<PAGE> 1
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 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 No. 1-11342
-------
LODGIAN, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2093696
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3445 Peachtree Road, N.E., Suite 700, Atlanta, GA 30326
- ------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(404) 364-9400
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Not applicable
--------------
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of November 12, 1999
----- -----------------------------------
Common 27,887,040
<PAGE> 2
LODGIAN, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998.......................................................... 3
Condensed Consolidated Statements of Income (Unaudited) for the Three and
Nine Months Ended September 30, 1999 and 1998.................................. 4
Condensed Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1999 (Unaudited) and for the Year Ended December 31,
1998........................................................................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1999 and 1998....................................... 6
Notes to Condensed Consolidated Financial Statements........................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 23
Item 6. Exhibits and Reports on Form 8-K............................................... 23
SIGNATURES............................................................................... 24
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,382 $ 19,185
Cash, restricted 6,557 6,302
Accounts receivable, net of allowances 40,158 25,498
Other current assets 47,874 27,956
----------- -----------
Total current assets 117,971 78,941
Property and equipment, net 1,329,452 1,317,470
Deposits for capital expenditures 2,649 30,386
Other assets, net 64,404 71,124
----------- -----------
$ 1,514,476 $ 1,497,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,912 $ 57,253
Accrued liabilities 55,771 50,633
Current portion of long-term obligations 4,283 36,134
----------- -----------
Total current liabilities 90,966 144,020
Long term obligations, less current portion 884,056 816,644
Deferred income taxes 67,946 63,469
Commitments and contingencies -- --
Minority interests:
Preferred redeemable securities 175,000 175,000
Other 5,342 15,021
Stockholders' equity
Common Stock, $.01 par value--75,000,000 shares authorized;
28,028,595 shares and 27,937,057 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 278 278
Additional paid-in capital 262,696 261,976
Retained earnings 29,821 23,106
Accumulated other comprehensive loss (1,629) (1,593)
----------- -----------
Total stockholders' equity 291,166 283,767
----------- -----------
$ 1,514,476 $ 1,497,921
=========== ===========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
LODGIAN, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Rooms $ 116,549 $ 72,512 $ 328,212 $ 197,273
Food & beverage 31,892 24,133 101,018 74,673
Other 7,579 4,715 22,457 14,683
--------- --------- --------- ---------
156,020 101,360 451,687 286,629
--------- --------- --------- ---------
Operating expenses:
Direct:
Rooms 33,213 19,943 90,335 54,015
Food & Beverage 23,810 19,115 74,351 57,575
Other 4,552 2,611 12,768 7,929
General and administrative 6,614 2,408 17,981 7,237
Depreciation and amortization 13,102 7,769 40,602 22,528
Other hotel operating expenses 42,250 32,140 127,393 85,774
--------- --------- --------- ---------
123,541 83,986 363,430 235,058
--------- --------- --------- ---------
Income from operations 32,479 17,374 88,257 51,571
Other income (expenses):
Interest income and other, net 1,595 32 1,102 (523)
Loss on swap transactions -- (31,492) -- (31,492)
Interest expense (20,317) (5,761) (57,456) (21,893)
Minority interests - preferred redeemable securities (3,338) (3,012) (10,152) (3,323)
--------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 10,419 (22,859) 21,751 (5,660)
Provision (benefit) for income taxes 4,167 (9,144) 8,700 (2,264)
--------- --------- --------- ---------
Income (loss) before extraordinary item 6,252 (13,715) 13,051 (3,396)
Extraordinary item:
Loss on early extinguishment of debt, net of
income tax benefit of $4,224 and $730 for 1999
and 1998, respectively (6,336) (47) (6,336) (1,142)
--------- --------- --------- ---------
Net (loss) income $ (84) $ (13,762) $ 6,715 $ (4,538)
========= ========= ========= =========
Earnings (loss) per common share basic and
assuming dilution:
Income (loss) before extraordinary item $ 0.23 $ (0.71) $ 0.48 $ (0.17)
Extraordinary item (0.23) -- (0.23) (0.06)
--------- --------- --------- ---------
Net income (loss) -- $ (0.71) $ 0.25 $ (0.23)
========= ========= ========= =========
</TABLE>
See accompanying notes.
-4-
<PAGE> 5
LODGIAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Accumu-
lated
Other Total
Additional Compre- Stock-
Common Stock Paid-In Retained hensive holders'
Shares Amount Capital Earnings Loss Equity
------------ ------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 20,974,852 $ 210 $ 211,577 $ 28,327 $ (579) $ 239,535
Issuance of common stock in
connection with the Merger 9,400,000 94 82,626 -- -- 82,720
401 (k) Plan contribution 88,205 -- 430 -- -- 430
Exercise of stock options 134,900 1 1,143 -- -- 1,144
Tax benefit from exercise of stock
options -- -- 245 -- -- 245
Purchase of common stock (2,660,900) (27) (34,045) -- -- (34,072)
Net loss -- -- -- (5,221) -- (5,221)
Currency translation adjustments -- -- -- -- (1,014) (1,014)
---------- ----- --------- -------- ------- ---------
Comprehensive loss -- -- -- -- -- (6,235)
---------- ----- --------- -------- ------- ---------
Balance at December 31, 1998 27,937,057 278 261,976 23,106 (1,593) 283,767
401 (k) Plan contribution 61,538 -- 600 -- -- 600
Exercise of stock options 30,000 -- 120 -- -- 120
Net income -- -- -- 6,715 -- 6,715
Currency translation adjustments -- -- -- -- (36) (36)
---------- ----- --------- -------- ------- ---------
Comprehensive income -- -- -- -- -- 6,679
---------- ----- --------- -------- ------- ---------
Balance at September 30, 1999 28,028,595 $ 278 $ 262,696 $ 29,821 $(1,629) $ 291,166
========== ===== ========= ======== ======= =========
</TABLE>
The data for the nine months ended September 30, 1999 is unaudited.
See accompanying notes.
-5-
<PAGE> 6
LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,117 $ 52,151
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (63,659) (53,923)
Acquisitions of property and equipment (1,929) (58,395)
Purchase of minority interests (10,200) --
Net withdrawals from deposits for capital expenditures 27,737 17,492
Net proceeds from sale of assets 20,468 2,373
Other 371 731
--------- ---------
Net cash used in investing activities (27,212) (91,722)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 477,860 258,404
Principal payments on long-term obligations (442,299) (167,254)
Payment of deferred loan costs (4,699) (7,554)
(Distributions to) contributions from minority interests (690) 82
Repurchase of common stock -- (34,072)
Net proceeds from issuance of common stock 120 979
--------- ---------
Net cash provided by financing activities 30,292 50,585
--------- ---------
Net increase in cash and cash equivalents 4,197 11,014
Cash and cash equivalents at beginning of period 19,185 15,243
--------- ---------
Cash and cash equivalents at end of period $ 23,382 $ 26,257
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amount capitalized $ 50,714 $ 20,211
========= =========
Income taxes paid, net of refunds $ 3,065 $ 592
========= =========
Non-cash acquisitions of property:
Addition to property and equipment -- $ 58,061
========= =========
Addition to long-term debt -- $ 58,061
========= =========
</TABLE>
See accompanying notes.
-6-
<PAGE> 7
LODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The condensed consolidated financial statements include the accounts of Lodgian,
Inc. ("Lodgian" or the "Company"), its wholly-owned subsidiaries and
partnerships in which Lodgian exercises control over the partnerships' assets
and operations. Lodgian believes it has control of partnerships when the Company
manages and has control of the partnerships' assets and operations, has the
ability and authority to enter into financing arrangements on behalf of the
entity or to sell the assets of the entity within reasonable business
guidelines. Investments in a partnership where the Company's ownership is
between 20%-50% is accounted for on the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accounting policies followed for quarterly financial reporting are the same
as those disclosed in Note 1 of the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting primarily of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of September 30, 1999, and the results of its operations for the
three and nine months ended September 30, 1999 and 1998 and its cash flows for
the nine months ended September 30, 1999 and 1998. While management believes
that the disclosures presented are adequate to make the information not
misleading, these financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Certain amounts in the prior period condensed consolidated financial statements
have been reclassified to conform to the current period presentation.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
------- -------- ------- --------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary items $ 6,252 $(13,715) $13,051 $ (3,396)
Effect of dilutive securities:
Minority interest-preferred
redeemable securities -- -- -- --
------- -------- ------- --------
Numerator for diluted earnings per share $ 6,252 $(13,715) $13,051 $ (3,396)
======= ======== ======= ========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 27,282 19,318 27,041 20,261
------- -------- ------- --------
Effect of dilutive securities:
Employee stock options -- -- -- --
Convertible preferred securities -- -- -- --
------- -------- ------- --------
Dilutive potential common shares -- -- -- --
------- -------- ------- --------
Denominator for diluted earnings per
share-adjusted weighted average shares
and assumed conversions 27,282 19,318 27,041 20,261
======= ======== ======= ========
Basic earnings (loss) per share: $ 0.23 $ (0.71) $ 0.48 $ (0.17)
Diluted earnings (loss) per share: $ 0.23 $ (0.71) $ 0.48 $ (0.17)
</TABLE>
The computation of diluted earnings per share, for all periods shown did not
include shares associated with the assumed conversion of the Convertible
Redeemable Equity Structure Trusts Securities and employee stock options because
their inclusion would have been antidilutive.
-7-
<PAGE> 8
3. COMMITMENTS AND CONTINGENCIES
On June 1, 1999, a contractor engaged to perform work on six properties in New
York, Illinois and Texas filed a summons with notice against us in the Supreme
Court of the State of New York. The summons claims, among other things, breach
of contract and quantum meruit and seeks damages in the aggregate amount of $45
million. The contractor has filed a formal complaint and increased its alleged
damages to $80 million, $60 million of which is punitive damages. We have filed
an answer and counterclaim and will vigorously defend our position. We believe
we have valid defenses and counterclaims and that any possible outcome will not
have a material adverse effect on our financial position or results of
operations.
4. SUPPLEMENTAL GUARANTOR INFORMATION
In July 1999, the Company sold $200 million of 12 1/4% Senior Subordinated Notes
due in 2009 (the "Notes"). In addition, the Company entered into a new,
multi-tranche Senior, Secured loan credit facility. The facility consists of
development loans with a maximum capacity of $75 million (the tranche A and C
loans), a $240 million tranche B term loan and a $50 million revolving credit
facility. The tranche A and C loans will be used for hotel development projects.
The tranche B loan along with the proceeds from the sale of the Notes was used
to repay, prior to maturity, approximately $413 million of existing debt. As a
result of the prepayment the Company recognized an extraordinary loss of
approximately $6.3 million, net of income tax benefit.
In connection with the Company's sale of the Notes, certain of the Company's
subsidiaries (the "Subsidiary Guarantors") have fully and unconditionally
guaranteed, on a joint and several basis, the Company's obligations to pay
principal and interest with respect to the Notes. Each Subsidiary Guarantor is
wholly-owned and management has determined that separate financial statements
for the Subsidiary Guarantors are not material to investors. The subsidiaries of
the Company that are not Subsidiary Guarantors are referred to in the note as
the "Non-Guarantor Subsidiaries".
The following supplemental condensed consolidating financial statements present
balance sheets as of September 30, 1999 (Unaudited) and December 31, 1998 and
statements of income for the three and nine months ended September 30, 1999
(Unaudited) and 1998 (Unaudited) and of cash flows for the nine months ended
September 30, 1999 (Unaudited) and 1998 (Unaudited). In the condensed
consolidating financial statements, Lodgian, Inc. or (the "Parent") accounts for
its investments in wholly-owned subsidiaries using the equity method.
-8-
<PAGE> 9
Lodgian, Inc.
Condensed Consolidating Balance Sheet
September 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,941 $ 3,739 $ 17,702 $ -- $ 23,382
Restricted cash -- -- 6,557 -- 6,557
Accounts receivable, net of allowances -- 16,077 24,081 -- 40,158
Other current assets 2,512 6,326 39,036 -- 47,874
-------- ----------- ----------- ----------- -----------
Total current assets 4,453 26,142 87,376 -- 117,971
Property and equipment, net -- 512,026 817,426 -- 1,329,452
Deposits for capital expenditures -- 6,081 (3,432) -- 2,649
Investment in consolidated entities 141,654 -- -- (141,654) --
Due from (to) affiliates 128,465 (514,255) 385,790 -- --
Other assets, net 20,970 13,776 29,658 -- 64,404
-------- ----------- ----------- ----------- -----------
$295,542 $ 43,770 $ 1,316,818 $ (141,654) $ 1,514,476
======== =========== =========== =========== ===========
Liabilities and stockholder's equity
Current liabilities:
Accounts Payable, trade $ 52 $ 7,220 $ 23,640 $ -- $ 30,912
Accrued liabilities -- 26,849 28,922 -- 55,771
Current portion long-term obligations -- 219 4,064 -- 4,283
-------- ----------- ----------- ----------- -----------
Total current liabilities 52 34,288 56,626 -- 90,966
Long-term obligations, less current 772 149 883,135 -- 884,056
Deferred income taxes 1,923 19,978 46,045 -- 67,946
Minority interests:
Preferred redeemable securities -- -- 175,000 -- 175,000
Other -- -- 5,342 -- 5,342
Stockholder's equity:
Common stock 278 33 672 (705) 278
Additional paid-in capital 262,696 20,020 538 (20,558) 262,696
Retained earnings 29,821 (29,069) 141,287 (112,218) 29,821
Members equity -- -- 8,173 (8,173) --
Accumulated other comprehensive loss -- (1,629) -- -- (1,629)
-------- ----------- ----------- ----------- -----------
Total stockholder's equity 292,795 (10,645) 150,670 (141,654) 291,166
-------- ----------- ----------- ----------- -----------
Total liabilities and stockholder's equity $295,542 $ 43,770 $ 1,316,818 $ (141,654) $ 1,514,476
======== =========== =========== =========== ===========
</TABLE>
-9-
<PAGE> 10
Lodgian, Inc.
Condensed Consolidating Balance Sheet
December 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,648 $ 6,091 $ 11,446 $ -- $ 19,185
Restricted cash -- -- 6,302 -- 6,302
Accounts receivable, net of allowances -- 10,508 14,990 -- 25,498
Other current assets 3,023 5,322 19,611 -- 27,956
-------- --------- --------- ----------- -----------
Total current assets 4,671 21,921 52,349 78,941
Property and equipment, net -- 527,946 789,524 -- 1,317,470
Deposits for capital expenditures -- 9,881 20,505 -- 30,386
Investment in consolidated entities 74,056 -- -- (74,056) --
Due from (to) affiliates 178,948 (282,970) 104,022 -- --
Other assets, net 38,095 29,957 3,072 -- 71,124
-------- --------- --------- ----------- -----------
$295,770 $ 306,735 $ 969,472 $ (74,056) $ 1,497,921
======== ========= ========= =========== ===========
Liabilities and stockholder's equity
Current liabilities:
Accounts Payable, trade $ 132 $ 13,611 $ 43,510 $ -- $ 57,253
Accrued liabilities -- 17,645 32,988 -- 50,633
Current portion long-term obligations -- 770 35,364 -- 36,134
-------- --------- --------- ----------- -----------
Total current liabilities 132 32,026 111,862 -- 144,020
Long-term obligations, less current 7,722 269,232 539,690 -- 816,644
Deferred income taxes 2,556 19,978 40,935 -- 63,469
Minority interests:
Preferred redeemable securities -- -- 175,000 -- 175,000
Other -- -- 15,021 -- 15,021
Stockholder's equity:
Common stock 278 33 493 (526) 278
Additional paid-in capital 261,976 19,981 (9,576) (10,405) 261,976
Retained earnings 23,106 (32,922) 87,874 (54,952) 23,106
Members equity -- 8,173 (8,173) --
Accumulated other comprehensive loss -- (1,593) -- -- (1,593)
-------- --------- --------- ----------- -----------
Total stockholder's equity 285,360 (14,501) 86,964 (74,056) 283,767
-------- --------- --------- ----------- -----------
$295,770 $ 306,735 $ 969,472 $ (74,056) $ 1,497,921
======== ========= ========= =========== ===========
</TABLE>
-10-
<PAGE> 11
Lodgian, Inc.
Consolidating Statement of Income
Three Months Ended September 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rooms $ -- $ 52,348 $ 64,201 $ -- $ 116,549
Food and beverage -- 13,482 18,410 -- 31,892
Other -- 3,090 4,489 -- 7,579
------- -------- -------- -------- ---------
Total revenues -- 68,920 87,100 -- 156,020
------- -------- -------- -------- ---------
Operating expenses:
Direct:
Rooms -- 14,652 18,561 -- 33,213
Food and beverage -- 9,914 13,896 -- 23,810
Other -- 2,120 2,432 -- 4,552
General and administrative -- -- 6,614 -- 6,614
Depreciation and amortization -- 5,859 7,243 -- 13,102
Other hotel operating expenses -- 22,594 19,656 -- 42,250
------- -------- -------- -------- ---------
Total operating expenses -- 55,139 68,402 -- 123,541
------- -------- -------- -------- ---------
Income from operations -- 13,781 18,698 -- 32,479
Other income (expenses):
Other income -- -- 1,595 -- 1,595
Interest expense -- (589) (19,728) -- (20,317)
Equity in earnings (loss) of consolidated subsidiaries 10,419 -- (10,419) --
Minority interests-preferred redeemable securities -- -- (3,338) -- (3,338)
------- -------- -------- -------- ---------
Income (loss) before income taxes 10,419 13,192 (2,773) (10,419) 10,419
Provision (benefit) for income taxes 4,167 5,277 (1,110) (4,167) 4,167
------- -------- -------- -------- ---------
Income (loss) before extraordinary item 6,252 7,915 (1,663) (6,252) 6,252
Extraordinary item, net of taxes -- (7,307) 971 -- (6,336)
------- -------- -------- -------- ---------
Net income (loss) $ 6,252 $ 608 ($ 692) ($ 6,252) ($ 84)
======= ======== ======== ======== =========
</TABLE>
-11-
<PAGE> 12
Lodgian, Inc.
Consolidating Statement of Income
Three Months Ended September 30, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rooms $ -- $ 29,579 $ 42,933 $ -- $ 72,512
Food and beverage -- 9,074 15,059 -- 24,133
Other -- 1,952 2,763 -- 4,715
-------- -------- -------- ------- ---------
Total revenues -- 40,605 60,755 -- 101,360
-------- -------- -------- ------- ---------
Operating expenses:
Direct:
Rooms -- 8,480 11,463 -- 19,943
Food and beverage -- 7,337 11,778 -- 19,115
Other -- 1,213 1,398 -- 2,611
General and administrative -- -- 2,408 -- 2,408
Depreciation and amortization -- 2,935 4,834 -- 7,769
Other hotel operating expenses -- 14,325 17,815 -- 32,140
-------- -------- -------- ------- ---------
Total operating expenses -- 34,290 49,696 -- 83,986
-------- -------- -------- ------- ---------
Income from operations -- 6,315 11,059 -- 17,374
Other income (expenses):
Other income -- -- 32 -- 32
Loss on swap transactions -- -- (31,492) -- (31,492)
Interest expense -- (1,849) (3,912) -- (5,761)
Equity in earnings (loss) of consolidated subsidiaries (22,859) -- 22,859
Minority interests - preferred redeemable securities -- -- (3,012) -- (3,012)
-------- -------- -------- ------- ---------
Income (loss) before income taxes (22,859) 4,466 (27,325) 22,859 (22,859)
Provision (benefit) for income taxes (9,144) 1,786 (10,930) 9,144 (9,144)
Income (loss) before extraordinary item (13,715) 2,680 (16,395) 13,715 (13,715)
Extraordinary item, net of taxes -- -- (47) -- (47)
-------- -------- -------- ------- ---------
Net income (loss) $(13,715) $ 2,680 $(16,442) $13,715 $ (13,762)
======== ======== ======== ======= =========
</TABLE>
-12-
<PAGE> 13
Lodgian, Inc.
Consolidating Statement of Income
Nine Months Ended September 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rooms $ -- $ 148,851 $ 179,361 $ -- $ 328,212
Food and beverage -- 43,095 57,923 -- 101,018
Other -- 9,439 13,018 -- 22,457
------- --------- --------- -------- ---------
Total revenues -- 201,385 250,302 -- 451,687
------- --------- --------- -------- ---------
Operating expenses:
Direct:
Rooms -- 40,621 49,714 -- 90,335
Food and beverage -- 31,254 43,097 -- 74,351
Other -- 5,978 6,790 -- 12,768
General and administrative -- -- 17,981 -- 17,981
Depreciation and amortization -- 18,648 21,954 -- 40,602
Other hotel operating expenses -- 65,044 62,349 -- 127,393
------- --------- --------- -------- ---------
Total operating expenses -- 161,545 201,885 -- 363,430
------- --------- --------- -------- ---------
Income from operations -- 39,840 48,417 -- 88,257
Other income (expenses):
Other income -- -- 1,102 -- 1,102
Interest expense -- (21,343) (36,113) -- (57,456)
Equity in earnings of consolidated subsidiaries 21,751 -- -- (21,751) --
Minority interests-preferred redeemable securities -- -- (10,152) -- (10,152)
------- --------- --------- -------- ---------
Income before income taxes and extraordinary item 21,751 18,497 3,254 (21,751) 21,751
Provision for income taxes 8,700 7,399 1,301 (8,700) 8,700
------- --------- --------- -------- ---------
Income before extraordinary items 13,051 11,098 1,953 (13,051) 13,051
Extraordinary item, net of taxes -- (7,307) 971 -- (6,336)
------- --------- --------- -------- ---------
Net income $13,051 $ 3,791 $ 2,924 $(13,051) $ 6,715
======= ========= ========= ======== =========
</TABLE>
-13-
<PAGE> 14
Lodgian, Inc.
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Consolidated
------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net cash flows from operating activities $ -- $ 34,925 $ (33,808) $ 1,117
Investing activities:
Capital improvements, net -- (2,728) (60,931) (63,659)
Acquisitions of property and equipment -- -- (1,929) (1,929)
Purchase of minority interests -- -- (10,200) (10,200)
Net withdrawals from deposits for capital expenditures -- 3,800 23,937 27,737
Net proceeds from sale of assets -- -- 20,468 20,468
Other -- -- 371 371
------ --------- --------- ---------
Net cash flows from investing activities: -- 1,072 (28,284) (27,212)
Financing activities:
Proceeds from issuance of long-term obligations -- -- 477,860 477,860
Principal payments of long-term obligations -- (269,634) (172,665) (442,299)
Payment of deferred loan costs -- -- (4,699) (4,699)
(Distributions to) contributions from minority interest -- -- (690) (690)
Net proceeds from issuance of common stock 120 -- -- 120
Proceeds from related parties, net 173 231,285 (231,458) --
------ --------- --------- ---------
Net cash flows provided by financing activities 293 (38,349) 68,348 30,292
------ --------- --------- ---------
Change in cash and cash equivalents 293 (2,352) 6,256 4,197
Cash and cash equivalents at beginning of period 1,648 6,091 11,446 19,185
------ --------- --------- ---------
Cash and cash equivalents at end of period $1,941 $ 3,739 $ 17,702 $ 23,382
====== ========= ========= =========
</TABLE>
-14-
<PAGE> 15
Lodgian, Inc.
Consolidating Statement of Income
Nine Months Ended September 30, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rooms $ -- $ 83,776 $ 113,497 $ -- $ 197,273
Food and beverage -- 29,585 45,088 -- 74,673
Other -- 6,594 8,089 -- 14,683
------- --------- --------- ------ ---------
Total revenues -- 119,955 166,674 -- 286,629
------- --------- --------- ------ ---------
Operating expenses:
Direct:
Rooms -- 23,659 30,356 -- 54,015
Food and beverage -- 22,930 34,645 -- 57,575
Other -- 3,816 4,113 -- 7,929
General and administrative -- -- 7,237 -- 7,237
Depreciation and amortization -- 8,811 13,717 -- 22,528
Other hotel operating expenses -- 42,007 43,767 -- 85,774
------- --------- --------- ------ ---------
Total operating expenses -- 101,223 133,835 -- 235,058
------- --------- --------- ------ ---------
Income from operations -- 18,732 32,839 -- 51,571
Other income (expenses):
Other income -- -- (523) -- (523)
Loss on swap transactions -- -- (31,492) -- (31,492)
Interest expense -- (9,456) (12,437) -- (21,893)
Equity in earnings (loss) of consolidated subsidiaries (5,660) -- -- 5,660 --
Minority interests - preferred redeemable securities -- -- (3,323) -- (3,323)
------- --------- --------- ------ ---------
Income (loss) before income taxes and extraordinary item (5,660) 9,276 (14,936) 5,660 (5,660)
Provision (benefit) for income taxes (2,264) 3,710 (5,974) 2,264 (2,264)
------- --------- --------- ------ ---------
Income (loss) before extraordinary item (3,396) 5,566 (8,962) 3,396 (3,396)
Extraordinary item, net of taxes -- -- (1,142) -- (1,142)
------- --------- --------- ------ ---------
Net income (loss) $(3,396) $ 5,566 $ (10,104) $3,396 $ (4,538)
======= ========= ========= ====== =========
</TABLE>
-15-
<PAGE> 16
Lodgian, Inc.
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Subsidiary Non-guarantor Total
Parent Guarantors Subsidiaries Consolidated
-------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net cash flows from operating activities $ -- $ 20,322 $ 31,829 $ 52,151
Investing activities:
Capital improvements, net -- (37,661) (16,262) (53,923)
Acquisitions of property and equipment -- (40,325) (18,070) (58,395)
Net withdrawals from deposits for capital expenditures -- 13,693 3,799 17,492
Net proceeds from sale of assets -- -- 2,373 2,373
Other -- -- 731 731
-------- -------- --------- ---------
Net cash flows from investing activities: -- (64,293) (27,429) (91,722)
Financing activities:
Proceeds from issuance of long-term obligations -- -- 258,404 258,404
Principal payments of long-term obligations -- (30,286) (136,968) (167,254)
Payment of deferred loan costs -- -- (7,554) (7,554)
Contributions from minority interest -- -- 82 82
Repurchase of common stock (34,072) -- -- (34,072)
Net proceeds from issuance of common stock 979 -- -- 979
Proceeds from related parties, net 37,929 73,528 (111,457) --
-------- -------- --------- ---------
Net cash flows provided by financing activities 4,836 43,242 2,507 50,585
-------- -------- --------- ---------
Change in cash and cash equivalents 4,836 (729) 6,907 11,014
Cash and cash equivalents at beginning of period 8,283 1,735 5,225 15,243
-------- -------- --------- ---------
Cash and cash equivalents at end of period $ 13,119 $ 1,006 $ 12,132 $ 26,257
======== ======== ========= =========
</TABLE>
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<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Management believes that results of operations in the hotel industry are best
explained by four key performance measures: occupancy levels, Average Daily Rate
("ADR"), Revenue Per Available Room ("RevPAR") and Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") margins. These measures are
influenced by a variety of factors including national, regional and local
economic conditions, the degree of competition with other hotels in the area and
changes in travel patterns. The demand for accommodations is also affected by
normally recurring seasonal patterns and most of our hotels experience lower
occupancy levels in the fall and winter months (November through February) which
may result in lower revenues, lower net income and less cash flow during these
months.
Our business strategy includes the acquisition of under-performing hotels and
the implementation of our operational initiatives and repositioning and
renovation programs to achieve revenue and margin improvements. During a period
of repositioning, the revenues and earnings of hotels being repositioned may be
adversely affected and may have a negative impact on our consolidated RevPAR,
ADR and occupancy rate performance, as well as EBITDA margins. In addition, our
strategy includes developing new full service hotels. Newly developed properties
typically require 24 months following completion to stabilize. To track the
execution of our repositioning and development growth strategy and its impact on
the Company's results of operations, we classify our hotels as either
"Stabilized Hotels," "Stabilizing Hotels" or "Being Repositioned Hotels," as
described below:
STABILIZED HOTELS are (1) properties which have experienced little or no
disruption to their operations over the past 24 to 36 months as the result
of redevelopment or repositioning efforts, or (2) newly-constructed hotels
which have been in service for 24 months or more.
STABILIZING HOTELS are (1) properties that have undergone renovation or
repositioning within the last 36 months, which work is now completed, or
(2) newly constructed hotels placed into service within the past 24 months.
Management believes that these properties should experience higher rates of
growth in RevPAR and improvements in operating margin than the Stabilized
Hotels. On average, our hotels which have undergone renovation have
generally reached stabilization within approximately 12 to 18 months after
their completion date, and our newly constructed hotels have reached
stabilization in approximately 24 months after their completion date.
BEING REPOSITIONED HOTELS are hotels experiencing disruption to their
operations due to renovation and repositioning. During this period
(generally 12 to 18 months) hotels will usually experience lower operating
results, such as RevPAR, and operating margins. We expect significant
improvements in the operating performance of those hotels that have
undergone repositioning once the renovation is completed. After the
repositioning work is completed, these properties will be reclassified as
Stabilizing Hotels.
Management classifies each hotel into one of the three categories at the
beginning of each fiscal year. We determine the category most appropriate for
each hotel based on our evaluation of objective and subjective factors,
including the time of completion of renovation and whether the full benefit of
renovations have been realized.
REVENUES
Revenues are composed of room, food and beverage and other revenues. Room
revenues are derived from guestroom rentals, while food and beverage revenues
primarily include sales from our hotel restaurants, room service and hotel
catering. Other revenues include charges for guests' long-distance telephone
service, laundry service, use of meeting facilities and fees earned by us for
services rendered in conjunction with properties managed for third parties.
OPERATING EXPENSES
Operating expenses are composed of direct, general and administrative, other
hotel operating expenses and depreciation and amortization. Direct expenses,
including rooms, food and beverage and other operations, reflect expenses
directly related to hotel operations. These expenses are primarily variable with
available rooms and occupancy rates, but also have a small fixed component that
can be leveraged with increases in revenues. General and administrative expenses
represent corporate salaries and other corporate operating expenses and are
generally fixed. Other hotel operating expenses include primarily property level
expenses related to general operations such as marketing, utilities, repairs and
maintenance and other property administrative costs. These expenses are also
primarily fixed.
-17-
<PAGE> 18
HISTORICAL RESULTS OF OPERATIONS
The significant number of acquisitions and extensive renovation activity has had
a material impact on our operating results. In June 1998, the Company acquired
AMI Operating Partners, L.P. ("AMI"), an entity that owned and operated 14
hotels, four of which have been subsequently sold. In December 1998, the Company
merged (the "Merger") with Impac Hotel Group, LLC ("Impac"), an entity that
owned or managed 53 hotels, one of which remains under construction. Because
these transactions were accounted for using the purchase method of accounting,
the results of AMI and Impac are included in our consolidated results of
operations from the time they were acquired. This makes comparisons of our
historical operating results with prior periods less meaningful.
THREE MONTHS ENDED SEPTEMBER 30, 1999 ("THIRD QUARTER 1999") COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1998 ("THIRD QUARTER 1998")
REVENUES
Revenues for the Company were $156.0 million for the Third Quarter 1999, a 53.8%
increase over revenues of $101.4 million for the Third Quarter 1998. Of this
$54.6 million increase, $50.2 million was attributable to the Merger.
The following table summarizes certain operating data for the Company's hotels
for the Three Months ended September 30, 1999 and 1998. The Stabilized,
Stabilizing and Being Repositioned Hotels refers to classifications in these
respective categories as of January 1, 1999.
<TABLE>
<CAPTION>
HOTELS (1) ADR OCCUPANCY REVPAR
-------------- -------------------- ---------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ------- ------ ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stabilized............ 77 50 $ 73.13 $72.16 71.0% 70.1% $51.92 $ 50.60
Stabilizing........... 34 12 $ 75.22 $66.57 67.7% 62.9% $50.94 $ 41.90
Being Repositioned.... 21 22 $ 80.12 $76.63 66.5% 62.4% $53.32 $ 47.81
--- -- ------- ------ ---- ---- ------ -------
Total................. 132 84 $ 74.89 $72.45 69.3% 67.0% $51.93 $ 48.52
=== == ======= ====== ==== ==== ====== =======
</TABLE>
------------
(1) Excludes one hotel managed for a third party and one owned
non-consolidated hotel. Includes two hotels sold during the 1999
quarter. All 1998 figures in the table exclude the Merger.
OPERATING EXPENSES
Direct operating expenses for the Company were $61.6 million (39.5% of direct
revenues) for the Third Quarter 1999 and $41.7 million (41.1% of direct revenue)
for the Third Quarter of 1998. Of the $19.9 million increase, $18.1 million was
attributable to the Merger.
General and administrative expenses were $6.6 million in Third Quarter 1999 and
$2.4 million in Third Quarter 1998. Of the $4.2 million increase, approximately
$.7 million represents expenses associated with the expansion of the corporate
sales and marketing staff and the regional offices. The balance was attributable
to the Merger.
Depreciation and amortization expense was $13.1 million in Third Quarter 1999
and $7.8 million in Third Quarter 1998. The $5.3 million increase was
attributable to the Merger, the opening of one new hotel and the completion of
renovation projects.
Other hotel operating expenses were $42.2 million in Third Quarter 1999 and
$32.1 million in Third Quarter 1998. Of the $10.1 million increase, $14.0
million was attributable to the Merger.
As a result of the above, income from operations was $32.5 million in Third
Quarter 1999 as compared to $17.4 million in the Third Quarter 1998.
Interest expense was $20.3 million in Third Quarter 1999 and $5.8 million in
Third Quarter 1998. This increase was primarily a result of an increase in the
level of debt associated with the Merger.
Minority interest expense related to the Company's Convertible Redeemable Equity
Structure Trust Securities ("CRESTS") was $3.3 million in Third Quarter 1999 and
$3.0 million in Third Quarter 1998. This increase was primarily a result of a
slightly higher interest rate in the Third Quarter 1999.
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<PAGE> 19
During the Third Quarter 1998, the Company recognized a $31.5 million loss as a
result of two swap transactions that were entered into by the Company in an
effort to manage the interest rate risk associated with its financing of the
Merger.
Other income (expense) in the Third Quarter 1999 includes a $1.2 million gain
from the sale of assets.
NET INCOME
After a provision (benefit) for income taxes of $4.2 million in Third Quarter
1999 and ($9.1) million in Third Quarter 1998, the Company had income (loss)
before extraordinary item of $6.3 million ($.23 per share) in Third Quarter 1999
compared with ($13.7) million ($.71 loss per share) in Third Quarter 1998.
In Third Quarter 1999 the Company had an extraordinary item, net of income tax
benefit of $4.2 million, of $6.3 million ($.23 loss per share) from the loss on
early extinguishment of debt.
Net loss for Third Quarter 1999 amounted to $84,000 ($.00 per share) compared
with $13.8 million ($.71 loss per share) in Third Quarter 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 (THE "1999 PERIOD") COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 (THE "1998 PERIOD")
REVENUES
Revenues for the Company were $451.7 million for the 1999 Period, a 57.6%
increase over revenues of $286.6 million for the 1998 Period. Of this $165.1
million increase, $154.3 million was attributable to the acquisition of AMI and
the Merger.
The following table summarizes certain operating data for the Company's hotels
for the Nine Months ended September 30, 1999 and 1998. The Stabilized,
Stabilizing and Being Repositioned Hotels refers to classifications in these
respective categories as of January 1, 1999.
<TABLE>
<CAPTION>
HOTELS (1) ADR OCCUPANCY REVPAR
-------------- -------------------- ---------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ------- ------ ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stabilized............ 77 50 $ 74.07 $73.69 68.2% 67.7% $50.50 $ 49.92
Stabilizing........... 34 12 $ 75.44 $69.73 63.4% 58.3% $47.83 $ 40.64
Being Repositioned.... 21 22 $ 79.13 $75.60 56.5% 58.3% $44.68 $ 44.04
--- -- ------- ------ ---- ---- ------ -------
Total................. 132 84 $ 75.23 $73.09 64.8% 64.1% $48.75 $ 46.86
=== == ======= ====== ==== ==== ====== =======
</TABLE>
------------
(1) Excludes one hotel managed for a third party and one owned
non-consolidated hotel. All 1998 figures in the table exclude AMI
(prior to the acquisition date) and the Merger.
OPERATING EXPENSES
Direct operating expenses for the Company were $177.5 million (39.3% of direct
revenues) for the 1999 Period and $119.5 million (41.7% of direct revenue) for
the 1998 Period. Of the $58.0 million increase, $57.1 million was attributable
to the acquisition of AMI and the Merger.
General and administrative expenses were $18.0 million in the 1999 Period and
$7.2 million in the 1998 Period. Of the $10.8 million increase, approximately
$1.5 million represents expenses associated with the expansion of the corporate
sales and marketing staff and the regional offices. Additionally, $.5 million
represents non-recurring expenses, principally severance. The balance was
attributable to the acquisition of AMI and the Merger.
Depreciation and amortization expense was $40.6 million in the 1999 Period and
$22.5 million in the 1998 Period. The $18.1 million increase was attributable to
the acquisition of AMI, the Merger, the opening of one new hotel and the
completion of renovation projects.
Other hotel operating expenses were $127.4 million in the 1999 Period and $85.8
million in the 1998 Period. Of the $41.6 million increase, $45.5 million was
attributable to the acquisition of AMI and the Merger. In addition, $1.0 million
was attributable to the Company's share of loss from an unconsolidated
partnership, essentially all of which was represented by depreciation.
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<PAGE> 20
As a result of the above, income from operations was $88.3 million in the 1999
Period as compared to $51.6 million in the 1998 Period.
Interest expense was $57.5 million in the 1999 Period and $21.9 million in the
1998 Period. This increase was primarily a result of an increase in the level of
debt associated with the acquisition of AMI and the Merger.
Minority interest expense related to the Company's Convertible Redeemable Equity
Structure Trust Securities ("CRESTS") was $10.2 million in the 1999 Period and
$3.3 million in the 1998 Period. The Company's CRESTS were issued in June 1998.
During the 1998 Period the Company recognized a $31.5 million loss as a result
of two swap transactions that were entered into by the Company in an effort to
manage the interest rate risk associated with its financing of the Merger.
Other income (expense) in the 1999 Period includes a $1.2 million gain from the
sale of assets. The 1998 Period includes a $.4 million loss from the sale of
assets.
NET INCOME
After a provision (benefit) for income taxes of $8.7 million in the 1999 Period
and ($2.3) million in the 1998 Period, the Company had income (loss) before
extraordinary item of $13.1 million ($0.48 per share) in the 1999 Period
compared with ($3.4) million ($.17 loss per share) in the 1998 Period.
Net of an income tax benefit of $4.2 million in the 1999 Period and $0.7 million
in the 1998 Period, the Company had an extraordinary item, loss on early
extinguishment of debt, of $6.3 million ($.23 loss per share) in the 1999 Period
and $1.1 million ($.06 loss per share) in the 1998 Period.
Net income (loss) for the 1999 Period amounted to $6.7 million ($.25 per share)
compared with $(4.5) million ($.23 loss per share) in the 1998 Period.
INCOME TAXES
As of December 31, 1998 the Company had net operating loss carry forwards of
approximately $50 million for federal income tax purposes, which expire in 2005
through 2018. Our ability to use the net operating loss carry forwards to offset
future income is subject to certain limitations, and may be subject to
additional limitations in the future. Consequently, a portion of the net
operating loss carry forwards could expire unused.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity consist of existing cash balances,
cash flow from operations and financing. The Company had earnings from
operations before interest, taxes, depreciation and amortization ("EBITDA") for
the 1999 period of $129.8 million, a 74.0% increase from the $74.6 million for
the 1998 period. EBITDA is a widely regarded industry measure of lodging
performance used in the assessment of hotel property values although EBITDA is
not indicative of and should not be used as an alternative to net income or net
cash provided by operations as specified by generally accepted accounting
principles. Net cash provided by operating activities for the 1999 period was
$1.1 million as compared with $52.2 million for the 1998 period.
Cash flows used in investing activities were $27.2 million and $91.7 million in
the nine months ended September 30, 1999 and 1998, respectively. The 1999 amount
includes capital expenditures of $65.6 million and $10.2 million for the
purchase of the minority partner's 49% interest in six hotel partnerships. The
1999 amount also includes net proceeds from the sale of assets of $20.5 million,
including the disposition of the Company's investment in six European hotels,
and proceeds from capital expenditure escrows of $27.7 million. The 1998 amount
consists of capital expenditures of $112.3 million, including the acquisition of
the AMI hotels, net of assumed debt, and proceeds from capital expenditure
escrows of $17.5 million.
Cash flows provided by financing activities were $30.3 million and $50.6 million
in the nine months ended September 30, 1999 and 1998, respectively. The 1999
amount consists primarily of the net proceeds from the issuance and repayment of
long-term obligations. The 1998 amount includes the net proceeds from the
issuance and repayment of long-term obligations of $83.6 million (including
$168.5 million of net proceeds from the issuance of CRESTS) reduced by $34.1
million from the repurchase of common stock.
At September 30, 1999, the Company had working capital of $27.0 million as
compared with a working capital deficit of $65.1 million at December 31, 1998.
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<PAGE> 21
At September 30, 1999 the Company's long-term obligations were $884.1 million,
not including $175 million of CRESTS. The Company's long-term obligations were
$816.6 million at December 31, 1998.
Certain of the Company's hotels are operated under license agreements that
require the Company to make capital improvements in accordance with a specified
time schedule. Additionally, in connection with the refinancing of hotels, the
Company has agreed to make certain capital improvements and, as of September 30,
1999, has approximately $2.6 million escrowed for such improvements. The Company
estimates its remaining obligations for all of such commitments to be
approximately $37.9 million and anticipates spending approximately $8.0 million
during the fourth quarter of 1999, with the balance to be spent thereafter.
During the fourth quarter of 1999 and the first quarter of 2000, the Company
expects to spend approximately $12.7 million to complete the construction of two
new hotels. Substantially all of the funds necessary to complete construction of
these hotels will be provided by current loan facilities.
In July, the Company sold $200 million of 12 1/4% Senior Subordinated Notes due
in 2009 (the "Notes"). In addition, the Company entered into a new,
multi-tranche Senior Secured loan credit facility. The facility consists of
development loans with a maximum capacity of $75 million (the tranche A and C
loans), a $240 million tranche B term loan and a $50 million revolving credit
facility. The tranche A and C loans will be used for hotel development projects.
The tranche B loan, along with the proceeds from the Notes, was used to repay
existing debt, including debt incurred in connection with the Merger. The new
financing contains various covenants and coverage ratios, with which the Company
is in compliance at September 30, 1999.
Continuation of the Company's current growth strategy beyond the facilities
described above will require additional financing. The Company's financial
position may, in the future, be strengthened through an increase in revenues,
the refinancing of its properties or capital from equity or debt markets. There
is no assurance the Company will be successful in these efforts.
INFLATION
The rate of inflation has not had a material effect on the Company's revenues or
costs and expenses in recent years and it is not anticipated that inflation will
have a material effect on the Company in the near term.
YEAR 2000 MATTERS
The Year 2000 Issue is the result of certain computer programs being written
using two digits rather than four to define the applicable year. Certain of the
Company's computer programs may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on its current assessment, the Company determined that it would be
required to modify or replace portions of its existing software so that its
computer systems will properly utilize dates beyond December 31, 1999.
The Company has divided its year 2000 issues into what it considers to be
critical and non-critical issues. The Company believes that in its line of
business the critical issues revolve around the ability to process transactions
from the reservation stage through settlements and collection at the hotel.
Additionally, of prime importance is the maintenance of accurate accounting and
corporate records.
The systems that the Company has identified as critical include, but may not be
limited to, the following: Unix Operating System, Property Management Systems,
Point of Sale Systems, Oracle General Ledger System and Credit Card Processing,
as well as the Company's banking relationships and telecommunications vendors.
The Company has also identified non-critical issues including, but not limited
to, stand alone personal computers, other third party vendors and possible
security issues.
The Company has conducted formal communications with its significant suppliers
to determine the Company's vulnerability to those third parties' failure to
remediate their own Year 2000 Issue. There can be no guarantee that the systems
of the Company's suppliers will be timely converted and would not have an
adverse effect on the Company.
The Company will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. The Company has
estimated the total cost of the year 2000 project to be less than $2,000,000, a
substantial portion of which is for equipment necessary to accommodate new
property management and telecommunications software. All expenditures have been
appropriately identified through the 1999 budget for hotel capital improvements.
The Company has spent approximately $1,500,000 to date; the equipment component
has been capitalized and the balance has been expensed. The projects yet to be
completed consist of several property management systems and telephone switches.
The Company anticipates completing the Year
-21-
<PAGE> 22
2000 project not later than December 31, 1999, which is prior to any anticipated
impact on its operating systems. The costs of the project and the date on which
the Company believes it will complete the Year 2000 modifications are based on
management's best estimates. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q which express "belief," "anticipation," or
"expectation," as well as other statements which are not historical fact, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve risks and uncertainties. Moreover,
there are important factors which include, but are not limited to, general and
local economic conditions, risks relating to the acquisition, renovation and
operation of hotels, government legislation and regulation, competition in the
lodging industry, changes in interest rates, the impact of rapid growth, the
availability of capital to finance growth, the historical cyclicality of the
lodging industry, year 2000 matters and other factors described in other
Lodgian, Inc. filings with the United States Securities and Exchange Commission,
all of which are difficult to predict and many of which are beyond the control
of the Company. Actual results could differ materially from these
forward-looking statements. In light of the risks and uncertainties, there is no
assurance that the forward-looking statements contained in this Form 10-Q will
in fact prove correct or occur. The Company does not undertake any obligation to
publicly release the results of any revisions to these forward-looking
statements to reflect future events or circumstances.
-22-
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 1, 1999, a contractor engaged to perform work on six properties in New
York, Illinois and Texas filed a summons with notice against us in the Supreme
Court of the State of New York. The summons claims, among other things, breach
of contract and quantum meruit and seeks damages in the aggregate amount of $45
million. The contractor has filed a formal complaint and increased its alleged
damages to $80 million, $60 million of which is punitive damages. We have filed
an answer and counterclaim and will vigorously defend our position. We believe
we have valid defenses and counterclaims and that any possible outcome will not
have a material adverse effect on our financial position or results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of the exhibits required to be filed as part of this
Report on Form 10-Q is set forth in the "Exhibit Index" which
immediately precedes such exhibits, and is incorporated herein
by reference.
(b) Reports on Form 8-K
No reports on Form 8-K/A were filed during the quarter ended
September 30, 1999.
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<PAGE> 24
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.
LODGIAN, INC.
Registrant
DATE: November 15, 1999 /s/ Robert S. Cole
-------------------------------------
Robert S. Cole
President and Chief Executive Officer
DATE: November 15, 1999 /s/ Kenneth R. Posner
-------------------------------------
Kenneth R. Posner
Executive Vice President and
Chief Financial Officer
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<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
4.1 Indenture, dated as of July 23, 1999, by and among Lodgian Financing Corp., Lodgian, Inc., the
subsidiary guarantors named therein and Bankers Trust Company, as trustee(1)
4.2 Registration Rights Agreement, dated as of July 20, 1999, by and among Lodgian Financing Corp.,
Lodgian, Inc., the subsidiary guarantors named therein and Morgan Stanley & Co. Incorporated, Lehman
Brothers Inc and Bear, Stearns & Co. Inc.(1)
10.1 Credit Agreement, dated as of July 23, 1999, among Lodgian Financing Corp, Lodgian, Inc., Impac Hotel
Group, LLC, Servico, Inc., and the other affiliate guarantors party thereto and the initial lenders
and initial issuing bank named therein and Morgan Stanley Senior Funding, Inc., as Administrative
Agent and Collateral Agent, and Morgan Stanley Senior Funding, Inc., as Co-Lead Arranger, Joint-Book
Manager and Syndication Agent, and Lehman Brothers Inc., as Co-Lead Arranger and Joint-Book Manager
(1)
10.2 Security Agreement, dated July 23, 1999, from Lodgian Financing Corp., Servico, Inc., Impac Hotel
Group, LLC, and the other grantors referred to therein to Morgan Stanley Senior Funding, Inc., as
Collateral Agent (1)
23.1 Consent of Cadwalader, Wickersham & Taft (2)
23.2 Consent of Ernst & Young LLP (1)
23.3 Consent of Ernst & Young LLP (2)
23.4 Consent of Ernst & Young LLP (2)
23.5 Consent of PriceWaterhouse Coopers LLP (2)
23.6 Consent of Richards, Layton & Finger, P.A. (2)
24.1 Power of Attorney(1)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4, as amended, filed on August 13, 1999 (Registration Number
333-85235)
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, filed on July 14, 1999 (Registration Number
333-82859)
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT SEPT. 30, 1999 AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPT. 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
CONTAINED IN LODGIAN, INC.'S FORM 10-Q FOR THE PERIOD ENDING SEPT. 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,939
<SECURITIES> 0
<RECEIVABLES> 40,158
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,971
<PP&E> 1,329,452
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,514,476
<CURRENT-LIABILITIES> 90,966
<BONDS> 884,056
0
175,000
<COMMON> 278
<OTHER-SE> 290,888
<TOTAL-LIABILITY-AND-EQUITY> 1,514,476
<SALES> 0
<TOTAL-REVENUES> 451,687
<CGS> 0
<TOTAL-COSTS> 363,430
<OTHER-EXPENSES> 9,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,456
<INCOME-PRETAX> 21,751
<INCOME-TAX> 8,700
<INCOME-CONTINUING> 13,051
<DISCONTINUED> 0
<EXTRAORDINARY> 6,336
<CHANGES> 0
<NET-INCOME> 6,715
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
