SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
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For Quarter ended June 30, 1994 -- Commission File Number 1-6848
UNITED INNS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-0707789
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5100 Poplar Ave.- Suite 2300, Memphis, Tennessee 38137
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - 901-767-2880
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Security Exchange Act of 1934 during
the preceding 12 months (or for such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each issuer's classes of common
stock as of the close of the period covered by this report.
Class Outstanding at June 30, 1994
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Common Stock, $1 par value 2,640,899 shares
UNITED INNS, INC.
Form 10-Q Quarterly Report
June 30, 1994
Index
Part I Financial Information: Page No.
Consolidated Balance Sheet 3
June 30, 1994 and September 30, 1993
Consolidated Statement of Income -
Nine Months Ended June 30, 1994 and 1993 4
Consolidated Statement of Cash Flows
Nine Months Ended June 30, 1994 and 1993 5
Notes to Financial Statements 6
Report on Review by Independent Certified
Public Accountants 7
Management's Discussion and Analysis of Consolidated 8-10
Financial Condition and Results of Operations
Review by Independent Certified Public Accountants 10
Part II Other Information:
Other Information. 11
Signature 11
Exhibit 11 -- Statement re computation of per
share earnings 12
2
INNS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
JUN 30, 94 SEP 30, 93
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CURRENT ASSETS:
Cash and cash equivalents (Note B) $6,445,979 $4,095,215
Current portion of long-term receivables 1,022,927 1,072,113
Accounts receivable - net of allowance
for bad debts of $77,530 for June 94
and $78,835 for Sep 93:
Trade 3,340,580 2,593,459
Other 512,396 1,085,197
Inventories (Note C) 887,403 886,483
Prepaid expenses 7,112,290 6,084,713
Property held for sale (Note D) 8,229,000
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Total current assets 27,550,575 15,817,180
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INVESTMENTS:
Long-term receivables less
current maturities 259,489 313,424
Land not in use - at cost 8,018,648 8,907,151
Other investments - at cost 10,000 10,000
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8,288,137 9,230,575
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PROPERTY AND EQUIPMENT - at cost:
Land 12,361,728 13,696,986
Building and improvements 137,098,771 155,159,524
Furnishings and equipment 25,013,363 30,508,425
Property under capital leases 3,714,804 3,714,804
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178,188,666 203,079,739
Less accumulated depreciation 86,581,185 91,457,432
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91,607,481 111,622,307
Construction in progress 2,658,351 575,851
Property held for sale 2,028,603 4,107,880
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96,294,435 116,306,038
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OTHER ASSETS:
Franchises 619,005 674,143
Deferred loan and other expenses 1,615,393 1,590,596
Restricted cash 3,164,438 3,114,320
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5,398,836 5,379,059
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$137,531,983 $146,732,852
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LIABILITIES AND STOCKHOLDERS' EQUITY
JUN 30, 94 SEP 30, 93
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CURRENT LIABILITIES:
Long-term debt due within one year $10,538,997 $3,243,325
Notes payable 541,050 261,160
Accounts payable - trade 1,952,709 2,418,739
Sales and occupancy taxes 1,324,336 1,211,561
Accrued expenses:
Payroll and payroll taxes 1,854,983 1,421,127
Rent and property taxes 2,327,051 2,706,849
Insurance 3,542,203 3,281,682
Interest and other 2,521,443 2,183,724
Income taxes payable 211,041 219,802
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Total current liabilities 24,813,813 16,947,969
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LONG-TERM DEBT:
First Mortgages 100,565,544 102,926,861
Capital lease obligations 185,566 542,121
Chattel mortgages 1,171,679 625,934
Installment loans and other 307,356 313,692
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102,230,145 104,408,608
Less amounts due within one year 10,538,997 3,243,325
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91,691,148 101,165,283
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Minority Interest 578,348 517,096
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Deferred Other 1,265,437 1,410,978
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Deferred Income Taxes 3,159,504 5,721,882
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STOCKHOLDERS' EQUITY:
Common Stock - $1 par 10 Mill shares
authorized shares issued 4,117,813 4,117,813 4,117,813
Paid in capital 14,613,138 14,613,138
Retained earnings 41,381,262 46,327,055
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60,112,213 65,058,006
Less treasury shares at cost
1,476,914 in 1994 ; 1,476,904 in 1993 44,088,480 44,088,362
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Total stockholders' equity 16,023,733 20,969,644
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$137,531,983 $146,732,852
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3
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
NINE MONTHS ENDED QUARTER ENDED
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30-Jun-94 30-Jun-93 30-Jun-94 30-Jun-93
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Revenues
Rooms $52,462,722 $51,727,456 $18,956,384 $18,900,023
Restaurants 11,419,253 12,239,913 3,716,539 4,015,857
Car washes 735,695 1,192,238 207,593 278,189
Telephone & sundry 3,174,715 3,523,468 1,117,794 1,206,748
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67,792,385 68,683,075 23,998,310 24,400,817
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Operating costs and expenses:
Direct:
Rooms 33,900,001 35,399,762 11,664,587 12,357,893
Restaurants 11,253,692 12,280,777 3,689,313 4,079,557
Car washes 709,323 1,388,946 215,169 310,563
Telephone & sundry 1,343,943 1,444,754 441,334 496,627
Marketing, administrative and gen 7,391,868 7,418,128 2,472,525 2,470,902
Depreciation 6,739,495 6,660,236 2,219,055 2,158,591
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61,338,322 64,592,603 20,701,983 21,874,133
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Operating income 6,454,063 4,090,472 3,296,327 2,526,684
Interest expense (7,306,564) (7,481,515) (2,406,905) (2,583,562)
Minority interest (61,252) (54,530) (22,579) (31,011)
Gain (loss) on disposition of ass (6,287,511) 1,406,265 (7,178,059) 183,927
------------- ------------- ------------- -------------
Income (loss) before income taxes (7,201,264) (2,039,308) (6,311,216) 96,038
Income taxes (credit) (2,255,471) (629,708) (2,075,369) 159,762
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Net income (loss) ($4,945,793) ($1,409,600) ($4,235,847) ($63,724)
============= ============= ============= =============
Per share of common stock
Net income (loss) ($1.87) ($0.53) ($1.60) ($0.02)
============= ============= ============= =============
Weighted average shares
of common stock 2,640,905 2,640,909 2,640,899 2,640,909
============= ============= ============= =============
Dividends per share $0.00 $0.00 $0.00 $0.00
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4
UNITED INNS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended June 30,
1994 1993
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OPERATING ACTIVITIES:
Net income (loss) ($4,945,793) ($1,409,600)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,077,979 6,961,761
Loss (gain) from property dispositions 6,218,848 (1,391,220)
Deferred income taxes (2,562,378) (919,522)
Minority interest 61,252 54,530
Changes to operating assets and liabilities:
Accounts receivable (174,320) (346,888)
Inventories (12,592) 28,987
Prepaid expenses (749,826) (195,583)
Accounts payable (575,970) 200,684
Accrued expenses 604,592 (330,277)
Income taxes payable (8,761) (96,301)
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Net cash provided by operating activities 4,933,031 2,556,571
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INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,911,297) (4,077,119)
Proceeds from sale of fixed assets 3,216,207 3,206,468
Payments received on notes receivable 103,120 502,436
Other investing activities (1,061,875) (1,114,635)
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Net cash provided by (used for) investing activities 346,155 (1,482,850)
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FINANCING ACTIVITIES:
Payments on long-term debt (2,928,304) (2,296,293)
Other financing activities (118) (5,049)
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Net cash provided (used for) financing activities (2,928,422) (2,301,342)
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Increase (Decrease) in cash and cash equivalents 2,350,764 (1,227,621)
Cash and cash equivalents at beginning of year 4,095,215 3,916,377
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Cash and cash equivalents at end of period $6,445,979 $2,688,756
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Supplemental disclosures of cash flow information:
Cash paid (received) during the nine months for:
Interest $7,033,418 $7,764,285
State and federal income taxes 311,533 337,109
Supplemental schedule of non-cash investing and
financing activities:
Debt to acquire property, plant and equipment 800,715 87,967
Restricted cash used to purchase property,
plant and equipment 762,676 568,458
Loss recognized on property sold subsequent
to close of third quarter 6,637,807
Note received in exchange for property 300,000
5
UNITED INNS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1994
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Annual Report of Form 10-K of United Inns, Inc. for the year ended
September 30, 1993. The statement of income for the nine months ended June 30,
1993 has been restated in certain instances for comparability purposes. In the
opinion of Management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended June 30, 1994 are not necessarily
indicative of the results that may be expected for the year ending September 30,
1994.
Note B-Cash and Cash Equivalents
Includes $2,748,645 of cash and cash equivalents of a wholly owned
subsidiary subject to loan covenant agreements limiting the use of the funds
to the financial benefit of six of the Registrant's hotel properties.
Note C-Inventories
Inventories are stated at the lower of cost or market on a first in, first
out basis. Included in inventory classified as Supplies are hotel linens and
restaurant supplies, consisting primarily of china, silverware, and cooking
utensils, car wash operating and cleaning supplies. Following is a summary of
items included under the caption, "Inventories":
June 30, 1994 September 30, 1993
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Merchandise:
Food and Beverage $ 306,407 $ 297,064
Car Wash 2,160 15,681
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308,567 312,745
Supplies 578,836 573,738
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Total Inventories $ 887,403 $ 886,483
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Note D-Property Held For Sale
Represents realizable value of a hotel sold in the fourth quarter fiscal
1994 on which the loss was recognized in the Registrant's income statement for
the nine months ended June 30, 1994.
6
Board of Directors
United Inns, Inc.
Memphis, Tennessee
We have made a review of the consolidated balance sheet of United Inns, Inc. and
Subsidiaries as of June 30, 1994, and September 30, 1993, and the consolidated
statement of income, and the consolidated statement of cash flows for the nine
month period ended June 30, 1994 and 1993, in accordance with Statements on
Standards for Accounting & Review Services issued by the American Institute of
Certified Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an examination in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
/s/Frazee Tate & Associates
FRAZEE TATE & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
MEMPHIS, TENNESSEE
August 20, 1994
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Registrant reported cash flow from operating activities for the
first nine months of fiscal 1994 in the amount of 4.9 million, as
compared with $2.6 million for the same period in 1993. Total cash
flow for fiscal year to date 1994 was $2.4 million, as compared with
a deficit of $1.2 million for the 1993 nine month period.
In the third quarter of fiscal 1994 sales proceeds of $1.1 million
were received from the sale of a hotel in Houston which had been
closed since 1988.
During second quarter of fiscal 1994 sales proceeds of $2.0 million
were received from the sale of surplus vacant land in Atlanta and a
former car wash site in Dallas.
During the first nine months of fiscal 1993, the Registrant realized
net sales proceeds of $3.2 million on the sale of a hotel and five
operating car wash units.
During the first nine months of fiscal 1994 the Registrant expended
$3.4 million on capital expenditures, consisting principally of
renovation projects on nine hotels and television replacements at
twelve hotels. Funding of these expenditures was accomplished with
$.7 million in installment sales contracts; $.8 million from
restricted cash deposits; with the remaining $1.9 million provided
from operating cash flows.
Available proceeds, provided by the sale of a hotel subsequent to the
close of the third quarter of fiscal 1994, amounting to $8.1 million
were applied to payment of outstanding debt on the property sold and
other properties included in a loan agreement with one of the
Registrant's major lenders. Retirement of this debt will result in
an annual interest savings of $590,000 for the term of the agreement,
which matures on September 30, 1997.
With improving cash flows and sale of targeted properties, the
Registrant believes short term cash flow needs for working capital
and renovation programs will be provided.
RESULTS OF OPERATIONS
Revenues - total revenues for the nine months ended June 30, 1994
decreased by $.9 million over the corresponding period ended June 30,
1993. Decreased revenues resulted from decreased car wash revenues of
$.5 million as compared with the same period of fiscal 1993,
influenced by the fact that only one car wash unit was operated
during the 1994 nine months period. In fiscal 1993 six other car
wash units were operated for just over two months of that year. Five
were sold in early December, 1992 and one other unit was closed.
8
Although gross hotel revenues declined by $.4 million for the nine
months of fiscal 1994, gross revenues attributable to two hotels
which were disposed of in fiscal 1993 amounted to $1.5 million. The
Registrant's most important revenue element, hotel room revenue,
improved by $.7 million for the nine months, however same hotel room
revenue increased by $2.0 million.
Following is a table comparing room revenues, relative occupancy
levels and average daily room rates (ADR) of the twenty-eight hotels
remaining in the system for the nine months and quarter ended June
30:
NINE MONTHS QUARTER
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1994 1993 1994 1993
----------- ----------- ----------- -----------
Room Revenue $52,463,000 $50,490,000 $18,956,000 $18,626,000
Occupancy 52.89% 50.95% 56.55% 55.97%
ADR $54.78 $51.86 $55.19 $52.20
Food and beverage and sundry revenues decreased by $1.1 million for
the nine months and decreased by $.4 million for the quarter from the
same periods last year. Decreased other revenues attributable to the
two hotels disposed of were $.3 million and $.1 million for the
respective periods.
OPERATING COSTS AND EXPENSES - total operating costs and expenses
decreased by $3.3 million for the nine month period and decreased by
$1.2 million for the quarter ended June 31, 1994. The reduction
attributable to the two hotels which were disposed of was $1.8
million for the nine months and $.4 million for the quarter.
Additionally, operating costs and expenses of the car washes
decreased by $.9 million for the nine months and by $.1 million for
the quarter.
GAIN ON DISPOSITION OF ASSETS - subsequent to the close of the third
quarter an operating hotel located in Houston was sold at a loss of
$6.64 million. The carrying value of the property was adjusted to
its net realizable value and the loss was recognized in the third
quarter. Additionally, another hotel located in Houston, which had
been closed since 1988 was sold at a loss of $540,000. A gain of $.9
million was recognized upon the sale during the second quarter of
fiscal 1994 of an unimproved tract of land in Atlanta and a former
car wash unit in Dallas. During second quarter of fiscal 1993 the
Registrant reported a gain of $1.2 million on the sale of a hotel in
Houston, and recognized a deferred gain of $.2 million on the pay off
of a note from a prior year hotel sale.
9
INCOME TAXES - effective October 1, 1993 the Registrant changed its
method of accounting for income taxes from the deferred method to the
liability method required by Statement of Financial Accounting
Standards ("FAS") No. 109, "Accounting for Income Taxes". As
permitted under the new rule, prior years' financial statements have
not been restated. The cumulative effect of adopting this statement
as of October 1, 1993 was immaterial to net earnings. The effective
tax rates for the 1994 nine months period was a tax credit of 31.3%,
compared with a credit of 30.9% for the same period last year. For
the quarters, the effective tax rate was a credit of 32.9% for 1994
as compared with a tax expense of 166.4% for the 1993 third quarter.
The combined effect of several factors during the third quarter of
fiscal 1993 resulted in the abnormally high effective tax rate:
* There was a near breakeven income before tax ($96,000)
* Taxable income was earned in states with state income taxes
while losses were incurred in states having no state income
taxes
* Provision was made for $70,000 alternative minimum federal taxes
during the quarter
* $73,000 in nondeductible expenses were reflected in income
before taxes
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Frazee, Tate and Associates independent certified public accountants,
have performed a review of the consolidated balance sheet as of June
30 1994 and September 30, 1993, and the consolidated statement of
income, and the consolidated statement of cash flows for the nine
months ended June 30, 1994 and 1993, included in this report. Such
reviews were made in accordance with standards established by the
American Institute of Certified Public Accountants. All adjustments
or additional disclosures proposed by Frazee, Tate and Associates
have been reflected in the data presented.
10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the quarter ended June 30, 1994.
Item 5. Other Information.
The Registrant entered into a contract in August 1993 for the
performance of consulting services related to its hotel
operations and corporate structure. Compensation under the
contract consisted of a monthly retainer fee, and a contractual
right to a restricted stock award of 25,000 shares of the
Registrant's common shares and an option to purchase an
additional 35,000 shares at the then current average market
price.
The above mentioned shares and option to purchase shares were to
be fully vested, earned and delivered upon the completion of the
full term and substantial performance under the conditions of the
agreement, one year from the date of execution. Satisfactory
completion of the consultant's performance under the agreement is
expected during the Registrant's fourth quarter.
On August 4, 1994 the Registrant filed a Registration Statement
Under the Securities Act of 1933, Form S-3, with the Securities
and Exchange Commission for purpose of registering 60,000 shares
of the Registrant's shares held in its treasury for utilization
in the fulfillment of its obligation under the contract.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Statement re computation of per share
earnings
(b) Reports on Form 8-K -- There were no reports on Form
8-K filed for the quarter ended June 30, 1994, as no
events which require the filing of Form 8-K occurred
during the quarter.
SIGNATURE
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.
UNITED INNS, INC.
(Registrant)
/s/J. Don Miller
--------------------------------
J. Don Miller
Vice President - Finance and
Date: August 20,1994 Chief Accounting Officer
11
EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
UNITED INNS, INC.
ADDITIONAL FULLY DILUTED COMPUTATION
Nine Months Ended June 30, 1994
NINE MONTHS QUARTER
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Loss As Adjusted Per Fully
Diluted Computation ($4,945,793) ($4,235,847)
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Additional Adjustments to
Weighted Average Shares Outstanding:
Weighted Average Shares Outstanding
Primary Computation 2,640,905 2,640,899
Additional Dilutive Effect of
Contingent Shares Under Contractual
Agreement 20,000 60,000
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Weighted Average Number of Shares
Outstanding As Adjusted 2,660,905 2,700,899
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Fully Diluted Loss Per Share (A) ($1.86) ($1.57)
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<FN>
(A) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
12