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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1994.
OR
/ / TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
COMMISSION FILE NUMBER: 1-7790
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LA QUINTA INNS, INC.
(Exact name of registrant as specified in its charter)
TEXAS #74-1724417
(State of Incorporation) (I.R.S. Employer Identification No.)
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (210) 302-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
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Number of shares of Common Stock,
$.10 par value outstanding at June 30, 1994:
30,500,770
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LA QUINTA INNS, INC.
COMBINED CONDENSED BALANCE SHEETS
(in thousands, except share data)
June 30, 1994 December 31, 1993
------------- -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . $ 1,474 $ 23,848
Receivables:
Trade . . . . . . . . . . . . . . 11,182 6,744
Other . . . . . . . . . . . . . . 4,002 3,191
Supplies. . . . . . . . . . . . . . 6,918 5,921
Prepaid expenses. . . . . . . . . . 952 581
-------- --------
Total current assets . . . . . 24,528 40,285
-------- --------
Notes receivable, excluding current
installments (net of allowance of
$3,385 and $3,167). . . . . . . . . . 7,155 7,683
-------- --------
Investments, including joint ventures
accounted for on the equity method
(note 4). . . . . . . . . . . . . . . 3,567 6,583
-------- --------
Properties held for sale, at estimated
net realizable value. . . . . . . . . 4,485 3,401
-------- --------
Land held for future development, at
cost. . . . . . . . . . . . . . . . . 1,275 1,452
-------- --------
Property and equipment, at cost,
substantially all pledged:
Buildings . . . . . . . . . . . . . 715,560 660,278
Furniture, fixtures and equipment . 119,298 114,113
Land and leasehold improvements . . 137,298 129,862
-------- --------
Total property and equipment . 972,156 904,253
Less accumulated depreciation and
amortization . . . . . . . . . . . 238,876 230,917
-------- --------
Net property and equipment . . 733,280 673,336
-------- --------
Deferred charges and other assets, at
cost less applicable amortization . . 11,747 11,501
-------- --------
Total assets $786,037 $744,241
-------- --------
-------- --------
See accompanying notes to combined condensed financial statements.
2
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
COMBINED CONDENSED BALANCE SHEETS
(in thousands, except share data)
June 30, 1994 December 31, 1993
------------- -----------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt (note 3). . . . . . . . . . . . $ 32,620 $ 22,491
Accounts payable:
Trade . . . . . . . . . . . . . . . 16,645 14,282
Other . . . . . . . . . . . . . . . 4,533 9,584
Income taxes. . . . . . . . . . . . 6,047 1,830
Accrued expenses:
Payroll and employee benefits . . . 18,611 17,620
Interest. . . . . . . . . . . . . . 3,268 3,379
Property taxes. . . . . . . . . . . 7,836 7,994
Other . . . . . . . . . . . . . . . 1,461 1,870
-------- --------
Total current liabilities . . . 91,021 79,050
-------- --------
Long-term debt, excluding current
installments (note 3). . . . . . . . . 427,366 414,004
-------- --------
Deferred income taxes, pension and
other. . . . . . . . . . . . . . . . . 15,932 16,154
-------- --------
Partners' capital . . . . . . . . . . . 86,861 85,976
-------- --------
Shareholders' equity:
Common stock ($.10 par value;
100,000,000 shares authorized,
32,111,364 shares issued). . . . . 3,211 3,211
Additional paid-in capital . . . . . 61,999 60,573
Retained earnings. . . . . . . . . . 115,348 100,059
Minimum pension liability
adjustment. . . . . . . . . . . . . (1,458) (1,458)
-------- --------
179,100 162,385
Less treasury stock, at cost (1,610,594
and 1,732,867 shares, respectively). . 14,243 13,328
-------- --------
Total shareholders' equity . . . 164,857 149,057
-------- --------
Total liabilities and
shareholders' equity. . . . . . $786,037 $744,241
-------- --------
-------- --------
See accompanying notes to combined condensed financial statements.
3
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
Revenues:
Inn . . . . . . . . . . . . . . . $89,965 $67,194 $166,003 $124,491
Restaurant rental and other . . . 1,956 1,534 3,796 3,195
Management services . . . . . . . 621 1,905 1,007 3,554
------- ------- -------- -------
Total revenues . . . . . . . 92,542 70,633 170,806 131,240
------- ------- ------- -------
Operating costs and expenses:
Direct. . . . . . . . . . . . . . 48,607 36,834 93,405 70,263
Corporate . . . . . . . . . . . . 4,475 4,473 9,303 9,682
Performance stock options . . . . -- 4,407 -- 4,407
Depreciation, amortization and
fixed asset retirements. . . . . 9,108 5,473 17,469 10,951
------- ------- ------- -------
Total operating costs and
expenses . . . . . . . . . 62,190 51,187 120,177 95,303
------- ------- ------- -------
Operating income . . . . . . 30,352 19,446 50,629 35,937
------- ------- ------- -------
Other (income) deductions:
Interest income . . . . . . . . . (632) (1,386) (1,069) (2,598)
Interest on long-term debt. . . . 9,447 7,412 18,599 14,934
Partners' equity in earnings
and losses . . . . . . . . . . . 3,045 4,408 5,516 8,202
Net loss on property
transactions . . . . . . . . . . -- 4,670 6 4,373
------- ------- ------- -------
Earnings before income
taxes, extraordinary items
and cumulative effect of
accounting change . . . . . 18,492 4,342 27,577 11,026
Income taxes . . . . . . . . . . . . 7,212 1,650 10,755 4,190
------- ------- ------- -------
Earnings before
extraordinary items and
cumulative effect of
accounting change. . . . . 11,280 2,692 16,822 6,836
Extraordinary items, net of income
taxes . . . . . . . . . . . . . . . -- 942 -- 942
------- ------- ------- -------
Earnings before cumulative
effect of accounting
change . . . . . . . . . . 11,280 3,634 16,822 7,778
Cumulative effect of accounting
change. . . . . . . . . . . . . . . -- -- -- 1,500
------- ------- ------- -------
Net earnings. . . . . . . . $11,280 $ 3,634 $16,822 $ 9,278
------- ------- ------- -------
------- ------- ------- -------
Earnings per common and common
equivalent share:
Earnings before
extraordinary items and
cumulative effect of
accounting change. . . . . $ .35 $ .09 $ .52 $ .22
Extraordinary items, net
of income taxes. . . . . . -- .03 -- .03
Cumulative effect of
accounting change. . . . . -- -- -- .05
------- ------- ------- -------
Net earnings. . . . . . . . $ .35 $ .12 $ .52 $ .30
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common
and common equivalent shares
outstanding . . . . . . . . . . . . 32,402 31,443 32,277 31,265
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes to combined condensed financial statements.
4
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
June 30
-------------------
1994 1993
---- ----
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . $ 16,822 $ 9,278
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization of
property and equipment and fixed
asset retirement . . . . . . . . . . 17,469 10,951
Partners' equity in earnings and
losses . . . . . . . . . . . . . . . 5,516 8,202
Loss on property transactions . . . . 6 4,373
Undistributed earnings of
affiliates . . . . . . . . . . . . . -- 191
Non-recurring, non-cash items . . . . -- (584)
Cumulative effect of change in
accounting for income taxes . . . . -- (1,500)
Changes in operating assets and
liabilities:
Receivables . . . . . . . . . . . (4,957) (2,121)
Income taxes. . . . . . . . . . . 4,217 4,406
Supplies and prepaid expenses . . (1,368) (455)
Accounts payable and accrued
expenses . . . . . . . . . . . . 1,425 2,091
Deferred charges and other
assets . . . . . . . . . . . . . 727 947
Deferred credits and other. . . . (225) (968)
-------- --------
Net cash provided by operating
activities. . . . . . . . . . 39,632 34,811
-------- --------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . (61,632) (10,029)
Proceeds from property transactions . 391 705
Purchase and conversion of inns . . . (15,183) (12,293)
Purchase of partners' equity
interests. . . . . . . . . . . . . . (9,622) (23,040)
Decrease (increase) in notes
receivable and other investments . . 3,274 (5,647)
-------- --------
Net cash used by investing
activities. . . . . . . . . . (82,772) (50,304)
-------- --------
Cash flows from financing activities:
Proceeds from secured line of
credit and long-term borrowings. . . 266,352 149,755
Principal payments on secured
line of credit and long-term
borrowings . . . . . . . . . . . . . (245,025) (107,228)
Distributions to partners . . . . . . (429) (1,281)
Dividends to shareholders . . . . . . (1,533) --
Purchases of treasury stock . . . . . (1,736) --
Net proceeds from stock
transactions . . . . . . . . . . . . 3,137 1,115
-------- --------
Net cash provided by financing
activities. . . . . . . . . . 20,766 42,361
-------- --------
(Decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . (22,374) 26,868
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . 23,848 12,861
-------- --------
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . $ 1,474 $ 39,729
-------- --------
-------- --------
Supplemental disclosure of cash flow
information
Interest paid. . . . . . . . . . . . . . . $ 16,805 $ 13,263
-------- --------
-------- --------
Income tax paid. . . . . . . . . . . . . . $ 1,120 $ 1,238
-------- --------
-------- --------
Income tax refunds . . . . . . . . . . . . $ (12) $ (58)
-------- --------
-------- --------
Supplemental Schedule of Non-cash
Investing and Financing Activities:
Liabilities assumed in connection
with acquisition of unincorporated
partnerships and joint ventures. . . $ -- $ 29,878
-------- --------
-------- --------
Conveyance of title of property to
mortgagor. . . . . . . . . . . . . . $ -- $ 10,117
-------- --------
-------- --------
See accompanying notes to combined condensed financial statements.
5
ITEM 1 - FINANCIAL STATEMENTS (continued)
LA QUINTA INNS, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The accompanying unaudited combined 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. It is suggested that the combined condensed financial statements be
read in conjunction with the combined financial statements and notes
thereto included in the December 31, 1993 Annual Report on Form 10-K.
(2) Earnings per Common and Common Equivalent Share
The Board of Directors authorized three-for-two stock splits effective
in October 1993 and March 1994. Earnings per share, the weighted average
number of shares outstanding, shareholders' equity and the following
information have been adjusted to give effect to each of these
distributions. The weighted average number of common and common equivalent
shares used in the computation of earnings per share are as follows:
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
Weighted average common
shares issued . . . . . . . 32,111,364 32,111,364 32,111,364 32,111,364
Effect of treasury stock . . (1,585,083) (1,843,466) (1,452,107) (1,860,816)
Dilutive effect of stock
options . . . . . . . . . . 1,875,831 1,175,199 1,617,405 1,014,432
---------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares. . . . 32,402,112 31,443,097 32,276,662 31,264,980
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
During June 1994, the Company repurchased 101,000 shares of its common stock
for approximately $2,600,000 under a plan approved by the Board of Directors to
repurchase up to $10,000,000 of its common stock. Additional purchases will be
made from time to time in the open market as deemed appropriate by the Company.
(3) Long-term Debt
On July 1, 1994, the Company completed negotiations to amend its
existing $40,000,000 Secured Line of Credit to $45,000,000 and its
$145,000,000 Secured Term Credit Facility to $184,000,000. At June 30,
1994, the Company had a total of $58,225,000 available on its amended
Secured Term and Line of Credit facilities. Borrowings under the
$45,000,000 Secured Line of Credit, which will mature on May 30, 1997, will
bear interest at the prime rate, LIBOR plus 1 1/2%, or certificate of
deposit rate, plus 1 5/8%. Borrowings under the $184,000,000 Secured Term
Credit Facility, which may be made through October 31, 1994, have a final
maturity of May 31, 2000 and bear interest at the prime rate, LIBOR rate
plus 1 3/4%, or certificate of deposit rate plus 1 7/8%. Amounts borrowed
under the Secured Term Credit Facility require semi-annual principal
payments commencing November 30, 1994 through May 31, 2000. The Company
pays a commitment fee of .5% per annum on the daily average unused portion
of the Secured Line of Credit and Term Credit Facility.
On June 1, 1994, a credit agreement for a $35,000,000 Unsecured Line
of Credit among La Quinta Development Partners, L.P. (the "Development
Partnership") and participating banks was completed. Borrowings under the
$35,000,000 Unsecured Line of Credit, which matures January 31, 1997, bear
interest at the prime rate, LIBOR rate plus 1%, or certificate of deposit
rate plus 1 1/8%. At June 30, 1994, $33,950,000 was available on the
Unsecured Line of Credit. The commitment fee is .25% per annum on the
daily average unused portion of the Unsecured Line of Credit. The Company
is the general partner and owns a 40% ownership interest in the Development
Partnership.
(4) Acquisition of Partners' Interests
As of December 1, 1993, the Company owned 82% of the Units of La
Quinta Motor Inns Limited Partnership ("LQP") acquired through a tender
offer (which expired November 30, 1993) and other Units acquired by the
Company prior to the tender offer. The acquisition has been accounted for
as a purchase and the results of LQP's operations have been included in the
Company's combined results of operations since December 1, 1993. The
remaining 18% of the Units were acquired on January 24, 1994 for
approximately $9.3 million. The Company obtained funds to acquire the
Units by borrowing $45.9 million under its existing credit facilities.
6
On July 1, 1994, the Company purchased nine La Quinta inns previously
held by La Quinta - Cigna I and La Quinta - Cigna II, unincorporated joint
ventures in which the Company held a 1% interest and also managed. This
transaction was financed through the Company's amended Secured Line of
Credit and Secured Term Credit Facility. (See note 3.)
(5) Franchise Agreements
During the quarter ended June 30, 1994, the Company opened its first
franchised inn in Mexico. Initial franchise fees related to development are
recorded as revenue when the related property opens as a franchised inn.
Monthly franchise fees are based on gross room sales and are accrued as
earned.
(6) Contingencies
In September 1993, a former officer of the Company filed suit against
the Company and certain of its directors and their affiliate companies.
The suit alleges breach of an employment agreement, misrepresentation,
wrongful termination, self-dealing, breach of fiduciary duty, usurpation of
corporate opportunity and tortious interference with contractual relations.
The suits seeks compensatory damages of $2,500,000 and exemplary damages of
$5,000,000. The Company intends to vigorously defend itself against this
suit.
The Company is also party to various lawsuits and claims generally
incidental to its business. The ultimate disposition of these and the
above discussed matter are not expected to have a significant adverse
effect on the Company's financial position or results of operations.
7
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
La Quinta Inns, Inc.:
We have reviewed the combined condensed balance sheet of La Quinta Inns,
Inc. as of June 30, 1994, and the related combined condensed statements of
operations for the three-month and six-month periods ended June 30, 1994
and 1993 and cash flows for the six-month periods ended June 30, 1994 and
1993. These combined condensed financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the combined condensed financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheet of La Quinta Inns, Inc. as of
December 31, 1993 and the related combined statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated January 31, 1994, except as to the first
paragraph of note 5, which is as of February 9, 1994, we expressed an
unqualified opinion on those combined financial statements. Our report
refers to a change in the method of accounting for income taxes. In our
opinion, the information set forth in the accompanying combined condensed
balance sheets as of December 31, 1993, is fairly presented, in all
material respects, in relation to the combined balance sheet from which it
has been derived.
KPMG Peat Marwick
San Antonio, Texas
July 18, 1994
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On January 24, 1994, La Quinta Inns, Inc. ("La Quinta" or the
"Company") concluded the acquisition of LQP which owned 31 inns in 15
states managed by La Quinta. In 1994, the operations of LQP were
included in the combined financial statements of the Company. The Company
accounted for its investment in LQP under the equity method until December 1,
1993.
In addition, during 1993, the Company purchased, in separately
negotiated transactions, the limited partners' interests in 14 of the
Company's combined unincorporated partnerships and joint ventures which
owned 44 inns. During the second quarter of 1994, the Company purchased
the limited partners' interests in one of the Company's combined
unincorporated joint ventures which owned one inn. On July 1, 1994, the
Company purchased nine inns managed by the Company which were previously
held in joint ventures. The Company continues to operate these properties
as La Quinta inns. Also during 1993, the Company completed the acquisition
of 11 inns and began renovating and converting them to the La Quinta brand.
Conversion of these properties was completed during the second quarter of
1994. Also during the second quarter of 1994, the Company acquired two
inns and opened its first Mexico property which is owned and operated under
a La Quinta franchise agreement in which the property is managed by the
Company.
The following table describes the composition of inns in the La Quinta
chain at:
June 30, 1994 (2) December 31, 1993 (3)
------------------------ ------------------------
La La
Quinta Quinta
Equivalent Equivalent
Inns Rooms Rooms(1) Inns Rooms Rooms(1)
---- ----- -------- ---- ----- --------
Owned 100% . . . . . . . 176 22,320 22,320 166 21,001 21,001
Owned 40 - 80% . . . . . 46 6,363 2,681 45 6,077 2,588
--- ------ ------ --- ------ ------
Total Company owned
and operated. . . . . . 222 28,683 25,001 211 27,078 23,589
Managed Inns . . . . . . 1 148 -- 9 1,176 12
Licensed Inns. . . . . . 1 120 -- 1 120 --
--- ------ ------ --- ------ ------
224 28,951 25,001 221 28,374 23,601
--- ------ ------ --- ------ ------
--- ------ ------ --- ------ ------
<FN>
(1) Represents the Company's proportionate ownership in system rooms.
(2) Includes 100% of rooms owned by Cigna I and II as though the
acquisition were completed on June 30, 1994.
(3) Includes 100% of the rooms owned by LQP as though the acquisition were
completed on December 31, 1993.
9
In 1993, the Company began a system wide inn image enhancement program
designed to increase revenue through the generation of new guest trial.
The program was completed during the second quarter. The program gave the
reimaged inns a new, fresh, crisp appearance while preserving their unique
character. It features new signage displaying a new logo as well as
exterior and lobby upgrades including brighter colors, additional
landscaping, enhanced guest entry and full lobby renovation with
contemporary residential furnishings and seating area for continental
breakfast.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994
The improvement in inn revenues was related to an increase in the
percentage of occupancy and average room rate along with the revenues
associated with the acquisition of inns, including the LQP, as more fully
described above. The occupancy percentage increased to 74.5% in the second
quarter of 1994 from 69.8% in the 1993 comparable period. The average daily
rate increased to $46.99 in the second quarter of 1994 from $46.92 in the
second quarter of 1993. Additionally, completion of the reimaging process has
resulted in improvements in both rate and occupancy.
Other revenue decreased as a result of a reduction in management
services revenue due to the acquisition of LQP and the elimination of
related management fees charged by the Company. This decrease was
partially offset by an increase in restaurant rental and other income
caused by an increase in the number of restaurants owned and leased by the
Company due to the acquisition of LQP.
Direct expenses increased to $48,607,000, an increase of $11,773,000.
The $.39 decrease in direct expenses per occupied room from $26.77 during
the second quarter of 1993 to $26.38 during the second quarter of 1994 is
primarily attributable to decreases in salaries and related expenses and
insurance and is partially offset by increases in repairs and maintenance
and advertising.
During the second quarter of 1993, the Company recognized $4,407,000
in performance stock option expense related to the vesting of certain
contingent stock options that became exercisable in May 1993.
Depreciation, amortization and fixed asset retirements increased
primarily due to the acquisition of LQP. Depreciation, amortization and
fixed asset retirements also includes asset retirements associated with the
Company's refurbishment program and other capital improvements.
Operating income improved to $30,352,000 in the second quarter, an
increase of $10,906,000, or 56% over the 1993 second quarter, as more fully
described above.
The decrease in interest income is primarily attributable to a
decrease in interest earned on the note receivable from AEW Partners, L.P.
to La Quinta Development Partners, L.P. (the "Development Partnership"),
due to the collection of the entire outstanding principal balance of that
note in December 1993 and the corresponding reduction of interest thereon.
Interest expense on the Senior Subordinated notes issued in May 1993
along with debt assumed with the acquisition of the LQP, and new debt
related to the purchase of certain of the limited partners' interests
resulted in the 27.5% increase in interest expense.
The acquisition of the limited partners' interests resulted in a
decrease in partners' equity in earnings and losses for the second quarter
of 1994 compared to the second quarter of 1993.
The net loss on property and investment transactions of ($4,670,000)
in the second quarter of 1993 was primarily related to a $4,900,000 loss
related to the Company's conveyance of title on the property in which the
Company's corporate headquarters was located to the mortgagor.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994
The improvement in inn revenues was related to an increase in the
percentage of occupancy and average room rate along with the revenues
associated with the acquisition of inns, including the LQP, as more fully
described above. The average room rate increased to $46.62 in the 1994 six
month period from $46.41 in the 1993 six months. The occupancy percentage
increased to 70.0% in the 1994 six months from 65.7% in the 1993 six
months. Additionally, completion of the reimaging process has resulted
in improvements in both rate and occupancy.
10
Other revenue decreased as a result of a reduction in management
services revenue due to the acquisition of LQP and the elimination of
related management fees charged by the Company. This decrease was
partially offset by an increase in restaurant rental and other income
caused by an increase in the number of restaurants owned and leased by the
Company due to the acquisition of LQP.
Direct expenses increased to $93,405,000, an increase of $23,142,000.
Direct expenses per occupied room decreased to $27.25 in the 1994 six months
from $27.28 in the 1993 six months, a decrease of $.03.
The 1993 performance stock option expense related to the vesting of certain
contingent stock options that became exercisable in May 1993.
Depreciation, amortization and fixed asset retirements increased
primarily due to the acquisition of LQP. Depreciation, amortization and
fixed asset retirements also includes asset retirements associated with the
Company's refurbishment program and other capital improvements.
Operating income improved to $50,629,000 in the 1994 six months, an
increase of $14,692,000, or 40.9% over the 1993 six months, as more fully
described above.
The decrease in interest income is primarily attributable to a
decrease in interest earned on the note receivable from AEW Partners, L.P.
to the Development Partnership, due to the collection of the entire
outstanding principal balance of that note in December 1993 and the
corresponding reduction of interest thereon.
Interest expense on the Senior Subordinated notes issued in May 1993
along with debt assumed with the acquisition of the LQP, and new debt
related to the purchase of certain of the limited partners' interests
resulted in the 24.5% increase in interest expense.
The acquisition of the limited partners' interests resulted in a
decrease in partners' equity in earnings and losses for the first six
months of 1994 compared to the six months of 1993.
Net loss on property and investment transactions was ($6,000) in the
six months of 1994 compared to a loss of ($4,373,000) in the six months of
1993. The loss in 1993 was primarily related to a $4,900,000 loss related
to the Company's conveyance of title on the property in which the Company's
corporate headquarters is located to the mortgagor.
The cumulative effect of accounting change in the 1993 six months was
the result of implementation of Statement of Financial Standards No. 109
"Accounting for Income Taxes".
FINANCIAL CONDITION
The decrease in the Company's cash and cash equivalents in the first
six months of 1994 resulted from capital expenditures from the reimaging
program, purchase and conversion of inns and the acquisition of the
remaining Units of LQP during January of 1994.
The increase in net cash provided by operating activities was the
result of increased revenue and operating margins.
The increase in investing activities in the 1994 six months over the
prior year's comparable period is primarily a result of capital
expenditures related to the reimaging program, purchase and conversion of
inns and the purchase of the remaining Units of LQP.
Principal payments on the Company's Secured Term Credit Facility,
dividends paid to shareholders and purchases of treasury stock contributed
to a substantial portion of the decrease in cash provided by financing
activities for the 1994 six months, as compared to cash provided by
financing activities for the 1993 six months.
In June 1994, the Development Partnership entered into a $35,000,000
Unsecured Line of Credit of which $33,950,000 is available at June 30,
1994. The Company anticipates that the majority of its development
activity in 1994 will occur through said Partnership.
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During June 1994, the Company repurchased a total of 101,000 shares of
its common stock for approximately $2,600,000 under a plan approved by the
Board of Directors to repurchase up to $10,000,000 of its common stock.
Funds on hand, anticipated from future cash flows and available on the
Company's credit facilities are expected to be sufficient to fund the
Company's operating expenses, debt service, other capital requirements and
its development program through at least the end of 1994. The Company will
evaluate from time to time the necessity of other financing alternatives.
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Part II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Actions for negligence or other tort claims occur routinely as an
ordinary incident to the Company's business. Several lawsuits are pending
against the Company which have arisen in the ordinary course of the
business, but none of these proceedings involves a claim for damages (in
excess of applicable excess umbrella insurance coverages) involving more
than 10% of current assets of the Company (also see note 5 to combined
condensed financial statements). The Company does not anticipate any
amounts which it may be required to pay as a result of an adverse
determination of such legal proceedings, individually or in the aggregate,
or any other relief granted by reason thereof, will have a material adverse
effect on the Company's financial position or results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
A list of all exhibits filed or included as part of this Quarterly
Report on Form 10-Q is as follows:
Exhibits By Reference Descriptions
10(a) Previously filed First Amendment to Third
with Form 10-Q Amended and Restated Master
for the period Covenant Agreement dated
ended June 30, 1994 June 30, 1994
10(b) Previously filed First Amendment to Amended and
with Form 10-Q Restated Credit Agreement dated
for the period June 30, 1994
ended June 30, 1994
15 Filed Herewith Letter from KPMG Peat
Marwick LLP dated November 4, 1994
27 Filed Herewith Financial Data Schedule
(b) Reports on Form 8-K:
No Current Reports on Form 8-K have been filed during the period for
which this Quarterly Report on Form 10-Q is filed.
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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.
LA QUINTA INNS, INC.
(Registrant)
August 11, 1994 By: /S/ William C. Hammett, Jr.
------------------------------
William C. Hammett, Jr.
Senior Vice President -
Accounting and Administration
August 11, 1994 By: /S/ Irene C. Primera
------------------------------
Irene C. Primera
Vice President - Controller
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