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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
May 20, 1998
<TABLE>
<S> <C>
Commission file number 1-08131 Commission file number 1-08132
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
--------------------- ---------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
-------- --------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
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(I.R.S. Employer Identification No.) (I.R.S Employer Identification No.)
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham Heights, Massachusetts 02194-9127 Needham Heights, Massachusetts 02194-9127
- ----------------------------------------- -----------------------------------------
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(781) 433-6000 (781) 453-8062
-------------- --------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
<PAGE>
Item 5. Other Events
On January 3, 1998, La Quinta Inns, Inc. ("La Quinta"), Meditrust
Corporation ("Meditrust") and Meditrust Operating Company entered into an
Agreement and Plan of Merger pursuant to which La Quinta will merge with and
into Meditrust, with Meditrust being the surviving corporation.
Item 7. Financial Statement and Exhibits.
(a) Financial Statements.
None.
(b) Financial Information.
None.
(c) Exhibits.
See the index to Exhibits attached hereto.
<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 hereunto duly authorized.
Date: May 20, 1998 MEDITRUST CORPORATION
By: /s/ David F. Benson
----------------------------------------------
(Signature
Name: David F. Benson
Title: President
MEDITRUST OPERATING COMPANY
By: /s/ Abraham D. Gosman
----------------------------------------------
(Signature)
Name: Abraham D. Gosman
Title: Chief Executive Officer, President and
Treasurer
<PAGE>
Exhibit No. Description
- ---------- -----------
99.1 Unaudited Condensed Financial Statements of
La Quinta Inns, Inc. as of and for the three-
month period ended March 31, 1998 and
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Exhibit 99.1
LA QUINTA INNS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 1,453 $ 2,110
Receivables: Trade and other (net of allowance of $145 and $191).............. 16,964 14,805
Supplies and prepayments...................................................... 17,383 14,673
Deferred income taxes......................................................... 8,325 9,813
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Total current assets...................................................... 44,125 41,401
---------- ----------
Notes receivable, excluding current installments................................ 1,648 1,104
Property and equipment, net .................................................... 1,523,581 1,449,215
Deferred charges and other assets, at cost less applicable amortization......... 11,119 10,304
---------- ----------
Total assets................................................................. $1,580,473 $1,502,024
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt ....................................... $ 91,780 $ 29,400
Accounts payable.............................................................. 79,948 73,605
Accrued expenses.............................................................. 41,822 49,521
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Total current liabilities.................................................. 213,550 152,526
---------- ----------
Long-term debt, excluding current installments.................................. 869,152 872,285
Deferred income taxes, pension and other........................................ 43,494 42,020
Partners' capital............................................................... 2,646 2,667
Shareholders' equity:
Common stock ($.10 par value per share; 200,000 shares authorized;
85,093 and 85,007 shares issued)............................................ 8,509 8,501
Additional paid-in capital.................................................... 250,496 249,612
Unearned officer's compensation............................................... (948) (1,016)
Retained earnings............................................................. 288,607 270,462
Treasury stock, at cost (7,870 and 7,870 shares) ............................. (95,033) (95,033)
---------- ----------
Total shareholders' equity................................................. 451,631 432,526
---------- ----------
Total liabilities and shareholders' equity................................. $1,580,473 $1,502,024
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------------
1998 1997
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<S> <C> <C>
Revenues:
Hotel................................................................................ $131,297 $111,382
Restaurant rental and other.......................................................... 2,029 1,971
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Total revenues.................................................................... 133,326 113,353
-------- --------
Operating costs and expenses:
Direct............................................................................... 65,959 57,346
Corporate............................................................................ 5,577 4,282
Depreciation, amortization and asset retirements..................................... 16,823 13,693
-------- --------
Total operating costs and expenses................................................ 88,359 75,321
-------- --------
Operating income.................................................................. 44,967 38,032
-------- --------
Other (income) expense:
Interest, net........................................................................ 14,063 11,373
Partners' equity in earnings......................................................... 204 233
-------- --------
Earnings before income taxes...................................................... 30,700 26,426
Income taxes............................................................................ 11,205 9,778
-------- --------
Net earnings...................................................................... $ 19,495 $ 16,648
======== ========
Basic net earnings per share............................................................ $ .25 $ .21
======== ========
Basic weighted average number of shares................................................. 77,171 77,590
======== ========
Diluted net earnings per share.......................................................... $ .24 $ .21
======== ========
Diluted weighted average number of shares outstanding................................... 79,884 80,378
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Additional Unearned
----------------- ------------------ Paid-In Officer's Retained
Shares Amount Shares Amount Capital Compensation Earnings Total
------ ------ ------ ------ ------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996...... 84,274 $8,427 (6,704) $(71,914) $240,453 -- $188,610 $365,576
Exercise of stock options........ 708 71 (10) (214) 8,075 -- -- 7,932
Issuance of restricted stock
and stock options.............. 25 3 -- -- 1,084 (1,084) -- 3
Purchase of treasury stock....... -- -- (1,156) (22,905) -- -- -- (22,905)
Dividends paid................... -- -- -- -- -- -- (5,414) (5,414)
Amortization of unearned
officer's compensation........ -- -- -- -- -- 68 -- 68
Net earnings..................... -- -- -- -- -- -- 87,266 87,266
------ ------ ------ -------- --------- -------- --------- ---------
Balances at December 31, 1997 85,007 8,501 (7,870) (95,033) 249,612 (1,016) 270,462 432,526
Exercise of stock options........ 86 8 -- -- 884 -- -- 892
Dividends paid................... -- -- -- -- -- -- (1,350) (1,350)
Amortization of unearned
officer's compensation........ -- -- -- -- -- 68 -- 68
Net earnings..................... -- -- -- -- -- -- 19,495 19,495
------ ------ ------ -------- --------- -------- --------- ---------
Balance at March 31, 1998.......... 85,093 $8,509 (7,870) $(95,033) $250,496 $ (948) $288,607 $451,631
====== ====== ====== ======== ========= ======== ========= =========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................................................... $ 19,495 $ 16,648
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Non-cash items:
Depreciation, amortization and asset retirements.......................... 16,823 13,693
Amortization of unearned officer's compensation........................... 68 --
Partners' equity in earnings.............................................. 204 233
Changes in operating assets and liabilities:
Receivables................................................................. (3,556) (2,513)
Income taxes................................................................ 9,922 9,003
Supplies and prepayments.................................................... (2,870) (597)
Accounts payable and accrued expenses....................................... (5,210) (5,152)
Deferred charges and other assets........................................... (1,246) (332)
Deferred credits and other.................................................. 1,474 2,883
--------- ---------
Net cash provided by operating activities............................... 35,104 33,866
--------- ---------
Cash flows from investing activities:
Construction, purchase and conversion of inns..................................... (72,754) (57,642)
Other capital expenditures........................................................ (20,820) (54,946)
Proceeds from property transactions............................................... 1,600 --
--------- ---------
Net cash used by investing activities................................... (91,974) (112,588)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit and long-term borrowings............................. 239,250 516,347
Principal payments on line of credit and long-term borrowings..................... (181,923) (430,473)
Capital distributions to partners................................................. (225) (214)
Dividends to shareholders......................................................... (1,350) (1,358)
Purchase of treasury stock........................................................ -- (6,582)
Net proceeds from stock transactions.............................................. 461 379
--------- ---------
Net cash provided by financing activities............................... 56,213 78,099
--------- ---------
Decrease in cash and cash equivalents................................................ (657) (623)
Cash and cash equivalents at beginning of period..................................... 2,110 1,508
--------- ---------
Cash and cash equivalents at end of period........................................... $ 1,453 $ 885
========= =========
Supplemental disclosure of cash flow information:
Interest paid........................................................................ 20,068 14,323
Income tax paid...................................................................... 253 221
Income tax refunds................................................................... 7 2,567
Supplemental schedule of non-cash investing and financing activities:
Note issued in purchase of partner's equity interest................................. -- $ 2,500
Tax benefit from stock options exercised............................................. 431 220
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
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, 1997 Annual Report on Form 10-K.
Accounting Pronouncement
- ------------------------
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" in its fiscal quarter ended March 31,
1998. The effect of adopting the requirements of this statement had no impact on
previously reported net earnings. There were no items of other comprehensive
income/loss to report for the three month periods ended March 31, 1998 and March
31, 1997. There were no accumulated balances of other comprehensive income/loss
at March 31, 1998 and December 31, 1997.
(2) Property and Equipment
At March 31, 1998 and December 31, 1997, property and equipment
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- ------------------
<S> <C> <C>
Buildings................................................. $1,245,997 $1,172,119
Furniture, fixtures and equipment......................... 215,366 197,453
Land and leasehold improvements........................... 214,676 206,039
Construction in progress.................................. 207,725 209,346
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Total property and equipment............................ 1,883,764 1,784,957
Less accumulated depreciation and amortization............ 360,183 335,742
---------- ----------
Net property and equipment.............................. $1,523,581 $1,449,215
========== ==========
</TABLE>
(3) Shareholders' Equity
The Company has presented basic earnings per share, computed on the
basis of the weighted average number of shares outstanding during the period,
and diluted earnings per share, computed on the basis of the weighted average
number of shares and all dilutive potential shares outstanding during the
period. A reconciliation between basic and diluted weighted average number of
shares outstanding and the related earnings per share calculation is presented
below.
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
---------------- ----------------
<S> <C> <C>
Net earnings available to shareholders.................. $19,495 $16,648
======= =======
Basic weighted average number of shares
outstanding........................................... 77,171 77,590
Dilutive effect of stock options......................... 2,713 2,788
------- -------
Diluted weighted average number of shares
outstanding........................................... 79,884 80,378
======= =======
Basic earnings per share ............................... $ .25 $ .21
Diluted earnings per share.............................. $ .24 $ .21
</TABLE>
6
<PAGE>
(4) Accounts Payable and Accrued Expenses
At March 31, 1998 and December 31, 1997, accounts payable and accrued
expenses consisted of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -------------------
<S> <C> <C>
Accounts payable:
Construction.............................. $37,830 $40,059
Trade..................................... 18,753 16,224
Cash overdrafts........................... 9,445 11,405
Income taxes.............................. 12,917 4,914
Other..................................... 1,003 1,003
------- ------
$79,948 $73,605
======= ======
Accrued expenses:
Payroll and employee benefits............. $20,733 $22,282
Interest.................................. 8,941 11,676
Property taxes............................ 8,999 12,485
Other..................................... 3,149 3,078
------- ------
$41,822 $49,521
======= ======
</TABLE>
(5) Long-Term Debt
On February 12, 1998, the Company amended its $75 million Bank
Unsecured Line of Credit. The amendment increased the Bank Unsecured Line of
Credit to $125 million, extended its term to July 1998 and increased the
applicable margin over LIBOR to 50 basis points.
During 1997, the Company entered into two forward interest rate
agreements in anticipation of future debt issuance related to retirement of
existing debt. In May 1998 the terms of the agreements were amended to extend
the termination date from May 15, 1998 to June 30, 1998 and to modify the fixed
rate of interest from 6.44% to 6.46% for $120,000,000 of debt.
(6) Supplemental Retirement Plan and Trust
The Company maintains a trust account intended for use in settling
benefits due under the Supplemental Retirement Plan and Trust ("SERP") which
covers a select group of management employees. As a result of the execution of
the Merger Agreement (as further described in note 8), a "Potential Change in
Control", as defined in the SERP document, occurred. This event required the
Company to make a contribution to the trust sufficient to meet funding
obligations as described in the SERP document within 90 days of signing the
Merger Agreement. On April 3, 1998, La Quinta deposited $2,520,000 into the
trust account to meet the initial funding requirement defined under the
provisions of the SERP document.
(7) Contingencies
In January 1998, two lawsuits purporting to be class actions were filed
in the District Court of Bexar County, Texas on behalf of shareholders of La
Quinta against La Quinta, certain directors and officers of La Quinta, and
Meditrust. In April 1998 the two lawsuits were consolidated under the caption
Robbins and Brody v. Razzouk, et al., No. 98CI-00192 (the "Action") and an
amended petition was filed adding as defendants Merrill Lynch and certain
individuals and entities allegedly controlled by or associated with the Bass
family (collectively with the previously named defendants, the "Defendants").
The amended petition in the Action alleges, among other things, that certain
Defendants (other than Meditrust and Merrill Lynch) have breached their
fiduciary duties to La Quinta shareholders by agreeing in the Merger Agreement
to merger consideration which is "grossly inadequate," by failing to solicit
competing bids or to provide a "market check," by failing to conduct a full and
thorough investigation, by failing to make adequate public disclosure regarding
the transaction, and by making allegedly false and misleading statements to La
Quinta shareholders in connection with the Joint Proxy Statement/Prospectus. The
amended petition also alleges that the directors of La Quinta and Merrill Lynch,
as financial adviser to La Quinta, have conflicts of interest based on dealings
with Meditrust and that the recommendation to La Quinta's shareholders by the
directors of La Quinta and the fairness opinion by Merrill Lynch are tainted by
such conflicts. The petition alleges that Meditrust and Merrill Lynch aided and
abetted the alleged breaches of duty by the other Defendants, and that Merrill
Lynch acted negligently in rendering advice to La Quinta's Board of Directors.
The petition also alleges that certain option payments and/or alleged special
treatment of certain defendants in connection with such options violate Article
2.12 of the Texas Business Corporation Act by providing extra compensation
and/or special treatment for such defendants in connection with shares of La
Quinta stock. The petition in the Action seeks, among other things: (i) a
declaration that Defendants have breached their fiduciary duties to members of
the alleged class; (ii) a declaration that the proposed transaction is a legal
nullity; (iii) an order preliminarily and permanently enjoining consummation of
the proposed transaction; (iv) if the proposed transaction is consummated, an
order to rescind it; (vi) the award of compensatory damages; and (v) the award
of costs, disbursements and attorneys' fees.
7
<PAGE>
The Company is party to various other lawsuits and claims generally
incidental to its business. The ultimate disposition of these other lawsuits and
claims is not expected to have a material adverse effect on the Company's
financial position or results of operations.
(8) Merger Agreement
On January 3, 1998, La Quinta, Meditrust Corporation ("Meditrust REIT")
and Meditrust Operating Company ("Meditrust Operating Company" and together with
Meditrust REIT, the "Meditrust Companies") entered into an agreement and plan of
merger (the "Merger Agreement"), pursuant to which the Company will merge with
and into Meditrust REIT with Meditrust REIT being the surviving corporation (the
"Merger"). In the Merger, La Quinta shares will be converted into Paired Shares
of The Meditrust Companies, or converted into cash. As a result of the Merger,
Meditrust REIT will acquire all of the assets and liabilities of the Company and
Meditrust REIT will assume the Company's existing indebtedness. It is currently
anticipated that the Merger will be consummated in the second quarter of 1998.
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, 1998 (the "1998 Three
Months") and March 31, 1997 (the "1997 Three Months").
The Company's financial statements include the accounts of the
Company's wholly-owned subsidiaries and a 50% owned unincorporated partnership
and a 60% owned unincorporated joint venture over which the Company exercises
substantial legal, financial and operational control.
La Quinta's strategy is to continue its growth as a high quality
provider in the mid-priced segment of the hotel industry, focusing on enhancing
revenues, cash flow and profitability. The Company's unit growth program is
based primarily on the construction of new Inn & Suites hotels. The Company
anticipates having a total of 65-70 new Inn & Suites hotels open by the end of
1998, including a total of 41 which were open by May 11, 1998. At May 11, 1998,
the Company owned and operated 233 hotels and 41 Inn & Suites hotels with a
combined total of over 35,000 rooms.
The 1998 Three Months Compared to the 1997 Three Months
Total revenues increased to $133,326,000 in the 1998 Three Months from
$113,353,000 in the 1997 Three Months, an increase of $19,973,000, or 17.6%. Of
the total revenues reported in the 1998 Three Months, 98.5% were revenues from
hotels and 1.5% were revenues from restaurant rentals and other revenues.
Hotel 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. Hotel revenues
improved to $131,297,000 in the 1998 Three Months from $111,382,000 in the 1997
Three Months, an increase of $19,915,000 or 17.9%. The improvement in hotel
revenues reflects an increase in the average daily room rate ("ADR") and a
slight increase in occupancy percentage along with the revenues associated with
the opening of new Inn & Suites hotels. ADR increased to $60.92 in the 1998
Three Months from $56.65 in the 1997 Three Months, an increase of $4.27, or
7.5%. Occupancy percentage increased to 66.6% in the 1998 Three Months from
65.4% in the 1997 Three Months. Revenue per available room ("REVPAR," which is
the product of occupancy percentage and ADR) increased to $40.54 in the 1998
Three Months from $37.06 in the 1997 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 increased to $2,029,000 in the
1998 Three Months from $1,971,000 in the 1997 Three Months, an increase of
$58,000.
Direct expenses include costs directly associated with the operation of
hotels. In the 1998 Three Months approximately 39.2% of direct expenses were
represented by salaries, wages and related costs. Other major categories of
direct expenses include utilities, property taxes, continental breakfast, room
supplies and repairs and maintenance. Direct expenses increased to $65,959,000
($31.82 per occupied room) in the 1998 Three Months from $57,346,000 ($30.45 per
occupied room) in the 1997 Three Months, an increase of $8,613,000, or 15.0%.
The increase in direct expenses period over period is primarily attributable to
the growth in number of inns. As a percentage of total revenues, direct expenses
decreased to 49.5% in the 1998 Three Months from 50.6% in the 1997 Three Months.
8
<PAGE>
Corporate expenses include the costs of general management, office
rent, training and field supervision of hotel managers and other marketing and
administrative expenses. Corporate expenses increased to $5,577,000 ($1.79 per
available room) in the 1998 Three Months from $4,282,000 ($1.49 per available
room) in the 1997 Three Months.
Depreciation, amortization and asset retirements increased to
$16,823,000 in the 1998 Three Months from $13,693,000 in the 1997 Three Months,
an increase of $3,130,000, or 22.9%. This increase is primarily attributable to
the opening of new Inn & Suites hotels and increased depreciation from asset
additions related to the Gold Medal rooms program.
As a result of the above, operating income increased to $44,967,000
in the 1998 Three Months from $38,032,000 in the 1997 Three Months, an
increase of $6,935,000, or 18.2%.
Interest, net increased to $14,063,000 in the 1998 Three Months
compared to $11,373,000 in the 1997 Three Months. The increase in interest, net
is primarily attributable to an increase in borrowings on long-term debt and the
effective interest rate and is partially offset by an increase in capitalized
interest. Interest, net reflects capitalized interest of $3,204,000 in the 1998
Three Months compared to $2,120,000 in the 1997 Three Months. The increase in
capitalized interest period over period is primarily due to the construction of
new Inn & Suites hotels.
Partners' equity in earnings reflects the interest of partners in the
earnings of a 50% owned unincorporated partnership and a 60% owned
unincorporated joint venture which are controlled by the Company. Partners'
equity in earnings decreased to $204,000 in the 1998 Three Months from $233,000
in the 1997 Three Months, a decrease of $29,000.
Income taxes for the 1998 Three Months were calculated using an
effective income tax rate of 36.5% compared to an effective income tax rate of
37.0% in 1997 Three Months.
For the reasons discussed above, net earnings increased to $19,495,000
in the 1998 Three Months from $16,648,000 in the 1997 Three Months, an increase
of $2,847,000, or 17.1%.
Analysis of Cash Flows
- ----------------------
On February 12, 1998, the Company amended its $75 million Bank
Unsecured Line of Credit. The amendment increased the Bank Unsecured Line of
Credit to $125 million, extended its term to July 1998 and increased the
applicable margin over LIBOR to 50 basis points.
On March 31, 1998, the Company had a $325 million Unsecured Line of
Credit with a consortium of banks and a $125 million Bank Unsecured Line of
Credit (together, "the Unsecured Credit Facilities"). The $325 million Unsecured
Line of Credit matures February 2002. At March 31, 1998, the Company had
$52,694,000 available on its Unsecured Credit Facilities, net of $1,306,000 of
letters of credit collateralizing certain mortgages. The Unsecured Credit
Facilities bear interest at the prime rate or LIBOR, adjusted for an applicable
margin, as defined in the related credit agreements. The applicable margin is
determined quarterly based upon predetermined levels of cash flow to
indebtedness or credit ratings received by specified credit rating agencies, as
defined in the related credit agreements. At March 31, 1998, borrowings under
the Unsecured Credit Facilities bear interest at LIBOR plus 33.75 basis points
on $315,000,000 of outstanding borrowings and LIBOR plus 50 basis points on
$81,000,000 of outstanding borrowings. The $325 million Unsecured Line of Credit
requires a facility fee of 18.75 basis points on the average amount of the
commitment.
At March 31, 1998 the Company has an effective registration statement
under which the Company is allowed to issue up to $300,000,000 principal amount
of Debt securities. The Company has not issued any Debt Securities under this
registration statement.
At March 31, 1998, the Company had $1,453,000 of cash and cash
equivalents compared with $885,000 at March 31, 1997.
Net cash provided by operating activities increased to $35,104,000 at
March 31, 1998 from $33,866,000 at March 31, 1997, an increase of $1,238,000, or
3.7%. The increase is primarily the result of an improvement in REVPAR of 9.4%
in the 1998 Three Months compared to the 1997 Three Months.
9
<PAGE>
Net cash used by investing activities decreased by $20,614,000 from
March 31,1997 to March 31, 1998, primarily due to a decrease in capital
expenditures for the Company's Gold Medal rooms program which was completed in
1997.
Net cash provided by financing activities decreased by $21,886,000 to
$56,213,000 at March 31, 1998. Net borrowings decreased to $57,327,000 for the
quarter ended March 31, 1998 compared to $85,874,000 for the quarter ended March
31, 1997. The net decrease is primarily the result of completion of the Gold
Medal rooms program. Net cash provided by financing activities was also reduced
by $6,582,000 in the 1997 Three Months as a result of the purchase of treasury
stock.
EBITDA increased to $61,790,000 during the first quarter of 1998, an
increase of 19.5% over the first quarter of 1997. EBITDA is defined as earnings
before net interest expense, income taxes, depreciation, amortization and asset
retirements, and partners' equity in earnings. The Company considers this
definition of EBITDA to be an indicative measure of the Company's operating
performance because it can be used to measure the Company's abilities to service
debt, fund capital expenditures and expand its business; such information should
not be considered as an alternative to net income, operating profit, cash flows
from operations, or any other operating or liquidity measure prescribed by
generally accepted accounting principles.
Additional capital expenditures planned by La Quinta for the remainder
of 1998 focus on the construction of new Inn & Suites hotels. The estimated cost
to complete these projects for which commitments have been made is approximately
$190 million at March 31, 1998. Funds on hand, anticipated future cash flows,
and amounts available on the Company's Unsecured Credit Facility as may be
increased from time to time and its $300,000,000 shelf registration are expected
to be sufficient to complete these projects. The company will evaluate from time
to time the appropriateness of other financing alternatives.
Accounting Pronouncement
- ------------------------
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" in its fiscal quarter ended March 31, 1998. The
effect of adopting the requirements of this statement had no impact on
previously reported net earnings.
Year 2000
- ---------
In 1997, the Company began the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue. This issue affects computer systems that have time-sensitive programs
that may not properly recognize the year 2000. This could result in system
failures or miscalculations. The Company is currently addressing its internal
year 2000 issue with modifications to existing programs and conversions to new
programs. The Company is also communicating with financial institutions,
software vendors and others with which it conducts business to help them
identify and resolve the year 2000 issue. The total cost of converting all
internal systems has not been completely quantified, but it is not expected to
be a material cost to the Company. However, no estimates can be made as to the
potential adverse impact that may result from the failure of the Company's
financial institutions, software vendors and others with which it conducts
business to become year 2000 compliant. Costs related to the year 2000 issue are
being expensed as incurred.
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, 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.
Further discussions of these and additional factors which may cause expected
results to differ from actual results are included in the Company's Annual
Report on Form 10-K filed on February 13, 1998 with the Securities and Exchange
Commission.
10
