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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 May 10, 2000, 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, 2000
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
March 31, 2000 (unaudited) and December 31, 1999..................................... 3
Consolidated Statements of Operations and Comprehensive Loss:
Three Months Ended March 31, 2000 and 1999 (unaudited)............................... 4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and 1999 (unaudited) 5
Notes to the Consolidated Financial Statements (unaudited)................................ 6-7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 8-11
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 13
SIGNATURES................................................................................ 14
</TABLE>
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BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED BALANCE SHEETS
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March 31, December 31,
2000 1999
------------- ---------------
ASSETS (Unaudited)
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Current Assets:
Cash and cash equivalents $ 634,380 $ 2,677,937
Trade accounts receivable, less allowance for doubtful
accounts of $300,000 in 2000 and 1999 5,380,977 4,599,981
Security deposits held by landlords 479,765 475,889
Deferred income taxes 906,282 884,756
Prepaid rent 3,757,829 2,949,410
Other current assets 1,857,420 1,402,113
------------ ------------
Total current assets 13,016,653 12,990,086
Operating stock, net of accumulated amortization 2,557,674 2,569,957
Property and equipment, net of accumulated depreciation 6,870,180 6,349,488
Other assets 9,521 9,647
Due from stockholders and affiliates 6,387 --
Goodwill, net of amortization 43,375,007 43,687,449
------------ ------------
Total assets $ 65,835,422 $ 65,606,627
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 69,550 $ 98,759
Due to stockholders and affiliates -- 950
Accounts payable 1,498,013 1,247,075
Accrued payroll and employee benefits 1,130,337 833,116
Accrued expenses, other 6,745,431 6,151,296
Deferred revenue 1,009,460 747,956
Security deposits due to customers 497,642 513,751
------------ ------------
Total current liabilities 10,950,433 9,592,903
Long-term debt, net of current maturities 11,473,050 11,235,892
Deferred income taxes 1,733,700 1,733,700
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 shares issued and outstanding in
2000 and 1999 81,698 81,698
Additional paid in capital 40,134,726 40,134,726
Retained earnings 1,820,268 3,005,561
Accumulated other comprehensive loss (358,453) (177,853)
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Total stockholders' equity 41,678,239 43,044,132
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Total liabilities and stockholders' equity $ 65,835,422 $ 65,606,627
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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BRIDGESTREET ACCOMMODATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
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Three Months Ended March 31
---------------------------------
2000 1999
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Revenues $ 23,413,078 $ 23,186,350
Operating Expenses:
Cost of services 17,803,292 17,494,766
Selling, general and administrative expense 6,740,755 5,153,075
Goodwill amortization 331,387 300,637
------------ ------------
Total operating expenses 24,875,434 22,948,478
------------ ------------
Operating income (loss) (1,462,356) 237,872
Other Income (Expense):
Interest income 9,505 16,808
Interest expense (261,598) (166,570)
Other income, net 32,562 78,537
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Other expense, net (219,531) (71,225)
------------ ------------
Income (loss) before provision for income taxes (1,681,887)
166,647
Provision (benefit) for income taxes (496,594) 83,259
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Net income (loss) $ (1,185,293) $ 83,388
Foreign currency translation adjustment (180,600) (208,342)
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Comprehensive loss (1,365,893) (124,954)
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Net income (loss) per share-basic and dilutive $ (0.15) $ 0.01
------------ ------------
Weighted average shares outstanding-basic 8,169,835 8,169,835
Weighted average shares outstanding-dilutive 8,189,907 8,169,835
</TABLE>
See accompanying notes to consolidated financial statements.
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BRIDGESTREET ACCOMMODATIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months Ended Three Months Ended
MARCH 31, 2000 MARCH 31, 1999
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Cash Flows From (For) Operating Activities:
Net income (loss) $(1,185,293) $ 83,388
Adjustments to reconcile net income (loss) to net
cash provided by operating activities--
Depreciation and amortization 882,333 543,604
Gain on sale of assets -- (29,767)
Deferred income taxes (22,553) --
Changes in operating assets and liabilities
excluding the effect of acquisitions--
Accounts receivable (823,665) 899,833
Security deposits held by landlords (4,952) 70,667
Prepaid expenses and other assets (1,304,448) (802,882)
Accounts payable and accrued expenses 1,413,608 (590,185)
Accrued income taxes (299,670) 21,574
Security deposits due to customers (18,371) 189,424
Deferred revenue 261,292 164,126
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Net cash provided by (used in) operating activities (1,101,719) 549,782
----------- ----------
Cash Flows Used in Investing Activities:
Acquisitions, net of cash acquired -- (215,880)
Proceeds from sale of assets -- 90,000
Purchases of operating stock (92,711) (196,256)
Purchases of property and equipment (1,022,058) (399,171)
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Net cash used in investing activities (1,114,769) (721,307)
----------- ----------
Cash Flows From Financing Activities:
Borrowings against line of credit 234,420 1,183,217
Repayment of amounts due to stockholders/affiliates (7,687) (307,723)
Repayment on long-term debt (38,256) --
----------- ----------
Net cash provided by financing activities 188,477 875,494
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Effect of foreign currency translation on cash (15,546) 3,291
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Net increase (decrease) in cash
and cash equivalents (2,043,557) 707,260
Cash and cash equivalents, beginning of period 2,677,937 1,652,028
----------- ----------
Cash and cash equivalents, end of period $ 634,380 $ 2,359,288
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 241,985 $ 151,339
Cash paid for income taxes $ 374,919 $ 424,326
</TABLE>
See accompanying notes to consolidated financial statements.
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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. During the years ended December 31,
1998 and 1997, the Company acquired (by merger with or purchase of substantially
all of the assets of) ten additional flexible accommodation service providers.
The interim consolidated financial statements presented herein have
been prepared by the Company and include the unaudited accounts of the Company
and all of its wholly-owned operating subsidiaries. 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 accounting
principles generally accepted in the United States. 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, 2000 and the results of its operations and cash flows for the three
month periods ended March 31, 2000 and 1999 have been included.
Operating results for the three month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. 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, 1999.
Certain items in the 1999 financial statements have been reclassified
to conform to the 2000 presentation.
2. REVOLVING CREDIT AGREEMENT
The Company has a $25 million revolving credit facility agreement. The
revolving credit agreement is secured by the capital stock of the Company's
operating subsidiaries and extends to March 31, 2002. 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, and (iv)
requires the Company to comply with certain financial covenants.
During the year ended 1999, the Company twice amended its revolving
credit facility agreement. During the first quarter of 1999, the revolving
credit agreement was amended with respect to certain pricing provisions,
financial covenants and other miscellaneous matters. During the second quarter
of 1999, the revolving credit agreement was amended to provide a Canadian
sublimit and to add the Company's Canadian subsidiary as a party to the
agreement for purposes of borrowing under the Canadian sublimit.
At both March 31, 2000, and December 31, 1999, the Company was not in
compliance with certain of its financial covenants under the revolving credit
facility. The Company subsequently received waivers of these covenants.
Additionally, the revolving credit agreement was amended with respect to certain
financial covenants for the second quarter of 2000. The Company believes that
with these waivers and amendments, it will be in compliance with its financial
covenants for the year ending December 31, 2000. During the first quarter of
2000, the Company
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amended its revolving credit agreement to allow for an additional $2.0 million
daily working capital line of credit with one of the banks in the revolving
credit facility. Additional borrowings under the amended revolving credit
facility, up to the facility limit of $25 million, require the approval of the
majority bank providing the facility.
The Company has $11.5 million and $11.2 million outstanding under the
facility at March 31, 2000, and December 31, 1999, respectively. Interest on the
United States balance 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%. Interest on the amounts borrowed under the Canadian sublimit
is payable, at the Company's option, at 1.5% to 1.75% above the bank's Canadian
prime lending rate, or 1.75% to 2.0% above the Canadian cost of funds rate.
3. EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes dilution and is calculated
using the weighted average number of common shares outstanding for the period.
Diluted EPS gives effect to the net additional shares that would have been
issued had all dilutive stock options been exercised. The Company had no other
potentially dilutive common share obligations outstanding. The share amounts
used to calculate earnings per share for the three months ended March 31, 2000
and 1999 are as follows:
2000 1999
---- ----
Basic common shares (weighted average) 8,169,835 8,169,835
Dilutive stock options 20,072 --
--------- ---------
Diluted common shares 8,189,907 8,169,835
========= =========
There are no adjustments to the reported amounts of net income for
purposes of computing diluted EPS.
4. ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires companies to recognize all derivatives on the balance
sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. In June 1999, the FASB delayed the effective date of the statement
for one year to fiscal years beginning after June 15, 2000. The FASB cited the
reason for this delay was to address concerns about a company's ability to
modify its information systems and educate its managers in time to apply this
statement. The Company will adopt this statement on January 1, 2001. However,
management does not believe that adoption of this statement will impact the
company
5. MERGER AGREEMENT
On March 23, 2000, the Company entered into a definitive merger
agreement (the "Agreement") providing for the acquisition of the Company by
MeriStar Hotels & Resorts, Inc. ("MMH").
Under the terms of the Agreement, each outstanding share of the Company
would be exchanged for $1.50 in cash, plus 0.5 share of MMH common stock. Total
consideration per share of the Company is estimated to be approximately $3.00.
The Agreement is subject to approval of the stockholders of the Company and
other customary conditions.
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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'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.
On March 23, 2000, the Company entered into a definitive merger
agreement providing for the acquisition of the Company by MeriStar Hotels &
Resorts, Inc. The Company has scheduled a special meeting of its stockholders on
May 31, 2000, for the purpose of approving the merger agreement. On May 2, 2000,
the Company mailed to its stockholders its notice of special meeting and proxy
statement with respect to the special meeting.
RESULTS OF OPERATIONS - BRIDGESTREET INTERIM RESULTS
Three Months Ended March 31, 2000 Compared to Three Months Ended March
31, 1999
Revenues. Revenues for the three months ended March 31, 2000 increased
approximately $227,000, or 1%, from $23.2 million in 1999 to $23.4 million for
the three months ended March 31, 2000. The increase in revenues was primarily
due to an increase in accommodation services in the Company's Canadian and
United Kingdom operations, offset by a decrease in revenues from domestic
accommodation services.
Cost of Services. Cost of services for the three months ended March 31,
2000 increased approximately $308,000, or 1.8%, from $17.5 million in 1999 to
$17.8 million in 2000. Cost of services as a percentage of revenues for the
three months ended March 31 increased from 75.5% in 1999 to 76.0% in 2000. The
increase in the cost of services percentage was primarily the result of
increased pricing competition. 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, 2000 increased $1.5
million, or 30.8%, from $5.2 million in 1999 to $6.7 million in 2000. Selling,
general and administrative expense as a percentage of revenues for the three
months ended March 31 was 22.2% in 1999 and 28.8% in 2000. The dollar increase
in selling, general and administrative expense was primarily the result of an
increase in staffing and infrastructure costs in the Company's London office to
accommodate sales growth, increases in corporate expenses, depreciation and
amortization, and interest expense.
Income Tax Provision. For the three months ended March 31, 2000, the
Company recorded a tax benefit of approximately $497,000 on a pre-tax loss of
approximately $1.7 million, compared to a tax provision of approximately $83,000
on pre-tax income of approximately $167,000 for the three months ended March 31,
1999. The tax provision is based on the Company's estimated consolidated
effective tax rate for the 2000 fiscal year after considering nondeductible
goodwill expense and other book versus tax differences.
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LIQUIDITY AND CAPITAL RESOURCES - BRIDGESTREET
For the three months ended March 31, 2000, net cash used in operating
activities totaled $1.1 million. Net cash used in investing activities was $1.2
million, used primarily for the purchase of property and equipment required in
the Company's business. Net cash provided by financing activities was $188,000,
primarily representing borrowings against the revolving line of credit. Cash and
cash equivalents decreased by $2.0 million during the period and totaled
approximately $634,000 at March 31, 2000.
The Company has a $25 million revolving credit facility (the "Revolving
Credit Facility") 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 revolving 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 revolving 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. During the second quarter of 1999, the revolving
credit agreement was amended to provide a Canadian sublimit and to add the
Company's Canadian subsidiary as a party to the agreement for purposes of
borrowing under the Canadian sublimit. Interest on the amounts borrowed under
the Canadian sublimit is payable, at the Company's option, at 1.5% to 1.75%
above the bank's Canadian prime lending rate, or 1.75% to 2.0% above the
Canadian cost of funds rate. The revolving 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 $11.5 million and $11.2
million outstanding under the facility at March 31, 2000, and December 31, 1999,
respectively.
At both March 31, 2000, and December 31, 1999, the Company was not in
compliance with certain of its financial covenants under the revolving credit
facility. The Company subsequently received waivers of these covenants.
Additionally, the revolving credit agreement was amended with respect to certain
financial covenants for the second quarter of 2000. The Company believes that
with these waivers and amendments, it will be in compliance with its financial
covenants for the year ending December 31, 2000. During the first quarter of
2000, the Company amended its revolving credit agreement to allow for an
additional $2.0 million daily working capital line of credit with one of the
banks in the revolving credit facility. Additional borrowings under the amended
revolving credit facility, up to the facility limit of $25 million, require the
approval of the majority bank providing the facility. While there can be no
assurance, management believes that cash flow from operations and funds from the
Revolving Credit Facility, or a successor facility, will be adequate to fund the
Company's capital requirements for the year 2000.
The Company intends to pursue growth through large national accounts as
well as increasing market share for its local and regional customers. As a
result of the acquisitions of numerous operations in 1997 and 1998, combined
with alliances with its Network Partners, the Company has the geographic
coverage needed to conduct this growth strategy and does not intend to pursue
further acquisition opportunities at this time.
During the first quarter, the Company had capital expenditures of
approximately $1.1 million. The Company's primary sources of funds to date have
been cash flow from operations, proceeds from its initial public offering, and
its revolving credit facility. The Company anticipates future sources of funding
will be cash flow from operations and the revolving credit facility. Principal
future uses of cash will be to fund expanding operations and investment in the
Company's management information systems. Capital expenditure requirements in
2000 are anticipated to be approximately $4.5 million. Approximately $1.0
million of these expenditures are related to furnishings and leasehold
improvements for a new property in the United Kingdom where the Company has an
exclusive 15-year lease. These expenditures will be funded from year end 1999
cash balances held in the Company's London operations in anticipation of these
expenditures. 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.
The Company anticipates funding the balance of its cash needs from cash
flow from operations during 2000. Seasonal and daily cash shortfalls will be
funded from the Company's revolving credit facility.
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On March 23, 2000, the Company entered into a definitive merger
agreement (the "Agreement") providing for the acquisition of the Company by
MeriStar Hotels & Resorts, Inc. ("MMH"). Under the terms of the Agreement, each
outstanding share of the Company would be exchanged for $1.50 in cash, plus 0.5
share of MMH common stock. Total consideration per share of the Company is
estimated to be approximately $3.00. The Agreement is subject to approval of the
stockholders of the Company and other customary conditions.
The merger agreement requires MeriStar to retire the Company's
outstanding debt at the closing.
INFLATION
Due to the relatively low levels of inflation experienced in 2000 and
1999, 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 AND YEAR 2000 ISSUES
The Company was formed in August 1996 and during 1997 and 1998 has
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 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
Year 2000 issues. The Company did not experience any noticeable Year 2000 system
issues.
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 rolling out the accounting
software application to each of its North American regions during 1999. The
Company also implemented a wide area network (WAN) to connect all North American
offices to the central computer system.
During the first quarter of 1998, the Company evaluated several major
property management 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. Based on this review the Company determined that there was no
one software application that entirely met the key needs of the Company. In the
second quarter of 1998, the Company made the decision to internally develop its
property management systems. The system is being developed within the accounting
software package discussed above. This provides the Company with a fully
integrated accounting and property management system. During 1997 the Company
had developed a prototype property management system which will be the
underlying design framework for the first phase of the property management
system.
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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 and during the fourth
quarter of 1998 and the Company began programming of the system. The Company
began the pilot installation of the system during the first quarter of 1999.
Full implementation has occurred in a number of the Company offices. The Company
expects to complete implementation to all United States offices during the year
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 $3.5 million, which will be capitalized as incurred.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
o INTEREST RATE RISK
The Company has a $25 million revolving credit facility agreement. The
interest due under this facility is variable with the Company's rate tied to
various underlying rates (the bank's prime lending rate in both the USA and
Canada, Eurodollar rates, LIBOR rates, and the Canadian cost of funds rate). The
Company has not entered into any agreements to mitigate its interest rate risk.
A material change in the various underlying rates described above could
have a material impact on the Company. However, no assumptions have been made
regarding future interest rates.
The Company intends to retire its debt in the 2000 fiscal year in
connection with the merger agreement described in the Company's subsequent event
note to the consolidated financial statements.
o EXCHANGE RATE RISK
Through the Company's wholly-owned operating subsidiaries of
BridgeStreet Accommodations Limited and BridgeStreet Canada, both formed in
1998, the Company operates internationally and enters into transactions
denominated in foreign currencies. As a result, the Company is subject to the
volatility that is associated with exchange rate movements. The effects of
foreign currency on operating results in the current year were not material to
the Company. The Company does not hedge its risk in foreign currency exchange
rate movements, and does not intend to do so in the foreseeable future.
Each of the above-mentioned subsidiaries primarily enters into
transactions denominated in their respective local currencies; and, therefore,
are not individually subject to significant volatility associated with exchange
rate movements. The Company deems its unremitted earnings of foreign
subsidiaries as indefinitely reinvested in those operations. While a material
change in the relevant exchange rates could have a material affect on the
financial results reported by the Company, the Company does not believe that a
material economic exposure exists because it generally does not expatriate or
repatriate foreign currencies into U.S. dollars.
12
<PAGE> 13
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
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, 2000.
13
<PAGE> 14
- --------------------------------------------------------------------------------
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: May 12, 2000 By: /s/ John E. Danneberg
--------------------------------
John E. Danneberg
President and Chief Executive
Officer
Date: May 12, 2000 By: /s/ Ware H. Grove
--------------------------------
Ware H. Grove
Chief Financial Officer
14
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<SECURITIES> 0
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0
0
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