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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
- ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from to
------------ ------------
Commission file number 1-11723
------------------
WYNDHAM HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2636072
- ---------------------------------------- --------------------
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2001 Bryan Street, Suite 2300
Dallas, Texas 75201
- ---------------------------------------- --------------------
(address of principal executive offices) (Zip Code)
(214) 863-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorten period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES X NO
---------- ----------
The number of shares outstanding of the issuer's common stock as of November
13, 1996: Common Stock, $.01 par value - 20,018,299 shares.
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WYNDHAM HOTEL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income - Quarter and Nine
Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 12
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . 16
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WYNDHAM HOTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 4,160 $ 20,147
Cash, restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,053 857
Accounts receivable, less allowance of $267 at December 31, 1995
and $840 at September 30, 1996 . . . . . . . . . . . . . . . . . 10,838 13,441
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 3,584 14,066
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020 1,437
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . - 1,448
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769 1,964
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 23,424 53,360
Investment in an affiliate's hotel partnership . . . . . . . . . . . . . . 2,597 -
Notes and other receivables from affiliates . . . . . . . . . . . . . . . . 7,674 7,685
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,450 726
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 87,604 129,689
Management contract costs, net . . . . . . . . . . . . . . . . . . . . . . 7,579 7,073
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14,398
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14,749
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,075 12,411
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133,403 $ 240,091
========= =========
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 8,454 $ 23,646
Accounts payable and accrued expenses due to affiliates . . . . . . . . 1,578 198
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,667 1,073
Deposits from affiliates . . . . . . . . . . . . . . . . . . . . . . . 354 344
Current portion of long-term debt and capital lease obligations . . . . 16,035 499
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,592 -
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 30,680 25,760
--------- ---------
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,627 -
Payable to minority interest . . . . . . . . . . . . . . . . . . . . . . . 218 -
Long-term debt and capital lease obligation . . . . . . . . . . . . . . . . 74,943 130,165
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12,250
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------- ---------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,788 142,415
--------- ---------
7,378 -
--------- ---------
Partners' Capital and Stockholders' Equity:
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,860 -
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 200
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . - 84,342
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,894
Receivables from affiliates . . . . . . . . . . . . . . . . . . . . . . (2,303) (1,352)
Notes receivable from stockholders . . . . . . . . . . . . . . . . . . - (19,168)
--------- ---------
Total partners' capital and stockholders' equity . . . . . . . . . . 17,557 71,916
--------- ---------
Total liabilities and equity . . . . . . . . . . . . . . . $ 133,403 $ 240,091
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
Revenues:
Hotel revenues . . . . . . . . . . . . . . . $ 13,025 $ 30,388 $ 41,685 $ 71,302
Management fees . . . . . . . . . . . . . . . 1,554 1,953 5,439 6,434
Management fees - affiliates . . . . . . . . 2,693 4,015 6,470 10,112
Service fees . . . . . . . . . . . . . . . . 582 426 1,494 1,111
Service fees - affiliates . . . . . . . . . . 418 763 1,329 1,850
Reimbursements . . . . . . . . . . . . . . . 1,384 1,503 3,833 4,636
Reimbursements - affiliates . . . . . . . . . 1,492 2,386 3,902 6,176
Other . . . . . . . . . . . . . . . . . . . . 1,119 (19) 1,349 320
-------- -------- -------- --------
Total revenues . . . . . . . . . . . . . . 22,267 41,415 65,501 101,941
-------- -------- -------- --------
Operating costs and expenses:
Hotel expenses . . . . . . . . . . . . . . 9,262 23,923 28,060 52,227
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 4,205 4,373 10,127 12,877
Equity participation compensation . . . . . . 998 - 2,994 2,919
Reimbursable expenses . . . . . . . . . . . . 1,384 1,503 3,833 4,636
Reimbursable expenses - affiliates . . . . . 1,492 2,386 3,902 6,176
Depreciation and amortization . . . . . . . . 1,617 2,151 4,558 5,609
-------- -------- -------- --------
Total operating costs and expenses . . . . 18,958 34,336 53,474 84,444
-------- -------- -------- --------
Operating income . . . . . . . . . . . . . . . . 3,309 7,079 12,027 17,497
Interest income . . . . . . . . . . . . . . . . . 93 539 231 982
Interest income - affiliates . . . . . . . . . . - 180 9 536
Interest expense . . . . . . . . . . . . . . . . (2,155) (3,407) (6,407) (8,462)
Equity in earnings of affiliate's hotel partnership 380 - 1,395 870
Foreign currency gain . . . . . . . . . . . . . . 139 - 253 -
Amortization of deferred gain . . . . . . . . . . - 185 - 320
-------- -------- -------- --------
Income before minority interests . . . . . . . . 1,766 4,576 7,508 11,743
Income attributable to minority interests . . . . 61 - 607 571
-------- -------- -------- --------
Income before income taxes and extraordinary item 1,705 4,576 6,901 11,172
Income tax (provision) benefits . . . . . . . . . - (1,807) - 10,388
-------- -------- -------- --------
Income before extraordinary item . . . . . . . . 1,705 2,769 6,901 21,560
Extraordinary item (less applicable
income tax benefits of $270) . . . . . . . . - - - (1,131)
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 1,705 $ 2,769 $ 6,901 $ 20,429
======== ======== ======== ========
Earnings per share:
Income before extraordinary item - primary
and fully diluted . . . . . . . . . . . . N/A $ .14 N/A $ 1.08
Extraordinary item - primary and fully diluted N/A $ - N/A $ (.06)
Net income - primary and fully diluted . . . N/A $ .14 N/A $ 1.02
Average number of common
shares outstanding . . . . . . . . . . . . 20,018 20,018
The accompanying notes are an integral part of the consolidated financial
statements.
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WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1995 1996
------ ------
(UNAUDITED)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,901 $ 20,429
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 4,558 5,168
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - (12,958)
Provision for bad debt . . . . . . . . . . . . . . . . . . . . . . . . . . 78 628
Amortization of deferred debt issuance costs . . . . . . . . . . . . . . . - 441
Write-off of predecessor deferred debt issuance costs . . . . . . . . . . . - 1,401
Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . . - (312)
Equity in earnings of affiliate's hotel partnership . . . . . . . . . . . . 61 -
Foreign currency translation gain . . . . . . . . . . . . . . . . . . . . . (253) -
Equity participation compensation . . . . . . . . . . . . . . . . . . . . . 2,994 2,919
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 571
Net (deposits to)/withdrawals from restricted cash . . . . . . . . . . . . (128) 2,196
Changes to operating assets and liabilities, net of effects from purchase of hotels:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,225) (3,887)
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 (3,901)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 (67)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77) (2,846)
Current income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,569
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . (3,909) 10,409
Accounts payable and accrued expenses due affiliates . . . . . . . . . . . 976 (2,309)
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251) (1,672)
Deposits from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . (253) (10)
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (13,676)
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,301 (2,564)
------- --------
Net cash provided by operating activities . . . . . . . . . . . . 8,534 2,529
------- --------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (2,753) (4,964)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . - 136,374
Investments in management contracts . . . . . . . . . . . . . . . . . . . . (6,261) (575)
Notes and other receivable from affiliates . . . . . . . . . . . . . . . . (2,184) (11)
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (911) 1,724
Payment for purchase of hotels, net of cash acquired . . . . . . . . . . . - (33,470)
Acquisition of minority interest . . . . . . . . . . . . . . . . . . . . . - (5,479)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (907) -
------- --------
Net cash provided by (used in) investing activities . . . . . . . . (13,016) 93,599
------- --------
Cash flows from financing activities:
Partners' contributed capital . . . . . . . . . . . . . . . . . . . . . . . 15,378 4,801
Partners' capital distributions . . . . . . . . . . . . . . . . . . . . . . (5,891) (29,593)
Distribution made to withdrawing partner . . . . . . . . . . . . . . . . . (2,577) (982)
Decrease (increase) in receivables from affiliates . . . . . . . . . . . . (73) 996
Decrease in payable to affiliates . . . . . . . . . . . . . . . . . . . . . (1,192) (2,627)
Increase (decrease) in payable to minority interest . . . . . . . . . . . . 12 (218)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . - 69,504
Net proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 7,069 94,383
Repayments on long-term debt and capital lease obligations . . . . . . . . (5,670) (197,516)
Notes receivable from stockholders . . . . . . . . . . . . . . . . . . . . - (18,889)
------- --------
Net cash provided by (used in) financing activities . . . . . . . . 7,056 (80,141)
------- --------
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 2,574 15,987
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 3,617 4,160
------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 6,191 $ 20,147
======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
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WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Wyndham Hotel Corporation ("WHC") was incorporated and formed in
February 1996. In May 1996, WHC implemented substantially all of its
formation and financing plan. The accompanying consolidated financial
statements of WHC at September 30, 1996 and for the period since WHC's
implementation of its formation and financing plan in May 1996 and through
September 30, 1996 include the accounts of WHC and its wholly owned
subsidiaries resulting from the formation (collectively, the "Company").
Financial statements at December 31, 1995 and for the periods prior to the
formation included the combined accounts of WHC and its majority owned
entities. All significant intercompany balances and transactions have been
eliminated.
These unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. They do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation at September 30, 1996 have been included. Operating results
for the three months and nine months ended September 30, 1996 are not
necessarily indicative of the operating results for the year ending
December 31, 1996. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the prospectus of the Company (the "Prospectus") dated
May 20, 1996, as filed with the Securities and Exchange Commission.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. INITIAL PUBLIC OFFERINGS ("OFFERINGS") AND REVOLVING CREDIT FACILITY:
In May 1996, the Company implemented a financing plan. As a part of
the financing plan, the Company offered 4,197,500 shares of its common
stock for public trading on the New York Stock Exchange and concurrently
issued $100.0 million of subordinated notes (the "Notes".) The Company
also entered into a new $100.0 million revolving credit facility (the
"Revolving Credit Facility") with a financial institution. For more
information regarding the Company's financing plan, reference is made to
the Prospectus.
3. ACQUISITIONS:
On May 2, 1996, a 70% partnership interest in Garden Hotel Associates,
L.P. ("GHALP") owned by an unaffiliated third party was acquired by a newly
formed partnership owned by an affiliate and senior executive officers. In
a subsequent series of transactions the properties were sold to an
unaffiliated real estate investment trust, and all debt was paid off. The
hotel properties (the "GHALP Properties") were leased back to a newly
formed limited partnership owned by the affiliate and senior executive
officers under a leasing arrangement qualifying as an operating lease and
the lease was transferred to the Company in connection with the formation
of the Company. For a detailed description of the transaction, reference
is made to the Prospectus.
In July 1996, the Company, in separate transactions, acquired a 181
room hotel in Kansas and a 254 room hotel in Dallas, Texas for a total
purchase price of $13.7 million. These acquisitions were funded with a
portion of the net cash proceeds from the initial public offerings and
were accounted for using the purchase method.
On August 30, 1996, the Company acquired a 287 room hotel, the Bristol
Place hotel in Toronto, Canada, (the "Bristol Hotel".) The total
investment approximated $19.9 million with a purchase price of $17.4
million and renovation and other cost of $2.5 million. The acquisition was
paid in cash and the renovation will be completed in April 1997. The cash
payments were funded with a portion of the net proceeds from the initial
public offerings. The acquisition was accounted for using the purchase
method. For financial statements of Bristol Hotel and pro forma financial
information of the Company, see "Item 5. Other Information."
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4. EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation, "
effective January 1, 1996. SFAS No. 123 defines a fair value based method
of accounting for employee stock options or similar instruments and permits
companies to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows a company to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employee". The Company has elected to measure compensation
cost in conformity with APB No. 25 and to make pro forma disclosures of net
income and earnings per share in its annual report on Form 10-K for the
year ending December 31, 1996, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.
Earnings per share for the quarter and nine months ended September 30,
1996 are computed based on the weighted average number of shares of common
stock outstanding. The impact of common stock equivalents to earnings per
share is immaterial.
Earnings per share data for the quarter and nine months ended
September 30, 1995 relates to periods prior to the Company's formation and
therefore is not presented.
5. FEDERAL INCOME TAXES:
Since the Company's formation in May 1996, federal income taxes have
been provided in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). Under the liability method of SFAS 109,
deferred taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates
in effect in the years the differences are expected to reverse. In
accordance with SFAS 109, the Company has recorded a net income tax
benefit of $10.7 million since its formation.
6. COMMITMENTS AND CONTINGENCIES:
Litigation has been initiated against the Company pertaining to the
right to use the Wyndham name for hotel service in the New York
metropolitan area. On January 29, 1996, a temporary restraining order was
issued by the Supreme Court of the State of New York which, pending the
outcome of a trial, prevents the Company from using the Wyndham name in the
New York area. An adverse decision in the litigation could prevent the
Company from operating Wyndham brand hotels or advertising the Wyndham name
in connection with the operation of a Wyndham brand hotel within a 50 mile
radius of a hotel in Manhattan operated under the "Wyndham" name. It is
management's opinion, based on legal counsel, that the range of losses
resulting from the ultimate resolution of the aforementioned claim cannot
be determined. The cost of $886,000 at September 30, 1996 for defending
the trademark has been capitalized and is being amortized over 17 years,
pending the ultimate resolution. An adverse decision may result in the
immediate write-off of those capitalized costs.
The Company received a Notice of Intent to make Sales and Use Tax
audit changes from the Tampa Region of the Florida Department of Revenue
for the period from July 31, 1990 through June 30, 1995. The audit
assessed additional taxes of $584,399, penalty of $223,494 and interest of
$201,024 for a total assessment of $1,008,917. The previous owners (an
affiliate) have agreed to indemnify the Company with respect to any
additional sales and use tax paid by the Company for the audit period.
Management, after review and consultation with legal counsel, believes the
Company has meritorious defenses to this matter and that any potential
liability in excess of the $189,000 recorded would not materially effect
the Company's consolidated financial statements.
On February 29, 1996, an affiliate and the Company were served with a
complaint filed on November 22, 1995 by an owner of a hotel managed by the
affiliate. The claim involves the collection of a promissory note relating
to an earlier litigation between the affiliate and the owner. The owner
alleges that the transfer of certain management contracts by the affiliate
to the Company was a fraudulent conveyance that rendered the affiliate
insolvent. Liability for payment of the promissory note was not
transferred to or assumed by the Company. The affiliate has agreed to
indemnify the Company with respect to this litigation.
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The Company has pending several other claims incurred in the normal
course of business which, in the opinion of management, based on the advice
of legal counsel, will not have a material effect on the consolidated
financial statements.
Pursuant to the terms of the management agreements of two
affiliate-owned hotels under construction, the Company has undertaken
certain commitments to provide furniture, fixtures and equipment for each
hotel at a fixed price totaling $8.1 million. The Company has guaranteed
to fund up to $230,000 in working capital per year for three years after
one of the hotels is opened in the event that the hotel generates
inadequate cash flow and the Company has guaranteed $875,000 in
indebtedness. Pursuant to the terms of an interim management agreement for
a resort hotel property, the Company has undertaken, subject to certain
contingencies, certain commitments to provide approximately $1.3 million,
approximately $750,000 of which shall be used for preopening expenses and
the purchase of furniture, fixtures and equipment and the remainder of
which shall be used to fund working capital for the hotel.
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed to fund up to $600,000 of working
capital per year to the extent the entity experiences operating deficits,
with a maximum required contribution of $2.3 million over the term of the
guarantee extending from 1995 to 2000. The Company has not to date been
required to make any capital contribution under the guarantee.
The Company is subject to environmental regulations related to the
ownership, management, development and acquisition of real estate (hotels).
The cost of complying with the environmental regulations was not material
to the Company's consolidated statements of income for the year ended
December 31, 1995 and the nine months ended September 30, 1996. The
Company is not aware of any environmental condition on any of its
properties which is likely to have a material adverse effect on the
Company's financial statements.
7. CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES:
In connection with the issuance of the $100 million subordinated notes
("Notes"), all of the Company's direct and indirect subsidiaries, with the
exception of a number of subsidiaries (which subsidiaries are individually
and collectively inconsequential), are fully and unconditionally
guaranteeing the Company's obligations under the Notes on a joint and
several basis (the "Guarantor Subsidiaries"). Accordingly, the condensed
consolidated financial information set forth below summarizes financial
information for all of the Guarantor Subsidiaries on a consolidated basis.
Separate complete financial statements and other disclosure for the
Guarantor Subsidiaries have not been presented because management does not
believe that such information is material to investors. The condensed
consolidated financial information of the Guarantor Subsidiaries as of
December 31, 1995 and September 30, 1996, and for the quarter and nine
months ended September 30, 1995 and 1996 are presented as follows:
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9
GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 3,708 $ 5,039
Cash, restricted . . . . . . . . . . . . . . . . . . . . . . . . . 2,595 857
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 13,732 21,500
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,606 2,714
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . 21,641 30,110
Investment in an affiliate's hotel partnership . . . . . . . . . . . 2,597 -
Notes and other receivables from affiliates . . . . . . . . . . . . 7,674 7,685
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 2,450 726
Property and equipment, net . . . . . . . . . . . . . . . . . . . . 47,321 59,041
Management contract costs, net . . . . . . . . . . . . . . . . . . . 7,579 7,073
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . - 14,398
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068 3,314
-------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,330 $ 122,347
======== =========
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities . . . . . . . . . . . . . $ 6,600 $ 16,371
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 1,147
Current portion of long-term debt and capital lease obligation . . 3,428 499
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . 1,454 39,792
-------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . 13,396 57,809
-------- ---------
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . 2,627 -
Payable to minority interest . . . . . . . . . . . . . . . . . . . . 218 -
Long-term debt and capital lease obligation . . . . . . . . . . . . 40,659 30,083
-------- ---------
43,504 30,083
-------- ---------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . 7,379 -
-------- ---------
Partners' capital and stockholders' equity:
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . (1,927) (1,352)
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . . 27,978 -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . - 31,071
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . - 4,736
-------- ---------
Total partners' capital and stockholders' equity . . . . . . . 26,051 34,455
-------- ---------
Total liabilities and equity . . . . . . $ 90,330 $ 122,347
======== =========
See note to the condensed consolidated financial information.
8
10
GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------- -----------------
1995 1996 1995 1996
------ ------ ------ ------
(UNAUDITED)
Revenues . . . . . . . . . . . . . . . . . . $16,369 $ 33,422 $ 48,344 $ 82,280
------- -------- -------- --------
Operating costs and expenses . . . . . . . . 13,328 25,438 37,008 60,778
Depreciation and amortization . . . . . . . 1,029 1,180 2,793 3,352
Other . . . . . . . . . . . . . . . . . . . 48 76 34 520
------- -------- -------- --------
Total operating costs and expenses . . . 14,405 26,694 39,835 64,650
------- -------- -------- --------
Operating income . . . . . . . . . . . . . . 1,964 6,728 8,509 17,630
Interest expense, net . . . . . . . . . . . (1,039) (338) (3,033) (2,128)
Equity in earnings of affiliate's hotel partnership 380 - 1,395 870
Foreign currency gain . . . . . . . . . . . 139 - 253 -
------- -------- -------- --------
Income before minority interests . . . . . . 1,444 6,390 7,124 16,372
Income attributable to minority interests . 61 - 607 571
------- -------- -------- --------
Income before income taxes and
extraordinary item . . . . . . . . . . . 1,383 6,390 6,517 15,801
Income taxes . . . . . . . . . . . . . . . . - 2,524 - 3,325
------- -------- -------- --------
Income before extraordinary items . . . . . 1,383 3,866 6,517 12,476
Extraordinary item (less applicable tax benefits) - - - (1,028)
------- -------- -------- --------
Net income . . . . . . . . . . . . . . . $ 1,383 $ 3,866 $ 6,517 $ 11,448
======= ======== ======== ========
See note to the condensed consolidated financial information
9
11
GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1995 1996
------- -------
(UNAUDITED)
Net cash provided by operating activities $ 5,634 $ 2,322
-------- ---------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . (2,277) (3,581)
Sale of property and equipment . . . . . . . . . . . . . . . . . . . . - 133,778
Investments in management contracts . . . . . . . . . . . . . . . . . . (3,478) (575)
Notes and other receivable from affiliates . . . . . . . . . . . . . . (2,184) (11)
Payment for purchase of hotels, net of cash acquired . . . . . . . . . - (2,520)
Acquisition of minority interest . . . . . . . . . . . . . . . . . . . - (5,479)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,546) 1,674
-------- ---------
Net cash provided by (used in) investing activities . . . . . . . . . . (9,485) 123,286
-------- ---------
Cash flows from financing activities:
Partners' contributed capital . . . . . . . . . . . . . . . . . . . . . 11,135 26,502
Partners' capital distributions . . . . . . . . . . . . . . . . . . . . (7,888) (42,572)
Decrease (increase) in receivables from affiliates . . . . . . . . . . (73) 5,327
Increase (decrease in payable to affiliates . . . . . . . . . . . . . . (55) 32,379
Increase (decrease) in payable to minority interest . . . . . . . . . . 11 (218)
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 7,100 2,500
Repayment of long-term debt and capital lease obligations . . . . . . . (3,416) (148,195)
-------- ---------
Net cash provided by (used in) financing activities . . . . . . . . 6,814 (124,277)
-------- ---------
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . 2,963 1,331
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 2,469 3,708
-------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 5,432 $ 5,039
======== =========
Note to Condensed Consolidated Financial Information:
(1) The foregoing condensed combined financial information includes GHALP
Corporation, Waterfront Management Corporation, WHCMB, Inc., Wyndham
Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC
Vinings Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose
Hall Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC
Development Corporation, Rodehouse Restaurants of Kansas, Inc.,
WHCMB, Toronto, Inc., WHC Columbus Corporation, Wyndham Hotels &
Resorts Management Ltd. and a management subsidiary for a non-branded
hotel. They all are wholly-owned subsidiaries of the Company at
September 30, 1996.
8. SUBSEQUENT EVENTS
Subsequent to the quarter ended September 30, 1996, the Company entered into
separate letters of intent and made non-refundable earnest money deposits
totalling approximately $1.4 million to acquire one hotel property and one
minority interest investment in a hotel property.
10
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from the following primary sources:
(1) The Company's hotel revenues are generated from the hotels owned or
leased by the Company during the periods presented and reflect revenues from
room rentals, food and beverage sales and other sources, including telephone,
guest services, meeting room rentals, gift shops and other amenities.
(2) The Company derives management fees from the hotels it manages. These
fees are comprised of base and incentive management fees, as well as trade name
fees. Base management fees are typically calculated based upon a specified
percentage of gross revenues from hotel operations, and incentive management
fees are usually calculated based upon a specified percentage of the hotel's
operating profit or the amount by which the hotel's operating profit exceeds
specified performance targets. Trade name fees are typically calculated based
upon a specified percentage of gross room revenues for hotels operated under
the Wyndham brand name.
(3) The Company generates service fee revenues from hotels that it manages
or franchises. Service fee revenues include fees derived from accounting,
design, construction and purchasing services, as well as technical assistance
provided to managed or franchised portfolio hotels. As a substantial portion
of the fees derived from the provision of design, construction and initial
purchasing services are generated in connection with hotel construction and
renovation activities, the amount of these fees varies depending upon the level
of the Company's external activities, including new hotel management contracts
and construction projects.
(4) The Company derives reimbursement revenues from hotels that it manages
or franchises. These revenues are intended primarily to match corresponding
expenses and serve to reimburse the Company for the expense associated with
providing advertising and promotion, sales and marketing, centralized
reservations and other services.
The following sets forth certain operating data with respect to certain
hotels owned, operated or franchised by the Company or its subsidiaries:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
COMPARABLE HOTELS(1) 1996 1995 % CHANGE 1996 1995 % CHANGE
---- ---- -------- ---- ---- --------
Average Daily Rate $88.95 $81.76 8.8% $91.83 $84.76 8.3%
Occupancy 72.7% 69.9% 4.0% 72.3% 70.8% 2.1%
Revenue Per Available Room $64.68 $57.12 13.2% $66.37 $60.04 10.5%
HOTELS OPERATED
SINCE 1/1/93(2)
Average Daily Rate $89.03 $80.98 9.9% $91.96 $84.18 9.2%
Occupancy 70.9% 73.3% (3.3%) 72.7% 73.6% (1.2%)
Revenue Per Available Room $63.10 $59.38 6.3%(3) $66.85 $61.94 7.9%(3)
(1) The comparable hotel statistics reflect the results of the 51
hotels for three months and 56 hotels for nine months that were
operated by Wyndham for both reporting periods.
(2) The Company's prospectus contained on the comparable set of 30
hotels which have been managed by the Company since January 1,
1993.
(3) Excluding hotels operating in the Caribbean, RevPar increase was
8.8% and 8.6% for the three and nine months periods, respectively.
11
13
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of total revenues and certain other data for each of the periods
presented:
Quarter Ended Nine Months Ended
September 30 September 30
------------- -----------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues:
Hotel revenues . . . . . . . . . . . . . . . . 58% 73% 64% 70%
Management fees . . . . . . . . . . . . . . . 19 15 18 16
Services fees . . . . . . . . . . . . . . . . 5 3 4 3
Reimbursement revenues . . . . . . . . . . . . 13 9 12 11
Other . . . . . . . . . . . . . . . . . . . . 5 - 2 -
--- --- --- ---
Total revenues . . . . . . . . . . . . . . 100 100 100 100
--- --- --- ---
Operating costs and expenses:
Hotel expenses . . . . . . . . . . . . . . . . 42 58 43 51
Selling, general and administrative expense . 19 11 15 13
Equity participation compensation . . . . . . 4 - 5 3
Reimbursable expense . . . . . . . . . . . . . 13 9 12 11
Depreciation and amortization . . . . . . . . 7 5 7 5
--- --- --- ---
Total operating costs and expenses . . . . 85 83 82 83
--- --- --- ---
Operating income . . . . . . . . . . . . . . . . . 15 17 18 17
Interest expense, net . . . . . . . . . . . . . . . (10) (6) (9) (7)
Equity in earnings of affiliate's hotel partnership 2 - 2 1
Foreign currency gain . . . . . . . . . . . . . . . 1 - - -
Amortization of deferred gain . . . . . . . . . . . - - - 1
--- --- --- ---
Income before minority interests . . . . . . . . . 8 11 11 12
Income attributable to minority interests . . . . . - - 1 1
--- --- --- ---
Income before income tax benefit
and extraordinary item . . . . . . . . . 8% 11% 10% 11%
=== === === ===
1996 Third Quarter Compared to 1995 Third Quarter
Total revenues increased by 86%, or $19.1 million to $41.4 million in 1996
from $22.3 million in 1995. Total operating expenses increased by 81%, or
$15.3 million to $34.3 million in 1996 from $19.0 million in 1995. The
increase in total revenues and expenses was attributable principally to the
addition of the GHALP Properties resulting from the consummation of the GHALP
transaction on May 2, 1996, reflecting the consolidation of the results of the
GHALP Properties resulting from a change from an equity investment to a
leasehold interest. The GHALP Properties accounted for 79%, or $15.1 million
of the increase in total revenues and 90%, or $13.9 million of the increase in
total expenses. The increase in total revenues and expenses was also
attributable to the increase in the number of hotels in the hotel portfolio.
Hotel revenues increased by 133%, or $17.4 million, to $30.4 million in
1996 from $13.0 million in 1995. Approximately 87% of the increase, or $15.1
million was due to the GHALP Properties. The balance of the increase was the
result of the acquisition of four new hotels. As a percentage of total
revenues, hotel revenues increased to 73% in 1996 compared to 58% in 1995,
primarily reflecting the effects of consolidating the GHALP Properties.
The operating results of a company-owned Caribbean resort decreased from
the corresponding period in the prior year as a result of the disruption created
by several hurricanes this fall. However, this negative impact was offset by
the improved operating results of other existing hotels.
12
14
Revenues from management fees increased by 41% or approximately $1.7
million to $6.0 million in 1996 from $4.3 million in 1995. Approximately
$910,000 of this increase resulted from new managed hotels added between
September 30, 1995 and September 30, 1996. Approximately $1.7 million of the
increase was attributable to increased management fees as a result of improved
operating results of the existing managed hotels. The increase also reflected
management fee revenues of approximately $301,000 as a result of the release
and discharge of the Company from its obligation to make payments to an
affiliate under an agreement. The increase was offset by approximately
$380,000 from the loss of certain management contracts and $837,000 from the
elimination of the revenues from GHALP Properties as a result of consolidating
the GHALP Properties into the Company.
Revenues from service fees increased by 19%, or approximately $189,000, to
$1.2 million in 1996 from $1.0 million in 1995, due primarily to increased
central accounting fees and higher revenues derived from the provision of
purchasing services. The increase was partially offset by the elimination of
service fees of approximately $182,000 earned from GHALP Properties as a result
of the consolidation of the results of operations of GHALP Properties.
Reimbursable revenues increased by 35% or approximately $1.0 million, to
$3.9 million in 1996 from $2.9 million in 1995. The increase was due to growth
of the hotel portfolio for the 1996 quarter as noted above in comparison to
1995, resulting in increased payments to the Company's Marketing Fund. The
increase was partially offset by approximately $449,000, reflecting the
elimination of reimbursable revenues from the GHALP Properties as a result of
consolidation of the operating results of GHALP Properties.
Other income decreased by 102%, or approximately $1.1 million, comparing
the 1996 quarter with the 1995 quarter. Included in the 1995 quarter was a fee
of $1.0 million recognized from the termination of a management contract.
Hotel expenses increased by 158%, or $14.7 million, to $23.9 million in
1996 from $9.2 million in 1995. The consolidation of results of operations of
the GHALP Properties accounted for $13.6 million, or 93%, of the increase. The
balance of the increase was the result of the acquisition of four new hotels.
As a percentage of total revenues, hotel expenses increased to 58% in 1996 as
compared with 42% in 1995, primarily reflecting the effects of consolidating
the GHALP Properties.
The Company did not recognize any equity participation expenses in the 1996
quarter. The primary component of the compensation expense was fixed at the
initial public offering price, and therefore is not incurred for periods
subsequent to the equity offering. See Prospectus.
Reimbursable expenses grew by 35%, or $1.0 million, to $3.9 million in 1996
from $2.9 million in 1995. As a percentage of total revenues, reimbursable
expenses constituted 9% of total revenues in 1996 compared with 13% in 1995.
These increases were primarily due to increased advertising and promotional
expense, as well as costs associated with expanding the Company's national
sales staff to support both individual business and group sales as a result of
growth of the hotel portfolio in 1996 as noted previously in comparison to
1995. Offset to the increase was a decrease of $449,000, reflecting the
elimination of reimbursable expenses from the GHALP Properties as a result of
the consolidation of the results of the operations of the GHALP Properties.
Depreciation and amortization expense increased by 33%, or approximately
$535,000, to $2.1 million in 1996 from $1.6 million in 1995 due to the net
acquisition of property and equipment and the amortization of the acquisition
costs of management contracts. Also included in the increase was approximately
$331,000 from amortization of deferred debt issuance costs relating to the
Notes and the Revolving Credit Facility.
Interest income increased by approximately $626,000 to $719,000 in 1996
from approximately $93,000 in 1995. The increase was primarily attributable to
approximately $428,000 to income earned on unused cash generated from the
Offerings and income on notes receivable.
Interest expense increased by 58%, or $1.2 million, to $3.4 million in 1996
from $2.2 million in 1995, reflecting the additional interest from the Notes,
capital leases and bank fees, less the elimination of interest expense from the
retired debt and affiliated borrowings.
Earnings from the Company's equity investment in hotel partnership ceased
following the May 2, 1996 consolidation of the results of operations of GHALP
Properties.
13
15
Income attributable to minority interest was eliminated as a result of the
acquisition of the minority interest as part of the Company's formation.
Reference is made to the Prospectus.
As a result of the changes noted above, income before income tax provision
increased by 168% or $2.9 million, to $4.6 million in 1996 from $1.7 million in
1995.
Income taxes of $1.8 million represent the tax provision for the results of
operations for the 1996 quarter. The operations of the entity were not taxable
for 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Total revenues increased by 56%, or $36.4 million to $101.9 million in 1996
from $65.5 million in 1995. Total operating costs and expenses increased by
58%, or $31.0 million to $84.4 million in 1996 from $53.4 million in 1995.
The increase in total revenues and operating expenses was attributable
principally to the addition of the GHALP Properties resulting from the
consummation of the GHALP Properties transaction on May 2, 1996 and to an
increase in the number of hotels in the hotel portfolio.
Hotel revenues increased by 71%, or $29.6 million, to $71.3 million in 1996
from $41.7 million in 1995. Approximately 84% of the increase, or $24.8
million was due to the GHALP Properties. The balance of the increase was the
result of an increase in hotel room rental revenues and the acquisition of four
new hotels.
Revenues from management fees increased by 39%, or approximately $4.7
million, to $16.5 million in 1996 from $11.9 million in 1995. Approximately
$2.5 million of this increase resulted from 20 new managed hotels added between
September 30, 1995 and September 30, 1996. Approximately $3.7 million of the
increase was attributable to increased management fees as a result of improved
operating results of managed hotels. The increase also reflected management
fee revenues of approximately $624,000 as a result of the release and discharge
of the Company from its obligation to make payments to an affiliate under an
agreement. The increase was offset by $876,000 from the loss of certain
management contracts and $1.2 million which was attributable to the elimination
of management fees earned from GHALP Properties as a result of the
consolidation of the results of operations of GHALP Properties.
Revenues from service fees increased by 5%, or approximately $137,000 to
$3.0 million in 1996 from $2.8 million in 1995. The increase was primarily due
to increased central accounting fees. The increase was offset by approximately
$201,000 attributable to the elimination of service fees earned from GHALP
Properties, reflecting the consolidation of the results of GHALP Properties.
Reimbursable revenues increased by 40%, or $3.1 million, to $10.8 million
in 1996 from $7.7 million in 1995. The increase was due to growth of the hotel
portfolio for 1996 as noted previously in comparison to 1995, resulting in
increased payments to the Company's Marketing Fund. The increase was partially
offset by approximately $818,000 reflecting the elimination of reimbursable
revenues earned from the GHALP Properties as a result of the consolidation of
the results of operations of GHALP Properties.
Other income decreased by 76%, or $1.0 million in 1996. Other income
included $1.0 million and approximately $250,000 in fees recognized from
termination of management contracts in 1995 and 1996, respectively.
Hotel expenses increased by 86%, or $24.1 million, to $52.2 million in 1996
from $28.1 million in 1995, reflecting the additional hotel expenses from GHALP
Properties as a result of the consolidation of the results of operations of
GHALP Properties. Approximately 93% of the increase, or $22.5 million, was a
result of the consolidation of the GHALP Properties. The increase also
reflected an increase in room expenses and food and beverages expenses
commensurate with revenue increases. These increases were offset by a $544,000
reduction in hotel expense resulting from the write-off of a reserve for
contingent liabilities as a result of the final settlement of contract
assignments on one of the Company's hotel properties. As a percentage of hotel
revenues, hotel expenses increased to 73% in 1996 from 67% in 1995. The
increase in hotel expense percentage was primarily attributable to a $5.7
million lease payment associated with the GHALP Properties. Excluding the
GHALP Properties lease payment and the reversal of contingent liabilities, the
percentage of hotel expenses to hotel revenues would have been 65%.
14
16
SG&A expenses increased by 27%, or $2.8 million, to $12.9 million in 1996
from $10.1 million in 1995. As a percentage of total revenues, SG&A expenses
decreased to 13% in 1996 from 15% in 1995. Of the increase in SG&A expenses,
79% of the increase, or $2.2 million was due to increased wage, contract labor
and benefit costs arising from the addition of corporate management and staff
personnel related to the general growth of the Company. In addition, 10% of
the increase, or approximately $281,000, is due to the establishment of a
provision for bad debt expense for management fees on an unaffiliated hotel,
and 12% or $321,000 is due to the establishment of a provision for bad debt
related to certain receivables. The increase also reflected additional costs of
managing and administering a publicly held company.
Equity participation compensation expenses decreased by 3%, or
approximately $75,000, to $2.9 million in 1996 from $3.0 million in 1995. The
primary component of the compensation expense, which is that attributable to
the senior executive officers, was fixed at the initial public offering price,
and the Company will not incur additional expense for such component for
periods subsequent to the equity offering. See Prospectus.
Reimbursable expenses grew by 40%, or $3.1 million, to $10.8 million in
1996 from $7.7 million in 1995. As a percentage of total revenues,
reimbursable expenses decreased to 11% in 1996 from 12% in 1995. These
increases were primarily due to increased advertising and promotional expense,
as well as costs associated with expanding the Company's national sales staff
to support both individual business and group sales as a result of growth of
the hotel portfolio in 1996 as noted previously in comparison to 1995.
Offsetting the increase was a decrease of $818,000 reflecting the elimination
of reimbursable expenses from the GHALP Properties as a result of the
consolidation of the results of the operations of GHALP Properties.
Depreciation and amortization expense increased by 23%, or $1.0 million, to
$5.6 million in 1996 from $4.6 million in 1995 due to the net acquisition of
property and equipment and the amortization of the acquisition costs of
management contracts. Also included in the increase was approximately $441,000
from the amortization of deferred debt issuance costs relating to the Notes and
the Revolving Credit Facility.
Interest income increased by $1.3 million to $1.5 million in 1996 from
approximately $240,000 in 1995. The increase was primarily attributable to
approximately $671,000 income earned on unused cash generated from the
Offerings and approximately $557,000 income on notes receivable.
Interest expense increased by 32%, or approximately $2.1 million, to $8.5
million in 1996 from $6.4 million in 1995, reflecting the additional interest
from the Notes, capital leases, less the elimination of interest expense from
the retired debt and affiliated borrowings.
Earnings from the Company's equity investment in hotel partnership ceased
following the May 2, 1996 consolidation of the results of operations of the
GHALP Properties.
Income attributable to minority interest was eliminated as a result of the
acquisition of the minority interest as part of the Company's formation.
Reference is made to the Prospectus.
As a result of the changes noted above, income before income tax benefit
increased by 62%, or $4.3 million, to $11.2 million in 1996 from $6.9 million
in 1995.
Income tax benefit of $10.7 million reflected the effect of recording
deferred income taxes arising as a result of incorporation in the amount of
$13.0 million, net of $2.3 million for the provision for the results of
operations since incorporation.
The extraordinary item of $1.1 million was a writeoff of the unamortized
debt costs of $1.4 million as the Company's pre-existing debt was paid off at
the Company's formation, net of applicable tax of approximately $270,000.
15
17
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs include cash to finance
operations, capital requirements relating to ongoing hotel maintenance and
improvements at the Company's owned and leased hotels, capital requirements
associated with the Company's entry into new management contracts and
improvements to the related hotel properties, hotel acquisition financing and
the repayment of indebtedness. The Company has historically satisfied its
capital and liquidity needs through cash generated by operations, mortgage
indebtedness and commercial debt financing.
During the nine months ended September 30, 1996, the Company generated cash
from operations of $2.5 million as compared to $8.5 million in the 1995 period.
On acquired properties, the Company intends to make renovations of
approximately $15.7 million and make improvements of approximately $3.2 million
on an existing resort property.
During the quarter ended June 30, 1996, the Company consummated the
formation and the Offerings. The Company received net proceeds from the
Offerings in the aggregate amount of $161 million. These proceeds, including
the "Bedrock" contribution of $10.0 million (as described in the Prospectus),
were used to implement the Company's formation and financing plan. Remaining
proceeds will be applied in accordance with the formation and financing plan.
See Prospectus.
The Company issued $100 million in 10-1/2% Senior Subordinated Notes which
are due in 2006. The Notes are unsecured obligations of the Company and are
guaranteed by each of the Company's subsidiaries (except for a number of
inconsequential subsidiaries). The Notes bear interest at 10-1/2% per annum
and such interest is payable semi-annually on May 15 and November 15,
commencing November 15, 1996. Except in the event of a "change of control" (as
defined), there will be no principal due on the Notes prior to final maturity.
The Indenture relating to the Notes contains certain covenants restricting the
Company's ability to incur indebtedness and otherwise limiting the Company's
activities.
The Company also obtained a $100 million revolving line of credit in May,
1996 (the "Revolving Credit Facility"). The Revolving Credit Facility is a
direct obligation of the Company and is fully and unconditionally guaranteed by
each of the Company's subsidiaries. Such obligations and guaranties rank
senior in right of payment to the Notes and are secured by substantially all of
the assets of the Company and subsidiaries. While no amounts had been drawn
under the Revolving Credit Facility at September 30, 1996, approximately $43.1
million aggregate principal amount was available for borrowings at such date in
accordance with the terms of the Revolving Credit Facility. Availability under
the Revolving Credit Facility is subject, among other things, to a borrowing
base test calculated with reference to the cash flow from the Company's hotels,
hotel properties and management contracts pledged to secure the obligations of
the Company under the Revolving Credit Facility, the location of certain of
such properties, the terms of such management contracts, the relative
contribution to the borrowing base of the different values attributed to such
properties and the values attributable to both the properties taken as a whole
and the management contracts taken as a whole and other factors. Under the
terms of the Revolving Credit Facility, no further borrowings may be made by
the Company following the third anniversary of the closing of the Revolving
Credit Facility. The Revolving Credit Facility will mature four years from its
closing date. Amounts drawn under the Revolving Credit Facility bear interest
at a variable rate. The Revolving Credit Facility contains covenants requiring
the Company to maintain certain financial ratios and certain covenants
restricting the activities of the Company.
The Company assumed $9.7 million in bond indebtedness as part of the
acquisition of the Wyndham Vinings Hotel.
The Company does not intend to declare any cash dividends in the
foreseeable future. The Company anticipates that cash provided by operations,
the Offerings and the Revolving Credit Facilities discussed above and in the
Prospectus will be sufficient to meet anticipated cash requirements in the near
future.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
FINANCIAL STATEMENTS OF ACQUIRED PROPERTY
On August 30, 1996, the Company acquired a 287 room hotel, the Bristol
Hotel, from an unaffiliated party. The audited financial statements of the
Bristol Hotel for the year ended December 31, 1995 as required by Rule 3-05 of
Regulation S-X are presented as Exhibit 99 to this report.
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information are presented in accordance
with Regulation S-X to reflect the acquisition of Bristol Hotel as if it had
occurred at the beginning of the year (in thousands, expect per share data):
Historical Pro Forma Pro Forma
Data Adjustments Data
---------- ----------- ---------
Nine months ended September 30, 1995:
Total revenues $ 65,501 $ 7,597 $ 73,098
Net income 6,901 (9) 6,892
Earnings per share (primary and fully diluted) N/A - N/A
Nine months ended September 30, 1996:
Total revenues $101,941 $ 6,533 $108,474
Income before extraordinary item 21,560 (267) 21,293
Net income 20,429 (267) 20,162
Earnings per share (primary and fully diluted)
Income before extraordinary items 1.08 (.01) 1.07
Net Income 1.02 (.01) 1.01
NEW MANAGEMENT CONTRACT
On August 26, 1996, a subsidiary of the Company entered into a master
management assistance agreement (the "Agreement) with Homegate Hospitality,
Inc., a newly formed public company, to be the exclusive provider of hotel
management, purchasing, marketing and technical services for extended-stay
hotel properties. The hotel properties are operated under the name Homegate
Studios and Suites and are targeted principally at business travellers and
professionals on temporary work assignments who typically spend a week or more
in one location. The Agreement provides for the Company to manage up to sixty
extended-stay properties pursuant to separate 10 year management contracts.
The Agreement terminates upon the earlier of the signing of a management
contract for the sixtieth hotel or December 31, 1998. For the term of the
Agreement, the Company has agreed, subject to certain exceptions, not to own,
operate or manage competing extended-stay hotel properties. As of September
30, 1996, the Company managed six Homegate Studios & Suites Hotels.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number
(10.1) Management contract between Homegate Hospitality, Inc. and
Wyndham Hotel Corporation, dated August 26, 1996.
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
(99) Audited Financial Statements of Acquired Property.
(b) Reports on Form 8-K:
Form 8-K dated September 16, 1996 reporting WHC's acquisition of
a hotel property in Toronto, Canada on August 30, 1996. No financial
statements were included. However, the financial statements of the
acquired property and proforma financial information of WHC required
in accordance with Regulation S-X are included in "Part II Item 5.
Other Information" and Exhibit 99 of this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WYNDHAM HOTEL CORPORATION
-------------------------
(Registrant)
Date: November 13, 1996 By: /S/ JAMES D. CARREKER
--------------------------------------
James D. Carreker
President and Chief Executive Officer
Date: November 13, 1996 By: /S/ ANNE L. RAYMOND
--------------------------------------
Anne L. Raymond
Chief Financial Officer, Executive
Vice President and Director (principal
Financial Officer)
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EXHIBIT INDEX
Exhibit
Number
10.1 Management contract between Homegate Hospitality, Inc. and Wyndham
Hotel Corporation, dated August 26, 1996.
11 Computation of Earnings Per Share.
27 Financial Date Schedule.
99 Audited Financial Statements of Acquired Property.