<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------
For the First Quarter Ended April 20, 1997 Commission File No. 0-19840
-------------------------------------------
SHOLODGE, INC.
(Exact name of registrant as specified in its charter)
-------------------------------------------
Tennessee 62-1015641
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
217 West Main Street, Gallatin, Tennessee 37066
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 452-7200
-------------------------------------------
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 as 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 registrant's classes
of common stock as of the latest practicable date.
As of May 30, 1997, there were 8,235.152 shares of ShoLodge, Inc.
common stock outstanding.
<PAGE> 2
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
APRIL 20, DECEMBER 29,
1997 1996 (1)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,736,479 $ 4,259,768
Accounts receivable 3,778,630 2,676,083
Construction contracts 252,302 259,785
Due from related parties
Less profits not recognized on installment sales
Prepaid expenses 1,103,504 471,823
Other current assets 530,412 559,982
-------------------------
Total current assets 10,401,327 8,227,441
DIRECT FINANCING LEASES, less current portion 468,370 611,492
PROPERTY AND EQUIPMENT 278,926,118 262,264,264
Less accumulated depreciation and amortization -36,808,613 -33,888,495
-------------------------
242,117,505 228,375,769
DEFERRED CHARGES 9,975,768 9,899,544
SECURITIES HELD TO MATURITY - RESTRICTED 8,468,479 8,255,810
SECURITIES AVAILABLE FOR SALE 212,062 212,062
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED 3,090,819 3,136,965
OTHER 5,111,019 4,990,095
-------------------------
TOTAL ASSETS $279,845,349 $263,709,178
=========================
</TABLE>
(1) Derived from fiscal year ended December 29, 1996 audited financial
statements.
See notes to consolidated financial statements.
<PAGE> 3
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
APRIL 20, DECEMBER 29,
1997 1996(1)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,337,774 $ 12,045,715
Taxes other than on income 1,259,017 984,855
Income taxes payable 0 1,116,972
Current portion of long-term debt
and capitalized lease obligations 3,725,013 15,824,914
-------------------------
Total current liabilities 14,321,804 29,972,456
LONG-TERM DEBT ASSOCIATED WITH LODGING FACILITIES 39,370,946 40,104,802
OTHER LONG-TERM DEBT 127,216,597 97,227,576
CAPITALIZED LEASE OBLIGATIONS 1,295,379 1,462,044
DEFERRED INCOME TAXES 4,702,144 4,702,144
MINORITY INTERESTS IN EQUITY OF
CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 561,631 504,028
-------------------------
TOTAL LIABILITIES 187,468,501 173,973,050
-------------------------
SHAREHOLDERS' EQUITY:
Series A redeemable nonparticipating stock
(no par value; 1,000 shares authorized, none
issued and outstanding) - -
Common stock (no par value; 20,000,000 shares
authorized, 8,233,985 shares issued and outstanding
as of April 20, 1997 and 8,233,318 shares issued
and outstanding as of December 29, 1996) 1,000 1,000
Additional paid-in capital 42,217,646 42,212,042
Retained earnings 50,098,463 47,463,347
Unrealized gain on securities available for sale (net of tax) 59,739 59,739
-------------------------
TOTAL SHAREHOLDERS' EQUITY 92,376,848 89,736,128
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $279,845,349 $263,709,178
=========================
</TABLE>
(1) Derived from fiscal year ended December 29, 1996 audited financial
statements.
See notes to consolidated financial statements.
<PAGE> 4
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE SIXTEEN WEEKS ENDED APRIL 20, 1997 AND APRIL 21, 1996
<TABLE>
<CAPTION>
16 WEEKS ENDED
APRIL 20, APRIL 21,
1997 1996
----------------------------
<S> <C> <C>
REVENUES:
Hotel $20,853,285 $14,080,821
Construction and development 0 514,234
Construction and development - other 0 200,000
Franchising 1,181,884 1,064,992
Management 37,355 48,908
----------------------------
Total operating revenues 22,072,524 15,908,955
COSTS AND EXPENSES:
Operating expenses:
Hotel 11,348,184 8,307,842
Construction and development 0 690,499
Franchising 638,562 984,093
----------------------------
Total operating expenses 11,986,746 9,982,434
----------------------------
Gross operating profit 10,085,778 5,926,521
General and administrative 603,206 954,238
----------------------------
Earnings before interest, taxes, depreciation and amortization 9,482,572 4,972,283
Depreciation and amortization 3,249,473 2,084,212
----------------------------
Net operating profit (before interest and taxes) 6,233,099 2,888,071
OTHER INCOME AND EXPENSES:
Interest expense 2,704,938 481,046
Interest income 353,856 631,808
----------------------------
Net interest expense 2,351,082 -150,762
Other income 375,702 175,981
----------------------------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTERESTS 4,257,719 3,214,814
INCOME TAXES 1,565,000 1,185,000
MINORITY INTEREST IN EARNINGS OF CONSOLIDATED
SUBSIDIARIES & PARTNERSHIPS 57,603 35,373
----------------------------
NET EARNINGS $2,635,116 $1,994,441
============================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary $0.32 $0.24
============================
Fully Diluted $0.32 $0.24
============================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 8,354,236 8,396,361
Fully Diluted 10,670,838 10,712,963
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN WEEKS ENDED APRIL 20, 1997 AND APRIL 21, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
16 WEEKS ENDED
APRIL 20, APRIL 21,
1997 1996
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 2,635,116 $ 1,994,441
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 3,249,473 2,084,212
INCREASE IN DEFERRED INCOME TAXES 0 0
INCREASE IN MINORITY INTEREST IN EQUITY
OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 57,603 35,373
ACCRETION OF DISCOUNT ON SECURITIES
HELD TO MATURITY -212,669 -196,240
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE -1,095,064 586,380
(INCREASE) IN PREPAID EXPENSES -631,681 -282,735
(INCREASE) DECREASE IN OTHER ASSETS -287,131 1,437,285
(DECREASE) INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES -2,707,941 3,632,388
(DECREASE) INCREASE IN INCOME AND OTHER TAXES -842,810 173,701
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 164,896 9,464,805
CASH FLOWS FROM INVESTING ACTIVITIES:
REPAYMENT FROM (ADVANCES TO) RELATED PARTIES--NET 0 42,418,759
CAPITAL EXPENDITURES -16,661,854 -32,993,424
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -16,661,854 9,425,335
CASH FLOWS FROM FINANCING ACTIVITIES:
(INCREASE) IN DEFERRED CHARGES -163,656 -332,346
PROCEEDS FROM DIRECT FINANCING LEASES 143,122 18,069
PROCEEDS FROM LONG-TERM DEBT 17,900,000 20,182,371
PAYMENTS ON LONG-TERM DEBT -744,736 -36,646,744
PAYMENTS ON CAPITALIZED LEASE OBLIGATIONS -166,665 -226,884
DISTRIBUTIONS TO MINORITY INTERESTS 0 -174,978
SALE OF SECURITIES AVAILABLE FOR SALE 0 847,120
EXERCISE OF STOCK OPTIONS 5,604 25,192
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,973,669 -16,308,200
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 476,711 $ 2,581,940
======================================================================================================
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD $ 4,259,768 $ 2,444,990
======================================================================================================
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 4,736,479 $ 5,026,930
======================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
SHOLODGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. The consolidated financial statements have been prepared by the
Company without audit.
In Management's opinion, the information and amounts furnished
in this report reflect all adjustments which are necessary for
the fair presentation of the financial position and results of
operations for the periods presented. All adjustments are of a
normal and recurring nature. It is suggested that these
financial statements be read in conjunction with the Company's
Annual Report or Form 10-K for the fiscal year ended December
29, 1996 and the Company's Quarterly Report on Form 10-Q for the
sixteen weeks ended April 20, 1997.
There have been no changes in accounting policies nor has the
composition of accounts substantially changed since the year
ended December 29, 1996.
The fiscal year consists of a 52/53 week year ending the last
Sunday of the year.
The Company has historically reported lower earnings in the
first and fourth quarters of the year due to the seasonality of
the Company's business. The results of operations for the
quarters ended April 20, 1997 and April 21, 1996 are not
necessarily indicative of the operating results for the entire
year.
B. The net earnings per share is computed by dividing net earnings
by the weighted average number of common and common equivalent
shares outstanding.
The Company will adopt Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" for the year ended
December 28, 1997. This accounting pronouncement requires the
disclosure of basic and diluted earnings per share. The Company
believes that, upon adoption, diluted earnings per share will
approximate earnings per share as previously reported. Because
the concept of basic earnings per share does not include the
impact of common stock equivalents, such as stock warrants and
stock options, basic earnings per share will be generally higher
than diluted earnings per share.
C. The number of shares outstanding and earnings per share have
been adjusted to reflect the effect of the 5-for-4 stock split
on May 14, 1993, and the 4-for-3 stock split on March 28, 1994.
<PAGE> 7
ShoLodge, Inc. and Subsidiaries Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
For the Quarters Ended April 20, 1997 and April 21, 1996
Total operating revenues for the quarter ended April 20, 1997, were
$22.1 million, or 38.7% more than the total operating revenues for the first
quarter of 1996.
Revenues from hotel operations increased by $6.8 million, or 48.1%,
over the $14.1 million reported for the same period last year. For the 33 same
hotels opened for all of both quarterly periods, an increase of 3.7% in average
daily room rates, from $51.27 in first quarter 1996 to $53.19 in first quarter
1997, partially offset by a decline in average occupancy rates on these hotels
from 58.1% last year to 56.8% this year, resulted in a net increase in same
hotel revenues of 2.9%, from $13.8 million in first quarter 1996 to $14.2
million in first quarter 1997. The 13 hotels opened since the end of 1995
contributed $6.6 million to hotel operating revenues in first quarter this year,
compared to only $232,000 in first quarter 1996.
There were no revenues from regular construction and development in
first quarter this year, compared with $514,000 for the same period last year.
This was due to no outside construction projects by the company during the first
quarter of 1997 versus the final portion of one project completed in early first
quarter last year. Revenues from construction and development can vary widely
from quarter to quarter depending upon the volume of outside contract work and
the timing of those projects. No outside construction contracts are currently in
progress.
Revenues of $200,000 from "Construction and development - other" in
first quarter 1996 represents a portion of profits not previously recognized on
installment sales. No revenues from this source is expected to recur subsequent
to 1996.
Franchising revenues increased by $117,000, or 11.0%, in first quarter
1997 from first quarter 1996. Room revenues of franchised inns increased by 8.8%
from first quarter 1996, due to an increase in the number of franchised inns,
resulting in an increase of $141,000 in fees based upon percentages of sales.
Management contract revenues represent only a small segment of the business.
Revenue from this source decreased by $12,000, or 23.6%, from the $49,000
reported for first quarter 1996.
Operating expenses from hotel operations for the first quarter of 1997
increased by $3.0 million, or 36.6%, from $8.3 million in first quarter 1996 to
$11.3 million in first quarter 1997, due to operating expenses associated with
the 48.1% increase in hotel operating revenues. Operating expenses as a
percentage of operating revenues for this activity decreased from 59.0% in first
quarter 1996 to 54.4% in first quarter 1997. The gross profit margin on same
hotels increased from 41.1% in first quarter 1996 to 44.5% in first quarter
1997. The 13 hotels opened since the end of 1995 produced a gross profit
<PAGE> 8
margin of 47.8% in first quarter 1997, due primarily to significantly higher
average daily room rates than for all hotels as a whole.
Costs and expenses of construction and development in first quarter
1996 were $690,000. One project was completed in early first quarter 1996. No
outside construction projects were in progress during first quarter 1997 and
none are currently under way.
Franchising operating expenses decreased by $346,000, or 35.1%, from
first quarter 1996, due primarily to the elimination of royalty fees paid prior
to October 25, 1996 to an affiliate of Shoney's, Inc. (See 1996 Form 10-K
description of "Shoney's Transaction").
General and administrative expenses decreased by $351,000 from the
comparable quarter last year, due primarily to reduced professional fees and to
increased capitalization of general and administrative expenses. Depreciation
and amortization expense increased by $1.2 million, or 55.9%, over last year's
first quarter. This was due primarily to the 13 new hotels opened, beginning in
first quarter 1996.
Interest expense increased by $2.2 million while interest income
decreased by $278,000 from first quarter 1996, for an increase of $2.5 million
in net interest expense. The primary cause of the decrease in interest income
was the elimination of interest earned from Suites of America on first mortgage
notes receivable, the balance of which was collected early in first quarter
1996; first quarter 1996 included $238,000 interest earned on these notes,
versus none in first quarter 1997. The increase in interest expense was due
primarily to the additional borrowings for the 12 hotels opened in 1996 and the
one hotel opened in January, 1997.
Other income increased by $200,000 from first quarter 1996 to first
quarter 1997. Revenue from this source varies widely from quarter to quarter due
to the nature of other (miscellaneous) income. Minority interest in earnings and
losses of consolidated subsidiaries and partnerships was $58,000 in first
quarter 1997 compared to $35,000 in first quarter 1996 due to more profitable
consolidated entities which include minority ownership.
Liquidity and Capital Resources
Net cash provided from operations was $15.8 million in fiscal 1996,
$31.6 million in fiscal 1995, and $5.8 million in fiscal 1994. Fiscal 1995 was
an unusual year due to the AmeriSuites Transaction discussed in the Company's
fiscal 1996 Form 10-K. The Company currently has a $75 million unsecured
three-year revolving credit facility with a group of five banks, which became
effective April 30, 1997. The interest rate on this credit facility is at the
lenders' prime rate plus 0.25%, or two hundred basis points over the 30, 60, 90,
or 180 day LIBOR rate, at the Company's option. As of April 30, 1997 (the
initial funding date), the Company had $41.0 million outstanding under this
credit facility. The Company also has a $1.5 unsecured line of credit with
another bank, bearing interest at the lender's prime rate, maturing May 31,
1998. As of April 20, 1997, no
<PAGE> 9
borrowings were outstanding on this facility. In November of 1996 the Company
issued $33.2 million in senior subordinated notes in the first series of notes
issued under a $125 million shelf registration, leaving $91.8 million available
to issue in the future under this registration.
The Company requires capital principally for the construction and
acquisition of new lodging facilities and the purchase of equipment and
leasehold improvements. Capital expenditures for such purposes were $86.6
million in 1996 and $56.2 million in 1995.
The Company opened two Shoney's Inns and ten Sumner Suites hotels in
1996 and one Sumner Suites hotel thus far in 1997. Additionally, renovations of
several existing properties were completed in 1996 and several others are
scheduled for completion in fiscal 1997. The Company plans to develop and open
an additional eight to ten Sumner Suites hotels by the end of fiscal 1997 and an
additional eight to ten hotels by the end of 1998. A new corporate headquarters
building is also under construction and is scheduled for completion by mid-1997.
The Company expects that approximately $85.0 million in additional capital funds
will be necessary through first quarter 1998 to fulfill these plans.
The Company has principal payments totaling approximately $3.7 million
due under existing debt instruments through first quarter 1998. The Company
believes that a combination of net proceeds from future offerings under the $125
million registration, net cash provided from operations, borrowings under
existing or new credit facilities, proceeds from the sale of excess land and
available furniture, fixtures and equipment financing packages will be
sufficient to fund its scheduled development and debt repayments for the next
twelve months.
<PAGE> 10
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings
There have been no material developments during the
quarter.
Item 2. Changes in the Rights of the Company's Security Holders
Not applicable
Item 3. Defaults by the Company on its Senior Securities
None.
Item 4. Results of Votes of Security Holders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
6 (a) Exhibits -
11 Statement Re: Computation of per share earnings
27 Financial Data Schedule
6 (b) Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended April 20, 1997.
</TABLE>
<PAGE> 11
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.
ShoLodge, Inc.
Date: May 30, 1997 /S/ Leon Moore
---------------------------------------
Leon Moore
President, Chairman of the Board
and Director (Chief Executive Officer)
Date: May 30, 1997 /S/ Bob Marlowe
---------------------------------------
Bob Marlowe
Secretary, Treasurer and Director
(Chief Accounting Officer)
Date: May 30, 1997 /S/ Michael A. Corbett
---------------------------------------
Michael A. Corbett
Chief Financial Officer
<PAGE> 1
EXHIBIT 11
SHOLODGE, INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
PRIMARY AND ASSUMING FULL DILUTION
<TABLE>
<CAPTION>
16 WEEKS ENDED
----------------------------
APRIL 20, APRIL 21,
1997 1996
----------------------------
<S> <C> <C>
PRIMARY:
EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY):
FROM CONTINUING OPERATIONS $ 2,635,116 $ 1,994,441
----------------------------
NET EARNINGS $ 2,635,116 $ 1,994,441
============================
SHARES:
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,354,236 8,396,361
============================
PRIMARY EARNINGS PER SHARE:
FROM CONTINUING OPERATIONS $ 0.32 $ 0.24
----------------------------
NET EARNINGS $ 0.32 $ 0.24
============================
FULLY DILUTED:
EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY):
FROM CONTINUING OPERATIONS $ 2,635,116 $ 1,994,441
NET EARNINGS $ 2,635,116 $ 1,994,441
INTEREST (LESS TAX) ON CONVERTIBLE
SUBORDINATED DEBENTURES $ 781,962 $ 781,962
ADJUSTED EARNINGS APPLICABLE TO COMMON STOCK:
FROM CONTINUING OPERATIONS $ 3,417,078 $ 2,776,403
----------------------------
NET EARNINGS $ 3,417,078 $ 2,776,403
============================
SHARES:
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,354,236 8,396,361
SHARES ISSUABLE UPON CONVERSION OFCONVERTIBLE
SUBORDINATED DEBENTURES 2,316,602 2,316,602
----------------------------
10,670,838 10,712,963
============================
FULLY DILUTED EARNINGS PER SHARE:
FROM CONTINUING OPERATIONS $ 0.32 $ 0.26
============================
NET EARNINGS $ 0.32 $ 0.26
============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
FINANCIAL STATEMENTS FOR THE QUARTER ENDED APRIL 20, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> APR-20-1997
<CASH> 4,736,479
<SECURITIES> 0
<RECEIVABLES> 4,108,432
<ALLOWANCES> 77,500
<INVENTORY> 0
<CURRENT-ASSETS> 10,401,327
<PP&E> 278,926,118
<DEPRECIATION> 36,808,613
<TOTAL-ASSETS> 279,845,349
<CURRENT-LIABILITIES> 14,321,804
<BONDS> 167,882,922
0
0
<COMMON> 1,000
<OTHER-SE> 92,375,848
<TOTAL-LIABILITY-AND-EQUITY> 279,845,349
<SALES> 20,853,285
<TOTAL-REVENUES> 22,072,524
<CGS> 0
<TOTAL-COSTS> 15,839,425
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,704,938
<INCOME-PRETAX> 4,200,116
<INCOME-TAX> 1,565,000
<INCOME-CONTINUING> 2,635,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,635,116
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
