<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
JULY 22, 1997
PATRIOT AMERICAN HOSPITALITY, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 01-9319 94-0358820
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(972) 888-8000
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
(Exact Name of Registrant as specified in its charter)
DELAWARE 01-9320 94-2878485
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(972) 888-8000
<PAGE>
Item 5. Other Events
- ------- ------------
On April 14, 1997, Patriot American Hospitality, Inc. (the "Corporation")
entered into a merger agreement and a related stock purchase agreement
(collectively, the "Wyndham Merger Agreement") pursuant to which Wyndham Hotel
Corporation ("Wyndham") will merge with and into the Corporation with the
Corporation being the surviving company (the "Wyndham Acquisition"). As a result
of the Wyndham Acquisition, the Corporation will acquire all of the assets and
liabilities of Wyndham, including Wyndham portfolio of 23 owned and leased
hotels with an aggregate of 4,877 rooms, management and franchise agreements for
Wyndham's 64 managed and franchised properties throughout North America,
management and franchise agreements that have been executed for 15 properties
that are currently closed for renovation or construction or are in the process
of being converted to the Wyndham brand, and the proprietary brand names
Wyndham/SM/, Wyndham Garden/R/ and Wyndham Hotels & Resorts/SM/. Pursuant to the
Wyndham Merger Agreement, upon consummation of the Wyndham Acquisition, each
issued and outstanding share of common stock of Wyndham ("Wyndham Common Stock")
will be converted into the right to receive 0.712 shares of common stock, $.01
par value of the Corporation which are paired and trade as a unit with shares of
common stock, $.01 par value of Patriot American Hospitality Operating Company
(the "Operating Company and, together with the Corporation, the "Companies")
(such stock, the "Paired Common Stock") (the "Wyndham Exchange Ratio"). The
Wyndham Exchange Ratio is subject to adjustment under certain circumstances to a
maximum exchange ratio of 0.746. Additionally, if the Average Closing Price (as
defined in the Wyndham Merger agreement) of the Paired Common Stock is less than
40.21, Wyndham has the right, waivable by it, to terminate the Wyndham Merger
Agreement without liability. On July 18, 1997, the closing price of the Paired
Common Stock as reported on the NYSE was $46 9/16. In lieu of receiving Paired
Common Stock, Wyndham stockholders have the right to elect to receive cash (up
to an aggregate of $100 million) in an amount per share equal to the Wyndham
Exchange Ratio multiplied by the average closing price of the Paired Common
Stock over the five trading days immediately preceding the closing of the
Wyndham Acquisition. If stockholders holding shares of Wyndham Common Stock with
a value in excess of $100 million elect to receive cash, such cash will be
allocated on a pro rata basis among such stockholders. In connection with the
Wyndham Acquisition, the Corporation also will assume or retire all of Wyndham's
existing indebtedness, which totaled approximately $151 million as of June 30,
1997.
Concurrently with the execution of the Wyndham Merger Agreement, the
Corporation also entered into agreements with partnerships affiliated with
members of the Trammell Crow family providing for the acquisition of 11 full-
service Wyndham-branded hotels with 3,072 rooms, located throughout the United
States, for approximately $332 million in cash, plus approximately $14 million
in additional consideration, if two hotels meet certain operational targets (the
"Crow Properties Acquisition" and, together with the Wyndham Acquisition, the
"Wyndham Transactions"). The Wyndham Transactions, which are expected to be
consummated concurrently, are subject to various conditions including, without
limitation, approval of the Wyndham Acquisition by the stockholders of the
Companies and Wyndham. The Wyndham Acquisition is also conditioned on the
Corporation's completion of a substantial portion of the Crow Properties
Acquisition. Accordingly, no assurances can be given that the Wyndham
Transactions will be consummated. It is currently anticipated that the
stockholder meetings to approve the Wyndham Acquisition will occur in the fourth
quarter of 1997.
If the Wyndham Transactions are approved and consummated, it is anticipated
that the current stockholders of the Corporation and the Operating Company would
hold in the aggregate approximately 67% of the outstanding Paired Common Stock
following consummation of the Wyndham Transactions (assuming no Wyndham
stockholders exercise their cash election rights in the Wyndham Acquisition).
The Unaudited Pro Forma Financial Statements set forth in this Current Report on
Form 8-K show the effects of the Wyndham Transactions on the Corporation and
Operating Company.
Item 7. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements of Businesses to be Acquired:
The index to the financial information for Wyndham Hotel Corporation and
the Crow Family Hotel Partnerships is included on page F-1 of this report.
(b) Pro Forma Financial Information:
The index to the pro forma financial information for the Corporation,
Operating Company, and the Combined Lessees is included on page F-1 of this
report.
2
<PAGE>
(c) Exhibits:
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and Wyndham Hotel Corporation
(incorporated by reference from the Registration Statement on
Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997
of the Corporation (formerly known as California Jockey Club) and
the Operating Company (formerly known as Bay Meadows Operating
Company)
2.2 Stock Purchase Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and CF Securities, L.P.
(incorporated by reference from the Registration Statement on
Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997
of the Corporation (formerly known as California Jockey Club) and
the Operating Company (formerly known as Bay Meadows Operating
Company)
2.3 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997,
by and among the Crow Family Entities and Patriot American
Hospitality Partnership, L.P. (incorporated by reference from
the Registration Statement on Form S-4 (File No. 333-28085 and
333-28085-01) dated May 30,1997 of the Corporation (formerly
known as California Jockey Club) and the Operating Company
(formerly known as Bay Meadows Operating Company)
2.4 Agreement of Purchase and Sale and Joint Escrow Instructions,
dated as of April 18, 1997 between Patriot American Hospitality,
Inc. and PW Acquisitions IV, LLC. (incorporated by reference from
the Registration Statement on Form S-4 (File No. 333-28085 and
333-28085-01) dated May 30,1997 of the Corporation (formerly
known as California Jockey Club) and the Operating Company
(formerly known as Bay Meadows Operating Company)
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen LLP.
99.1 Ratio of Earnings to Fixed Charges
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
Dated: July 22, 1997 PATRIOT AMERICAN HOSPITALITY, INC.
/s/ Rex E. Stewart
____________________________________
By: Rex E. Stewart
Its: Chief Financial Officer
Dated: July 22, 1997 PATRIOT AMERICAN HOSPITALITY
OPERATING COMPANY
/s/ Rex E. Stewart
_____________________________________
By: Rex E. Stewart
Its: Chief Financial Officer
4
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
INDEX TO FINANCIAL INFORMATION
FINANCIAL STATEMENTS OF BUSINESSES TO BE ACQUIRED:
Page
----
Wyndham Hotel Corporation:
Report of Independent Accountants - Coopers & Lybrand L.L.P.............. F-2
Consolidated Balance Sheets at December 31, 1995 and 1996................ F-3
Consolidated Statements of Income for the years ended December
31, 1994, 1995 and 1996............................................... F-4
Consolidated Statements of Partners' Capital and Stockholders'
Equity for the years ended December 31, 1994, 1995 and 1996........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996....................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheets at December 31, 1996 and
March 31, 1997 (unaudited)............................................ F-26
Consolidated Statements of Income for the three months ended
March 31, 1996 and 1997 (unaudited)................................... F-27
Consolidated Statements of Cash Flows for the three months ended
March 31, 1996 and 1997 (unaudited)................................... F-28
Notes to Consolidated Financial Statements (unaudited)................... F-29
Crow Family Hotel Partnerships:
Report of Independent Public Accountants - Arthur Andersen LLP........... F-36
Combined Balance Sheets as of December 31, 1996 and 1995 and
March 31, 1997 (unaudited)............................................ F-37
Combined Statements of Operations for the years ended December 31,
1996, 1995 and 1994 and for the three months ended March 31,
1997 and 1996 (unaudited)............................................. F-38
Combined Statements of Partners' Deficit for the years ended
December 31, 1996, 1995 and 1994 and for the three months
ended March 31, 1997 (unaudited)...................................... F-39
Combined Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 and for the three months ended March 31,
1997 (unaudited)...................................................... F-40
Notes to Combined Financial Statements................................... F-41
PRO FORMA FINANCIAL INFORMATION:
Corporation and Operating Company:
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1996 (unaudited).............................. F-51
Pro Forma Condensed Combined Statement of Operations for the
three months ended March 31, 1997 (unaudited)......................... F-53
Pro Forma Condensed Combined Balance Sheet as of March 31,
1997 (unaudited)...................................................... F-56
Corporation:
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1996 (unaudited).............................. F-59
Pro Forma Condensed Combined Statement of Operations for the
three months ended March 31, 1997 (unaudited)......................... F-61
Operating Company:
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1996 (unaudited).............................. F-63
Pro Forma Condensed Combined Statement of Operations for the
three months ended March 31, 1997 (unaudited)......................... F-65
Combined Lessees:
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1996 (unaudited).............................. F-68
Pro Forma Condensed Combined Statement of Operations for the
three months ended March 31, 1997 (unaudited)......................... F-69
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Wyndham Hotel Corporation:
We have audited the accompanying consolidated balance sheets of Wyndham
Hotel Corporation (the "Company") as of December 31, 1995 and 1996 and the
related consolidated statements of income, partners' capital and stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 19, 1997
F-2
<PAGE>
Consolidated Balance Sheets
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,160 $ 11,517
Cash, restricted 3,053 865
Accounts receivable, less allowance of $267 and $941 in 1995 and 1996, respectively 10,838 13,330
Due from affiliates 3,584 12,686
Inventories 1,020 1,430
Deferred income taxes -- 1,539
Other 769 1,412
--------- ---------
Total current assets 23,424 42,779
Investment in hotel partnerships 2,597 1,125
Notes and other receivables from affiliates 7,674 7,685
Notes receivable 2,450 6,307
Property and equipment, net 87,604 134,176
Management contract costs, net 7,579 7,766
Security deposits 243 15,288
Deferred income taxes -- 14,148
Other 1,832 13,688
--------- ---------
Total assets $ 133,403 $ 242,962
========= =========
LIABILITIES, PARTNERS' CAPITAL AND STOCKHOLDERS' EOUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,454 $ 23,556
Accounts payable and accrued expenses due to affiliates 1,578 --
Deposits 1,667 959
Deposits from affiliates 354 344
Current portion of long-term debt and capital lease obligations 16,035 510
Due to affiliates 2,592 --
--------- ---------
Total current liabilities 30,680 25,369
--------- ---------
Payable to affiliates 2,627 --
Payable to minority interest 218 --
Long-term debt and capital lease obligations 74,943 129,944
Deferred gain -- 12,065
--------- ---------
77,788 142,009
--------- ---------
Minority interest 7,378 --
--------- ---------
Commitments and contingencies
Partners' capital and stockholders' equity:
Common stock -- par value $.0l, 45,000 shares authorized, 20,018 shares
issued and outstanding 200
Additional paid-in capital -- 84,342
Retained earnings -- 11,714
Notes receivable from stockholders -- (19,449)
Receivable from affiliates (2,303) (1,223)
Partners' capital 19,860 --
--------- ---------
Total partners' capital and stockholders' equity 17,557 75,584
--------- ---------
Total liabilities and equity $ 133,403 $ 242,962
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Hotel revenues $ 51,799 $ 54,673 $ 104,620
Management fees 5,930 7,354 8,556
Management fees--affiliates 7,372 9,567 15,257
Service fees 1,671 2,192 1,428
Service fees--affiliates 1,234 1,928 2,878
Reimbursements 3,110 4,378 6,593
Reimbursements--affiliates 4,893 6,458 8,384
Other 257 1,340 359
--------- --------- ---------
Total revenues 76,266 87,890 148,075
--------- --------- ---------
Operating costs and expenses:
Hotel expenses 36,744 37,125 77,016
Selling, general and administrative expenses 10,645 15,001 19,050
Equity participation compensation 2,802 3,992 2,919
Reimbursable expenses 3,110 4,378 6,593
Reimbursable expenses--affiliates 4,893 6,458 8,384
Depreciation and amortization 5,735 6,311 8,110
--------- --------- ---------
Total operating costs and expenses 63,929 73,265 122,072
--------- --------- ---------
Operating income 12,337 14,625 26,003
Interest income 178 344 1,175
Interest income--affiliates - - 100 716
Interest expense (7,705) (8,465) (11,810)
Equity in earnings of hotel partnerships 1,237 l,664 870
Foreign currency gain 404 405 --
Amortization of deferred gain -- -- 505
--------- --------- ---------
Income before minority interests, income taxes and extraordinary item 6,451 8,673 17,459
Income attributable to minority interests 186 724 571
--------- --------- ---------
Income before income taxes and extraordinary item 6,265 7,949 16,888
Income tax benefit -- -- 8,209
--------- --------- ---------
Income before extraordinary item 6,265 7,949 25,097
Extraordinary item (less applicable income tax benefit of $270) -- -- (l,131)
--------- --------- ---------
Net income $ 6,265 $ 7,949 $ 23,966
========= ========= =========
Pro forma income tax adjustment (unaudited) -- $ 3,140 $ --
Historical net income as adjusted for pro forma income taxes (unaudited) -- $ 4,809 $ --
Earnings per share:
Income before extraordinary item -- $ -- $ 1.26
Extraordinary item -- $ -- $ (.06)
Net income -- $ -- $ 1.20
Historical net income as adjusted -- $ .24 $ --
Average number of common shares outstanding -- -- 20,018
Pro forma number of common shares outstanding -- 20,018 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
AND STOCKHOLDERS' EQUITY
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
NOTES
ADDITIONAL RECEIVABLE RECEIVABLE
PARTNERS' COMMON PAID-IN RETAINED FROM FROM STOCK-
CAPITAL STOCK CAPITAL EARNINGS AFFILIATES HOLDERS TOTAL
------- ----- ------- -------- ---------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 462 $ -- $ -- $ -- $ -- $ -- $ 462
Capital contributions 2,120 -- -- -- -- -- 2,120
Capital distributions (7,728) -- -- -- -- -- (7,728)
Equity participation compensation 2,802 -- -- -- -- -- 2,802
Net income 6,265 -- -- -- -- -- 6,265
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1994 3,921 -- -- -- -- -- 3,921
Capital contributions 14,795 -- -- -- -- -- 14,795
Capital distributions (10,931) -- -- -- -- -- (10,931)
Distribution made to withdrawing partner (2,577) -- -- -- -- -- (2,577)
Affiliate stock options 2,711 -- -- -- -- -- 2,711
Equity participation compensation 3,992 -- -- -- -- -- 3,992
Net income 7,949 -- -- -- -- -- 7,949
Receivable from affiliates -- -- -- -- (2,303) -- (2,303)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1995 19,860 -- -- -- (2,303) -- 17,557
Capital contributions 4,801 -- -- -- -- -- 4,801
Capital distributions (29,593) -- -- -- -- -- (29,593)
Issuance of common stock (1,998) 200 78,184 -- -- (195) 76,191
Equity participation compensation -- -- 2,919 -- -- -- 2,919
Payment to affiliate for release from
obligations under an agreement -- -- -- (6,000) -- -- (6,000)
Deferred income taxes from incorporation -- -- 3,239 -- -- -- 3,239
Notes receivable from stockholders -- -- -- -- -- (18,576) (18,576)
Receivable from affiliates -- -- -- -- 1,080 -- 1,080
Accrued interest on notes receivable
from stockholders -- -- -- 678 -- (678) --
Net income 6,930 -- -- 17,036 -- -- 23,966
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1996 $ -- $ 200 $ 84,342 $ 11,714 $ (1,223) $(19,449) $ 75,584
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
WYNDHAM HOTEL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,265 $ 7,949 $ 23,966
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 5,735 6,311 7,328
Provision for bad debt 84 265 1,018
Deferred income taxes -- -- (12,958)
Amortization of deferred debt issuance costs -- -- 782
Write-off of predecessor deferred debt issuance costs -- -- 1,401
Amortization of deferred gain -- -- (505)
Equity in (earnings) loss of hotel partnership (36) 372 --
Foreign currency translation gain (404) (405) --
Equity participation compensation 2,802 3,992 2,919
Minority interest 186 724 571
Net (deposits to)/withdrawals from restricted cash 360 (485) 2,576
Changes to operating assets and liabilities, net of effects from purchase
of hotels:
Accounts receivable (1,487) (1,842) (4,038)
Due from affiliates (850) (137) (761)
Inventories and other (2,592) 196 (3,555)
Current income taxes -- -- 5,390
Accounts payable and accrued expenses (758) (63) 7,975
Accounts payable and accrued expenses due to affiliates 4,036 (2,458) (2,507)
Deposits 45 453 (1,796)
Security deposits -- -- (13,738)
Due to affiliates (684) 1,555 (4,323)
--------- --------- ---------
Net cash provided by operating activities 12,702 16,427 9,745
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (2,101) (3,556) (11,272)
Proceeds from sale of property and equipment -- -- 136,374
Purchase of equity investment in hotel partnership -- -- (1,125)
Investments in management contracts (285) (4,346) (1,536)
Notes and other receivables from affiliates -- (7,674) (11)
Notes receivable -- (2,451) (3,857)
Payment for purchase of hotels, net of cash acquired -- -- (33,470)
Acquisition of minority interest -- -- (5,479)
Decrease (increase) in long-term restricted cash 2,383 (212) (1,661)
Other 1,770 (3,316) --
--------- --------- ---------
Net cash provided by (used in) investing activities 1,767 (21,555) 77,963
--------- --------- ---------
Cash flows from financing activities:
Partners' contributed capital 2,120 14,795 4,801
Partner's capital distributions (7,728) (10,932) (29,593)
Distribution made to withdrawing partner -- (2,577) (982)
Decrease (increase) in receivable from affiliates (255) (98) 996
Decrease in payable to affiliates (597) (2,353) (2,627)
Increase (decrease) in payable to minority interest holders 24 15 (218)
Proceeds from issuance of common stock -- -- 69,504
Proceeds from long-term borrowings and issuance of debt 51 13,600 94,383
Repayments on long-term debt and capital lease obligations (5,291) (6,782) (197,726)
Notes receivable from stockholders -- -- (18,889)
--------- --------- ---------
Net cash provided by (used in) financing activities (11,676) 5,668 (80,351)
--------- --------- ---------
Increase in cash and cash equivalents 2,793 540 7,357
Cash and cash equivalents at beginning of year 827 3,620 4,160
--------- --------- ---------
Cash and cash equivalents at end of year $ 3,620 $ 4,160 $ 11,517
========= ========= =========
</TABLE>
The accompanying notes are an integral of the consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WYNDHAM HOTEL CORPORATION
1. THE FORMATION AND THE FINANCING PLAN:
The Formation
Wyndham Hotel Corporation ("WHC") was formed in Delaware in February 1996
to succeed to the business of Wyndham Hotel Company Ltd. (the "Old Management
Company"), which, directly and through its subsidiaries, manages and franchises
the Wyndham brand hotels and manages non-Wyndham brand hotels, as well as
succeed to the ownership of six Wyndham brand hotels, a leasehold interest
relating to the Garden Hotel Associates L.P. ("GHALP") lease (the "GHALP Lease")
and an additional leased hotel (an aggregate of 12 leased Wyndham brand hotels)
and a contract to purchase a single additional hotel (collectively, the
"Assigned Businesses"). The Assigned Businesses and WHC are referred to
collectively as (the "Company"). In March 1996, the Company entered into certain
agreements with the owners of direct and indirect interests in the Old
Management Company and hotels (the "Formation Agreement"), which collectively
provided for the transfer to the Company of the Assigned Businesses, as well as
certain other transactions described below that involved the parties thereto. In
addition, on March 10, 1996, the Company entered into an agreement (the "Bedrock
Exchange Agreement") with various affiliates of Hampstead Group L.L.C. (together
with certain of its affiliates, "Bedrock"), pursuant to which Bedrock
transferred to the Company options to acquire equity interests in the Old
Management Company (the "Bedrock Options"), and Bedrock contributed $10.0
million (the "Bedrock Contribution").
GHALP has historically owned 11 Wyndham Garden Hotels managed by the
Company (the "GHALP Properties"). A 30% interest in GHALP was owned by a
partnership owned by Mr. and Mrs. Trammell Crow (together with various
descendants of Mr. and Mrs. Crow and various corporations and entities
beneficially owned or controlled by such person, the "Crow Family Members") and
four senior executive officers of the Company (the "Senior Executive Officers"),
and the remaining 70% was held by an unaffiliated third party. On May 2, 1996,
Crow Family Members and the Senior Executive Officers acquired the remaining 70%
ownership interest from the third party for a purchase price of approximately
$29.5 million. The purchase price was funded from the proceeds of the sale of
GHALP Properties to Hospitality Properties Trust (including its subsidiaries,
"HPT"), a publicly traded real estate investment trust ("REIT"), for $135.3
million, which properties were leased back pursuant to one or more long-term
leases with an initial term of approximately 17 years to a new partnership
("GHALP II"), the ownership of which mirrors the ownership of GHALP. As part of
the Company's formation, the Company succeeded to GHALP II's interest in the
GHALP Lease and continues to manage the hotels.
Pursuant to the Formation Agreement, the Company indemnified certain of
the owners of the Assigned Businesses and Bedrock for liabilities arising in
connection with the Formation resulting from claims brought by unaffiliated
third parties.
The Financing Plan
The Company implemented a "Financing Plan" in order to fund the cash
payments associated with the Formation, repay certain mortgage and other
indebtedness assumed in connection with the Formation and provide liquidity for
the Company's operating and growth strategies. Under the Financing Plan, the
Company (i) concurrently offered $100.0 million of 10.5% senior subordinated
notes due 2006 (the "Notes"); (ii) con-currently offered 4,l97,500 shares of
common stock (the "Common Stock") in an equity offering, and thereby raised
approximately $67.2 million in gross proceeds (together with the $100.0 million
debt offering, the "Offerings"), (iii) entered into a $100.0 million revolving
credit facility with a financial institution (the "Revolving Credit Facility");
(iv) received the Bedrock Contribution in the amount of $10.0 million; and (v)
eliminated $7.5 million of outstanding indebtedness under the Company's previous
revolving credit facility with another financial institution upon the financial
institution's exercise of its option to purchase from the Company 504,032 shares
of the Common Stock.
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements of the Company at
December 31, 1996 and for the period since WHC's implementation of the Formation
and the Financing Plan in May 1996 through December 31, 1996 include the
accounts of WHC, its wholly-owned
F-7
<PAGE>
subsidiaries resulting from the Formation and subsequent acquisitions. Financial
statements at December 31, 1995 and for the periods prior to the Formation
(January 1, 1994 through May 24, 1996) include the combined accounts of WHC and
its majority owned entities. All significant intercompany balances and
transactions have been eliminated.
The consolidated financial statements at December 31, 1996 include the
accounts of the Company which consist of the following entities:
Management entities:
Wyndham Management Corporation
(a Delaware corporation)
WHCMB, Inc. (a Delaware corporation)
Waterfront Management Corporation
(a Delaware corporation)
WHCMB, Toronto, Inc. (a Canada corporation)
Wyndham Hotels & Resorts Management, Ltd.
(a Bermuda corporation)
Wyndham Hotels & Resorts (Aruba) N. V.
(an Aruba corporation)
WHCMB Overland Park, Inc. (a Kansas corporation)
A management subsidiary for a non-branded hotel
(a Delaware corporation)
Hotel entities:
Wyndham Hotel Corporation
(a Delaware corporation)
GHALP Corporation (a Delaware corporation)
WHC Vinings Corporation (a Delaware corporation)
WHC Development Corporation
(a Delaware corporation)
WHC Franchise Corporation
(a Delaware corporation)
WHC Columbus Corporation (a Delaware corporation)
Wyndham IP Corporation (a Delaware corporation)
WHC Salt Lake City Corporation
(a Delaware corporation)
XERXES Limited (a Texas corporation)
WH Interests, Inc. (a Texas corporation)
WHC Caribbean Limited (a Jamaican corporation)
Partnership entity:
Rose Hall Associates, L.P. (a Texas limited partnership)
The Company has a 30% investment in a hotel partnership which owns a hotel
located in Columbus Ohio. The Company does not have voting or operational
control over this hotel partnership; therefore, the investment is accounted for
using the equity method in the accompanying financial statements.
The management entities were formed to provide management and development
services to hotel property owners. As of December 31, 1996, 82 properties,
located in 25 states, the District of Columbia, Ontario, Canada and 5 Caribbean
islands were owned and operated by the Company or under management or franchise
contracts. The Company operates 21 Wyndham Hotels, 44 Wyndham Garden Hotels and
7 Wyndham Resort Hotels. The Company provides management services to 3 non-
Wyndham brand hotels, and 7 extended stay hotels.
The hotel entities, which own 10 hotels and lease 12 hotels, were formed
for the purpose of acquiring, owning, leasing and operating hotels throughout
the United States, and the Caribbean. Hotel revenues are primarily dependent
upon the individual business traveler and small business groups.
The partnership entity, which is comprised of 1 limited partnership, was
formed for the purpose of managing and investing in a hotel entity.
Use of Estimates and Assumptions
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 dates of the financial
statements and the reported amount of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash investments. The
Company maintains cash and cash equivalents in accounts with major financial
institutions in excess of the amount insured by the Federal Deposit Insurance
Corporation. Management believes credit risk related to these deposits is
minimal.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
F-8
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
As of December 31, 1996, restricted cash included a depository account
balance of $865,000 which collateralizes a letter of credit. Management
anticipates the deposit will be reduced concurrent with reductions in the letter
of credit commitment.
Inventories
Inventories consisting of food, beverage, china, linen, glassware,
silverware, uniforms, and supplies are stated at cost which approximates market,
with cost determined using the first-in, first-out method.
Property and Equipment
Buildings are carried at cost and depreciated over forty years using the
straight-line method. Furniture and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives,
which range from three to nine years. Assets recorded under capital leases and
leasehold improvements are amortized over the shorter of the lives of the assets
or the terms of the related leases. Normal repairs and maintenance are charged
to expense as incurred.
The Company periodically reviews its property and equipment to determine
if its carrying cost will be recovered from future operating cash flows. In
cases when the Company does not expect to recover its carrying cost, the Company
recognizes an impairment loss. No such losses have been recognized to date.
Management Contracts
The Company has entered into management agreements which required payment
of certain costs associated with the change in the management of hotels. These
costs have been recorded as deferred management contract costs and are being
amortized on a straight-line basis over the terms of the agreements. The Company
periodically evaluates the recoverability of management contract costs to
determine whether such costs will be recovered from future operations.
Certain management agreements include repayment provisions if termination
occurs prior to the term of the agreement. During 1996, the Company received
$516,000 for termination of management contracts that is included in other
revenues (net of write-off of the unamortized costs).
Other Assets
At December 31, 1996, other assets consisted primarily of unamortized debt
costs totaling $7.6 million incurred in connection with the offering of the
Notes and the Revolving Credit Facility which is being amortized over the terms
of the Notes and the Revolving Credit Facility using the straight-line method, a
$2.1 million deposit for the acquisition of a lease agreement on a hotel
property and $1.2 million of capitalized legal costs for defending a trademark
which is being amortized over 17 years. Also included in other assets are
restricted cash for the acquisition of property and equipment in the amounts of
approximately $616,000 and $2.3 million, at December 31, 1995 and 1996,
respectively.
At December 31, 1995, other assets included loan costs of approximately
$746,000. The related loans were repaid with the proceeds from the Offerings. As
a result, the unamortized loan costs were written off and are reported as an
extraordinary item.
Advance Deposits
Deposits represent cash received from guests for future hotel reservations
at the hotel entities and cash received from the owners of certain hotels
managed by the Company for various operating expenses paid by the Company on
behalf of managed properties. Upon termination of the management contracts, the
excess, if any, of the deposits over the actual operating expenses owed to the
Company would be refunded to the owners.
Income Taxes
Since the Company's Formation in May 1996, federal income taxes have been
provided in accordance with Statement of Financial Accounting Standard No. 109
("SFAS 109"). Under the liability method of SFAS 109, deferred taxes are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates in effect in the years
the differences are expected to reverse. In accordance with SFAS 109, the
Company has recorded a net
F-9
<PAGE>
income tax benefit of $8.2 million (before extraordinary item) since its
Formation. See Note 15 for the components of deferred tax assets and income tax
benefit.
For periods prior to the Company's Formation, each of the combined
companies was either a partnership, an S corporation or a nontaxable Bermuda
corporation, and consequently, was not subject to federal income taxes. Thus,
taxable income or loss was allocated directly to the taxable income of the
individual partners and stockholders. The Company's tax returns and the amount
of allocable income or loss are subject to examination by federal and state
taxing authorities. If such examinations result in changes to income or loss,
the tax liability of the partners and stockholders could be changed accordingly.
Revenue Recognition
Hotel revenue, management fees, service fees, reimbursements and other
income are recognized when earned.
Foreign Currency Translation
Financial statements of foreign subsidiaries not maintained using U.S.
dollars are remeasured into the U.S. dollar functional currency for
consolidation and reporting purposes. Assets and liabilities of non-U.S.
operations are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date. Revenues and expenses of non-U. S. operations are
translated at the weighted average exchange rate during the year. Resulting
translation adjustments are reflected in stockholders' equity. Realized foreign
currency gains and losses are included in results of operation.
Self Insurance
The Company is self insured for various levels of general liability,
workers' compensation and employee medical coverages. Accrued expenses include
the estimated cost from unpaid incurred claims.
Adoption of Authoritative Statement
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation" accounting requirements became
effective for transactions entered into in fiscal years that begin after
December 15, 1995. SFAS No. 123 defines a fair value based method of accounting
for employee stock options or similar instruments and permits companies to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows a company to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees." The Company has elected to measure compensation cost in conformity
with APB No. 25 and to make pro forma disclosures of net income and earnings per
share for the year ended December 31, 1996 as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. See Note 17. Stock-Based
Compensation Plans.
Earnings Per Share
Earnings per share for the year ended December 31, 1996 are computed based
on the weighted average number of shares of common stock outstanding. The impact
of common stock equivalents to earnings per share is immaterial. Earnings per
share data for the years ended December 31, 1994 and 1995 relates to periods
prior to the Company's formation and therefore is not presented.
4. ACQUISITIONS:
On May 2, 1996, a 70% partnership interest in GHALP, owned by an
unaffiliated third party, was acquired by a newly formed partnership owned by an
affiliate and Senior Executive Officers. In a subsequent series of transactions
the properties were sold to an unaffiliated real estate investment trust and all
debt was repaid. The hotel properties were leased back to a newly formed limited
partnership owned by the affiliate and Senior Executive Officers under eleven
long-term operating leases. These leases were transferred to a subsidiary of the
Company in connection with the formation of the Company. Each of the leases has
an initial term of seventeen years and four optional twelve-year renewal periods
exercisable at the Company's option for all hotels. Under the terms of these
leases, yearly base rent aggregates $13.6 million plus a contingent rent paid
based on a percentage of excess revenue over base year revenues. These leases
require the Company to pay substantially all expenses associated with the
operation of the leased hotels, including real estate taxes and insurance.
F-10
<PAGE>
In May 1996, the Company acquired, from an unaffiliated party, the Wyndham
Garden Hotel-Vinings, a 159 room hotel. The purchase price was approximately
$12.5 million, comprised of a cash payment of $3.6 million and the assumption of
existing indebtedness encumbering the property.
In July 1996, the Company, in separate transactions, acquired a 181 room
hotel in Kansas ("Overland Park") and a 254 room hotel in Dallas, Texas ("Dallas
Market Center") for a total purchase price of $13.7 million.
On August 30, 1996, the Company acquired a 287 room hotel, the Bristol
Place Hotel in Toronto, Canada (the "Bristol Place in Toronto"). The total
investment approximated $19.9 million with a purchase price of $17.4 million and
renovation and other costs of $2.5 million. The renovation is expected to be
completed in 1997.
These acquisitions were accounted for using the purchase method and
accordingly, the acquired assets, which consisted primarily of property and
equipment, were recorded based on their estimated fair values at the date of
acquisition. These acquisitions were funded with a portion of the net proceeds
from the Offerings. For pro forma financial information relating to these
acquisitions see Note 25.
In November 1996, the Company purchased a 30% interest in a hotel
partnership and related management contract of a 217 room hotel property in
Columbus, Ohio, ("Columbus Hotel") with a purchase price of $1.6 million
(including related management contract acquisition costs of $500,000). The
acquisition was accounted for using the equity method.
In November 1996, the Company also entered into a letter of intent for
a hotel in Salt Lake City, Utah. The transaction, which was executed in January
1997, required the Company to make deposits totaling $10.0 million with the
lessor. The deposits were funded with cash borrowed under the Revolving Credit
Facility.
5. INVESTMENT IN HOTEL PARTNERSHIPS:
In November 1996, the Company acquired a 30% equity interest in the
Columbus Hotel. Pursuant to the partnership agreement, the Company was not
allocated any profits or losses of the partnership for the period ended December
31, 1996.
The Company's 30% equity investment in GHALP ceased on May 2, 1996
following the acquisition of the remaining 70% interest as part of the Company's
Formation and all GHALP account balances have been included in the Company's
consolidated financial statements.
The summary of the significant financial information of GHALP for 1994 and
1995, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------
<S> <C>
ASSETS
Total current assets $ 6,770
Property and equipment, net 103,798
Other 1,947
--------
$112,515
========
LIABILITIES AND PARTNERS' EQUITY
Total current liabilities $ 5,049
Long-term debt, excluding current portion 93,000
Partners' equity 14,466
--------
$112,515
========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1995
-------- --------
<S> <C> <C>
Revenues $ 50,917 $ 56,976
Expenses 46,795 51,429
-------- --------
Net income $ 4,122 $ 5,547
======== ========
</TABLE>
The Company's initial contribution upon formation of GHALP was $7,000,000
of the total initial aggregate contributions of $36,000,000.
6. NOTES AND OTHER RECEIVABLES FROM AFFILIATES:
As of December 31, 1995 and 1996, notes and other receivables from
affiliates consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------ ------
<S> <C> <C>
Promissory notes bearing interest at 9%
per annum, payable in 2005 $6,396 $6,431
Promissory note bearing interest at prime
plus 2% (8.25% at December 31, 1996)
per annum, payable in 2000 1,278 1,254
------ ------
$7,674 $7,685
====== ======
</TABLE>
The promissory notes represent loans made to affiliated entities to
acquire hotels which then have executed management agreements with the Company.
The loans are collateralized by the partnership interests in the respective
entities. Interest income of $100,000 and $716,000 was earned for the years
ended December 31, 1995 and 1996, respectively.
F-11
<PAGE>
7. NOTES RECEIVABLE:
As of December 31, 1995 and 1996, notes receivable consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------ ------
<S> <C> <C>
Promissory note bearing interest at
13.5% per annum, payable in 2011 $ -- $4,329
Promissory note, non interest bearing,
payable in installments based
on the hotel's excess gross operating
profit and excess proceeds from
capital transactions, as defined in
the management contract 105 1,878
Promissory note bearing interest at prime
plus .5%, due in 2005, sold to a
related party in 1996 (see Note 22) 2,345 --
Promissory note bearing interest at 9.5%
per annum, payable in 2001 -- 100
------ ------
$2,450 $6,307
====== ======
</TABLE>
The promissory notes represent loans made to entities to renovate hotels
or to cover working capital deficits. The entities then have executed management
agreements with the Company.
Pursuant to the terms of a management agreement obtained in 1996, the
Company is obligated to provide $4,750,000 of working capital to a hotel
partnership. As of December 31, 1996, $4,329,000 of this obligation has been
funded.
8. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
Land $ 9,955 $ 16,078
Buildings and improvements 77,108 111,698
Furniture, fixtures and equipment 28,057 36,801
Work in progress -- 3,513
Leasehold improvements 247 205
-------- --------
115,367 168,295
Less accumulated depreciation and
amortization (27,763) (34,119)
-------- --------
$ 87,604 $134,176
======== ========
</TABLE>
9. MANAGEMENT SERVICES AND RELATED REVENUES:
The Company has entered into management agreements for hotels. The owners
of certain hotels the Company manages are affiliates related by common ownership
or control. Management fees earned for hotels owned by affiliates in 1994, 1995
and 1996 were $7,372,000, $9,528,000 and $15,257,000, respectively.
Various operating expenses have been paid by Wyndham on behalf of managed
properties. As of December 31, 1994, 1995 and 1996, accounts receivable from
hotels owned by affiliates were $2,520,000, $3,002,000 and $5,582,000,
respectively.
The Company provides centralized accounting services such as accounts
payable, payroll and financial statement preparation for certain managed hotels.
The Company charges an accounting fee to these hotels for such services. Design
fees are additional service fees paid to the Company for the development, and
design and construction of new hotels as well as for the refurbishment of
existing hotels. In addition, the Company receives purchasing fees based on a
percentage of cost of goods ordered for purchasing various items.
Reimbursements represent revenues recognized for the reimbursement of
expenses associated with providing sales and marketing, centralized
reservations, partnership accounting and other support services. Included in
reimbursable expenses are advertising and promotional expenses of $3,655,000,
$4,905,000 and $6,217,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
10. SECURITY DEPOSITS:
Security deposits represent cash payments made by the Company related to
various leases of real estate and equipment. At December 31, 1996, security
deposits consisted primarily of $13.6 million in deposits related to the GHALP
Properties.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------- -------
<S> <C> <C>
Accounts payable $ 3,648 $ 5,719
Due to medical benefit trusts -- 2,756
Due for managed hotels' insurance liabilities -- 3,602
Taxes 1,486 2,799
Payroll and related costs 2,055 5,284
Accrued interest 880 1,390
Other 385 2,006
------- -------
$ 8,454 $23,556
======= =======
</TABLE>
F-12
<PAGE>
12. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------- --------
<S> <C> <C>
Senior subordinated notes, interest payable
semi-annually at 10.5%, principal
maturing May 15, 2006, redeemable
after May 15, 2001 at prices ranging
from 105.25% to 100.00% of the principal $ -- $100,000
Industrial Revenue Bond indebtedness,
collateralized by a first lien mortgage,
interest payable monthly to trustee at 5.72%,
maturing October 1, 2025, required to
be refinanced in February 1997 -- 9,675
Mortgage loan, a hotel property is pledged as
collateral, interest payable monthly at prime
(8.50% at December 31, 1995) plus .5%
and principal due in installments based on
cash flow, matured May 2, 1996 12,607 --
Mortgage loan, a hotel property is pledged
as collateral, interest payable monthly at
LIBOR (5.44% at December 31, 1995) plus 1.75%
and principal due in installments based on
cash flow, maturing December 31, 1999, repaid in
May 1996 10,034 --
Mortgage loan, a hotel property is pledged as
collateral, interest payable monthly at
LIBOR plus 1.5% and principal due in
installments based on cash flow, maturing
December 31, 1999, repaid in May 1996 10,115 --
Mortgage loan, a hotel property is pledged as
collateral, interest payable monthly at
LIBOR plus 3.25%, and principal maturing
May 21, 2000, repaid in May 1996 5,400 --
Mortgage loan, a hotel property is pledged as
collateral, interest payable monthly at
prime plus 1.25%, and principal due in
installments based on cash flow, maturing
August 28, 1997, repaid in May 1996 8,734 --
Mortgage loan, a hotel property is pledged
as collateral, interest payable quarterly at
86% of LIBID, and principal payable
quarterly and maturing November 15,
1999, repaid in May 1996 5,870 --
Revolving credit agreement, substantially all of
the assets of Wyndham are pledged as
collateral, interest payable quarterly at 9%,
and principal maturing June 30, 2002, repaid
in May 1996 12,500 --
Note payable to seller of a hotel, partnership
interest pledged as collateral, interest
payable quarterly at 8%, principal payable
quarterly and maturing May 21, 1997,
repaid in May 1996 2,392 --
Note payable to seller of a hotel, interest
payable quarterly at 11.5%, principal due
quarterly and maturing November 15,
1999, repaid in May 1996 2,348 --
Note payable to bank, interest payable
quarterly at Jamaican prime plus 1.5%,
principal payable quarterly and maturing
November 15, 1999, repaid in May 1996 195 --
------- --------
70,195 109,675
Current portion of long-term debt 15,653 --
------- --------
Long-term debt, excluding current portion $54,542 $109,675
======= ========
</TABLE>
The outstanding balance of the long-term debt of $109,675,000 at December
31, 1996 is payable after the year 2001. On February 28, 1997, the Industrial
Revenue Bonds were refinanced. See Note 24. Subsequent Events.
In May 1996, as a part of the implementation of the Company's Financing
Plan, the Company obtained the Revolving Credit Facility. The Revolving Credit
Facility provides for up to $100.0 million of revolving loan borrowings. The
Revolving Credit Facility is a direct obligation of the Company and is fully and
unconditionally guaranteed by each of the Company's subsidiaries. While no
amount has been drawn under this facility at December 31, 1996, approximately
$42.3 million aggregate principal amount was available for borrowing at that
date in accordance with the terms of the facility. In January 1997, the Company
borrowed $10.8 million at an average interest rate of 7.81% under the Revolving
Credit Facility to meet the requirement of a new hotel lease agreement. The
Revolving Credit Facility will mature in May 2000.
The indentures of the $100.0 million senior subordinated notes and the
Revolving Credit Facility contain covenants restricting the Company's ability to
incur indebtedness, pay dividends and otherwise limiting the Company's
activities. The loan agreement for the Revolving Credit Facility, which contains
the most restrictive covenants, requires the Company to maintain a minimum
net worth of $55.0 million, maintain annually increasing consolidated fixed
charge coverage ratios (before and after capital expenditures) as defined in the
covenants, and maintain annually decreasing consolidated debt to consolidated
earnings before interest, taxes, depreciation and amortization (before and after
capital expenditures) ratios as defined in the covenants.
The outstanding balance of a revolving credit agreement at December 31,
1995 (subsequently increased to $15.0 million) was repaid at the Company's
initial public offering. The Company paid $7.5 million in cash to the financial
institution. The remaining one-half of the $15.0 million was discharged upon the
financial institution's election to exercise its option, pursuant to the
modified credit agreement, to purchase 504,032 shares of the Company's Common
Stock for a total purchase price of $7.5 million. See Note 1. The Formation and
the Financing Plan.
F-13
<PAGE>
13. LEASES:
The Company leases various types of property including land and buildings
of hotel properties, office facilities and equipment under agreements ranging
from 1 to 30 years. Leased capital assets included in property and equipment at
December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------- -------
<S> <C> <C>
Property $14,530 $14,530
Equipment 3,434 3,734
------- -------
17,964 18,264
Accumulated amortization (5,721) (7,132)
------- -------
$12,243 $11,132
======= =======
</TABLE>
The Company incurred rental expense totaling $1,707,000, $1,199,000 and
$10,319,000, respectively, in 1994, 1995 and 1996. The 1996 rental expense
included $9,067,000 on the GHALP Lease.
The future minimum lease payments required under the capital lease
(together with the present value of net minimum lease payments) and future
minimum lease payments required under operating leases that have an initial term
or remaining noncancelable lease term in excess of one year at December 31, 1996
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES
------- --------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
1997 $ 2,555 $ 14,902
1998 2,492 14,566
1999 2,390 14,566
2000 2,379 13,886
2001 2,333 13,886
Thereafter 37,183 164,158
------- --------
Total minimum lease payments 49,332 $235,964
========
Less imputed interest 28,553
-------
Present value of net minimum lease payments 20,779
Less current portion 510
-------
Long term portion of net minimum
lease payments $20,269
=======
</TABLE>
WH Interests, Inc. ("WHI") has a lease agreement for the property which is
accounted for as a capital lease. This agreement provides for payments of
contingent rent based on a percentage of net operating income, as defined, less
base rent and the management fee (base amount). For lease years 1990 through
1999, contingent rent payable to the landlord is 20% of the excess of net
operating income, as defined, over the base amount and 50% of the excess for
lease years thereafter. Contingent rent expense for the years ended December 31,
1994, 1995 and 1996 was $108,000, $59,000 and $185,000 respectively.
This capital lease agreement provides for a reserve for capital
expenditures equal to 4% of the gross income of the respective hotel. At the end
of the lease term, the Company is required to refund to the lessor the excess of
amounts reserved over actual capital expenditures. At December 31, 1995 and 1996
the reserved amount exceeded expenditures by $1,039,000 and $974,000,
respectively.
14. DEFERRED GAIN:
The deferred gain represents the gain resulting from the sale of the land,
buildings, furnishings and equipment of GHALP to HPT in the sale and lease back
transaction as described in Note 1. The gain is being amortized over the initial
term of the GHALP lease of 17 years.
15. INCOME TAXES:
The Company's provision for income taxes is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
MAY 24, 1996
THROUGH
DEC. 31
1996
----
<S> <C>
Federal $3,453
State 516
------
Total current expense 3,969
------
Deferred
Federal 472
State 38
------
Total deferred expense 510
------
Total income tax expense $4,479
======
</TABLE>
A reconciliation of the statutory federal income tax rate and the
effective tax rate to income before income taxes and extraordinary items as
included in the consolidated statements of income is as follows:
<TABLE>
<CAPTION>
MAY 24, 1996
THROUGH
DEC. 31
1996
----
<S> <C>
Federal 35.0%
State 3.0%
Tax reduction due to FICA tax credit (2.3)%
Other 3.4%
----
Total current expense 39.1%
====
</TABLE>
F-14
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 31
1996
-------
<S> <C>
Deferred tax assets:
Other current assets $ 674
Land 99
Depreciation and amortization 800
Management contracts 7,439
Other current liabilities 754
Long-term lease 7,632
Deferred gain 4,557
-------
Total deferred tax assets 21,955
-------
Deferred tax liabilities:
Other non-current liabilities (522)
Security deposits (5,746)
-------
Total deferred tax liabilities (6,268)
-------
Net deferred tax assets $15,687
=======
</TABLE>
On May 24,1996, the Company, previously a non-taxable entity, became a
taxable entity. Upon the conversion of a non-taxable to a taxable entity, the
Company recognized a deferred tax asset of approximately $16.2 million, of which
$3.2 million was recognized in retained earnings and $13.0 million was
recognized in continuing operations as a tax benefit. The book income for the
period from May 24, 1996 through December 31, 1996 was approximately $11.5
million.
16. STOCKHOLDERS' EQUITY:
In connection with the initial public offering, the Company authorized
Common Stock of 45,000,000 shares, $.01 par value per share. At December 31,
1996, 20,018,299 shares were issued and outstanding. Holders of the Common Stock
have no preemptive or conversion rights and the Common Stock is not subject to
further calls or assessment by the Company. There are no redemption or sinking
fund provisions with respect to the Common Stock.
The Company's Certificate of Incorporation ("Certificate") authorized
5,000,000 shares of preferred stock ("Preferred Stock"), none of which is
outstanding. The Board of Directors (the "Board") has the authority, without any
further vote or action by the stockholders, to issue Preferred Stock in one or
more series and to fix the number of shares, designations, and relative rights.
In the event of voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities subject to prior
distribution rights of any Preferred Stock then outstanding. The Company has no
present intention to issue shares of Preferred Stock.
17. STOCK-BASED COMPENSATION PLANS:
The Company sponsors the "Wyndham Hotel Corporation 1996 Long Term
Incentive Plan" (the "Plan"), which is a stock-based incentive compensation plan
as described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for the Plan. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which,
if fully adopted by the Company, would change the methods the Company applies in
recognizing the cost of the Plan. Adoption of the cost recognition provisions of
SFAS 123 is optional, and the Company has decided not to elect these provisions
of SFAS 123. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are
presented below.
Under the Plan, the Company is authorized to issue shares of Common Stock
or cash pursuant to "Awards" granted in the form of incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended,
non-qualified stock options, restricted shares, stock appreciation rights, and
performance units. Awards may be granted to key executives and other key
employees of the Company, including officers of the Company and its
subsidiaries.
According to the Plan, Awards may be granted with respect to a maximum of
2,133,811 shares of Common Stock. No participant may be granted, in any year,
Awards with respect to more than 500,000 shares of Common Stock. The
Compensation Committee administers the Plan and has broad discretion in
selecting Plan participants and determining the vesting period and other terms
applicable to Awards granted under the Plan.
In 1996, the Company granted a total of 820,700 nonqualified stock options
under the Plan.
A summary of the status of the Company's stock options as of December 31,
1996 and the changes during the year ended on that date is presented on the
following page.
F-15
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES OF AVERAGE
UNDERLYING EXERCISE
OPTIONS OPTIONS
-------- -------
<S> <C> <C>
Outstanding at beginning of the year -- $ --
Granted 820,700 $ 16.09
Exercised -- $ --
Forfeited (128,000) $(16.00)
Expired -- $ --
-------- -------
Outstanding at end of year 692,700 $ 16.11
========
Exercisable at end of year -- N/A
Weighted-average fair value 0 $ 3.20
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: no dividends, risk-free interest rates are different for
each grant and range from 6.05% to 6.41%; the expected lives of options are 5
years; and volatility of 36.54% for all grants.
As of December 31, 1996, there were 692,700 options outstanding with a
weighted-average remaining contractual life of 9.39 years and a weighted-average
exercise price of $16.11. None of these options were exercisable at that time.
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net income and net
income per common share for 1996 would approximate the pro forma amounts below
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
DEC. 31, DEC. 31,
1996 1996
------- -------
<S> <C> <C>
SFAS 123 charge $ - - $ 577
APB25 charge $ -- $ --
Net income $23,966 $23,615
Net income per common share $ 1.20 $ 1.18
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.
18. RECEIVABLES FROM AFFILIATES:
Management fees for one managed hotel, owned by an affiliate of the
Company, are deferred until certain operating criteria, as defined in the
partnership's management agreement and loan agreement, are met. As of December
31, 1995 and 1996, this deferred balance, a receivable from an affiliate
included in partners' capital, was $1,223,000. These management fees will be
collected upon meeting the operating criteria as defined in the agreement.
In addition, included in partners' capital at December 31, 1995 were
receivables from affiliates which include certain partner capital contributions
and accrued interest of $1,080,000.
19. COMMITMENTS AND CONTINGENCIES:
Litigation has been initiated against the Company pertaining to the right
to use the Wyndham name for hotel service in the New York metropolitan area. On
January 29, 1996, a temporary restraining order was issued by the Supreme Court
of the State of New York which, pending the outcome of a trial, prevents the
Company from using the Wyndham name in the New York area. An adverse decision in
the litigation could prevent the Company from operating Wyndham brand hotels or
advertising the Wyndham name in connection with the operation of a Wyndham brand
hotel within a 50 mile radius of a hotel in Manhattan operated under the
"Wyndham" name. It is management's opinion, based on legal counsel, that the
range of losses resulting from the ultimate resolution of the aforementioned
claim cannot be determined. The cost of $1,187,000 at December 31, 1996 for
defending the trademark has been capitalized and is being amortized over 17
years, pending the ultimate resolution. An adverse decision may result in the
immediate write-off of those capitalized costs.
The Company received a Notice of Intent to make Sales and Use Tax audit
changes from the Tampa Region of the Florida Department of Revenue for the
period from July 31, 1990 through June 30, 1995. The audit assessed additional
taxes of $584,000, penalty of $224,000 and interest of $201,000 for a total
assessment of $1,009,000. The previous owners (an affiliate) have agreed to
indemnify the Company with respect to any additional sales and use tax paid by
the Company for the audit period. Management, after review and consultation with
legal counsel, believes the Company has meritorious defenses to this matter and
that any potential liability in excess of the $189,000 initially recorded would
not materially effect the Company's consolidated financial statements.
F-16
<PAGE>
On February 29, 1996, an affiliate and the Company were served with a
complaint filed on November 22, 1995 by an owner of a hotel managed by the
affiliate. The claim involved the collection of a promissory note relating to an
earlier litigation between the affiliate and the owner. The owner alleged that
the transfer of certain management contracts by the affiliate to the Company was
a fraudulent conveyance that rendered the affiliate insolvent. Liability for
payment of the promissory note was not transferred to or assumed by the Company.
This litigation was settled during 1996 at no cost to the Company.
The Company has pending several other claims incurred in the normal course
of business which, in the opinion of management, based on the advice of legal
counsel, will not have a material effect on the consolidated financial
statements.
Pursuant to the terms of a management agreement of a hotel in which the
Company has a 30% ownership, the Company has committed to fund up to $2.5
million for the renovation of the hotel property. The loan will bear an interest
rate at 10% and will be collateralized by the outstanding partnership interest
of owners. Interest will be due monthly and principal is payable in installments
beginning January 1998 based on the operating income of the hotel. At December
31, 1996, none of such amount has been advanced. The Company also guarantees
$2,340,000 in indebtedness of this hotel.
Pursuant to the terms of the management agreements of two affiliate-owned
hotels under construction, the Company has undertaken certain commitments to
provide furniture, fixtures and equipment for each hotel at a fixed price
totaling $8.1 million. As of December 31, 1996, the Company has funded such
commitments totaling $5.0 million. The Company has indirectly paid the excess
amount of approximately $300,000 by contributing such amount to the partnership
that owns one of the hotels. The Company also paid certain pre-opening expenses
for one of the hotels in the amount of $495,000. The Company has guaranteed to
fund up to $230,000 in working capital per year for three years after one of the
hotels is opened in the event that the hotel generates inadequate cash flow and
the Company has guaranteed $875,000 in indebtedness.
Pursuant to the terms of a management agreement for a resort hotel
property, the Company has under-taken, subject to certain contingencies, certain
commitments to provide approximately $2.0 million, approximately $1.6 million of
which shall be used for preopening expenses and the purchase of furniture,
fixtures and equipment and the remainder of which shall be used to fund working
capital for the hotel. As of December 31, 1996, approximately $659,000 of such
commitments has been funded.
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed to fund up to $600,000 of working capital
per year to the extent the entity experiences operating deficits, with a maximum
required contribution of $2.3 million over the term of the guarantee extending
from 1995 to 2000. The Company has not to date been required to make any capital
contribution under the guarantee.
The Company is subject to environmental regulations related to the
ownership, management, development and acquisition of real estate (hotels). The
cost of complying with the environmental regulations was not material to the
Company's consolidated statements of income for the years ended December 31,
1994, 1995 and 1996. The Company is not aware of any environmental condition on
any of its properties which is likely to have a material adverse effect on the
Company's financial statements.
20. EMPLOYEE BENEFIT PLANS:
The Company sponsors 401(k) retirement savings plans. Employees who are
over 21 years of age and have completed one year of service are eligible to
participate in the plans. The Company matches employee contributions up to 4% of
an employee's salary. The aggregate expense under the plans amounted to
approximately $166,000, $202,000 and $229,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
The Company maintains a self-insured group health plan through a Voluntary
Employee Benefit Association ("VEBA"). This plan is funded to the limits
provided in the Internal Revenue Code, and liabilities have been recorded for
estimated incurred but unreported claims. Aggregate and stop loss insurance
exists at amounts which limit exposure to the Company. The Company has
recognized expenses related to the plan of $687,000, $832,000 and $1,504,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
F-17
<PAGE>
Certain management employees are partners in an equity participation plan,
Wyndham Employees, Ltd. ("WEL"). The Company has accounted for WEL in a manner
similar to a formula unit incentive plan. Partners are admitted into WEL and
partnership units are awarded at the discretion of Wyndham's Senior Executive
Officers. Units vest five years after award date and are payable by WEL upon
certain events. Unit values are determined by formulas related to appreciation
in value of Wyndham and other affiliated entities. In addition, the Senior
Executive Officers own limited partner interests in Wyndham and several
affiliates of Wyndham. These limited partner interests were purchased by these
Senior Executive Officers for amounts equal to the fair value of such interests.
The Senior Executive Officers borrowed the funds used to purchase such limited
partner interests from an affiliate of Wyndham and collateralized such
borrowings with their limited partner interests. The Senior Executive Officers'
shares of the distributable cash of the limited partnerships is used to repay
such affiliate loans. For financial reporting purposes, the Company has
recognized compensation expense under WEL and the Senior Executive Officer
equity participation of $2,802,000, $3,992,000 and $2,919,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. The primary component of
such expense was fixed at the Company's initial public offering price, and the
Company will not incur additional expense for periods subsequent to the initial
public offering. In February 1997, WEL was terminated upon the distribution of
646,696 shares of the Company's Common Stock held by WEL to its participants.
21. FAIR VALUE:
The Company has estimated the fair value of its financial instruments at
December 31, 1996 as required by Statement of Financial Accounting Standards No.
107. The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
values. Long-term debt had a fair value of $112,135,000 at December 31, 1996,
based on the quoted market prices. The carrying values of fixed rate debt are
reasonable estimates of their fair values based on their discounted cash flows
at discount rates currently available to the Company for debt with similar terms
and remaining maturities at December 31, 1996.
22. TRANSACTIONS WITH RELATED PARTIES:
The following discussion of certain relationships and transactions
includes (i) hotel management and related fees paid to the Company by certain
affiliates, (ii) capital contributions, loans and other payments made by the
Company to certain affiliates in connection with the Company's entry into hotel
management contracts with related parties, (iii) transactions between the
Company and Crow Family Members and the Senior Executive Officers and (iv) loans
made to the Senior Executive Officers of the Company that the Company purchased
in connection with its formation.
During 1994, 1995 and 1996, the Senior Executive Officers incurred
indebtedness to Wyndham Finance Limited Partnership ("WFLP"), a partnership
owned by Crow Family Members. In addition, Wyndham Employees Ltd. ("WEL"), in
which certain executive officers of the Company have an interest, incurred
indebtedness to WFLP. Notes representing such loans were purchased by the
Company in May of 1996 in connection with its Formation for a cash payment to
WFLP in the amount of $18,576,000 which is equivalent to the aggregate
outstanding principal and accrued interest severally owing by the Senior
Executive Officers and WEL to WFLP. Such promissory notes, which are made
payable to the Company, accrue interest at 6% per annum and are fully
collateralized by the pledge of shares of Common Stock held by the note
obligors. The outstanding principal and accrued interest (compounded quarterly)
is payable in a single lump sum in May 2001. The aggregate principal amounts of
such loans, including interest, purchased by the Company in connection with its
Formation, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
James D. Carreker $1,868 $5,135
Leslie V. Bentley $ 767 $1,890
Anne L. Raymond $4,418 $4,625
Stanley M. Koonce, Jr $ 547 $1,926
Eric Danziger* $1,116 $2,829
WEL $ 881 $3,044
</TABLE>
*Resigned in 1996.
F-18
<PAGE>
During 1994, 1995 and 1996, the Company made cash advances in the
aggregate amounts of $1,093,000, $1,381,000 and $329,000, respectively, to the
Hotel Partnerships in which Bedrock has an ownership interest. The advances were
used to pay certain renovation costs for Wyndham Garden hotels that were
redeveloped by Bedrock. The advances are repaid through Bedrock's redevelopment
fund. At December 31, 1996 no amounts were outstanding.
During 1994, 1995 and 1996, the Company made payments in the aggregate
amounts of $1,352,000, $1,740,000 and $1,742,000, respectively, to Wyndham
Travel Management Ltd., an entity owned by Lucy Billingsley (the daughter of Mr.
and Mrs. Trammell Crow), for travel services provided to the Company.
During 1994 and 1995, the Company made payments in the aggregate amounts
of $701,000 and $830,000, respectively, to Caribbean Hotel Management Company
("CHMC"), which is owned by Crow Family Members. The Company's payment
obligations under the agreement were released and discharged in connection with
the Formation of the Company in exchange for a cash payment paid by the Company
to CHMC.
During 1994, 1995 and 1996, the Company made payments in the aggregate
amounts of $744,000, $875,000 and $850,000, respectively, as lease payments for
its corporate office space to Tower 2001 Limited Partnership, a partnership in
which Crow Family Members have an ownership interest. The Company's current
lease on its corporate office space expires in May 1997. Following this period,
the lease reverts to a month-to-month term.
During 1994 and 1995, the owners of hotels owned or leased by the Company
made contributions to a loss prevention fund in the amounts of $620,000 and
$624,000, which funds were deposited to WFLP pending the use of such
contributions by the loss prevention fund. The contributions were used to cover
a portion of the deductible on insurance policies for such hotels in connection
with insured claims made against the hotels.
In 1995, the Company made payments in connection with entering into a
management contract for the Wyndham Anatole Hotel, in which Crow Family Members
have an ownership interest. The amount of such payment was $523,000 and the
purpose was to pay costs associated with converting the property to the Wyndham
brand.
During 1994, 1995 and 1996, the Company made payments in the aggregate
amounts of $321,000, $332,000, and $289,000, respectively, to GHMB, Inc., an
entity owned by a Senior Executive Officer for the operation of liquor
concessions at a Wyndham Garden hotel.
During 1995 and 1996, the Company received payments in the aggregate
amount of $73,000 and $514,000 from Convention Center Boulevard Hotel Limited,
Waterfront Hotel Associates, S.E. and WHC-LG Hotel Associates, L.P., Hotel
Partnerships in which Crow Family Members and some or all of the Senior
Executive Officers have an interest. The payments were received as construction
and renovation fees for the Wyndham Riverfront and Wyndham San Juan Hotels and
for the Company's La Guardia Airport hotel.
Pursuant to the terms of its management agreement relating to the Wyndham
Hotel at Los Angeles Airport (the "LAX"), Wyndham agreed to loan $4,560,000 to
be applied to costs of refurbishment of the LAX. The refurbishment loan is
evidenced by a promissory note (the "Note Receivable"), which has been partially
funded in the amount of $3,974,000 as of December 31, 1996. The Company's
obligation to make the remaining advances under the refurbishment loan is
collateralized by a letter of credit, which, in turn, is collateralized by
$865,000 as of December 31, 1996 in cash. Prior to the Formation of the Company,
WHC LAX Associates, L.P. ("WHC LAX"), a limited partnership owned by Crow Family
Members and the Senior Executive Officers, paid to Wyndham $4,560,000 in return
for Wyndham's agreement to pay to WHC LAX all payments that Wyndham receives
under the Note Receivable. Wyndham also agreed that, insofar as WHC LAX's
$4,560,000 payment to the Company exceeds advances that Wyndham is obligated to
make, but has not yet made, under the Note Receivable, it would pay to WHC LAX
interest at a variable rate that has ranged from 5.25% to 5.81% per annum on the
unfunded amounts. As of December 31, 1996, the Company has accrued such interest
in the amount of $32,000.
The Company has entered into a five year service agreement with ISIS 2000,
an entity owned by Crow Family Members and the Senior Executive Officers,
F-19
<PAGE>
whereby ISIS 2000 will provide centralized reservations and property management
services to all Wyndham brand hotels. The services will be provided for a fee
comprised of an initial link-up charge plus a per reservation fee and a per
hotel charge for the property management system. The service fee payable by the
Company totaled $772,000 in 1996. The Company has entered into an asset
management agreement with ISIS 2000 providing for human resource, finance,
accounting, payroll, legal and tax services. In addition, the Company has
guaranteed operating leases on behalf of ISIS 2000 in the approximate amount of
$2.4 million as of December 31, 1996.
In 1995 and 1996, the Company made payments to Trammell Crow Company in
the amount of $387,000 and $937,000, respectively, for contract labor (including
related costs) provided to the Company for management information services.
The Company has made insurance premium payments to Wynright Insurance
("Wynright"), an entity owned by Crow Family Members and the Senior Executive
Officers, with respect to certain insurance policies maintained for the benefit
of the Company and hotels owned or leased by the Company. Such payments totaled
$593,000 in 1996. The Company also will enter into an asset management agreement
with Wynright providing for human resource, finance, accounting, payroll, legal
and tax services.
In 1996, a subsidiary of the Company entered into a master management
agreement (the "Agreement") with Homegate, an affiliated entity, which provides
for the Company to manage up to 60 extended-stay hotel properties and to provide
Homegate with other services. The Company and Homegate have agreed that Homegate
will pay Wyndham or an affiliate a one-time fee of $25,000 for Wyndham's
provision of design services in developing the initial prototype, certain other
fees for the provision of software and other services, and a commission of 5% of
the aggregate purchase price of all items that Homegate purchases through
Wyndham's purchasing department. Homegate also must reimburse Wyndham for up to
$100,000 for the costs incurred in developing Homegate's payroll and accounts
payable software and for developing a marketing database, which costs will be
reimbursed ratably upon the signing of the first 10 management contracts.
Wyndham and Homegate will agree upon any fees to be paid with respect to ongoing
systems support and maintenance services. The Company currently manages seven
extended stay hotel properties for Homegate.
In connection with the execution of the Agreement, certain Crow Family
Members have agreed to grant Wyndham a right of first refusal affording Wyndham
a preferential right to purchase their shares in connection with any proposed
sale by any of such parties or their affiliates.
In May 1994, the Company entered into an Investment Agreement and an
Option Agreement (collectively, the "Bedrock Agreements") with Bedrock pursuant
to which, as amended, Bedrock agreed to provide up to $335 million in equity and
debt capital (the "Investment Program") to acquire hotels or hotel management
companies and to make hotel related investments that are approved by both the
Company and Bedrock. Approximately $196 million of debt and equity capital has
been invested pursuant to the Investment Program as of December 31, 1996.
Although the commitments of certain of the participants in the Investment
Program expire in mid-1997, the Company will be entitled to manage any
Investment Program hotel for a term of 15 years. Pursuant to the terms of the
Investment Agreement, Bedrock is not required to invest a minimum amount of
capital through the Investment Program, and Wyndham has not invested in any of
the 17 hotels acquired pursuant to the Investment Program. Pursuant to the
Investment Agreement, as amended, the Company and Bedrock have agreed that the
Company will be permitted to manage any hotel with 250 or fewer rooms that is
sourced by Bedrock. Subject to certain limitations, certain Crow Family Members
have the right to co-invest with Bedrock in the Investment Program. The Company
also has certain limited rights to co-invest with Bedrock in the Investment
Program; provided, however, that once the Company elects to co-invest in
Investment Program projects, it must co-invest in each subsequent project or it
would forfeit additional rights to co-invest. At December 31, 1994, 1995 and
1996, the Company had executed management contracts with Bedrock for 11, 15 and
17 Wyndham brand hotels, respectively, through the Investment Program.
F-20
<PAGE>
Bedrock has certain registration rights with respect to 2,276,055 shares
of Common Stock. Bedrock also entered into the Stockholders' Agreement with the
Company, Crow Family Members, the Senior Executive Officers and WEL, which
provides for, among other things, representation on the Company's Board of
Directors.
23. SUPPLEMENTAL CASH FLOWS INFORMATION:
The following table sets forth certain cash and non-cash investing and
financing activities and other cash flow information (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $7,694 $8,154 $11,292
Income taxes paid -- -- 3,939
Non-cash activities:
Capital lease obligations incurred 115 283 429
Acquisitions of businesses:
Fair value of assets acquired -- -- 49,967
Liabilities assumed -- -- 16,497
Common stock issued for repayment
of revolving credit agreement -- -- 7,500
</TABLE>
24. SUBSEQUENT EVENTS:
In November 1996, the Company executed a contract for a hotel in Salt Lake
City, Utah. The transaction, which closed in January 1997, required the Company
to make deposits totaling $10.0 million with the lessor. The deposits were
funded with cash borrowed under the Revolving Credit Facility.
In February 1997, the Company, through a financial institution and a
county authority, issued $9,675,000 in aggregate principal amount of revenue
bonds. The bonds are issued to refinance the existing bonds that the Company
assumed in the acquisition of the Wyndham Vinings Hotel. The bonds initially
bear interest at a weekly rate (the "Weekly Rate Period") determined in
accordance with the indenture of the bonds based on prevailing financial market
conditions for revenue bonds (at March 17, 1997, such rate was 3.9%) plus a 2%
credit enhancement fee as defined. The weekly rate may be converted to another
interest rate determination method on the first business day of any calendar
month at the Company's option, subject to the terms and conditions set forth in
the indenture. The bonds mature in February 2023 and are subject to redemption
in whole or in part during the Weekly Rate Period. The outstanding refinanced
bonds at December 31, 1996 are recorded as long-term debt in the accompanying
consolidated financial statements. The bonds are credit enhanced by a letter of
credit in the amount of $9.675 million issued under the Revolving Credit
Facility. See Note 12.
25. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The unaudited pro forma condensed consolidated statements of income of the
Company are presented as if the initial public equity offering, the issuance of
$100.0 million aggregate principal amount of 10.5% subordinated notes, the GHALP
transaction, the closing of the Revolving Credit Facility and the subsequent
acquisition of four additional hotel properties had occurred on January 1, 1995.
These unaudited pro forma condensed consolidated statements of income are not
necessarily indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January 1, 1995,
nor do they purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Total revenues $160,261 $180,298
Operating income $ 20,687 $ 29,612
Income before income taxes $ 8,193 $ 18,730
Net income $ 4,958 $ 11,332
Earnings per common share outstanding $ .25 $ .57
</TABLE>
26. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES:
In connection with the issuance of the Notes, all of the Company's
subsidiaries, with the exception of a number of subsidiaries (which subsidiaries
are individually and collectively inconsequential), are fully and
unconditionally guaranteeing the Company's obligations under the Notes on a
joint and several basis (the "Guarantor Subsidiaries"). Accordingly, the
condensed combined financial information set forth below summarizes financial
information for all of the Guarantor Subsidiaries on a combined basis. Separate
complete financial statements and other disclosure for the Guarantor
Subsidiaries have not been presented because management does not believe that
such information is material to investors.
Condensed combined financial information of the Guarantor Subsidiaries
(see notes to condensed combined financial information) as of December 31, 1995
and 1996 and for the years ended December 31, 1994, 1995 and 1996 are presented
on the following page:
F-21
<PAGE>
GUARANTOR SUBSIDIARIES CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
- -------------------------------------------------------------------------------------------
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,708 $ 9,673
Cash, restricted 2,595 865
Accounts receivable, net 13,732 22,485
Other 1,606 2,466
------- --------
Total current assets 21,641 35,489
Investment in an affiliate's hotel partnership 2,597 --
Notes and other receivables from affiliates 7,674 7,685
Notes receivable 2,450 1,978
Property and equipment, net 47,321 61,062
Management contract costs, net 7,579 7,766
Security deposits -- 15,105
Other 1,068 2,502
------- --------
Total assets $90,330 $131,587
======= ========
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,600 $ 18,169
Deposits 1,914 1,147
Current portion of long-term debt and capital lease obligations 3,428 510
Due to affiliates 1,454 42,666
------- --------
Total current liabilities 13,396 62,492
------- --------
Payable to affiliates 2,627 --
Payable to minority interest 218 --
Long-term debt and capital lease obligations 40,659 29,944
------- --------
43,504 29,944
------- --------
Minority interest 7,379 --
------- --------
Partners' capital and stockholders' equity:
Receivables from affiliates (1,927) (1,223)
Partners' capital 27,978 --
Additional paid-in capital -- 31,071
Retained earnings -- 9,303
------- --------
Total partners' capital and stockholders' equity 26,051 39,151
------- --------
Total liabilities and equity $90,330 $131,587
======= ========
</TABLE>
See notes to the condensed combined financial information.
F-22
<PAGE>
GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues $55,611 $65,524 $118,930
------- ------- --------
Operating costs and expenses 42,659 51,210 87,957
Depreciation and amortization 3,328 3,929 4,667
Other 175 105 654
------- ------- --------
Total operating costs and expenses 46,162 55,244 93,278
------- ------- --------
Operating income 9,449 10,280 25,652
Interest expense, net (4,194) (3,816) (2,600)
Equity in earnings of hotel partnership 1,237 1,664 870
Foreign currency gain 404 405 --
------- ------- --------
Income before minority interests, income taxes
and extraordinary item 6,896 8,533 23,922
Income attributable to minority interests 186 724 571
------- ------- --------
Income before income taxes and extraordinary items 6,710 7,809 23,351
Income taxes -- -- 6,308
------- ------- --------
Income before extraordinary item 6,710 7,809 17,043
Extraordinary item (less applicable tax benefits) -- -- (1,028)
------- ------- --------
Net income $ 6,710 $ 7,809 $ 16,015
======= ======= ========
</TABLE>
See notes to the condensed combined financial information.
F-23
<PAGE>
GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities $11,823 $ 13,144 $ 11,823
------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment (1,820) (2,917) (6,584)
Sale of property and equipment -- -- 133,778
Investments in management contracts (285) (4,346) (1,537)
Notes and other receivables from affiliates -- (7,674) (11)
Notes receivable -- (2,451) (1,252)
Payments for purchase of hotels, net of
cash acquired -- -- (2,520)
Acquisition of minority interest -- -- (5,479)
Other 1,903 (3,080) 1,674
------- -------- ---------
Net cash provided by (used in)
investing activities (202) (20,468) 118,069
------- -------- ---------
Cash flows from financing activities:
Partners' contributed capital 1,781 13,711 26,502
Partners' capital distributions (6,368) (10,672) (42,572)
Distribution made to withdrawing partners -- (2,577) --
Decrease in receivable from affiliates -- -- 2,933
Increase (decrease) in payable to affiliate (1,035) (1,215) 35,251
Decrease in payable to minority interest -- -- (218)
Proceeds from long-term borrowings and
issuance of debt -- 13,600 2,500
Repayments on long-term debt and capital lease
obligations (3,858) (4,201) (148,323)
Other (219) (83) --
------- -------- ---------
Net cash provided by (used in)
financing activities (9,699) 8,563 (123,927)
------- -------- ---------
Increase in cash and cash equivalents 1,922 1,239 5,965
Cash and cash equivalents at beginning of year 547 2,469 3,708
------- -------- ---------
Cash and cash equivalents at end of year $ 2,469 $ 3,708 $ 9,673
======= ======== =========
</TABLE>
See notes to the condensed combined financial information.
F-24
<PAGE>
NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION
1. The foregoing condensed combined financial information for 1994 and
1995 includes Wyndham (100%), WHI Limited Partnership (100%) and Rose Hall
Associates (62.5%). Also reflected in this information is an investment in
Garden Hotel Associates L.P. (30%), which was being accounted for using the
equity method.
2. The foregoing condensed combined financial information for 1996
includes GHALP Corporation, Waterfront Management Corporation, WHCMB, Inc.,
Wyndham Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC
Vinings Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose Hall
Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC Development
Corporation, WHC Franchise Corporation, WHCMB Overland Park, Inc., WHCMB,
Toronto Inc., WHC Columbus Corporation, Wyndham Hotels & Resorts Management
Ltd., and WHC Salt Lake City Corporation, and a subsidiary for a non-branded
hotel. They all are wholly-owned subsidiaries of the Company at December 31,
1996.
NOTE 27. QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarterly financial data for 1995 and 1996 are summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
1995 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenues $21,919 $21,315 $22,267 $22,389
Operating income 4,978 3,740 3,309 2,598
Net income 3,019 2,177 1,705 1,048
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
1996 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenues $26,484 $34,042 $41,415 $46,134
Operating income 6,615 3,803 7,079 8,506
Income before
extraordinary item 5,168 13,624 2,769 3,536
Net income 5,168 12,493 2,769 3,536
Earnings per common
share outstanding:
Income before
extraordinary item -- .67 .14 .18
Net income -- .61 .14 .18
</TABLE>
Note: Earnings per share data for 1995 and March quarter of 1996 relates to
periods prior to the Company's formation and therefore is not presented.
F-25
<PAGE>
WYNDHAM HOTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------- --------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents........................... $ 11,517 $ 7,087
Cash, restricted.................................... 865 450
Accounts receivable, less allowance of $941.........
at December 31, 1996 and $1,335 at March 3l, 1997. 13,330 18,743
Due from affiliates................................. 12,686 19,665
Inventories......................................... 1,430 1,417
Deferred income taxes............................... 1,539 2,045
Other............................................... 1,412 1,174
-------- --------
Total current assets............................. 42,779 50,581
Investment in a hotel partnerships..................... 1,125 1,091
Notes and other receivables from affiliates............ 7,685 7,685
Notes receivable....................................... 6,307 6,340
Property and equipment, net............................ 134,176 140,923
Management contract costs, net......................... 7,766 9,990
Security deposits...................................... 15,288 24,456
Deferred income taxes.................................. 14,148 13,584
Other.................................................. 13,688 12,944
-------- --------
Total assets...................................... $242,962 $267,594
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 23,556 $ 32,879
Deposits............................................. 959 963
Deposits from affiliates............................. 344 344
Current portion of long-term debt and
capital lease obligations......................... 510 522
-------- --------
Total current liabilities......................... 25,369 34,708
-------- --------
Borrowings under revolving credit facility............. - 8,000
Long-term debt and capital lease obligations........... 129,944 129,809
Deferred gain.......................................... 12,065 11,880
-------- --------
142,009 149,689
-------- --------
Stockholders' equity:
Common stock......................................... 200 200
Additional paid-in capital........................... 84,342 84,342
Retained earnings.................................... 11,714 16,549
Receivables from affiliates.......................... (1,223) (1,255)
Notes receivable from stockholders................... (19,449) (16,639)
-------- --------
Total stockholders' equity........................ 75,584 83,197
-------- --------
Total liabilities and stockholders' equity........ $242,962 $267,594
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE>
WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amount)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Revenues:
Hotel revenues ................................................................... $ 16,829 $ 42,325
Management fees .................................................................. 2,601 2,121
Management fees - affiliates ..................................................... 2,601 3,978
Service fees ..................................................................... 410 494
Service fees - affiliates ........................................................ 554 566
Reimbursements ................................................................... 1,626 1,341
Reimbursements - affiliates ...................................................... 1,956 2,028
Other ............................................................................ 33 -
----------- -----------
Total revenues ............................................................. 26,610 52,853
----------- -----------
Operating costs and expenses:
Hotel expenses ................................................................... 10,352 31,186
Selling, general and administrative expenses ..................................... 4,273 5,395
Reimbursable expenses ............................................................ 1,626 1,341
Reimbursable expenses - affiliates ............................................... 1,956 2,028
Depreciation and amortization .................................................... 1,661 2,559
----------- -----------
Total operating costs and expenses ......................................... 19,868 42,509
----------- -----------
Operating income .................................................................... 6,742 10,344
Interest income ..................................................................... 126 445
Interest income - affiliates ........................................................ 178 186
Interest expense .................................................................... (2,114) (3,550)
Equity in earnings (loss) of hotel partnerships ..................................... 828 (34)
Amortization of deferred gain ....................................................... - 185
----------- -----------
Income before minority interests and income taxes ................................... 5,760 7,576
Income attributable to minority interests ........................................... 593 -
----------- -----------
Income before income taxes .......................................................... 5,167 7,576
Provision for income taxes .......................................................... - 2,992
----------- -----------
Net income .......................................................................... $ 5,167 $ 4,584
=========== ===========
Earnings per share: Primary and fully diluted ....................................... N/A $ .23
Average number of common shares outstanding ......................................... N/A 20,018
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-27
<PAGE>
WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Month, Ended
March 31,
--------------------
1996 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 5,167 $ 4,584
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................. 1,661 2,223
Deferred income taxes ..................................................... -- 58
Provision for bad debt .................................................... 119 423
Amortization of deferred debt issuance costs .............................. -- 336
Amortization of deferred gain ............................................. -- (185)
Equity in (earnings) loss of hotel partnerships ........................... (455) 34
Minority interest.......................................................... 593 --
Net withdrawals from restricted cash ...................................... 120 416
Changes to operating assets and liabilities:
Accounts receivable ....................................................... (2,904) (6,166)
Net change in due to from affiliates ...................................... (716) (6,980)
Inventories ............................................................... (42) 12
Other ..................................................................... 239 (1,454)
Current income taxes ...................................................... -- 2,934
Accounts payable and accrued expenses ..................................... 757 6,388
Deposits .................................................................. (714) 4
Deposits from affiliates .................................................. (38) --
Security deposits ......................................................... -- (7,107)
------- -------
Net cash provided by (used in) operating activities ................... 3,787 (4,480)
------- -------
Cash flows from investing activities:
Purchase of property and equipment ........................................ (562) (8,733)
Investments in management contracts ....................................... (23) (2,078)
Notes and other receivables from affiliates ............................... (36) --
Advances on notes receivable .............................................. -- (53)
Increase in long-term restricted cash ..................................... (32) (45)
Collections on notes receivable ........................................... -- 20
Other ..................................................................... (2,474) --
------- -------
Net cash used in investing activities ................................. (3,127) (10,889)
------- -------
Cash flows from financing activities:
Partners' contributed capital ............................................... 4,791 --
Partners' capital distributions ............................................. (4,980) --
Increase in payable to minority interest .................................... 4 --
Proceeds from borrowings under revolving credit facilitv .................... -- 10,750
Repayments on revolving credit facility ..................................... -- (2,750)
Proceeds from long-term borrowings .......................................... 2,540 9,675
Repayments on long-term borrowings and capital lease obligations ............ (1,091) (9,798)
Collections on notes receivable from stockholders ........................... -- 3,062
------- -------
Net cash provided by financing activities ............................. 1,264 10,939
------- -------
Increase (decrease) in cash and cash equivalents ............................... 1,924 (4,430)
Cash and cash equivalents at beginning of period ............................... 4,160 11,517
------- -------
Cash and cash equivalents at end of period ..................................... $ 6,084 $ 7,087
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-28
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Wyndham Hotel Corporation ("WHC") was incorporated and formed in
February 1996. The accompanying consolidated financial statements of WHC at
December 31, 1996 and March 31, 1997 and for the three months ended March 31,
1997 include the accounts of WHC, its wholly owned subsidiaries and a 30%
owned hotel entity which is accounted for using the equity method
(collectively, the "Company"). Financial statements for the three months
ended March 31, 1996 relating to the period prior to the Company's formation
include the combined accounts of WHC and its majority owned entities. All
significant intercompany balances and transactions have been eliminated.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation at
March 31, 1997 have been included. Operating results for the three months
ended March 31, 1997 are not necessarily indicative of the operating results
for the year ending December 31, 1997. These financial statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in the annual report on Form 10-K of the Company for the
year ended December 31, 1996.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. ACQUISITION OF LEASE AGREEMENT:
In January 1997, the Company entered into a lease agreement relating to
the Wyndham hotel property in Salt Lake City. The lease is qualified as an
operating lease. The lease required the Company to make deposits totaling
$10.0 million with the lessor. The deposits were funded with cash borrowed
under the revolving credit facility. The minimum rent under the lease is $4.4
million per year. Beginning January 1998 through the end of the term of the
lease, additional rent ranging from 5% to 8% of the excess total hotel sales,
as defined, will be paid.
3. EARNINGS PER SHARE:
Earnings per share for the quarter ended March 31, 1997 are computed
based on the weighted average number of shares of common stock outstanding.
The impact of common stock equivalents to earnings per share is immaterial.
Earnings per share data for the quarter ended March 31, 1996 relates to
period prior to the Company's initial public offerings and therefore is not
presented.
In February 1997, Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No.128 ("SFAS 128"), Earnings Per Share
("EPS"). SFAS 128 requires basic EPS to be computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period and diluted EPS to reflect the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997 and requires restatement of all prior period EPS data
presented. Earlier application is not permitted. The impact of the
implementation of SFAS 128 on the Company's consolidated financial statements
is expected to be immaterial. Basic EPS and diluted EPS would have been $.23
and $.22, respectively, for the quarter ended March 31, 1997 if SFAS 128 were
adopted.
F-29
<PAGE>
4. REFINANCE OF DEBT:
In February 1997, the Company, through a financial institution and a
county authority, issued revenue bonds totaling $9,675,00O. The bonds were
issued to refinance the existing bonds that the Company assumed in the
acquisition of the Wyndham Vinings Hotel in May 1996. The bonds initially
bear interest at a weekly rate (the "Weekly Rate Period") determined in
accordance with the indenture of the bonds based on prevailing financial
market conditions for the revenue bonds (at March 31, 1997, such rate was
3.6%) plus a 2% credit enhancement fee. The weekly rate may be converted to
another interest rate determination method on the first business day of any
calendar month at the Company's option, subject to the terms and conditions
set forth in the indenture. The bonds mature in February 2023 and are subject
to redemption in whole or in part during the Weekly Rate Period. The bonds
are credit enhanced by a letter of credit in the amount of $9,794,281 issued
under the revolving credit facility.
5. COMMITMENTS AND CONTINGENCIES:
Litigation has been initiated against the Company pertaining to the
right to use the Wyndham name for hotel service in the New York metropolitan
area. On January 29, 1996, a temporary restraining order was issued by the
Supreme Court of the State of New York which, pending the outcome of a trial,
prevents the Company from using the Wyndham name in the New York area. An
adverse decision in the litigation could prevent the Company from operating
Wyndham brand hotels or advertising the Wyndham name in connection with the
operation of a Wyndham brand hotel within a 50 mile radius of a hotel in
Manhattan operated under the "Wyndham" name. It is management's opinion,
based on legal counsel, that the range of losses resulting from the ultimate
resolution of the aforementioned claim cannot be determined. The cost of
$1,274,000 at March 31, 1997 for defending the trademark has been capitalized
and is being amortized over 17 years, pending the ultimate resolution. An
adverse decision may result in the immediate write-off of those capitalized
costs.
The Company received a Notice of Intent to make Sales and Use Tax audit
changes from the Tampa Region of the Florida Department of Revenue for the
period from July 31, 1990 through June 30, 1995. The audit assessed
additional taxes of $584,000, penalty of $224,000 and interest of $201,000
for a total assessment of $1,009,000. The previous owners (an affiliate)
have agreed to indemnify the Company with respect to any additional sales and
use tax paid by the Company for the audit period. Management, after review
and consultation with legal counsel, believes the Company has meritorious
defenses to this matter and that any potential liability in excess of the
$189,000 recorded would not materially effect the Company's consolidated
financial statements.
The Company has pending several other claims incurred in the normal
course of business which, in the opinion of management, based on the advice
of legal counsel, will not have a material effect on the consolidated
financial statements.
Pursuant to the terms of the management agreements of two affiliate-
owned hotels under construction, the Company has undertaken certain
commitments to provide furniture, fixtures and equipment for each hotel at a
fixed price totaling $8.1 million. As of March 31, 1997, the Company has
satisfied commitments totaling $5.4 million. The Company has indirectly paid
the excess over the fixed price amount of approximately $444,000 by
contributing such amount to the partnership that owns one of the hotels. The
Company has guaranteed to fund up to $230,000 in working capital per year for
three years after one of the hotels is opened in the event that the hotel
generates inadequate cash flow and the Company has guaranteed $875,000 in
indebtedness.
Pursuant to the terms of a management agreement of a hotel in which the
Company has a 30% ownership, the Company has committed to fund up to $2.5
million for the renovation of the hotel property. The loan will bear an
interest rate at 10% and will be collateralized by the outstanding
partnership interest of the owners. Interest will be due monthly and
principal is payable in installments beginning January 1998 based on the
operating income of the hotel. As of March 31 1997, the Company has not made
any of such advances. The Company also guarantees $2,340,000 in indebtedness
of this hotel.
F-30
<PAGE>
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed to fund up to $600,000 of working
capital per year to the extent the entity experiences operating deficits,
with a maximum required contribution of $2.3 million over the term of the
guarantee extending from 1995 to 2000. The Company has not to date been
required to make any capital contribution under the guarantee.
The Company is subject to environmental regulations related to the
ownership, management, development and acquisition of real estate (hotels).
The cost of complying with the environmental regulations was not material to
the Company's consolidated statements of income for the three months ended
March 31, 1996 and 1997. The Company is not aware of any environmental
condition on any of its properties which is likely to have a material adverse
effect on the Company's financial statements.
6. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES:
In connection with the issuance of the $100 million subordinated notes
("Notes"), all of the Company's direct and indirect subsidiaries, with the
exception of a number of subsidiaries (which subsidiaries are individually
and collectively inconsequential), are fully and unconditionally guaranteeing
the Company's obligations under the Notes on a joint and several basis (the
"Guarantor Subsidiaries"). Accordingly, the condensed combined financial
information set forth below summarizes financial information for all of the
Guarantor Subsidiaries on a combined basis. Separate complete financial
statements and other disclosure for the Guarantor Subsidiaries have not been
presented because management does not believe that such information is
material to investors. The condensed combined financial information of the
Guarantor Subsidiaries as of December 31, 1996 and March 31, 1997, and for
the three months ended March 31, 1996 and 1997 are presented as follows:
F-31
<PAGE>
GUARANTOR SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 9,673 $ 5,912
Cash, restricted ....................................................... 865 373
Accounts receivable, net ............................................... 22,085 38,510
Other .................................................................. 2,466 2,054
--------- ---------
Total current assets ............................................ 35,089 46,849
Notes and other receivables from affiliates ............................... 7,685 7,685
Notes receivable .......................................................... 1,978 2,031
Property and equipment, net ............................................... 61,062 62,397
Management contract costs, net ............................................ 8,166 9,990
Security deposits ......................................................... 15,105 24,275
Other ..................................................................... 2,502 3,221
--------- ---------
Total assets .................................................... $ 131,587 $ 156,448
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............................... $ 18,169 $ 23,002
Deposits ............................................................... 1,147 972
Current portion of long-term debt and capital lease obligations ........ 510 522
Due to affiliates ...................................................... 42,666 56,666
--------- ---------
Total current liabilities ....................................... 62,492 81,162
--------- ---------
Long-term debt and capital lease obligations .............................. 29,944 29,809
--------- ---------
Stockholder's equity:
Receivable from affiliates ............................................. (1,223) (1,255)
Additional paid-in capital ............................................. 31,071 31,071
Retained earnings ...................................................... 9,303 15,661
--------- ---------
Total stockholder's equity ...................................... 39,151 45,477
--------- ---------
Total liabilities and stockholder's equity ................... $ 131,587 $ 156,448
========= =========
</TABLE>
See note to the condensed combined financial information.
F-32
<PAGE>
GUARANTOR SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1997
-------- --------
(Unaudited)
<S> <C> <C>
Revenues ........................................ $ 21,145 $ 43,831
-------- --------
Operating costs and expenses .................... 14,009 31,445
Depreciation and amortization ................... 1,069 1,421
Other ........................................... 96 134
-------- --------
Total operating costs and expenses ........ 15,174 33,000
-------- --------
Operating income ................................ 5,971 10,831
Interest expense, net ........................... (889) (322)
Equity in earnings of hotel partnerships ........ 829 --
-------- --------
Income before minority interests and income taxes 5,911 10,509
Income attributable to minority interests ....... 593 --
-------- --------
Income before income taxes ...................... 5,318 10,509
Income taxes .................................... -- 4,151
-------- --------
Net income ................................ $ 5,318 $ 6,358
======== ========
</TABLE>
See note to the condensed combined financial information.
F-33
<PAGE>
GUARANTOR SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1997
------- --------
(Unaudited)
<S> <C> <C>
Net cash provided by (used in) operating activities ........ $ 4,177 $ (9,496)
------- --------
Cash flows from investing activities:
Purchase of property and equipment ...................... (361) (2,470)
Investments in management contracts ..................... (23) (2,078)
Notes and other receivable from affiliates .............. (36) --
Decrease in long-term restricted cash ................... -- 533
Other ................................................... (2,223) (53)
------- --------
Net cash used in investing activities ........ (2,643) (4,068)
------- --------
Cash flows from financing activities:
Partners' contributed capital ........................... 4,579 --
Partners' capital distributions ......................... (4,807) --
Increase in receivables from affiliates ................. -- (4,074)
Increase (decrease) in payables to affiliates ........... (1,162) 14,000
Proceeds from long-term borrowings ...................... 2,540 9,675
Repayment of long-term debt and capital lease obligations (843) (9,798)
Other ................................................... 4 --
------- --------
Net cash provided by financing activities .... 311 9,803
------- --------
Increase (decrease) in cash and cash equivalents ........... 1,845 (3,761)
Cash and cash equivalents at beginning of period ........... 3,708 9,673
------- --------
Cash and cash equivalents at end of period ................. $ 5,553 $ 5,912
======= ========
</TABLE>
Note to Condensed Combined Financial Information:
(1) The foregoing condensed combined financial information includes GHALP
Corporation, Waterfront Management Corporation, WHCMB, Inc., Wyndham
Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC Vinings
Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose Hall
Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC Development
Corporation, WHC Franchise Corporation, WHCMB Overland Park, Inc., WHCMB,
Toronto, Inc., WHC Columbus Corporation, Wyndham Hotels & Resorts Management
Ltd, and a management subsidiary for a non-branded hotel. They all are
wholly-owned subsidiaries of the Company at March 31, 1997.
7. SUBSEQUENT EVENTS:
On April 14, 1997, the Company entered into a merger agreement with
Patriot American Hospitality, Inc. ("Patriot"), which also entered into a
related stock purchase agreement (collectively, the "Patriot Merger Agreement"),
pursuant to which the Company will merge with and into the successor to Patriot
("New Patriot REIT") following Patriot's merger with and into California Jockey
Club (the "Cal-Jockey Merger"), with New Patriot REIT being the surviving
company (the "Patriot Merger"). As a result of the Patriot Merger, New Patriot
REIT will acquire all of the assets of the Company, including the Company's
portfolio of 23 owned and leased hotels, with an aggregate of 4,877 rooms, as
well as the Company's 79 managed and franchised properties throughout North
America and the Wyndham, Wyndham Garden and Wyndham Hotels & Resorts proprietary
brand names. Pursuant to the Patriot Merger Agreement, each outstanding share of
common stock of the Company ("Wyndham Common Stock") will be converted into the
right to receive 0.712 shares (the "Patriot Exchange Ratio")
F-34
<PAGE>
of common stock of each of New Patriot REIT and Patriot American Hospitality
Operating Company ("New Patriot Operating Company", known as Bay Meadows
Operating Company prior to the Cal-Jockey Merger), which shares be paired and
transferable and trade together as a single unit following the Cal-Jockey Merger
(the "Paired Shares"). The Patriot Exchange Ratio is subject to adjustment in
the event that the average of the closing prices of the Paired Shares on the
twenty trading days preceding the fifth trading day prior to the Company's
stockholders' meeting called to approve the Patriot Merger (the "Average Trading
Price") is less than $42.13 per Paired Share. If the Average Trading Price is
between $40.21 and $42.13 per Paired Share, the Patriot Exchange Ratio will be
adjusted so that each outstanding share of Wyndham Common Stock will be
converted into the right to receive a number of Paired Share equal to $30.00
divided by the Average Trading Price. If the Average Trading Price is less than
$40.21 per Paired Share, there will be no further adjustments to the Patriot
Exchange Ratio, which at that point would equate to 0.746 Paired Shares per
share of Wyndham Common Stock; however, in such circumstances, the Company has
the right, waivable by it, to terminate the Patriot Merger Agreement without
liability. In lieu of receiving Paired Shares, the Company's stockholders have
the right to elect to receive cash in an amount per share equal to the Patriot
Exchange Ratio (as it may be adjusted) multiplied by the average of the closing
prices of the Paired Shares on the five trading days immediately preceding the
closing of the Patriot Merger, up to a maximum aggregate amount of $100 million.
If stockholders holding shares of Wyndham Common Stock with a value in excess
of this amount elect to receive cash, such cash will be allocated on a pro rata
basis among such stockholders. In connection with the Patriot Merger, New
Patriot REIT will assume the Company's existing indebtedness, which is
approximately $138 million as of April 14, 1997.
In connection with the execution of the Patriot Merger Agreement Patriot
also entered into agreements with partnerships affiliated with members of the
Trammell Crow family providing for the acquisition by New Patriot REIT of 11
full-service Wyndham branded hotels with 3,072 rooms, located throughout the
United States, for approximately $331.7 million in cash, plus approximately $14
million in additional consideration if two hotels meet certain operational
targets (the "Crow Acquisition" and, collectively with the Patriot Merger, the
"Proposed Patriot Transactions"). The Patriot Merger and the Crow Acquisition,
which will be consummated concurrently, are subject to various conditions
including, without limitation, the consummation of the Cal-Jockey Merger and the
transactions related thereto and the approval of the Patriot Merger and certain
of the related transactions by the stockholders of New Patriot REIT, New Patriot
Operating Company and the Company. It is currently anticipated that the
stockholder meetings to approve the Proposed Patriot Transactions will occur in
the fourth quarter of 1997.
On April 14, 1997, an action styled Kwalburn v. James D. Carreker, et. al.,
was filed in the Delaware Court of Chancery in and for New Castle County,
purportedly as a class action on behalf of the Company's stockholders,against
the Company, Patriot and the members of the Board of Directors of the Company.
The complaint alleges that the Company's Board of Directors breached its
fiduciary duties owed to the Company's public stockholders in connection with
the Board of Director's approval of the Patriot Merger. In particular, the
compliant alleges that the Patriot Merger was negotiated at the expense of the
Company's public stockholders, and that the Company's Board of Directors
permitted Patriot to negotiate on more favorable terms the Crow Acquisition with
members of the Trammell Crow family. The complaint seeks to enjoin,
preliminarily and permanently consummation of the Patriot Merger under the terms
presently proposed and also seeks unspecified damages. The defendants deny the
allegations in the complaint and expect to defend the action vigorously.
In April 1997, the Company acquired a 200 room hotel property in Dallas,
Texas. The acquisition was paid with cash borrowed under the revolving credit
facility.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners
Crow Family Hotel Partnerships
We have audited the accompanying combined balance sheets of Crow Family
Hotel Partnerships (identified in Note 1) (collectively the "Partnerships") as
of December 31, 1996 and 1995 and the related combined statements of
operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnerships' 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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.
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships, which are to be acquired by Patriot American Hospitality, Inc.,
and may not necessarily reflect the financial position, results of operations
and cash flows of the Partnerships that might have resulted had they actually
operated as a stand-alone entity.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Partnerships as of December 31, 1996 and 1995 and the combined results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
May 6, 1997
F-36
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------ -----------
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.................... $ 1,443 $ 2,377 $ 4,172
Cash, restricted............................. 2,626 3,062 2,771
Accounts receivable, less allowance of $119
and $112 in 1995 and 1996, respectively..... 5,284 6,733 8,087
Inventories.................................. 988 1,002 954
Prepaid expenses and other................... 1,123 1,429 2,166
-------- -------- --------
Total current assets....................... 11,464 14,603 18,150
Cash, restricted for noncurrent assets......... 4,567 3,593 4,248
Property and equipment, net.................... 164,429 176,501 180,276
Other assets................................... 8,846 8,773 8,438
-------- -------- --------
Total assets............................... $189,306 $203,470 $211,112
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Current liabilities:
Accounts payable and accrued expenses........ $ 18,070 $ 18,951 $ 17,419
Due to affiliates............................ 4,206 384 5,727
Due to operator.............................. 1,925 2,855 3,662
Advance deposits............................. 857 1,206 1,310
Current portion of long-term debt (net of
discount of $1,779 and $1,746 in 1995 and
1996) and capital lease obligations......... 1,901 68,078 69,582
-------- -------- --------
Total current liabilities.................. 26,959 91,474 97,700
-------- -------- --------
Advances from partners......................... 4,679 4,911 5,358
Long-term debt and capital lease obligations... 219,804 163,858 164,255
-------- -------- --------
224,483 168,769 169,613
-------- -------- --------
Commitments and contingencies
Partners' deficit.............................. (62,136) (56,773) (56,201)
-------- -------- --------
Total liabilities and partners' deficit.... $189,306 $203,470 $211,112
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-37
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 QUARTER ENDED MARCH 31
------------------------- ------------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms................... $48,038 $56,608 $70,450 $ 15,113 $ 20,031
Food and beverage....... 34,163 37,238 39,330 7,861 10,311
Telephone............... 2,711 3,746 4,727 1,039 1,238
Other departmental reve-
nues................... 2,284 2,916 3,167 705 809
Other income............ 790 1,302 1,893 325 551
------- ------- ------- ----------- -----------
87,986 101,810 119,567 25,043 32,940
------- ------- ------- ----------- -----------
Operating costs and
expenses:
Rooms................... 11,464 13,826 16,418 3,752 4,444
Food and beverage....... 23,997 26,784 28,832 6,290 7,767
Telephone............... 1,181 1,552 1,745 417 478
Lease expense........... 2,274 2,298 2,296 549 641
Management fees......... 3,632 4,370 5,783 862 1,169
Energy costs............ 3,574 4,383 4,584 1,139 1,304
Property insurance and
taxes.................. 3,499 4,002 4,233 1,066 1,147
General and administra-
tive................... 17,780 20,979 24,290 5,740 6,485
Depreciation and amorti-
zation................. 6,429 7,178 8,784 1,874 2,533
Other expenses.......... 2,494 2,531 3,244 515 647
------- ------- ------- ----------- -----------
76,324 87,903 100,209 22,204 26,615
------- ------- ------- ----------- -----------
Operating income...... 11,662 13,907 19,358 2,839 6,325
Interest income........... 85 179 76 -- --
Interest expense.......... (18,415) (20,465) (21,258) (4,930) (5,753)
------- ------- ------- ----------- -----------
Net income (loss)......... $(6,668) $(6,379) $(1,824) $ (2,091) $ 572
======= ======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-38
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1993........................................ $ (88,878)
Capital contributions............................................. 14,558
Contribution of note payable...................................... 11,608
Capital distributions............................................. (610)
Net loss.......................................................... (6,668)
---------
Balance at December 31, 1994........................................ (69,990)
Capital contributions............................................. 16,379
Capital distributions............................................. (2,146)
Net loss.......................................................... (6,379)
---------
Balance at December 31, 1995........................................ (62,136)
Capital contributions............................................. 7,740
Capital distributions............................................. (553)
Net loss.......................................................... (1,824)
---------
Balance at December 31, 1996........................................ (56,773)
Net income (unaudited)............................................ 572
---------
Balance at March 31, 1997 (unaudited)............................... $ (56,201)
=========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-39
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------- -----------
1994 1995 1996 1997
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $(6,668) $(6,379) $(1,824) $ 572
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 6,429 7,178 8,784 2,533
Amortization of loan cost........... 385 704 538 194
(Increase) decrease in accounts re-
ceivable........................... (2,634) 1,256 (1,449) (1,354)
Net decrease (increase) in due from
affiliates......................... 181 (218) (1,464) 5,343
(Increase) decrease in inventories.. (268) 76 (14) 48
(Increase) decrease in prepaid ex-
penses............................. (81) 234 (327) (737)
Decrease (increase) in other as-
sets............................... 562 (1,102) (343) (141)
Increase (decrease) in accounts
payable and accrued expenses....... 3,823 1,665 788 (1,532)
Increase in due to operator......... 141 524 930 807
Increase in advance deposits........ 12 238 349 104
(Increase) decrease in restricted
cash............................... (487) (148) (435) 291
------- ------- ------- ------
Net cash provided by operating ac-
tivities......................... 1,395 4,028 5,533 6,128
------- ------- ------- ------
Cash flow from investing activities:
Property and equipment additions...... (28,148) (37,283) (19,916) (6,026)
(Increase) decrease in cash restricted
for noncurrent assets................ (1,058) 893 975 (655)
------- ------- ------- ------
Net cash used in investing activi-
ties............................. (29,206) (36,390) (18,941) (6,681)
------- ------- ------- ------
Cash flows from financing activities:
Net (increase) decrease in advances
from partners........................ (637) (1,740) (2,126) 447
Proceeds from long-term debt.......... 22,256 21,481 12,299 2,908
Repayments of long-term debt and capi-
tal lease obligations................ (6,546) (2,667) (3,019) (1,007)
Partners' contributions............... 14,558 16,379 7,740 --
Partners' distributions............... (610) (2,146) (552) --
Other................................. (901) (20) -- --
------- ------- ------- ------
Net cash provided by financing ac-
tivities......................... 28,120 31,287 14,342 2,348
------- ------- ------- ------
Increase (decrease) in cash and cash
equivalents............................ 309 (1,075) 934 1,795
Cash and cash equivalents at beginning
of year................................ 2,209 2,518 1,443 2,377
------- ------- ------- ------
Cash and cash equivalents at end of
year................................... $ 2,518 $ 1,443 $ 2,377 $4,172
======= ======= ======= ======
Supplemental cash flow information:
Cash paid for interest................ $14,795 $18,943 $21,619 $6,900
Noncash activity:
Capital lease obligations............. 265 259 -- --
Interest added to principal of notes
payable.............................. 401 448 1,161 --
Contribution of note payable.......... 11,608 -- -- --
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-40
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. COMBINED PARTNERSHIPS DESCRIPTION AND BASIS OF PRESENTATION:
The accompanying combined financial statements include the accounts of 11
hotel partnerships (the "Partnerships") which are owned by various
corporations, partnerships and joint ventures. These partnerships are
beneficially owned or controlled by various members of the family of Trammell
Crow. The Partnerships along with Wyndham Hotel Corporation ("WHC"), which
manages the 11 hotels, are being considered for acquisition by Patriot
American Hospitality, Inc., a publicly traded real estate investment trust
("REIT").
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships and may not necessarily reflect the financial position, results
of operations and cash flows of the Partnerships that might have resulted had
they actually operated as a stand-alone entity.
The accounts of the Partnerships and related hotels consist of the following
hotel entities:
<TABLE>
<CAPTION>
PARTNERSHIPS HOTELS
------------ ------
<S> <C>
Hotel Bel Age Associates, L.P. Wyndham Bel Age
Franklin Plaza Associates Wyndham Franklin Plaza
MTD Associates Wyndham Milwaukee Center
Itasca Hotel Company Wyndham Northwest Chicago
WHC-LG Hotel Associates, L.P. Garden Hotel at LaGuardia Airport
CLC Limited Partnership Wyndham Garden Hotel-Las Colinas
Novi Garden Hotel Associates Wyndham Garden Hotel-Novi
Pleasanton Hotel Associates, Ltd. Wyndham Garden Hotel-Pleasanton
Wood Dale Garden Hotel Partnership Wyndham Garden Hotel-Wood Dale
Convention Center Boulevard Hotel,
Limited Wyndham Riverfront
Hotel and Convention Center Partners
I-XI, Ltd. Wyndham Palm Springs
</TABLE>
Interim Financial Statements
The interim financial statements have been prepared by the Partnerships
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations; nevertheless, management believes that
the disclosures herein are adequate to prevent the information presented from
being misleading. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial position of the Partnerships with respect to the results of their
operations for the interim periods from January 1, 1996 to March 31, 1996, and
from January 1, 1997 to March 31, 1997, have been included herein. The results
of operations for the interim periods are not necessarily indicative of the
results for the full year.
Use of Estimates and Assumptions
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 dates of the financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnerships to
concentration of credit risk consist principally of cash investments. The
Partnerships maintain cash and cash equivalents in accounts with major
F-41
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. Management believes credit risk related to these
deposits is minimal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Restricted cash consists of amounts in escrow for the payment of property
taxes and interest. Cash restricted for noncurrent assets consists of a
reserve for fixed asset repairs and replacements and hotel renovations.
Inventories
Inventories consisting of food, beverage, china, linen, glassware,
silverware, uniforms and supplies are stated at cost which approximates
market, with cost determined using the first-in, first-out method.
Property and Equipment
Buildings and site improvements are carried at cost and are depreciated
using the straight-line method over 40 and 20 years, respectively. Furniture
and equipment are recorded at cost and are depreciated using the straight-line
method over their estimated useful lives of approximately 5 years. Normal
repairs and maintenance are charged to expense as incurred.
Investment in property is recorded at cost, except when it has been
determined that the property has sustained a permanent impairment in value. At
such time, a write-down is recorded to reduce the property to its estimated
recoverable amount. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Cost of assets under construction are reported as construction in progress.
Construction in progress is not depreciated until the construction is
completed and the related assets are in use. Interest and taxes incurred
during the construction period are capitalized as part of the building cost.
Other Assets
Other assets consist primarily of unamortized loan costs, capitalized
organization costs and capitalized lease acquisition costs. Other assets are
stated at cost, except when it has been determined that the asset has
sustained a permanent impairment in value. These costs are amortized using the
straight-line method over the following periods:
<TABLE>
<S> <C>
Loan costs Over the term of the loan
Organization costs 60 months
Preopening expenses 12 months
Lease acquisition costs Over the term of the lease
</TABLE>
Income Taxes
The Partnerships are not taxable entities and the results of their
operations are included in the tax returns of the partners. The Partnerships'
tax returns and the amount of allocable income or loss are subject to
examination
F-42
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
by federal and state taxing authorities. If such examinations result in
changes to income or loss, the tax liability of the partners could be changed
accordingly.
Revenue Recognition
Room, food and beverage, telephone and other revenues are recognized when
earned.
Self-Insurance
The Partnerships are self-insured for various levels of general liability,
workers' compensation and employee medical coverages. The general and auto
liability premiums are paid to a related party who maintains a loss reserve
fund. Workers' compensation premiums are paid to an independent insurance
company. The Partnerships' workers' compensation insurance is subject to a
"retro adjustment" which could result in additional premiums or a refund of
premiums based on actual claims settled by the insurance company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Land.................................................. $ 18,575 $ 21,924
Buildings............................................. 148,644 162,764
Furniture, fixtures and equipment..................... 23,124 28,763
Construction in progress.............................. 12,329 8,345
-------- --------
202,672 221,796
Less accumulated depreciation......................... (38,243) (45,295)
-------- --------
$164,429 $176,501
======== ========
</TABLE>
Substantially all the Partnerships' property and equipment are pledged as
collateral for mortgage notes payable.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS:
The Partnerships entered into management agreements with a wholly-owned
subsidiary of Wyndham Hotel Corporation (the "Operator"). These management
agreements, having terms ranging from 10 to 22 years, provide for base
management fees and chain service fees ranging from 2.5% to 5% of gross
revenues, plus incentive fees ranging from 14% to 25% of income after fixed
charges or excess cash, as defined in the respective management agreements.
The Partnerships incurred incentive management fees of $509,000, $870,000 and
$1,638,000, during the years ended December 31, 1994, 1995 and 1996,
respectively. In addition, the agreements require the Partnerships to pay a
marketing contribution to the Operator equal to 1.5% of monthly room revenues.
The Partnerships made marketing contributions of $721,000, $850,000 and
$1,056,000 in 1994, 1995 and 1996, respectively. Due to operator represents
management fees, chain service fees and other expenses payable to the
Operator.
The Partnerships receive services from and provide services to affiliates,
which are reimbursed in the normal course of business. In 1994, 1995 and 1996,
the Partnerships reimbursed the Operator for services such as administrative,
tax, legal, accounting, finance, risk management, sales and central
reservations totaling $1,283,000, $1,566,000 and $1,497,000, respectively.
F-43
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Certain partnerships, in the normal course of business, have made advances
to or received advances from (including operating deficit loans) the partners
and their affiliates. Such amounts are classified as "Due to affiliates" in
the accompanying combined financial statements and accrue interest at rates
ranging from 2.62% to 10%. Interest expense of $222,000, $305,000 and $303,000
in 1994, 1995 and 1996, respectively, on advances from partners and affiliates
is included in other accrued expenses in the accompanying combined financial
statements. No due dates have been specified for these advances and such
advances may be repaid from available cash flow.
Pursuant to one of the partnership agreements, the general partner of the
partnership earns an annual management fee for services rendered in connection
with the business of the partnership equal to 1% of gross revenues ($207,000,
$220,000 and $233,000 in 1994, 1995 and 1996, respectively). Unpaid general
partner management fees are classified as "Due to affiliates" in the
accompanying combined financial statements.
The Partnerships participate in a centralized cash management system with
affiliates who are excluded from these combined financial statements. Gross
receipts from the hotels are deposited into the centralized cash management
system, from which operating expenses and other disbursements are paid. The
net position with the pool is reported as "Due to affiliates" in the
accompanying combined financial statements.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable............................................... $ 4,092 $ 4,755
Taxes.......................................................... 3,219 3,067
Accrued interest............................................... 6,716 6,136
Payroll and related costs...................................... 2,433 2,961
Other.......................................................... 1,610 2,032
------- -------
$18,070 $18,951
======= =======
</TABLE>
F-44
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
Substantially all of the hotel property is pledged as collateral for long-
term debt consisting of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Mortgage note, bearing interest at 10% with monthly payments
of interest only, maturing August 1, 1997.................... $11,308 $11,308
Mortgage note, bearing interest at 10%, with monthly payments
of interest only at 5%, pay rate increasing 1% per year (7%
and 8% at December 31, 1995 and 1996). Net cash flow, as de-
fined, is payable quarterly and is applied first to deferred
interest with balance, if any, applied to principal. Note ma-
tures August 1, 1997......................................... 7,627 6,662
Note payable to a financial institution, for which payment is
guaranteed by certain partners, bearing interest at 9.75%.
Interest only is payable through November 1, 1996, with prin-
cipal and interest payable in monthly installments commencing
November 1, 1996. Additional interest of 30% of net cash
flow, as defined, is payable quarterly. Note matures October
31, 2000..................................................... 8,500 8,470
Mortgage note, bearing interest at 10%, with monthly payments
of interest only. Note matures August 1, 1997................ 10,521 10,521
Mortgage note, bearing interest at 10.71%, with current pay
rate of 6.5% increasing to 8.5% on January 1, 1997, with an-
nual increases of .5% per year to maturity. The difference
between the amount of interest accrued and that paid is pay-
able quarterly from available gross income, as defined. The
amounts accrued at December 31, 1995 and 1996, respectively,
were $3,132,000 and $1,866,000. In addition, additional in-
terest, based on net cash flows, as defined, is payable
through December 31, 1997. No additional interest was paid in
1994, 1995, or 1996. At maturity, April 1, 2001, or upon
sale, an additional amount equal to 40% of the residual val-
ue, as defined, is due....................................... 47,000 47,000
Noninterest bearing mortgage shortfall payable, maturing April
1, 2001...................................................... 2,917 2,917
Mortgage note, bearing interest at 9.82%, principal and inter-
est payable in monthly installments through October, 1999,
maturing October 13, 1999.................................... 10,781 10,591
Mortgage note, bearing interest at 10.875%, principal and in-
terest payable in monthly installments, contingent interest
equal to 5% of gross room sales, as defined, payable monthly,
principal maturing December 31, 2023......................... 17,774 17,701
Mortgage note, bearing interest at annually increasing rates
ranging from 5.78% to 13.07%. Specified interest payments are
due monthly, with the difference between the amount of inter-
est paid and accrued at the contract rate added to the prin-
cipal of the note. Additional interest is due quarterly equal
to 30% of adjusted gross revenue, as defined. The note ma-
tures on October 13, 2004. At maturity, the lender is due
Shared Appreciation Interest, as defined. The note is call-
able after February 1, 2000. The loan has an interest reserve
account of $1,028,000 and $1,000,000, as of December 31, 1995
and 1996, respectively. The related partnership may make
withdrawals from this reserve to cover any interest
shortfalls, as defined. The loan agreement provides for a re-
lease of the interest reserve account to the related partner-
ship after October 1, 1997, if certain conditions are met.... 9,219 9,378
Mortgage note, bearing interest at 11%, principal and interest
payable monthly through July 1997, maturing August 1997...... 24,928 24,446
Note payable, due on April 21, 2003, or on demand by lender... 10 10
</TABLE>
F-45
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Mortgage note, bearing interest at 9.25% with interest
only. Payments through January 1, 1998, and principal and
interest payable monthly beginning February 1, 1998, based
upon a twenty year amortization. In addition, net cash
flow, as defined, is payable quarterly. On December 31,
2000, all remaining principal and interest are due, net
cash flow, as defined, payable quarterly.................. 6,876 12,610
Mortgage note, bearing interest at an initial rate of
9.125%, adjusted for the Citibank Base Rate plus .625%.
All principal and interest payable on January 12, 1997,
extended to April 12, 1997. The loan was subsequently
refinanced with a $13,750,000 note bearing interest at
8.25%, with monthly payments of principal and interest
totaling $118,150 through September 2001, with the
remaining balance due October 1, 2001..................... 6,105 13,430
Certificates of Participation, bearing interest at a
variable rate, adjusted weekly to be the rate necessary to
remarket the certificates at par (4.8% and 4% at December
31, 1995 and 1996). Interest payments are due monthly, and
principal payments are due annually until maturity in
2014. Upon the occurrence of certain events, the variable
interest rate will convert to a fixed rate. The
certificates were issued at a discount of $2,046,000 which
is being amortized to interest expense over the life of
the certificates using the effective interest method. In
addition to the hotel property, the certificates are
secured by letters of credit totaling the outstanding
principal balance of the certificates. The letters of
credit are secured by other property and ownership
interests owned by the partners of the hotel partnership.
The letters of credit bear an annual fee of 2% of the
outstanding principal balance of the certificates. Until
expiration in December 1995, pursuant to the terms of an
interest rate swap agreement, interest payments were fixed
at 5.69% for the hotel partnership, and the counterparty
paid interest at one half of its daily prime rate. The
original cost of the agreement was capitalized as an other
asset and amortized over the life of the swap agreement
using the straight line method. Additional interest
expense incurred as a result of the swap agreement totaled
$1,130 and $449 in 1994 and 1995.......................... 59,300 58,200
Discount on certificates................................... (1,779) (1,746)
-------- --------
221,087 231,498
Current portion of long-term debt.......................... (1,720) (67,893)
-------- --------
Long-term debt, excluding current portion.................. $219,367 $163,605
======== ========
</TABLE>
The annual principal requirements of the long-term debt for the five years
subsequent to December 31, 1996 (excluding a discount of $1,746,000) are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1997 $ 67,893
1998 1,864
1999 11,874
2000 22,303
2001 52,244
Thereafter.................................................... 77,066
--------
Total long-term debt at December 31, 1996................... $233,244
========
</TABLE>
As discussed above, certain of the mortgage notes payable contain provisions
which require additional payments to the lenders based on residual values or
shared appreciation of the properties at the maturity of the
F-46
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
loan or sale of the property. If the properties are acquired, management
estimates that additional payments related to these provisions ranging from
$11,500,000 to $14,000,000 will be paid to the lenders from the proceeds of
the sale. These amounts are considered as additional costs to sell the
properties and they will be reflected in the financial statements at the time
the transaction is completed.
The terms of substantially all of the mortgage notes require the respective
partnerships to make deposits, on a monthly basis, to tax escrow accounts for
the payment of real estate and personal property taxes and assessments. The
terms of the mortgage notes also require hotel partnerships to maintain
furniture, fixture and equipment reserve accounts ("FF&E Reserve") equal to an
amount ranging from 3% to 4% of gross revenues, as defined, to be used for
capital expenditures. The balances of the tax escrow accounts and the FF&E
Reserve are included in "Cash, restricted" and "Cash, restricted for
noncurrent assets", respectively, in the accompanying combined financial
statements.
The Partnerships will use the proceeds from the sale of the properties to
repay existing debt. Approximately $67,900,000 of the combined partnerships'
debt matures in 1997. In the event the assets are not sold before the debt
matures, management intends to extend or refinance these existing mortgage
notes.
7. CONTRIBUTION OF NOTE PAYABLE:
In May 1994, a revolving credit facility utilized by one of the hotel
partnerships was converted to a related party note payable and was then
contributed by the partners to the hotel partnership. This contribution is
reflected on the accompanying combined statement of partners' deficit for the
year ended December 31, 1994. Prior to the conversion, the revolving credit
facility bore interest at LIBOR plus .65% and was secured by property owned by
affiliates of the partners of the hotel partnership.
8. EMPLOYEE BENEFIT PLANS:
All employees at the Partnerships are employees of WHC. The Partnerships
reimburse WHC for all expenses and charges related to the employees'
participation in any of the WHC benefit programs. Included in these plans are
the Wyndham Employees Savings and Retirement Plan, a 401(k) retirement savings
plan (the "Plan") and a self-insured group health plan.
Employees who are over 21 years of age and have completed one year of
service are eligible to participate in the Plan. The Plan matches employee
contributions up to 4% of the employee's salary. For the years ended December
31, 1994, 1995 and 1996, the Partnerships reimbursed WHC $215,000, $198,000
and $282,000, respectively for the Plan.
The Partnerships also reimburse WHC for costs related to the employees'
participation in a self-insured group health plan. For the years ended
December 31, 1994, 1995 and 1996, the Partnership reimbursed WHC $910,000,
$1,036,000 and $1,112,000, respectively.
One hotel makes contributions, based on monthly rates per employee, as
specified in union agreements, to union-administered, multi-employer, defined
benefit retirement plans. Because the plans cover numerous employees from many
organizations, no plan benefit information is presented. Expenses relating to
these plans totaled $82,000, $80,000 and $105,000 in 1994, 1995 and 1996
respectively.
F-47
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
Certain hotel partnerships lease equipment and land under capital and
operating leases having noncancellable agreements extending beyond one year.
Capital leases have imputed interest rates ranging from 8% to 14.29%. Future
minimum lease payments required under the capital leases (together with the
present value of net minimum lease payments) and operating leases at December
31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
<S> <C> <C>
Year ending December 31:
1997 $224 $ 1,639
1998 172 1,616
1999 68 1,508
2000 45 1,499
2001 -- 1,482
Thereafter............................................ -- 49,367
---- -------
Total minimum lease payments............................ 509 $57,111
=======
Less imputed interest................................... 71
----
Present value of net minimum lease payment.............. 438
Less current portion.................................... 185
----
Long-term portion of net minimum lease payments......... $253
====
</TABLE>
A partnership leases the land on which the hotel is built through two lease
agreements. Rent of $1 is payable annually to one of the partners under one of
these leases. The partner financed this purchase of land with an interest-free
advance from the partnership of $3,625,000. The remainder of the land is
leased from a state authority for $653,000 annually, payable in quarterly
installments of $163,000. These leases are dated July 31, 1978, with an
initial term of 65 years, and two renewal options of 15 years each, subject to
the term of the lessor's legal existence.
Another hotel partnership leases the land on which the hotel is built under
a sub-lease effective January 1, 1985, with an initial term of 75 years and
one renewal option of 25 years. Lease payments include two components: (1)
"basic rent" which escalate every 5 years based on the consumer price index,
and (2) "additional rent," as defined in the master lease, to the extent that
it exceeds basic rent. Basic rent payments are due annually on December 20 on
a prepaid basis, and the current basic rent payment is $672,000 per year. To
date, no additional rent has been paid as the basic rent exceeds all amounts
calculated as additional rent.
The Partnerships incurred rent expense totaling $2,245,000, 2,272,000 and
$2,259,000 in 1994, 1995 and 1996, respectively, which includes operating
leases and the three land leases.
The Partnerships may be subject to certain litigation and claims in the
ordinary course of business which are generally covered by insurance policies.
In management's opinion, litigation and claims will not have a material
adverse effect upon the financial position or results of operations of the
Partnerships.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Partnerships have estimated the fair value of its financial instruments
at December 31, 1996 as required by Statement of Financial Accounting
Standards No. 107. The carrying values of cash and cash equivalents, accounts
receivable and accrued expenses are reasonable estimates of their fair values
due to their short-term maturities. Long-term debt had a fair value of
approximately $226,265,000 and $238,581,000 at December 31, 1995 and 1996,
respectively. Fair value was estimated using an interest rate of prime plus
one percent at December 31, 1995 and 1996.
F-48
<PAGE>
CORPORATION AND OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On July 1, 1997, pursuant to an Agreement and plan of Merger, dated as of
February 24, 1997, as amended and restated as of May 28, 1997 (the "Merger
Agreement") by and among Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot"), Patriot American Hospitality Partnership, L.P., a
Virginia limited partnership (the "Realty Partnership"), California Jockey Club,
a Delaware corporation ("Cal Jockey") and Bay Meadows Operating Company, a
Delaware corporation ("Bay Meadows"), Patriot was merged with and into Cal
Jockey (the "Merger") with Cal Jockey as the surviving corporation in the
Merger. In connection with the Merger, Cal Jockey's name was changed to "Patriot
American Hospitality, Inc." (hereinafter, the "Corporation") and Bay Meadows'
name was changed to "Patriot American Hospitality Operating Company"
(hereinafter, "Operating Company"). Cal Jockey and Bay Meadows are collectively
referred to herein as "CJC/BMOC".
In connection with the Merger, Bay Meadows formed an operating partnership
(the "Operating Partnership") into which Bay Meadows contributed certain of its
assets in exchange for limited partnership units ("OP Units") of the Operating
Partnership. In addition, Cal Jockey contributed certain of its assets to the
Realty Partnership in exchange for OP Units of the Realty Partnership. Upon
completion of the Merger and the related transactions, substantially all of the
operations of the Corporation and the Operating Company will be conducted
through their respective operating partnerships (collectively, the Operating
Partnership and the Realty Partnership are referred to herein as the "Patriot
Partnerships").
On April 14, 1997, the Corporation entered into a merger agreement and a
related stock purchase agreement (collectively, the "Wyndham Merger Agreement"
pursuant to which Wyndham Hotel Corporation ("Wyndham") will merge with and into
the Corporation with the Corporation being the surviving company (the "Wyndham
Acquisition"). As a result of the Wyndham Acquisition, the Corporation will
acquire all of the assets and liabilities of Wyndham, including Wyndham's
portfolio of 23 owned and leased hotels with an aggregate of 4,877 rooms,
management and franchise agreements for Wyndham's 64 managed and franchised
properties, management and franchise agreements that have been executed for 15
properties that are currently closed for renovation or construction or are in
the process of being converted to the Wyndham brand, and the proprietary brand
names Wyndham/SM/, Wyndham Garden(R) and Wyndham Hotels & Resort/SM/. Pursuant
to the Wyndham Merger Agreement, upon consummation of the Wyndham Acquisition
each issued and outstanding share of common stock of Wyndham ("Wyndham Common
Stock") will be converted into the right to receive 0.712 shares of common
stock, $.01 par value of the Corporation which are paired and trade as a unit
with shares of common stock, $.01 par value of the Operating Company (such
stock, the "Paired Common Stock," and such ratio, the "Wyndham Exchange Ratio"),
subject to certain adjustments based on the average trading price of the Paired
Common Stock.
In lieu of receiving Paired Common Stock, Wyndham stockholders have the right
to elect to receive cash (up to an aggregate of $100,000) in an amount per share
equal to the Wyndham Exchange Ratio (as it may be adjusted) multiplied by the
average closing price of the Paired Common Stock over the five trading days
immediately preceding the closing of the Wyndham Acquisition. If stockholders
holding shares of Wyndham Common Stock with a value in excess of $100,000 elect
to receive cash, such cash will be allocated on a pro rata basis among such
stockholders.
Following the Wyndham Acquisition, the Corporation, through certain of its
subsidiaries, will own the ten Wyndham hotels and will lease such hotels to
Operating Company. The 13 hotel leases assumed by the Corporation will be sub-
leased to Operating Company. The 79 management and franchise contracts; the
Wyndham, Wyndham Garden and Wyndham Hotels & Resorts proprietary brand names;
and the Wyndham hotel management company will be transferred to corporate
subsidiaries of the Corporation (collectively, the "New Wyndham Entities"). The
Corporation will own a 99% non-voting interest and Operating Company will own
the 1% controlling voting interest in each of the New Wyndham Entities.
Therefore, the operating results of the New Wyndham Entities will be
consolidated with those of Operating Company for financial reporting purposes.
The Corporation will account for its investment in the New Wyndham Entities
using the equity method of accounting.
The Corporation will also assume Wyndham's existing indebtedness,
substantially all of which is expected to be refinanced with funds drawn on a
new credit facility.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by Wyndham are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of Wyndham has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management of the Corporation does not
anticipate that the preliminary allocation of purchase costs based upon the
estimated fair market value of the assets and liabilities of Wyndham will
materially change; however, the allocation of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocation reflected in
the following unaudited Pro Forma Financial Statements may differ from the
amounts ultimately determined.
Concurrently with the execution of the Wyndham Merger Agreement, the
Corporation also entered into agreements with partnerships affiliated with
members of the Trammell Crow family providing for the acquisition of 11 full-
service Wyndham-branded hotels with 3,072 rooms for approximately $331,664 in
cash, plus approximately $14,000 in additional consideration if two hotels meet
certain operational targets (the "Crow Properties Acquisition" and, together
with the Wyndham Acquisition, the "Wyndham Transactions"). Subsequent
F-49
<PAGE>
to the Crow Properties Acquisition, the Corporation will lease the 11 hotels to
the Operating Company. In addition, in connection with the Crow Properties
Acquisition, the leases related to the Wyndham Garden Hotel-Midtown and the
Wyndham Greenspoint Hotel will be terminated and the Corporation will lease
these hotel properties to Operating Company.
The Wyndham Transactions, which are expected to be consummated concurrently,
are subject to various conditions, including, without limitation, the approval
of the Wyndham Acquisition by the stockholders of the Corporation, Operating
Company and Wyndham. The Wyndham Acquisition is also conditioned on the
Corporation's completion of a substanstial portion of the Crow Properties
Acquisition. Accordingly, no assurances can be give that the Wyndham
Transactions will be consummated. It is currently anticipated that the
stockholder meetings to approve the Wyndham Acquisition will occur in the fourth
quarter of 1997.
The following unaudited Pro Forma Condensed Combined Statements of Operations
as adjusted for the Wyndham Transactions for the year ended December 31, 1996
and the three months ended March 31, 1997 assume the Wyndham Transactions
occurred on January 1, 1996.
The Pro Forma Condensed Combined Statements of Operations are derived from the
Corporation and Operating Company Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the three months ended March
31, 1997 filed with the Corporation's and the Operating Company's Current Report
on Form 8-K dated July 1, 1997, the Consolidated Statements of Income of Wyndham
for the year ended December 31, 1996 and the three months ended March 31, 1997
included elsewhere in this Current Report on Form 8-K, and the Combined Crow
Family Hotel Partnerships financial statements for the year ended December 31,
1996 and the three months ended March 31, 1997 included elsewhere in this
Current Report on Form 8-K. During 1996, one of the hotels (The La Guardia
Airport Hotel) was closed for renovation. As a result, the hotel reported no
historical results of operations for 1996 and therefore is not included in the
following unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1996 and the three months ended March 31, 1997. In
management's opinion, all material adjustments necessary to reflect the effects
of these transactions have been made.
The Corporation and Operating Company pro forma information is also presented
as if: (i) the Merger and the related transactions were consummated on terms set
forth in the Merger Agreement; (ii) substantially all of the land of Cal Jockey,
excluding the land subject to a certain lease (the "Borders Lease"), was sold to
an affiliate of PaineWebber Incorporated ("PaineWebber") for a purchase price of
$78.05 million (the "PaineWebber Land Sale"), the PaineWebber affiliate leased
that portion of the Cal Jockey land upon which the Bay Meadows Racecourse (the
"Racecourse") is situated to the Corporation, and the Corporation subleased this
land to the Operating Company; (iii) the Corporation leased certain land to
Borders, Inc. pursuant to the Borders Lease; and (iv) the Corporation had
acquired ownership interests in four hotel properties: the Radisson Overland
Park Hotel in Overland Park, Kansas, the Radisson Hotel in Northbrook, Illinois,
the Luxeford Suites Hotel in Minneapolis, Minnesota and the Holiday Inn Redmont
Hotel in Birmingham, Alabama (the "Recent Acquisitions") and four resort
properties: The Boulders in Scottsdale, Arizona, Carmel Valley Ranch in Carmel,
California, The Lodge at Ventana Canyon in Tucson, Arizona and The Peaks Resort
and Spa in Telluride, Colorado (the "Carefree Resorts") as of the beginning of
the periods presented.
Such pro forma information is based in part upon the Separate and Combined
Statements of Income of the Corporation and the Operating Company (formerly
known as Cal Jockey and Bay Meadows) filed with CJC/BMOC's Annual Report on Form
10-K for the year ended December 31, 1996 and the Quarterly Report on Form 10-Q
for the three months ended March 31, 1997, as amended; the Consolidated
Statements of Operations of Patriot for the year ended December 31, 1996 and the
three months ended March 31, 1997 filed in the Corporation's and the Operating
Company's Current Report on Form 8-K dated July 1, 1997; and the Pro Forma
Condensed Combined Statements of Operations of the Lessees included elsewhere in
this Current Report on Form 8-K.
The following unaudited Pro Forma Condensed Combined Statements of Operations
are not necessarily indicative of what the actual results of operations of the
Corporation and Operating Company as adjusted for the Merger and the related
transactions and the Wyndham Transactions would have been assuming such
transactions had been completed as of the beginning of the periods presented,
nor do they purport to represent the results of operations for future periods.
Further, the unaudited Pro Forma Condensed Combined Statement of Operations for
the interim period ended March 31, 1997 is not necessarily indicative of the
results of operations for the full year.
F-50
<PAGE>
CORPORATION AND OPERATING COMPANY
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING
CORPORATION COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $187,791 $ -- $ (92,207)(A) $ 95,584
Hotel revenue.......... -- 324,862 (B) -- 324,862
Club and spa revenue... -- 24,710 -- 24,710
Racecourse facility
revenue and hotel
lease revenue......... 18,451 51,946 (18,117)(C) 52,280
Management fees........ -- 15,815 -- 15,815
Club membership
revenue............... -- 4,277 -- 4,277
Shopping center
revenue............... -- 1,730 -- 1,730
Service fees........... -- 3,962 -- 3,962
Reimbursement fees..... -- 14,506 -- 14,506
Interest and other
income................ 11,265 33,187 (1,204)(D) 43,248
-------- -------- --------- --------
Total revenue.......... 217,507 474,995 (111,528) 580,974
-------- -------- --------- --------
Expenses:
Departmental costs--
hotel operations...... -- 171,649 -- 171,649
Racing facility
operations............ -- 47,180 (6,348)(C) 40,832
Ground lease and hotel
lease expense......... 16,485 11,769 (11,769)(C) 16,485
Direct operating costs
of management
company............... -- 12,035 -- 12,035
Service department
expenses.............. -- 4,970 -- 4,970
Reimbursement
expenses.............. -- 15,448 -- 15,448
General and
administrative........ 6,292 31,554 (34)(D) 37,812
Repair and
maintenance........... -- 18,941 -- 18,941
Utilities.............. -- 14,306 -- 14,306
Interest expense....... 83,664 1,300 (1,170)(D) 83,794
Real estate and
personal property
taxes and casualty
insurance............. 21,831 398 -- 22,229
Marketing.............. -- 26,229 -- 26,229
Management fees........ -- 3,194 -- 3,194
Depreciation and
amortization.......... 64,498 16,879 -- 81,377
Participating lease
payments.............. -- 92,207 (92,207)(A) --
General liability
insurance............. -- 3,964 -- 3,964
Equity participation
compensation.......... -- 2,919 -- 2,919
Miscellaneous.......... -- 1,426 -- 1,426
-------- -------- --------- --------
Total expenses......... 192,770 476,368 (111,528) 557,610
-------- -------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 24,737 (1,373) -- 23,364
Equity in earnings of
unconsolidated
subsidiaries.......... 4,987 -- 2,573 (E) 7,560
-------- -------- --------- --------
Income (loss) before
income tax provision
and minority
interests.............. 29,724 (1,373) 2,573 30,924
Income tax provision... (175) (2,192) -- (2,367)
-------- -------- --------- --------
Income (loss) before
minority interests..... 29,549 (3,565) 2,573 28,557
Minority interests in
the Patriot
Partnerships.......... (2,842) 97 -- (2,745)
Minority interest in
consolidated
subsidiaries and other
partnerships.......... (553) 2,573 (2,573)(E) (553)
-------- -------- --------- --------
Net income (loss)
applicable to common
shareholders........... $ 26,154 $ (895) $ -- $ 25,259 (F)
======== ======== ========= ========
Net income (loss) per
common paired
share(G)............... $ 0.60 $ (0.02) $ 0.58 (F)
======== ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............ 43,721 43,721 43,721 (F)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related to
the 29 hotel properties leased by the Corporation to Operating Company.
(B) Hotel revenue includes revenue from rooms of $225,202 and food and
beverage sales of $99,660.
(C) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by the
Corporation to Operating Company.
(D) Represents the elimination of $1,170 of interest income and expense
related to a note receivable issued to the Corporation in connection with
the sale of certain assets to PAH RSI Lessee, which assets are assumed to be
acquired by Operating Company and the elimination of other intercompany
income and expense items.
(E) Represents the elimination of equity in losses of the New Wyndham
Entities.
F-51
<PAGE>
(F) The pro forma amounts presented assume all of the outstanding Wyndham Common
Stock is exchanged for shares of Paired Common Stock. Set forth below is a
summary comparison of the net impact to pro forma net income applicable to
common shareholders and net income per paired share (i) assuming no Wyndham
stockholders elect to receive cash ("All Stock"); (ii) assuming
approximately 3,295 shares of Wyndham Common Stock are purchased for cash
("Cash Option") (based on total funds available of $100,000, an estimated
market price per paired share of $42.61 (based upon the average closing
price for the five days prior to May 12, 1997 of Patriot's Common Stock of
$22.12) and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common
Stock for each share of Wyndham Common Stock); and (iii) assuming an
interest rate of 7.30% on the incremental borrowings per annum related to
the term loan (representing LIBOR plus 1.75%) on outstanding debt
obligations of approximately $482,089 for All Stock and $582,089 for Cash
Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 7,300
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $30,371 $23,071
Income tax provision.................................... (2,367) (2,367)
Minority interests in the Patriot Partnerships.......... (2,745) (2,132)
------- -------
Net income applicable to common shareholders............ $25,259 $18,572
======= =======
Net income per paired share............................. $ 0.58 $ 0.45
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 43,721 41,375
======= =======
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock (the "Maximum Wyndham Exchange Ratio"). On a pro forma basis, the
effect of the Maximum Wyndham Exchange Ratio assuming All Stock would result
in a decrease in total consideration to approximately $600,482 which would
decrease pro forma amortization of goodwill by $265. As a result, pro forma
net income would be $25,499 and net income per common paired share would be
$0.58. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio assuming Cash Option would result in net income of $18,810 and net
income per common paired share of $0.45.
Additionally, the following table presents the net impact to pro forma net
income applicable to common shareholders and net income per common paired
share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 7,550
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $27,845 $20,295
Income tax provision.................................... (2,367) (2,367)
Minority interests in the Patriot Partnerships......... (2,497) (1,847)
------- -------
Net income applicable to common shareholders............ $22,981 $16,081
======= =======
Net income per paired share............................. $ 0.53 $ 0.39
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 43,721 41,375
======= =======
</TABLE>
The Corporation has entered into a commitment letter with PaineWebber Real
Estate Securities, Inc. ("PaineWebber Real Estate"), and The Chase Manhattan
Bank ("Chase") which will modify and extend the Corporation's Line of Credit
up to $700,000 and provide for a term loan of $500,000. The additional
availability under this New Credit Facility (the "New Credit Facility") will
be primarily used to finance future acquisitions and the term loan will be
used to finance the Wyndham Transactions. Deferred loan costs of
approximately $6,175 related to the financing associated with the Wyndham
Transactions has been reflected in the pro forma financial information.
(G) In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a material
effect on the earnings per share of the Corporation and Operating Company.
F-52
<PAGE>
CORPORATION AND OPERATING COMPANY
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING
CORPORATION COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $52,665 $ -- $(28,107)(A) $ 24,558
Hotel revenue.......... -- 95,879 (B) -- 95,879
Club and spa revenue... -- 8,706 -- 8,706
Racecourse facility
revenue and hotel
lease revenue......... 7,189 20,269 (7,106)(C) 20,352
Management fees........ -- 4,809 -- 4,809
Club membership
revenue............... -- 348 -- 348
Shopping center
revenue............... -- 474 -- 474
Service fees........... -- 1,062 -- 1,062
Reimbursement fees..... -- 3,370 -- 3,370
Interest and other
income................ 2,669 10,866 (317)(D) 13,218
------- -------- -------- --------
Total revenue.......... 62,523 145,783 (35,530) 172,776
------- -------- -------- --------
Expenses:
Departmental costs--
hotel operations...... -- 44,381 -- 44,381
Racing facility
operations............ -- 16,949 (1,677)(C) 15,272
Ground lease and hotel
lease expense......... 6,505 5,429 (5,429)(C) 6,505
Direct operating costs
of management
company............... -- 4,243 -- 4,243
Service department
expenses.............. -- 1,152 -- 1,152
Reimbursement
expenses.............. -- 3,370 -- 3,370
General and
administrative........ 3,577 8,845 -- 12,422
Repair and
maintenance........... -- 5,499 -- 5,499
Utilities.............. -- 4,089 -- 4,089
Interest expense....... 21,361 319 (317)(D) 21,363
Real estate and
personal property
taxes and casualty
insurance............. 6,717 129 -- 6,846
Marketing.............. -- 7,779 -- 7,779
Management fees........ -- 1,482 -- 1,482
Depreciation and
amortization.......... 16,402 4,457 -- 20,859
Participating lease
payments.............. -- 28,107 (28,107)(A) --
General liability
insurance............. -- 994 -- 994
Miscellaneous.......... -- (6) -- (6)
------- -------- -------- --------
Total expenses......... 54,562 137,218 (35,530) 156,250
------- -------- -------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 7,961 8,565 -- 16,526
Equity in earnings of
unconsolidated
subsidiaries.......... 1,950 -- (963)(E) 987
------- -------- -------- --------
Income before income tax
provision and minority
interests.............. 9,911 8,565 (963) 17,513
Income tax provision... (44) (4,031) -- (4,075)
------- -------- -------- --------
Income before minority
interests.............. 9,867 4,534 (963) 13,438
Minority interests in
the Patriot
Partnerships.......... (946) (350) -- (1,296)
Minority interest in
consolidated
subsidiaries and other
partnerships.......... (219) (963) 963(E) (219)
------- -------- -------- --------
Net income applicable to
common shareholders.... $ 8,702 $ 3,221 $ -- $ 11,923 (F)
======= ======== ======== ========
Net income per common
paired share(G)........ $ 0.20 $ 0.07 $ 0.27 (F)
======= ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............ 44,214 44,214 44,214 (F)
======= ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 29 hotel properties leased by the Corporation to Operating Company.
(B) Hotel revenue includes revenue from rooms of $66,280 and food and beverage
sales of $29,599.
(C) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by the
Corporation to Operating Company.
(D) Represents primarily the elimination of $293 of interest income and
expense related to a note receivable issued to the Corporation in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by Operating Company and the elimination of
other intercompany income and expense items.
F-53
<PAGE>
(E) Represents the elimination of equity in income of the New Wyndham
Entities.
(F) The pro forma amounts presented assume all of the outstanding Wyndham Common
Stock is exchanged for shares of Paired Common Stock. Set forth below is a
summary comparison of the net impact to pro forma net income applicable to
common shareholders and net income per paired share (i) assuming Wyndham
stockholders elect to receive cash All Stock; (ii) assuming approximately
3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, an estimated market
price per paired share of $42.61 (based upon the average closing for the
five days prior to May 12, 1997 of Patriot's Common Stock of $22.12) and a
Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each
share of Wyndham Common Stock); and (iii) assuming an average interest rate
of 7.251% per annum related to the term loan (representing LIBOR plus 1.75%)
on outstanding debt obligations of approximately $482,089 for All Stock and
$582,089 for Cash Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 1,813
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $17,294 $15,481
Income tax provision.................................... (4,075) (4,075)
Minority interests in the Patriot Partnerships.......... (1,296) (1,175)
------- -------
Net income applicable to common shareholders............ $11,923 $10,231
======= =======
Net income per paired share............................. $ 0.27 $ 0.24
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 44,214 41,868
======= =======
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio assuming All Stock would result in a decrease in total consideration
to approximately $600,482 which would decrease pro forma amortization of
goodwill by $66. As a result pro forma net income would be $11,984 and net
income per common paired share would be $0.27. On a pro forma basis, the
effect of the Maximum Wyndham Exchange Ratio assuming Cash Option would
result in net income of $10,291 and net income per common paired share of
$0.25.
Additionally, the following table presents the net impact to pro forma net
income applicable to common stockholders and net income per common paired
share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 1,875
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $16,631 $14,756
Income tax provision.................................... (4,075) (4,075)
Minority interests in the Patriot Partnerships.......... (1,231) (1,100)
------- -------
Net income applicable to common shareholders............ $11,325 $ 9,581
======= =======
Net income per paired share............................. $ 0.26 $ 0.23
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 44,214 41,868
======= =======
</TABLE>
The Corporation has entered into a commitment letter with PaineWebber Real
Estate and Chase which will modify and extend the Corporation's Line of
Credit up to $700,000 and provide for a term loan of $500,000. The
additional availability under this New Credit Facility will be primarily
used to finance future acquisitions and the term loan will be used to
finance the Wyndham Transactions. Deferred loan costs of approximately
$6,175 related to the financing associated with the Wyndham Transactions has
been reflected in the pro forma financial information.
(G) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of the Corporation and
Operating Company.
F-54
<PAGE>
CORPORATION AND OPERATING COMPANY
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Wyndham Transactions had occurred as of March 31, 1997. The
Pro Forma Condensed Combined Balance Sheet is also derived from the Corporation
and Operating Company Pro Forma Condensed Combined Balance Sheet as of March 31,
1997 filed with the Corporation's and the Operating Company's Current Report on
Form 8-K dated July 1, 1997 which is presented as if (i) the Merger and related
transactions were consummated on terms set forth in the Merger Agreement; (ii)
the PaineWebber Land Sale was consummated, the PaineWebber affiliate leased that
portion of the land upon which the Racecourse is situated to the Corporation and
the Corporation subleased this land to Operating Company; and (iii) the
Corporation leased certain land to Borders, Inc. Such pro forma information is
based in part upon Wyndham's Consolidated Balance Sheet as of March 31, 1997,
Patriot's Consolidated Balance Sheet as of March 31, 1997, and CJC/BMOC's
Combined Balance Sheet as of March 31, 1997 and should be read in conjunction
with the financial statements filed with Wyndham's, and CJC/BMOC's respective
Quarterly Reports on Form 10-Q for the three months ended March 31, 1997 and the
Corporation's and Operating Company's Current Report on Form 8-K dated July 1,
1997. In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of the Wyndham Transactions at their
estimated fair market values and the elimination of Wyndham's historical
shareholders' equity. The fair market values of the assets and liabilities of
Wyndham have been determined based upon preliminary estimates and are subject to
change as additional information is obtained. Management of the Corporation does
not anticipate that the preliminary allocation of purchase costs based upon the
estimated fair market values of the assets and liabilities of Wyndham will
materially change; however, the allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocations reflected
in the following unaudited Pro Forma Condensed Combined Balance Sheet may differ
from the amounts ultimately determined. The following unaudited Pro Forma
Condensed Combined Balance Sheet is not necessarily indicative of what the
actual financial position would have been assuming such transactions had been
completed as of March 31, 1997, nor does it purport to represent the future
financial position of the Corporation and Operating Company as adjusted for the
Merger and the related transactions and the Wyndham Transactions.
F-55
<PAGE>
CORPORATION AND OPERATING COMPANY
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CORPORATION
AND OPERATING CROW
COMPANY PROPERTIES
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) HISTORICAL(C) ADJUSTMENTS TOTAL
------------- ------------ ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
and resort properties
and land held for
sale................... $ 947,722 $343,388 $140,923 $174,962 (D) $1,606,995
Net investment in
Racecourse facility and
related improvements... 24,265 -- -- -- 24,265
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 73,622 -- -- -- 73,622
Notes and other
receivables from
affiliates............. -- -- 27,350 -- 27,350
Notes receivable........ 103,952 -- 6,340 -- 110,292
Investment in
unconsolidated
subsidiaries........... 12,140 -- 1,091 -- 13,231
Cash and cash
equivalents............ 13,979 -- 7,087 -- 21,066
Restricted cash......... 78,050 -- 450 -- 78,500
Securities available for
sale................... 5,609 -- -- -- 5,609
Accounts receivable,
net.................... 16,917 -- 18,743 -- 35,660
Goodwill................ 97,216 -- -- 280,695 (E) 377,911
Deferred expenses, net.. 14,447 -- 7,629 (1,454)(F) 20,622
Management contract
costs.................. -- -- 11,290 52,292 (G) 63,582
Trade name and franchise
costs.................. -- -- -- 85,550 (H) 85,550
Prepaid expenses and
other assets........... 19,079 -- 31,062 -- 50,141
Deferred income taxes... 227 -- 15,629 (15,551)(I) 305
---------- -------- -------- -------- ----------
Total assets........... $1,407,225 $343,388 $267,594 $576,494 $2,594,701
========== ======== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $ 579,862 $343,388 $138,331 $ 30,026 (J) $1,091,607
Dividends and
distributions payable.. 13,938 -- -- -- 13,938
Accounts payable and
accrued expenses....... 34,968 -- 32,912 -- 67,880
Deferred income tax
liability.............. 520 -- -- 50,609 (I) 51,129
Deposits................ -- -- 1,307 -- 1,307
Deferred gain........... -- -- 11,880 (11,880)(I) --
Due to unconsolidated
subsidiaries........... 6,098 -- -- -- 6,098
Minority interests in
the Patriot
Partnerships........... 127,262 -- -- -- 127,262
Minority interest in
other partnerships..... 13,774 -- -- -- 13,774
Shareholders' equity:
Common stock........... 573 -- 200 85 (K) 858
Paid-in capital........ 646,792 -- 84,342 540,203 (L) 1,271,337
Unearned stock compen-
sation, net........... (16,261) -- -- (16,261)
Unrealized gain from
exchange loss......... -- -- (33) -- (33)
Notes receivable from
stockholders.......... -- -- (16,639)(M) -- (16,639)
Receivable from affili-
ates.................. -- -- (1,255)(N) -- (1,255)
Retained earnings...... (301) -- 16,549 (32,549)(L) (16,301)
---------- -------- -------- -------- ----------
Total shareholders' eq-
uity.................. 630,803 -- 83,164 507,739 1,221,706
---------- -------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $1,407,225 $343,388 $267,594 $576,494 $2,594,701
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
F-56
<PAGE>
- --------
(A) Represents the Pro forma Condensed Combined Balance Sheet of the Corporation
and Operating Company as of March 31, 1997 which reflects the Merger and the
related transactions.
(B) Represents adjustments to the Corporation's and Operating Company's pro
forma financial position assuming the acquisition of the 11 hotel properties
from partnerships affiliated with members of the Trammell Crow family had
occurred at March 31, 1997.
(C) Represents historical balance sheet of Wyndham as of March 31, 1997.
(D) Represents adjustment for the purchase method of accounting whereby the
investments in hotel properties owned by Wyndham are adjusted to record
the assets at their estimated fair market values.
(E) Represents the purchase consideration in excess of fair market value of
the net assets of Wyndham.
(F) Represents the additional loan fees to be incurred in conjunction with the
financing for the Wyndham Transactions, net of Wyndham's
historical deferred loan fees.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by Wyndham are adjusted to their estimated fair
market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 79 hotels. The contracts
have an average remaining life of 14.6 years and provide for payment of
management fees ranging from 1% to 5% of gross revenues plus certain
incentive fees based on specified criteria as defined in the respective
management agreements.
(H) Represents the estimated fair market value of the Wyndham tradenames and
other franchise related assets.
(I) Pursuant to the Wyndham Acquisition, deferred income taxes, the deferred
income tax liability and the deferred gain which resulted from the sale and
lease-back of the hotel properties leased by GHALP, Inc., an affiliate of
Wyndham, have been adjusted to reflect the effects of the Wyndham
Acquisition.
(J) Represents financing of $6,175 of additional loan fees related to the
financing of the Wyndham Transactions, estimated mortgage
prepayment penalties of $16,000, and $7,851 of acquisition-related costs
incurred in connection with the Wyndham Transactions.
(K) Represents the exchange of Wyndham Common Stock, for shares of Paired
Common Stock. Pursuant to the Wyndham Acquisition, Wyndham stockholders are
entitled to receive, for each share of Wyndham Common Stock held by them,
the Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock. At
March 31, 1997, 20,018 shares of Wyndham Common Stock were outstanding which
were assumed to be exchanged for approximately 14,253 shares of Paired
Common Stock, resulting in an adjustment to increase Wyndham Common Stock.
(L) Pursuant to the Wyndham Merger Agreement, Wyndham stockholders may elect to
receive for each share of Wyndham Common Stock held by them either (i) cash
for shares or (ii) 0.712 shares of Corporation Common Stock and 0.712 shares
of Operating Company Common Stock. The estimated market price per paired
share is $42.88 (based upon the closing price on April 11, 1997, the
business day prior to the date of the execution of the Wyndham Merger
Agreement, of Patriot's Common Stock of $22.25). Based on 20,018 shares of
Wyndham Common Stock outstanding, the total purchase consideration is
approximately $611,099. The adjustments to shareholders' equity eliminate
Wyndham's historical equity accounts totaling $101,091 and record equity
based on the number of shares of Paired Common Stock issued in the exchange.
The pro forma balances assume all of the outstanding Wyndham Common Stock is
exchanged for shares of Paired Common Stock. Set forth below is a summary
comparison of the net impact to pro forma borrowings and shareholders' equity
(i) assuming Wyndham stockholders elect to receive All Stock; (ii) assuming
approximately 3,295 shares of Wyndham Common Stock are purchased pursuant to
the Cash Option (based on total funds available of $100,000, an estimated
market price per paired share of $42.61, based upon the average closing price
for the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12,
and the Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock
for each share of Wyndham Common Stock); and (iii) assuming an interest rate
of 7.251% related to the term loan (representing LIBOR plus 1.75%) on
outstanding debt obligations of approximately $482,089 for All Stock and
approximately $582,089 for the Cash Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL STOCK CASH OPTION
--------- -----------
<S> <C> <C>
Number of shares of Wyndham Common Stock purchased
for cash........................................... -- 3,295
======== ========
Cash paid for shares of Wyndham Common Stock
(assumed to be financed through the New Credit
Facility or other similar financing sources)....... $ -- $100,000
Number of paired shares issued pursuant to the
Wyndham Acquisition................................ 14,253 11,906
======== ========
Purchase consideration for shares................... $611,099 $511,099
Adjustment to common stock for paired shares
issued............................................. (285) (238)
Outstanding options to purchase common stock assumed
in the Wyndham Acquisition......................... 13,731 13,731
Book value of Wyndham paid-in capital............... (84,342) (84,342)
-------- --------
Adjustment to paid-in capital....................... 540,203 440,250
-------- --------
Mortgage prepayment penalties incurred from
refinancing of Wyndham debt........................ (16,000) (16,000)
Elimination of historical retained earnings......... (16,549) (16,549)
-------- --------
Adjustment to retained earnings..................... (32,549) (32,549)
Adjustment to common stock.......................... 85 38
-------- --------
Adjustment to shareholders' equity................. $507,739 $407,739
======== ========
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio would decrease total consideration to approximately $600,482.
F-57
<PAGE>
In connection with the Wyndham Acquisition, options to purchase
approximately 1,064 shares of Wyndham Common Stock which were issued by
Wyndham to certain officers and employees of Wyndham will be converted to
options to purchase 757 shares of Paired Common Stock. Such options to
purchase paired shares will vest immediately upon consummation of the
Wyndham Acquisition. The stated exercise prices will be adjusted to reflect
the Wyndham Exchange Ratio. The excess of the estimated value of a share of
Paired Common Stock on the date the Wyndham Acquisition is consummated
(based upon the closing price on April 11, 1997, the business day prior to
the date of the execution of the Wyndham Merger Agreement, of Patriot's
Common Stock of $22.25 and the Wyndham Exchange Ratio) over the stated
exercise price of the options (as adjusted for the Wyndham Exchange Ratio)
is reflected as additional purchase consideration for the Wyndham
Acquisition.
(M) Represents shareholder notes purchased by Wyndham in conjunction with its
initial offering. In connection with the Wyndham Acquisition, the
Corporation will acquire these notes at their historical cost which
approximates their estimated fair value.
(N) Represents deferred management fees owed by an affiliate of Wyndham that are
deferred until certain operating criteria, as defined per the management and
loan agreement, are met. Such deferred management fees will be acquired by
the Corporation at their stated historical cost, which approximates their
estimated fair value, as a result of the Wyndham Acquisition.
F-58
<PAGE>
CORPORATION
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION> CROW
CORPORATION PROPERTIES WYNDHAM
PRO FORMA ACQUISITION ACQUISITION PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
----------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $130,570 $38,046 $ 19,175 $ -- $187,791
Rental of Racecourse
facility, land and
hotels................ 6,682 -- 9,404 2,365 (D) 18,451
Interest and other
income................ 10,765 -- 500 -- 11,265
-------- ------- -------- ------ --------
Total revenue.......... 148,017 38,046 29,079 2,365 217,507
-------- ------- -------- ------ --------
Expenses:
Ground and hotel lease
expense............... 5,354 1,325 9,806 -- 16,485
General and
administrative........ 5,992 100 (E) 200 (E) -- 6,292
Interest expense....... 45,201 25,068 (F) 11,810 (F) 1,585 (F) 83,664
Real estate and
personal property
taxes and casualty
insurance............. 13,372 4,233 4,226 -- 21,831
Depreciation and
amortization.......... 38,335 13,077 (G) 13,086 (G) -- 64,498
-------- ------- -------- ------ --------
Total expenses......... 108,254 43,803 39,128 1,585 192,770
-------- ------- -------- ------ --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 39,763 (5,757) (10,049) 780 24,737
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 7,560 -- -- (2,573)(H) 4,987
-------- ------- -------- ------ --------
Income (loss) before
income tax provision
and minority
interests.............. 47,323 (5,757) (10,049) (1,793) 29,724
Income tax provision... -- -- -- (175)(I) (175)
-------- ------- -------- ------ --------
Income (loss) before mi-
nority interests....... 47,323 (5,757) (10,049) (1,968) 29,549
Minority interest in
the Realty Partner-
ship.................. (6,548) 564 (J) 985 (J) 2,157 (J) (2,842)
Minority interest in
other partnerships.... (553) -- -- -- (553)
-------- ------- -------- ------ --------
Net income (loss)
applicable to common
shareholders........... $ 40,222 $(5,193) $ (9,064) $ 189 $ 26,154 (K)
======== ======= ======== ====== ========
Net income per common
share(L)............... $ 1.40 $ 0.60 (K)
======== ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 28,793 43,721 (K)
======== ========
</TABLE>
- -------
(A) Represents the pro forma results of operations of the Corporation for the
year ended December 31, 1996 which reflects the impact of the Merger and
the related transactions.
(B) Represents adjustments to the Corporation's results of operations assuming
the Crow Properties Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As a
result, the pro forma results of operations for the Crow Properties
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to the Corporation's results of operations assuming
the Wyndham Acquisition had been consummated at the beginning of the period
presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by the Corporation from third parties and then sub-leased to
Operating Company.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by the Corporation.
(F) For the Crow Properties Acquisition, the adjustment represents interest
expense incurred on net borrowings under the New Credit Facility which will
be used to purchase the hotel properties. For the Wyndham Acquisition, the
adjustment represents interest expense on current debt obligations and
interest expense related to certain capital lease obligations which are
expected to be assumed in connection with the Wyndham Acquisition. The
Corporation expects to refinance Wyndham's long-term debt with borrowings
under the New Credit Facility. The Corporation will pay an estimated $16,000
in mortgage prepayment penalties. This amount will be reported as an
extraordinary item in the Corporation's results of operations following the
completion of the Wyndham Transactions and has been reflected as an
adjustment to retained earnings for pro forma presentation purposes. Certain
of the debt to be repaid contains restrictions regarding the payment of
dividends with which the Corporation would be unable to comply. In addition,
the New Credit Facility generally has a more favorable interest rate than
the debt expected to be repaid. The adjustment of $1,585 represents
amortization of $1,235 related to additional loan fees to be incurred in
connection with new borrowings for the Wyndham Transactions and incremental
interest expense of $350. The deferred loan costs are being amortized using
the straight-line method over the terms of the loans. Interest expense
incurred on the New Credit Facility borrowings
F-59
<PAGE>
assumes an average interest rate of 7.30% per annum related to the term
loan (representing LIBOR plus 1.75%). An increase of 0.25% in the interest
rate would increase pro forma interest expense to $86,191, decrease net
income applicable to common shareholders to $23,876 and decrease net income
per common share to $0.55.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements
and 5 to 7 years for F, F & E . These estimated useful lives are based on
management's knowledge of the properties and the hotel industry in general.
(H) Represents equity in losses of the New Wyndham Entities which own the
Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which will be
controlled by Operating Company.
(I) Represents provision for the Corporation's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 9.8%. The estimated minority interest percentage subsequent
to the Merger (and prior to the Wyndham Transactions) is approximately
14.0%.
(K) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for shares of Paired Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham
Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share
of Wyndham Common Stock), pro forma interest expense would increase by
$7,300, net income would be $19,461, and net income per common share would
be $0.47, based on 41,375 weighted average number of common shares and
common share equivalents outstanding.
(L) In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a material
effect on the earnings per share of the Corporation.
F-60
<PAGE>
CORPORATION
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CORPORATION CROW PROPERTIES WYNDHAM
PRO FORMA ACQUISITION ACQUISITION PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- --------------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $36,551 $10,851 $ 5,263 $ -- $52,665
Rental of Racecourse
facility, land and
hotels................ 1,760 -- 4,838 591 (D) 7,189
Interest and other
income................ 2,669 -- -- -- 2,669
------- ------- -------- ------ -------
Total revenue.......... 40,980 10,851 10,101 591 62,523
------- ------- -------- ------ -------
Expenses:
Ground and hotel lease
expense............... 1,336 331 4,838 -- 6,505
General and
administrative........ 3,502 25 (E) 50 (E) -- 3,577
Interest expense....... 11,709 6,225 (F) 3,550 (F) (123)(F) 21,361
Real estate and
personal property
taxes and casualty
insurance............. 3,404 1,156 2,157 -- 6,717
Depreciation and
amortization.......... 9,862 3,269 (G) 3,271 (G) -- 16,402
------- ------- -------- ------ -------
Total expenses......... 29,813 11,006 13,866 (123) 54,562
------- ------- -------- ------ -------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 11,167 (155) (3,765) 714 7,961
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 1,021 -- (34) 963 (H) 1,950
------- ------- -------- ------ -------
Income (loss) before
income tax provision
and minority
interests.............. 12,188 (155) (3,799) 1,677 9,911
Income tax provision... -- -- -- (44)(I) (44)
------- ------- -------- ------ -------
Income (loss) before mi-
nority interests....... 12,188 (155) (3,799) 1,633 9,867
Minority interest in
the Realty Partner-
ship.................. (1,676) 15 (J) 372 (J) 343 (J) (946)
Minority interest in
other partnerships.... (219) -- -- -- (219)
------- ------- -------- ------ -------
Net income (loss)
applicable to common
shareholders........... $10,293 $ (140) $ (3,427) $1,976 $ 8,702 (K)
======= ======= ======== ====== =======
Net income (loss) per
common share(L)........ $ 0.35 $ 0.20 (K)
======= =======
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,074 44,214 (K)
======= =======
</TABLE>
- --------
(A) Represents the pro forma results of operations of the Corporation for the
three months ended March 31, 1997 which reflects the impact of the Merger
and the related transactions.
(B) Represents adjustments to the Corporation's results of operations assuming
the Crow Properties Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As a
result, the pro forma results of operations for the Crow Properties
Acquisition reflects the results of operations for ten hotels for the three
months ended March 31, 1997.
(C) Represents adjustments to the Corporation's results of operations assuming
the Wyndham Acquisition had been consummated at the beginning of the period
presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by the Corporation from third parties and then sub-leased to
Operating Company.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by the Corporation.
(F) For the Crow Properties Acquisition, the adjustment represents interest
expense incurred on net borrowings under the New Credit Facility which will
be used to purchase the hotel properties. For the Wyndham Acquisition, the
adjustment represents interest expense on current debt obligations and
interest expense related to certain capital lease obligations which are
expected to be assumed in connection with the Wyndham Acquisition. The
Corporation expects to refinance Wyndham's long-term debt with borrowings
under the New Credit Facility. The Corporation will pay approximately
$16,000 in mortgage prepayment penalties. This amount will be reported as an
extraordinary item in the Corporation's results of operations following the
completion of the Wyndham Transactions and has been reflected as an
adjustment to retained earnings for pro forma presentation purposes. Certain
of the debt to be repaid contains restrictions regarding the payment of
dividends with which the Corporation would be unable to comply. In addition,
the New Credit Facility generally has a more favorable interest rate than
the debt expected to be repaid. The adjustment of $(123) represents
amortization of $408 related to additional loan fees to be incurred in
connection with new borrowings for the Wyndham Transactions and reduction in
interest expense of $531. The deferred loan costs are being amortized using
the straight-line method over the terms of the
F-61
<PAGE>
loans. Interest expense incurred on the New Credit Facility borrowings
assumes an average interest rate of 7.251% per annum related to the term
loan (representing LIBOR plus 1.75%). An increase of 0.25% in the interest
rate would increase pro forma interest expense to $22,023, decrease net
income applicable to common shareholders to $8,104 and decrease net income
per common share to $0.18, based on 44,214 weighted average number of
common shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E. These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in income of the New Wyndham Entities which own the
Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which will be
controlled by Operating Company.
(I) Represents provision for the Corporation's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 9.8%. The estimated minority interest percentage subsequent
to the Merger (and prior to the Wyndham Transactions) is approximately
14.0%.
(K) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for shares of Paired Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham
Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share
of Wyndham Common Stock), pro forma interest expense would increase by
$1,813, net income would be $7,028, and net income per common share would
be $0.17, based on 41,868 weighted average number of common shares and
common share equivalents outstanding.
(L) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of the Corporation.
F-62
<PAGE>
OPERATING COMPANY
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------
OPERATING CROW
COMPANY PROPERTIES WYNDHAM
PRO FORMA ACQUISITION ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
----------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue............ $ 38,940 $ 70,450 $ 99,584 $16,228 $ -- $225,202
Food and beverage....... 19,745 39,330 32,206 8,379 -- 99,660
Club and spa revenue.... 24,710 -- -- -- -- 24,710
Pari-mutuel revenue..... 41,476 -- -- -- -- 41,476
Other racing income..... 10,470 -- -- -- -- 10,470
Management fees......... -- -- 22,524 -- (6,709)(E) 15,815
Club membership
revenue................ 4,277 -- -- -- -- 4,277
Shopping center
revenue................ 1,730 -- -- -- -- 1,730
Service fees............ -- -- 3,962 -- -- 3,962
Reimbursement income.... -- -- 14,506 -- -- 14,506
Telephone and other
hotel revenue.......... 10,338 9,744 6,988 1,931 -- 29,001
Interest and other
income................. 1,936 -- 2,250 -- -- 4,186
-------- -------- -------- ------- -------- --------
Total revenue........... 153,622 119,524 182,020 26,538 (6,709) 474,995
-------- -------- -------- ------- -------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............. 47,280 49,367 65,053 9,949 -- 171,649
Direct operating costs
of Racecourse
facility............... 20,950 -- -- -- -- 20,950
Purses and incentive
awards................. 17,054 -- -- -- -- 17,054
Commissions, concession
costs and racing
facility rental........ 9,176 -- -- -- -- 9,176
Ground lease and hotel
lease expense.......... -- -- -- -- 11,769 (F) 11,769
Direct operating costs
of management company
....................... -- -- 12,035 -- -- 12,035
Service department
expenses............... -- -- 4,970 -- -- 4,970
Reimbursement expenses.. -- -- 15,448 -- -- 15,448
General and
administrative......... 10,181 10,314 7,888 2,971 200 (G) 31,554
Repair and maintenance.. 8,045 5,219 4,533 1,144 -- 18,941
Utilities............... 4,082 4,584 4,585 1,055 -- 14,306
Marketing............... 7,767 9,104 7,620 1,738 -- 26,229
Management fees......... 3,194 5,783 -- 926 (6,709)(E) 3,194
Depreciation and
amortization........... 1,072 -- 8,110 (H) -- 7,697 (H) 16,879
Participating lease
payments............... 25,967 (I) 38,046 (I) 19,175 (I) 9,019 (I) -- 92,207
Interest expense........ 1,300 -- -- -- -- 1,300
Real estate and personal
property taxes and
insurance.............. 398 -- -- -- -- 398
General liability
insurance.............. 656 624 2,449 235 -- 3,964
Equity participation
compensation .......... -- -- 2,919 -- -- 2,919
Miscellaneous .......... -- 871 555 99 (99) 1,426
-------- -------- -------- ------- -------- --------
Total expenses.......... 157,122 123,912 155,340 27,136 12,858 476,368
-------- -------- -------- ------- -------- --------
Income (loss) before
income tax provision and
minority interests...... (3,500) (4,388) 26,680 (598) (19,567) (1,373)
Income tax (provision)
benefit................ (62) -- (3,991)(J) -- 1,861 (J) (2,192)
-------- -------- -------- ------- -------- --------
Income (loss) before mi-
nority interests........ (3,562) (4,388) 22,689 (598) (17,706) (3,565)
Minority interest in the
Operating
Partnership............ 499 430 (K) (2,224)(K) 59 (K) 1,333 (K) 97
Minority interest in
consolidated
subsidiaries........... -- -- -- -- 2,573 (L) 2,573
-------- -------- -------- ------- -------- --------
Net income (loss)
applicable to common
shareholders............ $ (3,063) $ (3,958) $ 20,465 $ (539) $(13,800) $ (895)(M)
======== ======== ======== ======= ======== ========
Net income (loss) per
common share(N)......... $ (0.11) $ (0.02)(M)
======== ========
Weighted average number
of common shares and
common share equivalents
outstanding............. 28,793 43,721 (M)
======== ========
</TABLE>
See notes on following page.
F-63
<PAGE>
- --------
(A) Represents the pro forma results of operations of Operating Company for the
year ended December 31, 1996 which reflects the Merger and the related
transactions.
(B) Represents adjustments to Operating Company's results of operations assuming
the Crow Properties Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As a
result, the pro forma results of operations for the Crow Properties
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to Operating Company's results of operations assuming
the Wyndham Acquisition had been consummated at the beginning of the period
presented.
(D) Represents adjustments to Operating Company's results of operations assuming
the two hotels currently leased by Crow Hotel Lessee, Inc. (the "Wyndham
Lessee") were leased by Operating Company at the beginning of the period
presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Wyndham Lessee which are assumed to be leased by Operating
Company and managed by a New Wyndham Entity.
(F) Represents pro forma lease expense related to the sub-lease agreement with
the Corporation for those hotel properties leased by the Corporation from
third party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by Operating Company.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over a 40-year estimated useful life.
Amortization of management contracts is computed using the straight-line
method over the 14.6-year average remaining term of the related franchise
agreements.
(I) Represents lease payments from Operating Company to the Corporation
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the period
presented.
(J) Represents adjustments to Operating Company's estimated federal and state
tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 9.8%. The estimated minority interest percentage subsequent to
the Merger (and prior to the Wyndham Transactions) is approximately 14.0%.
(L) Represents adjustment for minority interest in the New Wyndham Entities
held by the Corporation.
(M) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for shares of Paired Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock averaging $22.12, and a
Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each
share of Wyndham Common Stock), pro forma net loss would be $(890), and net
loss per common share would be $(0.02), based on 41,375 weighted average
number of common shares and common share equivalents outstanding.
(N) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of Operating Company.
F-64
<PAGE>
OPERATING COMPANY
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW PROPERTIES WYNDHAM
PRO FORMA ACQUISITION ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
----------- --------------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $13,177 $20,031 $28,576 $4,496 $ -- $ 66,280
Food and beverage...... 5,891 10,311 11,060 2,337 -- 29,599
Club and spa revenue... 8,706 -- -- -- -- 8,706
Pari-mutuel revenue.... 17,099 -- -- -- -- 17,099
Other racing income.... 3,170 -- -- -- -- 3,170
Management fees........ -- -- 6,098 -- (1,289)(E) 4,809
Club membership
revenue............... 348 -- -- -- -- 348
Shopping center
revenue............... 474 -- -- -- -- 474
Service fees........... -- -- 1,062 -- -- 1,062
Reimbursement income... -- -- 3,370 -- -- 3,370
Telephone and other
hotel revenue......... 3,769 2,598 2,688 490 -- 9,545
Interest and other
income................ 690 -- 631 -- -- 1,321
------- ------- ------- ------ ------- --------
Total revenue.......... 53,324 32,940 53,485 7,323 (1,289) 145,783
------- ------- ------- ------ ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 13,828 13,298 14,641 2,614 -- 44,381
Operating expense...... -- -- 4,243 -- -- 4,243
Service department
expenses.............. -- -- 1,152 -- -- 1,152
Reimbursement
expenses.............. -- -- 3,370 -- -- 3,370
Direct operating costs
of Racecourse
facilities............ 6,608 -- -- -- -- 6,608
Purses and incentive
awards................ 7,240 -- -- -- -- 7,240
Commissions,
concessions costs and
racing facility
rental................ 3,101 -- -- -- -- 3,101
General and
administrative........ 2,591 2,841 2,642 729 50 (G) 8,853
Sublease for GHALP
Hotels................ -- -- -- -- 5,429 (F) 5,429
Repair and
maintenance........... 2,247 1,346 1,636 270 -- 5,499
Utilities.............. 949 1,304 1,577 259 -- 4,089
Marketing.............. 1,870 2,502 2,951 456 -- 7,779
Management fees........ 1,482 1,050 -- 239 (1,289)(E) 1,482
Depreciation and
amortization.......... 268 -- 2,559 -- 1,630 (H) 4,457
Participating lease
payments.............. 9,428 10,851 (I) 5,263 (I) 2,565 (I) -- 28,107
Interest expense....... 319 -- -- -- -- 319
Real estate and
personal property
taxes and casuality
insurance ............ 129 -- -- -- -- 129
General liability
insurance ............ 252 97 612 33 -- 994
Foreign currency
exchange.............. -- -- (6) -- -- (6)
Other.................. -- 39 (47) 54 (54) (8)
------- ------- ------- ------ ------- --------
Total expenses......... 50,312 33,328 40,593 7,219 5,766 137,218
------- ------- ------- ------ ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 3,012 (388) 12,892 104 (7,055) 8,565
Income tax (provision)
benefit............... (1,205) -- (2,992)(J) -- 166 (J) (4,031)
------- ------- ------- ------ ------- --------
Income (loss) before mi-
nority interests....... 1,807 (388) 9,900 104 (6,889) 4,534
Minority interest in
the Operating
Partnership........... (253) 38 (K) (970)(K) (10)(K) 845 (K) (350)
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (963)(L) (963)
------- ------- ------- ------ ------- --------
Net income (loss)
applicable to common
shareholders........... $ 1,554 $ (350) $ 8,930 $ 94 $(7,007) $ 3,221 (M)
======= ======= ======= ====== ======= ========
Net income per common
share(N)............... $ 0.05 $ 0.07 (M)
======= ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,074 44,214 (M)
======= ========
</TABLE>
See notes on following page.
F-65
<PAGE>
- --------
(A) Represents the pro forma results of operations of Operating Company for the
three months ended March 31, 1997 which reflects the Merger and the related
transactions.
(B) Represents adjustments to Operating Company's results of operations assuming
the Crow Properties Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As a
result, the pro forma results of operations for the Crow Properties
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to Operating Company's results of operations assuming
the Wyndham Acquisitions had been consummated at the beginning of the period
presented.
(D) Represents adjustments to Operating Company's results of operations assuming
the two hotels currently leased by Wyndham Lessee has been leased by
Operating Company at the beginning of the period presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Wyndham Lessee which are assumed to be leased by Operating
Company and managed by a New Wyndham Entity.
(F) Represents pro forma lease expense related to the sub-lease agreement with
the Corporation for those hotel properties leased by the Corporation from
third party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by Operating Company.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over a 40-year estimated useful life.
Amortization of management contracts is computed using the straight-line
method over the 14.6-year average remaining term of the related franchise
agreements.
(I) Represents lease payments from Operating Company to the Corporation
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the period
presented.
(J) Represents adjustments to Operating Company's estimated federal and state
tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 9.8%. The estimated minority interest percentage subsequent to
the Merger (and prior to the Wyndham Transactions) is approximately 14.0%.
(L) Represents adjustment for minority interest in the New Wyndham Entities
held by the Corporation.
(M) The pro forma amounts presented assume all of the outstanding Wyndham Common
Stock is exchanged for shares of Paired Common Stock. If the maximum number
of shares of Wyndham Common Stock are purchased for cash (based on total
funds available of $100,000, an estimated market price per paired share of
$42.61, based upon the average closing price for the five days prior to May
12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham Exchange Ratio
equal to 0.712 shares of Paired Common Stock for each share of Wyndham
Common Stock), pro forma net income would be $3,203, and net income per
common share would be $0.08, based on 41,868 weighted average number of
common shares and common share equivalents outstanding.
(N) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of Operating Company.
F-66
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
As of March 31, 1997, Patriot leased each of its hotels, except the Crowne
Plaza Ravinia Hotel and the Marriott WindWatch Hotel, which are separately owned
through special purpose non-controlled subsidiaries, to Lessees. The Combined
Lessees subsequent to the Wyndham Transactions and the Merger and the related
transactions are expected to consist of CHC Lease Partners which leases 25
hotels, NorthCoast Hotels, L.L.C. (the "NorthCoast Lessee") which leases 9
hotels, DTR North Canton, Inc. (the "Doubletree Lessee") which leases 6 hotels,
Metro Hotels Leasing Corporation ("Metro Lease Partners") which leases 1 hotel
and Grand Heritage Leasing, L.L.C. (the "Grand Heritage Lessee") which leases 3
hotels. With respect to the hotels leased to PAH RSI, L.L.C. ("PAH RSI Lessee")
subsequent to completion of the Merger and the related transactions, the
Operating Company expects to acquire the membership interests in PAH RSI Lessee.
With respect to the two hotels currently leased to Crow Hotel Lessee, Inc. (the
"Wyndham Lessee") (the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint
Hotel), subsequent to the completion of the Wyndham Transactions, the
Corporation expects to terminate its leases with Wyndham Lessee and re-lease
such hotels to Operating Company. The Participating Leases provide for staggered
terms of ten to twelve years and the payment of the greater of base or
participating rent, plus certain additional charges, as applicable.
The following Combined Lessees' unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the three
months ended March 31, 1997 are presented as if the hotels that Patriot leased
as of March 31, 1997 to the Combined Lessees pursuant to Participating Leases
had been leased as of January 1, 1996. Six of the hotels leased to PAH RSI
Lessee (excluding the Sheraton Park Place Hotel which was acquired in April 1997
and the Myrtle Beach Hilton Oceanfront Golf Resort which was acquired by Patriot
in May 1997) and the two hotels leased to Wyndham Lessee are assumed to have
been leased to Operating Company and, therefore, have been eliminated from the
Pro Forma Condensed Combined Statements of Operations for the Combined Lessees.
The pro forma information is based in part upon the Statements of Operations of
CHC Lease Partners, the Statement of Operations of NorthCoast Lessee and the
Statement of Operations of PAH RSI Lessee and the Pro Forma Statement of
Operations of the Combined Lessees filed with the Corporation's and the
Operating Company's Current Report on Form 8-K dated July 1, 1997. In
management's opinion, all material adjustments necessary to reflect the effects
of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
F-67
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
LESSEES WYNDHAM
PRO FORMA LESSEE PRO FORMA
TOTAL(A) PRO FORMA(B) TOTAL
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room.................................... $222,051 $(16,228) $205,823
Food and beverage....................... 85,489 (8,379) 77,110
Conference center....................... 2,354 -- 2,354
Telephone and other..................... 21,919 (1,931) 19,988
-------- -------- --------
Total revenue........................ 331,813 (26,538) 305,275
-------- -------- --------
Expenses:
Departmental costs and expenses......... 130,581 (9,949) 120,632
General and administrative.............. 31,549 (2,971) 28,578
Ground lease expense.................... 2,064 -- 2,064
Repair and maintenance.................. 16,415 (1,144) 15,271
Utilities............................... 15,711 (1,055) 14,656
Marketing............................... 29,315 (1,738) 27,577
Interest expense........................ 3 -- 3
Insurance............................... 2,225 (235) 1,990
Participating lease payments............ 104,603 (C) (9,019) 95,584
-------- -------- --------
Total expenses....................... 332,466 (26,111) 306,355
-------- -------- --------
Income (loss) before lessee income
(expense)............................... (653) (427) (1,080)
-------- -------- --------
Dividend and interest income............. 1,543 (D) -- 1,543
Management fees.......................... (7,070)(E) 926 (6,144)
Lessee general and administrative........ (1,676)(F) 99 (1,577)
-------- -------- --------
(7,203) 1,025 (6,178)
-------- -------- --------
Net loss................................. $ (7,856) $ 598 $ (7,258)
======== ======== ========
</TABLE>
- --------
(A) The Combined Lessees pro forma results of operations represent the combined
pro forma operating results of the Lessees after consummation of the Merger
and the related transactions. These Lessees' pro forma results of operations
include (i) the combined historical results of operations of CHC Lease
Partners and Metro Lease Partners for the year ended December 31, 1996 and
the combined historical results of operations of NorthCoast Lessee,
Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the period
from their respective inception of operations through December 31, 1996 and
(ii) adjustments to the combined Lessees results of operations assuming the
46 hotels leased by Patriot to the Lessees as of March 31, 1997 (excluding
six of the hotel properties leased to PAH RSI Lessee as of March 31, 1997
and excluding the Sheraton Park Place Hotel acquired by Patriot in April
1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by Patriot
in May 1997) had been leased at the beginning of the period presented.
(B) Represents the elimination of the pro forma results of operations for the
Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are
currently leased to the Wyndham Lessee and which, following the Wyndham
Transactions, are expected to be leased to Operating Company.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Realty Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-68
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
LESSEES WYNDHAM
PRO FORMA LESSEE PRO FORMA
TOTAL(A) PRO FORMA(B) TOTAL
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room..................................... $56,685 $(4,496) $52,189
Food and beverage........................ 22,000 (2,337) 19,663
Conference center........................ 748 -- 748
Telephone and other...................... 5,431 (490) 4,941
------- ------- -------
Total revenue......................... 84,864 (7,323) 77,541
------- ------- -------
Expenses:
Departmental costs and expenses.......... 32,504 (2,614) 29,890
General and administrative............... 7,683 (729) 6,954
Ground lease expense..................... 320 -- 320
Repair and maintenance................... 4,075 (270) 3,805
Utilities................................ 3,673 (259) 3,414
Marketing................................ 7,676 (456) 7,220
Insurance................................ 501 (33) 468
Participating lease payments............. 27,123 (C) (2,565) 24,558
------- ------- -------
Total expenses........................ 83,555 (6,926) 76,629
------- ------- -------
Income (loss) before lessee income
(expense)................................ 1,309 (397) 912
------- ------- -------
Dividend and interest income.............. 945 (D) -- 945
Management fees........................... (1,635)(E) 239 (1,396)
Lessee general and administrative......... (455)(F) 54 (401)
------- ------- -------
(1,145) 293 (852)
------- ------- -------
Net income (loss)......................... $ 164 $ (104) $ 60
======= ======= =======
</TABLE>
- --------
(A) The Combined Lessees' pro forma results of operations represent the combined
pro forma operating results of the Lessees after consummation of the Merger
and the related transactions. These Lessees' pro forma results of operations
include (i) the combined historical results of operations of CHC Lease
Partners, Metro Lease Partners, NorthCoast Lessee, Doubletree Lessee,
Wyndham Lessee and Grand Heritage Lessee for the three months ended March
31, 1997 and (ii) adjustments to the combined Lessees results of operations
assuming the 46 hotels leased by Patriot to the Lessees as of March 31, 1997
(excluding six of the hotel properties leased to PAH RSI Lessee as of March
31, 1997 and excluding the Sheraton Park Place Hotel acquired by Patriot in
April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by
Patriot in May 1997) had been leased at the beginning of the period
presented.
(B) Represents the elimination of the pro forma results of operations for the
Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are
currently leased to the Wyndham Lessee and which, following the Wyndham
Transactions, are expected to be leased to Operating Company.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Realty Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
F-69
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------------------------------
2.1 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and Wyndham Hotel Corporation
(incorporated by reference from the Registration Statement on
Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997
of the Corporation (formerly known as California Jockey Club) and
the Operating Company (formerly known as Bay Meadows Operating
Company)
2.2 Stock Purchase Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and CF Securities, L.P.
(incorporated by reference from the Registration Statement on
Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997
of the Corporation (formerly known as California Jockey Club) and
the Operating Company (formerly known as Bay Meadows Operating
Company)
2.3 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997,
by and among the Crow Family Entities and Patriot American
Hospitality Partnership, L.P. (incorporated by reference from
the Registration Statement on Form S-4 (File No. 333-28085 and
333-28085-01) dated May 30,1997 of the Corporation (formerly
known as California Jockey Club) and the Operating Company
(formerly known as Bay Meadows Operating Company)
2.4 Agreement of Purchase and Sale and Joint Escrow Instructions,
dated as of April 18, 1997 between Patriot American Hospitality,
Inc. and PW Acquisitions IV, LLC. (incorporated by reference from
the Registration Statement on Form S-4 (File No. 333-28085 and
333-28085-01) dated May 30,1997 of the Corporation (formerly
known as California Jockey Club) and the Operating Company
(formerly known as Bay Meadows Operating Company)
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen LLP
99.1 Ratio of Earnings to Fixed Charges
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company on Form S-3 (File No. 333-29671) of our report dated February 19, 1997,
on our audits of the consolidated financial statements of Wyndham Hotel
Corporation as of December 31, 1996 and 1995 and for each of the years ended
December 31, 1996, 1995 and 1994, which report in the December 31, 1996 included
in this current report on Form 8-K dated July 22, 1997.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
July 22, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the incorporation by
reference in the Registration Statement of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company on Form S-3 (File No. 333-
29671) of our report dated May 6, 1997, on our audits of the combined financial
statements of Crow Family Hotel Partnerships as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996 and use of
our report (and to all references to our Firm) included in this Current Report
on Form 8-K dated July 22, 1997.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
July 21, 1997
<PAGE>
EXHIBIT 99.1
RATIO OF EARNINGS TO FIXED CHARGES
PATRIOT AMERICAN HOSPITALITY, INC. (PATRIOT)
(in thousands)
<TABLE>
<CAPTION>
3 Months Year Inception
Ended Ended Through
03/31/97 12/31/96 12/31/95
-------- -------- ---------
<S> <C> <C> <C>
Earnings:
Income before minority interest $13,780 $44,813 $7,064
Add back: fixed charges 7,888 7,471 89
--------------------------------
$21,668 $52,284 $7,153
================================
Fixed Charges:
Interest expense, including
amort of DLC $ 7,805 $ 7,380 $ 89
Capitalized interest 83 91 -
--------------------------------
$ 7,888 $ 7,471 $ 89
================================
Ratio: 2.75 7.00 80.37
================================
</TABLE>
