-----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, SJEQaVomp0iQiq+eeCxjLrAcivCmCCxXGQn370qwXNtmHNhBnKn/64h4+/tRrOcn io45PzXpIloKUp0W30RH4Q== 0000950144-99-013283.txt : 19991117 0000950144-99-013283.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950144-99-013283 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-14537 FILM NUMBER: 99755640 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 10-Q 1 LODGIAN, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Period Ended September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission File No. 1-11342 ------- LODGIAN, INC. (Exact name of registrant as specified in its charter) Delaware 52-2093696 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3445 Peachtree Road, N.E., Suite 700, Atlanta, GA 30326 - ------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (404) 364-9400 -------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Not applicable -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding as of November 12, 1999 ----- ----------------------------------- Common 27,887,040 2 LODGIAN, INC. AND SUBSIDIARIES INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and December 31, 1998.......................................................... 3 Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 1999 and 1998.................................. 4 Condensed Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 1999 (Unaudited) and for the Year Ended December 31, 1998........................................................................... 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1999 and 1998....................................... 6 Notes to Condensed Consolidated Financial Statements........................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................................. 23 Item 6. Exhibits and Reports on Form 8-K............................................... 23 SIGNATURES............................................................................... 24
-2- 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 23,382 $ 19,185 Cash, restricted 6,557 6,302 Accounts receivable, net of allowances 40,158 25,498 Other current assets 47,874 27,956 ----------- ----------- Total current assets 117,971 78,941 Property and equipment, net 1,329,452 1,317,470 Deposits for capital expenditures 2,649 30,386 Other assets, net 64,404 71,124 ----------- ----------- $ 1,514,476 $ 1,497,921 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,912 $ 57,253 Accrued liabilities 55,771 50,633 Current portion of long-term obligations 4,283 36,134 ----------- ----------- Total current liabilities 90,966 144,020 Long term obligations, less current portion 884,056 816,644 Deferred income taxes 67,946 63,469 Commitments and contingencies -- -- Minority interests: Preferred redeemable securities 175,000 175,000 Other 5,342 15,021 Stockholders' equity Common Stock, $.01 par value--75,000,000 shares authorized; 28,028,595 shares and 27,937,057 shares issued and outstanding at September 30, 1999 and December 31, 1998, respectively 278 278 Additional paid-in capital 262,696 261,976 Retained earnings 29,821 23,106 Accumulated other comprehensive loss (1,629) (1,593) ----------- ----------- Total stockholders' equity 291,166 283,767 ----------- ----------- $ 1,514,476 $ 1,497,921 =========== ===========
See accompanying notes. -3- 4 LODGIAN, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Revenues Rooms $ 116,549 $ 72,512 $ 328,212 $ 197,273 Food & beverage 31,892 24,133 101,018 74,673 Other 7,579 4,715 22,457 14,683 --------- --------- --------- --------- 156,020 101,360 451,687 286,629 --------- --------- --------- --------- Operating expenses: Direct: Rooms 33,213 19,943 90,335 54,015 Food & Beverage 23,810 19,115 74,351 57,575 Other 4,552 2,611 12,768 7,929 General and administrative 6,614 2,408 17,981 7,237 Depreciation and amortization 13,102 7,769 40,602 22,528 Other hotel operating expenses 42,250 32,140 127,393 85,774 --------- --------- --------- --------- 123,541 83,986 363,430 235,058 --------- --------- --------- --------- Income from operations 32,479 17,374 88,257 51,571 Other income (expenses): Interest income and other, net 1,595 32 1,102 (523) Loss on swap transactions -- (31,492) -- (31,492) Interest expense (20,317) (5,761) (57,456) (21,893) Minority interests - preferred redeemable securities (3,338) (3,012) (10,152) (3,323) --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item 10,419 (22,859) 21,751 (5,660) Provision (benefit) for income taxes 4,167 (9,144) 8,700 (2,264) --------- --------- --------- --------- Income (loss) before extraordinary item 6,252 (13,715) 13,051 (3,396) Extraordinary item: Loss on early extinguishment of debt, net of income tax benefit of $4,224 and $730 for 1999 and 1998, respectively (6,336) (47) (6,336) (1,142) --------- --------- --------- --------- Net (loss) income $ (84) $ (13,762) $ 6,715 $ (4,538) ========= ========= ========= ========= Earnings (loss) per common share basic and assuming dilution: Income (loss) before extraordinary item $ 0.23 $ (0.71) $ 0.48 $ (0.17) Extraordinary item (0.23) -- (0.23) (0.06) --------- --------- --------- --------- Net income (loss) -- $ (0.71) $ 0.25 $ (0.23) ========= ========= ========= =========
See accompanying notes. -4- 5 LODGIAN, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands, Except Share Data)
Accumu- lated Other Total Additional Compre- Stock- Common Stock Paid-In Retained hensive holders' Shares Amount Capital Earnings Loss Equity ------------ ------ ---------- -------- -------- --------- Balance at December 31, 1997 20,974,852 $ 210 $ 211,577 $ 28,327 $ (579) $ 239,535 Issuance of common stock in connection with the Merger 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 61,538 -- 600 -- -- 600 Exercise of stock options 30,000 -- 120 -- -- 120 Net income -- -- -- 6,715 -- 6,715 Currency translation adjustments -- -- -- -- (36) (36) ---------- ----- --------- -------- ------- --------- Comprehensive income -- -- -- -- -- 6,679 ---------- ----- --------- -------- ------- --------- Balance at September 30, 1999 28,028,595 $ 278 $ 262,696 $ 29,821 $(1,629) $ 291,166 ========== ===== ========= ======== ======= =========
The data for the nine months ended September 30, 1999 is unaudited. See accompanying notes. -5- 6 LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------- 1999 1998 ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,117 $ 52,151 --------- --------- INVESTING ACTIVITIES: Capital expenditures, net (63,659) (53,923) Acquisitions of property and equipment (1,929) (58,395) Purchase of minority interests (10,200) -- Net withdrawals from deposits for capital expenditures 27,737 17,492 Net proceeds from sale of assets 20,468 2,373 Other 371 731 --------- --------- Net cash used in investing activities (27,212) (91,722) --------- --------- FINANCING ACTIVITIES: Proceeds from issuance of long-term obligations 477,860 258,404 Principal payments on long-term obligations (442,299) (167,254) Payment of deferred loan costs (4,699) (7,554) (Distributions to) contributions from minority interests (690) 82 Repurchase of common stock -- (34,072) Net proceeds from issuance of common stock 120 979 --------- --------- Net cash provided by financing activities 30,292 50,585 --------- --------- Net increase in cash and cash equivalents 4,197 11,014 Cash and cash equivalents at beginning of period 19,185 15,243 --------- --------- Cash and cash equivalents at end of period $ 23,382 $ 26,257 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of amount capitalized $ 50,714 $ 20,211 ========= ========= Income taxes paid, net of refunds $ 3,065 $ 592 ========= ========= Non-cash acquisitions of property: Addition to property and equipment -- $ 58,061 ========= ========= Addition to long-term debt -- $ 58,061 ========= =========
See accompanying notes. -6- 7 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. GENERAL The condensed consolidated financial statements include the accounts of Lodgian, Inc. ("Lodgian" or the "Company"), its wholly-owned subsidiaries and partnerships in which Lodgian exercises control over the partnerships' assets and operations. 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. Investments in a partnership where the Company's ownership is between 20%-50% is accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting policies followed for quarterly financial reporting are the same as those disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 1999, and the results of its operations for the three and nine months ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 1999 and 1998. While management believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 1999 1998 1999 1998 ------- -------- ------- -------- (In Thousands, except per share data) Numerator: Income (loss) before extraordinary items $ 6,252 $(13,715) $13,051 $ (3,396) Effect of dilutive securities: Minority interest-preferred redeemable securities -- -- -- -- ------- -------- ------- -------- Numerator for diluted earnings per share $ 6,252 $(13,715) $13,051 $ (3,396) ======= ======== ======= ======== Denominator: Denominator for basic earnings per share- weighted-average shares 27,282 19,318 27,041 20,261 ------- -------- ------- -------- Effect of dilutive securities: Employee stock options -- -- -- -- Convertible preferred securities -- -- -- -- ------- -------- ------- -------- Dilutive potential common shares -- -- -- -- ------- -------- ------- -------- Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 27,282 19,318 27,041 20,261 ======= ======== ======= ======== Basic earnings (loss) per share: $ 0.23 $ (0.71) $ 0.48 $ (0.17) Diluted earnings (loss) per share: $ 0.23 $ (0.71) $ 0.48 $ (0.17)
The computation of diluted earnings per share, for all periods shown did not include shares associated with the assumed conversion of the Convertible Redeemable Equity Structure Trusts Securities and employee stock options because their inclusion would have been antidilutive. -7- 8 3. COMMITMENTS AND CONTINGENCIES On June 1, 1999, a contractor engaged to perform work on six properties in New York, Illinois and Texas filed a summons with notice against us in the Supreme Court of the State of New York. The summons claims, among other things, breach of contract and quantum meruit and seeks damages in the aggregate amount of $45 million. The contractor has filed a formal complaint and increased its alleged damages to $80 million, $60 million of which is punitive damages. We have filed an answer and counterclaim and will vigorously defend our position. We believe we have valid defenses and counterclaims and that any possible outcome will not have a material adverse effect on our financial position or results of operations. 4. SUPPLEMENTAL GUARANTOR INFORMATION In July 1999, the Company sold $200 million of 12 1/4% 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 sale of the Notes was used to repay, prior to maturity, approximately $413 million of existing debt. As a result of the prepayment the Company recognized an extraordinary loss of approximately $6.3 million, net of income tax benefit. In connection with the Company's sale of the Notes, certain of the Company's subsidiaries (the "Subsidiary Guarantors") have fully and unconditionally guaranteed, on a joint and several basis, 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 the note as the "Non-Guarantor Subsidiaries". The following supplemental condensed consolidating financial statements present balance sheets as of September 30, 1999 (Unaudited) and December 31, 1998 and statements of income for the three and nine months ended September 30, 1999 (Unaudited) and 1998 (Unaudited) and of cash flows for the nine months ended September 30, 1999 (Unaudited) and 1998 (Unaudited). In the condensed consolidating financial statements, Lodgian, Inc. or (the "Parent") accounts for its investments in wholly-owned subsidiaries using the equity method. -8- 9 Lodgian, Inc. Condensed Consolidating Balance Sheet September 30, 1999 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated -------- ----------- ------------- ------------ ------------ Assets Current assets: Cash and cash equivalents $ 1,941 $ 3,739 $ 17,702 $ -- $ 23,382 Restricted cash -- -- 6,557 -- 6,557 Accounts receivable, net of allowances -- 16,077 24,081 -- 40,158 Other current assets 2,512 6,326 39,036 -- 47,874 -------- ----------- ----------- ----------- ----------- Total current assets 4,453 26,142 87,376 -- 117,971 Property and equipment, net -- 512,026 817,426 -- 1,329,452 Deposits for capital expenditures -- 6,081 (3,432) -- 2,649 Investment in consolidated entities 141,654 -- -- (141,654) -- Due from (to) affiliates 128,465 (514,255) 385,790 -- -- Other assets, net 20,970 13,776 29,658 -- 64,404 -------- ----------- ----------- ----------- ----------- $295,542 $ 43,770 $ 1,316,818 $ (141,654) $ 1,514,476 ======== =========== =========== =========== =========== Liabilities and stockholder's equity Current liabilities: Accounts Payable, trade $ 52 $ 7,220 $ 23,640 $ -- $ 30,912 Accrued liabilities -- 26,849 28,922 -- 55,771 Current portion long-term obligations -- 219 4,064 -- 4,283 -------- ----------- ----------- ----------- ----------- Total current liabilities 52 34,288 56,626 -- 90,966 Long-term obligations, less current 772 149 883,135 -- 884,056 Deferred income taxes 1,923 19,978 46,045 -- 67,946 Minority interests: Preferred redeemable securities -- -- 175,000 -- 175,000 Other -- -- 5,342 -- 5,342 Stockholder's equity: Common stock 278 33 672 (705) 278 Additional paid-in capital 262,696 20,020 538 (20,558) 262,696 Retained earnings 29,821 (29,069) 141,287 (112,218) 29,821 Members equity -- -- 8,173 (8,173) -- Accumulated other comprehensive loss -- (1,629) -- -- (1,629) -------- ----------- ----------- ----------- ----------- Total stockholder's equity 292,795 (10,645) 150,670 (141,654) 291,166 -------- ----------- ----------- ----------- ----------- Total liabilities and stockholder's equity $295,542 $ 43,770 $ 1,316,818 $ (141,654) $ 1,514,476 ======== =========== =========== =========== ===========
-9- 10 Lodgian, Inc. Condensed Consolidating Balance Sheet December 31, 1998 (In Thousands)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------- ------------ ------------ Assets Current assets: Cash and cash equivalents $ 1,648 $ 6,091 $ 11,446 $ -- $ 19,185 Restricted cash -- -- 6,302 -- 6,302 Accounts receivable, net of allowances -- 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 Deposits for capital expenditures -- 9,881 20,505 -- 30,386 Investment in consolidated entities 74,056 -- -- (74,056) -- Due from (to) affiliates 178,948 (282,970) 104,022 -- -- Other assets, net 38,095 29,957 3,072 -- 71,124 -------- --------- --------- ----------- ----------- $295,770 $ 306,735 $ 969,472 $ (74,056) $ 1,497,921 ======== ========= ========= =========== =========== Liabilities and stockholder's 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 7,722 269,232 539,690 -- 816,644 Deferred income taxes 2,556 19,978 40,935 -- 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 23,106 (32,922) 87,874 (54,952) 23,106 Members equity -- 8,173 (8,173) -- Accumulated other comprehensive loss -- (1,593) -- -- (1,593) -------- --------- --------- ----------- ----------- Total stockholder's equity 285,360 (14,501) 86,964 (74,056) 283,767 -------- --------- --------- ----------- ----------- $295,770 $ 306,735 $ 969,472 $ (74,056) $ 1,497,921 ======== ========= ========= =========== ===========
-10- 11 Lodgian, Inc. Consolidating Statement of Income Three Months Ended September 30, 1999 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------- ------------ Revenues Rooms $ -- $ 52,348 $ 64,201 $ -- $ 116,549 Food and beverage -- 13,482 18,410 -- 31,892 Other -- 3,090 4,489 -- 7,579 ------- -------- -------- -------- --------- Total revenues -- 68,920 87,100 -- 156,020 ------- -------- -------- -------- --------- Operating expenses: Direct: Rooms -- 14,652 18,561 -- 33,213 Food and beverage -- 9,914 13,896 -- 23,810 Other -- 2,120 2,432 -- 4,552 General and administrative -- -- 6,614 -- 6,614 Depreciation and amortization -- 5,859 7,243 -- 13,102 Other hotel operating expenses -- 22,594 19,656 -- 42,250 ------- -------- -------- -------- --------- Total operating expenses -- 55,139 68,402 -- 123,541 ------- -------- -------- -------- --------- Income from operations -- 13,781 18,698 -- 32,479 Other income (expenses): Other income -- -- 1,595 -- 1,595 Interest expense -- (589) (19,728) -- (20,317) Equity in earnings (loss) of consolidated subsidiaries 10,419 -- (10,419) -- Minority interests-preferred redeemable securities -- -- (3,338) -- (3,338) ------- -------- -------- -------- --------- Income (loss) before income taxes 10,419 13,192 (2,773) (10,419) 10,419 Provision (benefit) for income taxes 4,167 5,277 (1,110) (4,167) 4,167 ------- -------- -------- -------- --------- Income (loss) before extraordinary item 6,252 7,915 (1,663) (6,252) 6,252 Extraordinary item, net of taxes -- (7,307) 971 -- (6,336) ------- -------- -------- -------- --------- Net income (loss) $ 6,252 $ 608 ($ 692) ($ 6,252) ($ 84) ======= ======== ======== ======== =========
-11- 12 Lodgian, Inc. Consolidating Statement of Income Three Months Ended September 30, 1998 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------- ------------ ------------ Revenues Rooms $ -- $ 29,579 $ 42,933 $ -- $ 72,512 Food and beverage -- 9,074 15,059 -- 24,133 Other -- 1,952 2,763 -- 4,715 -------- -------- -------- ------- --------- Total revenues -- 40,605 60,755 -- 101,360 -------- -------- -------- ------- --------- Operating expenses: Direct: Rooms -- 8,480 11,463 -- 19,943 Food and beverage -- 7,337 11,778 -- 19,115 Other -- 1,213 1,398 -- 2,611 General and administrative -- -- 2,408 -- 2,408 Depreciation and amortization -- 2,935 4,834 -- 7,769 Other hotel operating expenses -- 14,325 17,815 -- 32,140 -------- -------- -------- ------- --------- Total operating expenses -- 34,290 49,696 -- 83,986 -------- -------- -------- ------- --------- Income from operations -- 6,315 11,059 -- 17,374 Other income (expenses): Other income -- -- 32 -- 32 Loss on swap transactions -- -- (31,492) -- (31,492) Interest expense -- (1,849) (3,912) -- (5,761) Equity in earnings (loss) of consolidated subsidiaries (22,859) -- 22,859 Minority interests - preferred redeemable securities -- -- (3,012) -- (3,012) -------- -------- -------- ------- --------- Income (loss) before income taxes (22,859) 4,466 (27,325) 22,859 (22,859) Provision (benefit) for income taxes (9,144) 1,786 (10,930) 9,144 (9,144) Income (loss) before extraordinary item (13,715) 2,680 (16,395) 13,715 (13,715) Extraordinary item, net of taxes -- -- (47) -- (47) -------- -------- -------- ------- --------- Net income (loss) $(13,715) $ 2,680 $(16,442) $13,715 $ (13,762) ======== ======== ======== ======= =========
-12- 13 Lodgian, Inc. Consolidating Statement of Income Nine Months Ended September 30, 1999 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ Revenues Rooms $ -- $ 148,851 $ 179,361 $ -- $ 328,212 Food and beverage -- 43,095 57,923 -- 101,018 Other -- 9,439 13,018 -- 22,457 ------- --------- --------- -------- --------- Total revenues -- 201,385 250,302 -- 451,687 ------- --------- --------- -------- --------- Operating expenses: Direct: Rooms -- 40,621 49,714 -- 90,335 Food and beverage -- 31,254 43,097 -- 74,351 Other -- 5,978 6,790 -- 12,768 General and administrative -- -- 17,981 -- 17,981 Depreciation and amortization -- 18,648 21,954 -- 40,602 Other hotel operating expenses -- 65,044 62,349 -- 127,393 ------- --------- --------- -------- --------- Total operating expenses -- 161,545 201,885 -- 363,430 ------- --------- --------- -------- --------- Income from operations -- 39,840 48,417 -- 88,257 Other income (expenses): Other income -- -- 1,102 -- 1,102 Interest expense -- (21,343) (36,113) -- (57,456) Equity in earnings of consolidated subsidiaries 21,751 -- -- (21,751) -- Minority interests-preferred redeemable securities -- -- (10,152) -- (10,152) ------- --------- --------- -------- --------- Income before income taxes and extraordinary item 21,751 18,497 3,254 (21,751) 21,751 Provision for income taxes 8,700 7,399 1,301 (8,700) 8,700 ------- --------- --------- -------- --------- Income before extraordinary items 13,051 11,098 1,953 (13,051) 13,051 Extraordinary item, net of taxes -- (7,307) 971 -- (6,336) ------- --------- --------- -------- --------- Net income $13,051 $ 3,791 $ 2,924 $(13,051) $ 6,715 ======= ========= ========= ======== =========
-13- 14 Lodgian, Inc. Consolidating Statement of Cash Flows Nine Months Ended September 30, 1999 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Consolidated ------ ---------- ------------- ------------ Net cash flows from operating activities $ -- $ 34,925 $ (33,808) $ 1,117 Investing activities: Capital improvements, net -- (2,728) (60,931) (63,659) Acquisitions of property and equipment -- -- (1,929) (1,929) Purchase of minority interests -- -- (10,200) (10,200) Net withdrawals from deposits for capital expenditures -- 3,800 23,937 27,737 Net proceeds from sale of assets -- -- 20,468 20,468 Other -- -- 371 371 ------ --------- --------- --------- Net cash flows from investing activities: -- 1,072 (28,284) (27,212) Financing activities: Proceeds from issuance of long-term obligations -- -- 477,860 477,860 Principal payments of long-term obligations -- (269,634) (172,665) (442,299) Payment of deferred loan costs -- -- (4,699) (4,699) (Distributions to) contributions from minority interest -- -- (690) (690) Net proceeds from issuance of common stock 120 -- -- 120 Proceeds from related parties, net 173 231,285 (231,458) -- ------ --------- --------- --------- Net cash flows provided by financing activities 293 (38,349) 68,348 30,292 ------ --------- --------- --------- Change in cash and cash equivalents 293 (2,352) 6,256 4,197 Cash and cash equivalents at beginning of period 1,648 6,091 11,446 19,185 ------ --------- --------- --------- Cash and cash equivalents at end of period $1,941 $ 3,739 $ 17,702 $ 23,382 ====== ========= ========= =========
-14- 15 Lodgian, Inc. Consolidating Statement of Income Nine Months Ended September 30, 1998 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------ Revenues Rooms $ -- $ 83,776 $ 113,497 $ -- $ 197,273 Food and beverage -- 29,585 45,088 -- 74,673 Other -- 6,594 8,089 -- 14,683 ------- --------- --------- ------ --------- Total revenues -- 119,955 166,674 -- 286,629 ------- --------- --------- ------ --------- Operating expenses: Direct: Rooms -- 23,659 30,356 -- 54,015 Food and beverage -- 22,930 34,645 -- 57,575 Other -- 3,816 4,113 -- 7,929 General and administrative -- -- 7,237 -- 7,237 Depreciation and amortization -- 8,811 13,717 -- 22,528 Other hotel operating expenses -- 42,007 43,767 -- 85,774 ------- --------- --------- ------ --------- Total operating expenses -- 101,223 133,835 -- 235,058 ------- --------- --------- ------ --------- Income from operations -- 18,732 32,839 -- 51,571 Other income (expenses): Other income -- -- (523) -- (523) Loss on swap transactions -- -- (31,492) -- (31,492) Interest expense -- (9,456) (12,437) -- (21,893) Equity in earnings (loss) of consolidated subsidiaries (5,660) -- -- 5,660 -- Minority interests - preferred redeemable securities -- -- (3,323) -- (3,323) ------- --------- --------- ------ --------- Income (loss) before income taxes and extraordinary item (5,660) 9,276 (14,936) 5,660 (5,660) Provision (benefit) for income taxes (2,264) 3,710 (5,974) 2,264 (2,264) ------- --------- --------- ------ --------- Income (loss) before extraordinary item (3,396) 5,566 (8,962) 3,396 (3,396) Extraordinary item, net of taxes -- -- (1,142) -- (1,142) ------- --------- --------- ------ --------- Net income (loss) $(3,396) $ 5,566 $ (10,104) $3,396 $ (4,538) ======= ========= ========= ====== =========
-15- 16 Lodgian, Inc. Consolidating Statement of Cash Flows Nine Months Ended September 30, 1998 (In Thousands) (Unaudited)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Consolidated -------- ---------- ------------- ------------ Net cash flows from operating activities $ -- $ 20,322 $ 31,829 $ 52,151 Investing activities: Capital improvements, net -- (37,661) (16,262) (53,923) Acquisitions of property and equipment -- (40,325) (18,070) (58,395) Net withdrawals from deposits for capital expenditures -- 13,693 3,799 17,492 Net proceeds from sale of assets -- -- 2,373 2,373 Other -- -- 731 731 -------- -------- --------- --------- Net cash flows from investing activities: -- (64,293) (27,429) (91,722) Financing activities: Proceeds from issuance of long-term obligations -- -- 258,404 258,404 Principal payments of long-term obligations -- (30,286) (136,968) (167,254) Payment of deferred loan costs -- -- (7,554) (7,554) Contributions from minority interest -- -- 82 82 Repurchase of common stock (34,072) -- -- (34,072) Net proceeds from issuance of common stock 979 -- -- 979 Proceeds from related parties, net 37,929 73,528 (111,457) -- -------- -------- --------- --------- Net cash flows provided by financing activities 4,836 43,242 2,507 50,585 -------- -------- --------- --------- Change in cash and cash equivalents 4,836 (729) 6,907 11,014 Cash and cash equivalents at beginning of period 8,283 1,735 5,225 15,243 -------- -------- --------- --------- Cash and cash equivalents at end of period $ 13,119 $ 1,006 $ 12,132 $ 26,257 ======== ======== ========= =========
-16- 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Management believes that results of operations in the hotel industry are best explained by four key performance measures: occupancy levels, Average Daily Rate ("ADR"), Revenue Per Available Room ("RevPAR") and Earnings Before Interest, Taxes, Depreciation and Amortization ("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 our 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. Our business strategy includes the acquisition of under-performing hotels and the implementation of our operational initiatives and repositioning and renovation programs to achieve revenue and margin improvements. During a period of repositioning, the revenues and earnings of hotels being repositioned may be adversely affected and may have a negative impact on our consolidated RevPAR, ADR and occupancy rate performance, as well as EBITDA margins. In addition, our strategy includes developing new full service hotels. Newly developed properties typically require 24 months following completion to stabilize. To track the execution of our repositioning and development growth strategy and its impact on the Company's results of operations, we classify our hotels 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 that have undergone renovation or repositioning within the last 36 months, which work is now completed, or (2) newly constructed hotels 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, our hotels which have undergone renovation have generally reached stabilization within approximately 12 to 18 months after their completion date, and our newly constructed hotels have reached stabilization in 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. We expect significant improvements in the operating performance of those hotels that have undergone repositioning once the renovation is completed. After the repositioning work is completed, these properties will be reclassified as Stabilizing Hotels. Management classifies each hotel into one of the three categories at the beginning of each fiscal year. We determine the category most appropriate for each hotel based on our evaluation of objective and subjective factors, including the time of completion of renovation and whether the full benefit of renovations have been realized. REVENUES Revenues are composed of room, food and beverage and other revenues. Room revenues are derived from guestroom rentals, while food and beverage revenues primarily include sales from our 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 us 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 are primarily variable with available rooms and occupancy rates, but also have a small fixed component that can be leveraged with increases in revenues. 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 marketing, utilities, repairs and maintenance and other property administrative costs. These expenses are also primarily fixed. -17- 18 HISTORICAL RESULTS OF OPERATIONS The significant number of acquisitions and extensive renovation activity has had a material impact on our operating results. In June 1998, the Company acquired AMI Operating Partners, L.P. ("AMI"), an entity that owned and operated 14 hotels, four of which have been subsequently sold. In December 1998, the Company merged (the "Merger") with Impac Hotel Group, LLC ("Impac"), an entity that owned or managed 53 hotels, one of which remains under construction. Because these transactions were accounted for using the purchase method of accounting, the results of AMI and Impac are included in our consolidated results of operations from the time they were acquired. This makes comparisons of our historical operating results with prior periods less meaningful. THREE MONTHS ENDED SEPTEMBER 30, 1999 ("THIRD QUARTER 1999") COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998 ("THIRD QUARTER 1998") REVENUES Revenues for the Company were $156.0 million for the Third Quarter 1999, a 53.8% increase over revenues of $101.4 million for the Third Quarter 1998. Of this $54.6 million increase, $50.2 million was attributable to the Merger. The following table summarizes certain operating data for the Company's hotels for the Three Months ended September 30, 1999 and 1998. The Stabilized, Stabilizing and Being Repositioned Hotels refers to classifications in these respective categories as of January 1, 1999.
HOTELS (1) ADR OCCUPANCY REVPAR -------------- -------------------- ---------------- ------------------- 1999 1998 1999 1998 1999 1998 1999 1998 ---- ---- ------- ------ ---- ---- ------ ------- Stabilized............ 77 50 $ 73.13 $72.16 71.0% 70.1% $51.92 $ 50.60 Stabilizing........... 34 12 $ 75.22 $66.57 67.7% 62.9% $50.94 $ 41.90 Being Repositioned.... 21 22 $ 80.12 $76.63 66.5% 62.4% $53.32 $ 47.81 --- -- ------- ------ ---- ---- ------ ------- Total................. 132 84 $ 74.89 $72.45 69.3% 67.0% $51.93 $ 48.52 === == ======= ====== ==== ==== ====== =======
------------ (1) Excludes one hotel managed for a third party and one owned non-consolidated hotel. Includes two hotels sold during the 1999 quarter. All 1998 figures in the table exclude the Merger. OPERATING EXPENSES Direct operating expenses for the Company were $61.6 million (39.5% of direct revenues) for the Third Quarter 1999 and $41.7 million (41.1% of direct revenue) for the Third Quarter of 1998. Of the $19.9 million increase, $18.1 million was attributable to the Merger. General and administrative expenses were $6.6 million in Third Quarter 1999 and $2.4 million in Third Quarter 1998. Of the $4.2 million increase, approximately $.7 million represents expenses associated with the expansion of the corporate sales and marketing staff and the regional offices. The balance was attributable to the Merger. Depreciation and amortization expense was $13.1 million in Third Quarter 1999 and $7.8 million in Third Quarter 1998. The $5.3 million increase was attributable to the Merger, the opening of one new hotel and the completion of renovation projects. Other hotel operating expenses were $42.2 million in Third Quarter 1999 and $32.1 million in Third Quarter 1998. Of the $10.1 million increase, $14.0 million was attributable to the Merger. As a result of the above, income from operations was $32.5 million in Third Quarter 1999 as compared to $17.4 million in the Third Quarter 1998. Interest expense was $20.3 million in Third Quarter 1999 and $5.8 million in Third Quarter 1998. This increase was primarily a result of an increase in the level of debt associated with the Merger. Minority interest expense related to the Company's Convertible Redeemable Equity Structure Trust Securities ("CRESTS") was $3.3 million in Third Quarter 1999 and $3.0 million in Third Quarter 1998. This increase was primarily a result of a slightly higher interest rate in the Third Quarter 1999. -18- 19 During the Third Quarter 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. Other income (expense) in the Third Quarter 1999 includes a $1.2 million gain from the sale of assets. NET INCOME After a provision (benefit) for income taxes of $4.2 million in Third Quarter 1999 and ($9.1) million in Third Quarter 1998, the Company had income (loss) before extraordinary item of $6.3 million ($.23 per share) in Third Quarter 1999 compared with ($13.7) million ($.71 loss per share) in Third Quarter 1998. In Third Quarter 1999 the Company had an extraordinary item, net of income tax benefit of $4.2 million, of $6.3 million ($.23 loss per share) from the loss on early extinguishment of debt. Net loss for Third Quarter 1999 amounted to $84,000 ($.00 per share) compared with $13.8 million ($.71 loss per share) in Third Quarter 1998. NINE MONTHS ENDED SEPTEMBER 30, 1999 (THE "1999 PERIOD") COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (THE "1998 PERIOD") REVENUES Revenues for the Company were $451.7 million for the 1999 Period, a 57.6% increase over revenues of $286.6 million for the 1998 Period. Of this $165.1 million increase, $154.3 million was attributable to the acquisition of AMI and the Merger. The following table summarizes certain operating data for the Company's hotels for the Nine Months ended September 30, 1999 and 1998. The Stabilized, Stabilizing and Being Repositioned Hotels refers to classifications in these respective categories as of January 1, 1999.
HOTELS (1) ADR OCCUPANCY REVPAR -------------- -------------------- ---------------- ------------------- 1999 1998 1999 1998 1999 1998 1999 1998 ---- ---- ------- ------ ---- ---- ------ ------- Stabilized............ 77 50 $ 74.07 $73.69 68.2% 67.7% $50.50 $ 49.92 Stabilizing........... 34 12 $ 75.44 $69.73 63.4% 58.3% $47.83 $ 40.64 Being Repositioned.... 21 22 $ 79.13 $75.60 56.5% 58.3% $44.68 $ 44.04 --- -- ------- ------ ---- ---- ------ ------- Total................. 132 84 $ 75.23 $73.09 64.8% 64.1% $48.75 $ 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 $177.5 million (39.3% of direct revenues) for the 1999 Period and $119.5 million (41.7% of direct revenue) for the 1998 Period. Of the $58.0 million increase, $57.1 million was attributable to the acquisition of AMI and the Merger. General and administrative expenses were $18.0 million in the 1999 Period and $7.2 million in the 1998 Period. Of the $10.8 million increase, approximately $1.5 million represents expenses associated with the expansion of the corporate sales and marketing staff and the regional offices. Additionally, $.5 million represents non-recurring expenses, principally severance. The balance was attributable to the acquisition of AMI and the Merger. Depreciation and amortization expense was $40.6 million in the 1999 Period and $22.5 million in the 1998 Period. The $18.1 million increase was attributable to the acquisition of AMI, the Merger, the opening of one new hotel and the completion of renovation projects. Other hotel operating expenses were $127.4 million in the 1999 Period and $85.8 million in the 1998 Period. Of the $41.6 million increase, $45.5 million was attributable to the acquisition of AMI and the Merger. In addition, $1.0 million was attributable to the Company's share of loss from an unconsolidated partnership, essentially all of which was represented by depreciation. -19- 20 As a result of the above, income from operations was $88.3 million in the 1999 Period as compared to $51.6 million in the 1998 Period. Interest expense was $57.5 million in the 1999 Period and $21.9 million in the 1998 Period. This increase was primarily a result of an increase in the level of debt associated with the acquisition of AMI and the Merger. Minority interest expense related to the Company's Convertible Redeemable Equity Structure Trust Securities ("CRESTS") was $10.2 million in the 1999 Period and $3.3 million in the 1998 Period. The Company's CRESTS were issued in June 1998. During the 1998 Period 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. Other income (expense) in the 1999 Period includes a $1.2 million gain from the sale of assets. The 1998 Period includes a $.4 million loss from the sale of assets. NET INCOME After a provision (benefit) for income taxes of $8.7 million in the 1999 Period and ($2.3) million in the 1998 Period, the Company had income (loss) before extraordinary item of $13.1 million ($0.48 per share) in the 1999 Period compared with ($3.4) million ($.17 loss per share) in the 1998 Period. Net of an income tax benefit of $4.2 million in the 1999 Period and $0.7 million in the 1998 Period, the Company had an extraordinary item, loss on early extinguishment of debt, of $6.3 million ($.23 loss per share) in the 1999 Period and $1.1 million ($.06 loss per share) in the 1998 Period. Net income (loss) for the 1999 Period amounted to $6.7 million ($.25 per share) compared with $(4.5) million ($.23 loss per share) in the 1998 Period. INCOME TAXES As of December 31, 1998 the Company had net operating loss carry forwards of approximately $50 million for federal income tax purposes, which expire in 2005 through 2018. Our ability to use the net operating loss carry forwards to offset future income is subject to certain limitations, and may be subject to additional limitations in the future. Consequently, a portion of the net operating loss carry forwards could expire unused. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity consist of existing cash balances, cash flow from operations and financing. The Company had earnings from operations before interest, taxes, depreciation and amortization ("EBITDA") for the 1999 period of $129.8 million, a 74.0% increase from the $74.6 million for the 1998 period. 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 for the 1999 period was $1.1 million as compared with $52.2 million for the 1998 period. Cash flows used in investing activities were $27.2 million and $91.7 million in the nine months ended September 30, 1999 and 1998, respectively. The 1999 amount includes capital expenditures of $65.6 million and $10.2 million for the purchase of the minority partner's 49% interest in six hotel partnerships. The 1999 amount also includes net proceeds from the sale of assets of $20.5 million, including the disposition of the Company's investment in six European hotels, and proceeds from capital expenditure escrows of $27.7 million. The 1998 amount consists of capital expenditures of $112.3 million, including the acquisition of the AMI hotels, net of assumed debt, and proceeds from capital expenditure escrows of $17.5 million. Cash flows provided by financing activities were $30.3 million and $50.6 million in the nine months ended September 30, 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 $83.6 million (including $168.5 million of net proceeds from the issuance of CRESTS) reduced by $34.1 million from the repurchase of common stock. At September 30, 1999, the Company had working capital of $27.0 million as compared with a working capital deficit of $65.1 million at December 31, 1998. -20- 21 At September 30, 1999 the Company's long-term obligations were $884.1 million, not including $175 million of CRESTS. The Company's long-term obligations were $816.6 million at December 31, 1998. Certain of the Company's 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 September 30, 1999, has approximately $2.6 million escrowed for such improvements. The Company estimates its remaining obligations for all of such commitments to be approximately $37.9 million and anticipates spending approximately $8.0 million during the fourth quarter of 1999, with the balance to be spent thereafter. During the fourth quarter of 1999 and the first quarter of 2000, the Company expects to spend approximately $12.7 million to complete the construction of two new hotels. Substantially all of the funds necessary to complete construction of these hotels will be provided by current loan facilities. In July, the Company sold $200 million of 12 1/4% 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, was used to repay existing debt, including debt incurred in connection with the Merger. The new financing contains various covenants and coverage ratios, with which the Company is in compliance at September 30, 1999. Continuation of the Company's 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 its properties or capital from equity or debt markets. There is no assurance the Company will be successful in these efforts. INFLATION The rate of inflation has not had a material effect on the Company's revenues or costs and expenses in recent years and it is not anticipated that inflation will have a material effect on the Company in the near term. YEAR 2000 MATTERS The Year 2000 Issue is the result of certain computer programs being written using two digits rather than four to define the applicable year. Certain of the Company's computer programs may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in miscalculations causing disruptions of operations, including a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on its current assessment, the Company determined that it would be required to modify or replace portions of its existing software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company has divided its year 2000 issues into what it considers to be critical and non-critical issues. The Company believes that in its line of business the critical issues revolve around the ability to process transactions from the reservation stage through settlements and collection at the hotel. Additionally, of prime importance is the maintenance of accurate accounting and corporate records. The systems that the Company has identified as critical include, but may not be limited to, the following: Unix Operating System, Property Management Systems, Point of Sale Systems, Oracle General Ledger System and Credit Card Processing, as well as the Company's banking relationships and telecommunications vendors. The Company has also identified non-critical issues including, but not limited to, stand alone personal computers, other third party vendors and possible security issues. The Company has conducted formal communications with its significant suppliers to determine the Company's vulnerability to those third parties' failure to remediate their own Year 2000 Issue. There can be no guarantee that the systems of the Company's suppliers will be timely converted and would not have an adverse effect on the Company. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for Year 2000 modifications. The Company has estimated the total cost of the year 2000 project to be less than $2,000,000, a substantial portion of which is for equipment necessary to accommodate new property management and telecommunications software. All expenditures have been appropriately identified through the 1999 budget for hotel capital improvements. The Company has spent approximately $1,500,000 to date; the equipment component has been capitalized and the balance has been expensed. The projects yet to be completed consist of several property management systems and telephone switches. The Company anticipates completing the Year -21- 22 2000 project not later than December 31, 1999, which is prior to any anticipated impact on its operating systems. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. FORWARD-LOOKING STATEMENTS Statements in this Form 10-Q which express "belief," "anticipation," or "expectation," as well as other statements which are not historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. Moreover, there are important factors which include, but are not limited to, general and local economic conditions, risks relating to the acquisition, renovation and operation of hotels, government legislation and regulation, competition in the lodging industry, changes in interest rates, the impact of rapid growth, the availability of capital to finance growth, the historical cyclicality of the lodging industry, year 2000 matters and other factors described in other Lodgian, Inc. filings with the United States Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. Actual results could differ materially from these forward-looking statements. In light of the risks and uncertainties, there is no assurance that the forward-looking statements contained in this Form 10-Q will in fact prove correct or occur. The Company does not undertake any obligation to publicly release the results of any revisions to these forward-looking statements to reflect future events or circumstances. -22- 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On June 1, 1999, a contractor engaged to perform work on six properties in New York, Illinois and Texas filed a summons with notice against us in the Supreme Court of the State of New York. The summons claims, among other things, breach of contract and quantum meruit and seeks damages in the aggregate amount of $45 million. The contractor has filed a formal complaint and increased its alleged damages to $80 million, $60 million of which is punitive damages. We have filed an answer and counterclaim and will vigorously defend our position. We believe we have valid defenses and counterclaims and that any possible outcome will not have a material adverse effect on our financial position or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits A list of the exhibits required to be filed as part of this Report on Form 10-Q is set forth in the "Exhibit Index" which immediately precedes such exhibits, and is incorporated herein by reference. (b) Reports on Form 8-K No reports on Form 8-K/A were filed during the quarter ended September 30, 1999. -23- 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LODGIAN, INC. Registrant DATE: November 15, 1999 /s/ Robert S. Cole ------------------------------------- Robert S. Cole President and Chief Executive Officer DATE: November 15, 1999 /s/ Kenneth R. Posner ------------------------------------- Kenneth R. Posner Executive Vice President and Chief Financial Officer -24- 25 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT - ------- ------- 4.1 Indenture, dated as of July 23, 1999, by and among Lodgian Financing Corp., Lodgian, Inc., the subsidiary guarantors named therein and Bankers Trust Company, as trustee(1) 4.2 Registration Rights Agreement, dated as of July 20, 1999, by and among Lodgian Financing Corp., Lodgian, Inc., the subsidiary guarantors named therein and Morgan Stanley & Co. Incorporated, Lehman Brothers Inc and Bear, Stearns & Co. Inc.(1) 10.1 Credit Agreement, dated as of July 23, 1999, among Lodgian Financing Corp, Lodgian, Inc., Impac Hotel Group, LLC, Servico, Inc., and the other affiliate guarantors party thereto and the initial lenders and initial issuing bank named therein and Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent, and Morgan Stanley Senior Funding, Inc., as Co-Lead Arranger, Joint-Book Manager and Syndication Agent, and Lehman Brothers Inc., as Co-Lead Arranger and Joint-Book Manager (1) 10.2 Security Agreement, dated July 23, 1999, from Lodgian Financing Corp., Servico, Inc., Impac Hotel Group, LLC, and the other grantors referred to therein to Morgan Stanley Senior Funding, Inc., as Collateral Agent (1) 23.1 Consent of Cadwalader, Wickersham & Taft (2) 23.2 Consent of Ernst & Young LLP (1) 23.3 Consent of Ernst & Young LLP (2) 23.4 Consent of Ernst & Young LLP (2) 23.5 Consent of PriceWaterhouse Coopers LLP (2) 23.6 Consent of Richards, Layton & Finger, P.A. (2) 24.1 Power of Attorney(1) 27 Financial Data Schedule (for SEC use only)
- ------------ (1) Incorporated by reference to the Company's Registration Statement on Form S-4, as amended, filed on August 13, 1999 (Registration Number 333-85235) (2) Incorporated by reference to the Company's Registration Statement on Form S-1, as amended, filed on July 14, 1999 (Registration Number 333-82859) -25- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT SEPT. 30, 1999 AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPT. 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN LODGIAN, INC.'S FORM 10-Q FOR THE PERIOD ENDING SEPT. 30, 1999. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 29,939 0 40,158 0 0 117,971 1,329,452 0 1,514,476 90,966 884,056 0 175,000 278 290,888 1,514,476 0 451,687 0 363,430 9,050 0 57,456 21,751 8,700 13,051 0 6,336 0 6,715 .25 .25
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