##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from               to
 Commission file no. 1-14537
 Lodgian, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    52-2093696(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3445 Peachtree Road, N.E., Suite 700,Atlanta, GA
    
    30326(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code
(404) 364-9400
 (Former name, former address and former fiscal year, if changed since last report): Not
applicable
 þ o
  Large accelerated filer   o

    
    Accelerated filer   þNon-accelerated filer   o    
(Do not check if a smaller reporting company)

    
    Smaller reporting company   o
 o þ
 þ o
  Class
    
    Outstanding as of November 1, 2008Common
    
    21,415,978




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##### 



LODGIAN, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September
30, 2008 and September 30, 2007 (unaudited)
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September
30, 2008 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008
and September 30, 2007 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    43PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1a. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 6. Exhibits
    
    
    44Signatures
    
    
    45EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LODGIAN, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2008
    
    
    December 31, 2007(Unaudited in thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,552
    
    
    $
    54,389Cash, restricted
    
    
    9,496
    
    
    
    8,363Accounts receivable (net of allowances: 2008 - $387; 2007 - $323)
    
    
    9,889
    
    
    
    8,794Insurance receivable
    
    
    
    
    
    
    2,254Inventories
    
    
    3,200
    
    
    
    3,097Prepaid expenses and other current assets
    
    
    20,617
    
    
    
    18,186Assets held for sale
    
    
    47,822
    
    
    
    8,009Total current assets
    
    
    111,576
    
    
    
    103,092Property and equipment, net
    
    
    446,826
    
    
    
    499,986Deposits for capital expenditures
    
    
    12,370
    
    
    
    16,565Other assets
    
    
    3,789
    
    
    
    5,087$
    574,561
    
    
    $
    624,730LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,148
    
    
    $
    9,692Other accrued liabilities
    
    
    26,747
    
    
    
    28,336Advance deposits
    
    
    1,700
    
    
    
    1,683Insurance advances
    
    
    
    
    
    
    2,650Current portion of long-term liabilities
    
    
    127,668
    
    
    
    5,092Liabilities related to assets held for sale
    
    
    22,537
    
    
    
    961Total current liabilities
    
    
    185,800
    
    
    
    48,414Long-term liabilities
    
    
    195,109
    
    
    
    355,728Total liabilities
    
    
    380,909
    
    
    
    404,142Commitments and contingencies (Note 8)Stockholders equity:Common stock, $.01 par value, 60,000,000 shares authorized;
25,075,837 and 25,008,621 issued at September 30, 2008 and
December 31, 2007, respectively
    
    
    251
    
    
    
    250Additional paid-in capital
    
    
    330,561
    
    
    
    329,694Accumulated deficit
    
    
    (100,596
    )
    
    
    (93,262
    )Accumulated other comprehensive income
    
    
    3,083
    
    
    
    4,115Treasury stock, at cost, 3,806,000 and 1,709,878 shares at
September 30, 2008 and December 31, 2007, respectively
    
    
    (39,647
    )
    
    
    (20,209
    )Total stockholders equity
    
    
    193,652
    
    
    
    220,588$
    574,561
    
    
    $
    624,730
  3




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands, except per share data)Revenues:Rooms
    
    $
    46,679
    
    
    $
    46,942
    
    
    $
    139,891
    
    
    $
    138,987Food and beverage
    
    
    12,545
    
    
    
    12,857
    
    
    
    40,011
    
    
    
    40,660Other
    
    
    2,176
    
    
    
    2,134
    
    
    
    6,376
    
    
    
    5,933Total revenues
    
    
    61,400
    
    
    
    61,933
    
    
    
    186,278
    
    
    
    185,580Direct operating expenses:Rooms
    
    
    12,200
    
    
    
    11,997
    
    
    
    35,562
    
    
    
    34,336Food and beverage
    
    
    9,070
    
    
    
    9,432
    
    
    
    27,740
    
    
    
    28,185Other
    
    
    1,548
    
    
    
    1,512
    
    
    
    4,473
    
    
    
    4,216Total direct operating expenses
    
    
    22,818
    
    
    
    22,941
    
    
    
    67,775
    
    
    
    66,73738,582
    
    
    
    38,992
    
    
    
    118,503
    
    
    
    118,843Other operating expenses:Other hotel operating costs
    
    
    18,287
    
    
    
    17,847
    
    
    
    53,885
    
    
    
    52,339Property and other taxes, insurance, and leases
    
    
    4,226
    
    
    
    4,087
    
    
    
    12,338
    
    
    
    13,329Corporate and other
    
    
    4,373
    
    
    
    5,575
    
    
    
    13,742
    
    
    
    17,144Casualty gains, net
    
    
    (57
    )
    
    
    
    
    
    
    (57
    )
    
    
    (1,867
    )Restructuring
    
    
    
    
    
    
    1,258
    
    
    
    
    
    
    
    1,258Depreciation and amortization
    
    
    8,120
    
    
    
    7,226
    
    
    
    23,578
    
    
    
    21,301Impairment of long-lived assets
    
    
    1,393
    
    
    
    512
    
    
    
    9,114
    
    
    
    826Total other operating expenses
    
    
    36,342
    
    
    
    36,505
    
    
    
    112,600
    
    
    
    104,330Operating income
    
    
    2,240
    
    
    
    2,487
    
    
    
    5,903
    
    
    
    14,513Other income (expenses):Interest income and other
    
    
    241
    
    
    
    1,312
    
    
    
    907
    
    
    
    3,031Interest expense
    
    
    (4,821
    )
    
    
    (5,958
    )
    
    
    (14,768
    )
    
    
    (17,380
    )Loss on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,330
    )Loss before income taxes and minority interests
    
    
    (2,340
    )
    
    
    (2,159
    )
    
    
    (7,958
    )
    
    
    (3,166
    )Minority interests (net of taxes, nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (421
    )Benefit (provision) for income taxes  continuing operations
    
    
    81
    
    
    
    1,027
    
    
    
    (6
    )
    
    
    2,106Loss from continuing operations
    
    
    (2,259
    )
    
    
    (1,132
    )
    
    
    (7,964
    )
    
    
    (1,481
    )Discontinued operations:(Loss) income from discontinued operations before income
taxes
    
    
    (3,870
    )
    
    
    1,818
    
    
    
    759
    
    
    
    3,779Provision for income taxes  discontinued operations
    
    
    (54
    )
    
    
    (639
    )
    
    
    (129
    )
    
    
    (2,671
    )(Loss) income from discontinued operations
    
    
    (3,924
    )
    
    
    1,179
    
    
    
    630
    
    
    
    1,108Net (loss) income attributable to common stock
    
    $
    (6,183
    )
    
    $
    47
    
    
    $
    (7,334
    )
    
    $
    (373
    )Basic net loss per share attributable to common stock
    
    $
    (0.29
    )
    
    $
    
    
    
    $
    (0.33
    )
    
    $
    (0.02
    )Diluted net loss per share attributable to common stock
    
    $
    (0.29
    )
    
    $
    
    
    
    $
    (0.33
    )
    
    $
    (0.02
    )
  4




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Equity(Unaudited in thousands, except share data)Balance, December 31, 2007
    
    
    25,008,621
    
    
    
    250
    
    
    
    329,694
    
    
    
    (93,262
    )
    
    
    4,115
    
    
    
    1,709,878
    
    
    
    (20,209
    )
    
    
    220,588Amortization of unearned stock compensation
    
    
    
    
    
    
    
    
    
    
    845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    845Issuance and vesting of restricted and nonvested shares
    
    
    64,882
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    2,334
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Repurchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,096,122
    
    
    
    (19,438
    )
    
    
    (19,438
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,334
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,334
    )Currency translation adjustments (related taxes estimated at nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,032
    )
    
    
    
    
    
    
    
    
    
    
    (1,032
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,366
    )Balance, September 30, 2008
    
    
    25,075,837
    
    
    
    251
    
    
    
    330,561
    
    
    
    (100,596
    )
    
    
    3,083
    
    
    
    3,806,000
    
    
    
    (39,647
    )
    
    
    193,652
   5




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007(unaudited in thousands)Operating activities:Net loss
    
    $
    (7,334
    )
    
    $
    (373
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    23,598
    
    
    
    23,848Impairment of long-lived assets
    
    
    16,917
    
    
    
    3,551Stock compensation expense
    
    
    845
    
    
    
    1,126Casualty gain, net
    
    
    (5,640
    )
    
    
    (4,525
    )Deferred income taxes
    
    
    
    
    
    
    (149
    )Minority interests
    
    
    
    
    
    
    421Gain on asset dispositions
    
    
    (2,303
    )
    
    
    (1,947
    )Loss on extinguishment of debt
    
    
    537
    
    
    
    4,735Amortization of deferred financing costs
    
    
    1,120
    
    
    
    1,048Changes in operating assets and liabilities:Accounts receivable, net of allowances
    
    
    (2,232
    )
    
    
    (4,082
    )Insurance receivable
    
    
    
    
    
    
    931Inventories
    
    
    (566
    )
    
    
    (63
    )Prepaid expenses and other assets
    
    
    (1,910
    )
    
    
    2,812Accounts payable
    
    
    (1,585
    )
    
    
    (2,213
    )Other accrued liabilities
    
    
    (373
    )
    
    
    1,162Advance deposits
    
    
    179
    
    
    
    505Net cash provided by operating activities
    
    
    21,253
    
    
    
    26,787Investing activities:Capital improvements
    
    
    (35,758
    )
    
    
    (31,009
    )Proceeds from sale of assets, net of related selling costs
    
    
    10,873
    
    
    
    72,289Acquisition of minority partners interest
    
    
    
    
    
    
    (16,361
    )Withdrawals for capital expenditures
    
    
    4,195
    
    
    
    3,948Insurance proceeds related to casualty claims, net
    
    
    5,244
    
    
    
    658Net increase in restricted cash
    
    
    (1,133
    )
    
    
    (1,533
    )Other
    
    
    (25
    )
    
    
    (33
    )Net cash (used in) provided by investing activities
    
    
    (16,604
    )
    
    
    27,959Financing activities:Proceeds from issuance of long term debt
    
    
    
    
    
    
    130,000Proceeds from exercise of stock options
    
    
    23
    
    
    
    257Principal payments on long-term debt
    
    
    (18,004
    )
    
    
    (152,522
    )Purchases of treasury stock
    
    
    (19,834
    )
    
    
    (6,366
    )Payments of deferred financing costs
    
    
    
    
    
    
    (1,666
    )Payments of defeasance costs
    
    
    (487
    )
    
    
    (3,820
    )Other
    
    
    
    
    
    
    53Net cash used in financing activities
    
    
    (38,302
    )
    
    
    (34,064
    )Effect of exchange rate changes on cash
    
    
    (184
    )
    
    
    289Net (decrease) increase in cash and cash equivalents
    
    
    (33,837
    )
    
    
    20,971Cash and cash equivalents at beginning of year
    
    
    54,389
    
    
    
    48,188Cash and cash equivalents at end of year
    
    $
    20,552
    
    
    $
    69,159Supplemental cash flow information:Cash paid during the year for:Interest, net of the amounts capitalized shown below
    
    $
    15,463
    
    
    $
    20,337Interest capitalized
    
    
    251
    
    
    
    187Income taxes, net of refunds
    
    
    157
    
    
    
    1,281Supplemental disclosure of non-cash investing and financing activities:Treasury stock repurchases traded, but not settled
    
    
    73
    
    
    
    652Purchases of property and equipment on account
    
    
    2,622
    
    
    
    3,272
  6




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Business Summary
   
    
    42 hotels that were wholly owned and operated through subsidiaries; and
    
    one hotel that is operated in a joint venture in the form of a limited partnership, in
which a Lodgian subsidiary serves as the general partner, has a 51% voting interest and
exercises significant control.
  2. General
     
    
    the reported amounts of assets and liabilities;
    
    the reported amounts of revenues and expenses during the reporting period; and
    
    the disclosures of contingent assets and liabilities at the date of the financial
statements.
 7




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3. Stock-Based Compensation
   Issued Under the StockIncentive PlanAvailable under the plan, less previously issued as of December 31, 2007
    
    
    2,536,666Nonvested stock issued January 22, 2008
    
    
    (76,500
    )Nonvested stock issued February 12, 2008
    
    
    (24,000
    )Shares of nonvested stock withheld from awards to satisfy tax withholding obligations
    
    
    11,257Nonvested shares forfeited in 2008
    
    
    4,668Stock options forfeited in 2008
    
    
    32,830Available for issuance, September 30, 2008
    
    
    2,484,921
 Stock Options
   Weighted AverageStock Options
    
    
    Exercise PriceBalance, December 31, 2007
    
    
    212,408
    
    
    $
    10.60Exercised
    
    
    (2,334
    )
    
    
    9.68Forfeited
    
    
    (32,830
    )
    
    
    10.31Balance, September 30, 2008
    
    
    177,244
    
    
    $
    10.66
   8




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##### Table of Contents



Options outstanding
    
    
    Options exercisableWeighted average
    
    
    Weighted
    
    
    
    
    
    
    Weighted average
    
    
    Weightedremaining life
    
    
    average
    
    
    
    
    
    
    remaining life
    
    
    averageRange of prices
    
    Number
    
    
    (in years)
    
    
    exercise price
    
    
    Number
    
    
    (in years)
    
    
    exercise price$7.83 to $9.39
    
    
    74,663
    
    
    
    6.6
    
    
    $
    9.05
    
    
    
    74,663
    
    
    
    6.6
    
    
    $
    9.05$9.40 to $10.96
    
    
    73,587
    
    
    
    5.8
    
    
    $
    10.51
    
    
    
    73,587
    
    
    
    5.8
    
    
    $
    10.51$10.97 to $15.66
    
    
    28,994
    
    
    
    4.9
    
    
    $
    15.21
    
    
    
    28,994
    
    
    
    4.9
    
    
    $
    15.21177,244
    
    
    
    6.0
    
    
    $
    10.66
    
    
    
    177,244
    
    
    
    6.0
    
    
    $
    10.66Vested
    
    
    177,244
    
    
    
    6.0
    
    
    $
    10.66
 ($ in thousands)Aggregate intrinsic value of stock options outstanding
    
    $
    Aggregate intrinsic value of stock options expected to vest
    
    $
    Aggregate intrinsic value of stock options exercisable
    
    $
    
 Nonvested Stock
        9




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##### Table of Contents



Weighted AverageGrant DateNonvested Stock
    
    
    Fair ValueBalance, December 31, 2007
    
    
    115,191
    
    
    $
    12.89Granted
    
    
    100,500
    
    
    
    8.85Forfeited
    
    
    (4,668
    )
    
    
    10.49Vested
    
    
    (64,882
    )
    
    
    12.52Balance, September 30, 2008
    
    
    146,141
    
    
    $
    10.35
   Unrecognized
    
    
    Weighted-AverageCompensation
    
    
    AmortizationType of Award
    
    Expense ($000s)
    
    
    Period (in years)Stock Options
    
    $
    
    
    
    
    Nonvested Stock
    
    
    936
    
    
    
    1.44Revised Plan Nonvested Stock Awards
    
    
    651
    
    
    
    2.46Total
    
    $
    1,587
    
    
    
    1.86
   Three Months Ended September 30, 2008
    
    
    Three Months Ended September 30, 2007Compensation
    
    
    Income Tax
    
    
    Compensation
    
    
    Income TaxType of Award
    
    Expense
    
    
    Benefit
    
    
    Expense
    
    
    Benefit(Unaudited in thousands)Stock Options
    
    $
    
    
    
    $
    
    
    
    $
    102
    
    
    $
    40Nonvested Stock
    
    
    224
    
    
    
    87
    
    
    
    368
    
    
    
    143Revised Plan
Nonvested Stock
Awards
    
    
    72
    
    
    
    28
    
    
    
    
    
    
    
    Total
    
    $
    296
    
    
    $
    115
    
    
    $
    470
    
    
    $
    183
  Nine Months Ended September 30, 2008
    
    
    Nine Months Ended September 30, 2007Compensation
    
    
    Income Tax
    
    
    Compensation
    
    
    Income TaxType of Award
    
    Expense
    
    
    (Expense) Benefit
    
    
    Expense
    
    
    Benefit(Unaudited in thousands)Stock Options
    
    $
    (51
    )
    
    $
    (20
    )
    
    $
    100
    
    
    $
    39Nonvested Stock
    
    
    777
    
    
    
    302
    
    
    
    1,026
    
    
    $
    398Revised Plan
Nonvested Stock
Awards
    
    
    119
    
    
    
    46
    
    
    
    
    
    
    
    Total
    
    $
    845
    
    
    $
    328
    
    
    $
    1,126
    
    
    $
    437
 4. Treasury Stock
 10




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5. Dispositions and Discontinued Operations
 Dispositions
  Assets Held for Sale and Discontinued Operations
  a)
    
    Management commits to a plan to sell the asset;b)
    
    The asset is available for immediate sale in its present condition;c)
    
    An active marketing plan to sell the asset at a reasonable price has been initiated;d)
    
    The sale of the asset is probable within one year; ande)
    
    It is unlikely that significant changes to the plan to sell the asset will be made.
     11




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##### Table of Contents




    
    $3.9 million on the Holiday Inn Select in Windsor, Ontario, Canada to reflect the
current estimated selling price, net of selling costs;
    
    $1.2 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $1.0 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs; and
    
    $0.2 million on the closed French Quarter Suites Memphis, TN to reflect the current
estimated selling price, net of selling costs.
  
    
    $3.9 million on the Holiday Inn Select in Windsor, Ontario, Canada to reflect the
current estimated selling price, net of selling costs;
    
    $1.9 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs;
    
    $1.6 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $0.2 million on the closed French Quarter Suites Memphis, TN to reflect the current
estimated selling price, net of selling costs;
    
    $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of
the hotel; and
    
    $0.1 million to record the final disposition of the Holiday Inn Frederick, MD as well as
the disposal of replaced assets at various hotels.
   
    
    $1.3 million on the Holiday Inn Clarksburg, WV to reflect the estimated selling price,
net of selling costs;
    
    $0.6 million on the Holiday Inn Jamestown, NY to reflect the estimated selling price,
net of selling costs;
    
    $0.4 million on the Vermont Maple Inn Colchester, VT to reflect the current estimated
selling price, net of selling costs;
    
    $0.1 million on the University Plaza Bloomington, IN to record the final disposition of
the hotel; and
    
    $0.3 million related to various other held-for-sale properties primarily to write-off
the remaining net book value of disposed fixed assets.
  
    
    French Quarter Suites Memphis, TN
    
    Hilton Northfield, MI
    
    Holiday Inn Cromwell Bridge, MD
    
    Holiday Inn East Hartford, CT
    
    Holiday Inn Frisco, CO
    
    Holiday Inn Glen Burnie, MD
    
    Holiday Inn Phoenix, AZ
 12




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##### Table of Contents




    
    Holiday Inn Select Windsor, Ontario, Canada
  September 30, 2008
    
    
    December 31, 2007(Unaudited in thousands)Property and equipment, net
    
    $
    45,136
    
    
    $
    7,781Other assets
    
    
    2,686
    
    
    
    228Assets held for sale
    
    $
    47,822
    
    
    $
    8,009Other liabilities
    
    $
    13,203
    
    
    $
    961Long-term debt
    
    
    9,334
    
    
    
    Liabilities related to assets held for sale
    
    $
    22,537
    
    
    $
    961
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands)Total revenues
    
    $
    7,703
    
    
    $
    12,270
    
    
    $
    25,792
    
    
    $
    65,582Total expenses
    
    
    (6,669
    )
    
    
    (11,122
    )
    
    
    (23,937
    )
    
    
    (59,071
    )Impairment of long-lived assets
    
    
    (6,306
    )
    
    
    (475
    )
    
    
    (7,803
    )
    
    
    (2,725
    )Business interruption proceeds
    
    
    
    
    
    
    299
    
    
    
    672
    
    
    
    571Interest income and other
    
    
    9
    
    
    
    18
    
    
    
    25
    
    
    
    47Interest expense
    
    
    (401
    )
    
    
    (709
    )
    
    
    (1,339
    )
    
    
    (3,825
    )Casualty gains, net
    
    
    
    
    
    
    
    
    
    
    5,583
    
    
    
    2,658Gain on asset disposition
    
    
    2,303
    
    
    
    1,750
    
    
    
    2,303
    
    
    
    1,947Loss on extinguishment of debt
    
    
    (509
    )
    
    
    (213
    )
    
    
    (537
    )
    
    
    (1,405
    )Provision for income taxes
    
    
    (54
    )
    
    
    (639
    )
    
    
    (129
    )
    
    
    (2,671
    )(Loss) income from discontinued operations
    
    $
    (3,924
    )
    
    $
    1,179
    
    
    $
    630
    
    
    $
    1,108
   6. Income (Loss) Per Share
  13




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands, except per share data)Numerator:Loss from continuing operations
    
    $
    (2,259
    )
    
    $
    (1,132
    )
    
    $
    (7,964
    )
    
    $
    (1,481
    )(Loss) income from
discontinued operations
    
    
    (3,924
    )
    
    
    1,179
    
    
    
    630
    
    
    
    1,108Net (loss) income attributable
to common stock
    
    $
    (6,183
    )
    
    $
    47
    
    
    $
    (7,334
    )
    
    $
    (373
    )Denominator:Basic weighted average shares
    
    
    21,412
    
    
    
    24,457
    
    
    
    21,944
    
    
    
    24,478Diluted weighted average shares
    
    
    21,412
    
    
    
    24,457
    
    
    
    21,944
    
    
    
    24,478Basic income (loss) per common share:Income (loss) from continuing
operations
    
    $
    (0.11
    )
    
    $
    (0.05
    )
    
    $
    (0.36
    )
    
    $
    (0.06
    )Income (loss) from
discontinued operations
    
    
    (0.18
    )
    
    
    0.05
    
    
    
    0.03
    
    
    
    0.05Net (loss) income attributable
to common stock
    
    $
    (0.29
    )
    
    $
    
    
    
    $
    (0.33
    )
    
    $
    (0.02
    )Diluted income (loss) per common share:Income (loss) from continuing
operations
    
    $
    (0.11
    )
    
    $
    (0.05
    )
    
    $
    (0.36
    )
    
    $
    (0.06
    )Income (loss) from
discontinued operations
    
    
    (0.18
    )
    
    
    0.05
    
    
    
    0.03
    
    
    
    0.05Net income (loss) attributable
to common stock
    
    $
    (0.29
    )
    
    $
    
    
    
    $
    (0.33
    )
    
    $
    (0.02
    )
    7. Long-Term Liabilities
  14




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September 30, 2008
    
    
    December 31, 2007Number
    
    
    Property, plant
    
    
    Long-term
    
    
    Long-termof Hotels
    
    
    and equipment, net
    
    
    obligations
    
    
    obligations
    
    
    Interest rates at September 30, 2008Mortgage DebtMerrill Lynch Mortgage Lending, Inc.  Fixed
    
    
    18
    
    
    $
    239,000
    
    
    $
    136,712
    
    
    $
    153,940
    
    
    
    6.58%Goldman Sachs
    
    
    10
    
    
    
    118,426
    
    
    
    130,000
    
    
    
    130,000
    
    
    LIBOR plus 1.50%; capped at 8.50%Wachovia
    
    
    4
    
    
    
    31,617
    
    
    
    34,914
    
    
    
    35,425
    
    
    $9,527 at 6.03%; $3,005 at 5.78%; $22,382 at 6.04%IXIS
    
    
    4
    
    
    
    36,450
    
    
    
    39,640
    
    
    
    40,041
    
    
    $18,588 at LIBOR plus 2.90%, capped at 8.4%; $21,052 atLIBOR plus 2.95%, capped at 8.45%Total
    
    
    36
    
    
    
    425,493
    
    
    
    341,266
    
    
    
    359,406
    
    
    
    5.40%(1)Long-term liabilities  otherTax notes issued pursuant to our Joint Plan
of Reorganization
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    633Other
    
    
    
    
    
    
    
    
    
    
    1,393
    
    
    
    781
    
    
    
    
    
    
    
    1,550
    
    
    
    1,414Property, plant and equipment  unencumbered
    
    
    7
    
    
    
    66,469
    
    
    
    
    
    
    
    43
    
    
    
    491,962
    
    
    
    342,816
    
    
    
    360,820Held for sale
    
    
    (8
    )
    
    
    (45,136
    )
    
    
    (20,039
    )
    
    
    Total (2)
    
    
    35
    
    
    $
    446,826
    
    
    $
    322,777
    
    
    $
    360,820
 
 (1)
    
    The rate represent the annual effective weighted average cost of debt at September 30, 2008.(2)
    
    Long-term debt obligations at September 30, 2008 and December 31, 2007 include the current portion.      8. Commitments and Contingencies
 Franchise Agreements and Capital Expenditures
  15




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Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands)Continuing operations
    
    $
    4,459
    
    
    $
    4,468
    
    
    $
    13,235
    
    
    $
    13,071Discontinued operations
    
    
    609
    
    
    
    915
    
    
    
    2,015
    
    
    
    4,899$
    5,068
    
    
    $
    5,383
    
    
    $
    15,250
    
    
    $
    17,970
    
    
    Three hotels are in default of the franchise agreements because of substandard guest
satisfaction scores. If the Company does not achieve scores above the required thresholds
by the designated cure dates, these hotels could be subject to termination of the franchise
agreements. Two of these hotels are held for sale.
    
    One hotel is in default of the franchise agreement for failure to complete a Property
Improvement Plan. If the Company does not cure the default by December 18, 2008, the
hotels franchise agreement could be terminated by the franchisor. However, the Company
has met with the franchisor, is in the planning and diligence phase of renovation, and
anticipates that it will be given additional time to cure the default. This hotel is also
not in compliance with the franchise agreement because of substandard guest satisfaction
scores. If the Company does not achieve scores above the required thresholds by the
designated cure dates, this hotel could be subject to default based on the terms of the
franchise agreements.
    
    One hotel is in default of the franchise agreement because of substandard quality
evaluation scores. If the Company does not achieve scores above the required quality
thresholds by the designated cure date, this hotel could be terminated by the franchisor.
However, the Company has met with the franhcisor, is following a specific action plan for
improvement, and anticipates that it will cure the default by December 31, 2008.
    
    The Company is anticipating a clean slate letter for one hotel to be delivered no
later than February 2010.
  16




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##### Table of Contents



Letters of Credit
  Self-insurance
    Casualty gains (losses) and business interruption insurance
    Litigation
   17




---



##### Table of Contents



9. Income Taxes
     10. Recent Accounting Pronouncements
  18




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##### Table of Contents



. .
   .
  11. Subsequent Events
  19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the discussion below in conjunction with the unaudited condensed consolidated
financial statements and accompanying notes, set forth in Item I. Financial Statements included
in this Form 10-Q . Also, the discussion which follows contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including those discussed in
our Form 10-K for the year ended December 31, 2007. The terms Company, we, us and our mean
Lodgian and its wholly owned subsidiaries.
 Executive Overview
    
    
    42 hotels that were wholly owned and operated through subsidiaries; and
    
    one hotel that we operate in a joint venture in the form of a limited partnership, in which a
Lodgian subsidiary serves as the general partner, has a 51% voting interest and exercises
significant control.
  Overview of Continuing Operations
  
    
    Third quarter revenues decreased $0.5 million or 0.9%. Rooms revenues decreased $0.3
million, or 0.6%, as occupancy and average daily rate decreased 0.3% and 0.2%, respectively.
Despite the economic slowdown, we increased our market share as RevPAR index increased 2.4%
to 102.0% in 2008. Excluding hotels under renovation in the third quarter of both years,
our RevPAR index rose 0.5% to 103.1% in 2008.
    
    Direct operating contribution decreased $0.4 million, or 1.1%, driven in large part by
higher employee medical insurance costs.
    
    Operating income decreased $0.2 million as higher employee medical costs, depreciation
and impairment charges were largely offset by lower corporate overhead costs and the absence
of restructuring costs incurred in 2007.
 20




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##### Table of Contents



Overview of Discontinued Operations
     Critical Accounting Policies and Estimates
  Income Statement Overview
  Results of Operations  Continuing Operations
 The analysis below compares the results of operations for the three months ended September 30, 2008
and 2007.
 Revenues  Continuing Operations
 Three Months Ended September 30,2008
    
    
    2007
    
    
    Increase (decrease)(unaudited in thousands)Revenues:Rooms
    
    $
    46,679
    
    
    $
    46,942
    
    
    $
    (263
    )
    
    
    (0.6
    %)Food and beverage
    
    
    12,545
    
    
    
    12,857
    
    
    
    (312
    )
    
    
    (2.4
    %)Other
    
    
    2,176
    
    
    
    2,134
    
    
    
    42
    
    
    
    2.0
    %Total revenues
    
    $
    61,400
    
    
    $
    61,933
    
    
    $
    (533
    )
    
    
    (0.9
    %)Occupancy
    
    
    71.7
    %
    
    
    71.9
    %
    
    
    
    
    
    
    (0.3
    %)ADR
    
    $
    106.37
    
    
    $
    106.58
    
    
    $
    (0.21
    )
    
    
    (0.2
    %)RevPar
    
    $
    76.24
    
    
    $
    76.66
    
    
    $
    (0.42
    )
    
    
    (0.5
    %)
  21




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22




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##### Table of Contents



For the three months ended September 30, 2008 and 2007
Supplemental Operating Information
 Hotel
    
    Room
    
    
    
    Three Months Ended September 30,Count
    
    Count
    
    
    
    2008
    
    2007
    
    Increase (Decrease)35
    
    
    
    6,654
    
    
    All Continuing OperationsOccupancy
    
    
    71.7
    %
    
    
    71.9
    %
    
    
    
    
    
    
    (0.3
    )%ADR
    
    $
    106.37
    
    
    $
    106.58
    
    
    $
    (0.21
    )
    
    
    (0.2
    )%RevPAR
    
    $
    76.24
    
    
    $
    76.66
    
    
    $
    (0.42
    )
    
    
    (0.5
    )%RevPAR Index
    
    
    102.0
    %
    
    
    99.6
    %
    
    
    
    
    
    
    2.4
    %30
    
    
    
    5,763
    
    
    Continuing Operations less hotels under renovation in the
third quarter 2007 and/or 2008Occupancy
    
    
    72.4
    %
    
    
    74.2
    %
    
    
    
    
    
    
    (2.4
    )%ADR
    
    $
    107.97
    
    
    $
    108.15
    
    
    $
    (0.18
    )
    
    
    (0.2
    )%RevPAR
    
    $
    78.16
    
    
    $
    80.30
    
    
    $
    (2.14
    )
    
    
    (2.7
    )%RevPAR Index
    
    
    103.1
    %
    
    
    102.6
    %
    
    
    
    
    
    
    0.5
    %12
    
    
    
    1,397
    
    
    Marriott HotelsOccupancy
    
    
    77.1
    %
    
    
    74.9
    %
    
    
    
    
    
    
    2.9
    %ADR
    
    $
    114.09
    
    
    $
    113.27
    
    
    $
    0.82
    
    
    
    0.7
    %RevPAR
    
    $
    87.99
    
    
    $
    84.83
    
    
    $
    3.16
    
    
    
    3.7
    %RevPAR Index
    
    
    110.5
    %
    
    
    111.1
    %
    
    
    
    
    
    
    (0.5
    )%2
    
    
    
    396
    
    
    Hilton HotelsOccupancy
    
    
    68.3
    %
    
    
    74.9
    %
    
    
    
    
    
    
    (8.8
    )%ADR
    
    $
    112.15
    
    
    $
    108.55
    
    
    $
    3.60
    
    
    
    3.3
    %RevPAR
    
    $
    76.63
    
    
    $
    81.28
    
    
    $
    (4.65
    )
    
    
    (5.7
    )%RevPAR Index
    
    
    100.2
    %
    
    
    98.7
    %
    
    
    
    
    
    
    1.5
    %17
    
    
    
    3,986
    
    
    IHG HotelsOccupancy
    
    
    71.0
    %
    
    
    73.2
    %
    
    
    
    
    
    
    (3.0
    )%ADR
    
    $
    106.20
    
    
    $
    106.57
    
    
    $
    (0.37
    )
    
    
    (0.3
    )%RevPAR
    
    $
    75.42
    
    
    $
    77.99
    
    
    $
    (2.57
    )
    
    
    (3.3
    )%RevPAR Index
    
    
    102.6
    %
    
    
    99.5
    %
    
    
    
    
    
    
    3.1
    %4
    
    
    
    875
    
    
    Other BrandsOccupancy
    
    
    67.5
    %
    
    
    60.1
    %
    
    
    
    
    
    
    12.3
    %ADR
    
    $
    90.44
    
    
    $
    92.24
    
    
    $
    (1.80
    )
    
    
    (2.0
    )%RevPAR
    
    $
    61.02
    
    
    $
    55.46
    
    
    $
    5.56
    
    
    
    10.0
    %RevPAR Index
    
    
    87.0
    %
    
    
    79.8
    %
    
    
    
    
    
    
    9.0
    %
 23




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Direct operating expenses  Continuing Operations
 % of total revenuesThree Months Ended September 30,
    
    
    
    
    
    
    
    
    
    
    Three Months Ended September 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Direct operating expenses:Rooms
    
    $
    12,200
    
    
    $
    11,997
    
    
    $
    203
    
    
    
    1.7
    %
    
    
    19.9
    %
    
    
    19.4
    %Food and beverage
    
    
    9,070
    
    
    
    9,432
    
    
    
    (362
    )
    
    
    (3.8
    %)
    
    
    14.8
    %
    
    
    15.2
    %Other
    
    
    1,548
    
    
    
    1,512
    
    
    
    36
    
    
    
    2.4
    %
    
    
    2.5
    %
    
    
    2.4
    %Total direct operating expenses
    
    $
    22,818
    
    
    $
    22,941
    
    
    $
    (123
    )
    
    
    (0.5
    %)
    
    
    37.2
    %
    
    
    37.0
    %Direct operating contribution (by revenue source):Rooms
    
    $
    34,479
    
    
    $
    34,945
    
    
    $
    (466
    )
    
    
    (1.3
    %)Food and beverage
    
    
    3,475
    
    
    
    3,425
    
    
    
    50
    
    
    
    1.5
    %Other
    
    
    628
    
    
    
    622
    
    
    
    6
    
    
    
    1.0
    %Total direct operating contribution
    
    $
    38,582
    
    
    $
    38,992
    
    
    $
    (410
    )
    
    
    (1.1
    %)Direct operating contribution % (by revenue source):Rooms
    
    
    73.9
    %
    
    
    74.4
    %Food and beverage
    
    
    27.7
    %
    
    
    26.6
    %Other
    
    
    28.9
    %
    
    
    29.1
    %Total direct operating contribution
    
    
    62.8
    %
    
    
    63.0
    %
     24




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Other operating expenses and operating income  Continuing Operations
 % of total revenuesThree Months Ended September 30,
    
    
    
    
    
    
    
    
    
    
    Three Months Ended September 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Other operating expenses:Other hotel operating costsGeneral and administrative
    
    $
    3,771
    
    
    $
    3,512
    
    
    $
    259
    
    
    
    7.4
    %
    
    
    6.1
    %
    
    
    5.7
    %Advertising and promotion
    
    
    3,165
    
    
    
    3,280
    
    
    
    (115
    )
    
    
    (3.5
    %)
    
    
    5.2
    %
    
    
    5.3
    %Franchise fees
    
    
    4,459
    
    
    
    4,468
    
    
    
    (9
    )
    
    
    (0.2
    %)
    
    
    7.3
    %
    
    
    7.2
    %Repairs and maintenance
    
    
    2,985
    
    
    
    2,819
    
    
    
    166
    
    
    
    5.9
    %
    
    
    4.9
    %
    
    
    4.6
    %Utilities
    
    
    3,826
    
    
    
    3,535
    
    
    
    291
    
    
    
    8.2
    %
    
    
    6.2
    %
    
    
    5.7
    %Other expenses
    
    
    81
    
    
    
    233
    
    
    
    (152
    )
    
    
    (65.2
    %)
    
    
    0.1
    %
    
    
    0.4
    %Other hotel operating costs
    
    
    18,287
    
    
    
    17,847
    
    
    $
    440
    
    
    
    2.5
    %
    
    
    29.8
    %
    
    
    28.8
    %Property and other taxes, insurance, and leases
    
    
    4,226
    
    
    
    4,087
    
    
    
    139
    
    
    
    3.4
    %
    
    
    6.9
    %
    
    
    6.6
    %Corporate and other
    
    
    4,373
    
    
    
    5,575
    
    
    
    (1,202
    )
    
    
    (21.6
    %)
    
    
    7.1
    %
    
    
    9.0
    %Casualty (gains) losses, net
    
    
    (57
    )
    
    
    
    
    
    
    (57
    )
    
    
    n/m
    
    
    
    (0.1
    %)
    
    
    0.0
    %Restructuring
    
    
    
    
    
    
    1,258
    
    
    
    (1,258
    )
    
    
    (100.0
    %)
    
    
    0.0
    %
    
    
    2.0
    %Depreciation and amortization
    
    
    8,120
    
    
    
    7,226
    
    
    
    894
    
    
    
    12.4
    %
    
    
    13.2
    %
    
    
    11.7
    %Impairment of long-lived assets
    
    
    1,393
    
    
    
    512
    
    
    
    881
    
    
    
    172.1
    %
    
    
    2.3
    %
    
    
    0.8
    %Total other operating expenses
    
    $
    36,342
    
    
    $
    36,505
    
    
    $
    (163
    )
    
    
    (0.4
    %)
    
    
    59.2
    %
    
    
    58.9
    %Total operating expenses
    
    $
    59,160
    
    
    $
    59,446
    
    
    $
    (286
    )
    
    
    (0.5
    %)
    
    
    96.4
    %
    
    
    96.0
    %Operating income
    
    $
    2,240
    
    
    $
    2,487
    
    
    $
    (247
    )
    
    
    (9.9
    %)
    
    
    3.6
    %
    
    
    4.0
    %
   
    
    Utilities increased $0.3 million, or 8.2%, driven by a 32.5% increase in fuel costs.
    
    Hotel general and administrative costs increased $0.3 million, or 7.4%. The increase
was primarily the result of an increase in bad debt expenses of $0.2 million due to bad
debt recoveries in 2007.
    
    Repairs and maintenance increased $0.2 million, or 5.9%, compared to the prior year
primarily due to higher automotive maintenance costs, including fuel.
    
    Other expenses decreased $0.2 million. In the third quarter of 2007, we incurred costs
associated with a hotel brand conversion. Such costs were not incurred at the same level
in the third quarter of 2008.
    
    Advertising and promotion costs decreased $0.1 million, or 3.5%, driven by cost
containment initiatives.
      25




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##### Table of Contents



Non-operating income (expenses)  Continuing Operations
 Three Months Ended September 30,2008
    
    2007
    
    Increase (decrease)(unaudited in thousands)Non-operating income (expenses):Interest income and other
    
    $
    241
    
    
    $
    1,312
    
    
    $
    (1,071
    )
    
    
    (81.6
    %)Interest expense
    
    
    (4,821
    )
    
    
    (5,958
    )
    
    
    (1,137
    )
    
    
    (19.1
    %)
  The analysis below compares the results of operations for the nine months ended September 30, 2008
and 2007.
 Revenues  Continuing Operations
 Nine Months Ended September 30,2008
    
    
    2007
    
    
    Increase (decrease)(unaudited in thousands)Revenues:Rooms
    
    $
    139,891
    
    
    $
    138,987
    
    
    $
    904
    
    
    
    0.7
    %Food and beverage
    
    
    40,011
    
    
    
    40,660
    
    
    
    (649
    )
    
    
    (1.6
    %)Other
    
    
    6,376
    
    
    
    5,933
    
    
    
    443
    
    
    
    7.5
    %Total revenues
    
    $
    186,278
    
    
    $
    185,580
    
    
    $
    698
    
    
    
    0.4
    %Occupancy
    
    
    71.1
    %
    
    
    70.2
    %
    
    
    
    
    
    
    1.3
    %ADR
    
    $
    107.81
    
    
    $
    108.89
    
    
    $
    (1.08
    )
    
    
    (1.0
    %)RevPar
    
    $
    76.69
    
    
    $
    76.49
    
    
    $
    0.20
    
    
    
    0.3
    %
    26




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##### Table of Contents



For the nine months ended September 30, 2008 and 2007
Supplemental Operating Information
 Hotel
    
    Room
    
    
    
    Nine Months Ended September 30,Count
    
    Count
    
    
    
    2008
    
    2007
    
    Increase (Decrease)35
    
    
    
    6,654
    
    
    All Continuing OperationsOccupancy
    
    
    71.1
    %
    
    
    70.2
    %
    
    
    
    
    
    
    1.3
    %ADR
    
    $
    107.81
    
    
    $
    108.89
    
    
    $
    (1.08
    )
    
    
    (1.0
    )%RevPAR
    
    $
    76.69
    
    
    $
    76.49
    
    
    $
    0.20
    
    
    
    0.3
    %RevPAR Index
    
    
    99.7
    %
    
    
    98.3
    %
    
    
    
    
    
    
    1.4
    %25
    
    
    
    4,577
    
    
    Continuing Operations less hotels under renovation in the first, second and third quarters 2007 and/or 2008Occupancy
    
    
    71.9
    %
    
    
    71.0
    %
    
    
    
    
    
    
    1.3
    %ADR
    
    $
    104.58
    
    
    $
    104.61
    
    
    $
    (0.03
    )
    
    
    (0.0
    )%RevPAR
    
    $
    75.22
    
    
    $
    74.29
    
    
    $
    0.93
    
    
    
    1.3
    %RevPAR Index
    
    
    99.4
    %
    
    
    97.3
    %
    
    
    
    
    
    
    2.2
    %12
    
    
    
    1,397

    
    
    Marriott HotelsOccupancy
    
    
    73.7
    %
    
    
    72.3
    %
    
    
    
    
    
    
    1.9
    %ADR
    
    $
    113.68
    
    
    $
    114.12
    
    
    $
    (0.44
    )
    
    
    (0.4
    )%RevPAR
    
    $
    83.79
    
    
    $
    82.52
    
    
    $
    1.27
    
    
    
    1.5
    %RevPAR Index
    
    
    110.7
    %
    
    
    112.9
    %
    
    
    
    
    
    
    (1.9
    )%2
    
    
    
    396
    
    
    Hilton HotelsOccupancy
    
    
    66.7
    %
    
    
    68.0
    %
    
    
    
    
    
    
    (1.9
    )%ADR
    
    $
    112.44
    
    
    $
    111.33
    
    
    $
    1.11
    
    
    
    1.0
    %RevPAR
    
    $
    74.96
    
    
    $
    75.66
    
    
    $
    (0.70
    )
    
    
    (0.9
    )%RevPAR Index
    
    
    98.4
    %
    
    
    96.1
    %
    
    
    
    
    
    
    2.4
    %17
    
    
    
    3,986
    
    
    IHG HotelsOccupancy
    
    
    71.3
    %
    
    
    71.3
    %
    
    
    
    
    
    
    0.0
    %ADR
    
    $
    107.63
    
    
    $
    108.64
    
    
    $
    (1.01
    )
    
    
    (0.9
    )%RevPAR
    
    $
    76.71
    
    
    $
    77.41
    
    
    $
    (0.70
    )
    
    
    (0.9
    )%RevPAR Index
    
    
    99.8
    %
    
    
    97.3
    %
    
    
    
    
    
    
    2.6
    %4
    
    
    
    875
    
    
    Other BrandsOccupancy
    
    
    68.4
    %
    
    
    63.4
    %
    
    
    
    
    
    
    7.9
    %ADR
    
    $
    96.54
    
    
    $
    99.44
    
    
    $
    (2.90
    )
    
    
    (2.9
    )%RevPAR
    
    $
    66.05
    
    
    $
    63.00
    
    
    $
    3.05
    
    
    
    4.8
    %RevPAR Index
    
    
    83.1
    %
    
    
    80.2
    %
    
    
    
    
    
    
    3.6
    %
 27




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##### Table of Contents



Direct operating expenses  Continuing Operations
 % of total revenuesNine Months Ended September 30,
    
    
    
    
    
    
    
    
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Direct operating expenses:Rooms
    
    $
    35,562
    
    
    $
    34,336
    
    
    $
    1,226
    
    
    
    3.6
    %
    
    
    19.1
    %
    
    
    18.5
    %Food and beverage
    
    
    27,740
    
    
    
    28,185
    
    
    
    (445
    )
    
    
    (1.6
    %)
    
    
    14.9
    %
    
    
    15.2
    %Other
    
    
    4,473
    
    
    
    4,216
    
    
    
    257
    
    
    
    6.1
    %
    
    
    2.4
    %
    
    
    2.3
    %Total direct operating expenses
    
    $
    67,775
    
    
    $
    66,737
    
    
    $
    1,038
    
    
    
    1.6
    %
    
    
    36.4
    %
    
    
    36.0
    %Direct operating contribution (by revenue source):Rooms
    
    $
    104,329
    
    
    $
    104,651
    
    
    $
    (322
    )
    
    
    (0.3
    %)Food and beverage
    
    
    12,271
    
    
    
    12,475
    
    
    
    (204
    )
    
    
    (1.6
    %)Other
    
    
    1,903
    
    
    
    1,717
    
    
    
    186
    
    
    
    10.8
    %Total direct operating contribution
    
    $
    118,503
    
    
    $
    118,843
    
    
    $
    (340
    )
    
    
    (0.3
    %)Direct operating contribution % (by revenue source):Rooms
    
    
    74.6
    %
    
    
    75.3
    %Food and beverage
    
    
    30.7
    %
    
    
    30.7
    %Other
    
    
    29.8
    %
    
    
    28.9
    %Total direct operating contribution
    
    
    63.6
    %
    
    
    64.0
    %
    28




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##### Table of Contents



Other operating expenses and operating income  Continuing Operations
 % of total revenuesNine Months Ended September 30,
    
    
    
    
    
    
    
    
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Other operating expenses:Other hotel operating costsGeneral and administrative
    
    $
    11,531
    
    
    $
    10,911
    
    
    $
    620
    
    
    
    5.7
    %
    
    
    6.2
    %
    
    
    5.9
    %Advertising and promotion
    
    
    9,701
    
    
    
    9,872
    
    
    
    (171
    )
    
    
    (1.7
    %)
    
    
    5.2
    %
    
    
    5.3
    %Franchise fees
    
    
    13,235
    
    
    
    13,071
    
    
    
    164
    
    
    
    1.3
    %
    
    
    7.1
    %
    
    
    7.0
    %Repairs and maintenance
    
    
    8,857
    
    
    
    8,289
    
    
    
    568
    
    
    
    6.9
    %
    
    
    4.8
    %
    
    
    4.5
    %Utilities
    
    
    10,251
    
    
    
    9,751
    
    
    
    500
    
    
    
    5.1
    %
    
    
    5.5
    %
    
    
    5.3
    %Other expenses
    
    
    310
    
    
    
    445
    
    
    
    (135
    )
    
    
    (30.3
    %)
    
    
    0.2
    %
    
    
    0.2
    %Other hotel operating costs
    
    
    53,885
    
    
    
    52,339
    
    
    $
    1,546
    
    
    
    3.0
    %
    
    
    28.9
    %
    
    
    28.2
    %Property and other taxes, insurance, and leases
    
    
    12,338
    
    
    
    13,329
    
    
    
    (991
    )
    
    
    (7.4
    %)
    
    
    6.6
    %
    
    
    7.2
    %Corporate and other
    
    
    13,742
    
    
    
    17,144
    
    
    
    (3,402
    )
    
    
    (19.8
    %)
    
    
    7.4
    %
    
    
    9.2
    %Casualty (gains) losses, net
    
    
    (57
    )
    
    
    (1,867
    )
    
    
    1,810
    
    
    
    (96.9
    %)
    
    
    (0.0
    %)
    
    
    (1.0
    %)Restructuring
    
    
    
    
    
    
    1,258
    
    
    
    (1,258
    )
    
    
    (100.0
    %)
    
    
    0.0
    %
    
    
    0.7
    %Depreciation and amortization
    
    
    23,578
    
    
    
    21,301
    
    
    
    2,277
    
    
    
    10.7
    %
    
    
    12.7
    %
    
    
    11.5
    %Impairment of long-lived assets
    
    
    9,114
    
    
    
    826
    
    
    
    8,288
    
    
    
    1003.4
    %
    
    
    4.9
    %
    
    
    0.4
    %Total other operating expenses
    
    $
    112,600
    
    
    $
    104,330
    
    
    $
    8,270
    
    
    
    7.9
    %
    
    
    60.4
    %
    
    
    56.2
    %Total operating expenses
    
    $
    180,375
    
    
    $
    171,067
    
    
    $
    9,308
    
    
    
    5.4
    %
    
    
    96.8
    %
    
    
    92.2
    %Operating income
    
    $
    5,903
    
    
    $
    14,513
    
    
    $
    (8,610
    )
    
    
    (59.3
    %)
    
    
    3.2
    %
    
    
    7.8
    %
   
    
    Hotel general and administrative costs increased $0.6 million, or 5.7%, as we benefited
from sales tax credits and bad debt recoveries in 2007.
    
    Repairs and maintenance increased $0.6 million, or 6.9%, compared to the prior year
primarily due to higher automotive maintenance costs, including fuel.
    
    Utilities increased $0.5 million, or 5.1%, due primarily to higher energy costs.
    
    Franchise fees increased $0.2 million, or 1.3%, but remained relatively constant as a
percentage of total revenues.
    
    Advertising and promotion decreased $0.2 million, or 1.7%, driven by cost containment
initiatives.
    
    Other expenses decreased $0.1 million, or 30.3%. In 2007, we incurred costs associated
with a hotel brand conversion. Such costs were not incurred at the same level in 2008.
    29




---



##### Table of Contents



Non-operating income (expenses)  Continuing Operations
 Nine Months Ended September 30,2008
    
    2007
    
    Increase (decrease)(unaudited in thousands)Non-operating income (expenses):Interest income and other
    
    $
    907
    
    
    $
    3,031
    
    
    $
    (2,124
    )
    
    
    (70.1
    %)Interest expense
    
    
    (14,768
    )
    
    
    (17,380
    )
    
    
    (2,612
    )
    
    
    (15.0
    %)Loss on debt extinguishment
    
    
    
    
    
    
    (3,330
    )
    
    
    (3,330
    )
    
    
    n/m
  Results of Operations  Discontinued Operations
   
    
    $3.9 million on the Holiday Inn Select in Windsor, Ontario, Canada to reflect the
current estimated selling price, net of selling costs;
    
    $1.2 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $1.0 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs; and
    
    $0.2 million on the closed French Quarter Suites Memphis, TN to reflect the current
estimated selling price, net of selling costs.
  
    
    $3.9 million on the Holiday Inn Select in Windsor, Ontario, Canada to reflect the
current estimated selling price, net of selling costs;
    
    $1.9 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs;
    
    $1.6 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $0.2 million on the closed French Quarter Suites Memphis, TN to reflect the current
estimated selling price, net of selling costs;
    
    $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of
the hotel; and
    
    $0.1 million to record the final disposition of the Holiday Inn Frederick, MD as well as
the disposal of replaced assets at various hotels.
 30




---



##### Table of Contents




    
    $1.3 million on the Holiday Inn Clarksburg, WV to reflect the estimated selling price,
net of selling costs;
    
    $0.6 million on the Holiday Inn Jamestown, NY to reflect the estimated selling price,
net of selling costs;
    
    $0.4 million on the Vermont Maple Inn Colchester, VT to reflect the current estimated
selling price, net of selling costs;
    
    $0.1 million on the University Plaza Bloomington, IN to record the final disposition of
the hotel; and
    
    $0.3 million related to various other held-for-sale properties primarily to write-off
the remaining net book value of disposed fixed assets.
     Income Taxes
    31




---



##### Table of Contents



Additional Financial Information Regarding Quarterly Results of Our Continuing Operations
  32




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Unaudited in thousands)Revenues:Rooms
    
    $
    46,679
    
    
    $
    49,364
    
    
    $
    43,848
    
    
    $
    40,730
    
    
    $
    46,942
    
    
    $
    49,224
    
    
    $
    42,821
    
    
    $
    39,510Food and beverage
    
    
    12,545
    
    
    
    15,404
    
    
    
    12,062
    
    
    
    14,429
    
    
    
    12,857
    
    
    
    15,323
    
    
    
    12,480
    
    
    
    13,670Other
    
    
    2,176
    
    
    
    2,138
    
    
    
    2,062
    
    
    
    1,819
    
    
    
    2,134
    
    
    
    2,131
    
    
    
    1,668
    
    
    
    1,77561,400
    
    
    
    66,906
    
    
    
    57,972
    
    
    
    56,978
    
    
    
    61,933
    
    
    
    66,678
    
    
    
    56,969
    
    
    
    54,955Direct operating expenses:Rooms
    
    
    12,200
    
    
    
    12,179
    
    
    
    11,183
    
    
    
    10,497
    
    
    
    11,997
    
    
    
    11,725
    
    
    
    10,614
    
    
    
    10,481Food and beverage
    
    
    9,070
    
    
    
    9,851
    
    
    
    8,819
    
    
    
    9,054
    
    
    
    9,432
    
    
    
    9,918
    
    
    
    8,835
    
    
    
    9,161Other
    
    
    1,548
    
    
    
    1,537
    
    
    
    1,388
    
    
    
    1,288
    
    
    
    1,512
    
    
    
    1,462
    
    
    
    1,242
    
    
    
    1,27522,818
    
    
    
    23,567
    
    
    
    21,390
    
    
    
    20,839
    
    
    
    22,941
    
    
    
    23,105
    
    
    
    20,691
    
    
    
    20,91738,582
    
    
    
    43,339
    
    
    
    36,582
    
    
    
    36,139
    
    
    
    38,992
    
    
    
    43,573
    
    
    
    36,278
    
    
    
    34,038Other operating expenses:Other hotel operating costs
    
    
    18,287
    
    
    
    17,719
    
    
    
    17,879
    
    
    
    16,285
    
    
    
    17,847
    
    
    
    17,603
    
    
    
    16,889
    
    
    
    15,433Property and other taxes, insurance and leases
    
    
    4,226
    
    
    
    3,760
    
    
    
    4,352
    
    
    
    4,334
    
    
    
    4,087
    
    
    
    4,418
    
    
    
    4,824
    
    
    
    4,578Corporate and other
    
    
    4,373
    
    
    
    3,484
    
    
    
    5,885
    
    
    
    4,248
    
    
    
    5,575
    
    
    
    5,906
    
    
    
    5,663
    
    
    
    4,936Casualty (gain) losses, net
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,867
    )
    
    
    Restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    1,258
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    8,120
    
    
    
    7,989
    
    
    
    7,469
    
    
    
    7,464
    
    
    
    7,226
    
    
    
    7,098
    
    
    
    6,977
    
    
    
    6,972Impairment of long-lived assets
    
    
    1,393
    
    
    
    5,580
    
    
    
    2,141
    
    
    
    796
    
    
    
    512
    
    
    
    155
    
    
    
    159
    
    
    
    147Other operating expenses
    
    
    36,342
    
    
    
    38,532
    
    
    
    37,726
    
    
    
    33,102
    
    
    
    36,505
    
    
    
    35,180
    
    
    
    32,645
    
    
    
    32,066Operating income (loss)
    
    
    2,240
    
    
    
    4,807
    
    
    
    (1,144
    )
    
    
    3,037
    
    
    
    2,487
    
    
    
    8,393
    
    
    
    3,633
    
    
    
    1,972Other income (expenses):Business interruption insurance proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )Interest income and other
    
    
    241
    
    
    
    276
    
    
    
    390
    
    
    
    912
    
    
    
    1,312
    
    
    
    807
    
    
    
    912
    
    
    
    651Other interest expense
    
    
    (4,821
    )
    
    
    (4,775
    )
    
    
    (5,172
    )
    
    
    (5,790
    )
    
    
    (5,958
    )
    
    
    (6,044
    )
    
    
    (5,378
    )
    
    
    (5,452
    )Loss on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,330
    )
    
    
    
    
    
    
    (Loss) income before income taxes and minority interests
    
    
    (2,340
    )
    
    
    308
    
    
    
    (5,926
    )
    
    
    (1,841
    )
    
    
    (2,159
    )
    
    
    (174
    )
    
    
    (833
    )
    
    
    (2,876
    )Minority interests (net of taxes, nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (365
    )
    
    
    335(Loss) income before income taxes  continuing operations
    
    
    (2,340
    )
    
    
    308
    
    
    
    (5,926
    )
    
    
    (1,841
    )
    
    
    (2,159
    )
    
    
    (230
    )
    
    
    (1,198
    )
    
    
    (2,541
    )Benefit (provision) for income taxes  continuing
operations
    
    
    81
    
    
    
    (24
    )
    
    
    (63
    )
    
    
    (2,262
    )
    
    
    1,027
    
    
    
    372
    
    
    
    707
    
    
    
    (9,154
    )(Loss) income from continuing operations
    
    
    (2,259
    )
    
    
    284
    
    
    
    (5,989
    )
    
    
    (4,103
    )
    
    
    (1,132
    )
    
    
    142
    
    
    
    (491
    )
    
    
    (11,695
    )Discontinued operations:(Loss) income from discontinued operations
before income taxes
    
    
    (3,870
    )
    
    
    5,986
    
    
    
    (1,357
    )
    
    
    (5,824
    )
    
    
    1,818
    
    
    
    (248
    )
    
    
    2,209
    
    
    
    (13,527
    )(Provision) benefit for income taxes
    
    
    (54
    )
    
    
    97
    
    
    
    (172
    )
    
    
    1,854
    
    
    
    (639
    )
    
    
    (157
    )
    
    
    (1,875
    )
    
    
    4,509(Loss) income from discontinued operations
    
    
    (3,924
    )
    
    
    6,083
    
    
    
    (1,529
    )
    
    
    (3,970
    )
    
    
    1,179
    
    
    
    (405
    )
    
    
    334
    
    
    
    (9,018
    )Net (loss) income attributable to common stock
    
    $
    (6,183
    )
    
    $
    6,367
    
    
    $
    (7,518
    )
    
    $
    (8,073
    )
    
    $
    47
    
    
    $
    (263
    )
    
    $
    (157
    )
    
    $
    (20,713
    )
 Hotel data by market segment and region
 Hotel data by market segment
   
    
    Upper Upscale: Hilton and Marriott;
 
    
    Upscale: Courtyard by Marriott, Crowne Plaza, Four Points by Sheraton, Radisson,
Residence Inn by Marriott, SpringHill Suites by Marriott and Wyndham;
 
    
    Midscale with Food & Beverage: Holiday Inn, Holiday Inn Select; and
 
    
    Midscale without Food & Beverage: Fairfield Inn by Marriott and Holiday Inn Express.
 33




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##### Table of Contents



Combined Continuing and Discontinued Operations  42 hotels (excludes 1 hotel)
 Three Months Ended
    
    Nine Months EndedSeptember 30, 2008
    
    September 30, 2007
    
    September 30, 2008
    
    September 30, 2007Upper UpscaleNumber of properties
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    825
    
    
    
    825
    
    
    
    825
    
    
    
    825Occupancy
    
    
    75.6
    %
    
    
    78.6
    %
    
    
    71.7
    %
    
    
    73.4
    %Average daily rate
    
    $
    123.09
    
    
    $
    117.97
    
    
    $
    121.31
    
    
    $
    119.68RevPAR
    
    $
    93.05
    
    
    $
    92.72
    
    
    $
    86.94
    
    
    $
    87.85UpscaleNumber of properties
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    20Number of rooms
    
    
    4,048
    
    
    
    3,576
    
    
    
    4,048
    
    
    
    3,576Occupancy
    
    
    69.9
    %
    
    
    69.9
    %
    
    
    71.6
    %
    
    
    70.5
    %Average daily rate
    
    $
    102.47
    
    
    $
    103.60
    
    
    $
    108.21
    
    
    $
    110.57RevPAR
    
    $
    71.59
    
    
    $
    72.40
    
    
    $
    77.49
    
    
    $
    77.95Midscale with Food & BeverageNumber of properties
    
    
    14
    
    
    
    16
    
    
    
    14
    
    
    
    16Number of rooms
    
    
    2,699
    
    
    
    3,171
    
    
    
    2,699
    
    
    
    3,171Occupancy
    
    
    71.7
    %
    
    
    73.2
    %
    
    
    68.8
    %
    
    
    69.0
    %Average daily rate
    
    $
    103.23
    
    
    $
    103.58
    
    
    $
    99.79
    
    
    $
    101.14RevPAR
    
    $
    74.03
    
    
    $
    75.84
    
    
    $
    68.69
    
    
    $
    69.75Midscale without Food &
BeverageNumber of properties
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Number of rooms
    
    
    244
    
    
    
    244
    
    
    
    244
    
    
    
    244Occupancy
    
    
    50.8
    %
    
    
    55.2
    %
    
    
    53.6
    %
    
    
    58.5
    %Average daily rate
    
    $
    72.67
    
    
    $
    75.20
    
    
    $
    93.98
    
    
    $
    90.83RevPAR
    
    $
    36.95
    
    
    $
    41.50
    
    
    $
    50.38
    
    
    $
    53.10All HotelsNumber of properties
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    42Number of rooms
    
    
    7,816
    
    
    
    7,816
    
    
    
    7,816
    
    
    
    7,816Occupancy
    
    
    70.5
    %
    
    
    71.7
    %
    
    
    70.1
    %
    
    
    69.8
    %Average daily rate
    
    $
    104.40
    
    
    $
    104.57
    
    
    $
    106.43
    
    
    $
    107.28RevPAR
    
    $
    73.61
    
    
    $
    74.97
    
    
    $
    74.60
    
    
    $
    74.89
 34




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##### Table of Contents



Continuing Operations  35 hotels (excludes 8 held for sale hotels)
 Three Months Ended
    
    Nine Months EndedSeptember 30, 2008
    
    September 30, 2007
    
    September 30, 2008
    
    September 30, 2007Upper UpscaleNumber of properties
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3Number of rooms
    
    
    634
    
    
    
    634
    
    
    
    634
    
    
    
    634Occupancy
    
    
    75.7
    %
    
    
    80.2
    %
    
    
    71.0
    %
    
    
    75.0
    %Average daily rate
    
    $
    129.81
    
    
    $
    124.31
    
    
    $
    128.32
    
    
    $
    125.70RevPAR
    
    $
    98.32
    
    
    $
    99.67
    
    
    $
    91.13
    
    
    $
    94.29UpscaleNumber of properties
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    22Number of rooms
    
    
    4,048
    
    
    
    3,576
    
    
    
    4,048
    
    
    
    4,048Occupancy
    
    
    69.9
    %
    
    
    69.9
    %
    
    
    71.6
    %
    
    
    70.5
    %Average daily rate
    
    $
    102.47
    
    
    $
    103.60
    
    
    $
    108.21
    
    
    $
    110.57RevPAR
    
    $
    71.59
    
    
    $
    72.40
    
    
    $
    77.49
    
    
    $
    77.95Midscale with Food & BeverageNumber of properties
    
    
    8
    
    
    
    10
    
    
    
    8
    
    
    
    8Number of rooms
    
    
    1,728
    
    
    
    2,200
    
    
    
    1,728
    
    
    
    1,728Occupancy
    
    
    77.4
    %
    
    
    74.7
    %
    
    
    72.5
    %
    
    
    69.8
    %Average daily rate
    
    $
    109.32
    
    
    $
    108.22
    
    
    $
    100.96
    
    
    $
    0.00RevPAR
    
    $
    84.58
    
    
    $
    80.86
    
    
    $
    73.24
    
    
    $
    71.58Midscale without Food &
BeverageNumber of properties
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Number of rooms
    
    
    244
    
    
    
    244
    
    
    
    244
    
    
    
    244Occupancy
    
    
    50.8
    %
    
    
    55.2
    %
    
    
    53.6
    %
    
    
    58.5
    %Average daily rate
    
    $
    72.67
    
    
    $
    75.20
    
    
    $
    93.98
    
    
    $
    90.83RevPAR
    
    $
    36.95
    
    
    $
    41.50
    
    
    $
    50.38
    
    
    $
    53.10All HotelsNumber of properties
    
    
    35
    
    
    
    35
    
    
    
    35
    
    
    
    35Number of rooms
    
    
    6,654
    
    
    
    6,654
    
    
    
    6,654
    
    
    
    6,654Occupancy
    
    
    71.7
    %
    
    
    71.9
    %
    
    
    71.1
    %
    
    
    70.2
    %Average daily rate
    
    $
    106.37
    
    
    $
    106.58
    
    
    $
    107.81
    
    
    $
    108.89RevPAR
    
    $
    76.24
    
    
    $
    76.66
    
    
    $
    76.69
    
    
    $
    76.49
 35




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##### Table of Contents



Hotel data by region
   
    
    Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York,
Ohio, Pennsylvania;
 
    
    Southeast: Florida, Georgia, Kentucky, Louisiana, North Carolina, South Carolina;
 
    
    Midwest: Arkansas, Indiana, Michigan, Oklahoma, Texas; and
 
    
    West: Arizona, California, Colorado, New Mexico.
 36




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##### Table of Contents



Combined Continuing and Discontinued Operations  42 hotels (excludes 1 hotel)
 Three Months Ended
    
    Nine Months EndedSeptember 30, 2008
    
    September 30, 2007
    
    September 30, 2008
    
    September 30, 2007Northeast RegionNumber of properties
    
    
    17
    
    
    
    17
    
    
    
    17
    
    
    
    17Number of rooms
    
    
    3,462
    
    
    
    3,462
    
    
    
    3,462
    
    
    
    3,462Occupancy
    
    
    70.6
    %
    
    
    74.7
    %
    
    
    67.9
    %
    
    
    69.5
    %Average daily rate
    
    $
    106.64
    
    
    $
    106.89
    
    
    $
    106.31
    
    
    $
    106.32RevPAR
    
    $
    75.27
    
    
    $
    79.90
    
    
    $
    72.15
    
    
    $
    73.93Southeast RegionNumber of properties
    
    
    10
    
    
    
    10
    
    
    
    10
    
    
    
    10Number of rooms
    
    
    1,624
    
    
    
    1,624
    
    
    
    1,624
    
    
    
    1,624Occupancy
    
    
    73.4
    %
    
    
    73.9
    %
    
    
    73.4
    %
    
    
    72.5
    %Average daily rate
    
    $
    110.61
    
    
    $
    112.06
    
    
    $
    112.71
    
    
    $
    115.73RevPAR
    
    $
    81.17
    
    
    $
    82.80
    
    
    $
    82.78
    
    
    $
    818.10Midwest RegionNumber of properties
    
    
    8
    
    
    
    8
    
    
    
    8
    
    
    
    8Number of rooms
    
    
    1,418
    
    
    
    1,418
    
    
    
    1,418
    
    
    
    1,418Occupancy
    
    
    68.9
    %
    
    
    63.1
    %
    
    
    69.6
    %
    
    
    63.2
    %Average daily rate
    
    $
    100.10
    
    
    $
    97.72
    
    
    $
    99.26
    
    
    $
    99.11RevPAR
    
    $
    68.97
    
    
    $
    61.69
    
    
    $
    69.09
    
    
    $
    62.64West RegionNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    1,312
    
    
    
    1,312
    
    
    
    1,312
    
    
    
    1,312Occupancy
    
    
    68.5
    %
    
    
    70.2
    %
    
    
    72.4
    %
    
    
    74.3
    %Average daily rate
    
    $
    94.76
    
    
    $
    94.95
    
    
    $
    106.29
    
    
    $
    106.98RevPAR
    
    $
    64.94
    
    
    $
    66.62
    
    
    $
    76.92
    
    
    $
    79.48All HotelsNumber of properties
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    42Number of rooms
    
    
    7,816
    
    
    
    7,816
    
    
    
    7,816
    
    
    
    7,816Occupancy
    
    
    70.5
    %
    
    
    71.7
    %
    
    
    70.1
    %
    
    
    69.8
    %Average daily rate
    
    $
    104.40
    
    
    $
    104.57
    
    
    $
    106.43
    
    
    $
    107.28RevPAR
    
    $
    73.61
    
    
    $
    74.97
    
    
    $74.60
    
    $
    74.89
 37




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##### Table of Contents



Continuing Operations  35 hotels (excludes 8 held for sale hotels)
 Three Months Ended
    
    Nine Months EndedSeptember 30, 2008
    
    September 30, 2007
    
    September 30, 2008
    
    September 30, 2007Northeast RegionNumber of properties
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Number of rooms
    
    
    2,852
    
    
    
    2,852
    
    
    
    2,852
    
    
    
    2,852Occupancy
    
    
    71.8
    %
    
    
    75.0
    %
    
    
    68.7
    %
    
    
    69.6
    %Average daily rate
    
    $
    108.52
    
    
    $
    108.46
    
    
    $
    107.91
    
    
    $
    108.50RevPAR
    
    $
    77.88
    
    
    $
    81.36
    
    
    $
    74.17
    
    
    $
    75.49Southeast RegionNumber of properties
    
    
    10
    
    
    
    10
    
    
    
    10
    
    
    
    10Number of rooms
    
    
    1,624
    
    
    
    1,624
    
    
    
    1,624
    
    
    
    1,624Occupancy
    
    
    73.4
    %
    
    
    73.9
    %
    
    
    73.4
    %
    
    
    72.5
    %Average daily rate
    
    $
    110.61
    
    
    $
    112.06
    
    
    $
    112.71
    
    
    $
    115.73RevPAR
    
    $
    81.17
    
    
    $
    82.80
    
    
    $
    82.78
    
    
    $
    83.90Midwest RegionNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    1,227
    
    
    
    1,227
    
    
    
    1,227
    
    
    
    1,227Occupancy
    
    
    67.9
    %
    
    
    61.5
    %
    
    
    68.9
    %
    
    
    62.4
    %Average daily rate
    
    $
    100.02
    
    
    $
    98.23
    
    
    $
    99.32
    
    
    $
    99.36RevPAR
    
    $
    67.95
    
    
    $
    60.45
    
    
    $
    68.48
    
    
    $
    62.04West RegionNumber of properties
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Number of rooms
    
    
    951
    
    
    
    951
    
    
    
    951
    
    
    
    951Occupancy
    
    
    73.3
    %
    
    
    72.6
    %
    
    
    77.2
    %
    
    
    78.4
    %Average daily rate
    
    $
    100.41
    
    
    $
    100.39
    
    
    $
    109.36
    
    
    $
    108.88RevPAR
    
    $
    73.58
    
    
    $
    72.93
    
    
    $
    84.45
    
    
    $
    85.36All HotelsNumber of properties
    
    
    35
    
    
    
    35
    
    
    
    35
    
    
    
    35Number of rooms
    
    
    6,654
    
    
    
    6,654
    
    
    
    6,654
    
    
    
    6,654Occupancy
    
    
    71.7
    %
    
    
    71.9
    %
    
    
    71.1
    %
    
    
    70.2
    %Average daily rate
    
    $
    106.37
    
    
    $
    106.58
    
    
    $
    107.81
    
    
    $
    108.89RevPAR
    
    $
    76.24
    
    
    $
    76.66
    
    
    $
    76.69
    
    
    $
    76.49
 38




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##### Table of Contents



Liquidity and Capital Resources
 Working Capital
          39




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##### Table of Contents



Cash Flow
  Operating activities
  Investing activities
   Financing activities
   40




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##### Table of Contents



Debt and Contractual Obligations
  Off Balance Sheet Arrangements
  Market Risk
    Forward-looking Statements
  
    
    The effects of regional, national and international economic conditions;
 
    
    Competitive conditions in the lodging industry and increases in room supply;
 
    
    The effects of actual and threatened terrorist attacks and international conflicts
in the Middle East and elsewhere, and their impact on domestic and international
travel;
 
    
    The effectiveness of changes in management and our ability to retain qualified
individuals to serve in senior management positions;
 
    
    Requirements of franchise agreements, including the right of franchisors to
immediately terminate their respective agreements if we breach certain provisions;
 
    
    Our ability to complete planned hotel dispositions;
 
    
    Our ability to refinance approximately $137 million of mortgage debt that matures
on July 1, 2009, given the current lending environment;
 
    
    Seasonality of the hotel business;
 
    
    The effects of unpredictable weather events such as hurricanes;
 
    
    The financial condition of the airline industry and its impact on air travel;
 
    
    The effect that Internet reservation channels may have on the rates that we are
able to charge for hotel rooms;
 41




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##### Table of Contents




    
    Increases in the cost of debt and our continued compliance with the terms of our
loan agreements;
 
    
    The effect of the majority of our assets being encumbered on our borrowings and
future growth;
 
    
    Our ability to meet the continuing listing requirements of the American Stock
Exchange;
 
    
    The effect of self-insured claims in excess of our reserves, or our ability to
obtain adequate property and liability insurance to protect against losses, or to
obtain insurance at reasonable rates;
 
    
    Potential litigation and/or governmental inquiries and investigations;
 
    
    Laws and regulations applicable to our business, including federal, state or local
hotel, resort, restaurant or land use regulations, employment, labor or disability
laws and regulations;
 
    
    A downturn in the economy due to several factors, including but not limited to,
high energy costs, natural gas and gasoline prices; and
 
    
    The risks identified in our Form 10-K under Risks Related to Our Business and
Risks Related to Our Common Stock.
  Inflation
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
     
 Item 1A. Risk Factors
  We may not be able to refinance the portion of our mortgage indebtedness that is scheduled to mature 2009.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    
    Maximum Dollar Amount ofShares Purchased as
    
    
    Shares That May Yet BeTotal Number of
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Purchased Under theShares
    
    
    Paid Per Share
    
    
    Announced Plans or
    
    
    Publicly Announced Plans orPeriod
    
    Purchased (1)
    
    
    (2)
    
    
    Programs
    
    
    ProgramsJuly 2008
    
    
    184,488
    
    
    $
    7.18
    
    
    
    184,488
    
    
    $
    7,219,933August 2008
    
    
    166,977
    
    
    $
    8.28
    
    
    
    166,977
    
    
    $
    5,836,756September 2008
    
    
    34,060
    
    
    $
    7.91
    
    
    
    30,393
    
    
    $
    5,599,458385,525
    
    
    $
    7.72
    
    
    
    381,858
 
 (1)
    


    The total number of shares purchased includes: (a)
    
    shares purchased pursuant to the April 11, 2008 share repurchase program, which
granted a maximum of $10 million of repurchase authority expiring on April 15,
2009.(b)
    
    3,667 shares of employee nonvested stock awards repurchased by the Company
at an aggregate cost of $32,000. (2)
    
    The average price paid per share excludes commissions. 
 Item 6. Exhibits
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SIGNATURES
  LODGIAN, INC.Date: November 6, 2008
    
    By:
    
    /s/ PETER T. CYRUSPeter T. CyrusInterim President and 
Chief Executive Officer
 Date: November 6, 2008
    
    By:
    
    /s/ JAMES A. MACLENNANJames A. MacLennanExecutive Vice President and 
Chief Financial Officer
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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Certificate of Correction to the Second Amended and Restated Certificate of Incorporation and
Second Amended and Restated Certificate of Incorporation of Lodgian, Inc. (Incorporated by
reference to Exhibit 3.1 to Amendment No. 2 to the Companys Registration Statement on Form
S-1 (File No. 333-113410), filed on June 4, 2004).3.2
    
    Amended and Restated Bylaws of Lodgian, Inc. (Incorporated by reference to Exhibit 3.4 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).4.1
    
    Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No.
2 to the Companys Registration Statement on Form S-1 (File No. 333-113410), filed on June 6,
2004).4.2
    
    Class B Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia
Bank, N.A. (Incorporated by reference to Exhibit 10.10 to the Companys Annual Report for the
period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).31.1
    
    Sarbanes-Oxley Section 302 Certification by the CEO.**31.2
    
    Sarbanes-Oxley Section 302 Certification by the CFO.**32
    
    Sarbanes-Oxley Section 906 Certification by the CEO and CFO.**
 
 **
    
    Filed herewith. 46