<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/ X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / 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: 0-28108
Suburban Lodges of America, Inc.
(Exact Name of registrant as
specified in its charter)
Georgia 58- 1781184
(State of Incorporation) (IRS Employer
Identification No.)
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
(Address of principal executive office, including zip code)
770-799-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 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 / /
Number of shares of Common Stock, $.01 par value, outstanding as
of May 12, 1999:
15,421,072
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
March 31, December 31,
1999 1998
----------- -------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 15,273 $ 19,178
Accounts receivable, net of reserves of
$151 (1999) and $99 (1998) 685 568
Hotel inventory and supplies 1,891 1,684
Prepaid and refundable income taxes 2,754
Deferred income taxes 904 904
Prepaid expenses and other current assets 3,075 2,956
------------ ----------
Total current assets 21,828 28,044
------------ ----------
Property and equipment, net of accumulated depreciation
and amortization of $12,330 (1999) and $10,764 (1998) 279,144 272,030
Notes receivable 5,698 5,455
Deferred loan costs 1,465 1,552
Other assets 436 454
------------ ----------
Total assets $ 308,571 $ 307,535
============ ==========
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 1,118 $ 7,465
Construction accounts payable 1,200 6,847
Trade accounts payable 2,273 2,448
Accrued liabilities 3,626 2,558
Income taxes payable 719 316
Other current liabilities 287 382
------------ ----------
Total current liabilities 9,223 20,016
Long-term debt, excluding current portion 84,529 74,735
Deferred income taxes 1,026 1,026
Other liabilities 111 114
------------ ----------
Total liabilities 94,889 95,891
------------ ----------
Shareholders' equity:
Common stock, $0.01 par value per share,
100,000,000 shares authorized 154 154
Additional paid-in capital 200,190 200,190
Retained earnings 13,397 11,300
Treasury stock (10,000 shares) (59)
------------ ----------
Total shareholders' equity 213,682 211,644
------------ ----------
Total liabilities and shareholders' equity $ 308,571 $ 307,535
============ ==========
</TABLE>
See accompanying notes to financial statements
Page 2<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenue:
Hotel revenues $ 13,333 $ 8,662
Franchise and other revenue 606 384
--------- --------
Total revenue 13,939 9,046
--------- --------
Operating costs and expenses:
Hotel operating expenses 7,325 4,569
Corporate operating expenses 1,667 758
Depreciation and amortization 1,809 1,083
--------- --------
Total operating costs and expenses 10,801 6,410
--------- --------
Income from operations 3,138 2,636
Other income (expense):
Interest income 305 835
Interest expense (1,265) (62)
Gain on sale of hotel 1,145
--------- --------
Income before income taxes 3,323 3,409
Provision for income taxes 1,226 1,154
--------- --------
Net income $ 2,097 $ 2,255
========= ========
Earnings per common share:
Basic and diluted $ 0.14 $ 0.15
========= ========
Weighted average number of common
shares outstanding:
Basic and diluted 15,429 15,429
========= ========
</TABLE>
See accompanying notes to financial statements
Page 3
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<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Operating activities:
Net income $ 2,097 2,255
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of property and equipment 1,809 1,083
Gain on sale of hotel (1,145)
Changes in operating assets and liabilities:
Accounts receivable (117) (121)
Other current assets 2,428 (342)
Other assets (225) (1,698)
Trade accounts payable (175) (1,111)
Income taxes payable 403 1,021
Other current liabilities 973 205
Other liabilities (3)
--------- --------
Net cash provided by operating activities 6,045 1,292
--------- --------
Investing activities:
Additions to property and equipment (12,183) (22,946)
Proceeds from sale of hotel property 4,405
Decrease in construction accounts payable (5,647) (424)
--------- --------
Net cash used by investing activities (13,425) (23,370)
--------- --------
Financing activities:
Proceeds from issuance of long-term debt 10,250
Principal payments on long-term debt (6,803)
Purchase of treasury stock (59)
Net decrease in deferred loan costs 87
Increase in restricted cash (10,000)
Amounts borrowed under line of credit 10,000
--------- --------
Net cash provided by financing activities 3,475 -
--------- --------
Net decrease in cash and cash equivalents (3,905) (22,078)
Cash and cash equivalents at beginning of period 19,178 62,650
--------- --------
Cash and cash equivalents at end of period $ 15,273 $ 40,572
========= =========
Supplemental information:
Interest paid net of interest capitalized $ 1,216 $ 11
========= =========
Income taxes paid $ 368 $ 133
========= =========
</TABLE>
See accompanying notes to financial statements
Page 4<PAGE>
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Suburban Lodges of America, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial
statements have been omitted. In the opinion of management, all
adjustments that are necessary for a fair presentation of
financial position and results of operations have been made.
These interim financial statements should be read in conjunction
with the consolidated historical financial statements and notes
thereto presented in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
All significant intercompany balances and transactions have been
eliminated.
2. LONG-TERM DEBT
On March 31, 1999, the Company completed a $10,250,000 financing
arrangement with Empire Financial Services, Inc. The financing
consists of three separate three-year adjustable rate mortgage
loans with interest rates based on prime plus a margin which
ranges from a low of 50 basis points on one loan to a high of 75
basis points on another loan. The initial weighted average interest
rate for the three loans is 8.38%. The loan repayments are based
on a principal amortization period of 20 years with a final
maturity of March 1, 2005 for one of the loans and March 1,
2008 for the other two loans. A total of three Company-owned
hotels are pledged as collateral on these loans.
3. EARNINGS PER COMMON SHARE
Earnings per common share were computed based on the weighted
average number of common shares outstanding. Stock options
outstanding under the Company's various stock option plans did
not have a dilutive effect in either of the periods presented.
4. CONTINGENCIES
The Company was a defendant in certain shareholder litigation
related to the Company's stock offering on October 14, 1997.
Management believed the claims were without merit and entered a
motion for dismissal. By order and judgment entered March 31,
1999, the court granted defendants' motion to dismiss and entered
judgment in favor of the defendants.
In addition, the Company is a defendant in other litigation in
the ordinary course of business. In the opinion of management,
such other litigation will not have a material adverse effect on
the financial position, results of operation or cash flows of the
Company.
Page 5<PAGE>
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5. SEGMENT AND RELATED INFORMATION
The Company believes that it operates in three reportable
segments: hotel operations, franchising operations and management
services. The Company evaluates the performance of its operating
segments based on net operating income, which is defined as
income before income taxes, nonrecurring items, interest income,
interest expense and other nonoperating income.
Summarized financial information concerning the Company's
reportable segments is shown in the following table (in
thousands):
<TABLE>
<CAPTION>
Corporate
Hotel Franchising and Support
Operations Operations Services Total
<S> <C> <C> <C> <C>
Quarter Ended March 31, 1999
Revenues from external customers $ 13,333 $383 $ 223 $ 13,939
Intersegment revenues 536 668 1,204
Depreciation and amortization 1,702 3 104 1,809
Intersegment revenues 1,204 1,204
Net operating income (Loss) 3,103 516 (481) 3,138
Quarter Ended March 31, 1998
Revenues from external customers $ 8,662 $201 $ 183 $ 9,046
Intersegment revenues 432 432
Depreciation and amortization 1,027 1 55 1,083
Intersegment revenues 432 432
Net operating income (Loss) 2,634 27 (25) 2,636
</TABLE>
The following table provides a reconciliation of total segment net
operating income to the Company's reported income before income
taxes (in thousands):
Quarter Ended March 31, 1999 1998
----------------------- -------- -------
Total segment net operating income $ 3,138 $ 2,636
Interest income 305 835
Gain on sale of hotel 1,145
Interest expense (1,265) (62)
-------- -------
Income before income taxes $ 3,323 $ 3,409
======== =======
All of the Company's revenues are derived in the United States of
America. No single external customer accounts for ten percent or
more of the Company's total revenue.
6. RELATED PARTY TRANSACTIONS
During certain periods of 1998, two franchise locations were
partially owned by two of the Company's directors or members of
their immediate families. The Company acquired both locations on
July 31, 1998. Franchise and other revenue recognized for such
locations for the quarter ended March 31, 1998 was approximately
$63,000.
Page 6<PAGE>
<PAGE>
During 1998, the Company entered into a venture to develop a
Suburban Lodge hotel in Atlanta, Georgia, investing $200,000 for
a 25% equity position. A non-employee director of the Company
also owns a 25% equity position in this venture. Also during
1998, the Company acquired an option to purchase the director's
interest in this venture for a total consideration of $300,000,
including the amount paid for the option ($230,000). The hotel
owned by the venture is expected to open in the quarter ending
June 30, 1999.
7. SUBSEQUENT EVENT
On April 27, 1999, the Company executed a definitive agreement to
purchase the assets of GuestHouse International LLC, a franchisor
of lodging facilities under the names of GuestHouse Inns, Hotels
and Suites. The contractual purchase price is $1.25 million in
cash plus 300,000 shares of Suburban Lodges common stock.
Additional consideration would be payable in the future subject
to achievement of certain financial performance and new franchise
goals. The transaction is subject to satisfactory completion of
due diligence review and other closing conditions. There can be
no assurance that the transaction will be completed.
Page 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY-OWNED HOTEL STATISTICS BY REGION FOR THE QUARTER ENDED MARCH 31, 1999
The following table sets forth certain information regarding the
performance of the Company's hotels by geographic region for the
quarter ended March 31, 1999.
<TABLE>
<CAPTION>
============================================================================================================
AWR Occupancy ReVPAR Total Hotels Average Age
- ------------------------------------------------------------------------------------------------------------
(in years)
<S> <C> <C> <C> <C> <C>
Mid Atlantic Region $180.64 78.2% $141.52 10 2.33
Midwest Region 204.62 68.4 138.47 15 1.10
Southeast Region 180.03 80.2 144.02 20 3.74
West Region 187.67 67.9 125.72 13 .68
-------------------------------------------------------------------
All Company-Owned $188.32 74.0% $138.10 58 2.13
===================================================================
All Mature Company-Owned <F1> $180.98 78.9% $142.56 41 2.82
=========================================================================================================
<FN>
<F1> Mature hotels are those which have operated for at least one year
as of the end of the period for which data is presented.
</FN>
</TABLE>
COMPARISON OF THE QUARTER ENDED MARCH 31, 1999 TO THE QUARTER ENDED
MARCH 31, 1998
Hotel revenues for the quarter ended March 31, 1999 were
approximately $13,333,000, which was an increase of $4,671,000, or
53.9%, over the quarter ended March 31, 1998. Seventeen hotels open
less than a full year as of March 31, 1999 accounted for $3,324,000 of
the increase, while the Company's 41 mature hotels contributed
$1,347,000 of the increase. The average weekly rate ("AWR") for the
Company's mature hotels increased from $159.27 to $180.98; however,
the occupancy for these hotels declined from 89.8% to 78.9%. The AWR
for all Company hotels, which includes the 17 hotels opened since
March 31, 1998, increased from $161.07 to $188.32. This increase was
accompanied by a decrease in occupancy from 76.3% to 74.0%.
Franchise and other revenue from corporate operations for the
quarter ended March 31, 1999, which includes management, franchise and
development revenue, was approximately $606,000, compared to $384,000
for the quarter ended March 31, 1998. Management fees increased
$159,000 to $190,000 for the quarter ended March 31, 1999 from $31,000
in the prior year quarter as a result of fees earned for managing 15
hotels for franchisees during the current year quarter compared to
managing six hotels for franchisees during the prior year quarter.
Franchise revenue for the quarter increased approximately $180,000,
from $200,000 in 1998 to $380,000 in 1999. The franchise revenue for
the quarter ended March 31, 1999 reflects $160,000 in initial
franchise fees, representing six hotel openings, compared to $79,000
and three hotel openings in the quarter ended March 31, 1998.
Franchise royalties and other revenue on open hotels was approximately
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<PAGE>
$220,000 for the quarter ended March 31, 1999 compared to $121,000 for
the quarter ended March 31, 1998. The Company earned no development
and construction revenue during the current year quarter compared to
$148,000 earned in the prior year quarter.
Hotel operating expenses increased approximately $2,756,000, or
60.3%, to approximately $7,325,000 for the quarter ended March 31, 1999,
from approximately $4,569,000 for the quarter ended March 31, 1998. The
majority of this increase, or approximately $2,130,000, pertains to the
opening and quarter-to-date expenses for the 17 hotels opened since
March 31, 1998. In addition, approximately $626,000 of the increase
is attributable to the mature hotels. Hotel operating margins at the
mature properties improved slightly to 48.1% for the current year
quarter compared to 47.3% for the prior year quarter, while the
operating margins at all Company hotels, which includes the 17 hotels
open less than a full year, declined from 47.3% for the quarter ended
March 31, 1998 to 45.1% for the quarter ended March 31, 1999.
Corporate operating expenses, net of amounts capitalized,
increased $909,000, or approximately 120%, to $1,667,000. The primary
reasons for the increase are $334,000 for additional staffing needed
to support the growth of the business and a reduction of $368,000 in
the amount of project related expenses capitalized to hotel
construction costs. Total corporate operating expenses prior to
capitalization of project related expenses increased 31.7% compared to
the prior year quarter. Depreciation and amortization increased to
$1,809,000 from approximately $1,083,000, primarily as a result of the
17 hotels opened since March 31, 1998.
Interest expense, net of interest capitalized of $770,000 and
$580,000 for the quarters ended March 31, 1999, and March 31, 1998,
respectively, increased $1,203,000 from $62,000 for the quarter ended
March 31, 1998 to $1,265,000 for the quarter ended March 31, 1999.
The increase in interest expense, excluding interest capitalized, is
due to higher levels of debt outstanding and the write off of
approximately $300,000 in unamortized loan costs associated with the
credit facility at PNC Bank, N.A. which was terminated during the
quarter.
During the quarter ended March 31, 1999, the Company sold a hotel
resulting in a gain of approximately $1,145,000. The hotel continues
to operate as a Suburban Lodge under franchise and management
agreements that generate franchise and management fee income for the
Company.
SEASONALITY
The Company's mature hotels typically experience lower average
occupancy rates and total revenues during the first and fourth
quarters of each year.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, the Company completed a $10,250,000 financing
agreement with Empire Financial Services, Inc. The financing consists
of three separate three-year adjustable rate mortgage loans with
interest rates based on prime plus a margin which ranges from a low of
50 basis points on one loan to a high of 75 basis points on another
loan. The initial weighted average interest rate for the three loans
is 8.38%. The loan repayments are based on a principal amortization
period of 20 years with a final maturity of March 1, 2005 for one of
Page 9
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<PAGE>
the loans and March 1, 2008 for the other two loans. A total of
three Company-owned hotels are pledged as collateral on these loans.
A portion of the proceeds from this financing was used to repay the
notes assumed by the Company in connection with the acquisition of two
franchised hotels on July 31, 1998.
As of March 31, 1999, the Company had approximately
$15.3 million in cash and cash equivalents, $75.3 million of
borrowings with Finova Capital Corporation and $10.3 million of
borrowings with Empire Financial Services, Inc.
At March 31, 1999, the Company had five hotels under
construction, which are scheduled for completion during the second
quarter of 1999. The Company anticipates that the total additional
cost to complete these hotels, as well as fund amounts to be disbursed
on recently opened hotels, is approximately $9.1 million, which
includes $1.2 million in construction draws accrued at March 31, 1999.
The Company intends to fund the construction of these hotels, and the
acquisition of assets from GuestHouse International LLC, with existing
cash balances and cash flow from operations. The Company is not
presently seeking additional sites for the future construction of
hotels. However, the Company owns 12 additional sites, and is
planning to acquire 2 sites, for future development. Additional
capital will be necessary to commence construction on any of these
sites.
While the Company anticipates that there may be some markets
where, due to a number of factors (such as the increased cost of using
union subcontractors), its development costs will be higher, overall
the Company anticipates that in the immediate future a typical 134-
guest room Suburban Lodge hotel will cost approximately $4.6 to $4.8
million (approximately $34,000 to $36,000 per guest room).
In the future, the Company may seek to acquire new credit
facilities or issue debt or equity securities. Any debt incurred or
issued by the Company may be secured or unsecured, bear fixed or
variable rate interest, and may be subject to such terms and
conditions as the Board of Directors of the Company deems prudent.
YEAR 2000 PREPAREDNESS
The Year 2000 issue may materialize from the widespread use of
computers that rely on two-digit date codes to perform certain
computations or decision-making functions. Many of these computers or
systems may fail to recognize that the year 1999 is followed by the
year 2000, that the year 2000 is a leap year, or that 99 or 00 does
not mean the end of the file or program. Due to this failure, a
malfunction might occur in products/processes using a microprocessor
with two-digit year presentation.
Suburban has established the Suburban Year 2000 Project to
identify potential risk areas and introduce action plans and
guidelines for managing Year 2000 issues. As part of the Year 2000
Project, a task force was created, directed by the CEO and consisting
of representatives of various Suburban departments. The task force is
performing the following functions: identify systems; inventory
components of systems; assess systems and components for potential
Year 2000 risks; renovate and replace systems or components, if
necessary; and test the renovated and replaced systems and components.
Page 10
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<PAGE>
Suburban has completed an initial inventory of its computer
hardware and software and determined that the company has a limited
number of critical operating systems and applications. Specifically,
those systems and applications include: the proprietary property
management software utilized at all corporate and franchised hotels
("Property Management System"); software for accounting applications;
ADP payroll processing software; and commercial software for routine
office applications.
The contract developer of the Property Management System has
confirmed to Suburban in writing that the software is Year 2000
compliant. In addition, the Company has reviewed the system, tested it
with live data, and it appears to function accurately in a Year 2000
environment.
Suburban has received written documentation from the vendor of
its current accounting applications software certifying that the
software can properly interpret dates subsequent to December 31, 1999.
Suburban plans to implement new accounting applications software
during the third quarter of 1999. The vendor of this new software has
certified that the software can properly interpret dates subsequent to
December 31, 1999, and Suburban plans to test the software to confirm
that it is Year 2000 compliant before start up.
Suburban has not yet received written certification from ADP that
its payroll software systems are Year 2000 compliant. The Company has
performed remedial work on its ADP payroll software systems and
believes that they are presently compliant. The Company will run tests
during the second quarter of 1999 to verify Year 2000 compliance of
these systems
The vendor of certain commercial software utilized by Suburban
for routine office applications has indicated that such applications
can be made Year 2000 compliant through specific procedures which
Suburban is in the process of implementing. Upon final implementation
of these procedures, Suburban intends to perform additional testing to
ensure that these applications are Year 2000 compliant. The company
believes that any required remediation will be complete by December 31,
1999.
The detailed scope of the Year 2000 Project for Suburban
facilities includes an analysis of both information technology and
non-information based systems (such as micro-controllers and other
embedded chips) for such matters as building management, security,
credit card processing, fire safety systems, electronic locks,
elevators, telephones, heating and air-conditioning systems and
general equipment. Suburban expects to complete identification of
relevant Year 2000 issues for such systems and equipment during the
second quarter of 1999 and to implement any necessary upgrades during
the second half of 1999.
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<PAGE>
Suburban's ability to continue normal business operations into
the next millenium will, to a large extent, depend upon the individual
Year 2000 compliance efforts of all of its vendors, including basic
utilities and telecommunications companies. In the summer of 1998,
Suburban began consideration of the effect of Year 2000 issues on its
vendors and other business partners. Suburban began categorizing its
suppliers as critical or non-critical and aims, during the first half
of 1999, to verify the status of the products from all critical
suppliers, as well as their continued performance into the year 2000.
Written requests have been made of the vendors to provide letters
regarding their Year 2000 status. The Company continues to receive
written responses to its requests, which for the most part indicate
that its vendors and suppliers are currently, or will timely be, Year
2000 compliant. However, notwithstanding these efforts, for certain
vendors and suppliers it may not be possible to determine with
certainty whether they are Year 2000 compliant. To the extent that the
company cannot reasonably determine the Year 2000 compliance status of
mission critical vendors, or if it reasonably determines that such
vendors or suppliers will not be timely Year 2000 compliant, the
Company intends to seek alternate sources for such products and
supplies before the end of 1999.
At present, Suburban does not anticipate that material
incremental costs will be incurred in connection with the Year 2000
Project. To date, Suburban has not experienced any known negative
impacts on operations, management, or financial reporting as a result
of Year 2000 issues. No significant costs have been incurred to date.
Suburban anticipates that remaining Year 2000 preparedness activities
will be completed primarily with existing internal personnel.
Accordingly, the total costs of the Year 2000 Project have not been
separately estimated, but are expected to be minimal over the course
of the Project. The Year 2000 Project has not resulted in deferral of
spending for other systems and equipment as planned. Cost estimates
may vary in the future and will be updated as Suburban considers
updating and replacement of any systems and applications or learns
additional information concerning the status of its and third parties'
Year 2000 compliance.
Based upon current information, Suburban believes that the Year
2000 problem will not have a material adverse effect on the Company,
its business or its financial condition. There can, however, be no
assurances that Year 2000 remediation by Suburban or third parties
will be properly and timely completed, and failure to do so could have
a material adverse effect on the company, its business and its
financial condition. Suburban, like other hotels, depends on the
continued support of its customers and the availability of public
utilities. Customers may accelerate or postpone travel and business
affairs based upon Year 2000 concerns. Hotels may not be able to
operate if telecommunications, transportation, energy, water and sewer
availability are disrupted. Each of these "most likely worst case"
scenarios is beyond the immediate control of Suburban and would have a
material and adverse impact on occupancies, revenues and earnings. The
likelihood and costs of these interruptions are not known or presently
quantifiable. Suburban is in the process of developing contingency
plans with respect to certain aspects of these scenarios and other
Year 2000 issues to lessen as much as possible their potential adverse
impact, and intends to take steps so that all such contingency plans
are implemented during the second half of 1999. The anticipated costs
of implementing these contingency plans are not presently known. The
Company does not expect to have a plan to overcome the entire effects
Page 12
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<PAGE>
on its business from a large scale failure or disruption of passenger
transportation or transportation systems generally, the loss of
utility and/or telecommunications services or errors or failures in
financial transactions, payment processing or banking systems due to
the arrival of the Year 2000.
Factors that could result in additional costs to and disruptions
of the Company's Year 2000 Project and businesses include, but are not
limited to: new information Suburban may discover concerning the
status of Year 2000 compliance of company systems, software and
facilities: failures of others, including public utilities, financial
institutions, communications companies, transportation providers,
computer manufacturers and software providers, as well as other
providers of resources upon which Suburban relies, to identify,
disclose and address Year 2000 issues accurately and on a timely
basis: the inability of Year 2000 consultants, experts and advisers to
adequately identify and address Year 2000 issues as planned: and the
effectiveness and costs of contingency plans Suburban may develop as
it learns more about the status of its own and others' Year 2000
compliance and readiness.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133"). SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. The Company plans to adopt SFAS 133 in 2000, and does not
presently expect such adoption to have any effect on the Company's
financial statements at that time.
FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q,
including statements regarding the Company's activities pertaining to
the approach of the Year 2000, constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are generally identified by
words such as "expects", "believes", "anticipates," etc., and involve
known and unknown risks, uncertainties and other factors which may
cause the actual results, performances or achievements of the Company
to be materially different from the expectation expressed or implied
in such statements. Such factors include, among other things,
uncertainty as to economic conditions, consumer demand for extended
stay lodging, the level of competition in the extended stay market,
financial markets, the Company's ability to obtain a new bank line of
credit, development efficiencies, weather delays, zoning delays, the
Company's financial condition, its ability to maintain operational and
financial systems to manage the rapid growth it has experienced and
the accurateness of the assurances the Company has received from third
parties concerning the impact of the Year 2000 on their products,
services and business.
Page 13
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operating results and cash flows are subject to
fluctuation from changes in interest rates and foreign currency
exchange rates. The Company's cash and cash equivalents are short-
term, and highly liquid investments with original maturities of three
months or less consisting entirely of U.S. Government securities or
government backed securities. As a result of the short-term nature of
the Company's cash and cash equivalents, a change in market interest
rates does not impact the Company's operating results or cash flow.
At March 31, 1999, $10.3 million of the Company's long-term debt bears
interest at rates of approximately 8.4%. These rates are fixed until
March 31, 2002. The remaining $75.0 million of the Company's long-
term debt bears interest at fixed rates of approximately 8.25%. A
change in market interest rates is not expected to impact the
Company's fixed rate obligations over the next three years.
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
The Company was a defendant in certain shareholder litigation
filed on December 19, 1997 in federal court, Rudd, et al. v.
Suburban Lodges of America, et al.; Civil Action No. 1-97-CV-3758-
HTW (N.D. Ga.), related to the Company's stock offering on
October 14, 1997. Management believed the claims were without
merit and entered a motion for dismissal. By order and judgment
entered March 31, 1999, the court granted defendants' motion to
dismiss and entered judgment in favor of the defendants. In
addition, the Company is a defendant in other litigation in the
ordinary course of business. In the opinion of management, such
other litigation will not have a material adverse effect on the
financial position, results of operation or cash flows of the
Company.
Page 14<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
None
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.
Suburban Lodges of America, Inc.
Date: May 14, 1999 By: /s/ PAUL A. CRISCILLIS, JR.
Paul A. Criscillis, Jr.
Vice President, Chief Financial Officer
Date: May 14, 1999 By: /s/ ROBERT E. SCHNELLE
Robert E. Schnelle
Vice President, Treasurer
(Chief Accounting Officer)
Page 15
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