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 September 30, 2002
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 | |
Number of shares of common stock outstanding as of October 18, 2002: 6,350,340
1
JANUS HOTELS AND RESORTS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Part I. Financial Information Page No.
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets As Of September 30, 2002
and December 31, 2001 3
Unaudited Consolidated Statements Of Operations For The Three
Months Ended September 30, 2002 and 2001 4
Unaudited Consolidated Statements Of Operations For The Nine
Months Ended September 30, 2002 and 2001 5
Unaudited Consolidated Statements Of Cash Flows For The Nine
Months ended September 30, 2002 and 2001 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 14
Signature Page 14
2
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
September 30, December 31,
2002 2001
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,881,122 $ 7,097,345
Restricted cash 1,533,449 2,405,747
Accounts receivable 2,907,374 2,107,968
Current portion of notes receivable 108,716 2,208,716
Other current assets 186,562 196,512
----------- -----------
Total current assets 7,617,223 14,016,288
----------- -----------
Property and equipment, net 82,975,496 87,150,167
Mortgage notes receivable 2,960,111 3,029,629
Goodwill, net 7,133,384 7,133,384
Deferred tax asset - 60,000
Replacement reserve 2,265,263 3,415,089
Other assets 1,924,369 2,186,566
----------- -----------
$104,875,846 $116,991,123
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,057,626 $ 1,362,735
Current maturity of accelerated long-term debt - 42,266,372
Current portion of long-term debt 38,468,229 5,073,196
Accounts payable 1,839,798 2,743,269
Accrued expenses 2,128,721 3,417,549
----------- -----------
Total current liabilities 43,494,374 54,863,121
----------- -----------
Long-term debt, net of current portion 30,982,543 33,817,936
Deferred tax liabilities 3,834,000 2,282,000
Minority interest - 91,113
Stockholders' equity:
Preferred stock, series B; par value $0.01 per share; 20,000 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 and 11,804,195 shares issued, respectively 118,046 118,043
Additional paid-in capital 36,059,991 36,059,511
Accumulated deficit (5,214,892) (7,791,473)
Treasury stock, 5,454,178 and 3,880,809 common shares, at cost, respectively (4,398,247) (2,449,159)
----------- -----------
Total stockholders' equity 26,564,929 25,936,953
----------- -----------
$104,875,846 $116,991,123
=========== ===========
See notes to unaudited consolidated financial statements.
3
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001
---------- -----------
Revenues:
Room and related services $ 9,215,941 $ 9,738,786
Food and beverage 2,616,488 2,663,174
Management fees 739,409 906,371
Other 269,163 338,911
---------- ----------
Total revenues 12,841,001 13,647,242
---------- ----------
Operating expenses:
Direct:
Room and related services 2,248,790 2,291,061
Food and beverage 2,156,332 2,208,489
Selling 647,837 570,319
---------- ----------
Total direct expenses 5,052,959 5,069,869
---------- ----------
Occupancy expenses 1,644,423 1,668,214
General and administrative expenses 3,126,159 3,127,825
Depreciation 992,409 976,617
Amortization 36,280 96,301
---------- ----------
Total operating expenses 10,852,230 10,938,826
---------- ----------
Operating income 1,988,771 2,708,416
Other income (expense):
Interest expense (1,378,377) (1,712,321)
Interest income 110,091 194,416
Gain from debt settlement 5,787,088 -
Gain from sale of property 58,827 -
Other 48,094 -
---------- ----------
Income from continuing operations before income taxes 6,614,494 1,190,511
Provision for income taxes 2,778,000 500,000
---------- ----------
Income from continuing operations 3,836,494 690,511
Gain on disposal of discontinued operations, net of taxes 29,691 6,138
---------- ----------
Net income 3,866,185 696,649
Less preferred dividend requirement 58,125 58,125
---------- ----------
Net income applicable to common stock $ 3,808,060 $ 638,524
========== ==========
Basic income per common share:
Income from continuing operations $ 0.55 $ 0.08
Gain on disposal of discontinued operations - -
----- -----
Net income $ 0.55 $ 0.08
===== =====
Diluted income per common share:
Income from continuing operations $ 0.55 $ 0.08
Gain on disposal of discontinued operations - -
----- -----
Net income $ 0.55 $ 0.08
===== =====
Weighted average common shares:
Basic 6,889,075 7,923,386
========= =========
Diluted 6,889,075 7,923,386
========= =========
See notes to unaudited consolidated financial statements.
4
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001
----------- -----------
Revenues:
Room and related services $22,405,386 $24,828,591
Food and beverage 7,364,141 7,468,616
Management fees 2,155,223 2,522,980
Other 680,840 836,107
---------- ----------
Total revenues 32,605,590 35,656,294
---------- ----------
Operating expenses:
Direct:
Room and related services 5,585,238 6,340,591
Food and beverage 5,796,283 6,014,643
Selling 1,799,549 1,614,463
---------- ----------
Total direct expenses 13,181,070 13,969,697
---------- ----------
Occupancy expenses 4,450,822 4,898,600
General and administrative expenses 8,765,167 8,843,045
Depreciation 2,953,149 2,926,444
Amortization 128,541 272,266
---------- ----------
Total operating expenses 29,478,749 30,910,052
---------- ----------
Operating income 3,126,841 4,746,242
Other income (expense):
Interest expense (4,670,505) (5,142,401)
Interest income 329,680 472,787
Gain from debt settlement 5,787,088
Gain (loss) from sale of property 58,827 (770,733)
Other (1,496)
---------- ----------
Income (loss) from continuing operations before income taxes and minority interest 4,630,435 (694,105)
Provision (credit) for income taxes 1,944,000 (129,000)
---------- ----------
Income (loss) from continuing operations before minority interest 2,686,435 (565,105)
Minority interest - (206,455)
---------- ----------
Income (loss) from continuing operations 2,686,435 (358,650)
Gain on disposal of discontinued operations, net of taxes 64,521 40,967
---------- ----------
Net income (loss) 2,750,956 (317,683)
Less preferred dividend requirement 174,375 174,375
---------- ----------
Net income (loss) applicable to common stock $ 2,576,581 $ (492,058)
========== ==========
Basic income (loss) per common share:
Income (loss) from continuing operations $ 0.35 $ (0.07)
Gain on disposal of discontinued operations 0.01 0.01
----- ------
Net income (loss) $ 0.36 $ (0.06)
===== ======
Diluted income (loss) per common share:
Income (loss) from continuing operations $ 0.35 $ (0.07)
Gain on disposal of discontinued operations 0.01 0.01
----- ------
Net income (loss) $ 0.36 $ (0.06)
===== ======
Weighted average common shares:
Basic 7,178,337 8,113,015
========= =========
Diluted 7,178,337 8,113,015
========= =========
See notes to unaudited consolidated financial statements.
5
JANUS HOTELS AND RESORTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEBER 30, 2002 AND 2001
2002 2001
---------- ----------
Operating activities:
Net income (loss) $ 2,750,956 $ (317,683)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 2,953,149 2,926,444
Amortization of intangible assets 128,541 272,266
Deferred taxes 1,612,000 (86,000)
Minority Interest - (206,455)
Debt settlement (5,787,088) -
(Gain) loss on sale of property (58,827) 770,733
Loss on note settlement 99,590 -
Minority interest settlement (98,094) -
Changes in operating assets and liabilities:
Accounts receivable (799,406) (617,849)
Other current assets 9,950 (19,742)
Replacement reserve 1,145,523 366,606
Other asset (303,181) (245,471)
Accounts payable and accrued expenses 186,343 (4,291)
---------- ----------
Net cash provided by operating activities 1,839,456 2,838,558
---------- ----------
Investing activities:
Purchases of property and equipment (1,195,810) (2,005,315)
Proceeds from sale of property 2,577,908 2,375,000
Purchase of hotel property - (1,700,000)
Collections of notes receivable 266,018 69,518
---------- ----------
Net cash provided by (used in) investing activities 1,648,116 (1,260,797)
---------- ----------
Financing activities:
Dividends paid (174,375) (174,375)
Decrease (Increase) in restricted cash 2,676,208 (176,749)
Repurchase of common stock (1,949,088) (728,444)
Redemption of common stock - (189,593)
Proceeds from short-term borrowings 34,919,843 2,992,574
Repayments of short-term borrowings (1,724,952) (2,992,574)
Proceeds from long-term borrowings - 497,266
Repayments of long-term borrowings (41,451,914) (1,846,436)
Other 483 -
---------- ----------
Net cash used in financing activities (7,703,795) (2,618,331)
---------- ----------
Decrease in cash and cash equivalents (4,216,223) (1,040,570)
Cash and cash equivalents, beginning of period 7,097,345 8,244,481
---------- ----------
Cash and cash equivalents, end of period $ 2,881,122 $ 7,203,911
========== ==========
Supplemental disclosure of cash flow data:
Interest paid $ 3,085,775 $ 5,142,401
========== ==========
Taxes paid $ 104,020 $ 205,958
========== ==========
Noncash investing and financing transactions:
Conversion of preferred stock to long-term debt $ - $13,688,080
========== ==========
Acquisition of minority interest through a note $ - $ 600,000
========== ==========
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, 2001 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 September 30, 2002 and the consolidated results of
operations and cash flows for the three-month and nine-month periods
ended September 30, 2002 and 2001. The results of operations for the
periods presented may not be indicative of those that may be expected
for the full year.
Note 2 -- Organization:
As of September 30, 2002, the continuing operations of the Company were
comprised primarily of the operation of thirteen hotels and a hotel
management company, which manages hotels for unrelated parties.
Note 3 - Mortgage notes receivable:
The mortgage note receivable for the sale of the Ramada Inn Kent hotel
was satisfied on March 29, 2002 by a cash payment of $1,819,249 and
short-term notes totaling $246,500, which were paid off as of September
30, 2002.
Note 4 - Goodwill
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standard No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets". In accordance with SFAS 142, the Company
discontinued goodwill amortization and tested goodwill for impairment
as of January 1, 2002 determining that no impairment loss was
necessary. The Company will continue to test goodwill for impairment at
least annually. Goodwill was $7,133,384 as of September 30, 2002, and
was unchanged for the quarter and nine months then ended. The following
table presents net income on a comparable basis, after adjustment for
goodwill amortization:
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
---------- ------------ ---------- -----------
Net income (loss) applicable to
common stock:
As reported $3,808,060 $638,524 $2,576,581 $(492,058)
Goodwill amortization, net of tax - 29,170 - 87,511
--------- ------- --------- --------
Adjusted net income (loss) $3,808,060 $667,694 $2,576,581 $(404,547)
========= ======= ========= ========
Basic and diuted earnings (loss)
per common share:
As reported $ 0.55 $ 0.08 $ 0.36 $ (0.06)
===== ===== ===== ======
As adjusted $ 0.55 $ 0.08 $ 0.36 $ (0.05)
===== ===== ===== ======
7
Note 5 - Accelerated long-term debt:
Commencing November 1, 2001, the Company withheld scheduled principal,
interest and escrow payments with respect to four mortgage loans
totaling $42,266,372, which were collateralized by hotel properties in
the vicinity of Cleveland, Ohio, in order to induce the lender to
engage in discussions regarding a reduction in debt service costs.
Management believed that the fixed interest rate on the loans was in
excess of current market rates and repayment of the notes was creating
a deficit cash flow based on current economic conditions. The Company
finalized a settlement agreement with the lender on August 2, 2002, and
closed on short-term financing with The Provident Bank ("Provident") on
July 31, 2002. The Company expects to have long-term financing in place
by the end of the fourth quarter of 2002.
Under the settlement agreement with the lender, the loans were assigned
to Provident for a payment of $38,511,554, inclusive of a forbearance
fee of $180,000 and miscellaneous costs. The Company and the lender
exchanged mutual releases.
The sources of the funds for this payment were as follows:
Loan from Provident $33,500,000
Payment by Company 3,522,454
Replacement reserve 1,489,100
----------
Total $38,511,554
==========
The payment by the Company was made from funds set aside representing
suspended payments.
Provident modified the terms of the original loans by (i) reducing the
aggregate outstanding principal balance to $33,500,000, (ii) changing
the interest rate to a variable rate of the prime rate plus one half of
one percent (.50%), (iii) requiring monthly principal payments based
upon a 20 year amortization schedule, and (iv) changing the maturity
date to August 1, 2003. The four loans continue to be cross-defaulted
and cross-collateralized, meaning that if the Company fails to make
payments with respect to any single property, all four loans will
become immediately due and payable. Provident also required and
received personal guaranties from the Company's majority stockholders,
Louis S. Beck and Harry G. Yeaggy, Chairman of the Board / Chief
Executive Officer and Vice Chairman of the Company, respectively.
The payoff in accordance with the settlement agreement and the
forgiveness of accrued interest and late fees, net of certain closing
costs, resulted in a pre-tax gain of approximately $5,787,000 in the
third quarter of 2002. No currently payable federal taxes will result
from this transaction as the Company has sufficient net operating
losses that will be utilized. The settlement agreement triggered a test
for recoverability of the Cleveland properties by the Company under the
provisions of Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("FAS 144"). The Company
has determined that there is no impairment of the properties based on
the test specified in FAS 144 and has obtained concurrence from its
independent auditors. Until long-term financing is obtained, the
$33,500,000 loan from Provident will be classified as short-term debt
in the balance sheet.
Note 6 - Sale of property:
On August 15, 2002, the Company disposed of a hotel property located in
Lafayette, Indiana. The hotel was sold for cash of $2,577,908 and
resulted in a gain of $58,827.
Note 7 - Minority interest:
On June 7, 2002, JI Subsidiary, Inc., which was 90% owned by the
Company, was dissolved. The amount due to minority stockholders was
disbursed to the Company's transfer agent in July 2002.
Note 8 - Income taxes:
For the quarter and nine months ended September 30, 2002, the Company
used an effective tax rate of 42% for federal and state income taxes.
8
Note 9 - 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.
Note 10 - Stockholders' equity:
During the nine months ended September 30, 2002, the Company purchased
a total of 1,573,369 shares of its common stock in private and open
market purchases for $1,949,088.
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, 2001.
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, 2001 and still owned and operated as of
September 30, 2002.
The Company had net income of $3,866,185 for the three months ended September
30, 2002 compared to net income of $696,649 for the three months ended September
30, 2001. This change is attributable primarily to the after tax effect of the
gain from debt settlement. Excluding the gain from debt settlement, net income
for the three months ended September 30, 2002 would have been $510,097. The
Company had net income of $2,750,956 for the nine months ended September 30,
2002 compared to a net loss of $317,683 for the nine months ended September 30,
2001. This change is attributable primarily to the item mentioned previously for
the third quarter, partially offset by lower year-to-date results at several
hotel properties and increased insurance costs. Excluding the gain from debt
settlement, the results for the nine months ended September 30, 2002 would have
been a net loss of $605,132.
Three Months Ended September 30, 2002 Compared to the Three Months Ended
September 30, 2001
Room and related services revenue decreased 5.4% to $9,215,941 in 2002 from
$9,738,786 in 2001. For comparable hotels: (i) the average daily room rate
decreased to $66.06 for 2002 from $70.36 in 2001; (ii) occupancy increased in
2002 to 69.7% from 68.3% in 2001; and (iii) room and related services revenue
decreased 4.4% from $9,634,845 in 2001. The Company selectively lowered room
rates in order to maintain occupancy rates at or near 2001 levels.
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 1.8% to $2,616,488 in 2002 from $2,663,174 in 2001. For
comparable hotels, food and beverage revenues increased 0.6% from $2,599,951 in
2001.
Management fee income decreased 18.4% to $739,409 in 2002 from $906,371 in 2001.
This decrease is primarily due to a significant short-term management agreement
that expired August 31, 2001. Excluding this agreement, management fee income
increased 8.7% from $680,003 in 2001.
Total direct operating expenses decreased 0.3% to $5,052,959 in 2002 from
$5,069,869 in 2001 but increased as a percentage of room and related services
and food and beverage revenues to 42.7% from 40.9%. Total direct operating
expenses increased 1.7% for comparable hotels.
Occupancy expenses decreased 1.4% to $1,644,423 from $1,668,214 in 2002. At
comparable hotels, occupancy expenses increased 0.8%.
General and administrative expenses decreased 0.1% to $3,126,159 in 2002 from
$3,127,825 in 2001 but increased as a percentage of total revenues to 24.3% from
22.9%. For comparable hotels, general and administrative expenses increased
2.0%.
Depreciation increased by $15,792 in 2002 from $976,617 in 2001. For comparable
hotels, depreciation increased $49,350.
Interest income decreased to $110,091 in 2002 from $194,416 in 2001. This
decrease is due to lower available funds and reduced interest rates.
Interest expense decreased to $1,378,377 in 2002 from $1,712,321 in 2001. The
decrease was attributable to traditional amortization and the lower principal
balances and interest rate on the debt for the four properties in the vicinity
of Cleveland, Ohio, which is discussed under the caption "Liquidity and Capital
Resources" that follows.
10
In 2002, the Company recorded a gain of $5,787,088 from the settlement of
mortgage debt as described under the caption "Liquidity and Capital Resources"
that follows.
The Company used an effective tax rate of 42% for federal and state taxes to
calculate its tax provision for the three months ended September 30, 2002.
Nine months Ended September 30, 2002 Compared to the Nine months Ended September
30, 2001
Room and related services revenue decreased 9.8% to $22,405,386 in 2002 from
$24,828,591 in 2001. For comparable hotels: (i) the average daily room rate
decreased to $62.95 for 2002 from $66.41 in 2001; (ii) occupancy increased in
2002 to 59.8% from 59.5% in 2001; and (iii) room and related services revenue
decreased 5.0% from $23,584,879 in 2001.
Food and beverage revenues decreased 1.4% to $7,364,141 in 2002 from $7,468,616
in 2001. For comparable hotels, food and beverage revenues decreased 0.6% from
$7,405,393 in 2001.
Management fee income decreased 14.6% to $2,155,223 in 2002 from $2,522,980 in
2001. This decrease is primarily due to the expiration on August 31, 2001 of a
significant short-term management agreement, lower operating results at managed
properties and lower construction supervision fees.
Total direct operating expenses decreased 5.7% to $13,181,070 in 2002 from
$13,969,697 in 2001 but increased as a percentage of room and related services
and food and beverage revenues to 44.3% from 43.3%. Total direct operating
expenses decreased 1.8% for comparable hotels.
Occupancy expenses decreased 9.1% to $4,450,822 in 2002 from $4,898,600 in 2001.
At comparable hotels, occupancy expenses decreased 2.6%.
General and administrative expenses decreased 0.9% to $8,765,167 in 2002 from
$8,843,045 in 2001 but increased as a percentage of total revenues to 26.9% from
24.8%. For comparable hotels, general and administrative expenses
increased 2.4%. This increase was attributable to higher wage, professional,
health insurance and general insurance costs.
Depreciation increased by $26,705 in 2002 from $2,926,444 in 2001. For
comparable hotels, depreciation increased $156,551.
Interest income decreased to $329,680 in 2002 from $472,787 in 2001. This
decrease is due to lower available funds and reduced interest rates.
Interest expense decreased to $4,670,505 in 2002 from $5,142,401 in 2001. The
decrease was attributable to traditional amortization.
In 2002, the Company recorded a gain of $5,787,088 from the settlement of
mortgage debt as described under the caption "Liquidity and Capital Resources"
that follows.
There was no minority interest expense in 2002 because during 2001 the Company
acquired the minority interest in Kings Dominion partnership and sold the Days
Inn Pompano hotel.
The Company has used an effective tax rate of 42% for federal and state taxes to
calculate its tax provision for the nine months ended September 30, 2002.
Liquidity and Capital Resources
Total assets decreased to $104,875,846 at September 30, 2002 from $116,991,123
at December 31, 2001.
Net cash provided by operating activities decreased to $1,839,456 in the nine
months ended September 30, 2002 from $2,838,558 in the nine months ended
September 30, 2001. The decrease is primarily the result of the lower operating
income for the nine months ended September 30, 2002.
Net cash provided by investing activities was $1,648,116 in the nine months
ended September 30, 2002 compared to cash used in investing activities of
$1,260,797 in the nine months ended September 30, 2001. This change is
11
principally attributable to the lower capital expenditures in 2002 and the
purchase of a hotel property in 2001. The Company plans to spend an additional
$431,000 on capital improvements during the remainder of 2002.
Net cash used in financing activities was $7,703,795 in the nine months ended
September 30, 2002 compared to $2,618,331 used in financing activities in the
nine months ended September 30, 2001. The change is the result of the repayment
on long-term borrowings described below, the repayment of the mortgage on the
property sold in Lafayette, Indiana, and traditional amortization.
The mortgage note receivable for the sale of the Ramada Inn Kent hotel was
satisfied on March 29, 2002 by a cash payment of $1,819,249 and short-term notes
totaling $246,500, which were paid off as of September 30, 2002. Settlement of
the mortgage note resulted in a loss of $99,590, which is included in Other
income (expense) for the nine months ended September 30, 2002.
Commencing November 1, 2001, the Company withheld scheduled principal, interest
and escrow payments with respect to four mortgage loans totaling $42,266,372
which were collateralized by hotel properties in the vicinity of Cleveland,
Ohio, in order to induce the lender to engage in discussions regarding a
reduction in debt service costs. Management believed that the fixed interest
rate on the loans was in excess of current market rates and repayment of the
notes was creating a deficit cash flow based on current economic conditions. The
Company finalized a settlement agreement with the lender on August 2, 2002, and
closed on short-term financing with The Provident Bank ("Provident") on July 31,
2002. The Company expects to have long-term financing in place by the end of the
fourth quarter of 2002.
Under the settlement agreement with the lender, the loans were assigned to
Provident for a payment of $38,511,554, inclusive of a forbearance fee of
$180,000 and miscellaneous costs. The Company and the lender exchanged mutual
releases.
The sources of the funds for this payment were as follows:
Loan from Provident $33,500,000
Payment by Company 3,522,454
Replacement reserve 1,489,100
----------
Total $38,511,554
==========
The payment by the Company was made from funds set aside representing suspended
payments.
Provident modified the terms of the original loans by (i) reducing the aggregate
outstanding principal balance to $33,500,000, (ii) changing the interest rate to
a variable rate of the prime rate plus one half of one percent (.50%), (iii)
requiring monthly principal payments based upon a 20 year amortization schedule,
and (iv) changing the maturity date to August 1, 2003. The four loans continue
to be cross-defaulted and cross-collateralized, meaning that if the Company
fails to make payments with respect to any single property, all four loans will
become immediately due and payable. Provident also required and received
personal guaranties from the Company's majority stockholders, Louis S. Beck and
Harry G. Yeaggy, Chairman of the Board / Chief Executive Officer and Vice
Chairman of the Company, respectively.
The payoff in accordance with the settlement agreement and the forgiveness of
accrued interest and late fees, net of certain closing costs, resulted in a
pre-tax gain of approximately $5,787,000 in the third quarter of 2002. No
currently payable federal taxes will result from this transaction as the Company
has sufficient net operating losses that will be utilized. The settlement
agreement triggered a test for recoverability of the Cleveland properties by the
Company under the provisions of Financial Accounting Standard No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"). The
Company has determined that there is no impairment of the properties based on
the test specified in FAS 144 and has obtained concurrence from its independent
auditors. Until long-term financing is obtained, the $33,500,000 loan from
Provident will be classified as short-term debt in the balance sheet.
Based upon the current prime rate of 4.75% and reduction of the principal
balance from $42,266,372 to $33,500,000, the Company's monthly principal and
interest payments with respect to the four properties will be $225,738, as
compared to $342,227, prior to the refinancing. The amount of the monthly
payment will increase or decrease if there is a change in the prime rate.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
decreased to $6,208,531 during the nine months ended September 30, 2002 compared
to $7,944,952 for the nine months ended September 30, 2001. 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
12
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 $1,539,030 outstanding
at September 30, 2002.
The Company's contractual obligations at September 30, 2002, 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, 2001.
In the nine months ended September 30, 2002, the Company purchased a total of
1,573,369 shares of its common stock in private transactions and the open market
for $1,949,088 at an average price of $1.24 including broker fees.
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 impacts of the terrorist attacks of September 11, 2001
on the travel and hospitality industries; the duration and severity of the
recent downturn in the economy; the availability and cost of long-term financing
for the Company's hotel properties; 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.
ITEM 4 - CONTROLS and PROCEDURES
Within 90 days of the filing of this Form 10-Q the Company completed an
evaluation, under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that Company disclosure controls and
procedures are effective to alert them on a timely basis to any material
information relating to the Company that must be included in the Company's
periodic reports filed with the Securities and Exchange Commission.
In addition, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the aforementioned evaluation.
13
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
99.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Sec. 1350
99.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Sec. 1350
B. Reports on Form 8-K
The reports on Form 8-K filed during the three months ended September
30, 2002 were as follows:
Item Reported Date of Report
----------------------------------------------------------- ------------------
Short-term refinancing of Cleveland properties August 2, 2002
Purchase of Company common stock from Mitsubishi August 27, 2002
Corporation and The Prudential Insurance Company of America
Amendment to Report dated August 2, 2002 September 30, 2002
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: October 30, 2002 /s/ Richard A. Tonges
----------------
Richard A. Tonges
---------------------------------------
Treasurer and Vice President of Finance
(Principal Financial and Accounting
Officer)
14
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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and 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 officers 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 officers 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: October 30, 2002
/s/ Louis S. Beck
- ----------------------------------------------
Louis S. Beck
Chief Executive Officer
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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and 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 officers 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 officers 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: October 30, 2002
/s/ Richard A. Tonges
- ----------------------------------------------
Richard A. Tonges
Chief Financial Officer