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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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)
DELAWARE
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(State or other jurisdiction of
incorporation or organization)
04-3327773
------------------------------------------------
(I.R.S. Employer Identification No.)
30670 BAINBRIDGE ROAD, SOLON, OH
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(Address of principal executive offices)
44139
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(Zip code)
(440)248-3005
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(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 May 12, 1998, there were 7,753,485 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 MARCH 31, 1998
<TABLE>
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
March 31, 1998 (unaudited) and December 31, 1997............ 3
Consolidated Statements of Operations:
Three Months Ended March 31, 1998 and 1997 (unaudited)...... 4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1998 and 1997 (unaudited)...... 5-6
Notes to the Consolidated Financial Statements
(unaudited)................................................. 7-10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 11-15
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS........................................... 16
ITEM 2 CHANGES IN SECURITIES....................................... 16
ITEM 3 DEFAULTS UPON SENIOR SECURITIES............................. 16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 16
ITEM 5 OTHER INFORMATION........................................... 16
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................ 16
SIGNATURES.................................................. 17
</TABLE>
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PART I. FINANCIAL INFORMATION
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,922,215 $ 900,985
Trade accounts receivable, less allowance for doubtful
accounts of $167,000 in 1997 and 1998.................. 2,217,930 4,952,307
Security deposits held by landlords....................... 264,541 360,457
Deferred income taxes..................................... 524,156 524,156
Prepaid rent.............................................. 817,769 1,471,084
Other current assets...................................... 709,254 1,637,734
Total current assets................................... 13,455,865 9,846,723
Operating stock, net of accumulated amortization............ 1,682,579 2,017,637
Property and equipment, net of accumulated depreciation..... 2,535,094 3,195,782
Other assets................................................ 208,930 111,139
Due from stockholders/affiliates............................ 348,000 57,893
Goodwill, net of amortization............................... 24,332,484 39,408,549
----------- -----------
TOTAL ASSETS...................................... $42,562,952 $54,637,723
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 20,121 $ 107,775
Due to stockholders and affiliates........................ 100,835 649,923
Accounts payable.......................................... 1,027,307 2,058,373
Accrued payroll and employee benefits..................... 511,963 518,889
Accrued expenses, other................................... 1,473,486 2,952,067
Deferred revenue.......................................... 690,509 763,860
Security deposits due to customers........................ 459,251 780,880
Total current liabilities............................ 4,283,472 7,831,767
Long-term debt, net of current maturities................... 25,803 4,255,858
Deferred income taxes....................................... 675,480 675,480
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; authorized 5,000,000
shares; no shares issued or outstanding................ -- --
Common stock, $0.01 par value; authorized 35,000,000
shares; 7,789,345 and 8,169,659 shares issued and
outstanding in 1997 and 1998, respectively............. 77,893 81,696
Additional paid in capital................................ 35,889,414 40,122,516
Retained earnings......................................... 1,610,890 1,680,493
Translation adjustment.................................... -- (10,087)
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TOTAL STOCKHOLDERS' EQUITY........................... 37,578,197 41,874,618
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $42,562,952 $54,637,723
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
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1997 1998
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REVENUES.................................................... $ 9,064,902 $19,483,811
Operating Expenses:
Cost of services.......................................... 7,000,807 15,063,134
Selling, general and administrative expense............... 1,950,362 4,192,373
Officers' stock compensation.............................. 1,210,261 --
Goodwill amortization..................................... 106,685 206,772
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Total operating expenses............................... 10,268,115 19,462,279
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Operating income..................................... (1,203,213) 21,532
OTHER INCOME (EXPENSE):
Interest income........................................... 9,356 34,251
Interest expense.......................................... (33,604) (18,074)
Other income, net......................................... 55,911 88,842
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Other income, net...................................... 31,663 105,019
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Income before provision for income taxes............... (1,171,550) 126,551
Provision for income taxes................................ 18,020 56,948
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Net income................................................ $(1,189,570) $ 69,603
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Comprehensive Income...................................... $(1,189,570) $ 59,516
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Net income per share-basic and dilutive................... $ (0.24) $ 0.01
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Weighted average shares outstanding-basic................. 5,000,000 7,981,166
Weighted average shares outstanding-dilutive.............. 5,000,000 8,037,932
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BRIDGESTREET ACCOMMODATIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $(1,189,570) $ 69,603
Adjustments to reconcile net income to net cash
provided by operating activities-
Officers' stock compensation....................... 1,210,261 --
Exercise of stock options.......................... -- 749
Depreciation and amortization...................... 216,253 448,733
Translation adjustment............................. -- (10,087)
Changes in operating assets and liabilities
excluding the effect of acquisitions-
Accounts receivable.............................. (918,511) (2,411,592)
Security deposits held by landlords.............. 9,438 30,902
Prepaid expenses and other assets................ (266,406) (373,695)
Accounts payable and accrued expenses............ 722,007 269,851
Accrued income taxes............................. (58,762) --
Deferred income taxes............................ (124,708) --
Security deposits due to customers............... 40,969 (190,569)
Deferred revenue................................. 212,361 73,351
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Net cash used in operating activities......... (146,668) (2,092,754)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments in short-term marketable
securities......................................... (87,499)
Acquisitions, net of cash acquired.................... 344,419 (10,229,034)
Proceeds from sale of assets.......................... -- --
Purchases of operating stock.......................... (69,182) (421,151)
Purchases of property and equipment................... (122,276) (557,515)
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Net cash (used in) provided by investing
activities.................................. 65,462 (11,207,700)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Capitalization of offering costs...................... (105,742) --
Addition of long-term debt............................ 392,526 4,197,253
Due to stockholders/affiliates........................ 63,903 549,088
Collection on notes receivable........................ 10,386 532,883
----------- ------------
Net cash provided by financing activities..... 361,073 5,279,224
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Net increase(decrease) in cash and cash
equivalents................................. 279,867 (8,021,230)
Cash and cash equivalents, beginning of period.......... 597,939 8,922,215
----------- ------------
Cash and cash equivalents, end of period................ $ 877,806 $ 900,985
----------- ------------
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest........................ $ 25,960 $ 23,919
Cash paid for income taxes.................... $ 198,401 $ 907,500
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.
In the first quarter of 1998, the Company issued
approximately 379,000 shares of Common Stock of the
Company or securities convertible into Common Stock
of the Company as consideration in three
acquisitions.
</TABLE>
See accompanying notes to consolidated financial statements.
6
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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 acquired 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 founding company, Temporary Corporate Housing Columbus, Inc. ("TCH")
was designated as the accounting acquirer, and its acquisition of the remaining
four Founding Companies was accounted for using the purchase method of
accounting.
The interim consolidated financial statements presented herein have been
prepared by the Company and include the unaudited accounts 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 with
and into subsidiaries of the Company on January 2, 1997, as well as the accounts
of the following wholly-owned operating subsidiaries from the indicated dates on
which they acquired (by merger with or purchase of substantially all of the
assets of) flexible accommodation service providers: HAI Acquisition Corp.
(March 31, 1997); BridgeStreet Texas, L.P. (December 1, 1997); BridgeStreet
Arizona, Inc. (December 1, 1997); BridgeStreet North Carolina, Inc. (January 2,
1998); BridgeStreet Raleigh, Inc. (January 2, 1998); BridgeStreet Texas, L.P.
(Austin, January 2, 1998); BridgeStreet Colorado, Inc. (January 2, 1998);
BridgeStreet Accommodations Limited (February 19, 1998); and BridgeStreet
Canada, Inc. (March 2, 1998). All intercompany accounts and transactions have
been eliminated.
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 of the information and footnotes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial position of the Company as of March 31, 1998 and the results of
its operations and cash flows for the three month periods ended March 31, 1998
and 1997 have been included.
Operating results for the three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
Certain items in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
2. ACQUISITIONS
As discussed in Note 1, in the first quarter of 1997, the Company merged
with the five Founding 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 acquirer 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 and
allocation of 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 the net assets
acquired. The aggregate cost of the acquisitions exceeded the estimated fair
value of assets and liabilities of the acquired companies by $17.5 million which
is being amortized as goodwill over 35 years.
Between April 1 and December 31, 1997, the Company made three additional
acquisitions during 1997. The acquisitions have been accounted for using the
purchase method of accounting. The aggregate cost of these acquisitions was
$6.75 million, consisting of $4.4 million of cash and $2.35 million of stock.
The preliminary
7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase price allocation of these acquisitions resulted in goodwill of
approximately $7.25 million that is being amortized over 35 years. The results
of operations of these acquisitions have been included in the accompanying
consolidated financial statements from the date of acquisition. Details of these
acquisitions are noted below.
On June 30, 1997, the Company acquired for cash certain assets of Corporate
Housing Services, Inc., a flexible accommodation company servicing the Memphis,
Tennessee metropolitan area. Pro forma data is not presented as the acquisition
was not material to the Company's results of operations.
On December 1, 1997, the Company acquired certain assets of Accommodations
by Apple, Inc. ("ABA of Dallas"), a Texas flexible accommodation company
servicing Dallas and surrounding cities. The purchase consideration consisted of
cash and the issuance of approximately 151,000 shares of common stock.
On December 1, 1997, the Company acquired certain assets of Accommodations
by Apple, Inc. ("ABA of Phoenix"), an Arizona flexible accommodation company
servicing several markets including Phoenix, Tucson and Scottsdale. The purchase
consideration consisted of cash and the issuance of approximately 71,000 shares
of common stock.
In the first quarter of 1998, the Company acquired six companies. The
acquisitions have been accounted for using the purchase method of accounting.
The total cost of these acquisitions was approximately $14.6 million, consisting
of cash and notes of $10.4 million and $4.2 million in stock. The preliminary
purchase price allocation of these acquisitions resulted in goodwill of
approximately $15.0 million that will be amortized over 35 years. The results of
operations of these acquisitions have been included in the accompanying
consolidated financial statements from the date of acquisition. Details
regarding these acquisitions are noted below.
On January 2, 1998, the Company acquired certain assets of Home on the
Road, Inc. of Charlotte, a North Carolina flexible accommodation company
servicing Charlotte and surrounding cities. The purchase consideration consisted
of cash and a promissory note.
On January 2, 1998, the Company acquired all the outstanding stock of Home
on the Road-Raleigh, a North Carolina flexible accommodation company servicing
several markets including Raleigh, Durham, Research Triangle Park, Winston-Salem
and Greensboro. The purchase consideration consisted of the issuance of
approximately 75,000 shares of common stock.
On January 2, 1998, the Company acquired for cash certain assets of
Accommodations by Apple-Denver and Accommodations by Apple-Austin, flexible
accommodation companies servicing several markets in the Denver metropolitan
area including Colorado Springs, Boulder and Fort Collins, and in the Austin,
Texas, metropolitan area. The purchase consideration of the two acquisitions was
cash and notes. Pro forma data is not presented as these acquisitions were not
material to the Company's results of operations.
On February 19, 1998, the Company acquired all the issued and outstanding
stock of London Life Apartments, Limited ("London Life"), a flexible
accommodation company servicing London, U.K. The purchase consideration
consisted of cash and the issuance of approximately 165,000 shares of common
stock.
On March 2, 1998, the Company acquired all the issued and outstanding stock
of Global Travel Apartments, Inc. ("GTA"), one of Canada's largest providers of
flexible accommodations services. GTA services the Toronto, Montreal, Ottawa,
Edmonton, Regina, Vancouver and Victoria markets. The purchase consideration
consisted of cash and the issuance of approximately 139,000 shares of the stock
of a Canadian subsidiary that is exchangeable for an equal number of shares of
common stock of the Company.
The following table presents unaudited selected financial information for
the Company, the five Founding Companies, and the acquisitions of ABA of Dallas
and ABA of Phoenix, Home on the Road, Inc. of Charlotte,
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Home on the Road-Raleigh, London Life and GTA on a pro forma basis, assuming the
companies had been combined and the initial public offering had occurred as of
the beginning of 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
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Revenues................................................ 17,730,000 21,618,000
Net income (Loss)....................................... (1,139,000) 112,000
Net income per share-basic and dilutive................. $ (0.14) $ 0.01
</TABLE>
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 1997.
3. REVOLVING CREDIT AGREEMENT
During the first quarter of 1998, the Company increased its revolving
credit agreement from $10.0 million to $25.0 million. The revolving credit
agreement, secured by the capital stock of the Company's operating subsidiaries,
extends to March 31, 2002. Interest is payable at the option of the borrower at
the prime rate, or 1.5% above the Eurodollar or LIBOR rates. A commitment fee is
payable on the average unused credit at a rate of 0.2%. The revolving credit
agreement contains certain restrictive covenants with which the Company must
comply. 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 December 31, 1997, and $4.0 million outstanding at March 31, 1998.
All debt covenants were met as of December 31, 1997 and March 31, 1998.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which is
effective for periods ending after December 15, 1997. The standard requires the
presentation of basic earnings per share ("EPS") and diluted EPS. Basic EPS
replaces the primary EPS calculation required under APB Opinion No. 15. Basic
EPS excludes dilution and is calculated using the weighted average number of
common shares outstanding for the period. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB Opinion No. 15. The share amounts used to
calculate earnings per share for the three months ended March 31, 1997 and 1998
are as follows:
<TABLE>
<CAPTION>
1997 1998
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Basic common shares (weighted average)...................... 5,000,000 7,981,166
Dilutive stock options...................................... -- 56,766
--------- ---------
Dilutive common shares...................................... 5,000,000 8,037,932
========= =========
</TABLE>
There are no adjustments to the reported amounts of net income for purposes
of computing diluted EPS.
5. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as changes in stockholders' equity from nonowner sources and,
for the Company, includes net income and changes in the foreign currency
translation.
9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which is effective for the Company as of January 1, 1999. This
SOP requires capitalization of the development costs of software to be used
internally, i.e., for accounting, property management and administrative
processes. The Company, which currently expenses such costs, plans to adopt this
SOP as of January 1, 1999. The effect of adopting this SOP has not been
determined.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which is effective for the Company as of January 1, 1999.
This SOP requires start-up and organization costs to be expensed as incurred and
also requires previously deferred start-up costs to be recognized as a
cumulative effect adjustment in the statement of income. The effect of adopting
this SOP has not been determined.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") 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 "Founding Companies"). During
the second quarter, the Company acquired the assets of another flexible
accommodation service company; in the fourth quarter, two additional providers
were acquired, and in the first quarter of 1998, six additional providers were
acquired.
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.
As discussed in Note 1 to the financial statements, in the first quarter of
1997, the Company merged with five Founding Companies in stock for stock
tax-free mergers. For financial reporting purposes, Temporary Corporate Housing
Columbus, Inc. (together with its three affiliates, "TCH") is presented as the
accounting acquirer of the other Founding Companies, which have been designated
"acquired companies." The mergers have been accounted for using the purchase
method of accounting. 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 and allocation of 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 the net assets acquired. The
aggregate cost of the acquisitions exceeded the estimated fair value of assets
and liabilities of the acquired companies by $17.5 million which is being
amortized as goodwill over 35 years.
BridgeStreet currently is in the process of integrating certain
operational, sales and administrative functions of the Founding Companies and
other companies acquired to date. This integration process presents
opportunities to (i) enhance revenues through geographic cross-sales synergies
and (ii) reduce costs through, among other things, the elimination of
duplicative functions and the economies of scales that may be generated through
volume purchasing. However, integration necessitates 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.
RESULTS OF OPERATIONS -- BRIDGESTREET INTERIM RESULTS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
BridgeStreet's Consolidated Statements of Operations for the three months
ended March 31, 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 months ended March 31, 1998 also include the unaudited accounts of
the following wholly-owned operating subsidiaries from the indicated dates on
which they were acquired (by merger with or purchase of substantially all of the
assets of) flexible accommodation
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service providers: HAI Acquisition Corp. ("HA") (March 31, 1997); BridgeStreet
Texas L.P. (December 1, 1997); BridgeStreet Arizona, Inc. (December 1, 1997);
BridgeStreet North Carolina, Inc. (January 2, 1998); BridgeStreet-Raleigh, Inc.
(January 2, 1998); BridgeStreet Colorado, Inc. (January 2, 1998); BridgeStreet
Texas L.P. (Austin, January 2, 1998); BridgeStreet Accommodation Limited
(February 19, 1998); and BridgeStreet Canada, Inc. (March 2, 1998).
The Company's Consolidated Balance Sheet as of December 31, 1997, reflects
the accounts of TCH, CLI, EIP, THEI, HA, BridgeStreet Texas L.P. and
BridgeStreet Arizona, Inc. The Company's Consolidated Balance Sheet as of March
31, 1998, also includes the accounts of BridgeStreet North Carolina, Inc.,
BridgeStreet Raleigh, Inc., BridgeStreet Colorado, Inc., BridgeStreet Texas L.P.
(Austin, Texas), BridgeStreet Accommodations Limited and BridgeStreet Canada,
Inc.
Revenues. Revenues for the three months ended March 31, 1998 increased
$10.4 million, or 115%, from $9.1 million in 1997 to $19.5 million for the three
months ended March 31, 1998. The increase in revenues primarily was the result
of an increase in the number of accommodations rented during the period due to
the acquisition of the flexible accommodation service providers and growth in
existing markets.
Cost of Services. Cost of services for the three months ended March 31,
1998 increased $8.1 million, or 115%, from $7.0 million in 1997 to $15.1 million
in 1998. Cost of services as a percentage of revenues for the three months ended
March 31 increased from 77.2% in 1997 to 77.3% in 1998. The dollar increase in
cost of services was primarily related to the acquisition of the flexible
accommodation service providers.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1998 increased $2.2
million, or 115%, from $2.0 million in 1997 to $4.2 million in 1998. Selling,
general and administrative expense as a percentage of revenues for the three
months ended March 31 was 21.5% in both 1997 and 1998. The dollar increase in
selling, general and administrative expense primarily was a result of the
acquisition of the flexible accommodation service providers. The Statement of
Operations for the three months ended March 31, 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 three months ended March 31, 1998, the
Company recorded a tax provision of $57,000 on a pre-tax income of $127,000,
compared to a tax provision of $18,000 on a pre-tax loss of $(1,172,000) for the
three months ended March 31, 1997. The tax provision is based on the Company's
estimated consolidated effective tax rate for the 1998 fiscal year after
considering nondeductible goodwill expense.
LIQUIDITY AND CAPITAL RESOURCES -- BRIDGESTREET
For the three months ended March 31, 1998, net cash used in operating
activities totaled $2.1 million. Net cash used in investing activities was $11.2
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 was $5.3 million, primarily due to borrowings
against the revolving line of credit. Cash and cash equivalents decreased by
$8.0 million during the period and totaled $0.9 million at March 31, 1998.
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 $14.8 million were
used to repay $1.0 million of certain indebtedness of the Founding Companies
assumed in connection with the Combination, $2.8 million (of which $1.0 million
related to acquisitions) of indebtedness outstanding under the Company's
revolving credit facility, $28,000 of the outstanding amount due under a loan
made to the Company by the spouse of one of the Company's directors, and
approximately $3.6 million for acquisitions and expenses associated with
acquisitions. The remaining net proceeds were invested in short-term, interest
bearing, investment grade securities at December 31, 1997, and subsequently were
used for acquisitions.
12
<PAGE> 13
The Company has a revolving credit facility that provides the Company with
up to $25.0 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 Company's subsidiaries' indebtedness, acquisitions and
working capital. Loans made under the credit facility bear interest, at the
Company's option, at the bank's prime lending rate, or 1.5% above the Eurodollar
or LIBOR rates. 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 $0 and
$4.2 million under the facility at December 31, 1997 and March 31, 1998,
respectively.
On March 31, 1997, the Company acquired Home Again, Inc. and two affiliates
("Home Again") 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 $1.2
million for the three months ended March 31, 1997.
Between April 1 and December 31, 1997, the Company made three additional
acquisitions during 1997. The acquisitions have been accounted for using the
purchase method of accounting. The aggregate cost of these acquisitions was
$6.75 million, consisting of $4.4 million of cash and $2.35 million of stock.
The preliminary purchase price allocation of these acquisitions resulted in
goodwill of approximately $7.25 million that will be amortized over 35 years.
Details of these acquisitions are noted below.
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. The cost of the acquisition was funded
through borrowings from the Company's revolving line of credit. CHS's assets and
operations were merged into BridgeStreet's Memphis subsidiary, Temporary Housing
Experts, Inc.
On December 1, 1997, the Company acquired certain assets of Accommodations
by Apple, Inc. ("ABA of Dallas"), a Texas flexible accommodation company
servicing Dallas and surrounding cities. The purchase consideration included
cash, funded from the proceeds of the Company's IPO, and the issuance of 151,000
shares of common stock.
On December 1, 1997, the Company acquired certain assets of Accommodations
by Apple, Inc. ("ABA of Phoenix"), an Arizona flexible accommodation company
servicing several markets including Phoenix, Tucson and Scottsdale. The purchase
consideration included cash, funded from the proceeds of the Company's IPO, and
the issuance of 71,000 shares of common stock.
Subsequent to December 31, 1997, the Company has acquired six companies.
The acquisitions have been accounted for using the purchase method of
accounting. The total aggregate cost of these acquisitions was approximately
$14.6 million, consisting of cash and notes of $10.4 million and $4.2 million in
common stock or securities exchangeable for common stock. The preliminary
purchase price allocation of these acquisitions resulted in goodwill of
approximately $15.0 million that will be amortized over 35 years. Details
regarding these acquisitions are noted below.
On January 2, 1998, the Company acquired all the assets of Home on the
Road, Inc. of Charlotte, a North Carolina flexible accommodation company
servicing Charlotte and surrounding cities. The purchase consideration consisted
of cash, funded from the proceeds of the Company's IPO, and a promissory note.
Home on the Road, Inc. had revenues of $2.2 million in 1997.
On January 2, 1998, the Company acquired all the outstanding stock of Home
on the Road-Raleigh, a North Carolina flexible accommodation company servicing
several markets including Raleigh, Durham, Research Triangle Park, Winston-Salem
and Greensboro. The purchase consideration of the acquisition was the issuance
of 75,000 shares of common stock. Home on the Road-Raleigh had revenues of $1.3
million in 1997.
On January 2, 1998, the Company acquired for cash certain assets of
Accommodations by Apple-Denver and Accommodations by Apple-Austin, two flexible
accommodation companies servicing several markets in the
13
<PAGE> 14
Denver metropolitan area including Colorado Springs, Boulder and Fort Collins,
and in Austin, Texas, and surrounding cities. The purchase consideration of the
two acquisitions was cash, funded from the proceeds of the Company's IPO, and
notes. The acquisitions had revenues of approximately $2.6 million in 1997.
On February 19, 1998, the Company acquired all the issued and outstanding
stock of London Life Apartments, Inc. ("London Life"), a flexible accommodation
company servicing London, U.K. The purchase consideration consisted of cash and
the issuance of approximately 165,000 shares of common stock. London Life had
revenues of approximately $10.0 million in 1997.
On March 2, 1998, the Company acquired all the issued and outstanding stock
of Global Travel Apartments, Inc. ("GTA"), one of Canada's largest providers of
flexible accommodation services. GTA services the Toronto, Montreal, Ottawa,
Edmonton, Regina, Vancouver and Victoria markets. The purchase consideration
consisted of cash and the issuance of approximately 139,000 shares of the stock
of a Canadian subsidiary that is exchangeable for an equal number of shares of
common stock of the Company. GTA had revenues of approximately $7.7 million for
the eleven months ended January 31, 1998.
The Company will continue to pursue growth through the acquisition of
flexible accommodation service providers. The Company's primary sources of
funding to date have been cash flow from operations, proceeds from the IPO and
its revolving credit facility. The Company anticipates that cash flow from
operations and funds from its revolving credit facility 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 funding of acquisitions
and investment in the Company's management information systems. The Company does
not plan to make any material capital expenditures for leasehold improvements.
Capital expenditure requirements in 1998 are anticipated to be approximately
$2.3 million. During the first quarter, the Company had capital expenditures of
$1.0 million. While there can be no assurance, management believes that cash
flow from operations and funds from the revolving credit facility 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.
INFLATION
Due to the relatively low levels of inflation experienced in 1997 and 1998,
inflation did not have a significant affect on the results of the Company during
these periods.
SEASONALITY
Quarterly earnings may be affected by the timing of certain holidays,
business and vacation patterns, weather conditions, economic factors and other
considerations affecting travel. Corporate relocation activity peaks in the
summer months and declines significantly during the fourth quarter and the first
part of the first quarter. Long-term consulting activity tends to follow a
similar pattern, but not to the same extent. The Company expects to realize
lower revenues, operating income and net income during the first and fourth
quarters.
MANAGEMENT INFORMATION SYSTEMS
The Company was formed in August 1996, and during the first quarter of
1997, acquired five companies. Subsequent to the first quarter, the Company
acquired three additional companies in 1997, and through March 3, 1998, acquired
six additional companies. The acquired companies each have their own unique
operating systems. As a result of these acquisitions, the Company has undertaken
a complete review of its computer software programs and operating systems. The
Company plans to replace all current accounting and property management systems
with a single integrated system. Year 2000 compliance is a requirement for all
new systems the Company will acquire or internally develop. The total cost to
replace existing software, hardware and the cost of implementation is estimated
to be $2.5 million, which will be capitalized as incurred. New system
implementation is expected to be complete by July 1, 1999.
The Company is working with its processing banks to ensure their systems
are Year 2000 compliant. All of these costs will be borne by the processing
banks. In the event some of the processing banks are unable to convert
14
<PAGE> 15
their systems, the Company will switch to banks that are able to perform the
processing requirements of the Company.
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-4 (No. 333-39187) 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.
PART II
ITEM 1. LEGAL PROCEEDINGS: None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
In its Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 and its Annual Report on Form 10-K for the year ended December 31, 1997,
the Company reported on the use of proceeds from the sale of 2,092,250 shares of
Common Stock, registered on its Registration Statement on Form S-1 (File No.
333-26647), which was declared effective on September 24, 1997, in connection
with the Company's initial public offering. In addition to the net proceeds from
the offering used through December 31, 1997 that have been previously reported,
the Company used the remaining $7.3 million of such proceeds for acquisitions
during the quarter ended March 31, 1998.
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
27 Financial Data Schedule
(b) Reports on Form 8-K: The Company filed the following reports
on Form 8-K for the three months ended March 31, 1998.
- March 4, 1998 -- Acquisition of London Life Apartments Limited
- March 17, 1998 -- Acquisition of Global Travel Apartments, Inc.
- May 4, 1998 -- Amendment to Form 8-K -- Acquisition of London Life
Apartments, Limited
- May 14, 1998 -- Amendment to Form 8-K -- Acquisition of Global Travel
Apartments, Inc.
15
<PAGE> 16
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.
<TABLE>
<S> <C>
BRIDGESTREET ACCOMMODATIONS, INC.
Date: May 15, 1998 By: /s/ WILLIAM N. HULETT, III
--------------------------------------------------------
William N. Hulett
President and Chief Executive Officer
Date: May 15, 1998 By: /s/ MARK D. GAGNE, CPA
--------------------------------------------------------
Mark D. Gagne, CPA
Chief Financial Officer
</TABLE>
16
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<NAME> BRIDGESTREET ACCOMMODATIONS, INC.
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