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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1997
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 000-22843
BRIDGESTREET ACCOMMODATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 04-3327773
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
30670 Bainbridge Road, Solon, OH 44139
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(440)248-3005
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
As of November 12, 1997, there were 7,567,250 Common Shares, without par value,
of the registrant outstanding.
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BRIDGESTREET ACCOMMODATIONS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
September 30, 1997 (unaudited) and December 31, 1996........................... 3
Consolidated Statements of Operations:
Three and Nine Months Ended September 30, 1997 (unaudited) and September 30,
1996 (unaudited)............................................................... 4
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1997 (unaudited) and September 30, 1996
(unaudited).................................................................... 5
Notes to the Consolidated Financial Statements (unaudited)..................... 6-8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 9-11
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.............................................................. 12
ITEM 2 CHANGES IN SECURITIES.......................................................... 12
ITEM 3 DEFAULTS UPON SENIOR SECURITIES................................................ 12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 12
ITEM 5 OTHER INFORMATION.............................................................. 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................................... 12-13
SIGNATURES..................................................................... 14
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2
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BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
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TCH BRIDGESTREET
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
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ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 597,939 $ 15,449,539
Investments in short-term marketable securities................. 152,253
Accounts receivables-
Trade, less allowance for doubtful accounts of $45,000 in
1996 and $296,204 in 1997................................... 794,445 3,628,038
Security deposits held by landlords............................. -- 237,571
Deferred income taxes........................................... 129,200 404,859
Other current assets............................................ 33,927 901,830
---------- -----------
Total current assets....................................... 1,707,764 20,621,837
Operating stock, net of accumulated amortization.................. 268,086 1,663,282
Property and equipment, net of accumulated depreciation........... 26,961 2,272,682
Other assets...................................................... -- 4,300
Notes receivable -- stockholders/affiliates....................... 10,568
Goodwill, net of amortization..................................... -- 18,037,458
---------- -----------
Total assets............................................... $2,013,379 $ 42,599,559
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt............................ $ -- $ 34,974
Due to stockholders and affiliates.............................. -- 10,683
Accounts payable and accrued expenses........................... 622,021 5,297,052
Accrued income taxes............................................ 100,000 398,577
Deferred revenue................................................ -- 1,193,210
Security deposits due to customers.............................. -- 355,877
---------- -----------
Total current liabilities.................................. 722,021 7,290,373
Long-term debt, net of current maturities......................... -- 20,306
Deferred income taxes............................................. 107,744 491,747
Commitments and contingencies
Stockholders' Equity:
Preferred stock................................................. -- --
Common stock.................................................... 31,000 75,672
Additional paid in capital...................................... -- 33,341,635
Treasury stock.................................................. (4,185) --
Retained earnings............................................... 1,156,799 1,379,826
---------- -----------
Total stockholders' equity................................. 1,183,614 34,797,133
---------- -----------
Total liabilities and stockholders' equity.............. $2,013,379 $ 42,599,559
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
TCH BRIDGESTREET TCH BRIDGESTREET
1996 1997 1996 1997
---------- ------------ ---------- ------------
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Revenues................................ $3,472,743 $ 15,370,619 $9,053,672 $ 36,914,828
Operating Expenses:
Cost of services...................... 2,474,878 10,922,684 6,643,879 26,737,715
Selling, general and administrative
expense............................ 620,603 2,947,295 1,646,886 7,344,665
Officers' stock compensation.......... -- -- -- 1,210,261
Goodwill amortization................. -- 129,750 -- 358,840
---------- ----------- ---------- -----------
Total operating expenses...... 3,095,481 13,999,729 8,290,765 35,651,481
---------- ----------- ---------- -----------
Operating income.............. 377,262 1,370,890 762,907 1,263,347
Other Income (Expense):
Interest income....................... -- 18,648 4,545 35,936
Interest expense...................... -- (22,170) (107) (119,643)
Other income, net..................... 5,994 87,147 83,048 215,831
---------- ----------- ---------- -----------
Other income, net.................. 5,994 83,625 87,486 132,124
---------- ----------- ---------- -----------
Income before provision for income
taxes.............................. 383,256 1,454,515 850,393 1,395,471
Provision for income taxes............ 167,015 654,424 370,582 1,172,444
---------- ----------- ---------- -----------
Net income............................ $ 216,241 $ 800,091 $ 479,811 $ 223,027
========== =========== ========== ===========
Net income per share.................. $ 0.15 $ 0.04
=========== ===========
Weighted average shares outstanding... 5,498,952 5,326,478
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See accompanying notes to consolidated financial statements.
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BRIDGESTREET ACCOMMODATIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
TCH BRIDGESTREET
1996 1997
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Cash Flows From Operating Activities:
Net income....................................................... $ 479,811 $ 223,027
Adjustments to reconcile net income to net cash provided by
operating activities --
Officers' stock compensation.................................. -- 1,210,261
Depreciation and amortization................................. 49,442 641,038
Change in operating assets and liabilities excluding the
effect of acquisitions --
Accounts receivable......................................... (13,916) (1,870,443)
Security deposits held by landlords......................... -- (56,590)
Prepaid expenses............................................ -- (685,064)
Other assets................................................ 37,290 --
Accounts payable and accrued expenses....................... (16,415) 3,419,172
Accrued taxes............................................... (70,561) 206,589
Deferred income taxes....................................... 19,565 161,506
Security deposits due to customers.......................... -- (20,375)
Deferred revenue............................................ -- 533,450
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Net cash provided by operating activities................ 485,216 3,762,571
Cash Flows From Investing Activities:
Purchases of investments in short term marketable securities..... (112,616) (124,997)
Sales of investments in short term marketable securities......... 104,843 277,250
Acquisitions, net of cash acquired............................... -- (655,581)
Purchases of operating stock..................................... (71,248) (675,026)
Purchases of property and equipment.............................. (24,247) (582,175)
---------- -----------
Net cash used for investing activities................... (103,268) (1,760,529)
---------- -----------
Cash Flows From Financing Activities:
Proceeds from Initial Public Offering, net of offering costs..... 14,612,400
Borrowings from stockholders..................................... -- (806,742)
Repayment of long term debt...................................... -- (1,203,451)
Capitalization of offering costs................................. -- 236,783
Collections of notes receivable.................................. -- 10,568
---------- -----------
Net cash provided by financing activities................ -- 12,849,558
---------- -----------
Net increase in cash and cash equivalents................ 381,948 14,851,600
Cash and cash equivalents, beginning of period..................... 834,615 597,939
---------- -----------
Cash and cash equivalents, end of period........................... $1,216,563 $ 15,449,539
========== ===========
Supplemental Cash Flow Information:
Cash paid for interest........................................... $ 107 $ 157,813
========== ===========
Cash paid for income taxes....................................... $ 568,524 $ 694,975
========== ===========
Non-Cash Transaction:
During the first quarter of 1997, the Company exchanged 4,301,000
shares of Common Stock of the Company for all of the
outstanding stock of the five Founding Companies.
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BRIDGESTREET ACCOMMODATIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") was
incorporated on August 19, 1996, to create a leading national provider of
flexible accommodation services through the acquisition and consolidation of the
operations of flexible accommodation service companies. During the first quarter
of 1997, the Company became the holder of all the outstanding stock of five
flexible accommodation service providers (the "Founding Companies") in exchange
for 4,301,000 shares of Common Stock of the Company (the "Combination"). The
Company conducted no operations prior to January 2, 1997, except in connection
with its initial public offering and the Combination. For financial reporting
purposes, the largest acquired company, Temporary Corporate Housing Columbus,
Inc. (together with its three affiliates, "TCH") has been designated as the
accounting acquiror, and its acquisition of the remaining four Founding
Companies has been accounted for using the purchase method of accounting.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The interim consolidated financial statements presented herein have been
prepared by the Company and include the unaudited accounts (on a combined basis
where applicable) of TCH, Corporate Lodgings, Inc. (and its four affiliates),
Exclusive Interim Properties, Ltd. (and its affiliate) and Temporary Housing
Experts, Inc., all of which were merged on January 2, 1997, as well as the
accounts of Home Again, Inc. (and its two affiliates), which was acquired on
March 31, 1997, and Corporate Housing Services, Inc., which was acquired on June
30, 1997. In the opinion of management, the financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
BridgeStreet's financial position at September 30, 1997, the results of
operations for the three- and nine-month periods ended September 30, 1997, and
cash flows for the nine-month period ended September 30, 1997.
The financial position at September 30, 1996, the results of operations for
the three- and nine-month periods ended September 30, 1996, and cash flows for
the nine-month period ended September 30, 1996, presented herein are of TCH, the
designated accounting acquiror. In the opinion of management, these financial
statements reflect all normal and recurring adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for the
period presented.
Interim results are not necessarily indicative of results for a full year.
The balance sheet presented as of December 31, 1996, has been derived from
the financial statements of TCH that have been audited by the Company's
independent public accountants.
2. PUBLIC OFFERING OF COMMON STOCK
In September, 1997, the Company completed its initial public offering of
3,007,250 common shares, of which 2,092,250 shares were issued by the Company
and 915,000 shares were sold by certain stockholders of the Company at a public
offering price of $9.00 per share (the "Offering"). The net proceeds to the
Company (after deducting underwriting discounts and commissions and expenses
incurred in connection with the Offering) of approximately $14.6 million were
used to repay $1,012,793 of certain indebtedness of the Founding Companies
assumed in connection with the Combination, $2,775,000 of indebtedness
outstanding under the Company's revolving credit facility, and $28,253 of the
outstanding amount due under a loan made to the Company by the spouse of one of
the Company's directors. The remaining net proceeds were invested in short-term,
interest bearing, investment grade securities and will be used for working
capital and general corporate purposes, including possible acquisitions and new
market start-ups.
6
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BRIDGESTREET ACCOMMODATIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company accounts for goodwill in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. The Company assesses the
future useful life of the assets whenever events or changes in circumstances
indicate that the current useful life has diminished. The Company considered the
future undiscounted cash flows of the acquired companies in assessing the
recoverability of the asset. If impairment has occurred, any excess of carrying
value over fair value is recorded as a loss.
The Company intends to account for its stock-based compensation plans under
Statement of Financial Accounting Standard No. 123 Accounting for Stock-Based
Compensation, and to elect the disclosure only provisions for stock options as
permitted by SFAS No. 123.
Certain items in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
4. ACQUISITIONS
As discussed in Note 1, in the first quarter of 1997, the Company merged
with five flexible accommodation operating companies in stock for stock tax-free
mergers. The mergers have been accounted for using the purchase method of
accounting with TCH designated as the accounting acquiror and the other
operating companies designated as "acquired companies." The results of
operations of the "acquired companies" have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The purchase price of the four "acquired companies," including the value of
stock issued to the founders of BridgeStreet as a transaction fee, was
approximately $17.7 million based on an independent appraisal of TCH and the
companies acquired. The aggregate cost of the acquisitions exceeded the
estimated fair value of assets and liabilities of the acquired companies by
$17,447,000. Goodwill is being amortized over 35 years. Allocation of the
purchase price for these acquisitions was based on an independent appraisal of
the fair value of the net assets acquired. Amortization expense was
approximately $130,000 for the three months ended September 30, 1997 and
accumulated goodwill amortization was approximately $359,000 as of and for the
nine months ended September 30, 1997.
Based on the unaudited data, the following table presents selected
financial information for the Company, TCH and the four acquired companies on a
pro forma basis, assuming the companies had been combined and the initial public
offering had occurred as of the beginning of 1996 and 1997, respectively.
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YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
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Revenues................................................ $ 37,566,000 $ 38,082,000
Net income (1).......................................... $ 547,000 $ 342,000
Net income per share.................................... $ 0.07 $ 0.05
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- - ---------------
(1) Pro forma net income assumes the net proceeds of the share offering were
used to repay outstanding debt and the pro forma net income for the year
ended December 31,1996 assumes the Combination occurred at the beginning of
1996 and reflects the goodwill amortization expense and the related tax
effect.
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisitions been made at
the beginning of 1996 and 1997, respectively.
On June 30, 1997, the Company acquired the assets of a flexible
accommodation services provider in Memphis for $1.0 million in cash. The
acquisition has been accounted for using the purchase method of
7
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BRIDGESTREET ACCOMMODATIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
accounting and the results of operations of this company have been included in
the accompanying financial statements from the date of acquisition. The cost of
the acquisition exceeded the estimated fair value of the acquired net assets by
$950,000, which has been accounted for as goodwill and will be amortized over 35
years. Allocation of purchase price was based on estimates of the fair value of
the net assets acquired. Pro forma data is not presented since the acquisition
was not material to the Company's results of operations.
5. STOCK OPTION PLANS
The Company adopted the 1997 Equity Incentive Plan (the "Equity Incentive
Plan") which provides for the award of incentive stock options, non-qualified
stock options, stock appreciation rights, performance shares, restricted stock
and stock units to all directors and employees of and consultants and advisors
to the Company. The number of shares authorized and reserved for issuance under
the Equity Incentive Plan is 1,000,000. In general, the terms of awards granted
under the Equity Incentive Plan (including vesting schedules) will be
established by the Compensation Committee of the Company's Board of Directors.
As of November 1, 1997, the Company has awarded options to purchase 491,517
shares of Common Stock under the Equity Incentive Plan. Of this amount, options
to purchase 300,000 shares were granted pursuant to employment agreements.
The Company adopted the Stock Plan for Non-Employee Directors (the
"Directors' Plan"). Pursuant to the Directors' Plan, on the date of the final
Prospectus used in connection with the Offering, each director who was not an
employee of the Company or one of its subsidiaries and neither was a holder of
five percent or more of the Company's Common Stock nor was a stockholder of the
Company prior to the Offering (a "non-employee director"), and each director
nominee, received options to purchase 12,500 shares of Common Stock with a per-
share exercise price equal to $9.00. Each such non-employee director will be
granted, on every third anniversary of September 24, 1997 (provided he or she
still is a non-employee director at such time), an option to acquire an
additional 7,500 shares of Common Stock, and each non-employee director
initially elected following the Offering also will be granted an option to
purchase 7,500 shares of Common Stock having a per-share exercise price equal to
the fair market value of the Common Stock on the date of such grant. The number
of shares authorized and reserved for issuance under the Directors' Plan is
100,000. Options totaling 37,500 have been granted under the Directors' Plan as
of November 1, 1997.
6. RESTRICTED STOCK COMPENSATION
In 1996, the CEO and CFO purchased 250,000 shares of restricted Common
Stock for nominal value. The restrictions were originally scheduled to lapse
upon the earlier to occur of five years from the date of purchase or upon the
successful completion of an initial public offering of the Company's Common
Stock or a change in control of the Company, as long as the individuals holding
the stock were the CEO and CFO on the date the restrictions lapsed. As part of
the negotiations involving these officers' employment agreements during the
first quarter of 1997, the Company's Board of Directors removed all restrictions
on the stock as of March 31, 1997, and all of the restricted shares became fully
vested. In connection with this vesting, the Company recognized non-recurring,
non-cash compensation expense of approximately $1,210,000, which was charged to
operations with an offsetting credit to additional paid-in capital in the first
quarter of 1997. The compensation charge of approximately $1,210,000 represented
the difference between the value of the stock issued and the amount paid by the
officers, measured by an independent appraisal as of the date the individuals
were appointed to be the CEO and CFO.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BridgeStreet was incorporated in August 1996 with the goal of becoming a
leading national provider of flexible accommodation services. The Company plans
to achieve this goal by implementing an aggressive acquisition program and a
national operating strategy designed to increase internal revenue growth, cost
efficiencies and profitability. In the first quarter of 1997, BridgeStreet
acquired by merger five flexible accommodation service providers.
The Company's revenues are derived primarily from renting accommodations to
guests for extended periods. Revenues depend on the number of accommodations the
Company has available under lease, the occupancy rate and the rate charged. The
rate charged is a function of, among other factors, (i) the type, size and
location of the accommodation being rented, (ii) the rental period and (iii) any
additional amenities made available to the guest during his or her stay. Cost of
services consists primarily of lease payments for accommodations and their
furnishings, and expenses associated with cleaning, maintaining and providing
utilities to accommodations. Selling, general and administrative expense
consists primarily of compensation and related benefits for management and key
employees, administrative salaries and benefits, office rents and utilities,
professional fees and advertising.
Prior to their acquisition by BridgeStreet, the Founding Companies were
managed as independent private businesses. As such, their historical results of
operations reflect different tax structures (i.e., S corporations and C
corporations) which have influenced, among other things, their historical levels
of owners' compensation and benefits. Certain Founding Companies' owners agreed
to reductions in their compensation and benefits in connection with the
Combination.
BridgeStreet currently is in the process of integrating the Founding
Companies and their operations and administrative functions. This integration
process may present opportunities to (i) enhance revenues through the geographic
cross-sell capabilities that each of the companies can provide to its existing
clients and (ii) reduce costs through, among other things, the elimination of
duplicative functions and the receipt of greater volume discounts from vendors.
However, integration also will necessitate additional costs and expenditures
related to corporate management and administration, public company operations,
systems integration and facilities expansion. As a result of these possible cost
savings and various additional costs, historical operating results may not be
comparable to, or indicative of, future performance. There can be no assurance
that the Company's integration efforts will be successful.
For financial reporting purposes, Temporary Corporate Housing Columbus,
Inc. (together with its three affiliates, "TCH") is presented as the accounting
acquiror of the other Founding Companies. Consequently, the Company's historical
financial statements for periods ended on or before December 31, 1996 are the
historical financial statements of TCH.
RESULTS OF OPERATIONS -- BRIDGESTREET INTERIM RESULTS
Three and Nine Months Ended September 30, 1997 Compared to Three and Nine
Months Ended September 30, 1996
BridgeStreet's Consolidated Statements of Operations for the three and nine
months ended September 30, 1997 include the unaudited accounts of (TCH),
Corporate Lodgings, Inc. (together with four affiliates, "CLI"), Exclusive
Interim Properties, Ltd. (together with an affiliate, "EIP") and Temporary
Housing Experts, Inc. ("THEI"), all of which were acquired on January 2, 1997.
The operating results for the three and nine months ended September 30, 1997
include the unaudited accounts of Home Again, Inc. (together with two
affiliates, "HA"), which was acquired on March 31, 1997. The Statement of
Operations of BridgeStreet for the three and nine months ended September 30,
1996 consists of the unaudited accounts of only TCH, the designated accounting
acquiror. Consequently, the 1996 and 1997 three- and nine-month periods are not
comparable, and the
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comparison of the periods below is not indicative of future results of
operations. The Company's Consolidated Balance Sheet as of September 30, 1997
reflects the accounts of TCH, CLI, EIP, THEI, and HA.
Revenues. Revenues increased $27.8 million, or 308%, from $9.1 million for
the nine months ended September 30, 1996 to $36.9 million for the nine months
ended September 30, 1997. For the three months ended September 30, revenues
increased $11.9 million, or 343%, from $3.5 million in 1996 to $15.4 million in
1997. The increase in revenues primarily was the result of an increase in the
number of accommodations rented during the periods due to the acquisition of the
flexible accommodation service providers and the growth in existing markets.
Cost of Services. Cost of services increased $20.1 million, or 302%, from
$6.6 million for the nine months ended September 30, 1996 to $26.7 million for
the nine months ended September 30, 1997. For the three months ended September
30, 1997, cost of services increased $8.4 million, or 341%, from $2.5 million in
1996 to $10.9 million in 1997. Cost of services as a percentage of revenues
decreased from 73.4% for the nine months ended September 30, 1996 to 72.4% for
the nine months ended September 30, 1997. Cost of services as a percentage of
revenues for the three months ended September 30 decreased from 71.3% in 1996 to
71.1% in 1997. The dollar increase in cost of services was primarily related to
the acquisition of the flexible accommodation service providers. Cost of
services decreased as a percentage of revenues primarily as a result of
increased rental rates and higher occupancy rates.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $5.7 million, or 346%, from $1.6 million for
the nine months ended September 30, 1996 to $7.3 million for the nine months
ended September 30, 1997. For the three months ended September 30, selling,
general and administrative expense increased $2.3 million, or 375%, from
$621,000 in 1996 to $2.9 million in 1997. Selling, general and administrative
expense as a percentage of revenues increased from 18.2% for the nine months
ended September 30, 1996 to 19.9% for the nine months ended September 30, 1997.
Selling, general and administrative expense as a percentage of revenues for the
three months ended September 30 increased from 17.9% in 1996 to 19.2% in 1997.
The dollar increase in selling, general and administrative expense primarily was
a result of the acquisition of the flexible accommodation service providers. The
increase in such expense as a percentage of revenues resulted from hiring
corporate personnel and acquiring certain companies that had higher selling,
general and administrative expenses as a percentage of revenues. The Statement
of Operations for the nine months ended September 30, 1997 includes $1.2 million
of non-recurring, non-cash compensation expense relating to the accelerated
vesting of restricted stock held by executive officers. The compensation charge
represents the difference between the value of stock issued to officers and the
amount paid.
Income Tax Provision. For the nine months ended September 30, 1997, the
Company recorded a tax provision of $1.2 million on a pre-tax income of $1.4
million, compared to a tax provision of $370,582 on pre-tax income of $850,393
for the nine months ended September 30, 1996. The tax provision for the nine
months ended September 30, 1997 is based on the Company's estimated consolidated
effective tax rate for the 1997 fiscal year after considering nondeductible
goodwill and nondeductible officers' stock compensation expense.
LIQUIDITY AND CAPITAL RESOURCES -- BRIDGESTREET
For the nine months ended September 30, 1997, net cash provided by
operating activities totaled $3.8 million. Net cash used in investing activities
during the nine months ended September 30, 1997 was $1.8 million, primarily for
acquisitions (as described below) and the purchase of operating stock and
equipment required in the Company's business. Net cash provided by financing
activities during the nine months ended September 30, 1997 was $12.8 million,
primarily due to proceeds, net of expenses, from the Company's initial public
offering partially offset by repayments of amounts due stockholders, long-term
debt and costs associated with the offering. Cash, cash equivalents and
investments in short-term marketable securities increased by $14.9 million
during the period and totaled $15.4 million at September 30, 1997.
The Company has a revolving credit facility with Fleet National Bank, the
material terms of which are summarized as follows. The facility provides the
Company with a revolving line of credit of up to $10.0 million, secured by
guarantees by certain material subsidiaries of the Company and a pledge of the
capital stock of all of the Company's wholly-owned operating subsidiaries. The
credit facility may be used for refinancing of the
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Company's subsidiaries' indebtedness, post-offering acquisitions and working
capital. Loans made under the credit facility bear interest, at the Company's
option, at the bank's prime lending rate, 1.25% above the Eurodollar rate or a
30-day LIBOR rate. The credit facility will terminate on March 31, 2002, or
sooner at the discretion of the Company, and all amounts outstanding thereunder
(if any) will be due upon such termination. The credit facility (i) prohibits
the payment of dividends and other distributions by the Company, (ii) generally
will not permit the Company to incur or assume other indebtedness and (iii)
requires the Company to comply with certain financial covenants. The Company had
no amounts outstanding under the facility at September 30, 1997.
On March 31, 1997 the Company acquired HA in a stock-for-stock merger and
issued 475,000 shares of Common Stock as merger consideration. The acquisition
has been accounted for using the purchase method of accounting. The Company has
recorded approximately $2.3 million of goodwill related to the transaction that
will be amortized over a period of 35 years. Home Again had combined revenues of
approximately $4.0 million for the year ended December 31, 1996 and
approximately $1.2 million for the three months ended March 31, 1997. Home
Again's results of operations for the three and six months ended September 30,
1997 are reflected in the Company's Consolidated Statements of Operations for
the three- and nine-month periods ended September 30, 1997.
On June 30, 1997 the Company acquired for cash all the assets of Corporate
Housing Services ("CHS"), a provider of flexible accommodation services in the
Memphis, Tennessee metropolitan area. CHS had revenues of approximately $2.5
million for the year ended December 31, 1996. The cost of the acquisition was
$1.0 million and was funded through borrowings from the Company's revolving line
of credit. The acquisition price was allocated to net assets of $50,000 and to
goodwill of $950,000. CHS's assets and operations were merged into
BridgeStreet's Memphis subsidiary, Temporary Housing Experts, Inc.
The Company's primary sources of funding to date have been cash flow from
operations, proceeds from its initial public offering, commercial credit
facilities and loans from affiliates. The Company anticipates that cash from the
public offering and cash flow from operations will be its principal future
sources of funding. The Company's principal future uses of cash, in addition to
cash used in operating activities, include investment in the Company's
management information systems, funding of acquisitions and expansion into new
markets. The Company does not plan to make any material capital expenditures for
leasehold improvements. While there can be no assurance, management believes
that cash flow from operations, funds from the revolving credit facility and the
net proceeds from the initial public offering will be adequate to meet the
Company's capital requirements for the next 12 months, depending on the size and
methods of financing potential acquisitions.
FACTORS TO BE CONSIDERED
The information set forth above contains forward-looking statements, which
involve risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements.
Readers should refer to discussion under "Risk Factors" contained in the
Company's Registration Statement on Form S-1 (No. 333-26647) filed with the
Securities and Exchange Commission, which is incorporated herein by reference,
concerning certain factors which could cause the Company's actual results to
differ materially from the results anticipated in the forward-looking statements
contained herein.
11
<PAGE> 12
PART II
ITEM 1. LEGAL PROCEEDINGS:
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
The Company's Registration Statement on Form S-1 (File No. 333-26647)
relating to the Offering was declared effective by the SEC on September 24,
1997. The offering under the Registration Statement of 2,092,250 shares of
Common Stock by the Company for its account, and of 915,000 shares of Common
Stock by certain of the Company's stockholders for their accounts, commenced on
September 24, 1997, and the sale of all such shares closed on September 30,
1997. All of the shares of Common Stock registered under the Registration
Statement were sold in the Offering at an aggregate price of $27,065,250 (before
deducting underwriting discounts and commissions and offering expenses payable
by the Company). The managing underwriters of the Offering were Legg Mason Wood
Walker, Incorporated and McDonald & Company Securities, Inc. After deducting
total expenses comprised of $1,318,117.50 in underwriting discounts and
commissions and approximately $2.9 million in offering expenses incurred through
September 30,1997,the Company received net proceeds from the Offering of
approximately $14.6 million. No offering expenses or underwriting discounts and
commissions were paid or (in the case of unpaid offering expenses as of
September 30, 1997) are to be paid to directors, officers or their associates,
or to any affiliate of the Company or any person(s) owning 10% or more of the
Company's Common Stock.
Of the total net proceeds from the Offering, the Company used $1,012, 793
to repay certain indebtedness of the Founding Companies assumed in connection
with the Combination, $2,775,000 to repay amounts outstanding under the
Company's revolving credit facility, and $28,253 to repay amounts due under a
loan made to the Company by the spouse of one of the Company's directors. The
remaining net proceeds were invested in short-term, interest-bearing, investment
grade securities that will be used for working capital and general corporate
purposes, including acquisitions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
11 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K: There were no reports on Form 8-K for the three
months ended September 30, 1997.
12
<PAGE> 13
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.
BRIDGESTREET ACCOMMODATIONS, INC.
Date: November 12, 1997 By: /s/ WILLIAM N. HULETT, III
------------------------------------
William N. Hulett
President and Chief Executive
Officer
Date: November 12, 1997 By: /s/ MARK D. GAGNE, CPA
------------------------------------
Mark D. Gagne, CPA
Chief Financial Officer
13
<PAGE> 1
EXHIBIT 11
STATEMENTS RE: COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1997 1996 1997
---- ------ ---- ------
<S> <C> <C> <C> <C>
Shares Outstanding:
For computation of primary net income per share --
Weighted average........................................... -- 5,498 -- 5,326
Share equivalents -- Options............................... -- 1 -- --
------ ------
Adjusted shares outstanding................................ -- 5,499 -- 5,326
====== ======
For computation of fully-diluted net income per share --
Weighted average, without regard to, exercise under share
option plans, or purchase of outstanding shares.......... -- 5,498 -- 5,326
Assumption of exercise under share option plans............ -- 1 -- --
------ ------
Adjusted shares outstanding................................ 5,499 5,326
====== ======
Net Income:
Net income applicable to shares of beneficial interest
(used for computing primary and fully diluted net income
per share)............................................... $216 $ 800 $371 $ 223
==== ====== ==== ======
Net income per share of beneficial interest:
Primary and fully diluted Net income....................... -- $ 0.15 -- $ 0.04
====== ======
</TABLE>
- - ---------------
(1) The pro forma basic earnings per share for the three and nine months ended
September 30, 1997, in accordance with SFAS 128 (earnings per share), is
$0.15 and $0.04 per share, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001038078
<NAME> BRIDGESTREET ACCOMMODATIONS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,449,539
<SECURITIES> 0
<RECEIVABLES> 3,628,038
<ALLOWANCES> 296,204
<INVENTORY> 0
<CURRENT-ASSETS> 20,621,837
<PP&E> 3,117,346
<DEPRECIATION> 844,664
<TOTAL-ASSETS> 42,599,559
<CURRENT-LIABILITIES> 7,290,373
<BONDS> 20,306
0
0
<COMMON> 75,672
<OTHER-SE> 34,721,461
<TOTAL-LIABILITY-AND-EQUITY> 34,797,133
<SALES> 36,914,828
<TOTAL-REVENUES> 36,914,828
<CGS> 26,737,715
<TOTAL-COSTS> 26,737,715
<OTHER-EXPENSES> 8,913,766<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,643
<INCOME-PRETAX> 1,395,471
<INCOME-TAX> 1,172,444
<INCOME-CONTINUING> 223,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,027
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
<FN>
<F1>OTHER EXPENSES INCLUDE $1,210,261 OF NON-RECURRING, NON CASH COMPENSATION
EXPENSE RELATING TO THE ACCELERATED VESTING OF RESTRICTED STOCK HELD BY
EXECUTIVE OFFICERS. THE COMPENSATION CHARGE REPRESENTS THE DIFFERENCE BETWEEN
THE VALUE OF STOCK ISSUED TO OFFICERS AND THE AMOUNT PAID.
</FN>
</TABLE>
