UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2004 | ||
| or | ||
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o
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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.
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Delaware
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52-2101815 | |
| (State of Incorporation) | (IRS Employer Identification No.) | |
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4501 North Fairfax Drive Arlington, VA |
22203 (Zip Code) |
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| (Address of Principal Executive Offices) | ||
www.ihrco.com
(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. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). o
The number of shares of Common Stock, par value $0.01 per share, outstanding at November 5, 2004 was 30,657,397.
INTERSTATE HOTELS & RESORTS, INC.
INDEX
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| PART I. FINANCIAL INFORMATION | ||||||
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Item 1:
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Financial Statements (Unaudited) | |||||
| Consolidated Balance Sheets — September 30, 2004 and December 31, 2003 | 2 | |||||
| Consolidated Statements of Operations and Comprehensive Income (Loss) — Three and nine months ended September 30, 2004 and 2003 | 3 | |||||
| Consolidated Statements of Cash Flows — Nine months ended September 30, 2004 and 2003 | 4 | |||||
| Notes to Consolidated Financial Statements | 5 | |||||
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Item 2:
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
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Item 3:
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Quantitative and Qualitative Disclosures About Market Risk | 34 | ||||
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Item 4:
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Controls and Procedures | 35 | ||||
| PART II. OTHER INFORMATION | ||||||
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Item 1:
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Legal Proceedings | 36 | ||||
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Item 2:
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Changes in Equity Securities and use of Proceeds | 36 | ||||
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Item 3:
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Defaults Upon Senior Securities | 36 | ||||
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Item 4:
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Submission of Matters to a Vote of Security Holders | 36 | ||||
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Item 5:
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Other Information | 36 | ||||
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Item 6:
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Exhibits | 38 | ||||
1
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
INTERSTATE HOTELS & RESORTS, INC.
| September 30, | December 31, | |||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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||||||||||
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Cash and cash equivalents
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$ | 9,727 | $ | 7,450 | ||||||
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Restricted cash
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1,886 | 3,250 | ||||||||
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Accounts receivable, net of allowance for
doubtful accounts of $2,998 at September 30, 2004 and
$3,529 at December 31, 2003
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31,523 | 25,531 | ||||||||
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Due from related parties
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8,270 | 14,649 | ||||||||
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Prepaid expenses and other current assets
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10,348 | 9,342 | ||||||||
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Total current assets
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61,754 | 60,222 | ||||||||
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Marketable securities
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1,577 | 2,556 | ||||||||
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Property and equipment, net
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24,104 | 27,056 | ||||||||
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Notes receivable
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6,117 | 6,044 | ||||||||
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Officers and employees notes receivable
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74 | 86 | ||||||||
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Investments and advances to affiliates
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11,023 | 15,825 | ||||||||
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Deferred income taxes
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22,123 | 18,673 | ||||||||
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Goodwill
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92,123 | 92,123 | ||||||||
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Intangible assets, net
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46,349 | 55,338 | ||||||||
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Total assets
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$ | 265,244 | $ | 277,923 | ||||||
| LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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||||||||||
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Accounts payable and accrued expenses
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$ | 57,989 | $ | 66,513 | ||||||
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Accounts payable — related parties
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433 | 433 | ||||||||
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Current portion of long-term debt
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16,880 | 1,625 | ||||||||
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Total current liabilities
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75,302 | 68,571 | ||||||||
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Deferred compensation
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1,577 | 2,556 | ||||||||
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Long-term debt
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70,723 | 84,696 | ||||||||
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Total liabilities
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147,602 | 155,823 | ||||||||
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Minority interests
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928 | 3,388 | ||||||||
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Commitments and contingencies
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||||||||||
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Stockholders’ equity:
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||||||||||
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Preferred stock, $0.01 par value;
5,000 shares authorized
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— | — | ||||||||
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Common stock, $0.01 par value;
250,000 shares authorized; 30,657 and 29,951 shares
issued and outstanding at September 30, 2004 and
December 31, 2003, respectively
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307 | 300 | ||||||||
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Treasury stock
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(69 | ) | (69 | ) | ||||||
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Paid-in capital
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188,776 | 183,849 | ||||||||
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Accumulated other comprehensive income, net of tax
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600 | 837 | ||||||||
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Accumulated deficit
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(72,900 | ) | (66,205 | ) | ||||||
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Total stockholders’ equity
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116,714 | 118,712 | ||||||||
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Total liabilities, minority interests and
stockholders’ equity
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$ | 265,244 | $ | 277,923 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
2
INTERSTATE HOTELS & RESORTS, INC.
| Three months ended | Nine months ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||||
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Revenue:
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Lodging revenues
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$ | 905 | $ | 929 | $ | 2,476 | $ | 2,697 | |||||||||
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Management fees
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5,453 | 6,689 | 17,414 | 20,811 | |||||||||||||
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Management fees-related parties
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6,660 | 7,152 | 23,345 | 22,793 | |||||||||||||
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Corporate housing
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31,701 | 27,480 | 83,506 | 77,762 | |||||||||||||
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Other revenue
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4,245 | 3,778 | 10,599 | 10,607 | |||||||||||||
| 48,964 | 46,028 | 137,340 | 134,670 | ||||||||||||||
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Other revenue from managed properties
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200,314 | 219,649 | 601,295 | 644,251 | |||||||||||||
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Total revenue
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249,278 | 265,677 | 738,635 | 778,921 | |||||||||||||
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Operating expenses by department:
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Lodging expenses
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594 | 627 | 1,678 | 1,911 | |||||||||||||
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Corporate housing
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25,836 | 22,336 | 68,121 | 63,963 | |||||||||||||
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Undistributed operating expenses:
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Administrative and general
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16,585 | 15,121 | 51,675 | 50,017 | |||||||||||||
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Depreciation and amortization
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2,241 | 2,591 | 6,974 | 10,850 | |||||||||||||
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Merger and integration costs
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— | 874 | — | 3,344 | |||||||||||||
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Restructuring charges
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42 | — | 3,481 | — | |||||||||||||
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Asset impairments and other write-offs
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1,601 | 1,979 | 7,792 | 2,780 | |||||||||||||
| 46,899 | 43,528 | 139,721 | 132,865 | ||||||||||||||
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Other expenses from managed properties
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200,314 | 219,649 | 601,295 | 644,251 | |||||||||||||
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Total operating expenses
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247,213 | 263,177 | 741,016 | 777,116 | |||||||||||||
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Net operating income (loss)
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2,065 | 2,500 | (2,381 | ) | 1,805 | ||||||||||||
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Interest income
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(111 | ) | (209 | ) | (801 | ) | (652 | ) | |||||||||
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Interest expense
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2,113 | 2,565 | 6,093 | 7,833 | |||||||||||||
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Equity in losses of affiliates
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5 | 292 | 946 | 858 | |||||||||||||
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Gain on refinancing term loan from related party
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— | — | — | (13,629 | ) | ||||||||||||
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Income (loss) from continuing operations before
minority interest and income taxes
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58 | (148 | ) | (8,619 | ) | 7,395 | |||||||||||
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Income tax expense (benefit)
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351 | (252 | ) | (3,093 | ) | 2,375 | |||||||||||
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Minority interest expense (benefit)
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7 | 23 | (68 | ) | 184 | ||||||||||||
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Income (loss) from continuing operations
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(300 | ) | 81 | (5,458 | ) | 4,836 | |||||||||||
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Loss from discontinued operations
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— | (459 | ) | (1,237 | ) | (1,273 | ) | ||||||||||
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Net income (loss)
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$ | (300 | ) | $ | (378 | ) | $ | (6,695 | ) | $ | 3,563 | ||||||
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Other comprehensive income (loss), net of tax:
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|||||||||||||||||
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Foreign currency translation gain (loss)
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(104 | ) | (70 | ) | (209 | ) | 164 | ||||||||||
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Unrealized gain (loss) on investments and other
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(84 | ) | 396 | (28 | ) | 350 | |||||||||||
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Comprehensive income (loss)
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$ | (488 | ) | $ | (52 | ) | $ | (6,932 | ) | $ | 4,077 | ||||||
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Basic earnings (loss) per share from continuing
operations
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$ | (0.01 | ) | $ | 0.00 | $ | (0.18 | ) | $ | 0.23 | |||||||
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Basic earnings (loss) per share from discontinued
operations
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— | (0.02 | ) | (0.04 | ) | (0.06 | ) | ||||||||||
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Basic earnings (loss) per share
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$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.22 | ) | $ | 0.17 | ||||||
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Diluted earnings (loss) per share from continuing
operations
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$ | (0.01 | ) | $ | 0.00 | $ | (0.18 | ) | $ | 0.23 | |||||||
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Diluted earnings (loss) per share from
discontinued operations
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— | (0.02 | ) | (0.04 | ) | (0.06 | ) | ||||||||||
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Diluted earnings (loss) per share
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$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.22 | ) | $ | 0.17 | ||||||
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Weighted average number of basic shares
outstanding
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30,637 | 20,649 | 30,431 | 20,612 | |||||||||||||
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Weighted average number of diluted shares
outstanding
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30,637 | 20,649 | 30,507 | 20,891 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
3
INTERSTATE HOTELS & RESORTS, INC.
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2004 | 2003 | ||||||||||
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Cash flows from operating activities:
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|||||||||||
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Net income (loss)
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$ | (6,695 | ) | $ | 3,563 | ||||||
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Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
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|||||||||||
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Depreciation and amortization
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7,024 | 10,994 | |||||||||
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Gain on refinancing
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— | (13,629 | ) | ||||||||
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Equity in loss of affiliates
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946 | 858 | |||||||||
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Minority interest
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(68 | ) | 133 | ||||||||
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Deferred income taxes
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(3,368 | ) | 1,608 | ||||||||
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Write-off of assets
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7,792 | 3,755 | |||||||||
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Other
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(270 | ) | 448 | ||||||||
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Grant of stock for severance
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3,181 | — | |||||||||
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Loss on disposal of assets of discontinued
operations
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376 | — | |||||||||
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Changes in assets and liabilities:
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Accounts receivable, net
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(5,785 | ) | (7,089 | ) | |||||||
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Due from related parties
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6,379 | — | |||||||||
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Prepaid expenses and other current assets
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(927 | ) | 2,825 | ||||||||
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Accounts payable and accrued expenses
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(8,383 | ) | 14,658 | ||||||||
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Net cash provided by operating activities
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202 | 18,124 | |||||||||
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Cash flows from investing activities:
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|||||||||||
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Proceeds from sale of stock
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522 | — | |||||||||
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Change in restricted cash
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1,364 | (1,847 | ) | ||||||||
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Purchases of property and equipment, net
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(2,061 | ) | (7,726 | ) | |||||||
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Purchases of intangible assets
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(1,109 | ) | (707 | ) | |||||||
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Net cash (invested in) received from equity
investments in hotel real estate
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(424 | ) | (1,817 | ) | |||||||
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Change in officers and employees notes
receivable, net
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12 | 27 | |||||||||
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Change in notes receivable
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