<PAGE> 1
FORM 10-Q/A
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 Second Quarter Ended July 13, 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 August 31, 1997, there were 8,255,126 shares of ShoLodge, Inc. common
stock outstanding.
<PAGE> 2
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JULY 13, DECEMBER 29,
1997 1996 (1)
(AS RESTATED)
(SEE NOTE C)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,857,387 $ 4,259,768
Accounts receivable - net 3,435,779 2,676,083
Construction contracts 197,342 259,785
Prepaid expenses 1,219,996 471,823
Other current assets 460,773 559,982
--------------------------------
Total current assets 9,171,277 8,227,441
DIRECT FINANCING LEASES, less current portion 457,621 611,492
PROPERTY AND EQUIPMENT 289,595,648 262,264,264
Less accumulated depreciation and amortization -39,195,314 -33,888,495
--------------------------------
250,400,334 228,375,769
DEFERRED CHARGES 10,005,659 9,899,544
SECURITIES HELD TO MATURITY - RESTRICTED 8,681,148 8,255,810
SECURITIES AVAILABLE FOR SALE 212,062 212,062
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED 3,056,209 3,136,965
OTHER 3,136,666 4,990,095
--------------------------------
TOTAL ASSETS $285,120,976 $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>
JULY 13, DECEMBER 29,
1997 1996 (1)
(AS RESTATED)
(SEE NOTE C)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,848,419 $ 12,045,715
Taxes other than on income 1,892,109 984,855
Income taxes payable 337,319 1,116,972
Current portion of long-term debt
and capitalized lease obligations 4,021,815 15,824,914
--------------------------------
Total current liabilities 14,099,662 29,972,456
LONG-TERM DEBT ASSOCIATED WITH LODGING FACILITIES 42,268,895 40,104,802
OTHER LONG-TERM DEBT 129,508,269 97,227,576
CAPITALIZED LEASE OBLIGATIONS 1,182,539 1,462,044
DEFERRED INCOME TAXES 3,737,144 4,702,144
MINORITY INTERESTS IN EQUITY OF
CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 690,301 504,028
--------------------------------
TOTAL LIABILITIES 191,486,810 173,973,050
--------------------------------
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, 8,252,819 shares issued and outstanding
as of July 13, 1997 and 8,233,318 shares issued
and outstanding as of December 29, 1996) 1,000 1,000
Additional paid-in capital 42,393,648 42,212,042
Retained earnings 51,179,779 47,463,347
Unrealized gain on securities available for sale (net of tax) 59,739 59,739
--------------------------------
TOTAL SHAREHOLDERS' EQUITY 93,634,166 89,736,128
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $285,120,976 $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 TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
<TABLE>
<CAPTION>
12 WEEKS ENDED 28 WEEKS ENDED
JULY 13, JULY 14, JULY 13, JULY 14,
1997 1996 1997 1996
(AS RESTATED) (AS RESTATED)
(SEE NOTE C) (SEE NOTE C)
-----------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Hotel $ 17,950,886 $14,140,194 $38,645,034 $28,221,015
Construction and development - 239 - 514,473
Construction and development - other - - - 200,000
Franchising 707,661 1,040,946 1,889,545 2,105,938
Management 35,183 66,628 72,538 115,536
-----------------------------------------------------
Total operating revenues 18,693,730 15,248,007 40,607,117 31,156,962
COSTS AND EXPENSES:
Operating expenses:
Hotel 9,625,874 7,216,937 21,301,971 15,524,779
Construction and development 6,000 232 176,869 690,731
Franchising 504,422 791,554 1,216,001 1,775,647
-----------------------------------------------------
Total operating expenses 10,136,296 8,008,723 22,694,841 17,991,157
-----------------------------------------------------
Gross operating profit 8,557,434 7,239,284 17,912,276 13,165,805
General and administrative 633,738 537,266 1,391,383 1,491,504
Depreciation and amortization 2,473,983 1,736,213 5,403,040 3,820,425
-----------------------------------------------------
Net operating profit (before interest and taxes) 5,449,713 4,965,805 11,117,853 7,853,876
OTHER INCOME AND EXPENSES:
Interest expense 2,678,055 424,028 5,544,280 905,074
Interest income 311,435 210,738 665,291 842,546
-----------------------------------------------------
Net interest expense 2,366,620 213,290 4,878,989 62,528
Other income 1,465,753 257,860 1,688,955 433,841
-----------------------------------------------------
EARNINGS BEFORE INCOME TAXES, MINORITY INTERESTS AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 4,548,846 5,010,375 7,927,819 8,225,189
INCOME TAXES 1,551,000 1,777,000 2,761,000 2,962,000
MINORITY INTEREST IN EARNINGS OF CONSOLIDATED
SUBSIDIARIES & PARTNERSHIPS 156,443 193,893 286,273 229,266
-----------------------------------------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE $ 2,841,403 $ 3,039,482 $ 4,880,546 $ 5,033,923
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
- net of $691,000 of related tax effect (1,164,114)
-----------------------------------------------------
NET EARNINGS $ 2,841,403 $ 3,039,482 $ 3,716,432 $ 5,033,923
=====================================================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Primary
Earnings before cumulative effect of accounting change $ 0.34 $ 0.36 $ 0.58 $ 0.60
Cumulative effect of a change in accounting principle - net of tax $ (0.14)
Net Earnings $ 0.34 $ 0.36 $ 0.44 $ 0.60
Fully diluted
Earnings before cumulative effect of accounting change $ 0.32 $ 0.34 $ 0.58 $ 0.60
Cumulative effect of a change in accounting principle - net of tax (0.14)
Net Earnings $ 0.32 $ 0.34 $ 0.44 $ 0.60
Pro forma
Net earnings assuming accounting change is
applied retroactively $ 2,841,403 $ 2,823,346 $ 4,880,546 $ 4,586,268
Earnings per share:
Primary $ 0.34 $ 0.33 $ 0.58 $ 0.54
Fully diluted $ 0.32 $ 0.32 $ 0.58 $ 0.54
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 8,368,852 8,494,133 8,356,121 8,443,028
Fully Diluted 10,765,525 10,810,735 8,452,986 10,759,630
=====================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
28 WEEKS ENDED
JULY 13, JULY 14,
1997 1996
(AS RESTATED)
(SEE NOTE C)
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 4,880,546 $ 5,033,923
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 5,403,040 3,820,425
DECREASE IN DEFERRED INCOME TAXES -274,000 0
INCREASE IN MINORITY INTEREST IN EQUITY
OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 286,273 229,266
GAIN ON SALE OF PROPERTY & EQUIPMENT -1,190,687 0
ACCRETION OF DISCOUNT ON SECURITIES
HELD TO MATURITY -425,338 -343,419
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE -697,253 857,043
INCREASE IN PREPAID EXPENSES -748,173 -301,067
DECREASE IN OTHER ASSETS 239,172 728,819
(DECREASE) INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES -4,197,296 1,745,154
INCREASE IN INCOME AND OTHER TAXES 127,601 2,126,086
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,403,885 13,896,230
CASH FLOWS FROM INVESTING ACTIVITIES:
REPAYMENT FROM RELATED PARTIES--NET 0 42,418,759
CAPITAL EXPENDITURES -27,884,061 -51,008,531
SALE OF SECURITIES AVAILABLE FOR SALE 0 847,120
PROCEEDS FROM SALE OF PROPERTY & EQUIPMENT 1,743,364 0
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES -26,140,697 -7,742,652
CASH FLOWS FROM FINANCING ACTIVITIES:
INCREASE IN DEFERRED CHARGES -263,228 -303,691
PROCEEDS FROM DIRECT FINANCING LEASES 153,871 31,621
PROCEEDS FROM LONG-TERM DEBT 61,200,000 52,472,371
PAYMENTS ON LONG-TERM DEBT -38,558,313 -53,716,731
PAYMENTS ON CAPITALIZED LEASE OBLIGATIONS -279,505 -287,894
DISTRIBUTIONS TO MINORITY INTERESTS -100,000 -183,554
EXERCISE OF STOCK OPTIONS 181,606 26,452
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 22,334,431 -1,961,426
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $( 402,381) $ 4,192,152
=====================================================================================================
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD $ 4,259,768 $ 2,444,990
=====================================================================================================
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,857,387 $ 6,637,142
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
SHOLODGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
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.
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 July 13, 1997
and July 14, 1996 are not necessarily indicative of the operating results
for the entire year.
B. ACCOUNTING CHANGE
In the fourth quarter of fiscal 1997, the Company changed its method of
accounting for pre-opening costs, effective December 30, 1996, whereby
pre-opening costs are expensed as incurred rather than the previous method
of capitalizing such costs and amortizing them over a three-year period.
The Company believes the new method is preferable in the circumstances and
conforms to the predominant practice in the industry.
The cumulative effect of the change for periods prior to fiscal 1997, net
of income tax effect, is a reduction in net earnings of $1,164,000 or $0.14
per share and was recognized in the first quarter of 1997. The pro forma
effect on the second quarter of 1996, as if the change in accounting for
pre-opening costs had been adopted prior to fiscal 1996, would be to
increase hotel operating expenses by $479,000 and to reduce depreciation
and amortization expense by $137,000, resulting in a reduction of earnings
before income taxes of $343,000 ($216,000 after income taxes) to
$2,823,000, or $0.32 per share for the second quarter of 1996, from
$3,039,000 or $0.34 per share as previously reported. The pro forma effect
on the first two quarters of 1996, as if the change in accounting for
pre-opening costs had been adopted prior to fiscal 1996, would be to
increase hotel operating expenses by $1,000,000 and to reduce depreciation
and amortization expense by $288,000, resulting in a reduction of earnings
before income taxes of $712,000 ($448,000 after income taxes) to
$4,586,000, or $0.54 per share for the first two quarters of 1996, from
$5,034,000 or $0.60 per share as previously reported.
C. RESTATEMENT
Subsequent to the issuance of the consolidated financial statements for the
first three quarters of fiscal 1997, the Company's management determined
that certain transactions, primarily relating to the capitalization of
various expenses, the timing of recognition of profits on the sales of real
estate, and the recording of depreciation and amortization, bad debts and
income tax expense, were improperly recorded in the consolidated financial
statements. As a result, the consolidated financial statements for the
first three quarters of fiscal 1997 have been restated from the amounts
previously reported.
A summary of the effects of the restatement, and the effect of the
accounting change discussed in Note B above, on the consolidated financial
statements as of and for the sixteen weeks ended April 20, 1997 (amounts in
thousands, except per share data) is as follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-eight Weeks Ended
------------------------------- -----------------------------
July 13, 1997 July 13, 1997
As Previously As Previously
Reported As Restated Reported As Restated
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Hotel revenues $ 18,295 $ 17,951 $39,149 $38,645
Operating expenses:
Hotel 9,471 9,626 20,819 21,302
Construction and development -- 6 -- 177
Franchising 465 504 1,103 1,216
Operating profit 9,102 8,557 19,188 17,912
General and administrative expense 465 634 1,068 1,391
Depreciation and amortization 2,659 2,474 5,909 5,403
Interest expense 2,513 2,678 5,218 5,544
Other income 1,284 1,466 1,660 1,689
Income taxes 1,470 1,551 3,035 2,761
Minority interests 156 156 214 286
Cumulative effect of accounting change -- -- -- (1,164)
Net earnings 3,434 2,841 6,069 3,716
Earnings per common share (Fully Diluted):
Earnings before cumulative effect of
accounting change .38 .32 .70 .58
Cumulative effect of accounting change -- -- -- (.14)
Net earnings .38 .32 .70 .44
As of July 13, 1997:
Accounts receivable-net 3,809 3,436
Construction contracts 252 197
Other current assets 473 461
Property and equipment 290,341 289,596
Accumulated depreciation & amortization (39,107) (39,195)
Deferred charges 10,063 10,006
Other assets 4,950 3,137
Accounts payable & accrued expenses 7,748 7,848
Deferred income taxes 4,702 3,737
Minority interests in subsidiaries 618 690
Retained earnings 53,532 51,180
</TABLE>
D. EARNINGS PER SHARE
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.
<PAGE> 7
ShoLodge, Inc. and Subsidiaries Management's Discussion and Analysis of
Financial Condition and Results of Operations
Restatement and Accounting Change
The Company has restated previously issued financial results, for the
first three quarters of fiscal 1997. After the consolidated financial statements
were originally issued, the Company became aware of additional information
indicating that certain transactions had been improperly reported. The
restatements involve all non-cash items and relate primarily to capitalization
of various expenses; the timing of recognition of profits on the sales of real
estate; depreciation and amortization expense; increases of reserves for
doubtful accounts; and adjustment of income tax provisions.
Additionally, the Company has, effective December 30, 1996, changed
its accounting for pre-opening costs to expense such costs as incurred, rather
than capitalizing those expenditures and amortizing them over a three year
period. See Notes B and C of the Notes to the consolidated financial statements
for a discussion of the effects of the restatement and accounting change on the
Company's previously reported results of operations and financial position.
The comments included in this Management's Discussion and Analysis
have been revised to give effect to the restatement and accounting change.
<PAGE> 8
Results of Operations
For the Fiscal Quarters and Fiscal Year-to-date Periods Ended July 13, 1997
And July 14, 1996
Total Revenues for the fiscal quarter ended July 13, 1997 increased
22.6% to $18.7 million from $15.2 million for the same period in 1996. For the
two fiscal quarters ended July 13, 1997, total revenues increased 30.3% to $40.6
million from $31.2 million for the same period in 1996.
Revenues from hotel operations in the second fiscal quarter of 1997
increased 26.9% to $18.0 million from $14.1 million for the same period in 1996.
For the 38 hotels opened for all of both quarterly periods (same hotels),
average daily room rates in the second fiscal quarter of 1997 increased 2.8% to
$56.00 from $54.48 in the second quarter of 1996 and average occupancy rates
increased to 65.8% from 65.4%, resulting in a net increase in same hotel
revenues per available room (RevPAR) of 3.5%. The eight hotels opened after the
first quarter of 1996 contributed $3.4 million to hotel revenues in the second
quarter of 1997 compared to $61,000 for the same period in fiscal 1996. Revenues
from hotel operations in the first two quarters of 1997 increased 36.9% to $38.6
million from $28.2 million for the same period in 1996. For the 33 same hotels,
average daily room rates in the first two quarters of 1997 increased 3.0% to
$53.88 from $52.33 in the first two quarters of 1996 and average occupancy rates
decreased to 60.4% from 62.4%, resulting in a net decrease in same hotel RevPAR
of 0.3%. The 13 hotels opened during 1996 and the first two quarters of 1997
contributed $12.2 million to hotel revenues in the first two quarters of 1997
compared to $1.7 million for the same period in fiscal 1996.
There were no revenues from regular construction and development
activities for the second fiscal quarter of 1997 compared with a negligible
amount for the same period in 1996. There were no revenues from regular
construction and development activities for the first two quarters of 1997
compared to $514,000 in the same period last year. Revenues from construction
and development can vary widely from quarter to quarter
<PAGE> 9
depending upon the volume of outside contract work and the timing of those
projects. No outside construction projects were in progress during the first two
quarters of 1997 compared with the final portion of only one project during the
comparable period in 1996. No outside construction contracts are currently in
progress.
There were no revenues from "Construction and development - other" in
the first two quarters of 1997 compared with $200,000 in the first quarter of
1996 and none in the second quarter of 1996, which represents a portion of
profits not previously recognized on installment sales. No revenues from this
source are expected to be generated in the future.
Franchise revenues in the second quarter of 1997 decreased 32.0% to
$708,000 from $1.0 million for the comparable period last year. This decrease
was due primarily to the cancellation of reservation services by two hotel
chains in the first quarter of 1997 and a decline of $108,000 in initial
franchise fees in the second quarter of 1997 compared to the second quarter of
1996. Franchise revenues in the first two quarters of 1997 decreased 10.3% to
$1.9 million from $2.1 million for the comparable period last year. This
decrease was due primarily to the cancellation of reservation service contracts
by two hotel chains in the first quarter of 1997 and to a decrease of $107,000
in initial franchise fee revenues. Initial franchise fees may vary widely from
quarter to quarter.
Management contract revenues for the second fiscal quarter of 1997
decreased 47.2% to $35,000 from $67,000 for the same period of 1996. Management
contract revenues for the first two quarters of 1997 decreased 37.2% to $73,000
from $116,000 for the same period last year. These decreases were due to the
cancellation of one management contract on one hotel in the third quarter of
1996.
Operating expenses from hotel operations for the second fiscal quarter
of 1997 increased 33.4% to $9.6 million from $7.2 million in the second quarter
of 1996, due primarily to the 26.9% increase in hotel operating revenues. The
change in accounting for pre-opening expenses accounted for $143,000 of the
increase. Operating expenses, expressed as a percentage of hotel operating
revenues, increased to 53.6% in the second quarter of 1997 from 51.0% in the
second quarter of 1996, thus decreasing the gross profit margin on all hotels to
46.4% in the second quarter of 1997 from 49.0% in the same period of 1996. This
decrease was due primarily to (i) a decrease in operating profit margins on the
33 hotels opened prior to 1996 to 46.4% in the second quarter of 1997 from 50.0%
in the second quarter of 1996, offset in part by (ii) an increase in operating
profit margins for the 13 hotels opened since 1995 to 46.4% in the second
quarter of 1997 from 39.6% in the second quarter of 1996. Eleven of the 13 new
hotels are Sumner Suites which command significantly higher room rates and
generally operate at higher gross operating profit margins as compared with
Shoney's Inns. Operating expenses from hotel operations for the first two
quarters of 1997 increased 37.2% to $21.3 million in the first two quarters of
1997 from $15.5 million in the first two quarters of 1996, due primarily to the
36.9% increase in hotel operating revenues. $315,000 of the increase was due to
the change in accounting for pre-opening costs. Operating expenses from hotel
operations, expressed as a percentage of hotel operating revenues, increased to
55.1% in the first two quarters of 1997 from 55.0% in the same period of 1996,
thus
<PAGE> 10
decreasing the gross profit margin on all hotels to 44.9% in the first two
quarters of 1997 from 45.0% in the same period of 1996. The gross profit margin
on same hotels for the first two quarters of 1997 decreased to 44.8% from 45.3%
for the same two quarters in 1996. The new hotels (primarily Sumner Suites) have
experienced higher profit margins than the same hotels and have generated a
45.1% profit margin in the first two quarters of 1997.
There were $177,000 of internal costs and expenses of construction and
development in the first two quarters of 1997 compared with $691,000 of costs
and expenses on outside construction contracts in the first two quarters of
1996. There were no outside construction contracts in the first two fiscal
quarters of 1997 compared with one during the comparable period in 1996.
Franchising operating expenses for the second quarter of 1997 decreased
by 36.3% to $504,000 from $792,000 for the second quarter of 1997. Franchising
operating expenses for the first two quarters of 1997 decreased to $1.2 million
from $1.8 million in the same period last year. The primary reason for these
decreases was the cancellation in the fourth quarter of 1996 of the Company's
obligation to pay a portion of franchise fees collected to Shoney's. The
reduction in this royalty fee expense was $282,000 in the second quarter of 1997
and $584,000 in the first two quarters of 1997.
General and administrative expense for the second quarter of 1997
increased by 18.0% to $634,000 from $537,000 in the second quarter of 1996.
General and administrative expense for the first two quarters of 1997 decreased
6.7% to $1.4 million from $1.5 million in the same period of 1996. These
decreases were due primarily to reduced professional fees.
Depreciation and amortization expense in the second quarter of 1997
increased by 42.5% to $2.5 million from $1.7 million in the second quarter of
1996. Thirteen hotels were opened during 1996 and the first two fiscal quarters
of 1997. These additional hotels resulted in $901,000 in depreciation and
amortization expense in the second quarter of 1997 as compared with $90,000 in
the same period of 1996. For the first two quarters of 1997, depreciation and
amortization expense increased 41.4% to $5.4 million from $3.8 million for the
same period last year. Increased depreciation and amortization on hotels opened
during 1996 and the first two fiscal quarters of 1997 was $1.4 million, while
depreciation and amortization due to renovations and other additions to same
hotels and to other assets increased by $194,000 over the first two quarters of
1996. Amortization of pre-opening costs in the first two quarters of 1996 was
$288,000, versus none in 1997 due to the accounting change in 1997 to expense
these costs as incurred.
Interest expense for the second quarter of 1997 increased $2.3 million
and interest income increased $101,000, as compared with the second quarter of
1996, resulting in an increase in net interest expense of $2.2 million. For the
first two quarters of 1997, interest expense increased $4.6 million and interest
income decreased $177,000, resulting in an increase in net interest expense of
$4.8 million. The increase in interest expense
<PAGE> 11
resulted primarily from the additional borrowings incurred for the 12 hotels
opened in 1996 and the one hotel opened in January 1997.
Other income for the second quarter of 1997 increased to $1.5 million
from $258,000 in the second quarter of 1996. Other income for the first two
quarters of 1997 increased to $1.7 million compared with $434,000 in the first
two quarters of 1996. These increases were due to a gain of $1.3 million on the
sale of excess land in the second quarter of 1997. Minority interest in earnings
and losses of consolidated subsidiaries and partnerships decreased $37,000 for
the second quarter of 1997 compared with the same period in 1996, and increased
$57,000 for the first two quarters of 1997, compared with the same period in
1996, due to less profitable consolidated entities which include minority
ownership, and to the write-off of $72,000 minority interest receivable.
The lower effective income tax rate (36.1% for the first two quarters
of 1997 versus 37.0% for the comparable period last year) is due to a reduction
in applicable state tax rates.
Liquidity and Capital Resources
Net cash provided from operations was $3.4 million in the first two
fiscal quarters of 1997, $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 Form 10-K relating to
fiscal 1996.
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 through the third
fiscal quarter of 1997 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. Thereafter, the interest rate is based upon the ratio of senior debt to
EBITDA, as defined in the credit facility, (the "Senior Leverage Ratio") and
ranges from prime rate to prime rate plus 0.50%, or one hundred seventy five to
two hundred fifty basis points over the 30, 60, 90 or 180 day LIBOR rate, at the
Company's option. The weighted average rate on this facility at July 13, 1997
was 7.74%. The Company pays commitment fees on the unused portion of the
facility ranging from 0.20% to 0.50% based on the Senior Leverage Ratio and
certain other fees under the credit facility. The credit facility contains
covenants which, inter alia, limit or prohibit incurrences of certain additional
indebtedness, liens on assets, investments, asset sales, mergers, dividends and
amendments to indebtedness subordinated to the credit facility. It also contains
financial covenants by the Company, including covenants with respect to net
worth, indebtedness to total capitalization, interest coverage and the Senior
Leverage Ratio. As of July 13, 1997, the Company had $42.3 million outstanding
under this credit facility. In November of 1996 the Company issued $33.2 million
in 9 3/4% Senior Subordinated Notes, due 2006, Series A in the first series of
notes issued under a $125 million shelf registration. The Company intends to
file a prospectus supplement relating to the issuance of $30.0 million of Senior
Subordinated Notes, due 2007, Series B ("Series B Notes") under the Company's
shelf registration. The Company expects to use the net proceeds of the offering
of the Series B Notes to reduce the outstanding balance
<PAGE> 12
under this credit facility. The Company also has a $1.5 million unsecured line
of credit with another bank, bearing interest at the lender's prime rate,
maturing May 31, 1998. As of July 13, 1997, no borrowings were outstanding on
this facility.
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 $27.9
million in the first two fiscal quarters of 1997, $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 three Sumner Suites hotels thus far in 1997. Additionally, renovations
of several existing properties were completed in 1996 and in first two quarters
of 1997, and several others are scheduled for completion in fiscal 1997.
Furthermore, the Company's new corporate headquarters building is substantially
complete. The Company has six Sumner Suites hotels scheduled to open by the end
of the first fiscal quarter of 1998, one of which is under construction. In
addition, the Company has another two sites under contract for purchase. The
Company expects that approximately $85.0 million in additional capital funds
will be necessary through second quarter 1998 to fulfill these plans.
The Company has principal payments totaling approximately $4.0 million
due under existing debt instruments through second fiscal quarter 1998. The
Company believes that a combination of net proceeds from the offering of Series
B Notes, 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> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
6 (a) Exhibits -
11 Statement Re: Computation of per share earnings
27 Financial Data Schedule (for SEC use only)
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: March 25, 1998 S/ Leon Moore
----------------------------------
Leon Moore
President, Chairman of the Board
and Director (Chief Executive Officer)
Date: March 25, 1998 S/ Bob Marlowe
----------------------------------
Bob Marlowe
Secretary, Treasurer and Director
(Chief Accounting Officer)
Date: March 25, 1998 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>
12 WEEKS ENDED 28 WEEKS ENDED
-------------------------------------------------------
JULY 13, JULY 14, JULY 13, JULY 14,
1997 1996 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY):
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 2,841,403 $ 3,039,482 $ 4,880,546 $ 5,033,923
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1,164,114)
--------------------------------------------------------
NET EARNINGS $ 2,841,403 $ 3,039,482 $ 3,716,432 $ 5,033,923
========================================================
SHARES:
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,368,852 8,494,133 8,356,121 8,443,028
========================================================
PRIMARY EARNINGS PER SHARE:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.34 $ 0.36 $ 0.58 $ 0.60
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $( 0.14)
--------------------------------------------------------
NET EARNINGS $ 0.34 $ 0.36 $ 0.44 $ 0.60
========================================================
FULLY DILUTED:
EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY):
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 2,841,403 $ 3,039,482 $ 4,880,546 $ 5,033,923
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1,164,114)
--------------------------------------------------------
NET EARNINGS 2,841,403 3,039,482 3,716,432 5,033,923
INTEREST (LESS TAX) ON CONVERTIBLE
SUBORDINATED DEBENTURES 604,696 588,396 1,393,512 1,372,925
--------------------------------------------------------
ADJUSTED EARNINGS APPLICABLE TO COMMON STOCK:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3,446,099 3,627,878 6,274,058 6,406,848
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -1,164,114
--------------------------------------------------------
NET EARNINGS $ 3,446,099 $ 3,627,878 $ 5,109,944 $ 6,406,848
========================================================
SHARES:
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,448,923 8,494,133 8,452,986 8,443,028
SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURES 2,316,602 2,316,602 2,316,602 2,316,602
--------------------------------------------------------
10,765,525 10,810,735 10,769,588 10,759,630
========================================================
FULLY DILUTED EARNINGS PER SHARE:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.32 $ 0.34 $ 0.58 $ 0.60
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $( 0.14)
--------------------------------------------------------
NET EARNINGS $ 0.32 $ 0.34 $ 0.44 $ 0.60
========================================================
PRO FORMA:
NET EARNINGS ASSUMING ACCOUNTING CHANGE IS
APPLIED RETROACTIVELY $ 2,841,403 $ 2,823,346 $ 4,880,546 $ 4,586,268
EARNINGS PER SHARE:
PRIMARY $ 0.34 $ 0.33 $ 0.58 $ 0.54
FULLY DILUTED $ 0.32 $ 0.32 $ 0.58 $ 0.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JULY 13, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUL-13-1997
<CASH> 3,857,387
<SECURITIES> 212,062
<RECEIVABLES> 3,835,621
<ALLOWANCES> 202,500
<INVENTORY> 0
<CURRENT-ASSETS> 9,171,277
<PP&E> 289,595,648
<DEPRECIATION> 39,195,314
<TOTAL-ASSETS> 285,120,976
<CURRENT-LIABILITIES> 14,099,662
<BONDS> 172,959,703
0
0
<COMMON> 1,000
<OTHER-SE> 93,633,166
<TOTAL-LIABILITY-AND-EQUITY> 285,120,976
<SALES> 38,645,034
<TOTAL-REVENUES> 40,607,117
<CGS> 0
<TOTAL-COSTS> 29,489,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,544,280
<INCOME-PRETAX> 7,641,546
<INCOME-TAX> 2,761,000
<INCOME-CONTINUING> 4,880,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,164,114)
<NET-INCOME> 3,716,432
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
