SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
/X/
For the fiscal year ended September 30, 1994
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition period from ___________ to ______________
Commission file number 1-6848
___________________
UNITED INNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0707789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 Poplar Avenue, Suite 2300, Memphis, TN 38137
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 767-2880
_____________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
------------------- ----------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
/X/
Aggregate market value of the Registrant's voting stock held by non-
affiliates, based upon the closing price of said stock on the New York Stock
Exchange--Composite Transaction Listing on December 12, 1994, ($24.25 per
share): $35,254,965.
As of December 12, 1994, 2,665,899 shares of the Common Stock, $1.00 par
value, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
PART I
ITEM 1. BUSINESS.
(a) The Registrant was organized in 1956 as a corporation. The Registrant
engages primarily in the operation of hotels under Holiday Inns, Inc. licenses.
The Registrant currently operates twenty-five (25) hotels; eight (8) in Atlanta,
Georgia; six (6) in Houston, Texas; four (4) in Jackson, Mississippi; two (2) in
Dallas, Texas; two (2) in Colorado Springs, Colorado; one (1) each in Flagstaff,
Arizona; Santa Barbara, California; and Scottsdale, Arizona. All the hotels are
equipped with year round temperature control, a swimming pool, telephone and
free television in each room, twenty four hour switchboard service, wall to wall
carpeting, on-premises parking and free advance reservation services. All
hotels contain restaurants operated by the Registrant and sell liquor, except
for the three (3) Hampton Inns located in Jackson, Mississippi; Atlanta,
Georgia; and Houston, Texas; the Days Inn Dallas Regal Row; the two (2) Holiday
Inn Express properties located in Atlanta, Georgia, and Colorado Springs,
Colorado; which are limited service hotels located within line of sight of
various food and beverage facilities.
During fiscal year 1994, the Registrant sold the Holiday Inn Near Greenway
Plaza located in Houston, Texas; sold a closed hotel located in Houston, Texas;
and allowed its property lease to expire on the Super 8 Motel located in San
Jose, California. Also during fiscal year 1994 the Registrant negotiated a
short term license agreement for a leased property, and converted it from a
Holiday Inn to a Howard Johnson Hotel, and subsequent to the close of the
fiscal year, on November 30, 1994 allowed its lease to expire and ceased to
operate the property.
The Registrant owns and operates one (1) Mr. Pride Car Wash unit in
Houston, Texas. The car wash center uses modern semi-automatic car washing
equipment. Automobiles are pulled by a conveyer through a series of washing,
rinsing and drying cycles. The unit is operated on leased property with a lease
expiration date of October 31, 1995.
Additionally, the Registrant owns four(4) closed car wash units which are
being held for disposition.
During fiscal year 1994, the Registrant sold one (1) car wash unit in
Dallas, Texas.
There have been no significant changes in the kinds of products produced or
services rendered by the Registrant or in the markets or methods of distribution
since the beginning of the fiscal year, October 1, 1993.
The Registrant currently has no new hotel developments underway or planned.
See Current Developments, Item 1 (d).
2
ITEM 1. (cont.)
(b) (1) The Registrant's businesses are highly competitive. The hotels are
in competition with hotels and other motels within their immediate
area. Due to the highly competitive nature of the lodging industry,
the Registrant is required to make continuing expenditures for
modernizing, refurnishing and maintaining existing facilities.
(2) The Registrant's business is not materially dependent upon a
single or few customers, the loss of whom would have a material adverse
effect on the business of the Registrant.
(3) The license agreements that have been issued by Holiday Inns, Inc.,
Hampton Inns, Days Inns of America Franchising, Inc., Ramada, Inc., and
Howard Johnson Franchise Systems, Inc. to the Registrant are considered
to be of considerable importance. The Registrant has location licenses
for its properties. The original license agreement for new hotels is
generally for a period of twenty (20) years. License agreements for
hotel conversions are generally issued for periods of ten (10) to
fifteen (15) years. The Registrant may request license extensions from
its licensors prior to the end of the term of the license. Each
license is terminable by licensors for cause, including failure to
conform to certain minimum standards.
(4) An insignificant sum was spent by the Registrant during each of the
last two fiscal years on research activities.
(5) Compliance with federal, state and local provisions regulating the
discharge of materials into the environment or otherwise relating to
the protection of the environment, has not required any capital
expenditures of a material nature, nor has it had any material effect
on earnings or the competitive position of the Registrant and its
subsidiaries.
(6) On November 24, 1994, the Registrant had approximately 1,887
employees, including approximately 297 part-time employees who work an
average of less than 30 hours per week.
(7) Four (4) of the Registrant's hotels located in Colorado and Arizona
are dependent to a large extent upon the summer and winter vacation
seasons.
(c) The Registrant has one primary business segment, the operation of hotel
properties. This segment represents greater than 90% of consolidated revenue
operating profit and identifiable assets. All revenues were derived from
domestic operations. There are no material customers and no material government
contracts.
(d) Current Development - On November 14, 1994, the Company entered into
an Agreement and Plan of Merger with United/Harvey Holdings, L.P.,
United/Harvey Hotels, Inc. and United/Harvey Sub, Inc. Reference is made to the
disclosure concerning such agreement contained in Part II, Item 7, Management's
Discussion and Analysis of Consolidated Financial Condition and Results
of Operation, under the caption "Current Developments".
3
ITEM 2. PROPERTIES
NUMBER OF ROOMS
---------------
HOTEL DIVISION Originally Presently
- -------------- -
Holiday Inn Hotels:
Atlanta, Georgia
Airport North - owned(1) 301 492
South (I-75/U.S. 41) - owned(1) 180 180
I-285/Powers Ferry Rd. - owned(1) 300 300
Perimeter Mall/Dunwoody Area - owned(1) 252 250
Colorado Springs, Colorado
North - owned 220 220
Dallas, Texas
Brook Hollow/Love Field - owned(1) 358 356
Houston, Texas
Intercontinental Airport - owned(1) 210 400(3)
West Loop Near the Galleria - owned(1) 214 318(3)
Medical Center - owned(2) 298 296
I-10 West at Loop 610 - owned(1) 252 249
Jackson, Mississippi
North - owned 54 254
Southwest - owned(1) 102 289
Downtown - owned(1) 359 358
Santa Barbara, California - owned(1) 159 154
Holiday Inn Express Hotels:
Atlanta Georgia
I-85 N/Northcrest (Express) - owned(1) 112 198
I-20 East (Express) - owned(1) 167 165
Colorado Springs, Colorado
Central (Express) - owned(1) 167 207
Hampton Inns:
Jackson, Mississippi
I-55 North - owned(1) 118 118
Marietta, Georgia
I-75N (Marietta) - owned(1) 140 140
Houston, Texas
I-10 East - owned 89 89
Days Inns:
Flagstaff, Arizona
1000 West Highway 66 - owned 120 156
Dallas, Texas
Stemmons & Regal Row - owned(1) 202 200
Houston, Texas
I-10 East/Mercury Drive - owned 156 156
Ramada Inn:
Atlanta, Georgia
Downtown - owned(1) 253 473
Howard Johnson Hotels:
Scottsdale, Arizona - lease of land (1) 216 216
-----
Total: 6,234
4
<FN>
(1) Subject to first mortgage.
(2) Subject to first and second mortgages.
(3) Properties with rooms in reserve, not currently in active inventory:
Houston:
Intercontinental Airport 96
West Loop Near the Galleria 106
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending against the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
A description of the Company's executive officers is contained under
Part III, Item 10 below.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The Registrant's Common Stock is traded on the New York Stock Exchange,
Pacific Stock Exchange, and Philadelphia Stock Exchange under the symbol "UI".
The following table gives the high and low sale prices per share of the
Registrant's Common Stock on the New York Stock Exchange - Composite Tape,
for the past two fiscal years, as reported by the New York Stock Exchange.
1994 1993
---------------- ----------------
High Low High Low
---- --- ---- ---
1st Quarter 9 1/4 5 1/2 2 3/8 1 1/2
2nd Quarter 14 1/2 7 1/2 5 2 3/8
3rd Quarter 14 1/4 8 7/8 4 3/8 3 5/8
4th Quarter 18 12 6 3/4 3 5/8
As of December 12, 1994, the approximate number of shareholders was 1,366.
No dividends were paid during fiscal 1994 or 1993.
5
ITEM 6. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands except per share data, rooms in operation and percentages)
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
OPERATING RESULTS:
Revenues............................................ $ 93,130 $ 92,923 $ 99,161 $ 112,591 $ 120,924
---------- ---------- ---------- ---------- ----------
Costs and expenses.................................. 74,390 76,389 84,376 95,709 97,708
Depreciation........................................ 9,078 9,031 9,939 11,159 11,319
Interest and financing.............................. 10,117 9,946 9,803 13,943 15,968
Minority interest................................... 81 54 39 91 109
---------- ---------- ---------- ---------- ----------
93,666 95,420 104,157 120,902 125,104
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations............ (536) (2,497) (4,996) (8,311) (4,180)
Gain (loss) from property dispositions.............. (6,266) 1,251 (3,634) 8,319
Loss contingency.................................... 388 (1,718)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes................................ (6,802) (1,246) (8,242) (10,029) 4,139
Income taxes........................................ (1,297) (430) (3,291) (3,317) 4,741
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations............ (5,505) (816) (4,951) (6,712) (602)
Discontinued operations
Income (loss) from operations of
(net of applicable income taxes)
Furniture Manufacturing.......................... 139
Gain on disposal of business segments
(net of applicable income taxes).................. 4,329
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item......... (5,505) (816) (4,951) (6,712) 3,866
Extraordinary item-gain on settlement
of debt (net of applicable income taxes)........... 1,907
---------- ---------- ---------- ---------- ----------
Net income (loss).................................. $ (5,505) $ (816) $ (3,044) $ (6,712) $ 3,866
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share of common stock
Income (loss) before discontinued operations....... $ (2.08) $ (0.31) $ (1.87) $ (2.54) $ (0.23)
Income (loss) from discontinued operations......... 0.05
Gain (loss) on disposal of business segments....... 1.64
Extraordinary item................................. 0.72
---------- ---------- ---------- ---------- ----------
Net income (loss)................................. $ (2.08) $ (0.31) $ (1.15) $ (2.54) $ 1.46
---------- ---------- ---------- ---------- ----------
Dividends per share................................. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
---------- ---------- ---------- ---------- ----------
Average number of shares outstanding................ 2,644 2,641 2,641 2,641 2,641
---------- ---------- ---------- ---------- ----------
OTHER INFORMATION:
Total assets........................................ $ 129,026 $ 146,733 $ 152,517 $ 162,085 $ 198,592
---------- ---------- ---------- ---------- ----------
Property and equipment.............................. 95,839 116,306 120,401 135,685 157,628
---------- ---------- ---------- ---------- ----------
Long-term debt...................................... 91,419 101,165 101,603 104,551 121,771
---------- ---------- ---------- ---------- ----------
Shareholder' equity................................. 15,571 20,970 21,786 24,831 31,543
---------- ---------- ---------- ---------- ----------
Book value per share................................ $ 5.84 $ 7.94 $ 8.25 $ 9.40 $ 11.94
---------- ---------- ---------- ---------- ----------
% of shareholders' equity to total assets........... 12.1% 14.3% 14.3% 15.2% 15.9%
---------- ---------- ---------- ---------- ----------
Ratio of total liabilities to stockholders' equity.. 7.3:1 6.0:1 6.0:1 5.6:1 5.3:1
---------- ---------- ---------- ---------- ----------
Rooms in operation.................................. 6,244 7,095 7,489 8,629 8,675
---------- ---------- ---------- ---------- ----------
Occupancy........................................... 54.6% 51.7% 48.7% 49.7% 58.6%
---------- ---------- ---------- ---------- ----------
Average Daily Room Rate............................. $ 55.01 $ 51.91 $ 50.35 $ 51.40 $ 47.64
---------- ---------- ---------- ---------- ----------
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Current Developments
On November 14, 1994, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") (a copy of which is attached to this Form 10-K,
as Exhibit 2.0 and incorporated by reference herein) with United/Harvey
Holdings, L.P. ("Purchaser"), United/Harvey Hotels, Inc. ("United/Harvey") and
United/Harvey Sub, Inc. ("Merger Sub"), pursuant to which the Purchaser agreed
to acquire all the shares of the issued and outstanding Common Stock of the
Company (the "Shares") at a price of $25.00 per Share (the "Per Share Amount")
in cash net to the selling stockholders ("Sellers"). The information set forth
in Item 3(b)(ii), "Merger Agreement," in the Schedule 14D-9 filed by the Company
with the Securities and Exchange Commission ("SEC") on November 23, 1994,
attached hereto as Exhibit 2.1 (the "Schedule 14D-9"), is incorporated by
reference herein.
The acquisition of the Shares is to occur pursuant to an Offer to Purchase
dated November 21, 1994, (the "Offer to Purchase") and the related Letter of
Transmittal (which together constitute the "Offer") provided to the stockholders
of the Company by the Purchaser and filed by the Purchaser with the SEC as
exhibits to a Tender Offer Statement on Schedule 14D-1 on November 21, 1994. The
information set forth in Item 3(b)(ii), "Merger Agreement; The Offer," in the
Schedule 14D-9, is incorporated by reference herein.
The Merger Agreement provides, among other things, that after completion of
the Offer, subject to the terms and conditions of the Merger Agreement, Merger
Sub will be merged into the Company (the "Merger") and the Company will survive
as the surviving corporation and as a wholly-owned subsidiary of United/Harvey.
Each outstanding Share, other than those held by United/Harvey or any subsidiary
of the Company or in the treasury of the Company (all of which will be
cancelled) and those Shares held by stockholders of the Company who promptly
demand and perfect appraisal rights under the General Corporation Law of the
State of Delaware, will be converted at the effective time of the Merger into
the right to receive the Per Share Amount, in cash, without interest thereon. As
described in the Offer to Purchase, Purchaser has expressly reserved the right,
following the consummation of the Offer, to cause the Merger Agreement to be
amended to provide non-tendering stockholders the option (the "Cash/Stock
Option") to elect to receive in exchange for each share converted in the merger
either (i) cash in the amount at least equal to the Per Share Amount or (ii)
shares of common stock of United/Harvey. The Offer to Purchase provides that a
number of factors will influence whether or not Purchaser makes the Cash/Stock
Option available to non-tendering stockholders. The information set forth in
Item 2, "Tender Offer of the Bidder" and in Item 3(b)(ii), "Merger Agreement;
The Merger," in the Schedule 14D-9, is incorporated by reference herein.
7
It is contemplated that, upon the purchase of Shares by Purchaser pursuant
to the Offer, the Company's Board of Directors will be reconstituted in its
entirety to consist soley of Purchaser's designees. Any action of the Company's
Board of Directors following the consummation of the Offer with respect to any
amendment to the Merger Agreement will constitute an action of the Company's
Board of Directors as then reconstituted. The information set forth in
Item 3(b)(ii), "Merger Agreement; The Board," in Schedule 14D-9 is
incorporated by reference herein.
At a special meeting of Company's Board of Directors held on November
14, 1994, the Board of Directors unanimously (a) determined that the Offer and
the cash Merger are in the best interests of the Company's stockholders, (b)
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the cash Merger, and (c) resolved to recommend that the
Company's stockholders accept the Offer.
The Board of Directors recommends that the Company's stockholders accept
the Offer as set forth in the Company's response to the Offer filed on Schedule
14D-9. The information set forth in Item 3(b)(ii), "The Offer; Conditions to
the Offer," Item 3(b)(ii), "The Merger," and Item 4, "The Solicitation or
Recommendation," in the Schedule 14D-9 is incorporated by reference herein.
Cockroft Consolidated Corporation, the owner of approximately 45.4% of the
Shares, has agreed to and has tendered the Shares owned by it into the Offer
pursuant to an agreement between Purchaser and Cockroft Consolidated Corporation
(the "Cockroft Agreement"). The information set forth in Item 3(b)(v), "Cockroft
Agreement," in the Schedule 14D-9 is incorporated by reference herein
The Offer expires January 20, 1995.
8
Item 7 (cont.)
Liquidity and Capital Resources
Historically cash flow from operations and sales of surplus assets have been the
primary sources of liquidity for the Company.
Cash flow from operating activities for fiscal 1994 was $8.5 million, an
increase of $3.3 million over the 1993 level of $5.2 million.
During fiscal 1994 the Registrant expended $5.5 million on capital improvements,
consisting principally of $3 million in expenditures on mid-scale renovation
projects at ten (10) hotels, $.8 million on the replacement of television sets
at thirteen (13) hotels and $.7 million on the purchase and installation of
electronic door locks at eight (8) hotels and a telephone system for one (1)
hotel. Funding of the expenditures was accomplished with $1.5 million in
lease/purchase financing; $1.0 million from restricted cash deposits; with the
remaining $3.0 million being provided from operating cash flow.
During fiscal 1994 the Registrant sold an operating Holiday Inn in Houston; a
hotel in Houston, which had been closed since 1988; surplus vacant land in
Atlanta; and a former car wash site in Dallas. Total gross sales proceeds net of
the commissions and other costs related to the sales amounted to $11.4 million
with $8.7 million applied to payment of debt and property taxes related to the
properties, for a net proceeds of $2.7 million. Additionally, $.2 million of
sales proceeds were received on the sale of old television sets and other
furnishings and equipment. During its ten months of operation in fiscal 1994,
the Holiday Inn in Houston had gross revenues of $2.8 million and a net loss
before the sale, of $.6 million.
The lease on one hotel in San Jose, California expired on the last day of fiscal
1994 and another lease on a hotel in Dallas expired on November 30, 1994.
Inasmuch as the Registrant was unable to negotiate acceptable renewal terms or
other arrangements the leases were allowed to expire. During fiscal 1994 the
combined gross revenue was $3.8 million and the combined net loss was $550,000
for these two hotels.
During fiscal year 1994 $1.1 million was deposited into restricted cash accounts
held to fund capital expenditures on six of the Registrant's hotel properties.
These deposits are reflected in the caption "Other investing activities" of the
Consolidated Statement of Cash Flows.
At the end of Fiscal 1994 the Registrant had four (4) minor renovation projects
underway which it expects to complete at a cost of $ .7 million.
As of December 31, 1994, the Registrant failed to meet certain ratios on
a first mortgage loan on one of its hotels. Under the loan agreement the
lender may, at its option, declare the Registrant to be in default under
the loan agreement, accelerate the maturity of the loan, and require
future management fees charged to the hotel to be paid to the lender and
applied to principal reduction. In addition, the lender has advised
the Company that consummation of the Merger will also constitute an event
of default and that the lender will not waive the default. The balance
on this loan at September 30, 1994, was $1,725,000. Management fees
charged to this hotel during fiscal 1994 amounted to $181,770.
9
Item 7 (cont.)
The Registrant holds seven unused land parcels and four car wash sites of which
all except one land parcel are available for sale, however, none were actively
being marketed at the close of year.
Results of Operations
The following table sets forth for the periods indicated,
percentages which certain items reflected in the financial data bear to total
revenues of the Company and the percentage increase or decrease in amounts of
such items as compared to the indicated prior period:
RELATIONSHIP TO TOTAL REVENUES PERIOD TO PERIOD
YEAR ENDED INCREASE (DECREASE)
SEPTEMBER 30 YEARS ENDED
----------------------------- -------------------
1994 1993 1992 1994-93 1993-92
--------- --------- --------- --------- ---------
Revenues:
Rooms 77.7 % 76.2 % 71.9 % 2.3 % (0.8)%
Restaurants 16.0 17.2 18.0 (6.7) (10.4)
Car washes 1.0 1.6 5.1 (41.5) (70.0)
Telephone & Sundry 5.3 5.0 5.0 6.1 (6.0)
--------- --------- ---------
Total Revenues 100.0 100.0 100.0 0.2 (6.3)
--------- --------- ---------
Operating costs and expenses:
Direct: *
Rooms 63.9 66.9 69.2 (2.2) (4.1)
Restaurants 100.0 100.4 101.3 (7.2) (11.2)
Car washes 106.5 109.1 88.2 (42.9) (62.9)
Telephone and sundry 35.1 41.6 42.5 (10.6) (7.8)
Marketing, administrative and general 11.3 10.1 10.4 11.9 (9.3)
Depreciation 9.7 9.7 10.0 0.5 (9.1)
--------- --------- ---------
Total operating costs and expenses: 89.6 91.9 95.1 (2.3) (9.4)
--------- --------- ---------
Operating income 10.4 8.1 4.9 28.8 54.8
Interest expense (10.9) (10.7) (9.9) (1.7) (1.5)
Minority interest (0.1) (0.1) 0.0 (50.9) (39.6)
Gain (loss) on disposition of assets (6.7) 1.3 (3.7) (601.0) 134.4
Loss contingency 0.0 0.0 0.4 0.0 (100.0)
--------- --------- ---------
Income (loss) from operations
before income taxes (7.3) (1.4) (8.3) (445.9) 84.9
Income taxes (credit) (1.4) (0.5) (3.3) (202.0) 86.9
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item (5.9) (0.9) (5.0) (574.2) 83.5
Extraordinary item-gain on
settlement of debt (net of applicable taxes) 0.0 0.0 1.9 0.0 (100.0)
--------- --------- --------- --------- ---------
Net income (loss) (5.9)% (0.9)% (3.1)% (574.2)% 73.2 %
========= ========= ========= ========= =========
<FN>
* Percentages of direct costs and expenses are expressed as a percentage of the applicable revenue
item, e.g. Direct-Rooms is stated as a percentage of Rooms Revenue, consequently, the sum of
percentages of the Operating Costs and Expenses will not equal Total Operating Costs and Expenses.
10
Item 7 (cont.)
1994 Compared to 1993
REVENUES - total revenues for fiscal 1994 were $93.1 million or an increase of
$.2 million from those reported in fiscal 1993. Gross revenues attributable to
two hotels which were disposed of in fiscal 1993 were $1.7 million. While the
two hotels with expiring leases, referred to in the discussion of liquidity and
capital resources, were operated for the full fiscal year 1994, gross revenues
on these hotels decreased by $1.7 million. Gross revenues of the operating hotel
in Houston sold in fiscal 1994 decreased $.8 million. Additionally, gross
revenues from car washes declined by $ .6 million over those reported in fiscal
1993 resulting principally from the disposition of five car wash units in
December 1992 and closing of one other in May 1993. Revenues of the twenty-five
continuing operating hotels and corporate increased by $5.0 million.
Following is a table reflecting the elements of the net change in revenue:
In Millions
Increase
(Decrease)
-----------
Continuing operating 25 hotels & corporate $ 5.0
Hotels with expiring leases (1.7)
Hotels disposed of (2.5)
Car wash units ( .6)
-----
Net change in revenue $ .2
-----
-----
Following is a table comparing room revenues, relative occupancy levels and
average daily room rates (ADR) of the twenty-five hotels remaining in the system
at fiscal year end and after termination of lease of one hotel in November 1994:
1994 1993
------------ ------------
Room revenue $ 67,024,836 $62,314,231
Occupancy 56.68% 54.06%
ADR $54.58 $51.38
OPERATING COSTS AND EXPENSES - total operating costs and expenses decreased by
$2.0 million in fiscal 1994 as compared with fiscal 1993. The reduction of
operating costs and expenses attributable to the two hotels which were disposed
of in 1993 was $1.9 million, costs and expenses of the two hotels with
expiring leases decreased by $1.2 million. Operating costs and expenses on the
operating hotel in Houston, sold in fiscal 1994 decreased $.7 million.
Additionally, operating costs and expenses from car washes decreased $.9
million. Operating costs and expenses of the twenty-five continuing operating
hotels and corporate increased by $2.7 million.
INTEREST EXPENSE - interest expense increased by $171,000 in fiscal 1994 as
compared with fiscal 1993 interest expense, reflecting increases due to addition
of $1.5 million in lease/purchase financing of television sets, electronic locks
and a telephone system; and provision for interest on estimated additional
income taxes.
11
Item 7 (cont.)
GAIN (LOSS) ON DISPOSITION OF ASSETS - a loss of $6.6 million was recognized on
the sale of a hotel in Houston. Additionally, a loss of $548,000 was recognized
upon the sale of another hotel in Houston, which had been closed since 1988. In
addition, gains were recognized on the sale of an unimproved tract of land in
Atlanta and a former car wash unit in Dallas, in the amounts of $.775 million
and $.1 million, respectively.
PROVISION FOR INCOME TAXES - the effective tax rate for 1994 was a net credit of
19.1%. The federal statutory rate of 34% was reduced by 5.9% resulting from the
change in valuation allowance in accounting for income taxes under the liability
method required by Statement of Financial Standards No. 109. The relatively high
overall effective income tax rate was influenced by the fact that taxable income
was earned in states with state income taxes, while losses were incurred in
states having no state income taxes. A detailed reconciliation of the effective
tax rate with statutory rates is set out in Note 2 of Notes to Consolidated
Financial Statements.
1993 Compared to 1992
REVENUES - total revenues for fiscal 1993 decreased by $6.2 million from those
reported in fiscal 1992. Hotel rooms revenues decreased by $.5 million and gross
hotel revenues, including rooms, decreased by $2.7 million. Hotel dispositions,
five in fiscal 1992 and two in fiscal 1993 affected the net change in revenues
markedly. Gross revenues attributable to these seven hotels reflected a net
decrease in gross revenues of $5.6 million. Gross revenues of the twenty-eight
hotels remaining in the system at the end of fiscal 1993 reflected an increase
in gross revenue of $2.9 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 at fiscal year end:
1993 1992
------------ -----------
Room revenue $ 69,447,000 $65,720,000
Occupancy 52.17% 50.59%
ADR $52.11 $50.78
Additionally, gross revenues of the car wash units declined by $3.5 million due
to sales and closings of units in 1992. Seventeen units were in operation at
the beginning of the year while only seven were in operation at the close of the
year. In fiscal 1993 five of the units were sold in early December, 1992 and one
was closed during the year. Only one unit is in current operation.
12
Item 7 (cont.)
OPERATING COSTS AND EXPENSES - total operating costs and expenses decreased by
$8.9 million in fiscal 1993 as compared with fiscal 1992. The reduction of
operating costs and expenses attributable to the seven hotels which were
disposed of was $6.9 million. Additionally, operating costs and expenses of the
car washes decreased by $3.4 million.
INTEREST EXPENSE - while the net change in interest expense for fiscal 1993 was
an increase of only $143,000, two factors are worthy of note in this comparison.
Interest expense attributable to the seven hotels which were disposed of
reflected a decrease of $1.1 million. In 1992 there was a $1.8 million credit
for interest forbearance in the renewal of $42.3 million in first mortgage debt.
GAIN (LOSS) ON DISPOSITION OF ASSETS - a gain of $1.2 million was recognized on
the sale of a hotel in Houston. A deferred gain of $.2 million was recognized
when the purchaser of a hotel during fiscal 1992 prepaid the outstanding
purchase money note. A loss of $.2 million was recorded upon the termination of
a lease on a hotel in Dallas.
PROVISION FOR INCOME TAXES - the effective tax rate for 1993 was a net credit of
34.5% resulting principally from recognition of Federal income tax benefits in
1993 through the elimination of net deferred tax credits. A detailed
reconciliation of the effective tax rate with statutory rates is set out in
Note 2 of Notes to Consolidated Financial Statements.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
United Inns, Inc.
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of United Inns,
Inc., and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of income and stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1994. These
consolidated financial statements are the responsibility of the Company's
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 United Inns,
Inc. and subsidiaries as of September 30, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended September 30, 1994 in conformity with generally accepted
accounting principles.
FRAZEE, TATE & ASSOCIATES
/s/ Frazee, Tate & Associates
Memphis, Tennessee
December 8, 1994
14
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 7,984,467 $ 4,095,215
Current portion of long-term receivables 1,022,664 1,072,113
Accounts receivable - net of allowance
for bad debts of $120,174 in 1994 and
$78,835 in 1993
Trade 2,946,509 2,593,459
Other 539,459 1,085,197
Inventories (Note 1) 842,770 886,483
Prepaid expenses 6,538,167 6,084,713
------------ ------------
Total current assets 19,874,036 15,817,180
------------ ------------
INVESTMENTS (Note 1)
Long-term receivables less
current maturities 258,103 313,424
Land not in use - at cost 8,018,648 8,907,151
Other investments 10,000 10,000
------------ ------------
8,286,751 9,230,575
------------ ------------
PROPERTY AND EQUIPMENT - at cost (Notes 1 and 3)
Land 12,361,729 13,696,986
Buildings and improvements 136,461,189 154,266,283
Furnishings and equipment 26,822,381 30,508,425
Leased property under capital leases (Note 4) 2,891,392 4,608,045
------------ ------------
178,536,691 203,079,739
Less accumulated depreciation 85,879,095 91,457,432
------------ ------------
92,657,596 111,622,307
Construction in progress 1,212,736 575,851
Property held for sale 1,968,472 4,107,880
------------ ------------
95,838,804 116,306,038
------------ ------------
OTHER ASSETS (Note 1)
Franchises 534,085 674,143
Deposits and prepaid expenses 1,379,296 1,590,596
Restricted cash 3,112,803 3,114,320
------------ ------------
5,026,184 5,379,059
------------ ------------
$129,025,775 $146,732,852
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
15
Item 8 (cont.)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
CURRENT LIABILITIES
Long-term debt due within one year $ 2,439,311 $ 3,243,325
Note payable 258,103 261,160
Accounts payable 2,242,810 2,418,739
Sales and occupancy taxes 1,208,706 1,211,561
Accrued expenses:
Payroll and payroll taxes 1,689,162 1,421,127
Rent and property taxes 2,149,927 2,706,849
Insurance 3,541,341 3,281,682
Interest and other 2,368,243 2,183,724
Income taxes payable (Notes 1 & 2) 1,100,338 219,802
------------ ------------
Total current liabilities 16,997,941 16,947,969
------------ ------------
LONG-TERM DEBT (Note 3)
First mortgages 91,699,684 102,926,861
Capitalized lease obligations 53,892 542,121
Chattel mortgages 1,799,666 625,934
Installment loans and other 305,170 313,692
------------ ------------
93,858,412 104,408,608
Less amounts due within one year 2,439,311 3,243,325
------------ ------------
91,419,101 101,165,283
------------ ------------
MINORITY INTEREST 523,490 517,096
------------ ------------
DEFERRED OTHER 949,466 1,410,978
------------ ------------
DEFERRED INCOME TAXES (Notes 1 and 2) 3,565,052 5,721,882
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)
STOCKHOLDERS' EQUITY
Common stock - $1 par value -
authorized 10,000,000 shares -
issued 4,117,813 shares 4,117,813 4,117,813
Paid-in capital 14,613,138 14,613,138
Retained earnings 40,057,754 46,327,055
------------ ------------
58,788,705 65,058,006
Less treasury shares at cost - 1,451,914 in 1994
and 1,476,904 in 1993 43,217,980 44,088,362
------------ ------------
Total stockholders' equity 15,570,725 20,969,644
------------ ------------
$129,025,775 $146,732,852
------------ ------------
------------ ------------
16
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------ ------------
Revenues
Rooms $ 72,403,178 $ 70,772,351 $ 71,322,112
Restaurants 14,924,087 15,999,888 17,856,821
Car washes 886,714 1,516,848 5,054,354
Telephone and sundry 4,916,338 4,633,732 4,927,705
------------ ------------ ------------
93,130,317 92,922,819 99,160,992
------------ ------------ ------------
Operating costs and expenses:
Direct:
Rooms 46,300,258 47,347,003 49,387,399
Restaurants 14,916,698 16,069,407 18,093,393
Car washes 944,397 1,654,204 4,456,532
Telephone and sundry 1,724,643 1,929,668 2,093,579
Marketing, administrative and general 10,503,853 9,388,355 10,345,753
Depreciation 9,078,070 9,030,861 9,938,793
------------ ------------ ------------
83,467,919 85,419,498 94,315,449
------------ ------------ ------------
Operating income 9,662,398 7,503,321 4,845,543
Interest expense (net of capitalized
interest) (10,117,188) (9,946,202) (9,802,783)
Minority interest (81,394) (53,932) (38,636)
Gain (loss) on disposition of assets (6,266,287) 1,250,732 (3,633,571)
Loss contingency 387,839
------------ ------------ ------------
Income (loss) before income taxes (6,802,471) (1,246,081) (8,241,608)
Income taxes (credit) (1,297,420) (429,604) (3,290,512)
------------ ------------ ------------
Income (loss) before extraordinary item (5,505,051) (816,477) (4,951,096)
Extraordinary item-gain on settlement
of debt (net of income taxes of
$1,092,511) 1,906,834
------------ ------------ ------------
Net income (loss) $ (5,505,051) $ (816,477) $ (3,044,262)
------------ ------------ ------------
------------ ------------ ------------
Earnings per common share
Income (loss) before extraordinary
item ($2.08) ($0.31) ($1.87)
Income (loss) from extraordinary item 0.00 0.00 0.72
------------ ------------ ------------
Net income (loss) ($2.08) ($0.31) ($1.15)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares
of common stock 2,644,259 2,640,909 2,640,942
------------ ------------ ------------
------------ ------------ ------------
Cash dividends per share $0.00 $0.00 $0.00
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
17
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK PAID-IN RETAINED TREASURY
--------------------
SHARES AMOUNT CAPITAL EARNINGS STOCK
------ ------ ---------- ----------- ----------
Balance September 30,
1991 4,117,813 $4,117,813 $14,613,138 $50,187,794 $(44,088,110)
Purchase of 70
treasury shares (252)
Net loss for year (3,044,262)
--------- -------- ----------- ----------- -----------
Balance September 30,
1992 4,117,813 4,117,813 14,613,138 47,143,532 (44,088,362)
Net loss for year (816,477)
--------- --------- ---------- ----------- -----------
Balance September 30,
1993 4,117,813 4,117,813 14,613,138 46,327,055 (44,088,362)
Purchase of 10
treasury shares (118)
Reissue of 25,000
treasury shares (764,250) 870,500
Net loss for year (5,505,051)
--------- --------- ----------- ----------- -----------
Balance September 30,
1994 4,117,813 $4,117,813 $14,613,138 $40,057,754 $(43,217,980)
--------- ---------- ----------- ----------- ------------
--------- ---------- ----------- ----------- ------------
The accompanying notes are an integral part of the financial statements.
18
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------- -------------
OPERATING ACTIVITIES
Net loss $(5,505,051) $ (816,477) $ (3,044,262)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 9,585,072 9,476,776 10,173,167
Loss (gain) from properties
sold 6,170,581 (1,250,732) 246,386
Deferred income taxes (2,156,830) (728,751) (2,561,308)
Minority interest 6,394 3,932 3,636
Debt reduction (433,411)
Non-cash compensation 106,250
Changes to operating assets and
liabilities:
Accounts receivable 192,688 260,134 (294,709)
Inventories 20,374 110,346 274,421
Prepaid expenses (456,511) (667,787) (743,961)
Accounts payable (146,054) 74,420 (726,816)
Accrued expenses 285,005 (1,158,771) 579,402
Income taxes payable 880,536 (72,733) 195,263
------------ ------------- -------------
Net cash provided by operating activities 8,549,043 5,230,357 4,101,219
------------ ------------- -------------
INVESTING ACTIVITIES
Payments on settlement on car wash
assets (1,200,000)
Purchase of property, plant and
equipment (2,973,856) (4,437,071) (2,980,300)
Proceeds from sales of fixed assets 2,867,311 3,233,854 5,208,873
Payments received on notes
receivable 54,770 504,274 26,598
Other investing activities (1,117,683) (1,136,277) (1,606,767)
------------ ------------- -------------
Net cash used for investing activities (1,169,458) (1,835,220) (551,596)
------------ ------------- -------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 2,000,000
Payments on long-term debt (3,454,316) (3,214,299) (4,455,184)
Purchase of treasury shares (118) (252)
Other financing activities (35,899) (2,000) 187,660
------------ ------------- -------------
Net cash used for financing activities (3,490,333) (3,216,299) (2,267,776)
------------ ------------- -------------
Increase in cash and cash equivalents 3,889,252 178,838 1,281,847
Cash and cash equivalents at beginning
of year 4,095,215 3,916,377 2,634,530
------------ ------------- -------------
Cash and cash equivalents at end of year $ 7,984,467 $ 4,095,215 $ 3,916,377
------------ ------------- -------------
------------ ------------- -------------
The accompanying notes are an integral part of the financial statements.
19
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------- -------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest, net of amounts
capitalized $9,666,258 $ 9,981,680 $ 8,168,690
Income taxes 383,764 368,120 198,422
Supplemental schedule of non-cash
investing and financing activities:
Debt to acquire property, plant and
equipment 1,447,213 879,793
Restricted cash used to purchase
property, plant and equipment 1,078,145 1,369,863 512,401
Acquisition (revaluation)
of car wash assets (1,168,774)
Debt to acquire partnership interest 1,698,693
Note received in exchange for
property 300,000 1,000,000
Property disposition under debt
settlement agreement 15,818,650
Other property dispositions 1,951,899
Debt reduction 433,411
Debt payment from fixed asset
sales proceeds 8,572,654
Compensation paid with treasury
stock 106,250
The accompanying notes are an integral part of the financial statements.
20
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the results of operations,
account balances and cash flows of the Company, its wholly-owned
subsidiaries, and a 75% owned subsidiary. During 1992 a 50% owned joint
venture which was previously consolidated was acquired in full. All
material intercompany transactions and accounts have been eliminated in
consolidation.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications as the result of a Securities and Exchange Commission
review. The SEC believes it more appropriate to classify the operations and
property sales of the Company's car wash division as continuing operations
rather than discontinued operations as previously reported. From 1990
through the present year, the Company has been in the process of selling
car wash properties and withdrawing from the car wash business. At present
the Company has disposed of or closed all locations except for one
operating unit under a lease expiring October 31, 1995. Certain other
reclassifications have been made to prior years to conform with income and
expense classifications adopted in the year ended September 30, 1993. These
reclassifications have no effect on net income (loss) or stockholders'
equity as previously reported.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company
places its temporary cash investments with high credit quality financial
institutions. At times such investments may be in excess of the FDIC
insurance limit.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out method.
INVESTMENTS
Classified as land not in use are various parcels of land held for possible
future development or sale. This cost is not in excess of net realizable
value.
PROPERTY HELD FOR SALE
Properties classified as current have an approved contract to sell or were
sold before issuance of the financial statements. Noncurrent properties are
either operating properties that management is actively seeking to sell or
idle properties which are no longer operating. Both current and noncurrent
are stated at the lower of cost or estimated net realizable value.
21
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are depreciated on the straight line method over the
estimated useful life of the property. The cost of replacements and
improvements are capitalized. Estimated useful lives utilized for
computation of depreciation on property and equipment are as follows:
Building and improvements 10 to 40 years
Furnishings and equipment 3 to 10 years
Capitalized leases 25 years
Interest costs of $76,359 for 1992 were capitalized on major renovation
projects. No interest was capitalized for 1994 or 1993.
OTHER ASSETS
Franchise costs, deferred mortgage, loan and other expenses exclusive of
security deposits are recorded at cost and amortized on a straight line
basis over the terms of the related agreements. These are presented net of
accumulated amortization of $2,400,280 and $2,209,108 at September 30, 1994
and 1993 respectively. Restricted cash is held for capital improvements on
six of the Company's properties.
EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of
shares outstanding during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable from
stock options.
SELF INSURANCE
The Company is self insured for various levels of general liability,
worker's compensation and employee medical coverages. Accrued insurance
includes the accrual of estimated settlements from known and anticipated
claims.
INCOME TAXES
Effective October 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method of Accounting Principles Board
Opinion No. 11 to the asset and liability method required by Statement of
Financial Accounting Standards No. 109. Prior year financial statements
were not restated. The cumulative effect of adopting this accounting
statement was immaterial. The effect of the adoption on income before
income taxes was not significant.
22
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FEDERAL AND STATE INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income
taxes and benefits are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
The statutory federal income tax rate and the effective tax rate are
reconciled below:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993 1992
------ ------ ------
Statutory tax rate (34.0%) (34.0%) (34.0%)
Increases (decreases) in tax resulting from:
New jobs credit (0.5)
Change in valuation allowance 5.9
State taxes net of U. S. federal benefit 5.9 4.7 0.3
Minimum tax 0.6 2.7 2.6
Other 2.5 (7.9) (10.3)
------ ------ ------
Effective tax rate (19.1%) (34.5%) (41.9%)
------ ------ ------
------ ------ ------
The income tax provision (benefit) consists of:
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
----------- ---------- ----------
Current - Federal $ 172,418 $ 194,565 $ 233,386
- State 686,992 104,578 133,437
---------- ---------- ----------
859,410 299,143 366,823
---------- ---------- ----------
Deferred - Federal (2,076,422) (713,094) (2,454,957)
- State (80,408) (15,653) (109,867)
---------- ---------- ----------
(2,156,830) (728,747) (2,564,824)
---------- ---------- ----------
$(1,297,420) $ (429,604) $(2,198,001)
----------- ---------- -----------
----------- ---------- -----------
Income tax expense for fiscal 1992 consists of ($3,290,512) on loss from
operations and $1,092,511 on the extraordinary item.
The deferred tax provisions are summarized below:
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------ ------------ ------------
Accelerated depreciation $(2,312,226) $ (309,752) $(3,136,146)
Capitalized interest and taxes (721,953) (8,894) (848,489)
Capitalized leases 115,473 193,075 101,171
Change in valuation allowance 401,264
Utilization of NOL carryforwards 411,295
Other (50,683) (25,435) (447)
Reinstatement (elimination)
of net deferred tax credits (577,741) 1,319,087
------------ ------------ ------------
$(2,156,830) $ (728,747) $(2,564,824)
------------ ------------ ------------
------------ ------------ ------------
23
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FEDERAL AND STATE INCOME TAXES (Continued)
For Federal tax reporting purposes, net operating losses of $20,047,975 and
tax credits of $657,020 are available to be carried to future periods
expiring in fiscal years 2002 through 2008. A valuation allowance of
$3,441,517 at September 30, 1994, has been recognized to offset the
deferred tax assets related to these items.
Following is a summary of the significant components of the Company's
deferred tax assets and (liabilities):
SEPTEMBER 30, OCTOBER 1,
1994 1993
------------ -------------
Depreciation $(8,271,596) $(11,305,775)
Other (261,652) (255,223)
------------ -------------
Gross deferred tax liabilities (8,533,248) (11,560,998)
------------ -------------
Tax credit and net operating loss
carryforwards 7,739,388 8,150,682
Vacation 293,217 283,566
Other 377,108 445,121
------------ -------------
Gross deferred tax assets 8,409,713 8,879,369
------------ -------------
Valuation allowance (3,441,517) (3,040,253)
------------ -------------
Net deferred tax liability $(3,565,052) $ (5,721,882)
------------ -------------
------------ -------------
The Company is presently under examination by a state revenue department.
The Company has determined and provided for an estimated liability. It is
expected that resolution of this matter will be lengthy and may require
litigation.
3. LONG-TERM DEBT
The range of interest rates and maturities of the long-term debt at
September 30, 1994, are summarized below:
First mortgages - 7.25% to prime + 2%, due 1995 to 2007
Capitalized lease - 10.5%, due 1995
Chattel mortgages - 11% to 12.77%, due 1995 to 1999
Installment loans and others - 6.5% to 10%, due 1995 to 2000
Long-term debt including capitalized leases matures as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993
---------- -----------
1994 $ $ 3,243,325
1995 2,439,311 10,353,060
1996 37,800,961 38,205,212
1997 34,426,711 40,722,026
1998 2,255,366 1,798,862
1999 1,561,204
Subsequent 15,374,859 10,086,123
----------- ------------
$93,858,412 $104,408,608
----------- ------------
----------- ------------
24
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT (Continued)
The major portion of the Company's property and equipment is pledged as
collateral on mortgage and lease obligations. The Company is guarantor of
the major portion of the debt of its subsidiaries.
Under terms of a debt renewal agreement completed on December 22, 1992,
with one of its major lenders, the Company refinanced $42,269,013 of debt,
on which the Company gave an unlimited guarantee for a period of one year.
Stock of a Company subsidiary is pledged for the debt. The lender retained
a first mortgage on previously secured assets and obtained a second
mortgage on additional property which was owned by the Company's
subsidiary. The agreement contains certain covenants including
limitations on dividend distributions and fixed charge ratios of a
subsidiary. The debt matures September 30, 1997.
The Company has failed to meet the minimum cash flow coverage ratio on one
of its loans. If such failure continues through December 31, 1994, the
lender may, at their option, declare the Company to be in default under
the loan agreement, and the accrued incentive management fee may not be
paid for that period. Subsequent management fees would then be required to
be paid to the lender and applied to principal reduction. The balance on
this loan at September 30, 1994, is $1,725,000 and this is included as
noncurrent.
4. LEASES
The Company is obligated under long-term leases primarily for the lease of
various hotel properties and equipment. In addition to specified minimum
annual rentals, some of the leases provide for contingent rentals based on
percentages of revenue; most require payment by the lessee of property
taxes, insurance and maintenance. The leases extend for varying periods;
some contain renewal options. Rentals to be received from noncancelable
subleases are not material. The Company's property held under capital
leases, included in property, plant, and equipment in the balance sheet,
consists of real estate of $2,891,392 in 1994 and $4,608,045 in 1993.
Accumulated depreciation was $2,872,121 in 1994 and $4,404,447 in 1993.
Lease payments included in the accompanying consolidated statements of
income were as follows:
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
----------- ---------- ----------
Capital Leases:
Minimum $ 522,100 $ 633,655 $ 656,488
Contingent 355,707 515,914 633,266
----------- ---------- ----------
877,807 1,149,569 1,289,754
----------- ---------- ----------
Operating Leases:
Minimum 897,898 1,053,342 1,313,731
Contingent 768,375 641,842 493,975
----------- ---------- ----------
1,666,273 1,695,184 1,807,706
----------- ---------- ----------
$2,544,080 $2,844,753 $3,097,460
----------- ---------- ----------
----------- ---------- ----------
25
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LEASES (Continued)
The future minimum rental commitments for all noncancelable leases at
September 30, 1994, are summarized below:
CAPITAL OPERATING
LEASE LEASES
---------- ----------
1995 $ 54,600 $ 304,174
1996 34,849
1997 33,889
1998 33,889
1999 33,889
Subsequent years 1,773,316
---------- ----------
Total minimum rentals 54,600 $2,214,006
Less interest portion 708
---------- ----------
----------
Present value of net minimum rentals $ 53,892
----------
----------
The interest rate on the capital lease is 10.5%; this rate was used in
computing the present value.
5. PENSION, POSTEMPLOYMENT AND BONUS PLANS
The Company's 1993 Stock Incentive Plan for key employees and directors
provides for the issuance of stock options at not less than fair market
value on the date of grant. Options are exercisable from one to five years
after the grant date. No options may be granted after October 1, 2003. At
September 30, 1994, 296,000 shares were available for the granting of
additional options. The Company issues treasury shares to fulfill its
obligations under the stock option plans.
Transactions since inception are summarized as follows:
Fair Market
Value at
Number of Date of
Shares Grant
--------- -----------
Options granted 4,000 $ 12.875
--------- -----------
Outstanding at September 30, 1994 4,000 $ 12.875
--------- -----------
--------- -----------
The Company granted 25,000 shares and an option for 35,000 shares to a
consultant outside of the plan in 1993. The fair market value of $4.25 per
share at contract date was used to measure consulting expense of $106,250
and the exercise price of the option. The 35,000 share option is
exercisable up to 1999.
The Company adopted in 1994 a severance pay policy concerning termination
of employment due to elimination of an employee's position as a result of a
reduction in force, merger with another entity, sale of Company assets or
other similar events. The Company pays for unused vacation plus severance
pay based on years of service.
26
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PENSION, POSTEMPLOYMENT AND BONUS PLANS (Continued)
The Company has an executive bonus plan which covers full time executive
officers of the Company. The plan provides for a distribution of 1% to 3%
of consolidated income before taxes and unusual items. No amounts were
approved for distribution in 1994, 1993 or 1992.
Effective January, 1992, the Company adopted a Retirement Savings 401(k)
Plan. The plan is available to all employees with one year of service who
are not covered by a collective bargaining agreement and who have attained
age 21. The Company deposits elective deferral contributions which have
been withheld from employee compensation. The Company may also make a
discretionary contribution in such amount it deems advisable. No
discretionary contributions have been made by the Company. In addition, the
Company matches a portion of the employee contribution up to 4% of their
annual earnings. The Company contribution was $292,926 for 1994, $287,923
for 1993 and $178,635 for 1992. All contributions to the Plan, other than
discretionary contributions, are 100% non-forfeitable.
6. COMMITMENTS AND CONTINGENCIES
Under the terms of the Holiday Inn, Hampton Inn, Ramada, Howard Johnson,
Super 8 and Days Inn franchises, the Company is committed to make annual
payments for franchise fees, reservation service, and advertising. The
amounts due under the agreements were $5,896,426 for 1994, $5,735,441 for
1993, and $5,757,912 for 1992.
There are a number of guest and customer claims, employee wage claims, and
other disputed amounts outstanding against the Company, all of which
occurred in the ordinary course of business. Counsel has advised that there
is no material exposure to the Company in these matters.
27
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. (UNAUDITED) QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the (unaudited) quarterly results of
operations for the years ended September 30, 1994, and September 30, 1993:
QUARTERS
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
1994
Revenues $20,369,965 $23,424,110 $23,998,310 $25,337,932
----------- ----------- ----------- -----------
Net income (loss) $(1,295,334) $ 585,388 $(4,235,847) $ (559,258)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share $ (0.49) $ 0.22 $ (1.60) $ (0.21)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1993
Revenues $21,400,817 $22,881,441 $24,400,817 $24,239,744
----------- ----------- ----------- -----------
Net income (loss) $(1,909,569) $ 563,693 $ (63,724) $ 593,123
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share $ (0.72) $ 0.21 $ (0.02) $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
8. SEGMENT INFORMATION
The Company has one primary business segment, the operation of hotel
properties. This segment represents more than 90% of consolidated revenue,
operating profit and identifiable assets. All revenues were derived from
domestic operations. There are no major customers and no government
contracts.
28
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. GAIN (LOSS) FROM ASSET DISPOSITIONS
Loss from disposition in 1994 includes a $6,599,719 loss on sale of an
operating hotel and a loss of $548,407 on sale of a closed hotel. Gains of
$774,597 and $110,969 were recognized on the sales of an unimproved tract
of land and a former car wash unit.
Gain on asset dispositions in 1993 include gain of $1,257,943 on the sale
of one property, recognition of a deferred gain of $183,927 on a property
sold in 1992 and a loss of $191,138 on termination of a lease.
Included in 1992 property dispositions were the sale of two operating
properties for a net gain of $482,378, the demolition and write off of a
closed hotel for a loss of $1,187,963, and a loss of $431,454, resulting
from the exercise of a purchase option for the joint venture partner's 50%
interest in a hotel. Additionally the termination of a lease on an
operating property resulted in a loss of $464,467. A $2,029,865 loss
resulting from the sale and write down of car wash properties was also
recognized in 1992.
10. DEBT EXTINGUISHMENT AND LOSS CONTINGENCY
In March, 1992, a conveyance was made of two hotels to the mortgage holder,
resulting in a debt deficiency of $4,200,000. This deficiency was settled
for a cash payment of $1,200,000 resulting in a net of tax gain of
$1,906,834 on the debt settlement. An estimated loss contingency of
$1,718,279 recorded in 1991 on the property conveyance was settled at
$1,330,440 in March, 1992, resulting in a loss recovery credit of $387,839.
11. SUBSEQUENT EVENTS
On November 14, 1994, the Company entered into a merger agreement with the
United/Harvey Holdings, L.P. (purchaser) whereby the purchaser has tendered
an offer to acquire all of the outstanding shares of the Company at $25 per
share. At November 14, 1994, the Company had 2,665,899 shares issued and
outstanding and 39,000 shares subject to outstanding options. Under the
merger agreement, the Company along with Harvey Hotels, an operator of
eight hotels, will become wholly owned subsidiaries of United/Harvey, a
wholly owned subsidiary of the purchaser.
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure.
PART III
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS' OF THE REGISTRANT.
Name Age Since Position
- ---- --- ----- --------
Don Wm. Cockroft 56 1967 President and Chief Executive
(brother of Officer and Director
Robert L. Cockroft
and Janet C. Virgin,
brother-in-law of
J. Howard Lammons)
(a)
J. Howard Lammons 65 1957 Director
(brother-in-law of Private investor. Advisory
Don Wm. Cockroft Director, Memphis NationsBank
Robert L. Cockroft, of TN.
and Janet C. Virgin)
(a)
Robert L. Cockroft 53 1971 Director
(brother of Don Wm. Physician-Memphis
Cockroft and Janet C. Radiological Professional
Virgin, brother-in-law Corporation -
of J. Howard Lammons) Practitioner of
(c) Medicine.
Howard W. Loveless 67 1977 Director
(b) and (c) Private consultant.
Janet C. Virgin 60 1991 Director
(sister of Don Wm. Private Investor
Cockroft and Robert L.
Cockroft; sister-in-law
of J. Howard Lammons)
(a)
Ronald J. Wareham 50 1993 Director
(a), (b) and (c) President - R. J. Wareham
& Company Incorporated, a
corporate financial
advisory firm.
Augustus B. Randle, III 54 Secretary and General
Counsel
J. Don Miller 59 Vice President - Finance
John M. Dollar 53 Vice President
<FN>
(a) Member of the Executive Committee of the Board.
(b) Member of the Audit Committee of the Board.
(c) Member of the Compensation Committee of the Board.
The above directors and executive officers have had the principal
occupations set forth above for at least five years, except for Mr. Wareham, Mr.
Lammons and Mr. Loveless. Mr. Wareham has been President of R. J. Wareham &
Company, Incorporated, a corporate financial advisory firm since 1991. From
30
1984 to 1991, he was a managing director of Dean Witter Reynolds' Corporate
Finance Office in Atlanta, Georgia. Mr. Lammons has been principally involved
in private investment activities since his retirement from the Company in
March 1994. Prior to his retirement, Mr. Lammons served as Executive
Vice-President of the Company since 1978. Mr. Loveless has been principally
involved in private consulting activities since January 1, 1994. Prior to that
date and for over five years prior thereto, Mr. Loveless served as President of
Haas, Inc., a private investment advisory company.
It is contemplated that, upon the purchase of Shares by the Purchaser pursuant
to the Offer, that the Company's Board of Directors will be reconstituted in
its entirety to consist solely of Purchaser's designees. Information regarding
such Purchaser designees is contained under the caption "Individuals Designated
by Purchaser As Purchaser Designees" found in Annex A to the Schedule 14D-9,
which information is incorporated by reference herein.
31
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and its other most highly
compensated executive officer, whose total annual salary and bonus for the
Company's 1994 fiscal year exceeded $100,000, for services rendered in all
capacities during the fiscal years ended September 30, 1994, 1993 and 1992.
ANNUAL COMPENSATION
All Other
Fiscal Salary Compensation
Name and Principal Position Year ($)(2) ($)(1)(3)
--------------------------- ---- ------ ---------
Don Wm. Cockroft 1994 233,250 11,174
President and Chief Executive 1993 216,000 169,262
Officer 1992 216,000
John M. Dollar 1994 117,167 8,272
Vice President 1993 113,000 47,191
1992 113,000
<FN>
(1) In accordance with transitional provisions of the rules of the
Securities and Exchange Commission (the "SEC") on executive
compensation disclosure, amounts of All Other Compensation have not
been included for fiscal year 1992.
(2) Salary includes base salary earned and paid in cash during the fiscal
year and the amount of base salary deferred at the election of the
executive officer under the United Inns, Inc. Retirement Savings Plan
(401(K) Plan) for fiscal years 1992, 1993, and 1994.
(3) All Other Compensation consists of (a) the amount ($3,585) in
insurance premiums provided to each executive officer through the
Company's Group Health Insurance Plan that is not available generally
to all salaried employees, and (b) matching contributions to the
United Inns, Inc. Retirement Savings Plan (401(K) Plan); Such amounts,
respectively were as follows for 1994: Mr. Cockroft, $7,589; and Mr.
Dollar, $4,687.
CHANGE IN CONTROL CONTRACTS
On June 1, 1987, the Company entered into a severance agreement with Mr.
John M. Dollar. Under this agreement, Mr. Dollar would be entitled to
severance compensation in the event that his employment is terminated following
a change in control of the Company. The amount of compensation would be equal
to a maximum of 200% of his base compensation for the twelve months prior to
his termination plus an additional amount for benefits. The maximum amount
of compensation which would be payable to Mr. Dollar, if his employment was
terminated, as of November 14, 1994, would be $236,000 plus an additional amount
for benefits.
Additionally, on June 1, 1987 the Company has entered into Severance
Agreements with two other executive officers of the Company. Under the
agreements, Mr. Augustus B. Randle, III and Mr. J. Don Miller are entitled to
severance compensation in the event that their employment is terminated
following a change in control of the Company. Reference is made to the Schedule
14D-9, Item 3(b)(vi) "Severance Agreements" which sets forth in greater detail
the terms of these agreements.
COMPENSATION OF DIRECTORS
For fiscal year 1994 all directors are to be paid a fee of $750 for each
Board meeting attended. In addition, directors who are not employees of the
Company are to be paid a quarterly fee of $1,500, plus $400 for each Board
Committee meeting attended.
The Company has a consulting arrangement with R. J. Wareham & Company,
Incorporated ("Wareham & Co."), under the terms of which Wareham & Co. is to be
paid by the Company for Ronald J. Wareham's time and expenses for financial
advice to the Company related to a variety of corporate projects. Mr. Wareham
is the sole shareholder of Warehem & Co. The Company has made payments in the
aggregate amount of $26,450 to Wareham & Co., during the Company's fiscal year
ended September 30, 1994.
32
The Company's 1993 Stock Incentive Plan provides that each director who is
not also an employee of the Company and who is incumbent at the date of each of
the five consecutive annual meetings of stockholders beginning with the
Company's 1994 annual meeting of stockholders shall automatically be granted,
immediately after the conclusion of each such annual meeting, an option to
purchase 1,000 shares of Common Stock. In connection with the Company's 1994
annual meeting of shareholders held on February 11, 1994, pursuant to the
Company's 1993 Stock Incentive Plan the Company granted to each of Robert L.
Cockroft, Howard W. Loveless, Janet C. Virgin and Ronald J. Wareham, an option
to purchase up to 1,000 shares of Common Stock at an exercise price of $12.87
per share of Common Stock.
EXECUTIVE BONUS PLAN
The Company has an executive bonus plan under which individual
discretionary awards can be made to the full-time executive officers of the
Company. The sum to be distributed ranges from 1% to 3% of the consolidated net
income of the Company before income taxes. No cash amounts have been paid under
such plan since the fiscal year ended September 30, 1985.
LONG-TERM INCENTIVES
Stock options are authorized to be granted as long-term incentives to
certain key employees of the Company, including executive officers, under the
Company's 1993 Stock Incentive Plan (the "1993 Plan"). Under the terms of this
plan, the Company may grant options to key employees (determined by the
Compensation Committee) to purchase such number of shares of the Common Stock of
the Company as is determined by the Compensation Committee.
The number of shares for which options will be granted to executive
officers will be determined by the Compensation Committee based upon
performance, potential and other subjective factors. However, no set criteria
will be used and other factors may influence the Compensation Committee's
determination with respect to the number of shares granted, such as the
promotion of an individual to a higher position, a desire to retain a valued
executive or the number of shares then available for grant under 1993 Plan. The
stock option holdings of an individual at the time of a grant will not generally
be considered in determining the size of a grant to that individual.
EMPLOYEE BENEFIT PLANS
The material which follows in this section describes the provisions of
employee benefit plans now in effect, or in effect during the Company's last
fiscal year, other than group life and accident insurance, group hospitalization
and other similar group payments and benefits, in which some or all of the
employees of the Company participate.
1993 STOCK INCENTIVE PLAN
On November 19, 1993, the Company's Board of Directors adopted the 1993
Plan, which was approved by the Company's stockholders at the Company's annual
meeting of stockholders held on February 11, 1994 (the "1994 Annual Meeting").
The 1993 Plan provides for the granting of options to purchase for cash an
aggregate of not more than 300,000 shares of Common Stock. Such options may be
granted to key employees, including officers of the Company and its
subsidiaries, as may be designated by the Compensation Committee of the Board.
At November 14, 1994, the Company had granted an aggregate of 4,000 options to
non-employee directors of the Company at an exercise price of $12.87 per share
of Common Stock.
Under the terms of the 1993 Plan, the Compensation Committee may from time
to time grant options to key employees to purchase Common Stock at a price which
may not be less than the fair market value of the shares, as determined by the
mean between the high and low prices of the stock on the New York Stock Exchange
on the date the option is granted. In addition, the 1993 Plan provides that
each director who is not also an employee of the Company and who is an incumbent
at the date of each of the five consecutive annual meetings of stockholders
beginning with the 1994 Annual Meeting shall automatically be granted,
immediately after the conclusions of each such annual meeting, an option to
purchase 1,000 Shares. Each person who is not also an employee of the Company
and who is elected or appointed a director during such five-year period other
than at an annual meeting shall, upon such election or appointment, be granted
an option to purchase 1,000 shares of Common Stock. The exercise price of
options granted to directors under the 1993 Plan must be equal to the mean
between the high and low prices of the stock on the New York Stock Exchange on
the date of grant of the option and the right to exercise such options will vest
one year from the date of the grant, if not earlier upon the occurrence of
certain specified events as described below.
33
Options may not be exercised later than five years after the date of grant.
Subject to the limitations imposed by the provisions of the Internal Revenue
Code, certain of the options granted under the 1993 Plan to key employees may be
designated "incentive stock options." The Company may make interest-free demand
loans to holders of options not designated as incentive stock options for the
purpose of exercising such options and paying any tax liability associated with
such exercise.
Except as provided herein, no option may be exercised until the optionee
has completed one year of service after the option is granted, except in the
case of termination of an employee's employment or a director's directorship
because of death or disability, nor may an option be exercised after termination
of an employee's employment or a director's directorship for any reason other
than death, disability, retirement or for cause. Options may be exercised
within twelve months (a) after the
optionee retires, (b) after termination of an employee's employment or a
director's directorship on account of permanent disability, or (c) after death
when in the service of the Company or any of its subsidiaries. Options may also
be exercised within three months after termination of an employee's employment
or director's directorship if termination is for reasons other than death,
disability or retirement so long as such termination is not for cause, as
determined by the Compensation Committee. If termination is for cause, all
unexercised options of optionee terminated for cause shall immediately terminate
and be of no further force or effect. In the event of death within the twelve-
month period following termination of an employee's employment or a director's
directorship for retirement or permanent disability, options may be exercised by
the optionee's legal representative within twelve months following the date of
death. However, under no circumstances may an option be exercised after the
expiration of the stated period of the option.
No cash consideration is paid for the granting of the options. Payment in
full of the option price must be made upon exercise of any option.
The 1993 Plan provides for the use of treasury shares.
No options or awards may be granted under the 1993 Plan after October 1,
2003, but options or awards granted prior to October 1, 2003, may extend beyond
that date. The 1993 Plan may be discontinued by the Company's Board of
Directors, but no termination may impair options or awards granted prior hereto.
Upon the occurrence of a Change in Control (as defined in the 1993 Plan) of
the Company, each holder of an unexpired option under the 1993 Plan will have
the right to exercise the option in whole or in part without regard to the date
that such option would be first exercisable, except no option may be exercised
less than six months from the date of grant, and such right will continue, with
respect to any such holder whose employment with the Company or subsidiary or
whose directorship terminates following a change in control, for a period ending
on the earlier of the date of expiration of such option or the date which is
twelve months after such termination of employment or directorship.
The Compensation Committee may alter or amend the 1993 Plan at any time.
No amendment by the Compensation Committee, however, may increase the total
number of shares reserved for purposes of the 1993 Plan, reduce the option price
to an amount less than the fair market value at the time the option was granted,
extend the duration of the 1993 Plan or modify the provision for the automatic
grant of options to directors, unless such amendment is approved by the
stockholders. No amendment or alteration may impair the rights of optionees
with respect to options theretofore granted, except the Compensation Committee
may revoke and cancel any outstanding options which, in the aggregate, would
create a significant adverse effect on the Company's financial statement in the
event that the Financial Accounting Standards Board issues a statement requiring
an accounting treatment which causes such adverse effect with respect to options
then outstanding. The Compensation Committee has the power to interpret the
1993 Plan and to make all other determinations necessary or advisable for its
administration.
34
Under current federal tax law, non-incentive stock options granted under
the 1993 Plan will not result in any taxable income to the optionee at the time
of grant or any tax deduction to the Company. Upon the exercise of such option,
the excess of the market value of the shares acquired over their cost is taxable
to the optionee as compensation income and is generally deductible by the
Company. The optionee's tax basis for the shares is the market value thereof at
the time of exercise.
Neither the grant nor the exercise of an option designated as an incentive
stock option results in any federal tax consequences to either the optionee or
the Company. At the time the optionee sells shares acquired pursuant to the
exercise of an incentive stock option, the excess of the sale price over the
exercise price will qualify as a capital gain, provided the applicable holding
period is satisfied. If the optionee disposes of such shares within two years
of the date of grant or within one year of the date of exercise, an amount equal
to the lesser of (a) the difference between the fair market value of the shares
on the date of exercise and the exercise price, or (b) the difference between
the exercise price, and the sale price will be taxed as ordinary income and
the Company will be entitled to a deduction in the same amount. The excess,
if any, of the sale price over the sum of the exercise price and the amount
taxed as ordinary income will qualify as capital gain if the applicable
holding period is satisfied. If the optionee exercises an incentive stock
option more than three months after his or her termination of employment due
to retirement, he or she is deemed to have exercised a non-incentive stock
option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name and Address Number of Shares Percent of
of Beneficial Owner Title of Class Beneficially Owned Class
- ------------------- -------------- ------------------ ----------
Cockroft Consolidated Common 1,209,214(1) 45.4
Corporation
Suite 2300
5100 Poplar Avenue
Memphis, TN 38137
Dimensional Fund Advisors Common 182,400(2) 6.8
Inc.
1299 Ocean Avenue, Ste.650
Santa Monica, CA 90401
Mario J. Gabelli Common 581,300(3) 21.8
One Corporate Center
Rye, NY 10580
<FN>
(1) Don Wm. Cockroft, Robert L. Cockroft, Janet Virgin, and Katherine Lammons
beneficially own a controlling interest in Cockroft Consolidated
Corporation. Pursuant to the Cockroft Agreement, Cockroft Consolidated
Corporation has agreed to tender the shares shown in the above table into
the Offer. Under the Cockroft Agreement, Cockroft Consolidated Corporation
has also granted to the Purchaser an option to purchase all (but not less
than all) of the shares, which option is exercisable by the Purchaser on or
after January 1, 1995 and on or prior to March 31, 1995 provided that
certain events have occurred. Reference is made to the Schedule 14D-9,
Item 3 (b)(v), "Cockroft Agreement," which sets forth the terms of such
agreements.
(2) According to Schedule 13G as filed with the SEC by Dimensional Fund
Advisors Inc., reporting ownership as of February 19,1991, Dimensional Fund
Advisors Inc. has beneficial ownership of 182,400 shares. Dimensional Fund
Advisors Inc. has sole voting and sole dispositive power over 116,600 of
these shares and officers of Dimensional Fund Advisors Inc. have sole
voting and dispositive power over 65,800 of these shares. The shares of
Dimensional Fund Advisors Inc., a registered investment advisor, are held
in portfolios of DFA Investment Dimensions Group Inc., a registered open-
end investment company, or the DFA Group Trust, an investment vehicle for
qualified employee benefit plans, for both of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional Fund Advisors Inc.
disclaims beneficial ownership of all such shares.
35
SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND MANAGEMENT
(3) According to Schedule 13D as filed with the SEC by Gabelli Funds, Inc.,
Gamco Investors, Inc., Gabelli International Limited II, and Mario J.
Gabelli (the "Reporting Persons") reporting ownership as of June 6, 1994,
Gamco Investors, Inc. is deemed to have beneficial ownership of 420,800 of
these shares; Gabelli Funds, Inc. is deemed to have beneficial ownership of
160,000 of these shares; Gabelli International Limited II is deemed to have
beneficial ownership of 500 of these shares; Mario J. Gabelli is deemed to
have beneficial ownership of all of the 581,300 shares; and Gabelli Funds,
Inc. is deemed to have beneficial ownership of the securities owned by each
of the foregoing persons other than Mario J. Gabelli. Each of the
Reporting Persons has the sole power to vote and sole power to dispose of
the securities reported except that Gamco Investors, Inc. does not have the
authority to vote 50,000 of the reported shares; except that Gabelli Funds,
Inc. has sole dispositive and voting power with respect to the shares held
by The Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Convertible
Securities Fund, The Gabelli Value Fund, Inc., The Gabelli Small Cap Growth
Fund, The Gabelli Equity Income Fund, The Gabelli Equity Trust, The Gabelli
Global Telecommunications Fund, The Gabelli Global Convertible Securities
Fund, The Gabelli Interactive Couch Potato Fund, and/or The Gabelli ABC
Fund with respect to the 160,000 shares held by one or more of such funds,
and except that the power of Mr. Mario J. Gabelli and Gabelli Funds, Inc.
is indirect with respect to securities beneficially owned directly by other
Reporting Persons. The Reporting Persons do not admit that they constitute
a group.
The following table sets forth, as of November 14, 1994, the amount and
percentage of the Shares beneficially owned by each director and executive
officer and by the directors and officers as a group:
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Ownership
- ------------------------ -------------------- ---------
Directors:
- ---------
Don Wm. Cockroft 1,891(1) *
J. Howard Lammons 950(1) *
Robert L. Cockroft 0 --
Howard W. Loveless 500 *
Janet C. Virgin 31 *
Ronald J. Wareham 0 --
Non-Director Executive Officer:
- ------------------------------
John M. Dollar 24 *
All directors, officers as a group 4,996(2) *
(9 persons)
<FN>
*Less than 1%
(1) Includes: (a) 1,800 shares owned by the wife and dependent child of Don
Wm. Cockroft; and (b) 490 shares owned by the wife of J. Howard Lammons.
Except as noted hereinabove, all of the shares are owned directly by said
persons with sole voting and investment power.
(2) Does not include 1,209,214 shares owned by Cockroft Consolidated
Corporation. The controlling shareholders of Cockroft Consolidated
Corporation are Don Wm. Cockroft, Robert L. Cockroft, Katherine Lammons,
the wife of J. Howard Lammons, and Janet C. Virgin.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no relationships or related transactions to report.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8K:
(a) 1. Financial statements required are reported in Item
8 of this Report.
2. Financial Statement Schedules Required By Item 8:
PAGE
----
Report of Independent Accountants (45)
Schedules:
Schedule III--Condensed Financial Information of the
Registrant (Parent Company):
Comparative Balance Sheet--September 30,
1994, 1993, and 1992 (46)
Comparative Statement of Income--Years
ended September 30, 1994, 1993 and 1992. (48)
Comparative Statement of Retained
Earnings--Years Ended September 30,
1994, 1993 and 1992. (49)
Statement of Comparative Cash
Flows--Years ended September 30, 1994,
1993 and 1992. (50)
Notes to Financial Statements (51)
Schedule IV---Indebtedness Of Affiliates And Other
Persons--Not Current--Three Years
Ended September 30, 1994. (52)
Schedule V----Property And Equipment--Three Years
Ended September 30, 1994. (53)
Schedule VI---Accumulated Depreciation Of Property
And Equipment--Three Years Ended
September 30, 1994. (54)
Schedule VIII-Valuation And Qualifying Accounts--
Three Years Ended September 30, 1994. (55)
Schedule X----Supplementary Income Statement
Information--Three Years Ended
September 30, 1994. (56)
Other schedules are omitted due to the absence of
conditions under which they are required or because the
required information is provided in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
The Registrant did not file any reports on Form 8-K
during the last quarter of the period covered by
this Report.
37
(c) EXHIBITS
FORM 10-K
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
2.0 Agreement and Plan of Merger dated November 14,
1994. (13)
2.1 Schedule 14D-9 filed with the Commission on
November 23, 1994.
2.2 Agreement between Purchaser and Cockroft
Consolidated, dated November 21, 1994. (14)
3.1 Articles of Incorporation and Amendments (1)
3.2 Bylaws of Registrant as currently in effect
3.3 Articles of Incorporation Amendment 2/16/87 (9)
10.1 Holiday Inns, Inc. License Agreement 9/18/61 (1)
10.2 Holiday Inns, Inc. License Agreement 10/29/62 (1)
10.3 Holiday Inns, Inc. License Agreement 5/08/67 (1)
10.4 Holiday Inns, Inc. License Agreement 5/08/67 (1)
10.5 Holiday Inns, Inc. License Agreement 9/05/67 (1)
10.6 Holiday Inns, Inc. License Agreement 9/13/67 (1)
10.7 Holiday Inns, Inc. License Agreement 7/16/68 (1)
10.8 Holiday Inns, Inc. License Agreement 7/16/68 (1)
10.9 Holiday Inns, Inc. License Agreement 8/29/69 (1)
10.10 Holiday Inns, Inc. License Agreement 2/06/70 (1)
10.11 Holiday Inns, Inc. License Agreement 3/22/71 (1)
10.12 Holiday Inns, Inc. License Agreement 11/22/71 (1)
10.13 Holiday Inns, Inc. License Agreement 11/22/71 (1)
10.14 Holiday Inns, Inc. License Agreement 3/20/72 (1)
10.15 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.16 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.17 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.18 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.19 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.20 Holiday Inns, Inc. License Agreement 8/11/72 (1)
10.21 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.22 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.23 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.24 Holiday Inns, Inc. License Agreement 6/25/76 (1)
10.25 Holiday Inns, Inc. License Agreement 9/01/78 (1)
10.26 Holiday Inns, Inc. License Agreement 9/01/78 (1)
10.27 Holiday Inns, Inc. Licenses
Extension Agreement 3/5/76 (1)
38
INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
10.28 Lease, Millsaps College Development Corp. to
Jackson Med.-Center Inn, Inc. (2)
10.29 Lease, Paul Drummett to Houston
Airport Inn, Inc. (2)
10.30 Addendum to Lease, Paul Drummett to Houston
Airport Inn, Inc., Item 10.29 above. (1)
10.31 Lease, Mid Atlanta Investment Company to
Lammons Hotel Courts, Inc. (2)
10.32 Amendments to Lease, Mid Atlanta Investment
Company to Lammons Hotel Courts, Inc., Item
10.31 above. (1)
10.33 Lease, Natala Corp. to United Enterprises, Inc. (2)
10.34 Amendments to Lease, Natala Corp. to United
Enterprises, Inc., Item 10.33 above. (1)
10.35 Lease Marietta Inns, Inc. to Hardy Inn, Inc. (2)
10.36 Lease, Paul Barkley to United Enterprises, Inc. (2)
10.37 Lease, 555 Real Estate Company to Jacksonville
Motor Inn, Inc. (2)
10.38 Lease, Gaines Manufacturing Co., Inc. and
City of McKenzie (2)
10.39 Amendment to Lease, Gaines Manufacturing Co.,
Inc. and City of McKenzie, Item 10.38 above (1)
10.40 Sub-lease, C.W.S. Scottsdale, Inc. and
Transcontinental Motor Hotels, Inc. and
underlying ground lease between Raymond
and Lenore R. Silverman and
C.W.S. Scottsdale, Inc. (1)
10.41 Lease, C.W.S. San Jose, Inc. to TMH Motor
Hotels, Inc. with option agreement and
underlying sub-lease between Claitor
Properties, Inc. and C.W.S. San Jose, Inc.
and ground lease between Dorothy
Kiersted and Claitor Properties (filed
as Exhibits 13(b)(1) through 13(b)(8) to
Midwestern Companies, Inc. (which subsequently
changed its name to Transcontinental Motor
Hotels, Inc., which merged with Registrant on
December 1, 1972) Form 8-K for month of November,
1968 filed on December 9, 1968 and incorporated
herein by reference) (1)
10.42 Lease and Amendment, B.R.S.T. Corporation
and Transcontinental Motor Hotels, Inc. (1)
10.43 Lease, Amendment and Guaranties, Elm Place
Corp. and Transcontinental Motor Hotels, Inc. (1)
10.44 Lease and Amendment, Trammell Crow and
Glenjon, Inc. (1)
39
INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
10.45 Joint Venture Agreement between Allied
Investments and Northside Inns, Inc.
and Management Agreement between the Joint
Venture (Northside Hotel Investors) and
United Inns of Tennessee, Inc. (1)
10.46 Description of the criteria of the Executive
Bonus Plan of United Inns, Inc. (1)
10.47 Holiday Inns, Inc. License
Agreement 2/10/78 (3)
10.48 Holiday Inns, Inc. License
Agreement 2/16/79 (3)
10.49 Holiday Inns, Inc. License
Agreement 10/2/80 (3)
10.50 Holiday Inns, Inc. License
Agreement 1/23/81 (3)
10.51 Holiday Inns, Inc. License
Agreement 5/11/81 (3)
10.52 Amendments to Joint Venture
Agreement between Allied
Investments and Northside Inn, Inc.,
Item 10.45 above (3)
10.53 Assignment of interest in
Master Lease to Transcontinental
Motor Hotels, Inc., Item
10.40 above (3)
10.54 United Inns, Inc. Employees
Pension Plan (3)
10.55 Holiday Inns, Inc. License
Agreement 10/2/80 (4)
10.56 Hilton Inns, Inc. License
Agreement 10/27/80 (4)
10.57 Holiday Inns, Inc. License
Agreement 12/19/80 (4)
10.58 Holiday Inns, Inc. License
Agreement 12/19/80 (4)
10.59 Holiday Inns, Inc. License
Agreement 3/27/81 (4)
10.60 Holiday Inns, Inc. License
Agreement 4/7/81 (4)
10.61 Holiday Inns, Inc. License (5)
Agreement 5/2/79
10.62 Holiday Inns, Inc. License (5)
Agreement 12/19/80
10.63 Holiday Inns, Inc. License (5)
Agreement 3/31/81
40
INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
10.64 Holiday Inns, Inc. License (5)
Agreement 5/12/83
10.65 Holiday Inns, Inc. License (6)
Agreement 4/25/84
10.66 Executives Optional Deferred (7)
Compensation Plan of United
Inns, Inc. 10/1/84
10.67 Hilton Inns, Inc. (7)
License Agreement 6/13/85
10.68 Termination of Lease and Guaranty (7)
(Exhibit 10.37) 10/31/85
10.69 Hampton Inns, Inc., a division (8)
of Holiday Inns, Inc.
License Agreement 10/23/85
10.70 Holiday Inns, Inc. (8)
License Agreement 1/17/86
10.71 Hampton Inns, Inc., a division (8)
of Holiday Inns, Inc.
License Agreement 7/10/86
10.72 Best Western International, Inc. (8)
License Agreement 7/28/86
10.73 Termination of Lease and Agreement (9)
(Exhibit 10.35) 5/19/87
10.74 Days Inns of America Franchising, Inc.
License Agreement 4/17/89 (Flagstaff) (10)
10.75 Days Inns of America Franchising, Inc. (11)
License Agreement 12/29/89 (Houston I-10
East)
10.76 Days Inns of America Franchising, Inc. (11)
License Agreement 12/29/89 (Houston I-10
West)
10.77 Days Inns of America Franchising, Inc. (11)
License Agreement 02/07/90 (Dallas Regal
Row)
10.78 Ramada, Inc. License Agreement 09/17/91 (12)
(Atlanta Downtown)
10.79 Hampton Inn Hotel Division of Embassy (12)
Suites, Inc. License Agreement 03/20/91
Houston I-10 East)
10.80 Holiday Inns Franchising, Inc. License (12)
Agreement 10/11/90 (Jackson Medical
Center)
10.81 Holiday Inns Franchising, Inc. License (12)
Agreement 06/18/91 (Houston Medical
Center)
41
INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
10.82 Holiday Inn Franchising, Inc. License (12)
Agreement 06/18/91 (Santa Barbara)
10.83 Termination of Lease and Agreement (12)
(Exhibit 10.33) 02/10/91
10.84 Hanna Acceptance Corporation, John (12)
Mitchell, Inc., Chapter 11 Trustee of
Daniel C. Hanna
10.85 Consulting Agreement between the Company
and Smith Barney, Inc., dated July 11, 1994,
as amended on September 1, 1994
11 Statement Regarding Computation of Per Share
Earnings
21 Subsidiaries of the Registrant
27 Financial Data Schedule for EDGAR filers.
42
INDEX TO EXHIBITS (cont.)
<FN>
(1) Filed as an Exhibit to the Registrant's report on Form 10-K (File No.
1-6848) filed with the Commission on December 27, 1980 and incorporated
herein by reference.
(2) Filed as an Exhibit to Registration Statement No. 2-42059, Form S-1, filed
with the commission on October 7, 1971 and incorporated herein by
reference.
(3) Filed as an Exhibit to the Registrant's report on Form 10-K (File No.
1-6848) filed with the Commission on December 28, 1981 and incorporated
herein by reference.
(4) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 28, 1982 and incorporated
herein by reference.
(5) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 28, 1983 and incorporated
herein by reference.
(6) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 28, 1984, and incorporated
herein by reference.
(7) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 27, 1985, and incorporated
herein by reference.
(8) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 12, 1987, and incorporated
herein by reference.
(9) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 6, 1988, and incorporated
herein by reference.
(10) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 4, 1990, and incorporated
herein by reference.
(11) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 15, 1991, and incorporated
herein by reference.
(12) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 14, 1992, and incorporated
herein by reference.
(13) Filed as Exhibit 1 to Schedule 14D-9, filed with the Commission on
November 23, 1994, and incorporated herein by reference.
(14) Filed as Exhibit 7 to Schedule 14D-9, filed with the Commission on
November 23, 1994 and incorporated herein by reference.
43
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
By: /s/ Don Wm. Cockroft
--------------------------------
Don Wm. Cockroft
Principal Executive Officer
and Director
By: /s/ J. D. Miller
--------------------------------
J. D. Miller
Vice President Finance
Principal Financial Officer
Principal Accounting Officer
Date: 1/12/95
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Howard W. Loveless 1/12/95
- ------------------------------- ---------------------------
By: Howard W. Loveless Date
Director
/s/ J. Howard Lammons 1/12/95
- ------------------------------- ---------------------------
By: J. Howard Lammons Date
Director
/s/ Robert L. Cockroft 1/12/95
- ------------------------------- ---------------------------
By: Robert L. Cockroft Date
Director
/s/ Janet C. Virgin 1/12/95
- ------------------------------- ---------------------------
By: Janet C. Virgin Date
Director
44
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
United Inns, Inc.
Memphis, Tennessee
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of United Inns, Inc., and subsidiaries
included in this Form 10-K, and have issued our report thereon dated December
8, 1994. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental financial statement schedules
listed in the index on page 37 of this Form 10-K are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These supplemental schedules
have been subjected to the auditing procedures applied in the audit of the basic
consolidated 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 consolidated financial statements taken as a whole.
FRAZEE, TATE AND ASSOCIATES
/s/ Frazee, Tate and Associates
Memphis, Tennessee
December 8, 1994
45
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE BALANCE SHEET
ASSETS
September 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
Current Assets
Cash and cash equivalents $ 3,209,994 $ 124 $ 3,013,672
Accounts receivable-other 251,315 4,325 513,901
Prepaid expenses 5,827,380 5,477,653 4,261,480
Property held for sale 1,500,000
------------- ------------- -------------
Total current assets 9,288,689 5,482,102 9,289,053
------------- ------------- -------------
Investments
Investments in Subsidiaries (43,922,705) (39,451,590) (37,047,574)
Due from Subsidiaries 56,044,824 60,041,607 55,479,840
Investments--at cost 10,000 10,000 10,000
------------- ------------- -------------
12,132,119 20,600,017 18,442,266
------------- ------------- -------------
Other Assets
Deposits and prepaid expenses 641,123 623,584 4,588,925
------------- ------------- -------------
Deferred income taxes 168,590
------------- ------------- -------------
$ 22,230,521 $ 26,705,703 $ 32,320,244
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
46
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
Current Liabilities
Bank overdraft $ $ 483,802 $
Long-term debt--current 14,436
Accounts payable--trade 853,593 287,231 2,186,129
Accrued expenses--interest and other 3,947,909 3,388,791 3,658,344
Income taxes payable 959,228 70,329 161,177
------------- ------------- -------------
Total current liabilities 5,760,730 4,230,153 6,020,086
------------- ------------- -------------
Long-Term Debt
First mortgages--deferred portion 2,378,459
------------- ------------- -------------
Deferred Other 899,066 1,363,849 1,916,833
------------- ------------- -------------
Deferred Income Taxes 142,057 218,745
------------- ------------- -------------
Stockholders' Equity
Common stock--$1 par value--
authorized 10,000,000 shares,
issued 4,117,813 shares 4,117,813 4,117,813 4,117,813
Paid-in capital 14,613,138 14,613,138 14,613,138
Retained earnings 40,057,754 46,327,055 47,143,532
------------- ------------- -------------
58,788,705 65,058,006 65,874,483
Less treasury shares at cost--
1,451,914 shares in 1994 and
1,476,904 shares in 1993 and 1992 43,217,980 44,088,362 44,088,362
------------- ------------- -------------
Total stockholders' equity 15,570,725 20,969,644 21,786,121
------------- ------------- -------------
$ 22,230,521 $ 26,705,703 $ 32,320,244
------------- ------------- -------------
------------- ------------- -------------
47
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
Income from Subsidiaries
Fees $ 1,031,876 $ 1,077,893 $ 1,507,634
Interest 0 0 738,265
Income from Outsiders
Interest 261,401 216,422 211,901
Other 426,462 25,989 34,416
------------- ------------- -------------
1,719,739 1,320,304 2,492,216
------------- ------------- -------------
Expenses
Administrative and general 1,393,785 757,645 586,989
Interest and financing 590,580 224,975 667,726
------------- ------------- -------------
1,984,365 982,620 1,254,715
------------- ------------- -------------
Operating income (loss) (264,626) 337,684 1,237,501
Loss on disposition of assets (2,029,865)
------------- ------------- -------------
Income (loss) from operations
before income taxes (264,626) 337,684 (792,364)
------------- ------------- -------------
Income Taxes
State 550,901 29,662 3,499
U S Federal 285,820 12,776 1,011,580
------------- ------------- -------------
836,721 42,438 1,015,079
------------- ------------- -------------
Income (loss) before equity in
subsidiaries' net income (1,101,347) 295,246 (1,807,443)
Subsidiaries' dividends 800,000 1,000,000
Equity in subsidiaries'
undistributed net income (4,403,704) (1,911,723) (2,236,819)
------------- ------------- -------------
Net income (loss) ($5,505,051) ($816,477) ($3,044,262)
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
48
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE STATEMENT OF RETAINED EARNINGS
Balance September 30, 1991 $ 50,187,794
Net loss for year (3,044,262)
-------------
Balance September 30, 1992 47,143,532
Net loss for year (816,477)
-------------
Balance September 30, 1993 46,327,055
Reissue of 25,000 treasury shares (764,250)
Net loss for year (5,505,051)
-------------
Balance September 30, 1994 $ 40,057,754
-------------
-------------
The accompanying notes are an integral part of the financial statements.
49
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
OPERATING ACTIVITIES ------------- ------------- -------------
Net loss ($5,505,051) ($816,477) ($3,044,262)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization 417,054
Loss on disposal of assets 2,029,865
Deferred income taxes (310,647) (76,688) (306,456)
Equity in subsidiaries' net loss 4,403,704 1,604,011 1,236,819
Debt reduction (433,411)
Non-cash compensation 106,250
Changes to operating assets and liabilities:
Accounts receivable (246,990) (409,874)
Prepaid expenses (352,784) (1,093,573) (744,382)
Bank overdraft (483,802) 483,802
Accounts payable 569,419 449,101 (711,020)
Accrued expenses 324,203 29,738 53,771
Income taxes payable 888,899 (90,848) 113,302
------------- ------------- -------------
Net cash provided by (used in) operating activities (1,040,210) 489,066 (1,365,183)
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of assets 2,652,038
Payments on settlement on car wash assets (1,200,000)
Other intercompany transactions--net change 4,299,109 (2,999,278) 2,265,039
Other investing activities (17,539) 49,648 (355,667)
------------- ------------- -------------
Net cash provided by (used in) investing activities 4,281,570 (2,949,630) 3,361,410
------------- ------------- -------------
FINANCING ACTIVITIES
Payments on long-term debt (573,267)
Purchase of treasury shares (118) (252)
Other financing activities (31,372) (552,984) 31,322
------------- ------------- -------------
Net cash used in financing activities (31,490) (552,984) (542,197)
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 3,209,870 (3,013,548) 1,454,030
Cash and cash equivalents at beginning of year 124 3,013,672 1,559,642
------------- ------------- -------------
Cash and cash equivalents at end of year $3,209,994 $124 $3,013,672
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $148,838 $257,685 $543,838
State and federal income taxes 41,800 189,865
Supplemental schedule of noncash investing and
financing activities:
Acquisition (revaluation) of car wash assets (1,168,774)
Debt reduction 433,411
Compensation paid with treasury stock 106,250
The accompanying notes are an integral part of the financial statements.
50
UNITED INNS, INC. (PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
INVESTMENTS
Investments in, and notes and advances to, subsidiaries (eliminated in
consolidation) are stated at cost and have been adjusted for net advances,
note payments, and undistributed earnings and losses since acquisition.
LONG-TERM DEBT
The long-term debt of Parent Company matures as follows:
Year Ended September 30,
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
1993 $ $ $ 14,436
1994 39,628
1995 50,950
1996 68,273
1997 2,219,608
------------- ------------- -------------
$ 0 $ 0 $ 2,392,895
------------- ------------- -------------
------------- ------------- -------------
The Parent Company is guarantor of the major portion of the debt of its
subsidiaries.
OTHER MATTERS
Refer to the notes to the consolidated financial statements
for further information.
51
SCHEDULE IV -- INDEBTEDNESS OF AFFILIATES -- NOT CURRENT
UNITED INNS, INC.
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C & D COLUMN E
- --------------------------------------------------------------------------------------------------------------
NAME OF PERSONS BALANCE AT BEGINNING NET BALANCE AT END
OF PERIOD TRANSACTIONS (A) OF PERIOD
- --------------------------------------------------------------------------------------------------------------
ADVANCES TO WHOLLY-OWNED
SUBSIDIARIES
CONSOLIDATED IN THE
FINANCIAL STATEMENTS:
Year Ended
September 30, 1992 $54,010 $1,470 $55,480
------- ------- -------
------- ------- -------
Year Ended
September 30, 1993 $55,480 $4,562 $60,042
------- ------- -------
------- ------- -------
Year Ended
September 30, 1994 $60,042 $(3,997) $56,045
------- ------- -------
------- ------- -------
<FN>
Amounts consist of working capital advances to subsidiaries, return of excess
funds not required for the normal operation of subsidiaries, administrative
charges by the parent, and federal income tax charges or credit.
52
SCHEDULE V--PROPERTY AND EQUIPMENT
UNITED INNS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT
BEGINNING AT OR RECLASSIFY END
CLASSIFICATION OF PERIOD COST SALES OF PERIOD
- ------------------------------------------------------------------------------------------------------------ ----------------
Year Ended September 30, 1992
Land $ 22,848 $ $ (447) $ (49) $ 22,352 (1)
Buildings and improvements 161,896 3,801 (9,606) (13) 156,078
Furniture and equipment 37,541 1,531 (6,879) (1) 32,192
Leased property under capital leases 5,135 5,135
Property held for sale 11,288 20 (6,785)(3) 4,523
------------- ------------- ------------- ------------- -------------
238,708 5,352 (23,717) (63) 220,280
Construction in progress 425 (97) 328
------------- ------------- ------------- ------------- -------------
$ 239,133 $ 5,255 $ (23,717) $ (63)(2) $ 220,608
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1993
Land $ 22,352 $ 382 $ (130) $ $ 22,604 (1)
Buildings and improvements 156,078 2,201 (3,119) 155,160
Furniture and equipment 32,192 3,835 (5,519) 30,508
Leased property under capital leases 5,135 (1,420) 3,715
Property held for sale 4,523 (415)(3) 4,108
------------- ------------- ------------- ------------- -------------
220,280 6,418 (10,603) 0 216,095
Construction in progress 328 248 576
------------- ------------- ------------- ------------- -------------
$ 220,608 $ 6,666 $ (10,603) $ 0 $ 216,671
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1994
Land $ 22,604 $ $ (2,224) $ $ 20,380 (1)
Buildings and improvements 155,160 961 (18,766) (893) 136,462
Furniture and equipment 30,508 3,842 (7,527) 26,823
Leased property under capital leases 3,715 (1,717) 893 2,891
Property held for sale 4,108 (2,140)(3) 1,968
------------- ------------- ------------- ------------- -------------
216,095 4,803 (32,374) 0 188,524
Construction in progress 576 637 1,213
------------- ------------- ------------- ------------- -------------
$ 216,671 $ 5,440 $ (32,374) $ 0 $ 189,737
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
<FN>
(1)Land classified on balance sheet as: 1994 1993 1992
------------- ------------- -------------
Land not in use--under investments $ 8,018 $ 8,907 $ 8,525
Land in use--under property & equipment 12,362 13,697 13,827
------------- ------------- -------------
$ 20,380 $ 22,604 $ 22,352
------------- ------------- -------------
------------- ------------- -------------
(2)Reclassification: Land, buildings and improvements, and furnishings and equipment of two hotels
to Long-Term Debt (See Note 10 to Consolidated Financial Statements) and land, buildings and
and improvements, and furnishings and equipment of one hotel and car washes to Property Held For Sale.
(3)Property Held for Sale--Retirements/Sales 1994 1993 1992
------------- ------------- -------------
Net book value of property dispositions $ (1,912) $ (151) $ (878)
Recovery of prior years' costs (2,817)
Depreciation (228) (264) (421)
Write down to estimated realizable value (1,169)
Reclassified to current assets (1,500)
------------- ------------- -------------
$ (2,140) $ (415) $ (6,785)
------------- ------------- -------------
------------- ------------- -------------
53
SCHEDULE VI--ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
UNITED INNS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT
BEGINNING AT OR RECLASSIFY END
CLASSIFICATION OF PERIOD COST SALES OF PERIOD
- --------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1992:
Buildings and improvements $ 65,192 $ 5,969 $ (7,026) $ (114) $ 64,021
Furniture and equipment 25,543 3,765 (6,422) (307) 22,579
Leased property under capital leases 4,877 205 5,082
------------- ------------- ------------- ------------- -------------
$ 95,612 $ 9,939 $ (13,448) $ (421) $ 91,682
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1993:
Buildings and improvements $ 64,021 $ 5,591 $ (2,356) $ $ 67,256
Furniture and equipment 22,579 2,979 (5,295) 20,263
Leased property under capital leases 5,082 196 (1,340) 3,938
------------- ------------- ------------- ------------- -------------
$ 91,682 $ 8,766 $ (8,991) $ 0 $ 91,457
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1994:
Buildings and improvements $ 67,256 $ 5,707 $ (5,633) $ (466) $ 66,864
Furniture and equipment 20,263 2,960 (7,079) 16,144
Leased property under capital leases 3,938 184 (1,717) 466 2,871
------------- ------------- ------------- ------------- -------------
$ 91,457 $ 8,851 $ (14,429) $ 0 $ 85,879
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Reclassifications: 1992 1993 1994
------------- ------------- -------------
Accumulated depreciation on car wash assets (to) from Property
Held for Sale $ (421) $ $
------------- ------------- -------------
------------- ------------- -------------
54
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
UNITED INNS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
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COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
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BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING (CHARGED TO END
DESCRIPTION OF PERIOD P & L) OF PERIOD
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Allowance for Doubtful Receivables
Year Ended September 30, 1992 $ 120 $ 394 $ 432 $ 82
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Year Ended September 30, 1993 $ 82 $ 466 $ 469 $ 79
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Year Ended September 30, 1994: $ 79 $ 457 $ 416 $ 120
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Deferred Income Tax Asset Valuation Allowance
Year Ended September 30, 1994 $ 0 $ 3,442 $ $ 3,442
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Accrual for Self Insurance
Year Ended September 30, 1992 $ 2,879,811 $ 3,891,753 $ 3,236,510 $ 3,535,054
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Year Ended September 30, 1993 $ 3,535,054 $ 2,822,190 $ 2,857,627 $ 3,499,617
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Year Ended September 30, 1994 $ 3,499,617 $ 2,780,707 $ 2,473,426 $ 3,806,898
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SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
UNITED INNS, INC. AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS)
The following amounts were charged to costs and expenses:
YEAR ENDED SEPTEMBER 30,
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1994 1993 1992
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Consolidated:
Maintenance and repairs:
Other profit and loss accounts $ 3,073 $ 3,174 $ 3,249
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Depreciation:
Costs and expenses--not allocated $ 9,078 $ 9,031 $ 9,939
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Property Taxes:
Other profit and loss accounts $ 3,066 $ 3,804 $ 4,195
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Media Advertising:
Other profit and loss accounts $ 58 $ 41 $ 24
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