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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended April 3, 1999
or
[ ] TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 1-14058
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RED ROOF INNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1393666
(State of Incorporation) (I.R.S. Employer Identification Number)
4355 DAVIDSON ROAD
HILLIARD, OHIO 43026-2491
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (614) 876-3200
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Number of shares of Common Stock outstanding at April 3, 1999
26,935,988
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 and, (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
The accompanying unaudited condensed consolidated financial statements
of Red Roof Inns, Inc. ("Red Roof" or the "Company"), a Delaware corporation,
have been prepared in accordance with the instructions to Form 10-Q, and
therefore do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect all
adjustments (consisting only of normal recurring accruals) which management
considers necessary for a fair presentation of operating results. Results of
operations for interim periods are not necessarily indicative of a full year of
operations or results for other interim periods. All material intercompany
transactions and balances between Red Roof Inns, Inc. and its subsidiaries have
been eliminated in consolidation. These condensed consolidated financial
statements should be read in conjunction with the Company's 1998 audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 2, 1999.
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<TABLE>
RED ROOF INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1999 AND APRIL 3, 1999
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
JANUARY 2, APRIL 3,
1999 1999
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,729 $ 7,439
Receivables 11,619 14,264
Supplies and other 20,581 19,677
-------- --------
Total current assets 34,929 41,380
PROPERTY AND EQUIPMENT:
Land 153,596 153,576
Buildings and improvements 654,564 676,833
Furniture, fixtures and equipment 135,861 139,999
Construction in progress 19,541 486
-------- --------
Total property and equipment 963,562 970,894
Less accumulated depreciation and amortization 117,473 126,391
-------- --------
Property and equipment - net 846,089 844,503
OTHER ASSETS:
Goodwill, net of accumulated amortization 67,915 67,349
Deferred loan fees and other - net 20,438 21,281
-------- --------
Total other assets 88,353 88,630
-------- --------
TOTAL $969,371 $974,513
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
RED ROOF INNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
JANUARY 2, 1999 AND APRIL 3, 1999
(IN THOUSANDS, EXCEPT PAR VALUES)
(UNAUDITED)
<CAPTION>
JANUARY 2, APRIL 3,
1999 1999
---------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,943 $ 11,197
Accrued expenses 28,131 30,290
Current maturities of long-term debt 15,048 15,085
-------- --------
Total current liabilities 56,122 56,572
LONG-TERM DEBT (LESS CURRENT MATURITIES):
Mortgage notes and obligations under capital leases 153,960 148,318
Bank facility 186,545 200,850
Senior unsecured notes 172,385 172,385
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Total long-term debt 512,890 521,553
OTHER LONG-TERM LIABILITIES 31,183 32,324
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000 shares authorized,
no shares issued
Common stock, $.01 par value; 100,000 shares authorized,
shares issued: 1998 and 1999 - 28,592 286 286
Additional paid-in capital 269,264 269,202
Less treasury stock, at cost: 1998 - 1,251 shares, 1999 - 1,656 shares (18,568) (24,952)
Retained earnings 118,194 119,528
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Total stockholders' equity 369,176 364,064
-------- --------
TOTAL $969,371 $974,513
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</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
RED ROOF INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 4, 1998 AND APRIL 3, 1999
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------
APRIL 4, APRIL 3,
1998 1999
-------- --------
<S> <C> <C>
REVENUES:
Room $ 84,564 $ 84,717
Fee-based 502 934
-------- --------
Total revenues 85,066 85,651
OPERATING EXPENSES:
Direct room 49,070 48,793
Depreciation and amortization 9,536 10,249
Corporate 7,702 8,718
Marketing 5,892 4,421
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Total operating expenses 72,200 72,181
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OPERATING INCOME 12,866 13,470
INTEREST EXPENSE - NET (11,982) (11,265)
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INCOME BEFORE INCOME TAXES 884 2,205
INCOME TAX EXPENSE (344) (871)
-------- --------
NET INCOME $ 540 $ 1,334
======== ========
NET INCOME PER SHARE:
Basic $ 0.02 $ 0.05
======== ========
Diluted $ 0.02 $ 0.05
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 27,632 27,046
======== ========
Diluted 27,834 27,115
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
RED ROOF INNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 4, 1998 AND APRIL 3, 1999
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
APRIL 4, APRIL 3,
1998 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 540 $ 1,334
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization 8,932 8,919
Amortization of goodwill 567 566
Loss from asset disposals and impairments 480 344
Deferred income taxes and other - net 829 2,479
Change in assets and liabilities:
Receivables (2,655) (2,536)
Supplies and other 314 553
Accounts payable 1,531 905
Accrued expenses 3,132 1,969
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Net cash provided by operations 13,670 14,533
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 881 278
Expenditures for property and equipment (21,495) (10,606)
Change in other assets (241) (1,640)
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Net cash used by investing activities (20,855) (11,968)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank facility 61,455 49,260
Principal reduction in mortgage notes and bank facility (59,584) (40,560)
Issuance of common stock 1,178 530
Purchase of treasury stock (7,085)
-------- --------
Net cash provided by financing activities 3,049 2,145
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,136) 4,710
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,154 2,729
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,018 $ 7,439
======== ========
INTEREST PAID $ 7,683 $ 7,132
======== ========
INTEREST CAPITALIZED $ 926 $ 301
======== ========
INCOME TAXES PAID $ 702 $ 222
======== ========
NON-CASH TRANSACTIONS:
Capital expenditures included in accounts payable $ 3,806 $ 844
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
RED ROOF INNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED AND APRIL 4, 1998 AND APRIL 3, 1999 (UNAUDITED)
1. GENERAL
The condensed consolidated financial statements include the accounts
of Red Roof Inns, Inc. and its wholly owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
The Company is an owner/operator and franchisor of economy chain
segment Inns. At April 4, 1998, the Company operated 258 Inns and had seven
franchised Inns. At April 3, 1999, the Company operated 259 Inns and had 47
franchised Inns.
Unaudited interim results for the thirteen weeks ended April 4, 1998
and April 3, 1999 contain all adjustments, consisting of normal recurring
accruals, which management considers necessary for a fair presentation of
interim financial position and results of operations for such periods. The
results are not necessarily indicative of the results for any other interim
period or the full fiscal year.
Certain amounts in the 1998 financial statements have been reclassed
to conform with the 1999 presentation.
2. LONG-TERM DEBT
As of April 3, 1999, there was $49.2 million available for borrowing
(not including outstanding letters of credit) under the Company's $250 million
bank facility.
3. STOCKHOLDERS' EQUITY
In January 1999, the Company sold 35,103 shares of common stock out of
treasury to employees at $13.33 per share under the Employee Stock Purchase Plan
for the 1998 plan year.
During the thirteen week period ended April 3, 1999, the Company
granted options to certain officers and employees under the Company's stock
option plans to purchase 814,850 shares at a weighted average price of $15.375
per share. The options vest at the rate of 25% per year.
During the thirteen week period ended April3, 1999, options were
exercised for 7,300 shares at prices ranging from $14.13 to $15.125 per share
under the Company's Management Stock Option Plan. In connection with the
termination of the employment of certain plan participants, 31,762 options
awarded under the Plan lapsed.
In September 1998, the Board of Directors authorized the Company to
repurchase up to 1,000,000 of its common shares, either in the open market or in
privately negotiated transactions. During the thirteen weeks ended April 3,
1999, the Company purchased 447,500 shares of its common stock in the open
market for an aggregate purchase price of $7.0 million, or $15.70 per share. A
total of 796,900 shares of common stock have been purchased through April 3,
1999 under the 1,000,000 shares authorization.
4. SUBSEQUENT EVENTS
In April 1999, the Company sold a property located in Florida with a
net book value of $2.6 million to a franchisee for $3.4 million. The Company
used the net proceeds to repay borrowings on the bank facility. The sale of this
property resulted in a gain of $.8 million and will not have a significant
effect on the results of operations for the Company.
In May 1999, the Board of Directors authorized the Company to expand
its share repurchase program from 1,000,000 shares to 2,000,000 shares, either
in the open market or in privately negotiated transactions.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- --------------------------------------------------------------------------
FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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The principal factors affecting Red Roof Inns' results are: occupancy and
room rates, continued growth in the number of Inns, fee based income from
franchising and partner programs, the Company's ability to manage expenses,
changes in interest rates, the level of competition and seasonality. Demand, and
thus occupancy, is affected by normally recurring seasonal patterns and, in most
locations, is lower in the winter and early spring months than the balance of
the year.
Three Company owned Inns and eight franchised Inns opened during the first
quarter of 1999, increasing the total number of Inns operating at April 3, 1999,
to 306 (including 47 franchised Inns). At April 4, 1998, 265 Inns were in
operation (including seven franchised Inns). Unless otherwise indicated, Inn
data presented in this report is based on the 247 Inns (the "Comparable Inns")
that the Company owned and operated at the beginning of and throughout the
thirteen weeks ended April 3, 1999 following four successive quarters as open,
operating, fully renovated or constructed properties. Management believes that
the remaining 12 Company operated Inns acquired or constructed (the "Inns in
Stabilization") have not been operated by the Company for a sufficient period to
provide meaningful period-to-period comparisons. Included in the Inns in
Stabilization are acquired Inns that underwent renovation causing rooms to be
out of service. Therefore, the average daily room rates and occupancies for
these Inns are not comparable to stabilized Red Roof Inns. Both acquired and
newly constructed Inns historically begin with lower occupancy and average daily
rates, which should improve over time as these Inns implement the Company's
operating policies and procedures and become integrated into the Company's
central reservation system.
The following Comparable Inns data is a comparison of the thirteen
weeks ended April 3, 1999 versus the comparable periodended April 4, 1998.
During the first quarter, the average daily rate ("ADR") increased $1.21 or
2.8%, from $42.95 per occupied room in 1998 to $44.16 per occupied room in 1999.
Occupancy declined from 71.9% in the first quarter of 1998 to 69.2% in 1999.
Revenue per available room ("REVPAR"), decreased $.32, or 1.0%, from $30.88 in
1998 to $30.56 in 1999. The Company attributes the decrease in occupancy and
RevPAR to the severe weather during January in the mid-west and northeast
regions of the country where over 50% of the Company's Inns are located. In
addition, during the first quarter of 1998, the Company experienced increased
occupancy as a result of a special rate promotion to celebrate its 25th
anniversary.
THIRTEEN WEEKS ENDED APRIL 3, 1999 COMPARED TO
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THIRTEEN WEEKS ENDED APRIL 4, 1998
----------------------------------
The Company's revenues are principally derived from room rentals and
fee-based income. The Company's financial strategy is to focus on increasing its
fee-based income from franchising and partner programs. As part of this
strategy, the Company has significantly scaled back the development of
company-owned Inns. As a result, revenue growth from company-owned Inns has
slowed, while growth related to franchised Inns and other fee-based programs is
beginning to increase.
Room revenues increased $.1 million, or .2%, from $84.6 million in 1998 to
$84.7 million in 1999. Room revenues for the 247 Comparable Inns decreased $.7
million from 1998 to 1999 primarily as a result of the decrease in REVPAR. Room
revenues for the Inns in Stabilization increased $.8 million, of which $2.1
million resulted from six Inns opened since April 4, 1998, which were offset by
$1.3 million from five Inns sold in April of 1998 and included in the first
quarter of 1998.
Fee-based revenues increased $.4 million in 1999 over 1998 from programs
to franchise the Company brand and from the formation of alliances with
well-known consumer product and service companies to promote partners' products
and services. The Company had 47 franchised Inns open at April 3, 1999 compared
to seven at April 4, 1998.
Direct room expenses include salaries, wages, utilities, repairs and
maintenance, property taxes, local advertising, room supplies, security, general
and administrative expenses. Direct room expenses decreased $.3 million, or .6%,
from $49.1 million in 1998 to $48.8 million in 1999. The decrease is primarily
due to improved operating efficiencies at the Inns and lower occupancy. As a
percentage of room revenues, direct room expenses decreased from 58.0% in 1998
to 57.6% in 1999.
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Gross operating profit (room revenues less direct expenses) increased
$.4 million, or 1.2%, from $35.5 million in 1998 to $35.9 million in 1999. As a
percentage of room revenues, gross operating profit increased from 42.0% in 1998
to 42.4% in 1999.
Depreciation and amortization increased $.7 million from $9.5 million
in 1998 to $10.2 million in 1999. The increase primarily reflects depreciation
of operating Inns acquired or developed during 1998 and 1999.
Corporate expenses include the cost of general management, training
and field supervision of Inn managers, franchising, development, reservations,
information systems and administrative expenses. Corporate expenses increased
$1.0 million, or 13.2%, from $7.7 million in 1998 to $8.7 million in 1999. The
increase is primarily related to an increase in franchise expenses due to
increased staffing for services and administrative support of the franchise
effort, increased reservation expenses due to an increase in call volume and
increased information systems expenses. As a percentage of revenue, corporate
expenses increased from 9.1% in 1998 to 10.2% in 1999.
Marketing expenses include the cost of media advertising and related
production costs, billboard expenses and expenses associated with the Company's
corporate sales group. Marketing expenses decreased $1.5 million, or 25.0%, from
$5.9 million in 1998 to $4.4 million in 1999. The decrease is primarily related
to a reduction in national media expenses related to a special rate promotion in
the first quarter of 1998 to celebrate the Company's 25th anniversary and a
reduction in billboard expenses. As a percentage of revenue, marketing expenses
decreased from 6.9% in 1998 to 5.2% in 1999.
Net interest expense decreased $.7 million from $12.0 million in 1998
to $11.3 million 1999 primarily due to lower average outstanding borrowings and
lower interest rates.
The effective income tax rates for 1998 and 1999 were 38.9% and 39.5%,
respectively. The increase in the 1999 effective tax rate is due to minor
increases in permanent differences.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
GENERAL
Cash and cash equivalents increased $4.7 million from $2.7 million on
January 2, 1999 to $7.4 million on April 3, 1999. Total debt outstanding
increased $8.7 million from $527.9 million at January 2, 1999 to $536.6 million
at April 3, 1999. The increase is due to $14.3 million in net borrowings on the
bank facility which was reduced by $5.6 million of scheduled principal
amortization of mortgage notes and obligations under capital leases.
Management anticipates that its working capital needs will be financed
by internally generated cash and the bank facility.
CAPITAL EXPENDITURES
For the thirteen week periods ended April 4, 1998 and April 3, 1999, the
Company spent $2.8 million and $5.9 million, respectively, in connection with
normal recurring capital maintenance improvements to existing Inns, corporate
facilities and equipment and expects to spend a total of approximately $20
million for such capital maintenance improvements for 1999. Additionally, the
Company is completing construction of new Inns and renovation of acquired
properties. In connection with the construction and renovation of these
properties, the Company spent $4.7 million during the thirteen week period ended
April 3, 1999, and expects to spend a total of approximately $9 million for
1999.
The Company substantially completed in the third quarter of 1998 its
Inn renewal program to refurbish the majority of its Inns. For the thirteen week
period ended April 4, 1998, the Company spent $1.9 million for such capital
improvements.
The Company acquired one development site in 1998 for an aggregate cost,
including pre-development costs, of $3.5 million. In addition, the Company has
one development site under a long-term lease that can be terminated by the
Company before June 1, 1999. The Company currently intends to use joint ventures
for the development of these sites or sell the properties to franchisees prior
to the opening of the properties.
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Management expects to fund the Company's capital expenditures
associated with improvements to the Comparable Inns and Inns in Stabilization
from cash flow from operations and from borrowings under the bank facility.
Expenditures for new construction, acquisitions and renovations will be financed
from these sources together with joint venture equity, property level debt and
available cash.
HISTORICAL CASH FLOWS
Cash provided by operations increased $.8 million from $13.7 million
in 1998 to $14.5 million in 1999, primarily due to the $.8 million increase in
net income.
Net cash used by investing activities decreased $8.9 million from
$20.9 million in 1998 to $12.0 million in 1999, primarily due to a reduction in
spending associated with the Inn renewal program and the curtailment of
company-owned Inn development. Expenditures for property and equipment in 1999
include $4.7 million related to construction on four development sites and
renovation of one acquired property.
Cash flows before financing activities was a negative $7.2 million in
1998 compared to a source of cash of $2.5 million in 1999. This $9.7 million
increase is primarily due to a reduction in capital expenditures. Cash flows
before financing activities represents cash provided by operations less net cash
used by investing activities.
Net cash provided by financing activities decreased $.9 million from
$3.0 million in 1998 to $2.1 million in 1999. This decline is primarily the
result of the reduced need for financing to fund company-owned Inn development
and Inn renewal costs, partially offset by the purchase of treasury stock for
$7.1 million.
EBITDA
EBITDA is operating income plus the sum of interest income, other
income, depreciation and amortization. EBITDA for the thirteen weeks ended April
3, 1999 increased $1.6 million, or 6.9%, from $22.4 million in 1998 to $24.0
million in 1999. EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally accepted
accounting principles. EBITDA is included herein because management believes
that certain investors find it to be a useful tool for measuring the ability to
service debt and fund the Company's operations.
YEAR 2000 ISSUES
The Company uses computer technologies throughout its business.
Computer technologies include both information technology in the form of
hardware and software, as well as embedded technology in the Company's
facilities and equipment. Similar to most businesses, the Company must determine
whether its computer systems are capable of recognizing and processing
date-sensitive information properly as the year 2000 approaches. The Company has
assembled a task force of Company personnel to assess the potential impact of
the year 2000 on the Company's operations and to develop solutions and
contingency plans to assure that the Company's ability to meet the needs of its
employees, suppliers and customers will not be impaired.
The Company has substantially completed its assessment of all
date-sensitive hardware and software and has identified four critical areas
requiring remediation: property management systems at the Inns; reservations
system; accounting systems; and telephone switching equipment. The Company has
taken the following actions to address year 2000 issues for these critical
areas:
o Property management systems at the Inns - All modifications necessary to
make the software year 2000 compliant have been completed. These
modifications have been tested and were implemented by the end of the
fourth quarter of 1998.
o Reservations system - New software that is year 2000 compliant was
developed by Company personnel and was implemented during January of
1999.
o Accounting systems - The Company has purchased accounting systems
software and hardware from outside vendors that are year 2000 compliant
and is currently installing and testing these systems and related
sub-
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systems. The Company expects implementation of the accounting systems to
be completed during the second quarter of 1999.
o Telephone switching equipment - The Company has identified all telephone
switching equipment that is not year 2000 compliant. Equipment that will
not function properly as a result of non-compliance will be replaced
during 1999.
In addition to the four critical areas identified above, the Company
is actively testing and correcting or replacing non-critical systems that are
not year 2000 compliant. The Company currently believes it will be able to
modify, replace, or mitigate all affected systems in time to avoid any material
detrimental impact on its operations. The Company will verify the accuracy of
this belief by further testing significant critical and non-critical systems
during the third quarter of 1999 and then remediating any remaining
non-compliance that may be revealed during these tests. If the Company
determines that it may be unable to complete timely remediation and testing of
an affected system, the Company intends to develop appropriate contingency plans
(to the extent reasonable alternatives are available) for any non-compliant
system that the Company may determine would have a potential material
detrimental impact upon Company operations.
The Company is not currently aware of any significant possibility that
its systems will not be properly remediated on a timely basis. However, there
can be no assurance that all year 2000 remediation processes will be completed
and properly tested before the year 2000, or that contingency plans will
sufficiently mitigate the risk of a year 2000 readiness problem. An interruption
of the Company's ability to conduct its business due to a year 2000 readiness
problem could have a material adverse effect on the Company.
In addition to its internal systems, the Company is heavily dependent
on public utility services for its Inns and for its corporate operations, as
well as a national carrier for its telephone services both at Inn level and for
its reservations system and a national processing service for its credit card
transactions. The inability of these vendors to provide services to the Company
due to year 2000 issues could have a material adverse effect on the Company.
The Company has initiated formal communications with its significant
suppliers and critical partners to determine the extent to which the Company
might be vulnerable if any of those parties fails to remediate its own year 2000
issues. The Company has taken steps to monitor the progress made by those
parties and intends to test critical system interfaces before the fourth quarter
of 1999. The Company will develop appropriate contingency plans (including the
potential to convert to other vendors or service providers if reasonable
alternatives are available) to be implemented if significant exposure is
identified relative to the Company's dependency on a non-compliant third-party
system. While the Company is not currently aware that any critical third-party
system on which the Company relies is likely to be non-compliant at the
beginning of the year 2000, there can be no guarantee that the systems of
third-parties on which the Company relies will be converted in a timely manner,
or that a failure to properly convert by another vendor or service provider
would not have a material adverse effect on the Company.
The Company estimates that the aggregate costs (exclusive of internal
salaries and wages) for remediation of year 2000 issues will be approximately $7
million, including $5.2 million of costs already incurred. The total estimated
aggregate costs include $5.5 million of capitalized costs associated with the
replacement of the Company's accounting system and phone switches at certain of
its locations. In addition, the Company estimates it will incur charges to
earnings of $1.6 million, the majority of which were incurred in 1998. The
anticipated impact and costs of the year 2000 remediation project, as well as
the date on which the Company expects to complete the project, are based on
management's best estimates using information currently available. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those plans. Based on current estimates and
information currently available, the Company does not anticipate that the costs
associated with this project will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows
in future periods.
FORWARD LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements, including, without
limitation, statements relating to; expected performance of stabilized Inns;
future fee-based revenues; the financing of the Company's working capital needs;
expected capital expenditures in connection with improvements to existing
properties; the use of joint venture or pre-sale structures to develop
construction sites purchased or under contract to lease; the cost of
improvements and renovations to newly acquired properties; and timing and cost
of year 2000 remediation. These and other statements containing words or phrases
such as "believes", "anticipates", "estimates", "expects", "intends", and "the
Company will"
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should be considered forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers that these forward-looking
statements involve known and unknown risks and uncertainties, and are subject to
change based on various important risk factors that could cause actual Company
plans, goals, objectives, policies, operations, results and performance to
differ materially from those expressed or implied by the forward-looking
statements. The following factors, among others, in some cases have affected and
in the future could affect the Company's actual financial performance: company
expansion risks, lodging industry risks, financial market risks, cyclicality,
seasonality, competition, year 2000 issues, regulatory issues, environmental
matters, franchising risks and control by existing stockholders. For a more
detailed discussion of these factors, please refer to the section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition Forward Looking Statements; Certain Factors Affecting Future Results"
in the Company's Annual Report on Form 10-K for the fiscal year ended January 2,
1999.
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PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
- --------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Ex - 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the thirteen weeks ended
April 3, 1999.
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SIGNATURE
Pursuant to the requirement 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 ROOF INNS, INC.
-------------------
(Registrant)
Date: May 13, 1999 /s/ David L. Rea
-----------------------------------------
David L. Rea
Executive Vice President,
Chief Financial Officer and Treasurer
Date: May 13, 1999 /s/ Robert M. Harshbarger
-----------------------------------------
Robert M. Harshbarger
Senior Vice President, Controller
and Chief Accounting Officer
14
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<NAME> RED ROOF INNS, INC.
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