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 June 30, 1997
OR
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number:
0-22930
Exact name of registrant as specified in its charter:
ALLSTAR INNS INC.
State or other jurisdiction of incorporation or organization:
Delaware
I.R.S. Employer Identification No:
77-0323962
Address of Principal Executive Offices:
200 E. Carrillo Street, #300
Santa Barbara, California
Zip Code:
93101
Registrant's telephone number, including area code:
(805-730-3383)
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
(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
As of June 30, 1997, there were 1,047,443 shares of the
Registrant's common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLSTAR INNS INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended June 30,
1997 1996
[C] [C]
Revenues:
Rent income $ - $ 5,071
Interest income 470 197
Total revenues 470 5,268
Expenses:
Administrative and general 324 367
Depreciation & amortization - 2,186
Other expense 47 -
Write-down vacant land value - -
Gain from sale of assets - -
Total expenses 371 2,553
Operating income 99 2,715
Interest expense - 4,738
Net income (loss) before provision
for income taxes 99 (2,023)
Provision (benefit) for income
taxes 176 (880)
Net loss $ (77) $ (1,143)
Net loss per common share $ (.07) $ (1.16)
Weighted average common shares
outstanding 1,047 986
See accompanying notes.
ALLSTAR INNS INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Six Months Ended June 30,
1997 1996
[C] [C]
Revenues:
Rent income $ 1,839 $ 13,675
Interest income 950 404
Total revenues 2,789 14,079
Expenses:
Administrative and general 4,443 652
Depreciation & amortization 662 4,415
Other expense 52 -
Write-down vacant land value 540 -
Gain from sale of assets (116,408) -
Total expenses (110,711) 5,067
Operating income 113,500 9,012
Interest expense 1,508 9,541
Net income (loss) before provision
for income taxes 111,992 (529)
Provision (benefit) for income taxes 45,270 (1,329)
Net income $ 66,722 $ 800
Net income per common share $ 63.70 $ .81
Weighted average common shares
outstanding 1,047 985
See accompanying notes.
ALLSTAR INNS INC.
BALANCE SHEETS
June 30, 1997 (unaudited) and December 31, 1996 (audited)
(in thousands of dollars)
[C] [C]
JUNE 30, DECEMBER 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 13,549 $ 15,131
Receivable from Motel 6 - 3,620
Other current assets 29 29
Deferred tax assets - 30,320
Total current assets 13,578 49,100
Net property and equipment
(Note 3) - 127,436
Land held for sale 244 1,107
Other assets including leased
property under capital
lease, less accumulated
amortization of $222 (1996) - 36
$ 13,822 $ 177,679
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable and
accrued liabilities $ 2,741 $ 5,215
Deferred Basic Rent - 3,500
Accrued interest - 2,032
Federal and State taxes
payable 7,621 -
Total current
liabilities 10,362 10,747
Total long-term debt (Note 4) - 204,105
Stockholders' equity (deficit):
Preferred stock, $.01 par
value, authorized
1,000,000 shares; no
shares issued and
outstanding at June 30,
1997 and December 31,
1996 - -
Common stock, $.01 par value,
authorized 10,000,000
shares; 1,047,443 shares
and 985,710 shares issued
and outstanding at June 30,
1997 and December 31, 1996,
respectively 10 10
Additional paid-in capital - 21,360
Accumulated equity (deficit) 3,450 (58,543)
Total stockholders'
equity (deficit) 3,460 (37,173)
$ 13,822 $ 177,679
See accompanying notes.
ALLSTAR INNS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from January 1, 1997 to June 30, 1997
(in thousands)
(unaudited)
Additional Accumulated
Common Stock Paid-in Equity
Shares Amount Capital (Deficit)
[C] [C] [C] [C]
Balance,
January 1,
1997 986 $ 10 $ 21,360 $(58,543)
Net income - - - 66,722
Liquidating
Distribution
($28.00 per
common share) - - (29,343) -
Employee Stock
Options 61 - 1,740 -
Vesting of
1995's
Restricted
Stock Plan - - 913 -
Reserved
payments to
retained
earnings - - - 601
Adjustment to
Paid-in-Capital
to reflect
Liquidating
Distribution - - 5,330 (5,330)
Balance,
June 30,
1997 1,047 $ 10 $ - $ 3,450
See accompanying notes.
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Six Months Ended June 30,
1997 1996
[C] [C]
Cash flows from operating
activities:
Cash received $ 2,501 $ 15,485
Cash paid to suppliers
and employees (2,262) (2,635)
Interest paid (1,508) (10,938)
Federal and state taxes paid (7,328) -
Net cash (used in)
provided by operating
activities (8,597) 1,912
Cash flows from investing
activities:
Capital expenditures - -
Total proceeds from sale
of motels to the
Motel 6 Operator 243,028 -
Payment of long-term debt
from proceeds from
the sale of motels (204,062) -
Refund of deferred Basic Rent (3,212) -
Proceeds from land sales 431 -
Net cash provided by
investing activities 36,185 -
Cash flows from financing
activities:
Payments under credit
agreements - (1,057)
Principal payments -
mortgages (43) (634)
Liquidating distributions
paid to stockholders (29,343) -
Proceeds from exercise of
stock options 216 -
Net cash used in
financing activities (29,170) (1,691)
Net (decrease) increase in cash
and cash equivalents (1,582) 221
Cash and cash equivalents at
beginning of period 15,131 13,518
Cash and cash equivalents at
end of period $ 13,549 $ 13,739
Reconciliation of net income
to net cash (used in) provided
by operating activities:
Net income $ 66,722 $ 800
Adjustment to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization 662 4,410
Write-down vacant land
value 540 -
Refund of deferred Basic
Rent 3,212 -
Gain from sale of assets (116,408)
Tax benefit resulting
from the exercise
of employee stock
options and the
vesting of
restricted stock 2,436 -
Write-off obligation under
capital lease 84 -
Changes in assets and
liabilities:
Decrease in receivable
from Motel 6 3,620 1,397
Decrease in other
current assets - 9
Decrease (increase)
in deferred tax
assets 30,320 (1,329)
Decrease in accounts
payable and
accrued
liabilities (2,475) (2,106)
Decrease in deferred
Basic Rent (3,500) -
Decrease in accrued
interest (2,032) (1,397)
Increase in Federal
and State taxes
payable 7,621 -
Increase in
additional
paid-in
capital - 128
Increase in
accumulated
equity
(deficit) 601 -
Net cash (used in) provided by
operating activities $ (8,597) $ 1,912
See accompanying notes.
Item 1. Financial Statements (continued)
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. History and Basis of Presentation
Allstar Inns Inc. was originally organized as a privately-owned
corporation in 1982 to purchase 52 motels. The acquisition was
consummated on April 28, 1983. On February 11, 1987 a
partnership (the "Partnership") was formed and succeeded to the
business and operations of the original company on April 3,
1987. On November 25, 1993 the Partnership merged with and into
Allstar Inns Inc. (the "Company").
In July 1992, the security holders of the Company approved a plan
that placed the business and operations of the Company's motels
under the management of Motel 6 Operating L.P., a Delaware
limited partnership (the "Motel 6 Operator"). The Company
entered into a Management Contract which provided that the Motel
6 Operator would operate and manage all the Company's motels
through December 31, 2011. The Motel 6 Operator also had an
option to purchase the Company's motels between January 1, 1997
and December 31, 1998 at a price fixed by formula (zero value to
the Stockholders at December 31, 1994).
In May 1995, the security holders of the Company approved the
plan to terminate the Management Contract effective January 1,
1995 and replace it with a Master Lease Agreement under terms of
which the Motel 6 Operator would lease the Company's motels
through December 31, 2009. Under the Master Lease Agreement, the
Motel 6 Operator had an option (the "Purchase Option") to
purchase the Company's motels prior to the end of 1998 at a price
of $40.0 million plus assumption by the Motel 6 Operator of all
indebtedness secured by the Company's motels. The Purchase
Option was exercised by the Motel 6 Operator in January 1997.
Effective January 30, 1997 and pursuant to the Master Lease
Agreement, all of the Company's motels were sold to the Motel 6
Operator and its assignees for a fixed price of $40.0 million
plus the assumption of approximately $206 million of debt secured
by the motels. Since January 30, 1997, the Company has sold for
cash all five of its additional parcels of vacant land with the
last sale having been consummated on July 15, 1997. The Company
is commencing the final liquidation process of preparing and
filing a final federal tax return with the Internal Revenue
Service and final state tax returns with six of the states in
which it did business.
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.
These financial statements should be read in conjunction with the
Annual Report on Form 10-K for the fiscal year ended December 31,
1996. The results of operations for the period from January 1,
1997 to June 30, 1997 are not indicative of the results for the
full year.
2. Net Income (Loss) Per Share
Net Income (loss) per common share is calculated by dividing net
income (loss) by the weighted average number of common shares
outstanding. As of June 30, 1997 there were 1,047,443
outstanding Shares ("Shares") of common stock.
3. Property and Equipment
Property and equipment is stated at cost and consists of the
following at June 30, 1997 and December 31, 1996 (in thousands of
dollars):
[C] [C]
June 30, December 31,
1997 1996
Land $ - $ 30,843
Buildings and improvements - 166,199
Furniture and equipment - 42,477
Leasehold interests - 2,498
- 242,017
Less accumulated depreciation
and amortization - 114,581
Net property and equipment $ - $127,436
All of the Company's motel assets were sold to the Motel 6
Operator and its assignees on January 30, 1997.
In March 1995, the FASB issued Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. The statement, which is effective for fiscal
years beginning after December 15, 1995, requires that an entity
evaluate long-lived assets and certain other identifiable
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the asset may
not be recoverable. An impairment loss meeting the recognition
criteria is to be measured as the amount by which the carrying
amount for financial reporting purposes exceeds the fair value of
the asset. The Company adopted this statement in 1996 and the
adoption of the statement has had no effect on the Company's
financial position or results of operations.
4. Long-Term Debt
(in thousands)
[C] [C]
June 30, December 31,
1997 1996
Wells Fargo Bank mortgage
loans maturing 1998 $ - $102,105
Coast Federal Bank mortgage
loans maturing 1998 - 44,643
Great Western Bank and
WHC-One Investors, L.P.
mortgage loans maturing
2005 and 2006 - 20,317
Motel 6 Lender secured
subordinated loans maturing
1998 - 37,040
Total long-term debt $ - $204,105
As a result of the sale of the Company's motel assets, all of the
Company's lenders were paid-in-full by the Motel 6 Operator and
its assignees as required by the Purchase Option.
5. Liquidating Cash Distributions
At the Annual Meeting on May 8, 1997, stockholders approved a
Plan of Complete Liquidation and Dissolution of the Company (the
"Plan"). Immediately thereafter, the Board of Directors of the
Company met and approved an initial liquidating cash distribution
of $28.00 per common share which was paid on May 22, 1997 to
stockholders of record on May 8, 1997.
6. Litigation
From time to time, the Company is a party to lawsuits arising in
the ordinary course of its business. Substantially all of the
claims made in these lawsuits (other than any claims for punitive
damages made in certain actions) are covered by the Company's
insurance policies. Management believes that such lawsuits
arising in the ordinary course of business will not have a
material adverse effect on the financial statements of the
Company.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
General
At a closing held January 30, 1997 in Santa Barbara, California,
the Motel 6 Operator and its assignees purchased the Company's 71
motels at a fixed price of $40.0 million plus assumption of the
debt secured by the motels of approximately $206 million. The
sale of the motel properties constitutes a sale of substantially
all of the assets of the Company. Since January 30, 1997, the
Company has sold for cash all five of its additional parcels of
vacant land with the last sale having been consummated on July
15, 1997.
The Company is subject to substantial Federal and State taxes on
the gain realized by the sale of its motel assets and any gain
realized on the disposition of the additional parcels of vacant
land.
On March 14, 1997, the Board of Directors of the Company approved
and recommended, subject to stockholder approval, a Plan of
Complete Liquidation and Dissolution. At the Company's Annual
Meeting of stockholders on May 8, 1997, the stockholders approved
the Plan. (For a more detailed description of the Plan, refer to
the Company's 1997 Proxy Statement which was mailed to the
Company's stockholders in April 1997.) At a meeting of the Board
of Directors held immediately after the Annual Meeting of
stockholders, the Board of Directors resolved that the Company
would promptly make an initial cash distribution to stockholders
of $29.3 million, or $28.00 per share. The distribution was paid
on May 22, 1997 to stockholders of record on May 8, 1997.
As approved by the stockholders, the Plan provides for the
Company to be liquidated (i) by the sale of its remaining assets,
(ii) after paying or providing for all its claims, obligations
and expenses, by distributing cash to its stockholders pro rata
and, (iii) if required by the Plan or deemed necessary by the
Board of Directors, by distributions of its assets from time to
time to one or more liquidating trusts established for the
benefit of the then stockholders, or by a final distribution of
its then remaining assets to a liquidating trust established for
the benefit of the then stockholders. Should the Board of
Directors determine that one or more liquidating trusts are
required by the Plan or are otherwise necessary, appropriate or
desirable, approval of the Plan will constitute stockholder
approval of the appointment by the Board of Directors of one or
more trustees to any such liquidating trusts and the execution of
liquidating trust agreements with the trustees on such terms and
conditions as the Board of Directors, in its absolute discretion,
shall determine.
Quarter and Six Months Ended June 30, 1997 versus
Quarter and Six Months Ended June 30, 1996
Total revenues for the second quarter and the six months ended
June 30, 1997 were $.5 million and $2.8 million, respectively.
The variance from 1996 for the comparable periods occurs as a
result of the Company's sale of all of its motel assets on
January 30, 1997.
Administrative and general expenses for the second quarter of
1997 were $.3 million compared to $.4 million for the same period
last year and for the six months ended June 30, 1997 they were
$4.4 million compared to $.7 million for the same period last
year. As a result of the exercise of the Purchase Option, the
Company was required under FASB Statement 123 - Accounting for
Stock-Based Compensation, to expense the fair market value of
employee stock options of $2.4 million; and recognize as an
expense employee severance pay of $1.3 million payable through
December 31, 1998.
Depreciation and amortization for the second quarter and six
months ended June 30, 1997 were $-0- and $.7 million,
respectively. The variance from 1996 for the comparable periods
occurs as a result of the Company's sale of all of its motel
assets on January 30, 1997.
Write-down of vacant land for the six months ended June 30, 1997
was $.5 million versus $-0- for the same period last year. This
resulted from the reduction of the carrying value of land based
on a sales program to recognize the liquidation and dissolution
of the Company.
Gain from sale of assets of $116.4 million for the six months
ended June 30, 1997 reflects the gain from the sale of the
Company's motels.
Interest expense for the quarter and six months ended June 30,
1997 were $-0- and $1.5 million compared to $4.7 million and $9.5
million for the same periods last year. The variance from 1996
for the comparable periods occurs as a result of the Company's
sale of all of its motel assets on January 30, 1997.
The provision for income taxes of $45.3 million for the six month
period ended June 30, 1997 is almost entirely the Federal and
State tax liability on the gain from the sale of assets to the
Motel 6 Operator.
Liquidity and Capital Resources
At June 30, 1997, the Company had $13.5 million of cash and cash
equivalents, a decrease of approximately $1.6 million from
December 31, 1996. As of June 30, 1997, the Company had no
borrowing capacity.
EBITDA was $114.2 million for the six months ended June 30, 1997
compared to $13.4 million for the same period last year. EBITDA,
as used above, is defined as earnings before interest expense,
income taxes, depreciation and amortization. The increase was
the result of the $116.4 million gain from sale of assets
resulting from the Motel 6 Operator exercising the Purchase
Option.
Net cash used by operating activities for the first six months of
1997 was $(8.6) million compared to $1.9 provided by operating
activities for the same period in 1996. This year's results
reflects no Basic Rent receipts from the Motel 6 Operator,
whereas last year's results included $3.5 million, and in
addition this year's results also include Federal and State tax
payments of $7.3 million.
Net cash provided in investing activities was $36.2 million for
the first six months of 1997 and $-0- for the same period last
year. This year's favorable variance was due to the receipt of
$35.8 million of proceeds from the sale of the Company's motels
to the Motel 6 Operator.
Net cash used in financing activities was $(29.2) million for the
first six months of 1997 versus $(1.7) million used by financing
activities for the same period last year. This year's results
include a $28.00 per share initial liquidating cash distribution
to stockholders which totalled $29.3 million.
The Company is subject to substantial Federal and State taxes on
the gain realized by the sale of its motel assets and any gain
realized on the disposition of the additional parcels of vacant
land.
As approved by the Board of Directors and the stockholders of the
Company, the Plan of Complete Liquidation and Dissolution of the
Company provides for the Company to distribute pro rata to the
Company's stockholders all its remaining cash, including the
proceeds of any sale or disposition, except such cash or assets
as are required for paying or making provisions for the claims
and obligations of the Company. The Board of Directors resolved
that the Company would make an initial cash distribution to
stockholders of $29.3 million, or $28.00 per share, which was
paid on May 22, 1997 to stockholders of record on May 8, 1997.
A more detailed description of the Plan is provided in the
Company's 1997 Proxy Statement which was mailed to the Company's
stockholders in April 1997.
PART II. OTHER INFORMATION
Item 5. Other Events
On July 8, 1997 the Company filed a Form 8-K with the Securities
and Exchange Commission attaching a Press Release, dated June 7,
1997, announcing the appointment of two additional Directors and
the resignation of one Director.
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.
August 4, 1997
ALLSTAR INNS INC.
BY: /S/ Edward J. Gallagher
Edward J. Gallagher
Vice Chairman - Principal
Accounting Officer
BY: /S/ Edward A. Paul
Edward A. Paul
Vice President - Principal
Financial Officer