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FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

     
For the Second Quarter Ended July 14, 2002   Commission File No. 0-19840

SHOLODGE, INC.
(Exact name of registrant as specified in its charter)

     
Tennessee
(State or other jurisdiction
of incorporation or organization)		   62-1015641
(I.R.S. Employer
Identification Number)
     
130 Maple Drive North, Hendersonville, Tennessee
(address of principal executive offices)		   37075
(Zip Code)
     
Registrant’s telephone number, including area code   (615) 264-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No   o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

As of August 27, 2002, there were 5,118,278 shares of ShoLodge, Inc. common stock outstanding.

 

TABLE OF CONTENTS

PART II — OTHER INFORMATION
SIGNATURES
SECTION 906 CERTIFICATION OF THE CFO & CEO

Table of Contents

ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets

                     
        July 14,   December 30,
        2002   2001(1)
        (unaudited)    
       
 
Assets
                
Current assets:
                
 
Cash and cash equivalents
   $ 753,530     $ 2,704,161  
 
Restricted cash
     200,000       200,000  
 
Accounts receivable:
                
   
Accounts receivable-trade, net
     4,576,969       3,557,591  
   
Construction contracts
     3,065,744       4,016,502  
   
Costs and estimated earnings in excess of billings on construction contracts
     401,564       3,063,747  
   
Arbitration award
     8,909,188       —  
 
Prepaid expenses
     493,292       365,849  
 
Notes receivable, net
     6,278,192       1,728,340  
 
Other current assets
     169,106       153,766  
 
    
     
 
Total current assets
     24,847,585       15,789,956  
Notes receivable, net
     67,365,060       68,227,306  
Restricted cash
     24,179       1,781,747  
Property and equipment
     115,090,337       123,112,190  
Less accumulated depreciation and amortization
     (21,781,606 )     (21,944,927 )
 
    
     
 
 
     93,308,731       101,167,263  
Land under development or held for sale
     11,061,421       9,254,986  
Deferred charges, net
     2,559,094       6,111,825  
Intangible assets, net
     894,065       2,795,659  
Other assets
     1,675,179       1,457,907  
 
    
     
 
 
   $ 201,735,314     $ 206,586,649  
 
    
     
 

(1)   Derived from fiscal year ended December 30, 2001 audited financial statements.
See accompanying notes.

 

Table of Contents

ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)

                     
        July 14,   December 30,
        2002   2001(1)
        (unaudited)    
       
 
Liabilities and Shareholders’ equity
                
Current liabilities:
                
   
Accounts payable and accrued expenses
   $ 8,633,713     $ 14,171,631  
   
Taxes payable other than on income
     612,841       476,809  
   
Income taxes payable
     1,389,432       3,859,873  
   
Current portion of long-term debt
     672,071       650,700  
 
    
     
 
Total current liabilities
     11,308,057       19,159,013  
Long-term debt, less current portion
     96,429,797       89,701,381  
Deferred income taxes
     992,275       992,275  
Deferred gain on sale/leaseback
     —       4,129,962  
Deferred credits
     2,419,378       2,545,004  
Minority interests in equity of consolidated subsidiaries and partnerships
     812,742       786,477  
 
    
     
 
Total liabilities
     111,962,249       117,314,112  
Shareholders’ equity:
                
   
Preferred stock (no par value; 1,000,000 shares authorized; no shares issued)
     —       —  
   
Series A redeemable nonparticipating stock (no par value; 1,000 shares authorized, no shares issued)
     —       —  
   
Common stock (no par value; 20,000,000 shares authorized, 5,118,778 and 5,088,278 shares issued and outstanding as of July 14, 2002 and December 30, 2001, respectively)
     1,000       1,000  
 
Additional paid-in capital
     23,579,621       23,519,506  
 
Retained earnings
     67,360,380       67,001,529  
 
Unrealized gain on securities available-for-sale, net of income taxes
     207,535       100,307  
 
Notes receivable from officer, net of discount of $155,778 and $181,444, as of July 14, 2002 and December 30, 2001, respectively
     (1,375,471 )     (1,349,805 )
 
    
     
 
   
Total shareholders’ equity
     89,773,065       89,272,537  
 
    
     
 
 
   $ 201,735,314     $ 206,586,649  
 
    
     
 

(1)   Derived from fiscal year ended December 30, 2001 audited financial statements.
See accompanying notes.

 

Table of Contents

                                         
            12 weeks ended   28 weeks ended
           
 
            July 14,   July 15,   July 14,   July 15,
            2002   2001   2002   2001
           
 
 
 
Revenues:
                                
 
Hotel
   $ 3,888,671     $ 3,185,087     $ 8,030,016     $ 7,209,403  
 
Franchising, management and reservation services
     1,536,835       1,107,043       3,222,767       1,879,957  
 
Construction and development
     648,830       5,330,206       4,180,061       10,157,385  
 
Rent income
     822,099       796,276       1,869,664       1,899,980  
 
Other income
     26,424       114,763       66,275       125,841  
 
    
     
     
     
 
     
Total revenues
     6,922,859       10,533,375       17,368,783       21,272,566  
Cost and expenses:
                                
 
Hotel
     2,896,475       2,343,363       6,206,064       5,478,929  
 
Franchising, management and reservation services
     887,219       444,091       1,923,549       931,656  
 
Construction and development
     1,695,902       5,101,737       5,218,138       9,421,466  
 
Rent expense, net
     155,515       151,306       309,483       309,849  
 
General and administrative
     1,764,956       1,351,351       3,735,945       3,092,782  
 
Depreciation and amortization
     1,134,771       1,000,369       2,366,647       2,460,048  
 
Write-off of intangible assets
     6,808,635       —       6,808,635       —  
 
    
     
     
     
 
     
Total cost and expenses
     15,343,473       10,392,217       26,568,461       21,694,730  
 
    
     
     
     
 
Operating (loss) earnings
     (8,420,614 )     141,158       (9,199,678 )     (422,164 )
 
Gain on sale of property and leasehold interests
     48,323       72,674       147,265       3,679,391  
 
Gain on early extinguishments of debt
     2,251,917       169,400       2,503,758       256,165  
 
Interest expense
     (2,182,369 )     (1,844,656 )     (4,717,523 )     (4,308,537 )
 
Interest income
     1,280,086       1,641,820       3,019,257       3,732,350  
 
Arbitration award
     8,900,000       —       8,900,000       —  
 
    
     
     
     
 
Earnings before income taxes and minority interests
     1,877,343       180,396       653,079       2,937,205  
Income tax expense
     (803,000 )     (157,000 )     (458,000 )     (1,323,000 )
Minority interests in earnings of consolidated subsidiaries and partnerships
     (13,208 )     (14,417 )     (26,262 )     (32,027 )
 
    
     
     
     
 
Earnings from continuing operations
     1,061,135       8,979     168,817       1,582,178  
Discontinued operations:
                                
   
Income from operations of hotel disposed of, net of income tax effect
     (9,792 )     44,312       (20,441 )     56,778  
   
Gain on disposal of hotel, net of income tax effect
     210,475       —       210,475       —  
 
    
     
     
     
 
Net earnings
   $ 1,261,818     $ 53,291     $ 358,851     $ 1,638,956  
 
    
     
     
     
 
Net earnings per common share:
                                
       
Basic:
                                
       
Continuing operations
   $ 0.21     $ —   $ 0.03     $ 0.29  
       
Discontinued operations:
                                
       
     Operations of hotel disposed of
     —       0.01       —       0.01  
       
     Gain on sale of hotel disposed of
     0.04       —       0.04       —  
 
    
     
     
     
 
       
Net earnings
   $ 0.25     $ 0.01     $ 0.07     $ 0.30  
 
    
     
     
     
 
       
Diluted:
                                
       
     Continuing operations
   $ 0.20     $ —   $ 0.03     $ 0.28  
       
     Discontinued operations:
                                
       
          Operations of hotel disposed of
     —       0.01       —       0.01  
       
          Gain on sale of hotel disposed of
     0.04       —       0.04       —  
 
    
     
     
     
 
       
Net earnings
   $ 0.24     $ 0.01     $ 0.07     $ 0.29  
 
    
     
     
     
 
Weighted average common shares outstanding:
                                
       
Basic
     5,118,778       5,534,278       5,109,818       5,538,900  
 
    
     
     
     
 
       
Diluted
     5,182,989       5,610,791       5,185,317       5,606,156  
 
    
     
     
     
 

See accompanying notes.

 

Table of Contents

ShoLodge, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)

                       
          28 weeks ended
         
          July 14,   July 15,
          2002   2001
         
 
Cash flows from operating activities
                
Earnings from continuing operations
   $ 168,817     $ 1,582,178  
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
                
 
(Loss) gain from discontinued operations
     (20,441 )     56,778  
 
Depreciation and amortization
     2,366,647       2,460,048  
 
Write-off of intangible assets
     6,808,635       —  
 
Amortization of deferred charges recorded as interest expense
     351,641       348,364  
 
Accretion of debt recorded as interest expense
     50,463       —  
 
Recognition of previously deferred gains
     (125,626 )     (205,904 )
 
Gain on sale of property and other assets
     (147,265 )     (3,679,391 )
 
Gain on early extinguishments of debt
     (2,503,758 )     (256,165 )
 
Increase in minority interest in equity of consolidated subsidiaries and partnerships
     26,262       32,027  
 
Changes in assets and liabilities:
                
     
Trade receivables
     (1,019,378 )     (57,925 )
     
Construction contract receivables
     950,758       570,073  
     
Costs and estimated earnings in excess of billings on construction contracts
     2,662,183       (2,178,002 )
     
Arbitration award receivable
     (8,909,188 )     —  
     
Income and other taxes receivable and payable
     (2,426,933 )     742,716  
     
Prepaid expenses
     (127,443 )     (72,973 )
     
Other assets
     (31,208 )     228,217  
   
Accounts payable and accrued expenses
     (5,537,918 )     1,904,198  
 
    
     
 
Net cash (used in) provided by operating activities
     (7,463,752 )     1,474,239  
Cash flow from investing activities
                
 
Restricted cash
     1,758,364       5,338,458  
 
(Advances to) payments received on notes receivable
     (302,628 )     221,673  
 
Capital expenditures
     (6,166,514 )     (8,589,245 )
 
Proceeds from sale of property and leasehold interests
     1,855,660       2,788,407