SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported: July 31, 1998
CAVANAUGHS HOSPITALITY CORPORATION
----------------------------------
(Exact Name of Registrant as Specified in Its Charter)
WASHINGTON
----------------------------------
(State or Other Jurisdiction of Incorporation)
001-13957 91-1032187
------------------------ -------------------
(Commission File Number) (I.R.S. Employer
Identification No.)
201 W. North River Drive, Suite 100
Spokane, Washington 99201
----------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(509) 459-6100
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2.
The undersigned Registrant hereby amends, as and to the extent set
forth below the following item, financial statements, exhibits or
other portions of the Current Report on Form 8-K for an event which
occurred on July 31, 1998.
ITEM 7. Financial Statements and Exhibits
(a) Financial Statements of the property acquired
See Exhibits 99.1 and 99.2.
(b) Pro forma financial information
See Exhibit 99.3.
(c) Exhibits
Exhibit 99.1: Audited combined financial statements of Boise Park
Suites, Best Western Colonial Park, Best Western Canyon Springs
and Quality Inn as of July 31, 1998 and for the period from
October 15, 1997 to July 31, 1998.
Exhibit 99.2: Unaudited combined financial statements of Boise
Park Suites, Best Western Colonial Park, Best Western Canyon
Springs and Quality Inn as of June 30, 1998 and for the six
months ended June 30, 1998 and 1997.
Exhibit 99.3: Pro forma unaudited combined financial statements
of Cavanaughs Hospitality Corporation and Boise Park Suites, Best
Western Colonial Park, Best Western Canyon Springs and Quality
Inn as of June 30, 1998 and October 31, 1997 and for the six
months ended June 30, 1998 and the year ended October 31, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunder duly authorized.
Dated: October 13, 1998 CAVANAUGHS HOSPITALITY CORPORATION
----------------
By: /s/ Art Coffey
------------------------------
Executive Vice President/Chief
Financial Officer
<PAGE>
EXHIBIT 99.1
------------
[PricewaterhouseCoopers LLP - Spokane, Washington letterhead]
Report of Independent Accountants
September 25, 1998
To the Members of Sunstone Hotels, L.L.C.:
In our opinion, the accompanying combined balance sheet and the
related combined statements of income and comprehensive income,
changes in members' equity, and cash flows present fairly, in all
material respects, the financial position of Boise Park Suites, Best
Western Colonial Park, Best Western Canyon Springs and Quality Inn
("The Hotels") at July 31, 1998, and the results of their operations
and their cash flows for the period October 15, 1997 to July 31, 1998,
in conformity with generally accepted accounting principles. The
Hotels were owned by Sunstone Hotels, L.L.C. ("Sunstone"). These
financial statements are the responsibility of Sunstone's management;
our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards
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 audit provides a reasonable basis
for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
<PAGE>
THE HOTELS
COMBINED BALANCE SHEET
at July 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $ 263,967
Accounts receivable, less allowance for doubtful
accounts of $6,292 316,451
Receivable from affiliate 206,968
Inventories 79,096
Prepaid expenses 78,562
-----------
Total current assets 945,044
Property and equipment, net 33,322,864
Other assets, net 63,247
-----------
Total assets $34,331,155
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 91,216
Accrued expenses 46,745
Accrued property taxes 381,400
-----------
Total current liabilities 519,361
Commitment (Note 5)
Members' equity 33,811,794
-----------
Total liabilities and members' equity $34,331,155
===========
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
THE HOTELS
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
for the period October 15, 1997 to July 31, 1998
Revenues:
Hotels and restaurants:
Rooms $ 7,201,560
Food and beverage 3,382,690
Other 429,790
-----------
Total hotels and restaurants revenues 11,014,040
-----------
Operating expenses:
Direct:
Rooms 1,859,814
Food and beverage 2,666,058
Other 240,125
-----------
Total direct 4,765,997
-----------
Indirect:
Selling, general and administrative 1,840,510
Property operating costs 1,583,187
Depreciation and amortization 1,062,269
-----------
Total indirect 4,485,966
-----------
Total operating expenses 9,251,963
-----------
Net income and comprehensive income $ 1,762,077
===========
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
THE HOTELS
STATEMENT OF CHANGES IN MEMBERS' EQUITY
for the period October 15, 1997 to July 31, 1998
Balance, October 15, 1997 $34,131,283
Net income 1,762,077
Contributions from members 648,609
Distributions to members (2,730,175)
-----------
Balance, July 31, 1998 $33,811,794
===========
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
THE HOTELS
STATEMENT OF CASH FLOWS
for the period October 15, 1997 to July 31, 1998
Operating activities:
Net income $ 1,762,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,062,269
Change in:
Accounts receivable (36,050)
Inventories (18,135)
Prepaid expenses (66,957)
Accounts payable (43,910)
Accrued expenses (44,273)
Accrued property taxes (64,807)
-----------
Net cash provided by operating activities 2,550,214
-----------
Investing activities:
Additions to property and equipment (195,239)
Acquisition of franchise rights (53,544)
-----------
Net cash used in investing activities (248,783)
-----------
Financing activities:
Distributions to members (2,730,175)
Contributions from members 648,609
-----------
Net cash used in financing activities (2,081,566)
-----------
Change in cash and cash equivalents:
Net increase in cash and cash equivalents 219,865
Cash and cash equivalents at beginning of period 44,102
-----------
Cash and cash equivalents at end of period $ 263,967
===========
The accompanying notes are an integral part of the combined financial
statements.
<PAGE>
THE HOTELS
NOTES TO FINANCIAL STATEMENTS
1. OWNERSHIP AND FINANCIAL STATEMENT PRESENTATION:
On October 15, 1997, Sunstone Hotels, L.L.C. ("Sunstone" or "the
Company") acquired all of the outstanding stock of Kahler Realty
Corporation ("Kahler"). The acquisition was accounted for as a
purchase. Therefore, the fair value of the assets acquired and
liabilities assumed were recorded by Sunstone. At the date of
acquisition, Kahler owned 17 hotels, including the following
hotels:
-- Boise Park Suites (Boise, Idaho)
-- Best Western Colonial Park (Helena, MT)
-- Best Western Canyon Springs (Twin Falls, Idaho)
-- Quality Inn (Pocatello, Idaho)
These four hotels, collectively referred to as "The Hotels",
were sold to Cavanaughs Hospitality Limited Partnership effective
July 31, 1998. Sunstone owns properties other than The Hotels;
however, the combined financial statements presented herein
reflect the operations and activities only of The Hotels. The
statement of income presented herein includes all of the related
costs of doing business including an allocation of certain
general corporate expenses of Sunstone which were not directly
related to The Hotels including certain corporate executives'
salaries and other corporate expenses. These allocations were
based on a variety of factors, dependent upon the nature of the
costs being allocated, including revenues and number of available
rooms. Management believes these allocations were made on a
reasonable basis. No corporate debt incurred by Sunstone has
been allocated to The Hotels. Therefore, no debt or associated
interest expense is included in these combined 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 the time of purchase
of three months or less. The Hotels place their cash and cash
equivalents with high credit quality institutions. At times,
cash balances may be in excess of federal insurance limits.
Inventories
-----------
Inventories consist primarily of food and beverage products
which are valued at the lower of average cost or net realizable
value.
<PAGE>
THE HOTELS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated
useful lives of the related assets as follows:
Buildings 5-35 years
Equipment, furniture and fixtures 7-12 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.
When the Company acquired Kahler, the total purchase price was
allocated to the 17 acquired hotels based upon the estimated
fair value of each individual hotel. Management of the Company
periodically reviews the aggregate net carrying value of
property and equipment to determine whether there has been a
permanent impairment in carrying value. At July 31, 1998, no
such impairment was deemed to exist.
Franchise Fees
--------------
Franchise fees, which are included in other assets, are stated
at cost and amortized using the straight-line method over the
franchise contract life of 10 years. Accumulated amortization
at July 31, 1998 was $1,297.
Income Taxes
------------
The Hotels are owned by Sunstone Hotels, L.L.C., a limited
liability corporation. Sunstone's members are responsible for
federal and state income taxes on The Hotels' earnings.
Therefore, no provision for income taxes is recorded in these
combined financial statements.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
THE HOTELS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY AND EQUIPMENT:
Property and equipment as of July 31, 1998 is as follows:
Land $ 3,211,810
Buildings and improvements 29,298,012
Equipment, furniture and fixtures 1,874,014
-----------
34,383,836
Less accumulated depreciation 1,060,972
-----------
$33,322,864
===========
4. OPERATING LEASE INCOME:
Operating lease income is generated from non-related businesses
which rent space on the hotel property. During the period ended
July 31, 1998, approximately $50,000 was recognized as lease
income.
Future minimum lease income under existing noncancellable leases
at July 31, 1998 is as follows:
Year EndingJuly 31,
-----------
1999 $33,822
2000 12,000
2001 2,000
-------
$47,822
=======
5. COMMITMENT:
The Hotels pay approximately one percent of gross revenues per
month to an affiliated management company to manage The Hotels.
The agreement is renewed annually. Total management fee expense
incurred by The Hotels was approximately $83,000 for the period
ended July 31, 1998. In connection with the sale of The Hotels
(see Note 7), this management agreement was terminated.
<PAGE>
THE HOTELSNOTES TO FINANCIAL STATEMENTS, CONTINUED
6. EMPLOYEE BENEFITS:
Sunstone sponsors a 401(k) retirement plan for substantially all
of their employees. Sunstone matches 25% of all eligible
employee contributions up to 6% of compensation. Contributions
to this plan by Sunstone of approximately $13,000 in 1998 were
allocated to The Hotels.
Sunstone also sponsors a bonus/profit-sharing plan whereby a
bonus may be earned by certain employees and management basedupon
guest service scores. Contributions to this plan were
approximately $166,000 in 1998.
7. SALE OF THE HOTELS:
Effective July 31, 1998, Cavanaughs Hospitality Limited
Partnership ("CHLP") acquired all The Hotels' property and
equipment. CHLP also acquired the rights, title and interest in
all hotel contracts, space leases, permits, equipment leases and
inventories of The Hotels. The sole general partner of CHLP,
Cavanaughs Hospitality Corporation ("CHC") is located in the
state of Washington. CHC is a hotel operating company that owns,
operates, acquires, develops, renovates and repositions full-
service hotels located in the Northwest.
<PAGE>
EXHIBIT 99.2
------------
UNAUDITED COMBINED FINANCIAL STATEMENTS OF
BOISE PARK SUITES, BEST WESTERN COLONIAL PARK,
BEST WESTERN CANYON SPRINGS AND QUALITY INN ("THE HOTELS")
as of June 30, 1998 and for the six months ended
June 30, 1998 and 1997
<PAGE>
THE HOTELS
BALANCE SHEET
at June 30, 1998 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 330,174
Accounts receivable, less allowance for doubtful
accounts of $6,292 437,368
Receivable from affiliate 400,745
Inventories 109,100
Prepaid expenses 37,738
-----------
Total current assets 1,315,125
Property and equipment, net 33,429,848
Other assets 85,500
-----------
Total assets $34,830,473
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 165,777
Accrued payroll and related benefits 453,201
Accrued expenses 108,207
Accrued property taxes 364,684
-----------
Total current liabilities 1,091,869
-----------
Total liabilities 1,091,869
Members' equity 33,738,604
-----------
Total liabilities and members' equity $34,830,473
===========
<PAGE>
THE HOTELS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
for the six months ended June 30, 1998 and 1997(Unaudited)
1998 1997
---------- ----------
Revenues:
Hotels and restaurants:
Rooms $4,678,267 $4,747,304
Food and beverage 2,145,053 2,405,424
Other 273,768 213,766
---------- ----------
Total hotels and restaurants
revenues 7,097,088 7,366,494
---------- ----------
Operating expenses:
Direct:
Rooms 1,219,991 1,126,980
Food and beverage 1,672,434 1,730,256
Other 153,858 100,663
---------- ----------
Total direct 3,046,283 2,957,899
---------- ----------
Indirect:
Selling, general and administrative 1,226,869 1,802,223
Property operating costs 1,054,767 503,762
Depreciation and amortization 636,927 697,500
---------- ----------
Total indirect 2,918,563 3,003,485
---------- ----------
Total operating expenses 5,964,846 5,961,384
---------- ----------
Operating income 1,132,242 1,405,110
Other expense:
Interest -- (1,202,835)
---------- ----------
Income before income taxes 1,132,242 202,275
Provision for income taxes -- (80,910)
---------- ----------
Net income and comprehensive income $1,132,242 $ 121,365
========== ==========
<PAGE>
THE HOTELS
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1998 and 1997 (Unaudited)
1998 1997
---------- ----------
Operating activities:
Net income $1,132,242 $ 121,365
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 636,927 697,500
Change in:
Accounts receivable (90,074) (76,748)
Inventories 186,468 (1,464)
Prepaid expenses 50,407 2,214
Other assets 28,348
Accounts payable (438,912) 12,725
Accrued payroll and related
benefits 69,140 58,186
Accrued property taxes and other
expenses 289,942 145,655
---------- ----------
Net cash provided by
operating activities 1,864,488 959,433
---------- ----------
Investing activities:
Additions to property and equipment (195,239) (107,869)
Acquisition of franchise rights (53,544)
---------- ----------
Net cash used in investing
activities (248,783) (107,869)
---------- ----------
Financing activities:
Net distributions to members (1,551,037)
Payments on amounts due affiliates (852,737)
---------- ----------
Net cash used in financing
activities (1,551,037) (852,737)
---------- ----------
Change in cash and cash equivalents:
Net change in cash and cash equivalents 64,668 (1,173)
Cash and cash equivalents at beginning
of period 265,506 74,085
---------- ----------
Cash and cash equivalents at end of
period $ 330,174 $ 72,912
========== ==========
<PAGE>
THE HOTELS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
as of and for the six months ended June 30, 1998
1. OWNERSHIP AND FINANCIAL STATEMENT PRESENTATION:
On October 15, 1997, Sunstone Hotels, L.L.C. ("Sunstone" or "the
Company") acquired all of the outstanding stock of Kahler Realty
Corporation ("Kahler"). The acquisition was accounted for as a
purchase. Therefore, the fair value of the assets acquired and
liabilities assumed were recorded by Sunstone. At the date of
acquisition, Kahler owned 17 hotels, including the following
hotels:
-- Boise Park Suites (Boise, Idaho)
-- Best Western Colonial Park (Helena, MT)
-- Best Western Canyon Springs (Twin Falls, Idaho)
-- Quality Inn (Pocatello, Idaho)
These four hotels, collectively referred to as "The Hotels",
were sold to Cavanaughs Hospitality Limited Partnership effective
July 31, 1998. Sunstone and Kahler owned properties other than
The Hotels; however, the combined financial statements presented
herein reflect the operations and activities only of The Hotels.
The statement of income presented herein includes all of the
related costs of doing business including an allocation of
certain general corporate expenses of Sunstone in 1998 and Kahler
in 1997 which were not directly related to The Hotels including
certain corporate executives' salaries and other corporate
expenses. These allocations were based on a variety of factors,
dependent upon the nature of the costs being allocated, including
revenues and number of available rooms. Management believes
these allocations were made on a reasonable basis.
Due to the ownership change, the statements of income and cash
flows for the six months ended June 30, 1998 and 1997 are not
comparable. During the 1997 period, Kahler allocated debt to The
Hotels, and therefore, interest expense is recorded for the six
months ended June 30, 1997. However, no corporate debt incurred
by Sunstone has been allocated to The Hotels. Therefore, no debt
or associated interest expense is included during the six months
ended June 30, 1998.
<PAGE>
THE HOTELS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS, CONTINUED
2. INTERIM INFORMATION:
The unaudited combined financial statements included herein have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted as permitted by such
rules and regulations. Management believes that the disclosures
included herein are adequate; however, these combined statements
should be read in conjunction with the combined financial
statements and the notes thereto for the period ended July 31,
1998 which are included elsewhere in this document.
In the opinion of management, these unaudited combined financial
statements contain all of the adjustments normal and recurring in
nature, necessary to present fairly the financial position of The
Hotels at June 30, 1998 and the results of their operations and
cash flows for the six months ended June 30, 1998 and 1997. The
results of operations for the periods presented may not be
indicative of those which may be expected for a full year.
3. INCOME TAXES:
For the six months ended June 30, 1998, The Hotels were owned by
Sunstone. Sunstone is a limited liability corporation.
Sunstone's members are responsible for federal and state income
taxes on The Hotels' earnings. Therefore, no provision for
income taxes is recorded in these combined financial statements
for the six months ended June 30, 1998.
For the six months ended June 30, 1997, The Hotels were owned by
Kahler. Income taxes have been provided in the statement of
income for the six months ended June 30, 1997 based upon the
estimated effective tax rate applicable to Kahler applied to
income before income taxes.
<PAGE>
EXHIBIT 99.3
------------
CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheets and
condensed pro forma combined statements of income, collectively, the
"Pro Forma Financial Statements", were prepared by Cavanaughs
Hospitality Corporation ("Cavanaughs") to illustrate the estimated
effects of the business combinations to be accounted for as a purchase
under generally accepted accounting principles. Cavanaughs acquired
the Olympus Hotel and Conference Center ("Olympus") on July 1, 1998;
however, Cavanaughs leased Olympus effective June 1, 1998. Effective
July 31, 1998, Cavanaughs acquired the Boise Park Suites, Best Western
Colonial Park, Best Western Canyon Springs and Quality Inn
(collectively, "The Hotels"). A Form 8-K/A, which included audited
financial statements as of and for the year ended December 31, 1997
and pro forma financial statements as of and for the year ended
October 31, 1997 and as of and for the three months ended March 31,
1998, was filed with the Securities and Exchange Commission on
August 13, 1998 to reflect the Olympus acquisition.
The financial information of Cavanaughs, Olympus and The Hotels has
been combined as if the acquisitions occurred as of the beginning of
the period presented for purposes of the condensed pro forma combined
statements of income, and as of the balance sheet date, for purposes
of the condensed pro forma combined balance sheets. There are no
differences between Cavanaughs', Olympus' and The Hotels' accounting
policies which are expected to have a material impact on the Pro Forma
Combined Financial Statements. The Pro Forma Financial Statements do
not purport to present the combined financial position or results of
operations if the combination had occurred at the beginning of the
period or to project the combined financial position or results of
operations for any future date or period.
The Pro Forma Financial Statements should be read in conjunction with
the historical consolidated financial statements, including the notes
thereto, of Cavanaughs, which are included in Cavanaughs' Form S-1
(File No. 333-44491), Cavanaughs' Form 10-Q for the six months ended
June 30, 1998, Olympus, which are included in Cavanaughs' Form 8-K/A
filed August 13, 1998, and of The Hotels, which are included elsewhere
in this document.
The Pro Forma Financial Statements are presented utilizing the
purchase method of accounting whereby the excess of the total purchase
price over the fair value of the assets acquired is recorded as
property and equipment. The combined pro forma results of operations
presented herein are not necessarily indicative of the future results
of operations.
CONDENSED PRO FORMA COMBINED BALANCE SHEETS
at June 30, 1998(in thousands)
<TABLE>
<CAPTION>
CHC Olympus The Hotels Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,227 $ 6,227
Accounts receivable 4,762 4,762
Note receivable 17,112 17,112
Inventories 545 545
Prepaid expenses and deposits 370 370
-------- -------- -------- -------- --------
Total current assets 29,016 29,016
Property and equipment, net 152,701 $ 19,436 $ 33,430 $ (3,104)(A) 214,627
12,164 (B)
Other assets, net 6,351 6,351
-------- -------- -------- -------- --------
Total assets $188,068 $ 19,436 $ 33,430 $ 9,060 $249,994
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS', MEMBERS'
AND PARTNERS' EQUITY
Current liabilities:
Accounts payable $ 3,701 $ 3,701
Accrued payroll and related benefits 1,693 1,693
Accrued interest payable 454 454
Other accrued expenses 3,429 3,429
Long-term debt, due within one year 1,374 1,374
Capital lease obligations, due within one year 519 519
-------- -------- -------- -------- --------
Total current liabilities 11,170 11,170
Long-term debt, due after one year 72,691 $ 30,326(C) 134,617
31,600(D)
Capital lease obligations, due after one year 2,079 2,079
Deferred income taxes 5,415 5,415
Minority interest 4,246 4,246
-------- -------- -------- -------- --------
Total liabilities 95,601 61,926 157,527
Stockholders', members' and partners' equity 92,467 $ 19,436 $ 33,430 (52,866) 92,467
-------- -------- -------- -------- --------
Total liabilities and stockholders', members'
and partners' equity $188,068 $ 19,436 $ 33,430 $ 9,060 $249,994
======== ======== ======== ======== ========
</TABLE>
See notes to condensed pro forma combined balance sheets
and statements of income.
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEETS
at October 31, 1997(in thousands)
<TABLE>
<CAPTION>
CHC Pro Forma
(After Olympus Acquisition) The Hotels Historical Pro Forma Pro Forma
at October 31, 1997 (E) at October 14, 1997 Adjustments Combined
-------------------------- ---------------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,440 $ 6,440
Accounts receivable 2,806 2,806
Inventories 376 376
Prepaid expenses and deposits 1,128 1,128
-------- --------- -------- --------
Total current assets 10,750 10,750
Property and equipment, net 141,554 $ 35,654 $ (5,328)(A) 171,880
Other assets, net 3,400 3,400
-------- --------- -------- --------
Total assets $155,704 $ 35,654 $ (5,328) $186,030
======== ========= ======== ========
LIABILITIES AND STOCKHOLDERS',
MEMBERS' AND PARTNERS' EQUITY
Current liabilities:
Payable to affiliates $ 1,333 $ 1,333
Accounts payable 2,263 2,263
Accrued payroll and related benefits 843 843
Accrued interest payable 741 741
Other accrued expenses 3,618 3,618
Long-term debt, due within one year 4,285 4,285
Capital lease obligations, due within
one year 499 499
-------- --------- -------- --------
Total current liabilities 13,582 13,582
Long-term debt, due after one year 125,371 $ 30,326(C) 155,697
Capital lease obligations, due after
one year 2,255 2,255
Deferred income taxes 5,417 5,417
Minority interest 553 553
-------- --------- --------- --------
Total liabilities 147,178 30,326 177,504
Stockholders', members' and partners' equity 8,526 $ 35,654 (35,654) 8,526
-------- --------- -------- --------
Total liabilities and stockholders',
members' and partners' equity $155,704 $ 35,654 $ (5,328) $186,030
======== ========= ======== ========
</TABLE>
See notes to condensed pro forma combined balance sheets and
statements of income.
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
for the six months ended June 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
CHC Olympus (F) The Hotels Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotels and restaurants:
Rooms $ 18,552 $ 2,845 $ 4,678 $ 26,075
Food and beverage 9,858 787 2,145 12,790
Other 1,747 151 274 2,172
-------- -------- -------- -------- --------
Total hotels and restaurants 30,157 3,783 7,097 41,037
Entertainment, management and services 2,026 2,026
Rental operations 3,514 3,514
-------- -------- -------- -------- --------
Total revenues 35,697 3,783 7,097 46,577
-------- -------- -------- -------- --------
Operating expenses:
Direct:
Hotels and restaurants:
Rooms 5,045 650 1,220 6,915
Food and beverage 8,160 730 1,672 10,562
Other 777 154 931
-------- -------- -------- -------- --------
Total hotels and restaurants 13,982 1,380 3,046 18,408
Entertainment, management and services 1,415 1,415
Rental operations 732 732
-------- -------- -------- -------- --------
Total direct expenses 16,129 1,380 3,046 20,555
-------- -------- -------- -------- --------
Undistributed operating expenses:
Selling, general and administrative 5,065 491 1,227 6,783
Property operating costs 3,977 652 1,055 $ (71)(G) 5,455
(158)(H)
Depreciation and amortization 2,736 351 637 (286)(I)
12 (J) 3,450
-------- -------- -------- -------- --------
Total undistributed operating expenses 11,778 1,494 2,919 (503) 15,688
-------- -------- -------- -------- --------
Total expenses 27,907 2,874 5,965 (503) 36,243
-------- -------- -------- -------- --------
Operating income 7,790 909 1,132 503 10,334
</TABLE>
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME, CONTINUED
for the six months ended June 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
CHC Olympus (F) The Hotels Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Other income (expense):
Interest expense, net of amounts capitalized $ (4,054) $ (572) $ $ (1,143)(K) $ (6,388)
(619)(L)
Interest income 196 196
Minority interest in partnerships (45) (45)
-------- -------- -------- -------- --------
Income (loss) before income taxes 3,887 337 1,132 (1,259) 4,097
Income tax provision 1,322 71 (M) 1,393
-------- -------- -------- -------- --------
Income before extraordinary item 2,565 337 1,132 (1,330) 2,704
Extraordinary item - write-off of
deferred loan fees, net of tax (530) (530)
-------- -------- -------- -------- --------
Net income and comprehensive income $ 2,035 $ 337 $ 1,132 $ (1,330) $ 2,174
======== ======== ======== ======== ========
Income per share before extraordinary item $ 0.26 $ 0.27
======== ========
Net income per share:
Basic $ 0.21 $ 0.22
======== ========
Diluted $ 0.21 $ 0.22
======== ========
Weighted average shares outstanding:
Basic 9,836 9,836
======== ========
Diluted 10,077 10,077
======== ========
</TABLE>
See notes to condensed pro forma combined balance sheet and
statement of income.
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
for the year ended October 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
CHC Pro Forma
(After Olympus Acquisition) The Hotels Historical
for the year ended for the twelve months Pro Forma Pro Forma
October 31, 1997 (A) ended October 14, 1997 Adjustments Combined
--------------------------- ----------------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Hotels and restaurants:
Rooms $ 32,146 $ 9,475 $ 41,621
Food and beverage 15,809 4,567 20,376
Other 2,644 411 3,055
--------- --------- -------- --------
Total hotels and restaurants 50,599 14,453 65,052
Entertainment, management and services 3,842 3,842
Rental operations 6,670 6,670
-------- --------- -------- --------
Total revenues 61,111 14,453 75,564
-------- --------- -------- --------
Operating expenses:
Direct:
Hotels and restaurants:
Rooms 8,114 2,262 10,376
Food and beverage 12,913 3,425 16,338
Other 1,066 200 1,266
-------- --------- -------- --------
Total hotels and restaurants 22,093 5,887 27,980
Entertainment, management and services 2,052 2,052
Rental operations 1,506 1,506
-------- --------- -------- --------
Total direct expenses 25,651 5,887 31,538
-------- --------- -------- --------
Undistributed operating expenses:
Selling, general and administrative 9,820 3,595 13,415
Property operating costs 6,696 1,139 $ (434)(G) 7,401
Depreciation and amortization 5,502 1,330 (628)(I) 6,204
-------- --------- -------- ---------
Total undistributed operating
expenses 22,018 6,064 (1,062) 27,020
-------- --------- -------- ---------
Total expenses 47,669 11,951 (1,062) 58,558
-------- --------- -------- ---------
Operating income 13,442 2,502 1,062 17,006
</TABLE>
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME, CONTINUED
for the year ended October 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
CHC Pro Forma
(After Olympus Acquisition) The Hotels Historical
for the year ended for the twelve months Pro Forma Pro Forma
October 31, 1997 (A) ended October 14, 1997 Adjustments Combined
-------------------------- ----------------------- ----------- ----------
<S> <C> <C> <C> <C>
Other income (expense):
Interest expense, net of amounts
capitalized $(11,199) $ (2,345) $ 59 (N) $(13,485)
Interest income 416 416
Other income 348 348
Minority interest in partnerships 59 59
-------- --------- -------- ---------
Income (loss) before income taxes 3,066 157 1,121 4,344
Income tax provision 1,073 63 448(O) 1,584
-------- --------- -------- ---------
Net income $ 1,993 $ 94 $ 673 $ 2,760
======== ========= ======== =========
Pro forma net income per share $ 0.28 $ 0.39
======== ========
Number of shares used in the pro
forma computation 7,072 7,072
======== ========
</TABLE>
See notes to condensed pro forma combined balance sheets and
statements of income.
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF
INCOME
Cavanaughs leased the Olympus Hotel and Conference Center ("Olympus")
effective June 1, 1998 and purchased the hotel on July 1, 1998.
Cavanaughs filed a Form 8-K/A with the Securities and Exchange
Commission on August 13, 1998 which included the audited financial
statements of Olympus as of and for the year ended December 31, 1997.
The pro forma combined financial statements as of and for the year
ended October 31, 1997 and as of and for the quarter ended March 31,
1998 were also included in the Form 8-K/A.
Cavanaughs acquired The Hotels effective July 31, 1998. The
acquisitions of Olympus and The Hotels have been accounted for as
purchases.
The pro forma combined balance sheets presented herein reflect the
combination of Cavanaughs, Olympus and The Hotels as if they occurred
October 31, 1997 and June 30, 1998.
(A) Represents the historical carrying value of the property and
equipment of The Hotels in excess of purchase price. The total
purchase price and the historical carrying value of the property
and equipment are as follows (in thousands):
October 31, June 30,
1997 1998
----------- -----------
Total purchase price $ 30,326 $ 30,326
Historical carrying value of
assets acquired (35,654) (33,430)
-------- --------
Carrying value in excess
of purchase price $ (5,328) $ (3,104)
======== ========
The purchase price has been allocated to the acquired land,
building, furniture and fixtures as follows based upon the
estimated fair value of the components (in thousands):
Depreciable
Amount Life
---------- ------------
Land $ 10,311
Buildings 18,195 35 years
Furniture and fixtures 1,820 10 years
--------
$ 30,326
========
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF
INCOME, CONTINUED
(B) Represents the purchase price in excess of the historical
carrying value of the property and equipment of Olympus. The
total purchase price and the amount in excess of the historical
carrying value of the property and equipment at June 30, 1998 are
as follows (in thousands):
Total purchase price $ 31,600
Historical carrying value of assets acquired (19,436)
--------
Excess purchase price $ 12,164
========
The purchase price has been allocated to the acquired land,
building, furniture and fixtures as follows based upon the
estimated fair value of the components (in thousands):
Depreciable
Amount Life
---------- ------------
Land $ 10,876
Buildings 18,840 35 years
Furniture and fixtures 1,884 10 years
--------
$ 31,600
========
(C) Represents the amount of the purchase price of The Hotels which
will be financed by the Company's revolving line-of-credit
agreement.
(D) Represents the amount of the purchase price of Olympus which will
be financed by the Company's revolving line-of-credit agreement.
(E) The "CHC Pro Forma" amounts represent the historical financial
statements of Cavanaughs Hospitality Corporation as of and for
the year ended October 31, 1997 as adjusted for the acquisition
of Olympus which occurred in July 1998. (See the Company's Form
8-K/A which was filed with the Securities and Exchange Commission
on August 13, 1998.)
The following income statement adjustments were made to reflect the
combination of Cavanaughs, Olympus and The Hotels as if they occurred
at the beginning of the period presented. The combined pro forma
results of operations presented herein are not necessarily indicative
of the future results of operations of the combined companies.
(F) Represents the historical results of operations of Olympus for
the five months ended May 31, 1998. The results of operations of
Olympus for the month of June 1998 are included in the "CHC
Historical" amounts due to CHC leasing the Olympus Hotel as of
June 1, 1998.
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF
INCOME, CONTINUED
(G) Represents the elimination of management fees associated with the
management agreement between The Hotels and an affiliated entity
which was terminated upon the acquisition by Cavanaughs.
(H) Represents the elimination of management fees for the five months
ended May 31, 1998 associated with the management agreement
between Olympus and an affiliated entity which was terminated at
June 1, 1998 when Cavanaughs leased Olympus.
(I) Represents the change in depreciation and amortization expense
from the historical amounts for The Hotels based on the
depreciation of the purchase price over the estimated remaining
lives of the acquired assets (see Note A).
(J) Represents the increase in depreciation and amortization expense
from the historical amounts for Olympus based on the depreciation
of the purchase price over the estimated remaining lives of the
acquired assets (see Note B).
(K) Represents the additional interest expense which would be
incurred by Cavanaughs based on the purchase price of The Hotels,
which will be financed under Cavanaughs' revolving line-of-credit
agreement. The interest rate used in the pro forma adjustments
was 7.538% based upon the current borrowing rate under
Cavanaughs' line-of-credit agreement. If the rate increased or
decreased by 0.25%, the Company's pro forma interest expense, net
income and earnings per share for the six months ended June 30,
1998 would increase or decrease by approximately $38,000, $23,000
and $-0-, respectively.
(L) Represents the additional interest expense which would be
incurred by Cavanaughs based on the purchase price of Olympus,
which will be financed under Cavanaughs' revolving line-of-credit
agreement. The interest rate used in the pro forma adjustments
was 7.538% based upon the current borrowing rate under
Cavanaughs' line-of-credit agreement. If the rate increased or
decreased by 0.25%, the Company's pro forma interest expense, net
income and earnings per share for the six months ended June 30,
1998 would increase or decrease by approximately $40,000, $24,000
and $-0-, respectively.
(M) Represents estimated income taxes at 34% related to The Hotels'
and Olympus' historical income before income taxes and the tax
effects of pro forma adjustments. As The Hotels and Olympus were
not tax-paying entities, there is no income tax provision
recorded on the historical financial statements of The Hotels or
Olympus.
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF
INCOME, CONTINUED
(N) Represents the reduction in interest expense which would be
incurred by Cavanaughs based on the purchase price of The Hotels,
which will be financed under Cavanaughs' revolving line-of-credit
agreement. The interest rate used in the pro forma adjustments
was 7.538% based upon the current borrowing rate under
Cavanaughs' line-of-credit agreement. If the rate increased or
decreased by 0.25%, the Company's pro forma interest expense, net
income and earnings per share for the 1997 fiscal year would
increase or decrease by approximately $76,000 $45,000 and $.01,
respectively.
(O) Represents estimated income taxes at 40% related to the pro forma
adjustments.
<PAGE>
