-----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, P9eUNAa7gFFoXzFLXo9LH0ib+G+ONTMeqJmyOEqcX+Ggt6y1l8z0BHStJJC0XFCB KV0dAEa3uYahHw8HH6Fl/A== 0000914121-00-000395.txt : 20000502 0000914121-00-000395.hdr.sgml : 20000502 ACCESSION NUMBER: 0000914121-00-000395 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000501 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LODGIAN INC CENTRAL INDEX KEY: 0001066138 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 522093696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-14537 FILM NUMBER: 614403 BUSINESS ADDRESS: STREET 1: 3445 PEACHTREE ROAD N E SUITE 700 CITY: ATLANTA STATE: CA ZIP: 30326 BUSINESS PHONE: 4043649400 MAIL ADDRESS: STREET 1: 3445 PEACHTREE ROAD N E SUITE 700 CITY: ATLANTA STATE: CA ZIP: 30326 8-K 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 -------------------- Date of Report: May 1, 2000 LODGIAN, INC. ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 001-14537 52-2093696 - ---------------------------- ------------------------ ---------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification Number) 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326 - ------------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 364-9400 ITEM 5. OTHER EVENTS. Lodgian, Inc, Inc. (the "Corporation") has issued a press release regarding its expectations of the completion of its year-end audit and the preliminary unaudited financial results for 1999 and has attached it as an exhibit to this Form 8-K. The Corporation is releasing its unaudited 1999 financial statements and related schedules and the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") to the investment community in advance of the publication of its 1999 Annual Report to shareholders. Copies of these unaudited financial statements and the MD&A are attached as exhibits to this Form 8-K. ITEM 7. EXHIBITS. EX. 99-1 Press Release dated May 1, 2000. EX. 99-2 Management's Discussion and Analysis of Financial Condition and Results of Operations EX. 99-3 Financial Statements and Supplementary Data SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LODGIAN, INC. By /s/ Robert S. Cole ----------------------------------------- Name: Robert S. Cole Title: President and Chief Executive Officer Date: May 1, 2000 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- EX-99.1 Press Release dated May 1, 2000. EX-99.2 Management's Discussion and Analysis of Financial Condition and Results of Operations EX-99.3 Financial Statements and Supplementary Data EX-99.1 2 PRESS RELEASE DATED MAY 1, 2000 LODGIAN, INC. 3445 PEACHTREE ROAD ATLANTA, GA 30326 www.lodgian.com [GRAPHIC OMITTED][GRAPHIC OMITTED] : LOD
AT LODGIAN, INC. AT FRB / BSMG (WWW.FRBINC.COM) Robert Cole Kenneth Posner Ginny Gaines Todd Tarbox Georganne Palffy Chief Executive Officer Chief Financial Officer Director of Corp. Comm. General Information Analysts/Investors rcole@lodgian.com k posner@logian.com ggaines@lodgian.com ttarbox@frb.bsmg.com gpalffy@frb.bsmg.com (404) 365-3800 (404) 364-4469 (404) 365-3805 (312) 640-6742 (312) 640-6768
MONDAY, MAY 1, 2000 LODGIAN ANNOUNCES FILING OF FORM 8-K WITH UNAUDITED YEAR-END AND FOURTH QUARTER 1999 RESULTS - ------------------------------------------------------------------------------ ACTUAL 2000 FIRST QUARTER REVENUE AND OPERATING MARGINS IN-LINE WITH EXPECTATIONS COMPANY'S CURRENT LIQUIDITY, WORKING CAPITAL AND INTEREST COVERAGE MORE THAN ADEQUATE SAME-UNIT REVPAR INCREASE OF 5.9% FOR 1999 AMONG BEST FOR PUBLIC LODGING COMPANIES ATLANTA--MAY 1, 2000--LODGIAN, INC., (NYSE: LOD), one of the nation's largest owners and operators of hotels, today reported its unaudited fourth quarter and year-end 1999 results in a Form 8-K filing. Management expects to file the Company's 1999 Form 10-K immediately upon completion of the year-end audit. The delay in the preparation of the 1999 financial statements and, therefore, completion of the 1999 audit is primarily attributed to issues associated with the integration of multiple accounting systems into the new system used by Lodgian. Additionally, the Company was confronted with several complex accounting matters related to the Merger that required more time to satisfactorily address. The Company has already taken, and will continue to take, significant action to resolve the systems-related accounting issues. Despite these complexities, the Company believes that there will be no material changes in the 1999 year-end unaudited financial statements when the audit is completed. The Company expects that the audit will be completed in the next several weeks. Because of the substantial number and dollar amount of adjustments that have been recorded in the fourth quarter of 1999, management is considering the extent, if any, to which such adjustments affect a prior period and, whether taken together are sufficiently material to require a restatement. Of the charges recorded in the fourth quarter, totaling approximately $85 million, $61.7 million is directly related to the asset impairment and goodwill charges the Company had announced previously. The balance of the charges are a combination of cash and non-cash charges including professional fees, reserves for litigation, systems and merger integration costs, and franchise and brand conversion costs, among others. The Company continues to believe that the adjustments recorded in the fourth quarter will have no material affect on its business, the market value of the Company's assets and the revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) guidance management has previously provided for the year 2000. This view is supported by the Company's actual first quarter RevPAR, revenue and operating margins which were in-line with management's expectations (pre-asset sales). Moreover, management continues to anticipate the Company's second quarter RevPAR to be in-line with previously communicated expectations, with an increase of approximately 5% over 1999 levels. The Company has provided its 1999 unaudited financial statements to its senior secured lenders and will deliver the required financial statements upon completion of the audit. Although the delivery of audited financial statements is required pursuant to its credit agreement, the Company is confident that its lenders will work with the Company during the completion of the 1999 audit. Furthermore, the unaudited financial results are in compliance with the Company's financial covenants, including the consolidated EBITDA to interest coverage ratio. Although the Company is not currently entitled to receive advances under its existing working capital facility, management is confident that it has sufficient cash balances, working capital and cash generating capability to adequately fund its business without additional advances under the revolving credit facility. The Company's annual meeting will be scheduled immediately after filing of the 1999 Form 10-K. KEY ACCOMPLISHMENTS o Repositioning and renovation strategy continues as the Company has spent approximately $30.0 million to date in 2000 on capital expenditures, thereby continuing to improve the asset quality of the portfolio. o For 1999, twelve of the Company's non-core assets were sold, generating a total of $21 million in cash. o Year-to-date 2000, the Company has realized another $27 million in proceeds from four additional asset sales, with more hotels slated for disposition. o In the first quarter of 2000, the Company converted its Clarion-Pittsburgh, PA to a Crowne Plaza, completed the repositioning of its 150 room Comfort Inn-Boston to a Courtyard by Marriott and opened the new 181 room Hilton Garden in Lake Oswego, Oregon. SUMMARY OF FOURTH QUARTER REVPAR RESULTS For the fourth quarter 1999, Lodgian's 131 consolidated hotels consisted of 77 stabilized hotels, 33 stabilizing hotels and 21 hotels being repositioned. Total RevPAR, composed of $42.31 on an occupancy rate of 58.4 percent and $72.47 average daily rate (ADR), was as follows: - ----------------------------------------------------------------- TOTAL REVPAR FOURTH QUARTER ENDED DECEMBER 31, 1999 - ----------------------------------------------------------------- HOTEL CLASSIFICATION OCCUPANCY ADR REVPAR - ----------------------------------------------------------------- Stabilized 60.8% $71.69 $43.58 Stabilizing 57.7% $71.93 $41.48 Being Repositioned 52.1% $76.08 $39.62 - ----------------------------------------------------------------- Total 58.4% $72.47 $42.31 - ----------------------------------------------------------------- The same-unit RevPAR increase of 4.3 percent for the fourth quarter 1999 consisted of 58.4 percent occupancy at a $71.84 ADR on properties owned and operated for at least 12 months. Same-unit RevPAR for the fourth quarters of 1998 and 1999 was as follows: - ----------------------------------------------------------------- SAME-UNIT REVPAR FOURTH QUARTER ENDED DECEMBER 31, - ----------------------------------------------------------------- HOTEL CLASSIFICATION 1998 1999 % CHANGE - ----------------------------------------------------------------- Stabilized $43.58 $43.58 0.0% Stabilizing $36.43 $39.78 9.2% Being Repositioned $34.67 $39.62 14.3% - ----------------------------------------------------------------- Total Same-Unit $40.22 $41.94 4.3% - ----------------------------------------------------------------- SUMMARY OF 1999 REVPAR RESULTS For the year 1999, total RevPAR for Lodgian's 131 consolidated hotels, composed of $47.03 on an occupancy rate of 63.1 percent and $74.58 ADR, was as follows: - ----------------------------------------------------------------- TOTAL REVPAR TWELVE MONTHS ENDED DECEMBER 31, 1999 - ----------------------------------------------------------------- HOTEL CLASSIFICATION OCCUPANCY ADR REVPAR - ----------------------------------------------------------------- Stabilized 66.1% $73.53 $48.60 Stabilizing 61.9% $74.59 $46.17 Being Repositioned 55.4% $78.42 $43.43 - ----------------------------------------------------------------- Total 63.1% $74.58 $47.03 - ----------------------------------------------------------------- Same-unit RevPAR for the year of 1999 increased 5.9 percent to $47.03 on an occupancy rate of 63.2 percent and $74.38 ADR. For the years 1998 and 1999, same-unit RevPAR was as follows: - ----------------------------------------------------------------- SAME-UNIT REVPAR TWELVE MONTHS ENDED DECEMBER 31, - ----------------------------------------------------------------- HOTEL CLASSIFICATION 1998 1999 % CHANGE - ----------------------------------------------------------------- Stabilized $47.52 $48.79 2.7% Stabilizing $39.00 $45.16 15.8% Being Repositioned $40.89 $43.97 7.5% - ----------------------------------------------------------------- Total Same-Unit $44.41 $47.03 5.9% - ----------------------------------------------------------------- ABOUT LODGIAN Lodgian, Inc. owns or manages a portfolio of 127 hotels with approximately 24,000 rooms in 35 states and Canada. The hotels are primarily full service, providing food and beverage service, as well as meeting facilities. Substantially all of Lodgian's hotels are affiliated with nationally recognized hospitality brands such as Holiday Inn, Crowne Plaza, Marriott, Sheraton, Hilton and Westin. Lodgian's common shares are listed on the New York Stock Exchange under the symbol "LOD." Lodgian is a component of both the Russell 2000(R) Index, representing small cap stocks, and the Russell 3000(R) Index, representing the broader market. FORWARD-LOOKING STATEMENTS Note: Statements in this press release which are not strictly historical are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, which may cause the company's actual results in the future to differ materially from expected results. These risks include, among others, competition within the lodging and contract service industries; the relationship between supply and demand for hotel rooms; the effects of economic conditions; issues associated with the ongoing integration of the former Servico, Inc. and Impac Hotel Group, LLC; the acquisition and renovation of existing hotels and the development of new hotels; operating risks; the cyclical nature of the lodging industry; risks associated with the dependence on franchisers of the company's lodging properties; and the availability of capital to finance planned growth, as described in the company's filings with the Securities and Exchange Commission. FOR MORE INFORMATION ON LODGIAN TOLL-FREE VIA FAX, DIAL 1-800-PRO-INFO (OR 1-800-776-4636), FOLLOW THE VOICE MENU PROMPTS AND ENTER THE COMPANY TICKER LOD (OR 563) OR VISIT THE LODGIAN PAGE ON THE FRB WEB SITE AT WWW.FRBINC.COM VISIT LODGIAN AT WWW.LODGIAN.COM FINANCIAL TABLES FOLLOW... LOGIAN, INC. STATEMENT OF OPERATIONS (in thousands, except per share amounts)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ---- ---- ---- ---- UNAUDITED UNAUDITED UNAUDITED Revenues: Rooms $ 96,313 $ 70,589 $ 424,525 $ 267,862 Food & beverage 38,456 32,661 139,474 107,334 Other 5,959 5,335 28,416 20,018 -------- -------- --------- --------- Total Revenue 140,728 108,585 592,415 395,214 -------- -------- --------- --------- Operating expenses: Direct: Rooms 31,177 21,301 121,512 75,316 Food and beverage 27,679 24,068 102,030 81,643 Other 4,589 3,094 17,357 11,023 General and administrative 9,025 2,843 27,006 10,080 Depreciation and amortization 15,757 8,586 56,359 31,114 Other 50,856 33,153 178,249 118,927 -------- -------- --------- --------- Total Operating expenses 139,083 93,045 502,513 328,103 -------- -------- --------- --------- Income from operations 1,645 15,540 89,902 67,111 Other income (expenses): Interest income and other 419 (85) 279 (176) Interest expense (21,384) (8,485) (78,840) (30,378) Impairment of long-lived assets (40,283) (40,283) Write off of goodwill (20,748) (20,748) Gain (Loss) on asset disposition 1,242 (432) Settlement on swap transactions (31,492) Merger and other nonrecurring items (10,090) (3,400) (10,090) (3,400) Minority interests - Preferred Redeemable Securities (3,072) (3,152) (13,224) (6,475) -------- -------- --------- --------- (Loss) income before income taxes and extraordinary item (93,513) 418 (71,762) (5,242) (Benefit) provision for income taxes (28,399) 167 (19,699) (2,097) -------- -------- --------- --------- (Loss) income before extraordinary item (65,114) 251 (52,063) (3,145) Extraordinary loss, net of tax benefit (1,414) (934) (7,750) (2,076) -------- -------- --------- --------- Net (loss) income $(66,528) $ (683) $ (59,813) $ (5,221) ======== ======== ========= ========= Earnings (loss) per common share: (Loss) income before extraordinary item $ (2.34) $ 0.01 $ (1.91) $ (0.16) Extraordinary item (0.05) (0.05) (0.28) (0.10) -------- -------- --------- --------- Net (loss) income $ (2.39) $ (0.04) $ (2.19) $ (0.26) ======== ======== ========= ========= Weighted average shares outstanding, basic and assuming dilution 27,807 23,740 27,222 20,245 Earnings before interest, taxes, depreciation and amortization (EBITDA) $ 17,402 $ 24,126 $ 147,257 $ 98,225 ======== ======== ========= =========
EX-99.2 3 MANAGEMENT'S DISCUSSION AND ANALYSIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL OVERVIEW Management believes that results of operations in the hotel industry are best explained by four key performance measures: occupancy, average daily rate and revenue per available room ("RevPAR") levels and EBITDA margins. These measures are influenced by a variety of factors including national, regional and local economic conditions, the degree of competition with other hotels in the area and changes in travel patterns. The demand for accommodations is also affected by normally recurring seasonal patterns and most of the Company's hotels experience lower occupancy levels in the fall and winter months (November through February) which may result in lower revenues, lower net income and less cash flow during these months. Lodgian's business strategy includes the acquisition of underperforming hotels and the implementation of operational initiatives and repositioning and renovation programs to achieve revenue and margin improvements. During this period of repositioning, the revenues and earnings of these hotels may be adversely affected and may negatively impact the Company's consolidated RevPAR, average daily rate and occupancy rate performance, as well as the Company's EBITDA margins. In addition, the Company's strategy includes developing new full service hotels. Newly developed properties typically require 24 months following completion to stabilize. To track the execution of the Company's repositioning and development growth strategy and its impact on results of operations, hotels are classified as either "Stabilized Hotels," "Stabilizing Hotels" or "Being Repositioned Hotels," as described below: - Stabilized Hotels are (1) properties which have experienced little or no disruption to their operations over the past 24 to 36 months as the result of redevelopment or repositioning efforts, or (2) newly- constructed hotels which have been in service for 24 months or more. - Stabilizing Hotels are (1) properties which have undergone renovation or repositioning investment within the last 36 months, which work is now completed, or (2) newly developed properties placed into service within the past 24 months. Management believes that these properties should experience higher rates of growth in RevPAR and improvements in operating margin than the Stabilized Hotels. On average, hotels which have undergone renovation have generally reached stabilization within approximately 12 to 18 months after their completion date, and newly developed hotels have reached stabilization approximately 24 months after their completion date. - Being Repositioned Hotels are hotels experiencing disruption to their operations due to renovation and repositioning. During this period (generally 12 to 18 months) hotels will usually experience lower operating results, such as RevPAR and operating margins. The Company expects significant improvements in the operating performance of those hotels which have undergone a repositioning once the renovation is completed. After the repositioning work is completed, these properties will be reclassified on the next January 1 as Stabilizing Hotels. The Company classifies each hotel into one of the three categories at the beginning of each fiscal year. The Company has not classified the one hotel in which it has a minority equity interest or the one hotel it manages for a third party. The Company will determine the category most appropriate for each hotel based on an evaluation of objective and subjective factors, including the time of completion of renovation and whether the full benefit of renovations has been realized. Servico had historically classified its hotels as "Stabilized Hotels" and "Reposition Hotels." The Stabilized Hotels were hotels that had achieved normalized operations after completion of renovation and repositioning. The Reposition Hotels were those hotels that were undergoing or had completed significant renovation and repositioning but had not yet achieved normalized operations. In June 1999, the Company sold its joint venture interest in its European hotel portfolio, which consisted of six hotels. The Company received approximately $7.5 million in net proceeds from the sale. In addition, during 1999 the Company sold four wholly-owned hotels and two land parcels in the United States receiving net proceeds of approximately $14.5 million, and, effective August 1, 1999, ceased managing one hotel for a third party. These transactions did not have a material effect on EBITDA or results of operations. -- ALL 1999 RESULTS UNAUDITED -- In August 1999, the Company opened the Marriott Portland City Center in Portland, Oregon and in October 1999, opened the Courtyard by Marriott in Livermore, California. Also, in September 1999, the Company purchased for $10.2 million the 49% interest of its partner in six hotels. Further, in 1999 the Company rebranded seven hotels to flags that are more representative of its core focus. Revenues. Revenues are composed of rooms, food and beverage (both of which are classified as direct revenues) and other revenues. Room revenues are derived from guest room rentals, while food and beverage revenues primarily include sales from hotel restaurants, room service and hotel catering. Other revenues include charges for guests' long-distance telephone service, laundry service, use of meeting facilities and fees earned by the Company for services rendered in conjunction with properties managed for third parties. Operating Expenses. Operating expenses are composed of direct, general and administrative, other hotel operating expenses and depreciation and amortization. Direct expenses, including rooms, food and beverage and other operations, reflect expenses directly related to hotel operations. These expenses generally vary with available rooms and occupancy rates, but also have a small fixed component. General and administrative expenses represent corporate salaries and other corporate operating expenses and are generally fixed. Other hotel operating expenses include primarily property level expenses related to general operations such as advertising, utilities, repairs and maintenance and other property administrative costs. These expenses are also primarily fixed. RESULTS OF OPERATIONS Operating results have been materially impacted by the significant number of acquisitions and extensive renovation activity during 1997, 1998 and 1999. In June 1998, Servico acquired AMI, an entity that owned and operated 14 hotels, four of which were subsequently sold. In December 1998, Servico merged with Impac, an entity that owned or managed 53 hotels, three of which were under construction. Because these transactions were accounted for using the purchase accounting method, the results of AMI and Impac are included in the consolidated results of operations from the time they were acquired. This makes comparisons of historical operating results with prior periods less meaningful. The discussion of results of operations, income taxes, liquidity and capital resources that follows is derived from the Company's Audited Consolidated Financial Statements set forth in "Item 8, Financial Statements and Supplementary Data" included in this Form 10-K and should be read in conjunction with such financial statements and notes thereto. Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 REVENUES At December 31, 1999, the Company owned 132 hotels, had a minority interest in one hotel and managed one hotel for a third party owner compared with 141 hotels owned, a minority interest in one hotel and two hotels managed for third party owners at December 31, 1998. Revenues were $592.4 million for 1999, a 49.9% increase over revenues of $395.2 million for 1998. Of this $197.2 million increase, $194.0 million was attributable to AMI and the Merger. In addition, four newly constructed hotels that opened between November 1998 and October 1999 contributed approximately $8.2 million of the increase. The remaining change, a decrease in revenues of approximately $5.0 million was attributable to the hotels that were sold in 1998 or 1999. The following table summarizes certain operating data for the Company's hotels for the year ended December 31, 1999 and 1998. The Stabilized, Stabilizing and Being Repositioned Hotels refers to classifications in these respective categories as of January 1, 1999. -- ALL 1999 RESULTS UNAUDITED --
HOTELS(1) ADR OCCUPANCY REVPAR ------------------- -------------------- ------------------- ------------------ 1999 1998 1999 1998 1999 1998 1999 1998 --------- --------- --------- --------- --------- --------- --------- -------- Stabilized................... 77 50 $ 73.53 $ 73.69 66.1% 67.7% $ 48.60 $ 49.92 Stabilizing.................. 35 12 74.59 69.73 61.9 58.3 46.17 40.64 Being Repositioned........... 21 22 78.42 75.60 55.4 58.3 43.43 44.04 --- ------- ------- ---- ---- ------- ------- Total.............. 133 84 $ 74.58 $ 73.09 63.1% 64.1% $ 47.03 $ 46.86 === == ======= ======= ==== ==== ======= =======
- ------------------ (1) Excludes one hotel managed for a third party and one owned non-consolidated hotel. All 1998 figures in the table exclude AMI (prior to the acquisition date) and the Merger. OPERATING EXPENSES Direct operating expenses for the Company were $240.9 million (40.7% of direct revenues) for 1999 and $168.0 million (42.5% of direct revenue) for 1998. Of the $72.9 million increase, $73.6 million was attributable to the acquisition of AMI and the Merger. In addition, the four newly constructed hotels contributed approximately $3.9 million of the increase and hotels sold during 1998 and 1999 provided a $2.9 million decrease. The balance of the change is represented primarily by improved operating margins in the food and beverage area. General and administrative expenses were $27.0 million in 1999 and $10.1 million in 1998. Of the $16.9 million increase, approximately $10.0 million was attributable to the acquisition of AMI and the Merger. Additionally, approximately $1.5 million represents expenses associated with the expansion of the corporate sales and marketing staff and the regional offices. Depreciation and amortization expense was $56.4 million for 1999 and $31.1 million for 1998. The $25.3 million increase was attributable to the acquisition of AMI, the Merger, the opening of the four new hotels and the completion of renovation projects. Other hotel operating expenses were $178.2 million for 1999 and $118.9 million for 1998. Of the $59.3 million increase, $59.8 million was attributable to the acquisition of AMI and the Merger. In addition, $2.6 million was attributable to the four newly constructed hotels and hotels sold during 1998 or 1999 provided a $1.6 million decrease. Further, $1.0 million was attributable to the Company's share of loss from an unconsolidated partnership, essentially all of which was represented by depreciation. As a result of the above, income from operations was $89.9 million for 1999 as compared to $67.1 million for 1998. OTHER INCOME AND EXPENSE Interest expense was $78.8 million in 1999 and $30.4 million in 1998. This increase was primarily a result of an increase in the level of debt associated with the acquisition of AMI and the Merger. Additionally, the July 1999 recapitalization further raised the level of debt by approximately $30 million, increased the margin on floating rate obligations by .75% to 1.75% and included a $200 million, 12.25% fixed rate instrument. Minority interest expense related to the Company's Convertible Redeemable Equity Structure Trust Securities ("CRESTS") was $13.2 million in 1999 and $6.5 million in 1998. The Company's CRESTS were issued in June 1998. During 1999, the Company recognized a $40.3 million charge for the impairment of long-lived assets, principally related to hotels the Company has targeted for sale. Also, in 1999 the Company wrote off $20.7 million of goodwill associated with the Merger in accordance with its policy of accounting for goodwill under the market value method. The Company incurred $10.1 million of non-recurring expenses in 1999. Of this amount, $6.1 million related to the completion of accounting, systems and other Merger integration matters, including preparation for Year 2000 and severance. In addition, non-recurring expenses include $2.7 million of legal fees either incurred or accrued. Such fees relate to abandoned development projects and a provision for the estimated costs and expenses of defending the Company in the matters referred to in "Item 3, Legal Proceedings" included in this Form 10-K. Further, the Company recorded a $1.3 million provision for various audit matters. -- ALL 1999 RESULTS UNAUDITED -- The nature and amount of adjustments recorded in the fourth quarter of 1999, including those described in the preceding two paragraphs, are substantial. Accordingly, the Company is considering the extent, if any, to which such adjustments affect a prior period and, whether taken together any that do affect a prior period are sufficiently material to require a restatement. During 1998, the Company recognized a $31.5 million loss as a result of two swap transactions that were entered into by the Company in an effort to manage the interest rate risk associated with its financing of the Merger. Also, in 1998 the Company incurred approximately $3.4 million of severance and other expenses in connection with the Merger. These expenses consisted primarily of costs associated with the closing and relocation of Servico's corporate headquarters and severance or relocation of certain employees. Other income (expense) for 1999 includes a $1.2 million gain from the sale of assets compared with a $.4 million loss in 1998. During 1999, the Company repaid, prior to maturity, approximately $410.0 million in debt, and as a result recorded an extraordinary loss on early extinguishment of debt of approximately $7.8 million (net of income tax benefit of $4.9 million) relating to the write-off of unamortized loan costs associated with the debt. The Company recognized an extraordinary loss on early extinguishment of debt of $2.1 million, after taxes, in 1998 that related to the refinancing of certain debt. NET INCOME After a provision (benefit) for income taxes of $(19.7) million for 1999 and $(2.1) million for 1998, the Company had income (loss) before extraordinary item of $(52.1) million ($1.91 loss per share) in 1999 compared with $(3.1) million ($.16 loss per share) in 1998. Net of an income tax benefit of $4.9 million for 1999 and $1.4 million for 1998, the Company had an extraordinary item, loss on early extinguishment of debt, of $7.8 million ($.28 loss per share) in 1999 and $2.1 million ($.10 loss per share) in 1998. Net income (loss) for 1999 amounted to $(59.8) million ($2.19 loss per share) compared with $(5.2) million ($.26 loss per share) for 1998. Year Ended December 31, 1998 as Compared to the Year Ended December 31, 1997 At December 31, 1998, Lodgian owned 141 hotels, managed two hotels for third party owners and had a minority investment in one hotel compared with 68 hotels owned, two managed for third party owners and a minority investment in one hotel at December 31, 1997. The Company's revenues were $395.2 million for 1998, a 42.8% increase over revenues of $276.7 million for 1997. Of this $118.5 million increase in revenues, the 1997 acquisitions, which were not operated for the full year of 1997, contributed approximately $49.5 million to the increase in revenues. The 1998 acquisitions contributed approximately $33.6 million to the increase in revenues. The 21 days of revenues from the Impac Hotels contributed approximately $7.3 million to the increase in revenues. The remaining increase in revenues of approximately $28.1 is attributed to the balance of the portfolio. The Company's direct operating expenses were $168.0 million for 1998 and $118.7 million for 1997. Of the $49.3 million increase, $20.4 million is directly attributable to the Reposition Hotels with approximately $13.2 million relating to acquisitions in 1998. The direct operating expenses decreased as a percentage of direct revenue from 42.9% in 1997 as compared to 42.5% in 1998. The decrease in operating expenses as a percentage of revenues was a result of the combined effect of strong revenue growth and continued emphasis on cost controls. Other operating expenses were $118.9 million for 1998 and $79.9 million for 1997. This increase of $39.0 million represents the expenses incurred with respect to the 1998 acquisitions and by the Reposition Hotels. Lodgian's depreciation and amortization expense was $31.1 million for 1998 and $23.0 million for 1997. Included in this $8.1 million increase was $3.0 million associated with the Reposition Hotels and the remaining increase was related to the 1998 acquisitions, and to equipment purchases and improvements made at the Stabilized Hotels. -- ALL 1999 RESULTS UNAUDITED -- As a result of the above, income from operations was $67.1 million for 1998 as compared to $46.1 million for 1997. Lodgian incurred $21.2 million (net of a tax benefit of $14.1 million) in non-recurring charges during 1998. During August 1998, the Company entered into treasury rate lock transactions with notional amounts of $175.0 million and $200.0 million with a lender for the purpose of hedging interest rate exposure on two anticipated financing transactions. During September 1998, the Company determined that it was not probable that it could consummate the anticipated transactions and recognized a loss of $18.9 million (net of tax benefit of $12.6 million). In addition, the Company incurred approximately $3.4 million of severance and other expenses in connection with the Merger which have been substantially paid at December 31, 1998. These expenses consisted primarily of costs associated with the closing and relocation of Servico's corporate headquarters and termination or relocation of certain employees. Interest expense was $30.4 million for 1998, a $4.5 million increase from the $25.9 million for 1997. The increase was primarily a result of an increase in the level of debt associated with the 1998 acquisitions. Minority interests in net income of consolidated partnerships were approximately $1.4 million for 1998 and $1.0 million for 1997. During 1998 the Company repaid, prior to maturity, approximately $247.0 million in debt, and as a result recorded an extraordinary loss on early extinguishment of debt of approximately $2.1 million (net of income tax benefit of $1.4 million) relating to the write-off of unamortized loan costs associated with the debt. The Company recognized an extraordinary loss on early extinguishment of debt of $3.8 million, after taxes, in 1997 which related to the refinancing of certain debt. After a benefit for income taxes of $2.1 million in 1998 and a provision for income taxes of $8.4 million in 1997, the Company had a net loss of $5.2 million ($(.26 loss per share) for 1998 and net income of $8.8 million ($.56 per share) for 1997. Excluding the non-recurring items discussed above, the Company had recurring income of $18.0 million for 1998 ($.89 per share) and $12.6 million for 1997 ($.80 per share) in 1998 and 1997, respectively. INCOME TAXES As of December 31, 1999, Lodgian had net operating loss carryforwards of approximately $86.7 million for federal income tax purposes, which expire in 2005 through 2018. The Company's ability to use these net operating loss carryforwards to offset future income is subject to certain limitations, and may be subject to additional limitations in the future. Due to these limitations, a portion or all of these net operating loss carryforwards could expire unused. LIQUIDITY AND CAPITAL RESOURCES Lodgian's principal sources of liquidity consist of existing cash balances, cash flow from operations and financing. Additionally, the Company expects to generate cash from the disposition of hotels it has targeted for sale. The net proceeds from the sale of hotels is expected to be used to reduce long-term debt. The Company had earnings from operations before interest, taxes, depreciation and amortization ("EBITDA") in 1999 of $146.3 million, a 49.0% increase from the $98.2 million for the 1998 Period. The Company has computed EBITDA without regard to the non-recurring and one-time charges discussed above. EBITDA is a widely regarded industry measure of lodging performance used in the assessment of hotel property values, although EBITDA is not indicative of and should not be used as an alternative to net income or net cash provided by operations as specified by generally accepted accounting principles. Net cash provided by operating activities in 1999 was $62.7 million as compared with $29.3 million in 1998. -- ALL 1999 RESULTS UNAUDITED -- Cash flows used in investing activities were $84.6 million and $182.5 million in 1999 and 1998, respectively. The 1999 amount includes capital expenditures of $114.6 million and net proceeds from the sale of assets of $22.1 million, including the disposition of the Company's investment in six European hotels and proceeds from capital expenditure escrows of $20.1 million. The 1998 amount consists of capital expenditures of $186.4 million, including the acquisition of the AMI hotels, net of assumed debt, and proceeds from capital expenditure escrows of $3.9 million. Cash flows provided by financing activities were $19.2 million and $ 157.2 million in 1999 and 1998, respectively. The 1999 amount consists primarily of the net proceeds from the issuance and repayment of long-term obligations. The 1998 amount includes the net proceeds from the issuance and repayment of long-term obligations of $190.1 million (including $168.5 million of net proceeds from the issuance of CRESTS) reduced by $34.1 million from the repurchase of common stock. The Merger was a non-cash investing and financing transaction, except for the $15.0 million paid to Impac unitholders. At December 31, 1999, the Company had a working capital deficit of $40.3 million as compared with a working capital deficit of $65.1 million at December 31, 1998. At December 31, 1999 long-term obligations were $881.7 million, not including $175 million of CRESTS. Long-term obligations were $816.6 million at December 31, 1998. Certain hotels are operated under license agreements that require the Company to make capital improvements in accordance with a specified time schedule. Additionally, in connection with the refinancing of hotels, the Company has agreed to make certain capital improvements and, as of December 31, 1999, has approximately $10.3 million escrowed for such improvements. The Company estimates its remaining obligations for all of such commitments to be approximately $42 million, of which approximately $40 million is expected to be spent during 2000, with the balance to be spent thereafter. During 2000, the Company expects to spend approximately $25 million to complete the construction of one new hotel and substantially complete construction of another hotel. Essentially all of the funds necessary to complete construction of these hotels are expected to be provided by existing loan facilities. In connection with the Merger on December 11, 1998, the Company obtained $265 million of mortgage notes from Lehman Brothers Holding, Inc. ("Lehman"). The net proceeds were used to repay existing debt and related obligations. In July, the Company sold $200 million of Senior Subordinated Notes (the "Notes"). In addition, the Company entered into a new, multi-tranche senior secured loan credit facility. The facility consists of development loans with a maximum capacity of $75 million (the tranche A and C loans), a $240 million tranche B term loan and a $50 million revolving credit facility. The tranche A and C loans will be used for hotel development projects. The tranche B loan, along with the proceeds from the Notes was used to repay the Lehman loan and, in September, a $132.5 million loan (one of three facilities) from Nomura Asset Capital Corporation. These financings contain various covenants, coverage ratios and payment restrictions with which the Company is in compliance at December 31, 1999. Payment restrictions with respect to the CRESTS may require the Company to begin deferring payments beginning June 30, 2000. Continuation of the current growth strategy beyond the facilities described above will require additional financing. The Company's financial position may, in the future, be strengthened through an increase in revenues, the refinancing of properties or capital from equity or debt markets. The Company cannot guarantee that it will be successful in these efforts. Among the covenants contained in the financing described in the preceding paragraph is the requirement to deliver annual audited financial statements. The Company has not delivered such financial statements within the prescribed period and, therefore, is in technical default. The Company has provided its 1999 -- ALL 1999 RESULTS UNAUDITED -- unaudited financial statements to the senior secured lenders and will deliver the required financial statements upon completion of the audit. The unaudited financial statements demonstrate the Company's compliance with the financial covenants and the Company believes that there will not be any material changes when the audited financial statements are completed. The Company remains confident that its lenders will work with the Company during the completion of the 1999 audit. In this regard, the Company's December 31, 1999 balance sheet has been prepared on the presumption that none of its credit facilities are accelerated as a consequence of the technical default. During this period of technical default, the Company's senior secured lenders have expressed an unwillingness to make additional advances to the Company under the revolving credit facility. The Company believes that it has sufficient cash balances and cash generating capability to adequately fund the business without additional advances under the revolving credit facility prior to eliminating the technical default. The delay in completion of the 1999 audit is primarily attributable to record keeping difficulties associated with the integration of accounting systems used by Servico and Impac into the system used by Lodgian. Insufficient resources were allocated to the systems integration project resulting in an unexpected delay in completion of the Company's financial statements. Additionally, the Company was confronted with several complex accounting matters related to the Merger that required more time to satisfactorily address. The Company has taken, and will continue to take, action to reduce the systems related accounting issues and to improve the internal control environment. INFLATION The rate of inflation has not had a material effect on the Company's revenues or costs and expenses in the three most recent fiscal years, and it is not anticipated that inflation will have a material effect on the Company in the near term. YEAR 2000 MATTERS UPDATE The Company did not experience any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on hotel operations since January 1, 2000, the Company does not expect any significant impact on its ongoing business as a result of the "Year 2000 matter." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar problems may occur with revenue systems, payroll systems or financial closings at month, quarter or year end. The Company believes that any such problems are likely to be minor and correctable. In addition, the Company could still be negatively affected if its customers or suppliers are adversely affected by Year 2000 or similar issues. The Company is currently not aware of any significant Year 2000 or similar problems that its customers or suppliers have experienced. The Company expended approximately $2 million on Year 2000 readiness efforts, a substantial portion of which was for equipment necessary to accommodate new property management and telecommunications software. This equipment has been capitalized and the balance of costs have been expensed. -- ALL 1999 RESULTS UNAUDITED -- EX-99.3 4 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1999 1998 ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents.................................. $ 16,497 $ 19,185 Cash, restricted........................................... 4,787 6,302 Accounts receivable, net of allowances..................... 27,099 25,498 Inventories................................................ 9,218 9,263 Prepaid expenses........................................... 5,102 8,697 Other current assets....................................... 3,573 9,996 ---------- ---------- Total current assets............................... 66,276 78,941 Property and equipment, net.................................. 1,315,011 1,317,470 Deposits for capital expenditures............................ 10,262 30,386 Other assets, net............................................ 34,982 71,124 ---------- ---------- $1,426,531 $1,497,921 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........................................... $ 40,708 $ 57,253 Accrued liabilities........................................ 55,441 50,633 Current portion of long-term obligations................... 10,404 36,134 ---------- ---------- Total current liabilities.......................... 106,553 144,020 Long-term obligations, less current portion.................. 881,675 816,644 Deferred income taxes........................................ 33,477 63,469 Commitments and contingencies................................ -- -- Minority interests: Preferred redeemable securities............................ 175,000 175,000 Other...................................................... 4,404 15,021 Stockholders' equity: Common stock, $.01 par value 75,000,000 shares authorized; 28,130,325 and 27,937,057 shares issued and outstanding at December 31, 1999 and 1998, respectively............. 281 278 Additional paid-in capital................................. 262,760 261,976 Retained earnings (deficit)................................ (36,707) 23,106 Accumulated other comprehensive loss....................... (912) (1,593) ---------- ---------- Total stockholders' equity......................... 225,422 283,767 ---------- ---------- Total liabilities and stockholders' equity......... $1,426,531 $1,497,921 ========== ==========
See accompanying notes. -- ALL 1999 RESULTS UNAUDITED -- LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) Revenues: Rooms............................................. $ 424,525 $ 267,862 $ 179,956 Food and beverage................................. 139,474 107,334 80,335 Other............................................. 28,416 20,018 16,366 --------- --------- --------- 592,415 395,214 276,657 Operating expenses: Direct: Rooms.......................................... 121,512 75,316 49,608 Food and beverage.............................. 102,030 81,643 60,919 Other.......................................... 17,357 11,023 8,155 General and administrative.......................... 27,006 10,080 8,973 Depreciation and amortization....................... 56,359 31,114 23,023 Other............................................... 178,249 118,927 79,881 --------- --------- --------- Total operating expenses.................. 502,513 328,103 230,559 --------- --------- --------- Income from operations.............................. 89,902 67,111 46,098 Other income (expenses): Interest income and other......................... 1,579 1,260 1,720 Interest expense.................................. (78,840) (30,378) (25,909) Impairment of long-lived assets................... (40,283) -- -- Write-off of goodwill............................. (20,748) Gain (loss) on asset dispositions................. 1,242 (432) -- Settlement on swap transactions................... -- (31,492) -- Merger and other non-recurring expenses........... (10,090) (3,400) -- Minority interests: Preferred redeemable securities................... (13,224) (6,475) -- Other............................................. (1,300) (1,436) (960) --------- --------- --------- (Loss) income before income taxes and extraordinary item.............................................. (71,762) (5,242) 20,949 (Benefit) provision for income taxes................ (19,699) (2,097) 8,379 --------- --------- --------- (Loss) income before extraordinary item............. (52,063) (3,145) 12,570 Extraordinary item: Loss on extinguishment of indebtedness, net of income tax benefit of $4,914 $1,384 and $2,500 in, 1999, 1998 and 1997, respectively.......... (7,750) (2,076) (3,751) --------- --------- --------- Net (loss) income................................... $ (59,813) $ (5,221) $ 8,819 ========= ========= ========= Earnings (loss) per common share: (Loss) income before extraordinary item........... $ (1.91) $ (.16) $ 83 Extraordinary item................................ (.28) (.10) (.25) --------- --------- --------- Net (loss) income per common share................ $ (2.19) $ (.26) $ .58 ========= ========= ========= Earnings (loss) per common share -- assuming dilution: (Loss) income before extraordinary item............. $ (1.91) $ (.16) $ 80 Extraordinary item.................................. (.28) (.10) (.24) --------- --------- --------- Net (loss) income per common share -- assuming dilution.......................................... $ (2.19) $ (.26) $ .56 ========= ========= =========
See accompanying notes. -- ALL 1999 RESULTS UNAUDITED -- LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY ---------- ------------- ----------- ------------- ------------------ --------------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at December 31, 1996 9,369,605 $ 94 $ 55,136 $ 19,508 $ $ 74,738 Issuance of common stock. 11,500,000 115 156,085 156,200 401(k) Plan contribution. 49,847 282 282 Exercise of stock options 86,600 1 437 438 Tax benefit from exercise of stock options....... 175 175 Purchase of common stock. (31,200) (538) (538) Net income............... 8,819 8,819 Currency translation adjustments........... (579) (579) -------- Comprehensive income..... 8,240 --------- ----- -------- -------- ------- -------- Balance at December 31, 1997 20,974,852 $ 210 $211,577 $ 28,327 $ (579) $239,535 ========== ===== ======== ======== ======= ======== Issuance of common stock in connection with purchase of Impac.............. 9,400,000 94 82,626 82,720 401(k) Plan contribution. 88,205 430 430 Exercise of stock options 134,900 1 1,143 1,144 Tax benefit from exercise of stock options...... 245 245 Purchase of common stock. (2,660,900) (27) (34,045) (34,072) Net loss................. (5,221) (5,221) Currency translation adjustments........... (1,014) (1,014) -------- Comprehensive loss....... (6,235) --------- ----- -------- -------- ------- -------- Balance at December 31, 1998 27,937,057 $ 278 $261,976 $ 23,106 $(1,593) $283,767 ========== ===== ======== ======== ======= ======== 401(k) Plan contribution. 143,160 2 547 549 Exercise of stock options 30,000 1 119 120 Tax benefit from exercise of stock options...... 20 20 Director compensation.... 20,108 98 98 Net loss................. (59,813) (59,813) Currency translation adjustments........... 681 681 -------- Comprehensive loss....... (59,132) --------- ----- -------- -------- ------- -------- Balance at December 31, 1999 28,130,325 $ 281 $262,760 $(36,707) $ (912) $225,422 ========== ===== ======== ======== ======= ========
See accompanying notes. -- ALL 1999 RESULTS UNAUDITED -- LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ (IN THOUSANDS) Operating activities: Net (loss) income.................................................... $ (59,813) $ (5,221) $ 8,819 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization...................................... 56,359 31,114 23,023 Impairment of long-lived assets.................................... 40,283 -- -- Write-off of goodwill.............................................. 20,748 -- -- Loss on extinguishment of indebtedness............................. 12,664 3,460 6,251 Deferred income taxes.............................................. (29,972) (726) 2,216 Minority interests -- other........................................ 1,300 1,430 960 401(k) Plan contributions.......................................... 549 430 282 Compensation in stock issued to directors.......................... 98 -- -- Provision for (recoveries of) losses on receivables................ -- 77 (69) Equity in (profit) loss of unconsolidated entities................. 718 (782) (107) (Gain) loss on sale of assets...................................... (1,242) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable.............................................. (1,601) (6,563) (2,017) Inventories...................................................... 45 (1,883) (1,458) Other assets..................................................... 34,272 (18,412) 425 Accounts payable................................................. (16,545) 14,913 1,174 Accrued liabilities.............................................. 4,808 11,464 2,522 ------------ ------------ ------------ Net cash provided by operating activities..................... 62,671 29,301 42,021 Investing activities: Acquisitions of property and equipment............................... (1,929) (67,717) (143,406) Proceeds from sale of assets......................................... 22,068 Capital improvements, net............................................ (114,647) (118,667) (48,252) Purchase of minority interests....................................... (10,200) -- (11,748) Net (deposits) withdrawals for capital expenditures.................. 20,124 3,860 (17,247) Purchase of marketable securities.................................... -- -- (500) Payments on notes receivable issued to related parties............... -- -- 470 Decrease in investment in unconsolidated entities.................... -- -- 17 ------------ ------------ ------------ Net cash used in investing activities......................... (84,584) (182,524) (220,666) Financing activities: Proceeds from issuance of long-term obligations...................... 487,521 600,284 191,560 Proceeds from issuance of common stock............................... 120 1,144 156,638 Principal payments of long-term obligations.......................... (448,220) (390,026) (167,647) Payments of deferred loan costs...................................... (18,479) (20,165) (4,652) Distributions to minority interests.................................. (1,717) -- (946) Payments for repurchase of common stock.............................. -- (34,072) (538) ------------ ------------ ------------ Net cash provided by financing activities..................... 19,225 157,165 174,415 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................... (2,688) 3,942 (4,230) Cash and cash equivalents at beginning of year......................... 19,185 15,243 19,473 ------------ ------------ ------------ Cash and cash equivalents at end of year............................... $ 16,497 $ 19,185 $ 15,243 ============ ============ ============ Supplemental cash flow information Cash paid during the year for: Interest, net of amount capitalized.................................. $ 69,574 $ 31,512 $ 22,109 ============ ============ ============ Income taxes paid, net of refunds.................................... $ 3,810 $ 5,210 $ 1,091 ============ ============ ============ Supplemental disclosure of non cash investing and financing activities: Non cash acquisition and related financing of property and equipment.......................................................... $ -- $ 696,851 $ -- ============ ============ ============ Issuance of stock in connection with acquisition of Impac.............................................................. $ -- $ 82,700 $ -- ============ ============ ============
See accompanying notes. -- ALL 1999 RESULTS UNAUDITED -- LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business On December 11, 1998 Servico, Inc. (Servico) merged with Impac Hotel Group, LLC (Impac), pursuant to which Servico and Impac formed a new company Lodgian, Inc. ("Lodgian" or the "Company"). This transaction (the "Merger") has been accounted for under the purchase method of accounting, whereby Servico is considered the acquiring company. For further discussion of the Merger see Note 2. As a result of the Merger, Lodgian, its wholly owned subsidiaries and consolidated partnerships (collectively, the "Company"), own or manage hotels in 35 states and Canada. At December 31, 1999 and 1998, the Company owned, either wholly or partially, or managed 133 and 144 hotels, respectively. Principles of Consolidation The financial statements consolidate the accounts of Lodgian, its wholly-owned subsidiaries and five partnerships in which Lodgian exercises control. Lodgian believes it has control of partnerships when the Company manages and has control of the partnerships' assets and operations, has the ability and authority to enter into financing arrangements on behalf of the entity or to sell the assets of the entity within reasonable business guidelines. An unconsolidated entity (owning 1 hotel) is accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories consist primarily of food and beverage, linens, china, tableware and glassware and are valued at the lower of cost (computed on the first-in, first-out method) or market. Minority Interests -- Other Minority interests represent the minority interests' proportionate share of equity or deficit of partnerships that are accounted for by the Company on a consolidated basis. The Company generally allocates to minority interests their share of any profits or losses in accordance with the provisions of the applicable agreements. However, if the loss applicable to a minority interest exceeds its total investment and advances, such excess is charged to the Company. Minority Interests -- Preferred Redeemable Securities Minority interests-preferred redeemable securities, represents Convertible Redeemable Equity Structure Trust Securities ("CRESTS"). The CRESTS bear interest at 7% and are convertible into shares of the Company's common stock. For further discussion of the CRESTS, see Note 5. Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Property under capital leases is amortized using the straight line method over the shorter of the estimated useful lives of the assets or the lease term. The Company capitalizes interest costs incurred during the renovation and construction of capital assets. During the years ended December 31, 1999, 1998 and 1997, the Company capitalized $8,428,000, $3,499,000 and $1,650,000 of interest, respectively. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Management periodically evaluates the Company's property and equipment to determine if there has been any impairment in the carrying value of the assets in accordance with Financial Accounting Standards Board Statement ("SFAS")121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of". SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and either the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount or the assets are being held for sale. See Note 13 for further discussion of the Company's 1999 charge for asset impairment. Goodwill Enterprise level goodwill arising from the Merger is accounted for under the market value method. Deferred Costs Deferred franchise, financing, and other deferred costs of $30,973,000 and $41,336,000 at December 31, 1999 and 1998, respectively, are included in other assets, net of accumulated amortization of $6,300,000 and $3,061,000 at December 31, 1999 and 1998, respectively. Such costs are amortized using the straight-line method, over the terms of the related franchise, loan or other agreements. The straight-line method of amortizing deferred financing costs approximates the interest method. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Restricted cash consists of amounts reserved for capital improvements, debt service, taxes and insurance. Fair Values of Financial Instruments The fair values of current assets and current liabilities are assumed equal their reported carrying amounts. The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. In the opinion of management, the carrying value of long-term debt approximates market value as of December 31, 1999 and 1998. The fair market value of the Company's Senior Subordinated notes was $198,000,000, at December 31, 1999 based on quoted market prices. The fair market value of the Company's CRESTS was $70,000,000 at December 31, 1999 based on quoted market prices. Management has estimated the fair value of the Company's interest rate protection agreements to be approximately $5,000,000 at December 31, 1999 based on dealer quotes. Concentration of Credit Risk Concentration of credit risk associated with cash and cash equivalents is considered low due to the credit quality of the issuers of the financial instruments held by the Company and due to their short duration to maturity. Accounts receivable are primarily from major credit card companies, airlines and other travel related companies. The Company performs ongoing evaluations of its significant customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. At December 31, 1999 and 1998, these allowances were $939,000 and $979,000, respectively. Earnings Per Common and Common Equivalent Share The Company adopted SFAS 128 "Earnings Per Share" effective for the year ended December 31, 1998. Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the periods and include common stock contributed or to be contributed by the Company to its employees 401(k) Plan (the "401(k)"). Dilutive earnings per common share include the Company's outstanding stock options and shares convertible under the Company's CRESTS, if dilutive. Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations. Under APB 25, because the exercise price of the Company's employee stock options is equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under Financial SFAS 123, "Accounting for Stock-Based Compensation", net income and earnings per share are not materially different from amounts reported, therefore, no pro forma information has been presented. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Financial Accounting Standards Board issued an interpretation of APB 25 (the "Interpretation") in March 2000. One of the key areas affected by the interpretation is the accounting for stock option repricings. The interpretation is applied prospectively to transactions that occur after December 15, 1998 commencing on the effective date of July 1, 2000. The Interpretation requires that once an option granted to an employee is repriced, that option would be accounted for as if it were a variable plan, giving rise to compensation expense for subsequent changes in stock price, from the date the option is repriced to the date it is exercised. Under the interpretation, no compensation expense is recorded on the date of the repricing. However, compensation expense is recorded quarterly through the date of exercise to the extent that the fair market value of the common stock is in excess of the exercise price of the options adjusted for the repricing. The interpretation requires, in measuring compensation expense, the use of the higher of the repriced exercise price of the options or the fair market value of the stock on the date the interpretation is effective. On December 18, 1998, the Company repriced options totaling 997,800, net of forfeitures, that will be subject to these requirements. Advertising Expense The cost of advertising is expensed as incurred. The Company incurred $3,479,000, $2,162,000 and $1,867,000 in advertising costs during 1999, 1998 and 1997, respectively. Foreign Currency Translation The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with SFAS 52, "Foreign Currency Translation." All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the average rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income. The effects on the statements of operations of transaction gains and losses is insignificant for all years presented. Business Segments The Company's only business segment is the ownership and management of hotels. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. MERGER, ACQUISITIONS AND RELATED ITEMS On December 11, 1998, Servico merged with Impac (the "Merger") in a transaction accounted for under the purchase method of accounting, pursuant to APB 16, "Business Combinations", whereby Servico is considered the acquiring company. The operations of Impac are included in the consolidated statement of operations from the date of acquisition. Under the terms of the Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), Servico's existing shareholders received one share of Lodgian common stock for each of Servico stock held by them (approximately 18,440,000 million shares). The purchase price of Impac approximated $104,367,000, consisting of $15 million in cash, the issuance of 9.4 million shares of common stock of Lodgian at $8.80, of which 238,000 shares are contingent upon the completion of construction of one hotel. The purchase price has been allocated to the fair value of the net assets acquired as follows: (IN THOUSANDS) Cash............................... $ 7,027 Inventory.......................... 2,859 Accounts receivable................ 12,239 Property and equipment............. 610,708 Goodwill and other assets.......... 22,222 Accounts payable................... (61,694) Long term obligations.............. (429,466) Deferred income taxes.............. (47,900) Accrued liabilities................ (11,620) ------------- Total purchase price..... $ 104,367 ============= -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In connection with the purchase of Impac, the Company allocated approximately $20.7 million to goodwill. In connection with the Merger, Servico incurred approximately $3,400,000 of expenses primarily associated with the closing and relocation of Servico's corporate headquarters and termination and relocation of certain Servico employees. These costs have been expensed as incurred and are included in severance and other expenses in the consolidated statements of operations for 1998. On June 1, 1998, the Company acquired the issued and outstanding units of AMI Operating Partners, L.P. (AMI), in a transaction accounted for under the purchase method of accounting. The purchase price of AMI approximated $74 million which included cash of $16 million and the assumption of $58 million in debt. The operations of AMI are included in the consolidated statements of operations from the date of acquisition. The purchase price was principally allocated to the 14 hotel properties acquired. The pro forma unaudited results of operations for the years ended December 31, 1998 and 1997, assuming the Merger had been consummated on January 1, 1997, follows: 1998 1997 ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.............................. $545,794 $396,516 Net (loss) income before extraordinary (21,146) (8,837) item.................................. Net (loss) income..................... (19,070) 2,917 Net (loss) income per common share: Basic and diluted................... (.75) (.38) During November 1998, the President and Chief Executive Officer of Servico announced his resignation effective the date of the merger with Impac. In connection with his resignation, Mr. Buddemeyer was provided a severance package approximating $1.3 million. This amount was expensed during the fourth quarter of 1998 and is included in severance and other expenses in the 1998 consolidated statement of operations. Approximately $164,000 of this amount relates to compensation expense associated with the extension of the terms of his stock options, pursuant to APB 25. 3. PROPERTY AND EQUIPMENT At December 31, 1999 and 1998, property and equipment consisted of the following:
USEFUL LIVES (YEARS) 1999 1998 ---------- ---------- ---------- (IN THOUSANDS) Land............................................ -- $ 169,975 $ 168,303 Buildings and improvements...................... 10-40 1,005,128 976,608 Furnishings and equipment....................... 3-10 211,578 187,055 ---------- ---------- 1,386,681 1,331,966 Less accumulated depreciation and amortization.. (157,559) (104,528) Construction in progress........................ 85,889 90,032 ---------- ---------- Property and equipment at December 31, 1999 includes $157 million of hotel assets held for sale.......................................... $1,315,011 $1,317,470 ========== ==========
4. ACCRUED LIABILITIES At December 31, 1999 and 1998, accrued liabilities consisted of the following: 1999 1998 ---------- ---------- (IN THOUSANDS) Salaries and related costs..... $ 13,939 $ 26,798 Real estate taxes.............. 7,284 9,095 Interest....................... 13,390 4,370 Advance deposits............... 2,384 3,799 Sales taxes.................... 4,874 5,412 Other.......................... 13,570 1,159 ---------- ---------- $ 55,441 $ 50,633 ========== ========== -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 5. LONG-TERM OBLIGATIONS AND PREFERRED REDEEMABLE SECURITIES Long-term obligations consisted of the following at December 31:
1999 1998 ---------- ---------- (IN THOUSANDS) Mortgage notes payable with interest at LIBOR (5.8% at December 31, 1999) plus 4.0%. The notes are payable through 2006.............. $ 238,800 $ -- Mortgage notes payable with interest at LIBOR plus 3.25%......... -- $ 265,000 Credit facilities of $264 million with interest at LIBOR plus 2.75% maturing through 2001. At maturity, each loan converts to 10 a year term loan........................................................ 212,789 323,744 Mortgage notes with an interest rate of 9% payable through 2001.. 62,000 72,000 Mortgage notes with fixed rates ranging from 7.9% to 10.7% payable through 2010........................................... 147,974 164,109 Senior Subordinated notes payable with interest at 12.25% due in 2009.................................................... 200,000 -- Other............................................................ 30,516 27,925 ---------- ---------- 892,079 852,778 Less current portion of long-term obligations.................... (10,404) 36,134 ---------- ---------- $ 881,675 $ 816,644 ========== ==========
Substantially, all of the Company's property and equipment are pledged as collateral for long-term obligations of which approximately $ 525,693,000 has been guaranteed by Lodgian, Inc. Certain of the mortgage notes are subject to a prepayment penalty if repaid prior to their maturity. On July 23, 1999 the Company sold $200 million of 12.25% Senior Subordinated Notes due in 2009 (the "Notes"). In addition, the Company entered into a new, multi-tranche Senior, Secured loan credit facility. The facility consists of development loans with a maximum capacity of $75 million (the tranche A and C loans), a $240 million tranche B term loan and a $50 million revolving credit facility. The tranche A and C loans will be used for hotel development projects. The tranche B loan, along with the proceeds from the Notes, were used to repay a substantial portion of the financing entered into to consummate the Merger and, in September, a $132.5 million loan. This financing contains various covenants and coverage ratios, with which the Company was in compliance at December 31, 1999. In June 1998, the Company issued $175 million of Convertible Redeemable Equity Structures Trust Securities ("CRESTS"). The CRESTS bear interest at 7% and are convertible into shares of the Company's common stock at an initial conversion price of $21.42 per share. The sale of the CRESTS generated $168.5 million in net proceeds, substantially, all of which were used to repay existing debt prior to maturity. As a result, the Company recorded an extraordinary loss on early extinguishment of debt of approximately $1,142,000 (net of income tax benefit of $761,000) relating to the write off of unamortized financing costs. The CRESTS are included in the accompany consolidated balance sheet as Minority Interests-Preferred Redeemable Securities. The interest expense incurred on the CRESTS have been included as Minority Interests -- Preferred Redeemable Securities in the Consolidated Statement of Operations. The Company has entered into an interest rate protection agreement on $54 million related to one of the above credit facilities. Pursuant to the terms of this agreement, when the loan matures in 2001 and converts to a term loan, the interest rate will be based on a benchmark treasury rate of 7.235%. In the event the company determines that it is in its best interest to "break" that interest rate lock, it may be required to pay a significant fee to the lender. Maturities of long-term obligations for each of the five years after December 31, 1999 and thereafter, are as follows: (IN THOUSANDS) 2000........ $ 10,404 2001........ 80,095 2002........ 18,553 2003........ 57,086 2004........ 43,730 Thereafter.. 682,211 -------- $892,079 ======== -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. SETTLEMENT ON SWAP TRANSACTIONS During August 1998, the Company entered into treasury rate lock transactions with notional amounts of $175 million and $200 million (collectively, the "Swaps") with a lender for the purpose of hedging their interest rate exposure on two anticipated financing transactions. During September 1998, the Company determined that it was not probable that it would consummate the anticipated transactions and recognized a loss in the consolidated statement of operations of $31.5 million related to the settlement of the Swaps. 7. STOCKHOLDERS' EQUITY During 1998, in accordance with previously announced share buyback programs, the Company repurchased in open market transactions and retired 2,660,900 shares of its common stock. 8. INCOME TAXES Provision for income taxes for the Company is as follows:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------------------------------------- 1999 1998 1997 ----------------------------------- ------------------------------------ ------------------------------------ CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ----------- ------------ --------- ----------- ------------ ---------- ----------- ----------- ---------- (IN THOUSANDS) Federal.......... $-- $(16,007) $ (16,007) $(1,140) $ (481) $(1,621) $ 3,289 $3,186 $6,475 State and local.. -- (3,692) (3,692) 423 (53) (476) 1,693 211 1,904 --- -------- --------- ------- ------- ------- ------- ------ ------ $-- $(19,699) $ (19,699) $(1,563) $(1,534) $(2,097) $ 4,982 $3,397 $8,379 === ======== ========= ======= ======= ======= ======= ====== ======
The components of the cumulative effect of temporary differences in the deferred income tax liability and asset balances at December 31, 1999 and 1998, are as follows:
1999 1998 --------------------------------------- ------------------------------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT TOTAL ASSET LIABILITY TOTAL ASSET LIABILITY --------- ----------- --------------- ------------ ------------ --------------- (IN THOUSANDS) Property and equipment........ $ 69,005 $ -- $ 69,005 $ 78,523 $ -- $ 78,523 Net operating loss carryforward................ (33,669) (33,669) (16,015) (605) (15,410) Other......................... (4,878) (3,019) (1,859) (1,864) (2,220) 356 --------- ------- -------- -------- -------- -------- $ 30,458 $(3,019) $ 33,477 $ 60,644 $ (2,825) $ 63,469 ========= ======= ======== ======== ======== ========
The difference between income taxes using the effective income tax rate and the federal income tax statutory rate of 34% is as follows:
YEAR ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ------------- (IN THOUSANDS) Federal income tax (benefit) at statutory federal rate.......... $(24,399) $ (1,782) $7,123 State income taxes (benefits), net.............................. (2,368) (315) 1,256 Non-deductible items............................................ 7,068 -- -- -------- -------- ------ $(19,699) $ (2,097) $8,379 ======== ======== ======
-- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) As of December 31, 1999, the Company had net operating loss carry forwards of approximately $86,700,000 for federal income tax purposes which expire in years 2005 through 2019. The full amount of the income tax benefit of this net operating loss carryforward has been reflected in the Consolidated Financial Statements of the Company. 9. RELATED PARTY TRANSACTIONS The Company's President was a shareholder of Impac Hotel Development ("IHD"), which provided acquisition and property development services to Impac for a development fee of four percent of the total project cost of each property acquired or developed. Impac agreed to terminate this agreement prior to the consummation of the Merger so that Impac and its subsidiaries will have no further obligations under the agreement after the Merger other than the payment of up to a four percent development fee (not to exceed $2.5 million in the aggregate) in the event Lodgian acquires or develops any of the hotels or properties identified in the Merger Agreement as Impac's acquisition pipeline. During 1999 the Company paid $1.0 million in connection with this arrangement. 10. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1999 1998 1997 ------------ ------------ ------------ Numerator: (Loss) income before extraordinary item.............. $(52,063,000) $ (3,145,000) $ 12,570,000 Extraordinary item................................... (7,750,000) (2,076,000) (3,751,000) ------------ ------------ ------------ Net loss income.............................. $(59,813,000) $ (5,221,000 $ 8,819,000 ============ ============ ============ Denominator: Denominator for basic earnings per share -- weighted-average shares........................... 27,222,000 20,245,000 15,183,000 Effect of dilutive securities: Employee stock options............................ -- -- 457,000 ------------ ------------ ------------ Denominator for dilutive earnings per share -- adjusted weighted-average shares.................... 27,222,000 20,245,000 15,640,000 ============ ============ ============ Basic earnings per share: (Loss) income before extraordinary item.............. $ (1.91) $ (.16) $ .83 Extraordinary item................................... (.28) (.10) (.25) ------------ ------------ ------------ Net loss income.............................. $ (2.19) $ (.26) $ .58 ============ ============ ============ Diluted earnings per share: Income before extraordinary item..................... $ (1.91) $ (.16) $ .80 Extraordinary item................................... (.28) (.10) (.24) ------------ ------------ ------------ Net income................................... $ (2.19) $ (.26) $ .56 ============ ============ ============
The computation of diluted EPS for 1999 and 1998 did not include shares associated with the assumed conversion of the CRESTS (8,169,935 shares) or stock options because their inclusion would have been antidilutive. 11. COMMITMENTS AND CONTINGENCIES Sixteen of the Company's hotels are subject to long-term ground leases expiring from 2014 through 2075 which provide for minimum payments as well as incentive rent payments. In addition, most of the Company's hotels have noncancellable operating leases, mainly for operating equipment. For the years ended December 31, 1999, 1998 and 1997, lease expense for the noncancellable ground leases was approximately $3,400,000, $2,400,000 and $1,624,000, respectively. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) At December 31, 1999, the future minimum commitments for noncancellable ground leases are as follows: (IN THOUSANDS) -------------- 2000................................................ $ 3,794 2001................................................ 3,801 2002................................................ 3,808 2003................................................ 3,270 2004................................................ 2,787 Thereafter.......................................... 92,300 -------- $109,760 ======== The Company has entered into license agreements with various hotel chains which require annual payments for license fees, reservation services and advertising fees. The license agreements generally have an original ten year term. The majority of the Company's license agreements have five to ten years remaining on the term. The licensors may require the Company to upgrade its facilities at any time to comply with the licensor's then current standards. Upon the expiration of the term of a license, the Company may apply for a license renewal. In connection with the renewal of a license, the licensor may require payment of a renewal fee, increased license, reservation and advertising fees, as well as substantial renovation of the facility. Payments made in connection with these agreements totaled approximately $31,927,000, $19,268,000 and $14,498,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The license agreements are subject to cancellation in the event of a default, including the failure to operate the hotel in accordance with the quality standards and specifications of the licensors. The Company believes that the loss of a license for any individual hotel would not have a material adverse effect on the Company's financial condition and results of operations. The Company believes it will be able to renew its current licenses or obtain replacements of a comparable quality. Twenty-five hotels which the Company owns are operated under license agreements that require the Company to make certain capital improvements in accordance with a specified time schedule. The Company estimates its remaining obligations under these commitments to be approximately $42 million of which approximately $40 million is expected to be spent in 2000 and the balance during 2001. Also, in connection with the financing of the Company's hotels and the acquisition of other hotels, the Company agreed to make certain capital improvements and had approximately $10 million escrowed for such improvements at December 31, 1999. The Company has maintenance agreements, primarily on a one to three year basis, which resulted in expenses of approximately $5,016,000, $3,557,000, and $2,497,000 for the years ended December 31, 1999, 1998 and 1997, respectively. In July 1999, a contractor hired by Servico to perform work on hotels in New York, Illinois and Texas filed a complaint against the Company in the Supreme Court of the State of New York, claiming breach of contract and quantum meruit, among other claims. The contractor seeks damages totaling $80 million, including $60 million for punitive damages. The Company answered the complaint asserting counterclaims aggregating $20 million and successfully filed a motion to dismiss the claims related to two properties located in Illinois and Texas. In October 1999, a subcontractor filed a lawsuit in Texas against the above contractor and the Company. The Company has filed an answer and cross-claim against the contractor in the amount of $2.8 million. In February 2000, the contractor filed a lawsuit in Texas claiming over $3 million in actual damages and an undisclosed amount of punitive damages. The Company will answer the complaint and will assert a counterclaim. The Company has also filed a lawsuit against the contractor in Federal District Court in Illinois, seeking $2 million. The contractor has filed an answer and counterclaim aggregating $2.8 million in actual damages and $10 million in punitive damages. The Company believes that it has valid defenses and counterclaims in these matters and that the outcome will not have a material adverse effect on its financial position or results of operations. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) In 1997 and 1998, Servico hired a contractor to provide exterior renovation services at fourteen hotels. In May and June 1999, the contractor filed complaints against the Company in three jurisdictions alleging non-payment of $0.8 million. Subsequent claims asserted by the parties have increased the contractor's claims to $1.3 million and the Company's claims to $4.7 million. The courts in all three jurisdictions have ordered the parties to submit all claims for mediation and arbitration with mediation scheduled for April. If necessary, post-mediation arbitration would likely occur near the end of the year. The Company believes that it has valid defenses and counterclaims in this matter and that the outcome will not have a material adverse effect on its financial position or results of operations. The Company is a party to legal proceedings arising in the ordinary course of its business, the impact of which would not, either individually or in the aggregate, in management's opinion, based upon the facts known by management and the advice of counsel, have a material adverse effect on the Company's financial condition or results of operations. 12. EMPLOYEE BENEFITS PLANS AND STOCK OPTION PLAN The Company makes contributions to several multi-employer pension plans for employees of various subsidiaries covered by collective bargaining agreements. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. Certain withdrawal penalties may exist, the amount of which are not determinable at this time. The cost of such contributions during the years ended December 31, 1999, 1998 and 1997, was approximately $580,000, $500,000 and $412,000, respectively. The Company adopted the 401(k) for the benefit of its non-union employees under which participating employees may elect to contribute up to 10% of their compensation. The Company may match an employee's elective contributions to the 401(k), subject to certain conditions, with shares of the Company's common stock equal to up to 100% of the amount of such employee's elective contributions. These employer contributions vest at a rate of 20% per year beginning in the third year of employment. The cost of these contributions during the years ended December 31, 1999, 1998 and 1997, was $549,000, $430,000 and $282,000, respectively. The 401(k) does not require a contribution by the Company. The Company has also adopted the Lodgian, Inc. Stock Option Plan, as amended, (the "Option Plan"). In accordance with the Option Plan, options to acquire up to 3,250,000 shares of common stock may be granted to employees, directors, independent contractors and agents as determined by a committee appointed by the Board of Directors. Options may be granted at an exercise price not less than fair market value on the date of grant. These options will generally vest over five years. In addition, in June 1999 each non-employee director was awarded an option to acquire 5,000 shares of common stock at an exercise price equal to the fair market price on date of grant. Such options became exercisable upon date of grant and were granted outside of the Lodgian Stock Option plan. On December 18, 1998, the Company re-priced its options. See discussion of impact of pending accounting pronouncement related to stock option repricings in Note 1. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following table indicates all options granted and their status:
OPTION PRICE ------------------------------------ NUMBER OF RANGE PER SHARES SHARE -------------- ---------------- Balance December 31, 1996................................. 817,000 $4.00 - $16.13 Granted................................................. 977,700 15.50 - 16.81 Exercised............................................... (86,600) 4.00 - 10.75 Forfeited............................................... (19,400) 8.63 - 10.75 --------- ---------------- Balance December 31, 1997................................. 1,688,700 4.00 - 16.81 ========= ================ Granted................................................. 755,000 6.13 Exercised............................................... (134,900) 4.00 - 16.75 Forfeited............................................... (27,900) 8.63 - 16.75 --------- ---------------- Balance December 31, 1998................................. 2,280,900 4.00 - 6.13 ========= ================ Granted................................................. 690,000 4.00 - 7.13 --------- ---------------- Exercised............................................... (30,000) 4.00 -------- ---------------- Forfeited............................................... (425,900) 6.13 - 6.50 --------- ---------------- Balance December 31, 1999................................. 2,515,000 $4.00 - $ 7.13 ========= ================
At December 31, 1999, there were 1,118,420 options exercisable. The income tax benefit, if any, associated with the exercise of stock options is credited to additional paid-in capital. Also at December 31, 1999, there were 125,000 Stock Appreciation Rights exercisable at $6.13 per right. 13. SIGNIFICANT FOURTH QUARTER EVENTS AND OTHER NONRECURRING ITEMS Asset Impairment. In connection with the adoption of a strategy to reduce the level of long-term debt, the Company identified certain hotel assets which are currently being held for sale. In accordance with the requirements of SFAS 121 the Company has recorded a non-cash charge of $40.3 million to reduce the carrying value of these assets to estimated fair value. For this purpose fair value has been determined to be the amount a willing buyer would pay a willing seller for the individual assets in a current transaction that is other than a forced or liquidation sale. Goodwill. The Company initially recorded approximately $11 million of goodwill in connection with the Merger. Under generally accepted accounting principals, the Company had a one-year period subsequent to the Merger to review and, if appropriate, revise its initial allocation of purchase price among the assets acquired. In addition, since the Company did not have goodwill prior to the Merger, it was required to adopt an accounting policy for this asset. The Company selected the market value method of accounting for goodwill and recorded a non-cash charge of $20.7 million to write-off the adjusted balance of goodwill. Accounting, Systems and Merger Integration. During the fourth quarter the Company incurred substantial incremental fees and expenses primarily related to the final phase of integration of accounting systems from legacy systems used by Servico and Impac to the financial systems used by Lodgian. The total amount either incurred or accrued at December 31, 1999, including severance and a significant provision for increased audit fees, approximated $6.1 million. This amount also includes expenses associated with ensuring compliance in the "Y2K" matter. Legal Fees. At December 31, 1999 the Company determined that legal fees incurred in connection with the predevelopment of certain hotel projects should be written off as the underlying projects would likely not be developed. Also, in anticipation of legal fees to be incurred defending itself in several of the legal matters described in Note 11, the Company recorded an accrual for such costs. The aggregate legal fees either incurred or accrued for these matters aggregated approximately $2.7 million. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Audit Matters. During the fourth quarter an unclaimed property audit was initiated by the State of Florida. Additionally, several audits of the Company's compliance with ERISA requirements are in various stages of completion. The provision recorded in the fourth quarter for these and other audit matters was approximately $1.3 million. 14. SHAREHOLDER RIGHTS PLAN On March 30, 1999, the board of directors adopted a Shareholder Rights Plan and declared one Right on each outstanding share of the Company's common stock. The dividend was paid on April 19, 1999 to stockholders of record on April 14, 1999. Initially the Rights will trade with the common stock of the Company and will not be exercisable. The Right will separate from the common stock and become exercisable upon the occurrence of events typical of shareholder rights plans. In general, such separation will occur when any person or group of affiliated persons acquires or makes an offer to acquire 15% or more of the Company's common stock. Thereafter, separate Right Certificates will be distributed and each Right will entitle its holder to purchase one-hundredth of a share of the Company's Participating Preferred Stock for an exercise price of $25. Each one-hundredth of a share of Preferred Stock has economic and voting terms equivalent to those of one share of the Company's common stock. 15. SUPPLEMENTAL GUARANTOR INFORMATION In connection with the Company's sale of the Notes, certain of the Company's subsidiaries (the "Subsidiary Guarantors") have guaranteed the Company's obligations to pay principal and interest with respect to the Notes. Each Subsidiary Guarantor is wholly-owned and management has determined that separate financial statements for the Subsidiary Guarantors are not material to investors. The subsidiaries of the Company that are not Subsidiary Guarantors are referred to in this note as the "Non-Guarantor Subsidiaries." The following supplemental consolidating condensed financial statements present balance sheets as of December 31, 1999 and 1998 and statements of operations and of cash flows for the years ended December 31, 1999, 1998 and 1997. In the consolidating condensed financial statements, Lodgian, Inc. (the "Parent") accounts for its investments in wholly-owned subsidiaries using the equity method. -- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ --------------- ------------------- ---------------- ------------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents...... $ 490 $ 11,387 $ 4,620 $ -- $ 16,497 Restricted cash................ -- -- 4,787 -- 4,787 Accounts receivable, net of allowances.................. -- 7,991 19,108 -- 27,099 Other current assets........... 2,342 5,378 10,173 -- 17,893 ---------- ----------- ---------- -------- ---------- Total current assets... 2,832 24,756 38,688 -- 66,276 Property and equipment, net...... -- 598,166 716,845 -- 1,315,011 Deposits for capital expenditures -- 551 9,711 -- 10,262 Investment in consolidated entities...................... (11,939) -- -- 11,939 -- Due from (to) affiliates......... 270,602 (221,277) (49,325) -- -- Other assets, net................ 354 18,678 15,950 -- 34,982 ---------- ----------- ---------- -------- ---------- $ 261,849 $ 420,874 $ 731,869 $ 11,939 $1,426,531 ========== =========== ========== ======== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable, trade........ $ -- $ 12,582 $ 28,126 $ -- $ 40,708 Accrued liabilities............ -- 10,487 44,954 -- 55,441 Current portion long-term obligations................. -- 2,400 8,004 -- 10,404 ---------- ----------- ---------- -------- ---------- Total current liabilities......... 25,469 81,084 106,553 Long-term obligations, less current portion................ 2,038 436,651 442,986 -- 881,675 Deferred income taxes............ 33,477 -- -- -- 33,477 Minority interests:.............. Preferred redeemable securities -- -- 175,000 -- 175,000 Other.......................... -- -- 4,404 -- 4,404 Stockholder's equity: Common stock................... 281 33 448 (481) 281 Additional paid-in capital..... 262,760 11,933 12,354 (24,287) 262,760 Retained earnings (accumulated deficit).................... (36,707) (52,300) 15,593 36,707 (36,707) Accumulated other comprehensive loss........................ -- (912) -- -- (912) ---------- ----------- ---------- -------- ---------- Total stockholders' equity............... 226,334 (41,246) 28,395 11,939 225,422 ---------- ----------- ---------- -------- ---------- Total liabilities and stockholders' equity. $ 261,849 $ 420,874 $ 731,869 $ 11,939 $1,426,531 ========== =========== ========== ======== ==========
-- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- -------------- --------------- ---------------- ------------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents........ $ 1,648 $ 6,091 $ 11,446 $ -- $ 19,185 Restricted cash.................. -- -- 6,302 -- 6,302 Accounts receivable, net......... -- 10,508 14,990 -- 25,498 Other current assets............. 3,023 5,322 19,611 -- 27,956 ---------- ---------- ---------- -------- ---------- Total current assets..... 4,671 21,921 52,349 -- 78,941 Property and equipment, net........ -- 527,946 789,524 -- 1,317,470 Deposit for capital expenditures... -- 9,881 20,505 -- 30,386 Investment in consolidated entities 74,056 -- -- (74,056) -- Due from (to) affiliates........... 265,839 (170,489) (95,350) -- -- Other assets, net.................. 12,117 29,957 29,050 -- 71,124 ---------- ---------- ---------- -------- ---------- $ 356,683 $ 419,216 $ 796,078 $(74,056) $1,497,921 ========== ========== ========== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade.......... $ 132 $ 13,611 $ 43,510 $ -- $ 57,253 Accrued liabilities.............. -- 17,645 32,988 -- 50,633 Current portion long-term obligations................... -- 770 35,364 -- 36,134 ---------- ---------- ---------- -------- ---------- Total current liabilities 132 32,026 111,862 -- 144,020 Long-term obligations, less current portion.......................... 7,722 401,691 407,231 -- 816,644 Deferred income taxes.............. 63,469 -- -- -- 63,469 Minority interests: Preferred redeemable securities.. -- -- 175,000 -- 175,000 Other............................ -- -- 15,021 -- 15,021 Stockholder's equity: Common stock..................... 278 33 493 (526) 278 Additional paid-in capital....... 261,976 19,981 (9,576) (10,405) 261,976 Retained earnings (accumulated deficit)...................... 23,106 (32,922) 96,047 (63,125) 23,106 Accumulated other comprehensive loss.......................... -- (1,593) -- -- (1,593) ---------- ---------- ---------- -------- ---------- Total stockholders' equity................. 285,360 (14,501) 86,964 (74,056) 283,767 ---------- ---------- ---------- -------- ---------- Total liabilities and stockholders' equity... $ 356,683 $ 419,216 $ 796,078 $(74,056) $1,497,921 ========== ========== ========== ======== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- -------------- ------------------- ---------------- ------------------- (IN THOUSANDS) Revenues: Rooms.............................. $ -- $ 191,760 $232,765 $ -- $ 424,525 Food and beverage.................. -- 59,168 80,306 -- 139,474 Other.............................. -- 12,156 16,260 -- 28,416 --------- --------- -------- -------- --------- Total revenues.............. -- 263,084 329,331 -- 592,415 --------- --------- -------- -------- --------- Operating expenses: Direct: Rooms............................ -- 54,780 66,732 -- 121,512 Food and beverage................ -- 42,704 59,326 -- 102,030 Other hotel operating expenses... -- 8,108 9,249 -- 17,357 General and administrative....... -- 24,691 2,315 -- 27,006 Depreciation and amortization.... -- 28,342 28,017 -- 56,359 Other............................ -- 62,137 116,112 -- 178,249 --------- --------- -------- -------- --------- Total operating expenses.... -- 220,762 281,751 -- 502,513 --------- --------- -------- -------- --------- Income from operations............... -- 42,322 47,580 -- 89,902 Other (income) expenses: Other expenses..................... -- 30,667 37,633 -- 68,300 Interest expense................... -- 31,918 46,922 -- 78,840 Equity in (loss) of consolidated subsidiaries..................... (71,762) -- -- 71,762 -- Minority interests: Preferred redeemable securities.... -- -- 13,224 -- 13,224 Other.............................. -- -- 1,300 -- 1,300 --------- --------- -------- -------- --------- (Loss) income before income taxes and extraordinary item................. (71,762) (20,263) (51,499) 71,762 (71,762) (Benefit) provision for income taxes (28,704) (8,105) (11,594) 28,704 (19,699) --------- --------- -------- -------- --------- (Loss) income before extraordinary (43,058) (12,158) (39,905) 43,058 (52,063) item............................... Extraordinary item net of tax........ -- 6,034 1,716 -- 7,750 --------- --------- -------- -------- --------- Net (loss) income........... $ (43,058) $ (18,192) $(41,621) $ 43,058 $ (59,813) ========= ========= ======== ======== =========
-- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED --------- --------------- ------------------- --------------- (IN THOUSANDS) Net cash flows operating activities........ $ (46,714) $ 25,539 $ 83,846 $ 62,671 Investing activities: Acquisitions of property and equipment... -- -- (1,929) (1,929) Capital improvements, net................ -- 98,562 (16,085) (114,647) Net deposits for capital expenditures.... -- 9,330 10,794 20,124 Purchase of minority interests........... -- -- (10,200) (10,200) Net proceeds from sale of assets........... -- -- 22,068 22,068 --------- --------- --------- --------- Net cash flows from investing activities... -- (89,232) 4,648 (84,584) --------- --------- --------- --------- Financing activities: Proceeds from issuance of long-term obligations........................... -- 455,000 32,521 487,521 Principal payments of long-term obligations........................... (5,684) (418,411) (24,125) (448,220) Proceeds from issuance of common stock... 120 -- 0 120 Proceeds from related parties, net....... 51,120 (50,789) (101,909) -- Distributions to minority interest....... -- -- (1,717) (1,717) Payment of deferred loan costs........... -- (18,389) (90) (18,479) --------- --------- --------- --------- Net cash flows from financing activities... 45,556 (68,989) (95,320) 19,225 --------- --------- --------- --------- Change in cash and cash equivalents........ (1,158) 5,296 (6,826) (2,688) Cash and cash equivalents at beginning of period................................... 1,648 6,091 11,446 19,185 --------- --------- --------- --------- Cash and cash equivalents at end of period $ 490 $ 11,387 $ 4,620 $ 16,497 ========= ========= ========= =========
-- ALL 1999 RESULTS UNAUDITED -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------------- ------------------- ---------------- ------------------ (IN THOUSANDS) Revenues: Rooms............................. $ -- $ 118,041 $149,821 $ -- $ 267,862 Food and beverage................. -- 42,849 64,485 -- 107,334 Other............................. -- 9,633 10,385 -- 20,018 ------- --------- -------- ------- --------- Total revenues............ -- 170,523 224,691 -- 395,214 ------- --------- -------- ------- --------- Operating expenses: Direct: Rooms.......................... -- 34,001 41,315 -- 75,316 Food and beverage.............. -- 32,891 48,752 -- 81,643 General and administrative........ 527 -- 9,553 -- 10,080 Other............................. 435 63,174 66,341 -- 129,950 Depreciation and amortization..... -- 12,550 18,564 -- 31,114 ------- --------- -------- ------- --------- Total operating expenses.. 962 142,616 184,525 -- 328,103 ------- --------- -------- ------- --------- (Loss) income from operations....... (962) 27,907 40,166 -- 67,111 Other income (expenses): Other income...................... 2,864 -- (2,036) -- 828 Other expenses.................... -- (29,033) (5,859) -- (34,892) Interest expense.................. (1,557) (16,079) (12,742) -- (30,378) Equity in (loss) of consolidated subsidiaries................... (5,587) -- -- 5,587 -- Minority interests: Preferred redeemable securities... -- -- (6,475) -- (6,475) Other............................. -- -- (1,436) -- (1,436) ------- --------- -------- ------- --------- (Loss) income before income taxes and extraordinary item............ (5,242) (17,205) 11,618 5,587 (5,242) (Benefit) provision for income taxes (2,097) (6,882) 4,647 2,235 (2,097) ------- --------- -------- ------- --------- (Loss) income before extraordinary items............................. (3,145) (10,323) 6,971 3,352 (3,145) Extraordinary items, net of taxes... -- -- (2,076) -- (2,076) ------- --------- -------- ------- --------- Net (loss) income......... $(3,145) $ (10,323) $ 4,895 $ 3,352 $ (5,221) ======= ========= ======== ======= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED --------- --------------- ------------------- ------------------ (IN THOUSANDS) Net cash flows from operating activities... $ 32,601 $ 9,529 $ (12,829) $ 29,301 Investing activities: Acquisitions of property and equipment... -- (56,589) (11,128) (67,717) Capital improvements, net................ -- (47,434) (71,233) (118,667) Other.................................... -- 25,467 (21,607) 3,860 --------- --------- --------- --------- Net cash flows from investing activities... -- (78,556) (103,968) (182,524) Financing activities: Proceeds from issuance of long-term obligations........................... 6,657 251,662 341,965 600,284 Principal payments of long-term obligations........................... -- (162,937) (227,089) (390,026) Other.................................... (51,818) (15,418) 14,143 (53,093) --------- --------- --------- --------- Net cash flows from financing activities..................... (45,161) 73,307 129,019 157,165 --------- --------- --------- --------- Change in cash and cash equivalents........ (12,560) 4,280 6,091 3,942 Cash and cash equivalents at beginning of year..................................... 14,208 1,811 (776) 15,243 --------- --------- --------- --------- Cash and cash equivalents at end of year........................ $ 1,648 $ 6,091 $ 11,446 $ 19,185 ========= ========= ========= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------------- ------------------- ---------------- --------------- (IN THOUSANDS) Revenues: Rooms............................. $ -- $ 62,618 $117,338 $ -- $ 179,956 Food and beverage................. -- 24,629 55,706 -- 80,335 Other............................. -- 5,135 11,231 -- 16,366 ------- -------- -------- -------- --------- Total revenues............ -- 92,382 184,275 -- 276,657 ------- -------- -------- -------- --------- Operating expenses: Direct: Rooms.......................... -- 17,338 32,270 -- 49,608 Food and beverage.............. -- 18,911 42,008 -- 60,919 General and administrative........ 424 -- 8,549 -- 8,973 Other............................. 283 31,694 56,059 -- 88,036 Depreciation and amortization..... -- 8,022 15,001 -- 23,023 ------- -------- -------- -------- --------- Total operating expenses.. 707 75,965 153,887 -- 230,559 ------- -------- -------- -------- --------- (Loss) income from operations....... (707) 16,417 30,388 -- 46,098 Other income (expenses): Other income...................... 1,928 (6,850) 6,642 -- 1,720 Interest expense.................. (8) (9,972) (15,929) -- (25,909) Equity in earnings of consolidated subsidiaries................... 19,736 -- -- (19,736) -- Minority interests.................. -- -- (960) -- (960) ------- -------- -------- -------- --------- Income (loss) before income taxes and extraordinary item............ 20,949 (405) 20,141 (19,736) 20,949 Provision (benefit) for income taxes 8,380 (162) 8,056 (7,895) 8,379 ------- -------- -------- ------- --------- Income (loss) before extraordinary item.............................. 12,569 (243) 12,085 (11,841) 12,570 Extraordinary item, net of taxes.... -- -- (3,751) -- (3,751) ------- -------- -------- -------- --------- Net income (loss)......... $12,569 $ (243) $ 8,334 $(11,841) $ 8,819 ======= ======== ======== ======== =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED ---------- --------------- ------------------- --------------- (IN THOUSANDS) Net cash flows from operating activities.. $ (152,267) $ 118,520 $ 75,768 $ 42,021 Investing activities: Acquisitions of property and equipment.. -- (118,700) (24,706) (143,406) Capital improvements, net............... -- (11,007) (37,245) (48,252) Other................................... -- (23,420) (5,588) (29,008) ---------- --------- --------- --------- Net cash flows from investing activities.................... -- (153,127) (67,539) (220,666) Financing activities: Proceeds from issuance of long-term obligations.......................... -- 64,989 126,571 191,560 Principal payments of long-term obligations.......................... (6,387) (26,644) (134,616) (167,647) Proceeds from issuance of common stock.. 156,638 -- -- 156,638 Other................................... (31) (2,749) (3,356) (6,136) ---------- --------- --------- --------- Net cash flows from financing activities.................... 150,220 35,596 (11,401) 174,415 ---------- --------- --------- --------- Change in cash and cash equivalents....... (2,047) 989 (3,172) (4,230) Cash and cash equivalents at beginning of year.................................... 16,255 822 2,396 19,473 ---------- --------- --------- --------- Cash and cash equivalents at end of year................... $ 14,208 $ 1,811 $ (776) $ 15,243 ========== ========= ========= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 16. SUPPLEMENTARY INFORMATION -- UNAUDITED QUARTERLY RESULTS OF OPERATIONS The following table summarizes the unaudited quarterly financial data (in thousands, except share data):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) Year Ended December 31, 1999 Revenues........................................... $ 135,804 $ 159,863 $ 156,020 $ 140,728 Income (loss) from operations...................... 18,613 37,165 32,479 1,645 Income (loss) before extraordinary item............ (2,442) 9,241 6,252 (65,114) Loss on early extinguishment of debt, net of income taxes of $4,910.................................. (6,336) (1,414) Net income (loss).................................. (2,442) 9,241 (84) (66,528) Earnings (loss) per share: Income (loss) before extraordinary item.......... (0.09) 0.34 0.23 (2.34) Extraordinary item............................... -- -- (0.23) (.05) Net income (loss)................................ (0.09) 0.34 -- (2.39) Earnings (loss) per share -- assuming dilution (a): Income (loss) before extraordinary item.......... (0.09) 0.32 0.23 (2.34) Extraordinary item............................... -- -- (0.23) (.05) --------- --------- --------- --------- Net income (loss)........................ (0.09) 0.32 -- (2.39) --------- --------- --------- --------- Year Ended December 31, 1998 Revenues........................................... $ 82,881 $ 102,388 $ 101,360 $ 108,585 Income from operations............................. 12,481 21,716 17,374 15,540 Income before extraordinary item................... 2,996 7,323 (13,715) 251 Loss on early extinguishment of debt, net of income taxes of $2,500.................................. -- (1,095) (47) (934) Net income (loss).................................. 2,996 6,228 (13,762) (683) Earnings (loss) per share: Income (loss) before extraordinary item.......... .14 .35 (.71) .01 Extraordinary item............................... -- (.05) -- (.05) Net income (loss)................................ .14 .30 (.71) (.03) Earnings (loss) per share -- assuming dilution (a): Income (loss) before extraordinary item.......... .14 .34 (.71) .01 Extraordinary item............................... -- (.05) -- (.05) --------- --------- --------- --------- Net income (loss)........................ $ .14 $ .29 $ (.71) $ (.03) ========= ========= ========= =========
-- ALL 1999 RESULTS UNAUDITED -- -----END PRIVACY-ENHANCED MESSAGE-----