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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
OR
/ / TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-7790
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LA QUINTA INNS, INC.
(Exact name of registrant as specified in its charter)
TEXAS #74-1724417
(State of Incorporation) (I.R.S. Employer
Identification No.)
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:(210) 302-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES _ /X/_ NO _____
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Number of shares of Common Stock, $.10 par value outstanding at March 31, 1996:
51,547,129
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LA QUINTA INNS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 2,358 $ 2,590
Receivables (net of allowance of $143
and $118)..................................... 15,460 12,789
Supplies and prepayments....................... 9,975 9,602
Deferred income taxes.......................... 8,933 8,981
---------- --------
Total current assets......................... 36,726 33,962
---------- --------
Notes receivable, excluding current installments
(net of allowance of $2,139 and $2,171)......... 3,300 3,240
Property and equipment, net...................... 951,963 915,750
Deferred charges and other assets, at cost
less applicable amortization.................... 11,379 11,163
---------- --------
Total assets.................................. $1,003,368 $964,115
---------- --------
---------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt......... $ 13,627 $ 13,322
Accounts payable............................... 29,826 32,758
Accrued expenses............................... 40,008 40,915
---------- --------
Total current liabilities.................... 83,461 86,995
---------- --------
Long-term debt, excluding current installments... 564,626 518,416
Deferred income taxes, pension and other......... 20,039 20,682
Partners' capital................................ 6,429 6,309
Shareholders' equity:
Common stock ($.10 par value per share;
100,000 shares authorized; 55,017 and
54,883 shares issued).......................... 5,501 5,488
Additional paid-in capital..................... 224,203 222,221
Retained earnings.............................. 143,324 133,745
Treasury stock, at cost (3,470 and 2,849
shares)....................................... (44,215) (29,741)
---------- --------
Total shareholders' equity................... 328,813 331,713
---------- --------
Total liabilities and shareholders' equity... $1,003,368 $964,115
---------- --------
---------- --------
</TABLE>
See accompanying notes to condensed financial statements.
2
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ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1996 1995
-------- -------
<S> <C> <C>
Revenues:
Inn..................................................... $100,834 $94,723
Restaurant rental and other............................. 1,924 2,012
-------- -------
Total revenues........................................ 102,758 96,735
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Operating costs and expenses:
Direct.................................................. 52,891 49,352
Corporate............................................... 4,650 4,498
Depreciation, amortization and asset retirements........ 10,725 10,193
Provision for premature retirement of assets............ 6,635 --
-------- -------
Total operating costs and expenses.................... 74,901 64,043
-------- -------
Operating income...................................... 27,857 32,692
-------- -------
Other (income) expense:
Interest on long-term debt, net......................... 10,165 10,264
Partners' equity in earnings............................ 443 4,428
-------- -------
Earnings before income taxes 17,249 18,000
Income taxes.............................................. 6,382 6,930
-------- -------
Net earnings.......................................... $ 10,867 $11,070
-------- -------
-------- -------
Net earnings per common and common equivalent share... $ .20 $ .23
-------- -------
-------- -------
Weighted average number of common and common equivalent
shares outstanding....................................... 53,773 49,086
-------- -------
-------- -------
</TABLE>
See accompanying notes to condensed financial statements.
3
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ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................................. $ 10,867 $ 11,070
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Non-cash items:
Depreciation, amortization and asset retirements .................... 10,725 10,193
Provision for premature retirement of assets......................... 6,635 --
Partners' equity in earnings......................................... 443 4,428
Changes in operating assets and liabilities:
Receivables.......................................................... (2,727) (785)
Income taxes......................................................... 7,260 6,192
Supplies and prepayments............................................. (592) (1,101)
Accounts payable and accrued expenses................................ (848) 384
Deferred charges and other assets.................................... 406 53
Deferred credits and other........................................... (643) 561
--------- ---------
Net cash provided by operating activities.......................... 31,526 30,995
--------- ---------
Cash flows from investing activities:
Construction, purchase and conversion of inns ........................... (20,519) (10,236)
Other capital expenditures............................................... (41,631) (4,918)
Other.................................................................... 38 441
--------- ---------
Net cash used by investing activities.............................. (62,112) (14,713)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit and long-term borrowings................... 279,746 122,150
Principal payments on line of credit and long-term borrowings........... (234,370) (138,778)
Capital distributions to partners....................................... (323) (307)
Dividends to shareholders............................................... (1,288) (1,170)
Purchase of treasury stock.............................................. (14,447) (102)
Net proceeds from stock transactions.................................... 1,036 2,389
--------- ---------
Net cash provided (used) by financing activities................... 30,354 (15,818)
--------- ---------
(Decrease) increase in cash and cash equivalents.......................... (232) 464
Cash and cash equivalents at beginning of period.......................... 2,590 2,589
--------- ---------
Cash and cash equivalents at end of period................................ $ 2,358 $ 3,053
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid ............................................................ $ 10,397 $ 7,679
--------- ---------
--------- ---------
Income tax paid .......................................................... $ 729 $ 344
--------- ---------
--------- ---------
Supplemental schedule of non-cash investing and financing activities:
Tax benefit from stock options exercised ................................. $ 932 $ 3,148
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
4
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ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, which are necessary for a fair presentation of financial
position and results of operations have been made. The condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the December 31, 1995 Annual Report on Form 10-K.
(2) Property and Equipment
At March 31, 1996 and December 31, 1995, property and equipment consisted
of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
Buildings.......................................... $ 891,982 $ 864,605
Furniture, fixtures and equipment.................. 137,017 121,032
Land and leasehold improvements ................... 174,833 174,165
Construction in progress........................... 34,914 29,862
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Total property and equipment..................... 1,238,746 1,189,664
Less accumulated depreciation and amortization..... 286,783 273,914
---------- ----------
Net property and equipment....................... $ 951,963 $ 915,750
---------- ----------
---------- ----------
</TABLE>
(3) Earnings per Common and Common Equivalent Share
Fully diluted earnings per share is not materially different than primary
earnings per share.
(4) Accounts Payable and Accrued Expenses
At March 31, 1996 and December 31, 1995, accounts payable and accrued
expenses consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<C> <C> <C>
Accounts payable:
Trade ............................ $13,545 $13,695
Construction...................... 108 9,666
Other............................. 6,933 6,437
Income taxes...................... 9,240 2,960
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$29,826 $32,758
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------- -------
Accrued expenses:
Payroll and employee benefits..... $25,784 $25,201
Interest.......................... 5,583 4,845
Property taxes.................... 6,668 9,640
Other............................. 1,973 1,229
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$40,008 $40,915
------- -------
------- -------
</TABLE>
5
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(5) Long-Term Debt
In March 1996, the Company completed an offering of $100,000,000 of
7.25% Senior Unsecured Notes with an effective interest rate of 7.19%,
maturing March 2004. The proceeds of the note offering were used to repay
indebtedness under the Company's Bank Unsecured Credit Facilities.
(6) Provision for Premature Retirement of Assets
The Company launched its Gold Medal rooms program during the third
quarter of 1995. During implementation of this program, the Company will be
replacing certain furniture and fixtures before the end of their normal
useful life and has therefore, made adjustments to reflect shorter remaining
lives. As a result, the Company will record non-cash provisions for premature
retirement of assets totaling approximately $24.6 million, of which $19.3
million has been reported to date, with the remainder to be reported in 1996.
The Company reported non-cash charges related to the premature retirement of
these assets of approximately $6.6 million as a separate line item entitled
provision for premature retirement of assets on the Statement of Operations for
the current quarter.
(7) Contingencies
In September 1993, a former officer of the Company filed suit against
the Company and certain of its directors and their affiliate companies (the
"La Quinta Defendants"). 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. Compensatory damages of $2,500,000 and exemplary
damages of $5,000,000 are sought in the action. The parties filed a required,
joint Pre-Trial Order, in which the plaintiff has conceded a number of his
claims. On March 5, 1996, the U.S. Magistrate Judge recommended to the Court
that the Company's motion for summary judgment be granted in full. The plaintiff
has filed objections to this recommendation and the matter now awaits review by
the Court. Currently, no trial date has been set for this action. The Company
will vigorously defend itself 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 matter are not expected to have a material adverse effect on the
Company's financial position or results of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis addresses the results of operations
for the three month periods ended March 31, 1996 (the "1996 Three Months") and
March 31, 1995 (the "1995 Three Months").
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 50% interest, and in one case a 40% interest,
and over which it exercises substantial legal, financial and operational
control.
The following table describes the composition of inns in the La Quinta
chain at:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
--------------------------- --------------------------
LA QUINTA LA QUINTA
EQUIVALENT EQUIVALENT
INNS ROOMS ROOMS (1) INNS ROOMS ROOMS (1)
---- ------ ---------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Owned 100% (2)(3).................. 230 29,600 29,600 230 29,522 29,522
Owned 50-67% ...................... 7 836 467 7 836 467
--- ------ ------ --- ------ ------
Total Company owned and operated... 237 30,436 30,067 237 30,358 29,989
--- ------ ------ --- ------ ------
--- ------ ------ --- ------ ------
</TABLE>
(1) Represents the Company's proportionate ownership in system rooms.
(2) At March 31, 1996 and December 31, 1995 includes one and two inns,
respectively, acquired in 1995 that were closed for conversion to the
La Quinta brand and are expected to re-open in 1996.
(3) The increase in number of rooms resulted from the addition of rooms to inns
owned by the Company.
In recent years, growth in inn count has resulted from the acquisition and
conversion of inns to the La Quinta brand. Although acquisitions may continue
in markets where inns for acquisition and conversion are available at attractive
discounts to replacement costs, the Company's growth program now will be based
primarily on the construction of new inns. There are currently
6
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twelve inns under construction which are expected to add approximately 1,600
rooms between May and December 1996. The Company anticipates opening
approximately 24 hotels with a total of approximately 3,000 rooms during 1997.
During 1995, the Company launched its Gold Medal rooms program designed to
strengthen the Company's ability to gain additional market share and pricing
advantage relative to its competitors. The program is intended to improve the
quality, functionality and value of guest rooms by enhancing the decor package,
including fresh, new colors, rich wood furniture, contemporary bathrooms, built-
in closets, oversized desks, 25 inch televisions and new draperies and
bedspreads. Service enhancements include movies-on-demand, interactive video
games from Nintendo, dataport telephones for computer connections and greatly
expanded free television channel choices.
The Company has completed approximately 10,000 rooms under the Gold
Medal program. A total of 83 inns have either been completed or are
undergoing construction related to the program. The program requires 20-30
rooms at a time to be taken out of available supply at an inn during the
construction period. Construction activities at each inn are typically
completed within 10-12 weeks. The Company does not adjust its available rooms
or occupancy percentage for rooms unavailable due to construction as a result
of this program.
Subsequent to March 31, 1996, the Company acquired the limited
partners' interest in two of its combined unincorporated partnerships and
joint ventures, which each owned one inn. As a result, the Company has 5
remaining unincorporated partnerships and joint ventures, each owning one inn.
THE 1996 THREE MONTHS COMPARED TO THE 1995 THREE MONTHS
TOTAL REVENUES increased to $102,758,000 in the 1996 Three Months from
$96,735,000 in the 1995 Three Months, an increase of $6,023,000, or 6.2%. Of
the total revenues reported in the 1996 Three Months, 98.1% were revenues from
inns and 1.9% were revenues from restaurant rentals and other revenues.
INN REVENUES are derived from room rentals and other sources such as
charges to guests for long-distance telephone service, fax machine use, vending
and movie commissions, banquet revenues and laundry services. Inn revenues
improved to $100,834,000 in the 1996 Three Months from $94,723,000 in the 1995
Three Months, an increase of $6,111,000 or 6.5%. The improvement in inn
revenues reflects an increase in the average daily room rate ("ADR") along with
the revenues associated with the acquisition and opening of nine inns since
March 1995. ADR increased to $53.41 in the 1996 Three Months from $50.45 in the
1995 Three Months, an increase of $2.96, or 5.9%. Occupancy percentage
decreased to 66.0% in the 1996 Three Months from 68.9% in the 1995 Three Months.
The decrease in occupancy percentage primarily resulted from a significant
number of rooms that were unavailable to rent because of construction related to
the Gold Medal rooms program. Revenue per available room ("REVPAR," which is
the product of occupancy percentage and ADR) increased to $35.22 in the 1996
Three Months from $34.75 in the 1995 Three Months.
RESTAURANT RENTAL AND OTHER REVENUES primarily include rental payments
from restaurant buildings owned by La Quinta and leased to and operated by
third parties. Restaurant rental and other revenues decreased to $1,924,000
in the 1996 Three Months from $2,012,000 in the 1995 Three Months, a decrease
of $88,000.
DIRECT EXPENSES include costs directly associated with the operation of
inns. In the 1996 Three Months approximately 41.2% of direct expenses were
represented by salaries, wages and related costs. Other major categories of
direct expenses include utilities, property taxes, repairs and maintenance and
room supplies. Direct expenses increased to $52,891,000 ($29.14 per occupied
room) in the 1996 Three Months from $49,352,000 ($27.34 per occupied room) in
the 1995 Three Months. The increase in direct expenses period over period is
primarily attributable to the growth in number of inns. The increase in direct
expenses per occupied room resulted primarily from a decrease in occupancy in
the 1996 Three Months.
CORPORATE EXPENSES include the costs of general management, office rent,
training and field supervision of inn managers and other marketing and
administrative expenses. Corporate expenses increased to $4,650,000 ($1.69 per
available room) in the 1996 Three Months from $4,498,000 ($1.72 per available
room) in the 1995 Three Months.
DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS increased to
$10,725,000 in the 1996 Three Months from $10,193,000 in the 1995 Three
Months, an increase of $532,000, or 5.2%. This increase is primarily
attributable to the related increase in inn acquisitions and the completion
of Gold Medal rooms. The increase is partially offset by a reduction in
depreciation on assets which have become fully depreciated.
A PROVISION FOR PREMATURE RETIREMENT OF ASSETS totaling $6,635,000 was
recorded during the 1996 Three Months. This non-cash charge is directly
attributable to the Company's Gold Medal rooms program. During the program, the
Company will be replacing certain furniture and fixtures before the end of their
normal useful lives and has therefore made adjustments to reflect shorter
remaining lives.
7
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As a result of the above, OPERATING INCOME decreased to $27,857,000 in the
1996 Three Months from $32,692,000 in the 1995 Three Months, a decrease of
$4,835,000, or 14.8%. Operating income before the provision for premature
retirement of assets increased to $34,492,000 in the 1996 Three Months from
$32,692,000 in the 1995 Three Months, an increase of $1,800,000, or 5.5%.
INTEREST ON LONG-TERM DEBT, NET decreased to $10,165,000 in the 1996 Three
Months compared to $10,264,000 in the 1995 Three Months. Interest on long-term
debt, net includes capitalized interest of $815,000 in the 1996 Three Months
compared to $58,000 in the 1995 Three Months. While long-term debt, including
current installments, has increased, the Company's weighted average interest
rate on long-term borrowings has decreased due to favorable interest rates
negotiated in the Bank Unsecured Credit Facilities, as defined below, and the
issuance of the 7.4% Senior Unsecured Notes due 2005 in September 1995.
PARTNERS' EQUITY IN EARNINGS reflects the interest of partners in the
earnings of the combined joint ventures and partnerships which are owned at
least 40% and controlled by the Company. Partners' equity in earnings
decreased to $443,000 in the 1996 Three Months from $4,428,000 in the 1995
Three Months, a decrease of $3,985,000. This decrease is primarily
attributable to the elimination of La Quinta Development Partners, L.P.
equity in earnings as a result of its acquisition by the Company during the
third quarter of 1995.
INCOME TAXES for the 1996 Three Months were calculated using an effective
income tax rate of 37.0% compared to an effective income tax rate of 38.5% for
the 1995 Three Months. The reduction in the annual effective income tax rate is
attributable to a difference between aggregate recorded cost and tax basis of
certain acquired assets and a reduction of estimated state income tax expense.
For the reasons discussed above, NET EARNINGS decreased to $10,867,000 in
the 1996 Three Months from $11,070,000 in the 1995 Three Months, a decrease of
$203,000, or 1.8%. Net earnings before the provision for premature retirement
of assets increased to $15,047,000 in the 1996 Three Months from $11,070,000 in
the 1995 Three Months, an increase of $3,977,000, or 36.0%.
ANALYSIS OF CASH FLOWS
At March 31, 1996, the Company had a $200 million Bank Unsecured Line of
Credit and a $50 million 364-Day Bank Unsecured Line of Credit (the "Bank
Unsecured Credit Facilities"). The $200 million Bank Unsecured Line of Credit
matures August 2000 and the $50 million 364-Day Bank Unsecured Line of Credit
matures September 1996. At March 31, 1996, the Company had $119,444,000
available on its Bank Unsecured Credit Facilities, net of $6,681,000 of letters
of credit collateralizing its insurance programs and certain mortgages. The
Bank Unsecured Credit Facilities bear interest at the prime rate or LIBOR,
adjusted for an applicable margin, as defined under the related credit
agreements. The applicable margin is based upon predetermined levels of cash
flow to indebtedness or credit ratings received from specified credit rating
agencies, also as defined in the related credit agreements. At March 31, 1996,
borrowings under the Bank Unsecured Credit Facilities bear interest at LIBOR
plus 45 basis points on $120,000,000 of outstanding borrowings and the prime
rate less 50 basis points on $3,875,000 of outstanding borrowings. The Bank
Unsecured Credit Facilities require an annual commitment fee of 20 basis points
on the $200 million Bank Unsecured Line of Credit and 15 basis points on the $50
million 364-Day Bank Unsecured Line of Credit.
In March 1996, the Company completed an offering of $100,000,000 of
7.25% Senior Unsecured Notes with an effective interest rate of 7.19%,
maturing March 2004. The proceeds of the note offering were used to repay
indebtedness under the Company's Bank Unsecured Credit Facilities.
At March 31, 1996, the Company had $2,358,000 of cash and cash equivalents
compared with $3,053,000 at March 31, 1995.
Net cash provided by operations increased by $531,000 to $31,526,000 at
March 31, 1996 from $30,995,000 at March 31, 1995. The net increase is
primarily the result of improved earnings excluding non-cash items and is
partially offset by a decrease in working capital of $2,448,000.
Net cash used by investing activities increased by $47,399,000 from March
31,1995 to March 31, 1996, as a result of capital expenditures for the Company's
Gold Medal rooms program and expenditures for the Company's new inn construction
projects.
Net cash provided by financing activities increased by $46,172,000 to
$30,354,000 at March 31, 1996. Net borrowings increased to $45,376,000 for the
quarter ended March 31, 1996 compared to net repayment of indebtedness of
$16,628,000 for the quarter ended March 31, 1995. The net increase is primarily
the result of borrowings used for capital expenditures related to the
8
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Gold Medal rooms program and new inn construction. Net cash provided by
financing activities also includes $14,447,000 of cash used for the purchase
of 620,000 shares of treasury stock.
EBITDA increased to $45,217,000 during the first quarter of 1996, an
increase of 5.4% over the first quarter of 1995. EBITDA is defined as earnings
before net interest expense, income taxes, depreciation, amortization and asset
retirements, provision for premature retirement of assets and partners' equity
in earnings. The Company believes this definition of EBITDA provides a
meaningful measure of its ability to service debt.
In the third quarter of 1995, the Company began its Gold Medal rooms
program. The Company anticipates spending approximately $70 million in excess
of its normal maintenance capital expenditures on this program during 1996.
The capital requirements of the program will be funded from internally
generated cash flows and amounts available on the Bank Unsecured Credit
Facilities and is not anticipated to have an adverse effect on the Company's
ability to fund its operations. The Company has made commitments of
approximately $10.7 million for properties currently undergoing construction
related to this program as of March 31, 1996.
Additional capital expenditures planned by La Quinta for the remainder of
1996 focus on the construction of new inns, conversion of acquired inns and
expansion of existing inns. The estimated cost to complete these projects for
which commitments have been made is approximately $64.8 million at March 31,
1996.
Funds on hand, internally generated future cash flows and funds available
on the Company's Bank Unsecured Credit Facilities are expected to be sufficient
to meet capital requirements, as well as operating expenses and debt service
requirements through at least the first quarter of 1997. From time to time, the
Company will continue to evaluate the necessity of other financing alternatives.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Quarterly
Report on Form 10-Q contains information that is forward-looking, such as the
timing and cost of the inn construction and Gold Medal rooms construction
programs, anticipated capital requirements and the results of legal proceedings.
Such forward-looking information involves risks and uncertainties that could
significantly affect expected results. These risks and uncertainties include,
but are not limited to, uncertainties relating to economic conditions, the
pricing and availability of construction materials, and changes in the
competitive environment in which the Company operates.
9
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
La Quinta Inns, Inc.:
We have reviewed the condensed balance sheet of La Quinta Inns, Inc. as of March
31, 1996, and the related condensed statements of operations and cash flows for
the three-month periods ended March 31, 1996 and 1995. These condensed
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of La Quinta Inns, Inc. as of December 31, 1995 and
the related statements of operations, shareholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated January 22,
1996 we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1995, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
KPMG Peat Marwick LLP
San Antonio, Texas
April 19, 1996
10
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies (the "La
Quinta Defendants"). 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. Compensatory damages of $2,500,000 and exemplary damages of
$5,000,000 are sought in the action. The parties filed a required, joint Pre-
Trial Order, in which the plaintiff has conceded a number of his claims. On
March 5, 1996, the U.S. Magistrate Judge recommended to the Court that the
Company's motion for summary judgment be granted in full. The plaintiff has
filed objections to this recommendation and the matter now awaits review by the
Court. Currently, no trial date has been set for this action. The Company will
vigorously defend itself against this suit.
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,
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.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
A list of all exhibits filed or included as part of this
Quarterly Report on Form 10-Q is as follows:
Exhibits Descriptions
1 Underwriting agreement with Morgan Stanley & Co. Incorporated,
Goldman, Sachs & Co. and Smith Barney Inc. relating to the
sale of the Company's 7.25% Senior Notes due 2004. (1)
4.1 Officers' Certificate pursuant to Sections 2.2 and 10.4 of
the Indenture dated as of September 15, 1995, between
the Company and U.S. Trust Company of Texas, N.A.,
as Trustee, establishing a series of securities entitled
"7.25% Senior Notes due 2004." (1)
4.2 Form of 7.25% Senior Notes due 2004 described in Exhibit
4.1. (1)
12 Computation of Ratio of Earnings to Fixed Charges
filed herewith.
15 Letter from KPMG Peat Marwick LLP dated April 19, 1996
filed herewith.
27 Financial Data Schedule filed herewith.
______________
(1) Previously filed as an Exhibit to the Registrant's Report on
Form 8-K dated March 7, 1996 and incorporated herein by
reference.
(b) Reports on Form
8-K:
Registrant filed one Current Report on Form 8-K, dated March 7,
1996, with the Securities and Exchange Commission, which reported
under Item 5 the Company's entering into an underwriting agreement
with Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and
Smith Barney Inc. related to the sale of the Company's 7.25% Senior
Notes due 2004.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LA QUINTA INNS, INC.
(Registrant)
May 10, 1996 By: /s/ William C. Hammett, Jr.
---------------------------------
William C. Hammett, Jr.
Senior Vice President - Accounting and
Administration
May 10, 1996 By: /s/ Irene C. Primera
---------------------------------
Irene C. Primera
Vice President - Controller
12
<PAGE>
EXHIBIT 12
LA QUINTA INNS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
----------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss)before income taxes,
extraordinary items and cumulative
effect of accounting change(1)........ $17,249 $18,000 $ 82,994 $ 61,991 $31,836 $(7,270) $ 2,185
Partners' equity in earnings........... 443 4,428 10,227 11,406 12,965 15,081 9,421
Partners' equity in earnings of
combined unincorporated ventures
that do not have fixed charges........ (318) (437) (1,854) (1,577) (1,652) (1,504) (845)
Fixed charges.......................... 11,405 10,851 42,797 40,814 32,477 34,270 40,012
Interest capitalized................... (815) (58) (1,313) (889) - (50) -
Amortization of capitalized interest... 210 199 803 772 799 799 1,064
------- ------- -------- -------- ------- ------- -------
Earnings as adjusted................. $28,174 $32,983 $133,654 $112,517 $76,425 $41,326 $51,837
------- ------- -------- -------- ------- ------- -------
------- ------- -------- -------- ------- ------- -------
Fixed charges:
Interest on long-term debt (before
capitalized interest)............... $11,135 $10,602 $ 41,734 $ 39,749 $31,366 $33,137 $38,713
Portion of rental expense
allocated to interest............... 270 249 1,063 1,065 1,111 1,133 1,299
------- ------- -------- -------- ------- ------- -------
Total fixed charges................ $11,405 $10,851 $ 42,797 $ 40,814 $32,477 $34,270 $40,012
------- ------- -------- -------- ------- ------- -------
------- ------- -------- -------- ------- ------- -------
Ratio of earnings to fixed charges..... 2.5x 3.0x 3.1x 2.8x 2.4x 1.2x 1.3x
------- ------- -------- -------- ------- ------- -------
------- ------- -------- -------- ------- ------- -------
</TABLE>
(1) The Three Months Ended March 31, 1996 and Year Ended December 31, 1995,
includes a non-cash provision for premature retirement of assets totaling
$6,635 and $12,630, respectively.
13
<PAGE>
EXHIBIT 15
La Quinta Inns, Inc.
San Antonio, Texas
Gentlemen:
Re: Registration Statements Nos. 33-26470, 2-97266,
2-67606, 33-55102, 33-58866 and 333-00309.
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated April 19, 1996, related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
San Antonio, Texas
April 19, 1996
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2358
<SECURITIES> 0
<RECEIVABLES> 21042
<ALLOWANCES> 2282
<INVENTORY> 0
<CURRENT-ASSETS> 36726
<PP&E> 1238746
<DEPRECIATION> 286783
<TOTAL-ASSETS> 1003368
<CURRENT-LIABILITIES> 83461
<BONDS> 564626
0
0
<COMMON> 5501
<OTHER-SE> 323312
<TOTAL-LIABILITY-AND-EQUITY> 1003368
<SALES> 0
<TOTAL-REVENUES> 102758
<CGS> 0
<TOTAL-COSTS> 52891
<OTHER-EXPENSES> 17360
<LOSS-PROVISION> 310
<INTEREST-EXPENSE> 10165
<INCOME-PRETAX> 17249
<INCOME-TAX> 6382
<INCOME-CONTINUING> 10867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10867
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
