-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KH9po4+uY5sC8N/5Wm9O/e/zallrIoZHO4WwJwacOuxUMYRPVUnoRpj6jv1gCWkR 2jvoi77ShgbOsacEN2chQg== 0000950131-98-004847.txt : 19980817 0000950131-98-004847.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950131-98-004847 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXTENDED STAY AMERICA INC CENTRAL INDEX KEY: 0001002579 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363996573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13125 FILM NUMBER: 98688723 BUSINESS ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 9547131600 MAIL ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to __________ Commission File Number 0-27360 _____________ EXTENDED STAY AMERICA, INC. (Exact name of Registrant as specified in its charter) Delaware 36-3996573 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 450 EAST LAS OLAS BOULEVARD, FORT LAUDERDALE, FL 33301 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (954) 713-1600 _____________ 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 ------- ------- At July 31, 1998, the registrant had issued and outstanding an aggregate of 96,060,458 shares of Common Stock. PART I FINANCIAL INFORMATION Item 1. Financial Statements EXTENDED STAY AMERICA, INC. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
ASSETS ------ June 30, December 31 1998 1997(1) ---------- ----------- Current assets: Cash and cash equivalents............................. $ 64,651 $ 3,213 Accounts receivable................................... 6,348 3,651 Prepaid expenses...................................... 4,861 3,869 Deferred income taxes................................. 3,508 6,895 Other current assets.................................. 630 866 ---------- ---------- Total current assets.............................. 79,998 18,494 Property and equipment, net............................ 1,332,077 1,042,741 Deferred loan costs.................................... 17,414 8,167 Other assets........................................... 1,544 1,489 ---------- ---------- $1,431,033 $1,070,891 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable...................................... $ 50,445 $ 51,309 Accrued retainage..................................... 18,605 19,951 Accrued property taxes................................ 9,362 3,417 Accrued interest...................................... 7,897 356 Accrued salaries and related expenses................. 2,387 2,707 Other accrued expenses................................ 15,617 5,099 ---------- ---------- Total current liabilities......................... 104,313 82,839 ---------- ---------- Deferred income taxes.................................. 22,408 18,393 ---------- ---------- Long-term debt......................................... 450,000 135,000 ---------- ---------- Commitments Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares issued and outstanding......... Common stock, $.01 par value, 500,000,000 shares authorized; 96,045,476 and 95,604,208 shares issued and outstanding, respectively........................ 960 956 Additional paid-in capital............................ 827,792 823,060 Retained earnings..................................... 25,560 10,643 ---------- ---------- Total stockholders' equity........................ 854,312 834,659 ---------- ---------- $1,431,033 $1,070,891 ========== ==========
- -------- (1) Derived from audited financial statements See notes to the unaudited condensed consolidated financial statements 1 EXTENDED STAY AMERICA, INC. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share data)
Three Months Ended Six Months Ended ------------------ ------------------ June 30, June 30, June 30, June 30, 1998 1997 1998 1997 -------- -------- -------- -------- Revenue............................... $70,044 $ 29,028 $124,274 $ 48,791 ------- -------- -------- -------- Property operating expenses........... 28,893 12,307 55,175 22,487 Corporate operating and property management expenses.................. 9,715 6,989 19,108 12,744 Merger, financing and other charges... 19,895 19,895 Depreciation and amortization......... 10,015 4,358 19,445 8,070 ------- -------- -------- -------- Total costs and expenses.......... 48,623 43,549 93,728 63,196 ------- -------- -------- -------- Income (loss) from operations......... 21,421 (14,521) 30,546 (14,405) Interest expense (income), net........ 4,561 (3,447) 5,682 (7,434) ------- -------- -------- -------- Income (loss) before income taxes..... 16,860 (11,074) 24,864 (6,971) Provision (benefit) for income taxes.. 6,744 (1,981) 9,946 (348) ------- -------- -------- -------- Net income (loss)..................... $10,116 $ (9,093) $ 14,918 $ (6,623) ======= ======== ======== ======== Net income (loss) per common share: Basic................................ $0.11 $(0.10) $0.16 $(0.07) ======= ======== ======== ======== Diluted.............................. $0.10 $(0.10) $0.15 $(0.07) ======= ======== ======== ======== Weighted average shares: Basic................................ 95,897 95,306 95,798 92,991 Effect of dilutive options........... 1,221 1,303 ------- -------- Diluted.............................. 97,118 95,306 97,101 92,991 ======= ======== ======== ========
See notes to the unaudited condensed consolidated financial statements 2 EXTENDED STAY AMERICA, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six Months Ended --------------------- June 30, June 30, 1998 1997 --------- --------- Cash flows from operating activities: Net income (loss)................................................... $ 14,918 $ (6,623) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..................................... 19,445 8,070 Merger expenses................................................... 938 Deferred loan costs............................................... 837 9,667 Write-offs and reserve adjustments................................ 1,691 1,970 Deferred income taxes............................................. 3,791 2,974 Changes in operating assets and liabilities....................... (3,688) (2,965) --------- --------- Net cash provided by operating activities....................... 36,994 14,031 --------- --------- Cash flows from investing activities: Additions to property and equipment................................. (284,200) (262,248) Other assets........................................................ (55) (244) --------- --------- Net cash used in investing activities........................... (284,255) (262,492) --------- --------- Cash flows from financing activities: Proceeds from long-term debt........................................ 343,500 Repayments of revolving credit facility............................. (28,500) Proceeds from issuance of common stock.............................. 4,185 199,282 Additions to deferred loan costs.................................... (10,486) (148) --------- --------- Net cash provided by financing activities....................... 308,699 199,134 --------- --------- Increase (decrease) in cash and cash equivalents..................... 61,438 (49,327) Cash and cash equivalents at beginning of period..................... 3,213 224,325 --------- --------- Cash and cash equivalents at end of period........................... $ 64,651 $ 174,998 ========= ========= Noncash investing and financing transactions: Capitalized or deferred items included in accounts payable and accrued liabilities............................................ $ 67,358 $ 25,410 ========= ========= Conversion of amounts due under revolving credit facility to term loan....................................................... $ 100,000 $ ========= ========= Capitalization of amortized deferred loan costs..................... $ 511 $ ========= ========= Supplemental cash flow disclosures: Cash paid for: Income taxes, net of refunds of $411 in 1998....................... $ 2,663 $ 1,000 ========= ========= Interest expense, net of amounts capitalized....................... $ 7,056 $ ========= =========
See notes to the unaudited condensed consolidated financial statements 3 EXTENDED STAY AMERICA, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 NOTE 1 -- BASIS OF PRESENTATION Extended Stay America, Inc. ("ESA") was organized on January 9, 1995 as a Delaware corporation to develop, own and manage extended stay lodging facilities. On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of ESA, and Studio Plus Hotels, Inc. ("SPH") consummated a merger (the "Merger") pursuant to which SPH was merged with and into Merger Sub and the 12,557,786 shares of SPH common stock issued and outstanding on such date were converted into 15,410,915 shares of common stock, par value $.01 per share, of ESA ("Common Stock") and options to purchase 1,072,565 shares of SPH common stock were converted into options to purchase 1,316,252 shares of Common Stock. The Merger was accounted for using the pooling of interests method of accounting. The accompanying unaudited condensed consolidated financial statements of ESA and SPH (together, the "Company") give effect to the Merger as if it had been consummated as of the beginning of the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet data at December 31, 1997 was derived from audited financial statements of the Company but does not include all disclosures required by generally accepted accounting principles. Operating results for the three-month and six-month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. In April, 1998, the Accounting Standards Executive Committee released Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires that start-up costs, including pre-opening and organizational costs be expensed as incurred and is effective for financial statements issued for periods beginning after December 15, 1998. At June 30, 1998, the Company had unamortized pre-opening and organization costs of approximately $1.1 million. Under SOP 98-5, the Company would have reported a reduction of expenses of approximately $213,000 for the six months ended June 30, 1998. For the six months ended June 30, 1998 and 1997, the computation of diluted earnings per share does not include approximately 6,187,000 and 3,126,000 weighted average shares, respectively, of Common Stock represented by outstanding options because the exercise price of the options was greater than the average market price of Common Stock during the period. Certain previously reported amounts have been reclassified to conform with the current period's presentation. 4 NOTE 2 -- INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and for operating loss and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax expense for the three-month and six-month periods ended June 30, 1998 differed from the amounts computed by applying the U.S. Federal income tax rate of 35 % primarily as a result of the impact of state and local income taxes. The benefit from income taxes for the three-month and six-month period ended June 30, 1997 differed from the amounts computed by applying the U.S. Federal income tax rate of 35% primarily as a result of the impact of nondeductible expenses associated with the Merger and state and local taxes. NOTE 3 -- LONG-TERM DEBT Effective March 10, 1998, the Company issued $200 million Senior Subordinated Notes (the "Notes"). The Notes contain certain redemption features, bear interest at an annual rate of 9.15% and mature on March 15, 2008. The Notes are uncollateralized and are subordinated to all senior indebtedness of the Company and contain certain covenants for the benefit of the holders of the Notes. These convenants, among other things, restrict under certain circumstances the Company's ability to incur additional indebtedness, pay dividends and make investments and other restricted payments, enter into transactions with 5% stockholders or affiliates, create liens, and sell assets. Effective March 10, 1998, the Company amended its existing credit facility ("the Amended Credit Facility"). The Amended Credit Facility provides for up to $350 million in term loans (the "Term Loans") and $350 million in a revolving loan facility (the "Revolving Facility"). The Revolving Facility and up to $150 million of the Term Loans mature December 31, 2002 and bear interest, at the Company's option, at either the Base Rate (as defined) or the Eurodollar rate, plus an applicable margin which will be between .875% and 0% for Base Rate loans and 1.875% and 1% for Eurodollar loans. Up to $200 million of the Term Loans mature December 31, 2003, subject to maximum principal amortization of 1% in each of the years 1999 through 2002 and payment of the balance in four equal quarterly payments in 2003, and bear interest, at the Company's option, at either the Base Rate plus 1.75% or the Eurodollar rate plus 2.75%. At June 30, 1998, $250 million was borrowed and $450 million remained available and committed under the Amended Credit Facility. Availability under the Amended Credit Facility is dependent upon the Company satisfying certain financial ratios of debt and interest compared to earnings before interest, taxes, depreciation and amortization, with such amounts being calculated pursuant to definitions contained in the Amended Credit Facility. In no event, however, is availability under the Amended Credit Facility less than $200 million at any time. The Amended Credit Facility contains a number of covenants, including, among others, covenants limiting under certain circumstances the ability of the Company and its subsidiaries to incur debt, make investments, pay dividends, prepay other indebtedness, engage in transactions with affiliates, enter into sale-leaseback transactions, create liens, make capital expenditures, acquire or dispose of assets, or engage in mergers or acquisitions. In addition, the Amended Credit Facility contains affirmative covenants, including, among others, covenants requiring maintenance of corporate existence, compliance with laws, maintenance of properties and insurance, and the delivery of financial and other information. The Amended Credit Facility also specifies events of default, including a change of control, and requires the Company to comply with certain financial tests and to maintain certain financial ratios on a consolidated basis. The Company's obligations under the Amended Credit Facility are guaranteed by each of the Company's subsidiaries and are collateralized by a first priority lien on all stock of such subsidiaries owned by the Company and all other current and future assets of the Company and its subsidiaries (other than mortgages on the Company's and its subsidiaries' real property). 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Extended Stay America, Inc. ("ESA"), was organized on January 9, 1995, as a Delaware corporation to develop, own, and manage extended stay lodging facilities. Studio Plus Hotels, Inc. ("SPH") was formed in December 1994 and acquired (through merger and exchange of SPH common stock for partnership interests immediately prior to completion of the SPH initial public offering in June 1995) all of the assets of Studio Plus, Inc. and the SPH predecessor entities, which owned and operated StudioPLUS(TM) extended stay facilities since 1986. The acquisition of the interests of the controlling shareholder or partner and affiliates of the predecessor entities was accounted for as a pooling of interests. On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of ESA, and SPH consummated a merger pursuant to which SPH was merged with and into Merger Sub (the "Merger") and the 12,557,786 shares of SPH common stock that were outstanding on the closing date were converted into 15,410,915 shares of common stock, par value $.01 per share, of ESA ("Common Stock") and options to purchase 1,072,565 shares of SPH common stock were converted into options to purchase 1,316,252 shares of Common Stock. The Merger was accounted for using the pooling of interests method of accounting. The accompanying unaudited condensed consolidated financial statements of ESA and SPH (together, the "Company") give effect to the Merger as if it had been consummated at the beginning of the periods presented. The Company owns and operates three brands in the extended stay lodging market--StudioPLUS/TM/ Deluxe Studios (''StudioPLUS''), EXTENDED STAYAMERICA Efficiency Studios (''EXTENDED STAY''), and Crossland Economy Studios/SM/ (''Crossland''), each designed to appeal to different price points below $500 per week. All three brands offer the same core components: a living/sleeping area; a fully-equipped kitchen or kitchenette; and a bathroom. EXTENDED STAY rooms are designed to compete in the economy category. Crossland guestrooms are typically smaller than EXTENDED STAY rooms and are targeted for the budget category, while StudioPLUS facilities serve the mid-price category and generally feature larger guestrooms, an exercise facility, and a swimming pool. The following is a summary of the Company's selected development and operational results for the three months and six months ended June 30, 1998 and 1997.
Three Months Six Months Ended June 30, Ended June 30, ---------------- ---------------- 1998 1997 1998 1997 ------ ------ ------ ------ Total Facilities Open (at Period End).... 239 116 239 116 Total Facilities Developed............... 21 23 54 41 Average Occupancy Rate................... 76% 78% 72% 72% Average Weekly Room Rate................. $ 288 $ 264 $ 284 $ 261
Average occupancy rates are determined by dividing the guestrooms occupied on a daily basis by the total number of guestrooms. Due to the Company's rapid expansion, its overall average occupancy rate has been negatively impacted by the lower occupancy typically experienced during the pre-stabilization period for newly opened facilities. This negative impact on overall average occupancy is expected to diminish as the ratio of newly opened facilities to total facilities in operation at the end of the period decreases. Average weekly room rates are determined by dividing room revenue by the number of rooms occupied on a daily basis for the applicable period and multiplying by seven. The average weekly room rates vary from standard room rates due primarily to (i) stays of less than one week, which are charged at a higher nightly rate, (ii) higher weekly rates for rooms which are larger than the standard rooms, and (iii) additional charges for more than one person per room. Future occupancy and room rates may be impacted by a number of factors including the number and geographic location of new facilities as well as the season in which such facilities commence operations. There can be no assurance that the foregoing occupancy and room rates can be maintained. 6 The following is a summary of the Company's development status as of June 30, 1998, by brand. The Company expects to complete the construction of the facilities currently under construction generally within the next twelve months and, subject to obtaining adequate financing, to commence construction on the majority of the sites under option at various dates in the future. There can be no assurance, however, that the Company will obtain adequate financing, complete the acquisition of the sites under option, or, if acquired, commence and complete construction within time periods historically experienced by the Company. The Company's ability to complete development of sites under construction and under option may be materially impacted by various factors including zoning, permitting and environmental issues as well as weather-induced construction delays.
EXTENDED Crossland STAY StudioPLUS Total --------- -------- ---------- ----- Operating Facilities.............. 14 148 77 239 Facilities Under Construction..... 24 53 19 96 Sites Under Option................ 11 84 51 146
Results of Operations For the Three Months Ended June 30, 1998 and 1997 Property Operations The following is a summary of the properties operated during the specified periods and the related average occupancy and weekly room rates:
For the Three Months Ended -------------------------------------------------------------------------------- June 30, 1998 June 30, 1997 --------------------------------------- ------------------------------------ Average Average Average Average Facilities Occupancy Weekly Room Facilities Occupancy Weekly Room Open Rate Rate Open Rate Rate ---------- ------------ ----------- ---------- --------- ----------- Crossland...... 14 61% $194 1 97% $180 EXTENDED STAY.. 148 77 283 74 76 249 StudioPLUS..... 77 77 319 41 84 308 --- -- ---- --- -- ---- Total........ 239 76% $288 116 78% $264 === == ==== === == ====
Because newly opened properties typically experience lower occupancies during their pre-stabilization period, average occupancy rates are impacted by the ratio of newly opened properties to total properties. For the EXTENDED STAY brand, occupancy rates increased for the second quarter of 1998 as compared to the second quarter of 1997 primarily due to a decrease in the ratio of newly opened properties to total properties for that brand. Occupancy rates decreased for the Crossland and StudioPLUS brands primarily due to an increase in the number of newly opened properties for these brands. The average occupancy rate in the second quarter of 1998 for the 93 properties that were owned and operated by the Company as of March 31, 1997 was 84%. The increase in overall average weekly room rates for the second quarter of 1998 as compared to the second quarter of 1997 reflects the geographic dispersion of properties opened since June 30, 1997 and the higher standard weekly room rates in certain of those markets, in addition to increases in rates charged at previously opened properties. These increases were partially offset by an increase in the percentage of total facilities (as of the end of the quarter) represented by lower priced EXTENDED STAY and Crossland facilities from 65% for 1997 to 68% for 1998. The Company expects that its average weekly room rate will continue to be impacted as EXTENDED STAY and Crossland facilities increase as a percentage of the Company's total facilities. The average weekly room rate for the 93 properties that were owned and operated throughout both periods increased by 2% in the second quarter of 1998. The Company recognized total revenues for the three months ended June 30, 1998 and 1997 of $70.0 million and $29.0 million, respectively, an increase of $41.0 million. Approximately $39.5 million of the increased revenue was attributable to properties opened subsequent to March 31, 1997 and approximately $1.5 million was attributable to an increase in revenue for the 93 properties that were owned and operated throughout both periods. 7 Property operating expenses, consisting of all expenses directly allocable to the operation of the facilities but excluding any allocation of corporate operating and property management expenses, depreciation or interest were $28.9 million (41% of total revenue) for the second quarter of 1998, compared to $12.3 million (42% of total revenue) for the second quarter of 1997. The decrease in property operating expenses as a percentage of total revenue for the second quarter of 1998 as compared to the second quarter of 1997 was primarily a result of a decrease in the ratio of newly opened properties to total properties. As a result of the foregoing, the Company realized property operating margins of 59% and 58% for the second quarter of 1998 and 1997, respectively. The provision for depreciation and amortization for the lodging facilities of $9.7 million and $4.1 million for the second quarter of 1998 and 1997, respectively, was provided using the straight-line method over the estimated useful lives of the assets. These provisions reflect a pro rata allocation of the annual depreciation and amortization charge for the periods for which the facilities were in operation. The increase in depreciation and amortization for the second quarter of 1998 as compared to the second quarter of 1997 is due to the operation of 123 additional facilities in 1998. Corporate Operations Corporate operating and property management expenses include all expenses not directly related to the development or operation of lodging facilities. These expenses consist primarily of personnel expenses, professional and consulting fees, and related travel expenses including costs that are not directly related to a site that will be developed by the Company. The Company incurred corporate operating and property management expenses of $9.7 million (14% of total revenue) and $7.0 million (24% of total revenue) in the second quarter of 1998 and 1997, respectively. The increase in the amount of these expenses for the second quarter of 1998 as compared to 1997 reflects the impact of additional personnel and related expenses in connection with the Company's increased level of operating facilities and site development. Management expects these expenses to increase in total amount but to continue to decline as a percentage of revenue with the development of additional facilities in the future. Depreciation and amortization in the amount of $324,000 and $213,000 for the second quarter of 1998 and 1997, respectively, were provided using the straight-line method over the estimated useful lives of the assets for assets not directly related to the operation of the facilities, including primarily office furniture and equipment. The Company realized $3.4 million of interest income during the second quarter of 1997, which was primarily attributable to the investment of funds received from an offering of Common Stock. Approximately $1.0 million of interest income was realized in the second quarter of 1998 primarily resulting from the temporary investment of funds drawn under the Company's credit facilities. The Company incurred interest charges of $9.7 million during the second quarter of 1998, $4.1 million of which was capitalized and included in the cost of buildings and improvements. The Company recognized income tax expense of $6.7 million and an income tax benefit of $2.0 million for the second quarter of 1998 and 1997, respectively. Income tax expense or benefit for these periods differs from the federal income tax rate of 35% primarily due to state and local income taxes and, in 1997, due to permanent tax differences relating to non-deductible merger expenses. Merger, Financing, and Other Charges During the three months ended June 30, 1997, the Company recorded merger, financing, and other charges totaling $19.9 million. These one-time, pre-tax charges consisted of (i) $9.7 million of merger expenses and costs associated with the integration of SPH's operations following the Merger, (ii) the write- off of $9.7 million of deferred costs associated with the Company's $400 million mortgage facilities which were terminated upon execution of a revolving credit agreement with various banks, and (iii) a charge of $500,000 in connection with moving the listing of the Company's Common Stock to the New York Stock Exchange, Inc. from the Nasdaq National Market. Management believes that these charges are non-recurring in nature and will not affect the future results of operations. 8 For the Six Months Ended June 30, 1998 and 1997 Property Operations The following is a summary of the properties operated during the specified periods and the related average occupancy and weekly room rates:
For the Six Months Ended ---------------------------------------------------------------------------------- June 30, 1998 June 30, 1997 ------------------------------------ ----------------------------------------- Average Average Average Average Facilities Occupancy Weekly Room Facilities Occupancy Weekly Room Open Rate Rate Open Rate Rate ---------- --------- ----------- ---------- -------------- ----------- Crossland........... 14 60% $193 1 85% $176 EXTENDED STAY....... 148 74 278 74 69 246 StudioPLUS.......... 77 70 318 41 80 300 --- -- ---- --- -- ---- Total............. 239 72% $284 116 72% $261 === == ==== === == ====
For the EXTENDED STAY brand, occupancy rates increased for the six-month period ended June 30, 1998 as compared to the same period in 1997 primarily due to a decrease in the ratio of newly opened properties to total properties for that brand. Occupancy rates decreased for the Crossland and StudioPLUS brands primarily due to an increase in the number of newly opened properties for these brands. The average occupancy rate in the six months ended June 30, 1998 for the 75 properties that were owned and operated by the Company as of December 31, 1996 was 80%. The increase in average weekly room rates for the six months ended June 30, 1998 as compared to the same period of 1997 reflects the geographic dispersion of properties opened since June 30, 1997 and the higher standard weekly room rates in certain of those markets, in addition to increases in rates charged at previously opened properties. These increases were partially offset by an increase in the percentage of total facilities (as of the end of the six-month period) represented by lower priced EXTENDED STAY and Crossland facilities from 65% for 1997 to 68% for 1998. The average weekly room rate for the 75 properties that were owned and operated throughout both periods increased less than 1% in the first six months of 1998. The Company recognized total revenues for the six months ended June 30, 1998 and 1997 of $124.3 million and $48.8 million, respectively, an increase of $75.5 million. Approximately $73.0 million of the increased revenue was attributable to properties opened subsequent to December 31, 1996 and approximately $2.5 million was attributable to an increase in revenue for the 75 properties that were owned and operated throughout both periods. Property operating expenses for the six months ended June 30, 1998 were $55.2 million (44% of total revenue) compared to $22.5 million (46% of total revenue) for the six months ended June 30 1997. The decrease in property operating expenses as a percentage of total revenue for the six months ended June 30, 1998 as compared to the same period of 1997 was primarily a result of improved occupancies and revenues for the facilities that were in their pre- stabilization periods during the first six months of 1997. As a result of the foregoing, the Company realized property operating margins of 56% and 54% for the six months ended June 30, 1998 and 1997, respectively. The provision for depreciation and amortization for the lodging facilities was $18.7 million and $7.6 million for the six months ended June 30, 1998 and 1997, respectively. The increase in depreciation and amortization for the six months ended June 30, 1998 as compared to the same period in 1997 is due to the operation of 123 additional facilities in 1998. Corporate Operations Corporate operating and property management expenses for the six months ended June 30, 1998 and 1997 were $19.1 million and $12.7 million, respectively, or 15% and 26% of total revenue, respectively. The increases in the amount of these expenses for the six-month period ended June 30, 1998 as compared to the same period of 1997 reflect the impact of additional personnel and related expenses in connection with the Company's increased level of operating facilities and site development. Management expects these expenses to increase in total amount but to continue to decline as a percentage of revenue with the development of additional facilities in the future. 9 Depreciation and amortization for assets not directly related to operation of the facilities was $727,000 and $422,000 for the six months ended June 30, 1998 and 1997, respectively. The Company realized $8.9 million of interest income during the six-month period ended June 30, 1997, which was primarily attributable to the investment of funds received from an offering of Common Stock. Approximately $1.4 million of interest income was realized in the six-month period ended June 30, 1998 primarily resulting from the temporary investment of funds drawn under the Company's credit facilities. The Company incurred interest charges of $15.0 million during the six-month period ended June 30, 1998, $7.9 million of which was capitalized and included in the cost of buildings and improvements. The Company recognized income tax expense of $9.9 million and an income tax benefit of $348,000 for the six-month periods ended June 30, 1998 and 1997 respectively. Income tax expense or benefit for these periods differs from the federal income tax rate of 35% primarily due to state and local income taxes and, in 1997, due to permanent tax differences relating to non-deductible merger expenses. Management expects that the annualized effective income tax rate for 1998 will be approximately 40%. Liquidity and Capital Resources The Company had cash and cash equivalents of $64.7 million and $3.2 million as of June 30, 1998 and December 31, 1997, respectively. At June 30, 1998, substantially all of the cash balances were invested, utilizing domestic commercial banks and other financial institutions, in short-term commercial paper and other securities having credit ratings of A1/P1 or equivalent. The market value of the securities held approximates the carrying amount. In addition, at June 30, 1998 and December 31, 1997, the Company invested excess funds in an overnight sweep account with a commercial bank which invested in short-term, interest-bearing reverse repurchase agreements. Due to the short- term nature of these investments, the Company did not take possession of the securities, which were instead held by the financial institution. The market value of the securities held pursuant to the agreements approximates the carrying amount. Deposits in excess of $100,000 are not insured by the Federal Deposit Insurance Corporation. During the six months ended June 30, 1998, and 1997 the Company generated cash from operating activities of $37.0 million and $14.0 million, respectively. The Company used $284.2 million and $262.2 million to acquire land and develop and furnish a total of 150 and 139 sites, respectively, in the six months ended June 30, 1998 and 1997. On February 6, 1997, the Company completed a private placement of 11.5 million shares of its Common Stock at a purchase price of $17.625 per share, for an aggregate amount of approximately $203 million. Net proceeds received by the Company from that private placement were approximately $198 million. In addition, the Company received net proceeds from the exercise of Company stock options totaling $4.2 million and $1.2 million in the six months ended June 30, 1998 and 1997, respectively. Effective September 26, 1997, the Company executed an agreement with various banks establishing a revolving credit facility (the "Credit Facility") for $500 million to be used for general corporate purposes, including the construction and acquisition of extended stay hotel properties. The Credit Facility had a maturity of December 31, 2002. Upon execution of the agreement establishing the Credit Facility, the Company terminated two mortgage loan facilities, which provided for an aggregate of $400 million in available mortgage loans. On March 10, 1998 (the "Effective Date"), the Company amended the Credit Facility (the "Amended Credit Facility"). The Amended Credit Facility converted $150 million of the amounts available under the Credit Facility into a term loan facility (the "Converted Term Loans"), with the $350 million balance of the amounts available under the Credit Facility remaining as a revolving loan facility (the "Revolving Facility" and, together with the Converted Term Loans, the "Converted Facilities"). With respect to the Converted Term Loans, $100 million was drawn on the Effective Date and the balance was drawn on July 31, 1998. 10 The Amended Credit Facility also provides for up to $300 million in additional term loans (the "Additional Term Loans"), $200 million of which were committed as of the Effective Date and drawn prior to July 10, 1998 (as drawn, the "Committed Loans"). Additional Term Loans in excess of Committed Loans may be borrowed at any time after the Effective Date, provided that the total Additional Term Loans cannot exceed $200 million before January 1, 1999. Further, to the extent that the Additional Term Loans exceed $200 million, at least $275 million must be outstanding under the Revolving Facility on the date the Additional Term Loans are incurred. The Company is required to repay indebtedness outstanding under the Amended Credit Facility with the net cash proceeds from certain sales of assets, from issuances of debt or equity by the Company, and from insurance recovery events (subject to certain reinvestment rights). The Company is also required to repay indebtedness outstanding under the Amended Credit Facility annually in an amount equal to 50% of the Company's excess cash flow (as defined). Amounts drawn under the Converted Facilities bear interest, at the Company's option, at either the Base Rate (as defined) or the Eurodollar rate, plus an applicable margin. The applicable margin is an annual rate which fluctuates based on the Company's ratio of consolidated debt to consolidated EBITDA and which will be between .875% and 0% for Base Rate loans and 1.875% and 1% for Eurodollar loans. Committed Loans will bear interest, at the Company's option, at either the Base Rate plus 1.75% or the Eurodollar rate plus 2.75%. Additional Term Loans that are not Committed Loans will bear interest at rates to be agreed upon. The Converted Facilities mature on December 31, 2002. Additional Term Loans will mature no earlier than December 31, 2003, subject to maximum principal amortization of 1% of the initially funded amounts in each of the years 1999 through 2002 and payment of the balance due in four equal quarterly payments in 2003. Availability under the Amended Credit Facility is dependent upon the Company satisfying certain financial ratios of debt and interest compared to earnings before interest, taxes, depreciation and amortization, with such amounts being calculated pursuant to definitions contained in the Amended Credit Facility. In no event, however, is availability under the Amended Credit Facility less than $200 million at any time. The Company's obligations under the Converted Facilities are guaranteed by each of the Company's subsidiaries (the "Guarantors") and are collateralized by a first priority lien on all stock owned by the Company and the Guarantors and all other current and future assets of the Company and the Guarantors (other than mortgages on the Company's and the Guarantors' real property). The obligations of the Company and the Guarantors under the Additional Term Loans are collateralized on a pari passu basis by way of perfected first priority security interest in the assets securing the Converted Facilities. The Amended Credit Facility contains a number of covenants, including, among others, covenants limiting under certain circumstances the ability of the Company and its subsidiaries to incur debt, make investments, pay dividends, prepay other indebtedness, engage in transactions with affiliates, enter into sale-leaseback transactions, create liens, make capital expenditures, acquire or dispose of assets, or engage in mergers or acquisitions. In addition, the Amended Credit Facility contains affirmative covenants, including, among others, covenants requiring maintenance of corporate existence, compliance with laws, maintenance of properties and insurance, and the delivery of financial and other information. The Amended Credit Facility also specifies events of default, including a change of control, and requires the Company to comply with certain financial tests and to maintain certain financial ratios on a consolidated basis. At June 30, 1998, $250 million was borrowed and $450 million remained available and committed under the Amended Credit Facility. 11 Effective March 10, 1998, the Company issued $200 million Senior Subordinated Notes, (the "Notes"). The Notes bear interest at an annual rate of 9.15%, payable semiannually on March 15 and September 15 of each year, commencing September 15, 1998, and mature on March 15, 2008. The Notes are redeemable, in whole or in part, any time on or after March 15, 2003, initially at 104.575% of their principal amount, plus accrued interest, declining ratably to 100% of their principal amount, plus accrued interest, on or after March 15, 2006. Additionally, at any time prior to March 15, 2001, the Company may redeem up to 35% of the principal amount of the Notes with the proceeds of one or more public equity offerings by the Company of its Common Stock, at a redemption price of 109.15% of their principal amount, plus accrued interest, provided that at least $130 million aggregate principal amount of Notes remains outstanding after each such redemption. The Notes are uncollateralized and are subordinated to all senior indebtedness of the Company and contain certain covenants for the benefit of the holders of the Notes. These covenants, among other things, restrict under certain circumstances the Company's ability to incur additional indebtedness, pay dividends and make investments and other restricted payments, enter into transactions with 5% stockholders or affiliates, create liens, and sell assets. In connection with the Amended Credit Facility and the Notes, the Company incurred additions to deferred loan costs of $10.5 million during the six months ended June 30, 1998. The Company expects to continue to rapidly expand its operations. The Company had commitments totalling approximately $288 million to complete construction of extended stay properties at June 30, 1998. The Company believes that the remaining availability under the Amended Credit Facility, together with cash on hand and cash flows from operations, will provide sufficient funds for the Company to develop the properties currently planned to open in 1998 and to fund its operating expenses through 1998. The Company expects it will require additional funding to continue development through 1999. The timing and amount of financing needed will depend on a number of factors, including the number of properties the Company constructs or acquires, the timing of such development, and the cash flow generated by its properties. In the event that the capital markets provide favorable opportunities, the Company's plans or assumptions change or prove to be inaccurate, or the foregoing sources of funds prove to be insufficient to fund the Company's growth and operations, or if the Company consummates acquisitions, the Company may seek additional capital sooner than currently anticipated. Sources of financing may include public or private debt or equity financing. There can be no assurance that such additional financing will be available to the Company or, if available, that it can be obtained on acceptable terms or within the limitations contained in the Company's financing arrangements. Failure to obtain such financing could result in the delay or abandonment of some or all of the Company's development and expansion plans and expenditures and could have a material adverse effect on the Company. Impact of the Year 2000 Issue and Accounting Releases The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Based on its assessment, management of the Company does not anticipate that any significant modification or replacement of the Company's software will be necessary for its computer systems to properly utilize dates beyond December 31, 1999 or that the Company will incur significant operating expenses to make any such computer system improvements. The Company is undertaking an assessment as to whether any of its significant suppliers, lenders, or service providers will need to make any such software modifications or replacements. Management does not expect the failure of any such third parties to address the Year 2000 Issue to have a material adverse effect on the Company's business, operations, or financial condition, although there can be no assurance to that effect. In April, 1998, the Accounting Standards Executive Committee released Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 requires that start-up costs, including pre-opening and organizational costs be expensed as incurred and is effective for financial statements issued for periods beginning after December 15, 1998. At June 30, 1998, the Company had unamortized pre-opening and organization costs of approximately $1.1 million. Under SOP 98-5, the Company would have reported a reduction of expenses of approximately $213,000 for the six months ended June 30, 1998. 12 Seasonality and Inflation Based upon the operating history of the Company's facilities, management believes that extended stay lodging facilities are not as seasonal in nature as the overall lodging industry. Management does expect, however, that occupancy and revenues may be lower than average during the first and fourth quarters of each calendar year. Because many of the Company's expenses do not fluctuate with occupancy, such declines in occupancy may cause fluctuations or decreases in the Company's quarterly earnings. The rate of inflation as measured by changes in the average consumer price index has not had a material effect on the revenue or operating results of the Company during any of the periods presented. There can be no assurance, however, that inflation will not affect future operating or construction costs. Special Note on Forward-Looking Statements Certain statements in this Form 10-Q constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward- looking statements. Such factors include, among other things, the Company's limited operating history and uncertainty as to the Company's future profitability; the ability to meet construction and development schedules and budgets; the ability to develop and implement operational and financial systems to manage rapidly growing operations; the uncertainty as to the consumer demand for extended stay lodging; increasing competition in the extended stay lodging market; the ability to integrate and successfully operate acquired properties and the risks associated with such properties; the ability to obtain financing on acceptable terms to finance the Company's growth strategy; the ability of the Company to operate within the limitations imposed by financing arrangements; and general economic conditions as they may impact the overall lodging industry. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 13 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The following summarizes the votes of the Annual Meeting of the Company's stockholders held on May 21, 1998:
Matter For Against Abstain Non-Vote Shares Voted ------ --- ------- ------- -------- ------------ Election of Directors: H. Wayne Huizenga................... 81,320,419 -- 107,163 -- 81,427,582 George D. Johnson, Jr............... 81,320,619 -- 106,963 -- 81,427,582 Donald F. Flynn..................... 81,320,105 -- 107,477 -- 81,427,582 Stewart H. Johnson.................. 81,320,619 -- 106,963 -- 81,427,582 John J. Melk........................ 81,320,619 -- 106,963 -- 81,427,582 Peer Pederson....................... 81,320,105 -- 107,477 -- 81,427,582 Ratification of the appointment of PricewaterhouseCoopers LLP as Independent Auditors for the Company for 1998.................... 81,386,330 19,527 21,725 -- 81,427,582 Approval of the Extended Stay America, Inc. 1998 Employee Stock Option Plan......................... 55,476,259 17,899,525 46,034 8,005,764 81,427,582
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description of Exhibit ------ ---------------------- 10.1 Aircraft Dry Sub-Lease Agreement, dated as of July 2, 1998, between the Company and Advance America Cash Advance Centers, Inc. 27.1 Financial Data Schedule (for EDGAR filings only) (b) Reports on Form 8-K None 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 12, 1998. EXTENDED STAY AMERICA, INC. /s/ Robert A. Brannon ---------------------------------------------------- Robert A. Brannon Senior Vice President, Chief Financial Officer, Secretary, and Treasurer (Principal Financial Officer) /s/ Gregory R. Moxley ---------------------------------------------------- Gregory R. Moxley Vice President Finance (Principal Accounting Officer) 15 EX-10.1 2 AIRCRAFT DRY SUB-LEASE AGREEMENT AIRCRAFT DRY SUB-LEASE This Sub-Lease (hereinafter referred to as "Lease") of aircraft is made, effective as of July 2, 1998, by and between Advance America Cash Advance Centers, Inc., a corporation incorporated under the laws of the State of South Carolina, with principal offices at 961 East Main Street, Spartanburg, South Carolina 29302 (hereinafter referred to as "Lessor") and Extended Stay America, Inc., of 450 East Las Olas Blvd., Suite 1100, Ft. Lauderdale, FL 33301 (hereinafter referred to as "Lessee"). RECITALS The parties recite that: A. Lessor owns a 1980 Gates Learjet Model 35A aircraft, Serial No. 332, and currently registered as N332FG (hereinafter referred to as the "Aircraft"). The Aircraft is available for use by a qualified Lessee; and B. Lessee desires to lease the Aircraft under such terms and conditions as are mutually satisfactory to the parties. The parties agree as follows: SECTION ONE LEASE OF AIRCRAFT For One Thousand Five Hundred Dollars and No/100 ($1,500.00) per flight hour, Lessor agrees to lease the Aircraft to Lessee without crew. Said amount shall include and fully cover Lessee's responsibility for the cost of maintenance and insurance for the Aircraft. The Aircraft shall be delivered to Lessee at Spartanburg Downtown Airport in Spartanburg, South Carolina on July 2, 1998, at which time Lessee shall inspect the Aircraft to the extent deemed necessary. Lessee shall have ten (10) flight hours following delivery of the aircraft in which to notify Lessor in writing of any defects in the Aircraft or its equipment or accessories. If, at the end of such period, Lessor has not received such notification, it shall be conclusively presumed between the parties that Lessee has fully inspected the Aircraft having knowledge that it is in good condition and repair and that Lessee is satisfied with and has accepted the Aircraft in such condition and repair. This sub-lease is subject to the terms and conditions of the Aircraft Dry Lease dated May 11, 1998 between Wyoming Associates, Inc. of 961 East Main Street, Spartanburg, SC 29302 and Advance America Cash Advance Centers, Inc. of 961 East Main Street, Spartanburg, SC 29302. SECTION TWO TERM This Lease shall commence on July 2, 1998 and continue for one year after said date. Thereafter, this Lease shall be automatically renewed on a month to month basis, unless sooner terminated by either party as hereinafter provided. Either party may at any time terminate this Lease upon thirty (30) days written notice to the other party, delivered personally or by certified mail, return receipt requested, at the address for said other party as set forth above. SECTION THREE COMMERCIAL OPERATION RESTRICTION Neither Lessee nor Lessor will make the Aircraft available for hire within the meaning of the Federal Aviation Regulations. The Aircraft is to be operated strictly in accordance with 14 C.F.R. Part 91. SECTION FOUR INSURANCE At all times during the term of this Lease, Lessor shall cause to be carried and maintained, at Lessee's cost and expense, as set forth in Section One, physical damage insurance with respect to the Aircraft in the amount set forth below: 2 Aircraft Physical Damage $2,900,000.00 ------------- (No Deductible While In Motion or Not In Motion) At all times during the term of this Lease, Lessor shall also cause to be carried and maintained, at Lessee's cost and expense, as set forth in Section One, third party aircraft liability insurance, passenger legal liability insurance, property damage liability insurance, and medical expense insurance in the amounts set forth below: Combined Liability Coverage for Bodily Injury and Property Damage Including Passengers -- Each Occurrence $100,000,000.00 --------------- Medical Expense Coverage -- Each Person $ 5,000.00 -------- Lessee shall also bear the cost of paying any deductible amount on any policy of insurance in the event of a claim or loss. Any policies of insurance carried in accordance with this Lease: (I) shall name Lessor as an additional insured; and (ii) shall contain a waiver by the underwriter thereof of any right of subrogation against Lessor. Each liability policy shall be primary without right of contribution from any other insurance which is carried by Lessee or Lessor and shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Lessor shall submit this Lease for approval to the insurance carrier for each policy of insurance on the Aircraft. Lessor shall arrange for a Certificate of Insurance evidencing appropriate coverage as to the Aircraft and the satisfaction of the requirements set forth above to be given by its insurance carriers to Lessee. 3 SECTION FIVE RESTRICTIONS ON USE Lessee may operate the Aircraft only for the purposes and within the geographical limits set forth in the insurance policy or policies obtained in compliance with Section Four of this Lease. The Aircraft shall be operated at all times in accordance with the flight manual and all manufacturer's suggested operating procedures. Furthermore, Lessee shall not use the Aircraft in violation of any foreign, federal, state, territorial, or municipal law or regulation and shall be solely responsible for any fines, penalties, or forfeitures occasioned by any violation by Lessee. If such fines or penalties are imposed on Lessor and paid by Lessor, Lessee shall reimburse Lessor for the amount thereof within thirty (30) days of receipt by Lessee of written demand from Lessor. Lessee will not base the Aircraft, or permit it to be based, outside the limits of the United States of America, without the written consent of Lessor. The Aircraft shall be flown only by certificated and qualified pilots and shall be maintained only by certificated and qualified mechanics. In the event the insurance on the Aircraft would be invalidated because Lessee is unable to obtain certificated and qualified pilots and mechanics, Lessee shall not operate the Aircraft until such time as certificated and qualified pilots and mechanics are obtained and insurance on the Aircraft is made valid. Lessee will not directly or indirectly create, incur, assume or suffer to exist any lien on or with respect to the Aircraft. Lessee will promptly, at its own expense, take such action as may be necessary to discharge any lien not excepted above if the same shall arise at any time. SECTION SIX INSPECTION BY LESSOR Lessee agrees to permit Lessor or any authorized agent to inspect the Aircraft at any reasonable time and to furnish any information in respect to the Aircraft and its use that Lessor may reasonably request. 4 SECTION SEVEN ALTERATIONS Except in accordance with other written agreements entered into subsequent to the date of this Lease between Lessee and Lessor regarding maintenance of the Aircraft, Lessee shall not have the right to alter, modify, or make additions or improvements to the Aircraft without the written permission of Lessor. All such alterations, modifications, additions, and improvements as are so made shall become the property of Lessor and shall be subject to all of the terms of this Lease. SECTION EIGHT TITLE The registration of and title to the Aircraft shall be in the name of the Lessor, and the Aircraft, at all times during the term of this Lease or any extension, shall bear United States registration markings. All responsibility and obligations in regard to the operation of the Aircraft as above owned, registered, and marked shall be borne by Lessee during the term of this Lease. SECTION NINE PAYMENT OF TAXES Lessee shall pay all taxes associated with Lessee's use of the Aircraft on Lessee's own business, including landing fees, fuel taxes, and any other taxes or fees which may be assessed against a specific flight by Lessee. SECTION TEN ASSIGNMENT Lessee shall not assign this Lease or any interest in the Aircraft, or sublet the Aircraft, without prior written consent of Lessor. Subject to the foregoing, this Lease inures to the benefit of, and is binding on, the heirs, legal representatives, successors, and assigns of the parties. 5 SECTION ELEVEN ACCIDENT AND CLAIM Lessee shall immediately notify Lessor of each accident involving the Aircraft, which notification shall specify the time, place, and nature of the accident or damage, the names and addresses of parties involved, persons injured, witnesses, and owners of properties damaged, and such other information as may be known. Lessee shall advise Lessor of all correspondence, papers, notices, and documents whatsoever received by Lessee in connection with any claim or demand involving or relating to the Aircraft or its operation, and shall aid in any investigation instituted by Lessor and in the recovery of damages from third persons liable therefore. SECTION TWELVE RETURN OF AIRCRAFT TO LESSOR On the termination of this Lease by expiration or otherwise, Lessee shall return the Aircraft to Lessor at Spartanburg Downtown Airport in Spartanburg, South Carolina, in as good operating condition and appearance as when received, ordinary wear, tear and deterioration excepted, and shall indemnify Lessor against any claim for loss or damage occurring prior to the actual physical delivery of the Aircraft to Lessor. SECTION THIRTEEN MODIFICATION OF AGREEMENT This Lease constitutes the entire understanding between the parties, and any change or modification must be in writing and signed by both parties. SECTION FOURTEEN GOVERNING LAW This Lease is entered into under, and is to be construed in accordance with, the laws of the State of South Carolina. 6 SECTION FIFTEEN TRUTH IN LEASING STATEMENT THE AIRCRAFT, A 1980 GATES LEARJET MODEL 35 A, MANUFACTURER'S SERIAL NO. 332, CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N332FG, HAS BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD PRECEDING THE DATE OF THIS LEASE. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE, EXTENDED STAY AMERICA, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FL 33301, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS" ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE. I, THE UNDERSIGNED GEORGE D. JOHNSON, JR. OF EXTENDED STAY AMERICA, INC., 450 EAST LAS OLAS BLVD., FT. LAUDERDALE, FL 33301, CERTIFY THAT I AM RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT AND THAT I UNDERSTAND MY RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. IN WITNESS WHEREOF, the parties have executed this Lease. ADVANCE AMERICA CASH ADVANCE CENTERS, INC. /s/ William M. Webster, IV [July 6, 1998 4:00 PM] - ------------------------------------- ------------------------------------- William M. Webster, IV, President Date and Time of Execution EXTENDED STAY AMERICA, INC. /s/ George D. Johnson, Jr. [July 7, 1998 11:30 AM] - ------------------------------------- ------------------------------------- George D. Johnson, Jr., President Date and Time of Execution 7 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS DEC-31-1998 DEC-31-1998 APR-01-1998 JAN-01-1998 JUN-30-1998 JUN-30-1998 64,651 0 0 0 6,348 0 0 0 0 0 79,998 0 1,382,401 0 50,324 0 1,431,033 0 104,313 0 450,000 0 0 0 0 0 960 0 853,352 0 1,431,033 0 0 0 70,044 124,274 0 0 28,893 55,175 19,730 38,553 0 0 4,561 5,682 16,860 24,864 6,744 9,946 10,116 14,918 0 0 0 0 0 0 10,116 14,918 0.11 0.16 0.10 0.15
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