-----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, L+T9e0DLWLxIohYvM11ovjCRdJzxjTVHPRUcXFWF8F8yYFuSFCr0bId4k8l2b6PI Nw5iNahqoR0v3CmxvyZ6/A== 0001047469-99-032456.txt : 19990817 0001047469-99-032456.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032456 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99692643 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 FORM 10-Q 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 June 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 incorporation or organization) (I.R.S. Employer 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 August 13, 1999 ----- --------------------------------- Common 27,872,040 LODGIAN, INC. AND SUBSIDIARIES INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION.....................................................Page No. Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998........................ 3 Condensed Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 1999 and 1998.............. 4 Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1999 (unaudited) and for the Year Ended December 31, 1998............................... 5 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 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 Item 4. Submission of Matters to a Vote of Security Holders....................... 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................................... Item 6. Exhibits and Reports on Form 8-K.......................................... 22 SIGNATURES .......................................................................... 23
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1999 1998 ---------- ---------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 20,322 $ 19,185 Cash, restricted 6,127 6,302 Accounts receivable, net of allowances 36,593 25,498 Other current assets 33,482 27,956 ---------- ---------- Total current assets 96,524 78,941 Property and equipment, net 1,332,522 1,317,470 Deposits for capital expenditures 29,798 30,386 Other assets, net 61,065 71,124 ---------- ---------- $1,519,909 $1,497,921 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 47,756 $ 57,253 Accrued liabilities 52,687 50,633 Current portion of long-term obligations 36,110 36,134 ---------- ---------- Total current liabilities 136,553 144,020 Long term obligations, less current portion 833,442 816,644 Deferred income taxes 68,002 63,469 Commitments and contingencies - - Minority interests: Preferred redeemable securities 175,000 175,000 Other 15,922 15,021 Stockholders' equity Common Stock, $.01 par value--75,000,000 shares authorized; 28,013,595 shares and 27,937,057 shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 278 278 Additional paid-in capital 262,436 261,976 Retained earnings 29,905 23,106 Accumulated other comprehensive loss (1,629) (1,593) ---------- ---------- Total stockholders' equity 290,990 283,767 ---------- ---------- $1,519,909 $1,497,921 ---------- ---------- ---------- ----------
SEE ACCOMPANYING NOTES. -3- LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Revenues Rooms $114,879 $ 68,928 $211,663 $124,761 Food and beverage 37,056 28,394 69,126 50,540 Other 7,928 5,066 14,878 9,968 -------- -------- -------- -------- 159,863 102,388 295,667 185,269 -------- -------- -------- -------- Operating expenses: Direct: Rooms 30,858 18,563 57,122 34,072 Food and Beverage 26,433 20,813 50,541 38,460 Other 4,093 2,881 8,216 5,318 General and administrative 6,138 2,442 11,367 4,829 Depreciation and amortization 13,750 7,552 27,500 14,758 Other hotel operating expenses 41,426 28,421 85,143 53,634 -------- -------- -------- -------- 122,698 80,672 239,889 151,071 -------- -------- -------- -------- Income from operations 37,165 21,716 55,778 34,198 Other income (expenses): Interest income and other 469 246 817 700 Loss on asset disposition - (432) - (432) Interest expense (18,209) (8,286) (37,139) (16,132) Minority interests: Preferred redeemable securities (3,457) (311) (6,814) (311) Other (566) (729) (1,310) (823) -------- -------- -------- -------- Income before income taxes and extraordinary items 15,402 12,204 11,332 17,200 Provision for income taxes 6,161 4,881 4,533 6,880 -------- -------- -------- -------- Income before extraordinary items 9,241 7,323 6,799 10,320 Extraordinary item: Loss on early extinguishment of debt, net of income tax benefit of $730 - (1,095) - (1,095) -------- -------- -------- -------- Net income $ 9,241 $ 6,228 $ 6,799 $ 9,225 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share: Income before extraordinary item $ 0.34 $ 0.35 $ 0.25 $ 0.49 Extraordinary item - (0.05) - (0.05) -------- -------- -------- -------- Net income $ 0.34 $ 0.30 $ 0.25 $ 0.44 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share-assuming dilution: Income before extraordinary item $ 0.32 $ 0.34 $ 0.25 $ 0.49 Extraordinary item - (0.05) (0.05) -------- -------- -------- -------- Net income $ 0.32 $ 0.29 $ 0.25 $ 0.44 -------- -------- -------- -------- -------- -------- -------- -------- SEE ACCOMPANYING NOTES. EBITDA $ 51,409 $ 29,432 $84,266 $ 49,260 -------- -------- -------- -------- -------- -------- -------- -------- Weighted average shares outstanding: Basic 27,080 20,795 26,909 20,871 Diluted 35,426 21,869 26,909 21,633
-4- CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
Accumu- lated Other Total Common Stock Additional Compre- 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 - 400 - - 400 Exercise of stock options 15,000 - 60 - - 60 Net income - - - 6,799 - 6,799 Currency translation adjustments - - - - (36) (36) ---------- ---- --------- -------- -------- --------- Comprehensive income - - - - - 6,737 ---------- ---- --------- -------- -------- --------- Balance at June 30, 1999 28,013,595 $278 $ 262,436 $ 29,905 $ (1,629) $ 290,990 ---------- ---- --------- -------- -------- --------- ---------- ---- --------- -------- -------- ---------
The data for the six months ended June 30, 1999 is unaudited. SEE ACCOMPANYING NOTES. -5- LODGIAN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------------- 1999 1998 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 20,286 $ 33,310 -------- -------- INVESTING ACTIVITIES: Capital expenditures, net (44,259) (29,795) Acquisitions of property and equipment (1,929) (53,491) Net deposits for capital expenditures 588 15,741 Net proceeds from sale of assets 11,100 2,373 Other - 1,361 -------- -------- Net cash used in investing activities (34,500) (63,811) -------- -------- FINANCING ACTIVITIES: Principal payments on long-term obligations (12,866) (158,734) (Distributions to) contributions from minority interests (123) 142 Payment of deferred loan costs (1,360) (7,151) Repurchase of common stock - (15,644) Net proceeds from issuance of common stock 60 977 Proceeds from issuance of long-term obligations 29,640 234,703 -------- -------- Net cash provided by financing activities 15,351 54,293 -------- -------- Net increase in cash and cash equivalents 1,137 23,792 Cash and cash equivalents at beginning of period 19,185 15,243 -------- -------- Cash and cash equivalents at end of period $ 20,322 $ 39,035 -------- -------- -------- -------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of amount capitalized $ 35,623 $ 14,388 -------- -------- -------- -------- Income taxes paid, net of refunds - $ 592 -------- -------- -------- -------- Non-cash acquisitions of property: Addition to property and equipment - $ 58,061 -------- -------- -------- -------- Addition to long-term debt - $ 58,061 -------- -------- -------- --------
SEE ACCOMPANYING NOTES. -6- 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 or 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 June 30, 1999, and the results of its operations for the three and six months ended June 30, 1999 and 1998 and its cash flows for the six months ended June 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 Six Months Ended June 30, June 30, ----------------------- ----------------------- 1999 1998 1999 1998 ------- ------- ------- -------- (In Thousands, except per share data) Numerator: Income before extraordinary items $ 9,241 $ 7,323 $ 6,799 $ 10,320 Effect of dilutive securities: Minority interest-preferred redeemable securities 2,074 187 - 187 ------- ------- ------- -------- Numerator for diluted earnings per share $11,315 $ 7,510 $ 6,799 $ 10,507 ------- ------- ------- -------- ------- ------- ------- -------- Denominator: Denominator for basic earnings per share- weighted-average shares 27,080 20,795 26,909 20,871 ------- ------- ------- -------- Effect of dilutive securities: Employee stock options 176 356 - 403 Convertible preferred securities 8,170 718 - 359 ------- ------- ------- -------- Dilutive potential common shares 8,346 1,074 - 762 ------- ------- ------- -------- Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 35,426 21,869 26,909 21,633 ------- ------- ------- -------- ------- ------- ------- -------- Basic earnings per share: $ 0.35 $ 0.35 $ 0.25 $ 0.49 Diluted earnings per share: $ 0.32 $ 0.34 $ 0.25 $ 0.49
The six months ended June 30, 1999 computation of diluted earnings per share did not include shares associated with the assumed conversion of the Convertible Redeemable Equity Structure Trust Securities and employee stock options because their inclusion would have been antidilutive. -7- 3. COMMITMENTS AND CONTINGENCIES On June 1, 1999, a contractor hired by a subsidiary of the Company 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, claiming breach of contract and quantum meruit, among other things. The contractor is seeking damages in the aggregate amount of $45 million. The contractor has filed a formal complaint. We have filed an appearance to the summons 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. SUBSEQUENT EVENTS AND SUPPLEMENTAL GUARANTOR INFORMATION In July 1999, the Company sold $200 million of 12 1/4% Senior Subordinated Notes due 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 $281 million of existing debt and, in September, will be used to repay an additional $132.5 million loan. As a result of the prepayment, the Company expects to recognize an extraordinary loss of approximately $5.5 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 June 30, 1999 (Unaudited) and December 31, 1998 and statements of income for the three and six months ended June 30, 1999 (Unaudited) and 1998 (Unaudited) and of cash flows for the six months ended June 30, 1999 (Unaudited) and 1998 (Unaudited). In the condensed consolidating financial statements, Lodgian, Inc. or Servico, Inc. (either, the "Parent") accounts for its investments in wholly-owned subsidiaries using the equity method. -8- Lodgian, Inc. Condensed Consolidating Balance Sheet June 30, 1999 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------- ------------ ------------ Assets Current assets: Cash and cash equivalents $ 1,941 $ 5,944 $ 12,437 $ 20,322 Restricted cash - - 6,127 6,127 Accounts receivable, net of allowances - 10,256 26,337 36,593 Other current assets 2,634 16,721 14,127 33,482 -------- --------- ---------- ---------- ---------- Total current assets 4,575 32,921 59,028 - 96,524 Property and equipment, net - 329,544 1,002,978 1,332,522 Deposits for capital expenditures - - 29,798 29,798 Investment in consolidated entities 138,037 - - (138,037) - Due from (to) affiliates 138,712 (123,874) (14,838) - Other assets, net 21,060 31,345 8,660 61,065 -------- --------- ---------- ------------ ---------- $302,384 $ 269,936 $1,085,626 $ (138,037) $1,519,909 -------- --------- ---------- ------------ ---------- -------- --------- ---------- ------------ ---------- Liabilities and stockholder's equity Current liabilities: Accounts Payable, trade $ 120 $ 9,196 $ 38,440 $ $ 47,756 Accrued liabilities - 16,967 35,720 52,687 Current portion long-term obligations - 18,829 17,281 36,110 -------- --------- ---------- ------------ ---------- Total current liabilities 120 44,992 91,441 136,553 Long-term obligations, less current 7,722 245,171 580,549 833,442 Deferred income taxes 1,923 (5,273) 71,352 68,002 Minority interests: Preferred redeemable securities - - 175,000 175,000 Other - - 15,922 15,922 Stockholder's equity: Common stock 278 34 672 (706) 278 Additional paid-in capital 262,436 10,184 538 (10,722) 262,436 Retained earnings 29,905 (23,543) 141,979 (118,436) 29,905 Members equity - 8,173 (8,173) - Accumulated other comprehensive loss - (1,629) - - (1,629) -------- --------- ---------- ------------ ---------- Total stockholder's equity 292,619 (14,954) 151,362 (138,037) 290,990 -------- --------- ---------- ------------ ---------- $302,384 $ 269,936 $1,085,626 $ (138,037) $1,519,909 -------- --------- ---------- ------------ ---------- -------- --------- ---------- ------------ ----------
-9- 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 $ 5,864 $ 11,673 $ - $ 19,185 Restricted cash - - 6,302 - 6,302 Company under the Notes and related indenture. - 6,228 19,270 - 25,498 Other current assets 3,023 8,495 16,438 - 27,956 -------- --------- ---------- --------- ---------- Total current assets 4,671 20,587 53,683 - 78,941 Property and equipment, net - 336,556 980,914 - 1,317,470 Deposits for capital expenditures - - 30,386 - 30,386 Investment in consolidated entities 74,056 - - (74,056) - Due from (to) affiliates 198,393 (152,977) (45,416) - - Other assets, net 18,650 47,121 5,353 - 71,124 -------- --------- ---------- --------- ---------- $295,770 $ 251,287 $1,024,920 $ (74,056) $1,497,921 -------- --------- ---------- --------- ---------- -------- --------- ---------- --------- ---------- Liabilities and stockholder's equity Current liabilities: Accounts payable, trade $ 132 $ 11,054 $ 46,067 $ - $ 57,253 Accrued liabilities - 11,852 38,781 - 50,633 Current portion long-term obligations - 17,809 18,325 - 36,134 -------- --------- ---------- --------- ---------- Total current liabilities 132 40,715 103,173 - 144,020 Long-term obligations, less current 7,722 234,012 574,910 - 816,644 Deferred income taxes 2,556 (6,533) 67,446 - 63,469 Minority interests: Preferred redeemable securities - - 175,000 - 175,000 Other - - 15,021 - 15,021 Stockholder's equity: Common stock 278 34 492 (526) 278 Additional paid-in capital 261,976 9,687 718 (10,405) 261,976 Retained earnings 23,106 (25,035) 79,987 (54,952) 23,106 Members equity - - 8,173 (8,173) - Accumulated other comprehensive loss - (1,593) - - (1,593) -------- --------- ---------- --------- ---------- Total stockholder's equity 285,360 (16,907) 89,370 (74,056) 283,767 -------- --------- ---------- --------- ---------- $295,770 $ 251,287 $1,024,920 $ (74,056) $1,497,921 -------- --------- ---------- --------- ---------- -------- --------- ---------- --------- ----------
-10- Lodgian, Inc. Consolidating Statement of Income Three Months Ended June 30, 1999 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated ------ ---------- ------------ ------------ ------------ Revenues Rooms $ - $35,091 $ 79,788 $ - $114,879 Food and beverage - 12,263 24,793 - 37,056 Other - 2,528 5,400 - 7,928 -------- ------- -------- -------- -------- Total revenues - 49,882 109,981 - 159,863 -------- ------- -------- -------- -------- Operating expenses Direct: Rooms - 9,668 21,190 - 30,858 Food and beverage - 8,895 17,538 - 26,433 Other - 1,392 2,701 - 4,093 General and adminsitrative - - 6,138 - 6,138 Depreciation and amortization - 2,270 11,480 - 13,750 Other hotel operating expenses - 15,419 26,007 - 41,426 -------- ------- -------- -------- -------- Total operating expenses - 37,644 85,054 - 122,698 -------- ------- -------- -------- -------- Income from operations - 12,238 24,927 - 37,165 Other income (expenses): Other income - 190 279 - 469 Interest expense - (9,276) (8,933) - (18,209) Equity in earnings of consolidated subsidiaries 15,402 - - (15,402) - Minority interests: Preferred redeemable securities - - (3,457) - (3,457) Other - - (566) - (566) -------- ------- -------- -------- -------- Income before income taxes 15,402 3,152 12,250 (15,402) 15,402 Provision for income taxes 6,161 1,261 4,900 (6,161) 6,161 -------- ------- -------- -------- -------- Net income $ 9,241 $ 1,891 $ 7,350 $ (9,241) $ 9,241 -------- ------- -------- -------- -------- -------- ------- -------- -------- --------
-11- Lodgian, Inc. Consolidating Statement of Income Three Months Ended June 30, 1998 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated ------ ---------- ------------ ------------ ------------ Revenues Rooms $ - $29,982 $ 38,946 $ - $ 68,928 Food and beverage - 11,190 17,204 - 28,394 Other - 2,475 2,591 - 5,066 ------- ------- -------- -------- -------- Total revenues - 43,647 58,741 - 102,388 ------- ------- -------- -------- -------- Operating expenses Direct: Rooms - 8,249 10,314 - 18,563 Food and beverage - 8,283 12,530 - 20,813 - 1,423 1,458 - 2,881 General and adminsitrative - - 2,442 - 2,442 Depreciation and amortization - 2,593 4,959 - 7,552 Other hotel operating expenses - 14,186 14,235 - 28,421 ------- ------- -------- -------- -------- Total operating expenses - 34,734 45,938 - 80,672 ------- ------- -------- -------- -------- Income from operations - 8,913 12,803 - 21,716 Other income (expenses): Other income - 211 (397) - (186) Interest expense - (4,357) (3,929) - (8,286) Equity in earnings of consolidated subsidiaries 12,204 - - (12,204) - Minority interests Preferred redeemable securities - (311) - (311) Other - (729) - (729) ------- ------- -------- -------- -------- Income before income taxes and extraordinary item 12,204 4,767 7,437 (12,204) 12,204 Provision for income taxes 4,882 1,907 2,974 (4,882) 4,881 ------- ------- -------- -------- -------- Income before extraordinary item 7,322 2,860 4,463 (7,322) 7,323 Extraordinary item - - (1,095) - (1,095) ------- ------- -------- -------- -------- Net income $ 7,322 $ 2,860 $ 3,368 $ (7,322) $ 6,228 ------- ------- -------- -------- -------- ------- ------- -------- -------- --------
-12- Lodgian, Inc. Consolidating Statement of Income Six Months Ended June 30, 1999 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated -------------- ------------- ---------------- ------------------------------ Revenues Rooms $ - $64,915 $146,748 $ - $211,663 Food and beverage - 23,155 45,971 69,126 Other - 4,766 10,112 14,878 ------- ------- -------- -------- -------- Total revenues - 92,836 202,831 - 295,667 ------- ------- -------- -------- -------- Operating expenses Direct: Rooms - 17,715 39,407 - 57,122 Food and beverage - 16,771 33,770 - 50,541 Other hotel operating expenses - 2,667 5,549 - 8,216 General and adminsitrative - - 11,367 - 11,367 Depreciation and amortization - 8,535 18,965 - 27,500 Other - 29,470 55,673 - 85,143 ------- ------- -------- -------- -------- Total operating expenses - 75,158 164,731 - 239,889 ------- ------- -------- -------- -------- Income from operations - 17,678 38,100 - 55,778 Other income (expenses): Other income - (78) 895 - 817 Interest expense - (14,506) (22,633) - (37,139) Equity in earnings of consolidated subsidiaries 11,332 - - (11,332) Minority interests: Preferred redeemable securities - - (6,814) - (6,814) Other - - (1,310) - (1,310) ------- ------- -------- -------- -------- Income before income taxes 11,332 3,094 8,238 11,332 11,332 Provision for income taxes 4,533 1,238 3,295 (4,533) 4,533 ------- ------- -------- -------- -------- Net income $ 6,799 $ 1,856 $ 4,943 $ (6,799) $ 6,799 ------- ------- -------- -------- -------- ------- ------- -------- -------- --------
-13- Lodgian, Inc. Consolidating Statement of Cash Flows Six Months Ended June 30, 1999 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Consolidated --------------- -------------- ----------------- --------------- Net cash flows from operating activities $ - $10,888 $ 9,398 $ 20,286 Investing activities: Acquisitions of property and equipment - - (1,929) (1,929) Capital improvements, net - (1,425) (42,834) (44,259) Net deposits for capital expenditures - 8,241 (7,653) 588 Net proceeds from sale of assets - - 11,100 11,100 - - -------- ------- --------- -------- Net cash flows from investing activities: - 6,816 (41,316) (34,500) Financing activities: Proceeds from issuance of long-term obligations - 15,000 14,640 29,640 Principal payments of long-term obligations - (2,821) (10,045) (12,866) Proceeds from issuance of common stock 60 - - 60 Proceeds from related parties, net 233 (29,103) 28,870 - (Distributions to) contributions from minority interests - - (123) (123) Payment of deferred loan costs - (700) (660) (1,360) -------- ------- --------- -------- Net cash flows from financing activities 293 (17,624) 32,682 15,351 -------- ------- --------- -------- Change in cash and cash equivalents 293 80 764 1,137 Cash and cash equivalents at beginning of period 1,648 5,864 11,673 19,185 -------- ------- --------- -------- Cash and cash equivalents at end of period $ 1,941 $ 5,944 $ 12,437 $ 20,322 -------- ------- --------- -------- -------- ------- --------- --------
-14- Lodgian, Inc. Consolidating Statement of Income Six Months Ended June 30, 1998 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Eliminations Consolidated ----------- ------------ ----------------- --------------- ---------------- Revenues Rooms $ - $55,578 $ 69,183 $ - $ 124,761 Food and beverage - 20,633 29,907 - 50,540 Other - 4,744 5,224 - 9,968 -------- ------- -------- --------- -------- Total revenues - 80,955 104,314 - 185,269 -------- ------- -------- --------- -------- Operating expenses Direct: Rooms - 15,572 18,500 - 34,072 Food and beverage - 15,697 22,763 - 38,460 Other - 2,638 2,680 - 5,318 General and adminsitrative - - 4,829 - 4,829 Depreciation and amortization - 6,079 8,679 - 14,758 Other hotel operating expenses - 26,563 27,071 - 53,634 -------- ------- -------- --------- -------- Total Operating expenses - 66,549 84,522 - 151,071 -------- ------- -------- --------- -------- Income from operations - 14,406 19,792 - 34,198 Other income (expenses): Other income - - 268 - 268 Interest expense - (7,682) (8,450) - (16,132) Equity in earnings of consolidated subsidiaries 17,200 - - 17,200 - Minority interests: Preferred redeemable securities - - (311) - (311) Other - - (823) - 823 -------- ------- -------- --------- -------- Income before income taxes and extraordinary item 17,200 6,724 10,476 (17,200) 17,200 Provision for income taxes 6,880 2,690 4,190 (6,880) 6,880 -------- ------- -------- --------- -------- Income before extraordinary item 10,320 4,034 6,286 (10,320) 10,320 Extraordinary item, net of taxes - - (1,095) - (1,095) -------- ------- -------- --------- -------- Net income $ 10,320 $ 4,034 $ 5,191 $ (10,320) $ 9,225 -------- ------- -------- --------- -------- -------- ------- -------- --------- --------
-15- Lodgian, Inc. Consolidating Statement of Cash Flows Six Months Ended June 30, 1998 (IN THOUSANDS) (UNAUDITED)
Subsidiary Non-guarantor Total Parent Guarantors Subsidiaries Consolidated ------------- ---------------------------- ------------ Net cash flows from operating activities $ 4,939 $ 10,095 $ 18,276 $ 33,310 Investing activities: Acquisitions of property and equipment - (36,950) (16,541) (53,491) Capital improvements, net - (12,423) (17,372) (29,795) Net deposits for capital expenditures - 14,614 1,127 15,741 Net proceeds from sale of assets - - 2,373 2,373 Other - - 1,361 1,361 -------- -------- -------- --------- Net cash flows from investing activities: - (34,759) (29,052) (63,811) Financing activities: Proceeds from issuance of long-term obligations 6,963 48,475 179,265 234,703 Principal payments of long-term obligations - (88,070) (70,664) (158,734) Proceeds from issuance of common stock 977 - - 977 Contributions from minority interest - - 142 142 Payments of deferred loans costs - - (7,151) (7,151) Repurchase of common stock (15,644) - - (15,644) Proceeds from related parties, net 16,894 65,430 82,324 - -------- -------- -------- --------- Net cash flows from financing activities 9,190 25,835 19,268 54,293 -------- -------- -------- --------- Change in cash and cash equivalents 14,129 1,171 8,492 23,792 Cash and cash equivalents at beginning of period 14,208 1,811 (776) 15,243 -------- -------- -------- --------- Cash and cash equivalents at end of period $ 28,337 $ 2,982 $ 7,716 $ 39,035 -------- -------- -------- --------- -------- -------- -------- ---------
-16- 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 underperforming hotels and the implementation of our 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 have a negative impact on our consolidated RevPAR, ADR and occupancy rate performance, as well as EBITDA margins. In addition, our strategy also 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 which have undergone renovation or repositioning investment 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 which 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 will 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 guest room 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- HISTORICAL RESULTS OF OPERATIONS Our operating results have been materially impacted by the significant number of acquisitions and extensive renovation activity. In June 1998, the Company acquired AMI Operating Partners, L.P. ("AMI"), an entity that owned and operated 14 hotels, three of which were subsequently sold. In December 1998, the Company merged (the "Merger") with Impac Hotel Group, LLC ("Impac"), an entity that owned or managed 53 hotels, three of which are 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 JUNE 30, 1999 ("SECOND QUARTER 1999") COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1998 ("SECOND QUARTER 1998") REVENUES Revenues for the Company were $159.9 million for the Second Quarter 1999, a 56.1% increase over revenues of $102.4 million for the Second Quarter 1998. Of this $57.5 million increase, $55.1 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 Three Months ended June 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 $ 75.14 $73.98 70.2% 70.9% $52.75 $ 52.42 Stabilizing........... 33 12 $ 75.61 $72.16 64.1% 58.0% $48.50 $ 41.87 Being Repositioned.... 21 22 $ 81.89 $75.39 60.3% 58.6% $49.35 $ 44.16 -------- -------- ----------- ---------- ---------- --------- ---------- ----------- Total................. 131 84 $ 76.38 $73.44 66.9% 66.1% $51.08 $ 48.53 -------- -------- ----------- ---------- ---------- --------- ---------- ----------- -------- -------- ----------- ---------- ---------- --------- ---------- -----------
- ---------------- (1) Excludes two hotels managed for third parties and the 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 $61.4 million (38.4% of direct revenues) for the Second Quarter 1999 and $42.3 million (41.3% of direct revenue) for the Second Quarter of 1998. Of the $19.1 million increase, $19.9 million was attributable to the acquisition of AMI and the Merger. General and administrative expenses were $6.1 million in Second Quarter 1999 and $2.4 million in Second Quarter 1998. Of the $3.7 million increase, approximately $2.5 million was attributable to the acquisition of AMI and the Merger. Additionally, approximately $.8 million represents expenses associated with the expansion of the corporate sales and marketing staff and the regional offices. Depreciation and amortization expense was $13.8 million in Second Quarter 1999 and $7.6 million in Second Quarter 1998. The $6.2 million increase was attributable to the acquisition of AMI, the Merger and the completion of renovation projects. Other hotel operating expenses were $41.4 million in Second Quarter 1999 and $28.4 million in Second Quarter 1998. Of the $13.0 million increase, $14.6 million was attributable to the acquisition of AMI and the Merger. As a result of the above, income from operations was $37.2 million in Second Quarter 1999 as compared to $21.7 million in Second Quarter 1998. Interest expense was $18.2 million in Second Quarter 1999 and $8.3 million in Second Quarter 1998. 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 was $4.0 million in Second Quarter 1999 and $1.0 million in Second Quarter 1998. Of the $3.0 million increase, $3.1 million represents interest on the Company's Convertible Redeemable Equity Structure Trust Securities (the "CRESTS") that were issued in June 1998. -18- NET INCOME After a provision for income taxes of $6.2 million in Second Quarter 1999 and $4.9 million in Second Quarter 1998, the Company had net income of $9.2 million ($.32 per share) in Second Quarter 1999 compared with income before extraordinary item of $7.3 million ($.34 per share) in Second Quarter 1998. In Second Quarter 1998 the Company had an extraordinary item (net of income tax benefit of $.7 million) of $1.1 million ($.05 loss per share) from the loss on early extinguishment of debt. Net income for Second Quarter 1998 amounted to $6.2 million ($.29 per share). SIX MONTHS ENDED JUNE 30, 1999 (THE "1999 PERIOD") COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998 (THE "1998 PERIOD") REVENUES Revenues for the Company were $295.7 million for the 1999 Period, a 59.6% increase over revenues of $185.3 million for the 1998 Period. Of this $110.4 million increase, $104.1 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 Six Months ended June 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 $ 74.57 $74.68 66.3% 65.8% $49.45 $ 49.17 Stabilizing........... 33 12 $ 75.56 $71.50 61.2% 56.0% $46.26 $ 40.02 Being Repositioned.... 21 22 $ 78.50 $74.75 51.3% 54.8% $40.29 $ 40.97 -------- -------- ----------- ---------- ---------- --------- ---------- ----------- Total................. 131 84 $ 75.42 $73.61 62.3% 62.1% $46.95 $ 45.72 -------- -------- ----------- ---------- ---------- --------- ---------- ----------- -------- -------- ----------- ---------- ---------- --------- ---------- -----------
- --------------- (1) Excludes two hotels managed for third parties and the one partially 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 $115.9 million (39.2% of direct revenues) for the 1999 Period and $77.9 million (42.0% of direct revenue) for the 1998 Period. Of the $38.0 million increase, $39.0 million was attributable to the acquisition of AMI and the Merger. General and administrative expenses were $11.4 million in the 1999 Period and $4.8 million in the 1998 Period. Of the $6.6 million increase, approximately $4.8 million was attributable to the acquisition of AMI and the Merger. Additionally, approximately $.8 million represents expenses associated with the expansion of the corporate sales and marketing staff and the regional offices. Further, $.5 million represents non-recurring expenses, principally severance. Depreciation and amortization expense was $27.5 million in the 1999 Period and $14.8 million in the 1998 Period. The $12.7 million increase was attributable to the acquisition of AMI, the Merger and the completion of renovation projects. Other hotel operating expenses were $85.1 million in the 1999 Period and $53.6 million in the 1998 Period. Of the $31.5 million increase, $31.4 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. As a result of the above, income from operations was $55.8 million in the 1999 Period as compared to $34.2 million in the 1998 Period. Interest expense was $37.1 million in the 1999 Period and $16.1 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 was $8.1 million in the 1999 Period and $1.1 million in the 1998 Period. Of the $7.0 million increase, $6.5 million represents interest on the Company's CRESTS that were issued in June 1998. -19- NET INCOME After a provision for income taxes of $4.5 million in the 1999 Period and $6.9 million in the 1998 Period, the Company had net income of $6.8 million ($.025 per share) in the 1999 Period compared with income before extraordinary item of $10.3 million ($.49 per share) in the 1998 Period. In the 1998 Period the Company had an extraordinary item (net of income tax benefit of $.7 million) of $1.1 million ($.05 loss per share) from the loss on early extinguishment of debt. Net income for the 1998 Period amounted to $9.2 million ($.44 per share). INCOME TAXES As of December 31, 1998, the Company had net operating loss carryforwards of approximately $50 million for federal income tax purposes, which expire in 2005 through 2018. Our 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. Consequently, a portion of these net operating loss carryforwards 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 EBITDA for the 1999 Period of $84.3 million, a 71.1% increase from the $49.3 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 $20.3 million as compared with $33.3 million for the 1998 period. Cash flows used in investing activities were $34.5 million and $63.8 million in the six months ended June 30, 1999 and 1998, respectively. The 1999 amount includes capital expenditures of $46.2 million and net proceeds from the sale of assets of $11.1 million, including the disposition of the Company's investment in six European hotels. The 1998 amount consists of capital expenditures of $83.3 million, including the acquisition of the AMI hotels, net of assumed debt, and proceeds from capital expenditure escrows of $15.7 million. Cash flows provided by financing activities were $15.4 million and $54.3 million in the six months ended June 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 $68.8 million (including $168.5 million of net proceeds from the issuance of CRESTS) reduced by $15.6 million from the repurchase of common stock. At June 30, 1999, the Company had a working capital deficit of $40.0 million as compared with a working capital deficit of $65.1 million at December 31, 1998. At June 30, 1999, the Company's long-term obligations were $833.4 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 June 30, 1999, has approximately $29.8 million escrowed for such improvements. The Company estimates its remaining obligations for all of such commitments to be approximately $52.2 million, of which approximately $17.2 million is expected to be spent during 1999, with the balance to be spent thereafter. During the balance of 1999 and the first quarter of 2000, the Company expects to spend approximately $23.8 million to complete the construction of three new hotels. Substantially 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. This financing contains various covenants and coverage ratios, with which the Company is in compliance at June 30, 1999. At the time of the Merger, $23 million of the $265 million provided by Lehman was set aside in escrow for future capital improvements. In March 1999, Lehman released $15 million from escrow, and simultaneously issued the Company a commitment for $15 million to replenish this escrow at a future date. This additional loan was closed in June, thereby increasing the total facility to $280 million on the same terms and conditions as previously described. In July, the Company sold $200 million of 12 1/4% Senior Subordinated Notes due 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 -20- loans will be used for hotel development projects. The tranche B loan, along with the proceeds from the Senior Subordinated 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. 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 will 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 being 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 initiated 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 not determined the total cost of the year 2000 project. However, the costs are neither expected to exceed $2,000,000, a substantial portion of which is for equipment necessary to accommodate new property management software, nor have a material effect on its financial statements. All expenditures have been appropriately identified through the 1999 hotel capital improvement budget. The Company has spent less than $300,000 to date, all of which has been expensed. The Company anticipates completing the Year 2000 project not later than October 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. -21- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of the Shareholders of the Company held on June 25, 1999, the shareholders of the Company elected one director to the Board of Directors. The number of votes cast for, against or abstain for the proposal to elect one director to the Board of Directors were as follows: For 23,141,001 Against 500 Abstain 292,176 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On June 1, 1999, a contractor hired by a subsidiary of the Company 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, claiming breach of contract and quantum meruit, among other things. The contractor is seeking damages in the aggregate amount of $45 million. The contractor has filed a formal complaint. We have filed an appearance to the summons 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 June 30, 1999.
-22- 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: August 16, 1999 /s/ ROBERT S. COLE --------------------------------------- Robert S. Cole President and Chief Executive Officer DATE: August 16, 1999 /s/ KENNETH R. POSNER --------------------------------------- Kenneth R. Posner Executive Vice President and Chief Financial Officer -23- EXHIBIT INDEX Exhibit Number Description -------------- ----------- 27 Financial Data Schedule (For SEC use only) -24- EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1999. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 26,449 0 36,593 0 0 96,524 1,332,522 0 1,519,909 136,553 833,442 0 175,000 278 290,712 151,909 0 295,667 0 239,889 7,307 0 37,139 11,332 4,533 6,799 0 0 0 6,799 .25 .25
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