<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9443
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Red Lion Inns Limited Partnership
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3029959
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Main Street, Vancouver, Washington 98663
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(206) 696-0001
- - ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -----
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RED LION INNS LIMITED PARTNERSHIP
REPORT ON FORM 10-Q
For the quarter ended June 30, 1994
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited):
Consolidated Statements of Income 3 -4
Consolidated Balance Sheets 5
Consolidated Statement of Partners' Capital 6
Consolidated Condensed Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-10
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
(dollar amounts in thousands
except per unit amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES $ 10,209 $ 9,269
OPERATING COSTS AND EXPENSES:
Property taxes 514 698
Base management fees 802 760
Incentive management fee 1,635 499
Depreciation and amortization 2,731 2,544
Other 534 430
---------- ----------
Total operating costs and expenses 6,216 4,931
---------- ----------
Operating income 3,993 4,338
INTEREST EXPENSE 2,580 2,556
---------- ----------
Income before income taxes 1,413 1,782
Income tax provision -- 63
---------- ----------
NET INCOME $ 1,413 $ 1,719
========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 28 $ 34
========== ==========
Limited Partners $ 1,385 $ 1,685
========== ==========
NET INCOME PER LIMITED PARTNER
UNIT $0.33 $0.41
========== ==========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500
========== ==========
</TABLE>
(see notes to financial statements)
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
(dollar amounts in thousands
except per unit amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES $ 17,227 $ 15,975
OPERATING COSTS AND EXPENSES:
Property taxes 1,213 1,426
Base management fees 1,480 1,424
Incentive management fee 1,635 499
Depreciation and amortization 5,411 5,110
Other 951 832
---------- ----------
Total operating costs and expenses 10,690 9,291
---------- ----------
Operating income 6,537 6,684
INTEREST EXPENSE 5,141 5,100
---------- ----------
Income before income taxes and cumulative effect
of change in accounting principle 1,396 1,584
Income tax provision -- 117
---------- ----------
Income before cumulative effect of change in
accounting principle 1,396 1,467
Cumulative effect of change in accounting for
income taxes -- 1,351
---------- ----------
NET INCOME $ 1,396 $ 116
========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 28 $ 2
========== ==========
Limited Partners $ 1,368 $ 114
========== ==========
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE
PER LIMITED PARTNER UNIT $0.33 $ 0.35
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES PER
LIMITED PARTNER UNIT -- 0.32
---------- ----------
NET INCOME PER LIMITED PARTNER UNIT $0.33 $ 0.03
========== ==========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500
========== ==========
</TABLE>
(see notes to financial statements)
4
<PAGE>
CONSOLIDATED BALANCE SHEETS
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 360 $ 213
Prepaid property taxes 230 --
-------- --------
Total current assets 590 213
PROPERTY AND EQUIPMENT:
Land 17,704 17,713
Buildings and improvements 157,366 156,573
Furnishings and equipment 49,679 45,764
Construction in progress 1,873 2,888
-------- --------
226,622 222,938
Less -- accumulated depreciation (60,504) (55,254)
-------- --------
166,118 167,684
DEFERRED LOAN COSTS, net 89 146
-------- --------
$166,797 $168,043
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to affiliate $ 11,077 $ 8,355
Accrued distributions to partners 2,329 2,329
Interest payable 799 793
Property taxes 197 405
Current portion long-term debt 115,162 1,371
-------- --------
Total current liabilities 129,564 13,253
-------- --------
LONG-TERM DEBT NET OF CURRENT PORTION 9,727 124,023
-------- --------
DEFERRED INCOME TAXES 1,351 1,351
-------- --------
PARTNERS' CAPITAL:
Limited Partners, 4,940,000 units issued 38,598 41,777
Less - 806,500 treasury units, at cost (11,202) (11,202)
-------- --------
Limited Partners, net 27,396 30,575
General Partner (1,241) (1,159)
-------- --------
Total partners' capital 26,155 29,416
-------- --------
$166,797 $168,043
======== ========
</TABLE>
(see notes to financial statements)
5
<PAGE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
For the six months ended June 30, 1994
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Limited Partners
-----------------------------------------
Issued Units Treasury Units
------------------- --------------------
General
Units Amount Units Amount Partner Total
--------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,940,000 $41,777 (806,500) $(11,202) $(1,159) $29,416
Distributions to partners -- (4,547) -- -- (110) (4,657)
Net income -- 1,368 -- -- 28 1,396
--------- ------- -------- -------- ------- -------
Balance at June 30, 1994 4,940,000 $38,598 (806,500) $(11,202) $(1,241) $26,155
========= ======= ======== ======== ======= =======
</TABLE>
(see notes to financial statements)
6
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Red Lion Inns Limited Partnership
and Subsidiary Limited Partnership
(unaudited)
Increase (decrease) in cash
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1994 1993
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,396 $ 116
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 5,411 5,110
Deferred income taxes -- 1,468
Change in certain current assets
and liabilities 2,290 1,225
------- -------
Net cash provided by operating activities 9,097 7,919
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (3,788) (3,253)
------- -------
Net cash used in investing activities (3,788) (3,253)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of cash to partners (4,657) (4,657)
Payments on term loan (670) (613)
Net borrowings under revolving
credit facility 165 248
------- -------
Net cash used in financing activities (5,162) (5,022)
------- -------
INCREASE (DECREASE) IN CASH 147 (356)
CASH AT BEGINNING OF PERIOD 213 168
------- -------
CASH AT END OF PERIOD $ 360 $ (188)
======= =======
</TABLE>
(see notes to financial statements)
7
<PAGE>
RED LION INNS LIMITED PARTNERSHIP
AND SUBSIDIARY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
1. GENERAL
Red Lion Inns Limited Partnership, a Delaware limited partnership (the
"Partnership"), was organized for the purpose of acquiring and owning, through
its subsidiary limited partnership, Red Lion Inns Operating L.P., a Delaware
limited partnership (the "Operating Partnership"), ten Red Lion hotels (the
"Hotels"). On April 14, 1987 (the date of the Partnership's inception), the
Operating Partnership acquired the Hotels from Red Lion, a California limited
partnership ("Red Lion"). Red Lion continues to operate and manage the Hotels
pursuant to a long-term management agreement (the "Management Agreement"). The
general partner of the Partnership and Operating Partnership is Red Lion
Properties, Inc. (the "General Partner"), a wholly-owned subsidiary of Red
Lion.
For further information regarding the organization of the Partnership, reference
is made to the Partnership's 1993 Annual Report on Form 10-K, and to its
registration statement on Form 8-A, as amended, including exhibits, which was
declared effective by the Securities and Exchange Commission (the "Commission")
on April 8, 1987.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Partnership and those of the Operating Partnership, of which the Partnership
owns 99 percent and the General Partner owns one percent. All significant
intercompany transactions and accounts have been eliminated.
The Partnership has changed the presentation in the accompanying consolidated
statements of income for the quarter and six months ended June 30, 1994 and
1993, of the operating revenues and expenses relating to the Hotels managed by
Red Lion. The new presentation displays as the Partnership's gross revenues,
the payments received from Red Lion as the Partnership has determined that the
Management Agreement is in substance a lease agreement and that the gross
revenues and gross operating expenses of the Hotels are those of Red Lion and
not those of the Partnership. Previously, the total operating revenues and
expenses of the Hotels were displayed in the Partnership's Consolidated
Statement of Income for additional information purposes. The effect of this new
presentation was to reduce revenues and operating expenses by equal amounts of
$16,498,000 and $16,046,000 in the quarters ended June 30, 1994 and 1993,
respectively, and $32,072,000 and $31,489,000, respectively, in the six-month
periods then ended. The other consolidated financial statements and the related
notes have been conformed to the new presentation in the income statement.
8
<PAGE>
There was no effect in any period on reported operating income, net income
(loss), net income (loss) per limited partner unit, cash flow available for
distribution and incentive management fees or partners' capital as a result of
this presentation change. There was no change in the Management Agreement. In
connection with the presentation change, the Partnership filed an amended Annual
Report on Form 10-K/A on May 9, 1994.
Certain information and footnote disclosures included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in accordance with the rules and regulations of
the Commission. The interim financial statements should be read in conjunction
with the audited financial statements included in the Partnership's 1993 Annual
Report on Form 10-K/A.
The operating results for the current quarter ended June 30, 1994 (the "Current
Quarter") and the six months then ended do not necessarily indicate the results
expected for the full 1994 year.
In the opinion of management, the accompanying interim financial statements
contain all necessary adjustments, which are of a normal recurring nature, to
present fairly the Partnership's financial condition and results of operations
as of June 30, 1994 and for the Current Quarter.
3. RELATED PARTY TRANSACTIONS
Amounts payable to affiliate of $11,077,000 at June 30, 1994, consist of amounts
payable to Red Lion for construction costs, payroll and payroll taxes, support
services, base and current incentive management fees, operating supplies,
furnishings, and equipment and other current liabilities arising out of normal
operations in accordance with the Management Agreement. Amounts payable to
affiliate also include the Hotels' net working capital, consisting of accounts
payable, certain taxes other than property and income taxes, cash held in hotel
accounts, accounts receivable, inventories and prepaid expenses. Such net
working capital amounted to $2,019,000 and $2,646,000 at June 30, 1994 and 1993,
respectively. Amounts payable to affiliate which are outstanding for more than
30 days incur interest at a Prime-based interest rate.
Included in long-term debt is a $3.7 million non-interest bearing loan made to
the Partnership by the General Partner and $6 million of non-interest bearing
deferred incentive management fees owed to Red Lion.
9
<PAGE>
4. INCOME TAXES
The Partnership is not currently subject to income taxes because its income is
taxed directly to the partners. During 1987, Congress passed the Omnibus Budget
Reconciliation Act which, among other things, treats certain publicly traded
partnerships as corporations for tax purposes for the years beginning after
December 31, 1987. Publicly-traded partnerships in existence prior to December
18, 1987, such as the Partnership, will not be treated as corporations, for tax
purposes, for ten years or until taxable years beginning after December 31,
1997. The effect of treating publicly traded partnerships as corporations will
be to tax the income of the Partnership at the entity level and reflect
distributions to partners as dividends.
In First Quarter 1993, the Partnership adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS109). This statement
requires, among other things, the recording of deferred income taxes based on
the difference between the financial statement and income tax bases of assets
and liabilities using the enacted marginal income tax rate. The cumulative
effect of this accounting change resulted in a non-cash charge to income of
$1,351,000, or $.32 per unit in First Quarter 1993. This charge reflects the
tax effect, as of January 1, 1993, of cumulative differences between the book
and tax bases of the Partnership's assets from depreciation differences that are
estimated to exist after the Partnership becomes a taxable entity. The
Partnership has determined that no further adjustments to deferred income taxes
were necessary during the three and six months ended June 30, 1994.
5. SUPPLEMENTAL CASH FLOW DISCLOSURE
During the six-month periods ended June 30, 1994 and 1993, the Partnership made
interest payments amounting to $5,135,000 and $5,101,000, respectively.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - -------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- - ---------------------
As discussed in note 2 above, the Partnership displays as its gross revenues the
payments received from Red Lion which represent the gross operating profit of
the Hotels. The following table defines the gross operating profit of the
Hotels:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
-------- -------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Rooms $15,658 $14,530 $28,115 $26,712
Food and beverage 8,609 8,597 16,496 16,499
Other 2,440 2,188 4,688 4,253
------- ------- ------- -------
Total revenues 26,707 25,315 49,299 47,464
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Rooms 3,588 3,458 6,865 6,705
Food and beverage 6,780 6,910 13,239 13,419
Other 965 906 1,838 1,789
Administrative and general 2,225 1,984 4,333 3,978
Sales, promotion and advertising 1,153 1,070 2,286 2,139
Utilities 809 770 1,610 1,594
Repairs and maintenance 978 948 1,901 1,865
------- ------- ------- -------
Total operating costs and
expenses 16,498 16,046 32,072 31,489
------- ------- ------- -------
Gross operating profit of Hotels $10,209 $ 9,269 $17,227 $15,975
======= ======= ======= =======
</TABLE>
PARTNERSHIP REVENUES: For the Current Quarter, revenues which, as noted above,
represent the payments received from Red Lion, increased to $10.2 million from
$9.3 million in the comparable 1993 quarter, an increase of $.9 million, or
9.7%. For the six months ended June 30, 1994, revenues increased to $17.2
million from $16.0 million in the comparable 1993 period, an increase of $1.2
million or 7.5%. The changes in specific revenues and expenses, including those
of the Hotels that affect the payments received from Red Lion and thus the
Partnership's revenues and operating results, are discussed below.
HOTEL REVENUES: For the Current Quarter, room revenues increased to $15.7
million from $14.5 million, an increase of $1.2 million, or 8.3% from the prior
year quarter. For the six months ended June 30, 1994, room revenues increased
to $28.1 million from $26.7 million, an increase of $1.4 million, or 5.2%. The
increase in room revenues for the Current Quarter and six months ended June 30,
1994, is due to an increase in occupancy and to an improvement in the average
room rate.
11
<PAGE>
A summary of occupancy and room rates for the Hotels follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Occupancy Percentage 78.1% 76.7% 72.6% 72.0%
Average Room Rate $71.81 $67.81 $69.72 $66.79
</TABLE>
For the Current Quarter and six months ended June 30, 1994, food and beverage
revenues, at $8.6 million and $16.5 million, respectively, were essentially
unchanged from the prior year periods.
Other revenues for the Current Quarter and six-month period increased by $.2
million (9.1%) and $.4 million (9.3%), respectively, due to the increase in
occupancy and higher meeting room and equipment rentals.
Operating results are affected by seasonality. The Current Quarter results
reflect spring and early summer in which revenues are typically lower than in
late summer but higher than in winter.
OPERATING INCOME: For the Current Quarter, operating income before incentive
management fee, depreciation and amortization increased to $8.4 million from
$7.4 million, an increase of $1.0 million, or 13.5%. As a percentage of Hotel
revenues, this item increased to 31.5% from 29.3% in the prior year quarter, and
increase of 2.2 points. For the six months ended June 30, 1994, operating
income before incentive management fee, depreciation and amortization increased
to $13.6 million from the comparable prior year period amount of $12.3 million,
an increase of $1.3 million, or 10.6%. As a percentage of Hotel revenues, this
item increased to 27.6% from 25.9% in the prior year, an increase of 1.7 points.
These increases reflect the improvement in operations discussed above.
NET INCOME: For the Current Quarter, net income was $1.4 million ($.33 per
unit) compared to the prior year quarter's $1.7 million ($.41 per unit). For
the six months ended June 30, 1994, net income before accounting change was $1.4
million ($.33 per unit) compared to the comparable prior year period amount of
$1.5 million ($.35 per unit). The Current Quarter and six-month amounts reflect
higher incentive management fees which resulted from an increase in cash flow
available for incentive management fees.
12
<PAGE>
CASH FLOW AVAILABLE FOR DISTRIBUTION AND INCENTIVE MANAGEMENT FEE: As defined in
the Management Agreement, cash flow available for distributions and incentive
management fee ("Cash Flow") is net income (or loss) before non-cash charges
(principally depreciation and amortization) and incentive management fee, but
after the reserve for capital improvements and principal payments on mortgage
debt. Cash Flow increased in the Current Quarter to $4.6 million from the prior
year quarter's $3.8 million, an increase of $.8 million, or 21.1%. Cash Flow
for the six months ended June 30, 1994 increased to $6.3 million from the
comparable prior year period's $5.2 million, an increase of $1.1 million, or
21.2%. The increase in Cash Flow is due to improved operations.
LIQUIDITY
- - ---------
During the Current Quarter, cash provided by operating activities was sufficient
to satisfy operating cash requirements. It is expected that, for 1994, cash
provided by both operations and the lending facility discussed below, or other
sources, will be sufficient to meet anticipated cash requirements.
The Operating Partnership has the availability of a $14.1 million revolving loan
facility. During the Current Quarter, average borrowings under the facility
were $11.6 million. The interest rate on the outstanding balance averaged 5.4%
for the quarter. At June 30, 1994, the balance outstanding under the line was
$12.0 million.
On April 14, 1995, the Partnership's credit agreement, comprised of the $103.2
million mortgage note and the above-mentioned revolving loan facility, becomes
due. The combined $115.2 million balance is included under current liabilities
on the accompanying balance sheet. The Partnership intends to either refinance
or obtain an extension for the credit agreement prior to the due date.
On July 19, 1994, the General Partner declared a quarterly cash distribution of
$.55 per unit ($2.20 annualized) for the Current Quarter, payable on August 15,
1994, to unitholders of record on July 31, 1994. This distribution has been
accrued in the accompanying financial statements.
13
<PAGE>
Cash flow available for distribution and incentive management fees was
sufficient, as defined in the Management Agreement to cover accrued cash
distributions for the quarters and six-month periods ended June 30, 1994 and
1993 (thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30,
------------------ ----------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 1,413 $ 1,719 $ 1,396 $ 116
Add (deduct):
Depreciation and amortization 2,731 2,544 5,411 5,110
Incentive management fee 1,635 499 1,635 499
Deferred income taxes -- 63 -- 1,468
Cash reserved for capital
improvements (802) (760) (1,480) (1,424)
Repayments on term loan (339) (310) (670) (613)
------- ------- ------- -------
Cash flow available for distribution and
incentive management fees 4,638 3,755 6,292 5,156
Cash required for priority distribution (2,329) (2,329) (4,657) (4,657)
------- ------- ------- -------
Cash flow available for incentive
management fees $ 2,309 $ 1,426 $ 1,635 $ 499
======= ======= ======= =======
</TABLE>
The year-to-date cash flow available for distribution and incentive management
fees exceeded accrued cash distributions by $1,635,000. The Partnership accrued
an incentive management fee in the same amount at June 30, 1994. As noted in
the discussion of operations above, the operations of the Hotels are affected by
seasonality with summer and fall revenues typically higher than winter revenues.
Operating results for the interim period do not necessarily indicate the results
expected for the full year.
Capital Resources
- - -----------------
During the six months ended June 30, 1994, gross expenditures on capital
improvements amounted to $3.8 million.
14
<PAGE>
RED LION INNS LIMITED PARTNERSHIP
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on form 8-K - No reports on Form 8-K were filed during the quarter
for which this report is being filed.
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 in the City of Vancouver, Washington,
on the 12th day of August 1994.
RED LION INNS LIMITED PARTNERSHIP
- - ---------------------------------
(Registrant)
By: RED LION PROPERTIES, INC.
Its sole General Partner
By: /s/ DAVID J. JOHNSON
-----------------------
David J. Johnson
President and
Chief Executive Officer
15
