<PAGE>
(COMMISSION FILE NUMBER): 001-09319
(COMMISSION FILE NUMBER): 001-09320
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): June 2, 1998
PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
94-0358820 94-2878485
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1950 Stemmons Freeway 1950 Stemmons Freeway
Suite 6001 Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
(214) 863-1000 (214) 863-1000
(Address, including zip code, and (Address, including zip code, and
telephone number, including area telephone number, including area
code, of registrant's principal code, of registrant's principal
executive offices) executive offices)
--------------------------- ---------------------------
JAMES D. CARREKER JAMES D. CARREKER
CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD AND
PATRIOT AMERICAN HOSPITALITY, INC. CHIEF EXECUTIVE OFFICER
1950 STEMMONS FREEWAY WYNDHAM INTERNATIONAL, INC.
SUITE 6001 1950 STEMMONS FREEWAY
DALLAS, TEXAS 75207 SUITE 6001
(214) 862-1000 DALLAS, TEXAS 75207
(Name, address, including zip code, (214) 863-1000
and telephone number, including area (Name, address, including zip code,
code and of agent for service) and telephone number, including area
code, of agent for service)
----------
COPIES TO:
GILBERT G. MENNA, P.C.
KATHRYN I. MURTAGH, ESQ.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
----------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
This Current Report on Form 8-K/A is filed as an amendment to the Current
Report on Form 8-K/A filed by Patriot American Hospitality, Inc. ("Patriot")
and Wyndham International, Inc. ("Wyndham") on August 6, 1998, which amended
the Current Report on Form 8-K filed by Patriot and Wyndham on June 17, 1998.
(a) Financial Statements of Businesses Acquired or to be Acquired
The index to the financial information for Arcadian International Limited and
Malmaison Limited is included on page F-1 of this report.
(b) Pro Forma Financial Information
None.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
23.1 Consent of Arthur Andersen-London, England
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
PATRIOT AMERICAN HOSPITALITY, INC.
Dated: March 26, 1999 By: /s/ Lawrence S. Jones
---------------------------------
Name: Lawrence S. Jones
Title: Executive Vice President and Treasurer
WYNDHAM INTERNATIONAL, INC.
By: /s/ Lawrence S. Jones
---------------------------------
Name: Lawrence S. Jones
Title: Executive Vice President and Treasurer
3
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
HISTORICAL FINANCIAL INFORMATION
ARCADIAN INTERNATIONAL LIMITED (FORMERLY ARCADIAN INTERNATIONAL PLC):
<S> <C>
Auditors' Report - Arthur Andersen .................................... F-3
Consolidated Profit and Loss Account for the years ended December 31,
1997 and 1996 ....................................................... F-5
Consolidated Statements of Total Recognised Gains and Losses for
the years ended December 31, 1997 and 1996 .......................... F-6
Consolidated Balance Sheets as of December 31, 1997 and 1996 .......... F-7
Consolidated Cash Flow Statement for the years ended December 31,
1997 and 1996 ....................................................... F-8
Notes to Accounts ..................................................... F-9
MALMAISON LIMITED:
Auditors' Report - Arthur Andersen .................................... F-41
Consolidated Profit and Loss Account for the year ended December 31,
1997 and the 53-week period ended December 31, 1996 ................. F-42
Consolidated Balance Sheets as of December 31, 1997 and 1996 .......... F-43
Consolidated Cash Flow Statement for the years ended December 31,
1997 and and the 53-week period ended December 31, 1996 ............. F-44
Notes to Accounts ..................................................... F-45
</TABLE>
F-1
<PAGE>
Arcadian International Limited
(formerly Arcadian International Plc)
and subsidiary undertakings
Non statutory accounts 31 December 1997
together with auditors' report
Registered number: 409293
F-2
<PAGE>
Auditors' report
To the Shareholders of Arcadian International Limited:
We have audited the accounts on pages 3 to 37 which have been prepared under the
historical cost convention as modified by the revaluation of hotels and the
accounting policies set out on pages 9 to 13. As explained in Note 2, the
accounts have not been prepared for the purposes of Section 226 of the Companies
Act 1985 and are therefore not statutory accounts.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the accounts. It
is our responsibility to form an independent opinion, based on our audit, on
those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with UK Auditing Standards issued by the
Auditing Practices Board, which are substantially consistent with generally
accepted auditing standards in the US, for which purpose our report is
dual-dated in respect of Note 1.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the accounts. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the accounts, and of whether the accounting policies are appropriate to the
company's and the group's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
PARENT COMPANY FINANCIAL SUPPORT
In forming our opinion, we have considered the adequacy of the disclosures made
in Note 1 of the accounts concerning the uncertainty regarding the future
financing of Patriot American Hospitality Inc, on whose continued financial
support the company and group depend. In view of the significance of this
uncertainty we consider that it should be drawn to your attention, but our
opinion is not qualified in this respect.
F-3
<PAGE>
Auditors' report (continued)
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of
the company and of the group as at 31 December 1997 and of the group's profit
and cash flows for the year then ended and have been properly prepared in
accordance with the Companies Act 1985 as would have applied if they had been
statutory accounts.
Arthur Andersen
Chartered Accountants
1 Surrey Street
London
WC2R 2PS
22 July 1998 (except with respect to the matter discussed in Note 1, as to
which the date is 24 March 1999)
F-4
<PAGE>
Consolidated profit and loss account
For the year ended 31 December 1997
<TABLE>
<CAPTION>
Notes 1997 1996
L'000 L'000
<S> <C> <C> <C>
Turnover 3 31,782 30,453
Cost of sales (15,825) (14,400)
---------- ----------
GROSS PROFIT 15,957 16,053
Administrative expenses before exceptional costs (net) (11,055) (10,559)
Exceptional administrative costs 4 (1,495) -
---------- ----------
Administrative expenses after exceptional costs (12,550) (10,559)
---------- ----------
Operating profit 3,407 5,494
(Loss) profit on disposal of fixed assets 5 (11) 380
Share of operating losses of associated undertakings 13 (372) (369)
Interest receivable and similar income 6 1,533 265
Interest payable and similar charges 7 (2,552) (2,117)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 8 2,005 3,653
Tax on profit on ordinary activities 10 (52) (484)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 1,953 3,169
Minority interest 18 44 (33)
---------- ----------
PROFIT FOR THE FINANCIAL YEAR 1,997 3,136
Dividends paid and proposed on equity and non equity shares 11 (206) (1,929)
---------- ----------
RETAINED PROFIT FOR THE YEAR 1,791 1,207
---------- ----------
---------- ----------
RETAINED PROFIT FOR THE YEAR
The company 1,491 797
Group undertakings 672 779
Associated undertakings (372) (369)
---------- ----------
1,791 1,207
---------- ----------
---------- ----------
</TABLE>
All operations of the group continued throughout both years and no operations
were acquired or discontinued.
A statement of movements on reserves is given in note 21.
The accompanying notes are an integral part of this consolidated profit and loss
account.
F-5
<PAGE>
Consolidated statement of total recognised gains and losses
For the year ended 31 December 1997
<TABLE>
<CAPTION>
Group
---------------------------
1997 1996
L'000 L'000
<S> <C> <C>
Profit for the financial year 1,997 3,136
Unrealised surplus on revaluation of fixed assets 6,238 4,697
Loss on foreign currency translation (1,436) (1,277)
---------- ----------
TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR 6,799 6,556
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
total recognised gains and losses.
F-6
<PAGE>
BALANCE SHEETS
For the year ended 31 December 1997
<TABLE>
<CAPTION>
Group Company
------------------------------ -----------------------------
Notes 1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangibles 12 641 - - -
Tangible assets 12 87,281 77,180 - -
Investments 13 17,523 7,928 71,385 61,648
---------- ---------- ---------- ----------
105,445 85,108 71,385 61,648
---------- ---------- ---------- ----------
CURRENT ASSETS
Stocks 14 26,933 23,381 - -
Debtors
- - due within one year 15 6,359 7,212 38,906 29,324
- - due after one year 15 - 639 - -
Cash at bank and in hand 1,421 2,362 14 20
---------- ---------- ---------- ----------
34,713 33,594 38,920 29,344
CREDITORS: Amounts falling due within one
year 16 (17,258) (21,033) (18,296) (14,923)
---------- ---------- ---------- ----------
NET CURRENT ASSETS 17,455 12,561 20,624 14,421
---------- ---------- ---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 122,900 97,669 92,009 76,069
CREDITORS: Amounts falling due after more
than one year 17 (41,206) (22,215) (36,280) (21,831)
---------- ---------- ---------- ----------
NET ASSETS 81,694 75,454 55,729 54,238
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CAPITAL AND RESERVES
Called-up ordinary share capital 19 36,869 36,869 36,869 36,869
Share premium 21 13,392 13,392 13,392 13,392
Revaluation reserve 21 21,400 15,162 - -
Capital reserve 21 7,531 7,627 - -
Goodwill write-off reserve 21 (246) (137) 1,750 1,750
Profit and loss account 21 1,937 1,582 3,718 2,227
---------- ---------- ---------- ----------
EQUITY SHAREHOLDERS' FUNDS 22 80,883 74,495 55,729 54,238
MINORITY INTEREST 18 811 959 - -
---------- ---------- ---------- ----------
TOTAL CAPITAL EMPLOYED 81,694 75,454 55,729 54,238
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SIGNED ON BEHALF OF THE BOARD
Director
The accompanying notes are an integral part of these balance sheets.
F-7
<PAGE>
Consolidated Cash Flow Statement
For the year ended 31 December 1997
<TABLE>
<CAPTION>
1997 1996
-------------------------------- ----------------------------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
Net cash flow from operating activities 23a 1,149 5,568
Returns on investments and servicing
of finance 23b (3,215) (3,340)
Taxation 23b (581) (115)
Capital expenditure 23b (13,240) (3,330)
Acquisitions and disposal 23b - (15,273)
Equity dividends paid (1,799) (1,128)
---------- ----------
CASH OUTFLOW BEFORE FINANCING (17,686) (17,618)
Financing
- - issue of ordinary shares (net of costs) - 15,777
- - redemption of preference shares - (2,000)
- - increase in debt (net) 18,219 3,683
---------- ----------
23b 18,219 17,460
---------- ----------
INCREASE (DECREASE) IN CASH IN THE YEAR 23c 533 (158)
---------- ----------
---------- ----------
</TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
For the year ended 31 December 1997
<TABLE>
<CAPTION>
Notes 1997 1996
----------------------------- ------------------------------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH IN THE YEAR 23c 533 (158)
Cash inflow from debt 23c (18,219) (3,683)
---------- ----------
Change in net debt resulting from:
- - Cash flows (17,686) (3,841)
- - New finance leases (145) (657)
- - Foreign exchange translation differences 96 377
---------- ----------
MOVEMENT IN NET DEBT IN THE YEAR (17,735) (4,121)
NET DEBT AT START OF YEAR 23c (29,542) (25,421)
---------- ----------
NET DEBT AT END OF YEAR 23c (47,277) (29,542)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this consolidated cash flow
statement.
F-8
<PAGE>
Notes to Accounts
For the year ended 31 December 1997
1 SUBSEQUENT EVENTS
a) On 6 April 1998 Patriot completed its acquisition of all the share capital
of the company. Each shareholder received 60 pence in cash per ordinary
share. Immediately following the completion of the transaction application
was made to the Stock Exchange for delisting and to the Registrar of
Companies to change the name of the company from Arcadian International plc
to Arcadian International Limited.
b) In a related but separate transaction Patriot entered into an option
agreement with the other shareholders of Malmaison Limited to purchase the
balance of share capital and loan stock of Malmaison Limited not already
owned by the company. The benefit of this option was passed from Patriot to
the company. The option was exercised on 8 April 1998. The management
contract with Malmaison Management Limited was terminated on the same day.
c) Patriot is a US Real Estate Investment Trust or `REIT' whose shares are
paired and trade as a single unit with those of Wyndham International, Inc.
('Wyndham').
Subsequent to the transaction, the trading stock and business of the
group's hotels was sold to Wyndham and its subsidiaries Arcadian Hotels
Limited and Malmaison Hotels Limited together ("the Wyndham UK Group") for
book value at the transaction dates. The group continues to own the
freehold and long leasehold interests in the hotels which have been leased
to the Wyndham UK Group.
d) The company and its subsidiaries ("the group") are dependent on the
continued financial support of Patriot. Patriot has confirmed its intention
of providing continued financial support to the group to enable it to meet
its liabilities as they fall due, for a period of at least twelve months
from 22 July 1998. As described in (e) below, there is uncertainty regarding
the future financing of Patriot which may impact its ability to provide
continued financial support to the group.
e) In their Joint Quarterly Report on Form 10-Q for the quarterly period ended
30 June 1998, dated 14 August 1998, Patriot and Wyndham (the "Companies")
reported, among other things, that expenses related to the rapid pace of
acquisitions during the first six months of 1998, coupled with the
Companies' operating expenses and capital expenditures and development
programmes, had resulted in Patriot being fully drawn of all available funds
under the existing Revolving Credit Facility as of 14 August 1998. The
Companies further stated that, while they were then negotiating to obtain
additional bank financing and other additional sources of capital, if the
Companies were unable to secure additional sources of financing in the
future, no assurances could be made that a future lack of financing sources
would not have a material adverse effect on the Companies' financial
condition and results of operations. In their subsequent Joint Quarterly
Report on Form 10-Q for the quarterly period ended 30 September 1998, dated
20 November 1998, the Companies reiterated that if the Companies were unable
to secure additional sources of financing in future, were unable to
successfully refinance existing indebtedness, or were unable to obtain
amendments to existing covenants under the Revolving Credit Facility, no
assurance could be made that the Companies would be able to meet their
financial obligations as they come due without substantial dilution of
assets outside the ordinary course of business, restructuring of debt,
externally forced revisions of its operations or similar actions. The
Companies also reiterated no assurances could be given that the lack of
future financing sources would not have a material adverse effect on the
Companies' financial condition and results of operations.
F-9
<PAGE>
Notes to Account (Continued)
1 SUBSEQUENT EVENTS (CONTINUED)
On 4 February 1999, the Companies filed a Current Report on Form 8-K which
described amendments to its credit facility, and forward equity
arrangements. Under the amended terms of Patriot's $2.7 billion credit
facility, the $350 million payment due 31 January 1999 (and as a result of
the events announced on 1 March 1999, as described below) the maturities of
the $350 million payment due 31 January 1999 and the $400 million payment
due 31 March 1999 were extended until 30 June 1999.
On 1 March, 1999, the Companies filed a Current Report on Form 8-K which
included an announcement by the Companies that Patriot had entered into a
definitive securities purchase agreement with a group of investors (the
"Investors") providing for a $1 billion convertible preferred stock
investment in the Companies. The Investors will own an approximate 29%
interest in the Companies, assuming full subscription to a planned rights
offering of $300 million of convertible preferred stock which would reduce
the Investors' investment commensurately. The Boards of the Companies have
unanimously approved the combination of the two companies (the
"Restructuring") and conversion from a paired share real estate investment
trust ("REIT") structure to a C Corporation pursuant to a restructuring
plan. Under the terms of the restructuring plan, a newly formed subsidiary
of Wyndham, a C Corporation, will be merged into Patriot, a REIT, as a
result of which Patriot will become a wholly owned subsidiary of Wyndham.
The equity investment and the Restructuring are subject to stockholder
approval and both are currently expected to be completed by 30 June 1999.
The equity investment is also subject to antitrust clearance and certain
other conditions and consents.
2 ACCOUNTING POLICIES
A summary of the principal accounting policies is set out below. All accounting
policies have been applied consistently throughout the year and the preceding
year.
a) ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention modified to
include the revaluation of hotels and in accordance with applicable accounting
standards except in relation to the absence of provision for the depreciation of
freehold and long leasehold buildings, as set out in c), below. The accounts are
not statutory accounts.
b) BASIS OF CONSOLIDATION
The group accounts consolidate the accounts of Arcadian International Limited
and all its subsidiary and associated undertakings made up to 31 December 1997.
The acquisition method of accounting has been adopted whereby the results of
subsidiary undertakings acquired or disposed of in the year are included in the
consolidated profit and loss account from the date of acquisition or up to the
date of disposal.
F-10
<PAGE>
Notes to Account (Continued)
2 ACCOUNTING POLICES (CONTINUED)
For acquisitions completed prior to 31 December 1996 goodwill arising on
consolidation or on the acquisition of a business (representing the excess of
the fair value of the consideration given over the fair value of the separable
net assets acquired) has been written off against reserves. In accordance with
Financial Reporting Standard No 10, for acquisitions completed since 1 January
1997, goodwill arising on consolidation or on the acquisition of a business is
capitalised and amortised over its estimated useful life. Any excess of the
aggregate of the fair value of the separable net assets acquired over the fair
value of the consideration given is credited directly to reserves.
On disposal of previously acquired businesses, any attributable amount of
goodwill previously written off is included in determining the profit or loss on
disposal.
In the company's accounts, investments in subsidiary undertakings are stated at
cost less amounts written off. Only interest and dividends received and
receivable are credited to the company's profit and loss account.
c) TANGIBLE FIXED ASSETS
Freehold hotel properties and hotel properties on leases with 25 years or more
to run at the balance sheet date are revalued annually and the resultant
valuation is included in the balance sheet unless the surplus or deficit is
immaterial. Where a material surplus or deficit arises, this is taken to the
revaluation reserve to the extent available. Any permanent diminution in the
value of such properties is charged to the profit and loss account.
In accordance with normal practice within the hotel industry, no depreciation is
provided on freehold hotel properties or on hotel properties on leases with 25
years or more to run at the balance sheet date. The group's properties are
maintained at all times in sound condition and to a high standard. Accordingly,
the directors are of the opinion that the length of lives and residual values
(based on prices prevailing at the time of acquisition or subsequent valuation)
of these properties are such that any provision for depreciation would not be
material
Interest on capital employed on land under development and on the costs of
construction and refurbishment of hotels incurred until these projects are
completed is, where appropriate, capitalised as part of the costs of
construction. Costs of construction include an allocation of direct overheads,
including internal labour and overhead costs.
Leasehold properties are amortised over the unexpired period of the lease where
this is less than 25 years.
Depreciation is provided on a straight line basis as follows:
<TABLE>
<CAPTION>
<S> <C>
Motor vehicles 4 years
Office equipment 4 years
Furniture, fittings and equipment 5-10 years
Plant and machinery 10-15 years
</TABLE>
d) FIXED ASSET INVESTMENTS
Investments are shown at cost less amounts written off. Provisions are made for
any permanent diminution in value. Income is included (together with the related
tax credit) in the consolidated accounts of the year in which it is receivable.
F-11
<PAGE>
Notes to Account (Continued)
2 ACCOUNTING POLICES (CONTINUED)
e) INTERESTS IN ASSOCIATED UNDERTAKINGS
Associated undertakings are entities in which the group has a participating
interest and over whose operating and financial policy it exercises a
significant influence. They do not include subsidiary undertakings. These
investments are dealt with by the equity method of accounting on consolidation.
That is, the consolidated profit and loss account includes the appropriate share
of these companies' profits less losses and the group's share of
post-acquisition retained losses and reserves is added to the cost of investment
in the consolidated balance sheet (see note 13).
Goodwill included in the acquisition cost of associated undertakings on
acquisitions completed prior to 31 December 1996 has been written off against
reserves on acquisition. In accordance with Financial Reporting Standard No 10,
goodwill on acquisitions of associated undertakings completed since 1 January
1997 is capitalised and amortised over its estimated useful life.
Where transactions are entered into with associated undertakings, any element of
unrealised profit or loss is eliminated on consolidation to the extent of the
group's interest in that undertaking.
f) STOCKS
Stocks comprise pre-construction costs, hotel development sites and hotel
operating stocks. They are stated at the lower of cost and net realisable value.
Pre-construction costs represent the cost of land, contractors' and professional
fees, interest and an allocation of other direct and project overheads including
internal labour and overhead costs. Costs are capitalised from the date at which
the group acquires and maintains an interest in, or an option to acquire an
interest in, a development site.
g) TAXATION
Corporation tax payable is provided on taxable profits at the current rate.
Advance corporation tax payable on dividends paid or provided for in the period
is written off, except when recoverability against corporation tax payable is
considered to be reasonably assured in the short term. Credit is taken for
advance corporation tax written off in previous years when it is recovered
against corporation tax liabilities.
The taxation liabilities of certain group companies are reduced wholly or in
part by the surrender of losses by fellow group companies.
Deferred taxation has been calculated using the liability method. Deferred
taxation is provided on timing differences which will probably reverse, at the
rates of tax likely to be in force at the time of the reversal. Deferred tax is
not provided on timing differences which, in the opinion of the directors, will
probably not reverse.
h) PENSION COSTS
Pension costs represent contributions in respect of the year made by the group
by reference to a uniform percentage of salary into employees' personal pension
schemes. These costs are charged to the profit and loss account as they fall
due.
F-12
<PAGE>
Notes to Account (Continued)
2 ACCOUNTING POLICES (CONTINUED)
i) FOREIGN CURRENCY
In the accounts of individual undertakings, transactions denominated in foreign
currencies are recorded in the local currency at actual exchange rates as of the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the year end are reported at the rates of exchange prevailing at
the year end. Any gain or loss arising from a change in exchange rates
subsequent to the date of the transaction is included as an exchange gain or
loss in the profit and loss account.
For the purposes of consolidation and application of the equity method of
accounting the closing rate method is used, under which translation gains or
losses are shown as a movement on reserves. Profit and loss accounts of overseas
subsidiary and associated undertakings are translated at the closing exchange
rate.
j) TURNOVER
i) Hotels
Turnover comprises amounts receivable for goods and services provided, net of
VAT and similar sales taxes.
ii) Project development
Turnover comprises project management fees and fees in relation to site
procurement.
k) LEASES
The group enters into operating and finance leases.
Assets held under finance leases are initially reported at the fair value of the
asset, with an equivalent liability categorised under creditors due within or
after one year as appropriate. The asset is depreciated over the shorter of the
lease term and its useful economic life. Finance charges are allocated to
accounting periods over the period of the lease to produce a constant rate of
return on the outstanding balance. Rentals are apportioned between finance
charges and reduction of the liability. Hire purchase transactions are dealt
with similarly, except that assets are depreciated over their useful lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term and commitments are provided for in the balance sheet at the time the
rental payments fall due. Further information on charges in the period and
future commitments is given in note 26c).
l) GOVERNMENT GRANTS
Government grants relating to tangible fixed assets are treated as deferred
income and credited to the profit and loss account by equal annual instalments
over the period to which the grant relates.
m) CAPITAL INSTRUMENTS
Capital instruments are classified as liabilities if they contain an obligation
to transfer economic benefits and if they are not included in shareholders'
funds. Capital instruments are initially stated at the amount of the net
proceeds after the deduction of issue costs. The finance cost recognised in the
profit and loss account in respect of capital instruments other than equity
shares is calculated so as to give a constant rate of return on the outstanding
balance.
F-13
<PAGE>
Notes to Account (Continued)
3 SEGMENT INFORMATION
The group is classified into two segments:
Hotels - relates to the operation and management of hotels.
Project development - relates to site and pre-construction costs, investment in
resort developments and project management and co-ordination fees.
In the opinion of the directors, the disclosure of information for these
segments would be prejudicial to the interests of the Group.
4 EXCEPTIONAL COSTS
Exceptional costs were incurred in 1997 in relation to the acquisition of the
group by Patriot American Hospitality, Inc. ("Patriot") which completed on 6
April 1998 (see note 1a)).
5 (LOSS) PROFIT ON DISPOSAL OF FIXED ASSETS
Loss on disposal of fixed assets of L11,000 relates to the sale of Hunstrete
House on 4 March 1997. These assets contributed Lnil (1996 - Lnil) to the
group's profit from continuing operations during the year. No tax charge arose
on this sale.
Profits of L380,000 in 1996 arose on the sale of land adjoining a hotel.
6 INTEREST RECEIVABLE AND SIMILAR INCOME
Investment income comprises:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Interest from associated undertakings (note 13a) 1,355 70
Interest from other participating interests (note 13) 17 48
Interest from short term bank deposits 54 19
Interest - other 107 128
---------- ----------
1,533 265
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
Notes to Account (Continued)
7 INTEREST PAYABLE AND SIMILAR CHARGES
Interest payable and similar charges comprise:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
On bank loans, overdrafts and other loans repayable within five years
- - by instalments 3,684 2,195
- - not by instalments 87 693
On all other loans 88 47
Write off of facility fees and costs following refinancing - 233
---------- ----------
3,859 3,168
Less: Amounts capitalised on pre-construction costs and hotel development
(notes 12 and 14) (1,307) (1,051)
---------- ----------
2,552 2,117
---------- ----------
---------- ----------
</TABLE>
Included in the above is the interest element of charges payable under finance
leases contracts amounting to L88,000 (1996 - L47,000).
8 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after crediting:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
a) Amortisation of government grants - 71
b) Profit on sale of database access - 750
c) Fee for site introduction to associate undertaking 256 365
d) Foreign exchange gains, net 144 -
---------- ----------
---------- ----------
And after charging:
a) Depreciation of tangible fixed assets
- owned 1,102 963
- held under hire purchase contracts and finance leases 252 188
b) Amortisation of intangible fixed asset 4 67
c) Rental payable, net 216 109
d) Other operating lease rentals 34 37
e) Auditors' remuneration - audit fees 175 154
f) Foreign exchange losses, net - 204
g) Provision for costs of unlet commercial property 200 -
h) Provision against development project - 234
i) Staff costs (note 9) 10,677 9,338
---------- ----------
---------- ----------
</TABLE>
In addition, in the year ended 31 December 1997, the auditors received L165,000
for non-audit services provided during the year (1996 - L400,000) of which
L62,000 related to costs associated with the sale of the company to Patriot.
F-15
<PAGE>
Notes to Account (Continued)
9 INFORMATION REGARDING DIRECTORS AND EMPLOYEES
Particulars of employees are as shown below:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Employee costs during the year (excluding directors) amounted to:
Wages and salaries 9,834 8,588
Social security costs 700 623
Other pension costs 143 127
---------- ----------
10,677 9,338
---------- ----------
---------- ----------
</TABLE>
The average weekly number of persons employed by the group during the year
(including executive directors) was as follows:
<TABLE>
<CAPTION>
Number Number
<S> <C> <C>
Hotel operations 1,132 1,024
Direct property operations 8 7
General and financial administration 15 12
---------- ----------
1,155 1,043
---------- ----------
---------- ----------
REMUNERATION
1997 1996
L'000 L'000
Emoluments 712 707
Fees to third parties in respect of directors' services 70 42
---------- ----------
782 749
Compensation for loss of office 15 -
---------- ----------
---------- ----------
797 749
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
Notes to Account (Continued)
9 INFORMATION REGARDING DIRECTORS AND EMPLOYEES (CONTINUED)
The above amounts do not include any gains made on the exercise of share options
or the value of any shares or share options received under long-term incentive
schemes. No directors exercised share options in the year (1996.- nil) and no
shares were received or receivable under long-term incentive schemes by any of
the directors.
Further details regarding payments made under these schemes subsequent to the
year end in connection with the acquisition of the company by Patriot are given
in note 20 and 26b)ii).
HIGHEST-PAID DIRECTOR
The above amounts for remuneration include the following in respect of the
highest paid director.
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Emoluments and long-term incentive schemes 178 221
---------- ----------
---------- ----------
10 TAX CHARGE ON PROFIT ON ORDINARY ACTIVITIES
The tax charge is based on the profit for the year and comprises:
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
ACT written off 52 484
---------- ----------
---------- ----------
</TABLE>
The group has tax losses which may be available to carry forward against future
profits. Certain of these losses may be relieved only against future trading
profits.
A potential liability on deferred chargeable gains of L11,461,000
(1996-L5,700,000) exists following the revaluation of certain properties and
the roll over of chargeable gains in prior years. This liability is not
expected to crystallise in the foreseeable future as the directors do not
intend to dispose of these assets. Consequently, no deferred taxation
provision has been made in this respect.
11 DIVIDENDS PAID AND PROPOSED
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Equity dividends on ordinary shares:
Interim paid 0.14p (1996 - 0.12p) 206 133
Final proposed nil (1996 - 1.08p) - 1,593
---------- ----------
206 1,726
Non-equity dividend on preference shares:
6% cumulative redeemable preference dividend - 203
---------- ----------
206 1,929
---------- ----------
---------- ----------
</TABLE>
The dividend arising on the preference shares was accrued from the date of issue
to 31 December 1996 when the shares were redeemed and the accrued dividend was
paid.
F-17
<PAGE>
Notes to Account (Continued)
12 INTANGIBLE AND TANGIBLE FIXED ASSETS
The movement in the year was as follows:
<TABLE>
<CAPTION>
Intangible
fixed assets Tangible fixed assets
-------------- ----------------------------------------------------
GROUP Leasehold Fittings, Total
properties equipment tangible
Freehold over and fixed
Goodwill properties 25 years vehicles assets
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
COST OR VALUATION
Beginning of year - 58,069 13,703 7,636 79,408
Additions 645 3,785 1,224 2,809 7,818
Revaluations - 4,779 699 - 5,478
Disposals - (1,489) (60) (476) (2,025)
---------- ---------- ---------- ---------- ----------
End of year 645 65,144 15,566 9,969 90,679
---------- ---------- ---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------------------
At valuation 1997 - 63,744 15,566 - 79,310
At cost 645 1,400 - 9,969 11,369
- ----------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTISATION
Beginning of year - - - 2,228 2,228
Charge
- - continuing activities 4 - - 1,354 1,354
Disposals - - - (184) (184)
---------- --------- --------- --------- ---------
End of year 4 - - 3,398 3,398
---------- --------- --------- --------- ---------
NET BOOK VALUE
Beginning of year - 58,069 13,703 5,408 77,180
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
End of year 641 65,144 15,566 6,571 87,281
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
At historical cost 641 49,826 11,873 6,571 68,270
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LEASED ASSETS AND ASSETS HELD ON FINANCE
LEASES INCLUDED IN THE ABOVE:
NET BOOK VALUE
BEGINNING OF YEAR 615 615
---------- ----------
---------- ----------
END OF YEAR 1,059 1,059
---------- ----------
---------- ----------
</TABLE>
Intangible fixed assets relate to goodwill arising on the acquisition of a 20%
interest in Beleggingsmaatschappij Stako II B.V. (`Stako') (note 13a). Goodwill
relating to this acquisition is being amortised over 20 years.
F-18
<PAGE>
Notes to Account (Continued)
12 INTANGIBLE AND TANGIBLE FIXED ASSETS (CONTINUED)
Additions to assets in course of construction include interest capitalised of
L33,000 (1996 - L4,000). Cumulative interest capitalised included in the cost of
tangible fixed assets amounts to L122,000 (1996 - L89,000).
Freehold and leasehold properties are included at valuation. The valuations were
carried out by Weatherall Green & Smith, Chartered Surveyors, on an open market
value at 30 September 1997 for existing use basis, inclusive of fittings and
equipment and with the benefit of licences where applicable. The valuations are
recorded after deducting the net book value of fittings and equipment.
On a historical cost basis, the net book amount of tangible fixed assets at 31
December 1997 would be L66,812,000 and the depreciation charge would not be
materially different.
13 FIXED ASSET INVESTMENTS
The following are included in the net book value of fixed asset investments:
<TABLE>
<CAPTION>
GROUP Other participating
Associated undertakings interests
----------------------------- ----------------------
Shares Loans Shares Loans Other Total
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 241 5,429 1,455 303 500 7,928
Additions 1,673 7,228 - - - 8,901
Interest accrued - 94 - 17 36 147
Transfer to current asset investment - - (105) - - (105)
Transfer from current asset
Receivables - - - 955 - 955
Unrealised profits on transactions
With associated undertakings (310) - - - - (310)
Share of losses (372) - - - - (372)
Share of fixed asset revaluations 760 - - - - 760
Loss on translation of overseas equity
investments (86) (295) - - - (381)
---------- ---------- ---------- ---------- ---------- ----------
End of year 1,906 12,456 1,350 1,275 536 17,523
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
F-19
<PAGE>
Notes to Account (Continued)
13 FIXED ASSET INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMPANY Other
Subsidiary Associated participating
undertakings undertakings interests Other Total
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
SHARES AT COST
Beginning of year 48,342 232 1,458 315 50,347
Additions 194 2,319 - - 2,513
Transfer 105 - (105) - -
---------- ---------- ---------- ---------- ----------
End of year 48,641 2,551 1,353 315 52,860
---------- ---------- ---------- ---------- ----------
AMOUNTS WRITTEN OFF
---------- ---------- ---------- ---------- ----------
Beginning and end of year (247) - - - (247)
---------- ---------- ---------- ---------- ----------
LOANS
Beginning of year 7,980 2,866 303 399 11,548
Advanced during year - 7,078 - - 7,078
Interest accrued - 94 17 35 146
---------- ---------- ---------- ---------- ----------
End of year 7,980 10,038 320 434 18,772
---------- ---------- ---------- ---------- ----------
NET BOOK VALUE
Beginning of year 56,075 3,098 1,761 714 61,648
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
End of year 56,374 12,589 1,673 749 71,385
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Additions to subsidiary undertakings are comprised of additional costs relating
to acquisitions completed in 1996.
F-20
<PAGE>
Notes to Account (Continued)
13 FIXED ASSET INVESTMENTS (CONTINUED)
The principal subsidiary undertakings are shown below:
<TABLE>
<CAPTION>
COUNTRY OF PROPORTION OF ORDINARY
INCORPORATION SHARE CAPITAL AND VOTING
SUBSIDIARY UNDERTAKING AND OPERATION PRINCIPAL ACTIVITY RIGHTS HELD BY THE GROUP
<S> <C> <C> <C>
Arcadian International Resorts Limited England Leisure development and 100%
project management
Arcadian UK Developments Limited England Property investment and 100%
project management
Arcadian France SA France Leisure development 100%
Arcadian Group Services Limited England Management services 100%
Hotel L'Horizon Limited Jersey Hotel operations 100%
Arcadian Hotels (UK) Limited England Hotel operations 100%
Chateau de Bessy SA France Leisure development 54.7%
Ettington Park Group Limited England Hotel operations 100%
The Mollington Banastre Hotel Limited England Hotel operations 100%
Tillian Limited England Leasehold property owner and 100%
lessor
Chilston Park Limited England Hotel operations 100%
Fattoria Villa Saletta Srl Italy Leisure development 100%
Malmaison Management Limited England Hotel operations and project 50%
management
Stone Development SA France Leisure development 100%
</TABLE>
The results of all subsidiary undertakings are included in the group accounts. A
complete list of subsidiary undertakings will be annexed to the next annual
return to the Registrar of Companies.
a) ASSOCIATED UNDERTAKINGS
HOTEL GRESSY SNC
The group has a 25% stake in the ordinary share capital of Hotel Gressy SNC
("Gressy"), a company registered in France. The total carrying value of the
group's investment is L1,393,000 at 31 December 1997 (1996 - L1,755,000).
The principal asset of Gressy is the hotel Le Manoir de Gressy, which completed
its fourth year of trading in 1997. The directors are of the opinion, having
consulted with their professional advisors, that on achievement of mature levels
of trading the value of the group's share of Gressy exceeds the carrying value
of the group's investment by a substantial margin.
The joint venture partner in Gressy has an option, exercisable in January 1999,
to require the group to buy the partner's 75% shareholding in Gressy for a fixed
consideration of Ffr 40 million (see note 26b)i)). The directors are of the
opinion that due to the uncertainty regarding the exercise of this option it is
only appropriate to account for the group's 25% holding in Gressy at this stage.
F-21
<PAGE>
Notes to Account (Continued)
13 FIXED ASSET INVESTMENTS (CONTINUED)
a) ASSOCIATED UNDERTAKINGS (CONTINUED)
MALMAISON LIMITED
As at the balance sheet date the company held a 27% (1996 - 27%) stake in the
ordinary share capital of Malmaison Limited ("Malmaison"), a company registered
in England, at a carrying value of L232,000 (1996 - L232,000). In addition the
company has L5,062,000 (1996 - L4,103,000) of subordinated loan stock and
L3,000,000 (1996 - Lnil) of other subordinated loans receivable from Malmaison.
Interest on the subordinated loan stock is charged at 20% p.a. and is payable by
equal half yearly instalments from 30 June 1998. The principal amounts under the
loan stock instruments are redeemable in instalments due on 31 December 2003,
2004 and 2005. Interest on the other subordinated loans is charged at 10% p.a.
payable quarterly. Interest on these loans has, where appropriate, been
capitalised by Malmaison. Cumulative interest capitalised by Malmaison on these
and on its other loans at 31 December 1997 was L1,679,000 (1996 - L98,000).
The company also holds 4,246,925 (1996 - 1,410,810) warrants to subscribe for
ordinary shares in Malmaison of 1p each at par. Full subscription of these and
other warrants issued by Malmaison would have increased the company's interest
in Malmaison to 33% (note 26b) iv) and v)).
On 8 April 1998, the company purchased all the outstanding share capital and
loan stock of Malmaison not held by the company (see note 1b)).
GREAT EASTERN HOTEL COMPANY LIMITED
The company owns 50% of the ordinary share capital of the Great Eastern Hotel
Company Limited ("Great Eastern"), a company registered in England, at a
carrying value of L50,000 (1996 - Lnil). In addition the company has L3,032,000
(1996 - Lnil) of subordinated loan stock receivable from Great Eastern. Interest
on the subordinated loan stock is charged at 10% and is payable by equal half
yearly instalments from 31 December 1999. The principal amount under the loan
stock is redeemable at par on 30 June 2007.
F-22
<PAGE>
Notes to Account (Continued)
13 FIXED ASSET INVESTMENTS (CONTINUED)
a) ASSOCIATED UNDERTAKINGS (CONTINUED)
BELEGGINGSMAATSCHAPPIJ STAKO II B.V. ("STAKO")
On 9 October 1997 the company acquired 18.2% and the right to a further 1.8%
investment in the ordinary share capital of Stako, a company registered in the
Netherlands for a total consideration of L1,965,000, of which L465,000 was
deferred until June 1998. Other costs relating to this acquisition of L303,000
were incurred. Goodwill arising on the acquisition of L645,000 has been taken to
intangible fixed assets and is being amortised over 20 years.
The table below sets out the preliminary fair value of the net assets of Stako
at the date of acquisition and the effect on the consolidated balance sheet:
<TABLE>
<CAPTION>
Stako
-------------------------
Book Fair
Value Value
L'000 L'000
<S> <C> <C>
Fixed assets 3,255 5,235
Current assets 6,329 6,329
Current liabilities (2,604) (2,604)
Long term liabilities (845) (845)
---------- ----------
Net assets 6,135 8,115
---------- ----------
Group equity share 20% 1,623
Goodwill 645
----------
Total acquisition cost 2,268
----------
----------
</TABLE>
The fair value adjustments made to the book value of Stako related to the
revaluation of its land and buildings.
F-23
<PAGE>
NOTES TO ACCOUNT (CONTINUED)
13 FIXED ASSET INVESTMENTS (CONTINUED)
a) ASSOCIATED UNDERTAKINGS (CONTINUED)
The assets and liabilities of the associated undertakings, together with a
summary of their income statements, as adjusted to bring their accounts into
line with Arcadian group accounting policies, are as follows:
<TABLE>
<CAPTION>
Great
Eastern Stako Malmaison Gressy
---------- ---------- ------------------------ -----------------------
1997 1997 1997 1996 1997 1996
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
Intangible fixed assets - - 1,525 1,349 - -
Tangible fixed assets 6,643 5,697 19,940 3,453 11,022 12,342
Investments - 101 - - - -
Capital work in progress - 440 13,313 5,106 - -
Current assets
- - stocks - 2,324 67 14 63 81
- - debtors 256 2,953 2,369 670 545 603
- - cash 112 261 908 1,068 - 40
Creditors
- - amounts falling due within one year (848) (2,631) (7,032) (740) (1,784) (1,075)
- - amounts falling due after more than
one year - (1,091) (12,897) - (5,194) (6,071)
- - shareholders loans falling due after
more than one year (6,063) - (16,276) (10,827) (4,458) (4,958)
---------- ---------- ---------- ---------- ---------- ----------
Net assets 100 8,054 1,917 93 194 962
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
GROUP'S SHARE OF EQUITY INTEREST 50% 20% 27% 27% 25% 25%
Group's share of net assets of
associated undertaking 50 1,611 518 25 48 241
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
F-24
<PAGE>
Notes to Account (Continued)
13 FIXED ASSET INVESTMENTS (CONTINUED)
A) ASSOCIATED UNDERTAKINGS (CONTINUED)
<TABLE>
<CAPTION>
Great
Eastern Stako Malmaison Gressy Total
----------- ----------- ---------------------- ------------------------- ----------------------
1997 1997 1997 1996 1997 1996 1997 1996
L'000 L'000 L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
TURNOVER - 1,160 2,687 168 2,662 2,381
PROFIT (LOSS)
BEFORE TAXATION - 155 (958) (90) (671) (1,375)
- --------------------------------------------------------------------------------------------------
Group share of
operating profit
(loss) - 31 (235) (20) (168) (349) (372) (369)
Interest income
from associated
undertaking 94 - 1,261 70 - - 1,355 70
</TABLE>
The group's interest in Great Eastern and Stako arose during 1997. Results for
Great Eastern and Stako shown above are for the period post acquisition.
B) OTHER PARTICIPATING INTERESTS
ALJARAFE GOLF SA ("ALJARAFE")
The group owns a 10% stake in the ordinary share capital of Aljarafe, a company
incorporated in Spain. This company, through its subsidiary, Club Zaudin Golf
SA, operates a golf and country club in Seville and is in development of a 250
home residential scheme on adjacent land. The total cost of this equity
investment is L1,311,000 (1996 - L1,311,000). The group also holds L955,000 of
receivables which were reclassified from current asset receivables to fixed
asset investments during the year in contemplation of a rights issue due to take
place in 1998.
MENTMORE GOLF & COUNTRY CLUB PLC
The group has a 9% stake in the ordinary share capital of Mentmore Golf &
Country Club Plc, a company registered in England and Wales. This stake was
acquired on 31 July 1991 at a cost of L4,000. The group also holds L230,000 of
secured subordinated loan stock 1999. Interest is charged at base rate plus 2%
and paid on the earlier of the repayment date 30 June 1999, or any earlier date
Mentmore Golf & Country Club Plc may elect. This loan stock and accrued interest
receivable has been classified as loans owed by other participating interests.
F-25
<PAGE>
Notes to Account (Continued)
14 STOCKS
The following are included in the net book value of stocks:
<TABLE>
<CAPTION>
Group
---------------------------
1997 1996
L'000 L'000
<S> <C> <C>
Hotel operating stocks 749 801
Capital work in progress 243 502
Pre-construction costs 25,941 22,078
---------- ----------
26,933 23,381
---------- ----------
---------- ----------
</TABLE>
The movement in stock includes capitalised interest of L1,274,000
(1996-L1,047,000). Cumulative interest capitalised included in stocks amounts to
L3,300,000 (1996-L2,026,000).
a) Capital work in progress represents uncompleted development work being
carried out on hotels.
b) Pre-construction costs, which relate principally to land or interests in
land for which the group has options which are subject to time limits,
comprise costs incurred in identifying and progressing leisure and resort
opportunities until other project investors are found with whom to complete
the development. It is in the nature of development projects that the
timing and scale of any realisation is uncertain and may depend on factors
beyond the control of the directors. The status of each project and its
carrying value are regularly reviewed by the directors who remain confident
that a programme of realisations will be achieved at above carrying value.
An analysis of the constituent projects is shown below:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
DEVELOPMENT PROJECT
Villa Saletta 16,227 14,732
Chateau de Bessy 7,048 4,965
Villeneuve le Comte 2,031 799
Malmaison - 16
Great Eastern - 621
Other 635 945
---------- ----------
25,941 22,078
---------- ----------
---------- ----------
</TABLE>
During the year the group acquired additional land at Chateau de Bessy for FFR
8,000,000 partly funded by forgiveness of a receivable. Land at Villeneuve le
Comte was acquired during the year for FFR 9,000,000.
F-26
<PAGE>
Notes to Account (Continued)
14 STOCKS (CONTINUED)
The costs capitalised against the Great Eastern were transferred to the
company's interest in the Great Eastern Hotel Company Limited during the year
(see note 13a)).
15 DEBTORS
The following are included in debtors:
<TABLE>
<CAPTION>
Group Company
---------------------------- -----------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Amounts falling due within one year:
Trade debtors 1,803 2,286 - -
Amounts due from subsidiary undertakings - - 35,393 27,856
Amounts due from associated undertakings 2,420 475 1,220 -
Amounts due from other participating interests - 485 - -
Dividends due from subsidiary undertakings - - 300 875
VAT recoverable 746 95 1,200 -
Prepayments and accrued income
- - ACT recoverable on intragroup dividend - - - 175
- - other 582 1,126 169 210
Other debtors 808 2,745 624 208
---------- ---------- ---------- ----------
6,359 7,212 38,906 29,324
Amounts falling due after more than one year:
Amounts due from other participating interests - 639 - -
---------- ---------- ---------- ----------
6,359 7,851 38,906 29,324
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Amounts due from associated undertakings comprise L2,337,000 (1996-L436,000) due
from Malmaison Limited and L83,000 (1996 - L39,000) from Hotel Gressy SNC.
F-27
<PAGE>
Notes to Account (Continued)
16 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
The following amounts are included in creditors falling due within one year:
<TABLE>
<CAPTION>
Group Company
---------------------------- -----------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Obligations under finance leases 430 290 - -
Bank loans and overdrafts 6,749 9,155 6,542 3,798
Trade creditors 2,969 3,262 201 119
Amounts owed to other group undertakings - - 9,562 7,967
Other creditors
- - ACT 73 602 52 602
- - VAT 1,238 935 - -
- - social security and PAYE 438 436 - -
- - other creditors 1,975 2,448 - -
Proposed final dividend - 1,593 - 1,593
Accruals and deferred income 3,386 2,312 1,939 844
---------- ---------- ---------- ----------
17,258 21,033 18,296 14,923
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Included in accruals and deferred income is L465,000 in respect of deferred
consideration relating to the company's investment in Stako (see note 13a).
17 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
The following amounts are included in creditors falling due after more than one
year:
<TABLE>
<CAPTION>
Group Company
--------------------------- ----------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Bank loans and overdrafts 40,505 21,831 36,280 21,831
Obligations under finance leases 701 384 - -
---------- ---------- ---------- ----------
41,206 22,215 36,280 21,831
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The company has loan facilities of L44,500,000 (1996 - L40,500,000) of which
L42,100,000 (1996 - L26,500,000) were drawn down at the year end. These
facilities comprise term loan facilities of L24,000,000, a revolving facility of
L18,000,000 and an overdraft facility of L2,000,000. The term loans and
revolving facilities bear interest at between 1.25% and 1.75% above LIBOR, and
the overdraft at 1.25% over Base rate. All are secured by a first charge on the
group's hotels and other assets and are subject to financial covenants.
F-28
<PAGE>
Notes to Account (Continued)
17 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)
In addition, the group has loan facilities in Italy of L8,600,000 (1996 -
L4,751,000) of which L4,225,000 (1996 - L4,751,000) was drawn down at year end.
These facilities are for the specific purpose of financing the group's interest
in the Villa Saletta project. This loan is secured solely against the assets of
this development project. 50% of it is guaranteed by the company.
In addition, at 31 December 1997 the company has entered into interest swap
agreements which have fixed the LIBOR rate at 6.03% on borrowings of L3,400,000
and 7.71% on borrowings of L10,000,000 and an interest rate cap agreement at
7.5% on borrowings of L6,600,000.
ANALYSIS OF BORROWINGS
Borrowings, gross of issue costs, are repayable as follows:
<TABLE>
<CAPTION>
Group Company
---------------------------- ------------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Due within five years
- - within 1 year - finance leases 430 290 - -
- bank loans 6,842 9,180 6,842 3,823
- - within 1-2 years - finance leases 273 251 - -
- bank loans 5,141 5,000 5,000 5,000
- - within 2-5 years - finance leases 428 133 - -
- bank loans 32,345 17,000 31,500 17,000
- - more than 5 years - bank loans 3,239 - - -
---------- ---------- ---------- ----------
48,698 31,854 43,342 25,823
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Of this total, amounts due within one year are included within creditors due
within one year.
18 MINORITY INTEREST
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Beginning of year 959 1,450
(Loss) profit on ordinary activities after tax (44) 33
Disposal of subsidiary - (358)
Purchase of minority interest (10) -
Exchange movement (94) (166)
---------- ----------
End of year 811 959
---------- ----------
---------- ----------
</TABLE>
During the year the group acquired the remaining 10% of the share capital of
Stone Development SA.
All minority interests relate to equity interests.
F-29
<PAGE>
Notes to Account (Continued)
19 SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
AUTHORISED
225,000,000 (1996 - 225,000,000) ordinary shares of 25p each 56,250 56,250
---------- ----------
56,250 56,250
---------- ----------
---------- ----------
ALLOTTED, CALLED-UP AND FULLY-PAID
147,475,845 (1996 - 147,475,845) ordinary shares of 25p each 36,869 36,869
---------- ----------
36,869 36,869
---------- ----------
---------- ----------
</TABLE>
20 SHARE OPTIONS AND WARRANTS
Under the Arcadian International Plc Executive Share Option Scheme, adopted on
13 September 1988 and approved on 22 September 1988 by the Board of the Inland
Revenue, a number of employees and directors held options to subscribe for
ordinary shares in the company.
During the year 18,213 share options were cancelled, the holder having retired
from the board and 259,870 new share options were issued. No share options were
exercised during the year.
The total number of options issued to directors as at 31 December 1997 was
4,094,588 (1996 - 4,112,801). The number of share options issued to other
employees as at 31 December 1997 was 1,812,811 (1996 - 1,552,941). These options
were exercisable between June 1997 and November 2007 at a price of between 35p
and 55p.
As part of the Clipper Hotel Limited acquisition in 1993 the company issued
warrants to subscribe for 1,250,000 new ordinary shares at 75 pence per share at
any time before 31 December 2000.
Upon the acquisition of the company by Patriot, the warrants were cancelled and
all the share options were either exercised or cancelled for consideration. The
aggregate net proceeds to the directors of such exercise and or cancellation was
L866,000.
F-30
<PAGE>
Notes to Account (Continued)
21 RESERVES
Of total reserves shown in the balance sheet as equity shareholders funds, the
following amounts are regarded as distributable or otherwise:
<TABLE>
<CAPTION>
Company
----------------------------
1997 1996
L'000 L'000
<S> <C> <C>
DISTRIBUTABLE
- - profit and loss account 3,718 2,227
NON-DISTRIBUTABLE
- - share premium account 13,392 13,392
- - goodwill write-off reserve 1,750 1,750
---------- ----------
Total reserves 18,860 17,369
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Share Goodwill
premium Revaluation Capital write-off Profit and
account reserve reserve reserve loss account Total
GROUP L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 13,392 15,162 7,627 (137) 1,582 37,626
Retained profit for the year - - - - 1,791 1,791
Exchange differences - - - - (1,436) (1,436)
Goodwill written off - - (96) (109) - (205)
Revaluation of fixed assets - 6,238 - - - 6,238
---------- ---------- ---------- ---------- ---------- ----------
End of year 13,392 21,400 7,531 (246) 1,937 44,014
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
Share Goodwill
premium Revaluation Capital write-off Profit and
account reserve reserve reserve loss account Total
COMPANY L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 13,392 - - 1,750 2,227 17,369
Retained profit for the year - - - - 1,491 1,491
---------- ---------- ---------- ---------- ---------- ----------
End of year 13,392 - - 1,750 3,718 18,860
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The cumulative amount of goodwill written off to reserves is L1,996,000 (1996 -
L1,887,000). The cumulative amount of discount on acquisition taken to capital
reserve is L7,531,000 (1996 - L7,627,000)
Non equity preference share capital and accrued dividends were repaid on 31
December 1996.
F-31
<PAGE>
Notes to Account (Continued)
22 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Group Company
-------------------------- ---------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Profit for the financial year 1,997 3,136 1,697 2,726
Other recognised gains and losses relating to the year,
net 4,802 3,420 - -
---------- ---------- ---------- ----------
6,799 6,556 1,697 2,726
Ordinary dividends paid (206) (1,726) (206) (1,726)
Preference shares and dividends paid - (2,677) - (2,677)
Fair value adjustments on acquisition - 6,982 - -
Goodwill eliminated, (net) (205) (335) - -
New share capital subscribed, net - 15,192 - 15,192
---------- ---------- ---------- ----------
Net addition to shareholders' funds 6,388 23,992 1,491 13,515
Opening shareholders' funds 74,495 50,503 54,238 40,723
---------- ---------- ---------- ----------
Closing shareholders' funds 80,883 74,495 55,729 54,238
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
23 CASH FLOW INFORMATION
A) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW
FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Operating profit 3,407 5,494
Depreciation and amortisation 1,358 1,218
Increase in stocks (3,067) (2,216)
Increase in debtors (70) (1,406)
(Decrease) increase in creditors (479) 2,549
Amortisation of grant income - (71)
---------- ----------
NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES 1,149 5,568
---------- ----------
---------- ----------
</TABLE>
F-32
<PAGE>
Notes to Account (Continued)
23 CASH FLOW INFORMATION (CONTINUED)
B) ANALYSIS OF CASHFLOWS FOR HEADINGS NETTED IN THE CASHFLOW STATEMENT
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
RETURN ON INVESTMENT AND SERVICING OF FINANCE
Interest received 377 242
Interest paid (3,592) (2,905)
Preference dividend paid - (677)
---------- ----------
NET CASH OUTFLOW ON INVESTMENTS AND SERVICING OF FINANCE (3,215) (3,340)
---------- ----------
---------- ----------
Taxation (581) (115)
---------- ----------
CASH OUTFLOW ON TAXATION (581) (115)
---------- ----------
---------- ----------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (7,022) (2,657)
Disposal of tangible fixed assets 1,857 -
Purchase of investments (1,554) (289)
Loans to associates and other participating interests (6,521) (384)
---------- ----------
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (13,240) (3,330)
---------- ----------
---------- ----------
ACQUISITIONS AND DISPOSALS
Purchase of unincorporated business - (6,335)
Purchase of subsidiary - (9,814)
Cash and overdrafts acquired - 242
Disposal of part interest in associated undertaken - 634
---------- ----------
NET CASH OUTFLOW ON ACQUISITIONS AND DISPOSALS - (15,273)
---------- ----------
---------- ----------
FINANCING
Issue of ordinary share capital - 16,587
Issue costs - (810)
Redemption of preference share capital - (2,000)
Debt due within a year
- - increase in borrowings - 4,692
- - repayment of borrowings (5,818) (6,976)
Debt beyond a year
- - increase in borrowings 23,725 22,000
- - repayment of borrowings - (15,856)
Capital element of finance lease rental payments (370) (177)
Proceeds of sale and lease back agreements 682 -
---------- ----------
NET CASH INFLOW FROM FINANCING 18,219 17,460
---------- ----------
---------- ----------
</TABLE>
F-33
<PAGE>
Notes to Account (Continued)
23 CASH FLOW INFORMATION (CONTINUED)
c) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
At At
31 December Other Exchange 31 December
1996 Cashflow (non-cash) movement 1997
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
Cash 2,362 (941) - - 1,421
Overdraft (3,316) 1,474 - - (1,842)
----------
INCREASE IN CASH IN THE YEAR 533
----------
Debt within a year (5,914) 5,818 (5,000) 96 (5,000)
Debt after a year (22,000) (23,725) 5,000 - (40,725)
Finance leases (674) (312) (145) - (1,131)
----------
CASH INFLOW FROM DEBT (18,219)
---------- ---------- ---------- ---------- ----------
(29,542) (17,686) (145) 96 (47,277)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
d) MAJOR NON-CASH TRANSACTIONS
i) During the year the group entered into finance lease arrangements in respect
of assets with a total capital value at the inception of the leases of L145,000
(1996 - L657,000).
ii) During the year the group acquired land relating to the Chateau de Bessy
development project through the forgiveness of Ffr 7.7m receivable.
24 ACQUISITIONS
a) EFFECT OF ACQUISITIONS ON THE GROUP CASH FLOW
i) Analysis of the net outflow of cash and cash equivalents in respect of the
purchase of subsidiary undertakings.
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Cash consideration - (10,430)
Cash at bank and in hand acquired - 242
Bank overdrafts of acquired subsidiary undertakings - -
Amounts not yet paid - 616
---------- ----------
Net cash outflow in respect of subsidiary undertakings - (9,572)
---------- ----------
---------- ----------
</TABLE>
F-34
<PAGE>
Notes to Account (Continued)
24 ACQUISITIONS (CONTINUED)
b) EFFECT OF ACQUISITIONS ON THE GROUP CASH FLOW (CONTINUED)
ii) Analysis of the net outflow of cash and cash equivalents in respect of the
purchase of unincorporated businesses.
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Cash consideration - (6,553)
Amounts paid in prior year - 218
---------- ----------
Net cash outflow in respect of unincorporated businesses - (6,335)
---------- ----------
---------- ----------
</TABLE>
25 DISPOSALS
a) BUSINESSES DISPOSED
On 4 March 1997 the group disposed of the Hunstrete House Hotel, near Bath, for
a consideration of L1,860,000.
b) EFFECT OF DISPOSALS ON GROUP CASH FLOW
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Cash 1,860 -
Disposal costs (3) -
---------- ----------
Total consideration 1,857 -
---------- ----------
---------- ----------
</TABLE>
The business sold during the year contributed Lnil (1996 - L60,000) to the
group's net operating cashflow.
26 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
a) CAPITAL COMMITMENTS
At the end of the year, capital commitments contracted for but not provided for
were L150,000 (1996 - L1,930,000).
b) CONTINGENT LIABILITIES
i) The group has a 25% shareholding in Hotel Gressy SNC ("Gressy") through
a subsidiary undertaking, Arcadian France S.A. The shareholders of
Gressy are jointly and severally liable in respect of the liabilities
of Gressy to the extent that such liabilities are not met from the
assets of Gressy. Gross liabilities of Gressy, as at 31 December 1997
amounts to FFR 69,000,000. Arcadian France S.A. is a limited liability
undertaking which has as its only assets an investment in Gressy and
amounts receivable from Gressy.
F-35
<PAGE>
Notes to Account (Continued)
26 GUARANTEES AND OTHER FINANCIAL COMMITMENTS (CONTINUED)
b) CONTINGENT LIABILITIES (CONTINUED)
Within the above amount the company has guaranteed leasing obligations
of approximately FFR 2,250,000 Worms et Cie. the joint venture partner,
has given a similar guarantee and arrangements are in place between the
company and Worms et Cie. pursuant to which the respective liabilities
of the company and Worms et Cie. are limited to 38% and 62%
respectively of the amount guaranteed. The directors are of the opinion
that no provision should be made in respect of this contingent
liability.
The group has granted an option to the joint venture partner in Gressy,
exercisable January 1999, to require the group to buy the partner's 75%
shareholding in Gressy, together with the current account balance at
that time, for a fixed consideration of Ffr 40,000,000 million payable
in whole or in part in either cash or shares in the company, at the
group's election. The directors' are of the opinion that, due to the
uncertainty regarding the exercise of this option, it is inappropriate
to recognise a liability in respect of this option.
ii) At the balance sheet date the company's directors and certain senior
executives had interests in a long term incentive scheme. These
interests are triggered in the event of a takeover of the company. The
amount payable is based on the difference between the takeover share
price and the price at which the interests in the scheme are granted.
Following the acquisition by Patriot a payment of L1,180,000 was made
under this scheme (see note 1a)).
iii) The company has provided two forms of guarantee to Malmaison Limited's
senior lenders. The first relates to the overrun of construction costs
of the hotels and is limited to the repayment of Malmaison Limited's
senior debt of L9.5 million plus accrued interest thereon. The second
relates to the repayment of L1.5 million of principal of the senior
debt in the period to 31 December 1999 and the payment of any interest
on the senior debt in that period. Should either guarantee be called,
the company would be issued with additional `A' loan stock in Malmaison
Limited with a preferred return.
iv) The group entered into an agreement with Malmaison Limited on 19
November 1996 under which it agreed to provide a committed subordinated
loan facility of L5,750,000 and a committed revolving credit facility
of up to L500,000. The loan facility is to be repaid on 31 December
2006 and the revolving credit facility on 31 December 1999. As at year
end L3,000,000 (1996 - Lnil) was outstanding under this agreement (see
note 13).
F-36
<PAGE>
Notes to Account (Continued)
26 GUARANTEES AND OTHER FINANCIAL COMMITMENTS (CONTINUED)
b) CONTINGENT LIABILITIES (CONTINUED)
v) The company has granted to certain holders of A loan stock issued by
Malmaison Limited the right to require the company to purchase 50%, (or
on change of control of the company, 100%) of the A loan stock held by
them (amounting to L4,440,000 together with any unpaid interest). The
company has the option to settle the consideration in cash or by the
issue of ordinary shares in the company or a combination of both. In
the event of the allotment of ordinary shares the number to be issued
is limited to 19.7 million at market price subject to a minimum of 40p
per share.
Patriot purchased all of the outstanding loan stock in Malmaison
Limited on 8 April 1998.
vi) Great Eastern Hotel Company Limited
The Great Eastern Hotel Company Limited ("Great Eastern"), of which the
company owns 50% of the issued share capital, entered into an agreement
to take a 125 year lease of the Great Eastern Hotel in the City of
London from a subsidiary of The British Land Company plc ("British
Land") which has itself a similar agreement to take a lease of the
hotel from Railtrack Plc.
As part of the agreement British Land undertakes to provide L30,000,000
of funding towards Great Eastern's redevelopment costs. The company and
its joint venture partner, Conran Holdings Limited ("Conran"), have
jointly and severally guaranteed Great Eastern's performance of its
redevelopment obligations to British Land and the company's liability
under this performance guarantee is capped at L16,500,000. This figure
is reduced by the amount of equity and loan stock funding to be
provided by the company for the purpose of the redevelopment of up to
L6,500,000. At the balance sheet date L3,082,000 had been funded (1996
- Lnil).
c) LEASE COMMITMENTS
The group has entered into non-cancellable operating leases in respect of
property and hire purchase contracts in respect of furniture, fittings and
equipment, the payments for which extend over a period of up to five years. The
rents payable under the operating leases are subject to renegotiation at
intervals specified in the leases. The group pays all insurance, maintenance and
repairs of the properties so leased.
F-37
<PAGE>
Notes to Account (Continued)
26 GUARANTEES AND OTHER FINANCIAL COMMITMENTS (CONTINUED)
c) LEASE COMMITMENTS (CONTINUED)
The minimum annual rentals under the foregoing leases are as follows:
<TABLE>
<CAPTION>
Group Company
------------------------ -------------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Operating leases which expire
- - within 1 year 70 69 33 40
- - within 2-5 years 147 105 57 67
- - after 5 years 165 199 100 100
---------- ---------- ---------- ----------
382 373 190 207
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
L279,000 (1996 - L134,000) of the above minimum annual rentals has been either
sub-let in full to third parties or provided for as a shortfall in the sub-lease
paid by those third parties.
There are no commitments in respect of finance leases entered into before 31
December 1997 but due to commence after that date.
27 RELATED PARTY TRANSACTIONS
The nature of the group's investment in its associated undertakings is set out
in note 13. The group had the following transactions with these associate
undertakings, all of which were rendered on commercial terms were as follows:
a) MALMAISON
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Management fees 471 229
Loan stock interest 917 70
Mezzanine debt interest 423 -
Finders fees 350 500
Finance facility arrangement fee 150 -
---------- ----------
---------- ----------
</TABLE>
Finders fees were charged in respect of the identification, and negotiation to
purchase land sites.
Subsequent to the balance sheet date Malmaison became a subsidiary of the
company (see note 1b).
F-38
<PAGE>
Notes to Account (Continued)
27 RELATED PARTY TRANSACTIONS (CONTINUED)
b) GRESSY
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Management fees 136 62
---------- ----------
---------- ----------
c) GREAT EASTERN
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Project development fees 50 50
Loan stock interest 94 -
---------- ----------
---------- ----------
</TABLE>
F-39
<PAGE>
Malmaison Limited
and subsidiary undertakings
Non-statutory financial statements 31 December 1997
together with auditors' report
Registered number: 3141385
F-40
<PAGE>
Auditors' report
TO THE SHAREHOLDERS OF MALMAISON LIMITED:
We have audited the accounts on pages 2 to 21 which have been prepared under the
historical cost convention as modified by the revaluation of hotels and the
accounting polices set out on pages 6 to 8. As explained in Note 2, the accounts
have not been prepared for the purposes of Section 226 of the Companies Act 1985
and are therefore not statutory accounts.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the accounts. It
is our responsibility to form an independent opinion, based on our audit, on
those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with UK Auditing Standards issued by the
Auditing Practices Board which are substantially consistent with generally
accepted auditing standards in the US, for which purpose our report is
dual-dated in respect of Note 1. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's and the group's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
PARENT COMPANY FINANCIAL SUPPORT
In forming our opinion we have considered the adequacy of the disclosures made
in Note 1 of the accounts concerning the uncertainty regarding the future
financing of Patriot American Hospitality Inc, on whose continued financial
support the company and group depend. In view of the significance of this
uncertainty we consider that it should be drawn to your attention, but our
opinion is not qualified in this respect.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of
the company and of the group as at 31 December 1997 and of the group's loss and
cash flows for the year then ended and have been properly prepared in accordance
with the Companies Act 1985 as would have applied if they had been statutory
accounts.
Arthur Andersen
Chartered Accountants and Registered Auditors
1 Surrey Street
London
WC2R 2PS
17 July 1998 (except with respect to the matter discussed in Note 1, as to which
the date is 24 March 1999).
MALMAISON LIMITED
F-41
<PAGE>
Consolidated profit and loss account
For the year ended 31 December 1997
<TABLE>
<CAPTION>
53 week
period
Year ended ended
31 December 31 December
Notes 1997 1996
L'000 L'000
<S> <C> <C> <C>
TURNOVER 3 2,687 168
Cost of sales (1,245) (81)
---------- ----------
GROSS PROFIT 1,442 87
Administration expenses (net) (1,098) (71)
---------- ----------
OPERATING PROFIT 3 344 16
Investment income 4 69 8
Interest payable and similar charges 4 (1,371) (114)
---------- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 5 (958) (90)
Tax on loss on ordinary activities 7 - -
---------- ----------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (958) (90)
---------- ----------
RETAINED LOSS FOR THE PERIOD (958) (90)
---------- ----------
RETAINED LOSS FOR THE PERIOD
The company (22) (30)
Group undertakings (936) (60)
---------- ----------
(958) (90)
---------- ----------
</TABLE>
All operations of the group continued throughout both periods and no operations
were acquired or discontinued.
Consolidated statement of total recognised gains and losses
For the year ended 31 December 1997
<TABLE>
<CAPTION>
53 week
period
Year ended ended
31 December 31 December
1997 1996
L'000 L'000
<S> <C> <C>
LOSS FOR THE PERIOD (958) (90)
Unrealised surplus on revaluation of fixed assets 2,791 -
---------- ----------
TOTAL RECOGNISED GAINS AND LOSSES FOR THE PERIOD 1,833 (90)
---------- ----------
</TABLE>
A statement of movements on reserves is given in note 16.
The accompanying notes are an integral part of these statements.
MALMAISON LIMITED
F-42
<PAGE>
Balance sheets
31 December 1997
<TABLE>
<CAPTION>
Group Company
Notes 1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets 8 1,525 1,274 - -
Tangible assets 9 33,253 8,851 141 -
Investments 10 - - 4,904 4,960
---------- ---------- ---------- ----------
34,778 10,125 5,045 4,960
---------- ---------- ---------- ----------
CURRENT ASSETS
Stocks 11 67 13 - -
Debtors 12 2,181 959 11,276 5,100
Cash at bank and in hand 908 1,068 3,237 961
---------- ---------- ---------- ----------
3,156 2,040 14,513 6,061
CREDITORS: Amounts falling due within one
year 13 (7,032) (1,405) (3,160) (201)
---------- ---------- ---------- ----------
NET CURRENT (LIABILITIES) ASSETS 1a (3,876) 635 11,353 5,860
---------- ---------- ---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 30,902 10,760 16,398 10,820
CREDITORS: Amounts falling due after more
than one year 14 (28,985) (10,688) (16,276) (10,688)
---------- ---------- ---------- ----------
NET ASSETS 1,917 72 122 132
---------- ---------- ---------- ----------
CAPITAL AND RESERVES
Called-up share capital 15 174 162 174 162
Profit and loss account 16 (1,048) (90) (52) (30)
Revaluation reserve 16 2,791 - - -
---------- ---------- ---------- ----------
TOTAL EQUITY SHAREHOLDERS' FUNDS 17 1,917 72 122 132
---------- ---------- ---------- ----------
</TABLE>
SIGNED ON BEHALF OF THE BOARD
Director
The accompanying notes are an integral part of these balance sheets.
MALMAISON LIMITED
F-43
<PAGE>
Cash flow statement
For the year ended 31 December 1997
<TABLE>
<CAPTION>
53 weeks
Year ended Period ended
31 December 31 December
Notes 1997 1996
L'000 L'000
<S> <C> <C> <C>
Net cash inflow (outflow) from operating activities 18a 1,205 (206)
Returns on investments and servicing of finance 18b (1,231) 8
Capital expenditure and financial investment 18b (18,052) (2,978)
Acquisitions 18b (247) (757)
---------- ----------
Cash outflow before financing (18,325) (3,933)
Financing
- - issue of shares 18b - 103
- - increase in debt 18b 18,165 4,898
---------- ----------
(DECREASE) INCREASE IN CASH IN THE PERIOD 18c (160) 1,068
---------- ----------
</TABLE>
Reconciliation of net cash flow to movement in net debt
For the year ended 31 December 1997
<TABLE>
<CAPTION>
53 weeks
Year ended Period ended
31 December 31 December
Notes 1997 1996
L'000 L'000
<S> <C> <C> <C>
(Decrease) increase in cash in the period (160) 1,068
Cash inflow from increase in debt 18c (18,165) (4,898)
---------- ----------
Change in debt resulting from cash flows (18,325) (3,830)
Undistributed loan stock - (1,238)
Loan stock issued for non-cash consideration - (4,340)
New finance leases 18c (238) -
---------- ----------
Movement in net debt in the period (18,563) (9,408)
NET DEBT AT START OF YEAR (9,408) -
---------- ----------
NET DEBT AT END OF YEAR 18c (27,971) (9,408)
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
MALMAISON LIMITED
F-44
<PAGE>
Notes to accounts
For the year ended 31 December 1997
1 NET CURRENT LIABILITY POSITION AND SUBSEQUENT EVENTS
(a) The net current liabilities of the group at 31 December 1997 are
L3,876,000 (1996 - net assets L635,000). Arcadian
International Limited has confirmed its intention of providing
continued financial support to the group to enable it to meet its
liabilities as they fall due, for a period of at least twelve months
from the date of signing these accounts. Patriot American Hospitality
Inc ("Patriot") has confirmed its intention of providing continued
financial support to Arcadian International Limited to enable Arcadian
to meet its liabilities as they fall due, for a period of twelve months
from 22 July 1998. As described in (e) below, there is uncertainty
regarding the future financing of Patriot which may impact its ability
to provide continued financial support to the group.
(b) On 18 March 1998 the company acquired the trade and assets of the
Malmaison Hotel in Edinburgh for a cash consideration of
L4,949,000 for which the company had paid a deposit of
L247,500 before year end. MHM Limited, a related company (see
note 20c), held a management contract with this hotel.
(c) On 8 April 1998 Arcadian International Limited ("Arcadian"), acquired
all the outstanding share capital and loan stock in the company not
already owned by Arcadian. Outstanding warrants and deferred shares
were also acquired together with all rights to the accrued interest on
the loan stock. The management contract with the Malmaison Management
Limited was terminated on the same day.
(d) Patriot is a US Real Estate Investment Trust or `REIT' whose shares are
paired and trade as a single unit with those of Wyndham International,
Inc. (`Wyndham'). Subsequent to the transaction, the trading stock and
business of the group's hotels was sold to the Wyndham group for book
value at the transaction dates. The group continues to own the freehold
interests in the hotels which have been leased to Wyndham's subsidiary,
Malmaison Hotels Limited.
(e) In their Joint Quarterly Report on Form 10-Q for the quarterly period
ended 30 June 1998, dated 14 August 1998, Patriot and Wyndham (the
"Companies") reported, among other things, that expenses related to the
rapid pace of acquisitions during the first six months of 1998, coupled
with the Companies' operating expenses and capital expenditures and
development programmes, had resulted in Patriot being fully drawn of all
available funds under the existing Revolving Credit Facility as of 14
August 1998. The Companies further stated that, while they were then
negotiating to obtain additional bank financing and other additional
sources of capital, if the Companies were unable to secure additional
sources of financing in the future, no assurances could be made that a
future lack of financing sources would not have a material adverse
effect on the Companies' financial condition and results of operations.
In their subsequent Joint Quarterly Report on Form 10-Q for the
quarterly period ended 30 September 1998, dated 20 November 1998, the
Companies reiterated that if the Companies were unable to secure
additional sources of financing in the future, were unable to
successfully refinance existing indebtedness, or were unable to obtain
amendments to existing convenants under the Revolving Credit Facility,
no assurance could be made that the Companies would be able to meet
their financial obligations as they come due without substantial
dilution of assets outside the ordinary course of business,
restructuring of debt, externally forced revisions of its operations or
similar actions. The Companies also reiterated no assurances could be
given that the lack of future financing sources would not have a
material adverse effect on the Companies' financial condition and
results of operations.
MALMAISON LIMITED
F-45
<PAGE>
Notes to accounts (continued)
1 NET CURRENT LIABILITY POSITION AND SUBSEQUENT EVENTS (CONTINUED)
On 4 February 1999 the Companies filed a Current Report on Form 8-K which
described amendments to its credit facility and forward equity arrangements.
Under the amended terms of Patriot's $2.7 billion credit facility (and as a
result of the events announced on 1 March 1999 as described below) the
maturities of the $350 million payment due 31 January 1999 and the $400 million
payment due 31 March 1999 were extended until 30 June 1999.
On 1 March 1999, the Companies filed a Current Report on Form 8-K which included
an announcement by the Companies that Patriot had entered into a definitive
securities purchase agreement with a group of investors (the "Investors")
providing for a $1 billion convertible preferred stock investment in the
Companies. The Investors will own an approximate 29% interest in the Companies,
assuming full subscription to a planned rights offering of $300 million of
convertible preferred stock which would reduce the Investors' investment
commensurately. The Boards of the Companies have unanimously approved the
combination of the two companies (the "Restructuring") and conversion from a
paired share real estate investment trust ("REIT") structure to a C Corporation
pursuant to a restructuring plan. Under the terms of the restructuring plan, a
newly formed subsidiary of Wyndham, a C Corporation, will be merged into
Patriot, a REIT, as a result of which Patriot will become a wholly owned
subsidiary of Wyndham.
The equity investment and the Restructuring are subject to stockholder approval
and both are currently expected to be completed by 30 June 1999. The equity
investment is also subject to antitrust clearance and certain other conditions
and consents.
2 ACCOUNTING POLICIES
A summary of the principal accounting policies is set out below. All accounting
policies have been applied consistently throughout the year and during the
preceding period.
a) ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention, modified to
include the revaluation of hotels, and in accordance with applicable accounting
standards except in relation to the absence of provision for the depreciation of
freehold and long leasehold buildings, as set out in d) below. The accounts are
not statutory accounts.
b) BASIS OF CONSOLIDATION
The group accounts consolidate the accounts of Malmaison Limited and all its
subsidiary undertakings to 31 December 1997. The acquisition method of
accounting has been adopted whereby the results of subsidiary undertakings
acquired or disposed of in the period are included in the consolidated profit
and loss account from the date of acquisition or up to the date of disposal.
Goodwill arising on consolidation or on the acquisition of a business
(representing the excess of the fair value of the consideration given over the
fair view of the separable net assets acquired) is capitalised and amortised
over a 20 year period. Any excess of the aggregate of the fair value of the
separable net assets acquired over the fair value of the consideration given is
credited directly to reserves.
MALMAISON LIMITED
F-46
<PAGE>
Notes to accounts (continued)
2 ACCOUNTING POLICIES (CONTINUED)
No profit and loss account is presented for Malmaison Limited, as provided by
section 230 of the Companies Act 1985. The company's loss for the year,
determined in accordance with the Act, was L22,000 (1996 - L30,000)
In the company's accounts, investments in subsidiary undertakings are stated at
cost less amounts written off. Only interest and dividends received or
receivable are credited to the company's profit and loss account.
c) INTANGIBLE FIXED ASSETS
(i) The Malmaison brand is carried at cost less amounts written off.
Provision is made for any permanent diminution in value. The directors having
considered the residual value and useful economic life of the brand, believe
any provision for amortisation would not be material.
(ii) Pre-opening and marketing expenses incurred up to the commencement of
full trading by hotels are deferred and written off over three years.
Freehold hotel properties and hotel properties on leases with 25 years or more
to run at the balance sheet date are revalued periodically and the resultant
valuation is included in the balance sheet unless the surplus or deficit is
immaterial. Where a material surplus or deficit arises, this is taken to the
revaluation reserve to the extent available. Any permanent diminution in the
value of such properties is charged to the profit and loss account.
d) TANGIBLE FIXED ASSETS (CONTINUED)
In accordance with normal practice within the hotel industry, no depreciation is
provided on freehold hotel properties or on hotel properties on leases with 25
years or more to run at the balance sheet date. The group's properties are
maintained at all times in sound condition and to a high standard. Accordingly,
the directors are of the opinion that the length of lives and residual values
(based on prices prevailing at the time of acquisition or subsequent valuation)
of these properties are such that any provision for depreciation would not be
material.
Work in progress comprises hotel development sites in the course of
construction. It is stated at cost, which represents the cost of land,
contractors' costs, professional fees, interest and an allocation of other
direct and project overheads. Costs are capitalised from the date on which the
group acquires an interest in a development site.
Interest on capital employed on land under development and on the cost of
construction of hotels incurred until these projects are completed may, where
appropriate, be capitalised as part of the costs of construction.
Depreciation is provided on a straight line basis over the following periods:
<TABLE>
<S> <C>
Office equipment 4 years
Furniture, fittings and equipment 5-10 years
Plant and machinery 10-15 years
</TABLE>
e) FIXED ASSET INVESTMENTS
Investments are shown at cost less amounts written off. Provision is made for
any permanent diminution in value.
MALMAISON LIMITED
F-47
<PAGE>
Notes to accounts (continued)
2 ACCOUNTING POLICIES (CONTINUED)
f) STOCKS
Stocks are valued at the lower of cost and net realisable value.
g) TAXATION
Corporation tax payable is provided on taxable profits at the current rate.
The taxation liabilities of certain group companies are reduced wholly or in
part by the surrender of losses by fellow group companies.
Deferred taxation has been calculated on the liability method. Deferred taxation
is provided on timing differences which will probably reverse, at the rates of
tax likely to be in force at the time of reversal. Deferred tax is not provided
on timing differences which, in the opinion of the directors, will probably not
reverse.
h) TURNOVER
Turnover comprises amounts receivable for goods and services provided, net of
VAT and similar sales taxes.
i) LEASES
Assets held under finance leases are initially reported at the fair value of the
asset, with an equivalent liability categorised under creditors due within or
after one year as appropriate. The asset is depreciated over the shorter of the
lease term or its useful economic life. Finance charges are allocated to
accounting periods over the period of the lease to produce a constant rate of
return on the outstanding balance. Rentals are apportioned between finance
charges and reduction of the liability. Hire purchase transactions are dealt
with similarly, except that assets are depreciated over their useful economic
lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term and commitments are provided for in the balance sheet at the time the
rental payments fall due.
j) GOVERNMENT GRANTS
Government grants relating to tangible fixed assets are treated as deferred
income and credited to the profit and loss account by equal instalments over the
period to which the grant relates. Where any grant repayments are required under
the terms of the grant, such repayments are recorded in the profit and loss
account in the period to which they relate.
k) CAPITAL INSTRUMENTS
Capital instruments are classified as liabilities if they contain an obligation
to transfer economic benefit and if they are not included in shareholders'
funds. Capital instruments are initially stated at the amount of the net
proceeds after the deduction of issue costs. The finance cost recognised in the
profit and loss account in respect of capital instruments other than equity
shares is calculated so as to give a constant rate of return on the outstanding
balance.
3 SEGMENT INFORMATION
All of the group's turnover and operating profit arise from the operation of
hotels, all of which are in the UK.
MALMAISON LIMITED
F-48
<PAGE>
Notes to accounts (continued)
4 INVESTMENT INCOME AND INTEREST PAYABLE
<TABLE>
<CAPTION>
53 week
Year ended period to
31 December 31 December
1997 1996
L'000 L'000
<S> <C> <C>
Investment income comprises:
- - interest on cash at bank 69 8
---------- ----------
Interest payable comprises
- - subordinated loan stock 2,275 212
- - senior debt 326 -
- - mezzanine debt 409 -
---------- ----------
3,010 212
Less interest capitalised (1,639) (98)
---------- ----------
1,371 114
---------- ----------
</TABLE>
5 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Loss on ordinary activities before taxation is stated after
charging/(crediting):
<TABLE>
<CAPTION>
53 week
Year ended period to
31 December 31 December
1997 1996
L'000 L'000
<S> <C> <C>
Staff costs (note 6) 723 41
Amortisation and amounts written off
- - goodwill 22 4
- - pre-opening expenses 65 5
Depreciation of tangible fixed assets
- - owned 81 6
- - held under hire purchase contracts and finance leases 26 -
Amortisation of grants (10) -
Auditors remuneration
- - audit services 35 16
---------- ----------
</TABLE>
MALMAISON LIMITED
F-49
<PAGE>
Notes to accounts (continued)
6 STAFF COSTS
Particulars of employees (including executive directors) are shown below:
<TABLE>
<CAPTION>
53 week
Year ended period to
31 December 31 December
1997 1996
L'000 L'000
<S> <C> <C>
Employee costs during the period amounted to:
Wages and salaries 673 37
Social security costs 50 4
---------- ----------
723 41
---------- ----------
</TABLE>
The average monthly number of persons employed by the group for the periods were
as follows:
<TABLE>
<CAPTION>
1997 1996
Number Number
<S> <C> <C>
Hotel operations 65 38
Administration 2 2
---------- ----------
67 40
---------- ----------
</TABLE>
Directors' remuneration:
No director received any remuneration for their services to any group company
during the year.
7 TAX ON LOSS ON ORDINARY ACTIVITIES
There is no taxable profit in the current year, and accordingly, no charge to
tax arises.
A potential liability on deferred chargeable gains of L1,300,000 (1996 -
L450,000) exists following the revALuation of property. In addition a
further L240,000 (1996 - L63,000) of deferred tax liabilities is
present within the group. These amounts are unprovided for due to the existence
of brought forward tax losses. Such losses may be relieved only against future
trading profits.
MALMAISON LIMITED
F-50
<PAGE>
Notes to accounts (continued)
8 INTANGIBLE FIXED ASSETS
The movement in the year was as follows:
<TABLE>
<CAPTION>
Pre-opening Total
Brand Goodwill expenses
Group L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
COST
Beginning of year 800 436 47 1,283
Additions - - 394 394
Adjustment of goodwill (see note 10) - (56) - (56)
---------- ---------- ---------- ----------
End of year 800 380 441 1,621
---------- ---------- ---------- ----------
AMOUNTS WRITTEN OFF
Beginning of year - 4 5 9
Amortisation - 22 65 87
---------- ---------- ---------- ----------
End of year - 26 70 96
---------- ---------- ---------- ----------
NET BOOK VALUE
Beginning of year 800 432 42 1,274
---------- ---------- ---------- ----------
End of year 800 354 371 1,525
---------- ---------- ---------- ----------
</TABLE>
MALMAISON LIMITED
F-51
<PAGE>
Notes to accounts (continued)
9 TANGIBLE FIXED ASSETS
The movement in the year was as follows:
<TABLE>
<CAPTION>
Freehold Furniture,
land and Work in fixtures &
buildings progress equipment Total
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
GROUP
COST OR VALUATION
Beginning of year 3,058 5,410 389 8,857
Additions 8,799 10,958 1,961 21,718
Reclassification 3,055 (3,055) - -
Revaluations 2,791 - - 2,791
---------- ---------- ---------- ----------
End of year 17,703 13,313 2,350 33,366
- ---------------------------------------------------------------------------------------------------------------------------
At valuation 17,703 - - 17,703
At cost - 13,313 2,350 15,663
- ---------------------------------------------------------------------------------------------------------------------------
DEPRECIATION
Beginning of year - - 6 6
Charge - - 107 107
---------- ---------- ---------- ----------
End of year - - 113 113
---------- ---------- ---------- ----------
NET BOOK VALUE
Beginning of year 3,058 5,410 383 8,851
---------- ---------- ---------- ----------
End of year 17,703 13,313 2,237 33,253
---------- ---------- ---------- ----------
LEASED ASSETS AND ASSETS HELD ON FINANCE LEASES INCLUDED IN THE ABOVE:
NET BOOK VALUE
BEGINNING OF YEAR - - - -
---------- ---------- ---------- ----------
END OF YEAR - - 212 212
---------- ---------- ---------- ----------
</TABLE>
Additions to work in progress include interest capitalised of L1,639,000
(1996 - L98,000). Cumulative interest capitalised included in the cost of
tangible fixed assets amounts to L1,737,000 (1996 - L98,000).
Freehold properties are included at valuation. The valuations were carried out
by Edward Symmons (Hotel & Leisure) Limited, Chartered Surveyors, on an open
market value at 31 December 1997 for existing use basis, inclusive of fittings
and equipment and with the benefit of licences where applicable during the year.
The valuations are recorded after deducting the net book value of fittings and
equipment is recorded against freehold land and buildings. Additions made
subsequent to the valuations are recorded at cost.
On a historical cost basis, the net book amount of tangible fixed assets at 31
December 1997 would be L30,462,000, and the depreciation charge would not
be materially different.
MALMAISON LIMITED
F-52
<PAGE>
Notes to accounts (continued)
9 TANGIBLE FIXED ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Work in
progress
COMPANY L'000
<S> <C>
COST
Beginning of year -
Additions 141
----------
End of year 141
----------
</TABLE>
10 FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
Company
1997 1996
L'000 L'000
<S> <C> <C>
Subsidiary undertakings 4,904 4,960
---------- ----------
</TABLE>
The movement in the year relates to actual professional fees being less than
estimated on the subsidiaries acquired in 1996. In the group accounts, goodwill
has been reduced accordingly (see note 8).
a) PRINCIPAL GROUP INVESTMENTS
The principal subsidiary undertakings are shown below:
<TABLE>
<CAPTION>
Proportion of
ordinary share
Country of capital and voting
incorporation Principal rights held by the
SUBSIDIARY UNDERTAKINGS and operation Activity group
<S> <C> <C> <C>
The Malmaison Hotel (Glasgow) Limited Scotland Hotel operations 100%
The Malmaison Hotel (Newcastle) Limited England Hotel operations 100%
The Malmaison Hotel (Manchester) Limited England Hotel operations 100%
The Malmaison Hotel (Leeds) Limited England Hotel operations 100%
Malmaison Brand Limited Scotland Brand ownership 100%
</TABLE>
b) ACQUISITION OF SUBSIDIARY UNDERTAKINGS
On 15 April 1997 the company formed The Malmaison Hotel (Leeds) Limited.
MALMAISON LIMITED
F-53
<PAGE>
Notes to accounts (continued)
11 STOCKS
<TABLE>
<CAPTION>
Group
1997 1996
L'000 L'000
<S> <C> <C>
Hotel operating stocks 67 13
---------- ----------
</TABLE>
12 DEBTORS
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Amounts falling due within one year:
Trade debtors 287 34 - -
Amounts owed by subsidiary undertakings - - 10,646 4,743
VAT 507 590 273 357
Other debtors 1,251 27 256 -
Prepayments and accrued income 136 14 101 -
Prepaid facility fees - 294 - -
---------- ---------- ---------- ----------
2,181 959 11,276 5,100
---------- ---------- ---------- ----------
</TABLE>
Included in other debtors above is L247,500 relating to a deposit made by
the company on the acquisition of the Malmaison hotel in Edinburgh (see note
1b).
13 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Bank loans and Senior debt 550 - - -
Trade creditors 1,447 448 202 49
Accrued interest 2,677 - 2,677 -
Other creditors 197 19 - 12
VAT 34 - - -
Grants 564 - - -
Accruals and deferred income 1,563 938 281 140
---------- ---------- ---------- ----------
7,032 1,405 3,160 201
---------- ---------- ---------- ----------
</TABLE>
14 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Senior debt 10,602 - - -
Mezzanine debt 3,000 - 3,000 -
Subordinated debt 13,276 10,476 13,276 10,476
Grants 1,974 - - -
Other 133 212 - 212
---------- ---------- ---------- ----------
28,985 10,688 16,276 10,688
---------- ---------- ---------- ----------
</TABLE>
MALMAISON LIMITED
F-54
<PAGE>
Notes to accounts (continued)
During the year the group was awarded a L2,400,000 grant in relation to
the Malmaison Manchester property and a L148,000 grant in relation to the
Malmaison Glasgow property.
SENIOR DEBT
At 31 December 1997 the group had senior borrowing facilities of L22,300,000
(1996 - L9,500,000) of which L12,389,000 (1996 - Lnil) was drawn down.
Borrowings are repayable on a quarterly basis from 31 March 1998, incur
interest at 2.5% p.a. above LIBOR, are secured by a first fixed and floating
charge on the group's hotels and other assets, and are subject to financial
covenants.
Amounts shown for senior debt are net of facility fees L1,237,000 (1996 -
Lnil).
MEZZANINE DEBT
The company has entered into a mezzanine loan facility agreement of
L5,750,000 and a working capital facility of L500,000 with Arcadian
International Limited. The loan facility incurs interest at 10% and is repayable
on 31 December 2006 and the working capital facility incurs interest at 3% above
The Royal Bank of Scotland Plc base rate and is repayable on 31 December 1999.
These facilities are secured by second charges on the group's hotel properties.
Drawings under these facilities at 31 December 1997 were L3,000,000 and
Lnil respectively (1996 Lnil and Lnil).
SUBORDINATED DEBT
The loan stock is unsecured, bears interest at 20% per annum, and is repayable
in instalments between 2003 and 2005 (see note 20). At 31 December 1997 issued
loan stock was as follows:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
`A' loan stock 5,873 5,873
`B' loan stock 4,603 4,603
`C' loan stock 2,800 -
---------- ----------
13,276 10,476
---------- ----------
</TABLE>
14 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)
On 15 April 1997 the company issued L1,700,000 of `C' loan stock in
connection with interalia the purchase of a development site in Leeds.
On 10 December 1997 the company issued a further L1,100,000 of `C' loan
stock in connection with interalia the part repayment of the mezzanine loan with
Arcadian International Limited, a related party.
The A, B and C loan stock rank pari passu in all respects with the exception of
the winding up of the company. In this case the C loan stock is subordinated to
the A and B loan stock. The B loan stock is subordinated to the A loan stock and
all classes of loan stock are subordinated to the claims of all other creditors.
MALMAISON LIMITED
F-55
<PAGE>
Notes to accounts (continued)
ANALYSIS OF BORROWINGS
Borrowings are repayable as follows:
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Due within five years
- - within 1 year - finance leases 78 - - -
- bank loans 600 - - -
- - within 1-2 years - finance leases 78 - - -
- bank loans 1,400 - - -
- - within 2-5 years - finance leases 56 - - -
- bank loans 6,300 - - -
More than 5 years - bank loans 4,089 - - -
- mezzanine loan 3,000 - 3,000 -
- subordinated loan stock 13,276 10,476 13,276 10,476
---------- ---------- ---------- ----------
28,877 10,476 16,276 10,476
---------- ---------- ---------- ----------
</TABLE>
15 CALLED-UP SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
AUTHORISED
25,100,000 (1996 - 19,100,000) ordinary shares of 1p each 251 191
1,900,000 (1996 - 1,900,000) `B' deferred convertible shares of 1p each 19 19
---------- ----------
270 210
---------- ----------
ALLOTTED, CALLED-UP AND FULLY-PAID
17,400,000 (1996 - 16,150,000) ordinary shares of 1p each 174 162
---------- ----------
</TABLE>
15 CALLED-UP SHARE CAPITAL (CONTINUED)
During the year the company issued 1,250,000 shares as part consideration for
the acquisition of The Malmaison Hotel (Manchester) Limited in 1996.
Arcadian International Limited and K.W. McCulloch have the right before 31
December 2005, to subscribe for a number of deferred shares, which are
convertible into ordinary shares at par upon the sale of a substantial part of
the assets of the group, the admission of the ordinary shares of the company to
the London Stock Exchange or control of the company passing to one shareholder.
The number of deferred shares subject to this right is determined by the value
attributable to the group in the transaction. Upon the acquisition of the share
capital of the company by Patriot American Hospitality, Inc. ("Patriot"), K.W.
McCulloch transferred the right to 1,390,581 deferred shares to Patriot (see
note 1).
As at 31 December 1996 the company had in issue warrants to subscribe for
1,410,811 ordinary shares exercisable at par. On 15 April 1997 the company
issued warrants to subscribe for 4,949,026 ordinary shares exercisable at par.
On 10 December 1997 the company issued warrants to subscribe for 3,202,311
ordinary shares exercisable at par. All the warrants in issue were acquired by
Patriot on the 8 April 1998 (see note 1).
MALMAISON LIMITED
F-56
<PAGE>
Notes to accounts (continued)
16 RESERVES
Of total reserves shown in the group and company's balance sheets, the following
amounts are regarded as distributable or otherwise:
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Distributable
- - profit and loss account (1,048) (90) (52) (30)
Non distributable
- - revaluation reserve 2,791 - - -
---------- ---------- ---------- ----------
TOTAL RESERVES 1,743 (90) (52) (30)
---------- ---------- ---------- ----------
</TABLE>
MALMAISON LIMITED
F-57
<PAGE>
Notes to accounts (continued)
16 RESERVES (CONTINUED)
<TABLE>
<CAPTION>
Revaluation Profit and
reserve loss account Total
L'000 L'000 L'000
<S> <C> <C> <C>
GROUP
Beginning of the year - (90) (90)
Accumulated loss for the year - (958) (958)
Revaluation of operating hotels 2,791 - 2,791
---------- ---------- ----------
End of year 2,791 (1,048) 1,743
---------- ---------- ----------
COMPANY
Beginning of the year - (30) (30)
Accumulated loss for the year - (22) (22)
---------- ---------- ----------
End of year - (52) (52)
---------- ---------- ----------
</TABLE>
17 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Loss for the financial year (958) (90) (22) (30)
---------- ---------- ---------- ----------
Other recognised gains and losses relating to the year 2,791 - - -
New share capital subscribed 12 162 12 162
---------- ---------- ---------- ----------
Net addition to (reduction in) shareholders' funds 1,845 72 (10) 132
---------- ---------- ---------- ----------
Opening shareholders' funds 72 - 132 -
---------- ---------- ---------- ----------
Closing shareholders' funds 1,917 72 122 132
---------- ---------- ---------- ----------
</TABLE>
18 CASH FLOW INFORMATION
a) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
53 week
Year ended period to
31 December 31 December
1997 1996
L'000 L'000
<S> <C> <C>
Operating profit 344 16
Depreciation and amortisation charges 194 15
Increase in stocks (54) (1)
Increase in debtors (343) (748)
Increase in creditors 1,073 512
Amortisation of grant income (10) -
---------- ----------
NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES 1,205 (206)
---------- ----------
</TABLE>
MALMAISON LIMITED
F-58
<PAGE>
Notes to accounts (continued)
b) ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
53 week
Year ended period to
31 December 31 December
1997 1996
L'000 L'000
<S> <C> <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 69 8
Interest and facility fees paid (1,300) -
---------- ----------
(1,231) 8
---------- ----------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Expenditure on tangible fixed assets (19,270) (2,978)
Expenditure on intangible fixed assets (394) -
Grants received 1,612 -
---------- ----------
(18,052) (2,978)
---------- ----------
ACQUISITIONS
Purchase of subsidiary undertakings - (410)
Deposits to purchase subsidiary undertaking (247) -
Cash acquired - 53
Purchase of brand name - (400)
---------- ----------
NET CASH OUTFLOW FOR ACQUISITIONS (247) (757)
---------- ----------
FINANCING
Issue of ordinary share capital - 103
Repayment of finance leases (24) -
Debt due within one year 600 -
Debt due greater than one year 17,589 4,898
---------- ----------
CASH INFLOW FROM FINANCING 18,165 5,001
---------- ----------
</TABLE>
18 CASH FLOW INFORMATION (CONTINUED)
c) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
Beginning of Other
year Cash flow (non-cash) End of year
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Cash on hand and at bank 1,068 (160) - 908
Finance leases - 24 (238) (214)
Debt due within one year - (600) - (600)
Debt due after 1 year (10,476) (17,589) - (28,065)
---------- ---------- ---------- ----------
(9,408) (18,325)) (238) (27,971)
---------- ---------- ---------- ----------
</TABLE>
d) MAJOR NON-CASH
During the year the group entered into finance lease arrangements in respect of
assets with a total capital value at the
MALMAISON LIMITED
F-59
<PAGE>
Notes to accounts (continued)
inception on the leases of L238,000 (1996 - Lnil).
19 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
a) CAPITAL COMMITMENTS
At the end of the year capital commitments were:
<TABLE>
<CAPTION>
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Contracted for but not provided for 3,614 13,441 - -
---------- ---------- ---------- ----------
</TABLE>
b) CONTINGENT LIABILITIES
The company has guaranteed and secured by a floating charge on its own assets
overdrafts and other liabilities of certain subsidiary undertakings, the amount
outstanding at 31 December 1997 being L12,389,000 (1996 - Lnil).
MALMAISON LIMITED
F-60
<PAGE>
Notes to accounts (continued)
20 RELATED PARTY TRANSACTIONS
a) A. Haining and R.K. Black, both shareholders in the company during the year,
are directors of Botts & Company Limited and financial advisers to the company.
During the year Botts & Company Limited received fees of L160,000 (1996 -
L119,000). In addition, as at 31 December 1997, Botts & Company Limited
held 4,439,955 (1996 - L2,925,000) subordinated loan stock (see note 15).
b) R.R.A. Breare and C.G. Upton are both directors of Arcadian International
Limited ("Arcadian"), a shareholder of the company. During the year Arcadian
received fees of L500,000 (1996 - L500,000).
In addition, as at 31 December 1997, Arcadian held 5,061,972 (1996 -
L4,102,500) subordinated, loan stock (see note 15).
c) K.W. McCulloch a shareholder of the company during the year, is also a
director of and the majority shareholder in MHM Limited. Arcadian and MHM
Limited have a joint venture, Malmaison Management Limited, which has a ten year
management contract for the group's hotels. Management fees payable for the year
ended 31 December 1997 under this contract were L143,000 (1996 -
L9,000).
In addition, as at 31 December 1997, K.W. McCulloch held 1,090,081 (1996 -
L1,024,650) subordinated loan stock (see note 15).
In 1996 Malmaison Management Limited entered into project co-ordination
agreements with the group to assist with the development of its hotels. Amounts
payable in the year ended 31 December 1997 under these agreements were
L471,000 (1996 - L240,000).
d) Arcadian and K.W. McCulloch, as shareholders in Malmaison Management Limited,
have the right to subscribe for deferred shares in the company in the event of a
realisation of the assets of the group before 31 December 2005. Further details
are given in note 15.
e) In 1996 Arcadian entered into two forms of guarantee on behalf of a syndicate
of banks, led by Coutts & Company, in favour of the banks. The first relates to
the overrun of construction costs of the hotels and is limited to the amount of
the group's senior debt of L9.5 million plus accrued interest thereon. The
second relates to the repayments of L1.5 million of principal of the
senior debt in the period to 31 December 1999 and the payment of any interest on
the senior debt in that period. Should any payments be made by Arcadian under
the terms of either guarantee, Arcadian would receive additional A loan stock in
the company to the value of any such payment.
MALMAISON LIMITED
F-61
<PAGE>
Exhibit 23.1
CONSENT OF CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS
As Chartered Accountants and Registered Auditors, we hereby consent to the
incorporation by reference in the Joint Registration Statements on Form S-3,
dated 4 May 1998, 8 July 1998, 25 September 1998, and 5 October 1998, and
Form S-8, dated 8 June 1998, of Patriot American Hospitality, Inc. and
Wyndham International, Inc., of our reports dated 22 July 1998 and 17 July
1998, respectively, except for note 1 in each of our reports, as to which
the date is 24 March 1999, of the financial statements of Arcadian
International Limited (formerly Arcadian International Plc) and subsidiary
undertakings and Malmaison Limited and subsidiary undertakings, which are
included in the Joint Current Report on Form 8-K/A of Patriot American
Hospitality, Inc. and Wyndham International, Inc., dated 2 June 1998.
/s/ Arthur Andersen
1 Surrey Street
London
WC2R 2PS
26 March 1999
