<PAGE>   1
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              --------------------

                                    FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                        For the period ended July 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


                              --------------------


                               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


                              --------------------


          Number of shares of Common Stock outstanding at July 3, 1999

                                   26,954,512


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 ______


<PAGE>   2
                         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.

                                       2
<PAGE>   3


                               RED ROOF INNS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        January 2, 1999 and July 3, 1999
                                 (in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                        JANUARY 2,       JULY 3,
                                                          1999            1999
                                                        --------        --------
<S>                                                     <C>             <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                             $  2,729        $  4,456
  Receivables                                             11,619          14,666
  Supplies and other                                      20,581          19,039
                                                        --------        --------
          Total current assets                            34,929          38,161

PROPERTY AND EQUIPMENT:
  Land                                                   153,596         151,417
  Buildings and improvements                             654,564         679,412
  Furniture, fixtures and equipment                      135,861         145,366
  Construction in progress                                19,541
                                                        --------        --------
          Total property and equipment                   963,562         976,195
  Less accumulated depreciation and amortization         117,473         134,559
                                                        --------        --------
          Property and equipment - net                   846,089         841,636

OTHER ASSETS:
  Goodwill, net of accumulated amortization               67,915          66,782
  Deferred loan fees and other - net                      20,438          21,387
                                                        --------        --------
          Total other assets                              88,353          88,169
                                                        --------        --------

TOTAL                                                   $969,371        $967,966
                                                        ========        ========
</TABLE>




           See notes to condensed consolidated financial statements.




<PAGE>   4


                               RED ROOF INNS, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
                        JANUARY 2, 1999 AND JULY 3, 1999
                        (IN THOUSANDS, EXCEPT PAR VALUES)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              JANUARY 2,        JULY 3,
                                                                                1999             1999
                                                                              ---------        ---------
<S>                                                                           <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                             $ 12,943        $ 13,391
  Accrued expenses                                                               28,131          33,496
  Current maturities of long-term debt                                           15,048          13,780
                                                                               --------        --------
          Total current liabilities                                              56,122          60,667

LONG-TERM DEBT (LESS CURRENT MATURITIES):
  Mortgage notes and obligations under capital leases                           153,960         145,977
  Bank facility                                                                 186,545         177,000
  Senior unsecured notes                                                        172,385         172,385
                                                                               --------        --------
          Total long-term debt                                                  512,890         495,362

OTHER LONG-TERM LIABILITIES                                                      31,183          32,661

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         269,145
  Less treasury stock, at cost: 1998 - 1,251 shares, 1999 - 1,637 shares        (18,568)        (24,673)
  Retained earnings                                                             118,194         134,518
                                                                               --------        --------
          Total stockholders' equity                                            369,176         379,276
                                                                               --------        --------

TOTAL                                                                          $969,371        $967,966
                                                                               ========        ========
</TABLE>

            See notes to condensed consolidated financial statements.


                                       4


<PAGE>   5

                               RED ROOF INNS, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED JULY 4, 1998 AND JULY 3, 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                              THIRTEEN WEEKS ENDED          TWENTY-SIX WEEKS ENDED
                                          --------------------------       ------------------------
                                           JULY 4,          JULY 3,        JULY 4,          JULY 3,
                                            1998             1999            1998            1999
                                           --------        --------        --------        --------

REVENUES:
<S>                                        <C>              <C>              <C>              <C>
  Room                                     $100,187        $104,803        $184,751        $189,520
  Fee-based                                   1,108           1,927           1,610           2,861
                                           --------        --------        --------        --------
        Total revenues                      101,295         106,730         186,361         192,381

OPERATING EXPENSES:
  Direct room                                45,272          48,378          94,342          97,171
  Depreciation and amortization               9,245           9,568          18,781          19,817
  Corporate                                   8,050           8,224          15,752          16,942
  Marketing                                   4,104           4,507           9,996           8,928
                                           --------        --------        --------        --------
        Total operating expenses             66,671          70,677         138,871         142,858
                                           --------        --------        --------        --------
OPERATING INCOME                             34,624          36,053          47,490          49,523

INTEREST EXPENSE - NET                      (11,497)        (11,268)        (23,479)        (22,533)
                                           --------        --------        --------        --------

INCOME  BEFORE INCOME TAXES                  23,127          24,785          24,011          26,990

INCOME TAX EXPENSE                           (8,996)         (9,795)         (9,340)        (10,666)
                                           --------        --------        --------        --------

NET INCOME                                 $ 14,131        $ 14,990        $ 14,671        $ 16,324
                                           ========        ========        ========        ========

EARNINGS PER SHARE:
  Basic                                    $   0.51        $   0.56        $   0.53        $   0.60
                                           ========        ========        ========        ========
  Diluted                                  $   0.51        $   0.55        $   0.53        $   0.60
                                           ========        ========        ========        ========

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic                                      27,662          26,944          27,647          26,995
                                           ========        ========        ========        ========
  Diluted                                    27,837          27,128          27,836          27,094
                                           ========        ========        ========        ========
</TABLE>

                 See notes to consolidated financial statements.


                                       5

<PAGE>   6

                               RED ROOF INNS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
            THE TWENTY-SIX WEEKS ENDED JULY 4, 1998 AND JULY 3, 1999
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                    TWENTY-SIX WEEKS ENDED
                                                                 ----------------------------
                                                                   JULY 4,        JULY 3,
                                                                    1998            1999
                                                                 ---------        ---------
<S>                                                              <C>              <C>
CASH FLOWS FROM OPERATIONS:
  Net income                                                     $  14,671        $  16,324
  Adjustments to reconcile net income to net cash provided
      by operations:
      Depreciation and amortization                                 16,991           18,202
      Amortization of goodwill                                       1,133            1,133
      (Gain) loss from asset disposals and impairments                 645             (220)
      Deferred income taxes and other - net                          3,508            4,281
  Change in assets and liabilities:
      Receivables                                                   (3,889)          (3,047)
      Supplies and other                                               (39)              24
      Accounts payable                                                (109)           2,969
      Accrued expenses                                               6,108            5,559
                                                                 ---------        ---------
          Net cash provided by operations                           39,019           45,225
                                                                 ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of assets                                      24,005            3,709
  Expenditures for property and equipment                          (41,233)         (20,481)
  Change in other assets                                            (1,197)          (1,861)
                                                                 ---------        ---------
         Net cash used by investing activities                     (18,425)         (18,633)
                                                                 ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from bank facility                                       96,456           75,500
  Principal reduction in mortgage notes and bank facility         (121,497)         (94,076)
  Issuance of common stock                                           1,178              734
  Purchase of treasury stock                                                         (7,023)
                                                                 ---------        ---------
          Net cash used by financing activities                    (23,863)         (24,865)
                                                                 ---------        ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                (3,269)           1,727

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                    13,154            2,729
                                                                 ---------        ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $   9,885        $   4,456
                                                                 =========        =========

INTEREST PAID                                                    $  23,724        $  22,816
                                                                 =========        =========
INTEREST CAPITALIZED                                             $   1,578        $     385
                                                                 =========        =========
INCOME TAXES PAID                                                $   2,624        $   1,344
                                                                 =========        =========
NON-CASH TRANSACTIONS:
  Capital expenditures included in accounts payable              $   3,770        $     974
                                                                 =========        =========
  Prepaid insurance financed by note payable                     $   6,569
                                                                 =========
  Sale of assets financed by notes receivable                    $   1,439        $     537
                                                                 =========        =========
</TABLE>


            See notes to condensed consolidated financial statements.


                                       6
<PAGE>   7


ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
RED ROOF INNS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED AND JULY 4, 1998 AND
JULY 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 July 4, 1998, the Company operated 253 Inns and had 17
franchised Inns. At July 3, 1999, the Company operated 258 Inns and had 63
franchised Inns.

         Unaudited interim results for the thirteen weeks and twenty-six weeks
ended July 4, 1998 and July 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.       PROPERTY AND EQUIPMENT

         In April 1999, the Company sold to a franchisee, for a purchase price
of $3.4 million, a 102 room property located in Florida with a net book value of
$2.6 million. The Company used the net proceeds to repay borrowings on the
Company's 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 during 1999.

         In April 1998, the Company sold four of its California properties with
a net book value of $13.1 million to a franchisee for approximately $13 million.
The Company used the net proceeds to repay certain mortgage indebtedness and
borrowings on the bank facility. A fifth property in California was leased to
the franchisee with an option to purchase. The five inns contained a total of
577 rooms. In May 1998, the Company sold, at cost, an inn under construction in
Atlanta, Georgia to a franchisee for approximately $11 million. The Company used
the proceeds to repay borrowings on the bank facility. The sale of these
properties did not have a significant effect on the results of operations for
the Company during 1998.

3.       LONG-TERM DEBT

         As of July 3, 1999, there was $73 million available for borrowing (not
including outstanding letters of credit) under the Company's $250 million bank
facility.

4.       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 twenty-six week period ended July 3, 1999, the Company
granted options to certain officers and employees under the Company's stock
option plans to purchase 821,050 shares at a weighted average price of $15.375
per share. The options vest at the rate of 25% per year.

         During the twenty-six week period ended July 3, 1999, options were
exercised for 54,800 shares at prices ranging from $5.43 to $16.00 per share
under the Company's Management Stock Option Plan. In connection with the
termination of the employment of certain plan participants, 41,224 options
awarded under the Plan lapsed.



                                       7
<PAGE>   8
         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. 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. During the twenty-six weeks ended July 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 July 3, 1999 under
the 2,000,000 shares authorization.

5.       SUBSEQUENT EVENT

         On July 10, 1999, Red Roof Inns, Inc. (the "Company") entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with Accor S.A.
("Accor") and RRI Acquisition Corp., an indirect, wholly owned subsidiary of
Accor (the "Purchaser"), pursuant to which, among other things, the Purchaser
agreed to commence a cash tender offer (the "Offer") pursuant to Section 14(d)
of the Securities Exchange Act of 1934, as amended, for all of the issued and
outstanding shares of common stock, par value $.01, of the Company (the
"Shares") for $22.75 per Share, net to the seller in cash (subject to applicable
withholding of taxes). Additionally, under the terms of the Merger Agreement, as
promptly as practical after consummation of the Offer, the Purchaser will be
merged with and into the Company, with the Company continuing as the surviving
corporation and an indirect, wholly owned subsidiary of Accor.

         In connection with the Merger Agreement, on July 10, 1999, The Morgan
Stanley Real Estate Fund, L.P., Morgan Stanley Real Estate Investment
Management, Inc., Morgan Stanley Real Estate Co-Investment Partnership II, L.P.
(collectively, the "MS Entities"), Accor and the Purchaser entered into a Tender
and Voting Agreement (the "Tender and Voting Agreement") pursuant to which,
among other things, each of the MS Entities agreed to (i) tender all Shares
owned by it in the Offer, (ii) vote its Shares in favor of the approval of the
Merger and the approval and adoption of the Merger Agreement and (iii) grant to
Accor an option to acquire the Shares owned by it at a price of $22.75 per
Share. On July 22, 1999, pursuant to the Tender and Voting Agreement, the MS
Entities tendered into the Offer their approximately 18.4 million Shares,
representing approximately 68.3% of the outstanding Shares.

         The transaction is expected to be completed on or about August 13,
1999.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RECENT EVENT

         On July 10, 1999, Red Roof Inns, Inc. (the "Company") entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with Accor S.A.
("Accor") and RRI Acquisition Corp., an indirect, wholly owned subsidiary of
Accor (the "Purchaser"), pursuant to which, among other things, the Purchaser
agreed to commence a cash tender offer (the "Offer") pursuant to Section 14(d)
of the Securities Exchange Act of 1934, as amended, for all of the issued and
outstanding shares of common stock, par value $.01, of the Company (the
"Shares") for $22.75 per Share, net to the seller in cash (subject to applicable
withholding of taxes). Additionally, under the terms of the Merger Agreement, as
promptly as practical after consummation of the Offer, the Purchaser will be
merged with and into the Company, with the Company continuing as the surviving
corporation and an indirect, wholly owned subsidiary of Accor.

         In connection with the Merger Agreement, on July 10, 1999, The Morgan
Stanley Real Estate Fund, L.P., Morgan Stanley Real Estate Investment
Management, Inc., Morgan Stanley Real Estate Co-Investment Partnership II, L.P.
(collectively, the "MS Entities"), Accor and the Purchaser entered into a Tender
and Voting Agreement (the "Tender and Voting Agreement") pursuant to which,
among other things, each of the MS Entities agreed to (i) tender all Shares
owned by it in the Offer, (ii) vote its Shares in favor of the approval of the
Merger and the approval and adoption of the Merger Agreement and (iii) grant to
Accor an option to acquire the Shares owned by it at a price of $22.75 per
Share. On July 22, 1999, pursuant to the Tender and Voting Agreement, the MS
Entities tendered into the Offer their approximately 18.4 million Shares,
representing approximately 68.3% of the outstanding Shares.

         The transaction is expected to be completed on or about August 13,
1999.

RESULTS OF OPERATIONS

         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.



                                       8
<PAGE>   9





         The Company sold one operating Inn to a franchisee during the second
quarter of 1999. In addition, the Company sold four operating Inns and leased an
operating Inn to a franchisee during the second quarter of 1998. The sales of
these properties have not had and will not have a significant effect on the net
income of the Company.

         Fifteen franchised Inns opened during the second quarter of 1999,
increasing the total number of inns operating at July 3, 1999, to 321 (including
63 franchised Inns). At July 4, 1998, 270 Inns were in operation, (including 17
franchised Inns). Unless otherwise indicated, Inn data presented in this report
are based on the 246 Inns (the "Comparable Inns") that the Company owned and
operated at the beginning of and throughout the twenty-six weeks ended July 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 occupancy 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 and twenty-six weeks ended July 3, 1999 versus the comparable periods
ended July 4, 1998. During the second quarter, the average daily rate ("ADR"),
increased $.14 or .3%, from $48.48 per occupied room in 1998 to $48.62 per
occupied room in 1999. Occupancy increased 1.6 percentage points from 76.6% in
the second quarter of 1998 to 78.2% for the comparable period in 1999. Revenue
per available room ("RevPAR"), increased $.88, or 2.4%, from $37.14 in 1998 to
$38.02 in 1999. For the twenty-six weeks ended July 3, 1999, ADR increased $.73
or 1.6% from $45.80 per occupied room in 1998 to $46.53 per occupied room in
1999. Occupancy for the twenty-six weeks decreased .6 percentage points from
74.2% in 1998 to 73.6% in 1999. RevPAR for the twenty-six weeks increased $.27
or .8% from $33.98 in 1998 to $34.25 in 1999. The Company attributes the
increase in RevPAR for the second quarter and the twenty-six weeks ended July 3,
1999 to various discount programs initiated during the second quarter to
increase occupancy.

 THIRTEEN WEEKS ENDED JULY 3, 1999 COMPARED TO THIRTEEN WEEKS ENDED JULY 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 is
slowing, while growth related to franchised Inns and other fee-based programs is
increasing.

         Room revenues increased $4.6 million, or 4.6%, from $100.2 million in
1998 to $104.8 million in 1999. Room revenues for the 246 Comparable Inns
increased $2.4 million from 1998 to 1999 primarily as a result of the increase
in RevPAR. Room revenues for the Inns in Stabilization increased $2.9 million.
Revenues in 1999 were reduced by $.7 million compared to 1998 as a result of the
sale of four properties and the lease of one property located in California to a
franchisee early in the second quarter of 1998 and the sale of a property
located in Florida early in the second quarter of 1999.

         Fee-based revenues increased $.8 million in 1999 over 1998 from
programs to franchise the Company brand and from the formation of partnership
alliances with well-known consumer product and service companies to promote
partners' products and services. The Company had 63 franchised Inns open at July
3, 1999 compared to 17 at July 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 increased $3.1 million, or
6.9%, from $45.3 million in 1998 to $48.4 million in 1999. The increase is
primarily due to the operation of additional properties, increased occupancy,
increased labor costs and increased room supplies expenses. As a percentage of
room revenues, direct room expenses increased from 45.2% in 1998 to 46.2% in
1999.

         Gross operating profit (room revenues less direct expenses) increased
$1.5 million, or 2.7% , from $54.9 million in 1998 to $56.4 million in 1999. As
a percentage of room revenues, gross operating profit decreased from 54.8% in
1998 to 53.8% in 1999.


                                       9
<PAGE>   10
         Depreciation and amortization increased $.4 million from $9.2 million
in 1998 to $9.6 million in 1999. The increase primarily reflects depreciation of
operating Inns acquired or developed during 1998 and 1999, which was offset by a
$.8 million gain from the sale of a property located in Florida to a franchisee
in April 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 million, or 2.2%, from $8.1 million in 1998 to $8.2 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 related to the operation of a second
reservation center and increased information systems expenses. As a percentage
of revenue, corporate expenses decreased from 7.9% in 1998 to 7.7% in 1999.

         Marketing expenses include the cost of media advertising and related
production costs, billboard expenses, expenses associated with the Company's
corporate sales group and target based marketing programs. Marketing expenses
increased $.4 million, or 9.8%, from $4.1 million in 1998 to $4.5 million in
1999. The increase is primarily related to increased national media expenses and
expenses associated with target based marketing programs, offset by a reduction
in billboard expenses. As a percentage of revenue, marketing expenses increased
from 4.1% in 1998 to 4.2% in 1999.

         Net interest expense decreased $.2 million from $11.5 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.

        TWENTY-SIX WEEKS ENDED JULY 3, 1999 COMPARED TO TWENTY-SIX WEEKS
                               ENDED JULY 4, 1998

         Room revenues increased $4.7 million or 2.6% from $184.8 million in
1998 to $189.5 million in 1999. Room revenues for the 246 Comparable Inns
increased $1.6 million, or .9%, from $178.9 million in 1998 to $180.5 million in
1999. Room revenues increased $5.1 million for the Inns in Stabilization.
Revenues in 1999 were reduced by $2.0 million compared to 1998 as a result of
the sale of four properties and the lease of one property located in California
to a franchisee early in the second quarter of 1998 and the sale of a property
located in Florida early in the second quarter of 1999.

         Fee-based revenues increased $1.3 million in 1999 over 1998 from
programs to franchise the Company brand and from the formation of partnership
alliances with well-known consumer product and service companies to promote
partners' products and services.

         Direct room expenses increased $2.8 million, or 3.0% from $94.4 million
in 1998 to $97.2 million in 1999. The expenses increased primarily because of
the addition of new Inns, increased occupancy, generally higher salary and wage
expenses and increases in local advertising, room supplies expenses and in
planned repairs and maintenance expenditures in advance of the Company's peak
operating season. As a percentage of room revenues, direct room expense
increased from 51.1% in 1998 to 51.3% in 1999.

         Gross operating profit (room revenues less direct expenses) increased
$1.9 million, or 2.1%, from $90.4 million in 1998 to $92.3 million in 1999
primarily as a result of operating additional Inns and increased REVPAR. As a
percentage of revenues, gross operating profit was 48.9% in 1998 and 48.7% in
1999.

         Depreciation and amortization increased $1.0 million, from $18.8
million in 1998 to $19.8 million in 1999. The increase generally reflects
depreciation of new inns acquired since the second half of 1998, which was
offset by a $.8 million gain from the sale of a property located in Florida to a
franchisee in April 1999.

         Corporate expenses increased $1.1 million, or 7.6%, from $15.8 million
in 1998 to $16.9 million in 1999, primarily due to increased franchise expenses
related to the franchise program. As a percentage of revenue, corporate expenses
were 8.5% in 1998 and 8.8% in 1999.


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<PAGE>   11


         Marketing expenses decreased $1.1 million, or 10.7%, from $10.0 million
in 1998 to $8.9 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 and a reduction in billboard expenses which was offset, in
part, by expenses associated with target based marketing programs. As a
percentage of revenue, marketing expenses decreased from 5.4% in 1998 to 4.6% in
1999.

         Net interest expense decreased $1.0 million, from $23.5 million in 1998
to $22.5 million in 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 $1.8 million from $2.7 million on
January 2, 1999 to $4.5 million on July 3, 1999. Total debt outstanding
decreased $18.8 million from $527.9 million at January 2, 1999 to $509.1 million
at July 3, 1999. The decrease is due to $9.5 million in net repayments on the
bank facility and a reduction of $9.3 million in mortgage notes and obligations
under capital leases through scheduled principal amortization and loan
maturities.

         Management anticipates that its working capital needs will be financed
by internally generated cash and the bank facility.

CAPITAL EXPENDITURES

         For the twenty-six week periods ended July 4, 1998 and July 3, 1999,
the Company spent $11.2 million and $14.1 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 has completed construction of four new Inns and renovation of one
acquired property. In connection with the construction and renovation of these
properties, the Company spent $6.4 million during the twenty-six week period
ended July 3, 1999.

         In the third quarter of 1998, the Company substantially completed its
Inn renewal program to refurbish the majority of its Inns. For the twenty-six
week period ended July 4, 1998, the Company spent $5.6 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. The Company currently
intends to use a joint venture for the development of this site or sell the
property to a franchisee prior to the opening of the property.

         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 $6.2 million from $39.0 million
in 1998 to $45.2 million in 1999, primarily due to increases in net income of
$1.7 million, non-cash charges of $1.1 million and changes in working capital of
$3.4 million.

         Net cash used by investing activities increased $.2 million from $18.4
million in 1998 to $18.6 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 $6.4 million related to construction on four development sites and
renovation of one acquired property.


                                       11
<PAGE>   12
         Cash flows before financing activities were $20.6 million in 1998
compared to $26.6 million in 1999. This $6.0 million increase is primarily due
to an increase in cash provided by operations. Cash flows before financing
activities represents cash provided by operations less net cash used by
investing activities.

         Net cash used by financing activities increased $1.0 million from $23.9
million in 1998 to $24.9 million in 1999. This increase is primarily due to the
purchase of treasury stock for $7.0 million which was substantially funded by
proceeds from the bank facility.

EBITDA

         EBITDA is operating income plus the sum of interest income, other
income, depreciation and amortization. EBITDA for the twenty-six weeks ended
July 3, 1999 increased $3.4 million, or 5.1%, from $66.5 million in 1998 to
$69.9 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 has installed and tested these systems and related sub-systems.
         Implementation of the accounting systems was 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.


                                       12
<PAGE>   13


         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 $6.1 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; 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" 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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<PAGE>   14



                           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
               July 3, 1999.


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<PAGE>   15



                                    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: August 11, 1999                 /s/ David L. Rea
                                      ---------------------------------
                                      David L. Rea
                                      Executive Vice President,
                                      Chief Financial Officer and Treasurer


Date: August 11, 1999                 /s/ Robert M. Harshbarger
                                      ---------------------------------
                                      Robert M. Harshbarger
                                      Senior Vice President, Controller
                                      and Chief Accounting Officer


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