-----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, Pk7iOYj/0jgZsWDTselrWbGl3MtLQv3ngh+LBqvvae/jyHLhaeTPhfDlFZVP7fL/ de2FAj4gL5bz4NvVNNTtww== 0000950152-99-004282.txt : 19990513 0000950152-99-004282.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950152-99-004282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIDGESTREET ACCOMMODATIONS INC CENTRAL INDEX KEY: 0001038078 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 043327773 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14633 FILM NUMBER: 99618103 BUSINESS ADDRESS: STREET 1: 30670 BAINBRIDGE ROAD STREET 2: STE 19 CITY: SOLON STATE: OH ZIP: 44139 BUSINESS PHONE: 4402483005 10-Q 1 BRIDGESTREET ACCOMODATIONS, INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-22843 BRIDGESTREET ACCOMMODATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE ------------------------------------------------ (State or other jurisdiction of incorporation or organization) 04-3327773 ------------------------------------------------ (I.R.S. Employer Identification No.) 2242 PINNACLE PARKWAY, TWINSBURG, OH ------------------------------------------------ (Address of principal executive offices) 44087 ------------------------------------------------ (Zip code) (330)405-6060 ------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of May 11, 1999, there were 8,005,037 shares of Common Stock, par value $.01 per share, of the registrant outstanding. 2 BRIDGESTREET ACCOMMODATIONS, INC. INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PAGE ----- PART I. FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Consolidated Balance Sheets: March 31, 1999 (unaudited) and December 31, 1998............ 3 Consolidated Statements of Operations: Three Months Ended March 31, 1999 and 1998 (unaudited)...... 4 Consolidated Statements of Cash Flows: Three Months Ended March 31, 1999 and 1998 (unaudited)...... 5 Notes to the Consolidated Financial Statements (unaudited)................................................. 6-8 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 9-12 PART II. OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................ 12 SIGNATURES.................................................. 13
3 PART I. FINANCIAL INFORMATION BRIDGESTREET ACCOMMODATIONS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 2,359,288 $ 1,652,028 Trade accounts receivable, less allowance for doubtful accounts of $270,000 in 1999 and 1998.................. 5,045,138 5,976,054 Security deposits held by landlords....................... 462,607 534,815 Deferred income taxes..................................... 691,591 691,591 Prepaid rent.............................................. 2,073,041 2,066,086 Other current assets...................................... 1,785,318 1,019,983 ----------- ----------- Total current assets.............................. 12,416,983 11,940,557 Operating stock, net of accumulated amortization............ 2,325,838 2,217,562 Property and equipment, net of accumulated depreciation..... 5,497,142 5,379,024 Other assets................................................ 10,024 10,150 Goodwill, net of amortization............................... 40,491,872 40,576,629 ----------- ----------- TOTAL ASSETS...................................... $60,741,859 $60,123,922 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 676,764 $ 778,715 Due to stockholders and affiliates........................ 63,278 369,949 Accounts payable.......................................... 962,959 1,136,952 Accrued payroll and employee benefits..................... 1,118,300 1,250,828 Accrued expenses, other................................... 3,082,124 3,278,080 Deferred revenue.......................................... 1,336,158 1,163,181 Security deposits due to customers........................ 808,902 612,057 ----------- ----------- Total current liabilities......................... 8,048,485 8,589,762 Long-term debt, net of current maturities................... 8,893,620 7,608,452 Deferred income taxes....................................... 939,381 939,381 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value; authorized 5,000,000 shares; no shares issued or outstanding.............. -- -- Common stock, $0.01 par value; authorized 35,000,000 shares; 8,169,659 shares issued and outstanding in 1999 and 1998........................................ 81,698 81,698 Additional paid in capital............................. 40,133,726 40,134,726 Retained earnings...................................... 3,153,346 3,069,958 Accumulated other comprehensive income (expense)....... (508,397) (300,055) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY........................ 42,860,373 42,986,327 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $60,741,859 $60,123,922 =========== ===========
See accompanying notes to consolidated financial statements. 3 4 BRIDGESTREET ACCOMMODATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ---------------------------- 1999 1998 ------------ ------------ REVENUES.................................................... $23,186,350 $19,483,811 Operating Expenses: Cost of services.......................................... 17,494,766 15,063,134 Selling, general and administrative expense............... 5,153,075 4,192,373 Goodwill amortization..................................... 300,637 206,772 ----------- ----------- Total operating expenses............................... 22,948,478 19,462,279 ----------- ----------- Operating income..................................... 237,872 21,532 OTHER INCOME (EXPENSE): Interest income........................................... 16,808 34,251 Interest expense.......................................... (166,570) (18,074) Other income, net......................................... 78,537 88,842 ----------- ----------- Other income (expense), net............................ (71,225) 105,019 ----------- ----------- Income before provision for income taxes............... 166,647 126,551 Provision for income taxes................................ 83,259 56,948 ----------- ----------- Net income................................................ $ 83,388 $ 69,603 Foreign currency translation adjustment................... (208,342) (10,087) ----------- ----------- Comprehensive income (loss)............................... (124,954) 59,516 ----------- ----------- Net income per share-basic and dilutive................... $ 0.01 $ 0.01 ----------- ----------- Weighted average shares outstanding-basic................. 8,169,835 7,981,166 Weighted average shares outstanding-dilutive.............. 8,169,835 8,037,932
See accompanying notes to consolidated financial statements. 4 5 BRIDGESTREET ACCOMMODATIONS, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 1999 MARCH 31, 1998 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $ 83,388 $ 69,603 Adjustments to reconcile net income to net cash provided by operating activities-- Exercise of stock options......................... -- 749 Depreciation and amortization..................... 566,383 448,733 Gain on sale of assets............................ (29,767) -- Changes in operating assets and liabilities excluding the effect of acquisitions-- Accounts receivable............................. 930,916 (2,411,592) Security deposits held by landlords............. 72,208 30,902 Prepaid expenses and other assets............... (772,164) (373,695) Accounts payable and accrued expenses........... (557,934) 269,851 Accrued income taxes............................ 54,457 -- Security deposits due to customers.............. 196,845 (190,569) Deferred revenue................................ 172,977 73,351 ---------- ----------- Net cash provided by (used in) operating activities................................. 717,309 (2,082,667) ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired................... (215,880) (10,229,034) Proceeds from sale of assets......................... 90,000 -- Purchases of operating stock......................... (194,218) (421,151) Purchases of property and equipment.................. (358,155) (557,515) ---------- ----------- Net cash used in investing activities........ (678,253) (11,207,700) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Foreign currency translation adjustment.............. (208,342) (10,087) Borrowings against line of credit.................... 1,183,217 4,197,253 Due to stockholders/affiliates....................... (306,671) 549,088 Collection on notes receivable....................... -- 532,883 ---------- ----------- Net cash provided by financing activities.... 668,204 5,269,137 ---------- ----------- Net increase(decrease) in cash and cash equivalents................................ 707,260 (8,021,230) Cash and cash equivalents, beginning of period......... 1,652,028 8,922,215 ---------- ----------- Cash and cash equivalents, end of period............... $2,359,288 $ 900,985 ========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest....................... $ 151,339 $ 23,919 Cash paid for income taxes................... $ 424,326 $ 907,500 NON-CASH TRANSACTION: In the first quarter of 1998, the Company issued approximately 379,000 shares of Common Stock of the Company or securities convertible into Common Stock of the Company as consideration in three acquisitions
See accompanying notes to consolidated financial statements. 5 6 BRIDGESTREET ACCOMMODATIONS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") was incorporated on August 19, 1996, to create a leading national provider of flexible accommodation services through the acquisition and consolidation of the operations of flexible accommodation service companies. During the first quarter of 1997, the Company acquired all the outstanding stock of five flexible accommodation service providers (the Founding Companies), in exchange for 4,301,000 shares of Common Stock of the Company (the "Combination"). The Company conducted no operations prior to January 2, 1997, except in connection with its initial public offering and the Combination. For financial reporting purposes, the largest founding company, Temporary Corporate Housing Columbus, Inc. ("TCH") was designated as the accounting acquirer, and its acquisition of the remaining four Founding Companies was accounted for using the purchase method of accounting. The interim consolidated financial statements presented herein have been prepared by the Company and include the unaudited accounts of TCH, Corporate Lodgings, Inc. and its four affiliates, Exclusive Interim Properties, Ltd. and its affiliate, and Temporary Housing Experts, Inc. all of which were merged with and into subsidiaries of the Company on January 2, 1997, as well as the accounts of the following wholly-owned operating subsidiaries from the indicated dates on which they acquired (by merger with or purchase of substantially all of the assets of) flexible accommodation service providers: HAI Acquisition Corp. (March 31, 1997); BridgeStreet Texas, L.P. (December 1, 1997); BridgeStreet Arizona, Inc. (December 1, 1997); BridgeStreet North Carolina, Inc. (January 2, 1998); BridgeStreet Raleigh, Inc. (January 2, 1998); BridgeStreet Texas, L.P. (Austin, January 2, 1998); BridgeStreet Colorado, Inc. (January 2, 1998); BridgeStreet Accommodations Limited (February 19, 1998); BridgeStreet Canada, Inc. (March 2, 1998); and BridgeStreet California, Inc. (June 1, 1998). All intercompany accounts and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of March 31, 1999 and the results of its operations and cash flows for the three month periods ended March 31, 1999 and 1998 have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. Certain items in the 1998 financial statements have been reclassified to conform to the 1999 presentation. 2. ACQUISITIONS In the first quarter of 1998, the Company acquired six companies. The acquisitions have been accounted for using the purchase method of accounting. The total cost of these acquisitions was approximately $14.6 million, consisting of cash and notes of $10.4 million and $4.2 million in stock. The preliminary purchase price allocation of these acquisitions resulted in goodwill of approximately $15.0 million that will be amortized over 35 years. The results of operations of these acquisitions have been included in the accompanying consolidated financial statements from the date of acquisition. Details regarding these acquisitions are noted below. On January 2, 1998, the Company acquired certain assets of Home on the Road, Inc. of Charlotte, a North Carolina flexible accommodation company servicing Charlotte and surrounding cities. The purchase consideration consisted of cash and a promissory note. On January 2, 1998, the Company acquired all the outstanding stock of Home on the Road-Raleigh, a North Carolina flexible accommodation company servicing several markets including Raleigh, Durham, Research 6 7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Triangle Park, Winston-Salem and Greensboro. The purchase consideration consisted of the issuance of approximately 75,000 shares of common stock. On January 2, 1998, the Company acquired for cash certain assets of Accommodations by Apple-Denver and Accommodations by Apple-Austin, flexible accommodation companies servicing several markets in the Denver metropolitan area including Colorado Springs, Boulder and Fort Collins, and in the Austin, Texas, metropolitan area. The purchase consideration of the two acquisitions was cash and notes. The pro forma data presented below does not include these acquisitions as they were not material to the Company's results of operations. On February 19, 1998, the Company acquired all the issued and outstanding stock of London Life Apartments, Limited ("London Life"), a flexible accommodation company servicing London, U.K. The purchase consideration consisted of cash and the issuance of approximately 165,000 shares of common stock. On March 2, 1998, the Company acquired all the issued and outstanding stock of Global Travel Apartments, Inc. ("GTA"), one of Canada's largest providers of flexible accommodation services. GTA services the Toronto, Montreal, Ottawa, Edmonton, Regina, Vancouver and Victoria markets. The purchase consideration consisted of cash and the issuance of approximately 139,000 shares of the stock of a Canadian subsidiary that is exchangeable for an equal number of shares of common stock of the Company. On June 1, 1998, the Company acquired for cash certain assets of Gracious Corporate Lodging, a California flexible accommodation company servicing Santa Clara, Palo Alto and San Jose, California, and Austin, Texas. The purchase consideration of the acquisition was cash, funded from borrowings against the Company's revolving line of credit. Gracious Corporate Lodging had revenues of approximately $6.4 million in 1997. The following table presents unaudited selected financial information for the Company, the five Founding Companies, and the acquisitions of ABA of Dallas and ABA of Phoenix, Home on the Road, Inc. of Charlotte, Home on the Road-Raleigh, London Life, GTA and Gracious Corporate Lodging on a pro forma basis, assuming the companies acquired in 1998 were (except as noted above) acquired as of January 1, 1998.
THREE MONTHS ENDED -------------- MARCH 31, 1998 -------------- Revenues.................................................... $24,134,000 Net income.................................................. $ 181,000 Net income per share-basic and dilutive..................... $ 0.02
The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions been made at the beginning of 1998. 3. REVOLVING CREDIT AGREEMENT The Company has a revolving credit facility agreement of $25 million. The revolving credit agreement, secured by the capital stock of the Company's operating subsidiaries, extends to March 31, 2002. During the first quarter of 1999, the Company amended certain terms of its revolving credit facility agreement. Interest is payable, at the Company's option, at 0.25% to 0.5% above the bank's prime lending rate, or 1.75% to 2.0% above the Eurodollar or LIBOR rates. A commitment fee is payable on the average unused credit at a rate of 0.375% to 0.45%. The revolving credit agreement contains certain restrictive covenants with which the Company must comply. The credit facility (i) prohibits the payment of dividends and other distributions by the Company, (ii) generally will not permit the Company to incur or assume other indebtedness, (iii) requires the bank's approval for acquisitions meeting certain cash and total acquisition consideration thresholds, and (iv) requires the Company to comply with certain financial covenants. The Company was in compliance with these covenants at March 31, 1999. The Company had $8.8 million and $7.5 million outstanding under the facility at March 31, 1999 and December 31, 1998, respectively. 7 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At March 31, 1999, the Company had a non-interest bearing promissory note payable totaling $630,000 resulting from an acquisition. The note is payable on June 1, 1999. The Company also has term notes and capitalized leases, which are secured by fixed assets, totaling approximately $140,000. These notes and leases are payable in various installments through May 2002. 4. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which is effective for periods ending after December 15, 1997. The standard requires the presentation of basic earnings per share ("EPS") and diluted EPS. Basic EPS replaces the primary EPS calculation required under APB Opinion No. 15. Basic EPS excludes dilution and is calculated using the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. The share amounts used to calculate earnings per share for the three months ended March 31, 1999 and 1998 are as follows:
1999 1998 ---------- ---------- Basic common shares (weighted average)...................... 8,169,835 7,981,166 Dilutive stock options...................................... -- 56,766 Diluted common shares....................................... 8,169,835 8,037,932
There are no adjustments to the reported amounts of net income for purposes of computing diluted EPS. 5. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as changes in stockholders' equity from nonowner sources and, for the Company, includes net income and changes in the foreign currency translation. 6. ACCOUNTING STANDARDS NOT YET ADOPTED In March 1998, the AICPA issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which is effective for the Company as of January 1, 1999. This SOP requires capitalization of the development costs of software to be used internally, i.e., for accounting, property management and administrative processes. The Company, which previously expensed such costs, adopted this SOP as of January 1, 1999. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which is effective for the Company as of January 1, 1999. This SOP requires start-up and organization costs to be expensed as incurred and also requires previously deferred start-up costs to be recognized as a cumulative effect adjustment in the statement of income. The effect of adopting this SOP is immaterial. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION BridgeStreet Accommodations, Inc. ("BridgeStreet" or the "Company") was incorporated in August 1996 with the goal of becoming a leading national provider of flexible accommodation services. The Company has implemented an acquisition program and a national operating strategy designed to increase internal revenue growth, cost efficiencies and profitability. In the first quarter of 1997, BridgeStreet commenced its operations by acquiring, in separate merger transactions (the "Combination"), five flexible accommodation service providers (the "Founding Companies"). Since the Combination of the Founding Companies, the Company has acquired (by merger with or purchase of substantially all assets) ten additional flexible accommodation service providers, three in 1997 and seven in 1998. The Company's revenues are derived primarily from renting accommodations to guests for extended periods. Revenues depend on the number of accommodations the Company has available under lease, the occupancy rate and the rate charged. The rate charged is a function of, among other factors, (i) the type, size and location of the accommodation being rented, (ii) the rental period and (iii) any additional amenities made available to the guest during his or her stay. Cost of services consists primarily of lease payments for accommodations and their furnishings, and expenses associated with cleaning, maintaining and providing utilities to accommodations. Selling, general and administrative expense consists primarily of compensation and related benefits for management and key employees, administrative salaries and benefits, office rents and utilities, professional fees and advertising. As discussed in Note 1 to the financial statements, in the first quarter of 1997, the Company merged with five Founding Companies in stock for stock tax-free mergers. For financial reporting purposes, Temporary Corporate Housing Columbus, Inc. (together with its three affiliates, "TCH") is presented as the accounting acquirer of the other Founding Companies, which have been designated "acquired companies." The mergers have been accounted for using the purchase method of accounting. The results of operations of the "acquired companies" have been included in the accompanying consolidated financial statements from their respective dates of acquisition. The purchase price of the four "acquired companies," including the value of stock issued to the founders of BridgeStreet as a transaction fee, was approximately $17.7 million based on an independent appraisal of the net assets acquired. The aggregate cost of the acquisitions exceeded the estimated fair value of assets and liabilities of the acquired companies by $17.5 million which is being amortized as goodwill over 35 years. RESULTS OF OPERATIONS - BRIDGESTREET INTERIM RESULTS Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 BridgeStreet's Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 include the unaudited accounts of TCH, Corporate Lodgings, Inc. (together with four affiliates, "CLI"), Exclusive Interim Properties, Ltd. (together with an affiliate, "EIP"), Temporary Housing Experts, Inc. ("THEI"), HAI Acquisition Corp. ("HA"); BridgeStreet Texas L.P.; BridgeStreet Arizona, Inc.; BridgeStreet North Carolina, Inc.; BridgeStreet-Raleigh, Inc.; BridgeStreet Colorado, Inc.; BridgeStreet Texas L.P. (Austin); and the unaudited accounts of the following wholly-owned subsidiaries from the indicated dates on which they were acquired -BridgeStreet Accommodations Limited (February 19, 1998); BridgeStreet Canada, Inc. (March 2, 1998); and BridgeStreet California, Inc. (June 1, 1998). Revenues. Revenues for the three months ended March 31, 1999 increased $3.7 million, or 19%, from $19.5 million in 1998 to $23.2 million for the three months ended March 31, 1999. The increase in revenues primarily was due to an increase in the number of accommodations rented during the period, resulting from prior year acquisitions which existed for the entire three month period in 1999, and an increase in the average daily rate. 9 10 Cost of Services. Cost of services for the three months ended March 31, 1999 increased $2.4 million, or 16.1%, from $15.1 million in 1998 to $17.5 million in 1999. Cost of services as a percentage of revenues for the three months ended March 31 decreased from 77.3% in 1998 to 75.5% in 1999. The decrease in the cost of services percentage was the result of higher occupancy rates. The dollar increase in cost of services was primarily related to the increase in sales volume. Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended March 31, 1999 increased $1.0 million, or 22.9%, from $4.2 million in 1998 to $5.2 million in 1999. Selling, general and administrative expense as a percentage of revenues for the three months ended March 31 was 21.5% in 1998 and 22.2% in 1999. The dollar increase in selling, general and administrative expense primarily was the result of prior year acquisitions which existed for the entire three month period in 1999 and an increase in corporate overhead for additional personnel and information systems. Income Tax Provision. For the three months ended March 31, 1999, the Company recorded a tax provision of $83,000 on pre-tax income of $167,000, compared to a tax provision of $57,000 on pre-tax income of $127,000 for the three months ended March 31, 1998. The tax provision is based on the Company's estimated consolidated effective tax rate for the 1999 fiscal year after considering nondeductible goodwill expense. LIQUIDITY AND CAPITAL RESOURCES -- BRIDGESTREET For the three months ended March 31, 1999, net cash provided by operating activities totaled $717,000. Net cash used in investing activities was $678,000, used primarily for the purchase of operating stock and equipment required in the Company's business. Net cash provided by financing activities was $668,000, primarily due to borrowings against the revolving line of credit. Cash and cash equivalents increased by $707,000 during the period and totaled $2.4 million at March 31, 1999. The Company has a revolving credit facility that provides the Company with up to $25.0 million, secured by guarantees by certain material subsidiaries of the Company and a pledge of the capital stock of all of the Company's wholly-owned operating subsidiaries. The credit facility may be used for refinancing of the Company's subsidiaries' indebtedness, acquisitions, working capital and to repurchase up to $1.0 million of the Company's stock. Loans made under the credit facility bear interest, at the Company's option, at 0.25% to 0.5% above the bank's prime lending rate, or 1.75% to 2.0% above the Eurodollar or LIBOR rates. The credit facility will terminate on March 31, 2002, or sooner at the discretion of the Company, and all amounts outstanding thereunder (if any) will be due upon such termination. The credit facility (i) prohibits the payment of dividends and other distributions by the Company, (ii) generally will not permit the Company to incur or assume other indebtedness, (iii) requires the bank's approval for certain acquisitions and (iv) requires the Company to comply with certain financial covenants. The Company had $8.8 million and $7.5 million outstanding under the facility at March 31, 1999 and December 31, 1998, respectively. During 1998, the Company acquired seven companies. The acquisitions have been accounted for using the purchase method of accounting. The total aggregate cost of these acquisitions was approximately $16.3 million, consisting of cash and notes of $12.1 million and $4.2 million in common stock or securities exchangeable for common stock. The preliminary purchase price allocation of these acquisitions resulted in goodwill of approximately $17.0 million that will be amortized over 35 years. Details regarding these acquisitions are noted below. On January 2, 1998, the Company acquired all the assets of Home on the Road, Inc. of Charlotte, a North Carolina flexible accommodation company servicing Charlotte and surrounding cities. The purchase consideration consisted of cash, funded from the proceeds of the Company's IPO, and a promissory note. Home on the Road, Inc. had revenues of $2.2 million in 1997. On January 2, 1998, the Company acquired all the outstanding stock of Home on the Road-Raleigh, a North Carolina flexible accommodation company servicing several markets including Raleigh, Durham, Research Triangle Park, Winston-Salem and Greensboro. The purchase consideration of the acquisition was the issuance of 75,000 shares of common stock. Home on the Road-Raleigh had revenues of $1.3 million in 1997. 10 11 On January 2, 1998, the Company acquired for cash certain assets of Accommodations by Apple-Denver and Accommodations by Apple-Austin, two flexible accommodation companies servicing several markets in the Denver metropolitan area including Colorado Springs, Boulder and Fort Collins, and in Austin, Texas, and surrounding cities. The purchase consideration of the two acquisitions was cash, funded from the proceeds of the Company's IPO, and notes. The acquisitions had revenues of approximately $2.6 million in 1997. On February 19, 1998, the Company acquired all the issued and outstanding stock of London Life Apartments, Inc. ("London Life"), a flexible accommodation company servicing London, U.K. The purchase consideration consisted of cash and the issuance of approximately 165,000 shares of common stock. London Life had revenues of approximately $10.0 million in 1997. On March 2, 1998, the Company acquired all the issued and outstanding stock of Global Travel Apartments, Inc. ("GTA"), one of Canada's largest providers of flexible accommodation services. GTA services the Toronto, Montreal, Ottawa, Edmonton, Regina, Vancouver and Victoria markets. The purchase consideration consisted of cash and the issuance of approximately 139,000 shares of the stock of a Canadian subsidiary that is exchangeable for an equal number of shares of common stock of the Company. GTA had revenues of approximately $7.7 million for the eleven months ended January 31, 1998. On June 1, 1998, the Company acquired for cash certain assets of Gracious Corporate Lodging, a California flexible accommodation company servicing Santa Clara, Palo Alto and San Jose, California, and Austin, Texas. The purchase consideration of the acquisition was cash, funded from borrowings against the Company's revolving line of credit. Gracious Corporate Lodging had revenues of approximately $6.4 million in 1997. The Company will continue to pursue growth through the acquisition of flexible accommodation service providers. The Company's primary sources of funding to date have been cash flow from operations, proceeds from the IPO and its revolving credit facility. The Company anticipates that cash flow from operations and funds from its revolving credit facility will be its principal future sources of funding. The Company's principal future uses of cash, in addition to cash used in operating activities, include funding of acquisitions and investment in the Company's management information systems. The Company does not plan to make any material capital expenditures for leasehold improvements. Capital expenditure requirements in 1999 are anticipated to be approximately $2.0 million. During the first quarter, the Company had capital expenditures of approximately $550,000. While there can be no assurance, management believes that cash flow from operations and funds from the revolving credit facility will be adequate to meet the Company's capital requirements for the next 12 months, depending on the size and methods of financing potential acquisitions. INFLATION Due to the relatively low levels of inflation experienced in 1999 and 1998, inflation did not have a significant affect on the results of the Company during these periods. SEASONALITY Quarterly earnings may be affected by the timing of certain holidays, business and vacation patterns, weather conditions, economic factors and other considerations affecting travel. Corporate relocation activity peaks in the summer months and declines significantly during the fourth quarter and the first part of the first quarter. Long-term consulting activity tends to follow a similar pattern, but not to the same extent. The Company expects to realize lower revenues, operating income and net income during the first and fourth quarters. MANAGEMENT INFORMATION SYSTEMS The Company was formed in August 1996, and during 1997 and 1998 acquired fifteen flexible accommodation companies. The acquired companies each had different computer hardware and software systems. As a result, the Company has undertaken a complete review and assessment of its information technology ("IT") systems. The Company has determined that all accounting and property management systems will be replaced with a single integrated system. Year 2000 ("Y2K") compliance is a requirement for all new systems the 11 12 Company has acquired and will acquire or develop internally. The Company is in the process of analyzing all other non-information technology systems such as security, electrical, fire protection, voice and data communication systems, which may contain embedded technology microprocessors or other similar circuitry, to adequately address Y2K issues. The Company expects to complete this review by the end of the third quarter of 1999. STATE OF READINESS. During the fourth quarter of 1997, the Company evaluated several major accounting software vendors. Key criteria evaluated included: Y2K compliance; meeting company functional requirements; reporting capabilities; software flexibility and scalability; vendor stability, growth and support; ease of use; and cost. In the first quarter of 1998, based on these criteria and extensive review of the software vendors, the Company selected an accounting software vendor. During the second and third quarters of 1998, the Company undertook phase one of its financial systems implementation. Phase one included: analyzing accounting requirements; purchasing and setting up hardware and application software; conducting a conference room pilot; and application documentation and training. In August of 1998, the Company began the roll out phase in the Company's Cleveland Region. The Company is in the process of rolling out the accounting software application to each of its regions with planned completion during the second quarter of 1999. By the end of the first quarter of 1999, the software was fully implemented in seven regions. All remaining regions are scheduled to undergo the conversion process in the second quarter of 1999. The Company also is implementing a wide area network (WAN) to control all offices to the central computer system. During the third quarter of 1998, the Company undertook phase one of its property management systems implementation. Phase one included: analyzing property management requirements; purchasing and setting up hardware and application software; conducting a conference room pilot; and, application documentation and training. This phase was completed during the fourth quarter of 1998 and the Company began programming of the system. The Company began the pilot installation of the system at the end of the first quarter, 1999. Full implementation to all Company offices will begin at the end of the second quarter with completion during the third quarter of 1999. The total cost to replace existing software, hardware and the cost of implementing the new accounting and property management systems is estimated to be $3.0 million, which will be capitalized as incurred. The Company is working with its processing banks to ensure their systems are Year 2000 compliant. All of these costs will be borne by the processing banks. In the event some of the processing banks are unable to convert their systems, the Company will switch to banks that are able to perform the processing requirements of the Company. FACTORS TO BE CONSIDERED The information set forth above contains forward-looking statements, which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements. Readers should refer to discussion under "Risk Factors" contained in the Company's Registration Statement on Form S-4 (No. 333-39187) filed with the Securities and Exchange Commission, which is incorporated herein by reference, concerning certain factors which could cause the Company's actual results to differ materially from the results anticipated in the forward-looking statements contained herein. PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits 11 Computation of Net Income Per Share 27 Financial Data Schedule (b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the three months ended March 31, 1999.
12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRIDGESTREET ACCOMMODATIONS, INC. Date: May 12, 1999 By: /s/ JOHN E. DANNEBERG -------------------------------------------------------- John E. Danneberg President and Chief Executive Officer Date: May 12, 1999 By: /s/ MARK D. GAGNE, CPA -------------------------------------------------------- Mark D. Gagne, CPA Chief Financial Officer
13 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 STATEMENTS RE: COMPUTATION OF PER-SHARE EARNINGS (IN THOUSANDS, EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED MARCH 31 -------------- 1999 1998 ----- ----- Shares Outstanding: For computation of basic net income per share - Weighted average............................................ 8,170 7,981 Share equivalents - Options................................. -- -- ----- ----- Adjusted shares outstanding................................. 8,170 7,981 ===== ===== For computation of fully-diluted net income per share - Weighted average, without regard to exercise under share option plans.............................................. 8,170 7,981 Assumption of exercise under share option plans............. -- 57 ----- ----- Adjusted shares outstanding................................. 8,170 8,038 ===== ===== Net Income: Net income applicable to shares of beneficial interest (used for computing basic and fully diluted net income per share).................................................... $ 83 $ 70 ===== ===== Net income per share of beneficial interest: Basic and fully diluted Net income.................................................. $0.01 $0.01 ===== =====
EX-27 3 EXHIBIT 27
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 2,359,288 0 5,315,138 270,000 0 12,416,983 7,046,619 1,549,477 60,741,859 8,048,485 8,893,620 0 0 81,698 42,778,675 60,741,859 23,186,350 23,186,350 17,494,766 17,494,766 5,453,712 0 166,570 166,647 83,259 83,388 0 0 0 83,388 0.01 0.01
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