UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 Number: 0-28108
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Suburban Lodges of America, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1781184
- ----------------------- -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
120 Interstate North Parkway East
Suite 120
Atlanta, Georgia 30339
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(Address of principal executive offices)
770-951-9511
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 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 / / NO / X /
Number of shares of Common Stock, $.01 par value outstanding as of
August 9, 1996:
8,547,956
Suburban Lodges of America, Inc
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Balance Sheets at December 31, 1995 and June 30, 1996 (unaudited) 3
Statements of Operations for the three month and six month 4
periods ended June 30, 1995 and June 30, 1996 (unaudited)
Statements of Cash Flows for the six month periods ended 5
June 30, 1995 and June 30, 1996 (Unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION AND SIGNATURES 9
Other Information 10
Signatures 11
Suburban Lodges of America, Inc.
Balance Sheets
(Unaudited)
December 31, June 30,
1995 1996
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 687,432 $ 27,180,739
Prepaid and other assets 180,116 470,602
Advances to affiliates 5,000 125,000
Current deferred tax asset 33,611 93,702
----------- ------------
Total current 906,159 27,870,043
----------- ------------
----------- ------------
DEFERRED EXPENSES-net 461,526 257,472
----------- ------------
INVESTMENT IN FACILITIES- at cost:
Land 2,386,633 5,694,530
Building 9,359,201 16,854,811
Furniture and fixtures 1,004,875 1,736,404
Equipment 888,162 988,266
Construction in progress 1,988,674 9,251,628
----------- ------------
15,627,545 34,525,639
Less accumulated depreciation (1,990,982) (2,220,709)
----------- ------------
Net investment in facilities 13,636,563 32,304,930
----------- ------------
$15,004,248 $ 60,432,445
=========== ============
LIABILITIES AND TOTAL CAPITAL
CURRENT LIABILITIES:
Current portion of long term debt $ 640,413 $ ---
Current portion of notes payable to affiliates 1,052,511 ---
Accounts payable, trade 82,369 344,098
Construction accounts payable 544,602 1,160,811
Accrued interest 137,228 ---
Accrued expenses and other liabilities 179,178 503,715
Unearned franchise fees 143,500 249,870
Income taxes payable 0 213,267
----------- ------------
Total current 2,779,801 2,471,761
LONG-TERM DEBT AND CAPITAL LEASES OBLIGATIONS 11,552,359 ---
LONG-TERM NOTES PAYABLE TO AFFILIATES 572,398 ---
----------- ------------
Total liabilities 14,904,558 2,471,761
SHAREHOLDERS' EQUITY(DEFICIT):
Common stock 15 85,480
Additional paid-in capital 999 57,346,734
Retained earnings (deficit) (1,561,685) 528,470
Partners' and members capital 1,660,361
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Total capital 99,690 57,960,684
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$15,004,248 $ 60,432,445
=========== ============
See accompanying notes to financial statements
Page 3
Suburban Lodges of America, Inc.
Statements of Operations
(Unaudited)
Part 1. Financial Information
Item 1. Financial Statements
Six Months Ended Three Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
------------- ------------- ------------- -------------
REVENUE:
Room revenue $ 2,024,011 $ 3,026,656 $ 1,043,557 $ 1,660,515
Other facility revenue 139,169 213,606 69,017 127,284
Franchise and other revenue 200,481 512,595 108,422 295,735
----------- ----------- ----------- ------------
Total revenue 2,363,661 3,752,857 1,220,996 2,083,534
----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Facility operating expenses 991,251 1,432,200 475,296 779,619
Corporate operating expenses 369,851 597,096 200,042 321,074
Related party consulting 6,000 10,000 3,000 6,000
Depreciation and amortization 201,574 246,723 97,287 130,473
----------- ----------- ----------- ------------
Total costs and expenses 1,568,676 2,286,019 775,625 1,237,166
----------- ----------- ----------- ------------
OPERATING INCOME 794,985 1,466,838 445,371 846,368
INTEREST INCOME 139,081 139,081
INTEREST EXPENSE (442,023) (553,943) (216,639) (267,663)
----------- ----------- ----------- ------------
352,962 1,051,976 228,732 717,786
INCOME TAX EXPENSE 153,176 126,615
----------- ----------- ----------- ------------
NET INCOME $ 352,962 $ 898,800 $ 228,732 $ 591,171
=========== =========== =========== ===========
Pro forma earnings per share:
Weighted average shares
outstanding 4,603,957 5,477,461
========= =========
Pro forma earnings per common
share (Note 3) $0.14 $0.08
========= =========
See accompanying notes to financial statements
Page 4
Suburban Lodges of America, Inc.
Statements of Cash Flows
(Unaudited)
Part 1. Financial Information
Item 1. Financial Statements
Six Months Ended June 30
1995 1996
--------- --------
OPERATING ACTIVITIES:
Net income $ 352,962 $898,800
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 201,574 246,723
Changes in assets and liabilities:
Prepaid expenses and other assets (9,411) (290,486)
Advances to affiliates (29,500) (120,000)
Current deferred tax asset (60,091)
Deferred expenses, net (59,309)
Accounts payable, trade (42,718) 261,729
Accrued expenses 215,492 430,907
Accrued interest 7,177 (137,228)
Income taxes payable 213,267
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Net cash provided by operating activities 695,576 1,384,312
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INVESTING ACTIVITIES:
Purchase of land (3,307,897)
Construction in progress (1,247,213) (7,262,954)
Construction accounts payable --- 616,209
Expenditures for buildings and improvements --- (7,495,610)
Purchase of furniture,fixtures, and equipment (30,684) (831,633)
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Net cash used in investing activities (1,277,897) (18,281,885)
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FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,248,775 2,814,967
Principal payments on long-term debt (200,450) (14,981,894)
Payments on notes payable to affiliates 77,500 (1,624,909)
Payments on capital lease obligations (23,100) (25,845)
Expenses of initial public offering --- (1,659,375)
Net proceeds from stock issuance --- 59,998,950
Distributions to partners (285,420) (1,131,014)
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Net cash provided by
financing activities 817,305 43,390,880
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NET CHANGE IN CASH AND CASH EQUIVALENTS 234,984 26,493,307
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 467,203 687,432
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $702,187 $27,180,739
========== ===========
See accompanying notes to financial statements
Page 5
Suburban Lodges of America, Inc.
Notes to Financial Statements
(Unaudited)
(1) General Matters
On May 29, 1996, Suburban Lodges of America, Inc. (the "Company")
completed an initial public offering of 3,795,000 shares of common stock,
including shares issued as a result of the exercise of the underwriters'
over-allotment option, at $17.00 per share (the "Offering"). Just prior
to the closing of the Offering, the Company acquired through merger and
exchange of common stock for partnership interests, the assets of the
corporations and partnerships (collectively, the "Predecessor Entities")
which owned and operated all of the Suburban Lodges facilities then in
operation or under development. The Company issued an aggregate of
875,189 shares of common stock and paid $2.9 million of cash to the
partners and shareholders of the Predecessor Entities. The acquisition
of the interests of the controlling shareholder, or partner, and his
affiliates has been accounted for as if it were a pooling of interests
with no increase in the carrying value for the interests acquired. The
acquisition of facilities from third party sellers have been accounted
for as purchases which resulted in an increase in the basis of the
underlying assets acquired. The financial statements set forth herein
reflect combined financial data for the Predecessor Entities for periods
as of and ended prior to June 30, 1995, and financial data for the
Company for periods as of and ended on or after June 30, 1996.
Net proceeds to the Company from the Offering were approximately $60
million. The Company used a portion of the proceeds from the Offering
to: (i) repay approximately $21.0 million indebtedness assumed in
connection with the Corporate Organization and (ii) payment of cash of
approximately $7.6 million in connection with the acquisition of
facilities. The balance of the net proceeds of approximately $31.4
million will be used to develop additional Suburban Lodge facilities and
general corporate purposes.
(2) Basis of Presentation
The accompanying unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Accordingly, certain information
and footnotes required by generally accepted accounting principles for
complete financial statements have been omitted. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
which are necessary for a fair presentation of financial position and
results of operations have been made. These interim financial statements
should be read in conjunction with the combined historical financial
statements and the pro forma financial data, and notes thereto, presented
in the Company's Registration Statement on Form S-1 (Registration No. 0-
28108), as amended (the "Registration Statement"), and the Company's
prospectus dated May 23, 1996, filed with the Securities and Exchange
Commission.
All significant intercompany balances and transactions have been
eliminated.
Page 6
(3) Earnings per Share
Prior to May 28, 1996, the assets of the Company were owned and
operated by Suburban Lodges of America, Inc., its affiliates and the
Predecessor Entities. The outstanding shares or other equity interest
of the Predecessor Entities differ substantially from the shares of
common stock of the Company outstanding after the offering. Accordingly,
the Company believes that the presentation of historical per share
information may not be meaningful.
The pro forma earnings per share for the three month and six month
periods ended June 30, 1996 have been calculated by dividing income
before income taxes by the weighted average number of shares of common
stock deemed to be outstanding during the respective periods. Income
before tax has been adjusted to provide for income taxes (approximately
$269,000 and $395,000 for the three month and six month periods ended
June 30, 1996) assuming a 37.5% effective tax rate. Prior to May 29,
1996, the Company was not fully subject to income taxes because it
consisted of partnerships and limited liability companies; however, if
they had been subject to income taxes, pro forma net income after taxes
would have been approximately $143,000 and $449,000 for the three month
periods ended June 30, 1995 and 1996 and $221,000 and $657,000 for the
six month periods ended June 30, 1995 and 1996, respectively, assuming a
37.5% effective tax rate.
In accordance with Accounting Principles Board Opinion No. 15, the
Company has also computed supplemental earnings per common share to be
$.09 and $.15 for the three month and six month periods ended June 30,
1996, respectively. Supplemental net income of approximately $590,000
and $964,000 for the three month and the six month periods ended June 30,
1996, respectively, has been computed by adjusting historical net income
for (i) the elimination of interest expense on debt repaid with a portion
of the proceeds of the Offering; (ii) the inclusion of certain additional
corporate operating expenses; (iii) adjustments to depreciation and
amortization; (iv) the inclusion of Forest Park for the entire quarter;
and (v) computation of income taxes for the entire period at a rate of
37.5%. The supplemental weighted average number of common shares
outstanding (6,622,251) for both periods is based upon outstanding shares
for the beginning of each period of 6,622,251 which were shares issued in
connection with the Corporate Organization and its related stock split
and the Offering as described in the Company's Registration Statement.
Shares outstanding for purposes of computing supplemental earnings per
share exclude 1,925,705 shares issued relative to amounts used for
general corporate purposes.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company believes the presentation of historical per share
information may not be meaningful because of the difficulty in comparing
the Company to the Predecessor Entities. However, assuming that the
current number of shares totaling 8,547,956 had been outstanding for the
three month period ended June 30, 1996, and certain adjustments were made
to historical net income to give effect to the Offering and the business
combinations with the Predecessor Entities (as detailed in the Company's
Registration Statement), the adjusted net income per share would be $.07.
The adjustments include Forest Park for the entire quarter, additional
operating expenses, depreciation and amortization, elimination of interest
expense, and adjustment to income taxes for the entire period at a rate
of 37.5%.
COMPARISON OF THE QUARTER ENDED JUNE 30, 1996 TO THE QUARTER ENDED JUNE
30, 1995
Total revenue for the quarter ended June 30, 1996 was approximately
$2,084,000 which was an increase of $863,000 or 70.6 %, over the quarter
ended June 30, 1995. Room revenue for the period increased by
approximately $617,000 of which approximately $571,000 was attributable
to the opening of the Matthews facility in August 1995 and the Conyers
facility in April 1996 and the acquisition of the Forest Park facility in
May 1996, $46,000 was attributable to facilities open throughout both
periods. The increase in room revenue for facilities open throughout
both periods resulted from a 3.9% increase in Weekly REVPAR from $134.47
to $139.75. The increase resulted from a 5.9% increase in the average
weekly rates from $136.46 to $144.54 which was partially offset by a
slight decrease in occupancy.
Franchise and other revenue from corporate operations for the
quarter ended June 30, 1996, which includes management, construction and
development revenue, was approximately $296,000 an increase of $187,000,
or approximately 172% over the quarter ended June 30, 1995. Development
and construction revenue, which increased approximately $149,000 resulted
from the development of two additional sites placed under construction
for third party franchisees and construction management fees on several
other properties under construction. The development and construction
services which generated these revenues were performed pursuant to
development agreements negotiated on a case by case basis.
Facility operating expenses increased $304,000 or approximately
64.0% to $780,000 for the quarter ended June 30, 1996 from $475,000 for
the quarter ended June 30, 1995. The majority of this increase $423,000
reflects the full quarter expenses of the Matthews and Conyers facilities
and Forest Park since May 29, 1996 (the date of acquisition). The
balance of the increase in facility operating expenses of $52,000, is
related to increases in expenses at facilities open during the entire
quarter. Depreciation and amortization increased $33,000 or
approximately 34.1% principally as a result of the opening of the
Matthews and Conyers facilities and the acquisition of the Forest Park
facility.
Corporate operating expenses increased $121,000 or approximately
60.5% to $321,000. This increase was due to the additional staffing in
the financial and development segments of the business as well as
upgrades and expansion of computer systems, corporate advertising and
marketing programs, legal and professional fees, and executive
compensation and benefit plans.
Page 8
Interest expense during the quarter ended June 30, 1996 increased
$51,000 from an increase in indebtedness associated with the opening of
the Matthews and Conyers facilities. Interest income in the amount of
$139,000 was earned on the net proceeds from the initial public offering.
As a result of the initial public offering, all existing debt was retired
on or about May 29, 1996 resulting in no further interest expense through
June 30, 1996.
COMPARISON OF THE SIX MONTH PERIOD ENDED JUNE 30, 1996 TO THE SIX MONTH
ENDED JUNE 30, 1995
Total revenue for the six month period ended June 30, 1996 was
approximately $3,753,000 which was an increase of $1,389,000 or 58.8%,
over the six month period ended June 30, 1995. Room revenue for the
period increased by approximately $1,003,000 of which approximately
$876,000 was attributable to the opening of the Matthews facility in
August 1995, the Conyers facility in April 1996 and the acquisition of
the Forest Park facility in May 1996; the additional $127,000 increase
in revenue was attributable to facilities open throughout both periods.
The increase resulted from a 4.0% increase in the average weekly rate
from $132.63 to $151.25 which was partially offset by a slight decrease
in occupancy.
Franchise and other revenue from corporate operations for the six
month period ended June 30, 1996, which includes management, construction
and development revenue, was approximately $513,000 an increase of
$312,000 or approximately 156% over the six month period ended June 30,
1995. Franchise revenue for the period increased $51,000 or
approximately 46.7%, from $109,000 in 1995 to $160,000 in 1996. The
additional franchise revenue reflects initial franchise fees on three new
Suburban Lodge facilities in 1996 and increased royalties on open
facilities. Development and construction revenue increased approximately
$218,000 due to the development of three additional third party franchisee
sites and construction management fees on several other third party franchisee
properties.
Facility operating expenses increased $441,000 or approximately
44.5% to $1,432,000 for the six month period ended June 30, 1996 from
$991,000 for the six month period ended June 30, 1995. The majority of
this increase reflects the full quarter expenses of the Matthews and
Conyers facilities and Forest Park since May 29, 1996 (the date of
acquisition). The balance of the increase in facility operating
expenses of $84,000 is related to increases in expenses at facilities
open during the entire quarter. Depreciation and amortization increased
$45,000 or approximately 22.4% principally as a result of the opening
of the Matthews and Conyers facilities and the acquisition of the
Forest Park facility.
Corporate operating expenses increased $227,000 or approximately
61.4% to $597,000, due to additional staffing in the financial and
development segments of the business, corporate advertising and marketing
programs, legal and professional fees, and executive compensation and
benefit plans. Interest expense during the six month period ended June
30, 1996 increased to $554,000 from $442,000 in the six month period
ended June 30, 1995. The increase in expense of $112,000 related to the
indebtedness on the Matthews and Conyers facilities.
Page 9
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents of
approximately $27.2 million, consisting of a portion of the proceeds from
the Offering. The Company plans to fund its development of additional
extended stay facilities with available cash, cash generated from
operations, and borrowings under the line of credit. Currently,
the Company owns and operates ten existing facilities, has six
facilities under construction, and has eight additional land parcels under
contract. The Company believes that cash and the available line of
credit, assuming the total credit of $50 million is obtained, will be
sufficient to complete all six facilities currently under construction
and complete the acquisition and development of an additional fifteen
properties projected to open in 1997. During the six month period ended
June 30, 1996, the Company generated cash flow from operations of
$1,384,000 compared to $696,000 for the six month period ended June 30,
1995. Capital expenditures for the six month period ended June 30,
1996 totaled approximately $18.3 million, consisting primarily of the
costs associated with the acquisition of land and construction of new
facilities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibit is filed as a part of this
report:
Exhibit 27 - Financial Data Schedule
(b) None. There are no reports on Form 8-K.
Page 10
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.
Suburban Lodges of America, Inc.
Date: August 9, 1996 By: /s/ DAVID E. KRISCHER
David E. Krischer
Chairman of the Board,
President
Chief Executive Officer
Date: August 9, 1996 By: /s/ TERRY J. FELDMAN
Terry J. Feldman
Vice President
Chief Financial Officer
(Principal Financial Officer)
Page 11