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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR (15)d OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ____________ to ____________
Commission file number 001-13957
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WESTCOAST HOSPITALITY CORPORATION
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(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, WA 99201
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(Address of principal executive office)
(509) 459-6100
----------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
As of October 31, 2000, there were 12,964,283 shares of the Registrant's common
stock outstanding.
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<PAGE>
WESTCOAST HOSPITALITY CORPORATION
Form 10-Q
For the Quarter Ended September 30, 2000
INDEX
Part I - Financial Information
Item 1 - Financial Statements:
- Consolidated Balance Sheets --
December 31, 1999 and September 30, 2000 3-4
- Consolidated Statements of Income --
Three and Nine Months Ended September 30,
1999 and 2000 5-6
- Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1999 and 2000 7-8
- Notes to Consolidated Financial Statements 9-13
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-22
PART II - Other Information
Item 6 - Exhibits and Reports on Form 8-K 23
2
<PAGE>
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, 1999 and September 30, 2000
(in thousands, except share data)
<TABLE><CAPTION>
December 31, September 30,
1999 2000
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,357 $ 4,287
Accounts receivable 7,548 9,548
Inventories 1,110 1,092
Prepaid expenses and deposits 883 1,186
---------- ----------
Total current assets 13,898 16,113
Property and equipment, net 243,237 243,494
Intangible assets, net 29,613 28,899
Other assets, net 22,384 22,052
---------- ----------
Total assets $ 309,132 $ 310,558
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,739 $ 2,326
Accrued payroll and related benefits 3,024 2,969
Income taxes payable 457 1,569
Accrued interest payable 721 700
Other accrued expenses 8,994 7,856
Long-term debt, due within one year 7,445 2,227
Capital lease obligations, due within
one year 623 547
---------- ----------
Total current liabilities 26,003 18,194
Long-term debt, due after one year 57,516 53,634
Notes payable to bank 101,263 109,300
Capital lease obligations, due after
one year 1,103 768
Deferred income taxes 15,617 15,106
Minority interest in partnerships 2,798 2,894
---------- ----------
Total liabilities 204,300 199,896
---------- ----------
</TABLE>
3
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WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED), CONTINUED
December 31, 1999 and September 30, 2000
(in thousands, except share data)
<TABLE><CAPTION>
December 31, September 30,
1999 2000
---------- ----------
<S> <C> <C>
Commitments and contingencies
Stockholders' equity:
Preferred stock - 5,000,000 shares
authorized, $0.01 par value, -0-
shares issued and outstanding $ -- $ --
Common stock - 50,000,000 shares
authorized, $0.01 par value;
12,925,276 and 12,964,283 shares
issued and outstanding 129 130
Additional paid-in capital 83,761 84,114
Retained earnings 20,942 26,418
---------- ----------
Total stockholders' equity 104,832 110,662
---------- ----------
Total liabilities and stockholders' equity $ 309,132 $ 310,558
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
for the three and nine months ended September 30, 1999 and 2000
(in thousands, except per share data)
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Hotels and Restaurants $ 27,788 $ 31,922 $ 71,640 $ 83,060
Franchise, Central Services and Development -- 866 -- 2,593
TicketsWest.com 3,416 1,752 4,575 4,234
Real Estate Division 2,398 2,313 7,316 6,962
Corporate Services 156 57 352 301
-------- -------- -------- --------
33,758 36,910 83,883 97,150
-------- -------- -------- --------
Operating expenses:
Direct:
Hotels and Restaurants 18,550 21,099 51,122 59,903
Franchise, Central Services and Development -- 297 -- 868
TicketsWest.com 3,377 1,852 4,120 4,077
Real Estate Division 1,150 1,088 3,349 3,331
Corporate Services 5 48 (4) 183
Depreciation and amortization:
Hotels and Restaurants 1,495 1,906 4,439 5,679
Franchise, Central Services and Development -- 100 -- 301
TicketsWest.com 17 99 51 265
Real Estate Division 330 334 997 990
Corporate Services 143 177 397 559
-------- -------- -------- --------
Total direct expenses 25,067 27,000 64,471 76,156
Undistributed corporate expenses 500 319 1,541 1,486
-------- -------- -------- --------
Total expenses 25,567 27,319 66,012 77,642
-------- -------- -------- --------
Operating income 8,191 9,591 17,871 19,508
Other income (expense):
Interest expense (2,419) (3,717) (7,039) (10,949)
Interest income 116 72 263 201
Other income 7 135 16 148
Conversion expenses -- (219) -- (232)
Equity in investments -- 75 -- 97
Minority interest in partnerships (125) (111) (180) (113)
-------- -------- -------- --------
</TABLE>
5
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
for the three and nine months ended September 30, 1999 and 2000
(in thousands, except per share data)
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before income taxes, extraordinary
item and cumulative effect of accounting change $ 5,770 5,826 10,931 8,660
Income tax provision 1,846 2,142 3,499 3,184
-------- -------- -------- --------
Income before extraordinary item and
cumulative effect of change in accounting
principle 3,924 3,684 7,432 5,476
Extraordinary expense, net of income tax benefit -- -- (10) --
Cumulative effect of change in accounting principle,
net of income tax benefit -- -- (133) --
-------- -------- -------- --------
Net income $ 3,924 $ 3,684 $ 7,289 $ 5,476
======== ======== ======== ========
Income per share -- basic and diluted:
Income before extraordinary item and cumulative
effect of change in accounting principle $ 0.31 $ 0.28 $ 0.58 $ 0.42
Extraordinary item -- -- nil --
Cumulative effect of change in accounting
principle -- -- (0.01) --
-------- -------- -------- --------
Net income per share $ 0.31 $ 0.28 $ 0.57 $ 0.42
======== ======== ======== ========
Weighted-average common shares outstanding --
basic 12,786 12,964 12,713 12,948
======== ======== ======== ========
Weighed-average common shares outstanding --
diluted 13,082 13,260 13,069 13,244
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
6
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the nine months ended September 30, 1999 and 2000 (in thousands)
<TABLE><CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 7,289 $ 5,476
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,884 7,794
Minority interest in partnerships 180 113
Equity in investments -- (97)
Loss on disposal of equipment -- 200
Extraordinary item 10 --
Cumulative effect of change in accounting
principle 133 --
Deferred income taxes 252 --
Compensation expense related to stock issuance 167 177
Change in:
Accounts receivable (1,856) (2,000)
Inventories (51) 18
Prepaid expenses and deposits (721) (303)
Income taxes receivable/payable 2,751 601
Accounts payable 3,795 (2,413)
Accrued payroll and related benefits 964 (55)
Accrued interest payable (866) (21)
Other accrued expenses (878) (1,415)
-------- --------
Net cash provided by operating activities 17,053 8,075
-------- --------
Investing activities:
Additions to property and equipment (7,744) (6,537)
Cash paid for acquisition of property and equipment or
subsidiaries, net of cash received -- (157)
Issuance of note receivable (225) --
Other, net (731) 348
-------- --------
Net cash used in investing activities (8,700) (6,346)
-------- --------
Financing activities:
Proceeds from note payable to bank 8,680 15,137
Repayment of note payable to bank (11,260) (7,100)
Repayment of long-term debt (1,227) (9,100)
Principal payments on capital lease obligations (501) (519)
Additions to deferred financing costs (488) (377)
Distribution to minority interest (73) (17)
Proceeds from issuance of common stock under
employee stock purchase plan 102 177
-------- --------
Net cash used in financing activities (4,767) (1,799)
-------- --------
</TABLE>
7
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the nine months ended September 30, 1999 and 2000
(in thousands)
<TABLE><CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents $ 3,586 $ (70)
Cash and cash equivalents at beginning of period 4,267 4,357
-------- --------
Cash and cash equivalents at end of period $ 7,853 $ 4,287
======== ========
Supplemental disclosure of cash flow information:
Noncash investing and financing activities:
Acquisition of property through assumption
of capital leases $ -- $ 108
Acquisition of property through issuance
of debt or issuance of note payable 250 277
Acquisition of equipment through cancellation
of note receivable 225 --
Conversion of operating partnership units
to common stock 1,578 --
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
8
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. QUARTERLY INFORMATION:
The unaudited consolidated financial statements included herein have
been prepared by WestCoast Hospitality Corporation (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 balance sheet as of
December 31, 1999 has been compiled from the audited balance sheet as
of such date. The Company believes that the disclosures included herein
are adequate; however, these consolidated statements should be read in
conjunction with the financial statements and the notes thereto for the
year ended December 31, 1999 previously filed with the SEC on Form
10-K.
In the opinion of management, these unaudited consolidated financial
statements contain all of the adjustments (normal and recurring in
nature) necessary to present fairly the consolidated financial position
of the Company at September 30, 2000 and the consolidated results of
operations for the three and nine months ended September 30, 2000 and
1999 and cash flows for the nine months ended September 30, 2000 and
1999. The results of operations for the periods presented may not be
indicative of those which may be expected for a full year.
2. ORGANIZATION:
At September 30, 1999, the Company controlled and operated (through
ownership or lease with purchase option agreements) 19 hotel
properties. As of September 30, 2000, the Company had ownership
interests and operated 23 hotel properties, managed an additional 9
properties and franchised an additional 13 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.com, an
Internet ticketing service offering consumers up-to-the-minute
information on live entertainment and the ability to make
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WESTCOAST HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. ORGANIZATION, CONTINUED:
real-time tickets 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
Company's operations are segregated into four operating segments: (1)
Hotels and Restaurants, (2) TicketsWest.com (e-commerce entertainment),
(3) Real Estate Division and (4) Franchise, Central Services and
Development.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 operations. The adoption of SOP
98-5 resulted in the cumulative effect of an accounting change of
$133,000, which is net of $68,000 of income taxes, being recognized
during the nine months ended September 30, 1999.
4. LONG-TERM DEBT AND LINE OF CREDIT:
In May 1998, the Company obtained an $80 million revolving secured
credit facility with a consortium of banks. In February 1999, the
credit facility was increased to $100 million. In December 1999, in
connection with the WestCoast Hotels Inc. acquisition, the credit
facility was amended to increase the total amount available under the
facility to $120 million. The credit facility is collateralized by
certain property 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, plus 180 to 325 basis points depending on the
total funded debt levels. The credit facility matures in May
10
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT AND LINE OF CREDIT, CONTINUED:
2003. At September 30, 2000, $109.3 million was outstanding under the
credit facility. The Company was in compliance with all required
covenants at September 30, 2000.
During the quarter ended March 31, 1999, the Company paid off certain
debt prior to its maturity date. Deferred loan fees associated with
this debt of $15,000 has been written off and reported as an
extraordinary item, net of a $5,000 income tax benefit.
5. BUSINESS SEGMENTS:
The Company has four operating segments: (1) Hotels and Restaurants;
(2) TicketsWest.com (e-commerce entertainment); (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 in December 1999. Therefore no
amounts are reported for this segment for the nine months ended
September 30, 1999. 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.com has significant inter-segment revenues, which are
eliminated in the consolidated financial statements. Management reviews
and evaluates the operations of TicketsWest.com 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.
Selected information with respect to the segments is as follows (in
thousands):
11
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. BUSINESS SEGMENTS, CONTINUED:
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Hotels and Restaurants $ 27,788 $ 31,922 $ 71,640 $ 83,060
Franchise, Central Services
and Development -- 866 -- 2,593
TicketsWest.com 3,649 2,141 5,187 5,242
Less: inter-segment revenues (233) (389) (612) (1,008)
Real Estate Division 2,398 2,313 7,316 6,962
Corporate Services and other 156 57 352 301
-------- -------- -------- --------
$ 33,758 $ 36,910 $ 83,883 $ 97,150
======== ======== ======== ========
Operating income:
Hotels and Restaurants $ 7,743 $ 8,917 $ 16,079 $ 17,478
Franchise, Central Services
and Development -- 469 -- 1,424
TicketsWest.com 22 (199) 404 (108)
Real Estate Division 918 891 2,970 2,641
Corporate Services and other (492) (487) (1,582) (1,927)
-------- -------- -------- --------
$ 8,191 $ 9,591 $ 17,871 $ 19,508
======== ======== ======== ========
</TABLE>
12
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. EARNINGS PER SHARE:
The following table presents a reconciliation of the numerators and
denominators used in the basic and diluted EPS computations (in
thousands, except per share amounts). Also shown is the number of stock
options that would have been considered in the diluted EPS computation
if they were not anti-dilutive.
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item
and cumulative effect of
change in accounting principle $ 3,924 $ 3,684 $ 7,432 $ 5,476
Extraordinary item -- -- (10) --
Cumulative effect of accounting
change -- -- (133) --
-------- -------- -------- --------
Net income - basic 3,924 3,684 7,289 5,476
Income effect of dilutive OP Units 91 57 187 72
-------- -------- -------- --------
Net income - diluted $ 4,015 $ 3,741 $ 7,476 $ 5,548
======== ======== ======== ========
Denominator:
Weighted-average shares
outstanding - basic 12,786 12,964 12,713 12,948
Effect of dilutive OP units 296 296 356 296
Effect of dilutive common stock
options (A) (A) (A) (A)
-------- -------- -------- --------
Weighted-average shares
outstanding - diluted 13,082 13,260 13,069 13,244
======== ======== ======== ========
Earnings per share - basic
and diluted:
Income per share before
extraordinary item and
cumulative effect of change in
accounting principle $ 0.31 $ 0.28 $ 0.58 $ .42
Cumulative effect of accounting
change -- -- (0.01) --
-------- -------- -------- --------
Net income per share -
basic and diluted $ 0.31 $ 0.28 $ 0.57 $ 0.42
======== ======== ======== ========
</TABLE>
(A) At September 30, 1999 and 2000, 978,851 and 1,010,687 stock
options were 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 for the three and nine months ended September 30, 1999 and
2000 because they are anti-dilutive.
13
<PAGE>
WESTCOAST HOSPITALITY CORPORATION
ITEM II. 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 three and nine months ended September 30,
2000 and 1999. The following should be read in conjunction with the unaudited
Consolidated Financial Statements and the notes thereto. 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" and elsewhere in the Form 10-K filed by the Company for the year ended
December 31, 1999, and in the Form S-3 filed by the Company on February 14,
2000.
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 86.5% of total
revenue in the three months ended September 30, 2000 and increased 14.9% from
$27.8 million in 1999 to $31.9 million in 2000. This increase was primarily the
result of the addition of the acquisition of WestCoast Hotels Inc., which had an
effective date of December 31, 1999. The balance of the Company's revenues is
derived from its Franchise, Central Services and Development, TicketsWest.com,
Real Estate Division, and Corporate Services divisions. These revenues are
generated from franchise fees, ticket distribution handling fees, Internet
services, real estate management fees, sales commissions and rents. In 1999,
Franchise, Central Services and Development was not an operating segment of the
Company and was added as a business segment with the acquisition of WestCoast
Hotels Inc. Franchise, Central Services and Development accounted for 2.4% of
the Company's revenue for the three months ended September 30, 2000,
TicketsWest.com accounted for 4.7% and Real Estate Division accounted for 6.3%
of total revenues for the period.
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
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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.com (e-commerce and
entertainment); (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. During 1999, the Company also identified most selling, general and
administrative costs, property operating costs and depreciation and amortization
expenses that were previously undistributed to the segments as costs of the
respective segments. Accordingly, the presentations of the consolidated
statements of income for all periods presented have been reclassified to reflect
the 1999 classifications.
The following table sets forth-selected items from the consolidated statements
of income as a percent of total revenues and certain other selected data:
<TABLE><CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Hotels & Restaurants 82.3% 86.5% 85.4% 85.5%
Franchise, Central Services
& Development -- 2.4 -- 2.7
TicketsWest.com 10.1 4.7 5.5 4.3
Real Estate Division 7.1 6.3 8.7 7.2
Corporate Services & Other 0.5 0.1 0.4 0.3
---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========
Direct Operating Expenses 74.3% 73.2% 76.9% 78.4%
Undistributed Corporate
Operating Expense 1.5 0.9 1.8 1.5
Operating Income 24.3 26.0 21.3 20.1
Interest Expense 7.2 10.1 8.9 11.3
Income Tax Provision 5.6 5.8 4.2 3.3
Net income 11.6% 10.0% 8.7% 5.6%
Hotel Statistics (1)
Hotels open at end of period 19 45 19 45
Available Rooms 3,940 8,681 3,940 8,681
REVPAR (2)(3) $ 63.93 $ 67.47 $ 55.25 $ 57.63
ADR (4) $ 87.08 $ 90.71 $ 84.88 $ 87.43
Occupancy (5) 73.4% 74.4% 65.1% 65.9%
</TABLE>
(1) Hotel statistics for the three and nine months ended September 30, 2000,
are presented for Combined Hotels. Combined Hotels means Hotels owned, managed,
or
15
<PAGE>
franchised by the Company in the current period. September 1999 data is
stated on a pro forma same store basis.
(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.
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<PAGE>
================================================================================
RESULTS OF OPERATIONS
================================================================================
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
Total revenues increased $3.2 million, or 9.3%, from $33.8 million in
1999 to $36.9 million in 2000. This increase is attributed primarily to revenue
generated from the acquisition of WestCoast Hotels Inc. on December 31, 1999.
Total hotel and restaurant revenues increased $4.1 million, or 14.9%,
from $27.8 million in 1999 to $31.9 million in 2000. Combined Hotel ADR
increased $3.63, or 4.2%, from $87.08 in 1999 to $90.71 in 2000. Combined Hotel
REVPAR increased $3.54, or 5.5%, from $63.93 in 1999 to $67.47 in 2000. The
Company completed the acquisition of WestCoast Hotels, Inc., effective December
31, 1999. Due to the timing of the WestCoast Hotels, Inc. acquisition, it did
not affect 1999 operating results.
Franchise, Central Services and Development revenues were $0.9 million
for the quarter and was a new operating segment in 2000.
TicketsWest.com revenues decreased $1.7 million, or 48.7%, from $3.4
million in 1999 to $1.8 million in 2000. TicketsWest.com revenue decreased
primarily from a decrease in shows presented by the Company and decreased
attendance at entertainment events. The company presented 16 events in the three
months ended September 30, 2000 versus 41 events in the comparable period of
1999.
Real Estate Division revenue decreased $85 thousand, or 3.6%, from $2.4
million in 1999 to $2.3 million in 2000 primarily from lease contracts
termination and renewal timing in the Company's office and retail buildings.
Direct operating expenses increased $1.9 million, or 7.7%, from $25.1
million in 1999 to $27.0 million in 2000, primarily due to the increase in the
number of hotel guests served, the addition of WestCoast Hotels Inc. operating
expenses and assimilation costs. This represents a decrease in direct operating
expenses as a percentage of total revenues from 74.3% in 1999 to 73.2% in 2000.
Total undistributed corporate operating expenses decreased $0.2
million, or 36.2%, from $0.5 million in 1999 to $0.3 million in 2000. Total
undistributed corporate operating expenses as a percentage of total revenues
decreased 0.6 % from 1.5% in 1999 to 0.9% in 2000.
Operating income increased $1.4 million, or 17.1%, from $8.2 million in
1999 to $9.6 million in 2000. As a percentage of total revenues, operating
income increased from 24.3% in 1999 to 26.0% in 2000. This increase is primarily
due to the increase in revenues from the Hotel and Restaurant division and the
decrease in direct operating expenses as a percentage revenue.
Interest expense increased $1.3 million, or 53.7%, from $2.4 million in
1999 to $3.7 million in 2000. This increase is primarily related to borrowings
associated with the acquisition of WestCoast Hotels Inc. and
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an increase in the weighted average interest rate charged the Company for its
variable interest debt.
Income tax provision increased 16.0 %, from $1.8 million in 1999 to
$2.1 million in 2000, due to the increase in income before taxes. The effective
income tax provision rate was 32.0% and 36.8% for 1999 and 2000, respectively.
Net income decreased $0.2 million, or 6.1%, from $3.9 million in 1999
to $3.7 million in 2000. Earnings per share before extraordinary item and
cumulative effect of accounting change, decreased from $0.31 in 1999 to $0.28 in
2000.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Total revenues increased $13.3 million, or 15.8%, from $83.9 million in
1999 to $97.1 million in 2000. This increase is attributed primarily to revenue
generated from the acquisition of WestCoast Hotels Inc. on December 31, 1999,
the acquisition of Oregon Ticket Company d.b.a. Fastixx, and Colorado
Neighborhood Box Office.
Total hotel and restaurant revenues increased $11.4 million, or 15.9%,
from $71.6 million in 1999 to $83.1 million in 2000. Combined Hotel ADR
increased $2.55, or 3.0%, from $84.88 in 1999 to $87.43 in 2000. Combined Hotel
REVPAR increased $2.38, or 4.3%, from $55.25 in 1999 to $57.63 in 2000. The
Company completed the acquisition of WestCoast Hotels, Inc., effective December
31, 1999. Due to the timing of the WestCoast Hotels, Inc. acquisition, it did
not affect 1999 operating results.
Franchise, Central Services and Development revenues were $2.6 million
for the nine months and was a new operating segment in 2000.
TicketsWest.com revenues decreased $0.3 million, or 7.5%, from $4.6
million in 1999 to $4.2 million in 2000. TicketsWest.com revenue decreased
primarily from a decrease in events presented by the Company and decreased
attendance at entertainment events. The Company presented 64 events during the
nine months ended September 30, 2000 and 67 events in the comparable period of
1999.
Real Estate Division revenue decreased $354 thousand, or 4.8%, from
$7.3 million in 1999 to $7.0 million in 2000 primarily from lease contracts
termination and renewal timing in the Company's office and retail buildings.
Direct operating expenses increased $ 11.7 million, or 18.1%, from
$64.5 million in 1999 to $76.2 million in 2000, primarily due to the increase in
the number of hotel guests served, the addition of WestCoast Hotels Inc.
operating expenses and assimilation costs. This represents an increase in direct
operating expenses as a percentage of total revenues from 76.9% in 1999 to 78.4%
in 2000.
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Total undistributed corporate operating expenses decreased $55
thousand, or 3.5%, from $1.5 million in 1999 to $1.5 million in 2000. Total
undistributed corporate operating expenses as a percentage of total revenues
decreased 0.3% from 1.8% in 1999 to 1.5% in 2000.
Operating income increased $1.6 million, or 9.2%, from $17.9 million in
1999 to $19.5 million in 2000. As a percentage of total revenues, operating
income decreased from 21.3% in 1999 to 20.1% in 2000. This decrease is primarily
due to the increase in direct operating expenses associated with the
assimilation and acquisition of WestCoast Hotels Inc.
Interest expense increased $3.9 million, or 55.6%, from $7.0 million in
1999 to $10.9 million in 2000. This increase is primarily related to borrowings
associated with the acquisition of WestCoast Hotels Inc. and an increase in the
weighted average interest rate charged the Company for its variable interest
debt.
Income tax provision declined 9.0%, from $3.5 million in 1999 to $3.2
million in 2000, due to the decrease in income before taxes. The effective
income tax provision rate was 32.0% and 36.8% for 1999 and 2000 respectively.
Net income decreased $1.8 million, or 24.8%, from $7.3 million in 1999
to $5.5 million in 2000. Earnings per share before extraordinary item and
cumulative effect of accounting change, decreased from $0.58 in 1999 to $0.42 in
2000.
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
================================================================================
Historically, the Company's principal sources of liquidity have been
cash on hand, cash generated by operations and borrowings under an $100.0
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. The Company has increased the
Revolving Credit Facility to $120 million effective January 3, 2000. 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 the 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.
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At September 30, 2000, the Company had $4.3 million in cash and cash
equivalents. The Company has made extensive capital expenditures over the last
three years and nine months, $6.2 million, $123.6 million, $63.3 million and
$6.5 million in owned and joint venture properties in 1997, 1998, 1999, and the
nine months ended September 30, 2000, 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 2000 are expected to be approximately $8.4
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
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of subordinated debt, (vii) amendment or modification of certain material
documents or of the Articles 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 provides 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 September
30, 2000, the Company had $109.3 million outstanding under the Revolving Credit
Facility and was in compliance with all required covenants. The Revolving Credit
Facility restricted the Company from paying any dividends as of September 30,
2000.
In addition to the Revolving Credit Facility, as of September 30, 2000,
the Company had debt and capital leases outstanding of approximately $57.2
million consisting of primarily variable and fixed rate debt secured by
individual properties.
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, 1999, our revenues in the first through fourth quarters were 20.1%,
25.4%, 30.7% and 23.8%, respectively, of our total revenue for such year and our
net income for the first through fourth quarters was 4.4%, 37.5%, 48.9% and
9.2%, 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.
================================================================================
YEAR 2000 ASSESSMENT
================================================================================
The "Year 2000 problem" arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results.
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The Company completed its assessment, modification or replacement of
systems, which it determined would not be compliant prior to December 31, 1999.
We have not experienced any significant system failures from the Year 2000
problem and do not anticipate any significant problems will arise in the future.
The costs to complete the evaluation, modifications, and replacement of systems
not compliant with the Year 2000 were not significant. The main system that was
replaced was the Company's payroll system, which had been scheduled to be
replaced for reasons other than the Year 2000 problem.
Due to the complexity of the various computer systems, problems may
still arise related to the Year 2000 problem that have not been exposed or
anticipated. The risks associated with these potential system failures are
difficult to measure. The Company cannot guarantee that its efforts will prevent
all consequences and also relies on third party vendors to correct any problems
in their systems, which could affect the Company.
================================================================================
NEW ACCOUNTING PRONOUNCEMENTS
================================================================================
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
operations. The adoption of SOP 98-5 resulted in a charge to operations of
$133,000, which is net of $68,000 of income taxes.
Part II - Other Information
---------------------------
ITEMS 1, 2, 3, 4 and 5 of Part II are omitted from this report, as they are not
applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
September 30, 2000.
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WESTCOAST HOSPITALITY CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities stated and on the date indicated.
WESTCOAST HOSPITALITY CORPORATION
(Registrant)
Date: November 13, 2000 By: /s/ Arthur M. Coffey
-----------------------------------
Arthur M. Coffey, Executive Vice
President and Chief Financial Officer
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