-----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, UEt8YrmTpcypLBGKhPb54bYkvGgGehV8HASErI82HbL+OXD7Ap+P7cQ80SJDYfIy YesmIw2/rt/1Zd3gvaUg/Q== 0000950144-98-003532.txt : 19980331 0000950144-98-003532.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950144-98-003532 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970713 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOLODGE INC CENTRAL INDEX KEY: 0000881924 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 621015641 STATE OF INCORPORATION: TN FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-19840 FILM NUMBER: 98577589 BUSINESS ADDRESS: STREET 1: 130 MAPLE DR N CITY: HENDERSONVILLE STATE: TN ZIP: 37075 BUSINESS PHONE: 6152648000 MAIL ADDRESS: STREET 1: 130 MAPLE DRIVE NORTH CITY: HENDERSONVILLE STATE: TN ZIP: 37075 10-Q/A 1 SHOLODGE INC FORM 10-Q/A DATED 07-13-97 1 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------------------------- For the Second Quarter Ended July 13, 1997 Commission File No. 0-19840 ------------------------------------------------- SHOLODGE, INC. (Exact name of registrant as specified in its charter) ------------------------------------------------- TENNESSEE 62-1015641 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 217 WEST MAIN STREET, GALLATIN, TENNESSEE 37066 (address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (615) 452-7200 ------------------------------------------------- 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 as 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 registrant's classes of common stock as of the latest practicable date. As of August 31, 1997, there were 8,255,126 shares of ShoLodge, Inc. common stock outstanding. 2 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JULY 13, DECEMBER 29, 1997 1996 (1) (AS RESTATED) (SEE NOTE C) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,857,387 $ 4,259,768 Accounts receivable - net 3,435,779 2,676,083 Construction contracts 197,342 259,785 Prepaid expenses 1,219,996 471,823 Other current assets 460,773 559,982 -------------------------------- Total current assets 9,171,277 8,227,441 DIRECT FINANCING LEASES, less current portion 457,621 611,492 PROPERTY AND EQUIPMENT 289,595,648 262,264,264 Less accumulated depreciation and amortization -39,195,314 -33,888,495 -------------------------------- 250,400,334 228,375,769 DEFERRED CHARGES 10,005,659 9,899,544 SECURITIES HELD TO MATURITY - RESTRICTED 8,681,148 8,255,810 SECURITIES AVAILABLE FOR SALE 212,062 212,062 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED 3,056,209 3,136,965 OTHER 3,136,666 4,990,095 -------------------------------- TOTAL ASSETS $285,120,976 $263,709,178 ================================
(1) Derived from fiscal year ended December 29, 1996 audited financial statements. See notes to consolidated financial statements. 3 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
JULY 13, DECEMBER 29, 1997 1996 (1) (AS RESTATED) (SEE NOTE C) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 7,848,419 $ 12,045,715 Taxes other than on income 1,892,109 984,855 Income taxes payable 337,319 1,116,972 Current portion of long-term debt and capitalized lease obligations 4,021,815 15,824,914 -------------------------------- Total current liabilities 14,099,662 29,972,456 LONG-TERM DEBT ASSOCIATED WITH LODGING FACILITIES 42,268,895 40,104,802 OTHER LONG-TERM DEBT 129,508,269 97,227,576 CAPITALIZED LEASE OBLIGATIONS 1,182,539 1,462,044 DEFERRED INCOME TAXES 3,737,144 4,702,144 MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 690,301 504,028 -------------------------------- TOTAL LIABILITIES 191,486,810 173,973,050 -------------------------------- SHAREHOLDERS' EQUITY: Series A redeemable nonparticipating stock (no par value; 1,000 shares authorized, none issued and outstanding) - - Common stock (no par value; 20,000,000 shares authorized, 8,252,819 shares issued and outstanding as of July 13, 1997 and 8,233,318 shares issued and outstanding as of December 29, 1996) 1,000 1,000 Additional paid-in capital 42,393,648 42,212,042 Retained earnings 51,179,779 47,463,347 Unrealized gain on securities available for sale (net of tax) 59,739 59,739 -------------------------------- TOTAL SHAREHOLDERS' EQUITY 93,634,166 89,736,128 -------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $285,120,976 $263,709,178 ================================
(1) Derived from fiscal year ended December 29, 1996 audited financial statements. See notes to consolidated financial statements. 4 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996
12 WEEKS ENDED 28 WEEKS ENDED JULY 13, JULY 14, JULY 13, JULY 14, 1997 1996 1997 1996 (AS RESTATED) (AS RESTATED) (SEE NOTE C) (SEE NOTE C) ----------------------------------------------------- REVENUES: Hotel $ 17,950,886 $14,140,194 $38,645,034 $28,221,015 Construction and development - 239 - 514,473 Construction and development - other - - - 200,000 Franchising 707,661 1,040,946 1,889,545 2,105,938 Management 35,183 66,628 72,538 115,536 ----------------------------------------------------- Total operating revenues 18,693,730 15,248,007 40,607,117 31,156,962 COSTS AND EXPENSES: Operating expenses: Hotel 9,625,874 7,216,937 21,301,971 15,524,779 Construction and development 6,000 232 176,869 690,731 Franchising 504,422 791,554 1,216,001 1,775,647 ----------------------------------------------------- Total operating expenses 10,136,296 8,008,723 22,694,841 17,991,157 ----------------------------------------------------- Gross operating profit 8,557,434 7,239,284 17,912,276 13,165,805 General and administrative 633,738 537,266 1,391,383 1,491,504 Depreciation and amortization 2,473,983 1,736,213 5,403,040 3,820,425 ----------------------------------------------------- Net operating profit (before interest and taxes) 5,449,713 4,965,805 11,117,853 7,853,876 OTHER INCOME AND EXPENSES: Interest expense 2,678,055 424,028 5,544,280 905,074 Interest income 311,435 210,738 665,291 842,546 ----------------------------------------------------- Net interest expense 2,366,620 213,290 4,878,989 62,528 Other income 1,465,753 257,860 1,688,955 433,841 ----------------------------------------------------- EARNINGS BEFORE INCOME TAXES, MINORITY INTERESTS AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 4,548,846 5,010,375 7,927,819 8,225,189 INCOME TAXES 1,551,000 1,777,000 2,761,000 2,962,000 MINORITY INTEREST IN EARNINGS OF CONSOLIDATED SUBSIDIARIES & PARTNERSHIPS 156,443 193,893 286,273 229,266 ----------------------------------------------------- EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE $ 2,841,403 $ 3,039,482 $ 4,880,546 $ 5,033,923 CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - net of $691,000 of related tax effect (1,164,114) ----------------------------------------------------- NET EARNINGS $ 2,841,403 $ 3,039,482 $ 3,716,432 $ 5,033,923 ===================================================== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary Earnings before cumulative effect of accounting change $ 0.34 $ 0.36 $ 0.58 $ 0.60 Cumulative effect of a change in accounting principle - net of tax $ (0.14) Net Earnings $ 0.34 $ 0.36 $ 0.44 $ 0.60 Fully diluted Earnings before cumulative effect of accounting change $ 0.32 $ 0.34 $ 0.58 $ 0.60 Cumulative effect of a change in accounting principle - net of tax (0.14) Net Earnings $ 0.32 $ 0.34 $ 0.44 $ 0.60 Pro forma Net earnings assuming accounting change is applied retroactively $ 2,841,403 $ 2,823,346 $ 4,880,546 $ 4,586,268 Earnings per share: Primary $ 0.34 $ 0.33 $ 0.58 $ 0.54 Fully diluted $ 0.32 $ 0.32 $ 0.58 $ 0.54 WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary 8,368,852 8,494,133 8,356,121 8,443,028 Fully Diluted 10,765,525 10,810,735 8,452,986 10,759,630 =====================================================
See notes to consolidated financial statements. 5 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 1997 AND JULY 14, 1996 (UNAUDITED)
28 WEEKS ENDED JULY 13, JULY 14, 1997 1996 (AS RESTATED) (SEE NOTE C) -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 4,880,546 $ 5,033,923 ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 5,403,040 3,820,425 DECREASE IN DEFERRED INCOME TAXES -274,000 0 INCREASE IN MINORITY INTEREST IN EQUITY OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 286,273 229,266 GAIN ON SALE OF PROPERTY & EQUIPMENT -1,190,687 0 ACCRETION OF DISCOUNT ON SECURITIES HELD TO MATURITY -425,338 -343,419 CHANGES IN ASSETS AND LIABILITIES: (INCREASE) DECREASE IN ACCOUNTS RECEIVABLE -697,253 857,043 INCREASE IN PREPAID EXPENSES -748,173 -301,067 DECREASE IN OTHER ASSETS 239,172 728,819 (DECREASE) INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES -4,197,296 1,745,154 INCREASE IN INCOME AND OTHER TAXES 127,601 2,126,086 - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,403,885 13,896,230 CASH FLOWS FROM INVESTING ACTIVITIES: REPAYMENT FROM RELATED PARTIES--NET 0 42,418,759 CAPITAL EXPENDITURES -27,884,061 -51,008,531 SALE OF SECURITIES AVAILABLE FOR SALE 0 847,120 PROCEEDS FROM SALE OF PROPERTY & EQUIPMENT 1,743,364 0 - ----------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES -26,140,697 -7,742,652 CASH FLOWS FROM FINANCING ACTIVITIES: INCREASE IN DEFERRED CHARGES -263,228 -303,691 PROCEEDS FROM DIRECT FINANCING LEASES 153,871 31,621 PROCEEDS FROM LONG-TERM DEBT 61,200,000 52,472,371 PAYMENTS ON LONG-TERM DEBT -38,558,313 -53,716,731 PAYMENTS ON CAPITALIZED LEASE OBLIGATIONS -279,505 -287,894 DISTRIBUTIONS TO MINORITY INTERESTS -100,000 -183,554 EXERCISE OF STOCK OPTIONS 181,606 26,452 - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 22,334,431 -1,961,426 - ----------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $( 402,381) $ 4,192,152 ===================================================================================================== CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD $ 4,259,768 $ 2,444,990 ===================================================================================================== CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,857,387 $ 6,637,142 =====================================================================================================
See notes to consolidated financial statements. 6 SHOLODGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF PRESENTATION The consolidated financial statements have been prepared by the Company without audit. In Management's opinion, the information and amounts furnished in this report reflect all adjustments which are necessary for the fair presentation of the financial position and results of operations for the periods presented. All adjustments are of a normal and recurring nature. It is suggested that these financial statements be read in conjunction with the Company's Annual Report or Form 10-K for the fiscal year ended December 29, 1996. The fiscal year consists of a 52/53 week year ending the last Sunday of the year. The Company has historically reported lower earnings in the first and fourth quarters of the year due to the seasonality of the Company's business. The results of operations for the quarters ended July 13, 1997 and July 14, 1996 are not necessarily indicative of the operating results for the entire year. B. ACCOUNTING CHANGE In the fourth quarter of fiscal 1997, the Company changed its method of accounting for pre-opening costs, effective December 30, 1996, whereby pre-opening costs are expensed as incurred rather than the previous method of capitalizing such costs and amortizing them over a three-year period. The Company believes the new method is preferable in the circumstances and conforms to the predominant practice in the industry. The cumulative effect of the change for periods prior to fiscal 1997, net of income tax effect, is a reduction in net earnings of $1,164,000 or $0.14 per share and was recognized in the first quarter of 1997. The pro forma effect on the second quarter of 1996, as if the change in accounting for pre-opening costs had been adopted prior to fiscal 1996, would be to increase hotel operating expenses by $479,000 and to reduce depreciation and amortization expense by $137,000, resulting in a reduction of earnings before income taxes of $343,000 ($216,000 after income taxes) to $2,823,000, or $0.32 per share for the second quarter of 1996, from $3,039,000 or $0.34 per share as previously reported. The pro forma effect on the first two quarters of 1996, as if the change in accounting for pre-opening costs had been adopted prior to fiscal 1996, would be to increase hotel operating expenses by $1,000,000 and to reduce depreciation and amortization expense by $288,000, resulting in a reduction of earnings before income taxes of $712,000 ($448,000 after income taxes) to $4,586,000, or $0.54 per share for the first two quarters of 1996, from $5,034,000 or $0.60 per share as previously reported. C. RESTATEMENT Subsequent to the issuance of the consolidated financial statements for the first three quarters of fiscal 1997, the Company's management determined that certain transactions, primarily relating to the capitalization of various expenses, the timing of recognition of profits on the sales of real estate, and the recording of depreciation and amortization, bad debts and income tax expense, were improperly recorded in the consolidated financial statements. As a result, the consolidated financial statements for the first three quarters of fiscal 1997 have been restated from the amounts previously reported. A summary of the effects of the restatement, and the effect of the accounting change discussed in Note B above, on the consolidated financial statements as of and for the sixteen weeks ended April 20, 1997 (amounts in thousands, except per share data) is as follows:
Twelve Weeks Ended Twenty-eight Weeks Ended ------------------------------- ----------------------------- July 13, 1997 July 13, 1997 As Previously As Previously Reported As Restated Reported As Restated -------- ----------- --------- ----------- Hotel revenues $ 18,295 $ 17,951 $39,149 $38,645 Operating expenses: Hotel 9,471 9,626 20,819 21,302 Construction and development -- 6 -- 177 Franchising 465 504 1,103 1,216 Operating profit 9,102 8,557 19,188 17,912 General and administrative expense 465 634 1,068 1,391 Depreciation and amortization 2,659 2,474 5,909 5,403 Interest expense 2,513 2,678 5,218 5,544 Other income 1,284 1,466 1,660 1,689 Income taxes 1,470 1,551 3,035 2,761 Minority interests 156 156 214 286 Cumulative effect of accounting change -- -- -- (1,164) Net earnings 3,434 2,841 6,069 3,716 Earnings per common share (Fully Diluted): Earnings before cumulative effect of accounting change .38 .32 .70 .58 Cumulative effect of accounting change -- -- -- (.14) Net earnings .38 .32 .70 .44 As of July 13, 1997: Accounts receivable-net 3,809 3,436 Construction contracts 252 197 Other current assets 473 461 Property and equipment 290,341 289,596 Accumulated depreciation & amortization (39,107) (39,195) Deferred charges 10,063 10,006 Other assets 4,950 3,137 Accounts payable & accrued expenses 7,748 7,848 Deferred income taxes 4,702 3,737 Minority interests in subsidiaries 618 690 Retained earnings 53,532 51,180
D. EARNINGS PER SHARE The net earnings per share is computed by dividing net earnings by the weighted average number of common and common equivalent shares outstanding. The Company will adopt Statement of Financial Accounting Standards No. 128 "Earnings Per Share" for the year ended December 28, 1997. This accounting pronouncement requires the disclosure of basic and diluted earnings per share. The Company believes that, upon adoption, diluted earnings per share will approximate earnings per share as previously reported. Because the concept of basic earnings per share does not include the impact of common stock equivalents, such as stock warrants and stock options, basic earnings per share will be generally higher than diluted earnings per share. 7 ShoLodge, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Restatement and Accounting Change The Company has restated previously issued financial results, for the first three quarters of fiscal 1997. After the consolidated financial statements were originally issued, the Company became aware of additional information indicating that certain transactions had been improperly reported. The restatements involve all non-cash items and relate primarily to capitalization of various expenses; the timing of recognition of profits on the sales of real estate; depreciation and amortization expense; increases of reserves for doubtful accounts; and adjustment of income tax provisions. Additionally, the Company has, effective December 30, 1996, changed its accounting for pre-opening costs to expense such costs as incurred, rather than capitalizing those expenditures and amortizing them over a three year period. See Notes B and C of the Notes to the consolidated financial statements for a discussion of the effects of the restatement and accounting change on the Company's previously reported results of operations and financial position. The comments included in this Management's Discussion and Analysis have been revised to give effect to the restatement and accounting change. 8 Results of Operations For the Fiscal Quarters and Fiscal Year-to-date Periods Ended July 13, 1997 And July 14, 1996 Total Revenues for the fiscal quarter ended July 13, 1997 increased 22.6% to $18.7 million from $15.2 million for the same period in 1996. For the two fiscal quarters ended July 13, 1997, total revenues increased 30.3% to $40.6 million from $31.2 million for the same period in 1996. Revenues from hotel operations in the second fiscal quarter of 1997 increased 26.9% to $18.0 million from $14.1 million for the same period in 1996. For the 38 hotels opened for all of both quarterly periods (same hotels), average daily room rates in the second fiscal quarter of 1997 increased 2.8% to $56.00 from $54.48 in the second quarter of 1996 and average occupancy rates increased to 65.8% from 65.4%, resulting in a net increase in same hotel revenues per available room (RevPAR) of 3.5%. The eight hotels opened after the first quarter of 1996 contributed $3.4 million to hotel revenues in the second quarter of 1997 compared to $61,000 for the same period in fiscal 1996. Revenues from hotel operations in the first two quarters of 1997 increased 36.9% to $38.6 million from $28.2 million for the same period in 1996. For the 33 same hotels, average daily room rates in the first two quarters of 1997 increased 3.0% to $53.88 from $52.33 in the first two quarters of 1996 and average occupancy rates decreased to 60.4% from 62.4%, resulting in a net decrease in same hotel RevPAR of 0.3%. The 13 hotels opened during 1996 and the first two quarters of 1997 contributed $12.2 million to hotel revenues in the first two quarters of 1997 compared to $1.7 million for the same period in fiscal 1996. There were no revenues from regular construction and development activities for the second fiscal quarter of 1997 compared with a negligible amount for the same period in 1996. There were no revenues from regular construction and development activities for the first two quarters of 1997 compared to $514,000 in the same period last year. Revenues from construction and development can vary widely from quarter to quarter 9 depending upon the volume of outside contract work and the timing of those projects. No outside construction projects were in progress during the first two quarters of 1997 compared with the final portion of only one project during the comparable period in 1996. No outside construction contracts are currently in progress. There were no revenues from "Construction and development - other" in the first two quarters of 1997 compared with $200,000 in the first quarter of 1996 and none in the second quarter of 1996, which represents a portion of profits not previously recognized on installment sales. No revenues from this source are expected to be generated in the future. Franchise revenues in the second quarter of 1997 decreased 32.0% to $708,000 from $1.0 million for the comparable period last year. This decrease was due primarily to the cancellation of reservation services by two hotel chains in the first quarter of 1997 and a decline of $108,000 in initial franchise fees in the second quarter of 1997 compared to the second quarter of 1996. Franchise revenues in the first two quarters of 1997 decreased 10.3% to $1.9 million from $2.1 million for the comparable period last year. This decrease was due primarily to the cancellation of reservation service contracts by two hotel chains in the first quarter of 1997 and to a decrease of $107,000 in initial franchise fee revenues. Initial franchise fees may vary widely from quarter to quarter. Management contract revenues for the second fiscal quarter of 1997 decreased 47.2% to $35,000 from $67,000 for the same period of 1996. Management contract revenues for the first two quarters of 1997 decreased 37.2% to $73,000 from $116,000 for the same period last year. These decreases were due to the cancellation of one management contract on one hotel in the third quarter of 1996. Operating expenses from hotel operations for the second fiscal quarter of 1997 increased 33.4% to $9.6 million from $7.2 million in the second quarter of 1996, due primarily to the 26.9% increase in hotel operating revenues. The change in accounting for pre-opening expenses accounted for $143,000 of the increase. Operating expenses, expressed as a percentage of hotel operating revenues, increased to 53.6% in the second quarter of 1997 from 51.0% in the second quarter of 1996, thus decreasing the gross profit margin on all hotels to 46.4% in the second quarter of 1997 from 49.0% in the same period of 1996. This decrease was due primarily to (i) a decrease in operating profit margins on the 33 hotels opened prior to 1996 to 46.4% in the second quarter of 1997 from 50.0% in the second quarter of 1996, offset in part by (ii) an increase in operating profit margins for the 13 hotels opened since 1995 to 46.4% in the second quarter of 1997 from 39.6% in the second quarter of 1996. Eleven of the 13 new hotels are Sumner Suites which command significantly higher room rates and generally operate at higher gross operating profit margins as compared with Shoney's Inns. Operating expenses from hotel operations for the first two quarters of 1997 increased 37.2% to $21.3 million in the first two quarters of 1997 from $15.5 million in the first two quarters of 1996, due primarily to the 36.9% increase in hotel operating revenues. $315,000 of the increase was due to the change in accounting for pre-opening costs. Operating expenses from hotel operations, expressed as a percentage of hotel operating revenues, increased to 55.1% in the first two quarters of 1997 from 55.0% in the same period of 1996, thus 10 decreasing the gross profit margin on all hotels to 44.9% in the first two quarters of 1997 from 45.0% in the same period of 1996. The gross profit margin on same hotels for the first two quarters of 1997 decreased to 44.8% from 45.3% for the same two quarters in 1996. The new hotels (primarily Sumner Suites) have experienced higher profit margins than the same hotels and have generated a 45.1% profit margin in the first two quarters of 1997. There were $177,000 of internal costs and expenses of construction and development in the first two quarters of 1997 compared with $691,000 of costs and expenses on outside construction contracts in the first two quarters of 1996. There were no outside construction contracts in the first two fiscal quarters of 1997 compared with one during the comparable period in 1996. Franchising operating expenses for the second quarter of 1997 decreased by 36.3% to $504,000 from $792,000 for the second quarter of 1997. Franchising operating expenses for the first two quarters of 1997 decreased to $1.2 million from $1.8 million in the same period last year. The primary reason for these decreases was the cancellation in the fourth quarter of 1996 of the Company's obligation to pay a portion of franchise fees collected to Shoney's. The reduction in this royalty fee expense was $282,000 in the second quarter of 1997 and $584,000 in the first two quarters of 1997. General and administrative expense for the second quarter of 1997 increased by 18.0% to $634,000 from $537,000 in the second quarter of 1996. General and administrative expense for the first two quarters of 1997 decreased 6.7% to $1.4 million from $1.5 million in the same period of 1996. These decreases were due primarily to reduced professional fees. Depreciation and amortization expense in the second quarter of 1997 increased by 42.5% to $2.5 million from $1.7 million in the second quarter of 1996. Thirteen hotels were opened during 1996 and the first two fiscal quarters of 1997. These additional hotels resulted in $901,000 in depreciation and amortization expense in the second quarter of 1997 as compared with $90,000 in the same period of 1996. For the first two quarters of 1997, depreciation and amortization expense increased 41.4% to $5.4 million from $3.8 million for the same period last year. Increased depreciation and amortization on hotels opened during 1996 and the first two fiscal quarters of 1997 was $1.4 million, while depreciation and amortization due to renovations and other additions to same hotels and to other assets increased by $194,000 over the first two quarters of 1996. Amortization of pre-opening costs in the first two quarters of 1996 was $288,000, versus none in 1997 due to the accounting change in 1997 to expense these costs as incurred. Interest expense for the second quarter of 1997 increased $2.3 million and interest income increased $101,000, as compared with the second quarter of 1996, resulting in an increase in net interest expense of $2.2 million. For the first two quarters of 1997, interest expense increased $4.6 million and interest income decreased $177,000, resulting in an increase in net interest expense of $4.8 million. The increase in interest expense 11 resulted primarily from the additional borrowings incurred for the 12 hotels opened in 1996 and the one hotel opened in January 1997. Other income for the second quarter of 1997 increased to $1.5 million from $258,000 in the second quarter of 1996. Other income for the first two quarters of 1997 increased to $1.7 million compared with $434,000 in the first two quarters of 1996. These increases were due to a gain of $1.3 million on the sale of excess land in the second quarter of 1997. Minority interest in earnings and losses of consolidated subsidiaries and partnerships decreased $37,000 for the second quarter of 1997 compared with the same period in 1996, and increased $57,000 for the first two quarters of 1997, compared with the same period in 1996, due to less profitable consolidated entities which include minority ownership, and to the write-off of $72,000 minority interest receivable. The lower effective income tax rate (36.1% for the first two quarters of 1997 versus 37.0% for the comparable period last year) is due to a reduction in applicable state tax rates. Liquidity and Capital Resources Net cash provided from operations was $3.4 million in the first two fiscal quarters of 1997, $15.8 million in fiscal 1996, $31.6 million in fiscal 1995, and $5.8 million in fiscal 1994. Fiscal 1995 was an unusual year due to the AmeriSuites Transaction discussed in the Company's Form 10-K relating to fiscal 1996. The Company currently has a $75 million unsecured three-year revolving credit facility with a group of five banks, which became effective April 30, 1997. The interest rate on this credit facility through the third fiscal quarter of 1997 is at the lenders' prime rate plus 0.25%, or two hundred basis points over the 30, 60, 90, or 180 day LIBOR rate, at the Company's option. Thereafter, the interest rate is based upon the ratio of senior debt to EBITDA, as defined in the credit facility, (the "Senior Leverage Ratio") and ranges from prime rate to prime rate plus 0.50%, or one hundred seventy five to two hundred fifty basis points over the 30, 60, 90 or 180 day LIBOR rate, at the Company's option. The weighted average rate on this facility at July 13, 1997 was 7.74%. The Company pays commitment fees on the unused portion of the facility ranging from 0.20% to 0.50% based on the Senior Leverage Ratio and certain other fees under the credit facility. The credit facility contains covenants which, inter alia, limit or prohibit incurrences of certain additional indebtedness, liens on assets, investments, asset sales, mergers, dividends and amendments to indebtedness subordinated to the credit facility. It also contains financial covenants by the Company, including covenants with respect to net worth, indebtedness to total capitalization, interest coverage and the Senior Leverage Ratio. As of July 13, 1997, the Company had $42.3 million outstanding under this credit facility. In November of 1996 the Company issued $33.2 million in 9 3/4% Senior Subordinated Notes, due 2006, Series A in the first series of notes issued under a $125 million shelf registration. The Company intends to file a prospectus supplement relating to the issuance of $30.0 million of Senior Subordinated Notes, due 2007, Series B ("Series B Notes") under the Company's shelf registration. The Company expects to use the net proceeds of the offering of the Series B Notes to reduce the outstanding balance 12 under this credit facility. The Company also has a $1.5 million unsecured line of credit with another bank, bearing interest at the lender's prime rate, maturing May 31, 1998. As of July 13, 1997, no borrowings were outstanding on this facility. The Company requires capital principally for the construction and acquisition of new lodging facilities and the purchase of equipment and leasehold improvements. Capital expenditures for such purposes were $27.9 million in the first two fiscal quarters of 1997, $86.6 million in 1996 and $56.2 million in 1995. The Company opened two Shoney's Inns and ten Sumner Suites hotels in 1996 and three Sumner Suites hotels thus far in 1997. Additionally, renovations of several existing properties were completed in 1996 and in first two quarters of 1997, and several others are scheduled for completion in fiscal 1997. Furthermore, the Company's new corporate headquarters building is substantially complete. The Company has six Sumner Suites hotels scheduled to open by the end of the first fiscal quarter of 1998, one of which is under construction. In addition, the Company has another two sites under contract for purchase. The Company expects that approximately $85.0 million in additional capital funds will be necessary through second quarter 1998 to fulfill these plans. The Company has principal payments totaling approximately $4.0 million due under existing debt instruments through second fiscal quarter 1998. The Company believes that a combination of net proceeds from the offering of Series B Notes, net cash provided from operations, borrowings under existing or new credit facilities, proceeds from the sale of excess land and available furniture, fixtures and equipment financing packages will be sufficient to fund its scheduled development and debt repayments for the next twelve months. 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 6 (a) Exhibits - 11 Statement Re: Computation of per share earnings 27 Financial Data Schedule (for SEC use only) 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. ShoLodge, Inc. Date: March 25, 1998 S/ Leon Moore ---------------------------------- Leon Moore President, Chairman of the Board and Director (Chief Executive Officer) Date: March 25, 1998 S/ Bob Marlowe ---------------------------------- Bob Marlowe Secretary, Treasurer and Director (Chief Accounting Officer) Date: March 25, 1998 S/ Michael A. Corbett ---------------------------------- Michael A. Corbett Chief Financial Officer EX-11 2 COMPUTAION OF EARNINGS 1 EXHIBIT 11 SHOLODGE, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE PRIMARY AND ASSUMING FULL DILUTION
12 WEEKS ENDED 28 WEEKS ENDED ------------------------------------------------------- JULY 13, JULY 14, JULY 13, JULY 14, 1997 1996 1997 1996 -------------------------------------------------------- PRIMARY: EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY): BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 2,841,403 $ 3,039,482 $ 4,880,546 $ 5,033,923 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1,164,114) -------------------------------------------------------- NET EARNINGS $ 2,841,403 $ 3,039,482 $ 3,716,432 $ 5,033,923 ======================================================== SHARES: WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,368,852 8,494,133 8,356,121 8,443,028 ======================================================== PRIMARY EARNINGS PER SHARE: BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.34 $ 0.36 $ 0.58 $ 0.60 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $( 0.14) -------------------------------------------------------- NET EARNINGS $ 0.34 $ 0.36 $ 0.44 $ 0.60 ======================================================== FULLY DILUTED: EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY): BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 2,841,403 $ 3,039,482 $ 4,880,546 $ 5,033,923 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1,164,114) -------------------------------------------------------- NET EARNINGS 2,841,403 3,039,482 3,716,432 5,033,923 INTEREST (LESS TAX) ON CONVERTIBLE SUBORDINATED DEBENTURES 604,696 588,396 1,393,512 1,372,925 -------------------------------------------------------- ADJUSTED EARNINGS APPLICABLE TO COMMON STOCK: BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3,446,099 3,627,878 6,274,058 6,406,848 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -1,164,114 -------------------------------------------------------- NET EARNINGS $ 3,446,099 $ 3,627,878 $ 5,109,944 $ 6,406,848 ======================================================== SHARES: WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,448,923 8,494,133 8,452,986 8,443,028 SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE SUBORDINATED DEBENTURES 2,316,602 2,316,602 2,316,602 2,316,602 -------------------------------------------------------- 10,765,525 10,810,735 10,769,588 10,759,630 ======================================================== FULLY DILUTED EARNINGS PER SHARE: BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.32 $ 0.34 $ 0.58 $ 0.60 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $( 0.14) -------------------------------------------------------- NET EARNINGS $ 0.32 $ 0.34 $ 0.44 $ 0.60 ======================================================== PRO FORMA: NET EARNINGS ASSUMING ACCOUNTING CHANGE IS APPLIED RETROACTIVELY $ 2,841,403 $ 2,823,346 $ 4,880,546 $ 4,586,268 EARNINGS PER SHARE: PRIMARY $ 0.34 $ 0.33 $ 0.58 $ 0.54 FULLY DILUTED $ 0.32 $ 0.32 $ 0.58 $ 0.54
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY FINANCIAL STATEMENTS FOR THE QUARTER ENDED JULY 13, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-28-1997 JUL-13-1997 3,857,387 212,062 3,835,621 202,500 0 9,171,277 289,595,648 39,195,314 285,120,976 14,099,662 172,959,703 0 0 1,000 93,633,166 285,120,976 38,645,034 40,607,117 0 29,489,264 0 0 5,544,280 7,641,546 2,761,000 4,880,546 0 0 (1,164,114) 3,716,432 0.44 0.44
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