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): June 1, 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>
The undersigned Registrant hereby amends, as and to the extent
set forth below, the following items, financial statements, exhibits
or other portions of the Current Report on Form 8-K for an event which
occurred on June 1, 1998:
ITEM 7. Financial Statements, Pro Forma Financial Information and
Exhibits
------------------------------------------------------------------
EXHIBIT INDEX
99.1 Audited financial statements of Olympus Hotel and Conference
Center ("Olympus" or "Olympus Hotel") as of and for the year
ended December 31, 1997.
99.2 Unaudited condensed pro forma combined balance sheet of
Cavanaughs Hospitality Corporation ("Cavanaughs" or "CHC") and
Olympus as of October 31, 1997 and March 31, 1998 and condensed
pro forma combined statements of income for the year ended
October 31, 1997 and three months ended March 31, 1998.
99.3 Unaudited condensed financial statements of Olympus as of and
for the three months ended March 31, 1998.
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: August 12, 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
August 7, 1998
To the Members of
Stellar Lone Star Limited Liability Company:
In our opinion, the accompanying balance sheet and the related
statements of income, changes in members' equity, and cash flows
present fairly, in all material respects, the financial position of
The Olympus Hotel and Conference Center ("The Olympus Hotel") as of
December 31, 1997, and the results of its operations and its cash
flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles. 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
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 OLYMPUS HOTEL
BALANCE SHEET
as of December 31, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 275,583
Accounts receivable, less allowance for doubtful
accounts of $12,500 389,146
Inventories 63,818
Prepaid expenses 175,117
-----------
Total current assets 903,664
Property and equipment, net 19,747,631
Deferred loan fees, net 86,628
-----------
Total assets $20,737,923
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 173,604
Accrued payroll and related benefits 195,493
Accrued interest payable 175,000
Other accrued expenses 72,667
Note payable, current portion 102,114
-----------
Total current liabilities 718,878
Note payable, long-term portion 16,977,886
-----------
Total liabilities 17,696,764
Commitments (Note 6)
Members' equity 3,041,159
-----------
Total liabilities and members' equity $20,737,923
===========
The accompanying notes are an integral part of the financial
statements.
<PAGE>
THE OLYMPUS HOTEL
STATEMENT OF INCOME
for the year ended December 31, 1997
Revenues:
Hotel and restaurant:
Rooms $ 6,998,977
Food and beverage 1,883,091
Other 54,649
-----------
Total hotel and restaurant 8,936,717
Rental operations 131,391
-----------
Total revenues 9,068,108
-----------
Operating expenses:
Direct:
Rooms 1,293,475
Food and beverage 1,430,366
-----------
Total direct 2,723,841
-----------
Indirect:
Selling, general and administrative 1,632,041
Property operating costs 1,483,956
Depreciation and amortization 847,966
-----------
Total indirect 3,963,963
-----------
Total operating expenses 6,687,804
-----------
Operating income 2,380,304
Other expense:
Interest (1,643,298)
-----------
Net income $ 737,006
===========
The accompanying notes are an integral part of the financial
statements.
<PAGE>
THE OLYMPUS HOTEL
STATEMENT OF CHANGES IN MEMBERS' EQUITY
for the year ended December 31, 1997
Balance, January 1, 1997 $ 3,054,153
Net income 737,006
Distributions to members (750,000)
-----------
Balance, December 31, 1997 $ 3,041,159
===========
The accompanying notes are an integral part of the financial
statements.
<PAGE>
THE OLYMPUS HOTEL
STATEMENT OF CASH FLOWS
for the year ended December 31, 1997
Operating activities:
Net income $ 737,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 847,966
Change in:
Accounts receivable (31,101)
Inventories (3,453)
Prepaid expenses 101,561
Accounts payable 187,012
Accrued payroll and related benefits 32,079
Other accrued expenses 19,369
-----------
Net cash provided by operating activities 1,890,439
-----------
Investing activities:
Additions to property and equipment (1,113,574)
-----------
Net cash used in investing activities (1,113,574)
-----------
Financing activities:
Distributions to members (750,000)
-----------
Net cash used in financing activities (750,000)
-----------
Change in cash and cash equivalents:
Net increase in cash and cash equivalents 26,865
Cash and cash equivalents at beginning of year 248,718
-----------
Cash and cash equivalents at end of year $ 275,583
===========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 1,639,721
The accompanying notes are an integral part of the financial
statements.
<PAGE>
THE OLYMPUS HOTEL
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
On December 27, 1994, The Olympus Hotel ("Olympus Hotel" or
"Company"), which is located in Salt Lake City, Utah, was
purchased by Stellar Lone Star Limited Liability Company
("Stellar") from Olympus Hotel, L.C., a Utah limited liability
company.
Stellar is a commercial real estate development and management
company located in the state of Washington. Stellar owns
properties other than Olympus Hotel. However, these financial
statements only reflect the operations and activities of
Olympus Hotel.
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 Company places its 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 room linens, food and
beverage products, which are valued at the lower of average
cost or market.
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 or the lease term as
follows:
Buildings 39 years
Equipment, furniture and fixtures 7 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 aggregate net carrying value of
property and equipment to determine whether there has been a
permanent impairment in carrying value. At December 31,
1997, no such impairment was deemed to exist.
<PAGE>
THE OLYMPUS HOTEL
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Deferred Loan Fees
-------------------
Deferred loan fees are amortized using the interest method over
the 20-year term of the related loan agreement.
Income Taxes
------------
Olympus Hotel is wholly owned by Stellar Lone Star Limited
Liability Company. Accordingly, Stellar's members are
responsible for federal and state income taxes on Olympus
Hotel's earnings. Therefore, no provision for income taxes is
recorded in these 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.
Advertising Expenses
--------------------
Advertising is expensed as incurred. The total amount of
advertising expense was approximately $221,000 in 1997.
Concentration of Revenues
-------------------------
Approximately $1.44 million of room revenues in 1997 was
generated from contracts with airlines, which are renewed every
1-2 years.
New Accounting Pronouncement
----------------------------
In June 1997, SFAS No. 130, "Reporting Comprehensive Income",
(SFAS No. 130) was issued. SFAS No. 130 requires that
comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial
statements. SFAS No. 130 does not require a specific format
for the financial statement, but requires that an enterprise
display net income as a component of comprehensive income in
the financial statement. Comprehensive income is defined as
the change in equity of a business enterprise arising from non-
owner sources. The classifications of comprehensive income
<PAGE>
THE OLYMPUS HOTEL
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
under current accounting standards include foreign currency
items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity
securities. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Management does not believe that the
implementation of SFAS No. 130 will have a material impact on the
presentation of its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, 1997 is as follows:
Land $ 824,634
Buildings and equipment 18,914,184
Furniture and fixtures 2,386,475
-----------
22,125,293
Less accumulated depreciation (2,377,662)
-----------
$19,747,631
===========
4. LONG-TERM DEBT:
Long-term debt as of December 31, 1997 is as follows:
Mortgage note payable with interest at 9.25%,
payable in monthly installments of $140,589
beginning February 1998 through November 2014,
with the remaining unpaid principal due in
December 2014, collateralized by real
property. The fair value of the note
approximates its carrying value. $17,080,000
===========
<PAGE>
THE OLYMPUS HOTEL
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT, CONTINUED:
Contractual maturities for long-term debt outstanding at
December 31, 1997, are summarized by year as follows:
Year Ending
December 31,
------------
1998 $ 102,114
1999 121,688
2000 133,434
2001 146,314
2002 160,436
Thereafter 16,416,014
-----------
$17,080,000
===========
5. OPERATING LEASE INCOME:
Operating lease income is generated from non-related businesses
which rent space on the hotel property. The cost and accumulated
depreciation of these rental properties at December 31, 1997 are
approximately $165,000 and $22,000, respectively. The income for
one of these leases is based on a minimum fixed rate per month or
a percentage of the business' gross sales, whichever is greater.
During the year ended December 31, 1997, the Company recognized
approximately $131,000 of rental income which included $28,000 of
rent, which was contingent upon the amount of gross sales.
Future minimum lease income under existing noncancellable leases
at December 31, 1997 is as follows:
Year Ending
December 31,
------------
1998 $ 89,449
1999 90,291
2000 68,604
2001 68,604
2002 68,604
-----------
$ 385,552
===========
<PAGE>
THE OLYMPUS HOTEL
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. COMMITMENTS:
The Company leases billboards and equipment under operating lease
agreements. The leases are generally on a month-to-month or
year-to-year basis. These leases generally contain provisions
for automatic renewal at the end of each specified period unless
written notice is given in advance in accordance with the
agreement. Future minimum lease payments at December 31, 1997
are approximately $13,000 due in 1998.
The Company also pays approximately $20,000 per month to a
management company to manage Olympus Hotel. The agreement is
renewed annually. At December 31, 1997, this agreement was
renewed on a month-to-month basis. In connection with the sale
of Olympus Hotel in 1998 (see Note 9), this management agreement
was terminated.
7. RELATED-PARTY TRANSACTIONS:
The Company has agreed to pay Stellar an annual fee of $96,000
for consulting. This agreement was terminated in connection with
the sale of Olympus Hotel in 1998 (see Note 9).
8. EMPLOYEE BENEFITS:
The Company sponsors a self-insured health benefit plan which
provides comprehensive medical, dental and prescription coverage
for the employees of the Company and their covered family
members. The Company carries an excess reimbursement policy
which covers 100 percent of payments exceeding $20,000 during a
12-month period per individual. Total expense incurred by the
Company for this plan was approximately $176,000 in 1997.
The Company has established a flexible reimbursement plan
intended to constitute a "Cafeteria plan" within Section 125 of
the Internal Revenue Code. The Company made no contribution to
this plan in 1997.
The Company sponsors a 401(k) retirement plan for substantially
all of its employees. The Company matches 15% of all eligible
employee contributions. Company contributions to this plan were
$3,300 in 1997.
The Company provides no benefits and incurs no costs associated
with postemployment or postretirement benefits or pensions.
<PAGE>
THE OLYMPUS HOTEL
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. SUBSEQUENT EVENT:
Effective July 1, 1998, Cavanaughs Hospitality Corporation
("CHC"), located in the state of Washington, acquired all the
Company's property and equipment, including the rental property
of the Company. CHC also acquired the rights, title and interest
in all hotel contracts, space leases, permits, equipment leases
and inventories of the Company. 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
------------
CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheets and
condensed pro forma combined statements of operations, collectively,
the "Pro Forma Financial Statements", were prepared by Cavanaughs to
illustrate the estimated effects of the business combination to be
accounted for as a purchase under generally accepted accounting
principles. Accordingly, the financial information of Cavanaughs and
Olympus has been combined as if the acquisition 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' and Olympus' 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 represent what the combined financial position or
results of operations would have been 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 three months ended
March 31, 1998 and of Olympus, 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 consolidated pro forma results of
operations presented herein are not necessarily indicative of the
future results of operations.
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEETS
at October 31, 1997
(in thousands, except for share data)
<TABLE>
<CAPTION>
CHC Olympus
Historical Historical
(at (at
October 31, December 31, Pro Forma Pro Forma
1997) 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 109,954 19,748 11,852(A) 141,554
Other assets, net 3,400 -- -- 3,400
--------- --------- --------- ---------
Total assets $ 124,104 $ 19,748 $ 11,852 $ 155,704
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' 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 93,771 -- 31,600(B) 125,371
Capital lease obligations, due after
one year 2,255 -- -- 2,255
Deferred income taxes 5,417 -- -- 5,417
Minority interest 553 -- -- 553
--------- --------- --------- ---------
Total liabilities 115,578 -- 31,600 147,178
--------- --------- --------- ---------
</TABLE>
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEETS, CONTINUED
at October 31, 1997
(in thousands, except for share data)
<TABLE>
<CAPTION>
CHC Olympus
Historical Historical
(at (at
October 31, December 31, Pro Forma Pro Forma
1997) 1997) Adjustments Combined
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' AND
PARTNERS EQUITY, CONTINUED
Stockholders and partners equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized; no
shares issued and outstanding $ -- $ -- $ -- $ --
Common stock, $.01 par value,
50,000,000 shares authorized;
7,072,025 shares issued and
outstanding 71 -- -- 71
Partners' deficit (897) -- -- (897)
Additional paid-in capital 3,935 -- -- 3,935
Retained earnings 5,417 19,748 (19,748) 5,417
--------- --------- --------- ---------
Total stockholders' and
partners equity 8,526 19,748 (19,748) 8,526
--------- --------- --------- ---------
Total liabilities and stock-
holders' and partners
equity $ 124,104 $ 19,748 $ 11,852 $ 155,704
========= ========= ========= =========
</TABLE>
See notes to condensed pro forma combined balance sheets and
statements of income.
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEETS
at March 31, 1998
(in thousands, except for share data)
<TABLE>
<CAPTION>
CHC Olympus
Historical Historical
(at (at
March 31, March 31, Pro Forma Pro Forma
1998) 1998) Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,206 $ -- $ -- $ 8,206
Accounts receivable 2,652 -- -- 2,652
Inventories 483 -- -- 483
Prepaid expenses and deposits 2,160 -- -- 2,160
--------- --------- --------- ---------
Total current assets 13,501 -- -- 13,501
Property and equipment, net 137,559 19,645 11,955(A) 169,159
Other assets, net 3,726 -- -- 3,726
--------- --------- --------- ---------
Total assets $ 154,786 $ 19,645 $ 11,955 $ 186,386
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Payable to affiliates $ 933 $ -- $ -- $ 933
Note payable to bank 3,000 -- -- 3,000
Accounts payable 3,235 -- -- 3,235
Accrued payroll and related benefits 1,039 -- -- 1,039
Accrued interest payable 832 -- -- 832
Other accrued expenses 4,378 -- -- 4,378
Long-term debt, due within one year 1,241 -- -- 1,241
Capital lease obligations, due within
one year 508 -- -- 508
--------- --------- --------- ---------
Total current liabilities 15,166 -- -- 15,166
Long-term debt, due after one year 123,253 -- 31,600(B) 154,853
Capital lease obligations, due after
one year 2,023 -- -- 2,023
Deferred income taxes 5,415 -- -- 5,415
Minority interest 484 -- -- 484
--------- --------- --------- ---------
Total liabilities 146,341 -- 31,600 177,941
--------- --------- --------- ---------
</TABLE>
<PAGE>
CONDENSED PRO FORMA COMBINED BALANCE SHEETS, CONTINUED
at March 31, 1998
(in thousands, except for share data)
<TABLE>
<CAPTION>
CHC Olympus
Historical Historical
(at (at
March 31, March 31, Pro Forma Pro Forma
1998) 1998) Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY,
CONTINUED
Stockholders equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized; no
shares issued and outstanding $ -- $ -- $ -- $ --
Common stock, $.01 par value,
50,000,000 shares authorized;
7,084,253 shares issued and
outstanding 71 -- -- 71
Additional paid-in capital 3,056 -- -- 3,056
Retained earnings 5,318 19,645 (19,645) 5,318
--------- --------- --------- ---------
Total stockholders equity 8,445 19,645 (19,645) 8,445
--------- --------- --------- ---------
Total liabilities and stock-
holders equity $ 154,786 $ 19,645 $ 11,955 $ 186,386
========= ========= ========= =========
</TABLE>
See notes to condensed pro forma combined balance sheets and
statements 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 Olympus
Historical Historical
(for the (for the
year ended year ended
October 31, December 31, Pro Forma Pro Forma
1997) 1997) Adjustments Combined
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Hotels and restaurants:
Rooms $ 25,147 $ 6,999 $ -- $ 32,146
Food and beverage 13,926 1,883 -- 15,809
Other 2,589 55 -- 2,644
--------- --------- --------- ---------
Total hotels and restaurants 41,662 8,937 -- 50,599
Entertainment, management and services 3,842 -- -- 3,842
Rental operations 6,539 131 -- 6,670
--------- --------- --------- ---------
Total revenues 52,043 9,068 -- 61,111
--------- --------- --------- ---------
Operating expenses:
Direct:
Hotels and restaurants:
Rooms 6,820 1,294 -- 8,114
Food and beverage 11,483 1,430 -- 12,913
Other 1,066 -- -- 1,066
--------- --------- --------- ---------
Total hotels and restaurants 19,369 2,724 -- 22,093
Entertainment, management and
services 2,052 -- -- 2,052
Rental operations 1,506 -- -- 1,506
--------- --------- --------- ---------
Total direct expenses 22,927 2,724 -- 25,651
--------- --------- --------- ---------
Undistributed operating expenses:
Selling, general and administrative 8,188 1,632 -- 9,820
Property operating costs 5,518 1,484 (306)(C) 6,696
Depreciation and amortization 4,775 848 (121)(D) 5,502
--------- --------- --------- ---------
Total undistributed operating
expenses 18,481 3,964 (427) 22,018
--------- --------- --------- ---------
Total expenses 41,408 6,688 (427) 47,669
--------- --------- --------- ---------
Operating income 10,635 2,380 427 13,442
Other income (expense):
Interest expense, net of amounts
capitalized (8,817) (1,643) (739)(E) (11,199)
Interest income 416 -- -- 416
Other income 348 -- -- 348
Minority interest in partnerships 59 -- -- 59
--------- --------- --------- ---------
Income (loss) before income taxes 2,641 737 (312) 3,066
Income tax provision 932 141 (F) 1,073
--------- --------- --------- ---------
Net income $ 1,709 $ 737 $ (453) $ 1,993
========= ========= ========= =========
</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 Olympus
Historical Historical
(for the (for the
year ended year ended
October 31, December 31, Pro Forma Pro Forma
1997) 1997) Adjustments Combined
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Pro forma net income per share $ 0.24 $ 0.28
========= =========
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>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
for the three months ended March 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
CHC Olympus Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Hotels and restaurants:
Rooms $ 6,884 $ 1,820 $ -- $ 8,704
Food and beverage 4,175 524 -- 4,699
Other 782 43 -- 825
--------- --------- --------- ---------
Total hotels and restaurants 11,841 2,387 -- 14,228
Entertainment, management and services 1,018 -- -- 1,018
Rental operations 1,776 32 -- 1,808
--------- --------- --------- ---------
Total revenues 14,635 2,419 -- 17,054
--------- --------- --------- ---------
Operating expenses:
Direct:
Hotels and restaurants:
Rooms 2,091 384 -- 2,475
Food and beverage 3,558 430 -- 3,988
Other 337 -- -- 337
--------- --------- --------- ---------
Total hotels and restaurants 5,986 814 -- 6,800
Entertainment, management and
services 697 -- -- 697
Rental operations 385 -- -- 385
--------- --------- --------- ---------
Total direct expenses 7,068 814 -- 7,882
--------- --------- --------- ---------
Undistributed operating expenses:
Selling, general and administrative 1,996 260 -- 2,256
Property operating costs 1,796 390 (89)(C) 2,097
Depreciation and amortization 1,338 211 (30)(D) 1,519
--------- --------- --------- ---------
Total undistributed operating
expenses 5,130 861 (119) 5,872
--------- --------- --------- ---------
Total expenses 12,198 1,675 (119) 13,754
--------- --------- --------- ---------
Operating income 2,437 744 119 3,300
Other income (expense):
Interest expense, net of amounts
capitalized (2,679) (407) (189)(E) (3,275)
Interest income 70 -- -- 70
Minority interest in partnerships 40 -- -- 40
--------- --------- --------- ---------
Income (loss) before income taxes (132) 337 (70) 135
Income tax provision (benefit) (45) -- 91 (F) 46
--------- --------- --------- ---------
Net income (loss) and comprehensive
income (loss) $ (87) $ 337 $ (161) $ 89
========= ========= ========= =========
</TABLE>
<PAGE>
CONDENSED PRO FORMA COMBINED STATEMENT OF INCOME
for the three months ended March 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
CHC Olympus Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) per share - basic
and diluted $ (0.01) $ 0.01
========= =========
Weighted average shares outstanding -
basic and diluted 7,084 7,084
========= =========
</TABLE>
See notes to condensed pro forma combined balance sheet and statement
of income.
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF
INCOME
The following balance sheet adjustments were made to reflect the
combination of Cavanaughs and Olympus as if it occurred October 31,
1997 and March 31, 1998:
(A) 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 are calculated as
follows (in thousands):
October 31, March 31,
1997 1998
----------- -----------
Total purchase price $ 31,600 $ 31,600
Historical carrying value of
assets acquired (19,748) (19,645)
-------- --------
Excess purchase price $ 11,852 $ 11,955
======== ========
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
========
(B) Represents the amount of the purchase price of Olympus which will
be financed by the Company's revolving line-of-credit agreement.
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENTS OF
INCOME, CONTINUED
The following income statement adjustments were made to reflect the
combination of Cavanaughs and Olympus as if it 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.
(C) Represents the elimination of management fees associated with the
management agreement between Olympus and an affiliated entity
which will be terminated upon the acquisition by Cavanaughs.
(D) Represents the increase (decrease) in depreciation and
amortization expense from the historical amounts based on the
depreciation of the purchase price over the estimated remaining
lives of the acquired assets (see Note A).
(E) 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 1997 fiscal year would
increase or decrease by approximately $79,000, $51,000 and $0.01,
respectively. If the rate increased or decreased by 0.25%, the
Company s pro forma interest expense, net income and earnings per
share for the quarter ended March 31, 1998 would increase or
decrease by approximately $18,000, $12,000 and $-0-,
respectively.
(F) Represents estimated income taxes related to Olympus' historical
income before income taxes and the tax effects of pro forma
adjustments. As Olympus was not a tax-paying entity, there is no
income tax provision recorded on the historical Olympus financial
statements.
<PAGE>
EXHIBIT 99.3
------------
THE OLYMPUS HOTEL
UNAUDITED FINANCIAL STATEMENTS
as of and for the three months ended March 31, 1998
<PAGE>
THE OLYMPUS HOTEL
BALANCE SHEET
as of March 31, 1998 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 129,932
Accounts receivable 650,907
Inventories 60,279
Prepaid expenses 168,396
-----------
Total current assets 1,009,514
Property and equipment, net 19,645,287
Deferred loan fees, net 85,627
-----------
Total assets $20,740,428
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 253,680
Accrued payroll and related benefits 181,400
Other accrued expenses 96,902
Note payable, current portion 102,114
-----------
Total current liabilities 634,096
Note payable, long-term portion 16,977,886
-----------
Total liabilities 17,611,982
Members' equity 3,128,446
-----------
Total liabilities and members' equity $20,740,428
===========
<PAGE>
THE OLYMPUS HOTEL
STATEMENT OF INCOME
for the three months ended March 31, 1998 (Unaudited)
Revenues:
Hotel and restaurant:
Rooms $ 1,820,157
Food and beverage 524,496
Other 42,851
-----------
Total hotel and restaurant 2,387,504
Rental operations 31,663
-----------
Total revenues 2,419,167
-----------
Operating expenses:
Direct:
Rooms 384,179
Food and beverage 430,326
-----------
Total direct 814,505
-----------
Indirect:
Selling, general and administrative 259,405
Property operating costs 389,854
Depreciation and amortization 211,350
-----------
Total indirect 860,609
-----------
Total operating expenses 1,675,114
-----------
Operating income 744,053
Other expense:
Interest (406,766)
-----------
Net income and comprehensive income $ 337,287
===========
<PAGE>
THE OLYMPUS HOTEL
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1998 (Unaudited)
Operating activities:
Net income $ 337,287
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 211,350
Change in:
Accounts receivable (261,761)
Inventories 3,539
Prepaid expenses 6,721
Accounts payable (94,924)
Accrued payroll and related benefits (14,093)
Other accrued expenses 24,235
-----------
Net cash provided by operating activities 212,354
-----------
Investing activities:
Additions to property and equipment (108,005)
-----------
Net cash used in investing activities (108,005)
-----------
Financing activities:
Distributions to members (250,000)
-----------
Net cash used in financing activities (250,000)
-----------
Change in cash and cash equivalents:
Net decrease in cash and cash equivalents (145,651)
Cash and cash equivalents at beginning of period 275,583
-----------
Cash and cash equivalents at end of period $ 129,932
===========
<PAGE>
THE OLYMPUS HOTEL
NOTES TO UNAUDITED FINANCIAL STATEMENTS
as of and for the three months ended March 31, 1998
1. QUARTERLY INFORMATION:
The unaudited financial statements included herein have been
prepared by The Olympus Hotel ("Olympus Hotel" or "the Company")
pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). 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. The Company believes that the disclosures included
herein are adequate; however, these statements should be read in
conjunction with the financial statements and the notes thereto
for the year ended December 31, 1997 which are included elsewhere
in this document.
In the opinion of management, these unaudited financial
statements contain all of the adjustments normal and recurring in
nature, necessary to present fairly the financial position of the
Company at March 31, 1998 and the results of operations and cash
flows for the three months ended March 31, 1998. The results of
operations for the periods presented may not be indicative of
those which may be expected for a full year.
2. INCOME TAXES:
Olympus Hotel is wholly owned by Stellar Lone Star Limited
Liability Company. Accordingly, Stellar's members are
responsible for federal and state income taxes on Olympus Hotel's
earnings. Therefore, no provision for income taxes is recorded
in these financial statements.
<PAGE>
