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 Third Quarter Ended October 5, 2003 | Commission File No. 0-19840 |
SHOLODGE, INC.
| Tennessee (State or other jurisdiction of incorporation or organization) |
62-1015641 (I.R.S. Employer Identification Number) |
| 130 Maple Drive North, Hendersonville, Tennessee | 37075 | |
| (address of principal executive offices) | (Zip Code) | |
| Registrant’s telephone number, including area code | (615) 264-8000 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as
of the latest practicable date.
As of November 19, 2003, there were 4,993,278 shares of ShoLodge, Inc. common stock outstanding.
ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets
| October 5, | ||||||||||
| 2003 | December 29, | |||||||||
| (unaudited) | 2002(1) | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 12,027,747 | $ | 1,534,942 | ||||||
Restricted cash |
— | 100,000 | ||||||||
Accounts receivable: |
||||||||||
Accounts receivable-trade, net |
2,627,274 | 1,944,357 | ||||||||
Construction contracts |
418,459 | 136,865 | ||||||||
Construction contracts due from related parties |
15,351,303 | 5,671,892 | ||||||||
Costs and estimated earnings in excess of
billings on construction contracts |
459,297 | — | ||||||||
Income taxes receivable |
848,110 | 9,900,782 | ||||||||
Prepaid expenses |
603,536 | 319,595 | ||||||||
Notes receivable, net |
8,868,810 | 44,823,055 | ||||||||
Assets of hotels transferred under contractual
agreements (notes receivable) |
4,880,000 | 11,571,564 | ||||||||
Assets of hotels held for sale |
8,833,475 | 13,693,554 | ||||||||
Other current assets |
73,248 | 77,677 | ||||||||
Total current assets |
54,991,259 | 89,774,283 | ||||||||
Notes receivable, net |
4,333,580 | 7,065,318 | ||||||||
Property and equipment |
60,442,805 | 62,519,339 | ||||||||
Less accumulated depreciation and amortization |
(9,895,644 | ) | (10,498,027 | ) | ||||||
| 50,547,161 | 52,021,312 | |||||||||
Land under development or held for sale |
10,753,330 | 14,114,353 | ||||||||
Deferred charges, net |
1,131,199 | 1,790,320 | ||||||||
Goodwill |
765,711 | 765,711 | ||||||||
Trademark, franchise costs and reservation rights, net |
531,056 | 703,366 | ||||||||
Other assets |
2,034,945 | 1,044,495 | ||||||||
| $ | 125,088,241 | $ | 167,279,158 | |||||||
| (1) | Derived from fiscal year ended
December 29, 2002 audited consolidated financial statements. See accompanying notes. |
ShoLodge, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
| October 5, | ||||||||||
| 2003 | December 29, | |||||||||
| (unaudited) | 2002(1) | |||||||||
Liabilities and shareholders’ equity |
||||||||||
Current liabilities: |
||||||||||
Accounts payable and accrued expenses |
$ | 5,027,537 | $ | 10,623,527 | ||||||
Taxes payable other than on income |
414,858 | 609,259 | ||||||||
Current portion of long-term debt |
16,195,925 | 67,548,511 | ||||||||
Total current liabilities |
21,638,320 | 78,781,297 | ||||||||
Long-term debt, less current portion |
41,814,991 | 24,381,276 | ||||||||
Deferred credits |
155,188 | 2,314,922 | ||||||||
Minority interests in equity of consolidated subsidiaries and
partnerships |
708,861 | 607,493 | ||||||||
Total liabilities |
64,317,360 | 106,084,988 | ||||||||
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; 4,993,278 and 5,118,778 shares issued
and outstanding as of October 5, 2003
and December 29, 2002, respectively) |
1,000 | 1,000 | ||||||||
Additional paid-in capital |
23,127,821 | 23,579,621 | ||||||||
Retained earnings |
38,119,883 | 38,753,965 | ||||||||
Notes receivable from officer, net of discount of $115,926 and
$140,833, as of October 5, 2003 and December 29, 2002,
respectively |
(477,823 | ) | (1,140,416 | ) | ||||||
Total shareholders’ equity |
60,770,881 | 61,194,170 | ||||||||
| $ | 125,088,241 | $ | 167,279,158 | |||||||
| (1) | Derived from fiscal year ended
December 29, 2002 audited consolidated financial statements. See accompanying notes. |
ShoLodge, Inc. and Subsidiaries
Consolidated Statements of Earnings (unaudited)
| 12 weeks ended | 40 weeks ended | |||||||||||||||||||
| October 5, | October 6, | October 5, | October 6, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
Revenues: |
||||||||||||||||||||
Hotel |
$ | 2,498,044 | $ | 1,242,717 | $ | 6,686,057 | $ | 3,438,045 | ||||||||||||
Franchising, reservation and management |
2,098,726 | 1,478,344 | 5,994,187 | 4,701,111 | ||||||||||||||||
Construction and development-related parties |
7,309,758 | 2,865,554 | 14,660,916 | 2,994,003 | ||||||||||||||||
Construction and development-other |
628,241 | 69,076 | 1,622,925 | 4,120,688 | ||||||||||||||||
Rent income |
27,193 | 772,412 | 872,865 | 2,642,076 | ||||||||||||||||
Other income |
23,319 | (25,470 | ) | 111,319 | 40,805 | |||||||||||||||
Total revenues |
12,585,281 | 6,402,633 | 29,948,269 | 17,936,728 | ||||||||||||||||
Cost and expenses: |
||||||||||||||||||||
Hotel |
1,915,829 | 817,065 | 4,915,094 | 2,206,717 | ||||||||||||||||
Franchising, reservation and management |
1,502,294 | 1,159,087 | 4,663,455 | 3,082,636 | ||||||||||||||||
Construction and development |
5,743,837 | 3,052,646 | 14,845,505 | 8,270,784 | ||||||||||||||||
Rent expense, net |
131,035 | 161,507 | 412,279 | 470,990 | ||||||||||||||||
General and administrative |
1,049,657 | 1,518,017 | 3,973,989 | 5,198,008 | ||||||||||||||||
Depreciation and amortization |
505,096 | 578,059 | 1,862,993 | 1,871,103 | ||||||||||||||||
Write-off of pre-development costs |
— | — | 5,993 | — | ||||||||||||||||
Write-off of construction contracts receivable |
— | — | 21,475 | — | ||||||||||||||||
Write-off of accounts receivable - trade |
15,869 | — | 191,516 | — | ||||||||||||||||
Write-off of goodwill |
— | — | — | 2,387,100 | ||||||||||||||||
Write-off of franchise and trademark costs |
— | — | — | 4,421,535 | ||||||||||||||||
Write-down of notes receivable |
880,568 | — | 866,543 | — | ||||||||||||||||
Total cost and expenses |
11,744,185 | 7,286,381 | 31,758,842 | 27,908,873 | ||||||||||||||||
Operating profit (loss) |
841,096 | (883,748 | ) | (1,810,573 | ) | (9,972,145 | ) | |||||||||||||
Gain on sale of property and leasehold interests |
380,407 | 449,532 | 977,786 | 413,544 | ||||||||||||||||
Gain on sale of available-for-sale securities |
— | 314,998 | — | 314,998 | ||||||||||||||||
Gain on early extinguishments of debt |
295,785 | 101,460 | 1,112,205 | 2,605,218 | ||||||||||||||||
Interest expense |
(1,612,972 | ) | (2,159,352 | ) | (6,362,272 | ) | (6,816,697 | ) | ||||||||||||
Interest income |
296,294 | 1,211,227 | 1,587,827 | 4,210,114 | ||||||||||||||||
Lease abandonment income |
— | — | 5,329,504 | — | ||||||||||||||||
Arbitration award |
— | — | — | 8,900,000 | ||||||||||||||||
Earnings (loss) from continuing operations before income taxes and
minority interests |
200,610 | (965,883 | ) | 834,477 | (344,968 | ) | ||||||||||||||
Income tax (expense) benefit |
— | (165,000 | ) | 890,000 | (610,000 | ) | ||||||||||||||
Minority interests in earnings of consolidated
subsidiaries and partnerships |
(3,689 | ) | (12,009 | ) | (101,368 | ) | (38,271 | ) | ||||||||||||
Earnings (loss) from continuing operations |
196,921 | (1,142,892 | ) | 1,623,109 | (993,239 | ) | ||||||||||||||
Discontinued operations: |
||||||||||||||||||||
Operations of hotels disposed of and transferred, net of income
tax effect |
(20,650 | ) | (348,185 | ) | (415,251 | ) | (462,265 | ) | ||||||||||||
(Loss) gain on disposal and transfer of discontinued operations, net of income
tax effect |
(462,471 | ) | (5,403 | ) | (1,841,940 | ) | 205,072 | |||||||||||||
Net loss |
$ | (286,200 | ) | $ | (1,496,480 | ) | $ | (634,082 | ) | $ | (1,250,432 | ) | ||||||||
Net earnings (loss) per common share: |
||||||||||||||||||||
Basic: |
||||||||||||||||||||
Continuing operations |
$ | 0.04 | $ | (0.22 | ) | $ | 0.32 | $ | (0.19 | ) | ||||||||||
Discontinued operations: |
||||||||||||||||||||
Operations of hotels disposed of and transferred |
(0.01 | ) | $ | (0.07 | ) | $ | (0.08 | ) | (0.09 | ) | ||||||||||
(Loss)
gain on disposal and transfer of discontinued operations |
(0.09 | ) | $ | (0.00 | ) | $ | (0.36 | ) | 0.04 | |||||||||||
Net loss |
$ | (0.06 | ) | $ | (0.29 | ) | $ | (0.12 | ) | $ | (0.24 | ) | ||||||||
Diluted: |
||||||||||||||||||||
Continuing operations |
$ | 0.04 | $ | (0.22 | ) | $ | 0.32 | $ | (0.19 | ) | ||||||||||
Discontinued operations: |
||||||||||||||||||||
Operations of hotels disposed of and transferred |
(0.01 | ) | $ | (0.07 | ) | (0.08 | ) | (0.09 | ) | |||||||||||
(Loss) gain on disposal and transfer of discontinued operations |
(0.09 | ) | $ | (0.00 | ) | (0.36 | ) | 0.04 | ||||||||||||
Net loss |
$ | (0.06 | ) | $ | (0.29 | ) | $ | (0.12 | ) | $ | (0.24 | ) | ||||||||
Weighted average common shares outstanding: |
||||||||||||||||||||
Basic |
5,038,099 | 5,118,778 | 5,094,574 | 5,112,506 | ||||||||||||||||
Diluted |
5,038,099 | 5,118,778 | 5,094,574 | 5,112,506 | ||||||||||||||||
See accompanying notes.
ShoLodge, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
| 40 weeks ended | ||||||||||
| October 5, | October 6, | |||||||||
| 2003 | 2002 | |||||||||
Cash flows from operating activities |
||||||||||
Net loss |
$ | (634,082 | ) | $ | (1,250,412 | ) | ||||
Adjustments to reconcile net loss
to net cash used in operating activities: |
||||||||||
Loss from discontinued operations |
2,257,191 | 257,193 | ||||||||
Depreciation and amortization |
1,862,993 | 1,871,103 | ||||||||
Write-off of pre-development costs |
5,993 | — | ||||||||
Write-off of construction contracts receivable |
21,475 | — | ||||||||
Write-off of accounts receivable - trade |
191,516 | — | ||||||||
Write-off of goodwill and other intangible assets |
— | 6,808,635 | ||||||||
Write-off of notes receivable |
866,543 | — | ||||||||
Amortization of deferred charges recorded as interest expense |
604,782 | 462,757 | ||||||||
Accretion of debt recorded as interest expense |
504,630 | 201,852 | ||||||||
Recognition of previously deferred gains |
(61,186 | ) | (178,175 | ) | ||||||
Gain on sale of property and leasehold interests |
(977,786 | ) | (413,544 | ) | ||||||
Gain on sale of available-for-sale securities |
— | (314,998 | ) | |||||||
Gain on early extinguishments of debt |
(1,112,205 | ) | (2,605,218 | ) | ||||||
Lease abandonment income |
(5,329,504 | ) | — | |||||||
Minority interests in earnings of consolidated subsidiaries
and partnerships |
101,368 | 38,271 | ||||||||
Changes in assets and liabilities: |
||||||||||
Accounts receivable - trade |
(874,433 | ) | (629,043 | ) | ||||||
Construction contracts receivable |
(303,069 | ) | 1,075,249 | |||||||
Construction contracts receivable due from related parties |
(9,679,411 | ) | (2,985,864 | ) | ||||||
Costs and estimated earnings in excess of billings on
construction contracts |
(459,297 | ) | 2,662,183 | |||||||
Income and other taxes receivable and payable |
8,858,271 | (1,525,992 | ) | |||||||
Prepaid expenses |
(283,941 | ) | (296,020 | ) | ||||||
Accounts payable and accrued expenses |
(2,252,634 | ) | (5,295,184 | ) | ||||||
Other |
(904,858 | ) | 167,791 | |||||||
Net cash used in operating activities |
(7,597,644 | ) | ||||||||