UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: September 2, 2004
(Date of earliest event reported)
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ARLINGTON HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
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Delaware 0-15291 36-3312434
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2355 South Arlington Heights Road
Suite 400
Arlington Heights, Illinois 60005
(Address of Principal Executive Offices)
(847) 228-5400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.06 -- MATERIAL IMPAIRMENTS
HOTEL DISPOSITION PLAN UPDATE
During 2003, we determined that the sale of a significant number of our hotel
properties would assist us in achieving our financial and growth objectives of
maximizing cash flow streams from hotel development activity and our AmeriHost
agreements with Cendant Corporation. After conducting a comprehensive assessment
of each of our hotel properties in July 2003, we adopted a formal plan to sell
25 to 30 hotels over a two-year period. In addition, we determined that all of
our owned non-AmeriHost Inn hotels would be sold as part of this plan, subject
to market conditions.
Upon successful completion of the sale of the properties in the plan, we expect
to own or lease 30 to 35 AmeriHost Inn hotels, excluding any new hotels we
develop. Since inception of the plan in July 2003, we have sold 17 hotels,
including 11 hotels in 2004, through the date of this filing. Below is a summary
of the sales made under the plan:
(in thousands)
Net cash
Number proceeds Mortgage Cendant
of after mortgage debt Incentive
hotels Payoff reduction Fees (1)
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Consolidated hotels:
AmeriHost Inn hotels 8 $ 3,599 $14,885 $ 1,414
Other brand hotels 2 916 2,276 --
------ ------- ------- -------
10 4,515 17,161 1,414
------ ------- ------- -------
Unconsolidated hotels:
AmeriHost Inn hotels 0 -- -- --
Other brand hotels 1 611 -- --
------ ------- ------- -------
1 611 -- --
------ ------- ------- -------
Total, year-to-date 2004 11 $ 5,126 $17,161 $ 1,414
====== ======= ======= =======
Total, since the implementation of the
strategic plan to sell hotels 16 $ 9,994 $25,876 $ 2,455
====== ======= ======= =======
(1) These fees are deferred for financial statement reporting purposes, and
amortized as revenue over a 76-month period.
On January 1, 2002, we adopted SFAS 144, "Statement of Financial Accounting
Standard (SFAS) No. 144, Accounting for Long-Lived assets (SFAS 144)". SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. We periodically review the carrying value of certain
long-lived assets in relation to historical results, current business conditions
and trends to identify potential situations in which the carrying value of
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assets may not be recoverable. If such reviews indicate that the carrying value
of such assets may not be recoverable, we 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, we would determine the fair value by using quoted market
prices, if available for such assets, or if quoted market prices are not
available, we would discount the expected future cash flows of such assets.
In connection with the plan for hotel disposition, and in accordance with SFAS
No. 144, we recorded $5.9 million in pre-tax, non-cash impairment charges during
2003, related to 18 of the hotels targeted for sale, including approximately
$909,000 which was included in "discontinued operations" in the company's
consolidated financial statements. The non-cash impairment charges represent
adjustments to reduce the carrying value of certain hotel assets to the
estimated sales prices, net of estimated costs to sell. Through the first six
months of 2004, we recorded an additional $1.4 million in pre-tax, non-cash
impairment charges. Approximately $907,000 of the additional impairment charges
in 2004 relate to one non-AmeriHost Inn hotel which is over 25 years old with
exterior corridors and will require a significant amount of capital expenditures
over the next few years. The operations of this hotel have declined
significantly over the past several months, as a result of a change in brand
affiliation and the addition of newer hotels in its local market. This decline
has had a negative impact on the value of the hotel, resulting in the impairment
charge. The remaining impairment charges recorded in 2004 relate primarily to
the ongoing evaluation of market conditions and listing prices on all of our
other properties.
Based on our recent review of the market conditions relating to one of the
hotels included in the plan for hotel disposition, we decided on September 2,
2004 to reduce the asking price for this hotel. In addition, we have received
offers to purchase two other assets. One of these assets is a vacant land parcel
and the other is an investment in a joint venture which owns and operates a
non-AmeriHost Inn hotel. Although these two assets were not part of the hotel
disposition plan adopted in 2003, we determined on September 2, 2004 that we
would pursue these offers based on our assessment of the asset values, their
potential, and related market conditions. The sale of these assets will result
in a significant amount of positive cash flow to the company, however we
anticipate recording approximately $378,000 in non-cash impairment charges
related to these three assets during the third quarter of 2004, thereby reducing
the carrying values of these assets to the anticipated net sale prices. We
expect to review the carrying value of all our long-lived assets in accordance
with SFAS 144 prior to the issuance of our report on Form 10-Q for the three and
nine months ended September 30, 2004.
When the plan for hotel disposition was adopted, we expected that the sale of
the identified hotels would generate net cash of approximately $11.5 million to
$14.7 million, after the repayment of the related mortgage debt secured by the
individual properties. Our sale program is a dynamic process. Since the adoption
of the plan, we have slightly changed the mix of hotels being offered for sale,
identified and/or engaged three additional brokers, in addition to the national
broker used thus far, to market and sell the hotels, and reevaluated the listing
prices of certain hotels on an ongoing basis. Based on changes in specific hotel
market conditions, certain hotel offering prices have changed, including some
price reductions. Currently, exclusive of any cash generated from the two
additional assets contemplated to be sold as discussed above, we anticipate that
the plan for hotel disposition will now generate total net proceeds toward the
lower end of the range as originally estimated, or approximately $11.9 million
to $12.5 million.
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Inclusive of the two additional assets contemplated to be sold, the plan for
hotel disposition is expected to generate total net proceeds of approximately
$14.0 million to $14.6 million. There can be no assurances, however, as to the
timing, and terms of sale, or that any additional sales will be consummated.
ITEM 8.01 - OTHER EVENTS.
On September 17, 2004, Arlington Hospitality, Inc. (the "Company") issued a
press release announcing August 2004 operating results and recent hotel
development and sales activity. A copy of the Company's press release is
attached to this current report on Form 8-K as Exhibit 99.1.
ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS.
EXHIBITS
99.1 Press Release of Arlington Hospitality, Inc., dated September 17, 2004,
announcing August 2004 operating results and recent hotel development and sales
activity.
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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 hereunto duly authorized.
DATE: September 17, 2004
Arlington Hospitality, Inc.
(Registrant)
By: /s/ Jerry H. Herman
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Jerry H. Herman
Chief Executive Officer
By: /s/ James B. Dale
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James B. Dale
Senior Vice President and
Chief Financial Officer
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