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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002.
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: 33-78866
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MOA HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0166914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Lee Street, Suite 1000, Des Plaines, Illinois 60016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 803-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X] Yes [ ] No
Number of shares of Common Stock, $.01 par value outstanding as of
August 31, 2003: 800,000
INDEX TO FORM 10-K
Page
Part I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Part II
Item 5. Market for Registrant's Common Equity and Related 13
Stockholder Matters
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on 25
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management 29
Item 13. Certain Relationships and Related Transactions 29
Item 14. Controls and Procedures 30
Part IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 31
ITEM 1. BUSINESS
General
MOA Hospitality, Inc. and its subsidiaries ("MOA" or the "Company") is
a leading owner and operator of national brand affiliated limited service
lodging facilities in the United States. As of December 31, 2002, the Company,
directly and through subsidiaries, owned 107 lodging facilities located in 33
states with a total of 8,244 rentable guestrooms. The Company owns a 100%
interest in all of its properties. At December 31, 2002, the Company operated 33
of its motels. The remaining seventy-four motels were leased to and operated by
third-party tenants pursuant to operating leases. The Company's largest
concentrations of lodging facilities are located in the States of Georgia and
Illinois with 13 lodging facilities in Georgia and 10 lodging facilities in
Illinois. Properties owned in the states of Georgia and Illinois at December 31,
2002, accounted for 6.51% and 3.38% of consolidated motel operating revenues for
the year ended December 31, 2002, respectively. Ninety-seven of the Company's
lodging facilities are operated pursuant to franchise or license agreements
under the following national brand names: Best Western, Comfort Inn, Day's Inn,
Microtel, Howard Johnson, Ramada, Ltd., Super 8 and Travelodge. Eighty-seven of
the franchise or license agreements are with brands owned by Cendant Corporation
including seventy-six with Super 8 Motels, Inc., a wholly owned subsidiary of
Cendant Corporation. MOA believes its lodging facilities benefit from
affiliating with national brands primarily due to the national brand name
recognition achieved through national advertising and product distribution. In
addition, the franchisor or licensor typically provide additional services such
as: central reservation services, sponsorship of customer loyalty programs,
exposure in published travel directories, leads with respect to group tour
business and other professional services such as quality assurance inspections.
The Company was incorporated in 1986 under the laws of the State of
Delaware to continue the business commenced by its predecessors in 1982. The
Company's principal executive offices are located at 701 Lee Street, Suite 1000,
Des Plaines, Illinois 60016, telephone (847) 803-1200.
Recent History
The Company, has experienced continued deterioration in its operating
performance over the past several years. The following table summarizes the
recent operating performance of the Company (in 000's):
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
Loss from Operations prior to
Impairment Losses and Restructuring
Costs $ (11,223) $ (12,618) $ (11,252) $ (9,483) $ (5,303)
Impairment Losses and Restructuring
Costs (9,300) 609 - (5,702) (1,910)
---------- ---------- ---------- ---------- ----------
Loss from Operations $ (20,523) $ (12,009) $ (11,252) $ (15,185) $ (7,213)
========== ========== ========== ========== ==========
During 2001, the Company experienced a downturn in the hospitality
industry as a result of the September 11, 2001 terrorist attacks on New York and
Washington, D.C. This forced the company to challenge its business strategy. It
became quite apparent that measures had to be taken. The Company through the
diligence of management and its regional managers were able to control and
reduce expenses more than the decline in revenues.
The Company also, through its aggressive leasing and sales efforts
during 1999 and 2000 has been able to either stabilize net income on some of its
non-core locations by establishing a fixed lease income, or by selling other
non-desirable locations. The Company believes it is now positioned to continue
concentrating its efforts on the remaining core locations to maintain and or
increase the upward trend.
The Company had attributed the deterioration in its operating
performance to a myriad of factors, including but not limited to, a significant
increase in competitive supply resulting from the extensive building of new
motel properties in the markets in which the Company competes. Also increases in
certain operating costs including labor due to the historically low levels of
unemployment requiring the Company to compete with other industries for
qualified employees. Based on a property-by-property review, the Company
believed it was unlikely that it would realize the carrying value of certain of
its assets due to a deterioration in their operating performance caused by
factors outside of management's control. As a result of this review, the Company
recorded an impairment loss of $1.9 and $5.7 million in 2002 and 2001
respectively. In 1999, the Company recorded a $1,059,000 impairment loss
adjustment and a restructuring charge of $450,000. In 1998, the Company recorded
an impairment loss of $9.3 million. As discussed below, the Company has
undertaken a number of transactions during the period presented above including
acquisitions, development and sales of properties along with refinancing of the
Company's mortgage debt. The Company believes it has or will be able to obtain
adequate resources to meet its near-term maturing debt and other obligations,
including the remaining $11.5 million 12% Senior Subordinated Notes in 2004.
Since December 31, 1997, the Company has had a net decrease in the
number of lodging properties owned from 138 properties to 107 properties at
December 31, 2002. A summary of the significant transactions with respect to the
number of lodging properties owned and operated by the Company that have
occurred since January 1, 1997 through August 31, 2003 is as follows:
In 1997, an affiliate of the Company was formed for the sole purpose of
constructing lodging properties to be acquired by a subsidiary of the Company
upon completion at cost. Such affiliate develops the lodging properties from its
own funds, payments from the Company on account to be applied towards the
purchase price and the proceeds of a $20.0 million revolving construction loan
facility arranged by the affiliate. The $20.0 million revolving construction
loan facility of the affiliate matured in 1998. The outstanding balances were
paid in full upon the purchase of financed properties by a subsidiary of the
Company with funds borrowed under a $150.0 million secured loan facility with
CSFB and the application of amounts previously deposited with the affiliate. At
December 31, 1998 the $150.0 million secured loan facility with CSFB matured
with no further borrowings available with this loan facility. As of December 31,
2002, all borrowings have been repaid. As a result of the Company's under
utilization of the CSFB loan facility, the Company changed its estimate of the
economic benefit of certain deferred loan costs incurred in connection with
obtaining the facility and accordingly accelerated the amortization of $1.9
million of such costs in 1998.
During 1998, the Company, in a series of separate transactions with
unaffiliated parties, sold ten properties for approximately $61.3 million
consisting of cash in the amount of $53.0 million and first mortgage notes in
the amount of $8.3 million. These transactions resulted in a net gain of
approximately $23.7 million. Approximately $33.3 million of the net proceeds
were utilized to pay down certain outstanding borrowings. During 1998, the
Company also sold a parcel of vacant land and an investment in a partnership for
an aggregate amount of $4.2 million in cash that resulted in gains of
approximately $2.4 million.
During 1998, the Company acquired seven newly constructed motels from
an affiliate at cost for an aggregate amount of $20.6 million in cash. The
purchases of these motels were funded from $11.4 million of new borrowing under
the CSFB secured loan facility referred to above, application of amounts
previously deposited with the affiliate and from internally generated funds,
including funds from the net proceeds from the sale of properties.
During 1999, the Company sold ten properties for approximately $27.8
million consisting of $9.7 million in cash and $18.1 million in first mortgage
notes. These sale transactions resulted in gains of $2.5 million.
Also during 1999, the Company purchased one property constructed by an
affiliate for the Company. The property was purchased for $ 2.9 million.
During 1999, the Company repurchased from an affiliated company at fair
market $35 million value of the 12% Senior Subordinated Notes at a gain of
approximately $1.9 million which was offset by the accelerated write-off of
related deferred financing costs in the amount of $1.9 million
The Company, as Lessor, has entered into operating leases, beginning in
late 1998 with unaffiliated parties to operate seventy-four motel properties at
values believed by management to reflect market rates. Under the terms of these
leases, the lessee is responsible for operating costs including all maintenance,
repairs, taxes and insurance expense on the leased property. The leases, which
have a terms ranging from five and a half years to six and half years, provide
for monthly rent payments. In addition, the lease grants the lessee an option to
purchase the leased properties at prices believed by management to reflect
market value.
During 2000, the Company sold eight properties and a vacant parcel of
land for approximately $20.8 million consisting of $14.3 million in cash and
$6.5 million in first mortgage notes. These sale transactions resulted in a gain
of $2.2 million. The Company also purchased a parcel of land in February 2000
for approximately $250,000 cash and a note in the amount of $460,000, which was
repaid in 2000.
Also during 2000, in two separate transactions the Company repurchased
from an affiliated company at fair market value $10.5 million and $20.9 million
of the 12% Senior Subordinated Notes at a pre tax gain of approximately $4.2
million and $6.7 million respectively. Theses gains were offset by the
accelerated write-off of related deferred financing costs in the amount of $0.6
million and $1.1 million respectively.
During 2000, the Company began construction on two new motels. One
motel is located in Milford, MA and was completed in July 2001, and is a
Marriott Fairfield Inn & Suites with 73 guestrooms. The other motel is located
in Santa Monica, CA and will be a boutique type motel with 77 guest rooms when
completed in 2003. In 2003 the construction financing was converted to a
permanent loan secured by the property in the amount of $7 million.
During 2001, the Company leased an additional three, and re-leased
three of its lodging facilities to third party operators under terms similar to
previous operating leases executed by the Company.
Also during 2001, the Company sold two properties for a sales price of
approximately $5.5 million in cash resulting in a recognized gain of $1.8
million. The Company also sold three additional properties to related parties at
fair market value for approximately $17.5 million resulting in a deferred gain
of $5.4 million and notes receivable of $15.6 million. The Company also sold its
partnership interest in one lodging facility for $200,000. The Company also
recognized a deferred gain of $1.7 million on one of its lodging facilities sold
in a prior year.
Also during 2001, the Company repurchased from an affiliated company at
fair market value $1.9 million of the 12% Senior Subordinated Notes at a gain of
approximately $431,000 net of income taxes.
During 2001, a subsidiary of the Company purchased a vending company
for $624,000 funded by $126,000 cash and assumption of $498,000 of debt.
During 2002, the Company sold seven properties for approximately $12.2
million for a net gain of approximately $31,000. The gain has been included in
discontinued operations as discussed below.
Also During 2002, the Company leased an additional seven of its lodging
facilities to third party operators and took back three of its leased lodging
facilities prior to lease expiration. The Company also re-leased one of its
lodging facilities to third party operators under terms similar to previous
operating leases executed by the Company.
Also During 2002, the company sold and leased back two properties to
related parties. Under FAS 66: Accounting for Sales of Real Estate, both sales
were required to be recorded on the deposit method, because of the down payment
and the continuing involvement of the company in the properties. In the attached
financial statements the properties are reflected as operating properties.
Subsequent to December 31, 2002, a property lessee defaulted on the
operating lease. The Company operated the property for one month. At that time
it was leased to a new third-party tenant.
Industry and Competition
The United States lodging industry is generally comprised of two
sectors: full-service facilities and limited-service facilities. Full-service
lodging facilities generally have more extensive common areas (including
restaurants, lounges and extensive meeting room facilities), offer more services
such as bell service and room service, and tend to be larger in terms of number
of rooms than limited-service facilities. MOA's properties are principally
limited-service type lodging facilities. The United States lodging industry is
also categorized into five general price segments (based on relative pricing in
local markets): luxury, upscale, mid-price, economy, and budget. MOA's
properties predominately fall into the economy segment with a small percentage
represented in both the mid-price and budget segments. Industry estimates
indicate that there are over 23,000 lodging facilities within the mid-price,
economy and budget segments. The United States lodging industry is also
generally considered to be relatively fragmented in terms of ownership,
especially with respect to the mid-price, economy and budget segments. This
combination of a large number of competitive lodging facilities and limited
concentration of ownership makes the segment in which MOA's lodging facilities
operate very competitive.
Generally, each of the Company's lodging facilities competes within
its local market with several national and regional brand affiliated lodging
facilities along with many independent competitive lodging facilities. Some of
the more recognizable brands with which the Company's lodging facilities compete
either directly or indirectly include: Baymont Inns (f/k/a Budgetel Inns),
Comfort Inns, Day's Inns, Fairfield Inns, Hampton Inns, Holiday Inn Express,
LaQuinta Inns, Motel 6, Ramada, Ltd., Red Roof Inns, Super 8 Motels and
Travelodge. Distinguishing characteristics among competitive lodging facilities
include: convenience of location, degree of curb appeal, reasonableness of room
rates, and in particular with repeat customers the quality and cleanliness of
room accommodations and the level of service.
The Company competes with other lodging facilities for a wide
spectrum of business and leisure travelers who desire consistency in the quality
of their accommodations and demand reasonable prices. They tend to be value
conscious consumers consisting of: construction workers, sales people,
technicians, senior citizens, government and military employees, and vacation
travelers. Due to the nature and location of the Company's lodging facilities,
the Company does not experience any significant degree of advance bookings
typical with many resort or destination locations nor does any one customer
represent a significant portion of the Company's revenues.
The lodging industry has seen a significant increase in the
construction of new lodging facilities over the course of the past few years.
Management believes this increase is a result of the relative strength of the
United States' economy, which in turn has resulted in greater travel, and
stronger operating performance of lodging facilities in general. Management also
believes the increase in new construction has been facilitated by an increased
availability of financing for such projects and a relatively favorable interest
rate environment. Based on the Company's internally prepared surveys of new
supply entering the markets in which it competes, the percentage increase in new
supply in such markets appears to have peaked in 1996; however, new supply
continues to enter the markets in which the Company competes. Accordingly, new
supply is expected to continue to negatively impact the Company's operating
performance especially during the off-peak seasons.
Demand for the Company's lodging facilities is affected by normally
recurring seasonal patterns. Demand for the Company's lodging facilities is
generally highest during the months of June, July and August and lowest during
the months of December, January and February. As is the case for the lodging
industry in general, demand for the Company's lodging facilities may be affected
by weather, national and regional economic conditions, government regulations,
changes in travel patterns including temporary interruptions due to road
construction and more permanent interruptions due to the development of new
interchanges and alternative routes, construction of new lodging facilities,
changes in the degree of competition from existing lodging facilities and other
factors.
Ownership Structure
At December 31, 2002, the Company had 100% ownership interest, either
directly or through subsidiaries, in all of the 107 lodging facilities it owned.
Seventy-four are subject to operating leases with purchase options. (See
discussion above in the general business section)
Franchise and License Agreements
The Company operates 97 of its lodging facilities pursuant to
franchise or license agreements. Seventy-six of these agreements are with Super
8 Motels, Inc. The franchise fees (including royalties and contributions to
advertising and media funds) range from 6% to 9% of room revenues. Under the
Super 8 franchise agreements, the franchiser is obligated to: provide certain
standardized training programs; publish a travel directory with information
pertaining to all Super 8 motels; maintain an advertising and reservation fund
to be administered by the franchiser for advertising and promotion; inspect the
motels to assure satisfaction of Super 8 specifications and maintain
availability of corporate officers and employees for consultation concerning
motel operations. The obligations of the franchisee include, among other things,
maintaining the motel in a manner that satisfies Super 8 quality assurance
standards and compliance with Super 8 rules of operations.
The Super 8 franchise agreements have an initial 20-year term that,
for the Company, results in various ending dates ranging from 2002 through 2019.
The agreements continue thereafter on a year-by-year basis unless terminated by
either party upon nine months notice. The agreements provide a negotiated area
of geographic protection within which the franchiser is prohibited from
franchising another Super 8 motel. Upon expiration of individual franchise
agreements there is no assurance that a renewal franchise agreement will afford
the Company the same benefits that existed under the previously existing
franchise agreement. Generally, new franchise agreements have higher franchise
fees and reduced areas of protections.
The Company has five standard license agreements with Best Western
International. These agreements provide for an annual renewal.
The Company has sixteen franchise or license agreements with other
franchisers or licensees. These agreements, which have various terms with ending
dates through 2017, generally provide similar benefits and obligations as the
Super 8 franchise agreements. Not all of franchise and license agreements for
the non Super 8 brands provide for a specific area of geographic protection in
which case, they generally rely on an impact policy to determine if another
lodging facility with the same brand affiliation could be located within a
particular market.
During 1997, the Company and certain of its subsidiaries commenced
legal actions against ShoLodge Franchise Systems, Inc. ("ShoLodge") the
franchisor of Shoney's Inns. The Company among other things has claimed that
ShoLodge breached its contractual obligations and made material
misrepresentations to MOA prior to MOA or its subsidiaries acquiring any
Shoney's Inns. Commencing in February 1998, through May 1998 the Company
disaffiliated each of its fourteen Shoney's Inns from ShoLodge by removing the
sign and other identifying marks. At the time of such disaffiliation, MOA or its
subsidiaries ceased remitting franchise fees to ShoLodge. ShoLodge filed a
counter claim against MOA and certain of its subsidiaries claiming a failure to
renovate the properties and failure to pay franchise fees. In July 1999, the
Company entered into a settlement agreement with ShoLodge resolving all disputes
with respect to the litigation initiated by the Company. The settlement
agreement requires the Company to make an initial payment of $575,000 in July
1999 and three subsequent payments of $200,000 in July 2000, 2001 and 2002. All
such payments have been made and no further liability exists at December 31,
2002
Operations
The Company believes the ownership and management of its properties
gives it certain competitive advantages over third party managed properties with
which it competes by being able to control all aspects of a lodging facility's
operations and expenditures to maintain such facilities. The Company also
believes it has certain competitive advantages over chain owned and operated
properties because as long as the Company meets a franchisor's minimum
requirements it can tailor the services and product offering of individual
facilities without concerning itself with national consistency.
Management of the Company's lodging facilities is coordinated from
the Company's corporate offices in Des Plaines, Illinois. During the last
quarter of 1999, the Company recorded a $450,000 restructuring charge for the
downsizing of both the regional and corporate offices. Regional offices are
located in Indianapolis, Indiana, Weldon, North Carolina and Salt Lake City,
Utah. Day-to-day management, facility renovation, human resources and training,
purchasing of operating supplies and sales and marketing are principally
directed from the regional offices. The executive level functions as well as
accounting are centralized in Des Plaines, Illinois.
Typically, the general manager is the only salaried position at an
owned and operated property; although, for the larger properties (generally in
excess of 100 rooms), an assistant manager and/or salesperson may be present on
a salaried basis. Other employees generally are employed on an hourly basis with
staffing continually adjusted based on occupancy levels. General managers
generally do not reside on site because the Company believes its managers are
more effective if they spend time away from the property and become involved in
the communities where the properties are located. At December 31, 2002, the
Company employed approximately 590 employees including approximately 79 full and
part-time employees at the corporate and regional offices. Labor and related
costs generally represent the single largest expense of operating a motel
property. The hourly wage rates tend to be relatively low in relation to other
industries and accordingly, the Company is adversely affected by turnover common
in the industry partially due to the current strength of the United States
economy that has resulted in historically low unemployment rates. The Company's
operations could be significantly affected by changes in the Federal and State
minimum wage rates. The employees are not represented by any labor unions and
management believes its ongoing labor relations with its employees are good.
The Company utilizes advertising and marketing programs sponsored by
the various franchisers on both a national and regional basis. In addition, the
Company engages in a wide variety of sales and marketing activities at the local
market level including extensive individual sales calls, marketing blitzes and
involvement in local community activities such as Rotary Clubs, Chambers of
Commerce and motel associations. Various properties also promote special
packages in conjunction with local attractions or events. Billboard advertising
contracts represent the single largest sales and marketing expenditure other
than contributions to franchiser sponsored advertising and media funds.
Regulatory Matters
The Company is subject to environmental regulations under various
federal, state and local laws. Certain of these laws may require a current or
previous owner or operator of real estate to clean up designated hazardous or
toxic substances or petroleum product releases affecting the property. In
addition, the owner or operator may be held liable to a governmental entity or
to third parties for damages or costs incurred by such parties in connection
with the contamination.
Certain of the Company's lodging facilities are located on, adjacent
to or in the vicinity of, properties, including gasoline stations, that contain
or have contained storage tanks or that have engaged or may in the future engage
in activities that may release petroleum products or other hazardous substances
into the soil or groundwater.
While there can be no assurance that in the future the foregoing
environmental conditions may not have a material effect on the Company,
management is not aware of any such materially adverse impacts to the Company
due to the existence of contaminants under or near its properties. Except as
described above, management is not aware of any environmental condition with
respect to its lodging facilities that could have a material adverse impact on
the Company's financial condition or results of operations.
The Company's lodging facilities are subject to various other laws,
ordinances and regulations. The Company believes that each facility has the
necessary permits and approvals required to enable the Company to operate its
lodging facilities.
The Company's lodging facilities must comply with Title III of the
Americans with Disabilities Act (the "ADA"). Under the provisions of the ADA,
the Company, as owner of the lodging facilities, is obligated to reasonably
accommodate the patrons of its facilities who have physical, mental or other
disabilities. In addition, the Company is obligated to ensure that alterations
to its lodging facilities conform to the specific requirements of the ADA
implementing regulations. The Company believes that it is in substantial
compliance with all current applicable regulations with respect to
accommodations for the disabled.
Item 2. PROPERTIES
The Company's lodging facilities are typically situated along
interstate highways and in secondary markets, offering a convenient lodging
alternative for many prospective customers. The facilities have an average size
of 77 rooms, though individual properties range from 33 to 163 rooms, depending
on location and business environment. MOA's properties generally do not offer
large meeting or banquet facilities, in-house restaurants, or room service; and
most do not offer recreational facilities such as pools or fitness centers. The
motels do, however, typically provide free coffee, free local calls, remote
control television, fax service, and free parking. In addition, many nationally
and regionally recognized restaurant chains are generally within close proximity
of the motels.
The Company generally owns its motels in fee simple. The company has
leased seventy-four properties subject to operating leases including a purchase
option. However, the underlying real property of three of the lodging facilities
is subject to a ground lease. Ownership of the buildings and improvements
situated on such properties remains with the landlord subject to the leasehold
interest, which expires on the maturity date of the lease.
Most of the Company's properties were designed and built as limited
service economy lodging facilities. As such, they were designed to achieve
functional efficiencies and operate at lower fixed costs than most full-service
or upscale lodging facilities. The properties generally employ individual
through-the-wall heating and cooling systems for each room. This provides cost
savings during periods of low occupancy and eliminates the need to have skilled
maintenance personnel on the payroll. Further, the Company's motels have limited
public areas to maintain.
The Company believes that the physical condition and general appearance
of a property have a significant impact on profitability. MOA has made capital
expenditures (exclusive of acquisitions and development of investment
properties) of $4,243,000, $2,971,000, and $4,641,000 in 2002, 2001 and 2000,
respectively, relating to properties owned and operated. In addition, in
accordance with the terms of the operating leases, lessees are required to
maintain escrow balances to provide for recurring capital improvements at leased
motels. These expenditures include not only the replacement of guestroom carpet
and furnishings but also expenditures on parking lot repavement, exterior
renovations and interior public area renovations including lobby enhancements
and other revenue enhancing improvements such as installation of complete snack
shoppe vended areas and guest laundry facilities. Management believes the level
of capital expenditures made over the past three years has been sufficient to
maintain the competitive position of its motel facilities. The Company believes
that its facilities are currently well maintained and conform to the Company's
standards and where applicable to the franchiser's standards for cleanliness and
attractiveness and intends to maintain its facilities in such condition.
Information pertaining to the Company's 107 lodging facilities owned as of
December 31, 2002 with footnote disclosure of transactions subsequent to
year-end through August 20, 2003, is set forth in the following table.
Year
Number of Acquired or
Rentable Developed
Guest Year by the
Location Franchise Rooms Built Company
- ---------------------- ----------------- --------- ------ -----------
ARIZONA
Phoenix (2) Super 8 67 1998 1998
ARKANSAS
West Memphis (1) Super 8 61 1989 1989
CALIFORNIA
Santa Monica Best Western 122 1991 1992
West Los Angeles (2) Best Western 74 1993 1994
COLORADO
Longmont Super 8 64 1989 1994
FLORIDA
Fernandina Beach (2) Best Western 134 1985 1994
Ft. Walton Beach Howard Johnson 100 1987 1994
Lake City (2) Microtel 62 1998 1998
Melbourne (2) Howard Johnson 119 1990 1994
Orlando Centroplex (1) Travelodge 75 1957 1996
Panama City (2) Super 8 63 1986 1987
Pensacola (2) Super 8 62 1985 1987
GEORGIA
Athens (2) Microtel 60 1998 1998
Brunswick (2) Super 8 58 1986 1987
Catersville (2) Super 8 61 1986 1987
Columbus Super 8 74 1985 1987
Douglas Inn at Douglas 100 1986 1994
Dublin (2) Best Western 88 1984 1994
Fitzgerald (2) Inn at Fitzgerald 108 1985 1994
Hinesville (2) Inn at Hinesville 163 1976 1994
Macon (2) Ramada 120 1987 1994
Moultrie Inn at Moultrie 100 1979 1994
Rome (2) Super 8 62 1986 1987
Vidalia Inn at Vidalia 128 1984 1994
Warner Robins (2) Super 8 60 1986 1987
IDAHO
Boise Super 8 108 1978 1994
Coeur d'Alene (1) Super 8 95 1983 1983
Lewiston (2) Super 8 62 1985 1985
Sandpoint Super 8 61 1984 1984
ILLINOIS
Bloomington (2) Super 8 61 1985 1987
Champaign (2) Super 8 61 1984 1987
Crystal Lake (2) Super 8 59 1983 1987
Decatur (2) Super 8 61 1983 1987
Litchfield (2) Super 8 61 1987 1994
Peru (2) Super 8 61 1986 1987
South Springfield (2) Super 8 118 1987 1994
Springfield (2) Super 8 65 1985 1994
Tuscola (2) Super 8 64 1988 1994
Waukegan (2) Super 8 61 1986 1987
INDIANA
Columbus (2) Super 8 62 1984 1987
Elkhart (2) Fairway Inn 60 1990 1994
Indianapolis (2) Days Inn 161 1985 1994
Mishawaka Super 8 66 1998 1998
Muncie (2) Days Inn 62 1990 1994
Terre Haute Super 8 118 1985 1994
IOWA
Davenport (2) Super 8 61 1984 1987
Des Moines Super 8 152 1985 1994
KANSAS
Salina (2) Super 8 61 1984 1989
Topeka (2) Super 8 62 1984 1987
KENTUCKY
Danville (2) Super 8 49 1987 1987
Lexington (2) Super 8 61 1987 1987
Louisville Super 8 100 1988 1988
LOUISIANA
Shreveport (2) Super 8 143 1986 1994
MAINE
Ellsworth Comfort Inn 63 1993 1993
MICHIGAN
Battle Creek (2)(3) Super 8 62 1985 1987
Grand Rapids (2) Super 8 62 1986 1987
Kalamazoo (2) Super 8 62 1985 1987
Muskegon (2) Super 8 62 1986 1987
Saginaw (2) Super 8 58 1985 1987
MINNESOTA
Hibbing (2) Super 8 49 1993 1994
Red Wing (2) Super 8 60 1987 1996
Savage (2) Comfort Inn 75 1982 1994
MISSOURI
Independence (2) Super 8 77 1983 1987
Joplin Super 8 50 1985 1987
Liberty (2) Super 8 60 1980 1987
NW Kansas City (2) Super 8 50 1983 1987
Springfield (2) Super 8 50 1985 1987
St. Joseph Super 8 54 1985 1987
MONTANA
Billings (2) Ramada Ltd. 116 1978 1994
Billings Super 8 114 1979 1994
Dillon Super 8 48 1985 1989
Great Falls Super 8 117 1978 1994
Helena Super 8 102 1979 1988
NEBRASKA
Fremont (2) Super 8 43 1986 1989
NEVADA
Carson City (2) Super 8 63 1985 1985
NEW HAMPSHIRE
Merrimack Days Inn 68 1999 1999
NEW MEXICO
Las Cruces (2) Super 8 60 1981 1987
NORTH CAROLINA
Weldon (2) Orchard Inn 49 1973 1993
Wilson Microtel 59 1997 1997
NORTH DAKOTA
Bismarck Super 8 61 1976 1987
Grand Forks (2) Super 8 33 1983 1987
Minot (2) Super 8 60 1977 1987
OHIO
Akron (2) Super 8 58 1986 1987
Canton Days Inn 61 1985 1987
St. Clairsville (2) Super 8 62 1986 1987
PENNSYLVANIA
Lancaster Super 8 101 1990 1990
York Super 8 94 1990 1990
SOUTH CAROLINA
Anderson (2) Super 8 62 1986 1987
Camden (2) Inn at Camden 83 1989 1994
Charleston (2) Orchard Inn 89 1973 1993
Greenwood (2) Days Inn 61 1986 1987
SOUTH DAKOTA
Sioux Falls (2) Super 8 95 1976 1987
TENNESSEE
Chattanooga (2) Super 8 73 1986 1987
Chattanooga (2) Ramada 72 1972 2002
East Memphis (2) Super 8 69 1990 1990
Johnson City (2) Super 8 60 1986 1987
Knoxville Super 8 137 1975 1993
Union City (2) Super 8 61 1989 1989
UTAH
Salt Lake City (2) Super 8 119 1983 1988
VIRGINIA
Charlottesville (2) Super 8 65 1986 1987
Richmond (2) Inn at Richmond 117 1985 1994
WISCONSIN
Janesville (2) Super 8 48 1985 1987
Kenosha (2) Super 8 60 1984 1987
Madison Best Western 101 1983 1994
Rice Lake (2) Super 8 47 1984 1994
WYOMING
Cody Super 8 64 1982 1982
Jackson Super 8 97 1983 1983
---------
Total 8,244
=========
(1) Property is subject to a ground lease.
(2) Property is subject to an operating lease.
(3) Property lessee defaulted on the operating lease subsequent to December 31,
2002 and was operated by the Company for one month. At that time it was
leased to a new third-party tenant.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the
ordinary course of business. The Company does not believe that any of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's business, results of operations or financial condition.
A subsidiary of the Company (the "LLC") was placed in technical default
on one of its loans in February 2003. This forced the LLC to file for Bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code on July 10,
2003. On August 26, 2003 the LLC refinanced the debt and the Bankruptcy
proceedings were dismissed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal quarter ended December 31,
2002 to a vote of the security holders of the Company.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of August 31, 2003, there were 12 holders of record of the
Company's Common Stock. No established public trading market exists for the
Company's common equity. The Company has been advised that since its original
issuance there have been a limited number of privately negotiated sales of the
Common Stock.
The Company has never paid cash dividends on its Common Stock. It is
the Company's present intention to retain all future earnings for use in its
business and, therefore, it does not expect to pay cash dividends on the Common
Stock in the foreseeable future. The declaration and payment of dividends on the
Common Stock is restricted by the indenture relating to the 12% Senior
Subordinated Notes due April 15, 2004, Series B issued by the Company in April
1994 (the "Notes") and the instruments relating to the Company's other
indebtedness.
During 1999, the Company repurchased from an affiliated company at
fair market value $35 million of the 12% Senior Subordinated Notes at a gain of
approximately $1.9 million which was offset by the accelerated write-off of
related deferred financing costs in the amount of $1.9 million.
During 2000, in two separate transactions the Company repurchased
from an affiliated company at fair market value $10.5 million and $20.9 million
of the 12% Senior Subordinated Notes at a gain of approximately $4.2 million and
$6.7 million respectively. Theses gains were offset by the accelerated write-off
of related deferred financing costs in the amount of $0.6 million and $1.1
million respectively.
During 2001, the Company repurchased from an affiliated company at
fair market value $1.9 million of the 12% Senior Subordinated Notes at a gain of
approximately $431,000 net of income taxes.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth-certain consolidated financial
information of the Company and its subsidiaries for the five fiscal years ended
December 31, 2002. This data should be read in conjunction with the audited
consolidated historical financial statements of the Company and the notes
thereto included elsewhere herein. (In thousands except for RevPar and ADR
statistics)
Statement of Operations Data Year Ended December 31,
----------------------------------------------------------------------------
1998 (1) 1999 (1) 2000 (1) 2001 (1) 2002 (1)
------------ ------------ ------------ ------------ ------------
Total revenues $ 113,624 $ 99,429 $ 68,912 $ 59,834 $ 57,007
Costs and expenses:
Motel operating 58,891 50,903 29,358 23,221 19,837
Marketing and royalty fees 7,301 6,425 3,917 3,106 2,607
Corporate general and administrative 11,105 10,351 6,410 6,932 5,682
Lease expense (1) 158 455 671 958
Vending expense - 717 1,081 2,141 4,809
Impairment losses and restructuring
costs 9,300 (609) - 5,702 1,910
Depreciation and amortization(2) 17,424 14,066 14,099 13,073 11,227
Total direct expenses 104,020 82,011 55,320 54,846 47,030
Net operating income 9,604 17,418 13,592 4,988 9,977
Interest expense 30,127 29,427 24,844 20,173 17,190
Income (loss) from operations (20,523) (12,009) (11,252) (15,185) (7,213)
Minority interests (84) (20) (472) (20) -
Gain on sale of properties 26,079 2,528 2,177 3,669 -
Income tax expense (benefit) 2,157 (3,570) (3,659) (3,179) (2,183)
Discontinued Operations (163) (1,743) (549) (851) (100)
Extraordinary item - - 5,653 390 305
GAAP Net income (loss) 3,152 (7,674) (784) (8,818) (4,825)
Net income (loss) per share $ 3.94 $ (9.59) $ (0.98) $ (11.02) $ (6.03)
Other Financial Data
Net cash provided by (used in)
operating activities $ 9,472 $ 11,972 $ 2,550 $ 3,277 $ 17,005
Net cash provided by (used in)
investing activities 26,998 2,978 8,787 11,537 6,741
Net cash provided by (used in)
financing activities (29,921) (31,380) (12,596) (14,824) (23,699)
EBITDA(3) 36,328 30,875 27,691 23,763 23,114
EBITDA Margin (% of total revenues)(3) 31.97% 31.05% 40.18% 39.71% 40.55%
Net operating revenue margin (% of
total revenues) 8.45% 17.52% 19.72% 8.34% 17.50%
Refurbishment of investment properties $ 5,696 $ 8,055 $ 4,641 $ 2,971 $ 4,243
Operating Data (4)
Number of motels operated 123 76 40 36 33
Number of rooms 9,758 6,257 3,531 3,067 2,871
Number of leased motels 5 43 75 75 74
REVPAR(5) $ 28.51 $ 29.86 $ 36.16 $ 36.44 $ 35.12
ADR(6) $ 43.51 $ 43.59 $ 49.35 $ 49.53 $ 48.84
Occupancy percentage(7) 61.46% 63.94% 67.57% 67.39% 64.96%
Balance Sheet Data
Total assets $ 339,055 $ 313,205 $ 287,683 $ 264,406 $ 244,704
Total debt 296,151 268,180 234,545 218,222 195,235
Total stockholders' equity 22,746 15,071 14,288 5,470 644
EBITDA to GAAP Reconciliation
EBITDA(3) $ 27,799 $ 30,185 $ 28,469 $ 18,082 $ 21,626
Adjustments:
Depreciation and amortization(2) (17,424) (14,066) (14,099) (13,073) (11,227)
Depreciation and amortization included
in discontinued operations (571) (912) (960) (917) (422)
Interest expense (30,127) (29,427) (24,844) (20,173) (17,190)
Interest expense included in
discontinued operations (451) (643) (711) (489) (183)
Minority interests (84) (20) (472) (20) -
Gain on sale of properties 26,079 2,528 2,177 3,669 -
Gain on sale of properties included in
discontinued operations - - - - 31
Income tax (expense) benefit (2,157) 3,570 3,659 3,179 2,183
Income tax (expense) benefit included
in discontinued operations 88 1,111 344 534 52
Extraordinary item net of income tax - - 5,653 390 305
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 3,152 $ (7,674) $ (784) $ (8,818) $ (4,825)
============ ============ ============ ============ ============
Continued from table on previous page
(1) Results for the year ended December 31, 1999 include the recovery of $0.5
million of offering costs previously written off. The results for years
ended December 31, 1998, 1999, 2000 and 2001 include $26.1million, $2.6
million, $2.2 million and $3.6 million of gains on the sale of properties,
respectively. Results for the year ended December 31, 1998 included the
recording of impairment losses of $9.3 million. Results for the year ended
December 31, 1999 included the recording of restructuring costs of $0.5
million and impairment losses of $0.9 million. Results for the year ended
December 31, 2002 and 2001 include $1,.9 and $5.7 million of impairment
losses respectively. Results from operations for year ended December 31,
2002, 2001 and 2000 include a $0.3 million, $0.4 million and $5.7 million
gain net of taxes on early extinguishments of debt respectively.
(2) The Company changed its estimate of the economic benefit of certain
deferred loan costs in 1998. The effect of this change increased
amortization by $1.9 million for the year ended December 31, 1998.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization, minority interest, gain on sale of properties,
(including the amounts of such items included in discontinued operations),
and gain on early extinguishments of debt, net of related income tax.
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with accounting principles generally accepted in
the United States ("GAAP"). EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt. EBITDA should not be construed by the reader
as an alternative to net income (as determined in accordance with GAAP), as
an indicator of the Company's operating performance, or to cash flows from
operating activities (as determined in accordance with GAAP), as a measure
of liquidity.
(4) Operating data excludes amounts related to five motels, which are leased to
third party tenants at December 31, 1998, forty-three motels at December
31, 1999, seventy-five motels at December 31, 2000, seventy-five motels at
December 31, 2001 and seventy-four motels at December 31, 2002.
(5) Revenue per available room ("REVPAR") represents motel-operating revenues
divided by the total number of rooms available. Total available rooms
represents the number of rooms available for rent multiplied by the number
of days in the reported period.
(6) The average daily room rate ("ADR") represents total room revenues divided
by the total number of rooms occupied.
(7) The occupancy percentage represents total rooms occupied divided by total
available rooms.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND, AS SUCH, SPEAK ONLY AS OF THE DATE MADE. FORWARD- LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE ANTICIPATED AT THE TIME OF THE FORWARD-LOOKING
STATEMENTS ARE MADE, INCLUDING, WITHOUT LIMITATION, RISKS AND UNCERTAINTIES
ASSOCIATED WITH THE FOLLOWING: GENERAL REAL ESTATE, TRAVEL AND NATIONAL AND
INTERNATIONAL ECONOMIC CONDITIONS, INCLUDING THE SEVERITY AND THE DURATION OF
THE DOWNTURN RESULTING FROM THE SEPTEMBER 11, 2001 TERRORISTS ATTACKS ON NEW
YORK AND WASHINGTON, D.C. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING: THE COMPANY'S ABILITY TO OBTAIN FINANCING, COMPETITION, INTEREST RATE
FLUCTUATIONS, OR GENERAL BUSINESS AND ECONOMIC CONDITIONS. THIS DISCUSSION
SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED FINANCIAL DATA" AND THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED
ELSEWHERE HEREIN. THE SUPPLEMENTAL HISTORICAL OPERATING RESULTS PRESENTED BELOW
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 HAVE BEEN PREPARED ON THE
SAME BASIS AS THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RECONCILE TO
OPERATING INCOME REPORTED IN SUCH STATEMENTS.
General
MOA operates principally in the economy limited service segment of
the lodging industry. As a result, its average room rates tend to be lower than
the average room rates of full service lodging facilities. However, due to the
limited nature of the public space and ancillary services provided by limited
service motels, the Company's expenses tend to be lower than those of full
service lodging facilities. The profitability of the lodging industry in general
is significantly dependent upon room rental rates and occupancy rates. Due to
the fixed nature of a relatively high portion of the Company's expenses, changes
in either room rates or occupancy percentages result in significant changes in
the operating profit of the Company's motels.
Critical Accounting Policies and Estimates
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States, which
require the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and the related
disclosures. The Company believes that the following critical accounting
policies, among others, affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements.
Revenue Recognition
Room revenues and other revenues derived from operation of lodging facilities
are recognized when earned.
The Company leased certain properties to third party operators under triple net
leases requiring monthly rental payments that include: (i) minimum base rents
which are recognized currently in revenue, and (ii) additional rents that may be
applied to the purchase price of the property upon exercise of the lessee's
purchase option. Recognition of such additional rents as revenue is deferred
under the deposit method pending exercise of the purchase option or expiration
or termination of the lease
Impairment of Long-Lived Assets, Including Goodwill
The Company periodically evaluates its long-lived assets, including its
investments in real estate and goodwill, for impairment indicators. The
judgments regarding the existence of impairment indicators are based on factors
such as operational performance, market conditions and legal factors. Future
events could occur which would cause the Company to conclude that impairment
indicators exist and an impairment loss is warranted.
Depreciation of Investment in Real Estate
The Company depreciates the building component of its investment in real estate
over a 40-year estimated useful life and both the furniture, fixtures and
equipment and replacements components over a 7-year estimated useful life, all
of which are judgmental determinations.
Fair Value of Financial Instruments, Including Derivative Instruments
The valuation of financial instruments under SFAS No. 107 and SFAS No. 133
requires the Company to make estimates and judgments that affect the fair value
of the instruments. The Company, where possible, bases the fair values of its
financial instruments, including its derivative instruments, on listed market
prices and third party quotes. Where these are not available, the Company bases
its estimates on other factors relevant to the financial instruments.
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the audited
consolidated financial statements presented elsewhere herein. (certain of the
2001 numbers have been reclassified to conform to the 2002 presentation):
Supplemental Operating Results and Statistics
---------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ----------------------- -------------------------
2002 2001 2002 2001 2002 2001
---------- ---------- ---------- ---------- ------------ -----------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 29,726 $ 29,732 $ 4,501 $ 10,284 $ 34,227 $ 40,016
Ancillary motel revenues 3,258 3,156 228 478 3,486 3,634
---------- ---------- ---------- ---------- ------------ -----------
Total motel operating revenues 32,984 32,888 4,729 10,762 37,713 43,650
Motel costs and expenses:
Motel operating expenses 16,576 16,511 3,260 6,710 19,836 23,221
Marketing and royalty fees 2,233 2,259 374 847 2,607 3,106
Depreciation and amortization 4,338 4,634 688 1,394 5,026 6,028
---------- ---------- ---------- ---------- ------------ -----------
Total motel direct expenses 23,147 23,404 4,322 8,951 27,469 32,355
---------- ---------- ---------- ---------- ------------ -----------
$ 9,837 $ 9,484 $ 407 $ 1,811 10,244 11,295
========== ========== ========== ==========
Lease operations:
Lease revenues 12,663 11,769
Lease operating expenses 959 671
Depreciation and amortization 5,400 6,010
------------ -----------
6,304 5,088
Vending operations:
Vending revenues 3,979 2,185
Vending operating expenses 4,809 2,141
Depreciation and amortization 579 376
------------ -----------
(1,409) (332)
Corporate operations:
Other revenues 2,653 2,230
General and administrative expenses:
Management Operations 4,488 5,100
Construction/Acquisition and
Divestiture 252 471
Vending general and administrative expenses 943 1,361
------------ -----------
Total general and administrative expenses 5,683 6,932
Impairment losses 1,910 5,702
Depreciation and amortization 222 660
------------ -----------
(5,162) (11,064)
------------ -----------
Net operating income $ 9,977 $ 4,987
============ ===========
Other data:
Number of motels at year end (5) 28 28 5 8 33 36
Number of rooms at year end (5) 2,457 2,458 414 609 2,871 3,067
Occupancy percentage (5) 67.06% 66.80% 40.91% 70.21% 64.96% 67.39%
ADR (1) (5) $ 49.41 $ 49.61 $ 38.04 $ 8.78 $ 48.84 $ 49.53
REVPAR (2) (5) $ 36.77 $ 36.66 $ 16.22 $ 5.63 $ 35.12 $ 36.44
Net operating income margin (3) 17.50% 8.33%
Net motel revenue margin (4) (5) 47.69% 47.48% 16.17% 31.16% 44.61% 43.29%
- -----------------------------------------------------------
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total number
of rooms available.
(3) Net operating income margin represents net operating income divided by
total motel operating revenues plus lease revenues, vending revenues and
corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
(5) At December 31, 2002 and 2001 and for the years then ended, excludes
amounts related to seventy-four and seventy-five motels, respectively,
which are leased to third party tenants.
Effective January 1, 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 extends the reporting requirements of discontinued operations
to include components of an entity that have either been disposed of or are
classified as held for sale. During the twelve months ended December 31, 2002,
the Company disposed of seven properties. The operating results of theses
properties have been reclassified as discontinued operations in the consolidated
statements of operations for each of the periods included herein.
Total revenues consist principally of motel operating revenues. Motel
operating revenues are derived from room rentals and ancillary motel revenues
such as charges to guests for food and beverage service, long distance telephone
calls, fax machine use and from vending machines commissions. Lease revenues are
derived from lease payments from properties operated by third party tenants.
Vending revenues are generated by vending operations located within the Company
owned locations as well as non-owned Company locations. Other revenues include
interest income, distributions on partnership interests in excess of the
Company's basis in such partnerships and other miscellaneous income. Total
revenues decreased to $57,007,000 in 2002 from $59,834,000 in 2001, a decrease
of $2,827,000 or 4.7%.
Motel revenues decreased to $37,713,000 in 2002 from $43,650,000 in
2001 a decrease of $5,937,000 or 13.6%. The decrease in motel revenues was
attributable to the acquired or divested motels (including those subject to
operating leases) since January 1, 2002 offset by an increase in the motel
revenues for motels owned during both periods of $96,000 or .3%. The increase in
motel revenues for motels owned during both periods was principally attributable
to an increase in the occupancy percentage. The occupancy percentage in 2002 for
the motels owned during both periods increased to 67.06% from 66.8% in 2001 or
0.4%. The ADR for the motels owned during both periods decreased to $49.41 in
2002 from $49.61 in 2001, a decrease of $.20 or less than 1%. Revenue per
available room ("REVPAR") for motels owned during both periods increased to
$36.77 in 2002 from $36.66 in 2001, a increase of $0.11 or .3%. The acquired and
divested motels had an occupancy percentage of 40.91%, an ADR of $38.04 and a
REVPAR of $16.22 for the period which the Company owned them in 2002.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses decreased to $19,836,000 in 2002 from
$23,221,000 in 2001 a net decrease of $3,385,000 or 14.58%. Approximately
$3,450,000 of the decrease is attributable to the cost of operating the acquired
and divested motels since January 1, 2002. The cost of operating motels owned
during both periods increased to $16,576,000 in 2002 from $16,511,000 in 2001,
an increase of $65,000 or .39%. Motel operating expenses as a percentage of
motel revenues decreased to 52.60% in 2002 from 53.20% in 2001. Motel operating
expenses as a percentage of motel revenues for motels owned in both periods
increased to 50.25% in 2002 from 50.20% in 2001. The increase in the operating
expenses as a percentage of motel revenues for motels owned during both periods
is primarily attributable to an increase in labor costs and repair and
maintenance expenses that on a percentage basis exceed the percentage increase
in motel revenues. Motel operating expenses as a percent of motel revenues for
the acquired and divested motels was 68.94% in 2002.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisers and other related marketing expenses. Marketing and royalty fees
decreased to $2,607,000 in 2002 from $3,106,000 in 2001, a decrease of $499,000
or 16.07%. Approximately $473,000 of the decrease in marketing and royalty fees
was attributable to the motels acquired and divested since January 1, 2002. The
marketing and royalty fees for motels owned during both periods decreased to
$2,233,000 in 2002 from $2,259,000 in 2001, an decrease of $26,000 or 1.15%. For
the motels owned during both periods, marketing and royalty fees as a percent of
room revenues decreased to 7.51% in 2002 from 7.6% in 2001. The decrease in
marketing and royalty fees for motels owned both periods in 2002 and 2001 was
principally due to reduced marketing costs.
Corporate general and administrative expenses are segregated by the
Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division and Vending general and
administrative expenses. Included in the Management Company Operations which is
the division responsible for the motel operations, are the costs associated with
training, marketing, purchasing, administrative support, property related legal
and accounting costs. The major components of these costs are salaries, wages
and related expenses, travel, rent and other administrative expenses. The
general and administrative expenses for the Management Operations decreased
$612,000 to $4,488,000 in 2002 from $5,100,000 in 2001, an decrease of 12% due
to a reduction in home office staff and expenses. The general and administrative
expenses associated with Construction/Acquisition and Divestiture Division
decreased $219,000 from $471,000 in 2001 to $252,000 in 2002 or 46.5%. The
decrease is attributable principally to the sales and leasing efforts of the
Company's properties winding down in 2002. Vending general and administrative
expenses decreased $418,000 from $1,361,000 in 2001 to $943,000 in 2002. This
decrease is attributed to the reclassifying of certain employees from management
to field operations. As a percentage of total motel operating revenues,
Management Operations general and administrative expenses increased from 11.68%
in 2001 to 11.9% in 2002.
Lease revenues increased from $11,769,000 in 2001 to $12,663,000 in
2002, an increase of $894,000. This increase is primarily due to $890,000 of
forfeited security deposits and purchase price credits.
Lease expenses increased from $671,000 in 2001 to $959,000 in 2002,
an increase of $288,000. Lease expenses primarily consist of costs expended for
property insurance.
Vending revenues increased $1,794,000 from $2,185,000 in 2001 to
$3,979,000 in 2002 or an increase of 82.11%. Vending revenue is generated by
vending machines and coffee services supplied to Company owned locations as well
as third party locations.
Vending expenses increased to $4,809,000 in 2002 from $2,141,000 in
2001 an increase of $2,668,000 or 124.6%. The increase is principally due to
increased staffing and overhead need to continue to increase sales and grow the
business. Vending expenses consist mostly of cost of goods sold and salaries
related to retaining or servicing the vending routes.
Impairment losses were recorded in the amount of $1,910,000 in 2002.
Based on a property-by-property review of certain properties that had
experienced a deterioration in operating performance, management determined that
in certain instances the decline in operating performance was due to factors
outside of management's control and likely to persist for the foreseeable
future. The Company believes it is unlikely to realize the carrying value of
certain of its properties through either a sale or from operations and recorded
an impairment loss accordingly.
Depreciation and amortization decreased to $11,227,000 in 2002 from
$13,073,000 in 2001, a decrease of $1,846,000 or 14.12%. This decrease is
attributed to a decrease in deferred loan costs amortization of approximately
$281,000 and a decrease in depreciation in the amount of $1,557,000 resulting
from the cessation of depreciation on fully depreciated assets.
Net operating income increased to $9,977,000 in 2002 from $4,987,000
in 2001, a increase of $4,989,000 or 100%. There was a decrease in net motel
revenues of $2,053,000(motel revenues less motel operating expenses and
marketing and royalty fees). Of the $2,053,000 decrease in net motel revenues,
$2,110,000 resulted from the motels acquired and divested since January 1, 2001
and a increase in net motel revenues for motels owned during both periods of
$57,000 or .4%. Net operating revenue as a percent of total revenues was 17.5%
and 8.3% in 2002 and 2001, respectively. The increase in net operating income
also included the decrease in general and administrative expenses of $612,000,
and a decrease in depreciation and amortization of $1,839,000 and an overall
decrease in impairment losses of $3,792,000 all of which are separately
discussed above. The Company also realized an increase in net lease operations
of $1,216,000 and a decrease in vending operations of $1,077,000.
Interest expense decreased to $17,190,000 in 2002 from $20,173,000 in
2000, a decrease of $2,893,000. The decrease is principally due to a decrease in
average outstanding borrowings, specifically a decrease in the 12% Senior
Subordinated Debt.
Gain on sale of properties amounted to $0 in 2002 as compared to
$3,669,000 in 2001. The gain in 2001 resulted from the sale of three motel
properties and a general partner interest. The sale of seven motel properties in
2002 has been reflected as discontinued operations. Minority interests declined
from 2002 to 2001 due to the sale of both partnership interests in 2001.
Net loss decreased $3,993,000 to a net loss of $4,825,000 in 2002
from a net loss of $8,818,000 in 2001. Included in the net decrease is a
decrease in impairment losses of $3,792,000.
Extraordinary item gain of $305,000 is the result of the repayment at
a discount of $4.7 million of Notes, net of income taxes of $195,000.
Income tax benefit increased as a percent of income before taxes in
2002 as compared to 2001 as a result of the recognition of a tax valuation
allowance of approximately $1,300,000 in 2001 pertaining to state tax net
operating losses which are not expected to be utilized.
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
The following chart presents certain historical operating results and
statistics discussed herein and is being provided as a supplement to the audited
consolidated financial statements presented elsewhere herein. (certain of the
2000 numbers have been reclassified to conform to the 2001 presentation and both
years have been restated to reflect discontinued operations for properties sold
in 2002):
Supplemental Operating Results and Statistics
---------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------------------------
Motels Owned Acquisitions/
Both Periods Divestitures Consolidated
---------------------- ----------------------- -------------------------
2001 2000 2001 2000 2001 2000
---------- ---------- ---------- ---------- ----------- ------------
(dollars in thousands, except Other data)
Motel operations:
Motel operating revenues:
Room revenues $ 35,802 $ 36,439 $ 4,214 $ 14,512 $ 40,016 $ 50,951
Ancillary motel revenues 3,370 3,495 264 682 3,634 4,177
---------- ---------- ---------- ---------- ----------- ------------
Total motel operating revenues 39,172 39,934 4,478 15,194 43,650 55,128
Motel costs and expenses:
Motel operating expenses 20,075 19,528 3,146 9,830 23,221 29,358
Marketing and royalty fees 2,743 2,718 363 1,199 3,106 3,917
Depreciation and amortization 5,400 5,982 628 951 6,028 6,933
---------- ---------- ---------- ---------- ----------- ------------
Total motel direct expenses 28,218 28,228 4,137 11,980 32,355 40,208
---------- ---------- ---------- ---------- ----------- ------------
$ 10,954 $ 11,706 $ 341 $ 3,214 11,295 14,920
========== ========== ========== ==========
Lease operations:
Lease revenues 11,769 9,832
Lease operating expenses 671 455
Depreciation and amortization 6,010 6,278
----------- ------------
5,088 3,099
Vending operations:
Vending revenues 2,185 1,072
Vending operating expenses 2,141 1,081
Depreciation and amortization 376 226
----------- ------------
(332) (235)
Corporate operations:
Other revenues 2,230 2,880
General and administrative expenses:
Management Operations 5,100 4,813
Construction/Acquisition and
Divestiture 471 975
Vending general and administrative expenses 1,361 622
----------- ------------
Total general and administrative expenses 6,932 6,410
Impairment losses 5,702 -
Depreciation and amortization 660 662
----------- ------------
(11,064) (4,192)
----------- ------------
Net operating income $ 4,987 $ 13,592
=========== ============
Other data:
Number of motels at year end (5) 34 34 2 6 36 40
Number of rooms at year end (5) 2,907 2,910 160 621 3,067 3,531
Occupancy percentage (5) 67.80% 68.54% 49.13% 63.02% 67.39% 67.57%
ADR (1) (5) $ 49.74 $ 49.86 $ 37.24 $ 12.39 $ 49.53 $ 49.35
REVPAR (2) (5) $ 36.90 $ 37.45 $ 18.68 $ 7.94 $ 36.50 $ 36.16
Net operating income margin (3) 8.33% 19.72%
Net motel revenue margin (4) (5) 45.68% 48.54% 13.30% 28.70% 43.29% 42.89%
- ----------------------------------------------------------
(1) ADR represents room revenues divided by the total number of rooms occupied.
(2) REVPAR represents total motel operating revenues divided by the total number
of rooms available.
(3) Net operating income margin represents net operating income divided by
total motel operating revenues plus lease revenues, vending revenues and
corporate other revenues.
(4) Net motel revenue margin represents total motel operating revenues less
motel operating expenses and marketing and royalty fees, divided by motel
room revenues.
(5) At December 31, 2001 and 2000 and for the years then ended, excludes
amounts related to seventy-five motels for both periods, which are leased
to third party tenants.
Effective January 1, 2002 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 extends the reporting requirements of discontinued operations
to include components of an entity that have either been disposed of or are
classified as held for sale. During the twelve months ended December 31, 2002,
the Company disposed of seven properties. The operating results of theses
properties have been reclassified as discontinued operations in the consolidated
statements of operations for each of the periods included herein.
Total revenues consist principally of motel operating revenues.
Motel operating revenues are derived from room rentals and ancillary motel
revenues such as charges to guests for food and beverage service, long distance
telephone calls, fax machine use and from vending machines commissions. Lease
revenues are derived from lease payments from properties operated by third party
tenants. Vending revenues are generated by vending operations located within the
Company owned locations as well as non-owned Company locations. Other revenues
include interest income, distributions on partnership interests in excess of the
Company's basis in such partnerships and other miscellaneous income. Total
revenues decreased to $59,834,000 in 2001 from $68,912,000 in 2000, a decrease
of $9,078,000 or 13.17%.
Motel revenues decreased to $43,650,000 in 2001 from $55,128,000 in
2000 a decrease of $11,478,000 or 20.82%. The decrease of $11,478,000 in motel
revenues was attributable to the acquired or divested motels (including those
subject to operating leases) since January 1, 2001 and by a decrease in the
motel revenues for motels owned during both periods of $762,000. Motel revenues
for motels owned during both periods decreased 1.91%. The decrease in motel
revenues for motels owned during both periods was principally attributable to a
decrease in the average daily room rate ("ADR"). The ADR for the motels owned
during both periods decreased to $49.74 in 2001 from $49.86 in 2000, an decrease
of $.12 or .2%. The occupancy percentage in 2001 for the motels owned during
both periods decreased to 67.8% from 68.54% in 2000 or 0.74%. Revenue per
available room ("REVPAR") for motels owned during both periods decreased to
$36.90 in 2001 from $37.45 in 2000, a decrease of $0.55 or 1.5%. The acquired
and divested motels had an occupancy percentage of 49.13%, an ADR of $37.24 and
a REVPAR of $18.68 for the period which the Company owned them in 2001.
Motel operating expenses include payroll and related costs,
utilities, repairs and maintenance, property taxes, linens and other operating
supplies. Motel operating expenses decreased to $23,221,000 in 2001 from
$29,358,000 in 2000 a net decrease of $6,137,000 or 20.9%. Approximately
$6,684,000 of the decrease is attributable to the cost of operating the acquired
and divested motels since January 1, 2001. The cost of operating motels owned
during both periods increased to $20,075,000 in 2001 from $19,528,000 in 2000,
an increase of $547,000 or 2.8%. Motel operating expenses as a percentage of
motel revenues decreased to 53.2% in 2001 from 53.25% in 2000. Motel operating
expenses as a percentage of motel revenues for the motels owned in both periods
increased to 51.25% in 2001 from 48.9% in 2000. The increase in the operating
expenses as a percentage of motel revenues for motels owned during both periods
is primarily attributable to an increase in labor costs and repair and
maintenance expenses that on a percentage basis exceed the percentage increase
in motel revenues. Motel operating expenses as a percent of motel revenues for
the acquired and divested motels was 70.2% in 2001.
Marketing and royalty fees include media advertising, billboard
rental expense, advertising fund contributions and royalty charges paid to
franchisers and other related marketing expenses. Marketing and royalty fees
decreased to $3,106,000 in 2001 from $3,917,000 in 2000, a decrease of $811,000
or 20.7%. Approximately $836,000 of the decrease in marketing and royalty fees
was attributable to the motels acquired and divested since January 1, 2000. The
marketing and royalty fees for motels owned during both periods increased to
$2,743,000 in 2001 from $2,718,000 in 2000, an increase of $25,000 or .9%. For
the motels owned during both periods, marketing and royalty fees as a percent of
room revenues increased to 7.66 in 2001 from 7.45% in 2000. The increase in
marketing and royalty fees for motels owned both periods in 2000and 2001 was
principally due to additional marketing efforts.
Corporate general and administrative expenses are segregated
by the Company into three separate areas: Management Company Operations,
Construction/Acquisition and Divestiture Division and Vending general and
administrative expenses. Included in the Management Company Operations which is
the division responsible for the motel operations, are the costs associated with
training, marketing, purchasing, administrative support, property related legal
and accounting costs. The major components of these costs are salaries, wages
and related expenses, travel, rent and other administrative expenses. The
general and administrative expenses for the Management Operations increased
$287,000 to $5,100,000 in 2001 from $4,813,000 in 2000, an increase of 6.0% due
to an increase in professional fees. The general and administrative expenses
associated with Construction/Acquisition and Divestiture Division decreased
$504,000 from $975,000 in 2000 to $471,000 in 2001 or 51.7%. The decrease is
attributable principally to the sales and leasing efforts of the Company's
properties winding down in 2001. Vending general and administrative expenses
increased $739,000 from $622,000 in 2000 to $1,361,000 in 2001. This increase is
attributed to the increased efforts to expand the vending company operations. As
a percentage of total motel operating revenues, Management Operations general
and administrative expenses increased from 8.73% in 2000 to 11.68% in 2001.
Lease revenues increased from $9,832,000 in 2000 to $11,769,000 in
2001, an increase of $1,937,000. This increase is the result of leasing an
additional three properties since December 31, 2000, plus $542,000 of forfeited
security deposits.
Lease expenses increased from $455,000 in 2000 to $671,000 in 2001,
an increase of $216,000. Lease expenses primarily consist of costs expended for
property insurance.
Vending revenues increased $1,113,000 from $1,072,000 in 2000 to
$2,185,000 in 2001 or an increase of 103.8%. Vending revenue is generated by
vending machines and coffee services supplied to Company owned locations as well
as third party locations. The Company acquired a new vending company in 2001
consisting of approximately 100 locations.
Vending expenses increased to $2,141,000 in 2001 from $1,081,000 in
2000 an increase of $1,060,000 or 98.1%. Vending expenses consist mostly of cost
of goods sold and salaries related to saving or servicing the vending routes.
Impairment losses were recorded in the amount of $5,702,000 in 2001.
Based on a property-by-property review of certain properties that had
experienced a deterioration in operating performance, management determined that
in certain instances the decline in operating performance was due to factors
outside of management's control and likely to persist for the foreseeable
future. The Company believes it is unlikely to realize the carrying value of
certain of its properties through either a sale or from operations and recorded
an impairment loss accordingly.
Depreciation and amortization decreased to $13,073,000 in 2001 from
$14,099,000 in 2000, a decrease of $1,026,000 or 7.27%. This decrease is
attributed to a decrease in deferred loan costs amortization of approximately
$400,000 and a decrease in depreciation in the amount of $700,000.
Net operating income decreased to $4,987,000 in 2001 from $13,592,000
in 2000, a decrease of $8,605,000 or 63.31%. There was a decrease in net motel
revenues of $4,530,000(motel revenues less motel operating expenses and
marketing and royalty fees). Of the $4,530,000 decrease in net motel revenues,
$3,196,000 resulted from the motels acquired and divested since January 1, 2000
and a decrease in net motel revenues for motels owned during both periods of
$1,334,000 or 7.54%. Net operating revenue as a percent of total revenues was
8.33% and 19.72% in 2001 and 2000, respectively. The decrease in net operating
income also included the increase in general and administrative expenses of
$521,000, and a decrease in depreciation and amortization of $1,026,000 and an
increase in impairment losses of $5,702,000 all of which are separately
discussed above. The Company also realized an increase in net lease operations
of $1,989,000 and a decrease in vending operations of $97,000.
Interest expense decreased to $20,173,000 in 2001 from $24,844,000 in
2000, a decrease of $4,671,000. The decrease is principally due to a decrease in
average outstanding borrowings, specifically a decrease in the 12% Senior
Subordinated Debt.
Gain on sale of properties amounted to $3,669,000 in 2001 as compared
to $2,177,000 in 2000. The gain in 2001 resulted from the sale of three motel
properties and a general partner interest compared with the sale of eight motel
properties sold in 2001. Minority interests declined from 2001 to 2000 due to
the sale of both partnership interests.
Net loss increased $8,034,000 to a net loss of $8,818,000 in 2001
from a net loss of $784,000 in 2000. Included in the net increase are the
impairment losses of $5,702,000 and a net gain on early extinguishment of debt
on the 12% Senior Subordinated debt of $390,000 net of tax of $249,000.
Extraordinary item gain of $390,000 is the result of the repurchase
at fair market value of $1.9 million of 12% Senior Subordinated Notes at a
discount and also a $66,000 penalty on repayment of a note payable.
Income tax benefit decreased as a percent of income before taxes in
2001 as compared to 2000 as a result of the recognition of a tax valuation
allowance of approximately $1,300,000 pertaining to state tax net operating
losses which are not expected to be utilized.
Liquidity and Capital Resources
The Company's primary uses of its capital resources include debt
service, capital expenditures (primarily for motel refurbishment) and working
capital. In addition, on a discretionary basis the Company utilizes its capital
resources for the development and acquisition of motel properties.
Substantially all of the company's investment properties, mortgage
and other notes receivable have been pledged as collateral.
The Company's debt service requirements consist of the
obligation to make interest and principal payments on its outstanding
indebtedness. As of December 31, 2002, the Company has principal repayment
obligations of $32,823,000, $19,079,000 and $120,696,000 for the years ending
December 31, 2003, 2004 and 2005, respectively. During 2002 the Company was
advanced $3.9 million on a loan of $7.0 million for construction advances on a
property under construction. In June 2001, the Company refinanced $3,997,000 of
debt with new loans of $3,425,000 at 8.84% due August 1, 2011, with monthly
principal and interest payments of $30,464 secured by two properties located in
East Syracuse, NY and Wilson, NC. In July 2001, the Company borrowed $1,000,000
at prime plus .5% due June 12, 2002 which has been repaid in full. In July 2001,
the Company borrowed $3,500,000 at 8.67% due September 1, 2011 with monthly
principal and interest payments of $30,751 secured by one property in Milford,
MA, which was used to pay off an existing construction loan with a balance of
$2,877,000. In August 2001, a subsidiary of the Company purchased a vending
company and assumed debt in the amount of $250,000, non interest bearing with
three annual payments of $83,333, due August 24, 2002, August 24, 2003 and
August 24, 2004, $134,000, due November 1, 2008, with monthly principal and
interest payments of $2,168 and $111,000, due April 1, 2007, with monthly
principal and interest payments of $2,146. In October 2001, the Company
repurchased an additional $1.9 million of the 12% Senior Subordinated Notes from
an affiliate at fair market value for a pre-tax gain of $639,000.
As discussed in Note 14 - Going concern, the Company is currently in
default with respect to certain covenants on its Senior Subordinated Notes and
also a $8.4 million note. The Company is seeking to extend the maturity dates
and reduce the interest rates. The Company does not have sufficient liquidity to
repay the notes if demanded by the holders and accordingly, there is substantial
doubt about the Company's ability to continue as a going concern.
The Company's capital expenditure requirements principally include
capital improvements and the refurbishment of lodging facilities as part of an
ongoing strategy to provide well-maintained facilities. The Company made capital
expenditures (exclusive of acquisitions and development of investment
properties) of $4,243,000 $2,971,000 and $4,641,000, in 2002, 2001 and 2000,
respectively. In addition, as of December 31, 2002, the Company has $1,199,000
of cash restricted for future refurbishment, in accordance with certain debt
agreements. Management is not aware of any unusual required level of future
capital expenditures necessary to maintain its existing properties. In order to
complete construction on a property in Santa Monica, CA the company estimates it
will need an additional $2,600,000 above the available financing. For the year
ended December 31, 2002 cash and cash equivalents increased $48,000 from the
balance at December 31, 2001. A total of $17,005,000 of cash was provided by
operating activities, $6,741,000 of cash was provided by investing activities
and $23,699,000 of cash was used in financing activities. Net investing
activities include: $8,337,000 of cash utilized for motel development;
$4,2431,000 expended on renovation of existing motel properties; $1,066,000 of
cash was used by a increase in cash restricted for refurbishment of properties;
and $20,388,000 of cash provided from the sale of investment properties and
collections on mortgage and other notes receivable. Cash used by financing
activities include: $33,244,000 of cash utilized to repay indebtedness plus
$1,144,000 of deferred financing costs less $10,689,000 of proceeds from
borrowings.
The Company is not currently a party to any proceeding, which in
management's opinion, is likely to have a material adverse effect on the
Company's operating results or financial position. However, subsequent to
December 31, 2002, a subsidiary of the Company (the "LLC") was placed in
technical default on one of its loans and was forced to file for Bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code on July 10,
2003. On August 26, 2003 the LLC refinanced the loan and the Bankruptcy
proceedings were dismissed. The Company believes that the refinancing will not
have any negative impact on the operations or liquidity in the future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2002, the Company has total outstanding debt of
approximately $195,235,000 of which approximately $14,063,000, or 7.2%, is
variable rate debt. If market rates of interest on the Company's debt increase
by 10%, the increase in interest expense on the Company's variable rate debt
would decrease future earnings and cash flows by approximately $75,000. If
market rates of interest increased by 10%, the fair value of the Company's total
outstanding debt would decrease by approximately $3,278,000. If market rates of
interest on the Company's variable rate debt decreased by 10%, the decrease in
interest expense on the Company's variable rate debt would increase future
earnings and cash flows by approximately $66,000. If market rates of interest
decreased by 10%, the fair value of the Company's total outstanding debt would
increase by approximately $3,367,000.
These amounts were determined by considering the impact of
hypothetical interest rates on the Company's debt. These analyses do not
consider the effect of the reduced level of overall economic activity that could
exist in such an environment. Further, in the event of a change of such
magnitude, management would likely take actions to mitigate its exposure to such
a change.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of
Regulation S-K is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following chart lists the Company's current directors and executive
officers.
Name Age Positions(s) with the Company
- ------------------ ----- -----------------------------------------------
Paul F. Wallace 66 Director, Chairman and Chief Executive Officer
Kurt M. Mueller 46 Director, President and Chief Financial Officer
Alan H. Baerenklau 57 Director
Ronald P. Stewart 59 Director
Peter W. McClean 59 Director
Philip J. Levien 58 Director
Blane P. Evans 43 Vice President, Secretary & Treasurer
The following is a biographical summary of the experience of the
directors and executive officers of the Company:
Paul F. Wallace, formerly a Director and controlling stockholder of
EconoLodge, has been Chairman and Chief Executive Officer of the Company since
January 1994 and a Director of the Company since August 1992. Mr. Wallace also
serves on the Company's operations committee. Mr. Wallace was President of The
Broadstone Group from July 1978 until June of 1986, and he became the President
again in July of 1993. Mr. Wallace has been Chairman of the Board and
controlling stockholder of The Broadstone Group since July 1981, and is
currently the principal shareholder of a privately held manufacturing company
and an investor in and operator of various real estate related projects.
Kurt M. Mueller has been the Chief Financial Officer since April
1997. Mr. Mueller has been a Director of the Company since he joined MOA in May
1991. Mr. Mueller was President from January 1994 until April 1997 and Chief
Operating Officer of the Company from May 1991 until April 1997. Mr. Mueller
also served as Executive Vice President from May 1991 until January 1994. In
addition, Mr. Mueller currently serves on the Company's operations committee.
From 1978 to 1991, Mr. Mueller was employed by Ernst & Young LLP most recently
as a Senior Manager. During his career at Ernst & Young LLP, he was on the audit
staff and, during his last two years, he worked in the Mergers and Acquisitions
Group performing due diligence financial and operational reviews.
Alan H. Baerenklau joined the Company in March 1997 and became a
Director, President and Chief Operating Officer of the Company in April 1997.
Mr. Baerenklau was President and Chief Operating Officer of Florida Hospitality
Group, a hotel development and management company, from 1984 to 1997. Prior to
1984, Mr. Baerenklau held various positions with the Howard Johnson Company
including those of General Manager, Regional Manager, Director of Corporate Real
Estate and Vice President of Operations. He is also an investor, partner and
officer in various hotel real estate ventures. Mr. Baerenklau retired as the
President of the company in September 2000 and remains with the company as a
Director.
Ronald P. Stewart, formerly a Director of EconoLodge, has been a
Director of the Company since October 1993. Mr. Stewart has been Headmaster of
York Preparatory School in New York City since 1969 and Chairman of The Rhodes
Group, Inc. since 1992.
Peter W. McClean, has been a Director of the Company since April
1997. Mr. McClean is currently Senior Vice President and Head of Global Risk
Management for the Bank of Bermuda Limited, based in Hamilton, Bermuda. In his
current position, Mr. McClean is responsible for the credit policy, the market
risk policy, the operating risk, the internal audit and the Bank's General
Counsel.
Philip J Levien, formerly a Director and Chairman of the Board of
EconoLodge, has been a Director of the Company since April 1997 and serves on
its audit committee. Mr. Levien has served as a Director of the Broadstone
Group for the past 15 years. Mr. Levien has been a Real Estate Developer for
the past 30 years.
Blane P. Evans has been Vice President, Secretary and Treasurer of
the Company since May 1999. Mr. Evans joined the Company in January 1992 and
has served in various capacities, most recently as Corporate Controller.
Executive officers of the Company are appointed and serve at the
discretion of the Board of Directors. Each director of the Company is elected
for a period of one year and serves until his successor is duly elected and
qualified. None of the directors or executive officers of the Company has a
family relationship with any of the other directors or executive officers of the
Company.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
the Company to each of the Chief Executive Officers and the two other most
highly compensated executive officers of the Company, as of the end of the last
fiscal year, for services rendered to the Company in all capacities during the
last three fiscal years:
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary($) Bonus($)
- ------------------------------------------- ------ ---------- ----------
Paul F. Wallace 2002 300,000 -
Chairman and Chief Executive Officer 2001 300,000 -
2000 300,000 -
Alan H. Baerenklau 2000 176,664 -
President and Chief Operating Officer (1)
Kurt M. Mueller 2002 240,000 -
President and Chief Financial Officer 2001 220,000 -
2000 200,000 -
(1) Mr. Baerenklau joined the Company in March 1997 as President and Chief
Operating Officer and retired in September 2000.
The Company historically has and intends to continue to pay
discretionary bonuses to key employees, including property managers, as rewards
for superior financial performance. The Company does not maintain any employee
pension, profit sharing or savings plans for its employees, other than a 401(k)
savings plan, nor does it currently have any stock related plans for key
executives.
Members of the Board of Directors do not receive compensation for
serving on the Board except that Messrs. Baerenklau, Stewart, McClean and Levien
each receive a $5,000 annual retainer and are paid $1,000 for each meeting. All
members of the Board of Directors receive reimbursement of reasonable expenses
incidental to attendance at meetings of the Board of Directors and all
committees.
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee of the Board of Directors.
During 2001, no officer or employee of the Company or its subsidiaries
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by the only entity known to be the beneficial owner of more
than 5% of the Company's Common Stock, by each director and by all directors and
officers of the Company as a group as of August 20, 2003:
Shares of Common Stock Percent
Name and Address of Beneficial Owner Beneficially Owned of Class
- -------------------------------------------------- ------------------------ ----------
Principal Stockholders:
New Image Realty, Inc. 677,228 85%
888 Seventh Avenue
Suite 3400
New York, NY 10106
Executive Officer and Directors
Paul F. Wallace 684,357 (1) 86%
All Directors and Officers as a Group (11 persons) 684,357 (2) 86%
(1) Mr. Wallace is President, Chairman of the Board and controlling stockholder
of The Broadstone Group. The Broadstone Group owns 100% of the
outstanding Common Stock of New Image Realty, Inc. ("New Image"), which
owns 85% of the outstanding Common Stock of MOA. Mr. Wallace is deemed to
be a beneficial owner of 677,228 shares of Common Stock of the Company
owned by New Image and 7,129 shares of Common Stock of the Company issued
to Opal Inc. in January 1994.
(2) Includes 677,228 shares of Common Stock of the Company held by New Image
and 7,129 shares of Common Stock of the Company held by Opal Inc. that are
deemed to be beneficially owned by Paul F. Wallace.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes.
In March 2000, the Company purchased from an affiliated company at
fair market value $10.5 million of the 12% Senior Subordinated Notes due in 2004
for a gain of $4.2 million which is offset by $.6 million in accelerated
deferred financing costs written off as part of the transaction. In October
2000, the Company purchased an additional $20.9 million at fair market value of
the 12% Senior Subordinated Notes for a gain of approximately $6.7 million which
is partially offset by $1.1 million in accelerated deferred financing costs
written off as part of this transaction.
In October 2001, the Company repurchased from an affiliated company
at fair market value $1.9 million of the 12% Senior Subordinated Notes at a pre
tax gain of approximately $639,000.
Also during 2001, the Company sold three properties to related
parties at fair market value for approximately $17.5 million resulting in a
deferred gain of $5.4 million and notes receivable of $15.6 million. On two of
the three properties the Company retained title to the Land and has leased it on
a ground lease to the purchaser.
During 2002, the company sold and leased back two properties to
related parties. Under FAS 66: Accounting for Sales of Real Estate, both sales
were required to be recorded on the deposit method, because of the down payment
and the continuing involvement of the company in the properties. In the attached
financial statements the properties are reflected as operating properties.
Item 14. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer, Paul F. Wallace, and our principal
financial officer, Kurt M. Mueller, evaluated within 90 days prior to the filing
of this Form 10-K the effectiveness of the design and operation of our
disclosure controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms. As a
result of this evaluation, these executive officers have concluded that, as of
such date, the design and operation of our disclosure controls and procedures
were effective.
Changes in Internal Controls
Since the date of the evaluation of our disclosure controls and procedures
by Mr. Wallace and Mr. Mueller described above, there have been no significant
changes in our internal controls or in other factors that could significantly
affect our disclosure controls and procedures.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 & 2. Financial Statements and Schedules
See Index to Financial Statements in this Form 10-K.
3. Exhibits - None
(b) Reports on Form 8-K - None
INDEX TO FINANCIAL STATEMENTS
MOA HOSPITALITY, INC. AND SUBSIDIARIES
Years Ended December 31, 2002, 2001 and 2000
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2002 F-4
Consolidated Statements of Changes in Stockholders' Equity for each
of the three years in the period ended December 31, 2002 F-5
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2002 F-6
Notes to Consolidated Financial Statements F-7
Schedule III: Leased Real Estate and Accumulated Depreciation F-22
All other schedules have been omitted because they are not required or are not
applicable, or the required information is included in the financial statements
or notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MOA Hospitality, Inc.
We have audited the consolidated balance sheets of MOA Hospitality, Inc. and
Subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. Our audit also
included the financial statement schedule listed in the index under Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MOA Hospitality,
Inc. and Subsidiaries at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 14,
the Company is in default under certain loan covenants relating to two notes
payable and has insufficient liquidity to repay the amounts outstanding should
they become immediately due and payable. Management is currently pursuing the
restructuring of these obligations but there can be no assurance as to the
outcome of such efforts. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
In 2002, as discussed in Note 2 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets".
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
July 10, 2003, except for Note 13
as to which the date is August 26, 2003
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------
2002 2001
-------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,200,050 $ 3,152,386
Accounts receivable from property operations, net 1,731,458 1,461,138
Operating supplies and prepaid expenses 2,067,702 2,313,143
Current portion of mortgage and notes receivable 176,004 232,847
-------------- --------------
Total Current Assets 7,175,214 7,159,514
Investment property:
Operating properties, net of accumulated depreciation 187,701,549 206,171,937
Land held for development 17,922,691 9,585,383
-------------- --------------
Total investment property 205,624,240 215,757,320
Other Assets:
Deposits and other assets 1,661,982 1,178,232
Restricted cash 2,801,243 1,735,285
Mortgage and other notes receivable, less current portion
including $15,600,813 due from affiliates 18,045,938 28,081,388
Net deferred tax asset 2,029,061 1,559,841
Financing and other deferred costs, net of accumulated
amortization of $14,900,058 in 2002 and $17,012,803 in 2001 7,366,145 8,934,021
-------------- --------------
Total Other Assets 31,904,369 41,488,767
-------------- --------------
Total Assets $ 244,703,823 $ 264,405,601
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 3,459,684 $ 1,520,611
Real estate taxes payable 1,403,098 1,459,872
Accrued interest payable 2,670,137 2,043,464
Nonrefundable lease deposits and purchase price credits 25,946,428 23,296,085
Other liabilities for leased locations 5,016,582 4,580,512
Deferred income 5,394,923 5,474,923
Other accounts payable and accrued expenses 4,933,630 2,339,414
Current portion of long-term debt 21,295,794 31,666,797
12% Senior Subordinated Notes, net of unamortized
discount of $153,861 in 2002 11,373,139 -
-------------- --------------
Total Current Liabilities 81,647,275 72,381,678
Long-term debt, less current portion:
Mortgage and other notes payable 162,565,947 175,250,273
12% Senior Subordinated Notes, net of unamortized
discount of $222,993 in 2001 - 11,304,007
-------------- --------------
Total Long-term debt, excluding current portion 162,565,947 186,554,280
-------------- --------------
Total Liabilities 244,059,362 258,935,958
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value, 1,500,000 shares
authorized; 800,000 shares issued and outstanding 8,000 8,000
Additional paid-in capital 15,294,284 15,294,284
Retained deficit (14,657,823) (9,832,641)
-------------- --------------
Total stockholders' equity 644,461 5,469,643
-------------- --------------
Total Liabilities and Stockholders' Equity $ 244,703,823 $ 264,405,601
============== ==============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2002 2001 2000
------------- -------------- -------------
Revenues:
Motel operating revenues $ 37,712,506 $ 43,649,829 $ 55,127,612
Lease revenues, net of deferred purchase price 12,662,912 11,768,874 9,832,662
credit of $1,972,762 in 2002, $1,981,132 in 2001
and $1,974,766 in 2000
Vending revenues 3,979,037 2,185,316 1,071,916
Other revenues 2,652,753 2,229,655 2,879,897
------------- -------------- -------------
Total revenues 57,007,208 59,833,674 68,912,087
------------- -------------- -------------
Costs and expenses:
Motel operating expenses 19,836,830 23,221,003 29,358,059
Marketing and royalty fees 2,606,981 3,106,460 3,916,607
General and administrative 5,682,079 6,931,530 6,410,684
Lease expense 958,423 671,101 455,193
Vending expense 4,809,138 2,140,611 1,080,673
Impairment losses and restructuring costs 1,910,440 5,702,076 0
Depreciation and amortization 11,226,659 13,073,341 14,098,886
------------- -------------- -------------
Total direct expenses 47,030,550 54,846,122 55,320,102
------------- -------------- -------------
Net operating income 9,976,658 4,987,552 13,591,985
Interest expense 17,189,766 20,173,024 24,844,090
------------- -------------- -------------
Loss from operations (7,213,108) (15,185,472) (11,252,105)
Minority interests - (20,290) (472,095)
Gain on sale of properties - 3,668,736 2,176,991
------------- -------------- -------------
Income (loss) from continuing operations
before income taxes (7,213,108) (11,537,026) (9,547,209)
Income tax expense (benefit) (2,183,175) (3,179,239) (3,659,110)
------------- -------------- -------------
Income (loss) from continuing operations (5,029,933) (8,357,787) (5,888,099)
Discontinued operations ( including net gain on disposal of
$30,774 in 2002) net of income tax of ($51,769) in 2002,
($534,053) in 2001 and ($343,804) in 2000 (100,649) (850,495) (549,190)
------------- -------------- -------------
Income (loss) before extraordinary item (5,130,582) (9,208,282) (6,437,289)
------------- -------------- -------------
Extraordinary item:
Net gain on early extinguishment of debt, net of
income taxes of $194,600 in 2002, $248,755
in 2001 and $3,602,298 in 2000 305,400 390,392 5,653,349
------------- -------------- -------------
Net Income (Loss) $ (4,825,182) $ (8,817,890) $ (783,940)
============= ============== =============
Net income (loss) per common share (basic and diluted):
Income (loss) from continuing operations $ (6.29) $ (10.45) $ (7.36)
Income (loss) discontinued operations (0.12) (1.06) (0.69)
------------- -------------- -------------
Income (loss) before extraordinary item (6.41) (11.51) (8.05)
Extraordinary item 0.38 0.49 7.07
------------- -------------- -------------
Net income (loss) per common share (basic and diluted) $ (6.03) $ (11.02) $ (0.98)
============= ============== =============
Weighted average number of
common shares outstanding 800,000 800,000 800,000
============= ============== =============
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Additional Retained Total
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
---------- --------------- ---------------- -----------------
Balance at January 1, 2000 $ 8,000 $ 15,294,284 $ (230,811) $ 15,071,473
Net loss - - (783,940) (783,940)
---------- --------------- ---------------- -----------------
Balance at December 31, 2000 8,000 15,294,284 (1,014,751) 14,287,533
Net loss - - (8,817,890) (8,817,890)
---------- --------------- ---------------- -----------------
Balance at December 31, 2001 8,000 15,294,284 (9,832,641) 5,469,643
Net loss - - (4,825,182) (4,825,182)
---------- --------------- ---------------- -----------------
Balance at December 31, 2002 $ 8,000 $ 15,294,284 $ (14,657,823) $ 644,461
========== =============== ================ =================
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------------
2002 2001 2000
--------------- -------------- ----------------
Cash flows provided by (used in) operating activities:
Net income (loss) $ (4,825,182) $ (8,817,890) $ (783,940)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and accretion
of discount on notes 11,717,705 14,041,535 15,226,451
Impairment losses 1,910,440 6,622,076 -
Minority interests of others in income from operations - 20,290 472,095
Deferred income taxes (469,220) (2,133,240) 468,601
Gain on early extinguishment of debt (500,000) (639,147) (9,255,647)
Forfeiture of security deposits and purchase price credits (890,009) (542,076) -
Gain on sale of properties (30,774) (3,668,735) (2,176,991)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (270,320) 75,791 276,670
Operating supplies, prepaid expenses,
deposits and other assets (238,309) (1,642,650) 1,469,440
Increase (decrease) in liabilities:
Non-refundable security deposits 5,141,661 4,259,029 9,820,559
Accounts payable and accrued expenses 4,832,585 (4,338,644) (12,257,400)
Accrued interest payable 626,673 40,614 (710,063)
--------------- -------------- ----------------
Net cash provided by operating activities 17,005,250 3,276,953 2,549,775
Cash flows provided by (used in) investing activities:
Acquisition and development of investment properties (8,337,308) (6,146,781) (4,238,794)
Refurbishment of investment properties (4,243,406) (2,971,346) (4,640,874)
Cash restricted for refurbishment of properties (1,065,958) 707,723 (592,263)
Net proceeds from sales of investment properties 9,920,724 7,001,770 11,165,886
Collections on mortgage and other notes receivable 10,467,293 12,945,759 7,092,927
--------------- -------------- ----------------
Net cash provided by investing activities 6,741,345 11,537,125 8,786,882
Cash flows provided by (used in) financing activities:
Repayment of notes payable (33,244,312) (29,868,992) (26,477,750)
Proceeds from notes payable 10,688,983 15,365,562 15,060,000
Distributions to minority interests - - (166,953)
Deferred financing costs (1,143,602) (320,575) (1,011,584)
--------------- -------------- ----------------
Net cash used in financing activities (23,698,931) (14,824,005) (12,596,287)
--------------- -------------- ----------------
Net decrease in cash and cash equivalents 47,664 (9,927) (1,259,630)
Cash and cash equivalents at beginning of year 3,152,386 3,162,313 4,421,943
--------------- -------------- ----------------
Cash and cash equivalents at end of year $ 3,200,050 $ 3,152,386 $ 3,162,313
=============== ============== ================
Supplementary disclosure of cash flow information:
Cash paid during the year for interest, including
$908,000 in 2002, $428,000 in 2001 and $315,000 in
2000 capitalized to land held for development. $ 17,654,278 $ 21,049,061 $ 27,477,922
=============== ============== ================
Cash paid during the year for income taxes $ - $ - $ -
=============== ============== ================
See accompanying notes to consolidated financial statements.
MOA HOSPITALITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
1. Organization and Basis of Presentation
MOA Hospitality, Inc., an 85%-owned subsidiary of New Image Realty,
Inc. ("New Image"), owns, develops, and manages various national brand
affiliated limited service lodging facilities in 33 states throughout the United
States. At December 31, 2002, the Company's largest concentrations of lodging
facilities were located in the States of Georgia and Illinois with 13 lodging
facilities in Georgia and 10 lodging facilities in Illinois. The consolidated
financial statements include the accounts of MOA Hospitality, Inc. and all
wholly owned subsidiaries and all entities in which it has a controlling
interest (collectively, the "Company"). All significant intercompany accounts
have been eliminated in consolidation. Certain reclassifications of prior-period
amounts have been made to conform with the current-period presentation which
have not changed operations or stockholders' equity.
2. Summary of Significant Accounting Policies
Use of Estimates- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Cash Equivalents- Cash equivalents represent liquid assets with a
maturity of three months or less when purchased.
Restricted Cash- Restricted cash represents cash that, under the terms
of certain mortgage notes payable, has been set aside for the refurbishment of
motel properties and future payment of taxes and insurance.
Investment Properties- The Company's operating properties are stated at
cost less accumulated depreciation. Operating properties, excluding land, are
depreciated using the straight-line method over the estimated useful lives of
the assets (buildings - 40 years; furniture and equipment - 7 years).
Maintenance and repair costs are expensed as incurred, while
significant improvements, replacements and major renovations are capitalized.
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. An impairment loss is measured as the difference between the
carrying value and fair value.
Marketing costs are expensed as incurred.
Developments and Land held for development- Developments in process are
carried at cost, which includes land acquisition cost, architectural fees,
general contractor fees, capitalized interest, internal costs related directly
to the development and other costs related directly to the construction of the
property. Depreciation is not recorded until the property is placed in service,
which occurs shortly after receipt of a certificate of occupancy.
Land held for development is carried at cost and is not depreciated.
Land held for development includes various vacant land parcels that may have
some improvements such as utility service.
2. Summary of Significant Accounting Policies- (Continued)
Revenue Recognition- Room revenues and other revenues derived from
operation of lodging facilities are recognized when earned.
The Company leased certain properties to third party operators under
triple net leases requiring monthly rental payments that include: (i) minimum
base rents which are recognized currently in revenue, and (ii) additional rents
that may be applied to the purchase price of the property upon exercise of the
lessee's purchase option. Recognition of such additional rents as revenue is
deferred under the deposit method pending exercise of the purchase option or
expiration or termination of the lease.
Financing and Other Deferred Costs- Financing costs are amortized over
the terms of the related indebtedness using the level yield method. Franchise
costs are amortized using the straight-line method over the life of the related
franchise agreement.
Earnings Per Share- Basic and fully diluted earnings per share are
based on the weighted average number of shares of common stock outstanding
during each period.
Income Taxes- Deferred income taxes are recorded based on enacted
statutory rates to reflect the tax consequences in future years of the
differences between the tax bases of assets and liabilities and their financial
reporting amounts. Deferred tax assets, such as net operating loss carry
forwards, which will generate future tax benefits are recognized to the extent
that realization of such benefits through future taxable earnings or alternative
tax strategies is more likely than not.
Reclassifications- Certain reclassifications have been made to
previously reported 2000 and 2001 statements in order to provide comparability
with the 2002 statements reported herein. These reclassifications have not
changed the 2000 and 2001 results or stockholders' equity.
Impact of New Accounting Standards- In accordance with Statement of
Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets, effective for financial statements issued for fiscal years
beginning after December 15, 2001, the net income and gain/(loss) on sales of
real estate for properties sold subsequent to December 31, 2001 is reflected in
the consolidated statement of operations as "Discontinued operations" for all
periods presented.
In accordance with Statement of Financial Accounting Standards No. 145,
Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB Statement No.
13, and Technical Corrections, effective for financial statements issued for
fiscal years beginning after May 15, 2002, gains and losses on extinguishments
of debt that do not meet the criteria for extraordinary classification are to be
classified as a component of income from continuing operations rather than as
extraordinary items as previously required under Statement 4. The Company is
required to adopt this Statement January 1, 2003 and anticipates that all
previously reported extraordinary items resulting from debt extinguishments will
be reclassified.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46 Consolidation of Variable Interest Entities and
Interpretation of Accounting Research Bulletin (ARB) No. 51 ("FIN 46").FIN 46
introduces a new consolidation model, the variable interest model, which
determines control (and consolidation) based on potential variability in gains
and losses of the entity being evaluated for consolidation. The consolidation
provisions of FIN 46 apply immediately to variable interests in variable
interest entities created after January 31, 2003. It applies in the first fiscal
year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise that is a public company holds a variable
interest that it acquired before February 1, 2003. Management does not
anticipate that the provisions of FIN 46 will have a material impact on the
Company's financial condition and results of operations.
3. Mortgage and Other Notes Receivable
Mortgage notes receivable in the amounts of $17,665,317` and
$27,740,936 at December 31, 2002 and 2001, respectively, represent notes
collateralized by motel properties. The notes provide for monthly principal and
interest (various rates of 6.75% to 10%) receipts over various terms through
2007, although certain notes are callable prior to their due dates.
Other notes receivable in the amount of $556,625 and $573,299 at
December 31, 2002 and 2001, respectively, bear an interest rate of 11% and are
receivable through 2016.
Notes receivable of $8,245,494 at December 31, 2001 have been pledged
as collateral for a loan facility. The loan facility had an outstanding balance
of $3,191,955 at December 31, 2001. The loan was repaid during 2002
At December 31, 2001 and December 31, 2002 approximately $15.6 million
of notes receivable are due from affiliated entities. See note 9. One of the
notes has been amended to reduce the monthly payments until September 1, 2004.
The reduction is to be deferred and added to the amount due at maturity, June 1,
2006. The amount deferred ($ 288,000) is included in Accounts Receivable in the
December 31, 2002 financial statements.
4. Operating Properties
The major classes of operating properties, at cost, are as follows:
December 31,
---------------------------------
2002 2001
-------------- --------------
Land $ 40,728,933 $ 42,918,880
Buildings 195,392,617 204,907,435
Furniture and Equipment 55,636,590 57,758,228
-------------- --------------
291,758,140 305,584,543
Less: Accumulated depreciation (104,056,591) (99,412,606)
-------------- --------------
$ 187,701,549 $ 206,171,937
============== ==============
Depreciation expense equaled $9,292,455, $11,174,249, and $11,886,201
for the years ended December 31, 2002, 2001 and 2000, respectively.
5. Notes Payable and Senior Subordinated Notes
In September 1995, the Company completed funding of a financing
transaction with Nomura Asset Capital Corporation ("NACC"). Motels of America,
L.L.C. (the "LLC"), a limited purpose subsidiary, obtained a loan from NACC in
the principal amount of $158.8 million evidenced by a Promissory Note ("Note")
due 2015. The Note is secured by 93 motel properties owned by the LLC. The loan
requires fixed monthly payments (based on a 20-year amortization schedule) of
principal and interest totaling approximately $1,390,000 through October 11,
2005; thereafter, if the loan is not repaid, excess cash flow as defined is
applied as additional principal payments until October 10, 2015 (The maturity
date). Interest accrues at 8.62% through October 11, 2005, and thereafter at a
fixed rate per annum equal to the greater of (i) 10.62% or (ii) the yield as of
October 11, 2005 on ten-year U.S. Treasury notes, plus 4.5%.
5. Notes Payable and Senior Subordinated Notes - (Continued)
The terms of the secured note payable prohibit prepayments and
contain customary restrictive covenants. Release of lien on related collateral
properties may be achieved only via defeasance using U.S. government securities,
as defined in the agreements. Scheduled principle payments required on the
secured note payable are approximately $5,438,000 in 2003, and $5,900,980 in
2004. If the loan is not repaid in 2005, principle payments in 2005 and
subsequent periods will be dependent upon various factors as described above.
See Note 13 for a discussion of events subsequent to December 31, 2002.
In 1994, the Company completed an offering of $80,000,000 in
principal amount of 12% Senior Subordinated Notes due April 15, 2004, Series B.
In conjunction with this offering, 80,000 shares of common stock were also
issued. These Notes have been registered under the Securities Act of 1933 and
are freely transferable by holders thereof. Interest on the Notes is payable
semiannually. The Notes were not redeemable by the Company prior to April 15,
1999. The Company may redeem the Subordinated Notes at 106% reducing to 100%
over the life of the Subordinated Notes plus any accrued and unpaid interest. In
October 1999, the Company repurchased from an affiliated company at fair market
value $35 million of the 12% Senior Subordinated Notes for a gain of $1.9
million, which was offset by the accelerated write-off of deferred financing
costs of $1.9 million. The repurchase transaction included the assumption of
$8.75 million of notes payable of the affiliate. In March 2000, the Company
repurchased from an affiliated company at fair market value $10.5 million of the
12% Subordinated Notes for a gain of approximately $4.2 million which was
partially offset by a $0.6 million write-off of accelerated deferred financing
costs. The repurchase transaction included the assumption of $4.4 million of
notes payable of the affiliate. In October 2000, the Company repurchased from an
affiliated company at fair market value an additional $20.9 million of the 12%
Subordinated Notes for a gain of approximately $6.7 million which was partially
offset by a $1.1 million write-off of accelerated deferred financing costs. The
repurchase transaction included the assumption of $3.7 million of notes payable
of the affiliate. A portion of the purchase price ($12,297,000 and $24,453,000
in 2000 and 1999, respectively) of each repurchase transaction was satisfied
through a reduction of tax amounts due from the parent under the tax sharing
agreement. In October 2001, the Company repurchased from an affiliated company
at fair market value $1.9 million of the Senior Subordinated Notes at a gain,
net of income taxes, of approximately $431,000.
The Company is currently in default with respect to certain covenants
pertaining to its unsecured Senior Subordinated Notes ("Notes"). Accordingly,
holders of not less than 25% of the outstanding Notes may call the outstanding
principal and accrued interest thereon immediately due and payable.(See Note 14)
An extraordinary gain of $5,653,349, net of income taxes, was
recognized in 2000 relating to the repurchase of the 12% Subordinated Notes.
An extraordinary gain of $390,392, net of income taxes, was recognized
in 2001 relating to the repurchase of the 12% Subordinated Notes and a
prepayment penalty of $66,000 relating to early retirement of a note payable.
The declaration and payment of dividends by the Company is restricted
by the indenture relating to the 12% Senior Subordinated Notes.
Substantially all of the company's investment properties, mortgage and
other notes receivable have been pledged as collateral.
5. Notes Payable and Senior Subordinated Notes - (Continued)
A summary of mortgage and other notes payable is as follows:
December 31,
------------------------------------
2002 2001
--------------- ----------------
Mortgage and other notes:
Mortgage note payable secured by 93 motels, with interest at
8.62% through October 10, 2005, then rate equal to greater of
10.62% or ten-year treasury note plus 4.5%; monthly principal
and interest; due October 11, 2015. $ 131,118,878 $ 136,103,458
Mortgage note payable secured by 1 motel, with interest at 9.5%
for the first 3 years which ends April 2003, then adjusted
at years 3 and 6 to prime plus 0.5%; monthly principal and
interest; due April 20, 2007. 1,992,115 2,035,890
Mortgage note payable secured by 1 motel, with interest at
9%; monthly principal and interest; due December 1, 2010. 2,882,367 2,943,819
Mortgage note payable secured by 2 motels at December 31, 2001
with variable interest tied to treasury constant maturity plus
3.75%; monthly principal and interest; paid in full October 1, 2002 - 1,285,613
Mortgage note payable secured by 1 motel, with interest at 7.75%
through 2/1/04, then adjusted to 6-month treasury bill plus 3%;
monthly principal and interest; due February 1, 2009. 2,464,410 2,541,385
Mortgage note payable secured by 2 motels, with interest at LIBOR
plus 3.25%; monthly principal and interest; additional monthly
principal payment of $17,232.68, due January 1, 2004. 6,520,018 6,829,164
Mortgage note payable secured by 1 and 4 motels at December 31, 2002
and 2001 respectively, with interest at prime plus 0.5%;
monthly principal and interest; due April 1, 2006. 1,114,326 4,791,828
Note payable unsecured, with a fixed interest rate of 10%, initial
principal payment $575,000 and three additional annual principal
payments of $200,000; repaid in full July 31, 2002. - 190,521
Note payable secured by a guarantee of New Image, with a fixed
interest rate of 14%; interest payments payable quarterly;
due on demand. (See Note 14) 8,400,000 8,400,000
Note payable with a fixed interest rate of 4%, principal payments
monthly of $10,000 plus interest, due on March 1, 2003 30,000 -
Notes payable secured by vending equipment, interest rate of 6.95%
monthly principal and interest; due May 1, 2004 and June 20, 2004 13,789 -
Note payable secured by vending equipment, interest rate of 5.5%
monthly principal and interest; due March 1, 2004 27,090 -
Notes payable secured by 8 motels at December 31, 2001 and a pledge
of stock of one of MOA Hospitality, Inc.'s subsidiaries, with
interest at a floating rate of LIBOR plus 3% monthly principal and
interest; repaid in full during 2002 - 10,243,677
Industrial development revenue bonds secured by 1 motel, with
interest payable semi-annually at 10.5%; annual sinking fund
redemptions of principal on December 1 through 2016; due
December 1, 2016. 3,275,000 3,275,000
Note payable secured by $20,098,000 of 12% subordinated notes
repurchased by the Company, with a fixed interest rate of 9.5%;
monthly interest and semi-annual principal payments; repaid
in full May 31, 2002. - 800,000
Note payable secured by notes receivable, with an interest rate
of prime plus 1.25%; monthly principal and interest; repaid
in full December 23, 2002. - 3,191,954
Note payable secured by $15,000,000 of 12% subordinated notes
repurchased by the Company, with a fixed interest rate of 13.5%;
monthly interest payments; repaid on October 11, 2002. - 4,629,010
Note payable secured by $10,497,000 of 12% subordinated notes
repurchased by the Company, with a variable interest rate;
monthly interest payments; due April 15, 2004. 2,966,449 4,472,170
Note payable secured by $20,929,000 of 12% subordinated notes
repurchased by the Company, with a fixed interest rate of 12%;
monthly interest payments; due April 15, 2004. 2,000,000 2,000,000
Note payable secured by $20,929,000 of 12% subordinated notes
repurchased by the Company, with a fixed interest rate of 12%;
monthly interest payments; due April 15, 2004. 600,000 600,000
Note payable secured by $20,929,000 of 12% subordinated notes
repurchased by the Company, with a fixed interest rate of 12%;
monthly interest payments; due April 15, 2004. 348,680 548,704
Note payable secured by the cash flow of the LLC, with interest
at 10.5%; monthly principal and interest; due May 15, 2004. 1,335,559 2,160,411
Mortgage note payable secured by 1 motel, with interest at 8.84%;
monthly principal and interest; paid in full August 9, 2002. - 1,389,146
Mortgage note payable secured by 1 motel, with interest at 8.67%;
monthly principal and interest; due August 1, 2011. 3,407,676 3,477,905
Mortgage note payable secured by 1 motel, with interest Libor +3.8%
monthly interest and fixed principle payments; due November 1, 2012 1,596,280 -
Mortgage note payable secured by 1 motel, with interest at 8.84%;
monthly principal and interest; due July 1, 2011. 1,969,183 2,009,300
Note payable secured by the stock of a subsidiary; with interest at
15% Payable on demand. 5,000,000 -
Construction loan secured by motel in progress, with interest at
prime plus 1.25%; monthly interest through 2/1/03, then principal
and interest; due March 1, 2006. Total loan available is $7,000,000. 6,429,066 2,512,288
Unsecured promissory note, bearing no interest, with annual principal
payments of $83,333; due August 24, 2004. 166,667 250,000
Unsecured promissory note, with interest at 9.75%; monthly principal
and interest; repaid in full July 1, 2002. - 1,884
Promissory note secured by vending equipment, with interest at 9.98%;
monthly principal and interest; due November 1, 2008. 114,814 128,616
Promissory note secured by vending equipment, with interest at 9.98%;
monthly principal and interest; due April 1, 2007. 89,374 105,327
--------------- ----------------
183,861,741 206,917,070
Less current portion (32,822,793) (31,666,797)
--------------- ----------------
$ 151,038,948 $ 175,250,273
=============== ================
An extraordinary gain of $305,000 was recognized in 2002 as a
result of the repayment at a discount of $4.7 million of Notes, net of income
taxes of $195,000.
Principal payments required on notes payable and the Senior
Subordinated Notes are scheduled as follows:
Years ended December 31,
2003 $ 32,822,793
2004 19,079,289
2005 120,696,272
2006 7,296,365
2007 2,367,092
Thereafter 13,126,930
---------------
Sub-total 195,388,741
Less: Discount, net of accumulated
amortization (153,861)
---------------
$ 195,234,880
===============
6. Leases
The Company leases certain properties, administrative offices, and
equipment under operating leases. The leases generally provide for the Company
to pay taxes, insurance, and maintenance expenses related to the leased
property. Rent expense was approximately $556,000, $506,000, and $398,000 for
the years ended December 31, 2002, 2001 and 2000, respectively. Minimum annual
rentals for leases on properties and the corporate office for the five years
subsequent to December 31, 2002 and thereafter, are approximately as follows:
Years ended December 31,
2003 $ 563,000
2004 498,000
2005 446,000
2006 393,000
2007 281,000
Thereafter 643,000
------------
$ 2,824,000
============
The Company, as lessor, has entered into operating leases with
unaffiliated parties to operate seventy-four and seventy-five motel properties
at December 31, 2002 and 2001, respectively. Under the terms of these leases,
the lessee is responsible for operating costs including all maintenance,
repairs, taxes and insurance expense on the leased property. The leases, which
have terms ranging from five and a half years to six and half years, provide for
monthly rent payments. In addition, the lease grants the lessee an option to
purchase the leased properties at prices believed by management to reflect
market value, which in the aggregate is $151,376,000 and $142,146,000 at
December 31, 2002 and 2001, respectively. Nonrefundable deposits and
non-refundable purchase price credits, aggregating approximately $25,946,000 and
$23,300,000 at December 31, 2002 and 2001, respectively, received from lessees
can be applied towards the purchase prices of the leased properties. Monthly
lease payments are allocated between rental income and a nonrefundable purchase
price credit to be applied if the purchase option is exercised. The deposits and
real estate tax and other amounts collected from the lessees aggregating
approximately $5,157,000 and $4,600,000 at December 31, 2002 and 2001,
respectively are reflected in the balance sheet as a liability. Future minimum
rentals under the leases (assuming that the purchase options are not exercised
prior to expiration) are approximately as follows:
Years ended December 31,
2003 $ 11,511,000
2004 11,384,000
2005 3,594,000
2006 187,000
--------------
$ 26,676,000
==============
Total cost basis on the seventy-four leased locations at December 31,
2002 is approximately $146,074,000 with accumulated depreciation of
approximately $38,961,000. Total cost basis on the seventy-five leased locations
at December 31, 2001 is approximately $138,370,000 with accumulated depreciation
of approximately $35,034,000. Depreciation is calculated on a 40 year life of
the building.
6. Leases - (Continued)
During 2001 and 2002 the lessees at four and three properties
respectively, defaulted on their leases, resulting in termination of their
leasehold interests and forfeiture of approximately $542,000 and $890,000 in
security deposits and purchase price credits, which are included in lease
revenue in the statement of operations.
7. Impairment losses and restructuring costs
In 2001 and 2002 impairment losses of $6,622,000 and $1,910,440,
respectively, were recorded to reflect the write-down of certain properties to
their estimated fair value based upon a permanent deterioration in operating
results at such properties. During 2002 certain properties were sold and
$920,000 of the impairment loss booked in 2001 is now reflected in discontinued
operations.
8. Income Taxes
During fiscal year 2002 and fiscal year 2001, the Company
recorded a valuation allowance of $454,000 and $581,000, respectively, relating
to state net operating losses from previous years that are not expected to be
utilized.
Total income tax expense (benefit) was allocated as follows:
2002 2001 2000
------------- ------------- -------------
Continuing operations $ (2,183,175) $ (3,179,239) $ (3,659,110)
Discontinued operations (51,769) (534,053) (343,804)
Extraordinary item 194,600 248,755 3,602,298
------------- ------------- -------------
$ (2,040,344) $ (3,464,537) $ (400,616)
============= ============= =============
Income tax expense (benefit) consists of:
Current Deferred Total
------------- ------------- -------------
Year ended December 31, 2002
U.S. federal $ (2,181,076) $ (6,839) $ (2,187,915)
State and local 65,493 (60,753) 4,740
------------- ------------- -------------
$ (2,115,583) $ (67,592) $ (2,183,175)
============= ============= =============
Year ended December 31, 2001
U.S. federal $ (67,539) $ (3,534,598) $ (3,602,137)
State and local (1,171) 424,069 422,898
------------- ------------- -------------
$ (68,710) $ (3,110,529) $ (3,179,239)
============= ============= =============
Year ended December 31, 2000
U.S. federal $ (4,706,551) $ 1,751,331 $ (2,955,220)
State and local 157,221 (861,111) (703,890)
------------- ------------- -------------
$ (4,549,330) $ 890,220 $ (3,659,110)
============= ============= =============
8. Income Taxes - (Continued)
Income tax expense (benefit) differs from the amounts computed by applying the
U.S. federal income tax rate of 34% to income before income taxes and
extraordinary item as a result of the following:
Year Ended December 31,
----------------------------------------------
2002 2001 2000
------------- ------------- ------------
Computed "expected" tax expense (benefit) $ (2,452,457) $ (3,922,589) $ (3,246,051)
Increase (decrease) in income taxes resulting
from:
State income taxes, net of federal
income tax effect (352,051) (563,240) (462,086)
State NOL valuation allowance 453,971 581,424 -
Other, net 167,362 725,166 49,027
------------- ------------- -------------
$ (2,183,175) $ (3,179,239) $ (3,659,110)
============= ============= =============
The deferred tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts reported for income tax purposes are as follows:
December 31,
------------------------------
2002 2001
------------- -------------
Deferred tax assets:
Primarily impairment losses and reserves $ (4,501,078) $ (4,890,436)
State operating loss carryforwards (2,185,062) (1,662,303)
Federal tax credits carryover (447,201) (447,201)
Other, net (498,442) (96,689)
------------- -------------
Deferred tax assets (7,631,783) (7,096,629)
Less:
Valuation allowance 1,035,395 581,424
------------- -------------
Net deferred tax assets (6,596,388) (6,515,205)
Deferred tax liabilities:
Lease cost amortization 564,962 681,177
Investment properties, principally due to
depreciation and purchase accounting
adjustments 4,002,365 4,274,187
------------- -------------
Total deferred tax liabilities 4,567,327 4,955,364
------------- -------------
Net deferred tax (asset) liability $ (2,029,061) $ (1,559,841)
============= =============
8. Income Taxes - (Continued)
The Company is a member of an affiliated group that files a
consolidated tax return for federal income tax purposes and has entered into a
tax allocation agreement with New Image and its parent corporation. In
accordance with the agreement, the Company's tax liability/benefit will be
computed as if the Company had filed its own consolidated tax return and is
subject to tax on all of its taxable income. At December 31, 2001 and December
31, 2002, approximately $487,000 and $3.9 million, respectively is owed from the
parent corporation, which has been included in other accounts payable and
accrued expenses.
At December 31, 2002, the Company has recognized a net
deferred asset relating to net operating loss carryforwards ("NOLs") for state
income tax purposes of approximately $15.4 million. The NOLs, which are subject
to certain limitations, expire at various dates through 2017.
9. Acquisitions and Divestitures
During 2000, the Company sold eight properties for
approximately $20.8 million consisting of $11.2 million in cash and $7.6 million
in first mortgage notes. These sale transactions resulted in a net gain of $2.2
million. The Company also sold a vacant parcel of land at cost during 2000. The
Company also purchased a parcel of land in February 2000 for approximately
$250,000 cash and a note in the amount of $460,000, which was repaid in 2000.
Also, in 2000, the Company, as lessor, has leased an additional thirty-two motel
properties.
During 2001, the Company leased an additional three, and
re-leased three of its lodging facilities to third party operators.
Also during 2001, the Company sold two properties for approximately
$5.5 million in cash for a gain of $1.8 million. The Company also sold three
additional properties to related parties at prices believed by management to
represent fair market value for approximately $17.5 million resulting in a
deferred gain of $5.4 million and notes receivable of $15.6 million secured by
wrap notes on the properties, which are encumbered by $10,533,933 and
$10,888,700 of first mortgage debt that is included in the consolidated
financial statements of the Company at December 31, 2002 and 2001, respectively.
On two of the three properties the Company retained title to the Land and has
leased it on a ground lease to the purchaser. The deferred gain will be
recognized when the note receivables are paid in full.
The Company continues to manage these properties for a fee which was
approximately $217,000 for 2002 and $61,000 for 2001. Short term advances for
operating and capital expenditures, made by the Company on behalf of the
affiliates equaled approximately $426,000 and $464,000 December 31, 2002 and
2001 respectively, and are included in other assets. The Company retained the
land underlying two of these properties in the amount of $1,327,000. The buyers'
obligations under ground leases require annual aggregate payments of $240,000
through an initial term of 31 years. The Company received interest income on the
notes in the amount of $1,205,000 for 2002 and $283,000 for 2001.
Also during 2001 the Company sold its partnership interest in one
lodging facility for $200,000. The Company also recognized a deferred gain of
$1.7 million on one of its lodging facilities sold in a prior year.
During 2001, a subsidiary of the Company purchased a vending company
for $624,000 funded by $126,000 cash and assumption of $498,000 of debt.
During 2002, the Company sold seven properties for approximately
$12.2 million for a net gain of approximately $31,000. The gain has been
reclassified to discontinued operations as discussed below.
9. Acquisitions and Divestitures - (Continued)
Also during 2002, the Company leased an additional seven of its
lodging facilities to third party operators and took back three of its leased
lodging facilities prior to lease expiration. The Company also re-leased one of
its lodging facilities to third party operators under terms similar to previous
operating leases executed by the Company.
Also during 2002, the company sold and leased back two properties to
related parties. Under SFAS 66: "Accounting for Sales of Real Estate," both
sales were required to be recorded on the deposit method, because of the down
payment and the continuing involvement of the company in the properties. In the
consolidated financial statements the properties are reflected as operating
properties. The net of the deposits, interest income and lease expense, which
totaled $663,052 at December 31, 2002, is shown net in Other accounts payable
and accrued expenses.
In accordance with SFAS 144 "Accounting for the Impairment or
Disposal of Long Lived Assets," effective for financial statements issued for
fiscal years beginning after December 15, 2001, operating results and
gain/(loss) on sales of real estate for properties sold subsequent to December
31, 2001 are reflected in the consolidated statements of operations as
discontinued operations for all periods presented. Below is a summary of the
results of operations of these properties through their respective disposition
dates:
For the Three Years Ended
December 31,
--------------------------------
(in thousands)
--------------------------------
2002 2001 2000
-------- -------- --------
Revenues
Motel operating revenues $ 418 $ 1,489 $ 2,970
Lease revenues 490 678 310
-------- -------- --------
Total revenues 908 2,167 3,280
Costs and expenses:
Motel operating expenses 326 976 2,240
Marketing and royalty fees 44 138 257
Lease expenses 117 112 5
Impairment loss - 920 -
Depreciation and amortization 422 917 960
-------- -------- --------
Total direct expenses 909 3,063 3,462
-------- -------- --------
Net operating loss (1) (896) (182)
Interest expense on mortgage
debt 183 489 711
-------- -------- --------
Income (loss) from operations (184) (1,385) (893)
Net gain on sale of properties 31 - -
-------- -------- --------
Income (loss) before income taxes (153) (1,385) (893)
Income tax expense (benefit) (52) (534) (344)
-------- -------- --------
Discontinued operations $ (101) $ (851) $ (549)
======== ======== ========
10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Mortgage and other notes receivable: The fair values of the Company's
mortgage and other notes receivable are estimated using discounted cash
flow analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings.
Mortgage and other notes payable: The fair values of the Company's
mortgage and other notes payable are estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements.
12% Senior Subordinated Notes: The fair value of the Company's 12% Senior
Subordinated Notes are based on quoted market prices.
The carrying amounts and fair values of the Company's financial
instruments at December 31 are as follows:
Carrying Amount Fair Value Carrying Amount Fair Value
2002 2002 2001 2001
--------------- -------------- --------------- --------------
Cash and cash equivalents $ 3,200,050 $ 3,200,050 $ 3,152,386 $ 3,152,386
Mortgage and other notes
receivable 18,221,942 18,196,860 28,314,235 28,015,672
Secured notes payable 183,861,741 181,280,058 206,917,070 202,364,597
12% Senior Subordinated
Notes 11,373,139 3,411,942 11,304,007 6,765,448
11. Segments
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No 131, "Disclosures About Segments of an Enterprise and
Related Information"("Statement No. 131") establishes standards for the manner
in which public business enterprises report information regarding reportable
operating segments.
The Company, directly and through subsidiaries, owned 107 lodging
facilities in 33 states, 113 lodging facilities in 36 states and 118 lodging
facilities in 38 states for the years ended December 31, 2002, 2001 and 2000,
respectively. The Company owns a 100% interest in all of its properties.
Seventy-four, seventy-five and seventy-five of its motels for the years ended
December 31, 2002, 2001 and 2000, respectively, which are leased to third party
tenants pursuant to operating leases and one to an affiliated party. During 2002
the Company sold seven of its properties and as a result the operations for
those properties have been reclassified to discontinued operations for all
periods presented (See note #9). The Company separately evaluates the
performance of each of its motels. However, because each of the motels has
similar economic characteristics, the motels have been aggregated into a single
dominant motel segment as indicated below.
11. Segments (continued)
2002 2001 2000
---------- ---------- ----------
(in thousands)
Motel operations:
Motel operating revenue:
Room revenues $ 34,227 $ 40,016 $ 50,951
Ancillary motel revenues 3,486 3,634 4,177
---------- ---------- ----------
Total motel operating revenues 37,713 43,650 55,128
Motel costs and expenses:
Motel operating expenses 19,836 23,221 29,358
Marketing and royalty fees 2,607 3,106 3,917
Depreciation and amortization 5,026 6,028 6,933
---------- ---------- ----------
Total motel direct expenses 27,469 32,355 40,208
---------- ---------- ----------
10,244 11,295 14,920
Lease Operations:
Lease revenues 12,663 11,769 9,832
Lease operating expenses 959 671 455
Depreciation and amortization 5,400 6,010 6,278
---------- ---------- ----------
6,304 5,088 3,099
Vending Operations:
Vending revenues 3,979 2,185 1,072
Vending operating expenses 4,809 2,141 1,081
Depreciation and amortization 579 376 226
---------- ---------- ----------
(1,409) (332) (235)
Corporate Operations
Other revenues 2,653 2,230 2,880
General and administrative expenses:
Management Company Operations 4,488 5,100 4,813
Construction/Acquisition and Divestiture 252 471 975
Vending general and administrative 943 1,361 622
---------- ---------- ----------
Total general and administrative expenses 5,683 6,932 6,410
Impairment losses and restructuring costs 1,910 5,702 -
Depreciation and amortization 222 660 662
---------- ---------- ----------
(5,162) (11,064) (4,192)
---------- ---------- ----------
Net operating income 9,977 4,987 13,592
Interest expense 17,190 20,173 24,844
---------- ---------- ----------
Loss from operations (7,213) (15,186) (11,252)
Minority interests - (20) (472)
Gain on sale of properties - 3,669 2,177
---------- ---------- ----------
Income (loss) from continuing operations
Before income taxes (7,213) (11,537) (9,547)
Income tax expense (benefit) (2,183) (3,179) (3,659)
---------- ---------- ----------
Income (loss) from continuing operations (5,030) (8,358) (5,888)
Discontinued operations (100) (851) (549)
---------- ---------- ----------
Income (loss) before extraordinary item (5,130) (9,208) (6,437)
Gain on early extinguishment of debt 305 390 5,653
---------- ---------- ----------
Net Income (loss) $ (4,825) $ (8,818) $ (784)
========== ========== ==========
Total Assets:
Motel operations $ 104,165 $ 117,909 $ 137,785
Lease operations 114,975 112,352 121,072
Corporate and other 25,564 34,145 28,404
---------- ---------- ----------
$ 244,704 $ 264,406 $ 287,261
========== ========== ==========
12. Contingencies
The Company is involved in various legal proceedings arising
in the ordinary course of business. The Company does not believe that any of
these actions, either individually or in the aggregate, will have a material
adverse effect on the Company's business, results of operations or financial
condition.
13. Subsequent Events
As described in Note 5, "Notes Payable and Senior Subordinated Notes",
the Company through LLC has a mortgage note payable secured by 93 of LLC's
motels, 24 of which are operated by the Company, and 69 that are leased to
third-party tenants. At December 31, 2002, the outstanding balance on this
promissory note was $131,118,878. On February 28, 2003, the Company received a
default notice from the servicer of the loan ("Servicer") alleging that LLC's
lease program violated certain loan covenants. The Company believes that the
leasing program, which began in 1998, has been properly disclosed to the lender
in both monthly and annual financial reports provided to the lender. In
addition, on March 31, 2003, the Company was notified that the loan had been
accelerated. The Company disputes the validity of both the default and
acceleration notices and has been in negotiations with the Servicer to resolve
these issues. In conjunction with such continuing negotiations, the cure date
was tolled and extended by the Servicer through July 11, 2003. In July 2003,
negotiations with the Servicer stalled and on July 10th, LLC filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code.
Subsequent to filing the petition, LLC obtained a commitment to refinance the
existing loan and the Servicer agreed to such refinancing subject to a $2.5
million prepayment penalty plus expenses.
On August 26, 2003, the refinancing closed in the amount of $137.25
million. The new loan bears interest at LIBOR plus 5% with a floor of 7.5%,
matures September 13, 2008 and stipulates that aggregate net proceeds in excess
of $2.5 million from the sale of collateral properties must be applied as
principal reductions on the loan. The loan has a requirement for cumulative
mandatory principal reductions of $60 million by 9/13/2004, $90 million by
9/13/2005 and $112.25 million by 9/13/06. Additional payments of "Exit Interest"
are required based on the proceeds of each property sale (as defined). The exit
interest ranges from 2.5% to 5% and is capped at $6.25 million. The bankruptcy
petition was dismissed by the court immediately prior to the closing of the
refinancing.
14. Going concern
The Company is currently in default with respect to certain covenants
pertaining to its unsecured Senior Subordinated Notes ("Notes"). Accordingly,
holders of not less than 25% of the outstanding Notes may call the outstanding
principal and accrued interest thereon immediately due and payable. The Company
has not received notification from the Trustee that the Notes are being called.
The Company does not believe it will have sufficient liquidity to repay the
Notes from operating cash flow and is therefore seeking to extend the maturity
date of the Notes to October 15, 2007 and is seeking a reduction in the interest
rate. As a result of the default and the uncertainty with respect to the timing
of the repayment of the Notes, the Notes have been classified as a current
obligation as of December 31, 2002.
The Company is currently in default with respect to certain covenants
and subsequent to December 31, 2002 ceased paying interest on the $8.4 million
note. The Company is currently in negotiation with the holder to restructure the
terms of the $8.4 million note that is currently due upon demand and therefore
classified as a current obligation as of December 31, 2002. The Company does not
have sufficient liquidity to repay the note if demanded by the holder.
As a result of the uncertainties raised with respect to the above,
there can be no assurance that the Company will be successful in its attempts to
restructure the terms of the notes and accordingly, there is substantial doubt
about the Company's ability to continue as a going concern. Other than
classifying the Senior Subordinated Notes as a current obligation, no adjustment
to the consolidated financial statements at December 31, 2002 have been made to
reflect this uncertainty.
MOA HOSPITALITY, INC
SCHEDULE III - LEASED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2002
(Dollars In Thousands)
Cost Capitalized
Encumbrances (1) Initial Cost Subsequent to Acqusition
---------------- ------------------------ ------------------------------------------
December 31, Building & Building &
Location Name 2002 Land Improvements Land Impairments Improvements
- ----------------------------------- ---------------- -------- ------------- -------- ------------ -------------
Akron Super 8 Motel (3) $ - $ 176 $ 1,431 $ - $ - $ 70
Anderson Super 8 Motel (3) - 146 947 - - 24
Athens Microtel (3) - 443 1,917 - (451) 34
Battle Creek Super 8 Motel (3) - 112 1,168 - - 40
Billings Ramada (3) - 668 2,100 - - 164
Bloomington Super 8 Motel (3) - 204 1,468 - - 64
Brunswick Super 8 Motel (3) - 184 1,490 - - 131
Camden Travelodge (3) - 168 898 - - 61
Carson City Super 8 Motel (3) - 257 706 - - 28
Cartersville Super 8 Motel (3) - 99 1,378 - - 67
Champaign Super 8 Motel (3) - 190 1,773 - - 18
Charleston Super 8 (3) - 172 1,437 - - 354
Charlottesville Super 8 Motel (3) - 220 1,430 - - 49
Chattanooga Airport Inn - 500 1,428 - - -
Chattanooga Super 8 Motel - 180 1,047 - - 70
Columbus IN Super 8 Motel (3) - 63 1,480 - - 36
Crystal Lake Super 8 Motel (3) - 283 2,428 - - 152
Danville Super 8 Motel (3) - 151 623 - - 43
Davenport Super 8 Motel (3) - 183 1,503 - - 97
Decatur Super 8 Motel (3) - 193 1,492 - - 99
Dublin Best Western (3) - 598 3,438 - (1,780) 152
East Memphis Super 8 Motel (3) - 456 1,414 - - 68
Elkhart Fairway Inn (3) - 571 926 - - 138
Fernandina Beach, the Inn at (3) - 912 5,273 - (1,046) 239
Fitzgerald , The Inn at (3) - 472 2,670 - (1,226) 136
Fremont Super 8 Motel (3) - 150 622 - - 39
Grand Forks Super 8 Motel (3) - 86 928 - - 15
Grand Rapids Super 8 Motel (3) - 132 1,240 - - 24
Greenwood Days Inn (3) - 119 656 - - 36
Hibbing Super 8 Motel (3) - 354 587 - - 4
Hinesville, The Inn at (3) - 703 3,969 - (600) 193
Independence Super 8 Motel (3) - 233 1,916 - - 145
Indianapolis Days Inn (3) - 606 3,852 - - 417
Janesville Super 8 Motel (3) - 134 1,106 - - 79
Johnson City Super 8 Motel (3) - 189 1,593 - - 87
Kalamazoo Super 8 Motel (3) - 153 1,261 - - 30
Kenosha Super 8 Motel (3) - 164 1,304 - - 86
Lake City Microtel - 441 1,525 - (543) 111
Las Cruces Super 8 Motel (3) - 116 1,291 - - 89
Lewiston Super 8 Motel (3) - 176 653 - - 41
Lexington Super 8 Motel (3) - 372 846 - - 189
Liberty Super 8 Motel (3) - 211 1,663 - - 138
Litchfield Super 8 Motel (3) - 344 1,080 - - 29
Macon Ramada (3) - 821 4,743 - (2,065) 149
Melbourne Howard Johnson (3) - 593 3,391 - - 233
Minot Super 8 Motel (3) - 131 968 - - 81
Muncie Days Inn (3) - 429 668 - - 36
Muskegon Super 8 Motel (3) - 160 1,181 - - 19
NW Kansas City Super 8 Motel (3) - 181 1,633 - - 58
Panama City Super 8 Motel (3) - 211 1,595 - - 125
Pensacola Super 8 Motel (3) - 154 1,013 - - 7
Peru Super 8 Motel (3) - 197 1,370 - - 94
Phoenix Super 8 Motel - 490 1,915 - (580) 269
Red Wing Super 8 Motel (3) - 500 1,371 - - (3)
Rice Lake Super 8 Motel (3) - 547 951 - - 23
Richmond Best Western (3) - 457 2,567 - - 116
Rome Super 8 Motel (3) - 93 1,158 - - 45
Saginaw Super 8 Motel (3) - 168 1,156 - - 42
Salina Super 8 Motel (3) - 261 1,012 - - 68
Salt Lake Super 8 Motel - 785 3,917 - - 381
Savage Comfort Inn (3) - 574 1,436 - (75) 77
Shreveport Super 8 Motel (3) - 456 2,249 - - 133
Sioux Falls Super 8 Motel (3) - 225 1,503 - - 45
South Springfield Super 8 Motel (3) - 323 1,569 - - 55
Springfield IL. Super 8 Motel (3) - 243 1,226 - - 94
Springfield MO. Super 8 Motel (3) - 150 1,119 - - 35
St Clairsville Super 8 Motel (3) - 273 1,363 - - 59
Topeka Super 8 Motel (3) - 168 1,299 - - 84
Tuscola Super 8 Motel (3) - 488 1,569 - - 46
Union City Super 8 Motel (3) - 211 850 - - 73
Warner Robins Super 8 Motel (3) - 102 1,555 - - 95
Waukegan Super 8 Motel (3) - 231 1,659 - - 201
Weldon Orchard Inn (3) - 229 919 - - 288
Westwood Pacific Best Western (3) - 1,685 6,260 - - 141
---------------- -------- ------------- -------- ------------ -------------
TOTAL LEASED $ - $23,823 $ 123,142 $ - $ (8,366) $ 7,253
================ ======== ============= ======== ============ =============
MOA HOSPITALITY, INC
SCHEDULE III - LEASED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2002
(Dollars In Thousands) - Continued
Accumulated Date of
Depreciation Acquisition (A)
Building & at December 31, or Placed (P) Year of
Location Name Land Improvements Total 2002 (2) in Service Construction
- ----------------------------------- -------- ------------ --------- --------------- --------------- ------------
Akron Super 8 Motel (3) $ 176 $ 1,501 $ 1,676 $ 582 Jul 1987 (A) 1986
Anderson Super 8 Motel (3) 146 971 1,116 383 Jul 1987 (A) 1986
Athens Microtel (3) 443 1,500 1,942 205 Oct 1998 (A) 1998
Battle Creek Super 8 Motel (3) 112 1,208 1,320 475 Jul 1987 (A) 1985
Billings Ramada (3) 668 2,264 2,931 451 Sep 1994 (A) 1978
Bloomington Super 8 Motel (3) 204 1,531 1,735 598 Jul 1987 (A) 1985
Brunswick Super 8 Motel (3) 184 1,620 1,804 620 Jul 1987 (A) 1986
Camden Travelodge (3) 168 959 1,126 200 Apr 1994 (A) 1989
Carson City Super 8 Motel (3) 257 733 989 353 Jun 1985 (P) 1985
Cartersville Super 8 Motel (3) 99 1,444 1,543 559 Jul 1987 (A) 1986
Champaign Super 8 Motel (3) 190 1,791 1,980 673 Jul 1987 (A) 1984
Charleston Super 8 (3) 172 1,791 1,963 635 Mar 1993 (A) 1973
Charlottesville Super 8 Motel (3) 220 1,479 1,698 577 Jul 1987 (A) 1986
Chattanooga Airport Inn 500 1,428 1,928 - Oct 2002 (A) 1972
Chattanooga Super 8 Motel 180 1,117 1,296 429 Jul 1987 (A) 1986
Columbus IN Super 8 Motel (3) 63 1,516 1,578 601 Jul 1987 (A) 1984
Crystal Lake Super 8 Motel (3) 283 2,580 2,863 992 Jul 1987 (A) 1983
Danville Super 8 Motel (3) 151 666 817 246 Jul 1987 (A) 1987
Davenport Super 8 Motel (3) 183 1,599 1,782 616 Jul 1987 (A) 1984
Decatur Super 8 Motel (3) 193 1,591 1,783 614 Jul 1987 (A) 1983
Dublin Best Western (3) 598 1,811 2,408 760 Apr 1994 (A) 1984
East Memphis Super 8 Motel (3) 456 1,482 1,937 470 Jun 1990 (A) 1990
Elkhart Fairway Inn (3) 571 1,064 1,635 206 Apr 1994 (A) 1990
Fernandina Beach, the Inn at (3) 912 4,466 5,377 1,162 Apr 1994 (A) 1985
Fitzgerald , The Inn at (3) 472 1,581 2,052 593 Apr 1994 (A) 1985
Fremont Super 8 Motel (3) 150 661 810 267 Jun 1989 (A) 1986
Grand Forks Super 8 Motel (3) 86 943 1,029 374 Jul 1987 (A) 1983
Grand Rapids Super 8 Motel (3) 132 1,264 1,395 499 Jul 1987 (A) 1986
Greenwood Days Inn (3) 119 693 811 273 Jul 1987 (A) 1986
Hibbing Super 8 Motel (3) 354 591 944 121 Apr 1994 (A) 1993
Hinesville, The Inn at (3) 703 3,562 4,264 1,194 Apr 1994 (A) 1976
Independence Super 8 Motel (3) 233 2,060 2,293 669 Jul 1987 (A) 1983
Indianapolis Days Inn (3) 606 4,269 4,875 824 Apr 1994 (A) 1985
Janesville Super 8 Motel (3) 134 1,185 1,319 456 Jul 1987 (A) 1985
Johnson City Super 8 Motel (3) 189 1,680 1,868 648 Jul 1987 (A) 1986
Kalamazoo Super 8 Motel (3) 153 1,292 1,445 508 Jul 1987 (A) 1985
Kenosha Super 8 Motel (3) 164 1,390 1,553 538 Jul 1987 (A) 1984
Lake City Microtel 441 1,092 1,533 181 Jun 1998 (P) 1998
Las Cruces Super 8 Motel (3) 116 1,380 1,496 536 Jul 1987 (A) 1981
Lewiston Super 8 Motel (3) 176 693 869 320 Jun 1985 (P) 1985
Lexington Super 8 Motel (3) 372 1,035 1,407 393 Apr 1987 (P) 1987
Liberty Super 8 Motel (3) 211 1,801 2,012 697 Jul 1987 (A) 1980
Litchfield Super 8 Motel (3) 344 1,110 1,453 224 Apr 1994 (A) 1987
Macon Ramada (3) 821 2,827 3,647 1,783 Apr 1994 (A) 1987
Melbourne Howard Johnson (3) 593 3,624 4,217 750 Apr 1994 (A) 1990
Minot Super 8 Motel (3) 131 1,049 1,180 398 Jul 1987 (A) 1977
Muncie Days Inn (3) 429 704 1,132 146 Apr 1994 (A) 1990
Muskegon Super 8 Motel (3) 160 1,200 1,359 475 Jul 1987 (A) 1986
NW Kansas City Super 8 Motel (3) 181 1,691 1,871 658 Jul 1987 (A) 1983
Panama City Super 8 Motel (3) 211 1,720 1,931 656 Jul 1987 (A) 1986
Pensacola Super 8 Motel (3) 154 1,020 1,173 399 Jul 1987 (A) 1985
Peru Super 8 Motel (3) 197 1,464 1,660 561 Jul 1987 (A) 1986
Phoenix Super 8 Motel 710 1,604 2,314 205 Dec 1998 (P) 1998
Red Wing Super 8 Motel (3) 500 1,368 1,867 230 Jan 1996 (A) 1987
Rice Lake Super 8 Motel (3) 547 975 1,521 200 Apr 1994 (A) 1984
Richmond Best Western (3) 457 2,683 3,139 568 Apr 1994 (A) 1985
Rome Super 8 Motel (3) 93 1,203 1,295 473 Jul 1987 (A) 1986
Saginaw Super 8 Motel (3) 168 1,198 1,366 469 Jul 1987 (A) 1985
Salina Super 8 Motel (3) 261 1,080 1,341 382 Jun 1989 (A) 1984
Salt Lake Super 8 Motel 785 4,298 5,083 1,505 Mar 1988 (A) 1983
Savage Comfort Inn (3) 574 1,438 2,012 301 Apr 1994 (A) 1982
Shreveport Super 8 Motel (3) 456 2,382 2,837 488 Apr 1994 (A) 1986
Sioux Falls Super 8 Motel (3) 225 1,548 1,773 619 Jul 1987 (A) 1976
South Springfield Super 8 Motel (3) 323 1,624 1,947 361 Apr 1994 (A) 1987
Springfield IL. Super 8 Motel (3) 243 1,321 1,563 275 Apr 1994 (A) 1985
Springfield MO. Super 8 Motel (3) 150 1,154 1,304 458 Jul 1987 (A) 1985
St Clairsville Super 8 Motel (3) 273 1,422 1,694 554 Jul 1987 (A) 1986
Topeka Super 8 Motel (3) 168 1,383 1,551 543 Jul 1987 (A) 1984
Tuscola Super 8 Motel (3) 488 1,614 2,102 325 Sep 1994 (A) 1988
Union City Super 8 Motel (3) 211 923 1,134 327 Jan 1989 (A) 1989
Warner Robins Super 8 Motel (3) 102 1,651 1,752 636 Jul 1987 (A) 1986
Waukegan Super 8 Motel (3) 231 1,861 2,092 696 Jul 1987 (A) 1986
Weldon Orchard Inn (3) 229 1,208 1,436 375 Mar 1993 (A) 1973
Westwood Pacific Best Western (3) 1,687 6,401 8,087 1,421 Jan 1994 (A) 1994
-------- ------------ --------- ---------------
TOTAL LEASED $24,045 $ 122,029 $146,074 $ 38,961
======== ============ ========= ===============
MOA HOSPITALITY, INC
SCHEDULE III - LEASED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2002
Continued
(1) The Company has various mortgage notes payable. See footnote 5 to
the Company's consolidated financial statements for a description
of its mortgage notes payable.
(2) Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets.
(3) These properties are part of a mortgage covering 93 properties with
a balance of $131,118,878 as of December 31, 2002.
The following table reconciles our historical cost for the years
ended December 31, 2002, 2001 and 2000:
Year ended December 31,
( in thousands )
2002 2001 2000
---------- ---------- ----------
Balance, beginning of period $ 138,370 $ 140,211 $ 83,383
Properties leased during period 22,172 8,473 56,807
Additions to buildings during period 28 20
Sales and lease terminations during the period (13,576) (5,723) -
Impairments (892) (4,618) -
---------- ---------- ----------
Balance, end of period $ 146,074 $ 138,370 $ 140,211
========== ========== ==========
The following table reconciles the acccumulated depreciation for
the years ended December 31, 2002, 2001 and 2000:
Year ended December 31,
( in thousands )
2002 2001 2000
---------- ---------- ----------
Balance, beginning of period $ 35,034 $ 30,678 $ 17,351
Depreciation prior to lease date 3,600 1,957 10,635
Depreciation for the period on leased properties 3,284 3,242 2,693
Sales and lease terminations during the period (2,957) (843) -
---------- ---------- ----------
Balance, end of period $ 38,961 $ 35,034 $ 30,678
========== ========== ==========
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 29th day of
September 2003.
MOA HOSPITALITY, INC.
By: /s/ Kurt M. Mueller
Kurt M. Mueller
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------------------------- ------------------------ ------------------
/s/ Paul F. Wallace Director, Chairman and September 29, 2003
Paul F. Wallace Chief Executive Officer
Principal Executive Officer
/s/ Kurt M. Mueller Director, President and September 29, 2003
Kurt M. Mueller Chief Financial Officer
Principal Financial Officer
/s/ Alan H. Baerenklau Director September 29, 2003
Alan H. Baerenklau
/s/ Peter W. McClean Director September 29, 2003
Peter W. McClean
/s/ Ronald P. Stewart Director September 29, 2003
Ronald P. Stewart
/s/ Philip J. Levien Director September 29, 2003
Philip J. Levien
CERTIFICATIONS
Written Statement of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
I, Kurt M. Mueller, certify that:
1. I have reviewed this annual report on Form 10-K of MOA Hospitality, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this annual report ( the "Evaluation
Date" ); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions;
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
efficiencies and material weaknesses.
Date: September 29, 2003
/s/ Kurt M. Mueller
Kurt M. Mueller
Chief Financial Officer
CERTIFICATIONS
Written Statement of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
I, Paul F. Wallace, certify that:
1. I have reviewed this annual report on Form 10-K of MOA Hospitality, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
5. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.
6. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this annual report ( the "Evaluation
Date" ); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions;
c) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
d) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
efficiencies and material weaknesses.
Date: September 29, 2003
/s/ Paul F. Wallace
Paul F. Wallace
Chief Executive Officer
CERTIFICATIONS
Written Statement of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
I, Kurt M. Mueller, certify that:
1. I have reviewed this annual report on Form 10-K of MOA Hospitality, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
7. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.
Date: September 29, 2003
/s/ Kurt M. Mueller
Kurt M. Mueller
Chief Financial Officer
CERTIFICATIONS
Written Statement of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
I, Paul F. Wallace, certify that:
1. I have reviewed this annual report on Form 10-K of MOA Hospitality, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
8. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.
Date: September 29, 2003
/s/ Paul F. Wallace
Paul F. Wallace
Chief Executive Officer