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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-22745
Janus Hotels and Resorts, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2572712
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2300 Corporate Blvd., N.W.,
Suite 232
Boca Raton, Florida 33431-8596
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 997-2325
(Former name, former address and former fiscal year, if changed since last
report)
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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Number of shares of common stock outstanding as of August 1, 2003: 5,564,005
Page 1
JANUS HOTELS AND RESORTS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets As Of June 30, 2003 and
December 31, 2002 3
Unaudited Consolidated Statements Of Operations For The Three
Months Ended June 30, 2003 and 2002 4
Unaudited Consolidated Statements Of Operations For The Six
Months Ended June 30, 2003 and 2002 5
Unaudited Consolidated Statements Of Cash Flows For The Six
Months ended June 30, 2003 and 2002 6
Notes To Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis Of Financial Condition and
Results of Operations 10
Part II. Other Information 13
Signature Page 13
2
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 AND DECEMBER 31, 2002
June 30, December 31,
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,374,970 $ 4,783,353
Restricted cash 1,287,941 1,274,163
Accounts receivable 1,903,796 2,139,165
Other current assets 1,530,382 191,668
------------- -------------
Total current assets 8,097,089 8,388,349
------------- -------------
Property and equipment, net 78,373,374 82,384,819
Goodwill, net 7,133,384 7,133,384
Replacement reserve 2,119,323 2,535,637
Other assets 1,735,655 1,533,481
------------- -------------
$ 97,458,825 $ 101,975,670
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,321,053 $ 4,547,850
Current portion of long-term debt 17,148,051 36,907,239
Accounts payable 2,757,733 2,554,789
Accrued expenses 2,121,125 2,199,444
------------- -------------
Total current liabilities 27,347,962 46,209,322
------------- -------------
Long-term debt, net of current portion 45,630,432 28,631,305
Deferred tax liabilities 1,274,000 3,999,000
Stockholders' equity:
Preferred stock, series B; par value $0.01 per share; 5,000,000 shares authorized;
3,100 shares issued and outstanding 31 31
Common stock, par value $0.01 per share; 15,000,000 shares authorized;
11,804,518 shares issued 118,046 118,046
Additional paid-in capital 34,645,991 34,645,991
Accumulated deficit (6,176,470) (6,246,858)
Treasury stock, 6,240,513 common shares, at cost (5,381,167) (5,381,167)
------------- -------------
Total stockholders' equity 23,206,431 23,136,043
------------- -------------
$ 97,458,825 $ 101,975,670
============= =============
See notes to unaudited consolidated financial statements.
3
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
------------ ------------
Revenues:
Room and related services $ 7,161,084 $ 7,558,999
Food and beverage 2,403,563 2,608,312
Management fees 662,549 760,072
Other 275,746 230,204
------------ ------------
Total revenues 10,502,942 11,157,587
------------ ------------
Operating expenses:
Direct:
Room and related services 1,848,273 1,849,307
Food and beverage 1,897,855 1,947,994
Selling and general 609,579 603,864
------------ ------------
Total direct expenses 4,355,707 4,401,165
------------ ------------
Occupancy expenses 1,361,159 1,360,963
General and administrative expenses 2,802,297 2,904,150
Depreciation 984,155 986,906
Amortization 32,781 46,130
------------ ------------
Total operating expenses 9,536,099 9,699,314
------------ ------------
Operating income 966,843 1,458,273
Other income (expense):
Interest expense (924,219) (1,649,093)
Interest income 13,151 98,827
Gain (loss) from sale of property (1,407,256) -
------------ ------------
Income (loss) from continuing operations before income taxes (1,351,481) (91,993)
Provision (credit) for income taxes (2,284,000) (672,000)
------------ ------------
Income (loss) from continuing operations 932,519 580,007
Gain on disposal of discontinued operations, net of taxes 11,276 17,415
------------ ------------
Net income (loss) 943,795 597,422
Less preferred dividend requirement 58,125 58,125
------------ ------------
Net income (loss) applicable to common stock $ 885,670 $ 539,297
============ ============
Basic income (loss) per common share:
Income (loss) from continuing operations $ 0.16 0.07
Gain on disposal of discontinued operations - -
------------ ------------
Net income (loss) $ 0.16 $ 0.07
============ ============
Diluted income (loss) per common share:
Income (loss) from continuing operations $ 0.16 0.07
Gain on disposal of discontinued operations - -
------------ ------------
Net income (loss) $ 0.16 $ 0.07
============ ============
Weighted average common shares:
Basic 5,564,005 7,242,691
============ ============
Diluted 5,564,005 7,242,691
============ ============
See notes to unaudited consolidated financial statements.
4
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
------------ ------------
Revenues:
Room and related services $ 12,867,025 $ 13,189,445
Food and beverage 4,597,642 4,747,653
Management fees 1,282,831 1,415,814
Other 553,428 411,677
------------ ------------
Total revenues 19,300,926 19,764,589
------------ ------------
Operating expenses:
Direct:
Room and related services 3,457,510 3,336,448
Food and beverage 3,617,216 3,639,951
Selling and general 1,235,978 1,151,712
------------ ------------
Total direct expenses 8,310,704 8,128,111
------------ ------------
Occupancy expenses 2,823,958 2,806,399
General and administrative expenses 5,396,333 5,639,008
Depreciation 1,982,960 1,960,740
Amortization 64,384 92,261
------------ ------------
Total operating expenses 18,578,339 18,626,519
------------ ------------
Operating income 722,587 1,138,070
Other income (expense):
Interest expense (2,017,387) (3,292,128)
Interest income 25,142 219,589
Gain (loss) from sale of property (1,407,256) -
Other - (49,590)
------------ ------------
Income (loss) from continuing operations before income taxes (2,676,914) (1,984,059)
Provision (credit) for income taxes (2,840,000) (834,000)
------------ ------------
Income (loss) from continuing operations 163,086 (1,150,059)
Gain on disposal of discontinued operations, net of taxes 23,552 34,830
------------ ------------
Net income (loss) 186,638 (1,115,229)
Less preferred dividend requirement 116,250 116,250
------------ ------------
Net income (loss) applicable to common stock $ 70,388 $ (1,231,479)
============ ============
Basic income (loss) per common share:
Income (loss) from continuing operations $ 0.02 $ (0.17)
Gain on disposal of discontinued operations - -
------------ ------------
Net income (loss) $ 0.02 $ (0.17)
============ ============
Diluted income (loss) per common share:
Income (loss) from continuing operations $ 0.02 $ (0.17)
Gain on disposal of discontinued operations - -
------------ ------------
Net income (loss) $ 0.02 $ (0.17)
============ ============
Weighted average common shares:
Basic 5,564,005 7,325,365
============ ============
Diluted 5,564,005 7,325,365
============ ============
See notes to unaudited consolidated financial statements.
5
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
------------ ------------
Operating activities:
Net income (loss) $ 186,638 $ (1,115,229)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 1,982,960 1,960,740
Amortization of intangible assets 64,384 92,261
Deferred taxes (2,725,000) (654,000)
Loss on sale of property 1,407,256 -
Loss on note settlement - 49,590
Changes in operating assets and liabilities:
Accounts receivable 235,369 (239,165)
Other current assets (1,349,234) 11,912
Replacement reserve (322,406) 188,809
Other asset 416,314 (264,599)
Accounts payable and accrued expenses (182,643) 922,263
------------ ------------
Net cash provided by (used in) operating activities (286,362) 952,582
------------ ------------
Investing activities:
Purchases of property and equipment (1,263,260) (794,783)
Proceeds from sale of property 2,200,000 -
Collections of notes receivable - 56,345
------------ ------------
Net cash (used in) provided by investing activities 936,740 (738,438)
------------ ------------
Financing activities:
Dividends paid (58,125) (116,250)
Decrease (Increase) in restricted cash (13,778) (263,878)
Repurchase of common stock - (851,081)
Proceeds from short-term borrowings 1,254,672 1,300,174
Repayments of short-term borrowings (481,469) (1,309,949)
Proceeds from long-term borrowings 18,850,000 -
Repayments of long-term borrowings (21,610,061) (599,877)
Other 483
------------ ------------
Net cash used in financing activities (2,058,761) (1,840,378)
------------ ------------
Decrease in cash and cash equivalents (1,408,383) (1,626,234)
Cash and cash equivalents, beginning of period 4,783,353 7,097,345
------------ ------------
Cash and cash equivalents, end of period $ 3,374,970 $ 5,471,111
============ ============
Supplemental disclosure of cash flow data:
Interest paid $ 2,065,342 $ 1,585,161
============ ============
Taxes paid $ 304,200 $ 104,020
============ ============
Noncash investing and financing transactions:
Dividends declared not paid $ 58,125 $ -
============ ============
See notes to unaudited consolidated financial statements.
6
JANUS HOTELS AND RESORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Unaudited interim financial statements:
The consolidated financial statements included herein have been
prepared by Janus Hotels and Resorts, Inc. (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America, have been condensed or omitted as permitted by such rules and
regulations. The Company believes the disclosures included herein are
adequate; however, these consolidated statements should be read in
conjunction with the financial statements and the notes thereto for the
year ended December 31, 2002 previously filed with the Securities and
Exchange Commission on Form 10-K.
In the opinion of management, these unaudited, consolidated financial
statements contain all of the adjustments (normal and recurring in
nature) necessary to present fairly the consolidated financial position
of the Company at June 30, 2003 and the consolidated results of
operations and cash flows for the three-month and six-month periods
ended June 30, 2003 and 2002. The results of operations for the periods
presented may not be indicative of those which may be expected for the
full year.
Stock options: In accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, the Company will recognize compensation costs as a result of
the issuance of stock options based on the excess, if any, of the fair
value of the underlying stock at the date of grant or award (or at an
appropriate subsequent measurement date) over the amount the employee
must pay to acquire the stock. Therefore, the Company will not be
required to recognize compensation expense because of any grants of
stock options at an exercise price that is equivalent to or greater
than fair value.
There were no grants of stock options during the first six months of
2003 or the year ended December 31, 2002. The weighted average fair
value at date of grant for options granted during 2001 was $0.97. The
fair value of options at the date of grant was estimated using the
Black-Scholes model with the following assumptions: (i) expected life -
5 years; (ii) interest rate - 3.0%; (iii) volatility - 78%; and, (iv)
dividend yield - 0%. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant date
for the award in 2001 consistent with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's pro forma net
income for the quarter and six months ended June 30, 2003 would not
have changed, and the pro forma net income for the quarter ended June
30, 2002 would have been $587,597, or $0.07 per common share and the
pro forma net loss for the six months ended June 30, 2002 would have
been $1,134,879, or $0.17 per common share.
Accounting pronouncements: In January 2003 the FASB issued FASB
Interpretation 46, "Consolidation of Variable Interest Entities" ("FIN
46"), an interpretation of Accounting Research Bulletin No. 51. FIN 46
clarifies the application for certain entities that do not have
sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties or
in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest entities"). It
applies in the first fiscal year or interim period beginning after June
15, 2002. The Company does not expect FIN 46 to have a material impact
on its consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments With Characteristics of Both Liabilities and
Equity. SFAS No. 150 changes the classification in the statement of
financial position of certain common financial instruments from either
equity or mezzanine presentation to liabilities and requires an issuer
of those financial statements to recognize changes in fair value or
redemption amount, as applicable, in earnings. SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003, and with one exception, is effective at the beginning of the
first interim period beginning after June 15, 2003. The effect of
adopting SFAS No. 150 will be recognized as a cumulative effect of an
accounting change as of the beginning of the period of adoption.
Restatement of prior periods is not permitted. SFAS No. 150 is not
expected to have any impact on the Company's financial position or
results of operations.
7
Note 2 -- Organization:
As of June 30, 2003, the continuing operations of the Company were
comprised primarily of the operation of twelve hotels and a hotel
management company which manages hotels for unrelated parties.
Note 3 - Business restructuring:
Effective April 18, 2003, the Company restructured its business by
transferring seven of its thirteen owned hotel properties to a newly
formed corporation controlled by the Company, JAGI Subsidiary, Inc.
("JAGI"). The Company continues to own six hotel properties and
maintains a hotel management business. JAGI is a consolidated
subsidiary for accounting purposes. Accordingly, the Company does not
anticipate that the transaction will have a material effect on the
financial condition or financial statements of the Company, other than
the creation of a minority interest.
The transferred properties were valued at $13,242,032, net of the
aggregate indebtedness to which they were subject. In exchange for the
transfer, the Company received voting preferred stock of JAGI
representing 79% of the aggregate voting stock of JAGI, and having a
liquidation preference of $13,242,032. The preferred stock has a
cumulative annual dividend of 5% of the liquidation preference, payable
to the extent of 25% of the positive change in cash and cash
equivalents of JAGI for the applicable fiscal year. The preferred stock
is redeemable by JAGI, at its option, after January 1, 2013. After
January 1, 2008, the preferred stock is mandatorily redeemable by JAGI
at the election of holders of two thirds of the shares of preferred
stock.
JAGI also entered into a management agreement with the Company under
which the Company is paid its standard annual management fee of 3% of
gross revenues. Under the management agreement the Company also is
entitled to (i) an incentive fee equal to 50% of JAGI's positive change
in cash and cash equivalents for the applicable fiscal year and (ii)
50% of the net sale proceeds from the disposition by JAGI of any
properties transferred to it by the Company.
The common stock, par value $0.01, of JAGI is owned by Louis S. Beck
and Harry G. Yeaggy, Chairman and Vice Chairman of the Company,
respectively, and owners of approximately 70% of the Company's common
stock. The common stock will represent 21% of the aggregate voting
stock of JAGI. No dividends will be payable on such common stock while
the JAGI preferred stock remains outstanding. In consideration for the
common stock, Messrs. Beck and Yeaggy delivered to JAGI cash in the
amount of the par value of the shares and promissory notes in the
aggregate principal amount of $3,519,996.80 (the "Common Stock Notes"),
together representing 21% of the aggregate initial capitalization of
JAGI. The Common Stock Notes bear interest of 7.5% per annum, payable
quarterly, and are payable in full on December 31, 2011.
A brief description of the seven transferred properties is as follows:
Best Western Cambridge in Cambridge, Ohio (sold May 29, 2003),
Best Western Kings Quarter, located at the Kings Dominion Amusement
Park in Doswell, Virginia,
Days Inn Cambridge in Cambridge, Ohio,
Days Inn Cincinnati in Sharonville, Ohio,
Days Inn Kings Island, located near the Kings Island Amusement Park
in Mason, Ohio,
Holiday Inn North Canton in North Canton, Ohio, and
Red Roof Kings Island, located near the Kings Island Amusement Park
in Mason, Ohio.
The statement of operations does not show a minority interest as a
result of this transaction since the minority stockholders have not
guaranteed the losses of the properties transferred and therefore the
Company has not recognized a minority interest in the operating
deficit.
Note 4 - Debt refinancing:
On June 11, 2003, the Company closed permanent financing on the Holiday
Inn - North Canton and the Holiday Inn - Independence properties. The
secured notes, totaling $18,850,000, have a maturity date of July 1,
2010, and a fixed annual interest rate of 5.9%. Monthly payments were
calculated on the basis of a twenty year amortization of principal and
interest.
8
Effective June 11, 2003, the Company executed note extension agreements
with the Provident Bank for the outstanding balances related to the
Cleveland properties that were due August 1, 2003. These agreements
extended the maturity dates to January 1, 2004. There were no
modifications to any other terms of the notes.
Note 5 - Disposition of property:
On May 29, 2003, the Company sold the property known as Best Western -
Cambridge for cash of $2,200,000. This transaction resulted in a loss
of $1,407,256.
Note 6 - Income taxes:
For the quarter and six months ended June 30, 2003, the Company's tax
credit was calculated after giving effect to the business restructuring
described above. The principal reason for the larger than expected tax
credit relates to deferred state taxes of approximately $1,600,000 that
will not be payable as a result of the business restructuring.
Note 7 - Litigation:
The Company is a party to various legal proceedings. In the opinion of
management, these actions are routine in nature and will not have a
material adverse effect on the Company's consolidated financial
statements in subsequent years.
Note 8 - Subsequent event:
As of July 28, 2003, the Company entered into an Agreement and Plan of
Merger with Janus Acquisition, Inc., a Delaware corporation
("Acquisition"). The merger agreement contemplates that, subject to the
approval of the Company's shareholders and other customary closing
conditions, the Company will be merged with and into Acquisition, with
Acquisition as the surviving corporation. In connection with the Merger
Agreement, each holder of the Company's common stock, except for
Acquisition, will be entitled to receive $0.65 per share.
Acquisition was formed by Louis S. Beck and Harry G. Yeaggy, Chairman /
Chief Executive Officer, and Vice Chairman, respectively, of the
Company for the purpose of taking the Company private. At present,
Messrs. Beck and Yeaggy control approximately 70.4% of the Company's
issued and outstanding common stock.
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIGNIFICANT ACCOUNTING POLICIES
For a description of critical accounting policies, including those which involve
varying degrees of judgement, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.
OVERVIEW
The operations of the Company are comprised primarily of the operations of owned
hotels and the Company's management of hotels owned by third parties. In the
discussion that follows, "comparable hotels" means only those hotels owned and
operated by the Company since January 1, 2002 and still owned and operated as of
June 30, 2003.
The Company had net income of $943,795 for the three months ended June 30, 2003
compared to net income of $597,422 for the three months ended June 30, 2002.
This change is attributable primarily to the loss on the sale of the Best
Western Cambridge property of $1,407,256, the reversal of state deferred taxes
due to the business restructuring and weaker results at the other properties.
The Company had net income of $186,638 for the six months ended June 30, 2003
compared to a net loss of $1,115,229 for the six months ended June 30, 2002.
This change is attributable primarily to the loss on the sale of the Best
Western Cambridge property of $1,407,256 offset by the reversal of state
deferred tax credits due to the business restructuring.
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2002
Room and related services revenue decreased 5.3% to $7,161,084 in 2003 from
$7,558,999 in 2002. For comparable hotels: (i) the average daily room rate
decreased to $58.92 for 2003 from $62.95 in 2002; (ii) occupancy increased in
2003 to 62.8% from 61.1% in 2002; and (iii) room and related services revenue
decreased 4.0% from $7,295,043 in 2002. The Company selectively lowered room
rates in order to increase occupancy rates.
Food and beverage revenues are principally a function of the number of guests
who stay at each owned hotel, local walk-in business and catering sales. These
revenues decreased 7.9% to $2,403,563 in 2003 from $2,608,312 in 2002. For
comparable hotels food and beverage revenues decreased 7.7% from $2,564,312.
Management fee income decreased 12.8% to $662,549 in 2003 from $760,072 in 2002.
This decrease was primarily due to reduced revenues at managed properties.
Total direct operating expenses decreased 1.0% to $4,355,707 in 2003 from
$4,401,165 in 2002 but increased as a percentage of room and related services
and food and beverage revenues to 45.5% from 43.3%. Total direct operating
expenses were flat for comparable hotels.
Occupancy expenses increased less than 0.01% to $1,361,159 from $1,360,963 in
2002. At comparable hotels occupancy expenses increased 2.1%.
General and administrative expenses decreased 3.5% to $2,802,297 in 2003 from
$2,904,150 in 2002 but increased as a percentage of total revenues to 26.7% from
26.0%. For comparable hotels general and administrative expenses decreased 3.5%.
Depreciation decreased by $2,751 in 2003 from $986,906 in 2002. For comparable
hotels depreciation increased $57,425.
Interest income decreased to $13,151 in 2003 from $98,827 in 2002. This decrease
was due to lower available funds and the payoff of a note receivable at the end
of 2002.
Interest expense decreased to $924,219 in 2003 from $1,649,093 in 2002. The
decrease was attributable to the lower rate on the restructured Cleveland loans
beginning in the third quarter of 2002.
For the quarter ended June 30, 2003, the Company's tax credit was calculated
after giving effect to the business restructuring described in the footnotes to
the consolidated financial statements. The principal reason for the larger
10
than expected tax credit relates to deferred state taxes of approximately
$1,600,000 that will not be payable as a result of the business restructuring.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2002
Room and related services revenue decreased 2.4% to $12,867,025 in 2002 from
$13,189,445 in 2002. For comparable hotels: (i) the average daily room rate
decreased to $58.03 for 2003 from $61.86 in 2002; (ii) occupancy increased in
2003 to 57.7% from 54.8% in 2002; and (iii) room and related services revenue
decreased 1.5% from $12,794,180 in 2002.
Food and beverage revenues decreased 3.2% to $4,597,642 in 2003 from $4,747,653
in 2002. For comparable hotels food and beverage revenues decreased 3.1%.
Management fee income decreased 9.4% to $1,282,831 in 2003 from $1,415,814 in
2002. This decrease is primarily due to reduced revenues at managed properties.
Total direct operating expenses increased 2.3% to $8,310,704 in 2003 from
$8,128,111 in 2002 and increased as a percentage of room and related services
and food and beverage revenues to 47.6% from 45.3%. This is due to higher front
desk and housekeeping payroll costs and promotional costs. Total direct
operating expenses increased 3.1% for comparable hotels.
Occupancy expenses increased 0.6% to $2,823,958 from $2,806,399 in 2002. At
comparable hotels occupancy expenses decreased 1.5%.
General and administrative expenses decreased 4.3% to $5,396,333 in 2003 from
$5,639,008 in 2002 and decreased as a percentage of total revenues to 28.0% from
28.5%. For comparable hotels general and administrative expenses decreased 4.3%.
Depreciation increased by $22,220 in 2003 from $1,960,740 in 2002. For
comparable hotels depreciation increased $109,294.
Interest income decreased to $25,142 in 2003 from $219,589 in 2002. This
decrease was due to lower available funds and the payoff of a note receivable at
the end of 2002.
Interest expense decreased to $2,017,387 in 2003 from $3,292,128 in 2002. The
decrease was attributable to the lower rate on the restructured Cleveland loans
in the third quarter of 2002.
For the six months ended June 30, 2003, the Company's tax credit was calculated
after giving effect to the business restructuring described above. The principal
reason for the larger than expected tax credit relates to deferred state taxes
of approximately $1,600,000 that will not be payable as a result of the business
restructuring.
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased to $97,458,825 at June 30, 2003 from $101,975,670 at
December 31, 2002, primarily due to the sale of the Best Western - Cambridge
property.
Net cash used in operating activities was $286,362 in the six months ended June
30, 2003 compared to net cash provided from operating activities of $952,582 in
the six months ended June 30, 2002. The decrease was primarily the result of the
prepayment of insurance premiums.
Net cash provided by investing activities was $936,740 in the six months ended
June 30, 2003 compared to cash used in investing activities of $738,438 in the
six months ended June 30, 2002. This change was principally attributable to the
proceeds from the sale of the Best Western Cambridge property offset by higher
capital expenditures. The Company plans to spend an additional $250,000 on
capital improvements during the remainder of 2003.
Net cash used in financing activities was $2,058,761 in the six months ended
June 30, 2003 compared to $1,840,378 used in financing activities in the six
months ended June 30, 2002. The change was the result of higher repayments on
long-term borrowings.
11
On June 11, 2003, the Company closed permanent financing on the Holiday Inn -
North Canton and the Holiday Inn - Independence properties. The secured notes,
totaling $18,850,000, have a maturity date of July 1, 2010, and a fixed annual
interest rate of 5.9%. Monthly payments were calculated on the basis of a twenty
year amortization of principal and interest.
Effective June 11, 2003, the Company executed note extension agreements with the
Provident Bank for the promissory notes related to the other Cleveland
properties that were due August 1, 2003. These agreements extended the maturity
dates to January 1, 2004. There were no modifications to any other terms of the
notes.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
decreased to $2,769,931 during the six months ended June 30, 2003 compared to
$3,191,071 for the six months ended June 30, 2002. EBITDA is defined as
operating income plus depreciation and amortization. The Company considers this
definition of EBITDA to be an indicative measure of the Company's operating
performance because it can be used to measure the Company's abilities to service
debt, fund capital expenditures and expand its business; such information should
not be considered as an alternative to net income, operating profit, cash flows
from operations or any other operating or liquidity measure prescribed by
generally accepted accounting principles.
The Company maintains a number of commercial banking relationships and maintains
aggregate lines of credit totaling $6,500,000, which had $5,321,053 outstanding
at June 30, 2003.
The Company's contractual obligations at June 30, 2003, and the effect such
obligations are expected to have on its liquidity and cash flow in future
periods have not changed materially since December 31, 2002.
The Company's principal sources of liquidity are cash on hand (including escrow
deposits and replacement reserves), cash from operations, earnings on invested
cash and, when required, principally in connection with acquisitions, borrowings
(consisting primarily of loans secured by mortgages on real property owned or to
be acquired by the Company). The Company's continuing operations are funded
through cash generated from its hotel operations. Acquisitions of hotels are
expected to be financed through a combination of cash on hand, internally
generated cash, issuance of equity securities and borrowings, some of which is
likely to be secured by assets of the Company.
Seasonality
Demand at many of the Company's hotels is affected by seasonal patterns. Demand
for hotel rooms in the industry generally tends to be lower during the first and
fourth quarters and higher in the second and third quarters. Accordingly, the
Company's revenues reflect similar seasonality.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "will likely result," "expects," "plans," "will continue," "is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. All such forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements, including
without limitation, the pace of the travel and hospitality industries recovery
in the aftermath of the terrorist attacks of September 11, 2001; competition
within the lodging industry, both on a local and national level; the duration
and severity of the recent downturn in the economy; the seasonality of the hotel
business; general real estate and economic conditions; the cost and availability
of capital for scheduled maintenance, renovations and expansion; government and
regulatory action affecting the hotel industry; the Company's ability to
generate adequate working capital to sustain its operations, described under the
heading "Liquidity and Capital Resources" above; and the other risks and
uncertainties set forth in the annual, quarterly and current reports of the
Company. The Company has no obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
12
PART II--OTHER INFORMATION
Items 1 to 5
None
Item 6 -- Exhibits and Reports on Form 8-K.
A. Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description
----------- -----------
10.40b(1)* Promissory Note Extension Agreement dated June 11,
2003 between The Provident Bank and JAGI
Cleveland-Hudson, LLC
10.40c(1)* Promissory Note Extension Agreement dated June 11,
2003 between The Provident Bank and JAGI
Cleveland-Independence, LLC
10.40d(1)* Promissory Note Extension Agreement dated June 11,
2003 between The Provident Bank and JAGI Montrose
West, LLC
10.41* Promissory Note dated June 11, 2003 between Well
Fargo Bank, National Association, and JAGI North
Canton, LLC
10.42* Promissory Note dated June 11, 2003 between Well
Fargo Bank, National Association, and JAGI
Cleveland - Independence, LLC
31.1* Certification of Chief Executive Officer required
by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")
31.2* Certification of Chief Financial Officer required
by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange
Act
32.1* Certification of Chief Executive Officer pursuant
to 18 U.S.C. Sec. 1350
32.2* Certification of Chief Financial Officer pursuant
to 18 U.S.C. Sec. 1350
* Filed herewith.
B. Reports on Form 8-K
The following report on Form 8-K was filed during the three months
ended June 30, 2003:
Item Reported Date Reported
------------- -------------
Business restructuring April 18, 2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JANUS HOTELS AND RESORTS, INC.
Dated: August 14, 2003 /s/ Richard A. Tonges
--------------- ----------------------------------------
Richard A. Tonges
Treasurer and Vice President of Finance
(Principal Financial and Accounting
Officer)
13
CERTIFICATIONS
I, Louis S. Beck, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Janus Hotels and
Resorts, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
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 officer and I have indicated in this
quarterly report whether or not 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 deficiencies and material weaknesses.
Date: August 14, 2003
------------------
/s/ Louis S. Beck
- ----------------------------------------------
Louis S. Beck
Chief Executive Officer
14
I, Richard A. Tonges, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Janus Hotels and
Resorts, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
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 officer and I have indicated in this
quarterly report whether or not 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 deficiencies and material weaknesses.
Date: August 14, 2003
------------------
/s/ Richard A. Tonges
- ----------------------------------------------
Richard A. Tonges
Chief Financial Officer
15