<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 September 30, 1996 Commission File Number 0-9659
------------------ ------
SIGNATURE INNS, INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-1426996
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS 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
---------- ----------
7,785,994 Common Shares were outstanding as of October 20, 1996.
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<TABLE>
SIGNATURE INNS, INC.
INDEX
<CAPTION>
Part I - FINANCIAL INFORMATION Page
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<S> <C> <C
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations 1
Three and nine months ended September 30, 1996 and 1995
Consolidated Balance Sheets 2
September 30, 1996 and December 31, 1995
Consolidated Statements of Shareholders Equity 3
Nine months ended September 30, 1996 and
Year ended December 31, 1995
Consolidated Statements of Cash Flows 4
Nine months ended September 30, 1996 and 1995
Note to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
Financial Condition and Results of Operations
Part II - OTHER INFORMATION 10
SIGNATURES 11
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<TABLE>
<CAPTION>
Signature Inns, Inc.
Consolidated Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues $1,560,439 1,028,358 4,089,258 2,687,484
Management and franchise fees 855,542 924,252 2,379,532 2,405,060
---------- --------- --------- ---------
2,415,981 1,952,610 6,468,790 5,092,544
---------- --------- --------- ---------
Cost and expenses:
Hotel costs and expenses 779,308 477,115 2,145,886 1,322,526
Hotel depreciation and
amortization 115,195 65,439 309,358 196,317
General and administrative
expenses 605,640 567,042 1,837,158 1,668,903
Other depreciation and
amortization 22,800 64,498 72,567 120,451
---------- --------- --------- ---------
1,522,943 1,174,094 4,364 969 3,308,197
---------- --------- --------- ---------
Operating Income 893,038 778,516 2,103,821 1,784,347
---------- --------- --------- ---------
Other income (deductions):
Equity in income of hotel limited
partnerships, net 326,257 348,102 649,780 649,072
Interest income 58,287 78,945 162,872 195,748
Interest expense - hotels (215,898) (160,680) (676,675) (477,682)
Interest expense - corporate (22,553) (74,293) (93,197) (274,050)
Capital appreciation fee - (154,349) - (610,990)
Gain on disposition of land
and related assets - 163,032 - 163,032
Other partners' equity in income (141,242) (87,793) (313,461) (191,349)
Other (2,209) 10,076 (11,663) 20,738
---------- --------- --------- ---------
2,642 123,040 (282,344) (525,481)
---------- --------- --------- ---------
Income before income taxes 895,680 901,556 1,821,477 1,258,866
Income tax expense 150,000 - 150,000 -
---------- --------- --------- ---------
Net income $ 745,680 901,556 1,671,477 1,258,866
========== ========= ========= =========
Earnings per share $ 0.10 0.12 0.21 0.16
========== ========= ========= =========
Weighted average common
shares outstanding 7,785,994 7,784,327 7,785,136 7,784,327
========== ========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
Signature Inns, Inc.
Consolidated Balance Sheets
(Unaudited)
- ------------------------------------------------------------------------------
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Corporate $ 1,014,029 1,213,078
Consolidated hotels 1,586,038 1,402,047
----------- ----------
2,600,067 2,615,125
Other current assets 743,318 500,492
Total current assets 3,343,385 3,115,617
Hotel limited partnerships:
Equity investments 2,106,270 2,224,857
Receivables, net 3,371,648 3,571,648
----------- ----------
5,477,918 5,796,505
----------- ----------
Property and equipment, net 10,460,081 8,763,787
Deferred costs and other assets,
net of accumulated amortization
of $553,121 and $530,114 857,408 338,542
----------- ----------
20,138,792 18,014,451
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt:
Corporate - 533,340
Consolidated hotels 228,235 3,188,376
Accounts payable and other
accrued liabilities 1,251,483 822,961
----------- ----------
Total current liabilities 1,479,718 4,544,677
----------- ----------
Long-term debt, less current portion:
Corporate 2,750,000 2,166,660
Consolidated hotels 8,960,536 6,471,734
----------- ----------
11,710,536 8,638,394
Other partners' equity 275,293 40,154
----------- ----------
Total liabilities 13,465,547 13,223,225
----------- ----------
Shareholders' equity:
Common stock, no par value. Authorized
50,000,000 and 20,000,000 shares 10,016,515 9,805,973
Accumulated deficit (3,343,270) (5,014,747)
----------- ----------
Total shareholders' equity 6,673,245 4,791,226
----------- ----------
$20,138,792 18,014,451
=========== ==========
</TABLE>
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<TABLE>
<CAPTION>
Signature Inns, Inc.
Consolidated Statements of Shareholders' Equity (Unaudited)
Common Stock
---------------- Accumulated
Shares Amount Deficit Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 7,784,327 $ 9,736,348 (6,632,163) 3,104,185
Net income - - 1,617,416 1,617,416
Collection of notes
receivable - 69,625 - 69,625
--------- ----------- --------- ---------
Balance at December 31, 1995 7,784,327 9,805,973 (5,014,747) 4,791,226
Net income - - 1,671,477 1,671,477
Collection of notes
receivable - 208,875 - 208,875
Common shares issued 1,667 1,667 - 1,667
--------- ----------- --------- ---------
Balance at September 30, 1996 7,785,994 $10,016,515 (3,343,270) 6,673,245
--------- ----------- --------- ---------
</TABLE>
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<TABLE>
<CAPTION>
Signature Inns, Inc.
Consolidated Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
Nine Months ended September 30 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,671,477 1,258,866
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 373,095 316,768
Equity in income of hotel limited
partnerships, net of distributions
received of $783,761 and $717,947 133,981 68,875
Other partners' equity in income 313,461 191,347
Capital appreciation fee - 610,990
Gain on disposition of land and
related assets (163,032)
Other items 87,578 103,770
----------- ---------
Net cash provided by
operating activities 2,579,592 2,387,584
----------- ---------
Cash flows from investing activities:
Proceeds from sale of land and
related assets - 163,032
Property and equipment additions (2,042,383) (104,359)
Repayment of receivables from hotel
limited partnerships, net 200,000 (201,000)
Deferred costs and other assets (461,478) (171,007)
----------- ---------
Net cash used by
investing activities (2,303,861) (313,334)
Cash flows from financing activities:
Repayments of long-term debt (2,071,339) (3,707,812)
Net borrowings (repayments) on
revolving line of credit 1,650,000 2,100,000
Proceeds from issuance of common stock 208,875 69,625
Distributions to other partners by
consolidated hotel, net (78,325) (123,053)
Net cash used by
financing activities (290,789) (1,661,240)
----------- ---------
Net increase (decrease) in cash
and cash equivalents (15,058) 413,010
Cash and cash equivalents at
beginning of period 2,615,125 2,035,513
----------- ---------
Cash and cash equivalents at
end of period $ 2,600,067 2,448,523
=========== =========
Supplemental information:
Interest paid $ 676,586 655,546
=========== =========
Income taxes paid $ 36,000 19,637
=========== =========
</TABLE>
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SIGNATURE INNS, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
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, 1996. 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, 1995.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is engaged in the development, ownership and operation of
Signature Inn hotels. As of September 30, 1996, the Company managed a chain
of 23 Signature Inn hotels located in six states. Three hotels are owned by
consolidated affiliates and 20 additional hotels are owned by limited
partnerships in which the Company is the general partner. Also in August
1996, the Company purchased and began operating a hotel in Springfield,
Illinois.
The historical consolidated financial statements include the operation of
the Company and three 50% owned consolidated hotel affiliates (Signature Inn
Indianapolis South, Elkhart and, effective December 29, 1995, Indianapolis
East). The equity method is used for investments in other hotel limited
partnerships.
Results of Operations
The following is a discussion of the results of the Company's continuing
operations for the nine months ended September 30, 1996 and for the three
months ended September 30, 1996.
Nine Months Ended September 30, 1996 Compared with September 30, 1995
Hotel Operations. Hotel revenues of $4,089,000 for the nine months ended
September 30, 1996 represented a 52.2% increase compared to the same period of
1995. Hotel revenues from Indianapolis South and Elkhart increased $30,000 for
the period, with the remainder of the increase attributable to the
consolidation of Indianapolis East and the results of operation of the
Springfield hotel acquired in August 1996. The increased revenues of
Indianapolis South and Elkhart resulted from an increase in average daily
rates.
Hotel costs and expenses for the nine months ended September 30, 1996
represented an $823,000 increase compared to 1995. Hotel costs and expenses
from Indianapolis South and Elkhart increased $95,000 for the period, with the
remainder of the increase attributable to the consolidation of Indianapolis
East and the Springfield hotel acquired in August 1996.
Hotel depreciation and amortization expense increased $113,000 for the
nine months ended September 30, 1996 compared to 1995 due primarily to the
consolidation of Indianapolis East.
Corporate Operations. Management and franchise fees decreased $26,000
for the nine months ended September 30, 1996 compared to the same period of
1995. The decrease in fee income is due to $101,000 of fee income recognized
from Indianapolis East during the first nine months of
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<PAGE>
1995 prior to its consolidation. This decrease is offset partially by a
$75,000 increase in fees during the first nine months of 1996 compared to 1995
from the unconsolidated partnership owned hotels. During the first nine months
of 1996, revenues from these twenty hotels increased $441,000, or 1.7%, due to
average daily rate increases offset by a slight decrease in occupancy.
General and administrative expenses for the nine months ended September
30, 1996 increased $168,000 due primarily to the establishment of additional
hotel regional director positions late in 1995.
Other Income (Expense). Equity in income of hotel limited partnerships
represents the Company's share of the unconsolidated partnerships' income or
loss. For the nine months ended September 30, 1996 compared to 1995, the
equity in income of hotel limited partnerships is flat due to a slight
increase of income before extraordinary gains of the partnership owned hotels
in 1996 and an increased ownership percentage in one partnership.
Interest income for the nine months ended September 30, 1996 decreased
compared to 1995 as a result of lower interest income from invested cash
balances. Interest expense - hotels increased for the nine months ended
September 30, 1996 compared to 1995 due to the consolidation of Indianapolis
East. The consolidated affiliate loan classified as current at December 31,
1995 was restructured in June 1996 after reaching an agreement with the
current lender. Interest expense - corporate for the nine months ended
September 30, 1996 decreased compared to 1995 due to decreased average
outstanding indebtedness, and a decrease in the interest rates on the
Company's borrowing arrangements. In May 1996, the bank term note with an
outstanding balance of $1,422,000 was paid in full. Simultaneously with this
paydown, the Company's available line of credit was increased to $3,100,000
with interest at prime plus one-half percent.
The Company paid a Capital Appreciation Fee on September 1, 1995. During
the nine months ended September 30, 1995, related expense of $610,990 was
recorded.
Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995.
Hotel Operations. Hotel revenues of $1,560,000 for the three months
ended September 30, 1996 represented a 51.7% increase compared to the same
period of 1995. Hotel revenues from Indianapolis South and Elkhart were flat
for the period, with the overall increase attributable to the consolidation of
Indianapolis East and the results of operations of the Springfield hotel
acquired in August 1996.
Hotel costs and expenses for the three months ended September 30, 1996
represented a $302,000 increase compared to 1995. Hotel costs and expenses
from Indianapolis South and Elkhart increased slightly for the period, with
the remainder of the increase attributable to the consolidation of
Indianapolis East and Springfield hotels acquired in August 1996.
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Hotel depreciation and amortization expense increased $50,000 for the
three months ended September 30, 1996 compared to 1995 due primarily to the
consolidation of Indianapolis East.
Corporate Operations. Management and franchise fees decreased $69,000
for the three months ended September 30, 1996 compared to the same period of
1995. The decrease in fee income is due to $39,000 fee income recognized from
Indianapolis East during the three months ended September 30, 1995 prior to
its consolidation. And a decrease in fees during the three months of 1996
compared to 1995 from the unconsolidated partnership owned hotels.
General and administrative expenses for the three months ended September
30, 1996 increased $39,000 due primarily to the establishment of additional
hotel regional director positions late in 1995.
Other Income (Expense). Equity in income of hotel limited partnerships
represents the Company's share of unconsolidated partnerships' income or loss.
For the three months ended September 30, 1996 compared to 1995, the equity in
income of hotel limited partnerships decreased to $22,000 due to a decrease of
income before extraordinary gains of the partnership owned hotels in 1996.
Interest income for the three months ended September 30, 1996 decreased
compared to 1995 as a result of lower interest income from invested cash
balances. Interest expense - hotels increased for the three months ended
September 30, 1996 compared to 1995 due to the consolidation of Indianapolis
East. Interest expense - corporate for the three months ended September 30,
1996 increased compared to 1995 due to increased average outstanding
indebtedness.
The Company paid a Capital Appreciation Fee on September 1, 1995. During
the three months ended September 30, 1995, related expense of $154,349 was
recorded.
Capital Resources and Liquidity
Historically, the Company has funded its operations principally through
cash flow from operations and borrowings under certain credit facilities.
During the first nine months of 1996, the Company generated net cash from
operations of $2,580,000 compared to $2,388,000 for the same period of 1995,
an increase of $192,000. The 1996 income before extraordinary gain increased
$412,000, an additional accrued expense of $611,000 was incurred in 1995 in
connection with the payment of the capital appreciation fee arrangement, and
in 1995 a gain from the sale of a billboard easement was recorded.
During the first nine months of 1996, the Company used a net of
$2,304,000 in investing activities compared to a net of $313,000 provided for
the same period of 1995. During 1996, the Company purchased an operating
hotel with funds from cash balances and line of credit borrowings.
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<PAGE>
During the first nine months of 1996, the Company used a net of $291,000
in financing activities compared to a net of $1,661,000 for the same period of
1995. The decrease is due primarily to greater net repayments in 1995 through
1996.
The Company believes that the cash generated from operations, along with
additional borrowing capabilities and cash balances, will provide adequate
liquidity to meet its operating needs and debt service requirements over the
next twelve months.
In August 1996, the Company purchased an operating hotel with funds from
cash balances and a borrowing under the existing line of credit arrangement.
Approximately $1,500,000 will be spent during the next six months to convert
the hotel to a Signature Inn. The Company has secured $1,900,000 of long-term
mortgage financing for its hotel.
The Company has obtained a bank commitment for a $10,000,000 Credit
Facility to be established upon consummation of this Offering and the Purchase
Transactions. Under the Credit Facility, borrowings will be advanced for new
hotel construction projects and hotel acquisitions and conversions.
Borrowings will bear interest at the prime rate plus 1/2 percent. The Credit
Facility has a two year term, and funds will be advanced under separate
mortgage notes, each with a 60 month term and secured by the related hotel
project. The facility is structured to provide only construction and start-up
financing for new projects, and the Company will be required to replace the
Credit Facility financings with long-term permanent financing.
With anticipated new hotel development cost funded at the rate of 60%
from permanent financing and 40% from internally generated cash flow, the
Company believes it will have the financial capacity to fund the development
of three or more hotels annually. It is expected, however, that the cost to
develop a new hotel will vary significantly by geographic location and size.
The Company anticipates developing or acquiring hotels ranging in size from 75
rooms to 125 rooms.
The Company may seek to increase the amount of its Credit Facility,
obtain additional credit facilities or issue corporate debt or equity
securities in order to raise additional capital. Any debt incurred or issued
by the Company me be secured or unsecured, bear interest at fixed or variable
rate, and be subject to such other terms as the Board of Directors of the
Company considers appropriate.
Impact of Accounting Pronouncements Not Yet Adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation Plans" was issued in October 1995. The Statement is
effected for fiscal years beginning after December 15, 1995. As allowed by
the new Statement, the Company plans to continue to use Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting
for stock options. Certain pro forma and other information will be disclosed
as if the company had measured compensation costs in a manner consistent with
the new Statement.
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<PAGE>
Seasonality
Demand for hotel accommodations varies seasonally in the Signature Inns
hotels' market areas. Typically, demand for hotel accommodations and
correspondingly, occupancy rates for the hotels, will be higher during the
period from March through October and lower during the period from November
through February.
Inflation
The rate of inflation as measured by changes in the average consumer
price index has not had a material effect on the Company's financial condition
or results of operations for the periods present.
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
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 a Vote of Security Holders
See note below
Item 5. Other information
See note below
Item 6. Exhibits and Report 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.
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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 November 13, 1996 By /s/ John D. Bontreger
----------------- ----------------------------------------
John D. Bontreger, President and C.E.O.
Date November 13, 1996 By /s/ Mark D. Carney
----------------- ----------------------------------------
Mark D. Carney, Vice President Finance
and C.F.O.
Date November 13, 1996 By /s/ Martin D. Brew
----------------- ----------------------------------------
Martin D. Brew, Treasurer/Controller
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<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 quarter ended September 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,600,067
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,343,385
<PP&E> 15,835,752
<DEPRECIATION> 5,375,671
<TOTAL-ASSETS> 20,138,792
<CURRENT-LIABILITIES> 1,479,718
<BONDS> 11,710,536
0
0
<COMMON> 10,016,515
<OTHER-SE> (3,343,270)
<TOTAL-LIABILITY-AND-EQUITY> 20,138,792
<SALES> 0
<TOTAL-REVENUES> 6,648,790
<CGS> 0
<TOTAL-COSTS> 3,364,969
<OTHER-EXPENSES> (487,528)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 769,872
<INCOME-PRETAX> 1,821,477
<INCOME-TAX> 150,000
<INCOME-CONTINUING> 1,671,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,671,477
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
