<PAGE> 1
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, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 000-22843
BRIDGESTREET ACCOMMODATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3327773
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2242 Pinnacle Parkway, Twinsburg, OH 44087
(Address of principal executive offices) (Zip code)
(330)405-6060
(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 |X| No
---- ----
As of November 10, 1999, there were 8,005,042 shares of Common Stock, par value
$.01 per share, of the registrant outstanding.
<PAGE> 2
BRIDGESTREET ACCOMMODATIONS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
September 30, 1999 (unaudited) and December 31, 1998....... 3
Consolidated Statements of Operations:
Three and Nine Months Ended September 30, 1999 (unaudited)
and 1998 (unaudited)....................................... 4
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1999 (unaudited) and 1998
(unaudited)................................................ 5-6
Notes to the Consolidated Financial Statements (unaudited) ..... 7-9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................. 10-14
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K................................ 15
SIGNATURES...................................................... 16
<PAGE> 3
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
ASSETS (Unaudited) (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 770,078 $ 1,652,028
Trade accounts receivable, less allowance for doubtful accounts
of $270,000 and $200,000 in 1999 and 1998, respectively 5,809,731 5,976,054
Security deposits held by landlords 587,976 534,815
Deferred income taxes 691,591 691,591
Prepaid rent 3,112,647 2,066,086
Other current assets 2,187,065 1,019,983
------------ ------------
Total current assets 13,159,088 11,940,557
Operating stock, net of accumulated amortization 2,431,744 2,217,562
Property and equipment, net of accumulated depreciation 4,866,465 5,379,024
Other assets 9,773 10,150
Due from stockholders and affiliates 20,917 --
Goodwill, net of amortization 43,802,288 40,576,629
------------ ------------
Total assets $ 64,290,275 $ 60,123,922
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 104,443 $ 778,715
Due to stockholders and affiliates 3,050 369,949
Accounts payable 1,526,973 1,136,952
Accrued payroll and employee benefits 1,149,092 1,250,828
Accrued expenses, other 4,047,297 3,278,080
Deferred revenue 1,180,567 1,163,181
Security deposits due to customers 868,750 612,057
------------ ------------
Total current liabilities 8,880,172 8,589,762
Long-term debt, net of current maturities 10,495,014 7,608,452
Deferred income taxes 939,381 939,381
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;
8,169,835 and 8169,825 shares issued and outstanding in
1999 and 1998, respectively 81,698 81,698
Additional paid in capital 40,134,726 40,134,726
Retained earnings 3,931,182 3,069,958
Accumulated other comprehensive expense (171,898) (300,055)
------------ ------------
Total stockholders' equity 43,975,708 42,986,327
------------ ------------
Total liabilities and stockholders' equity $ 64,290,275 $ 60,123,922
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 25,133,050 $ 27,563,948 $ 72,058,979 $ 71,563,701
Operating Expenses:
Cost of services 17,864,148 19,826,565 52,543,024 52,634,177
Selling, general and administrative expense 5,928,565 5,348,618 16,557,821 15,111,119
Goodwill amortization 340,609 296,010 942,262 800,121
Restructuring charge -- -- -- 1,330,000
------------ ------------ ------------ ------------
Total operating expenses 24,133,322 25,471,193 70,043,107 69,875,417
------------ ------------ ------------ ------------
Operating income 999,728 2,092,755 2,015,872 1,688,284
Other Income (Expense):
Interest income 13,367 21,751 47,727 82,986
Interest expense (179,167) (144,670) (530,461) (297,556)
Other income, net 176,951 106,565 185,872 290,348
------------ ------------ ------------ ------------
Other income (expense), net 11,151 (16,354) (296,862) 75,778
------------ ------------ ------------ ------------
Income before provision for income taxes 1,010,879 2,076,401 1,719,010 1,764,062
Provision for income taxes 504,429 934,380 857,786 793,827
------------ ------------ ------------ ------------
Net income $ 506,450 $ 1,142,021 $ 861,224 $ 970,235
Comprehensive income 905,858 1,070,923 989,381 861,171
Net income per share-basic and dilutive $ 0.06 $ 0.14 $ 0.11 $ 0.12
Weighted average shares outstanding-basic 8,169,835 8,169,825 8,169,835 8,107,616
Weighted average shares outstanding-diluted 8,169,835 8,169,825 8,169,835 8,107,616
</TABLE>
See accompanying notes to consolidated financial statements.
4.
<PAGE> 5
BRIDGESTREET ACCOMMODATIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 861,224 $ 970,235
Adjustments to reconcile net income to net
cash provided by (used in) operating activities--
Depreciation and amortization 2,102,158 1,594,607
Gain on sales of assets (296,253) --
Changes in operating assets and liabilities
excluding the effect of acquisitions--
Accounts receivable 166,323 (3,853,031)
Security deposits held by landlords (53,161) (50,593)
Prepaid expenses and other assets (2,213,266) (2,335,360)
Accounts payable and accrued expenses 257,911 2,848,966
Accrued income taxes 799,591 --
Deferred income taxes -- 773,907
Security deposits due to customers 256,693 (348,634)
Deferred revenue 17,386 102,254
------------ ------------
Net cash provided by (used in) operating activities 1,898,606 (297,649)
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sale of assets 1,495,273 --
Acquisitions, net of cash acquired (4,167,921) (12,354,293)
Purchases of operating stock (496,245) (696,247)
Purchases of property and equipment (1,564,794) (1,567,347)
------------ ------------
Net cash used in investing activities (4,733,187) (14,617,887)
------------ ------------
Cash Flows From Financing Activities:
Foreign currency translation adjustment 128,157 --
Borrowings against line of credit 4,617,000 8,242,823
Repayments against line of credit (1,700,000) --
Repayment of long-term debt (704,710) --
Due to stockholders/affiliates (387,816) 397,597
Collection on notes receivable -- 745,537
------------ ------------
Net cash provided by financing activities 1,952,631 9,385,957
------------ ------------
Net decrease in cash
and cash equivalents (881,950) (5,529,579)
Cash and cash equivalents, beginning of period 1,652,028 8,922,215
------------ ------------
Cash and cash equivalents, end of period $ 770,078 $ 3,392,636
============ ============
</TABLE>
5.
<PAGE> 6
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Supplemental Cash Flow Information:
Cash paid for interest $ 481,363 $ 274,615
Cash paid for income taxes $ 535,171 $1,479,793
</TABLE>
Non-Cash Transaction:
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.
See accompanying notes to consolidated financial statements.
6.
<PAGE> 7
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);
BridgeStreet Canada, Inc. (March 2, 1998); and BridgeStreet California, Inc.
(June 1, 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 September 30, 1999
and the results of its operations and cash flows for the three and nine month
periods ended September 30, 1999 and 1998 have been included.
Operating results for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. 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, 1998.
Certain items in the 1998 financial statements have been reclassified to conform
to the 1999 presentation.
2. ACQUISITIONS
In the nine month period ended September 30, 1998, the Company acquired
seven companies. The acquisitions have been accounted for using the purchase
method of accounting. The total cost of these acquisitions was approximately
$16.3 million, consisting of cash and notes of $12.1 million and $4.2 million in
stock. The preliminary purchase price allocation of these acquisitions resulted
in goodwill of approximately $17.0 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.
7.
<PAGE> 8
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. The pro forma data presented below does not include these
acquisitions as they 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 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.
On June 1, 1998, the Company acquired for cash certain assets of
Gracious Corporate Lodging, a California flexible accommodation company
servicing Santa Clara, Palo Alto and San Jose, California, and Austin, Texas.
The purchase consideration of the acquisition was cash, funded from borrowings
against the Company's revolving line of credit. Gracious Corporate Lodging had
revenues of approximately $6.4 million in 1997.
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, Home on the
Road-Raleigh, London Life, GTA and Gracious Corporate Lodging on a pro forma
basis, assuming the companies acquired in 1998 were (except as noted above)
acquired as of January 1, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues $27,563,948 $77,796,762
Net income $ 1,142,021 $ 1,128,328
Net income per share-basic and dilutive $ 0.14 $ 0.14
</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 1998.
3. REVOLVING CREDIT AGREEMENT
The Company has a revolving credit facility agreement of $25 million.
The revolving credit agreement, secured by the capital stock of the Company's
operating subsidiaries, extends to March 31, 2002. During the first quarter of
1999, the Company amended certain terms of its revolving credit facility
agreement. Interest is payable, at the Company's option, at 0.25% to 0.5% above
the bank's prime lending rate, or 1.75% to 2.0% above the Eurodollar or LIBOR
rates. A commitment fee is payable on the average unused credit at a rate of
0.375% to 0.45%. 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, (iii)
requires the bank's approval for acquisitions meeting certain cash and total
acquisition consideration thresholds, and (iv) requires the Company to comply
with certain financial covenants. The Company had $10.4 million and $7.5 million
outstanding under the facility at September 30, 1999 and December 31, 1998,
respectively.
8.
<PAGE> 9
At September 30, 1999, the Company has term notes and capitalized
leases, which are secured by fixed assets, totaling approximately $113,000.
These notes and leases are payable in various installments through May 2002.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued 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 and
nine months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
--------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic common shares (weighted average) 8,169,835 8,169,825 8,169,835 8,107,616
Dilutive stock options -- -- -- --
--------- --------- --------- ---------
Diluted common shares 8,169,835 8,169,825 8,169,835 8,107,616
========= ========= ========= =========
</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 Statement of Financial
Accounting Standards ("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.
6. NEW ACCOUNTING PRONOUNCEMENTS
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 previously expensed such costs, adopted this SOP
as of January 1, 1999.
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 was immaterial.
7. RESTRUCTURING CHARGE
During the second quarter of 1998, the Company announced a realignment
of its 1998 senior management resulting in a charge of $1.33 million on a pretax
basis ($732,000 after tax). The second quarter 1998 charge to earnings of $1.33
million represents an accrual of $800,000 for severance and other employee
benefits for five employees, and an accrual of $530,000 for lease termination
costs, the write off of certain software and marketing costs and professional
fees associated with the realignment. The accounting for the restructuring
charge is in compliance with the Emerging Issues Task Force ("EITF") 94-3,
"Liability Recognition for Cost to Exit an Activity (Including Certain Costs
Incurred in a Restructuring)." During the quarter, approximately $123,000 was
charged against the various accruals. All costs, with the exception of severance
related expenses, have been incurred by the end of the second quarter of 1999,
and no material incremental costs are expected to be recognized in future
periods. The accrual balance remaining is approximately $238,000 at September
30, 1999.
9.
<PAGE> 10
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 has implemented an
acquisition program and a national operating strategy designed to increase
internal revenue growth, cost efficiencies and profitability. In the first
quarter of 1997, BridgeStreet commenced its operations by acquiring, in separate
merger transactions (the "Combination"), five flexible accommodation service
providers (the "Founding Companies"). Since the Combination of the Founding
Companies, the Company has acquired (by merger with or purchase of substantially
all assets) ten additional flexible accommodation service providers, three in
1997 and seven in 1998.
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 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.
10.
<PAGE> 11
RESULTS OF OPERATIONS - BRIDGESTREET INTERIM RESULTS
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
BridgeStreet's Consolidated Statements of Operations for the three
months ended September 30, 1999 and 1998 include the unaudited accounts of TCH,
Corporate Lodgings, Inc. (together with four affiliates, "CLI"), Exclusive
Interim Properties, Ltd. (together with an affiliate, "EIP"), Temporary Housing
Experts, Inc. ("THEI"), HAI Acquisition Corp. ("HA"); BridgeStreet Texas L.P.;
BridgeStreet Arizona, Inc.; BridgeStreet North Carolina, Inc.;
BridgeStreet-Raleigh, Inc.; BridgeStreet Colorado, Inc.; BridgeStreet Texas L.P.
(Austin); and the unaudited accounts of the following wholly-owned subsidiaries
from the indicated dates on which they were acquired - BridgeStreet
Accommodations Limited (February 19, 1998); BridgeStreet Canada, Inc. (March 2,
1998); and BridgeStreet California, Inc. (June 1, 1998).
Revenues. Revenues for the three months ended September 30, 1999
decreased $2.4 million, or 8.8%, from $27.6 million in 1998 to $25.1 million for
the three months ended September 30, 1999. The decrease in revenues primarily
was due to a decrease in the number of accommodations rented during the period.
Cost of Services. Cost of services for the three months ended September
30, 1999 decreased $2.0 million, or 9.9%, from $19.8 million in 1998 to $17.9
million in 1999. Cost of services as a percentage of revenues for the three
months ended September 30 decreased from 71.9% in 1998 to 71.1% in 1999. The
dollar decrease in cost of services was primarily related to the decrease in
revenues. Cost of services as a percentage of revenues decreased as a result of
higher occupancy rates in some markets.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended September 30, 1999 increased
$0.6 million, or 10.8%, from $5.3 million in 1998 to $5.9 million in 1999.
Selling, general and administrative expense as a percentage of revenues for the
three months ended September 30 was 19.4% in 1998 and 23.6% in 1999. The
percentage increase in selling, general and administrative expense primarily was
a result of an increase in corporate overhead expenses related to investments in
information systems and a decrease in revenue.
Income Tax Provision. For the three months ended September 30, 1999,
the Company recorded a tax provision of $504,000 on pre-tax income of
$1,011,000, compared to a tax provision of $934,000 on pre-tax income of
$2,076,000 for the three months ended September 30, 1998. The tax provision is
based on the Company's estimated consolidated effective tax rate for the 1999
fiscal year after considering nondeductible goodwill expense.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
BridgeStreet's Consolidated Statements of Operations for the nine
months ended September 30, 1999 and 1998 include the unaudited accounts of TCH,
Corporate Lodgings, Inc. (together with four affiliates, "CLI"), Exclusive
Interim Properties, Ltd. (together with an affiliate, "EIP"), Temporary Housing
Experts, Inc. ("THEI"), HAI Acquisition Corp. ("HA"); BridgeStreet Texas L.P.;
BridgeStreet Arizona, Inc.; BridgeStreet North Carolina, Inc.;
BridgeStreet-Raleigh, Inc.; BridgeStreet Colorado, Inc.; BridgeStreet Texas L.P.
(Austin); and the unaudited accounts of the following wholly-owned subsidiaries
from the indicated dates on which they were acquired - BridgeStreet
Accommodations Limited (February 19, 1998); BridgeStreet Canada, Inc. (March 2,
1998); and BridgeStreet California, Inc. (June 1, 1998).
Revenues. Revenues for the nine months ended September 30, 1999
increased $0.5 million, or 0.7%, from $71.6 million in 1998 to $72.1 million for
the nine months ended September 30, 1999. The increase in revenues primarily was
due to an increase in the average daily rate.
11.
<PAGE> 12
Cost of Services. Cost of services for the nine months ended September
30, 1999 decreased $0.1 million, or 0.2%, from $52.6 million in 1998 to $52.5
million in 1999. Cost of services as a percentage of revenues for the nine
months ended September 30 decreased from 73.5% in 1998 to 72.9% in 1999. The
decrease in the cost of services percentage was the result of higher occupancy
rates.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the nine months ended September 30, 1999 increased
$1.4 million, or 9.6%, from $15.1 million in 1998 to $16.6 million in 1999.
Selling, general and administrative expense as a percentage of revenues for the
nine months ended September 30 was 21.1% in 1998 and 23.0% in 1999. The dollar
increase in selling, general and administrative expense primarily was the result
of an increase in corporate overhead for additional personnel and information
systems.
Income Tax Provision. For the nine months ended September 30, 1999, the
Company recorded a tax provision of $858,000 on pre-tax income of $1,719,000,
compared to a tax provision of $794,000 on pre-tax income of $1,764,000 for the
nine months ended September 30, 1998. The tax provision is based on the
Company's estimated consolidated effective tax rate for the 1999 fiscal year
after considering nondeductible goodwill expense.
LIQUIDITY AND CAPITAL RESOURCES - BRIDGESTREET
For the nine months ended September 30, 1999, net cash provided by
operating activities totaled $1,899,000. Net cash used in investing activities
was $4,733,000, used 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 $1,953,000, primarily due to
borrowings against the revolving line of credit. Cash and cash equivalents
decreased by $882,000 during the period and totaled $770,000 at September 30,
1999.
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, working
capital and to repurchase up to $1.0 million of the Company's stock. Loans made
under the credit facility bear interest, at the Company's option, at 0.25% to
0.5% above the bank's prime lending rate, or 1.75% to 2.0% 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, (iii) requires the
bank's approval for certain acquisitions and (iv) requires the Company to comply
with certain financial covenants. The Company had $10.4 million and $7.5 million
outstanding under the facility at September 30, 1999 and December 31, 1998,
respectively.
During the second quarter of 1999, the Company made a contingent
payment related to the acquisition of GTA of $3.3 million.
During 1998, the Company acquired seven companies. The acquisitions
have been accounted for using the purchase method of accounting. The total
aggregate cost of these acquisitions was approximately $16.3 million, consisting
of cash and notes of $12.1 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 $17.0
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.
12.
<PAGE> 13
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 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.
On June 1, 1998, the Company acquired for cash certain assets of
Gracious Corporate Lodging, a California flexible accommodation company
servicing Santa Clara, Palo Alto and San Jose, California, and Austin, Texas.
The purchase consideration of the acquisition was cash, funded from borrowings
against the Company's revolving line of credit. Gracious Corporate Lodging had
revenues of approximately $6.4 million in 1997.
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 1999 are anticipated to be approximately
$2.0 million.
During the nine months ended September 30, 1999, the Company had
capital expenditures of approximately $1,565,000. 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 1999 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.
13.
<PAGE> 14
MANAGEMENT INFORMATION SYSTEMS
The Company was formed in August 1996, and during 1997 and 1998
acquired fifteen flexible accommodation companies. The acquired companies each
had different computer hardware and software systems. As a result, the Company
has undertaken a complete review and assessment of its information technology
("IT") systems. The Company has determined that all accounting and property
management systems will be replaced with a single integrated system. Year 2000
("Y2K") compliance is a requirement for all new systems the Company has acquired
and will acquire or develop internally. The Company has analyzed all other
non-information technology systems such as security, electrical, fire
protection, voice and data communication systems, which may contain embedded
technology microprocessors or other similar circuitry, to adequately address Y2K
issues. The Company completed this review by the end of the third quarter of
1999, and believes that all such systems will be Y2K compliant by the end of the
fourth quarter of 1999.
STATE OF READINESS. During the fourth quarter of 1997, the Company
evaluated several major accounting software vendors. Key criteria evaluated
included: Y2K compliance; meeting company functional requirements; reporting
capabilities; software flexibility and scalability; vendor stability, growth and
support; ease of use; and cost. In the first quarter of 1998, based on these
criteria and extensive review of the software vendors, the Company selected an
accounting software vendor. During the second and third quarters of 1998, the
Company undertook phase one of its financial systems implementation. Phase one
included: analyzing accounting requirements; purchasing and setting up hardware
and application software; conducting a conference room pilot; and application
documentation and training. In August of 1998, the Company began the roll out
phase in the Company's Cleveland Region. The Company completed the roll out of
the accounting software application to each of its U.S. regions during the
second quarter of 1999. The Company also is implementing a wide area network
(WAN) to connect all offices to the central computer system.
During the third quarter of 1998, the Company undertook phase one of
its property management systems implementation. Phase one included: analyzing
property management requirements; purchasing and setting up hardware and
application software; conducting a conference room pilot; and, application
documentation and training. This phase was completed during the fourth quarter
of 1998 and the Company began programming of the system. The Company began the
pilot installation of the system at the end of the first quarter, 1999. Full
implementation to all Company offices began at the end of the second quarter
with completion expected during the first quarter of 2000.
The total cost to replace existing software, hardware and the cost of
implementing the new accounting and property management systems is estimated to
be $3.0 million. Hardware and software will be capitalized as incurred. Other
costs related to the system implementation will be capitalized or expensed in
accordance with SOP 98-1.
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 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.
14.
<PAGE> 15
PART II
ITEM 1. LEGAL PROCEEDINGS: None
- -----------------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS: None
- -----------------------------------------------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None
- -------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE ON 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: The Company filed no reports on Form 8-K
during the three months ended September 30, 1999.
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.
BRIDGESTREET ACCOMMODATIONS, INC.
Date: November 10, 1999 By: /s/ John E. Danneberg
--------------------------------
John E. Danneberg
President and Chief Executive Officer
Date: November 10, 1999 By: /s/ Mark D. Gagne, CPA
-------------------------------
Mark D. Gagne, CPA
Chief Financial Officer
16.
<PAGE> 1
EXHIBIT 11
----------
STATEMENTS RE: COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares Outstanding:
For computation of basic net income per share - 8,170 8,170 8,170 8,108
Weighted average .............................................
Share equivalents - Options .................................. -- -- -- --
------ ------ ------ ------
Adjusted shares outstanding ..................................
For computation of fully-diluted net income per share -
Weighted average, without regard to exercise under share
option plans .............................................
Assumption of exercise under share option plans .............. -- -- -- --
------ ------ ------ ------
Adjusted shares outstanding .................................. 8,170 8,170 8,170 8,108
Net Income (Loss):
Net income (loss) applicable to shares of beneficial interest:
(used for computing basic and fully diluted
net income (loss) per share) ............................. $ 506 $1,142 $ 861 $ 970
====== ====== ====== ======
Net income (loss) per share of beneficial interest:
Basic and fully diluted
Net income (loss) ............................................ $ 0.06 $ 0.14 $ 0.11 $ 0.12
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 770,078
<SECURITIES> 0
<RECEIVABLES> 6,079,731
<ALLOWANCES> 270,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,159,088
<PP&E> 7,022,828
<DEPRECIATION> 2,156,363
<TOTAL-ASSETS> 64,290,275
<CURRENT-LIABILITIES> 8,880,172
<BONDS> 0
0
0
<COMMON> 81,698
<OTHER-SE> 43,894,010
<TOTAL-LIABILITY-AND-EQUITY> 64,290,275
<SALES> 72,058,979
<TOTAL-REVENUES> 72,058,979
<CGS> 52,543,024
<TOTAL-COSTS> 52,543,024
<OTHER-EXPENSES> 17,500,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 530,461
<INCOME-PRETAX> 1,719,010
<INCOME-TAX> 857,786
<INCOME-CONTINUING> 861,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 861,224
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
