HomeMy WebLinkAboutR11-Economic Development Agency
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DEVELOP!!ERT DEPART!!ERT
OF THE CITY OF SAIl BDlURDIlIO
IlBOUBST FOR COIMISSIOR/COUBCIL ACTIOR
From:
KEmomI J. HERDERS ON
Executive Director
Subject: LA QUIlITA IIOTOR
INKS, INC.
Date:
December 9, 1991
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SvnoDsis of PrevioUB C~issioalr~nn~tl/r~ittee ActionCs}:
On December 5, 1991, the Redevelopment Committee considered this
matter and recommended to the Mayor and Common Council approval of
same.
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RecomMPnded IIotionCs}:
ClIavor ...d C- Cmm..ill
IIOTIOR A
RESOLUTION OF THE MAYOR Al'lD COMMOR COUNCIL OF THE CITY OF
SAN BERNARDIRO, CALIFORNIA, DECLARING ITS IIITEl'lT TO ISSUE
BORDS Al'lD AUTHORIZING THE PUBLICATON OF A NOTICE OF
PUBLIC HEARING REGARDING THE PROPOSED ISSUANCE OF ITS
"CITY OF SAN BERNARDINO, CALIFORNIA, IRDUSTRIAL
DEVELOPMnT REVENUE BORDS, ISSUE OF 1992 (LA QUINTA MOTOR
INNS, INC. PROJECT)"; MAKING CERTAIN FIRDINGS Al'lD
DETERMINATIONS IN CONNECTION THEREWITB
(ImTIORS COJIrUIUJW TO lIBXT PAGE...)
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Administrator
J. OR
Executive Director
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Contact Person(s):
Ken Henderson
Phone:
5081
Project Area(s): Ward(s):
Supporting Data Attached: Staff ReDort:
FUNDING REQUIREMENTS:
Amount: $
Source:
Budget Authority:
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CommissionlCmm..il Rotes:
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KJH:1ag:0305E
COIlUSSIOR IIDTIKG AGERDA
Meeting Date: 12/16/1991
Agenda Itell Rullber: L
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REQUEST FOR COIRISSIOR/COUlICIL AcrIOR Continued...
La Qunita Rotor IDD8, Inc.
December 9, 1991
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Recommended Motions(s) Continued:
MOTION B
RESOULTION OF THE MAYOR AND COMMON COUBCIL OF THE CITY OF SAN
BERlfARDINO APPROVING THE APPLICATION OF LA QUIRTA MOTOR INNS,
INC., FOR INDUSTRIAL DBVELOPMERT BOND FINANCING; DIRECTING
THE PREPARATION OF CERTAII DOCUMERTS; AND MAICING CERTAII
OTHER FINDINGS AND DETERMINATIONS IN CONNECTIOI THEREWITH.
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KJH:lag:0305B
COIlIIISSIOR IIDTIBG AGIlUlA
Meeting Date: 12/16/1991
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Agtmda It. lfullber:
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DBVBLOPRB.r DBPARrRB.r
01' TIll CITY 01' SAIl _AIInmo
STAn' RBPOIlT
La Ouinta Motor Tnn.. Ine.
La Quinta Motor Inns, Inc. ("La Quinta") has submitted an application
to the City for the refunding of the outstanding $7,000,000 City of San
Bernardino, California, Industrial Development Revenue Bonds, Series ~
1982A (La Quinta Motor Inns, Inc. Project) (the "1982 Bonds"). The
Bonds were originally issued to finance construction and equipment for
a l53-room hotel and associated restsurant facility located on a 3.35
acre tract in the City.
Two (2) resolutions are attached for consideration by the Mayor and
Common Council: (1) Resolution accepting the application; and (2)
resolution declaring the intent of the City to proceed with the
financing and setting a TEFRA Public Bearing for January 6, 1992 at
11:00 a.m. The TEFRA Bearing is required under federal tax law for
bond issues of this nature. Also, at the January 6, 1992 hearing, it
is anticipated that the bond documents will be approved so that a bond
closing may occur by the end of January, 1992. The bond closing must
occur on or before January 31, 1992 in order that the 1982 Bonds may be
redeemed on the first available redemption date of February 1, 1992.
This refunding issue will be structured similar to the 1982 Bond
structure. As with any financing of this nature, the City has no
responsibliity for repayment of the Bonds, except from payments made to
the City by La Quinta under the Loan Agreement between the City and La
Quinta. The bondholders will seek repayment from La Quinta.
La Quinta will be required to pay a $10,000 TEFRA Public Bearing fee
and will be assessed the one percent (lX) Industrial Development Bond
Fee (approximately $70,000)
Staff recommends adoption of the attached resolutions.
0., Bltecutive Director
rtaeD.t
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KJH:lag:0305B
COIIIISSI~ IIBBTIIIG AGBIDA
Meeting Date: 12/16/1991
Agenda It_ __ber:
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Action to
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MAYOR AND COMKON COUNCIL OF THB
CITY OF SAN BERNARDINO, CALIFORNIA
AGENDA
December 16, 1991
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RESOLUTION OF THE MAYOR AND COMKON COUNCIL OF THE
CITY OP SAN BERNARDINO, CALIFORNIA, DBCLARING ITS
INTENT TO ISSUE BONDS AND AUTHORIZING THE
PUBLICATION OP A NOTICB OP PUBLIC HEARING
REGARDING THE PROPOSED ISSUANCB OP ITS .CITY OF
SAN BBRNARDINO, CALIPORNIA, INDUSTRIAL
DEVELOPMENT REVENUE BONDS, ISSUE OF 1992
(LA QUINTA MOTOR INNS, INC. PROJECT).; MAKING
CERTAIN PINDINGS AND DETERMINATIONS IN CONNECTION
THEREWITH
Adopt Resolution.
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15 Certified copy of Resolution to be returned to Sabo , Gre.n, A
Prof...ional Corporation.
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9 "City"), is a charter city duly orqanized and existinq under and
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RESOLtJ'l'ION NO.
RESOLtJ'l'ION OP THE MAYOR AND COMMON COUNCIL
OP THE CITY OP SAN BERNARDINO, CALIFORNIA,
DECLARING ITS INTENT TO ISSUE BONDS AND
AUTHORIZING THE PUBLICATION OP A NOTICE OP
PUBLIC HEARING REGARDING THE PROPOSED
ISSUANCE OF ITS .CITY OP SAN BERNARDINO,
CALIFORNIA, INDUSTRIAL DEVELOPMEH'l' REVENUE
BONDS, ISSUE OP U!J2 (LA QUINTA MOTOR INNS,
INC. PROJECT).; MAXING CERTAIN PINDINGS AND
DETERMINATIONS IN CONNECTION THEREWITH
WHEREAS, the City of San Bernardino, California (the
pursuant to a Charter adopted under the provisions of the
Constitution of the State of california; and
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WHEREAS, pursuant to the powers provided for within the
14 Charter, the City duly and reqularly enacted Ordinance No. 3815,
o 15 as amended (the "Ordinance.), to finance various types of
16 projects, as defined in the Ordinance, and to issue its special
17 revenue bonds for the purpose of payinq the costs of financinq or
18 refundinq such projects; and
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20 WHEREAS, there was filed with the city an Application
21 (the "Application") pursuant to the provisions of the Ordinance
22 by La Quinta Motor Inns, Inc., San Antonio, Texas, (referred to
23 herein as the "Company" or "La Quinta.) requestinq the issuance
24 of revenue bonds for the purpose of refundinq the outstandinq
25 $7,000,000 City of San Bernardino, California, Industrial
26 Development Revenue Bonds, Series 1982A (La Quinta Motor Inns,
27 Inc. Project) (the "1982 Bonds.), which were issued to construct
c:> 28 and equip a 153 room hotel facility (the "Project"); and
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1 WHEREAS, the Company has requested that the city adopt
2 a bond re.olution or take .ome other similar official action for
3 the is.uance of bond. in order to refinance the outstandinq 1982
4 Bond.; and
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12 WHEREAS, the city Clerk must cau.e notice of such
13 hearinq to be published once followinq at lea.t fourteen (14)
14 days notice substantially in the form attached hereto a.
15 Exhibit "A".
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17 NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMOH
18 COUNCIL OP THE CITY OP SAN BERNARDINO AS FOLLOWS:
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20 SECTION 1. The recitals hereinabove are true and
21 correct and are incorporated herein by this reference.
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23 SECTION 2. The Company's Application has been
24 reviewed and the plan of financinq has been found to comply with
25 the spirit, intent and provisions of the Ordinance, as amended,
26 and the City has determined to proceed with the financinq. The
27 City hereby declares its intent to issue and sell its City of
28 San Bernardino, California, Industrial Development Revenue
WHEREAS, the Internal Revenue Code of 1986, a. amended
(the "Code"), require. that both the i.suance of the revenue
bond. and the Project to be financed with such bonds be approved
by an elected representative of the City after a public hearinq;
and
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1 Refundinq Bonds, Issue of 1992 (La Quinta Motor Inns, Inc.
2 Project) (the -Bonds-) pursuant to the provision. of California
3 law in a principal amount sufficient to refund the outstandinq
4 1982 Bond.. The Bond. will be issued and sold in an aqqreqate
5 principal amount of not to exceed $7,000,000.
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7 SECTION 3. The Project is deemed to be in
8 furtherance of the public purpose. of the City. Upon or prior to
9 the issuance of the Bonds, the Company will execute a Deed of
10 Trust and Security Aqreement and Letter of credit (herein called
11 the -Aqreements-) with the City and the City will make a loan to
12 the Company for the purpose of refundinq the 1982 Bonds. The
13 Company will make installment payments to the City in amounts
14 sufficient to pay the principal of and any premium and interest
15 on the Bonds. The Bonds shall be special obliqations of the City
16 and shall not be deemed to constitute a debt or liability of the
17 City or a pledqe of the faith and credit of the City, but shall
18 be payable solely from the payments received under the terms of
19 the loan and the Aqreements. The issuance of such Bonds shall
20 not directly or indirectly or continqently obliqate the City to
21 levy or pledqe any form of taxation whatsoever therefor or to
22 ake any appropriation for their payment.
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24 SECTION 4. The City hereby declares its intent to
25 issue the Bonds, pursuant to the terms of the Ordinance and upon
26 an opinion of nationally recoqnized bond counsel that interest
27 aid on the Bonds or any portion thereof is exempt from federal
28 income taxation, in an appropriate principal amount not exceedinq
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1 that which 18 the subject of an opinion a. aforesaid, maturing in
2 such aaount and tilles, bearing interest at the rate., payable on
3 the date. and having .uch optional and mandatory reduaption
4 feature. and price. as are approved in writing by the Company.
5 The city will deliver the Bonds to the purchaser de.ignated by
6 the Company and will cooperate to the fullest extent in
7 facilitating delivery of the Bond.. The proceeds of the Bonds
8 shall not be invested so as to constitute the Bond. as arbitrage
9 bond. within the lIeaning of Section 148 of the Code and
10 applicable regulations promulgated pursuant thereto.
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12 SECTION 5. The payment of the principal of and
13 preaiu. and interest on the Bond. shall be made .olely from
14 1I0neys realized froll the loan of the proceeds of the Bonds.
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16 SECTION 6. Pursuant to the Code, the Notice of
17 Public Hearing, attached hereto as Exhibit -A- and hereby made a
18 part hereof, is authorized and directed to be published in fba
19 ~ by one (1) publication at least fourteen (14) days prior to
20 the date of the public hearing to be established by the City
21 Clerk.
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23 SECTION 7. This Resolution shall be de8llled and
24 construed as a resolution declaring the intent of the City to
25 rovide for the issuance of the aforesaid Bonds or sOlie other
26 similar official action toward the issuance of the Bond. within
27 e lIeaning of 26 C.P.R. Section 1.103-8(a) (5).
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1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO, CALIFORNIA, DECLARING ITS INTENT TO ISSUE BONDS AND
2 AtJTHORIZING THE PUBLICATION or A NOTICE OF PUBLIC HEARING
REGARDING THE PROPOSED ISSUANCE OF ITS .CITY OP SAN BERNARDINO,
3 CALIFORNIA, INDUSTRIAL DEVELOPMENT RBVBNUB BONDS, ISSUE OP 1992
(LA QUINTA MOTOR INNS, INC. PROJECT).; MAKING CERTAIN FINDINGS
4 AND DETERMINATIONS IN CONNECTION THEREWITH
5 SECTION 8. The findinqs and determinations herein
6 shall be final and conclusive. This Resolution shall take effect
7 upon the date of its adoption.
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I HEREBY CERTIPY that the foreqoinq Resolution was duly
9 adopted by the Mayor and Common Council of the City of
10 San Bernardino at a
11 thereof, held on the day of
12 1991, by the followinq vote, to wit:
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lDeetinq
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ABSTAIN ABSENT
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21 day of
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City Clerk
The foreqoinq resolution is hereby approved this
, 1991.
Mayor of tha City of
23 San Bernardino
24 pproved as to form and leqal content:
JAMBS P. PBHMAN
25 City Attorney
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1 STATB OF CALIFORNIA )
COUNTY OF SAN BERNARDINO )
2 CITY OF SAN BERNARDINO )
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I, City Clerk of the City of
San Bernardino I DO HEREBY CERTIFY that the foregoinq and attached
copy of Mayor and Co_on Council of the City of San Bernardino
Resolution No. is a full I true and correct copy of that
now on file in this office.
IN WITNBSS WHEREOF I I have hereunto set my hand and
affixed the official s.al of the Mayor and C~on Council of the
City of San Bernardino this day of I
1991.
City Clerk
City of San Bernardino
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0 2 NOTICE
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NOTICE OF PUBLIC HEARING
NOTICE OF PUBLIC HEARING TO BE HELD IN ACCORDANCE WITH
SECTION 147(f) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, BY THE COMMUNITY DEVELOPMENT COMMISSION OF THE
CITY OF SAN BERNARDINO, CALIFORNIA, ON BEHALF OF THE CITY
OF SAN BERNARDINO, CALIFORNIA FOR THE EXECUTION AND
DELIVERY OF CERTAIN REVENUE BONDS. IN AN AGGREGATE
PRINCIPAL AMOUNT NOT TO EXCEED $7,000,000 FOR THE BENEFIT
OF LA QUINTA MOTOR INNS, INC.
Notice is hereby qiven that on January 6, 1992, at 11:00 A.M., or
as soon thereafter as the matter may be heard, the Community
Development Commission of the City of San Bernardino, California
(the "Commission") on behalf of the City of San Bernardino,
California (the "City") will conduct a hearinq which shall be open
to the public at the Council Chambers, City Hall, 300 North "0"
Street, San Bernardino, California 92418, for the purpose as
hereinafter set forth.
The purpose of said public hearinq to be held in accordance with
Section 147(f) of the Internal Revenue Code of 1986, as amended
(the "Code"), is to consider the City'S authorization to execute
and deliver certain revenue bonds (the "Bonds") in an aqqreqate
principal amount of not to exceed $7,000,000 to refund the
outstandinq $7,000,000 City of San Bernardino, California
Industrial Development Revenue Bonds, Series 1982A (La Quinta Motor
Inns, Inc. Project) (the "1982 Bonds") which provided fundinq for
a 153 room hotel facility (the "Project"), which is described as
follows:
A. Description:
The Project is a 153 room hotel and
associated restaurant facility
located on an approximately 3.35
acre tract in San Bernardino,
California. The Project was
constructed and equipped with the
proceeds of the 1982 Bonds
desiqnated to be refunded and has
been used as a hotel facility since
its completion.
B. Maximum Bond
Proceeds:
$7,000,000
C. OWner:
La Quinta Motor Inns, Inc.
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EXHIBIT A
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D. Project
street Address:
La Quinta Motor Inns, Inc.
205 East Hospitality Lane
San Bernardino, CA 92408-3411
The Bonds will be executed and delivered in an aqgreqate principal
amount presently estimated at approximately $6,670,000, the
proceeds of which will be used to refund the outstandinq 1982
Bonds.
All persons interested in the subject matter, the public purposes
and benefits and the execution and delivery of the Bonds in an
aqgreqate principal amount not to exceed $7,000,000 may attend such
hearinq at the ti.e and on the date as above set forth and/or file
their written comments thereto in the manner hereinafter set forth.
Any person present at the hearinq shall have the opportunity to be
heard on the question of the City'S authorization to execute and
deliver the proposed Bonds. Any person who wishes to present
written comments to be summarized at the hearing may do so by
delivering the same to the attention of Kenneth J. Henderson at the
Economic Development Department of the City of San Bernardino
located at 201 North "E" street, Third Floor, San Bernardino, CA
92401, for receipt prior to the close of the hearing.
This notice is being given, and the hearing being held, pursuant to
the requirements of Section 147(f) of the Code.
Dated:
REDEVELOPMENT AGENCY OF THE
CITY OF SAN BERNARDINO, CALIFORNIA
By:
Title:
SIIIlOOI U\IlOC\6
12\04\91 IW
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11 Action to
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MAYOR AND COMMON COtJlfCIL OP THB
CITY OP SAN BBRHARDINO, CALIPORNIA
AGENDA
Deceaber 16, 1991
RESOLUTION OP THB MAYOR AND COMMON COtJlfCIL OP THB
CITY OP SAN BBRHARDINO APPROVING THB APPLICATION
OP LA QUIHTA MOTOR I1Ol'S, INC., FOR INDUSTRIAL
DEVELOPMENT BOND PINANCING; DIRECTING THE
PREPARATION OP CERTAIN DOCUMBNTS; AND MAKING
CERTAIN OTHER PINDINGS AND DETERMINATIONS IN
CONNECTION THEREWITH
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Certified copy of Re.olution to be returned to Saba " Green, A
14 Profe..ional Corporation.
Adopt Re.olution.
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("City"), is a "hOlDe rule city" duly organized and eXisting under
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RESOLUTION NO.
RESOLUTION OP THE MAYOR AND COMMON COUNCIL
OF THE CITY OP SAN BERNARDINO APPROVING THE
APPLICATION OP LA QUINTA MOTOR INNS, INC.,
FOR INDUSTRIAL DBVELOPMEN'l' BOND PINANCING;
DIRECTING THE PREPARATION OP CERTAIN
DOCOIIBN'1'S; AND MAKING CERTAIN OTHER PINDINGS
AND DETERMINATIONS IN CONNECTION THEREWITH
WHEREAS,
the City of
San Bernardino,
California
and pursuant to a Chapter adopted under the provisions of the
Constitution of the State of California; and
WHEREAS, pursuant to its home rule powers, the City
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duly and regularly enacted Ordinance No. 3815 (the "Ordinance")
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to finance various types of projects,
as defined in the
Ordinance, and to issue its special revenue bonds for the purpose
of paying the cost of financing or refunding such projects, and
16 has amended the same from time to time; and
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intended to finance the development of industry and commerce and
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WHEREAS ,
said Ordinance No. 3815,
as amended,
is
o thereby broaden the employment opportunities for residents of
e 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.,
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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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10 SECTION 1. That the recitals set forth hereinabove
11 are true and correct and are incorporated herein by this
12 reference.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON
COUNCIL OP THE CITY OP SAN BERNARDINO AS FOLLOWS:
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14 SECTION 2. The City of San Bernardino, California,
15 is a municipal corporation duly created, established and
16 authorized to transact business and exercise its power., 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 e City include the power to issue bonds for any of its
20 orporate purposes.
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22 SECTION 3. Pursuant to the Charter of the City and
23 rdinance No. 3815, as amended, of the City, the City is legally
24 uthorized to issue special revenue bonds for the refunding of
25 nds issued for the construction finanCing of hotel facilities
26 s described in the recitals hereof.
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1 SECTION 4. Thia body consti tutu the qoverninq body
2 of the City and is leqally authorized to provide for the issuance
3 of such spacial revenue bonds by the city.
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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 proviaions 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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17 SECTION 7. The City hereby declares its intention
18 0 exerciae the authority referred to in Section 3 hereof by
19 ssuinq bonds of the City in such amounts sufficient to refund
20 e 1982 Bonds.
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25 SECTION 9. The bonds shall be and are special
26 bliqations of the City, and, subject to the riqht of the City to
27 pply moneys as provided in the applicable laws, are secured by
28 uch revenues as are specified in the proceedinqs for the
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SECTION 5. The Project referred to in the recitals
hereof constitutes a project which may be financed or refinanced
by the iasuance of such special revenue bonds by the City and is
located within the jurisdiction of the City.
SECTION 6.
The Application referred to in the
SECTION 8. The bonds shall be payable from the
evenues described in said Ordinance No. 3815, as amended.
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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 red8lllption price, if any, and interest frOll 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, mort9age loans, and funds and accounts as
10 in this Resolution set forth. The bonds do not constitute an
11 indebtedness within the meanin9 of any constitutional or
12 statutory debt limitation or restriction. Neither the persons
13 servin9 as the Mayor and COlIIIDon Council nor any persons executin9
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, includin9 the
19 establishin9 of the a9gre9ate face aaount of such obli9ations,
20 shall be authorized by indenture, resolution or resolutions of
21 the City at a meetin9 or meetin9s to be held for such purpose.
22 e City Staff, Sabo " Green as Bond Counsel and Issuer's Counsel
23 0 the City, the Applicant and the agents and representatives of
24 saae are hereby authorized and directed to prepare or cause to be
25 repared the necessary le9al documents, includin9 the Loan
26 gree.ant, Resolution of Issuance, and such other documents as
27 y be necessary for the issuance of the bonds and to present the
28 said Mayor and COlIIIDon Council. The Mayor of the City is
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1 hereby authorized and direct:ed 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 direct:ed 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 COlDlllon Council and
11 conforms to State and local leqal requirements relatinq to the
12 issuance of such special revenue bonds and other bonds or debt
13 obliqations by a charter city in this State.
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15 SECTION 12. It 18 intended that this Resolution
16 shall constitute such .official action. toward the issuance of
17 the bonds within the meaninq of the United Stat.s Treasury
18 Requlations, the United States Tax Laws, and any leqislation now
19 or hereafter pendinq in the Conqress of the United States which
20 y 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 closinq of the financinq there
24 shall be paid to the City the fee set forth in Resolution No. 81-
25 108 of the Mayor and COlDlllon Council, adopted March 13, 1981, as
26 amended by Resolution No. 81-410, of the Mayor and COlDlllon
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 THB APPLICATION OF LA QUINTA MOTOR INNS,
2 INC., FOR INDUSTRIAL DBVBLOPMBNT BOND FINANCING; DIRECTING THE
PREPARATION OF CERTAIN DOCUMBNTS; AND MAKING CERTAIN O'rmg(
3 FINDINGS AND DBTBRMINATIONS IN CONNECTION THEREWITH
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SECTION 14.
Thb Resolution shall take effect upon
the date of it. adoption.
I HEREBY CERTIFY that the foregoing Resolution was duly
adopted by the Mayor and Co_on Council of the City of
San Bernardino at a
meeting
thereof, held on the
day of
,
11
1991, by the following vote, to wit:
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13 Council MembArs:
14 ESTRADA
REILLY
15 HERNANDEZ
MAUDSLBY
16 MINOR
POPB-LUDLAM
17 MILLER
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AID
BAn
ABSTAIN ABSENT
City Clerk
day of
The foregoing resolution is hereby approved thi.
, 1991.
21
22 Mayor of the City of
San Bernardino
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Approved a. to form and legal content:
24 JAMES F. PENMAN
City Attorney
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1 STATE or CALIFORNIA )
COUNTY or SAIl BERNARDINO )
2 CITY or SAN BERNARDINO )
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I, City Clerk of the City of
San Bernardino, DO HEREBY CERTIFY that the for8CJoing and attached
copy of Mayor and Common Council of the city of San Bernardino
Resolution No. i. a full, true and correct copy of that
now on file in thi. office.
IN WITNESS WHEREOr, I have hereunto set my hand and
affixed the official seal of the Mayor and Common Council of the
City of San Bernardino this day of ,
1991.
City Clerk
City of San Bernardino
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1 EXHIBIT -A-
0 2 APPLICATION
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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:
EX. ;;ZIT A
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1.9.1
Principal Officers:
(A) Sam Barshop, San Antonio
(B) David B. Daviss, San Antonio
(C) Francis P. Bissai1lon, 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 "Security 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 27 employees in San
Bernardino, California.
The Company presently has 12 locations in
California.
1.11.2
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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
Ill.
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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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 Banking Co.
One NCNB Plaza, T-39
Charlotte, N C 28255
Mr. Jeffrey G. McNeill
Associate
(704) 386-1168
Fax: (704) 386-6432
(D) Trustee:
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(E)
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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
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:
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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
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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 Bond
Memorandum: - 0 -
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: $
(0) 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.
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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'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
4.7.2
N/A
N/A
4.8 The Project is a 153 room hotel facility in San Bernardino,
California, with associated restaurant facilities.
4.8.1
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
4.8.2
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
4.11 Pollution control agencies imposing the applicable
regulations, standards or requirements for operations or
disposal: N/A
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
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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.
Pursuant to City Ordinance No. 3815, the Company finds the
following to be true:
5.2
(A) The Project is in furtherance of the public purpose of
the ordinance and is required or sui table 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
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(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:
~ ~-:;;~
In erim General Counsel
4:> Exhibits:
Exhibit "A"
Exhibit "B"
Exhibit "C"
Proxy Statement
Annual Reports
Map of Real Property
AItIl0409A
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LA OUINTJf
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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 at 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.
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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,
~&s~/y
Sam Barshop
President, Chief Executive Officer
at Chairman of the Board
La Qulnta Motor Inns, Inc. . 10010 San Pedro Av.. . S.n An1onIo. T.... 78216 . (512) 366-6000
P.O. Box 790064 . S.n An1onIo, T.xlS 76279-00&4
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EXHIBIT "A"
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LA OUINT~
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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,
128101.35 (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.
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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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April I, 1991
Norman S. Davis
Secretary
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LA OUINT~
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P. O. Box 790064
San Antonio, Texas 78279-0064
PROXY STATEMENT
SOUClTATION 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 win 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 13,124,5 II 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
rl'
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:
50....
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Director
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Noml..
for
DI_or
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Sam Barshop (I)
Philip M. Barshop
Rita C. Clements
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Dr. William H. Cunningham
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David B. Davisa
R. Ted Enloe, III
o
1972
1972
1984
1985
1980
1977
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Priocipal Occapodoo
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 Lirrited 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 MeMoRan 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 Sunbett 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.
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
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Nominee
for
~
50.....
as
Dired:or
Sillte
T. C. Frost
1973
Edward B. Kelley
1988
Dr. George Kozmetsky
1980
Chris J. D. Rote
1973
Alden E. Wagner
1973
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~ Priaclpal O<capatloo
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.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
o
The Board of Directors of the Company held seven meetings during the year ended December 31, 1m.
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, 1m.
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, 1m, 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, 1m, 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, 1m. 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 AMual 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.
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PRINCIPAL SHAREHOLDERS AND SHAREHOLDER AGREEMENTS
Princi.... Shareholders
The Company knows of no person who, as ofMarcb 19, 1991, owned beneficially mo", tban five percent
(5%) of tbe 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, beld of ",cord 10,060,390 shan:s of
Common Stock (approximately 76.7% of the Company's outstanding Common Stock), all of which shares
we'" held for the accounts of member firms of stock excbanges or for institutions participating in the facilities
of Tbe Depository Trust Company.
N... ... Add.-
of Iholfldll 0.-
s..... ., c.._ Stock
Beolfld..., 0wIIelI.. of
M.... 19, 1991
1,715,554(1)
P_t ., CIuI
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Sam Barsbop
212 La Rue Ann Court
San Antonio, Texas 78213
Thomas M. Taylor &. Co.
Trust for the 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 Wortb, Texas 76102
Industrial Equity (Pacific) Limited
7825 Fay Avenue, Suite 380
La Jolla, CA 92037
GeoCapital Corporation
Barry K. Fingerhut
655 Madison Avenue
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 tban one percent (1 %)
. ( I) The shares shown for Sam Barshop include 282 shan:s beld by his wife and 7,960 shares held by him 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 ownersbip of the 7,960
sban:s held by bim as trustee.
(2) An October 18, 1990 Schedule 130 amendment provided to the Company refleets that Thomas M.
Taylor has "sole voting power" and "sole dispositive power" with respect to 761,200 shares, Sid R. Bass
with respect to 596,950 shares and Lee M. Bass with respect to 596,950 shares.
(3) An October 26,1990 Schedule 130 amendment provided to the Company ",fleets that Industrial Equity
(Pacific) Limited has "sole voting power" and "sole dispositive power" with respect to 1,964,300 shan:s.
(4) A February 8,1991 Scbedule 13G provided to the Company ",fleets that (i) GeoCapital Corporation is
an investment adviser "'gistered under Section 203 of the Investment Advisers Act of 1940, which has no
voting power witb "'spect to the sbares, but which has "sole dispositive power" with respect to 1,385,300
sbares, and (ii) Mr. Fingerhut is a principal stockholder of GeoCapital Corporation, wbo directly owns
2,000 shares in his own name. Mr. Fingerhut disclaims beneficial ownersbip 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 furnisbed to the
Company by sucb persons; no independent investigation concerning the accuracy thercof has been made
by the Company.
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Shareholder Agreements
On February 7, 1991, the group consisting of Thomas M. TlIylor & 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 ~ll 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 therewitb for any mattel1
other than tbe election of directors, approval of auditol1 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 IS, 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
o
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:
N._ .r 'odl,ld..1 S...... -Iy 0w1lelI
or '....llty .r Group u .r M.rdI 19, t99' Portelli .r c....
Sam Barshop 1,7l5,554{1 ) 13.1%
Philip M. Barshop 28,384(2) .
Rita C. Clements 5,100 .
William H. Cunningham 0 0%
David B. Daviss 85,298(3) .
R. Ted Enloe, III 0 0%
T. C. Frost 1,000 .
Edward B. Kelley 432 .
George Kozmetsky 0 0%
Chris J. D. Rote 0 0%
Alden E. Wagner 134,901(4) 1.0%
All directors and officers as a group
(34 persons for the full year and
4 pellOns for portions of the year) 2,405,255(5) 17.8%
· Less than one percent (I %)
(I) The shares shown for Sam Barshop include 282 shares held by his wife and 7,960 shares held by him as
co-trnstee of a trust for the benefit of his grandchildren. As a co-trnstee, Mr. Barshop shares voting and
investment power with respect to such shares. However, be disclaims beneficial ownership of tbose
shares held by him as trnstee.
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(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 sbares 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. Wagger include 1,80 I shares held by his wife.
(5) The holdings shown for all dircct01'll and office1'll as a group include 403,517 shares whicb certain office1'll
have the right to acquire under the Company's Stock Option Plans. Sbares acquirable punuant to stock
options, wbicb arc exercisable within sixty (60) days after April I, 1990, are shown as being beneficially
owned by membe1'll of the group in the above table and bave been considered to be outstanding for
purposes of calculating the pcrcenla8C owne1'llbip of all cIirccto1'll and office1'll as a group.
All dirccto1'll and office1'll as a group other than Sam Barsbop beneficially own a tota1 of 276,184 shares
(2.1%) of the Company's outstanding Common Stock excluding the 403,517 shares referred to above wbicb
certain office1'll have the right to acquire under the Company's Stock Option Plans,
Except as reflected in the notes to the prccccIing table, eacb nominee for cIircctor owns directly the
number of sbares indicated in the table and has tbe sole power to vote and clisposc of sucb shares.
EXECUTIVE COMPENSATION
Casll CompeuadOll
The following table contains information with respect to casb compensation for services rendered in all
capacities to the Company during the year ended December 31, 1990, for each of the five most bigbly
compensated executive office1'll of the Company and for all executive office1'll of the Company as a group.
N_ 01_ Cull
or "- .. e.... C.....lIoo .. MIdo _ c. r ....
Sam Barshop Cbairman of the Board, Chief Executive
Officer and President
Executive Vice President &: Chief Operating
Officer
Senior Vice President - Development
Senior Vice President - rmance
Senior Vice President - Administration
&: Treasurer
David B. Daviss
$ 371 ,036
$ 263,239
$ 209,949
$ 195,588
$ 180,993
$1,434,806
Alan L. Tallis
Walter J. Biegler
Francis P. Bissaillon
All executive office1'll as a group
(6 pe1'llODl for the fun year and
I pe1'llOn for a portion of the year)
COMPENSATION PURSUANT TO PLANS
Inceame Compeuatloll Plan
The Company bas an incentive compensation plan wbicb rewards office1'll and other key employees of the
Company wbo are in a position to make substantial contributions to the growth and profitability of the
Company. Continuanoc of the plan and the granting of bonuses or awards thereunder arc cliscrctionary and
are considered annually by the Compensation Committee of the Board of Dirccto1'll. The bonus plan approved
by the Compensation Committee for the year ended Deocmber 31, 1990 provided only for discretionary
bonuses and awards bascd on individual performance against previously established departmental and pe1'llOoal
goals. The Company bas bistorically recognized the importance of providing incentives for Company
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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 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, $66,346;
Mr. Davi... $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 15, 1991 amounted to $754,749.
Deferred C_....sation PIan
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 PIau
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
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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 Amendmenu: 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 Socia\ 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 Amendmenu: The "Normal Retirement Date" has been changed to the later of
age 65 or the fifth anniversary of plan participation. Accrued benefits at December 31, 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 eams 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 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 provisions.
Supplemental Executive Retirement Plan: The Non-Qualified Plan became effective January I, 1989.
It covers all employees considered highly compensated according to IRS 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
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eacb plan year witb at least 1,000 bours 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 nonnal
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 !be SERP is
defined as the average of Compensation for the bighest five consecutive calendar years out of !be last ten
completed calendar years of Credited Service. "Estimated Annual Primary Insurance Amount" is the
estimated old-ll8e insurance benefit payable at 118e 65, based on the Social Security Act as in effect on the
determination date (calculated assuming constant earnings to asc 65 if determination is prior to asc 65).
"Normal Retirement Date" is the first day of the month coincident with or next following the later of the
employcc's 65th birthday or the fifth anniversary of plan participation. And, "Early Retirement Date" is the
first day of any month after the employee bas attained the asc of 55 and bas 15 years of Vesting Service. The
accrued monthly benefit at Normal Retirement Date equals '/" of 6QlI, of Plan Compensation Icsa ~ of !be
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 yem 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 arc $98,064 per year for all participants, except the six (6)
most bigbly compensated employees, for wbom 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
118e 65 retiree in 1989, with maximum Social Security earnings in all years), the estimated annual retirement
benefits under botb the Retirement Plan and the SERP arc set forth in the following table:
A_ v.....,_ 01 ~
A.....
Co..puul\cHI I' 15 :zo Z5 JO
$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 ~,
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................. . 85,094 127,642 170,189 170,189 170,189
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................. . 11 5,094 172,642 230,189 230,189 230,189
o
The years of credited service under the Company's Retirement Plans for the persons named in the Casb
Compensation Table arc as follows: Mr. Sam Bmbop, 24 years; Mr. Daviss, 12 years; Mr. Tallis, 10 years;
Mr. Biegler, 19 yem; and Mr. Bissaillon, II years.
Stock Option Plans
The 1978 Plan: At the Company's Annual Meeting of Sbarebolders on October 12, 1978, the
sbarebolders approved the 1978 Non-Qualified Stock Option Plan (the "1978 Plan"), wbicb bad 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 wbicb is authorized to determine the individuals to wbom, and the time
or times at wbicb, options will be granted, !be number of sbarea subject to eacb option, !be time or times at
wbicb options may be exercised, the applicable option price (wbicb 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-for-three stock split in January 1982 and a
five-for-four stock split in March 1981.
Outstanding options granted under the 1978 Plan may be exercised within ten years from the date of the
granl 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 1979 Plan terminated by its own terms on October 11, 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 granl
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 11, 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 ofa 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 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 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 pun:hase Common Stock of the Company pursuant to the f984 Plan and the average per share
exercise price thereof:
All
Euctolhe
o,tIno G_ SUI D..w B. A1uL W_J. r..- P. 0lIe0n
OIIOIJ9ll.I2IJII9O ....... D_ TlllIa ....... B""'" u . G..,
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 exen:ised during the last year:
All
Euctod...
o,tIno EutdIN SUI Dorid B. A... L WaIte< J. Fraada P. 0lIe0n
OIlOII9O-I2IJIIllO Ban.... Don.. Tall.. B...... B......... u a G.....
No. of shares covered by option
exercised ....................
Net value or cash realized( I) . . . . .
o
o
3,333
$12,412
416
$ 2,083
o
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3,749
$14,495
$
$
( I) "Net value or cash realized" is based on market value at the exen:ise date. Compensation in connection
with an exercise, absent an election to the contnuy, 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 exen:ise price of $15.342.
Plaantom Stock Bon. Pin
The Board of Directors on FebtuaIY 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 Janwuy 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, Pien:e, 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 Oftlcers
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. Covel'll8e 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 reftected 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 3\, 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 shaIl
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, (Hi) 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 worIel 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) fuIl 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 foIlowing a change in control. and (Hi) 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 $ I 8,800,000. 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.
o
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 tenn 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 S237,667 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 S323,438 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 S 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) ofSIO,OOO per year up to a maximum ofSI5O,OOO, commencing upon his death or his retirement from
the Company at age 65 or over. The contract will automatically tenninate upon Mr. Barshop's voluntary
tennination 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.
l
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 finn of KPMG Peat Marwick as independent auditors to examine the combined
financial statements of the Company for the year ending December 31, 1991. This finn 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 7g2I6, 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 MATTERS
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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LA OUINTA
....
P. O. Box 790064
San Anlonio, Texas 78279.0064
ISFOR\UTION STATDIE~T
This Information Stalement is furnished by the Board of Direclors (Ihe "Board") of La Quinta
Motor Inns, Inc.. a Texas corporation (the "Compan)'''), in connection with the special meeling of
shareholders (the "Special !-feeting") called joinlly by Sid R. Bass. Inc.. Lee ~1. 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 ....venue, 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 nolice of, and to vote al. the Special Meeting is June 10. 1991. The approximale date on which Ihis
Information Statement is first being sent or given to security holders is June 21. 1991.
WE ARE ~OT ....SKI~C YOU FOR A PROXY ....~D YOlo ARE REQUESTED
~OT TO SESD US A PROXY.
PROXIES WILL BE SOLICITED BY THE BASS/TAYLOR GROUP.
OL"STA~DING SHARES AND \'OTI~G RIGHTS
Only holders ofrecord of the common stock, par value 80.10 per share (Ihe "Common Stock"). of
Ihe Company on the Record Date shall be enlilled to vole al the meeting. There were 13.126.906
shares of Common Stock Issued and oulstanding on Ihe Record Dale. Each share oulslanding entitles
Ihe holder Ihereof to one vote.
ELECTIO~ OF DIRECTORS
The Bass/Taylor Group has informed the Company thaI it inlends 10 nominale five individuals
(Ihe "Shareholder Slate") for eleclion to the Board to fill/ive of six vacancies which will exist on Ihe
Board as of the time of Ihe election. The Board, pursuanl 10 Ihe Company's Bylaws, previously fixed
Ihe number of directors consliluling Ihe entire Board al eleven members. As of June 7, 1991, fi,'e
Board members delivered Ihelr resignations as direclors of Ihe Company, such resignations to become
etrectlve upon the election of the Shareholder Slale at the Special Meeling. In addition, on June 10.
1991, T. C. Frost resigned &om his position as a direclor of the Company, creating a vacancy on the
Board.
Directors of the Company may be elected by Ihe affirmative 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 Meeting. If Ihe Shareholder Slate is elected at Ihe Special Meeting.
each member of the Shareholder Slate elected as a direclor will hold office until the next annual
meeting of shareholders of Ihe Company and unlil his successor is elecled and qualified. If all members
of the Shareholder Slate are elecled at Ihe Special Meeting. one ,acancy will conlinue to exist on the
Board. See "Shareholder Agreement:' If all members of the Shareholder Slate are elected 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 Ihe event.
generally, of eilher the termination of his employment with the Company during the Iwo years
following such election or his voluntary resignation as an employee of the Company during the year
following such election. See "Executive Compensation - Se"erance Agreements:'
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As previously announced, the Company is continuing its program (th.. "Enhancem..nl Program")
to identify strategic and 6nancial opportuniti..s that may be available to the Company to enhance
shareholder value, including the possible sale of th.. Company. Neith..r the calling of the Special
Meeting nor the nomination of the Shareholder Slate alters the Company's announced intention to
pursue the Enhancement Program.
Q
Shareholder Slate
The following persons constitute the Sharehold..r Slate. The information in this table is based
solely on information provided to the Company by the Bass/Taylor Group.
Principal Occupation
for the I..a5t Five Years
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
Since
Same ~
Thomas ~. Taylor. . . . . . . . . . . . . . . . . . . . . .. 46
Barry K. Fingerhut ...................... 45
Donald J. McNamara.. .. .. .. .. . . . .. .. . . .. 38
Peter Sterling. . . . . . . . . . . . . . . . . . . . . . . . . .. 49
Robert G. Sutherland ........ . . . . . . . . . . .. 44
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Rita C. Clements. . . . . . . . . . . .
1984
David B. Daviss .. .. .. .. .. .. .
1980
54
R. Ted Enloe, III . .. .. .. .. .. .
1977
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President of Thomas M. Taylor & Co. (an
investment consulting 6rm).
Ser,ior Vice President of GeoCapital
Corporation (an investment advisory 6rm).
Chairman, Chief Executive Officer & President
of The Hampstead Group (a real estate
investment 6rm) since September 1987: prior
to August 1988, Chairman of Americana
Hotels Corporation (a hotel chain).
Vice President and Chief Financial Offic..r of
SId R. Bass, Inc. and r..... M. Bass, Inc.
Idiversi6ed investment 6rms).
Pr"sident of IEP Consultants (USA), Inc. (an
investment 6rm) since January 1989; prior
thereto Executive Vice President ther..of.
Principal Occupation
Investments; First Lady of Texas 1979-1983 and
19S7-January 1991; active in Civic and
Community Affairs on a Local, State and
:\.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 Mortgage 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, TGX
Corp., Leggett & Platt. Inc., and Compaq
Computer Corp.
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Served as
Director
Name Since
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Chris J. D. Rote.. . .. .. .. .. .. 1973
Alden E. VVagner......... ... 1973
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Principal (k~upa'ion
~
Vice Chairman of ~ierriJl Lynch Brokerage 6<
Valuation since 1991: President. Merrill
Lynch Private Resources from August 1987
to February 1991: Executive Director of
Merrill Lynch Private Capital. Inc. from 1984
to .'ugust 1987: Senior Vice President and
Director of Rotan MosIe, Inc. from 1981-84.
Alden VVagner & Assoc.: President of Versalex
Management Corp. and Hallmark
Construction Co. since 1980: Director of
Cullen/Frost Bank. Dallas
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.
Se",ed as
Director
~ame Since ~ Principal O~~upa'ion
Sam Barshop(I).............
Philip M. Barshop(l) ...,....
Dr. VVilliam H. Cunningham. .
1972
1972
1985
61
President. Chief Executh'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 6< 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 Craduate
School of Business of The t:niversity of
Texas at Austin from 1983 to August 1985;
Professor of ~iarkeling. University of Texas
at Austin. since 1979: Director of Freeport
McMoRan Inc.. Jell'erson-Pilot Corporation.
and investment companies managed by
Transamerica Company: Transamerica
Technology Fund. Transamerica Bond Fund.
Transamerica In\'estment Trust.
Transamerica Special Equit), Portfolios.
Transamerica Special Series. Inc..
Transamerica Current Interest. Inc..
Transamerica Sunbelt Cro....th 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
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If
MEETISGS AND COMMITIEES OF THE BOARD OF DIRECTORS
The Board of the Company held seven meetings durin-J 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 sucb tenn.
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 6nancial statements which are the subject of the
independent accountants' cerUScation, 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 current!). 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 beneSts for all Company ollicers and key employees, and also reviews and submits to the
entire Board recommendations concerning compensation and stock option plans.
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Served u
DirKlOr
~ Since
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Edward B. Kelley ........... 1988
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Dr. George Kozmetsky. . . . . . . 1980
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(I) Philip and Sam Barshop are brothers.
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Principal Occupation
President of USAA Real Estate Division since
August 1989; Executive Vice President and
Chief Operating Officer of USAA Real Estate
Croup from April 1989 to August 1989;
President and Ad\'isory 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 ICt 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 ~tanagement and Computer
Science. The University of Texas at Austin
since 1966; Dean of tbe 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
De\'elopment Corporation. Inc., ScientiSc lie
Engineering Software, Industries, Inc. and
KDT Industries, Inc.
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The Marketing Committee of the Board is composed of Mrs. Clements and Messrs. Sam Barshop,
Cunningham (Chairman) and Daviss. The Marketing Committee, which held 6ve 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.
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 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. 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 waived by the Board.
SECURITY OWNERSHIP
The following table shows the total 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 61ed by the bene6cial owners
with the Securities and Exchange Commission pursuant to Section Did) or 13(g) of the Securities
Exchange Act of 193-1. as amended, and information provided to the Company by the Bass/Taylor
Group and the Company' has not made any independent investigation into the accuracy of this
information.
Name of Bene&cial o.'ur
Shares of Common Stoc:lc
Benefidalh.- 0.'0" as of
June' '10. 1991
Pereent
of Shares
Holden of more than 5" of the Shares:
Industrial Equity (Pacific) Limited.. .... . . . . . . . . . ... . . . . . . .... . .
7825 Fay Avenue, Suite ~
La Jolla, CA 92037
Bass/Taylor Group ............................................
3200 First City Bank Tower
201 Main Street
Fort Worth, Texas 76102
Sam Barshop...... . . . . ... ... . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . .
10010 San Pedro Avenue
San Antonio, Texas 78216
GeoCapital Corporation. .. .... .. . ... . . . .. ... . . . . . . . . . . . . . . .. . . .
767 Fifth Avenue
New York. New York 10153
1,964.300
14.9%
1.954,IOO( I)
14.9
1.635,554(2)
12.5
1,53-1.600(3)
11.7
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Same or Beneficial Owaer
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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. Kelley. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . .. .. .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
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5ures of Common Stod,
Beneficially a.-ned as of
June 10. 1991
Percent
.fSh.....
5.100 .
8.5.291,(4) .
0 0
0 0
133.100 1.0
28.384(5) .
0 0
432 .
0 0
2.325.321 (6) 17.7
762.200 (7) 5.8
1.541.600(3) 11.7
0 0
0 0
1.964.300(8) 14.9
. Less than one percent.
(1) Thomas M. Taylor & Co.. a Texas corporation controlled by' Thomas M. Taylor. owns 761,200
shares. Sid R. Bass. Inc.. a Texas corporation controlled by' the Sid R. Bass Management Trust.
owns 596.450 shares and Lee M. Bass. Inc., a Texas corporation controlled by' Lee M. Bass. owns
596,450 shares.
(2) The shares shown for Sam Barshop include 282 shares held by his wife and i.960 shares held by
him as co-trustee for the bene6t of his grandchildren. As a co-trustee. Mr. Barshop shares voting
and dispositive power with respect to such shares. However. he disclaims bene6cial ownership of
the 7.960 shares held by him as trustee.
(3) GeoCapital Corporation is an investment adviser registered under Section 203 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. ~fr. Fingerhut bene6cially 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 bene6ciall)' own 1.534.600 shares by virtue of ~fr. Fingerhut's position as the principal
stockholder and Senior Vice President of Geocapital Corporation. Mr. Fingerhut disclaims
bene6cial ownership of the shares of Common Stock deemed bene6cially owned by GeoCapital
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 bene6t of the children of his brother. Sam Barshop. As
co-trustee, ~fr. Barshop shares voting and investment power with respect to such shares. Howe,'er.
he disclaims bene6cial 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 hav'e 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 bene6cially 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.
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(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 bene6cially 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 bene6t of a son of Mr. Taylor. Mr. Taylor's mother.
Annette B. Taylor. serves as trustee of this trust. Mr. Taylor disclaims bene6cial ownership of the
shares of Common Stock owned by such trust. The shares of Common Stock shown for Mr. Ta~'lor
exclude the 2.149,124 shares that Mr. Taylor may be deemed to own bene6cially 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. ~fr. Taylor disclaims
bene6cial 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 ~fr. Sutherland represent 1,964.300 shares of Common Stock that ~fr. Sutherland may be
deemed to own bene6cially because of his position as President of IEP Consultants (USA) Inc.
Mr. Suiherland disclaims bene6cial 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 6rms of
stock exchanges or for institutions participating in the facilities of The Depository Trust Compan)'.
Except as re8ected 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.
o
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 ~feeting. 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. Ta)'lor & Co. to vote their shares for the
election of the Shareholder Slate at the Special ~feeting. The Company entered into the Shareholder
Agreement to avoid a costly and disruptive 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
identi6ed. If a sixth nominee is identi6ed 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.
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EXECUTIVE CO:\tPENSATION
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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 Sve most
highly compensated executive officers of the Company and for all executive officers of the Company as
a group.
S.me .r Individual
or Sumber in Croup Capacoitirs in Whi~h SenoR Cash Compensation (I)
Sam Barshop . . . . . . . . . . . . . . . . . . . . .. Chairman of the Board. Chief Executive
Officer and President
David B. Oaviss .. . . . . . . . . . . . . . . . . . Executive Vice President and Chief
Operating Officer
Alan L. Tallis ..................... Senior Vice President - Development
Walter J. Biegler .... . . . . . . . . . . . . . . Senior Vice President - Finance
Francis P. Bissaillon ............... Senior Vice President - Administration
and Treasurer
$ 371,036(2)
263,239
209,949
195,588
J 80,993
All executive officers as a group
(7 persons) ... .. . . . . . . . . . . . . . . . .
1,434,806
o
(1) Each olllcer 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. Olllcers are permitted to use such automobiles for personal purposes. A
value is assigned to such personal use based upon penonal mileage reported, is taxable to each
olllcer 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 beneSciaries
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 rellected for him in the table above.
c
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
proStability 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.
J990 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 performance and individual goal attainment. The
bonus plan for the year ended December 31, J990 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 J5. 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; :\Ir. Tallis, $34.075;
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Mr. Biegler, $26.285: Mr. Bissaillon, $30.000; and all executive officers of the Company as a group.
$232,643.
Deferred Compensation Plan
The Companl' has a Deferred Compcnsation 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 beneSt plan for these highly compensated employees. All
corporate oIBcers 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 sball be incremented on a quarterl)' basis. with tbe quarterly equivalent of the Federal Short-
term Rate publisbed by the Internal Revenue Service. Tbe accumulated balance in a participant's
account, less any outstanding loans. shall be paid to a participant as a beneSt as soon as practicable
following tbe earlier of: (1) the date the participant ceases to be employed by tbe Company; (2) the
deatb of tbe 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) tbe termination of the Dcferred Compensation Plan or (5) an event constituting a
"change in control" of the Company, as deSned in the SERP (hereinafter deSned). 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 monthly and would be subject to tbe same interest
incrementation as annual awards. Such amounts would be pal'able 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 reSnance an expiring loan.
However, no more than 24 participants may have loans outstanding during any plan year. Loans shall
bear interest at tbe Federal Short-term Rate, compounded quarterly. Any outstanding loan shall be
netted against the amount payable at payment time, as deSned above.
Two of the persons named in the Cash Compensation Table above received tbe following credits
under the Deferred Compensation Plan for the Sscal year ended December 31, 1990: Mr. Barsbop,
$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 deSned beneSt pension plan (the
"Retirement Plan"), which is a qualiSed plan under Federal tax laws, for all of its full-time employees
who have attained the age oUl, which is designed to provide annual retirement bene6ts to employees,
subject to age and period-of-employment conditions, During the 6scal year ended May 31, 1989, the
Board established a Supplemental Executive Retirement Plan for highly compensated employees,
whicb constitutes a nonquali6ed plan under Federal tax laws (the "SERP").
Retirement Plan, The "Normal Retirement Date" under the Retirement Plan is the later of age 65
or tbe Sfth anniversary of plan participation. Accrued beneSts at December 31,1988 are frozen (after
being updated to accrue fully after 20 years of emplo)'ment) , the bene6t 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 deSned 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 beneStlimitation under the Retirement Plan is
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$94.02.1 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 acth'e participant
who becomes highly compensated becomes an inactive participant, and earns no additional bene6t
accruals. Employees are credited with one year for each plan year with at least 1.000 hours worked
("Vesting SeJ'\'ice"). 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 5.5 and has 15 years of
Vesting Service. The accrued monthl,' bene6t at Normal Retirement Date equals the accrued bene6t
as of December 31, 1988 based on the bene6t formula in effect under the plan at that time plus. for
years after 19~~. the sum of 1% of each ,ear's Compensation. divided by 12. Commencement ofbene6t
payments prior to Normal Retirement Date is subject to actuarial reduction. The Retirement plan also
provides late retirement, termination and death beneGt provisions.
Suppkmrnlal Executi~r R.IiT.mml Plan. The SERP covers all employees considered highly
compensated according to IRS rules I currently those earning ov'er $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, 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 bene6ts. "Plan Compensation"
under the SERP is de6ned as the average of Compensation for the highest 6ve consecutive calendar
years out of the last ten completed calendar years of Credited SeJ'\'ice. "Estimated .-\nnual Primar)'
Insurance Amount" is the estimated old-age insurance beneGt 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 Srst day of the month coincident
with or next following the later of the employee's 65th birthday or the 6fth anniversary of plan
participation and "Early Retirement Date" is the Grst day of any month after the employee has
attained the age of 55 and has 15 years of Vesting Service. The accrued monthly beneGt at the Normal
Retirement Date equals '/.. of 6()'l, 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 beneSt earned under the Retirement Plan. Commencement of bene6t payments prior
to Normal Retirement Date is subject to actuarial reduction. The vesting schedule provides for I~
vesting after 5 years of Vesting Service. The SERf also provides late retirement. termination and death
beneSts. Pursuant to an amendment of the SERP by the Company's Board in January 1991, maximum
beneSts under the SERP are $95.064 per year for all participants, except the six most highly
compensated employees, for whom there is no maximum. .-\5 with the Retirement Pbn. the Company
pays the entire cost of the SERf.m
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Using estimated Social Security of $12,264 (the Estimated Annual Primary Insurance Amount for
an age 65 retiree in 1990, with maximum Social Security earnings in all years), the estimated annual
retirement bene&ts under both the Retirement Plan and the SERP are set forth in the following table:
Ave...
Ann_
Compensation
SI00,OOO .................................
125,000 .................. . . . . . . . . . . . . . . .
150,000 .... .. .. .. . .. .. .. . .. .. . . .. . . . . . ..
175,000 ................... . . .. . . . . .. .. ..
200,000 ................... .. . .. . . .. .. .. .
225,000 ............................... ..
250,ll\lO .... .. .. .. .. . .. . . . . . . . . . . . . .. . . . .
275,000 ... .. . . . .. .. .. . . . . . .. .. . . .. . . . . . .
300:000 ...... .. ...... .. .. . ...... .. . .. . . .
325,000 ................ .. . .. .. . . . .. .. .. .
350,000 .... .. . .. .. . .. . .. .. . .. . . . . . .. . .. .
375,000 ................... . . . . . . . . . . . . . .
400,000 ............ . .. . . . . . .. .. . . . . . . . . .
Yean 01 Servke .. Reti...ment
10 15 to or more
$ 25.094
32.594
40,094
47,594
55,094
62,594
70,094
77,594
85,094
92,594
100,094
107,594
115,094
$ 37.642
48.892
60.142
71.392
82,642
93,892
10.5.142
116.392
127.642
138,892
150,142
161,392
172.642
S 50,189
65.189
80,189
95,189
110,189
125,189
140.189
155,189
170,189
185,189
200,189
215,189
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: ~lr. Sam Barshop. 24 years, ~fr. Daviss. 12 years: ~fr. Tallis. 10
years: Mr. Biegler. 19 years; and ~fr. Bissaillon, 11 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-Quali&ed 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 of the stock on the date of grant). and such other terms and
conditions as the Stock Option Committee may deem appropriate.
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 ofthe Company's Common Stock or any combination of both. as determined by the Stock
Option Committee, The 1978 Plan terminated by its own tenns on October 11. 1988; and the last option
under the Plan was granted during 1984.
The 1984 Pl4n. 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 11, 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-quali&ed 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 directors who are disinterested persons within the meaning of
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Rule 16b-3 promulgated under the Securities Exchange Act of 1934. as amended (the UExchange ActU).
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 ("SARU).
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 )'ears from date of retirement and one ,'ear from
date of death or disability so long as such options have not expired pursuant to their terms. H~wever. if
employment is terminated because of a participant's breach of an employment 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 Brst time by a participant in an)' 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 6>-e 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:
All
OptlODS Cnated Sam Da\,idB. AieL Walter}. Executive
F......IsP. OlBcen
1/01/90-11/31/10 Banhop Davia ..!!lli!- Biesler Bissaillon ...Croup
No. of shares of common stock covered by option panted 0 5.268 11.012 11.012 11,012 41.816
Averace per share option exercise price ..... . . . . . . . . . . . . 115.375 $ 15.12 $ 15.12 $ 15.12 $15.173
The following table shows as to each of the 6,'e 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 ,-ear:
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Elecutive
..'-Ian L. Walter J. Frands P. Olli""
Tallis Biegler Bissaillon as a Group
Options Exertised
1/01/90-12/31/10
Sam D.,.id 8.
Banhop ~
$ 2.0~3 $
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114.495
o $
512.412
Net value oheeurities reaHzed(l) ...................... SO
(I) "Net value of securities realized" is based on market value at the exercise date.
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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 $15.342.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan which is available to all full-time emplo)'ees
who have completed six months consecutive service and have elected to participate. except those who
participate in the Company's 1964 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 ofSIO.OO 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 modi6cation 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
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The Company has a program to provide medical and other beneSts to all employees, which is
generally characterized as a "cafeteria plan" and named the "Flexible BeneSts Plan:' The Flexible
Bene6ts Program provides life insurance, including accidental death. dismembNment and loss of sight
coverages. at varying amounts depending on the employee's salary and level of job c1assi6cation.
Additional life insurance coverage previously afforded officers of the Company has been continued
under the Flexible Bene6ts Program. l:nder 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 thereoO. 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 i, 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 elfort. over and above their normal duties and responsibilities. that will be
required of them to evaluate 6nancial 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.
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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'l 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 abo,'e named senior executive officers will
receive, as reasonable compensation for his elforts 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.
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Severance Agreements
In October 1989 the Company entered into severance agreements with ~essrs. Daviss, Biegler,
Tallis, Wiggins and Bissaillon. ex..cutiv.. olllc..rs of the Company. In addition. in th.. fall of 1990 the
Company ..nt..red into se"eranc.. agr..ements with certain other officers of the Company, including,
among others. Sam Barshop. The Company entered into. and has amend..d certain of the severance
agreements from time to tim... most recently on June 7, 1991. to ensure the continuity of management
in the event of a change in control.
The se"erance agreements become operative upon the occurrence of a "change in control" of the
Company as deSned in ..ach of th.. s..' erance agre..ments. The severance agreem..nts each provide that
the Company shall continue to employ each executiv.. officer in substantially th.. same position and
with substantially the same duties ar,d responsibilities that he had immediately before the change in
control (or to which the Company and the executive olllcer 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 olllcer is
terminated or constructiv..h' terminated (as deSned in each severance agreement). the executive
olllc..r is entitled to r..c..ive c..rtain ben..Sts, including. among others. a lump sum paym..nt in cash
..qual to 2.99 times such ..x..cutive's agregat.. annual cash compensation (2 times in the case of two
..x..cutive olllc..rs). The de6nition of construct;,'e termination includes a signi6cant adverse chang.. in
the nature or scope of the ex..cuti,'" olBcer's responsibilities, relocation of th.. olllcer's principal
location of work. or in the case of four of the severance agr..ements. in the event any such olllcer
resigns his employment with the Company during the 6rst year following a change in control.
If all members of th.. Shareholder Slate are elected at the Special ~Ieeting. ~Iessrs. Barshop. Tallis.
Bissaillon and Daviss each would become entitled to recei"e payments pursuant to his se,'erance
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 Shar..holder Slate will not be
deemed a change in control pursuant to any of the other s..'erance agre..ments. Th.. amounts (other
than with respect to deferred compensation and pension beneSts) that become payable pursuant to
the Company's severance agreem..nts upon both a change in control occurring and thereafter the
employee ceasing (during certain speciSed periods) to be employed by the Company, as more fully
described in each particular severance agreement. are as follows: Sam Barshop. 51.144.ilO. David
Da,'iss, 5878.318, Alan Tallis. 5636.138, Francis Bissaillon. 8562.86&. Walter Biegler, $315,416. and
$3.539.450 for all executive omcers of the Company as a group.
cmIP~~SATION OF DIRECTORS
Each member of the Board who is not also an employee of the Company pres..ntly 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 51.000. 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.
CERHIX TR-\=-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 L> Quinta Inn. A 20% limit..d 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 unalllliated third parties. During th.. year ended
December 31. 1990. the Wagner family partnership received distributions aggregating SIOO.OOO.
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Pursuant to a contract assumed by the Compan)' 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 speci6ed in the agreement or competes with the Company as
prohibited by the agreement during the payout period, the Company will ha,'e 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
SI5O.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, 61ed a
petition for protection from creditors in a Chapter II reorganization proceeding in the U.S. Bank-
ruptcy Cout! for the Southern District of New York. Lomas Financial Corporation has proposed a plan
of reorganization in the proceeding, which has not yet been con6rmed by the court or approved by the
various creditors' committees.
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Each of the Resigning and Continuing directors has been named as a defendant in an action 61ed
on May 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 plaintilr alleges. among other matters. that the Company's directors breached their
6duciary duties to the Compan)' by taking certain actions including the adoption of certain 6nancing
arrangements and employee compensation arrangements which the plaintiff characterizes as anti-
takeover devices. The plaintilr seeks relief including. among other things. (a) the issuance of a
permanent injunction barring the Compan)"s directors from (i) failing to sell the Company, (ii) using
compensation arrangements as anti-takeover devices, (iii) paying greenmail and (iv) requiring
potential acquirors to enter standstill agreements; (b) compensatory and punitive damages; and (c)
attorneys' fees.
OTHER ~fA TTERS
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.
~fARlLYS K. BOLDRtCX
\ 'ice President - General Counsel and
Assistant Secretary
June 21, 1991
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LA QUINT A'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
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ABOUT THE COMPANY
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
of limited service inns and is recognized today
as a leader in this growing market segment of
the lodging industry. The Company's 210 inns
are located in 29 states, with concentrations
in Thxas, Florida and California, three of the
fastest growing areas in the United States.
The Company was founded in 1968 in San
Antonio, Thxas 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 "LQM:'
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.
CONTENTS
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Letter to Shareholders
Inn Locations 12
Business Oescription 13
Selected Financial and Statistical Data 16
Managements Discussion and Analysis 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
CoI]Jorate Information 34
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o 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 Quinta
is in the best competitive position in the industry. We will continue to
confront the industry challenges head-on.
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1990 Operating Resuhs
For the year, we achieved a .5 percentage point
improvement in occupancy over 1989. 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
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() 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
o 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.
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o Development Program
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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
o program. We anticipate acquiring approximately 12 inns in 1991, with
two of those inns having been acquired to date.
We are also excited about our franchise agreement
for the expansion of the La Quinta chain into the ~lexican States of
Nuevo 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 ~Iexico. rnder our agreement
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.0 with Desarrollos Turisticos \'anguardia SA de C.\:, the properties \Yould
initially be managed by the Company. The Company 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 Rights Plan providing for
rights to be issued to shareholders of record on October 9, 1990. This
action was taken after long and careful study and was not taken in
response to any pending takeover or proposed change in control of the
Company. The adoption of a shareholder rights plan has been common
. 0 practice in major American companies and is a well accepted approach
to ensuring all shareholders receive a fair price and are treated equally
in the event of a takeover.
The major provision of the plan requires a share-
holder to obtain the approval of the Board of Directors prior to
acquiring in excess of ISO;, of the outstanding common stock of the
Company. If the ownership thresholds are exceeded without the
approval of the Board. the rights of the other shareholders become
exercisable and those rights held by the persons who exceeded the
threshold will become void.
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o Opportunities to Enhance Shareholder Value
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.
o 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
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~ptcial meeting between ~lay 17, 1991 through June 30, 199~. If such
a meeting were called, new Directors could be elected by a rote of a
majority of La Quinta's outstanding stock.
The Board believes that La Quinta's long-term strat-
egy of acquiring inns and regular renovations and maintenance to
ensure continued quality and reflect consumer preferences, has resulted
in a strong company. Our strategy has enabled La Quinta to attract
funds for further expansion even in a difficult period for the lodging
o industry. At the same time, limited use of leverage has helped the Com-
pany aroid the financial difficulties currently being experienced by a
number of our competitors. Our strategy and financial strength \rill aid
LIS significantly as we seek to m;L'.;imize shareholder value, The Board
believes that its actions represent a well-constructed strategy for
enhancing shareholder value and treating all of La Quinta's share-
holders eLlually and fairly.
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LA QUINTA INN LOCATIONS
As a/December 31, 1990
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IeLQuill ResertlfJ/ion Sen.;ce
7b1l Free 800-531-5900
Alabama Georgia Mississippi T_ Utah
Birmingham Atlanta (8) Jackson Abilene La!10n
Huntsville (2) Augusta Amarillo (2) Salt Lake Citl'
Mobile Columbus Missouri Arlington
Montgomery Sal'annah St. Louis Austin (4) Virginia
1\I5Oaloosa Nebraska Be:lUl11onl Hampton
Illinois Brownsl'iIIe Richmond
Arizona Champaign Omaha Clute rirginia Ik'ach
Phoenix (2) Chioago .1etro Area (5) Nevada College Slat ion
0 1\Ieson \toline CO~lUs Christi (2) Washington
I.as \egas Dallas .letro Area (12) Seaule CI
Arkansas Indiana Reno Eagle P;ISS 'Iacom:1
Little Rock (4) Indianapolis (2) New Mexico Ell'aso ell
"errilll'iIIe Wyoming
California Albuquerque m Fort WOrth Casper
GalreslUlI
Bakersfield Kansas Farmillgloll Harlingen Cheyt'llll~
Costa Mesa Lenexa Las Cruces Rock Spri l1~S
Fresno Wichita Santa Fe HOllstoll .\letro Area (Iii
Irvine Killeen LICENSED
Sacramento Kentucky North Carolina Laredu LA QUINTA INNS
San Bernardino Lexington Charloue (2) l.onl-,":iew Fforido
Lubhock
San Diego (3) louisiana Ohio Lufkin Orlando
San Francisco
Stockton Baton Rouge Columbus Midland Ohio
Ventura Bossier City Oklahoma Nacogdoches Cincinn:ui
Lafal'ette Odessa
Colorado ~lollroe Oklahoma City (2) S;11l Angelo Da~toll
Colorado Springs ,ew Orleans (5) 'lillsam San Antoniu (Ill Texas
Denver (7) Sulphur Pennsylvania 'temple Denton
'Iharkana Fort \\"rth
Florido Michigan l'iUslllnj\h '1\'ler \!cAllen
Deerfield Beach Kalamazoo South Carolina Victoria
Ft. Myers Charleston Waco OTHER OWNED INNS
Gainesville Columbia Wiohita Falls
Jacksonville (3) Greenville Texos
Miami El Paso
Orlando (2) Tennes_ La "a"llle
Pensacola Knoxville San Antonio
0 Tallahassee (2) \temphis (3)
Tampa (S) ~ashville (2)
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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 1exas, California and Florida.
La Quinta is incorporated under the laws of 1exas and
maintains its executiVe offICeS at La Quinta Plaza,
10010 San Pedm, San Antonio) 1exas 78216, telephone
(512) 366-6000.
~.' PRODUCT
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La Quinta Inns typically are conveniently situated along
interstate or major highways and contain an average of
130 guest moms. The inns appeaI to guests who desire
quality rooms and whose needs do not include banquet
and convention facilities, on-premise restaurants, cocktail
lounges or mom service. The absence of these extensive
facilities enables La Quinta to offer lower rates than those
charged for comparable moms at full service hotels.
~ically, 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 liettle 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-5uit, triple net lease that requires the opera-
ior to pay, in addition to minimum and percentage rentals,
all expenses, including building maintenance, taxeS and
insurance. At most of its locations, La Qui.nta 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
strategy is also guided by the concepts of: (I) c1ustering-
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.
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Thlephone reservations for accommodations at any
La Quinta Inn can be made free of charge through
La Quinta's nationwide "teLQuik4D" 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 fuU-5ervice 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 t,he 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 mom 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 as a La Quinta Inn.
The lodging industry and the business of La Quinta may
be adversely affected by national and regional economic
conditions and government regulations which influence
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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..
OWNERSHIP
La Quinta has financed its development through internal
cash now, 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 exient 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, L.P., a limited partnership between the
Company and AEW Partners, L.P. 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 underperforming 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 R~lution liust 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 Quinta's
standards. The Partnership will continue to acquire and
convert existing inns to La Quinta Inns.
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7be Prudelltiallnsurance Company oj Ameril:a has
been a joint venture partner with the Company since 1971.
At December 31, 1990. The Prudential and the Compan}'
owned 27 La Quinta Inns and 15 freestanding restaurants.
During the first quarter of 1991, the Company purchased
Prudential's interest in five of those inns and two of those
restaurants.
The Company and the tbe Metropolitan Life Insurance
Company have been joint venture partners since I98L 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,
1990 the ventures owned nine inns and six freestanding
restaurants.
Other large institutional lenders with whom the Compan}'
has joint venture relationships include NeUJ Jf1ri Life
Insurance Company and tbe Iincoln 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 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 umelated third parties.
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During 1990, the Company entered into an exclusive
licensing arrangement with Desarrollos 'furisticos Van-
guardia SA de C.v. 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 III
the La Quinta system at December 31, 1990.
fA {)uinkl
b'ns Rooms &{uiva/enJ Rooms
La Quinta Inns
owned 100%_ 81 1O,m 10,m
owned 40-80% _ 80 9,979 4,889 .
161 20,754 15,664
Other owned 40% or
more -1 363
0 Thtal Company owned
and operated_ 164 21,117
La Quinta Inns -
managed 40 4,980
La Quinta Inns -
. licensed to others_ 6 7I7
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 fmancial
statements. La Quinta manages these inns under the
"La Quinta" name pursuant to long-term milllagement
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.
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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.
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SELEmD fiNANCIAL AND STATlmCAL DATA
IdollorsilllhollStlllds, cree piper s/}"reomoulIls!
FINANCIAL SUMMARY
Revenues
Net earnings
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
Combined effective debt-to-equity ratio (I)
INN STATISTICS (at end of period)
Inns owned
Inns managed
Inns licensed
Rooms owned
Rooms managed
Rooms licensed
La Quinta equivalent rooms
(J) Ralio of Iong-Ierm debIto partners' capilal plus shareholders' <<{uily al year end.
. .
J!!
1M7:\' ended
December 31
1990 1989
$226,463
2,175
42,149
43,488
.17
587,149
129,167
37,270
341,')02
1.7
2.1
164
40
6
21,117
4,980
717
16,308
205,5%
6,130
38,463
41,073
.47
577,388
123,193
29,223
350,986
5.1
2.3
161
40
6
20,721
4.980
717
17,649
((
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0 0
SeIJ(!/l months
ended
-0 December 31 Fiscal )'&1r.\' 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 3.5 4.9
2.3 2.5 2.6 2.5 2.6
161 155 149 151 165
40 40 40 31
6 7 9 9 II
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
-0 17,649 16,864 15,848 15,582 16,418
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MANAGEMENfS DISCUSSION AND ANALYSIS
References to Fiscal Years 1989 and 1988 are to fiscal vears of the
Company ended May 31 of the respective l~ars. Effective June I,
1989, the Company changed its yeaHnd from May 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 year ended December 31. 1990. References to 1991
are to the calendar year ending December 31, 1991.
References to Company Inns are to inns owned by the Company
or by joint ventures in which the Company owns at least 40%
interest. References to Managed Inns 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 Quinta Motor Inns Umiled Partnership
(the "Partnership").
References to the percentage of occupancy and the average daily
rate refer to Company fnns owned at December 31, 1990. 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.
Resu/Is of operations - 1990 alld 7/'allsition 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 result~ results from the comparable seven
month period in 1988 (the "1988 Transition Period") are
provided.
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 Transition Period should nol be
annualized or compared with any of the twelve month periods
presented.
Inn revenue is derived from room renta~ (approximately 97%)
and other sources such as chaf1!e5 to guests for long distance
telephone calls, fax machine use and guest laundry services.
Inn revenue a~ includes revenue from Company operated
restaurants.
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CQlIlpam/irr Rt'n'm/~ a/la
CaltlultJr ltot" Trallsition Per/Oil
Percentage of occupan~'_
Averageroornrate
ArailableroomstlXx))_
1m
660'\
s 409;
~5--
191<9
6;.5
386-
-:"J!O
1989
6:1
391;
.d;~
1988
66.4
36.85
4.125
Room re\"eIlUf (0110)_
Olller inn re\'enue (001)-
Restaurant revenue (ooJ)_
Inn revenue (000)
S!IH.6!b
6.4;;
'li;
!U.O!5
1110.869
3JlOi
201
104.0)7
185..;;"
5.6S\1
918
191.91;
114.!JS
:\.-ttl-
-0"
1I8.~~
The percentage of occupancy in 1990 was 6(,',. an increase of
.5 fl"rcentage points over 1989. In the first two 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. llanagement attributes the trend in
the percentage of occupancy during the second half of 1990 to
a decline in travel caused by general recessionary trends in
the economy, an increase in the price of gasoline and omall
uncertainty due to the political situation in the Middle East.
The percentage of occupancy in the Transition Period increased
.7 percentage points om the 1988 Transition Period to 67.1%.
Management believes the Company's capital improvement pro-
gram, tactical discounting programs aud improving local and
regional economies in which many of Ihe Company's Inns
are operated contributed to the increase in occupancy in the
Transition Period and the first half of I9'JO. The percentage of
occupancy in 1991 will be dependent upon the omall economic
condition in the Companl"s major markets and the effect of new
and existing competition on the La Quinta Inns with which
they compete.
The average room rate in 1990 was $iO.93, an increase of 5.8%
over 1989. The average room rate in the Transition Period was
$39.15, an increase of 6.2', over the 1988 Transition Period. The
increase in the average room rate achieved in the two periods
was due to room rate 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 $20,112,000
or 10.5% over Calendar 1989. In the Transition Period. inn
revenue increased 13.8% over the 1988 Transition Period. The
increases in inn revenue in the two periods primarill' resulted
from the increases in the percentage of occupancy and the aver-
age room rate. Also contributing to the increases in inn re\'enue
was an increase in the number of arailable rooms. Four inns
opened during 1990 and six inns opened during the Transition
Period.
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Restaurant re>'enue. ...hich consists primarily 01 w'enue lrom
two restaurants ""ned and operated by the Compan~: was
~;.OOO in 1990 compared ....ith $918.000 in 1989. Management
beliel'es restaurant rer'enue ...ilI increase in 1991 due to the
acquisition oIan additional reslaurant in the lourth quarter 01
1990 '.hich ...ilI be operated by the Company.
Restaurant relenue ...as $""Q.l.ooo in the Transition Period com-
pared ...ith S!Ol.OOO in the 1988 Transilion Period. The increase
was due primarily to rer'enues from a restaurant purchased and
temporarily operated by La Quinta in conjunction with an inn
acqUIred in Calendar 1989. This reslaurant was closed during
the Transition Period and cOllstructioo W25 begun on a free-
standing restaurant on the site.
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Res/ilurolll reI,/il1 OIuJ other w-enue includes rental payments
lrom restaurants owned bl La Quinta and leased to and oper-
ated bl.third parties. Also iocluded are lhe Company's interest in
the earnings 01 the two CIGSA joint lentures and miscellaneous
other relenues such as Ihird party renlal revenue from an oIlice
huilding housing the Companys corporate offICeS. Reslaurant
rental and other rer'enue .....s SS.l59.OOO in 1990 compared with
S'.689.OOO in 1989. Restaurant rental and other revenue was
S-I558.000 in the Transitioo Period compared with S5.105.OOO in
the 1988 Transition Period. A one-time settlement in 1988 01
S6;o.000 related to delinquencies from the prior y1!3f was lhe
primary lactor conlributing 10 the higher reslaurant renlal and
other rer'enue in the 1988 Transition Period.
.IloruJgernenI sm*:es w'enue is primarily related to fees earned
by La Quinla for senices rendered in conjunctioo ";Ih the ~lan-
aged Inns. ~tanagemenl belieres management senices rerenue
will iocrease by approximately sel'en to eight percent in 1991
. OIer 1990 due to anticipaled increases in revenues of managed
properties and an increase in the resen..tion fee.
Di",,_toool_
Corpontl "",nll (0001_
Drprmation. amortiulion
and faed assel
reliremtnls (OOOl_
~.~"""
C4/mdJrr1iilr --.._
1990 1989 1989 1988
U::;.B:'2 11::.094 68.571 60,053
S ::1.073 18.8S8 11.387 IO.~
131030
33.571
19.6'l t8.1l6
Direct e.xpenses include costs directly' associated with the opera-
tion 01 Company Inns. Approximately 44% of direa expenses are
represented by salarie~ ...ages and related costs. Other major
categories of direct expenses include utiliti~ repairs and main-
tenance. property taxes. admtising and room supplies.
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Dllect "l"'nses ...ere SI!5.8nooo in 1990 compared with
SII!.09i.OOO in 1989 Direct expenses were S!518 per occupied
room in 1990 compared ...ith S23.39 in 1989. Direct expenses
per occupied room ...ere S!H9 in lhe Transition Period com-
pared ...ith S!1.9; in the 1988 Transition Period. In orderto
become more competiti\e in the senice industr\'s labor mar.
kets. the Compan\ began pl'O\'iding an increased lerel of
benelits to inn empl(J\ee5 beginning in lhe fourth quarter of
Calendar 1988. The iocreases in direa expenses per occupied
room in 1990 and in the 1989 Transition Period resulted pri-
marily lrom increases in salary and benefit costs related to the
new benefil program and from increases in ...urkers' compensa-
tion insuraoce expense. .Additionally. property Iaxes. insuraoce.
security senices and local and regional martceting costs all
increased beyood the rale of in/lation. An increase in Ihe Federal
minimum wage implemenled April I. 1990 resulted in further
increases in direct e.\:ptnses in 1990. .~ second increase in the
Federal minimum ...age. scheduled lor implementation .~II.
1991....i11 result in lurther increases in direct expenses in 1991.
COtpOrtIle "l"'nses ioclude the costs 01 general management.
training and field supel\'ision of inn managers and other
administrative expenses. The major components 01 corporate
expenses are salaries. .....ges and related e.\:ptnses and infor-
mation S\~tems.
Corporate expenses in 1990 ...ere m.073.ooo. an increase of
17% OIer 1989. The increase in corporate expenses in 1990 are
due in part to increased expenses associated wilh lhe Company's
development program and to expenses associated with the
Company's Shareholder Rights Plan and related corporale
governaoce issues. "Additionally, increased costs associated with
a lease 011 the Companys new mainframe compuler S!~tem con-
tribuled to the ioclease in corporale expense in 1990. Corporate
expenses per al'ailable room (including Managed Innsl were
S!.35 in 1990 compared with S2.06 in 1989. Corporate expenses
were SI1.38i ,000 in the Transitioo Period compared wilh
StO.!96.ooo in the 1988 Transition Period. Corporate expenses
per :n1li1ab1e room ~ere S2.10 in the Transilion Period compared
with $1.98 in the 1988 Transitioo Period.
Deprer:iolion. omlJrli=alion and fixtd assn mitet7u!nIs were
S35.030.ooo in 1990 compared wilh S33.571.OOO in 1989. In the
Transition Period. these charges were SI9.67~.000 compared
..ilh SI8.526.OOO in the 1988 Transition Period. Changes in
depreciation and amortization are affected by lhe costs of ne....
inn~ the number 01 new inns opened during each period and
the number of months they were open. Depreciation, amortiza-
tion and fLXed assel retirements "l"'nse also includes asset
retirements associated with the Company's remodeling program
and other capital implOlemenl~ These charges were $1,563.000
and S1.452.OOO in 1990 and 1989. respecli\-ely and S827.ooo and
S66I.OOO in the 1989 and 1988 Transition Periods. respeclil"ell:
19
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For the reasons discussed above, operating income improved
5.9% to $43,488,000 in 1990 from $41.073,000 in 1989 and
12.6% to $26,946,000 in the Transition Period from $23,941.000
in the 1988 Transition Period.
OIber IIICOIlIt' rDeducliolls)
Calt>lIdarJwlr 7Tallsilion~ri()(1
/990 1989 1989 /9H8
Inlerest income (000) $ 8.607 4.849 2,823 3.243
Interest on long-term
debt (000) (;0.292) (42,2\31 124.715) ()<,601)
Interest capitalized (000) 1.321 737 506
Partners' equity in (earnings) and
10",,(000) 18.-i08) (2,596) (1.826) (1.2\1)
Meres/ income primarily represents earnings on the short-term
investment of Company funds in money-market type instru-
ments prioi to their use in operations or acquiring inn~ 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 on the note receivable between La Quinta
Development Partnership (the "Development Parulership") and
AEW Partners, L.P. 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 balance~ the average balance remaining on the
note receivable in the Development Partnership and the interest
rate earned on those funds
11I/"~s/ on 10Ilg-/mn deb/ was $40,292,000 in 1990 compared
with $42,253,000 in 1989. The rednction in interest on long-
term debt in 1990 was primarily attributable to the repayment
of 517,329,000 in long-term debt, offset by additions of $1 5,275.000
during 1990. During 1990, interest "-penses on the Company's
lines of credit totaled 5895,000. Interest on long-term debt was
524.715.000 in the Transition Period, approximately equal to
the 1988 Transition Period.
IlIlerrs/ capi/alized is depeodent upon the number of inns
under construction or conversion, the cost 0( those inns and the
number of months each inn is tinder construction or conversion.
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
5506,000 in the 1988 Transition Period.
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P(//'II/ers I'1lui(I' ill eamil/gSfllltl /o.<ses reflects the interests of
partners in the earnings and losses of joint ventures which are
owned at least 40% by the Company. Partners' equity in earn-
ings and losses in 1990 was 58,408,000 compared with 52596,000
in 1989. The ;'lCrease in Partners' equity in earnings and losses
in 1990 is primarily attributable to the earnings of La Quinta
Development Partners. L.P. The increase in Partners' equity in
earnings and losses to $1,826.000 in the Transition Period from
51.251,000 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 investmenltransactions 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 10 $3,965,000 from $1.838,000 in the
1988 Transition Period.
G(/ill 011 sale of a.<sets in 1990 is composed of several mis-
cellaneous, inmaterial gains and losses. In the 1989 periods
and the 1988 Trausition Period. net gain on sale of assets is pri-
marily attributable 10 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 54.287.000 related to this trans-
action compared with $4.336,000 in lhe 1988 Transition Period.
In 1989, $7,187,000 of the net gain was attribulable to the trans-
action compared with $170,000 in 1990. The gain related to this
transaction had been substantially aIi10rtized at December 31,
1990 and will not materially impact the finallCial results ofthe
Company in 1991 and beyond (see note 12 of Notes to Combined
Financial Statements).
II/come laves. In December of 198i the Financial Accounting
Standards Board issued stalement of Financial Accounting
Standards (FAS No. 96), Accounting for hlCOme Thxes, This state-
ment requires the use of the liability method of accounting for
deferred income taxes and must be implemented no later than
1992. The impact of the Statement's implementation has not
}~t 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
Statement~
If
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Re.'uilsofOperaliolls - Fisc"llfa"
1/1/1 revenue was $177.581.000 in Fisall989. an increase of
$IS..\OI.OOO or 9.4% over Fiscal 1988 The increase in inn
revenu", r",ulled primarily from iocreases in the percentage
of occupancv and Ihe average room rale.
F'......lllhtl,,:
J~, No.;.,'
Inn re'..enue IOOH
P!fCenl:l~oil)Ccup3ncy
:\\.er3~roomrale
SI-.<81
tliO-o
S ~-,~Q
Ib:.:8ll
.11
~.'O
~Ianagement believ", lhe percenta@f of occupancy in Fiscal
1988 was negatively impacted b)' economic diffICUlties in lhas
and contiguous states where lhe Company operales a signifICant
number of inns. as well as a general industry condilion of O\'er-
supply of rooms. The percenlage of occupancy increased 3.9
percentage points 10 6S.()'\; in Fiscal 1989 from 61.1', in Fiscal
1988. Management believes lhe Company's capital impro"emenl
program. lactical discounting programs and impl'O\'ing local
and. regional economies in which many of lhe Company's Inns
are operaled contributed to the increase in occupancy in
Fiscal 1989
The amage room rale in Fiscal 1989 increased !.~', 10
S37.!9 from $36..\0 in Fiscal 1988. Room rates were in-
creased at selected properties effect;,'e January I. 1989.
.Ila/1agemenl sm'ia!s revenue in flSCall989 and Fiscal 1988
repr...nts fees earned for managing 31 inns O\\l1ed by La Quinta
~IOIor Inns Umited ParUlership and nine inns O\\ned by the 1\\1l
CIG~ joint ventur",. In Fiscal 1988. the ParUlership inns w~re
managed for !he enlire !~r and the CIGNA inns were managed
for approximately five monlhs. (Set note 12 of Soles to Com-
. bined Financial Statements.)
Direct e.'qlenses per occupied room were $22.46 and $21.97 in
Fiscal 1989 and Fiscal 1988. respectively. In order to become
more competitive in the service industry's Iahor market~ !he
Company began providing an increased level of benefits to inn
employees beginning in !he second quarter of Fiscal 1989. The
increases in direcl 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 COS1S.
C01pOralee.'qlenses were $17.767.000 and $IS.416.000 in Fiscal
1989 and Fiscal 1988. Corporate e.\l'ffises per 3\'3iJable room
<including ~Ianaged Inns) were SI.99 and $1.78 in Fiscal 1989
and Fiscal 1988. respectively.
o
The increase in corporate expense per available room in Fiscal
1989 was in line wilh inflalrJll. In Fiscal 1988. approximalely
$1 million credil was recorded in corporate expenses relaled 10
developmenl fees received associated wilh the purchase of lWO
inns bv a ioinl "eDlure wilh CIGXA and Ihe fa\1lrable disposilion
of an ~lslanding obligal~JIl accrued 10 expense in an earlier
period on a propert,. openffi tn Fiscall'l8"
fJeprfanliO/1 alld alJ/orli;alvm alld J,,,,,I "'-"'I relirt7/l/!1I/s
expense was $3!.i!3.000 and $ji.8i1.000 in Fiscal 1989 and
Fiscal 1988. respech"elv Deprecialion. amortization and fLxed
asset retiremenls expense Included asset retiremenls associated
with lhe Company's remodeling program and olher capital
impl'O\'ements of $1.!89.ooo and $3.si!.OOO in Fiscal 1989
and Fiscal 1988. respectivel'.
Goil/ 01/ SIIle of_in Fisall989 and Fiscal 1988 is primarily
attributable to amortizalion of the deferred gain related 10 the
sale of 31 inns 10 lhe Parwrship. In Fiscal 1989. gain on sale of
assels included $7.!36.000 related 10 the ParUlership lransac-
lion. In Fiscal 1988. SS.!!6.OOO of lhe 100al gain on sale of assets
related 10 Ihe ParUlership Iransaction and $2.!13.000 of the
100al gain was due 10 lhe sale of se"en inns 10 lhe IWO CIGI>A
joint \"entures.
II/come In.res. For a complete explanation of the Compall!"s
pl'O\'ision for income la.w see nole 4 of Xotes 10 Combined
Financial Slalement~
Capilal Resources al/d liquidity
AI December 31. 1990. the Company had $14.018.000 cash and
shorl-Ierm cash investments including S608.000 in restricted
funds lsee note 8 of:\Oles to Combined Financial Slatemenls).
In addition. the Compan" had SII.200.000 a''3ilable on its
$30.000.000 line of credit.
AI December 31. 199O.1he Derelopmenl Partnership had a
$69.000.000 note recei\..bIe from AEW ParUle~ LP. 3\'3ilab1e to
fund the Company's de\'eIopmenl program. This note recei\'abIe
has been eliminaled in consolidation and wiU be reIlected on
Ihe Company" financial statements as parUlers' capilal as il is
funded. In lhe first quarler of 1991. $18226.000 was funded on
Ihis note. The Company has planned lhe majori!)' of its dmlop-
menl actirilr in 1991 ..iU occur through Ihe Developmenl
ParUlership.
21
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COMBINED BALANCE SHEns
(in thousands, e.wept share data)
La Quilllo Jlolor bills. IlIc.
December 31
1990 1989
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
'lbtal current assets
Notes receivable, excluding current installments (notes I 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 acrompanying notes /0 rombined finandal statements.
$ 13.410 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
$587.149 577.388
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities;
Current installments of long-term debt (note 2)
Accounts payable;
Trade
Other
Accrued expenses;
Payroll and employee benefits
Interest
Property taxes and other
Total current liabilities
Long-term debt, excluding current installments (note 2)
Deferred gain (note 12)
Deferred credits, principally income taxes
Partners' capital (notes 1 and 3)
Shareholders' equity (notes 2 and 5);
Common stock ($.10 par value; 40,000,000 shares authorized,
14.668,074 shares issued)
Additional paid-in capital
Retained earnings
o
Less treasury stock. at cost (1.548,385 and 1,615.783 shares, respectively)
Total shareholders' equity
Com~itments and contingencies (notes 7, 8, 9 and 12)
o
La Quill/a MOlor flllls. file.
December 31
1990 1989
$ 24,002 16,991
6,831 7.285
4.594 5.074
8,058 8.540
1,447 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
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
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0 0
COMBINED STATEMENTS OF EARNINGS La Quillta MolorlmlS. Illc.
(ill lhousallds. ercepl per shart data)
0 Ji>ars elided Sel'en months emied
fuenlber 31 December 31 Ji>ars ended Madl
1990 1989 1989 1989 1988
III/laudited}
Revenues:
Inn $212.025 191,913 118,409 177.581 162.280
Restaurant rental and other 8,159 7,689 4.558 8,236 7,185
Management services (note 12) 6.279 5,994 --1&!! 6,017 5,015 -
Thtal revenues 226,463 205.596 126.578 191,834 174,480
Operating costs and expenses:
Direct 125,872 112.094 68,571 103.576 94.721
Corporate 22.073 18,858 11,387 17.767 15,416
Depreciation, amortization and fIXed asset
retirements 35,030 33.571 19,674 32,423 34,841
Thial operating costs and expenses 182.975 164.523 99,632 153.766 144,978
Operating income 43.488 . 41,073 26,946 38,068 . 29.502
Other income (deductions):
Interest income 8,607 4.849 2.823 5.269 5.178
Interest on long-term debt (40.292) (42.253) (24.715) (42.139) (42,143)
Interest capitalized 1,321 737 1,090 1,289
Partners' equitv in earnings and losses (note 3)- (8.408) (2.596) (1.826) (2,021) (730)
0 Earnings (loss) before property and
investment transactions 3.395 2.394 3,965 267 (6,904)
Gain on sale of assets (net of losses and partners'
equity) (notes 9 and 12) 3 6.302 4.207 6,460 10.592
Earnings before income taxes 3.398 8.696 8,172 6,727 3.688
Income taxes (note 4) 1.223 2.566 2,533 2,018 542
Net earnings $ 2.175 6.130 5.639 4,709 3.146
Earnings per common and common equivalent share_ $ .17 .47 .43 .36 .24
Weighted average number of common and common
equivalent shares outstanding 13.155 13,118 13,148 . 13,045 13,278
See accompanyillg notes to combined jinandal statements.
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0 0
COMBINED STATEMENTS OF CASH FLOWS La Quillla .J/olor IlIns. IlIe.
(in lhousands)
0 Iear.s ended Sel'e111ll0!llbs elided
December 31 December 31 J1>ar.s ended Afal' 31
1990 1989 1989 1989 1988
\ (unaudited)
] Cash flows from operaling actilities:
Net earnings S 2.175 6.130 5.639 4.709 3,146
Adjustments to reconcile nel earnings to net cash
t' provided by operating activities:
Depreciation and amortization of property and 30,645 29,556
equipment 31,714 18,010 29,532
Amortization of deferred charges 1,753 1,474 837 1,602 1,743
Loss on retirement of fixed assets 1,563 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) 2,911 1,906 1,034 42
Undistributed earnings of affiliates 567 571 387 525 1,152
Partners'equity in earnings and (losses)_ 8,408 2,596 1,826 2,021 ---.BQ
Net cash provided by operating activites
before changes in operating assets 42,968
and liabilities 39,m 25.225 34,252 29.319
Changes in operating assets and liabilities:
Receivables (2,565) (801) 1,254 (792) (1.832)
Income tax receil'able (727) (612) 1.041 (1,296) (1.855)
Prepaid expenses (263) (290) (I) (461) (332)
Accounts payable and accrued e};penses_ 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 1,488 780 ~ ---1?1 (354)
Net cash'pro\'ided by operating
0 actilities 42,149 38,463 27,759 29,041 30.648
Cash flows from investing acti\'ities:
Capital %nditures (22,484) (27,082) (12,978) (28,962) (32,304)
Proceeds rom property transactions 1,143 2,020 1.798 315 49.015
Closing and completion costs of joint ventures_ (2.352) (331)
Purchase of inns. net of cash acquired (13,791) (14.712) (9.322) (9.294) (500)
. hwestment in affiliates (745) (745) (15,152)
Special capital contribution (6,269) (3,074) (6,020) (3,316)
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 1,255 ~
Net cash used by investing activities_ (40,104) (43,664) (20.082) (41.923) ---.ill1)
Cash flows from financing activities: '
Proceeds from revolving line of credit and long-term
borrowings 15.200 20,600 2,000 18.600 12.288
Proceeds (repajrnents) of short'term borrowings~ (1,410) 1,603 2.155 1,764 (3.656)
Principal pa)rnents on rel'oll'ing 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) (2,449) (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)
Nel cash pro\'ided (used) by financing
activities (101) (15.819) (27.372) -1!l! (25.340)
Increase (decrease) in cash and cash equivalents_ 1,944 (21,020) (19.695) (9,711) 5,095
Cash and cash equi\'alents at beginning of period_ 11.466 32.486 31,161 40,872 35,m
0 Cash and cash equi\'alents at end of period $ 13,410 11,466 11.466 31,161 40,872
See accompa!l,l'illg !lotes to combined fitltl1lcial statements.
J/ 25
0 0
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
0 (ill thousands) La !}uinta JMor tllns. tllC.
Additional
Common Stock 7/'easury Stock paid-in Retained
Sbares Amount Shares Amount capital earnings 7/)tal
Balances at Mayjl. 1987 14.668 $1.467 (917) $(10.867) 53.357 73.992 117.949
Exercise of stock options 4 4B (22) 26
Purchase of treasury stock (861) (9,642) (9,642)
:'-let earnings 3.146 3.146
Balances at May 31. 1988 [-i,668 1.467 (1.n4) (20,461) 53.335 77.138 111,479
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 87.486 123.193
Stock option transactions 68 796 3.003 3.799
Net earnings 2,175 ~
Balances at December 31. 1990 l-i,668 $1.467 (1.548) $(17.839) 55.878 89.661 129,167
See accompanying notes to combined financial statements.
0 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. 1990 and 1989 and the related
combined statements of earnings. shareholders' equity. and cash flows for the year 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 responsibility is toexptess 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 and signifICant estimates made by management. as well as evaluating the overall
financial statement presentation. We believe that 01lI 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. at December 31. 1990 and 1989. and the results of its operations and its cash flows for the year 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,
in conformity with generally accepted accounting principles.
o
K fJ 1Jl6' feu It{ d1u1idc.,
San Antonio, Thxas
February 22, 1991
26
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NOTES TO COMBINED FINANCIAL STATEMENTS
La Quilllti Motor IlIns, IlIc.
(ll SUMMARY OF SIGNIFICANT ACCOUNTII<G POLICIES
De/emd Charges
Deferred charges consist primarily of issuance costs related to
Industrial Development ReI'e1,ue Bonds, loan fees, preopening
costs, inslalhnenl cosls on Ihe HOlel ~Ianagement Syslem
(HMS), organizalional coSls and escrow deposits on properties
the Company purchased subsequenl to December 31, 1990.
Issuance costs are amorlized over the life of the bonds using
Ihe interest method. Preopening costs and organizalional costs
are amortized over five year~ 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.
The escrow deposits are reclassified to property, plant and equip-
ment upon purchase of Ihe rela1ed property.
Selflnsura'lce 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
whi~h represents Ihe ex']JeCled future payments based on esti-
maled ultimale cosl for incidenls incurred prior 10 the balance
sheet date. Predelermined loss limits have been arranged wilh
insurance companies 10 limit Ihe Company's per occurrence
cash outlay.
II/come To.\...
Deferred income laxes arise principally from timing differ-
ences between financial reporling and income lax reporting of
depreciation, preopening coSI~ construction loan interest, loan
fees and gains realized on the sale of inns.
Inl'estment tax credils were recorded as a reduction of ihe provi-
sion for income taxes in the ~ear realized unlil repealed by the
Tax Reform Act of 1986.
Ei//'/1il/gs Per Share
Earnings per share are compuled on the basis of Ihe weighted
al'erage number of common and common equivalent (dilutive
stock options) shares oUlslanding in each year, Rights under the
Company's shareholder righls plan and shares issuahle upon
conversion of partnership units were antidilutive for the year
ended December 31, 1990. Primary and fully diluted earnings
per share are nol significantly different.
ill LONG-TERM DEBT AND CAPITAL LEASES
Long-Ierm deht, which is secured by subslanlially all property,
equipment and inns under del'elopment, consisted of Ihe follow-
ing at December 31, 1990 and December 31, 1989:
Business {{lid Basis of ?reserllation
The Company develops, owns and operales inns. The combined
financial stalemenls include the accounts of subsidiaries (all
wholly-owned) and unincorporaled ventures in which Ihe Com-
pany has alleast a 40% interest and exercises legal, financial
and operational control. All significant intercompany accounlS
and transactions have been eliminated in combination. Inl'est'
menls in other unconsolidated affiliates in which the Company
has less than 40% ownership interesl and over which Ihe
Company has the ability to exercise signifIcant inlluence are
accounted for using the equity method. Certain reclassifICations
of prior period amounts have il<!en made to coliform with the
current period presentation.
ParJners' Capital
Partners' capilal is shown' net of a $69,000,000 note receivable to
La Quinta Development Partners, L.p. from ~w Partners, L.P.,
represenling a portion of ~W Partne~ L.p.'s initial capital con-
Irihution. Funding of this nOle will be reflected as an increase to
net partners' capital.
Change in lear E,zd
Effective June I, 1989 the Company adopled a December 31 year
end. The accompanying combined financial statemenls include
audiled 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 May 31, 1989. Audited statements of earnings, cash
flows and stockholders' equily are also presented for the fiscal
year ended May 31, 1988.
/'roperl)' arid Equip/nelll
Depreciation arid amortization of property and equipment are
compuled using the slraight-Iine method over the following
estimated useful lives:
Buildings
Furniture, fixtures and equipment
Leasehold and land improvements
30 years
4-10 years
10- ZO years
Maintenance and repairs are charged to operations as incurred.
Expenditures for improvements are capilalized.
CtlSh Equivolen/s
All highly liquid investments with an original malurity of three
months or less are considered cash equivalents. Inveslments
with a maturity of greater Ihan three months are considered
short-term investments.
27
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DewntJer3/ D<r:<mber 31
(ill Ibozl.itmdsJ 1990 191i9
~Iorlgage loans maturing 1991-2016
(II." ..;gilled"",,!,,) S133.009 244.562
Industrial Development Re\-enue Bonds.
m:lluring 1991-2012 00.4% weighted
3\Wage) \Xl.8M 96.66\
Convertible subordinated debentures
maluMng in 2002 (1M.) H,ISO 2J.110
Bank lineofmdil (10\ 31
'''',mber31.19')O) 18.~~ 3.~~
1lJ(,1 .\6S.'Il>l >67.977
less current installments ~4.(m '6.991
~t long-term debl SJ;J.\Xll 310.986
Annual maturities for the four years subsequent to December 31,
1991 are as follows:
1992
199J
1994
1995
$JI.9111
Jl.6lO
]6.191
76,298
Based on managements 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 hal"e been reclassi-
fied as. long-term. Debt assumed in the acquisition of three inns
in fiscal year 1989 and one inn in fiscal y~ar 1988 amounted to
$8,101,000 and $4,746,000, reSpectively.
o
Interest 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, respectively. During the j~ars
ended May 31,1989 and 1988 interest paid amounted to
$42,908,000 and $41,349,000, respectively.
The Company is obligated by provisions of agreements relating
to four issues of Industrial Del"elopment Revenue Bonds ORB's)
in an aggregate amount of SI8,325.000 10 purchase the bonds at
face value prior to maturity under cerlain circumstances. The
bonds have floating interest rates which are indexed periodically.
Bond holders may, when the rate is changed, pUlthe bonds to
the designated remarketing agenJ. tf 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 IRB's as if they will not be subject'to repay-
menl prior to maturity. Assuming all bonds under 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 abol"e for the y~ar ending
December 31, 1992 would increase bl" $16.600,000.
The Company has outstanding 523,150.000 subordinated deben-
tures due 2002. The debentures are com~rtible into common
stock at a conversion price of $20.94 per share. The debentures
are redeemable by the Companv at a current redemption price of
o
28
o
102%. The redemption price declines 1% annually until)une 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 with 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 arrangement~ the Company cancelled the
55.000,000 line of credit inJanuary 1991. Borrowings underthe
530,000,000 line of credit may be made (il at the current prime
lending rate, (ii) based on CD rate plus IIf.% or (Iii) at Euro-
dollar rates with interest based upon pre-established formulas.
The outstanding balance on the $30.000,000 line of credit at
December 31, 1990 was $18,800,000 and S3,6OO,000 at December
31,1989.
The credit lines and certain agreements associated with IRB's
are governed by a uniform covenant agreement. The most restric-
tive covenants preclude the following: payment of cash diI'idends,
merger, sales of substantial asset~ 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 de\~lopment.
The agreement requires the maintenance of effective tangible
net worth (shareholders' equity plus partners' capital) and sui>-
ordinated indebtedness of at least $168,000,000 plus an amount
equal to 70% of net earnings accrued subsequent to November
30, 1989. The agreement also requires the maintenance of cer-
tain financial ratios based on definitions in the agreement,
calculated on a quarterly basi~ including a limitation on debt; a
required current ratio; and certain cash flow requirements.
At December 31, 1990 the Company was in compliance with all
restrictions and covenants, except for the limitation on inl"est-
ments and a cash flow covenant requiring operating income
plus non-<:ash charges and deferred taxes from operations of at
least 1.3 times interest expense, net of imerest capitalized and
interest income plus current installments of long-term debt.
Waivers were obtained for these covenants. Managoment believes
it isprobable certain short-term obligations at December 31, 1990
will he refinanced allowing the Company to comply with debt
covenants in subsequent quarters.
(3) UNINCORPORATED VENTURES
Summary financial information with respect to unincorporated
ventures included in the Combined Financial Statements
follows:
II
0 0
lJro!f1111er31 /Jt!tl'mlwrj/ The effective tax rate varies from the statutory rate for the follow-
fillllx'UflllllilsJ 1990 1989 ing reasons:
Currenlassets $ 15,JQl 6.121 ,.... .'iftmtnOl.
Current]jabililies 23,42i 11,041 lftm
0 .."'" "'''''' .-
Deficit in I,\urkingcapital (8.119) (4.920) /Jtcembw31 f'J;.<am"")! lki:I'Jl
~I properl~; equipment and inns filltholliitJlU41 1m 1909 1909 1911II
under de\'elopment lOS,'I41 I.H,8'16 T3.'\ rxpmse at s{:IlU~' r3le SUiS 2.778 .!.!If' 1.191.
Long-Iermdebt (116,991) (91.617) ~linimuml;l,\ 16111 '09
Deferred credits (618) (616) [ll\\5lmentta.'((credil)1tClIptUft 9 . .9 (f!'1I
Other assets. net 8,734 3,885 Targttedjobuxcredil U9i) (113) (1-:"81 lilJO)
(apilalgailll (II) (212) ur') C;.!jl
Net assets $91,347 41.568 StaltillCOOlttaxes 117 06' l!! 111
-,net 150 (191)) ~ ~
Equitrin net assets:
Companr $ 54,077 J234S PIOI'ision(or
incolTlelaxe SI.2l3 2,;33 2.018 s.'
Partners (Note I) 37,270 29,2l3 -
$ 91,347 41.568
,... Stn." montIJs ,....
- - -
..... StlffllIfORIbI .... _JI _J1 .I~JJ
"""" .ui<d ..dH/ (Ullbowit,tds) 19!XJ 19119 19119 19118
_JI _J1 .1k(rJI
(inIboUSlltlds) 1990 19119 19119 19118 IlIcomeIaxtSpaid ~JSS 1,191 59'J ~
""""" IlOS,SS4 43.211) 69.196 '"J18 Income tax refund5 SlS4 2,715 96 678
Coslslndexpcnses ~ ~ 66.2..2 6l,l30 -
Pretax earnings $ 1~.O25 3570 lJSoi 1,198
(5) STOCK OPTIONS
Equi~'inprtt.umningsand The Company's stock option plans co\~r the granting of options
10.." to pun:hase an aggregate of 2,157,500 common shares. Oplions
Campan!. $ 6.617 1.7+1 1.3.'5 "9
Partnen:optfalions 8.... 1~6 2.021 730 granted under the plans are issuable to certain off'lCeB and key
...,..Je 19 employees at prices not less than fair market value at date rJ grant.
$1),02) 3.'i70 lJs. 1.198
- Options are generally exen:~able in four equal instalJments on
(4) INCOME TAXES successive anniversary dates of the date of grant and are exeltis-
able thereafter in whole or in pan. Outstanding options not
0 In December, 19871he Financial Accounting Standards Board exen:ised expire ten years from the date rJ grant. Activity in the
(FASB) issued Statement of Financial Accounting Standards plans during the two year.; ended May 31, 1989, the seven months
No, 96 (FAS No, 96\ Accounting for Income Ta.",~ This State- ended December 31, 1989 and the year ended December 31, 1990
ment requires the use of the liabilIty method of accounting for Is summarized as folloo.:
deferred income taxes. The impact of the Statement's implemen- qmo" ToIal
tation has not been determined by the Company. The Company Number price ~/l
ptans to implement the Statement in 1992. of TOI1[II!S prit,
""'m per""," (in Ibo""lHtlsi
The provision for income taxes consists of the following: Ouotanding May 31, t!l87 799,6Il $ 4.85-24.38 9,l;1
Granled 1'16,750 10.44-13.31 t,63;
ltar Stt'tf,montbf: ,.., Cancolled Of .xplred (64,501) 5.10-17.88 (8~2)
m<<d nulod nulod - (l5,54?) 6.68-12.84 (290)
DtcnIIINrJ/ -31 .l/n,l'31 OuOIanding llay 31,1988 &\6,314 $ 4.85-24,38 9.7ii
finlboMsnndrJ 1!J9{I 1989 1989 1911II Granled 127,050 1'.81-15.75 U;97
Current: Cancolled Of expired (13,679) 10.65-17.88 (18;)
Exen:iSed (169514) 4.8S-13.13 (I.m)
FftlmJ $ -\.07~ M9) (509' (U92}
... "'" 100 "' (47) Outstanding May 31.1989 790,171 $ 6.ool4.38 10,051
Defemd. resuhilll from: Grani<d 171,000 14.44-17.44 2.833
Ileprtc:ialiotl l).f9) 1.96S I.m )29 Cancelled or expired (48.631) 6.0016.16 (710)
CapitalizedloaninleftSC )61 !1i l89 3;0 E.xercised (6S,l71l 6.oolS.1Jl (6901
S1attillCOOll!l2.U5 Cl87) 10" 7-\ 102
Installmenl_ iiI) /2771 !l2Il ('iO~1 Ouotanding December 31, 1989 844,l69 $ 6.72.l4.38 11.48<
Defemdgain. 69 1,16) 2.1'i) 2,0:\8 Granled 135.543 1l.l3-16.16 l.OOO
PartnelS'loSslttOgllizedby Cancelled or expired (38,119) 10.65-17.88 (;82)
'"the Compan!' (9) i!2) 0{)9) (61) E>en:io!d (90,548) 6.7J.15.1Jl (9rl
Equ-- (491 (1.1) (!~) (16<,
ExpensepfO'isions (90'}1 (93) ;S (8~1 0uISlandin81lecember31,1990 851,145 12.0..;
Neloperatirck:u ExercOab~ ai,
caI'I1b:u:Il/(C&rI1forA.-anll 19; (IHI 198 _'31,1989 416,430 $ 6.72-l4.38 1.S31
Preopenillg~ (140) 0$) mil (357)
~Iillimumt.u (I ,1m) um 16191 '" 1lecember31.1990 444.867 $10.44-l4.38 6.13;
T""""job
la.~aedit (~IO) Arailableforfuluregranlsal:
Other,lIet ~} 1(,6) I" IS) D=nber31, 1989 50'),381
0 Pl'OIisionfor
incomel3X5 SI,U3 .2.m 2,018 "il _'31,1990 390599
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No charge; ha\t been made 10 earnings for these options. Upon
exen:ise, 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 tenns of the La Quinta Development Panners, L.P.
pannership agreement, AEW Partners, L.P. has the ability, after a
'tsting period, to convert 6M\% of its 40% ownership interest in
the limited Pannership to 2,439,000 shares of the Company's
Common Stock. The Partnership units may be converted o'tr the
seven year period beginning December 31. 1991.
During 1990 the Company adopted a shareholder rights plan
under which the Company issued rights which cumndy trade
together with the Company's common stock. The rights are not
cumntiy exen:isable. The Company's Board of DireclOrs may. at
its option, redeem all rights for $.02 per right. The rights will
expire October 9, 2000 unless earlier redeemed by the Company's
Board of DireclOrs.
(6) PENSION PUlNS
The Company has defined benefit pension plans covtring substan-
tially all its employees. The Retirement Plan and Trust of
La Quinta MOlOr Inns, Inc. (the Plan) CO,tred substantially all
employees through December 31,1988. EIIecti'tJanuary 1.1989,
all highly compensated employees were excluded from active par-
ticipation in the Plan. The Supplemental Executive Retirement
Plan and Trust (the SERP) was established by the Company,
effective January I, 1989,10 cover these employees.
Benefits accrning under the Plan prior 10 December 31, 1988 were
based on credited years of service and average compensation for
the highest five consecutive years out of the last ten years of serv-
ice. Benefits accrued as of December 31, 1988 under the Plan
(including benefits accrued for employees covtred under the
SERP) were frozen. Benefits accruing under the Plan subsequent
10 December 31, 1988 are based on one pen:ent of each year's
compensation (with a minimum benefit accrual based on the
prior formula and 1988 earnings). Benefits under the SERP are
based on years 01 credited service and average compensation for
the highest five consecutivt calendar years out of the last ten com-
pleted calendar years of credited service. The Company's funding
policy is 10 contribute annually the minimum amount required by
Federal regulations.
During the year ended Manl, 1989, the Company adopted an
amendment and appro,td a restatement of the Retirement Plan
and Trust of La Quinta ~Iotor Inns, Inc. which made sevtral other
modifications 10 the Plan: the most significant of which included
changes in the benefit formula and a change providing for 100',
o
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 included in
the tables below.
The following table sets forth the funded slalus and amounts
recognized in the Company's combined fmancial statements
for the Plan at December 31. 1990 and December 31. 1989.
(in thousands)
Actuarial present ~"3.lue of benefit obligations:
Accumulated benefit obligation. including vested
benefits of $5,280 fa' December 31. 1990 and
$4.985 for December It. 1989
Projected benefit obIiga1ion for service rendered to date
Plan assets at fair value. primarily listed stocks and CD's
Projected benefit obligation in excess of plan assets
Unrecognized net asset atJune I, 1985 being recognized
over employees' average remaining selVice life of
6 years
Cnrecogni2ed net loss (gain) from past experience.
different from tho'll assumed
l'nrecognized net loss (gain) from current ye'Jr
modifICations
Accrued pension cost
lkembtr jl
/990 1989
$(6.11n (5.711)
$(7.3Ol) (6.997)
5.288 6.276
(l.om (7l1)
(!>>) (lll)
J9l (551l
tr9) 16Il8)
$(Z.l9:') U,.!8~)
The following table sets forth the funded status of the SERP and
amounts recognized in the Company's financial stalements
for the SERP at December 31, 1990 and December 31, 1989.
(in lbonsnnds)
Actuarial present value of benefit obligations:
Accumulated bendit obligaJion, including vested
benefits of $133 for December 31. 1990 and $289
for DeremberIt.1989
Projected benefit obligation for service rendered to date
Plan assets at fajr value
Projected benefit obligation in elfCeSS of plan assets
Unrecognized net loss (gain) from past experience
different from that assumed
Unrecognized net (loss) gain from current year
modifICationS
Accrued pension cost
December 31
1990 191i9
$ ml) (lOll)
$(l,,64) (l.l50)
<3.16\) (l.350)
676 l44
l.lll 1.189
$(1,476) (6m
At December 31, 1990 the Company had accumulated $666,000
in a trust account intended for the use in settling benefits due
under the SERP. These funds are not restricted for the exclusive
benefit of SERP participants and their beneficiaries except
that in the event of a change in the Company's control. such funds
become reslricted for the exclusil'e benefit of SERP participants
and their beneficiaries.
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1'Iet pension cost for the year ended December 31. 1990, the
seven month period ended December 31. 1989 and Ihe lwo years
ended May 31. 1989 included the following components (the
year ended December 31. 1990, the seven month period ended
December 31. 1989 and the year ended May 31. 1989 included
components for both plans):
Dtmnber 31 .lloy31
(n,'hoUSt11lds) 1m 1989 1989 1988
Sen'lce cost (benefits earned duril1l the
per;od) $1.~54 198 927 911
Interest cost on projected benefl_ obIigaUon 88~ 410 6t6 164
Actual return on plan asselS lIB (810) (686) 51
tiel amorllza1io1l and deCell1l (691) l86 (93)
Nel perkldJc pe_ COOlbem aIIocatioll to 1.654
Managollnns 584 857 m
Cost .UocaJed to Monagollnns $(l2l) (38) (Ill) (12'))
Net perkldJc pension cost $1.133 546 744 648
- -
The assumptions used in the calcula1ions shown above were:
D<<ember 31 .110)' 31
1m 1989 1989 1988
4-7.21' 4-7.71 4-7.71 4-8.25
8.75 9.50 9.50 10.00
(in I_lids)
Discount rate (post..decrement)
Discount rate (prHecl'ement)
Expected lOOg-term rate of relurn
on...."
Rate or increase in compensation It\'els
9.00 9.00 9.00
5.5-7.55.5-7.51.5-7.5
9.00
7.5
(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 al fair market values at the conclusion of the initial
lease terms.
Future minimum rental payment~ by year. required under oper-
ating leases that have initial or remaining noncancellable lease
terms in ~ of one year at December 31. 1990 follow:
(in I_lids)
$ 1.88~
1.724
I.411
1.076
445
6.116
S12.675
1991
1992
t99~ _
1994
1991
later years
lbtal minimum payments f!qUired
Thtal rental expense for operating leases was $4.075.000 for the
year ended December 31. 1990 and $2.071,000 for the seven.
months ended December 31. 1989. During the ~ears ended
May 31, 1989 and 19B8tOlal rental expense for operating leases
amounted to $3.497,000 and $3.283,000, respectively.
o
(8) COMMITMENTS
AI December 31, 1990 the estimated additional cost to complete
the construction and renovation of inns for which construction
commitments have been made is $2,296,000. Funds on hand.
committed and anticipated from cash flow are suffIcientlo 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~ financial position or results 01 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, 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
summarized below:
(in I_lids. e:o;tpI Fint S<<xmd 'II1inI FourIII
(JIr sI10re ddla) 'i""'*'. 'i""'*' 'i""'*' 'i""'*'
Year ended Ile<ember ~l, 1990
Re\-enues $52,701 . 59.m 6~.1l8 5OB57
Operating income 9,625 14.914 15,4~1 3.114
Nel earnings (lnS>) (7m 2,6.'6 ~.161 (2.89\)
Earn;ngs (loss) per share (.05) .20 .24 (0.22)
)ear ended December 31. 1989:
Revenues 145,t83 13.597 58.8~5 47.981
Operating income 6,59~ 13399 14.817 6.224
Net earnings (loss) (673) ~.t61 4,489 (847)
Earnings (loss) per share (O.OS) 0.24 0.34 (0.06)
Year ended Ilecember 31, 1988.
~ues $40,906 46.851 52,229 43.282
Operating income 4,819 9,186 12.961 5,49\
Net earnings (loss) 11.256) 1.493 ~.2n (930)
Earnings (loss) per share (0.10) 0./2 0.25 (0.07)
Net earnings In the fourth quarter 011990 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-
lion expense~ 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 nr $.02 per share.
31
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Second quarlet resulls for 1989 and fourth quarter results for
1988 were unfaWll'ably impacted by $650,000 ($.05 per share)
and $615,000 ($.05 per share~ respectively of investment tax
credils 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 faWll'ably impacted by gain on
sale of assets of $1,203,000, $783,000, $1,318,000 and $1,049,000
or $.09, $.06, $.10 and $.os per share in the fIrsl through fourth
quarters, respectively.
(U) TRANSITION PERIOD RESULTS (unaudited)
For the seven months ended December 31, 1988 revenues were
$U2,816,ooo, operating income was $23,941,000, income taxes
were $1,985,000 and net earnings were $4,218,000 or $.32 per
share.
(12) RELATED PARTY TRANSACTIONS
lQAt Operating Partners, l.P. Disposition
In October 1986, the Company sold 31 inns to LQM Operating
Partners, L.P. ("the Partnership") owned and controlled bv
La Quinta Motor Inns limited Partnership, a publicly lrad~
master limited partnership. M. December 31, 1990 a gain of
approximately $1,865,000, net of partner~ equity, remains deferred
on this sale. This amount may be recognized over Ihe period
January I, 1991 through July I, 1998 as the Company's obligation
associated with the debt assumed by the Partnership expire~
The Company's obligation 10 fund a guaranlee 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 wholly-
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 by
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, 199Q, the seven months ended
December 31, 1989 and the years ended May 31, 1989 and 1988,
respectively.
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;Ifanogemen/ Services Fee
All inns owned by the Partnership and by two joint venlures with
investment portfolios managed by CIGNA Investments, Inc. (the
"lentures") 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 lentures 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 Ihe year ended December 31, 199Q, 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.
OIher Recurring 7Trmstlaions
Under the terms of the master limited partnership agreement,
the Company or its afllliates are responsible for managing the
business and affairs of the Partnership and are enlilled 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 pays all direct operating expenses on behalf of
the Partnership and the lentures and is reimbursed for all
such payments.
(13) FINANCIAL INSTRUMENTS
At December 31, 1990 the Company held notes receivable due
from issuers amounting 10 $l1,864,ooo.The notes receivable
relate primarily 10 lhe 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 Olher party to these
financial instrumenls is dependent upon lhe fair market value of
real estate property used as security and may include payments
made to third parties (laxing authorities, etc.) to secure a firs!
lien positioIt Given the Company's estimate of the fair market
value of the real estate held as collateral no material losses are
anticipated in the evenl of nonperformance.
II
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DIRECTORS
c
o
Sam Barshop..
Chairman of the Board of Directors
Philip M. Barshop.
Reat blate tn"ester, Sail Alltollio
Mrs. Rita C. ClemenIS-
Primte Im'l!Stor, Dallas
Dr. William H. Cunningh:uno..
Presidellt, Unit>ersilJ' of 'fexas al Austill
David B. Davisso
ExeaJfil'li \fee PresiIienI & Chief Operating Ojfiar
R, Ted Enloe, mt
Presitknt, Lomas Financial Corporation, Da/las
Tom C. Frostt
Chairman of the Board of Directors of Cullen/Frost
Bankers. Inc, and Chairmall of the Board of Directors,
Frost National Bank. Sail Anlollio
Edward B. Kelley..
. President. l&4 Real Esln/e DiI<siOIl
o
George Kozmetskyt
Director of the Ie' Instilule, Unil'llrSil)' of
'few,Austin
Chris J. D. Rotet
Ifce Chairman of ,I/errill 4l'nch BusineSs Brokerage
& la/uation
Alden E. 1l'.Ignert..
lIRit/ Eslnte IntJeSlor, Dallas
. Member of the F:tecutit'li CommiJlee of the Boarri of Directors
t Member of the Audit CommiJlee of the Boarri of Directors
. Member of the Compensation CommiJlee of lhe Boarri
of Directors .
. Member of the Marketing Commillee of the sOard
of Directors.
..IIemher of the Stoa q,tion Committee of the Board
. of Directors
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OFFICERS
Sam Barshop
Presiden/ & Chi~ Ereculil't OffICer
David B. Da\iss
Erecutil'f! Hee Pn!sidelll & Chief Operating Officer
lIIaher J. Biegler
S~mior IIct' President - Filllwce
Francis P. Bissaillon
St11ior IUt Presiden/ - Adminidralion {; lhw.slIrer
Alan L. Tallis
Sellior Wee President - Del'etopment
.Jerry N. Wiggins
Senior Wee President - IjJemlions Support
Allen I. Bassuk
Wee President - RisIt Management
Roland B. Bliss
11ee President - IjJerations Profrcls
James M. Blomstrom
l7ce PreSide111 - Opera/iOllS. Eastem Dil'i.sion
Marilyn K. Iloldrick
lke President - General Counsel
John D. Bonifield
Wee President - MarIIe1ing
Norman S. Davis
Secreta'J': Parhler. Dtu'js & Cedilto. /I'rorpora1ed
Charles A. Gange
lke President - Cons/mdion Sen'kes
Richard A. Gerhart
!'lee Pre..ddenl - Opera/ions. Ueslfm Dil'ision
Thomas G. Gruidl
17" I'rr!sident - Internal Audi/
Charles F. HamIen, Jr.
17ce President - tnformation ~)'lems
Michi!1e F. Henlde
lke' Pre.\iden/ - Rfsen'a/iollS
Dennis R. Hill
lfce President - Operation."" Celltral Dil'ision
J. Knox Huff
lfee President - Opfraling Systems
Daniel If. Mallum
\7ee President - Property Serl'ices
Mich2eI A. NosiI
IJee Pmideri/ - Personnel
Richard F. Roeben
I ice President - Purchasing
William G. l'andenBosch
t.ke President - Archllee/llre, Design S Constrllc/ion
William F. lllaechter
17ce President - Controller
33
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CORPORATEIN~nON
. . LAQUlNTA MOTOR INNS, INC..
La Quinli Plaza, :, >.'
10010530 Pedro Avenue ,
p.o. Box 790064 ':.',
san Aiuonio,has 78279-0064 .
51V366-6000
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'. . ,'TiiCOI)lpany$ a;~~onst~ is listed on the N~York:" .
.' ,Stock Exchange and is traded under the syrnbol"l.QloI'" ": .
.The f~U?Wingiableprovides, for the~ ended~ '
ber3t,:I990and 1989,.~ ~ge of the higband low' '.. ' .
Sales prices as reported by ,he New York Stock~:, ":.
, , .. . " '. 1990 1910 '..'
'. .\ .'. '.~
High Low . High,' Low-
16~ "I4-\k 19A! .13
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AUDITORS
KPMGPeal Marwick', . ,
. '112' EastPecaJi Siriie 2400;.", ..
.. , ...' -,' :>: , -~. . ' .'. ,-.' '; ',', ,"
'(" Sa{lAiltonlo;lWs]8205-1505,:
.-.,,<." ....--:.~rj:;.~ "','\,":- :; ,''-;". .
First quarter '.
Second quarter
Third l!iJarter
'. Fourthquarler,
- ',~ ." .) . ',' '.
"". ,"TRANSFERAGEm' AND REGISTRAR' :."
, , --:.Ai1tcliirtge iii~~ lIlkIfesS shoutd ~ di~~'I~:.' '.
writing io the cOnlPany's 'Il'arisfeiAgeni and Registrar' at', ,
.- the 3ddress'beIoiv:" , . "
"
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. NCNB has National Bank
p.o: Box 831402 ,
'. DaI13s, has 7528~1402 , .
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10-KAViIMBILrrY. . . .
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.chatge,a (Jfiyof the {;ompanys Aimtiaf$R{xlrt On " " .'
Fimn ID-XjiJed wilbtbe SecuriJie$ an4 Exchange , .
, Coinmissfonp".the yeQr eNIed lJ<<er1Wer31, 1!J9Q' ....... '. . '.; '.;\.,::", .
. " . . upon wriIIen request addre&Ted /(J Jam Armstrong, ',.
. . Di1ictorFinancio1P1anning,La(JuintaM%rlnns,Inc.,. .',
'P.O, Box 790064, $an:Anbmoilkras 78279-0064, .
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AIIOUT lIE ClM'UY
COliJElTS
La Quinla Motor Inns, Inc. deveklps, owns and
Leu.r toShareholders 1 operates lodging facilities designed to provide
Inn Locatiom 16 guests with quality accommodations in 00I1I'eI\-
Business Description 17 ieIt locations.. La Quinta\ product is a clean,
Selected FmanciaI Dala 20 quality room, consistatly delivered with friendly
ManagemenB Discussion and Analysis 22 guest service but withoot room service and
Financial SlaIemmls extensive common areas such as banquet and
Combined Balance Sheets 26 convention facilities or an on-premise restau-
Combined SlatemenIS of Eamin~ 28 rani. The major soorce of La Quinla\ customers
Combined SlatemenIS of Cash Flows 29 are thooe travelers who desire quality
Combined SlatemenIS of Shareholders' Equity 30 accomodations for short business trips.
AuditoB' Report 30 The typical La Quinla Inn is located along an
Notes to Combined Financial Slalemenls 31 interstate highway or major traffIC artery, con-
0 Directors and 0I'ficm 37 venient to businesses and contains 100 to 175
Stock Prices 38 guest rooms. La Quinta Inns have 24-hour front
Corporate Information 38 desk and message service, convenient parking,
same-day laundry service, a swimming pool,
color television with "Sh<mtime4l" and free
local telephone calls. [/
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TO OUR SHAREHOLDERS
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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 year's
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. 1 would like to discuss some of the
strategic investments we have made to prepare the Company for the 1990's.
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Human IIesourc8s
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 improving the quality of
the work force.
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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 approximately $1,000,000 in calendar 1989), our focus is long-
term, over 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 hourly employees from previously 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 ~'Pes of training programs
include a certification program for front desk employees, and housekeeping and mainte-
nance seminars conducted at a regional level to develop supervisory and functional skills
in property-level personnel.
Other programs have been designed to encourage employees to share ideas with manage-
ment, particularly in the area of customer service. 1\vo 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
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to improve the quality of our product and customer service. ~
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.
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Hotel Man.g..... SyaIIII
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.
~ did this about seven years ago. As 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 saving; associated with the new computers. RoIIoot of this new system is nearly
complete and will provide greater capabilities in three areas important to our success in
the 1990s: yield management, reservations and customer service.
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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
I990s 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. ~ 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.
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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 Wla1s of our new system is easier check-in and
check-out procedures to allow for more personal contact between the employees and
guests. ~ 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 1990s as customers have
more lodging choices. ~ are confident that we have invested in programs which will
o enhance our 1evel of service in the 199Os.
1IeI8I.atIonI
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 Airlines$ and United Airlines$ reservations systems) using a network developed by
Avis called W1ZCOM$. This network allows a travel agent to make a reservation at a
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La Quinta Inn and receive a confinnation 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 sharehokler in a leading edge company called TIIISCO (The Hotel
Industry Switch Company), owned by 15 lodging companies, which is developing a futur-
istic link between airlines and each companys 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 companys
own reservation system, thus reducing duplication and maintenance of information
in numerous systems. Our involvement in TIIISCO should satisfy our communication
requirements through the 1990s and beyond.
RlIIIllWIlIon JII'IIII"III
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 Thxas and the contiguous states. In 1986, our
Thxas occupancy was ten percentage points above the market average of 47.6%. In 1989,
that premium increased to 14 percentage points. ~ 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.
IIenIapI-'
Since 1987, when our development efforts were scaled down because of industry overbuild-
ing and a weak Thxas economy, our focus has been acquiring existing inns at distressed
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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.
1b fund our developmmt 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. ~ believe this is a significant transaction
for our sharehokiers 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. ~ 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
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LA UTl_1.lICATmI
as of December 31, 1989
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........ ......
Birmingham AlIa1ta (8)
Hurtsvil~ (2) Aususta
Mobi~ Columbus
MonllP""Y Sawnnah
ThscaIoc.a
HliIaII
~ Champaign
Phoenix (2) Chiall> Metro Area (5)
Thcson Moline
AIlIII.- .........
Uttle Rock (4) Indianapolis (2)
MerriIlviIle
l;JIIlflIIlIiI
BakmfieU II.-
Casta Mesa l.enex2
Fresno Wichita
Irvine
Sacraneto IfIIIlIIcky
San Bemanlino Lexingtoo
San DieD> (3)
San Francisco l,""
Stockroo Balon RooF
Iirtura _City
LafaJette
CoIorIda Mooroe
Colondo Spring! New Orleans (5)
0erM!r (7) Sulphur
Florida MIcII...
CEarwater Kalamazoo
Deerfiekl Beach
Fl.Myers Miaialppl
Gainesvil~ )ackson
Jacksonvil~ (3)
Miami Mi-.ri
Orlando (2) SlLwIs
Pensacola
PinelIas Park AIlIIIIb
St._11\ Omaha
Tallahassee (2)
Tampa (2)
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Las l;gas Harli"ll'" LAUTl_
Reno _ Metro Area (14) FIarida
KiIftn
Ilew MuIco La Porte Orlando
Albuquerque (3) Laredo ...
Farmingtoo I.ongview
Santa Fe Lubbock Cincinnati
LufIdn Daytoo
Ilarlb CIraIInI Midland "-
Charlotte (2) NlIClIlPIoches
Odessa Denon
01110 San Angr:b Fort 'Mnh
Columbus San Anlonio (II) McAllen
Thmp~ 0JIIEIl
Old... Thxarlcana
Oklahoma City (2) 1exas City "-
Thlsa (2) 1\'1er ArIingtoo
I'iclllria E1Paso
Plnnsyllaala Waco -
Pittsbu'1lh WIChita Falls San AnIooio
SaalII CanIIInI UlaII
Charleston LayInn
Columbia SaIl Lake City
Greenville
Virginia
Ten.. Hampllln
KnoX\il~ Richmood
/.\efnphi' (3) Virginia Beach
Nashville (2)
WaIIIIngtun
TellS Seattle (2)
Abilene Tacoma
Amarillo (2)
Au~in (4) Wyoming
Beaumont Casper
Bruosporl Cheyenne
BrownsviIIe Rock SpriDg!
College Station
Corpus Christi (2)
Dallas Metro Area (I2)
Eagle Pass
EI Paso (3)
Fort lI'orth
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BUSINESS DESCRIPTION
PRODUCT
La Quinta Motor Inns, Inc. ("La Quinta" or the
"Cornpany"1 its midiaries and unincorporated ventures,
develop, (7,YO and operate inns in 29 states. La Quinta is
inco1JlOfllled under the IaIls Ii 1exas and mal1iains Its
em:utiYe olftceS at La Quinta Plaza, 10010 San Pedro,
San AnIonIo, 1exas 78216, telephone (512) 366-6000.
Inns operaIfd and llc81sed by La Quinta are IQltiooed in
competltion with other majcc kxIging brands. The major
soorce Ii Its customers are those business tmeIers who
desire high quality rooms, amsistemly deINered, and whose
. needs do not include banquet and OOIII'l'Ition facilities,
on-premise restaurants and room service. The ahlence Ii
these extensil'e facilities enables La Quinta to offer k7.ver
rates than those charged for COIlIpmbIe rooms at full
service hotels.
La Quinta~ typical inn is located along an interstate
highway or major tralflC artery COIlYl!lienl to businesses,
contains 100 to 175 guest rooms and provides 24-hour front
desk and message service, colMJlienl parking, same-day
laundry service, a swimming pool, in-room color televisions
with "Showtimea" and free local telephone ca&. La Quinta
Inns are typically of hlgh-qua1lty masonry construction.
hi Quinta generally contracts with third parties at fIXed
prices for the construction of new inns and restaunuts. La
Quinta uses all masonry construcllon to deI'eklp a buikling
that Is structura1Jy sound, 6reprori and energy effiderL
The Company also purchases existing inns with similar
quality characteristia for COI1l'elSIon to La Quinta inns.
o
La Quinta considers the selection of sites for its inns to
be among the most important factors in its business. Sites
are cham for guest COI1I'elIience and are generally readily
accessible to and visible from interstate highways and major
traffic arteries. Other major site criteria include proximity
to office centers, ceiraI business districls, COIlIIIIeItial
and industrial COlICelUalions, medica1 and educational
compExes, regional shopping ma1Is, military bases and
airports. La Quinta~ expansion strategy Is guided by the
concepts of: (I) clustering - bu~ multiple inns in
the same metropolitan area; (2) adjacency - locating new
inns within appl'OldmalfJy three hundred miles Ii existing
properties; and (3) filling in - IIIOI'ing lito smaIEr dtles
(populations under 100,(00) within existing market areas.
Food service Is typically provided by an adjacert, free-
standing restauraIt operaIfd by a natlona1 or regIona1
chain. In many cases, La Quinta provides funds for COIl-
struction of the restauranI bu~ pursuant to a buikl-
to-sulllease requiring the operalir to pay all expenses Ii
maiIienance, taxes and Insurance. Alternatively, La Quinta
bullis an inn adjllClili to an existing restauraIt. In either
case, La Quinta Is free from the managenBi respon-
sibililles Ii providing ilod service. At necember 31, 1989
La Quinta had an ownership iIUrest in 98 restauraIts
leased to and operaIfd by third parties.
ThlepOOIl! reservations for accommodations at any
La Quinta Inn can be made free of charge through
La Quinta~ nationwide "teLQuj][4t" reservation system, as
well as through reservation telephones in the klbbies of all
La Quinta Inns. "La Quinta"and "teLQuik" have been
registered as service marks by La Quinta with the U.S. .
PaIeIt and 1\'ademark 0tJlce.
COMFETITION
Each La Quinta Inn competes in its market area with
numerws full-service kxIging brands, espeda1lyin the
mid-priced range, with numerws other hotels, motels,
motor inns and other lodging establishments. La Quinta~
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competitors are too numerous to estimate; however, there is
no single competitor that dominates the kxIg1ng industry.
The properties ~ in the mid-priced, limited servicE
market segmenl ci the kxIg1ng industry.
The lodging industry and the business ci La Quinla may
be adversely affected by national and regional economic
conditions and IJlIUDIIIeI1I regulations which inflUfJlCe
or detennine wages, prices, inlerest rates, construction
procedures and costs and the availability ci credit The
demand for accommodatiom at a particular inn may be
adYersely affected by many factors including changes in
IrlMI patterns, kx:aI and regional economic conditions and
degree ci competition with other inns in the area.
The demand fiJr accommodations in II1Ql\ properties is
higlEr Monday thrwgh Thwsday, when there is a high
volume ci commercial travel Demand, and thus room
occupancy, is also affected by normally recurring seasonal
patterns, and in II1Ql\ La Quinla Inns is higIEr in the
spring and SUIII11let months (March thrwgh August) than
in the balance ci the yeat 0Yerall occupancy leYeIs may
also be affected by the number ci new inns owned by the
Company and the length ci time they have been in
operation.
OWNERSHIP
fts part ci the CompanyS Iong-tenn financing strategy,
La Quinta, from time to time, eIiers into joint ventures or
other partnerships. The CmIpany and a ro-venturer or
limited partner. share awnersIIl[i ci an inn or inns. The
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Company~ partners typically provide klng-tenn debt and/or
equity. La Quinla manages the inns and receM!s devekJp-
ment and managemmt fees. The ro-vemurers generaIIy
share profits and laises and any residual value in the inns
in the same ratio as tIm ownership interests.
Management ci the Company beliews joirt ventures and
partnershi~ have enabled the Company to expand to a
greater exIeIt than wookl have been feasible by using only
Company capital, whiE maintaining a degree ci opera-
tional COIUOl over service quality that is not possible with
franchising.
77Je Prudentiallnsurance Company if America has
been a joitt Venture partner with the CmIpany sioo! 1971.
. fts ci December 31, 1989, The Prudentla1 and the Company
owned 27 La Quitta Inns and 15 free-standing restaurants.
The Company and the 77Je M~ Life lnsuTfl1ll:e
Company have been joiIi venture partners sioo! 1981. fts ci
December 31, 1989 the venture owned eight inns and four
freestanding restaurants.
In December, 1987. the Company IOrmed two joitt ventures
with illYeSlmelt portfolios managed by CIGNA 11lYeStnms,
Inc. The Company maintalns a 25% ownership inIeresI in
each ci the YeIiures, and manages the inns in aa:ordana!
with klng-tenn managemmt contracts. fts ci December 31,
1989 the ventures owned nine inns and six freestanding
restauranlS. ,
Other large institutional lenders with whom the CmIpany
has joint venture I'l'lationshlps include N/!IIJ Jtn:t Life lnsur-
ana Company and 77Je LinaJ/n NaIiunaJ Life lnsurance
Company.
In October 1986, the Company sokI 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.
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The Company selectively licensed the name "La Quinta" to
others for United States operations unIil FebruarY. '1}77 al
0 which time La Quinta disconlinued a domestic Iimling
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 ri inns in the
La Quinta system al December 31, 1989.
14Qti;nta
/4 {JuinIa Itms Itms III10mr Equ/tJa/en/ III10mr
Owned 100%---':"" 99 12,850 12,850
owned 55~_ 7 932 641
owned 50% .J! 6,303 3,152
157 20,085 16,643
Other owned 100% _ 4 636 636
1blal Company owned
and operated_ 161 20,721 17,279
La Quinta Inns -
managed 40 4,980 370
La Quinta Inns -
0 licensed to others_ 6 -Bl
207 26,418 17,649
Managed inns include inns owned less than 50% by the
Company and nol included in the CooIpanyt 6nancial
staiements. La Quirta manages these inns under the "La
Quirta" name pursuant to long-term manageJllllll COII-
IracIs. Under the terms ci the manageJIIlIll ~
licensing and management fees are paid to La Quinta. In
addition, the CooIpany chll1'gl!S for naIional adYertlsIng and
chain services relating to reservations and bOOdreeping.
Management of the Company believes such management
contracts a1Iow the Company to mairtain a high degree
of operational control OYer service and quality and addi-
tionally allow La Quirta to expand ala faster rate than
would be ~ible using inlernal soun:es of capital, thus
enhancing sharehokler value. .
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ORGANM10N
La Quinta emp~ approximalely 6,400 persons, ri whom
approximately 90% are hourly employees. The CooIpanys
employees are not currently represented by labor unions
and the Company has neYeI" experienced any organized
work Sloppage. The CooIpany believes its employee relations
are good.
Operations of the inns are currently organized into Eastern,
CenIraI and ~tem Divisioos, each headed by a Divisional
. VICe l'resldlR. Regiooa1 Manaaers,reporting to a Divisional
VICe Presidet, are each responsible iJr approximately 11
inns and are expected to assure that sIandanIs of service,
cleanliness and coortesy are maiJialned and profil pis
are met Regiona1 offia!s are currerdy mainIained in AIbu-.
querque, AI1anta, ~ Da1Ias, DenYer, IIooston, Irvine,
New Orleans, Orlando, and San Antonio.
Individual inns are typically managed by husband and
wife teams who till! on the premises. Because La Quintas
professionally trained management cwples are relieYed of
responsibility for food service, they are able to devote their
attention to assuring frifndly guest service and quality
facilities, consislelt with chain-wide standanIs. On a typical
day shift, the husband and wife team wiD supervise one
housekeeping supervisor, eight room attendants, two laun-
dry workers, two general mainlenance persons and front
desk saIes representatives.
INRATION
The rate of inf1ation as measured by changes in the aYeI'-
age consumer price index has nol had a maIeria1 eIfect on
the rewnues or net ~ of the company in the three
mosl recent years.
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SELEC1BI FIWICIAI. AlIII STITISTICAI. DATA ELEVEI YEAR SUMMARY
(dollars in tboustmds, ezapI per sharr 1I11WU1IIa) 1989 1988 1987
FINANCIAL SUMMARY
ReYenues $191,834 174,480 174,715
Net earnings 4.709 3.146 4.092
Net cash plOl'ided by ~ng activities 30.805 26,992 30.956
\b'kIng capital plOl'ided by operations
Operating income 38.068 29.502 29.628
Eaming5 per share .36 .24 .30
lbtalassets 602.284 593.905 623.314
Sharehoklers' equity 117.164 111.479 117.949
Partners' capital 29.504 30.152 33.l15
Long-term debt, excluding cutreIi instaI1JnlIis 360.651 368.723 381.936 .
Return OII.lM:I3ge sI1areho&s' equity 4.1 2.7 3.5
Combined eIfectiYe debt-ID-<<(uity ratio (I) 2.5 2.6 2.5
INN S'OO'ISTICS (at end of period)
Inns owned 155 149 151
Inns managed 40 40 31
Inns licensed 7 9 9
Roons owned 19,997 18.920 19.124
Roons managed 4,982 4.982 . 3,803
Roons liamed 917 1.133 1,133
La Qulnla equivaIin lOOlIl!l . 16,864 15.848 15.582
(1) lIDIIo if Iong-/mn d8bI /() partnm' co{JiIaI plus sbareIJo/derg' equiIy at year end
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The folb.ving tahIe pnMdes financial and stallsticaI data for the Company for the seven monlh 1rnmition Period ended December 31,
1989 and data for the comparable sevenlllOlib period ended December 31. 1988. For pwpaieS of comparison, inconJl slatemeIt
information has been pl11lided for the tweWe monIh periods ended December 31. 1989 and 1988. the new reporting period basis.
SELECTED IICCIME STmMEII1' ~ ..:. TRAIISITlOIl PERIOII
(dollars in lbousands, ezapI per sharr amounts)
Seven montb6 ended 1WeIve montb6 ended
December 31 Percent December 31 Percent.
1989 1988 11Tl/)rrJtJe11le 1989 1988 lm/1rOIIemenI .
FINANCIAL SUMMARY
ReYenues $126.578 112,816 12.2% 205.596 183,268 12.2%
Operating inconJl 26,946 23,941 12.6 41.073 32,361 26.9
Eaming5 (Iais)
before property
and ilM!Stmenl
transactions 3,965 1.838 115.7 2,394 (4,296) 155.7
0 Net earning! 5,639 4,218 33.7 6.130 2.579 137.7
Eamillgl per share .43 .32 34.4 .47 .20 135.0
Nel cash provided by
operating
activities 29,914 20,652 44.8 40,066 28,717 39.5
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lIlm' Ended May 31
.
1986 1985 1984 1983 1982 1981 1980 1979
178,626 159,573 136,802 113,378 102.656 82,765 61,825 48,224
5,753 9.008 12,815 13,456 12.291 8,611 6.412 4,872
47,188 44.022
41.099 37.033 35.666 30.341 22.226 17.092 12.022
43.559 40.148 39.305 36.590 34.646 27.498 20.415 15.278
.41 .62 .88 .93 .90 .69 .54 .42
621.407 541.183 504.012 404.201 324.370 229.462 178.545 131.167
. 113.774 118.693 108.760 93.746 79.324 49.369 29.390 22,817
40.446 43.833 39.213 26,348 20.030 . 14,851 10.785 8.892
394.363 312.739 296.611 243.451 . 189.717 139.694 . 119.054 87.423
4.9 7.9 12.7 15.5 19.1 21.9 24.6 24.8
2.6 1.9 2.0 2.0 1.9 2.2 3.0 2.8
165 146 125 115 99 89 76 64
11 11 13 14 13 14 14 14
20.632 18.209 15.397 14.057 11,887 10.526 8.791 7.288
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1.431 1,431 1.681 1,832 1.694 1.805 1.775 1.770
16,418 13.934 11.260 10.567 8.718 7.685 6.478 5.501
SELEC1BI Ml.AIa Sl&T.. bllla.lliAL.......
(dollars in 1boustIndI)
December 31
1989 1988
Balana! SIieet
lbtalassets
Share!dlers' equity
Partners' capital
Long-term debt. excluding CIIITeIIt imtaUments
Inn Statistics (at end if perkxJ)
Inns owned
Inns managed
Inns licensed
Rooms owned
Rooms managed
Rooms licensed
La Quinta equivalert 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
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MAHAGEMENT'S DlSCUSSllIll AND ANALYSIS
References 10 Fiscal Years 1989, 1988 and 1987 are to fJScal years
of the Company ended May 31 of the respective years. Effective
June I, 1989, the Company changed its year-<nd from May 31 10
December 31. References 10 the Transilioo Period are 10 the seven
month period ended December 31, 1989. References to 1990 are 10
the calendar year ending December 31, 1990.
References 10 Company Inns are 10 inns owned by the Company
or by joint ventures in which the Company owns atleasl 50%
interest. References 10 Managed Inns are to tha;e inns managed
by the Company under a long term management COItr:Icl and in
which the Company owns less than 50% interest. These include
nine inns hell in two joint ventures formed with CIGNA Invest-
ments, Inc: (CIGNA) in Fiscal 1988 and 31 inns soil by the
Company to La Quinla Motor Inns Umited Partnership (the
"Partnership") in Fiscal 1987.
References to the percentage of occupancy and the average daily
l1lle refer 10 Company Inns owned at December 31, 1989. Man-
aged Inns :ire excluded from occupancy and average daily l1lle
stalislics for all periods for purposes of comparability. All finan-
cial data relates to Company fnns unless otherwise specifted.
Resulls of Operations - 'fransilion Period
~
Inn operations are seasortaI in nature with the percentage of
occupancy generally higher in the spring and summer months
(March throogh August) than the balance of the year. Because
of this seasonality, results of lhe seven month Transition Period
shooil not be annualized and compared with the resu1ts of
Fiscal years 1989, 1988 or 1987. Th assist in anaIr.;is of lhe
Transition Period results, results from the comparable seven
month period in 1988 (the "l988 Transition Period") and calen-
dar years 1989 and 1988 ("Calendar 1989" and "Calendar 1988")
are provided.
Inn revenue Is deri>Ui (rom room rentals (approximately 97%)
and otber soon:es such as charges to guests for long distance
telephone ca1Is, fax machine use and guest laundry services.
Inn revenue also includes revenue flOlll Company operated
restaurants.
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Pen:enIage 0/ occupaocy_
AYeragel'OOOlrale_
Available rooms (000)_
ComparaJjw Revenue DaIa
1IrmsiJion Period Calendar Jf!ar
1989 1988 1989 1988
67.1% 66.4 65.5 63.8
S 3915 36.85 38.67 36.69
4352 4,125 7320 6,991
Roool"""",(OOO)_
Other inn RM!lue (000)_
Restaum""",ue(OOO)_
Inn reYenue (000)_
SI14,lJ8
3,467
704
118,409
185345
5,650
918
191,913
163,666
5,038
311
169,015
100,869
3,007
201
104,077
The pen:enlage of occupancy in the Transitioo Period was 67.1%,
an increase of ,7 percentage points over the 1988 Transition
Period fn Calendar 1989, the percentage of occupancy increased
1.7 percentage points 10 65.5% from 63.ll'l& in Calendar 1')88.
Management belieIos the Company~ capital impl1l\l!lllelll pro-
gram, tactical discounting programs and Improving local and
regiooa! economies in which many of the Compan~ inns are
operated contn'buted 10 the increase in occupancy in 1989. The
percentage of occupancy in 1990 will be dependort upon c0n-
tinued economic impl1lveIlll!lt in the Company~ major inarlrets
and lhe effect new and existing competilioo will have on the
occupancy level of La Quinta Imis with which they compete.
Management believes the percentage of occupancy will increase
two 10 three percentage points in 1990 over Calendar 1989,
The average room l1lle in the TransitiOn Period was $39.15, an
increase of 6.2% over the 1988 Transitioo Period The average
room l1lle in Calendar 1989 increased 5.4% 10 $38,67 flOlll
$36.69 in Calendar 1988, The increase in average room l1lle in
1989 was primarily attributable 10 room l1lle increases imple-
mented at selected properties 00 January I, 1989 and June I,
1989. Aiso conlribuling 10 the increase in average room l1lle were
tactical pricing and yiei! 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 Transitioo Period.
The increase in Inn revenue was primarily the resu1t of the
increases in the percentage of occupancy and the average room
rate. Aiso contributing 10 the increase in inn revenue .was an
increase in the number of available rooms due 10 the opening of
three newly developed inns and three acquired inns during the
1iansition Period
Reslaurant revenue was $704,000 in the 1iansilion Period com-
pared with $201,000 in the 19881iansition Period The increase
was due primarily 10 revenues from a restaurant purchased and
tempornrily operated by La Quinta in conjunction with an inn
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acquired in Calendar i989. This restaUl1lnl was closed during the
Thlnsition Period and construction was begun on a free-standing
restaurant on the site. Management believes restaurant revenue in
1990 will more closely approximate restaUl1lnl revenue earned in
Calendar 1988.
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Reslauranl rrm/aI and other revenue includes rental payments
from restaul1lOts owned by La Quinta and leased to and opernted
by third parties. Aiso included are the Compan~ interest in the
earning; of the two CIGNA joint lI'!lIlures and miscellaneoos otber
revenues such as third party rental revenue from an offICe buiil-
ing hoosing the Company~ corporate offices. ReslaUl1lnl rental
and other revenue was $4,558,000 in the 1iansition Period com-
pared with $5,105,000 in the 1988 1iansilion Period and
$7,689,000 in Calendar 1989 oompared with $8,203,000 In Calen-
dar 1988, A one-time settIenmt in 1988 of $650,000 related to .
delinquencies from the prior year was the primary factor contriI>-
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 services revenue is primarily related 10 fees earned
by La Quinla for services rendered in OOIljunctioo with the
Managed Inns, Management believes 'l'""38ement services
revenue will increase by approximately two percent in 1990 over
CaIeodar 1989.
-'-
Comparalit< OperaIing GlNr
1/'ansi/ion Period Calendar _
1989 1988 1989 1988
$68,571 60,053 1ll,094 100,829
11,387 10,296 IS,S58 16,643
'-'
Dlro:texpense(OOO)_
CoIponIe expense (000)_
Deprecialion, amonizallcJn
and!bod assetreli........
(000)
19,674 tS,516 33,571 33,435
-
[)jred 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
CalelJlries of direct expenses include utilities, repair and mainte-
nance, p~ taxes, advertising and room supplies.
Direct expenses per occupied room were $23.49 in the 1iansition
Period oompared with $21.93 in the 1988 1iansition Period and
$23.39 in Calendar 1989 compared with $22.60 in Calendar
1988. In order 10 become more compelitive in the service indus-
lry~ labor markets, the Company began providing an increased
level of benefits to inn employees beginning in the foocth quarler
nf Calendar 1988. The increase in direct expenses per occupied
--
"-.,,",
....,./
room in the two 1989 periods resulted primarily from increases
in salary and benefil costs related 10 the new benefil 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.
Corporale expenses include the cosls of general management,
trnining and fieil supervision of inn managers and other admin-
istrative expenses. The major components of corporate expenses
are salaries, wages and related expenses and information S)'lelns.
Cotporate expenses were $11,387,000 in the 1iansition Period
and $18,858,000 in CaIeodar 1989 oompared with $10,296,000
in the 19881iansilion Period and $16,643,000 in Calendar 1988.
Corporate expenses per available room (including Managed Inns)
were $2.10 in the 1iansition Period oompared with $1.98 in the
19881iansition Period and $2.06 in Calendar 1989 compared
with $1:89 in Calendar 1988.
IJtpreciaJWn, amortization and fixed asset IT!IirrJmenIs were
$19,674,000 in the 1iansition Period compared with $18,526,000
in the 1988 Transition Period. Changes in deprecialioo and
amortization are affected by lhe 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 expeIISe also includes asset retirements associ-
ated with the Company~ remodeling program and other capital
improW!I181ls, These charges were $827,000 and $664,000 in the
1989 and 1988 Thlnsition 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 19881iansition Period Operating income in Calendar
1989 was $41,073,000, an improvement of 26.9% over
$32,361,000 in CaIeodar 1988.
/ (
23
- --
I.....-
-
OJbel' _ (DeducIions)
7JoansiIion Period Calendar _
1989 1988 1989 1988
I 2,823 3,243 4,849 5,432
(24,715) (24,601) (42,253) (42,146)
737 506 1,321 1,01S
'-'
_ inoome (000)_
l_ooOOg-tenndelJl
(000)
I_apilalized (000)_
P2rtrm' equity in
(eami'llI) and b!ses
(000)
(1,826) (I,25t) (2,596) (961)
Interest inrome primarily represents earnings on the short-tenn
investment of Company funds in money-market type inslruments
prior to their use in opernlions or acquiring inns. Interest income
declined in the 1989 1iansition Period and Calendar 1989 from
the respective 1988 periods due to kJwer average cash ba!ances.
!nleresI income in 1990 will be dependent on the average cash
balances and the interest l1lle earned on those funds.
Interest on long-term dehi was $24,715,000 in the Transition
Period, approximately equal to the 19881iansition Period. Inter-
esl on long-term debt was $42,253,000 in Calendar 1989
compared with $42,146,000 in Calendar 1988. Managernen does
not articipale incremental borrowing in 1990 other than addi-
tional debt which may be assulned on newly-acquired inns.
-
Interest CIl/JiIaIized is dependent upon the number of inns under
construcIion or aJOYelSion, the cost of those inns and the num-
ber of months each inn is under construcIion or conversion.
Interest capitalized increased to $737,000 in the 1iansilion Period
from $506,000 in the 1988 Transition Periocl1n Calendar 1989,
interest capitali2ed was $1,321,000 oornpared with $1,018,000 in
Calendar 1988.
'--..
Partners' W{Ui/y in earnings and /asses 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 earning! and losses in the 1989 periods O'M the com-
parable 1988 periods refIect the improYed performanre of the
joint vemue properties. Partners' equity in earnings and losses in
1990 will be dependent upon the specifIC performanre rl such
joinlvemue properties.
..,,".'
-
24
"'''''
For the reasons discussed above, earning! before property and
investment transactions increased $2,127,000 10 $3,965,000 in
the Transition Period from $1,838,000 in the 1988 Transilion
Period. fn Calendar 1989 earnings before property and investment
lransactions increased $6,690,000 10 $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 10 lhe
sale of 31 inns 10 the Partner>hip in Fiscal 1987. 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 PartIeship
transaction had been substantia1ly amortized atlllmnber 31,
1989. The remaining amortization in 1990 and be)u1d will not
materiaI1y impact the financIa1 results of the Company (see note
II of Notes 10 Combined Financial SIalemenlS~
inrome /axes. In Illmnber of 1987 the Fmancial Accwnting
Standards Board issued stalemenl of Financial Accoolting Stan-
dards (FAS No. 96~ Accwnting for Income Taxes. This statement
requires the use of the liability method of accourting for deferred
income taxes and must be implemented no later than Calendar
1992, The impact of the StateIllelllS implementation has not yet
been determined by the Company. The Company estimates its tax
l1lle will be approximately 36% in 1990.
For a complete explanation of the Company~ pll7lislon for
income taxes see note 4 of Notes 10 Combined Financia1
Statements.
lIesults of 0peraJi0ns - Fiscal !tan
Inn revenue was $l77,58I,ooo in FISCal 1989, an increase Of
$15,301,000 or 9.4% over FISCall988, The increase in inn reve-
nues resulted primarily from increases in the percentage of
occupancy and the average room rnle.
Inn revenue (000)
~ cI oa:uponcy
Average....."'"
Fiscalllt2n
1988
161,llJl
61.1
J6.JO
1987
165,11)3
60.4
J6.110
1989
S177,581
65.0%
S 37.7f!
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 10 the CIGNA
joint ventures which, on a combined basis, resulted in fewer
available rooms for sale in Fiscal 1988 than Fiscal 1987. Aiso
contributing to the decline in inn revenue in 1988 was a la.ver
average room rate.
If
~
-
"-
,:,:,." .'..,
. .
::: . .: i,"...
... ..t .
'....,.
r". ."
':' '''--'-: .
',c:'"
;~:~~Y< ..,
&,'tt-:-...<
. ~...~
'1 ::". '<
c
Management believes lhe percentage of occupancy in Fiscal 1988
and Fiscal 1987 was negatively impacted by economic diffICUlties
in Thxas and conliguoos states where the Company operates a
significant number of inns, as well as a general induslry condi.
tion of oversupply of I'OOI11S- The percentage of occupancy
increased 3.9 percentage points 10 65,0% in Fiscal 1989 from
61.1% in Fiscal 1988. Management believes the Company~ capi-
tal improvement program, tactical discounting programs and
improving local and regiona! economies in which many of the
Company's Inns are operated contributed 10 the increase in occu-
pancy in Fiscal 1989.
Room l1lles were increased at selected properties effective January
I, 1989, The avernge room l1lle in Fiscal 1989 increased 2.7% 10
$37.29 from $36,30 In Fiscal 1988. In Fiscal 1988, the average
room l1lle declined 1.4% to $36.30 from $36,80 in Fiscal 1987,
The decline in allnge room l1lle in 1988 resulted from the
Company~ decision 10 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,
hership 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 approximarely five
months. In Fiscal 1987, the Partnership inns were managed for
approximately seven months. (See nole II of Notes to Combined
Financla! StatemenlS.)
Direct expenses per occupied room were $22.46, $21.97 and
$21.69 in Fiscal 1989, Fiscal 1988 and Fiscal 1987, respectively.
In order 10 become more competitive in the service induslry~
labor markets, the Company began plOl'iding an increased level
of benefits 10 inn employees beginning in the second quarter of
PiscalI989. The increases in direct expenses per occupied room
in Fiscal 1989 and Fiscal 1988 resulted primarily from increases
. in benefit and salary ClNs and increases in local and regiona!
marketing 00Ils.
~ expenses were $17,767.000, $l5,416.ooo and $17,725.000
in Fiscal 1989, rJSCalI988 and rJSCal 1987, respeclively. Corporate
expenses per available rOom (including Managed Inns) were
$1.99, $1.78 and $2.22 in Fiscal 1989, FiscaIl988 and Fiscal 1987,
respectively.
r.....,
.....1
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 10 deve1op-
ment fees received associated with the purcllase of two inns by a
joinl venture with CIGNA and tIie fal'Orable disposition of an 001-
slanding obligation accrued 10 expense in an earlier period on a
property opened in Fiscal 1987.
lJe{mdaJion and amorlizaljqn and fIXEd asset reIi1'emenIs
expense was $32,423.000, $34,841.000 and $33p18.ooo in Fiscal
1989, Fiscal 1988 and Fiscal 1987, respectively. Depreciatioo,
amorlization and fixed assel reliremenlS expense included assel
retirements a<<lriatM with the Company~ remodeling program
and other capital improvements of $1,289.000, $3,542,OOD and
$2,253.000 in Fiscal 1989. FiscaIl988 and Fiscal 1987. respec-
tively. Depreciation and amortization was also affected by the sale
of seven inns to the CIGNA jon ventures in Fiscal 1988 and the
sale of inns to the Partnership in Fiscal. 1987.
Gain on sale of assets in Fiscal 1989, FJSCaIl988 and Fiscal 1987
is primarily attributable 10 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 10 the Part-
nership transaction. In Fiscal 1988, $8,226.000 of the lOtaI gain
on sale of assets related to the Partnership ll1lnsaclion and
$2,213.000 of the IOtaI gain was due to the s:iIe of seven inns 10
the two CIGNA joint ventures. In Fiscal 1987, $9,654.000 of the
lOtaI gain on sale of assets related to the Partnership transaction,
Other, induding loan p/oI:emenI imo11uI in Fiscal 1987 is
attributable to the placement of the mortgage notes payable ass<>-
ciated with the Partnership transaction (See note II of Notes 10
Combined Financial Statements.)
Inrome foxes, For a complete ~laitation of the Compan%
provision for income taxes see note 4 of Notes 10 Combined
Financial StatemenlS.
CapiIal Resources and L/quidiIy
The Company plans to ulili1.e both internally generated funds
and external financing vehicles 10 finance its operations and
development programs (see note 12 of Notes 10 Combined Finan-
cial Statements). At December 31, 1989 cash and short-term cash
inveslmenta lOtaIled $12,361.000 including $895.000 in restricted
funds (see noles 6 and 8 of Notes 10 Combined Financial State-
ments). In addition, the Company has two lines of credit
aggregating $35 million. At December 31, 1989 the ootstanding
balance on the Company~ revolving credilline was $3,600.000
(see nole 2 of Notes to Combined Financial Statementa).
If
25
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II
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27
0 0
CO_D STA1'EMEIl1S OF EARIIIIIlIS La [}uinIo -Inns, Inc.
0 (in thousands, exx:tfJI per sbaTe data)
Seven months ended
December 31 lmn 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
Managelllelt services (note II) 3,611 3.634 6.017 5,015 2.686
lbtalrevenues 126.578 112.816 191,834 174.480 174,715
Operating cmts and expemes:
DIrect 68.571 60.053 103,576 .94.721 94.344
Corporate 11.387 10,296 17.767 15,416. . 17.725
Deprecialion, amortization and flxed asset reIireml'nIs_ 19,674 18.526 32,423 34.841 33.018
1btaI operating costs and expemes 99.632 88,875 153,766 144.978 145,087
Operating income 26.946 23.941 38,068 29.502 29.628
Other income (deductioos):
Interest income 2.823 3,243 5.269 5.178 5.168
Interest on 1ong-tenn debt (24.715) (24,601) (42.139) (42,143) (42,342)
Interest capitalized 737 506 1,090 1.289 4.539
0 Partners' equity in (eam~) and losses (note 3) (1,826) (1,251) (2,021) (730) <3,148)
Eami~ (his) before property and ilM!5lmenl
transactions 3.965 1,838 267 (6,904) (6.155)
Gain on sU! of assets (net of losses and partners' equity)
(notes 9 and II) 4,207 4,365 6,460 10,592 9,968
Other. including ban placeinert income (note II) 1.980
Earn~ befure income taxes 8,172 6,203 6,727 3.688 5.793
Income taxes (note 4) 2,533 1,985 2.018 --2Q 1.701
Net eam~ $ 5.639 4,218 4,709 3.146 4,092
Earn~ per common and COlDJnOO equivalelt share $ .43 . .32 .36 .24 .30
~ted average number ci common and commoo
equivalelt shares outstanding 13.148 13.022 13,045 13,278 13.822
See aa::vmpanying notes /0 IXJ1TIbined financial statements.
o
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II
o
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/I
'iIe have audited the combimd balance sheets of La Quinla Motor [IUIS, [nc. as of December 31, 1989 and May 31, 1989 and 1988,
and the related combined stalemeIis of earning!, sharehoklers' equity, and cash flows ilr the 5el'8l1I1OIth period ended December
31, 1989 and each of the yeaIS In the three-year period ended May 31, 1989, These combined 6nanciaI stalemenIs are the resp0n-
sibility of the Company~ rnanagemt'Jt. Our responsibility is to express an opinion OIl these combimd 6nanciaI stalemeIis based on
our audits.
'iIe conducted our audits In aa:ordance with generally accepted auditing standards. Thaie standards require that we plan and per_
form the audit to obtain reasonable assurance abwt whether the 6nanciaI staIemInts are free of material mlsstaIemeIis. An audit
includes examining, OIl a Il!sI basis, evidence supporting the amOUlllS and dJscbures In the financial statements. An audit a&o
includes assessing the aa:oonting principles used and signiflcaJt eslimares made by managenm, as well as evaluating the OYeI'aIl
financial statement presentation. 'iIe believe that our audits provide a reasonable basis for our opinion.
[n our opinion, the combimd finandal statements referred to abo\e present fairly, in all material respects, the financial pasition of
La Quinta Motor Inns, Inc. as of December 3[, 1989 and May 31, 1989 and 1988, and the results of its operations and its cash flows
for the 5eI'8I month period ended December 31, 1989 and each of the yeaIS in the three-year period ended May 31, 1989, in confor-
mity with generally accepted accounIing principles.
o
KI/Jl6 fW-/t{d4u1i~
San Antonio, Thxas
February 22, 1990
30
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NOTES TO COMBINED FIIlAIlCIAL STATEMENTS
(I) SUMMARY (F SIGNIFICANT N;COUNTING POLICIES
Business and Basis of PmentaIion
The Company del'elops. owns and operates inns. The combined
financial statements include the aa:ounl5 of subsidiaries (all
wholly-<1oYned) and unincorporated \'elllures in which the C0m-
pany has a signiflClllll ownership inleresl and exercises legal,
financial and operaIlonal COdlOI. All signlficant inletcompany
lUXXlJIIlS and transaclioos have been eliminated in combination.
IIM!5Imenls In UIlOOI15OIidat8I affiliaIes in which the Company
has 50% or less ownership inleresl and (M!l' which the Company
has the ability to e>radse slgnJficalt inflUEnCe are lICCOOIUd Cor
using the equity method. Certain recIassificaIlo d. prior period
amouIIlS have been made to 00nC0rm with the cunert period
presenlalion.
Change in Il1ar End
Effecti~ June I, 1989 the Company aOOpted a December 31 or
calendar year end. The aaxmpanying combined fmancial stale-
menIS include audited financial staIemeIts Cor the se\l!Il month
transition period ended December 31, 1989. Audited fmancial
statements are also presened for the three fiscal years ended May
31, 1989, 1988 and 198Z Unaudited financial staIemeIts are pre-
med for the se\l!Il month period ended December 31, 1988 Cor
comparati~ purpa;es only.
Properly and flJ[uipmenI
Deprecialioo and amortization d. property and equiJlllllD are
computed using the straight-lire method (M!l' the iJllowfng esti-
mated usefulliW!S:
Buildi~ 30 years
Furniture, fIXtures and equipmen 4-10 years
. Leasehokl and land imprv;emeIllS 10-20 years
Mainlenance and repairs are charged to operntions as incurred.
Expenditures Cor imprv;emeIIlS are capitalized.
Cash F.quivaIenIs
All highly liqUid i_ with an original maturity d. three .
mooths or less are mmidered cash equivaeu 1_ with
a maturity d. greater than three mooths are ooosidered short-
term im<stmenlS.
o
La {)tlinla .IIotor Inns, l1K.
Deferred Cbarges
Deferred charges consist primarily d. issuance costs related to
Industrial DeveIopIl>!l1l Revenue Bonds, klan fees, preopening
C06ts and installment costs on the Hotel Managenm System
(HMS). Issuance costs are amortized OYer the life d. the bonds
using the illeresl method. Preopening costs are amortized (M!l'
fi~ yean. installation costs 00 HMS are amortized (M!l' se\l!Il
years and klan fees are amortized OYer the respective terms d.
the klans using the straight-line method.
SeIf-/nsumn(;e Programs
The Company uses a paid as retm!peClM! self-insurance plan
for general and auto liability and VIOI'IanaI$ a..''I''''...dion A
provision has been made in the combined financial staIemlIU
which represetlS the expected future paymeIts based on esti-
mated u1tima/e C06l for inc:idetts incurred prior to the balance
sheet date. Predetermined as limits have been arranged with
insurance companies to limit the Company~ per oa:ur~
cash ootIay.
Income 1/Jxes
Deferred inoome tms arise principally from timing differences
betwea1 financial reporting and income tax reporting d.
depreciation, preopening CO&lS, CXlIIStructioo klan irterest, klan
fees and gains realized 00 the sale d. inns.
II1I'eSbnent tax credits were recorded as a reduction d. the provi-
sion Cor il1COllle tms in the year realized unlil repealed by the
Thx Reform Act of 1986.
EarninSf PBr Share
Eamin&,! per share are computed 00 the basis of the weighted
al'l!l1lg<! number of commoo and oommoo equiwlett (dlllIli'Ie
stock optioos) shares outstanding in each year. Primary and fully
diluted eamin&'! per share are not significartly diIfereIC.
(2) LONG-TERM DEBT AND CAPmL LEASES
Long-term debt, which is secured by 5\lbstaItiaI1y all property,
equipmeIt and inns under deYeqJlIIID, consisted Ii theiJllowfng
at December 31, 1989 and May 31, 1989 and 1988:
31
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o.mnbtr 3/ May 3/
rlll/-) /989 /989 /9BB
~loansllllllUringl990-101& $244.5&2 251,5&4
(IUIIMiglIIed......,) 253.743
IlIlluoIriaIllMIlpmn _Ilond!,
_ngl990-1012 (11,.111 woighIod
......,) 96,6&5 100,398 105.603
~~--
1lIlIIlIrIng1a2l102(1Oll) 23,150 23,150 23,150
Bank lire ct. mdit (I0.5lI . _
31,1989) 3,600 1.690 1,690
1bW l67,'J17 376.so2 l84,18Ii
Less cum:t1 i.\UaUneu 16.991 Ib.151 15.463
NetkJng~_d!bl' $350.986 360.651 168.721
Annual maturities iii' the fwr years subseque!t to December 31,
1990 are as foIkw,s:
1991
1992
1991
1994
$27,658
21.934
22.568
31.153
De;'; '~<umed in the acquisition ri. three iOls in 6scal year 1989
and one inn in 6scal year 1988 anJOOl1ted to $8,101.000 and
$4,746,cno, respec1M!Iy.
ir.teresl paid during the seYeII IIIOI'IlM ended December 31, J 989
and 1988 antoUItlD to $25,724,000 and $26,399,000
(UIllIlJdired~ respecIMIy. During the years ended May 31, 1989,
1988 and 1987 interest paid amoonred to $42,9fAl,OOO,
$41,349,000 and $43,007,000, respectiwly.
The Company is ~ by provfsims ri. agreemens relating to
toor iwes of 1nduslria11leve1opme!t ReYlnue 80nds (JRB~) in
an aggregaie amoont ri. $19,100,000 to pun:hase the bonds at
face Yalue prior to maturiIy WIder certain cin:umsIances. The
bonds hllYe fuating interest rates which are indexed periodically.
Bond hokIers may, when the l3Ie is changed, put the bonds to
the designaled remarlreling agln. If the remarIreIing agel is
unable to reseI1 the bonds, il may draw upon an irrevocable letter
. of crediL In such event, the Company WlWI be required to repay
the funds drawn on the letters ri. credit within 18 months.
As ri. Deoember 31, 1989 no such draws had been made upon.
the letters ri. crediL The schedule ri. annual maturities shown
abooe includes the5e IRB~ as if they will not be subject to repay-
I1IlD prior to maturity. Assuming all bonds WIder such IRB
agreemens are p-..ed ir repayI1IlD prior to Jure 30, 1990
and the remarIreIing ageD are unable to resell such bonds, the
maturities of blg-term debt shown abooe iii' the year ending
December 31, 1991 WlWI increase by $17,525,000.
The Company has oolslanding $23,150,000 subcxdinatfd deben-
tures due 2002. The debentures are ~ into canmon
stock at a conversion price of $20.94 per share. The debentures
o
are redeI!mabIe by the Company at a current redemption price ri.
103%. The redemption price declines 1% annually until Jure 15,
1992 when it reaches 100%. The debentures are subordinated in
righl ri. payment to all existing and future senior indebtedness of
the Company.
The Company has lWO lines of credit with participating banks
aggregating $35,000,000. Under a $5,000,000 line ri. credi~ the
Company is permitted to borrow at the current prime lending
rate. 1lomMing; under the $30,000,000 line ri. credit may be
made at (I) the current prime lending l3Ie, (il) based on CD l3Ie
plus 1 '11% Of (ill) Eurodollar rates with i_ based upon pre-
established flI'mulas. The oolslanding balance on this line ri.
credit at December 31; 1989 was $3,600,000 and at May 31,
1989 the balance was $20,290,000 ri. which $18,600,000 was
short term
The line ri. credit agreemens require the mailt8Jance ri. elTei:tM!
IangibIe net worth (sharehokIers' equity plus partners' capital)
and subordinall!d indebtedness ri. at least $168,000,000 plus an
amOUlt equal to 70% ri. net earning; accrued subs.quert to
Norember 30, 1989.
The credit lines and certain agreemens associaled with lRB~ are
~ by a unililrm covenanI agreenm. The m~ restrictl\oe
CllYalanls preclude the following: payment ri. cash dividends, mer-
gers, sales Ii substantia1 assets, inc:urrence ri. significatt lease
obligatiom ()f any material change in character ri. business. The
tgreemt!C requires the maiJtmance ri. certain fmancial ratios in
addition to those restrictkn discussed above. The agreenBt
COl1tains proviskn to limit the total dollar amOUIt ri. capital
expenditures allowed in any 6scal year. The Company was in
compliance with Of had obtained w3iIM iii' all COft!Ilanls and
restrictions at December 31, 1989.
(3) UNINCORPORATED VENTURES
Summary financial inilrmatinn with respect to unillCOlpOlllled
\UlIures included in the Combined Financial SIalemtm ilIkJws:
o.mnbtr 3/ May 31
/989 /989 /988
1 6,121 8,799' 10,3(.6
11,011 14,648' tl,21l
(4,920) <5.819) (2,8l5)
(ln1lxNsands)
Cumnl......
eum.t li.billtieS
Il<fIdtIn_ngCl1pilllJ
Net proper\)\ equipmID ond Inro under
~
Lona-- d!bl
DeIemd cm1Ib
oo.r...... ...
Net......
Equily In...""",
Company
Portners
1l4.8l6
(91.6m
(616)
3,1I8S
41,568
112.345
29,223
1 41.568
. 141,853 141,931
<98.23n (99.392)
(629) (452)
4,249 4.412
41.387 43,6\4
11.883 13.502
29.504 jO,152
41.387 4.3,654
f r
0
--- liws EndId MI(r jJ
(mlboultmds) f'.Jt1t:1ImIMrJJ,/989 1989 - 19117
-... I4J,28O 69.~ 61.328 l'J~II
0 """""'- 39.710 66.242 63.llO 66.840
.............. Il.S7Il llll 1,198 13,014
Equity in preI2X eaminp and me.:
""-' 11.744 IJll 149 S.9ll
"""""'- 1,826 2,021 730 l.l48
-.... ---2? l.9ll
Il.S7Il lJ54 1,198 13.014
(4) INCOME TAXES
In DeoonheI; 1987 the Financial Aa:ooJting Standards Board
(PASO) iSSlBI SIlIIemert of Financial Aaxluting Standards
No. 96 (PAS No. 96), Aaxluting i:Jr IJmne 1ms. This Stale-
IIleIt requires the use of the liability method of acalIIlIng i:Jr
deferred lnoome tms. The impact of the SIaIenll!O implemenla-
tion has llOl been determined by the Coolpany. The Coolpany
plans 10 Irnpletmt the SIlIIemert In 1992.
. The proYision i:Jr income taxEs comisls of the following:
--- '...._""'JI
(10-) -.... JI. 1989 1989 1988 19117
CUnmt
FolenI 1 (419) (509) (1.492) 12,416
... 100 "' (4n 1,121
-,oooIti..._
. --......-. 1.968 1,175 Sl9 616
Cop;laIiIlIdloon_ 224 509 llO (757)
. SWelnclxnelms 107 74 102 (711)
,........... (2m (121) (SOl) (Sl)
-pm. 1.265 ~14S 2,038 (1O.llO)
0 ......... "" -""" br Ibo
""-' (ll) (H\9) (61) (204)
...-- (14) (llS) (161) nil)
.....- 09l) 58 (83) (468)
""-""
can)tlackJlconlfomol) 1'lS (143' 198
............. (IS) (n!) 13m (94)
Minimum 1II 13m (619) .,
-.... ~) 't1 -2) ~)
Prorrtsionforinalme
.... I~Sll 2,018 S4l 1,701
The effectWe tax rate is lower than the 5laluIory rate for the fol-
lowing reasons:
--*-
~;1, 1989
$2,778
IIItm_Mily;1
1989 1988 19117
1)Jfl 1.291 ~66S
(68) 109 765
49 (571) 363
(1;11) (1110) (Ill)
(500)
(lS7) (543) (1.794)
222 III 536
~...ill (113)
~018 541 1.701
(11I_)
1U_Il_....
Minimumrax
I_lax (",dll) .......
1JuBeIed johllaxaodl.
H_1ax mdlI
Capilal gains
Slate inoome taxes
Other. net
_ ir__
8
(113)
(Ill)
162
(190)
$1.l33.
--*- IIItmlbfdsd
~;1 MiIy ;1
(;"1_) 1989. 1988 1989 1988 1987
(-
0 Income ..... paid $1,191 558 599 969 1l,472
Income III !!funds $l.715 96 96 678 64
- -
o
(;'-1
(5) STOCK OPTIONS
The Cornpany\ stock option plans cooer the granting of oplioos
10 purthase an aggregate of 2,157,500 common shares. Oplioos
granted under the plans are issuable 10 Cl!rtaln officers and key
employees at prices nOlless than fair market value at date ri
grant. Options are exen:isabIe in bit equal insta1lmen1s on sue-
cessill! anniYel>3t}' dates of the date Ii grant and are exen:isabIe
thereafter In whole or in part. OulSlanding options not exen:ised
expire ten years from the date Ii gran!. Activity in the plans dur-
ing the three years ended May 31, 1989 and roc the seven morchs
ended December 31, 1989 is suIl1ll13ri2Jed as ro~:'
cr>t*JIl
pria
,.",.,
/111'-
$ 4.8S-24.38
1l.6H3.50
5,11).20.69
5."1l.l8
$4.85-24.38
10.44-13.31
5.t1).17.88
6.66-11.84
$ 4.85-24.38
llA1-l5.75
10.61-17.88
4.85-13.13
$ 6.01).24.38
14.94-17';4
6.01).16.56
6.01).15.110
~"May3I,I9ll6
- .
c.nceIIod ""'IliRd
-
Outslandin& May 31.1987
-
c.nceIIod""!'iIed
-
0WlmIin& May 31, 1988
-
c.nceIIod""!'iIed
-
0WIandIn& May 31, 1989
-
c.nceIIod""!'iIed
-
0WIandIn& _31, 1989
EletisaNe II:
May 31, 1988
May 31, 1989
_31,1989
Ar.IiIalie ir run.. granIs II:
May 31, 1988
May 31, 1989
_31,1989,
-
If
.".,.
729,405
138,970 .
(19.107)
09,656)
799,611
136,750
(64.501)
(25.547)
846..114
127,010
03,679)
(169.514)
790,171
171.000
(48,631)
(68,171)
844,269
543.405
4110,470
416.430
~
633.419
509.381
$ 4.8S-24.38
$ 6.01).24.38
$ 6.72-14.38
'Ri/tIl
<tJtian
pria
(11I_)
8,487
1,643
(693)
(86)
9~51
1.1135
(Sll)
(290)
9.774
1.697
(185)
0.1l5)
10.051
1,833
(710)
(690)
11.484
6,166
6.168
5.531
No chariJes have been made 10 earning! i:Jr these oplkm Upon
ellI!I'Cise, the elfCeSS of the oplioo price.received .".. the par value
Ii the shares issued, net of expenses and including the reIa1ed
income tax benefits, is credited 10 additional pail-In capital.
II
33
o
o
o
34
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(6) PEt'jSJON PLANS
The Company has defined benefit pension plans COYering sub-
stanially all its emp~ The Reliremert Plan and 'lhlsl of La
QuinIa Molllr Inns, Inc. (the Plan) COI'eIl!d Sllbslanlially all
empkll'ees tIuoogh December 31, 1988. Elfedioe }aliuary I,
1989, all highly aJDpeI1SaIed emp~ 'M!Ie excluded from
aclWepartlcipalion In the Plan. The Supplemeltal Executive
Rellremelt Plan and 'lhlsl (the SERP) was estahIished by the
Company, effecthoejanuary I, 1989, to COM these emp~.
Benefits accruing under the Plan prior to December 31, 1988
were based 011 Cll!dited years of service and aoerage coonp,..sallon
fur the highest trie lXlIISeCIllile years WI of the last ten years of
service. Benefits accrued as of December 31, 1988 under the Plan
(including benefits accrued fur empkll'ees COI'eIl!d under the
SERP) 'M!Ie frozen. Benefils lIlXIUIng under the Plan ~
to December 31, 1988 are based 011 (ft peIteIt of each rem
oompensaIion (with a minimUm benefit aa:rualbased 011 the
prior furmuIa and 1988 earnlng5~ Benefils under the SERP are
Ir..s<d 011 years of Cll!dited servIoe and aom&e aIlnpetLl3lion fur
the highest eM! oonsecutive calendar years oot of :he'1ast ten
compiet'!d calendar years of credited service. The Company's
funding policy is to contribute annually the minimum amowt
required by Federal regulations.
During the year ended May 31, 1989, the Company adopted an
amendllll'l1 and approoed a restaIemeIt of the Reliremert Plan
and ThIS! of La Quinla Molllr Inns, Inc. which made seYeraI
, other modIflcatIons to the Plan; the mem signi/lcant of which
included chan8es In the benefit bnnula and a change pnMding
for 100% vesting after eM! years of vesting service. The elfect of
these changes, an Increase In the actuarial present value of
accumulated pla.'1 benefils of $939.342 as of May 31, 1989, is
included In the tables beb1!
The illlawing table seIs furlh the funded Slalus and amoonts
recognlz8lln the Company's combined financial staIemeIls fur
both plans at December 31, 1989 and May 31, 1989 (and fur the
Retirement Plan and 'lhlsl of La Quinta Motor Inns, Inc. at
May 31, 1988):
o
~.,
A
~ 31 Mtfy31
(",~) 19/19 19/19 1988
__",..libenefllOOliplioos:
A<auouIaIod _ OOIip1Jon, including
......benefI~Ii$S,27U,,_
31, 19119, $4,710'" May 31, 19119 and
11.972 ir May 31, 1988
Projed<d _ OOIip1loo '" sentce _'
IOdaIe ,
Plan ..... II lair "'ue. primari~ I1sIed 5Illdo
and CD~
Projed<d benefit 00IipIl00 In ""'" Ii plm
assets
UlIft!OOBllillld ... "'" 1I]IIne I, 1985 being
llICtJB1lillld_<q>k,ees'_
remainlngsentce1lleli6J"11$
UlIft!OOBllillld ... ... (pin) !rom pili
~_!romtbal_
UlIft!OOBllillld ... ... (pin) !rom amIi ,....
mocI1Iic:aIiono
-pnilII-
1(6.011) , (S,470) <3,173)
1<9.34n (7,916) (6,009)
6,276 6.374 ~
(J,07J) (I,S42) (1,013)
<3ll) (4S4) (682)
(207) (1,076) (S66)
701 ~-
$(1,899) (lJ14) (2,261)
Net pension 001I ror the 5eW!II month period ended December 31
. ,
1989 and the three years ended May 31, 1989 included the ilI-
lowing COlil""'.... (the 5eW!II month period ended 1989 and the
year ended May 31; 1989 1nc1loded COIlljlOlllDS fur both plans):
~31
(iolboustwJs) 19/19
- ... (ba.Il~ eamoI during Ih<
period) $ ~
1............,projo:IedbeneflIOOliplloo 410
Actulll........,pIan_ (810)
Net _ and d<iimI ' 3116
Net""""" pnilII... """"_
10 MIlIIJ8!d I.,. 5M
Call aI1oc:lled 10 MIlIIJ8!d Inns --!l!)
Net """"" pnilII ... 1 S46
Mtfy 31
19/19 1988 191fT
917 9SS 790
616 S64 43S
(686) SI. <3m
_ 093) (293)
8)T m ill
J!Y) (l29)...ill>
744 648 SlO
The assumplions used In the calculations shown above _
~31 Mtfy 31
(iotbousarrdr) 19/19 19/19 1988. 191fT
Dlolwnt .... !jxIl-clec:mnot) 4-7.m 4-7.7S 4-&15 4-7.10
Dlolwnt 11lt~) 9.10 9.10 10.00 9.2S
EIpo:Iodking...........lil!lUm..,
...... 9.00 9.00 9.00 9.00
RaIo Ii _ In ooq>onsallon _ 5.HS 5.5-7.S 7.S 7.S
AI Deoonher 31, 1989, $312,000 was restricted to fulfill the
COlllpany~ amtbulion requlremert to the SERP ror the year
ended December 31, 1989.
[f
o
o
o
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(7) OPERATING LEASES
The Company leases a portion of the real eslaIe and equipmenl
used in operations. Certain ground Jease arrangen1l!fU ooOain
contingent rtDaI provisioos based upon revenues and renewa1
options at fair market values at the conclusion of the Initial Jease
terms.
Future minimum renl2l payntelCS, by year, required under oper-
ating leases that haYe initial or remaining n0ncance11abie Jease
terms In eJ<<:eSS of one year at December 31, 1989 Iillbv:
(In 1_)
11,928
1,616
l,ill
1.111
911
5.843
111,84Z
1990
1991
1m
1993
1994
LalerjalS
1bIaI. minimum payrrms required
1btaI renl2l expense b' operating leases was $2,071,000 Iur the
seYeII months ended December 31, 1989. During the years ended
May 31, 1989. 1988 and 1987 tota1 renal expense b' operating
leases al1IOUJted to $3.497,000, $3,283,000 and $2,822,000,
respecliYely.
(8) COMMITMENTS
At December 31, 1'l89 the estimated additional 00!l to complete
the construction and renovation of inns Iur whlch aI1SIrUCtion
commitmeIU baI1! been nwIe was $1.925,000, Funds on hand,
oonunltted and arnicipated from cash flow are sulIlcimt to COOI-
plete these projects.
Funds restricted to fulfill sinking fund requilem>ts of speciflc
industrial ~ revenue bond issues in 1990 and 1989
amounted to $583.000, $1,829,000 and $1,815,000 at December
31, 1989, May 31, 1989 and May 31, 1988, respecliYeIy.
(9) CONl'lNGENCIES
The Company is a party to varioos lalwuils and claill1l geoerally
incilemaI to ils business. The ultirnale disposilioo of these mat-
ters is nol expected to haYe a signilicaJt adYene effect on the
Cornpany~ financial ~Itim or resuJls of operaIIons. .
o
In August 1989, a joilll YenIUre partner transferl8i ils 50% inler-
est in the joint YellUre to the Company. The YellUre a.vned one
inn. The Comp~ financial staIenlems at May 31, 1989
refI!c1ed a $745,000 charge to earnillS' in anliclpaIion of
this lransaction.
(10) QUARTERLY FINANCIAL IM1A (UNAUDITED)
The unaudited combined resulls of operations by quarter are
sununarized below:
(lnl-,""'" FinI - 1IIIni Fourlb
per'" doItJ) qrmrter qrmrter qrmrter qrmrter
k rndoI_ 31,1989:
_.... 145,183 53.59'1 58,B35 47,!I81
()ponIins iImne 6,593 13399 14.857 . 6,ZZ4 .
Net......, (bs) (673) 3,161 4,489 (847)
Euninp.(bs) p.rll1... (0.05) 0.Z4 0,34 (0.06)
krndol_ 31,1988:
-... 140,906 46.851 SZ.zz9 43,zsz
Openling iImne 4.819 9,Ill6 11,961 5.495
Net eamlngs (bs) (l,Z56) 1.493 3,zn (930)
Earn.., (bs) ""share (0.10) 0.11 0.15 (0.07)
krndol_31,1987:
-... 139,255 44,~ 48,634 39,149
Openling iImne. 6.840 9,167 11,188 5,114
Net eamiC9 I,m 1,076 1,514 698
Earnings ""share 0.09 0.11I 0.18 0.05
Second quarter resuJls Iur 1989 and lOurth quarter resulls Iur
1988 were favorably impacted by $650,000 ($.05 per share) and .
$615,000 ($.05 per share1 respecliYely of II1I'estDIeJt lax credils
from prior years and reIa1ed Interesllnconle iecognized in 1989
and 1988 based on clarification pl'lll'XBl by OOWling reYeI1\Jf
agenI examinatioos
Gain on saE of asselS affected quarterly net earning! and earn-
ing! per share in the years ended December 31, 1989, 1988 and
1987 as IillkJws:
(1n1l1oustmib, ..."" FinI - 1IIIni -
per ...doItJ) qrmrter qrmrter qtIIlI1ir qrmrter
krndol_ 31.1989:
Net pin on SIlo 01..... 11,Z1J3 783 1318 ,1,049
Earn.., ""share .09 .06 .10 .11I
krndol_ 31, 1!188:
Net pin on SIlo 01...... 11,Z90 1,057 1,Z45' 1.z31.
Eamlngs""share .10 .11I .10 .ll9
k rndoI_ 31, 1987:
Net pin on SIlo 01...... 1Z,689 1,148 1.445 3.049
Earn1nss""share .19 .09 .10 .13
35
(J
o
o
o
36
o
(11) REUI'ED PARTY TRANs.\CTKlNS
ClGNA Di.!posiJItm
In Deoernber 00 the Company funned two joiJt wntures ("the
1ImIres") with iIMslJned ponfuIlol managed by CIGNA IIM5l-
IIIl!lIlS, Inc. (CiGNA) to awn and operlIle 9 inns. La Quinla .
mainlains a 25\\\ ~ Interest in each of the jail. YellIures.
The Ienlures pwthased seoen of the inns from the Company tbr
an aggregaIe sales price of $;0,835,1)00. Proceeds to the Company
were COOIjlrisEd of $48,226.000 in cash and the assumption by
the Ienlures of $2,609.000 of exlsting debt. The Company made
equity oomibutioos to the Ienlures lIIIlOUding to $14,897,000
using funds received from the sale. 1Wo additional inns were pur-
chased from an independ8t third party and have been lXlIMrted
to La Quinla Inns La Quinla recel\led $4;0.000 ilr its servia!s in
finding these two inns tbr <XI1Il!ISion. A gain ofapproxiInal!ly
$2,213.000 was reoogni2!d by the Company iti 1lsca1l')88 00
these trarisactioos.
LfJ!4 (fJeraIing !tIrInm, L.P. Di.!posiJItm
In October 1986 the Company sotJ 31 inns to LQM o,erating
Partners, LP. ("the Partnership") lM'Ill!l! aDd arcroIEd by La
QuiIta Motor Inns umited Partnership, a publicly traded master
limited partnership. tbr an aggregate sales price of $136,100.000.
Net proceeds to the Company were canprised of $67,500.000 in
mortgage noleS payable to the Company, $66,oso.ooo in cash and
the assumptioo by the Partnership of $2,5;0.000 of exlsting debt.
SuMequett to the transaction the Company placed the ~
notes with the AElna Life insur.Ince Company at an inleresl rate
less than the rate 00 the nole. The Company eanm $1,616.000
from the arbitrage profit and $33S.ooo from a commitmelt fee
charged to the Partnership tbr the placement of the noleS in fis-
cal year 1987.
AI December 31, 1989 a gain of approximately $2.035,000, net of
partners equil)\ remaiJIld deferred 00 this sale. Thls llffiWlt may
be reoogni2!d 0I'et the period january I, I990 tblOOgh]uly I,
1998 as the Companys obligation ,.......\I'd with an Industrial
ReI1!nue Bond assumed by the Partnership expires.
The Company\ oIlIigation to fund a guar.utee ilr a minimum
cash flow rate of return tbr the partnershJp expired in ~
1989. During the _ IIIOdhs eIKfed Deoember 31, 1989 and the
years eIKfed May 31, 1989 and \988, La Quinla Realty CoIp., a
. wholly-awned subsidiary of the Company and praI partner of
the Partnership, made speda1 capital <Xlnlributions amoonllng to
$3,075.000, $6,ozO.ooo and $3,316.000, respectivdy, which were
funded by the Company. A pre-tax gain 00 sale of assets of
approximately $4,2S7,OOO, $7,236.000, $8,226.000 and $9,654.000,
net of partners equity has been recognized during the seYIn
months ended December 31, 1989 and the years ended May 31,
1989, 1988 and 1987, respectively.
o
Other Recurring 1I'tInst1aions
Under the terms of the master limited partnership agreeDIIIt,
the Company or its alJ'diates are responsible ilr managlng the
business and alIairs of the partnershJp and are editled to .
reimbursemert ilr llIl-d-pocilt expenditures incurred by the
Company or its atIi1iaIes 00 its behalf in connectioo with its
administration and superviskn
La Quinla pays all direct operating expenses 00 behalf of the
Partnership and the I\!IIIures and is reimbursed tbr all such
paj'llll!U.
Management Servias Fees
All inns purchased by the I\!IIIures and the Partnership oootinue
to operlIle under the La Quitta name and are managed by the
Company in acoonIance with long-term managenEIi ~......~
The CooIpany earns manasemn and licensing fees as IWll as
charges ilr chain servia!s such as bodcleepin& natlooaI adwr-
tising and restMtions. During the _ IIIOdhs eIKfed Jlonornbet
31, 1989 and the years eIKfed May 31, 1989, l')88 and 1987, these
teYeI1ues lolaIed $4,o3S.ooo, $6,505.000, $5.071.000, and
$2,465.000, respectively.
(12) SUBSEQUENI' EVENT (unaudited)
In Marcb 1990 lbe Company formed La {JuinJa IJeve/tfmtmI
!tIrInm, L.P., a limited parlnersbfl between lbe Comp/my as
general parlner (4O'r. 0tv1l8T) and AEW !tIrInm, L.P.
('!IEW") as limited parIner (60\\\ oUl1Ier) /0 at:qUireand am-
veri exisling inns /0 La {JuinJa Inns and /0 0ft1II and ~
inns. 11Je f:ompany lnilially conJribuIed eigbIeen inns and
lheir reIaIed 0JSeIs wi1b a deemed conlribuJion value t/
apfJI'arimaIely 144,000,000 (nd of exisIing debll1&SUTMd by
lbe limiIsd Fm1nersbip) and 14,000,000 in cash and AEW
lniliaJJy conIribuled 13,000,000 in cash mid a 169,000,000
no/e payable /0 lbe limiled Fm1nersbip.
Under lbe Ierm8 of /be Farlnersbip, AEW UJiIl baue /be abiIiIy.
after a vesJing perkJd, /0 amverl 6@Q\\\ t/ ils 0IIItIeI'Sbp in
lbe limiIsd Fm1nersbip /0 2.439,000 sbam t//be Comp/myt
CommcII SIot:k. 11Je Fm1nersbip ..nib may be cxmvertsd 0fIer
lbe seven year period beginning lJerember 31, 1991. 1711
limiIsd r,.. /'w.ibip UJiIl be consoIidaJed inIo /be Comp/myt
ftnanciaJ sIaIem8nI8.
I I
o
o
DIRECTORS
OFFICERS
o
Sam Barshop'"
Chairman of the Board of DirecIrJrs
Sam Banhop
Prosidmt (, CbiJf ExecuIiw Ojfker
David B. Daviss
F.recuIWe Wee Prosidmt (, CbiJf qJerrJIing Ojfker
"Il11er J. BlegIer
Smior Wee Prrsident - fIinanoe
Francis P. BissaiIIoo
Smior Wee Prrsident -lJminisI>atiun I> _
llobert S. No)1es
Smior Wee Prrsident - {Ju8JiIy A.jJ. .:..,.4
Alan L ruJls
Smior Wee Prrsident ~ ~ .
Jerry N. .Wlglns
Smior Wee Prrsident - I}JetrJ/itms St/H1Drl
Allen I. Bassuk
Wee Prrsident - /list MimIIgemmt
RoIaod B. Bliss
Wee Prosidmt - ~ IItWm Divisiorr
)ames M. BIomslrom
Wee Prosidmt - ~ F4IIrm Divisiorr
M2riIyn It BoIdrick .
Wee Prosidmt - General annuet
John D. Boni8eld
Wee Prosidmt - AIarIItJIins
Norman S. Daois
Secretary; I't1rlnm; Davis I> (:ediJIo, lnahp...JtJ
awtes A. Gqe
Wee Prosidmt - Design (, CtmJtrudjon
1'homIs G. GruJdI
Wee Prrsident - IntmraI AMdit
awtes f. IbmJeu, J<
Wee Prrsident - /njiJmraHon S)*m
MlcbMe f. HenIde
Wee Prrsident - lIeservaIIons
Philip M. Barshop*
Real Estate Investor, San AnIonio
o
MIs. Rita C1emeols'
FirsJ Lady of 1exos ., Private /nvesJqr, Dallas
Dr. William H. Cunn~
PresidenJ, lIniversiIy of 1exos at Austin
DlMd B. DaviS5"
&ecuIive Ifce PresidenI ., Cbief qwrating 0jJiar
. R. Ted Enloe, mt.
President, LomIIs ., Ne/lJeItm Finatu:iaJ Cmpora/ion, Dallas
Tom C. Frostf.
Cbairman of the Board of DirecIrJrs of CullenIFrost
Baniers, Inc. and Chairman of the Board of DirecIrJrs, Frost
NaIibnoJ Banj, San AnIonio
Edward B. IeIIer*
PresidenI, Real Estate Division, l&4
. GeoQll! KozmeIskyt.
. ......'tJiter;tor of the fCJ InsJiIuIe, lIniversiIy of
'fIrxI1i, AusJin
Chris J. D. Rolet.
President, Merrill LyndJ Private Resaurr.es, New Ilri
Michael Steinberg
Prindpal, AIdridJ, EasImt.m
and T1blk:b, Inc., !kJsIon
Alden E. Wdgnert'*
Real Estate /nvesJqr, Dallas
. Member If /be ExecuIiw CommiIt8I If /be BoatrJ r(./JitwttM .
. t Member If /be AMdit CommiIt8I If /be BoatrJ If /JitwttM
. Member If the CbmpensaIion Committei If /be BoatrJ If /JitwttM
. Member If /be AIarIItJIins CommiIt8IIf /be BoatrJ If Dirrx:ton
* Member If the Stock Op/ion CommiIkIe If /be BoatrJ If Dirrx:ton
Dennis R Hill
Ifce Prosidmt - CfJemI*ms, Centrrd Divisiorr
J. Knoll Hull'
Wee Prosidmt - CfJerrzIIng.l)rtems
Daniel It Mallum
Wee Prosidmt - ~ Services
Mic:haeI A. NosiI
Wee Prosidmt - PerwnneI
Richard Roeben
Wee Prosideni - Purcbasing
WIllWn F. Waedder
Ifce Prosidmt - Contro/Jer
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37
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COIIPOIIATE ..uIlMATICII
LA QUlNTh MOTOR INNS, INC.
La Quinta Plaza,
10010 San Pedro Avenue
P.O. Box 790064.
San AnIonlo, Thxas 78279-0064
512/366-6000
The Companyi common sIllCk is 1lsted on the New 'M
Stock Exi:hange and is lnIded under the symhoI "LQM".
The foIIawIng table p1'Ol'ides, for the years ended December
31, I989 and 1988. the I'3IIllI! rl the high and bv saIes
prices as reported by the New 'ilrk Stock Exi:hange.
1989 1988
High Low Higb Low
194 13 1414 II~
16~ 14 I3~ 12
18'1z 16'4 14'1z I~
18'14 194 1414 1274
AUDITORS
KPMG Peat Marwick
112 East Pecan, Suite 2400
San AnIonlo, Thxas 78205-1505
First quarter
Second quarter
Third quarter
Foorth quarter
TRANSFER .\GOO AND REGISTRAR
Any change in sharehokIer address shoukI be directed in
writing to the Company~ nanster Agert and Registrar at
the address bebv:
NCNB Thxas NatIonal Bank
P.O. Box 831402
Dallas, Thxas 75283-1402
IG-K AVAILAIlIUTY
The Company will furnish to any sharehol:ler withoot
charge a copy of the Compan~ Annual Report on Form
IG-K filed with the Securities and Exi:hange Commission
for the 'ftansilion Period ended December 31. 1989 upon
written request addressed to Kim Anmlrong, Director
Financial Planning, La Quinta Motor Inns, Inc.. P.O. Box
790064, San AnIonlo, Thxas 78279-0064.
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