================================================================================
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 September 30, 1997
OR
|_| TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22930
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 ___
-----------
As of September 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 September 30,
--------------------------------
1997 1996
------- -------
Revenues:
Rent income $ -- $ 5,236
Interest income 180 176
------- -------
Total revenues 180 5,412
Expenses:
Administrative and general 443 290
Depreciation & amortization -- 2,138
Other expense -- --
Write-down (gain) vacant land value (53) --
Gain from sale of assets -- --
------- -------
Total expenses 390 2,428
------- -------
Operating (loss) income (210) 2,984
Interest expense -- 4,756
------- -------
Net (loss) before provision for
income taxes (210) (1,772)
Provision (benefit) for income taxes 114 (664)
------- -------
Net loss $ (324) $(1,108)
======= =======
Net loss per common share $ (.31) $ (1.12)
======= =======
Weighted average common shares
outstanding 1,047 986
======= =======
See accompanying notes.
2
ALLSTAR INNS INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
--------- ---------
Revenues:
Rent income $ 1,839 $ 18,911
Interest income 1,130 580
--------- ---------
Total revenues 2,969 19,491
Expenses:
Administrative and general 4,886 942
Depreciation & amortization 662 6,553
Other expense 52 --
Write-down vacant land value 487 --
Gain from sale of assets (116,408) --
--------- ---------
Total expenses (110,321) 7,495
--------- ---------
Operating income 113,290 11,996
Interest expense 1,508 14,297
--------- ---------
Net income (loss) before provision
for income taxes 111,782 (2,301)
Provision (benefit) for income taxes 45,384 (1,993)
--------- ---------
Net income (loss) $ 66,398 $ (308)
========= =========
Net income (loss) per common share $ 63.39 $ (.31)
========= =========
Weighted average common shares
outstanding 1,047 986
========= =========
See accompanying notes.
3
ALLSTAR INNS INC.
BALANCE SHEETS
September 30, 1997 (unaudited) and December 31, 1996 (audited)
(in thousands of dollars)
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- ---------
A S S E T S
Current assets:
Cash and cash equivalents $ 9,782 $ 15,131
Receivable from Motel 6 -- 3,620
Other current assets 30 29
Deferred tax assets -- 30,320
--------- ---------
Total current assets 9,812 49,100
Net property and equipment (Note 3) -- 127,436
Land held for sale -- 1,107
Other assets including leased property
under capital lease, less accumulated
amortization of $222 (1996) -- 36
--------- ---------
$ 9,812 $ 177,679
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 2,594 $ 5,215
Deferred Basic Rent -- 3,500
Accrued interest -- 2,032
Federal and State taxes payable 3,978 --
--------- ---------
Total current liabilities 6,572 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 September 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
September 30, 1997 and December 31, 1996,
respectively 10 10
Additional paid-in capital -- 21,360
Accumulated equity (deficit) 3,230 (58,543)
--------- ---------
Total stockholders' equity (deficit) 3,240 (37,173)
--------- ---------
$ 9,812 $ 177,679
========= =========
See accompanying notes.
4
ALLSTAR INNS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from January 1, 1997 to September 30, 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 -- -- -- 66,398
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 -- -- -- 705
Adjustment to Paid-in-
Capital to reflect
Liquidating Distribution -- -- 5,330 (5,330)
-------- -------- ----------- -----------
Balance, September 30, 1997 1,047 $ 10 $ -- $ 3,230
======== ======== =========== ===========
See accompanying notes.
5
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Cash received $ 2,681 $ 20,571
Cash paid to suppliers and employees (2,748) (2,917)
Interest paid (1,508) (15,383)
Federal and state taxes paid (11,086) --
--------- ---------
Net cash (used in) provided by
operating activities (12,661) 2,271
Cash flows from investing activities:
Capital expenditures -- (24)
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 728 --
--------- ---------
Net cash provided by (used in)
investing activities 36,482 (24)
Cash flows from financing activities:
Payments under credit agreements -- (1,057)
Principal payments - mortgages (43) (1,035)
Liquidating distributions paid to
stockholders (29,343) --
Proceeds from exercise of stock options 216 --
--------- ---------
Net cash used in financing
activities (29,170) (2,092)
--------- ---------
Net (decrease) increase in cash and
cash equivalents (5,349) 155
--------- ---------
Cash and cash equivalents at beginning
of period 15,131 13,518
--------- ---------
Cash and cash equivalents at end
of period $ 9,782 $ 13,673
========= =========
(Continued on next page)
6
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
(continued)
Nine Months Ended September 30,
1997 1996
--------- ---------
Reconciliation of net income (loss) to net
cash (used in) provided by operating
activities:
Net income (loss) $ 66,398 $ (308)
Adjustment to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 662 6,547
Write-down vacant land value 487 --
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 1,085
Increase in other current assets (1) (5)
Decrease (increase) in deferred
tax assets 30,320 (1,994)
Decrease in accounts payable and
accrued liabilities (2,622) (2,151)
Decrease in deferred Basic Rent (3,500) --
Decrease in accrued interest (2,032) (1,085)
Increase in Federal and State
taxes payable 3,978 --
Increase in additional paid-in
capital -- 182
Increase in accumulated equity
(deficit) 705 --
--------- ---------
Net cash (used in) provided by
operating activities $ (12,661) $ 2,271
========= =========
See accompanying notes.
7
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. The Company is currently engaged in the final liquidation process of
preparing 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 Company expects to file these returns in the fourth quarter of 1997.
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
8
on Form 10-K for the fiscal year ended December 31, 1996. The results of
operations for the period from January 1, 1997 to September 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
September 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
September 30, 1997 and December 31, 1996 (in thousands of dollars):
September 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.
9
4. Long-Term Debt
(in thousands)
September 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
10
Company has sold for cash all five of its additional parcels of vacant land.
The Company is subject to substantial Federal and State taxes on the gain
realized by the sale of its assets.
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 Nine Months Ended September 30, 1997 versus
Quarter and Nine Months Ended September 30, 1996
Total revenues for the third quarter and the nine months ended September
30, 1997 were $.2 million and $3.0 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 third quarter of 1997 were $.4
million compared to $.3 million for the same period last year and for the nine
months ended September 30, 1997 they were $4.9 million compared to $.9 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 third quarter and nine months ended
September 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 nine months ended September 30, 1997 was
11
$.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 nine months ended
September 30, 1997 reflects the gain from the sale of the Company's motels.
Interest expense for the quarter and nine months ended September 30, 1997
were $-0- and $1.5 million compared to $4.8 million and $14.3 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 $45.4 million for the nine month period
ended September 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 September 30, 1997, the Company had $9.8 million of cash and cash
equivalents, a decrease of approximately $5.3 million from December 31, 1996. As
of September 30, 1997, the Company had no borrowing capacity.
EBITDA was $114.0 million for the nine months ended September 30, 1997
compared to $18.5 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 nine months of 1997 was
$(12.7) million compared to $2.3 million 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 $11.1 million.
Net cash provided in investing activities was $36.5 million for the first
nine months of 1997 versus $24,000 used in investing activities 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
nine months of 1997 versus $(2.1) 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.
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 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
12
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
None.
13
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.
November 10, 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
14