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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________
Commission File No. 1-7790
LA QUINTA INNS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1724417
(State of Incorporation) (I.R.S. Employer Identification Number)
WESTON CENTRE 78299-2636
112 EAST PECAN STREET (Zip Code)
P.O. BOX 2636
SAN ANTONIO, TEXAS
(Address of principal executive office)
Registrant's telephone number, including area code: (210) 302-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock New York Stock Exchange, Inc.
($.10 par value)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of
registrant as of February 28, 1994 was $420,847,410. As of February 28, 1994,
there were 32,111,364 shares of registrant's Common Stock issued and 30,378,497
such shares outstanding, giving effect for the three for two stock split in
March 1994.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following document are
incorporated by reference into the designated parts of this Form 10-K:
definitive Proxy Statement, dated on or about April 15, 1994 relating to
Registrant's 1994 Annual Meeting of Shareholders (in Part III), which Registrant
intends to file not later than 120 days after the end of the fiscal year covered
by this Form 10-K.
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FORM 10-K INDEX
PART I
Page
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Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . 11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . 50
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . 50
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . 51
Item 13. Certain Relationships and Related Transactions. . . . . . . 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . 51
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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PART I
ITEM 1. BUSINESS
La Quinta Inns, Inc. ("La Quinta" or the "Company") is a leader in the
upper economy segment of the lodging market. Founded in 1968, the La Quinta
chain's 221 inns are located in 29 states with concentrations in Texas, Florida
and California. As of January 31, 1994, the Company owned interests in and
operated all but one of its inns. The Company maintains a minority interest in
nine inns which it manages pursuant to long-term management contracts and has
one licensed inn.
La Quinta is incorporated under the laws of Texas and maintains its
executive offices at Weston Centre, 112 East Pecan Street, P.O. Box 2636,
San Antonio, Texas 78299-2636, telephone (210) 302-6000.
PRODUCT
La Quinta inns appeal to guests who desire high-quality rooms and
convenient locations at attractive prices and whose needs do not include banquet
and convention facilities, in-house restaurants, cocktail lounges or room
service. As a result of the cost savings associated with the elimination of
these management intensive facilities and services, the Company believes it is
able to offer its guests an excellent value -- convenient locations and room
quality comparable to mid-priced full service hotels at a lower price.
La Quinta inns contain an average of 130 spacious, quiet and comfortably
furnished rooms with an average of 300 square feet. Each inn features a choice
of rooms for non-smokers and smokers, complimentary continental breakfast, free
unlimited local telephone calls, remote-control television with Showtime or The
Movie Channel, telecopy services, same day laundry and dry cleaning service,
24-hour front desk and message service and free parking. La Quinta inns are
generally located near interstate highways, major traffic arteries or
destination areas such as airports and convention centers. Food service to La
Quinta guests generally is provided by adjacent free-standing restaurants.
La Quinta's strategy is to continue its growth as a high-quality provider
in the upper economy segment of the hotel industry, focusing on enhancing
revenues, cash flow and profitability. Specifically, the Company's strategy
centers upon:
CONTINUED FOCUS ON UPPER ECONOMY SEGMENT - The upper economy segment
of the lodging industry is characterized by inns that provide for the
basic needs of cost-conscious business travelers who desire
high-quality rooms and convenient locations. Because the Company
competes primarily in the upper economy segment, management's
attention is totally focused on meeting the needs of La Quinta's
target customers. The upper economy segment is one of the fastest
growing segments in the lodging industry, growing over 5% annually,
since 1989.
LA QUINTA MANAGEMENT OF INNS - In contrast to many of it competitors,
La Quinta manages and has ownership interests in virtually all of its
inns. La Quinta manages all but one of the 221 inns in the chain. At
January 31, 1994, the Company owned 100% of 166 inns and 40% or more
of an additional 45. As a result, the Company believes it is able to
achieve a higher level of consistency in both product quality and
service than its competition. In addition, La Quinta's position as one
of the few primarily owner-operated chains enables La Quinta to offer
new services, direct expansion, effect pricing and to make other
marketing decisions on a system-wide or local basis as conditions
dictate, usually without consulting third-party owners, management
companies or franchisees as required of most other lodging chains. The
Company's management of the inns also enables it to control costs and
allocate resources effectively to provide excellent value to the
consumer.
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IMAGE ENHANCEMENT PROGRAM - In 1993, La Quinta has undertaken a
comprehensive chainwide image enhancement program intended to give its
properties a new, fresh, crisp appearance while preserving their
unique character. The program features new signage displaying a new
logo as well as exterior and lobby upgrades including brighter colors,
more extensive lighting, additional landscaping, enhanced guest entry
and a full lobby renovation with contemporary furnishings and seating
area for continental breakfast. Thirty nine properties completed the
reimaging process in 1993 with program completion targeted for June
1994.
REGIONALLY FOCUSED GROWTH - La Quinta acquired eleven existing lodging
facilities and converted them to the La Quinta brand in 1993 and
anticipates expanding in a similar manner in 1994.
COMPETITION
Inns operated and licensed by La Quinta are in competition with other major
lodging brands. Each La Quinta inn competes in its market area with numerous
full service lodging brands, especially in the mid-priced range, and with
numerous other hotels, motels and other lodging establishments. Chains such as
Hampton Inns, Red Roof Inns, Fairfield Inns and Drury Inns are direct
competitors of La Quinta. Other well-known competitors include Holiday Inns,
Ramada Inns, Quality Inns, and Travelodge. There is no single competitor or
group of competitors of La Quinta that is dominant in the lodging industry.
Competitive factors in the industry include reasonableness of room rates,
quality of accommodations, degree of service and convenience of locations.
Demand is affected by normally recurring seasonal patterns. At most La
Quinta inns demand is higher in the spring and summer months (March through
August) than in the balance of the year. Overall occupancy levels may also be
affected by the number of new inns opened by the Company and the length of time
such inns have been in operation.
The lodging industry in general, including La Quinta, may be adversely
affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular inn may be adversely
affected by many factors including changes in travel patterns, local and
regional economic conditions and the degree of competition with other inns in
the area.
STRUCTURE AND OWNERSHIP
The Company is a combined entity comprised of La Quinta Inns, Inc., which
owns and operates 211 inns, four subsidiaries and 16 combined unincorporated
partnerships and joint ventures. The combined unincorporated partnerships and
joint ventures own 45 inns operated by the Company. The Company manages 9 inns,
99% owned by CIGNA which are accounted for using the cost method in the
Company's financial statements.
During 1993, the Company acquired, in separately negotiated transactions,
limited partners' interests in 14 of the Company's combined unincorporated
partnerships and joint ventures which owned 44 La Quinta inns. The Company
purchased the ownership interests for an aggregate purchase price of $87,897,000
which included cash at closing, the assumption of $22,824,000 of existing debt
attributable to certain limited partners' interests, and $29,878,000 in notes to
certain sellers.
The Board of Directors of the Company authorized three-for-two stock splits
effective in October 1993 and March 1994. References to the Company's common
stock prior to the October split is described herein as "pre-split" and
references to the Company's common stock after the March split is described
herein as "post split".
On October 27, 1993, the Company entered into a definitive Partnership
Acquisition Agreement (the "Merger Agreement") with La Quinta Motor Inns Limited
Partnership ("the Partnership" or "LQP") and other parties, pursuant to which
the Company, through wholly-owned subsidiaries, would acquire all units of the
Partnership (the "Units") that it did not beneficially own at a price of $13.00
net per Unit in cash. The Merger Agreement provided for a tender offer (the
"Offer") for all of the Partnership's outstanding Units at a price of $13.00 net
per Unit in cash, which Offer commenced on November 1, 1993 and expired at
midnight on
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November 30, 1993. The Offer resulted in the purchase of 2,805,190 Units
(approximately 70.6% of the outstanding Units) by the Company through its
wholly-owned subsidiary, LQI Acquisition Corporation. As a result of a
contribution of additional units previously owned by the Company subsequent to
the Offer, LQI Acquisition Corporation beneficially owned 3,257,890 Units
(approximately 82% of the Units) at December 31, 1993. Pursuant to the Merger
Agreement, a Special Meeting of Unitholders was then held on January 24, 1994 to
approve the merger of a subsidiary of LQI Acquisition Corporation with and into
the Partnership, with the Partnership as the surviving entity. As a result of
this merger which was approved by the requisite vote of Unitholders on January
24, 1994, all of the Partnership's outstanding Units other than Units owned by
the Company or any direct or indirect subsidiary of the Company were converted
into the right to receive $13.00 net in cash without interest.
The following table describes the composition of inns in the La Quinta
chain at:
<TABLE>
<CAPTION>
December 31, 1993 (5) December 31, 1992
-------------------------- --------------------------
La Quinta La Quinta
Equivalent Equivalent
Inns Rooms Rooms (1) Inns Rooms Rooms (1)
---- ----- ---------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Owned 100% (2) . . . . . . . . . . . . . 166 21,001 21,001 89 11,456 11,456
Owned 40 - 80% (3) . . . . . . . . . . . 45 6,077 2,588 80 10,218 4,919
--- ------ ------ --- ------ ------
Total Company owned and operated . . . . 211 27,078 23,589 169 21,674 16,375
Managed Inns . . . . . . . . . . . . . . 9 1,176 12 40 4,978 75
Licensed Inns (4). . . . . . . . . . . . 1 120 -- 3 366 --
--- ------ ------ --- ------ ------
221 28,374 23,601 212 27,018 16,450
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<FN>
(1) Represents the Company's proportionate ownership interest in system rooms.
(2) Two inns are operated under brands other than La Quinta.
(3) One inn is operated under a brand other than La Quinta.
(4) One inn is licensed to a third party.
(5) Includes 100% of the rooms owned by LQP as though the acquisition were
completed on December 31, 1993.
</TABLE>
JOINT VENTURES AND PARTNERSHIPS. La Quinta historically financed its
development, in part, through partnerships and joint ventures with large
insurance companies or financial institutions. Under the terms of the joint
venture and partnership agreements, available cash flow is generally used to pay
debt and provide for capital improvements, with remaining cash flow being
distributed to the partners in accordance with their respective ownership
interests. In 1993 La Quinta began to purchase the interests in the
unincorporated joint ventures and partnerships, acquiring 14 by the end of the
year. In addition, the Company successfully completed the acquisition of LQP in
January 1994. See further discussions above. At December 31, 1993, the Company
had ownership interests between 40% and 82% in 12 unincorporated joint ventures
and partnerships, one of which owns no properties.
In March of 1990, the Company entered into the La Quinta Development
Partners, L.P. ("LQDP" or the "Development Partnership") with AEW Partners, L.P.
("AEW Partners"). La Quinta Inns, Inc. is the general partner and owns a 40%
ownership interest and AEW Partners is the limited partner and owns a 60%
ownership interest. This partnership was established for the purpose of owning,
operating, acquiring and developing inns. La Quinta originally contributed 18
inns with a deemed value of $44,000,000 (net of existing debt assumed by LQDP)
and $4,000,000 in cash. AEW Partners contributed $3,000,000 and a promissory
note ("the AEW Note") to the Development Partnership in the amount of
$69,000,000. Under the terms of the agreement, proceeds from the AEW Note are to
be used for the construction of inns or for the acquisition and conversion of
existing inns into the La Quinta brand. In 1993, the AEW Partners fully paid the
balance of the AEW Note. At December 31, 1993, the Development Partnership had
acquired and converted 19 inns (nine during 1993). Under the terms of the
Development Partnership agreement, AEW Partners currently has the ability to
convert 66 2/3% of its ownership
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interest in the Development Partnership to 3,535,976 (post-split) shares of the
Company's common stock. Such number of shares is reduced as distributions are
made out of the Development Partnership to AEW Partners. The partnership units
may be converted at any time prior to December 31, 1998. As of December 31,
1993, no partnership units had been converted. Shares of the Company's common
stock issuable upon conversion are antidilutive at December 31, 1993.
Under the terms of a management agreement between the Company and the
Development Partnership, La Quinta earns management, national advertising, chain
services and license fees for the use of its name and services. La Quinta is
also entitled to receive acquisition and conversion fees for its services in
finding inns suitable for acquisition and in managing the conversion of such
inns. La Quinta is also entitled to receive fees on project costs of inns
constructed by the Development Partnership.
MANAGED INNS. In 1987, the Company formed two joint ventures with
investment partnerships managed by CIGNA Investments, Inc. ("CIGNA I" and "CIGNA
II"). The Company maintains a 1% ownership interest in each of these ventures
and manages the inns pursuant to long-term management contracts. As of December
31, 1993, the ventures owned nine inns and six free-standing restaurants
operated by third parties.
La Quinta receives licensing, management, national advertising and chain
services fees for the use of its brand name and services from management of the
inns. The Company accounts for its ownership interest in these entities, with
the exception of the two Cigna joint ventures, using the equity method. The
Cigna joint ventures are accounted for under the cost method.
LICENSING
The Company selectively licensed the name "La Quinta" to others for
operations in the United States until February 1977, at which time La Quinta
discontinued its domestic licensing program to unrelated third parties. One inn
remains in operation under a franchise agreement.
During 1990, the Company entered into a licensing agreement with
Desarrollos Turisticos Vanguardia S.A. de C.V. ("Desarrollos") for expansion of
the La Quinta chain into Saltillo, Coahuila, Mexico. In February 1994, one inn
developed under the license agreement opened for operation. Under the
arrangement, the inn is owned by the licensee and managed by La Quinta under a
separate management agreement. The Company is currently reviewing other
potential management/licensing arrangements within Mexico and other Latin
American countries.
"La Quinta Registered Trademark" and "teLQuik Registered Trademark"
have been registered as service marks by La Quinta with the U.S. Patent
and Trademark Office, and in Mexico, Canada and the United Kingdom.
OPERATIONS
Management of the La Quinta chain is coordinated from the Company's
headquarters in San Antonio, Texas. Centralized corporate services and functions
include marketing, accounting and reporting, purchasing, quality control,
development, legal, reservations and training.
Inn operations are currently organized into Eastern and Western divisions
with each division headed by a Divisional Vice President. Regional Managers
report to the Divisional Vice Presidents and are each responsible for
approximately 13 inns. Regional Managers are responsible for the service,
cleanliness and profitability of the inns in their regions.
Individual inns are typically managed by resident managers who live on the
premises. Managers receive inn management training which includes an emphasis on
service, cleanliness, cost controls, sales and basic repair skills. Because La
Quinta's professionally trained managers are substantially relieved of
responsibility for food service, they are able to devote their attention to
assuring friendly guest service and quality facilities, consistent
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with chain-wide standards. On a typical day shift, they will supervise one
housekeeping supervisor, eight room attendants, two laundry workers, two general
maintenance persons and three front desk service representatives.
At December 31, 1993, La Quinta employed approximately 6,100 persons, of
whom approximately 88% were compensated on an hourly basis. Approximately 240
individuals were employed at corporate and 5,850 were employed in inn management
and services. The Company's employees are not currently represented by labor
unions. Management believes its ongoing labor relations are good.
MARKETING
La Quinta's primary media focus is on business travelers, who account for
over half of La Quinta's rooms rented. The Company's core market consists of
business travelers who visit a given area several times per year. For example,
typical customers include salespersons covering a regional territory, government
and military personnel and technicians. The profile of a typical La Quinta
customer is a college educated business traveler, age 25 to 54, from a two
income household who has a middle management, white collar occupation or upper
level blue collar occupation. In addition, the Company's target markets include
vacation travelers and retired travelers. The Company focuses on reaching its
target markets by utilizing advertising, direct sales, programs which provide
incentives to repeat travelers, and other marketing programs targeted at
specific customer segments.
The Company advertises primarily through network and local radio, cable
television networks and print advertisements which focus on value. The Company
utilizes the same campaign concept throughout the country with minor
modifications made to address regional differences. The Company also utilizes
billboard advertisements along major highways which announce a La Quinta inn's
presence in upcoming towns.
The Company markets directly to companies and other organizations through
its direct sales force of 24 sales representatives and managers. This sales
force calls on companies which have a significant number of individuals
traveling in the regions in which La Quinta operates and which are capable of
producing a high volume of room nights.
La Quinta enjoys a large amount of repeat business. Based on internal
surveys conducted in 1993, management estimates the average customer spent
approximately 14 nights per year in a La Quinta inn during the year ended
December 31, 1993. The Company focuses a number of marketing programs on
maintaining the high number of repeat visits. La Quinta promotes a "Returns
Club" for repeat guests. This club provides its members with preferred status
and rates when checking into a La Quinta inn and offers rewards for frequent
stays. The Returns Club currently has over 140,000 members.
The Company provides a reservation system, "teLQuik"-R-, which currently
accounts for reservations for approximately 50% of room occupancy. The teLQuik
system allows customers to make reservations toll free or from special
reservations phones placed in the lobbies of all La Quinta inns. The teLQuik
system enables guests to make their next night's reservations from their
previous night's La Quinta inn. In 1994, the Company completed a new reservation
center which is a part of its program to improve operating results by providing
state-of-the-art technology in processing reservations more efficiently. La
Quinta, through its national sales managers, markets its reservation services to
travel agents and corporate travel planners who may access teLQuik through the
five major airline reservation systems.
ASSET MANAGEMENT
La Quinta's asset management strategy is founded on the importance of
ownership of all or a significant portion of each of its inns. See "Structure
and Ownership" on this Form 10-K. Management believes that Company ownership and
management of La Quinta inns enables the Company to achieve more consistency in
quality and service than its competitors.
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Historically, the Company financed a large part of its development through
partnerships and joint ventures with large insurance companies and other
financial institutions, while managing the inns. However, during 1993, the
Company acquired in separately negotiated transactions limited partners'
interests in 14 of the Company's combined unincorporated partnerships and joint
ventures that owned 44 La Quinta inns. The Company also completed the
acquisition of 100% of the limited partners' interests in an additional 31 inns
owned by a subsidiary of LQP in January of 1994, after acquiring 82% of LQP
during 1993. Additionally, the Company also acquired eleven existing inns during
1993. Currently, the Company owns 100% of 166 inns and between 40%- 80% of 45
other inns. The Company manages an additional nine La Quinta inns in which it
owns a 1% interest.
La Quinta's current development program focuses on the acquisition of
competitor properties at discounts to replacement costs. At current prices,
acquisition and conversion of existing properties is more cost effective than
new construction. In 1993, La Quinta acquired and is converting a total of
eleven inns, nine were purchased through the Development Partnership and two
were purchased as wholly-owned, with an aggregate of 1,611 rooms, at an average
cost of approximately $28,000 per room.
ITEM 2. PROPERTIES
La Quinta inns appeal to guests who desire high-quality rooms and whose
needs do not include banquet and convention facilities, in-house restaurants,
cocktail lounges or room service. La Quinta inns contain an average of 130 rooms
and provide spacious, quiet and comfortably furnished rooms with an average of
300 square feet, a choice of rooms for non-smokers and smokers, complimentary
continental breakfast, free unlimited local telephone calls, remote-control
television with Showtime or The Movie Channel, telecopy services, same-day
laundry and dry cleaning service, 24-hour front desk and message service and
free parking.
To maintain the overall quality of La Quinta's inns and to remain
competitive in its service-oriented environment, each inn undergoes
refurbishments and capital improvements as needed. Typically, refurbishing has
been provided at intervals of between five and seven years, based on an annual
review of the condition of each inn. In each of the years ended December 31,
1993, 1992 and 1991, the Company spent approximately $32,600,000 (of which
$15,400,000 was spent on the image enhancement program described below),
$15,500,000 and $13,800,000, respectively, on capital improvements to existing
inns. As a result of these expenditures, the Company believes it has been able
to maintain a chainwide quality of rooms and common areas at its properties
unmatched by any other national economy hotel chain.
In 1993, the Company undertook an image enhancement program intended to
give its properties a new, fresh, crisp appearance while preserving their unique
character. The program features new signage displaying a new logo as well as
exterior and lobby upgrades including brighter colors, additional landscaping,
enhanced guest entry and a full lobby renovation with contemporary furnishings
and seating area for continental breakfast. Of the chain's 221 inns, 97 began
the image enhancement program during 1993, of which 39 were complete as of
December 31, 1993. Twenty properties begin the reimaging process every six to
eight weeks with program completion targeted for June 1994. Signs displaying the
Company's new logo were in place at substantially all properties at December 31,
1993. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Commitments."
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At December 31, 1993, there were 221 inns located in 29 states, with
concentrations in Texas, Florida and California. The states and cities in which
the inns are located are set forth in the following table:
ALABAMA KANSAS TENNESSEE WYOMING
Birmingham Lenexa Knoxville Casper
Huntsville (2) Wichita Memphis (3) Cheyenne
Mobile Nashville (3) Rock Springs
Montgomery KENTUCKY
Tuscaloosa Lexington TEXAS LICENSED
Abilene LA QUINTA INN
ARIZONA LOUISIANA Amarillo (2)
Phoenix (3) Baton Rouge Arlington TEXAS
Tucson (2) Bossier City Austin (5) McAllen
Kenner Beaumont
ARKANSAS Lafayette Bedford OTHER
Little Rock (5) Monroe Brownsville OWNED INNS
New Orleans (5) Clute (operated under
CALIFORNIA Slidell College Station other brands)
Bakersfield Sulphur Corpus Christi (2)
Costa Mesa Dallas Metro Area (12) TEXAS
Fresno MICHIGAN Del Rio El Paso
Irvine Kalamazoo Denton La Marque
La Palma Eagle Pass San Antonio
Redding MISSISSIPPI El Paso (3)
Sacramento (2) Jackson (2) Fort Worth (2)
San Bernardino Galveston
San Diego (3) MISSOURI Harlingen
San Francisco St. Louis Houston Metro Area (17)
Stockton Killeen
Ventura NEBRASKA Laredo
Omaha Longview
COLORADO Lubbock
Colorado Springs NEVADA Lufkin
Denver (7) Las Vegas Midland
Reno Nacogdoches
FLORIDA Odessa
Daytona Beach NEW MEXICO Round Rock
Deerfield Beach Albuquerque (3) San Angelo
Ft. Myers Farmington San Antonio (11)
Gainesville Las Cruces Temple
Jacksonville (3) Santa Fe Texarkana
Miami Tyler
Orlando (2) NORTH CAROLINA Victoria
Pensacola Charlotte (2) Waco
Tallahassee (2) Wichita Falls
Tampa (5) OHIO
Columbus UTAH
GEORGIA Layton
Atlanta (7) OKLAHOMA Salt Lake City
Augusta Oklahoma City (2)
Columbus Tulsa (3) VIRGINIA
Savannah Hampton
PENNSYLVANIA Richmond
ILLINOIS Pittsburgh Virginia Beach
Champaign
Chicago Metro SOUTH CAROLINA WASHINGTON
Area (5) Charleston Seattle (2)
Moline Columbia Tacoma
Greenville
INDIANA
Indianapolis (2)
Merrillville
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Typically, food service for La Quinta guests is provided by adjacent, free
standing restaurants. At December 31, 1993, the Company had an ownership
interest in 124 restaurant buildings adjacent to its inns. The 124 restaurant
facilities are owned by the Company or its partnerships and joint ventures,
which own the related inn. These restaurants generally are leased pursuant to
build-to-suit leases that require the operator to pay, in addition to minimum
and percentage rentals, all expenses, including building maintenance, taxes and
insurance. At December 31, 1993, the Company's ownership interests in such
restaurants were as follows:
Number of Restaurants
---------------------
Owned 100% 77
Owned 82% 21
Owned 50-67% 5
Owned 40% 21
---
124
---
---
The Company's inns and restaurants were substantially pledged to secure all
long-term debt maturing in various years from 1994 to 2015 (See note 2 of Notes
to Combined Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
On October 18, 1993, the Company announced that its Board of Directors had
authorized its officers to enter into negotiations with La Quinta Motor Inns
Limited Partnership (the "Partnership") regarding the acquisition of all units
of the Partnership which it did not currently own, at a price of up to $12 per
unit. See "Structure and Ownership" on this Form 10-K. On October 18, 1993, the
Board of Directors of the General Partner of the Partnership elected three
independent directors (the "Special Committee"), among other things, to
negotiate the sale of Units to the Company. On October 18, 1993, two separate
lawsuits were filed in Delaware Court of Chancery on behalf of the Partnership's
unitholders against the Company, the Partnership, La Quinta Realty Corp., a
subsidiary of the Company, and general partner of the Partnership (the "General
Partner") and certain directors and officers of the General Partner
(collectively, the "Defendants"). The lawsuits are captioned GREENBERG V.
SCHULTZ, ET AL., C.A. No. 13199 and GORIN BROTHERS, INC., V. SCHULTZ, ET. AL.,
C.A. No. 13200 (collectively, the "Actions"). The complaints in the Actions
allege, among other things, that Defendants breached their fiduciary duties to
Unitholders by offering grossly inadequate consideration to entrench themselves
in control of the Partnership, by failing to solicit competing bids, and by
making inadequate public disclosure regarding the transaction. The complaints
additionally allege that the Company used unequal knowledge and economic power,
given its affiliation with the General Partner, to the detriment of the
Unitholders. The independence of the members of the Special Committee was also
questioned, allegedly resulting in the lack of arm's length negotiations and the
lack of any independent appraisal or evaluation. The complaints in the Actions
sought, among other things, (i) a declaration that the Defendants breached their
fiduciary duties to members of the alleged class, (ii) an order preliminarily
and permanently enjoining consummation of the proposed transaction, (iii) the
award of compensatory damages, and (iv) the award of costs and disbursements. On
October 27, 1993, the parties reached a settlement in principle in these
actions. The settlement is subject to certain conditions, including court
approval. On March 15, 1994, the Delaware Court of Chancery entered an Order and
Final Judgment ("Judgment") which approved the settlement and dismissed the
cases. All persons and entities who were owners of Units of the Partnership at
October 18, 1993 and their transferees and successors in interest, immediate and
remote (the "Class"), are bound by the Judgment. The Company and all other
defendants were discharged from any and all liability under any claims which
were or could have been brought by plaintiffs or any member of the Class
regarding the acquisition and merger of the Partnership. The appeal period on
the Judgment will run on April 14, 1994.
In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies. The suit
alleges breach of an employment agreement, misrepresentation, wrongful
termination, self-dealing, breach of fiduciary duty, usurpation of corporate
opportunity and tortious interference with contractual relations. The suit seeks
compensatory damages of $2,500,000 and exemplary damages of $5,000,000. The
Company intends to vigorously defend against this suit.
10
<PAGE>
Actions for negligence or other tort claims occur routinely as an ordinary
incident to the Company's business. Several lawsuits are pending against the
Company which have arisen in the ordinary course of the business, but none of
these proceedings involves a claim for damages (in excess of applicable excess
umbrella insurance coverages) involving more than 10% of current assets of the
Company. The Company does not anticipate any amounts which it may be required to
pay as a result of an adverse determination of such legal proceedings and the
matters discussed above, individually or in the aggregate, or any other relief
granted by reason thereof, will have a material adverse effect on the Company's
financial position or results of operations.
The Company has established a paid loss program (the "Paid Loss Program")
for inns owned and managed by the Company, which includes excess umbrella
policies for commercial general liability insurance, automobile liability
insurance, fire and extended property insurance, workers' compensation and
employer's liability insurance for losses above the deductible limits, and such
other insurance as is customarily obtained for similar properties and which may
be required by the terms of loan or similar documents with respect to the inns.
In connection with the general liability, workers' compensation and automobile
coverages, all inns participate in the Paid Loss Program, under which claims and
expenses are shared pro rata, with excess umbrella insurance being maintained to
cover losses, claims and costs in excess of the deductible limits per matter of
$500,000 for general liability, $250,000 for workers' compensation and $250,000
for automobile coverage. All pro rata expenses and premiums under the Paid Loss
Program with respect to inns owned by persons other than the Company constitute
direct operating expenses of said inns under the terms of the respective
management agreements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year covered by this Annual Report on Form
10-K, no matter was submitted to a vote of Registrant's security holders through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on The New York Stock Exchange. The
range of the high and low sale prices, as adjusted for the three-for-two stock
split in October 1993 and the three-for-two stock split in March 1994, of the
Company's Common Stock for each of the quarters during the years ended December
31, 1993 and 1992 is set forth below:
<TABLE>
<CAPTION>
1993 1992
------------------------------- ----------------------------
Per Share Per Share
High Low Dividend High Low Dividend
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter. . . . . . . . . . . . . . $13 3/4 $ 9 $ -- $7 7/8 $6 3/8 $ --
Second Quarter . . . . . . . . . . . . . 14 3/8 12 -- 8 3/8 7 1/4 --
Third Quarter. . . . . . . . . . . . . . 19 3/8 12 1/2 .025 8 1/4 7 1/8 --
Fourth Quarter . . . . . . . . . . . . . 23 7/8 18 5/8 .025 9 1/4 7 7/8 --
</TABLE>
The Company paid cash dividends in both the third and fourth quarters of
1993 in the amount of $.025 per share under its quarterly dividend policy as
authorized by the Board of Directors. The Company increased its cash dividend by
50 percent in conjunction with the March 1994 three-for-two stock split to an
annual rate of $.10 per share on post-split common shares. For restrictions on
the Company's present or future ability to pay cash dividends, see note 2 of
Notes to Combined Financial Statements. The declaration and payment of dividends
in the future will be determined by the Board of Directors based upon the
Company's earnings, financial condition, capital requirements and such other
factors as the Board of Directors may deem relevant.
11
<PAGE>
As of February 28, 1994, the approximate number of holders of record of the
Company's Common stock was 915.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------
1993 1992 1991 1990 1989 (2)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS, AND INN STATISTICS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . $271,850 $254,122 $240,888 $226,830 $206,172
Direct and corporate operating costs and expenses (4). . . . . 168,365 156,845 155,126 147,809 131,528
Depreciation, amortization and asset retirements . . . . . . . 23,711 24,477 34,921 34,411 32,962
Performance stock option . . . . . . . . . . . . . . . . . . . 4,407 -- -- -- --
Non-recurring cash and non-cash charges (4). . . . . . . . . . -- 38,225 7,952 503 --
Operating income . . . . . . . . . . . . . . . . . . . . . . . 75,367 34,575 42,889 44,107 41,682
Net interest expense . . . . . . . . . . . . . . . . . . . . . 26,219 27,046 30,271 32,304 36,692
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . 20,301 (8,754) 129 2,175 6,130
Net earnings (loss) before extraordinary items
and cumulative effect of accounting change . . . . . . . . . 19,420 (7,796) 1,398 2,175 6,130
Earnings (loss) before extraordinary items and cumulative
effect of accounting change. . . . . . . . . . . . . . . . . .61 (.26) .05 .07 .21
Net earnings (loss) per share (3). . . . . . . . . . . . . . . .64 (.29) -- .07 .21
OTHER DATA
Capital expenditures (5) . . . . . . . . . . . . . . . . . . . 32,623 15,529 13,803 17,696 26,317
Purchase of inns and conversion costs. . . . . . . . . . . . . 38,858 4,060 15,487 18,574 15,477
Purchase of partners' equity interests (6) . . . . . . . . . . 78,169 -- 3,546 -- 754
Net cash provided by operating activities. . . . . . . . . . . 77,364 60,543 54,056 42,106 39,719
Net cash used by investing activities. . . . . . . . . . . . . (145,027) (15,166) (35,083) (40,061) (44,920)
Net cash provided (used) by financing activities . . . . . . . 78,650 (40,471) (24,428) (101) (15,819)
Cash dividends declared per common share . . . . . . . . . . . .05 -- -- -- --
EBITDA (7) . . . . . . . . . . . . . . . . . . . . . . . . . . 103,485 97,277 85,762 79,021 74,644
BALANCE SHEET DATA
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 744,241 539,183 574,687 586,969 577,388
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . 149,057 124,321 130,175 129,167 123,193
Partners' capital. . . . . . . . . . . . . . . . . . . . . . . 85,976 62,060 50,471 37,270 29,223
Current installments of long-term debt . . . . . . . . . . . . 22,491 21,711 22,116 24,002 16,991
Long-term debt, excluding current installments . . . . . . . . 414,004 274,824 316,014 341,902 350,986
Combined effective debt-to-equity ratio (1). . . . . . . . . . 1.76 1.47 1.75 2.05 2.3
OPERATING DATA
Inns owned . . . . . . . . . . . . . . . . . . . . . . . . . . 211 169 168 164 161
Inns managed . . . . . . . . . . . . . . . . . . . . . . . . . 9 40 40 40 40
Inns licensed. . . . . . . . . . . . . . . . . . . . . . . . . 1 3 4 6 6
------ ------ ------ ------ ------
Number of inns . . . . . . . . . . . . . . . . . . . . . . . . 221 212 212 210 207
Occupancy percentage . . . . . . . . . . . . . . . . . . . . . 65.1% 65.6% 64.8% 66.0% 65.5%
Average daily room rate. . . . . . . . . . . . . . . . . . . . $46.36 $44.33 $43.11 $40.93 $38.67
<FN>
- - ---------------
(1) Ratio of long-term debt, excluding current installments, to partners'
capital plus shareholders' equity at year end.
(2) Effective June 1, 1989, the Company changed its year-end from May 31 to
December 31. The year ended December 31, 1989 is an aggregation of the
results from the seven months ended December 31, 1989 and the five months
ended May 31, 1989.
(3) Earnings (loss) per share are computed on the basis of the weighted average
number of common and common equivalent shares outstanding in each year
after giving effect to the three-for-two stock splits.
</FN>
12
<PAGE>
<FN>
(4) Non-recurring cash and non-cash charges include charges related to the
write-down of certain joint venture interests carried on the equity method,
land and computer equipment, severance and other employee-related costs and
charges associated with a series of studies to improve operating results.
For the year ended December 31, 1992, these charges also include a
$2,696,000 increase in the allowance for certain notes receivable related
to inns sold by the Company, prior to 1985, and $210,000 related to other
corporate expense items.
(5) The December 31, 1993 capital expenditures include $15,400,000 for the
Company's image enhancement program.
(6) Purchase of partners' equity interests in 1993 includes approximately
$42,091,000 related to acquisition of 3,257,890 units of LQP through
December 1993.
(7) EBITDA, as defined by the covenants to the Company's public debt securities
of $120,000,000, 9 1/4% Senior Subordinated notes due 2003, is earnings
before net interest expense, income taxes, depreciation, amortization and
fixed asset retirements, extraordinary items, partners' equity in earnings
and losses, gain or loss on property and investment transactions and other
non-recurring cash and non-cash charges. This definition differs from the
traditional EBITDA definition which does not include adjustments for
extraordinary items, partners' equity in earnings and losses, gain or loss
on property and investment transactions and other non-recurring cash and
non-cash charges.
The following is a summary of these amounts:
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Extraordinary items . . . . $ 619 $ 958 $1,269 $ -- $ --
Partners' equity in
earnings and losses . . . 12,965 15,081 9,421 8,408 2,596
(Gain) or loss on property
and investment
transactions. . . . . . . 4,347 (282) 1,012 (3) (6,302)
Non-recurring cash and
non-cash charges
and performance stock
option. . . . . . . . . . 4,407 38,225 7,952 503 --
EBITDA is not intended to represent cash flow or any other measure of
performance in accordance with generally accepted accounting principles
("GAAP"). EBITDA, as defined above, is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's financial statements include the accounts of the Company's
wholly-owned subsidiaries and unincorporated partnerships and joint ventures in
which the Company has at least a 40% interest and over which it exercises
substantial legal, financial and operational control. Investments in other
entities in which the Company has less than a 40% ownership interest and over
which the Company has the ability to exercise significant influence, but does
not have control, are accounted for using the equity method.
During 1993, the Company acquired, in separately negotiated transactions,
limited partners' interests in 14 of the Company's combined unincorporated
partnerships and joint ventures which owned 44 inns. The Company purchased the
ownership interests for an aggregate purchase price of $87,897,000 which
included cash at closing, the assumption of $22,824,000 of existing debt
attributable to certain limited partners' interests, and $29,878,000 in notes to
certain sellers.
As a result of the following transactions, the operations of LQP for the
month of December 1993 were included in the combined financial statements of the
Company. On October 27, 1993, the Company entered into a definitive Partnership
Acquisition Agreement (the "Merger Agreement") with LQP and other parties,
pursuant to which the Company, through wholly-owned subsidiaries, would acquire
all units of the Partnership (the "Units") that it did not beneficially own at a
price of $13.00 net per Unit in cash. The Merger Agreement provided for a
13
<PAGE>
tender offer (the "Offer") for all of the Partnership's outstanding Units at a
price of $13.00 net per Unit in cash, which Offer commenced on November 1, 1993
and expired at midnight on November 30, 1993. The Offer resulted in the purchase
of 2,805,190 Units (approximately 70.6% of the outstanding Units) by the Company
through its wholly-owned subsidiary, LQI Acquisition Corporation. As a result of
a contribution of additional units previously owned by the Company subsequent to
the Offer, LQI Acquisition Corporation beneficially owned 3,257,890 Units
(approximately 82% of the Units) at December 31, 1993. Pursuant to the Merger
Agreement, a Special Meeting of Unitholders was then held on January 24, 1994 to
approve the merger of a subsidiary of LQI Acquisition Corporation with and into
the Partnership, with the Partnership as the surviving entity. As a result of
this merger which was approved by the requisite vote of Unitholders on January
24, 1994, all of the Partnership's outstanding Units other than Units owned by
the Company or any direct or indirect subsidiary of the Company were converted
into the right to receive $13.00 net in cash without interest.
In 1993, the Company completed the acquisition of eleven inns and began
renovating and converting them to the La Quinta brand. Of these inns, nine were
purchased through the Development Partnership and two were purchased as
wholly-owned properties. Although these inns remained open for business during
conversion construction, hotel operations are disrupted during the typical
three-to-four month construction period. Conversion of these inns will be
completed during the first quarter of 1994.
References to "Company Inns" are to inns owned by the Company or by
unincorporated partnerships and joint ventures in which the Company owns at
least a 40% interest. References to "Managed Inns" are to those inns in which
the Company owns less than a 40% interest and which are managed by the Company
under long-term management contracts. "Managed Inns" include nine inns held in
two joint ventures with CIGNA Investments, Inc. ("CIGNA") for the year ended
December 31, 1993 and the 31 inns of the LQP through November 30, 1993. "Managed
Inns" were accounted for using the equity method.
The following chart shows certain historical operating statistics and
revenue data. References to the percentages of occupancy and the average daily
rate refer to Company Inns. Managed Inns and the La Quinta licensed inn are
excluded from occupancy and average daily rate statistics for all periods for
purposes of comparability. All financial data is related to Company Inns unless
otherwise specified.
<TABLE>
<CAPTION>
Comparative Operating Statistics and Revenue Data
-------------------------------------------------
Years Ended December 31
-----------------------
(in thousands, except rates and percentages)
--------------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Room revenue $248,428 $230,054 $218,225
Other inn revenue 10,101 9,772 8,871
-------- -------- --------
Total inn revenue $258,529 $239,826 $227,096
-------- -------- --------
-------- -------- --------
Percentage of occupancy 65.1% 65.6% 64.8%
Average room rate $ 46.36 $ 44.33 $ 43.11
Available rooms (1) 8,226 7,916 7,817
<FN>
(1) Available rooms represent the number of rooms available for sale multiplied
by the number of days in the period reported.
</TABLE>
During 1991, the Company implemented certain changes in its operations and
organization which resulted in charges of $7,952,000. Such charges included
severance costs resulting from a reduction in work force and the termination of
four executive officers of the Company, charges related to the write-down of
computer equipment and other assets and costs associated with the Company's cost
reduction study. During 1992, the Company made additional changes in operations
and organization based on a comprehensive review of the Company by its senior
management team and recognized charges of approximately $39,751,000. These
charges included a provision for the write-down of partnership investments,
land, severance and other employee-related costs and other charges which
affected corporate expenses and partners' equity in earnings and losses, as more
fully described below.
14
<PAGE>
YEAR ENDED DECEMBER 31, 1993
COMPARED TO YEAR ENDED DECEMBER 31, 1992
TOTAL REVENUES increased to $271,850,000 in 1993 from $254,122,000 in 1992,
an increase of $17,728,000 or 7.0%. Of the total revenues reported in 1993,
95.1% were revenues from inns, 2.4% were revenues from restaurant rentals and
other revenue and 2.5% were revenues from management services.
INN REVENUES are derived from room rentals and other sources such as
charges to guests for long-distance telephone calls, fax machine use and laundry
services. Inn revenues increased to $258,529,000 in 1993 from $239,826,000 in
1992, an increase of $18,703,000 or 7.8%. The increase in inn revenues was due
primarily to an increase in average room rate, an increase in the number of
available rooms and the acquisition of LQP. The average room rate increased to
$46.36 in 1993 from $44.33 in 1992, an increase of $2.03 or 4.6%, while
occupancy declined .5 percentage points. As anticipated, the Company's image
enhancement program caused temporary construction related disruption in normal
business operations and occupancies at properties which underwent the process.
Newly acquired inns remain open during conversion construction which also
disrupts the hotel operations during the typical three-to-four month
construction period. Also, management's decision to discontinue a coupon
promotion used in 1992 had a positive impact on room rate and had the effect of
reducing occupancy in 1993. Available rooms for 1993 were 8,226,000 as compared
to 7,916,000 for 1992, an increase of 310,000 available rooms, or 3.9%. The
increase in the number of available rooms was due to the acquisitions of 11 inns
during the year ended December 31, 1993 and the acquisition of LQP in December
of 1993. The acquisition of LQP in December 1993 added $2,758,000 to inn
revenues.
RESTAURANT RENTAL AND OTHER REVENUES includes rental payments from
restaurants owned by the Company and leased to and operated by third parties.
Restaurant rental and other revenues also include the Company's interest in the
earnings (accounted for using the equity method) of two CIGNA joint ventures
through the year ended December 31, 1993 and LQP, up to December 1, 1993, and
miscellaneous other revenues, such as third party rental revenue from an office
building which also housed the Company's corporate offices through May 1993.
Restaurant rental and other decreased to $6,464,000 in 1993 from $7,208,000 in
1992, a decrease of $744,000 or 10.3%, primarily due to a reduction in earnings
related to investments accounted for on the equity method.
MANAGEMENT SERVICES revenue is primarily related to fees earned by the
Company for services rendered in conjunction with Managed Inns. Management
service revenue decreased to $6,857,000 in 1993 from $7,088,000 in 1992, a
decrease of $231,000 or 3.3%. Management fees decreased due to there being two
less franchisees and the consolidation of LQP in December 1993 eliminating the
related management fees charged by the Company to LQP for that month.
DIRECT EXPENSES include costs directly associated with the operation of
Company Inns. In 1993, approximately 42% of direct expenses were represented by
salaries, wages, and related costs. Other major categories of direct expenses
include utilities, repairs and maintenance, property taxes, advertising and room
supplies.
Direct expenses increased to $148,915,000 ($27.79 per occupied room) in
1993 compared to $135,790,000 ($26.17 per occupied room) in 1992, an increase of
$13,125,000 or 9.7%. As a percentage of total revenues, direct expenses
increased to 54.8% in 1993 from 53.4% in 1992. The increase in direct expense
resulted primarily from the Company's implementation of a complimentary
continental breakfast at all La Quinta inns during the first quarter of 1993,
(which amounted to $1.08 per occupied room). Newly acquired inns typically incur
more direct expenses as a percentage of revenue during the first twelve months
of operations compared to the inns which have been operating as a La Quinta for
more than a twelve month period. The Company acquired 11 inns during 1993 and
did not acquire or convert any inns in the 1992 period. Direct expenses incurred
by LQP in December 1993 were $2,048,000.
CORPORATE EXPENSES include the costs of general management, office rent,
training and field supervision of inn managers and other marketing and
administrative expenses. The major components of corporate expenses are
salaries, wages and related expenses and information systems. Corporate expenses
decreased to $19,450,000 ($1.96 per available room, including Managed Inns) in
1993 from $23,961,000 ($2.41 per available room, including Managed Inns) in 1992
a decrease of $4,511,000 or 18.8%. As a percent of total revenues, corporate
15
<PAGE>
expenses decreased to 7.2% in 1993 from 9.4% in 1992. The 1992 corporate
expenses included a non-recurring charge to increase the allowance for certain
notes receivable, based upon estimates of the value of the real estate held as
collateral for such notes and evaluations of the financial condition of certain
borrowers, and a provision related to the settlement of certain litigation. The
1992 Corporate expenses, before non-recurring charges were $21,055,000 ($2.16
per available room, including Managed Inns). As a percent of total revenues,
corporate expenses in 1992, before non-recurring charges, was 8.3%.
THE PROVISION FOR WRITE-DOWN OF PARTNERSHIP INVESTMENTS, LAND AND OTHER in
1992 includes charges related to the write-down of certain joint venture
interests, land previously held for future development, computer equipment and
other assets, as more fully described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Year Ended December 31, 1992
Compared to Year Ended December 31, 1991."
SEVERANCE AND OTHER EMPLOYEE RELATED COSTS in 1992 consisted of costs
related to the severance of certain executive officers and other employees,
executive search fees and relocation costs for new officers.
PERFORMANCE STOCK OPTION relates to the costs of stock options which became
exercisable when the average price of the Company's stock reached $30 per share
(pre-split) for twenty consecutive days. Performance stock option expense and
certain other options were accelerated as a result of this condition being met.
See note 5 to the Combined Financial Statements.
DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS decreased to $23,711,000
in 1993 from $24,477,000 in 1992, a decrease of $766,000 or 3.1%. The decrease
in depreciation, amortization and asset retirements was due to assets which
became fully depreciated during 1993 and the write-off of computer equipment and
signage in the prior year. Replacement and installation of new computer
equipment and signs was substantially completed in the latter part of 1993.
OPERATING INCOME increased to $75,367,000 in 1993 from $34,575,000 in 1992,
an increase of $40,792,000. Operating income before a non-recurring, non-cash
charge of approximately $4,407,000 to recognize compensation expense related to
the vesting of performance stock options, increased to $79,774,000 in 1993 from
$73,112,000 in 1992 before write-downs, severance and employee related costs and
other non-recurring charges, an increase of $6,662,000 or 9.1%.
INTEREST INCOME primarily represents earnings on the note receivable from
AEW Partners (the "AEW Note") and on the short-term investment of Company funds
in money market instruments prior to their use in operations or acquiring inns.
Interest income decreased to $5,147,000 in 1993 from $6,041,000 in 1992, a
decrease of $894,000 or 14.8%. The decrease in interest income is primarily
attributable to principal reductions on the AEW Note of $16,700,000 and
$19,300,000 in September and December 1993 respectively, and the corresponding
reduction in interest earned thereon. As of December 31, 1993 the AEW Note had
been fully collected.
INTEREST ON LONG-TERM DEBT decreased to $31,366,000 in 1993 from
$33,087,000 in 1992, a decrease of $1,721,000 or 5.2%. The decrease in interest
expense is attributable to the early extinguishment of approximately
$117,000,000 of certain high interest rate debt with proceeds from the 9 1/4%
Senior Subordinated Notes due 2003 and bank financing which more than offset
interest on borrowings to purchase limited partners' interests. In addition,
certain Industrial Revenue Bond issues were refinanced to obtain more favorable
interest rates.
PARTNERS' EQUITY IN EARNINGS AND LOSSES reflects the interests of partners
in the earnings and losses of the combined joint ventures and partnerships which
are owned at least 40% and controlled by the Company. Partners' equity in
earnings and losses decreased to $12,965,000 in 1993 from $15,081,000 in 1992, a
decrease of $2,116,000 or 14.0%. The decrease in partners' equity in earnings
and losses is attributable to the acquisition of limited partners' interests in
14 combined unincorporated partnerships and joint ventures partially offset by
increases in the earnings of the Development Partnership. As of December 31,
1993, the Development Partnership operated 37 inns compared to 28 inns as of
December 31, 1992.
16
<PAGE>
NET GAIN (LOSS) ON PROPERTY AND INVESTMENT TRANSACTIONS decreased to a loss
of ($4,347,000) in 1993 from a gain of $282,000 in 1992. The loss in 1993
includes a $4,900,000 loss related to the Company's conveyance to the mortgagee
of the title on the property in which the Company's headquarters were located.
INCOME TAXES for 1993 were calculated using an estimated effective tax rate
of 39%.
For the reasons discussed above, the Company reported EARNINGS (LOSS)
BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE of
$19,420,000 in 1993 compared with ($7,796,000) in 1992, an increase of
$27,216,000.
The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of ($619,000)
in 1993 compared with ($958,000) in 1992. The 1993 extraordinary loss consisted
of ($6,007,000), ($3,664,0000) net of income taxes, related to the early
extinguishment and refinancing of certain debt partially offset by an
extraordinary gain of $4,991,000, $3,045,000 net of income taxes, resulting from
the Company's transfer of ownership to the mortgagee of property in which the
Company's headquarters were located.
The cumulative effect of a change in accounting for income taxes of
$1,500,000 or $.05 per share in 1993 was the result of the implementation of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
For the reasons discussed above, the Company reported NET EARNINGS of
$20,301,000 in 1993 compared with a net loss of ($8,754,000) in 1992, an
increase of $29,055,000.
YEAR ENDED DECEMBER 31, 1992
COMPARED TO YEAR ENDED DECEMBER 31, 1991
TOTAL REVENUES increased to $254,122,000 in 1992 from $240,888,000 in 1991,
an increase of $13,234,000 or 5.5%. Of the total revenues reported in 1992,
94.4% were revenues from inns, 2.8% were revenues from restaurant rentals and
other revenue and 2.8% were revenues from management services.
INN REVENUES increased to $239,826,000 in 1992 from $227,096,000 in 1991,
an increase of $12,730,000 or 5.6%. The increase in inn revenues was due
primarily to an increase in average room rate, an increase in the number of
available rooms and a slight increase in the percentage of occupancy. The
average room rate increased to $44.33 in 1992 from $43.11 in 1991, an increase
of $1.22 or 2.8%. The increase in room rate for 1992 was primarily attributable
to rate increases made in selected stronger markets in January and June. The
percentage of occupancy increased to 65.6% in 1992 from 64.8% in 1991. Available
rooms for 1992 were 7,916,000 as compared to 7,817,000 for 1991, an increase of
99,000 available rooms or 1.3%. The increase in the number of available rooms
was due to the acquisition of two inns in the fourth quarter of 1991 and the
conversion of a licensed inn to a wholly-owned inn in 1992.
RESTAURANT RENTAL AND OTHER increased slightly to $7,208,000 in 1992 from
$6,910,000 in 1991.
MANAGEMENT SERVICES REVENUE increased to $7,088,000 in 1992 from $6,882,000
in 1991, an increase of $206,000 or 3.0%.
In 1992, approximately 44% of DIRECT EXPENSES were represented by salaries,
wages and related costs. Direct expenses were $135,790,000 ($26.17 per occupied
room) in 1992 compared to $135,443,000 ($26.75 per occupied room) in 1991, an
increase of $347,000 or 0.3%. As a percentage of total revenues, direct expenses
decreased to 53.4% in 1992 from 56.2% in 1991. The increase in total direct
expenses was primarily due to increases in property taxes, insurance and
employee health care claims expenses. However, the increase was partially offset
by decreases in workers' compensation insurance resulting from new safety
programs implemented by the Company, supplies and advertising expenses.
CORPORATE EXPENSES increased to $23,961,000 ($2.41 per available room,
including Managed Inns) in 1992 from $19,683,000 ($2.04 per available room,
including Managed Inns) in 1991, an increase of $4,278,000 or 21.7% As a percent
of total revenues, corporate expenses increased to 9.4% in 1992 from 8.2% in
1991. A 1992 non-recurring charge of $2,906,000 was primarily attributable to an
increase of $2,696,000 in the allowance for certain notes receivable, related to
inns sold by the company prior to 1985, based on estimates of the value of the
17
<PAGE>
real estate held as collateral for such notes and evaluations of the financial
condition of certain borrowers. In addition, the increase in corporate expense
was also partially related to a provision for settlement of certain litigation.
Corporate expenses in 1992 before non-recurring charges were $21,055,000 ($2.16
per available room, including Managed Inns). As a percentage of total revenues,
1992 corporate expenses before non-recurring charges were 8.3%.
During 1992, the Company recorded NON-RECURRING CASH AND NON-CASH CHARGES
of approximately $39,751,000. Of these charges $28,383,000 are included as a
provision for write-down of partnership investments, land and other; $6,936,000
related to severance and other employee related costs; and the remaining
$4,432,000 affected corporate expenses and partners' equity in earnings and
losses. All of these charges resulted from certain changes being made in the
Company's operations and organization based on a comprehensive review by the
Company's senior management team.
During 1991, the Company recognized NON-RECURRING CASH AND NON-CASH CHARGES
of $7,952,000 resulting from certain changes made in the Company's operations
and organization. Of those charges, approximately $4,097,000 were for severance
related costs for former employees which resulted from a reduction in the work
force of approximately 72 employees, 50 of which were employed at the Company's
headquarters and the termination of four executive officers of the Company under
the various provisions of their severance agreements. Of the remaining charges,
approximately $2,165,000 related to the write-down of computer equipment and
other assets and approximately $1,690,000 represented costs associated with the
Company's study to enhance shareholder value.
DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS decreased to $24,477,000
in 1992 from $34,921,000 in 1991, a decrease of $10,444,000 or 29.9%.
Approximately $9,200,000 of the decrease was due to the Company's change in the
depreciable lives of the building assets from 30 years to 40 years, effective
January 1, 1992.
OPERATING INCOME decreased to $34,575,000 in 1992 from $42,889,000 in 1991,
a decrease of $8,314,000 or 19.4%, primarily due to certain charges recorded in
1992, as more fully described above. Operating income before non-recurring
charges and the effect of a change in estimated useful lives of buildings
increased to $63,914,000 in 1992 from $50,841,000 in 1991 an increase of
$13,073,000 or 25.7%. The net impact of these charges and adjustments on
operating income for 1992 amounted to a net charge of $29,339,000 compared with
$7,952,000 for 1991. As a percentage of total revenues, operating income
decreased to 13.6% in 1992 from 17.8% in 1991.
INTEREST INCOME decreased to $6,041,000 in 1992 from $8,442,000 in 1991, a
decrease of $2,401,000 or 28.4% The decrease in interest income is primarily
attributable to a $14,866,000 reduction in principal on the AEW Note in March
1992 and the corresponding reduction in interest earned thereon.
INTEREST ON LONG-TERM DEBT decreased to $33,087,000 in 1992 from
$38,713,000 in 1991, a decrease of $5,626,000 or 14.5%. The decrease in interest
expense is related to the refinancing of approximately $42,000,000 in industrial
revenue bond issues in 1992 and 1991 to obtain more favorable interest rates,
the decline in the prime interest rate and the reduction of the average
outstanding balance on the Company's Credit Facility due to improving operating
cash flow.
PARTNERS' EQUITY IN EARNINGS AND LOSSES increased to $15,081,000 in 1992
from $9,421,000 in 1991, an increase of $5,660,000 or 60.1%. The increase in
partners' equity in earnings and losses is primarily attributable to a decrease
in depreciation expense related to the change in building lives of properties
owned by the combined partnerships and joint ventures from 30 years to 40 years
and to the increase in earnings of the Development Partnership. As of December
31, 1992, the Development Partnership operated 28 inns compared to 26 inns as of
December 31, 1991. Partners' equity in earnings and losses in 1992 was also
impacted by a $1,214,000 adjustment to reallocate losses of a joint venture to
the Company as a result of settlement negotiations between the Company and a
partner regarding the partner's refusal to make capital contributions necessary
to fund operations of the joint venture.
NET GAIN (LOSS) ON PROPERTY AND INVESTMENT TRANSACTIONS increased to
$282,000 in 1992 from a loss of ($1,012,000) in 1991. The majority of the 1991
loss was the result of write-downs on four properties partially offset by gains
on three land condemnations.
18
<PAGE>
The Company's effective tax rate for 1992 was primarily affected by
deferred tax benefits that had not been recognized related to certain charges
incurred during the year.
For the reasons discussed above, the Company reported a LOSS BEFORE
EXTRAORDINARY ITEMS of ($7,796,000) in 1992 compared with the earnings before
extraordinary items of $1,398,000 in 1991, a decrease of $9,194,000.
The Company reported EXTRAORDINARY ITEMS, NET OF INCOME TAXES of ($958,000)
in 1992 compared with ($1,269,000) in 1991. The extraordinary items reported in
each period were primarily a result of the refinancing of three industrial
revenue bond issues totaling $12,910,000 in principal in 1992 and nine
industrial revenue bond issues totaling $28,950,000 in principal in 1991.
Extraordinary items in 1992 also relate to the early extinguishment of the
Company's 10% Convertible Subordinated Debentures due 2002.
For the reasons discussed above, the Company reported a NET LOSS of
($8,754,000) in 1992 compared with net earnings of $129,000 in 1991, a decrease
of $8,883,000.
CAPITAL RESOURCES AND LIQUIDITY
The Company has historically financed its development program through
partnerships with financial institutions, a public debt offering and borrowings
under the Company's Credit Facilities. During the years ended December 31, 1993
and 1992, the Company funded a majority of its development program through the
Development Partnership. The Company's inns and adjacent restaurant land and
buildings are substantially pledged to secure long-term debt of the Company.
Distributions of cash, if any, from the Company's joint ventures and
partnerships are made from cash available after payment of operating expenses,
debt service, capital expenditures and acquisition and development of new inns.
At December 31, 1993, the Company had $23,848,000 of cash and cash
equivalents, an increase of $10,987,000 from December 31, 1992. The increase was
due to the collection of $19,300,000 on AEW Partners' obligation to the
Development Partnership in December 1993. In July 1993, the Company completed
negotiations on a new $40,000,000 Secured Line of Credit and $30,000,000 Secured
Term Credit Facility. On December 22, 1993, the Company completed negotiations
on an additional $30,000,000 Secured Line of Credit which bore interest at the
prime rate plus 1/2%. The additional Line of Credit matured upon the closing of
the amendment to the $40,000,000 Secured Line of Credit and $30,000,000 Secured
Term Credit Facility more fully discussed below. At December 31, 1993 the
Company had approximately $31,380,000 available on its credit facility.
In January 1994, the Company completed negotiations to amend the
$40,000,000 Secured Line of Credit and increase the Secured Term Credit Facility
from $30,000,000 to $145,000,000. Borrowings under the $40,000,000 secured line
of credit, which will expire May 30, 1997 will be made at varying interest rates
of LIBOR plus 1 3/4%, the prime rate, or certificate of deposit rate plus 1
7/8%. Borrowings under the $145,000,000 Secured Term Credit Facility, which will
expire May 31, 2000, will be made through October 31, 1994 and will bear
interest at varying interest rates of LIBOR plus 2%, the prime rate plus 1/4%,
or certificate of deposit rate plus 2 1/8%. Amounts borrowed under the Secured
Term Credit Facility will require semi-annual principal payments commencing
November 30, 1994 through May 31, 2000. In February 1994, the Company used the
Secured Term Credit Facility to retire $65,742,000 of 11.25% mortgage debt
assumed through the acquisition of LQP, which would have matured in November
1994. As of February 28, 1994, the Company had $27,125,000 available on its
credit facility.
At December 31, 1993, the AEW Note to the Development Partnership had been
fully collected. The Company anticipates that substantially all of its
development activity in 1994 will occur through the Development Partnership by
using the Partnership's available cash and cash from operations and that no
distributions of cash will be made to partners.
On January 23, 1992 with the approval of the Company's Board of Directors,
the Company entered two interest rate swap agreements (the "Agreements") which
exchanged the Company's variable rate interest payments for the fixed rate
interest payments of a major financial institution (the "Counterparty"). The
debt ("Notional Amount") underlying the Agreements is $16,890,000 and
$44,420,000. Under the Agreements, the Company
19
<PAGE>
effectively pays a fixed rate of interest at 6.50% and 5.26% and the
Counterparty pays a percentage of prime interest rate and the variable rate
demand note interest rate ("VRDN"). In the event the VRDN rate exceeds the fixed
interest rate of 5.26% or the percentage of prime interest rate exceeds 6.5%,
the Counterparty pays to the Company that difference times the Notional Amount,
on a monthly basis. Should the fixed interest rate of 5.26% exceed the VRDN
interest rate or the fixed interest rate of 6.5% exceeds the percentage of prime
interest rate, the Company pays the difference times the Notional Amount to the
Counterparty, on a monthly basis. These Agreements resulted in net payments to
the Counterparty of $1,427,000 and $1,184,000 in the years ended December 31,
1993 and 1992, respectively. The Agreements expire on February 1, 1997, and the
Notional Amounts are reduced over the life of the Agreements by scheduled
amortization payments. At December 31, 1993, the Notional Amounts of debt
remaining under the Agreements are $13,218,000 and $39,050,000 which bear
interest at a weighted average variable interest rate of 4.43% and 2.55%,
respectively.
The Company is exposed to market risk associated with fluctuations in
interest rates. By entering the interest rate swap agreements, described above,
the Company reduced its exposure to rising interest rates on the aforementioned
variable interest rate debt and has effectively fixed the rate on such debt at a
level acceptable to the Company given the length of the Agreements and the risk
of interest rate changes. The Company is exposed to credit risk to the extent
that the Counterparty fails to perform under the Agreements. The Company has
mitigated its credit risk by entering the Agreements with a major financial
institution, which has received an "A" rating from Standard and Poor's
Corporation and an "A2" rating from Moody's Investors Service on senior
unsecured debt. The Company regularly monitors the credit ratings of the
Counterparty and considers the risk of default remote.
The estimated fair value of the interest rate swap agreements in a net
payable position increased from $1,705,000 at December 31, 1992 to $2,276,000 at
December 31, 1993 as a result of the variable interest rates decreasing from
3.03% to 2.55% ( See note 13 of notes to the Combined Financial Statements).
Net cash provided by operating activities increased to $77,364,000 in 1993
from $60,543,000 in 1992, an increase of $16,821,000 or 27.8%. The increase was
due to increased inn revenues and an increase in accounts payable and accrued
expenses due to the timing of payment. Net cash provided by operating activities
increased to $60,543,000 in 1992 from $54,056,000 in 1991, an increase of
$6,487,000 or 12.0%. The majority of the increase was due to an increase in inn
revenues as a result of increased occupancy and average room rates.
Net cash used by investing activities increased to $145,027,000 in 1993
from $15,166,000 in 1992, an increase of $129,861,000. The increase was related
to the acquisition of LQP, the acquisition of partners' interest in 14
unincorporated joint ventures and partnerships, the acquisition of eleven inns
and capital expenditures related to the Company's image enhancement program. Net
cash used by investing activities decreased to $15,166,000 in 1992 from
$35,083,000 in 1991, a decrease of $19,917,000 or 56.8%. This decrease resulted
from no inns being acquired during 1992 compared to three inns and a partner's
interest in an additional five inns in 1991.
Net cash provided by financing activities was $78,650,000 in 1993 compared
to net cash used by financing activities of ($40,471,000) in 1992. The increase
in cash provided by financing activities was the result of the issuance of the 9
1/4% Senior Subordinated Notes due 2003, the collection of the AEW Note and the
decrease in distributions to partners partially offset payments on long-term
debt. Net cash used by financing activities increased to $40,471,000 in 1992
from $24,428,000 in 1991, an increase of $16,043,000 or 65.7%. This increase was
primarily impacted by a reduction of the Company's average outstanding balance
on the Credit Facility.
COMMITMENTS
In accordance with the unincorporated partnership or joint venture
agreements executed by the Company, La Quinta is committed to advance funds
necessary to cover operating expenses of a joint venture. In addition, four
other unincorporated partnerships and joint ventures executed promissory notes
in which the Company guaranteed to fund amounts not to exceed $4,985,000 in the
aggregate.
The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $36,455,000 at December 31, 1993,
of which includes an amount for the Company's image
20
<PAGE>
enhancement program that were in process or under contract. Funds on hand,
committed and anticipated from cash flow are sufficient to complete these
projects.
The Company has undertaken a comprehensive chainwide image enhancement
program intended to give its properties a new, fresh, crisp appearance while
preserving their unique character. The program features new signage displaying a
new logo as well as exterior and lobby upgrades including brighter colors, more
extensive lighting, additional landscaping, enhanced guest entry and full lobby
renovation with contemporary furnishings and seating area for continental
breakfast. In the first quarter of 1993, the Company began its property and
image enhancement program on the La Quinta inns it manages or owns. The Company
anticipates that $36,379,000 will be needed to complete the project, including
$27,493,000 related to work which was in process or under contract at December
31, 1993. The Company intends to fund its image enhancement program through
funds generated from operations and available on its Credit Facility. The
Company does not anticipate the funding of this program will have an adverse
effect on its ability to fund its operations.
Under the terms of a Partnership agreement between the Company and AEW
Partners, the Company maintains a reserve for renovating, remodeling and
conversion of the inns in the Development Partnership based on 5% of gross room
revenue of the Partnership which includes certain amounts required by loan
agreements. At December 31, 1993 and 1992 the Company had $3,833,000 and
$3,920,000, respectively, of restricted cash which is classified as investments.
In accordance with the requirements of an escrow agreement related to a
pool of mortgage notes executed by the Company and a third party lender, the
Company is required to make annual deposits into an escrow account for the
purpose of establishing a reserve for the replacement of furnishings, fixtures
and equipment used on or incorporated into the mortgaged properties. The Company
shall be relieved of its obligation to make such annual deposits for any year in
which the escrow account has an aggregate balance of $2,431,000. At December 31,
1993 and 1992, the Company had reserved $2,431,000 and $5,754,000, respectively.
In 1993, the Company entered into a ten year operating lease for its
corporate headquarters in San Antonio. In addition, the Company entered into a
ten year lease in December 1993 to house the Company's reservation facilities.
Funds on hand, anticipated from future cash flows and available on the
Company's Credit Facility are sufficient to fund operating expenses, debt
service and other capital requirements through at least the end of 1994. The
Company will evaluate from time to time the necessity of other financing
alternatives.
SEASONALITY
Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns and, in most La Quinta inns, is higher in the spring and summer months
(March through August) than in the balance of the year.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
Statement requires the use of the asset and liability method of accounting for
deferred income taxes and was implemented in 1993. The impact of the Statement's
implementation has been disclosed in note 4 of Notes to Combined Financial
Statements.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenues or net earnings (loss) of
the Company in the three most recent years.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LA QUINTA INNS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . $ 23,848 $ 12,861
Receivables:
Trade. . . . . . . . . . . . . . . . . . . . . . 6,744 4,093
La Quinta Motor Inns Limited Partnership . . . . -- 364
Other. . . . . . . . . . . . . . . . . . . . . . 3,191 2,167
Income taxes . . . . . . . . . . . . . . . . . . -- 1,076
Supplies . . . . . . . . . . . . . . . . . . . . . 5,921 4,554
Prepaid expenses . . . . . . . . . . . . . . . . . 581 341
-------- --------
Total current assets. . . . . . . . . . . . . . . 40,285 25,456
-------- --------
Notes receivable, excluding current installments
(net of allowance of $3,167 and $3,058) . . . . . . 7,683 7,696
-------- --------
Investments, including joint ventures accounted
for on the equity method (notes 6, 9, 12 and 14). . 6,583 10,296
-------- --------
Properties held for sale, at estimated net
realizable value. . . . . . . . . . . . . . . . . . 3,401 3,920
-------- --------
Land held for future development, at cost. . . . . . 1,452 1,452
-------- --------
Property and equipment, at cost, substantially
all pledged (notes 2, 7 and 14):
Buildings. . . . . . . . . . . . . . . . . . . . . 660,278 512,317
Furniture, fixtures and equipment. . . . . . . . . 114,113 90,715
Land and leasehold improvements. . . . . . . . . . 129,862 94,836
-------- --------
Total property and equipment. . . . . . . . . . . 904,253 697,868
Less accumulated depreciation and amortization . . 230,917 214,398
-------- --------
Net property and equipment. . . . . . . . . . . . 673,336 483,470
-------- --------
Deferred charges and other assets, at cost less
applicable amortization . . . . . . . . . . . . . . 11,501 6,893
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . $744,241 $539,183
-------- --------
-------- --------
</TABLE>
See accompanying notes to combined financial statements.
22
<PAGE>
LA QUINTA INNS, INC.
COMBINED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31
---------------------
1993 1992
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
(notes 2 and 14) . . . . . . . . . . . . . . . . . $ 22,491 $ 21,711
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . . . . . 14,282 9,217
Other . . . . . . . . . . . . . . . . . . . . . . 9,584 5,468
Income taxes. . . . . . . . . . . . . . . . . . . 1,830 --
Accrued expenses:
Payroll and employee benefits . . . . . . . . . . 17,620 12,852
Interest. . . . . . . . . . . . . . . . . . . . . 3,379 1,016
Property taxes. . . . . . . . . . . . . . . . . . 7,994 7,233
Other . . . . . . . . . . . . . . . . . . . . . . 1,870 1,198
-------- --------
Total current liabilities . . . . . . . . . . . 79,050 58,695
-------- --------
Long term debt, excluding current installments
(notes 2 and 14). . . . . . . . . . . . . . . . . . 414,004 274,824
-------- --------
Deferred gain (note 12). . . . . . . . . . . . . . . 143 1,618
-------- --------
Deferred income taxes, pension and other . . . . . . 16,011 17,665
-------- --------
Partners' capital (notes 3 and 14) . . . . . . . . . 85,976 62,060
-------- --------
Shareholders' equity (notes 2 and 5):
Common stock ($.10 par value; 40,000,000 shares
authorized; 32,111,364 and 14,668,074 shares
issued). . . . . . . . . . . . . . . . . . . . . . 3,211 1,467
Additional paid-in capital. . . . . . . . . . . . . 60,573 56,749
Retained earnings . . . . . . . . . . . . . . . . . 100,059 80,773
Minimum pension liability adjustment (note 6) . . . (1,458) --
-------- --------
162,385 138,989
Less treasury stock, at cost (1,732,867 and
1,273,416 shares). . . . . . . . . . . . . . . . . 13,328 14,668
-------- --------
Total shareholders' equity. . . . . . . . . . . 149,057 124,321
-------- --------
Commitments and contingencies (notes 7, 9, and 10)
Total liabilities and shareholders' equity. . . $744,241 $539,183
-------- --------
-------- --------
</TABLE>
See accompanying notes to combined financial statements.
23
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Inn. . . . . . . . . . . . . . . . . . . $258,529 $239,826 $227,096
Restaurant rental and other. . . . . . . 6,464 7,208 6,910
Management services (notes 12 and 14). . 6,857 7,088 6,882
-------- -------- --------
Total revenues . . . . . . . . . . . 271,850 254,122 240,888
-------- -------- --------
Operating costs and expenses:
Direct . . . . . . . . . . . . . . . . . 148,915 135,790 135,443
Corporate. . . . . . . . . . . . . . . . 19,450 23,961 19,683
Provision for write-down of partnership
investments, land and other (note 8). . -- 28,383 3,855
Severance and other employee related
costs (note 8). . . . . . . . . . . . . -- 6,936 4,097
Performance stock option (note 5). . . . 4,407 -- --
Depreciation, amortization and fixed
asset retirements (note 1) . . . . . . 23,711 24,477 34,921
-------- -------- --------
Total operating costs and expenses . 196,483 219,547 197,999
-------- -------- --------
Operating income . . . . . . . . . . 75,367 34,575 42,889
-------- -------- --------
Other (income) expense:
Interest income. . . . . . . . . . . . . (5,147) (6,041) (8,442)
Interest on long-term debt:. . . . . . . 31,366 33,087 38,713
Partners' equity in earnings and losses
(note 3). . . . . . . . . . . . . . . . 12,965 15,081 9,421
Net (gain) loss on property and
investment transactions (note 2). . . . 4,347 (282) 1,012
-------- -------- --------
Earnings (loss) before income taxes,
extraordinary items and cumulative
effect of accounting change. . . . . 31,836 (7,270) 2,185
Income taxes (note 4) . . . . . . . . . . . 12,416 526 787
-------- -------- --------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting change . . . . . . . . . 19,420 (7,796) 1,398
Extraordinary items, net of income taxes
(note 2) . . . . . . . . . . . . . . . . . (619) (958) (1,269)
-------- -------- --------
Earnings (loss) before cumulative
effect of accounting change. . . . . 18,801 (8,754) 129
Cumulative effect of accounting change
(note 4) . . . . . . . . . . . . . . . . . 1,500 -- --
-------- -------- --------
Net earnings (loss) . . . . . . . . . $ 20,301 $ (8,754) $ 129
-------- -------- --------
-------- -------- --------
Earnings (loss) per common and common
equivalent share:
Earnings (loss) before extraordinary
items and cumulative effect of
accounting change. . . . . . . . . . $ .61 $ (.26) $ .05
Extraordinary items, net of income
taxes. . . . . . . . . . . . . . . . (.02) (.03) (.05)
Cumulative effect of accounting
change . . . . . . . . . . . . . . . .05 -- --
-------- -------- --------
Net earnings (loss) . . . . . . . . . $ .64 $ (.29) $ --
-------- -------- --------
-------- -------- --------
Weighted average number of common and
common equivalent shares outstanding, as
restated (note 5) . . . . . . . . . . . . . 31,537 30,201 29,704
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to combined financial statements.
24
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Minimum
Common Stock Treasury Stock Additional Pension
------------------ ---------------- Paid-In Retained Liability
Shares Amount Shares Amount Capital Earnings Adjustment Total
------ ------ ------ ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1990. . . . 14,668 $1,467 (1,548) $(17,839) $55,878 $ 89,661 $ -- $129,167
Stock options . . . . . . . . . . . -- -- 90 1,066 76 -- -- 1,142
Redemption of stock rights. . . . . -- -- -- -- -- (263) -- (263)
Net earnings. . . . . . . . . . . . -- -- -- -- -- 129 -- 129
------ ------ ------ -------- ------ ------ ------- --------
Balances at December 31, 1991. . . . 14,668 1,467 (1,458) (16,773) 55,954 89,527 -- 130,175
Stock options . . . . . . . . . . . -- -- 185 2,105 795 -- -- 2,900
Net loss. . . . . . . . . . . . . . -- -- -- -- -- (8,754) -- (8,754)
------ ------ ------ -------- ------ ------ ------- --------
Balances at December 31, 1992. . . . 14,668 1,467 (1,273) (14,668) 56,749 80,773 -- 124,321
Effect of stock split at
October 1, 1993. . . . . . . . . . 6,740 674 -- -- (674) -- -- --
Effect of stock split at
March 15, 1994. . . . . . . . . . 10,703 1,070 (578) -- (1,070) -- -- --
Stock options . . . . . . . . . . . -- -- 118 1,340 5,568 -- -- 6,908
Dividends paid. . . . . . . . . . . -- -- -- -- -- (1,015) -- (1,015)
Net earnings. . . . . . . . . . . . -- -- -- -- -- 20,301 -- 20,301
Minimum pension liability
adjustment . . . . . . . . . . . . -- -- -- -- -- -- (1,458) (1,458)
------ ------ ------ -------- ------ ------- ------- --------
Balances at December 31, 1993. . . . 32,111 $3,211 (1,733) $(13,328) $60,573 $100,059 $(1,458) $149,057
------ ------ ------ -------- ------ ------- ------- --------
------ ------ ------ -------- ------ ------- ------- --------
</TABLE>
See accompanying notes to combined financial statements.
25
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ 20,301 $ (8,754) $ 129
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization of property and equipment . . . . . 22,994 22,700 32,354
Amortization of deferred charges. . . . . . . . . . . . . . . . . 1,651 1,446 1,676
Loss on retirement of fixed assets. . . . . . . . . . . . . . . . 156 1,074 1,536
Non-recurring, non-cash charges . . . . . . . . . . . . . . . . . -- 32,913 1,380
Performance stock options . . . . . . . . . . . . . . . . . . . . 4,407 -- --
(Gain) loss on sale of assets . . . . . . . . . . . . . . . . . . (616) (282) 1,012
Undistributed earnings of affiliates. . . . . . . . . . . . . . . 50 72 441
Partners' equity in earnings and losses . . . . . . . . . . . . . 12,965 15,081 9,421
Cumulative effect of change in accounting for income taxes. . . . (1,500) -- --
Changes in operating assets and liabilities:. . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . (1,832) 410 3,336
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 2,906 (1,244) 3,501
Supplies and prepaid expenses . . . . . . . . . . . . . . . . . (991) 584 138
Accounts payable and accrued expenses . . . . . . . . . . . . . 13,685 947 6,869
Deferred charges and other assets . . . . . . . . . . . . . . . 460 (969) (2,386)
Deferred credits and other. . . . . . . . . . . . . . . . . . . 2,728 (3,435) (5,351)
--------- -------- --------
Net cash provided by operating activities . . . . . . . . . . 77,364 60,543 54,056
--------- -------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (32,623) (15,529) (13,803)
Proceeds from property transactions. . . . . . . . . . . . . . . . . 982 1,998 1,576
Purchase and conversion of inns. . . . . . . . . . . . . . . . . . . (38,858) (4,060) (15,487)
Purchase of partners' equity interests . . . . . . . . . . . . . . . (78,169) -- (3,546)
Decrease (increase) in notes receivable and other investments. . . . 3,641 2,425 (3,823)
--------- -------- --------
Net cash used by investing activities . . . . . . . . . . . . (145,027) (15,166) (35,083)
--------- -------- --------
Cash flows from financing activities:
Proceeds from secured line of credit and long-term borrowings. . . . 223,198 61,275 47,957
Principal payments on secured line of credit and
long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . (178,528) (101,156) (77,940)
Capital contributions by partners. . . . . . . . . . . . . . . . . . 35,908 15,216 18,226
Capital distributions to partners. . . . . . . . . . . . . . . . . . (3,414) (18,706) (13,550)
Dividends to shareholders. . . . . . . . . . . . . . . . . . . . . . (1,015) -- --
Net proceeds from stock transactions . . . . . . . . . . . . . . . . 2,501 2,900 879
--------- -------- --------
Net cash provided (used) by financing activities. . . . . . . 78,650 (40,471) (24,428)
--------- -------- --------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . 10,987 4,906 (5,455)
Cash and cash equivalents at beginning of period . . . . . . . . . . . 12,861 7,955 13,410
--------- -------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 23,848 $ 12,861 $ 7,955
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes to combined financial statements.
26
<PAGE>
LA QUINTA INNS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Liabilities assumed in connection with acquisition of
LQP (note 2 and 14). . . . . . . . . . . . . . . . . . . . . . . . $65,962 $ - $ -
------- ------ ------
------- ------ ------
Liabilities assumed in connection with acquisitions of
unincorporated partnerships and joint ventures (note 14) . . . . . $29,878 $ -- $1,057
------- ------ ------
------- ------ ------
Conveyance of title of property to mortgagor (note 2). . . . . . . . $10,117 $ -- $ --
------- ------ ------
------- ------ ------
Additional minimum pension liability (note 6). . . . . . . . . . . . $ 4,092 $ -- $ --
------- ------ ------
------- ------ ------
Effect of stock split (note 5) . . . . . . . . . . . . . . . . . . . $ 1,744 $ -- $ --
------- ------ ------
------- ------ ------
Reduction in debt in connection with property sale . . . . . . . . . $ -- $1,915 $ --
------- ------ ------
------- ------ ------
Liabilities assumed in connection with purchases of
property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $1,800
------- ------ ------
------- ------ ------
Property acquired by foreclosure on notes receivable . . . . . . . . $ -- $1,672 $ --
------- ------ ------
------- ------ ------
</TABLE>
See accompanying notes to combined financial statements.
27
<PAGE>
LA QUINTA INNS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The Company develops, owns and operates inns. The combined financial
statements include the accounts of subsidiaries (all wholly-owned) and
unincorporated partnerships and joint ventures in which the Company has at least
a 40% interest and exercises substantial legal, financial and operational
control. All significant intercompany accounts and transactions have been
eliminated in combination. Investments in other unconsolidated affiliates in
which the Company has less than a 40% ownership interest and over which the
Company has the ability to exercise significant influence are accounted for
using the equity method. Other investments in which the Company has less than a
20% interest and does not have the ability to exercise significant influence are
accounted for using the cost method. Certain reclassifications of prior period
amounts have been made to conform with the current period presentation.
PARTNERS' CAPITAL
Partners' capital at December 31, 1992 is shown net of a $35,908,000 note
receivable to La Quinta Development Partners, L.P. ("LQDP" or the "Development
Partnership") representing a portion of the initial capital contribution to LQDP
by AEW Partner's L.P. Collections on this note are reflected as an increase to
partners' capital. In 1993, the outstanding balance of this note was fully
collected.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment for 1993 and 1992
are computed using the straight-line method over the following estimated useful
lives:
Buildings. . . . . . . . . . . . . . . . . . . . . 40 years
Furniture, fixtures and equipment. . . . . . . . . 4-10 years
Leasehold and land improvements. . . . . . . . . . 10-20 years
Maintenance and repairs are charged to operations as incurred. Expenditures
for improvements are capitalized.
The Company recognizes impairment losses on property and equipment whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. Such losses are determined by
comparing the sum of the expected future undiscounted net cash flows to the
carrying amount of the asset. Impairment losses are recognized in operating
income as they are determined.
During the third quarter of 1992, the Company changed the estimated useful
lives of its buildings from 30 years to 40 years effective January 1, 1992,
based on a review of the depreciable lives of its assets.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at
the date of acquisition are considered cash equivalents.
28
<PAGE>
DEFERRED CHARGES
Deferred charges consist primarily of issuance costs related to Senior
Subordinated Notes due 2003, Industrial Development Revenue Bonds ("IRB"), loan
fees, preopening and organizational costs. Issuance costs are amortized over the
life of the related debt using the interest method. Preopening costs are
amortized over two years, organizational costs over five years and loan fees
over the respective terms of the loans using the straight-line method.
SELF-INSURANCE PROGRAMS
The Company uses a paid loss retrospective self-insurance plan for general
and auto liability and workers' compensation. Predetermined loss limits have
been arranged with insurance companies to limit the Company's per occurrence
cash outlay.
The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and dependents which is partially funded
by payroll deductions. Payments for major medical and hospitalization to
individual participants less than specified amounts are self-insured by the
Company. Claims for benefits in excess of these amounts are covered by insurance
purchased by the Company.
Provisions have been made in the combined financial statements which
represent the expected future payments based on estimated ultimate cost for
incidents incurred through the balance sheet date.
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using currently enacted tax
rates in effect for the years in which the differences are expected to reverse.
In 1993, the Company recorded an adjustment to income of $1,500,000 which
represents the net decrease of the deferred tax liability at January 1, 1993.
Such amount has been reflected in the combined statement of operations for the
year ended December 31, 1993 as the cumulative effect of an accounting change.
Prior years' financial statements have not been restated to apply the provisions
of SFAS 109. The deferred method under APB Opinion 11 was applied in 1992 and
prior years.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed on the basis of the weighted average
number of common and common equivalent (dilutive stock options) shares
outstanding in each year after giving retroactive effect to the stock splits
effected as stock dividends as discussed in note 5 of these Combined Financial
Statements. Shares of the Company's common stock issuable upon conversion of the
Development Partnership Units are antidilutive at December 31, 1993 and prior
years. Primary and fully diluted earnings (loss) per share are not significantly
different.
PROPERTIES HELD FOR SALE
Properties held for sale are stated at the lower of cost or estimated net
realizable value. Charges to reduce the carrying amounts of properties held for
sale to estimated net realizable value are recognized in income. The Company
recorded charges of $9,926,000 in 1992 and $2,145,000 in 1991 in the statements
of operations related to the write-down of properties held for sale.
29
<PAGE>
(2) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
Mortgage loans maturing 1994-2015 (9.4% weighted average). . . . . . . $179,418 $194,085
Industrial Development Revenue Bonds, maturing 1994-2012
(7.3% weighted average). . . . . . . . . . . . . . . . . . . . . . . 72,682 79,450
Senior subordinated notes, due 2003 (9.25%). . . . . . . . . . . . . . 120,000 --
Bank secured term credit facility, maturing May 31, 2000 (5.6%). . . . 28,620 --
Bank secured line of credit (5.4% at December 31, 1993). . . . . . . . 35,775 23,000
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436,495 296,535
Less current installments. . . . . . . . . . . . . . . . . . . . . . . 22,491 21,711
------- -------
Net long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $414,004 $274,824
------- -------
------- -------
</TABLE>
At December 31, 1993, the Company had a $40,000,000 Secured Line of Credit,
renegotiated in July 1993, and a $30,000,000 Secured Term Credit Facility with
participating banks. On December 22, 1993, the Company completed negotiations on
an additional $30,000,000 Secured Line of Credit which bore interest at the
prime rate plus 1/2%. At December 31, 1993, the Company had $31,380,000
available on its Secured Term and Line of Credit. In January 1994, the Company
completed negotiations to amend the $40,000,000 Secured Line of Credit and
increase its Secured Term Credit Facility from $30,000,000 to $145,000,000.
Borrowings under the $40,000,000 Secured Line of Credit, which will expire May
30, 1997 will be made at varying interest rates of LIBOR plus 1 3/4%, the prime
rate, or certificate of deposit rate plus 1 7/8%. Borrowings under the
$145,000,000 Secured Term Credit Facility, which will expire May 31, 2000, will
be made through October 31, 1994 and will bear interest at varying interest
rates of LIBOR plus 2%, the prime rate plus 1/4%, or certificate of deposit rate
plus 2 1/8%. Amounts borrowed under the Secured Term Credit Facility will
require semi-annual principal payments commencing November 30, 1994 through May
31, 2000. The Company pays a commitment fee of .5% per annum on the undrawn
portion of the credit line. The annual maturities reflect the payment terms of
the amended and restated Secured Line of Credit and Secured Term Credit
Facility. Commitment fees totaled $164,000, $105,000 and $71,000 for the years
ended December 31, 1993, 1992 and 1991, respectively.
Annual maturities for the four years subsequent to December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1995. . . . . . . . . . . . . . . . $28,487
1996. . . . . . . . . . . . . . . . 29,548
1997. . . . . . . . . . . . . . . . 66,598
1998. . . . . . . . . . . . . . . . 36,205
</TABLE>
Interest paid during the years ended December 31, 1993, 1992 and 1991
amounted to $27,913,000, $32,523,000 and $38,320,000, respectively.
In December 1993, the Company assumed the oustanding mortgage notes payable
of La Quinta Motor Inns Master Limited Partnership ("LQP") totaling $65,962,000
(see note 14). The notes bear interest at 11 1/4% and mature on November 1,
1994. On December 21, 1993, the Company exercised its call option to prepay the
entire outstanding balance.
In 1993, the Company completed an offering of $120,000,000 in principal
amount of 9 1/4% Senior Subordinated Notes due 2003. The proceeds of the
financing and the Secured Term Credit Facility were used to partially fund the
acquisitions of partners' interests in certain consolidated partnerships and
joint ventures and to prepay approximately $106,000,000 of existing
indebtedness. In addition, the Company refinanced three issues of IRBs totaling
$11,200,000 in 1993. In 1992, the Company refinanced three issues of IRBs
totaling $12,910,000 and retired 10% Convertible Subordinated Debentures due
2002.
30
<PAGE>
The Company recognizes gains and losses on extinguishments of debt as
extraordinary items in the period in which the debt is extinguished. The Company
reported extraordinary items, net of income taxes, of $3,664,000 and $958,000 in
1993 and 1992, respectively, related to these refinancings and retirements.
In May 1993, the Company conveyed title to the property in which its
corporate headquarters was located to the lender holding a $10.1 million
non-recourse mortgage on the property. Completion of this transaction resulted
in the elimination of the liability for the non-recourse mortgage on the
Company's balance sheet. The Company recognized a loss on property transactions
of $4,900,000 related to the write-down of the property to its estimated fair
value and an extraordinary gain of $4,991,000, $3,045,000 net of income taxes,
for the difference between the carrying amount of the debt and the estimated
fair value of the building.
The Company is obligated by agreements relating to seventeen issues of IRBs
in an aggregate amount of $55,515,000 to purchase the bonds at face value prior
to maturity under certain circumstances. The bonds have floating interest rates
which are indexed periodically. Bondholders may, when the rate is changed, put
the bonds to the designated remarketing agent. If the remarketing agent is
unable to resell the bonds, it may draw upon an irrevocable letter of credit
which secure the IRBs. In such event, the Company would be required to repay the
funds drawn on the letters of credit within 24 months.
As of December 31, 1993 no draws had been made upon any such letters of
credit. The schedule of annual maturities shown above includes these IRBs as if
they will not be subject to repayment prior to maturity. Assuming all bonds
under such IRB arrangements are presented for payment prior to December 31, 1994
and the remarketing agents are unable to resell such bonds, the maturities of
long-term debt shown above would increase by $42,210,000 for the year ending
December 31, 1995.
On January 23, 1992 with the approval of the Company's Board of Directors,
the Company entered two interest rate swap agreements (the "Agreements") which
exchanged the Company's variable rate interest payments for the fixed rate
interest payments of with a major financial institution (the "Counterparty").
The debt ("Notional Amounts") underlying the Agreements is $16,890,000 and
$44,420,000. Under the Agreements, the Company effectively pays a fixed rate of
interest at 6.50% and 5.26% and the Counterparty pays a percentage of prime
interest rate and the variable rate demand note interest rate ("VRDN"). In the
event the VRDN rate exceeds the fixed interest rate of 5.26% or the percentage
of prime interest rate exceeds 6.5%, the Counterparty pays to the Company that
difference times the Notional Amount, on a monthly basis. Should the fixed
interest rate of 5.26% exceed the VRDN interest rate or the fixed interest rate
of 6.5% exceeds the percentage of prime interest rate, the Company pays the
difference times the Notional Amount to the Counterparty, on a monthly basis.
These Agreements resulted in net payments to the Counterparty of $1,427,000 and
$1,184,000 in the years ended December 31, 1993 and 1992, respectively. The
Agreements expire on February 1, 1997, and the Notional Amounts are reduced over
the life of the Agreements by scheduled amortization payments. At December 31,
1993, the Notional Amounts of debt remaining under the Agreements are
$13,218,000 and $39,050,000 which bear interest at a weighted average variable
interest rate of 4.43% and 2.25%, respectively.
The Company is exposed to market risk associated with fluctuations in
interest rates. By entering the interest rate swap agreements, described above,
the Company reduced its exposure to rising interest rates on the aforementioned
variable interest rate debt and has effectively fixed the rate on such debt at a
level acceptable to the Company given the length of the Agreements and the risk
of interest rate changes. The Company is exposed to credit risk to the extent
that the Counterparty fails to perform under the Agreements. The Company has
mitigated its credit risk by entering the Agreements with a major financial
institution, which has received an "A" rating from Standard and Poor's
Corporation and an "A2" rating from Moody's Investors Service on senior
unsecured debt. The Company regularly monitors the credit ratings of the
Counterparty and considers the risk of default remote.
The estimated fair value of the interest rate swap agreements in a net
payable position increased from $1,705,000 at December 31, 1992 to $2,276,000 at
December 31, 1993 as a result of the variable interest rates decreasing from
3.03% to 2.55% (See note 13 of notes to the Combined Financial Statements).
31
<PAGE>
The Secured Line of Credit, Secured Term Credit Facility and certain
agreements associated with IRBs are governed by a uniform covenant agreement.
The most restrictive covenants preclude the following: payment of cash dividends
in excess of defined limits, limitations on the incurrence of debt, mergers,
sales of substantial assets, loans and advances, certain investments or any
material changes in character of business. The agreement contains provisions to
limit the total dollar amounts of certain investments and capital expenditures.
The Company's 9 1/4% Senior Subordinated Notes are governed by a Trust
Indenture dated May 15, 1993. The Trust Indenture contains certain covenants for
the benefit of holders of the notes, including, among others, covenants placing
limitations on the incurrence of debt, dividend payments, certain investments,
transactions with related persons, asset sales, mergers and the sale of
substantially all the assets of the Company.
At December 31, 1993, the Company was in compliance with all restrictions
and covenants.
(3) UNINCORPORATED VENTURES AND PARTNERSHIPS
At December 31, 1993, the Company had an ownership interest between 40% and
82% in 12 unincorporated joint ventures and partnerships. Summary financial
information with respect to unincorporated ventures and Partnerships included in
the combined financial statements is provided below in order to provide further
understanding of the Company's structure and to present the financial position
and results of operations of the partnerships and joint ventures included in the
combined financial statements. Cost and equity investments are not included in
the summarized data as such investments are not considered significant. In 1993
the Company acquired several unincorporated ventures and partnerships which are
included in the December 1992 financial information for the balance sheet and
statement of operations which are not included in the balance sheet at December
31, 1993 or statement of operations for a full year in 1993. LQP was not
included in the balance sheet or income statement for 1992, however, as a result
of the acquisition of Units by the Company the financial information below
includes assets and liabilities at December 31, 1993 and operations for the
month ended December 31, 1993 (also see note 14):
<TABLE>
<CAPTION>
December 31,
----------------
1993 1992
------ ------
(in thousands)
<S> <C> <C>
ASSETS
Total current assets . . . . . . . . . . . . . . . . . $ 27,956 $ 14,924
Notes receivable, excluding current installments . . . 2,668 2,665
Investments and other assets . . . . . . . . . . . . . 5,883 6,464
Property and equipment, net. . . . . . . . . . . . . . 252,343 205,075
-------- --------
$288,850 $229,128
-------- --------
-------- --------
LIABILITIES AND OWNERS' EQUITY
Total current liabilities. . . . . . . . . . . . . . . $ 28,542 $ 28,032
Long-term debt, excluding current installments . . . . 97,465 93,264
Deferred credits . . . . . . . . . . . . . . . . . . . 10 244
Owners' equity:
Company's . . . . . . . . . . . . . . . . . . . . 76,857 45,528
Partners' . . . . . . . . . . . . . . . . . . . . 85,976 62,060
-------- --------
$288,850 $229,128
-------- --------
-------- --------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1993 1992 1991
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $104,394 $119,040 $111,880
Operating costs and expenses . . . . . . . . . . . . . . . . . . 75,661 85,127 87,417
-------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . 28,733 33,913 24,463
Other deductions, principally interest . . . . . . . . . . . . . (5,690) (7,794) (8,040)
-------- -------- --------
Earnings before gain on property transactions. . . . . . . . . . 23,043 26,119 16,423
Gain on property transactions. . . . . . . . . . . . . . . . . . 324 73 1,339
-------- -------- --------
Earnings before extraordinary items. . . . . . . . . . . . . . . 23,367 26,192 17,762
Extraordinary items. . . . . . . . . . . . . . . . . . . . . . . (133) (280) --
-------- -------- --------
Pretax earnings. . . . . . . . . . . . . . . . . . . . . . . . $ 23,234 $ 25,912 $ 17,762
-------- -------- --------
-------- -------- --------
Equity in pretax earnings:
Company's. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,269 $ 10,831 $ 8,341
Partners'. . . . . . . . . . . . . . . . . . . . . . . . . . . 12,965 15,081 9,421
-------- -------- --------
$ 23,234 $ 25,912 $ 17,762
-------- -------- --------
-------- -------- --------
</TABLE>
(4) INCOME TAXES
As discussed in note 1, the Company adopted SFAS 109 effective January 1,
1993. Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1993 1992 1991
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Federal
Current. . . . . . . . . . . . . . . . . . . . . . . $ 8,752 $ 3,818 $ 4,970
Deferred . . . . . . . . . . . . . . . . . . . . . . 1,918 (3,759) (4,262)
------- ------- -------
10,670 59 708
------- ------- -------
State. . . . . . . . . . . . . . . . . . . . . . . . . 974 937 707
Current. . . . . . . . . . . . . . . . . . . . . . . 772 (470) (628)
------- ------- -------
Deferred . . . . . . . . . . . . . . . . . . . . . . 1,746 467 79
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $12,416 $ 526 $ 787
------- ------- -------
------- ------- -------
</TABLE>
The effective tax rate varies from the statutory rate for the following
reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1993 1992 1991
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate. . . . . . . . $11,143 $(2,472) $ 743
Unrecognized tax benefits of write-downs of
partnerships, investments and other. . . . . . . . . -- 2,856 --
Targeted jobs tax credit . . . . . . . . . . . . . . . (39) (109) (182)
Capital gains. . . . . . . . . . . . . . . . . . . . . -- (13) (31)
State income taxes . . . . . . . . . . . . . . . . . . 1,157 491 80
Other, net . . . . . . . . . . . . . . . . . . . . . . 155 (227) 177
------- ------- -------
Provision for income taxes . . . . . . . . . . . . . $12,416 $ 526 $ 787
------- ------- -------
------- ------- -------
</TABLE>
33
<PAGE>
The following are cash transactions relating to the Company's income taxes:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
(in thousands)
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Income taxes paid. . . . . . . . . . . . . . . . . . . $5,953 $5,459 $4,012
------ ------ ------
------ ------ ------
Income tax refund. . . . . . . . . . . . . . . . . . . $ 71 $ 99 $2,338
------ ------ ------
------ ------ ------
</TABLE>
For the years ended December 31, 1992 and 1991, deferred income tax expense
resulted from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
(in thousands)
1992 1991
------ ------
<S> <C> <C>
Depreciation and asset write-downs . . . . . . . . . . . . . . . $ 1,101 $(1,242)
Capitalized loan interest. . . . . . . . . . . . . . . . . . . . 335 351
State income taxes . . . . . . . . . . . . . . . . . . . . . . . (208) (500)
Installment sales. . . . . . . . . . . . . . . . . . . . . . . . (124) (99)
Deferred gain. . . . . . . . . . . . . . . . . . . . . . . . . . 24 24
Partners' losses recognized by Company . . . . . . . . . . . . . (398) 80
Expense provisions, including non-recurring charges. . . . . . . (4,017) (2,914)
Preopening costs . . . . . . . . . . . . . . . . . . . . . . . . (33) (94)
Minimum tax. . . . . . . . . . . . . . . . . . . . . . . . . . . (658) (257)
Targeted jobs tax credit . . . . . . . . . . . . . . . . . . . . (26) (23)
Special partnership allocations. . . . . . . . . . . . . . . . . 347 (3)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (572) (213)
------- -------
$(4,229) $(4,890)
------- -------
------- -------
</TABLE>
34
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1993 are presented below:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Deferred tax assets:
Notes receivable, principally due to allowance for financial reporting purposes . . . . . . . . . . . . . . . . . . $ 1,529
Land, principally due to write-downs for financial reporting purposes. . . . . . . . . . . . . . . . . . . . . . . . 2,991
Property and equipment, principally due to acquisitions of partnership interests . . . . . . . . . . . . . . . . . . 8,307
Expense provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,785
Deferred gain for financial reporting purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Targeted jobs tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411
Minimum pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932
Alternative minimum tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,781
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
------
Total gross deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,915
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (277)
------
Net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,638
------
Deferred tax liabilities:
Investments in partnerships, principally due to differences in depreciation
and capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,439)
Property and equipment, principally due to differences in depreciation and
capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,899)
Deferred gains for tax purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,251)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,594)
------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,956)
------
------
</TABLE>
The valuation allowance at December 31, 1993 represents the tax benefit of
certain future deductible amounts which are not expected to offset future
taxable amounts resulting from the reversal of existing taxable temporary
differences. The Company anticipates that the reversal of existing taxable
temporary differences will provide sufficient taxable income to realize the tax
benefits of the remaining deferred tax assets. The valuation allowance
decreased by $6,816,000, principally as a result of the acquisition of a
substantial portion of the units of the La Quinta Motor Inns Limited
Partnership as more fully described in Note 14 of these notes to Combined
Financial Statements.
At December 31, 1993, the Company had targeted jobs tax credit
carryforwards for Federal income tax purposes of approximately $411,000
(expiring 2007 through 2009) which are available to reduce future Federal
income taxes. In addition, the Company had alternative minimum tax credit
carryforwards of approximately $2,781,000 which are available to reduce future
regular Federal income taxes over an indefinite period.
(5) SHAREHOLDERS' EQUITY
The Board of Directors authorized three-for-two stock splits effective in
October 1993 and March 1994. Earnings per share, the weighted average number of
shares outstanding, shareholders' equity and the following information have been
adjusted to give effect to each of these distributions. In January 1994, the
Company announced that its Board of Directors authorized the purchase of up to
$10,000,000 of its common stock. Such purchases would be made from time to
time in the open market as deemed appropriate by the Company.
The Company's stock option plans cover the granting of options to purchase
an aggregate of 6,155,996 common shares. Options granted under the plans are
issuable to certain officers, employees and Board Members generally at prices
not less than fair market value at date of grant. Options are generally
exercisable in four equal installments on successive anniversary dates of the
date of grant and are exercisable thereafter in whole or in part.
Outstanding options not exercised expire ten years from the date of grant.
35
<PAGE>
<TABLE>
<CAPTION>
OPTION TOTAL
NUMBER PRICE RANGE OPTION PRICE
OF SHARES PER SHARE (IN THOUSANDS)
--------- ------------------- --------------
<S> <C> <C> <C>
Outstanding December 31, 1991 1,720,073 $ 4.64 -- $10.84 $ 9,877
Granted 3,471,750 6.67 -- 8.78 25,441
Canceled or expired (347,465) 5.25 -- 8.98 (2,117)
Exercised (463,403) 4.64 -- 7.95 (2,654)
---------- -------
Outstanding December 31, 1992 4,380,995 $ 4.64 -- $10.84 30,547
Granted 164,250 12.89 -- 13.56 2,189
Canceled or expired (100,112) 5.25 -- 8.67 (581)
Exercised (244,271) 4.78 -- 10.83 (1,556)
---------- -------
Outstanding December 31, 1993 4,200,822 $ 4.64 -- $13.56 $30,599
---------- -------
---------- -------
Exercisable at:
December 31, 1992 648,347 $ 4.78 -- $10.84 $ 3,930
---------- -------
---------- -------
December 31, 1993 2,563,745 $ 4.78 -- $ 8.78 $17,397
---------- -------
---------- -------
Available for future grants at:
December 31, 1992 2,022,725
----------
----------
December 31, 1993 1,955,174
----------
----------
</TABLE>
Upon exercise, the excess of the option price received over the par value
of the shares issued, net of expenses and including the related income tax
benefits, is credited to additional paid-in capital.
In 1993, the Company recognized compensation expense of $4,407,000 related
to performance stock options for the difference between the option price at the
date of grant and a predetermined level when it became probable that the
Company's stock would trade at that predetermined level. Beginning in 1992, the
Company recognized $367,000 in compensation expense for the difference between
the market price and option price on date of grant related to a portion of these
options which vested in annual increments.
Under the terms of the La Quinta Development Partners, L.P. ("LQDP" or the
"Development Partnership") partnership agreement, AEW Partners, L.P. ("AEW
Partners") has the ability to convert 66 2/3% of its 60% ownership in the
Development Partnership currently to 3,535,976 shares (post-split) of the
Company's common stock after giving retroactive effect to the stock splits
effected as stock dividends. Shares of the Company's common stock issuable
upon conversion of the Development Partnership Units are antidilutive at
December 31, 1993. AEW partner's units in LQDP may be converted over the seven
year period beginning December 31, 1991. As of December 31, 1993, AEW Partners
had not converted any of its ownership in the Development Partnership into the
Company's common stock.
(6) PENSION PLAN
The Retirement Plan and Trust of La Quinta Inns, Inc. (the "Plan") is a
defined benefit pension plan covering all employees. The Plan was amended in
1993 to allow highly compensated employees to rejoin the Retirement Plan as
active participants. Benefits accruing under the Plan are determined according
to a career average benefit formula which is integrated with Social Security
benefits. For each year of service as a participant in the Plan, an employee
accrues a benefit equal to one percent of his or her annual compensation plus
.65 percent of compensation in excess of the Social Security covered
compensation amount. The Company's funding policy for the Retirement Plan is
to annually contribute the minimum amount required by federal law.
36
<PAGE>
The Supplemental Executive Retirement Plan and Trust ("SERP") continues to
cover a select group of management employees. Benefits under the SERP are
determined by a formula which considers service and total compensation; the
results of the formula-derived benefit are then reduced by the participant's
pension entitlement from the qualified Retirement Plan.
In accordance with the provisions of Statement of Financial Standards No. 87 -
Employer's Accounting for Pensions, the Company has recorded an additional
minimum liability of $4,092,000 at December 31, 1993. This provision represents
the excess of the accumulated benefit obligation over the fair value of plan
assets and accrued pension liability at the measurement date. An amount of
$1,702,000 was recognized as an intangible asset to the extent of unrecognized
prior service cost and the balance of $2,390,000 ($1,458,000 net of income tax)
is recorded as a reduction of shareholders' equity.
The following table sets forth the funded status and amounts recognized in the
Company's combined financial statements for the Plan at December 31, 1993 and
1992.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $7,947 and $6,876............................................... $(12,298) $(7,874)
--------- -------
--------- -------
Projected benefit obligation for services rendered to date.................... $(15,585) $(9,016)
Plan assets at fair value, primarily marketable stocks and CDs................ 6,727 6,536
--------- -------
Projected benefit obligation in excess of plan assets......................... (8,858) (2,480)
Unrecognized net loss from past experiences different from
that assumed................................................................ 5,677 1,065
Prior service costs........................................................... 1,702 (243)
Additional minimum liability.................................................. (4,092) --
--------- -------
Accrued pension costs..................................................... $ (5,571) $(1,658)
--------- -------
--------- -------
</TABLE>
The following table sets forth the funded status of the SERP and amounts
recognized in the Company's financial statements for the SERP:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,851 and $1,285............................................... $(1,983) $(1,355)
-------- -------
-------- -------
Projected benefit obligation for services rendered to date.................... $(3,868) $(5,674)
Unrecognized net (gain) loss from past experiences different from
that assumed................................................................ (208) 203
Unrecognized net loss from modifications...................................... 294 2,437
-------- -------
Accrued pension costs..................................................... $ (3,782) $(3,034)
--------- -------
--------- -------
</TABLE>
37
<PAGE>
At December 31, 1993, the Company had accumulated $1,144,000 in a trust
account intended for use in settling benefits due under the SERP. These funds,
which are included in investments on the accompanying balance sheets, are not
restricted for the exclusive benefit of SERP participants and their
beneficiaries. The SERPfunds are invested primarily in equity investments.
However, in the event of a change in the Company's control, as defined, such
funds would become restricted for the exclusive benefit of SERP participants
and their beneficiaries.
Net pension cost includes the following components:
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------
1993 1992 1991
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Service cost (benefits earned during the period)................................ $ 1,564 $ 1,769 $ 1,597
Interest cost on projected benefit obligation................................... 1,207 1,255 1,154
Actual return on plan assets.................................................... (493) (72) (1,535)
Net amortization and deferral................................................... 589 (160) 1,239
------- ------- -------
Net periodic pension cost before allocation to
Managed inns.................................................................. 2,867 2,792 2,455
Cost allocated to Managed Inns.................................................. (238) (222) (184)
------- ------- -------
Net periodic pension cost................................................... $ 2,629 $ 2,570 $ 2,271
------- ------- -------
------- ------- -------
</TABLE>
The assumptions used in the calculations shown above were:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- ------------- -------------
<S> <C> <C> <C>
Discount rate (post-termination)................................ 7.50% 4.00% - 7.50% 4.00% - 7.25%
Discount rate (pre-termination)................................. 7.50% 8.00% 9.00%
Expected long-term rate of return on assets..................... 8.00% 9.00% 9.00%
Rate of increase in compensation levels......................... 5.00% - 6.00% 5.50% - 7.50% 5.50% - 7.50%
</TABLE>
(7) OPERATING LEASES
LESSEE
The Company leases a portion of the real estate and equipment used in
operations. Certain ground lease arrangements contain contingent rental
provisions based upon revenues and also contain renewal options at fair
market values at the conclusion of the initial lease terms. In 1993, the
Company entered into two ten year operating leases for its corporate
headquarters in San Antonio and its reservation facilities.
Future annual minimum rental payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year at
December 31, 1993 follow:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1994......................................... $ 2,510
1995......................................... 2,164
1996......................................... 1,960
1997......................................... 1,790
1998......................................... 1,700
Later years.................................. 10,986
-------
Total minimum payments required.............. $21,110
-------
-------
</TABLE>
Total rental expense for operating leases was $2,840,000, $1,976,000 and
$2,359,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
38
<PAGE>
LESSOR
The Company leases 107 restaurants it owns to third parties. The leases
are accounted for as operating leases expiring during a period from 1994 to 2016
and provide for minimum rentals and contingent rentals based on a percentage of
annual sales in excess of stipulated amounts. The following is a summary of
restaurant property leased at December 31, 1993.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Buildings................................ $33,861
Less: accumulated depreciation.......... 10,565
-------
23,296
Land..................................... 17,043
-------
Total leased property................ $40,339
-------
-------
</TABLE>
Minimum future rentals to be received under the noncancellable restaurant leases
in effect at December 31, 1993 follow:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1994...................................... $ 5,904
1995...................................... 5,918
1996...................................... 5,858
1997...................................... 5,651
1998...................................... 5,387
-------
Later years............................... 25,815
-------
$54,533
-------
-------
</TABLE>
Contingent rental income amounted to $811,000, $854,000, and $669,000 for
the years ended December 31, 1993, 1992 and 1991, respectively.
(8) NON-RECURRING, CASH AND NON-CASH CHARGES
During 1992, the Company recognized charges of $39,751,000 ($27,946,000 net
of income taxes and partners' equity) resulting from certain changes being made
in the Company's operations and organization based on a review by the Company's
senior management team.
Of those charges, $28,383,000 relate to the write-down of certain joint
venture interests, land, computer equipment, and other assets. During the third
quarter of 1992, the senior management team re-evaluated the Company's
investments in joint venture arrangements and shortly thereafter completed
negotiations that resulted in amendments to the agreements related to certain
joint venture arrangements and the write-down of the Company's investments in
those ventures. The write-down of the land, computer equipment and other assets
resulted primarily from the Company's decisions to sell certain land that had
previously been held for future development and to replace the Company's
existing computer systems and certain other assets.
In addition, the Company recognized $6,936,000 and $4,097,000 for the years
ended December 31, 1992 and 1991, respectively, in severance and other employee
related charges. Those charges relate to severance benefits for certain
terminated employees, costs of hiring and relocating new management and other
employee related costs resulting from personnel changes.
The remaining $4,432,000 of the charges recognized in 1992 consist of a
$2,696,000 increase in the allowance for certain notes receivable related to
inns sold by the Company prior to 1985, a $1,214,000 adjustment to reallocate
losses of a joint venture to the Company as a result of settlement negotiations,
a $312,000 write-off of equipment and $210,000 related to other corporate
expense items.
39
<PAGE>
(9) COMMITMENTS
In accordance with the unincorporated partnership or joint venture
agreements executed by the Company, La Quinta is committed to advance funds
necessary to cover operating expenses of a joint venture. In addition, four
other unincorporated partnerships and joint ventures executed promissory notes
in which the Company guaranteed to fund amounts not to exceed $4,985,000 in
aggregate.
The estimated additional cost to complete the conversion and renovation of
inns for which commitments have been made is $36,455,000 at December 31, 1993,
which includes amounts for the Company's image enhancement program that were in
process or under contract. Funds on hand, committed and anticipated from cash
flow are sufficient to complete these projects.
The Company has undertaken an image enhancement program intended to give
its properties a new, fresh, crisp appearance while preserving their unique
character. The program features new signage displaying a new logo as well as
exterior and lobby upgrades including brighter colors, additional landscaping,
enhanced guest entry and full lobby renovation with contemporary furnishings and
seating area for continental breakfast. In the first quarter of 1993, the
Company began its property and image enhancement program on its La Quinta inns
it manages or owns. The Company anticipates that an additional $36,687,000 will
be needed to complete the project, including $27,493,000 related to work which
was in process or under contract at December 31, 1993. The Company intends to
fund its image enhancement program through funds generated from operations and
available on its Credit Facility. The Company does not anticipate the funding
of this program will have an adverse effect on its ability to fund its
operations.
Under the terms of a Partnership agreement between the Company and AEW
Partners, the Company maintains a reserve for renovating, remodeling and
conversion of the inns in the Development Partnership based on 5% of gross room
revenue of the Partnership which includes certain amounts required by loan
agreements. At December 31, 1993 and 1992 the Company had $3,833,000 and
$3,920,000, respectively, of restricted cash which is classified as investments.
In accordance with the requirements of an escrow agreement related to a
pool of mortgage notes executed by the Company and a third party lender, the
Company is required to make annual deposits into an escrow account for the
purpose of establishing a reserve for the replacement of furnishings, fixtures
and equipment used on or incorporated into the mortgaged properties. The
Company shall be relieved of its obligation to make such annual deposits for any
year in which the escrow account has an aggregate balance of $2,431,000. At
December 31, 1993 and 1992, the Company had reserved $2,431,000 and $5,754,000,
respectively.
(10) CONTINGENCIES
LITIGATION
In connection with the Company's tender offer for the units of limited
partnership interest of LQP (see note 14), two separate lawsuits were filed in
Delaware Court of Chancery on behalf of the Partnership's unitholders against
the Company, the Partnership, La Quinta Realty Corp., a subsidiary of the
Company, and general partner of the Partnership (the "General Partner") and
certain directors and officers of the General Partner. On October 27, 1993, the
parties reached a settlement in principle in these actions. The settlement is
subject to certain conditions, including court approval. On March 15, 1994, the
Delaware Court of Chancery entered an Order and Final Judgment ("Judgment")
which approved the settlement and dismissed the cases. All persons and entities
who were owners of Units of the Partnership at October 18, 1993 and their
transferees and successors in interest, immediate and remote (the "Class"), are
bound by the Judgment. The Company and all other defendants were discharged
from any and all liability under any claims which were or could have been
brought by plaintiffs or any member of the Class regarding the acquisition and
merger of the Partnership. The appeal period on the Judgment will run on April
14, 1994.
40
<PAGE>
In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies. The suit
alleges breach of an employment agreement, misrepresentation, wrongful
termination, self-dealing, breach of fiduciary duty, usurpation of corporate
opportunity and tortious interference with contractual relations. The suits
seeks compensatory damages of $2,500,000 and exemplary damages of $5,000,000.
The Company intends to vigorously defend against this suit.
The Company is also party to various lawsuits and claims generally
incidental to its business. The ultimate disposition of these and the above
discussed matters are not expected to have a significant adverse effect on the
Company's financial position or results of operations.
SEVERANCE AND EMPLOYMENT AGREEMENTS
The Company has entered into a five year employment agreement which
includes a severance provision granting the executive the right to receive
certain benefits, including among others, his annual base salary and bonus if
there occurs a termination (as defined in the respective agreements) within the
five year term of the agreement, or resignation (as defined in the agreement).
The maximum contingent liability under the severance provision of this agreement
is $1,627,000.
41
<PAGE>
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited combined results of operations by quarter are
summarized below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Revenues . . . . . . . . . . . . . $60,607 $70,633 $ 76,923 $63,687
Operating income . . . . . . . . . 16,491 19,446 26,887 12,543
Net earnings before extraordinary
items and cumulataive effect of
accounting change . . . . . . . . 4,144 2,692 10,011 2,573
Net earnings . . . . . . . . . . . 5,644 3,634 9,711 1,312
Earnings per share before
extraordinary items and cumulative
effect of accounting change . . . .13 .08 .32 .08
Earnings per share $ .18 $ .12 $ .31 $ .04
Year Ended December 31, 1992
Revenues . . . . . . . . . . . . . $57,815 $66,991 $ 72,286 $57,030
Operating income (loss). . . . . . 12,150 17,709 (7,596) 12,312
Earnings (loss) before
extraordinary items . . . . . . . 1,410 4,545 (16,392) 2,641
Net earnings (loss). . . . . . . . 1,035 4,348 (16,392) 2,255
Earnings (loss) per share before
extraordinary items . . . . . . . .05 .15 (.54) .09
Earnings (loss) per share. . . . . $ .04 $ .14 $ (.54) $ .08
Year ended December 31, 1991:
Revenues . . . . . . . . . . . . . $55,406 $64,490 $ 67,829 $53,163
Operating income . . . . . . . . . 8,942 8,198 19,187 6,562
Net earnings (loss) before
extraordinary items . . . . . . . (589) (1,602) 5,624 (2,035)
Net earnings (loss). . . . . . . . (589) (2,065) 5,266 (2,483)
Earnings (loss) per share before
extraordinary items . . . . . . . (.02) (.05) .19 (.07)
Earnings (loss) per share. . . . . $ (.02) $ (.07) $ .18 $ (.08)
</TABLE>
In the fourth quarter of 1993, the Company recorded an adjustment of
$1,273,000 ($777,000 net of income taxes) to decrease its expense related
to the self-insurance program for major medical and hospitalization
coverage due to decreases in actual claims and estimates of incurred but
not reported claims.
The decrease in net earnings in the second quarter of 1993 is
primarily a result of $4,407,000 in performance stock option expense related
to the vesting of certain contingent stock options, that became exercisable
in May 1993. This expense was partially offset by an increase in operating
income.
The loss in the third quarter of 1992 resulted from charges of
$26,908,000, net of income taxes and partners' equity which resulted from
a review of the Company's operations and organization, as described in note 8
of these Combined Financial Statements.
42
<PAGE>
(12) RELATED PARTY TRANSACTIONS
LQM OPERATING PARTNERS, L.P.
In October 1986, the Company sold 31 inns to LQM Operating Partners,
L.P. ("the Operating Partnership") which is owned and controlled by La Quinta
Motor Inns Limited Partnership ("LQP"), a publicly traded master limited
partnership. At December 31, 1992, approximately $1,425,000 net of partners'
equity, remained deferred on this sale associated with debt assumed by the
Partnership. A pre-tax gain on sale of assets of approximately $230,000,
$220,000 and $592,000, net of partners' equity, related to this transaction
was recognized in the years ended December 31, 1993, 1992 and 1991. The
deferred gain balance remaining at December 1, 1993 was treated as a
purchase price adjustment upon LQI Acquisition Corporation's acquisition of
approximately 82% of the units of limited partnership interest in the LQP.
(See note 14 to Combined Financial Statements).
MANAGEMENT SERVICES FEE
All inns owned by LQP (through November 30, 1993) and by the two
joint ventures (the "Ventures") between the Company and investment
partnerships managed by CIGNA Investments, Inc. (collectively the
"Managed Inns") operate under the La Quinta name and are managed
by the Company in accordance with long-term management agreements. The
Company earns management and licensing fees as well as fees for chain
services such as bookkeeping, national advertising and reservations.
OTHER RECURRING TRANSACTIONS
La Quinta pays all direct operating expenses on behalf of the
partnerships and ventures and is reimbursed for all such payments.
EMPLOYMENT AGREEMENT
In October 1991, the Company and its Chairman of the Board entered
into an Employment Agreement (the "Employment Agreement"), providing for
his employment as the Chairman of the Board of the Company for five years
from the date thereof. Under the terms of the Employment Agreement, he is
entitled to receive as compensation certain benefits, including, among
others, (i) an annual base salary, (ii) incentive compensation awards as a
result of his participation in the Company's long-term and short-term
incentive bonus plans or programs, and (iii) the amount of $2,200,000,
which was treated as prepaid compensation for financial statement purposes.
The Employment Agreement generally provides that 20% of the prepaid
compensation is earned on each anniversary thereof, with the exception
that in the case of the executive's (a) voluntary resignation (except for
a voluntary resignation within one year following a change in control or
after a constructive termination without cause) or (b) termination for
cause, then the remaining unamortized balance will become due and payable
over the remaining term in equal monthly installments. As a result of
changes in management and reorganization of duties, the remaining
compensation of $1,760,000 related to this Employment Agreement was
included in the 1992 non-recurring cash and non-cash charges, described
in note 8 to these Combined Financial Statements. In March 1994, the
Chairman retired from the Company and resigned from the Board of Directors
and received certain compensation and benefits as defined in the Employment
Agreement.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
value of each class of financial instruments for which it is practical
to estimate that value:
CASH AND CASH EQUIVALENTS
For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
43
<PAGE>
NOTES RECEIVABLES
The carrying value for notes receivable approximates the fair
value based on the estimated underlying value of the collateral.
INVESTMENTS
The fair value of some investments is estimated based on quoted
market prices for these or similar investments. For other securities,
the carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based
on the current market prices for the same or similar issues or on the
current rates available to the Company for debt of the same maturities.
INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swap agreements represents the
estimated amount the Company would pay to terminate the agreements,
taking into consideration current interest rates and the current
creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments
are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
--------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . $ 23,848 $ 23,848 $ 12,861 $ 12,861
Notes receivable. . . . . . . . . 7,683 7,683 7,696 7,696
Investments . . . . . . . . . . . 6,583 6,583 10,767 10,892
Long-term debt and related
letters of credit. . . . . . . . (436,493) (447,580) (296,535) (310,210)
Interest rate swap agreements
in a net payable position. . . . $ (114) $ (2,276) $ (107) $ (1,705)
</TABLE>
(14) ACQUISITION OF PARTNERS' INTERESTS
On October 27, 1993, the Company entered into a definitive Partnership
Acquisition Agreement (the "Merger Agreement") with La Quinta Motor Inns
Limited Partnership ("the Partnership" or "LQP") and other parties, pursuant
to which the Company, through wholly-owned subsidiaries, would acquire all
units of the Partnership (the "Units") that it did not beneficially own at a
price of $13.00 net per Unit in cash. The Merger Agreement provided for a
tender offer (the "Offer") for all of the Partnership's outstanding Units at
a price of $13.00 net per Unit in cash, which Offer commenced on November 1,
1993 and expired at midnight on November 30, 1993. The Offer resulted in the
purchase of 2,805,190 Units (approximately 70.6% of the outstanding Units) by
the Company through its wholly-owned subsidiary, LQI Acquisition Corporation.
As a result of a contribution of additional units previously owned by the
Company subsequent to the Offer, LQI Acquisition Corporation beneficially owned
3,257,890 Units (approximately 82% of the Units) at December 31, 1993. Pursuant
to the Merger Agreement, a Special Meeting of Unitholders was then held on
January 24, 1994 to approve the merger of a subsidiary of LQI Acquisition
Corporation with and into the Partnership, with the Partnership as the surviving
entity. As a result of this merger which was approved by the requisite vote of
Unitholders on January 24, 1994, all of the Partnership's outstanding Units
other than Units owned by the Company or any direct or indirect subsidiary of
the Company were converted into the right to receive $13.00 net in cash without
interest. The acquisition has been accounted for as a purchase and the results
of LQP's operations have been included in the Company's combined results of
operations since December 1, 1993.
LQI Acquisition Corporation obtained funds to acquire the Units as a
result of a capital contribution by La Quinta. In order to make such a capital
contribution to LQI Acquisition Corporation, the Company borrowed approximately
$45.9 million under its existing credit facility as more fully described
in note 2.
44
<PAGE>
During 1993, the Company purchased in separately negotiated transactions,
the limited partners' interests in 14 of the Company's combined unincorporated
partnerships and joint ventures, which own 44 inns, for an aggregate price of
$87,897,000 which included cash at closing, the assumption of $22,824,000 of
existing debt attributable to the limited partners' interest, and $29,878,000
of notes to the sellers. The Company was the general partner and owned the
remainder of the ownership interests in each of these partnerships and
ventures. The Company intends to continue to operate the properties as
La Quinta inns.
The following unaudited pro forma information reflects the combined
results of operations of the Company as if the acquisition of the 82% interest
in LQP and the limited partners' interests in the 14 combined partnerships and
joint ventures had occurred at the beginning of 1993 and 1992. The pro forma
information gives effect to certain adjustments, including additional
depreciation expense on property and equipment based on their fair values,
increased interest expense on additional debt incurred, elimination of related
party revenues and expenses, and extraordinary losses on early extinguishment
of debt. The pro forma results are not necessarily indicative of operating
results that would have occurred had the acquisitions been consummated as of
the beginning of 1993 and 1992, nor are they necessarily indicative
of future operating results.
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
(in thousands, except per share data)
1993 1992
-------- --------
<S> <C> <C>
Total revenues . . . . . . . . . . $308,290 $291,477
-------- --------
-------- --------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting change . . . . . . . . $ 19,448 $ (8,133)
-------- --------
-------- --------
Net earnings (loss). . . . . . . . $ 20,738 $(10,171)
-------- --------
-------- --------
Earnings (loss) per share. . . . . $ 0.66 $ (0.34)
-------- --------
-------- --------
</TABLE>
45
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
La Quinta Inns, Inc.:
We have audited the combined balance sheets of La Quinta Inns, Inc. as of
December 31, 1993 and 1992 and the related combined statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993. In connection with our audits of the combined
financial statements, we also have audited the financial statement schedules
as listed in Item 14(a)(2) of Form 10-K. These combined financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of La Quinta Inns,
Inc. as of December 31, 1993 and 1992 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1993, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic combined financial statements
taken as a whole, present fairly, in all material respects, the information
set forth therein.
As discussed in Note 1 to the combined financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109
in 1993.
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 31, 1994,
except as to the
first paragraph of
note 5, which is as
of February 9, 1994
46
<PAGE>
SCHEDULE V
LA QUINTA INNS, INC.
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Balance
beginning Additions at end
Classifications of period at cost Retirements of period
--------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1991
Land . . . . . . . . . . . . . . . $ 81,675 $ 5,546 $ 1,699 $ 85,522
Buildings. . . . . . . . . . . . . 496,448 34,251 24,712 505,987
Furniture, fixtures and equipment. 90,018 10,309 10,129 90,198
Leasehold and land improvements. . 7,274 293 115 7,452
-------- -------- -------- --------
$675,415 $ 50,399 $ 36,655 $689,159
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1992
Land . . . . . . . . . . . . . . . $ 85,522 $ 1,792 $ 214 $ 87,100
Buildings. . . . . . . . . . . . . 505,987 25,487 19,157 512,317
Furniture, fixtures and equipment. 90,198 12,188 11,671 90,715
Leasehold and land improvements. . 7,452 312 28 7,736
-------- -------- -------- --------
$689,159 $ 39,779 $ 31,070 $697,868
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1993
Land . . . . . . . . . . . . . . . $ 87,100 $ 38,118 $ 1,424 $123,794
Buildings. . . . . . . . . . . . . 512,317 159,461 11,500 660,278
Furniture, fixtures and equipment. 90,715 25,878 2,480 114,113
Leasehold and land improvements. . 7,736 337 2,005 6,068
-------- -------- -------- --------
$697,868 $223,794 $ 17,409 $904,253
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
47
<PAGE>
SCHEDULE VI
LA QUINTA INNS, INC.
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Balance
beginning at end
Classifications of period Additions Retirements of period
--------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1991
Buildings. . . . . . . . . . . . . $127,626 $ 21,443 $ 4,199 $144,870
Furniture, fixtures and equipment. 50,238 10,465 7,871 52,832
Leasehold and land improvements. . 2,648 478 38 3,088
-------- -------- ------- --------
$180,512 $ 32,386 $12,108 $200,790
-------- -------- ------- --------
-------- -------- ------- --------
Year ended December 31, 1992
Buildings. . . . . . . . . . . . . $144,870 $ 11,574 $ 861 $155,583
Furniture, fixtures and equipment. 52,832 10,968 8,219 55,581
Leasehold and land improvements. . 3,088 158 12 3,234
-------- -------- ------- --------
$200,790 $ 22,700 $ 9,092 $214,398
Year ended December 31, 1993
Buildings. . . . . . . . . . . . . $155,583 $ 12,834 $ 3,418 $164,999
Furniture, fixtures and equipment. 55,581 9,983 1,794 63,770
Leasehold and land improvements. . 3,234 177 1,263 2,148
-------- -------- ------- --------
$214,398 $ 22,994 $ 6,475 $230,917
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>
48
<PAGE>
SCHEDULE X
LA QUINTA INNS, INC.
SUPPLEMENTAL INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs . . . . . . . . . . . $ 9,607 $ 9,555 $10,046
------- ------- -------
------- ------- -------
Taxes, other than income and payroll:
Ad valorem. . . . . . . . . . . . . . . . . $10,796 $10,781 $10,048
Other . . . . . . . . . . . . . . . . . . . 183 530 339
------- ------- -------
$10,979 $11,311 $10,387
------- ------- -------
------- ------- -------
Advertising costs . . . . . . . . . . . . . . $ 7,025 $ 5,233 $ 6,216
------- ------- -------
------- ------- -------
</TABLE>
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) DIRECTORS OF REGISTRANT
There is incorporated in this Item 10 by reference that portion of the
Company's definitive Proxy Statement, dated on or about April 15, 1994,
which Registrant intends to file not later than 120 days after the end
of the fiscal year covered by this Form 10-K, appearing under the captions
"Election of Directors," and "Meetings and Committees of the Board of
Directors."
(B) EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information is set forth below concerning the executive
officers of the Company, each of whom
has been elected to serve until the regular annual meeting of the
Board of Directors following the next Annual
Meeting of Shareholders and until his/her successor is duly
elected and qualified.
Gary L. Mead 46 President and Chief Executive Officer and
Director
Michael A. Depatie 37 Sr. Vice President - Finance, Chief Financing
Officer
William C. Hammett, Jr. 47 Sr. Vice President - Accounting & Administration
Thomas W. Higgins 46 Sr. Vice President - Operations
R. John Kaegi 45 Sr. Vice President - Marketing
Steven T. Schultz 47 Sr. Vice President - Development
John F. Schmutz 46 Vice President - General Counsel and Secretary
Gary L. Mead has been Director, President and Chief Executive Officer of the
Company since March 1992. He served as Executive Vice President - Finance of
Motel 6 G.P., Inc., the managing general partner of Motel 6, L.P., from October
1987 to January 1991.
Michael A. Depatie has been Senior Vice President - Finance, Chief Financing
Officer of the Company since July 1992. He served as Senior Vice President,
Summerfield Hotel from May 1989 to July 1992. He served as Managing General
Partner of PacWest Capital Partners from April 1988 to April 1989. He served
as Vice President - Finance of The Residence Inn Company from July 1984 to
July 1986 and Senior Vice President - Finance from July 1986 to March 1988.
William C. Hammett, Jr. has been Senior Vice President - Accounting and
Administration since June 1992. He served as Executive Vice President -
Finance of Motel 6 G.P., Inc., from February 1991 to June 1992. He served
as Vice President-Controller of Motel 6 G.P., Inc. from September 1988 to
February 1991. He served as Controller of Spartan Food Systems from
August 1973 to September 1988.
Thomas W. Higgins has been Senior Vice President - Operations of the
Company since September 1992. He served as Vice President - Human
Resources of the Company from June 1992 to September 1992. He served as
Vice President - Human Resources of Motel 6 G.P., Inc. from May 1988 to
June 1992. He served as Director of Training/Employment of General Mills
from October 1986 to May 1988.
R. John Kaegi has been Senior Vice President - Marketing of the Company
since July 1992. He served as Senior Vice President - Marketing and
Strategic Planning of KinderCare Learning Centers, Inc. from December 1989
to July 1992. He served as Vice President - Marketing of KinderCare Learning
Centers, Inc. from July 1987 to December 1989. He served as Director Field
Marketing of Holiday Inns, Inc. from November 1985 to July 1987.
Steven T. Schultz has been Senior Vice President - Development of the
Company since June 1992. He served as Senior Vice President - Development
of Embassy Suites from October 1986 to June 1992.
50
<PAGE>
John F. Schmutz has been Vice President - General Counsel and Secretary of
the Company since June 1992. He served as Vice President - General Counsel
of Sbarro, Inc. from May 1991 to June 1992. He served as Vice President -
Legal of Hardee's Food Systems, Inc. from April 1983 to May 1991.
ITEM 11. EXECUTIVE COMPENSATION
There are incorporated in this Item 11 by reference those portions of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the captions "Executive
Compensation," "Compensation Pursuant to Plans," "Other Compensation,"
"Compensation of Directors," and "Termination of Employment and Change of
Control Arrangements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are incorporated in this Item 12 by reference those portions of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the captions "Principal
Shareholders" and "Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated in this Item 13 by reference that portion of the
Company's definitive Proxy Statement, dated on or about April 15, 1994, which
Registrant intends to file not later than 120 days after the end of the fiscal
year covered by this Form 10-K, appearing under the caption "Certain
Relationships and Related Transactions."
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The Combined Financial Statements of the Company appearing in Item 8
are as follows:
Combined Balance Sheets at December 31, 1993 and 1992
Combined Statements of Operations for the years ended December 31,
1993, 1992 and 1991
Combined Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991
Combined Statements of Cash Flows for the years ended December 31,
1993, 1992 and 1991
Notes to Combined Financial Statements
Independent Auditors' Report on financial statements and schedules
(2) Financial Statement Schedules
Schedule V - Property, Plant and Equipment - For the years ended
December 31, 1993, 1992 and 1991.
Schedule VI - Accumulated Depreciation and Amortization of Property,
Plant and Equipment -
For the years ended December 31, 1993, 1992 and 1991.
Schedule X - Supplemental Income Statement Information-For the
years ended December 31, 1993, 1992 and 1991
51
<PAGE>
All other schedules for which provision is made in the applicable
regulation to the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and have been
omitted.
(3) The following exhibits were previously filed as exhibits to the
Registrant's Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference:
(3)(a) Restated Articles of Incorporation of La Quinta Inns, Inc.,
as amended on May 21, 1993. (8)
(3)(b) Amended and Restated By-Laws of La Quinta Inns, Inc. (1)
(10) The following exhibits were previously filed as exhibits to the
Registrant's Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference:
(10)(a) La Quinta Inns, Inc. 1978 Non-Qualified Stock Option Plan,
as amended. (2)
(10)(b) La Quinta Inns, Inc. 1984 Stock Option Plan. (3)
(10)(c) Amendment No. 1 to La Quinta Inns, Inc. 1984 Stock Option
Plan. (4)
(10)(d) Amendment No. 2 to La Quinta Inns, Inc. 1984 Stock Option
Plan. (5)
(10)(e) Amended and Restated La Quinta Inns, Inc. 1984 Stock
Option Plan, as of November 21, 1991. (1)
(10)(f) La Quinta Development Partners, L.P. Amended and Restated
Agreement of Limited Partnership, dated March 21, 1990, by
and between Registrant and AEW Partners, L.P. (6)
(10)(g) La Quinta Development Partners, L.P. Contribution Agreement,
dated March 21, 1990, by and between Registrant and AEW
Partners, L.P. (6)
(10)(h) Management and Development Agreement by and between
Registrant and La Quinta Development Partners, L.P., dated
March 21, 1990. (6)
(10)(i) Supplemental Executive Retirement Plan and Trust Agreement
of Registrant, dated April 20, 1990, by and between Registrant
and Frost National Bank. (7)
(10)(j) La Quinta Inns, Inc. Deferred Compensation Plan, effective
June 1, 1987. (7)
(10)(k) Form of Bonus Agreement dated February 22, 1991, by and
between Registrant and each of Messrs. Sam Barshop,
David B. Daviss, Alan L. Tallis and Francis P. Bissaillon. (7)
(10)(l) Form of Indemnification Agreement, made and entered into
as of November 15, 1990 and thereafter (with respect to persons
who became directors of Registrant after such dates), by and
between Registrant and each of its directors. (7)
(10)(m) Form of Indemnification Agreement, made and entered into
as of November 15, 1990 and thereafter (with respect to persons
who became directors of Registrant after such dates), by and
between Registrant and each of its officers. (7)
(10)(n) Registration Rights Agreement, dated as of July 31, 1991
by and between Registrant and Sam Barshop and his wife,
Ann Barshop. (1)
(10)(o) Employment Agreement, dated as of October 1, 1991, by and
between Registrant and Sam Barshop. (1)
(10)(p) Employment Agreement, dated as of March 3, 1992, by and
between Registrant and Gary L. Mead. (1)
(10)(q) Non-Qualified Stock Option Agreement, dated as of March 3,
1992, between Registrant and
Gary L. Mead. (1)
52
<PAGE>
(10)(r) Registration Rights Agreement, dated as of March 3, 1992,
between Registrant and Gary L. Mead. (1)
(10)(s) Second Amended and Restated Master Convenant Agreement
dated June 15, 1993. (8)
(10)(t) $126,795,786.64 Credit Agreement dated June 15, 1993. (8)
(10)(u) Indenture dated May 15, 1993 Re: $120,000,000 9 1/4%
Senior Subordinated Notes due 2003. (8)
(10)(v) Partnership Acquisition Agreement dated October 27, 1993,
among the Partnership, the General Partner, La Quinta,
LQI Acquisition Corporation and LQI Merger Corporation. (9)
(10)(w) $241,844,955.21 Amended and Restated Credit Agreement
Among La Quinta Inns, Inc. Certain lenders and NationsBank of
Texas, N.A. as Administrative Lender dated January 25, 1994.
(10)(x) Third Amended and Restates Master Covenant Agreement dated
as of January 25, 1994.
(11) Statement regarding computation of per share earnings previously
filed as an exhibit to the Registrant's Form 10-K for the year
ended December 31, 1993 and incorporated herein by reference.
(21) Subsidiaries of La Quinta Inns, Inc. as of March 3, 1994
filed herewith.
(22) Registrant's definitive Proxy Statement, dated on or about
April 15, 1994, to be filed by Registrant within 120 days after
the end of the fiscal year covered by the Registrant's Form 10-K.
(23) Consent by KPMG Peat Marwick LLP dated November 4, 1994 to
incorporation by reference of their reports dated January 31,
1994 except as to the first paragraph of note 5, which is as
of February 9, 1994, in various Registration Statements filed
herewith.
(24) Powers of Attorney filed herewith.
(b) Reports on Form 8-K.
Registrant filed two Current Reports on Form 8-K, dated November 3,
1993 and December 15, 1993 with the Securities and Exchange
Commission. The Report dated November 3, 1993 was filed under
Items 5 and 7 describing the Merger Agreement between La Quinta
Inns, Inc. and La Quinta Motor Inns Limited Partnership ("the
Partnership"). The report dated December 15, 1993 was filed under
Items 2 and 7 describing the acquisition of the Partnership, the
Partnership's December 31, 1992 Consolidated Financial Statements
and pro forma information for the year ended December 31, 1992 and
the nine month period ended September 30, 1993.
(27) Financial Data Schedule filed herewith.
- - --------------------
(1) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 2-65645) and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended May 31, 1984 and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (No. 2-97266) and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Registrant's Registration
Statement and incorporated herein by reference.
53
<PAGE>
(6) Previously filed as an exhibit to the Registrant's Registration
Statement for the Transition Period Report on Form 10-K for the
seven months ended December 31, 1989 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Registrant's Registration
Statement on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference.
(8) Previously filed as an exhibit to Registrant's Registration
Statement on Form 10-Q for the period ended June 30, 1993.
(9) Previously filed to the Registrant's Schedule 14D-1 filed
November 1, 1993.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LA QUINTA INNS, INC.
(Registrant)
By: /s/ William C. Hammett, Jr.
--------------------------------
William C. Hammett, Jr.
Senior Vice President
Chief Accounting Officer
By: /s/ Michael A. Depatie
--------------------------------
Michael A. Depatie
Senior Vice President
Date: March 23, 1994 Chief Financing Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant, and in the capacities and on the date indicated.
Signature Title
--------- -----
/s/ GARY L. MEAD
- - ----------------------------------
Gary L. Mead President and Chief
Executive Officer, Director
/s/ WILLIAM C. HAMMETT, JR.
- - ----------------------------------
William C. Hammett, Jr. Sr. Vice President - Accounting and
Administration
/s/ MICHAEL A. DEPATIE
- - ----------------------------------
Michael A. Depatie Sr. Vice President - Finance
/s/ THOMAS M. TAYLOR*
- - ----------------------------------
Thomas M. Taylor Chairman of the Board
/s/ JOSEPH F. AZRACK*
- - ----------------------------------
Joseph F. Azrack Director
/s/ PHILIP M. BARSHOP*
- - ----------------------------------
Philip M. Barshop Director
/s/ WILLIAM H. CUNNINGHAM*
- - ----------------------------------
William H. Cunningham Director
/s/ BARRY K. FINGERHUT*
- - ----------------------------------
Barry K. Fingerhut Director
/s/ GEORGE KOZMETSKY*
- - -----------------------------------
George Kozmetsky Director
/s/ DONALD J. MCNAMARA*
- - -----------------------------------
Donald J. McNamara Director
/s/ PETER STERLING*
- - -----------------------------------
Peter Sterling Director
*By: /s/ WILLIAM C. HAMMETT, JR.
------------------------------
William C. Hammett, Jr.
ATTORNEY-IN-FACT
Date: March 23, 1994
55
<PAGE>
Exhibit 21
SUBSIDIARIES OF LA QUINTA INNS, INC.
("THE COMPANY")
AS OF MARCH 3, 1994
The Company has four (4) active wholly-owned corporate subsidiaries which are:
1. La Quinta Financial Corporation, a Texas corporation;
2. La Quinta Realty Corp., a Texas corporation;
3. La Quinta Investments, Inc., a Delaware corporation; and
4. LQI Acquisition Corporation, a Delaware corporation.
The following are unincorporated partnerships and joint ventures (general and
limited partnerships) of the Company as of March 3, 1994.
<TABLE>
<CAPTION>
Percentage of
Ownership of
Entity the Company
------ -------------
<S> <C>
La Quinta Development Partners, L.P. 40.0%
LQ CIGNA I 1.0%
LQ CIGNA II 1.0%
La Quinta-Dallas Central Expressway, Ltd. 64.8%
La Quinta-Austin Motor Hotel, Ltd. 66.7%
La Quinta-Houston I.H. 10, Ltd. 50.0%
La Quinta-San Antonio South Joint Venture 50.0%
LQ Motor Inn Venture-Austin No. 530 50.0%
La Quinta-Wichita, Kansas No. 532, Ltd. 50.0%
LQ-West Bank Joint Venture-1982 60.0%
LQ-Baton Rouge Joint Venture 80.0%
San Antonio Main Avenue Motel, Ltd. 66.7%
LQ-LNL Limited Partnership 100%
LQM Operating Partners, L.P. 100%
La Quinta Denver-Peoria Street, Ltd. 100%
LQ-Big Apple Joint Venture 100%
LQ-East Irvine Joint Venture 100%
La Quinta Motor Inns Limited Partnership 100%
</TABLE>
The Company is the sole general partner or managing partner of all of the
partnerships listed above.
<PAGE>
EXHIBIT 23
The Board of Directors
La Quinta Inns, Inc.:
We consent to incorporation by reference in the registration statements
(No. 33-26470, No. 2-97266, No. 2-67606, No. 2-65645, No. 2-55102, and
No. 22-588666) on Form S-8 and (No. 2-65645) on Form S-16 of La Quinta
Inns, Inc. of our report dated January 31, 1994, except as to the first
paragraph of note 5 which is as of February 9, 1994, relating to the
combined balance sheets of La Quinta Inns, Inc. as of December 31, 1993
and 1992, and the related combined statements of operations, shareholders'
equity, and cash flows and related schedules for each of the years in the
three-year period ended December 31, 1993.
Our report refers to the adoption of Statement of Financial Accounting
Standards No. 109 in 1993 which report appears in the December 31, 1993
annual report on Form 10-K/A of La Quinta Inns, Inc.
KPMG PEAT MARWICK LLP
San Antonio, Texas
November 4, 1994
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ JOSEPH F. AZRACK
____________________________
Joseph F. Azrack
Dated: February 28, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ PHILIP M. BARSHOP
____________________________
Philip M. Barshop
Dated: February 24, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ WILLIAM H. CUNNINGHAM
____________________________
William H. Cunningham
Dated: March 3, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ BARRY K. FINGERHUT
____________________________
Barry K. Fingerhut
Dated: February 24, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ GEORGE KOZMETSKY
____________________________
George Kozmetsky
Dated: February 24, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ DONALD J. MCNAMARA
____________________________
Donald J. McNamara
Dated: February 24, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ PETER STERLING
____________________________
Peter Sterling
Dated: March 4, 1994
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints JOHN F. SCHMUTZ, IRENE C.
PRIMERA, and WILLIAM C. HAMMETT, JR., and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 of La Quinta
Inns, Inc. and any or all amendments thereto and to file same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes that they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ THOMAS M. TAYLOR
____________________________
Thomas M. Taylor
Dated: March 8, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the combined
financial statements for the year ended December 31, 1993, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1993
<PERIOD-END> DEC-31-1993
<CASH> 23,848
<SECURITIES> 0
<RECEIVABLES> 21,206
<ALLOWANCES> 3,588
<INVENTORY> 0
<CURRENT-ASSETS> 40,285
<PP&E> 904,253
<DEPRECIATION> 230,917
<TOTAL-ASSETS> 744,241
<CURRENT-LIABILITIES> 79,050
<BONDS> 436,495
<COMMON> 3,211
0
0
<OTHER-SE> 145,846
<TOTAL-LIABILITY-AND-EQUITY> 744,241
<SALES> 0
<TOTAL-REVENUES> 271,850
<CGS> 0
<TOTAL-COSTS> 148,915
<OTHER-EXPENSES> 23,711
<LOSS-PROVISION> 740
<INTEREST-EXPENSE> 31,366
<INCOME-PRETAX> 31,836
<INCOME-TAX> 12,416
<INCOME-CONTINUING> 20,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,301
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
