same period last year. During the
six months ended June 30, 1998, the Company's accounts receivable increased due
to revenue growth and acquisitions. This increase was partially offset by an
increase in accounts payable. The additional accounts receivable at June 30,
1998 are expected to be collected in full in 1998.
13
Net cash provided by investing activities for the six months ended June 30, 1998
was $9,315,000, compared to a use of $25,000 for the six months ended June 30,
1997. The increase in cash provided is primarily the result of maturing
marketable securities which were used to fund operating activities offset by the
purchase of a subsidiary, HWS REAG, the investment in the ING Joint Venture,
which purchased the Clarion Quality Hotel and the investment in mortgages
receivable.
Net cash provided by financing activities for the six months ended June 30, 1998
was $4,197,000 compared to net cash provided of $1,831,000 for the same period
last year. The primary financing source in the six months ended June 30, 1998
was the proceeds from borrowings on the Company's available line of credit.
As the Company grows and continues to explore opportunities for strategic
alliances and acquisition, investment in additional support systems, including
infrastructure and personnel will be required. The Company expects to increase
its costs and expenses as it continues to invest in the development of its
businesses. Although these increases may result in a short-term reduction in
operating margin as a percentage of revenues, the Company anticipates that its
investments will have a positive impact on its net revenues on a long-term
basis. The Company anticipates making substantial expenditures as it continues
to explore expansion through strategic alliances and acquisitions.
The Company believes its present cash position, including increasing revenues
and cash on hand, amounts available under lines of credit and its ability to
obtain additional financing as necessary, will allow the Company to meet its
short-term operating needs for at least the next twelve months.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 25, 1998, the Company held its 1998 Annual Meeting of
Shareholders (the "Meeting"), whereby the shareholders (1) elected 7 members to
the Company's Board of Directors; (2) approved amendments to the Company's
Certificate of Incorporation and By-Laws to create three classes of directors
serving for staggered terms ranging from one to three years; (3) approved an
amendment to the Company's Certificate of Incorporation to increase (i) the
number of authorized shares of common stock from 20,000,000 to 50,000,000, and
(ii) the number of authorized shares of preferred stock from 3,000,000 to
5,000,000; (4) approved an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares of common stock issuable upon exercise of stock
options granted thereunder from 1,700,000 to 2,700,000; and (5) ratified the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1998. The vote on such
matters was as follows:
1. Election of Directors:
NUMBER OF SHARES OF NUMBER OF SHARES OF
COMMON STOCK COMMON STOCK
TO THE BOARD OF DIRECTORS: FOR WITHHELD AUTHORITY
Robert A. Berman 11,133,902 107,672
Leonard F. Parker 11,133,902 107,672
Douglas A. Parker 11,133,902 107,672
Scott A. Kaniewski 11,133,902 107,672
Louis K. Adler 11,133,902 107,672
George Asch 11,133,902 107,672
Richard A. Bartlett 11,133,902 107,672
14
2. Approval of amendments to the Company's Certificate of Incorporation
and By-Laws to create three classes of directors serving for
staggered terms ranging from one to three years:
FOR AGAINST ABSTAINING
6,670,084 2,599,870 45,896
3. Approval of an amendment to the Company's Certificate of
Incorporation to increase (i) the number of authorized shares of
Common Stock from 20,000,000 to 50,000,000, and (ii) the number of
authorized shares of Preferred Stock from 3,000,000 to 5,000,000,
were as follows:
FOR AGAINST ABSTAINING
7,087,452 1,822,348 35,750
4. Approval of an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares issuable upon exercise of stock
options granted thereunder from 1,700,000 to 2,700,000:
FOR AGAINST ABSTAINING
6,965,869 2,378,621 67,360
5. Ratification of the appointment of Arthur Andersen, LLP as the
Company's independent certified public accountants for the fiscal
year ending December 31, 1998 were as follows:
FOR AGAINST ABSTAINING
11,210,232 11,992 19,350
Item 5. Other Information
In accordance with recent amendments to the proxy rules under the
Securities Exchange Act of 1934, as amended, the Company's shareholders are
notified that the deadline for providing the Company timely notice of any
shareholder proposal to be submitted outside of the Rule 14a-8 process for
consideration at the Company's 1999 Annual Meeting of Shareholders will be April
7, 1999. As to all such matters as to which the Company does not have notice on
or prior to April 7, 1999, discretionary authority shall be granted to the
designated persons in the Company's proxy for such Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation, as amended, of the
Company.
3.2 Amended and Restated By-laws of the Company.
10 Master Development Agreement, dated June 5, 1998, by
and between the Company and Prime Hospitality Corp.
11 Computation of earnings per share (Incorporated herein
by reference to Note 9 to the Company's Consolidated
Financial Statements).
27 Financial Data Schedule
(b) Reports on Form 8-K
APRIL 15, 1998 THE FOLLOWING EVENT WAS REPORTED:
The Company filed a Form 8-K/A to amend the filing of Form 8-K/A on March 24,
1998 to include certain revised pro forma financial statements with respect to
the Company's acquisition of Bekins.
The following financial statements were filed with this report:
Hospitality Worldwide Services, Inc. Pro Forma Financial Information.
Balance Sheet as of September 30, 1997.
Income Statement for the nine months ended September 30, 1997. Income Statement
for the year ended December 31, 1996.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY WORLDWIDE SERVICES, INC.
By: /S/ROBERT A. BERMAN
-------------------------------------
ROBERT A. BERMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /S/HOWARD G. ANDERS
-------------------------------------
HOWARD G. ANDERS
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER) AND
SECRETARY
Dated: August 14, 1998