UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from --------- to --------
Commission File Number 1-9443
--------
RED LION INNS LIMITED PARTNERSHIP
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3029959
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4001 Main Street, Vancouver, Washington 98663
- - --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 696-0001
--------------
- - -----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- --
2
RED LION INNS LIMITED PARTNERSHIP
REPORT ON FORM 10-Q
For the quarter ended March 31, 1994
Table of Contents
Page
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statement of Partners' Capital 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
3
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
- - -------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
(dollar amounts in thousands
except per unit amounts)
Three Months Ended
March 31,
-----------------------
1994 1993
---- ----
$7,018 $ 6,706
REVENUES
OPERATING COSTS AND EXPENSES:
Property taxes 699 728
Base management fees 678 664
Depreciation and amortization 2,680 2,566
Other 417 402
----- ------
Total operating costs and expenses 4,474 4,360
----- ------
Operating income 2,544 2,346
INTEREST EXPENSE 2,561 2,544
----- ------
Loss before income taxes and cumulative
effect of change in accounting principle (17) (198)
Income tax provision - (54)
----- ------
Loss before cumulative effect of change in
accounting principle (17) (252)
Cumulative effect of change in accounting
for income taxes - (1,351)
----- ------
NET LOSS $ (17) $(1,603)
===== =======
ALLOCATION OF NET LOSS:
General Partner $ - $ (32)
===== =======
Limited Partners $ (17) $(1,571)
===== =======
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE
PER LIMITED PARTNER UNIT $0.00 $ (0.06)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES PER
LIMITED PARTNER UNIT - (0.32)
----- ------
NET LOSS PER LIMITED PARTNER UNIT $0.00 $ (0.38)
===== =======
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500
========= =========
(see notes to financial statements)
/TABLE
4
CONSOLIDATED BALANCE SHEETS
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(dollar amounts in thousands)
March 31, December 31,
1994 1993
--------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 245 $ 213
Prepaid expenses 261 -
------- -------
Total current assets 506 213
------- -------
PROPERTY AND EQUIPMENT:
Land 17,704 17,713
Buildings and improvements 157,006 156,573
Furnishings and equipment 48,201 45,764
Construction in progress 1,155 2,888
------- -------
224,066 222,938
Less-accumulated depreciation (57,887) (55,254)
------- -------
166,179 167,684
DEFERRED LOAN COSTS, net 118 146
------- -------
$166,803 $ 168,043
======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to affiliate $ 10,057 $ 8,355
Accrued distributions to partners 2,329 2,329
Interest payable 788 793
Property taxes 503 405
Current portion long-term debt 1,402 1,371
------- -------
Total current liabilities 15,079 13,253
------- -------
LONG-TERM DEBT NET OF CURRENT
PORTION 123,303 124,023
------- -------
DEFERRED INCOME TAXES 1,351 1,351
------- -------
PARTNERS' CAPITAL:
Limited Partners, 4,940,000 units
issued 39,486 41,777
Less - 806,500 treasury units,
at cost (11,202) (11,202)
------- -------
Limited Partners, net 28,284 30,575
General Partner (1,214) (1,159)
------- -------
Total partners' capital 27,070 29,416
------- -------
$ 166,803 $ 168,043
======= =======
(see notes to financial statements)
/TABLE
5
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the three months ended March 31, 1994
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
(dollar amounts in thousands)
Limited Partners
-----------------------------------------
Issued Units Treasury Units
-----------------------------------------
General
Units Amount Units Amount Partner Total
----- ------ ----- ------ ------- -----
Balance at December 31, 1993 4,940,000 $41,777 (806,500) $(11,202) $(1,159) $29,416
Distributions to partners - (2,274) - - (55) (2,329)
Net loss - (17) - - - (17)
--------- ------- ------- -------- ------- -------
Balance at March 31, 1994 4,940,000 $39,486 (806,500) $(11,202) $(1,214) $27,070
========= ======= ======= ======== ======= =======
(see notes to financial statements)
6
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
Increase (decrease) in cash
(dollar amounts in thousands)
Three Months Ended
March 31,
------------------
1994 1993
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17) $ (1,603)
Adjustments to reconcile net loss to cash
provided from operating activities-
Depreciation and amortization 2,680 2,566
Deferred income taxes - 1,405
Increase in certain working capital items 1,533 1,738
-------- --------
Net cash provided by operating activities 4,196 4,106
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (1,147) (1,263)
Cash reserved for capital improvements (678) (664)
Cash withdrawn from reserve for capital improvements 678 664
-------- --------
Net cash used in investing activities (1,147) (1,263)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of cash to partners (2,329) (2,329)
Payments on term loan (331) (303)
Net borrowings (repayments) under revolving
credit facility (357) 65
-------- --------
Net cash used in financing activities (3,017) (2,567)
-------- --------
INCREASE IN CASH 32 276
CASH AT BEGINNING OF PERIOD 213 168
-------- --------
CASH AT END OF PERIOD $ 245 $ 444
======== ========
(see notes to financial statements)
7
RED LION INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 1994
(unaudited)
1. General
Red Lion Inns Limited Partnership, a Delaware limited partnership
(the "Partnership"), was organized for the purpose of acquiring and
owning, through its subsidiary limited partnership, Red Lion Inns
Operating L.P., a Delaware limited partnership (the "Operating
Partnership"), ten Red Lion hotels (the "Hotels"). On April 14,
1987 (the date of the Partnership's inception), the Operating
Partnership acquired the Hotels from Red Lion, a California limited
partnership ("Red Lion"). Red Lion continues to operate and manage
the Hotels pursuant to a long-term management agreement (the
"Management Agreement"). The general partner of the Partnership
and Operating Partnership is Red Lion Properties, Inc. (the
"General Partner"), a wholly-owned subsidiary of Red Lion.
For further information regarding the organization of the
Partnership, reference is made to the Partnership's 1993 Annual
Report on Form 10-K, and to its registration statement on Form 8-
A, as amended, including exhibits, which was declared effective by
the Securities and Exchange Commission (the "Commission") on April
8, 1987.
2. Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Partnership and those of the Operating Partnership,
of which the Partnership owns 99 percent and the General Partner
owns one percent. All significant intercompany transactions and
accounts have been eliminated.
The Partnership has changed the presentation in the accompanying
consolidated statements of operations for the quarters ended
March 31, 1994 and 1993, of the operating revenues and expenses
relating to the Hotels managed by Red Lion. The new presentation
displays as the Partnership's gross revenues, the payments received
from Red Lion as the Partnership has determined that the Management
Agreement is in substance a lease agreement and that the gross
revenues and gross operating expenses of the Hotels are those of
Red Lion and not those of the Partnership. Previously, the total
operating revenues and expenses of the Hotels were displayed in the
Partnership's Consolidated Statement of Operations for additional
information purposes. The effect of this new presentation was to
reduce revenues and operating expenses by equal amounts of
$15,574,000 and $15,443,000 in the quarters ended March 31, 1994
and 1993, respectively. The other consolidated financial
statements have been conformed to align with the new presentation
in the statement of operations.
There was no effect in any period on reported operating income, net
income (loss), net income (loss) per limited partner unit, cash
flow available for distribution and incentive management fees or
partners' capital as a result of this presentation change. There
was no change in the Management Agreement. In connection with the
presentation change, the Partnership filed an amended Annual Report
on Form 10-K/A on May 9, 1994.
8
Certain information and footnote disclosures included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance
with the rules and regulations of the Commission. The interim
financial statements should be read in conjunction with the audited
financial statements included in the Partnership's 1993 Annual
Report on Form 10-K, as amended.
The operating results for the Current Quarter do not necessarily
indicate the results expected for the full 1994 year.
In the opinion of management, the accompanying interim financial
statements contain all necessary adjustments, which are of a normal
recurring nature, to present fairly the Partnership's financial
condition and results of operations as of March 31, 1994 and for
the quarter then ended ("the Current Quarter").
3. Related Party Transactions
Amounts payable to affiliate of $10,057,000 consist of amounts
payable to Red Lion for construction costs, payroll and payroll
taxes, support services, base and current incentive management
fees, operating supplies, furnishings and equipment and other
current liabilities arising out of normal operations in accordance
with the Management Agreement. Amounts payable to affiliate also
include the Hotels' net working capital, consisting of accounts
payable, certain taxes other than property, income and payroll
taxes, cash held in hotel accounts, accounts receivable,
inventories and prepaid expenses. Such net working capital
amounted to $2,314,000 and $2,618,000 at March 31, 1994 and 1993,
respectively. Amounts payable to affiliate which are outstanding
for more than 30 days incur interest at a Prime-based interest
rate.
Included in long-term debt is a $3.7 million non-interest bearing
loan made to the Partnership by the General Partner and $6 million
of non-interest bearing deferred incentive management fees owed to
Red Lion.
4. Income Taxes
The Partnership is not currently subject to income taxes because
its income is taxed directly to the partners. During 1987,
Congress passed the Omnibus Budget Reconciliation Act which, among
other things, treats certain publicly traded partnerships as
corporations for tax purposes for the years beginning after
December 31, 1987. Publicly-traded partnerships in existence prior
to December 18, 1987, such as the Partnership, will not be treated
as corporations, for tax purposes, for ten years or until taxable
years beginning after December 31, 1997. The effect of treating
publicly traded partnerships as corporations will be to tax the
income of the Partnership at the entity level and reflect
distributions to partners as dividends.
In First Quarter 1993, the Partnership adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS109). This statement requires, among other things, the
recording of deferred income taxes based on the difference between
the financial statement and income tax bases of assets and
9
liabilities using the enacted marginal income tax rate. The
cumulative effect of this accounting change resulted in a non-cash
charge to income of $1,351,000, or $.32 per unit in the First
Quarter of 1993. This charge reflects the tax effect, as of
January 1, 1993, of cumulative differences between the book
and tax bases of the Partnership's assets from depreciation
differences that are estimated to exist after the Partnership
becomes a taxable entity. The Partnership has determined that
no further adjustments to deferred income taxes were necessary
during the three months ended March 31, 1994.
5. Supplemental Cash Flow Disclosure
During the quarter ended March 31, 1994 and 1993, the Partnership
made interest payments amounting to $2,566,000 and $2,541,000,
respectively.
Item 2. Management's Discussion and Analysis of Financial
- - ---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- - ---------------------
As discussed in note 2 above, the Partnership displays as its gross
revenues the payments received from Red Lion which equal the gross
operating profit of the Hotels. The following table defines the
gross operating profit of the Hotels:
Three Months Ended
March 31,
------------------
1994 1993
---- ----
HOTEL REVENUES:
Room $12,457 $12,182
Food and beverage 7,887 7,902
Other 2,248 2,065
------- -------
Total revenues 22,592 22,149
HOTEL OPERATING COSTS AND EXPENSES:
Rooms 3,277 3,247
Food and beverage 6,459 6,509
Other 873 883
Administrative and general 2,108 1,994
Sales, promotion and advertising 1,133 1,069
Utilities 801 824
Repairs and maintenance 923 917
------- -------
Total operating costs and expenses 15,574 15,443
------- -------
Gross operating profit of Hotels
managed by Red Lion $ 7,018 $ 6,706
======= =======
/TABLE
10
Partnership Revenues: Revenues which, as noted above, represent
the payments received from Red Lion, increased to $7.0 million from
$6.7 million in the comparable 1993 quarter, an increase of $.3
million, or 4.7%. The changes in specific revenues and expenses,
including those of the Hotels that affect the payments received
from Red Lion and thus the Partnership's revenues and operating
results, are discussed below.
Hotel Revenues: For the Current Quarter, room revenues increased
to $12.5 million from the prior year quarter's $12.2 million, an
increase of $.3 million, or 2.3%. The increase is due to a higher
average room rate resulting from an improvement in the mix of room
sales. Overall occupancy was essentially unchanged from the prior
year quarter.
Operating results are affected by seasonality. The current period
results reflect the winter and early spring seasons in which
revenues are typically lower than in the second and third quarters.
A summary of occupancy and room rates for the Hotels as follows:
Three Months Ended
March 31,
------------------
1994 1993
---- ----
Occupancy Percentage 67.1% 67.2%
Average Room Rate $67.25 $65.61
Food and beverage revenues were unchanged from the prior year
quarter at $7.9 million. Higher banquet revenues were offset by
lower demand in the restaurants and lounges.
Operating Income: Operating income before depreciation and
amortization increased to $5.2 million from $4.9 million in the
prior year quarter, an increase of $.3 million, or 6.4%. The
increase is predominantly due to the increase in hotel revenues
discussed above. After depreciation and amortization expense,
operating income increased to $2.5 million from $2.3 million in the
prior year quarter, an increase of $.2 million, or 8.4%.
Net Loss: Before the prior year quarter's cumulative effect of a
change in accounting for income taxes, the net loss improved by $.2
million, or $.06 per unit from the prior year quarter. The
improvement is due primarily to the increase in revenues and
operating income discussed above.
11
Cash Flow Available for Distribution and Incentive Management Fee:
As defined in the Management Agreement, cash flow available for
distributions and incentive management fee ("Cash Flow") is net
income (or loss) before non-cash charges (principally depreciation
and amortization) and incentive management fee, but after the
reserve for capital improvements and principal payments on mortgage
debt. Cash Flow increased in the first quarter of 1994 to $1.7
million from the prior year quarter's $1.4 million, an increase of
$.3 million, or 21.4%. The increase in Cash Flow is due to the
higher operating income discussed above.
Liquidity
- - ---------
During the Current Quarter, cash provided by operating activities
was sufficient to satisfy operating cash requirements. It is
expected that, for 1994, cash provided by both operations and the
lending facility discussed below, or other sources, will be
sufficient to meet anticipated cash requirements.
The Operating Partnership has the availability of a $14.1 million
revolving loan facility. During the Current Quarter, average
borrowings under the facility were $11.5 million. The interest
rate on the outstanding balance averaged 4.6% for the quarter. At
March 31, 1994, the balance outstanding under the line, included
under long-term debt on the accompanying balance sheet, was $11.5
million.
On April 20, 1994, the General Partner declared a quarterly cash
distribution of $.55 per unit ($2.20 annualized) for the Current
Quarter, payable on May 13, 1994, to unitholders of record on
April 30, 1994. This distribution has been accrued in the
accompanying financial statements.
Cash flow available for distribution and incentive management fees
was insufficient, as defined in the Management Agreement, for the
quarters ended March 31, 1994 and 1993 (thousands):
Three Months Ended
March 31,
------------------
1994 1993
---- ----
Net Loss $( 17) $(1,603)
Add (deduct):
Depreciation and amortization 2,680 2,566
Deferred income taxes -- 1,405
Cash reserved for capital improvements ( 678) ( 664)
Repayments on term loan ( 331) ( 303)
------- ------
Cash flow available for distribution and
incentive management fees 1,654 1,401
Cash required for priority distribution (2,329) (2,329)
------- -------
Cash flow deficit for incentive
management fees $( 675) $( 928)
======= =======
/TABLE
12
The Current Quarter accrued distribution exceeded cash flow
available for distribution and incentive management fees for the
Current Quarter by $675,000. The deficit, as in prior years, is
funded from the sources discussed above. As noted in the
discussion of operations above, operations of the Hotels are
affected by seasonality with summer and fall revenues typically
higher than winter revenues. Operating results for the interim
period do not necessarily indicate the results expected for the
full year.
Capital Resources
- - -----------------
During the Current Quarter, gross expenditures on capital
improvements amounted to $1.1 million.
13
RED LION INNS LIMITED PARTNERSHIP
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter for which this report is being filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized in the City
of Vancouver, Washington, on the 13th day of May 1994.
RED LION INNS LIMITED PARTNERSHIP
(Registrant)
By: RED LION PROPERTIES, INC.
Its sole General Partner
By: /s/ DAVID J. JOHNSON
--------------------------
David J. Johnson
President and
Chief Executive Officer