ITEM 1. BUSINESS
GENERAL
Red Roof Inns is the largest owner/operator of economy segment hotels in the United States, with 248 inns containing more than 28,100 rooms in 33 states, located primarily throughout the Midwest, East, South and Gulf Coast regions. Red Roof's hotels are designed to attract both the business and leisure traveler seeking room quality and inn locations that are generally comparable to those of mid-price hotels, but at lower average room rates. By not providing full-service, management-intensive facilities and services, such as in-house restaurants or cocktail lounges, banquet centers, conference rooms, room service, recreational facilities or other services and facilities that the Company's targeted customers do not typically value, Red Roof is able to deliver a product that addresses its customers' needs and price expectations. In general, Red Roof's guests are evenly divided between business and leisure travelers.
According to STR, Red Roof has one of the highest occupancy rates in the economy segment of the lodging industry. The Company's Base Inns had an average occupancy percentage of 75.5% with an average daily room rate ("ADR") of $45.10 for 1996. Base Inn revenue per available room ("REVPAR") has grown over the past four years at a compound annual rate of 4.3% to $34.05 for 1996.
The following table sets forth certain data for the Company's Base Inns for the years indicated:
In 1996, the Company's Base Inns REVPAR increased by 3.2% over 1995 as the result of a 5.6% increase in ADR and a 1.8 percentage point decline in the average occupancy percentage. The Company's ADR remains lower than the average for the economy segment overall in 1996, which provides the Company with the flexibility to increase rates. In addition, for the four year period from 1992 through 1996, the Company increased operating income at a compound annual growth rate of 7.5%. These increases in operating income were achieved by increasing REVPAR and controlling costs.
Red Roof Inns is a price value leader in the economy segment of the lodging industry and operates its inns with a view toward offering inn locations and room quality comparable to many mid-priced hotels but at substantially lower room rates. Management believes that the Company's customers' perception of strong customer value is dependent on three components: price, location and consistent quality. Guests who travel in the economy segment do so to save money. Red Roof Inns is able to maintain its low prices by being a low-cost provider as a result of a consistent company-wide emphasis on cost control. Red Roof's inns are generally located near interstate highways, major traffic arteries or major destination areas such as airports, business districts, universities, hospitals or convention centers. All locations are well constructed and maintained and are attractively landscaped to enhance their appearance. In addition, the Company strives to deliver a consistent guest experience throughout the chain by following a consistent chainwide set of operating, marketing and hospitality standards. The Company's success in providing customer value is demonstrated by its consistently high occupancy levels compared to the average for the economy segment.
The Company believes that it has achieved significant brand name awareness as a result of its ability to provide high-quality, well-located accommodations and superior value, together with its national advertising campaign featuring actor/comedian Martin Mull. This brand awareness and reputation for price, quality and value have consistently placed Red Roof Inns among the leaders in the economy segment in terms of occupancy rates and REVPAR, according to STR. In addition, the brand name has earned the Company a strong following of loyal guests. In 1996, Red Roof ranked second among economy chains for repeat guests based upon survey results from a national travel market research firm. Management believes that the Company's brand identity provides it with a significant advantage over independent hotel operators and other economy segment chains, and together with its operational expertise, will enhance the performance of existing and newly constructed and acquired properties. As a result, management is expanding the chain on a national basis through hotel development and franchising. In its franchising program, the Company is targeting qualified multi-unit hotel owners and developers who will perpetuate the Company's strong brand identity by maintaining the Company's high product, service and consistent standards.
The Company promotes and operates its own reservation center and toll-free number (1-800-THE-ROOF) to accept reservations. During 1996, the Company handled approximately 2.6 million calls through the toll-free number, of which approximately 42% were converted to reservations, contributing to the Company's high level of occupancy. Management believes that its leadership in occupancy provides it with increased flexibility to set room pricing under various economic conditions.
The Company has operated its inns since its formation in 1972. Red Roof's management has substantial experience in the lodging industry. On average, senior management has approximately 13 years experience in the lodging industry and is supported by operational and administrative vice presidents with an average of 14 years experience, and on-site general managers with an average of seven years experience. Each Red Roof inn is operated as an individual profit center by a general manager who oversees all day-to-day operating activities and implements corporate rate management and cost containment strategies. Management believes this structure reduces operating costs while creating incentives to maximize REVPAR and enhance operating margins by adapting room rates to prevailing market conditions at individual inns.
STRATEGY
The Company's strategy is to increase cash flow and earnings by (i) increasing REVPAR while maintaining the room price and value relationship and controlling costs, (ii) increasing the number of inns through franchising and (iii) increasing the number of inns the Company owns and operates through selective new construction and acquisitions.
INCREASE REVPAR. The Company intends to increase cash flow through REVPAR increases, primarily from increasing ADR, maintaining strong occupancy levels and controlling costs. The Company believes that increases in REVPAR will be achieved as a result of its chainwide inn renewal program ("Project BIG RED") and through the implementation of an automated revenue management system as described below. The Company also believes that it will be able to increase REVPAR by stimulating room demand through extensive advertising and promotional strategies.
- PROJECT BIG RED - In the fourth quarter of 1996, the Company launched Project BIG RED, a chainwide property renewal program which will refurbish and enhance both the interior decor and exterior appearance of more than 85% of the Company's inns as well as provide additional room amenities and services for guests. Project BIG RED will give the rooms a more modern, residential feel with new carpet, wallcovering, furniture, bedspreads and drapes. A brighter paint shade, new signs, improved lighting and additional landscaping will enhance the exterior appeal of the inns and highlight the properties for approaching travelers. The program will also add additional amenities to all rooms, which management believes will reinforce Red Roof Inns' position as a price value leader in the economy segment. The program also includes adding additional features to the Company's business king rooms which are designed to better address the needs of the business traveler. Management believes that Project BIG RED will reinforce the Company's commitment to providing high value and service at reasonable prices, further strengthen the Company's competitive position versus its economy segment competitors and enhance revenues by allowing the Company to increase ADR and REVPAR. Project BIG RED is expected to be completed by mid-year 1997 with an expected total project cost of approximately $55 to $60 million. The Company anticipates total non-recurring charges to earnings of $20 to $25 million related to early asset retirements and other expenses associated with Project BIG RED. Approximately $10 million of the non-recurring charges ($8 million related to early asset retirements) were recognized by the Company during the fourth quarter of 1996 and the balance is expected to be recognized during the first two quarters of 1997. See "Item 8. Financial Statements and Supplementary Data - Note 10 to the Consolidated Financial Statements."
- REVENUE MANAGEMENT SYSTEM - In May 1996 the Company contracted with Aeronomics, Inc., a leader in automated yield management systems for the hotel and airline industries, to develop and implement a fully automated revenue management system. The automated system will be linked to both the central reservation system and the individual property management systems, providing real-time information. The system is essentially an inventory control system that will enable the Company to better manage both occupancy and rate by analyzing historical data and trends and current reservation activity to forecast current trends. Inn managers will be able to use the system to foresee peak occupancy days and predict cancellations, no-shows, stay-overs, and walk-in traffic. This will enable the managers to adjust room rates and better manage both lengths of stay and discount business. Management expects the revenue management system to be fully implemented in late 1997. Based upon an analysis completed by Aeronomics, Inc., management believes that implementation of the automated yield management system can increase revenue by two to four percent.
FRANCHISING. In August 1996, the Company implemented a program to offer franchises of Red Roof Inns to qualified franchisees. The Company will grant franchisees the right to use the Red Roof Inn name, obtain reservations through the Company's central reservation system and use the Company's inn designs, operating systems and procedures. In return, franchisees will pay royalty, marketing and reservation fees to the Company. The amount of fees will vary with the total revenues produced by the franchised inn as well as with levels of customer service, as measured by an independent survey conducted by a market research company, achieved by each inn. The Company believes this strategy will allow it to continue to expand the Red Roof Inn brand nationally without significant capital investment. The Company believes that its franchises are attractive because of its superior occupancy, attractive operating profit margins,
the significant open territories in the Red Roof Inns system, the development, operations, reservations and marketing support the Company provides and the consistency of the Red Roof Inns product. The franchising program is focused on developing relationships with experienced, multi-unit hotel owners who will develop new Red Roof inns and/or convert existing inns to the Red Roof Inn name. The Company believes that this strategy will allow it to increase revenues, cash flow and the number of Red Roof Inns while maintaining consistent quality across the entire chain.
As of December 28, 1996, the Company was in negotiations with several multi-unit hotel owners for the development of 25 new franchised Red Roof inns over the next few years. On February 18, 1997, Red Roof announced that it had signed its first franchise Multi-Unit Development Agreement with Columbus Hotel Properties, L.L.C. to develop 10 properties over the next three and a half years and to franchise them as Red Roof Inns. Columbus Hotel Properties is currently focusing on sites and potential acquisitions in the southeastern United States.
HOTEL DEVELOPMENT. The Company continues to expand through both the construction of new inns and the acquisition of existing inns in strategic markets. The Company evaluates expansion opportunities within existing markets, as well as selected regions of the country where the Company has not historically had a substantial presence. The Company seeks to concentrate on properties within its selected target markets in order to maximize operating efficiencies and regional brand recognition. In addition to the foregoing, the Company may consider, under appropriate circumstances, the acquisition of local or regional chains. The Company believes that it has a strong corporate infrastructure in place to accommodate significant inn expansion, including an experienced development and acquisition team, an effective central reservation system, a well-developed property management system and an extensive management training program.
As the Company pursues its strategy, acquisitions of existing inns will be targeted in those markets where there are no suitable development sites that meet the Company's stringent standards for quality, location, performance and cost. Since June 1994, the Company has acquired 18 development sites located in Arizona, Florida, Georgia, Ohio and Texas. The Company estimates that it will construct a total of approximately 2,445 rooms on these development sites. A total of 12 developed inns consisting of 1,430 rooms were open as of December 28, 1996.
Since June 1994, the Company has acquired 27 inns (26 of which were open as of December 28, 1996) consisting of 3,654 rooms (after conversion and room additions) located in Alabama, Arizona, California, Colorado, Connecticut, Florida, Massachusetts, Mississippi, New Jersey, North Carolina, South Carolina, Texas, Virginia and Washington, D.C.
Certain of the newly acquired inns differ from the Company's existing inns in terms of construction, number of rooms, room size, building configuration, signage and decor and in other respects. See "Item 2.
ITEM 2. PROPERTIES
The Company believes that it has frequently benefited from identification and development of attractive locations in local markets prior to many of its competitors. In addition, since Red Roof was one of the first economy segment chains, the Company is firmly established in many of its markets.
Red Roof adheres to rigorous standards in building and maintaining each inn. Management believes that its high-quality construction standards are superior to that of many of its competitors.
Red Roof Inns contain an average of approximately 114 rooms. In addition to standard rooms, each inn has rooms equipped for the handicapped and has "business king" rooms containing a king-sized bed, a desk and computer tie-in services. Each inn features a choice of rooms for non-smokers and smokers, free unlimited local telephone calls, remote-control television with CNN, ESPN and Showtime, free coffee and USA Today newspaper in the lobby, 24-hour front desk and message service, direct corporate billing and free parking. Many of the Company's inns are adjacent to free-standing restaurants affiliated with restaurant chains such as Bob Evans, Shoney's and Cracker Barrel that provide food service to Red Roof's guests.
To maintain the overall quality of the Company's existing inns, each inn undergoes periodic renovations and capital improvements as required. These renovations are completed in accordance with established maintenance programs that list specific tasks to be completed, including such items as seasonal landscaping and inspection of the condition of sidewalks, parking areas and signage. In 1994, 1995 and 1996, the Company spent approximately $11.9 million, $14.5 million and $15.4 million, respectively, on capital improvements to existing inns.
In the fourth quarter of 1996, the Company commenced Project BIG RED to refurbish and enhance the appearance of more than 85% of its inns. The program enhances interior decor by updating guest rooms with new carpet, wallcovering, furniture, bedspreads and drapes, and provides additional room amenities and features. Painting, new signs, improved lighting, and additional landscaping enhance exterior appeal. Management believes Project BIG RED will allow the Company to increase ADR and REVPAR and will further strengthen its competitive position within the economy segment of the lodging industry. Project BIG RED is expected to be completed by mid-year 1997 with an expected total project cost of approximately $55 to $60 million. The Company anticipates total non-recurring charges to earnings of $20 to $25 million related to early asset retirements and other expenses associated with Project BIG RED.
Approximately $10 million of the non-recurring charges ($8 million related to early asset retirements) were recognized by the Company during the fourth quarter of 1996 and the balance is expected to be recognized during the first two quarters of 1997. See "Item 8. Financial Statements and Supplementary Data - Note 10 to the Consolidated Financial Statements."
In 1996, the Company introduced a new building design featuring all interior corridors, regionally based decor packages and new bathroom designs. This new building design offers approximately 77% rentable space.
Since June 1994, the Company has purchased 18 development sites in the following locations: Texas - San Antonio (3), Houston (3), El Paso (2), Laredo, Plano and DeSoto; Arizona - Phoenix, Tempe and Tucson; Florida - West Palm Beach and Jacksonville; Georgia - Atlanta and Ohio - Youngstown. These inns will have a total of approximately 2,445 rooms when fully developed.
As part of its expansion strategy, the Company has recently acquired, and will continue to acquire, existing inn properties which may differ from inns built by the Company in terms of construction, number of rooms, room size, building configuration, signage, decor and other respects. After acquisition and conversion by the Company, acquired inns are consistent with the Company's enhanced quality and other standards. See "Item 1 - Business - Hotel Development."
Since June 1994, the Company has acquired 27 inns in the following locations: Alabama - Gadsden; Arizona - Tucson; Colorado - Colorado Springs; California - San Dimas, Anaheim, Ontario, Victorville, Santa Ana and San Francisco; Connecticut - Hartford; Florida - Naples, Ft. Lauderdale and Miami; Massachusetts - Woburn; Mississippi - Tupelo; New Jersey - Tinton Falls; North Carolina - Greenville and Cary; South Carolina - Myrtle Beach and Charleston; Texas - Austin, Corpus Christi, Dallas/Fort Worth-Irving and Houston (2); Virginia - Charlottesville and Washington, D.C. These inns will have a total of 3,654 rooms after conversion and room additions.
For information with respect to planned expenditures in connection with newly acquired and developed properties, see "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - Capital Resources and Liquidity - Capital Expenditures."
At December 28, 1996, the Company had a total of 248 inns in 33 states primarily throughout the Midwest, East, South and Gulf Coast regions of the United States, with concentrations in Ohio (28), Michigan (20), Texas (20), Pennsylvania (15), North Carolina (14) and Illinois (13). Nine Red Roof properties are subject to ground leases. All ground leases have remaining terms including renewal options aggregating longer than 25 years.
At four additional Red Roof properties, the Company leases both the land and the buildings. At two of these four properties (the Harrisburg-North, Pennsylvania and Parkersburg, West Virginia inns), the landlord in each case is a partnership in which the Company owns or controls a substantial majority of the partnership interests. At the Parkersburg, West Virginia property, the lease expires in 2001 and the Company does not have an option to extend the lease or purchase the property. At the Harrisburg, Pennsylvania property, the Company subleases the property from the partnership which leases the property from the Dauphin County Industrial Development Authority. The Harrisburg lease expires in 2004 and the partnership has the option to purchase the property at any time during or within 90 days of the expiration of the term of the lease, for an amount equal to $100,000 above the balance then due on the industrial revenue bonds issued to finance the development of the property. The Company does not have an option to extend the lease or purchase the Harrisburg property. At the third property, located in Charleston, West Virginia, the lease expires in 2016 (including the exercise of all renewals) and the Company does not have an option to extend the lease or purchase the property. At the fourth property, located in Colorado Springs, Colorado, the lease expires in 2015 (including the exercise of all renewals) and the Company has an option to purchase the property at fair market value.
The remainder of the Company's inns are 100% owned in fee by the Company. As of December 28, 1996, 108 inns were encumbered by mortgage loans or industrial revenue bonds maturing in various years from 1997 to 2008. See "Item 8. Financial Statements and Supplementary Data - Note 4 to the Consolidated Financial Statements." In addition, the Company has a $150 million bank credit facility (the "Bank Facility"), of which $100 million is currently available and is secured by 41 inns and $50 million is available upon perfection of liens on approximately 20 inns.
The Company owns its corporate office building, which is located in suburban Columbus, Ohio. It is encumbered by a mortgage loan maturing in 2009.
The Company believes that it maintains adequate aggregate insurance coverage on its properties, subject to appropriate deductibles. The Company uses a retrospective self-insurance plan for general liability and workers compensation insurance. See "Item 8. Financial Statements and Supplementary Data - - Note 1 to the Consolidated Financial Statements."
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of business. The Company believes that the ultimate outcome of these lawsuits will not have a material adverse effect on the Company's business, assets, financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 28, 1996, no matter was submitted to a vote of the Company's security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
On January 31, 1996, the Company issued 10,000,000 shares of common stock, $.01 par value, in a public offering (the "Offering") at a price of $16 per share. See "Item 8. Financial Statements and Supplementary Data - Note 6 to the Consolidated Financial Statements." The Company's common stock began trading on the New York Stock Exchange (the "NYSE") on February 1, 1996. As of February 28, 1997, the approximate number of holders of record of the Company's common stock was 239 and the closing sales price per share as reported by the NYSE was $15 3/8. The following table presents the quarterly high and low sales prices of the Company's common stock during 1996 as reported by the NYSE.
High Low ---- ---
First quarter 17 5/8 12 5/8 Second quarter 15 3/8 13 1/2 Third quarter 14 3/8 12 3/8 Fourth quarter 17 1/4 13 1/4
Subsequent to the Merger, the Company has not paid any dividends on its common stock. It is the general policy of the Company to retain its earnings to support the growth of its business. Any dividends declared will be at the discretion of the Board of Directors and will depend upon the Company's financial condition, earnings and other factors. The Merger was consummated concurrently with the initial offering of the Company's 9 5/8% Senior Notes due 2003 (the "Notes") in a private placement. The Indenture pursuant to which the Notes were issued, the Company's Bank Facility and an agreement relating to certain of the Company's mortgage indebtedness contain restrictions or limitations upon the payment of dividends by the Company. See "Item 8. Financial Statements and Supplementary Data Notes 4 and 5 to the Consolidated Financial Statements."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data (excluding Base Inn statistics) relating to the Company have been taken or derived from the historical financial statements of the Company and are qualified in their entirety by reference to such financial statements and notes. See "Item 8. Financial Statements and Supplementary Data." The financial data as of January 2, 1994 and December 17, 1993 and for the fiscal year 1992 and the 50 weeks of 1993 have been derived from audited financial statements of the Predecessor Company which are not included in this report. The financial data as of January 1, 1994 and for the two weeks of 1993 have been derived from audited statements of the Company which are not included in this report.
(1) The Company operates on a 52-53 week fiscal year which ends on the Saturday nearest to December 31. The 1992 fiscal year consisted of 53 weeks while the 1993 (combined), 1994, 1995 and 1996 fiscal years each consisted of 52 weeks. The actual year end for each fiscal year was as follows: January 2, 1993, December 17, 1993 (50 weeks pre-Merger), January 1, 1994 (2 weeks post-Merger), December 31, 1994, December 30, 1995, and December 28, 1996.
(2) Operating income, income before income taxes, net income, cash flow from operations and EBITDA for the fiscal year 1992 were reduced by a non-recurring charge of $3,183 due to a loss from an affiliate's obligations.
(3) Operating income, income before income taxes, net income, cash flow from operations and EBITDA for the 50 weeks ended December 17, 1993 were reduced by a non-recurring charge of $3,814 related to payment to participants in a stock appreciation rights plan as a result of the change of control.
(4) Operating income, income before income taxes and EBITDA for 1995 were reduced by a non-recurring expense of $3,142 relating to a change in management. Had such expense not been incurred, operating income, income before income taxes and EBITDA would have been $84,709, $33,980 and $112,132, respectively, with EBITDA as a percentage of revenues being 38.5%. Net income and cash flow from operations for 1995 were reduced by $1,873 ($.10 per share) due to such expense. Excluding this expense, net income and cash flow from operations would have been $20,195 ($1.08 per share) and $49,658, respectively. See "Item 8. Financial Statements and Supplementary Data - Note 11 to the Consolidated Financial Statements."
(5) Operating income and income before income taxes for 1996 were reduced by non-recurring expenses of $10,398 relating to the inn renewal program (including $7,847 related to early asset retirements) and $450 relating to an adjustment to recognize impairments of certain long-lived assets. Had such expenses not been incurred, operating income and income before income taxes would have been $91,436 and $50,524, respectively. EBITDA was reduced by $2,551 relating to the non-recurring expenses. EBITDA would have been $120,531 with EBITDA as a percentage of revenues being 38.0%. Excluding these expenses, net income and cash flow from operations would have been $30,545 ($1.11 per share) and $62,072, respectively. See "Item 8. Financial Statements and Supplementary Data - Notes 1 and 10 to the Consolidated Financial Statements."
(6) Prior to the merger, the Company was a Qualified Subchapter S Corporation and did not pay federal income taxes at the corporate level. Following the Merger, the Company became subject to federal income taxes and additional state income taxes.
(7) Adjusted to give effect solely to the issuance of an additional 10,000 shares in the Offering, 1994 and 1995 net income per share would have been $.59 and $.64, respectively.
(8) Subsequent to the Merger, the Company has not paid any dividends on its common stock.
(9) EBITDA is operating income plus the sum of interest income, other income, depreciation and amortization, and loss on fixed asset retirements. 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.
(10) For purposes of calculating the ratio of earnings to fixed charges, earnings include income before income taxes plus fixed charges, excluding capitalized interest. Fixed charges consist of interest expense, including capitalized interest, and the portion of rental expense representative of an interest factor.
(11) Earnings were inadequate to cover fixed charges by $785 in the two weeks ended January 1, 1994 due to the seasonality of the Company's business. See "Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The following tables sets forth certain operating data for the periods indicated:
RECENT DEVELOPMENTS
During the third quarter of 1996, the Company successfully completed a 500,000 common share repurchase program. In February 1997, the Board of Directors authorized a new common share repurchase program, pursuant to which the Company may repurchase up to another 500,000 of its common shares, either in the open market or in privately negotiated transactions, depending on market conditions and other factors. The shares will be used to fulfill the Company's requirements for its employee stock purchase and management stock option plans. See "Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Red Roof Inns, Inc.
We have audited the accompanying consolidated balance sheets of Red Roof Inns, Inc. and its subsidiaries as of December 30, 1995 and December 28, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 28, 1996. These financial statements are the responsibility of the Company's 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, such consolidated financial statements present fairly, in all material respects, the financial position of Red Roof Inns, Inc. and its subsidiaries at December 30, 1995 and December 28, 1996, and the results of their operations and their cash flows for each of three years in the period ended and December 28, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Columbus, Ohio February 10, 1997
RED ROOF INNS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 30, 1995 AND DECEMBER 28, 1996 (IN THOUSANDS)
See notes to consolidated financial statements.
RED ROOF INNS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) DECEMBER 30,1995 AND DECEMBER 28,1996 (IN THOUSANDS, EXCEPT PAR VALUES)
See notes to consolidated financial statements.
RED ROOF INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1994, December 30, 1995 and December 28, 1996 (in thousands except per share amounts)
See notes to consolidated financial statements.
RED ROOF INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1994, December 30, 1995 and December 28, 1996 (in thousands)
See notes to consolidated financial statements.
RED ROOF INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30,1995 AND DECEMBER 28, 1996 (IN THOUSANDS)
See notes to consolidated financial statements.
RED ROOF INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - The Company was formed in November 1993 and is a subsidiary of The Morgan Stanley Real Estate Fund, L.P. (MSREF). The Company operates on a 52-53 week fiscal year which ends on the Saturday nearest to December 31. At December 31, 1994 (1994), December 30, 1995 (1995) and December 28, 1996 (1996), the Company operated 220, 231 and 248 inns, respectively.
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Red Roof Inns, Inc. and its wholly owned subsidiaries, RRI Investment Co. and RRI Financial Inc. All material intercompany transactions and balances have been eliminated in consolidation.
Nature of Operations - The Company is an owner/operator of economy inns and revenues are primarily derived from room rentals. The Company's properties are primarily located throughout the Midwest, East, South and Gulf Coast regions of the United States.
Use of Estimates - The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates, but it is management's opinion that any changes in estimates would not have a material effect on the consolidated financial statements.
Supplies - Supplies inventory is stated at cost which represents the cost to supply the inns with their respective initial operating inventories. Replacements needed to maintain the original operating inventory are charged to expense in the period such replacement occurs.
Property and Equipment - Property and equipment are stated at cost. Depreciation and amortization of property and equipment is based on the straight-line method over estimated composite useful lives which range from 3 to 15 years for furniture, fixtures and equipment and 12 to 40 years for buildings and improvements.
Capitalization of Development Expenses - Costs incurred by the Company related to site acquisition and development are capitalized and allocated to the properties acquired or developed. No such costs were capitalized during 1994. Costs capitalized during 1995 and 1996 totaled $1,138,000 and $2,162,000, respectively.
Goodwill - The excess of the purchase price over the fair values of net assets acquired (goodwill) is being amortized on a straight-line basis over 35 years. During 1994 based on updated fair value information, the Company reallocated $3,708,000 to property from goodwill. The amount at December 30, 1995 and December 28, 1996 is net of accumulated amortization of $4,656,000 and $6,922,000, respectively.
Deferred Loan Fees and Costs - Deferred loan fees and costs are amortized using the straight-line method over the terms of the loans ranging from 2 to 15 years. The amount at December 30, 1995 and December 28, 1996 is net of accumulated amortization of $1,700,000 and $2,958,000, respectively.
Other Assets - Other assets principally include software costs, net of accumulated amortization using the straight-line method over a useful life of five years, preliminary site acquisition costs, escrow deposits for furniture replacements and investments in affiliates.
Asset Impairments - Annually, or more frequently if events or circumstances change, a determination is made by management, in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, to ascertain whether property and equipment, goodwill, and other intangible assets have been impaired based on the sum of estimated future undiscounted cash flows from operating activities. If the estimated net cash flows are less than the carrying amount of such assets, the Company recognizes an impairment loss in an amount necessary to write down such assets to a fair value as determined from expected discounted cash flows. During 1996, the Company recorded an impairment charge of
$450,000 related to land held for sale (included in depreciation and amortization expense) and a charge of $7,847,000 related to assets being disposed of in connection with its inn renewal program (see Note 10).
Based upon its most recent analysis, the Company believes that property, goodwill and other intangibles at December 28, 1996 are realizable and the depreciation and amortization periods are appropriate.
Income Taxes - The Company is subject to federal, state, and local income taxes. Income taxes are provided for all taxable items included in the statements of income in accordance with SFAS No. 109.
Self-Insurance Programs - The Company uses a retrospective self-insurance plan for general liability and workers' compensation. A liability has been recorded in the financial statements based on information currently available as to the estimated ultimate cost for incidents incurred prior to the balance sheet dates. Losses in excess of certain limits are insured with third-party insurance companies. Estimated payments against the insurance liability for each of the next five years are: 1997 - $4,496,000; 1998 - $2,030,000; 1999 - $2,039,000; 2000 - $1,367,000 and 2001 - $471,000.
Advertising - The Company expenses the costs of advertising (including production costs) the first time advertising takes place. Advertising expenses consist of billboard and local advertising, which is included in direct room expenses, and national media advertising, which is included in corporate and marketing expenses. Advertising expense was $16,279,000, $17,728,000 and $17,907,000 for 1994, 1995 and 1996, respectively.
Net Income Per Share - Net income per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding during the years presented adjusted to reflect the 1840 for 1 stock split in December 1994.
Cash Equivalents - Cash in excess of daily requirements is invested in money market and government securities with maturities of three months or less. Such investments are considered to be cash equivalents. The majority of such funds are held by the Company's lead bank. The Company has not experienced any losses on these investments.
Reclassifications - Certain amounts in the prior years financial statements have been reclassed to conform with the 1996 presentation.
2. TRANSACTIONS WITH AFFILIATES
The Company operates two motels under long-term capital lease agreements with affiliated partnerships which own the motels. Such affiliation exists because the Company is a partner in the partnerships. The Company's ownership interests in the operating profits and losses of such partnerships are 3% and 29%, respectively, and ownership in the residual values of such partnerships is 73% and 80%, respectively. The partnerships are consolidated as capital leases and are immaterial to the consolidated financial statements.
The Company was provided certain underwriting services through an affiliate of MSREF in connection with the Company's 1996 public stock offering and obtains certain shared administrative services with unrelated parties through master contracts available through MSREF.
3. LEASES
The Company leases certain assets used in its operations under long-term capital leases, principally three motels (including one with an unrelated party), land, telecommunication equipment and televisions. These leases typically contain renewal privileges and purchase options and expire at various dates through 2006. The leases generally require payment of property taxes, insurance and maintenance costs. The Company leases land, a motel, a warehouse and billboard advertising space under noncancelable operating leases. Land leases expire at various dates through 2034 and other leases expire at various dates through 2005. Total operating rent expense for 1994, 1995 and 1996 was $9,952,000, $11,269,000 and $12,622,000, respectively.
Future minimum lease payments under non-cancelable leases at December 28, 1996 are as follows (in thousands):
The following is a summary of property and equipment under capital leases (in thousands):
4. NOTES PAYABLE AND BANK FACILITY
Principal payments due for each of the next five years are: 1997 - $10,521,000; 1998 - $21,833,000; 1999 - $122,617,000; 2000 - $20,436,000; and 2001 - $27,476,000.
In November 1995, the Company replaced its secured $50 million bank credit facility with a $100 million bank facility, which matures in January 1999. In April 1996, the Company amended the $100 million bank credit agreement to provide for an expanded commitment totaling $150 million. The additional $50 million is available upon the perfection of liens on additional collateral. All other terms of the original agreement remain substantially the same. Borrowings under the bank facility bear interest at either the bank's prime rate or LIBOR plus tiered spreads based upon the Company's leverage ratios. The bank facility contains various covenants typical of senior secured bank facilities that include restrictions on the incurrence of additional debt and the payment of dividends which are similar to the covenants related to the senior notes. The bank facility contains events of default for breach of these covenants as well as other events of default customary for financing of similar size and nature, including a change in control of the Company.
Notes payable and the bank facility are collateralized by certain property and equipment with a net book value totaling $461,000,000 and $380,000,000 at December 30, 1995 and December 28, 1996, respectively.
As of December 28, 1996, the Company has $6,475,000 in standby letters of credit from banks, expiring at various dates through December 2005.
5. SENIOR NOTES
In December 1993, the Company issued $200,000,000 of senior notes (the "Notes") due 2003. The Notes are unsecured and bear interest at 9 5/8% payable semi-annually. The Notes contain covenants that include restrictions on the incurrence of additional debt. The Notes also restrict the payment of dividends to 50% of cumulative net income (as defined) plus $7,500,000 plus the aggregate net proceeds received from sale of the Company's common stock to an unrelated party. At December 28, 1996, $179,412,000 is available for the payment of dividends under the terms of the Notes of which $36,888,000 is available from retained earnings.
The Notes are not redeemable by the Company until December 15, 1998 when they become redeemable at 104.813% of their principal amount, declining ratably to par on and after December 15, 2000, plus accrued interest.
6. STOCKHOLDERS' EQUITY
During 1995, the Company's stockholders made a capital contribution of $18,000,000 to provide funds for inn acquisitions. On January 31, 1996, the Company issued 10,000,000 shares of common stock in a public offering (the "Offering") at a price of $16.00 per share. Net proceeds of the Offering were approximately $149 million which were used to repay approximately $128 million of mortgage indebtedness and approximately $21 million was retained for inn acquisitions, conversions, new development and for general corporate purposes.
In connection with the Offering, $9.6 million in underwriting discounts and commissions were paid to certain underwriters, including an affiliate of MSREF.
In August 1996, the Company repurchased 500,000 shares of its common stock in the open market for an aggregate purchase price of $6,476,000, or $12.95 per share and placed the shares in treasury. The shares will be used to fulfill the Company's requirements for its stock option and stock purchase plans.
7. EMPLOYEE AND DIRECTOR STOCK PLANS
In March 1995, the Company adopted a non-qualified Management Stock Option Plan for certain officers and employees effective as of December 29, 1994. In December 1995, the Company's Board of Directors adopted the Amended and Restated 1994 Management Equity Incentive Plan (the "Plan"). The Plan is administered by the Compensation Committee appointed by the Board of Directors which is comprised of not less than two directors.
Under the terms of the Plan, awards may be granted in the form of: (i) incentive stock options, which are intended to qualify under Sec. 422 of the Internal Revenue Code of 1986, as amended; (ii) stock options which are not intended to so qualify; (iii) shares of the Company's common stock which will be subject to certain conditions and restrictions ("restricted shares"); or (iv) performance units ("performance units"), which represent the right to receive an
amount equal to the value related to the performance units awarded, such as the fair market value of a share of common stock. Awards may be granted by the committee at its discretion to key employees (including officers and directors who are employees) of the Company. The Plan generally provides that the number of shares of common stock with respect to which options, restricted shares and performance units may be granted to any individual employee may not exceed 400,000 during any single fiscal year. The aggregate number of shares of common stock which may be issued under the Plan is 2,400,000 provided that in no event shall more than 10% of the shares of common stock authorized for issuance under the Plan be granted in the form of awards other than options.
Generally, each option will have a term ending 10 years from the date of grant. Each option will vest and become exercisable on such date or dates and on the basis of other criteria, including without limitation the performance of the Company, as the committee may determine at its discretion and as shall be specified in the option agreement evidencing the grant of such options. The option price is determined by the committee at the time of the grant and may not be less than the fair market value of the shares of common stock on the date of grant (exclusive of the options granted in 1994, which were issued at less than fair market value at the time of the grant.) Options granted in 1994, 1995 and 1996 vest at the rate of 25% per year.
In October 1995, the Company adopted the 1995 Director Stock Option Plan for directors who are not officers or employees of the Company. The plan is administered by a committee of not less than two directors appointed by the Board of Directors. Any eligible director is automatically granted an initial option to purchase 10,000 shares. Subsequently, following each annual meeting of the stockholders of the Company, each eligible director shall be granted an option to purchase 1,000 shares. The initial option to purchase 10,000 shares vests in equal amounts over a five-year period and future grants vest immediately. The exercise price of the options is based on the fair market value of the common stock on the last trading day prior to the date on which the option is granted. All options expire 10 years after the date of grant. The Company has reserved 60,000 shares under the Plan and, in 1996, granted options to purchase 10,000 shares.
The following table summarizes option activity for the years presented:
At December 31, 1994, December 30, 1995 and December 28, 1996, options exercisable under the Company's stock option plans totaled 102,625; 210,550 and 518,149 shares, respectively, and had a weighted average option price per share of $5.43, $7.66 and $11.51, respectively. For options outstanding at December 28, 1996, the option price per share ranged from $5.43 to $16.00 and the weighted average contractual life of the options was 8.4 years.
At December 28, 1996, 1,178,825 shares are available for future grants of stock options.
During 1994, 1995 and 1996, the Company recognized compensation expense in corporate and marketing expenses of $875,000, $488,000 and $339,000, respectively, related to the granting of options in 1994 at less than fair market value at the date of grant. Grants in 1995 and 1996 were issued at fair market value.
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value method of accounting for stock options and similar equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," but are required to disclose in a note to the financial statements pro forma net income and earnings per share as if the company had applied the new method of accounting. The Company applies APB No. 25 in accounting for its stock-based compensation plans. Had compensation cost been determined on the basis of fair value pursuant to SFAS No. 123, for options granted in 1995 and 1996, net income and earnings per share would have been as follows:
The following weighted average assumptions were used in the option pricing model: a risk free interest rate of 7.7% and 6.7% for 1995 and 1996, respectively; an expected life of the options of 7.5 years; no expected dividend yield and a volatility factor of .25. The weighted average per share fair value of the options granted in 1995 and 1996 was $6.91 and $6.59, respectively.
Due to the inclusion of only 1995 and 1996 option grants, the effects of applying SFAS No. 123 in 1995 and 1996 may not be representative of the pro forma impact in future years.
8. EMPLOYEE STOCK PURCHASE PLAN
In December 1995, the Company's Board of Directors adopted the Company's 1996 Employee Stock Purchase Plan (the "stock purchase plan") which is intended to qualify under Sec. 423 of the Internal Revenue Code. The purpose of the stock purchase plan is to provide employees of the Company with an opportunity to acquire or increase a proprietary interest in the Company by applying payroll deductions or contributions to the purchase of shares of the Company's common stock. All employees of the Company are eligible to participate in the stock purchase plan. The purchase price is 85% of the fair market value of the Company's common stock at the beginning of the contribution period, which begins on the last Sunday of January and ends on the last Saturday of the following January of each year (except for 1996 which began on April 1 and ended on January 25, 1997) or, if less, 85% of such fair market value on the last day of the contribution period. The stock purchase plan allows employees to purchase shares through contribution or payroll deductions of up to 10% of base pay, and limits each employee to a purchase of not more than 1,000 shares during any contribution period, and also provides that no employee may purchase in any calendar year shares having a value (determined at the time the right to purchase is granted) in excess of $25,000. The aggregate number of shares of common stock reserved for purchase under the stock purchase plan is 100,000. Such shares may be either authorized by unissued shares or issued shares reacquired by the Company and held as treasury shares.
In January 1997, the Company sold 48,647 shares of common stock out of treasury to employees at $12.64 per share for the 1996 plan year.
9. RETIREMENT PLAN
The Company had a defined benefit pension plan covering all employees except seasonal employees. The benefits are based on years of service, final average compensation and final average compensation in excess of average social security covered compensation at retirement. The Company's funding policy is to contribute annually at least the minimum amount required under the funding standards of ERISA. Plan assets are held by a bank trust company and are invested primarily in fixed income and equity funds. On December 28, 1996, the Company froze the Plan which decreased the Company's projected benefit obligations by $2,500,000 and resulted in a curtailment gain of $286,000. Earned benefits through the date the Plan was frozen will be paid at the employees normal retirement date (as defined).
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7% and 7.25% at November 30, 1995 and December 28, 1996, respectively. The increase in the discount
rate for 1996 reflects the current market rates for long-term debt investments. The rate of increase in future compensation was 5% and the expected long-term rate of return on assets was 9% for both 1995 and 1996.
The following table sets forth the plan's funded status as of November 30, 1995 (previous measurement date) and December 28, 1996 and amounts recognized in the financial statements (in thousands):
In addition to the pension plan described above, the Company agreed to establish a supplementary pension plan for the President and Chief Executive Officer. Accordingly, the Company has an additional accrued liability of $41,000 and $85,000 as of December 30, 1995 and December 28, 1996, respectively, related to such supplementary plan.
The Company intends to adopt an employee 401(k) retirement plan in 1997.
10. INN RENEWAL PROGRAM
In 1996, the Company commenced an inn renewal program to refurbish substantially all of its inns. The program is expected to be completed during 1997 at a cost of approximately $55 to $60 million. Included in the program are expenditures to update guest rooms with new carpet, wallcovering, furniture, bedspreads and drapes. Improvements to the exterior of the properties include painting, new signs, improved lighting and additional landscaping. In 1996, the Company spent $10,745,000 related to the inn renewal program, of which $8,194,000 was capitalized and $2,551,000 was expensed. In addition, the Company wrote off assets with a net book value of approximately $7,847,000 that are being disposed of in connection with the program.
11. CHANGE IN MANAGEMENT EXPENSE
On June 30, 1995, the Company appointed Francis W. Cash to the position of President, Chief Executive Officer and Director succeeding Jack Van Fossen who had retired. In addition, on June 30, 1995, the Executive Vice President
and Chief Financial Officer; Vice President, General Counsel and Secretary; and Vice President and Corporate Counsel terminated their employment with the Company and received severance benefits provided under their respective employment agreements. Accordingly, the Company recorded an expense of $3,142,000 for such severance benefits and certain expenses associated with the employment of new executive officers.
12. INCOME TAXES
The components of the provision for income taxes consist of the following (in thousands):
The effective tax rate differs from the statutory rate as follows:
The tax effects of significant items comprising the Company's net deferred tax balances are as follows (in thousands):
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal proceedings arising from the normal course of business. While the ultimate liability, if any, from these proceedings is presently indeterminable, in the opinion of management, these matters should not have a material adverse effect on the consolidated financial statements of the Company.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments disclosed below as of December 30, 1995 and December 28, 1996 were determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented may not be indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of financial instruments (in thousands); (i) notes payable - the estimated fair value is based on current rates and payment terms offered to the Company and (ii) senior notes - the estimated fair value is based upon a quoted published market price (in thousands):
15. SELECTED QUARTERLY FINANCIAL DATA AND PRO-FORMA SUPPLEMENTAL INFORMATION (UNAUDITED)
The following pro-forma supplemental information, which is presented for purposes of facilitating meaningful comparisons to ongoing operations and to other companies, summarizes the results of operations of the Company, adjusted on a pro-forma basis to reflect (a) the effect of the Offering, as if the Offering had occurred at the beginning of each year being presented and (b) the elimination of certain non-recurring expenses.
Operating income and net income as reported in the Company's consolidated financial statements are reconciled to the respective amounts in the preceding table as follows:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information in the proxy statement for the Company's 1997 annual meeting of stockholders under the headings "Election of Directors," "Compensation of Directors," "Executive Officers" and "Section 16 (a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information in the proxy statement for the Company's 1997 annual meeting of stockholders under the heading "Executive Compensation" is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the proxy statement for the Company's 1997 annual meeting of stockholders under the heading "Principal Holders of Voting Securities" is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the proxy statement for the Company's 1997 annual meeting of stockholders under the headings "Election of Directors," "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" is incorporated herein by reference.
ITEM 14.
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Financial Statements
- Independent Auditors' Report of the Company.
- Consolidated Balance Sheets of the Company as of December 30, 1995 and December 28, 1996.
- Consolidated Statements of Income of the Company for the years ended December 31, 1994, December 30, 1995 and December 28, 1996.
- Consolidated Statements of Stockholders' Equity of the Company for the years ended December 31, 1994, December 30, 1995 and December 28, 1996.
- Consolidated Statements of Cash Flows of the Company for the years ended December 31, 1994, December 30, 1995 and December 28, 1996.
- Notes to Consolidated Financial Statements of the Company.
(2) Financial Statement Schedules
The financial statement schedules listed below are included in the pages following.
- Financial Statement Schedule II, Valuation and Qualifying Accounts, For The Years Ended December 31, 1994, December 30, 1995 and December 28, 1996.
Schedules other than those mentioned above are omitted because the conditions requiring their inclusion in this document do not exist or because the information is given in the financial statements or notes thereto.
(3) The following exhibits are filed as a part of this report:
2.1 - The Merger Agreement dated as of August 12, 1993, as amended, among the Company, MSREF and the Trueman Trust (incorporated by reference to Exhibit 2.01 to the Company's Registration Statement on Form S-1, File No. 33-76848).
3.01 - Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.01 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995).
3.02 - Form of Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.02 to the Company's Registration Statement on Form S-1, File No. 33-97914).
4.01 - Form of certificate representing shares of Common stock, par value $.01 per share (incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-1, File No. 33-97914).
10.01 - Indenture, dated as of December 17, 1993, from the Company to The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
* 10.02 - Employment Agreements between the Company and Messrs. Campbell and Tallis (incorporated by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
* 10.03 - Employment Agreement between the Company and Mr. Cash (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the 26 weeks ended July 1, 1995).
10.04 - Loan Agreement, dated as of November 9, 1995, between the Company and Huntington National Bank and a bank group (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the 39 weeks ended September 30, 1995).
10.05 - First, Second and Third Amendments dated November 21, 1995, December 12, 1995 and April 16, 1996, respectively, to Loan Agreement, dated as of November 9, 1995, between the Company and Huntington National Bank and a bank group (incorporated by reference to Exhibits 10.01, 10.02 and 10.03 to the Company's Quarterly Report on Form 10-Q for the 13 weeks ended March 30, 1996).
10.06 - Fourth Amendment dated June 27, 1996 to Loan Agreement, dated as of November 9, 1995, between the Company and Huntington National Bank and a bank group (incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report of Form 10-Q for the 26 weeks ended June 29, 1996).
* 10.07 - 1995 Director Stock Option Plan (incorporated by reference to Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q for the 39 weeks ended September 30, 1995).
10.08 - Shareholders Agreement among the Company and all its shareholders, dated as of April 6, 1994 (incorporated by reference to Exhibit 10.07 to the Company's Registration Statement on Form S-1, File No. 33-97914).
10.09 - Amendment No. 1 to Shareholders Agreement among the Company and all its shareholders (incorporated by reference to Exhibit 10.07 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995).
* 10.10 - Form of 1996 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.09 to the Company's Registration Statement on Form S-1, File No. 33-97914).
* 10.11 - Form of Amended and Restated 1994 Management Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, File No. 33-97914).
* 10.12 - Employment Agreement between the Company and Mr. Chichester (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995).
* 10.13 - 1996 Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.04 to the Company's Quarterly Report of Form 10-Q for the 13 weeks ended March 30, 1996).
11.01 - Statement re computation of per share earnings.
12.01 - Statement re computation of ratios.
23.00 - Consent of Deloitte & Touche LLP.
* Executive plans and arrangements required to be filed pursuant to Item 601 (b) (10) of Regulation S-K.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the last quarter of the reporting period.
(c) Exhibits:
The exhibits are submitted following the signatures.
(d) Financial Statement Schedules:
The financial statement schedules and the independent auditor's report thereon are submitted following the signatures.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934, RED ROOF INNS, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 25TH DAY OF MARCH 1997.
RED ROOF INNS, INC.
By /s/ Francis W. Cash ----------------------------------------- Name: Francis W. Cash Title: Chairman of the Board, President, Chief Executive Officer and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF RED ROOF INNS, INC. AND IN THE CAPACITIES AND ON THE DATES INDICATED.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders of Red Roof Inns, Inc.
We have audited the consolidated financial statements of Red Roof Inns, Inc. and its subsidiaries as of December 30, 1995 and December 28, 1996 and for each of the three years in the period ended December 28, 1996 and have issued our report thereon dated February 10, 1997; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Red Roof Inns, Inc. and its subsidiaries listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP Columbus, Ohio February 10, 1997
EXHIBIT INDEX
Exhibit No. Description - ------- -----------
11.01 Statement re computation of per share earnings
12.01 Statement re computation of ratios.
23.00 Consent of Deloitte & Touche LLP