<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-9443
------
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 Identification
incorporation or organization) No.)
4001 Main Street, Vancouver, Washington 98663
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 696-0001
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
Units representing limited partnership registered
interests American Stock Exchange
-------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act
None
------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K.[ ]
The aggregate market value of units of non-voting limited partnership interests
held by non-affiliates was $97,008,000 at February 15, 1995, and is based on a
closing price of $23.50 and 4,128,000 units outstanding.
<PAGE>
PART I
Item 1 Business
----------------------
GENERAL DEVELOPMENT OF BUSINESS:
Red Lion Inns Limited Partnership and its subsidiary limited partnership, Red
Lion Inns Operating L.P. (the "Partnership" and the "Operating Partnership",
respectively; collectively, the "Partnership"), were formed on January 16, 1987,
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
owning, through the Operating Partnership, ten Red Lion hotels (the "Hotels").
The Hotels had been previously owned by Red Lion, a California Limited
Partnership ("Red Lion"), since April 10, 1985. Red Lion Properties, Inc. (the
"General Partner"), a wholly-owned subsidiary of Red Lion, is the general
partner for both the Partnership and the Operating Partnership.
On April 14, 1987, the Partnership completed an initial public offering of units
representing limited partnership interests ("Units") totaling $98.8 million.
These proceeds, accompanied by a $105.9 million mortgage loan, were used to
acquire the Hotels, through the Operating Partnership, from Red Lion for a net
$195 million. Since the completion of this acquisition, the Partnership's
limited partners have had an effective 98.01 percent ownership interest in the
Hotels, with the General Partner retaining the remaining 1.99 percent ownership
interest.
Since April 14, 1987, the day-to-day management of the Hotels has been conducted
pursuant to a management agreement (the "Management Agreement") which was
entered into between the Operating Partnership and Red Lion. Red Lion provides
the same management services to the Hotels that it renders to the other Red Lion
lodging facilities, including a toll-free reservation system, centralized
purchasing and training, marketing, sales, advertising, administration,
maintenance, accounting and planning programs.
DESCRIPTION OF BUSINESS:
Red Lion manages the Hotels as part of a full service hotel chain which operates
in the western half of the United States. The Red Lion hotel system,
established in 1959, currently includes 53 lodging facilities with a total of
approximately 14,000 rooms. The lodging facilities are designed to provide
guests with a full range of high-quality hotel accommodations in convenient
locations at competitive prices.
The Partnership's Hotels are located in western and mid-western states and
compete primarily in the upscale sector of the hospitality market. Red Lion has
had particular success in establishing its presence in the medium-sized city
segment of the hospitality market. The Hotels are typically located near
airports or major traffic arteries and are convenient to commercial centers or
tourist destinations. The Hotels vary in size, ranging from 208 rooms to 476
rooms.
Red Lion's operating strategy emphasizes a commitment to service and customer
value, reinvestment in facilities, quality food and beverage services and
maintenance of a strong base of group business and direct sales and marketing.
The hospitality industry is highly competitive. Red Lion distinguishes itself
from competing hotel chains by providing exceptional service and value to its
customers, with high-quality facilities, food and beverage services which
attract local clientele as well as hotel guests, and extensive meeting and
convention facilities.
2
<PAGE>
The Hotels offer a variety of meeting and convention facilities which attract
not only business conventions and conferences, but also local functions such as
banquets and receptions. A network of over 140 on-site sales representatives
along with national sales support from offices in Seattle, Portland, San
Francisco, Sacramento, Los Angeles, Washington DC, Chicago, and Red Lion's
Vancouver, Washington executive office, work to expand Red Lion's share of
convention market business.
All of the Hotels offer full-service accommodations. In addition to
restaurants, lounges, banquet and meeting space, most of the Hotels offer
oversized rooms with oversized beds, premium television channel availability,
complimentary airport shuttle service, free parking, swimming pools, room
service and valet services. Red Lion develops and implements advertising,
public relations, market research and training programs on behalf of the Hotels.
Technical training and assistance is provided to each Hotel for other areas such
as front office operations, reservations, housekeeping, property maintenance,
energy management, laundry, valet services, telephone systems and guest
services. Other services provided by Red Lion include accounting and cash
management, risk management, credit and collection, tax compliance, legal,
computer and point of sale systems support and internal audit. Red Lion's food
and beverage division establishes quality levels and monitors performance,
provides culinary training, assisting in menu design, pricing, accounting and
cost controls.
Red Lion purchases for the Hotels certain operating supplies, furnishings and
equipment allowing Red Lion to ensure consistently high quality and to control
costs.
A toll-free reservation system is available to customers throughout the United
States and Canada. Red Lion is in the process of upgrading and improving its
central reservation system based in Vancouver, Washington, a project expected to
be implemented in 1996. The improved system will provide, among other features,
a real time inventory of all the Company's rooms, which will enhance the
Company's ability to manage occupancy yields and room rates. Red Lion also
participates in major national and international airline reservations systems
which allow travel agents to book Red Lion hotel reservations.
The Partnership has no employees. Hotel and administrative personnel are
employed by Red Lion. Neither the Partnership nor the Operating Partnership is
responsible for the payment of executive compensation to the officers of the
General Partner. The Partnership reimburses Red Lion for the cost of providing
such services at the hotel level and reimburses the General Partner for
Partnership administrative costs. For further discussion of reimbursements to
the General Partner and executive compensation, see Items 11 and 13 of this
report.
3
<PAGE>
The table below presents comparative information on certain characteristics of
the Hotels:
Average Number of Rooms Per Hotel(1) - 306
<TABLE>
<CAPTION>
YEAR-ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Occupancy Percentage(2) 72.8% 73.3% 72.7%
Average Room Rate(3) $ 70.22 $ 66.67 $ 64.56
Average Gross Revenue per room
per year(2) $32,813 $31,358 $31,177
Average Gross Operating Profit
per room per year(2) $11,455 $10,427 $10,148
Average Food and Beverage
Revenues per room per year(2) $11,021 $10,788 $11,254
</TABLE>
----------
(1) As of December 31, 1994.
(2) Calculated on a per available room per year basis.
(3) Based on rooms occupied.
4
<PAGE>
Item 2 Properties
------------------------
The Hotels were originally selected by the General Partner so as to be
representative of the Red Lion portfolio taking into account the age, guest
capacity, occupancy levels, average daily room rates, profitability and the
geographical diversity of the Hotels. The Hotels have an average of 306 rooms
per Hotel and have at least two food outlets per Hotel.
The following table presents certain information concerning the Hotels:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTY LOCATION GUEST ROOMS
-------- -------------------- -----------
<S> <C> <C>
Red Lion Hotel/ Sacramento, CA 448
Sacramento
Red Lion Hotel/ Colorado Springs, CO 299
Colorado Springs
Red Lion Hotel/ Boise, ID 304
Riverside
Red Lion Hotel/ Omaha, NE 413
Omaha(1)
Red Lion Inn/ Springfield, OR 234
Springfield(1)
Red Lion Hotel/ Portland, OR 476
Lloyd Center
Red Lion Hotel/ Portland, OR 235
Downtown
Red Lion Inn/ Bellevue, WA 208
Bellevue Center
Red Lion Inn/ Spokane,WA 237
Spokane
Red Lion Inn/ Yakima, WA 209
Yakima Valley -----
Total Rooms 3,063
=====
</TABLE>
----------
(1)Property subject to full or partial ground lease.
5
<PAGE>
During 1994, the Partnership carried out capital improvements at the Hotels
amounting to $8.1 million, which included $3.3 million for room renovations, of
which $1.5 million was used for an extensive guest room refurbishment at the
Partnership's Sacramento property. Other improvements included $2.2 million used
for public area refurbishments, lock and structural upgrades.
Item 3 Legal Proceedings
-------------------------------
The Partnership is not a party to any material legal proceedings.
Item 4 Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------------
There were no matters submitted to a vote of Unitholders during the quarter
ended December 31, 1994.
6
<PAGE>
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
---------------------------------------------------------------------------
Matters
-------
Red Lion Inns Limited Partnership units are listed on the American Stock
Exchange under the symbol RED. Per unit market prices during 1994 and 1993
were:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
----
High $28 7/8 $25 3/4 $25 3/4 $24 5/8
Low 24 3/4 23 1/2 24 21 1/8
1993
----
High 26 26 1/2 26 1/4 29
Low 21 1/4 23 1/4 23 26
</TABLE>
Cash distributions to unitholders were:
<TABLE>
<CAPTION>
Per Unit
1994 Record Date Payment Date Cash Distribution
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
First Quarter April 30, 1994 May 13, 1994 $ .55
Second Quarter July 31, 1994 August 15, 1994 .55
Third Quarter October 31, 1994 November 15, 1994 .55
Fourth Quarter January 31, 1995 February 15, 1995 .55
-------
$ 2.20
=======
<CAPTION>
1993
-----------------
<S> <C> <C> <C>
First Quarter April 30, 1993 May 14, 1993 $ .55
Second Quarter July 31, 1993 August 13, 1993 .55
Third Quarter October 31, 1993 November 15, 1993 .55
Fourth Quarter January 31, 1994 February 15, 1994 .55
-------
$ 2.20
=======
</TABLE>
At December 31, 1994, the Partnership had 965 unitholders of record,
representing 5,833 identified beneficial owners.
7
<PAGE>
Item 6 Selected Financial Data
---------------------------------
(in thousands, except for operating statistics and per unit amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
(UNAUDITED)
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Financial Data:
Partnership revenues (a) $ 35,620 $ 32,510 $ 31,659 $ 30,826 $ 30,654
Income before cumulative effect
of change in accounting principle $ 2,929 $ 3,206 $ 3,038 $ 2,997 $ 3,401
Per Unit $ 0.69 $ 0.76 $ 0.72 $ 0.71 $ 0.79
Cumulative effect of change in
accounting principle -- $ (1,351) -- -- --
Per Unit -- $ (0.32) -- -- --
Net income $ 2,929 $ 1,855 $ 3,038 $ 2,997 $ 3,401
Per Unit $ 0.69 $ 0.44 $ 0.72 $ 0.71 $ 0.79
Cash flow available for distribution
and incentive management fees $ 13,752 $ 10,456 $ 10,211 $ 9,961 $ 10,309
Per Unit $ 3.25 $ 2.47 $ 2.41 $ 2.35 $ 2.39
Cash distribution per Unit $ 2.2000 $ 2.2000 $ 2.2000 $ 2.1875 $ 2.1375
Hotel Operating Data:
Gross revenues of the Hotels $100,603 $ 96,237 $ 95,745 $ 96,959 $ 94,712
Hotel gross operating
profit as a percentage of
gross revenues 35.4% 33.8% 33.1% 31.8% 32.4%
Number of rooms at end of period 3,063 3,069 3,071 3,075 3,075
Occupancy percentage (b) 72.8% 73.3% 72.7% 73.0% 70.7%
Average room rate (c) $ 70.22 $ 66.67 $ 64.56 $ 63.58 $ 62.97
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $165,205 $168,043 $171,873 $176,095 $180,537
Long-term obligations 124,831 125,374 125,514 126,520 126,424
Partners'capital 23,031 29,416 36,875 43,151 49,415
</TABLE>
----------------------------
(a) Partnership revenues represent the gross operating profit of the Hotels
which is the amount credited from Red Lion pursuant to the Management
Agreement.
(b) Calculated on a per available room per year basis.
(c) Based on rooms occupied.
8
<PAGE>
Item 7 Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------------
Results of Operations
---------------------
FISCAL 1994 COMPARED TO FISCAL 1993
------------------------------------
REVENUES: Revenues, which represent the amounts credited from Red Lion,
increased to $35.6 million in 1994 from $32.5 million in 1993, an increase of
$3.1 million, or 9.6%. The changes in specific revenues and expenses, including
those of the Hotels which affect the amounts credited from Red Lion and thus the
Partnership's revenues and operating results, are discussed below.
GROSS REVENUES OF THE HOTELS: Gross revenues increased by $4.4 million, or
4.5%, to $100.6 million from the prior year's $96.2 million.
Room revenues increased $2.5 million, or 4.5%, primarily because of a 5.3%
increase in average daily room rates. The average daily room rates increased to
$70.22 from $66.67 in the prior year. The increase in room revenues from higher
rates was offset in part by a .5 percentage point decline in occupancy to 72.8%
from 73.3% in the prior year.
Other revenues increased by $1.2 million, or 14.5%. The majority of the
increase was due to higher banquet room rentals.
OPERATING INCOME: Operating income before depreciation, amortization and
incentive management fees increased $3.7 million, or 15%, in 1994 compared to
the prior year. Contributing to this increase were higher food and beverage
profits and lower workers' compensation costs. After depreciation, amortization
and management fees, operating income of $13.4 million was essentially unchanged
from the prior year.
NET INCOME: Net income increased by $1.1 million or 57.9% from the prior year.
Before the cumulative effect of a change in accounting for income taxes which
reduced 1993 net income, net income decreased $.3 million, or 8.6%, primarily
because of higher interest expense. The 1993 year included a non-cash charge of
$1.3 million for the cumulative effect of the change in accounting for income
taxes resulting from the adoption, in January 1993, of Statement of Financial
Accounting Standards No. 109. This new method required the Partnership to record
income tax liabilities arising principally from current differences between book
and tax depreciation which will be in existence when the Partnership becomes a
taxable entity in 1998. For further discussion, see Note 3 to the Partnership's
consolidated financial statements.
CASH FLOW AVAILABLE FOR DISTRIBUTIONS AND INCENTIVE MANAGEMENT FEES: As defined
in the Management Agreement, cash flow available for distributions and incentive
management fees ("Cash Flow") is net income (or loss) before non-cash charges
(principally depreciation and amortization) and incentive management fees but
after a reserve for capital improvements and principal payments on mortgage
debt. Cash Flow increased in 1994 by $3.3 million, or 31%, to $13.8 million
from the prior year's $10.5 million. The increase in Cash Flow resulted from
the previously discussed increase in operating income before incentive fees and
depreciation. After payment of $9.3 million of cash distributions in 1994
(unchanged from 1993), the Partnership had sufficient Cash Flow to pay current
incentive management fees of $4.4 million in 1994 compared to $1.1 million in
1993. For further discussion of Cash Flow, see Note 6 to the Partnership's
consolidated financial statements.
9
<PAGE>
FISCAL 1993 COMPARED TO FISCAL 1992
-----------------------------------
REVENUES: Revenues, which as noted above, represent the amounts credited from
Red Lion, increased to $32.5 million in 1993 from $31.7 million in 1992, an
increase of $.8 million, or 2.5%. The changes in specific revenues and
expenses, including those of the Hotels which affect the amounts credited from
Red Lion and thus the Partnership's revenues and operating results, are
discussed below.
GROSS REVENUES OF THE HOTELS: Room revenues increased $2.1 million, or 4%, in
1993 while total revenues increased by a smaller increment of $.5 million to
$96.2 million from the prior years $95.7 million. The dampening effect on
revenues was primarily due to a $1.4 million decline in the Partnership's food
and beverage revenues caused by lower demand in food and beverage outlets and
the temporary closing of some outlets for renovations.
Of the $2.1 million (4%) increase in room revenues, the majority, $1.7 million
(3%), was due to higher room rates related to improvements in the market segment
mix. The average daily room rate increased 3% to $66.67 from $64.56 in the
prior year. Average occupancy increased .6 percentage points to 73.3% from
72.7% in the prior year.
OPERATING INCOME: Operating income before depreciation, amortization and
incentive management fees increased $.6 million, or 3%, in 1993 compared to the
prior year. Contributing to the increase was a $1 million decline in workers'
compensation costs in 1993. Offsetting this were higher liability insurance
reserves ($.4 million) and lower food and beverage profits which were caused by
the soft demand discussed above. After depreciation, amortization and the
incentive management fee, operating income of $13.4 million was essentially
unchanged from the prior year.
NET INCOME: Net income decreased $1.2 million from the prior year. Before the
cumulative effect of a change in accounting for income taxes, net income
increased $.2 million due primarily to lower interest costs in 1993. The $1.3
million cumulative effect of the change in accounting for income taxes is a non-
cash charge to income resulting from the adoption, in January 1993, of Statement
of Financial Accounting Standards No. 109. This new method requires the
Partnership to record income tax liabilities arising principally from current
differences between book and tax depreciation which will be in existence when
the Partnership becomes a taxable entity in 1998. For more information on this
item, see Note 3 to the Partnership's consolidated financial statements.
CASH FLOW AVAILABLE FOR DISTRIBUTIONS AND INCENTIVE MANAGEMENT FEES: Cash Flow
increased in 1993 by $.3 million, or 3%, to $10.5 million from the prior year's
$10.2 million. Cash Flow reflects loan principal payments which were $.5 million
higher in 1993 than in 1992. After payment of $9.3 million of cash distributions
in 1993 (unchanged from 1992), the Partnership had sufficient Cash Flow to pay
current incentive management fees of $1.1 million in 1993 compared to $.9
million in 1992. For further discussion of Cash Flow, see Note 6 to the
Partnership's consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Partnership's principal source of cash is Hotel operations. During the
three years ended December 31, 1994, the Hotels generated sufficient cash from
operations to cover operating needs. It is expected that, for 1995, cash
provided by both operations and the lending facility discussed below, or other
sources, will be sufficient to meet anticipated cash requirements.
10
<PAGE>
The Partnership has in place a $14.1 million line of credit at a variable rate
of interest. Borrowings under the line averaged $11,698,000, $11,784,000 and
$11,791,000 during 1994, 1993 and 1992, respectively, and equaled $12,735,000 at
December 31, 1994. The average interest cost for borrowings under the line in
1994, 1993 and 1992 was 5.7 percent, 4.6 percent and 5.2 percent for those
years, respectively. In January 1995, the Partnership obtained a commitment to
extend the maturity of the Partnership's $102,469,000 mortgage note and the line
of credit for one year to April 14, 1996. The Partnership expects to negotiate a
replacement for its credit facilities following expiration of the extended term.
For further discussion of the Partnership's credit facilities, see Note 5 to the
Partnership's consolidated financial statements.
During 1994, 1993 and 1992, the Partnership made total capital investments
amounting to $8,139,000, $6,389,000 and $6,251,000, respectively. Major
improvements included guest room renovations, common area refurbishments and
structural improvements.
Funding of the capital improvements reserve amounted to $3,018,000, $2,887,000
and $2,872,000 in 1994, 1993 and 1992, respectively. Cash invested above the
reserved amounts has been funded predominately from the line of credit described
above. At December 31, 1994, the Partnership had commitments related to capital
improvement projects of $1,417,000.
During 1994, 1993 and 1992, the Partnership's cash flow available for
distribution covered 100 percent of the priority cash distributions and also
allowed for payment of current incentive management fees to Red Lion of
$4,438,000, $1,142,000 and $897,000, respectively.
INCOME TAXES: As discussed in Note 3 to the consolidated financial statements,
in 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, will not be treated as
corporations, for tax purposes, for ten years from the effective date of the
1987 law 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.
During the first quarter of 1993, the Partnership adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). 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 first quarter non-cash
charge to income of $1,351,000, or $.32 per unit. 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 in 1998.
SEASONALITY: Operations of the Hotels are affected by seasonality. Revenues
are typically lower in winter periods than in summer periods.
INFLATION: The effects of inflation, as measured by fluctuations in the
Consumer Price Index, have not had a material impact on the Partnership's
revenues or net income during the three years covered by this report.
Item 8 Financial Statements and Supplementary Data
---------------------------------------------------------
The consolidated financial statements and supplemental information are on the
following pages.
11
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
--------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands, except per unit amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $ 35,620 $ 32,510 $ 31,659
OPERATING COSTS AND EXPENSES:
Property taxes 2,573 2,791 2,891
Base management fees 3,018 2,887 2,872
Incentive management fees 4,438 1,142 897
Depreciation and amortization 10,725 10,249 9,924
Other 1,491 2,017 1,708
---------- ---------- ----------
Total operating costs and expenses 22,245 19,086 18,292
---------- ---------- ----------
Operating income 13,375 13,424 13,367
INTEREST EXPENSE 10,396 10,218 10,329
---------- ---------- ----------
Income Before Income Taxes and
Cumulative Effect
of Change in Accounting Principle 2,979 3,206 3,038
Income Tax Provision 50 -- --
Cumulative Effect of Change in
Accounting for Income Taxes -- (1,351) --
---------- ---------- ----------
NET INCOME $ 2,929 $ 1,855 $ 3,038
========== ========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 58 $ 37 $ 60
========== ========== ==========
Limited Partners $ 2,871 $ 1,818 $ 2,978
========== ========== ==========
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE PER LIMITED PARTNER UNIT $ 0.69 $ 0.76 $ 0.72
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES PER
LIMITED PARTNER UNIT -- (0.32) --
---------- ---------- ----------
NET INCOME PER LIMITED PARTNER UNIT $ 0.69 $ 0.44 $ 0.72
========== ========== ==========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500 4,133,500
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
--------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash $ -- $ 213
PROPERTY AND EQUIPMENT:
Land 17,705 17,713
Buildings and improvements 159,602 156,573
Furnishings and equipment 51,638 45,764
Construction in progress 1,454 2,888
-------- --------
230,399 222,938
Less -- accumulated depreciation (65,226) (55,254)
-------- --------
165,173 167,684
DEFERRED LOAN COSTS, net 32 146
-------- --------
Total assets $165,205 $168,043
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to affiliate $ 12,322 $ 8,355
Accrued distributions to partners 2,329 2,329
Interest payable 800 793
Property taxes payable 392 405
Current portion long-term debt 1,500 1,371
-------- --------
Total current liabilities 17,343 13,253
-------- --------
LONG-TERM DEBT NET OF
CURRENT PORTION 123,430 124,023
-------- --------
DEFERRED INCOME TAXES 1,401 1,351
-------- --------
PARTNERS' CAPITAL:
Limited Partners, 4,940,000 units
issued 35,554 41,777
Less--806,500 treasury units, at cost (11,202) (11,202)
-------- --------
Limited Partners, net 24,352 30,575
General Partner (1,321) (1,159)
-------- --------
Total partners' capital 23,031 29,416
-------- --------
Total liabilities and partners'
capital $165,205 $168,043
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
--------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash (dollar amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,929 $ 1,855 $ 3,038
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 10,725 10,249 9,924
Deferred income taxes 50 1,351 --
Increase in payables and accruals 3,961 3,652 1,529
-------- -------- --------
Net cash provided by operating
activities 17,665 17,107 14,491
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net (8,100) (6,374) (5,125)
Cash reserved for capital improvements (3,018) (2,887) (2,872)
Cash withdrawn from reserve for
capital improvements 3,018 2,887 2,872
-------- -------- --------
Net cash used in investing activities (8,100) (6,374) (5,125)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of cash to partners (9,314) (9,314) (9,314)
Payments on term loan (1,372) (1,254) (776)
Net borrowings (repayments) under
revolving credit facility 908 (120) 247
-------- -------- --------
Net cash used in financing activities (9,778) (10,688) (9,843)
-------- -------- --------
INCREASE (DECREASE) IN CASH (213) 45 (477)
CASH AT BEGINNING OF YEAR 213 168 645
-------- -------- --------
CASH AT END OF YEAR $ -- $ 213 $ 168
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
--------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(dollar amounts in thousands)
<TABLE>
<CAPTION>
LIMITED PARTNERS
-----------------------------------------
ISSUED UNITS TREASURY UNITS
------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
GENERAL
UNITS AMOUNT UNITS AMOUNT PARTNER TOTAL
--------- ------- --------- -------- ------- -------
Balance at December 31, 1991 4,940,000 $55,169 (806,500) $(11,202) $ (816) $43,151
Distributions to partners -- (9,094) -- -- (220) (9,314)
Net income -- 2,978 -- -- 60 3,038
--------- ------- -------- -------- ------- -------
Balance at December 31, 1992 4,940,000 49,053 (806,500) (11,202) (976) 36,875
Distributions to partners -- (9,094) -- -- (220) (9,314)
Net income -- 1,818 -- -- 37 1,855
--------- ------- -------- -------- ------- -------
Balance at December 31, 1993 4,940,000 41,777 (806,500) (11,202) (1,159) 29,416
Distributions to partners -- (9,094) -- -- (220) (9,314)
Net income -- 2,871 -- -- 58 2,929
--------- ------- -------- -------- ------- -------
Balance at December 31, 1994 4,940,000 $35,554 (806,500) $(11,202) $(1,321) $23,031
========= ======= ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1994, 1993 and 1992.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Red
Lion Inns Limited Partnership, a Delaware limited partnership (the
"Partnership"), and its subsidiary limited partnership, Red Lion Inns Operating
L.P. (the "Operating Partnership"). The Partnership was organized in 1987 for
the purpose of acquiring and owning ten hotels (the "Hotels") from Red Lion, a
California Limited Partnership ("Red Lion") through the Operating Partnership.
The acquisition of the Hotels was completed on April 14, 1987. All significant
intercompany transactions and accounts have been eliminated.
Red Lion is managing the Hotels under a management agreement which expires in
2012. The agreement can be extended by Red Lion for an additional ten five-year
periods.
REVENUES
Revenues reported in the accompanying statements of income represent the gross
operating profits of the Hotels which is credited to the Partnership by Red Lion
under the terms of the management agreement.
PROPERTY AND EQUIPMENT
The Partnership recorded the April 14, 1987 acquisition of property and
equipment on the basis of an allocation of the purchase price to the assets
acquired. Subsequent additions and improvements have been capitalized at their
cost.
Normal repairs and maintenance are charged to hotel operating costs and expenses
as incurred. Upon sale or retirement of property and equipment, the cost and
related accumulated depreciation are removed from the respective accounts and
the resulting gain or loss, if any, is included in income.
Base stock (linens, china, silverware and glassware) for the Hotels has been
depreciated to 50 percent of its initial cost on a straight-line basis over a
three year period. Subsequent replacements are expensed when purchased. The
carrying value of base stock is included in furnishings and equipment in the
accompanying consolidated balance sheets.
16
<PAGE>
Depreciation is computed on a straight-line basis using the following estimated
useful lives:
Buildings and improvements ............................. 5 to 35 years
Furnishings and equipment .............................. 3 to 15 years
DEFERRED LOAN COSTS
Deferred loan costs consist primarily of financing fees on the Partnership's
mortgage loan and are being amortized over the term of the loan.
INCOME TAXES
No current provision for federal or state income taxes has been provided by the
Partnership in the accompanying consolidated financial statements since such
taxes are the responsibility of the individual partners.
CASH DISTRIBUTIONS
The Partnership declares each quarterly distribution in the month following the
end of the quarter to which it applies. Fourth Quarter distributions are accrued
in the accompanying consolidated balance sheets for both of the years presented.
2. ORGANIZATION:
The Partnership was formed on January 16, 1987, under the Delaware Revised
Uniform Limited Partnership Act and will continue until December 31, 2062,
unless sooner terminated under the provisions of the partnership agreement. The
Partnership was formed to acquire, own and operate the Hotels through its 99
percent limited partnership interest in the Operating Partnership.
Red Lion Properties, Inc. (the "General Partner"), a wholly-owned subsidiary of
Red Lion, is the General Partner of the Partnership and the Operating
Partnership. On April 14, 1987, the Partnership completed an initial public
offering of units representing limited partnership interests ("units") totaling
$98.8 million. These proceeds, accompanied by a $105.9 million mortgage loan,
were used to acquire, through the Operating Partnership, the Hotels from Red
Lion for approximately $195 million. After completion of this acquisition, the
Partnership's limited partners have an effective 98.01 percent ownership
interest in the Hotels with the General Partner retaining the remaining 1.99
percent ownership interest.
The allocation of the Partnership's profits and losses is based on the relative
ownership interests in accordance with the terms of the partnership agreement.
Cash flow available for distribution, as defined in the partnership agreement,
will generally be distributed to the partners in proportion to their respective
ownership interests until certain preferential distributions are achieved and
then allocated to both the general and limited partners depending on factors
related to the source of the net cash flow and cash distributions as specified
in the partnership agreement (see Note 6).
17
<PAGE>
3. INCOME TAXES:
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 will not be treated as
corporations, for tax purposes, for ten years from the effective date of the
1987 law 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. Additional costs to the Partnership for such taxes would
reduce the amount available for distribution to the partners.
During the first quarter of 1993, the Partnership adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). 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 first quarter non-cash
charge to income of $1,351,000, or $.32 per unit. 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 in 1998.
The cumulative effect of the change in accounting method is comprised of federal
deferred income taxes of $1,209,000 and state deferred income taxes, net of
federal benefits, of $142,000.
This accounting change also requires provision of deferred income taxes
resulting from the accumulation of book/tax depreciation differences on assets
acquired in periods after the effective date of the change. Accordingly,
deferred taxes amounting to $50,000 were provided for in 1994.
4. CASH RESERVE FOR CAPITAL IMPROVEMENTS:
A cash reserve for capital improvements has been established in accordance with
the provisions of the management agreement. Funding of three percent of gross
revenues is to be used for renovations, refurbishments and other capital
expenditures. During the years ended December 31, 1994, 1993 and 1992,
$3,018,000, $2,887,000 and $2,872,000, respectively, were accumulated in this
reserve and then withdrawn to fund capital improvements.
18
<PAGE>
5. LONG-TERM DEBT:
Long-term debt at December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Mortgage note, payable in varying
installments through April 14, 1996 $102,469 $103,841
Revolving line of credit, due
April 14, 1996 12,735 11,827
Non-interest bearing amounts payable to
Red Lion 9,726 9,726
-------- --------
Total long-term debt 124,930 125,394
Less current portion 1,500 1,371
-------- --------
$123,430 $124,023
======== ========
</TABLE>
The mortgage note bears interest at a 9 percent fixed rate. Payments on the
mortgage note were interest only through April 13, 1992. In January 1995, a
commitment was obtained to extend the maturity date of this note for one year to
April 14, 1996. Scheduled maturities on the mortgage note for the years
subsequent to 1994 are as follows: 1995 - $1,500,000 and 1996 - $100,969,000.
The revolving line of credit allows borrowings up to $14.1 million. This
facility has been used to cover, among other items, the cost of units
repurchased and incurs interest at floating interest rates. The weighted average
interest rate on this facility was 7.4 percent at December 31, 1994. The
Partnership must pay a nominal commitment fee on the unused portion of the line.
In January 1995, a commitment was obtained to extend the maturity date of the
revolving credit line for one year to April 14, 1996. The line has no scheduled
principal payments until its expiration. Borrowings under the line averaged
$11,698,000, $11,784,000 and $11,791,000 during 1994, 1993 and 1992,
respectively. The average interest rates for borrowings under the line for the
years ended December 31, 1994, 1993 and 1992 were 5.7 percent, 4.6 percent and
5.2 percent, respectively. Both the credit line and mortgage note are secured
by the Hotels.
Non-interest bearing amounts payable to Red Lion are comprised of deferred
incentive management fees of $6 million at December 31, 1994 and 1993 and
amounts drawn against a $4 million General Partner credit facility of $3,726,000
at December 31, 1994 and 1993. These items are more fully discussed in Note 6.
During the years ended December 31, 1994, 1993 and 1992, the Partnership made
total interest payments of $10,389,000, $10,227,000 and $10,365,000,
respectively.
19
<PAGE>
Based on the borrowing rates currently quoted by financial institutions for bank
loans with terms and maturities similar to the Partnership's mortgage debt, the
carrying value of such debt approximates its fair value.
6. CASH DISTRIBUTIONS TO PARTNERS:
Since inception, the Partnership has made quarterly cash distributions to
partners to the extent that cash flow has been available for distribution as
defined in the management agreement.
The Partnership declared cash distributions of $9.3 million in 1994, 1993 and
1992. On a per unit basis, declared cash distributions were $2.20 in 1994, 1993
and 1992.
In accordance with the management agreement, Red Lion has subordinated current
payment of its incentive management fee (see Note 8) to facilitate current
payment of distributions to limited partners. These priority distributions were
$2.00 per unit during the first 12 months of operations, increasing annually at
the rate of $.05 per unit until annual distributions reached $2.20 per unit in
the second quarter of 1991.
During 1994, 1993 and 1992, the Partnership's cash flow available for
distribution covered 100 percent of the priority cash distributions and also
allowed payment of current incentive management fees to Red Lion of $4,438,000,
$1,142,000 and $897,000, respectively.
For the first 36 months of operations, the General Partner also agreed to make
available to the Partnership a $4 million non-interest bearing revolving credit
facility which was to be used in the event that cash flow available for
distributions was insufficient to make priority distributions. During the 36
month period, which ended April 30, 1990, the General Partner was required to
fund $3,726,000 from the facility. This amount will be repaid out of either (i)
cash flow after payment of priority distributions and incentive management fees,
or (ii) sale or refinancing proceeds prior to any distribution to limited
partners.
In connection with the subordination of incentive management fees noted above,
the Partnership reached, in 1988, the maximum deferred amount of $6 million of
such fees in accordance with the management agreement. The deferred amount,
which does not accrue interest, will be paid out of either (i) 25 percent of
cash flow after payment of priority distributions and current incentive
management fees or (ii) sale or refinancing proceeds prior to any distribution
to limited partners.
20
<PAGE>
Following is a calculation of 1994, 1993 and 1992 cash flow available for
distribution and related cash flow available for payment of incentive management
fees (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net income $ 2,929 $ 1,855 $ 3,038
Add (Deduct):
Depreciation and amortization 10,725 10,249 9,924
Incentive management fee 4,438 1,142 897
Cash reserved for capital
improvements (3,018) (2,887) (2,872)
Repayments on term loan (1,372) (1,254) (776)
Income Tax Provision 50 -- --
Cumulative effect of change
in accounting for income taxes -- 1,351 --
------- ------- -------
Cash flow available for
distribution and incentive
management fee 13,752 10,456 10,211
Distributions to partners (9,314) (9,314) (9,314)
------- ------- -------
Cash flow available for payment
of incentive management fee $ $ 4,438 $ 1,142 $ 897
======= ======= =======
</TABLE>
21
<PAGE>
7. LEASES:
Two of the Hotels hold leases on all or a portion of their land. The leases
contain rental provisions which are based on increases in the Consumer Price
Index. The terms of the leases exceed the estimated remaining useful lives of
the Hotels.
The Partnership leases certain equipment under operating leases. Total land and
equipment rent expenses for 1994, 1993 and 1992 were $94,000, $88,000 and
$128,000, respectively.
Future minimum rental payments, substantially all of which relate to land
leases, are as follows:
<TABLE>
<CAPTION>
MINIMUM
RENTAL
YEAR ENDING DECEMBER 31, PAYMENT
------------------------- ----------
<S> <C>
1995 $ 82,000
1996 97,000
1997 97,000
1998 97,000
1999 97,000
Thereafter 5,743,000
----------
$6,213,000
==========
</TABLE>
22
<PAGE>
8. RELATED PARTY TRANSACTIONS:
The General Partner is responsible for the management and administration of the
Partnership. In accordance with the partnership agreement, the Partnership
reimburses the General Partner for related administrative costs.
Red Lion manages the Hotels pursuant to a management agreement and receives a
base management fee equal to three percent of the annual gross revenues of the
Hotels plus an incentive management fee based on adjusted gross operating
profit, as defined in the management agreement. Expenses for management fees
under this agreement are reported separately in the accompanying statements of
income.
The Hotels, in accordance with the management agreement, are also charged by Red
Lion for their pro rata share of support services such as computer, advertising,
public relations, promotional and sales and central reservation services.
All Partnership personnel are employees of Red Lion and its affiliates. All
costs for services of such employees are reimbursed to Red Lion by the Operating
Partnership. These costs include salaries, wages, payroll taxes and other
employee benefits. Additionally, auxiliary enterprises owned by Red Lion sell
operating supplies, furnishings and equipment to the Partnership. In the
opinion of Red Lion management, sales to the Partnership by the auxiliary
enterprises were made at prices and terms which approximated arms-length
transactions.
The aggregate amounts, excluding personnel related expenses charged to the
Partnership during 1994, 1993 and 1992 under the arrangements described above,
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Management fees $7,456 $4,029 $3,769
Support services 5,048 4,405 4,279
Purchases from auxiliary
enterprises 9,513 9,409 9,470
General Partner administrative
expenses 434 457 458
</TABLE>
The amounts shown in current liabilities as payable to affiliate in the
accompanying consolidated balance sheets consist of amounts payable to Red Lion
for payroll and payroll taxes, support services, base and current incentive
management fees and purchases of operating supplies, furnishings and equipment.
Amounts payable to affiliate also include the Hotels' net working capital items
which consist of cash held in hotel accounts, accounts receivable, inventories,
prepaid expenses, hotel accounts payable, certain taxes other than property,
income and payroll taxes. These balances are due in the normal course of
business. Also included in amounts payable to affiliate were amounts related to
capital expenditures of $1,696,000 and $1,703,000 at December 31, 1994 and 1993,
respectively. The following schedules show the operating revenues and expenses
and working capital of the Hotels not reflected in the accompanying financial
statements (in thousands).
23
<PAGE>
OPERATING REVENUES AND EXPENSES OF THE HOTELS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
REVENUES:
Rooms $ 57,247 $54,778 $52,723
Food and beverage 33,791 33,108 34,560
Other 9,565 8,351 8,462
-------- ------- -------
Total revenues 100,603 96,237 95,745
-------- ------- -------
OPERATING COSTS AND EXPENSES:
Departmental direct expenses
Rooms 14,290 13,791 13,567
Food and beverage 26,742 26,883 27,841
Other 3,680 3,548 3,490
Administration and general 8,391 8,146 8,038
Sales, promotion and advertising 4,637 4,326 4,183
Utilities 3,316 3,265 3,285
Repairs and maintenance 3,927 3,768 3,682
-------- ------- -------
Total operating costs and
expenses 64,983 63,727 64,086
-------- ------- -------
Gross operating profit of Hotels
managed by Red Lion $ 35,620 $32,510 $31,659
======== ======= =======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
WORKING CAPITAL OF THE
HOTELS:
Cash $ 297 $ 254
Accounts receivable 2,781 2,903
Inventories 1,146 1,082
Prepaid expenses 1,091 1,071
------ ------
Total current assets 5,315 5,310
------ ------
Accounts payable 3,381 2,635
Taxes other than property, income
and payroll taxes 774 720
------ ------
Total current liabilities 4,155 3,355
------ ------
Net Hotel working capital $1,160 $1,955
====== ======
</TABLE>
Included in long-term debt on the accompanying consolidated balance sheets are
deferred incentive management fees of $6 million and $3,726,000 advanced under
the $4 million non-interest bearing credit facility. For further discussion of
the non-current amounts due to Red Lion, see Note 5.
9. COMMITMENTS AND CONTINGENCIES:
At December 31, 1994, the Partnership had commitments, relating to capital
improvement projects, of $1,417,000.
The Partnership is subject to claims arising in the ordinary course of business.
In the opinion of management such claims will not have a material effect, if
any, on the financial position or results of operations of the Partnership or
its subsidiary.
25
<PAGE>
10. SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited):
Summarized quarterly financial data are as follows: (in thousands, except per
unit amounts, room and occupancy statistics)
<TABLE>
<CAPTION>
1994 QUARTER ENDED:
---- --------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Partnership revenues $ 7,018 $10,209 $10,382 $ 8,011
Operating income $ 2,544 $ 3,993 $ 3,360 $ 3,478
Net income (loss) $ (17) $ 1,413 $ 729 $ 804
Per Unit -- $ 0.33 $ 0.17 $ 0.19
Gross revenues of the Hotels $22,592 $26,707 $26,468 $24,836
Cash flow available for distribution
and incentive management fees $ 1,654 $ 4,638 $ 4,715 $ 2,745
Per Unit $ 0.39 $ 1.10 $ 1.11 $ 0.65
Average units outstanding 4,134 4,134 4,134 4,134
Occupancy percentage 67.1% 78.1% 80.8% 65.2%
Average room rate $ 67.25 $ 71.81 $ 72.00 $ 69.13
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
1993 QUARTER ENDED:
---- --------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Partnership revenues $ 6,706 $ 9,269 $ 9,767 $ 6,768
Operating income $ 2,346 $ 4,338 $ 3,430 $ 3,310
Income (loss) before cumulative effect
of change in accounting principle $ (252) $ 1,719 $ 817 $ 922
Per Unit $ (0.06) $ 0.41 $ 0.19 $ 0.22
Cumulative effect of change in
accounting principle $(1,351) -- -- --
Per Unit $ (0.32) -- -- --
Net income (loss) $(1,603) $ 1,719 $ 817 $ 922
Per Unit $ (0.38) $ 0.41 $ 0.19 $ 0.22
Gross revenues of the Hotels $22,149 $25,315 $25,583 $23,190
Cash flow available for distribution
and incentive management fees $ 1,401 $ 3,755 $ 4,286 $ 1,014
Per Unit $ 0.33 $ 0.89 $ 1.01 $ 0.24
Average units outstanding 4,134 4,134 4,134 4,134
Occupancy percentage 67.2% 76.7% 82.8% 66.6%
Average room rate $ 65.61 $ 67.81 $ 68.34 $ 64.35
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Red Lion Inns Limited Partnership and its Subsidiary Limited Partnership:
We have audited the accompanying consolidated balance sheets of Red Lion Inns
Limited Partnership (a Delaware limited partnership) and its subsidiary limited
partnership as of December 31, 1994 and 1993 and the related consolidated
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the partnerships' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material aspects, the financial position of Red Lion Inns Limited
Partnership and its subsidiary limited partnership as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 1993, the Partnership changed its method of accounting for income
taxes.
/S/ Arthur Andersen LLP
Portland, Oregon
February 7, 1995
28
<PAGE>
Item 9 Changes in and Disagreements with Accountants on
--------------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None.
PART III
Item 10 Directors and Executive Officers of the Registrant
----------------------------------------------------------------
The Partnerships have no directors or officers. Management functions of the
Partnerships are performed by the General Partner. The following information is
provided regarding the officers and directors of the General Partner:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE GENERAL PARTNER
---------------------- --- -----------------------------------------
<S> <C> <C>
David J. Johnson 48 President and Chief Executive Officer
Director
J. Ray Vingo 56 Executive Vice President and
Chief Financial Officer
Beth A. Ugoretz 39 Senior Vice President,
Secretary and General Counsel
Michael J. Crowley 40 Regional Vice President
Anupam Narayan 41 Vice President
Treasurer
Jack G. Reiss 44 Regional Vice President
George G. Schweitzer 39 Regional Vice President
Edward A. Gilhuly 35 Director
Roger S. Meier 69 Director
Michael W. Michelson 43 Director
George R. Roberts 51 Director
</TABLE>
Mr. Johnson has been a Director of the General Partner since October 1991 and
has held his present position with Red Lion since September 1991. Prior to
joining Red Lion, Mr. Johnson was General Partner of Hellman and Friedman, a
privately held investment firm, from January 1990. Mr. Johnson was a management
consultant from 1988 to January 1990 and served as President and Chief Operating
Officer of Dillingham Holdings for the two years prior to 1988.
Mr. Vingo was appointed to his present position with the General Partner in
1994. For more than five years prior to joining Red Lion he served as Vice
President - Finance, Chief Financial Officer and a Board member of Alaska
Airlines and its parent, Alaska Air Group.
Ms. Ugoretz was appointed to her present position with the General Partner in
June 1993. For more than five years prior to joining Red Lion in 1993, Ms.
Ugoretz was associated with the law firm of Stoel Rives Boley Jones & Grey, with
whom she served as partner from 1990.
29
<PAGE>
Mr. Crowley was appointed to his current position with the General Partner in
March 1993. He has served in the same capacity with Red Lion for more than the
last five years.
Mr. Narayan was appointed to his present position with the General Partner in
June 1993. He has held the same position with Red Lion since May 1992. Prior
to 1992, Mr. Narayan held the position of Assistant Treasurer from 1985 and was
promoted to Vice President in 1990.
Mr. Reiss has held his present position with Red Lion for more than the last
five years.
Mr. Schweitzer has held his present position with Red Lion for more than the
last five years.
Mr. Gilhuly has been a director of Red Lion since March 1994. Mr. Gilhuly has
been a General Partner or an executive with Kohlberg Kravis Roberts & Co.
("KKR") for more than five years. Mr. Gilhuly is also a director of Layne, Inc.;
Owens-Illinois, Inc.; Owens-Illinois Group, Inc.; Red Lion Properties, Inc.; and
Union Texas Petroleum Holdings, Inc.
Mr. Meier has been President and Chief Executive Officer of AMCO, Inc., a
privately-owned investment enterprise, for more than the last five years. Mr.
Meier is a director of Fred Meyer, Inc., Key Bank of Oregon, a wholly owned
subsidiary of Keycorp, and trustee of Acorn Fund and Acorn International.
Messrs. Roberts and Michelson are general partners in KKR and each has been
associated with KKR for more than five years. Mr. Roberts is a director of
American Re Corporation, AutoZone, Inc., Borden, Inc., Duracell International
Inc., IDEX Corporation, K-III Communications Corp., Owens-Illinois, Inc., Owens-
Illinois Group, Inc., RJR Nabisco Holdings Corporation., RJR Nabisco, Inc.,
Safeway, Inc., The Stop and Shop Companies, Inc., Flagstar Companies, Inc.,
Flagstar Corporation, Union Texas Petroleum Holdings, Inc., and World Color
Press, Inc. Mr. Michelson is a director of AutoZone, Inc., Fred Meyer, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., and Union Texas Petroleum
Holdings, Inc.
Messrs. Gilhuly, Meier, Roberts and Michelson have all held their directorships
with the General Partner since its formation in December 1986.
Section 16(a) of the Securities Exchange Act of 1934 requires certain
Partnership insiders to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. The General Partner, David J. Johnson,
J. Ray Vingo, and Beth A. Ugoretz each filed a late Form 3 Initial Statement of
Beneficial Ownership in March 1995. Each of the late Form 3 reports indicated
beneficial ownership of zero Units.
Item 11 Executive Compensation
-------------------------------------
The Partnership has no directors, officers or employees. Under the respective
agreement of the limited partnership, the General Partner is responsible for the
management and administration of the Partnership. As discussed in Item 13
below, the General Partner is reimbursed for certain management and
administrative costs but receives no fees for providing these services to the
Partnership and the Partnership is not responsible for the payment of
compensation to the officers of the General Partner. The Hotels are operated by
Red Lion in accordance with the Management Agreement (see Item 13).
30
<PAGE>
Item 12 Security Ownership of Certain Beneficial Owners
--------------------------------------------------------------
and Management
--------------
As of December 31, 1994, the following owner beneficially owned more than five
percent of the total number of outstanding Units.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
--------------------- -------------------- -------------------- --------
<S> <C> <C> <C>
Units representing FMR Corporation(1) 535,800 Units 12.96%
limited partnership 82 Devonshire St.
interests Boston, MA 02109
</TABLE>
------------------
(1) This information relating to FMR Corporation was obtained from FMR
Corporation's Schedule 13G filed with the Securities and Exchange Commission
on February 14, 1995.
Item 13 Certain Relationships and Related Transactions
-------------------------------------------------------------
Substantially all of the directors and principal officers of the General Partner
are directors and/or principal officers of Red Lion. The General Partner is
responsible for the management and administration of the Partnership. In
accordance with the partnership agreement, the Partnership reimburses the
General Partner for administrative costs.
Pursuant to the Management Agreement, Red Lion receives a base management fee
equal to three percent of annual gross revenues of the Hotels plus an incentive
management fee based on adjusted gross operating profit, as defined in the
Management Agreement.
31
<PAGE>
In order to facilitate the Partnership's ability to make minimum annual
distributions of cash flow from operations, Red Lion has agreed to subordinate
payment of its incentive management fee to an amount sufficient to make the
priority distributions. In addition, incentive management fees earned but not
paid have been deferred without interest up to a maximum amount of $6 million
and will be repaid out of either (i) 25% of cash flow from operations in any
given year in excess of amounts sufficient to pay debt service on the original
mortgage loan, the $14.1 million revolving credit line, the priority
distribution and the current incentive management fee, or (ii) sale or
refinancing proceeds prior to any distribution to limited partners. The $6
million maximum deferred incentive management fee amount was reached in November
1988 and the resulting accrual is included in Long-Term Debt on the
Partnership's consolidated balance sheets. As noted in Item 7 to this report,
the Partnership has generated sufficient cash from operations to cover 100
percent of its priority distributions to partners and to pay Red Lion current
incentive management fees of $4,438,000, $1,142,000 and $897,000 for 1994, 1993
and 1992, respectively.
The Partnership, in accordance with the Management Agreement, is also charged by
Red Lion for its pro rata share of support services such as computer,
advertising, public relations, promotional and sales and central reservation
services.
All Partnership personnel are employees of Red Lion and its affiliates. All
costs of services of such employees are reimbursed to Red Lion by the Operating
Partnership. These costs include salaries, wages, payroll taxes and other
employee benefits. Additionally, auxiliary enterprises owned by Red Lion sell
operating supplies and furnishings and equipment to the Partnership. In the
opinion of Red Lion management, sales to the Partnership by the auxiliary
enterprises were made at prices and terms which approximated arms-length
transactions.
For the first 36 full months of operations which ended April 30, 1990, the
General Partner agreed to make available to the Partnership a $4 million non-
interest bearing revolving credit facility which was to be used in the event
that cash flow available for distribution was insufficient to make priority
distributions. During the 36-month period, the General Partner was required to
fund $3,726,000 from the facility. Amounts due under this facility are included
in Long-Term Debt on the Partnership's consolidated balance sheets.
For further discussion of related party transactions, see Notes 6 and 8 to the
Partnership's consolidated financial statements.
32
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
------------------------------------------------------------------
on Form 8K
----------
a. The following documents are filed herewith and made a part of this report:
1. The consolidated financial statements and supplementary information set
forth in Item 8 of Part II beginning on page 11 of this report.
2. Financial Statement Schedules:
None
3. Exhibits:
2.1 Amended and Restated Agreement of Limited Partnership of Red Lion Inns
Limited Partnership. Incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-1, Registration No. 33-11954.
2.2 Amended and Restated Agreement of Limited Partnership of Red Lion Inns
Operating L.P. Incorporated by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-11954.
3.1 Amended and Restated Certificate of Limited Partnership of Red Lion
Inns Limited Partnership. Incorporated by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-1, Registration No.
33-11954.
3.2 Certificate of Limited Partnership of Red Lion Inns Operating L.P.
Incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-11954.
4 Form of Unit Certificate. Incorporated by reference to Exhibit 5 to the
Company's Registration Statement on Form 10.
10.1 Management Agreement between Red Lion Inns Operating L.P. and RL
Acquisition Company. Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1, Registration No. 33-11954.
10.2(a) Purchase and Sale Agreement between RL Acquisition Company and Red
Lion Inns Operating L.P. Incorporated by reference to Exhibit 10.2(a) to
the Company's Registration Statement on Form S-1, Registration No. 33-
11954.
10.2(b) Supplemental Purchase and Sale Agreement between RL Acquisition
Company and Red Lion Inns Operating L.P. Incorporated by reference to
Exhibit 10.2(b) to the Company's Registration Statement on Form S-1,
Registration No. 33-11954.
33
<PAGE>
10.3 Lease dated as of June 23, 1980, by and between Lloyd Corporation, Ltd.,
as Lessor, and Red Lion Inn/Lloyd Center, Inc., as Lessee. Incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1, Registration No. 33-11954.
10.4 Lease dated as of October 23, 1968, by and between First National Bank
of Omaha, as Lessor, and Downtown Development Co., Ltd., as Lessee.
Incorporated by reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1, Registration No. 33-11954.
10.5 Assignment of Lease dated April 8, 1985, from Omaha Red Lion, Inc., to
RL Acquisition Company. Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1, Registration No. 33-11954.
10.6 Lease dated June 1, 1973, between Charles F. Larson, as Lessor and
James A. McClory, as Lessee. Incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-1, Registration No.
33-11954.
10.7 Purchase and Sale Agreement and Escrow Instructions dated as of April 3,
1987, by and between Lloyd Properties and Red Lion Inn/Lloyd Center,
Inc. Incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, Registration No. 33-11954.
10.8 Credit Agreement, dated as of April 14, 1987, between United States
National Bank of Oregon, the Canadian Imperial Bank of Commerce and Red
Lion Inns Operating L.P. Incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1, Registration No. 33-
11954.
10.9 First Amendment to Credit Agreement, dated January 1, 1990.
Incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for
the year ended December 31, 1992.
27 Article 5 Financial Data Schedule for 10-K.
b. Reports on Form 8-K:
No reports on Form 8-K have been filed for the period covered by this report.
34
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 on the 30th day of March
1995.
RED LION INNS LIMITED
PARTNERSHIP
By: RED LION PROPERTIES, INC.
Its sole General Partner
By: /s/ David J. Johnson
----------------------------
David J. Johnson
President and
Chief Executive Officer
Pursuant to the requirements of the Securities 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 on the 30th day of March 1995.
Signatures Title
-------------------- --------------------
s/David J. Johnson President and Chief Executive Officer
------------------- Director
David J. Johnson
s/J. Ray Vingo Executive Vice President and Chief Financial
-------------- Officer
J. Ray Vingo (Principal Financial Officer and Principal
Accounting Officer)
/s/George R. Roberts Director
--------------------
George R. Roberts
/s/Michael W. Michelson Director
-----------------------
Michael W. Michelson
/s/Edward A. Gilhuly Director
--------------------
Edward A. Gilhuly
/s/Roger S. Meier Director
-----------------
Roger S. Meier
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 230,399
<DEPRECIATION> (65,226)
<TOTAL-ASSETS> 165,205
<CURRENT-LIABILITIES> 17,343
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 23,031
<TOTAL-LIABILITY-AND-EQUITY> 165,205
<SALES> 35,620
<TOTAL-REVENUES> 35,620
<CGS> 0
<TOTAL-COSTS> 22,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,396
<INCOME-PRETAX> 2,979
<INCOME-TAX> 50
<INCOME-CONTINUING> 2,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,929
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
