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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 0-9659
SIGNATURE INNS, INC.
(Exact name of small business issuer in its charter)
Indiana 35-1426996
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (317) 581-1111
--------------
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
Check whether the Registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form. No
disclosure will be contained, to the best of Registrant's
knowledge, in any definitive proxy or information statements
incorporated by reference herein. [checkmark]
Issuer's revenues for the most recent fiscal year: $6,597,000
Aggregate Market Value of Voting Stock Held by Non-Affiliates:
(Computed on average bid and asked price as of March 5,
1996.) $8,706,350
Total Shares Outstanding as of March 5, 1996: 7,784,327
<PAGE>
Documents Incorporated By Reference: The Proxy Statement to be
mailed to shareholders on or about April 12, 1996, is
incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes ; No X
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<PAGE>
PART I
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Items 1 and 2. Business and Properties
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General
Signature Inns, Inc. (the "Company") was incorporated under
the laws of the State of Indiana on March 31, 1978. The Company
operates under management and franchise agreements, 23 Signature
Inn hotels located in six midwestern states. The Signature Inn
chain of hotels is classified in the upper-economy/limited
service segment of the hotel industry. The Company has four,
wholly-owned subsidiary corporations. Signature Securities
Corporation ("SSC"), is an SEC/NASD registered "limited"
broker-dealer which previously was engaged in the offer and sale
of direct participation programs (e.g., limited partnership real
estate offerings) of partnerships affiliated with Signature Inns,
Inc. SSC has marketed thirteen limited partnership programs.
However, SSC has not offered limited partnership interests since
1989.
The Signature Franchise Corporation ("SFC") subsidiary was
organized in connection with the 1992 Debt Restructuring. SFC
never engaged in any business operations.
The P & N Corporation ("P & N") subsidiary was organized in
late 1993 and acts as the general partner of the Peoria/Normal
Signature Limited Partnership, which owns and operates the Normal
and Peoria, Illinois, Signature Inn hotel properties , the
Knoxville Signature Limited Partnership which owns and operates
the Knoxville, Tennessee, Signature Inn hotel property and
Meridian Signature Limited Partnership which owns land and a
hotel under construction in Indianapolis, Indiana. Those
properties are managed and franchised under management and
franchise agreements between the partnerships and the Company.
The S.I.E. Corporation subsidiary was organized in December
1995 and acts as general partner for Signature Northwestern Ltd.,
I.
The principal offices and place of business of the
Registrant consist of approximately 9,000 square feet of leased
office space at 250 East 96th Street, Suite 450, Indianapolis,
Indiana 46240.
<PAGE>
Affiliated Hotel Partnerships and Joint Ventures
The Company, directly or through a wholly-owned subsidiary,
is the general partner of a total of 21 Indiana limited
partnerships and joint venture partnerships. The partnerships
own an aggregate of 23 Signature Inn hotels totaling 2,748 rooms.
Each of those 23 operating hotels and one additional eighty-one
room hotel currently under construction are operated under long-term management
and franchise agreements with the Company, from which the Company derives
substantial fee revenue.
The Company's ownership interest in the following affiliated
hotel partnerships ranges between 5% and 50%, depending upon the
capital contributions made to the particular partnership and
other factors relating to the structuring of the partnership.
All mortgage loans on partnership properties are non-recourse to
the General Partner.
<PAGE>
<TABLE>
<CAPTION>
Partnership Date Organized Location of Hotel(s)
- ----------- -------------- --------------------
<S> <C> <C>
Signature I Ltd. 01/16/81 Fort Wayne, IN
Signature II Ltd. 11/12/81 Indianapolis, IN
Signature III Ltd. 02/04/82 Lafayette, IN
Signature IV Ltd. 08/27/82 Muncie, IN
Signature V Ltd. 03/09/84 Cincinnati, OH
Signature Southport 04/23/84 Indianapolis, IN
Joint Venture
Signature Northwestern 12/31/84 Indianapolis, IN
Ltd. I
Signature VI Ltd. 01/16/85 Indianapolis, IN
Signature VII Ltd. 04/24/85 Columbus, OH, and Kokomo, IN
Signature VIII Ltd. 11/05/85 Evansville, IN
Signature IX Ltd. 07/01/86 Terre Haute, IN
Signature Elkhart Ltd. 07/02/86 Elkhart, IN
Signature X Ltd. 09/19/86 Florence, KY, and Sharonville
(i.e., Cincinnati), OH
Signature XI Ltd. 09/26/86 Miamisburg (i.e., Dayton), OH
Signature XII Ltd. 10/03/86 South Bend, IN
Signature XIV Ltd. 12/12/86 Louisville, KY
Signature XVII Ltd. 09/20/88 Indianapolis (North), IN
Signature XXI Ltd. 06/12/89 Bettendorf, IA
Peoria/Normal Signature 12/16/93 Normal, IL and Peoria, IL
Limited Partnership
Knoxville Signature 05/04/94 Knoxville, TN
Limited Partnership
Meridian Signature July 96 Carmel, IN
Limited Partnership Planned opening
</TABLE>
<PAGE>
As noted above, each of the partnership's hotels is managed
by the Company pursuant to a Management Agreement entered into
between the Partnership and the Company. Under the terms of the
Management Agreements, the Company establishes policies for the
partnership's employees. The Company also establishes room
rates, directs the promotional activity of the Partnership's
employees, supervises the purchase and replacement of equipment,
supplies and inventories, supervises maintenance activities and
selects vendors, suppliers and independent contractors. In
addition, the Company performs all bookkeeping and administrative
duties in connection with each of the partnership hotels and
administers payments and reports to the limited partners. For
its services to the partnerships, Signature receives management
fees averaging approximately 5% of the gross receipts per month
for each partnership hotel. In addition, the Company receives
reimbursement of certain expenses which it incurs in connection
with the Management Agreement, including reimbursement for
salaries and related costs of the hotel general and assistant
general managers, who are employed by the Company, but who devote
all of their time to a particular partnership hotel property.
The terms of the Management Agreements range from 5 to 15 years
and are renewable on the mutual agreement of the parties.
In addition, each of the foregoing properties is operated as
a franchisee of the Company. Each partnership is required to
enter into a standard Signature Inn Individual Hotel License
Agreement with the Company with respect to each franchised hotel.
By the terms of those franchise agreements, the partnership pays
to the Company monthly franchise fees (i.e., royalties) equal to
4% of the gross receipts of each of the hotels. In addition,
each partnership contributes 3.5% of gross receipts to an
advertising and reservation fund administered by the Company to
fund chain wide advertising programs and a toll-free centralized
reservation system. The initial term of each of the franchise
agreements is ten years, and the partnerships have options to
renew the agreements for additional five-year terms. Under the
terms of the franchise agreements, the partnerships are
authorized to use the name "Signature Inn" as well as other
trademarks and logos associated with the Signature system, and
the Company provides various services in relation to that system.
Other Real Estate Interests
The Company is the owner of two parcels totaling 9.7 acres
of unimproved real estate located adjacent to the Signature
Elkhart hotel site. The Company plans to sell these parcels to
restaurant and other developers.
The Company is the owner of a 5.9 acre parcel of unimproved
real estate located in Nashville, Tennessee. The Company plans
to develop a Signature Inn hotel on a portion of the property,
and sell the remaining portion to a restaurant or other
developer.
<PAGE>
The Company is the owner of an approximate 1.1 acre parcel
of unimproved real estate located adjacent to the Signature
Peoria hotel site. The Company plans to sell this site to a
restaurant developer.
Signature Inn Hotel Concept
The Signature Inn concept has been continuously improved
since 1981 and has been favorably received by the traveling
public. The Signature Inn concept is predicated upon a simple
principle of providing first-class service to its hotel Guests on
a consistent basis in all hotels. In order to accomplish this
type of service, Signature has developed a guest services program
entitled "Legendary Service," which involves the employment of
individuals who are goal and team oriented, possess a positive
mental attitude, a good work ethic, have a sincere desire to
serve our Guests and portray the clean-cut "Signature Look."
Those employees are then trained under the Legendary Service
program to provide efficient, friendly and courteous service.
The Legendary Service program also requires that, in the event a
problem cannot be resolved to the satisfaction of a guest, the
guest will receive a money-back guarantee.
In addition to the Legendary Service provided by the
employees to hotel Guests, the Signature concept is also
identified by the physical features and specialized services
offered to Guests. Signature Inn hotels have large, spacious,
well furnished and attractively decorated lobby-registration
areas. The guest rooms are attractively decorated and designed
to have a high aesthetic appeal and to provide convenience and
comfort. Signature rooms feature a queen or king-sized bed and a
recliner chair. Special services and amenities offered by
Signature Inn hotels include:
Newspaper delivered to room HBO, cable and in-room movies
Fax Machines Meeting rooms
Large desk in all rooms Interview centers
Free local calls Guest storage facilities
Free Breakfast Express Business center facilities
Professional conference center No-Smoking rooms
Outdoor or indoor swimming pool Guest spa rooms
Guest voice mail
Other than the professional conference center, meeting rooms, in-room movies and
long distance charges for fax machines, all items on the foregoing list are
furnished to the guest on a complimentary basis.
Although each Signature Inn hotel offers high quality
lodging accommodations and services to the public, Signature Inn
hotels do not offer restaurant, bar or lounge facilities. As
with many other economy/limited service hotels, the Company
eliminated what it considered to be the lower profit margin
departments of "food and beverage" and the unproductive and
costly, large public areas associated with full service hotels.
However, the Signature Inn hotels are generally located adjacent
to or near quality restaurants for the convenience of their
Guests. Because Signature Inns do not have restaurants inside
the hotels, Signature Inn hotels, like other economy/limited
service hotels, generally have a significantly lower break-even
threshold and are not as labor and management intensive as All-Suite or Full
Service hotels.
Hotel Industry Overview
Signature Inn hotels operate in the "upper economy/limited
service" segment of the hotel industry. The following table
illustrates average occupancy and average daily room rates
("ADR") for the years indicated of the Signature Inn chain (23
hotels) compared to "upper economy chains" and the industry:
<PAGE>
<TABLE>
<CAPTION>
Occupancy ADR
---------------------- ------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Signature Inn Chain 67.2% 67.9% 66.2% $55.81 $53.45 $50.48
Upper Economy Chains* 64.4% 64.2% 63.3% $47.39 $44.97 $43.25
Hotel Industry* 65.5% 65.1% 63.1% $67.34 $63.64 $61.31
*Source: Smith Travel Research.
</TABLE>
The Company believes an important indicator of hotel performance within a
segment of the industry is "revenue per available room" (REV PAR), which
combines both the occupancy and the average daily room rate achieved. REV
PAR for the years indicated for the Signature Inn chain and the "upper
economy chains" is as follows:
<PAGE>
<TABLE>
<CAPTION>
REV PAR
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Signature Inn Chain $37.50 $36.29 $33.42
Upper Economy Chains $30.52 $28.87 $27.38
</TABLE>
The upper economy/limited service hotels have performed
better than all other segments in the industry during the past
several years. It is management's belief that the
economy/limited service hotel segment will continue to be the
fastest growing segment in the U.S. hotel industry. Accordingly,
management believes that the Signature Inn chain of hotels are
competitively positioned within the domestic lodging industry.
The hotel industry experienced declines in average occupancy
rates for several years prior to 1991 brought on by room supply
growth exceeding room demand, and annual average daily rate
increases less than inflation due to significant discounting of
room rates. In 1992, the industry began to improve with
increasing average occupancy and larger average daily rate gains.
Through 1995, this favorable trend has continued. However,
continuation of this positive trend in the hotel industry is
dependent in large part on demand growth in relation to supply
growth over the next several years. Room demand growth continues
to increase faster than supply growth, although recently the
supply growth appears to be accelerating.
Trademarks
The mark "Signature Inn" with related logo was registered by
the Company with the Indiana Secretary of State effective on
October 8, 1980. In addition, on October 4, 1982, the mark
"Signature Inn" (with logo) was registered on the principal
register of the United States Patent and Trademark Office. On
September 18, 1984, the mark "Signature Inn", only, and the
stylized "S" logo, only, were registered on the principal
register of the United States Patent and Trademark Office. On
February 14, 1990, the declarations of five years use for each of
the marks was accepted by the United States Patent and Trademark
Office. These registrations are now in effect until a renewal
date of September 18, 2004. Another mark, "We Help You Get Down
to Business," which is used by Signature Inns in its hotel
operations, was registered with the United States Patent and
Trademark Office on October 12, 1982. An additional mark,
"Sincerely Yours," was registered in 1990 with the United States
Patent and Trademark Office. The mark "Breakfast Express" was
registered with the U.S. Patent and Trademark Office on November
3, 1992. The Mark "There's Something Personal About a Signature"
was registered with the U.S. Patent and Trademark Office on April
30, 1991.
<PAGE>
On June 1, 1989, Signature Inns, Inc. entered into an
agreement with a Canadian group which had owned the Canadian
trademark registration of "Signature Inn." Under the agreement,
the Canadian registration of the mark "Signature Inn" became the
property of Signature Inns, Inc.
Corporate Account Sales and Marketing
Signature Inns, Inc. systematically develops regional and
national accounts consisting of corporations and travel agency
consortiums which use one or more Signature Inn hotels in the
chain on a regular basis. Many of these publish their own
corporate travel directories, stipulating hotel locations which
have been approved for lodging accommodations. Signature Inns
appears in numerous corporate and travel consortium directories,
including the following: Maritz, Carlson/Wagonlite, BTI
Americas, ABC Corporate Services, Rosenbluth Travel, General
Motors, Ameritech, and Navistar. In addition, a National Sales
Director and Director of Hotel Sales work with and assist hotel
employees responsible for local sales efforts in Signature Inn
markets. This corporate marketing program gives Signature Inn
hotels excellent visibility to business customers who are likely
to utilize Signature Inns on a systematic and chain-wide basis.
Centralized Reservation System
Signature Inn hotels utilize Teleservice Resources, a
subsidiary of AMR Company based in Dallas/Fort Worth, Texas, to
provide central reservation services. The 800 number utilized by
Signature as its central reservation number allows the public in
the United States and Canada to make toll-free reservations by
telephone, and travel agents can make electronic reservations by
using one of several electronic airline reservation systems.
Hotel Advertising
Signature Inns, Inc. utilizes the services of Lord, Sullivan
& Yoder, Inc. Advertising of Columbus, Ohio, to provide
full-service advertising for the Signature Inn chain and to
direct the chain's advertising program. Lord, Sullivan & Yoder,
Inc. assists in the formulation of the Signature Inn chain and
individual hotel advertising programs and budgets. The Company
also utilizes Montgomery Zukerman Davis, Inc., a full-service
advertising firm located in Indianapolis, Indiana, for public
relations activities.
<PAGE>
Employees
Including its five executive officers, the Company employs
twenty-five full-time employees at its corporate office. In
addition, the general and assistant general manager at each of
the 23 operating Signature Inns are employees of the Company.
The Company also employs approximately seventy-five full-time
employees at three of the hotels managed by the Company. The
Company believes it has an excellent relationship with its
employees.
Seasonality
Demand for hotel accommodations varies seasonally in the
Company's current market areas. Typically, demand for hotel
accommodations and, correspondingly, occupancy rates for each of
the Signature Inn hotels within the Signature chain will be
higher during the period from March through October and lower
during the period from November through February.
Competition
The operation of hotels is an extremely competitive
business. Signature Inns, Inc. as a management company and its
affiliated hotel partnerships as owners of hotels are each in
competition with numerous management companies and hotel chains
in their respective areas of operation of varying quality and
size, including national and regional chains, and hotels which
have available to them greater name recognition and financial
resources than the Company. The Company believes its management
possesses adequate experience and that the Signature Inn concept
is sufficiently recognized to enable the chain to compete
successfully against its competitors.
Refurbishing
To meet competition in the industry and to maintain economic
values, continuing expenditures must be made for modernizing,
refurbishing and maintaining existing facilities prior to the
expiration of their anticipated useful lives. If such
expenditures are not made, the value and profitability of the
property may be diminished. Each affiliated hotel limited
partnership establishes reserve funds in connection with the
operation of its hotel for refurbishing which are generally based
upon specified percentages of hotel revenues.
Energy and Environmental Factors
Present and future regulations issued to meet federal or
local antipollution standards, limitations on or rationing of
gasoline usage, gasoline shortages, or other effects of any
future energy crisis or shortage of natural resources may affect
adversely utilization of one or more of the Signature Inn hotel
properties by travelers or increase the cost of operating such
properties and thus adversely affect the Company's operations.
Further, environmental studies required to be performed by the
Company and its affiliated partnerships in connection with the
acquisition of properties in order to avoid potential liability
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Super Fund Amendments
and Reauthorization Act of 1986, add to the costs and risks of
acquisition of real estate sites generally.
<PAGE>
Americans With Disabilities Act
The Company believes that all Signature Inn hotels within
the Signature Inn chain currently are in compliance with the
Americans With Disabilities Act and does not anticipate that
future compliance with this regulation will require substantial
cash resources.
Miscellaneous
Neither the Company nor any of its affiliated limited
partnerships are dependent upon a single customer or a very few
customers, the loss of any one of which would not have a material
adverse effect on the Company. All raw materials utilized by the
Company and its affiliated limited partnerships in the
construction or refurbishing of their respective hotels are
believed to be readily available at competitive prices. The
Company is not engaged in any material research or development
activities.
THE COMPANY'S PAST FINANCIAL DIFFICULTIES,
RESTRUCTURINGS,REFINANCINGS AND CAPITAL APPRECIATION FEE
In October, 1989, the Company's primary development lender
and lead bank on its line of credit refused to renew on normal
terms the Company's line of credit, which had previously been
routinely renewed on an annual basis. In March 1990, the bank
refused to further renew the line of credit at all. The Bank's
refusal to renew the line of credit caused the Company to
terminate two on-going public offerings of affiliated limited
partnership interests and prevented the Company from structuring
and syndicating any such offerings after 1989. As a result, nine
hotels in their "start-up" phase were not adequately financed and
their operation caused the Company to exhaust substantially all
of its cash resources and historically adequate working capital
reserves. In order to protect the Company's assets from
threatened action by the lenders, and to provide sufficient time
to structure alternative financing arrangements, the Company
initiated a Chapter 11 bankruptcy proceeding in April, 1990. As
the debtor-in-possession, the Company continued in possession and
control of its nine hotel properties and other assets.
<PAGE>
In March 1991, a Court order and judgment were entered
confirming the Company's Plan of Reorganization ("Confirmed
Plan"). The Company made the required payments under the
Confirmed Plan throughout the balance of 1991. During the latter
part of 1991, occupancy and average daily room rate levels for
the nine Company-owned hotels, as a group, were substantially
lower than the levels which had been projected as a basis of the
Company's Confirmed Plan. As a result, the Company's operating
results were significantly adversely affected. The cash flow
from the Company's operations, together with the cash balances on
hand at the confirmation of the Confirmed Plan, were not
sufficient to allow the Company to continue to service its
indebtedness under the terms of the Confirmed Plan. In January
1992, the Company suspended debt service payments to four banks,
resulting in material defaults under the Confirmed Plan.
During 1992 and 1993, the Company transferred ownership of a
total of six Company-owned hotels to construction mortgage
lenders in lieu of foreclosure and in full release and discharge
of the mortgage indebtedness owing by the Company on those
hotels. In addition, three previously affiliate-owned hotels
were also reconveyed to the respective mortgage lenders. As a
result, during those two years, the number of Signature Inn
hotels operating in the Signature Inn chain decreased from 32
hotels to 23 hotels.
In December 1992, the Company and its lead bank entered into
a comprehensive Restructure Agreement, pursuant to which
indebtedness owing by the Company in the aggregate principal
amount of $35,242,000 was significantly modified and restructured
and warrants for preferred stock were issued to the bank (the
"Restructuring"). In November 1993, the Company entered into an
Addendum to Restructure Agreement (the "Addendum"). Under the
terms of the Addendum, the Company's primary bank granted to the
Company the right and option, exercisable not later than December
31, 1993, to pay $6,000,000 in cash in full settlement,
satisfaction, release and discharge of all indebtedness and other
obligations owing by the Company under the Restructure Agreement,
including the warrant obligations under the Restructuring. As a
condition to the option, the Company was required to convey to a
to-be-formed affiliated limited partnership (the "Partnership")
the Company's Normal and Peoria hotels, thereby eliminating the
mortgage indebtedness owing on those hotels.
In December 1993, the Company, with Banc One Capital
Corporation of Columbus, Ohio ("BOCC"), acting as financial
advisor, completed the settlement, satisfaction, release and
discharge of all obligations under the Restructuring (the
"Refinancing"). The necessary funds required by the Refinancing
were provided by the following sources:
(a) Bank One, Indianapolis, N.A. ("Bank One") provided
a "senior" credit facility in the principal amount of
$2,500,000, with an initial maturity date of December 31,
1995, renewable annually thereafter on May 31 of each year
for a two-year term.
(b) Banc One Capital Partners II Limited Partnership
("BOCP II") provided a variable rate subordinated loan in
the principal amount of $1,800,000, with a final maturity
date of December 16, 1998 ("the "Subordinated Loan").
<PAGE>
(c) The Company provided approximately $1,200,000,
which represented the amount which the Company, as seller,
realized upon the sale of its Normal and Peoria Hotel
Properties to Peoria/Normal Signature Limited Partnership.
(d) The Company also provided approximately $1,000,000
from its general, unrestricted corporate cash balances.
The gain to the Company from debt extinguishment in
connection with the Refinancing eliminated entirely the Company's
shareholders' deficit and restored a positive shareholders'
equity.
In connection with the Subordinated Loan, the Company agreed
to pay to BOCP II a "Capital Appreciation Fee" equal to 25% of
the value of the Company, measured according to three alternative
calculations, not earlier than 36 months nor later than 72 months
after December 16, 1993. In August, 1995, the Company entered
into a Repayment Agreement with BOCP II pursuant to which (a) the
unpaid principal balance of the Subordinated Loan was repaid in
full, together with all accrued interest thereon, and (b) the
Company paid, and BOCP II accepted, a payment of $900,000 in full
satisfaction of the Company's Capital Appreciation Fee
obligation, subject to adjustment to the original terms of the
Capital Appreciation Fee in the event of a Private Sale of the
Company, as defined in the original fee agreement, on or before
December 16, 1996.
In connection with the BOCP II subordinated debt financing,
BOCP II required the Company's officers to commit to invest at
least $500,000 in the Company's Common Stock. In order to
facilitate such investment, allow the other shareholders an
opportunity to avoid possible dilution of their interests in the
Company and to raise additional equity for the Company, the
Company filed a Registration Statement with the Securities and
Exchange Commission on April 12, 1994, pursuant to which the
Company's existing shareholders were issued non-transferrable
rights to purchase an additional five (5) shares of the Company's
Common Stock for each one (1) share currently held at a purchase
price of twenty cents ($.20) per share. In addition to the
investment by Management, a total of 1,808,520 shares of Common
Stock were issued, for an aggregate purchase price of $361,704,
pursuant to the rights offering.
Certain Affiliated Partnerships Operating Losses
A number of the Company's affiliated partnerships have
experienced financial difficulties in varying degrees, in most
cases principally resulting from operating losses and cash flow
deficits experienced by certain hotels owned by such
partnerships.
<PAGE>
Signature XVI Ltd., the owner of a Signature Inn hotel in
Lexington, Kentucky, filed a voluntary petition under Chapter 11
of the Bankruptcy Code on September 26, 1991. Because Signature
XVI Ltd. was not able to secure replacement financing, the
mortgage lender on the Lexington property obtained title to the
Lexington hotel in July, 1992. The Signature XVI Ltd.
partnership was thereafter terminated and dissolved.
Signature XXI Ltd., which owned Signature Inn hotels in
Bettendorf, Iowa, and Auburn Hills, Michigan, filed a voluntary
petition under Chapter 11 of the Bankruptcy Code on July 26,
1991. A foreclosure and sale of the Auburn Hills property took
place in February 1992, with the mortgage holder taking title to
the Auburn Hills property. The Signature XXI Ltd. Plan of
Reorganization was confirmed by the Bankruptcy Court on November
2, 1992 and provided for the continuation of the Partnership and
its operation of the Bettendorf hotel. The Bettendorf mortgage
loan was restructured, retroactive to January 1, 1992, into three
non-recourse replacement notes maturing December, 1995, with an
option to extend the maturity to December, 1997.
Defaults have also existed with respect to hotel financings
involving Signature XI Ltd.'s Dayton, Ohio, hotel project and
Signature XVII Ltd.'s Indianapolis, Indiana, hotel project. The
defaults with respect to those hotels were cured under
restructured financing arrangements with the Partnership's
lenders completed in 1994.
Item 3. Legal Proceedings. With the exception of the prior
Chapter 11 bankruptcy proceedings of Signature Inns, Inc. and the
prior Chapter 11 bankruptcy proceedings of Signature XVI Ltd. and
Signature XXI Ltd., affiliates of the Registrant, described
earlier, all of which matters have been resolved, neither the
Registrant nor any of its subsidiaries nor any of its affiliates,
is or was a party to, nor is their property the subject of, any
material pending legal, administrative, judicial, or similar
proceeding. The Registrant and certain of its affiliated limited
partnerships are involved, from time to time, in routine
litigation incidental to their businesses. There are no
proceedings to which any director, officer, nominee or affiliate
of the Registrant or its subsidiaries or affiliates is a party
adverse to the Registrant or its subsidiaries or affiliates or
has a material adverse interest to the Registrant or its
subsidiaries or affiliates.
Item 4. Submission of Matters to a Vote of Security
Holders. No matter was submitted to a vote of the security
holders of the Registrant during the fourth quarter of the fiscal
year covered by this Form 10-KSB Report.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters. The Shares of the Company's Common
Stock are not listed on any securities exchange and are not the
subject of any quotations under the "NASDAQ" system. Until 1987,
shares of the Company's Common Stock were not actively traded in
any established public trading market. Paragon Capital
Corporation of Boca Raton, Florida, undertakes to make a market
in and to provide quotes for the Company's Common Stock. There
has been limited trading in the Shares of the Company since
January 1990. Because of the Company's past financial
difficulties, there has existed only a limited "work-out" ["by
appointment"] trading market in the Company's stock.
The range of high and low bids for the Company's Common
Stock for each quarter within the last two fiscal years is set
forth below:
<TABLE>
<CAPTION>
Quarter High Bid(1) Low Bid(1)
------- ----------- ----------
<S> <C> <C>
12/31/95 $ 3/4 $ 1/2
9/30/95 3/4 1/2
6/30/95 1/2 1/2
3/31/95 1/2 1/8
12/31/94 1/4 1/8
9/30/94 1/4 1/8
6/30/94 1/8 1/8
3/31/94 1/4 1/8
<F1>
(1) Quotations may reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
</TABLE>
The book value per share of the Company's Common Stock, as
of December 31, 1995, was $.62. Quotations as provided by
Paragon Capital for the Company's Common Stock have averaged
approximately $.58 "bid" and $1.75 "offered" during the ninety
(90) days preceding the date of this filing.
As of the date of this Form 10-KSB, there are approximately
4,800 holders of the Company's Common Stock.
The Company has not declared or paid any cash dividends on
its Common Stock. The Company is prohibited from paying any cash
dividends on its Common Stock under the terms of the Credit
Agreement between the Company and Bank One, Indianapolis,
National Association, dated December 16, 1993.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
<PAGE>
Hotel Operations
Hotel operations of two hotels owned by consolidated affiliates
(Indianapolis South and Elkhart) are included in the 1995
statement of operations for all of 1995, 1994 and 1993.
Effective December 29, 1995, the operating results of a third
consolidated affiliate (Indianapolis East) are included in the
statement of operations. The operating results of the
Company-owned Knoxville hotel and two other Company-owned hotels
(Peoria and Normal) are reflected through May 1994 and December
1993, respectively, the dates these hotels were sold to
affiliated partnerships. The operating results of three
additional Company-owned hotels are reflected through the second
quarter of 1993, the dates ownership of these hotels was
transferred to lenders.
Hotel revenues of $3,470,062 for the year ended December 31, 1995
represented a $372,087 decrease compared to 1994. Hotel revenues
from Indianapolis South and Elkhart increased $244,701 for the
year, offsetting the decrease from the disposition of the
Company-owned Knoxville hotel in May 1994. The increased
revenues of Indianapolis South and Elkhart resulted from a 2.7%
increase in occupancy and a 4.1% increase in average room rates
for the year. Hotel revenues of $3,842,149 for the year ended
December 31, 1994 represented a $5,384,721 decrease compared to
1993. Hotel revenues from Indianapolis South and Elkhart
increased $339,633 for the year offsetting the decrease from the
disposition of the Company-owned Knoxville hotel in May 1994 and
the five Company-owned hotels in 1993. The increased revenues of
Indianapolis South and Elkhart resulted from a 5.5% increase in
occupancy and a 5.2% increase in average room rates for the year.
Hotel costs and expenses of $1,757,515 for the year ended
December 31, 1995 represented a $275,880 decrease compared to
1994. Hotel costs and expenses from Indianapolis South and
Elkhart increased $76,096 for the year, due primarily to the
increase in the number of rooms sold, offsetting the decrease
from the disposition of the Company-owned Knoxville hotel in May
1994. Hotel costs and expenses of $2,033,395 for the year ended
December 31, 1994 represented a $3,439,442 decrease compared to
1993. Hotel costs and expenses from Indianapolis South and
Elkhart increased $119,016 for the year, due primarily to the
increase in the number of rooms sold, offsetting the decrease
from the disposition of the Company-owned Knoxville hotel in May
1994 and the five Company-owned hotels in 1993.
Hotel depreciation and amortization expense decreased $116,965
for the year ended December 31, 1995 compared to 1994 due
primarily to the hotel disposition in May 1994. Hotel
depreciation and amortization expense decreased $959,738 for the
year ended December 31, 1994 compared to 1993 due primarily to
the hotel dispositions in 1993 and in May 1994. Hotel
depreciation and amortization includes $272,290, $288,555 and
$320,558 for 1995, 1994 and 1993, respectively, relating to
Indianapolis South and Elkhart.
<PAGE>
Corporate Operations
Management and franchise fees increased $105,115 for the year
ended December 31, 1995 compared to 1994. Management and
franchise fees from the three hotels sold to affiliated limited
partnerships in 1994 and 1993 amounted to $419,397 and $317,659
in 1995 and 1994, respectively. During 1995, the Company began
recognizing management and franchise fee income from a
partnership upon the reduction of a fee subordination limitation
and the restructuring of the debt of the partnership. These
recognized fees totalled $48,742 in 1995. The remaining increase
in fee income is due to increased revenues at the other
partnership hotels. For 1995, chainwide occupancy decreased 0.7
percentage points to 67.2% and average daily rate increased $2.36
to $55.81. The hotel industry experienced an average 1995
occupancy of 65.5% compared to 65.1% during 1994. This marks the
fourth consecutive year for industry wide occupancy increases,
and industry wide occupancies are expected to continue to improve
during 1996. The room demand growth rate continues to increase
faster than the supply of new rooms, although recently the supply
growth rate appears to be accelerating. The majority of
Signature Inn hotel markets have recently seen new hotel rooms
either added or under construction causing hotel occupancies at
certain partnership hotels to be negatively impacted and other
hotels may also be adversely effected in the future. The Company
believes its financial structure and resources are adequate to
withstand the potential negative effect of the increased
competition on the hotels and the associated fee income.
Management and franchise fees increased $425,912 for the year
ended December 31, 1994 compared to 1993. The Company began
recognizing management and franchise fees under agreements with
two hotels sold to an affiliated partnership in December 1993 and
with another hotel sold to an affiliated partnership in May 1994.
The remaining increase in fee income is due to increased revenues
at the other hotels. Chainwide occupancy and average daily rate
for 1994 increased 1.7 percentage points and $2.97, respectively.
The Company anticipates earning management and franchise fee
income from a new 81 room partnership-owned hotel scheduled to
open in the summer of 1996.
Through late 1994, the Company earned fees from managing
Signature Inn hotels owned by non-affiliates, primarily lenders
that had taken possession of a Signature Inn hotel as part of the
Company or affiliated partnerships' financial restructuring
during 1993 and 1992. Fees earned from non-affiliates under
short-term agreements amounted to $63,549 and $197,175 in 1994
and 1993, respectively.
General and administrative expenses for the year ended December
31, 1995 were $2,236,622 which represented a $94,830 increase
compared to 1994. The increase is attributable to increased
employee compensation and legal costs. General and
administrative expenses for the year ended December 31, 1994 were
$2,141,792 which represented a $240,427 decrease compared to
1993. The decrease is attributable to reduced labor and legal
costs.
<PAGE>
Other Income (Deductions) Equity in income of hotel limited
partnerships represents the Company's share of the partnerships'
income or loss. The increase of $34,125 for the year ended
December 31, 1995 is attributable to increased profitability of
the partnership owned hotels in 1995 and an increased ownership
percentage in one hotel. In addition, one time gains totalling
$91,797 and $117,913 were recognized by the Company in 1995 and
1994, respectively (based upon its ownership share) upon debt
restructuring of partnerships. The increase of $518,654 for the
year ended December 31, 1994 is attributable to increased
profitability of the partnership owned hotels in 1994 from
increased occupancy and room rates, increased ownership
percentages in two hotels and the recognition of the one time
gains of $117,913.
Interest income for the year ended December 31, 1995 increased
$85,706 compared to 1994. The increase was a result of higher
investable cash balances earning a higher yield and interest
income earned for a full year in 1995 from the Company's loan
participation agreements. Interest income recognized from the
notes due from the Operating Management of the Company were
$13,864 and $12,488 for 1995 and 1994, respectively. Interest
income for the year ended December 31, 1994 increased $96,051
compared to 1993. The increase was a result of higher investable
cash balances earning a higher yield, interest income recognized
from the notes due from the Operating Management of the Company
executed in April 1994, and interest income earned from the
Company's loan participation agreements in connection with the
three hotels sold to affiliated limited partnerships in December
1993 and May 1994.
Interest expense for the year ended December 31, 1995 represents
a $294,095 decrease compared to 1994 due to decreased average
outstanding indebtedness and the retirement of the higher rate
variable note with the term note on September 1, 1995, offset
slightly by the increased cost of borrowings due to the increase
in the prime lending rate on the line of credit throughout the
year compared to 1994 and the variable rate subordinate note
through August 1995. Interest expense for the year ended
December 31, 1994 represents a $2,180,823 decrease compared to
1993. Interest ceased to accrue on hotel loans upon the transfer
of ownership of three hotels to lenders during May and June of
1993, the sale of two hotels in December 1993 and the sale of the
Knoxville hotel in May 1994. Additionally, the refinancing of
the corporate debt obligations in December 1993 resulted in a
substantial reduction of the outstanding interest bearing
indebtedness of the Company.
<PAGE>
The Company satisfied the Capital Appreciation Fee arrangement in
exchange for a cash payment of $900,000 on September 1, 1995.
During 1994, $289,010 of related expense was accrued representing
the present value of the estimated amount due the lender based on
a current estimate of the Company's value and a December 1996
payment date
Gain on Disposition of Hotels and Land, and Extinguishment of
Debt
In May 1994, the Company sold the Knoxville hotel to an
affiliated limited partnership resulting in the extinguishment of
approximately $4.9 million of hotel debt and other obligations.
The difference between the debt extinguished and the selling
price of the hotel of $223,000 is reflected as extraordinary gain
on extinguishment of debt in 1994. The excess of the net book
value of the hotel and the sales price of $13,000 is reflected as
gain on disposition of hotel in 1994. In November 1994, proceeds
of $333,000 were received and a gain of $132,000 recognized upon
the sale of a tract of land.
During 1993, the Company relinquished ownership of five
Company-owned hotels resulting in the extinguishment of
approximately $28.1 million of hotel debt obligations and related
other obligations. The difference between the total debt
extinguished and the estimated value of the five hotels at the
date of conveyance is reflected as an extraordinary gain on
extinguishment of debt. The excess of the estimated value (based
upon appraisals and on firm purchase contracts) of the five
hotels and the net book value of $272,710 is reflected as gain on
disposition of hotels. The discount of the primary lender's debt
obligations in excess of the $6.0 million payoff achieved in
December 1993 is recorded as gain from debt extinguishment.
Capital Resources and Liquidity
The Company believes that the cash generated from management and
franchising activities and hotel limited partnership investments,
along with additional borrowing capabilities and cash balances
will provide adequate liquidity to meet its operating needs and
the payment requirements of its corporate obligations over the
next twelve months.
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 effective 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.
<PAGE>
Item 7. Financial Statements.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
- ------------------------------------------------------------------------------
Years Ended December 31,
- ------------------------------------------------------------------------------
1995 1994 1993
----------- --------- ----------
<S> <C> <C> <C>
Revenues:
Hotel revenues $3,470,062 3,842,149 9,226,870
Management and franchise fees 3,126,972 3,021,857 2,568,945
---------- --------- ----------
6,597,034 6,864,006 11,795,815
---------- --------- ----------
Costs and expenses:
Hotel costs and expenses 1,757,515 2,033,395 5,472,837
Hotel depreciation and amortization 272,290 389,255 1,348,993
General and administrative expenses 2,236,622 2,141,792 2,382,219
Other depreciation and amortization 147,286 121,614 124,940
Valuation allowances - - 155,000
--------- --------- ----------
4,413,713 4,686,056 9,483,989
--------- --------- ----------
Operating income 2,183,321 2,177,950 2,311,826
--------- --------- ----------
Other income (deductions):
Equity in income of hotel
limited partnerships, net (note 2) 761,523 727,398 208,744
Interest income (note 2) 276,423 190,717 94,666
Interest expense - hotels (note 4) (653,338) (834,626) (2,567,210)
Interest expense - corporate (note 4) (327,569) (440,376) (888,615)
Capital appreciation fee (note 4) (610,990) (289,010) -
Gain on disposition of hotels,
land and related assets (note 3) 163,032 148,171 272,710
Other partners' equity in income (226,044) (130,336) (35,744)
Other 51,058 60,885 54,587
--------- ---------- ----------
(565,905) (567,177) (2,860,862)
--------- ---------- ----------
Income (loss) before
extraordinary gain 1,617,416 1,610,773 (549,036)
Extraordinary gain from debt
extinguishment (note 4) - 495,282 21,314,412
---------- ---------- ----------
Net Income $1,617,416 2,106,055 20,765,376
========== ========== ==========
Per common share data:
Income before
Extraordinary gain $ 0.21 0.25 (0.16)
Extraordinary gain - 0.08 6.22
---------- --------- ---------
Net income $ 0.21 0.33 6.06
========== ========= =========
Weighted average common
shares outstanding 7,784,327 6,464,688 3,426,307
========== ========= =========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE INNS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- ----------------------------------------------------------------------------
December 31,
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Corporate 1,213,078 1,153,753
Consolidated hotels 1,402,047 881,760
--------- ---------
2,615,125 2,035,513
Other current assets 500,492 491,886
--------- ---------
Total current assets 3,115,617 2,527,399
--------- ---------
Hotel limited partnerships (note 2):
Equity investments 2,224,857 1,377,930
Receivables, net 3,571,648 3,429,712
--------- ---------
5,796,505 4,807,642
--------- ---------
Property and equipment, net (notes 3 and 4): 8,763,787 6,543,205
Deferred costs and other assets, net of
accumulated amortization of $530,114
and $452,990 338,542 215,721
--------- ---------
$18,014,451 14,093,967
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4):
Corporate 533,340 -
Consolidated hotels 3,188,376 3,128,478
Other current liabilities 822,961 527,037
--------- ---------
Total current liabilities 4,544,677 3,655,515
--------- ---------
Long-term debt, less current portion (note 4):
Corporate 2,166,660 3,589,010
Consolidated hotels 6,471,734 3,596,888
--------- ---------
8,638,394 7,185,898
--------- ---------
Other partners' equity 40,154 148,369
---------- ----------
Total liabilities 13,223,225 10,989,782
----------- ----------
Shareholders' equity (note 6):
Common stock, no par value.
Authorized 20,000,000 shares 9,805,973 9,736,348
Accumulated deficit (5,014,747) (6,632,163)
----------- -----------
Total shareholders' equity 4,791,226 3,104,185
----------- -----------
$18,014,451 14,093,967
=========== ===========
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock
_________________________ Accumulated
Shares Amount Deficit Total
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Balance at January 1, 1993 3,426,307 $9,235,445 (29,503,594) (20,268,149)
Net income - - 20,765,376 20,765,376
--------- ---------- ------------ ----------
Balance at December 31, 1993 3,426,307 $9,235,445 (8,738,218) 497,227
Net income - - 2,106,055 2,106,055
Common shares issued (note 6) 4,358,020 779,403 - 779,403
Notes receivable (note 6) - (278,500) - (278,500)
---------- ---------- ----------- ----------
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
(note 6) - 69,625 - 69,625
---------- ---------- ----------- ---------
Balance at Deceber 31, 1995 7,784,327 $9,805,973 (5,014,747) 4,791,226
========== ========== =========== =========
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- -----------------------------------------------------------------------------
Years ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,617,416 2,106,055 20,765,376
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 419,576 510,869 1,473,933
Equity in income of hotel limited
partnerships, net of distributions
received of $632,673, $456,489
and $450,557 (128,850) (270,909) 241,813
Other partners' equity in income 226,044 130,336 35,744
Capital appreciation fee 610,990 289,010 -
Gain on disposition of hotels,
land and related assets (163,032) (148,171) (272,710)
Gain from debt extinguishment - (495,280) (21,314,412)
Valuation allowances - - 155,000
Other items 78,423 (126,338) 1,456,136
--------- ---------- ----------
Net cash provided by operating
activities 2,660,567 1,995,572 2,540,880
--------- --------- ----------
Cash flows from investing activities:
Proceeds from sale of hotels, land
and related assets 163,032 4,643,452 -
Property and equipment additions (130,321) (126,369) (484,363)
Investment in hotel limited
partnerships (486,000) (150) (150)
Loans to hotel limited partnerships - (526,600) (19,700)
Advances to hotel limited
partnership, net (141,936) 50,000 (77,000)
Deferred costs and other assets (91,973) (50,934) (112,637)
Cash balance of consolidated hotel
limited partnership 224,927 -
--------- ---------- ---------
Net cash provided (used) by
investing activities (462,271) 3,989,399 (693,850)
--------- ---------- ----------
Cash flows from financing activities:
Proceeds of long-term debt 1,700,000 - 4,300,000
Repayments of long-term debt (1,965,256) (4,662,807) (6,801,014)
Net repayments on revolving line
of credit (400,000) (1,000,000) -
Payment of capital appreciation fee (900,000) - -
Proceeds from issuance of common stock 69,625 500,903 -
Distributions to other partners
by consolidated hotel (123,053) (7,500) -
--------- ---------- -----------
Net cash used by financing
activities (1,618,684) (5,169,404) (2,501,014)
----------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents 579,612 815,567 (653,984)
Cash and cash equivalents at
beginning of year 2,035,513 1,219,946 1,873,930
---------- ---------- ---------
Cash and cash equivalents at
end of year $2,615,125 2,035,513 1,219,946
========== ========== =========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) SUMMARY OF ACCOUNTING POLICIES
Business
The Company developed and currently manages a chain of
twenty-three Signature Inn hotels in the Midwest. Three hotels
are owned by consolidated affiliates and twenty other hotels are
owned by limited partnerships in which the Company is the general
partner. The partnership agreements provide for distributions of
available cash to the Company based on its ownership interest.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, the Company-owned hotels
(Knoxville through May 1994, Peoria and Normal through December
1993) through the respective date these hotels were sold to
affiliated partnerships, and three 50% owned consolidated hotel
affiliates (Signature Inn South, Elkhart and effective December
29, 1995 Indianapolis East) in which the Company exercises legal,
financial and operational control. Prior to December 29, 1995,
the 50% limited partner of the Indianapolis East partnership was
also the mortgage lender to this partnership. Summary financial
information of Indianapolis East as of the date of consolidation
is as follows: cash $224,927; other net current liabilities
$143,783; net property and equipment $2,492,273, and long-term
debt, net $2,945,516. The effects of all significant
intercompany accounts and transactions have been eliminated in
consolidation. The equity method is used for investments in
hotel limited partnerships in which the Company is a partner with
50% or less ownership and the Company does not exercise legal,
financial and operational control.
Certain reclassifications of prior year amounts have been made to
conform with current year presentations.
Revenues
Management and franchise fees are based on a percentage of
revenues or house profits of the hotels owned by hotel limited
partnerships and are recognized as hotel revenues and profits are
earned.
Net Income Per Share
Net income per share is calculated using the weighted average
number of shares outstanding during the year. Common stock
equivalents that in the aggregate dilute income per share by less
than 3% are not considered in computing average shares
outstanding.
Cash Equivalents
Cash equivalents represent highly liquid short-term investments
with initial maturities of three months or less, stated at cost
which approximates market.
<PAGE>
Investments in Hotel Limited Partnerships
Investments in hotel limited partnerships are recorded at the
Company's initial investment, increased or decreased by the
Company's share of the partnership's income or loss, less
distributions received.
Property and Equipment
Property and equipment is recorded at cost less accumulated
depreciation and includes interest incurred during construction.
Depreciation is provided on the straight-line basis over the
estimated useful lives of the related assets.
Land held for sale or development is carried at the lower of cost
or estimated fair value.
Deferred Costs
Fees and other costs incurred in obtaining long-term financing
are amortized on the straight-line basis over the life of the
related loan. Unamortized costs are charged to expense upon the
early payment of the related financing.
Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates.
The Company evaluates its real estate and partnership investments
periodically to assess whether any impairment indications are
present, including recurring operating losses and significant
adverse changes in legal factors or business climate that affect
the recovery of recorded value. If any real estate or
partnership investmentsare considered impaired, a loss is
provided to reduce the carrying value to its estimated fair
value.
Fair Value of Financial Instruments
The carrying amount of long-term debt approximates its fair value
because the interest rates are currently at market. A reasonable
estimate of the fair value of the receivables from hotel limited
partnerships is not practicable without incurring excessive costs
because there is no market for comparable instruments. The
carrying amounts of all other financial instruments approximate
fair value because of the short-term maturity of these items.
<PAGE>
(2) HOTEL LIMITED PARTNERSHIPS
Summary financial information for the hotel limited partnerships
reported on the equity method is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Hotel properties $69,588,332 72,891,402
Net current assets 4,478,542 2,240,875
Deferred costs 1,013,523 1,149,763
Long-term debt (58,499,873) (63,055,671)
------------ ------------
Net assets 16,580,524 13,226,369
Less:
Equity of other partners 13,868,164 11,280,163
Income not recognized 487,503 568,276
----------- -----------
Investments in hotel
limited partnerships 2,224,857 1,377,930
=========== ===========
Revenues 35,432,793 33,899,680
Operating expenses (32,267,788) (31,153,735)
Extraordinary gains 1,835,952 683,020
---------- ----------
Net income 5,000,957 3,428,965
Less other partners' share 4,239,434 2,701,567
---------- ---------
Equity in income $ 761,523 727,398
========== =========
</TABLE>
As of December 31, 1995 and 1994, net receivables from hotel
limited partnerships, classified as long-term investments,
included $647,987 and $506,051, respectively, of
interest-bearing advances at the prime rate plus 1.0% (9.5% at
December 31, 1995 and 1994). The Company also has a $2,377,361
non-interest bearing note receivable from a partnership which is
dependent on future cash flows of the partnership for repayments
and matures in 2004. In 1995, the Company contributed $486,000
for a 40% general partner interest in a hotel limited
partnership. This partnership-owned hotel is expected to open
the summer of 1996. In 1993, the Company established a reserve
of $362,000 and a valuation allowance of $70,000 based on
estimated recoverability of advances due from two partnerships.
In conjunction with the sale of the three Company-owned hotels to
affiliated limited partnerships in 1993 and 1994, the Company
acquired participations in partnership mortgage loans totalling
$546,300 which bear interest at 12% and mature in 1999.
<PAGE>
Interest income on receivables from limited partnerships was
$159,435 in 1995, $114,506 in 1994 and $39,868 in 1993.
(3) PROPERTY AND EQUIPMENT
Property and equipment representing hotels, corporate office
equipment and land held for sale or development are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Land $ 1,210,500 710,500
Leasehold and land
improvements 759,890 451,559
Buildings 7,394,047 5,200,170
Furniture and equipment 3,518,317 2,459,770
Land held for sale or
development 913,739 913,739
----------- ---------
13,796,493 9,735,738
Accumulated depreciation 5,032,706 3,192,533
----------- ---------
$ 8,763,787 6,543,205
=========== =========
</TABLE>
During 1995, the Company sold its easement rights of a billboard
for net proceeds of $163,032.
During 1994, the Company sold a hotel to an affiliated limited
partnership for $4.3 million, resulting in a $13,000 gain.
Additionally, in 1994, the Company sold a tract of land adjacent
to a Signature Inn hotel to a restaurant operator; net proceeds
of $333,000 were received, resulting in a gain of $132,000.
During 1993, the Company transferred ownership of three hotels to
lenders and sold two additional hotels to an affiliated limited
partnership. The combined net carrying value of the five hotels
was $17.0 million at the time of disposition, resulting in a gain
of $273,000.
A valuation allowance of $85,000 was provided in 1993 to reduce
the carrying value of land held for sale to estimated net
realizable value.
<PAGE>
(4) LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
Corporate: ---------- ---------
<S> <C> <C>
Line of credit $1,100,000 1,500,000
Term note 1,600,000 -
Variable rate note - 1,800,000
Capital appreciation fee - 289,010
---------- ---------
2,700,000 3,589,010
Consolidated hotels 9,660,110 6,725,366
---------- ----------
Total 12,360,110 10,314,376
Less current portion:
Corporate 533,340 -
Consolidated hotels 3,188,376 3,128,478
---------- ---------
Long-term portion $8,638,394 7,185,898
========== =========
</TABLE>
<PAGE>
At December 31, 1995 and 1994, respectively, the revolving line
of credit bears interest at prime plus .75% and 1.25% (9.25% and
9.75% at December 31, 1995 and 1994), matures on May 31, 1997,
and is secured by substantially all assets of the Company. The
original $2.5 million available line of credit was reduced to
$1.6 million effective September 1, 1995.
On September 1, 1995, the Company repaid Banc One Capital
Partners II the $1.8 million variable rate note along with a
$900,000 cash payment in full satisfaction of the capital
appreciation fee. The variable rate note agreement required a
capital appreciation fee equal to 25% of the value of the
Company, as defined, at a specific time in the future. The
accrued fee at December 31, 1994 represented the present value of
the estimated amount due the lender based on an estimate of the
Company's value and a December 1996 payment date. If a change of
control of the Company, as defined, occurs prior to December
1996, an additional fee may be payable to the lender.
The source of funds for this transaction was provided by a new
$1.7 million term note from Bank One, Indianapolis along with an
advance from the Company's line of credit and corporate cash.
The term note requires monthly principal payments of $44,445
through December 1998 along with interest at the prime rate plus
1.25% (9.75% at December 31, 1995).
The unsecured variable rate note carried an interest rate of
8.72% above the 30-day "AA" commercial paper rate (14.79% at
December 31, 1994).
Upon the sale of a Company-owned hotel in May 1994 to a limited
partnership, a $4.9 million hotel loan and related hotel
obligations were extinguished at a discount resulting in an
extraordinary gain of $223,000. Additionally, a tract of land
was sold in November 1994, and the land loan notes were
extinguished at a discount, resulting in an extraordinary gain of
$217,000.
<PAGE>
In October 1993, the Company reached an agreement for a
negotiated discounted payoff of all obligations due to its
previous primary lender. In December 1993, the note payable to
the lender of $9.6 million and other obligations of $1.1 million
were extinguished for a $6.0 million cash payment, and a $4.4
million loan guarantee claim was cancelled, resulting in an
extraordinary gain of $8.2 million after certain related
expenses. Concurrently, two Company-owned hotels were sold to an
affiliated limited partnership. The related hotel loans of $9.7
million and other obligations of $572,000 were extinguished
resulting in an extraordinary gain of $3.2 million, with the
limited partnership assuming $7.0 million of hotel loans.
During 1993, ownership of three other Company-owned hotels was
relinquished resulting in the extinguishment of approximately
$18.4 million of loans and related hotel obligations of $497,000
resulting in an extraordinary gain of $9.8 million.
The consolidated hotel affiliates' mortgage loans are
non-recourse to the Company, bear interest at rates ranging from
9.25% to 9.80%, and mature in April 1996, 2006 and 2016. The
Company anticipates extending the Indianapolis South loan
maturing in 1996 to 1999.
The aggregate annual scheduled principal payments of long-term
debt during the next five years are: $3,721,716 in 1996
(including a consolidated hotel affiliate loan), $1,769,300 in
1997 (including the outstanding line of credit), $668,829 in
1998, $146,832 in 1999 and $163,766 in 2000.
Interest paid amounted to $978,649, $1,295,394 and $2,704,516 in
1995, 1994 and 1993, respectively. Accrued interest of
$2,099,538 was added to loan obligations in 1993 under an
agreement with a lender.
(5) INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Deferred Tax Assets:
Hotel limited partnership
investments $1,229,000 1,572,000
Land held for sale or
development 600,000 600,000
Partnership advances 419,000 419,000
Net operating loss
carry forwards 1,869,000 2,433,000
Other 621,000 718,000
---------- ---------
Gross deferred tax assets 4,738,000 5,742,000
Less valuation allowance (2,111,000) (1,772,000)
---------- ---------
Net deferred tax assets $2,627,000 3,970,000
========== =========
Deferred Tax Liabilities:
Depreciation 45,000 51,000
Hotel limited partnerships 2,582,000 3,919,000
---------- ---------
Deferred tax liabilities $2,627,000 3,970,000
========== =========
</TABLE>
<PAGE>
At December 31, 1995, the tax net operating loss carry forwards,
which expire in 2007, are approximately $5.5 million.
(6) SHAREHOLDERS' EQUITY
On April 7, 1994, a private placement of 2,549,500 shares of
common stock at $.20 per share was completed with the operating
management of the Company. Cash proceeds of $231,400 along with
$278,500 of recourse promissory notes were received by the
Company. The notes carried interest at 6.0% and were
collateralized by the stock issued. The outstanding balances of
the notes were repaid in 1996.
Net cash proceeds of $269,503 were received on May 12, 1994, from
a rights offering to existing shareholders and 1,808,520 shares
of common stock were issued at $.20 per share.
The 1986 Stock Option Plan provided for the granting of options
to purchase a maximum of 300,000 common shares to employees of
the Company through March 26, 1996. The options granted to
employees have an exercise price equal to the fair value of the
shares at the date of grant. As of December 31, 1995, there are
8,500 options outstanding at an exercise price of $1 1/8 which
expire on July 1, 1997.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Signature Inns, Inc.:
We have audited the accompanying consolidated balance sheets of
Signature Inns, Inc. as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Signature Inns, Inc. as of December 31, 1995 and 1994
and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Indianapolis, Indiana
February 23, 1996
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. Not applicable.
PART III
--------
The information required by Items 9 through 12 of Part III
of this Form 10-KSB is hereby incorporated by reference from the
Company's definitive proxy statement to be filed in accordance
with ss. 240.14a-101, Schedule 14A.
Item 13. Exhibits and Reports on Form 8-K.
(a) The Exhibit Index required by Item 601 of
Regulation S-B is set forth on pages _____ and _____.
(b) No reports on Form 8-K were filed by the
Registrant during the last quarter of the period covered by this
report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
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.
By:________________________________
John D. Bontreger, President,
Chairman of the Board and
Chief Executive Officer
ATTEST:
__________________________
David R. Miller, Secretary
Date: March 6, 1996
Pursuant to the requirements of the Exchange Act of 1934,
this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Date: March 6, 1996 _________________________________
John D. Bontreger, President,
Chairman of the Board and Chief
Executive Officer and Director
of Signature Inns, Inc.
Date: March 6, 1996 ________________________________
David R. Miller, Secretary,
Executive Director of Sales and
Marketing and Director of
Signature Inns, Inc.
Date: March 6, 1996 ________________________________
Mark D. Carney, Vice President
Finance, Chief Financial Officer
and Director of Signature Inns,
Inc.
Date: March 6, 1996 ________________________________
Bo L. Hagood, Vice President
Hotel Operations and Director of
Signature Inns, Inc.
Date: March 6, 1996 ________________________________
Martin D. Brew, Treasurer and
Controller of Signature Inns,
Inc.
<PAGE>
Date: March 6, 1996 ________________________________
Stephen M. Huse, Director of
Signature Inns, Inc.
Date: March 6, 1996 ________________________________
George A. Morton, Director of
Signature Inns, Inc.
Date: March 6, 1996 ________________________________
Richard L. Russell, Director of
Signature Inns, Inc.
Date: March 6, 1996 ________________________________
Richard E. Shank, Director of
Signature Inns, Inc.
Date: March 6, 1996 ________________________________
Orus E. Weaver, Director of
Signature Inns, Inc.
EXHIBIT INDEX
-------------
Title of Exhibit Reference
- ---------------- ---------
Plan of Acquisition,
Reorganization, etc. Not applicable
Articles of Incorporation
and By-Laws of Registrant Incorporated by reference
to the exhibits to
Registrant's Form S-B2
Registration Statement
under the Securities Act
of 1933 filed with the
Commission on February
14, 1994, File No. 33-
75262
Instruments Defining Rights
of Security Holders Incorporated by reference
to the exhibits to
Registrant's Form S-B2
Registration Statement
under the Securities Act
of 1933 filed with the
Commission on February
14, 1994, File No. 33-
75262
<PAGE>
Voting Trust Agreement Not applicable
Material Contracts Incorporated by reference
to the exhibits to
Registrant's Form S-B2
Registration Statement
under the Securities Act
of 1933 filed with the
Commission on February
14, 1994, File No. 33-
75262
Statement Regarding Computation
of Earnings Per Share Not applicable
Annual or Quarterly Reports,
Form 10-QSB Not applicable
Letter on Change in Certifying
Accounting Not applicable
Title of Exhibit Reference
- ---------------- ---------
Letter on Change in Accounting
Principals Not applicable
Subsidiaries of the Registrant Incorporated by reference
to the exhibits to
Registrant's Form S-B2
Registration Statement
under the Securities Act
of 1933 filed with the
Commission on February
14, 1994, File No. 33-
75262
Published Report Regarding
Matters Submitted to Vote Not applicable
Consent of Experts and Counsel Not applicable
Power of Attorney Not applicable
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statement of Operations of
Signature Inns, Inc. as of and for the fiscal year ended December 31, 1995, and
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,615,125
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,115,617
<PP&E> 13,796,493
<DEPRECIATION> 5,032,706
<TOTAL-ASSETS> 18,014,451
<CURRENT-LIABILITIES> 4,544,677
<BONDS> 8,638,394
0
0
<COMMON> 9,805,973
<OTHER-SE> (5,014,747)
<TOTAL-LIABILITY-AND-EQUITY> 18,014,451
<SALES> 0
<TOTAL-REVENUES> 6,597,034
<CGS> 0
<TOTAL-COSTS> 4,413,713
<OTHER-EXPENSES> 837,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 980,907
<INCOME-PRETAX> 1,617,416
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,617,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,617,416
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
