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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23941
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U.S. FRANCHISE SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 58-2361501
(State or other jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
13 Corporate Square, Suite 250 30329
Atlanta, Georgia (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (404) 321-4045
-----------
Indicate by check mark whether the registrant: (1) has filed all
reports required 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 /x/ No / /
There were 17,167,194 shares of the registrant's Class A Common Stock
and 2,707,919 shares of the registrant's Class B Common Stock outstanding as of
May 5, 1999.
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U.S. FRANCHISE SYSTEMS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position at December 31, 1998 and March 31, 1999 (Unaudited)............ 3
Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 (Unaudited)......... 4
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 (Unaudited)......... 5
Notes to Consolidated Financial Statements (Unaudited)....................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................................12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................................12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................................12
ITEM 5. OTHER INFORMATION............................................................................................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................12
SIGNATURES...................................................................................................13
EXHIBIT INDEX................................................................................................14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
MARCH 31, DECEMBER 31,
--------- ------------
1999 1998
---- ----
ASSETS
CURRENT ASSETS
Cash and temporary cash investments.................................................... $ 11,868,000 $ 15,966,000
Accounts receivable ................................................................... 2,078,000 2,070,000
Deposits and prepaid expenses.......................................................... 398,000 315,000
Promissory notes receivable............................................................ 1,121,000 919,000
Deferred commissions................................................................... 2,101,000 1,615,000
------------ ------------
TOTAL CURRENT ASSETS........................................................... 17,566,000 20,885,000
PROMISSORY NOTES RECEIVABLE............................................................... 25,558,000 23,590,000
PROPERTY AND EQUIPMENT-Net................................................................ 3,331,000 3,396,000
FRANCHISE RIGHTS-Net...................................................................... 24,923,000 25,138,000
DEFERRED COMMISSIONS...................................................................... 6,842,000 6,682,000
OTHER ASSETS-Net.......................................................................... 6,476,000 4,485,000
------------ ------------
TOTAL ASSETS................................................................... $84,696,000 $ 84,176,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................................... $ 183,000 $ 498,000
Commissions payable.................................................................... 870,000 1,464,000
Deferred application fees.............................................................. 2,244,000 1,973,000
Accrued expenses....................................................................... 1,066,000 1,252,000
------------ ------------
TOTAL CURRENT LIABILITIES...................................................... 4,363,000 5,187,000
------------ ------------
------------ ------------
DEFERRED APPLICATION FEES................................................................. 9,998,000 9,280,000
------------ ------------
TOTAL LIABILITIES.............................................................. 14,361,000 14,467,000
------------ ------------
------------ ------------
REDEEMABLE STOCK:
Common shares 324,000 324,000
STOCKHOLDERS' EQUITY:
Common shares ......................................................................... 167,000 167,000
Capital in excess of par................................................................ 89,538,000 89,416,000
Accumulated deficit..................................................................... (19,694,000) (20,198,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY..................................................... 70,011,000 69,385,000
------------ ------------
------------ ------------
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 84,696,000 $ 84,176,000
------------ ------------
------------ ------------
See notes to consolidated financial statements.
3
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
REVENUES:
Royalty and fee income ............................................... $ 2,463,000 $ 627,000
Franchise application fees ........................................... 616,000 603,000
Other ................................................................ 616,000 66,000
------------ ------------
TOTAL REVENUES ............................................... 3,176,000 1,296,000
EXPENSES:
General and administrative ........................................... 2,422,000 2,405,000
Franchise sales commissions .......................................... 659,000 313,000
Depreciation and amortization ........................................ 341,000 210,000
Interest income ...................................................... (751,000) (229,000)
Interest expense ..................................................... -- 452,000
------------ ------------
2,671,000 3,151,000
------------ ------------
------------ ------------
NET INCOME (LOSS) .......................................... 505,000 (1,855,000)
------------ ------------
------------ ------------
Weighted average number of common shares outstanding ................... 19,875,113 13,094,249
------------ ------------
------------ ------------
Weighted average number of common shares outstanding, assuming dilution. 20,023,661 13,094,249
------------ ------------
------------ ------------
Earnings (Loss) Per Share-(Basic and Diluted) .......................... 0.03 (0.14)
------------ ------------
------------ ------------
See Notes to Consolidated Financial Statements.
4
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
OPERATING ACTIVITIES:
Net Income/(Loss) ......................................................... $ 505,000 $ (1,855,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 341,000 210,000
Deferred compensation amortization ..................................... 122,000 53,000
Changes in assets and liabilities
Decrease/(Increase) in accounts receivable, prepaid expenses & deposits (91,000) (1,125,000)
Decrease/(Increase) in promissory notes receivable ..................... (2,170,000) (667,000)
Decrease/(Increase) in deferred commissions ............................ (646,000) (716,000)
Decrease/(Increase) in other assets .................................... (1,974,000) (23,000)
(Decrease)/Increase in accounts payable ................................. (315,000) (482,000)
(Decrease)/Increase in accrued expenses ................................. (186,000) 1,145,000
(Decrease)/Increase in commissions payable .............................. (594,000) (407,000)
(Decrease)/Increase in deferred application fees ........................ 989,000 689,000
(Decrease)/Increase in subordinated debentures in kind .................. 243,000
Net cash used in operating activities ................................ (4,019,000) (2,935,000)
INVESTING ACTIVITIES:
Acquisition of property and equipment ..................................... (76,000) (1,545,000)
Acquisition of franchise rights ........................................... (3,000) (748,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................................ (79,000) (2,293,000)
FINANCING ACTIVITIES:
Issuance of common stock, net ............................................. 5,624,000
------------ ------------
------------ ------------
Net cash provided/(used) in financing activities ..................... 5,624,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS ......................... (4,098,000) 396,000
CASH AND TEMPORARY INVESTMENTS
BEGINNING OF PERIOD ....................................................... 15,966,000 15,890,000
------------ ------------
END OF PERIOD ............................................................. $ 11,868,000 $ 16,286,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION:
Noncash activities:
Issuance of 2,222,222 shares for acquisition of Hawthorn $17,777,000
Franchise rights
See notes to consolidated financial statements.
5
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. 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
consolidated financial statements and notes thereto, presented in the U.S.
Franchise Systems, Inc. ("USFS" or the "Company") Annual Report on Form 10-K for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission. The results of operations for the three months ended March 31, 1999
are not necessarily indicative of results that may be expected for the full
year.
2. RECLASSIFICATIONS
Certain amounts in the March 31, 1999 statement of operations have been
reclassified to conform to current year classifications. In addition, certain
reclassifications have been made in the balance sheet from December 31, 1998.
3. EARNINGS PER SHARE
Basic earnings per common share are computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share incorporates the incremental shares issuable upon the assumed
exercise of stock options. Certain of the Company's stock options were excluded
from the calculation of diluted earnings per share because they were
antidilutive, but these options could be dilutive in the future.
4. STOCK OPTION PLANS
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions.
1999 1998
---- ----
Expected life (years) 3.6 3.9
Expected volatility 36% 30%
Risk free interest rate 5.9% 6.0%
Dividend Yield 0.0% 0.0%
During the first quarter of 1999, the Company granted options to purchase
203,550 additional shares at a weighted average exercise price of $9.03. In
addition, 14,500 option shares reverted back to the Company during this same
period. The stock option compensation expense for the first quarter was $87,000.
6
5. SEGMENT REPORTING
The Company owns three brands and operates a management company
primarily in the United States. Revenues, net income (after allocation of
corporate overhead), identifiable assets, and capital expenditures are
estimated as follows:
MICROTEL HAWTHORN BEST MANAGEMENT OTHER/ CONSOLIDATED
COMPANY CORPORATE
Revenue
- -------------------- ------------ ------------ ------------ ------------ ------------ ------------
March 31, 1999 $ 879,000 $ 1,018,000 $ 576,000 $ 453,000 $ 250,000 $ 3,176,000
March 31, 1998 652,000 374,000 270,000 1,296,000
Net Income (loss)
- -------------------- ------------ ------------ ------------ ------------ ------------ ------------
March 31, 1999 (156,000) (10,000) (256,000) 57,000 870,000 505,000
March 31, 1998 (240,000) (9,000) (1,606,000) (1,855,000)
Identifiable Assets
- -------------------- ------------ ------------ ------------ ------------ ------------ ------------
March 31, 1999 15,663,000 27,904,000 23,873,000 1,248,000 16,008,000 84,696,000
March 31, 1998 14,520,000 26,656,000 262,000 150,000 17,551,000 59,139,000
Capital Expenditures
- -------------------- ------------ ------------ ------------ ------------ ------------ ------------
March 31, 1999 2,000 1,000 2,000 46,000 27,000 78,000
March 31, 1998 2,113,000 18,527,000 75,000 20,715,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the consolidated
financial statements included herein of the Company and its subsidiaries.
Certain statements under this caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of U.S.
Franchise Systems, Inc. and its subsidiaries ("USFS" or the "Company") to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: general economic and business conditions;
competition in the lodging and franchising industries; success of acquisitions
and operating initiatives; management of growth; dependence on senior
management; brand awareness; general risks of the lodging and franchising
industries; development risk; risk relating to the availability of financing for
franchisees; the existence or absence of adverse publicity; changes in business
strategy or development plan; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; labor and employee benefit costs; changes in, or failure to comply
with, government regulations; construction schedules; the costs and other
effects of legal and administrative proceedings
7
and other factors referenced in this Form 10-Q. The Company will not undertake
and specifically declines any obligation to publicly release the results of any
revisions which may be made to any forward-looking statement to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
The Company was formed to acquire, market and service well-positioned
brands with potential for rapid unit growth through franchising. The Company's
initial brands, which are in the lodging industry, were the Microtel and
Hawthorn Suites brands. The Company acquired the rights to these brands because
of their potential for significant growth, which reflects, among other things,
their potential profitability for franchisees at the property level and their
positions in attractive segments of the lodging industry. In addition, in April
1998 the Company acquired the exclusive worldwide franchise rights to the Best
Inns brand, an economy and upper economy brand positioned between the budget
Microtel and upscale Hawthorn Suites brands. With the acquisition of the Best
Inns brand, the Company also acquired management contracts and capabilities.
As a franchisor, the Company licenses the use of its brand names to
independent hotel owners and operators (i.e. franchisees). The Company provides
its franchisees with a variety of benefits and services designed to (i) decrease
development costs, (ii) shorten the time frame and reduce the complexity of the
construction process and (iii) increase the occupancy rates, revenues and
profitability of the franchised properties. The Company offers prospective
franchisees access to financing, a business format, design and construction
assistance (including architectural plans), uniform quality standards, training
programs, national reservations systems, national and local advertising,
promotional campaigns and volume purchasing discounts.
The Company expects that its future revenues will consist primarily of
(i) franchise royalty fees, (ii) franchise application fees, (iii) various
management fees, and (iv) payments made by vendors who supply the Company's
franchisees with various products and services. The Company recognizes franchise
application fees as revenue only upon the opening of the underlying hotels.
The Company's predecessor was incorporated in Delaware in August 1995.
The Company was incorporated in Delaware on November 26, 1997 and merged with
its predecessor on March 12, 1998 with the Company as the surviving corporation.
The Company's executive offices are located at 13 Corporate Square, Suite 250,
Atlanta, Georgia 30329 and its telephone number is (404) 321-4045.
8
Comparisons have been made between the three months ended March 31,
1999 and March 31, 1998 for the purposes of the following discussion:
RESULTS OF OPERATIONS
FRANCHISE SALES GROWTH- Since acquiring the Microtel brand in October
1995 and establishing its sales force by January 1996, the Company has realized
franchise sales growth as follows:
FRANCHISE SALES GROWTH
AS OF MARCH 31,
---------------
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MICROTEL FRANCHISE DATA 1999 1998
- ------------------------------------------------------------------------------------------ ------------------ ------------------
Properties open (1) 135 75
Executed agreements and under construction 65 59
Executed franchise agreements but not under construction 270 277
Accepted applications 51 60
Total in development and accepted applications (2) 386 396
- ------------------------------------------------------------------------------------------ ------------------ ------------------
OPEN PLUS IN DEVELOPMENT PLUS ACCEPTED APPLICATIONS 521 471
- ------------------------------------------------------------------------------------------ ------------------ ------------------
(1) The Company does not receive royalties from 29 hotels open as of March 31,
1999.
(2) There can be no assurance that properties in development or for which
applications have been accepted will result in open hotels.
Since acquiring the Hawthorn Suites brand in March 1996 and
establishing its sales force by July 1996, the Company has realized franchise
sales growth as follows:
AS OF MARCH 31,
- ------------------------------------------------------------------------------------------ ------------------- -------------------
HAWTHORN SUITES FRANCHISE DATA 1999 1998
- ------------------------------------------------------------------------------------------ ------------------- -------------------
Properties open(1) 54 29
Executed agreements and under construction 38 19
Executed franchise agreements but not under construction 111 65
Accepted applications 69 20
Total in development and accepted applications (2) 218 104
- ------------------------------------------------------------------------------------------ ------------------- -------------------
OPEN PLUS IN DEVELOPMENT PLUS ACCEPTED APPLICATIONS 272 133
- ------------------------------------------------------------------------------------------ ------------------- -------------------
(1) The Company does not receive royalties from 1 hotel open as of March 31,
1999.
(2) There can be no assurance that properties in development or for which
applications have been accepted will result in open hotels.
Since acquiring the Best Inns brand on April 28, 1998, the Company has
realized franchise sales growth as follows:
AS OF MARCH 31,
- ------------------------------------------------------------------------------------------ ------------------
BEST INNS FRANCHISE DATA 1999
(inception to date)
- ------------------------------------------------------------------------------------------ ------------------
Properties open 65
Executed agreements and under construction 19
Executed franchise agreements but not under construction 26
Accepted applications 103
Total in development and accepted applications (1) 148
- ------------------------------------------------------------------------------------------ ------------------
OPEN PLUS IN DEVELOPMENT PLUS ACCEPTED APPLICATIONS 213
- ------------------------------------------------------------------------------------------ ------------------
(1) There can be no assurance that properties in development or for which
applications have been accepted will result in open hotels.
9
REVENUE-The Company has derived revenues from the following sources:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
Royalty and fee income.............................. $2,463,000 $ 627,000
Franchise application fees.......................... 616,000 603,000
Other............................................... 97,000 66,000
---------- -----------
TOTAL............................................... $3,176,000 $ 1,296,000
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Royalty and fee income increased $1,836,000 for the three months ended
March 31, 1999 as compared to the comparable prior year's period. The increase
is primarily attributable to (i) the increase in royalty paying hotels from 75
to 224, and (ii) management fees for the hotels that the Company manages
primarily as a result of the Best Inns acquisition. Other income increased
$31,000 for the three months ended March 31, 1999 as compared to the comparable
prior year's period due to increased usage of the Company's national accounts
purchasing program.
EXPENSES-The Company's expenses were as summarized below:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
General and administrative.......................... $2,422,000 $2,405,000
Franchise sales commissions......................... 659,000 313,000
Depreciation and amortization....................... 341,000 210,000
Interest income..................................... (751,000) (229,000)
Interest expense.................................... 452,000
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TOTAL............................................... $2,671,000 $3,151,000
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Franchise sales commissions increased $346,000 for the three months
ended March 31, 1999 as compared to the comparable prior year's period because
more hotels opened during the first quarter of 1999 compared to the first
quarter of 1998.
Depreciation and amortization expense increase is due primarily to the
amortization of the Best Inns and Hawthorn acquisitions and includes
amortization for the cost of acquiring the Microtel, Hawthorn Suites and Best
Inns hotel brands and depreciation of fixed assets.
Interest income, resulting primarily from investments in cash and
marketable securities, increased $552,000 for the three months ended March 31,
1999 as compared to the comparable prior year's period due primarily to higher
cash balances.
Interest expense decreased $452,000 for the three months ended March
31, 1999 as compared to the comparable prior year's period due to the repayment
of the Company's 10% Subordinated Debentures during the second quarter of 1998.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $11,868,000 in cash or equivalents as of
March 31, 1999. The Company expects to satisfy its cash requirements during the
next twelve months with its cash and cash equivalents. The Company has no
outstanding lines of credit in place.
For the three months ended March 31, 1999, the Company had net income
of $505,000. Net cash used in operating activities was $4,019,000 and the
primary operating adjustment to net income was an increase in promissory notes
receivable related to various loans made by the Company and to an increase in
other assets, including development subsidies. For the three months ended
March 31, 1999 net cash used in investing activities was $79,000. Such
investments were primarily a result of expenditures related to the acquisition
of additional office furniture and equipment.
YEAR 2000 COMPUTER MATTER
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or customer
reservations or engage in similar normal business activities. Management has
determined that the Year 2000 Issue will not pose material operational problems
for its computer systems. Management expects that costs incurred in connection
with the Year 2000 Issue, including, but not limited to all costs of ensuring
Year 2000 compliance for the financial system software at both its Atlanta,
Georgia headquarters and the Marion, Illinois offices of its wholly owned
management company subsidiary should not exceed $200,000, and in any event, does
not expect such costs to have a material adverse impact on the results of
operations during any quarterly or annual reporting period. In addition,
management has recently converted the reservation systems that it acquired as
part of the acquisition of the Best Inns brand to operate with the Microtel
reservation system. USFS anticipates that it will cease having any dependency on
the acquired Best Inns systems by June 1, 1999. Finally, management has
determined that the computer systems at certain USFS managed hotel properties
are not currently Year 2000 compliant. Management expects to achieve compliance
at its managed properties by July 1, 1999. The Company is in the process of
communicating with its significant suppliers of goods and services to determine
the extent to which the Company's operations and systems are vulnerable to those
third parties' failure to remediate their own Year 2000 Issues. There can be no
guarantee that the systems of other companies on which the Company's operations
and systems rely will be timely converted and would not have an adverse effect
on the Company's systems or results of operations. The Company will utilize both
external and internal resources to reprogram, or replace, and test its software
for Year 2000 modifications. The Company anticipates completing the Year 2000
projects by July 1, 1999, which is prior to any anticipated material adverse
impact on its operating systems. The costs of the project and the date on which
the Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
11
SEASONALITY
Royalties generated by gross room revenues of franchised properties are
expected to be the largest source of revenue for the Company for the immediate
future. The Company expects to experience seasonal revenue patterns similar to
those experienced by the lodging industry generally. The summer months, because
of increase in leisure travel, are expected to produce higher revenues for the
Company than other periods. Accordingly, the Company may experience lower
revenues and profits in the first and fourth quarters and higher revenues and
profits in the second and third quarters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is and may become party to claims and litigations that
arise in its normal course of business. In management's opinion, the outcome of
any currently pending matters will not have a material adverse effect on the
Company's consolidated financial statements.
ITEM 2. RECENT SALE OF UNREGISTERED SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was submitted during the first quarter ended March 31, 1999
to a vote of security holders of the Company.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS:
EXHIBIT DESCRIPTION
NUMBER
27.1 Financial Data Schedule.
b) REPORTS ON FORM 8-K
During the period from January 1, 1999 to March 31, 1999, the
Company did not file any reports on Form 8-K.
12
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.
U.S. FRANCHISE SYSTEMS, INC.
By /s/ Michael A. Leven By /s/ Neal K. Aronson
----------------- -------------------
Michael A. Leven Neal K. Aronson
CHAIRMAN OF THE BOARD, PRESIDENT EXECUTIVE VICE PRESIDENT AND CHIEF
AND CHIEF EXECUTIVE OFFICER FINANCIAL OFFICER
Dated: May 12, 1999
13
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER -----------
------
27.1 Financial Data Schedule.