SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 8-K/A
---------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Original Report (Date of earliest event reported):
June 1, 1999
---------------
Suburban Lodges of America, Inc.
(Exact Name of Registrant as Specified in Charter)
Georgia 000-28108 58-1781184
(State or Other Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
--------------------- ----------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code:
(770) 799-5000
Not Applicable
------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 1, 1999, Suburban Lodges of America, Inc. ("Suburban") completed
the acquisition of GuestHouse International LLC (the "Company") through the
purchase of substantially all the assets of the Company by GuestHouse
International Franchise Systems, Inc. ("Purchaser"), a wholly-owned subsidiary
of Suburban. The purchase was made pursuant to an Agreement for Purchase and
Sale of Assets dated April 16, 1999, between Suburban, the Purchaser and the
Company. The consideration consisted of 300,000 newly issued shares of
Suburban's Common Stock par value $.01 per share, and $1.25 million in cash from
available cash balances. Additional consideration may be payable over time
subject to achievement of certain financial performance and new facility goals.
The Company is a franchisor of midscale lodging facilities under the names
GuestHouse Inns, Hotels and Suites. Suburban, through the Purchaser, presently
intends to operate the Company substantially as it had been operated prior to
its acquisition. Suburban acquired substantially all of the Company's assets,
including all franchise agreements between the Company and its franchisees and
all of the trademarks owned by the Company and those in which it has an
interest. The acquisition excluded the purchase of certain assets of the
Company, including corporate organizational documents; the rights to tax refund
claims; licenses, permits, orders, or approvals not transferable under
applicable laws; accounts or notes receivables earned prior to the Closing Date;
and cash and cash equivalents owned on the Closing Date. The consideration was
determined by negotiation among the parties.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following financial statements of GuestHouse International LLC are
filed with this Form 8-K/A:
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C> <C>
1. Report of Independent Certified Public Accountants
for the year ended December 31, 1998. F-1
2. Balance sheet as of December 31, 1998. F-2
<PAGE>
3. Statement of operations for the year ended
December 31, 1998. F-3
4. Statement of changes in unitholders' equity for the
year ended December 31, 1998. F-4
5. Statement of cash flows for the year ended
December 31, 1998. F-5
6. Notes to financial statements as of and for the
year ended December 31, 1998. F-6
7. Unaudited balance sheet as of March 31, 1999 F-10
8. Unaudited statement of operations for the three
months ended March 31, 1999 F-11
9. Unaudited statement of cash flows for
the three months ended March 31, 1999 F-12
10. Notes to unaudited financial statements as of and
for the three months ended March 31, 1999 F-13
(b) Pro Forma Financial Information
1. Introduction to unaudited pro forma financial
information F-14
2. Unaudited pro forma balance sheet as of March 31,
1999 F-15
3. Unaudited pro forma statement of operations for
the three months ended March 31, 1999 F-16
4. Unaudited pro forma statement of operations for
the year ended December 31, 1998 F-17
5. Notes to unaudited pro forma financial information F-18
(c) Exhibits
*2.1 (a) Agreement for Purchase and Sale of Assets
dated April 16, 1999, among Suburban, the
Purchaser and the Company.
<PAGE>
(b) First Amendment to Agreement for Purchase
and Sale of Assets dated June 1, 1999, among
Suburban, the Purchaser and the Company.
*4.1 Amended and Restated Articles of Incorporation of
Suburban (incorporated by reference to Exhibit 3.1 to
Suburban's Registration Statement on Form S-1, File
No. 333-2876, filed with the Commission on March 28,
1996).
*4.2 Amended and Restated By-Laws of Suburban
(incorporated by reference to Exhibit 3.2 to
Suburban's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 000-28108, filed
with the Commission on March 28, 1997).
*Previously filed.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
GuestHouse International LLC
We have audited the accompanying balance sheet of GuestHouse International LLC
as of December 31, 1998 and the related statements of operations, changes in
unitholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GuestHouse International LLC as
of December 31, 1998, and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Hudson, Cisne, Thessing & Co., LLP
February 24, 1999
F-1
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 1,889
Accounts receivable-licensees, net
of allowance for doubtful accounts
of $4,000 191,560
-----------
Total current assets 193,449
FURNITURE AND EQUIPMENT, AT COST:
Furniture and fixtures 25,849
Equipment 58,479
-----------
84,328
Less accumulated depreciation 54,970
-----------
Net furniture and equipment 29,358
OTHER ASSETS:
Syndication costs 280,913
Intangible assets, net 2,611,907
Deposits and miscellaneous 5,590
-----------
Total other assets 2,898,410
$ 3,121,217
===========
LIABILITIES AND UNITHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 43,138
-----------
Total current liabilities 43,138
LONG-TERM DEBT 288,000
UNITHOLDERS' EQUITY:
Class "A" unitholders 2,137,872
Class "B" unitholders (deficit) (240,293)
Class "C" unitholders 892,500
-----------
Total unitholders' equity 2,790,079
-----------
$ 3,121,217
===========
See accompanying notes.
F-2
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUES:
Evaluation/applications $ 12,000
Initial license/renewal fees 173,167
Operating fees 511,258
Termination fees 25,057
Transfer fees 1,000
-----------
Gross revenues 722,482
Rebates 36,210
-----------
Net Revenues 686,272
OPERATING EXPENSES:
Advertising 295,161
Amortization and depreciation 207,142
Employee benefits 40,418
Internet access 11,000
Miscellaneous 189,791
Office supplies 38,604
Professional fees 52,761
Rent 50,364
Repairs and maintenance 30,307
Reservations system 15,746
Salaries 757,958
Taxes and licenses 1,388
Telephone 44,318
Travel and meals 151,019
-----------
Total operating expenses 1,885,977
Net loss from operations (1,199,705)
Interest income 307
-----------
NET LOSS $(1,199,398)
===========
See accompanying notes.
F-3
<PAGE>
STATEMENT OF CHANGES IN UNITHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
CLASS "A" UNITS:
- ---------------
Balance at beginning of year $ 3,217,330
Net loss (1,079,458)
-----------
Balance at end of year $ 2,137,872
===========
CLASS "B" UNITS:
Balance (deficit) at beginning of year $ (120,353)
Net loss (119,940)
-----------
Balance (deficit) at end of year $ (240,293)
===========
CLASS "C" UNITS:
Balance at beginning of year $ 232,500
Sale of units 660,000
-----------
Balance at end of year $ 892,500
===========
See accompanying notes.
F-4
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,199,398)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization and depreciation 207,142
Changes in assets and liabilities:
Accounts receivable-licensees 15,085
Prepaid advertising 11,607
Accounts payable - trade (14,713)
- other (3,300)
-----------
Net cash used in operating activities (983,577)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (3,940)
Deposits and miscellaneous 4,230
-----------
Net cash provided by investing activities 290
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on long-term debt 288,000
Sale of Class "C" units 660,000
-----------
Net cash provided by financing activities 948,000
NET DECREASE IN CASH (35,287)
Cash at beginning of year 37,176
-----------
Cash at end of year $ 1,889
===========
See accompanying notes.
F-5
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
GuestHouse International LLC (the "Company") was organized as an Arkansas
limited liability company on June 11, 1993, for the purpose of franchising the
trademark of "GuestHouse" to hotel and motel properties. The Company provides
various quality control standards and a national reservation system to
franchised properties.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DEPRECIATION
Depreciation on furniture and equipment is computed using the straight-line and
accelerated methods over the assets' estimated useful lives of 5 to 7 years.
INCOME TAXES
The financial statements do not include a provision for income taxes because the
Company is taxed as a Partnership and its earnings or losses are included in the
unitholders' personal income tax returns.
CASH FLOWS
Investments with an original term of three months or less are considered cash
equivalents.
Cash payments for interest totaled $19,878 in 1998.
F-6
<PAGE>
CONCENTRATIONS OF CREDIT RISK-CASH
Periodically throughout the year the Company had cash balances in excess of
federal insured limits. However, the Company does not believe that it is subject
to any unusual credit risk beyond the normal credit risk associated with
commercial banking relationships.
SYNDICATION COSTS
Syndication costs are costs incurred for registration fees, legal fees,
accounting fees, selling commissions and printing costs in connection with the
sale of Class "A" units.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and license agreements arising from the
acquisition of an affiliate. Goodwill, representing the excess of the purchase
price over the net assets acquired, is being amortized using the straight-line
method over the period of expected benefit of 15 years. License agreements are
being amortized over the period of benefit, but in no instance exceeding 15
years.
The Company periodically evaluates the recoverability of intangibles and
measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows as well as other factors, such as business
trends and prospects and market and economic conditions. Impairments would be
recognized in operating results if a permanent decline in value occurred.
F-7
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Operating revenue from franchise services is recognized when such services are
performed by the franchisees for the Company. Revenue from applications is
recognized when applications are received and processed. Revenue from initial
license franchise sales is recognized when all material services or conditions
relating to the sale of a franchise have been substantially performed or
satisfied by the Company. Revenue from terminations and transfers is recognized
when the terminations and terminations are complete.
NOTE 2: UNITHOLDERS' EQUITY
The Company is capitalized through the sale of Class "A", Class "B", and Class
"C" units. Profits are allocated to Class "C" unitholders to the extent of cash
distributions to such unitholders. Any remaining profits, and all losses, are
allocated 90% to Class "A" unitholders and 10% to Class "B" unitholders.
Both Class "A" and Class "B"" unitholders have voting rights. Class "C"
unitholders have voting rights only with respect to actions that could adversely
affect the interests of Class "C" unitholders. Class "C" unitholders are
entitled to priority distributions, with any remaining distributions allocated
to Class "A" and Class "B" unitholders in the same ratio as allocated profits.
Class "A" units are convertible to "B" units once 100% of their original
investment has been returned. However, the conversion of the "A" units will be
limited to 72% of the total "B" units with the remaining 28% of the "B" units
owned by the Company's founders.
Class "C" units are callable by the Company no later than the date of conversion
of Class "A" units into Class "B" units. Upon call, each Class "C" unitholder
will receive one Class "A" unit and cash. Units have been issued as follows:
F-8
<PAGE>
<TABLE>
<CAPTION>
Units Amounts
----- ----------
<S> <C> <C>
Class "A" Units:
Balance at beginning of year 1,400 $3,945,000
Units issued -- --
----- ----------
Balance at end of year 1,400 $3,945,000
===== ==========
Class "B" Units:
Balance at beginning of year 1,800 $ 180
Units issued -- --
----- ----------
Balance at end of year 1,800 $ 180
===== ==========
Class "C" Units:
Balance at beginning of year 93 $ 232,500
Units issued 264 660,000
----- ----------
Balance at end of year 357 $ 892,500
===== ==========
</TABLE>
NOTE 4: LONG-TERM DEBT
Long-term debt consists of:
9.50% bank note, interest payable quarterly, balance due March 2000, secured
by accounts
receivable. $288,000
NOTE 5: COMMITMENTS
The C unitholders are entitled to a 10% annual return on their investment. This
return will be realized by a special allocation of any priority distributions.
At December 31, 1998 the C unitholders have accrued $53,520 in undistributed
allocations, which are equivalent to interest and are payable out of future
distributions.
F-9
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
UNAUDITED BALANCE SHEET
MARCH 31, 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 5,849
Accounts receivable-licensees, net of allowance
for doubtful accounts of $4,000 182,962
Prepaid expense 10,700
-----------
Total current assets 199,511
-----------
Furniture and equipment, at cost:
Furniture and fixtures 25,849
Equipment 58,744
-----------
84,593
Less accumulated depreciation 58,889
-----------
-----------
Net furniture and equipment 25,704
-----------
Other assets:
Syndication costs 280,913
Intangible assets, net 2,564,417
Deposits and miscellaneous 5,369
-----------
-----------
Total other assets 2,850,699
-----------
Total assets $ 3,075,914
===========
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 288,000
Note payable - unitholder 53,000
Accounts payable - trade 50,007
Other current liabilities 84,000
-----------
Total current liabilities 475,007
-----------
Long-term debt --
-----------
Unitholders' equity:
Class "A" unitholders 1,828,117
Class "B" unitholders (deficit) (274,710)
Class "C" unitholders 1,047,500
-----------
Total unitholders' equity 2,600,907
-----------
Total liabilities and unitholders' equity: $ 3,075,914
===========
See accompanying notes to financial statements.
F-10
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
UNAUDITED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
Revenues:
Evaluation/applications $ 7,000
Initial license/renewal fees 45,750
Operating fees 133,255
Termination fees 5,500
Transfer fees 2,000
---------
Gross revenues 193,505
Rebates 2,250
---------
Net revenues 191,255
---------
Operating expenses:
Advertising 77,346
Amortization and depreciation 51,630
Employee benefits 10,050
Internet access 3,070
Miscellaneous 42,919
Office supplies 9,854
Professional fees 20,595
Rent 13,839
Repairs and maintenance 1,830
Reservations system 3,643
Salaries 235,731
Taxes and licenses 347
Telephone 12,658
Travel and meals 42,055
---------
Total revenue 525,567
Net loss from operations (334,312)
Interest expense 9,860
=========
Net loss $(344,172)
=========
See accompanying notes to financial statements.
F-11
<PAGE>
GUESTHOUSE INTERNATIONAL LLC
UNAUDITED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
Cash flows from operating activities:
Net loss $(344,172)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 51,630
Changes in operating assets and liabilities:
Accounts receivable - licensees 8,598
Prepaid expense (10,700)
Accounts payable - trade 6,869
Other current liabilities 84,000
---------
Net cash used in operating activities (203,775)
---------
Investing activities:
Purchase of furniture and equipment (265)
---------
Financing activities:
Proceeds from note payable unitholder 53,000
Sale of Class "C" units 155,000
---------
Net cash provided by financing activities 208,000
---------
Net decrease in cash and cash equivalents 3,960
Cash at beginning of period 1,889
---------
Cash at end of period $ 5,849
=========
Supplemental information:
Interest paid $ 9,860
=========
See accompanying notes to financial statements.
F-12
<PAGE>
GuestHouse International LLC
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted principles applicable to interim
financial reporting. 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 historical
financial statements and notes thereto presented in the Company's
financial statements for the year ended December 31, 1998.
2. COMMITMENTS
The C unitholders are entitled to a 10% annual return on their
investment. This return will be realized by a special allocation of any
priority distributions. At March 31, 1999, the C unitholders have
accrued $55,200 in undistributed allocations, which are equivalent to
interest and are payable out of future distributions.
F-13
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth on the
following pages has been prepared utilizing the historical consolidated
financial statements of Suburban Lodges of America, Inc. (the "Company") and
GuestHouse International LLC ("GuestHouse"). On June 1, 1999, a wholly-owned
subsidiary of the Company acquired substantially all the assets of GuestHouse
for a total purchase price, including transaction-related expenses, of
$3,491,750. The unaudited pro forma balance sheet as of March 31, 1999 presents
the consolidated assets and liabilities of the Company as if the transaction had
occurred on March 31, 1999. The unaudited pro forma statement of operations for
the three months ended March 31, 1999 presents the consolidated results of
operations of the Company as if the transaction occurred on January 1, 1999. The
unaudited pro forma statement of operations for the year ended December 31, 1998
presents the consolidated results of operations of the Company as if the
transaction had occurred on January 1, 1998.
The acquisition of the assets of GuestHouse has been accounted for
under the purchase method of accounting. The pro forma financial information has
been prepared on such basis of accounting utilizing estimates and assumptions
that the Company believes are reasonable under the circumstances. The pro forma
financial information and accompanying notes should be read in conjunction with
the consolidated financial statements of the Company and its subsidiaries,
including the notes thereto, and the other financial information pertaining to
the Company and GuestHouse included elsewhere herein. .
The pro forma financial information is presented for informational
purposes and is not necessarily indicative of the future financial position or
results of operations of the combined companies or of the financial position or
the results of operations of the combined companies that would have actually
occurred had the acquisition been consummated on such date or as of the periods
described above. The purchase price allocations reflected in the pro forma
financial information have been based on preliminary estimates of the respective
fair values of assets and liabilities which may differ from the actual
allocations and are subject to revision based on further studies and valuations.
Certain amounts in the historical financial statements of GuestHouse have been
reclassified to conform to the financial presentation of the Company.
F-14
<PAGE>
<TABLE>
<CAPTION>
Suburban Lodges of America, Inc.
Unaudited Pro Forma Balance Sheet
March 31, 1999
(in thousands, except per share amounts)
Acquisition of
Suburban Lodges Assets From
of America Inc. GuestHouse Pro Forma
Historical Amounts International LLC Amounts
------------------ ----------------- -------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 15,273 $ (1,448) $ 13,825
Accounts receivable, net of reserves of $151 685 685
Hotel inventory and supplies 1,891 1,891
Deferred income taxes 904 904
Prepaid expenses and other current assets 3,075 36 3,111
--------- --------- --------
Total current assets 21,828 (1,412) 20,416
--------- --------- --------
Property and equipment, net of accumulated
depreciation and amortization of $12,330 279,144 279,144
Notes receivable 5,698 5,698
Deferred loan costs 1,465 1,465
Intangible assets 3,623 3,623
Other assets 436 436
--------- --------- --------
Total assets $ 308,571 $ 2,211 $310,782
========= ========= ========
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 1,118 $ 1,118
Construction accounts payable 1,200 1,200
Trade accounts payable 2,273 2,273
Accrued liabilities 3,626 $ 167 3,793
Income taxes payable 719 719
Other current liabilities 287 287
--------- --------- --------
Total current liabilities 9,223 167 9,390
Long-term debt, excluding current portion 84,529 84,529
Deferred income taxes 1,026 1,026
Other liabilities 111 111
--------- --------- --------
Total liabilities 94,889 167 95,056
--------- --------- --------
Shareholders' equity:
Common stock, $0.01 par value per share,
100,000,000 shares authorized 154 3 157
Additional paid-in capital 200,190 2,041 202,231
Retained earnings 13,397 13,397
Treasury stock (10,000 shares) (59) (59)
--------- --------- --------
Total shareholders' equity 213,682 2,044 215,726
--------- --------- --------
Total liabilities and shareholders' equity $ 308,571 $ 2,211 $310,782
========= ========= ========
See accompanying notes to pro forma financial information
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
Suburban Lodges of America, Inc.
Unaudited Pro Forma Statement of Operations
Three Months Ended March 31, 1999
(in thousands, except per share amounts)
Suburban Lodges GuestHouse
of America Inc. International LLC Pro Forma Pro Forma
Historical Results Historical Results Adjustments Results
------------------ ------------------ ----------- -------
<S> <C> <C> <C> <C>
Revenue:
Hotel revenues $ 13,333 $ 13,333
Franchise and other revenues 606 $ 191 797
-------- -------- -------- -------
Total revenue 13,939 191 -- 14,130
-------- -------- -------- -------
Operating costs and expenses
Hotel operating expenses 7,325 7,325
Corporate operating expenses 1,667 473 $ (69) 2,071
Depreciation and amortization 1,809 52 63 1,924
-------- -------- -------- -------
Total operating costs and expenses 10,801 525 (6) 11,320
-------- -------- -------- -------
Income (loss) from operations 3,138 (334) 6 2,810
Other income (expense):
Interest income 305 (14) 291
Interest expense (1,265) (10) (1,275)
Gain on sale of hotel 1,145 1,145
-------- -------- -------- -------
Income (loss) before income taxes 3,323 (344) (8) 2,971
Provision for income taxes 1,226 (134) 1,092
======== ======== ======== =======
Net income (loss) $ 2,097 $ (344) $ 126 $ 1,879
======== ======== ======== =======
Earnings per common share:
Basic and diluted $ 0.14 $ 0.12
======== =======
Weighted average number of common shares outstanding:
Basic and diluted 15,429 250 15,679
====== === ======
See accompanying notes to pro forma financial information.
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
Suburban Lodges of America, Inc.
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1998
(in thousands, except per share amounts)
Suburban Lodges GuestHouse
of America Inc. International LLC Pro Forma Pro Forma
Historical Results Historical Results Adjustments Results
------------------ ------------------ ----------- -------
<S> <C> <C> <C> <C>
Revenue:
Hotel revenues $ 44,756 $ 44,756
Franchise and other revenues 1,702 $ 686 2,388
-------- -------- -------- -------
Total revenue 46,458 686 -- 47,144
-------- -------- -------- -------
Operating costs and expenses
Hotel operating expenses 22,754 22,754
Corporate operating expenses 3,975 1,679 $ (389) 5,265
Lease termination costs 218 218
Site acquisition cancellation expense 1,960 1,960
Depreciation and amortization 5,492 207 253 5,952
-------- -------- -------- -------
Total operating costs and expenses 34,399 1,886 (136) 36,149
-------- -------- -------- -------
Income (loss) from operations 12,059 (1,200) 136 10,995
Other income (expense):
Interest income 2,236 (58) 2,178
Interest expense (202) (202)
Public debt transaction abandonment costs (10,633) (10,633)
Other 294 294
-------- -------- -------- -------
Income (loss) before income taxes 3,754 (1,200) 78 2,632
Provision for income taxes 1,192 (426) 766
======== ======== ======== =======
Net income $ 2,562 $ (1,200) $ 504 $ 1,866
======== ======== ======== =======
Earnings per common share:
Basic and diluted $ 0.17 $ 0.12
======== =======
Weighted average number of common shares outstanding:
Basic and diluted 15,430 154 15,584
======== ======== ======== =======
See accompanying notes to pro forma financial information.
</TABLE>
F-17
<PAGE>
Suburban Lodges of America, Inc.
Notes to Pro Forma Financial Information
(Unaudited)
PRO FORMA BALANCE SHEET AT MARCH 31, 1999
Suburban Lodges of America, Inc. (the "Company"), through a wholly-owned
subsidiary, acquired the assets of GuestHouse International LLC ("GuestHouse)
for a total purchase price, including transaction-related expenses, of
$3,491,750. The purchase price consisted of cash of $1,448,000 and 300,000
shares of the Company's common stock with a market value of $2,043,750. Certain
liabilities totaling $167,000 were also assumed.
The purchase price plus the value of liabilities assumed was allocated to assets
acquired based on their estimated fair value. The Company allocated $3,623,000
to intangible assets consisting of continuing franchise contracts of $1,392,000
and goodwill of $2,231,000. The franchise contracts will be amortized over a
period of four years, and goodwill will be amortized over a period of twenty
years.
The additional paid-in capital of $2,041,000 represents the market value in
excess of the par value of the shares issued by the Company as part of the
acquisition price.
PRO FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
The pro forma adjustments to corporate operating expenses reflect savings from
staff reductions, occupancy costs and other operating expense reductions that
would have resulted from the combining of operations of the two companies had
the acquisition occurred on January 1, 1999.
The increase in depreciation and amortization reflects amortization of $87,000
on acquired franchise contracts and $28,000 for acquired goodwill. These amounts
are partially offset by a reduction of $52,000 for amortization of intangibles
recorded by GuestHouse for the three months ended March 31, 1999. The GuestHouse
intangibles had no continuing value to the Company and therefore were allocated
no portion of the acquisition cost.
F-18
<PAGE>
The reduction in interest income reflects the pro forma loss of investment
income as a result of assuming lower invested cash balances equal to the amount
of cash expended for the acquisition.
The pro forma income tax credit represents the tax effect computed on the
GuestHouse loss for the period and the income before income taxes resulting from
the pro forma adjustments using an effective income tax rate of 38%. The
GuestHouse Statement of Operations does not include a provision for income taxes
because GuestHouse is a limited liability company subject to pass-through
taxation treatment and its earnings or losses are included in the unitholders'
personal income tax returns.
The pro forma adjustment for the weighted average number of common shares
outstanding is based on the assumption that had the acquisition occurred on
January 1, 1999, shares with an equivalent value to the number of shares issued
at the acquisition date would have been issued for the purchase. The market
value of the Company's common stock on December 31, 1998 was $8.1875, compared
to $6.8125 on June 1, 1999, the acquisition date.
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
The pro forma adjustments to corporate operating expenses reflect savings from
staff reductions, occupancy costs and other operating expense reductions that
would have resulted from the combining of operations of the two companies had
the acquisition occurred on January 1, 1998.
The increase in depreciation and amortization reflects amortization of $348,000
for acquired franchise contracts and $112,000 for acquired goodwill. These
amounts are partially offset by a reduction of $207,000 for amortization of
intangibles recorded by GuestHouse for the year ended December 31, 1998. The
GuestHouse intangibles had no continuing value to the Company and therefore were
allocated no portion of the acquisition cost.
The reduction in interest income reflects the pro forma loss of investment
income as a result of assuming lower invested cash balances equal to the amount
of cash expended for the acquisition.
F-19
<PAGE>
The pro forma income tax credit represents the tax effect computed on the
GuestHouse loss for the period and the income before income taxes resulting from
the pro forma adjustments using an effective income tax rate of 38%. The
GuestHouse Statement of Operations does not include a provision for income taxes
because GuestHouse is a limited liability company subject to pass-through
taxation treatment and its earnings or losses are included in the unitholders'
personal income tax returns.
The pro forma adjustment for the weighted average number of common shares
outstanding is based on the assumption that had the acquisition occurred on
January 1, 1998, shares with an equivalent value to the number of shares issued
at the acquisition date would have been issued for the purchase. The market
value of the Company's common stock on December 31, 1997 was $13.3125, compared
to $6.8125 on June 1, 1999, the acquisition date.
F-20
<PAGE>
SIGNATURE
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.
SUBURBAN LODGES OF AMERICA, INC.
By: /s/ David E. Krischer
David E. Krischer
President and Chief Executive Officer
Dated: August 12, 1999
