UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
-----------------
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
incorporation or organization) Identification No.)
4001 Main Street, Vancouver, Washington 98663
- - --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 696-0001
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Units representing limited partnership
interests American Stock Exchange
- - -------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act
None
----
(Title of Class)
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
The undersigned registrant hereby amends the cover page
and the following items in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
filed with the Securities and Exchange Commission on
March 30, 1994:
Table of Contents
Page
----
Part II, Item 6-Selected Financial Data 3
Item 7-Management's Discussion and Analysis
of Financial Condition and Results of Operations 4-8
Item 8-Financial Statements and Supplementary
Data:
Consolidated Statements of Income for the years
ended December 31, 1993, 1992 and 1991 9
Consolidated Balance Sheets as of December 31,
1993 and 1992 10
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1992
and 1991 11
Consolidated Statements of Partners' Capital for
the years ended December 31, 1993, 1992
and 1991 12
Notes to Consolidated Financial Statements 13-22
Report of Independent Public Accountants 23
Part IV, Item 14-Exhibits, Financial Statement
Schedules and Reports on Form 8K 24-28
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this amendment to be signed on its behalf by the
undersigned, thereto duly authorized on the 6th day of May
1994.
Red Lion Inns Limited Partnership
By: Red Lion Properties, Inc.
Its sole General Partner
By: /s/DAVID J. JOHNSON
-------------------
David J. Johnson
President and
Chief Executive Officer
3
PART II
ITEM 6 - SELECTED FINANCIAL DATA:
(in thousands, except for operating statistics)
Year Ended December 31,
-----------------------------------------------------------------
(unaudited)
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
Financial Data:
Partnership revenues (a)..... $32,510 $31,659 $30,826 $30,654 $30,302
Hotel Operating Data:
Gross operating revenues
of the Hotels.............. 96,237 95,745 96,959 94,712 91,304
Hotel gross operating
profit as a percentage of
operating revenues......... 33.8% 33.1% 31.8% 32.4% 33.2%
Number of rooms at end
of period.................. 3,069 3,071 3,075 3,075 3,075
Occupancy percentage (b)..... 73.3% 72.7% 73.0% 70.7% 71.4%
Average room rate (c)........ $ 66.67 $ 64.56 $ 63.58 $ 62.97 $ 60.86
December 31,
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Balance Sheet Data:
Total assets ................ $168,043 $171,873 $176,095 $180,537 $185,422
Total liabilities ........... 138,627 134,998 132,944 131,122 127,960
Partners' capital ........... 29,416 36,875 43,151 49,415 57,462
<FN>
(a) The Partnership revenues represent payments received from
Red Lion. Refer to Note 1 of the financial statements
for a discussion of the change in the presentation of
Partnership revenues.
(b) Calculated on a per available room per year basis.
(c) Based on rooms occupied.
4
Item 7 Management's Discussion and Analysis of Financial
- - ------------------------------------------------------------
Condition and Results of Operations
-----------------------------------
As discussed in Note 1 to the financial statements, the
Partnership has changed the presentation in the accompanying
consolidated statements of income for the years ended December
31, 1993, 1992 and 1991, of the operating revenues and expenses
relating to the Hotels managed by Red Lion, a California
limited partnership. 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 Income for additional
information purposes. The effect of this new presentation was
to reduce revenues and operating expenses by equal amounts of
$63,727,000, $64,086,000, and $66,133,000 in 1993, 1992 and
1991, respectively. Additional information about the revenues and
operating expenses of the Hotels is included in Note 8 of the
financial statements. The other consolidated financial
statements and the related notes have been conformed to align
with the new presentation in the income statement.
There was no effect in any year on reported operating income,
net income, net income 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 to the Management Agreement.
5
FISCAL 1993 COMPARED TO FISCAL 1992
- - -----------------------------------
REVENUES: Revenues, which as noted above, represent the
payments received from Red Lion, increased to $32.5 million
in 1993 from $31.7 million in 1992, an increase of $.8 million
or 2.5%. The changes in specific revenues and expenses,
including those of the Hotels which affect the payments received
from Red Lion and thus the Partnership's revenues and operating
results, are discussed below.
GROSS REVENUES OF THE HOTELS: Room revenues increased $2.1
million, or 4%, in 1993 while total revenues increased by a
smaller increment of $.5 million to $96.2 million from the
prior year's $95.7 million. The dampening effect on revenues was
primarily due to a $1.4 million decline in food and beverage
revenues caused by lower demand in the food and beverage
outlets, and the temporary closing of some outlets for renovations.
Of the $2.1 million (4%) increase in room revenues, the
majority, $1.7 million (3%), was due to higher room rates related to
improvements in the market segment mix. The average daily rate
increased 3% to $66.67 from $64.56 in the prior year. Average
occupancy increased .6 percentage points to 73.3% from 72.7% in
the prior year.
OPERATING INCOME: Operating income before depreciation,
amortization and incentive management fees increased $.6
million, or 3%, in 1993 compared to the prior year. Contributing
to the increase was a $1 million decline in workers' compensation
costs in 1993. Offsetting this were higher liability insurance
reserves ($.4 million) and lower food and beverage profits which
were caused by the soft demand discussed above. After depreciation,
amortization and the incentive management fee, operating income of $13.4
million was essentially unchanged from the prior year.
NET INCOME: Before the cumulative effect of a change in
accounting for income taxes, net income increased $.2 million primarily
because interest expense was lower in 1993. The $1.3 million
cumulative effect of the change in accounting for income taxes is a
non-cash charge to income resulting from the adoption, in January 1993,
of Statement of Financial Accounting Standards No. 109. This new
rule requires the Partnership to record income tax liabilities,
arising principally from current differences between book and tax
depreciation which will be in existence when the Partnership
becomes a taxable entity in 1998. For more information on this item,
see Note 3 to the Partnership's 1993 consolidated financial
statements.
CASH FLOW AVAILABLE FOR DISTRIBUTIONS 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 1993 by $.3 million, or 3%, to $10.5
million from the prior year's $10.2 million. Cash Flow reflects loan
principal payments which were $.5 million higher in 1993 than
in 1992. After payment of $9.3 million of cash distributions in
1993 (unchanged from 1992), the Partnership had sufficient Cash Flow
to pay a current incentive management fee of $1.1 million in 1993
compared to $.9 million in 1992. For further discussion of
Cash Flow, see Note 6 to the Partnership's 1993 consolidated
financial statements.
The Partnership holds in its treasury 806,500 Units which it
repurchased, during the years 1987 through 1990, at an average
cost of $13.83 per Unit. The total cost of $11.2 million was funded
from
6
a combination of operating cash and the Partnership's $14.1
million revolving line of credit.
FISCAL 1992 COMPARED TO FISCAL 1991
- - -----------------------------------
REVENUES: Revenues increased to $31.7 million in 1992 from
$30.8 million in 1991, an increase of $.9 million, or 3%. The
changes in specific revenues and expenses, including those of the
Hotels which affect the payments received from Red Lion and thus the
Partnership's revenues and operating results, are discussed
below.
GROSS REVENUES OF THE HOTELS: Total revenues decreased $1.3
million (1.3%) in 1992 from $97 million to $95.7 million.
Room revenues increased $.7 million (1.3%) while food and
beverage revenues declined $2.4 million (6.4%). Minor
Operations revenues increased $.5 million (6.1%).
The room revenue increase reflected a higher average room rate,
up two percent from $63.58 in 1991 to $64.56 in 1992. The average
occupancy percentage remained essentially flat at 72.7 percent
compared to the prior year's 73.0 percent due to weaker
corporate demand which was attributed to the recession. The decline in
food and beverage revenues is attributed to weaker demand in banquet
and fine dining business principally due to the economic recession.
OPERATING INCOME: In spite of the overall revenue decline in
1992, operating income before depreciation, amortization and
incentive management fees increased $.9 million (3.9%) to $24.2 million
from $23.3 million. This increase reflected Red Lion's effective
cost controls and improved labor productivity in spite of higher
worker's compensation reserves ($.5 million) in 1992 over the prior
year. After depreciation, amortization and incentive management fee,
operating income was essentially unchanged at $13.4 million.
NET INCOME: Net income of $3 million was also essentially
unchanged in 1992. Interest expense was $.1 million lower than the prior
year and reflected lower interest rates in 1992.
CASH FLOW AVAILABLE FOR DISTRIBUTIONS AND INCENTIVE MANAGEMENT
FEE:
As defined in the management agreement, cash flow available for
distributions and incentive management fee is net income (or
loss) before non-cash charges (principally depreciation and
amortization) and incentive management fee but after the reserve
for capital improvements. This item, which was reduced by contractual
principal payments of $.8 million in 1992, increased $.2 million
to $10.2 million from $10 million in 1991. Excluding the effect of
those principal payments, cash flow available for distributions and
incentive management fee increased $1 million. After payment
of $9.3 million of cash distributions in 1992 (unchanged from
1991), the Partnership had sufficient cash flow to pay current
incentive management fee of $.9 million, in 1992, compared to
$.7 million in 1991.
7
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Partnership's principal source of cash is Hotel operations.
During the three years ended December 31, 1993, the Hotels have
generated sufficient cash from operations to cover operating
needs. 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 Partnership has in place a $14.1 million line of credit.
Borrowings under the line averaged $11,784,000, $11,791,000,
and $11,237,000 during 1993, 1992 and 1991, respectively, and
equaled $11,827,000 at December 31, 1993. The average interest cost
for borrowings under the line in 1993, 1992 and 1991 was 4.6
percent, 5.2 percent, and 7.5 percent for those years, respectively.
For further discussion of the Partnership's credit facilities, see
Note 5 to the Partnership's consolidated financial statements.
During 1993, 1992 and 1991, the Partnership made total capital
investments amounting to $6,389,000, $6,251,000, and
$4,926,000, respectively. Major improvements included guest room
renovations, common area refurbishments and replacement of telephone and
computer systems.
Funding of the capital improvements reserve, which was
established in May 1987, amounted to $2,887,000, $2,872,000,
and $2,909,000 in 1993, 1992 and 1991, respectively. Cash invested
above the reserved amounts has been funded predominately from
the line of credit described above. At December 31, 1993,
the Partnership had commitments, related to capital improvement
projects, of $547,000.
During 1993, 1992 and 1991, the Partnership's cash flow
available for distribution covered 100 percent of the priority cash
distributions and also allowed for payment of a current
incentive management fee to Red Lion of $1,142,000, $897,000, and
$700,000, respectively.
The Partnership holds in its treasury 806,500 Units which it
repurchased during the years 1987 through 1990, at an average
cost of $13.83 per Unit. The total cost of $11.2 million was funded
from a combination of operating cash and the Partnership's $14.1
million revolving line of credit.
INCOME TAXES: As discussed in Note 3 to the consolidated
financial statements, Congress passed, in 1987, 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, will not
be treated as corporations, for tax purposes, for ten years from
the effective date of the 1987 law or until
8
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.
During the first quarter of 1993, the Partnership adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). 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
cumulative effect of this accounting change resulted in a first
quarter non-cash charge to income of $1,351,000, or $.32 per
unit. 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.
SEASONALITY: Operations of the Hotels are affected by
seasonality. Revenues are typically lower in winter periods than in
summer periods.
INFLATION: The effects of inflation, as measured by fluctuations in
the Consumer Price Index, have not had a material impact on the
Partnership's revenues or net income during the three years
covered by this report.
9
CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per unit amounts)
Year Ended December 31,
--------------------------------
1993 1992 1991
--------- --------- ---------
REVENUES ........................... $ 32,510 $ 31,659 $ 30,826
OPERATING COSTS AND EXPENSES:
Property taxes ................... 2,791 2,891 2,645
Base management fees ............. 2,887 2,872 2,909
Incentive management fees ........ 1,142 897 700
Depreciation and amortization .... 10,249 9,924 9,173
Other ............................ 2,017 1,708 1,994
--------- --------- --------
Total Operating Costs and Expenses . 19,086 18,292 17,421
--------- --------- ---------
Operating income ................... 13,424 13,367 13,405
INTEREST EXPENSE ................... 10,218 10,329 10,408
--------- --------- ---------
Income Before Cumulative Effect of
Change in Accounting Principle ... 3,206 3,038 2,997
Cumulative Effect of Change in
Accounting for Income Taxes ...... <1,351> -- --
--------- --------- ---------
NET INCOME ......................... $ 1,855 $ 3,038 $ 2,997
========= ========= =========
ALLOCATION OF NET INCOME:
General Partner .................. $ 37 $ 60 $ 60
========= ========= =========
Limited Partners ................. $ 1,818 $ 2,978 $ 2,937
========= ========= =========
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE
PER LIMITED PARTNER UNIT ......... $ 0.76 $ 0.72 $ 0.71
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES PER
LIMITED PARTNER UNIT ............. (0.32) -- --
--------- --------- ---------
NET INCOME PER LIMITED PARTNER UNIT. $ 0.44 $ 0.72 $ 0.71
========= ========= =========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING ...................... 4,133,500 4,133,500 4,133,500
========= ========= =========
The accompanying notes are an integral part of these
consolidated statements.
10
CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands)
As of December 31,
-------------------
1993 1992
-------- --------
ASSETS
Cash ........................................ $ 213 $ 168
PROPERTY AND EQUIPMENT:
Land ........................................ 17,713 17,713
Buildings and improvements .................. 156,573 155,622
Furnishings and equipment ................... 45,764 42,656
Construction in progress .................... 2,888 1,732
-------- --------
222,938 217,723
Less--accumulated depreciation .............. (55,254) (46,278)
-------- --------
167,684 171,445
DEFERRED LOAN COSTS, net ...................... 146 260
-------- --------
$168,043 $171,873
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to affiliate ........................ $ 8,355 $ 4,669
Accrued distributions to partners ........... 2,329 2,329
Interest payable ............................ 793 802
Property taxes............................... 405 430
Current portion long-term debt .............. 1,371 1,254
-------- --------
Total current liabilities ............... 13,253 9,484
-------- --------
LONG-TERM DEBT NET OF CURRENT PORTION ......... 124,023 125,514
-------- --------
DEFERRED INCOME TAXES ......................... 1,351 --
-------- --------
PARTNERS' CAPITAL:
Limited Partners, 4,940,000 units issued .... 41,777 49,053
Less--806,500 treasury units, at cost ....... (11,202) (11,202)
-------- --------
Limited Partners, net ....................... 30,575 37,851
General Partner ............................. (1,159) (976)
-------- --------
Total partners' capital ................. 29,416 36,875
-------- --------
$168,043 $171,873
======== ========
The accompanying notes are an integral part of these
consolidated statements.
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash (dollar amounts in thousands)
Year Ended December 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ..................... $ 1,855 $ 3,038 $ 2,997
Adjustments to reconcile net
income to cash provided by
operating activities--
Depreciation and
amortization ............. 10,249 9,924 9,173
Deferred income taxes ...... 1,351 -- --
Accrued incentive management
fee ...................... (667) (631) (1,025)
Increase in payables and
accruals ................. 4,319 2,169 1,274
--------- --------- ---------
Net cash provided by
operating activities ........ 17,107 14,491 12,419
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment .................... (6,374) (5,125) (4,229)
Cash reserved for capital
improvements ................. (2,887) (2,872) (2,909)
Cash withdrawn from reserve for
capital improvements ......... 2,887 2,872 2,909
--------- --------- ---------
Net cash used in investing
activities ................... (6,374) (5,125) (4,229)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distribution of cash to partners (9,314) (9,314) (9,208)
Payments on term loan .......... (1,254) (776) --
Net borrowings (repayments)
under revolving credit
facility ..................... (120) 247 872
--------- --------- ---------
Net cash used in financing
activities ................... (10,688) (9,843) (8,336)
--------- --------- ---------
INCREASE (DECREASE) IN CASH ........ 45 (477) (146)
CASH AT BEGINNING OF YEAR .......... 168 645 791
--------- --------- ---------
CASH AT END OF YEAR ................ $ 213 $ 168 $ 645
========= ========= =========
The accompanying notes are an integral part of these consolidated
statements.
12
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(dollar amounts in thousands)
Limited Partners
------------------------------------------
Issued Units Treasury Units
-------------------- -------------------- General
Units Amount Units Amount Partner Total
--------- -------- --------- -------- ------- --------
Balance at December 31,
1990 ................ 4,940,000 $61,274 (806,500) $(11,202) $(657) $49,415
Distributions to partners -- (9,042) -- -- (219) (9,261)
Net income ............ -- 2,937 -- -- 60 2,997
--------- ------- -------- -------- ----- ------
Balance at December 31,
1991 ................ 4,940,000 55,169 (806,500) (11,202) (816) 43,151
Distributions to partners -- (9,094) -- -- (220) (9,314)
Net income ............ -- 2,978 -- -- 60 3,038
--------- ------- -------- -------- ----- ------
Balance at December 31,
1992 ................ 4,940,000 49,053 (806,500) (11,202) (976) 36,875
Distributions to partners -- (9,094) -- -- (220) (9,314)
Net income ............ -- 1,818 -- -- 37 1,855
--------- ------- -------- -------- ----- -------
Balance at December 31,
1993 ................ 4,940,000 $41,777 (806,500) $(11,202) $(1,159) $29,416
========= ======= ======== ======== ======= =======
The accompanying notes are an integral part of these consolidated
statements.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1993, 1992, and 1991.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Red Lion Inns Limited Partnership, a Delaware limited
partnership (the "Partnership"), and its subsidiary limited
partnership, Red Lion Inns Operating L.P. (the "Operating
Partnership"). The Partnership was organized in 1987 for the
purpose of acquiring and owning ten hotels (the "Hotels") from
Red Lion, a California Limited Partnership ("Red Lion") through
the Operating Partnership. The acquisition of the Hotels was
completed on April 14, 1987. All significant intercompany
transactions and accounts have been eliminated.
The Partnership has changed the presentation in the accompanying
consolidated statements of income for the years ended December 31,
1993, 1992 and 1991, 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
Income for additional information purposes. The effect of this
new presentation was to reduce revenues and operating expenses
by equal amounts of $63,727,000, $64,086,000, and $66,133,000 in
1993, 1992 and 1991, respectively. Additional information about
the revenues and operating expenses of the Hotels is included in
Note 8 of the financial statements. The other consolidated financial
statements and the related notes have been conformed to align
with the new presentation in the income statement.
There was no effect in any year on reported operating income,
net income, net income 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.
Property and Equipment
The Partnership recorded the April 14, 1987 acquisition of
property and equipment on the basis of an allocation of the
purchase price to the assets acquired. Subsequent additions and
improvements have been capitalized at their cost.
Normal repairs and maintenance are charged to hotel operating
expense as incurred. Upon sale or retirement of property and
equipment, the cost and related accumulated depreciation are
removed from the respective accounts and the resulting gain
or loss, if any, is included in income.
Base stock (linens, china, silverware and glassware) for new
hotels is depreciated to 50 percent of its initial cost on a
straight-line basis over a three year period. Subsequent
replacements are expensed when purchased. The carrying value of
base stock is included in furnishings and equipment in the
accompanying consolidated balance sheets.
14
Depreciation is computed on a straight-line basis using the
following estimated useful lives:
Buildings and improvements ........................... 5 to 35 years
Furnishings and equipment ............................ 3 to 15 years
Deferred Loan Costs
Deferred loan costs consist primarily of financing fees on the
Partnership's mortgage loan and are being amortized over the
eight year term of the loan.
Income Taxes
No current provision for federal or state income taxes has been
provided by the Partnership in the accompanying consolidated
financial statements since such taxes are the responsibility of
the individual partners (see Note 3).
Cash Distributions
The Partnership declares each quarterly distribution in the month
following the end of the quarter to which it applies. Fourth
Quarter distributions are accrued in the accompanying
consolidated balance sheets for both of the years presented.
2. ORGANIZATION:
The Partnership was formed on January 16, 1987, under the
Delaware Revised Uniform Limited Partnership Act and will
continue until December 31, 2062, unless sooner terminated under
the provisions of the partnership agreement. The Partnership was
formed to acquire, own and operate the Hotels through its 99
percent limited partnership interest in the Operating
Partnership.
Red Lion Properties, Inc. (the "General Partner"), a wholly-owned
subsidiary of Red Lion, is the General Partner of the Partnership
and the Operating Partnership. On April 14, 1987, the
Partnership completed an initial public offering of units
representing limited partnership interests ("units") totaling
$98.8 million. These proceeds, accompanied by a $105.9 million
mortgage loan, were used to acquire, through the Operating
Partnership, the Hotels from Red Lion for approximately $195
million. After completion of this acquisition, the Partnership's
limited partners have an effective 98.01 percent ownership
interest in the Hotels with the General Partner retaining the
remaining 1.99 percent ownership interest.
The allocation of the Partnership's profits and losses is based on
the relative ownership interests in accordance with the terms of
the partnership agreement. Cash flow available for distribution,
as defined in the partnership agreement, will generally be
distributed to the partners in proportion to their respective
ownership interests until certain preferential distributions are
achieved and then allocated to both the general and limited
partners depending on factors related to the source of the net
cash flow and cash distributions as specified in the partnership
agreement (see Note 6).
3. 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
15
beginning after December 31, 1987. Publicly-traded partnerships
in existence prior to December 18, 1987 will not be treated as
corporations, for tax purposes, for ten years from the effective
date of the 1987 law 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.
During the first quarter of 1993, the Partnership adopted
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). 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 cumulative effect of this accounting change resulted
in a first quarter non-cash charge to income of $1,351,000, or
$.32 per unit. 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 cumulative effect of the change in accounting method is
comprised of federal deferred income taxes of $1,209,000 and
state deferred income taxes, net of federal benefits, of
$142,000.
This accounting change also requires provision of deferred income
taxes resulting from the accumulation of book/tax depreciation
differences on assets acquired in periods after the effective
date of the change.
No additional deferred taxes were provided in 1993.
4. CASH RESERVE FOR CAPITAL IMPROVEMENTS:
A cash reserve for capital improvements has been established in
accordance with the provisions of the management agreement.
Funding of three percent of gross revenues is to be used for
renovations, refurbishments and other capital expenditures.
During the years ended December 31, 1993, 1992 and 1991,
$2,887,000, $2,872,000, and $2,909,000 respectively, was
accumulated, then withdrawn, from this reserve.
16
5. LONG-TERM DEBT:
Long-term debt at December 31 consists of the following (in
thousands):
1993 1992
-------- --------
Mortgage note, payable in varying
installments through April 14, 1995 ...... $103,841 $105,095
Revolving line of credit, due
April 14, 1995 ........................... 11,827 11,947
Non-interest bearing amounts payable to
Red Lion ................................. 9,726 9,726
-------- --------
Total long-term debt ....................... 125,394 126,768
Less current portion ....................... 1,371 1,254
-------- --------
$124,023 $125,514
======== ========
The mortgage note bears interest at a 9 percent fixed rate.
Payments on the mortgage note were interest only through April
13, 1992. Scheduled maturities on the mortgage note for the
years subsequent to 1993 are as follows: 1994 - $1,371,000 and
1995 - $102,470,000.
The revolving line of credit allows borrowings up to $14.1
million. This facility has been used to cover, among other items,
the cost of units repurchased and incurs interest at floating
interest rates. The weighted average interest rate on this
facility was 4.6 percent at December 31, 1993. The Partnership
must pay a nominal commitment fee on the unused portion of the
line. The line has no scheduled principal payments until its
expiration on April 14, 1995. Borrowings under the line averaged
$11,784,000, $11,791,000 and $11,237,000 during 1993, 1992 and
1991, respectively. The average interest rates for borrowings
under the line for the years ended December 31, 1993, 1992, and
1991 were 4.6 percent, 5.2 percent and 7.5 percent, respectively.
Both the credit line and mortgage note are secured by the Hotels.
Non-interest bearing amounts payable to Red Lion comprise
deferred incentive management fees of $6 million at December 31,
1993 and 1992 and amounts drawn against a $4 million General
Partner credit facility of $3,726,000 at December 31, 1993 and
1992. These items are more fully discussed in Note 6.
During the years ended December 31, 1993, 1992, and 1991, the
Partnership made total interest payments of $10,227,000,
$10,365,000, and $10,407,000, respectively.
Disclosures Concerning Fair Value of Financial Instruments:
Based on the borrowing rates currently quoted by financial
institutions for bank loans with terms and maturities similar to
the Partnerships mortgage debt, the carrying value of such debt
approximates its fair value.
17
6. CASH DISTRIBUTIONS TO PARTNERS:
Since inception, the Partnership has made quarterly cash
distributions to partners to the extent that cash flow has been
available for distribution as defined in the management
agreement.
The Partnership declared cash distributions of $9.3 million in
1993, 1992 and 1991. On a per unit basis, declared cash
distributions were $2.20 in both 1993 and 1992 and $2.1875 in
1991.
In accordance with the management agreement, Red Lion has
subordinated current payment of its incentive management fee (see
Note 8) to an amount sufficient to make annual priority
distributions. These priority distributions were $2.00 per unit
during the first 12 months of operations, increasing annually at
the rate of $.05 per unit until annual distributions reached
$2.20 per unit in the second quarter of 1991.
During 1993, 1992 and 1991, the Partnership's cash flow available
for distribution covered 100 percent of the priority cash
distributions and also allowed payment of current incentive
management fees to Red Lion of $1,142,000, $897,000 and $700,000
for those years, respectively.
For the first 36 months of operations, the General Partner also
agreed to make available to the Partnership a $4 million
non-interest bearing revolving credit facility which was to be
used in the event that cash flow available for distributions was
insufficient to make priority distributions. During the 36 month
period, which ended April 30, 1990, the General Partner was
required to fund $3,726,000 from the facility. This amount will
be repaid out of either (i) cash flow after payment of priority
distributions and incentive management fees, or (ii) sale or
refinancing proceeds prior to any distribution to limited
partners.
In connection with the subordination of incentive management fees
noted above, the Partnership reached, in 1988, the maximum
deferred amount of $6 million of such fees in accordance with the
management agreement. The deferred amount, which will not accrue
interest, will be paid out of either (i) 25 percent of cash flow
after payment of priority distributions and current incentive
management fees or (ii) sale or refinancing proceeds prior to any
distribution to limited partners.
18
Following is a calculation of 1993, 1992, and 1991 cash flow
available for distribution and related cash flow available for
payment of incentive management fees (in thousands):
1993 1992 1991
------- ------- -------
Net income .................... $ 1,855 $ 3,038 $ 2,997
Add (Deduct):
Depreciation and amortization 10,249 9,924 9,173
Incentive management fee .... 1,142 897 700
Cash reserved for capital
improvements .............. (2,887) (2,872) (2,909)
Repayments on term loan ..... (1,254) (776) --
Cumulative effect of change
in accounting for
income taxes .............. 1,351 -- --
------- ------- --------
Cash flow available for
distribution and incentive
management fee .............. 10,456 10,211 9,961
Distributions to partners ..... (9,314) (9,314) (9,261)
------- ------- --------
Cash flow available for payment
of incentive management fee . $ 1,142 $ 897 $ 700
======= ======= =======
7. LEASES:
Two of the Hotels hold leases on all or a portion of their land.
The leases contain rental provisions which are based on increases
in the Consumer Price Index. The terms of the leases exceed the
estimated remaining useful lives of the Hotels. The Partnership
leases certain equipment under operating leases. Total land and
equipment rent expenses for 1993, 1992 and 1991 were $88,000,
$128,000, and $198,000, respectively.
Future minimum rental payments, substantially all of which relate
to land leases, are as follows:
Minimum
Rental
Year Ending December 31, Payment
- - ------------------------ ----------
1994 $ 85,000
1995 98,000
1996 98,000
1997 98,000
1998 98,000
Thereafter 5,835,000
----------
$6,312,000
==========
19
8. RELATED PARTY TRANSACTIONS:
The General Partner is responsible for the management and
administration of the Partnership. In accordance with the
partnership agreement, the Partnership reimbursed the General
Partner for such services in the amount of $457,000 for 1993,
$458,000 for 1992 and $486,000 for 1991.
Red Lion manages the Hotels pursuant to a management agreement
and receives a base management fee equal to three percent of the
annual gross revenues of the Hotels plus an incentive management
fee based on adjusted gross operating profit, as defined in the
management agreement.
The Hotels, in accordance with the management agreement, are also
charged by Red Lion for their pro rata share of support services
such as computer, advertising, public relations, promotional and
sales and central reservation services.
All Partnership personnel are employees of Red Lion and its
affiliates. All costs for services of such employees are
reimbursed to Red Lion by the Operating Partnership. These costs
include salaries, wages, payroll taxes and other employee
benefits. Additionally, auxiliary enterprises owned by Red Lion
sell operating supplies, furnishings and equipment to the
Partnership. In the opinion of Red Lion management, sales to the
Partnership by the auxiliary enterprises were made at prices and
terms which approximated arms-length transactions.
The aggregate amounts, excluding personnel related expenses
charged to the Partnership or Hotel operations during 1993, 1992,
and 1991 under the arrangements described above were as follows
(in thousands):
1993 1992 1991
------ ------ ------
Management fees ............... $4,029 $3,769 $3,609
Support services .............. 4,405 4,279 4,269
Purchases from auxiliary
enterprises ................. 9,409 9,470 8,919
20
The amounts shown in current liabilities as payable to affiliate
in the accompanying consolidated balance sheets consist of
amounts payable to Red Lion for payroll and payroll taxes,
support services, base and current incentive management fees and
purchases of operating supplies, furnishings and equipment. Amounts
payable to affiliate also include the Hotels' net working capital
items which consist of hotel accounts payable, certain taxes other
than property, income and payroll taxes, cash held in hotel
accounts, accounts receivable, inventories and prepaid expenses.
These balances are due in the normal course of business. Also
included in amounts payable to affiliate at December 31, 1993
and 1992 is $1,703,000 relating to capital expenditures. This
amount was treated as a non-cash investing item for purposes of
the 1991 consolidated statement of cash flows. The following
schedules show the operating revenues and expenses and working
capital of the Hotels not reflected in the accompanying financial
statements (see Note 1):
Year Ended December 31,
--------------------------------
1993 1992 1991
--------- --------- ---------
OPERATING REVENUES AND EXPENSES OF THE HOTELS:
- - ---------------------------------------------
REVENUES:
Rooms ............................ $ 54,778 $ 52,723 $ 52,067
Food and beverage ................ 33,108 34,560 36,918
Other ............................ 8,351 8,462 7,974
--------- --------- --------
Total revenues ................. 96,237 95,745 96,959
--------- --------- --------
OPERATING COSTS AND EXPENSES:
Rooms ............................ 13,791 13,567 13,148
Food and beverage ................ 26,883 27,841 29,594
Other ............................ 3,548 3,490 3,382
Administrative and general ....... 8,146 8,038 8,683
Sales, promotion and advertising 4,326 4,183 4,480
Utilities ................... 3,265 3,285 3,395
Repairs and maintenance .......... 3,768 3,682 3,451
--------- --------- ---------
Total operating costs and
expenses .................... 63,727 64,086 66,133
--------- --------- ---------
Gross operating Profit of
Hotels managed by Red Lion ... $ 32,510 $ 31,659 $ 30,826
========= ========= =========
December 31,
------------
1993 1992
--------- ---------
WORKING CAPITAL OF THE HOTELS:
- - ------------------------------
Cash ............................... $ 254 $ 399
Accounts receivable ................ 2,905 3,218
Inventories ........................ 1,082 1,018
Prepaid expenses ................... 1,071 1,057
--------- ---------
Total current assets ............. 5,312 5,692
--------- ---------
Accounts payable ................... 2,635 2,296
Taxes other than property, income
and payroll taxes ................ 720 694
--------- ---------
21
Total current liabilities ........ 3,355 2,990
--------- ---------
Net Hotel working capital .......... $ 1,957 $ 2,702
========= =========
Included in long-term debt on the accompanying consolidated
balance sheets are deferred incentive management fees of $6
million and $3,726,000 advanced under the $4 million non-interest
bearing credit facility. For further discussion of the
non-current amounts due to Red Lion, see Note 5.
9. PROPERTY TAX REFUNDS:
In 1991, the General Partner was successful in obtaining a
reassessment, for property tax purposes, of one of the Hotels.
The reassessment resulted in a refund, related to property tax,
totalling $651,000 in 1991. The entire 1991 refund related to
prior years' property taxes. The refund was recorded as a
reduction of property tax expense in the 1991 results of
operations.
10. COMMITMENTS AND CONTINGENCIES:
At December 31, 1993, the Partnership had commitments, relating
to capital improvement projects, of $547,000.
The Partnership is subject to claims arising in the ordinary
course of business. In the opinion of management such claims
will not have a material effect, if any, on the financial
position or results of operations of the Partnership or its
subsidiary.
11. SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited):
Summarized quarterly financial data are as follows: (in
thousands, except per unit amounts, room and occupancy
statistics)
Quarter Ended
------------------------------------------
1993 Mar. 31 Jun. 30 Sep. 30 Dec. 31
- - ---- ------- ------- ------- -------
Revenues ...................... $ 6,706 $ 9,269 $ 9,767 $ 6,768
Operating income .............. $ 2,346 $ 4,338 $ 3,430 $ 3,310
Income (loss) before cumulative
effect of change in
accounting principle ........ $ (252) $ 1,719 $ 817 $ 922
Cumulative effect of change in
accounting principle ........ $(1,351) -- -- --
Net income (loss) ............. $(1,603) $ 1,719 $ 817 $ 922
Per unit:
Income (loss) before
cumulative effect of change
in accounting principle ... $ (.06) $ .41 $ .19 $ .22
Cumulative effect of change
in accounting principle ... $ (.32) -- -- --
Net income .................... $ (.38) $ .41 $ .19 $ .22
Average units outstanding ..... 4,134 4,134 4,134 4,134
Occupancy % ................... 67.2% 76.7% 82.8% 66.6%
Average room rate ............. $ 65.61 $ 67.81 $ 68.34 $64.35
22
Quarter Ended
------------------------------------------------------
1992 Mar. 31 Jun. 30 Sep. 30 Dec. 31
- - ---- ------- ------- ------- -------
Revenues ...................... $ 6,345 $ 9,078 $ 9,064 $ 7,172
Operating income .............. $ 2,165 $ 4,404 $ 3,435 $ 3,363
Net income (loss) ............. $ (373) $ 1,817 $ 880 $ 714
Allocated net income
(loss) per unit ............. $ (.09) $ .43 $ .21 $ .17
Average units outstanding ..... 4,134 4,134 4,134 4,134
Occupancy % ................... 65.4% 78.5% 81.3% 65.4%
Average room rate ............. $ 63.64 $ 65.04 $ 66.31 $ 62.74
Quarterly revenues have been changed to conform to the new
presentation discussed in Note 1. Fourth Quarter 1993 net income
includes a $.4 million increase in estimated insurance liabilities
offset by a $.2 million reduction of estimated deferred income
taxes recorded in prior quarters.
23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Red Lion Inns Limited Partnership and its Subsidiary Limited
Partnership:
We have audited the accompanying consolidated balance sheets of
Red Lion Inns Limited Partnership (a Delaware limited
partnership) and its subsidiary limited partnership as of
December 31, 1993 and 1992 and the related consolidated
statements of income, partners' capital and cash flows for each
of the three years in the period ended December 31, 1993 included
in this Form 10-K/A. These financial statements are the
responsibility of the partnerships' management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Red Lion Inns Limited Partnership and its subsidiary
limited partnership as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements,
effective January 1, 1993, the Partnership changed its method of
accounting for income taxes.
/s/ARTHUR ANDERSEN & CO.
Portland, Oregon
February 11, 1994
24
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
- - -----------------------------------------------------------------
on Form 8K
----------
a. The following documents are filed herewith and made a part
of this report:
1. The consolidated financial statements and supplementary
information set forth in Item 8 of Part II of this report.
2. Financial Statement Schedules:
Red Lion Inns Limited Partnership and Subsidiary Limited
Partnership:
Page
Reference
---------
Report of Independent Public Accountants on
Financial Statement Schedules 25
Schedule IV - Indebtedness to Related Parties -
Not Current for the years ended December 31, 1993,
1992 and 1991 26
Schedule V - Property, Plant, and Equipment for
the years ended December 31, 1993, 1992 and 1991 27
Schedule VI - Accumulated Depreciation of
Property, Plant, and Equipment for the years
ended December 31, 1993, 1992 and 1991 28
All other schedules are omitted because they are not required or
because the information is presented in the financial statements
or related notes.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Red Lion Inns Limited Partnership and
its Subsidiary Limited Partnership:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Red Lion
Inns Limited Partnership and subsidiary limited partnership
included in this Form 10-K/A, and have issued our report thereon
dated February 11, 1994. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole.
The schedules listed in the index of financial statement
schedules listed in Part IV, Item 14, are the responsibility
of the partnerships' management and are presented for purposes
of complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ARTHUR ANDERSEN & CO.
Portland, Oregon
February 11, 1994
26
SCHEDULE IV
RED LION INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
INDEBTEDNESS TO RELATED PARTIES - NOT CURRENT
(in thousands)
Balance at Balance at
Beginning End of
of Period Additions Deductions of Period
--------- --------- ---------- ---------
Year ended December 31, 1993:
Red Lion, a California
Limited Partnership $ 9,726 $ -- $ -- $ 9,726
======= ======= ======= =======
Year ended December 31, 1992:
Red Lion, a California
Limited Partnership $ 9,726 $ -- $ -- $ 9,726
======= ======= ======= =======
Year ended December 31, 1991:
Red Lion, a California
Limited Partnership $ 9,726 $ -- $ -- $ 9,726
======= ======= ======= =======
/TABLE
27
SCHEDULE V
RED LION INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
Property, Plant and Equipment
(in thousands)
Balance Other(1) Balance
at Changes at
Beginning Addi- Retire- Add End of
Classification of Period tions ments (Deduct) Period
- - ----------------------------- --------- ------- ------- ------- ------
Year Ended December 31, 1993:
Land $ 17,713 $ - $ - $ - $ 17,713
Buildings and improvements 155,622 - - 951 156,573
Furnishings and equipment 42,656 - (1,174) 4,282 45,764
Construction in progress 1,732 6,389 - (5,233) 2,888
-------- ------ ------- ------- --------
$217,723 $6,389 $(1,174) $ - $222,938
======== ====== ======= ======= ========
Year Ended December 31, 1992:
Land $ 17,713 $ - $ - $ - $ 17,713
Buildings and improvements 155,278 - - 344 155,622
Furnishings and equipment 36,831 43 (577) 6,359 42,656
Construction in progress 2,227 6,208 - (6,703) 1,732
-------- ------ ------- ------- --------
$212,049 $6,251 $ (577) $ - $217,723
======== ====== ======= ======= ========
Year Ended December 31, 1991:
Land $ 17,713 $ - $ - $ - $ 17,713
Buildings and improvements 155,077 - - 201 155,278
Furnishings and equipment 34,323 35 (328) 2,801 36,831
Construction in progress 338 4,891 - (3,002) 2,227
-------- ------ ------- ------- --------
$207,451 $4,926 $ (328) $ - $212,049
======== ====== ======= ======= ========
<FN>
(1) Other changes consist of transfers of construction in progress to
in-service classifications
/TABLE
28
SCHEDULE VI
RED LION INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
Accumulated Depreciation of
Property, Plant and Equipment
(in thousands)
Addi-
Balance tions Other
at to Cost Changes Balance
Beginning and Retire- Add at End of
Classification of Period Expenses ments (Deduct) Period
- - -------------------------- ---------- --------- ------- ------- ---------
Year Ended December 31, 1993:
Buildings and improvements $25,517 $ 4,634 $ - $ - $30,151
Furnishings and equipment 20,761 5,502 (1,160) - 25,103
------- ------- ------- ------- -------
$46,278 $10,136 $(1,160) $ - $55,254
======= ======= ======= ======= =======
Year Ended December 31, 1992:
Buildings and improvements $20,936 $ 4,581 $ - $ - $25,517
Furnishings and equipment 16,037 5,229 (505) - 20,761
------- ------- ------- ------- -------
$36,973 $ 9,810 $ (505) $ - $46,278
======= ======= ======= ======= =======
Year Ended December 31, 1991:
Buildings and improvements $16,370 $ 4,566 $ - $ - $20,936
Furnishings and equipment 11,823 4,493 (279) - 16,037
------- ------- ------- ------- -------
$28,193 $ 9,059 $ (279) $ - $36,973
======== ======= ======== ======= =======