HomeMy WebLinkAbout1991-502
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RESOLUTION NO.
91-502
RESOLUTION OF THE MAYOR AND COMMON COUNCIL
OF THE CITY OF SAN BERNARDINO APPROVING THE
APPLICATION OF LA QUINTA MOTOR INNS, INC.,
FOR INDUSTRIAL DEVELOPMENT BOND FINANCING;
DIRECTING THE PREPARATION OF CERTAIN
DOCUMENTS; AND MAKING CERTAIN OTHER FINDINGS
AND DETERMINATIONS IN CONNECTION THEREWITH
WHEREAS, the City of San Bernardino,
California
and pursuant to a Chapter adopted under the provisions of the
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Constitution of the State of California; and
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11 WHEREAS, pursuant to its home rule the City
powers,
12 duly and regularly enacted Ordinance No. 3815 (the "Ordinance")
13 to finance various types of projects, defined in the
as
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Ordinance, and to issue its special revenue bonds for the purpose
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of paying the cost of financing or refunding such projects, and
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has amended the same from time to time; and
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WHEREAS, said Ordinance No. 3815, as amended, is
19 intended to finance the development of industry and commerce and
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to thereby broaden the employment opportunities for residents of
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the City and its tax and revenue base; and
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WHEREAS, there has been presented to this Mayor and
ommon Council an Application, attached hereto as Exhibit "A" and
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incorporated herein by reference, by La Quinta Motor Inns, Inc.,
an Antonio, Texas (the "Applicant"), requesting the issuance of
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evenue bonds in the principal amount of not to exceed $7,000,000
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1 for the purpose of refunding the outstanding $7,000,000 city of
2 San Bernardino, California Industrial Development Revenue Bonds,
3 Series 1982A (La Quinta Motor Inns, Inc. Project) (the "1982
4 Bonds"), which were issued to finance a 153 room hotel facility
5 located in San Bernardino, California (the "Project").
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NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON
8 COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS:
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SECTION 1.
That the recitals set forth hereinabove
11 are true and correct and are incorporated herein by this
12 reference.
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15 is a municipal corporation duly created, established and
16 authorized to transact business and exercise its powers, all
17 under and pursuant to the Constitution and laws of the State of
18 California, and the city Charter of the City, and the powers of
19 the City include the power to issue bonds for any of its
SECTION 2.
The City of San Bernardino, California,
20 corporate purposes.
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SECTION 3.
Pursuant to the Charter of the City and
rdinance No. 3815, as amended, of the City, the City is legally
uthorized to issue special revenue bonds for the refunding of
onds issued for the construction financing of hotel facilities
s described in the recitals hereof.
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1 SECTION 4. This body constitutes the governing body
2 of the City and is legally authorized to provide for the issuance
3 of such special revenue bonds by the City.
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5 SECTION 5. The Project referred to in the recitals
6 hereof constitutes a project which may be financed or refinanced
7 by the issuance of such special revenue bonds by the City and is
8 located within the jurisdiction of the City.
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10 SECTION 6. The Application referred to in the
11 recitals hereof complies with the provisions and requirements of
12 said Ordinance No. 3815, as amended, and the Project involved in
13 such Application is hereby approved and the provisions of
14 Subsection (d) of Section 10 and Subsection (a) of Section 11 of
15 said Ordinance No. 3815 shall not apply.
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18 0 exercise the authority referred to in Section 3 hereof by
19 'ssuing bonds of the City in such amounts sufficient to refund
he 1982 Bonds.
SECTION 7.
The City hereby declares its intention
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22 SECTION 8. The bonds shall be payable from the
23 evenues described in said Ordinance No. 3815, as amended.
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25 SECTION 9. The bonds shall be and are special
26 bligations of the city, and, subject to the right of the City to
27 pply moneys as provided in the applicable laws, are secured by
28 uch revenues as are specified in the proceedings for the
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1 issuance of such bonds and funds and accounts to be held by the
2 trustee or fiscal agent, and are payable as to principal,
3 redemption price, if any, and interest from the revenues of the
4 City as therein described. The bonds are not a debt of the city,
5 the state of California or any of its political subdivisions, and
6 neither the city, the state, nor any of its political
7 subdivisions is liable thereon, nor in any event shall the bonds
8 be payable out of the funds or properties other than all or any
9 part of the revenues, mortgage loans, and funds and accounts as
10 in this Resolution set forth. The bonds do not constitute an
11 indebtedness within the meaning of any constitutional or
12 statutory debt limitation or restriction. Neither the persons
13 serving as the Mayor and Common Council nor any persons executing
14 the bonds shall be liable personally on the bonds or subject to
15 any personal liability or accountability by reason of the
16 issuance thereof.
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18 SECTION 10. The details of such bonds, including the
19 establishing of the aggregate face amount of such obligations,
20 shall be authorized by indenture, resolution or resolutions of
21 the City at a meeting or meetings to be held for such purpose.
22 The city Staff, Sabo & Green as Bond Counsel and Issuer's Counsel
23 to the City, the Applicant and the agents and representatives of
24 same are hereby authorized and directed to prepare or cause to be
25 prepared the necessary legal documents, including the Loan
26 Agreement, Resolution of Issuance, and such other documents as
27 may be necessary for the issuance of the bonds and to present the
28 same to said Mayor and Common Council. The Mayor of the City is
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1 hereby authorized and directed to coordinate the efforts of all
2 concerned relating to the issuance and sale of the bonds, and the
3 City staff, consultants, legal counsel to the City and Bond
4 Counsel as referenced above are hereby directed to take such
5 steps as shall be appropriate to implement such sale and delivery
6 of the bonds including working with persons who may acquire
7 vested rights as the result of such actions.
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9 SECTION 11. This Resolution constitutes a proper
10 exercise of the powers of this Mayor and Common Council and
11 conforms to State and local legal requirements relating to the
12 issuance of such special revenue bonds and other bonds or debt
13 obligations by a charter city in this state.
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15 SECTION 12. It is intended that this Resolution
16 shall constitute such "official action" toward the issuance of
17 the bonds within the meaning of the united States Treasury
18 Regulations, the United States Tax Laws, and any legislation now
19 or hereafter pending in the Congress of the united States which
20 may require official action in order for the bonds to be exempt
21 from Federal income taxation.
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23 SECTION 13. At the closing of the financing there
24 shall be paid to the City the fee set forth in Resolution No. 81-
25 108 of the Mayor and Common Council, adopted March 13, 1981, as
26 amended by Resolution No. 81-410, of the Mayor and Common
27 Council, adopted September 24, 1981.
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1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO APPROVING THE APPLICATION OF LA QUINTA MOTOR INNS,
2 INC., FOR INDUSTRIAL DEVELOPMENT BOND FINANCING; DIRECTING THE
PREPARATION OF CERTAIN DOCUMENTS; AND MAKING CERTAIN OTHER
3 FINDINGS AND DETERMINATIONS IN CONNECTION THEREWITH
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SECTION 14.
This Resolution shall take effect upon
the date of its adoption.
I HEREBY CERTIFY that the foregoing Resolution was duly
adopted by the Mayor and Common Council of the City of
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San Bernardino at a Joint Regular
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thereof, held on the 16 day of
11 the following to wit:
1991, by vote,
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meeting
December
13 Council Members: AYES
14 ESTRADA x
REILLY ----X..-
15 HERNANDEZ ----X..-
MAUDSLEY ----X..-
16 MINOR ----X..-
POPE-LUDLAM
17 MILLER ----X..-
NAYS
ABSTAIN
ABSENT
x
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day of
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{2c00; ~
'-City Cler~:/
The foregoing resolut. i~.~ is.~.herebY.~~ a. roved this 19th
December , 1991..~///7 / ..~ /.'.
//<j (/:- / . '
; ~a or of the city oV
San Bernardino
Approved as to form and legal content:
24 JAMES F. PENMAN
city Attorney
~: By: /l~..<\ J /2 /; (
/~
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1 EXHIBIT "A"
2 APPLICATION
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City of S Bdno Res. No. 91-502 adopted 12/16/91
PART I GENERAL AND BUSINESS INFORMATION
1.1 Legal name of the applicant: La Quinta Motor Inns, Inc. (the
"Company" )
1.2 La Quinta Motor Inns, Inc. develops, owns and operates a chain
of limited service inns. The La Quinta chain is located in 29
states, with concentrations in Texas, California and Florida.
1.3 Mailing address for Company: La Quinta Plaza
10100 San Pedro
San Antonio, Texas 78216
1.4 Company's Employer Identification Number: 74-1724417
1.5 Principal Contacts:
Mr. Alan Tallis
Executive Vice President
Ms. Ann L. Fuller
Interim General Counsel
1.6 Phone Numbers:
Mr. Alan Tallis
(512) 366-6052
Ms. Ann L. Fuller
(512) 366-6104
1.7 The Company is a corporation.
1.7.1 The Company was organized in the State of Texas
1.7.2 The Company was organized on August 28, 1978.
1.7.3 Of the 210 inns operated under the Company's name,
83 inns are wholly owned by the Company, 81 are
held in various partnerships or joint ventures
combined for purposes of the Company's financial
statements, and 40 are held in partnerships or
joint ventures accounted for as investments. Of
the 40 "La Quinta" inns held in partnerships or
joint ventures, 31 inns were sold by the Company in
1986 to a subsidiary limited partnership of La
Quinta Motor Inns Limited Partnership, a publicly
traded master limited partnership (for which
limited partnership is a wholly owned subsidiary of
the Company serves as general partner), and 9 inns
are owned by two j oint ventures with investment
portfolios managed by CIGNA Investments, Inc.
1.8 Constitution of ownership of the Company: As of September 30,
1991, 13,166.508 shares of Common Stock, $.10 par value were
outstanding. As of September 30, 1991, 14,668,014 shares of
the Company's Common Stock had been issued.
1.9 Names and Locations of key officials, including:
It: .:'. :; ;~l~l" A
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1.9.1
Principal Officers:
(A) Sam Barshop, San Antonio
(B) David B. Daviss, San Antonio
(C) Francis P. Bissaillon, San Antonio
(D) Alan L. Tallis, San Antonio
(E) Jerry N. Wiggins, San Antonio
1.9.2
Directors:
(A) Sam Barshop, San Antonio
(B) Philip M. Barshop, San Antonio
(C) Barry K. Fingerhut, New York, New York
(D) Dr. William H. Cunningham, Austin
(E) Donald J. McNamara, Dallas
(F) Peter Sterling, Fort Worth
(G) Robert G. Sutherland, La Jolla, California
(H) Edward B. Kelley, San Antonio
(I) George Kozmetsky, Austin
(J) Thomas M. Taylor, Fort Worth
1.9.3
Principal Stockholders (over 10% ownership):
There are incorporated in this item 1.9.3 by
reference to those portions of the Company's
definitive Proxy Statement dated April 1, 1991,
appearing on pages 5 through 7 under the captions
"Principal Shareholders and Shareholder Agreements"
and "Securi ty Ownership of Management", as
supplemented by the information appearing on pages
5, 6 and 7 of that certain Information Statement
dated June 21, 1991 under the caption "Security
Ownership". Copies of the Proxy Statement and the
Information Statement are attached hereto as
Exhibit "A" and incorporated herein for all
purposes.
1.10 Description of other business affiliations of principal
officers, directors and principal stockholders:
There is incorporated in this Item 1.10 by reference that
portion of the Company's definitive Proxy Statement, dated
April 1, 1991, appearing on pages 2 and 3, as supplemented by
the information appearing on pages 2, 3, and 4 of that certain
Information Statement dated June 21, 1991.
1.11 Employees
1.11.1
The Company presently employs
Bernardino, California.
The Company presently has
California.
27 employees in San
1.11.2
12 locations in
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1.12 Expert Services:
1.12.1
1.12.2
1.12.3
The Accounting firm of the Company:
KPMG Peat Marwick
112 East Pecan, Suite 2400
San Antonio, Texas 78205-1505
Attn: Dewey Chambers
The legal counsel for the Company:
Matthews & Branscomb, P.C.
106 S. St. Mary's, #800
San Antonio, Texas 78205
Julie A. Koppenheffer
(512) 299-3595
Fax: (512) 299-3556
Other experts or firms:
(A) The Placement Agent:
NCNB Investment Banking Co.
901 Main Street, 10th Floor
Dallas, Texas 75202
Mr. Charles P. Moncure, Jr.
Vice President
(214) 508-2752
Fax: (214) 508-2744
NCNB Investment Banking Co.
One NCNB Plaza, T-39
Charlotte, N C 28255
Mr. Jeffrey G. McNeill
Associate
(704) 386-1168
Fax: (704) 386-6432
(B) Placement Agent's Counsel:
Johnson & Gibbs, P.C.
100 Founders Square
900 Jackson Street
Dallas, Texas 75202-4499
Mr. Michael R. Schulman
(214) 977-9188
Fax: (214) 977-9004
Ms. Suzanne LePori
(512) 322-8170
Fax: (512) 322-8143
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(C) Remarketing Agent:
NCNB Investment Banking Co.
901 Main Street, 10th Floor
Dallas, Texas 75202
Mr. Charles P. Moncure, Jr.
Vice President
(214) 508-2752
Fax: (214) 508-2744
NCNB Investment
One NCNB Plaza,
Charlotte, N C
Banking Co.
T-39
28255
Mr. Jeffrey G. McNeill
Associate
(704) 386-1168
Fax: (704) 386-6432
( D) Trustee:
The First National
1 N. State Street,
Chicago, Illinois
Bank of Chicago
9th Floor
60602
Mr. Richard Manella
(312) 407-1864
Fax: (312) 407-1708
(E) Letter of Credit Bank:
NCNB Texas National Bank
901 Main Street, 67th Floor
Dallas, Texas 75202
Mr. Douglas E. Hutt
Vice President
(214) 508-0957
Mr. Jeffrey H. Susman
Asst. Vice President
(214) 508-0964
Fax: (214) 508-0980
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(F) Letter of Credit Bank's Counsel:
Donohoe, Jameson & Kolb
4848 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Mr. James Littlejohn
(214) 747-5700
Fax: (214) 744-0231
(G) Bond Counsel:
Sabo & Green
6320 Canoga Avenue, Suite 400
Woodland Hills, California 91367
Mr. Timothy Sabo
(818) 704-0195
Fax: (818) 704-4729
1.13 Principal Bank of Account and Handling Officers:
Frost National Bank
100 W. Houston Street
San Antonio, Texas 78205
Mr. Rupert Gresham
(512) 220-4472
1.14 Source of funding for Project:
The funding for the project will derive from the refunding of
the City of San Bernardino, California $7,000,000.00
Industrial Development Revenue Bonds, Series 1982A (La Quinta
Motor Inns, Inc. Project)
PART II BOND ISSUE
2.1 The estimated total amount of the financing package and the
proposed use of bond proceeds are as follows:
2.1.1
2.1.2
Project cost: $6,670,000.00
Legal, printing and related fees:
(A) Bond Counsel Fee: $30,000.00
(B) Placement Agent Counsel Fee: $8,000.00
(C) Company Counsel Fee: $31,000.00
(D) Bank (Loc) Counsel Fee: $8,000.00
(E) Issuer Counsel Fee: $
(F) User In-House Counsel Fee: $10,000.00
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(G) Printing Expense
Memorandum: - 0 -
Bond
and
Placement
2.1.3
2.1.4
2.1.5
Financing costs and fees: $
Capitalized interest: $
Miscellaneous costs: $
(A) Placement Agent Fee: $33,000.00
(B) Bank (Loc) Fee: $
(C) Paying Agent Fee: $
(D) Tender Agent Fee: $
(E) Trustee Fee: $
(F) Issuer Administrative Fees: $10,000.00
(G) Rating Agency Fees: $4,000.00
(H) Application Fee: $500.00
(I) Issuer Fee: $66,700.00
2.2 The estimated target date for the financing of the Project by
initiating official action by the City on the proposed bond
issue is December 2, 1991 with the TEFRA Hearing to occur on
January 6, 1992.
2.3 It is proposed that the financing for the Project will occur
no later than January 31, 1992.
2.4 The bond sale will be a private placement to sophisticated
investors.
PART III FINANCIAL INFORMATION
3.1 This Application includes the following financial statements,
certified or prepared by a CPA, from the three most recent
fiscal years:
The Balance Sheets, Income Statements and analysis of sources
and application of funds pertaining to the last three years
are contained in the Company's Annual Reports for the years
1989 and 1990. Copies of the Company's Annual Reports for 1989
and 1990 have been attached hereto as Exhibit "B" and
incorporated herein for all purposes.
3.2 The Company conducts a lodging business and operates 210 motor
inns under the Company I S name. No small business loan is
involved in the refunding and no federal guarantee is to be
used.
PART IV PROJECT INFORMATION
4.1 The project constructed and equipped with the proceeds of the
1982 bond issue to be refunded is a 153 room hotel facility
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with associated restaurant
approximately a 3.35 acre tract,
California. The Project is used
Bernardino, California.
facility
located in
as a hotel
consisting of
San Bernardino,
facility in San
4.2 Estimated total cost: N/A
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
Land
Buildings
Equipment
Engineering and technical services
Miscellaneous
4.3 Estimated construction period:
4.3.1
4.3.2
Scheduled start date:
Scheduled completion date:
N/A
N/A
4.4 Supervising or consulting engineer responsible for design:
N/A
4.5 The location of the project: 205 East Hospitality Lane, San
Bernardino, California 92408-3411
4.6 The project site is not a new location.
4.7 Legal owner of project location: La Quinta Motor Inns, Inc.
4.7.1 N/A
4.7.2 N/A
4.8 The Project is a 153 room hotel facility in San Bernardino,
California, with associated restaurant facilities.
4.8.1
4.8.2
A more detailed description of the project site is
attached hereto as Exhibit "c" and incorporated
herein for all purposes
Description of plant process: N/A
4.9 Environmental quality regulations, standards or requirements
which are to be met by this Project: N/A
4.10 List of permits, water quality enforcement order, air
pollution permits and variances: N/A
Pollution control agencies imposing
regulations, standards or requirements
disposal: N/A
the applicable
for operations or
4.11
4.12 The Project will conform to the following regional, county, or
basin plan: N/A
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4.13 By-products or residues of the Project: N/A
PART V PUBLIC BENEFITS
5.1 The Project is a hotel facility serving the City of San
Bernardino, California, and created approximately 27 jobs with
an approximate annual payroll of $367,213.50.
5.2 Pursuant to City Ordinance No. 3815, the Company finds the
following to be true:
(A) The Project is in furtherance of the public purpose of
the ordinance and is required or suitable for the
promotion of new employment opportunities;
(B) The Project has and will continue to provide and
encourage employment and the public welfare in the City;
(C) The Project has and will continue to contribute to the
economic growth of the City by significantly increasing
the property tax base in the City and promoting commerce
within the City, and
(D) The Company has no present intention of disposing of or
abandoning the Project or of directing the Project to a
use other than the purposes represented to the City.
PART VI COMMITMENTS
6.1 The Company by the submission of this Application agrees to
comply and/or to assist the City in complying with all State
and Federal laws in the issuance of the bonds or other such
tax-exempt obligations to refinance the Project, including,
without limitation, making of any required application to a
governmental department, for authorization, qualification or
registration of the offer, issuance or sale of the bonds or
other tax-exempt obligations, and any amendments thereto, and
any permit or other authorization of such governmental
department, prior to the delivery by the City of such bonds or
other tax-exempt obligations.
6.2 The Company further commits to cause and/or to assist the City
in causing to be printed any prospectus or other written or
printed communication proposed to be published in connection
with the issuance, offer or sale of bonds or other tax-exempt
obligations, prior to the delivery by the City of such bonds
or other tax-exempt obligations, and, to the extent deemed
necessary by the City, following delivery of such bonds or
other tax-exempt obligations.
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6.3 The Company also commits to pay all expenses in connection
with the issuance, offer or sale of the bonds or other tax-
exempt obligations, whether or not such bonds or other tax-
exempt obligations are finally issued, and to hold the City
harmless from any and all expenses related thereto, to pay
items on an ongoing basis so that neither the City, nor its
advisors, attorneys, employees and the like will accumulate
any claims against the City.
6.4 The Company will supply any additional information, agreements
and undertakings as the City may require as a result of
conferences and negotiations which will be reproduced and
supplied to the City and which shall be deemed as supplements
or amendments to this Application.
PART VII SIGNATURE
7.1 The undersigned as authorized officers of the Company as noted
below are the officers of the Company holding the prime
responsibility for the financing to be taken for the proposed
Project, and each certifies that such person has the authority
to bind the Company to contract terms; that this Application
to the best knowledge or belief of the undersigned, contains
no false or incorrect information or data, and this
Application, including exhibits and attachments hereto, is
truly descriptive of the proposed Project. The undersigned
also represents by the execution of this Application
familiarity with Ordinance No. 3815, as amended, of the City
of San Bernardino.
PART VIII FEE SCHEDULE
8.1 The Company acknowledges that the City requires a non-
refundable application fee of $50 for each project to be
considered for eligibility, to be paid when the basic
documents are requested. With the submittal of this
Application, $500 is payable to the City. If this Application
is accepted, an additional fee of $10,000 is payable for
administrative costs. The Company acknowledges that the
commitments in Part VI above are in addition to these fixed
amounts. Thus, in the event that no closing occurs, the City
shall be reimbursed for its processing costs.
8.2 All fees of the City may be capitalized and included in the
bond issue as acceptable to the bond purchaser.
8.3 The Company acknowledges that the City derives its entire
support from the fees for the services to be provided in
processing this Application. The total function of the City
in processing this Application is conducted on a self-
supporting basis, and involves no State general revenues or
expenditures from taxes from the state or any of its political
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subdivisions. No indebtedness or taxing power of the City is
involved in connection with this financing program. Project
revenues are the sole security for bonds of the City. The
federal guarantees, if any, enhance these revenues and income
and the security of the bonds.
8.4 Pursuant to Resolution No. 81-108 of the City, as amended by
Resolution No. 81-410 of the City, one percent (1%) of the
principal amount of the bond issue shall be deposited in the
Ci ty Treasury in the Industrial Revenue Bond Reserve and
Development Fund, which shall be used in such manner as the
Mayor and Common Council may direct from time to time. In
light of the fact that this is a refunding, and that this fee
was paid in connection with the issuance of the 1982 bonds,
the Company requests that this fee be waived.
"COMPANY"
LA QUINTA MOTOR INNS, INC.
By:
Title:
7l ~~~
In erlID General Counsel
Exhibits:
Exhibit "A"
Exhibit "B"
Exhibit "C"
Proxy Statement
Annual Reports
Map of Real Property
ARR0409A
11/25/91-1
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LA OUINT~
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April I, 1991
Dear Shareholder:
You are cordially invited to attend the 1991 Annual Meeting of Shareholders of La Quinta Motor Inns,
Inc. The meeting will be held on Thursday, May 16, 1991, in the Conference and Training Room of the La
Quinta Inn - Northeast, 12810 1-35 (1-35 & Toepperwein Rd.), San Antonio, Texas at 10:00 a.m., local
time.
The Notice of meeting and the Proxy Statement on the following pages cover the formal business of the
meeting, which includes the election of directors and approval of auditors. To familiarize you with the
nominees for director, all of whom served as directors last year, the Proxy Statement contains biographical
information of each nominee.
We hope you will be able to attend the Annual Meeting of Shareholders. In any event, in order that we
may be assured of a quorum, please sign the accompanying Proxy Card and return it promptly in the envelope
enclosed for your use. Your vote is important. We appreciate your confidence and continued support.
Sincerely,
~
Sam Barshop
President, Chief Executive Officer
& Chairman of the Board
La Quints Motor Inns, Inc. . 10010 San Pedro Ave. . San Antonio, Texas 78216 . (512) 366.6000
P.O. Box 790064 . San Antonio, Texas 78279-0064
EXHIBIT "A"
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LA OUINTJt
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 16, 1991
The Annual Meeting of Shareholders of La Quinta Motor Inns, Inc., a Texas corporation (the
"Company"), will be held in the Conference and Training Room of the La Quinta Inn - Northeast,
12810 1-35 (1-35 & Toepperwein Rd.), San Antonio, Texas, on Thursday, May 16,1991, at 10:00 a.m., for the
purpose of considering and acting upon the following:
I. The election of eleven (II) Directors of the Company;
2. The approval of the appointment of independent auditors for 1991; and
3. The transaction of such other business as may lawfully come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on March 19, 1991, are entitled to notice of and to
vote at the meeting or any adjournment thereof.
We hope you will be represented at the meeting by signing and returning the enclosed proxy card in the
accompanying envelope as promptly as possible, whether or not you expect to be present in person. The vote
of every shareholder is important and the Board of Directors of the Company appreciates the cooperation of
shareholders in promptly returning proxies which helps limit expenses incident to proxy solicitation.
BY ORDER OF THE
BOARD OF DIRECTORS
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Norman S. Davis
Secretary
April I, 1991
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LA OUINT~
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P. O. Box 790064
San Antonio, Texas 78279-0064
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited on behalf of the Board of Directors of La Quinta Motor Inns, Inc., a Texas
corporation (the "Company"), for use at the Annual Meeting of Shareholders on Thursday, May 16, 1991, at
10:00 a.m. to be held in the Conference and Training Room of the La Quinta Inn - Northeast, 12810 1-35
(1-35 & Toepperwein Rd.), San Antonio, Texas, and at any adjournment thereof.
The cost of soliciting proxies will be borne by the Company. In addition, the Company will reimburse its
transfer agent and Georgeson & Co. for charges and expenses in connection with the distribution of proxy
material to brokers or other persons holding stock in their names or in the names of their nominees and for
charges and expenses in forwarding proxies and proxy material to the beneficial owners. Georgeson & Co. has
also been retained to assist the Company in soliciting proxies in connection with this year's Annual Meeting of
Shareholders. The fee for such proxy solicitation assistance is estimated to be approximately $10,000 plus
actual expenses. Solicitations may further be made by officers and regular employees of the Company,
without additional compensation, by use of the mails, telephone, telegraph or by personal calls.
Any Shareholder giving a proxy for the meeting has the power to revoke it at any time prior to its use by
granting a subsequently dated proxy, by attending the Annual Meeting and voting in person, or by otherwise
giving notice in person or in writing to the Secretary of the Company. The approximate date on which this
Proxy Statement and the accompanying form of proxy are first sent or given to security holders is April 12,
1991.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock of the Company at the close of business on March 19, 1991,
shall be entitled to vote at the meeting. There were 13,124,511 shares of Common Stock issued and
outstanding on the record date. Each share outstanding entitles the holder thereof to one vote.
ELECTION OF DIRECTORS
(PROPOSAL NO. I)
The Board of Directors has, pursuant to the Company's Amended and Restated By-Laws, fixed the
number of directors of the Board of Directors at eleven (II) members. Eleven directors, constituting the
entire Board, are to be elected at the Annual Meeting. Each director is to hold office until the next Annual
Meeting and until his or her successor is elected and qualified.
The proxies named in the accompanying proxy, who have been designated by the Board of Directors of
the Company, intend to vote for the following nominees for election as directors, unless otherwise instructed in
such proxy. The Board of Directors has no reason to believe that any nominee will be unable to serve if
elected. In the event any nominee shall become unavailable for election, the proxies named in the
(f
.
.
accompanying proxy intend to vote for the election of a substitute nominee of their selection or the Board of
Directors may reduce the number of directors to be elected. All nominees were previously elected by
shareholders. Certain information concerning such nominees is set forth below:
S."ed
.s
Director
Since
Nominee
for
Director
Sam Barshop (I)
Philip M. Barshop
Rita C. Clements
Dr. William H. Cunningham
David B. Daviss
R. Ted Enloe, II I
1972
1972
1984
1985
1980
1977
Age Principal Occupation
61 President, Chief Executive Officer and Chairman of the
Board of the Company; President and Chairman of the
Board of La Quinta Realty Corp., a wholly-owned
subsidiary of the Company and the sole general partner
of La Quinta Motor Inns Limited Partnership since
1986; Director of Southwest Airlines Co.; Vice Chair-
man, Board of Regents - University of Texas System.
55 Real Estate and Personal Investments.
59 Investments; First Lady of Texas 1979-1983 and 1987-
January 1991; active in Civic and Community Affairs
on a Local, State and National level; married to Former
Governor of Texas, William P. Clements, Jr.
47 President of The University of Texas at Austin since
September 1985; formerly Dean of the College of
Business Administration and Graduate School of Busi-
ness of The University of Texas at Austin from 1983 to
August 1985; Professor of Marketing, University of
Texas at Austin, from 1979 to present; Director of
Freeport McMoRan Inc., Jefferson-Pilot Corporation,
and investment companies managed by Transamerica
Fund Management Company: Transamerica Technol-
ogy Fund, Transamerica Bond Fund, Transamerica
Investment Trust, Transamerica Special Equity Portfo-
lios, Transamerica Special Series, Inc., Transamerica
Current Interest, Inc., Transamerica Sunbelt Growth
Fund, Inc., Transamerica California Tax Free Income
Fund, Transamerica Cash Reserve, [nc., Transamerica
Tax Free Bond Fund; and Advisory Director of Texas
Commerce Bank-Austin.
54 Executive Vice President & Chief Operating Officer of
the Company since January 1985; Director of La
Quinta Realty Corp., a wholly-owned subsidiary of the
Company and the sole general partner of La Quinta
Motor Inns Limited Partnership since 1986; Director of
Luby's Cafeterias, Inc.
53 President and Director of Lomas Financial Corporation;
President and Trustee of Lomas & Nettleton Mortgage
Investors; President and Director of L & N Housing
Corp.; Director of Lomas Mortgage Corporation;
Chairman and Director of Seamen's Corporation; Vice
Chairman and Director of The Seamen's Bank for
Savings, FSB; Director of TGX Corporation, Leggett
& Platt, Incorporated, and Compaq Computer Corpo-
ration.
2
If
.
Nominee
ror
Director
Served
"'
Director
Since
T. C. Frost
1973
Edward B. Kelley
1988
Dr. George Kozmetsky
1980
Chris J. D. Rote
1973
Alden E. Wagner
1973
.
Age Principal Occupation
63 Chairman of the Board of Cullen/Frost Bankers, Inc.;
Chairman of the Board of Frost National Bank since
May 1985; prior thereto Senior Chairman of the Board
of Frost National Bank; Director of Southwestern Bell
Corporation and Tesoro Petroleum Corporation.
50 President of USAA Real Estate Division since August
1989; prior thereto Executive Vice President and Chief
Operating Officer USAA Real Estate Group from
April 1989 to August 1989; prior thereto President and
Advisory Director of Barshop Enterprises, Inc. and all
of its corporate subsidiaries; member of Board of Trust-
ees and Executive Committee of St. Mary's University,
member of Board of Trustees of Baptist Memorial
Hospital System of San Antonio, and Real Estate
Investment Advisor to Teachers Retirement System of
Texas.
73 Director of the IC' Institute at The University of Texas at
Austin; Executive Associate for Economic Affairs for
The University of Texas System; Professor of Manage-
ment and Computer Science, The University of Texas
at Austin; formerly Dean of the College of Business
Administration and Graduate School of Business of
The University of Texas at Austin; Director of
Teledyne, Inc., Dell Computer Corporation, Hyrdil
Co., Inc., Paine-Webber Development Corporation,
Inc., Scientific & Engineering Software, Inc. and KDT
Industries, Inc.
59 Vice Chairman of Merrill Lynch Business Brokerage &
Valuation since February 1991; prior thereto President,
Merrill Lynch Private Resources from August 1987 to
February 1991; Executive Director of Merrill Lynch
Private Capital, Inc. from 1984 to August 1987; prior
thereto Senior Vice President and Director of Rotan
MosIe, Inc.
68 President of Versatex Management Corporation and
Hallmark Construction Co.; Director of Cullen/ Frost
Bank Dallas.
(I) Sam Barshop is a principal shareholder of the Company, beneficially owning 13.1 % of the Company's
issued and outstanding Common Stock, and may be deemed to be a control person of the Company other
than solely as a director.
None of the nominees for director or executive officers of the Company has a family relationship with any
of the other nominees for director or executive officers except for Sam Barshop and Philip M. Barshop, who
are brothers.
Except as indicated above, none of the nominees for director is a director of any other company which has
a class of securities registered under, or is required to file reports under, the Securities Exchange Act of 1934
or of any company registered under the Investment Company Act of 1940.
3
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MEETINGS AND COMMITIEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held seven meetings during the year ended December 31, 1990.
Each director attended 75% or more of (a) the total number of meetings of the Board during his or her term
as Director and (b) the total number of meetings held by all committees of the Board on which he or she
served during such term.
The Audit Committee of the Board of Directors is composed of Messrs. Enloe, Frost (Chairman),
Kozmetsky, Rote and Wagner. The Audit Committee has the responsibility, among other things, to
recommend the selection of the Company's independent accountants, review and approve the scope of the
independent accountants' audit activities, review the Company's financial statements which are the subject of
the independent accountants' certification, review with such independent accountants the adequacy of the
Company's basic accounting system and the effectiveness of the Company's internal audit activities, and
review related party transactions. Five meetings of the Audit Committee were held during the year ended
December 31, 1990.
The Compensation Committee of the Board of Directors is composed of Messrs. Cunningham
(Chairman), Kelley and Wagner. The Compensation Committee, which held three meetings during the year
ended December 31, 1990, reviews the salaries, bonuses, stock option grants and other direct and indirect
benefits for all Company officers and key employees, and also reviews and submits to the entire Board of
Directors recommendations concerning compensation and stock option plans.
The Company's 1978 and 1984 Stock Option Plans are administered by the Stock Option Committee of
the Board of Directors. It has the sole authority to grant options to employees of the Company. Until
November 12,1990, the Stock Option Committee consisted of Messrs. Sam Barshop (Chairman), Cunning-
ham, Kelly and Wagner. Mr. Sam Barshop resigned as a member of the Stock Option Committee effective
November 12, 1990. Since the date of Mr. Barshop's resignation, the Committee has been composed of
Messrs. Cunningham (Chairman), Kelley and Wagner.
The Marketing Committee of the Board of Directors is composed of Mrs. Clements and Messrs. Sam
Barshop, Cunningham (Chairman) and Daviss. The Marketing Committee, which held five meetings during
the year ended December 31, 1990, reviews marketing, sales and other promotional efforts of the Company to
market and promote its nationwide system of inns. It reviews and approves all major media campaigns to be
funded through the Company's National Advertising Fund.
The Board of Directors has created an Executive Committee of the Board, consisting of Messrs. Sam
Barshop and Philip M. Barshop, which has the authority to exercise substantially all powers of the Board that
may be legally delegated to it by the Board in the management and direction of the business and affairs of the
Company during the intervals between meetings of the Board of Directors, other than matters involving a
commitment in excess of $10,000,000.
The entire Board of Directors acts as the nominating committee for directors and will consider
nominations by shareholders for directors. Any such nominations for the election to be considered at the next
Annual Meeting, currently scheduled for May 1992, together with a statement of the nominee's qualifications
and consent to be considered as a nominee and to serve if elected, should be mailed to the Secretary of the
Company no later than December 12, 1991, if the proponent desires the nominee to be included in the
Company's proxy statement for the 1992 Annual Meeting of Shareholders; otherwise, according to the
Company's amended and restated By-Laws, nominations for director must be made by a shareholder in
writing by mailing same to the Secretary of the Company not later than 90 days in advance of an Annual
Meeting, unless waived by the Board of Directors.
4
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PRINCIPAL SHAREHOLDERS AND SHAREHOLDER AGREEMENTS
Principal Sbarebolders
Tbe Company knows of no person wbo, as of March 19, 1991, owned beneficially more tban five percent
(5%) of the Company's outstanding voting securities, except as indicated in the table below. However, as of
such date, Cede and Co., nominee of The Depository Trust Company, held of record 10,060,390 shares of
Common Stock (approximately 76.7% of the Company's outstanding Common Stock), all of which shares
were held for the accounts of member firms of stock exchanges or for institutions participating in tbe facilities
of The Depository Trust Company.
Name and Address
of Beneficial Owner
Shares of Common Stock
Beneficially Owned as of
Marth 19, 1991
1,715,554(1)
Percent of Class
Sam Barsbop
212 La Rue Ann Court
San Antonio, Texas 78213
Thomas M. Taylor & Co.
Trust for tbe benefit of Mr. Taylor's son
Sid R. Bass, Inc.
Lee M. Bass, Inc.
(as a Group)
clo W. Robert Cotham
Attorney-in-fact
2600 First City Bank Tower
Fort Worth, Texas 76102
Industrial Equity (Pacific) Limited
7825 Fay Avenue, Suite 380
La Jolla, CA 92037
GeoCapital Corporation
Barry K. Fingerhut
655 Madison A venue
New York, New York 10021
(as a Group)
13.1%
761,200
1,000
596,450
596,450
1,955,100(2) (5)
5.8%
.
4.5%
4.5%
14.9%
1,964,300(3) (5)
14.9%
1,385,300
2,000
10.6%
.
1,387,300(4) (5)
10.6%
· Less than one percent (I %)
(1) The sbares shown for Sam Barshop include 282 shares held by his wife and 7,960 shares held by bim as
co-trustee for the benefit of his grandchildren. As a co-trustee, Sam Barshop shares voting and
investment power with respect to such shares. However, he disclaims beneficial ownership of the 7,960
shares held by him as trustee.
(2) An October 18, 1990 Schedule l3D amendment provided to the Company reflects that Thomas M.
Taylor has "sole voting power" and "sole dispositive power" with respect to 761,200 shares, Sid R. Bass
witb respect to 596,950 shares and Lee M. Bass with respect to 596,950 shares.
(3) An October 26,1990 Schedule 13D amendment provided to the Company reflects that Industrial Equity
(Pacific) Limited has "sole voting power" and "sole dispositive power" with respect to 1,964,300 shares.
(4) A February 8,1991 Schedule 13G provided to the Company reflects that (i) GeoCapital Corporation is
an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, which has no
voting power with respect to the shares, but which has "sole dispositive power" with respect to 1,385,300
shares, and (ii) Mr. Fingerhut is a principal stockholder of GeoCapital Corporation, who directly owns
2,000 shares in his own name. Mr. Fingerhut disclaims beneficial ownership over the 1,385,300 shares
deemed beneficially owned by GeoCapital Corporation.
(5) Based solely on statements filed with the Securities and Exchange Commission and furnished to the
Company by such persons; no independent investigation concerning the accuracy thereof has been made
by the Company.
5
f(
.
.
Shareholder Agreements
On February 7, 1991, the group consisting of Thomas M. Taylor & Co., Sid R. Bass, Inc. and Lee M.
Bass, Inc. (the "Taylor-Bass Group") entered into an agreement (the "Shareholder Agreement") with the
Company, under which the Taylor-Bass Group agreed (i) not to nominate any directors at the 1991 Annual
Meeting of Shareholders, (ii) to vote 111 of the 1,955,100 shares of the Company's Common Stock held by
them for the election of the nominees for director proposed herein, and (iii) not to call any special meeting of
shareholders of the Company before May 16, 1991. In exchange, the Company agreed to amend its By-Laws
to, among other things, permit shareholders at any special meeting called and occurring on or after May 17,
1991 to remove directors of the Company, with or without cause, by majority vote of all outstanding shares of
the Company's Common Stock, and to elect new directors to fill the vacancies created by such removal. This
By-Law amendment was adopted by the Board of Directors of the Company on February 7, 1991.
Under the Shareholder Agreement, the Company further agreed, among other things, not to (i) change
the date of the 1991 Annual Meeting of Shareholders or solicit proxies in connection therewith for any matters
other than the election of directors, approval of auditors or amendments to stock option plans without at least
50 days' prior notice to the Taylor-Bass Group, (ii) amend or propose to amend its Articles of Incorporation,
By-Laws, or the Shareholder Rights Plan adopted in September 1990, (iii) enter into any agreement with the
holder of more than 5% of the Company's outstanding shares of stock, or (iv) enter into any agreement or
modify any existing agreement, the substantial purpose of which is to discourage the potential sale or
acquisition of the Company. All covenants under the Shareholder Agreement expire on July 15, 1991, except
for an agreement by the Company not amend its By-Laws before June 30, 1992 to remove, limit or qualify the
provision permitting shareholders to remove directors at any special meeting by majority vote of outstanding
shares, with or without cause.
SECURITY OWNERSHIP OF MANAGEMENT
Based upon information received upon requests from the persons concerned, each nominee for director,
and all directors and officers of the Company as a group, owned beneficially as of March 19, 1991, the number
and percentage of outstanding shares of Common Stock of the Company indicated in the following table:
Names of Individual
or Identity of Group
Sam Barshop
Philip M. Barshop
Rita C. Clements
William H. Cunningham
David B. Daviss
R. Ted Enloe, III
T. C. Frost
Edward B. Kelley
George Kozmetsky
Chris J. D. Rote
Alden E. Wagner
All directors and officers as a group
(34 persons for the full year and
4 persons for portions of the year)
Shares Beneficially Owned
as of March 19, 1991 Percent of Class
1,715,554(1) 13.1%
28,384 (2) .
5,100 .
0 0%
85,298(3) .
0 0%
1,000 .
432 .
0 0%
0 0%
134,901 (4) 1.0%
2,405,255(5) 17.8%
. Less than one percent (I %)
(1) The shares shown for Sam Barshop include 282 shares held by his wife and 7,960 shares held by him as
co-trustee of a trust for the benefit of his grandchildren. As a co-trustee, Mr. Barshop shares voting and
investment power with respect to such shares. However, he disclaims beneficial ownership of those
shares held by him as trustee.
6
((
.
.
(2) The shares shown for Philip M. Barshop include 282 shares held by his wife and 24,401 shares held by
him as co-trustee of a trust for the benefit of the children of his brother, Sam Barshop. As co-trustee,
Mr. Barshop exercises voting and investment power with respect to such shares. However, he disclaims
beneficial ownership of those shares held by him as trustee.
(3) The shares shown for Mr. Daviss include 43,296 shares which he has the right to acquire under the
Company's Stock Option Plans.
(4) The shares shown for Mr. Wagner include 1,801 shares held by his wife.
(5) The holdings shown for all directors and officers as a group include 403,517 shares which certain officers
have the right to acquire under the Company's Stock Option Plans. Shares acquirable pursuant to stock
options, which are exercisable within sixty (60) days after April I, 1990, are shown as being beneficially
owned by members of the group in the above table and have been considered to be outstanding for
purposes of calculating the percentage ownership of all directors and officers as a group.
All directors and officers as a group other than Sam Barshop beneficially own a total of 276,184 shares
(2.1%) of the Company's outstanding Common Stock excluding the 403,517 shares referred to above which
certain officers have the right to acquire under the Company's Stock Option Plans.
Except as reflected in the notes to the preceding table, each nominee for director owns directly the
number of shares indicated in the table and has the sole power to vote and dispose of such shares.
EXECUTIVE COMPENSATION
Cash Compensation
The following table contains information with respect to cash compensation for services rendered in all
capacities to the Company during the year ended December 31, 1990, for each of the five most highly
compensated executive officers of the Company and for all executive officers of the Company as a group.
Name of IndiYidual
or Persons in Group
Capacities in Which Sened
Cash
Compensation
$ 371,036
$ 263,239
$ 209,949
$ 195,588
$ 180,993
$1,434,806
David B. Daviss
Chairman of the Board, Chief Executive
Officer and President
Executive Vice President & Chief Operating
Officer
Senior Vice President - Development
Senior Vice President - Finance
Senior Vice President - Administration
& Treasurer
Sam Barshop
Alan L. Tallis
Walter J. Biegler
Francis P. Bissaillon
All executive officers as a group
(6 persons for the full year and
I person for a portion of the year)
COMPENSATION PURSUANT TO PLANS
Incentive Compensation Plan
The Company has an incentive compensation plan which rewards officers and other key employees of tbe
Company who are in a position to make substantial contributions to the growth and profitability of the
Company. Continuance of the plan and the granting of bonuses or awards thereunder are discretionary and
are considered annually by the Compensation Committee of the Board of Directors. The bonus plan approved
by the Compensation Committee for the year ended December 31, 1990 provided only for discretionary
bonuses and awards based on individual performance against previously established departmental and personal
goals. The Company has historically recognized the importance of providing incentives for Company
7
II
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.
performance and individual goal attainment. The bonus plan for the year ended December 31, 1990 did not
contain provision for, nor were any payments made, based on Company performance.
Plan participants include 21 officers of the Company and 41 non-officer key management persons. In
addition the Company's Divisional Vice Presidents and 19 Regional Managers are covered by a separate
Operation's bonus plan. The amounts shown in the Cash Compensation Table above include amounts paid on
February IS, 1991 as bonuses for individual goal attainment during the year ended December 31, 1990. The
individuals and group named in the Cash Compensation Table above received the following bonuses under the
Company's incentive compensation plan for the year ended December 31, 1990: Mr. Sam Barshop, $66,346;
Mr. Daviss, $47,937; Mr. Tallis, $34,075; Mr. Biegler, $26,285; Mr. Bissaillon, $30,000; and all executive
officers of the Company as a group, $232,643. During the year ended December 31, 1990, bonuses and awards
under incentive compensation plans accrued to all other participating officers and key employees of the
Company as a group, and paid on February IS, 1991 amounted to $754,749.
Deferred Compensation Plan
The Company has a Deferred Compensation Plan, the purpose of which is to provide additional
compensation of a deferred nature, and salary deferral opportunities, for a select group of executive employees
who materially contribute to the growth, development and future success of the Company. It is administered
as an unfunded pension benefit plan for these highly compensated employees. All corporate officers are
eligible to be nominated for participation. Eligible employees are designated as participants by the
Compensation Committee.
Annual awards are a percentage of the participant's base salary as in effect as of the end of each plan year
as the Compensation Committee shall designate - designated to be 7% for 1990. Such awards are credited to
a general ledger reserve account in the participant's name as of the end of each plan year. The account is not
funded and the participant shall be a general creditor of the Company. Amounts so credited shall be
incremented on a quarterly basis, with the quarterly equivalent of the Federal Short-term Rate published by
the Internal Revenue Service as in effect on the prior January 2. The accumulated balance in a participant's
account, less any outstanding loans, shall be paid to a participant as a retirement benefit as soon as practicable
following the earlier of: (I) the January 2 following the later of the participant's 65th birthday or retirement
from the Company; (2) death of the participant; or (3) an event constituting a change-in-control of the
Company. Additionally, a participant may elect that all or any part of his or her base salary may be deferred
from current income and credited to the general ledger reserve account. Deferred amounts would be credited
monthly and would be subject to the same interest incrementation as annual awards. Such amounts would be
payable at the same time as accumulated annual awards. All amounts credited to general ledger reserve
accounts under this plan shall be fully vested when credited.
Participants may borrow all or any part of the accumulated balance in his or her general ledger reserve
account from the Company. Loans shall be made on a term basis, expiring on the last day of the plan year.
There are no limitations on the number of loans available to a participant, or on the participant's ability to
refinance an expiring loan. However. no more than 24 participants may have loans outstanding during any
plan year. Loans may be made to participants who are no longer in the Company's employ only with the
consent of the Compensation Committee. Loans shall bear interest at the Federal Short-term Rate, as defined
above, compounded quarterly. Any outstanding loan shall be netted against the amount payable at payment
time, as defined above.
Two of the persons named in the Cash Compensation Table above received the following credits under
the Deferred Compensation Plan for the fiscal year ended December 31, 1990: Mr. Barshop, $21,000; and
Mr. Daviss, $14,700. To date no additional individuals have been designated to participate in the plan.
Retirement Plans
The Company has, since 1969, maintained a non-contributory defined benefit pension plan (the
"Retirement Plan"), which is a qualified plan under Federal tax laws, for all of its full-time employees who
have attained the age of 21, which is designed to provide annual retirement benefits to employees, subject to
8
(I
.
.
age and period-of-employment conditions. As a result of changes in the law governing retirement plans,
during the fiscal year ended May 31, 1989 the Board of Directors adopted (i) resolutions amending the
Retirement Plan, which amendments exclude from future eligibility to participate in the Retirement Plan
"highly compensated employees" defined under Internal Revenue Service ("IRS") regulations to be
individuals whose annual compensation exceeds $56,990 for 1990, and (ii) resolutions establishing a
Supplemental Executive Retirement Plan for highly compensated employees, which constitutes a non-
qualified plan under Federal tax laws ("SERP" or the "Non-Qualified Plan"). The Board's objectives in
adopting said action included maintaining current levels of benefits for officers and key employees while
maintaining the cost to the Company of providing retirement benefits and structuring plans that are easier to
communicate, understand and administer.
Retirement Plan Prior to Amendments: Plan compensation included base salary, overtime and bonuses,
but not compensation resulting from the exercise of stock options. Company contributions were on an
aggregate basis with no separate identity as to amounts paid or set aside with respect to each individual.
Retirement benefits for an employee at age 65 were generally computed by subtracting 80% of the employee's
primary Social Security benefits from an amount equalling 60% of an employee's plan compensation, which
was the employee's highest average compensation for the last five consecutive completed calendar years out of
the last ten years prior to Normal Retirement Date (i.e., the first day of the month immediately following an
employee's 65th birthday or ten year anniversary of credited service, whichever is later). This figure, after
reduction by one-twentieth for each year of credited service less than twenty years, would equal the employee's
normal annual retirement benefit. The maximum pension benefit was payable for employees who have
completed twenty years of credited service under the Retirement Plan and have attained the age of 65. An
employee's accrued benefit (that portion of the full retirement benefit credited to an employee at any given
point in time) became fully vested upon the earlier of Normal Retirement Date or after fifteen years of
credited service pursuant to a vesting schedule. The accrued benefit was calculated by dividing an employee's
years of credited service by the number of years he or she would have to serve until Normal Retirement Date
(age 65 or 10 years of service, whichever was later), and then multiplying that amount by the employee's
normal retirement benefit.
Retirement Plan After Amendments: The "Normal Retirement Date" has been changed to the later of
age 65 or the fifth anniversary of plan participation. Accrued benefits at December 3 I, 1988 have been frozen
(after being updated to accrue fully after 20 years of employment), the benefit formula for future years has
been changed to I % of each year's compensation (with minimum accrual based on prior formula and 1988
earnings for participants as of December 31, 1988), and highly compensated employees (as defined by IRS
rules) are excluded from active participation and cease to accrue further benefits under the Retirement Plan.
The vesting schedule has been changed to provide 100% vesting after 5 years of Vesting Service. In addition,
the maximum benefit limitation under the Retirement Plan was increased from $90,000 to $94,023 per year.
All employees not considered highly compensated according to IRS rules ($56,990 for 1990) are covered by
the Plan once the age and service requirements are met. An active participant who becomes highly
compensated becomes an inactive participant, and earns no additional benefit accruals. Employees are
credited with one year for each plan year with at least 1,000 hours worked ("Vesting Service"). Retirement
Plan compensation includes normal base pay plus overtime and bonus during a plan year, but not
compensation resulting from the exercise of stock options or deferred compensation. Early retirement is
allowed after the employee has attained age 55 and has 15 years of Vesting Service. The accrued monthly
benefit at Normal Retirement Date equals the accrued benefit as of December 31, 1988 based on the benefit
formula in effect under the plan at that time plus, for years after 1988, the sum of I % of each year's
Compensation, divided by 12. Commencement of benefit payments prior to Normal Retirement Date is
subject to actuarial reduction. The Retirement Plan also provides late retirement, termination and death
benefit provisions.
Supplemental Executive Retirement Plan: The Non-Qualified Plan became effective January I, 1989.
It covers all employees considered highly compensated according to I RS rules (currently those earning over
$56,990 per year) 'who have attained the age of 21 and have completed one year of service, or the time at
which an individual becomes a Covered Employee, if later. "Vesting Service" under the SERP is one year for
9
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each plan year with at least 1,000 hours worked. "Credited Service" is years and partial years of service from
date of employment to date of termination, exclusive of breaks in service. "Compensation" includes normal
base pay plus overtime and bonus during a plan year, but not compensation resulting from the exercise of stock
options or deferred compensation. For the computation of benefits, "Plan Compensation" under the SERP is
defined as the average of Compensation for the highest five consecutive calendar years out of the last ten
completed calendar years of Credited Service. "Estimated Annual Primary Insurance Amount" is the
estimated old-age insurance benefit payable at age 65, based on the Social Security Act as in effect on the
determination date (calculated assuming constant earnings to age 65 if determination is prior to age 65).
"Normal Retirement Date" is the first day of the month coincident with or next following the later of the
employee's 65th birthday or the fifth anniversary of plan participation. And, "Early Retirement Date" is the
first day of any month after the employee has attained the age of 55 and has 15 years of Vesting Service. The
accrued monthly benefit at Normal Retirement Date equals 'I" of 60% of Plan Compensation less 80% of the
Estimated Annual Primary Insurance Amount, reduced prorata if Credited Service is less than 20 years at the
determination date, less any accrued benefit earned under the Retirement Plan. Commencement of benefit
payments prior to Normal Retirement Date is subject to actuarial reduction. The vesting schedule provides
for 100% vesting after 5 years of Vesting Service. The SERP also provides late retirement, termination and
death benefits. Pursuant to an amendment of the Non-Qualified Plan by the Company's Board of Directors in
January 1991, maximum benefits under the SERP are $98,064 per year for all participants, except the six (6)
most highly compensated employees, for whom there is no maximum. As with the Retirement Plan, the
Company pays the entire cost of the SERP.
Using estimated Social Security of $12,264 (the Estimated Annual Primary Insurance Amount for an
age 65 retiree in 1989, with maximum Social Security earnings in all years), the estimated annual retirement
benefits under both the Retirement Plan and the SERP are set forth in the following table:
Average Years of Senice at Retirement
Annual
Compensation 10 IS 10 IS 30
$100,000 . . . . . . . . . . .. . . . . . . $ 25,094 37,642 50,189 50,189 50,189
125,000 . . . . . . . . . . . . .. . . . . 32,594 48,892 65,189 65,189 65,189
150,000................. . 40,094 60,142 80,189 80,189 80,189
175,000................. . 47,594 71,392 95,189 95,189 95,189 t"
200,000 . . . . . . . . . . . .. . . . . . 55,094 82,642 110,189 110,189 110,189
225,000 . . . . . . . . . . . . . . . . . . 62,594 93,892 125,189 125,189 125,189
250,000 . . . . . . . . . . . . . . . . . . 70,094 105,142 140,189 140,189 140,189
275,000. . . . . . . . . . . . . . . . . . 77,594 116,392 155,189 155,189 155,189
300,000................. . 85,094 127,642 170,189 170,189 170, I 89
325,000 . .. . . . . . . . . . . . . . . . 92,594 138,892 185,189 185,189 185,189
350,000 .. .. . .. . .. .. .. .. .. 100,094 150,142 200,189 200,189 200,189
375,000 . . . . . . . . . . . . . .. . . . 107,594 161,392 215,189 215,189 215,189
400,000................. . 115,094 172,642 230,189 230,189 230,189
The years of credited service under the Company's Retirement Plans for the persons named in the Cash
Compensation Table are as follows: Mr. Sam Barshop, 24 years; Mr. Daviss, 12 years; Mr. Tallis, 10 years;
Mr. Biegler, 19 years; and Mr. Bissaillon, II years.
Stock Option Plans
The 1978 Plan: At the Company's Annual Meeting of Shareholders on October 12, 1978, the
shareholders approved the 1978 Non-Qualified Stock Option Plan (the "1978 Plan"), which had been
adopted by the Board of Directors on August 9, 1978. The 1978 Plan is administered by the Stock Option
Committee of the Board of Directors which is authorized to determine the individuals to whom, and the time
or times at which, options will be granted, the number of shares subject to each option, the time or times at
which options may be exercised, the applicable option price (which must be not less than the fair market price
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of the stock on the date of grant), and such other terms and conditions as the Stock Option Committee may
deem appropriate.
As originally adopted the 1978 Plan provided for the issuance of a maximum number of 150,000 shares,
which was subsequently adjusted upward to correspond with increases in the number of outstanding shares of
Company stock according to the terms of the plan because of a four-far-three stock split in January 1982 and a
five-far-four stock split in March 1981.
Outstanding options granted under the 1978 Plan may be exercised within ten years from the date of the
grant. Upon exercise of an option, the option price shall be payable in cash or the equivalent fair market value
of the Company's Common Stock or any combination of both, as determined by the Stock Option Committee.
The 1978 Plan terminated by its own terms on October II, 1988; and the last option under the Plan was
granted during 1984.
The 1978 Plan provides for the granting of non-qualified options to officers and key employees of the
Company (other than Sam Barshop) for the purchase of authorized and unissued shares of Common Stock of
the Company reserved for such purpose at option prices not less than the fair market price of such stock on the
date of grant.
The 1984 Plan: The Company's 1984 Stock Option Plan (the "1984 Plan"), adopted by the Board of
Directors on April 19, 1984 and approved by the shareholders on October II, 1984, as amended by
shareholders on October 20, 1988, provides for the issuance of a maximum of 1,250,000 shares of the
Company's Common Stock upon the exercise of stock options granted under the plan, which amount is
subject to adjustment upon the occurrence of certain events. All key employees of the Company and persons
engaged to be key employees of the Company are eligible to receive options under the 1984 Plan. No stock
option may be granted under the 1984 Plan after April 18, 1994.
Both non-qualified stock options and incentive stock options, or any combination thereof, may be granted
under the 1984 Plan at an option price not less than 100% of the fair market value of a share of the Company's
Common Stock on the date of the grant. Stock options granted under the 1984 Plan are not assignable or
transferable, except by will or the laws of descent and distribution. The 1984 Plan is administered by the
Stock Option Committee of the Board of Directors (the "Committee"), which is composed of not less than
three (3) directors who are disinterested persons within the meaning of Rule 16h-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee is authorized to grant
options and determine the terms and conditions thereof in accordance with the provisions of the 1984 Plan,
including the dates after which options will be exercisable (which may not be greater than 10 years from the
date of the grant), whether options will be exercisable in installments and, if so, whether installments or
portions thereof that are not exercised will accumulate and remain exercisable. The Committee may also
accelerate the date on which any stock option, or portion thereof, may be exercised.
At or after the grant of any stock option under the 1984 Plan, the Committee may grant an alternative
means to exercise such stock option in the form of a stock appreciation right ("SAR"), under which a
participant is entitled to receive cash in the amount of or shares of Company stock having a value equal to the
difference between the fair market value of the Common Stock covered by the option and the exercise price
for such shares.
The Committee is also authorized as part of a stock option grant to provide that shares acquired pursuant
to the exercise of an option or SAR will be subject for a number of years to restrictions on transferability,
under which the participant may not sell such shares and the Company retains an option to repurchase all or a
portion of such shares if the participant ceases to be employed by the Company at a price equal to the amount
paid by the participant upon exercise of the option.
In the event a participant's employment with the Company ceases, any outstanding option shall expire
after ninety (90) days following termination of employment, except, with respect to the 1984 Plan, in the
event of retirement, death or disability, options shall remain exercisable for three (3) years from date of
retirement and one (I) year from date of death or disability so long as such options have not expired pursuant
to their terms. However, if employment is terminated because of a participant's breach of an employment
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contract, dishonesty or other acts detrimental to the interests of the Company, any outstanding options granted
to such participant shall be void.
Incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 are
subject to a rule limiting to $100,000 the aggregate value of such incentive stock options which may become
exercisable for the first time by a participant in any single year. This limitation is based on the aggregate fair
market value of the common stock of the Company at the time an incentive stock option is granted.
The following table shows as to each of the five most highly compensated executive officers of the
Company, and as to all executive officers of the Company as a group, the stock options granted during the last
year to purchase Common Stock of the Company pursuant to the 1984 Plan and the average per share
exercise price thereof:
All
Executhre
Options Granted Som Dat'id B. Alan L WalterJ. Francis P. Officers
01/01/90-12/31190 Barshop Daviss Tallis Bit!2ler Bissaillon as a Group
No. of shares covered by option
granted. . . . . . . . . . . . . . . . . . . . . . 0 5,268 11,012 11,012 11,012 41,816
Per share option exercise price . . . . $15.375 $ 15.12 $ 15.12 $ 15.12 $15.173
The following table shows as to each of the five most highly compensated executive officers of the
Company, and as to all executive officers of the Company as a group, the net value of securities or cash
realized (market value less exercise price) with respect to stock options exercised during the last year:
All
Executh'e
Options Exercised Sam D.t'id B. Alan L Walter J. Francis P. Officers
01/01/90-12/31/90 Barsbop Daviss Tallis Biegler Hiss.illoD as a Group
No. of shares covered by option
exercised ....................
Net value or cash realized (l) . . . . .
o
o
3,333
$12,412
416
$ 2,083
$
o
o
$
o
o
3,749
$14,495
(I) "Net value or cash realized" is based on market value at the exercise date. Compensation in connection
with an exercise, absent an election to the contrary, is based on market value at the expiration of the six-
month period contemplated in Section 16(b) of the Securities Exchange Act of 1934.
At December 31, 1990, 135,543 shares of the Company's Common Stock were subject to options granted
during the last year at an average per share exercise price of $15.342.
Phanlom Stock Bonus Plan
The Board of Directors On February 7, 1991 approved a phantom stock bonus plan (the "Stock Bonus
Plan") in an effort to compensate certain senior executive officers of the Company for the additional time and
effort, over and above their normal duties and responsibilities, that will be required of them to evaluate
financial and strategic opportunities available to the Company in order to maximize shareholder value,
including the possible sale of the Company, and to provide such senior executive officers with incentive to
obtain the highest possible price for the Company in the event of its sale.
Participants in the Stock Bonus Plan include Messrs. Sam Barshop, Daviss, Tallis and Bissaillon. Under
the Stock Bonus Plan, each participant was assigned 25,000 shares of "phantom" stock of the Company,
valued at $10.25 per share, which was the closing price of the Company's stock on January 22,1991 (the day
prior to the Company's announcement of its intent to evaluate financial and strategic opportunities available to
it to maximize shareholder value, including the possible sale of the Company). Should the sale or acquisition
of the Company occur on or before December 31, 1991, or before June 30, 1992 if the Company was engaged
in discussions with the acquiring person or entity concerning such a transaction prior to December 31, 1991,
each participant will receive under the Stock Bonus Plan, as reasonable compensation for his efforts in
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connection with the transaction, a cash bonus in the amount equal to the per share consideration paid in any
such transaction above $10.25 multiplied by 25,000. The Stock Bonus Plan is evidenced by separate Bonus
Agreements, dated February 22, 1991, between the Company and each of Messrs. Sam Barshop, Daviss, Tallis
and Bissaillon.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan which is available to all full-time employees who
have completed six months consecutive service and have elected to participate, except those who participate in
the Company's Stock Option Plan. The plan affords participants a means of purchasing Common Stock of the
Company through regular payroll deductions. The Company currently contributes an amount equal to 50% of
each participant's actual payroll deduction, but not in excess of $10.00 per two-week pay period. The plan is
administered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, which purchases Common Stock of the
Company on the open market with the funds generated by participants' payroll deductions and Company
contributions. Participation in the plan is voluntary and the plan is subject to modification or discontinuance
at any time upon notice to all participants. No executive officer of the Company participated in the Employee
Stock Purchase Plan during 1990. During the year ended December 31, 1990, contributions by the Company
under the employee stock purchase plan aggregated $302,099.
Insurance Benefits for Officers
During the fiscal year ended May 31, 1989, the Company implemented a new program expanding
medical and other benefits to all employees, which is generally characterized as a "cafeteria plan" and named
the "Flexible Benefits Plan." Effective October I, 1988 the plan was implemented with respect to previously
ineligible full-time inn employees. Effective January I, 1989 the plan was implemented for all other full-time
employees. All active, full-time employees with six months of service are eligible for participation in the La
Quinta Flexible Benefits Program. There are certain basic coverages which are paid for by the Company and
there are additional coverages that may be acquired by the employees, generally with pre-tax dollars under
Section 125 of the Internal Revenue Code of 1986. Coverage areas include medical and health benefits, long-
term disability benefits, dependent child care, and death benefits, amongst other things.
The Flexible Benefits Program provides life insurance, including accidental death, dismemberment and
loss of sight coverages, at varying amounts depending on the employee's salary and level of job classification.
Additional life insurance coverage previously afforded officers of the Company has been continued under the
Flexible Benefits Program. Under the program, all officers of the Company receive paid life insurance (with
accidental death, dismemberment and loss of sight coverages) at an amount equal to three times the
individual officer's base salary rounded to the next higher multiple of $1,000 (if not already an even multiple
thereof), subject to an overall maximum of $600,000. Because the Company's group insurance plan is
deemed discriminatory, the aggregate incremental cost of such insurance to the Company per officer is taxable
to each officer as ordinary income, and, therefore, has been included in the compensation amounts set forth in
the Cash Compensation Table above.
During 1990 the Board of Directors authorized the purchase by the Company of an additional $3 million
of "split-dollar" life insurance on Sam Barshop and his wife. Under this "split-dollar" life insurance, the
Company pays the entire premium for the policy and retains ownership of the cash value under the policy;
upon death of the insureds, the Company will recover the full amount of the cash value under the policy, with
the remainder of the proceeds to go to the beneficiaries designated by the insured. The cost of the premiums
paid by the Company on the "split-dollar" policy is taxable as ordinary income to Mr. Barshop, and, therefore,
has been included in the compensation amount reflected for him in the Cash Compensation Table above.
OTHER COMPENSATION
Each officer of the Company is furnished with an automobile for use in connection with the Company's
business. The cost of operation and maintenance in connection with such automobiles is paid by the
Company. Officers are permitted to use such automobiles for personal purposes. A value is assigned to such
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personal use based upon personal mileage reported. Said value is taxable to each officer as ordinary income,
and, therefore, has been included in the compensation amounts set forth in the Cash Compensation Table
above. In addition, certain other incidental personal benefits to executive officers of the Company, not
otherwise disclosed in this Proxy Statement, have resulted from expenses incurred by the Company in the
interest of attracting and retaining qualified people. The aggregate incremental cost to the Company of
providing such benefits (including furnishing automobiles) did not, for the year ended December 31, 1990,
exceed (i) the lesser of $25,000 or 10% of the compensation reported in the Cash Compensation Table for any
individual named therein or (ii), with respect to all executive officers of the Company as a group, the lesser of
$25,000 times the number of persons in the group or 10% of the compensation reported in the Cash
Compensation Table for the group.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors who is not also an employee of the Company presently receives a
fee of $1,500, plus expenses of attendance, for each scheduled board meeting, and an annual retainer of
$9,000, except for the Chairmen of the Audit, Compensation and Marketing Committees, who receive an
annual retainer of $10,000. Directors may also receive a fee of $1,000, plus expenses of attendance for each
committee meeting not held in connection with a regular or special Board meeting; no such fees for committee
meetings not held in connection with Board meetings were paid in 1990.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
During the year ended December 31, 1990, the Compensation Committee of the Board of Directors
approved certain amendments to the existing "Severance Agreements" entered into during 1989 between the
Company and five executive officers of the Company (Messrs. David B. Daviss, Walter J. Biegler, Alan L.
Tallis, Francis P. Bissaillon, and Jerry N. Wiggins), which extended the term and benefits provided by such
agreements, following a change in control. In addition, the Compensation Committee during 1990 authorized
the extension of a "Severance Agreement" under similar terms to the Company's President, Mr. Sam
Barshop.
In authorizing these Severance Agreements, the Compensation Committee was motivated by the belief
that the executive officers of the Company have made and are expected to continue to make major
contributions to the profitability, growth and financial strength of the Company. The Compensation
Committee recognized that, as is in the case with other publicly held companies, there is a possibility of a
change in control. To ensure that the Company's executive officers are not practically disabled from
discharging their duties upon a change of control and to ensure the Company of both present and future
continuity of management in the event of a change of control, the Committee established certain employment
rights and compensation for said officers in the event there is a change in control.
The Severance Agreements do not become operative in any way unless and until there is a "change in
control" of the Company; that is, an offer to purchase or otherwise acquire, or the purchase or acquisition of,
at least 40% of the Common Stock or other voting stock of the Company, including through means of a
merger, consolidation or reorganization with another entity. They remain operative until the offer is
abandoned or terminated; or, in the event 40% of the voting interest is acquired, they remain operative
according to their terms and provisions.
The Severance Agreements provide that the Company shall continue to employ each executive officer in
substantially the same position and with substantially the same duties and responsibilities that he had
immediately before the change in control (or to which the Company and the officer agree to in writing) for a
period of two years from the date of the change in control. The Agreements do not create any right or duty on
the part of the Company or the officer to have the officer remain in the employment of the Company at any
time before any change in control.
During the two year period of employment the officer's aggregate compensation shall not be reduced
below the aggregate cash compensation he received in the last completed accounting year of the Company
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immediately before the change in control. During said period the officer shall be a full participant in, and shall
be entitled to, all employee benefits, plans and programs.
In the event of "constructive termination" [which includes (i) a failure to maintain the officer's position,
(ii) a significant adverse change in the nature or scope of the officer's authorities, powers, functions,
responsibilities or duties, (iii) a reduction in cash compensation or benefits, (iv) the liquidation, dissolution,
merger, consolidation or reorganization of the Company unless the successor assumes obligations under the
Severance Agreements, (v) relocation of the Company's principal executive offices or the officer's principal
location of work] during the two year period of employment, the executive officer shall be entitled under the
Severance Agreements, as amended, after the termination of his employment to the following benefits: (I) a
lump sum payment in cash equal to two (2) full year's aggregate cash compensation; (2) the right to purchase
his Company automobile at the wholesale market value less $1,500; and (3) medical and life insurance
benefits in the same or substantially similar amounts as were in effect before the change in control for a period
of two years or until the date the officer becomes re-employed in a position in which his salary and benefits are
substantially similar to those at termination, whichever is earliest. In addition, the executive officer shall be
entitled to a lump sum payment of a prorata portion of any earned incentive compensation or bonus in effect
during the year of constructive termination and an amount equal to the total of all pension benefits that would
have accrued to him had he been employed for two years after a change in control.
On February 7, 1991, the Board of Directors approved modifications to the Severance Agreements with
Messrs. Sam Barshop, Daviss, Tallis and Bissaillon to (i) increase the lump sum cash severance benefit
payable upon termination of employment within two years following a change in control to an amount equal to
2.99 times each such executive's aggregate annual compensation in effect at the time of a change in control,
(ii) provide that benefits are payable under the terms of the amended and restated Severance Agreements
with each of these four executive officers in the event any such officer resigns his employment with the
Company during the first year following a change in control, and (iii) expand the definition of "change in
control" to include the election of a majority of the Board of Directors who were not nominated by the
Company's management or Board of Directors with the effect that the amended and restated Severance
Agreements with these four executive officers will become operative under such an additional event of change
in control.
TRANSACTIONS WITH MANAGEMENT AND CERTAIN LEGAL PROCEEDINGS
T. C. Frost, a director of the Company, is Chairman of the Board of Frost National Bank ("Frost
Bank"). The Company maintains, and for the past several fiscal years has maintained, a revolving line of
credit, currently at $30,000,000, from Frost Bank, NCNB Texas National Bank, Citicorp North America,
Inc., Texas Commerce Bank - San Antonio. Frost Bank currently participates in the $30,000,000 revolving
line of credit to the extent of $5,400,000. The purpose of this credit line is to provide funds for general
corporate purposes, including but not limited to land purchases, construction, and furnishing and placing
motor inns and associated restaurants into operation. Agreements with respect to the current line of credit
became effective as of January 18, 1990; and, at December 31, 1990, the outstanding balance under this line of
credit was $18,800,000. In consideration for the extension of the $30,000,000 line of credit from the banks,
the Company pays a quarterly fee at the rate of 0.375% per annum on the unused portion of the $30,000,000;
18% of which Frost Bank will receive. Commitment fees incurred by the Company during 1990 aggregated to
$83,565, of which $15,042, was paid to Frost Bank. Interest incurred by the Company relating to the line of
credit is at the NCNB Texas National Bank prime rate of interest. Interest under the line of credit ranged
from 10% to 10.5% and aggregated $811,186 during the year ended December 31, 1990. Interest under the
$30,000,000 line of credit paid to Frost Bank during 1990 amounted to $146,014. There are no requirements
for compensating balances under the agreements.
Frost Bank has served as trustee under the Company's Retirement Plan since 1978, as trustee of the
Company's SERP since January of 1990, and as trustee of the Company's employee welfare benefit plan,
currently the Flexible Benefits Plan (the "Benefit Plan"), which was established in order to provide health,
sickness, accident and other benefits for employees of the Company and their dependents, since 1983. During
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the year ended December 31, 1990, the Company paid Frost Bank an aggregate of $25,493 in trustee's fees for
services relating to the Company's Retirement Plan, SERP and Benefit Plan. In addition, Frost Bank serves
as escrow agent with respect to reserve funds established for replacement of furnishings in inns as required by
loan documents between the Company and Connecticut General Life Insurance Company. During 1990
aggregate fees for such services were $15,830. The Company understands that the terms of the foregoing
transactions are substantially the same as those extended by Frost Bank to unaffiliated third parties under
similar circumstances.
Frost Bank also leased an AT&T telephone system from the Company pursuant to an agreement dated
May 17, 1985 (the "Telephone Equipment Lease"). The telephone equipment and system, purchased by the
Company for lease during fiscal 1985, is located on the bank's premises in downtown San Antonio, Texas. The
Telephone Equipment Lease provided for monthly rental payments to the Company of $21,607 commencing
on June 20, 1985 for a term of sixty-six (66) months. It also provided Frost Bank with an option to purchase
the equipment at fair market value after three years and, at expiration of the lease term, an option to extend
the lease with monthly rentals based on the fair market value at that time. Frost Bank paid the Company an
aggregate of $237,667 during the year ended December 31, 1990 pursuant to the Telephone Equipment Lease.
The transaction was an approved investment by the Executive Committee of the Company's Board of
Directors. The Telephone Equipment Lease expired on December 20, 1990. Frost Bank exercised its
purchase option by payment of $323,438 to the Company on November 15, 1990, and the equipment and
system were transferred from the Company to Frost Bank on that date.
Alden E. Wagner, a director of the Company, has for more than 10 years owned an interest as a partner in
three La Quinta Inns in which the Company owns the majority interest. Mr. Wagner currently is the
Managing Partner of a family partnership which owns a 20% interest in each of the three properties. The
terms of the partnership agreements relating to such inns are similar to those entered into by the Company
with unaffiliated third parties. During the year ended December 31, 1990, the partnership of which
Mr. Wagner is the Managing Partner received distributions aggregating $100,000 pursuant to the terms of said
partnership agreements.
On September 24, 1989, as a result of the severe decline in the commercial real estate market in Texas,
Lomas Financial Corporation, of which R. Ted Enloe, III is President and director, filed a petition for
protection from creditors under Chapter II (a reorganization proceeding) of the Bankruptcy Code of 1978 in
the U.S. Bankruptcy Court for the Southern District of New York. Lomas Financial Corporation has
proposed a plan of reorganization in the proceeding, which has not yet been confirmed by the court or
approved by the various creditors' committees.
Pursuant to a contract assumed by the Company and entered into in 1967 between Barshop Motel
Enterprises, Inc. ("BME") and Sam Barshop, the Company agreed to make payments to Mr. Barshop (or his
widow) of $10,000 per year up to a maximum of $150,000, commencing upon his death or his retirement from
the Company at age 65 or over. The contract will automatically terminate upon Mr. Barshop's voluntary
termination of employment with the Company prior to age 65. In addition, if Mr. Barshop fails to provide
services as prescribed by the agreement or competes with the Company as proscribed by the agreement during
the payout period, the Company will have no further obligations under such contract. Except for the situation
in which Mr. Barshop dies before retirement and his wife does not survive him, no payments will be made
after the death of his widow whether or not the full $150,000 has been paid.
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO.2)
The Board of Directors of the Company, adopting the recommendation of its Audit Committee, has
unanimously appointed the firm of KPMG Peat Marwick as independent auditors to examine the combined
financial statements of the Company for the year ending December 31, 1991. This firm has acted as
independent auditors of the Company since 1971.
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A representative of KPMG Peat Marwick is expected to be present at the Annual Meeting of
Shareholders with the opportunity to make a statement, if that person desires to do so, and is expected to be
available to respond to appropriate questions.
Approval of the appointment of auditors is not a matter which is required to be submitted to a vote of
shareholders, but the Board of Directors considers it appropriate for the shareholders to express or withhold
their approval of the appointment. If shareholder approval should be withheld, the Board of Directors would
consider an alternative appointment for the succeeding fiscal year. The Board of Directors of the Company
recommends that the shareholders vote "FOR" Proposal No.2 to approve the appointment of auditors. A
majority of the votes cast is needed for approval.
SHAREHOLDER PROPOSALS
It is anticipated that the 1992 Annual Meeting of Shareholders will be held on May 21, 1992. Proposals
of shareholders intended to be presented at the 1992 Annual Meeting and included in the Company's proxy
statement therefor must be received in writing by the Secretary of the Company at its principal executive
offices, La Quinta Plaza, 10010 San Pedro Avenue, San Antonio, Texas 78216, not later than December 12,
1991; otherwise, according to the Company's amended and restated By-Laws, shareholders must give notice of
any proposals intended to be presented at an Annual Meeting by mailing or delivering the same to the
Company's Secretary at the foregoing address not less than 40 nor more than 70 days prior to the meeting.
OTHER MA TIERS
No business other than the matters set forth in this Proxy Statement is expected to come before the
meeting, but should any other matters requiring a vote of shareholders arise, including a question of adjourning
the meeting, the persons named in the accompanying proxy will vote thereon according to their best judgment
in the interests of the Company. In the event that any of the nominees for director should withdraw or
otherwise become unavailable for reasons not presently known, the persons named as proxies in the
accompanying proxy will vote for other persons in their place in what they consider the best interests of the
Company.
The foregoing Notice and Proxy Statement are sent by order of the Board of Directors.
~_.~..~.
NORMAN S. DAVIS
Secretary
~~
April I, 1991
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e
LA OUINTA
....
P. O. Box 790064
San Antonio, Texas 78279-0064
I~FOR~f.-\TION STATDIE"T
This Information Statement is furnished by the Board of Directors (the "Board") of La Quint.
Motor Inns, Inc., a Texas corporation (the "Company"). in connection with the special meeting of
shareholders (the "Special \1eeting") called jointly by Sid R. Bass. Inc.. Lee ~l. Bass. Inc.. and Thomas
M. Taylor & Co. (the "Bass/Taylor Group"). The Special Meeting will be held at the principal offices
of the Company, 10010 San Pedro Avenue, San Antonio. Texas. on Friday. July 12, 1991 at 10:00 a.m.
San Antonio, Texas time. The record date (the "Record Date") for determining shareholders entitled
to notice of, and to vote at. the Special Meeting is June 10. 1991. The approximate date on which this
Information Statement is first being sent or giyen to security holders is June 21, 1991.
WE ARE "OT .\SKI"G YOU FOR A PROXY .\"D YOC ARE REQVESTED
"OT TO SE~D US A PROXY.
PROXIES WILL BE SOLICITED BY THE B.\SS/TAYLOR GROUP.
OLTSTA"DlNG SHARES AND \'OTI"G RIGHTS
Only holders of record of the common stock, par value SO.IO per share (the "Common Stock"). of
the Company on the Record Date shall be entitled to vote at the meeting. There were 13,126,906
shares of Common Stock issued and outstanding on the Record Date. Each share outstanding entitles
the holder thereof to one vote.
ELECTIO" OF DIRECTORS
The Bass/Taylor Group has informed the Company that it intends to nominate five individuals
(the "Shareholder Slate") for election to the Board to fill fiye of six ,'acancies which will exist on the
Board as of the time of the election. The Board, pursuant to the Company's Bylaws, previously fixed
the number of directors constituting the entire Board at ele,'en members. As of June 7, 1991, fiye
Board members delivered their resignations as directors of the Company, such resignations to become
effective upon the election of the Shareholder Slate at the Special Meeting. In addition, on June 10.
1991, T. C. Frost resigned from his position as a director of the Company, creating a vacancy on the
Board.
Directors of the Company may be elected by the affirmatiye vote of the holders of a majority of
the shares of Common Stock represented in person or by proxy at the Special Meeting, provided a
quorum is present at the Special ~leeting. If the Shareholder Slate is elected at the Special Meeting.
each member of the Shareholder Slate elected as a director will hold office until the next annual
meeting of shareholders of the Company and until his successor is elected and qualified. If all members
of the Shareholder Slate are elected at the Special ~leeting. one' .cancy will continue to exist on the
Board. See "Shareholder Agreement." If all members of the Shareholder Slate are eJected at the
Special Meeting, each of four executive officers of the Company. including Sam Barshop, would
become entitled to receive payments pursuant to his severance agreement. but only in the event.
generally, of either the termination of his employment with the Companv during the two years
following such election or his voluntary resignation as an emplovee of the Company during the year
following such election, See "Executive Compensation - Sc-\-erance Agreements."
/1
.
.
As previously announced, the Company is continuing its program (the "Enhancement Program")
to identify strategic and financial opportunities that may be available to the Company to enhance
shareholder value, including the possible sale of the Company. Neither the calling of the Special
Meeting nor the nomination of the Shareholder Slate alters the Company's announced intention to
pursue the Enhancement Program.
Shareholder Slate
The following persons constitute the Shareholder Slate. The information in this table is based
solely on information provided to the Company by the Bass/Taylor Croup.
Principal Occupation
Same i'ge For the La... Five Years
Thomas ~1. Taylor. . . . .
Barry K. Fingerhut .....
. . . . . . . . . . . .. 45
President of Thomas ~. Taylor & Co. (an
irl\estment consulting 6rm).
Senior Vice President of CeoCapital
Corporation (an investment advisory firm).
Ch"lTman, Chief Executive Officer & President
of The Hampstead Group (a real estate
investment firm) since September 1987; prior
to August 1988, Chairman of Americana
Hotels Corporation (a hotel chain).
\'ice President and Chief Financial Officer of
Sid R. Bass, Inc, and Lee M. Bass. Inc.
i diversified investment firms).
President of IEP Consultants (USA), Inc. (an
investment firm) since January 1989; prior
thereto Executive Vice President thereof.
45
Donald J. McNamara. . . . . . , . . . . . . . . . . . . .. 35
Peter Sterling
49
Robert C. Sutherland ... . . . . . . . . . . . . . . . .. 44
Resigning Directors
The following current directors of the Company have delivered resignations to the Company.
conditioned upon the election of the Shareholder Slate at the Special Meeting.
Served as
Director
Xame Since Age Principal Occupation
Rita C. Clements, . . . . , . . . . . .
David B. Daviss . . , . . . , . . . . . .
R. Ted Enloe, III . . . . . . . . , . . .
1954
Investments; First Lady of Texas 1979-1983 and
1957-January 1991; active in Civic and
Community Affairs on a Local, State and
::\J.tionallevel: married to Former Governor
of Texas, William P. Clements. Jr.; Director
of Team Bank, Dallas.
Executive Vice President and Chief Operating
Officer of the Company since January 1985;
Director of Luby's Cafeterias, Inc.
President and Director of Lomas Financial
Corp. since 1975; President and Trustee of
Lomas & Nettleton ~ortgage Investors since
1975; President and Director of L & :\
Housing Corp. since 1980; Director of Lomas
~Iortgage Corp.; Chairman and Director of
Seamen's Corp.; Vice Chairman and Director
of The Seamen's Bank for Savings, FSB, TCX
Corp., Leggett & Platt, Inc., and Compaq
Computer Corp.
59
1980
54
1977
53
,
((
Continuing Directors
The following current directors of the Company will continue to serve as directors until the next
annual meeting of shareholders and until their successors are elected and qualified.
Served as
Director
Same Since
.
Name
Served as
Director
Since
Chris J. D. Rote. . . . . . . . . .
1973
Alden E. Wagner. . . . . .
1973
Sam Barshop (I) . . 1972
Philip M. Barshop(l) ........ 1972
Dr. William H. Cunningham. . 1985
~
59
Age
.
Principal Occupalion
6~
Vice Chairman of ~lerrill Lynch Brokerage &
Valuation since 1991: President, Merrill
L\'I1ch Private Resources from August 1987
to February 1991: Executive Director of
Merrill Lynch Private Capital. Inc. from 198~
to August 1987: Senior Vice President and
Director of Rotan ~losle, Inc. from 1981.84.
Alden Wagner & Assoc.: President of Versatex
~lanagement Corp. and Hallmark
Construction Co. since 1980: Director of
Cullen/Frost Bank, Dallas
Principal Occupation
61
President, Chief Executi\e Officer and
Chairman of the Board of the Company
since 1968; Director of Southwest Airlines
Co.; Member, Board of Regents - University
of Texas System,
Owner of Philip Barshop & Company since
1977; Real Estate and Personal Investments,
President of The University of Texas at Austin
since September 1985: Dean of the College
of Business Administration and Graduate
School of Business of The Cniversity of
Texas at Austin from 1983 to August 1985;
Professor of ~larketing, Uni\ ersity of Texas
at Austin, since 1979; Director of Freeport
McMoRan Inc" Jefferson.Pilot Corporation,
and investment companies managed by
Transamerica Company: Transamerica
Technology Fund, Transamenca Bond Fund,
Transamerica Investment Trust,
Transamerica Special Equity Portfolios,
Transamerica Special Series. Inc.,
Transamerica Current Interest, Inc.,
Transamerica Sun belt Growth Fund, Inc.,
Transamerica California Tax Free Income
Fund, Transamerica Cash Reserve, Inc..
Transamerica Tax Free Bond Fund; and
Advisory Director of Texas Commerce
Bank - Austin.
55
47
3
(l
.
Name
Served as
Director
Since
~
Edward B. Kelley
1988
1
.
~
.
Dr. George Kozmetsky. ' . . . . .
1980
1
f
(1) Philip and Sam Barshop are brothers.
.
Principal Occupation
50
President of USAA Real Estate Division since
August 1989; Executive Vice President and
Chief Operating Officer of USAA Real Estate
Group from April 1989 to August 1989:
President and Advisory Director of Barshop
Enterprises, Inc. and all of its corporate
subsidiaries from 1980-89: member of Board
of Trustees and Executive Committee of St.
Mary's University. member of Board of
Trustees of Baptist Memorial Hospital
System of San Antonio. and Real Estate
Investment Advisor to Teachers Retirement
System of Texas.
Director of the IC' Institute at The University
of Texas at Austin since 1976; Executive
Associate for Economic Affairs for The
University of Texas System since 1966;
Professor of \Ianagement and Computer
Science. The University of Texas at Austin
since 1966: Dean of the College of Business
Graduate School of Business of The
University of Texas at Austin from 1966-&2;
Director of Teledyne, Inc., Dell Computer
Corporation, Hyrdil Co., Inc., Paine-Webber
Development Corporation, Inc., Scientific &
Engineering Software, Industries, Inc. and
KDT Industries, Inc.
73
MEETI~GS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of the Company held seven meetings during the year ended December 31, 1990. Each
director attended 75% or more of (a) the total number of meetings of the Board during his or her term
as Director and (b) the total number of meetings held by all committees of the Board on which he or
she served during such term.
The Audit Committee of the' Board is currently composed of Messrs. Enloe, Kozmetsky, Rote and
Wagner. The Audit Committee has the responsibility, among other things. to recommend the selection
of the Company's independent accountants, review and approve the scope of the independent
accountants' audit activities, review the Company's financial statements which are the subject of the
independent accountants' certification, review with such independent accountants the adequacy of
the Company's basic accounting system and the effectiveness of the Company's internal audit
activities, and review related party transactions. Five meetings of the Audit Committee were held
during the year ended December 31, 1990.
The Compensation Committee of the Board is currently composed of \Iessrs. Cunningham
(Chairman), Kelley and Wagner. The Compensation Committee. which held three meetings during
the year ended December 31, 1990. reviews the salaries, bonuses, stock option grants and other direct
and indirect benefits for all Company officers and key employees, and also reviews and submits to the
entire Board recommendations concerning compensation and stock option plans.
t
,
4
(f
.
.
The Marketing Committee of the Board is composed of Mrs. Clements and Messrs. Sam Barshop,
Cunningham (Chairman) and Daviss. The Marketing Committee, which held five meetings during the
year ended December 3], J99O, reviews marketing, sales and other promotional efforts of the Company
to market and promote its nationwide system of inns.
The entire Board acts as the nominating committee for directors and will consider nominations by
shareholders for directors. Any such nominations for the election to be considered at the next annual
meeting, together with a statement of the nominee's qualifications and consent to be considered as a
nominee and to serve if elected, should be mailed to the Secretary of the Company no later than
December ]2, ]991, if the proponent desires the nominee to be included in the Company's proxy
statement for the J992 Annual Meeting of Shareholders: otherwise. pursuant to the Company's Bylaws.
nominations for director must be made by a shareholder in writing to the Secretary of the Company
not later than 90 days in advance of an annual meeting, unless \\J.i\td by the Board.
SECURITY OWNERSHIP
The following table shows the lotal number and percentage of the outstanding shares of the
Company's Common Stock beneficially owned as of the Record Date. with respect to each person that
the Company knows to have beneficial ownership of more than five percent of the Company's common
stock, each current director of the Company and all directors and officers of the Company as a group
and each nominee on the Shareholder Slate. The information in this table regarding the fi\e percent
shareholders and the Shareholder Slate is based solely on statements filed by the beneficial owners
with the Securities and Exchange Commission pursuant to Section ]3id) or 13(g) of the Securities
Exchange Act of ]934, as amended, and information pro\ ided to the Company by the Bass/Taylor
Croup and the Company has not made any independent investigation into the accuracy of this
information.
Name of Beneficial Owner
Shares of Common StOCk
Beneficialh Owned a~ of
June "10, 1991
Percent
of Shares
Holders of more than 5% of the Shares:
Industrial Equity (Pacific) Limited........ .............
7825 Fay Avenue. Suite JSO
La Jolla, CA 92037
Bass/Taylor Group .....
3200 First City Bank Tower
20J Main Street
Fort Worth, Texas 76]02
1.964,300
]4.9%
1.954,]00(] )
]4.9
Sam Barshop. . . . . . . . . . . . . . . . . . . .
100]0 San Pedro Avenue
San Antonio, Texas 78216
CeoCapital Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
767 Fifth Avenue
New York. New York 10153
1.635,554 (2)
]2.5
] ,534.600 (3)
11.7
5
f/
~
.
.
:'Iiame of Beneficial O.....ner
Shares of Common Slock
Beneficiall.... Owned a~ of
June'to.I991
Percent
of Shares
~
f
Current Directors:
Rita C. Clements. . . . . . . . . . . . . . . . . . . . . . . . . . . .
David B. Daviss .. . . . . . . . . . . . . . . . . . . . . . . . . .
R. Ted Enloe, III . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chris J. D. Rote. . . .' . . . . . . . . . . . . . . . . . . . .
Alden E. Wagner. . .. .......................
Philip M. Barshop ... . . . . . . . . . . . . . . . . . . . . . . .
William H. Cunningham .................
Edward B. Kellev. .
George Kozmetsky ...............
All current directors and officers as a group (36 persons) . . .
Shareholder Slate:
Thomas M. Taylor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Barry K. Fingerhut ...................... . . . . . . .
Donald J. McNamara ................. . . . . . . . . . . .
Peter Sterling. . . . . . . . . . . . . . . . . . . . . .
Robert G. Sutherland. . . . . . . . . . . . . . . . .
5.100 .
8.5,2% ( 4 ) .
0 0
0 0
133.100 1.0
28.384 (5) .
0 0
432
0 0
2.32.5.321 (6) 17.7
762.200 (7) 5.8
1,541,600(3) 11.7
0 0
0 0
],964300(8) 14.9
~
1
I
o Less than one percent.
ill Thomas \1. Taylor &: Co., a Texas corporation controlled by Thomas \1. Taylor. owns 761,200
shares. Sid R. Bass. Inc., a Texas corporation controlled by the Sid R. Bass \lanagement Trust,
owns 596,450 shares and Lee !vi. Bass, Inc.. a Texas corporation controlled by Lee !vi. Bass. owns
.596,450 shares.
(2) The shares shown for Sam Barshop include 282 shares held bv his wife and 7.960 shares held by
him as co-trustee for the benefit of his grandchildren. As a co-trustee, Mr. Barshop shares voting
and dispositive power with respect to such shares. However. he disclaims beneficial ownership of
the 7,960 shares held by him as trustee.
(3) GeoCapital Corporation is an investment adviser registered under Section 20.3 of the Investment
Advisers Act of 1940, as amended, which has no voting power with respect to any shares, but
which has sole dispositiv~ power with respect to 1..534.600 shares. \1r. Fingerhut beneficially owns
(i) 7,000 shares and has the sole power to vote and to dispose of such 7.000 shares and (ii) may be
deemed to beneficially own 1,534,600 shares by virtue of \Ir. Fingerhut's position as the principal
stockholder and Senior Vice President of Geocapital Corporation. Mr. Fingerhut disclaims
beneficial ownership of the shares of Common Stock deemed beneficially owned by Geoeapital
Corporation.
(4) The shares shown for Mr. Daviss include 43,296 shares which he has the right to acquire under the
Company's Stock Option Plans.
(5) The shares shown for Philip M. Barshop include 282 shares held by his wife and 24,401 shares held
by him as co-trustee of a trust for the benefit of the children of his brother, Sam Barshop. As
co~tru5tee, ~1r. BJ.rshop shares voting and in\-estment po\"'er with respect to such shares. However.
he disclaims beneficial ownership of those shares held by him as trustee.
(6) The holdings shown for all directors and officers as a group include 392.751 shares which certain
officers have the right to acquire under the Company's Stock Option Plans. Shares acquirable
pursuant to stock options, which are exercisable within 60 days after June 10. 1991, are shown as
being beneficially owned by members of the group in the above table and have been considered to
be outstanding for purposes of calculating the percentage ownership of all directors and officers as
a group.
6
((
.
.
(7) Mr. Taylor owns no shares of Common Stock directly. The shares shown for Mr. Taylor include
(i) 761.200 shares that Mr. Taylor may be deemed to own beneficially because of his position as
the President. sole director and principal shareholder of Thomas M. Taylor & Co. and (ii) 1.000
shares owned by an irrevocable trust for the benefit of a son of Mr. Taylor. Mr. Taylor's mother.
Annette B. Taylor. serves as trustee of this trust. Mr. Taylor disclaims beneficial ownership of the
shares of Common Stock owned by such trust. The shares of Common Stock shown for Mr. Taylor
exclude the 2.149.124 shares that Mr. Taylor may be deemed to own beneficially because of his
receipt. pursuant to the Shareholder Agreement described below. of irrevocable proxies from
Sam Barshop and Dolores Barshop Spector to vote for the Shareholder Slate, ~Ir. Taylor disclaims
beneficial ownership of any shares represented by such proxies.
(8) Mr. Sutherland owns no shares of Common Stock, however the shares of Common Stock shown
for ~lr. Sutherland represent 1.964.300 shares of Common Stock that ~lr. Sutherland ma,' be
deemed to own beneficially because of his position as President of IEP Consultants (USA) Inc.
Mr. Sutherland disclaims beneficial ownership of any such shares.
.
As of June 10. 1991 Cede and Co.. nominee of The Depository Trust Company. held of record
10.175.653 shares of Common Stock (approximately 77.5% of the Company's outstanding Common
Stock). all of which shares the Company understands to be held for the accounts of member firms of
stock exchanges or for institutions participating in the facilities of The Depository Trust Company.
Except as reflected in the notes to the preceding table. each current director of the Company
owns directly the number of shares indicated in the table and has the sole power to vote and dispose of
such shares.
Shareholder Agreement
The Company, Sam Barshop. Doris Barshop Spector and the Bass/Taylor Group entered into an
agreement (the "Shareholder Agreement") as of June 7.1991 relating to the Special ~Ieeting. Pursuant
to the Shareholder Agreement, Sam Barshop and Doris Barshop Spector each delivered an irrevocable
proxy to Thomas M. Taylor and an employee of Thomas ~1. Taylor & Co. to vote their shares for the
election of the Shareholder Slate at the Special ~Ieeting. The Company entered into the Shareholder
Agreement to avoid a costly and disrupti,'e proxy contest and to resolve the differences that existed
with the Bass/Taylor Group regarding the composition of the Board.
Sam Barshop. Doris Barshop Spector and the Bass/Taylor Group have agreed to attempt to
identify a sixth person for nomination and election to the Board who is acceptable to those
shareholders. As of June 21, 1991, a sixth nominee acceptable to those shareholders has not been
identified. If a sixth nominee is identified before the Special Meeting. the Bass/Taylor Group has
indicated that it intends to distribute a supplemental proxy statement and a revised proxy card.
including the sixth nominee, to all shareholders. Under Texas law and the Company's Bylaws. if a sixth
person is not elected as a director at the Special Meeting, a majority of the Board may elect a person to
fill the remaining vacancy on the Board without a shareholder vote or the shareholders may fill the
vacancy at a meeting of shareholders.
,
,
( r
.
.
EXECUTIVE COMPENSATIOi'\
Cash Compensation
The roHawing table contains information with respect to cash compensation for services rendered
in all capacities to the Company during the year ended December 31, 1990, for each of the five most
highly compensated executive officers of the Company and for all executive officers of the Company as
a group,
Name of Individual
or Number in Group Capacities in Which Sen"ed Cash Compensation ())
Sam Barshop , , , , . . . . .
Chairman of the Board. Chief Executi\e
Officer and President
Executive Vice President and Chief
Operating Officer
Senior Vice President - Development
Senior Vice President - Finance
Senior Vice President - Administration
and Treasurer
$ 371,036(2)
David B. Daviss
263,239
Alan L. Tallis .....................
Walter J. Biegler .. . . . . . . . . . . . . . . . .
Francis P. Bissaillon ...............
209,949
195,588
180,993
All executive officers as a group
(7 persons) .. . . . . . . . .
1,434,806
(l) Each officer of the Company is furnished with an automobile for use in connection with the
Company's business. The cost of operation and maintenance in connection with such automobiles
is paid by the Company. Ollicers are permitted to use such automobiles for personal purposes. A
value is assigned to such personal use based upon personal mileage reported, is taxable to each
officer as ordinary income, and has been included in the compensation amounts.
(2) During 1990, the Board authorized the purchase by the Company of an additional $3 million of
"split-dollar" life insurance on Sam Barshop and his wife. Under this "split-dollar" life insurance,
the Company pays the entire premium for the policy and retains ownership of the cash value
under the policy; upon death of the insureds, the Company will recover the full amount of the
cash value under the policy, with the remainder of the proceeds to go to the beneficiaries
designated by the insured. The cost of the premiums paid by the Company on the "split-dollar"
policy is taxable as ordinary income to Mr. Barshop and has been included in the compensation
amount reflected for him in the table above.
Incentive Compensation Plan
The Company has an incentive compensation plan which rewards ollicers and other key
employees of the Company who are in a position to make substantial contributions to the growth and
profitability of the Company. Continuance of the plan and the granting of bonuses or awards
thereunder are discretionary and are considered annually by the Compensation Committee of the
Board. The bonus plan approved by the Compensation Committee for the year ended December 31,
1990 provided only for discretionary bonuses and awards based on individual performance against
previously established departmental and personal goals. The Company has historically recognized the
importance of pro....iding incentives for Company performance and individual goal attainment. The
bonus plan for the year ended December 31, 1990 did not contain provision for, nor were any
payments made, based on Company performance. The amounts shown in the Cash Compensation table
above include amounts paid on February 15, 1991 as bonuses for individual goal attainment during the
year ended December 31, 1990. The individuals and group named in the Cash Compensation table
above received the following bonuses under the Company's incentive compensation plan for the year
ended December .31, 1990: Mr. Sam Barshop, 866,346; Mr. Daviss. 847,937: ~lr. Tallis. $34.075;
8
(f
.
.
Mr. Biegler, $26,2.85; Mr. Bissaillon, $30,000; and all executive officers of the Company as a group,
$232,643.
Deferred Compensation Plan
The Company has a Deferred Compensation Plan. the purpose of which is to provide additional
compensation of a deferred nature, and salary deferral opportunities. for a select group of executive
employees who materially contribute to the growth. development and future success of the Company.
It is administered as an unfunded pension benefit plan for these highly compensated employees. All
corporate officers are eligible to be nominated for participation. Eligible employees are designated as
participants by the Compensation Committee.
Annual awards are a percentage of the participant's base salary as in effect as of the end of each
plan year as the Compensation Committee shall designate - designated to be 7% for 1990. Amounts so
credited shall be incremented on a quarterly basis, with the quarterly equivalent of the Federal Short-
term Rate published by the Internal Revenue Service. The accumulated balance in a participant's
account, less any outstanding loans. shall be paid to a participant as a benefit as soon as practicable
following the earlier of: (I) the date the participant ceases to be employed by the Company; (2) the
death of the participant; (3) the date the Compensation Committee determines the participant has
become disabled, such disability to be determined in the sole discretion of the Compensation
Committee; (4) the termination of the Deferred Compensation Plan or (5) an event constituting a
"change in control" of the Company. as defined in the SERP (hereinafter defined). Additionally. a
participant may elect that all or any part of his or her base salary may be deferred from current
income. Deferred amounts would be credited month!- and would be subject to the same interest
incrernentation as annual awards. Such amounts would be payable at the same time as accumulated
annual awards. All deferred amounts credited to general ledger reserve accounts under this plan shall
be fully vested when credited.
Participants may borrow all or any part of the deferred amount from the Company. Loans shall be
made on a term basis. expiring on the last day of the plan year. There are no limitations on the number
of loans available to a participant, or on the participant's ability to refinance an expiring loan.
However, no more than 24 participants may have loans outstanding during any plan year. Loans shall
bear interest at the Federal Short-term Rate, compounded quarterly. Any outstanding loan shall be
netted against the amount payable at payment time, as defined above.
Two of the persons named in the Cash Compensation Table above receh'ed the following credits
under the Deferred Compensation Plan for the fiscal year ended December 31, 1990: Mr. Barshop,
$21,000; and Mr. Daviss, $14,700. To date no additional individuals have been designated to participate
in the plan.
Retirement Plans
The Company has, since 1969, maintained a non-contributory defined benefit pension plan (the
"Retirement Plan"), which is a qualified plan under Federal tax laws, for all of its full-time employees
who have attained the age of21, which is designed to provide annual retirement benefits to employees,
subject to age and period-of-employment conditions. During the fiscal year ended May 31, 1989, the
Board established a Supplemental Executive Retirement Plan for highly compensated employees,
which constitutes a nonqualified plan under Federal tax laws (the "SERP").
Retirement Plan. The "Normal Retirement Date" under the Retirement Plan is the later of age 65
or the fifth anniversary of plan participation. Accrued benefits at December 31,1988 are frozen (after
being updated to accrue fully after 20 years of employment), the benefit formula for future years is 1%
of each year's compensation (with minimum accrual based on prior formula and 1988 earnings for
participants as of December 31, 1988), and highly compensated employees (as defined by IRS rules)
are excluded from active participation under the Retirement Plan. The vesting schedule provides 100%
vesting after 5 years of Vesting Service. The maximum benefit limitation under the Retirement Plan is
9
{f
.
.
$94.023 per year. All employees not considered highly compensated according to IRS rules ($56.990 for
]990) are covered by the Plan once the age and service requirements arc met. An active participant
who becomes highly compensated becomes an inactive participant. and earns no additional benefit
accruals. Employees are credited with one year for each plan year with at least 1.000 hours worked
("VestingSenice"). Retirement Plan compensation includes normal base pay plus overtime and bonus
during a plan year. but not compensation resuhing from the exercise of stock options or deferred
compensation. Early retirement is allowed after the employee has attained age 5.5 and has 15 years of
Vesting Service. The accrued monthly benefit at Normal Retirement Date equals the accrued benefit
as of December 31. 1988 based on the benefit formula in effect under the plan at that time plus. for
years after 1%'>. the sum of 1% of each year's Compensation. divided by 12. Commencement of benefit
payments prior to Normal Retirement Date is subject to actuarial reduction. The Retirement Plan also
provides late retirement, termination and death benefit pro\isions.
Supplemental Executi"e Retirement Plan The SERP covers all employees considered highly
compensated according to IRS rules I currently those earning over $56.990 per year) who have attained
the age of 21 and have completed one year of service. or the time at which an individual becomes a
Covered Employee. if later. "Vesting Service" under the SERP is one year for each plan year with at
least 1.000 hours worked. "Credited Service" is years and partial years of service from date of
employment to date of termination. exclush'e of breaks in service. "Compensation" includes normal
base pay plus Q\"ertime and bonus during a plan year, but not compensation resulting from the exercise
of stock options or deferred compensatIOn. For the computation of benefits. "Plan Compensation"
under the SERP is defined as the average of Compensation for the highest fi\e consecutive calendar
years out of the last ten completed calendar years of Credited Service. "Estimated Annual Primary
Insurance Amount" is the estimated old-age insurance benefit payable at age 65, based on the Social
Security Act as in effect on the determination date (calculated assuming constant earnings to age 65 if
determination is prior to age 65). "Normal Retirement Date" is the first day of the month coincident
with or next following the later of the employee's 65th birthday or the fifth anniversary of plan
participation and "Early Retirement Date" is the first da\' of any month after the employee has
attained the age of 55 and has 15 years of Vesting Ser\'ice. The accrued monthly benefit at the Normal
Retirement Date equals 'I" of 60% of Plan Compensation less 80% of the Estimated Annual Primary
Insurance Amount. reduced prorata if Credited Service is less than 20 years at the determination date.
less any accrued benefit earned under the Retirement Plan. Commencement of benefit payments prior
to Normal Retirement Date is subject to actuarial reduction. The vesting schedule provides for looo/c
vesting after 5 years of Vesting Service. The SERP also pro\ ides late retirement. termination and death
benefits. Pursuant to an amendment of the SERP by the Company's Board in Januarv 1991, maximum
benents under the SERP are $%.064 per year for all participants, except the six most highly
compensated employees. for whom there is no maximum. .\s with the Retirement Plan. the Company
pays the entire cost of the SERP.
10
II
.
.
Using estimated Social Security of $12.264 (the Estimated Annual Primary InsuTance Amount for
an age 65 Tetiree in 1990, with maximum Social SecuTity earnings in all years), the estimated annual
TetiTement benefits undeT both the RetiTement Plan and the SERP aTe set forth in the following table:
Average
Annual
Compensation
8100,000 ... . . . . . . . . . . . . . . . . .
125,000 . . . . . . . . . . . . . . . . . . . . . .
150,000 . . . . . . . . . . . . . . . . . . . . . . . .
175,000 . . . . . . . . . . . . . .
200,000 . . . . . . . . . . . . . . . .
225,000 ... . . . . . . . . . . . . . . .
250,000 . . . . . . . . . . . . . .
275,000 .. . . . . . . . . . . . . . . . . . . . . .
300:000 ... . . . . . . . . . . . . . . . . . . . . . . . . .
325,000 ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,000 ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . .
375,000 ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . .
400,000 .. . . . . . . . . . . . . . . . . . . . . . . . . .
l'ears or Sen.'ice at Retirement
10 15 20 or more
$ 25,094 $ 37.642 S 50,189
,32,,594 4'~.892 65.189
40,094 60.142 80,189
47,,594 71.392 95,189
5,5,094 02,642 110,189
62,,594 93,892 125,189
70,094 10.5.142 140,189
77,594 116,392 155,189
85,094 127,642 170,189
92,594 138,892 185,189
100,094 150,142 200,189
107,594 161,392 215,189
II 5,094 172,642 230,189
The years of credited service under the Company's Retirement Plans for the persons named in the
Cash Compensation Table are as follows: ~Ir. Sam BaTshop, 24 years. \lr. D,,'iss, 12 yeaTs: ~lr. Tallis, 10
yeaTs: MT, BiegleT, 19 years; and \1r. Bissaillon. II yeaTS.
Stock Option Plans
The 1978 Plan. At the Company's Annual Meeting of shaTeholders on OctobeT 12, 1978, the
shaTeholdeTs approved the 1978 Non-Qualified Stock Option Plan (the "1978 Plan"), which had been
adopted by the BoaTd of DiTectoTs on August 9, 1978. The 1978 Plan is administeTed by the Stock
Option Committee of the BoaTd of DiTectoTs which is authoTized to deteTmine the individuals to
whom, and the time or times at which, options will be granted, the number of shaTes subject to each
option, the time or times at which options may be exercised. thf' .1pplicablf option price (which must
be not less than the fair market price of the stock on the date of grant). and such other terms and
conditions as the Stock Option Committee may deem appropTiate.
Outstanding options granted under the 1978 Plan may be exercised within ten years fTom the date
of the grant. Upon exercise of an option, the option price shall be p,,'able in cash or the equivalent fair
maTket value of the Company's Common Stock or any combination of both, as determined by the Stock
Option Committee. The 1978 Plan terminated by its own terms on October II, 1988; and the last option
undeT the Plan was gTanted during 1984.
The 1984 Plan. The Company's 1984 Stock Option Plan (the "1904 Plan"), adopted by the Board of
Directors on April 19, 1984 and approved by the shaTeholdeTs on October II, 1904, as amended by
shareholders on October 20, 1988, provides for the issuance of a maximum of 1,250,000 shares of the
Company's Common Stock upon the exercise of stock options granted under the plan, which amount is
subject to adjustment upon the occurrence of certain events. All key employees of the Company and
persons engaged to be key employees of the Company are eligible to reeei"e options under the 1984
Plan. 1\0 stock option may be granted under the 1904 Plan after April 18. 1994.
Both non-qualified stock options and incentive stock options, or any combination thereof, may be
granted under the 1984 Plan at an option price not less than 100% of the fair market value of a share of
the Company's Common Stock on the date of the grant. Stock options granted under the 1954 Plan are
not assignable or tTansferable, except by will or the laws of descent and distribution. The 1984 Plan is
administered by the Stock Option Committee of the Board of Directors (the "Committee"), which is
composed of not less than three directors who are disinterested persons within the meaning of
II
I(
.
.
Rule 16b-3 promulgated under the Securities Exchange Act of 1934. as amended (the "Exchange Act").
The Committee is authorized to grant options and determine the terms and conditions thereof in
accordance with the provisions of the 1984 Plan. including the dates after which options will be
exercisable (which may not be greater than 10 years from the date of the grant). whether options will
be exercisable in installments and, if so, whether installments or portions thereof that are not exercised
will accumulate and remain exercisable. The Committee may also accelerate the date on which any
stock option. or portion thereof, may be exercised.
At or after the grant of any stock option under the 1984 Plan. the Committee may grant an
alternative means to exercise such stock option in the form of a stock appreciation right ("SAR").
under which a participant is entitled to receive cash in the amount of or shares of Company stock
having a value equal to the difference between the fair market value of the Common Stock covered by
the option and the exercise price for such shares.
The Committee is also authorized as part of a stock option grant to provide that shares acquired
pursuant to the exercise of an option or SAR will be subject for a number of years to restrictions on
transferability, under which the participant may not sell such shares and the Company retains an
option to repurchase all or a portion of such shares if the participant ceases to be employed by the
Company at a price equal to the amount paid by the participant upon exercise of the option.
In the event a participant's employment with the Company ceases. any outstanding option shall
expire after 90 days following termination of employment, except. in the event of retirement. death or
disability, options shall remain exercisable for three years from date of retirement and one year from
date of death or disability so long as such options have not expired pursuant to their terms. However. if
employment is terminated because of a participant's breach of an emplo\ment contract. dishonesty or
other acts detrimental to the interests of the Company, any outstanding options granted to such
participant shall be void.
Incentive stock options within the meaning of Section 422 of the Internal Re\enue Code of 1986
are subject to a rule limiting to $100,000 the aggregate value of such incentive stock options which may
become exercisable for the first time by a participant in any single year. This limitation is based on the
aggregate fair market value of the common stock of the Company at the time an incentive stock option
is granted.
The following table shows as to each of the five most highly compensated executive officers of the
Company, and as to all executive officers of the Company as a group. the stock options granted during
1990 to purchase Common Stock of the Company pursuant to the 1984 Plan and the average per share
exercise price thereof:
Options Granled Sam Da,,"id B.
1/01/90-12/31190 ~ Da,,'iss
No. of shares of common stock covered by option granted 0 5.268
AJanL
Tanis
All
Executive
WalterJ. Francis P. Officers
Biegler Bissaillon as a Group
11,012 11.0]2 4].816
$ ]5.]2 $ 15.]2 $15.173
Average per share option exercise price. . . . . . . . . . . . . . . . .
$15.375
]1.012
$ ]5.12
The following table shows as to each of the five most highly compensated executive officers of the
Company, and as to all executive officers of the Company as a group. the net value of securities or cash
realized (market value less exercise price) with respect to stock options exercised during the last year:
Options Exertised
1101/90.12131190
All
DayidB. Alan L. Executive
Sam WalterJ. Francis P. Officers
~ Daviss Tallis Biegler Bissaillon as a Group
$0 $12.412 $ l.O!"''} $ 0 $ 0 $14.-195
Net value of securities realiz:ed (l) .
(1) "Net value of securities realized" is based on market value at the exercise dote.
12
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.
.
At December 31, 1990, 135,543 shares of the Company's Common Stock were subject to options
granted during the last year at an average per share exercise price of $15.34l.
Employee Slack Purchase Plan
The Company has an employee stock purchase plan which is available to all full-time employees
who have completed six months consecutive service and have elected to participate. except those who
participate in the Company's 1954 Stock Option Plan. The plan affords participants a means of
purchasing Common Stock of the Company through regular payroll deductions. The Company
currently contributes an amount equal to 50% of each participant's actual payroll deduction, but not in
excess of S10.00 per two-week pay period. The plan is administered by Merrill Lvnch. Pierce, Fenner &
Smith Incorporated, which purchases Common Stock of the Company on the open market with the
funds generated by participants' payroll deductions and Company contributions. Participation in the
plan is voluntary and the plan is subject to modification or discontinuance at any time upon notice to
all participants, No executive officer of the Company participated in the Employee Stock Purchase
Plan during 1990.
Flexible Benefits Plan
The Company has a program to provide medical and other benefits to all employees, which is
generally characterized as a "cafeteria plan" and named the "Flexible Benefits Plan'" The Flexible
Benefits Program provides life insurance. including accidental death. dismemberment and loss of sight
coverages, at varying amounts depending on the employee's salary and level of job classification.
Additional life insurance coverage previously afforded officers of the Compam has been continued
under the Flexible Benefits Program. Cnder the program, all officers of the Company receive paid life
insurance (with accidental death, dismemberment and loss of sight coverages) at an amount equal to
three times the individual officer's base salary rounded to the next higher multiple of $1,000 (if not
already an even multiple thereof). subject to an overall maximum of $600,000. Because the Company's
group insurance plan is deemed discriminatory, the aggregate incremental cost of such insurance to
the Company per officer is taxable to each officer as ordinary income, and. therefore, has been
included in the compensation amounts set forth in the Cash Compensation table above.
Phantom Stock Bonus Plan
The Board of Directors on February 7, 1991 approved the execution of four bonus agreements
("Bonus Agreements") in an effort to compensate certain senior executive officers of the Company for
the additional time and effort, over and above their normal duties and responsibilities, that will be
required of them to evaluate financial and strategic opportunities available to the Company in order to
maximize shareholder value, including the possible sale of the Company, and to provide such senior
executive officers with an incentive to obtain the highest possible price for the Company in the event
of its sale.
The Company has entered into Bonus Agreements with Messrs. Sam Barshop, Daviss, Tallis and
Bissaillon. Under the terms of the Bonus Agreements, if the Company or its shareholders consummate
the sale or acquisition of at least 40% of the Company's outstanding Common Stock or the Company
sells all or substantially all of its assets on or prior to December 31, 1991. or, under certain
circumstances described below, June 30, 1992, each of the aboH' named senior executh"e officers will
receive, as reasonable compensation for his efforts in connection therewith. a bonus in an amount
equal to the per share consideration paid to the Company's shareholders pursuant to any such
transaction above $10.25 multiplied by 25,000, payable upon the closing of such a transaction. If the
Company consummates such a transaction on or before June 30, 1992 with one or more parties with
whom on or prior to December 31. 1991 the Company was engaged in discussions concerning such a
transaction, each such executive shall be entitled to receive such bonus.
13
1/
.
.
Severance Agreements
In October 1989 the Company entered into severance agreements with ~lessrs. Daviss. Biegler.
Tallis. Wiggins and Bissaillon. executive officers of the Company. In addition. in the fall of 1990 the
Company entered into severance agreements with certain other officers of the Company, including,
among others. Sam Barshop. The Company entered into, and has amended certain of the severance
agreements from time to time, most recently on June 7, 1991. to ensure the continuity of management
in the event of a change in control.
The severance agreements become operath"e upon the occurrence of ~\ "change in control" of the
Company as defined in each of the severance agreements. The severance agreements each provide that
the Company shall continue to employ each executive officer in substantially the same position and
with substantially the same duties ar,d responsibilities that he had immediateh before the change in
control (or to which the Company and the executive officer agree to in writing) for two years from the
date of the change in control. In addition, after a change in control. if the executive officer is
terminated or constructively terminated (as defined in each severance agreement), the executive
officer is entitled to receive certain benefits, including, among others, a lump sum payment in cash
equal to 2.99 times such executive's aggregate annual cash compensation (2 times in the case of two
executive officers). The definition of constructive termination includes a significant adverse change in
the nature or scope of the executive officer's responsibilities, relocation of the officer's principal
location of work, or in the case of four of the severance agreements, in the event any such officer
resigns his employment with the Company during the first year folio" ing a change in control.
If all members of the Sh;reholder Slate are elected at the Special ~leetIng. ~lessrs. Barshop, Tallis.
Bissaillon and Daviss each 'xould be-come entitled to recei\'e payments pursuant to his severance
agreement, but only in the event. generally, of either the termination of his employment with the
Company during the two years following such election or his voluntary resignation as an employee of
the Company during the year following such election. The election of the Shareholder Slate will not be
deemed a change in control pursuant to any of the other severance agreements. The amounts (other
than with respect to deferred compensation and pension benefits) that become pav'able pursuant to
the Company's severance agreements upon both a change in control occurring and thereafter the
employee ceasing (during certain specified periods) to be employed by the Company, as more fully
described in each particular severance agreement, are as follows: Sam Barshop. 81.144.710. David
Daviss. 8878,318, Alan Tallis. 863&.138. Francis Bissaillon. 8562.86&. Walter Biegler. $315,416, and
$3,539.450 for all executive officers of the Company as a group.
CO~IPE"'SATION OF DIRECTORS
Each member of the Board who is not also an employee of the CompanY presently receives a fee
of $1,500, plus expenses of attendance, for each scheduled Board meeting. and an annual retainer of
$9,000. except for the Chairmen of the Audit, Compensation and Marketing Committees, who receive
an annual retainer of $10,000. Directors are also entitled to receive a fee of 81.000, plus expenses of
attendance, for each committee meeting not held in connection with a regular or special Board
meeting; no such fees for committee meetings not held in connection with Board meetings were paid
in 1990.
CERHI" TRA"SACTIO:\S AND LEG\L PROCEEDI"CS
The Company owns a majority interest in, and serves as the general p.utner of three limited
partnerships. each of which owns a L1 Quinta Inn. A 20% limited partner in each of these three limited
partnerships is a family partnership of which Alden Wagner. a director of the Company, is a 79% equity
owner and managing partner. The terms of the agreements pursuant to which such inns are owned are
similar to those entered into by the Company with unaffiliated third parties. During the year ended
December 31, 1990, the Wagner family partnership received distributions aggregating $100.000.
14
If
.
.
Pursuant to a contract assumed by the Company and entered into in 1967 between 'Barshop Motel
Enterprises, Inc. ("BME") and Sam Barshop, the Company agreed to make payments to Mr. Barshop
(or his widow) of $10,000 per year up to a maximum of $150,000, commencing upon his death or his
retirement from the Company at age 65 or over. The contract will automaticallv terminate upon
Mr. Barshop's voluntary termination of employment with the Company prior to age' 65. In addition, if
Mr. Barshop fails to provide services as specified in the agreement or competes with the Company as
prohibited by the agreement during the payout period, the Company will have no further obligations
under such contract. Except for the situation in which Mr. Barshop dies before retirement and his wife
does not survive him, no payments will be made after the death of his widow whether or not the full
$150.000 has been paid.
On September 24. 1989, as a result of the severe decline in the commercial real estate market in
Texas, Lomas Financial Corporation, of which R. Ted Enloe, III is the president and a director. filed a
petition for protection from creditors in a Chapter II reorganization proceeding in the U.S. Bank-
ruptcy Coutt for the Southern District of New York. Lomas Financial Corporation has proposed a plan
of reorganization in the proceeding. which has not yet been confirmed by the court or approved by the
various creditors' committees.
Each of the Resigning and Continuing directors has been named as a defendant in an action filed
on ~!ay 21, 1991 on behalf of the Company's shareholders and, derivatively, on behalf of the Company
by Virginia K. Hickey, a purported holder of stock of the Company, in the District Court of Tarrant
County, Texas. The plaintiff alleges. among other matters. that the Compam"s directors breached their
fiduciary duties to the Company by taking certain actions including the adoption of certain financing
arrangements and employee compensation arrangements which the plaintiff characterizes as anti-
takeover devices. The plaintiff seeks relief including, among other things. (a) the issuance of a
permanent injunction barring the Company's directors from (i) failing to sell the Company, (ii) using
compensation arrangements as anti-takeover devices, (Hi) paying greenmail and (iv) requiring
potential acquirors to enter standstill agreements; (b) compensatory and punitive damages; and (c)
attorneys' fees.
OTHER ~IA TIERS
Pursuant to the provisions of the Company's Bylaws, no business, other than certain procedural
matters and matters relating to the election of the Shareholder Slate, may properly come before the
Special Meeting.
The foregoing Information Statement is sent by order of the Board of Directors.
~!ARIL"" K. BOLDRICK
\'ice President - General Counsel and
Assistant Secretary
June 21, 1991
15
II
.
.
LA QUlNTA'S MISSION Is To PROVIDE:
Our Guests the best value in quality rooms
and service
Our Employees a motivating and rewarding
work environment
Our Investors a fair return on their long-term
investment
Our Communities the support of a good
corporate citizen
II
.
.
FINANCIAL HIGHLIGHTS
(in mil/fOl<<, calendar years)
ABOUT THE COMPANY
Total Revenues
La Quinta Motor Inns, Inc. owns and operates
a chain of limited service inns that provide
guests with high quality, mid-priced accom-
modations La Quinta developed the concept
uf limited service inns and IS recognized todav
as a leader in this growing market segment of
the lodging industr\'. The Companv's 210 inns
are located in 29 states, with concentrations
in Texas, Florida and California, three of the
fastest growing areas in the United States.
The Company was founded in 1968 in San
Antonio, Texas by Sam Barshop, the Chairman
of the Board and Chief Executive Officer of
the Company. La Quinta shares are traded
on the New York Stock Exchange under the
s)'mbol "LQ~l"
~ J~,S
~ ~5,6
88 IS.LV
~ 171.9
Operating In,ome
~ ill
~ RI
88 32.4
87 32.4
Nel Earnings
~
2.}
89
.47
La Quinta Inns typicalll' are conveniently
situated along interstate or major highways
and contain an average of 130 guest rooms.
The inns appeal to guests who desire quality
rooms and whose needs do not include
banquet and convention facilities, on-premise
restaurants, cocktail lounges or room service.
The absence of these extensive facilities
enables La Quinta to offer lower rates than
those charged for comparable rooms at full
service hotels.
89
61
88
2.6
R-
1.1
Earnings Per Shore
'lO
Ii
Il8
20
R7
40
CONTENTS
Letter to Shareholders
Inn Locations 12
Business Description 13
Selected Financial and Statistical Data ]6
Management's Discussion and Anall'sis 18
Financial Statements
Combined Balance Sheets 22
Combined Statements of Earnings 24
Combined Statements of Cash Flows 25
Combined Statements of Shareholders' Equity 26
Independent Auditors' Report 26
Notes to Combined Financial Statements 27
Directors and Officers 33
Coqlorate Information 34
If
.
.
TO OUR SHAREHOLDERS:
A number of issues currently challenge the lodging
industry, including overbuilding, an increasingly difficult labor market
and lack of financing for development and capital improvements. Some
of these issues affected the Company and most affected our competitors
making 1990 a difficult Year. However, we continue to believe La Quintl
is in the best competitive position in the industry. We will continue to
confront the industry challenges head-on.
1990 Operating Results
For the lear, we achieved a .S percentage point
improvement in occupancy over 19i59. While the percentage of occu-
pancy improved 1.9 percentage points in the first six months of 1990
compared with the comparable 1989 period, we were affected by a
decline in domestic travel in the latter part of the year We believe the
decline resulted from recessionary trends in the economy, higher gas-
oline prices and overall uncertainty related to the political situation in
{ (
.
.
the Middle East. We were able to maintain room rate increases for the
entire year, however. Our average room rate in 1990 increased 5.8%
over 1989
La Quinta also faced challenges related to increasing
operating expenses. The Federal Minimum Wage was raised in April,
1990. While the increase did not directly impact all our employees, the
cost to the Company was approximately $.7 million in 1990. A second
increase, scheduled for April, 1991 will have a similar impact. We have
experienced even greater hurdles resulting from increases in workers'
compensation expense. Finally, the Company's shareholder rights plan
and associated corporate governance issues along with the related study
to enhance shareholder value, discussed below, resulted in a charge of
approximately $.5 million in 1990 and will likely be more expensive
in 1991.
Even with the tough competitive environment, we
were successful at improving earnings before property and investment
transactions to $3.4 million in 1990 from $2.4 million in 1989.
2
rf
.
Development Program
.
The forma-
tion of La Quinta Development
Partners in March, 1990 was a
very significant transaction for
the Company. This venture could
provide up to $150 million to
effect our expansion strategy of
acquiring existing inns and con-
verting them to La Quinta Inns.
Through the end of 1990, the partnership acquired four inns under this
program. We anticipate acquiring approximateh 1~ inns in 1991, with
tll'O of those inns having been acquired to date.
We are also excited about our franchise agreement
for the expansion of the La Quintl chain into the \lexican States of
i'iuevo Leon and Coahuila. We believe expansion into Mexico represents
a natural growth opportunity for La Quinta and allows the Company to
participate in the economic expansion of \lexico. l nder our agreement
3
If
.
.
with Desarrollos Turisticos \angllardia S.A. de C\'. the properties \\(lLlld
initiallv be managed b\ the Company The Compam will also partici-
pate in the site selection and development processes.
Shareholder Rights Plan
On September 26. 1990 your Board of Directors
announced the adoption of a Shareholder I\ights Plan providing for
rights to be issued to shareholders of record on October 9. 1990 This
action was taken after long and careful stmh and was not taken in
response to am pending takeover or proposed change in control of the
Company The adoption of a shareholder rights plan has been common
practice in major American companies and is a well accepted approach
to ensuring all shareholders receive a fair price and are treated eqllalll
in the event of a takeOler.
The major provision of the plan requires a share-
holder to obtain the apprOlal of the Board of Directors prior to
acquiring in e\cess of IS"" of the outstanding common stock of the
Compam If the ownership thresholds arc e\ceeded without the
approval of the Board. the rights of the other shareholders become
e\ercisable and those rights held b\' the persons who e\ceeded the
threshold will become void.
4
rf
.
.
Opportunities to Enhonce Shareholder Volue
On January 23, 1991, the Board announced it
had requested the Company's financial advisor to evaluate financial
and strategic opportunities that might be available to La Quinta to
maximize shareholder value, including the possible sale of the Com-
pany. The Board's decision was made after several months of in-depth
analysis of the business and financial condition of La Quinta and the
prospects for the lodging industry and the economy in general. We con-
tinue to work with our advisor towards enhancing shareholder value.
On February 8, 1991 the Company announced it had
reached an agreement with one of its major shareholder groups
whereby that group agreed to vote its stock at the Company's 1991
Annual Meeting for management's slate of Directors. That shareholder
group also acknowledged its support for the Company's efforts to evalu-
ate financial and strategic opportunities that may be available to
maximize shareholder value. Concurrently, the Company amended its
7
rI
.
.
h\Lt\\s. among other things. to provide shareholders the right to call a
~{;lcial nwl'tin~ hel\\cen ~Ia\ P. 1l)l)1 thmughllllle .~O. Il)l)~ If such
a meeting were called. new llirectors could be elected by a \'ote of a
majority of La Quinta's outstanding stock.
The Board helieves that La Quinta's long-term strat-
eg\ of aClluiring inns and regular renovatiollS and maintenance to
ensure continued quality ami reflect consumer preferences, has resulted
in a sl rong company. Our strateg\ has enabled La Quintl to attract
funds till' further expansion even in a difficult period for the lodging
industr\' .\t the same time. limited use of leverage has helped the Com-
pal1\ amid the financial difficulties currenth heing experienced h\ a
JJul11hL't" (,j Oll1' competitors. Our strateg\ ami financial strength \\ill aid
us sigl1ifical1th as we seek to maximize shareholder value. The Board
. .
helie\es that its actions represent a well-constructed strateg\ for
enhancing shareholder value and treating all of La Quinla's share-
holdm ~llualh a III I fairk
8
rf
LA QUINTA INN LOCATIONS
A" o! fJeel'lI/!",}, 311990
.
.
t LQuik Rese,."atioll Sen'ice
~ll Free 800-531-5900
Alabama
Birmingham
Huntsville (2)
Mobile
tl-1011tgomery
Tuscaloosa
Georgia
Atlanta (8)
Augusta
Columbus
Sarannah
Mississippi
Jackson
Missouri
St. Louis
Texas
Abilene
Amarillo (2)
Arlington
Austin un
Be:11l1l101l!
Browllsrille
CllIte
C{lllege Statim]
Coq)lls Christi (2)
Ilallas \letro Area (]2l
Eagle Pass
EI Paso UJ
Fori \\()rth
(;ahl'S!OIl
lIarlill).!.t'1l _
lloustol1 .\ll'1rn Area 0:)
l\ilk'l'll
I.aredo
Illllgrie\'I'
I.ubhock
Lufkin
,Iidlalld
Nacogdoches
Odessa
Sail Angelo
Sail Antonio (Ill
'Jbnple
'Je'\arkan;l
'l\ler
\'ictoria
\Vaco
Wichita Falls
Nebraska
Omaha
Arizona
Phoenix (2)
1lICSOll
Illinois
Champaign _
Chicago \\el1'O Area ())
.\Iolinl'
Nevada
Las \egas
Rello
Arkansas
Little Rock (4)
Indiana
Indianapolis (2)
\\willlllle
New Mexico
Albuquerque (:1)
Farmingto1l
Las Cruces
Sallta Fe
Calilarnia
Bakersfield
Costa Mesa
Fresno
Irvine
Sacramento
San Bernardino
San Diego (3)
San Francisco
Stockton
Ventura
Kansas
I-l'ne\a
\\"ichita
Kentucky
Le\ington
North Carolina
Charlotte (2)
Ohio
Columbus
Louisiana
Baton Rouge
Bossier Cit:
Lafayette
\10111"Oe
\l'W Orleans ())
Sulphur
Oklahoma
OkJallOlltl City (2)
'1\Itsa t51
Colorado
Colorado Springs
Dellver ())
Pennsylvania
Pittsburgl1
Florida
Deerfleld Beach
Ft. Mvers
Gain~sville
Jacksonville (3)
Miami
Orlando (2)
Pensacola
Tallahassee (2)
Tampa (5)
Michigan
!\;ll:lIll:lZOO
South Carolina
Charleston
Columbia
Greenvi11e
Tennessee
KllO\ville
)lemphis (j)
~asll\'ille (2)
12
Utah
La\"lo11
Sait I.ake e,t\
Virginia
Hamptull
Richllll11ld
\irgillia [-;(.';lch
Washington
Sea!lle (~I
Tacol1l:1
Wyoming
C:lsper
Cl1l'Yl'n!k
Rock Springs
LICENSED
LA QUINTA INNS
Florida
Orl:lndo
Ohio
Cincinnati
Da:loll
Texas
1l1'1Itoll
Fort \\01'111
\lc\llen
OTHER OWNED INNS
Texas
EI Paso
La \larque
San ,\ntoI1!o
( (
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BUSINESS DESCRIPTION
La Quinta Motor Inns, Inc. ("La Quinta" or the
"Company"), its subsidiaries and unincorporated ven-
tures, develop, own and operate a chain of limited service
inns. The La Quinta chain consists of 210 inns in 29 states,
with concentrations in lexas, California and Florida.
La Quinta is incorporated under the laws of lexas and
maintains its executive offices at La Quinta Plaza,
10010 San Pedro, San Antonio, lexas 78216, telephone
(512) 366-6000
.
PRODUCT
I
l
La Quinta Inns typically are conveniently situated along
interstate or major highways and contain an average of
130 guest rooms. The inns appeal to guests who desire
quality rooms and whose needs do not include banquet
and convention facilities, on-premise restaurants, cocktail
lounges or room service. The absence of these extensive
facilities enables La Quinta to offer lower rates than those
charged for comparable rooms at full service hotels.
'l\'Pically, food service for La Quinta guests is provided by
an adjacent, free standing coffee-shop style restaurant
operated by national or regional chains such as Denny's,
Coco's or Kettle restaurants. At December 31, 1990
La Quinta had an ownership interest in 101 restaurants
adjacent to its inns. These restaurants are leased pursuant
to a build-to-suit, triple net lease that requires the opera-
tor to pay, in addition to minimum and percentage rentals,
all expenses, including building maintenance, taxes and
insurance. At most of its locations, La Quinta is located
adjacent to an existing restaurant.
Inn locations are strategically selected based on proximity
to interstate highways, major traffic arteries and
concentrated destination areas. La Quinta's expansion
strategl' is also guided by the concepts of: (I) clustering-
developing multiple inns in the same metropolitan area;
(2) adjacency-locating new inns within approximately
three hundred miles of existing properties; and (3) filling
in-moving into smaller cities (populations under 100,000)
within existing market areas.
.
Telephone reservations for accommodations at any
La Quinta Inn can be made free of charge through
La Quinta's nationwide "teLQuik@" reservation system,
as well as through reservation telephones in the lobbies
of all La Quinta Inns. La Quinta can also provide its
reservation services to travel agents world-wide and is
direct-connected to the five major airline reservation sys-
tems. "La Quinta" and "teLQuik" have been registered
as service marks by La Quinta with the U.S. Patent and
Trademark Office.
COMPETITION
Each La Quinta Inn competes in its market area with
numerous full-service lodging brands, especially in the
mid-priced range, with numerous other hotels, motels,
motor inns and other lodging establishments. Chains such
as Hampton Inns, Red Roof Inns, Fairfield Inns and
Drury Inns are direct competitors in the mid-priced, lim-
ited service market segment of the lodging industry.
Other well-known competitors include Holiday Inns,
Ramada Inns, Quality Inns, Motel 6, Travelodge and Super
8. There is no single competitor or group of competitors of
La Quinta that is dominant in the lodging industry.
The principal methods of competition in the lodging
industry are convenience of location, pricing, range of
services and guest amenities offered and overall quality
of accommodations, including condition of physical facili-
ties and quality of services. La Quinta considers its owner-
ship and control over its products, its extensive renovation
and remodeling program and the location of its Inns to be
among the most important factors in its business.
The demand for accommodations in most inns is higher
Monday through Thursday, when there is a high volume of
commercial travel. Demand, and thus room occupancy, is
also affected by normallv recurring seasonal patterns, and
in most La Quinta Inns is higher in the spring and summer
months (March through August) than in the balance of the
year. Overall occupancy levels may also be affected by the
number of new inns owned by the Company and the length
of time they have been in operation as a La Quinta Inn.
The lodging industry and the business of La Quinta may
be adversely affected bv national and regional economic
conditions and government regulations which influence
;f
13
.
or determine wages, prices, interest rates, COllstructioll
procedures and costs and the availability of credit. The
demand for accommodations at a particular inn may be
adversely affected by many factors including changes in
travel patterns, local and regional economic conditions
and degree of competition with other inns in the area.
OWNERSHIP
La Quinta has financed its development through internal
cash flow, partnerships with large insurance companies or
financial institutions, public offerings of equity and
convertible debt and the issuance of Industrial Revenue
Bonds. Management of the Company believes joint
ventures and partnerships have enabled the Company to
expand to a greater extent than would have been feasible
by using only Company capital, while maintaining a
degree of operational control over service quality that is
not possible with franchising
In March, 1990 the Company formed La Quinta Develop-
ment Partners, LP, a limited partnership between the
Company and PJ'.W Partners, LP The Company maintains
a 40% interest in the Partnership. At December 31, 1990
the Partnership owned 22 Inns and 12 freestanding restau-
rants. In the first quarter of 1991, the Partnership acquired
two additional inns.
La Quinta's current development program focuses on the
acquisition of undeqJerforming competitor properties at
substantial discounts to replacement costs. As part of this
program, La Quinta pursues the acquisition of properties
currently owned by agencies of the federal government
such as the Resolution Trust Corporation as well as fore-
closed properties owned by numerous financial institu-
tions. Upon acquisition of a property, La Quinta renovates
and upgrades the inn as necessary to adhere to La Quintas
standards. The Partnership will continue to acquire and
convert existing inns to La Quinta Inns.
14
.
77]e Prudential Insurance Compan)' (i!America has
been a joint venture partner with the Companv since 197L
At December 31, 1990, The Prudential and the Company
oWl1ed 27 La Quinta Inns and 15 freestanding restaurants.
During the first quarter of 1991, the Companv purchased
Prudential's interest in five of those inns and two of those
restaurants.
The Company and the 71]e Metropolikm Life Insurance
Compan)' have been joint venture partners since 198L As
of December 31, 1990 the venture owned eight inns and five
freestanding restaurants.
In December, 1987, the Company formed two joint ventures
with investment portfolios managed by CIGNA Investments,
Inc. The Company maintains a 25% ownership interest in
each of the ventures, and manages the inns in accordance
with long-term management contracts. As of December 31,
]990 the ventures owned nine inns and six freestanding
restaurants.
Other large institutional lenders with whom the Company
has joint venture relationships include New York Life
Insurance Company and '!be linealn National Life
Insurance Compan)'
In October ]986, the Company sold 31 inns to a publicly
traded master limited partnership. These inns continue to
be operated under the La Quinta name and are managed
by the Company in accordance with a long-term manage-
ment contract.
The Company selectively licensed the name ''La Quinta" to
others for United States operations until February, 1977 at
which time La Quinta discontinued a domestic licensing
program to unrelated third parties for new properties, Six
inns remain in operation under franchise agreements
with unrelated third parties.
( r
.
During 1990, the Company entered into an exclusive
licensing arrangement with Desarrollos 1\Jristicos Van-
guardia SA de C.Y for expansion of the La Quinta chain
into the Mexican states of Nuevo Leon and Coahuila.
Development rights have been awarded Desarrollos subject
to the satisfaction of quota requirements. Under this
arrangement, the inns would be constructed and owned by
the licensee and La Quinta would initially manage the
inns under a separate management agreement. No such
inns were under development or in operation under this
agreement at December 31, 1990.
The following table describes the composition of inns in
the La Quinta system at December 31, 1990.
La Quinto
1111lS Rooms &juimlent Rooms
La Quinta Inns
owned 100%__ 81 10,775 10,775
owned 40-80% _ 80 9,979 4,889
161 20,754 15,664
Other owned 40% or
more 3 ~
Total Company owned
and operated_ 164 21,117
La Quinta Inns -
managed___ __ 40 4,980
La Quinta Inns -
licensed to others_ 6 717
210 26,814
274
15,938
370
16,308
Managed inns include inns owned less than 40% by the
Company and not included in the Company's financial
statements. La Quinta manages these inns under the
"La Quinta" name pursuant to long-term management
contracts. Under the terms of the management contracts,
licensing and management fees are paid to La Quinta. In
addition, the Company charges for national advertising
and chain services relating to reservations and
bookkeeping.
.
Management of the Company believes such management
contracts allow the Company to maintain a high degree
of operational control over service and quality and addi-
tionally allow La Quinta to expand at a faster rate than
would be possible using internal sources of capital. thus
enhancing shareholder value.
ORGANIZATION
La Quinta employs approximately 6,300 persons, of whom
approximately 87% are compensated on an hourly basis.
The Company's employees are not currently represented by
labor unions and the Company has never experienced
any organized work stoppage. The Company believes its
ongoing labor relations are good.
La Quinta maintains its high operating standards by
managing its inns through a closely monitored organiza-
tional structure. Inn operations are currently organized
into Eastern, Central and Western Divisions with each
Division headed by a Divisional Vice President. Regional
Managers report to the Divisional Vice Presidents and are
each responsible for approximately 11 inns. Regional Man-
agers are expected to ensure that standards of service,
cleanliness and courtesy are maintained and profit goals
are met. Regional offices are currently maintained in
Albuquerque, Atlanta, Chicago, Dallas, Denver, Houston,
Irvine, New Orleans, Orlando, and San Antonio.
Individual inns are typically managed by husband and
wife teams who live on the premises. Because La Quinta's
professionally trained management couples are relieved of
responsibility for food service, they are able to devote their
attention to assuring friendly guest service and quality
facilities, consistent with chain-wide standards. On a typi-
cal day shift, the husband and wife team will supervise one
housekeeping supervisor, eight room attendants, two laun-
dry workers, two general maintenance persons and front
desk sales representatives.
({
15
.
.
SELEaED fINANCIAL AND STATISTICAL DATA
(dol!ff1:\' ill I/;OUSalld.,', e.rcefJl per ",/.1m/! amollll!S)
FINANCIAL SUMMARY
I{evenlles____~___ _____d ~u ---- ------
Netearnings_____~~_~__ ------- -------------
Net cash provided by operating activities,______ - -~-----------
Operating income_ --~~--
Earnings per share -------- ---
Total assets
Shareholders' equity
Partners' capital ---------
Long-term debt, excluding current installments ----
Return on average shareholders' equity ________u______________
Combined effective debt-to-eqnitv ratio (I) ---- ----,------ - --------- - -----
INN STATISTICS (at end of period)
Innsowned__________________ ------------ ---- --------
InnsmanageL_~ __u________ ------- -----~-------
Innslicensed___________________ ---- -------
Rooms owned _,_ ---- ---------- --- ~----
Rooms managed__ ------ ---------------
Rooms Iicensed________ ------ ------
La QlIinta equivalent rooms _
(1) Jlatio oflvllli-term debt to fiartllers' cafiilal filus sbareiJoklers' l!Jjui(J' at )'ear end
16
leal's ended
December 31
1190 19~9
$226,463
2,175
42,149
43,488
17
587,149
129,167
37,270
341,902
17
21
164
40
6
21,117
4,980
717
16,308
205.596
6,130
38,463
41,073
.47
577,338
123,193
29,223
350,986
51
23
161
40
6
20,nl
4,980
71"'
17,649
((
.
Sel'en montbs
ended
December 31 Fiscal years ended May 31
1989 1989 1988 1987 1986
126,578 191,834 174,480 174,715 178,626
5,639 4,709 3,146 4,092 5,753
27,759 29,041 30,648 30,956 47,188
26,946 38,068 29,502 29,628 43,559
43 .36 .24 .30 41
577,388 602,284 593,905 623,314 621,407
123,193 117,164 1ll,479 117,949 113,774
29,223 29,504 30,152 33,115 40,446
350,986 360,651 368,723 381,936 394.363
N/A 4.1 2.7 35 49
23 25 2.6 25 26
161 155 149 151 165
40 40 40 31
6 7 9 9 11
20,721 19,997 18,920 19,124 20,632
4,980 4,982 4,982 3,803
717 917 1,133 1,133 1,431
17,649 16.864 15,848 15,582 16,418
.
((
17
.
MANAGEMENT'S DISCUSSION AND ANALYSIS
References to Fiscal Years 1989 and 1988 are to fiscal years of tbe
Company ended May 31 of the respective years. Effective June 1.
1989, the Company changed its year-end from \tav 31 to Decem-
ber 31. References to the Transition Period refer to' the seven
month period ended December 31. 1989_ References to 1990 are to
the calendar rear ended December 51. 1990 References to 1991
are to the calendar year ending December 31, 1991.
References to Company Inlls are to inns O\vned by the Company
or by joint ventures in which the Company O\\lllS at least 40%
interest. References to ~lallaged lnns are to those inns in which
the Company owns less than 40% interest and which are man-
aged by the Company under a long term management contract.
These include nine inns held in two joint ventures formed with
CIGNA Investments, Inc. (CIGNA) in Fiscal 1988 and 31 inns sold
by the Company to La Quint a I\'lotor Inns Ijrnited Partnership
(the "Partnership")
References to the percentage of occupancy and the average daily
rate refer to Company Inns ov,'ned at December 31, 1990. ~1aIl-
aged Inns are excluded from occupancy and average daily rate
statistics for all periods for purpo~es of comparability, All finan-
cial data relates to CompallY Inns unless othel"\\lise specified
Results ofOjJeratiolls - 1990 {lnd 7i"tlJ/sitioll Period
To assist in analysis of 1990. results from the comparable twelve
month period of 1989 are provided. To assist in analysis of the
Transition Period results. results from the comparable seven
month period in 1988 (the '1988 Transition Period") are
prorided.
Inn operations are seasonal in nature with the percentage of
occupancy generally higher in the sprlllg and summer months
(March through Augustl than the balance of the rear Hecause
of this seasonality, results of the Transition Period should not be
annualized or compared with any of the twelve month periods
presented.
Inn revenue is derived from room rentals (approximately 97% )
and other sources such as charges to guests for long distance
telephone calls, fax machine lIse and guest laundry services.
Inn revenue also includes revenue from Company operated
restaurants.
18
.
CmiifJIIl'illilo' 1\/'('('111/" [),illI
(f/lelldlll' }i'ill' 7hlll.iiliol/ Period
1990 1981) 19H9 1988
Percentageofoccllpal1cy__~_ 6(1.0"0 6').) (i~.l 66.'1
Al'crageroolTI rate___ S -'i095 ::;86- 391; 36.H5
Arailableroom~ (Oom -;-- ~,_;C(I ~.:::.;~ 4.m
Roomrcl'€llue(()O(ll_ ~ - 5~I1--j.6~{, 1:-::;..1-j~ Il-f,:'~_~ 100.869
Other inn rerenue (()()O)._ b.4;-f ').11')\1 ,-111 :wr:
ReSlaurant rerenue (C)()(lJ__ 9-1; ql;; -(l~ ~1I1
lllllrevenuc(OIXlI___ ~12J12') 191,9U tI8,-I09 ID-1,O'7
The percentage of occupancy in 1990 was 6600. an increase of
.5 percentage points over 1989. In the first t\\O quarters of 1990,
the percentage of occupancy was 1.9 percentage points higher
than in the comparable six month period in 1989, During the
second half of 1990, the percentage of occupancy was below the
comparable 1989 period \lanagement attributes the trend io
the percentage of accnpancv during the second half of 1990 to
a decline in travel caused hy general recessionary trends in
the economy, an increase ill the price of gasoline alld o\'t'rall
uncertainty due to the political situation in the ~1iddle East.
The percentage of occLlpancy in the Transition Period increased
.7 percentage points ovcr the 1988 Transition Period to ()7.1~o.
Management believes the Company's capital impro\'i.'ment pro-
gram, tactical discounting programs and improving local and
regional economies in which many of the Company's Inns
are operated contributed to the increase in occupancy in the
Transition Period and the first half of 1990. The percentage of
occupancy in 1991 will be dependent upon the o\'erall economic
condition in the Company's major markets and the effect of new
alld existing competition on the La Quinta Inns with which
they compete.
The average room rate in 1990 was S~o.93, an increase of 5.8'){,
over 1989. The average room rate in the Transition Period was
$39.15, an increase of 6.~oo over the 1988 Transition Period, The
increase in the average room rate achieved in the two periods
was due to room rale increases implemented at selected proper-
ties and to tactical pricing and yield management techniques
implemented by management.
Inn revenue was $212,025.000 in 1990. an increase of 520.112,000
or 1OS\:, over Calendar 1989. In the Transition Period. inn
revenue increased 13.8"0 over the 1988 Transition Period. The
increases in inn revellue ill the two periods rri1l1aril~' resulted
from the increases in the percentage of occupancy and the aver-
age room rate. Also contrihuting to the inCft';lses in inn revenue
was an increase in the number of :Jsaibble rooms, Four inns
opened during 1990 and six inns opened during the Transition
Period
!(
.
~
ReSI3urant revenue. which consists primarily of revenue from
two restaurants QVolled and operated by the Company. was
S9-1;.OOO In 1990 compared with S918.000 in 1989 ~Ianagement
belie\-es restaurant revenue will increase in 1991 due to the
JCqulslllon of an additional restaurant in the fourth quarter of
1990 whICh will be operated bl the Companl.
Restaurant re\-enue was $-04.000 in the Transition Period com-
pared With S!Ol.OOO in the 1988 Transition Period. The increase
was due primarily 10 revenues from a restaurant purchased and
temporarily operated hy La. Quinta in conjunction with an inn
acquired in Calendar 1989 This restaurant was closed during
the Transition Period and construction was begun on a free-
standmg restaurant on the site.
Restaurant rental and otber re\'eoue includes rental pa)ments
from restaurants owned bl La Quinta and leased to and oper-
ated bl third parties. Also Included are the Companl.s interest in
the earnings of the two C1G\A ioint ventures and miscellaneous
other revenues such as third party rental revenue from an office
huddlng housing the Compan(s corporate offices. Restaurant
rental and olher revenue was SS.l59.000 in 1990 compared with
S-.689 000 in 1989 Restaurant rental and other rnenue was
S,.;)8.000 in the Transition Period compared with S5.10;.000 in
the 1988 Transition Period. .\ one-lime settlement in 1988 of
s6;0.000 related to delinquencies from the pmr vear was the
primm factor contributing to Ihe higher reslaurant renlal and
olher revenue in the 1988 Transition Period.
.Harwgemenl ~C'rdces revenue is primarily related to fees earned
by La Quinta for services rendered in conjunction with the ~tan-
aged Inns. ~lanagement belie\'es management services revenue
will Increase bl approximatelv seven to eight percent in 1991
over 1990 due to anticipated increases in revenues of managed
properties and an increase in the reser..ation fee.
Comparatil'e (JH?rating Costs
Calendar lear Transition PrrIod
1990 1989 1989 1988
Directe.xpen!>e(OOJ)~ SI~5.8:-! 112.094 68YI 60.0\3
Corpotaree.xpeo!>e(OCXH_ S ~~.O:-3 t8.858 11.38' 10.296
Depreci3tion. amortization
andfLxedasset
retlrements (OCO) S 3'5.030 33.571 196'4 18.526
fJJred expenses include costs directlv associated with the opera-
tion of Compam Inns. Approximaleh 44% of direct expenses are
represented by salaries, wages and related costs. Other major
categories of direct ex-penses include utilities, repairs and main-
tenance, property ta.xes. advertising and room supplies.
.
-
------..
Direct expenses "IlI'('re SI25.8:2,()(X) in 1990 compared with
SII!.O'H.OOO in 1989 Direct expenses wereS!5.18 per OCCUpied
room In 1990 compared with S!339 in 1989 Direct EX-penses
per occupied room were $23.49 in the Transition Period com-
pared with S21q~ 10 the 19&3 Transition Period. In order to
become more competiti\'e in the service industry's labor mar.
kets. the Compall\ began providing an increased I".el of
benefits to Inn employees beginning in the founh quaner of
Calendar 1988 The Increases in direct EX-penses per occupied
room in 1990 and 10 the 1989 Transition Period resulted pri-
marily from increases in salary and benefit costs related to the
new benefit program and from increases in workers' compensa-
tion insurance expense Mditionally. property ta.xes, insurance.
securit\ seryices and local and regional mari<eting costs all
increased beyond the rale of inflation An increase in the Federal
minimum wage Implemented April 1. 1990 resulted in further
increases in direct expenses in 1990 A second increase in the
Federal miDi mum wage. scheduled for implementation April 1.
1991. will result in further increases in direct expenses in 1991.
Corporati' expenses include the costs of general management.
traiDlng and field supervision of inn managers and other
administrati\.e e.:xpenses. The major components of corporate
expenses are sa.laries. wages and related expenses and infor-
mation systems
Corporate exllenses in 1990 were S~2,073.(0). an increase of
170& over 1989, The increase in corporate expenses in 1990 are
due in pan to increased expenses associated with the Company's
development program and to expenses associated with the
Compam.s Shareholder Righls Plan and related corporate
governance issues. .~itionally, increased costs associated with
a lease on the Company's new mainframe computer system con-
tributed to the increase in corporate expense in 1990 Corporate
expenses per ayaHable room (including ~Ianaged Inns) were
E3; in 1990 compared with $!.06 in 1989 Corporate expenses
were $11.38;.000 in the Transition Period compared with
SlO,!96.000 in the 1988 Transition Period. Corporate EX-penses
per available room v,'ere $2,10 in the Transition Period compared
with $1.98 in the 1988 Transition Period.
Depreciation. amorli;aliol1 and fzxed asset retirements were
13;.030.000 in 1990 compared with S33.571.000 in 1989 In the
Transition Period. these charges were $19.671.000 compared
wilh $18.;!6.000 in the 1988 TranSition Period. Changes in
depreciation and amortization are affected by the costs of nev.
inns, the number of new inns opened during each period and
the number of months they were open. Depreciation, amortiza-
lion and fixed asset retirements expense also includes asset
retirements associated with the Compam"s remodeling program
and olher capital imprOl.ements. These charges were $1.563.00:1
and SI.1;!.000 in 1990 and 1989. respectivelv and S8n.000 and
S664.000 In the 1989 and 1988 Transilion Periods. respectivel\
19
.--
rr
"
.
For the reasons discussed above, operating income improved
59% to $43,488,000 in 1990 from 541.073,000 in 1989 and
12.6% to $26,946,000 in the Transition Period from $23,941.000
in the 1988 Transition Period.
or/ler lllCl!/IIt' llJt'dllctirJII.\}
(i1h'l/{/llr}t'(/r 7hmsitioll Period
1990 198') 1989 1988
Inlerestil1come (000)_ S 8M" 4,H49 1,R2.' 3.243
IntereSlonlong-lerm
debt((l()(J) ('10.292) (42.253) (24,71"5) 124,6<11)
[ntereslcapitalized (OOO)~~ lJll 737 506
Partners" equity in (earningsl and
losses (000) IS,40S) 12,596) (I,s261 11.25])
In/erest income primarily represents earnings on the short-term
investment of Company funds in money-market type instru-
ments prior to their use in operations or acquiring inns. In 1990,
interest income was $8,607,000 compared wilh $4,849,000 in
1989. The increase in interest income in 1990 was primarily the
result of interest earned 011 the note receivable between La Quinta
Dewlopment Partnership (the "Development Partnership") and
AEW Partners, LP. Interest iilcome declined in the Transition
Period from the 1988 Transition Period due to lower average
cash balances. Interest income in 1991 will be dependent on the
average cash balances, the awrage balance remaining on the
note receivable in the Dewlopment Partnership and the interest
rate earned on those funds.
IlIlel'esl Ol1lol1~-lenll debl was $40,292,000 in 1990 compared
with 542,253,000 in 1989 The reduction in interest on long-
term debt in 1990 was primarily attributable to the repa~ment
of $17,329,000 in long-term debt, offset br additions of $15,275,000
during 1990. During 1990. interest expenses on the Company's
lines of credit totaled $895,000. Interest olllon~-term debt was
$24.715.000 in the Transition Period, approximately equal to
the 1988 Transition Period
interest capitalized is dependent upon the number of inns
under construction or conversion, the cost of those inns and the
number of months each inn is under construction or com.ersiOll.
No inns were under construction in 1990 and there was no-inter-
est capitalized for inns undergoing conversion to La Quinta Inns.
Interest capitalized during 1989 was attributable to four inns
under construction and totaled $1,321,000. In the Transition
Period, interest capitalized was $737,000 compared with
$506,000 in the 1988 Transition Period.
20
;;---. "'-_..~
.
~?
Partners' eqlli~r ill t'({millgs ({lid losses reflects the interests of
partners in the earnings and losses of joint ventures 'iihich are
owned at least 40% by the COmp:111Y. Partners' equity in earn-
ings and losses in 19'10 was $8,408,000 compared wilh $2.5%,lXIO
in 1989. The increase in Partners' equity in earnings and losses
in 1990 is primarily attrihutable to the earnings of La Quinta
I.h:relopment Partners. LP The increase in Partners' equity in
earnings and losses to $1,826.000 in the Transition Period from
$1.~51,000 in the 1988 Transition Period reflects the improved
overall performance of the joint venture properties. Partners'
equity in earnings and losses in 1991 will be dependent upon the
specific performance of such joint venture properties.
For the reasons discussed above, earnings before property
and investment transactions increased 41.8% to $3,395,000
in 1990 from $2,394,000 in Calendar 1989. In the Transition.
Period, earnings before property and investment transactions
increased $2,127,000 to $3,965,000 from $1,838,000 in the
1988 Transition Period.
Gain on sale of as sets in 1990 is composed of several mis-
cellaneolls, inmaterial gains and losses. In the 1989 periods
and the 1988 Transition Period. net gain on sale of assets is pri-
marily attributable to amortization of a deferred gain related
to the sale of 31 inns during 1986 In the Transition Period, net
gain on sale of assets included S4.287.000 related to this trans-
action compared with $4,336,000 in the 1988 Transition Period.
In 1989, $7,187,000 of Ihe nel gain was attributable to the trans-
action compared with $170,000 in 1990 The gain related to this
transaction had heen substantially amortized at Oecember 31,
1990 and will not materiallv impact the financial results of the
Company in 1991 and berond (see note 12 of ~otes to Cornhined
Financial Statements),
incume taxes, In December of 198; the Financial Accollnting
Standards Board issued statement of Financial Accounting
Standards (FAS ~o. 96), Accounting for Income laxes, This state-
ment requires the use of the liability method of accounting for
deferred income t:n:es and must be implemented no later than
1992 The impact of the Statement's implementation has not
yet been determined by the Company. The Company estimates
its tax rate will be approximately 36% in 1991.
For a complete explanation of the Company's provision for
income taxes see note 4 of Kotes to Combined Financial
Statements.
/I
.
Rest/iLl of Opt>ralir}1l.s - F/.',""(a! }t'LJrs
11m revenue was $177.581.000 in Fiscal 1989, an increase of
S11301.000 or 94"6 over Fiscal I9&'! The Increase in inn
rerenu€s resulted primarily from locreases in the percentage
of occupancy and the average room rale
h',-i1/lt'(/ri
19:-N l'~,,>'
Inn revenue fOOll
~rcentJgel)ilJC(up3.~
"\'erJ~ room r:lle
$]--..81 Ib~2..~)
t\;O"u (\11
S 5-~Q .~;O
\Ianagement believes the percentagE of occupancv In FIScal
1988 was negativelv impacted bv ecollOmic difficulties in Texas
and contiguous stales where the Company operates a signifiC:Int
number of inns. as well as a general industry condition of owr-
supplv of rooms The percentage of occupancv increased 39
percentage pOints to 61.0'. in Fiscal 1989 from 611', in Fiscal
1988 \Ianagement believes the Companvs capllal imprOlefTl€nt
progr:JJ11. tactical discounting progr:JJ11S and improving local
and. regional economies in which many of the Company's Inns
are operated contributed to the incrt:lse in occupancy in
Fiscal 1989
The average room rate in Fisca1198Q increased 2.~(lo to
S37!9 from S3630 in Fiscal 1988 Room rates were In~
creased 31 selected properties effect"e ]anuarv I. 1989
.llal/ogemen! semces revenue in FL<(all989 and Fiscal 1988
represents fees earned for managing 31 inns o~ned br La Quinta
\IOIor Inns Limited Partnership and nine inns o~ned br the two
CIG\A joint ventures In Fiscal I9&'! the Partnership inns were
managed for the entire ~'ear and the CIGNA inns were managed
for approxim3lelv five months. (See note I! of Kotes to Com-
bined Financial Statements.)
Direc! expenses per occupied room .ere $!H6 and Sn97 in
Fiscal 1989 and Fiscal 1988. respectively. In order 10 beCOfTl€
more competitive in the service industry's labor markets, the
Companv began providing an Incre:15ed level of benefits 10 inn
employees beginning in the second quarter of Fiscal 1989 The
increases in direct expenses per occupied room in Fiscal 1989
and Fiscal 1988 resulted primarih from increases in benefit and
sa]ar:" costs and increases in local lnd regional marketing costs.
C01pOra!e expenses were $17.767.ixrJ and $11,416.000 in Fiscal
1989 and FIScal I9&'!. Corporate e'l"nses per available room
(including \Ianaged Inns) were SI99 and S178 In Fiscal 1989
and FIScal 1988, respective1v.
.
The mcrease in corporJte expense per arailahle room in Fiscal
lqgq \l,35 In line with inflal!fJn, In Fiscal 1988, approximately
SI mJihon credit was recordtd in corporate expenses related to
de\"elopment fees receired associated With the purchase of two
inns br J iOlnt venture with C1G:\A and the favorable disposition
of an outstanding obligation accrued to expense in an earlier
period on a propef\l opened In FIScal 198"
fJtpnnt1tlOll and amorli:L11wn andfi.red a....set reliremmls
"1><nse was S3!.4!3.(XX) and S34.&lI.(xx) m Fiscal 1989 and
Fiscal ]988. reSpeCliyeh'. DE,Jreciation. amortization and fi.'\ed
asset retirements e:-.:pense Included assel retirements associated
With the Compams remodelmg progr:JJ11 and other capital
imprOl.ements of SI.289.00J and S3.54!.000 in Fiscal 1989
and fiscal 1988. respectireh
Gail/ 011 sale of assels in fiscal 1989 and Fiscal I9&'! is pnmarilv
attributable to :JJ11ortiZ3Iion of the deferred gain related 10 the
sale of 31 inns 10 the Partnership In Fiscal 1989. gain on sale of
assets included S7.!36.(xx) related to the Partnership !ransac-
lion. In Fiscal 1988. s8.!!6.00J of the total gain on sale of assets
related 10 the Partnership transaction and S!.!13.(XX) of the
total gain was due to the sale of se\'en inns to the two CIGr\A
joint rentures
Income 1a.res. For a complete explanation of the Company's
pro\'ision for income taxes see note 4 of \otes to Combined
Financial Statements
Capital Resources alld Liquidllr
At December 31,1990. the Compam had SI4.018,(XX) cash and
short-term cash inreSlfTl€nts including S608.(XX) in restncted
funds tsee note 8 of \otes to Combined Financial StatefTl€nts)
In addition. the Companr had SI UOO.OOO available on its
$30.(XX).(XX) line of credit
At December 31,1990. the Deltlopment Partnership had a
$69.(XX).(XX) note receirable from AE\\' Partners. LP available to
fund the Company's der'elopmenl program. This note reeeir'able
has been eliminated in consolidation and will be reflected on
the Company's financial stJtements as partners' capital as it is
funded. In the first quarter of 1991, $18.n6.(XX) was funded on
this note_ The Company h:15 pl:1nned the majority of its de\'elop-
men! activity in 1991 will occur through the Development
Partnership
21
II
.
.
COMBINED BALANCE SHEETS
(in tbousantis, except sbare data)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash (note 8)
Receivables:
Trade
La Quinta Motor Inns Limited Partnership
Other
Income taxes
Prepaid expenses and other
Total current assets
Notes receivable, excluding current installments (notes 1 and 13)
Investments, including joint ventures accounted for on the equity
method (note 12)
Land held for future development, at cost
Property and equipment, at cost, substantially all pledged (note 2):
Buildings
Furniture, fixtures and equipment
Land
Leasehold and land improvements
Total property and equipment
Less accumulated depreciation and amortization
Net property and equipment
Inns under development, at cost (notes 2 and 8)
Deferred charges and other assets, at cost less applicable amortization
See accompanying notes to combinedjinancial statements.
22
La Quinfa ,Holor Inns. file
December 31
1990 1989
S 13410 11.466
608 895
4,943 4,957
2,173 335
3.594 2,680
3.333 2,606
5.592 5,254
33,653 28,193
11.158 10.532
20.225 17,970
15.319 12.775
489,285 477,985
90.018 87.191
81.675 80.337
7,274 6,943
668.252 652.456
180.512 157.772
487.740 494,684
7.163 3.729
11.891 9.505
$587,149 577.388
-
I /
$ 24,002 16,991
6,831 7.285
4,594 5,074
8,058 8,540
],447 1,488
6,671 5,452
51,603 44,830
341,902 350,986
1,865 2,035
_.-.~--._--- 25,342 27.121
37,270 29,223
.
.
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 2)_..
Accounts payable:
Trade
Other
Accrued expenses:
Payroll and employee benefits
Interest
Property taxes and other
Total current liabilities
Long-term debt, excluding current installments (note 2)
Deferred gain (note ]2)
Deferred credits, principalll' income taxes__
Partners' capital (notes 1 and 3) ___..__
Shareholders' equity (notes 2 and 5):
Common stock ($.10 par \'alue; 40,000,000 shares authorized,
]4,668,074 shares issued) ___
Additional paid-in capital_____
Retained earnings __. '__'___
Less treasury stock, at cost (l ,548,385 and 1,615.783 shares, respecti\'ely) ~___
Totalshareho1ders'equit\'_ _,_ __'__,_,
Commitments and contingencies (notes 7, 8, 9 and !2)
La Quill/a ;I/%r InNS. JIlC,
December 31
1990 1989
--._----._-.-
1,467 1.467
55,878 52,875
89,661 87.486
147,006 141,828
17,839 18,635
129,167 123.193
$587,149 577.388
23
(J_
.
COMBINED STATEMENTS OF EARNINGS
(i!llb()usrmd~, except [Jer share data)
Jem~' ended
December 31
24
.
La Quin/a Mu/or Inlls, /Ile.
Sel'eJI montbs ended
December 31 leal's ended;ltar 31
ff
. .
COMBINED STATEMENTS OF CASH flOWS La Qufnfa :l!o!o/" Illns. /l1C
(illlbousaJl(t~j
Ymrs ended Sem/months I'1Ided
Decemher 31 December 31 Ji'{m ended Mal' 31
1990 1989 1989 1989 1988
. _.__ _____.___. ....i1ll./{/udiled) __ ____~.n__..__
I Cash flows from operating activities:
Net earnings~________ S 2,175 6,130 5,639 4,709 3,146
I , Adjustments to reconcile net earnings to net cash
prol'ided bv operating activities:
Depreciation and amortization of property and 29,556
equipment ,11,714 30,645 ]8,010 29,532
Amortization of deferred charges 1,753 1,474 837 1,602 1,743
Loss on retirement of fixed assets ],563 1,452 827 1,289 3,542
Gain on sale of assets (notes 9 and 12)_ (3) (6,302) (4,207) (6,460) (10,592)
Provision for deferred income taxes (3,209) 2,9][ 1,906 1,034 42
Undistributed earnings of affiliates 567 571 387 525 1,]52
Partners' equitv in earnings and (Iosses)_ 8,408 2.596 1,826 ~ ---.-Zl()
Net cash provided by operating activites
before changes in operating assets
and liabilities 42,968 39,477 25,225 r '5' 29,319
~
Changes in operating assets and liabilities:
Receivables (2,565) (801) 1,254 (792) (1,832)
Income tax receivable, (727) (612) 1,041 (1,296) (1,855)
Prepaid expenses (263) (290) (1) (461) (332)
Accounts pavable and accrued expenses.__ 1,521 2,050 1,632 (2,682) 6.540
Deferred charges and other assets (273) (2,141) (1,822) (954) (838)
Deferred credits and other ],488 780 ~ ~ (354)
Net cashprol'ided by operating
activities 42,149 38,463 27,759 29,041 30,648
Cash flows from investing activities:
Capital expenditures ,- (22,484) (27,082) (12978) (28,962) <32,304)
Proceeds from propertl transactions 1,143 2,020 1.798 315 49,015
Closing and completion costs of joint ventures___ (2,352) ml)
Purchase of inns, net of cash acquired 03,79]) (14,712) (9,322) (9,294) (500)
Investment in affiliates (745) (745) (15,152)
Special capital contribution (6,269) (3074) (6,020) 0,316)
Deferred income taxes on asset sales (43) 1,256 947 1.383 2,039
Decrease (increase) in other investments (2,695) (948) 763 (600) (865)
Decrease in notes receivable 118 2,816 2,529 .....1ill 1,201
l\'et cash used by investing activities_ (40,104) (43,664) (20,082) (4],923) (2]3)
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term
borrowings 15,200 20,600 2,000 18.600 ]2,288
Proceeds (repa\'ments) of short.term borrowings_ (1,410) 1,603 2,155 ],764 (3,656)
Principal pannents on revolving line of credit and
long-term borrowings (17,329) (35,952) (29,810) (15,500) (21.095)
Capital contributions by partners 3.342 366 342 723 755
Capital distributions to partners (3.703) (3,478) (2449) (3.392) (4,016)
Net proceeds from stock option transactions 3,799 1.042 390 976
Repurchase of common stock, net of expenses_ (9,616)
~et cash pro\'ided (used) by financing
activities (101) (15,819) (27,372) ..JJ1l (25,340)
Increase (decrease) in cash and cash equivalents_ 1,944 (2],020) (19695) (9.711) 5,095
Cash and cash equi\'"lents at beginning of period_~__ 11,466 32,486 .iI.l6! 40,872 35,777
Cash and cash equi\'alents at end of period $ 13,410 11,466 11.466 31,161 40,872
-
See accompal/yillg noles to combinedfillal/cial statement,.
jl 2S
.
.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(in Ibousand'j
La {Juin/a ,.110/01' Inns, file.
Addl/iona!
Common cl/ock 7iwIsury 510ck paid-in Retained
ohares Amounl oJ)ares Amounl caPila! earninf{s 7bla!
Balances at May 31, 1987 14.668 $1,467 (917) $(10,867) 53,357 73,992 117,949
Exercise of stock options 4 48 (22) 26
Purchase of treasury stocL -~~-_._~._..._.- (861) (9,642) (9,642)
Net earnings_____________________ - 3,146 3,146
Balances at "lay 31,1988 1"1,668 1,467 (U74) (20,461) 53,335 77,U8 111,479
Exercise of stock options__________ 127 1,499 (523) 976
Net earnings 4,709 4,709
Balances at May 31, 1989 14,668 1,467 (1,647) (18,962) 52,812 81,847 117,164
Exercise of stock options 31 327 63 390
Net earnings 5,639 5,639
Balances at December 31, 1989 14,668 1,467 (1,616) (18,635) 52,875 87,486 ]23,193
Stock option transactions 68 796 3,003 3.799
Net earnings. 2,175 ....bill
Balances at December 31, 1990_______ 14.668 $1,467 (1548) $(17,839) 55,878 89,661 129,167
See accompanying noles 10 combined }inancia! slalemf'llls_
INDEPENDENT AUDITORS' REPORT
The Board of Directors
La Quinta Motor Inns, 1nG.:
We have audited the combined balance sheets of La Quinta Motor Inns, Ine as of December 31, 1990 and 1989 and the related
combined statements of earnings, shareholders' equity, and cash flows for the '-ear ended December 31, 1990, the seven month
period ended December 31, 1989 and each of the years in the two-year period ended May 31, 1989_ These combined financial state-
ments are the responsibility of the Company's management Our responsibilitv is to express an opinion on these combined
financial statements based on our audits_
We conducted our audits in accordance with generally accepted auditing standards_ Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements_ An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements_ An audit also
includes assessing the accounting principles used an~ significant estimates made by management, as well as evaluating the overall
financial statement presentation_ We believe that our audits provide a reasonable basis for our opinion_
In our opinion, the combined financial statements referred to above present fairh', in all material respects, the financial position of
La Quintl Motor Inns, Ine at December 31, 1990 and 1989, and the results of its operations and its cash flows for the year ended
Decemher 31, 1990, the seyen month period ended December 31. 1989 and each of the years in the two-year period ended Mav 31, 1989,
in conformity with generally accepted accollnting principles_
/( fJ 1Jl6 feM It{ d1u/i(/~
San Antonio, 1has
February 22, 1991
26
(f
.
.
NOTES TO COMBINED FINANCIAL STATEMENTS
[tI Quill/{/ ;\10/01' fUlls. fJlc
(I) SI\I)IARY OF SIGNIFICANT ACCOUNTING POLICIES
f)tferred C/}fl/;l{eS
Deferred charges consist prinurily of issuance costs related to
Industrial De\"elopmetl! RercJlu€ Bonds. loan fees. preopening
costs, installment costs 011 the Hotel ~lanagemellt System
(HS1Sl, organizational costs and escrO\\" deposits on properties
the Compan~' purchased subsequent to December 31, 1990-
Issuance custs afe amortized over the life of the bonds using
the interest method. Preopening costs and organizational costs
are amortized over five years, installation costs on HMS are
amortized over se\'en years and loan fees are amortized over
the respective terms of the loans using the straight~line method.
The escrow deposits are reclassified to property, plant and equip~
ment upon purchase of the related property.
Se!ff1lSurt/1lce Programs
The Company uses a paid loss retrospective self-insurance plan
for general and auto liability and workman's compensation. A
provision has been made in the combined financial statements
which represents the expected future pavments based on esti-
mated ultimate cost for incidents incllrr~d prior to the balance
sheet date. Predetermined loss limits have been arranged with
insurance companies to limit the Company's per occurrence
cash outlay.
Hlls/ness (Iud Basi\' q/Prese1//(/tiol1
The Company develops, 0\'I11S and operates inns. The combined
financial statelllents include the accounts of subsidiaries (all
wholly-owned) and unincorporated ventures in which the Com-
pany has at least a 40% interest and exercises legal, financial
and operational control. All significant intercompany accounts
and transactions have been eliminated in combination. Inrest-
ments in other unconsolidated affiliates in which the Company
has less than 40% ownership interest and over which the
Company has the ability to exercise significant influence are
accounted for using the equity method. Certain reclassifications
of prior period amounts have been made to conform with the
current period presentation.
Partners' Capital
Partners' capital is shown net of a $69,000,000 note receivable to
La Quinta Development Partners, L.P from AEW Partners, L.P.,
representing a portion of AEW Partners, LYs initial capital con-
tribution. Funding of this note will be reflected as an increase to
net partners' capital.
Cballge ill lear End
Effectivejune I, 1989 the Company adopted a December 31 lear
end. The accompanying combined financial statements include
audited financial statements for the year ended December 31.
1990 and the seven month transition period ended December 31,
1989. Audited financial statements are presented for the fiscal
year ended Mav 31, 1989. Audited statements of earnings. cash
flows and stockholders' equity are also presented for the fiscal
year ended May 31, 1988
ProjJer(J' lInd Equipment
Depreciation and amortization of property and equipment are
computed using the straight-line method over the follo\\,'ing
estimated useful lives
Income la.res
Deferred income ta...'\es arise principally from timing differ-
ences between financial reporting and income tax reporting of
depreciation, preopening costs, construction loan interest, loan
fees and gains realized 011 the sale of inns.
lnrestment tax credits were recorded as a reduction of the provi-
sion for income ta.xes ill the year realized until repealed by the
Tax Reform ,lei of 19R6
Buildings
Furniture, fixtures and equipment
Leasehold and land improvements
30 years
4-10 years
10~20 years
Em'nill/<S Per ,\1)(/)'('
E3rnings per share are computed on the basis of the weighted
a\-erage numher of common and common equivalent (dilutive
stock options) shares outstanding in each year. Rights under the
Company's shareholder ri~hts plan and shares issuable upon
COIl\'ersion of partnership units were antidilutive for the year
ended December 31, 1990. Primary and fully diluted earnings
per share are not significantly different
Maintenance and repairs are charged to operations as incurred,
Expenditures for improvements are capitalized.
(asb Equilwlents
All highly liquid investments with an original maturity of three
months or less are considered cash equivalents. Investments
with a maturity of greater than three months are considered
short-term investments.
12) I.ONG~TER,\IIlEBT A~1l CAPITAL LEASES
]Jlllg-terl1l debt. which is secured by substantially all property.
equipment and inns Linder development, consisted of the follow-
il1g at Decemher .11, 1990 and December ,)1, 1989
27
If
. . 0 ~
< m
m r
z m
P----1 0 <
' , )>-
: : z -i
' ,
, , Gl
' , 0
,
>- :0
:0
.. m
0
'" >-
'"
-<
0%
..
~
0 :D
'" m
(J)
-I
0 0 ,.
.... ex> c
:D
'"' ,.
z
0 -I
., 0
~
'"
~
'" .. (J)
~ ~
~ )>
.... '"
~ ~ Z
~
., ex>
CO
'" '" m
0
'" '" JJ
., '"
Z
'" '" )>
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~ JJ
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... 01
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., ex>
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28
, .
.
Dtwmher3/
December]]
1989
(intboIlJ<IIUIs)
\lorlgageloans maturing 1991-2016
(11.4"b weightedarerage)
Industrial Derelopmenl Rel'emle Bonds.
maturing 1991-2012 00.4% weighted
:weragel
Conl'ertihle 5uhordin:1ted debentures
m:lluringin 2002 (l0'\.)
Banklineofcredil(lOo",at
December 31, 19lXl)
Total
LessclIrrenlinslallmellts
1990
$21tOB9
244,562
C)O,S6'i 96.6(,5
25,\)1) 21]')0
JS.S(~l ,.(;)0
-
36'i,90-t _,>67,9;:
2-'t,(X12 16.991
$J11.~)2 350.9S6
Net long-term debt
Annual maturities for the four years subsequent to December 31,
1991 are as follows:
1992
1993
1994
1995
S31.981
32,620
36,191
76,298
Based on management's intent to refinance and the Company's
ability to borrow on its line of credit, balloon payments totaling
$8.700.000 which mature in September. 1991 hare been reclassi-
fied as, long-term. Debt assumed in the acquisition of three inns
in fiscal year 1989 and one inn in fiscal year 1988 amounted to
$8,101,000 and $4,7.6.000, respectively.
lnterest paid during the fiscal year ended December 31. 1990
and the seven months ended December 31,1989 amounted to
$40,333.000 and $25,724,000. respectiyely During the vears
ended May 31,1989 and 1988 inleresl paid amounted to
$42,908,000 and $4l.349,OOO. respectirek
The Company is obligated by provisions of agreements relating
to four issues of Industrial Development Revenue Bonds (Ours)
in an aggregate amount of $18.325.000 to purchase the bonds at
face value prior to maturity under certain circumstances. The
bonds have floating interest rates which are indexed periodically.
Bond holders may, when the rate is changed, put the bonds to
the designated remarketing agent. If the remarketing agent is
unable to resell the bonds, it may draw upon an irrevocable let-
ter of credit. In such event, the Company would be required to
repay the funds drawn on the letters of credit within 18 months.
As of December 31, 1990 no such draws had been made upon
the letters of credit. The schedule of annual maturities shown
above includes these IRS's as if ther will not be subject to repay-
ment prior to maturity. Assuming all bonds LInder such IRB
agreements are presented for repayment prior to June 30, 1991
and the remarketing agents are unable to resell such bonds. the
maturities of long-term debt shown above for the year ending
December 31. 1992 would Increase by SI6.600.000
The Company has outstanding S~3.150.000 subordinated deben-
tures due 2002. The debentures are convertible into common
stock at a conversion price of s~o, 9-1 per share, The debentures
are redeemable by the Company at a current redemption price of
.
102%. The redemption price declines 1% annually until June 15,
1992 when it reaches 100%. The debentures are unsecured and
are subordinated in right of payment to all existing and future
senior indebtedness of the Company.
At December 31, 1990 the Company had two unsecured lines of
credit wilh participating banks aggregating $35,000,000. Under a
$5,000,000 line of credit, the Company was permitted to borrow
at the current prime lending rate. In anticipation of refinancing
its line of credit arrangements, the Company cancelled the
$5,000,000 line of credit in January 1991. Borrowings under the
$30.000,000 line of credit mar be made (I) al the current prime
lending rate, (ij) based on CD rate plus I1f1% or Oil) at Euro-
dollar rales with interest based upon pre-established formulas.
The outstanding baiance on the $30,000,000 line of credil at
December 31, 1990 was $18,800,000 and $3,600,000 at December
31,1989
The credit lines and certain agreements associated with IRB's
are governed by a uniform coveilant agreement. The most restric-
tive covenants preclude the following: pay-men! of cash dividends,
merger, sales of substantial assets, incurrence of significant lease
obligations, certain investments or any material change in
character of business. The agreement contains provisions to
limit the total dollar amounts of capital expenditures allowed in
any fiscal year and of land held for future dmlopmenL
The agreement requires the maintenance of effective tangible
net worth (shareholders' equity pius partners' capital) and sub-
ordinated indebtedness of at least $168,000,000 plus au amount
equal to 70% of net earnings accrued subsequent to November
30,1989, The agreement also requires tbe maintenance of cer-
tain financial ratios based 011 definitions in the agreement.
calculated on a quarterly basis, including a limitation on debt; a
required current ratio; and certain cash tlm\' requirements.
At December 31. 1990 the Company was in compliance with all
restrictions and covenants, except for the limitation on invest-
ments and a cash flow covenant requiring operating income
plus non-cash charges and deferred t;L\eS from operations of at
least 1.3 times interest expense. net of interest capitalized and
interest income plus current installments of long-term debt.
Waivers were obtained for these covenants. ~Ianagement believes
i1 is probable certain short-term obligations at December 31, 1990
will be.refinanced allowing the Company to comply with debt
covenants in subsequent quarters.
(3) UNINCORPORATED VENTURES
Summary financial information with respect to unincorporated
ventures induded in the Combined Financial Statements
follows:
(I
. .
Ikcell/her3! Ik'.fl'lIIllerjI
rilll!JOIIS(/I/([I) IY90 19!:N
Currl'lll assels S ]5,308 6.121
Current liahilitits 23.427 11,041
Ikficil in working capital (8.1191 (4.920)
:\et property,e~uipmenl :Inti inns
underdendopmcl1t 208,5-'11 H"+,8.16
Long-term debt (116,9911 (91.617)
DeferredcredilS (61<1 (6161
OtherasselS. net 8.734 3.885
Net assets $9114' 41j68
Equity in net assets
Company $5i,Oii 12..145
Partners (Note J) 37270 29.223
$91.347 '11.568
"," Sel'i'l/lnonlhs /fn1'$
I'fIded md<d mdt'd
December]} Drt;ember31 .lfa.!'31
(i1//bous(J//dl) 1990 lWN 1989 1988
Rercnues ~10'i.5')4 43.!80 6Q,596 64,318
Com and expenses t,Xl.519 39.710 66,242 63,150
Pretax earnings $15,025 .t570 :U5~ l,19il
~ ~
Equitl' in prelax earnings and
losses
Compalll S (,,617 1,74~ Lm 4~9
ParlnersoperaliollS 8.408 1,826 2.021 730
asset sales 19
S 15,025 3:)70 1.';5<1 1.198
(4) INCOME TAXES
In December, 1987 the Financial Accounting Standards BDard
(FASB) issued Statement of Financial Accounting Standards
No. 96 (FAS No. 96), Accounting for Income Taxes. This State-
ment requires the use of the liability method of accounting for
deferred income taxes. The impact of the Statement's implemen-
tation has not been determined by the Compan~ The Company
plans to implement the Statement in 1992
The provision for income taxes consists of the following:
Ii-IIr ."'1'1'1/11/1111/;',' lears
I'/l(fed /!Ildrd mdf'd
DecrmiJl'r31 lktWlbt-r]l .IMI'31
(illlhous(/l/(/!,j 1990 lWl9 1989 198H
Current
Federal 54,07'; (~19) ('jQ9) (l,~9~)
State "lO (OIl IIU (471
Deferred. resulting from
Depreciation ()~9) l.%~ 1.17'; )~9
Capilalit.ed loan il1lerest ~61 ~2" .~:)9 5~O
Slale illcome taxes wn IO~ -4 10;
Installn1E'lllsales ("I) (2'7:') lI!Jl (~O5)
Dderredgain 60 1.26:; 2.1") 2.0.~~
Partnerslossrecognizedb\
~theComDal1\ 191 (221 (I0\)j H)ll
Equipmenlleases ("lJ) 1)-0 12281 lJ6.n
Expenseprol'isions (9Il'J1 m31 is (8{)
~eloperaling loss
carrytackJicJIT}fOlwardl 19) (l.i5i (9'
Preopellil1~cosl5 (140) (8) (~~I I m71
~linilllullllax (1.008) (317) (b~fJl "
Tarj:etoo job
1:txcredil mOl
Other,net (~SO) l!Jili ,- (S)
Pfol'isiollfof
II1cometaxes Sl.m 2,m 2,018 ')42
.
The effective tax rale varies from the statutory rate for the follow-
ing reasons:
km Sl'/'<'II!IIDlllh, le,m'
(/Id~d I"IIdl;'(/ t'lldt'd
/Jete/n/XI')l f)ecelllhefjl 1/(1l' 31
'1!IIbnIlS(/IId', 1990 IYH9 I9.W 1988
Ta\eXpell>eaISlatulO~rale SUS'j 2,'778 2,21\- 1.291
\linimul1lu\ (i....~1 1"1
1111t>Slmenttax (creo:!il) recaptllrc 9 8 ,9 IS~I )
TJf!:eledjflbtaxcredit (197) (13) W~) dAO!
Capital!:ain) OIl (m) G5~J (Yl3)
Slale income taxes 117 262 ", III
Other.nel 1,0 (190) 63 325
Prm'isiol1fuf
lIlcomela.",es SI,223 2,m 2.Ol3 5~2
~ -
ii'flr .'*-'1'f'!Il11onlh.l' l(tln'
f!fIded "ulNi f//dffl
December3l Der:ember31 .lll~r3J
fil/lbowimd<) 1990 19/i9 19H9 19118
Income ta.\e:; paid S5,3S'i 1.191 \'1') %9
Incomelaxrcfunds S :\)~ 2.115 " 6~8
~
(5) STOCK OPTIONS
The Company's stock option plans cover the granting of options
to purchase an aggregate of 2,157,500 common shares. Options
granted under the plans are issuable to certain officers and key
employees at prices not less than fair market value at date nf grant.
Options are generally exercisable in four equal installments on
successive anniversary dates of the date of grant and are exercis-
able thereafter in whole or in part. Outstanding options not
exercised expire ten years from the date of grant. Activity in the
plans during the two yea" ended May 31, 1989, the seven months
ended December 31, 1989 and the year ended December 3 I, 1990
is summarized as follows:
Ofl/ioll Total
/V/llI/bf'r }iria' optioll
of nlllt!.f':J' prlO!
sbares persbare filltbvll.'<llUl\')
OLll~tall(ling ~lay 31. 1987 799.612 S 4,85~24.38 9,25[
Granted 136.750 1O.4't-lB1 1.6:\5
Cancelled or expired (Ii4,SOIl 5 1O~ I 788 (8m
Exercised (25.547) 6.68-]2.84 (290)
Outstanding ~lay 31. 1988 846.314 $ 4.8S~ 2438 9.T.j
Granted 127,050 12.81-15.75 I,W
Cancelled or expired 03,679) 1065~17.88 (85)
Exercised 069.514) 485~131, 0.235)
Outslanding ~tay .~I, 1989 79<),I71 $ 600~2438 10,051
Granted 171.000 1494~1744 2.R}i
Cancelled or e;.:pired (48.6m 6.00~ 16.56 t~]Ol
Exercised (68,271) 6, ()()~ ] 5.80 (690)
()ul~tanding December 31, 1989 844.269 S6.72-2't_38 11.454
Granled ]35.54:\ 12.13-]6.56 2.0:-\0
C:111celledorexpired (j8.119) 10,65-17.88 (5Sl)
Exercised (90.148) 6]2.15_80 (9n
Outstanding December 31, 1990 851.145 l2,0'I5
-
Exercisable at
December 31. 1989 416,430 S 6.7 2~ 2438 5.531
December3!, 1990 444.&)7 $10.44-24.38 6.135
/lrailable for future gral1t~ at
December ,~l. 1989 509,381
December 31, 1990 390.199
29
f I
"
.
No charges have been made to earnings for these options. Upon
exercise, the excess of the option price received over the par value
of the shares issued, net of expenses and including the related
income tax benefits, is credited to additional paid-in capital.
Under the terms of the La Quinta Development Partners, LP.
partnership agreement, AEW Partners, LP. has the ability, after a
vesting period, to convert 66213% of its 40% ownership interest in
the Limited Partnership to 2,439,000 shares of the Company's
Common Stock. The Partnership unit) may be COlwcrted over the
seven year perind beginning December 31, 1991.
During 1990 the Company adopted a shareholder rights plan
under which the Company issued rights which currently trade
together with the Company's common stock. The rights are not
currently exercisable. The Company's Board of Directors may, at
its option, redeem all rights for $.02 per right. The fights will
expire October 9,2000 unless earlier redeemed by the Companys
Board of Directors.
(6) PENSION PlANS
The Company has defined benefit pension plans covering sul)Stan-
tially all its employees The Retirement Plall alld Trust of
La Quinta Motor Inlls, Ille (the plan) covered substantialh all
employees through December 31,1988. EffectiveJanuary I, 1989,
all highly compensated employees were excluded from active par-
ticipation in the Plan. The Supplemental Executive Retirement
Plan and Trust (the 8ERP) was established by the Company,
effective January 1, 1989, to cover these employees.
Benefits accruing under the Plan prior to December 31, 1988 lIere
based on credited years of service and average compensation for
the highest five consecutive years out of the la.~t ten years of serv-
ice. Benefits accrued as of December 31. 19&~ under the Pian
(including benefits accrued for employees covered under the
SERP) were frozen. Benefits aeeming under the Plan subsequent
to December 31,1988 are b;tsed Oil one percent of each year's
compensation (with a minimum henefit aeemal based all the
prior formula and 1988 earnings). Benefits under the SERP are
based on years of credited service and average compensation for
the highest five consecutive calendar years out of the last ten com-
pleted calendar years of credited service. The Company's funding
policy is to contribute annually the minimum amount required by
Federal regulations.
During the vear ended ,Iav 31. 1989, the Companv adopted an
amendment and approved a restatement of the Retirement Plan
and Trust of La Quinta llotor Inns, Ine. which made several other
modifications to the Plan: the most significant of which included
changes in the benefit formula and a change pro\'iding for 100"0
30
.
vesting after five years of vesting service. The effect of these
changes, an increase in the actuarial present value of accumu-
lated plan benefits of $939,342 as of May 31, 1989, is IOcluded in
the tables below.
The following table sets forth the funded status and amounts
recognized in the Company's combined financial statements
for the Plan at December 31, 1990 and December 31. 1939.
Dt'Ct'lIIlxr 31
lin tboustllld..l')
Actuarial present value of benefit ohli~atiDIl'i:
AccumulatedbenefitobligatiDI1. inc]lldingvested
benefits of $5,280 for December 51, 1990 and
$4,985 for Decemher51, 1989
Projected benefit obligation for service rendered to date
plan assets al fair value. primarily listed stocks andClrs
Projected benefit obligation in excess Dfplan assets
Unrecognized net assetatjune 1. 1985 being recognized
overemployees'averageremainingservicelifeof
6 years
[:nrecognizednetloss(gain)frompa,lexperience
different from that assllmeu
['nrecognized net loss (~ain) from clIrrent year
modifications
Accrued pensioll cOSl
1990 19H9
$(6.237) (;'711)
$(7,303) (6,997)
5,288 6,276
(2,Ol~) (721)
(94) (22)
291 (S)!)
tT9) 16&<1
S(2.19~) (2,282)
The following table sets forth the funded status of the SERP and
amounts recognized in the Company's financial statements
for the SERP at December 31,1990 and December 31, 1989.
fintbolwmir;)
Actllarial present vallle of benefit obligations'
Acctlmulaledbenefitobligation,includillgvested
henefitsof S7Y; for December .)1, 1990 and $289
for December 31, 1989
I'rojected brnefit obligation for service rendered to date
plan assets at fair vallie
Projected benefit obligation in excess of plan assets
linrecogni7-cd net loss (gain) from past experiellce
different from that assumed
l'nrecognizednet (loss) gain from current year
modifications
Accruedpensioncosl
lJewI/lJer31
1990 19H9
S C:'5) 1.\~1l
$(3,'1641 (2.550)
(\.,641 U,3)())
676 .\44
1.312 t,389
$0,476) (6t7)
At December 31,1990 the Company had accumulated $666,000
in a trust account intended for the use in settling benefits due
under the SERF. These funds are not restricted for the exclusive
benefit of SERP participants and their beneficiaries except
that in the event of achange in the Company's control. such funds
become restricted for the exclusive benefit of SERP participants
and their beneficiaries,
I /
, .
.
Net pension cost for the year ended Ilecember 31. 1990, the
seven month period ended Decemher 3"1,1989 and the two years
ended May 31. 1989 included the following components (the
vear ended Decemher 31, 1990. the seven month period ended
Decemher 31, 1989 and the year ended May 31. 1989 included
components for both plans)'
JJecember 31 ,1/(/.1'31
(ill thousands) 1990 1989 1989 1988
Service cost (benefits earned during Ihe
period) $1,354 \98 927 955
Inlereslcoston projecled benefit obligation 883 410 616 564
Actual return on plan assets t08 (810) (686) 5t
Net amortization and deferral (691) 386 (793)
Net periodic pension cost before a1location to 1,654
Managed Inns 584 857 777
CoS! allocated to Managed Inns $(121) (38) (lt3) (129)
Net periodic pensioncosl $1,533 540 744 648
-
The assumptions used in the calculations shown above were:
December 31 ,Un)'3]
(in thousands) 1990 19119 19119 1988
Discount rate (post-decrement) 4-7.25% 4-7.75 4-;.75 4-8.25
Discount rate (pre-decrement) 8.75 950 950 (0,00
h:pected long-term rate of return
on assets 9,00 900 900 900
Rale of increase incompensation levels 55.75 5\.75 5,5.7,5 75
(7) OPERATING LEASES
The Company leases a portion of the real estate and equipment
used in operations. Certain ground lease arrangements contain
contingent rental provisions based upon revenues and renewal
options at fair market values at the conclusion of the in-Hial
lease terms.
Future minimum rental payments, by year, required under oper-
ating leases that have initial or remaining noncancellable lease
terms in excess of one year at December 31. 1990 follow:
199t
1992
t993.
1994
t995
Later years
Total minimum payments required
fin thousands)
S 1,883
l.n4
1.41]
1.076
445
6,136
$12.675
Total rental expense for operating leases was $4,075,000 for the
year ended December 31, 1990 and $2,071,000 for the seren
months ended December 31, 1989, During the vears ended
May 31. 1989 and 1988 total rental expense for operating leases
amounted to $3.497,000 and $3,283,000. respectivelv
.
(8) CmlMtnlENTS
At Decemher 31, 1990 the estimated additional cost to complete
the construction and renovation of inns for which construction
commitments hare been made is $2,296.000, Funds on hand,
committed and anticipated from cash flow are sufficient to com-
plete these projects,
Funds restricted to fulfill sinking fund requirements of specific
industrial development revenue bond Issues in 1991 and 1990
amounted to $608,000 and $583,000 at December 31, 1990 and
1989. respectively.
(9) CONTINGENCIES
The Company is a party to various lawsuits and claims generally
incidental to its business. The ultimate disposition of these mat-
ters is not expected to have a significant adverse effect on the
Company's financial position or results of operations,
In August 1989, a joint venture partner transferred its 50%
interest in the joint venture to the Company. The venture owned
one inn, The Company.'s financial statements at May 31. i989
reflected a $745.000 charge to earnings in anticipation of
this transaction.
(10) QUARTERLY FiNANCIAL DATA (UNAUDITED)
The unaudited combined results of operations by quarter are
summarized below:
(it/thousands. except First Seamd 7bird Fourth
per share da/aj quarter quarter quarter quarter
)ear ended December 31, 1990:
Revenues $52,70t 59,787 6j,1l8 50.857
Operating income 9,625 14,9t4 t5,435 3,5t4
Net earnings (loss) (717) 2,626 3,16t (J,895)
Earnings (loss) per share (05) .20 .24 (022)
)earended December 31,1989
Revenues $4\,t83 53.59'7 \8,835 'P,981
Operating income 6593 t3,399 11+,857 6.224
Net earnings (loss) (673) 3,161 4,439 (847)
Earnings (Joss) per share (005) 0.24 0.34 10(6)
Year ended December 31, 1988
Revenues $40,906 46,85t 52,229 43,282
Operating income 4,819 9,086 t2,96t 5,495
Net earnings (loss) 0.256) t,493 3,272 (930)
Earnings (loss) per share (010) 0.12 0,25 (007)
Net earnings in the fourth quarter of 1990 were unfavorably
impacted in the amount of $448,000 or $.03 per share due to
an adjustment to the Company's accrual for workers compensa-
tion expenses. Expenses associated with the Company's plan to
enhance shareholder value also unfavorably impacted net earn-
ings in the fourth quarter of 1990 by $265,000 or $,02 per share.
31
LI
.
Second quarter results for 1989 and fourth quarter results for
1988 were unfavorably impacted by $650,000 ($.05 per share)
and $615,000 ($.05 per sharel, respectively of investment tax
credits from prior years and related interest income recognized
in 1989 and 1988 based on clarification provided by ongoing
revenue agent examinations.
Quarterly results for 1989 were favorably impacted by gain on
saie of assets of $1,203,000, $783,000, $1,318,000 and $1,049.000
or $.09, $.06, $.10 and $.08 pershare in the first through fourth
quarters, respectively.
(II) TRANSITION PERIOD RESULTS (unaudited)
For the seven months ended December 31, 1988 revenues were
$1I2,816,000, operating income was $23,<)41,000, income taxes
were $1,985,000 and net earnings were $4,218,000 or $.32 per
share.
(12) RELATED PARTY TRANSACTIONS
lfiM Operating Parlners, L.P Disposition
In October 1986, the Company sold 31 inns to LQM Operating
Partners, L.P ("the Partnership") owned and controiied by
La Quinta Motor Inns Limited Partnership, a publicly traded
master limited partnership. At December 31, 1990 a gain of
approximateiy $1,865,000, net of partner's equity, remains deferred
on this saie. This amount may be recognized over the period
January I, 1991 through July I, 1998 as the Company's obligation
associated with the debt assumed by the Partnership expires.
The Company's obligation to fund a guarantee for a minimum
cash flow rate of return for the Partnership expired in October,
1989. During the seven months ended December 31, 1989 and the
year ended May 31, 1989, La Quinta Realty Corp., a whoiiy-
owned subsidiary of the Company and general partner of the
Partnership, made special capital contributions amounting to
$3,075,000 and $6,020,000 respectively, which were funded bl'
the Company. A pre-tax gain on sale of assets of approximately
$170,000, $4,287,000, $7,236,000 and $8,226,000, net of partner's
equity, related to this transaction has been recognized in
the year ended December 31, 1990, the seven months ended
December 31, 1989 and the years ended May 31, 1989 and 1988,
respectively.
32
.
Jlanagement Services Fee
.Iii inns owned by the Partnership and hy two joint ventures with
investment portfolios managed by CIGNA Investments, Inc. (the
"',I,ntures") the Company formed in December 1987 (collectively,
the "Managed Inns") operate under the La Quinta name and
are managed by the Company in accordance with long-term
management agreements. La Quinta owns a 25% interest in
each of the Ventures and a 2% interest in the Partnership. The
Company earns management and licensing fees as well as charges
for chain services such as bookkeeping, national advertising and
reservations. During the year ended December 31, 1990, the seven
months ended December 31, 1989 and the years ended May 31,
1989 and 1988, these revenues from the Managed Inns totaled
$7,022,000, $4,038,000, $6,505,000 and $5,071,000, respectively
Other Recurring ltansactions
Under the terms of the master limited partnership agreement,
the Company or its affiliates are responsible for managing the
business and affairs of the Partnership and are entitled to
reimbursement for the out-of-pocket expenditures incurred by
the Company or its affiliates on its behalf in connection with its
administration and supervision.
La Quinta pm all direct operating expenses on behalf of
the Partnership and the ',I,ntures and is reimbursed for all
such pa~ments.
(13) FINANCIAL INSTRUMENTS
At December 31, 1990 the Company held notes receivable due
from issuers amounting to $11,864,000. The notes receivable
relate primarily to the sale of inns and are secured by the
related real estate property. The Company's exposure to credit
loss in the event of nonperformance by the other party to these
financial instruments is dependent upon the fair market value of
real estate property used as security and may include payments
made to third parties (taxing authorities, etc.) to secure a first
lien position. Given the Company's estimate of the fair market
value of the real estate held as collateral no material losses are
anticipated in the event of nonperformance.
II
.
.
DIRECTORS
OFFICERS
Sam Barshop*-
C/;airmCln oftbe Board of Directurs
Sam Barshop
Preside1l! {- Cbi~lErecf(til'l! Officer
Philip M. Barshop*
Real Ella/e Iml/!stor, S(/l1 Antonio
David B_ Da\;ss
F.rl'cuti/'I:' He/:' Pres/dell! {. a)i~{ Opera!!II/!. Q/ji'C(!I"
Mrs. Rita C. Clements"
Primte fillies/or. Dallas
\'('alter J. Biegler
Sellior IYct' Presid/:'111- Fil/tlllct!
Dr. William H. Cunningham".
President, Ulli{.'(!rsi~J' of 7tras at Austin
fnl.llcis P. Bissailloll
Senior lice Presidellt - .4dminil'trtltiul1 & 7h!(/sllrer
Alan L. Tallis
Senior lice President - Del'elopment
David B, Daviss"
Execufil>e Vice Presidenl & Cbief Operaling Officer
Jerry N. Wiggins
Senior Vice President - operations Support
R Ted Enloe, lIlt
Presidenl, Lomas Financial CO/poralion, Dallas
Allen I. Bassuk
[<'l"ct' Prf!sident - Rill, .Hanagemelll
Roland B. Bliss
lke Prl:'sideut - Operatiulls Prujecti;
Tom C. Frostt
Cbail'lllan oJ tbe Board oJ Directors oJ Cullen/Frost
Bankers. /nc. and Cbairman ~r tbe Board of Directors,
Frost National Bank. San Antonio
James M. Blomstrom
\.ke Prt'sident ~ Opera/iolls. Eastern Di/'L\'iorJ
Edward B. Kelley".
President. U,\:4A Real Estate Dimioll
Marilyn K. Boldrick
Ikt' Presid/!!!! - (,"meral COlil1sd
George Kozmetsk\1'
Direelor oJ Ibe IC' Inslilule. Unil.rsi(l' oJ
'/eras, Austin
John D. Bonifield
Viu Pl'eddenl - Marketing
Chris J D. Rotet
Vice Cbairnum of Merrill ()'neb Business Brokerage
& Ihlua/ion
Norman S. Davis
Secre!m:r; Parlllfl: Dm'il' (, Cedillo. Inc0/1lOra/ed
Charles A. Gange
lice Presldrnf - COllstructioll Serl'/res
Alden E. Wagnert".
Real Estale Im..stor, Dallas
Richard A. Gerhart
lice Presidellf - Operatiolls, lr~stern Diris/oll
Thomas G. Gruidl
Hee Presidm! - Internal Audit
, Member oJ Ibe EYecuti,'e Commi/lee 0/ tbe Board oJ Directors
t Member oJ Ibe Audit Committee oJ tbe Board oJ Directo/"
. Member of the Compensation Committee of tbe Board
oJ Direc/ors
" Member oJ Ibe Marketing Committee oJ tbe Board
oJ Dil'eetors .
.Member oJ Ibe Stock Option Committee o( tbe Board
. oJ Director.<
Charles F. Hamlen, Jr.
Her PreSident - Information ~1:~tenL~
Michele F. Henkle
l'ice Pl'esldent - Rest'rt'aIiOlIJ'
Dennis R. lIiIl
lice Prt'sident .- Operatiolls. Central Dil'il'i()//
J. Knox lJuff
\lCf' Prf'sident - Operating ,Yl'stems
Daniel \l: Mallum
Hce President -. P/'uper(l'Sen'ires
Michael A. Nosi!
Hce President - Personnel
Richard F. Roeben
lire President - P/lrcbasinp,
Wmiam G. VandenBosch
1 ice Pre,\'idt'/lt -- Architecture. Design (. CO!1structifm
William F. \l'aechter
Hee Presidellt - COli troller
33
u
, . .
.
CORPORATEINFOR~TION
. LA QUlNTA MOTOR INNS, INc.
La Quinta Plaza,
lOOI() San Pedro Avenue.
P.O. Box 79O()64
San Antonio, 1exas 78279-()()64
SI2I366-60()()
AUDITORS
KPMG Peat Marwick
Il2 East Pecan, Suite 24()()
.San Antonio, 1exas 782()S-IS()S
'TRANSFER AGENT AND REGISTRAR'
,AIiycliangein shareholder address should be directed in
writing to the Company's Transfer Agent and Registrar' at
the address below:
NCNB Thxas National Bank
P.O, Box 8314()2
Dallas, 1exas 7S283-\4()2
1o.-KAVAlI.4BIIJ7Y
Jbe c.ompany will furnish t~any sharehoider without
charge a copy of the Company's Annual Report on
Form 1o.-Kjiled with the Securities and Exchange.
Commission lor the year ended December 31, 1990.
upon written request addressed to Kim Armstrong,
Diroctor Financial Planning, La Quinta Motor Inns, Inc, .
RD. Box 790.0.64, San Antonio, 7exas 78279-0.0.61.
34
.
The Company's common stock is listed on the New York
Stock Exchange and is traded under the symbol "LQM",
The following table provides, for the years ended Decem-
ber 31,1990 and 1989, the range of the high and low
sales prices as reported by the New York Stock Exchange,
1990 1989
High Low High Low
16th l4Jk IS'k 13
167k 13% 16sk 14
ITk 12 18th 16'k
13'h nv, 181f, IS7k
First quarter
Second quarter
Third quarter
Fourth quarter
",.,.).
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.
.
.
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FINANCIAL HIGHLIGHTS
(in millions,calendar years)
Total He.......
89
88
87
~05.6
1833
1719
llpet'ating Income
89
88
4Ll
324
32.4
87
NelEamiftgs
8<J
6.1
88
26
87
55
Net Cash Provided by Operating Actjy"i..
89
88
40.1
28.7
87
318
Earnings Per 8ha..
89
88
47
.20
87
AD
ABOUT THE COMPANY
CONTENTS
La Quinta Motor Inns, Inc. develops, owns and
operates lodging facilities designed to provide
guests with quality accommodations in conven-
ient locations. La Quinta's product is a clean,
quality room, consistently delivered with friendly
guest service but without room service and
extensive common areas such as banquet and
convention facilities or an on-premise restau-
rant. The major source of La Quintas customers
are those travelers who desire quality
accomodations for short business trips.
The typical La Quinta Inn is located along an
interstate highway or major traffic artery, con-
venient to businesses and contains 100 to 175
guest rooms. La Quinta Inns have 24-hour front
desk and message service, convenient parking,
same-day laundry service, a swimming pool,
coior television with "Showlime@" and free
locai telephone calls.
(/
Letter to Shareholders
Inn Locations 16
Business Description 17
Selected Financial Data 20
Management's Discussion and Analysis 22
Financial Statements
Combined Baiance Sheets 26
Combined Statements of Earnings 28
Combined Statements of Cash Flows 29
Combined Statements of Shareholders' EqUity 30
Auditors' Report 30
Notes to Combined Financial Stalements 31
Directors and Officers 37
Stock Prices 38
Corporate tnformation 38
.
.
TO OUR SHAREHOLOERS
, ,
, '
In this Annual Report we present financial information for the Company's seven month
"Transition Period" from a May fiscal year to our new calendar year reporting period
The financial results are impressive. Net earnings increased 34% in the seven month
period to $5,639,000 or $.43 per share from $4,218,000 or $.32 per share in last years
comparable seven month period. More importantly, earnings before property and invest-
ment transactions increased to $3,965,000 from $1,838,000 last year. We attribute this
dramatic turnaround to two overriding factors. First, many of our major market areas
have experienced improved economies during the period. Second, we are realizing posi-
tive results from our strategic decision to hold room rates relatively stable while investing
heavily in programs which strengthen our resources. I would like to discuss some of the
strategic investments we have made to prepare the Company for the 1990's.
Human Resources
It is difficult to pick up a copy of any financial magazine without finding an article about
the critical shortage of hourly labor predicted for the 1990's. The effect of this shortage is
predicted to be particularly acute on restaurants and other service industries. The Bureau
of Labor Statistics estimates employee turnover in the hospitality industry to be 240 per-
cent, or the equivalent of the entire work force being replaced every four months.
La Quinta is not as directly affected as others in the industry since each La Quinta Inn
has only 20-25 employees and because we do not operate restaurants However, we are
not immune to the problem and have taken active steps to reduce the impact the labor
shortage will have on the Company. Our approach to addressing the labor issue is based
on two strategies: improving the quality of the work place and impro\'ing the quality of
the work force.
((
.
.
Our first large-scale program to address the labor issue was the implementation in 1988
of a flexible benefit program (also called a cafeteria plan) to include all La Quinta
employees, many of whom had no health and life insurance benefits. Since implementa-
tion. we have seen some reduction in turnover. This plan is one of several incentives
which help us hire and retain qualified employees. Although expensive in the short -term
(the chain-wide cost was approximatelv $1,000,000 in calendar 1989), our focus is long-
term. oyer which time costs will stabilize and we will achieve attractive returns on our
investment.
Emphasis is being placed on creativity in recruitment. Our inn managers and regional
managers have begun recruiting hourlv employees from previouslv untapped sources.
These and other efforts will help to expand the supply of qualified personnel available to
the Company.
We have implemented a variety of training programs which will improve the skills of our
employees, assist them in better understanding what is expected of them and in turn
create a better overall work environment. Examples of these types of training programs
include a certification program for front desk employees, and housekeeping and mainte-
nance seminars conducted at a regionalleyel to develop supervisory and functional skills
in property-level personnel.
Other programs have been designed to encourage employees to share ideas with manage-
ment. particularlv in the area of customer service. 1Wo employee award programs
designed to encourage idea sharing between inn employees and corporate management
were fully implemented in 1989. By encouraging and rewarding employee input, we hope
[f
.
to improve the quality of our product and customer service. We
believe these and other programs, part of our overall approach to
management of our human resources, will carry La Quinta
through the tough labor market we see ahead.
.
Hotel Management System
La Quinta, if not the first, was one of the first lodging chains to
computerize each of its locations and tie them into a network.
We did this about seven years ago. k, this report is being written,
managers and employees from inns across the chain are being
trained to operate our second generation hardware and software,
our new Hotel Management System. An important aspect of this
area of opportunity is we were able to replace our existing
hardware and software at the inns at essentially no incremental cost because of the
maintenance savings associated with the new computers. Rollout of this new system is nearly
complete and will provide greater capabilities in three areas important to our success in
the 1990's: yield management, reservations and customer service.
Yield Management is another term for maximization of revenues. Yield management has
been a common airline practice for some time and has become a "buzzword" for the
1990's in the hospitality industry. When this new computer network is completely
installed, we will have the data to allow managers to make informed rate decisions at the
inns, while acting within a corporate framework. We also will have the ability to direct
utilization of special rates and promotions to inns where the business will be incremental
and will not displace "full fare" guests.
rr
3
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Central reservation systems are costly, but necessary to ensure adequate distribution of
our product. The new Hotel Management System will enhance our central reservation
services by allowing us, for the first time, to guarantee specific types of rooms, for exam-
ple, a "King Plus" room as opposed to just "a room." This capability raises our level of
customer service.
In the customer service area, one of the goals of our new system is easier check-in and
check-out procedures to allow for more personal contact between the employees and
guests. We have added devices such as credit card stripe readers and light wands to service
guests better by simplifying data entry thereby reducing the time they must spend at the
front desk. Our new systems will also increase guest recognition by identifying frequent
guests. Customer service will be a critical success factor in the 1990's as customers have
more lodging choices. We are confident that we have invested in programs which will
enhance our level of service in the 1990's.
Reservations
The lodging industry has not traditionally received a significant amount of business from
travel agents. Reservations have typically been made by calling inns directly or using a
toll-free reservation number. Travel agents as a source of new business in the 1990's is
being heavily targeted by all industry leaders. La Quinta has developed a short-term and
long-term approach to tapping this source of business.
Our reservations system recently has been "direct-connected" to Sabre and Apollo (Ameri-
can Airline's@ and United Airline's@ reservations systems) using a network developed by
Avis called WlZCOM@. This network allows a travel agent to make a reservation at a
6
(I
.
.
La Quinta Inn and receive a confirmation number in 10 seconds or less compared to 30
minutes or more when we were operating without a direct interface.
La Quinta is also a shareholder in a leading edge company called THISCO (The Hotel
Industry Switch Company), owned by 15 lodging companies, which is developing a futur-
istic link between airlines and each company's central reservation system. This advanced
communications network will provide travel agents and other room buyers with the
ability to display information and room rates that are stored in each lodging company's
own reservation system, thus reducing duplication and maintenance of information
in numerous systems. Our involvement in THISCO should satisfy our communication
requirements through the 199(j's and beyond.
Renovation program
In our industry, the reinvestment rate is approximately 3-5% of revenues in physical
product. Over the past several years, however, we have reinvested approximately 7% of
revenues in our inns. While costly in the short -term we are seeing positive results from
our remodeling program, particularly in Texas and the contiguous states. In 1986, our
Texas occupancy was ten percentage points above the market average of 47.6%. In 1989,
that premium increased to 14 percentage points. We believe our properties are in the best
condition ever (the average renovated age of a La Quinta Inn at December 31, 1989 was
3.5 years) and that we have positioned ourselves for continued growth in market share.
Development
Since 1987, when our development efforts were scaled down because of industry overbuild-
ing and a weak Texas economy, our focus has been acquiring existing inns at distressed
8
[ I
.
.
prices and converting them to La Quinta Inns. Fifteen inns have been acquired and con-
verted under this program. It has been so successful that the concept of developing and
converting competitor inns will be the core of our development program over the next
several years.
To fund our development program, the Company has formed a partnershp with AEW
Partners, L.P. to own 18 existing La Quinta Inns and to acquire and convert competitor
inns to La Quinta Inns. The new partnership, LQ Development Partners, LP may also
fund the construction of new La Quinta Inns. We believe this is a significant transaction
for our shareholders because it provides us with the ability to take advantage of acquisi-
tion and conversion opportunities throughout the country. This is particularly important
in the current economic environment where capital from traditional sources is not readily
available.
Acquisition and conversion of existing properties to La Quinta Inns has become an
important strategy for the Company because the cost of converting inns is considerably
less than the cost of new construction. The Company has already identified more than
one hundred lodging facilities which are acquisition candidates for La Quinta and we
have begun the screening and evaluation process. We anticipate that the new partnership
will provide the Company with the ability to increase the size of the La Quinta chain by
40 to 50 additional inns over the next several years, thereby providing for long-term
increases in La Quintas earnings and cash flow, as well as marketing and operational
efficiencies.
The partnership was capitalized with contributions of cash and a note totaling $72 mil-
lion from AEW Partners, L.P. and $48 million in cash and equity in eighteen existing
12
/I
LA QUlNTA INN LlICATHlNS
as oj December 31, 1989
.
.
teLQui!< Reservation Service
lbll Free 800-531-5900
Alabama
Birmingham
HuntsvHk (2)
Mobik
Montgomery
Thscaloosa
Arizona
Phoenix (2)
1\1cson
Artcansas
Littk Rock (4)
California
Bakersfiek:l
Costa Mesa
Fresno
Irvine
Sacramento
San Bernardino
San Diego (3)
San Francisco
Stockton
\enlura
Colorado
Colorado Springs
Denver (7)
Florida
Clearwater
Deerfie~ Beach
Ft. Myers
Gainesville
Jacksonville (3)
Miami
Orlando (2)
Pensacola
Pinellas Park
51. Petersburg
TaHahas5€< (2)
Tampa (2)
16
Georgia
Atlanta (8)
Augusta
Columbus
Savannah
Illinois
Champaign
Chicago Metro Area (5)
Moline
Indiana
Indianapolis (2)
Merrillville
Kansas
Lenexa
Wichita
Kentucky
Lexington
Louisiana
Baton Rouge
Bossler City
Lafayette
Monroe
New Orleans (5)
Sulphur
Michigan
Kalamazoo
Mississippi
Jackson
Missouri
S1. Louis
Nebraska
Omaha
.
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Nevada
Las legas
Reno
New Mexico
Albuquerque (3)
Fannington
Santa Fe
North Carolina
Charlotte (2)
Ohio
Columbus
Oklahoma
Oklahoma City (2)
1\1lsa(2)
Pennsylvania
Pittsburgh
South Carolina
Charleston
Columbia
Greenville
Tennessee
Knm;ville
Memphis (3)
Nashville (2)
Texas
Abilene
Amarillo (2)
Austill (4)
Beaumont
Brazosport
BlTh'iI1sville
College Station
Corpus Christi (2)
Dallas Metro Area (I2)
Eagle Pass
EI Paso (3)
Fort Worth
.
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Galveston
Harlingen
Houston Metro Area (14)
Killeen
La Porte
Laredo
limgvie\JI
Lubbock
Lufkin
Midland
Nacogdoches
Odessa
San Angelo
San Antonio (tI)
Thmpk
Thxarkana
Texas City
1Ykr
Victoria
Waco
Wichita Falls
utah
La)!on
Salt Lake City
Virginia
Hampton
Richmond
Virginia Beach
Washington
Seattk (2)
Tacoma
Wyoming
Casper
Cheyenne
Rock Springs
UCENSED
LA QUINTA INNS
Florida
Orlando
Ohio
Cincinnati
Da)!on
Texas
Denton
Fort Worth
McAllen
OTHER
Texas
Arlington
EI Paso
Houston
San Antonio
//
.
BUSINESS DESCRIPTION
PRODUCT
La Quinta Motor Inns, Inc. ("La Quinta" or the
"Company"), its subsidiaries and unincorporated ventures,
develop, own and operate inns in 29 states. La Quinta is
incorporated under the laws of Thxas and maintains its
executive offices at La Quinta Plaza, 10010 San Pedro,
San Antonio, Texas 78216, telephone (512) 366-6000.
Inns operated and licensed by La Quinta are positioned in
competition with other major lodging brands. The major
source of its customers are those business travelers who
desire high quality rooms, consistently delivered, and whose
needs do not include banquet and convention facilities,
on-premise restaurants and room service. The absence of
these extensive facilities enables La Quinta to offer lower
rates than those charged for comparable rooms at full
service hotels.
La Quintas typical inn is located along an interstate
highway or major traffic artery convenient to businesses,
contains 100 to 175 guest rooms and provides 24-hour front
desk and message service, convenient parking, same-day
laundry service, a swimming pool, in-room color televisions
with "Showtime@" and free local telephone calls. La Quinta
Inns are typically of high-quality masonry construction.
La Quinta generally contracts with third parties at fixed
prices for the construction of new inns and restaurants. La
Quinta uses all masonry construction to develop a buikling
that is structurally sound, fireproof and energy efficient.
The Company also purchases existing inns with similar
quality characteristics for conversion to La Quinta Inns.
.
La Quinta considers the selection of sites for its inns to
be among the most important factors in its business. Sites
are chosen for guest convenience and are generally readily
accessible to and visible from interstate highways and major
traffic arteries. Other major site criteria include proximity
to office centers, central business districts, commercial
and industrial concentrations, medical and educational
complexes, regional shopping malls, military bases and
airports. La Quintas expansion strategy is guided by the
concepts of: (I) clustering - building multiple inns in
the same metropolitan area; (2) adjacency - locating new
inns within approximately three hundred miles of existing
properties; and (3) filling in - moving into smaller cities
(populations under 100,(00) within existing market areas.
Food service is typically provided by an adjacent, free-
standing restaurant operated by a national or regional
chain. In many cases, La Quinta provides funds for con-
struction of the restaurant buikling pursuant to a bui\:l-
to-suit lease requiring the operator to pay all expenses of
maintenance, taxes and insurance. Alternatively, La Quinta
builds an inn adjacent to an existing restaurant. In either
case, La Quinta is free from the management respon-
sibilities of providing food service. At Decemher 31, 1989
La Quinta had an ownership interest in 98 restaurants
leased to and operated by third parties.
Thlephone reservations for accommodations at any
La Quinta Inn can be made free of charge through
La Quinta's nationwide "teLQuik@" reservation system, as
well as through reservation telephones in the lobbies of all
La Quinta Inns. "La Quinta" and "teLQuik" have been
registered as service marks by La Quinta with the U.S.
Patent and Trademark Office.
COMPETITION
Each La Quinta Inn competes in its market area with
numerous full-service lodging brands, especially in the
mid-priced range, with numerous other hotel~ motels,
motor inns and other lodging establishments. La Quintas
t7
II
.
competitors are too numerous to estimate; however, there is
no single competitor that dominates the lodging industry.
The properties operate in the mid-priced, limited service
market segment of the lodging industry.
The lodging industry and the business of La Quinta may
be adversely affected by national and regional economic
conditions and government regulations which influence
or determine wages, prices, interest rates, construction
procedures and costs and the availability of credit. The
demand for accommodations at a particular inn may be
adversely affected by many factors including changes in
travel patterns, local and regional economic conditions and
degree of competition with other inns in the area.
The demand for accommodations in most properties is
higher Monday through Thursday, when there is a high
volume of commercial travel. Demand, and thus room
occupancy, is also affected by normally recurring seasonal
patterns, and in most La Quinta Inns is higher in the
spring and summer months (March through August) than
in the balance of the year. Overall occupancy levels may
also be affected by the number of new inns owned by the
Company and the length of time they have been in
operation.
OWNERSHIP
As part of the Companys long-term financing strategy,
La Quinta, from time to time, enters into joint ventures or
other partnerships. The Company and a co-venturer or
limited partner share ownership of an inn or inns. The
[.s
.
Companys partners typically provide long-term debt and/or
equity. La Quinta manages the inns and receives develop-
ment and management fees. The co-venturers generally
share profits and losses and any residual value in the inns
in the sarue ratio as their ownership interests.
Management of the Company believes joint ventures and
partnerships have enabled the Company to expand to a
greater extent than would have been feasible by using only
Company capital, while maintaining a degree of opera-
tional control over service quality that is not possible with
franchising.
7be Prudential Insurance Company of America has
been a joint venture partner with the Company since 1971.
As of December 31, 1989, The Prudential and the Company
owned 27 La Quinta Inns and 15 free-standing restaurants.
The Company and the tbe Metropolitan Life Insurance
Company have been joint venture partners since 1981. As of
December 31, 1989 the venture owned eight inns and four
freestanding restaurants.
In December, 1987, the Company formed two joint ventures
with investment portfolios managed by CIGNA Investments,
Inc. The Company maintains a 25% ownership interest in
each of the ventures, and manages the inns in accordance
with long-term management contracts. As of December 31,
1989 the ventures owned nine inns and six freestanding
restaurants.
Other large institutional lenders with whom the Company
has joint venture relationships include New lfJrk Life Insur-
ance Company and tbe Lincoln National Life Insurance
Company
In October 1986, the Company sold 31 inns to a publicly
traded master limited partnership. These inns continue to
be operated under the La Quinta narue and are managed
by the Company in accordance with a long-term manage-
ment contract.
II
.
The Company selectively licensed the name "La Quinta" to
others for United States operations until February, 1977 at
which time La Quinta discontinued a domestic licensing
program to unrelated third parties for new properties. Dur-
ing calendar 1988 the Company terminated one franchise
agreement. Six inns remain in operation under franchise
agreements with unrelated third parties.
The following table describes the composition of inns in the
La Quinta system at December 31, 1989.
LaQuInta
La Quinla Inns Inns Rooms Equivalent Rooms
owned 100%_ 99 12,850 12,850
owned 55-80% _ 7 932 641
owned 50% 51 6,303 3,152
157 20,085 16,643
Other owned 100%_ 4 ~
Total Company owned
and operated_ 161 20,721
La Quinta Inns -
managed 40 4,980
La Quinta Inns -
licensed to others_ 6 717
207 26,418
-
~
17,279
370
17,649
Managed inns include inns owned less than 50% by the
Company and not included in the Companys financial
statements. La Quinta manages these inns under the "La
Quinta" name pursuant to long-term management ~on-
tracts. Under the terms of the management contracts,
licensing and management fees are paid to La Quinta. In
addition, the Company charges for national advertising and
chain services relating to reservations and bookkeeping.
Management of the Company believes such management
contracts allow the Company to maintain a high degree
of operational control over service and quality and addi-
tionally allow La Quinta to expand at a faster rate than
would be possible using internal sources of capital, thus
enhancing shareholder value.
.
ORGANIUfION
La Quinta employs approximately 6,400 persons, of whom
approximately 90% are hourly employees. The Companys
employees are not currently represented by labor unions
and the Company has never experienced any organized
work stoppage. The Company believes its employee relations
are good.
Operations of the inns are currently organized into Eastern,
Central and ~tern Divisions, each headed by a Divisional
Vice President. Regional Managers, reporting to a Divisional
Vice President, are each responsible for approximately 11
inns and are expected to assure that standards of service,
cleanliness and courtesy are maintained and profit goals
are met. Regional offices are currently maintained in Albu-
querque, Atlanta, ChicalJ1, Dallas, Denver, Houston, Irvine,
New Orleans, Orlando, and San Antonio.
Individuai inns are typically managed by husband and
wife teams who live on the premises. Because La Quinta S
professionally trained management couples are relieved of
responsibility for food service, they are able to devote their
attention to assuring friendly guest service and quality
facilities, consistent with chain-wide standards. On a typical
day shift, the husband and wife team will supervise one
housekeeping supervisor, eight room attendants, two laun-
dry workers, two general maintenance persons and front
desk sales representatives.
INFLATION
The rate of inflation as measured by changes in the aver-
age consumer price index has not had a material effect on
the revenues or net earning; of the company in the three
most recent years.
19
(I
.
.
SELECTED FINANCIAL AND STATISTICAL DATA ELEVEN YEAR SUMMARY
(dollars in thousands, except per sbare amounts) 1989 1988 1987
FINANCIAL SUMMARY
Revenues $191,834 174,480 174,715
Net earnings 4,709 3,146 4,092
Net cash provided by operating activities 30,805 26,992 30,956
Working capital provided by operations
Operating income 38,068 29,502 29,628
Earnings per share .36 .24 .30
Total assets 602,284 593,905 623,314
Shareholders' equity 117,164 111,479 117,949
Partners' capital 29,504 30,152 33,115
Long-term debt, excluding current installments 360,651 368,723 381,936
Return on average shareholders' equity 4.1 2.7 3.5
Combined effective debt-to-equity ratio (I) 2.5 2.6 2.5
INN STATISTICS (at end of period)
Inns owned 155 149 151
Inns managed 40 40 31
Inns licensed 7 9 9
Rooms owned 19,997 18,920 19,124
Rooms managed 4,982 4,982 3,803
Rooms licensed 917 1,133 1,133
La Quinta equivalent rooms 16,864 15,848 15,582
(1) Ratio of long-term debt to partners' capital plus sbarebolders' equity at year end
The following table provides financial and statistical data for the Company for the seven month Transition Period ended December 31,
1989 and data for the comparable seven month period ended December 31, 1988. For purposes of comparison, income statement
information has been provided for the twelve month periods ended December 31, 1989 and 1988, the new reporting period basis.
SELECTED INCOME STATEMENT INFORMATION - TRANSITION PERIOD
(dollars In thousands, except per sbare amounts)
Seven months ended 7Welve months ended
December 31 Percent December 31 Percent
1989 1988 Improvement 1989 1988 Improvement
FINANCIAL SUMMARY
Revenues $126,578 112,816 12.2% 205,596 183,268 12.2%
Operating income 26,946 23,941 12.6 41,073 32,361 26.9
Earnings (loss)
before property
and investment
transactions 3,965 1,838 115.7 2,394 (4,296) 155.7
Net earnings 5,639 4,218 33.7 6,130 2,579 1377
Earnings per share 43 .32 34.4 47 .20 1350
Net cash provided by
operating
activities 29,914 20,652 44.8 40,066 28,717 39.5
20 /1
SELECTED BALANCE SHEET AND STATISTICAL INFORMATION
(dollars in thousands)
December 31
1989 1988
Balance Sheet
Total assets
Shareholders' equity
Partners' capital
Long-tenn debt, excluding current installments
Inn Statistics (at end of period)
Inns owned
Inns managed
Inns licensed
Rooms owned
Rooms managed
Rooms licensed
La Quinta equivalent rooms
$577,388
123,193
29,223
350,986
161
40
6
20,721
4,980
717
17,649
589,732
116,021
29,739
366,872
154
40
7
19,584
4,982
917
16,452
21
If
.
MANAGEMENrS DISCUSSION ANO ANALYSIS
References to Fiscal Years 1989, 1988 and 1987 are to fiscal years
of the Company ended May 31 of the respective years. Effective
June 1, 1989, the Company changed its year-end from May 31 to
December 31. References to the Transition Period are to the seven
month period ended December 31, 1989. References to 1990 are to
the calendar year ending December 31, 1990.
References to Company Inns are to inns owned by the Company
or by joint ventures in which the Company owns at ~ast 50%
interest. References to Managed Inns are to those inns managed
by the Company under a long tenn management contract and in
which the Cnmpany owns less than 50% interest. These include
nine inns hekl in two joint ventures fonned with CIGNA Invest-
ments, Inc: (CIGNA) in Fiscal 1988 and 31 inns soil by the
Cnmpany to La Quinta Motor Inns Limited Partnership (the
"Partnership") in Fiscal 1987.
References to the percentage of occupancy and the average daily
rate refer to Company Inns owned at December 31, 1989. Man-
aged Inns are excluded from occupancy and average daily rate
statistics for all periods for purposes of comparability. All finan-
cial data relates to Company Inns unless otherwise specified.
Results of operations - ltansition Period
Inn operations are seasonal in nature with the percentage of
occupancy generally higher in the spring and summer months
(March through August) than the balance of the year. Because
of this seasonality, results of the seven month Transition Period
shooll not be annualized and compared with the results of
Fiscal years 1989, 1988 or 1987. To assist in analysis of the
Transition Period results, results from the comparab~ seven
month period in 1988 (the "1988 Transition Period") and caffi-
dar years 1989 and 1988 ("Caffidar 1989" and "Calendar 1988")
are provided.
Inn revenue is derived from room rentals (approximately 97%)
and other soorces such as charges to guests for long distance
te~phone calls, fax machine use and guest laundry services.
Inn revenue also includes revenue from Company operazed
restaurants.
22
.
Comparative Revenue Dala
Jransition Period Calendar }Par
1989 1988 1989 1988
Percentage of occupancy_ 67.t% 66.4 65.5 63.8
Averageroomrate~ $ 39.15 36.85 38.67 3669
Available rooms (000)_ 4,352 4,125 7.320 6.991
Room revenue (000)_ $1l4,238 100,869 185,345 163,666
Other inn l'e\mue (000)_ 3,467 3.007 5,650 5,038
Restaurant revenue (000)_ 704 201 918 311
Inn revenue (000)_ 118,409 104,077 19].913 169,015
The percentage of occupancy in the Transition Period was 671%,
an increase of .7 percentage points over the 1988 Transition
Period. In Caffidar 1989, the percentage of occupancy increased
I.7 percentage points to 65.5% from 63.8% in Calendar 1988.
Management believes the Company, capital improvement pro-
gram, tactical discounting programs and improving local and
regional economies in which many of the Company, Inns are
operated contributed to the increase in occupancy in 1989. The
percentage of occupancy in 1990 will be dependent upon con-
tinued economic improvement in the Company, major 'markets
and the effect new and existing competition will have on the
occupancy level of La Quinta Inns with which they compete.
Management believes the percentage of occupancy will increase
two to three percentage points in 1990 over Caffidar 1989.
The average room rate in the Transition Period was $39.15, an
increase of 6.2% over the 1988 Transition Period. The average
room rate in Calendar 1989 increased 5.4% to $38.67 from
$36.69 in Caffidar 1988. The increase in average room rate in
1989 was primarily attributable to room rate increases imple-
mented at selected properties on January I, 1989 and June 1,
1989. Also contributing to the ittcrease in average room rate were
tactical pricing and yiekl management programs implemented at
selected inns in Calendar 1989.
Inn revenue was $118,409,000 in the Transition Period, an
increase of $14,332,000 or 13.8% over the 1988 Transition Period.
The increase in inn revenue was primarily the result of the
'ncreases in the percentage of occupancy and the average room
rate. Also contributing to the increase in inn revenue was an
increase in the number of available rooms due to the opening of
three newly developed inns and three acquired inns during the
Transition Period.
Restaurant revenue was $704,000 in the Transition Period com-
pared with $201,000 in the 1988 Transition Period. The increase
was due primarily to revenues from a restaurant purchased and
temporarily operated by La Quinta in conjunction with an inn
I I
.'
.
1/
acquired in Calendar 1989, This restaurant was closed during the
Transition Period and construction was begun on a free-standing
restaurant on the site. Management believes restaurant revenue in
1990 will more closely approximate restaurant revenue earned in
Calendar 1988.
Restaurant rental and other revenue includes rental payments
from restaurants owned by La Quinta and leased to and operated
by third parties. Also included are the Companys interest in the
earnings of the two CIGNA joint \Imtures and miscellaneous other
re\lmUes such as third party rental revenue from an office buiki-
ing housing the Companys corporate offices. Restaurant rental
and other re\lmue was $4,558,000 in the Transition Period com-
pared with $5,105,000 in the 1988 Transition Period and
$7,689,000 in Calmdar 1989 compared with $8,203,000 in Calm-
dar 1988. A one-time settlement in 1988 of $650,000 related to
delinquencies from the prior year was the primary factor contrib-
uting to the higher restaurant rental and other revenue in the
1988 periods. Management anticipates restaurant rental and other
revenues in 1990 will be comparable to Calendar 1989.
Management servil:es revenue is primarily related to fees earned
by La Quinta for services rendered in conjunction with the
Managed Inns. Management believes management services
revenue will increase by approximately two peroent in 1990 over
Calendar 1989.
Comparative operating Costs
'/rand/ion Period Calendar Year
1989 1988 1989 1988
Direc' e>pense (000)_ $68,571 60,053 112,094 100,829
ColJlOrate "'P'" (000)_ 11.387 10,296 18,858 16,643
Depreciation, amortization
and fh...ed asset retirements
(000) 19,674 18,526 33,571 33.435
Direct expenses include costs directly associated with the opera-
tion of Company Inns. Approximately 43% of direct expenses are
represented by salaries, wages and related costs. Other major
callWries of direct expenses include utilities, repair and mainte-
nance, property taxes, advertising and room supplies.
Direct expenses per occupied room were $23.49 in the Transition
Period compared with $21.93 in the 1988 Transition Period and
$23.39 in Calendar 1989 compared with $22.60 in Calendar
1988. In order to become more competitive in the service indus-
trys labor markets, the Company began providing an increased
level of benefits to inn employees beginning in the fourth quarter
of Calendar 1988. The increase in direct expenses per occupied
.
room in the two 1989 periods resulted primarily from increases
in salary and benefit costs related to the new benefit program,
property taxes and local and regional marketing costs. Direct
expenses per occupied room in 1990 are expected to increase
over Calender 1989 in line with inflation.
CO/porale expenses include the costs of general management,
training and fiekl supervision of inn managers and other admin-
istrative expenses. The major components of corporate expenses
are salaries, wages and related expenses and infonnation systems.
Corporate expenses were $1l,3S7,OOO in the Transition Period
and $18,858,000 in Calendar 1989 compared with $10,296,000
in the 1988 Transition Period and $16,643,000 in Calendar 1988.
Corporate expenses per available room (including Managed Inns)
were $2.10 in the Transition Period compared with $1.98 in the
1988 Transition Period and $2.06 in Calendar 1989 compared
with $1.89 in Calendar 1988.
Depreciation, amortization and fired asset retirements were
$19,674,000 in the Transition Period compared with $18,526,000
in the 1988 Transition Period. Changes in depreciation and
amortization are affected by the costs of new inns, the number
of new inns opened during each period and the number of
months they were open. Depreciation, amortization and fixed
asset retirements expense also includes asset retirements associ-
ated with the Companys remodeling program and other capital
improvements. These charges were $827,000 and $664,000 in the
1989 and 1988 Transition Periods, respectively and $1,452,000
and $2,423,000 in Calendar 1989 and Calendar 1988,
respectively.
For the reasons discussed above, operating income improved
12.6% to $26,946,000 in the Transition Period from $23,941,000
in the 1988 Transition Period. Operating income in Calendar
1989 was $41,073,000, an improvement of 26.9% over
$32,361,000 in Calendar 1988.
I (
23
.
Interest income (000)_
Interest on long-tenn debt
(000)
Interest capitalized (000)_
Partners' equity in
(eaminll') 'lld losses
(000)
Other Income (Deductkms)
Jransilion Period Calendar Yetlr
1989 1988 1989 1988
$ 2,823 3,243 4,849 5,432
(24,715) (24,601) (42,253) (42,146)
737 S<J6 1,321 1,018
(1,826) (1,251) (2,596) (961)
Inlerest income primarily represents earnings on the short-tenn
investment of Company funds in money-market type instruments
prior to their use in operations or acquiring inns. Interest income
declined in the 1989 Transition Period and Calendar 1989 from
the respective 1988 periods due to lower average cash balances,
Interest income in 1990 will be dependent on the average cash
balances and the interest rate earned on those funds.
Inlereslon long-term debt was $24,715,000 in the Transition
Period, approximately equal 10 the 1988 Transition Period. Inter-
est on long-tenn debt was $42,253,000 in Calendar 1989
compared with $42,146,000 in Calendar 1988. Management does
not anticipate incremental borrowing in 1990 other than addi-
tional debt which may be assumed on newly-acquired inns.
Interest capitalized is dependent upon the number of inns under
construction or conversion, the cosl of those inns and the num-
ber of months each inn is under construction or conversion.
Interest capitalized increased to $737,000 in the Transition Period
from $506,000 in the 1988 Transition Period. In Calendar 1989,
interest capitalized was $1,321,000 compared with $1,018,000 in
Calendar 1988.
Partners' equity in earnings and tosses reflects the interests of
partners in the earnings and losses of joint ventures which are
owned at least 50% by the Company. The increases in partners'
equity in earnings and losses in the 1989 periods over the com-
parable 1988 periods reflect the improved perfonnance of the
joint venture properties. Partners' equity in earnings and losses ih
1990 will be dependent upon the specific perfonnance of such
joint venture properties.
24
.
For the reasons discussed above, earnings before property and
iIWestment transactions increased $2,127,000 to $3,965,000 in
the Transition Period from $1,838,000 in the 1988 Transition
Period. In Calendar 1989 earnings before property and investment
transactions increased $6,690,000 to $2,394,000 from a loss of
$4,296,000 in Calendar 1988.
Gain on sale of assets in the 1989 and 1988 periods is primarily
attributable to amortization of the deferred gain related to the
sale of 31 inns to the Partnership in Fi5calI987. In the Transi-
tion Period, gain on sale of assets included $4,287,000 related to
the Partnership transaction compared with $4,336,000 in the
1988 Transition Period. The gain related to the Partnership
transaction had been substantially amortized at December 31,
1989. The remaining amortization in 1990 and beyond will not
materially impact the financial results of the Company (see note
11 of Notes to Combined Financial Statements),
Incoine taxes, In December of 1987 the Financial Accounting
Standards Board issued statement of Financial Accounting Stan-
dards (FAS No. 96\ Accounting for Income Taxes. This statement
requires the use of the liability method of accounting for deferred
income taxes and must be implemented no later than Calendar
1992. The impact of the Statements implementation has not yet
been detennined by the Company. The Company estimates its tax
rate will be approximately 36% in 1990.
For a complete eaplanation of the Companys provision for
income taxes see note 4 of Notes 10 Combined Financial
Statements.
Results of operations - Fiscal Years
Inn revenue was $177,581,000 in Fiscal 1989, an increase of
$15,301,000 or 9.4% over Fiscal 1988. The increase in inn reve-
nues resulted primarily from increases in the percentage of
occupancy and the average room rate.
FiscallMrs
Inn revenue (000)
Pen:enlage of occupancy
Average room rate
1989
$177,581
650%
$ 37.29
1988
162,280
61.1
3630
1987
165,803
60.4
36.80
Inn revenue was $162,280,000 in Fiscal 1988, a decrease of
$3,523,000 or 2.1% from Fiscal 1987. The change in inn reve-
nue was associated in part with the sale of inns to the CIGNA
joint ventures which, on a combined basis, resulted in fewer
available rooms for sale in Fiscal 1988 than Fiscal 1987. Also
contributing to the decline in inn revenue in 1988 was a lower
average room rate.
!f
~.''','
',,'''
.,': ~
. ,
. . t~
{" .
i'~'l
I''';':. .
'....:-.
,.,.",'" ..
....j, ~ ..."
"" ,
""t'" .
L_._
.
Management belie", the percentage of occupancy in Fiscal 1988
and Fiscal 1987 was negatively impacted by economic difficulties
in 1exas and contiguous stales where the Company operates a
significant number of inns, as well as a general industry condi-
tion of oversupply of rooms. The percentage of occupancy
increased 3.9 percentage points to 65,0% in Fiscal 1989 from
61.1% in Fiscal 1988. Management believes the Companys capi-
tal improvement program, tactical discounting programs and
improving local and regional economies in which many of the
Companys Inns are operated contributed to the increase in occu-
pancy in Fiscal 1989,
Room rates were increased at selected properties effective January
I, 1989, The average room rate in Fiscal 1989 increased 2.7% to
$37.29 from $36,30 in Fiscal 1988, In Fiscal 1988, the average
room rate declined 1.4% to $36,30 from $36,80 in Fiscal 1987.
The decline in average room rate in 1988 resulted from the
Companys decision to employ tactical marketing programs such
as discounting in areas of weak demand,
Management services revenue in Fiscal 1989 and Fiscal 1988
represents fees earned for managing 31 inns owned by the Part-
nership and nine inns owned by the two CIGNA joint ventures, In
Fiscal 1988, the Partnership inns were managed for the entire
year and the CIGNA inns were managed for approximately five
months, In Fiscal 1987, the Partnership inns were managed for
approximatcly seven months. (See note II of Notes to Combined
Financial Statements,)
Direct expenses per occupied room were $22.46, $21.97 and
$21.69 in Fiscal 1989, Fiscal 1988 and Fiscal 1987, respectively,
In order to become more competitive in the service industry's
labor markets, the Company began providing an increased level
of benefits to inn employees beginning in the second quarter of
Fiscal 1989, The increases in direct expenses per occupied room
in Fiscal 1989 and Fiscal 1988 resulted primarily from increases
. in benefit and salary costs and increases in local and regional
marketing costs,
corporate expenses were $17,767,000, $15,416,000 and $17,725,000
in Fiscal 1989, Fiscal 1988 and Fiscal 1987, respectively, Corporate
expenses per available room (including Managed Inns) were
$1.99, $Ll8 and $2,22 in Fiscal 1989, Fiscal 1988 and Fiscal 1987,
respectively,
.
The increase in corporate expense per available room in Fiscal
1989 was in line with inflation. In Fiscal 1988, approximately $1
million of the decrease in corporate expenses related to develop-
ment fees received associated with the purchase of two inns by a
joint venture with CIGNA and the favorable disposition of an out-
standing obligation accrued to expense in an earlier period on a
property opened in Fiscal 1987
Depreciation and amortization and [IXed asset retirements
expense was $32,423,000, $34,841,000 and $33,018,000 in Fiscal
1989, Fiscal 1988 and Fiscal 1987, respectively, Depreciation,
amortization and fixed asset retirements expense included asset
retirements associated with the Companys remodeling program
and other capital improvements of $1,289,000, $3,542,000 and
$2,253,000 in Fiscal 1989, Fiscal 1988 and Fiscal 1987, respec-
tively, Depreciation and amortization was also affected by the sale
of seven inns to the CIGNA joint ventures in Fiscal 1988 and the
sale of inns to the Partnership in Fiscal 1987
Gain on sale of assets in Fiscal 1989, Fiscal 1988 and Fiscal 1987
is primarily attributable to amortization of the deferred gain
related to the sale of 31 inns to the Partnership, In Fiscal 1989,
gain on sale of assets included $7,236,000 related to the Part-
nership transaction. In Fiscal 1988, $8,226,000 of the total gain
on sale of assets related to the Partnership transaction and
$2,213,000 of the total gain was due to the sale of seven inns to
the two CIGNA joint ventures, In Fiscal 1987, $9,654,000 of the
total gain on sale of assets related to the Partnership transaction,
Other, including loan placement incmne in Fiscal 1987 is
attributable to the placement of the mortgage notes payable ass0-
ciated with the Partnership transaction, (See note 11 of Notes to
Combined Financial Statements,)
Income taxes, For a complete explanation of the Companys
provision for income taxes see note 4 of Notes to Combined
Financial Statements,
Capital Resources and liquidity
The Company plans to utilize both internally generated funds
and external financing vehicles to finance its operations and
development programs (see note 12 of Notes to Combined Finan-
cial Statements), At December 31, 1989 cash and short-term cash
investments totalled $12,361,000 including $895,000 in restricted
funds (see notes 6 and 8 of Notes to Combined Financial State-
ments), In addition, the Company has two lines of credit
aggregating $35 million, At December 31, 1989 the outstanding
balance on the Companys revolving credit line was $3,600,000
(see note 2 of Notes to Combined Financial Statements),
If
25
. .
COMBINED BALANCE SHEETS La fJuinta Motor Inns, 1m;.
(in lhousands, except share data) December 31 May 31
1989 1988 1989 1988
(unaudited)
ASSETS
Current assets:
Cash and short -term cash investments $ 11,466 32,486 31,161 40,872
Restricted cash (notes 6 and 8) 895 578 1,829 1,815
Receivables:
Trade 4,957 3,721 4,994 4,564
La Quinta Motor Inns Limited Partnership 335 593 197 964
Other 2,680 3,187 4,218 3,898
Income taxes 2,606 1,994 3,647 2,351
Prepaid expenses and other 5,254 4,881 5,177 4,673
Thtal current assets 28,193 47,440 51,223 59,137
Notes reoeivable, excluding current installments 10,532 12,952 12,829 15,135
Investments, including joint ventures accounted for on the equity
method (note II) 17,970 17,910 18,186 18,125
Land hek! for future development, at cost 12,775 13,455 13,446 13,532
Property and equipment, at cost, substantially all pledged (note 2):
Buildings \, 477,985 448,575 457,679 430,754
Furniture, fixtures and equipment .. 87,191 86,809 86,577 82,198
Land 80,337 73,429 76,671 68,359
Leasehok! and land improw.ments 6,943 6,350 6,660 6,213
Total property and equipment 652,456 615,163 627,587 587,524
Less accumulated depreciation and amortization 157,772 137,540 145,083 121,988
Net property and equipment 494,684 477,623 482,504 465,536
Inns under development, at cost (notes 2 and 8) 3,729 11,514 15,576 13,272
Deferred charges and other assets, at cost less applicable amortization 9,505 8,838 8,520 9,168
$577 ,388 589,732 602,284 593,905
See accompanying notes to combined financial statements.
26
1/
. .
La Quinta Motor Inns, hIe.
December 3] May 3]
]989 ]988 ]989 ]988
(unaudited)
LIABILITIES AND SIIAREHOillERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 2) $ 16,991 16,062 16,151 15,463
Short-term borrowings on revolving credit line (note 2) 18,600
Accounts payable:
Trade 7,465 6,577 6,556 8,458
Construction 1,309 706 3,614 1,370
Other 3,765 2,460 1,208 1,020
Accrued expenses:
Payroll and employee benefits 8,540 7,625 8,552 7,380
Interest 1,488 1,468 2,497 3,266
Property taxes and other 5,272 4,521 4,544 3,471
Provision for special capital contribution (note 11) 6,369 3,330 4,200
Total current liabilities 44,830 45,788 65,052 44,628
Long-term debt, excluding current instatlments (note 2) 350,986 366,872 360,651 368,723
Deferred gain (note 11) 2,035 9,122 6,066 18,452
Deferred credits, principally income taxes 27,121 22,190 23,847 20,471
Partners' capital (note 3) 29,223 29,739 29,504 30,152
Sharehoklers' equity (notes 2 and 5):
Common stock ($.10 par valne; 40,000,000 shares authorized, 14,668,074
shares issued) 1,467 1,467 1,467 1,467
Additional paid-in capital 52,875 52,637 52,812 53,335
Retained earnings 87,486 81,356 81,847 77,138
141,828 135,460 136,126 131,940
Less treasury stock, at cost (1,615,783, 1,687,065 (unaudited), 1,646,685
and 1,773,552 shares, respectively) 18,635 19,439 18,962 20,461
Total sharehoklers' equity 123,193 116,021 117,164 111,479
Commitments and contingencies (notes 7, 8, 9, 11 and 12)
$577,388 589,732 602,284 593,905
! I
27
.
.
COMBINED STATEMENTS OF EARNINGS La Quinto MO/()f Inns, Inc.
(in thousands, f!:(cept per share data)
Seven months ended
December 31 Years Ended May 31
1989 1988 1989 1988 1987
(unaudited)
Revenues:
Inn $118,409 104,077 177,581 162,280 165,803
Restaurant rental and other 4,558 5,105 8,236 7,185 6,226
Management services (note 11) 3,611 3,634 6,017 5,015 2,686
Total revenues 126,578 112,816 191,834 174,480 174,715
Operating costs and expenses:
Direct 68,571 60,053 103,576 94,721 94,344
Corporate 11 ,387 10,296 17,767 15,416 17,725
Depreciation, amortization and fixed asset retirements_ 19,674 18,526 32,423 34,841 33,018
Total operating costs and expenses 99,632 88,875 153,766 144,978 145,087
Operating income 26,946 23,941 38,068 29,502 29,628
Other income (deductions):
Interest income 2,823 3,243 5,269 5,178 5,168
Interest on long-term debt (24,715) (24,601) (42,139) (42,143) (42,342)
Interest capitalized 737 506 1,090 1,289 4,539
Partners' equity in (earnings) and losses (note 3) (1,826) (1,251) (2,021) (730) (3,148)
Earnings (loss) befor~ property and investment
transactions 3,%5 1,838 267 (6,904) (6,155)
Gain on sale of assets (net of losses and partners' equity)
(notes 9 and 11) 4,207 4,365 6,460 10,592 9,968
Other, including loan placement income (note 11) 1,980
Earnings before income taxes 8,172 6,203 6,727 3,688 5,793
Income taxes (note 4) 2,533 1,985 2,018 542 ---.!JQ!
Net earnings $ 5,639 4,218 4,709 3,146 4,092
Earnings per common and common equivalent share $ ,43 ~ .36 ,24 .30
-
Weighted average number of common and common
equivalent shares outstanding 13,148 13,022 13,045 13,278 13,822
See accompanying notes to combined financial statements,
28
II
. .
COMBINEO STATEMENTS OF CASH FLOWS La Quinta Jlolor Inns, Inc.
(ill thousands)
Seven months ended
December 31 Years Ended Mal' 31
1989 1988 1989 1988 1987
(unaudited)
Cash flows from operating activities:
Net earning; $ 5,639 4,218 4,709 3,146 4,092
Adjustments to reconcile net earning; to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment 18,010 16,897 29,532 29,556 28,843
Amortization of deferred charges 837 965 1,602 1,743 1,922
Loss on retirement of fixed assets 827 664 1,289 3,542 2,253
Gain on sale of assets (notes 9 and II) (4,207) (4,365) (6,460) (10,592) (11,948)
Provision for deferred income taxes 1,906 29 1,034 42 2,644
Undistributed earning; of affiliates 387 341 525 1,152 62
Partners' equity in earning; and (losses) 1,826 ~ 2,021 ---BQ 3,148
25,225 20,000 34,252 29,319 31,016
Changes in operating assets and liabilities:
Receivables 1,254 1,263 (792) (1,832) (153)
Income tax receivable 1,041 357 (1,296) (1,855) 105
Prepaid expenses (I) (172) (461) (332) (763)
Accounts payable and accrued expenses 3,787 (784) (918) 2,884 2,702
Deferred charges and other assets (1,822) (635) (954) (838) (2,135)
Deferred credits and other 430 ~ -.W ~) 184
Net cash provided by operating activities 29,914 20,652 30,805 26,992 30,956
Cash flows from investing activities:
Capital expenditures (12,978) (14,858) (28,962) (32,304) (80,191)
Proceeds from property transactions (note 11) 1,798 93 315 49,015 134,722
Closing and completion costs of joint ventures (331) (1,460)
Purchase of inns, net of cash acquired (9,322) (3,904) (9,294) (500) (19,108)
Investment in affiliates (note 11) (745) (15,152) (847)
Special capital contribution (3,074) (2,825) (6,020) (3,316)
Deferred income taxes on asset sales 947 1,074 1,383 2,039 (14,480)
Decrease (increase) in other investments 763 1,1ll (600) (865) (124)
Decrease in notes receivable 2,529 ~ ~ 1,201 ~
Net cash provided (used) by investing activities_ (20,082) (18,341) (41,923) ~) 18,635
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term
borrowing; 2,000 18,600 12,288 43,714
Principal payments on revolving line of credit and
long-term borrowing; (29,810) (9,357) (15,500) (21,095) (63,800)
Capital contributions by partners 342 699 723 755
Capital distributions to partners (2,449) (2,363) (3,392) (4,016) (14,657)
Sales (repurchase) of common stock, net of expenses_ 390 ~ ~ (9,616) ~
Net cash provided (used) by financing activities_ (29,527) (10,697) 1,407 (21,684) (34,660)
Increase (decrease) in cash and cash equivalents (19,695) (8,386) (9,711) 5,095 14,931
Cash and cash equivalents at beginning of period 31,161 40,872 40,872 35,777 20,846
Cash and cash equivalents at end of period $ 11,466 32,486 31,161 40,872 35,777
See accompanying notes to combined financial statements.
29
II
.
.
COMBINEO STATEMENTS OF SHAREHOLOERS' EQUITY La f}uinta /rlotor Inns, Inc.
(in thousaruis)
Additional
Common Stock 7reasury Slock paid-in Retained
Shares Amount Shares Amount capital earnings 7btal
Balances at May 31, 1986 14,664 $1,466 (920) $(10,901) 53.309 69,900 113,774
Exercise of stock options 4 I 3 34 48 83
Net earnings 4,092 4,092
Balances at May 31, 1987 14,668 1,467 (917) (10,867) 53.357 73,992 117,949
Exercise of stock options 4 48 (22) 26
Purchase of treasury stock (861) (9,642) (9,642)
Net earnings 3,146 3,146
Balances at May 31, 1988 14,668 1,467 (1,774) (20,461) 53,335 77,138 1ll,479
Exercise of stock options 127 1,499 (523) 976
Net earnings 4,709 4,709
Balances at May 31, 1989 14,668 1,467 (1,647) (18,962) 52,812 81,847 117,164
Exercise of stock options 31 327 63 390
Net earnings 5,639 5,639
Balances at December 31, 1989 14,668 $1,467 (1,616) $ (18,635) 52,875 87,486 123,193
See accompanying notes to combined [mandai statements.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
La Quinta Motor Inns, Inc.:
'We have audited the combined balance sheets of La Quinta Motor Inns, Inc. as of December 31, 1989 and May 31, 1989 and 1988,
and the related combined statements of earnings, shareholders' equity, and cash flows for the seven month period ended December
31, 1989 and each of the years in the three-year period ended May 31, 1989. These combined financial statements are the respon-
sibility of the Companys management. Our responsibility is to express an opinion on these combined financial statements based on
our audits,
'We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit
includes examining, on a test basi~ evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. 'We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of
La Quinta Motor Inns, Inc. as of December 31, 1989 and May 31, ]989 and 1988, and the results of its operations and its cash flows
for the seven month period ended December 31, 1989 and each of the years in the three-year period ended May 31, 1989, in confor-
mity with generally accepted accounting principles.
/( fJ I!! 6 !eM /U d1u1ide-
San Antonio, Texas
February 22, 1990
30
(I
.
NOTES TO COMBINEO FINANCIAL STATEMENTS
(I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentatwn
The Company develops, owns and operates inns. The combined
financial statements include the accounts of subsidiaries (all
wholly-owned) and unincorporated ventures in which the Com-
pany has a significant ownership interest and exercises legal,
financial and operational control. All significant intercompany
accounts and transactions have been eliminated in combination.
Investments in unconsolidated affiliates in which the Company
has 50% or less ownership interest and over which the Company
has the ability to eXfrcise significant influence are accounted for
using the equity method. Certain reclassifications of prior period
amounts have been made to comonu with the current period
presentation.
Change in Year End
Effective June I, 1989 the Company adopted a December 31 or
calendar year end. The accompanying combined financial state-
ments include audited financial statements for the seven month
transition period ended December 31, 1989. Audited financial
statements are also presented for the three fiscal years ended May
31, 1989, 1988 and 1987 Unaudited financial statements are pre-
sented for the seven month period ended December 31, 1988 for
comparative purposes only.
Propert)' and &juipment
Depreciation and amortization of property and equipment are
computed using the straight-line method over the following esti-
mated useful lives:
Buiklings
Furniture, fixtures and equipment
Leasehokl and land improvements
30 years
4-10 years
10-20 years
Maintenance and repairs are charged to operations as incurred.
Expenditures for improvements are capitalized.
Cash &juimlents
All highly liquid investments with an original maturity of three
months or less are considered cash equivalents. 10000tments with
a maturity of greater than three months are considered short-
term in~tments,
.
La Quillta Jfotur Inns, Inc.
Deferred Charges
Deferred charges consist primarily of issuance costs related to
Industrial Development Revenue Bonds, loan fees, preopening
costs and installment costs on the Hotel Management System
(HMS). Issuance costs are amortized mer the life of the bonds
using the interest method. Preopening costs are amortized over
five years, installation costs on HMS are amortized over seven
years and loan fees are amortized over the respective terms of
the loans using the straight-line method.
Self-Insurance Programs
The Company uses a paid loss retrospective self-insurance plan
for general and auto liability and workman, compensation. A
provision has been made in the combined financial statements
whicb represents the expected future payments based on esti-
mated ultimate cost for incidents incurred prior to the balance
sheet date. Predetenuined loss limits have been arranged with
insurance companies to limit the Companys per occurrence
cash outlay.
Income Taxes
Deferred income taxes arise principally from timing differences
between financial reporting and income tax reporting of
depreciation, preopening costs, construction loan interest, loan
fees and gains realized on the sale of inns.
Investment tax credits were recorded as a reduction of the provi-
sion for income taxes in the year realized until repealed by the
Tax Refonu Act of 1986.
Earnings Per Share
Earnings per share are computed on the basis of the weighted
average number of common and common equivalent (dilutive
stock options) shares outstanding in each year. Primary and fully
diluted earnings per share are not significantly different.
(2) LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt, which is secured by substantially all property,
equipment and inns under de\clopment, consisted of the following
at December 31, 1989 and May 31, 1989 and 1988:
31
{I
.
December 31 May]!
(in thousands) 1989 1989 1988
Mortgage loans maturing 1990-2016
01.4% weighted average) 1244,\62 251,\64 253,743
Industrial DeveIopIOO1t Revenue Bonds,
maturing 1990-2012 (I L1% weighted
a\'el'llge) 90,665 100,398 105,603
Conyertible subordinated debentures
maturing in 2002 (10%) 23,150 23,150 23,150
Bank line of credit (10.5% at December
31,1989) 3,600 1,69Q 1,69Q
Total 367,9/7 3;6,802 384,186
Less current jJlstallments 16,9'J1 16,151 15,463
Net long-tenn debt mO,,86 360,651 368,723
Annual maturities for the four years subse,uent to December 31,
1990 are as follows:
19'J1
1992
1993
1994
127,658
21,934
22,\68
31,153
Dri'i ""umed in the acquiSition of three inllS in fiscal year 1989
ar,d O:1e inn in fiscai year 198'3 amounted to $8,101,000 and
$4,746,CnO, respectively,
ir.terest paid during the seven months ended December 31, ]989
and 1988 amounted to $25,724,UOO and $26,399,000
(unaudited), respectively. During the years ended May 3;, 1989,
1988 and 1987 interest paid amounted to $42,')(J8,000,
$41,349,000 and $43,OO7,()(,l(J, respectively
The Company is obligated by provisions of agreements relating to
four issues of Industrial Development Revenue Bonds (lRB,) in
an aggregate amount of $19,100,000 to purchase the bonds at
face value prior to maturity under certain circumstances. The
bonds have floating interest rates which are indexed periodically.
Bond hoklers may, when the rate is changed, put the bonds to
the designated remarketing agent. If the remarketing agent is
unabk to resell the bonds, it may draw upon an irrevocable letter
of credit. In such event, the Company woukl be required to repay
the funds drawn on the ktters of credit within 18 months.
k; of December 31, 1989 no such draws had been made upon
the letters of credit. The scheduk of annual maturities shown
above includes these IRB, as if they will not be subject to repay-
ment prior to maturity. Assuming all bonds under such IRB
agreements are presented for repayment prior to June 30, 1990
and the remarketing agents are unabk to resell such bonds, the
matllrities of long-term deht shown above for the year ending
December 31, 1991 woukl increase by $17,525,000.
The Company has outstanding $23,150,000 subordinated deben-
tures due 2002. The debentures are convertible into common
stock at a conversion price of $20.94 per share. The debentures
32
.
are redeemabk by the Company at a current redemption price of
103% The redemption price declines 1% annually unlilJune 15,
1992 when it reaches 100%. The debentures are subordinated in
right of payment to all existing and future senior indebtedness of
the Company.
The Company has two lines of credit with participating banks
aggregating $35,000,000. Under a $5,000,000 line of credit, the
Company is permitted to borrow at the current prime ffiding
rate, Borrowing; under Ihe $30,000,000 line of credit may be
made at (i) the current prime ffiding rate, (ii) based on CD rate
plus 1'/4% or (iii) Eurodollar rates with inlel1'St based upon pre-
established formulas. The outstanding balance on Ihis line of
credit at December 31, 1989 was $3,600,000 and at May 31,
1989 the balance was $20,290,000 of which $18,600,000 was
short term.
The line of credit agreements require the maintenance of effective
tangibk nel worth (sharehokiers' equity plus partners' capital)
and subordinated indebtedness of at least $168,000,000 plus an
amount equal to 70% of net earning; accrued subsequent to
November 30, 1989.
The credit lines and certain agreements associated with IR8, are
governed by a uniform covenant agreement. The most restrictive
covenants preclude the following: payment of cash dividends, mer-
gers, sales of substantial asset~ incurrence of significant lease
obligations or any material change in character of business. The
2greement requires the maintenance of certain financial ratios in
addition to those restrictions discussed above. The agreement
cOlrtains provisions to limit the tOlal dollar amount of capital
expenditures allowed in any fiscal year. The Company was in
compliance with or had obtained waivers for all covenants and
restrictions at December 31, 1989.
(3) UNINCORPORATED VENTURES
Summary financial information with respect to unincorporated
venlUres included in the Combined Financial Slatements follows:
Dei;ember 31 ,Hay 31
(in thousands) 1989 1989 1988
Current assets $ 6,121 8,799 10,)66
Current liabilities II,MI 14,648 13,m
Deficit in working capital t4,920) (5,849) (2,845)
Net property, equipment and inns under
"""""'- 134,836 141,853 141,931
Long-term debt (91,617) (98,237) (9'J.392)
Deferred credits (616) (629) (452)
Other assets, net 3,885 4,249 4,412
Net assets 41,568 41,387 43,654
Equity in net assets:
Company 112.345 11,883 13,502
Partners 29,223 29,5M 30,152
$41,568 41,387 43,654
( (
.
(infhousmuisj
R","~
Costs and expenses
Pretaxeamings
Sellffl MOllths Etukd
December 31, 1989
$43,280
39,710
$3,570
}i!llrs Ended May 31
1989 1988 1987
69.596 64.328 79,8<;4
66.~42 63,130 66,840
3.354 1,198 13,014
Equity in prelax earnings and hsses:
Company $ 1,744
Partl'lers:operations \,826
asselsales
1.333 449 5,933
2.021 730 3,[48
19 3,933
3.354 ~ 13,0]4
$3.570
(4) INCOME TAXES
In December, 1987 the Financial Accounting Standards Board
(PASB) issued Statement of Financial Accounting Standards
No. 96 (FAS No. 96), Accounting for Income Taxes. This State-
ment requires the use of the liability method of accounting for
deferred income taxes. The impact of the Statements implementa-
tion has not heeo determined by the Company. The Company
plans to implement the Statement in 1992.
. The provision for income taxes consists of the following:
Seven Months Ended litlrs Ended Ma}' 31
{in thousands} December 31, 1989 1989 1988 1987
Current
""",, $ (4]9) (509) (1,492) 12,416
S"" 100 110 (47) 1.121
Defem:d,resultingfrom:
kceJerattrldepreciation 1.9!8 1,175 529 636
Capitalized loan interest 224 389 350 (757)
Stale income taxes 107 74 102 ()O)
Installment sales (2m (121) (503) (52)
Dererredgain 1.265 2,145 2,038 00,230)
Partners'lossrecognizedbyth€
Company (22) (l0J) (61) (204)
&juipmenlleases (14) (228) (164) (212)
Expense provisions (193) 18 (83) (468)
Net operating loss
"myb""'(~o_) 195 (143) 198
PreopeningcoslS (18) (22]) (357) (94)
Minimum tax (317) (6291 40
Other,net (66) " (8) (385)
.,
Prmisioo for income
"'~ $2,533 2.018 542 1,701
- - -
The effective tax rate is lower than the statutoI)' rate for the fol-
lowing reasons:
Sellen Months Ended }fors Ended May 31
(in thousands) Decembe1;31, 1989 1989 1988 1987
Tax expense at statutory rate $2,778 2,]jJ7 1,291 2.665
Minimum tax (68) 109 765
Investment tax (credit) recapture 8 49 (571) 363
Targeted jobs tax credit (113) (78) (180) (121)
Historical tax credit (500)
Capital gains (212) (357) (543) (1,794)
Slate income taxes 262 222 III 536
Other, net (190) 63 325 -.J2ll)
Provision for income taxes $2,533 2.018 542 1.701
-
Seam Months Ended JearsErided
De=nber 31 May 31
(in thousands) 1989 1988 1989 1988 1987
(/lMudiJed)
Income taxes paid $1,191 558 599 969 13,472
-
lncome tax refunds $2,715 96 J<i 678 64
-
.
(}-J
(5) STOCK OPTIONS
The Companys stock option plans cover the granting of options
to purchase an aggregate of 2,157,500 common shares. Options
granted under tbe plans are issuable to certain officers and key
employees at prices not less than fair market value at date of
grant. Options are exercisable in fOUf equal installments on suc-
cessive anniversary dales of the date of grant and are exercisable
thereafter in whok or in part. Outstanding options not exercised
expire ten years from the date of grant. Activity in the plans dur-
ing the three years ended May 31, 1989 and for the seven months
ended December 31, 1989 is summarired as follow.;:
OjJJifm 7I;ta1
Number pri<:e qmon
of ranges pri<:e
,bares per share (in 1housands)
Outstanding May 31, 1986 )2<),405 $4.85-24.38 8,487
Granted 138,970 11.69-13.\(l 1,643
Cancelbi or expired (49,107) 5.10-20.69 (693)
Exercised (19.656) 5.08-1238 (186)
Outstanding May 31. 1987 799,612 $ 485-24.38 9,251
Granted 136,750 10.44-13.31 1,635
Cancelled or expired (64,501) 51O-t7.88 (822)
Exercised (25,547) 6.68-12.84 (290)
Outstanding May 31, 1988 846,314 $ 4.85-24.38 9.774
Grnnted 127,050 12.81-15.75 1,697
Canceled or expired (13,679) 10.65-17.88 (185)
Exercised (169,514) 4.85-13.13 (1,235)
Outstanding May 31, 1989 790,171 $ 6.00-24.38 10,051
Granted 171,000 14.94-17.44 2.833
Cancelled or expired (48,631) 6.00-16.56 (10)
Exercised (68.271) 6.00-15.80 (690)
Outstanding December 31, 1989 844,269 11,484
Exercisable at:
May 31,1988 543,405 $ 4.85-24.38 6,166
Mal' 31,1989 480,470 $ 6.00-2438 6,168
December 31,1989 416,430 $ 6.72-2438 5.531
Available for future grnnts at:
May 31, 1988 121,240
May 31,1989 633,419
_mber31.1989 \09,381
No charges have been made to earning; for these options. Upon
exercise, the excess of the option price received over the par value
of the shares issued, net of experu;es and inciuding the reiated
income tax benefits, is credited to additional paid-in capital.
fI
33
.
(6) PEI(SION PLANS
c
The Company has defined benefit pension pians covering sub-
stantially ail its empioyees. The Retirement Plan and Trust of La
Quinta Motor Inns, Inc. (the Plan) covered substantiaily ail
employees through December 3 I, 1988. Effective January 1,
1989, all hig.~ly compensated employees were excluded from
active participation in the Plan. The Supplemental Executive
Retirement Plan and Trust (the SERP) was established bv the
Company, effective January I, 1989, to cover these empidyeeo.
Benefits accruing under the Plan prior to December 31, 1988
were based on credited years of service and average compensation
for the highest five consecutive years out nf the last ten years of
service Benefits accrued as of December 31, 1988 under the Plan
(Including benefits accrued for employees covered under the
SERP) were frozen. Benefits accruing under the Pian subsequent
to December 31, 1988 are based on one percent of e""h vears
compensation (with a minimum benefit accrual based dn the
prior formula and :988 earnings). Benefits under the SERP are
b,.<;cd on years of credited se,,>]ce and ave"'ge compensation for
the highest five consecutive calendar years out of the'last ten
comp~ted calendar years of credited service. The Companys
funding policy is to contribute annually the minimum amount
required by Federal regulations.
During the year ended May 31, 1989, the Company adopted an
arnendrrwet and approved a restaIemetrt of the Retirement Plan
and Trust of La Quinta Motor Inn:" Inc. which made several
other modifications to the Plan; the most significant of which
included changes in the benefit formula and a change providing
for 100% vesting after five years of vesting service. The effect of
these changes, an increase in the actuarial present value of
accumulatc.J plan benefits of $939,342 as of May 31, 1989, is
included in the tables below.
The foilowing table sets forth the funded status and amounts
recognized in the Companys combined financial statements for
both plans at December 31, 1989 and May 31, 1989 (and for the
Retirement Plan and Trust of La Quinta Motor Inns, Inc. at
May 31, (988):
34
.
IJerem"" 31 May]!
(in thotlSlltltk) 1989 1989 1988
Actuarial present value of benefit obligations:
Accumulated benefit obligation, induding
~sted benefits of $5,274.for December
31, 1989. $4,710 ror May 31, 1989 and
$1,972 ior May 31, 1988 $(6,011) (5,470) (3,173)
Projectedafitobligation for service l'ffidered
to date $(9,347) (7,916) (6,009)
Plan assets at fair value, primarily listed stocks
and CD\ 6,276 6,374 4,996
Projected benefit obligation in excess of plan
asse~ (3,071) (1,542) (1,013)
Unrecognized net asset at June 1, 1985 being
recognized overemplnyees' average
remaining set'.ice life of 6 years (322) (454) (682)
Unrecognized net m (gain) from past
experience differert from that assumed (207) (1,076) (566)
Unrecognized nelloss (gain) from current year
modifications 701 758
kcruedpensiOllcosts $(2,899) (2,314) (2,261)
Net pension cost for the seven month period ended December 31,
1989 and the three years ended May 31, 1989 included the fol-
lowing components (the seven month period ended 1989 and the
year ended May 31, 1989 incll1ded components for both plans):
Decem"" 31 May 31
(in tboUSt:nd'i) 1989 1989 1988 1987
Senicecost (benefits earned during the
Jl'liOdl $ 598 927 955 790
Interest cost on projected benefit obligation 410 616 564 435
Actual return onpl;lT\ assets (810) (686) 51 .(357)
Net amortization and deferral J86 (793) (293)
Net periodic pension cost before allOCation
to Managed Inns 584 857 m 575
Cost al1oc:!ted to Managed Inns ~) (113) J.1!2) ~
Net periodic pension cost $546 744 648 520
-
The assumptions used in the calculations shown abcve were:
December 31 May3!
(in thoustlnds) 1989 1989 1988 1987
Discount rate (post-decrement) 4-7.75% 4-775 4-8.25 4-7.50
Discount rate (pre-decrement) 9.50 9.50 10,00 9.25
Expected Iong-tenn rate of return on
assets 9.00 9.00 9.00 9.00
Rate of increase in compensation ~ 5.5-7.5 5.5-7.5 7.5 7.5
At December 31, 1989, $312,000 was restricted to fulfill the
Companys contribution requirement to the SERP for the year
ended December 31, 1989.
{(
. .
.
(7) OPERATING LEASES
The Company leases a portion of the real estate and equipment
used in operations. Certain ground lease arrangements contain
contingent rental provisions based upon revenues and renewal
options at fair market values at the conclusion of the initial lease
terms.
Future minimum rental payments, by year, required under oper-
ating leases that have initial or remaining noncancellable lease
terms in excess of one year at December 31, 1989 follow:
(in thousands)
$1,928
1,616
1,422
1,121
912
5,843
$12,842
199<1
1991
1992
1993
1994
Later years
Total minimum payments required
Total rental expense for operating leases was $2,071,000 for the
seven months ended December 31, 1989. During the years ended
May 31, 1989, 1988 and 1987 total rental expense for operating
leases amounted to $3.497,000, $3,283,000 and $2,822,000,
respectively
(8) COMMITMENTS
At December 31, 1989 the estimated additional cnst to complete
the construction and renovation of inns for which construction
commitments hav" been made was $1,925,00Q. Funds on hand,
committed and anticipated from cash flow are sufficient to com-
plete these projects.
Funds restricted to fuUilI sinking fund requirements of specific
industrial development revenue bond issues in 1990 and 1989
amoun1ed to $583,000, $1,829,000 and $1,815,000 at December
31,1989, May 31, 1989 and May 31,1988, respectively
(9) CONTINGENCIES
The Company is a party to various law.mits and claims generally
incidental to its business. The ultimate dispnsition of thes€ mat-
ters is not expected to have a significant adverse effect on the
Company\ financial pnsition or results of operations, .
.
In August 1989, a joint venture partner transferred its 50% inter-
est in the joint venture to the Company. The venture owned one
inn. The Company\ financial statements at May 31, 1989
reflected a $745,000 charge to earnings in anticipation of
this transaction.
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited combined results of operations by quarter are
summarizro below:
(in thousands, empt First s."nd lbird Fourth
per share data) qU/lrter quarter quarter quarter
Year ended December 31, 1989:
Revenues $45,183 53,597 58,835 47,981
Operating income 6,593 13,399 14,857 6,224
Nelearniog<; (loss) (673) 3,161 4,489 (847)
Eamings.(loss) per share (O.OS) 0.24 0.34 (0.06)
)tar ended December 31, 1988:
R"","" $>10,906 46,851 52,229 43,282
Operating income 4,819 9,086 12,961 5,495
Net earning; (loss) (1,256) 1,493 3,272 (930)
Earning; (loss) per share (0. to) 0.12 0.25 (0.07)
Year ended December 31, 1987:
Re\mues $39,255 44,798 48,634 39,249
Operating income- 6,84<l 9,167 1l,188 5,214
Net earnings 1,211 1,oJ6 2,524 698
Earnings per share 0.0<) 0.08 0.18 0.0\
Second quarter results for 1989 and fourth quarter results for
1988 were favorably impacted by $650,000 ($.05 per share) and .
$615,000 ($.05 per share), respectively of Investment tax credits
from prior years and related interest income recognized in 1989
and 1988 based on clarification provided by ongoing revenue
agent examinations.
Gain on sale of assets affec1ed quarterly net earnings and earn-
ings per share in the years ended December 31, 1989, 1988 and
1987 as follows:
(in thousands, except Firs! s."nd 1bird Fourth
per share data j quarter quarter quarter qum-Ier
Year ended December 31, 1989:
Net gain on sale of assets $1,203 783 1,318 1,049
Eamingspershare .0<) .06 .to .08
fur ended December 31, 1988:
Net gain on sale of assets 11,290 1,057 1)45 1,231
Earnings per share .to .08 .to .0')
Year ended December 31, 1987:
Nel gain on saJe of assets $2,689 1,248 1,445 3,049
Earnings per share .19 .0<) .to .23
35
fI
, .
.
(11) RELATED PARTY TRANSACTIONS
ClGNA Disposition
In December 1987 the Company formed two joint ",,"tures ("the
\mtures") with investment portfolios managed by CIGNA Invest-
ments, Inc. (CIGNA) to own and operate 9 inns. La Quinta
maintains a 25% ownership interest in each of the joint ventures.
The \mtures purchased seven of tbe inns from the Company for
an aggregate sales price of $50,835,000. Proceeds to the Company
were comprised of 548,226,000 in cash and the assumption by
the \mtures of $2,609,000 of existing debt. The Company made
equity contributions to Ihe \mlures amounting tu $14,897,000
using funds recei,.d from the sale. 1Wo additional inns were pur-
chased from an independent third party and have been converted
to La Quinta Inns. La Quinta received $450,000 for its services in
finding these twe inp~ for conversion. A gain of approximately
$2,213.000 was recognized by the Company in fiscal 1988 on
these transactions.
LQM operating Parmers, L.P. Disposition
In October 1986 the Company sokl 31 inns to LQM O!"'rating
Partners, LP. ("the Partnership") O\med and controlled by La
Quinta Motor Inns Limited Partnership, a publicly traded master
limited partnership, for an aggregate sales price of $136,100,000
Net proce€ds to the Company were comprised of $67,500.000 in
mortgage notes payable to the Company, $66P50,000 in cash and
the assumption by the Partnership of $2,550,000 of existing debt.
Subsequent to the transaction the Company placed the mortgage
notes with the AEtna Life Insurance Company at an interest rate
less than the rate on the note. The Company earned $1,616,000
from the arbitrage profit and $338,000 from a commitment fee
charged to the Partnership for the placement of the notes in fis-
cal year 1987
At December 31, 1989 a gain of approximately $2,035,000, net of
partner's equity, remained deferred on this sale. This amount may
be recognized over the period January 1, 1990 through July 1,
1998 as the Companys obligation associated with an Industrial
Rev,,"ue Bond assumed by the Partnership expires.
The Companys obligation to fund a guarantee for a minimum
cash fiow rate of return for the partnership expired in October,
1989. During the seven months ended December 31, 1989 and the
years ended May 31, 1989 and 1988, La Quinta Realty Corp., a
wholly-owned subsidiary of the Company and general partner of
the Partnership, made special capital contributions amounting to
$3,075,000, $6,020,000 and $3,316,000, respectively, which were
funded by the Company. A pre-tax gain on sale of assets of
approximately $4,287,000, $7,236,000, $8,226,000 and $9,654,000,
net of partners equity has been recognized during the seven
months ended December 31, 1989 and the years ended May 31,
1989, 1988 and 1987, respectively.
36
.
Other Recurring 'fransoctio1lS
Under the terms of the master limited partnership agreement,
the Company or its affiliates are responsible for managing the
business and affairs of the partnership and are entitled to
reimbursement for out-of-pocket expenditures incurred by the
Company or its affiliates on its behaif in connection with its
administration and supervision.
La Quinta pal' all direct operating expenses on behalf of the
Partnership and the lentures and is reimbursed for all such
payments.
Management Sert;ces Fees
All inns purchased by the lentures and the Partnership continue
to operate under the La Quinta name and are managed by the
Company in accordance with long-tenn management agreements.
The Company earns management and licensing fees as well as
charges for chain servioes such as bookkeeping, national adver-
tising and reservations. During the seIefl months ended December
31, 1989 and the years ended May 31, 1989, 1988 and 1987, these
re",,"ues totaled $4P38,000, $6,505,000, $5,071,000, and
$2,465,000, respectively
(12) SUBSEQUENT EVENT (unaudited)
In March 1990 the Company formed La Quin/a Development
Parmers, L.P., a limited partnership between the Company as
general parmer (40% OW1Ier) and AEW Parmers, L.P.
(';4EW'') as limited parmer (60% owner) to aajuire and C01I-
vert existing in1lS /{) La Quinta In1lS and /{) 0W1I and operate
in1lS. lbe Company initially contributed eigbteen in1lS and
tbeir related assets witb a deemed contribution value of
approximately $44,000,000 (net of eristing debt assumed by
the Limited Parmership) and $4,000,000 in casb and AEW
initially contributed $3,000,000 in casb and a $69,000,000
note payable to tbe Limited Parmership.
Under the terms of tbe Parmership, AEW UJiIJ have tbe ability,
after a vesting period, to convert 66'/;% of its oumership in
the Limited Parmership to 2,439,000 shares of the Company's
Common Stock. lbe Parmership units may be C01Iverted over
the seven year period beginning December 31, 1991. lbe
Limited Parlriership UJiIl be COtISolidaled i1ll0 tbe Company's
financial statements.
II
, . .
.
.
DIRECTORS
OFFICERS
Sam Barshop"*
Chairman of the Board of Directors
Sam Barshop
President & Chief Executive Offu:er
Philip M. Barshop'
Rea/ Estate Investor, San Antonio
David B. Daviss
Erecutive VICe President & Chief operating Officer
Mrs. Rita Clements'
First Lady of 1Iixas & Private Investor, Dalkls
Walter J Biegler
Senior Wce President - Finance
Dr. William H. Cunningham.'.
President, University of 1Iixas at Austin
Francis P. Bissaillon
Senior Vtee President - Administration & 7reasurer
David B. Daviss-
Executive Vzce President & Chief operating Offzcer
Robert S. Noyes
SenkJr VICe President - Quality Performance
Alan L. Tallis
SenkJr Wee President - Detdopment
R Ted Enloe, mt'
President, Lomas & Nettleton Financial Corporation, Dallas
Jerry N. Wiggins
SenkJr Wee President - Operations Support
Allen I. Bassuk
VICe President - R.,k Management
Roland B. Bliss
Wee President - operalkms, lfi!stern Division
Tom C. Frostt.
Chairman of the Board of Directors of Cullen/Frost
Bankers, Inc. and Chairman of the Board of Direclors, Frost
National Bank, San Antonio
Edward B. Kello/*
President, Real Estate Division, US4A
James M. Blomstrom
Vice President - Operations, Eastern Division
Marilyn K Boldrick
Wee President - Generat Counset
George Kozmetskyt.
DireckJr of the l(}i Institute, University of
1Iixas, Austin
Chris J D. Rotet.
President, Merrill Lynch Private Resources, New lbrk
John D. Bonifield
Wee President - Marketing
Norman S. Davis
Secretary; Partner, Davis & Cedilw, tncorporated
Michael Steinberg
Principal, Aldrich, Eastman
and IrtIltch, Inc, Boston
Charles A. Gange
Vice President - Design & Construction
Thomas G. Gruidl
Wee President - tnternal Audit
Alden E. Wilgnert.*
Real Estate Investor, Dalkls
, Member of the Executive Cammillee of the Boaed ofDiredms
t Member of the Audit Cammillee of the Boaed of Diredors
. Member of the Compensation Committee of the Boaed of Diredors
. Member of the Marketing CommiUee of the Boaed of Directors
*Member of the Stock Optiun Committee of the Board of Directors
Charles f Handen,Jr
Wee President - tnformation Systems
Michele f Henkle
Wee President - Reservations
Dennis R. Hill
Vice President - operations, Central Ditiskm
J. Knox Huff
Wee President - Operating Systems
Daniel W Mallurn
VICe President - Property Services
Michael A. Nosil
VIce President - Personnel
Richard Roeben
Wee President - Purchasing
Wdliam F. \l\iechter
Wee President - Controller
37
rr
.. . . ~
.
.
CORPORATE INFORMATION
The Companys common stock is listed on the New York
Stock Exchange and is traded under the symbol "LQM".
The following table provides, for the years ended December
31, 1989 and 1988, the range of the high and low sales
prices as reported by the New York Stock Exchange.
1989 1988
High Low High Low
mil 13 J41/4 113f4
165,1< 14 135,1< 12
181(2 J61,1< J41h 125,1<
181(4 157,1< 147,1< 127,1<
First quarter
Second quarter
Third quarter
Fourth quarter
LA QUINTA MOTOR INNS, INC.
La Quinta Plaza,
10010 San Pedro Avenue
P.O. Box 790064
San Antonio, Texas 78279-0064
512/366-6000
AUDITORS
KPMG Peat Marwick
II2 East Pecan, Suite 2400
San Antonio, Thxas 78205-1505
TRANSFER AGENT AND REGISTRAR
Any change in shareholder address should be directed in
writing to the Company's Transfer Agent and Registrar at
the address below:
NCNB Texas National Bank
P.O. Box 831402
Dallas, Thxas 75283-1402
10-K AVAILABILITY
The Company will furnish to any shareholder without
charge a copy of the Companys Annual Report on Form
IO-K filed with the Securities and Exchange Commission
for the Transition Period ended December 31, 1989 upon
written request addressed to Kim Armstrong, Director
Financial Planning, La Quinta Motor Inns, Inc., P.O. Box
790064, San Antonio, Thxas 78279-0064.
38
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