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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22930
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ALLSTAR INNS INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0323962
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 E. Carrillo Street, #300
Santa Barbara, California 93101
(Address of Principal Executive Offices) (Zip Code)
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 ___
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As of March 31, 1997, there were 1,047,443 shares of the Registrant's
common stock outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLSTAR INNS INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
--------- ---------
Revenues:
Rent income $ 1,839 $ 8,604
Interest income 480 207
--------- ---------
Total revenues 2,319 8,811
Expenses:
Administrative and general 4,119 285
Depreciation & amortization 662 2,229
Other expense 5 --
Write-down vacant land value 540 --
Gain from sale of assets (116,408) --
--------- ---------
Total expenses (111,082) 2,514
--------- ---------
Operating income 113,401 6,297
Interest expense 1,508 4,803
--------- ---------
Net income before provision for
income taxes 111,893 1,494
Provision (benefit) for income taxes 45,094 (449)
--------- ---------
Net income $ 66,799 $ 1,943
========= =========
Net income per common share $ 63.77 $ 1.97
========= =========
Weighted average common shares
outstanding 1,047 985
========= =========
See accompanying notes.
2
ALLSTAR INNS INC.
BALANCE SHEETS
March 31, 1997 (unaudited) and December 31, 1996 (audited)
(in thousands of dollars)
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ---------------------------------------------- --------- -----------
Current assets:
Cash and cash equivalents $ 49,636 $ 15,131
Receivable from Motel 6 -- 3,620
Other current assets 476 29
Deferred tax assets -- 30,320
--------- ---------
Total current assets 50,112 49,100
Net property and equipment (Note 3) -- 127,436
Land held for sale 411 1,107
Other assets including leased property
under capital lease, less accumulated
amortization of $222 (1996) -- 36
--------- ---------
$ 50,523 $ 177,679
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 3,163 $ 5,215
Deferred Basic Rent -- 3,500
Accrued interest -- 2,032
Federal and State taxes payable 14,774 --
--------- ---------
Total current liabilities 17,937 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 March 31, 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
March 31, 1997 and December 31, 1996,
respectively 10 10
Additional paid-in capital 24,161 21,360
Accumulated equity (deficit) 8,415 (58,543)
--------- ---------
Total stockholders' equity (deficit) 32,586 (37,173)
--------- ---------
$ 50,523 $ 177,679
========= =========
See accompanying notes.
3
ALLSTAR INNS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from January 1, 1997 to March 31, 1997
(in thousands)
(unaudited)
Common Stock Additional Accumulated
---------------- Paid-in Equity
Shares Amount Capital (Deficit)
------ ------ ------- ---------
Balance, January 1, 1997 986 $ 10 $21,360 $(58,543)
Net income -- -- -- 66,799
Employee Stock Options 61 -- 1,838 --
Vesting of 1995's
Restricted Stock Plan -- -- 963 --
Reserved payments to
retained earnings -- -- -- 159
----- ---- ------- --------
Balance, March 31, 1997 1,047 10 $24,161 $ 8,415
===== ==== ======= ========
See accompanying notes.
4
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Cash received $ 1,960 $ 10,523
Cash paid to suppliers and employees (1,995) (509)
Interest paid (1,508) (6,507)
--------- ---------
Net cash (used in) provided by
operating activities (1,543) 3,507
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 121 --
--------- ---------
Net cash provided by
investing activities 35,875 --
Cash flows from financing activities:
Payments under credit agreements -- (1,057)
Principal payments - mortgages (43) (302)
Proceeds from exercise of
stock options 216 --
Net cash provided by (used in)
financing activities 173 (1,359)
--------- ---------
Net increase in cash and
cash equivalents 34,505 2,148
--------- ---------
Cash and cash equivalents at
beginning of period 15,131 13,518
--------- ---------
Cash and cash equivalents at
end of period $ 49,636 $ 15,666
========= =========
(Continued on next page)
5
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
(continued)
Three Months Ended March 31,
----------------------------
1997 1996
--------- ---------
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 66,799 $ 1,943
Adjustment to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 662 2,228
Write-down vacant land value 540 --
Refund of deferred Basic Rent 3,212 --
Gain from sale of assets (116,408) --
Proceeds from land sales in escrow 142 --
Tax benefit resulting from the
exercise of employee stock
options and the vesting of
restricted stock 2,585 --
Write-off obligation under
capital lease 83 --
Changes in assets and liabilities:
Decrease in receivable from
Motel 6 3,620 1,704
(Increase) decrease in other
current assets (447) 7
Decrease (increase) in deferred
tax assets 30,320 (449)
Decrease in accounts payable and
accrued liabilities (2,052) (297)
Decrease in deferred Basic Rent (3,500) --
Decrease in accrued interest (2,032) (1,704)
Increase in Federal and State
taxes payable 14,774 --
Increase in additional paid-in
capital -- 75
Increase in accumulated equity
(deficit) 159 --
--------- ---------
Net cash (used in) provided by
operating activities $ (1,543) $ 3,507
========= =========
See accompanying notes.
6
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.
Pursuant to the Master Lease Agreement as approved by the stockholders at
the Company's 1995 Annual Meeting, effective as of January 30, 1997, 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 three additional parcels of vacant land and, as of April
29, 1997 holds only two parcels of vacant land which the Company also
intends to sell for cash.
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 March 31, 1997
are not indicative of the results for the full year.
7
2. Net Income Per Share
Net Income per common share is calculated by dividing net income by the
weighted average number of common shares outstanding. As of March 31, 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
March 31, 1997 and December 31, 1996 (in thousands of dollars):
March 31, 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.
8
4. Long-Term Debt
(in thousands)
March 31, 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. Dividends
The Company did not declare or pay dividends to its stockholders during the
period January 1, 1997 through March 31, 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 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. The Company, since the closing and through
April 29, 1997, has sold three parcels of vacant land for $.3 million and is in
the process of disposing of two additional parcels of vacant land constituting
the balance of the Company's real estate holdings.
9
The Company is and will be 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 (the "Plan"). 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, and set May
8, 1997 as the record date for determining the stockholders entitled to receive
their pro rata portion of such distribution.
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.
Total revenues for the first three months of 1997 were $2.3 million
consisting of $1.8 million for one month of Basic and Debt Service Rent income
and $.5 interest income earned from short term investments. Previous year
revenues of $8.8 million is comprised of a full year of Basic Rent and three
months of debt service rent.
Administrative and general expenses were $4.1 million for the first three
months of 1997 compared to $.3 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 $2.7 million; and recognize as an
expense employee severance pay of $1.3 million payable through December 31,
1998.
Depreciation and amortization for the first three months of 1997 versus the
same period last year was $.6 million and $2.2 million, respectively. The
difference is due to there being only one month of depreciation and amortization
expense for 1997 compared to three months of expenses for 1996.
Write-down of vacant land for the first three months of 1997 was $.5
million versus nothing 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.
10
Gain from sale of assets of $116.4 million for the first quarter of 1997
reflects the gain from the sale of the Company's motels to the Motel 6 Operator
as a result of exercising the Purchase Option.
Interest expense for the first three months of 1997 compared to the same
period last year was $1.5 million and $4.8 million, respectively. This year's
decrease was due to there being only one months interest charges included in
1997's total, whereas there were three months of charges in 1996's total.
The provision for income taxes of $45.1 million for the first three months
of 1997 is the Federal and State tax liability on the gain from sale of assets
to the Motel 6 Operator.
Liquidity and Capital Resources
At March 31, 1997, the Company had $49.6 million of cash and cash
equivalents, an increase of approximately $34.5 million from December 31, 1996.
As of March 31, 1997, the Company had no borrowing capacity.
EBITDA was $114.1 million for the three months ended March 31, 1997
compared to $8.5 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 three months of 1997
was $(1.5) million compared to $3.5 provided by operating activities for the
same period in 1996. This year's results included no Basic Rent receipts from
the Motel 6 Operator, whereas last year's results included $3.5 million of Basic
Rent receipts.
Net cash provided in investing activities was $35.9 million for the first
three 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 provided by financing activities was $.2 million for the first
three months of 1997 versus $(1.4) million used by financing activities for the
same period last year. This year's favorable results were due to not having to
make payments under credit agreements because, as a result of the exercise of
the purchase option, all of the Company's long-term debt was paid-off in full.
Last year's results contained $1.1 million of these payments.
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 (the "Plan")
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, and set May 8, 1997 as the record date for
determining the
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stockholders entitled to receive their pro rata portion of such distribution. 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits filed as part of this Form 10-Q:
(2.1) Plan of Complete Liquidation and Dissolution of Allstar Inns
Inc. (incorporated herein by reference to Exhibit A of the
Company's 1997 Proxy Statement filed with the Securities and
Exchange Commission on March 19, 1997).
(b) The Company filed a Form 8-K with the Securities and Exchange
Commission dated February 11, 1997. This report related to the sale
by the Company on January 30, 1997 of its motels pursuant to the
exercise of a purchase option by the operator of such motels.
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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.
May 9, 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
13
EXHIBIT INDEX
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Exhibit
Number Description Page
- ------ ----------- ----
2.1 Plan of Complete Liquidation and Dissolution
of Allstar Inns Inc. (incorporated herein by
reference to Exhibit A of the Company's 1997
Proxy Statement filed with the Securities and
Exchange Commission on March 19, 1997).