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 June 30, 1995
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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
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Red Lion Inns Limited Partnership
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(Exact name of registrant as specified in its
charter)
Delaware 94-3029959
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Main Street, Vancouver, Washington 98663
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(Address of principal executive offices) (Zip Code)
(360) 696-0001
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(Registrant's telephone number, including area code)
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(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
--- ---.
1
RED LION INNS LIMITED PARTNERSHIP
REPORT ON FORM 10-Q
For the quarter ended June 30, 1995
Table of Contents
Page
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PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited):
Consolidated Statements of Income 3-4
Consolidated Balance Sheets 5
Consolidated Statement of Partners' Capital 6
Consolidated Condensed Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
2
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
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RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
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CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands except per unit amounts)
(unaudited)
Three Months Ended
June 30,
--------
1995 1994
---- ----
REVENUES $ 11,222 $ 10,209
OPERATING COSTS AND EXPENSES:
Property taxes 735 514
Base management fee 853 802
Incentive management fee 2,553 1,635
Depreciation and amortization 2,170 2,731
Other 466 534
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Total operating costs and expenses 6,777 6,216
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Operating income 4,445 3,993
INTEREST EXPENSE 2,890 2,580
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Income before income taxes 1,555 1,413
Income tax provision -- --
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NET INCOME $ 1,555 $ 1,413
========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 31 $ 28
========== ==========
Limited Partners $ 1,524 $ 1,385
========== ==========
NET INCOME PER LIMITED PARTNER
UNIT $0.37 $0.33
========== ==========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500
========== ==========
(see notes to financial statements)
3
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
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CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands except per unit amounts)
(unaudited)
Six Months Ended
June 30,
--------
1995 1994
---- ----
REVENUES $ 18,952 $ 17,227
OPERATING COSTS AND EXPENSES:
Property taxes 1,382 1,213
Base management fee 1,562 1,480
Incentive management fee 2,553 1,635
Depreciation and amortization 4,933 5,411
Other 1,099 951
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Total operating costs and expenses 11,529 10,690
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Operating income 7,423 6,537
INTEREST EXPENSE 5,638 5,141
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Income before income taxes 1,785 1,396
Income tax provision -- --
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NET INCOME $ 1,785 $ 1,396
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ALLOCATION OF NET INCOME:
General Partner $ 36 $ 28
========== ==========
Limited Partners $ 1,749 $ 1,368
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NET INCOME PER LIMITED PARTNER
UNIT $0.42 $0.33
========== ==========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500
========== ==========
(see notes to financial statements)
4
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
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CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1995 1994
---- ----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ -- $ --
Prepaid property taxes 138 --
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Total current assets 138 --
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PROPERTY AND EQUIPMENT:
Land 17,705 17,705
Buildings and improvements 162,168 159,602
Furnishings and equipment 52,067 51,638
Construction in progress 2,044 1,454
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233,984 230,399
Less -- accumulated depreciation (70,068) (65,226)
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163,916 165,173
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DEFERRED LOAN COSTS, net 605 32
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Total assets $164,659 $165,205
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to affiliate $ 15,824 $ 12,322
Accrued distributions to partners 2,329 2,329
Interest payable 437 800
Property taxes 218 392
Current portion long-term debt 114,565 1,500
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Total current liabilities 133,373 17,343
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LONG-TERM DEBT, NET OF CURRENT PORTION 9,726 123,430
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DEFERRED INCOME TAXES 1,401 1,401
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PARTNERS' CAPITAL:
Limited Partners, 4,940,000 units issued 32,756 35,554
Less - 806,500 treasury units, at cost (11,202) (11,202)
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Limited Partners, net 21,554 24,352
General Partner (1,395) (1,321)
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Total partners' capital 20,159 23,031
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Total liabilities and partners' $164,659 $165,205
capital ======== ========
(see notes to financial statements)
5
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the six months ended June 30, 1995
(dollar amounts in thousands)
(unaudited)
Limited Partners
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Issued Units Treasury Units
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General
Units Amount Units Amount Partner Total
----- ------ ----- ------ ------- -----
Balance at December 31, 1994 4,940,000 $35,554 (806,500) $(11,202) $(1,321) $23,031
Distributions to partners -- (4,547) -- -- (110) (4,657)
Net income -- 1,749 -- -- 36 1,785
--------- ------- -------- -------- ------- -------
Balance at June 30, 1995 4,940,000 $32,756 (806,500) $(11,202) $(1,395) $20,159
========= ======= ======== ======== ======= =======
(see notes to financial statements)
6
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(in thousands)
(unaudited)
Six Months Ended
June 30,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,785 $ 1,396
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 4,933 5,411
Amortization of other assets
(principally deferred loan costs) 234 --
Change in certain current assets and liabilities 2,827 2,290
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Net cash provided by
operating activities 9,779 9,097
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (3,676) (3,788)
Cash reserved for capital improvements (1,562) (1,480)
Cash withdrawn from reserve for capital improvements 1,562 1,480
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Net cash used in investing activities (3,676) (3,788)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of cash to partners (4,657) (4,657)
Payments on term loan (733) (670)
Net borrowings on revolving credit facility 94 165
Other financing activities (807) --
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Net cash used in financing activities (6,103) (5,162)
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INCREASE IN CASH -- 147
CASH AT BEGINNING OF PERIOD -- 213
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CASH AT END OF PERIOD $ -- $ 360
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(see notes to financial statements)
7
Notes to Consolidated Financial Statements
June 30, 1995
(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.
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.
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 Securities and Exchange Commission. The interim financial statements should
be read in conjunction with the audited financial statements included in the
Partnership's 1994 Annual Report on Form 10-K.
Revenues reported in the accompanying statements of income represent the gross
operating profits of the Hotels which is credited to the Partnership from Red
Lion under the terms of the management agreement.
The operating results for the current quarter ended June 30, 1995 (the "Current
Quarter"), and the six months then ended do not necessarily indicate the results
expected for the full 1995 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, cash flows and results of
operations for the Current Quarter and the six months ended June 30, 1995.
8
3. Related Party Transactions
Amounts payable to affiliate of $15,824,000 at June 30, 1995, 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 an offset for the Hotels' net working capital items which
consist of cash held in hotel accounts, accounts receivable, inventories,
prepaid expenses, hotel accounts payable, certain taxes other than property,
income and payroll taxes. These balances are due in the normal course of
business. Such net working capital items amounted to $2,378,000 and $2,019,000
at June 30, 1995 and 1994, respectively. Amounts payable to affiliate which
are outstanding for more than 30 days incur interest at a Prime-based interest
rate ( 9.50% at June 30, 1995).
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
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. Additional costs to the Partnership for such taxes would reduce the
amount available for distribution to the partners.
In 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 liabilities
using the enacted marginal income tax rate. The Partnership determined that no
adjustment to deferred income taxes was necessary during the three and six
months ended June 30, 1995.
5. Supplemental Cash Flow Disclosure
During the six-month periods ended June 30, 1995 and 1994, the Partnership made
interest payments amounting to $5,767,000 and $5,135,000, respectively.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operating Revenues and Expenses of the Hotels
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(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
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1995 1994 1995 1994
---- ---- ---- ----
REVENUES:
Rooms $17,105 $15,658 $30,468 $28,115
Food and beverage 8,671 8,609 16,624 16,496
Other 2,654 2,440 4,976 4,688
------- ------- ------- -------
Total revenues 28,430 26,707 52,068 49,299
OPERATING COSTS AND EXPENSES:
Departmental direct expenses
Rooms 3,999 3,588 7,482 6,865
Food and beverage 6,874 6,780 13,314 13,239
Other 986 965 1,895 1,838
Administration and general 2,278 2,225 4,429 4,333
Sales, promotion and advertising 1,282 1,153 2,475 2,286
Utilities 738 809 1,500 1,610
Repairs and maintenance 1,051 978 2,021 1,901
------- ------- ------- -------
Total operating costs and 17,208 16,498 33,116 32,072
expenses ------- ------- ------- -------
Gross operating profit of Hotels $11,222 $10,209 $18,952 $17,227
======= ======= ======= =======
Partnership Revenues: For the Current Quarter, revenues (which represent the
amounts credited from Red Lion) increased to $11.2 million from $10.2 million in
the comparable 1994 quarter, an increase of $1.0 million, or 9.9%. For the six
months ended June 30, 1995, revenues increased to $18.9 million from $17.2
million in the comparable 1994 period, an increase of $1.7 million or 10.0%.
The changes in specific revenues and expenses, including those of the Hotels
that affect the amounts credited from Red Lion and thus the Partnership's
revenues and operating results, are discussed below.
Gross Revenues of the Hotels: For the Current Quarter, room revenues increased
to $17.1 million from $15.7 million, an increase of $1.4 million, or 9.2% from
the prior year quarter. For the six months ended June 30, 1995, room revenues
increased to $30.5 million from $28.1 million, an increase of $2.4 million or
8.4%. The increase in room revenues for the Current Quarter and six months
ended June 30, 1995, is due to an increase in occupancy and higher room rates.
10
A summary of occupancy and room rates for the Hotels follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1995 1994 1995 1994
---- ---- ---- ----
Occupancy Percentage 80.9% 78.1% 73.9% 72.6%
Average Room Rate $75.87 $71.81 $74.35 $69.72
For the Current Quarter and six months ended June 30, 1995, food and beverage
revenues, at $8.7 million and $16.6 million, respectively, were essentially
unchanged from the prior year periods.
Other revenues for the Current Quarter and six-month period increased by $.2
million (8.8%) and $.3 million (6.1%), respectively, due to the increase in
occupancy and higher meeting room and equipment rentals.
Operating results are affected by seasonality. The Current Quarter results
reflect spring and early summer in which revenues are typically lower than in
the third quarter but higher than in the first quarter. There can be no
assurance, however, that such trends will continue.
Operating Income: For the Current Quarter, operating income before incentive
management fee, depreciation and amortization increased to $9.2 million from
$8.4 million, an increase of $.8 million, or 9.7%. As a percentage of Hotel
gross revenues, this item increased to 32.2% from 31.3% in the prior year
quarter, an increase of approximately 1 point. For the six months ended June
30, 1995, operating income before incentive management fee, depreciation and
amortization increased to $14.9 million from the comparable prior year period
amount of $13.6 million, an increase of $1.3 million, or 9.8%. As a percentage
of Hotel gross revenues, this item increased to 28.6% from 27.6% in the prior
year, an increase of 1 point. These increases reflect the improvement in
operations discussed above.
Net Income: For the Current Quarter, net income was $1.6 million ($.37 per unit)
compared to the prior year quarter's $1.4 million ($.33 per unit). For the six
months ended June 30, 1995, net income was $1.8 million ($.42 per unit) compared
to the comparable prior year period amount of $1.4 million ($.33 per unit). The
Current Quarter and six-month amounts reflect higher incentive management fees
which resulted from an increase in cash flow available for incentive management
fees.
11
Cash Flow Available for Distribution and Incentive Management Fees: As defined
in the Management Agreement, cash flow available for distributions and incentive
management fees ("Cash Flow") is net income (or loss) before non-cash charges
(primarily depreciation and amortization) and incentive management fees but
after the reserve for capital improvements and principal payments on mortgage
debt. Cash Flow increased in the Current Quarter to $5.3 million ($1.25 per
limited partner unit) from the prior year quarter's $4.6 million ($1.10 per
limited partner unit), an increase of $.7 million, or 14%. Cash Flow for the
six months ended June 30, 1995 increased to $7.2 million ($1.70 per limited
partner unit) from the comparable prior year period's $6.3 million ($1.49 per
limited partner unit) an increase of $.9 million, or 14.6%. The increase in
Cash Flow is due to improved operations.
Liquidity
---------
During the Current Quarter, cash provided by operating activities was sufficient
to satisfy operating cash requirements. It is expected that, for 1995, 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 $12.7 million. As of June 30, 1995 the interest rate was 8.8% and the
balance outstanding was $12.8 million.
In April 1995 pursuant to a commitment obtained in January 1995, the
Partnership's lenders extended the maturity of the Partnership's mortgage note
and the line of credit for one year to April 14, 1996. At June 30, 1995, the
mortgage note balance was $101.7 million.
On July 18, 1995, the General Partner declared a quarterly cash distribution of
$.55 per unit ($2.20 annualized) for the Current Quarter, payable on August 15,
1995, to unitholders of record on July 31, 1995. This distribution has been
accrued in the accompanying financial statements.
12
Cash Flow, as defined in the Management Agreement, for the quarters ended June
30, 1995 and 1994 is presented below (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1995 1994 1995 1994
---- ---- ---- ----
Net Income (loss) $ 1,555 $ 1,413 $ 1,785 $ 1,396
Add (deduct):
Depreciation and amortization
(including deferred loan costs) 2,404 2,731 5,167 5,411
Incentive management fee 2,553 1,635 2,553 1,635
Deferred income taxes -- -- -- --
Cash reserved for capital improvements (853) (802) (1,562) (1,480)
Repayments on term loan (370) (339) (733) (670)
------- ------- ------- -------
Cash flow available for distribution and
incentive management fees 5,289 4,638 7,210 6,292
Cash required for priority distribution (2,329) (2,329) (4,657) (4,657)
------- ------- ------- -------
Cash flow available for incentive
management fees $ 2,960 $ 2,309 $ 2,553 $ 1,635
======= ======= ======= =======
The year-to-date cash flow available for distribution and incentive management
fees exceeded accrued cash distributions by $2,553,000. The Partnership accrued
an incentive management fee in the same amount at June 30, 1995. As noted in
the discussion of operations above, the 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
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During the six months ended June 30, 1995, gross expenditures on capital
improvements amounted to $3.7 million.
13
RED LION INNS LIMITED PARTNERSHIP
PART II: OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
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(a) Exhibits: Exhibit 27 - Article 5 Financial Data Schedule for 2nd Quarter
10-Q.
(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 14th day of August 1995.
RED LION INNS LIMITED PARTNERSHIP
---------------------------------
(Registrant)
By: RED LION PROPERTIES, INC.
Its sole General Partner
By: /s/ David J. Johnson
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David J. Johnson
President and Chief Executive Officer
14
INDEX OF EXHIBITS
Exhibit
Number
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27 Article 5 Financial Data Schedule for 2nd Quarter 10-Q
15