<PAGE>
UNITED STATES
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 March 31, 1996
--------------
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
incorporation or organization) Identification No.)
4001 Main Street, Vancouver, Washington 98663
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(360) 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 .
--- ---
<PAGE>
RED LION INNS LIMITED PARTNERSHIP
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statement of Partners' Capital 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
2
<PAGE>
PART I
Item 1 Consolidated Financial Statements
- ----------------------------------------
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit amounts)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
CASH $ -- $ 229
PROPERTY AND EQUIPMENT:
Land 17,705 17,705
Buildings and improvements 165,325 164,605
Furnishings and equipment 56,541 55,596
Construction in progress 2,868 2,229
-------- --------
242,439 240,135
Less -- accumulated depreciation (75,071) (74,306)
-------- --------
167,368 165,829
OTHER 3 209
-------- --------
Total assets $167,371 $166,267
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 199 $ 19
Payable to affiliate 28,003 24,231
Accrued distributions to partners 2,329 2,329
Interest payable 109 334
Property taxes payable 479 284
Current portion long-term debt 2,133 1,897
-------- --------
Total current liabilities 33,252 29,094
LONG-TERM PAYABLE TO AFFILIATE,
NET OF CURRENT PORTION 4,427 4,573
LONG-TERM DEBT, NET OF CURRENT PORTION 111,370 112,693
DEFERRED INCOME TAXES 1,771 1,673
-------- --------
Total liabilities 150,820 148,033
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
PARTNERS' CAPITAL:
Limited Partners, 4,940,000 units issued 29,246 30,887
Less - 806,500 treasury units, at cost (11,202) (11,202)
-------- --------
Limited Partners, net 18,044 19,685
General Partner (1,493) (1,451)
-------- --------
Total partners' capital 16,551 18,234
-------- --------
Total liabilities and partners'
capital $167,371 $166,267
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except unit amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES $ 7,900 $ 7,730
OPERATING COSTS AND EXPENSES:
Property taxes 682 647
Base management fees 746 709
Depreciation and amortization 2,418 2,735
Other 463 633
---------- ----------
Total operating costs and expenses 4,309 4,724
---------- ----------
OPERATING INCOME 3,591 3,006
INTEREST EXPENSE (2,847) (2,776)
---------- ----------
INCOME BEFORE INCOME TAXES 744 230
INCOME TAX EXPENSE (98) --
---------- ----------
NET INCOME $ 646 $ 230
========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 13 $ 5
========== ==========
Limited Partners $ 633 $ 225
========== ==========
NET INCOME PER LIMITED PARTNER
UNIT $ 0.15 $ 0.05
========== ==========
AVERAGE LIMITED PARTNER UNITS
OUTSTANDING 4,133,500 4,133,500
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands, except unit amounts)
(unaudited)
<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, 1995 4,940,000 $30,887 (806,500) $(11,202) $(1,451) $18,234
Distributions to partners -- (2,274) -- -- (55) (2,329)
Net income -- 633 -- -- 13 646
--------- ------- -------- -------- ------- -------
Balance at March 31, 1996 4,940,000 $29,246 (806,500) $(11,202) $(1,493) $16,551
========= ======= ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
RED LION INNS LIMITED PARTNERSHIP AND SUBSIDIARY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 646 $ 230
Adjustments to reconcile net income
to cash
provided by operating activities:
Depreciation and amortization 2,418 2,735
Amortization of other assets 206 28
Deferred income taxes 98 --
Increase (decrease) in payables
and accrued expenses 150 (62)
------- -------
Net cash provided by operating 3,518 2,931
activities ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net (3,957) (1,540)
Cash reserved for capital improvements (746) (709)
Cash withdrawn from reserve for 746 709
capital improvements ------- -------
Net cash used in investing
activities (3,957) (1,540)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of cash to partners (2,329) (2,329)
Advances from affiliate 7,878 7,778
Payments to affiliate (4,252) (5,726)
Payments on mortgage note (397) (363)
Net repayments under revolving credit
facility (678) (424)
Other financing activities (12) (145)
------- -------
Net cash provided by (used in) 210 (1,209)
financing activities ------- -------
INCREASE (DECREASE) IN CASH (229) 182
CASH AT BEGINNING OF PERIOD 229 --
------- -------
CASH AT END OF PERIOD $ -- $ 182
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest $ 2,866 $ 2,750
======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BASIS OF PRESENTATION
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., a Delaware limited partnership (the "Operating Partnership"). The
Partnership was organized for the purpose of acquiring and owning, through the
Operating Partnership, ten Red Lion hotels (the "Hotels" or individually, a
"Hotel"). On April 14, 1987 (the date of the Partnership's inception), the
Operating Partnership acquired the Hotels from Red Lion, a California Limited
Partnership ("Historical Red Lion"), which continued to manage the Hotels under
a long-term management agreement (the "Management Agreement"). All significant
intercompany transactions and accounts have been eliminated.
Red Lion Hotels, Inc. ("Red Lion") was incorporated in Delaware in March 1994
and commenced operations in March 1995. On August 1, 1995, Historical Red Lion
contributed substantially all of its assets (excluding 17 hotels and certain
related obligations, certain minority joint venture interests and certain
current assets) and certain liabilities to Red Lion. In connection with this
transaction, Historical Red Lion assigned the Management Agreement to Red Lion,
which continues to operate and manage the Hotels thereunder. The Management
Agreement expires in 2012 and can be extended by Red Lion for an additional ten
five-year periods. The general partner of the Partnership and Operating
Partnership is Red Lion Properties, Inc. (the "General Partner"), a wholly owned
subsidiary of Red Lion. Red Lion became a publicly held company in July 1995.
Red Lion files reports and other information with the Securities and Exchange
Commission in accordance with the Securities Exchange Act of 1934.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities. While management endeavors
to make accurate estimates, actual results could differ from estimates.
The unaudited consolidated financial statements reflect, in the opinion of
management, all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of the Partnership at March
31, 1996 and the results of operations and cash flows for the three month
periods ended March 31, 1996 and 1995. Interim results are not necessarily
indicative of results to be expected for a full fiscal year.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
The unaudited consolidated financial statements should be read in conjunction
with the Partnership's annual consolidated financial statements and notes
thereto.
7
<PAGE>
Operating Revenues and Expenses and Current Assets and Current Liabilities
Revenues reported in the accompanying statements of income represent the gross
operating profit of the Hotels which is credited to the Partnership from Red
Lion under the terms of the Management Agreement. Operating revenues and
expenses and the current assets and current liabilities of the Hotels are
included in the consolidated financial statements of Red Lion and are excluded
from the accompanying consolidated financial statements of the Partnership
because Red Lion, and not the Partnership, has operating responsibility for the
Hotels and such operating responsibility is substantially the same as that for
owned hotels.
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. However, as discussed
in Note 2, deferred income taxes have been provided for the projected
differences between the book and tax bases of property and equipment on January
1, 1998, when the Partnership will cease to be a nontaxable entity and income
will be taxed at the Partnership level with distributions to individual partners
taxed as dividends.
2. INCOME TAXES
DURING 1987, CONGRESS PASSED THE OMNIBUS BUDGET RECONCILIATION ACT WHICH, AMONG
OTHER THINGS, TREATS THEN EXISTING PUBLICLY-TRADED PARTNERSHIPS AS CORPORATIONS
FOR TAX PURPOSES FOR YEARS BEGINNING AFTER DECEMBER 31, 1997. THE PARTNERSHIP
IS NOT CURRENTLY A TAXABLE ENTITY. 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. THESE COSTS
WILL NOT REDUCE CASH AVAILABLE FOR PAYMENT OF THE MANAGEMENT FEES TO RED LION
DESCRIBED IN NOTE 3. THE PAYMENT OF INCOME TAXES BY THE PARTNERSHIP DIRECTLY
REDUCE PARTNER DISTRIBUTIONS.
3. 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.
Under the Management Agreement, the Partnership pays base and incentive
management fees to Red Lion. Base management fees payable to Red Lion are equal
to 3% of the annual gross revenues of the Hotels. Incentive management fees
payable to Red Lion are equal to the sum of 15% of annual adjusted gross
operating profit up to $36 million (operating profit target) and 25% of adjusted
gross operating profit in excess of the operating profit target. Adjusted gross
operating profit is gross operating profit (the revenues reported in the
accompanying financial statements) less base management fees.
Incentive management fees are only payable to the extent that cash flow
available for distributions and incentive management fees, as defined in the
Management Agreement ("Cash Flow"), exceeds the amount required to pay the
annual priority distribution to limited partners of $2.20 per unit. Cash Flow
is defined as pre-tax income (or loss) before noncash charges (primarily
depreciation and amortization) and incentive management fees, but after the
reserve for capital improvements and principal payments on certain debt.
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.
8
<PAGE>
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.
Amounts payable to affiliate consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Amounts payable to affiliate $35,474 $30,998
Current assets and current liabilities
of Hotels (3,044) (2,194)
------- -------
Amounts payable to affiliate, net of
current assets and current liabilities $32,430 $28,804
======= =======
Amounts payable to affiliate consists
of the following:
Payable to affiliate $28,003 $24,231
Long-term payable to affiliate, net of
current portion 4,427 4,573
------- -------
Total amounts payable $32,430 $28,804
======= =======
</TABLE>
Included in the amounts payable to affiliate are $23,057,000 and $19,078,000 at
March 31, 1996 and December 31, 1995, respectively, representing amounts payable
to Red Lion primarily for capital improvements funded by Red Lion which exceeded
the 3% reserve established in accordance with the provisions of the Management
Agreement. Such amounts incur interest at the rate of prime plus 0.5% (8.75 %
and 9.0% at March 31, 1996 and December 31, 1995, respectively).
Long-term payables to affiliate are non-interest bearing amounts comprised of
deferred incentive management fees and a General Partner credit facility.
Deferred incentive management fees payable were $5,647,000 and $6,000,000 at
March 31, 1996 and December 31, 1995, respectively. Of such amount at March 31,
1996, $4,946,000 is classified as a current payable to affiliate as such amount
was paid to Red Lion in April 1996 out of the proceeds of the refinancing
discussed in Note 4. The amount drawn against the General Partner credit
facility was $3,726,000 at March 31, 1996 and December 31, 1995 and is
classified as a long-term payable.
Amounts payable to affiliate are recorded net of an amount for the current
assets and current liabilities of the Hotels of $3,044,000 and $2,194,000 at
March 31, 1996 and December 31, 1995, respectively. The current assets and
current liabilities of the Hotels consists of cash held in hotel accounts,
accounts receivable, inventories, prepaid expenses, hotel accounts payable and
certain taxes other than property, income and payroll taxes. Since Red Lion has
operating responsibilities associated with the Hotels, these current asset and
current liability items are excluded from the accompanying consolidated
financial statements.
9
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Mortgage note, payable in varying
installments through April 14, 1996 $100,572 $100,969
Revolving credit facility, due
April 14, 1996 12,624 13,302
Other long-term obligations 307 319
-------- --------
Total long-term debt 113,503 114,590
Less current portion (2,133) (1,897)
-------- --------
$111,370 $112,693
======== ========
</TABLE>
On April 2, 1996 the Partnership entered into a new three-year $125 million
credit facility. The credit facility includes a $120 million term loan and a $5
million revolving credit line. The proceeds of the new term loan were used to
pay in full all amounts owed under the prior mortgage note and revolving credit
facility, to pay a portion of the payable to affiliate related to deferred
incentive management fee, as discussed in Note 3, and to pay loan fees.
Borrowings under the facility bear interest at the London Interbank Offering
Rate ("LIBOR") plus 2.25% and are secured by the Hotels. Principal payments on
the three-year term loan will amount to $1.5 million, $2.4 million and $3.3
million for 1996, 1997 and 1998, respectively, with a lump-sum payment due at
the end of the term (March 31, 1999). Because of the terms of the planned
refinancing, the mortgage note and revolving loan facility have been classified
as long-term on the consolidated balance sheet.
5. COMMITMENTS AND CONTINGENCIES
At March 31, 1996, the Partnership had commitments relating to capital
improvement projects of $3,834,000.
The Partnership is subject to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a material
adverse effect, if any, on the financial position or results of operations or
liquidity of the Partnership or its subsidiary.
10
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
BEGINNING JANUARY 1, 1998, THE PARTNERSHIP WILL BE SUBJECT TO TAXES ON ITS
INCOME. THE EFFECT OF THIS WILL BE TO REDUCE THE DISTRIBUTIONS TO PARTNERS BY
THE AMOUNT OF THESE INCOME TAXES. INCOME TAXES WILL NOT REDUCE AMOUNTS
AVAILABLE FOR PAYMENT TO RED LION OF FEES DUE UNDER THE MANAGEMENT AGREEMENT.
DISTRIBUTIONS TO PARTNERS WILL BE CONSIDERED TAXABLE DIVIDENDS.
The revenues of the Partnership represent the gross operating profit of the
Hotels which is credited to the Partnership from Red Lion under the terms of the
Management Agreement. The gross operating revenues and expenses of the Hotels
are included in the consolidated financial statements of Red Lion, and are
excluded from the financial statements of the Partnership, because Red Lion, and
not the Partnership, has operating responsibility for the Hotels. The following
table sets forth Red Lion's operating revenues and expenses associated with the
Hotels (in thousands):
GROSS OPERATING REVENUES AND EXPENSES OF THE HOTELS
---------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
REVENUES:
Rooms $13,953 $13,363
Food and beverage 8,175 7,953
Other 2,740 2,322
------- -------
Total revenues 24,868 23,638
OPERATING COSTS AND EXPENSES:
Departmental direct expenses
Rooms 3,908 3,483
Food and beverage 6,508 6,440
Other 1,031 909
Administration and general 2,275 2,151
Sales, promotion and advertising 1,367 1,193
Utilities 830 762
Repairs and maintenance 1,049 970
------- -------
Total operating costs and expenses 16,968 15,908
------- -------
Gross operating profit of Hotels
managed by Red Lion $ 7,900 $ 7,730
======= =======
</TABLE>
GROSS REVENUES OF THE HOTELS: For the quarter ended March 31, 1996, gross
revenues rose to $24.9 million from $23.6 million in the comparable quarter
ended March 31, 1995, an increase of approximately $1.3 million or 5%.
During the quarter ended March 31, 1996, room revenues rose to $14 million from
$13.4 million in the comparable quarter ended March 31, 1995, an increase of 4%.
The increase in room revenues is due principally to higher room rates. The
average occupancy rate was slightly lower for the current quarter due in part to
the effects of major renovation work at one of the Hotels.
11
<PAGE>
A summary of occupancy and room rates for the Hotels at March 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Occupancy Percentage 65.7% 66.9%
Average Room Rate $76.22 $72.50
</TABLE>
Operating results are affected by seasonality. The first quarter of 1996
results reflect the winter and early spring seasons in which revenues are
typically lower than in the second and third quarters. There can be no
assurance, however, that such trends will continue.
GROSS OPERATING COSTS AND EXPENSES OF THE HOTELS: Gross operating costs and
expenses of the Hotels for the quarter ended March 31, 1996 rose to $17 million
from $15.9 million in the comparable quarter ended March 31, 1995, an increase
of $1.1 million or 7%. Gross operating costs and expenses as a percentage of
gross revenues of the hotels remained relatively constant at 68% and 67% for the
quarters ended March 31, 1996 and 1995, respectively.
Gross operating profit was 32% and 33% for the quarters ended March 31, 1996 and
1995, respectively.
PARTNERSHIP REVENUES: During the quarter ended March 31, 1996, revenues (which
represent the gross operating profits of the Hotels credited from Red Lion)
increased to $7.9 million from $7.7 million in the comparable quarter ended
March 31, 1995, an increase of 2%. The changes in gross revenues and expenses
of the Hotels that affect the amounts credited from Red Lion are discussed
above.
OPERATING INCOME: Operating income before depreciation and amortization for the
quarter ended March 31, 1996 rose to $6 million from $5.7 million in the
comparable quarter ended March 31, 1995, an increase of 5%. After depreciation
and amortization expense, operating income in the first quarter of 1996
increased to $3.6 million from $3 million in the quarter ended March 31, 1995,
an increase of 19%. The increases are predominantly due to the increase in hotel
revenues discussed above.
OPERATING COSTS AND EXPENSES: Operating costs and expenses for the quarter ended
March 31, 1996 decreased by 9% from the quarter ended March 31, 1995. The
decrease is largely due to a decrease of approximately $300,000 in depreciation
as a result of assets having been fully depreciated after March 31, 1995.
INCENTIVE MANAGEMENT FEE: Incentive management fees payable to Red Lion are
equal to the sum of 15% of annual adjusted gross operating profit up to $36
million and 25% of adjusted gross operating profit in excess of $36 million.
Adjusted gross operating profit is gross operating profit (Partnership revenues)
less base management fees (3% of gross revenues of the Hotels). Incentive
management fees are only payable to the extent that Cash Flow available for
distributions and incentive management fees, as defined in the Management
Agreement ("Cash Flow"), exceeds the amount required to pay the annual priority
distribution to limited partners of $2.20 per unit. Cash Flow is defined as
pre-tax income (or loss) before noncash charges (primarily depreciation and
amortization) and incentive management fees, but after the reserve for capital
improvements and principal payments on certain debt.
For the quarter ended March 31, 1996, 15% of adjusted gross operating profit was
$1.1 million. However, none of this amount was paid or accrued as incentive
management fees for the quarter because, as discussed below, Cash Flow in the
quarter was insufficient to fully cover the priority distribution to limited
partners. The unpaid incentive management fee from this quarter may be paid in
subsequent quarters if Cash Flow is sufficient.
NET INCOME: During the quarter ended March 31, 1996, net income was $646,000
($.15 per limited partner unit) compared to $230,000 ($.05 per limited partner
unit) for the quarter ended March 31, 1995. The improvement is due primarily to
the increase in revenues and decrease in depreciation expense discussed above.
12
<PAGE>
CASH FLOW AVAILABLE FOR DISTRIBUTION AND INCENTIVE MANAGEMENT FEES: Following
is a calculation of Cash Flow for the quarters ended March 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income $ 646 $ 230
Add (deduct):
Depreciation and amortization 2,418 2,735
Amortization of other assets 206 28
Cash reserved for capital improvements (746) (709)
Repayments on term loan (397) (363)
Deferred income tax provision 98 --
------- -------
Cash flow available for distribution and
incentive management fees 2,225 1,921
Priority distributions to partners (2,329) (2,329)
------- -------
Cash flow (shortfall) available for
payment of incentive management fee $ (104) $ (408)
======= =======
</TABLE>
The priority distribution to partners for the quarter ended March 31, 1996
exceeded Cash Flow for the current quarter by $104,000. Accordingly, no Cash
Flow was available for incentive management fees. As noted in the discussion of
operations above, 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.
Cash Flow increased in the first quarter of 1996 to $2.2 million ($.53 per
limited partner unit) from the comparable 1995 first quarter's $1.9 million
($.45 per limited partner unit), an increase of approximately $300,000 ($.08 per
limited partner unit) or 16%. The increase in Cash Flow is due to the higher
operating income discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership's principal source of cash is hotel operations. During the
quarter ended March 31, 1996, the Hotels generated sufficient cash from
operations to cover operating needs. It is expected that, for the remainder of
1996 cash provided by both operations and the credit facilities discussed below,
or by Red Lion, will be sufficient to meet anticipated cash requirements.
At March 31, 1996, the Partnership had in place a $14.1 million revolving loan
facility at a variable rate of interest. Borrowings under the revolving loan
facility averaged $12.5 million during the first quarter of 1996. At March 31,
1996, the interest rate was 8% and the balance outstanding was $12.6 million.
For further discussion of the Partnership's credit facilities, see Note 4 to the
Partnership's consolidated financial statements.
On April 2, 1996 the Partnership entered into a new three-year $125 million
credit facility. The credit facility includes a $120 million term loan and a $5
million revolving credit line. The proceeds of the new term loan were used to
pay in full all amounts owed under the prior mortgage note and revolving credit
facility, to pay a portion of the payable to affiliate related to deferred
incentive management fee (discussed in Note 3 to the Partnership's consolidated
financial statements) and to pay loan fees. Borrowings under the facility bear
interest at the London Interbank Offering Rate ("LIBOR") plus 2.25% and are
secured by the Hotels. Principal payments on the three-year term loan will
amount to $1.5 million, $2.4 million and $3.3 million for 1996, 1997 and 1998,
respectively, with a lump-sum payment due at the end of the term (March 31,
1999). At May 6, 1996, $2 million had been drawn on the new revolving credit
line.
13
<PAGE>
During the quarter ended March 31, 1996, the Partnership made total capital
improvements amounting to $4 million. Major improvements included guest room
renovations and common area refurbishments. These capital expenditures were
reserved and funded from Hotel operations in the amount of approximately
$746,000 pursuant to provisions of the Management Agreement requiring 3% of
gross revenues to be set aside for capital improvements. Capital expended
above the reserved amounts has been funded principally from advances made by Red
Lion.
INCOME TAXES: IN ACCORDANCE WITH CERTAIN PROVISIONS OF THE OMNIBUS BUDGET
RECONCILIATION ACT OF 1987, THE PARTNERSHIP WILL BE TREATED AS A CORPORATION FOR
INCOME TAX PURPOSES BEGINNING JANUARY 1, 1998. INCOME TAXES WILL NOT AFFECT
AMOUNTS AVAILABLE FOR PAYMENT OF MANAGEMENT FEES TO RED LION UNDER THE
MANAGEMENT AGREEMENT DESCRIBED ABOVE. DISTRIBUTIONS TO PARTNERS AFTER THAT TIME
WILL BE CONSIDERED TAXABLE DIVIDENDS. THE PAYMENT OF INCOME TAXES BY THE
PARTNERSHIP WILL DIRECTLY REDUCE THE DISTRIBUTIONS TO PARTNERS.
On April 19, 1996, the General Partner declared a quarterly cash distribution of
$.55 per limited partner unit ($2.20 annualized) for the current quarter,
payable on May 15, 1996, to unitholders of record on April 30, 1996. This
distribution has been accrued in the accompanying financial statements.
**************
The statements contained in this report that are not statements of historical
fact may include forward-looking statements that involve a number of risks and
uncertainties. Moreover, from time to time the Partnership may issue other
forward-looking statements. The following factors are among those that could
cause actual results to differ materially from the forward-looking statements:
national or local economic conditions affecting the supply and demand for hotel
space, competition in hotel operations, including additional or improved
services or facilities of competitors, price pressures and continuing
availability of capital to fund growth and improvements. The forward-looking
statements should be considered in light of these factors.
14
<PAGE>
PART II
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits: The following document is filed herewith and made a part of
this report:
Exhibit 27 - Article 5 Financial Data Schedule for 1st Quarter
10-Q.
(b) Reports on Form 8-K : None
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RED LION INNS LIMITED PARTNERSHIP
By: RED LION PROPERTIES, INC.
Its sole General Partner
Date: May 14, 1996
By: /s/David J. Johnson
----------------------------------------------
David J. Johnson
President and Chief Executive Officer
Date: May 14, 1996 By: /s/Michael Vernon
----------------------------------------------
Michael Vernon
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE>
INDEX OF EXHIBITS
Exhibit
Number
------
27 Article 5 Financial Data Schedule for 1st Quarter 10-Q
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 242,439
<DEPRECIATION> (75,071)
<TOTAL-ASSETS> 167,371
<CURRENT-LIABILITIES> 33,252
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,551
<TOTAL-LIABILITY-AND-EQUITY> 167,371
<SALES> 7,900
<TOTAL-REVENUES> 7,900
<CGS> 0
<TOTAL-COSTS> 4,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,847
<INCOME-PRETAX> 744
<INCOME-TAX> 98
<INCOME-CONTINUING> 646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 646
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
