FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------
1999 1998
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 16,497 $ 19,185
Cash, restricted........................................... 4,787 6,302
Accounts receivable, net of allowances..................... 27,099 25,498
Inventories................................................ 9,218 9,263
Prepaid expenses........................................... 5,102 8,697
Other current assets....................................... 3,573 9,996
---------- ----------
Total current assets............................... 66,276 78,941
Property and equipment, net.................................. 1,315,011 1,317,470
Deposits for capital expenditures............................ 10,262 30,386
Other assets, net............................................ 34,982 71,124
---------- ----------
$1,426,531 $1,497,921
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 40,708 $ 57,253
Accrued liabilities........................................ 55,441 50,633
Current portion of long-term obligations................... 10,404 36,134
---------- ----------
Total current liabilities.......................... 106,553 144,020
Long-term obligations, less current portion.................. 881,675 816,644
Deferred income taxes........................................ 33,477 63,469
Commitments and contingencies................................ -- --
Minority interests:
Preferred redeemable securities............................ 175,000 175,000
Other...................................................... 4,404 15,021
Stockholders' equity:
Common stock, $.01 par value 75,000,000 shares authorized;
28,130,325 and 27,937,057 shares issued and outstanding
at December 31, 1999 and 1998, respectively............. 281 278
Additional paid-in capital................................. 262,760 261,976
Retained earnings (deficit)................................ (36,707) 23,106
Accumulated other comprehensive loss....................... (912) (1,593)
---------- ----------
Total stockholders' equity......................... 225,422 283,767
---------- ----------
Total liabilities and stockholders' equity......... $1,426,531 $1,497,921
========== ==========
See accompanying notes.
-- ALL 1999 RESULTS UNAUDITED --
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
Revenues:
Rooms............................................. $ 424,525 $ 267,862 $ 179,956
Food and beverage................................. 139,474 107,334 80,335
Other............................................. 28,416 20,018 16,366
--------- --------- ---------
592,415 395,214 276,657
Operating expenses:
Direct:
Rooms.......................................... 121,512 75,316 49,608
Food and beverage.............................. 102,030 81,643 60,919
Other.......................................... 17,357 11,023 8,155
General and administrative.......................... 27,006 10,080 8,973
Depreciation and amortization....................... 56,359 31,114 23,023
Other............................................... 178,249 118,927 79,881
--------- --------- ---------
Total operating expenses.................. 502,513 328,103 230,559
--------- --------- ---------
Income from operations.............................. 89,902 67,111 46,098
Other income (expenses):
Interest income and other......................... 1,579 1,260 1,720
Interest expense.................................. (78,840) (30,378) (25,909)
Impairment of long-lived assets................... (40,283) -- --
Write-off of goodwill............................. (20,748)
Gain (loss) on asset dispositions................. 1,242 (432) --
Settlement on swap transactions................... -- (31,492) --
Merger and other non-recurring expenses........... (10,090) (3,400) --
Minority interests:
Preferred redeemable securities................... (13,224) (6,475) --
Other............................................. (1,300) (1,436) (960)
--------- --------- ---------
(Loss) income before income taxes and extraordinary
item.............................................. (71,762) (5,242) 20,949
(Benefit) provision for income taxes................ (19,699) (2,097) 8,379
--------- --------- ---------
(Loss) income before extraordinary item............. (52,063) (3,145) 12,570
Extraordinary item:
Loss on extinguishment of indebtedness, net of
income tax benefit of $4,914 $1,384 and $2,500
in, 1999, 1998 and 1997, respectively.......... (7,750) (2,076) (3,751)
--------- --------- ---------
Net (loss) income................................... $ (59,813) $ (5,221) $ 8,819
========= ========= =========
Earnings (loss) per common share:
(Loss) income before extraordinary item........... $ (1.91) $ (.16) $ 83
Extraordinary item................................ (.28) (.10) (.25)
--------- --------- ---------
Net (loss) income per common share................ $ (2.19) $ (.26) $ .58
========= ========= =========
Earnings (loss) per common share -- assuming dilution:
(Loss) income before extraordinary item............. $ (1.91) $ (.16) $ 80
Extraordinary item.................................. (.28) (.10) (.24)
--------- --------- ---------
Net (loss) income per common share -- assuming
dilution.......................................... $ (2.19) $ (.26) $ .56
========= ========= =========
See accompanying notes.
-- ALL 1999 RESULTS UNAUDITED --
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY
---------- ------------- ----------- ------------- ------------------ ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at December 31, 1996 9,369,605 $ 94 $ 55,136 $ 19,508 $ $ 74,738
Issuance of common stock. 11,500,000 115 156,085 156,200
401(k) Plan contribution. 49,847 282 282
Exercise of stock options 86,600 1 437 438
Tax benefit from exercise
of stock options....... 175 175
Purchase of common stock. (31,200) (538) (538)
Net income............... 8,819 8,819
Currency translation
adjustments........... (579) (579)
--------
Comprehensive income..... 8,240
--------- ----- -------- -------- ------- --------
Balance at December 31, 1997 20,974,852 $ 210 $211,577 $ 28,327 $ (579) $239,535
========== ===== ======== ======== ======= ========
Issuance of common stock in
connection with purchase
of Impac.............. 9,400,000 94 82,626 82,720
401(k) Plan contribution. 88,205 430 430
Exercise of stock options 134,900 1 1,143 1,144
Tax benefit from exercise
of stock options...... 245 245
Purchase of common stock. (2,660,900) (27) (34,045) (34,072)
Net loss................. (5,221) (5,221)
Currency translation
adjustments........... (1,014) (1,014)
--------
Comprehensive loss....... (6,235)
--------- ----- -------- -------- ------- --------
Balance at December 31, 1998 27,937,057 $ 278 $261,976 $ 23,106 $(1,593) $283,767
========== ===== ======== ======== ======= ========
401(k) Plan contribution. 143,160 2 547 549
Exercise of stock options 30,000 1 119 120
Tax benefit from exercise
of stock options...... 20 20
Director compensation.... 20,108 98 98
Net loss................. (59,813) (59,813)
Currency translation
adjustments........... 681 681
--------
Comprehensive loss....... (59,132)
--------- ----- -------- -------- ------- --------
Balance at December 31, 1999 28,130,325 $ 281 $262,760 $(36,707) $ (912) $225,422
========== ===== ======== ======== ======= ========
See accompanying notes.
-- ALL 1999 RESULTS UNAUDITED --
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
Operating activities:
Net (loss) income.................................................... $ (59,813) $ (5,221) $ 8,819
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization...................................... 56,359 31,114 23,023
Impairment of long-lived assets.................................... 40,283 -- --
Write-off of goodwill.............................................. 20,748 -- --
Loss on extinguishment of indebtedness............................. 12,664 3,460 6,251
Deferred income taxes.............................................. (29,972) (726) 2,216
Minority interests -- other........................................ 1,300 1,430 960
401(k) Plan contributions.......................................... 549 430 282
Compensation in stock issued to directors.......................... 98 -- --
Provision for (recoveries of) losses on receivables................ -- 77 (69)
Equity in (profit) loss of unconsolidated entities................. 718 (782) (107)
(Gain) loss on sale of assets...................................... (1,242)
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable.............................................. (1,601) (6,563) (2,017)
Inventories...................................................... 45 (1,883) (1,458)
Other assets..................................................... 34,272 (18,412) 425
Accounts payable................................................. (16,545) 14,913 1,174
Accrued liabilities.............................................. 4,808 11,464 2,522
------------ ------------ ------------
Net cash provided by operating activities..................... 62,671 29,301 42,021
Investing activities:
Acquisitions of property and equipment............................... (1,929) (67,717) (143,406)
Proceeds from sale of assets......................................... 22,068
Capital improvements, net............................................ (114,647) (118,667) (48,252)
Purchase of minority interests....................................... (10,200) -- (11,748)
Net (deposits) withdrawals for capital expenditures.................. 20,124 3,860 (17,247)
Purchase of marketable securities.................................... -- -- (500)
Payments on notes receivable issued to related parties............... -- -- 470
Decrease in investment in unconsolidated entities.................... -- -- 17
------------ ------------ ------------
Net cash used in investing activities......................... (84,584) (182,524) (220,666)
Financing activities:
Proceeds from issuance of long-term obligations...................... 487,521 600,284 191,560
Proceeds from issuance of common stock............................... 120 1,144 156,638
Principal payments of long-term obligations.......................... (448,220) (390,026) (167,647)
Payments of deferred loan costs...................................... (18,479) (20,165) (4,652)
Distributions to minority interests.................................. (1,717) -- (946)
Payments for repurchase of common stock.............................. -- (34,072) (538)
------------ ------------ ------------
Net cash provided by financing activities..................... 19,225 157,165 174,415
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents................... (2,688) 3,942 (4,230)
Cash and cash equivalents at beginning of year......................... 19,185 15,243 19,473
------------ ------------ ------------
Cash and cash equivalents at end of year............................... $ 16,497 $ 19,185 $ 15,243
============ ============ ============
Supplemental cash flow information
Cash paid during the year for:
Interest, net of amount capitalized.................................. $ 69,574 $ 31,512 $ 22,109
============ ============ ============
Income taxes paid, net of refunds.................................... $ 3,810 $ 5,210 $ 1,091
============ ============ ============
Supplemental disclosure of non cash investing and financing
activities:
Non cash acquisition and related financing of property and
equipment.......................................................... $ -- $ 696,851 $ --
============ ============ ============
Issuance of stock in connection with acquisition of
Impac.............................................................. $ -- $ 82,700 $ --
============ ============ ============
See accompanying notes.
-- ALL 1999 RESULTS UNAUDITED --
LODGIAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
On December 11, 1998 Servico, Inc. (Servico) merged with Impac Hotel Group,
LLC (Impac), pursuant to which Servico and Impac formed a new company Lodgian,
Inc. ("Lodgian" or the "Company"). This transaction (the "Merger") has been
accounted for under the purchase method of accounting, whereby Servico is
considered the acquiring company. For further discussion of the Merger see Note
2.
As a result of the Merger, Lodgian, its wholly owned subsidiaries and
consolidated partnerships (collectively, the "Company"), own or manage hotels in
35 states and Canada. At December 31, 1999 and 1998, the Company owned, either
wholly or partially, or managed 133 and 144 hotels, respectively.
Principles of Consolidation
The financial statements consolidate the accounts of Lodgian, its
wholly-owned subsidiaries and five partnerships in which Lodgian exercises
control. Lodgian believes it has control of partnerships when the Company
manages and has control of the partnerships' assets and operations, has the
ability and authority to enter into financing arrangements on behalf of the
entity or to sell the assets of the entity within reasonable business
guidelines. An unconsolidated entity (owning 1 hotel) is accounted for on the
equity method. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Inventories
Inventories consist primarily of food and beverage, linens, china, tableware
and glassware and are valued at the lower of cost (computed on the first-in,
first-out method) or market.
Minority Interests -- Other
Minority interests represent the minority interests' proportionate share of
equity or deficit of partnerships that are accounted for by the Company on a
consolidated basis. The Company generally allocates to minority interests their
share of any profits or losses in accordance with the provisions of the
applicable agreements. However, if the loss applicable to a minority interest
exceeds its total investment and advances, such excess is charged to the
Company.
Minority Interests -- Preferred Redeemable Securities
Minority interests-preferred redeemable securities, represents Convertible
Redeemable Equity Structure Trust Securities ("CRESTS"). The CRESTS bear
interest at 7% and are convertible into shares of the Company's common stock.
For further discussion of the CRESTS, see Note 5.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Property
under capital leases is amortized using the straight line method over the
shorter of the estimated useful lives of the assets or the lease term.
The Company capitalizes interest costs incurred during the renovation and
construction of capital assets. During the years ended December 31, 1999, 1998
and 1997, the Company capitalized $8,428,000, $3,499,000 and $1,650,000 of
interest, respectively.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Management periodically evaluates the Company's property and equipment to
determine if there has been any impairment in the carrying value of the assets
in accordance with Financial Accounting Standards Board Statement ("SFAS")121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of". SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and either the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount or the assets are being held for sale.
See Note 13 for further discussion of the Company's 1999 charge for asset
impairment.
Goodwill
Enterprise level goodwill arising from the Merger is accounted for under the
market value method.
Deferred Costs
Deferred franchise, financing, and other deferred costs of $30,973,000 and
$41,336,000 at December 31, 1999 and 1998, respectively, are included in other
assets, net of accumulated amortization of $6,300,000 and $3,061,000 at December
31, 1999 and 1998, respectively. Such costs are amortized using the
straight-line method, over the terms of the related franchise, loan or other
agreements. The straight-line method of amortizing deferred financing costs
approximates the interest method.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Restricted cash consists
of amounts reserved for capital improvements, debt service, taxes and insurance.
Fair Values of Financial Instruments
The fair values of current assets and current liabilities are assumed equal
their reported carrying amounts. The fair values of the Company's long-term debt
are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing arrangements.
In the opinion of management, the carrying value of long-term debt approximates
market value as of December 31, 1999 and 1998. The fair market value of the
Company's Senior Subordinated notes was $198,000,000, at December 31, 1999 based
on quoted market prices. The fair market value of the Company's CRESTS was
$70,000,000 at December 31, 1999 based on quoted market prices. Management has
estimated the fair value of the Company's interest rate protection agreements to
be approximately $5,000,000 at December 31, 1999 based on dealer quotes.
Concentration of Credit Risk
Concentration of credit risk associated with cash and cash equivalents is
considered low due to the credit quality of the issuers of the financial
instruments held by the Company and due to their short duration to maturity.
Accounts receivable are primarily from major credit card companies, airlines and
other travel related companies. The Company performs ongoing evaluations of its
significant customers and generally does not require collateral. The Company
maintains an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential credit losses. At December 31, 1999
and 1998, these allowances were $939,000 and $979,000, respectively.
Earnings Per Common and Common Equivalent Share
The Company adopted SFAS 128 "Earnings Per Share" effective for the year
ended December 31, 1998. Basic earnings per share is calculated based on the
weighted average number of common shares outstanding during the periods and
include common stock contributed or to be contributed by the Company to its
employees 401(k) Plan (the "401(k)"). Dilutive earnings per common share include
the Company's outstanding stock options and shares convertible under the
Company's CRESTS, if dilutive.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations. Under APB 25, because the
exercise price of the Company's employee stock options is equal to the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. Under Financial SFAS 123, "Accounting for Stock-Based Compensation",
net income and earnings per share are not materially different from amounts
reported, therefore, no pro forma information has been presented.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Financial Accounting Standards Board issued an interpretation of APB 25
(the "Interpretation") in March 2000. One of the key areas affected by the
interpretation is the accounting for stock option repricings. The interpretation
is applied prospectively to transactions that occur after December 15, 1998
commencing on the effective date of July 1, 2000.
The Interpretation requires that once an option granted to an employee is
repriced, that option would be accounted for as if it were a variable plan,
giving rise to compensation expense for subsequent changes in stock price, from
the date the option is repriced to the date it is exercised. Under the
interpretation, no compensation expense is recorded on the date of the
repricing. However, compensation expense is recorded quarterly through the date
of exercise to the extent that the fair market value of the common stock is in
excess of the exercise price of the options adjusted for the repricing. The
interpretation requires, in measuring compensation expense, the use of the
higher of the repriced exercise price of the options or the fair market value of
the stock on the date the interpretation is effective.
On December 18, 1998, the Company repriced options totaling 997,800, net of
forfeitures, that will be subject to these requirements.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$3,479,000, $2,162,000 and $1,867,000 in advertising costs during 1999, 1998 and
1997, respectively.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with SFAS 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet dates. Income statement amounts have been translated using
the average rate for the year. The gains and losses resulting from the changes
in exchange rates from year to year have been reported in other comprehensive
income. The effects on the statements of operations of transaction gains and
losses is insignificant for all years presented.
Business Segments
The Company's only business segment is the ownership and management of
hotels.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. MERGER, ACQUISITIONS AND RELATED ITEMS
On December 11, 1998, Servico merged with Impac (the "Merger") in a
transaction accounted for under the purchase method of accounting, pursuant to
APB 16, "Business Combinations", whereby Servico is considered the acquiring
company. The operations of Impac are included in the consolidated statement of
operations from the date of acquisition. Under the terms of the Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement"), Servico's
existing shareholders received one share of Lodgian common stock for each of
Servico stock held by them (approximately 18,440,000 million shares). The
purchase price of Impac approximated $104,367,000, consisting of $15 million in
cash, the issuance of 9.4 million shares of common stock of Lodgian at $8.80, of
which 238,000 shares are contingent upon the completion of construction of one
hotel. The purchase price has been allocated to the fair value of the net assets
acquired as follows:
(IN
THOUSANDS)
Cash............................... $ 7,027
Inventory.......................... 2,859
Accounts receivable................ 12,239
Property and equipment............. 610,708
Goodwill and other assets.......... 22,222
Accounts payable................... (61,694)
Long term obligations.............. (429,466)
Deferred income taxes.............. (47,900)
Accrued liabilities................ (11,620)
-------------
Total purchase price..... $ 104,367
=============
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In connection with the purchase of Impac, the Company allocated
approximately $20.7 million to goodwill.
In connection with the Merger, Servico incurred approximately $3,400,000 of
expenses primarily associated with the closing and relocation of Servico's
corporate headquarters and termination and relocation of certain Servico
employees. These costs have been expensed as incurred and are included in
severance and other expenses in the consolidated statements of operations for
1998. On June 1, 1998, the Company acquired the issued and outstanding units of
AMI Operating Partners, L.P. (AMI), in a transaction accounted for under the
purchase method of accounting. The purchase price of AMI approximated $74
million which included cash of $16 million and the assumption of $58 million in
debt. The operations of AMI are included in the consolidated statements of
operations from the date of acquisition. The purchase price was principally
allocated to the 14 hotel properties acquired.
The pro forma unaudited results of operations for the years ended December
31, 1998 and 1997, assuming the Merger had been consummated on January 1, 1997,
follows:
1998 1997
------------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues.............................. $545,794 $396,516
Net (loss) income before extraordinary (21,146) (8,837)
item..................................
Net (loss) income..................... (19,070) 2,917
Net (loss) income per common share:
Basic and diluted................... (.75) (.38)
During November 1998, the President and Chief Executive Officer of Servico
announced his resignation effective the date of the merger with Impac. In
connection with his resignation, Mr. Buddemeyer was provided a severance package
approximating $1.3 million. This amount was expensed during the fourth quarter
of 1998 and is included in severance and other expenses in the 1998 consolidated
statement of operations. Approximately $164,000 of this amount relates to
compensation expense associated with the extension of the terms of his stock
options, pursuant to APB 25.
3. PROPERTY AND EQUIPMENT
At December 31, 1999 and 1998, property and equipment consisted of the
following:
USEFUL
LIVES
(YEARS) 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Land............................................ -- $ 169,975 $ 168,303
Buildings and improvements...................... 10-40 1,005,128 976,608
Furnishings and equipment....................... 3-10 211,578 187,055
---------- ----------
1,386,681 1,331,966
Less accumulated depreciation and amortization.. (157,559) (104,528)
Construction in progress........................ 85,889 90,032
---------- ----------
Property and equipment at December 31, 1999
includes $157 million of hotel assets held for
sale.......................................... $1,315,011 $1,317,470
========== ==========
4. ACCRUED LIABILITIES
At December 31, 1999 and 1998, accrued liabilities consisted of the
following:
1999 1998
---------- ----------
(IN THOUSANDS)
Salaries and related costs..... $ 13,939 $ 26,798
Real estate taxes.............. 7,284 9,095
Interest....................... 13,390 4,370
Advance deposits............... 2,384 3,799
Sales taxes.................... 4,874 5,412
Other.......................... 13,570 1,159
---------- ----------
$ 55,441 $ 50,633
========== ==========
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. LONG-TERM OBLIGATIONS AND PREFERRED REDEEMABLE SECURITIES
Long-term obligations consisted of the following at December 31:
1999 1998
---------- ----------
(IN THOUSANDS)
Mortgage notes payable with interest at LIBOR (5.8% at December 31,
1999) plus 4.0%. The notes are payable through 2006.............. $ 238,800 $ --
Mortgage notes payable with interest at LIBOR plus 3.25%......... -- $ 265,000
Credit facilities of $264 million with interest at LIBOR plus 2.75%
maturing through 2001. At maturity, each loan converts to 10 a year
term loan........................................................ 212,789 323,744
Mortgage notes with an interest rate of 9% payable through 2001.. 62,000 72,000
Mortgage notes with fixed rates ranging from 7.9% to 10.7%
payable through 2010........................................... 147,974 164,109
Senior Subordinated notes payable with interest at 12.25%
due in 2009.................................................... 200,000 --
Other............................................................ 30,516 27,925
---------- ----------
892,079 852,778
Less current portion of long-term obligations.................... (10,404) 36,134
---------- ----------
$ 881,675 $ 816,644
========== ==========
Substantially, all of the Company's property and equipment are pledged as
collateral for long-term obligations of which approximately $ 525,693,000 has
been guaranteed by Lodgian, Inc. Certain of the mortgage notes are subject to a
prepayment penalty if repaid prior to their maturity.
On July 23, 1999 the Company sold $200 million of 12.25% Senior Subordinated
Notes due in 2009 (the "Notes"). In addition, the Company entered into a new,
multi-tranche Senior, Secured loan credit facility. The facility consists of
development loans with a maximum capacity of $75 million (the tranche A and C
loans), a $240 million tranche B term loan and a $50 million revolving credit
facility. The tranche A and C loans will be used for hotel development projects.
The tranche B loan, along with the proceeds from the Notes, were used to repay a
substantial portion of the financing entered into to consummate the Merger and,
in September, a $132.5 million loan. This financing contains various covenants
and coverage ratios, with which the Company was in compliance at December 31,
1999.
In June 1998, the Company issued $175 million of Convertible Redeemable
Equity Structures Trust Securities ("CRESTS"). The CRESTS bear interest at 7%
and are convertible into shares of the Company's common stock at an initial
conversion price of $21.42 per share. The sale of the CRESTS generated $168.5
million in net proceeds, substantially, all of which were used to repay existing
debt prior to maturity. As a result, the Company recorded an extraordinary loss
on early extinguishment of debt of approximately $1,142,000 (net of income tax
benefit of $761,000) relating to the write off of unamortized financing costs.
The CRESTS are included in the accompany consolidated balance sheet as Minority
Interests-Preferred Redeemable Securities. The interest expense incurred on the
CRESTS have been included as Minority Interests -- Preferred Redeemable
Securities in the Consolidated Statement of Operations.
The Company has entered into an interest rate protection agreement on $54
million related to one of the above credit facilities. Pursuant to the terms of
this agreement, when the loan matures in 2001 and converts to a term loan, the
interest rate will be based on a benchmark treasury rate of 7.235%. In the event
the company determines that it is in its best interest to "break" that interest
rate lock, it may be required to pay a significant fee to the lender.
Maturities of long-term obligations for each of the five years after
December 31, 1999 and thereafter, are as follows:
(IN THOUSANDS)
2000........ $ 10,404
2001........ 80,095
2002........ 18,553
2003........ 57,086
2004........ 43,730
Thereafter.. 682,211
--------
$892,079
========
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. SETTLEMENT ON SWAP TRANSACTIONS
During August 1998, the Company entered into treasury rate lock transactions
with notional amounts of $175 million and $200 million (collectively, the
"Swaps") with a lender for the purpose of hedging their interest rate exposure
on two anticipated financing transactions. During September 1998, the Company
determined that it was not probable that it would consummate the anticipated
transactions and recognized a loss in the consolidated statement of operations
of $31.5 million related to the settlement of the Swaps.
7. STOCKHOLDERS' EQUITY
During 1998, in accordance with previously announced share buyback programs,
the Company repurchased in open market transactions and retired 2,660,900 shares
of its common stock.
8. INCOME TAXES
Provision for income taxes for the Company is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------- ------------------------------------ ------------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
----------- ------------ --------- ----------- ------------ ---------- ----------- ----------- ----------
(IN THOUSANDS)
Federal.......... $-- $(16,007) $ (16,007) $(1,140) $ (481) $(1,621) $ 3,289 $3,186 $6,475
State and local.. -- (3,692) (3,692) 423 (53) (476) 1,693 211 1,904
--- -------- --------- ------- ------- ------- ------- ------ ------
$-- $(19,699) $ (19,699) $(1,563) $(1,534) $(2,097) $ 4,982 $3,397 $8,379
=== ======== ========= ======= ======= ======= ======= ====== ======
The components of the cumulative effect of temporary differences in the
deferred income tax liability and asset balances at December 31, 1999 and 1998,
are as follows:
1999 1998
--------------------------------------- -------------------------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
TOTAL ASSET LIABILITY TOTAL ASSET LIABILITY
--------- ----------- --------------- ------------ ------------ ---------------
(IN THOUSANDS)
Property and equipment........ $ 69,005 $ -- $ 69,005 $ 78,523 $ -- $ 78,523
Net operating loss
carryforward................ (33,669) (33,669) (16,015) (605) (15,410)
Other......................... (4,878) (3,019) (1,859) (1,864) (2,220) 356
--------- ------- -------- -------- -------- --------
$ 30,458 $(3,019) $ 33,477 $ 60,644 $ (2,825) $ 63,469
========= ======= ======== ======== ======== ========
The difference between income taxes using the effective income tax rate and
the federal income tax statutory rate of 34% is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -------------
(IN THOUSANDS)
Federal income tax (benefit) at statutory federal rate.......... $(24,399) $ (1,782) $7,123
State income taxes (benefits), net.............................. (2,368) (315) 1,256
Non-deductible items............................................ 7,068 -- --
-------- -------- ------
$(19,699) $ (2,097) $8,379
======== ======== ======
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 1999, the Company had net operating loss carry forwards
of approximately $86,700,000 for federal income tax purposes which expire in
years 2005 through 2019. The full amount of the income tax benefit of this net
operating loss carryforward has been reflected in the Consolidated Financial
Statements of the Company.
9. RELATED PARTY TRANSACTIONS
The Company's President was a shareholder of Impac Hotel Development
("IHD"), which provided acquisition and property development services to Impac
for a development fee of four percent of the total project cost of each property
acquired or developed. Impac agreed to terminate this agreement prior to the
consummation of the Merger so that Impac and its subsidiaries will have no
further obligations under the agreement after the Merger other than the payment
of up to a four percent development fee (not to exceed $2.5 million in the
aggregate) in the event Lodgian acquires or develops any of the hotels or
properties identified in the Merger Agreement as Impac's acquisition pipeline.
During 1999 the Company paid $1.0 million in connection with this arrangement.
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
1999 1998 1997
------------ ------------ ------------
Numerator:
(Loss) income before extraordinary item.............. $(52,063,000) $ (3,145,000) $ 12,570,000
Extraordinary item................................... (7,750,000) (2,076,000) (3,751,000)
------------ ------------ ------------
Net loss income.............................. $(59,813,000) $ (5,221,000 $ 8,819,000
============ ============ ============
Denominator:
Denominator for basic earnings per share --
weighted-average shares........................... 27,222,000 20,245,000 15,183,000
Effect of dilutive securities:
Employee stock options............................ -- -- 457,000
------------ ------------ ------------
Denominator for dilutive earnings
per share -- adjusted
weighted-average shares.................... 27,222,000 20,245,000 15,640,000
============ ============ ============
Basic earnings per share:
(Loss) income before extraordinary item.............. $ (1.91) $ (.16) $ .83
Extraordinary item................................... (.28) (.10) (.25)
------------ ------------ ------------
Net loss income.............................. $ (2.19) $ (.26) $ .58
============ ============ ============
Diluted earnings per share:
Income before extraordinary item..................... $ (1.91) $ (.16) $ .80
Extraordinary item................................... (.28) (.10) (.24)
------------ ------------ ------------
Net income................................... $ (2.19) $ (.26) $ .56
============ ============ ============
The computation of diluted EPS for 1999 and 1998 did not include shares
associated with the assumed conversion of the CRESTS (8,169,935 shares) or stock
options because their inclusion would have been antidilutive.
11. COMMITMENTS AND CONTINGENCIES
Sixteen of the Company's hotels are subject to long-term ground leases
expiring from 2014 through 2075 which provide for minimum payments as well as
incentive rent payments. In addition, most of the Company's hotels have
noncancellable operating leases, mainly for operating equipment. For the years
ended December 31, 1999, 1998 and 1997, lease expense for the noncancellable
ground leases was approximately $3,400,000, $2,400,000 and $1,624,000,
respectively.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 1999, the future minimum commitments for noncancellable
ground leases are as follows:
(IN THOUSANDS)
--------------
2000................................................ $ 3,794
2001................................................ 3,801
2002................................................ 3,808
2003................................................ 3,270
2004................................................ 2,787
Thereafter.......................................... 92,300
--------
$109,760
========
The Company has entered into license agreements with various hotel chains
which require annual payments for license fees, reservation services and
advertising fees. The license agreements generally have an original ten year
term. The majority of the Company's license agreements have five to ten years
remaining on the term. The licensors may require the Company to upgrade its
facilities at any time to comply with the licensor's then current standards.
Upon the expiration of the term of a license, the Company may apply for a
license renewal. In connection with the renewal of a license, the licensor may
require payment of a renewal fee, increased license, reservation and advertising
fees, as well as substantial renovation of the facility. Payments made in
connection with these agreements totaled approximately $31,927,000, $19,268,000
and $14,498,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
The license agreements are subject to cancellation in the event of a
default, including the failure to operate the hotel in accordance with the
quality standards and specifications of the licensors. The Company believes that
the loss of a license for any individual hotel would not have a material adverse
effect on the Company's financial condition and results of operations. The
Company believes it will be able to renew its current licenses or obtain
replacements of a comparable quality.
Twenty-five hotels which the Company owns are operated under license
agreements that require the Company to make certain capital improvements in
accordance with a specified time schedule. The Company estimates its remaining
obligations under these commitments to be approximately $42 million of which
approximately $40 million is expected to be spent in 2000 and the balance during
2001. Also, in connection with the financing of the Company's hotels and the
acquisition of other hotels, the Company agreed to make certain capital
improvements and had approximately $10 million escrowed for such improvements at
December 31, 1999. The Company has maintenance agreements, primarily on a one to
three year basis, which resulted in expenses of approximately $5,016,000,
$3,557,000, and $2,497,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
In July 1999, a contractor hired by Servico to perform work on hotels in New
York, Illinois and Texas filed a complaint against the Company in the Supreme
Court of the State of New York, claiming breach of contract and quantum meruit,
among other claims. The contractor seeks damages totaling $80 million, including
$60 million for punitive damages. The Company answered the complaint asserting
counterclaims aggregating $20 million and successfully filed a motion to dismiss
the claims related to two properties located in Illinois and Texas. In October
1999, a subcontractor filed a lawsuit in Texas against the above contractor and
the Company. The Company has filed an answer and cross-claim against the
contractor in the amount of $2.8 million. In February 2000, the contractor filed
a lawsuit in Texas claiming over $3 million in actual damages and an undisclosed
amount of punitive damages. The Company will answer the complaint and will
assert a counterclaim. The Company has also filed a lawsuit against the
contractor in Federal District Court in Illinois, seeking $2 million. The
contractor has filed an answer and counterclaim aggregating $2.8 million in
actual damages and $10 million in punitive damages. The Company believes that it
has valid defenses and counterclaims in these matters and that the outcome will
not have a material adverse effect on its financial position or results of
operations.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In 1997 and 1998, Servico hired a contractor to provide exterior renovation
services at fourteen hotels. In May and June 1999, the contractor filed
complaints against the Company in three jurisdictions alleging non-payment of
$0.8 million. Subsequent claims asserted by the parties have increased the
contractor's claims to $1.3 million and the Company's claims to $4.7 million.
The courts in all three jurisdictions have ordered the parties to submit all
claims for mediation and arbitration with mediation scheduled for April. If
necessary, post-mediation arbitration would likely occur near the end of the
year. The Company believes that it has valid defenses and counterclaims in this
matter and that the outcome will not have a material adverse effect on its
financial position or results of operations.
The Company is a party to legal proceedings arising in the ordinary course
of its business, the impact of which would not, either individually or in the
aggregate, in management's opinion, based upon the facts known by management and
the advice of counsel, have a material adverse effect on the Company's financial
condition or results of operations.
12. EMPLOYEE BENEFITS PLANS AND STOCK OPTION PLAN
The Company makes contributions to several multi-employer pension plans for
employees of various subsidiaries covered by collective bargaining agreements.
These plans are not administered by the Company and contributions are determined
in accordance with provisions of negotiated labor contracts. Certain withdrawal
penalties may exist, the amount of which are not determinable at this time. The
cost of such contributions during the years ended December 31, 1999, 1998 and
1997, was approximately $580,000, $500,000 and $412,000, respectively.
The Company adopted the 401(k) for the benefit of its non-union employees
under which participating employees may elect to contribute up to 10% of their
compensation. The Company may match an employee's elective contributions to the
401(k), subject to certain conditions, with shares of the Company's common stock
equal to up to 100% of the amount of such employee's elective contributions.
These employer contributions vest at a rate of 20% per year beginning in the
third year of employment. The cost of these contributions during the years ended
December 31, 1999, 1998 and 1997, was $549,000, $430,000 and $282,000,
respectively. The 401(k) does not require a contribution by the Company.
The Company has also adopted the Lodgian, Inc. Stock Option Plan, as
amended, (the "Option Plan"). In accordance with the Option Plan, options to
acquire up to 3,250,000 shares of common stock may be granted to employees,
directors, independent contractors and agents as determined by a committee
appointed by the Board of Directors. Options may be granted at an exercise price
not less than fair market value on the date of grant. These options will
generally vest over five years.
In addition, in June 1999 each non-employee director was awarded an option
to acquire 5,000 shares of common stock at an exercise price equal to the fair
market price on date of grant. Such options became exercisable upon date of
grant and were granted outside of the Lodgian Stock Option plan.
On December 18, 1998, the Company re-priced its options. See discussion of
impact of pending accounting pronouncement related to stock option repricings in
Note 1.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table indicates all options granted and their status:
OPTION PRICE
------------------------------------
NUMBER OF RANGE PER
SHARES SHARE
-------------- ----------------
Balance December 31, 1996................................. 817,000 $4.00 - $16.13
Granted................................................. 977,700 15.50 - 16.81
Exercised............................................... (86,600) 4.00 - 10.75
Forfeited............................................... (19,400) 8.63 - 10.75
--------- ----------------
Balance December 31, 1997................................. 1,688,700 4.00 - 16.81
========= ================
Granted................................................. 755,000 6.13
Exercised............................................... (134,900) 4.00 - 16.75
Forfeited............................................... (27,900) 8.63 - 16.75
--------- ----------------
Balance December 31, 1998................................. 2,280,900 4.00 - 6.13
========= ================
Granted................................................. 690,000 4.00 - 7.13
--------- ----------------
Exercised............................................... (30,000) 4.00
-------- ----------------
Forfeited............................................... (425,900) 6.13 - 6.50
--------- ----------------
Balance December 31, 1999................................. 2,515,000 $4.00 - $ 7.13
========= ================
At December 31, 1999, there were 1,118,420 options exercisable. The income
tax benefit, if any, associated with the exercise of stock options is credited
to additional paid-in capital. Also at December 31, 1999, there were 125,000
Stock Appreciation Rights exercisable at $6.13 per right.
13. SIGNIFICANT FOURTH QUARTER EVENTS AND OTHER NONRECURRING ITEMS
Asset Impairment. In connection with the adoption of a strategy to reduce
the level of long-term debt, the Company identified certain hotel assets which
are currently being held for sale. In accordance with the requirements of SFAS
121 the Company has recorded a non-cash charge of $40.3 million to reduce the
carrying value of these assets to estimated fair value. For this purpose fair
value has been determined to be the amount a willing buyer would pay a willing
seller for the individual assets in a current transaction that is other than a
forced or liquidation sale.
Goodwill. The Company initially recorded approximately $11 million of
goodwill in connection with the Merger. Under generally accepted accounting
principals, the Company had a one-year period subsequent to the Merger to review
and, if appropriate, revise its initial allocation of purchase price among the
assets acquired. In addition, since the Company did not have goodwill prior to
the Merger, it was required to adopt an accounting policy for this asset. The
Company selected the market value method of accounting for goodwill and recorded
a non-cash charge of $20.7 million to write-off the adjusted balance of
goodwill.
Accounting, Systems and Merger Integration. During the fourth quarter the
Company incurred substantial incremental fees and expenses primarily related to
the final phase of integration of accounting systems from legacy systems used by
Servico and Impac to the financial systems used by Lodgian. The total amount
either incurred or accrued at December 31, 1999, including severance and a
significant provision for increased audit fees, approximated $6.1 million. This
amount also includes expenses associated with ensuring compliance in the "Y2K"
matter.
Legal Fees. At December 31, 1999 the Company determined that legal fees
incurred in connection with the predevelopment of certain hotel projects should
be written off as the underlying projects would likely not be developed. Also,
in anticipation of legal fees to be incurred defending itself in several of the
legal matters described in Note 11, the Company recorded an accrual for such
costs. The aggregate legal fees either incurred or accrued for these matters
aggregated approximately $2.7 million.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Audit Matters. During the fourth quarter an unclaimed property audit was
initiated by the State of Florida. Additionally, several audits of the Company's
compliance with ERISA requirements are in various stages of completion. The
provision recorded in the fourth quarter for these and other audit matters was
approximately $1.3 million.
14. SHAREHOLDER RIGHTS PLAN
On March 30, 1999, the board of directors adopted a Shareholder Rights Plan
and declared one Right on each outstanding share of the Company's common stock.
The dividend was paid on April 19, 1999 to stockholders of record on April 14,
1999. Initially the Rights will trade with the common stock of the Company and
will not be exercisable. The Right will separate from the common stock and
become exercisable upon the occurrence of events typical of shareholder rights
plans. In general, such separation will occur when any person or group of
affiliated persons acquires or makes an offer to acquire 15% or more of the
Company's common stock. Thereafter, separate Right Certificates will be
distributed and each Right will entitle its holder to purchase one-hundredth of
a share of the Company's Participating Preferred Stock for an exercise price of
$25. Each one-hundredth of a share of Preferred Stock has economic and voting
terms equivalent to those of one share of the Company's common stock.
15. SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the Company's sale of the Notes, certain of the Company's
subsidiaries (the "Subsidiary Guarantors") have guaranteed the Company's
obligations to pay principal and interest with respect to the Notes. Each
Subsidiary Guarantor is wholly-owned and management has determined that separate
financial statements for the Subsidiary Guarantors are not material to
investors. The subsidiaries of the Company that are not Subsidiary Guarantors
are referred to in this note as the "Non-Guarantor Subsidiaries."
The following supplemental consolidating condensed financial statements
present balance sheets as of December 31, 1999 and 1998 and statements of
operations and of cash flows for the years ended December 31, 1999, 1998 and
1997. In the consolidating condensed financial statements, Lodgian, Inc. (the
"Parent") accounts for its investments in wholly-owned subsidiaries using the
equity method.
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ --------------- ------------------- ---------------- ------------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents...... $ 490 $ 11,387 $ 4,620 $ -- $ 16,497
Restricted cash................ -- -- 4,787 -- 4,787
Accounts receivable, net of
allowances.................. -- 7,991 19,108 -- 27,099
Other current assets........... 2,342 5,378 10,173 -- 17,893
---------- ----------- ---------- -------- ----------
Total current assets... 2,832 24,756 38,688 -- 66,276
Property and equipment, net...... -- 598,166 716,845 -- 1,315,011
Deposits for capital expenditures -- 551 9,711 -- 10,262
Investment in consolidated
entities...................... (11,939) -- -- 11,939 --
Due from (to) affiliates......... 270,602 (221,277) (49,325) -- --
Other assets, net................ 354 18,678 15,950 -- 34,982
---------- ----------- ---------- -------- ----------
$ 261,849 $ 420,874 $ 731,869 $ 11,939 $1,426,531
========== =========== ========== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable, trade........ $ -- $ 12,582 $ 28,126 $ -- $ 40,708
Accrued liabilities............ -- 10,487 44,954 -- 55,441
Current portion long-term
obligations................. -- 2,400 8,004 -- 10,404
---------- ----------- ---------- -------- ----------
Total current
liabilities......... 25,469 81,084 106,553
Long-term obligations, less
current portion................ 2,038 436,651 442,986 -- 881,675
Deferred income taxes............ 33,477 -- -- -- 33,477
Minority interests:..............
Preferred redeemable securities -- -- 175,000 -- 175,000
Other.......................... -- -- 4,404 -- 4,404
Stockholder's equity:
Common stock................... 281 33 448 (481) 281
Additional paid-in capital..... 262,760 11,933 12,354 (24,287) 262,760
Retained earnings (accumulated
deficit).................... (36,707) (52,300) 15,593 36,707 (36,707)
Accumulated other comprehensive
loss........................ -- (912) -- -- (912)
---------- ----------- ---------- -------- ----------
Total stockholders'
equity............... 226,334 (41,246) 28,395 11,939 225,422
---------- ----------- ---------- -------- ----------
Total liabilities and
stockholders' equity. $ 261,849 $ 420,874 $ 731,869 $ 11,939 $1,426,531
========== =========== ========== ======== ==========
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------------- --------------- ---------------- ------------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,648 $ 6,091 $ 11,446 $ -- $ 19,185
Restricted cash.................. -- -- 6,302 -- 6,302
Accounts receivable, net......... -- 10,508 14,990 -- 25,498
Other current assets............. 3,023 5,322 19,611 -- 27,956
---------- ---------- ---------- -------- ----------
Total current assets..... 4,671 21,921 52,349 -- 78,941
Property and equipment, net........ -- 527,946 789,524 -- 1,317,470
Deposit for capital expenditures... -- 9,881 20,505 -- 30,386
Investment in consolidated entities 74,056 -- -- (74,056) --
Due from (to) affiliates........... 265,839 (170,489) (95,350) -- --
Other assets, net.................. 12,117 29,957 29,050 -- 71,124
---------- ---------- ---------- -------- ----------
$ 356,683 $ 419,216 $ 796,078 $(74,056) $1,497,921
========== ========== ========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade.......... $ 132 $ 13,611 $ 43,510 $ -- $ 57,253
Accrued liabilities.............. -- 17,645 32,988 -- 50,633
Current portion long-term
obligations................... -- 770 35,364 -- 36,134
---------- ---------- ---------- -------- ----------
Total current liabilities 132 32,026 111,862 -- 144,020
Long-term obligations, less current
portion.......................... 7,722 401,691 407,231 -- 816,644
Deferred income taxes.............. 63,469 -- -- -- 63,469
Minority interests:
Preferred redeemable securities.. -- -- 175,000 -- 175,000
Other............................ -- -- 15,021 -- 15,021
Stockholder's equity:
Common stock..................... 278 33 493 (526) 278
Additional paid-in capital....... 261,976 19,981 (9,576) (10,405) 261,976
Retained earnings (accumulated
deficit)...................... 23,106 (32,922) 96,047 (63,125) 23,106
Accumulated other comprehensive
loss.......................... -- (1,593) -- -- (1,593)
---------- ---------- ---------- -------- ----------
Total stockholders'
equity................. 285,360 (14,501) 86,964 (74,056) 283,767
---------- ---------- ---------- -------- ----------
Total liabilities and
stockholders' equity... $ 356,683 $ 419,216 $ 796,078 $(74,056) $1,497,921
========== ========== ========== ======== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------------- ------------------- ---------------- -------------------
(IN THOUSANDS)
Revenues:
Rooms.............................. $ -- $ 191,760 $232,765 $ -- $ 424,525
Food and beverage.................. -- 59,168 80,306 -- 139,474
Other.............................. -- 12,156 16,260 -- 28,416
--------- --------- -------- -------- ---------
Total revenues.............. -- 263,084 329,331 -- 592,415
--------- --------- -------- -------- ---------
Operating expenses:
Direct:
Rooms............................ -- 54,780 66,732 -- 121,512
Food and beverage................ -- 42,704 59,326 -- 102,030
Other hotel operating expenses... -- 8,108 9,249 -- 17,357
General and administrative....... -- 24,691 2,315 -- 27,006
Depreciation and amortization.... -- 28,342 28,017 -- 56,359
Other............................ -- 62,137 116,112 -- 178,249
--------- --------- -------- -------- ---------
Total operating expenses.... -- 220,762 281,751 -- 502,513
--------- --------- -------- -------- ---------
Income from operations............... -- 42,322 47,580 -- 89,902
Other (income) expenses:
Other expenses..................... -- 30,667 37,633 -- 68,300
Interest expense................... -- 31,918 46,922 -- 78,840
Equity in (loss) of consolidated
subsidiaries..................... (71,762) -- -- 71,762 --
Minority interests:
Preferred redeemable securities.... -- -- 13,224 -- 13,224
Other.............................. -- -- 1,300 -- 1,300
--------- --------- -------- -------- ---------
(Loss) income before income taxes and
extraordinary item................. (71,762) (20,263) (51,499) 71,762 (71,762)
(Benefit) provision for income taxes (28,704) (8,105) (11,594) 28,704 (19,699)
--------- --------- -------- -------- ---------
(Loss) income before extraordinary (43,058) (12,158) (39,905) 43,058 (52,063)
item...............................
Extraordinary item net of tax........ -- 6,034 1,716 -- 7,750
--------- --------- -------- -------- ---------
Net (loss) income........... $ (43,058) $ (18,192) $(41,621) $ 43,058 $ (59,813)
========= ========= ======== ======== =========
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
--------- --------------- ------------------- ---------------
(IN THOUSANDS)
Net cash flows operating activities........ $ (46,714) $ 25,539 $ 83,846 $ 62,671
Investing activities:
Acquisitions of property and equipment... -- -- (1,929) (1,929)
Capital improvements, net................ -- 98,562 (16,085) (114,647)
Net deposits for capital expenditures.... -- 9,330 10,794 20,124
Purchase of minority interests........... -- -- (10,200) (10,200)
Net proceeds from sale of assets........... -- -- 22,068 22,068
--------- --------- --------- ---------
Net cash flows from investing activities... -- (89,232) 4,648 (84,584)
--------- --------- --------- ---------
Financing activities:
Proceeds from issuance of long-term
obligations........................... -- 455,000 32,521 487,521
Principal payments of long-term
obligations........................... (5,684) (418,411) (24,125) (448,220)
Proceeds from issuance of common stock... 120 -- 0 120
Proceeds from related parties, net....... 51,120 (50,789) (101,909) --
Distributions to minority interest....... -- -- (1,717) (1,717)
Payment of deferred loan costs........... -- (18,389) (90) (18,479)
--------- --------- --------- ---------
Net cash flows from financing activities... 45,556 (68,989) (95,320) 19,225
--------- --------- --------- ---------
Change in cash and cash equivalents........ (1,158) 5,296 (6,826) (2,688)
Cash and cash equivalents at beginning of
period................................... 1,648 6,091 11,446 19,185
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 490 $ 11,387 $ 4,620 $ 16,497
========= ========= ========= =========
-- ALL 1999 RESULTS UNAUDITED --
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------------- ------------------- ---------------- ------------------
(IN THOUSANDS)
Revenues:
Rooms............................. $ -- $ 118,041 $149,821 $ -- $ 267,862
Food and beverage................. -- 42,849 64,485 -- 107,334
Other............................. -- 9,633 10,385 -- 20,018
------- --------- -------- ------- ---------
Total revenues............ -- 170,523 224,691 -- 395,214
------- --------- -------- ------- ---------
Operating expenses:
Direct:
Rooms.......................... -- 34,001 41,315 -- 75,316
Food and beverage.............. -- 32,891 48,752 -- 81,643
General and administrative........ 527 -- 9,553 -- 10,080
Other............................. 435 63,174 66,341 -- 129,950
Depreciation and amortization..... -- 12,550 18,564 -- 31,114
------- --------- -------- ------- ---------
Total operating expenses.. 962 142,616 184,525 -- 328,103
------- --------- -------- ------- ---------
(Loss) income from operations....... (962) 27,907 40,166 -- 67,111
Other income (expenses):
Other income...................... 2,864 -- (2,036) -- 828
Other expenses.................... -- (29,033) (5,859) -- (34,892)
Interest expense.................. (1,557) (16,079) (12,742) -- (30,378)
Equity in (loss) of consolidated
subsidiaries................... (5,587) -- -- 5,587 --
Minority interests:
Preferred redeemable securities... -- -- (6,475) -- (6,475)
Other............................. -- -- (1,436) -- (1,436)
------- --------- -------- ------- ---------
(Loss) income before income taxes
and extraordinary item............ (5,242) (17,205) 11,618 5,587 (5,242)
(Benefit) provision for income taxes (2,097) (6,882) 4,647 2,235 (2,097)
------- --------- -------- ------- ---------
(Loss) income before extraordinary
items............................. (3,145) (10,323) 6,971 3,352 (3,145)
Extraordinary items, net of taxes... -- -- (2,076) -- (2,076)
------- --------- -------- ------- ---------
Net (loss) income......... $(3,145) $ (10,323) $ 4,895 $ 3,352 $ (5,221)
======= ========= ======== ======= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
--------- --------------- ------------------- ------------------
(IN THOUSANDS)
Net cash flows from operating activities... $ 32,601 $ 9,529 $ (12,829) $ 29,301
Investing activities:
Acquisitions of property and equipment... -- (56,589) (11,128) (67,717)
Capital improvements, net................ -- (47,434) (71,233) (118,667)
Other.................................... -- 25,467 (21,607) 3,860
--------- --------- --------- ---------
Net cash flows from investing activities... -- (78,556) (103,968) (182,524)
Financing activities:
Proceeds from issuance of long-term
obligations........................... 6,657 251,662 341,965 600,284
Principal payments of long-term
obligations........................... -- (162,937) (227,089) (390,026)
Other.................................... (51,818) (15,418) 14,143 (53,093)
--------- --------- --------- ---------
Net cash flows from financing
activities..................... (45,161) 73,307 129,019 157,165
--------- --------- --------- ---------
Change in cash and cash equivalents........ (12,560) 4,280 6,091 3,942
Cash and cash equivalents at beginning of
year..................................... 14,208 1,811 (776) 15,243
--------- --------- --------- ---------
Cash and cash equivalents at end
of year........................ $ 1,648 $ 6,091 $ 11,446 $ 19,185
========= ========= ========= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------------- ------------------- ---------------- ---------------
(IN THOUSANDS)
Revenues:
Rooms............................. $ -- $ 62,618 $117,338 $ -- $ 179,956
Food and beverage................. -- 24,629 55,706 -- 80,335
Other............................. -- 5,135 11,231 -- 16,366
------- -------- -------- -------- ---------
Total revenues............ -- 92,382 184,275 -- 276,657
------- -------- -------- -------- ---------
Operating expenses:
Direct:
Rooms.......................... -- 17,338 32,270 -- 49,608
Food and beverage.............. -- 18,911 42,008 -- 60,919
General and administrative........ 424 -- 8,549 -- 8,973
Other............................. 283 31,694 56,059 -- 88,036
Depreciation and amortization..... -- 8,022 15,001 -- 23,023
------- -------- -------- -------- ---------
Total operating expenses.. 707 75,965 153,887 -- 230,559
------- -------- -------- -------- ---------
(Loss) income from operations....... (707) 16,417 30,388 -- 46,098
Other income (expenses):
Other income...................... 1,928 (6,850) 6,642 -- 1,720
Interest expense.................. (8) (9,972) (15,929) -- (25,909)
Equity in earnings of consolidated
subsidiaries................... 19,736 -- -- (19,736) --
Minority interests.................. -- -- (960) -- (960)
------- -------- -------- -------- ---------
Income (loss) before income taxes
and extraordinary item............ 20,949 (405) 20,141 (19,736) 20,949
Provision (benefit) for income taxes 8,380 (162) 8,056 (7,895) 8,379
------- -------- -------- ------- ---------
Income (loss) before extraordinary
item.............................. 12,569 (243) 12,085 (11,841) 12,570
Extraordinary item, net of taxes.... -- -- (3,751) -- (3,751)
------- -------- -------- -------- ---------
Net income (loss)......... $12,569 $ (243) $ 8,334 $(11,841) $ 8,819
======= ======== ======== ======== =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
LODGIAN, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
SUBSIDIARY NON-GUARANTOR TOTAL
PARENT GUARANTORS SUBSIDIARIES CONSOLIDATED
---------- --------------- ------------------- ---------------
(IN THOUSANDS)
Net cash flows from operating activities.. $ (152,267) $ 118,520 $ 75,768 $ 42,021
Investing activities:
Acquisitions of property and equipment.. -- (118,700) (24,706) (143,406)
Capital improvements, net............... -- (11,007) (37,245) (48,252)
Other................................... -- (23,420) (5,588) (29,008)
---------- --------- --------- ---------
Net cash flows from investing
activities.................... -- (153,127) (67,539) (220,666)
Financing activities:
Proceeds from issuance of long-term
obligations.......................... -- 64,989 126,571 191,560
Principal payments of long-term
obligations.......................... (6,387) (26,644) (134,616) (167,647)
Proceeds from issuance of common stock.. 156,638 -- -- 156,638
Other................................... (31) (2,749) (3,356) (6,136)
---------- --------- --------- ---------
Net cash flows from financing
activities.................... 150,220 35,596 (11,401) 174,415
---------- --------- --------- ---------
Change in cash and cash equivalents....... (2,047) 989 (3,172) (4,230)
Cash and cash equivalents at beginning of
year.................................... 16,255 822 2,396 19,473
---------- --------- --------- ---------
Cash and cash equivalents at
end of year................... $ 14,208 $ 1,811 $ (776) $ 15,243
========== ========= ========= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
16. SUPPLEMENTARY INFORMATION -- UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table summarizes the unaudited quarterly financial data (in
thousands, except share data):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
Year Ended December 31, 1999
Revenues........................................... $ 135,804 $ 159,863 $ 156,020 $ 140,728
Income (loss) from operations...................... 18,613 37,165 32,479 1,645
Income (loss) before extraordinary item............ (2,442) 9,241 6,252 (65,114)
Loss on early extinguishment of debt, net of income
taxes of $4,910.................................. (6,336) (1,414)
Net income (loss).................................. (2,442) 9,241 (84) (66,528)
Earnings (loss) per share:
Income (loss) before extraordinary item.......... (0.09) 0.34 0.23 (2.34)
Extraordinary item............................... -- -- (0.23) (.05)
Net income (loss)................................ (0.09) 0.34 -- (2.39)
Earnings (loss) per share -- assuming dilution (a):
Income (loss) before extraordinary item.......... (0.09) 0.32 0.23 (2.34)
Extraordinary item............................... -- -- (0.23) (.05)
--------- --------- --------- ---------
Net income (loss)........................ (0.09) 0.32 -- (2.39)
--------- --------- --------- ---------
Year Ended December 31, 1998
Revenues........................................... $ 82,881 $ 102,388 $ 101,360 $ 108,585
Income from operations............................. 12,481 21,716 17,374 15,540
Income before extraordinary item................... 2,996 7,323 (13,715) 251
Loss on early extinguishment of debt, net of income
taxes of $2,500.................................. -- (1,095) (47) (934)
Net income (loss).................................. 2,996 6,228 (13,762) (683)
Earnings (loss) per share:
Income (loss) before extraordinary item.......... .14 .35 (.71) .01
Extraordinary item............................... -- (.05) -- (.05)
Net income (loss)................................ .14 .30 (.71) (.03)
Earnings (loss) per share -- assuming dilution (a):
Income (loss) before extraordinary item.......... .14 .34 (.71) .01
Extraordinary item............................... -- (.05) -- (.05)
--------- --------- --------- ---------
Net income (loss)........................ $ .14 $ .29 $ (.71) $ (.03)
========= ========= ========= =========
-- ALL 1999 RESULTS UNAUDITED --