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	UNITED STATES SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549
	Form 10-K

Commission file no. 1-14537

Lodgian, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act

Securities registered pursuant to Section 12(g) of the Act

     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 þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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.    o

     Indicate by check mark whether the registrant is an accelerated filer as defined by section 12-b — 2 of the Act.    Yes o         No þ

     The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of the registrant as of March 27, 2003, was $12,260,650 based on the closing price of $3.28 per share on the American Stock Exchange on such date. For purposes of this computation, all directors, executive officers and 10% shareholders are treated as affiliates of the registrant.

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes þ         No o

     The registrant had 6,682,667 shares of Common Stock, par value $.01, outstanding as of March 27, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

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PART I

Item 1.     Business

Overview

      Lodgian, Inc. (“Lodgian” or the “Company”) is one of the largest owners and operators of full-service hotels in the United States. At March 24, 2003, Lodgian managed a portfolio of 97 hotels (18,265 rooms located in 30 states and Canada). The portfolio included 92 hotels which were wholly-owned, four in which the Company had a 50% or greater equity interest and one in which the Company had a minority equity interest. All of the hotels are owned in separate operating subsidiaries or other legal entities.

      Lodgian’s hotels are primarily full-service properties which offer food and beverage services, meeting space and banquet facilities and compete in the mid-price and upscale segments of the lodging industry. Lodgian believes that these segments have more consistent demand generators than other segments of the lodging industry and have recently experienced less development of new properties than other lodging segments, such as limited service, economy and budget segments.

      Of the Company’s 97 hotel portfolio, 82 are Crowne Plaza, Holiday Inn and Marriott brand hotels and eight are affiliated with four other nationally recognized hospitality franchises. The Company’s strong brand affiliations bring many benefits in terms of guest loyalty and market share premiums.

History of the Company

      Lodgian is a successor to Servico, Inc. (“Servico”) as a result of Servico’s merger (the “Merger”) with Impac Hotel Group, LLC (“Impac”), a privately-owned management and development company. Servico was incorporated in 1956 under the laws of the State of Delaware. The Merger was completed on December 11, 1998 and was accounted for under the purchase method of accounting.

      At the time of the Merger, the Company’s portfolio included 142 owned hotels. At the end of 1999, the Company adopted a strategic plan to reduce the size of its hotel portfolio and, in 2000, adopted a strategic plan to reduce the Company’s debt. As a result of these strategies, at the end of December 31, 2000, the Company’s portfolio of owned hotels stood at 112.

      The Company’s heavy debt load, the weaker U.S. economy, the decline in travel in the aftermath of the terrorist attacks on September 11, 2001 and impaired availability of funds for maintaining the quality of the Company’s hotels combined to place adverse pressure on the Company’s cash flows and liquidity. As a result, on December 20, 2001, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the filing, the Company’s portfolio included 106 hotel properties.

      Less than one year later, at a Confirmation Hearing held on November 5, 2002, the Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) and, on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lenders in January 2003 in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease.

      Of the Company’s 97 hotel portfolio, 18 hotels are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11 (the “Impac Hotels”). The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of March 24, 2003. The Impac Hotels contributed approximately 11.7% of the revenues from the 105 properties comprising the Company’s 2002 revenues. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors have reached an agreement with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed

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Franchise affiliations

      With 85% of the Company’s portfolio comprised of Crowne Plaza, Holiday Inn and Marriott brand hotels, the Company believes that it is well-positioned to take advantage of superior brand equity and quality standards. The Company’s hotels also benefit from franchisors’ central reservation offices, their global distribution systems and brand internet booking sites. These together contribute approximately 30% of the Company’s total reservations for these brands.

      The Company is subject to certain property maintenance and quality standard compliance requirements under its franchise agreements. The Company periodically receives notifications from its franchisors of events of noncompliance with such agreements. In the past, management has cured most cases of noncompliance within the applicable cure periods and the events of noncompliance did not result in events of default under the related loan agreements. However, in selected situations, management may elect to not comply with the franchisor requirements. In such situations, the Company will either select an alternative franchisor or operate the property independent of any franchisor.

      At March 24, 2003, substantially all of the Company’s owned and managed hotels were affiliated with national franchisors, as set forth in the following table:

(1)	Holiday Inn, Holiday Inn Express, Holiday Inn Select and Crowne Plaza brands.
(2)	Marriott, Courtyard by Marriott, Residence Inn and Fairfield Inn brands.
(3)	Hilton and Doubletree brands.
(4)	Comfort Inn and Suites, Quality Inn and Clarion brands.
(5)	Four Points brands.

      Franchisors provide a number of services to hotel operators which can positively contribute to the improved financial performance of their properties, including national reservation systems, marketing and advertising programs and direct sales programs. Hotels typically operate with high fixed costs, and increases in revenues generated by affiliation with a national franchisor can contribute positively to a hotel’s financial performance.

      The Company’s license agreements with the national hotel franchisors typically authorize the operation of a hotel under the licensed name, at a specific location or within a specified area, and require that the hotel be

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      The license agreements generally have terms of between 10 and 20 years. The licensor may require the Company to upgrade facilities at any time to comply with the licensor’s then current standards. The licensee may apply for a license renewal as existing licenses expire. In connection with license renewals, the licensor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facility, or the licensor may elect not to renew the license. It is the Company’s policy to review individual property franchise affiliations at the time of property acquisition and, thereafter, on a regular basis. These reviews may result in changes in such affiliations.

Joint Ventures

      In addition to operating the 92 hotels which the Company wholly owned at March 24, 2003, Lodgian operated four hotels owned in joint venture in which the Company has a 50% or greater equity interest and one hotel in which the Company has a minority equity interest. In each joint venture, to varying extents, the Company shares decision making authority with its joint venture partners and may not have sole discretion with respect to a hotel’s disposition.

Competition and Seasonality

      The hotel business is highly competitive. The Company competes with other facilities on various bases, including room prices, quality, service, location and amenities customarily offered to the traveling public. The demand for accommodations and the resulting cash flow vary seasonally. The off-season tends to be the winter months for properties located in colder weather climates and the summer months for properties located in warmer weather climates. Levels of demand are dependent upon many factors including general and local economic conditions and changes in levels of tourism and business-related travel. The hotels depend upon both commercial and tourist travelers for revenues. Additionally, the hotels operate in areas that contain numerous other competitive lodging facilities.

      The advent and increasing prevalence of travel-related internet web sites have increased price awareness among travelers and price competition among similarly located comparable hotels.

      Lodgian also competes with other hotel owners and operators with respect to: (1) licensing upscale and mid-priced franchises in targeted markets; (2) acquiring hotel properties to renovate and reposition; and (3) acquiring developmental sites for new hotel properties. The Company’s competition is highly fragmented and is comprised of relatively small, private owners and operators of hotel properties, public companies and private equity funds.

Employees

      At December 31, 2002, the Company had approximately 4,860 full-time and 1,969 part-time associates. The Company had 118 full-time associates engaged in administrative and executive activities. The balance of associates manage, operate and maintain the Company’s properties. At December 31, 2002, approximately

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Insurance

      Lodgian maintains insurance covering liabilities for personal injuries and property damage. The Company also maintains, among other types of insurance coverage: terrorism insurance, directors’ and officers’ liability insurance, liquor liability insurance, workers’ compensation insurance, travel accident insurance for certain employees, fiduciary liability insurance, business automobile insurance, and environmental insurance on certain properties. Management believes it maintains sufficient insurance coverage for the operation of its business.

      There are other types of losses, such as from wars, for which the Company cannot obtain insurance at all or at a reasonable cost. In the event of an uninsured loss or a loss in excess of the Company’s insurance limits, the Company could lose both the revenues generated from the affected property and the capital it has invested in the affected property. Depending on the specific circumstances of the affected property, it is possible that the Company could be liable for any mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect the Company’s financial condition and results of operations.

Regulation

      The Company’s hotels are subject to certain federal, state and local regulations which require the Company to obtain and maintain various licenses and permits. All such licenses and permits must be periodically renewed and may be revoked or suspended for cause at any time. Certain of these licenses and permits are material to the Company’s business and the loss of such licenses could have a material adverse effect on the Company’s financial condition and results of operations. The Company is not aware of any reason why it should not be in a position to maintain its licenses.

      Lodgian is subject to certain federal and state labor laws and regulations such as minimum wage requirements, regulations relating to working conditions, laws restricting the employment of illegal aliens and the Americans with Disabilities Act. As a provider of restaurant services, the Company is also subject to certain federal, state and local health laws and regulations. The Company believes it complies with such laws and regulations in all material respects. Lodgian is also subject in certain states to dramshop statutes, which may give an injured person the right to recover damages from any establishment which wrongfully served alcoholic beverages to a person who, while intoxicated, caused the injury. Management believes that the Company’s insurance coverage with respect to the service of alcoholic beverages is adequate.

      To date, federal and state environmental regulations have not had a material effect on the Company’s operations. However, such laws potentially impose cleanup costs for hazardous waste contamination on property owners. If any material hazardous waste contamination problems do exist on any of the Company’s properties, the Company may be exposed to liability for the costs associated with the cleanup of such sites.

SEC Filings and financial information

      Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our website (www.Lodgian.com) as soon as reasonably practicable after these are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

      The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding the Company.

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      Disclosure of financial information relating to revenues from external customers, profit or loss for the last three fiscal years and total assets for the last two years may be found in the Consolidated Financial Statements, beginning on page F-1.

Item 2.     Properties

      Lodgian owned or managed 106 hotels, containing 19,888 rooms located in 32 states and Canada, at December 31, 2002. These hotels included 101 wholly-owned hotels, four hotels in which the Company had a 50% or greater equity interest, and one hotel in which the Company had a minority equity interest. In January 2003, pursuant to the Joint Plan of Reorganization, eight of the wholly-owned hotels were returned to the lenders and one hotel was returned to the lessor of a capital lease thereby reducing the portfolio of wholly-owned hotels to 92 and the total managed portfolio to 97. The Company’s Corporate office is located in Atlanta, Georgia.

Dispositions

      As discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” at the end of 1999, the Company adopted a strategic plan to reduce the size of its hotel portfolio and in 2000, adopted a strategic plan to reduce Company debt. As a result of these strategies, during 2000, the Company sold nineteen hotel properties and four other assets. During 2001, prior to the Company’s Chapter 11 filing, six additional hotels were sold. In January 2003, in connection with the Company’s emergence from Chapter 11, eight hotels were returned to the secured lenders and one hotel was returned to the lessor of a capital lease.

Portfolio

      The Company’s hotel portfolio, as of March 24, 2003, by franchisor, is set forth below.

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(1)	These hotels are owned by the Impac Debtors and could potentially be returned to the lenders, in satisfaction of outstanding mortgage obligations, in the event that the Lehman financing is not completed.

      Fourteen of the hotels listed above are located on land subject to long-term leases. Generally, the leases are for terms in excess of the depreciable lives of the improvements or contain a purchase option and provide for fixed rents. In certain instances, additional rents, based on a percentage of revenue or cash flow, may be payable. The leases generally require the Company to pay the cost of repairs, insurance and real estate taxes.

Item 3.     Legal Proceedings

      On December 20, 2001, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code.

      Less than one year later, at a Confirmation Hearing held on November 5, 2002, the Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) and, on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to lenders in January 2003 in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease.

      Of the Company’s 97 hotel portfolio, 18 hotels are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11 (the “Impac Hotels”). The Impac Hotels represent approximately 19% of the Company’s total hotel properties, and 14% of the Company’s total hotel rooms as of March 24, 2003. The Impac Hotels contributed approximately 11.7% of the revenues from the 105 properties comprising the Company’s 2002 revenues. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors have reached an agreement with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will be returned to the lender in satisfaction of outstanding mortgage obligations. On March 3, 2003, the Impac Debtors filed a separate plan of reorganization (the “Impac Plan of Reorganization”) pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, would obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which would be used to pay the Impac Settlement Amount. Although there can be no assurance, the Company is hopeful that the Impac Plan of Reorganization will be approved and the Lehman Financing successfully completed and, accordingly, that the Company will be able to retain the Impac Hotels.

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      Pursuant to the Joint Plan, the following significant events took effect upon the Company’s emergence from reorganization proceedings:

	•	preferred shares totaling 5,000,000 (par value $0.01; initial liquidation value $25 per share) became available for issuance;
	•	new common shares totaling 7,000,000 (par value $0.01) became available for issuance;
	•	Class A warrants to purchase 1,510,638 shares of common stock at $18.29 per share, became available for issuance;
	•	Class B warrants to purchase 1,029,366 shares of common stock at $25.44 per share, became available for issuance;
	•	the previous equity shares (28,479,837 in total) were cancelled and the previous stockholders received their pro rata share of 207,900 shares of common stock along with warrants to purchase 251,823 shares of common stock at $18.29 per share (Class A warrants) and warrants to purchase 778,304 shares of common stock at an exercise price of $25.44 per share (Class B warrants);
	•	the 12.25% Convertible Redeemable Equity Structured Trust Securities (“CRESTS”) were cancelled and the holders of the CRESTS received their pro rata share of 868,000 shares of the common stock along with warrants to purchase 1,258,815 shares of common stock at $18.29 per share (Class A warrants) and warrants to purchase 251,062 shares of common stock at an exercise price of $25.44 per share (Class B warrants);
	•	the Senior Subordinated Notes (the “Notes”) were cancelled and the holders of the Notes received their pro rata share of 4,690,600 shares of preferred stock and 5,557,511 shares of common stock;
	•	the holders of allowed general unsecured claims became entitled to 309,400 shares of preferred stock and 366,589 shares of common stock. Until distributed, these shares form part of the Disputed Claims Reserve for the pre-bankruptcy petition general unsecured creditors. These shares will be periodically distributed as the disputed claims are resolved;
	•	the Company closed on its $309.0 million exit financing arrangements with and through Merrill Lynch Mortgage Lending, Inc. (used to repay previous debt obligations, to fund payments of certain allowed claims and to fund portions of certain required cash escrows); this financing is secured by 57 of the Company’s hotels.
	•	Loans from lenders approximating $86.0 million, secured by 21 of the Company’s hotels, were reinstated on their previous terms, except for the extension of certain maturities;
	•	in accordance with AICPA, Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the Company implemented fresh start reporting effective November 22, 2002 (the date on which the exit financing agreement was signed). As a result, assets and liabilities have been recorded based on fair values. The Consolidated Financial Statements subsequent to the Company’s emergence from Chapter 11 are those of a new reporting entity (the “Successor”) and are not comparable with the financial statements of the Company prior to the effective date of the Joint Plan of Reorganization (the “Predecessor”).

      The Company was a party in litigation with Hospitality Restoration and Builders, Inc. (“HRB”), a general contractor hired to perform work on six of the Company’s hotels. The litigation involved hotels in Texas, Illinois, and New York. In general, HRB claimed that the Company breached contracts to renovate the hotels by not paying for work performed. The Company contended that it was over-billed by HRB and that a significant portion of the completed work was defective. In July 2001, the parties agreed to settle the litigation pending in Texas and Illinois. In exchange for mutual dismissals and full releases, the Company paid HRB $750,000. With respect to the matter pending in the state of New York, HRB claimed that it was owed $10.7 million. The Company asserted a counterclaim of $7 million. In February 2003, the Company and HRB agreed to settle the litigation pending in the state of New York. In exchange for mutual dismissals and full releases, the Company agreed to pay HRB $625,000. The Company has fully provided for this liability in its Consolidated Financial Statements.

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      The Company is a party to other legal proceedings arising in the ordinary course of business, the impact of which would not, either individually or in the aggregate, in management’s opinion, have a material adverse effect on its financial position or results of operations.

      There are other pre-bankruptcy petition litigations and claims pending against the Company, but the Company’s exposure to such litigations and claims is limited to the Disputed Claims Reserve.

Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during 2002.

PART II

      On November 25, 2002, the Company’s Plan of Reorganization became effective, resulting in the cancellation of 28,479,837 common shares. New common shares totaling 7,000,000 became available for issuance. Of this amount, 6,682,667 shares have been issued. The remaining 317,333 shares form part of the Disputed Claims Reserve available for issuance to the general unsecured creditors. Similarly, 5,000,000 shares of preferred stock became available for issuance. Of this amount, 4,732,160 have been issued. The remaining 267,840 form part of the Disputed Claims Reserve.

      No assurances can be given with respect to the prices at which the Company’s securities will trade and such prices may be materially different from those derived in connection with the Joint Plan of Reorganization.

      Prior to November 21, 2001, the Company’s common stock was traded on the New York Stock Exchange under the symbol “LOD.” Subsequent to November 21, 2001, the Company’s stock traded on the Over-the-Counter Bulletin Board under the trading symbol “LODN.OB.” On emergence from Chapter 11, the common stock traded on the Over-the-Counter Bulletin Board under the symbol “LDGIV.OB” until January 28, 2003 when it began trading on the American Stock Exchange under the symbol “LGN.” The following table sets forth the high and low sales prices of the Company’s common stock on a quarterly basis for the past two years.

Before Reorganization

After Reorganization

(1)	No reliable data was available for this period.

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      As of March 24, 2003, there were 302 shareholders of record who had exchanged old Lodgian common stock for the new stock. In addition, there were 527 and 2,062 old Lodgian shareholders and Servico shareholders, respectively, who had not yet converted their shares into new Lodgian common stock.

      As of March 24, 2003, the shares to be issued to the general unsecured creditors totaled 366,589 shares of common stock and 309,400 shares of preferred stock. On March 27, 2003, the Company made its first distribution of 49,256 common and 41,560 preferred shares to the general unsecured creditors. The remaining shares (317,333 common and 267,840 preferred) represent part of the Disputed Claims Reserve. These shares are considered issued and outstanding for accounting purposes.

      The Board of Directors of the Company will determine future dividend policies based on the Company’s financial condition, profitability, cash flow, capital requirements and business outlook, among other factors.

      Because all of the Company’s cash flows will be used in the foreseeable future to fund operations, capital improvements and to make payments under the exit financing agreement and other mortgage financings, the Company does not anticipate paying dividends on the new common stock in the near future.

      The new preferred stock issued on the Company’s emergence from Chapter 11 accrues cumulative dividends, compounded annually at the rate of 12.25%. On the first anniversary of the Company’s emergence from Chapter 11 (November 25, 2003), the preferred dividend will be paid via the issuance of additional shares of preferred stock. On the second and third anniversary (November 25, 2004 and 2005), the Board of Directors will declare such dividends and will have the option of paying such dividends in cash or in kind via the issuance of additional shares of preferred stock.

Equity Compensation Plan Information

*

On November 25, 2002, the Company adopted a new Stock Incentive Plan (the “Stock Incentive Plan”) which replaced the Option Plan previously in place. The Stock Incentive Plan was not approved by security holders as it was adopted in connection with the Company’s Joint Plan of Reorganization. In accordance with the Stock Incentive Plan, awards to acquire up to 1,060,000 shares of common stock could be granted to officers or other key employees or consultants of the Company as determined by a committee appointed by the Board of Directors. Awards may consist of stock options, stock appreciation rights, stock awards, performance share awards, section 162(m) awards or other awards determined by the committee. Stock options granted pursuant to the Stock Incentive Plan cannot be granted at an exercise price which is less than 100% of the fair market value per share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining to any awards made pursuant to the Stock Incentive Plan are determined by the committee. As of December 31, 2002, no awards had been made pursuant to the Stock Incentive Plan.

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Item 6.     Selected Financial Data

Selected Consolidated Financial Data

      The following table presents selected financial data derived from the Company’s historical financial statements for the periods, November 23, 2002 to December 31, 2002 (the “Successor”) and January 1, 2002 to November 22, 2002 and the four years ended December 31, 2001 (the “Predecessor”). This financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included in this Form 10-K.

      The Company emerged from Chapter 11 on November 25, 2002 and implemented fresh start reporting effective November 22, 2002 (the date that the exit financing agreement was signed). As a result, the Consolidated Statements of Operations information for the period November 23 to December 31, 2002 reflect the Company’s financial position and operating results after the effect of the Company’s Plan of Reorganization and the application of the principles of fresh start reporting in accordance with SOP 90-7. The Consolidated Financial Statements are those of a new reporting entity and are not comparable with the financial statements of the Predecessor Company.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

      The discussion in this section should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes included in this Form 10-K.

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      The economic downturn which commenced in early 2001 and the aftermath of the terrorist attacks of September 11, 2001 resulted in a sharp decline in lodging demand in 2001 and continued to impact the Company’s operating results during 2002. In addition, the Company’s heavy debt load as well as hotel product issues, arising from a lack of sufficient liquidity, all combined to place adverse pressure on the Company’s cash flows and liquidity.

Filing and emergence from Chapter 11

      On December 20, 2001, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code.

      Less than one year later, at a Confirmation Hearing held on November 5, 2002, the Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) and, on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Reorganization, eight other wholly-owned hotels were returned to lenders in January 2003 in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease.

      Of the Company’s 97 hotel portfolio, 18 hotels are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11 (the “Impac Hotels”). The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of March 24, 2003. The Impac Hotels contributed approximately 11.7% of the revenues from the 105 properties comprising the Company’s 2002 revenues. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors have reached an agreement with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will be returned to the lender in satisfaction of outstanding mortgage obligations. On March 3, 2003, the Impac Debtors filed a separate plan of reorganization (the “Impac Plan of Reorganization”) pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, would obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which would be used to pay the Impac Settlement Amount. Though there can be no assurance, the Company is hopeful that the Impac Plan of Reorganization will be approved and the Lehman Financing successfully completed and, accordingly, that the Company will be able to retain the Impac Hotels.

      The significant events which were effected upon the Company’s emergence from reorganization proceedings are more fully discussed in the Liquidity and Capital Resources section and in Note 2 of the Notes to the Consolidated Financial Statements.

Stock Exchange Listing

      On January 28, 2003, the Company’s newly issued common and preferred stocks were approved for listing on the American Stock Exchange under the symbols, “LGN” and “LGN.pr”.

Financial Comparison

      Management believes that results of operations in the hotel industry are best explained by three key performance measures: occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) levels. These measures are influenced by a variety of factors including national, regional and local economic conditions, the degree of competition with other hotels in the area and changes in travel patterns. The demand for accommodations is also affected by normally recurring seasonal patterns and most of the Company’s hotels experience lower occupancy levels in the fall and winter months (November through February) which may result in lower revenues, lower net income and less cash flow during these months.

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Results of operations

      The Company emerged from Chapter 11 on November 25, 2002 and applied fresh start reporting effective November 22, 2002 (the date that the exit financing agreement was signed). As a result, all assets and liabilities were recorded based on fair values. The Consolidated Financial Statements subsequent to the Company’s emergence from Chapter 11 are those of a new reporting entity (the “Successor”) and are not comparable with the financial statements of the Company prior to the effective date of the Joint Plan of Reorganization (the “Predecessor”). For purposes of the discussion below, the Predecessor’s results for the period January 1, 2002 to November 22, 2002 have been combined with the Successor’s results for the period November 23, 2002 to December 31, 2002 (the “2002 combined period”). The differences between periods due to fresh start reporting are explained where necessary.

      The data in the table above, for 2002, presents the results for the 2002 combined period. The same unit data compares the results for the 2002 combined period with the comparative periods for 2001 and 2000, but only for the hotels that are included in the consolidated results for the 2002 combined period. The table supplements the comparison below which provides a more detailed analysis and discussion of the Company’s results and liquidity for the 2002 combined period and for the years ended December 31, 2001 and 2000 (referred to as “2001” and “2000,” respectively) . This discussion should be read in conjunction with the Company’s Audited Consolidated Financial Statements and related notes set forth in “Item 8. Financial Statements and Supplementary Data” included in this Form 10-K.

Revenues

      Revenues are comprised of room, food and beverage and other revenues. Room revenues are derived from guest room rentals, whereas food and beverage revenues primarily include sales from hotel restaurants, room service, hotel catering and meeting room rentals. Other revenues include charges for guests’ long-distance telephone service, laundry and parking.

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     2002 combined period compared to 2001

      Revenues for the Company were $409.8 million for the 2002 combined period, an 8.4% decrease in revenues from $447.6 million for 2001. As shown in the preceding table, the occupancy and average daily rates declined in the 2002 combined period compared with 2001. These reductions are reflective of the economic recession, the aftermath of the terrorist attack on September 11, 2001 and hotel product quality issues due to liquidity constraints leading up to the Company’s Chapter 11 filing. Approximately 14 of the Company’s hotels are located in close proximity to major airports and these hotels have been directly affected by the decline in air travel. RevPAR has also been impacted by renovations in progress at some of the Company’s hotels.

     2001 compared to 2000

      In addition to the factors described above, revenues and RevPAR for 2001 were impacted by the Company’s previous strategic plans to reduce the size of its hotel portfolio and Company debt which resulted in the sale of twenty-five hotel properties between January 1, 2000 and December 31, 2001.

      Those plans caused a significant reduction in revenues between 2001 and 2000. Specifically, revenues for the Company were $447.6 million for 2001, a 23.0% decrease in revenues from $580.9 million for 2000. Of this $133.3 million decrease, approximately $90.6 million was a result of the sale of hotels. Revenues on a same unit basis, were $440.5 million for 2001 and $483.2 million for 2000 (a decline of 8.8%). RevPAR, on a same unit basis, for hotels owned at the end of 2001 declined by 8.3% compared with 2000 primarily as a result of a decline in occupancy of 7.4% as well as a decrease in average daily rates of 1.0%.

     Management’s response

      Management’s current strategies include improving revenues through improved marketing strategies and product quality. The corporate sales and revenue teams have been aligned along brand lines to leverage the benefits that can be gained from the respective flags. With the softening of the transient demand, the sales focus and deployment is on increasing group, contract and local corporate room night consumption. A significant capital expenditure program has been established to improve product quality and guest experience.

     Operating expenses

      Operating expenses are comprised of direct, general and administrative, other expenses and depreciation and amortization. Direct expenses, including rooms, food and beverage and other operations, reflect expenses directly related to hotel operations. These expenses are primarily variable with available rooms and occupancy rates, but also have a small fixed component, which can be leveraged with increases in revenues. General and administrative and other expenses primarily represent property level expenses related to general operations such as marketing, utilities, repairs and maintenance and other property administrative costs. General administrative and other expenses also include corporate salaries and other corporate expenses which are generally fixed.

Direct operating expenses

     2002 combined period compared to 2001

      Direct operating expenses for the Company were $164.0 million (40% of revenues) for the 2002 combined period and $174.3 million (38.9% of revenues) for 2001. This $10.3 million decrease is primarily attributable to the reduction in revenues.

     2001 compared to 2000

      Direct operating expenses for the Company were $174.3 million (38.9% of revenues) for 2001 and $230.9 million (39.8% of direct revenue) for 2000. This $56.6 million decrease is primarily attributable to the reduction in revenues.

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     Management’s response

      Management has embarked on strategies to reduce costs at the hotel level while remaining focused on guest satisfaction. In March 2002, a purchasing director was hired. Purchasing strategies have been implemented to capture the synergies and efficiencies of national vendor contracts. Since the Company has emerged from Chapter 11, the Company is in a better position to negotiate more attractive purchasing arrangements and terms with its vendors.

General, administrative and other expenses

      The property level component of general, administrative and other expenses were lower in the 2002 combined period over 2001 and 2001 over 2000, primarily as a result of reductions in revenues. Property level expenses contain significant elements of fixed costs and therefore do not reduce proportionately with revenues.

     2002 combined period compared to 2001

      General, administrative and other expenses were $172.7 million (42.1% of revenues) in the 2002 combined period and $194.8 million (43.5% of revenues) in 2001. In addition to the reduction due to lower revenues, general administrative and other overheads for the 2002 combined period declined as a result of significant reductions in corporate overheads (declined by $18.4 million) due to certain corporate cost reduction initiatives which were implemented at the corporate office. These initiatives included reductions in staffing, office space and technology costs. Insurance costs, an element of general, administrative and other expenses, increased by 38.7% ($2.7 million) effective with the policy renewal in September 2002.

     2001 compared to 2000

      General, administrative and other expenses were $194.8 million (43.5% of revenues) in 2001 and $224.7 million (38.7% of revenues) in 2000.

      In addition to the reduction due to lower revenues, general administrative and other overheads for 2001 were impacted by certain higher general, administrative and other expenses, mainly utilities, insurance, franchise fees and property taxes. Utility costs increased 21% in the first quarter of 2001 due to higher usages caused by extreme winter conditions in certain locations and increased energy rates. Insurance costs increased due to premium increases in the global insurance market. Franchise fees increased as a result of the prior year conversion of certain hotels to franchise arrangements that have slightly higher fee structures and certain changes in guest awards by franchisors. Property taxes increased due to higher property tax assessments in certain markets. Also, included in general, administrative and other expenses were $3.6 million of professional fees principally related to consultants performing certain financial and accounting management responsibilities within the Company, $1.2 million relating to certain legal matters mainly in respect of the HRB matter, and $3.2 million relating principally to provisions for certain sales and other taxes and receivable write-offs.

      Included in general, administrative and other expenses for 2000 were $7.5 million of professional fees related to the completion of accounting, tax, systems and other merger integration matters; $2.0 million related to legal and other costs associated with two non-consummated transactions (Whitehall and Edgecliff) and certain hotel asset dispositions; and $2.6 million related principally to provisions for certain sales and other taxes and receivable write-offs.

Depreciation and amortization expenses

     2002 combined period compared to 2001

      Depreciation and amortization expense was $57.2 million in the 2002 combined period and $62.5 million in 2001. This reduction is attributable to reduced carrying values of certain assets arising from impairment charges recorded in the fourth quarter of 2001 as well as to a reduction in the number of hotels (six were sold in 2001). This decrease was offset by additional depreciation related to capital improvements. Also,

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     2001 compared to 2000

      Depreciation and amortization expense was $62.5 million in 2001 and $64.8 million in 2000. The $2.3 million decrease is a result of a decrease in depreciation of $7.1 million related to hotels sold, net of additional depreciation expense of $4.8 million relating to six hotels previously considered held for sale and that were no longer being actively marketed for sale.

Impairment of long-lived assets

     2002 combined period compared to 2001

      No impairment charges were recorded during the 2002 combined period. However, the Company’s implementation of fresh start reporting resulted in a write-down of fixed assets of $222.1 million. These charges are included in reorganization items, which are discussed later. The impairment charges for 2001 are discussed below as part of the comparison between 2001 and 2000.

     2001 compared to 2000

      Impairment of long-lived assets was $67.3 million in 2001 and $60.7 million in 2000. The charge for the 2001 period was comprised of $6.6 million related to revised estimates of fair value for properties held for sale, $4.0 million related to one property which was identified as held for sale and also sold in 2001 and $69.0 million relating to a charge to reduce the carrying value of certain of the Company’s hotels held for future use, offset by a recapture of $12.3 million of impairment charges related to six hotels that were previously considered held for sale that were no longer being actively marketed for sale.

      Of the impairment charges in the 2001 period, $69.0 million of the impairment charges and the recapture of $8.5 million of previously recognized impairment reserves were recorded in the fourth quarter. Specifically in connection with its bankruptcy petition on December 20, 2001, the Company determined that 29 of its hotels were significantly overleveraged. Therefore, with the approval of the Bankruptcy Court, the Company ceased paying interest to the secured lenders of these properties from the date of the bankruptcy petition. The Company also concluded that it no longer had the ability to hold these hotels for a period sufficient for their estimated future undiscounted cash flows to cover their carrying values. Therefore, in accordance with the provisions of SFAS No. 121, “Accounting for the Impairment or Disposal of Long-lived Assets to be Disposed Of,” the Company determined that an impairment charge of $69.0 million was necessary to reduce the carrying value of these assets. In connection with the bankruptcy petition, the Company also ceased marketing for sale the remaining four properties that were previously classified as held for sale. Since these assets were not considered impaired as the estimated future cash flows from the use of these properties exceeded their carrying values, the Company recaptured $8.5 million of impairment reserves previously recorded in 1999, 2000 and 2001.

      Impairment charges for 2000 comprised $11.3 million related to revised estimates of fair value for properties held for sale at December 31, 1999, $3.5 million related to one property held for use, $56.6 million related to the ten hotels sold to Sunstone Investors, LLC on August 31, 2000, net of a recapture of $10.7 million of impairment charges recorded in 1999 and 2000 as seven hotels previously considered held for sale as of December 31, 1999 were no longer being actively marketed for sale.

Other income and expenses

      Interest income and other for the 2002 combined period, 2001 and 2000 was $5.0 million, $0.7 million and $1.5 million, respectively. The significant increase in the 2002 combined period relates primarily to a discharge of indebtedness, recorded in the second quarter of 2002, in respect of Macon Hotel Associates, LLC, a 60%-owned subsidiary. The resulting gain on extinguishment of this indebtedness was $4.4 million and

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      Interest expense for the 2002 combined period and for 2001 was $32.1 million and $75.3 million, respectively. This decrease is mainly due to the treatment of highly leveraged debts while the Company was in Chapter 11. Where the estimated value of the underlying collateral in respect of certain debts was considered to be less than the debt obligation, the Company ceased accruing interest on those debts. Contractual interest expense in respect of those debts that was not recorded for the 2002 combined period (excluding interest on the CRESTS) approximated $28.2 million. Recorded interest expense for the 2002 combined period versus 2001 was also less as a result of a reduction in interest on variable rate debts as interest rates declined during 2002.

      Interest expense for 2001 and 2000 was $75.3 million and $97.3 million, respectively. The $22.0 million decrease over 2000 was primarily a result of the decrease in the level of debt which occurred when the Company sold the six hotels (including one of its largest) and used the proceeds to pay down debt. To a lesser extent, interest expense for 2001 was also impacted by a reduction in the cost of variable rate debt in 2001 versus 2000.

      The interest hedge break fee recorded in 2000 of $4.3 million represents amounts paid by the Company to break the interest rate lock agreement on one of its credit facilities.

      The acquisition termination fees of $3.5 million recorded during 2000 related to a reimbursement of expenses to Whitehall due to the non-consummation of an agreement for the sale of the Company.

      Gains on asset dispositions for the 2002 combined period, 2001 and 2000 were nil, $24.0 million and $0.3 million, respectively. The gain for 2001 related primarily to the sale of one hotel in the first quarter of 2001 (the Westin William Penn) and represents the excess of the net proceeds of sale over the net book value of assets sold.

      Minority interest for the 2002 combined period, 2001 and 2000 was $(0.3) million, $12.8 million and $13.1 million, respectively. The significant change in the 2002 combined period compared to the equivalent amounts for 2001 and 2000 is due to the non-accrual of the CRESTS interest. The Company ceased accruing interest on the CRESTS as these were considered to be unsecured debts of the Company. CRESTS interest not accrued for the 2002 combined period approximated $12.7 million.

      Reorganization items — The Company recorded all transactions incurred as a result of the Chapter 11 filing and the implementation of fresh start reporting, including the gain on extinguishment of debt, as reorganization items and classified these as one line item on its income statement. For the Successor period (November 23, 2002 to December 31, 2002), such expenses are included in general administrative and other expenses.

      The table below summarizes the reorganization items of the Predecessor Company for the period January 1, 2002 to November 22, 2002 and for the year ended December 31, 2001 (amounts in thousands):

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      The extinguishment of debt, arising from the application of fresh start reporting was comprised of (amounts in thousands):