SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 4, 2000
WESTCOAST 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)
(509) 459-6100
------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Cavanaughs Hospitality Corporation
-------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On January 4, 2000, Cavanaughs Hospitality Corporation (the Company), acquired
through multiple purchase agreements all of the outstanding stock of WestCoast
Hotels, Inc., a Washington Corporation, and 100% of the interest in Bellevue Inn
LLC. The sellers are; Lisa Swanbeck-Johnson as the owner of 100% of the stock of
PNWW Holdings, Inc., a Washington corporation, Rodney D. Olson, D. Michael
Bashaw, and October Hotel Investors, LLC, a Washington limited liability
company. In February 2000, Cavanaughs Hospitality Corporation changed its name
to WestCoast Hospitality Corporation.
These combined entities own the following hotel properties and percentage
interests: WestCoast SeaTac Hotel a 146 room hotel located in Seattle
Washington, one hundred percent (100%) ownership of the improvements and lessee
interest in ground lease; Bellevue Inn a 181 room hotel located in Bellevue,
Washington, one hundred percent (100%) ownership of the lessee interest and
option agreement; WestCoast Vance Hotel a 165 room hotel located in Seattle,
Washington, a .3 percent general partner interest including a 15% backend return
if certain investment returns are achieved; Executive Park Hotel a 107 room
hotel located in Phoenix, Arizona, a .3 percent general partner interest
including a 15% backend return if certain investment returns are achieved; Hotel
La Jolla at the Shores, a 108 room hotel located in La Jolla, California, a 7.1%
limited partnership interest. Other assets of the company include the trademarks
of WestCoast Hotels, marketing/franchise agreements for 23 hotels with 4,019
rooms, management agreements for 15 owned and third party owned hotels with
2,530 rooms, and all the associated contracts, assets and liabilities.
The acquisition is in accordance with the Purchase and Sale Agreements dated
December 17, 1999. The purchase of the stock and membership interests was
effective December 31, 1999 and was completed on January 4, 2000 for a total
price of approximately $45.5 million including the assumed liabilities of
WestCoast, Hotels Inc. and subsidiaries. The Company's Form 8-K dated January 4,
2000 reported the purchase price as $61.4 million. The final $45.5 million
purchase price reflects the Company's acquisition of three partnership interests
on the equity method of accounting. The $61.4 million included the assumption of
debt of these partnerships on the consolidated method of accounting.
The source of funds for the acquisition was a combination of loan proceeds from
Cavanaughs Hospitality Corporation's Revolving Credit Facility, Convertible
Bonds of $7,000,000 issued to the sellers which pay a 7% interest rate and can
be converted to common stock of the Company at a $15.00 per share price, assumed
debt which existed in WestCoast Hotels, Inc., and earnings of the Company. The
purchase price was determined through arm's length negotiations with the
Sellers, an unrelated third party.
2
<PAGE>
ITEM 7. Financial Statements and Exhibits
(a) Financial statements of business acquired
See Exhibit 99.4
(b) Pro forma financial information
See Exhibit 99.5
(c) Exhibits
99.4 Audited consolidated financial statements of PNWWC Holdings,
Inc., of which WestCoast Hotels, Inc. is a subsidiary
99.5 Pro forma condensed combined balance sheet and statement of
operations of WestCoast Hospitality Corporation (formerly
known as Cavanaughs Hospitality Corporation) and WestCoast
Hotels, Inc. as of and for the year ended December 31, 1999
3
<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: March 17, 2000 WESTCOAST HOSPITALITY CORPORATION
(formerly known as Cavanaughs Hospitality
Corporation)
By: /s/ Arthur M. Coffey
-------------------------------------------------
Executive Vice President/Chief Financial Officer
3
PNWWC HOLDINGS, INC.
AND SUBSIDIARIES
-----------
REPORT ON AUDIT OF
CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
PNWWC Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of PNWWC Holdings,
Inc. and Subsidiaries as of December 31, 1999, and the related consolidated
statement of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of PNWWC Holdings, Inc.
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PNWWC Holdings,
Inc. and Subsidiaries as of December 31, 1999, and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
GUNNING, STENSON & PRICE, P.S. /s/
Bellevue, Washington
February 25, 2000
1
<PAGE>
<TABLE>
<CAPTION>
PNWWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
------------
ASSETS
1999
----
<S> <C>
Current assets:
Cash and cash equivalents:
Unrestricted $ 710,528
Restricted 163,915
Accounts receivable:
Trade, net of allowance for doubtful accounts of $54,208 1,150,384
Employees 7,318
Notes receivable 100,000
Operating supplies 94,472
Prepaid expenses and other 84,669
------------
Total current assets 2,311,286
Properties, net (Note 5) 8,284,487
Investments 566,813
Lease purchase option 1,611,073
Goodwill (Note 1) 791,076
Note receivable 105,000
Other 1,076
Deferred charges, net of accumulated amortization
of $701,923 627,052
------------
Total assets $ 14,297,863
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) $ 4,945,838
Accounts payable:
Trade 690,886
Minority interest purchase (Note 1) 800,000
Interest payable 98,962
Accrued liabilities 349,817
Income taxes payable (Note 7) 2,165,119
Business taxes 95,325
Accrued salaries, wages and related taxes 1,597,771
Other 6,978
------------
Total current liabilities 10,750,696
Deferred income taxes (Note 7) 944,350
Long-term debt, net of current portion (Note 4) 8,710,019
------------
2
<PAGE>
Total liabilities 20,405,065
Minority interests (380,561)
------------
Commitments and contingencies (Notes 6 and 9)
Stockholders' equity:
Common stock, no par value, 100 shares authorized at
December 31, 1999, 100 shares issued and outstanding 100
Retained (deficit) (5,726,741)
------------
Total stockholders' equity (5,726,641)
------------
Total liabilities and stockholders' equity $ 14,297,863
============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
PNWWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1999
--------------
1999
----
<S> <C>
Revenue:
Hotel rooms and related services $ 30,721,039
Management and marketing fees 4,923,491
Other 1,045,292
Results of investees, net 145,225
------------
Total revenue 36,835,047
Costs and expenses:
Operating expense 21,117,365
General and administrative expense 7,734,584
Non-operating expenses 2,332,218
Depreciation and amortization 3,596,680
------------
Total costs and expenses 34,780,847
Other:
Interest expense (7,060,492)
Interest income 53,873
------------
Total other expenses, net (7,006,619)
Loss before minority
interests and income taxes (4,952,419)
Loss attributable to minority interests 567,522
------------
Loss before income taxes (4,384,897)
Income tax (provision) benefit (Note 8)
Current (1,571,036)
Deferred 2,796,155
------------
1,225,119
Net loss $ (3,159,778)
============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
PNWWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1999
--------------
Common Stock
------------
Number Retained
of Earnings/
Shares Amount (Deficit) Total
------ ------ --------- -----
<S> <C> <C> <C> <C>
Balance January 1, 1999 100 $100 $ 4,307,008 $ 4,307,108
Distribution of Paramount
Hotels LLC (5,249,767) (5,249,767)
Net loss (3,159,778) (3,159,778)
Distributions (1,624,204) (1,624,204)
------ ------ ----------- -----------
Balance December 31, 1999 100 $100 $(5,726,741) $(5,726,641)
====== ====== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
PNWWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended December 31, 1999
--------------
1999
----
<S> <C>
Cash flows from operating activities:
Net loss $(3,159,778)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Minority interests 567,522
Spin out of Paramount Hotels, LLC (3,097,282)
Deferred income taxes, net 903,450
Equity income of investee (17,725)
Write off of notes receivable 410,194
Depreciation and amortization 3,596,680
Changes in:
Accounts receivable 202,655
Operating supplies 3,067
Prepaid expenses 19,700
Income taxes payable 1,655,119
Accounts payable, accrued liabilities and interest 21,724
-----------
Net cash used in operating activities 1,105,326
Cash flows from investing activities:
Additions to property, furniture and equipment (4,632,094)
Investments in projects (305,000)
Proceeds from sale of membership units 247,500
Acquisition costs, goodwill and deferred charges (791,076)
Addition to lease purchase option (118,806)
Acquisition of deferred charges (6,309)
Issuance of notes receivable (205,000)
-----------
Net cash used in investing activities (5,810,785)
Cash flows from financing activities:
Principal payments on long-term debt (3,015,767)
Cash spun out to Paramount Hotels, LLC (2,152,485)
Payments on capital lease (57,208)
Proceeds from debt 4,500,000
Distributions (1,624,204)
-----------
Net cash provided by financing activities (2,349,664)
-----------
Net increase/(decrease) in cash and cash equivalents (7,055,123)
Cash and cash equivalents:
Beginning of period 7,929,566
-----------
End of period $ 874,443
===========
- - -----------------------------------------------------------------------------------------------------------
Supplemental information:
Cash paid during the year for
Interest $ 3,026,267
===========
Taxes $ 271,364
===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
6
<PAGE>
PNWWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
1. PNWWC Holdings, Inc. and Significant Accounting Policies:
--------------------------------------------------------
On December 30, 1999 WC Coast Holdings , Inc. ("WC Coast") was merged
into and with PNW Holdings, Inc. On that date PNW Holdings, Inc.
changed its name to PNWWC Holdings, Inc. ("PNWWC"). PNWWC owns 80% of
WestCoast Hotels, Inc. and its subsidiaries ("WestCoast Hotels").
WestCoast Hotels owns and operates hotel properties and invests in
hotel and commercial real estate properties in the western United
States. WestCoast Hotels also provides management, property development
and consulting services to hotels.
On July 18, 1997 the Stockholders of WestCoast Hotels sold the three
outstanding shares of stock of WestCoast Hotels to WC Coast for an
amount stipulated in the Equity Restructuring Agreement. WC Coast and
WestCoast Hotels entered into an exchange agreement whereby WC Coast
remitted the three reacquired shares in exchange for 8,000 shares of
Class A common stock of WestCoast Hotels.
The former Stockholders of WestCoast Hotels contributed $1,000 each to
acquire 1,000 shares each of Class B common stock of WestCoast Hotels.
The difference between the Class A and Class B common stock, is that in
the event of a liquidation, the Class A stock will receive a $6,000,000
preferential distribution before any other distribution of net assets.
After the preferential distribution to the Class A stockholders, all
further distributions would be allocated on the relative percentage of
ownership. The twenty percent interest that the former Stockholders has
in the consolidated balance sheet and results of operations of PNWWC is
reflected as part of the minority interest line items in the Balance
Sheet and Consolidated Statement of Operations of PNWWC.
All of the stock of WestCoast Hotels was pledged as security for the
$4,500,000 bridge loan from a bank which was paid January 3, 2000.
On December 31, 1999, WestCoast Hotels formed Paramount Hotels, LLC
("Paramount LLC") into which the assets of several subsidiaries
corporations were contributed. Federal income taxes are due on the net
amount of the excess of the fair market value of the assets contributed
to Paramount LLC and the Company's bases. Immediately following the
formation of Paramount LLC, it was spun out to the majority shareholder
of PNWWC. The balance sheet of PNWWC as of December 31, 1999 includes
the remaining assets, liabilities and net equity of PNWWC and
subsidiaries. The Statement of Operations for the year ended December
31, 1999 includes the consolidated results of operations of the assets
of PNWWC and Paramount LLC.
Effective December 31, 1999, Cavanaughs Hospitality Corporation
purchased all of the outstanding shares of PNWWC Holdings, Inc. and the
remaining 20% of outstanding shares of WestCoast Hotels, Inc. from its
other shareholders.
Principle of Consolidation
--------------------------
The consolidated balance sheet for the year ended December 31, 1999
includes the accounts of PNWWC, WestCoast Hotels and its subsidiaries
after the spin-out of Paramount LLC. The consolidated statement of
operations includes the results of operations for PNWWC, WestCoast
Hotels and its subsidiaries for the entire year ended December 31,
1999. All significant intercompany transactions have been eliminated.
Continued
7
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
1. WestCoast Holdings, Inc. and Significant Accounting Policies,
-------------------------------------------------------------
Continued:
----------
Management 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.
Operating Supplies
------------------
Operating supplies which consists primarily of food, beverage and par
stock inventory are stated at the lower of cost or market, determined
on a first-in, first-out basis.
Properties
----------
Properties are stated at cost. Additions, improvements and expenditures
which increase an asset's useful life are capitalized. Maintenance and
repairs are charged to expense as incurred.
Properties are depreciated using the straight-line method over
estimated useful lives as noted in the following schedule:
Description Years
----------- -----
Building 40
Leased facilities 5
Equipment and furniture 5
The cost and related accumulated depreciation of assets sold or retired
are removed from the accounts and gains or losses are included in the
results of operations.
In accordance with Financial Accounting Standards Board Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment
of Long Lived Assets and for Long Lived Assets to be Disposed Of ("SFAS
121") PNWWC has determined that the assets of PNWWC have not been
impaired and the recorded values do not exceed expected recoverable
amounts.
Deferred Charges
----------------
Deferred charges at December 31, 1999, include costs associated with
the acquisition of management and marketing contracts and long-term
financing; legal fees and other costs incurred in the organization of
companies that are amortized over five years; and lease acquisition
fees that are amortized over the term of the lease.
Investments
-----------
The investment in the limited liability company in which WestCoast
Hotels has 50% interest is consolidated. Investment in a partnership
over which WestCoast Hotels can exercise significant influence is
accounted for by the equity method, under which WestCoast Hotels
recognizes their proportionate share of partnership earnings and treats
distributions as a reduction in their
Continued
8
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
investment. Investments in partnerships over which WestCoast Hotels can
not exercise significant influence are accounted for by the cost
method, under which earnings are recognized to the extent of WestCoast
Hotels' proportionate share of partnership distributions.
1. WestCoast Holdings, Inc. and Significant Accounting Policies,
-------------------------------------------------------------
Continued:
----------
The following is a summary of the financial position and results of
operations of Vance Hotel Limited Partnership, E. P. Acquisitions
Limited Partnership and Shoreview Associates Limited Partnership at
December 31, 1999.
<TABLE>
<CAPTION>
Vance E.P. Shoreview
Hotel Acquisitions Associates
Limited Limited Limited
Partnership Partnership Partnership
----------- ----------- -----------
<S> <C> <C> <C>
Properties, net $ 5,994,695 $1,893,164 $12,426,290
Other assets 1,320,847 629,712 1,089,838
------------ ---------- -----------
Total assets $ 7,315,542 $2,522,876 $13,516,128
============ ========== ===========
Mortgage payable $12,279,188 $3,044,746 $ 6,821,338
Other liabilities 290,759 278,412 229,409
------------ ---------- -----------
Total liabilities 12,569,947 3,323,158 7,050,747
Partners' capital (5,254,405) (800,282) 6,465,381
------------ ---------- -----------
Total liabilities and
partners' capital $ 7,315,542 $2,522,876 $13,516,128
============ ========== ===========
Revenue $ 4,473,383 $2,485,637 $ 5,210,818
Expenses 3,647,807 2,527,124 4,955,853
------------ ---------- -----------
Net Income/(loss) $ 825,576 $ (41,487) $ 254,965
============ ========== ===========
</TABLE>
Minority Interests in Consolidated Entities
-------------------------------------------
Minority interests represent minority stockholders' proportionate share
of equity that is consolidated with PNWWC. Minority interests were
reduced below zero because of losses allocated to minority owners who
are at risk for such losses.
Goodwill
--------
In December 1999 a 90% owned subsidiary was merged into WestCoast
Hotels. The Company has recorded $791,076 as goodwill for the excess of
purchase price over the 10% minority interest net equity and recorded a
liability for $800,000 for the purchase of the 10% minority interest.
Advertising
-----------
Advertising costs are expensed as incurred. Advertising expense for the
year ended December 31 1999 were approximately $834,000.
Income Taxes
------------
Continued
9
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
Deferred income taxes are recorded using the liability method to
reflect the tax consequences on future years of differences between the
tax bases of assets and liabilities and their financial reporting
bases. Deferred taxes result primarily from timing differences between
the tax and book bases of assets and various other timing differences.
1. WestCoast Holdings, Inc. and Significant Accounting Policies,
--------------------------------------------------------------
Continued:
---------
Statement of Cash Flows
-----------------------
For purposes of the statements of cash flows, PNWWC considers all
highly liquid investments with original maturities of 90 days or less
as cash equivalents. Noncash financing activities for the year ended
December 31, 1999 consisted primarily of the spin out of the assets,
liabilities and equity of Paramount LLC and the payment of $1,000,000
of distributions with a note receivable from an affiliate of a
subsidiary of Paramount LLC.
Restricted Cash
---------------
Restricted cash consists of amounts held by lenders as impound accounts
for future payment of property taxes, insurance, mortgage principal and
interest and property improvements.
Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments whether or not
recognized, for financial statement purposes. Disclosure about fair
value of financial instruments is based on pertinent information
available to management at December 31, 1999. Considerable judgment is
necessary to interpret market data and develop estimated fair values.
Accordingly, the estimates presented are not necessarily indicative of
the amount which could be realized on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methods may have a material effect on the estimated fair value amounts.
Management believes that the fair value of cash and cash equivalents
approximates carrying value based upon high liquidity of the
instruments. Management estimates that fair value of notes receivable
approximates carrying value based on the borrowers effective borrowing
rate for issuance of notes receivable with similar terms and remaining
maturities; notes payable approximates carrying value based on PNWWC's
effective borrowing rate for issuance of debt with similar terms and
remaining maturities.
Impact of New Accounting Standards
----------------------------------
Financial Accounting Standards Board No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires that comprehensive income be reported in
a financial statement that is displayed with the same prominence as
other financial statements. SFAS 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 resources. The
classifications of comprehensive income under current accounting
standards includes foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in
debt and equity securities. PNWWC had no comprehensive income for the
year ended December 31, 1999.
Continued
10
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
Year 2000
---------
PNWWC has initiated actions to address the year 2000 issue. Compliance
work was substantially completed by the end of calendar 1999. Total
costs associated with those efforts, which were charged to operations
as incurred, did not have a material impact on PNWWC's financial
results.
2. Management and Consulting Agreements:
------------------------------------
Management and Consulting Services: In addition to owning hotel
properties, WestCoast Hotels also manages and markets hotels under the
"WestCoast Hotels" name, and provides development consulting services
to hotel properties under construction or renovation. Included in
revenues are fees resulting from these services of approximately
$4,948,700 during 1999. Certain management contracts are with hotels
that are partially owned by officers or affiliates of WestCoast Hotels.
Revenues from these management and marketing contracts of these related
party properties was approximately $1,726,500 for the year ended
December 31, 1999. Total trade receivables outstanding from such
related party properties for services were approximately $508,000 at
December 31, 1999. Because WestCoast Hotels manages these hotels,
WestCoast Hotels does not expect any credit losses associated with
these receivables.
Consulting Agreements: WestCoast Hotels has consulting agreements for
development services provided by outside consultants . The fees for
those services are based on revenues received from management fees of
WestCoast Hotels. WestCoast Hotels incurred an expense of approximately
$255,738 in 1999 under those agreements.
Future minimum payments under that consulting agreement have been
included in the following schedule at the same payment level
experienced during the year ended December 31, 1999. Estimated
annualized amounts due under these consulting agreements are as
follows:
2000 $252,004
2001 $225,336
2002 $172,000
2003 $172,000
2004 $172,000
3. Notes Receivable:
----------------
<TABLE>
<CAPTION>
Notes receivable at December 31, 1999 consist of the following:
1999
----
<S> <C>
Note receivable, non-interest bearing due on demand $100,000
Note receivable, with interest at 5% per annum due December 31, 2004 105,000
--------
$205,000
========
</TABLE>
Continued
11
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
<TABLE>
<CAPTION>
4. Long-Term Debt:
--------------
Long-term debt consists of the following at December 31:
1999
----
<S> <C>
Mortgage payable, with interest at 8%, monthly principal and interest
payments of approximately $53,517 due July 2005, collateralized by
a deed of trust on certain real property and guaranteed by
WestCoast Hotels $ 5,309,833
Commercial loan with a maximum face amount of $2,650,000, payable in
monthly installments of interest only at LIBOR plus 2.5% (7.75% at
December 31, 1999) plus annual installments of $200,000, due
October 31, 2002, paid January 3, 2000 2,450,000
Note payable to lessor, with interest at 7.42%, principal and interest
of approximately $20,300 due monthly, balance due December, 2003. 1,396,024
Bridge loan from a bank with interest at 8.5% paid January 3, 2000 4,500,000
-----------
13,655,857
Less current portion (4,945,838)
-----------
$ 8,710,019
===========
</TABLE>
Certain loan agreements contain various restrictive covenants that
would cause payment on the debt to be accelerated if, among other
items, WestCoast Hotels or the guarantors of the debt fail to make
payments to creditors when due, or experience material adverse changes
in their financial condition.
The commercial loan with a maximum face amount of $2,650,000 was paid
on January 3, 2000. Future required principal payments on the notes as
follows excludes the required payments for that note:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $4,745,838
2001 266,750
2002 288,775
2003 1,615,333
2004 310,313
Thereafter 3,978,848
</TABLE>
Continued
12
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
<TABLE>
<CAPTION>
5. Properties:
----------
Properties consist of the following as of December 31:
1999
----
<S> <C>
Buildings $ 7,522,424
Leased facilities 2,774,129
Equipment and furniture 2,526,479
-----------
12,823,032
Less accumulated depreciation (4,538,545)
-----------
$ 8,284,487
===========
</TABLE>
6. Lease Arrangements:
------------------
Bellevue Inn Hotel - WestCoast Hotels is a 50% member of a limited
liability company which assumed a hotel lease with purchase option
agreement for buildings, improvements, furnishings, equipment and
machinery and real property located in Bellevue, Washington on October
1, 1997 for a payment of $1,991,906. The acquisition cost of the lease
agreement is being amortized over remaining term of the lease. The term
of the lease is for seven years, and has an origination date of January
1, 1997. The lease terminates on December 31, 2003. WestCoast Hotels
pays the landlord equal monthly payments of $27,951 plus "Additional
Rent". Additional Rent (as defined in the hotel lease with purchase
option agreement) is equal to the costs of management, operation and
maintenance of the property including, debt service payments, reserves
for taxes and insurance, licensee and royalty fees, lease payments for
equipment, wages and salaries and other direct and indirect costs of
employees, utilities, repairs and all maintenance costs and all costs
of renovation and alterations to the property.
Under the terms of the Lease Agreement, WestCoast Hotels was required
to fund $2,000,000 of improvements to the hotel. In July, 1998 the
first mortgage on the Hotel was refinanced by the Lessor for
$10,150,000. $2,200,000 of the amount was held in escrow at the
mortgage lender to be used to fund the improvements required by the
lease. The Lessor issued a note to WestCoast Hotels for that amount
less the amount of payments that had been made on the existing
indebtedness since the lease inception date. At December 31, 1999,
$2,630,377 had been spent on the property renovation. Those
improvements may not be removed by WestCoast Hotels and becomes the
property of the landlord. WestCoast Hotels has guaranteed the payment
of the required mortgage loan payments during the term of the lease.
The Landlord has granted WestCoast Hotels an option to purchase the
building, improvements, furnishings, equipment and machinery and real
property between January 1, 2000 and July 1, 2002 for a specific price
as set forth in the amended hotel lease and purchase option agreement.
Lease expense for the year ended December 31, 1999 was approximately
$994,082.
Other Operating Leases
----------------------
WestCoast Hotels has other operating lease agreements, expiring through
2024, as lessee for properties, vehicles and equipment, all of which
are operating leases. Rental expense relating to
Continued
13
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
these and other rental agreements including the Bellevue Inn Hotel
lease was approximately $1,349,000 in 1999. Future minimum payments on
leases over the remaining lease terms are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $1,218,640
2001 $1,118,640
2002 $1,094,044
2003 $1,060,802
2004 $ 104,874
Thereafter $2,097,480
</TABLE>
7. Income Taxes:
------------
Major components of the income tax provision as of December 31, 1999
and for the year then ended are:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Current:
Federal expense $ 1,283,321
State expense 287,715
Deferred benefit (2,796,155)
-------------
$ (1,225,119)
============
</TABLE>
The income tax provision for the year ended December 31, 1999 differs
from the amount calculated using the federal statutory rate applied to
income before income taxes as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Benefit at federal statutory rate $(1,683,822)
State taxes net of federal benefit 189,892
Net timing difference on assets 268,811
-----------
$(1,225,119)
===========
</TABLE>
<TABLE>
<CAPTION>
Components of the net deferred tax liability as of December 31, 1999
are as follows:
1999
----
<S> <C>
Depreciation on property and equipment $(542,321)
Goodwill on purchase of minority interest (272,000)
Other (130,029)
---------
$(944,350)
=========
</TABLE>
Continued
14
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
At December 31, 1999, PNWWC has no net operating loss carryforwards for
regular or alternative minimum tax purposes and no unused
rehabilitation investment tax credit. At December 31, 1999, PNWWC has
no alternative minimum tax credits against future ordinary income
taxes.
8. Pension Plan:
------------
Salaried employees of WestCoast Hotels are covered by a defined
contribution and profit sharing plan which includes features described
in Section 401(k) of the Internal Revenue Code. WestCoast Hotels
contributed $214,058 to the plan in 1999.
Union employees at certain properties participate in a defined benefit,
multi-employer pension plan. WestCoast Hotels contributed $125,868 to
this plan in 1999.
Employees of two properties (one consolidated with PNWWC at December 31
,1999 and one that was spun out with Paramount Hotels LLC) are covered
by a defined contribution and profit sharing plan which includes
features described in Section 401(k) of the Internal Revenue Code.
WestCoast Hotels contributed $36,934 to these plans in 1999.
Continued
15
<PAGE>
PNWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------------
9. Commitments and Contingencies:
-----------------------------
WestCoast Hotels guarantees the debt of an affiliate of Paramount LLC
which owns and operates hotel properties that WestCoast Hotels markets.
Total debt guarantee at December 31, 1999 was approximately $13.4
million. This guarantee is backed by a standby letter of credit
purchased by Paramount LLC from a bank, for the full amount in favor of
WestCoast Hotels.
Shareholder Agreement: The Shareholder Agreement between WC Coast (the
Class A shareholder), WestCoast Hotels and the Class B shareholders
provides for a first right of refusal to the Class B shareholders in
the event that WC Coast offers WestCoast Hotels for sale. The
Shareholder Agreement also provides for a preferential distribution of
$6,000,000 to Class A shareholders in the event of a liquidation or
sale of WestCoast Hotels. This agreement was terminated on December 31,
1999.
Foreign Development Rights Agreement: The Foreign Development Rights
Agreement was modified July 18, 1997. The amended agreement required
monthly payments of $91,666 for five years to WC Coast. Under certain
conditions of profitability, WestCoast Hotels may have deferred certain
payments. WC Coast was engaged to identify properties outside the
United States and Canada as potential subjects for management contracts
between WestCoast Hotels and the property owners. The agreement was
cancelled December 31, 1999.
Employment Contracts:
WestCoast Hotels entered into employment contracts with the Class B
shareholders. The agreements commenced on July 18, 1997 and expire on
May 31, 2005 unless terminated by WestCoast Hotels prior to that date.
The agreements provide for a base salary plus incentive compensation
and other benefits in addition to an agreement not to compete. The
agreements were cancelled December 31, 1999.
10. Stock Option Plan:
-----------------
During the year ended December 31, 1998 WestCoast Hotels implemented a
stock option plan for certain employees. Under the terms of the plan,
certain employees were granted a total of 5,000 shares with a vesting
period of five years. The market price of the of the options at the
date of grant exceeded the exercise price. In December, 1999 WestCoast
Hotels terminated the plan. PNWWC has recorded a charge to operations
and an corresponding liability of $1,000,000 in satisfaction of the
termination of the plan. The liability was paid January 3, 2000.
16
CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheet and condensed pro forma
combined statement of operations, collectively, the "Pro Forma Financial
Statements", were prepared by WestCoast Hospitality Corporation ("WestCoast"),
(formerly Cavanaughs Hospitality Corporation) to illustrate the estimated
effects of the business combination to be accounted for as a purchase under
generally accepted accounting principles. Effective December 31, 1999,
Cavanaughs Hospitality Corporation ("Cavanaughs") acquired through multiple
purchase agreements all of the outstanding stock of WestCoast Hotels, Inc., a
Washington corporation and 100% of the interest in Bellevue Inn LLC. Effective
February 3, 2000, the Articles of Incorporation of Cavanaughs were amended to
change the name of the Registrant to WestCoast Hospitality Corporation. As used
herein, "Cavanaughs" refers to the entity prior to the acquisition of WestCoast
Hotels Inc. "WestCoast Hotels" refers to the entity acquired by Cavanaughs
effective December 31, 1999. "WestCoast Hospitality Corporation" refers to the
combined entity of Cavanaughs and WestCoast Hotels.
The financial information of Cavanaughs and WestCoast Hotels has been combined
as if the acquisition occurred as of January 1, 1999 for purposes of the
condensed pro forma combined statement of operations, and as of December 31,
1999, for purposes of the condensed pro forma combined balance sheet. There are
no differences between Cavanaughs' and WestCoast Hotels' accounting policies
which are expected to have a material impact on the Pro Forma Combined Financial
Statements. The Pro Forma Financial Statements do not purport to present the
combined financial position or results of operations if the combination had
occurred at the beginning of the period or to project the combined financial
position or results of operations for any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
historical consolidated financial statements, including the notes thereto, of
Cavanaughs Hospitality Corporation, which are included in the Registrant's 1998
Form 10K and the PNWWC Holdings, Inc. (of which WestCoast Hotels, Inc. is a
subsidiary), which are included elsewhere in this document.
The Pro Forma Financial Statements are presented utilizing the purchase method
of accounting whereby the excess of the total purchase price over the fair value
of the net tangible and identifiable intangible assets acquired is recorded as
goodwill. The combined pro forma results of operations presented herein are not
necessarily indicative of the future results of operations.
1
<PAGE>
<TABLE>
<CAPTION>
Cavanaughs / WestCoast Hotels
Condensed Combined Balance Sheet at December 31, 1999
(in thousands, except share data)
- - ----------------------------------------------------------------------------------------------------------------------------
WestCoast
Cavanaughs Hotels Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 3,483 $ 874 $ $ 4,357
Accounts receivable 6,290 1,258 7,548
Income taxes refundable 1,708 1,708
Inventories 1,016 94 1,110
Prepaid expenses, deposits and other 798 85 883
---------- ---------- ------------ ---------
Total current assets 13,295 2,311 15,606
Property and equipment, net 231,450 8,284 3,503 (a) 243,237
Intangible assets, net 4,947 791 23,875 (b) 29,613
Other assets, net 6,448 2,912 13,024 (c) 22,384
---------- ---------- ------------ ---------
Total assets $ 256,140 $ 14,298 $ 40,402 $ 310,840
========== ========== ============ =========
Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
Accounts payable $ 3,248 $ 1,491 $ $ 4,739
Accrued payroll and related benefits 1,426 1,598 3,024
Accrued interest payable 622 99 721
Other accrued expenses 8,542 452 8,994
Income taxes payable 2,165 2,165
Long-term debt, due within one year 2,205 4,946 7,151
Capital lease obligations, due within one year 623 623
---------- ---------- ------------ ---------
Total current liabilities 16,666 10,751 27,417
Long-term debt, due after one year 42,100 8,710 7,000 (d) 57,810
Notes payable to bank 79,900 21,363 (e) 101,263
Capital lease obligations, due after one year 1,103 1,103
Deferred income taxes 8,741 944 5,932 (b) 15,617
Minority interest in partnerships 2,798 (381) 381 (c) 2,798
---------- ---------- ------------ ---------
Total liabilities 151,308 20,024 34,676 206,008
---------- ---------- ------------ ---------
Stockholders' equity:
Total stockholders' equity (deficit) 104,832 (5,726) 5,726 104,832
---------- ---------- ------------ ---------
Total liabilities and stockholders' equity $ 256,140 $ 14,298 $ 40,402 $ 310,840
========== ========== ============ =========
</TABLE>
See notes to condensed pro forma combined balance sheet and statement of
operations
2
<PAGE>
<TABLE>
<CAPTION>
Cavanaughs / WestCoast Hotels
Condensed Combined Statement of Operations
for the year ended December 31, 1999
(in thousands, except per share data)
- - ----------------------------------------------------------------------------------------------------------------------
WestCoast
Cavanaughs Hotels Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
Hotels and Restaurants $ 92,808 $ 36,835 $ (21,579)(f) $ 105,609
(2,455)(g)
Franchise and Central Services 2,455 (g) 2,455
TicketsWest.com 7,181 7,181
Real Estate Division 9,649 9,649
Corporate Services 417 417
---------- ---------- ------------ ---------
Total revenues 110,055 36,835 (21,579) 125,311
---------- ---------- ------------ ---------
Operating expenses:
Direct:
Hotels and Restaurants 68,150 31,006 (20,736)(f) 77,165
(1,255)(g)
Franchise and Central Services 1,255 (g) 1,255
TicketsWest.com 6,683 6,683
Real Estate Division 4,469 4,469
Corporate Services 181 181
Depreciation and amortization:
Hotels and Restaurants 5,951 3,597 (2,233)(f) 7,188
(127)(h)
Franchise and Central Services 422 (h) 422
TicketsWest.com 110 110
Real Estate Division 1,328 1,328
Corporate Services 543 543
---------- ---------- ------------ ---------
Total direct expenses 87,415 34,603 (22,674) 99,344
Undistributed corporate expenses 1,605 178 1,783
---------- ---------- ------------ ---------
Total expenses 89,020 34,781 (22,674) 101,127
---------- ---------- ------------ ---------
Operating income $ 21,035 $ 2,054 $ 1,095 $ 24,184
Other income (expense), net (9,126) (6,439) 5,515 (f) (12,690)
(2,150)(i)
(490)(j)
---------- ---------- ------------ ---------
Income (loss) before income taxes 11,909 (4,385) 3,970 11,494
Income tax provision (benefit) $ 3,737 $ (1,225) $ 1,080 (k) $ 3,592
---------- ---------- ------------ ---------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle $ 8,172 (3,160) 2,890 $ 7,902
========== ========== ============ =========
Income per share before extraordinary
item and cumulative effect of change
in accounting principle $ 0.64 $ 0.62
========== =========
Weighted average shares outstanding - basic 12,755 12,755
========== =========
Weighted average shares outstanding - diluted 13,096 13,096
========== =========
</TABLE>
See notes to condensed proforma combined balance sheet and statement of
operations
3
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
Cavanaughs acquired WestCoast Hotels on January 4, 2000 with an effective date
of December 31, 1999. The acquisition has been accounted for as a purchase. The
amounts reported as "Cavanaughs Historical" on the balance sheet herein are the
accounts of Cavanaughs as of December 31, 1999 immediately prior to the
acquisition of WestCoast Hotels. Since the acquisition was effective on December
31, 1999, the consolidated balance sheet of WestCoast Hospitality Corporation
which will be included in the Company's 1999 Form 10-K, will include the
WestCoast Hotels acquisition.
The following balance sheet adjustments were made to reflect the combination of
Cavanaughs and WestCoast Hotels as of December 31, 1999.
(a) The purchase price has been allocated to the acquired buildings,
furniture and fixtures as follows based upon the estimated fair value
of the components (in thousands):
<TABLE>
<CAPTION>
Depreciable
Amount Life
--------------- -----------
<S> <C> <C>
Buildings $ 11,188 35 years
Furniture and fixtures 599 15 years
---------------
$ 11,787
WestCoast Hotels historical carrying value 8,284
---------------
Pro forma adjustment $ 3,503
===============
</TABLE>
(b) Represents the purchase price in excess of the estimated fair values of
tangible and identifiable intangible assets acquired and liabilities
assumed as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price and liabilities assumed:
Cash paid through draw on line-of-credit $ 21,363
Note payable issued 7,000
Debt and other liabilities assumed 17,150
Deferred taxes related to the acquisition 6,876
---------------
Total purchase price and liabilities assumed 52,389
---------------
Fair value of assets acquired:
Management and marketing contracts 5,063
Partnership interests and purchase option contracts 10,873
Property and equipment 11,787
---------------
27,723
---------------
Excess purchase price allocated to goodwill to be
amortized over 40 years $ 24,666
===============
</TABLE>
4
<PAGE>
(c) The purchase price has been allocated to the acquired management and
marketing contracts, partnership interests, purchase option contracts
and other assets. The estimated fair values of the contracts are being
amortized over the weighted average remaining term of the contracts.
(d) Represents the amount of the purchase price which will be financed
through issuance of 7% bonds payable.
(e) Represents the amount of the purchase price which will be financed by
the Company's revolving line-of-credit agreement.
The following adjustments were made to the pro forma statement of operations to
reflect the combination of Cavanaughs and WestCoast Hotels as if they occurred
on January 1, 1999. The combined pro forma results of operations presented
herein are not necessarily indicative of the future results of operations of the
combined companies.
(f) On December 31, 1999, WestCoast Hotels formed Paramount Hotels, LLC
into which the assets of several subsidiary corporations of WestCoast
Hotels were contributed. The proforma adjustment represents the
revenues and expenses associated with operations of these entities for
the year ended December 31, 1999 as these entities were not acquired by
Cavanaughs.
(g) Represents marketing services revenues and expenses which will be
reported as Franchise and Central Services division.
(h) Represents the change in depreciation and amortization expense from the
historical amounts for the WestCoast Hotels based on the depreciation
and amortization of the allocated purchase price over the estimated
remaining lives of the acquired assets.
(i) Represents the additional interest expense which would be incurred by
the Company based on the purchase price of WestCoast Hotels, which will
be financed under the Company's revolving line-of-credit agreement and
a rate increase to the Company's existing debt. The existing amount
outstanding under the Company's line-of-credit agreement are also based
on a variable rate which will be increased 40 basis points as a result
of this purchase transaction. The interest rate used in the pro forma
adjustments was 8.02% based upon the average borrowing rate under the
Company's line-of-credit agreement. If the rate increased or decreased
by 0.25%, the Company's pro forma interest expense, net income and
earnings per share for the year ended December 31, 1999 would increase
or decrease by approximately $251,000, $166,000, and $0.01,
respectively.
(j) Represents additional interest expense which would be incurred by the
Company related to the $7 million bonds at 7% issued as part of the
purchase price.
(k) Represents estimated income taxes related to the tax effects of pro
forma adjustments.
5
