[TEST]
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1995 Commission File Number 0-9659
------------- ------
SIGNATURE INNS, INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1426996
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
------------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (317) 581-1111
--------------
Check whether the Registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------- -------
7,783,827 Common Shares were outstanding as of August 7, 1995.
<PAGE>
SIGNATURE INNS, INC.
INDEX
Part I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations
Three and six months ended June 30, 1995 and 1994
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
Consolidated Statements of Shareholders' Equity
Six months ended June 30, 1995 and year ended
December 31, 1994
Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II - OTHER INFORMATION
---------------------------
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Three months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues $ 905,215 1,099,923 1,659,126 2,132,054
Management and franchise fees 848,885 807,179 1,480,808 1,431,093
---------- ---------- ---------- ----------
1,754,100 1,907,102 3,139,934 3,563,147
---------- ---------- ---------- ----------
Costs and expenses:
Hotel costs and expenses 440,755 550,875 845,411 1,155,435
Hotel depreciation and amortization 65,439 113,087 130,878 246,314
General and administrative expenses 540,182 550,870 1,121,498 1,093,584
Other depreciation and amortization 28,086 27,378 55,953 54,909
Gain on disposition of hotels - (11,982) - (11,982)
--------- ---------- --------- ----------
1,074,462 1,230,228 2,153,740 2,538,260
---------- ---------- ---------- ----------
Operating income 679,638 676,874 986,194 1,024,887
---------- ---------- ---------- ----------
Other income (deductions):
Equity in income of hotel
limited partnerships 305,488 402,294 300,970 390,208
Interest income 68,408 39,824 116,803 58,249
Interest expense - hotels (158,456) (208,385) (317,002) (507,245)
Interest expense - corporate (95,430) (115,761) (199,757) (221,900)
Capital appreciation fee (231,523) (64,576) (456,641) (91,276)
Other (50,447) (38,017) (73,257) (31,993)
---------- ---------- ---------- ----------
(161,960) 15,379 (628,884) (403,957)
---------- ---------- ---------- ----------
Income before extraordinary item 517,678 692,253 357,310 620,930
Extraordinary item - gain
from debt extinguishment - 277,805 - 277,805
---------- ---------- ---------- ----------
Net Income $ 517,678 970,058 357,310 898,735
========== ========== ========== ==========
Per common share data:
Income before
Extraordinary item 0.07 0.10 0.05 0.12
Extraordinary item - 0.04 - 0.05
---------- ---------- ---------- ----------
Net income $ 0.07 0.14 0.05 0.17
========== ========== ========== ==========
Weighted average shares
outstanding 7,783,827 6,800,900 7,783,827 5,122,677
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE INNS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
------------------------------------------------------------------------------------------------------------
June 30, December 31,
1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Corporate 1,408,536 1,153,753
Consolidated hotels 902,943 881,760
---------- ----------
2,311,479 2,035,513
Other current assets 584,934 491,886
---------- ----------
Total current assets 2,896,413 2,527,399
---------- ----------
Hotel limited partnerships:
Equity investments 972,028 1,377,930
Receivables, net 3,410,712 3,429,712
---------- ----------
4,382,740 4,807,642
---------- ----------
Property and equipment, net:
Consolidated hotels 5,270,548 5,327,740
Land held for sale 913,739 913,739
Corporate 264,998 301,726
---------- ----------
6,449,285 6,543,205
---------- ----------
Deferred costs and other assets, net of accumulated
amortization of $474,121 and $452,990 253,743 215,721
----------- -----------
$13,982,181 14,093,967
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt:
Consolidated hotels - 3,128,478
Corporate subordinate note 300,000 -
Other current liabilities 556,623 527,037
---------- ----------
Total current liabilities 856,623 3,655,515
---------- ----------
Long-term debt, less current portion:
Consolidated hotels 6,719,915 3,596,888
Corporate line of credit 500,000 1,500,000
Corporate subordinate note 1,500,000 1,800,000
Accrued capital appreciation fee 745,651 289,010
----------- -----------
9,465,566 7,185,898
----------- -----------
Other partners' equity 128,872 148,369
----------- -----------
Total liabilities 10,451,061 10,989,782
----------- -----------
Shareholders' equity:
Common stock, no par value.
Authorized 20,000,000 shares 9,805,973 9,736,348
Accumulated deficit (6,274,853) (6,632,163)
----------- -----------
Total shareholders' equity 3,531,120 3,104,185
----------- -----------
$13,982,181 14,093,967
=========== ===========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
Common Stock
___________________________ Accumulated
Shares Amount Deficit Total
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Balance at December 31, 1993 3,425,807 $9,235,445 (8,738,218) 497,227
Net income 2,106,055 2,106,055
Common shares issued 4,358,020 779,403 779,403
Notes receivable (278,500) (278,500)
---------- ----------- ----------- ----------
Balance at December 31, 1994 7,783,827 9,736,348 (6,632,163) 3,104,185
Net income 357,310 357,310
Collection of notes receivable 69,625 69,625
---------- ----------- ----------- ----------
Balance at June 30, 1995 7,783,827 $9,805,973 (6,274,853) 3,531,120
========== =========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
---------------------------------------------------------------------------------------
Six months ended June 30 1995 1994
---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 357,310 898,735
Items which do not use (provide) cash:
Depreciation of property and equipment 165,700 267,473
Amortization of deferred costs 21,131 33,750
Equity in income of hotel limited partnerships, net (300,970) (390,208)
Other partners' equity in income 103,556 47,202
Capital appreciation fee accrual 456,641 91,276
Gain from debt extinguishment - (277,805)
Gain on disposal of hotel - (11,982)
Other current items (63,462) (233,118)
Other non-current items (12,925) (18,942)
--------- ---------
Net cash provided by operating activities 726,981 406,381
--------- ---------
Cash flows from investing activities:
Property and equipment additions (69,930) (35,673)
Distributions received from
hotel limited partnership 717,947 451,651
Loans to hotel limited partnerships - (556,600)
Repayment of hotel limited partnership advances, net 19,000 10,000
Deferred costs and other assets (59,153) 799
--------- ---------
Net cash provided (used) by investing activities 607,864 (129,823)
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt (1,005,451) (524,010)
Proceeds from issuance of common stock 69,625 500,903
Cash distributions to partners
by consolidated hotel (123,053) (7,500)
--------- ---------
Net cash used by financing activities (1,058,879) (30,607)
----------- ---------
Change in cash and cash equivalents 275,966 245,951
Cash and cash equivalents at beginning of period 2,035,513 1,219,946
---------- ----------
Cash and cash equivalents at end of period $2,311,479 1,465,897
========== ==========
Supplemental information:
Interest paid $ 525,820 729,931
========== ==========
Income taxes paid $ 11,500 5,000
========== ==========
</TABLE>
<PAGE>
SIGNATURE INNS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the interim
period are not necessarily indicative of the results that may be expected for
the year ended December 31, 1995. For further information, refer to the
financial statements included in the Registrant's annual report on Form 10-KSB
for the year ended December 31, 1994.
NOTE B - AGREEMENT TO REFINANCE SUBORDINATE DEBT
In August 1995 the Company reached an agreement with Banc One Capital Partners
II to repay the $1,800,000 variable rate subordinate note and satisfy the
capital appreciation fee obligation prior to their contractual maturity. The
Company agreed to repay the balance of the subordinate note along with a
single $900,000 cash payment in full satisfaction of the capital appreciation
fee. The agreement further provides that if a change of control of the
Company, as defined, were to occur prior to December 1996 an additional fee
may be payable.
The source of funds for this transaction will be provided by a new $1,700,000
term note from Bank One, Indianapolis along with an advance from the Company's
line of credit and corporate cash. The new term note will require monthly
principal payments through December 1998 along with interest at the prime rate
plus 1.25% per annum. The Company will increase its advances on the line of
credit from $500,000 outstanding at June 30, 1995. The line of credit is
renewable annually and provides a $1,600,000 availability through May 1997
with interest at prime plus .75% per annum.
The accompanying June 30, 1995 financial statements reflect an accrued capital
appreciation fee of $745,651, and an additional $154,349 will be charged to
earnings upon completion of this financing in the third quarter of 1995.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Hotel Operations
Hotel operations of two hotels owned by consolidated affiliates (Indianapolis
South and Elkhart) are included in the statement of operations for the six
months ended June 30, 1995 and 1994. The operating results of the Company-owned
Knoxville hotel is reflected through May 1994, the date the hotel was
sold to an affiliated partnership.
Hotel revenues of $1,659,126 for the six months ended June 30, 1995
represented a $472,928 decrease compared to the same period of 1994. Hotel
revenues from the two hotels owned by consolidated affiliates increased
$147,339 for the six months; the offsetting decrease resulted from the
disposition of the Knoxville hotel in May 1994. The increased revenues of the
two hotels owned by consolidated affiliates resulted from a 6.4% increase in
occupancy and a 2.9% increase in average room rates for the period. Hotel
revenues for the second quarter of 1995 represented a 17.7% decrease compared
to the same quarter in 1994 due primarily to the disposition of the Knoxville
hotel.
Hotel costs and expenses of $845,411 for the six months ended June 30, 1995
represented a $310,024 decrease compared to the same period of 1994. Hotel
costs and expenses from the two hotels owned by consolidated affiliates
increased $45,431 for the period, due primarily to the increase in the number
of rooms sold, and the offsetting decrease resulted from the disposition of
the Knoxville hotel in May 1994. Hotel costs and expenses for the second
quarter of 1995 represented a 20.0% decrease compared to the same quarter in
1994 due primarily to the disposition of the Knoxville hotel.
Hotel depreciation and amortization expense decreased $115,436 for the six
months ended June 30, 1995 compared to the same period of 1994 due primarily
to the hotel disposition in May 1994. Hotel depreciation and amortization
includes $130,878 and $145,614 for the six months ended June 30, 1995 and
1994, respectively, relating to the two hotels owned by consolidated
affiliates.
Corporate Operations
The increase in management and franchise fee income for the three and six
month periods ended June 30, 1995 compared to the same periods in 1994 is due
to increased revenues at the partnership owned hotels and the recognition of
fees beginning in May 1994 from the partnership owned Knoxville hotel, offset
slightly by fees earned from non-affiliates under short-term agreements which
expired in late 1994. For the six months ended June 30, 1995 compared to the
same six-month period in 1994 chainwide occupancy decreased .3 percentage
points and average daily rate increased $2.60. The hotel industry experienced
continued improvement compared to the same six months in 1994 and industry
wide occupancies are expected to continue to improve throughout 1995. While
the industry room demand growth rate is increasing faster than the supply of
new rooms, substantially all hotel markets where Signature Inns are located
are experiencing new hotel rooms opening, under construction or in the
planning stages. Hotel occupancies at certain of the partnership-owned hotels
may be negatively impacted which could negatively effect the Company's
management and franchise fee revenue.
<PAGE>
General and administrative expenses for the six month period ended June 30,
1995 compared to the same period in 1994 increased due to increased employee
compensation and legal costs.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Other Income (Deductions)
Equity in income of hotel limited partnerships represents the Company's share
of the unconsolidated hotel partnerships' income or loss. The decrease for
the three and six month periods ended June 30, 1995 compared to the same
period in 1994 is attributable to the Company's $114,563 share of a one time
gain resulting from a partnership's debt restructuring in June 1994.
The increase in interest income for the three and six month periods ended June
30, 1995 compared to the same period in 1994 is a result of higher investable
cash balances earning a higher yield and interest income earned from the
Company's loans to affiliated hotel partnerships. Interest income includes
$28,422 and $21,495 on loans to affiliated hotel partnerships for the six
months ended June 30, 1995 and 1994, respectively.
Interest expense for the three and six month periods ended June 30, 1995
compared to the same period in 1994 decreased due to decreased average
outstanding indebtedness during the respective periods, offset slightly by
increased interest rates. Interest ceased on the $4.9 million Knoxville hotel
loan upon the sale of the hotel in May 1994.
A capital appreciation fee equal to 25% of the value of the Company, as
defined, is required to be paid to the variable rate subordinate note lender
no sooner than December 16, 1996 under the terms of the original agreement.
As described in NOTE B, the Company entered into an agreement with the lender
in August 1995 to terminate the capital appreciation fee arrangement in
exchange for a single cash payment of $900,000. Through June 30, 1995,
$745,651 of related expense was accrued representing the estimated amount due
the lender based on the negotiated payment of $900,000 in September 1995. An
additional $154,349 of related expense will be charged to operations in the
third quarter of 1995.
Capital Resources and Liquidity
The Company believes that the cash generated from management and franchising
activities and its return on hotel partnership investments, along with
additional borrowing capabilities and its cash investments will provide
adequate liquidity to meet its operating needs and the payment requirements of
its corporate obligations over the next twelve months.
<PAGE>
At June 30, 1995, a $3.1 million non-recourse hotel mortgage loan of a
consolidated hotel affiliate which matures September 30, 1995 is reflected as
a long-term liability in the consolidated financial statements. The Company
is in the process of refinancing this mortgage loan or extending the maturity.
Based upon preliminary commitments received the Company anticipates completing
such refinancing or extension prior to the September maturity.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
See note below
Item 2. Changes in Securities
See note below
Item 3. Default upon Senior Securities
See note below
Item 4. Submission of matters to Vote of Security Holders
May 16, 1995 Annual Meeting of Shareholders
Matters voted on (out of 7,783,827 eligible shares):
(i) Election of three directors for three year terms
5,566,651 for; 70,346 against
(ii) Approval of independent auditors for the year
ending December 31, 1995
5,566,354 for; 32,003 against and 38,640 abstain
Item 5. Other Information
See note below
Item 6. Exhibits and Reports on Form 8-K
See note below
NOTE: The response to each of the above items is not
applicable or is in the negative and does not require a
response pursuant to the instructions.
<PAGE>
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 thereunto duly authorized.
SIGNATURE INNS, INC.
Date August 10, 1995 By
--------------- ---------------------------------------
John D. Bontreger, President and C.E.O.
Date August 10, 1995 By
--------------- ---------------------------------------
Mark D. Carney, Vice President Finance
and C.F.O.
Date August 10, 1995 By
--------------- ---------------------------------------
Martin D. Brew, Treasurer/Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Statement and Consolidated Statement of Operations of
Signature Inns, Inc. as of and for the six months ending June 30, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994
DEC-31-1994
<PERIOD-END> JUN-30-1995 JUN-30-1994 JUN-30-1995 JUN-30-1994
DEC-31-1994
<CASH> 0 0 2,311,479 0
2,035,513
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 0 0 0 0
0
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 0 0 2,896,413 0
2,527,399
<PP&E> 0 0 6,449,285 0
6,543,205
<DEPRECIATION> 0 0 0 0
0
<TOTAL-ASSETS> 0 0 13,982,181 0
14,093,967
<CURRENT-LIABILITIES> 0 0 856,623 0
3,655,515
<BONDS> 0 0 9,465,566 0
7,185,898
<COMMON> 0 0 3,531,120 0
3,104,185
0 0 0 0
0
0 0 0 0
0
<OTHER-SE> 0 0 0 0
0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 13,982,181 0
14,093,967
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 1,754,100 1,907,102 3,139,934 3,563,147
0
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 1,074,462 1,230,228 2,153,740 2,538,260
0
<OTHER-EXPENSES> 281,970 102,593 529,898 123,269
0
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 253,886 324,146 516,759 729,145
0
<INCOME-PRETAX> 517,678 692,253 357,310 620,930
0
<INCOME-TAX> 0 0 0 0
0
<INCOME-CONTINUING> 517,678 692,253 357,310 620,930
0
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 277,805 0 277,805
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 517,678 970,058 357,310 898,735
0
<EPS-PRIMARY> .07 .14 .05 .17
0
<EPS-DILUTED> .07 .14 .05 .17
0
</TABLE>
