-----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, Dcy3H9D7QG2mnP/08pInN2x5zQZS76mfJyySadwnGAwZ745hvKJP0QMzEESougkd qImp3W527qGFrXkDd4AEJw== 0000950144-01-503015.txt : 20010531 0000950144-01-503015.hdr.sgml : 20010531 ACCESSION NUMBER: 0000950144-01-503015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010422 FILED AS OF DATE: 20010530 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: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19840 FILM NUMBER: 1651040 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 1 g69837e10-q.txt SHOLODGE, INC. 1 FORM 10-Q 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 First Quarter Ended April 22, 2001 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) 130 MAPLE DRIVE NORTH, HENDERSONVILLE, TENNESSEE 37075 (address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (615) 264-8000 --------------------------------------------- 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 May 30, 2001, there were 5,534,278 shares of ShoLodge, Inc. common stock outstanding. 2 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
APRIL 22, DECEMBER 31, 2001 2000(1) ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 1,693,829 $ 5,339,689 Restricted cash 200,000 200,000 Accounts receivable-trade, net 2,854,272 2,635,447 Construction contracts receivable 1,580,595 2,405,629 Costs and estimated earnings in excess of billings on construction contracts 2,136,987 42,844 Income taxes receivable 4,750,027 4,750,074 Prepaid expenses 446,634 311,513 Notes receivable, net 1,413,868 905,703 Other current assets 127,725 146,850 ----------------------------- Total current assets 15,203,937 16,737,749 NOTES RECEIVABLE, NET 68,983,811 62,885,696 RESTRICTED CASH 14,312,075 14,193,534 PROPERTY AND EQUIPMENT 109,581,598 114,361,649 Less accumulated depreciation and amortization (20,947,102) (23,526,651) ----------------------------- 88,634,496 90,834,998 LAND UNDER DEVELOPMENT OR HELD FOR SALE 9,126,139 8,231,714 DEFERRED CHARGES, NET 6,427,376 6,721,247 INTANGIBLE ASSETS, NET 2,895,722 2,949,008 OTHER ASSETS 1,861,120 2,077,142 ----------------------------- TOTAL ASSETS $207,444,676 $204,631,088 =============================
(1) Derived from fiscal year ended December 31, 2000 audited financial statements. See notes to consolidated financial statements. 3 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
APRIL 22, DECEMBER 31, 2001 2000(1) LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 8,674,756 $ 7,518,321 Taxes payable other than on income 190,110 384,352 Income taxes payable 472,040 0 Current portion of long-term debt and capitalized lease obligations 762,440 870,636 ----------------------------- Total current liabilities 10,099,346 8,773,309 LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT PORTION 93,623,294 94,169,013 DEFERRED INCOME TAXES 4,290,423 4,290,423 DEFERRED GAIN ON SALE/LEASEBACK 4,129,962 4,129,962 DEFERRED CREDITS 2,707,689 2,218,519 MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 745,833 728,222 ----------------------------- TOTAL LIABILITIES 115,596,547 114,309,448 ----------------------------- SHAREHOLDERS' EQUITY: Series A redeemable nonparticipating stock (no par value; 1,000 shares authorized, no shares outstanding) 0 0 Common stock (no par value; 20,000,000 shares authorized, 5,534,278 and 5,544,211 shares issued and outstanding as of April 22, 2001 and December 31, 2000, respectively) 1,000 1,000 Additional paid-in capital 25,375,001 25,425,175 Retained earnings 67,675,649 66,089,984 Unrealized gain on securities available for sale (net of tax) 75,631 53,231 Less notes receivable from officer, net of discount of $252,097 and $283,499, respectively (1,279,152) (1,247,750) ----------------------------- TOTAL SHAREHOLDERS' EQUITY 91,848,129 90,321,640 ----------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $207,444,676 $204,631,088 =============================
(1) Derived from fiscal year ended December 31, 2000 audited financial statements. See notes to consolidated financial statements. 4 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) FOR THE SIXTEEN WEEKS ENDED APRIL 22, 2001 AND APRIL 16, 2000
16 WEEKS ENDED APRIL 22, APRIL 16, 2001 2000 --------------------------- REVENUES: Hotel $ 4,347,832 $22,201,806 Franchising and management 772,914 897,311 Construction and development 4,827,179 4,132,771 Rent income 1,103,704 141,353 Other income 11,078 16,340 ---------------------------- Total revenues 11,062,707 27,389,581 COSTS AND EXPENSES: Hotel 3,370,950 15,687,306 Franchising and management 487,565 818,183 Construction and development 4,319,729 4,023,122 Rent expense, net 158,543 5,365,745 General and administrative 1,741,431 1,402,263 Depreciation and amortization 1,527,281 2,106,775 ---------------------------- Total expenses 11,605,499 29,403,394 Operating loss (542,792) (2,013,813) Gain on sales of property and leasehold interests 3,606,717 299,024 Interest expense (2,465,384) (3,618,585) Interest income 2,090,969 1,871,988 ---------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES, MINORITY INTERESTS AND EXTRAORDINARY GAIN 2,689,510 (3,461,386) INCOME TAXES (1,140,000) 1,197,000 MINORITY INTERESTS IN EARNINGS OF CONSOLIDATED SUBSIDIARIES & PARTNERSHIPS (17,610) (18,929) ---------------------------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 1,531,900 (2,283,315) EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF DEBT (net of related tax effect of $33,000 in 2001 and $160,000 in 2000 respectively) 53,765 251,007 ---------------------------- NET EARNINGS (LOSS) $ 1,585,665 $(2,032,308) ============================ EARNINGS (LOSS) PER COMMON SHARE Basic: Earnings (loss) per share from continuing operations $ 0.28 $ (0.43) Extraordinary gain, net of tax effect $ 0.01 $ 0.05 Net earnings (loss) $ 0.29 $ (0.38) ============================ Diluted: Earnings (loss) per share from continuing operations $ 0.28 $ (0.43) Extraordinary gain, net of tax effect $ 0.01 $ 0.05 Net earnings (loss) $ 0.29 $ (0.38) ============================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 5,542,366 5,330,737 Diluted 6,839,419 5,412,682 ----------------------------
See notes to consolidated financial statements. 5 SHOLODGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIXTEEN WEEKS ENDED APRIL 22, 2001 AND APRIL 16, 2000 (UNAUDITED)
16 WEEKS ENDED APRIL 22, APRIL 16, 2001 2000 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS $ 1,531,900 $(2,283,315) ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 1,527,281 2,106,775 AMORTIZATION OF DEFERRED CHARGES RECORDED AS INTEREST EXPENSE 198,650 236,876 RECOGNITION OF PREVIOUSLY DEFERRED GAINS (156,160) (956,982) GAIN ON SALE OF PROPERTY AND OTHER ASSETS (3,606,717) (299,024) INCREASE IN MINORITY INTEREST IN EQUITY OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 17,610 18,929 CHANGES IN ASSETS AND LIABILITIES: INCREASE IN TRADE RECEIVABLES (218,825) (494,764) DECREASE IN CONSTRUCTION CONTRACT RECEIVABLES 825,034 7,076,579 INCREASE IN ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONSTRUCTION CONTRACTS (2,094,143) (3,377,929) INCREASE IN INCOME AND OTHER TAXES 231,063 2,128,195 INCREASE IN PREPAID EXPENSES (135,121) (278,691) DECREASE (INCREASE) IN OTHER ASSETS 176,618 (1,231,211) INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,156,435 (773,875) ---------------------------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (546,375) 1,871,563 CASH FLOWS FROM INVESTING ACTIVITIES: (INCREASE) DECREASE IN RESTRICTED CASH (118,541) 802,905 (ADVANCES TO) PAYMENTS RECEIVED ON NOTES RECEIVABLE (6,274) 43,850 CAPITAL EXPENDITURES (4,626,212) (1,439,320) PROCEEDS FROM SALE OF PROPERTY AND LEASEHOLD INTERESTS 2,258,102 0 ---------------------------- NET CASH USED IN INVESTING ACTIVITIES (2,492,925) (592,565) CASH FLOWS FROM FINANCING ACTIVITIES: PAYMENTS FOR DEFERRED LOAN COSTS 2,529 185,295 PROCEEDS FROM LONG-TERM DEBT 0 9,200,500 PAYMENTS ON LONG-TERM DEBT (558,915) (7,018,324) PAYMENTS ON CAPITALIZED LEASE OBLIGATIONS 0 (129,063) DISTRIBUTIONS TO MINORITY INTERESTS 0 (201,834) EXERCISE OF STOCK OPTIONS 4,001 4,001 PURCHASE OF TREASURY STOCK (54,175) (284,833) ---------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (606,560) 1,755,742 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,645,860) 3,034,740 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 5,339,689 3,386,937 ---------------------------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,693,829 $ 6,421,677 ============================
See notes to consolidated financial statements. 6 SHOLODGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. The fiscal year consists of a 52/53 week year ending the last Sunday of the year. The Company's fiscal quarters have 16, 12, 12, and 12 weeks in first, second, third and fourth quarters, respectively, in each fiscal year. When the 53rd week occurs in a fiscal year, it is added to the fourth fiscal quarter, making it 13 weeks in length. 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 April 22, 2001 and April 16, 2000 are not necessarily indicative of the operating results for the entire year. B. SALE OF PROPERTIES The Company sold two hotels and three restaurants in the first quarter ended April 22, 2001, resulting in the recognition of $3,606,717 in gains on sale of properties, and the deferral of an additional $717,941 to be recognized in future periods under the installment method of accounting. The restaurant properties were leased to third parties prior to the sales. Cumulative sales prices for the five properties were $9,590,606, of which $2,258,102 was cash proceeds. 7 C. EARNINGS PER SHARE Earnings per share was computed by dividing net income by the weighted average number of common shares outstanding. The following table reconciles earnings and weighted average shares used in the earnings per share calculations for the fiscal quarters ended April 22, 2001, and April 16, 2000:
16 WEEKS ENDED -------------- APRIL 22, APRIL 16, 2001 2000 BASIC: EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS $1,531,900 $(2,283,315) EXTRAORDINARY GAIN 53,765 251,007 ---------- ----------- NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $1,585,665 $(2,032,308) ========== =========== SHARES: WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,542,366 5,330,737 ========== =========== BASIC EARNINGS (LOSS) PER SHARE: BEFORE EXTRAORDINARY ITEMS $ 0.28 $ (0.43) EXTRAORDINARY GAIN 0.01 0.05 ---------- ----------- NET EARNINGS (LOSS) $ 0.29 $ (0.38) ========== =========== DILUTED: EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS $1,531,900 $(2,283,315) EXTRAORDINARY GAIN 53,765 251,007 ---------- ----------- NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK 1,585,665 (2,032,308) DILUTIVE EFFECT OF 7.5% CONVERTIBLE DEBENTURES 381,647 -- ---------- ----------- NUMERATOR FOR DILUTED EARNINGS PER SHARE $1,967,312 (2,032,308) ========== =========== SHARES: WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,542,366 5,330,737 EFFECT OF DILUTIVE SECURITIES (OPTIONS) 59,599 81,945 EFFECT OF DILUTIVE SECURITIES (7.5% CONVERTIBLE DEBENTURES) 1,237,454 -- ---------- ----------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 6,839,419 5,412,682 ========== =========== DILUTED EARNINGS (LOSS) PER SHARE: BEFORE EXTRAORDINARY ITEMS $ 0.28 $ (0.43) EXTRAORDINARY GAIN 0.01 0.05 ---------- ----------- NET EARNINGS (LOSS) $ 0.29 $ (0.38) ========== ===========
8 D. OPERATING SEGMENT INFORMATION The Company's significant operating segments are hotel operations, franchising and management, and construction and development. None of the Company's segments conduct foreign operations. Operating profit includes the operating revenues and expenses directly identifiable with the operating segment. Identifiable assets are those used directly in the operations of each segment. A summary of the Company's operations by segment follows (in thousands of dollars):
16 Weeks Ended ------------------------------ April 22, 2001 April 16, 2000 Revenues: Hotel revenues $ 5,638 $ 22,590 Franchising and management 1,208 2,381 Construction and development 7,940 5,471 Elimination of intersegment revenue (3,723) (3,052) --------- --------- Total revenues $ 11,063 $ 27,390 ========= ========= Operating profit (loss): Hotel $ (469) $ (508) Franchising and management (628) (1,646) Construction and development 554 140 --------- --------- Total operating profit (loss) $ (543) $ (2,014) ========= ========= Capital expenditures: Hotel $ 3,280 $ 1,291 Franchising and management 1,346 148 Construction and development -- -- --------- --------- Total capital expenditures $ 4,626 $ 1,439 ========= ========= Depreciation and amortization: Hotel $ 1,179 $ 1,736 Franchising and management 334 363 Construction and development 14 8 --------- --------- Total depreciation and amortization $ 1,527 $ 2,107 ========= ========= As of As of April 22, December 31, 2001 2000 Total assets: Hotel $ 140,332 $ 138,421 Franchising and management 62,759 63,351 Construction and development 4,354 2,859 --------- --------- Total assets $ 207,445 $ 204,631 ========= =========
9 E. CONTINGENCIES The Company is a party to legal proceedings incidental to its business. In the opinion of management, any ultimate liability with respect to these actions will not materially affect the consolidated financial position or results of operations of the Company. During September 2000, the Internal Revenue Service (the "Service") issued a Revenue Agent's Report to the Company asserting income tax deficiencies and additions to tax relating to the tax year ended December 28, 1997. The Company filed a protest to the Service's asserted deficiencies and additions to tax. The amounts of the income tax deficiencies and additions to tax asserted does not include interest which accrues from the dates the taxes were due until the date of the payment. The protest is currently being reviewed by the Service. The asserted deficiencies are related solely to the timing of taxable income between fiscal 1997 and the fiscal year ended December 31, 2000, in which year the Company provided for and paid estimated taxes thereon. The Company believes that any ultimate deficiency will be limited to interest on the tax and would be substantially less than the amounts asserted by the Service. The Company also believes it has adequately provided in the accompanying Consolidated Balance Sheets for any additional taxes, additions to tax, penalties, and statutory interest that may be due for all tax years. There was no significant change in the status of this issue in the first fiscal quarter of 2001. F. NEW ACCOUNTING PRONOUNCEMENTS Financial Accounting Standards Board (FASB) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, was adopted by the Company effective January 1, 2001. The adoption had no effect on the Company's financial position or operating results. 10 ShoLodge, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The following discussion should be read in conjunction with the Company's condensed consolidated financial statements and notes thereto appearing elsewhere in this quarterly report. The Company is an operator and the exclusive franchisor of Shoney's Inns. As of April 22, 2001, the Shoney's Inn lodging system consists of 74 Shoney's Inns containing 6,909 rooms of which 12 containing 1,377 rooms are owned and operated by the Company. Shoney's Inns are currently located in 21 states with a concentration in the Southeast. Shoney's Inns operate in the upper economy limited-service segment and are designed to appeal to both business and leisure travelers, with rooms usually priced between $40 and $65 per night. The typical Shoney's Inn includes 60 to 120 rooms and, in most cases, meeting rooms. Although Shoney's Inns do not offer full food service, most offer continental breakfast and most of the Shoney's Inns are located adjacent or in close proximity to Shoney's restaurants. Management believes that its strategy of locating most of its Shoney's Inns in close proximity to free-standing Shoney's restaurants has given it a competitive advantage over many other limited-service lodging chains by offering guest services approximating those of full-service facilities without the additional capital expenditures, operating costs or higher room rates. The Company's operations have been supplemented by contract revenues from construction and development of hotels for third parties. Revenues from these activities have varied widely from period to period, depending upon whether the Company's construction and development activities were primarily focused on its own facilities or on outside projects. Construction revenues are recognized on the percentage of completion basis. 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 April 22, 2001 and April 16, 2000 are not necessarily indicative of the operating results for the entire year. 11 RESULTS OF OPERATIONS For the Quarters Ended April 22, 2001 and April 16, 2000 Total operating revenues for the quarters ended April 22, 2001, were $11.1 million, or 59.6% less than the total operating revenues of $27.4 million reported for the first quarter of 2000. Revenues from hotel operations decreased by $17.9 million, or 80.4%, from the $22.2 million reported for the same period last year. For the 12 same hotels opened for all of both quarterly periods, an increase of 0.1% in average daily room rates, from $50.94 in first quarter 2000 to $50.99 in first quarter 2001, and an increase in average occupancy rates on these hotels from 42.9% to 46.2% this year, were the primary causes of an increase in same hotel revenues of 9.8% from $3.4 million in first quarter 2000 to $3.7 million in first quarter 2001. The Company sold 28 hotels (27 Sumner Suites hotels and one Shoney's Inn) in the second quarter of 2000, and sold an additional two Shoney's Inns in April of 2001. These thirty hotels sold since April 16, 2000, contributed $638,000 to hotel operating revenues in the first quarter of this year (from the two hotels sold in April of 2001), compared to $18.8 million in the first quarter of last year. The Company owns and operates Shoney's Inns. RevPAR (revenue per available room) for all Company-owned Shoney's Inns increased from $22.20 in first quarter 2000 to $23.88 in first quarter 2001. The 12 Shoney's Inns same-hotels' RevPAR increased by 7.7%, from $21.86 in first quarter 2000 to $23.54 in first quarter 2001. Franchising and management revenues declined by $124,000, or 13.9%, in first quarter 2001 from first quarter 2000. Initial franchise fees increased by $18,000, franchise termination fees decreased by $88,000, and royalty and reservation fees decreased by $54,000 from first quarter of last year. Initial franchise fee revenue varies from quarter to quarter depending on the level of franchise sales activities. Revenues from construction and development activities were $4.8 million in first quarter 2001 on six third party construction contracts in progress versus $4.1 million in first quarter 2000 on five third party construction contracts in progress. Rent income in the first quarter of 2001 increased by $1.0 million, to $1.1 million, from $141,000, in the first quarter of 2000. This increase was due entirely to the lease of three hotels in July of 2000, in conjunction with the Company's sale of its operating interests in 27 Sumner Suites hotels, which have been re-flagged as AmeriSuites hotels and are being operated by Prime Hospitality Corp. Operating expenses from hotel operations for the first quarter of 2001 decreased by $12.3 million, or 78.52%, from $15.7 million in first quarter 2000, due to the sale of 28 hotels in mid-2000 and two hotels in April of this year. Hotel operating expenses on the 12 same-hotels remained constant at $2.9 million in first quarter 2001 compared to 12 first quarter 2000. The operating expenses as a percentage of operating revenues for this activity increased from 70.7% in first quarter 2000 to 77.5% in first quarter 2001; operating expenses as a percentage of operating revenues on the 12 same-hotels decreased from 85.6% in first quarter 2000 to 78.4% in first quarter 2001. Increases in hotel operating expenses on same-hotels were primarily in the areas of payroll related costs and utilities. Franchising and management operating expenses decreased by $331,000, or 40.4%, from first quarter 2000. The decreases were primarily in the areas of (1) reservation center expenses and payroll and related benefits and (2) franchise administrative expenses; particularly, advertising, telephone expense, provision for bad debts, postage and freight, dues and subscriptions, and hotel inspection expenses. The reduction in reservation center expenses was due primarily to the Company's sale of the 27 Sumner Suites hotels in 2000, and the absence of reservation services provided for those hotels since November of last year. Construction and development costs in first quarter 2001 were $4.3 million on the six third party construction contracts in progress versus $4.0 million in first quarter 2000 on the five third party construction contracts in progress at that time. Rent expense decreased by $5.2 million in first quarter this year from last year's first quarter, all of which was due to the sale of 28 hotels in mid-2000 which incurred $5.2 million rent expense in first quarter last year versus none this year. General and administrative expenses increased by $339,000, or 24.2%, from first quarter 2000. This increase was due primarily to increased professional fees, travel expenses and salaries and related payroll costs. Depreciation and amortization expense decreased by $579,000, or 27.5%, from first quarter 2000, due to the sale of hotels in 2000 and the first quarter of 2001. The gain recognized on sale of property in first quarter 2001 totaled $3.6 million, and was from the Company's sale of one hotel and three restaurants. Another hotel was sold near the end of the first quarter, but the gain (approximately $543,000) was deferred and will be recognized under the installment method of accounting until full accrual accounting is warranted. A portion of the gain (approximately $175,000) on the sale of two of the restaurants was also deferred and will be recognized under the installment method of accounting. The $299,000 gain on sale of property in the first quarter of 2000 represents the adjustment of deferred credits due to the revision of the estimated amounts needed to fund reserves related to the 16 hotels sold in third quarter 1998, of which the recognition of the balance of the gain was recognized in 1998 and 1999. Interest expense decreased by $1.2 million, or 31.9%, while interest income increased by $219,000, or 11.7%, from first quarter 2000. The reduction of $1.4 million in net interest expense was due to a paydown of $7.5 million of the Company's outstanding debt using a portion of the $38.4 million gross proceeds of the sale lease- 13 back of four hotels on May 11 of last year and to the interest income earned from the temporary investment of the remaining proceeds from that transaction in interest bearing instruments. Interest income also increased due to seller financing of a portion of the sales price of Shoney's Inns sold to franchisees. The Company has also continued to repurchase its public debt in the open market and in privately negotiated transactions, reducing its interest expense (see Liquidity and Capital Resources discussion below). LIQUIDITY AND CAPITAL RESOURCES The Company's cash flows used in operating activities were $546,000 in the first quarter of 2001, compared with $1.9 million provided by operating activities in the first quarter of 2000. The Company's cash flows used in investing activities were $2.5 million in the first quarter of 2001, compared with $593,000 for the comparable period in 2000. The Company's capital expenditures are principally for the construction and acquisition of new lodging facilities and the purchase of equipment and leasehold improvements. Capital expenditures for such purposes were $4.6 million in the first quarter of 2001 and $1.4 million in the first quarter of 2000. Proceeds from the sale of property and leasehold interests were $2.3 million in the first quarter of 2001 versus none for the comparable period in 2000. Net cash used in financing activities was $607,000 in the first quarter of 2001 compared with $1.8 million provided by financing activities in the first quarter of 2000. Repayments, net of borrowings, on long-term debt and capitalized lease obligations were $559,000 in the first quarter of 2001 versus $2.1 million borrowed in excess of repayments in the first quarter of 2000. The repayments in the first quarter of 2001 and the first quarter of 2000 include $250,000 and $1.3 million, respectively, of long-term debt repurchased in the open market or in privately negotiated transactions. In the first quarter of 2001, the Company repurchased 11,000 shares of its common stock for $54,000; in the first quarter of 2000, the Company repurchased 65,000 shares of its common stock for $285,000 pursuant to a plan to repurchase up to $20.0 million of the Company's outstanding common stock. The Company established a three-year credit facility with a bank group effective August 27, 1999. The credit facility is for an initial amount of $30.0 million (a $10.0 million term loan and a $20.0 million revolving line of credit), secured by a pledge of certain promissory notes payable to the Company received in connection with the sale of 16 of the Company's lodging facilities in the third quarter of 1998. The borrowing base is the lower of (a) 85% of the outstanding principal amount of the pledged notes, (b) 65% of the appraised market value of the underlying real property collateral securing the pledged notes, or (c) $30.0 million. The interest rate is at the lender's base rate plus 50 basis points and the Company is to pay commitment fees on the unused portion of the facility at .50% per annum. The credit facility also contains covenants which, inter alia, limit or prohibit the incurring of certain additional indebtedness in excess of a specified 14 debt to total capital ratio, prohibit additional liens on the collateral, restrict mergers and the payment of dividends and restrict the Company's ability to place liens on unencumbered assets. The credit facility contains financial covenants as to the Company's minimum net worth. As of April 22, 2001, the Company had $10.0 million in borrowings outstanding under this credit facility, consisting of the three-year term loan of $10.0 million; additionally, $3.1 million is currently used to secure the Company's guaranty of a subsidiary's letter of credit. The Company also maintains a $1 million unsecured line of credit with another bank, bearing interest at the lender's prime rate, maturing May 31, 2002. As of April 22, 2001, the Company had no borrowings outstanding under this credit facility. The Company opened no new hotels in the first quarter of either 2001 or 2000. As of the end of the first fiscal quarter of 2001, two hotels were under construction which are expected to open in the second half of 2001. The Company estimates that approximately $10.0 million in capital funds will be necessary to complete the construction of the two hotels under construction. These two hotels may be exchanged upon completion for two of the 24 hotels that are included in the leasehold interests sold to Prime in July, 2000. The Company has escrowed $13.9 million to finish these two hotels. There are no plans to develop or operate hotels in the near term. This decision was based on current market conditions, rooms supply in certain areas, capital availability, and the sale of leasehold interests in 2000. The Company's Board of Directors has previously authorized the use of up to $20.0 million for the repurchase of shares of the Company's common stock. The purchases, including block purchases, are to be made from time to time in the open market at prevailing market prices, or in privately negotiated transactions at the Company's discretion. No time limit has been placed on the duration of the stock repurchase plan, and the Company may discontinue the plan at any time. As of the end of the first fiscal quarter of 2001, approximately 3.1 million shares had been repurchased at a cost of $18.5 million. The Company is investigating various alternatives to maximize shareholder value. These alternatives could include, without limitation, the franchising and operation of Shoney's Inns, a sale of the remaining Shoney's Inns, negotiating new credit arrangements, developing hotels for other owners, the repurchase of additional shares of the Company's common stock or outstanding debt securities, or any combination of these or other strategies. The Company believes that a combination of cash on hand, the collection of notes receivable, net cash provided by operations, and borrowings under existing and new revolving credit facilities or mortgage debt, will be sufficient to fund its scheduled hotel development, stock repurchase plan, debt repayments and operations for at least the next twelve months. 15 MARKET RISK There have been no material changes in the Company's exposure to market risk in the first fiscal quarter ended April 22, 2001. FORWARD-LOOKING STATEMENT DISCLAIMER The statements appearing in this report which are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including delays in concluding or the inability to conclude transactions, the establishment of competing facilities and services, cancellation of leases or contracts, changes in applicable laws and regulation, in margins, demand fluctuations, access to debt or equity financing, adverse uninsured determinations in existing or future litigation or regulatory proceedings and other risks. 16 PART II - OTHER INFORMATION Item 1 ShoLodge Franchise Systems, Inc. v. Crossville Motel Associates, Inc., et al., Case No. 00-2717-II, Chancery Court for Davidson County, Tennessee. ShoLodge filed this action on August 30, 2000, to recover outstanding and past due royalty and other fees from a franchisee, Crossville Motel Associates, Inc., and its principal, Stephen Roberson. On October 17, 2000, these defendants filed a counterclaim against ShoLodge seeking damages in the amount of $1,000,000 for alleged misrepresentations, breach of contract, and violation of Tennessee Consumer Protection Act. On February 5, 2001, the court dismissed the defendants' claims for misrepresentation and for violation of the Tennessee Consumer Protection Act. On March 12, 2001, the parties reached an agreement to settle all pending claims pursuant to which the defendants will pay ShoLodge $100,000. The appropriate settlement documents have been executed and the case has been dismissed with prejudice. No material developments occurred during the first quarter ended April 22, 2001 with respect to any other pending litigation. Item 4. Submission of Matters to a vote of Security Holders Not applicable Item 6. Exhibits and Reports on Form 8-K 6(a) Exhibits - None No reports on Form 8-K were filed by the Company during the fiscal quarter ended April 22, 2001. 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: May 28, 2001 S/ Leon Moore ------------------------------------- Leon Moore President, Chief Executive Officer, Principal Executive Officer, Director Date: May 28, 2001 S/ Bob Marlowe ------------------------------------- Bob Marlowe Secretary, Treasurer, Chief Accounting Officer, Principal Accounting Officer, Chief Financial Officer, Director -----END PRIVACY-ENHANCED MESSAGE-----