CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheet and condensed pro forma
combined statement of operations, collectively, the "Pro Forma Financial
Statements", were prepared by WestCoast Hospitality Corporation ("WestCoast"),
(formerly Cavanaughs Hospitality Corporation) to illustrate the estimated
effects of the business combination to be accounted for as a purchase under
generally accepted accounting principles. Effective December 31, 1999,
Cavanaughs Hospitality Corporation ("Cavanaughs") acquired through multiple
purchase agreements all of the outstanding stock of WestCoast Hotels, Inc., a
Washington corporation and 100% of the interest in Bellevue Inn LLC. Effective
February 3, 2000, the Articles of Incorporation of Cavanaughs were amended to
change the name of the Registrant to WestCoast Hospitality Corporation. As used
herein, "Cavanaughs" refers to the entity prior to the acquisition of WestCoast
Hotels Inc. "WestCoast Hotels" refers to the entity acquired by Cavanaughs
effective December 31, 1999. "WestCoast Hospitality Corporation" refers to the
combined entity of Cavanaughs and WestCoast Hotels.
The financial information of Cavanaughs and WestCoast Hotels has been combined
as if the acquisition occurred as of January 1, 1999 for purposes of the
condensed pro forma combined statement of operations, and as of December 31,
1999, for purposes of the condensed pro forma combined balance sheet. There are
no differences between Cavanaughs' and WestCoast Hotels' accounting policies
which are expected to have a material impact on the Pro Forma Combined Financial
Statements. The Pro Forma Financial Statements do not purport to present the
combined financial position or results of operations if the combination had
occurred at the beginning of the period or to project the combined financial
position or results of operations for any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
historical consolidated financial statements, including the notes thereto, of
Cavanaughs Hospitality Corporation, which are included in the Registrant's 1998
Form 10K and the PNWWC Holdings, Inc. (of which WestCoast Hotels, Inc. is a
subsidiary), which are included elsewhere in this document.
The Pro Forma Financial Statements are presented utilizing the purchase method
of accounting whereby the excess of the total purchase price over the fair value
of the net tangible and identifiable intangible assets acquired is recorded as
goodwill. The combined pro forma results of operations presented herein are not
necessarily indicative of the future results of operations.
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Cavanaughs / WestCoast Hotels
Condensed Combined Balance Sheet at December 31, 1999
(in thousands, except share data)
- - ----------------------------------------------------------------------------------------------------------------------------
WestCoast
Cavanaughs Hotels Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ------------ ---------
Assets:
Current assets:
Cash and cash equivalents $ 3,483 $ 874 $ $ 4,357
Accounts receivable 6,290 1,258 7,548
Income taxes refundable 1,708 1,708
Inventories 1,016 94 1,110
Prepaid expenses, deposits and other 798 85 883
---------- ---------- ------------ ---------
Total current assets 13,295 2,311 15,606
Property and equipment, net 231,450 8,284 3,503 (a) 243,237
Intangible assets, net 4,947 791 23,875 (b) 29,613
Other assets, net 6,448 2,912 13,024 (c) 22,384
---------- ---------- ------------ ---------
Total assets $ 256,140 $ 14,298 $ 40,402 $ 310,840
========== ========== ============ =========
Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
Accounts payable $ 3,248 $ 1,491 $ $ 4,739
Accrued payroll and related benefits 1,426 1,598 3,024
Accrued interest payable 622 99 721
Other accrued expenses 8,542 452 8,994
Income taxes payable 2,165 2,165
Long-term debt, due within one year 2,205 4,946 7,151
Capital lease obligations, due within one year 623 623
---------- ---------- ------------ ---------
Total current liabilities 16,666 10,751 27,417
Long-term debt, due after one year 42,100 8,710 7,000 (d) 57,810
Notes payable to bank 79,900 21,363 (e) 101,263
Capital lease obligations, due after one year 1,103 1,103
Deferred income taxes 8,741 944 5,932 (b) 15,617
Minority interest in partnerships 2,798 (381) 381 (c) 2,798
---------- ---------- ------------ ---------
Total liabilities 151,308 20,024 34,676 206,008
---------- ---------- ------------ ---------
Stockholders' equity:
Total stockholders' equity (deficit) 104,832 (5,726) 5,726 104,832
---------- ---------- ------------ ---------
Total liabilities and stockholders' equity $ 256,140 $ 14,298 $ 40,402 $ 310,840
========== ========== ============ =========
See notes to condensed pro forma combined balance sheet and statement of
operations
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Cavanaughs / WestCoast Hotels
Condensed Combined Statement of Operations
for the year ended December 31, 1999
(in thousands, except per share data)
- - ----------------------------------------------------------------------------------------------------------------------
WestCoast
Cavanaughs Hotels Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ------------ ---------
Revenues:
Hotels and Restaurants $ 92,808 $ 36,835 $ (21,579)(f) $ 105,609
(2,455)(g)
Franchise and Central Services 2,455 (g) 2,455
TicketsWest.com 7,181 7,181
Real Estate Division 9,649 9,649
Corporate Services 417 417
---------- ---------- ------------ ---------
Total revenues 110,055 36,835 (21,579) 125,311
---------- ---------- ------------ ---------
Operating expenses:
Direct:
Hotels and Restaurants 68,150 31,006 (20,736)(f) 77,165
(1,255)(g)
Franchise and Central Services 1,255 (g) 1,255
TicketsWest.com 6,683 6,683
Real Estate Division 4,469 4,469
Corporate Services 181 181
Depreciation and amortization:
Hotels and Restaurants 5,951 3,597 (2,233)(f) 7,188
(127)(h)
Franchise and Central Services 422 (h) 422
TicketsWest.com 110 110
Real Estate Division 1,328 1,328
Corporate Services 543 543
---------- ---------- ------------ ---------
Total direct expenses 87,415 34,603 (22,674) 99,344
Undistributed corporate expenses 1,605 178 1,783
---------- ---------- ------------ ---------
Total expenses 89,020 34,781 (22,674) 101,127
---------- ---------- ------------ ---------
Operating income $ 21,035 $ 2,054 $ 1,095 $ 24,184
Other income (expense), net (9,126) (6,439) 5,515 (f) (12,690)
(2,150)(i)
(490)(j)
---------- ---------- ------------ ---------
Income (loss) before income taxes 11,909 (4,385) 3,970 11,494
Income tax provision (benefit) $ 3,737 $ (1,225) $ 1,080 (k) $ 3,592
---------- ---------- ------------ ---------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle $ 8,172 (3,160) 2,890 $ 7,902
========== ========== ============ =========
Income per share before extraordinary
item and cumulative effect of change
in accounting principle $ 0.64 $ 0.62
========== =========
Weighted average shares outstanding - basic 12,755 12,755
========== =========
Weighted average shares outstanding - diluted 13,096 13,096
========== =========
See notes to condensed proforma combined balance sheet and statement of
operations
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NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
Cavanaughs acquired WestCoast Hotels on January 4, 2000 with an effective date
of December 31, 1999. The acquisition has been accounted for as a purchase. The
amounts reported as "Cavanaughs Historical" on the balance sheet herein are the
accounts of Cavanaughs as of December 31, 1999 immediately prior to the
acquisition of WestCoast Hotels. Since the acquisition was effective on December
31, 1999, the consolidated balance sheet of WestCoast Hospitality Corporation
which will be included in the Company's 1999 Form 10-K, will include the
WestCoast Hotels acquisition.
The following balance sheet adjustments were made to reflect the combination of
Cavanaughs and WestCoast Hotels as of December 31, 1999.
(a) The purchase price has been allocated to the acquired buildings,
furniture and fixtures as follows based upon the estimated fair value
of the components (in thousands):
Depreciable
Amount Life
--------------- -----------
Buildings $ 11,188 35 years
Furniture and fixtures 599 15 years
---------------
$ 11,787
WestCoast Hotels historical carrying value 8,284
---------------
Pro forma adjustment $ 3,503
===============
(b) Represents the purchase price in excess of the estimated fair values of
tangible and identifiable intangible assets acquired and liabilities
assumed as follows (in thousands):
Purchase price and liabilities assumed:
Cash paid through draw on line-of-credit $ 21,363
Note payable issued 7,000
Debt and other liabilities assumed 17,150
Deferred taxes related to the acquisition 6,876
---------------
Total purchase price and liabilities assumed 52,389
---------------
Fair value of assets acquired:
Management and marketing contracts 5,063
Partnership interests and purchase option contracts 10,873
Property and equipment 11,787
---------------
27,723
---------------
Excess purchase price allocated to goodwill to be
amortized over 40 years $ 24,666
===============
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(c) The purchase price has been allocated to the acquired management and
marketing contracts, partnership interests, purchase option contracts
and other assets. The estimated fair values of the contracts are being
amortized over the weighted average remaining term of the contracts.
(d) Represents the amount of the purchase price which will be financed
through issuance of 7% bonds payable.
(e) Represents the amount of the purchase price which will be financed by
the Company's revolving line-of-credit agreement.
The following adjustments were made to the pro forma statement of operations to
reflect the combination of Cavanaughs and WestCoast Hotels as if they occurred
on January 1, 1999. The combined pro forma results of operations presented
herein are not necessarily indicative of the future results of operations of the
combined companies.
(f) On December 31, 1999, WestCoast Hotels formed Paramount Hotels, LLC
into which the assets of several subsidiary corporations of WestCoast
Hotels were contributed. The proforma adjustment represents the
revenues and expenses associated with operations of these entities for
the year ended December 31, 1999 as these entities were not acquired by
Cavanaughs.
(g) Represents marketing services revenues and expenses which will be
reported as Franchise and Central Services division.
(h) Represents the change in depreciation and amortization expense from the
historical amounts for the WestCoast Hotels based on the depreciation
and amortization of the allocated purchase price over the estimated
remaining lives of the acquired assets.
(i) Represents the additional interest expense which would be incurred by
the Company based on the purchase price of WestCoast Hotels, which will
be financed under the Company's revolving line-of-credit agreement and
a rate increase to the Company's existing debt. The existing amount
outstanding under the Company's line-of-credit agreement are also based
on a variable rate which will be increased 40 basis points as a result
of this purchase transaction. The interest rate used in the pro forma
adjustments was 8.02% based upon the average borrowing rate under the
Company's line-of-credit agreement. If the rate increased or decreased
by 0.25%, the Company's pro forma interest expense, net income and
earnings per share for the year ended December 31, 1999 would increase
or decrease by approximately $251,000, $166,000, and $0.01,
respectively.
(j) Represents additional interest expense which would be incurred by the
Company related to the $7 million bonds at 7% issued as part of the
purchase price.
(k) Represents estimated income taxes related to the tax effects of pro
forma adjustments.
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