##### 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 Period ended September 30, 2006
 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(State or other jurisdiction of 
incorporation or organization)
    
    52-2093696(I.R.S. Employer
Identification No.)3445 Peachtree Road, N.E., Suite 700, 
Atlanta, GA(Address of principal executive offices)
    
    30326(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
  o þ o
 o þ
 þ o
  Class
    
    Outstanding as of November 1, 2006Common
    
    24,556,502




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##### 



LODGIAN, INC. AND SUBSIDIARIES
 INDEX
  
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September
30, 2006 and September 30, 2005 (unaudited)
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September
30, 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006
and September 30, 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 4.
    
    Controls and Procedures
    
    
    45PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    47Item 6.
    
    Exhibits
    
    
    47Signatures
    
    
    
    
    48EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATIONS OF CEO/CFO
  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, 2006
    
    
    December 31, 2005(Unaudited in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    52,420
    
    
    $
    19,097Cash, restricted
    
    
    13,334
    
    
    
    15,003Accounts receivable (net of allowances: 2006  $1,135; 2005  $1,101)
    
    
    10,312
    
    
    
    8,054Insurance receivable
    
    
    2,612
    
    
    
    11,725Inventories
    
    
    3,546
    
    
    
    3,955Prepaid expenses and other current assets
    
    
    19,722
    
    
    
    20,101Assets held for sale
    
    
    42,678
    
    
    
    14,866Total current assets
    
    
    144,624
    
    
    
    92,801Property and equipment, net
    
    
    564,094
    
    
    
    606,862Deposits for capital expenditures
    
    
    17,304
    
    
    
    19,431Other assets
    
    
    6,786
    
    
    
    7,591$
    732,808
    
    
    $
    726,685LIABILITIES AND STOCKHOLDERS
EQUITYCurrent liabilities:Accounts payable
    
    $
    10,587
    
    
    $
    14,709Other accrued liabilities
    
    
    29,096
    
    
    
    31,528Advance deposits
    
    
    2,144
    
    
    
    1,914Insurance advances
    
    
    2,063
    
    
    
    700Current portion of long-term liabilities
    
    
    21,186
    
    
    
    18,531Liabilities related to assets held for sale
    
    
    28,615
    
    
    
    4,610Total current liabilities
    
    
    93,691
    
    
    
    71,992Long-term liabilities
    
    
    369,526
    
    
    
    394,432Total liabilities
    
    
    463,217
    
    
    
    466,424Minority interests
    
    
    11,256
    
    
    
    11,217Commitments and contingencies
Stockholders equity:Common stock, $.01 par value, 60,000,000
shares authorized;
24,743,253 and 24,648,405 issued at
September 30, 2006 and
December 31, 2005, respectively
    
    
    247
    
    
    
    246Additional paid-in capital
    
    
    321,926
    
    
    
    317,034Unearned stock compensation
    
    
    
    
    
    
    (604
    )Accumulated deficit
    
    
    (64,106
    )
    
    
    (69,640
    )Accumulated other comprehensive income
    
    
    2,706
    
    
    
    2,234Treasury stock, at cost, 205,819 and
21,633 shares at
September 30, 2006 and December 31,
2005, respectively
    
    
    (2,438
    )
    
    
    (226
    )Total stockholders equity
    
    
    258,335
    
    
    
    249,044$
    732,808
    
    
    $
    726,685
  3




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember
30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005(Unaudited in thousands, except per share data)Revenues:Rooms
    
    $
    60,540
    
    
    $
    56,776
    
    
    $
    181,681
    
    
    $
    159,497Food and beverage
    
    
    15,040
    
    
    
    14,243
    
    
    
    47,937
    
    
    
    43,095Other
    
    
    2,387
    
    
    
    2,348
    
    
    
    7,144
    
    
    
    7,081Total revenues
    
    
    77,967
    
    
    
    73,367
    
    
    
    236,762
    
    
    
    209,673Operating expenses:Direct:Rooms
    
    
    16,247
    
    
    
    14,909
    
    
    
    47,409
    
    
    
    42,571Food and beverage
    
    
    11,553
    
    
    
    10,300
    
    
    
    35,089
    
    
    
    30,712Other
    
    
    1,747
    
    
    
    1,775
    
    
    
    5,455
    
    
    
    5,365Total direct operating expenses
    
    
    29,547
    
    
    
    26,984
    
    
    
    87,953
    
    
    
    78,64848,420
    
    
    
    46,383
    
    
    
    148,809
    
    
    
    131,025Other operating expenses:Other hotel operating costs
    
    
    23,430
    
    
    
    22,562
    
    
    
    69,932
    
    
    
    63,633Property and other taxes, insurance, and leases
    
    
    6,939
    
    
    
    5,202
    
    
    
    17,759
    
    
    
    15,220Corporate and other
    
    
    5,635
    
    
    
    5,845
    
    
    
    15,961
    
    
    
    15,863Casualty (gains) losses, net
    
    
    (3,086
    )
    
    
    190
    
    
    
    (3,145
    )
    
    
    322Depreciation and amortization
    
    
    9,234
    
    
    
    6,340
    
    
    
    26,565
    
    
    
    18,176Impairment of long-lived assets
    
    
    367
    
    
    
    603
    
    
    
    645
    
    
    
    1,656Total other operating expenses
    
    
    42,519
    
    
    
    40,742
    
    
    
    127,717
    
    
    
    114,870Operating income
    
    
    5,901
    
    
    
    5,641
    
    
    
    21,092
    
    
    
    16,155Other income (expenses):Business interruption insurance proceeds
    
    
    2,973
    
    
    
    6,094
    
    
    
    4,125
    
    
    
    7,823Interest income and other
    
    
    786
    
    
    
    348
    
    
    
    1,943
    
    
    
    573Interest expense
    
    
    (7,514
    )
    
    
    (6,121
    )
    
    
    (22,041
    )
    
    
    (18,340
    )Income before income taxes and minority interests
    
    
    2,146
    
    
    
    5,962
    
    
    
    5,119
    
    
    
    6,211Minority interests (net of taxes, nil)
    
    
    101
    
    
    
    (1,127
    )
    
    
    (39
    )
    
    
    (1,006
    )Provision for income taxes  continuing operations
    
    
    (889
    )
    
    
    (13
    )
    
    
    (2,105
    )
    
    
    (148
    )Income from continuing operations
    
    
    1,358
    
    
    
    4,822
    
    
    
    2,975
    
    
    
    5,057Discontinued operations:Income (loss) from discontinued operations before
income taxes
    
    
    (1,839
    )
    
    
    4,887
    
    
    
    4,346
    
    
    
    (462
    )Minority interests  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )Benefit (provision) for income taxes 
discontinued operations
    
    
    643
    
    
    
    
    
    
    
    (1,787
    )
    
    
    Income (loss) from discontinued operations
    
    
    (1,196
    )
    
    
    4,887
    
    
    
    2,559
    
    
    
    (558
    )Net income attributable to common stock
    
    $
    162
    
    
    $
    9,709
    
    
    $
    5,534
    
    
    $
    4,499Net income per share attributable to common stock:Basic
    
    $
    0.01
    
    
    $
    0.40
    
    
    $
    0.22
    
    
    $
    0.18Diluted
    
    $
    0.01
    
    
    $
    0.39
    
    
    $
    0.22
    
    
    $
    0.18
  4




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LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedAdditional
    
    
    Unearned
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Equity(Unaudited in thousands, except share data)Balance, December 31, 2005
    
    
    24,648,405
    
    
    $
    246
    
    
    $
    317,034
    
    
    $
    (604
    )
    
    $
    (69,640
    )
    
    $
    2,234
    
    
    
    21,633
    
    
    $
    (226
    )
    
    $
    249,044Reclassification of unearned stock
compensation to additional paid-in
capital
    
    
    
    
    
    
    
    
    
    
    (604
    )
    
    
    604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned stock
compensation
    
    
    
    
    
    
    
    
    
    
    1,060
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,060Issuance of restricted stock awards
    
    
    12,413
    
    
    
    1
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Exercise of stock options
    
    
    82,435
    
    
    
    
    
    
    
    822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    822Repurchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,186
    
    
    
    (2,212
    )
    
    
    (2,212
    )Realization of pre-emergence
deferred tax asset
    
    
    
    
    
    
    
    
    
    
    3,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,453Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,534
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,534Currency translation adjustments
(related taxes estimated at nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    
    
    
    
    
    
    
    
    472Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,006Balance, September 30, 2006
    
    
    24,743,253
    
    
    $
    247
    
    
    $
    321,926
    
    
    $
    
    
    
    $
    (64,106
    )
    
    $
    2,706
    
    
    
    205,819
    
    
    $
    (2,438
    )
    
    $
    258,335
   5




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005($ in thousands)Operating activities:Net income
    
    $
    5,534
    
    
    $
    4,499Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    27,511
    
    
    
    20,970Impairment of long-lived assets
    
    
    10,596
    
    
    
    7,161Stock compensation expense
    
    
    1,222
    
    
    
    397Casualty (gain) loss
    
    
    (3,535
    )
    
    
    227Deferred income taxes
    
    
    3,453
    
    
    
    Minority interests
    
    
    39
    
    
    
    1,102Gain on asset dispositions
    
    
    (1,483
    )
    
    
    (6,850
    )Gain on extinguishment of debt
    
    
    (10,869
    )
    
    
    Amortization of deferred financing costs
    
    
    1,046
    
    
    
    922Other
    
    
    (129
    )
    
    
    (242
    )Changes in operating assets and liabilities:Accounts receivable, net of allowances
    
    
    (3,001
    )
    
    
    (2,916
    )Insurance receivable
    
    
    (2,425
    )
    
    
    (2,725
    )Inventories
    
    
    (321
    )
    
    
    (435
    )Prepaid expenses and other assets
    
    
    (714
    )
    
    
    (2,482
    )Accounts payable
    
    
    (33
    )
    
    
    (2,697
    )Other accrued liabilities
    
    
    1,595
    
    
    
    2,609Advance deposits
    
    
    (980
    )
    
    
    388Net cash provided by operating activities
    
    
    27,506
    
    
    
    19,928Investing activities:Capital improvements
    
    
    (31,270
    )
    
    
    (63,299
    )Proceeds from sale of assets, net of related selling costs
    
    
    9,404
    
    
    
    36,338Withdrawals for capital expenditures
    
    
    15,585
    
    
    
    13,447Insurance receipts related to casualty claims
    
    
    3,745
    
    
    
    15,834Net decrease (increase) in restricted cash
    
    
    1,422
    
    
    
    (4,787
    )Other
    
    
    (36
    )
    
    
    (118
    )Net cash used in investing activities
    
    
    (1,150
    )
    
    
    (2,585
    )Financing activities:Proceeds from issuance of long term debt
    
    
    44,954
    
    
    
    3,202Proceeds from exercise of stock options and issuance of common stock
    
    
    822
    
    
    
    Principal payments on long-term debt
    
    
    (35,886
    )
    
    
    (46,669
    )Purchase of treasury stock
    
    
    (2,212
    )
    
    
    (150
    )Payments of deferred financing costs
    
    
    (870
    )
    
    
    (294
    )Other
    
    
    108
    
    
    
    Net cash provided by (used in) financing activities
    
    
    6,916
    
    
    
    (43,911
    )Effect of exchange rate changes on cash
    
    
    51
    
    
    
    71Net increase (decrease) in cash and cash equivalents
    
    
    33,323
    
    
    
    (26,497
    )Cash and cash equivalents at beginning of period
    
    
    19,097
    
    
    
    36,234Cash and cash equivalents at end of period
    
    $
    52,420
    
    
    $
    9,737Supplemental cash flow information:Cash paid during the period for:Interest, net of the amounts capitalized shown below
    
    $
    25,477
    
    
    $
    20,305Interest capitalized
    
    
    117
    
    
    
    1,662Income taxes, net of refunds
    
    
    840
    
    
    
    233Supplemental disclosure of non-cash investing and financing activities:Net non-cash debt increase (decrease)
    
    
    10,195
    
    
    
    (490
    )Release of surplus accrual on final settlement of bankruptcy claims
    
    
    
    
    
    
    (1,292
    )Purchases of property and equipment on account
    
    
    3,031
    
    
    
    3,597
  6




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Business Summary
    
    
    69 hotels that were wholly owned and operated through subsidiaries; and
    
    three hotels that were operated in joint ventures in which the Company has a 50% or
greater voting equity interest and exercises control.
  2. General
   7




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##### Table of Contents




    
    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.
  3. Stock-Based Compensation
    8




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Income from continuing operations:As reported
    
    $
    4,822
    
    
    $
    5,057Add: Stock-based compensation expense included in net income
    
    
    290
    
    
    
    397Deduct: Total pro forma stock-based employee compensation expense
    
    
    (1,033
    )
    
    
    (2,055
    )Pro forma
    
    
    4,079
    
    
    
    3,399Loss from discontinued operations:As reported
    
    
    4,887
    
    
    
    (558
    )Add: Stock-based compensation expense included in net income
    
    
    
    
    
    
    Deduct: Total pro forma stock-based employee compensation expense
    
    
    
    
    
    
    Pro forma
    
    
    4,887
    
    
    
    (558
    )Net Income (loss) attributable to common stock:As reported
    
    
    9,709
    
    
    
    4,499Add: Stock-based compensation expense included in net income
    
    
    290
    
    
    
    397Deduct: Total pro forma stock-based employee compensation expense
    
    
    (1,033
    )
    
    
    (2,055
    )Pro forma
    
    $
    8,966
    
    
    $
    2,841Basic earnings per common shareLoss from continuing operations:As reported
    
    $
    0.20
    
    
    $
    0.21Add: Stock-based compensation expense included in net income
    
    
    0.01
    
    
    
    0.02Deduct: Total pro forma stock-based employee compensation expense
    
    
    (0.04
    )
    
    
    (0.08
    )Pro forma
    
    
    0.17
    
    
    
    0.14Loss from discontinued operations:As reported
    
    
    0.20
    
    
    
    (0.02
    )Add: Stock-based compensation expense included in net income
    
    
    
    
    
    
    Deduct: Total pro forma stock-based employee compensation expense
    
    
    
    
    
    
    Pro forma
    
    
    0.20
    
    
    
    (0.02
    )Net Loss attributable to common stock:As reported
    
    
    0.40
    
    
    
    0.18Add: Stock-based compensation expense included in net income
    
    
    0.01
    
    
    
    0.02Deduct: Total pro forma stock-based employee compensation expense
    
    
    (0.04
    )
    
    
    (0.08
    )Pro forma
    
    $
    0.36
    
    
    $
    0.12Diluted earnings per common shareLoss from continuing operations:As reported
    
    $
    0.20
    
    
    $
    0.21Add: Stock-based compensation expense included in net income
    
    
    0.01
    
    
    
    0.02Deduct: Total pro forma stock-based employee compensation expense
    
    
    (0.04
    )
    
    
    (0.08
    )Pro forma
    
    
    0.17
    
    
    
    0.14Loss from discontinued operations:As reported
    
    
    0.20
    
    
    
    (0.02
    )Add: Stock-based compensation expense included in net income
    
    
    
    
    
    
    Deduct: Total pro forma stock-based employee compensation expense
    
    
    
    
    
    
    Pro forma
    
    
    0.20
    
    
    
    (0.02
    )Net Loss attributable to common stock:As reported
    
    
    0.39
    
    
    
    0.18Add: Stock-based compensation expense included in net income
    
    
    0.01
    
    
    
    0.02Deduct: Total pro forma stock-based employee compensation expense
    
    
    (0.04
    )
    
    
    (0.08
    )Pro forma
    
    $
    0.36
    
    
    $
    0.12
 9




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##### Table of Contents



Available for IssuanceIssued Under the Stock
    
    
    
    
    
    
    Under the StockIncentive Plan
    
    
    Type
    
    
    Incentive PlanAvailable under the plan, less previously
issued as of December 31, 2005
    
    
    
    
    
    
    
    
    
    
    2,545,252Issued January 31, 2006
    
    
    12,413
    
    
    restricted stock
    
    
    
    2,532,839Issued January 31, 2006
    
    
    3,884
    
    
    nonvested stock
    
    
    
    2,528,955Issued March 1, 2006
    
    
    35,000
    
    
    nonvested stock
    
    
    
    2,493,955Issued June 8, 2006
    
    
    7,000
    
    
    nonvested stock
    
    
    
    2,486,955Shares withheld from awards to satisfy tax
withholding obligations
    
    
    (4,719
    )
    
    
    
    
    
    
    2,491,674Options and nonvested shares forfeited
January 1, 2006  September 30, 2006
    
    
    (61,077
    )
    
    
    
    
    
    
    2,552,751Issued from January 1, 2006  September 30,
2006, net
    
    
    (7,499
    )
 Stock Options
  Restricted Stock
  Nonvested Stock
    10




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##### Table of Contents



Weighted AverageStock Options
    
    
    Exercise PriceBalance, December 31, 2005
    
    
    593,894
    
    
    $
    10.41Granted
    
    
    
    
    
    
    Exercised
    
    
    (82,435
    )
    
    
    10.02Forfeited
    
    
    (60,997
    )
    
    
    10.18Balance, September 30, 2006
    
    
    450,462
    
    
    $
    10.52
 Restricted Stock
    
    
    Nonvested StockBalance, December 31, 2005
    
    
    
    
    
    
    75,000Granted
    
    
    12,413
    
    
    
    45,884Forfeited
    
    
    
    
    
    
    (80
    )Vested
    
    
    
    
    
    
    (37,500
    )Withheld to satisfy tax obligations
    
    
    (4,719
    )
    
    
    Balance, September 30, 2006
    
    
    7,694
    
    
    
    83,304
 ($ in thousands)Aggregate intrinsic value of stock options exercised
    
    $
    269
   Options outstanding
    
    Options exercisableWeighted average
    
    Weighted
    
    
    
    
    
    Weightedremaining life
    
    average
    
    
    
    
    
    averageRange of prices
    
    Number
    
    (in years)
    
    exercise price
    
    Number
    
    exercise price$7.83 to $9.39
    
    
    206,395
    
    
    
    8.1
    
    
    $
    9.05
    
    
    
    66,432
    
    
    $
    9.05$9.40 to $10.96
    
    
    178,421
    
    
    
    7.5
    
    
    $
    10.50
    
    
    
    107,808
    
    
    $
    10.51$10.97 to $15.66
    
    
    65,646
    
    
    
    6.3
    
    
    $
    15.21
    
    
    
    65,646
    
    
    $
    15.21450,462
    
    
    
    7.6
    
    
    $
    10.52
    
    
    
    239,886
    
    
    $
    11.39
 ($ in thousands)Aggregate intrinsic value of stock options outstanding
    
    $
    1,243
  Three Months Ended September 30, 2006
    
    
    Nine Months Ended September 30, 2006Compensation
    
    
    Income Tax
    
    
    Compensation
    
    
    Income TaxType of Award
    
    Expense
    
    
    Benefit
    
    
    Expense
    
    
    Benefit(Unaudited in thousands)Stock Options
    
    $
    279
    
    
    $
    108
    
    
    $
    695
    
    
    $
    270Nonvested Stock
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    62Restricted Stock
    
    
    133
    
    
    
    52
    
    
    
    365
    
    
    
    142Total
    
    $
    412
    
    
    $
    160
    
    
    $
    1,221
    
    
    $
    474
 11




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##### Table of Contents



Unrecognized
    
    
    Weighted-AverageCompensation
    
    
    AmortizationType of Award
    

Expense
($000s)
    
    
    Period (in years)Stock Options
    
    $
    903
    
    
    
    1.27Nonvested Stock
    
    
    699
    
    
    
    1.75Total
    
    $
    1,602
    
    
    
    1.69
  Three Months Ended
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2006Income from continuing operations
    
    $
    279
    
    
    $
    695Income before income taxes
    
    
    279
    
    
    
    695Net income
    
    
    171
    
    
    
    425Basic earnings per share
    
    
    0.007
    
    
    
    0.017Diluted earnings per share
    
    
    0.007
    
    
    
    0.017
 4. Treasury Stock
   5. Dispositions and Discontinued Operations
 Dispositions
  a)
    
    Holiday Inn Lawrence, KS and Holiday Inn Manhattan, KS  In January 2006, the
Company surrendered both hotels to a Trustee, pursuant to the settlement agreement entered
into in August 2005. The surrender of these two hotels resulted in an aggregate loss on
disposal of fixed assets of $6.1 million, which was recorded in the first quarter of 2006
as impairment expense, and an aggregate gain on the extinguishment of debt of $10.9
million.b)
    
    Holiday Inn City Center Columbus, OH  In February 2006, the Companys
minority-owned hotel was deeded to the lender. The Company had a 30% non-controlling
equity interest in the partnership which owned the hotel, and as a result, the Companys
partnership interest was accounted for using the equity method of accounting. The hotel
was not included in the discontinued operations portfolio. The Companys investment in
this subsidiary was written off in 2005 and the deeding of the hotel to the lender
resulted in a net loss. Consequently, there was no impact on the consolidated financial
results for the nine months ended September 30, 2006.
 12




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##### Table of Contents



c)
    
    Fairfield Inn Jackson, TN  In March 2006, the Company sold the hotel for a gross
sales price of $2.5 million and used $1.6 million of the net proceeds to pay down
debt. The gain on the sale of the asset was $1.5 million.d)
    
    Holiday Inn (McKnight) Pittsburgh, PA  In April 2006, the Company sold the
hotel for a gross sales price of $6.0 million, the net proceeds of which were used for
general corporate purposes. Prior to the disposition, the Company recorded impairment
charges of $0.4 million.e)
    
    Land parcel at Mount Laurel, NJ  In April 2006, the Company sold the land parcel
for a gross sales price of $2.0 million, the net proceeds of which was used for general
corporate purposes. Prior to the disposition, the Company recorded impairment charges of
$1.0 million. Upon disposition, the Company recorded an additional impairment charge of
$34,000.
 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.
     a)
    
    $1.0 million on the Crowne Plaza Macon, GA hotel, which was classified as held for sale
during the third quarter, to reduce the carrying value to estimated selling price less cost
to sell; andb)
    
    $1.0 million on the Holiday Inn Sheffield, AL hotel to reflect the reduced estimated
selling price.
  13




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##### Table of Contents



a)
    
    $3.9 million on the Holiday Inn Manhattan, KS hotel to record the loss on disposal of
fixed assets;b)
    
    $2.2 million on the Holiday Inn Lawrence, KS hotel to record the loss on disposal of
fixed assets;c)
    
    $1.4 million on the Holiday Inn Sheffield, AL hotel to reflect the estimated selling
costs of the sale as this hotel was identified for sale during the first quarter of 2006
and the reduced estimated selling price in the third quarter;d)
    
    $0.3 million on the Holiday Inn McKnight, PA hotel to reflect the lowered estimated
selling price and to reflect the write-off of capital improvements spent on this hotel for
franchisor compliance that did not add incremental value or revenue generating capacity to
the property;e)
    
    $0.2 million on the Holiday Inn Valdosta, GA hotel to reflect the estimated selling
costs of the sale as this hotel was identified for sale during the first quarter of 2006;f)
    
    $0.1 million on the Fairfield Inn Valdosta, GA hotel to reflect the estimated selling
costs of the sale as this hotel was identified for sale during the first quarter of 2006;g)
    
    $0.7 million on the University Plaza Bloomington, IN hotel, which was classified as
held for sale during the second quarter, to reduce the carrying value to estimated selling
price less costs to sell; andh)
    
    $1.0 million on the Crowne Plaza Macon, GA hotel, which was classified as held for sale
during the third quarter, to reduce the carrying value to estimated selling price less cost
to sell.
   a)
    
    $1.7 million on the Holiday Inn Rolling Meadows, IL hotel to reflect the reduced
selling price and to record the final disposition of the hotel;b)
    
    $1.3 million on the Holiday Inn St. Louis North, MO hotel to reflect the reduced
selling price;c)
    
    $1.6 million on the Holiday Inn Lawrence, KS hotel to reflect the reduced fair value
appraisal;d)
    
    $0.3 million on the Holiday Inn Express Gadsden, AL hotel to reflect the estimated
selling costs of the sale as this hotel was identified for sale in January 2005, to reflect
the write-off of capital improvements spent on this hotel for franchisor compliance that
did not add incremental value or revenue generating capacity to the property, and to record
the final disposition of the hotel;e)
    
    $0.4 million on the Mt. Laurel, NJ land parcel to reflect the lowered estimated selling
price of the land;f)
    
    $0.3 million on the Holiday Inn Morgantown, WV hotel to adjust for the further
reduction in the estimated selling price of the hotel; andg)
    
    $ (0.1) million recovery on the Holiday Inn Austin, TX hotel related to insurance
premium refunds.
  
    
    Vermont Maple Inn Colchester, VT;
    
    University Plaza Bloomington, IN;
    
    Crowne Plaza Cedar Rapids, IA;
    
    Quality Hotel Metairie, LA;
    
    Holiday Inn Valdosta, GA;
    
    Azalea Inn Valdosta, GA;
    
    Holiday Inn Sheffield, AL;
 14




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##### Table of Contents




    
    Quality Inn Dothan, AL;
    
    Holiday Inn Express Dothan, AL;
    
    Holiday Inn Fort Wayne, IN;
    
    Crowne Plaza Macon, GA;
    
    Ramada Inn North Charleston, SC; and
    
    Holiday Inn St Paul, MN.
  September
30, 2006
    
    
    December 31, 2005(Unaudited in thousands)Property and equipment, net
    
    $
    39,280
    
    
    $
    13,796Other assets
    
    
    3,398
    
    
    
    1,070Assets held for sale
    
    $
    42,678
    
    
    $
    14,866Other liabilities
    
    $
    7,902
    
    
    $
    3,346Long-term debt
    
    
    20,713
    
    
    
    1,264Liabilities related to assets held for sale
    
    $
    28,615
    
    
    $
    4,610
   Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005(Unaudited in thousands)Total revenues
    
    $
    10,228
    
    
    $
    15,450
    
    
    $
    32,557
    
    
    $
    50,887Total expenses
    
    
    (9,604
    )
    
    
    (14,626
    )
    
    
    (29,067
    )
    
    
    (49,596
    )Impairment of long-lived assets
    
    
    (1,995
    )
    
    
    (231
    )
    
    
    (9,951
    )
    
    
    (5,505
    )Interest income and other
    
    
    
    
    
    
    293
    
    
    
    10
    
    
    
    294Interest expense
    
    
    (468
    )
    
    
    (845
    )
    
    
    (1,555
    )
    
    
    (3,391
    )Gain on asset disposition
    
    
    
    
    
    
    4,846
    
    
    
    1,483
    
    
    
    6,849Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    10,869
    
    
    
    Benefit (provision) for income taxes
    
    
    643
    
    
    
    
    
    
    
    (1,787
    )
    
    
    Minority interest (net of taxes, nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )Income (loss) from discontinued operations
    
    $
    (1,196
    )
    
    $
    4,887
    
    
    $
    2,559
    
    
    $
    (558
    )
  6. Income (Loss) Per Share
  15




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005Numerator:Income from continuing operations
    
    $
    1,358
    
    
    $
    4,822
    
    
    $
    2,975
    
    
    $
    5,057Income (loss) from discontinued operations
    
    
    (1,196
    )
    
    
    4,887
    
    
    
    2,559
    
    
    
    (558
    )Net income attributable to common stock
    
    $
    162
    
    
    $
    9,709
    
    
    $
    5,534
    
    
    $
    4,499Denominator:Basic weighted average shares
    
    
    24,588
    
    
    
    24,573
    
    
    
    24,619
    
    
    
    24,573Diluted weighted average shares
    
    
    24,683
    
    
    
    24,633
    
    
    
    24,702
    
    
    
    24,618Basic income (loss) per common share:Income from continuing operations
    
    $
    0.06
    
    
    $
    0.20
    
    
    $
    0.12
    
    
    $
    0.21Income (loss) from discontinued operations
    
    
    (0.05
    )
    
    
    0.20
    
    
    
    0.10
    
    
    
    (0.02
    )Net income attributable to common stock
    
    $
    0.01
    
    
    $
    0.40
    
    
    $
    0.22
    
    
    $
    0.18Diluted income (loss) per common share:Income from continuing operations
    
    $
    0.06
    
    
    $
    0.20
    
    
    $
    0.12
    
    
    $
    0.21Income (loss) from discontinued operations
    
    
    (0.05
    )
    
    
    0.20
    
    
    
    0.10
    
    
    
    (0.02
    )Net income attributable to common stock
    
    $
    0.01
    
    
    $
    0.39
    
    
    $
    0.22
    
    
    $
    0.18
   7. Long-Term Liabilities
  16




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##### Table of Contents



September 30, 2006
    
    
    December 31, 2005Number
    
    
    Property, plant
    
    
    Long-term
    
    
    Long-termof Hotels
    
    
    and equipment, net
    
    
    obligations
    
    
    obligations
    
    
    Interest rates at September 30, 2006Refinancing DebtMerrill Lynch Mortgage Lending, Inc.  Floating
    
    
    16
    
    
    $
    87,384
    
    
    $
    61,692
    
    
    $
    67,546
    
    
    LIBOR plus 3.4%; capped at 9.4%Merrill Lynch Mortgage Lending, Inc.  Fixed
    
    
    34
    
    
    
    329,867
    
    
    
    249,177
    
    
    
    252,377
    
    
    6.58%Merrill Lynch Mortgage Lending, Inc.  Total
    
    
    50
    
    
    
    417,251
    
    
    
    310,869
    
    
    
    319,923Other FinancingsComputer Share Trust Company of Canada
    
    
    1
    
    
    
    16,544
    
    
    
    7,980
    
    
    
    7,838
    
    
    7.88%Column Financial, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,337Lehman Brothers Holdings, Inc.
    
    
    4
    
    
    
    45,548
    
    
    
    15,300
    
    
    
    22,398
    
    
    $8,789 at 9.40%; $6,511 at 8.90%JP Morgan Chase Bank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,064Wachovia
    
    
    4
    
    
    
    36,640
    
    
    
    36,240
    
    
    
    13,173
    
    
    $9,888 at 6.03%; $3,129 at 5.78%; $23,223 at 6.04%IXIS
    
    
    4
    
    
    
    37,003
    
    
    
    40,500
    
    
    
    19,000
    
    
    $19,000 at LIBOR plus 2.90%, capped at 8.4%; $21,500 at LIBOR plus 2.95%, capped at 8.45%Column Financial, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,146Total  other financing
    
    
    13
    
    
    
    135,735
    
    
    
    100,020
    
    
    
    90,95663
    
    
    
    552,986
    
    
    
    410,889
    
    
    
    410,879
    
    
    7.14%(1)Long-term liabilities  otherTax notes issued pursuant to our Joint Plan of Reorganization
    
    
    
    
    
    
    
    
    
    
    1,445
    
    
    
    2,220Other
    
    
    
    
    
    
    
    
    
    
    1,088
    
    
    
    1,151
    
    
    
    
    
    
    
    2,533
    
    
    
    3,371Property, plant and equipment  Unencumbered
    
    
    10
    
    
    
    50,388
    
    
    
    
    
    
    
    73
    
    
    
    603,374
    
    
    
    413,422
    
    
    
    414,250Held for sale
    
    
    (13
    )
    
    
    (39,280
    )
    
    
    (22,710
    )
    
    
    (1,287
    )Total September 30, 2006 (2)
    
    
    60
    
    
    $
    564,094
    
    
    $
    390,712
    
    
    $
    412,963
 
 (1)
    
    The 7.14% in the table above represents the weighted average annualized cost of debt at
September 30, 2006.(2)
    
    Long term debt obligations at September 30, 2006 and December 31, 2005 include the current
portion. Merrill Lynch Floating Rate Debt
  Wachovia Bank Refinance
  IXIS Real Estate Capital Refinance
   17




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##### Table of Contents



18




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##### Table of Contents



8. Commitments and Contingencies
 Franchise Agreements and Capital Expenditures
   Three months ended
    
    
    Nine months endedSeptember 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005(Unaudited in thousands)Continuing operations
    
    $
    5,716
    
    
    $
    5,298
    
    
    $
    17,445
    
    
    $
    14,662Discontinued operations
    
    
    649
    
    
    
    1,077
    
    
    
    2,162
    
    
    
    3,455$
    6,365
    
    
    $
    6,375
    
    
    $
    19,607
    
    
    $
    18,117
    
    
    Three hotels are in non-compliance of franchise agreements due to
substandard guest satisfaction scores. The Company anticipates that one of the hotels
will earn aclean slate letter in August 2007.
    
    Eight hotels are in default of their franchise agreements.
 
    
    Two hotels are in default of franchise agreements for failure
to complete the Property Improvement Plan (PIP). One of these hotels is held
for sale and has not completed the renovation of the commercial and exterior
areas, although the guest rooms were completely renovated in 2005. With regard
to the other hotel, the Company has met with the franchisor and is in the
design and planning phase of renovations scheduled to take place in 2007.
    
    Six hotels are in default of franchise agreements due to
substandard guest satisfaction scores. Five of these hotels are a result of a
new scoring methodology imposed by the franchisor. The Company anticipates
receiving default notices on four of these hotels in November 2006. The Company
has received default extension letters for the remaining two hotels until first
quarter 2007.
 19




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##### Table of Contents



Letters of Credit
  Self-insurance
    Casualty losses and business interruption insurance
   
    
    received all of the property damage and business interruption proceeds that were accrued
at December 31, 2005 for the Crowne Plaza West Palm Beach and Melbourne, FL hotels. Of the
proceeds received in 2006, $4.2 million was forwarded to
the lender for deposit into the Companys escrow account. The Company receives reimbursements
from the escrow account as operating and capital expenditures are incurred.
    
    received an additional $1.3 million associated with the 2005 business interruption
claims at both hotels.
 20




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##### Table of Contents




    
    recorded a $1.8 million receivable for signed proofs of loss for business interruption
proceeds for the January through March 2006 time period at both hotels.
    
    received $1.8 million representing final settlement for an environmental insurance
policy claim at the Crowne Plaza West Palm Beach, FL relating to the 2004 hurricane season.
The funds were forwarded to the lender for deposit into the Companys escrow account.
    
    received a $0.4 million settlement for a property damage claim at the Holiday Inn
Clarksburg, WV, where a water main ruptured in October 2005. The hotel was closed until
January 31, 2006. The property damage proceeds were forwarded to the lender for deposit
into the Companys escrow account. The Company also received business interruption
proceeds totaling $0.5 million for the October through December 2005 time period and $0.3
million for the January through March 2006 time period.
    
    received $0.6 million and $0.8 million of advances associated with the hurricane-related
property damage claims at the Radisson Kenner, LA and Quality Inn Metairie, LA,
respectively.
   Litigation
  9. Income Taxes
    21




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##### Table of Contents



10. Recent Accounting Pronouncements
    11. Subsequent Events
 Partial Defeasance of Debt
  Discontinued Operations
    22




---



##### Table of Contents



Discontinued Operations portfolio as of September 30, 2006
    
    
    13Reclassified in October 2006
    
    
    3Sold in October 2006
    
    
    (2
    )Discontinued Operations portfolio as of November 1, 2006
    
    
    14Additional hotels to be reclassified to Discontinued Operations
portfolio (including the Jekyll Island hotel currently closed for
demolition)
    
    
    13Total hotels to be sold
    
    
    27
   
 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, 2005.
 Executive Overview
    
    
    69 hotels that are wholly owned and operated through subsidiaries; and
    
    three hotels that are operated in joint ventures in which we have a 50% or greater voting equity interest and exercise control.
  Overview of Continuing Operations
  
    
    Revenues increased $4.6 million, or 6.3%, due to our continued strong growth in ADR as well
as the reopening of two hotels which were closed in 2005 due to hurricane damage, and the
completion of various renovation projects which resulted in displaced revenues in 2005. These
increases were partially offset by the closure of our Jekyll Island and Marietta, GA
properties.
 23




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##### Table of Contents




    
    Operating income increased $0.3 million, or 4.6%. The
growth in operating income was partially offset by higher
property insurance premiums, the closure and pending sale of
our Jekyll Island property (see below), the closure of our
Holiday Inn Marietta, GA hotel due to a fire, and higher
depreciation costs as a result of our renovation projects,
partially offset by casualty gains related to the settlement
of certain property damage claims.
    
    Income from continuing operations decreased $3.5 million. In
addition to the factors mentioned above, the decrease was due
to lower business interruption insurance proceeds, resulting
from the reopening of two of our Florida hotels following
extensive hurricane damage.
  
    
    $0.6 million of liquidated damages payable to the franchisor, of which 50% was
reimbursed by the buyer in accordance with the terms of the contract;
    
    $0.2 million of accelerated depreciation expense as a result of the pending demolition
of the building; and,
    
    $0.2 million of other costs related to the closure/sale including legal fees, write-off
of various prepaid and deferred asset balances, and the write-off of costs associated with
the disposal and/or removal of certain fixed assets and inventories.
  Overview of Discontinued Operations
  ($ in thousands)Aggregate Sales Price
    
    
    
    
    
    $
    105,586Debt pay down (principal only)
    
    
    
    
    
    
    73,253
    24




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##### Table of Contents



Critical Accounting Policies and Estimates
     Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Income from continuing operations
    
    $
    279
    
    
    $
    695Income before income taxes
    
    
    279
    
    
    
    695Net income
    
    
    171
    
    
    
    425Basic earnings per share
    
    
    0.007
    
    
    
    0.017Diluted earnings per share
    
    
    0.007
    
    
    
    0.017
 Income Statement Overview
  Results of Operations  Continuing Operations
  Revenues  Continuing Operations
 25




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##### Table of Contents



Three months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)(unaudited in thousands)Revenues:Rooms
    
    $
    60,540
    
    
    $
    56,776
    
    
    $
    3,764
    
    
    
    6.6
    %Food and beverage
    
    
    15,040
    
    
    
    14,243
    
    
    
    797
    
    
    
    5.6
    %Other
    
    
    2,387
    
    
    
    2,348
    
    
    
    39
    
    
    
    1.7
    %Total revenues
    
    $
    77,967
    
    
    $
    73,367
    
    
    $
    4,600
    
    
    
    6.3
    %Occupancy
    
    
    66.9
    %
    
    
    67.4
    %
    
    
    
    
    
    
    (0.7
    )%ADR
    
    $
    93.70
    
    
    $
    88.02
    
    
    $
    5.68
    
    
    
    6.5
    %RevPAR
    
    $
    62.70
    
    
    $
    59.36
    
    
    $
    3.34
    
    
    
    5.6
    %
     26




---



##### Table of Contents



Three Months EndedHotel
    
    Room
    
    
    
    September 30,
    
    September 30,Count
    
    Count
    
    
    
    2006
    
    2005
    
    Change/% Change60
    
    
    10,886
    
    
    All Continuing OperationsOccupancy
    
    
    66.9
    %
    
    
    67.4
    %
    
    
    
    
    
    
    -0.7
    %ADR
    
    $
    93.70
    
    
    $
    88.02
    
    
    $
    5.68
    
    
    
    6.5
    %RevPAR
    
    $
    62.70
    
    
    $
    59.36
    
    
    $
    3.34
    
    
    
    5.6
    %56
    
    
    10,004
    
    
    Continuing Operations less two hotels closed in 2005 due to
hurricane damage, one hotel closed in 2006 due to fire damage
and one hotel closed in 2006 for demolitionOccupancy
    
    
    67.3
    %
    
    
    67.7
    %
    
    
    
    
    
    
    -0.6
    %ADR
    
    $
    92.81
    
    
    $
    88.63
    
    
    $
    4.18
    
    
    
    4.7
    %RevPAR
    
    $
    62.51
    
    
    $
    60.01
    
    
    $
    2.50
    
    
    
    4.2
    %RevPAR Index
    
    
    95.6
    %
    
    
    94.5
    %
    
    
    
    
    
    
    1.2
    %55
    
    
    9,760
    
    
    Continuing Operations less Radisson New Orleans Airport hotel,
two hotels closed in 2005 due to hurricane damage, one hotel
closed in 2006 due to fire damage and one hotel closed in 2006
for
demolitionOccupancy
    
    
    67.6
    %
    
    
    67.9
    %
    
    
    
    
    
    
    -0.4
    %ADR
    
    $
    92.72
    
    
    $
    88.47
    
    
    $
    4.25
    
    
    
    4.8
    %RevPAR
    
    $
    62.64
    
    
    $
    60.08
    
    
    $
    2.56
    
    
    
    4.3
    %RevPAR Index
    
    
    95.8
    %
    
    
    94.4
    %
    
    
    
    
    
    
    1.5
    %46
    
    
    7,950
    
    
    Continuing Operations less two hotels closed in 2005 due to
hurricane damage, one hotel closed in 2006 due to fire damage,
one hotel closed in 2006 for demolition and hotels under
renovation in the first, second and third quarters of 2005
and/or 2006Occupancy
    
    
    67.0
    %
    
    
    69.9
    %
    
    
    
    
    
    
    -4.1
    %ADR
    
    $
    91.48
    
    
    $
    86.84
    
    
    $
    4.64
    
    
    
    5.3
    %RevPAR
    
    $
    61.29
    
    
    $
    60.73
    
    
    $
    0.56
    
    
    
    0.9
    %RevPAR Index
    
    
    96.5
    %
    
    
    98.9
    %
    
    
    
    
    
    
    -2.4
    %25
    
    
    4,093
    
    
    Hotels completing major renovations in 2004 and 2005Occupancy
    
    
    67.0
    %
    
    
    66.2
    %
    
    
    
    
    
    
    1.2
    %ADR
    
    $
    97.55
    
    
    $
    91.97
    
    
    $
    5.58
    
    
    
    6.1
    %RevPAR
    
    $
    65.35
    
    
    $
    60.90
    
    
    $
    4.45
    
    
    
    7.3
    %RevPAR Index
    
    
    96.6
    %
    
    
    91.0
    %
    
    
    
    
    
    
    6.2
    %13
    
    
    1,515
    
    
    Marriott HotelsOccupancy
    
    
    74.5
    %
    
    
    74.7
    %
    
    
    
    
    
    
    -0.3
    %ADR
    
    $
    104.86
    
    
    $
    94.03
    
    
    $
    10.83
    
    
    
    11.5
    %RevPAR
    
    $
    78.08
    
    
    $
    70.28
    
    
    $
    7.80
    
    
    
    11.1
    %RevPAR Index
    
    
    114.1
    %
    
    
    111.7
    %
    
    
    
    
    
    
    2.1
    %4
    
    
    777
    
    
    Hilton HotelsOccupancy
    
    
    69.0
    %
    
    
    73.0
    %
    
    
    
    
    
    
    -5.5
    %ADR
    
    $
    104.40
    
    
    $
    97.28
    
    
    $
    7.12
    
    
    
    7.3
    %RevPAR
    
    $
    72.08
    
    
    $
    71.03
    
    
    $
    1.05
    
    
    
    1.5
    %RevPAR Index
    
    
    93.7
    %
    
    
    95.2
    %
    
    
    
    
    
    
    -1.6
    %34
    
    
    6,685
    
    
    IHG Hotels less two hotels closed in 2005 due to hurricane
damage, one hotel closed in 2006 due to fire damage and one
hotel
closed in 2006 for demolitionOccupancy
    
    
    68.6
    %
    
    
    68.1
    %
    
    
    
    
    
    
    0.7
    %ADR
    
    $
    90.77
    
    
    $
    88.25
    
    
    $
    2.52
    
    
    
    2.9
    %RevPAR
    
    $
    62.23
    
    
    $
    60.11
    
    
    $
    2.12
    
    
    
    3.5
    %RevPAR Index
    
    
    94.5
    %
    
    
    92.3
    %
    
    
    
    
    
    
    2.4
    %5
    
    
    1,027
    
    
    Other Brands and Independent HotelsOccupancy
    
    
    47.7
    %
    
    
    50.6
    %
    
    
    
    
    
    
    -5.7
    %ADR
    
    $
    71.44
    
    
    $
    70.80
    
    
    $
    0.64
    
    
    
    0.9
    %RevPAR
    
    $
    34.07
    
    
    $
    35.84
    
    
    
    ($1.77
    )
    
    
    -4.9
    %RevPAR Index
    
    
    71.4
    %
    
    
    78.5
    %
    
    
    
    
    
    
    -9.0
    %
 27




---



##### Table of Contents



Direct operating expenses  Continuing Operations
 Three months ended
    
    
    
    
    
    
    
    
    
    
    % of total revenuesSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    
    
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)
    
    
    2006
    
    
    2005(unaudited in thousands)Direct operating expenses:Rooms
    
    $
    16,247
    
    
    $
    14,909
    
    
    $
    1,338
    
    
    
    9.0
    %
    
    
    20.8
    %
    
    
    20.3
    %Food and beverage
    
    
    11,553
    
    
    
    10,300
    
    
    
    1,253
    
    
    
    12.2
    %
    
    
    14.8
    %
    
    
    14.0
    %Other
    
    
    1,747
    
    
    
    1,775
    
    
    
    (28
    )
    
    
    (1.6
    )%
    
    
    2.2
    %
    
    
    2.4
    %Total direct operating expenses
    
    $
    29,547
    
    
    $
    26,984
    
    
    $
    2,563
    
    
    
    9.5
    %
    
    
    37.9
    %
    
    
    36.8
    %Direct operating margin (by revenue source):Rooms
    
    $
    44,293
    
    
    $
    41,867
    
    
    $
    2,426
    
    
    
    5.8
    %Food and beverage
    
    
    3,487
    
    
    
    3,943
    
    
    
    (456
    )
    
    
    (11.6
    )%Other
    
    
    640
    
    
    
    573
    
    
    
    67
    
    
    
    11.7
    %Total direct operating margin
    
    $
    48,420
    
    
    $
    46,383
    
    
    $
    2,037
    
    
    
    4.4
    %Direct operating margin % (by revenue source):Rooms
    
    
    73.2
    %
    
    
    73.7
    %Food and beverage
    
    
    23.2
    %
    
    
    27.7
    %Other
    
    
    26.8
    %
    
    
    24.4
    %Total direct operating margin
    
    
    62.1
    %
    
    
    63.2
    %
    
    
    Higher fee-based expenses, including reservations, travel agent and credit card
commissions, due to the 6.5% growth in ADR.
    
    Higher payroll costs, up 9.3% on a POR basis.
    
    Increased linen costs and guest supplies associated with certain brand-mandated upgrades.
    28




---



##### Table of Contents



Other operating expenses and operating income  Continuing Operations
 Three months ended
    
    
    
    
    
    
    
    
    
    
    % of total revenuesSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    
    
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)
    
    
    2006
    
    
    2005(unaudited in thousands)Other operating expenses:Other hotel operating costsGeneral and administrative
    
    $
    4,826
    
    
    $
    5,318
    
    
    $
    (492
    )
    
    
    (9.3
    )%
    
    
    6.2
    %
    
    
    7.2
    %Advertising and promotion
    
    
    3,733
    
    
    
    3,589
    
    
    
    144
    
    
    
    4.0
    %
    
    
    4.8
    %
    
    
    4.9
    %Franchise fees
    
    
    5,716
    
    
    
    5,298
    
    
    
    418
    
    
    
    7.9
    %
    
    
    7.3
    %
    
    
    7.2
    %Repairs and maintenance
    
    
    4,142
    
    
    
    3,839
    
    
    
    303
    
    
    
    7.9
    %
    
    
    5.3
    %
    
    
    5.2
    %Utilities
    
    
    5,004
    
    
    
    4,476
    
    
    
    528
    
    
    
    11.8
    %
    
    
    6.4
    %
    
    
    6.1
    %Other expenses
    
    
    9
    
    
    
    42
    
    
    
    (33
    )
    
    
    (78.6
    )%
    
    
    0.0
    %
    
    
    0.1
    %Total other hotel operating expenses
    
    
    23,430
    
    
    
    22,562
    
    
    
    868
    
    
    
    3.8
    %
    
    
    30.1
    %
    
    
    30.8
    %Property and other taxes, insurance and leases
    
    
    6,939
    
    
    
    5,202
    
    
    
    1,737
    
    
    
    33.4
    %
    
    
    8.9
    %
    
    
    7.1
    %Corporate and other
    
    
    5,635
    
    
    
    5,845
    
    
    
    (210
    )
    
    
    (3.6
    )%
    
    
    7.2
    %
    
    
    8.0
    %Casualty (gains) losses, net
    
    
    (3,086
    )
    
    
    190
    
    
    
    (3,276
    )
    
    
    (1724.2
    )%
    
    
    (4.0
    )%
    
    
    0.3
    %Depreciation and amortization
    
    
    9,234
    
    
    
    6,340
    
    
    
    2,894
    
    
    
    45.6
    %
    
    
    11.8
    %
    
    
    8.6
    %Impairment of long-lived assets
    
    
    367
    
    
    
    603
    
    
    
    (236
    )
    
    
    (39.1
    )%
    
    
    0.5
    %
    
    
    0.8
    %Total other operating expenses
    
    $
    42,519
    
    
    $
    40,742
    
    
    $
    1,777
    
    
    
    4.4
    %
    
    
    54.5
    %
    
    
    55.5
    %Total operating expenses
    
    $
    72,066
    
    
    $
    67,726
    
    
    $
    4,340
    
    
    
    6.4
    %
    
    
    92.4
    %
    
    
    92.3
    %Operating income
    
    $
    5,901
    
    
    $
    5,641
    
    
    $
    260
    
    
    
    4.6
    %
    
    
    7.6
    %
    
    
    7.7
    %
   
    
    Utilities increased $0.5 million, or 11.8% (11.7% on a cost POR basis), primarily as
a result of significantly higher utility rates and the reopening of our Crowne Plaza
hotels in West Palm Beach and Melbourne, FL. As a percentage of total revenues,
utilities increased 30 basis points.
    
    Franchise fees increased $0.4 million, or 7.9%. As a percentage of total
revenues, franchise fees increased 10 basis points from 7.2% to 7.3%. As a percentage of
room revenues, franchise fees increased 10 basis points from 9.3% to 9.4%.
    
    Repairs and maintenance expenses increased $0.3 million, or 7.9%, driven by higher
automobile fuel costs associated with our fleet of vans and several large repair projects.
Repairs and maintenance expenses increased 10 basis points from 5.2% to 5.3% as a
percentage of revenues.
    
    Advertising and promotion costs increased $0.1 million, or 4.0%, due primarily to the
addition of sales personnel and sales programs to promote our newly renovated and reopened
properties. As a percentage of total revenues, advertising and promotion costs decreased
from 4.9% in 2005 to 4.8% in 2006, a decrease of 10 basis points.
     29




---



##### Table of Contents



Non-operating income (expenses)  Continuing Operations
 Three months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)(unaudited in thousands)Non-operating income (expenses):Business interruption proceeds
    
    $
    2,973
    
    
    $
    6,094
    
    
    $
    (3,121
    )
    
    
    (51.2
    )%Interest income and other
    
    
    786
    
    
    
    348
    
    
    
    438
    
    
    
    125.9
    %Interest expense
    
    
    (7,514
    )
    
    
    (6,121
    )
    
    
    1,393
    
    
    
    22.8
    %
  The analysis below compares the results of operations for the nine months ended September 30, 2006
and September 30, 2005.
 Revenues  Continuing Operations
 Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)(unaudited in thousands)Revenues:Rooms
    
    $
    181,681
    
    
    $
    159,497
    
    
    $
    22,184
    
    
    
    13.9
    %Food and beverage
    
    
    47,937
    
    
    
    43,095
    
    
    
    4,842
    
    
    
    11.2
    %Other
    
    
    7,144
    
    
    
    7,081
    
    
    
    63
    
    
    
    0.9
    %Total revenues
    
    $
    236,762
    
    
    $
    209,673
    
    
    $
    27,089
    
    
    
    12.9
    %Occupancy
    
    
    65.8
    %
    
    
    65.3
    %
    
    
    
    
    
    
    0.7
    %ADR
    
    $
    95.67
    
    
    $
    86.07
    
    
    $
    9.60
    
    
    
    11.2
    %RevPAR
    
    $
    62.93
    
    
    $
    56.20
    
    
    $
    6.73
    
    
    
    12.0
    %
    30




---



##### Table of Contents



Nine Months EndedHotel
    
    Room
    
    
    
    September 30,
    
    September 30,Count
    
    Count
    
    
    
    2006
    
    2005
    
    Change/% Change60
    
    
    10,886
    
    
    All Continuing OperationsOccupancy
    
    
    65.8
    %
    
    
    65.3
    %
    
    
    
    
    
    
    0.8
    %ADR
    
    $
    95.67
    
    
    $
    86.07
    
    
    $
    9.60
    
    
    
    11.2
    %RevPAR
    
    $
    62.93
    
    
    $
    56.20
    
    
    $
    6.73
    
    
    
    12.0
    %56
    
    
    10,004
    
    
    Continuing Operations less two hotels closed in 2005 due to
hurricane damage, one hotel closed in 2006 due to fire damage
and one hotel closed in 2006 for demolitionOccupancy
    
    
    66.3
    %
    
    
    65.7
    %
    
    
    
    
    
    
    0.9
    %ADR
    
    $
    94.42
    
    
    $
    86.66
    
    
    $
    7.76
    
    
    
    9.0
    %RevPAR
    
    $
    62.55
    
    
    $
    56.91
    
    
    $
    5.64
    
    
    
    9.9
    %RevPAR Index
    
    
    97.3
    %
    
    
    94.8
    %
    
    
    
    
    
    
    2.6
    %55
    
    
    9,760
    
    
    Continuing Operations less Radisson New Orleans Airport hotel,
two hotels closed in 2005 due to hurricane damage, one hotel
closed in 2006 due to fire damage and one hotel closed in 2006
for
demolitionOccupancy
    
    
    66.1
    %
    
    
    66.1
    %
    
    
    
    
    
    
    ADR
    
    $
    93.60
    
    
    $
    86.86
    
    
    $
    6.74
    
    
    
    7.8
    %RevPAR
    
    $
    61.91
    
    
    $
    57.44
    
    
    $
    4.47
    
    
    
    7.8
    %RevPAR Index
    
    
    96.9
    %
    
    
    95.6
    %
    
    
    
    
    
    
    1.4
    %46
    
    
    7,950
    
    
    Continuing Operations less two hotels closed in 2005 due to
hurricane damage, one hotel closed in 2006 due to fire damage,
one hotel closed in 2006 for demolition and hotels under
renovation in the first, second and third quarters of 2005
and/or 2006Occupancy
    
    
    66.0
    %
    
    
    67.5
    %
    
    
    
    
    
    
    -2.2
    %ADR
    
    $
    92.43
    
    
    $
    86.01
    
    
    $
    6.42
    
    
    
    7.5
    %RevPAR
    
    $
    61.02
    
    
    $
    58.06
    
    
    $
    2.96
    
    
    
    5.1
    %RevPAR Index
    
    
    98.7
    %
    
    
    99.9
    %
    
    
    
    
    
    
    -1.2
    %25
    
    
    4,093
    
    
    Hotels completing major renovations in 2004 and 2005Occupancy
    
    
    68.8
    %
    
    
    66.4
    %
    
    
    
    
    
    
    3.6
    %ADR
    
    $
    99.35
    
    
    $
    87.44
    
    
    $
    11.91
    
    
    
    13.6
    %RevPAR
    
    $
    68.33
    
    
    $
    58.03
    
    
    $
    10.30
    
    
    
    17.7
    %RevPAR Index
    
    
    99.0
    %
    
    
    90.6
    %
    
    
    
    
    
    
    9.3
    %13
    
    
    1,515
    
    
    Marriott HotelsOccupancy
    
    
    74.2
    %
    
    
    73.8
    %
    
    
    
    
    
    
    0.5
    %ADR
    
    $
    102.96
    
    
    $
    93.22
    
    
    $
    9.74
    
    
    
    10.4
    %RevPAR
    
    $
    76.39
    
    
    $
    68.82
    
    
    $
    7.57
    
    
    
    11.0
    %RevPAR Index
    
    
    115.7
    %
    
    
    114.8
    %
    
    
    
    
    
    
    0.8
    %4
    
    
    777
    
    
    Hilton HotelsOccupancy
    
    
    66.3
    %
    
    
    68.5
    %
    
    
    
    
    
    
    -3.2
    %ADR
    
    $
    104.33
    
    
    $
    96.27
    
    
    $
    8.06
    
    
    
    8.4
    %RevPAR
    
    $
    69.14
    
    
    $
    65.93
    
    
    $
    3.21
    
    
    
    4.9
    %RevPAR Index
    
    
    96.4
    %
    
    
    96.1
    %
    
    
    
    
    
    
    0.3
    %34
    
    
    6,685
    
    
    IHG Hotels less two hotels closed in 2005 due to hurricane
damage, one hotel closed in 2006 due to fire damage and one
hotel
closed in 2006 for demolitionOccupancy
    
    
    66.6
    %
    
    
    66.2
    %
    
    
    
    
    
    
    0.6
    %ADR
    
    $
    91.67
    
    
    $
    85.63
    
    
    $
    6.04
    
    
    
    7.1
    %RevPAR
    
    $
    61.02
    
    
    $
    56.70
    
    
    $
    4.32
    
    
    
    7.6
    %RevPAR Index
    
    
    95.1
    %
    
    
    93.0
    %
    
    
    
    
    
    
    2.3
    %5
    
    
    1,027
    
    
    Other Brands and Independent HotelsOccupancy
    
    
    52.5
    %
    
    
    48.0
    %
    
    
    
    
    
    
    9.4
    %ADR
    
    $
    89.76
    
    
    $
    70.71
    
    
    $
    19.05
    
    
    
    26.9
    %RevPAR
    
    $
    47.12
    
    
    $
    33.93
    
    
    $
    13.19
    
    
    
    38.9
    %RevPAR Index
    
    
    84.5
    %
    
    
    71.3
    %
    
    
    
    
    
    
    18.5
    %
 31




---



##### Table of Contents



Direct operating expenses  Continuing Operations
 Nine months ended
    
    
    
    
    
    
    
    
    
    
    % of total revenuesSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    
    
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)
    
    
    2006
    
    
    2005(unaudited in thousands)Direct operating expenses:Rooms
    
    $
    47,409
    
    
    $
    42,571
    
    
    $
    4,838
    
    
    
    11.4
    %
    
    
    20.0
    %
    
    
    20.3
    %Food and beverage
    
    
    35,089
    
    
    
    30,712
    
    
    
    4,377
    
    
    
    14.3
    %
    
    
    14.8
    %
    
    
    14.6
    %Other
    
    
    5,455
    
    
    
    5,365
    
    
    
    90
    
    
    
    1.7
    %
    
    
    2.3
    %
    
    
    2.6
    %Total direct operating expenses
    
    $
    87,953
    
    
    $
    78,648
    
    
    $
    9,305
    
    
    
    11.8
    %
    
    
    37.1
    %
    
    
    37.5
    %Direct operating margin (by revenue source):Rooms
    
    $
    134,272
    
    
    $
    116,926
    
    
    $
    17,346
    
    
    
    14.8
    %Food and beverage
    
    
    12,848
    
    
    
    12,383
    
    
    
    465
    
    
    
    3.8
    %Other
    
    
    1,689
    
    
    
    1,716
    
    
    
    (27
    )
    
    
    (1.6
    )%Total direct operating margin
    
    $
    148,809
    
    
    $
    131,025
    
    
    $
    17,784
    
    
    
    13.6
    %Direct operating margin % (by revenue source):Rooms
    
    
    73.9
    %
    
    
    73.3
    %Food and beverage
    
    
    26.8
    %
    
    
    28.7
    %Other
    
    
    23.6
    %
    
    
    24.2
    %Total direct operating margin %
    
    
    62.9
    %
    
    
    62.5
    %
     Other operating expenses and operating income  Continuing Operations
 Nine months ended
    
    
    
    
    
    
    
    
    
    
    % of total revenuesSeptember 30,
    
    
    September 30,
    
    
    
    
    
    
    
    
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)
    
    
    2006
    
    
    2005(unaudited in thousands)Other operating expenses:Other hotel operating costsGeneral and administrative
    
    $
    14,361
    
    
    $
    14,586
    
    
    $
    (225
    )
    
    
    (1.5
    )%
    
    
    6.1
    %
    
    
    7.0
    %Advertising and promotion
    
    
    11,496
    
    
    
    10,484
    
    
    
    1,012
    
    
    
    9.7
    %
    
    
    4.9
    %
    
    
    5.0
    %Franchise fees
    
    
    17,445
    
    
    
    14,662
    
    
    
    2,783
    
    
    
    19.0
    %
    
    
    7.4
    %
    
    
    7.0
    %Repairs and maintenance
    
    
    12,445
    
    
    
    11,335
    
    
    
    1,110
    
    
    
    9.8
    %
    
    
    5.3
    %
    
    
    5.4
    %Utilities
    
    
    14,006
    
    
    
    12,356
    
    
    
    1,650
    
    
    
    13.4
    %
    
    
    5.9
    %
    
    
    5.9
    %Other expenses
    
    
    179
    
    
    
    210
    
    
    
    (31
    )
    
    
    (14.8
    )%
    
    
    0.1
    %
    
    
    0.1
    %Total other hotel operating expenses
    
    
    69,932
    
    
    
    63,633
    
    
    
    6,300
    
    
    
    9.9
    %
    
    
    29.5
    %
    
    
    30.3
    %Property and other taxes, insurance and leases
    
    
    17,759
    
    
    
    15,220
    
    
    
    2,539
    
    
    
    16.7
    %
    
    
    7.5
    %
    
    
    7.3
    %Corporate and other
    
    
    15,961
    
    
    
    15,863
    
    
    
    98
    
    
    
    0.6
    %
    
    
    6.7
    %
    
    
    7.6
    %Casualty (gains) losses, net
    
    
    (3,145
    )
    
    
    322
    
    
    
    (3,467
    )
    
    
    (1076.7
    )%
    
    
    (1.3
    )%
    
    
    0.2
    %Depreciation and amortization
    
    
    26,565
    
    
    
    18,176
    
    
    
    8,389
    
    
    
    46.2
    %
    
    
    11.2
    %
    
    
    8.7
    %Impairment of long-lived assets
    
    
    645
    
    
    
    1,656
    
    
    
    (1,011
    )
    
    
    (61.1
    )%
    
    
    0.3
    %
    
    
    0.8
    %Total other operating expenses
    
    $
    127,717
    
    
    $
    114,870
    
    
    $
    12,848
    
    
    
    11.2
    %
    
    
    53.9
    %
    
    
    54.8
    %Total operating expenses
    
    $
    215,670
    
    
    $
    193,518
    
    
    $
    22,153
    
    
    
    11.4
    %
    
    
    91.1
    %
    
    
    92.3
    %Operating income
    
    $
    21,092
    
    
    $
    16,155
    
    
    $
    4,936
    
    
    
    30.6
    %
    
    
    8.9
    %
    
    
    7.7
    %
  32




---



##### Table of Contents




    
    Franchise fees were up $2.8 million, or 19.0%, due to the increased room revenue, as
well as $0.6 million in liquidated damages payable to the franchisor as a result of the
closure and pending sale of our Jekyll Island, GA property. As a percentage of total
revenues, franchise fees increased 40 basis points from 7.0% in 2005 to 7.4% in 2006. As a
percentage of room revenues, franchise fees increased 40 basis points from 9.2% in 2005 to
9.6% in 2006.
    
    Utilities increased $1.7 million, or 13.4%, primarily as a result of significantly
higher utility rates and the reopening of our Crowne Plaza Hotels in Melbourne and West
Palm Beach, FL. Utilities remained flat as a percentage of total revenues compared to
2005, at 5.9%.
    
    Repairs and maintenance expenses increased $1.1 million, or 9.8%, primarily because of
several large repair projects, as well as higher automobile fuel costs associated with our
fleet of vans. As a percentage of total revenues, repairs and maintenance costs decreased
10 basis points from 5.4% in 2005 to 5.3% in 2006.
    
    Advertising and promotion costs increased $1.0 million, or 9.7%, due in large part to
the reopening of two of our hotels in Florida. The remaining increase is a result of
additional sales personnel and sales programs to promote our other newly renovated
properties. Advertising and promotion costs decreased 10 basis points as a percentage of
total revenues from 5.0% in 2005 to 4.9% in 2006.
     Non-operating income (expenses)  Continuing Operations
 Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Increase (decrease)(unaudited in thousands)Non-operating income (expenses):Business interruption proceeds
    
    $
    4,125
    
    
    $
    7,823
    
    
    $
    (3,698
    )
    
    
    (47.3
    )%Interest income and other
    
    
    1,943
    
    
    
    573
    
    
    
    1,370
    
    
    
    239.1
    %Interest expense
    
    
    (22,041
    )
    
    
    (18,340
    )
    
    
    3,701
    
    
    
    20.2
    %
   Results of Operations  Discontinued Operations
  33




---



##### Table of Contents



a)
    
    $1.0 million on the Crowne Plaza Macon, GA hotel, which was classified as held for sale
during the third quarter, to reduce the carrying value to estimated selling price less
cost to sell; andb)
    
    $1.0 million on the Holiday Inn Sheffield, AL hotel to reflect the lowered estimated
selling price.
  a)
    
    $3.9 million on the Holiday Inn Manhattan, KS hotel to record the loss on disposal of
fixed assets;b)
    
    $2.2 million on the Holiday Inn Lawrence, KS hotel to record the loss on disposal of
fixed assets;c)
    
    $1.4 million on the Holiday Inn Sheffield, AL hotel to reflect the estimated selling
costs of the sale as this hotel was identified for sale during the first quarter of 2006
and the lowered estimated selling price in the third quarter;d)
    
    $0.3 million on the Holiday Inn McKnight, PA hotel to reflect the lowered estimated
selling price and to reflect the write-off of capital improvements spent on this hotel for
franchisor compliance that did not add incremental value or revenue generating capacity to
the property;e)
    
    $0.2 million on the Holiday Inn Valdosta, GA hotel to reflect the estimated selling
costs of the sale as this hotel was identified for sale during the first quarter of 2006;f)
    
    $0.1 million on the Fairfield Inn Valdosta, GA hotel to reflect the estimated selling
costs of the sale as this hotel was identified for sale during the first quarter of 2006;g)
    
    $0.7 million on the University Plaza Bloomington, IN hotel, which was classified as
held for sale during the second quarter, to reduce the carrying value to estimated selling
price less costs to sell; andh)
    
    $1.0 million on the Crowne Plaza Macon, GA hotel, which was classified as held for sale
during the third quarter, to reduce the carrying value to estimated selling price less cost
to sell.
   a)
    
    $1.7 million on the Holiday Inn Rolling Meadows, IL hotel to reflect the reduced
selling price and to record the final disposition of the hotel;b)
    
    $1.3 million on the Holiday Inn St. Louis North, MO hotel to reflect the reduced
selling price;c)
    
    $1.6 million on the Holiday Inn Lawrence, KS hotel to reflect the reduced fair value
appraisal;d)
    
    $0.3 million on the Holiday Inn Express Gadsden, AL hotel to reflect the estimated
selling costs of the sale as this hotel was identified for sale in January 2005, to reflect
the write-off of capital improvements spent on this hotel for franchisor compliance that
did not add incremental value or revenue generating capacity to the property, and to record
the final disposition of the hotel;e)
    
    $0.4 million on the Mt. Laurel, NJ land parcel to reflect the lowered estimated selling
price of the land;
 34




---



##### Table of Contents



f)
    
    $0.3 million on the Holiday Inn Morgantown, WV hotel to adjust for the further
reduction in the estimated selling price of the hotel; andg)
    
    $ (0.1) million recovery on the Holiday Inn Austin, TX hotel related to insurance
premium refunds.
 Income Taxes
    EBITDA
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited in thousands)Continuing operations:Income from continuing operations
    
    $
    1,358
    
    
    $
    4,822
    
    
    $
    2,975
    
    
    $
    5,057Depreciation and amortization
    
    
    9,234
    
    
    
    6,340
    
    
    
    26,565
    
    
    
    18,176Interest income
    
    
    (786
    )
    
    
    (340
    )
    
    
    (1,943
    )
    
    
    (765
    )Interest expense
    
    
    7,514
    
    
    
    6,121
    
    
    
    22,041
    
    
    
    18,340Provision for income taxes  continuing operations
    
    
    889
    
    
    
    13
    
    
    
    2,105
    
    
    
    148EBITDA from continuing operations
    
    $
    18,209
    
    
    $
    16,956
    
    
    $
    51,743
    
    
    $
    40,956
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited in thousands)Post-emergence Chapter 11 expenses, included in corporate
and other on consolidated statement of operations
    
    $
    
    
    
    $
    13
    
    
    $
    3
    
    
    $
    175Impairment of long-lived assets
    
    
    367
    
    
    
    603
    
    
    
    645
    
    
    
    1,656Casualty (gains) losses
    
    
    (3,086
    )
    
    
    190
    
    
    
    (3,145
    )
    
    
    322Write-off of receivable from non-consolidated hotel
    
    
    
    
    
    
    (200
    )
    
    
    
    
    
    
    746Write-off of investment in subsidiary for non-consolidated hotel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170
 35




---



##### Table of Contents



Additional Financial Information Regarding Quarterly Results of Our Continuing Operations
  Three Months Ended09/30/06
    
    
    06/30/06
    
    
    3/31/06
    
    
    12/31/05
    
    
    9/30/05
    
    
    6/30/05
    
    
    3/31/05
    
    
    12/31/04($ in thousands)Revenues:Rooms
    
    $
    60,540
    
    
    $
    64,886
    
    
    $
    56,255
    
    
    $
    49,624
    
    
    $
    56,776
    
    
    $
    55,495
    
    
    $
    47,226
    
    
    $
    42,826Food and beverage
    
    
    15,040
    
    
    
    18,460
    
    
    
    14,437
    
    
    
    14,860
    
    
    
    14,243
    
    
    
    16,225
    
    
    
    12,627
    
    
    
    15,779Other
    
    
    2,387
    
    
    
    2,505
    
    
    
    2,252
    
    
    
    2,122
    
    
    
    2,348
    
    
    
    2,433
    
    
    
    2,300
    
    
    
    2,057Total revenues
    
    
    77,967
    
    
    
    85,851
    
    
    
    72,944
    
    
    
    66,606
    
    
    
    73,367
    
    
    
    74,153
    
    
    
    62,152
    
    
    
    60,662Operating expenses:Direct:Rooms
    
    
    16,247
    
    
    
    16,367
    
    
    
    14,795
    
    
    
    13,951
    
    
    
    14,909
    
    
    
    14,680
    
    
    
    12,982
    
    
    
    12,914Food and beverage
    
    
    11,553
    
    
    
    12,616
    
    
    
    10,920
    
    
    
    10,657
    
    
    
    10,300
    
    
    
    11,163
    
    
    
    9,249
    
    
    
    11,434Other
    
    
    1,747
    
    
    
    1,927
    
    
    
    1,781
    
    
    
    1,726
    
    
    
    1,775
    
    
    
    1,869
    
    
    
    1,721
    
    
    
    1,603Total direct operating expenses
    
    
    29,547
    
    
    
    30,910
    
    
    
    27,498
    
    
    
    26,334
    
    
    
    26,984
    
    
    
    27,712
    
    
    
    23,952
    
    
    
    25,95148,420
    
    
    
    54,941
    
    
    
    45,448
    
    
    
    40,272
    
    
    
    46,383
    
    
    
    46,441
    
    
    
    38,200
    
    
    
    34,711Other operating expenses:Other hotel operating costs
    
    
    23,430
    
    
    
    23,667
    
    
    
    22,835
    
    
    
    21,595
    
    
    
    22,562
    
    
    
    20,780
    
    
    
    20,291
    
    
    
    19,022Property and other taxes, insurance and leases
    
    
    6,939
    
    
    
    5,583
    
    
    
    5,237
    
    
    
    4,473
    
    
    
    5,202
    
    
    
    5,101
    
    
    
    4,917
    
    
    
    4,426Corporate and other
    
    
    5,635
    
    
    
    5,395
    
    
    
    4,931
    
    
    
    2,490
    
    
    
    5,845
    
    
    
    5,359
    
    
    
    4,659
    
    
    
    2,937Casualty gains and losses
    
    
    (3,086
    )
    
    
    (248
    )
    
    
    189
    
    
    
    (31,251
    )
    
    
    190
    
    
    
    28
    
    
    
    104
    
    
    
    290Depreciation and amortization
    
    
    9,234
    
    
    
    9,029
    
    
    
    8,302
    
    
    
    8,440
    
    
    
    6,340
    
    
    
    6,046
    
    
    
    5,790
    
    
    
    5,700Impairment of long-lived assets
    
    
    367
    
    
    
    74
    
    
    
    204
    
    
    
    1,656
    
    
    
    603
    
    
    
    955
    
    
    
    98
    
    
    
    4,203Other operating expenses
    
    
    42,519
    
    
    
    43,500
    
    
    
    41,698
    
    
    
    7,403
    
    
    
    40,742
    
    
    
    38,269
    
    
    
    35,859
    
    
    
    36,578Operating income
    
    
    5,901
    
    
    
    11,441
    
    
    
    3,750
    
    
    
    32,869
    
    
    
    5,641
    
    
    
    8,172
    
    
    
    2,341
    
    
    
    (1,867
    )Other income (expenses):Business interruption insurance proceeds
    
    
    2,973
    
    
    
    1,152
    
    
    
    
    
    
    
    1,772
    
    
    
    6,094
    
    
    
    1,729
    
    
    
    
    
    
    
    Interest income and other
    
    
    786
    
    
    
    848
    
    
    
    309
    
    
    
    272
    
    
    
    348
    
    
    
    53
    
    
    
    172
    
    
    
    360Other interest expense
    
    
    (7,514
    )
    
    
    (7,227
    )
    
    
    (7,300
    )
    
    
    (6,287
    )
    
    
    (6,121
    )
    
    
    (6,126
    )
    
    
    (6,092
    )
    
    
    (6,509
    )Income (loss) before income taxes and minority interest
    
    
    2,146
    
    
    
    6,214
    
    
    
    (3,241
    )
    
    
    28,626
    
    
    
    5,962
    
    
    
    3,828
    
    
    
    (3,579
    )
    
    
    (8,016
    )Minority interests
    
    
    101
    
    
    
    (136
    )
    
    
    (4
    )
    
    
    (8,486
    )
    
    
    (1,127
    )
    
    
    (120
    )
    
    
    241
    
    
    
    355Income (loss) before income taxes  continuing operations
    
    
    2,247
    
    
    
    6,078
    
    
    
    (3,245
    )
    
    
    20,140
    
    
    
    4,835
    
    
    
    3,708
    
    
    
    (3,338
    )
    
    
    (7,661
    )(Provision) benefit for income taxes  continuing operations
    
    
    (889
    )
    
    
    (2,510
    )
    
    
    1,294
    
    
    
    (9,192
    )
    
    
    (13
    )
    
    
    (67
    )
    
    
    (68
    )
    
    
    259Income (loss) from continuing operations
    
    
    1,358
    
    
    
    3,568
    
    
    
    (1,951
    )
    
    
    10,948
    
    
    
    4,822
    
    
    
    3,641
    
    
    
    (3,406
    )
    
    
    (7,402
    )Discontinued operations:(Loss) income from discontinued operations before income taxes
    
    
    (1,839
    )
    
    
    586
    
    
    
    5,599
    
    
    
    (4,268
    )
    
    
    4,887
    
    
    
    (1,767
    )
    
    
    (3,582
    )
    
    
    (6,414
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )
    
    
    52Income tax benefit (provision)
    
    
    643
    
    
    
    (153
    )
    
    
    (2,274
    )
    
    
    1,124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from discontinued operations
    
    
    (1,196
    )
    
    
    433
    
    
    
    3,325
    
    
    
    (3,144
    )
    
    
    4,887
    
    
    
    (1,767
    )
    
    
    (3,678
    )
    
    
    (6,362
    )Net income (loss) attributable to common stock
    
    $
    162
    
    
    $
    4,001
    
    
    $
    1,374
    
    
    $
    7,804
    
    
    $
    9,709
    
    
    $
    1,874
    
    
    $
    (7,084
    )
    
    $
    (13,764
    )
 EBITDA Reconciliation of Continuing Operations
  Three Months Ended09/30/06
    
    
    06/30/06
    
    
    3/31/06
    
    
    12/31/05
    
    
    9/30/05
    
    
    6/30/05
    
    
    3/31/05
    
    
    12/31/04($ in thousands)Continuing operations:Income (loss) from continuing operations
    
    $
    1,358
    
    
    $
    3,568
    
    
    $
    (1,951
    )
    
    $
    10,948
    
    
    $
    4,822
    
    
    $
    3,641
    
    
    $
    (3,406
    )
    
    $
    (7,402
    )Depreciation and amortization
    
    
    9,234
    
    
    
    9,029
    
    
    
    8,302
    
    
    
    8,441
    
    
    
    6,340
    
    
    
    6,046
    
    
    
    5,790
    
    
    
    5,700Interest income
    
    
    (786
    )
    
    
    (848
    )
    
    
    (309
    )
    
    
    (261
    )
    
    
    (340
    )
    
    
    (205
    )
    
    
    (220
    )
    
    
    (346
    )Interest expense
    
    
    7,514
    
    
    
    7,227
    
    
    
    7,300
    
    
    
    6,286
    
    
    
    6,121
    
    
    
    6,126
    
    
    
    6,092
    
    
    
    6,509Provision (benefit) for income taxes  continuing operations
    
    
    889
    
    
    
    2,510
    
    
    
    (1,294
    )
    
    
    9,192
    
    
    
    13
    
    
    
    67
    
    
    
    68
    
    
    
    (259
    )EBITDA from continuing operations
    
    $
    18,209
    
    
    $
    21,486
    
    
    $
    12,048
    
    
    $
    34,606
    
    
    $
    16,956
    
    
    $
    15,675
    
    
    $
    8,324
    
    
    $
    4,202
  36




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##### Table of Contents



Three Months Ended09/30/06
    
    06/30/06
    
    3/31/06
    
    12/31/05
    
    9/30/05
    
    6/30/05
    
    3/31/05
    
    12/31/04($ in thousands)Post-emergence Chapter 11 expenses, included in corporate
and other on consolidated statement of operations
    
    $
    
    
    
    $
    
    
    
    $
    3
    
    
    $
    (2
    )
    
    $
    13
    
    
    $
    52
    
    
    $
    110
    
    
    $
    61Impairment of long-lived assets
    
    
    367
    
    
    
    74
    
    
    
    204
    
    
    
    1,656
    
    
    
    603
    
    
    
    955
    
    
    
    97
    
    
    
    4,203Casualty (gains) losses
    
    
    (3,086
    )
    
    
    (248
    )
    
    
    188
    
    
    
    (31,251
    )
    
    
    190
    
    
    
    28
    
    
    
    104
    
    
    
    290Write-off of receivable from non-consolidated hotel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (200
    )
    
    
    946
    
    
    
    
    
    
    
    Adjustment to bankruptcy claims reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Write-off of investment in subsidiary for non-consolidated hotel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
 Hotel data by market segment and region
 Hotel data by market segment
  
    
    The Crowne Plaza Melbourne, FL hotel since it was closed for hurricane
renovations in the three and nine months ended September 30, 2005;
    
    The Crowne Plaza West Palm Beach, FL hotel since it was closed for hurricane
renovations in the three and nine months ended September 30, 2005;
    
    The Holiday Inn Marietta, GA hotel since it was closed on January 15, 2006 due to fire damage; and
    
    The Holiday Inn Jekyll Island, GA hotel since it closed on June 1, 2006 for demolition.
 37




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##### Table of Contents



Combined Continuing and Discontinued Operations  69 hotels (excludes 4 hotels)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Upper UpscaleNumber of properties
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    825
    
    
    
    825
    
    
    
    825
    
    
    
    825Occupancy
    
    
    71.8
    %
    
    
    75.6
    %
    
    
    69.2
    %
    
    
    71.7
    %Average daily rate
    
    $
    113.98
    
    
    $
    102.63
    
    
    $
    113.49
    
    
    $
    101.29RevPAR
    
    $
    81.86
    
    
    $
    77.60
    
    
    $
    78.52
    
    
    $
    72.64UpscaleNumber of properties
    
    
    20
    
    
    
    18
    
    
    
    20
    
    
    
    18Number of rooms
    
    
    3,660
    
    
    
    3,185
    
    
    
    3,660
    
    
    
    3,185Occupancy
    
    
    65.7
    %
    
    
    68.3
    %
    
    
    69.1
    %
    
    
    68.8
    %Average daily rate
    
    $
    96.44
    
    
    $
    86.78
    
    
    $
    100.14
    
    
    $
    88.68RevPAR
    
    $
    63.36
    
    
    $
    59.31
    
    
    $
    69.16
    
    
    $
    60.99Midscale with Food & BeverageNumber of properties
    
    
    35
    
    
    
    36
    
    
    
    35
    
    
    
    36Number of rooms
    
    
    6,613
    
    
    
    6,844
    
    
    
    6,613
    
    
    
    6,844Occupancy
    
    
    66.5
    %
    
    
    64.7
    %
    
    
    63.0
    %
    
    
    61.7
    %Average daily rate
    
    $
    84.05
    
    
    $
    83.52
    
    
    $
    83.95
    
    
    $
    79.90RevPAR
    
    $
    55.87
    
    
    $
    54.01
    
    
    $
    52.88
    
    
    $
    49.34Midscale without Food & BeverageNumber of properties
    
    
    5
    
    
    
    7
    
    
    
    5
    
    
    
    7Number of rooms
    
    
    596
    
    
    
    821
    
    
    
    596
    
    
    
    821Occupancy
    
    
    60.6
    %
    
    
    69.7
    %
    
    
    65.1
    %
    
    
    69.0
    %Average daily rate
    
    $
    74.32
    
    
    $
    69.30
    
    
    $
    80.38
    
    
    $
    68.19RevPAR
    
    $
    45.07
    
    
    $
    48.31
    
    
    $
    52.30
    
    
    $
    47.05EconomyNumber of properties
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Number of rooms
    
    
    126
    
    
    
    126
    
    
    
    126
    
    
    
    126Occupancy
    
    
    48.2
    %
    
    
    38.6
    %
    
    
    49.1
    %
    
    
    53.0
    %Average daily rate
    
    $
    58.06
    
    
    $
    57.53
    
    
    $
    58.80
    
    
    $
    64.20RevPAR
    
    $
    27.98
    
    
    $
    22.21
    
    
    $
    28.85
    
    
    $
    34.03Independent HotelsNumber of properties
    
    
    4
    
    
    
    3
    
    
    
    4
    
    
    
    3Number of rooms
    
    
    516
    
    
    
    535
    
    
    
    516
    
    
    
    535Occupancy
    
    
    44.9
    %
    
    
    48.2
    %
    
    
    42.8
    %
    
    
    41.5
    %Average daily rate
    
    $
    61.35
    
    
    $
    81.91
    
    
    $
    62.54
    
    
    $
    70.86RevPAR
    
    $
    27.56
    
    
    $
    39.52
    
    
    $
    26.74
    
    
    $
    29.42All HotelsNumber of properties
    
    
    69
    
    
    
    69
    
    
    
    69
    
    
    
    69Number of rooms
    
    
    12,336
    
    
    
    12,336
    
    
    
    12,336
    
    
    
    12,336Occupancy
    
    
    65.2
    %
    
    
    65.7
    %
    
    
    64.3
    %
    
    
    63.7
    %Average daily rate
    
    $
    88.67
    
    
    $
    84.65
    
    
    $
    90.27
    
    
    $
    82.72RevPAR
    
    $
    57.84
    
    
    $
    55.63
    
    
    $
    58.07
    
    
    $
    52.73
 38




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##### Table of Contents



Continuing Operations  56 hotels (excludes 4 hotels and held for sale hotels)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Upper UpscaleNumber of properties
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    825
    
    
    
    825
    
    
    
    825
    
    
    
    825Occupancy
    
    
    71.8
    %
    
    
    75.6
    %
    
    
    69.2
    %
    
    
    71.7
    %Average daily rate
    
    $
    113.98
    
    
    $
    102.63
    
    
    $
    113.49
    
    
    $
    101.29RevPAR
    
    $
    81.86
    
    
    $
    77.60
    
    
    $
    78.52
    
    
    $
    72.64UpscaleNumber of properties
    
    
    18
    
    
    
    16
    
    
    
    18
    
    
    
    16Number of rooms
    
    
    3,088
    
    
    
    2,613
    
    
    
    2,613
    
    
    
    2,613Occupancy
    
    
    67.2
    %
    
    
    71.0
    %
    
    
    71.0
    %
    
    
    71.5
    %Average daily rate
    
    $
    99.64
    
    
    $
    89.77
    
    
    $
    103.70
    
    
    $
    91.68RevPAR
    
    $
    66.94
    
    
    $
    63.73
    
    
    $
    73.66
    
    
    $
    65.60Midscale with Food & BeverageNumber of properties
    
    
    28
    
    
    
    29
    
    
    
    28
    
    
    
    29Number of rooms
    
    
    5,376
    
    
    
    5,607
    
    
    
    5,607
    
    
    
    5,607Occupancy
    
    
    68.0
    %
    
    
    66.2
    %
    
    
    63.8
    %
    
    
    62.9
    %Average daily rate
    
    $
    88.16
    
    
    $
    87.84
    
    
    $
    87.61
    
    
    $
    84.13RevPAR
    
    $
    59.96
    
    
    $
    58.12
    
    
    $
    55.89
    
    
    $
    52.90Midscale without Food & BeverageNumber of properties
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    484
    
    
    
    484
    
    
    
    484
    
    
    
    484Occupancy
    
    
    59.1
    %
    
    
    70.7
    %
    
    
    64.1
    %
    
    
    73.1
    %Average daily rate
    
    $
    77.06
    
    
    $
    70.89
    
    
    $
    84.49
    
    
    $
    72.16RevPAR
    
    $
    45.56
    
    
    $
    50.13
    
    
    $
    54.14
    
    
    $
    52.73EconomyNumber of properties
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Number of rooms
    
    
    126
    
    
    
    126
    
    
    
    126
    
    
    
    126Occupancy
    
    
    48.2
    %
    
    
    38.6
    %
    
    
    59.2
    %
    
    
    53.0
    %Average daily rate
    
    $
    58.06
    
    
    $
    57.53
    
    
    $
    50.86
    
    
    $
    64.20RevPAR
    
    $
    27.98
    
    
    $
    22.21
    
    
    $
    30.13
    
    
    $
    34.03Independent HotelsNumber of properties
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    2Number of rooms
    
    
    105
    
    
    
    349
    
    
    
    349
    
    
    
    349Occupancy
    
    
    64.6
    %
    
    
    55.6
    %
    
    
    59.2
    %
    
    
    46.7
    %Average daily rate
    
    $
    47.09
    
    
    $
    87.02
    
    
    $
    50.86
    
    
    $
    71.47RevPAR
    
    $
    30.42
    
    
    $
    48.35
    
    
    $
    30.13
    
    
    $
    33.37All HotelsNumber of properties
    
    
    56
    
    
    
    56
    
    
    
    56
    
    
    
    56Number of rooms
    
    
    10,004
    
    
    
    10,004
    
    
    
    10,004
    
    
    
    10,004Occupancy
    
    
    67.3
    %
    
    
    67.7
    %
    
    
    66.3
    %
    
    
    65.7
    %Average daily rate
    
    $
    92.81
    
    
    $
    88.63
    
    
    $
    94.42
    
    
    $
    86.66RevPAR
    
    $
    62.51
    
    
    $
    60.01
    
    
    $
    62.55
    
    
    $
    56.91
  
    
    Upper Upscale: Hilton and Marriott;
    
    Upscale: Courtyard by Marriott, Crowne Plaza, Radisson, Residence Inn and SpringHill Suites by Marriott;
    
    Midscale with Food & Beverage: Clarion, DoubleTree, Holiday Inn, Holiday Inn
Select, Quality Inn, and Ramada Inn;
 39




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##### Table of Contents




    
    Midscale without Food & Beverage: Fairfield Inn by Marriott and Holiday Inn Express; and
    
    Economy: Park Inn
 Hotel data by region
  
    
    The Crowne Plaza Melbourne, FL hotel since it was closed for hurricane
renovations in the three and nine months ended September 30, 2005;
    
    The Crowne Plaza West Palm Beach, FL hotel since it was closed for hurricane
renovations in the three and nine months ended September 30, 2005;
    
    The Holiday Inn Marietta, GA hotel since it was closed on January 15, 2006 due to fire damage; and
    
    The Holiday Inn Jekyll Island, GA hotel since it closed on June 1, 2006 for demolition.
 40




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##### Table of Contents



Combined Continuing and Discontinued Operations  69 hotels (excludes 4 hotels)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Northeast RegionNumber of properties
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    26Number of rooms
    
    
    4,768
    
    
    
    4,768
    
    
    
    4,768
    
    
    
    4,768Occupancy
    
    
    71.8
    %
    
    
    70.5
    %
    
    
    66.4
    %
    
    
    66.1
    %Average daily rate
    
    $
    95.01
    
    
    $
    93.08
    
    
    $
    95.42
    
    
    $
    90.22RevPAR
    
    $
    68.18
    
    
    $
    65.65
    
    
    $
    63.34
    
    
    $
    59.63Southeast RegionNumber of properties
    
    
    23
    
    
    
    23
    
    
    
    23
    
    
    
    23Number of rooms
    
    
    3,768
    
    
    
    3,768
    
    
    
    3,768
    
    
    
    3,768Occupancy
    
    
    57.6
    %
    
    
    60.8
    %
    
    
    60.8
    %
    
    
    60.3
    %Average daily rate
    
    $
    83.43
    
    
    $
    79.36
    
    
    $
    85.61
    
    
    $
    74.79RevPAR
    
    $
    48.04
    
    
    $
    48.29
    
    
    $
    52.08
    
    
    $
    45.09Midwest RegionNumber of properties
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Number of rooms
    
    
    2,484
    
    
    
    2,484
    
    
    
    2,484
    
    
    
    2,484Occupancy
    
    
    64.8
    %
    
    
    63.9
    %
    
    
    63.3
    %
    
    
    61.5
    %Average daily rate
    
    $
    80.33
    
    
    $
    77.19
    
    
    $
    81.23
    
    
    $
    77.00RevPAR
    
    $
    52.03
    
    
    $
    49.31
    
    
    $
    51.40
    
    
    $
    47.37West RegionNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    1,316
    
    
    
    1,316
    
    
    
    1,316
    
    
    
    1,316Occupancy
    
    
    64.3
    %
    
    
    65.6
    %
    
    
    68.9
    %
    
    
    69.3
    %Average daily rate
    
    $
    92.33
    
    
    $
    79.59
    
    
    $
    99.85
    
    
    $
    86.15RevPAR
    
    $
    59.37
    
    
    $
    52.23
    
    
    $
    68.75
    
    
    $
    59.73All HotelsNumber of properties
    
    
    69
    
    
    
    69
    
    
    
    69
    
    
    
    69Number of rooms
    
    
    12,336
    
    
    
    12,336
    
    
    
    12,336
    
    
    
    12,336Occupancy
    
    
    65.2
    %
    
    
    65.7
    %
    
    
    64.3
    %
    
    
    63.7
    %Average daily rate
    
    $
    88.67
    
    
    $
    84.65
    
    
    $
    90.27
    
    
    $
    82.72RevPAR
    
    $
    57.84
    
    
    $
    55.63
    
    
    $
    58.07
    
    
    $
    52.73
 41




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##### Table of Contents



Continuing Operations 56 hotels (excludes 4 hotels and held for sale hotels)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Northeast RegionNumber of properties
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25Number of rooms
    
    
    4,651
    
    
    
    4,651
    
    
    
    4,651
    
    
    
    4,651Occupancy
    
    
    72.0
    %
    
    
    70.4
    %
    
    
    66.8
    %
    
    
    66.2
    %Average daily rate
    
    $
    95.51
    
    
    $
    93.53
    
    
    $
    95.90
    
    
    $
    90.75RevPAR
    
    $
    68.76
    
    
    $
    65.85
    
    
    $
    64.05
    
    
    $
    60.09Southeast RegionNumber of properties
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Number of rooms
    
    
    2,378
    
    
    
    2,378
    
    
    
    2,378
    
    
    
    2,378Occupancy
    
    
    60.2
    %
    
    
    64.1
    %
    
    
    62.5
    %
    
    
    62.1
    %Average daily rate
    
    $
    93.27
    
    
    $
    89.20
    
    
    $
    95.08
    
    
    $
    83.60RevPAR
    
    $
    56.12
    
    
    $
    57.19
    
    
    $
    59.38
    
    
    $
    51.88Midwest RegionNumber of properties
    
    
    9
    
    
    
    9
    
    
    
    9
    
    
    
    9Number of rooms
    
    
    1,659
    
    
    
    1,659
    
    
    
    1,659
    
    
    
    1,659Occupancy
    
    
    67.0
    %
    
    
    66.9
    %
    
    
    68.1
    %
    
    
    66.4
    %Average daily rate
    
    $
    84.46
    
    
    $
    80.45
    
    
    $
    85.13
    
    
    $
    79.76RevPAR
    
    $
    56.63
    
    
    $
    53.84
    
    
    $
    58.01
    
    
    $
    52.98West RegionNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    1,316
    
    
    
    1,316
    
    
    
    1,316
    
    
    
    1,316Occupancy
    
    
    64.3
    %
    
    
    65.6
    %
    
    
    68.9
    %
    
    
    69.3
    %Average daily rate
    
    $
    92.33
    
    
    $
    79.59
    
    
    $
    99.85
    
    
    $
    86.15RevPAR
    
    $
    59.37
    
    
    $
    52.23
    
    
    $
    68.75
    
    
    $
    59.73All HotelsNumber of properties
    
    
    56
    
    
    
    56
    
    
    
    56
    
    
    
    56Number of rooms
    
    
    10,004
    
    
    
    10,004
    
    
    
    10,004
    
    
    
    10,004Occupancy
    
    
    67.3
    %
    
    
    67.7
    %
    
    
    66.3
    %
    
    
    65.7
    %Average daily rate
    
    $
    92.81
    
    
    $
    88.63
    
    
    $
    94.42
    
    
    $
    86.66RevPAR
    
    $
    62.51
    
    
    $
    60.01
    
    
    $
    62.55
    
    
    $
    56.91
  
    
    Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York,
Ohio, Pennsylvania, Vermont, West Virginia;
    
    Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, North Carolina, South Carolina, Tennessee;
    
    Midwest: Arkansas, Iowa, Indiana, Michigan, Minnesota, Oklahoma, Texas; and
    
    West: Arizona, California, Colorado, New Mexico.
 42




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##### Table of Contents



Liquidity and Capital Resources
 Working Capital
         Cash Flow
  Operating activities
  43




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##### Table of Contents



Investing activities
   Financing activities
   Debt and Contractual Obligations
  Off Balance Sheet Arrangements
  Market Risk
    Forward-looking Statements
  44




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##### Table of Contents




    
    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 Iraq, 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;
    
    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;
    
    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 high energy costs, natural gas and gasoline
prices; and
    
    The risks identified in our form 10-K for the year ended December 31, 2005 under
Risks Related to Our Business and Risks Relating to Our Common Stock.
  Inflation
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 45




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##### Table of Contents



Internal Control  Integrated Framework
    46




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
  47




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##### Table of Contents



SIGNATURES
  LODGIAN, INC.Date: November 7, 2006
    By:
    /s/ EDWARD J. ROHLINGEdward J. RohlingPresident and
Chief Executive OfficerDate: November  7, 2006
    By:
    /s/ JAMES A. MACLENNANJames A. MacLennanExecutive Vice President and
Chief Financial Officer 48




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Disclosure Statement for Joint Plan of Reorganization of
Lodgian, Inc., et al (other than the CCA Debtors), Together
with the Official Committee of Unsecured Creditors under
Chapter 11 of the Bankruptcy Code, dated September 26, 2002)
(Incorporated by reference to Exhibit 10.6 to the Companys
Annual Report for the period ended December 31, 2003 (File
No. 1-14537), filed on March 9, 2004).2.2
    
    First Amended Joint Plan of Reorganization of Lodgian, Inc.,
et al (Other than CCA Debtors), Together with the Official
Committee of Unsecured Creditors under Chapter 11 of the
Bankruptcy Code, dated September 26, 2002) (Incorporated by
reference to Exhibit 10.7 to the Companys Annual Report for
the period ended December 31, 2003 (File No. 1-14537), filed
on March 9, 2004).2.3
    
    Order Confirming First Amended Joint Plan of Reorganization
of Lodgian, Inc., et al issued on November 5, 2002 by the
United States Bankruptcy Curt for the Southern District of
New York (Incorporated by reference to Exhibit 10.8 to the
Companys Annual Report for the period ended December 31,
2003 (File No. 1-14537), filed on March 9, 2004).2.4
    
    Disclosure Statement for Joint Plan of Reorganization of
Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. Together
with the Official Committee of Unsecured Creditors Under
Chapter 11 of the Bankruptcy Code (Incorporated by reference
to Exhibit 10.13.1 to the Companys Annual Report for the
period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).2.5
    
    Joint Plan of Reorganization of Impac Hotels II, L.L.C. and
Impac Hotels III, L.L.C. Together with the Official Committee
of Unsecured Creditors under Chapter 11 of the Bankruptcy
Code (Incorporated by reference to Exhibit 10.13.2 to the
Companys Annual Report for the period ended December 31,
2003 (File No. 1-14537), filed on March 9, 2004).2.6
    
    Order Confirming Joint Plan of Reorganization of Impac Hotels
II, L.L.C. and Impac Hotels III, L.L.C. Together with the
Official Committee of Unsecured Creditors under Chapter 11 of
the Bankruptcy Code (Incorporated by reference to Exhibit
10.13.3 to the Companys Annual Report for the period ended
December 31, 2003 (File No. 1-14537), filed on March 9,
2004).2.7
    
    Post Confirmation Order and Notice for Joint Plan of
Reorganization of Impac Hotels III, L.L.C. Together with the
Official Committee of Unsecured Creditors under Chapter 11 of
the Bankruptcy Code (Incorporated by reference to Exhibit
10.13.4 to the Companys Annual Report for the period ended
December 31, 2003 (File No. 1-14537), filed on March 9,
2004).3.1
    
    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 A Warrant Agreement, dated as of November 25, 2002,
between Lodgian, Inc. and Wachovia Bank, N.A. (Incorporated
by reference to Exhibit 10.9 to the Companys Annual Report
for the period ended December 31, 2003 (File No. 1-14537),
filed on March 9, 2004).4.3
    
    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).4.4
    
    Registration Rights Agreement, dated as of November 25, 2002,
between Lodgian, Inc. and the other signatories thereto
(Incorporated by reference to Exhibit 10.11 to the Companys
Annual Report for the period ended December 31, 2003 (File
No. 1-14537), filed on March 9, 2004).4.5
    
    Preferred Share Exchange Agreement, dated June 22, 2004, by
and among Lodgian, Inc. and the record and/or beneficial
stockholders as signatories thereto (Incorporated by
reference to Exhibit 10.9 to the Companys Quarterly Report
for the period ended June 30, 2004 (File No. 1-14537), filed
on August 16, 2004).
 49




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##### Table of Contents



ExhibitNumber
    
    Description4.6
    
    Registration Rights Agreement, dated June, dated June 22,
2004, by and among Lodgian, Inc. and the signatories thereto
(Incorporated by reference to Exhibit 10.10 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).10.1
    
    Loan and Security Agreement (Floating Rate), dated as of June
25, 2004, by and between the Borrowers listed on Schedule 1
thereto and Merrill Lynch Mortgage Lending, Inc.
(Incorporated by reference to Exhibit 10.1.1 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).10.2
    
    Loan Modification Agreement (Floating Rate) between Merrill
Lynch Mortgage Lending, Inc. and the Borrowers identified on
the signature pages thereto dated April 29, 2005
(Incorporated by reference to Exhibit 10.40 to the Companys
Quarterly Report for the period ended March 31, 2005 (File
No. 1-14537), filed with the Commission on May 10, 2005.10.3
    
    Promissory Note A in the original amount of $72,000,000.00,
dated as of June 25, 2004, by the Borrowers listed on the
signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.1.2 to
the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.4
    
    Promissory Note B in the original amount of $38,000,000,
dated as of June 25, 2004, by the Borrowers listed on the
signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.1.3 to
the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.5
    
    Loan and Security Agreement (Fixed Rate #1), dated as of June
25, 2004, by and between the Borrowers listed on
Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc.
(Incorporated by reference to Exhibit 10.2.1 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).10.6
    
    Promissory Note in the original amount of $63,801,000.00,
dated as of June 25, 2004, by the Borrowers listed on the
signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.2.2 to
the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.7
    
    Loan and Security Agreement (Fixed Rate #2), dated as of June
25, 2004, by and between the Borrowers listed on Schedule 1
thereto and Merrill Lynch Mortgage Lending, Inc.
(Incorporated by reference to Exhibit 10.3.1 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).10.8
    
    Promissory Note in the original amount of $67,864,000.00,
dated as of June 25, 2004, by the Borrowers listed on the
signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.3.2 to
the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.9
    
    Loan and Security Agreement (Fixed Rate #3), dated as of June
25, 2004, by and between the Borrowers listed on Schedule 1
thereto and Merrill Lynch Mortgage Lending, Inc.
(Incorporated by reference to Exhibit 10.4.1 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).10.10
    
    Promissory Note in the original amount of $66,818,500.00,
dated as of June 25, 2004, by the Borrowers listed on the
signature pages thereto in favor of Merrill Lynch Mortgage
Lending, Inc. (Incorporated by reference to Exhibit 10.4.2 to
the Companys Quarterly Report for the period ended June 30,
2004 (File No. 1-14537), filed on August 16, 2004).10.11
    
    Loan and Security Agreement (Fixed Rate #4), dated as of June
25, 2004, by and between the Borrowers listed on Schedule 1
thereto and Merrill Lynch Mortgage Lending, Inc.
(Incorporated by reference to Exhibit 10.5.1 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.
1-14537), filed on August 16, 2004).10.12
    
    Loan Modification Agreement (Fixed Rate #4) dated October 17,
2005, by and between Merrill Lynch Mortgage Lending, Inc. and
certain Lodgian, Inc. subsidiaries (Incorporated by
reference to Exhibit 99.1 to Companys Current Report on Form
8-K. (File No. 1-14537), filed on October 21, 2005).10.13
    
    Promissory Note in the original amount of $61,516,500.00,
dated as of June 25, 2004, 2004, by the Borrowers listed on
the signature pages thereto in favor of Merrill Lynch
Mortgage Lending, Inc. (Incorporated by reference to Exhibit
10.5.2 to the Companys Quarterly Report for the period ended
June 30, 2004 (File No. 1-14537), filed on August 16, 2004).10.14
    
    Employment Agreement between Lodgian, Inc. and Daniel E.
Ellis, dated May 2, 2004 (Incorporated by reference to
Exhibit 10.4 to the Companys Quarterly Report for the period
ended March 31, 2004 (File No. 1-14537), filed with the
Commission on May 14, 2004).10.15
    
    Participation Form for Daniel E. Ellis under the Lodgian,
Inc. Executive Incentive Plan (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K
(File No. 1-14537), filed with the Commission on February 6,
2006).10.16
    
    Employment Agreement between Lodgian, Inc. and Samuel J.
Davis, dated May 14, 2004 (Incorporated by reference to
Exhibit 10.19 to Amendment No. 2 to the Companys
Registration Statement on Form S-1 (Registration Number
333-113410), filed with the Commission on June 4, 2004).
 50




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##### Table of Contents



ExhibitNumber
    
    Description10.17
    
    Agreement for Consulting Services between Lodgian, Inc. and
Linda Borchert Philp dated December 19, 2005 (Incorporated by
reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K (File No. 1-14537), filed with the Commission on
December 22, 2005).10.18
    
    Release Agreement between Lodgian, Inc. and Linda Borchert
Philp dated December 16, 2005 (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K
(File No. 1-14537), filed with the Commission on December 22,
2005).10.19
    
    Executive Employment Agreement between Edward J. Rohling and
Lodgian, Inc., dated July 12, 2005 (Incorporated by
reference to Exhibit 10.35 to the Companys Quarterly Report
for the period ended June 30, 2005 (File No. 1-14537), filed
with the Commission on August 9, 2005).10.20
    
    Restricted Stock Award Agreement between Edward J. Rohling
and Lodgian, Inc., dated July 15, 2005 (Incorporated by
reference to Exhibit 10.36 to the Companys Quarterly Report
for the period ended June 30, 2005 (File No. 1-14537), filed
with the Commission on August 9, 2005).10.21
    
    Employment Agreement between Lodgian, Inc. and James A.
MacLennan dated March 1, 2006 (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K
(File No. 1-14537), filed with the Commission on March 3,
2006).10.22
    
    Restricted Stock Award Agreement between Lodgian, Inc. and
James A. MacLennan dated March 1, 2006 (Incorporated by
reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K (File No. 1-14537), filed with the Commission on
March 3, 2006).10.23
    
    Participation Form for James A. MacLennan under the Lodgian,
Inc. Executive Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K
(File No. 1-14537), filed with the Commission on March 3,
2006).10.24
    
    2002 Amended and Restated Stock Incentive Plan of Lodgian,
Inc. (Incorporated by reference to Exhibit 10.5 to Amendment
No. 2 to the Companys Registration Statement on Form S-1
(File No. 333-1113410), filed on June 6, 2004).10.25
    
    First Amendment to the Amended and Restated 2002 Stock
Incentive Plan of Lodgian, Inc. dated April 28, 2005
(Incorporated by reference to Exhibit 10.34 to the Companys
Quarterly Report for the period ended March 31, 2005 (File
No. 1-14537), filed with the Commission on May 10, 2005).10.26
    
    Form of Stock Option Award Agreement (Incorporated by
reference to Exhibit 10.37 to the Companys Annual Report for
the period ended December 31, 2004 (File No. 1-14537), filed
with the Commission on March 23, 2005).10.27
    
    Form of Restricted Stock Award Agreement (Incorporated by
reference to Exhibit 10.40 to the Companys Quarterly Report
for the period ended June 30, 2005 (File No. 1-14537), filed
with the Commission on August 9, 2005).10.28
    
    Lodgian, Inc. 401(k) Plan, As Amended and Restated Effective
September 1, 2003 (Incorporated by reference to Exhibit
20.1.1 to Amendment No. 2 to the Companys Registration
Statement on Form S-1 (File No. 333-113410), filed on June 6,
2004).10.29
    
    Executive Employment Agreement between Mark D. Linch and
Lodgian, Inc., dated June 8, 2006 (Incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K
(File No. 1-14537), filed with the Commission on June 14,
2006).10.30
    
    Lodgian, Inc. Executive Incentive Plan (Covering the calendar
years 2006-2008). (Incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K (File No.
1-14537), filed with the Commission on February 6, 2006).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. 51