G:\SEC\MISC\8K695B.DOC 6/13/95 DRAFT 20 CONTROL
As filed with the Securities and Exchange Commission on June 16, 1995.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JUNE 15, 1995
DATE OF EARLIEST EVENT REPORTED: JUNE 15, 1995
LA QUINTA INNS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 1-7790 74-1724417
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(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) IRS EMPLOYER
IDENTIFICATION NO.
WESTON CENTRE
112 E. PECAN STREET
P.O. BOX 2636
SAN ANTONIO, TEXAS 78299-2636
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(210) 302-6000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
Item 5. OTHER EVENTS.
The Company formed a limited partnership, La Quinta
Development Partners, L.P. ("LQDP"), with AEW Partners, L.P. ("AEW")
pursuant to the La Quinta Development Partners, L.P. Amended and Restated
Agreement of Limited Partnership dated March 21, 1990 (the "LQDP Partnership
Agreement"). LQDP was established for the purpose of acquiring competitors'
inns and converting them to the La Quinta -Registered Trademark- brand.
La Quinta manages the inns owned by LQDP. Prior to the transaction described
below, La Quinta, the general partner of LQDP, owned a 40% interest and AEW,
the limited partner, owned a 60% interest in LQDP. La Quinta contributed
property with a fair value of approximately $44 million and $4 million in
cash to the Partnership and AEW contributed cash of $3 million and an
additional $69 million in the form of a promissory note which was
subsequently funded. At May 31, 1995, LQDP owned 47 inns and 16 adjacent
restaurant buildings.
Under the terms of the LQDP Partnership Agreement, AEW paid $3,000,000
for an option, subject to certain vesting and other conditions, to convert
two-thirds of its ownership interest in LQDP into a specified number of
shares (adjusted for stock splits, cash dividends and distributions from LQDP
to AEW) of the Company's Common Stock. On June 15, 1995, AEW notified the
Company that it would exercise, subject to certain conditions, its option to
convert two-thirds of its ownership interest in LQDP into 5,299,821 shares of
the Company's Common Stock and also agreed to sell its remaining ownership
interest in LQDP to the Company for a negotiated price of $48.2 million in
cash (collectively, the "AEW Transaction"). The Company will finance the cash
portion of the AEW Transaction through borrowings under its and LQDP's bank
credit facilities. On June 13, 1995, Joseph F. Azrack, President and Director
of AEW, Inc., the general partner of AEW, resigned as a director of the
Company.
Following the AEW Transaction, La Quinta will own the entire interest in
the 47 inns and 16 adjacent restaurant buildings currently owned by LQDP. The
acquisition is anticipated to close approximately July 3, 1995, subject to
certain conditions. Since 1993, the Company has been purchasing 100% interests
in many of its properties through the acquisition of partners' ownership
interests. The AEW Transaction effectively completes the Company's strategy to
own, as well as operate, its inns. The acquisition of these partnership
interests, as well as individual inns, has resulted in an 81 percent increase
in the La Quinta equivalent rooms since December 31, 1992. The following table
summarizes the ownership of inns at December 31, 1992 and, on a pro forma basis
to reflect the AEW Transaction, at May 31, 1995:
Pro Forma
May 31, 1995 December 31, 1992
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La Quinta La Quinta
Total Equivalent Total Equivalent
Inns Rooms Rooms Inns Rooms Rooms
---- ----- ----- ---- ----- -----
Owned 100% 228 29,352 29,352 89 11,456 11,456
Owned 40-80% 7 836 467 80 10,218 4,919
---- ------ ------ --- ------ ------
Total Company
owned and operated 235 30,188 29,819 169 21,674 16,375
Managed inns --- --- --- 40 4,978 75
Licensed inns 1 120 --- 3 366 ---
---- ------ ------ --- ------ ------
236 30,308 29,819 212 27,018 16,450
---- ------ ------ --- ------ ------
---- ------ ------ --- ------ ------
Upon conversion of two-thirds of AEW's partnership interest into La
Quinta Common Stock, the Company will issue 5,299,821 shares of Common Stock
having a fair market value of $141.8 million based on the June 9, 1995 New
York Stock Exchange closing price. As a result of the conversion, the Company
will record net assets acquired at their fair market value of $96.4 million
and a non-cash, non-recurring item of $45.4 million as a deduction presented
below net earnings in the Statement of Operations (Conversion of Partner's
Interest into Common Stock) in arriving at net earnings available to common
shareholders.
The sale to La Quinta of the remaining one-third of AEW's interest in
LQDP will be accounted for as an acquisition of a minority interest and
purchase accounting will be applied.
As permitted under the Partnership Agreement, AEW has requested that the
Common Stock be registered with the Securities and Exchange Commission for
sale in an underwritten secondary public offering.
2
1. Period Ended March 31, 1995
The unaudited pro forma combined condensed statement of operations
presented below includes the statement of operations as reported in the
Company's Quarterly Report on Form 10-Q for the three months ended March 31,
1995, and as adjusted to reflect the AEW Transaction as if the transaction had
occurred on January 1, 1995.
As Reported Pro Forma
Quarter Ended Pro Forma Adjustments Quarter Ended
March 31, ----------------------- March 31,
STATEMENT OF OPERATIONS: 1995 Debit Credit 1995(F)
---------- ----- ------ -----------
(amounts in thousands, except per share data)
Total revenues $96,735 $96,735
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Operating costs and expenses:
Direct 49,352 49,352
Corporate 4,510 4,510
Depreciation, amortization, and fixed asset retirements 10,181 A) 294 10,475
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Total operating costs 64,043 64,337
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Operating income 32,692 32,398
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Other (income) expenses:
Net interest 10,264 B) 829 11,093
Partner's equity in earnings 4,428 C) 3,808 620
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Earnings before income taxes 18,000 20,685
Income tax expense 6,930 D) 879 7,809
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Net earnings $ 11,070 2,002 3,808 $12,876
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Earnings per common and common equivalent share:
Net earnings $ 0.23 $ 0.24
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-------- -------
Weighted average number of common and common
equivalent shares outstanding 49,086 E) 5,295 54,381
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Notes to pro forma financial information for the period ended March 31, 1995:
<FN>
(A) Records additional depreciation expense on the addition of $40.0 million of
depreciable assets. The depreciation expense was calculated using the
straight line method based on a 34 year remaining life.
(B) Represents the interest expense on additional debt of $48.2 million
relating to the acquisition of one-third of AEW's interest in LQDP at the
effective weighted average interest rate under the Company's and LQDP's
credit facilities of 6.88% per annum.
(C) Represents the elimination of AEW's equity in earnings.
(D) Reflects income tax effect of pro forma adjustments including an
adjustment to the effective income tax rate from 38.5% to 37.75% due to
a difference between aggregate recorded cost and tax basis of the
acquired assets.
(E) Reflects the increase in weighted average shares outstanding.
(F) In the period the conversion transaction is consummated, the Company
will record $45.4 million (adjusted for the market price of the Common
Stock at closing) associated with the exercise of AEW's conversion
option as a deduction presented below net earnings in the Statement of
Operations (Conversion of Partner's Interest into Common Stock) in
arriving at net earnings available to common shareholders. This
non-recurring, non-cash item is directly attributable to the AEW
Transaction and is not reflected in the pro forma condensed statement of
operations above.
3
The unaudited pro forma combined condensed balance sheet of the Company
presented below includes the balance sheet as reported in the Company's
Quarterly Report on Form 10-Q for the three months ended March 31, 1995, and as
adjusted to reflect the AEW Transaction as if the transaction had occurred on
March 31, 1995.
As Reported Pro Forma Adjustments Pro Forma
March 31, ----------------------- March 31,
ASSETS: 1995 Debit Credit 1995
---------- ----- ------ -----------
(amounts in thousands)
Current assets $ 32,794 $ 32,794
Other non-current assets 24,492 24,492
Net property and equipment 791,424 A) 18,283 846,274
B) 36,567
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$ 848,710 54,850 - $ 903,560
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities $ 71,829 A) 30,000 $ 101,829
Long term debt, excluding current installments 455,503 A) 18,200 473,703
Deferred income taxes and other 20,592 20,592
Partners' capital 96,220 A) 29,917 6,470
B) 59,833
Shareholders' equity (net of treasury stock) 204,566 B) 96,400 300,966
------------ ------ ------- -----------
$ 848,710 89,750 144,600 $ 903,560
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Notes to pro forma financial information as of March 31, 1995:
<FN>
(A) Records the purchase of one-third of AEW's interest in LQDP using proceeds
from the Company's and LQDP's credit facilities and the related elimination
of one-third of AEW's partner's capital. Approximately $30 million of the
$48.2 million purchase price will be drawn on LQDP's 364-day unsecured line
of credit (which the Company intends to renew annually subject to the
consent of the lenders) and therefore is included in current liabilities.
The remainder of the purchase price will be borrowed under the Company's
and LQDP's other bank credit facilities.
(B) Reflects the purchase of the assets and the related elimination of
two-thirds of AEW's partner's capital. Also, reflects the net of the
$141.8 million of Common Stock issued in the AEW Transaction and the
$45.4 million (adjusted for the market price of the Common Stock at
closing) which represents the non-recurring, non-cash item which will be
recorded as a deduction presented below net earnings in the Statement of
Operations (Conversion of Partner's Interest into Common Stock) in arriving
at net earnings available to common shareholders in the period the
transaction is consummated.
4
2. Year Ended December 31, 1994
The unaudited pro forma combined condensed statement of operations
presented below includes the statement of operations as reported in the
Company's Form 10-K for the year ended December 31, 1994, and as adjusted to
reflect the AEW Transaction as if the transaction had occurred on January 1,
1994.
As Reported Pro Forma
Year Ended Pro Forma Adjustments Year Ended
December 31, ----------------------- December 31,
STATEMENT OF OPERATIONS: 1994 Debit Credit 1994(F)
---------- ----- ------ -----------
(amounts in thousands, except per share data)
Total revenues $362,242 $362,242
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Operating costs and expenses:
Direct 194,894 194,894
Corporate 18,614 18,614
Depreciation, amortization, and fixed asset retirements 37,977 A) 1,176 39,153
-------- -------
Total operating costs 251,485 252,661
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Operating income 110,757 109,581
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Other (income) expenses:
Net interest expense 37,439 B) 3,316 40,755
Partners' equity 11,406 C) 9,278 2,128
Net gain on property transactions (79) (79)
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Earnings before income taxes 61,991 66,777
Income tax expense 24,176 D) 1,366 25,542
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Net earnings $ 37,815 5,858 9,278 $41,235
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-------- ------ ------ -------
Earnings per common and common equivalent share:
Net earnings $ 0.78 $ 0.76
-------- -------
-------- -------
Weighted average number of common and common
equivalent shares outstanding 48,624 E) 5,290 53,914
-------- ----- -------
-------- ----- -------
Notes to pro forma financial information for the year ended December 31, 1994:
<FN>
(A) Records additional depreciation expense on the addition of $40.0 million of
depreciable assets. The depreciation expense was calculated using the
straight line method based on a 34 year remaining life.
(B) Represents the interest expense on additional debt of $48.2 million
relating to the acquisition of one-third of AEW's interest in LQDP at the
effective weighted average interest rate under the Company's and LQDP's
credit facilities of 6.88% per annum.
(C) Represents the elimination of AEW's equity in earnings.
(D) Reflects income tax effect of pro forma adjustments including an adjustment
to the effective income tax rate from 39% to 38.25% due to a difference
between aggregate recorded cost and tax basis of the acquired assets.
(E) Reflects the increase in weighted average shares outstanding.
(F) In the period the conversion transaction is consummated, the Company
will record $45.4 million (adjusted for the market price of the Common
Stock at closing) associated with the exercise of AEW's conversion
option as a deduction presented below net earnings in the Statement of
Operations (Conversion of Partner's Interest into Common Stock) in
arriving at net earnings available to common shareholders. This
non-recurring, non-cash item is directly attributable to the AEW
Transaction and is not reflected in the pro forma condensed statement of
operations above.
5
Item 7. FINANCIAL STATEMENTS AND EXHIBIT
(c) EXHIBITS. The following exhibit is filed herewith and incorporated
by reference herein.
2.1 Agreement to Sell and Purchase, dated as of June 15, 1995, among
La Quinta, AEW, and LQI Acquisition Corporation.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
LA QUINTA INNS, INC.
(Registrant)
Date: June 15, 1995 By /s/ William C. Hammett, Jr.
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William C. Hammett, Jr.
Senior Vice President
Accounting and Administration
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