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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended June 30, 2003
 
or
 
o
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the transition period from          to

Commission file number 1-14331

Interstate Hotels & Resorts, Inc.

(Exact name of registrant as specified in its charter)
     
Delaware
   52-2101815
(State of Incorporation)   (IRS Employer Identification No.)
 
4501 N. Fairfax Drive
Arlington, VA
(Address of Principal Executive Offices)		   22203
(Zip Code)

www.ihrco.com

This Form 10-Q can be accessed at no charge through above website.

Registrant’s Telephone Number, Including Area Code:

(703) 387-3100

      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 for which the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).     Yes þ          No o

      The number of shares of Common Stock, par value $0.01 per share, outstanding at August 7, 2003 was 20,622,004.

 

INTERSTATE HOTELS & RESORTS, INC.

 
INDEX
             
Page
PART I. FINANCIAL INFORMATION
 
Item 1:
  Financial Statements (unaudited)        
    Condensed Consolidated Balance Sheets — June 30, 2003 and December 31, 2002     2  
    Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) — Three months and six months ended June 30, 2003 and 2002     3  
    Condensed Consolidated Statements of Cash Flows — Six months ended June 30, 2003 and 2002     4  
    Notes to Condensed Consolidated Financial Statements     5  
 
Item 2:
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     16  
 
Item 3:
  Quantitative and Qualitative Disclosures About Market Risk     31  
 
Item 4:
  Controls and Procedures     32  
 
PART II. OTHER INFORMATION
 
Item 1:
  Legal Proceedings     33  
 
Item 2:
  Changes in Securities and Use of Proceeds     33  
 
Item 3:
  Defaults Upon Senior Securities     33  
 
Item 4:
  Submission of Matters to a Vote of Security Holders     33  
 
Item 5:
  Other Information     33  
 
Item 6:
  Exhibits and Reports on Form 8-K     34  

1

 

PART I. FINANCIAL INFORMATION

Item 1:     Financial Statements

INTERSTATE HOTELS & RESORTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
                     
June 30, December 31,
2003 2002
(unaudited)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 22,911     $ 7,054  
 
Restricted cash
    2,982       1,366  
 
Accounts receivable, net of allowance for doubtful accounts of $4,801 at June 30, 2003 and $4,125 at December 31, 2002
    34,045       13,532  
 
Insurance premiums receivable
    1,244       5,638  
 
Due from MeriStar Hospitality
    5,925       10,500  
 
Prepaid expenses and other current assets
    10,398       11,783  
     
     
 
   
Total current assets
    77,505       49,873  
Marketable securities
    1,057       2,413  
Property and equipment, net
    23,490       24,894  
Officers and employees notes receivable
    363       373  
Investments in and advances to affiliates
    25,274       25,199  
Deferred income taxes
    18,289       20,174  
Goodwill
    90,332       91,960  
Intangible assets, net
    61,154       65,795  
     
     
 
   
Total assets
  $ 297,464     $ 280,681  
     
     
 
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
 
Accounts payable and accrued expenses
  $ 77,276     $ 60,363  
 
Income taxes payable
    1,528       1,000  
 
Current portion of long-term debt
    1,625       1,625  
     
     
 
   
Total current liabilities
    80,429       62,988  
Deferred compensation
    1,057       2,413  
Long-term debt
    130,583       132,614  
     
     
 
   
Total liabilities
    212,069       198,015  
Minority interests
    4,592       6,242  
Commitments and contingencies
               
Stockholders’ equity:
               
 
Common stock, $.01 par value; 50,000 shares authorized; 20,617 and 20,557 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively
    206       205  
 
Treasury stock
    (69 )     (46 )
 
Paid-in capital
    138,415       138,268  
 
Accumulated other comprehensive loss
    64       (249 )
 
Accumulated deficit
    (57,813 )     (61,754 )
     
     
 
   
Total stockholders’ equity
    80,803       76,424  
     
     
 
   
Total liabilities, minority interests and stockholders’ equity
  $ 297,464     $ 280,681  
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

2

 

INTERSTATE HOTELS & RESORTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands, except per share amounts)
                                   
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
(as restated) (as restated)
Revenue:
                               
 
Lodging revenues
  $ 932     $ 779     $ 1,768     $ 1,455  
 
Management fees
    15,261       4,866       29,456       9,128  
 
Corporate housing
    28,392       —       54,211       —  
 
Other revenue
    2,947       5,451       6,829       9,464  
     
     
     
     
 
      47,532       11,096       92,264       20,047  
 
Other revenue from managed properties
    212,105       71,874       424,602       134,315  
     
     
     
     
 
Total revenue
    259,637       82,970       516,866       154,362  
Operating expenses by department:
                               
 
Lodging expenses
    664       549       1,284       1,030  
 
Corporate housing
    23,511       —       45,633       —  
Undistributed operating expenses:
                               
 
Administrative and general
    17,167       10,021       36,035       16,207  
 
Depreciation and amortization
    3,666       2,582       8,348       5,110  
 
Merger and integration costs
    606       —       2,470       —  
 
Tender offer costs
    —       881       —       1,000  
     
     
     
     
 
      45,614       14,033       93,770       23,347  
 
Other expenses from managed properties
    212,105       71,874       424,602       134,315  
     
     
     
     
 
Total operating expenses
    257,719       85,907       518,372       157,662  
     
     
     
     
 
Net operating income (loss)
    1,918       (2,937 )     (1,506 )     (3,300 )
Interest expense, net
    2,519       2,160       4,828       3,135  
Equity in losses of affiliates
    218       416       566       596  
Conversion incentive payment–convertible notes
    —       7,307       —       7,307  
Gain on refinancing
    —       —       (13,629 )     —  
     
     
     
     
 
Income (loss) before minority interest and income taxes
    (819 )     (12,820 )     6,729       (14,338 )
Minority interest expense (benefit)
    (7 )     (12 )     161       52  
Income tax expense (benefit)
    (325 )     (1,546 )     2,627       (2,093 )
     
     
     
     
 
Net income (loss)
    (487 )     (11,262 )     3,941       (12,297 )
Mandatorily redeemable preferred stock:
                               
 
Dividends
    —       148       —       307  
 
Accretion
    —       340       —       355  
 
Conversion incentive payment–preferred stock
    —       1,943       —       1,943  
     
     
     
     
 
Net income (loss) available to common shareholders
  $ (487 )   $ (13,693 )   $ 3,941     $ (14,902 )
     
     
     
     
 
Other comprehensive income (loss), net of tax:
                               
 
Foreign currency translation gain
    208       —       234       —  
 
Unrealized loss on investments and other
    (55 )     —       (46 )     —  
     
     
     
     
 
Comprehensive income (loss)
  $ (334 )   $ (13,693 )   $ 4,129     $ (14,902 )
     
     
     
     
 
Weighted average number of:
                               
 
Basic shares outstanding
    20,609       5,607       20,593       5,440  
 
Diluted shares outstanding
    20,609       5,607       21,226       5,440  
 
Net income (loss) available to common shareholders per basic share
  $ (0.02 )   $ (2.44 )   $ 0.19     $ (2.74 )
     
     
     
     
 
 
Net income (loss) available to common shareholders per diluted share
  $ (0.02 )   $ (2.44 )   $ 0.19     $ (2.74 )
     
     
     
     
 

The accompanying notes are an integral part of the consolidated financial statements.

3

 

INTERSTATE HOTELS & RESORTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
                     
Six months ended
June 30,
2003 2002
(as restated)
Cash flows from operating activities:
               
 
Net income (loss)
  $ 3,941     $ (12,297 )
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
               
 
Depreciation and amortization
    8,348       5,110  
 
Gain on refinancing
    (13,629 )     —  
 
Equity in loss of affiliates
    566       596  
 
Minority interest
    143       52  
 
Deferred income taxes
    1,885       (1,357 )
 
Write-off of assets
    1,415       —  
 
Amortization of mandatorily redeemable preferred stock
    —       1,375  
 
Stock option expense
    1       790  
 
Other
    8       2,082  
 
Changes in assets and liabilities:
               
   
Accounts receivable, net
    (11,235 )     (7,448 )
   
Prepaid expenses and other current assets
    901       51  
   
Accounts payable and accrued expenses
    17,227       2,179  
     
     
 
Net cash provided by (used in) operating activities
    9,571       (8,867 )
     
     
 
Cash flows from investing activities:
               
 
Change in restricted cash
    (1,616 )     (28 )
 
Purchase of property and equipment, net
    (1,722 )     (44 )
 
Purchases of intangible assets
    (580 )     —  
 
Purchases of marketable securities
    —       (1,061 )
 
Proceeds from sale of marketable securities
    —       795  
 
Net cash (invested for) received from equity investments in hotel real estate
    (87 )     134  
 
Change in officers and employees notes receivable, net
    10       (176 )
 
Change in advances to affiliates, net
    (482 )     1  
 
Merger-related acquisition costs
    —       (1,729 )
 
Deposits and other
    —       64  
     
     
 
Net cash used in investing activities
    (4,477 )     (2,044 )
     
     
 
Cash flows from financing activities:
               
 
Borrowings under subordinated term loan
    40,000       —  
 
Borrowings under senior revolver
    40,000       —