1
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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 JUNE 30, 1997.

[ ] TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO
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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, 1997:

77,785,265

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

LA QUINTA INNS, INC.
CONDENSED BALANCE SHEETS
(in thousands)

June 30, 1997 December 31, 1996
-------------- -----------------
ASSETS (Unaudited)

Current assets:
Cash and cash equivalents ................................................. $ 1,421 $ 1,508
Receivables:
Trade and other (net of allowance of $229 and $108) ..................... 22,431 12,302
Income taxes ............................................................ -- 3,835
Supplies and prepayments .................................................. 16,140 10,811
Deferred income taxes ..................................................... 9,660 9,277
-------------- --------------

Total current assets .................................................... 49,652 37,733
-------------- --------------

Notes receivable, excluding current installments
(net of allowance of $957 and $1,793) ....................................... 1,924 3,700
Property and equipment, net .................................................. 1,288,539 1,148,190
Deferred charges and other assets, at cost less applicable amortization ...... 10,395 10,177
-------------- --------------

Total assets ............................................................ $ 1,350,510 $ 1,199,800
============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt .................................... $ 11,154 $ 33,299
Accounts payable .......................................................... 47,079 55,088
Accrued expenses .......................................................... 49,868 53,584
-------------- --------------
Total current liabilities ............................................... 108,101 141,971
-------------- --------------
Long-term debt, excluding current installments ............................... 797,561 659,369
Deferred income taxes, pension and other ..................................... 34,998 29,591
Partners' capital ............................................................ 2,603 3,293
Shareholders' equity:
Common stock ($.10 par value per share; 200,000 and 100,000 shares
authorized; 84,540 and 84,274 shares issued) ............................ 8,454 8,427
Additional paid-in capital ................................................ 243,585 240,453
Retained earnings ......................................................... 228,177 188,610
Treasury stock, at cost (6,754 and 6,704 shares) .......................... (72,969) (71,914)
-------------- --------------

Total shareholders' equity .............................................. 407,247 365,576
-------------- --------------

Total liabilities and shareholders' equity .............................. $ 1,350,510 $ 1,199,800
============== ==============

See accompanying notes to condensed financial statements.

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ITEM 1 - FINANCIAL STATEMENTS (continued)

LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

Three months ended Six months ended
June 30 June 30
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------

Revenues:
Inn ............................................................. $ 133,660 $ 113,727 $ 245,042 $ 214,561
Restaurant rental and other ..................................... 2,006 2,295 3,977 4,219
---------- ---------- ---------- ----------

Total revenues ............................................... 135,666 116,022 249,019 218,780
---------- ---------- ---------- ----------

Operating costs and expenses:
Direct .......................................................... 62,473 54,744 119,819 107,635
Corporate ....................................................... 4,905 4,141 9,187 8,791
Depreciation, amortization and asset retirements ................ 14,786 12,034 28,479 22,759
Provision for premature retirement of assets .................... -- 2,427 -- 9,062
---------- ---------- ---------- ----------
Total operating costs and expenses ........................... 82,164 73,346 157,485 148,247
---------- ---------- ---------- ----------
Operating income ............................................. 53,502 42,676 91,534 70,533
---------- ---------- ---------- ----------
Other expense:
Interest, net ................................................... 12,567 10,195 23,940 20,360
Partners' equity in earnings .................................... 243 485 476 928
---------- ---------- ---------- ----------

Earnings before income taxes and extraordinary items ......... 40,692 31,996 67,118 49,245
Income taxes ....................................................... 15,056 11,839 24,834 18,221
---------- ---------- ---------- ----------
Earnings before extraordinary items .......................... 25,636 20,157 42,284 31,024
Extraordinary items, net of income taxes .......................... -- (244) -- (244)
---------- ---------- ---------- ----------
Net earnings.................................................. $ 25,636 $ 19,913 $ 42,284 $ 30,780
========== ========== ========== ==========
Earnings per common and common equivalent share:
Earnings before extraordinary items .......................... $ .32 $ .25 $ .53 $ .38
Extraordinary items, net of income taxes ..................... -- -- -- --
---------- ---------- ---------- ----------
Net earnings.................................................. $ .32 $ .25 $ .53 $ .38
========== ========== ========== ==========
Weighted average number of common and common equivalent
shares outstanding ............................................. 80,612 81,093 80,455 80,876
========== ========== ========== ==========

See accompanying notes to condensed financial statements.

ITEM I - FINANCIAL STATEMENTS (continued)

LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

Common Stock Treasury Stock Additional
--------------------- ------------------------ Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
-------- ---------- ---------- ---------- ---------- ---------- ----------

Balances at December 31, 1995 .............. 54,883 $ 5,488 (2,849) $ (29,741) $ 222,221 $ 133,745 $ 331,713
Effect of stock split at July 15, 1996 ... 27,678 2,768 (1,735) -- (2,768) -- --
Stock options ............................ 1,713 171 (3) (79) 21,000 -- 21,092
Purchase of treasury stock ............... -- -- (2,117) (42,094) -- -- (42,094)
Dividends paid ........................... -- -- -- -- -- (5,330) (5,330)
Net earnings ............................. -- -- -- -- -- 60,195 60,195
-------- ---------- ---------- ---------- ---------- ---------- ----------

Balances at December 31, 1996 .............. 84,274 8,427 (6,704) (71,914) 240,453 188,610 365,576
Stock options ............................ 266 27 (4) (98) 3,132 -- 3,061
Purchase of treasury stock ............... -- -- (46) (957) -- -- (957)
Dividends paid ........................... -- -- -- -- -- (2,717) (2,717)
Net earnings ............................. -- -- -- -- -- 42,284 42,284
-------- ---------- ---------- ---------- ---------- ---------- ----------

Balances at June 30, 1997, unaudited ....... 84,540 $ 8,454 (6,754) $ (72,969) $ 243,585 $ 228,177 $ 407,247
======== ========== ========== ========== ========== ========== ==========

See accompanying notes to condensed financial statements.

ITEM 1 - FINANCIAL STATEMENTS (continued)

LA QUINTA INNS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

Six months ended
June 30
----------------------------
1997 1996
------------ ------------

Cash flows from operating activities:
Net earnings ..................................................... $ 42,284 $ 30,780
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Non-cash items:
Depreciation, amortization and asset retirements ......... 28,479 22,759
Provision for premature retirement of assets ............. -- 9,062
Partners' equity in earnings ............................. 476 928
Changes in operating assets and liabilities:
Receivables ................................................ (9,284) (3,611)
Income taxes ............................................... 13,168 5,596
Supplies and prepayments ................................... (5,975) (1,711)
Accounts payable and accrued expenses ...................... 3,122 4,602
Deferred charges and other assets .......................... (98) 753
Deferred credits and other ................................. 5,407 229
------------ ------------
Net cash provided by operating activities .............. 77,579 69,387
------------ ------------

Cash flows from investing activities:
Construction, purchase and conversion of inns .................... (100,114) (57,942)
Other capital expenditures ....................................... (84,377) (69,434)
Proceeds from property transactions .............................. 4,830 186
Purchase of partners' equity interests ........................... (81) (8,578)
Other ............................................................ 931 38
------------ ------------
Net cash used by investing activities .................. (178,811) (135,730)
------------ ------------

Cash flows from financing activities:
Proceeds from line of credit and long-term borrowings ............ 613,073 363,783
Principal payments on line of credit and long-term borrowings .... (502,723) (284,887)
Capital distributions to partners ................................ (402) (710)
Dividends to shareholders ........................................ (2,717) (2,584)
Purchase of treasury stock ....................................... (7,371) (14,447)
Net proceeds from stock transactions ............................. 1,285 4,807
------------ ------------
Net cash provided by financing activities .............. 101,145 65,962
------------ ------------
Decrease in cash and cash equivalents ............................... (87) (381)
Cash and cash equivalents at beginning of period .................... 1,508 2,590
------------ ------------
Cash and cash equivalents at end of period .......................... $ 1,421 $ 2,209
============ ============
Supplemental disclosure of cash flow information:
Interest paid ....................................................... $ 26,995 $ 20,344
Income tax paid ..................................................... 8,536 13,538
Income tax refunds .................................................. 2,567 5
Supplemental schedule of non-cash investing and financing activities:
Note issued in purchase of partners' equity interest ................ $ 2,500 $ 2,510
Tax benefit from stock options exercised ............................ 1,776 3,871
Accrual for purchase of treasury stock .............................. 168 --
Effect of stock split ............................................... -- 2,768

See accompanying notes to condensed financial statements.

ITEM 1 - FINANCIAL STATEMENTS (continued)

LA QUINTA INNS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS

(1) Basis of Presentation

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. The condensed financial
statements should be read in conjunction with the financial statements and
notes thereto included in the December 31, 1996 Annual Report on Form 10-K.

(2) Property and Equipment

At June 30, 1997 and December 31, 1996, property and equipment
consisted of the following:

(in thousands)
June 30, 1997 December 31, 1996
------------ -----------------
(Unaudited)

Buildings .................................... $ 1,093,099 $ 988,711
Furniture, fixtures and equipment ............ 179,797 148,691
Land and leasehold improvements .............. 197,168 183,207
Construction in progress ..................... 128,487 120,286
------------ ------------

Total property and equipment ............... 1,598,551 1,440,895
Less accumulated depreciation and amortization 310,012 292,705
------------ ------------

Net property and equipment ................. $ 1,288,539 $ 1,148,190
============ ============

(3) Earnings per Common and Common Equivalent Share

Fully diluted earnings per share is not materially different than
primary earnings per share.

(4) Accounts Payable and Accrued Expenses

At June 30, 1997 and December 31, 1996, accounts payable and accrued
expenses consisted of the following:

(in thousands)
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)

Accounts payable:
Construction ....................... $ 16,968 $ 30,920
Trade .............................. 16,625 16,125
Income taxes ....................... 7,940 --
Other .............................. 5,546 8,043
-------------- --------------

$ 47,079 $ 55,088
============== ==============

Accrued expenses:
Payroll and employee benefits ...... $ 26,804 $ 25,570
Property taxes ..................... 10,160 10,607
Interest ........................... 9,605 8,241
Other .............................. 3,131 2,584
Treasury stock purchase ............ 168 6,582
-------------- --------------
$ 49,868 $ 53,584
============== ==============

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(5) Long-Term Debt

On February 24, 1997, the Company issued $50,000,000 in 7.27%
Medium-Term Notes due 2007, with an effective interest rate of 7.33%. The
proceeds of the note issuance were used to repay indebtedness under the
Company's Unsecured Line of Credit.

(6) Provision for Premature Retirement of Assets

The Company launched its Gold Medal(TM) rooms program during the third
quarter of 1995 and completed the program during the second quarter of 1997.
During this program, the Company replaced certain furniture and fixtures before
the end of their normal useful life and therefore made an adjustment to reflect
shorter remaining lives. As a result, the Company recorded a non-cash provision
for premature retirement of assets of approximately $2.4 million as a separate
line item entitled provision for premature retirement of assets on the
Statement of Operations for the second quarter of 1996 and approximately $9.1
million during the six months ended June 30, 1996.

(7) Contingencies

The Company is party to various lawsuits and claims generally
incidental to its business. The ultimate disposition of these lawsuits and
claims is not expected to have a material adverse effect on the Company's
financial position or results of operations.

(8) Subsequent Event

On July 18, 1997, the Company issued $50,000,000 in 7.33% Medium-Term
Notes due 2008, with an effective interest rate of 7.39%. The proceeds of the
note issuance will be used to repay indebtedness under the Company's Unsecured
Line of Credit.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

The following discussion and analysis addresses the results of
operations for the three month periods ended June 30, 1997 (the "1997 Three
Months") and June 30, 1996 (the "1996 Three Months") and the six month periods
ended June 30, 1997 (the "1997 Six Months") and June 30, 1996 (the "1996 Six
Months").

The Company's financial statements include the accounts of the
Company's wholly-owned subsidiaries and unincorporated partnerships and joint
ventures in which the Company has at least a 50% interest, and over which it
exercises substantial legal, financial and operational control.

The Company's growth program is based primarily on the construction of
new Inn & Suites hotels. During the 1997 Six Months, the Company opened 12 new
Inn & Suites hotels. The Company anticipates having a total of 36 new Inn &
Suites hotels open by the end of December 1997, including the 11 which were
opened during 1996. At June 30, 1997, the Company owned and operated 235 inns
and 23 Inn & Suites hotels with a combined total of over 33,000 rooms.

During 1995, the Company launched its Gold Medal(TM) rooms program
designed to strengthen the Company's ability to gain additional market share
and pricing advantage relative to its competitors. The program improved the
quality, functionality and value of guest rooms by enhancing the decor package,
including fresh, new colors, rich wood furniture, contemporary bathrooms,
built-in closets, oversized desks, 25 inch televisions and new draperies and
bedspreads. Service enhancements included movies-on-demand, interactive video
games from Nintendo, dataport telephones for computer connections and greatly
expanded free television channel choices. The program required 20-30 rooms at a
time to be taken out of available supply at an inn during the typical 10-12
week construction period. The Company did not adjust its available rooms or
occupancy percentage for rooms unavailable due to construction as a result of
this program. The Company completed the program during the second quarter of
1997.

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During January 1997, the Company acquired the limited partners'
interest in one of its combined unincorporated partnerships, which owned one
inn. As a result, the Company has two remaining unincorporated partnerships and
joint ventures, each owning one inn.

THE 1997 THREE MONTHS COMPARED TO THE 1996 THREE MONTHS

TOTAL REVENUES increased to $135,666,000 in the 1997 Three Months from
$116,022,000 in the 1996 Three Months, an increase of $19,644,000, or 16.9%. Of
the total revenues reported in the 1997 Three Months, 98.5% were revenues from
inns and 1.5% were revenues from restaurant rentals and other revenues.

INN REVENUES are derived from room rentals and other sources such as
charges to guests for long-distance telephone service, fax machine use, vending
and movie commissions, banquet revenues and laundry services. Inn revenues
improved to $133,660,000 in the 1997 Three Months from $113,727,000 in the 1996
Three Months, an increase of $19,933,000, or 17.5%. The improvement in inn
revenues reflects an increase in the average daily room rate ("ADR") and
occupancy percentage, along with the revenues associated with the opening of
new Inn & Suites hotels. ADR increased to $57.23 in the 1997 Three Months from
$53.57 in the 1996 Three Months, an increase of $3.66, or 6.8%. Occupancy
percentage increased to 74.5% in the 1997 Three Months from 73.5% in the 1996
Three Months. The increase in ADR and occupancy percentage primarily resulted
from the favorable impact of the Gold Medal rooms program which was completed
during the second quarter of 1997.

RESTAURANT RENTAL AND OTHER REVENUES primarily include rental payments
from restaurant buildings owned by La Quinta and leased to and operated by
third parties. Restaurant rental and other revenues decreased to $2,006,000 in
the 1997 Three Months from $2,295,000 in the 1996 Three Months, a decrease of
$289,000.

DIRECT EXPENSES include costs directly associated with the operation
of inns. In the 1997 Three Months approximately 40.2% of direct expenses were
represented by salaries, wages and related costs. Other major categories of
direct expenses include utilities, property taxes, repairs and maintenance,
credit card commissions and room supplies. Direct expenses increased to
$62,473,000 in the 1997 Three Months from $54,744,000 in the 1996 Three Months,
an increase of $7,729,000, or 14.1%. The increase in direct expenses period
over period is primarily attributable to growth in the number of inns. As a
percentage of total revenues, direct expenses decreased to 46.0% in the 1997
Three Months from 47.2% in the 1996 Three Months.

CORPORATE EXPENSES include the costs of general management, office
rent, training and field supervision of inn managers and other marketing and
administrative expenses. Corporate expenses increased to $4,905,000 in the 1997
Three Months from $4,141,000 in the 1996 Three Months.

DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS increased to
$14,786,000 in the 1997 Three Months from $12,034,000 in the 1996 Three Months,
an increase of $2,752,000, or 22.9%. This increase is primarily attributable to
the opening of new Inn & Suites hotels and increased depreciation for inns due
to the completion of the Gold Medal rooms program.

A PROVISION FOR PREMATURE RETIREMENT OF ASSETS totaling $2,427,000 was
recorded during the 1996 Three Months. This non-cash charge is directly
attributable to the Company's Gold Medal rooms program. During the program, the
Company replaced certain furniture and fixtures before the end of their normal
useful lives and therefore made adjustments to reflect shorter remaining lives.

As a result of the above, OPERATING INCOME increased to $53,502,000 in
the 1997 Three Months from $42,676,000 in the 1996 Three Months, an increase of
$10,826,000, or 25.4%.

INTEREST, NET increased to $12,567,000 in the 1997 Three Months
compared to $10,195,000 in the 1996 Three Months, an increase of $2,372,000, or
23.3%. The increase in interest, net is primarily attributable to an increase
in long-term borrowings and is partially offset by an increase in capitalized
interest. Interest, net reflects a reduction in interest expense for
capitalized interest of $1,913,000 in the 1997 Three Months compared to
$1,412,000 in the 1996 Three Months. The increase in capitalized interest
period over period is primarily due to the construction of new Inn & Suites
hotels.

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PARTNERS' EQUITY IN EARNINGS reflects the interest of partners in the
earnings of the combined unincorporated partnerships and joint ventures which
are owned at least 50% and controlled by the Company. Partners' equity in
earnings decreased to $243,000 in the 1997 Three Months from $485,000 in the
1996 Three Months, a decrease of $242,000. The decrease reflects the Company's
acquisition of the limited partners' interest in five of its combined
unincorporated partnerships and joint ventures since March 1996.

INCOME TAXES for the 1997 and 1996 Three Months were calculated using
an effective income tax rate of 37.0%.

EXTRAORDINARY ITEMS, NET OF TAX, of ($244,000) were recorded during
the 1996 Three Months and resulted primarily from prepayment fees related to
the early extinguishment of approximately $9,336,000 of long-term mortgage debt
and industrial development revenue bonds.

For the reasons discussed above, NET EARNINGS increased to
$25,636,000 in the 1997 Three Months from $19,913,000 in the 1996 Three Months,
an increase of $5,723,000, or 28.7%.

THE 1997 SIX MONTHS COMPARED TO THE 1996 SIX MONTHS

TOTAL REVENUES increased to $249,019,000 in the 1997 Six Months from
$218,780,000 in the 1996 Six Months, an increase of $30,239,000, or 13.8%. Of
the total revenues reported in the 1997 Six Months, 98.4% were revenues from
inns and 1.6% were revenues from restaurant rentals and other revenues.

INN REVENUES improved to $245,042,000 in the 1997 Six Months from
$214,561,000 in the 1996 Six Months, an increase of $30,481,000, or 14.2%. The
improvement in inn revenues reflects an increase in ADR, along with the
revenues associated with the opening of new Inn & Suites hotels. ADR increased
to $56.97 in the 1997 Six Months from $53.49 in the 1996 Six Months, an
increase of $3.48, or 6.5%. Occupancy percentage increased to 70.0% in the 1997
Six Months from 69.8% in the 1996 Six Months. The increase in ADR and occupancy
percentage primarily resulted from the favorable impact of the Gold Medal rooms
program which was completed during the second quarter of 1997.

RESTAURANT RENTAL AND OTHER REVENUES decreased to $3,977,000 in the
1997 Six Months from $4,219,000 in the 1996 Six Months, a decrease of $242,000.

DIRECT EXPENSES increased to $119,819,000 in the 1997 Six Months from
$107,635,000 in the 1996 Six Months. The increase in direct expenses period
over period is primarily attributable to growth in the number of inns. As a
percentage of total revenues, direct expenses decreased to 48.1% in the 1997
Six Months from 49.2% in the 1996 Six Months.

CORPORATE EXPENSES increased to $9,187,000 in the 1997 Six Months from
$8,791,000 in the 1996 Six Months.

DEPRECIATION, AMORTIZATION AND ASSET RETIREMENTS increased to
$28,479,000 in the 1997 Six Months from $22,759,000 in the 1996 Six Months, an
increase of $5,720,000, or 25.1%. This increase is primarily attributable to
the opening of new Inn & Suites hotels and increased depreciation for inns due
to the completion of the Gold Medal rooms program.

A PROVISION FOR PREMATURE RETIREMENT OF ASSETS totaling $9,062,000 was
recorded during the 1996 Six Months. This non-cash charge is directly
attributable to the Company's Gold Medal rooms program. During the program, the
Company replaced certain furniture and fixtures before the end of their normal
useful lives and therefore made adjustments to reflect shorter remaining lives.

As a result of the above, OPERATING INCOME increased to $91,534,000
in the 1997 Six Months from $70,533,000 in the 1996 Six Months, an increase of
$21,001,000, or 29.8%.

INTEREST, NET increased to $23,940,000 in the 1997 Six Months compared
to $20,360,000 in the 1996 Six Months, an increase of $3,580,000, or 17.6%.
Interest, net reflects a reduction in interest expense for capitalized interest
of $4,033,000 in the 1997 Six Months compared to $2,227,000 in the 1996 Six
Months. The increase in capitalized interest period over period is primarily
due to the construction of new Inn & Suites hotels.

PARTNERS' EQUITY IN EARNINGS decreased to $476,000 in the 1997 Six
Months from $928,000 in the 1996 Six Months, a decrease of $452,000. The
decrease reflects the Company's acquisition of the limited partners' interest
in five of its combined unincorporated partnerships and joint ventures since
March 1996.

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10

INCOME TAXES for the 1997 and 1996 Six Months were calculated using an
effective income tax rate of 37.0%.

EXTRAORDINARY ITEMS, NET OF TAX, of ($244,000) were recorded during
the 1996 Six Months and resulted primarily from prepayment fees related to the
early extinguishment of approximately $9,336,000 of long-term mortgage debt and
industrial development revenue bonds.

For the reasons discussed above, NET EARNINGS increased to
$42,284,000 in the 1997 Six Months from $30,780,000 in the 1996 Six Months,
an increase of $11,504,000, or 37.4%.

ANALYSIS OF CASH FLOWS

On February 7, 1997, the Company completed negotiations to amend and
restate its existing credit facilities. The amended credit facility provides
the Company with a $325,000,000 Unsecured Line of Credit with a consortium of
banks which will mature in February 2002. At June 30, 1997, the Company had
$36,311,000 available on its Unsecured Line of Credit, net of $7,489,000 of
letters of credit collateralizing its insurance programs and certain mortgages.
The Unsecured Line of Credit bears interest at the prime rate or LIBOR,
adjusted for an applicable margin, as defined in the related credit agreement.
The applicable margin is determined quarterly based upon predetermined levels
of indebtedness to cash flow or credit ratings received by specified credit
rating agencies, as defined in the related credit agreement. At June 30, 1997,
borrowings under the Unsecured Line of Credit bear interest at LIBOR plus 33.75
basis points on $280,000,000 of outstanding borrowings and the prime rate less
50 basis points on $1,200,000 of outstanding borrowings. The Unsecured Line of
Credit requires a facility fee of 18.75 basis points on the average amount of
the commitment.

At June 30, 1997, the Company had $1,421,000 of cash and cash
equivalents compared with $2,209,000 at June 30, 1996.

Net cash provided by operating activities increased by $8,192,000, or
11.8%, to $77,579,000 at June 30, 1997 from $69,387,000 at June 30, 1996. This
increase is primarily the result of a $30,239,000 increase in revenues, which
is due in large part to the addition of 23 Inn & Suites hotels, as well as a
140 basis point improvement in EBITDA margin.

Net cash used by investing activities increased by $43,081,000 from
June 30, 1996 to June 30, 1997, primarily as a result of capital expenditures
for the Company's new Inn & Suites hotel construction projects and expenditures
for the Gold Medal rooms program. Net cash used by investing activities for the
1996 Six Months also includes $8,578,000 of cash used in the purchase of
partners' equity interests.

Net cash provided by financing activities increased by $35,183,000 to
$101,145,000 at June 30, 1997. Net borrowings increased to $110,350,000 for the
1997 Six Months compared to $78,896,000 for the 1996 Six Months. The net
increase is primarily the result of borrowings used for the new Inn & Suites
hotel construction projects and the Gold Medal rooms program. Net cash provided
by financing activities also includes $7,371,000 in the 1997 Six Months and
$14,447,000 in the 1996 Six Months used for the purchase of treasury stock.

EBITDA increased to $120,013,000 during the 1997 Six Months, an
increase of 17.3% over the 1996 Six Months. EBITDA is defined as earnings
before net interest expense, income taxes, depreciation, amortization and
asset retirements, provision for premature retirement of assets, partners'
equity in earnings and extraordinary items. The Company believes this
definition of EBITDA provides a meaningful measure of its ability to service
debt.

Capital expenditures planned by La Quinta for the remainder of 1997
and 1998 focus on the construction of new Inn & Suites hotels. The capital
requirements of the program are being funded from internally generated cash
flows and amounts available on the Company's Unsecured Line of Credit and are
not anticipated to have an adverse effect on the Company's ability to fund its
operations. The estimated cost to complete these projects for which commitments
had been made and construction had commenced at June 30, 1997 was approximately
$119.3 million.

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Funds on hand, internally generated future cash flows and funds
available on the Company's Unsecured Line of Credit are expected to be
sufficient to meet capital requirements, as well as operating expenses and debt
service requirements through at least the second quarter of 1998. From time to
time, the Company will continue to evaluate the necessity of other financing
alternatives.

ACCOUNTING PRONOUNCEMENT

In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (Statement 128), "Earnings
per Share", which is effective for periods ending after December 15, 1997,
including interim periods. Statement 128 establishes new standards for
computing and presenting earnings per share and applies to all entities with
publicly held common stock or potential common stock. The Company will
implement the statement in the required period. Adoption of the statement is
not expected to have a material adverse effect on the Company's reported
earnings per share.

In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (Statement 130), "Reporting
Comprehensive Income", which is effective for periods beginning after December
15, 1997, including interim periods. Statement 130 established new standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The Company will implement the
statement in the required period. Adoption of the statement is not expected to
have a material adverse effect on the Company's financial position or results
of operations.

PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Quarterly Report on Form 10-Q contains information that is forward-looking,
such as the timing and cost of the new Inn & Suites hotel construction
projects, anticipated capital requirements and the results of legal
proceedings. Such forward-looking information involves risks and uncertainties
that could significantly affect expected results. These risks and uncertainties
include, but are not limited to, uncertainties relating to economic conditions,
the pricing and availability of construction materials, changes in the
competitive environment in which the Company operates and the outcome of
pending legal proceedings. Further discussion of these and additional factors
which may cause expected results to differ from actual results are included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
filed with the Securities and Exchange Commission dated February 28, 1997.

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Independent Accountants' Review Report

The Board of Directors
La Quinta Inns, Inc.:

We have reviewed the condensed balance sheet of La Quinta Inns, Inc. as of June
30, 1997, and the related condensed statements of operations for the
three-month and six-month periods ended June 30, 1997 and 1996, shareholders'
equity for the six-month period ended June 30, 1997 and cash flows for the
six-month periods ended June 30, 1997 and 1996. These 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 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 balance sheet of La Quinta Inns, Inc. as of December 31, 1996
and the related statements of operations, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated January
31, 1997, except for note 16, which is as of February 26, 1997, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of
December 31, 1996 and accompanying condensed statement of shareholders' equity
for the year then ended, are fairly stated, in all material respects, in
relation to the respective financial statements from which they have been
derived.

KPMG Peat Marwick LLP

San Antonio, Texas
August 1, 1997

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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. 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual Shareholders' Meeting on May 22, 1997, the Company
submitted to a vote and its shareholders approved the following items:

a) Election of Directors to serve the Company until the 1998 Shareholders'
Meeting

NUMBER OF VOTES
---------------

Name of Nominee For Withheld
--------------- --- --------

William H. Cunningham 69,444,720 122,410
Gary L. Mead 69,448,511 118,619
William J. Razzouk 69,364,752 202,378
Peter Sterling 69,448,511 118,619
Kenneth Stevens 69,446,613 120,517
Thomas M. Taylor 69,440,074 127,056

b) Amendment to the 1984 Stock Option Plan

Amendments to the 1984 Stock Option Plan that would: (1) set the limit on
the number of shares subject to options which may be granted to any
individual employee in any one year at 525,000 shares, and (2)
automatically increase the number of shares for which stock options may be
granted annually to individual employees to reflect adjustments for future
stock splits effected in the form of stock dividends or otherwise by a
vote of 68,377,346 "For", 1,084,642 "Against", 105,141 "Abstain" and 1
"Non-Voting".

c) Amendment to Articles of Incorporation

Amendment to the Articles of Incorporation to increase the authorized
common stock shares from 100 million shares to 200 million shares by a
vote of 65,425,790 "For", 4,002,481 "Against", 138,858 "Abstain" and 1
"Non-Voting".

d) Proposal to Adopt the 1997 Equity Participation Plan

The adoption of the 1997 Equity Participation Plan that would replace and
terminate the Amended and Restated 1984 Stock Option Plan and continue to
provide stock-based incentive compensation to certain employees,
consultants and directors by a vote of 50,210,459 "For", 14,394,298
"Against", 174,556 "Abstain" and 4,787,817 "Non-Voting".

e) Approval of Independent Public Accountants

The appointment of KPMG Peat Marwick LLP as the Company's Independent
Public Accountants by a vote of 69,486,586 "For", 13,371 "Against" and
67,173 "Abstain".

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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:

Exhibit Description
- ------- -----------

3(a) Restated Articles of Incorporation of La Quinta Inns, Inc. dated
as of May 23, 1997, previously filed as an exhibit to the
Registrant's Registration Statement on Form S-8 and incorporated
herein by reference.

10(a)* First Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan filed herewith.

10(b)* Second Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan filed herewith.

10(c)* Third Amendment to La Quinta Inns, Inc. Amended and Restated 1984
Stock Option Plan filed herewith.

10(d)* The 1997 Equity Participation Plan of La Quinta Inns, Inc. filed
herewith.

10(e)* First Amendment to The 1997 Equity Participation Plan of La Quinta
Inns, Inc. filed herewith.

10(f)* Second Amendment to The 1997 Equity Participation Plan of
La Quinta Inns, Inc. filed herewith.

12 Computation of Ratio of Earnings to Fixed Charges filed herewith.

15 Letter from KPMG Peat Marwick LLP dated August 1, 1997 filed
herewith.

27 Financial Data Schedule filed herewith.

- ---------------------------------

* Indicates management compensation agreement.

(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, 1997 By: /s/ William C. Hammett, Jr.
--------------------------------
William C. Hammett, Jr.
Senior Vice President
Chief Financial Officer

August 11, 1997 By: /s/ Irene C. Primera
--------------------------------
Irene C. Primera
Vice President - Controller

INDEX TO EXHIBITS