SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 12, 1996
Hudson Hotels Corporation
(formerly Microtel Franchise and Development Corporation)
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(Exact Name of Registrant as Specified in Charter)
New York 0-17838 16-1312167
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(State of Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
One Airport Way, Suite 200, Rochester, New York 14624
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 436-6000
________________________________________________________________________________
(Former Name of Founder Address, if Changed Since Last Report)
HUDSON HOTELS CORPORATION
AMENDMENT NO. 1 TO
CURRENT REPORT
ON FORM 8-K/A
Hudson Hotels Corporation hereby amends items 2 and 7 of its Current Report on
Form 8-K, which was filed on December 12, 1996, as set forth in the pages
attached hereto:
Item 2. Acquisition of Assets
Financial statements for SB Motel Corp. acquired during the fourth quarter of
1996 are presented in item 7.
Item 7. Financial Statements and Exhibits
a. Financial Statements of Businesses Acquired:
Audited combined balance sheets of SB Motel Corporations as of
December 31, 1995 and 1994 and September 30, 1996 and the related
statements of operations, changes in stockholders' equity and cash
flows for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996.
b. Pro Forma Financial Information:
Pro forma Condensed Consolidated Balance Sheet of the Company as of
September 30, 1996 (unaudited).
Pro forma Consolidated Statement of Income of the Company for the
year ended December 31, 1995 and nine months ended September 30,
1996 (unaudited).
Notes to Pro Forma Consolidated Balance Sheet and Statement of
Operations (unaudited)
c. Exhibits:
There are no exhibits which are filed with this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUDSON HOTELS CORPORATION
By: /s/ Taras M. Kolcio
-------------------------------
Taras M. Kolcio
Chief Financial Officer
SB MOTEL CORPORATIONS
INDEX
PAGE(S)
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Report of Independent Accountants...........................................1
Combined Balance Sheets
As of December 31, 1994 and 1995 and September 30, 1996............2
Combined Statements of Operations
For the Years Ended December 31, 1994 and 1995 and
The Nine Months Ended September 30, 1996...........................3
Combined Statements of Stockholder's Equity
For the Years Ended December 31, 1994 and 1995 and
The Nine Months Ended September 30, 1996...........................4
Combined Statements of Cash Flows
For the Years Ended December 31, 1994 and 1995 and
The Nine Months Ended September 30, 1996...........................5
Notes to Combined Financial Statements...................................6-11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors of the
SB Motel Corporations and Hudson Hotels Corporation:
We have audited the accompanying combined balance sheets of the SB Motel
Corporations as described in Note 1 (the "Corporations"), as of December 31,
1994 and 1995 and September 30, 1996, and the related combined statements of
operations, changes in stockholder's equity and cash flows for the years ended
December 31, 1994 and 1995 and for the nine months ended September 30, 1996.
These combined financial statements are the responsibility of the Corporations'
management. Our responsibility is to express an opinion on these combined
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 audits 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 the
Corporations' 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 financial statements referred to above present fairly, in
all material respects, the combined financial position of the Corporations as of
December 31, 1994 and 1995 and September 30, 1996, and the combined results of
their operations and their cash flows for the years ended December 31, 1994 and
1995 and for the nine months ended September 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 8, the Corporations sold the twelve Motels on November 27,
1996, and filed for dissolution on December 20, 1996.
/s/ Coopers & Lybrand, L.L.P.
New York, New York
January 20, 1997
1
SB MOTEL CORPORATIONS
COMBINED BALANCE SHEETS
December 31
----------- September 30,
1994 1995 1996
------------ ------------ ------------
ASSETS
Investment in motel properties (Notes 1, 2 and 3):
Land $ 2,871,243 $ 2,871,243 $ 2,871,243
Buildings and improvements 21,212,493 22,941,350 22,946,427
Construction in progress 291,151 -- --
Furniture and equipment 4,421,879 6,164,422 6,513,346
------------ ------------ ------------
28,796,766 31,977,015 32,331,016
Less - accumulated depreciation (795,043) (1,875,868) (2,996,281)
------------ ------------ ------------
Net investment in motel properties 28,001,723 30,101,147 29,334,735
Cash and cash equivalents (Note 2) 2,522,830 1,336,245 1,957,989
Accounts receivable, net of allowance for
doubtful accounts of $5,785, $4,081 and
$6,351, respectively (Note 2) 221,804 204,684 459,881
Due from parent (Note 3) 2,186,045 4,403,196 8,716,563
Prepaid expenses and other assets, net of
accumulated amortization of $6,864, $22,612
and $34,487, respectively 326,028 318,565 338,946
------------ ------------ ------------
Total assets $ 33,258,430 $ 36,363,837 $ 40,808,114
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 680,873 $ 935,780 $ 1,093,080
Loans payable to parent, including accrued
interest of $61,516, $56,680 and $52,312,
respectively (Note 3) 31,202,516 30,022,680 30,018,312
Federal income taxes payable to parent
(Notes 2 and 7) 497,954 1,860,786 3,364,568
State income taxes payable (receivable) (48,887) 87,646 82,475
------------ ------------ ------------
Total liabilities 32,332,456 32,906,892 34,558,435
------------ ------------ ------------
Commitments (Notes 5 and 6)
STOCKHOLDER'S EQUITY
Common stock, at stated value (Note 3) 1,200 1,200 1,200
Retained earnings 924,774 3,455,745 6,248,479
------------ ------------ ------------
Total stockholder's equity 925,974 3,456,945 6,249,679
------------ ------------ ------------
Total liabilities and stockholder's equity $ 33,258,430 $ 36,363,837 $ 40,808,114
============ ============ ============
The accompanying notes are an integral part of the combined financial
statements.
2
SB MOTEL CORPORATIONS
COMBINED STATEMENTS OF OPERATIONS
For the Nine
For the Years Ended Months Ended
December 31, September 30,
1994 1995 1996
----------- ----------- -----------
REVENUE
Revenue from motel operations (Note 2) $12,217,961 $17,787,226 $15,476,909
Interest income 122,542 77,356 46,486
----------- ----------- -----------
Total revenue 12,340,503 17,864,582 15,523,395
OPERATING EXPENSES
Payroll 4,022,200 4,525,194 3,555,825
General and administrative 1,114,323 1,139,635 1,135,057
Food and beverage 97,693 98,969 93,811
Marketing 319,771 360,339 303,932
Franchise fees 379,990 1,175,421 950,989
Repairs and maintenance 460,850 400,997 336,121
Rooms expense 800,400 973,870 839,653
Utilities 1,130,256 1,210,756 927,038
Ground lease 24,550 30,852 45,432
Real estate taxes 438,612 450,020 360,508
Insurance 141,603 179,848 144,457
Management fees (Note 4) 225,692 665,573 651,495
----------- ----------- -----------
Total operating expenses 9,155,940 11,211,474 9,344,318
----------- ----------- -----------
3,184,563 6,653,108 6,179,077
Loss on disposal of fixed assets 412,635 469,294 --
Interest expense (Note 3) 355,132 720,206 478,444
Depreciation and amortization (Note 2) 800,834 1,287,722 1,132,288
----------- ----------- -----------
Income before income taxes 1,615,962 4,175,886 4,568,345
Income tax expense (Notes 2 and 7) 684,756 1,644,915 1,775,611
----------- ----------- -----------
Net income $ 931,206 $ 2,530,971 $ 2,792,734
=========== =========== ===========
The accompanying notes are an integral part of the combined financial
statements.
3
SB MOTEL CORPORATIONS
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 and 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ ----------- -----------
Balance, December 31, 1994 $1,200 $ (6,432) $ (5,232)
Net Income -- 931,206 931,206
------ ----------- -----------
Balance, December 31, 1994 1,200 924,774 925,974
Net Income -- 2,530,971 2,530,971
------ ----------- -----------
Balance, December 31, 1995 1,200 3,455,745 3,456,945
Net Income -- 2,792,734 2,792,734
------ ----------- -----------
Balance, September 30, 1996 $1,200 $ 6,248,479 $ 6,249,679
====== =========== ===========
The accompanying notes are an integral part of the combined financial
statements.
4
SB MOTEL CORPORATIONS
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended For the Nine
December 31, Months Ended
--------------------------- September 30,
1994 1995 1996
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 931,206 $ 2,530,971 $ 2,792,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of fixed assets 412,635 469,294 --
Depreciation and amortization 800,834 1,287,722 1,132,288
Increase (decrease) in allowance for doubtful accounts 5,785 (1,704) 2,270
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (58,809) 18,824 (257,467)
Increase in prepaid expenses and other assets (257,376) (8,285) (32,256)
Increase in accounts payable and accrued expenses 293,192 254,907 157,300
Increase in federal income taxes payable to parent 501,415 1,362,832 1,503,782
(Decrease) increase in state income taxes payable (47,275) 136,533 (5,171)
Increase (decrease) in interest payable 61,516 (4,836) (4,368)
------------ ----------- -----------
Total adjustments 1,711,917 3,515,287 2,496,378
------------ ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment in motel properties (9,138,160) (3,840,692) (354,001)
------------ ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (9,138,160) (3,840,692) (354,001)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced to parent (2,186,045) (2,217,151) (4,313,367)
Repayment of loans payable to parent (4,900,000) (1,175,000) --
Proceeds from loans payable to parent 12,000,000 -- --
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 4,913,955 (3,392,151) (4,313,367)
------------ ----------- -----------
Net (decrease) increase in cash (1,581,082) (1,186,585) 621,744
Cash and cash equivalents, beginning of period 4,103,912 2,522,830 1,336,245
------------ ----------- -----------
Cash and cash equivalents, end of period $ 2,522,830 $ 1,336,245 $ 1,957,989
============ =========== ===========
The accompanying notes are an integral part of the combined financial
statements.
5
SB MOTEL CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Business and Organization
SB Motel Corp. ("SB Motel"), the parent company, formed the Delaware
corporations listed below (the "SB Motel Corporations" or the
"Corporations") on November 18, 1993, for the purpose of owning and
operating 12 motels (the "Motels") known as the Cricket Inns(R) in the
Southeast region of the United States of America. Eight of these Motels
are now operating under the Fairfield Inn by Marriott(R) Franchise.
On December 1, 1993, (the "Acquisition Date"), SB Motel purchased
$63,200,000 of Motels of America Portfolio III Notes (the "Notes") from
Salomon Brothers Realty Corp., an affiliate, for approximately
$27,015,000, which represented the equity interest in seventeen
properties. The assets were transferred at the cost basis of the related
entity, which approximated their fair value. Each of the Corporations was
allocated various assets and liabilities on the Acquisition Date. SB Motel
Mortgage Corp., a wholly-owned subsidiary of SB Motel, provides servicing
of the Notes, if necessary. Four of the properties and the Cricket Inn
name were sold in 1995, while another property was demolished and is not
included in these financial statements.
The twelve Corporations encompassed in these financial statements are as
follows:
SB Motel Albany Corp. SB Motel Durham-Research Triangle Park Corp.
2586 North Slappey Boulevard 4507 NC Highway 55
Albany, Georgia Durham-RTP, North Carolina
SB Motel Cary Corp. SB Motel Raleigh Corp.
1716 Walnut Street 3201 Old Wake Forest Road
Cary, North Carolina Raleigh, North Carolina
SB Motel Charleston Corp. SB Motel Richmond Corp.
7415 Northside Drive 7300 West Broad Street
Charleston, South Carolina Richmond, Virginia
SB Motel Charlotte I-85 Corp. SB Motel Statesville Corp.
1200 West Sugar Creek Road 1503 East Broad Street
Charlotte, North Carolina Statesville, North Carolina
SB Motel Columbia Corp. SB Motel Virginia Beach Corp.
8104 Two Notch Road 5745 Northampton Boulevard
Columbia, South Carolina Virginia Beach, Virginia
SB Motel Durham-Duke Corp. SB Motel Wilmington Corp.
2306 Elba Street 4926 Market Street
Durham-Duke, North Carolina Wilmington, North Carolina
2. Summary of Significant Accounting Policies
Basis of Combination
The combined financial statements include the accounts of the Corporations
listed above and have been presented on a combined basis due to common
ownership and management and because the Corporations have been sold in a
single transaction (see Note 8). All interentity balances and transactions
have been eliminated.
6
SB MOTEL CORPORATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
Cash Equivalents
All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.
The Corporations have placed cash deposits with major financial
institutions. As of September 30, 1996, cash and cash equivalents not
federally insured were approximately $500,000.
Investment in Motel Properties
The motel properties are stated at cost. Depreciation is computed using
the straight-line method based upon the following estimated useful lives:
Building and improvements 39 years
Furniture and equipment 7 years
Repairs and maintenance are charged to operations as incurred; major
renewals and betterments are capitalized.
Management of the Corporations reviews the carrying value of each property
to determine if circumstances exist indicating an impairment in the
carrying value of the investment in the motel property or that
depreciation periods should be modified. If facts or circumstances
indicate the possibility of impairment, management of the Corporations
will prepare a projection of the undiscounted future operating cash flows
of the specific motel property and determine if the investment in motel
property is recoverable based on the undiscounted future operating cash
flows. Management of the Corporations does not believe that there are any
factors or circumstances indicating impairment of any of its investment in
motel properties.
Franchise Costs
The Corporations incurred certain costs in connection with establishing a
franchising relationship with Fairfield Inn by Marriott. These costs were
capital based as other assets and are being amortized on a straight-line
basis over twenty years, the term of the franchise.
Income Taxes
Each Corporation files a state income tax return in the state where it
operates a motel. For purposes of these financial statements, the
Corporations' combined federal current and deferred liability was
calculated using a federal tax rate of 35%. The Corporations' federal
taxable income is included in the consolidated tax return of Salomon
Brothers Holding Company Inc. ("SBHC").
Revenue Recognition
Revenue, principally from room rentals, is recognized as earned. Ongoing
credit evaluations are performed and an allowance for potential credit
losses is provided against the portion of accounts receivable which is
estimated to be uncollectible.
7
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
3. Related Party Transactions
On December 1, 1993, SB Motel borrowed approximately $27,015,000 from an
affiliate, SBHC, to purchase the Notes which are collateralized by the
Motels (see Note 1). Of that amount, approximately $24 million was loaned
to the Corporations. These loans are payable upon demand, and are
non-interest bearing.
In June 1994, the Corporations borrowed $12 million from SB Motel. The
Corporations repaid $4.9 million of their loans, while the balance of the
proceeds were used to renovate the properties and to provide working
capital. This loan from parent expires on May 31, 1997. Interest accrues
at a banks federal funds rate plus .5% (6.6% at September 30, 1996). The
average interest rate on this loan was 5.31%, 6.42%, and 5.77% for the
years ended December 31, 1994 and 1995 and for the nine months ended
September 30, 1996, respectively.
Excess cash from the Motels' operations is transferred to SB Motel
periodically and is available to fund future Motel operations, capital
improvements or retire portions of loans payable to parent, if deemed
necessary by management.
Each of the Corporations was capitalized through the issuance of one
hundred shares of common stock to SB Motel for one hundred dollars, which
is authorized, issued and outstanding.
4. Management Agreement
The Corporations and American General Hospitality, Inc. ("AGHI") have
entered into a management agreement ("Management Agreement") effective
through December 31, 1996 (see Note 8). Under the provisions of the
Management Agreement, AGHI undertakes and performs all management and
maintenance operations relating to each of these Motels, including all
appropriate marketing services, room rentals and other duties that arise
from the operations of these Motels.
As compensation, AGHI receives the following:
A. A base management fee equal to 5% of the combined gross operating
profit, as defined, of all the Motels.
B. An accounting reimbursement fee equal to $850 per month, per Motel.
An incentive management fee equal to fifteen percent of the combined
adjusted gross operating profit, as defined in the Management Agreement,
of the Corporations is payable monthly in conjunction with the above
described base fee. The combined adjusted gross operating profit is
defined as the combined gross operating profit less (i) accounting
reimbursement and (ii) a ten percent cumulative return on the aggregate
new capital investment in the Motels.
In addition, AGHI earns a five percent supervisory fee on major capital
improvements. These major capital improvements include the conversion of
eight motels to Fairfield Inn by Marriott, and major renovations of four
Cricket Inns. This supervisory fee is capitalized with the related capital
improvements.
8
5. Commitments
A. Fairfield Inn Conversion and Franchise Agreements
In April 1994, eight Corporations (SB Motel Albany Corp., SB Motel
Cary Corp., SB Motel Charleston Corp., SB Motel Columbia Corp., SB
Motel Durham-Research Triangle Park Corp., SB Motel Richmond Corp.,
SB Motel Statesville Corp. and SB Motel Wilmington Corp., the
"Franchisees") entered into agreements with a subsidiary of Marriott
International, Inc., the "Franchisor", to convert and operate their
existing motel as a Fairfield Inn by Marriott in accordance with and
described in the Commitment Agreements and the Franchise Agreements.
These Corporations, collectively, paid application fees upon the
execution of these agreements of $200,600 and committed to
construction and refurbishment costs of approximately $9.4 million.
As of September 1, 1994, all eight motels were converted to
Fairfield Inn by Marriott. In connection with these renovations, the
Franchisees' disposed of furniture and equipment resulting in a loss
of $412,635 in 1994. The Franchise Agreements, which are for a term
of twenty years from the first date operating as a Fairfield Inn by
Marriott, require the following fees to be paid to the Franchisor: a
royalty fee of four percent (4%) of gross room revenues, a
contribution to a marketing fund (which shall be maintained and
administered by the Franchisor) of two and one-half percent (2 1/2%)
and which could be increased to three and on-half percent (3 1/2%),
a reservation system fee (which) is subject to change by the
Franchisor on an annual basis) of one percent (1%) of Franchisee's
gross room revenues plus two dollars and fifteen cents ($2.15) for
each reservation confirmed and a property management system fee
(which is subject to change by the Franchisor on an annual basis)
equal to the lesser of one dollar and fifty cents ($1.50) per guest
room or one hundred and fifty dollars ($150) per accounting period.
The Franchise Agreements also require that the motels be furnished
and maintained in a manner fully described in these agreements
(including the right by the Franchisor to require an upgrade of the
motels on the fifth, tenth and fifteenth anniversary dates at the
Franchisee's expense), restrictions on transferability of franchise
and liquidated damages upon termination of Franchise Agreement due
to the Franchisee's default.
B. Cricket Inn Franchise Agreements
In connection with a sale of the Cricket Inn trademark by SB Motel,
SB Motel Charlotte I-85 Corp., SB Motel Durham-Duke Corp., SB Motel
Raleigh Corp. and SB Motel Virginia Beach Corp. entered into twenty
year Franchise Agreements. Under the terms of these agreements,
royalty fees are 2% of room revenue until March 15, 1997, at which
time no further royalty fees are payable for the duration of the
Franchise Agreement. Reservation and marketing fees each range from
actual pass through costs to a maximum of 1% of room revenue.
Additionally, these Corporations can terminate their Franchise
Agreements after the seventh month to twenty-fourth month for
liquidated damages of $200 per guest room. Termination after the
second year anniversary requires only 30 days notice without any
liquidated dames or fees.
On December 30, 1995, an amendment to the Franchise Agreements was
executed whereby for a period of one year beginning January 1, 1996,
the franchisees may, at their election, cease paying marketing fees
and may instead expend the funds which otherwise would be paid as
marketing fees on advertising and other marketing for their motel
properties.
C. Cricket Inn Renovation
In December 1994, four Corporations (SB Motel Charlotte I-85 Corp.,
SB Motel Durham-Duke Corp., SB Motel Raleigh Corp. and SB Motel
Virginia Beach Corp.) committed to construction and refurbishment
costs of approximately $3.5 million. This renovation project was
completed in August 1995 and resulted in a $469,294 loss on disposal
of furniture and equipment.
9
6. Leasehold Interest
SB Motel Statesville Corp. ("Statesville") assumed a ground lease for the
land on which the Motel it owns is situated. The initial term of this
lease commenced in February 1984 and expires April 30, 2005. The annual
rental through April 30, 1995 was the greater of (i) $22,000 less one-half
percent of gross room rentals from the Statesville motel during the ninth
year of the lease term (the twelve months ending April 30, 1991) or (ii)
three and one-half percent of the lease year room rentals from the
Statesville motel. Statesville may renew the lease at its option, for
three additional ten-year periods ended April 30, 2035. The annual rental
during the final ten years of the initial term and each extension is the
greater of $22,000 less one-half percent of gross room rentals from the
Statesville motel during the 1991 lease year of the lease term or four
percent of gross room rentals from the Statesville motel during each lease
year.
Statesville has a right of first refusal to buy the land subject to the
ground lease from the lessor during the lease term subject to the first
refusal rights of Roses Department Stores, Inc. or its successors.
Rent expense on the ground lease was $24,550, $30,852, and $45,432 for the
years ended December 31, 1994 and 1995 and the nine months ended September
30, 1996, respectively.
The future minimum rental payables assuming no gross room rentals during
the initial lease term and no increases in the consumer price index are as
follows for the years ended December 31:
1997 $22,000
1998 22,000
1999 22,000
2000 22,000
2001 and thereafter 95,333
--------
$183,333
========
7. Income Taxes
The components of income tax reflected in the combined statements of
operations are as follows:
For the Years Ended For the Nine
December 31, Months Ended
------------------------ September 30,
1994 1995 1996
-------- ---------- ----------
Current:
U.S. Federal $390,091 $1,177,177 $1,403,612
State and Local 183,339 282,083 271,829
-------- ---------- ----------
Total current 573,430 1,459,260 1,675,441
Deferred:
U.S. Federal 111,326 185,655 100,170
-------- ---------- ----------
Income taxes $684,756 $1,644,915 $1,775,611
======== ========== ==========
Deferred taxes arise from temporary differences in book and tax
depreciation of $318,078, $530,444 and $286,197 for the years ended
December 31, 1994 and 1995 and for the nine months ended September 30,
1996, respectively. Accordingly, federal income taxes payable to parent
includes a cumulative deferred tax liability of $111,326, $296,981 and
$397,151 for the years ended December 31, 1994 and 1995 and for the nine
months ended September 30, 1996, respectively.
During the years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1996, the Corporations paid state income and franchise
taxes of $230,616, $145,550 and $277,000, respectively.
10
7. Income Taxes (continued)
The effective income tax on combined pretax earnings differs from the
amount calculated at the U.S. Federal statutory rate of 35% for the years
ended December 31, 1994 and 1995 and for the nine months ended September
30, 1996 as follows:
For the Years Ended For the Nine
December 31, Months Ended
---------------------- September 30,
1994 1995 1996
-------- ---------- ----------
Provision computed at U.S. Federal
Statutory Rate $565,587 $1,461,560 $1,598,921
State taxes, net of federal income
tax benefit 119,169 183,355 176,690
-------- ---------- ----------
Provision for income taxes $684,756 $1,644,915 $1,775,611
======== ========== ==========
8. Subsequent Event
On November 27, 1996, SB Motel sold the twelve Motels to Hudson Hotels
Properties Corp., a wholly-owned subsidiary of Hudson Hotels Corporation
("Hudson") for net proceeds of $60.2 million. The purchase price was
comprised of $54.9 million in cash, $2.4 million in Hudson common stock
and a $2.9 million one-year, promissory note. As a result of this
transaction, SB Motel owns approximately 7.7% of Hudson's common stock and
received a seat on Hudson's Board of Directors.
Hudson and AGHI entered into an agreement whereby AGHI would provide
management services for the Motels for the period of November 27, 1996
through December 31, 1996.
Each of the Corporations completed the wind-up of its operations and filed
for dissolution in the State of Delaware on December 20, 1996.
11
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Financial Information
(unaudited)
The following information reflects pro forma consolidated balance sheet date of
Hudson Hotels Corporation and subsidiaries ("the Company") as of September 30,
1996 and consolidated results of operations data of the Company for the nine
months ended September 30, 1996 and the year ended December 31, 1995.
The pro forma consolidated balance sheet data is presented as if the
acquisitions of (i) Delray Beach Hotel Properties Limited, Brookwood Hotel
Properties, Ridge Road Hotel Properties, L.P., Jamestown Hotel Properties, L.P.,
and Muar Lakes Associates, L.P. ("Hudson properties") and (ii) SB Motel Corp.
and the issuance of the Company common stock as either total or partial
consideration for both Hudson properties and SB Motel Corp. occurred on
September 30, 1996.
The pro forma consolidated results of operations data for the nine months ended
September 30, 1996 and year ended December 31, 1995 is presented as if the
acquisition of both SB Motel Corp. and Hudson properties and the following
transactions had occurred on January 1, 1995: (i) issuance of Company common
stock as either total or partial consideration for acquisitions of SB Motel
Corp. and Hudson properties and (ii) the issuance of $7.5 million of 7 1/2%
convertible subordinated debentures due 2001 to the extent such proceeds were
used to finance the acquisition.
The acquisitions have been or will be accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been or
will be recorded at their estimated fair values which are subject to further
refinement, with appropriate recognition given to the effect of current interest
rates and income taxes. Management does not expect that the final allocation of
the purchase price for the above transactions will differ materially from the
preliminary allocations.
The pro forma financial information does not purport to present the financial
position or results of operations of the Company and the transactions and events
assumed therein occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future. The
pro forma consolidated results of operations does not reflect certain additional
cost savings and revenue enhancements that management believes may be realized
following the acquisitions. These savings are expected to be realized through
consolidation of certain services as well as revenue enhancements by increasing
marketing efforts for the properties acquired and/or possible repositioning some
of the properties based on its location. During 1995, a portion of the rooms in
the SB Motel Corp. portfolio was under renovation, which substantially reduced
revenues for 1995. Efforts will be made to increase revenue through
enhancements. No assurances can be made as to the amount of cost savings or
revenue enhancements, if any, that actually will be realized.
The pro forma consolidated financial statements are based on certain assumptions
and adjustments described in the notes to the pro forma consolidated balance
sheet and statement of operations and should be read in conjunction therewith
and with the consolidated financial statements and related notes of the Company
included in its December 31, 1995 10-KSB and the September 30, 1996 10-QSB and
the financial statements and related notes of the acquired entities included
elsewhere herein and the 8-K/A filed on November 12, 1996, in conjunction with
the acquisition of Hudson properties.
12
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet as of September 30, 1996
(A) (B) (C)
Hudson Hotels Pro Forma
Corporation SB Motel Corp. Adjustments Company
----------- ---------- ----------- ------------
ASSETS
Current Assets
Cash and cash equivalents 1,317,708 1,957,989 (1,926,608) 1,349,089
Accounts receivable - trade 724,111 459,881 (459,881) 724,111
Accounts receivable - affiliate 200,850 8,716,563 (8,716,563) 200,850
Other current assets 3,560,076 338,946 (253,335) 3,645,687
----------- ---------- ----------- ------------
Total current assets 5,802,745 11,473,379 (11,356,387) 5,919,737
Investment in partnership interests 2,826,524 -- -- 2,826,524
Investment in land 780,822 -- -- 780,822
Real estate development 3,453,570 -- -- 3,453,570
Property and Equipment - Net 21,885,663 29,334,735 31,760,087 82,980,485
Deferred tax asset 455,171 -- -- 455,171
Mortgage note receivable - affiliate 1,300,000 -- -- 1,300,000
Other assets 3,787,671 -- 2,113,159 5,900,830
----------- ---------- ----------- ------------
Total assets 40,292,166 40,808,114 22,516,859 103,617,139
=========== ========== =========== ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities 4,846,663 34,558,435 (34,335,570) 5,069,528
Deferred revenue - Beach Club 98,117 -- -- 98,117
Long-term debt 22,662,939 -- 60,702,108 83,365,047
Deferred revenue - land sale 185,055 -- -- 185,055
Limited partners' interest in
consolidated partnerships 1,297,937 -- -- 1,297,937
Shareholders' Investment
Common stock 4,416 1,200 (829) 4,787
Preferred stock 295 -- -- 295
Additional paid in capital 13,530,675 -- 2,399,629 15,930,304
Warrants outstanding 50,000 -- -- 50,000
Accumulated deficit (2,383,931) 6,248,479 (6,248,479) (2,383,931)
----------- ---------- ----------- ------------
Total shareholder's investment 11,201,455 6,249,679 (3,849,679) 13,601,455
Total liabilities and shareholders'
investment 40,292,166 40,808,114 22,516,859 103,617,139
=========== ========== =========== ============
- ----------
See notes to pro forma consolidated balance sheet and statement of operations
13
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
(D) (E) (E) (E) (E)
Ridge Road Jamestown
Brookwood Hotel Hotel Muar Lakes
Hudson Hotels Hotel Properties, Properties, Associates,
Corporation Properties LP LP LP
---------- ---------- -------- -------- --------
OPERATING REVENUES
Hotel room revenue 4,792,266 1,477,125 714,879 861,253 433,899
Beach Club income 1,932,196 -- -- -- --
Management Fees 752,995 -- -- -- --
Royalties 450,776 -- -- -- --
Other 759,079 52,751 16,907 15,383 2,877
---------- ---------- -------- -------- --------
Total operating revenues 8,687,312 1,529,876 731,786 876,636 436,776
Operating Expenses 6,194,112 1,149,542 509,348 576,374 317,305
---------- ---------- -------- -------- --------
Income from operations before
depreciation and amortization 2,493,200 380,334 222,438 300,262 119,471
Depreciation and amortization 475,390 172,999 61,164 77,449 38,173
---------- ---------- -------- -------- --------
Income from operations 2,017,810 207,335 161,274 222,813 81,298
Other income (expenses)
Gain on sale of worldwide franchise
rights 358,725 -- -- -- --
Interest - net (673,080) (413,694) (129,439) (90,016) (62,059)
---------- ---------- -------- -------- --------
Total other income (expense) (314,355) (413,694) (129,439) (90,016) (62,059)
Income from operations, before income
taxes, minority interest and equity in
net losses of affiliates 1,703,455 (206,359) 31,835 132,797 19,239
BENEFIT/(PROVISION) FROM
TAXES (490,837) -- -- -- --
---------- ---------- -------- -------- --------
Income from operations before
minority interest and equity in net
losses of affiliates 1,212,618 (206,359) 31,835 132,797 19,239
MINORITY INTEREST (363,378) -- -- -- --
EQUITY IN INCOME OF
AFFILIATES 63,762 -- -- -- --
---------- ---------- -------- -------- --------
NET INCOME 913,002 (206,359) 31,835 132,797 19,239
========== ========== ======== ======== ========
NET INCOME PER SHARE:
PRIMARY $0.21
==========
FULL DILUTED $0.19
==========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
PRIMARY 3,762,151
==========
FULLY DILUTED 4,656,874
==========
(F) (C)
SB Motel Pro Forma
Corp. Adjustments Company
----------- ----------- -----------
OPERATING REVENUES
Hotel room revenue 15,476,909 23,756,331
Beach Club income -- -- 1,932,196
Management Fees -- (164,078)(G) 588,917
Royalties -- -- 450,776
Other 46,486 -- 893,483
----------- ----------- -----------
Total operating revenues 15,523,395 (164,078) 27,621,703
Operating Expenses 9,344,318 (815,573)(H) 17,275,426
----------- ----------- -----------
Income from operations before
depreciation and amortization 6,179,077 651,495 10,346,277
Depreciation and amortization 1,132,288 764,814(I) 2,722,277
----------- ----------- -----------
Income from operations 5,046,789 (113,319) 7,624,000
Other income (expenses)
Gain on sale of worldwide franchise
rights -- -- 358,725
Interest - net (478,444) (3,583,488)(J) (5,430,220)
----------- ----------- -----------
Total other income (expense) (478,444) (3,583,488) (5,071,495)
Income from operations, before income
taxes, minority interest and equity in
net losses of affiliates 4,568,345 (3,696,807) 2,552,505
BENEFIT/(PROVISION) FROM
TAXES (1,775,611) 1,259,495(K) (1,006,953)
----------- ----------- -----------
Income from operations before
minority interest and equity in net
losses of affiliates 2,792,734 (2,437,312) 1,545,552
MINORITY INTEREST -- 269,164(L) (94,214)
EQUITY IN INCOME OF
AFFILIATES -- (4,670)(M) 59,092
----------- ----------- -----------
NET INCOME 2,792,734 (2,172,818) 1,510,430
=========== =========== ===========
NET INCOME PER SHARE:
PRIMARY $0.27
===========
FULL DILUTED $0.25
===========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
PRIMARY 1,506,378 5,268,529
=========== ===========
FULLY DILUTED 1,506,378 6,163,252
=========== ===========
- ----------
See notes to pro forma consolidated balance sheet and statement of operations
14
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATION
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(unaudited)
(N) (F) (C)
Hudson Hotels SB Motel Pro Forma
Corporation Corp. Adjustments Company
----------- ----------- ----------- -----------
OPERATING REVENUES
Hotel room revenue 11,051,719 17,787,226 -- 28,838,945
Beach Club income 2,632,563 -- -- 2,632,563
Management Fees 513,836 -- -- 513,836
Royalties 455,284 -- -- 455,284
Other 875,262 77,356 -- 952,618
----------- ----------- ----------- -----------
Total operating revenues 15,528,664 17,864,582 -- 33,393,246
Operating expenses 11,818,400 11,211,474 (665,573) 22,364,301
----------- ----------- ----------- -----------
Income from operations before
depreciation and amortization 3,710,264 6,653,108 665,573 11,028,945
Depreciation and amortization 1,015,059 1,287,722 1,361,642 3,664,423
----------- ----------- ----------- -----------
Income from operations 2,695,205 5,365,386 (696,069) 7,364,522
Other Income (Expenses)
Gain on sales of worldwide franchise rights 1,530,123 -- -- 1,530,123
Interest - net (1,872,763) (720,206) (4,653,600) (7,246,569)
Loss on disposal of fixed assets -- (469,294) 469,294
Gain on repurchase of franchise rights 150,000 -- -- 150,000
----------- ----------- ----------- -----------
Total other income (expense) (192,640) (1,189,500) (4,184,306) (5,566,446)
Income from operations, before income
taxes, minority interest and equity in
net losses of affiliates 2,502,565 4,175,886 (4,880,375) 1,798,076
BENEFIT/(PROVISION) FROM TAXES 245,993 (1,644,915) 1,283,286 (115,636)
----------- ----------- ----------- -----------
Income from operations, before minority
interest and equity in net losses of affiliates 2,748,558 2,530,971 (3,597,089) 1,682,440
MINORITY INTEREST (101,965) -- -- (101,965)
EQUITY IN LOSSES OF AFFILIATES (43,024) -- -- (43,024)
----------- ----------- ----------- -----------
NET INCOME 2,603,569 2,530,971 (3,597,089) 1,537,451
=========== =========== =========== ===========
NET INCOME PER SHARE:
PRIMARY $ 0.51 $ 0.35
=========== ===========
FULLY DILUTED $ 0.48 $ 0.34
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
PRIMARY 3,643,123 370,657 4,013,780
FULLY DILUTED 4,599,618 370,657 4,970,275
- ----------
See notes to pro forma consolidated balance sheet and statement of operations
15
HUDSON HOTELS CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet and Statement of Operations
(unaudited)
(A) Reflects the Company's historical consolidated balance sheet as of
September 30, 1996, as reported on Form 10-QSB.
(B) Reflects the historical balance sheets as of September 30, 1996, for the
assets acquired by the Company.
(C) Acquisition of Assets
The purchase price for the hotel entity acquired has been allocated to
assets acquired at their estimated fair values. The pro forma adjustments
consist of the elimination of assets and liabilities not acquired by the
Company, net of the fair value ascribed to purchased assets. In addition,
costs incurred to secure financing were capitalized and will be amortized
over the term of the related financing.
The Company acquired the entity for $60,400,000. The terms of the
transaction provided for a $55.1 million cash payment, with the balance
comprised of a $2.9 million one year note and $2.4 million in Hudson
Hotels Corporation Common Stock.
(D) Represents the Company's historical consolidated statement of operation
for the nine months ended September 30, 1996. The results include two
months operations of five entities, which the Company purchased July 31,
1996.
(E) The Company acquired five entities on July 31, 1996. These results
represent seven months of operation prior to the acquisition which
presents the Hudson properties as being acquired at the beginning of the
year. The Company, in its capacity as sole general partner and by the
terms of the partnership agreement, controls the partnership of Delray
Beach Hotel Properties Limited, and thus consolidates its balance sheet
and statement of operation. Consolidation of Delray Beach Hotel Properties
Limited provides no additional net income or loss to the Company than from
reporting the investment under the equity method of accounting. See notes
D and G for certain pro forma adjustments made to correctly reflect the
acquisition of the remaining interest of Delray Beach Hotel Properties
Limited.
(F) Reflects the historical statement of operations for SB Motel Corp. for the
nine months ended September 30, 1996 and historical statement of
operations for SB Motel Corp. for the year ended December 31, 1995.
(G) Reflects the elimination of management fees, as the Company managed the
entities described in Note (E) prior to the acquisition.
(H) Represents the elimination of management fees paid by SB Motel Corp. to an
outside management company, which will no longer be incurred, as part of
the acquisition.
(I) Reflects adjusted depreciation and amortization related to the acquisition
of Hudson Properties and SB Motel Corp. The furniture, fixtures and
equipment have an estimated useful life of five to seven years. The hotel
structures have a useful life of forty years, and the value established to
the Beach Club has a useful life of twenty years. Finance acquisition
costs will be amortized from five to twenty-five years, the terms
associated with the financing.
(J) Reflects adjusted interest expense for debt incurred as part of the
acquisition of SB Motel Corp. The Company obtained a total of $76 million
in financing, of which $56 million represents a first mortgage, $17
million of mezzanine debt financing and a $2.9 million note from SB Motel
Corp.
(K) The pro forma adjustment to income taxes is based on the statutory tax
rate.
(L) Reflects the elimination of minority interest share of net income
generated by Delray Beach Hotel Properties Limited, one of the five hotel
entities acquired on July 31, 1996.
(M) Reflects the elimination of income from equity interest the Company had in
the Hudson properties acquired entities.
(N) Reflects the Company's proforma consolidated statement of operations for
the year ended December 31, 1995, for the acquisition of the five Hudson
properties, as reported on Form 8-K.
16