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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 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.)
2242 PINNACLE PARKWAY, TWINSBURG, OH
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(Address of principal executive offices)
44087
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(Zip code)
(330)405-6060
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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 [X] No [ ]
As of May 11, 1999, there were 8,005,037 shares of Common Stock, par value $.01
per share, of the registrant outstanding.
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BRIDGESTREET ACCOMMODATIONS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
<TABLE>
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
March 31, 1999 (unaudited) and December 31, 1998............ 3
Consolidated Statements of Operations:
Three Months Ended March 31, 1999 and 1998 (unaudited)...... 4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1999 and 1998 (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................................... 9-12
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................ 12
SIGNATURES.................................................. 13
</TABLE>
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PART I. FINANCIAL INFORMATION
BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,359,288 $ 1,652,028
Trade accounts receivable, less allowance for doubtful
accounts of $270,000 in 1999 and 1998.................. 5,045,138 5,976,054
Security deposits held by landlords....................... 462,607 534,815
Deferred income taxes..................................... 691,591 691,591
Prepaid rent.............................................. 2,073,041 2,066,086
Other current assets...................................... 1,785,318 1,019,983
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Total current assets.............................. 12,416,983 11,940,557
Operating stock, net of accumulated amortization............ 2,325,838 2,217,562
Property and equipment, net of accumulated depreciation..... 5,497,142 5,379,024
Other assets................................................ 10,024 10,150
Goodwill, net of amortization............................... 40,491,872 40,576,629
----------- -----------
TOTAL ASSETS...................................... $60,741,859 $60,123,922
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 676,764 $ 778,715
Due to stockholders and affiliates........................ 63,278 369,949
Accounts payable.......................................... 962,959 1,136,952
Accrued payroll and employee benefits..................... 1,118,300 1,250,828
Accrued expenses, other................................... 3,082,124 3,278,080
Deferred revenue.......................................... 1,336,158 1,163,181
Security deposits due to customers........................ 808,902 612,057
----------- -----------
Total current liabilities......................... 8,048,485 8,589,762
Long-term debt, net of current maturities................... 8,893,620 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; 8,169,659 shares issued and outstanding in
1999 and 1998........................................ 81,698 81,698
Additional paid in capital............................. 40,133,726 40,134,726
Retained earnings...................................... 3,153,346 3,069,958
Accumulated other comprehensive income (expense)....... (508,397) (300,055)
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TOTAL STOCKHOLDERS' EQUITY........................ 42,860,373 42,986,327
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $60,741,859 $60,123,922
=========== ===========
</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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1999 1998
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REVENUES.................................................... $23,186,350 $19,483,811
Operating Expenses:
Cost of services.......................................... 17,494,766 15,063,134
Selling, general and administrative expense............... 5,153,075 4,192,373
Goodwill amortization..................................... 300,637 206,772
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Total operating expenses............................... 22,948,478 19,462,279
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Operating income..................................... 237,872 21,532
OTHER INCOME (EXPENSE):
Interest income........................................... 16,808 34,251
Interest expense.......................................... (166,570) (18,074)
Other income, net......................................... 78,537 88,842
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Other income (expense), net............................ (71,225) 105,019
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Income before provision for income taxes............... 166,647 126,551
Provision for income taxes................................ 83,259 56,948
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Net income................................................ $ 83,388 $ 69,603
Foreign currency translation adjustment................... (208,342) (10,087)
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Comprehensive income (loss)............................... (124,954) 59,516
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Net income per share-basic and dilutive................... $ 0.01 $ 0.01
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Weighted average shares outstanding-basic................. 8,169,835 7,981,166
Weighted average shares outstanding-dilutive.............. 8,169,835 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, 1999 MARCH 31, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 83,388 $ 69,603
Adjustments to reconcile net income to net cash
provided by operating activities--
Exercise of stock options......................... -- 749
Depreciation and amortization..................... 566,383 448,733
Gain on sale of assets............................ (29,767) --
Changes in operating assets and liabilities
excluding the effect of acquisitions--
Accounts receivable............................. 930,916 (2,411,592)
Security deposits held by landlords............. 72,208 30,902
Prepaid expenses and other assets............... (772,164) (373,695)
Accounts payable and accrued expenses........... (557,934) 269,851
Accrued income taxes............................ 54,457 --
Security deposits due to customers.............. 196,845 (190,569)
Deferred revenue................................ 172,977 73,351
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Net cash provided by (used in) operating
activities................................. 717,309 (2,082,667)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired................... (215,880) (10,229,034)
Proceeds from sale of assets......................... 90,000 --
Purchases of operating stock......................... (194,218) (421,151)
Purchases of property and equipment.................. (358,155) (557,515)
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Net cash used in investing activities........ (678,253) (11,207,700)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Foreign currency translation adjustment.............. (208,342) (10,087)
Borrowings against line of credit.................... 1,183,217 4,197,253
Due to stockholders/affiliates....................... (306,671) 549,088
Collection on notes receivable....................... -- 532,883
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Net cash provided by financing activities.... 668,204 5,269,137
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Net increase(decrease) in cash and cash
equivalents................................ 707,260 (8,021,230)
Cash and cash equivalents, beginning of period......... 1,652,028 8,922,215
---------- -----------
Cash and cash equivalents, end of period............... $2,359,288 $ 900,985
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest....................... $ 151,339 $ 23,919
Cash paid for income taxes................... $ 424,326 $ 907,500
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
</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 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 March 31, 1999 and the results of
its operations and cash flows for the three month periods ended March 31, 1999
and 1998 have been included.
Operating results for the three month period ended March 31, 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 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
6
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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THREE MONTHS
ENDED
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MARCH 31, 1998
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Revenues.................................................... $24,134,000
Net income.................................................. $ 181,000
Net income per share-basic and dilutive..................... $ 0.02
</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 was in compliance with these
covenants at March 31, 1999. The Company had $8.8 million and $7.5 million
outstanding under the facility at March 31, 1999 and December 31, 1998,
respectively.
7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1999, the Company had a non-interest bearing promissory note
payable totaling $630,000 resulting from an acquisition. The note is payable on
June 1, 1999. The Company also has term notes and capitalized leases, which are
secured by fixed assets, totaling approximately $140,000. 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 months
ended March 31, 1999 and 1998 are as follows:
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1999 1998
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Basic common shares (weighted average)...................... 8,169,835 7,981,166
Dilutive stock options...................................... -- 56,766
Diluted common shares....................................... 8,169,835 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 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. 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 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 is immaterial.
8
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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 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.
RESULTS OF OPERATIONS - BRIDGESTREET INTERIM RESULTS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
BridgeStreet's Consolidated Statements of Operations for the three months
ended March 31, 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 March 31, 1999 increased $3.7
million, or 19%, from $19.5 million in 1998 to $23.2 million for the three
months ended March 31, 1999. The increase in revenues primarily was due to an
increase in the number of accommodations rented during the period, resulting
from prior year acquisitions which existed for the entire three month period in
1999, and an increase in the average daily rate.
9
<PAGE> 10
Cost of Services. Cost of services for the three months ended March 31,
1999 increased $2.4 million, or 16.1%, from $15.1 million in 1998 to $17.5
million in 1999. Cost of services as a percentage of revenues for the three
months ended March 31 decreased from 77.3% in 1998 to 75.5% in 1999. The
decrease in the cost of services percentage was the result of higher occupancy
rates. The dollar increase in cost of services was primarily related to the
increase in sales volume.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1999 increased $1.0
million, or 22.9%, from $4.2 million in 1998 to $5.2 million in 1999. Selling,
general and administrative expense as a percentage of revenues for the three
months ended March 31 was 21.5% in 1998 and 22.2% in 1999. The dollar increase
in selling, general and administrative expense primarily was the result of prior
year acquisitions which existed for the entire three month period in 1999 and an
increase in corporate overhead for additional personnel and information systems.
Income Tax Provision. For the three months ended March 31, 1999, the
Company recorded a tax provision of $83,000 on pre-tax income of $167,000,
compared to a tax provision of $57,000 on pre-tax income of $127,000 for the
three months ended March 31, 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 three months ended March 31, 1999, net cash provided by operating
activities totaled $717,000. Net cash used in investing activities was $678,000,
used primarily for the purchase of operating stock and equipment required in the
Company's business. Net cash provided by financing activities was $668,000,
primarily due to borrowings against the revolving line of credit. Cash and cash
equivalents increased by $707,000 during the period and totaled $2.4 million at
March 31, 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 $8.8 million and $7.5 million
outstanding under the facility at March 31, 1999 and December 31, 1998,
respectively.
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.
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.
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<PAGE> 11
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 first quarter, the Company had capital expenditures of
approximately $550,000. 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.
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
11
<PAGE> 12
Company has acquired and will acquire or develop internally. The Company is in
the process of analyzing 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 expects to complete
this review by the end of the third 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 is in the process of
rolling out the accounting software application to each of its regions with
planned completion during the second quarter of 1999. By the end of the first
quarter of 1999, the software was fully implemented in seven regions. All
remaining regions are scheduled to undergo the conversion process in the second
quarter of 1999. The Company also is implementing a wide area network (WAN) to
control 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 will begin at the end of the second
quarter with completion during the third quarter of 1999.
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, which will be capitalized as incurred.
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.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
<TABLE>
<S> <C>
(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 March 31, 1999.
</TABLE>
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.
<TABLE>
<S> <C>
BRIDGESTREET ACCOMMODATIONS, INC.
Date: May 12, 1999 By: /s/ JOHN E. DANNEBERG
--------------------------------------------------------
John E. Danneberg
President and Chief Executive Officer
Date: May 12, 1999 By: /s/ MARK D. GAGNE, CPA
--------------------------------------------------------
Mark D. Gagne, CPA
Chief Financial Officer
</TABLE>
13
<PAGE> 1
EXHIBIT 11
STATEMENTS RE: COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
--------------
1999 1998
----- -----
<S> <C> <C>
Shares Outstanding:
For computation of basic net income per share -
Weighted average............................................ 8,170 7,981
Share equivalents - Options................................. -- --
----- -----
Adjusted shares outstanding................................. 8,170 7,981
===== =====
For computation of fully-diluted net income per share -
Weighted average, without regard to exercise under share
option plans.............................................. 8,170 7,981
Assumption of exercise under share option plans............. -- 57
----- -----
Adjusted shares outstanding................................. 8,170 8,038
===== =====
Net Income:
Net income applicable to shares of beneficial interest (used
for computing basic and fully diluted net income per
share).................................................... $ 83 $ 70
===== =====
Net income per share of beneficial interest:
Basic and fully diluted
Net income.................................................. $0.01 $0.01
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,359,288
<SECURITIES> 0
<RECEIVABLES> 5,315,138
<ALLOWANCES> 270,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,416,983
<PP&E> 7,046,619
<DEPRECIATION> 1,549,477
<TOTAL-ASSETS> 60,741,859
<CURRENT-LIABILITIES> 8,048,485
<BONDS> 8,893,620
0
0
<COMMON> 81,698
<OTHER-SE> 42,778,675
<TOTAL-LIABILITY-AND-EQUITY> 60,741,859
<SALES> 23,186,350
<TOTAL-REVENUES> 23,186,350
<CGS> 17,494,766
<TOTAL-COSTS> 17,494,766
<OTHER-EXPENSES> 5,453,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,570
<INCOME-PRETAX> 166,647
<INCOME-TAX> 83,259
<INCOME-CONTINUING> 83,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,388
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
