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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 001-13957
WESTCOAST HOSPITALITY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
WASHINGTON 91-1032187
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
201 W. NORTH RIVER DRIVE, SUITE 100
SPOKANE WASHINGTON 99201-2293
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (509) 459-6100
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
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 shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Registrant's voting common stock held by
non-affiliates was $39,243,439 as of March 15, 2001. There were 12,948,396 of
the Registrant's common stock outstanding as March 15, 2001.
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DOCUMENTS INCORPORATED BY REFERENCE.
Documents incorporated by reference herein: Portion's of the Registrant's
Proxy Statement for its 2001 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A within
120 days of the end of the Registrant's 2000 fiscal year is incorporated by
reference herein in Part III.
TABLE OF CONTENTS
PAGE
PART ITEM NO. DESCRIPTION NO.
- ---- -------- --------------------------------------------------------------
I 1 Business.................................................. 3
I 2 Properties................................................ 14
I 3 Legal Proceedings......................................... 17
I 4 Submission of Matters to a Vote of the Security Holders .. 17
I 4A Executive Officers........................................ 17
II 5 Market For Registrant's Common Equity and Related
Stockholder Matters ...................................... 18
II 6 Selected Financial Data................................... 19
II 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 21
II 7A Quantitative and Qualitative Disclosures About
Market Risk .............................................. 27
II 8 Financial Statements and Supplementary Data .............. 29
II 9 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.................... 57
III 10 Directors and Executive Officers of The Registrant ....... 57
III 11 Executive Compensation ................................... 57
III 12 Security Ownership of Certain Beneficial
Owners and Management..................................... 57
III 13 Certain Relationships and Related Transactions ........... 57
III 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .................................. 58
2
PART I
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ITEM 1. BUSINESS
THE COMPANY
WestCoast Hospitality Corporation ("WestCoast" or the "Company") is a
hotel operating company that owns, operates, franchises, acquires, develops,
renovates and repositions full service hotels in the Western United States under
its proprietary brand name, "WestCoast(R)". Substantially all of WestCoast's
assets, including the hotels, are owned by or for the benefit of WestCoast
Hospitality Limited Partnership, a Delaware limited partnership, ("the Operating
Partnership" or "WHLP"). WestCoast Hospitality Corporation and WestCoast
Hospitality Limited Partnership were formerly known as Cavanaughs Hospitality
Corporation and Cavanaughs Hospitality Limited Partnership, respectively, until
February 2000 (see "Recent Events"). WestCoast manages the day to day operations
of the Operating Partnership in its capacity as sole general partner. The
Company currently has ownership interests and operates 23 hotel properties,
manages an additional 10 properties and franchises an additional 12 properties,
totaling 45 hotels in 9 states, including Alaska, Arizona, California, Hawaii,
Idaho, Montana, Oregon, Utah and Washington. The Company re-branded 13 of its 19
Cavanaughs hotels to the WestCoast brand during 2000 (see "Recent Events").
Additionally, the Company provides computerized ticketing for entertainment
events and arranges Broadway and other entertainment event productions. Further,
during the second quarter 1999, the Company announced the launch of
www.TicketsWest.com(TM), an Internet ticketing service offering consumers
up-to-the-minute information on live entertainment and the ability to make
real-time ticket purchases of the best available seats to events through the
website. The Company owns and manages ticketing operations in Washington,
Oregon, Idaho, Montana and Colorado. The Company also leases retail and office
space in buildings owned by the Company and manages residential and commercial
properties in Washington, Idaho and Montana. We are seeking to become the
dominant full service Hotel Company in the Western United States and Canada by
providing customers with access to a WestCoast brand hotel in multiple locations
throughout the region. Our growth strategy focuses on:
o franchising of the WestCoast brand to third party hotel owners
and operators.
o the management of third party owned hotels; and
o the acquisition and re-branding of full service hotels with the
WestCoast name;
o the acquisition, conversion and redevelopment of non-hotel
properties into WestCoast brand hotels;
o the construction of new WestCoast hotels;
o the expansion of existing WestCoast hotels;
Our operating strategy is designed to enhance our revenue and operating
margins by increasing revenue per available room, average daily rate occupancy
and operating efficiencies at our hotels. This strategy includes:
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o building brand name recognition by maintaining our strategic
focus on the Western United States and Canada;
o promoting a coordinated marketing program utilizing corporate
level sales and marketing departments in conjunction with local
hotel-based sales and marketing personnel;
o controlling operating expenses and achieving cost reductions
through operating efficiencies and economies of scale;
o enhancing guest satisfaction and loyalty by providing high
quality service;
o utilizing our yield management and proprietary management
information systems to enable the general managers of each hotel
to optimize revenue per available room (REVPAR), average daily
rates (ADR), occupancy and net income;
o maintaining a consistent level of quality at the hotels through
our maintenance and capital expenditure programs;
o emphasizing the quality of our food and beverage services to
attract convention, group and special event business and to
create local awareness of the hotels;
o providing valuable guest benefit programs that promote customer
loyalty, such as frequent flier mileage and repeat guest
programs; and
o attracting and retaining qualified employees by providing ongoing
training and incentive programs at all levels of employment to
enhance productivity and align the efforts of employees with our
objectives.
For the calendar year ended December 31, 2000, the Company's revenues
were $125.8 million, operating income was $23.5 million, net income was $5.8
million, REVPAR for combined Hotels (owned, managed and franchised) was $54.94
and ADR was $86.98.
The Company has a $120 million Revolving Credit facility provided by
U.S. Bank N.A., as agent, which is used by the Company to finance property
acquisitions, development and capital improvements and for general corporate
purposes. As an alternative to debt financing, the Company may issue shares of
Common Stock or limited partnership interests in the Operating Partnership ("OP
Units") as consideration in future hotel acquisitions. The issuance of OP Units
in exchange for hotels may allow the current owners of such hotels to achieve
certain tax advantages when selling such hotels to the Company.
In addition to the Hotels and Restaurant division, the Company operates
three other divisions: (i) Franchise, Central Services and Development (ii)
TicketsWest and (iii) Real Estate Division. The Franchise, Central Services and
Development division was newly created with the acquisition of WestCoast Hotels,
Inc., and focuses on franchising the WestCoast brand to third party hotel owners
and providing centralized purchasing and support services to these properties.
The TicketsWest division includes computerized event ticketing through G&B
Select A Seat, Fastixx, Colorado Neighborhood Box Office (CNBO), and the
WWW.TICKETSWEST.COM website. The TicketsWest division was founded in 1987 with
the G&B Select A Seat operation in Eastern Washington. The division acquired the
operations of Fastixx, CNBO, and certain software license rights in 1999 and
expanded its operations in the King Soopers store chain of Colorado in 2000.
Ticket sales for the combined distribution in 2000 was 3.1 million tickets. The
division also is the presenter of shows and special events through WestCoast
Entertainment, formerly G&B Presents, which was founded in 1987 and has
presented over 120
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Broadway theatrical presentations and special events in the last thirteen years.
These services generate income from ticket sales and handling fees as well as
additional room occupancy at the Hotels. The TicketsWest division includes the
Company-operated toll-free call center (the "Toll-Free Call Center") which
services the hotel reservations. The Company's Real Estate Division includes
ownership of four office properties and one retail property containing in excess
of 590,000 square feet of leasable space, the majority of which are located near
the Hotels, and third-party management and/or leasing agent of more than 2.8
million square feet of retail and office properties and approximately, 1,980
residential units in the Northwest.
STRUCTURE OF THE COMPANY
The Company is the sole general partner of the Operating Partnership.
The Company conducts substantially all of its business and holds substantially
all of the Hotels, through the Operating Partnership. As sole general partner of
the Operating Partnership, the Company has exclusive power to manage and conduct
the operations of the Operating Partnership. The Company and third party owners
owned 97.8% and 2.2% of the Operating Partnership as of December 31, 2000.
Subject to certain holding period requirements, OP Units will be exchangeable,
at the option of the holders thereof, for cash in an amount equal to the market
value of an equivalent number of shares of Common Stock. The Company has the
right, however, if OP Units are presented for exchange, to deliver to the holder
of such OP Units, in lieu of cash, shares of Common Stock, on a one-for-one
basis (subject to adjustment in the event of stock splits, stock dividends,
combinations and reorganizations). As general partner of the Operating
Partnership, whenever the Company shall issue shares of capital stock, the
Company will contribute the net proceeds therefrom to the Operating Partnership
and the Operating Partnership will issue to the Company an equivalent number of
OP Units with rights corresponding to the shares of capital stock issued by the
Company. In addition to the Operating Partnership, the Company holds a 50%
general partner interest in Cowley Street Limited Partnership, a Washington
limited partnership which owns the Budget Inn, formerly Cavanaughs Fourth
Avenue.
RECENT EVENTS
Effective December 31, 1999 the Company acquired WestCoast Hotels Inc.,
which was headquartered in Seattle, Washington. On March 1, 2000 the Company
changed its name from Cavanaughs Hospitality Corporation to WestCoast
Hospitality Corporation and began trading under the symbol WEH on the New York
Stock Exchange.
In July 2000, the Company converted 13 of its Cavanaughs Hotels to the
WestCoast Hotels brand.
On December 1, 2000, the Company opened the Ashland Springs Hotel, a
WestCoast Hotel in Ashland, Oregon. The property is being operated under a
management and franchise agreement.
In December 2000, the Company entered into a ticketing service and
distribution agreement with the Colorado Rockies Major League baseball team. The
tickets are distributed through the Company's outlet distribution system located
in all King Sooper stores throughout Colorado and Wyoming.
On January 1, 2001, the Company added the Cape Fox Lodge which is
located in Ketchikan, Alaska to the Company portfolio under a management and
franchise agreement.
In January 2001, the Company leased approximately 20,500 square feet of
its Crescent Court mixed use building to XO Communications. The additions of
this lease brings the total occupancy of the office portion of the building to
approximately 95%.
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On February 2001, the Company entered into an exclusive ticket service
and distribution agreement with Pikes Peak International Raceway located in
Fountain, Colorado. Pikes Peak International Raceway is the only superspeedway
in Colorado and has a capacity of 43,000.
Since 1968, when Donald K. Barbieri, the Company's Chairman, President
and Chief Executive Officer, joined the Company, the Company has grown from five
employees to approximately 2,500 employees as of December 31, 2000. WestCoast's
principal executive offices are located at 201 W. North River Drive, Suite 100,
Spokane, Washington 99201 and its telephone number is (509) 459-6100. Our
website addresses are WWW.WESTCOASTHOTELS.COM and WWW.TICKETSWEST.COM.
INDUSTRY OVERVIEW
The domestic lodging industry completed its seventh year of record
profitability in 2000, during which time it produced an estimated profit of
$24.2 billion. Smith Travel Research indicated that the average U.S. hotel
occupancy ended in 2000 slightly up from 1999, due to demand growth exceeding
supply growth. ADR growth ended 2000 with 4.9% growth over 1999, while REVPAR
grew by 5.71%. With the net addition of 114,000 rooms to the existing inventory,
the industry increased its overall revenue growth to 8.9% in 2000.
The following table reflects the percentage changes in REVPAR, ADR and
occupancy for the years ended December 31, 2000 and 1999 compared to the
respective prior fiscal year, for (i) hotels owned, operated and franchised by
WestCoast Hospitality Corporation, (ii) U.S. full service hotels and (iii) all
U.S. hotels.
PERCENTAGE CHANGE VERSUS PRIOR PERIOD
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REVPAR (1) ADR OCCUPANCY
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2000 1999 2000 1999 2000 1999
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WestCoast Hotels (2) 3.4% 0.5% 2.9% 3.2% 0.3% (1.5)%
U.S. Full Service Hotels (3) 6.6% 3.4% 6.0% 4.1% 0.5% (0.7)%
U.S. Hotels (3) (4) 5.7% 3.5% 4.9% 4.3% 0.8% (0.6)%
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(1) Determined by dividing annual room revenue by annual available rooms.
(2) Includes Combined Hotels (hotels owned, managed and franchised) for fiscal
year ended December 31, 2000. Includes Comparable Hotels (hotels owned by
the company for more than one year) for fiscal year ended December 31, 1999.
(3) Source: Smith Travel Research.
(4) Included both full service and limited service hotels.
COMPETITION IN LODGING INDUSTRY
The lodging industry is highly competitive. The Company competes with
other national limited and full service hotel companies, as well as with various
regional and local hotels. Many of the Company's competitors have a larger
network of locations and greater financial resources than the Company.
Competition in the United States lodging industry is based generally on brand
name recognition, convenience of location, price, range of services and guest
amenities offered, quality of customer service and overall product. We believe
our brand recognition is good in the markets we serve and should be enhanced by
reflagging our Cavanaughs brand hotels to the WestCoast brand. We also believe
the addition of guest affinity programs such as the Company's WestAwards program
will enhance
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guest loyalty. We have an advantage of having good locations, service and value.
Demographic or other changes in one or more of the Company's markets could
impact the convenience or desirability of the sites of certain of the Hotels
which would adversely affect the operations of those Hotels. Further, there can
be no assurance that new or existing competitors will not offer significantly
lower rates or greater convenience, services or amenities or significantly
expand or improve facilities in a market in which the Hotels compete, thereby
adversely affecting the Company's operations.
RISK FACTORS
This document and the documents we incorporate by reference contain
forward-looking statements that involve risks and uncertainties. The statements
in this document that are not purely historical are forward-looking statements.
These statements may include, among others, statements regarding (i) the
acquisition and re-branding of full service hotels with the WestCoast name, (ii)
the acquisition, conversion and redevelopment of non-hotel properties into
WestCoast brand hotels, (iii) the construction of new WestCoast hotels (iv) the
expansion of TicketsWest. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," and similar expressions also identify
forward-looking statements, but the absence of these words does not mean a
statement is not forward-looking. We cannot guarantee the accuracy of these
statements, which are subject to risks, uncertainties and assumptions that are
difficult to predict. Our actual results may differ materially from those we
forecast in forward-looking statements due to a variety of factors, including
those set forth in the following risk factors, elsewhere in this document and in
the documents we have incorporated by reference. Before investing in the common
stock, you should consider carefully the following factors, as well as the
information contained in the rest of this document and in the documents we
incorporate by reference.
WE ARE SUBJECT TO CONDITIONS AFFECTING THE LODGING INDUSTRY.
Our revenues and our operating results are subject to conditions
affecting the lodging industry. These include:
o changes in the national, regional and local economic climate;
o local conditions such as an oversupply of, or a reduction in
demand for, hotel rooms;
o the attractiveness of our hotels to consumers and competition
from comparable hotels;
o the quality philosophy and performance of the managers of our
hotels;
o changes in room rates and increases in operating costs due to
inflation and other factors;
o changes in travel patterns, extreme weather conditions,
cancellation of or changes in, events scheduled to occur in our
markets; and
o the need to periodically to repair and renovate our hotels.
Adverse changes in these conditions could adversely affect our financial
performance.
7
DUE TO THE GEOGRAPHIC CONCENTRATION OF OUR HOTELS, OUR RESULTS OF OPERATIONS ARE
SUBJECT TO FLUCTUATIONS IN REGIONAL ECONOMIC CONDITIONS.
Many of our hotels are currently located in the Pacific Northwest 34 of
45 hotels are located in Oregon, Washington, Idaho and Montana. As a result, our
results of operations and financial condition are significantly dependent on the
economy of the Pacific Northwest. The Pacific Northwest economy is dependent in
large part on a number of major industries, including agriculture, tourism,
technology, timber and aerospace. These industries may be affected by:
o changes in governmental regulations and economic conditions;
o the relative strength of national and local economy; and
o the rate of national and local unemployment.
In addition, participants in these industries may decide to relocate
all or part of their businesses outside the Pacific Northwest. Any of these
factors could materially affect the local economies in which these industries
operate.
To the extent that general economic or other conditions in the Pacific
Northwest decline and result in a decrease in customer demand in this region,
our performance and results of operations will be adversely affected. In
addition, we operate or market multiple hotels within several cities including
Portland, Oregon; Seattle, Spokane and Yakima, Washington; Kalispell, Montana
and Boise, Idaho. A downturn in general economic or other relevant conditions in
these specific markets or in any other market in which we operate could
adversely impact our results of operations and financial condition.
OUR EXPENSES MAY REMAIN CONSTANT EVEN IF OUR REVENUES DROP.
The expenses of owning property are not necessarily reduced when
circumstances such as market factors and competition cause a reduction in income
from a hotel. Our financial condition and ability to service debt could be
adversely affected by:
o interest rate levels;
o the availability of financing;
o the cost of compliance with government regulations, including
zoning and tax laws; and
o changes in government regulations, including those governing
usage, zoning and taxes.
WE MAY BE UNABLE TO SELL HOTEL PROPERTIES WHEN APPROPRIATE.
Real estate investments generally cannot be sold quickly. We may not be
able to vary our portfolio promptly in response to economic or other conditions.
This inability to respond promptly to changes in the performance of our
investments could adversely affect our financial condition and ability to
service debt. In addition, sales of appreciated real property could generate
material adverse tax consequences, which may make it disadvantageous for us to
sell hotels.
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OUR GROWTH IS DEPENDENT ON OUR ABILITY TO INCREASE THE NUMBER OF OUR HOTELS.
We intend to continue to pursue an aggressive growth strategy for the
foreseeable future. Our ability to successfully pursue new growth opportunities
will depend on a number of factors. These include our ability to:
o identify suitable hotels for acquisition, development, management
or franchise;
o finance acquisitions and renovations; and
o successfully integrate new hotels into our operations.
There is no assurance that suitable hotels for acquisition,
development, management or franchise will be available or, if available, will be
on acceptable terms or that capital will be available on acceptable terms. While
we believe that we have sufficient capital to fund our growth strategy in the
near term, this belief is based on adequate cash being generated from operations
and the availability of a revolving credit facility. There is no assurance that
we will generate adequate cash from operations. Even if we generate anticipated
cash from operations, we may seek to obtain additional debt or equity financing,
depending upon the amount of capital required to pursue future growth
opportunities or address other liquidity needs.
WE MAY NOT BE ABLE TO EFFECTIVELY INTEGRATE NEW HOTELS INTO OUR OPERATIONS.
We cannot assure you that:
o we will be able to successfully integrate new hotels or new hotel
products into our operations;
o new hotels or new hotel products will achieve revenue and
profitability levels comparable to our existing hotels; or
o the combined business will be profitable. Newly acquired,
developed or converted hotels typically begin with lower
occupancy and room rates.
Furthermore, our expansion within our existing markets could adversely
affect the financial performance of our existing hotels in those markets or our
overall results of operations. Expansion into new markets may present operating
and marketing challenges that are different from those we currently encounter in
our existing markets. There is no assurance that we will be able to anticipate
all of the changing demands that expanding operations will impose on our
management and management information and reservation systems. The failure to
adapt our systems and procedures could have a material adverse effect on our
business.
WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.
We intend to pursue a full range of growth opportunities, including
acquisitions, new construction, management for third party owners and franchise
agreements. We compete for growth opportunities with national and regional
hospitality companies, some of which have greater name recognition, marketing
support, reservation system capacity and financial resources than we do. Our
ability to make acquisitions is dependent upon our relationships with owners of
existing hotels and certain major hotel investors. Our failure to compete
successfully for acquisitions or to attract or maintain relationships with hotel
owners and major hotel investors could adversely affect our ability to expand
our
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portfolio of hotels. Our inability to implement our external growth strategy
would limit our ability to grow our revenue base.
OUR GROWTH IS DEPENDENT ON OUR ABILITY TO EXPAND OUR OPERATIONS.
We intend to acquire additional hotels, ticket, and entertainment
operations in the future. Acquisitions entail the risk that investments will
fail to perform in accordance with our expectations. We also intend to continue
the redevelopment and re-branding of other acquired hotels into "WestCoast"
hotels. In addition, we expect to develop new hotels in the future, depending on
market conditions. Hotel redevelopment and new project development is subject to
a number of risks, including:
o construction delays or cost overruns;
o risks that the hotels will not achieve anticipated performance
levels; and
o new project commencement risks such as receipt of zoning,
occupancy and other required governmental permits and
authorizations.
As a result, we could incur substantial costs for a project that is
never completed. There is no assurance that financing for these projects will be
available or, if available, will be on acceptable terms. In addition, the
renovation of our hotels is subject to a number of risks, including, without
limitation, construction delays or cost overruns due to various factors. Any
unanticipated delays or expenses in connection with the renovation of our hotels
could have an adverse effect on our results of operations and financial
condition.
WE ARE SUBJECT TO REAL ESTATE OWNERSHIP RISKS.
Our ownership portfolio at December 31, 2000, contained 28 properties,
including 23 hotels, two office properties, 1 retail property and 2 mixed-use
office and retail properties. Accordingly, we are subject to varying degrees of
risk generally related to owning real estate. These risks, many of which are
beyond our control, include:
o changes in national, regional and local economic conditions;
local real estate market conditions;
o changes in interest rates, and the availability, cost and terms
of financing and lease obligations;
o the impact of present or future environmental legislation and
adverse changes in zoning laws and other regulations; and
o compliance with environmental laws.
MANAGEMENT'S CONTROL OF THE COMPANY MAY LIMIT YOUR ABILITY TO CHANGE THE
COMPOSITION OF THE BOARD OF DIRECTORS, AND MAY DETER A CHANGE IN CONTROL.
Donald K. Barbieri, our Chairman, President and Chief Executive
Officer, has sole voting and investment power with respect to 27.7% of our
outstanding shares of common stock. Our directors and executive officers of the
Company own or control a total of 40.4% of our outstanding shares of common
stock. As long as management owns a substantial portion of the outstanding
common stock, it will have the ability to control our management and affairs and
will have the power to approve or block most
10
actions requiring the approval of our shareholders, including a merger, or a
sale of all the assets of the Company.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS COULD AFFECT OUR RESULTS OF OPERATIONS.
The lodging industry is subject to numerous federal, state and local
government regulations, including building and zoning requirements. Also, the
Company is subject to laws governing its relationship with employees, including
minimum wage requirements, overtime, working conditions and work permit
requirements. An increase in the minimum wage rate, employee benefit costs or
other costs associated with employees could adversely affect the company. Under
the Americans with Disabilities Act of 1990, all public accommodations are
required to meet certain federal requirements related to access and use by
disabled persons. Although we believe we are in compliance with the ADA, there
is no assurance that a material ADA claim will not be asserted against us.
WE COULD EXPERIENCE SEASONAL FLUCTUATIONS IN OUR RESULTS OF OPERATIONS.
The lodging industry is seasonal in nature, with the months from May
through October generally accounting for a greater portion of annual revenues
than the months from November through April. For example, for the year ended
December 31, 2000, our revenues in the first through fourth quarters were 21.6%,
26.3%, 29.3% and 22.8%, respectively, of our total revenue for such year and our
net income (loss) for the first through fourth quarters was (2.5)%, 33.3%, 63.3%
and 5.9%, respectively, of our total net income for that year. Quarterly
earnings also may be adversely affected by events beyond our control, such as
extreme weather conditions, economic factors and other considerations affecting
travel.
WE ARE DEPENDENT ON OUR SENIOR MANAGEMENT.
We place substantial reliance on the lodging industry experience and
the continued availability of our senior management led by Donald K. Barbieri,
Chairman, President and Chief Executive Officer, Arthur M. Coffey, Executive
Vice President and Chief Financial Officer, Richard L. Barbieri, Senior Vice
President and General Counsel, Thomas M. Barbieri, Executive Vice President of
Hotel Operations, and David M. Bell, Executive Vice President Development. We
believe that our future success and our ability to manage future growth depend
in large part upon the efforts of the senior management and on our ability to
attract and retain other highly qualified personnel. Competition for such
personnel is intense, and there can be no assurance that we will be successful
in attracting and retaining such personnel. The Company does not carry key man
insurance on any of its senior management.
WE MAY BE UNABLE TO LOCATE LESSEES FOR OUR RENTAL PROPERTY.
We own approximately 590,000 square feet of office and retail space in
Spokane, Washington and Kalispell, Montana. We are subject to the risk that upon
expiration, leases may not be renewed, the space may not be relet or the terms
of renewal or reletting (including the cost of required renovations) may be less
favorable than current lease terms. There is no assurance that we will be able
to locate tenants for rental spaces vacated in the future or receive
satisfactory rents from tenants. Delays or difficulties in attracting tenants
and costs incurred in preparing for tenants could reduce cash flow, decrease the
value of a property or jeopardize our ability to pay our expenses. Vacancies
could subsequently result due to termination of a tenant's tenancy, the tenant's
financial failure or a breach of the tenant's obligations.
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WE ARE SUBJECT TO RISKS ASSOCIATED WITH MANAGING AND LEASING PROPERTIES OWNED BY
THIRD PARTIES.
We plan to continue to manage and lease properties owned by third
parties. Risks associated with these activities include the risk that the
related contracts (which are typically cancelable upon 30-days' notice or upon
certain events, including sale of the property) will be terminated by the
property owner or will be lost in connection with a sale of such property, that
contracts may not be renewed upon expiration or may not be renewed on terms
consistent with current terms and that the rental revenues upon which management
and leasing fees are based will decline as a result of general real estate
market conditions or specific market factors affecting properties managed or
leased by WestCoast, resulting in decreased management or leasing fee income.
THE PERFORMANCE OF OUR TICKETSWEST DIVISION IS PARTICULARLY SUBJECT TO
FLUCTUATIONS IN ECONOMIC CONDITIONS.
Our entertainment services include computerized event ticketing and the
presentation of touring Broadway shows. In addition, we attract additional hotel
guests through cross-selling the products of our TicketsWest division. This
division is vulnerable to risks associated with changes in general regional and
economic conditions, the potential for significant competition and a change in
consumer trends, among others. In addition, there is no assurance that Broadway
shows will continue to tour the Northwest or that such productions will use the
Company as a promoter.
CERTAIN TYPES OF LOSSES MAY EXCEED INSURANCE COVERAGE.
We carry comprehensive liability, public area liability, fire, flood,
boiler and machinery, extended coverage and rental loss insurance covering our
properties. There are, however, certain types of losses that are not generally
insured because it is not economically feasible to insure against such losses.
Should an uninsured loss or a loss in excess of insured limits occur with
respect to any particular property, we could lose our capital invested in the
property, as well as the anticipated future revenue from the property and, in
the case of debt which is with recourse to WestCoast, would remain obligated for
any mortgage debt or other financial obligations related to the property.
Although we believe that our properties are adequately insured, any such loss
would adversely affect us. There is no assurance that material losses in excess
of insurance proceeds will not occur in the future.
WE ARE SUBJECT TO ENVIRONMENTAL RISKS WHICH COULD BE COSTLY.
Our operating costs may be affected by the obligation to pay for the
cost of complying with existing environmental laws, ordinances and regulations,
as well as the cost of compliance with future legislation. Under current
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of contamination from hazardous or
toxic substances, or the failure to remediate such contaminated property
properly, may adversely affect the ability of the owner of the property to
borrow using such property as collateral for a loan or to sell such property.
Environmental laws also may impose restrictions on the manner in which a
property may be used or transferred or in which businesses may be operated, and
may impose remedial or compliance costs. The costs of defending against claims
of liability or remediating contaminated property and the
12
cost of complying with environmental laws could materially adversely affect our
results of operations and financial condition.
In connection with our acquisition of a property, a Phase I
environmental assessment is conducted by a qualified independent environmental
engineer. Phase I environmental assessments have been performed on all of our
properties and we expect that all of our future hotel acquisitions will be
subject to a Phase I environmental assessment. A Phase I environmental
assessment involves researching historical usage's of a property, databases
containing registered underground storage tanks and other matters, including an
on-site inspection, to determine whether an environmental issue exists with
respect to the property which needs to be addressed. If the results of a Phase I
environmental assessment reveal potential issues, a Phase II environmental
assessment, which may include soil testing, ground water monitoring or borings
to locate underground storage tanks, may, depending upon the circumstances, be
ordered for further evaluation.
It is possible that Phase I environmental assessments will not reveal
all environmental liabilities or compliance concerns or that there will be
material environmental liabilities or compliance concerns of which WestCoast
will not be aware. While we have not been notified by any governmental authority
and we have no other knowledge of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental substances in
connection with any of our properties, no assurances can be given that future
laws, ordinances or regulations will not impose any material environmental
liability or the current environmental condition of our existing and future
properties will not be affected by the condition of neighboring properties (such
as the presence of leaking underground storage tanks) or by third parties
(whether neighbors such as dry cleaners or others) unrelated to WestCoast.
WE HAVE INCURRED DEBT FINANCING AND MAY INCUR INCREASED INDEBTEDNESS IN
CONNECTION WITH ACQUISITIONS.
Our outstanding indebtedness as of December 31, 2000 was approximately
$162.9 million. Substantially all of our outstanding indebtedness is secured by
individual properties, including our hotels. Borrowings under the Revolving
Credit Facility are used by us to repay existing indebtedness, to fund the
acquisition of hotels, to fund renovations and capital improvements to hotels
and for general working capital needs. The Revolving Credit Facility is secured
by deeds of trust on certain of our properties. At December 31, 2000, our
outstanding indebtedness had a weighted average annual interest rate of 8.91%.
At December 31, 2000, our ratio of long-term debt (including capital lease
obligations) to equity was 1.45 to 1.
Neither our Articles of Incorporation nor our Bylaws limit the amount
of indebtedness that we may incur. Subject to limitations in our debt
instruments, we expect to incur additional debt in the future to finance
acquisitions and renovations and for general corporate purposes. Our continuing
indebtedness could increase our vulnerability to general economic and lodging
industry conditions (including increases in interest rates) and could impair our
ability to obtain additional financing in the future and to take advantage of
significant business opportunities that may arise. Our indebtedness is, and will
likely continue to be, secured by mortgages on our hotels. There is no assurance
that we will be able to meet our debt service obligations and, to the extent
that we cannot, we risk the loss of some or all of our assets, including our
hotels, to foreclosure. Adverse economic conditions could cause the terms on
which borrowings become available to be unfavorable. In such circumstances, if
we are in need of capital to repay indebtedness in accordance with its terms or
otherwise, we could be required to liquidate one or more investments in our
hotels at times which may not permit realization of the maximum return on such
investments.
13
Most of our outstanding indebtedness bears interest at a variable rate.
Economic conditions could result in higher interest rates, which would increase
debt service requirements on variable rate debt and could reduce the amount of
cash available for various corporate purposes.
TRADEMARKS
"WestCoast Hotels(R)" and "TicketsWest(R)" are registered trademarks of
the Company in the United States and reserved in Canada.
SEGMENT REVENUES
The information required by this item is contained in, and incorporated
by reference from the Financial Statements and supplementary data, Note 15,
contained herein.
ITEM 2. PROPERTIES
HOTEL PROPERTIES
The Company's hotel portfolio currently contains 45 full service
Hotels, with 8,704 guestrooms and approximately 436,500 square feet of meeting
space, located in the Western United States. The following table sets forth
certain information regarding the Company's hotel portfolio at December 31,
2000.
YEAR MEETING
BUILT/ YEAR GUEST SPACE
OWNED:(1) LOCATION ACQUIRED RENOVATED ROOMS (SQ. FT.)
- --------- -------- -------- --------- ----- ---------
WestCoast Grand Hotel on Fifth Avenue Seattle, WA 1996 1996 297 13,800
WestCoast Grand Hotel at the Park Spokane, WA 1983 1999 402 26,300
WestCoast River Inn Spokane, WA 1976 1999 245 2,800
Budget Inn Spokane, WA 1991 1997 153 2,600
WestCoast Ridpath Hotel Spokane, WA 1998 2000 342 16,000
WestCoast Yakima Center Hotel Yakima, WA 1991 1997 154 11,000
WestCoast Yakima Gateway Hotel Yakima, WA 1997 2000 172 8,000
WestCoast Tri-Cities Hotel Kennewick, WA 1978 1997 162 9,700
WestCoast Olympia Hotel Olympia, WA 1998 1998 190 16,500
WestCoast Idaho Falls Hotel Idaho Falls, ID 1998 1994 138 8,800
Best Western Templins Resort Post Falls, ID 1998 2000 167 11,000
WestCoast Park Center Suites Boise, ID 1998 2000 238 2,200
Best Western Twin Falls Hotel Twin Falls, ID 1998 1999 112 5,085
WestCoast Pocatello Hotel Pocatello, ID 1998 2000 150 13,000
Best Western Colonial Hotel Helena, MT 1998 2000 149 15,000
WestCoast Kalispell Center Hotel Kalispell, MT 1986 1999 132 10,500
Best Western Outlaw Hotel Kalispell, MT 1998 2000 220 11,000
WestCoast Salt Lake Hotel Salt Lake City, UT 1998 1998 393 12,000
Best Western Hillsboro Hotel Hillsboro, OR 1998 1997 123 3,500
Best Western Executive Park Hotel Phoenix, AZ 1999 1993 107 3,000
Best Western Bellevue Inn Bellevue, WA 1999 1998 181 5,750
WestCoast Vance Hotel Seattle, WA 1999 1990 165 N/A
WestCoast Sea-Tac Hotel Seattle, WA 1999 1997 146 4,500
----- --------
TOTAL OWNED: 4,538 212,035
----- --------
(1) Listings under "owned" incorporate: owned and leased properties and
properties owned by partnership in which the Company holds interests.
14
YEAR MEETING
BUILT/ YEAR GUEST SPACE
MANAGED: LOCATION ACQUIRED RENOVATED ROOMS (SQ. FT.)
- -------- -------- -------- --------- ----- ---------
WestCoast International Inn Anchorage, AK 1999 1992 141 5,700
WestCoast Long Beach Hotel & Resort Long Beach, CA 1999 1997 195 7,400
Cathedral Hill Hotel San Francisco, CA 1999 2000 400 30,000
The Grove Hotel/a WestCoast Grand Hotel Boise, ID 1999 1997 250 36,000
Ashland Springs Hotel/a WestCoast Hotel Ashland, OR 2000 2000 70 4,500
Valley River Inn/a WestCoast Hotel Eugene, OR 1999 2000 257 15,000
The River Place Hotel/a WestCoast
Grand Hotel Portland, OR 1999 1998 84 2,800
Camlin Hotel Seattle, WA 1999 1991 146 500
WestCoast Cape Fox Lodge Ketchikan, AK 2000 1999 72 1,800
WestCoast Silverdale Hotel Silverdale, WA 1999 1999 150 5,234
----- -------
TOTAL MANAGED: 1,765 108,934
----- -------
FRANCHISED:
WestCoast Anaheim Hotel Anaheim, CA 1999 2000 498 30,000
WestCoast Anabelle Hotel Burbank, CA 1999 1998 47 500
WestCoast Santa Cruz Hotel Santa Cruz, CA 1999 1999 163 4,548
The Park Shore Hotel/a WestCoast Hotel Honolulu, HI 1999 1970 227 400
Maui Coast Hotel/a WestCoast Hotel Maui, HI 1999 1999 260 900
The Benson Hotel/a WestCoast Grand Hotel Portland, OR 1999 1991 287 16,000
The Paramount Hotel, Portland/
a WestCoast Hotel Portland, OR 1999 1999 154 1,500
WestCoast Bellevue Hotel Bellevue, WA 1999 1999 176 6,400
The Roosevelt Hotel/a WestCoast Hotel Seattle, WA 1999 1993 151 2,400
The Paramount Hotel, Seattle/
a WestCoast Hotel Seattle, WA 1999 1996 146 1,300
WestCoast Gateway Hotel Seattle, WA 1999 1999 145 625
WestCoast Wenatchee Center Hotel Wenatchee, WA 1999 1994 147 51,000
----- -------
TOTAL FRANCHISED: 2,401 115,573
----- -------
TOTAL: 8,704 436,542
----- -------
FRANCHISE, CENTRAL SERVICES AND DEVELOPMENT
The Franchise, Central Services and Development Division oversees the
franchise operations of the Company and provides the marketing and management
coordination of the WestCoast Hotel brand. Franchise royalty fees are recorded
as revenue in this division along with development fees and net discounts
retained at the corporate level for central purchasing programs. Franchise
revenues are collected for all WestCoast branded owned, managed and franchised
hotels. Due to intercompany consolidation eliminations, only those revenues for
the managed and franchised hotels are reported. This division was formed
following the acquisition of WestCoast Hotels, Inc. As of December 31, 2000,
there were 35 hotels with over 6900 guest rooms carrying the WestCoast flag,
with five of the properties being WestCoast Grand Hotels.
15
TICKETSWEST
The TicketsWest division of the Company is comprised of: (i) G&B Select
A Seat, Fastixx, CNBO theatrical, ski lift tickets and event ticketing agencies,
(ii) WestCoast Entertainment, formerly G&B Presents, a promoter of touring
Broadway shows and other special events, (iii) the 800 Reservations Center for
entertainment events and hotel information, and (iv) WWW.TICKETSWEST.COM, the
Company's internet portal that provides international leisure, entertainment,
and ticketing services. The combination of event ticketing, presentation of
Broadway shows, hotel event packages and a centralized reservations system
enables the Company to offer packages for hotel guests, generating additional
room night occupancy and income from ticket distribution service fees.
During 1999, the TicketsWest division's acquisitions increased its
geographic coverage into markets including Portland, Oregon; Seattle,
Washington; Colorado Springs and Denver, Colorado. These acquisitions increased
the content available for sale via the Company's website, which allows ticket
purchases to be transacted in real-time, a functionality that was developed and
launched by the Company in 1999.
The selected financial data set forth below reflects operating results
for the Company's TicketsWest division for the fiscal years ended December 31,
2000, 1999, and 1998. Revenues and direct operating expenses in this chart do
not eliminate inter-company revenues and charges, primarily related to
reservation services provided to the Hotels. Please see Note 15 - Business
Segments in the consolidated financial statements, included herein, for further
detail of eliminations of inter-company charges.
YEAR ENDED
DECEMBER 31,
------------------------------------
2000 1999 1998
INCOME STATEMENT:
Revenue $ 6,908 $ 7,959 $ 2,280
Direct operating expenses 6,905 7,461 1,755
Depreciation and amortization 410 110 46
------------------------------------
Total direct expenses 7,315 7,571 1,801
------------------------------------
Operating income (loss) $ (407) $ 388 $ 479
====================================
REAL ESTATE DIVISION
The Company is the owner and manager of approximately 590,000
square feet of leasable office and retail space located in Spokane, Washington
and Kalispell, Montana, and third-party management and/or leasing agent of more
than 3.4 million square feet of retail and office properties and approximately
2,096 residential units in the Northwest. The Company's corporate headquarters
is located in the Spokane WHC Building and occupies 24,777 square feet of this
100,350 square foot building.
16
ITEM 3. LEGAL PROCEEDINGS
At any given time, the Company is subject to claims and actions
incident to the operation of its business. While the outcome of these
proceedings cannot be predicted, it is the opinion of management that none of
such proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's business, financial condition, cash flow or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Donald K. Barbieri has been President and Chief Executive Officer and a
director of the Company since 1978 and Chairman of the Board since 1996. Mr.
Barbieri joined the Company in 1969 and is responsible for the Company's
development activities in hotel, entertainment and real estate areas. Mr.
Barbieri is currently chair-elect for the Spokane Regional Chamber of Commerce
and will become Chair on September 1, 2001. Mr. Barbieri served as president of
the Spokane Chapter of the Building Owners and Managers Association from 1974 to
1975 and served as president of the Spokane Regional Convention and Visitors
Bureau from 1977 to 1979. He also served on the Washington Tourism Development
Council from 1983 to 1985 and the Washington Economic Development Board while
chairing the State of Washington's Quality of Life Task Force from 1985 to 1989.
Mr. Barbieri is the brother of Richard L. and Thomas M. Barbieri and the
brother-in-law of David M. Bell.
Arthur M. Coffey has been Chief Financial Officer and Executive Vice
President of the Company since June 1997 and a director of the Company since
1990. Mr. Coffey served as Chief Operating Officer of the Company from 1990 to
June 1997. Mr. Coffey has been in the hotel business since 1971 and joined the
Company in 1981. Mr. Coffey is currently a director of the Association of
Washington Business, served as a trustee of the Spokane Area Chamber of
Commerce, served as a director of the Washington State Hotel Association from
1996 to 1997, served as director of the Spokane Regional Convention and Visitors
Bureau from 1982 to 1985 and served as president of the Spokane Hotel
Association from 1989 to 1990.
Thomas M. Barbieri has been Executive Vice President of Hotel
Operations of the Company since January 1, 2000, and a director of the Company
since 1985. From 1985 to 1997, Mr. Barbieri served as a Vice President of the
Company. Mr. Barbieri joined the Company in 1979 and from 1987 through 1998
oversaw the management, supervision, and development of the Company's real
estate portfolio. From 1982 to 1987, Mr. Barbieri was Operations Manager of the
Company's hospitality division. He has served on Washington State Governor
Lowery's Real Estate Advisory Council, as Director of the Spokane Convention and
Visitors Bureau, as a trustee of the Spokane Area Chamber of Commerce, as a
Director of the Spokane Economic Development Council and as a Trustee of
Washington State University and Advisor to WSU Hotel School. Mr. Barbieri is the
brother of Donald K. and Richard L. Barbieri and the brother-in-law of David M.
Bell.
Richard L. Barbieri has been a Senior Vice President of the Company
since September 1997, full-time General Counsel of the Company since 1995 and a
Director of the Company since 1978. From 1994 to 1997, Mr. Barbieri served as a
Vice President of the Company. From 1978 to 1995, Mr. Barbieri served as outside
counsel and Secretary of the Company, during which time he was engaged in the
practice of law at Edwards and Barbieri, a Seattle law firm, and then at Riddell
Williams, a Seattle law firm, where he chaired the real estate practice group.
Mr. Barbieri has also served as chairman of various
17
committees of the State and County Bar Association and as a member of the
governing board of the County Bar Association. He also served as vice chairman
of the Citizens' Advisory Committee to the Major League Baseball Stadium Public
Facilities District in Seattle in 1996 and 1997. Mr. Barbieri is the brother of
Donald K. and Thomas M. Barbieri and the brother-in-law of David M. Bell.
David M. Bell has been Executive Vice President, Development since
February 2000. He was Senior Vice President of Development for the Company from
September 1997 to February 2000, and served as Vice President and Director of
the Company from 1985 to 1997. Mr. Bell is in charge of the Franchise and
Central Services Division as well as new project development, property
renovations and major building construction. The Marketing Department,
responsible for marketing and management of the WestCoast Hotel brand, the
Central Purchasing Department, and the Human Resources Department report to Mr.
Bell. Since joining the Company in 1984, Mr. Bell has been responsible for
numerous construction projects, including the development of the WHC Building,
the Cavanaughs at Kalispell Center hotel and the Kalispell Center Mall, two
major room tower additions to Cavanaughs Inn at the Park and the conversion of
the U.S. Bank of Washington office building in Seattle into Cavanaughs on Fifth
Avenue. Mr. Bell is a registered Professional Engineer, and is on the Board of
the Pacific Science Center, in Seattle, Washington. Mr. Bell is the
brother-in-law of Donald K., Richard L. and Thomas M. Barbieri.
Shannon E. Kapek has been the Vice President, Financial Reporting since
June, 1997, and has been a Vice President since September 1988. Ms. Kapek is
responsible for directing the Company's financial reporting activities. Ms.
Kapek joined the Company in 1975 and has held several positions within the
Company including Residential Division Manager from 1980 to 1997.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "WEH". From April 3, 1998 to February 29, 2000 the
Company was traded under the symbol CVH on the NYSE. The following table sets
forth for the periods indicated the high and low closing sale prices for the
Common Stock on the NYSE.
High Low
2000:
Fourth Quarter (ended December 31, 2000).......... 5.81 5.00
Third Quarter (ended September 30, 2000).......... 7.19 6.00
Second Quarter (ended June 30, 2000).............. 8.38 6.69
First Quarter (ended March 31, 2000).............. 8.31 6.69
1999:
Fourth Quarter (ended December 31, 1999).......... 8.50 6.50
Third Quarter (ended September 30, 1999).......... 8.63 6.94
Second Quarter (ended June 30, 1999).............. 10.63 7.00
First Quarter (ended March 31, 1999).............. 12.00 7.63
The last reported sale price of the Common Stock on the NYSE on March
15, 2001 was $5.10. As of March 15, 2001, there were approximately 96
shareholders of record of the Common Stock.
18
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. The Company intends to retain earnings to
provide funds for the continued growth and development of its business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Any determination to pay cash
dividends in the future will be at the discretion of the Board of Directors and
will depend upon, among other things, the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board. In addition, the Revolving Credit Facility includes restrictions
on the payment of dividends. As of December 31, 2000, the Company was restricted
from paying dividends under the terms and conditions of the Revolving Credit
Facility.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected combined financial data of the
Company as of and for the years ended December 31, 1998, 1999 and 2000, the two
months ended December 31, 1996 and 1997, and each of the two years in the period
ended October 31, 1997. The selected combined statement of operations data for
the two months ended December 31, 1996 and the selected combined balance sheet
as of December 31, 1996 are derived from the Company's unaudited financial
statements and reflect all normal recurring adjustments, which in the opinion of
management, are necessary for a fair presentation. The selected combined
statement of operations data for the fiscal years ended October 31, 1996, 1997,
the two months ended December 31, 1997, and years ended December 31, 1998, 1999,
and 2000 and the selected combined balance sheet data as of October 31, 1996 and
1997, and December 31, 1997, 1998, 1999, and 2000 are derived from the Company's
audited financial statements. The audited consolidated financial statements for
certain of these periods are included elsewhere in this Report.
19
The selected combined financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Report.
FISCAL YEAR ENDED TWO MONTHS ENDED FISCAL YEAR ENDED
OCTOBER 31, (1) DECEMBER 31, DECEMBER 31,
----------------------- ------------------------ ------------------------------------
1996 1997 1996 1997 1998 1999 2000
(In Thousands, Except Per Share Data)
STATEMENTS OF OPERATIONS DATA:
Total revenues $ 45,163 $ 52,043 $ 7,357 $ 8,838 $ 86,333 $ 110,055 $ 125,806
Operating income (2) 8,914 10,635 924 1,343 20,310 21,035 23,548
Net income (loss) (2)(3) 1,175 1,709 (170) 6 7,508 8,029 5,821
Dividends per share (4) -- -- -- -- -- -- --
Net income per share-basic and diluted (5) -- -- -- -- 0.66 0.63 0.45
Pro forma net income per share -- 0.24 -- -- -- -- --
BALANCE SHEET DATA:
Total assets 120,087 124,104 119,941 125,117 244,903 309,132 304,834
Long-term debt and capital leases 99,308 100,810 99,522 100,650 130,550 167,950 162,940
OTHER DATA:
EBITDA (2)(6) 13,129 15,410 1,683 2,141 26,425 28,967 34,000
Net cash provided by operating activities 5,200 6,610 287 1,094 14,271 19,067 11,954
Cash Flow (7) 5,615 7,051 575 773 15,452 18,793 18,019
(1) The summary combined financial and other data has been presented as though
(i) the predecessor businesses of WestCoast Hospitality Corporation,
Barbieri Investment Company, G&B: Lincoln Building Partnership and their
respective subsidiaries and partnerships which they controlled had been
combined as of October 31, 1996 and 1997 and (ii) the spin-off of certain
subsidiaries engaged in businesses not related to the core hospitality
business of the Company had occurred as of October 31, 1996 and 1997.
(2) Operating income, net income (loss), and EBITDA reflect a nonrecurring
charge of $422,000 related to final settlement of litigation in 1997.
(3) The Company incurred $10,000 in 1999 and $546,378 in 1998 in extraordinary
expense net of income taxes for the write-off of prepayment penalties and
deferred loan fees in connection with the repayment of indebtedness out of
the proceeds of the April 1998 initial public offering.
(4) Due to the Merger in November 1997, historical dividends per share are not
relevant or meaningful and therefore are not presented.
(5) Due to the Merger, which was consummated in November 1997, the historical
earnings per share is not relevant or meaningful. Therefore, pro forma
earnings per share for the year ended October 31, 1997 has been presented
based upon the number of shares of Common Stock of the Company, which were
outstanding after the Merger.
(6) EBITDA represents income before income taxes, extraordinary item, cumulative
effect of accounting changes, interest expense (net of interest income),
depreciation, amortization, minority interests, and other income. EBITDA is
not intended to represent cash flow from operations as defined by generally
accepted accounting principles and such information should not be considered
as an alternative to net income, cash flow from operations or any other
measure of performance prescribed by generally accepted accounting
principles. While not all companies calculate EBITDA in the same fashion and
therefore EBITDA as presented may not be comparable to similarly titled
measures of other companies, EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring
the Company's ability to service debt. EBITDA is not necessarily available
for management's discretionary use due to restrictions included in the
Revolving Credit Facility and other considerations.
(7) Net cash provided by operating activities excluding changes in current
assets and liabilities.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis addresses the results of
operations for the Company for the years ended December 31, 2000, 1999 and 1998.
The following should be read in conjunction with the Consolidated Financial
Statements and the notes thereto and "Selected Financial Data" included
elsewhere in this report. In addition to historical information, the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those anticipated in these forward-looking statements as a result of certain
factors, including those discussed in "Risk Factors."
The Company's revenues are derived primarily from the Hotels and
reflect revenue from rooms, food and beverage, third party management contracts,
and other sources, including telephone, guest services, banquet room rentals,
gift shops and other amenities. Hotel revenues accounted for 84.7% of total
revenue in 2000 and increased at an annual rate of 14.8% from $92.8 million in
1999 to $106.5 million in 2000. This increase was primarily the result of the
addition of WestCoast Hotels during the period. The balance of the Company's
revenues is derived from its Franchise, Central Services and Development,
TicketsWest, Real Estate, and Corporate Services divisions. These revenues are
generated from franchise fees, ticket distribution handling fees, real estate
management fees, sales commissions and rents. Franchise, Central Services and
Development produced 2.9% of the revenue, TicketsWest accounted for 4.5% of
total revenues and rental operations accounted for 7.6% of total revenues.
As is typical in the hospitality industry, REVPAR, ADR and occupancy
levels are important performance measures. The Company's operating strategy is
focused on enhancing revenue and operating margins by increasing REVPAR, ADR,
occupancy and operating efficiencies of the Hotels. These performance measures
are impacted by a variety of factors including national, regional and local
economic conditions, degree of competition with other hotels in their respective
market areas and, in the case of occupancy levels, changes in travel patterns.
For the year ended December 31, 1999, the Company redefined its
operating segments as (1) Hotels and Restaurants; (2) TicketsWest; (3) Real
Estate Division, and (4) Franchise, Central Services and Development. The
Franchise, Central Services and Development segment represents the franchise and
marketing division of the Company, which was acquired with the WestCoast Hotels,
Inc. purchase. Due to the timing of the WestCoast Hotels, Inc. acquisition, this
segment had identifiable assets and capital expenditures at December 31, 1999,
but no operations were reported until 2000.
21
The following table sets forth selected items from the consolidated
statements of operations as a percent of total revenues and certain other
selected data:
YEAR ENDED
DECEMBER 31,
--------------------------------
2000 1999 1998
Revenues
Hotels and Restaurants 84.7% 84.3% 87.1%
Franchise, Central Services and
Development 2.9 -- --
TicketsWest 4.5 6.5 2.0
Real Estate Division 7.6 8.8 10.6
Corporate Services and Other 0.3 0.4 0.03
-------- -------- --------
Total Revenues 100.0% 100.0% 100.0%
-------- -------- --------
Direct Operating Expenses 79.96% 79.4% 75.1%
Undistributed Corporate
Operating Expense 1.3 1.5 1.4
Operating Income 18.7 19.1 23.5
Interest Expense 11.7 8.5 9.4
Income Tax Provision 2.6 3.4 5.0
Net Income 4.6% 7.3% 8.7%
Hotel Statistics (1)
Hotels open at end of period 45 46 19
Available Rooms 8,704 8,749 3,933
REVPAR (2)(3) $ 54.94 $ 44.86 $ 50.30
ADR (4) 86.98 80.80 82.07
Occupancy (5) 63.2% 55.5% 61.3%
(1) Hotel statistics for the fiscal year ended December 31, 2000 are presented
for only combined hotels. Combined hotels includes owned, managed and
franchised. Hotel statistics for the fiscal year ended December 31, 1999 and
1998, are presented for comparable hotels. Comparable hotels mean hotels
owned by the Company for greater than one year.
(2) REVPAR represents the total room revenues divided by total available rooms,
net of rooms out of service due to significant renovations.
(3) Rooms, which were under renovation, were excluded from REVPAR and average
occupancy percentage. Due to the short duration of renovation, in the
opinion of management, excluding these rooms did not have a material impact
on REVPAR and average occupancy percentage.
(4) ADR represents total room revenues divided by the total number of rooms
occupied by hotel guests on a paid basis.
(5) Average occupancy percentage represents total rooms occupied divided by
total available rooms. Total available rooms represents the number of rooms
available multiplied by the number of days in the reported period.
22
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31, 1999
Total revenues increased $15.8 million, or 14.3%, from $110.1 million
in 1999 to $125.8 million in 2000. This increase is attributed primarily to
revenue generated from the acquisition of WestCoast Hotels, Inc. which was
effective December 31, 1999, increases in total rooms occupied and REVPAR
increases at the Combined Hotels (Hotels owned, managed and franchised). REVPAR
increased due to the increase of average daily rate.
Total hotel and restaurant revenues increased $13.7 million, or 14.8%,
to $106.5 million in 2000 from $92.8 million in 1999. Comparable Hotel ADR
increased $2.46, or 2.9%, to $86.98 in 2000 from $84.52 in 1999. Combined Hotel
REVPAR increased $1.82, or 3.4%, to $54.94 in 2000 from $53.12 in 1999. The
Company completed the acquisition of WestCoast Hotels, Inc., effective December
31, 1999. In 2000, there were 160,050 actual room nights under ownership, and
1,014,655 room nights for which the Company had management or franchise
contracts. Due to the timing of the WestCoast Hotels, Inc. acquisition, it did
not affect 1999 operating results
The Franchise, Central Services and Development division was acquired
with the WestCoast Hotels Inc. acquisition, therefore no operations were
reported in 1999. The year 2000 revenue was $3.6 million.
TicketsWest revenues decreased $1.5 million, or 20.6%, to $5.7 million
in 2000 from $7.2 million in 1999. TicketsWest revenue decreased primarily due
to decreased shows presented by the Company and decreased attendance at
entertainment events.
Real Estate Division revenue decreased $0.1 million, or 1.1%, to $9.5
million in 2000 from $9.6 million in 1999 primarily due to a one time lease
payment of $150,000 in 1999.
Direct operating expenses increased $13.2 million, or 15.1%, to $100.6
million in 2000 from $87.4 million in 1999, primarily due to the increase in the
number of hotel guests served and the full year's cost effect of the WestCoast
Hotels, Inc. acquisition, partially offset by the reduced costs of entertainment
presented by the TicketsWest division. This represents an increase in direct
operating expenses as a percentage of total revenues to 80.0% in 2000 from 79.4%
in 1999. The increase in direct operating expense percentages is primarily
attributed to increased hotel operating expenses and depreciation for operating
the acquired hotels associated with the WestCoast Hotels, Inc. acquisition.
Total undistributed corporate operating expenses increased $0.1 million
or 3.8%, to $1.7 million in 2000 from $1.6 million in 1999. Total undistributed
corporate operating expenses as a percentage of total revenues decreased 0.2% to
1.3% in 2000 from 1.5% in 1999.
Operating income increased $2.5 million, or 11.9%, to $23.5 million in
2000 from $21.0 million in 1999. As a percentage of total revenues, operating
income decreased to 18.7% in 2000 from 19.1% in 1999. This decrease is primarily
due to the increase in direct operating expenses of TicketsWest and the
increased costs associated with WestCoast Hotels Inc. operations.
Interest expense increased $5.3 million, or 56.2%, to $14.7 million in
2000 from $9.4 million in 1999. This increase is primarily related to borrowings
associated with the acquisition of
23
WestCoast Hotels Inc. and an increase in the weighted average interest rate
charged the Company for its variable interest debt.
Income tax provision declined 11.5%, to $3.3 million in 2000 from $3.7
million in 1999, due to the decrease in income before taxes. The effective
income tax provision rate was 36.2% for 2000 and 31.4% for 1999. The increase in
the effective tax rate in 2000 is primarily due to goodwill amortization
associated with the WestCoast Hotels, Inc. acquisition which is not deductible
for federal income tax pruposes.
Net income decreased $2.2 million, or 27.5%, to $5.8 million in 2000
from $8.0 million in 1999.
Earnings per share before extraordinary item and cumulative effect of
accounting change, decreased 29.7% to $0.45 in 2000 from $0.64 in 1999.
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31, 1998
Total revenues increased $23.8 million, or 27.5%, from $86.3 million in
1998 to $110.1 million in 1999. This increase is attributed primarily to revenue
generated from the full year's effect of the addition of eleven Hotels in 1998,
increases in total rooms occupied and REVPAR increases at the Comparable Hotels
(Hotels owned by the Company for greater than one year). REVPAR increased due to
the increase of average daily rate.
Total hotel and restaurant revenues increased $17.6 million, or 23.5%,
from $75.2 million in 1998 to $92.8 million in 1999. Comparable Hotel ADR
increased $2.53, or 3.2%, from $78.26 in 1998 to $80.80 in 1999. Comparable
Hotel REVPAR increased $0.21, or 0.5%, from $44.65 in 1998 to $44.86 in 1999.
The Company acquired eleven Hotels in 1998, which added 559,808 available rooms,
in 1998 and in 1999 added 300,329 rooms over 1998. The Company completed the
acquisition of WestCoast Hotels, Inc., effective December 31, 1999 which adds
258,055 roomnights under ownership, and 1,511,830 room nights which the Company
has management or franchise contracts. Due to the timing of the WestCoast
Hotels, Inc. acquisition, it did not affect 1999 operating results.
TicketsWest revenues increased $5.5 million, or 324.9%, from $1.7
million in 1998 to $7.2 million in 1999. TicketsWest revenue increased primarily
from increased shows presented by the Company, increased attendance at
entertainment events and the addition of revenue from the expansion of the
Company through the acquisition of Fastixx, Colorado Neighborhood Box Office,
and the expansion of Internet services and fees.
Real Estate Division revenue increased $0.5 million, or 5.1%, from $9.2
million in 1998 to $9.6 million in 1999 primarily from lease escalations and new
lease contracts in the Company's office and retail buildings.
Direct operating expenses increased $22.6 million, or 34.9%, from $64.8
million in 1998 to $87.4 million in 1999, primarily due to the increase in the
number of hotel guests served, the full year's cost effects, of the addition of
eleven hotels during 1998, and the increased costs of entertainment presented by
the TicketsWest division. This represents an increase in direct operating
expenses as a percentage of total revenues from 75.1% in 1998 to 79.4% in 1999.
The increase in direct operating expense percentages is primarily attributed to
the increase in entertainment costs for
24
events presented by the Company, and increased hotel operating expenses and
depreciation for operating the eleven acquired hotels for the full year
including the seasonally lower profit portions of the year in 1999.
Total undistributed corporate operating expenses increased $0.4
million, or 33.2%, from $1.2 million in 1998 to $1.6 million in 1999. Total
undistributed corporate operating expenses as a percentage of total revenues
increased 0.1% from 1.4% in 1998 to 1.5% in 1999.
Operating income increased $0.7 million, or 3.6%, from $20.3 million in
1998 to $21.0 million in 1999. As a percentage of total revenues, operating
income decreased from 23.5% in 1998 to 19.1% in 1999. This decrease is due
primarily due to the increase in direct operating expenses of TicketsWest and
seasonality of operating income margins for the eleven hotels acquired in the
higher profit period of 1998.
Interest expense increased $1.3 million, or 15.5%, from $8.1 million in
1998 to $9.4 million in 1999. This increase is primarily related to borrowings
associated with the acquisition of the eleven hotels during 1998 and an increase
in the weighted average interest rate charged the Company for its variable
interest debt.
Income tax provision declined 13.3%, from $4.3 million in 1998 to $3.7
million in 1999, due to the Company qualifying for a historical restoration tax
credit and the decrease in income before taxes. The effective income tax
provision rate was 34.9% and 31.4% for 1998 and 1999 respectively.
The Company recorded a charge related to a change in accounting
principle for unamortized startup costs required by Statement of Position 98-5
of $133,000, net of income taxes.
Net income increased $0.5 million, or 6.9%, from $7.5 million in 1998
to $8.0 million in 1999.
Earnings per share before extraordinary item and cumulative effect of
accounting change, decreased 9.9% from $0.71 in 1998 to $0.64 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal sources of liquidity have been
cash on hand, cash generated by operations and borrowings under a $120.0 million
revolving credit facility. Cash generated by operations in excess of operating
expenses is used for capital expenditures and to reduce amounts outstanding
under the Revolving Credit Facility. Hotel acquisitions, development and
expansion have been and will be financed through a combination of internally
generated cash, borrowing under credit facilities, and the issuance of Common
Stock or OP Units.
The Company's short-term capital needs include food and beverage
inventory, payroll and the repayment of interest expense on outstanding mortgage
indebtedness. Historically, the Company has met these needs through internally
generated cash. The Company's long-term capital needs include funds for property
acquisitions, scheduled debt maturities and renovations and other non-recurring
capital improvements. The Company anticipates meeting its future long-term
capital needs through additional debt financing secured by the Hotels, by
unsecured private or public debt offerings or by additional equity offerings or
the issuances of OP Units, along with cash generated from internal operations.
25
At December 31, 2000, the Company had $3.5 million in cash and cash
equivalents. The Company has made extensive capital expenditures over the last
three years, $8.5 million, $63.3 million, and $123.6 million in owned and joint
venture properties in 2000, 1999, and 1998, respectively. These expenditures
included guest room, lounge and restaurant renovations, public area
refurbishment, telephone and computer system upgrades, tenant improvements,
property acquisitions, construction, and corporate expenditures and were funded
from the initial public offering, issuance of operating partnership units,
operating cash flow and debt. The Company establishes reserves for capital
replacement in the amount of 4.0% of the prior year's actual gross hotel income
to maintain the Hotels at acceptable levels. Acquired hotel properties have a
separate capital budget for purchase, construction, renovation, and branding
costs. Capital expenditures planned for Hotels in 2001 are expected to be
approximately $7.2 million. Management believes the consistent renovation and
upgrading of the Hotels and other properties is imperative to its long-term
reputation and customer satisfaction.
To fund its acquisition program and meet its working capital needs, the
Company has a Revolving Credit Facility. The Revolving Credit Facility has a
term ending May 2003 and an annualized fee for the unutilized portion of the
facility. The Company selects from four different interest rates when it draws
funds: the lender's prime rate or one, three, or six month LIBOR plus the
applicable margin of 180 to 325 basis points, depending on the Company's ratio
of EBITDA-to-total funded debt. The Revolving Credit Facility allows for the
Company to draw funds based on the trailing 12 months performance on a pro forma
basis for both acquired and owned properties. Funds from the Revolving Credit
Facility may be used for acquisitions, renovations, construction and general
corporate purposes. The Company believes the funds available under the Revolving
Credit Facility and additional debt instruments will be sufficient to meet the
Company's near term growth plans. The Operating Partnership is the borrower
under the Revolving Credit Facility. The obligations of the Operating
Partnership under the Revolving Credit Facility are fully guaranteed by the
Company. Under the Revolving Credit Facility, the Company is permitted to grant
new deeds of trust on any future acquired properties. Mandatory prepayments are
required to be made in various circumstances including the disposition of any
property, or future acquired property, by the Operating Partnership.
The Revolving Credit Facility contains various representations,
warranties, covenants and events of default deemed appropriate for a Credit
Facility of similar size and nature. Covenants and provisions in the definitive
credit agreement governing the Revolving Credit Facility include, among other
things, limitations on: (i) substantive changes in the Company's and Operating
Partnership's current business activities, (ii) liquidation, dissolution,
mergers, consolidations, dispositions of material property or assets involving
the Company and its affiliates or their assets, as the case may be, and
acquisitions of property or assets of others, (iii) the creation or existence of
deeds of trust or other liens on property or assets, (iv) the addition or
existence of indebtedness, including guarantees and other contingent
obligations, (v) loans and advances to others and investments in others, (vi)
redemption of subordinated debt, (vii) amendment or modification of certain
material documents or of the Company's Articles of Incorporation in a manner
adverse to the interests of the lenders under the Revolving Credit Facility,
(viii) payment of dividends or distributions on the Company's capital stock, and
(ix) maintenance of certain financial ratios. Each of the covenants described
above provide for certain ordinary course of business and other exceptions. If
the Company breaches any of these covenants and does not obtain a waiver of that
breach, the breach will constitute an event of default under the Revolving
Credit Facility. At December 31, 2000, the Company had $106.5 million
outstanding under the Revolving Credit Facility and was in compliance with all
26
required covenants. The Revolving Credit Facility restricted the Company from
paying any dividends as of December 31, 2000.
In addition to the Revolving Credit Facility, as of December 31, 2000,
the Company had debt and capital leases outstanding of approximately $56.4
million consisting of primarily variable and fixed rate debt secured by
individual properties.
In February 2001, the Company has obtained a commitment to refinance
one of it properties on a non-recourse basis for $11.5 million. The refinancing
is scheduled to be funded in May 2001. The Company is also in the process of
negotiating non-recourse financing on four of its hotel properties with total
proceeds of approximately $63.5 million. The net proceeds after expenses will be
applied to the Revolving Credit Facility. Converting recourse debt to
non-recourse will provide the Company with additional flexibility and options
under its Revolving Credit Facility.
The Company has identified approximately $68 million of its non-core
real estate assets that are targeted for sale. We expect that some of these
assets will be sold during 2001. Proceeds from the sale of these assets may be
utilized to reduce the outstanding debt balance under the Company's Revolving
Credit Facility, acquisition of hotels, repurchase of the Company's stock, and
other corporate purposes.
The Company believes that cash generated by operations will be
sufficient to fund the Company's operating strategy for the foreseeable future,
and that any remaining cash generated by operations, together with capital
available under the Revolving Credit Facility (subject to the terms and
covenants to be included therein) and additional debt financing, will be
adequate to fund the Company's growth strategy in the near term. Thereafter, the
Company expects that future capital needs, including those for property
acquisitions, will be met through a combination of net cash provided by
operations, borrowings and additional issuances of Common Stock or OP Units.
SEASONALITY
The lodging industry is seasonal in nature, with the months from May
through October generally accounting for a greater portion of annual revenues
than the months from November through April. For example, for the year ended
December 31, 2000, our revenues in the first through fourth quarters were 21.6%,
26.3%, 29.3% and 22.8%, respectively, of our total revenue for such year and our
net income (loss) for the first through fourth quarters was (2.5)%, 33.3%, 63.3%
and 5.9% respectively, of our total net income for that year. Quarterly earnings
also may be adversely affected by events beyond our control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
INFLATION
The effect of inflation, as measured by fluctuations in the Consumer
Price Index, has not had a material impact on the Company's revenues or net
income during the periods under review.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables summarize the financial instruments held by the
Company at December 31, 2000 and 1999, which are sensitive to changes in
interest rates. At December 31, 2000, approximately 76% of the Company's debt
and capital lease obligations are subject to changes in
27
market interest rates and are sensitive to those changes. The Company purchased
an interest rate cap agreement to offset the risk of interest rate changes which
limits the interest charges on $36.0 million of the Revolving Credit Facility
when the 30 day LIBOR exceeds 9.0% plus the applicable margin. In the future,
the Company may choose to use additional derivative instruments, such as
interest rate swaps to manage the risk associated with interest rate changes.
The following table presents principal cash flows for debt and capital
leases outstanding at December 31, 2000, by maturity date and the related
average interest rate.
OUTSTANDING DEBT AND CAPITAL LEASE OBLIGATIONS (IN THOUSANDS)
-----------------------------------------------------------------------------------------
THERE- FAIR
2001 2002 2003 2004 2005 AFTER TOTAL VALUE
------ ------ ------ ------ ------ ------- --------- ---------
Note payable to bank (a) $ -- $ -- $106,500 $ -- $ -- $ -- $ 106,500 $ 106,500
Long-term debt:
Fixed rate 1,616 2,214 3,883 2,119 5,913 22,052 37,797 37,797
Weighted-average interest rate 7.10% 7.11% 7.12% 7.12% 7.13% 7.00% -- % -- %
Variable rate 777 843 912 985 1,069 12,871 17,457 17,457
Weighted-average interest rate 7.93% 7.74% 7.78% 7.82% 7.87% 7.94% -- % -- %
Capital lease obligations 529 389 268 -- -- -- 1,186 1,186
Weighted-average interest rate 7.89% 8.23% 8.34% -- % -- % -- % -- % -- %
- --------------------
(a) The interest rate on the note payable is based on LIBOR plus a variable
interest margin based on the Company's funded debt ratio. The interest margin
can vary from 180 - 325 basis points. At December 31, 2000, the interest margin
was 290 basis points.
The following table presents principal cash flows for debt and capital
leases outstanding at December 31, 1999, by maturity date and the related
average interest rate.
OUTSTANDING DEBT AND CAPITAL LEASE OBLIGATIONS (IN THOUSANDS)
-----------------------------------------------------------------------------------------
THERE FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
------ ------ ------ ------ ------ ------- --------- ---------
Note payable to bank (a) $ -- $ -- $ -- $101,263 $ -- $ -- $ 101,263 $ 101,263
Long-term debt:
Fixed rate 1,359 1,477 2,630 3,198 1,954 21,234 31,852 31,852
Weighted-average interest rate 7.56% 7.31% 7.31% 7.24% 7.13% 6.64% -- % -- %
Variable rate 1,387 965 1,042 1,121 1,400 20,243 26,158 26,158
Weighted-average interest rate 7.74% 7.54% 7.60% 7.59% 7.62% 7.19% -- % -- %
Capital lease obligations 623 485 359 259 -- -- 1,726 1,726
Weighted-average interest rate 7.99% 8.21% 8.64% 8.64% -- % -- % -- % -- %
- --------------------------
(a) The interest rate on the note payable is based on LIBOR plus a variable
interest margin based on the Company's funded debt ratio. The interest margin
can vary from 180 - 250 basis points. At December 31, 1999, the interest margin
was 250 basis points.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Report for information with respect to the
financial statements filed as a part hereof, including financial statements
filed pursuant to the requirements of this Item 8.
SELECTED QUARTERLY DATA
UNAUDITED - DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
- ------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2000
Revenues $ 27,209 $ 33,031 $ 36,910 $ 28,656
Operating Income 3,164 6,754 9,591 4,040
Income before extraordinary item and Cumulative
effect of change in accounting principle (147) 1,939 3,684 345
Net income (loss) (147) 1,939 3,684 345
Income per share before extraordinary item and
Cumulative effect of change in accounting principle (0.01) 0.15 0.28 0.03
1999
Revenues $ 22,148 $ 27,978 $ 33,758 $ 26,171
Operating income 2,920 6,760 8,191 3,164
Income before extraordinary item and Cumulative
effect of change in accounting principle 495 3,013 3,924 740
Extraordinary item, net of income tax benefit (10) -- -- --
Cumulative effect of change in accounting principle,
net of income tax benefit (133) -- -- --
Net income 352 3,013 3,924 740
Income per share before extraordinary item and
Cumulative effect of change in accounting principle 0.04 0.24 0.31 0.06
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
WestCoast Hospitality Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' and partners' equity
and of cash flows present fairly, in all material respects, the financial
position of WestCoast Hospitality Corporation and its subsidiaries at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for start-up activities in 1999 as required by
a Statement of Position issued by the American Institute of Certified Public
Accountants.
PricewaterhouseCoopers LLP
February 1, 2001
Spokane, Washington
30
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------------------
2000 1999
ASSETS:
Current assets:
Cash and cash equivalents $ 3,476 $ 4,357
Accounts receivable 6,232 7,548
Income taxes refundable 5 --
Inventories 1,130 1,110
Prepaid expenses and deposits 733 883
-------- --------
Total current assets 11,576 13,898
-------- --------
Property and equipment, net 242,548 243,237
Intangible assets, net 28,897 29,613
Other assets, net 21,813 22,384
-------- --------
Total assets $304,834 $309,132
======== ========
LIABILITIES:
Current liabilities:
Accounts payable $ 3,432 $ 4,739
Accrued payroll and related benefits 2,453 3,024
Accrued interest payable 708 721
Income taxes payable -- 457
Other accrued expenses 5,052 8,994
Long-term debt, due within one year 2,393 7,445
Capital lease obligations, due within one year 529 623
-------- --------
Total current liabilities 14,567 26,003
-------- --------
Long-term debt, due after one year 52,861 57,516
Notes payable to bank 106,500 101,263
Capital lease obligations, due after one year 657 1,103
Deferred income taxes 16,631 15,617
Minority interest in partnerships 2,881 2,798
-------- --------
Total liabilities 194,097 204,300
-------- --------
Commitments and contingencies (Notes 10 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock - 5,000,000 shares authorized; $0.01 par value;
no shares issued and outstanding -- --
Common stock - 50,000,000 shares authorized; $0.01 par value;
12,933,106 and 12,925,276 shares issued and outstanding 129 129
Additional paid-in capital 83,845 83,761
Retained earnings 26,763 20,942
-------- --------
Total stockholders' equity 110,737 104,832
-------- --------
Total liabilities and stockholders' equity $304,834 $309,132
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
31
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------
2000 1999 1998
REVENUES:
Hotels and Restaurants $ 106,540 $ 92,808 $ 75,172
Franchise, Central Services and Development 3,643 -- --
TicketsWest 5,705 7,181 1,690
Real Estate Division 9,540 9,649 9,183
Corporate Services 378 417 288
---------- ---------- ----------
Total revenues 125,806 110,055 86,333
---------- ---------- ----------
OPERATING EXPENSES:
Direct:
Hotels and Restaurants 78,626 68,150 53,843
Franchise, Central Services and Development 1,207 -- --
TicketsWest 5,702 6,683 1,165
Real Estate Division 4,378 4,469 3,687
Corporate Services 227 181 8
Depreciation and amortization of tangible assets 9,578 7,904 6,079
Amortization of goodwill 874 28 36
---------- ---------- ----------
Total direct expenses 100,592 87,415 64,818
Undistributed corporate expenses 1,666 1,605 1,205
---------- ---------- ----------
Total expenses 102,258 89,020 66,023
---------- ---------- ----------
Operating income 23,548 21,035 20,310
OTHER INCOME (EXPENSE):
Interest expense, net of amounts capitalized (14,660) (9,384) (8,127)
Interest income 315 367 346
Other income 186 21 90
Conversion expenses (246) -- --
Equity in investments 100 -- --
Minority interest in partnerships (116) (130) (255)
---------- ---------- ----------
Income before income taxes 9,127 11,909 12,364
Income tax provision 3,306 3,737 4,310
---------- ---------- ----------
Income before extraordinary item and cumulative
effect of change in accounting principle 5,821 8,172 8,054
Extraordinary item, net of tax benefit -- (10) (546)
Cumulative effect of change in accounting principle,
net of tax benefit -- (133) --
---------- ---------- ----------
Net income $ 5,821 $ 8,029 $ 7,508
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
32
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------
2000 1999 1998
Income per share:
Income per share before extraordinary item and
cumulative effect of change in accounting
principle $ 0.45 $ 0.64 $ 0.71
Extraordinary item -- -- (0.05)
Cumulative effect of change in accounting principle -- (0.01) --
---------- ---------- ----------
Net income per share - basic and diluted $ 0.45 $ 0.63 $ 0.66
========== ========== ==========
Weighted-average shares outstanding - basic 12,941 12,755 11,347
========== ========== ==========
Weighted-average shares outstanding - diluted 13,237 13,096 11,666
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
33
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' AND PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
-------------------------- PARTNERS' PAID-IN RETAINED
SHARES AMOUNT DEFICIT CAPITAL EARNINGS
----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1997 7,072,025 $ 71 $ (879) $ 3,935 $ 5,405
Net income 7,508
Stock issued for acquisition of
partnership interest 12,228 879 (879)
Stock issued for cash, net of
issuance costs 5,951,250 59 81,269
Stock issued under employee
stock purchase plan 18,752 184
Stock issued to directors and
certain senior management 11,692 174
Income tax effect of stock grants (25)
Purchase and retirement of stock (405,100) (4) (3,766)
----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1998 12,660,847 126 -- 80,892 12,913
Net income 8,029
Stock issued under employee
stock purchase plan 14,245 101
Stock issued for acquisition of
subsidiaries 138,884 2 1,050
Stock issued to directors and
certain senior management 11,300 167
Income tax effect of stock grants (26)
Stock issued for redemption of
operating partnership units 100,000 1 1,577
----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1999 12,925,276 129 -- 83,761 20,942
Net income 5,821
Stock issued under employee stock
purchase plan 26,429 175
Stock issued to directors and
certain senior management 1,578 12
Retirement of stock (20,177) (103)
----------- ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 2000 12,933,106 $ 129 $ -- $ 83,845 $ 26,763
=========== =========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
34
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
2000 1999 1998
OPERATING ACTIVITIES:
Net income $ 5,821 $ 8,029 $ 7,508
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,452 7,932 6,115
(Gain) loss on disposition of property and equipment 194 -- (80)
Deferred income tax provision 1,524 2,392 934
Minority interest in partnerships 116 130 255
Equity in investments (100) -- --
Extraordinary item, write-off of deferred loan fees -- 10 546
Cumulative effect of change in accounting principle -- 133 --
Compensation expense related to stock issuance 12 167 174
Change in assets and liabilities, net of effects of
purchase of subsidiaries:
Accounts receivable 1,316 (524) (2,642)
Inventories (20) (158) (431)
Prepaid expenses, deposits and income taxes
refundable 145 (1,559) (2)
Accounts payable and income taxes payable (2,275) 875 (430)
Accrued payroll and related benefits (571) (51) 494
Accrued interest payable (13) (896) 829
Other accrued expenses (4,647) 2,587 1,001
---------- ---------- ----------
Net cash provided by operating activities 11,954 19,067 14,271
---------- ---------- ----------
INVESTING ACTIVITIES:
Additions to property and equipment (7,739) (10,829) (7,772)
Proceeds from disposition of property and equipment -- -- 172
Cash paid for acquisition of property and equipment or
subsidiaries, net of cash received -- (1,079) (99,356)
Issuance of note receivable -- (358) (17,112)
Payment received on note receivable -- -- 17,112
Other, net 257 (1,306) (1,789)
---------- ---------- ----------
Net cash used in investing activities (7,482) (13,572) (108,745)
---------- ---------- ----------
FINANCING ACTIVITIES:
Distributions to stockholders and partners (33) (118) (93)
Proceeds from note payable to bank 15,137 8,680 84,405
Repayment of note payable to bank (9,900) (11,260) (3,135)
Proceeds from long-term debt -- -- 8,433
Repayment of long-term debt (9,707) (1,633) (70,655)
Proceeds from sale of stock, net of issuance costs -- -- 81,328
Purchase and retirement of common stock -- -- (3,770)
Proceeds from issuance of common stock under employee
stock purchase plan 175 101 184
Principal payments on capital lease obligations (648) (656) (537)
Payments to affiliate -- -- (1,133)
Additions to deferred financing costs (377) (519) (1,241)
---------- ---------- ----------
Net cash provided by (used in) financing activities (5,353) (5,405) 93,786
---------- ---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents (881) 90 (688)
Cash and cash equivalents at beginning of year 4,357 4,267 4,955
---------- ---------- ----------
Cash and cash equivalents at end of year $ 3,476 $ 4,357 $ 4,267
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
35
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
2000 1999 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest (net of amount capitalized) $ 14,673 $ 10,280 $ 7,297
Income taxes 1,791 2,043 3,554
Noncash investing and financing activities:
Assumption of capital leases $ 108 $ -- $ 278
Issuance of operating partnership units for property
acquisitions -- -- 3,677
Acquisitions of property through debt, liabilities or
reduction of note receivable 602 43,896 10,066
Stock issued for partial acquisition of partnership interest -- -- 879
Issuance of stock for acquisition of subsidiaries -- 1,052 --
Issuance of stock for operating partnership units -- 1,578 --
Redemption of stock for satisfaction of receivable 103 -- --
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
36
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Effective December 31, 1999, Cavanaughs Hospitality Corporation acquired
all of the outstanding stock of WestCoast Hotels, Inc. In February 2000,
the Company changed its name to WestCoast Hospitality Corporation. All
references herein to WestCoast Hospitality Corporation or WestCoast refer
to the consolidated entity including Cavanaughs Hospitality Corporation as
the predecessor entity. WestCoast Hospitality Corporation is a hotel
operating company that owns, operates, franchises, acquires, develops,
renovates and repositions full service hotels in the Western United States
under its proprietary brand names, "Cavanaughs (R)" and "WestCoast (R)".
Substantially all of WestCoast's assets, including the hotels, are owned by
or for the benefit of WestCoast Hospitality Limited Partnership (WHLP)
(formerly Cavanaughs Hospitality Limited Partnership), a Delaware limited
partnership. WestCoast Hospitality Corporation manages the day to day
operations of the partnership in its capacity as sole general partner and
also owns limited partnership interests of WHLP.
As of December 31, 2000, the Company has ownership interests and operated
23 hotel properties, managed an additional 10 properties and franchised an
additional 12 properties, totaling 45 hotels in 9 states, including Alaska,
Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah and Washington.
Additionally, the Company provides computerized ticketing for entertainment
events and arranges Broadway and other entertainment event productions.
Also, during the second quarter of 1999, the Company launched TicketsWest,
an Internet ticketing service offering consumers up-to-the-minute
information on live entertainment and the ability to make real-time ticket
purchases to events through the website. The Company owns and manages
ticketing operations in Colorado, Idaho, Montana, Oregon and Washington.
The Company also leases retail and office space in buildings owned by the
Company and manages residential and commercial properties for others in
Idaho, Montana and Washington.
The consolidated financial statements include the accounts of WestCoast
Hospitality Corporation, its wholly owned subsidiaries, its general and
limited partnership interest in WHLP, a 50% interest in a limited
partnership and its equity basis investment in two limited partnerships.
All of these entities are collectively referred to as "the Company" or
"WestCoast"." All significant intercompany transactions and accounts have
been eliminated in the consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with
remaining maturities at time of purchase of three months or less. The
Company places its cash with high credit quality institutions. At times,
cash balances may be in excess of federal insurance limits.
The Company maintains several trust accounts for owners of real properties
which it manages. These cash accounts are not owned by the Company and
therefore, are not included in the consolidated financial statements. At
December 31, 2000, these accounts totaled approximately $1,652,000.
37
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVENTORIES
Inventories consist primarily of food and beverage products held for sale
at the restaurants operated by the Company. Inventories are valued at the
lower of cost, determined on a first-in, first-out basis, or net realizable
value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the lesser of the estimated useful lives of
the related assets or the lease term as follows:
Buildings 25-40 years
Equipment 5-20 years
Furniture and fixtures 15 years
Landscaping and land improvements 15 years
Major additions and betterments are capitalized. Costs of maintenance and
repairs which do not improve or extend the lives of the respective assets
are expensed currently. When items are disposed of, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss
is recognized in operations. Management of the Company periodically reviews
the net carrying value of all properties to determine whether there has
been a permanent impairment of value and assesses the need for any
write-downs in carrying value.
INTEREST CAPITALIZATION
The Company capitalizes interest costs during the construction period for
qualifying assets. During the years ended December 31, 2000, 1999 and 1998,
the Company capitalized approximately $468,000, $550,000 and $363,000 of
interest costs, respectively.
INTANGIBLE ASSETS
Intangible assets consist of brand name and goodwill attributable to the
purchase prices of acquisitions which were in excess of the estimated fair
values of net tangible and identifiable intangible assets acquired. These
assets are being amortized over 20-40 years. Accumulated amortization at
December 31, 2000 and 1999 was approximately $1,239,000 and $365,000,
respectively. Intangible assets are reviewed for impairment whenever events
or changes in business circumstances indicate the carrying value of the
assets may not be recoverable. Impairment losses are recognized if expected
future cash flows from the use or sale of the assets are less than their
carrying values.
OTHER ASSETS
Other assets primarily include amounts expended for management and
marketing contracts, deferred loan fees, purchase option payments,
straight-line rental income, a minority interest in a limited liability
company and investments in partnerships. The cost of management and
marketing contracts are amortized over the weighted-average remaining term
of the contracts. Deferred loan fees are amortized using the interest
method over the term of the related loan agreement. The Company has
deferred purchase option payments made pursuant to purchase agreements for
hotel properties which are currently being leased and operated by the
Company. If the options are exercised, the option payments will be
amortized as part of the purchase price of the hotels. If the options are
not exercised, the option payments will be charged to operations.
38
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's investment in the limited liability company is accounted for
under the cost method. Investment in a partnership over which the Company
can exercise significant influence is accounted for by the equity method,
under which the Company recognizes its proportionate share of partnership
earnings and treats distributions as a reduction in its investment.
INCOME TAXES
WHLP and the other partnerships which are partially or wholly owned by
WestCoast Hospitality Corporation are not tax paying entities. However, the
income tax attributes of these partnerships flow through to the respective
partners of the partnerships.
LEASE INCOME
The Company records rental income from operating leases which contain fixed
escalation clauses on the straight-line method. The difference between
income earned and lease payments received from the tenants is included in
other assets on the consolidated balance sheets. Rental income from retail
lessees which is contingent upon the lessees' revenues is recorded as
income in the period earned.
EARNINGS PER SHARE
Net income per share-basic is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Net
income per share-diluted is computed by adjusting net income by the effect
of the minority interest related to Operating Partnership Units (OP Units)
and increasing the weighted-average number of common shares outstanding by
the effect of the OP Units and the additional common shares that would have
been outstanding if the dilutive potential common shares (stock options and
convertible notes) had been issued, to the extent that such issuance would
be dilutive. There is no difference between basic and diluted earnings per
share because the stock options and convertible notes are antidilutive in
2000, 1999 and 1998.
ACCOUNTING FOR STOCK OPTIONS
As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation", the Company has chosen to
measure compensation cost for stock-based employee compensation plans using
the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and to provide the disclosure only requirements of SFAS 123.
NEW ACCOUNTING PRONOUNCEMENT
In April 1998, Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-up Activities" was issued. The SOP requires that all costs of
start-up activities and organization costs be expensed as incurred. The
Company adopted the provisions of SOP 98-5 on January 1, 1999 and reported
the change as a cumulative effect of an accounting change in the
consolidated statement of income. The adoption of SOP 98-5 resulted in a
charge to operations of $133,000, which is net of $68,000 of income taxes.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 2000
presentation. These reclassifications had no effect on net income or
retained earnings as previously reported.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and
39
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 is summarized as
follows (in thousands):
2000 1999
Buildings and equipment $ 215,548 $ 207,595
Furniture and fixtures 17,561 15,953
Equipment acquired under capital leases 4,052 4,197
Landscaping and land improvements 1,995 1,477
---------- ----------
239,156 229,222
Less accumulated depreciation and amortization (55,849) (47,612)
---------- ----------
183,307 181,610
Land 54,056 54,056
Construction in progress 5,185 7,571
---------- ----------
$ 242,548 $ 243,237
========== ==========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was approximately $8,301,000, $7,336,000, and $5,691,000, respectively.
40
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LONG-TERM DEBT
Long-term debt consists of mortgage notes payable and notes and contracts
payable, collateralized by real property, equipment and the assignment of
certain rental income. Long-term debt as of December 31, 2000 and 1999 is
as follows (amounts outstanding in thousands):
2000 1999
Note payable in monthly installments of $91,373 including interest
at 7.25%, through June 2006, collateralized by real property $ 10,191 $ 10,535
Note payable in monthly installments of $55,817 including interest
at 7.36%, through September 2007, collateralized by assignment
of certain rental income 7,365 7,488
Note payable in monthly installments of principal and interest at
7%, through January 2010 convertible into common stock of
the Company at $15 per share 6,706 7,000
Note payable in monthly installments of $62,102, including interest
at a variable rate (8.75% at December 31, 2000 and 7.25% at
December 31, 1999), through May 2008, collateralized by real
property 6,651 6,819
Industrial revenue bonds payable in monthly installments of
$66,560 including interest at 5.9%, through October 2011,
collateralized by real property 6,412 6,818
Note payable in monthly installments of $53,517, including interest
at 8%, through July 2005, collateralized by real property 5,084 5,310
Note payable in monthly installments of $45,407, including interest
at a variable rate (9.0% at December 31, 2000 and 1999),
through April 2010, collateralized by real property 4,380 4,523
Note payable in monthly installments of $23,663, including interest
at a variable rate (8.75% at December 31, 2000 and 7.50% at
December 31, 1999), through January 2008, collateralized by
real property 2,513 2,569
Industrial revenue bonds payable in monthly installments of
$21,250 including interest at a variable rate (4.6% at
December 31, 2000 and 4.4% at December 31, 1999), through
January 2007, collateralized by real property 1,795 2,041
41
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2000 1999
Note payable in monthly installments of $19,259 including interest at
an index rate plus 1.5%, subject to a minimum of 9.5% and a
maximum of 12.0% (10.5% at December 31, 2000 and 10.0% at
December 31, 1999), through December 2011, collateralized
by real property $ 1,494 $ 1,564
Note payable in monthly installments of $10,430, including interest
at 7.42%, through December 2003 1,375 1,396
Note payable in monthly installments of $8,049, including interest
at a variable rate (8.64% at December 31, 2000 and 7.15% at
December 31, 1999), through November 2009, collateralized
by certain equipment and furniture and fixtures 623 669
Note payable of interest only at 8% until maturity in October 2002,
collateralized by letter of credit 500 500
Note payable in monthly installments of interest only at a variable
rate (8.5% at December 31, 1999) paid in full January 2000 -- 4,500
Commercial loan payable in monthly installments of interest only at a
variable rate of LIBOR plus 2.5% (7.75% at December 31, 1999)
plus annual principal installments of $200,000, paid in full
January 2000 -- 2,450
Note payable in monthly installments of $7,024 including interest at
a variable rate (8.75% at December 31, 1999), paid in full in
March 2000 -- 485
Other 165 294
--------- ---------
55,254 64,961
Less current portion (2,393) (7,445)
--------- ---------
Non current portion $ 52,861 $ 57,516
========= =========
The Company used the net proceeds of its initial public offering of common
stock to repay approximately $68.6 million of debt during the year ended
December 31, 1998. Additionally, certain debt was also repaid during the
year ended December 31, 1999. In connection with the debt repayment,
approximately $546,000 of deferred loan fees and prepayment penalties, net
of $282,000 income taxes, were charged to operations during the year ended
December 31, 1998. During the year ended December 31, 1999, $10,000 of
deferred loan fees, which is net of $5,000 income taxes were charged to
operations. These charges are presented as an extraordinary item on the
consolidated statements of income.
The Company has received a commitment to refinance the note payable with a
balance of $10.2 million as of December 31, 2000. The commitment allows for
the Company to obtain additional funds which will increase the total loan
to $11.5 million. The loan will be modified to be non-recourse and carry an
interest rate of 7.39% and the term will be extended to a maturity of 2011.
42
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Contractual maturities for long-term debt outstanding at December 31, 2000
are summarized by year as follows (in thousands):
YEARS ENDING
DECEMBER 31,
------------
2001 $ 2,393
2002 3,057
2003 4,795
2004 3,104
2005 6,982
Thereafter 34,923
---------
$ 55,254
=========
5. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases. The imputed
interest rates on the leases range from 8.0% to 8.6%. Cost and accumulated
amortization of this equipment as of December 31, 2000 are approximately
$4,052,000 and $2,069,000, respectively. Cost and accumulated amortization
of the equipment as of December 31, 1999 are approximately $4,197,000 and
$1,812,000, respectively.
Future minimum lease payments due under capital leases at December 31, 2000
are as follows (in thousands):
YEARS ENDING
DECEMBER 31,
------------
2001 $ 615
2002 430
2003 277
---------
Total minimum lease payments 1,322
Less amounts representing interest (136)
---------
Total obligations under capital lease 1,186
Less current portion (529)
---------
$ 657
=========
43
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. NOTES PAYABLE TO BANK
In May 1998, the Company obtained an $80 million revolving credit facility
with a consortium of banks. In December 1998, the Company received a
commitment to amend the credit facility to increase the total amount
available under the facility to $100 million. In December 1999, in
connection with the WestCoast Hotels, Inc. acquisition (see Note 13), the
credit facility was amended to increase the total amount available under
the facility to $120 million. At December 31, 2000 and 1999, $106.5 million
and $101.3 million was outstanding under the credit facility. The credit
facility is collateralized by certain properties and requires that the
Company maintain certain financial ratios, minimum levels of cash flows and
restricts the payment of dividends. Any outstanding borrowings bear
interest based on the prime rate or LIBOR. At December 31, 2000, the
interest rate on outstanding borrowings ranged from 9.59% to 9.65%. The
weighted-average interest rate on outstanding borrowings was 9.61% and
8.47% at December 31, 2000 and 1999, respectively. Interest only payments
are due monthly. The credit facility matures in 2003. The credit facility
requires the initial payment of a 1% fee plus an annual standby fee ranging
from 0.25% to 0.50% (0.50% in 2000). Additionally, in connection with the
December 1999 amendment, a $950,000 fee was paid. The Company was in
compliance with all required financial covenants at December 31, 2000. The
debt agreement allows the Company to pay dividends as long as certain
minimum financial ratios are maintained. At December 31, 2000, 1999 and
1998, the Company was restricted from paying any dividends.
In January 2000, the Company obtained an interest rate cap protection
contract for $36 million of its credit facility. For a period of 3 years,
the Company is protected from LIBOR exceeding 9%. The rate protection
contract is transferable.
7. STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING
The Articles of Incorporation of the Company authorize 50 million common
shares and 5 million preferred shares. The preferred stock rights,
preferences and privileges will be determined by the Board of Directors.
In April 1998, the Company completed an initial public offering of
5,951,250 shares of its common stock at $15 per share. The net proceeds,
after deducting the underwriting discount and offering expenses, of
approximately $81,328,000 were primarily used to repay certain debt and
acquire hotel properties.
44
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES
Major components of the Company's income tax provision for the years ended
December 31, 2000, 1999 and 1998 are as follows (in thousands):
2000 1999 1998
Current:
Federal $ 1,677 $ 1,175 $ 3,249
State 105 170 127
Deferred 1,524 2,392 934
-------- -------- --------
$ 3,306 $ 3,737 $ 4,310
======== ======== ========
The income tax provisions shown in the consolidated statements of income
differ from the amounts calculated using the federal statutory rate applied
to income before income taxes as follows (in thousands):
2000 1999 1998
------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT %
------- ------- ------- ------- ------- -------
Provision at federal
statutory rate $ 3,103 34.0 $ 4,049 34.0 $ 4,204 34.0
Effect of tax credits (77) (0.9) (671) (5.6) (59) (0.4)
State taxes, net of
federal benefit 69 0.8 113 0.9 84 0.7
Other (51) (0.6) 246 2.1 81 0.6
Goodwill amortization 262 2.9 -- -- -- --
------- ------- ------- ------- ------- -------
$ 3,306 36.2 $ 3,737 31.4 $ 4,310 34.9
======= ======= ======= ======= ======= =======
Components of the net deferred tax assets and liabilities at December 31,
2000 and 1999 are as follows (in thousands):
2000 1999
------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- --------- --------- ---------
Depreciation on property and equipment $ -- $ 14,830 $ -- $ 15,459
Rental income -- 604 -- 578
Management contracts -- 1,641 -- --
Other 444 -- 420 --
--------- --------- --------- ---------
$ 444 $ 17,075 $ 420 $ 16,037
========= ========= ========= =========
45
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. OPERATING LEASE INCOME
The Company leases shopping mall space to various tenants over terms
ranging from one to ten years. The leases generally provide for fixed
minimum monthly rent as well as tenants' payments for their pro rata share
of taxes and insurance, common area maintenance and expenses associated
with the shopping mall. In addition, the Company leases commercial office
space over terms ranging from one to eighteen years. The cost and
accumulated depreciation of these properties at December 31, 2000 was
approximately $34,682,000 and $11,274,000, respectively. The cost and
accumulated depreciation of the commercial office properties at December
31, 1999 was approximately $34,350,000 and $10,352,000, respectively.
Future minimum lease income under existing noncancellable leases at
December 31, 2000 is as follows (in thousands):
YEARS ENDING
DECEMBER 31,
------------
2001 $ 7,581
2002 7,028
2003 6,619
2004 5,709
2005 4,480
Thereafter 13,388
--------
$ 44,805
========
Rental income for the years ended December 31, 2000, 1999 and 1998 was
approximately $8,896,000, $7,594,000 and $7,155,000, respectively, which
included contingent rents of approximately $200,000, $149,000 and $147,000,
respectively.
10. OPERATING LEASE COMMITMENTS
The Company leases building space under an operating lease agreement which
requires monthly payments of $4,500 through March 2009. The monthly
payments can be increased yearly for inflation.
In 1998, the Company began leasing land at one of its hotel properties
which requires monthly payments based on either gross receipts from the
hotel or a monthly minimum, whichever is greater, through July 2014, with
two 10-year renewal options. At December 31, 2000, monthly minimum lease
payments were $5,617. The monthly minimum payments can be adjusted every
three years based on the average monthly payments. In 1998, the Company
began leasing land at one of its hotel properties, which requires monthly
payments of $5,454 through May 2062. The monthly payments are subject to
adjustment every five years.
In October 1997, the Company began operating a hotel in Yakima, Washington
under an operating lease and purchase option agreement. The lease agreement
is for a period of 15 years with two five-year renewal options. The Company
pays all operating costs of the hotel plus monthly lease payments of
$35,000 through September 2003. Commencing October 2003, the monthly lease
requirement will be $52,083 and monthly payments shall increase by $5,208
46
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
each year thereafter. The Company agreed to a $1.0 million option payment
which allows the purchase of this hotel at a fixed price. One-half of this
option payment was paid in cash and the remaining $500,000 is payable in
October 2002. The option is exercisable by the Company between March and
September 2003 for a total purchase price of $6,250,000. If the Company
exercises its purchase option, the option payments made by the Company will
be applied against the total purchase price.
Through the WestCoast Hotels, Inc. acquisition, the Company began operating
a hotel in Bellevue, Washington in January 2000 with an operating lease and
purchase option agreement. The lease agreement expires on December 31,
2003. The Company pays monthly lease payments of $27,951 plus "additional
rent" as defined in the agreement. Additional rent includes hotel operating
and other costs. The purchase option is exercisable from January 1, 2000
through July 1, 2002 at the lessor's option and the Company's mutual
consent and from July 2002 through December 2003 solely at the Company's
option. The total purchase price of the hotel under option is $12 million.
Assuming the Company exercises its purchase options for the Bellevue hotel
in July 2002 and the Yakima hotel in March 2003, total payments due under
all of the Company's leases at December 31, 2000 are as follows (in
thousands):
YEARS ENDING
DECEMBER 31,
------------
2001 $ 1,816
2002 1,647
2003 1,165
2004 292
2005 292
Thereafter 6,390
--------
$ 11,602
========
Total rent expense under the leases for the years ended December 31, 2000,
1999 and 1998 was $1,816,000, $675,000 and $573,000, respectively.
11. RELATED-PARTY TRANSACTIONS
The Company had the following transactions with related parties:
o The Company recorded management fee and other income of approximately
$145,000, $109,000 and $177,000 during the years ended December 31,
2000, 1999 and 1998, respectively, for performing management and
administrative functions for entities which are owned by key
stockholders and management of the Company, but are excluded from the
consolidated financial statements.
o The Company received commissions for real estate sales from entities
which are owned or partially owned by key stockholders and management
of the Company, but are excluded from the consolidated financial
statements of $110,000, $114,000 and $42,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
47
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
o During 2000, 1999, and 1998, the Company held certain cash and
investment accounts in a bank and had notes payable to the same bank.
The bank's chairman, chief executive officer and president became a
director of the Company in April 1998. At December 31, 2000 and 1999,
total cash and investments of approximately $1,202,000 and $1,811,000,
respectively, and a note payable totaling approximately $6,412,000 and
$6,818,000, respectively, were outstanding with this bank. Total
interest income of $41,000, $75,000 and $74,000, respectively, and
interest expense of $391,000, $206,000 and $128,000, respectively, was
recorded related to this bank during the years ended December 31,
2000, 1999 and 1998.
o At December 31, 2000 and 1999, the Company guaranteed $235,000 of a
note which is payable by a limited liability company, in which the
Company holds a minority interest.
o At December 31, 1997, the Company had a $1,133,000 payable to an
affiliated entity due to common control. The payable bore interest at
the prime rate and was paid in full during 1998. During the year ended
December 31, 1998, the Company incurred $26,000 of interest expense
associated with this note.
12. EMPLOYEE BENEFIT AND STOCK PLANS
1998 STOCK INCENTIVE PLAN
The 1998 Stock Incentive Plan (the Plan) was adopted by the Board of
Directors in 1998. The Plan authorizes the grant or issuance of various
option or other awards. The Company amended the Plan in 2000 to increase
the maximum number of shares which may be awarded under the Plan from
1,200,000 to 1,400,000 shares, subject to adjustment for stock splits,
stock dividends and similar events. The Compensation Committee of the Board
of Directors administers the Plan and establishes to whom, the type and the
terms and conditions, including the exercise period, the awards are
granted.
Nonqualified stock options may be granted for any term specified by the
Compensation Committee and may be granted at less than fair market value,
but not less than par value on the date of grant. Incentive stock options
may be granted only to employees and must be granted at an exercise price
at least equal to fair market value on the date of grant and have a ten
year exercise period. The maximum fair market value of shares which may be
issued pursuant to incentive stock options granted under the Plan to any
individual in any calendar year may not exceed $100,000. Stock Appreciation
Rights (SARs) may also be granted in connection with stock options or other
awards. SARs typically will provide for payments to the holder based upon
increases in the price of the common stock over the exercise price of the
related option or award, but alternatively may be based upon other criteria
such as book value. Other awards such as restricted stock awards, dividend
equivalent awards, performance awards or deferred stock awards may also be
granted under the Plan by the Compensation Committee.
48
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
All options granted have been designated as nonqualified options, with an
exercise price equal to or in excess of fair market value on the date of
grant and for a term of ten years. For substantially all options granted,
fifty percent of each recipients' options will vest on the fourth
anniversary of the date of grant and the remaining 50% will vest on the
fifth anniversary of the date of grant. The vesting schedule will change
if, beginning one year after the option grant date, the stock price of the
common stock reaches the following target levels (measured as a percentage
increase over the exercise price) for 60 consecutive trading days:
STOCK PRICE PERCENT OF OPTION
INCREASE SHARES VESTED
----------- -----------------
25% 25%
50% 50%
75% 75%
100% 100%
Stock option transactions are summarized as follows:
NUMBER WEIGHTED-AVERAGE EXERCISE PRICE EXPIRATION
OF SHARES EXERCISE PRICE PER SHARE DATE
---------- ---------- ------------- ----------
Balance, December 31, 1997 -- $ -- $ -- --
Options granted 889,919 15.00 15.00 2008
Options forfeited (54,050) 15.00 15.00
----------
Balance, December 31, 1998 835,869 15.00 15.00 2008
Options granted 263,915 12.02 7.50-15.00 2009
Options forfeited (122,035) 14.16 10.94-15.00
----------
Balance, December 31, 1999 977,749 14.30 7.50-15.00 2008-2009
Options granted 109,395 9.18 8.31-15.00 2010
Options forfeited (89,319) 14.21 10.94-15.00
----------
Balance, December 31, 2000 997,825 $ 13.75 $ 7.50-15.00 2008-2010
========== ========== =============
Remaining options available for grant at December 31, 2000 were 402,175. At
December 31, 2000, options totaling 19,000 are exercisable at a weighted
average exercise price of $15.00. There were no options exercisable at
December 31, 1999 and 1998.
49
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company uses the intrinsic value method versus the fair value method of
recording compensation expense associated with its stock options.
Accordingly, since all options were granted at exercise prices equal to or
greater than the fair market value of the common stock on the grant date,
no compensation expense has been recognized in the consolidated statement
of income. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date consistent with the
provisions of SFAS 123, the Company's net income and income per share for
the years ended December 31, 2000, 1999 and 1998 would have been decreased
to the pro forma amounts indicated below (in thousands, except per share
amounts):
2000 1999 1998
--------------------- --------------------- ---------------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
--------- --------- --------- --------- --------- ---------
Income before extraordinary item
and cumulative effect of change
in accounting principle $ 5,821 $ 5,005 $ 8,172 $ 7,232 $ 8,054 $ 7,392
Extraordinary item -- -- (10) (10) (546) (546)
Cumulative effect of change -- -- (133) (133) -- --
--------- --------- --------- --------- --------- ---------
Net income $ 5,821 $ 5,005 $ 8,029 $ 7,089 $ 7,508 $ 6,846
========= ========= ========= ========= ========= =========
Income per share:
Before extraordinary item and
cumulative effect of change
in accounting principle $ .45 $ .39 $ .64 $ .57 $ .71 $ .65
Extraordinary item -- -- -- -- (.05) (.05)
Cumulative effect of change
in accounting principle -- -- (.01) (.01) -- --
--------- --------- --------- --------- --------- ---------
Net income per share -
basic and diluted $ .45 $ .39 $ .63 $ .56 $ .66 $ .60
========= ========= ========= ========= ========= =========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998:
2000 1999 1998
Dividend yield 0% 0% 0%
Expected volatility 33% 33% 33%
Risk free interest rates 5.71% 5.45% 5.55%
Expected option lives 4 years 4 years 4 years
50
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The weighted-average life of options outstanding at December 31, 2000 was
7.46 years. The weighted-average fair value of all options granted during
2000, 1999 and 1998 was $4.12, $4.43 and $7.25 per share, respectively. The
weighted-average fair value and exercise price for options granted at
market value and for those options granted above market value on the date
of grant in 2000, 1999 and 1998 are as follows:
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
FAIR VALUE EXERCISE PRICE
---------------------- ----------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
Options granted at
market price $ 4.32 $ 5.61 $ 7.65 $ 8.31 $10.94 $15.00
Options granted above
market price $ 2.76 $ 2.49 $ 3.99 $15.00 $12.98 $15.00
In connection with the Company's initial public offering in 1998, the
Company also granted 55,000 restricted shares of common stock to certain
members of senior management. Twenty percent of these shares were issued in
1998 and 1999. Twenty percent will be issued in each subsequent year
provided such employee is an employee of the Company at that time.
Management stock grants in 2000 were canceled and paid in cash. The Company
recorded compensation expense of approximately $55,000, $165,000 and
$165,000 during the years ended December 31, 2000, 1999 and 1998,
respectively, associated with these grants.
EMPLOYEE STOCK PURCHASE PLAN
In 1998, the Company adopted the Employee Stock Purchase Plan to assist
employees of the Company in acquiring a stock ownership interest in the
Company. A maximum of 300,000 shares of common stock is reserved for
issuance under this plan. The Employee Stock Purchase Plan permits eligible
employees to purchase common stock at a discount through payroll
deductions. No employee may purchase more than $25,000 worth of common
stock under this plan in any calendar year. During the years ended December
31, 2000, 1999 and 1998, 26,429, 14,245 and 18,752 shares were purchased
under this plan for approximately $175,000, $101,000 and $184,000,
respectively.
DEFINED CONTRIBUTION PLAN
The Company and employees contribute to the WestCoast Hospitality
Corporation Amended and Restated Retirement and Savings Plan. The defined
contribution plan was created for the benefit of substantially all
employees of the Company. The Company makes contributions of up to 3% of an
employee's compensation based on a vesting schedule and eligibility
requirements set forth in the plan document. Company contributions to the
plan for the years ended December 31, 2000, 1999 and 1998 were
approximately $240,000, $204,000 and $161,000, respectively.
13. ACQUISITIONS
YEAR ENDED DECEMBER 31, 1999
During 1999, the Company made the following acquisitions, all of which have
been accounted for using the purchase method of accounting. Accordingly,
the results of operations of these entities have been included in the
consolidated statements of income since their respective dates of
acquisition.
51
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On October 26, 1999, WestCoast acquired substantially all of the assets of
The Show Terminal, LLC (d.b.a. Colorado Neighborhood Box Office),
headquartered in Colorado Springs, Colorado. Colorado Neighborhood Box
Office sells tickets to entertainment events throughout the Colorado
Springs area. On November 1, 1999, WestCoast acquired Oregon Ticket
Company, Inc. (d.b.a. Fastixx), headquartered in Portland, Oregon. The
acquisition increased the number of TicketsWest (TM) outlets from 23 to 116
and expanded the entertainment division's geographic presence into Oregon
and Western Washington.
The total purchase price of Colorado Neighborhood Box Office and Fastixx of
$3,456,000 was comprised of $2,149,000 cash, the issuance of a $255,000
note payable, and the issuance of 138,884 shares of the Company's common
stock which was recorded at its fair value based on quoted market price of
$1,052,000. Goodwill related to these acquisitions of approximately
$3,282,000 is being amortized over 20 years.
Effective December 31, 1999, the Company acquired all of the outstanding
stock of WestCoast Hotels, Inc. This acquisition resulted in the Company
acquiring the following property interests and contracts:
o 100% interests in two hotels in the Seattle, Washington area
o Limited or co-general partnership interests and management agreements
for three hotels in Seattle, Washington; La Jolla, California and
Phoenix, Arizona
o Management contracts for 9 hotel properties
o Franchise agreements for 13 hotel properties
The total purchase price of approximately $45.5 million consisted of $21.4
million cash, issuance of $7 million bonds payable and the assumption of
$17.2 million outstanding debt and other liabilities of WestCoast Hotels,
Inc. The $7 million bonds payable are convertible into common stock of the
Company at $15 per share. The purchase price has been allocated to the
estimated fair values of assets acquired and liabilities assumed. Assets
acquired consist of working capital accounts, management and franchise
contracts of $5.1 million, property and equipment of $11.8 million and
partnership interests and purchase option contracts of $10.9 million. The
purchase price in excess of the fair value of the net assets acquired has
been allocated to brand name and goodwill, which is amortized over 40 years
using the straight-line method. Losses on rebranding the hotels to the
WestCoast name are included in the statement of income as "conversion
expenses."
52
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
During 1998, the Company acquired certain property and equipment of hotels
in the following locations (dollars in thousands):
MONTH NUMBER PURCHASE
ACQUIRED LOCATION OF HOTELS PRICE
---------- -------------------------------- --------- ---------
January Spokane, Washington 1 $ 11,500
February Idaho Falls, Idaho 1 3,800
March Post Falls, Idaho 1 9,500
April Hillsboro, Oregon 1 5,500
May Kalispell, Montana 1 9,600
June Salt Lake City, Utah 1 31,600
July Boise, Idaho; Twin Falls, Idaho;
Pocatello, Idaho and Helena,
Montana 4 30,300
December 1 11,700
---------
$ 113,500
=========
The Spokane, Washington acquisition was a lease with purchase option. The
purchase option was exercised in April 1998. The purchase prices for the
hotels were satisfied through a combination of the payment of cash, the
assumption of debt and the issuance of OP Units. As part of the total
purchase price above, WHLP issued 245,148 OP Units which were valued at
approximately $3.7 million.
All of these acquisitions have been accounted for using the purchase method
of accounting. Accordingly, the results of operations of these hotels have
been included in the consolidated statement of income since their
respective dates of acquisition. Total property and equipment acquired was
approximately $78.0 million and debt of approximately $8.7 million was
assumed in these acquisitions. The excess purchase price of the assets over
their historical cost bases has been allocated to property and equipment
and is being depreciated over the estimated remaining useful life of the
related assets (approximately 15-40 years).
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data and to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value. Potential income tax ramifications related to the
realization of unrealized gains and losses that would be incurred in an
actual sale or settlement have not been taken into consideration.
53
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The carrying amounts for cash and cash equivalents, accounts receivable,
current liabilities and variable rate long-term debt are reasonable
estimates of their fair values. The fair values of fixed-rate long-term
debt and capital lease obligations are based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for debt or capital lease obligations with similar
remaining maturities.
The estimated fair values of financial instruments at December 31, 2000 and
1999 are as follows (in thousands):
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents $ 3,476 $ 3,476 $ 4,357 $ 4,357
Accounts receivable 6,232 6,232 7,548 7,548
Financial liabilities:
Current liabilities,
excluding debt 11,645 11,645 17,935 17,935
Notes payable to bank 106,500 106,500 101,263 101,263
Long-term debt 55,254 55,254 64,961 64,961
Capital lease obligations 1,186 1,186 1,726 1,726
15. BUSINESS SEGMENTS
The Company has four operating segments: (1) Hotels and Restaurants; (2)
TicketsWest; (3) Real Estate Division and (4) Franchise, Central Services
and Development. The Franchise, Central Services and Development segment
represents the franchise and marketing division of the Company which was
acquired with the WestCoast Hotels, Inc. purchase. Due to the timing of the
WestCoast Hotels, Inc. acquisition, this segment had identifiable assets
and capital expenditures at December 31, 1999, but no operations were
reported until 2000. Corporate services and other consists primarily of
miscellaneous revenues and expenses, cash and cash equivalents, certain
receivables and certain property and equipment which are not specifically
associated with an operating segment.
TicketsWest has significant inter-segment revenues which are eliminated in
the consolidated financial statements. Management reviews and evaluates the
operations of TicketsWest including the inter-segment revenues. Therefore,
the total revenues, including inter-segment revenues are included in the
segment information below. Management reviews and evaluates the operating
segments exclusive of interest expense. Therefore, interest expense is not
allocated to the segments.
54
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Selected information with respect to the segments is as follows for the
years ended December 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
---------- ---------- ----------
Revenues:
Hotels and Restaurants $ 106,540 $ 92,808 $ 75,172
Franchise, Central Services and Development 3,643 -- --
TicketsWest 6,908 7,959 2,280
Less: inter-segment revenues (1,203) (778) (590)
Real Estate Division 9,540 9,649 9,183
Corporate Services and other 378 417 288
---------- ---------- ----------
$ 125,806 $ 110,055 $ 86,333
========== ========== ==========
Operating income (loss):
Hotels and Restaurants $ 20,299 $ 18,707 $ 16,848
Franchise, Central Services and Development 2,035 -- --
TicketsWest (407) 388 479
Real Estate Division 3,845 3,852 4,191
Corporate Services and other (2,224) (1,912) (1,208)
---------- ---------- ----------
$ 23,548 $ 21,035 $ 20,310
========== ========== ==========
Capital expenditures:
Hotels and Restaurants $ 6,623 $ 49,580 $ 118,899
Franchise, Central Services and Development 299 7,428 --
TicketsWest 912 4,766 155
Real Estate Division 310 442 1,056
Corporate Services and other 316 1,064 1,039
---------- ---------- ----------
$ 8,460 $ 63,280 $ 121,149
========== ========== ==========
Depreciation and amortization:
Hotels and Restaurants $ 7,615 $ 5,951 $ 4,481
Franchise, Central Services and Development 401 -- --
TicketsWest 410 110 46
Real Estate Division 1,317 1,328 1,305
Corporate Services and other 709 543 283
---------- ---------- ----------
$ 10,452 $ 7,932 $ 6,115
========== ========== ==========
Identifiable assets:
Hotels and Restaurants $ 232,762 $ 234,397 $ 209,539
Franchise, Central Services and Development 32,577 33,573 --
TicketsWest 6,239 4,936 1,628
Real Estate Division 25,216 25,765 26,327
Corporate Services and other 8,040 10,461 7,409
---------- ---------- ----------
$ 304,834 $ 309,132 $ 244,903
========== ========== ==========
55
WESTCOAST HOSPITALITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
16. EARNINGS PER SHARE
The following table presents a reconciliation of the numerators and
denominators used in the basic and diluted EPS computations for the years
ended December 31, 2000, 1999 and 1998 (in thousands, except per share
amounts). Also shown is the number of dilutive securities (stock options
and convertible notes) that would have been included in the diluted EPS
computation if they were not anti-dilutive.
2000 1999 1998
-------- -------- --------
Numerator:
Income before extraordinary item and cumulative
effect of change in accounting principle $ 5,821 $ 8,172 $ 8,054
Extraordinary item -- (10) (546)
Cumulative effect of change in accounting principle -- (133) --
-------- -------- --------
Net income-basic 5,821 8,029 7,508
Income effect of dilutive OP Units 71 208 223
-------- -------- --------
Net income-diluted $ 5,892 $ 8,237 $ 7,731
======== ======== ========
Denominator:
Weighted-average shares outstanding - basic $ 12,941 $ 12,755 $ 11,347
Effect of dilutive OP Units 296 341 319
Effect of dilutive common stock options and
convertible notes (A) (A) (A)
-------- -------- --------
Weighted-average shares outstanding - diluted $ 13,237 $ 13,096 $ 11,666
======== ======== ========
Earnings per share - basic and diluted:
Income per share before extraordinary item and
cumulative effect of change in accounting
principle $ .45 $ .64 $ .71
Extraordinary item -- -- (.05)
Cumulative effect of change in accounting principle -- (.01) --
-------- -------- --------
Net income per share - basic and diluted $ .45 $ .63 $ .66
======== ======== ========
(A) At December 31, 2000, 1999 and 1998, 997,825, 977,749 and 835,869 stock
options are outstanding, respectively. The effects of the shares which
would be issued upon the exercise of these options have been excluded
from the calculation of diluted earnings per share because they are
anti-dilutive.
The effects of the shares which would be issued upon conversion of the
convertible notes have been excluded from the calculation of diluted
earnings per share because they are anti-dilutive.
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2001 Annual Meeting of
Shareholders under the caption "Directors and Officers of the Registrant."
COMPENSATION OF DIRECTORS
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2001 Annual Meeting of
Shareholders under the caption "Compensation of Directors."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2001 Annual Meeting of
Shareholders under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in, and incorporated
by reference from, the Proxy Statement for the Company's 2001 Annual Meeting of
Shareholders under the caption "Security Ownership of Certain Beneficial Owners
and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained, and incorporated by
reference from, the Proxy Statement for the Company's 2001 Annual Meeting of
Shareholders under the caption "Certain Relationships and Related Transactions."
57
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
A. LIST OF DOCUMENTS FILED AS PART OF THIS REPORT.
1. Index to financial statements:
a. WestCoast Hospitality Corporation - Consolidated Balance Sheets
b. WestCoast Hospitality Corporation - Consolidated Statements of
Income
c. WestCoast Hospitality Corporation - Consolidated Statements of
Changes in Stockholders' and Partners' Equity
d. WestCoast Hospitality Corporation - Consolidated Statements of
Cash Flows
e. WestCoast Hospitality Corporation - Notes to Consolidated
Financial Statements
2. Index to financial statement schedules:
All schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable
or the information is contained in the Financial Statements and
therefore has been omitted.
58
3. Index to exhibits:
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1(1) Amended and Restated Articles of Incorporation of
the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen Common Stock Certificate
EXECUTIVE COMPENSATION PLANS AND AGREEMENTS
10.1(3) Employment Agreement between the Company and
Arthur M. Coffey
10.2(3) Employment Agreement between the Company and
Richard L. Barbieri
10.3(3) Employment Agreement between the Company and David
M. Bell
10.4(3) Employment Agreement between the Company and
Thomas M. Barbieri
10.5(1) Employee Stock Purchase Plan of Cavanaughs
Hospitality Corporation
10.6(1) 1998 Stock Incentive Plan of Cavanaughs
Hospitality Corporation
10.7(1) Form of Stock Option Award Agreement
10.8(1) Form of Restricted Stock Award Agreement
OTHER MATERIAL CONTRACTS
10.10(1) Amended and Restated Agreement of Limited
Partnership of Cavanaughs Hospitality Limited
Partnership
10.11(1) Gateway Property Lease Agreement
10.12(1) Gateway Property Option Agreement
10.13(1) Ridpath Property Lease Agreement
10.14(4) Form of Indemnification Agreement
10.15(2) Purchase and Sale Agreement re: WC Holdings, Inc.
10.16(2) Membership Interest Purchase Agreement re: October
Hotel Investors, LLC
10.17(2) First Amendment to Membership Interest Purchase
Agreement re: October Hotel Investors, LLC
10.18(5) Amended and Restated Revolving Credit Facility
21(3) List of Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
- --------------------------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form S-1, dated January 20, 1998.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form 8-K, dated January 4, 2000.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form S-1/A, dated March 10, 1998.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form S-1/A, dated March 27, 1998.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Form 10-K, dated March 30, 2000
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
WESTCOAST HOSPITALITY CORPORATION
---------------------------------
REGISTRANT
BY: /S/ DONALD K. BARBIERI
---------------------------------
DONALD K. BARBIERI
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ ARTHUR M. COFFEY
---------------------------------
ARTHUR M. COFFEY
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ THOMAS M. BARBIERI
---------------------------------
THOMAS M. BARBIERI
EXECUTIVE VICE PRESIDENT HOTEL
OPERATIONS AND DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ RICHARD L. BARBIERI
---------------------------------
RICHARD L. BARBIERI
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
60
BY: /S/ DAVID M. BELL
---------------------------------
DAVID M. BELL
EXECUTIVE VICE PRESIDENT DEVELOPMENT
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ PETER F. STANTON
---------------------------------
PETER F. STANTON
DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ RONALD R. TAYLOR
---------------------------------
RONALD R. TAYLOR
DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ ROBERT G. TEMPLIN
---------------------------------
ROBERT G. TEMPLIN
DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ STEPHEN R. BLANK
---------------------------------
STEPHEN R. BLANK
DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
BY: /S/ RODNEY D. OLSON
---------------------------------
RODNEY D. OLSON
DIRECTOR
MARCH 30, 2001
---------------------------------
DATE
61