<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 18, 1997
WYNDHAM HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-11723 75-2636072
- ---------------------------------------------- ------------ ------------------
(State or other jurisdiction of incorporation) (Commission (IRS Employer
File Number) Identification No.)
2001 Bryan Street, Suite 2300,
Dallas, Texas 75201
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 863-1000
<PAGE> 2
WYNDHAM HOTEL CORPORATION
FORM 8-K/A
Item 7. Financial Statements and Exhibits.
Financial Statements of Acquired Properties
On July 31, 1997, Wyndham Hotel Corporation (the "Company") acquired
Kansas City-based ClubHouse Hotels, Inc. ("ClubHouse"), a privately held chain
of 17 hotels. In connection with the acquisition, the Company acquired direct
or indirect ownership of 13 hotels (of which 8 were owned by ClubHouse),
ownership of partial interests in three additional hotels managed by ClubHouse,
ownership of the ClubHouse brand name and one license for a franchised
ClubHouse hotel (collectively, the "ClubHouse Merger"). The consolidated
balance sheet of ClubHouse as of June 30, 1997 (unaudited) and related
consolidated statements of income for the six months ended June 30, 1997 and
1996 (unaudited), the related consolidated statements of changes in
stockholders' equity (deficit) and cash flows for the six months ended June 30,
1997 (unaudited), the consolidated balance sheets of ClubHouse as of December
31, 1996 and 1995 and related consolidated statements of income, changes in
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1996 (audited) are included herein as exhibit
99.1. The combined balance sheet of additional hotel entities acquired that
were not previously owned by ClubHouse (the "ClubHouse Acquisition Hotels") as
of June 30, 1997 (unaudited) and related combined statements of income for the
six months ended June 30, 1997 and 1996 (unaudited), the related combined
statements of changes in partners'/owners' deficit and cash flows for the six
months ended June 30, 1997 (unaudited), the combined balance sheets of the
ClubHouse Acquisition Hotels as of December 31, 1996 and 1995 and related
combined statements of income, changes in partners'/owners' deficit, and cash
flows for the two years then ended (audited) are included herein as exhibit
99.2. The balance sheets of certain ClubHouse Acquisition Hotels as of December
31, 1995 and 1994 and related statements of income, partners' capital (deficit)
and cash flows for the two years then ended (audited) are included herein as
exhibits 99.3 to 99.7.
Pro Forma Financial Information
The following unaudited pro forma balance sheets of the Company as of June
30, 1997 and December 31, 1996 present, in the "Pro Forma Adjusted" column, the
financial position of the Company as if the ClubHouse Merger had been completed
on those dates. The unaudited pro forma statements of income of the Company for
the six months ended June 30, 1997 and for the year ended December 31, 1996
present, in the "Pro Forma Balance" column, the results of the Company as if
the ClubHouse Merger had been completed on January 1, 1996. The adjustments are
discussed in the accompanying notes.
The ClubHouse Merger has been accounted for as a purchase, and,
accordingly, the assets have been recorded based on their estimated fair values
at the closing date.
The unaudited pro forma financial statements should be read in conjunction
with the accompanying notes, the historical financial statements and notes of
ClubHouse and ClubHouse Acquisition Hotels included herein, the historical
financial statements and notes of the Company included in the quarterly report
on Form 10-Q for the period ended June 30, 1997 and in the annual report on
Form 10-K for the year ended December 31, 1996. The unaudited pro forma
financial statements are presented for information purposes only and may not
reflect the Company's future results of operations and financial position
following the consummation of the ClubHouse Merger, or what the results of
operations and financial position of the Company would have been had the
ClubHouse Merger occurred as of the dates indicated.
<PAGE> 3
WYNDHAM HOTEL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30,1997
(in thousands)
<TABLE>
<CAPTION>
ASSETS PRO FORMA ADJUSTMENTS
---------------------------------------
BORROWING
THE AND STOCK OTHER PRO FORMA
HISTORICAL MERGER ISSUANCE ADJUSTMENTS ADJUSTED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 17,573 $ 6,843 a $ -- $ -- $ 24,416
Cash, restricted 645 -- -- -- 645
Accounts receivable-net 12,594 883 b -- -- 13,477
Due from affiliates 12,828 42 b -- -- 12,870
Inventories 1,459 -- -- -- 1,459
Deferred income taxes 2,158 -- -- -- 2,158
Other 1,721 1,571 b -- -- 3,292
----------- ----------- ----------- ----------- -----------
Total current assets 48,978 9,338 -- -- 58,316
Investment in hotel partnerships 1,125 2,848 c 105,468 k (105,468) l 3,973
Notes and other receivable from affiliates 8,316 -- -- -- 8,316
Notes receivable 6,240 -- -- -- 6,240
Property and equipment, net 150,400 124,240 d -- -- 274,640
Management contract costs, net 10,064 -- -- -- 10,064
Security deposits 24,226 85 e -- -- 24,311
Deferred income taxes 13,400 493 e -- -- 13,893
Goodwill -- 20,944 d -- -- 20,944
Other 13,504 2,553 e 1,188 j -- 17,244
----------- ----------- ----------- ----------- -----------
Total assets $ 276,253 $ 160,502 $ 106,656 $ (105,468) $ 437,942
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,821 $ 10,558 f $188 j $ -- $ 37,566
Deposits 993 -- -- -- 993
Deposits from affiliates 344 -- -- -- 334
Current portion of long-term debt and lease
obligations 535 558 g -- -- 1,093
----------- ----------- ----------- ----------- -----------
Total current liabilities 28,693 11,115 188 -- 39,996
----------- ----------- ----------- ----------- -----------
Borrowings under revolving credit facility 21,000 -- 57,310 k -- 78,310
Long-term debt and capital lease obligations 129,669 22,974 g -- -- 152,643
Deferred income taxes -- 20,944 h -- -- 20,944
Deferred gain 11,696 -- -- -- 11,696
----------- ----------- ----------- ----------- -----------
162,365 43,918 57,310 -- 263,593
----------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock 200 -- 17 k -- 217
Additional paid-in capital 84,355 105,468 i 49,141 k (105,468)l 133,496
Retained earnings 19,040 -- -- -- 19,040
Foreign currency translation adjustments (182) -- -- -- (182)
Receivable from affiliates (1,331) -- -- -- (1,331)
Notes receivable from stockholders (16,887) -- -- -- (16,887)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 85,195 105,468 49,158 (105,468) 134,353
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 276,253 $ 160,502 $ 106,656 $ (105,468) $ 437,942
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 4
WYNDHAM HOTEL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30,1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------
BORROWING
THE AND STOCK OTHER PRO FORMA
HISTORICAL MERGER ISSUANCE ADJUSTMENTS BALANCE___
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues $ 83,360 $ 17,116 a $ -- $ -- $ 100,476
Management fees 12,795 408 a -- -- 13,203
Service fees 2,298 -- -- -- 2,298
Reimbursements 7,183 109 a -- -- 7,292
Other 705 -- -- -- 705
--------- --------- --------- --------- ---------
Total revenues 106,341 17,633 -- -- 123,974
--------- --------- --------- --------- ---------
Operating costs and expenses:
Hotel expenses 62,183 9,069 b -- -- 71,252
Selling, general and administrative expense 10,606 1,017 b -- -- 11,623
Reimbursable expenses 7,184 109 a -- -- 7,293
Depreciation and amortization 5,208 2,455 c -- -- 7,663
Merger expenses 2,719 -- -- -- 2,719
--------- --------- --------- --------- ---------
Total operating costs and expenses 87,900 12,650 -- -- 100,550
--------- --------- --------- --------- ---------
Operating income 18,441 4,983 -- -- 23,424
Interest income 1,371 0 -- -- 1,371
Interest expense (7,123) (1,121)d (2,248)d -- (10,492)
Equity in earnings of hotel partnerships -- 194 e -- -- 194
Amortization of deferred gain 369 -- -- -- 369
--------- --------- --------- --------- ---------
Income before income taxes 13,058 4,056 (2,248) -- 14,866
Provision for income taxes 6,232 714 f -- -- 6,946
--------- --------- --------- --------- ---------
Net income $ 6,826 $ 3,342 $ (2,248) $ -- $ 7,920
========= ========= ========= ========= =========
Earnings per common share outstanding:
Net income $ 0.34 $ 0.37 g
Average number of shares outstanding 20,018 21,677 g
</TABLE>
<PAGE> 5
WYNDHAM HOTEL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31,1996
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
ASSETS ----------------------------------
BORROWING
THE AND STOCK OTHER PRO FORMA
HISTORICAL MERGER ISSUANCE ADJUSTMENTS ADJUSTED
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 11,517 $ 6,809 a $ -- $ -- $ 18,326
Cash, restricted 865 8 a -- -- 873
Accounts receivable-net 13,330 716 b -- -- 14,046
Due from affiliates 12,686 59 b -- -- 12,745
Inventories 1,430 -- -- -- 1,430
Deferred income taxes 1,539 -- -- -- 1,539
Other 1,412 941 b -- -- 2,353
--------- --------- --------- --------- ---------
Total current assets 42,779 8,532 -- -- 51,311
Investment in hotel partnerships 1,125 2,848 c 105,207 k (105,207)l 3,973
Notes and other receivable from affiliates 7,685 -- -- -- 7,685
Notes receivable 6,307 -- -- -- 6,307
Property and equipment, net 134,176 124,818 d -- -- 258,994
Management contract costs, net 7,766 -- -- -- 7,766
Security deposits 15,288 77 e -- -- 15,365
Deferred income taxes 14,148 493 e -- -- 14,641
Goodwill -- 20,944 d -- -- 20,944
Other 13,688 1,541 e 1,188 j -- 16,417
--------- --------- --------- --------- ---------
Total assets $ 242,962 $ 159,254 $ 106,394 $(105,207) $ 403,403
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 23,556 $ 9,309 f $ 188 j $ -- $ 33,053
Deposits 959 -- -- -- 959
Deposits from affiliates 344 -- -- -- 344
Current portion of long-term debt and
lease obligations 510 534 g -- -- 1,044
--------- --------- --------- --------- ---------
Total current liabilities 25,369 9,844 188 -- 35,400
--------- --------- --------- --------- ---------
Borrowings under revolving credit facility -- -- 57,049 k -- 57,049
Long-term debt and capital lease obligations 129,944 23,259 g -- -- 153,203
Deferred income taxes -- 20,944 h -- -- 20,944
Deferred gain 12,065 -- -- 12,065
--------- --------- --------- --------- ---------
142,009 44,203 57,049 -- 243,261
--------- --------- --------- --------- ---------
Stockholders' equity:
Common stock 200 -- 17 k 217
Additional paid-in capital 84,342 105,207 i 49,141 k (105,207) l 133,483
Retained earnings 11,714 -- -- -- 11,714
Receivable from affiliates (1,223) -- (1,223)
Notes receivable from stockholders (19,449) -- -- -- (19,449)
--------- --------- --------- --------- ---------
Total stockholders' equity 75,584 105,207 49,158 (105,207) l 124,742
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity $ 242,962 $ 159,254 $ 106,394 $(105,207) $ 403,403
========= ========= ========= ========= =========
</TABLE>
<PAGE> 6
WYNDHAM HOTEL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------
BORROWING
THE AND STOCK OTHER PRO FORMA
HISTORICAL MERGER ISSUANCE ADJUSTMENTS BALANCE
-------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues $104,620 $30,389 a $ - $ - $135,009
Management fees 23,813 773 a - - 24,586
Service fees 4,306 - - - 4,306
Reimbursements 14,977 213 a - - 15,190
Other 359 - - - 359
-------- ------- ------- ------- -------
Total revenues 148,075 31,375 - - 179,450
-------- ------- ------- ------- -------
Operating costs and expenses:
Hotel expenses 77,016 16,790 b - - 93,806
Selling, general and administrative expense 19,050 1,720 b - - 20,770
Equity participation compensation 2,919 - - - 2,919
Reimbursable expenses 14,977 213 a - - 15,190
Depreciation and amortization 8,110 4,918 c - - 13,028
-------- ------- ------- ------- -------
Total operating costs and expenses 122,072 23,641 - - 145,713
-------- ------- ------- ------- -------
Operating income 26,003 7,734 - - 33,737
Interest income 1,891 0 - - 1,891
Interest expense (11,810) (2,060)d (4,464)d - (18,334)
Equity in earnings (loss) of hotel partnerships 870 364 e - - 1,234
Amortization of deferred gain 505 13 e - - 518
-------- ------- ------- ------- -------
Income before minority interests, income taxes
and extraordinary item 17,459 6,050 (4,464) - 19,045
Income attributable to minority interests 571 - - - 571
-------- ------- ------- ------- -------
Income before income taxes and extraordinary item 16,888 6,050 (4,464) 0 18,474
Income tax provision (benefits) (8,209) 620 f - - (7,589)
-------- ------- ------- ------- -------
Income before extraordinary item $ 25097 $ 5,430 $(4,464) $ 0 $26,063
======== ======= ======= ======= =======
Earnings per common share outstanding:
Income before extraordinary item $ 1.25 $ 1.20 g
Average number of shares outstanding 20,018 21,677 g
</TABLE>
<PAGE> 7
WYNDHAM HOTEL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
BASIS OF PRESENTATION
The pro forma balance sheets present the historical consolidated balance
sheets of the Company before the ClubHouse Merger adjusted to reflect the
ClubHouse Merger in "The Merger" column, the related borrowing under the
revolving credit facility and the issuance of the Company's Common Stock in the
"Borrowing and Stock Issuance" column, and certain eliminations to arrive at
the balance sheets of the Company on a pro forma basis as of June 30, 1997 and
December 31, 1996, as if the ClubHouse Merger had been effected on those dates.
The pro forma statements of income present the historical consolidated
operations for the six months ended June 30, 1997 and the year ended December
31, 1996 of the Company before the ClubHouse Merger, adjusted to reflect the
ClubHouse Merger, the related borrowing under the revolving credit facility and
the issuance of the Company's Common Stock, to arrive at the statements of
income of the Company on a pro forma basis for the six months ended June 30,
1997 and the year ended December 31, 1996, as if the ClubHouse Merger had been
effected on January 1, 1996.
The unaudited pro forma financial statements of the Company are presented
for informational purposes only and may not reflect the Company's future
results of operations and financial position following consummation of the
ClubHouse Merger or what the results of operations and financial position of
the Company would have been had the ClubHouse Merger occurred as of the dates
indicated.
PRO FORMA ADJUSTMENTS
The pro forma adjustments to the consolidated balance sheets and
statements of income are detailed below:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Consolidated balance sheets -
(a) Adjustments to reflect addition of the cash balances of ClubHouse and
ClubHouse Acquisition Hotels as a result of the ClubHouse Merger:
Cash and cash equivalents $ 6,843 $ 6,809
=========== ===========
Cash, restricted $ -- $ 8
=========== ===========
(b) Adjustments necessary to record the balances of accounts receivable,
receivable from affiliates and other current assets of ClubHouse and
ClubHouse Acquisition Hotels:
Addition of accounts receivables $ 883 $ 716
=========== ===========
Addition of due from affiliates $ 42 $ 59
=========== ===========
Addition of other assets $ 1,571 $ 941
=========== ===========
(c) Adjustments to reflect the minority ownership interests in three hotel partnerships owned by
ClubHouse $ 2,848 $ 2,848
=========== ===========
(d) Adjustments to reflect the property and equipment of ClubHouse and
ClubHouse Acquisition Hotels as adjusted based on the purchase price of
$130 million, calculated as follows:
Purchase price $ 130,000 $ 130,000
Less: Allowance for merger expenses (120) (120)
Less: Office building costs (880) (880)
Less: Debt of minority interest properties not assumed (3,000) (3,000)
Acquisition costs 3,000 3,000
Debt assumed (23,532) (23,793)
Debt repaid (38,182) (35,263)
Deferred tax liability recorded 20,944 20,944
Goodwill (20,944) (20,944)
ClubHouse existing capital accounts eliminated 3,078 1,404
----------- -----------
Total assets stepup 70,364 71,348
Minority interests stepup (2,509) (2,478)
Property and equipment of ClubHouse and ClubHouse Acquisition Hotels at historical
book value adjusted to exclude the ClubHouse office building which is not acquired 56,385 55,948
----------- -----------
$ 124,240 $ 124,818
=========== ===========
Property and equipment are allocated as follows:
Land $ 10,967 $ 10,967
Buildings 106,982 107,380
Furniture, fixture and equipment 6,291 6,471
----------- -----------
$ 124,240 $ 124,818
=========== ===========
</TABLE>
<PAGE> 8
WYNDHAM HOTEL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(continued)
<TABLE>
(e) Adjustments to reflect security deposits, deferred income taxes and other
assets of ClubHouse and ClubHouse Acquisition Hotels:
<S> <C> <C>
Security deposits $ 85 $ 77
========= =========
Deferred income taxes $ 493 $ 493
========= =========
Other assets, including $1,484 and $2,442 of cash reserved for property and equipment
repair and replacement, respectively $ 2,553 $ 1,541
========= =========
(f) Adjustments to reflect the accounts payable and accrued expenses of ClubHouse and
ClubHouse Acquisition Hotels $ 10,558 $ 9,309
========= =========
(g) Adjustments to reflect the outstanding debt of ClubHouse and ClubHouse
Acquisition Hotels assumed by the Company:
Current portion of ClubHouse and ClubHouse Acquisition Hotels debt assumed $ 558 $ 534
Long-term debt obligations of ClubHouse and ClubHouse Acquisition Hotels 22,974 23,259
--------- ---------
Total debt assumed $ 23,532 $ 23,793
========= =========
(h) Adjustments to reflect deferred income taxes in accordance with Statement of Financial
Accounting Standard 109 resulting from the acquisition of ClubHouse and ClubHouse
Acquisition Hotels $ 20,944 $ 20,944
========= =========
(i) Adjustments to reflect the equity value of ClubHouse and ClubHouse
Acquisition Hotels, calculated as follows:
Purchase price $ 130,000 $ 130,000
Less: Allowance for merger expenses (120) (120)
Less: Office building costs (880) (880)
Less: Debt of minority interest properties not assumed (3,000) (3,000)
Acquisition costs 3,000 3,000
Less: Debt assumed (23,532) (23,793)
--------- ---------
Net equity value of ClubHouse and ClubHouse Acquisition Hotels $ 105,468 $ 105,207
========= =========
(j) Adjustments to reflect the costs of the Non-Competition and Non-Disclosure
Agreements and accrued revolving credit facility amendment fees:
Non-Competition and Non-Disclosure Agreements (over the term of the agreements) $ 1,000 $ 1,000
Revolving credit facility amendment fees (based on $50 million at 3/8%) 188 188
--------- ---------
$ 1,188 $ 1,188
========= =========
(k) Adjustments to reflect the borrowings under the revolving credit facility
and issuance of capital stock, calculated as follows:
Purchase price $ 130,000 $ 130,000
Less: Allowance for merger expenses (120) (120)
Less: Office building costs (880) (880)
Less: Debt of minority interest properties not assumed (3,000) (3,000)
Acquisition costs 3,000 3,000
Debt assumed (23,532) (23,793)
--------- ---------
Net purchase price 105,468 105,207
Less: Capital stock to be issued (based on estimated equity value and the issuance of
1,659,338 shares, par $.0l) (49,158) (49,158)
Cost of Non-Competition and Non-Disclosure Agreements 1,000 1,000
--------- ---------
Total debt incurred $ 57,310 $ 57,049
========= =========
(1) Adjustments to reflect the elimination of the investment in ClubHouse and ClubHouse
Acquisition Hotels on a combined basis, see (i) and (k) above $ 105,468 $ 105,207
========= =========
</TABLE>
<PAGE> 9
WYNDHAM HOTEL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(continued)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
Consolidated statements of income:
(a) Adjustments to reflect additions of revenues of ClubHouse and ClubHouse Acquisition Hotels:
Hotel revenues $ 17,116 $ 30,389
======== ========
Management fees $ 408 $ 773
======== ========
Reimbursements $ 109 $ 213
======== ========
(b) Adjustments to reflect additions of expenses of ClubHouse and ClubHouse Acquisition Hotels:
Hotel expenses $ 9,069 $ 16,790
======== ========
Selling, general and administrative $ 1,017 $ 1,720
======== ========
(c) Adjustments to reflect additions of depreciation and amortization expense
of ClubHouse and ClubHouse Acquisition Hotels calculated as follows:
Buildings, amortized 39 years $ 1,371 $ 2,751
Furniture, fixtures and equipment, over 5 to 7 years 722 1,443
Goodwill over 40 years 262 524
-------- --------
$ 2,355 $ 4,718
======== ========
Amortization of Non-Competition and Non-Disclosure Agreements over 5 years $ 100 $ 200
======== ========
(d) Adjustments to reflect interest expense, calculated as follows:
Interest on ClubHouse and ClubHouse Acquisition Hotels existing debt $ (2,593) $ (4,851)
Interest on ClubHouse and ClubHouse Acquisition Hotels existing debt repaid at acquisition 1,472 2,791
-------- --------
$ (1,121) $ (2,060)
======== ========
Interest on borrowings under the revolving credit facility at 7.75% $ (2,221) $ (4,421)
Amortization of the revolving credit facility amendment fees over the remaining term (27) (42)
-------- --------
$ (2,248) $ (4,464)
======== ========
(e) Adjustments to reflect equity in earnings in unconsolidated hotel
partnerships and deferred revenues of ClubHouse and ClubHouse Acquisition
Hotels:
Equity in earnings of hotel partnerships $ 194 $ 364
======== ========
Deferred revenues -- $ 13
======== ========
(f) Adjustments to reflect provision for income taxes of ClubHouse and ClubHouse Acquisition
Hotels $ 714 $ 620
======== ========
(g) Pro forma earnings per share is calculated as follows:
Pro form income before extraordinary item $ 7,920 $ 26,063
======== ========
Average shares of common stock outstanding:
Historical common stock outstanding 20,018 20,018
Additional shares issued at acquisition 1,659 1,659
-------- --------
21,677 21,677
======== ========
Pro forma earnings per share $ 0.37 $ 1.20
======== ========
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
99.1 Consolidated Financial Statements of ClubHouse Hotels, Inc. for the Six Months Ended
June 30, 1997 and 1996 and for the Years Ended December 31, 1996, 1995 and 1994.
99.2 Combined Financial Statements of ClubHouse Acquisition Hotels for the
Six Months Ended June 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995.
99.3 Financial Statements of Albuquerque C.I. Associates, L.P. for the years ended December
31, 1995 and 1994.
99.4 Financial Statements of C.I. Nashville, Inc. for the years ended December 31, 1995 and
1994.
99.5 Financial Statements of Wichita C.I. Associates III, L.P. for the years ended December
31, 1995 and 1994.
99.6 Financial Statements of Topeka C.I. Associates, L.P. for the years ended December
31, 1995 and 1994.
99.7 Financial Statements of Valdosta C.I. Associates, L.P. for the year ended December
31, 1994.
</TABLE>
<PAGE> 11
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.
WYNDHAM HOTEL
CORPORATION
-------------------------------------------
(Registrant)
Date: September 18, 1997 By: /s/ James D. Carreker
---------------------------------------
James D. Carreker
President and Chief Executive Officer
Date: September 18, 1997
By: /s/ Anne L. Raymond
---------------------------------------
Anne L. Raymond
Chief Financial Officer, Executive
Vice President and Director (Principal
Financial Officer)
<PAGE> 1
EXHIBIT 99.1
Report of Independent Auditors
The Stockholders
ClubHouse Hotels, Inc.
We have audited the accompanying consolidated balance sheets of ClubHouse
Hotels, Inc. (the "Company") as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1996. These 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young L.L.P.
Kansas City, Missouri
April 8, 1997, except for Note 11, as
to which the date is July 31, 1997
1
<PAGE> 2
ClubHouse Hotels, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,401,162 $ 5,899,195 $ 5,684,524
Accounts receivable 487,326 505,989 610,560
Due from affiliates 286,968 276,978 217,233
Prepaid expenses and other current assets 473,467 823,586 1,421,889
Note receivable from affiliate 386,500 -- --
------------ ------------ ------------
Total current assets 8,035,423 7,505,748 7,934,206
Property and equipment, net 28,705,277 38,722,912 39,753,009
Other assets:
Investment in unconsolidated affiliates 577,285 719,383 713,328
Repair and replacement fund 746,352 828,097 1,593,269
Intangible assets, net 1,453,949 1,444,768 1,203,868
Land held for development or sale 1,439,954 612,296 618,151
Deferred income taxes -- 492,999 492,999
Other assets 71,270 49,150 110,755
------------ ------------ ------------
Total other assets 4,288,810 4,146,693 4,732,370
------------ ------------ ------------
Total assets $ 41,029,510 $ 50,375,353 $ 52,419,585
============ ============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 429,555 $ 1,352,803 $ 652,756
Due to affiliates 65,086 40,066 67,909
Accrued property taxes 311,271 354,978 515,190
Accrued interest 52,912 84,662 41,996
Accrued liabilities 685,054 578,022 721,782
Deferred revenue 34,250 34,250 34,250
Income taxes payable 597,129 196,338 830,958
Current portion of long-term debt 1,221,821 1,448,165 1,371,332
------------ ------------ ------------
Total current liabilities 3,397,078 4,089,284 4,236,173
Long-term debt 39,140,515 44,966,584 44,929,105
------------ ------------ ------------
Total liabilities 42,537,593 49,055,868 49,165,278
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $1; authorized,
10,000,000 shares; issued and outstanding,
451,000 shares 451,000 451,000 451,000
Retained earnings (deficit) (1,959,083) 868,485 2,803,307
------------ ------------ ------------
Total stockholders' equity (deficit) (1,508,083) 1,319,485 3,254,307
------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit) $ 41,029,510 $ 50,375,353 $ 52,419,585
============ ============ ============
</TABLE>
See accompanying notes
2
<PAGE> 3
Clubhouse Hotels, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE 30
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Room revenue $ 15,723,615 $ 17,046,376 $ 18,066,099 $ 8,606,893 $ 10,670,486
Other hotel revenue 1,256,330 1,418,947 1,363,556 637,201 805,453
Management fees 132,093 92,912 106,412 40,197 43,404
Management fees - affiliates 610,299 679,807 721,115 352,450 386,504
Royalties 164,453 177,400 177,083 86,417 93,300
Royalties - affiliates 599,423 626,697 641,371 320,473 323,680
Assessment revenues 103,817 109,161 106,911 53,574 55,373
Assessment revenues - affiliates 353,929 356,776 346,684 179,029 172,933
Rental revenues 94,148 166,615 218,793 110,272 110,683
Rental revenues - affiliates 13,463 13,463 13,463 6,731 6,731
------------ ------------ ------------ ------------ ------------
Total revenues 19,051,570 20,688,154 21,761,487 10,393,237 12,668,547
Operating costs and expenses:
Hotel room expenses 3,972,045 4,216,494 4,440,649 2,064,960 2,593,478
Other hotel expenses 817,492 916,977 886,840 399,441 467,900
Administrative and general 2,636,179 2,949,764 3,237,778 1,249,033 1,554,928
Development and management 1,106,928 1,087,742 1,172,803 401,434 832,114
Marketing 1,568,586 1,602,927 1,670,275 759,420 737,200
Property operation and maintenance 1,640,927 1,908,992 1,811,973 855,959 1,015,697
Property taxes and insurance 705,127 708,389 739,251 383,593 529,771
Depreciation and amortization 2,602,179 2,230,620 2,307,871 1,047,188 1,416,585
------------ ------------ ------------ ------------ ------------
Total operating expenses 15,049,463 15,621,905 16,267,440 7,161,028 9,147,673
------------ ------------ ------------ ------------ ------------
Income from operations 4,002,107 5,066,249 5,494,047 3,232,209 3,520,874
Other income (expense):
Interest income 160,168 265,060 298,677 140,414 148,024
Interest expense (3,026,257) (3,441,402) (3,143,890) (1,498,043) (1,770,470)
Equity in net income of
unconsolidated affiliates 352,200 82,456 445,073 238,395 240,562
Other 11,296 21,320 12,757 11,800 286
------------ ------------ ------------ ------------ ------------
Total other expense (2,502,593) (3,072,566) (2,387,383) (1,107,434) (1,381,598)
------------ ------------ ------------ ------------ ------------
Income before income taxes and
extraordinary items 1,499,514 1,993,683 3,106,664 2,124,775 2,139,276
Income tax benefit (expense) 59,675 (532,081) (186,491) (352,005) (550,108)
------------ ------------ ------------ ------------ ------------
Income before extraordinary items 1,559,189 1,461,602 2,920,173 1,772,770 1,589,168
Extraordinary items:
Gain on early retirement of debt, net
of income taxes of $192,278 for the
year ended December 31, 1995 and
$167,146 (unaudited) for the six
months ended June 30, 1997 -- 1,352,544 -- -- 482,854
Gain on troubled debt restructuring,
net of income taxes of $-0- 4,723,768 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income $ 6,282,957 $ 2,814,146 $ 2,920,173 $ 1,772,770 $ 2,072,022
============ ============ ============ ============ ============
Income before extraordinary
item per common share $ 3.46 $ 3.24 $ 6.47 $ 3.93 $ 3.52
Extraordinary item 10.47 3.00 -- -- 1.07
------------ ------------ ------------ ------------ ------------
Net income per common share $ 13.93 $ 6.24 $ 6.47 $ 3.93 $ 4.59
============ ============ ============ ============ ============
</TABLE>
See accompanying notes
3
<PAGE> 4
ClubHouse Hotels, Inc.
Consolidated Statements of Changes
in Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- RETAINED
NUMBER EARNINGS
OF SHARES AMOUNT (DEFICIT) TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 451,000 $ 451,000 $(10,989,253) $(10,538,253)
Net income -- -- 6,282,957 6,282,957
------------ ------------ ------------ ------------
Balance, December 31, 1994 451,000 451,000 (4,706,296) (4,255,296)
Distributions to minority interests -- -- (66,933) (66,933)
Net income -- -- 2,814,146 2,814,146
------------ ------------ ------------ ------------
Balance, December 31, 1995 451,000 451,000 (1,959,083) (1,508,083)
Distributions to minority interests -- -- (92,605) (92,605)
Net income -- -- 2,920,173 2,920,173
------------ ------------ ------------ ------------
Balance, December 31, 1996 451,000 451,000 868,485 1,319,485
Distributions to minority interests
(unaudited) -- -- (137,200) (137,200)
Net income (unaudited) -- -- 2,072,022 2,072,022
------------ ------------ ------------ ------------
Balance, June 30, 1997 (unaudited) 451,000 $ 451,000 $ 2,803,307 $ 3,254,307
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
ClubHouse Hotels, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1994 1995 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,282,957 $ 2,814,146 $ 2,920,173 $ 2,072,022
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary gain on early retirement of debt -- (1,544,822) -- (650,000)
Extraordinary gain on restructuring of long-term debt (4,723,768) -- -- --
Equity in net income of unconsolidated affiliates (352,200) (82,456) (445,073) (240,562)
Depreciation and amortization 2,602,179 2,230,620 2,307,871 1,416,585
Loss on disposal of property and equipment 92,167 65,824 125,883 --
Change in operating assets and liabilities:
Accounts receivable (32,431) (124,903) (18,663) (104,571)
Due from affiliates (61,213) (30,167) 9,990 59,745
Prepaid expenses and other current assets 116,712 (132,723) (350,119) (598,303)
Other assets 19,600 99,173 22,120 (61,605)
Accounts payable (102,040) 167,292 41,188 182,013
Due to affiliates (81,218) 52,318 (25,020) 27,843
Accrued property taxes (112,852) 37,679 43,707 160,212
Accrued interest 13,030 (116,546) 31,750 (42,666)
Accrued liabilities (253,113) 170,972 (107,032) 143,760
Deferred revenue -- (15,000) -- --
Income taxes payable (92,582) 674,200 (893,790) 634,620
------------ ------------ ------------ ------------
Net cash provided by operating activities 3,315,228 4,265,607 3,662,985 2,999,093
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (2,379,255) (1,371,978) (10,444,855) (2,982,724)
Investment in land held for development or sale (7,532) (1,016,044) (16,103) (5,855)
Note receivable from affiliate -- -- 386,500 --
Investment in unconsolidated affiliates (2,450) (215,192) -- --
Distributions from unconsolidated affiliates 483,008 232,112 302,975 246,617
Investment in intangible assets -- -- (118,033) (105,118)
Net change in the repair and replacement fund (524,776) 653,650 (81,745) (765,172)
------------ ------------ ------------ ------------
Net cash used in investing activities (2,431,005) (1,717,452) (9,971,261) (3,612,252)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,000,000 21,000,000 7,240,173 3,338,017
Repayment of long-term debt (1,079,117) (20,008,564) (1,187,760) (2,802,329)
Repayment of advances from affiliate 120,000 4,131 -- --
Investment in intangible assets (317,973) (1,166,252) (153,499) --
Distributions to minority investors -- (66,933) (92,605) (137,200)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (277,090) (237,618) 5,806,309 398,488
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 607,133 2,310,537 (501,967) (214,671)
Cash and cash equivalents, beginning of period 3,483,492 4,090,625 6,401,162 5,899,195
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 4,090,625 $ 6,401,162 $ 5,899,195 $ 5,684,524
============ ============ ============ ============
</TABLE>
5
<PAGE> 6
ClubHouse Hotels, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1994 1995 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid for interest $3,209,039 $4,028,190 $3,152,414 $1,813,136
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Land held for development moved to construction
in process in 1996 for the construction of the
ClubHouse Inn in St. Louis $ 843,761
==========
Accounts payable at December 31, 1996 for
construction in process $ 882,060
==========
</TABLE>
See accompanying notes.
6
<PAGE> 7
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
ClubHouse Hotels, Inc. (formerly Clubhouse Enterprises, Inc.) (CHI) and its
subsidiaries (the Company) are engaged in the franchising, development,
ownership and management of hotels under the "ClubHouse Inns" brand name. The
hotels are located throughout the United States. The Company also holds
interests in partnerships which own and operate ClubHouse Inns hotels. Revenues
are primarily generated from hotel operations, hotel management and hotel
franchising. Hotel revenues are primarily dependent upon the individual
business traveler and small business groups.
The following subsidiaries which own and operate Clubhouse Inn hotels are
included in the consolidated financial statements:
Knoxville C.I. Associates, L.P.
Omaha C.I. Associates, L.P.
Overland Park C.I. Associates, L.P.
Atlanta C.I. Associates II, L.P.
Tenth Street C.I., Inc.
Airport C.I., Inc.
Richardson C.I. Associates, L.P.
St. Louis C.I. Associates, L.P.
All significant intercompany accounts and transactions have been eliminated in
the preparation of the consolidated financial statements.
The Company's hotel properties are all managed by ClubHouse Inns of America,
Inc. (CIA), a wholly owned subsidiary of CHI. As a result, the Company has both
voting and operational control over its subsidiaries. In addition, CIA provides
marketing, development and other services to affiliated and unaffiliated hotel
property owners. As of December 31, 1996, hotel properties located in 10 states
were under management or franchise contracts.
The Company has general partner investments ranging from 0.5% to 13.36% in
eight affiliate limited partnerships and a 50% interest in a joint venture. All
such entities own and operate ClubHouse Inn brand hotels located throughout the
United States. Through management contracts, the Company has operational
control over the limited partnerships; therefore, the entities and the 50%
joint venture interest are accounted for using the equity method in the
accompanying financial statements. Profits and losses of
7
<PAGE> 8
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
1. BASIS OF PRESENTATION (CONTINUED)
the limited partnerships are allocated to the partners in accordance with the
respective partnership agreement. (See Note 4.)
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to SEC
rules and regulations; nevertheless, management believes that the disclosures
herein are adequate to prevent the information presented from being misleading.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Company with respect to the results of its operations for the interim
periods from January 1, 1996 to June 30, 1996, and from January 1, 1997 to June
30, 1997, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents generally
include cash on hand and demand deposits with financial institutions. At times
the Company maintains deposits in financial institutions in excess of federally
insured limits. The Company has not experienced any losses in such accounts.
COSTS OF PROJECTS UNDER DEVELOPMENT
The Company capitalizes the costs of developing each hotel location. These
costs include the cost of acquiring land for development, deposits on land,
professional fees and a related portion of overhead costs consisting primarily
of salaries. The Company is later
8
<PAGE> 9
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reimbursed for a portion of these development costs by the entities formed to
own and operate these properties. Remaining deferred costs, if any, are
expensed at the time construction begins. Costs previously capitalized for
projects which have been abandoned are expensed.
REPAIR AND REPLACEMENT FUND
Under the terms of the Company's management and debt agreements, reserves for
the repair and replacement of hotel property and equipment are required to be
funded on a monthly basis. The agreements require cash reserves of up to 4% of
annual gross revenues of individual hotels for future repairs and capital
improvements.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed on the straight-line method over the
following estimated useful lives:
Buildings and improvements 15 - 40 years
Furniture and equipment 5 - 7 years
Financing costs Term of loan
Franchise costs Term of agreement
Organization costs 5 years
LAND HELD FOR DEVELOPMENT OR SALE
Land held for development or sale consists of two tracts of land located in
Atlanta and Chicago. Management expects to use the Atlanta parcel as a site for
future development of a ClubHouse Inn hotel. The Chicago site, which is
adjacent to an existing ClubHouse Inn and has a carrying value of $537,000, is
being held for resale. Costs capitalized in the land include acquisition costs
and costs of permanent improvements. Holding costs are charged to operations
when incurred.
MINORITY INTEREST
The Company owns a 50% general partner interest and a 1% limited partner
interest in Atlanta C.I. Associates II, L.P. (Atlanta). Atlanta is a separate
and distinct legal entity from the Company whose purpose is to own and operate
a ClubHouse Inn hotel franchise.
9
<PAGE> 10
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For financial reporting purposes, Atlanta's assets, liabilities, and profits
and losses are consolidated with those of the Company. The losses applicable to
the outside investors' minority interests have exceeded the minority interests
in the equity capital of the entity. Accordingly, no minority interest has been
recognized in the accompanying financial statements.
REVENUE RECOGNITION
Hotel revenue, management fees, service fees, reimbursements and other income
are recognized when earned. Initial franchise fees are recognized as revenue
when substantially all of the obligations to the franchisee have been
fulfilled, usually upon beginning development of the respective hotel.
Royalties and management fees from franchisees are recognized as earned.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising expense
for the years ended December 31, 1994, 1995 and 1996 was $853,503, $916,856 and
$1,220,546, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted SFAS No. 121 during 1995. The adoption
of SFAS No. 121 had no impact on the operations of the Company.
EARNINGS PER COMMON SHARE
Earnings per common share is based on the number of shares of common stock
outstanding.
10
<PAGE> 11
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following assumptions were used in estimating the fair value of the
Company's financial instruments for which it was practicable to estimate that
value.
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash
equivalents approximates their fair value.
NOTE RECEIVABLE FROM AFFILIATE - The interest rate on the note receivable
adjusts periodically with changes in the "base rate." Consequently, the
carrying amount approximates fair value.
REPAIR AND REPLACEMENT FUND - The carrying amount of cash reserves for
repair and replacement of hotel property and equipment approximates their
fair value.
REAL ESTATE MORTGAGE NOTES - The interest rates on the Company's variable
rate real estate mortgage notes adjust periodically with changes in the
"base rate." Consequently, the carrying amount of the variable rate notes
approximates fair value. Fair value of fixed rate real estate mortgage
notes are estimated using a discounted cash flow calculation based on
current market rates offered for similar debt issues. In all cases, the
carrying amount of the fixed rate real estate mortgage notes approximates
fair value.
DEBENTURES PAYABLE - It was not practicable to estimate the fair value of
the Company's debentures payable due to the limited sources of comparable
financing with which to base fair value estimates. Information regarding
the carrying amount, repayment terms and maturity is included in Note 6.
11
<PAGE> 12
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
3. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------- ----------------
<S> <C> <C>
Land and improvements $ 5,588,092 $ 5,592,609
Buildings and improvements 23,396,396 27,285,519
Furniture, fixtures and equipment 10,805,305 13,354,585
---------------- ----------------
Total cost 39,789,793 46,232,713
Accumulated depreciation (11,761,939) (13,554,858)
---------------- ----------------
Net property and equipment 28,027,854 32,677,855
Construction in progress 677,423 6,045,057
---------------- ----------------
Total property and equipment $ 28,705,277 $ 38,722,912
================ ================
</TABLE>
12
<PAGE> 13
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
4. INVESTMENT IN UNCONSOLIDATED AFFILIATES
The Company holds general partner interests in various limited partnerships
(the Associates) which own and operate ClubHouse Inn hotels. Information
regarding equity (deficit) investments and advances as of December 31, 1995 and
1996 is as follows:
<TABLE>
<CAPTION>
NET EQUITY
(DEFICIT)
EQUITY INVESTMENT
OWNERSHIP (DEFICIT) AND
INVESTEE PERCENT INVESTMENT ADVANCES ADVANCES
-------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1995:
Wichita C.I. Associates III, L.P. 13.36% $ 147,872 $ - $ 147,872
Topeka C.I. Associates, L.P. 3.49 64,484 - 64,484
Albuquerque C.I. Associates, L.P. 1.00 (17,630) - (17,630)
Westmont C.I. Associates, L.P. 9.09 405,113 - 405,113
Savannah C.I. Associates, L.P. 5.00 46,024 - 46,024
San Jose C.I. Associates, L.P. 5.00 142,059 - 142,059
Long Beach C.I. Associates, L.P. 5.00 47,722 - 47,722
Valdosta C.I. Associates, L.P. .50 4,739 - 4,739
Marquis Hotel Associates
(a joint venture) 50.00 (263,098) - (263,098)
-------------- -------------- --------------
Total $ 577,285 $ - $ 577,285
============== ============== ==============
1996:
Wichita C.I. Associates III, L.P. 13.36% $ 158,661 $ - $ 158,661
Topeka C.I. Associates, L.P. 3.49 60,193 - 60,193
Albuquerque C.I. Associates, L.P. 1.00 (16,937) - (16,937)
Westmont C.I. Associates, L.P. 9.09 417,306 - 417,306
Savannah C.I. Associates, L.P. 5.00 30,885 - 30,885
San Jose C.I. Associates, L.P. 5.00 142,019 - 142,019
Long Beach C.I. Associates, L.P. 5.00 - - -
Valdosta C.I. Associates, L.P. .50 5,176 - 5,176
Marquis Hotel Associates
(a joint venture) 50.00 (77,920) - (77,920)
-------------- -------------- --------------
Total $ 719,383 $ - $ 719,383
============== ============== ==============
</TABLE>
13
<PAGE> 14
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
4. INVESTMENT IN UNCONSOLIDATED AFFILIATES (CONTINUED)
In December 1995, the assets of Long Beach C.I. Associates, L.P. were sold
resulting in a loss of approximately $3,150,000. Proceeds from the sale were
used to repay partner advances and remaining proceeds were paid to the
partnership's general and limited partners in accordance with the terms of the
limited partnership agreement. The Company's share of the loss recognized
during 1995 was approximately $158,000. Management liquidated and dissolved the
partnership in 1996.
The following presentation is a condensed combined summary of financial
information of the Company's investments in unconsolidated affiliates as of
December 31, 1995 and 1996 and for the three years ended December 31, 1996.
Combined Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets $ 1,837,803 $ 2,498,403
Property and equipment, net of accumulated
depreciation of $18,239,031 in 1995 and
$19,570,894 in 1996 30,415,098 29,382,986
Other assets 1,493,679 1,733,917
---------------- ----------------
Total assets $ 33,746,580 $ 33,615,306
================ ================
LIABILITIES AND PARTNERS' EQUITY
Current liabilities $ 1,817,639 $ 2,141,732
Long-term debt, less current portion 30,978,434 27,653,492
Partners' equity 950,507 3,820,082
---------------- ----------------
Total liabilities and partners' equity $ 33,746,580 $ 33,615,306
================ ================
</TABLE>
14
<PAGE> 15
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
4. INVESTMENT IN UNCONSOLIDATED AFFILIATES (CONTINUED)
Combined Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1994 1995 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $ 15,032,136 $ 15,657,187 $ 16,663,469
Costs and expenses:
Operating 9,740,885 10,099,902 10,355,882
Interest 3,085,321 3,123,752 2,398,549
Depreciation and amortization 2,452,635 2,165,275 1,719,166
Other (income) loss (257,389) 3,139,346 (90,833)
---------------- ---------------- ----------------
Total costs and expenses 15,021,452 18,528,275 14,382,764
---------------- ---------------- ----------------
Net income (loss) $ 10,684 $ (2,871,088) $ 2,280,705
================ ================ ================
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets are recorded at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------- ----------------
<S> <C> <C>
Financing costs $ 1,046,627 $ 1,113,495
Franchise costs 238,500 153,000
Organization costs 571,626 547,617
Preopening costs 6,863 153,783
---------------- ----------------
Total cost 1,863,616 1,967,895
Accumulated amortization (409,667) (523,127)
---------------- ----------------
Net intangible assets $ 1,453,949 $ 1,444,768
================ ================
</TABLE>
15
<PAGE> 16
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------- ----------------
<S> <C> <C>
Real estate mortgage notes:
8.70% mortgage notes (a) $ 20,901,309 $ 20,484,443
Richardson C.I. Associates, L.P. (b) - 5,000,000
St. Louis C.I. Associates, L.P. (c) - 2,240,173
Tenth Street C.I., Inc. (d) 6,487,315 6,342,348
Airport C.I., Inc. (e) 4,901,252 4,813,752
ClubHouse Properties, Inc. (f) 947,460 909,033
---------------- ----------------
Total real estate mortgage notes 33,237,336 39,789,749
Debentures payable (g) 7,125,000 6,625,000
---------------- ----------------
Total long-term debt 40,362,336 46,414,749
Less current portion (1,221,821) (1,448,165)
---------------- ----------------
Noncurrent portion $ 39,140,515 $ 44,966,584
================ ================
</TABLE>
(a) 8.70% notes, payable in monthly installments of $184,910, including
interest, with final payments due October 2005; collateralized by
substantially all of the assets of limited partnerships owning ClubHouse
Inn hotels located in Knoxville, Tennessee; Omaha, Nebraska; Overland
Park, Kansas; and Atlanta, Georgia. These notes were issued in September
1995 to refinance previously issued debt which required monthly
installments of principal and interest at variable rates ranging from
8.75% to 10.50%.
(b) $5,000,000 promissory note collateralized by the assets of Richardson C.I.
Associates, L.P. The note required monthly payments of interest only at
prime plus 1% (9.25% at December 31, 1996). Beginning December 1996,
monthly payments of principal and interest, based on a 15-year
amortization, are due through maturity on November 1, 1998. Additionally,
the interest rate may change to prime plus 2% on July 1, 1998 unless a
binding commitment for permanent financing to repay the note in its
entirety on or before November 7, 1998 is obtained.
(c) $6,000,000 note to fund the construction of a ClubHouse Inn in St. Louis,
Missouri; collateralized by the assets of St. Louis C.I. Associates, L.P.
The note requires monthly payments of interest only at prime plus 1%
(9.25% at December 31, 1996) through April 1, 1997. Thereafter, monthly
payments of principal and interest (at the
16
<PAGE> 17
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
two-year U.S. Treasury rate plus 2.75%), based on a 20-year amortization,
are due beginning May 1, 1997 through maturity on March 31, 1999.
Additionally, effective April 1, 1998, the interest rate may be increased
.25% if the debt service coverage ratio, as defined, falls below 1.2 to 1.
This note has been classified as long term until the construction is
completed and the total amount of advances to be made under the note
agreement has been determined.
(d) Variable rate notes, payable in monthly installments of $66,491, including
interest, with final payment due August 1999; collateralized by
substantially all of the assets of Tenth Street C.I., Inc., which owns the
ClubHouse Inn and Conference Center located in Nashville, Tennessee.
Interest is currently charged at 9.25%; however, the rates are subject to
periodic adjustment at 1% over the prime rate of CitiBank of New York.
(e) 8.75% notes, payable in monthly installments of $43,000, including
interest, with final payment due July 1997; collateralized by
substantially all of the assets of Airport C.I., Inc. which owns a
ClubHouse Inn hotel located in Kansas City, Missouri.
(f) Variable rate note, payable in monthly installments of $10,071, including
interest, with final payment due June 2009; collateralized by the
Company's office facilities located in Overland Park, Kansas. Interest is
currently charged at the rate of 8.75%; however, the rate is subject to
periodic adjustment after five years at 300 basis points above the weekly
average yield on U.S. Treasury Securities and in five year intervals
thereafter until maturity. The first scheduled rate adjustment is June
1999.
(g) $6,000,000 face amount debentures which mature March 2004. Quarterly
payments of $125,000 are due until maturity. The recorded amount of the
debentures reflect the gross remaining principal and interest due under
the terms of the debenture agreements. All payments made under the
debenture agreements are applied against the recorded amount of the
debenture. Accordingly, no interest expense has been recognized in the
accompanying consolidated statements of income.
In addition, CHI has granted the holder of the debentures warrants to acquire
36% of the outstanding common stock of CHI. The percentage to be acquired by
the lender may be reduced to 20% depending on the outstanding principal balance
of the debentures. The warrants may be exercised at an aggregate price of $100
during any period the debentures are outstanding.
17
<PAGE> 18
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
During 1995, the Company used the proceeds from a $4.8 million note, included
in (a) above, to refinance a loan from an affiliated entity. The carrying value
of the note at the date of refinancing was approximately $5.6 million. The
terms of the existing note agreement provided for a discounted payoff amount,
based on appraised value, in the event of a refinancing; accordingly, the
Company recognized a gain on the early extinguishment of debt of $1,544,822.
During 1994, as part of a troubled-debt restructuring, the Company issued
debentures (the new debentures) with an aggregate face amount of $6,000,000 in
exchange for then outstanding Series A and B subordinated debentures with an
aggregate principal amount of $10,000,000, accrued interest thereon of
$2,541,666 and certain other consideration. The new debentures, which mature in
2004, carry an aggregate interest charge of $2,000,000. As a result of this
troubled-debt restructuring, the Company recorded an extraordinary gain of
$4,723,768.
Principal maturities for long-term debt are as follows:
<TABLE>
<S> <C>
1997 $ 1,448,165
1998 6,143,391
1999 3,650,100
2000 1,492,667
2001 1,589,408
Thereafter 32,091,018
----------------
$ 46,414,749
================
</TABLE>
18
<PAGE> 19
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal $ 12,496 $ 532,081 $ 586,131
State - - 93,359
Deferred:
Federal 452,922 181,547 431,741
State 79,057 110,858 56,623
Change in deferred tax asset
valuation allowance (604,150) (292,405) (981,363)
-------------- -------------- --------------
Total income tax expense (benefit) $ (59,675) $ 532,081 $ 186,491
============== ============== ==============
</TABLE>
The provision for income taxes on the 1994 extraordinary gain was offset by a
change in the valuation allowance of the deferred tax assets. Accordingly, no
tax expense was recognized on the 1994 extraordinary gain. The provision for
income taxes on the 1995 extraordinary gain was partially offset by a change in
the valuation allowance of the deferred tax assets.
The reconciliation of income taxes at statutory rates to income taxes at
effective rates is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Statutory rate $ 509,834 $ 677,852 $ 1,056,266
State and local income taxes 74,976 99,684 155,333
Change in deferred tax asset
valuation allowance (604,150) (292,405) (981,363)
Others, net (40,335) 46,950 (43,745)
-------------- -------------- --------------
$ (59,675) $ 532,081 $ 186,491
-------------- -------------- --------------
</TABLE>
19
<PAGE> 20
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences that give rise to deferred
tax balances are presented below:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 496,467 $ -
Alternative Minimum Tax credit carryforward 538,081 491,368
Capital loss carryforward 63,266 113,432
Investment in unconsolidated affiliates 162,384 161,468
Intangible assets 43,923 -
Accrued expenses 131,790 24,544
Others 30,700 6,132
----------- ----------
Total deferred tax assets 1,466,611 796,944
Deferred tax asset valuation allowance (1,094,795) (113,432)
----------- ----------
Net deferred tax assets 371,816 683,512
Deferred tax liabilities:
Property and equipment (280,157) (182,532)
Intangible assets - (2,279)
Others (91,659) (5,702)
----------- ----------
Total deferred tax liabilities (371,816) (190,513)
----------- ----------
Net deferred tax assets $ - $ 492,999
=========== ==========
</TABLE>
Income taxes paid were $-0- in 1994, $93,464 in 1995, and $777,424 in 1996.
20
<PAGE> 21
8. LEASES
The Company is a lessor of office space under operating leases expiring in
various years through the year 2000. The portion of the Company's property and
equipment at December 31, 1996 which is used in leasing activities is as
follows:
<TABLE>
<S> <C>
Land $ 281,769
Building and improvements 870,130
Furniture, fixtures and equipment 270,877
--------------
1,422,776
Accumulated depreciation (291,263)
--------------
$ 1,131,513
==============
</TABLE>
The Company is responsible for payment of all taxes, insurance, utilities and
other operating expenses up to a base amount as provided in each lease.
Operating expenses in excess of the base amount are reimbursed to the Company
in accordance with percentages established in each lease. The leases generally
grant an option to the lessee to extend the term of the lease. Future minimum
rentals to be received from noncancelable leases are as follows:
<TABLE>
<S> <C>
1997 $ 169,509
1998 164,412
1999 153,191
2000 34,371
--------------
$ 521,483
==============
</TABLE>
9. TRANSACTIONS WITH RELATED PARTIES
The Company is party to transactions with affiliated companies in the normal
course of business. The Company is related by common ownership and shares
office facilities with Innco Hospitality, Inc.
The Company manages various ClubHouse Inn hotels owned by affiliates under
management agreements which require monthly management fees ranging from 2% to
4% of gross revenues from the property plus 10% of net operating cash flow, as
determined by a formula specified in the agreements. The Company also provides
centralized accounting, purchasing and reservation systems and charges the
affiliates for their respective shares of these costs.
21
<PAGE> 22
ClubHouse Hotels, Inc.
Notes to Consolidated Financial Statements (continued)
9. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The Company is the franchiser of ClubHouse Inn hotels owned by affiliates under
franchise agreements which require monthly royalty fees of 4% and marketing
assessments of 1 1/2% of gross room revenues, respectively. The franchise
agreements are for terms of 15 years.
The Company leases office space to Innco Hospitality, Inc. under an operating
lease (Note 8).
10. COMMITMENTS AND CONTINGENCIES
The Company is subject to environmental regulations related to the ownership,
management, development and acquisition of its hotel properties. The Company is
not aware of any environmental condition on any of its properties which could
have a material adverse effect on the Company's financial statements.
11. SUBSEQUENT EVENTS
On July 31, 1997, Wyndham Hotel Corporation (Wyndham) acquired the Company. In
connection with the acquisition, Wyndham acquired direct or indirect ownership
of 13 ClubHouse Inn hotels, including four hotels owned by limited partnerships
which are affiliates of the Company. Wyndham also acquired ownership of partial
interests in the three additional limited partnerships which are affiliates of
the Company, ownership of the ClubHouse Inn brand name, and one license for a
franchised ClubHouse Inn hotel.
22
<PAGE> 1
EXHIBIT 99.2
Report of Independent Auditors
The Stockholders
ClubHouse Hotels, Inc.
We have audited the accompanying combined balance sheets as of December 31,
1996 and 1995, of the entities listed in Note 1 (ClubHouse Acquisition Hotels),
and the related combined statements of income, changes in partners'/owner's
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Entities' 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 financial statements referred to above present fairly, in
all material respects, the combined financial position at December 31, 1996 and
1995 of ClubHouse Acquisition Hotels and the combined results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young L.L.P.
Kansas City, Missouri
April 25, 1997, except for Note 8, as
to which the date is July 31, 1997
1
<PAGE> 2
ClubHouse Acquisition Hotels
Combined Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1995 1996 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 860,349 $ 910,047 $ 1,158,053
Accounts receivable 145,331 254,799 292,769
Prepaid expenses 109,601 129,442 154,052
-------------- -------------- --------------
Total current assets 1,115,281 1,294,288 1,604,874
Property and equipment, net 16,860,175 16,595,149 16,176,832
Intangible assets, net 288,544 298,155 280,065
Repair and replacement fund 594,509 655,574 848,825
Other assets 86,486 85,436 85,436
-------------- -------------- --------------
Total assets $ 18,944,995 $ 18,928,602 $ 18,996,032
============== ============== ==============
LIABILITIES
Current liabilities:
Accounts payable $ 180,334 $ 206,171 $ 220,157
Due to affiliates 51,185 172,513 140,991
Due to partners/owner 37,328 147,009 29,314
Accrued interest 165,385 91,280 64,350
Accrued property taxes 194,080 233,653 215,440
Accrued expenses 215,471 257,071 239,346
Current portion of long-term debt 409,087 424,151 441,664
-------------- -------------- --------------
Total current liabilities 1,252,870 1,531,848 1,351,262
-------------- -------------- --------------
Long-term debt:
Note payable to owner 5,099,846 5,099,846 5,099,846
Mortgage notes 15,074,158 14,651,325 14,409,750
-------------- -------------- --------------
Total long-term debt 20,174,004 19,751,171 19,509,596
-------------- -------------- --------------
Total liabilities 21,426,874 21,283,019 20,860,858
Commitments and contingencies
PARTNERS'/OWNER'S DEFICIT (2,481,879) (2,354,417) (1,864,826)
-------------- -------------- --------------
Total liabilities and partners'/owner's deficit $ 18,944,995 $ 18,928,602 $ 18,996,032
============== ============== ==============
</TABLE>
See accompanying notes.
2
<PAGE> 3
ClubHouse Acquisition Hotels
Combined Statements of Income
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1995 1996 1996 1997
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Hotel room revenues $ 10,624,552 $ 10,583,769 $ 5,252,362 $ 5,360,243
Other hotel revenues 402,219 375,510 188,899 279,360
-------------- -------------- -------------- --------------
Total revenues 11,026,771 10,959,279 5,441,261 5,639,603
-------------- -------------- -------------- --------------
OPERATING COSTS AND EXPENSES
Hotel room expenses 2,646,324 2,725,444 1,342,850 1,332,876
Hotel room expenses - affiliate 65,276 57,575 31,042 26,493
Other hotel expenses 184,104 152,995 79,351 84,033
Administrative and general 942,628 1,081,076 430,948 450,976
Management and accounting fees -
affiliate 325,583 331,105 182,871 211,374
Management and accounting fees 83,912 83,693 40,197 43,404
Royalty fees - affiliate 335,397 334,628 167,968 168,173
Royalty fees 89,584 88,712 42,126 46,237
Marketing fees - affiliate 125,775 125,486 62,988 63,066
Other marketing expenses 517,134 530,040 268,203 255,520
Property operation and maintenance 1,158,787 1,138,079 551,022 531,820
Property taxes and insurance 385,215 462,283 241,963 237,119
Depreciation and amortization 1,212,834 906,167 471,582 492,781
-------------- -------------- -------------- --------------
Total operating expenses 8,072,553 8,017,283 3,913,111 3,943,872
-------------- -------------- -------------- --------------
Income from operations 2,954,218 2,941,996 1,528,150 1,695,731
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 40,161 48,408 19,967 26,226
Interest expense (1,869,368) (1,790,762) (850,390) (861,772)
-------------- -------------- -------------- --------------
Total other expense (1,829,207) (1,742,354) (830,423) (835,546)
-------------- -------------- -------------- --------------
Net income $ 1,125,011 $ 1,199,642 $ 697,727 $ 860,185
============== ============== ============== ==============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ClubHouse Acquisition Hotels
Combined Statements of Changes in Partners'/Owner's Deficit
<TABLE>
<S> <C>
Balance at December 31, 1994 $ (2,603,758)
Distributions (1,003,132)
Net income 1,125,011
------------
Balance at December 31, 1995 (2,481,879)
Distributions (1,072,180)
Net income 1,199,642
------------
Balance at December 31, 1996 (2,354,417)
Distributions (unaudited) (370,594)
Net income (unaudited) 860,185
------------
Balance at June 30, 1997 (unaudited) $ (1,864,826)
============
</TABLE>
See accompanying notes.
4
<PAGE> 5
ClubHouse Acquisition Hotels
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
1995 1996 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,125,011 $ 1,199,642 $ 860,185
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,212,834 906,167 492,781
Changes in operating assets and
liabilities:
Accounts receivable 3,567 (109,468) (37,970)
Prepaid expenses 7,414 (19,841) (24,610)
Other assets (1,200) 1,050 -
Accounts payable 29,638 25,837 13,986
Due to affiliates (44,773) 121,328 (31,522)
Due to partners/owner 37,328 109,681 (117,695)
Accrued interest (30,130) (74,105) (26,930)
Accrued property taxes 9,553 39,573 (18,213)
Accrued expenses (15,603) 41,600 (17,725)
-------------- -------------- --------------
Net cash provided by operating activities 2,333,639 2,241,464 1,092,287
-------------- -------------- --------------
INVESTING ACTIVITIES
Purchase of property and equipment (369,298) (596,238) (56,374)
Investment in intangible assets (211,174) (54,514) -
Net additions to repair and
replacement fund (108,877) (61,065) (193,251)
-------------- -------------- --------------
Net cash used in investing activities (689,349) (711,817) (249,625)
-------------- -------------- --------------
FINANCING ACTIVITIES
Proceeds from long-term debt 3,400,000 - -
Repayment of long-term debt (3,759,283) (407,769) (224,062)
Distributions to partners/owner (1,003,132) (1,072,180) (370,594)
-------------- -------------- --------------
Net cash used in financing activities (1,362,415) (1,479,949) (594,656)
-------------- -------------- --------------
Net increase in cash 281,875 49,698 248,006
Cash, beginning of year 578,474 860,349 910,047
-------------- -------------- --------------
Cash, end of year $ 860,349 $ 910,047 $ 1,158,053
============== ============== ==============
</TABLE>
For supplemental disclosures of cash flow information, see Note 4.
See accompanying notes.
5
<PAGE> 6
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of the
ClubHouse Acquisition Hotels (the Entities), which consist of Albuquerque C.I.
Associates, L.P. (Albuquerque); Topeka C.I. Associates, L.P. (Topeka); Valdosta
C.I. Associates, L.P. (Valdosta); Wichita C.I. Associates III, L.P. (Wichita)
(together, the Partnerships) and C.I. Nashville, Inc. (Nashville). The Entities
are beneficially owned and/or managed by ClubHouse Hotels, Inc. (CHI). CHI is,
indirectly, the managing general partner of the Partnerships and provides
management and other services to all of the Entities.
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the Entities
and may not necessarily reflect the financial position, results of operations
and cash flows of the Entities that might have resulted had they actually
operated as a stand-alone entity.
The Entities are engaged in owning and operating hotels under the "ClubHouse
Inns" brand name. Revenues are generated from hotel operations and related
activities and are recognized when earned.
INTERIM FINANCIAL STATEMENTS
The interim financial statements have been prepared by the Entities without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to SEC
rules and regulations; nevertheless, management believes that the disclosures
herein are adequate to prevent the information presented from being misleading.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Entities with respect to the results of their operations for the interim
periods from January 1, 1996 to June 30, 1996 and from January 1, 1997 to June
30, 1997, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
6
<PAGE> 7
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed on the straight-line method over the
following estimated useful lives:
Buildings and improvements 15-40 years
Furniture and equipment 5-10 years
Financing costs Term of loan
Franchise costs Term of agreement
Organization costs 5 years
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising expense
for the years ended December 31, 1996 and 1995 was $422,269 and $421,586,
respectively.
INCOME TAXES
Nashville is the only entity for which a provision for income taxes is required
in the accompanying financial statements because each partner of the
Partnerships is individually responsible for reporting its respective share of
partnership net income or loss.
CASH
For purposes of reporting cash flows, cash generally includes cash on hand and
demand deposits with financial institutions.
7
<PAGE> 8
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
REPAIR AND REPLACEMENT FUND
Under the terms of the Partnerships' management and certain of their debt
agreements, the Partnerships are required to fund a reserve for repair and
replacement of property equipment. The agreements generally call for the
Partnerships to place between 3% and 4% of monthly gross revenues in this fund.
Expenditures from this fund require the approval of CHI.
RECENTLY ISSUED ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Entities adopted SFAS No. 121
during 1995. The adoption of SFAS No. 121 had no impact on the operations of
the Entities.
2. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
------------ ------------
<S> <C> <C>
Land $ 3,928,026 $ 3,928,026
Buildings and improvements 16,449,049 16,492,428
Furniture and equipment 7,728,587 8,006,503
------------ ------------
Total cost 28,105,662 28,426,957
Accumulated depreciation (11,245,487) (11,831,808)
------------ ------------
Net property and equipment $ 16,860,175 $ 16,595,149
============ ============
</TABLE>
8
<PAGE> 9
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
3. INTANGIBLE ASSETS
Intangible assets are recorded at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-------------- --------------
<S> <C> <C>
Financing costs $ 317,945 $ 317,462
Franchise costs 113,489 113,489
Organization costs 16,086 16,086
-------------- --------------
Total cost 447,520 447,037
Accumulated amortization (158,976) (148,882)
-------------- --------------
Net intangible assets $ 288,544 $ 298,155
============== ==============
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-------------- --------------
<S> <C> <C>
Real Estate Mortgage Notes:
Albuquerque C.I. Associates, L.P. (a) $ 5,458,050 $ 5,368,627
Topeka C.I. Associates, L.P. (b) 2,973,247 2,832,803
Valdosta C.I. Associates, L.P. (c) 3,669,488 3,565,328
Wichita C.I. Associates III, L.P. (d) 3,382,460 3,308,718
-------------- --------------
Total Real Estate Mortgage Notes 15,483,245 15,075,476
Note payable to owner (e) 5,099,846 5,099,846
-------------- --------------
Total long-term debt 20,583,091 20,175,322
Less current portion 409,087 424,151
-------------- --------------
Noncurrent portion $ 20,174,004 $ 19,751,171
============== ==============
</TABLE>
(a) Albuquerque's mortgage note payable is collateralized by substantially
all of Albuquerque's property and equipment. Monthly principal and
interest payments of $48,648 are due until maturity in March 2016. The
interest rate on the note is 8.75% through March 1, 1997 and adjusting
annually thereafter at 3.75% over the weekly average yield on U.S.
Treasury securities. This loan was modified in March 1996 to extend the
maturity date for 20 years. The interest rate at December 31, 1995 was
10%.
9
<PAGE> 10
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
(b) Topeka's mortgage notes payable are collateralized by substantially all
of Topeka's property and equipment and are payable in monthly
installments of principal and interest through maturity in November 2011.
Topeka has the option to fix the interest rate at the Federal Home Loan
Bank of Topeka's advance rate plus 2% for one-, two- or three-year
periods. At December 31, 1996 and 1995, the interest rate was 8.75% and
6.75%, respectively.
(c) On June 1, 1992, Valdosta's 8% mortgage note was assigned by the
Resolution Trust Corporation to the current lender. Quarterly payments of
25% of net cash flow, as defined, are applied to interest accrued during
the period from July 1, 1992 to February 28, 1993. At December 31, 1996,
such accrued interest amounted to $53,952. Monthly principal and interest
payments of $32,811 are payable through and including March 1, 2000 at
which time all outstanding amounts due under the note become due and
payable in full. The mortgage note is collateralized by substantially all
of Valdosta's property and equipment.
(d) Wichita's mortgage note bears interest at 7.95% and requires monthly
installments of $28,333, including interest, through maturity in October
2005. The note is collateralized by substantially all of Wichita's
assets. Wichita's previous variable rate mortgage note required monthly
payments of principal plus interest at 10.75% through maturity in June
1995. Thereafter, Wichita made monthly payments of interest only through
September 1995 at which time the remaining principal balance was repaid
with the proceeds of the new mortgage note.
(e) Nashville's demand note payable is secured by a deed of trust on the
property. Interest only payments at 8.5% are due monthly. The note
agreement has "targeted" a minimum working capital position of $100,000.
Contingent interest payments are due to the extent that working capital
exceeds $100,000. Total interest is not to exceed 12.5% per year.
Principal payments are due only to the extent that working capital
exceeds the level needed to pay interest at the rate of 12.5%. Contingent
interest incurred during 1996 was $76,948. No contingent interest was
incurred in 1995. The owner has agreed not to demand repayment of the
note in 1997. Accordingly, this note has been classified as long-term in
the accompanying balance sheets.
Cash paid by the Entities for interest in 1996 and 1995 was $1,778,732 and
$1,869,368, respectively.
10
<PAGE> 11
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
Principal maturities for long-term debt are as follows:
<TABLE>
<S> <C>
1997 $ 424,151
1998 420,105
1999 449,746
2000 3,545,284
2001 405,055
Thereafter 9,831,135
--------------
$ 15,075,476
==============
</TABLE>
5. INCOME TAXES
The provision for income taxes for Nashville consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996
--------- --------
<S> <C> <C>
Current:
Federal $ - $ -
State - -
--------- --------
- -
Deferred:
Federal (14,878) 9,132
State (2,626) 1,612
Change in deferred tax asset valuation allowance 17,504 (10,744)
--------- --------
- -
--------- --------
Total income tax expense $ - $ -
========= ========
</TABLE>
11
<PAGE> 12
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The reconciliation of income taxes at the statutory rate to income taxes at the
effective rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996
-------------- --------------
<S> <C> <C>
Statutory rate $ 17,676 $ -
State and local taxes 1,641 -
Utilization of net operating loss carryforwards (19,317) -
-------------- --------------
$ - $ -
============== ==============
</TABLE>
Nashville incurred a net loss for the year ended December 31, 1996.
Accordingly, there is no reconciliation of income taxes at the statutory rate
to income taxes at the effective rate. Nashville provides deferred income taxes
to reflect the impact of temporary differences between the recorded amounts of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The significant temporary differences and
carryforwards and their related deferred tax asset (liability) and deferred tax
asset valuation allowance balances are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996
-------------- --------------
<S> <C> <C>
Property and equipment $ (19,308) $ (30,052)
Net operating loss carryforward 1,071,038 1,071,038
Deferred tax asset valuation allowance (1,051,730) (1,040,986)
-------------- --------------
$ - $ -
============== ==============
</TABLE>
12
<PAGE> 13
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
For federal income tax purposes, Nashville has net operating loss carryforwards
expiring in the following manner:
<TABLE>
<CAPTION>
AVAILABLE FOR YEAR ENDED
NO LATER THAN DECEMBER 31
-------------------------
<S> <C>
2003 $ 469,421
2004 716,431
2005 364,237
2006 284,745
2007 296,170
2008 398,568
2009 148,023
--------------
$ 2,677,595
==============
</TABLE>
6. RELATED-PARTY TRANSACTIONS
Each of the Entities has a management agreement with ClubHouse Inns of America,
Inc. (CIA), an affiliate of the general partner of each partnership and a
wholly owned subsidiary of CHI, to manage the Entities' hotels and provide
accounting services.
In addition, the Entities are obligated under a franchise agreement with CIA to
pay royalty and marketing fees along with their share of the costs of the
ClubHouse Inns' central reservation system. The Entities may also purchase
goods at cost through CIA's centralized purchasing service.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following assumptions were used in estimating the fair value of the
Entities' financial instruments for which it was practicable to estimate that
value.
CASH - The carrying amount of cash approximates its fair value.
REPAIR AND REPLACEMENT FUND - The carrying amount of cash reserves for repair
and replacement of hotel property and equipment approximates their fair value.
13
<PAGE> 14
ClubHouse Acquisition Hotels
Notes to Combined Financial Statements (continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
REAL ESTATE MORTGAGE NOTES - The interest rates on the Entities' variable rate
real estate mortgage notes adjust periodically with changes in the "base rate."
Consequently, the carrying amount of the variable rate notes approximates fair
value. Fair value of fixed rate real estate mortgage notes is estimated using a
discounted cash flow calculation based on current market rates offered for
similar debt issues. In all cases, the carrying amount of the fixed rate real
estate mortgage notes approximates fair value.
NOTE PAYABLE TO OWNER - It was not practicable to estimate the fair value of
Nashville's note payable to owner due to the limited sources of comparable
financing with which to base fair value estimates. Information regarding the
carrying amount, repayment terms and maturity is included in Note 4.
8. SUBSEQUENT EVENTS
On July 31, 1997, Wyndham Hotel Corporation (Wyndham) acquired CHI. In
connection with the acquisition of CHI, Wyndham acquired direct or indirect
ownership of the Entities.
14
<PAGE> 1
EXHIBIT 99.3
ALBUQUERQUE C.I. ASSOCIATES, L.P.
(A Limited Partnership)
FINANCIAL STATEMENTS
--------------------------------------
Years Ended December 31, 1995 and 1994
<PAGE> 2
[MAYER HOFFMAN MCCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners
Albuquerque C.I. Associates, L.P.
We have audited the balance sheets of
ALBUQUERQUE C.I. ASSOCIATES, L.P.
a limited partnership, as of December 31, 1995 and 1994, and the related
statements of income, changes in partners' equity (deficit) and cash flows for
the years then ended. These financial statements are the responsibility of
the Partnership'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 financial statements referred to above present fairly,
in all material respects, the financial position of Albuquerque C.I.
Associates, L.P. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ MAYER HOFFMAN MCCANN L.C.
February 8, 1996, except for Note (4)
as to which the date is
February 15, 1996
-1-
<PAGE> 3
ALBUQUERQUE C.I. ASSOCIATES, L.P.
BALANCE SHEETS
--------------
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash $ 139,146 $ 123,245
Accounts receivable, less allowance for doubtful
accounts (1995, $174: 1994, $53) 10,956 12,269
Prepaid expenses 24,141 30,024
----------- -----------
TOTAL CURRENT ASSETS 174,243 165,538
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 3,277,278 3,381,571
INTANGIBLE ASSETS, at cost, less
accumulated amortization 19,708 89,856
REPAIR AND REPLACEMENT FUND 168,606 100,817
DEPOSIT AND LIQUOR LICENSE 74,491 74,491
----------- -----------
TOTAL ASSETS $ 3,714,326 $ 3,812,273
----------- -----------
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable
Trade $ 13,497 $ 10,998
Affiliates 7,285 13,914
Accrued expenses 66,995 63,089
Current portion of long-term debt 90,514 50,100
----------- -----------
TOTAL CURRENT LIABILITIES 178,291 138,101
----------- -----------
LONG-TERM DEBT, less current portion above 5,367,536 5,458,050
----------- -----------
P A R T N E R S' E Q U I T Y (D E F I C I T)
PARTNERS' EQUITY (DEFICIT) (1,831,501) (1,783,878)
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIT) $ 3,714,326 $ 3,812,273
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
ALBUQUERQUE C.I. ASSOCIATES, L.P.
STATEMENTS OF INCOME
--------------------
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Rooms $ 2,199,372 $ 2,286,243
Other departments 66,077 99,009
----------- -----------
TOTAL REVENUES 2,265,449 2,385,252
----------- -----------
OPERATING EXPENSES
Rooms 568,767 593,002
Other departments 30,586 35,867
Administrative and general 365,057 348,976
Marketing 135,830 128,886
Property operation, maintenance and
energy costs 228,977 221,264
Property taxes and insurance 58,821 60,082
----------- -----------
TOTAL OPERATING EXPENSES 1,388,038 1,388,077
----------- -----------
OPERATING INCOME BEFORE OTHER INCOME
(EXPENSE) 877,411 997,175
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 6,490 2,546
Interest expense (574,142) (673,454)
Depreciation and amortization (272,533) (251,195)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (840,185) (922,103)
----------- -----------
NET INCOME $ 37,226 $ 75,072
=========== ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
ALBUQUERQUE C.I. ASSOCIATES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
--------------------------------------------------
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners' Total
-------- ---------- -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $(14,532) $(1,674,721) $(1,689,253)
DISTRIBUTIONS (1,697) (168,000) (169,697)
NET INCOME 751 74,321 75,072
-------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (15,478) (1,768,400) (1,783,878)
DISTRIBUTIONS (849) (84,000) (84,849)
NET INCOME 372 36,854 37,226
-------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $(15,955) $(1,815,546) $(1,831,501)
======== =========== ===========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 6
ALBUQUERQUE C.I. ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
------------------------
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 37,226 $ 75,072
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 147,387 213,692
Amortization 125,146 37,503
Decrease (increase) in operating assets
Accounts receivable 1,313 (3,888)
Prepaid expenses 5,883 (5,818)
Increase (decrease) in operating liabilities
Accounts payable (4,130) (6,835)
Accrued expenses 3,906 (2,066)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 316,731 307,660
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (43,094) (146,470)
Investment in intangible assets (54,998) --
Additions to the repair and replacement fund (67,789) (71,251)
Reimbursements received from the repair and
replacement fund -- 194,073
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (165,881) (23,648)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (50,100) (50,100)
Distributions to partners (84,849) (169,697)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (134,949) (219.797)
--------- ---------
NET INCREASE IN CASH 15,901 64,215
CASH, BEGINNING OF YEAR 123,245 59,030
--------- ---------
CASH, END OF YEAR $ 139,146 $ 123,245
========= =========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 7
ALBUQUERQUE C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) Summary of significant accounting policies
Nature of operations - The Partnership was formed on August 29, 1986
for the purpose of constructing, owning and operating a 137-room hotel,
known as the "ClubHouse Inn", in Albuquerque, New Mexico. The Partnership
opened the hotel on May 1, 1987. ClubHouse Properties, Inc. is the
managing general partner and owner of 1% of the partnership interest.
Partnership revenues are generated from hotel operations and related
activities.
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 date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Depreciation and amortization - Depreciation and amortization are
computed using the straight-line method with estimated useful lives as
follows:
<TABLE>
<CAPTION>
Assets Useful Life
- ------------------------- ---------------
<S> <C>
Building and improvements 31.5 - 39 years
Furniture and equipment 7 - 10 years
Financing costs 12 months
Franchise costs 15 years
</TABLE>
Advertising costs - Advertising costs are charged to operations when
incurred. Advertising expense for the years ended December 31, 1995 and
1994 was $89,486 and $88,371, respectively.
Income taxes - No provision is included in these statements for income
taxes since each partner is individually responsible for reporting their
respective share of the Partnership net income or loss. The income for tax
purposes for the years ended December 31, 1995 and 1994 was $78,292 and
$97,966, respectively. The difference between the net income reported for
financial statement purposes and the net income reported for tax purposes
results primarily from using accelerated methods and shorter useful lives
for tax depreciation and amortization of partnership assets.
Allocation of net income or loss - Net income or loss is allocated
between the general partner and the limited partners as follows:
First, 99 percent to the limited partners and 1 percent to the general
partner until the cumulative losses of the partnership are offset. Second,
100 percent to the limited partners until the syndication costs are paid.
Third, 99 percent to the limited partners and 1 percent to the general
partner until an annual return of 12 percent is received. Thereafter, 50
percent to the limited partners and 50 percent to the general partner.
-6-
<PAGE> 8
ALBUQUERQUE C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) Summary of significant accounting policies (continued)
Cash - For purpose of the statements of cash flows, cash consists of
cash on-hand and demand deposits with financial institutions. Cash paid
for interest during the years ended December 31, 1995 and 1994 was
$574,142 and $673,454, respectively.
(2) Property and equipment
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cost
Land $ 1,165,102 $ 1,165,102
Buildings and improvements 2,687,897 2,687,897
Furniture and equipment 1,790,153 1,783,037
----------- -----------
Total cost 5,643,152 5,636,036
Accumulated depreciation (2,365,874) (2,254,465)
----------- -----------
Net property and equipment $ 3,277,278 $ 3,381,571
=========== ===========
</TABLE>
The aggregate depreciation on property and equipment charged to
operations for the years ended December 31, 1995 and 1994 was $147,387 and
$213,692, respectively.
(3) Intangible assets
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
-------- ---------
<S> <C> <C>
Cost
Financing costs $ 54,998 $ 322,528
Franchise costs 25,000 25,000
-------- ---------
Total cost 79,998 347,528
Accumulated amortization (60,290) (257,672)
-------- ---------
Net intangible assets $ 19,708 $ 89,856
======== =========
</TABLE>
The aggregate amortization on intangible assets charged to operations
for the years ended December 31, 1995 and 1994 was $125,146 and $37,503,
respectively.
-7-
<PAGE> 9
ALBUQUERQUE C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(4) Long-term debt
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
10% mortgage note payable
collateralized by substantially
all of the Partnership's property
and equipment. Monthly principal
payments of $4,175 plus interest
are due until maturity, March 1996.
On February 15, 1996, the
Partnership received a commitment
from the lender to extend the
maturity date of the note for
periods up to 20 years.
Management has indicated its
intention is to extend the note for
a 20 year period with interest at
8.75% in the first year and
adjusting there after at 3.75%
over the weekly average yield on
U.S. Treasury securities. Under
the terms of the commitment, a
1% prepayment premium is to be in
effect over the life of the loan.
Other provisions in the mortgage
note agreement are expected to
remain essentially unchanged. $5,458,050 $5,508,150
Less current portion 90,514 50,100
---------- ----------
Noncurrent portion $5,367,536 $5,458,050
========== ==========
</TABLE>
Maturities for long-term debt based on the modified terms outlined
above as follows:
<TABLE>
<CAPTION>
Years ending December 31,
- -------------------------
<S> <C>
1996 $ 90,514
1997 112,243
1998 122,468
1999 133,625
2000 145,797
Thereafter 4,853,403
----------
Total long-term debt $5,458,050
==========
</TABLE>
(5) Related party transactions
ClubHouse Inns of America, Inc. (CIA) is an affiliate of the
Partnership through common ownership. There is a management agreement with
CIA to manage the Partnership's hotel and to provide accounting services.
Management and accounting fees of $59,593 and $60,813 were earned by CIA
during the years ended December 31, 1995 and 1994, respectively.
-8-
<PAGE> 10
ALBUQUERQUE C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(5) Related Party transactions (continued)
In addition to the fees above, the Partnership is obligated under a
franchise agreement with CIA to pay franchise and marketing fees along
with its share of the costs of the central reservation system. The
Partnership may purchase goods through the centralized purchasing service.
The Partnership incurred the following expenses relating to the franchise
agreement:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Royalty fees $87,975 $91,450
Marketing fees 32,991 34,294
Central reservation expenses 19,075 20,215
Administrative fee 12,000 12,000
</TABLE>
(6) Repair and replacement fund
Under the terms of the Partnership's management agreement, the
Partnership is required to fund a reserve for repair and replacement of
property and equipment. The agreement calls for the Partnership to place
3% of gross revenues in this fund. Expenditures from this fund require the
approval of ClubHouse Inns of America, Inc., the management company.
(7) Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of estimated
fair values for financial instruments held by the Partnership. Financial
instruments, as defined in SFAS No. 107, held by the Partnership include
cash, repair and replacement reserves and the Partnership's mortgage note.
The carrying amounts and estimated fair values of these financial
instruments, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Carrying
Amount Fair Value
----------- ----------
<S> <C> <C>
Cash $ 139,146 $ 139,146
Repair and replacement reserves $ 168,606 $ 168,606
Mortgage note payable $ 5,458,050 $5,458,050
</TABLE>
The carrying value's of the Partnership's cash and repair and
replacement reserves approximate fair value as of December 31, 1995. The
fair value of the Partnership's mortgage note payable approximates the
carrying amount due to the short time to the maturity date of the note.
-9-
<PAGE> 11
ADDITIONAL INFORMATION
----------------------
<PAGE> 12
[MAYER HOFFMAN MCCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
------------------------------------------------------
To the Partners
Albuquerque C.I. Associates, L.P.
Our audits were made for the purpose of forming an opinion on the basic
financial statements of Albuquerque C.I. Associates, L.P. for the years ended
December 31, 1995 and 1994, taken as a whole. The accompanying ADDITIONAL
INFORMATION is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements. In our opinion, the accompanying ADDITIONAL INFORMATION
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ MAYER HOFFMAN MCCANN L.C.
February 8, 1996
-10-
<PAGE> 13
ALBUQUERQUE C.I. ASSOCIATES, L.P.
ADDITIONAL INFORMATION - STATEMENTS OF INCOME
---------------------------------------------
RECONCILIATION OF FINANCIAL REPORTING INCOME
TO TAX BASIS INCOME
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net income, financial reporting basis 37,226 $ 75,072
Tax depreciation in excess of financial
reporting depreciation (18,154) (5,495)
Financial reporting amortization of intangible
assets in excess of tax amortization 64,964 28,670
Amounts owed to affiliate, not deductible
for tax purposes until paid (6,629) 861
Other 885 (1,142)
-------- --------
Net income, tax basis $ 78,292 $ 97,966
======== ========
</TABLE>
<PAGE> 1
EXHIBIT 99.4
C.I. NASHVILLE, INC.
FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<PAGE> 2
[MAYER HOFFMAN McCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
- - - - - - - - - - - - - -
To the Board of Directors
C.I. Nashville, Inc.
We have audited the balance sheets of
C.I. NASHVILLE. INC.
as of December 31, 1995 and 1994, and the related statements of operations and
retained earnings (deficit) and cash flows for the years then ended. These
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 financial statements referred to above present
fairly, in all material respects, the financial position of C.I. Nashville,
Inc. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ MAYER HOFFMAN McCANN L.C.
February 16, 1996
-1-
<PAGE> 3
C.I. NASHVILLE, !NC.
BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
A S S E T S
-----------
CURRENT ASSETS
Cash $ 262,320 $ 138,295
Accounts receivable, less allowance for
doubtful accounts (1995, $2,178:
1994, $2,203) 37,185 47,600
Prepaid expenses and other current assets 18,342 14,239
----------- -----------
TOTAL CURRENT ASSETS 317,847 200,134
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 3,504,398 3,605,024
INTANGIBLE ASSETS, at cost, less
accumulated amortization 12,775 14,442
REPAIR AND REPLACEMENT FUND 69,533 --
DEPOSIT 2,345 2,345
----------- -----------
TOTAL ASSETS $ 3,906,898 $ 3,821,945
=========== ===========
L I A B I L I T I E S
---------------------
CURRENT LIABILITIES
Accounts payable
Trade $ 62,461 28,629
Shareholder 37,328 37,328
Accrued expenses 142,825 142,206
----------- -----------
TOTAL CURRENT LIABILITIES 242,614 208,163
----------- -----------
NOTE PAYABLE, SHAREHOLDER 5,099,846 5,099,846
----------- -----------
S T 0 C K H 0 L D E R' S E Q U I T Y (D E F I C I T)
--------------------------------------------------------
CAPITAL CONTRIBUTED
Common stock, par value $.0l, 100 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 1,199,999 1,199,999
----------- -----------
TOTAL CAPITAL CONTRIBUTED 1,200,000 1,200,000
RETAINED EARNINGS (DEFICIT) (2,635,562) (2,686,064)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT) (1,435,562) (1,486,064)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT) $ 3,906,898 $ 3,821,945
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
C.I. NASHVILLE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Rooms $ 2,239,610 $ 2,087,954
Other departments 87,021 83,003
----------- -----------
TOTAL REVENUES 2,326,631 2,170,957
----------- -----------
OPERATING EXPENSES
Rooms 656,873 615,859
Other departments 40,187 34,798
Administrative and general 363,767 365,843
Marketing 162,277 161,908
Property operation, maintenance and
energy costs 276,189 266,964
Property taxes and insurance 91,388 90,207
----------- -----------
TOTAL OPERATING EXPENSES 1,590,681 1,535,579
----------- -----------
OPERATING INCOME BEFORE OTHER INCOME (EXPENSE) 735,950 635,378
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 74 177
Interest expense (441,744) (548,178)
Depreciation and amortization (243,778) (301,725)
----------- -----------
TOTAL OTHER EXPENSE (685,448) (849,726)
----------- -----------
NET INCOME (LOSS) 50,502 (214,348)
RETAINED EARNINGS (DEFICIT), BEGINNING OF YEAR (2,686,064) (2,471,716)
----------- -----------
TOTAL RETAINED EARNINGS (DEFICIT) $(2,635,562) $(2,686,064)
=========== ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
C.I. NASHVILLE, INC.
STATEMENTS OF CASH FLOWS
- - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 50,502 $(214,348)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Loss on disposal of property and equipment - 3,529
Depreciation 242,111 300,058
Amortization 1,667 1,667
Decrease (increase) in operating assets
Accounts receivable 10,415 646
Prepaid expenses and other current assets (4,103) 2,851
Increase (decrease) in operating liabilities
Accounts payable 33,832 86,897
Accrued expenses 619 (62,638)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 335,043 118,662
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (141,485) (73,576)
Net change in the repair and replacement fund (69,533) 58,562
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (211,018) (15,014)
--------- ---------
NET INCREASE IN CASH 124,025 103,648
CASH, BEGINNING OF YEAR 138,295 34,647
--------- ---------
CASH, END OF YEAR $ 262,320 $ 138,295
========= =========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 6
C.I. NASHVILLE, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(1) Summary of significant accounting policies
Nature of operations - The Company was formed on July 2, 1987 for the
purpose of constructing, owning and operating a 135-room hotel , known as
the "ClubHouse Inn" in Nashville, Tennessee. The Company opened the hotel
on August 29, 1988. Company revenues are generated from hotel operations
and related activities.
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 date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Depreciation and amortization - Depreciation and amortization are
computed using the straight-line method with estimated useful lives as
follows:
<TABLE>
<CAPTION>
Asset Useful Life
------------------------- ------------------
<S> <C>
Building and improvements 15 -- 39 years
Furniture and equipment 7 -- 10 years
Franchise costs 15 years
</TABLE>
Repair and replacement fund - Management periodically segregates funds
for future repairs and improvements to the property. Currently, 3% of
gross monthly revenues are segregated as reserves for repairs and
improvements. Future additions to the reserve are at the discretion of the
Company's management.
Advertising costs - Advertising costs are charged to operations when
incurred. Advertising expense for the years ended December 31, 1995 and
1994 was $103,669 and $106,554, respectively.
Cash - For purpose of the statements of cash flows, cash consists of
cash on-hand and demand deposits with financial institutions. Cash paid
for interest during the year ended December 31, 1995 and 1994 was $441,744
and $377,989, respectively.
(2) Property and equipment
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cost
Land $ 987,489 $ 987,489
Building and improvements 3,050,545 3,050,545
Furniture and equipment 1,418,514 1,446,396
----------- -----------
Total cost 5,456,548 5,484,430
Accumulated depreciation (1,952,150) (1,879,406)
----------- -----------
Net property and equipment $ 3,504,398 $ 3,605,024
=========== ===========
</TABLE>
-5-
<PAGE> 7
C.I. NASHVILLE, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(2) Property and equipment (continued)
The aggregate depreciation on property and equipment charged to
operations for the years ended December 31, 1995 and 1994 was $242,111 and
$300,058, respectively.
(3) Intangible assets
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Franchise costs $ 25,000 $ 25,000
Accumulated amortization (12,225) (10,558)
-------- --------
Net intangible assets $ 12,775 $ 14,442
======== ========
</TABLE>
The aggregate amortization on intangible assets charged to operations
for the years ended December 31, 1995 and 1994 was $1,667, respectively.
(4) Note payable, shareholder
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Demand note payable secured by a deed of
trust on the property. Interest only at
8-1/2% is due monthly. The note agreement has
"targeted" a minimum working capital position
of $100,000. Contingent interest payments are
due to the extent that working capital exceeds
$100,000. Total interest is not to exceed
12-1/2% per year. Principal payments are due
only to the extent that working capital exceeds
the level needed to pay interest at the rate
of 12-1/2%. The Company did not incur any
contingent interest during 1995. $ 5,099,846 $ 5,099,846
=========== ===========
</TABLE>
The shareholder has agreed not to demand repayment of the note in
1996. Accordingly, this note has been classified as long-term in the
accompanying 1995 balance sheet.
-6-
<PAGE> 8
C. I. NASHVILLE, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(5) Income taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
---------- ---------
<S> <C> <C>
Current
Federal $ 20,571 $ --
State 5,704 --
-------- --------
Total current 26,275 --
-------- --------
Deferred
Federal 17,434 (73,452)
State 3,078 (12,962)
Change in deferred tax asset valuation
allowance (20,512) 86,414
-------- --------
Total deferred $ -- $ --
-------- --------
Carryforwards
Utilization of net operating loss
carryforward (26,275) $ --
-------- --------
Total income taxes $ -- $ --
======== ========
</TABLE>
The Company provides deferred income taxes to reflect the impact of
temporary differences between the recorded amounts of assets and
liabilities for financial reporting purposes and such amounts as measured
by tax laws and regulations. The significant temporary differences and
carryforwards and their related deferred tax asset (liability) and
deferred tax asset valuation allowance balances are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Property and equipment $ (19,308) $ (36,821)
Net operating loss carryforward 1,071,038 1,109,063
Deferred tax asset valuation allowance (1,051,730) (1,072,242)
----------- -----------
Total deferred taxes $ -- $ --
=========== ===========
</TABLE>
For purposes of Federal income tax, the Company has net operating
loss carryforwards expiring in the following manner:
<TABLE>
<CAPTION>
Available for Year Ending
Not Later Than December 31,
---------------------------
<S> <C>
2003 $ 469,421
2004 716,431
2005 364,237
2006 284,745
2007 296,170
2008 398,568
2009 148,023
-----------
Total $ 2,677,595
===========
</TABLE>
-7-
<PAGE> 9
C.I. NASHVILLE, INC.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(6) Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosure of
estimated fair values for financial instruments held by the Partnership.
Financial instruments, as defined in SFAS No. 107, held by the Company
include cash, repair and replacement reserves and the Company's
shareholders note. The carrying amounts and estimated fair values of
these financial instruments, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
December 31,1995
--------------------------------
Estimated
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Cash $ 262,320 $ 262,320
Repair and replacement reserve $ 69,533 $ 69,533
Note payable, shareholder $ 5,099,846 $ 5,099,846
</TABLE>
The carrying value's of the Partnership's cash and repair and
replacement reserves approximate fair value as of December 31, 1995. The
Company's note payable, shareholder is payable upon demand. Accordingly,
fair value approximates carrying value.
-8-
<PAGE> 10
ADDITIONAL INFORMATION
<PAGE> 11
[MAYER HOFFMAN McCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- - - -- - - - - - - - - - - - - - - - - - - - - - - -
To the Board of Directors
C.I. Nashville, Inc.
Our audits were made for the purpose of forming an opinion on the
basic financial statements of C.I. Nashville, Inc. for the years ended
December 31, 1995 and 1994 taken as a whole. The accompanying ADDITIONAL
INFORMATION is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements. In our opinion, the accompanying ADDITIONAL INFORMATION
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ MAYER HOFFMAN McCANN L.C.
February 16, 1996
-9-
<PAGE> 12
C.I. NASHVILLE, INC.
ADDITIONAL INFORMATION - STATEMENTS OF OPERATIONS
- - - - - - - - - - - - - - - - - - - - - - - - -
RECONCILIATION OF FINANCIAL REPORTING INCOME (LOSS)
TO TAX BASIS INCOME (LOSS)
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Net income (loss), financial reporting basis $ 50,502 $(214,348)
Tax depreciation less than financial
reporting depreciation 46,082 64,068
Other (1,522) 2,257
-------- ---------
Net income (loss), tax basis $ 95,062 $(148,023)
======== =========
</TABLE>
-10-
<PAGE> 1
EXHIBIT 99.5
WICHITA C.I. ASSOCIATES III, L.P.
(A Limited Partnership)
FINANCIAL STATEMENTS
-----------------------------------
Years Ended December 31, 1995 and 1994
<PAGE> 2
[MAYER HOFFMAN McCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
- - - - - - - - - - - - - -
To the Partners
Wichita C.I. Associates III, L.P.
We have audited the balance sheets of
WICHITA C.I. ASSOCIATES III, L.P.
a limited partnership, as of December 31, 1995 and 1994, and the related
statements of income, changes in partners' equity (deficit) and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership'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 financial statements referred to above
present fairly, in all material respects, the financial position of Wichita
C.I. Associates III, L.P. as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
February 8, 1996 /s/ MAYER HOFFMAN MCCANN L.C.
-1-
<PAGE> 3
WICHITA C.I. ASSOCIATES III, L.P.
BALANCE SHEETS
--------------
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
A S S E T S
<S> <C> <C>
CURRENT ASSETS
Cash $ 186,771 $ 46,353
Accounts receivable, less allowance for
doubtful accounts (1995, $578; 1994, $200) 20,241 36,511
Prepaid expenses and other current assets 36,057 23,800
----------- -----------
TOTAL CURRENT ASSETS 243,069 106,664
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 1,991,819 2,151,240
INTANGIBLE ASSETS, at cost, less
accumulated amortization 151,226 16,155
REPAIR AND REPLACEMENT FUND 38,980 85,259
----------- -----------
TOTAL ASSETS $ 2,425,094 $ 2,359,318
=========== ===========
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable
Trade $ 32,543 $ 37,181
Affiliates 16,150 17,652
Accrued expenses 91,719 40,531
Current portion of long-term debt 72,205 3,453,382
----------- -----------
TOTAL CURRENT LIABILITIES 212,617 3,548,746
----------- -----------
LONG-TERM DEBT 3,310,255 -
----------- -----------
P A R T N E R S' E Q U I T Y (D E F I C I T)
PARTNERS' EQUITY (DEFICIT) $(1,097,778) (1,189,428)
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIT) $ 2,425,094 $ 2,359,318
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
WICHITA C.I. ASSOCIATES III, L.P.
STATEMENTS OF INCOME
--------------------
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Rooms $ 2,258,137 $ 2,211,036
Other departments 81,187 80,737
----------- -----------
TOTAL REVENUES 2,339,324 2,291,773
----------- -----------
OPERATING EXPENSES
Rooms 490,690 485,852
Other departments 35,031 29,865
Administrative and general 366,986 349,557
Marketing 101,894 100,581
Property operation, maintenance and
energy costs 227,242 209,738
Property taxes and insurance 98,544 96,257
----------- -----------
TOTAL OPERATING EXPENSES 1,320,387 1,271,850
----------- -----------
OPERATING INCOME BEFORE OTHER INCOME (EXPENSE) 1,018,937 1,019,923
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 8,361 44
Interest expense (349,705) (377,990)
Depreciation and amortization (234,196) (260,240)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (575,540) (638,186)
----------- -----------
NET INCOME $ 443,397 $ 381,737
=========== ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
WICHITA C.I. ASSOCIATES III, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
- - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ (337,867) $ (840,353) $(1,178,220)
DISTRIBUTIONS TO PARTNERS (52,497) (340,448) (392,945)
NET INCOME 51,000 330,737 381,737
----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (339,364) (850,064) (1,189,428)
DISTRIBUTIONS TO PARTNERS (46,995) (304,752) (351,747)
NET INCOME 59,242 384,155 443,397
----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $ (327,117) $ (770,651) $(1,097,778)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
\ -4-
<PAGE> 6
WICHITA C.I. ASSOCIATES III, L.P.
STATEMENTS OF CASH FLOWS
- - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 443,397 $ 381,737
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 213,092 246,745
Amortization 21,104 13,495
Loss on disposal of property and equipment - 6,718
Decrease (increase) in operating assets
Accounts receivables 16,270 (20,384)
Prepaid expenses and other current assets (12,257) 36,845
Increase (decrease) in operating liabilities
Accounts payable (6,140) 427
Accrued expenses 51,188 (78,725)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 726,654 586,858
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (53,671) (131,355)
Net additions to (payments from) the repair
and replacement fund 46,279 (25,402)
Investment in intangible assets (156,175) -
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (163,567) (156,757)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt 3,400,000
Repayment of long term debt (3,470,922) (26,455)
Distributions to partners (351,747) (392,945
----------- -----------)
NET CASH USED IN FINANCING ACTIVITIES (422,669) (419,400)
----------- -----------
NET INCREASE IN CASH 140,418 10,701
CASH, BEGINNING OF YEAR 46,353 35,652
----------- -----------
CASH, END OF YEAR $ 186,771 $ 46,353
=========== ===========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 7
WICHITA C.I. ASSOCIATES III, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(1) Summary of significant accounting policies
Nature of operations - The Partnership was formed on August
21, 1995 for the purpose of owning and operating a 120-room hotel
known as the "ClubHouse Inn", in Wichita, Kansas. ClubHouse
Properties, Inc. (CPI) was previously the owner of 13.361% general
partner interest in Wichita C.I. Associates, L.P. (Wichita). CPI
assigned its partnership interest in Wichita to C.I. Wichita General,
L.L.C. which then exchanged this interest, along with the limited
partner's 86.639% interest, for identical interests in Wichita C.I.
Associates III, L.P. (Wichita III). C.I. Wichita General, L.L.C. is
indirectly owned by ClubHouse Properties, Inc.
For financial statement and tax reporting, assets and
liabilities of the Partnership were recorded at Wichita's historical
cost basis. The accompanying 1995 statement of income includes the
results of operations of Wichita and Wichita III. Partnership revenues
are generated primarily from hotel operations and related activities.
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 date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Depreciation and amortization - Depreciation and amortization
are computed using the straight-line method with estimated useful
lives as follows:
Asset Useful Life
------------------------- -------------------------
Building and improvements 25 - 31.5 years
Furniture and equipment 5 - 10 years
Loan costs 10 years
Organization costs 5 years
Advertising costs - Advertising costs are charged to operations
when incurred. Advertising expense for the years ended December 31,
1995 and 1994 was $66,433 and $64,321, respectively.
Income taxes - No provision is included in these statements
for income taxes since each partner is individually responsible for
reporting their respective share of the Partnership net income or
loss. Net income or loss of the Partnership is allocated between the
general partner and the limited partner in accordance with their
respective ownership percentages. The income for tax purposes for the
years ended December 31, 1995 and 1994 was $350,616 and $316,434,
respectively. The difference between the net income reported for
financial statement purposes and the net income reported for tax
purposes results primarily from using accelerated methods and shorter
useful lives for tax depreciation and amortization of partnership
assets.
-6-
<PAGE> 8
WICHITA C.I. ASSOCIATES III, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(1) Summary of significant accounting policies (continued)
Cash - For purpose of the statements of cash flows, cash
consists of cash on-hand and demand deposits with financial
institutions. Cash paid for interest during the years ended December
31, 1995 and 1994 was $349,705 and $377,989, respectively.
(2) Property and equipment
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cost
Land $ 455,000 $ 455,000
Building and improvements 2,050,346 2,050,346
Furniture and equipment 1,546,068 1,518,232
----------- -----------
Total cost 4,051,414 4,023,578
Accumulated depreciation (2,059,595) (1,872,338)
----------- -----------
Net property and equipment $ 1,991,919 $ 2,151,240
=========== ===========
</TABLE>
The aggregate depreciation on property and equipment charged
to operations for the years ended December 31,1995 and 1994 was
$213,092 and $246,745, respectively.
(3) Intangible assets
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cost
Loan costs
Organization costs $ 142,686 $ 117,595
13,489 15,000
Total cost --------- ---------
156,175 132,595
Accumulated amortization
(4,949) (116,440)
Net intangible assets --------- ---------
$ 151,226 $ 16,155
</TABLE> ========= =========
The aggregate amortization on intangible assets charged to
operations for the years ended December 31, 1995 and 1994 was $21,104
and $13,495, respectively.
-7-
<PAGE> 9
WICHITA C.I. ASSOCIATES III, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(4) Long-term debt
<TABLE>
<CAPTION>
December 31,
1995 1994
----------- ----------
<X> <C> <C>
7.95% mortgage note due in monthly installments
of $28,333, including interest, with final payment
due October 2005; collateralized by substantially
all of the Partnership's assets. Proceeds from the
note were used to refinance the Partnership's
variable rate mortgage note which was to mature
during 1995. $ 3,382,460 $ -
Variable rate mortgage note, collateralized by
substantially all of the Partnership's assets, with
interest at the lower of 10 3/4% or the "weekly
yield percentage" on United States Treasury
Securities as published by the Federal Reserve
Board plus 3%. Monthly payments of principal and
interest were due until maturity, June 1995.
- 3,453,382
Less: current portion 72,205 3,453,382
----------- ----------
Noncurrent portion $ 3,310,255 $ -
=========== ==========
</TABLE>
Maturities for long - term debt are as follows:
<TABLE>
<CAPTION>
Years Ending December 31.
-------------------------
<S> <C>
1996 $ 72,205
1997 78,159
1998 84,604
1999 91,581
2000 99,132
Thereafter 2,956,779
----------
Total long - term debt $3,382,460
</TABLE>
-8-
<PAGE> 10
WICHITA C.I. ASSOCIATES III, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(5) Related party transactions
ClubHouse Inns of America, Inc. (CIA) is an affiliate of the
Partnership through common ownership. There is a management agreement
with CIA to manage the Partnership's hotel and to provide accounting
services. Management and accounting fees of $91,295 and $89,249 were
earned by CIA during the years ended December 31, 1995 and 1994,
respectively.
In addition to the fees above, the Partnership is obligated
under a franchise agreement with CIA to pay franchise and marketing
fees along with its share of the costs of the central reservation
system. The Partnership may purchase goods through the centralized
purchasing service. The Partnership incurred the following expenses
relating to the franchise agreement:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Royalty fees $90,325 $88,441
Marketing fees 33,872 33,165
Central reservation expenses 13,707 14,184
Administrative fees 12,000 12,000
</TABLE>
(6) Repair and replacement fund
Under the terms of the Partnership's management and debt
agreements, the Partnership is required to fund a reserve for repair
and replacement of property and equipment. The agreements call for the
Partnership to place up to 4% of the projected annual gross income of
the property in this fund.
-9-
<PAGE> 11
WICHITA C.I. ASSOCIATES III, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - -
(7) Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", requires disclosure of estimated
fair values for financial instruments held by the Partnership. Financial
instruments, as defined in SFAS No. 107, held by the Partnership include cash,
repair and replacement reserves and the Partnership's mortgage note. The
carrying amounts and estimated fair values of these financial instruments, as
of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------
Estimated
Carrying Fair
Amount Value
---------- ----------
<S> <C> <C>
Cash $ 186,771 $ 186,771
Repair and replacement reserves $ 38,980 $ 38,980
Mortgage note payable $3,382,460 $3,382,460
</TABLE>
The carrying value's of the Partnership's cash and repair and
replacement reserves approximate fair value as of December 31, 1995.
The fair value of the Partnership's mortgage note payable is estimated
using a discounted cash flow calculation based on current market rates
being offered for similar debt issues.
-10-
<PAGE> 12
ADDITIONAL INFORMATION
- - - - - - - - - - -
<PAGE> 13
[MAYER HOFFMAN McCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- - - - - - - - - - - - - - - - - - - - - - - - - - -
To the Board of Directors
Wichita C.I. Associates III, L.P.
Our audits were made for the purpose of forming an opinion on the
basic financial statements of Wichita C.I. Associates III, L.P. for the years
ended December 31, 1995 and 1994, taken as a whole. The accompanying ADDITIONAL
INFORMATION is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements. In our opinion, the accompanying ADDITIONAL INFORMATION
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
February 8, 1996 /s/ MAYER HOFFMAN MCCANN L.C.
-11-
<PAGE> 14
WICHITA C.I ASSOCIATES III, L.P.
ADDITIONAL INFORMATION - STATEMENTS OF INCOME
---------------------------------------------
RECONCILIATION OF FINANCIAL REPORTING INCOME
TO TAX BASIS INCOME
<TABLE>
<CAPTION>
1995 1994
----------------------------------------- ------------
January 1 to September 14
September 13 to December 13 Total
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Income, financial reporting basis $ 356,137 $ 87,260 $ 443,397 $ 381,737
Tax depreciation in excess of less than
financial reporting depreciation (86,404) (15,341) (101,745) (61,711)
Tax amortization (in excess of) less
than financial reporting amortization 10,675 - 10,675 (6,780)
Amounts owed to affiliate, not deductible
for tax purposes until paid (17,653) 16,151 (1,502) 1,448
Other (993) 784 (209) 1,740
----------- ----------- ----------- -----------
Net income, tax basis $ 261,762 $ 88,854 $ 350,616 $ 316,434
=========== =========== =========== ===========
</TABLE>
-12-
<PAGE> 1
EXHIBIT 99.6
TOPEKA C.I. ASSOCIATES, L.P.
(A Limited Partnership)
FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<PAGE> 2
[MAYER HOFFMAN McCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
- - - - - - - - - - - - - - -
To the Partners
Topeka C.I. Associates, L.P.
We have audited the balance sheets of
TOPEKA C.I. ASSOCIATES, L.P.
a limited partnership, as of December 31, 1995 and 1994, and the related
statements of income, changes in partners' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership'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 financial statements referred to above
present fairly, in all material respects, the financial position of Topeka C.I.
Associates, L.P. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ MAYER HOFFMAN McCANN L.C.
February 19, 1996
<PAGE> 3
TOPEKA C.I. ASSOCIATES, L.P.
BALANCE SHEETS
- - - - - - - - -
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
A S S E T S
<S> <C> <C>
CURRENT ASSETS
Cash $ 111,739 $ 82,256
Accounts receivable, less allowance for doubtful
accounts (1995, $1,142; 1994, $768) 27,745 20,916
Prepaid expenses and other current assets 13,069 8,943
----------- -----------
TOTAL CURRENT ASSETS 152,553 112,115
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 4,624,978 4,969,813
INTANGIBLE ASSETS, at cost, less
accumulated amortization 68,490 73,656
REPAIR AND REPLACEMENT FUND 110,468 99,469
DEPOSIT 8,450 8,450
----------- -----------
TOTAL ASSETS $ 4,964,932 $ 5,263,503
=========== ===========
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable
Trade $ 36,956 $ 48,105
Affiliates 14,057 13,475
Accrued expenses 91,493 82,377
Current portion of long-term debt 151,420 130,126
----------- -----------
TOTAL CURRENT LIABILITIES 293,926 274,083
----------- -----------
LONG-TERM DEBT, less current portion above 2,821,827 2,985,419
----------- -----------
P A R T N E R S' E Q U I T Y
PARTNERS' EQUITY 1,849,186 2,004,001
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 4,964,939 $ 5,263,503
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
TOPEKA C.I. ASSOCIATES, L.P.
STATEMENTS OF INCOME
- - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Rooms $ 2,021,571 $ 1,921,805
Other departments 80,224 79,362
----------- -----------
TOTAL REVENUES 2,101,795 2,001,167
----------- -----------
OPERATING EXPENSES
Rooms 493,063 462,469
Other departments 42,323 40,260
Administrative and general 345,231 337,015
Marketing 123,960 119,825
Property operation, maintenance and
energy costs 188,833 195,300
Property taxes and insurance 100,430 106,076
----------- -----------
TOTAL OPERATING EXPENSES 1,293,840 1,260,945
----------- -----------
OPERATING INCOME BEFORE OTHER INCOME (EXPENSE) 807,955 740,222
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 7,661 236
Interest expense (206,009) (215,213)
Depreciation and amortization (412,857) (407,393)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (611,205) (622,370)
----------- -----------
NET INCOME $ 196,750 $ 117,852
=========== ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
TOPEKA C.I. ASSOCIATES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
- - - - - - - - - - - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 74,043 $ 2,048,801 $ 2,122,844
DISTRIBUTIONS TO PARTNERS (8,261) (228,434) (236,695)
NET INCOME 4,113 113,739 117,852
-------- ----------- -----------
BALANCE DECEMBER 31, 1994 69,895 1,934,106 2,004,001
DISTRIBUTIONS TO PARTNERS (12,273) (339,292) (351,565)
NET INCOME 6,868 189,882 196,750
-------- ----------- -----------
BALANCE DECEMBER 31, 1995 $ 64,490 $ 1,784,696 $ 1,849,186
======== =========== ===========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 6
TOPEKA C.I. ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - -
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 196,750 $ 117,852
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 407,691 402,225
Amortization 5,166 5,168
Loss on disposal of property and equipment -- 9,771
Decrease (increase) in operating assets
Accounts receivable (6,829) 10,667
Prepaid expenses and other current assets (4,126) 1,652
Increase (decrease) in operating liabilities
Accounts payable (10,567) 16,424
Accrued expenses 9,116 (49,960)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 597,201 513,799
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (62,856) (148,026)
Additions to repair and replacement fund (62,762) (59,787)
Reimbursements received from the repair and
replacement fund 51,763 80,375
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (73,855) (127,438)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (351,565) (236,695)
Repayment of long-term debt (142,298) (143,784)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (493,863) (380,479)
--------- ---------
NET INCREASE IN CASH 29,483 5,882
CASH, BEGINNING OF YEAR 82,256 76,374
--------- ---------
CASH, END OF YEAR $ 111,739 $ 82,256
========= =========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 7
TOPEKA C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(1) Summary of significant accounting policies
Nature of operations - The Partnership was formed for the
purpose of constructing, owning and operating a 121-room hotel, known as
the "ClubHouse Inn", in Topeka, Kansas. The hotel opened on June 15, 1986.
ClubHouse Properties, Inc. is the managing general partner and owner of
3.491% of the partnership. Partnership revenues are generated from hotel
operations and related activities.
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 date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Depreciation and Amortization - Depreciation and amortization
are computed on the straight-line method over the following estimated
useful lives:
<TABLE>
<CAPTION>
Asset Useful Life
----- ------------
<S> <C>
Building and improvements 15 - 39 years
Furniture and equipment 7 - 10 years
Financing costs 25 years
Franchise costs 15 years
Organization and pre-opening costs 35 years
</TABLE>
Advertising costs - Advertising costs are charged to
operations when incurred. Advertising expense for the years ended December
31, 1995 and 1994 was $80,999 and $75,976, respectively.
Income taxes - No provision is included in these statements
for income taxes since each partner is individually responsible for
reporting their respective share of the Partnership net income or loss.
The income for tax purposes for the years ended December 31, 1995 and 1994
was $343,788 and $273,057, respectively.
Allocation of net income or loss - Net income or loss is
allocated between the general partner and the limited partner as follows:
<TABLE>
<S> <C>
General partner 3.491%
Limited partner 96.509%
</TABLE>
Cash - For purpose of the statements of cash flows, cash
consists of cash on-hand and demand deposits with financial institutions.
Cash paid for interest during the years ended December 31, 1995 and 1994
was $206,009 and $215,215, respectively.
-6-
<PAGE> 8
TOPEKA C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(2) Property and equipment
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cost
Land $ 617,179 $ 617,179
Building and improvements 5,386,899 5,386,899
Furniture and equipment 1,569,049 1,558,939
----------- -----------
Total cost 7,573,127 7,563,017
Accumulated depreciation (2,948,149) (2,593,204)
----------- -----------
Net property and equipment $ 4,624,978 $ 4,969,813
=========== ===========
</TABLE>
The aggregate depreciation on property and equipment charged
to operations for the years ended December 31, 1995 and 1994 was $407,691
and $402,225, respectively.
(3) Intangible assets
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
Cost
Financing costs $ 76,000 $ 76,000
Franchise costs 25,000 25,000
Organization and pre-opening costs 16,086 16,086
--------- ---------
Total cost 117,086 117,086
Accumulated amortization (48,596) (43,430)
--------- ---------
Net intangible assets $ 68,490 $ 73,656
========= =========
</TABLE>
The aggregate amortization on intangible assets charged to
operations for the years ended December 31, 1995 and 1994 was $5,166 and
$5,168, respectively.
(4) Long-term debt
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Mortgage notes payable collateralized by substantially all of the
Partnership's property and equipment, payable in monthly installments
of principal and interest. Final payment due November 2011. Interest
is subject to adjustment periodically using the Federal Home Loan Bank
of Topeka's advance rate plus 2%. The next scheduled
adjustment is July 1996 $ 2,973,247 $ 3,115,545
Less: current portion 151,420 130,126
----------- -----------
Noncurrent portion $ 2,821,827 $ 2,985,419
=========== ===========
</TABLE>
-7-
<PAGE> 9
TOPEKA C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(4) Long-term debt (continued)
Maturities for long-term debt are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1996 $ 151,420
1997 161,963
1998 127,125
1999 133,755
2000 143,068
Later years 2,255,916
-----------
Total long-term debt $ 2,973,247
===========
</TABLE>
(5) Related party transactions
ClubHouse Inns of America, Inc. is an affiliate of the
Partnership through common ownership. There is a management agreement with
ClubHouse Inns of America to manage the Partnership's hotel and to provide
accounting services. Management and accounting fees of $83,439 and $79,542
were earned by ClubHouse Inns of America, Inc. during the years ended
December 31, 1995 and 1994, respectively.
In addition to the fees above, the Partnership is obligated
under a franchise agreement with ClubHouse Inns of America, Inc. to pay
franchise and marketing fees along with its share of the costs of the
central reservation system. The Partnership may purchase goods through the
centralized purchasing service. The Partnership incurred the following
expenses to ClubHouse Inns of America, Inc.:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
--------- --------
<S> <C> <C>
Royalty fees $ 80,863 $ 76,872
Marketing fees 30,324 28,827
Central reservation expenses 16,239 15,091
Administrative fees 12,000 12,000
</TABLE>
(6) Repair and replacement fund
Under the terms of the Partnership's management agreement,
the Partnership is required to fund a reserve for repair and replacement
of property and equipment. The agreement calls for the Partnership to
place three percent of gross revenues per month in this fund. Expenditures
from this fund require the approval of ClubHouse Inns of America, Inc.,
the Partnership's management company.
-8-
<PAGE> 10
TOPEKA C.I. ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - -
(7) Fair value of financial instruments
Statement of Financial Accounting Standards No.107,
"Disclosures about Fair Value of Financial Instruments", requires
disclosures of estimated fair values for financial instruments held by the
Partnership. Financial instruments, as defined in SFAS No.107, held by the
Partnership include cash, repair and replacement reserves and the
Partnership's mortgage note. The carrying amounts and estimated fair
values of these financial instruments, as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Cash $ 111,739 $ 111,739
Repair And replacement reserves $ 110,468 $ 110,468
Long-term debt $2,973,247 $2,973,247
</TABLE>
The carrying value's of the Partnership's cash and repair and
replacement reserves approximate fair value as of December 31, 1995. The
interest rate on the Partnership's long-term debt is adjusted periodically in
accordance with changes in the "base-rate". Consequently, the carrying value
approximates fair value.
-9-
<PAGE> 11
ADDITIONAL INFORMATION
- - - - - - - - - - - -
<PAGE> 12
[MAYER HOFFMAN McCANN L.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
To the Board of Directors
Topeka C.I. Associates, L.P.
Our audits were made for the purpose of forming an opinion on
the basic financial statements of Topeka C.I. Associates, L.P. for the years
ended December 31, 1995 and 1994, taken as a whole. The accompanying ADDITIONAL
INFORMATION is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements. In our opinion, the accompanying ADDITIONAL INFORMATION
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ MAYER HOFFMAN McCANN L.C.
February 19, 1996
-10-
<PAGE> 13
TOPEKA C.I. ASSOCIATES, L.P.
ADDITIONAL INFORMATION - STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - - - - - -
RECONCILIATION OF FINANCIAL REPORTING INCOME
TO TAX BASIS INCOME
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net income, financial reporting basis $ 196,750 $ 117,852
Tax depreciation less than financial reporting
depreciation 157,500 161,475
Tax amortization of intangible assets greater
than financial reporting amortization (10,447) (12,681)
Other (15) 6,411
--------- ---------
Net income, tax basis $ 343,788 $ 273,057
========= =========
</TABLE>
-11-
<PAGE> 1
EXHIBIT 99.7
Report of Independent Auditors
The Partners
Valdosta C.I. Associates, L.P.
We have audited the accompanying balance sheet of Valdosta C.I. Associates,
L.P., a Kansas limited partnership, as of December 31, 1994, and the related
statements of operations, changes in partners' deficit, and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valdosta C.I. Associates, L.P.
as of December 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young L.L.P.
Kansas City, Missouri
September 9, 1997
1
<PAGE> 2
Valdosta C.I. Associates, L.P.
Balance Sheet
December 31, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 188,325
Accounts receivable 31,602
Prepaid expenses and other current assets 38,809
-----------
Total current assets 258,736
Property and equipment, net 3,434,990
Intangible assets, net 44,334
Repair and replacement fund 200,087
Other assets 1,200
-----------
Total assets $ 3,939,347
===========
LIABILITIES
Current liabilities:
Accounts payable $ 25,783
Due to affiliates 13,589
Accrued interest 195,516
Accrued expenses 87,400
Current portion of long-term debt 87,670
-----------
Total current liabilities 409,958
Long-term debt 3,677,780
-----------
Total liabilities 4,087,738
PARTNERS' DEFICIT (148,391)
-----------
Total liabilities and partners' deficit $ 3,939,347
===========
</TABLE>
See accompanying notes.
2
<PAGE> 3
Valdosta C.I. Associates, L.P.
Statement of Operations
Year ended December 31, 1994
<TABLE>
<S> <C>
REVENUES
Hotel room revenues $ 1,772,676
Other hotel revenues 73,311
-----------
Total revenues 1,845,987
-----------
OPERATING COSTS AND EXPENSES
Hotel room expenses 462,836
Hotel room expenses - affiliate 14,881
Other hotel expenses 33,971
Administrative and general 164,060
Management and accounting fees 73,467
Royalty fees 70,907
Marketing expenses - affiliate 24,950
Other marketing expenses 99,248
Property operations and maintenance 228,151
Property taxes and insurance 36,275
Depreciation and amortization 385,275
-----------
Total operating expenses 1,594,021
-----------
Income from operations 251,966
OTHER INCOME (EXPENSE)
Interest income 15,392
Interest expense (305,123)
-----------
Total other expense (289,731)
-----------
Net loss $ (37,765)
===========
</TABLE>
See accompanying notes
3
<PAGE> 4
Valdosta C.I. Associates, L.P.
Statement of Changes in Partners' Deficit
<TABLE>
<S> <C>
Balance, December 31, 1993 $ (41,406)
Distributions (69,220)
Net loss (37,765)
---------
Balance, December 31, 1994 $(148,391)
=========
</TABLE>
See accompanying notes.
4
<PAGE> 5
Valdosta C.I. Associates, L.P.
Statement of Cash Flows
Year ended December 31, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (37,765)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 385,275
Changes in operating assets and liabilities:
Accounts receivable 8,314
Prepaid expenses (27,830)
Accounts payable 8,827
Due to affiliates 1,646
Accrued expenses 26,788
---------
Net cash provided by operating activities 365,255
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (100,449)
Additions to repair and replacement fund (55,101)
---------
Net cash used in investing activities (155,550)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (363,748)
Deferred loan costs (44,261)
Distributions to partners (69,220)
---------
Net cash used in financing activities (477,229)
---------
Net decrease in cash (267,524)
Cash, beginning of year 455,849
---------
Cash, end of year $ 188,325
=========
</TABLE>
For supplemental disclosures of cash flow information, see Note 4.
See accompanying notes.
5
<PAGE> 6
Valdosta C.I. Associates, L.P.
Notes to Financial Statements (continued)
December 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Valdosta C.I. Associates, L.P., a Kansas limited partnership, (the Partnership)
was formed for the purpose of constructing, owning and operating a 121-room
limited-service hotel, known as the "ClubHouse Inn," in Valdosta, Georgia.
ClubHouse Properties, Inc., a wholly owned subsidiary of ClubHouse Hotels, Inc.
(formerly known as ClubHouse Enterprises, Inc.) (CHI), is the managing general
partner and owner of 0.5% of the Partnership. Partnership revenues are
generated from hotel operations and related activities and are recognized when
earned.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed on the straight-line method over the
following estimated useful lives:
Building and improvements 15 - 40 years
Furniture and equipment 7 - 10 years
Financing costs Term of loan
Franchise costs Term of agreement
Organization costs 5 years
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising expense
for the year ended December 31, 1994 was $77,424.
6
<PAGE> 7
Valdosta C.I. Associates, L.P.
Notes to Financial Statements (continued)
December 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
No provision is included in these statements for income taxes since each
partner is individually responsible for reporting their respective share of the
Partnership net income or loss.
CASH
For purpose of the statements of cash flows, cash consists of cash on hand and
demand deposits with financial institutions.
REPAIR AND REPLACEMENT FUND
Under the terms of the Partnership's management agreement, the Partnership is
required to fund a reserve for repair and replacement of property and
equipment. The agreement calls for the Partnership to place 3% of monthly gross
revenues in this fund. Expenditures from this fund require the approval of CHI.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Partnership's cash and repair and replacement
reserves approximate fair value as of December 31, 1994. Using discounted cash
flow analysis based upon current market rates for similar debt issues, the
Partnership's carrying amount for its long-term debt approximates fair value.
2. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist of the following:
<TABLE>
<S> <C>
Land $ 703,256
Building and improvements 3,273,361
Furniture and equipment 1,388,128
--------------
Total cost 5,364,745
Accumulated depreciation 1,929,755
--------------
Net property and equipment $ 3,434,990
==============
</TABLE>
7
<PAGE> 8
Valdosta C.I. Associates, L.P.
Notes to Financial Statements (continued)
3. INTANGIBLE ASSETS
Intangible assets are recorded at cost and consist of the following:
<TABLE>
<S> <C>
Financing costs $ 44,261
Franchise costs 25,000
--------------
Total cost 69,261
Accumulated amortization (24,927)
--------------
Net intangible assets $ 44,334
==============
</TABLE>
4. LONG-TERM DEBT
On June 1, 1992, the Partnership's mortgage note was assigned by the Resolution
Trust Corporation to the current lender. Effective July 1, 1992, the mortgage
note was modified to reduce the interest rate to 8% and to extend the maturity
date. In connection with the modification, quarterly payments of 25% of net
cash flow, as defined, are applied to interest accrued during the period from
July 1, 1992 to February 28, 1993. At December 31, 1994, such accrued interest
amounted to $195,515. Monthly principal and interest payments of $32,811 are
payable through and including March 1, 2000, at which time all outstanding
amounts due under the note become due and payable in full. The mortgage note is
collateralized by substantially all of the Partnership's property and
equipment.
Cash paid for interest in 1994 was $305,123.
Principal maturities for long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------
<S> <C>
1995 $ 87,670
1996 103,240
1997 111,809
1998 121,089
1999 131,139
Thereafter 3,210,503
--------------
Total $ 3,765,450
==============
</TABLE>
8
<PAGE> 9
Valdosta C.I. Associates, L.P.
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
There is a management agreement with ClubHouse Inns of America, Inc. (CIA), an
affiliate of one of the general partners and a wholly owned subsidiary of CHI,
to manage the Partnership's hotel and to provide accounting services.
In addition, the Partnership is obligated under a franchise agreement with CIA
to pay franchise and marketing fees along with its share of the costs of the
ClubHouse Inn's central reservation system. The Partnership may purchase goods
at cost through CIA's centralized purchasing service.
9
