<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------
Commission File Number 1-9320
WYNDHAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2878485
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
(Address of principal executive offices) (Zip Code)
(214) 863-1000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
The number of shares outstanding of the registrant's class of common stock,
par value $.01 per share, as of the close of business on August 10, 2000, was
167,818,724.
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<PAGE>
WYNDHAM INTERNATIONAL, INC.
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements.............................................. 3
Wyndham International, Inc.:
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999.................................................. 3
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 2000 and 1999 (unaudited)........................ 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 (unaudited)..................................... 5
Notes to Condensed Consolidated Financial Statements as of June 30, 2000
(unaudited)............................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 17
Item 3. Qualitative and Quantitative Disclosures about Market Risks....... 26
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................................. 27
Item 2. Changes in Securities and Use of Proceeds......................... 28
Item 3. Defaults Upon Senior Securities................................... 28
Item 4. Submission of Matters to Vote of Security Holders................. 29
Item 5. Other Information................................................. 29
Item 6. Exhibits and Reports on Form 8-K:
Exhibits................................................................ 30
Reports on Form 8-K..................................................... 30
Signature................................................................. 31
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 102,642 $ 144,333
Restricted cash.................................... 131,729 102,480
Accounts and lease revenue receivable.............. 263,183 186,321
Inventories........................................ 21,274 23,304
Prepaid expenses and other assets.................. 18,459 21,197
----------- -----------
Total current assets............................... 537,287 477,635
----------- -----------
Investment in real estate and related improvements
net of accumulated depreciation of $623,845 in 2000
and $478,494 in 1999............................... 5,161,457 5,413,178
Investment in unconsolidated subsidiaries........... 165,324 165,663
Notes and other receivables......................... 41,566 42,653
Management contract costs, net of accumulated
amortization of $28,147 in 2000 and $26,359 in
1999............................................... 93,862 129,362
Leasehold costs, net of accumulated amortization of
$18,156 in 2000 and $15,305 in 1999................ 127,886 133,102
Trade names and franchise costs, net of accumulated
amortization of $13,909 in 2000 and $11,328 in
1999............................................... 107,928 116,521
Deferred acquisition costs.......................... 2,994 2,584
Goodwill, net of accumulated amortization of $35,528
in 2000 and $30,141 in 1999........................ 363,495 378,916
Deferred expenses, net of accumulated amortization
of $25,722 in 2000 and $46,614 in 1999............. 114,747 97,767
Other assets........................................ 48,807 46,109
----------- -----------
Total assets....................................... $ 6,765,353 $ 7,003,490
=========== ===========
LIABILITES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 250,362 $ 322,195
Deposits........................................... 31,767 39,452
Current portion of borrowings under the credit
facility, term loans, mortgage notes and capital
lease obligations................................. 74,965 130,177
----------- -----------
Total current liabilities.......................... 357,094 491,824
----------- -----------
Borrowings under the credit facility, term loans,
mortgage notes and capital lease obligations....... 3,489,440 3,513,379
Deferred income taxes............................... 628,758 656,164
Deferred income..................................... 9,535 15,543
Minority interest in Operating Partnerships......... 22,146 22,435
Minority interest in other consolidated
subsidiaries....................................... 173,099 166,483
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
150,000,000 shares; shares issued and outstanding:
10,707,093 in 2000 and 10,344,662 in 1999......... 107 103
Common stock, $0.01 par value; authorized:
750,000,000 shares; shares issued and outstanding:
167,250,136 in 2000 and 167,193,696 in 1999....... 1,673 1,672
Additional paid in capital......................... 3,789,868 3,753,235
Receivable from shareholders and affiliates........ (17,428) (17,210)
Unearned stock compensation, net of accumulated
amortization of $19,552 in 2000 and $19,297 in
1999.............................................. -- (255)
Unrealized loss on securities available for sale... (520) (1,000)
Unrealized foreign exchange loss................... (11,801) (7,576)
Accumulated deficit................................ (1,676,618) (1,591,307)
----------- -----------
Total shareholders' equity......................... 2,085,281 2,137,662
----------- -----------
Total liabilities and shareholders' equity......... $ 6,765,353 $ 7,003,490
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------------
2000 1999 2000 1999
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Hotel revenue................... $632,012 $ 628,332 $1,269,073 $1,267,162
Participating and land lease
revenue........................ -- 255 -- 588
Racecourse facility............. -- -- -- 4,561
Management fee and service fee
income......................... 12,422 20,427 25,022 43,218
Interest and other income....... 18,561 2,139 22,526 6,699
-------- --------- ---------- ----------
Total revenue................... 662,995 651,153 1,316,621 1,322,228
-------- --------- ---------- ----------
Expenses:
Hotel expenses.................. 446,147 450,544 885,701 896,276
Racing facility operations...... -- -- -- 3,867
General and administrative...... 28,867 60,962 51,983 112,161
Restructuring costs............. -- 185,382 -- 185,382
Interest expense................ 93,427 90,985 185,290 181,200
Depreciation and amortization... 78,996 80,796 158,447 156,905
Impairment loss on assets held
for sale....................... 77,300 -- 77,300 --
Net loss on sale of assets...... 10,844 8,102 14,052 5,327
-------- --------- ---------- ----------
Total expenses.................. 735,581 876,771 1,372,773 1,541,118
-------- --------- ---------- ----------
Operating loss................... (72,586) (225,618) (56,152) (218,890)
Equity in earnings of
unconsolidated subsidiaries.... 3,479 1,230 3,969 3,931
-------- --------- ---------- ----------
Loss before income taxes,
minority interests and
extraordinary item.............. (69,107) (224,388) (52,183) (214,959)
Income tax benefit (provision)... 23,642 (645,496) 20,697 (654,439)
-------- --------- ---------- ----------
Loss before minority interests
and extraordinary item.......... (45,465) (869,884) (31,486) (869,398)
Minority interest in the
Operating Partnerships.......... -- 4,684 -- 6,642
Minority interest in other
consolidated subsidiaries....... (1,052) (2,192) (3,434) (4,064)
-------- --------- ---------- ----------
Loss before extraordinary item... (46,517) (867,392) (34,920) (866,820)
Extraordinary loss from early
extinguishment of debt, net of
minority interest and income
taxes........................... -- (9,838) -- (9,838)
-------- --------- ---------- ----------
Net loss......................... $(46,517) $(877,230) $ (34,920) $ (876,658)
======== ========= ========== ==========
Basic loss attributable to common
shareholders:
Net loss........................ $(46,517) $(877,230) $ (34,920) $ (876,658)
Adjustment for equity forwards.. -- (10,977) -- (19,372)
Preferred stock dividends....... (25,652) (522) (50,867) (901)
-------- --------- ---------- ----------
Basic net loss.................. $(72,169) $(888,729) $ (85,787) $ (896,931)
======== ========= ========== ==========
Basic loss per common share:
Loss before extraordinary item.. $ (0.43) $ (5.65) $ (0.51) $ (5.71)
Extraordinary loss.............. -- (0.06) -- (0.06)
-------- --------- ---------- ----------
Net loss per common share....... $ (0.43) $ (5.71) $ (0.51) $ (5.77)
======== ========= ========== ==========
Diluted loss attributable to
common shareholders:
Net loss........................ $(46,517) $(877,230) $ (34,920) $ (876,658)
Adjustment for equity forwards.. -- (19,290) -- (39,322)
Preferred stock dividends....... (25,652) (522) (50,867) (901)
-------- --------- ---------- ----------
Diluted net loss................ $(72,169) $(897,042) $ (85,787) $ (916,881)
======== ========= ========== ==========
Diluted loss per common share:
Loss before extraordinary item.. $ (0.43) $ (5.70) $ (0.51) $ (5.84)
Extraordinary loss.............. -- (0.06) -- (0.06)
-------- --------- ---------- ----------
Net loss per common share....... $ (0.43) $ (5.76) $ (0.51) $ (5.90)
======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
2000 1999
-------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ (34,920) $ (876,658)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.......................... 158,447 156,905
Amortization of unearned stock compensation............ 255 5,544
Amortization of deferred loan costs.................... 11,276 24,821
Net loss (gain) on sale of assets...................... 14,052 5,327
Impairment loss on assets held for sale................ 77,300 --
Equity in earnings of unconsolidated subsidiaries...... (3,969) (3,931)
Minority interest in operating partnerships............ -- (6,642)
Minority interest in other consolidated subsidiaries... 3,434 4,064
Deferred income taxes.................................. (27,406) 625,027
Recognition of deferred termination fee................ (14,746) --
Write-off of deferred acquisition costs................ 1,283 --
Write-down of real estate assets....................... -- 53,905
Write-off of intangible assets......................... -- 119,751
Bad debt expense....................................... 1,628 5,915
Extraordinary loss from early extinguishment of debt... -- 9,838
Other.................................................. -- 429
Changes in assets and liabilities:
Accounts and lease revenue receivable and other
assets................................................ (67,391) (17,035)
Inventories............................................ 2,079 1,028
Accounts payable and accrued expenses.................. (30,023) 18,842
Deferred income........................................ 8,738 --
-------- -----------
Net cash provided by operating activities.............. 100,037 127,130
-------- -----------
Cash flows from investing activities:
Acquisition of hotel properties and related working
capital assets........................................ (20,626) (59,128)
Improvements and additions to hotel properties......... (85,191) (105,439)
Gross proceeds from asset sales........................ 198,967 64,107
Payment of contingent liability........................ (32,825) --
Cash received in acquisition of real estate and hotel
leases................................................ 625 933
Collections on mortgage and other notes receivable..... 452 4,103
Advances on other notes receivable..................... (1,344) (3,469)
Increase in restricted cash accounts................... (29,249) (58,058)
Investment in unconsolidated subsidiaries.............. (5,375) (2,472)
Deferred acquisition costs............................. (1,694) (129)
Net payments collected from unconsolidated
subsidiaries.......................................... 5,764 --
Proceeds from termination of management contracts...... -- 10,474
Other.................................................. (28) 6,942
-------- -----------
Net cash provided (used) in investing activities....... 29,476 (142,136)
-------- -----------
Cash flows from financing activities:
Borrowings under credit facility, term loans, mortgage
notes and capital lease obligations................... 366,081 2,706,375
Repayments on credit facility mortgage notes and
capital lease obligations............................. (499,143) (3,041,815)
Payment of deferred loan costs......................... (2,218) (103,867)
Premiums paid for financial derivatives................ (34,360) --
Proceeds received from financial derivatives........... 6,654 --
Settlement of forward equity contracts................. -- (329,481)
Proceeds from issuance of preferred stock.............. -- 955,000
Cost to retire Patriot series B preferred stock........ -- (13,966)
Cash settlement with Interstate upon spinoff........... -- (15,688)
Payment of offering costs.............................. -- (75,878)
Contributions received from minority interest in
consolidated subsidiaries............................. -- 171
Distribution to minority interest holders.............. (4,251) (20,573)
Dividends and distributions paid....................... (14,624) (922)
Foreign currency translation adjustment................ 10,657 (8,905)
Other.................................................. -- 49
-------- -----------
Net cash (used) provided by financing activities....... (171,204) 50,500
-------- -----------
Net (decrease) increase in cash and cash equivalents.... (41,691) 35,494
-------- -----------
Cash and cash equivalents at beginning of period........ 144,333 123,085
-------- -----------
Cash and cash equivalents at end of period.............. $102,642 $ 158,579
======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
(unaudited)
1. Organization and Basis of Presentation
Wyndham International, Inc., as currently constituted, was formed through
the June 30, 1999 restructuring and reorganization of Patriot American
Hospitality, Inc. (collectively with its subsidiaries, "Patriot") and Wyndham
International, Inc. (collectively with its subsidiaries, "Old Wyndham"). Prior
to June 30, 1999, the shares of common stock of Patriot were paired and traded
together with the shares of Old Wyndham, on a one for one basis, as a single
unit pursuant to a stock pairing arrangement, and were referred to as paired
shares.
Patriot was formed April 17, 1995 as a self-administered real estate
investment trust ("REIT") for the purpose of acquiring equity interests in
hotel properties. Old Wyndham was formed in connection with Patriot's merger
with and into California Jockey Club and Bay Meadows Operating Company on July
1, 1997 (the "Cal Jockey Merger").
Effective June 30, 1999, a subsidiary of Old Wyndham merged with and into
Patriot with Patriot being the surviving entity and becoming a subsidiary of
Old Wyndham. In connection with this restructuring, the pairing agreement
between Patriot and Old Wyndham was terminated, Patriot's status as a real
estate investment trust terminated effective January 1, 1999, and Patriot
became a taxable corporation as of that date. This merger converted each
previously outstanding paired share into one share of Wyndham class A common
stock. Old Wyndham and its subsidiaries, which now include Patriot, is
hereafter referred to as Wyndham or the Company.
The restructuring was reflected as a reorganization of two companies under
common control and was accounted for in a manner similar to that used in
pooling of interest accounting. As such, there was no revaluation of the
assets and liabilities of Old Wyndham or Patriot.
As of June 30, 2000, the Company owned interests in 146 hotels with an
aggregate of over 40,800 guest rooms and leased 38 hotels from third parties
with over 5,800 guest rooms. In addition, the Company managed 40 hotels for
third party owners with over 12,900 guest rooms and franchised 29 hotels with
over 5,400 guest rooms.
Principles of consolidation and combination
The unaudited consolidated financial statements for June 30, 2000 include
the accounts of the Company, its wholly owned subsidiaries, and the
partnerships, corporations and limited liability companies in which the
Company owns a controlling interest.
Partnerships--The condition for control is the ownership of a majority
voting interest and the ownership of the general partnership interest.
Corporations and Limited Liability Companies--The condition for control is
the ownership of a majority voting interest.
These financial statements have been prepared in accordance with GAAP for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
6
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
Annual Report on Form 10-K for the year ended December 31, 1999. Certain prior
period amounts have been reclassified to conform to current period
presentation with no effect to previously reported net income or retained
earnings.
2. Acquisitions and Disposals
Acquisitions
In January 2000, the Company acquired the remaining interests in Wyndham
Chicago for approximately $20,626.
Disposals
During the first quarter of 2000, the Company sold a hotel, retail space and
a garage for a gross sales price of $44,250 and received net cash proceeds of
$43,867.
In addition, effective March 31, 2000, the Company sold its Sierra Suites(R)
hotel brand, properties and related assets (the "Sierra transaction") to
Sierra Suites Hotel Company, L.P., an entity affiliated with Mr. Rolf Ruhfus,
a director of Wyndham, for approximately $53,000. The transaction included the
sale by the Company of one owned and three leased properties, seventeen
franchise and management contracts for Sierra Suites(R) and nine management
contracts for Summerfield Suites. Pursuant to the purchase agreement, the
Company received net cash proceeds of $23,045 and was relieved of $29,770 of
future obligations with respect to a related agreement. A gain of $640 was
recognized as a result of the transaction.
During the second quarter of 2000, the Company sold 16 hotels, its interest
in the Clubhouse Westmont, the Clubhouse Inn brand, and a parcel of land for a
gross sales price of approximately $95,270. The Company received net proceeds
of $55,859 and was relieved of approximately $34,649 of mortgage debt.
In addition, the Company sold two hotel properties for a gross sales price
of $43,445. The Company repaid $16,547 of mortgage debt and received net
proceeds of $23,272. The hotel properties were leased back to the Company
under two long-term operating leases. The leases have an initial term of 15
years and three optional five-year renewal periods exercisable at the
Company's option. Under the terms of the lease, yearly base rent aggregates
$4,345 plus a contingent rent paid based on a percentage of revenues over
certain thresholds as specified in the lease. The lease requires the Company
to pay substantially all expenses associated with the operation of the leased
hotels, including real estate taxes and insurance.
In accordance with the Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, the Company would record impairment losses on long-
lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
When management identifies an asset as held for sale, the Company estimates
the fair value of such asset. If in management's opinion, the fair value of
the asset is less than the carrying amount of the asset, a reserve for losses
is established. Fair value is estimated as the amount at which the asset could
be bought or sold less costs to sell. Impairment is evaluated based on
undiscounted cash flows to be generated by the assets held for sale, as well
as prevailing market conditions, appraisals or current estimated net sales
proceeds from pending offers, if appropriate.
During 2000, the Company identified five additional assets to be held for
sale. The net book values of these assets are $222,055, prior to any reserve
for impairment, and are included in investments in real estate and related
7
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
improvements in the accompanying financial statements. These assets are
expected to be sold within the next twelve months. The assets held for sale
include approximately $177,945 of non-proprietary branded segment assets, and
$44,110 of Wyndham segment assets. See Note 10 for Segment reporting. The
Company has recorded an impairment reserve of $75,612 relating to four of
these assets held for sale. These four assets had combined net operating
income of $9,455 for the six months ended June 30, 2000. In addition, the
Company recorded an additional impairment of $1,688 as a result of changes in
the estimated fair value of certain investments held for sale in Europe.
3. Restructuring
During 1999, the Company recorded a restructuring charge of $285,267 as a
result of the termination of the paired share structure and management's
decision to streamline its organization and focus on its core brands and
strategic assets. The restructuring activities primarily related to (1) the
termination of the paired share structure, (2) the exiting of the European
market for its non-branded assets, (3) the exiting of limited service hotel
sector, (4) the closure of the Phoenix division office, (5) the closure of the
Wichita division office, and (6) the elimination of certain brands. These
restructuring activities resulted in the write-down of assets held for sale to
estimated fair value and the write-down of intangible assets. The Company also
incurred costs to sever employees, lease abandonment costs, and other costs
relating to exiting these activities.
During the first six months of 2000, continuing cash payments were made
against the accrued liability as shown in the table below. The remaining
accrual will be relieved throughout fiscal 2000, as leases expire and
severance payments are made. Detail of the 1999 restructuring charge is as
follows:
<TABLE>
<CAPTION>
Accrued Accrued
Cash/ Restructuring Balance Balance
Description Non-Cash Charge at 12/31/99 Activity at 6/30/00
----------- ------------- ------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Organizational
Restructuring
Write-down of intangible
assets................. Non-cash $ (83,094) $ -- $ -- $ --
Severance packages...... Cash/non-cash (4,675) (500) -- (500)
Downsizing European
division
Write-down on assets
held for sale.......... Non-cash (69,491) -- -- --
Write-down of intangible
assets................. Non-cash (28,394) -- -- --
Severance packages...... Cash (3,578) (2,458) 2,315 (143)
Lease cancellations and
commitments............ Cash (1,907) (1,907) 1,797 (110)
Other exit costs........ Cash (4,062) (2,408) 2,175 (233)
Exiting limited service
market sector
Write-down of assets
held for sale.......... Non-cash (63,328) -- -- --
Write-down of intangible
assets................. Non-cash (8,834) -- -- --
Closing of the Phoenix
division office
Severance packages...... Cash (2,006) (312) 312 --
Lease cancellations and
commitments............ Cash (492) (321) 167 (154)
Closing of the Wichita
division office
Severance packages...... Cash (1,872) (1,872) 1,845 (27)
Elimination of certain
hotel brands
Write-down of intangible
assets................. Non-cash (12,821) -- -- --
Other
Other exit costs........ Cash (713) -- -- --
Effect of foreign
currency translation... -- 8 (39) (31)
--------- ------- ------ -------
Total................... $(285,267) $(9,770) $8,572 $(1,198)
========= ======= ====== =======
</TABLE>
8
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
4. Mortgage Notes
In connection with the acquisition of the controlling interest in Wyndham
Chicago, the Company now consolidates mortgage debt associated with the
property of approximately $38,910; the loan bears interest at LIBOR plus 3.5%
and matures August 20, 2001.
Effective June 30, 2000, the Company completed a $116,000, first mortgage
and mezzanine financing through Bear, Stearns Funding, Inc. on the Wyndham El
Conquistador Resort & Country Club. The first mortgage in the amount of
$106,000 bears interest at LIBOR plus 2.35%. Principal payments on the loan
are due beginning October 1, 2004, with a final balloon payment due on July 1,
2005. The mezzanine financing in the amount of $10,000 also bears interest at
LIBOR plus 2.35%. Principal payments on the loan are due monthly beginning
August 1, 2000 through maturity October 1, 2004. Proceeds from these loans
were used to retire existing indebtedness.
In addition, the Company refinanced a $15,000 loan with the Government
Development Bank. The loan bears interest at LIBOR plus 1.5% and is secured by
a first mortgage on approximately 150 cuerdas of real property located in
Fajardo, Puerto Rico, adjacent to the Wyndham El Conquistador resort.
At June 30, 2000, the LIBOR rate was 6.64% and averaged 6.19% for the six
months then ended June 30, 2000.
5. Financial Derivatives
The Company enters into interest rate swap and cap agreements to modify the
interest characteristics of its outstanding debt. These agreements involve the
exchange of amounts based on a variable interest rate for amounts based on
fixed interest rates over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an
adjustment of interest expense related to the debt using a method which
approximates the effective interest method (the accrual accounting method).
The related amount payable to or receivable from counterparties is included in
accrued expenses or other assets.
The Company also enters into interest rate cap agreements that are designed
to limit its exposure to increasing interest rates and are designated as
hedges of its outstanding debt. An interest rate cap entitles the Company to
receive a payment from the counterparty equal to the excess, if any, of the
hypothetical interest expense (strike price) on a specified notional amount at
a current market interest rate over an amount specified in the agreement. The
only amount the Company is obligated to pay the counterparty is an initial
premium. The cost of the agreements (the initial premium) is included in
deferred expenses and amortized to interest expense ratably during the life of
the agreement.
On March 10, 2000, the Company entered into additional interest rate hedges
for a total notional amount of $1,500,000. The interest rate swaps and caps
are structured such that each hedge has a series of trigger levels in which
the hedge can become ineffective for any reset period that the 1-month LIBOR
rises above the trigger level; however, the Company has the option of choosing
to increase the trigger levels prior to that occurrence. If LIBOR resets below
the trigger level, the hedge becomes effective again. The Company paid
approximately $34,360 in premiums to enter into these contracts. As of June
30, 2000, the Company has received $3,647 in proceeds from these interest rate
hedges which has been reflected as a reduction to interest expense in the
accompanying statement of operations.
<TABLE>
<CAPTION>
Notional
Hedge Amount Terms Rate Trigger Level
----- -------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Interest Rate Swaps.............. $700,000 5 years 6.1% - 6.75% 7.0% - 8.5%
Interest Rate Caps............... $250,000 3 years 4.75% 7.50%
Interest Corridor................ $550,000 3 years 5.25% 7.50%
</TABLE>
9
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
In addition, the Company shortened the terms of three existing hedges and
received net proceeds of approximately $6,654. The proceeds received were
capitalized and are included in deferred expenses in the accompanying
condensed consolidated balance sheet. The proceeds will be amortized over the
remaining terms of the contracts as a reduction to interest expense. The
hedges were as follows:
<TABLE>
<CAPTION>
Notional Original Revised
Hedge Amount Maturity Maturity Rate
----- -------- -------- -------- -----
<S> <C> <C> <C> <C>
Interest Rate Swap.......................... $375,000 11/01/02 03/01/02 6.26%
Interest Rate Swap.......................... $125,000 11/01/02 03/01/02 5.56%
Interest Rate Swap.......................... $250,000 06/01/03 03/01/02 5.84%
</TABLE>
The fair value of interest rate swap and cap agreements and changes in the
fair value as a result of changes in market interest rates are not recognized
in the financial statements. The fair value on the Company's derivative
instruments was approximately $38,839 at June 30, 2000, which represents the
net proceeds the Company would receive if the derivatives were terminated.
6. Comprehensive Loss
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" establishes standards for reporting and displaying
comprehensive income and its components. Total comprehensive loss for the
periods are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net loss......................... $(46,517) $(877,230) $(34,920) $(876,658)
Unrealized gain on securities
available for sale.............. 343 898 480 862
Unrealized foreign exchange
loss............................ (5,246) (5,918) (4,225) (12,390)
-------- --------- -------- ---------
Total comprehensive loss....... $(51,420) $(882,250) $(38,665) $(888,186)
======== ========= ======== =========
</TABLE>
10
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
7. Computation of Earnings Per Share
Earnings per share have been computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
-------------------- ---------------------
Basic Diluted(1) Basic Diluted(1)
-------- ---------- --------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net loss........................... $(46,517) $(46,517) $(867,392) $(867,392)
Adjustment for equity forwards(2).. -- -- (10,977) (19,290)
Preferred stock dividends.......... (25,652) (25,652) (522) (522)
-------- -------- --------- ---------
Loss attributable to common
shareholders before extraordinary
item.............................. (72,169) (72,169) (878,891) (887,204)
Extraordinary loss................. -- -- (9,838) (9,838)
-------- -------- --------- ---------
Net loss attributable to common
shareholders...................... $(72,169) $(72,169) $(888,729) $(897,042)
======== ======== ========= =========
Weighted average number of common
shares outstanding................ 167,250 167,250 155,687 155,687
======== ======== ========= =========
Loss per share:
Loss before extraordinary item... $ (0.43) $ (0.43) $ (5.65) $ (5.70)
Extraordinary loss............... -- -- (0.06) (0.06)
-------- -------- --------- ---------
Net loss per share................. $ (0.43) $ (0.43) $ (5.71) $ (5.76)
======== ======== ========= =========
</TABLE>
--------
(1) For the three months ended June 30, 2000, the dilutive effect of unvested
stock grants of 745 and preferred stock of 124,646 were not included in the
computation of diluted earnings per share because they are anti-dilutive.
For the three months ended June 30, 1999, the dilutive effect of unvested
stock grants of 868, the option to purchase common stock of 24, and 9,552
of preferred shares were not included in the computation of diluted
earnings per share because they are anti-dilutive.
(2) The adjustment relates to the mark-to-market and yield adjustment for the
forward equity contracts, which could be settled in cash or stock, at the
Company's option.
11
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
-------------------- ---------------------
Basic Diluted(1) Basic Diluted(1)
-------- ---------- --------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net loss........................... $(34,920) $(34,920) $(866,820) $(866,820)
Adjustment for equity forwards(2).. -- -- (19,372) (39,322)
Preferred stock dividends.......... (50,867) (50,867) (901) (901)
-------- -------- --------- ---------
Loss attributable to common
shareholders before extraordinary
item.............................. (85,787) (85,787) (887,093) (907,043)
Extraordinary loss................. -- -- (9,838) (9,838)
-------- -------- --------- ---------
Net loss attributable to common
shareholders...................... $(85,787) $(85,787) $(896,931) $(916,881)
======== ======== ========= =========
Weighted average number of common
shares outstanding................ 167,227 167,227 155,340 155,340
======== ======== ========= =========
Loss per share:
Loss before extraordinary item... $ (0.51) $ (0.51) $ (5.71) $ (5.84)
Extraordinary loss............... -- -- (0.06) (0.06)
-------- -------- --------- ---------
Net loss per share................. $ (0.51) $ (0.51) $ (5.77) $ (5.90)
======== ======== ========= =========
</TABLE>
--------
(1) For the six months ended June 30, 2000, the dilutive effect of unvested
stock grants of 778, the option to purchase common stock of 169 and
preferred stock of 124,646 were not included in the computation of diluted
earnings per share because they are anti-dilutive. For the six months
ended June 30, 1999, the dilutive effect of unvested stock grants of 827,
the option to purchase common stock of 27, and 8,991 of preferred shares
were not included in the computation of diluted earnings per share because
they are anti-dilutive.
(2) The adjustment relates to the mark-to-market and yield adjustment for the
forward equity contracts, which could be settled in cash or stock, at the
Company's option.
8. Commitments and Contingencies
Future Earn-out Obligations
In connection with the acquisition of the partnership interests in SF Hotel
Company, L.P., the Company was subject to future purchase price adjustments.
The obligations related to the purchase price adjustments were payable in 2000
and 2001. Effective February 8, 2000, the Company paid an additional $32,825
to SF Hotel Company, L.P., an entity affiliated with Mr. Rolf Ruhfus, a
director of Wyndham, as additional consideration pursuant to the purchase
agreement. In addition, as a result of the Sierra transaction, the Company
will not be liable for any additional amounts due in 2000 or 2001.
As part of the merger with Wyndham Hotel Corporation, Patriot entered into
an Omnibus Purchase and Sale Agreement with various descendants of Mr. and
Mrs. Trammell Crow, and various corporations, partnerships, trusts and other
entities beneficially owned or controlled by such persons (collectively, the
"Crow Family Members"). As part of the agreement, Crow Family members and
certain Wyndham senior executives retained the right to receive additional
consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden LaGuardia as
set forth in the Omnibus Purchase and Sale Agreement. In April 2000, the
Company paid $9,556 and $7,156 respectively, as additional consideration.
12
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
Contingencies
On February 3, 1999, McNeill Investment Company, Inc. filed a lawsuit
against Patriot in the United States District Court for the Western District
of Pennsylvania. In the lawsuit, captioned McNeill Investment Company, Inc. v.
Patriot American Hospitality, Inc., No 99-165, the plaintiff alleges that
Patriot breached its obligations under a registration rights agreement that
Patriot became obligated under through its merger transaction with Interstate
Hotels Corporation. The plaintiff claims approximately $9 million in damages.
On or about May 8, 2000, the parties to the litigation participated in a
voluntary mediation in which they agreed to settle the dispute. The settlement
provides for a payment by Wyndham of $3 million, subject to a refund of up to
approximately $750,000, due May 25, 2001, depending on the amount by which
Wyndham's stock price increases between now and May 8, 2001.
On May 7, 1999, Doris Johnson and Charles Dougherty filed a lawsuit in the
Northern District of California against Patriot, Wyndham, their respective
operating partnerships and Paine Webber Group, Inc. This action, Johnson, et
al. v. Patriot American Hospitality, Inc. et al., C-99-2153, was commenced on
behalf of all former stockholders of Bay Meadows stock during a class period
from June 2, 1997 to the date of filing. The action asserts securities fraud
claims and alleges that the purported class members wrongfully were induced to
tender their Bay Meadows shares as part of the Cal Jockey Merger based on a
fraudulent prospectus. The action further alleges that defendants continued to
defraud shareholders about their intentions to acquire numerous hotels and
saddle the Company with massive debt during the class period. Three other
actions against the same defendants subsequently were filed in the Northern
District of California: (i) Ansell v. Patriot American Hospitality, Inc., et
al., No. C-99-2239 (filed May 14, 1999), (ii) Sola v. Paine Webber Group,
Inc., et al., No. C-99-2770 (filed June 11, 1999), and (iii) Gunderson v.
Patriot American Hospitality, Inc., et al., No. C 99-3040 (filed June 23,
1999). Another action with substantially identical allegations, Susnow v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1354-T (filed June 15,
1999), also subsequently was filed in the Northern District of Texas. The
complaints in these actions seek unspecified damages but assert that the
defendants are liable for the diminution in value of Patriot stock held by
class members during the class period. By order of the Judicial Panel on
Multidistrict Litigation, these actions along with certain actions identified
below have been consolidated in Northern District of California for
consolidated purposes. To date, none of the defendants have been required to
answer, move or otherwise respond to the complaints, and no discovery has been
taken. Wyndham plans to vigorously defend those lawsuits.
On or about June 22, 1999, a putative class action lawsuit, captioned
Levitch v. Patriot American Hospitality, Inc., et al., No. 3-99-CV1416-D, was
filed in the Northern District of Texas against Patriot, Wyndham, James D.
Carreker and Paul A. Nussbaum. This action asserts securities fraud claims and
alleges that, during the period from January 5, 1998 to December 17, 1998, the
defendants defrauded shareholders by issuing false statements about Wyndham.
The complaint was filed on behalf of all shareholders who purchased Patriot
and Wyndham stock during that period. Three other actions, Gallagher v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1429-L, (filed on June
23, 1999), David Lee Meisenburg v. Patriot American Hospitality, Inc., Wyndham
International, Inc. James D. Carreker, and Paul A. Nussbaum, No. 3-99-CV1686-
X, (filed July 27, 1999) and Deborah Szekely v. Patriot American Hospitality,
Inc., et al., No. 3-99-CV1866-D, (filed on or about August 27, 1999), allege
substantially the same allegations. The complaints in these actions seek
unspecified damages but assert that the defendants are liable for the
diminution in value of Patriot stock held by class members during the class
period. By order of the Judicial Panel on Multidistrict Litigation, these
actions have been consolidated with certain other stockholder actions and
transferred to the Northern District of California for consolidated pre-trial
purposes. To date, none of the defendants have been required to answer, move
or otherwise respond to the complaint, and no discovery has been taken.
Wyndham plans to vigorously defend those lawsuits.
13
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
Wyndham has received a draft complaint which threatens to assert claims on
behalf of Golden Door, LLC, Golden Springs, LLC, Golden Door, Inc., Deer
Springs Ranch, LLC, Deborah Szekely and Sarah Livia Brightwood. The potential
plaintiffs appear to be the same as the plaintiffs who filed the action
referenced above, Deborah Szekely v. Patriot American Hospitality, Inc., et
al., No. 3-99-CV1866-D, however the allegations of the complaints are not the
same. The draft complaint purports to assert claims against Patriot, Wyndham
and their respective operating partnerships for securities fraud under
California securities code, common law fraud, breach of fiduciary duty and
deceit in connection with the purchase of Patriot of the Golden Door Spa in
February 1998. The draft complaint seeks compensatory damages for the alleged
lost value of the potential plaintiff's stock and other unspecified damages.
Although the Company has received a draft complaint, to date no complaint has
been filed.
Patriot and PAH Stanley Ranch ("PAH") are engaged in a dispute with Carneros
Valley Investors involving a contract which calls for a purchase price of $14
million with and additional $5 million to be paid in PAH gets approval for a
development in the Napa Valley. PAH did not get approval for this development.
In September 1999, Carneros Valley Investors filed a complaint in the Superior
Court of California, San Francisco, which alleges that Patriot owes Carneros
Valley Investors $5 million and alleges that Patriot acted negligently,
fraudulently and in bad faith in attempting to get the approval for the
development. The complaint has been amended to allege fraud, purportedly
entitling the plaintiff to rescind the sale. Patriot has answered the
complaint, but to date, no discovery had been taken. A conditional settlement
of the case was reached on or about August 9, 2000, conditioned upon the sale
of the subject property to a third party to occur in December 2000. Further
prosecution of the case (by either party) is at a standstill pending the
closing of the sale. Wyndham intends to defend the suit vigorously should the
sale not occur or should the settlement otherwise not occur.
Patriot, IHC/Jacksonville Corporation and IHC Realty Partnership were
parties to a dispute with another limited partner of a partnership relating to
a proposed hotel development in Jacksonville, Florida. The case was captioned
C&M Investors Limited v. Patriot American Hospitality, Inc. et al., and was
originally filed in the Florida Circuit Court, Fourth Judicial Circuit, in and
for Duval County, Florida, but was later removed to the United States District
Court, Middle District of Florida, Jacksonville Division, Civil Action No. 98-
1236-Civ.-J- 20B. Patriot, IHC/Jacksonville Corporation, and IHC Realty
Partnership, L.P. (the "Defendants") vigorously defended the suit and on May
25, 2000, the Defendants entered into a settlement agreement with the
plaintiff C&M Investors Limited ("C&M") to settle and resolve all issues in
the suit. Pursuant to the settlement agreement, the suit was dismissed with
prejudice on May 31, 2000 and the Defendants received full and complete
releases from C&M. Pursuant to the settlement agreement, the Defendants also
received an option to purchase certain property in downtown Jacksonville,
Florida for an aggregate purchase price of $4 million less a $1.425 million
option payment made by the Defendants to C&M at the time of the settlement
agreement.
9. Dividends
On June 30, 2000, the Company paid a quarterly dividend, at an annual rate
of 9.75%, on its series A and B preferred stock. The dividend was paid partly
in cash and partly in additional shares of preferred stock. The Company paid a
total of $7,312 in cash and issued approximately 996 shares of series A
preferred stock and 182,400 shares of series B preferred stock.
On March 31, 2000, the Company paid a quarterly dividend, at an annual rate
of 9.75%, on its series A and B preferred stock. The dividend was paid partly
in cash and partly in additional shares of preferred stock. The Company paid a
total of $7,312 in cash and issued approximately 972 shares of series A
preferred stock and 178,062 shares of series B preferred stock.
14
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
10. Segment Reporting
The Company classifies its business into proprietary owned brands and non-
proprietary brand hotel divisions, under which it manages the business.
Wyndham is the umbrella brand under which all of its proprietary products
are marketed. It includes three four-star, upscale hotel brands that offer
full-service accommodations to business and leisure travelers, as well as the
five-star luxury resort brand.
Description of reportable segments
The Company has seven reportable segments: Wyndham Hotel & Resorts(R),
Wyndham Luxury Resorts, Summerfield Suites by WyndhamTM, Wyndham Gardens(R),
other proprietary branded hotel properties, non-proprietary branded hotel
properties and other.
. Wyndham Hotels & Resorts(R) are upscale, full-service hotel properties
that contain an average of 400 hotel rooms, generally between 15,000 and
250,000 square feet of meeting space and a full range of guest services
and amenities for business and leisure travelers, as well as conferences
and conventions. The hotels are located primarily in the central
business districts and dominant suburbs of major metropolitan markets
and are targeted to business groups, meetings, and individual business
and leisure travelers. These hotels offer elegantly appointed facilities
and high levels of guest service.
. Wyndham Luxury Resorts are five-star hotel properties that are
distinguished by their focus on incorporating the local environment into
every aspect of the property, from decor to cuisine to recreation. The
luxury collection includes the Golden Door Spa, one of the world's
preeminent spas.
. Wyndham Gardens(R) are full-service properties, which serve individual
business travelers and are located principally near major airports and
suburban business districts. Amenities and services generally include a
three-meal restaurant, signature Wyndham Garden(R) libraries and laundry
and room service.
. Summerfield Suites by WyndhamTM offers guests the highest quality
lodging in the upscale all suites segment. Each suite has a fully
equipped kitchen, a spacious living room and a private bedroom. Many
suites feature two bedroom, two bath units. The hotels also have a
swimming pool, exercise room and other amenities to serve business and
leisure travelers.
. Other proprietary branded hotel properties include Malmaison, Sierra
Suites, Clubhouse and hotels acquired in the Arcadian acquisition.
. Non-proprietary branded properties include all properties which are not
Wyndham branded hotel properties or other proprietary branded
properties. The properties consist of non-Wyndham branded assets, such
as Crowne Plaza(R), Embassy Suites(R), Marriott(R), Courtyard by
Marriott(R), Sheraton(R) and independents.
. Other includes management fee and service fee income, participating
lease revenues, racecourse facility revenue and expenses, interest and
other income, general and administrative costs, interest expense,
depreciation and amortization and other charges. General and
administrative costs, interest expenses and depreciation and
amortization are not allocated to each reportable segment; therefore,
they are reported in the aggregate within this segment.
Factors management used to identify the reportable segments
The Company's reportable segments are determined by brand affiliation and
type of property. The reportable segments are each managed separately due to
the specified characteristics of each segment.
15
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
Measurement of segment profit or loss
The Company evaluates performance based on the operating income or loss from
each business segment. The accounting policies of the reportable segments are
the same as those described in Note 1. The total revenue and operating income
(loss) for each segment for the three and six months ended June 30, 2000 and
1999, respectively, are as follows:
<TABLE>
<CAPTION>
Wyndham Wyndham Summerfield Other Non
Hotels & Luxury Wyndham Suites by Proprietary Proprietary
Resorts Resorts Gardens Wyndham Branded Branded Other Total
-------- ------- ------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
June 30, 2000
Total revenue........... $284,121 $27,395 $24,780 $36,445 $12,601 $246,670 $ 30,983 $ 662,995
Operating income
(loss)................. $ 75,941 $ 6,411 $ 4,298 $ 9,193 $ 3,646 $ 72,201 $(244,276) $ (72,586)
Three Months Ended
June 30, 1999
Total revenue........... $238,728 $22,684 $26,184 $33,628 $26,652 $280,455 $ 22,822 $ 651,153
Operating income
(loss)................. $ 62,234 $ 3,227 $ 6,820 $ 7,762 $ 8,091 $ 69,539 $(383,291) $ (225,618)
Six Months Ended
June 30, 2000
Total revenue........... $587,952 $57,496 $48,689 $69,743 $26,977 $478,216 $ 47,548 $1,316,621
Operating income
(loss)................. $172,334 $17,257 $ 9,011 $15,857 $ 7,451 $133,728 $(411,790) $ (56,152)
Six Months Ended
June 30, 1999
Total revenue........... $505,284 $51,280 $49,634 $65,023 $49,992 $545,950 $ 55,065 $1,322,228
Operating income
(loss)................. $151,933 $12,423 $12,155 $14,093 $13,794 $129,971 $(553,259) $ (218,890)
</TABLE>
The following table represents revenue information by geographic area for
the three and six months ended June 30, 2000 and 1999. Revenues are attributed
to the United States and its territories and Europe based on the location of
hotel properties.
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 Six months ended June 30, 2000
------------------------------ --------------------------------
United States Europe Total United States Europe Total
------------- ------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues....... $654,536 $ 8,459 $662,995 $1,300,113 $16,508 $1,316,621
<CAPTION>
Three Months Ended June 30,
1999 Six months ended June 30, 1999
------------------------------ --------------------------------
United States Europe Total United States Europe Total
------------- ------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues....... $631,104 $20,049 $651,153 $1,285,073 $37,155 $1,322,228
</TABLE>
11. Subsequent Events
On July 19, 2000, the Company announced it had amended its management
agreement for the Wyndham Anatole hotel. In consideration for the amendment,
the Company paid $67 million to the Crow Family members, owners of the hotel,
to include among other things, the extension of the term for an additional 20
years. In partial consideration for the amended management agreement, the
Company has also agreed to contribute $4 million to convert a portion of the
Verandah Club to a Golden Door City Spa and make a new loan in the principal
amount of $10 million to be applied to the costs of expanding a certain ball
room. The new loan shall bear interest at a rate of 12% and will mature upon
the expiration or termination of the amended management agreement. In
addition, the Company has extended the term of an existing $10 million loan
such that the maturity will be extended to the expiration or termination of
the amended management agreement.
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
Certain statements in this Form 10-Q constitute "forward-looking statements"
as that term is defined under (S)21E of the Securities and Exchange Act of
1934, as amended, and the Private Securities Litigation Reform Act of 1995.
The words "believe," "expect," "anticipate," "intend," "estimate" and other
expressions which are predictions of or indicate future events and trends and
which do not relate to historical matters identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements. Although forward-looking statements reflect management's good
faith beliefs, reliance should not be placed on forward-looking statements
because they involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of the Company
to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any forward-
looking statement, whether as a result of new information, future events or
otherwise. Certain factors that might cause a difference include, but are not
limited to, risks associated with the availability of equity or debt financing
at terms and conditions favorable to the Company, the Company's ability to
effect sales of assets on favorable terms and conditions, and risks associated
with the hotel industry and real estate markets in general and other risks set
forth under "Certain Risk Factors" in the Company's 1999 Annual Report on Form
10-K.
Results of operations:
Quarter ended June 30, 2000 compared with the quarter ended June 30, 1999
For the quarter ended June 30, 2000, hotel revenues were $632,012,000 as
compared to $628,332,000 during the quarter ended June 30, 1999. Hotel
revenues remained relatively stable between periods as increases during the
quarter from acquisitions and assets placed in service and increases in
revenues per available room ("RevPAR") throughout the Company's portfolio were
partially offset by the assets sales that have occurred during the last
twelve-month period and the spin-off of Interstate Hotel Corporation (the
"Interstate spin-off") which occurred on June 18, 1999.
Hotel expenses were $446,147,000 and $450,544,000 for the quarters ended
June 30, 2000 and 1999, respectively. As with revenues, expense increases
related to acquisitions and new assets placed in service but were offset by
asset sales during the previous twelve months.
Management fee and service fee income was $12,422,000 and $20,427,000 for
the quarters ended June 30, 2000 and 1999, respectively. The decrease is
primarily the result of the Interstate spin-off and the sale of the third
party management contracts included in the Sierra transaction on March 31,
2000.
Interest and other income was $18,561,000 and $2,139,000 for the quarters
ended June 30, 2000 and 1999, respectively. This increase was primarily due to
the recognition of a deferred termination fee of $14,746,000 resulting from
the termination of 17 management contracts in the second quarter of 2000.
General and administrative expenses were $28,867,000 and $60,962,000 for the
quarters ended June 30, 2000 and 1999 respectively. In 1999, as a result of
the Company's reorganization, the Company incurred significant costs relating
to the review of strategic alternatives and wrote-off costs related to a bond-
offering. These costs in the second quarter of 1999 totaled approximately
$16,225,000. In addition, in 1999 the Company incurred approximately
$12,892,000 of general and administrative expenses for divisional offices
located in Pittsburgh, Wichita, and Phoenix that were closed during the past
twelve months. In addition, management made efforts to streamline the
organization such as consolidating the Company's sales offices in Dallas and
eliminating certain layers of management.
17
<PAGE>
During the second quarter of 1999, the Company recorded $185,382,000 of
costs associated with the restructuring. The costs primarily consisted of the
following: $83,094,000 for the write off an intangible asset associated with
the paired share structure which was abandoned June 30, 1999, and $4,667,000
associated with severance payments due to the elimination of job
responsibilities. In addition, the Company reflected $82,299,000 in costs to
write-down assets to estimated fair values, including goodwill of $28,394,000
as a result of management's strategy to exit from the European market for non-
branded assets which will be sold, and $7,059,000 in staffing reductions and
other exit costs, primarily lease cancellations, necessary to reduce the
Company's infrastructure in Arcadian International, its management division in
Europe. Wyndham also recorded a charge of $8,263,000 for the write-off the
Carefree trade name.
Depreciation and amortization expense was $78,996,000 and $80,796,000 for
the quarters ended June 30, 2000 and 1999, respectively. The decrease in
depreciation was primarily due to the asset sales that have occurred during
the twelve month period, offset in part by the placement in service of
additional assets that were previously under development.
Interest expense was $93,427,000 and $90,985,000 for the quarters ended June
30, 2000 and 1999, respectively. Interest increased slightly due to higher
interest rate spreads on the current credit facility as compared to the old
credit facility, as well as a rise in interest rates. The Company's derivative
financial instruments in part negated the impact of these higher interest
rates.
The Company's share of equity in earnings from unconsolidated subsidiaries
was $3,479,000 and $1,230,000 for the quarters ended June 30, 2000 and 1999,
respectively. In 1999, the Company reflected a $1,401,000 loss from its non-
controlling interest in a hotel, which opened in the second quarter of 1999.
The losses for that hotel were due in large part to pre-opening costs that
were expensed when the hotel opened. In January 2000, the Company acquired the
controlling interest in that hotel.
The benefit (provision) for income taxes was $23,642,000 and ($645,496,000)
for the quarters ended June 30, 2000 and 1999, respectively. The change is due
in large part to a restructuring charge taken during the second quarter of
1999 in conjunction with the conversion of Patriot from a REIT to a
Corporation.
Minority interest's share of loss associated with the Operating Partnerships
was $4,684,000 for the quarter ended June 30, 1999. There was no minority
interest's share of the income (loss) associated with the operating
partnerships for the quarter ended June 30, 2000 due to amendments in the
partnership agreements at June 30, 1999 which amended the allocation of profit
and loss to the limited partners.
Minority interest's share of income in the Company's other consolidated
subsidiaries was $1,052,000 and $2,192,000 for the quarters ended June 30,
2000 and 1999, respectively. The reduction in the minority interest is due
primarily to the Company's acquisition of the limited partners' interest in 4
hotels during the second and third quarter of 1999.
For the quarter ended June 30, 2000, the Company recognized $77,300,000 of
impairment losses related to assets held for sale. In accordance with SFAS No.
121, when management identifies assets held for sale a fair value is
estimated. If the fair value of the asset is less than the carrying value
amount, a reserve for impairment is established.
In connection with the debt financing in 1999, the Company wrote off the
remaining balance of unamortized deferred financing costs associated with the
old credit facility, resulting in an extraordinary loss of $9,838,000, net of
minority interest and income taxes.
As a result, the net loss was $46,517,000 and $877,230,000 for the quarters
ended June 30, 2000 and 1999, respectively.
18
<PAGE>
Results of operations:
Six months ended June 30, 2000 compared with the six months ended June 30,
1999
Hotel revenues were $1,269,073,000 and $1,267,162,000 for the six months
ended June 30, 2000 and 1999, respectively. Although hotel revenues remained
relatively stable between periods, increases during the quarter from
acquisitions, assets placed in service, and increases in RevPAR throughout the
Company's portfolio were offset by the assets sales that have occurred during
the last twelve-month period and the Interstate spin-off.
Hotel expenses were $885,701,000 and $896,276,000 for the six months ended
June 30, 2000 and 1999, respectively. As with revenues, expense increases
related to acquisitions and new assets placed in service which were offset by
asset sales during the previous twelve months.
Management fee and service fee income was $25,022,000 and $43,218,000 for
the six months ended June 30, 2000 and 1999, respectively. The decrease is
primarily the result of the Interstate spin-off as well as the sale of the
third party management contracts in the Sierra transaction in the first
quarter of 2000.
Interest and other income was $22,526,000 and $6,699,000 for the six months
ended June 30, 2000 and 1999, respectively. This increase was primarily due to
the recognition of a deferred termination fee of $14,746,000 related to the
termination of 17 management contracts.
General and administrative expenses were $51,983,000 and $112,161,000 for
the six months ended June 30, 2000 and 1999 respectively. During 1999, as a
result of the $1 billion equity investment and the Company's reorganization,
the Company incurred significant costs relating to the review of strategic
alternatives and wrote-off costs related to a bond-offering. These costs for
the six months ended June 30, 1999 totaled approximately $16,225,000, while
minimal costs were incurred in 2000. Also as a part of the reorganization, two
key executives left during the first quarter of 1999, resulting in severance
costs of $10,182,000. In addition, in 1999 the Company incurred approximately
$26,819,000 of general and administrative expenses for divisional offices
located in Pittsburgh, Wichita, and Phoenix that were closed during the past
twelve months. Management also made efforts to streamline the organization
such as consolidating the Company's sales offices in Dallas and eliminating
certain layers of management.
During 1999, the Company recorded $185,382,000 of costs associated with the
restructuring. The costs primarily consisted of the following: $83,094,000 for
the write off an intangible asset associated with the paired share structure
which was abandoned June 30, 1999, and $4,667,000 associated with severance
payments due to the elimination of job responsibilities. In addition, the
Company reflected $82,299,000 in costs to write-down assets to estimated fair
values, including goodwill of $28,394,000 as a result of management's strategy
to exit from the European market for non-branded assets which will be sold,
and $7,059,000 in staffing reductions and other exit costs, primarily lease
cancellations, necessary to reduce Wyndham's infrastructure in Arcadian
International, its management division in Europe. Wyndham also recorded a
charge of $8,263,000 for the write-off of the Carefree trade name.
Depreciation and amortization expense was $158,447,000 and $156,905,000 for
the six months ended June 30, 2000 and 1999, respectively. The increase in
depreciation was primarily due to the increase in capital renovations during
the year, as well as the placement in service of additional assets that were
previously under development, offset in part by the asset sales that occurred
during the twelve-month period.
Interest expense was $185,290,000 and $181,200,000 for the six months ended
June 30, 2000 and 1999, respectively. The increase in interest expense is
primarily related to higher interest rate spreads on the current credit
facility as compared to the old credit facility and higher interest rates
during the first six months of 2000 as compared to 1999. The Company's
derivative financial instruments in part negated the impact of these higher
rates.
The benefit (provision) for income taxes was $20,697,000 and ($654,439,000)
for the six months ended June 30, 2000 and 1999, respectively. The change is
due in large part to a restructuring charge taken during the second quarter of
1999 in conjunction with the conversion of Patriot from a REIT to a
Corporation.
19
<PAGE>
Minority interest's share of loss associated with the Operating Partnerships
was $6,642,000 for the six months ended June 30, 1999. There was no minority
interest's share of the income (loss) associated with the operating
partnerships for the six months ended June 30, 2000 due to amendments in the
partnership agreements at June 30, 1999 which amended the allocation of profit
and loss to the limited partners.
Minority interest's share of income in the Company's other consolidated
subsidiaries was $3,434,000 and $4,064,000 for six months ended June 30, 2000
and 1999, respectively. The reduction in the minority interest is primarily to
the Company's acquisition of the limited partners' interest in 4 hotels during
the second and third quarter of 1999.
For the six months ended June 30, 2000, the Company recognized $77,300,000
of impairment losses related to assets held for sale. In accordance with SFAS
No. 121, when management identifies assets held for sale a fair value is
estimated. If the fair value of the asset is less than the carrying value
amount, a reserve for impairment is established.
In connection with the debt financing in 1999, the Company wrote off the
remaining balance of unamortized deferred financing costs associated with the
old credit facility resulting in an extraordinary loss of $9,838,000, net of
minority interest and income taxes.
As a result, the net loss was $34,920,000 and $876,658,000 for the six
months ended June 30, 2000 and 1999, respectively.
Results of reporting segments:
Quarter ended June 30, 2000 compared with the quarter ended June 30, 1999
The Company's results of operations are classified into seven reportable
segments. Those segments include Wyndham Hotel & Resorts(R), Wyndham Luxury
Resorts, Wyndham Gardens(R), Summerfield Suites by WyndhamTM, other
proprietary branded hotel properties, non-proprietary branded properties and
other.
Wyndham Hotels & Resorts(R) represent approximately 42.9% and 36.7% of total
revenue for the quarters ended June 30, 2000 and 1999, respectively. Total
revenue was $284,121,000 and $238,728,000 for the quarters ended June 30, 2000
and 1999, respectively. Operating income was $75,941,000 compared to
$62,234,000 for the quarters ended June 30, 2000 and 1999, respectively. The
increases in revenues and operating income can be primarily attributed to the
opening of several Wyndham branded hotels subsequent to the second quarter of
1999, including Wyndham Boston, Wyndham Downtown Atlanta, Wyndham Chicago, and
Wyndham Canal Place, coupled with strong operating performances of the hotels
with increased occupancy of 4.7% and increased average daily rate ("ADR") of
1.3%.
Wyndham Luxury Resorts represent approximately 4.1% and 3.5% of total
revenue for the quarters ended June 30, 2000 and 1999, respectively. Total
revenue was $27,395,000 and $22,684,000 for the quarters ended June 30, 2000
and 1999, respectively. The increase can be attributable in large part to
increases in REVPAR of 7.9%. Operating income was $6,411,000 compared to
$3,227,000 for the same periods, respectively.
Wyndham Gardens(R) represent approximately 3.7% and 4.0% of total revenue
for the quarters ended June 30, 2000 and 1999, respectively. Total revenue was
$24,780,000 and $26,184,000 for the quarters ended June 30, 2000 and 1999,
respectively. Operating income was $4,298,000 compared to $6,820,000 for the
same period respectively. Decreases in both revenue and operating income were
impacted by the sale of six Wyndham Garden hotels in June 2000.
Summerfield Suites by WyndhamTM represents approximately 5.5% and 5.2% of
total revenue for the quarters ended June 30, 2000 and 1999, respectively.
Total revenue was $36,445,000 and $33,628,000 for the quarters ended June 30,
2000 and 1999, respectively. Operating income was $9,193,000 compared to
$7,762,000 for the same periods, respectively. Revenues and operating results
remained relatively constant, increasing
20
<PAGE>
slightly between periods, as this segment experienced increase in both ADR and
occupancy of 2.9% and 0.8%, respectively.
Other proprietary branded properties, including Malmaison, Sierra Suites,
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 1.9% and 4.1% of total revenue for the quarters ended
June 30, 2000 and 1999, respectively. Total revenue was $12,601,000 and
$26,652,000 for the quarters ended June 30, 2000 and 1999, respectively.
Operating income for these properties was $3,646,000 compared to $8,091,000
for the quarters ended June 30, 2000 and 1999, respectively. The decrease in
both revenues and operating income was primarily as a result of the sale of 11
hotels in December 1999 acquired in the Arcadian acquisition, the sale of the
Sierra branded hotels in March 2000, and the sale of the Clubhouse branded
hotels in June 2000.
Non-proprietary branded properties, including Hilton(R), Holiday Inn(R),
Marriott(R), Ramada(R), Radisson(R), and other major hotel franchises,
represent approximately 37.2% and 43.1% of total revenue for the quarters
ended June 30, 2000 and 1999, respectively. Total revenue was $246,670,000
compared to $280,455,000 for the quarters ended June 30, 2000 and 1999,
respectively. The decrease is due primarily to the spin-off of several leases
in connection with the Interstate spin-off on June 18, 1999, as well as the
sale of non-proprietary branded assets throughout the year. The Interstate
spin-off had a significant impact on revenues for the period, but a nominal
impact on operating income, as during the first six months of 1999, the
entities that were spun-off were generating an operating loss. Operating
income for these properties was $72,201,000 and $69,539,000 for the quarter
ended June 30, 2000 and 1999, respectively.
Other represents revenue from various operating businesses including
management and other service companies, and participating lease revenue for
one hotel and a parcel of land. Expenses in this segment are primarily
interest, depreciation, amortization and corporate general and administrative
expenses. Total revenue for the other segment was $30,983,000 and $22,822,000
for the quarters ended June 30, 2000, and 1999, respectively. The overall
$8,161,000 increase was primarily the result of the recognition of a
$14,746,000 termination fee partially offset by the loss in revenues from
management contracts lost in both the Interstate spin-off and the Sierra
transaction. Operating losses for the segment were $244,276,000 and
$383,291,000 for the quarters ended June 30, 2000, and 1999, respectively. In
1999, the operating loss was impacted by the restructuring charges of
$185,382,000 which were a result of the termination of the paired share
structure and management's decision to streamline its organization and focus
on its core brands and strategic assets. This was in part offset by the
impairment loss recognized of $77,300,000 in the second quarter of 2000.
Results of reporting segments:
Six months ended June 30, 2000 compared with the six months ended June 30,
1999
The Company's results of operations are classified into seven reportable
segments. Those segments include Wyndham Hotel & Resorts(R), Wyndham Luxury
Resorts, Wyndham Gardens(R), Summerfield Suites by WyndhamTM, other
proprietary branded hotel properties, non-proprietary branded properties and
other.
Wyndham Hotels & Resorts(R) represent approximately 44.7% and 38.2% of total
revenue for the six months ended June 30, 2000 and 1999, respectively. Total
revenue was $587,952,000 and $505,284,000 for the six months ended June 30,
2000 and 1999, respectively. Operating income was $172,334,000 compared to
$151,933,000 for the six months ended June 30, 2000 and 1999, respectively.
The increases in revenues and operating income can be primarily attributed to
the opening of several Wyndham branded hotels subsequent to the second quarter
of 1999, including Wyndham Boston, Wyndham Downtown Atlanta, Wyndham Chicago,
and Wyndham Canal Place. This segment also had some improvement in both
occupancy of 1.3% and ADR of 0.3% for the six months ended June 30, 2000 as
compared to the same period in 1999.
Wyndham Luxury Resorts represent approximately 4.4% and 3.9% of total
revenue for the six months ended June 30, 2000 and 1999, respectively. Total
revenue was $57,496,000 and $51,280,000 for the six months ended June 30, 2000
and 1999, respectively. The increase can be attributed in large part to an
increase in REVPAR of 4.8%. Operating income was $17,257,000 compared to
$12,423,000 for the same period, respectively.
21
<PAGE>
Wyndham Gardens(R) represent approximately 3.7% and 3.8% of total revenue
for the six months ended June 30, 2000 and 1999, respectively. Total revenue
was $48,689,000 and $49,634,000 for the six months ended June 30, 2000 and
1999, respectively. Operating income was $9,011,000 compared to $12,155,000
for the same period respectively. Decreases in both revenue and operating
income were due primarily to the sale of six Wyndham Garden hotels in June of
2000.
Summerfield Suites by WyndhamTM represents approximately 5.3% and 4.9% of
total revenue for the six months ended June 30, 2000 and 1999, respectively.
Total revenue was $69,743,000 and $65,023,000 for the six months ended June
30, 2000 and 1999, respectively. Operating income was $15,857,000 compared to
$14,093,000 for the same periods, respectively. Revenues and operating results
remained relatively consistent between periods as a increase of ADR of 2.5%
was offset by a decrease in occupancy of 0.4%.
Other proprietary branded properties, including Malmaison, Sierra Suites,
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 2.0% and 3.8% of total revenue for the six months ended June 30,
2000 and 1999, respectively. Total revenue was $26,977,000 and $49,992,000 for
the six months ended June 30, 2000 and 1999, respectively. Operating income
for these properties was $7,451,000 compared to $13,794,000 for the quarters
ended June 30, 2000 and 1999, respectively. The decrease in both revenues and
operating income was primarily as a result of the sale of 11 hotels in
December 1999 acquired in the Arcadian acquisition, the sale of the Sierra
branded leaseholds in March 2000, and the sale of the Clubhouse branded hotels
in June 2000.
Non-proprietary branded properties, including Hilton(R), Holiday Inn(R),
Marriott(R), Ramada(R), Radisson(R), and other major hotel franchises,
represent approximately 36.3% and 41.3% of total revenue for the six months
ended June 30, 2000 and 1999, respectively. Total revenue was $478,216,000 and
$545,950,000 for the six months ended June 30, 2000 and 1999, respectively.
The decrease is due primarily to the spin-off of several leases in connection
with the Interstate spin-off, as well as the sale of non-proprietary branded
assets throughout the year. The Interstate spin-off had a significant impact
on revenues for the period, but a nominal impact on operating income, as
during the first six months of 1999, the entities that were spun-off were
generating an operating loss. Operating income for these properties was
$133,728,000 and $129,971,000 for the six months ended June 30, 2000 and 1999,
respectively.
Other represents revenue from various operating businesses including
management and other service companies, and participating lease revenue for
one hotel and a parcel of land. Expenses in this segment are primarily
interest, depreciation, amortization and corporate general and administrative
expenses. Total revenue for the other segment was $47,548,000 and $55,065,000
for the six months ended June 30, 2000, and 1999, respectively. The overall
$7,517,000 decrease in this segment's revenue was caused by decreases in
management and service fee income of $18,196,000 caused by the Interstate
spin-off and the sale of third party management contracts in the Sierra
transaction. This was offset by the recognition of a $14,746,000 termination
fee. Operating losses for the segment were $411,790,000 and $553,259,000 for
the six months ended June 30, 2000, and 1999, respectively. In 1999, the
operating loss was impacted by the restructuring charges of $185,382,000 which
were a result of the termination of the paired share structure and
management's decision to streamline its organization and focus on its core
brands and strategic assets. In addition, the loss was impacted by reductions
in general and administrative expenses as management made efforts to
streamline the organization such as consolidating the Company's divisional and
sales offices in Dallas and eliminating layers of management. In 2000,
however, the operating loss was impacted by $77,300,000 impairment reserve
loss recognized for certain assets held for sale.
22
<PAGE>
Statistical information
During 2000, the Company's portfolio of owned and leased hotels experienced
growth in both ADR and REVPAR of approximately 2.9% and 5.8% for the three
months ended June 30, 2000 and 2.3% and 3.4% for the six months ended June 30,
2000 as compared to the same periods in 1999, respectively. Occupancy also
increased during the periods by 2.8% and 1.1% for the three and six months
ended June 30, 2000 as compared to the same periods in 1999. Management
attributes these improvements to continued marketing efforts throughout the
portfolio on hotels that have been newly renovated, and repositioned in
certain cases, as well as to the current market conditions in the U.S. lodging
industry. The following table sets forth certain statistical information for
the Company's owned and leased hotels for the three and six months ended
June 30, 2000 and 1999 as if the hotels were owned at the beginning of the
periods presented.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------------------- -------------------------------------------
Occupancy ADR REVPAR Occupancy ADR REVPAR
----------- --------------- --------------- ----------- --------------- ---------------
2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999
----- ----- ------- ------- ------- ------- ----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wyndham Hotels &
Resorts................ 78.3% 74.8% $129.11 $127.47 $101.06 $ 95.33 75.0% 74.0% $137.93 $137.49 $103.45 $101.76
Wyndham Luxury Resorts.. 77.6% 73.5% $295.89 $289.42 $229.68 $212.83 74.5% 73.6% $337.10 $325.63 $251.24 $239.78
Wyndham Garden Hotels... 72.9% 70.8% $ 87.45 $ 90.03 $ 63.74 $ 63.76 69.6% 66.8% $ 89.01 $ 93.50 $ 61.96 $ 62.51
Summerfield Suites by
Wyndham................ 85.0% 84.4% $123.89 $120.42 $105.34 $101.61 81.4% 81.7% $123.73 $120.71 $100.66 $ 98.59
Other Proprietary
Branded Hotels......... 77.4% 73.3% $106.73 $108.48 $ 82.64 $ 79.51 73.7% 71.3% $108.90 $109.46 $ 80.24 $ 77.98
Non-Proprietary Branded
Hotels................. 75.2% 74.3% $109.77 $105.18 $ 82.57 $ 78.14 72.5% 72.1% $110.07 $105.82 $ 79.85 $ 76.38
----- ----- ------- ------- ------- ------- ----- ----- ------- ------- ------- -------
Weighted average........ 77.1% 75.0% $118.84 $115.49 $ 91.62 $ 86.64 74.1% 73.3% $122.92 $120.20 $ 91.02 $ 88.06
===== ===== ======= ======= ======= ======= ===== ===== ======= ======= ======= =======
</TABLE>
Restructuring Charges
During 1999, the Company recorded a restructuring charge of $285.3 million
as a result of the termination of the paired share structure and management's
decision to streamline its organization and focus on its core brands and
strategic assets. The restructuring activities primarily related to (1) the
termination of the paired share structure, (2) the exiting of the European
market for its non-branded assets, (3) the exiting of limited service hotel
sector, (4) the closure of the Phoenix division office, (5) the closure of the
Wichita division office, and (6) the elimination of certain brands. These
restructuring activities resulted in the write-down of assets held for sale to
estimated fair value and the write-down of intangible assets. The Company also
incurred costs to sever employees, lease abandonment costs, and other costs
relating to exiting these activities.
23
<PAGE>
During the first six months of 2000, continuing cash payments were made
against the accrued liability as shown in the table below. The remaining
accrual will be relieved throughout fiscal 2000, as leases expire and
severance payments are made. Detail of the 1999 restructuring charge is as
follows:
<TABLE>
<CAPTION>
Accrued Accrued
Cash/ Restructuring Balance Balance
Description Non-Cash Charge at 12/31/99 Activity at 6/30/00
----------- ------------- ------------- ----------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Organizational
Restructuring
Write-down of
intangible assets..... Non-cash $ (83,094) $ -- $ -- $ --
Severance packages..... Cash/non-cash (4,675) (500) -- (500)
Downsizing European
division
Write-down on assets
held for sale......... Non-cash (69,491) -- -- --
Write-down of
intangible assets..... Non-cash (28,394) -- -- --
Severance packages..... Cash (3,578) (2,458) 2,315 (143)
Lease cancellations and
commitments........... Cash (1,907) (1,907) 1,797 (110)
Other exit costs....... Cash (4,062) (2,408) 2,175 (233)
Exiting limited service
market sector
Write-down of assets
held for sale......... Non-cash (63,328) -- -- --
Write-down of
intangible assets..... Non-cash (8,834) -- -- --
Closing of the Phoenix
division office
Severance packages..... Cash (2,006) (312) 312 --
Lease cancellations and
commitments........... Cash (492) (321) 167 (154)
Closing of the Wichita
division office
Severance packages..... Cash (1,872) (1,872) 1,845 (27)
Elimination of certain
hotel brands
Write-down of
intangible assets..... Non-cash (12,821) -- -- --
Other
Other exit costs....... Cash (713) -- -- --
Effect of foreign
currency translation.. -- 8 (39) (31)
--------- ------- ------ -------
Total................... $(285,267) $(9,770) $8,572 $(1,198)
========= ======= ====== =======
</TABLE>
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 2000 were $102.6 million and
restricted cash was $131.7 million. Cash and cash equivalents as of June 30,
1999 were $158.6 million and restricted cash was $93.9 million.
Cash flow provided by operating activities
The Company's principal source of cash to fund operating expenses and pay
dividends on its preferred stock is cash flow provided by operating
activities. Wyndham's principal source of cash flow is from the operation of
the hotels that it owns, leases and manages. Cash flows from operating
activities were $100.0 million for the six months ended June 30, 2000 and
$127.1 million for the six months ended June 30, 1999.
Cash flows from investing and financing activities
Cash flows provided by investing activities were $29.5 million for the six
months ended June 30, 2000, resulting primarily from the proceeds from asset
sales during the year, partially offset by the acquisition of hotel
properties, improvements and additions to hotel properties and the payment of
a contingent liability. Cash flows used by financing activities of $171.2
million for the six months ended June 30, 2000 resulted primarily from the
repayment of debt and dividend payments made on preferred stock. In addition,
the Company paid $34.4 million in premiums to enter into financial derivatives
with a total notional amount of $1.5 billion to limit its exposure to rising
interest rates.
Cash flows used in investing activities were $142.1 million for the six
months ended June 30, 1999, resulting primarily from the acquisition of hotel
properties, property renovations and improvements, and cash deposited as
escrows and property improvement reserves. Cash flows provided by financing
activities of $50.5
24
<PAGE>
million for the six months ended June 30, 1999 were primarily related to the
net proceeds from the sale of the series B preferred stock, the net proceeds
from the new credit facility and the net proceeds from the new mortgage debt,
partially offset by the repayment of the old credit facility, term loans, and
the settlement of the forward equity contracts.
The Company does not anticipate paying a dividend to its common
shareholders. However, for the first six years, beginning September 30, 1999,
dividends on the preferred stock are structured to ensure an aggregate fixed
cash dividend payment of $29.25 million per year, so long as there is no
redemption or conversion of the preferred stock; therefore, for that period,
dividends are payable partly in cash and partly in additional shares of
preferred stock. For the following four years, dividends are payable in cash
or additional shares of convertible preferred stock as determined by the Board
of Directors. After year ten, dividends are payable solely in cash.
As of June 30, 2000, the Company had approximately $1.3 billion outstanding
under its term loan, $650 million outstanding under its increasing rate loan
facility, and $185 million outstanding under its revolving credit facility.
Additionally, the Company had outstanding letters of credit totaling $21.4
million. As of June 30, 2000, the Company also had over $1.4 billion of
mortgage debt outstanding that encumbered 67 hotels and approximately $45.0
million in other debt and capital lease obligations, resulting in total
indebtedness of approximately $3.6 billion. As of June 30, 2000, the Company
had $293.6 million of additional availability under the revolving credit
facility.
Renovations and capital improvements
During the first six months of 2000, the Company invested approximately
$68.5 million in capital improvements and renovations. During 2000, the
capital expenditures include (i) costs related to converting hotels to one of
the Company's proprietary brands, (ii) costs related to converting certain
Wyndham Garden hotels to Wyndham hotels, (iii) costs related to enhancing the
revenue-producing capabilities of the Company's hotels, and (iv) costs related
to recurring maintenance reserves capital expenditures. In addition, in April
2000, the Company paid an additional $16.7 million as additional purchase
consideration. (See Note 8).
The Company attempts to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to
the hotel's operations. Therefore, management does not believe such
renovations and capital improvements will have a material effect on the
results of operations of the hotels. Capital expenditures will be financed
through capital expenditure reserves or with working capital.
Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit the Company's ability to
raise room rates in the face of inflation.
Seasonality
The hotel industry is seasonal in nature; however, the periods during which
the Company's hotel properties experience higher revenues vary from property
to property and depend predominantly on the property's location. The Company's
revenues typically have been higher in the first and second quarters than in
the third or fourth quarters.
Newly Issued Accounting Standards
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") requires that all
derivative investments be recorded in the balance sheet at fair value. Changes
in the fair value of derivatives are recorded each period in current earnings
or comprehensive income depending on where a derivative is designated as part
of a hedge transaction, and the type of hedge transaction. Management has not
yet determined what effect SFAS 133 will have on the earnings and financial
position of the Company.
25
<PAGE>
During 1999, Financial Accounting Standards Board Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities--deferral of the
Effective Date of the Statement of Financial Accounting Standards No. 133"
("SFAS 137") was issued. This statement amended SFAS 133 by deferring the
effective date to fiscal quarters of all fiscal years beginning after June 15,
2000.
During 2000, Financial Accounting Standards Board Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging--an
Amendment to the Statement of Financial Accounting Standards No. 133" ("SFAS
138") was issued. This statement amends the accounting and reporting standards
of SFAS 133 for certain derivative instruments and certain hedging activities.
In December 1999, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). This SAB summarizes certain of the Staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company does not expect the provisions of SAB 101 to
have a material impact on its financial statements. In SAB 101B, the SEC
delayed the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999.
Item 3. Qualitative and Quantitative Disclosures about Market Risks
The Company's primary market risk exposure is to future changes in interest
rates related to its derivative financial instruments and other financial
instruments including debt obligations, interest rate swaps, interest rate
caps, and future debt commitments.
The Company manages its debt portfolio by periodically entering into
interest rate swaps and caps to achieve an overall desired position of fixed
and floating rates or to limit its exposure to rising interest rates.
The following table provides information about the Company's derivative and
other financial instruments that are sensitive to changes in interest rates.
. For fixed rate debt obligations, the table presents principal cash flows
and related weighted-average interest rates by expected maturity date
and contracted interest rates at June 30, 2000. For variable rate debt
obligations, the table presents principal cash flows by expected
maturity date and contracted interest rates at June 30, 2000.
. For interest rate swaps and caps, the table presents notional amounts
and weighted-average interest rates or strike rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the contract. Weighted
average variable rates are based on implied forward rates in the yield
curve at June 30, 2000.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Face Value Fair Value
------- -------- -------- -------- ---------- ---------- ---------- ----------
(in thousands, except for percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt
Long-term debt
obligations including
Current Portion
Fixed Rate............. $ 2,316 $ 17,175 $ 45,286 $ 5,848 $ 51,491 $ 254,962 $ 377,078 $ 360,075
Average Interest Rate.. 8.52% 7.89% 8.90% 8.54% 8.20% 8.21% 8.29%
Variable Rate.......... $13,879 $186,396 $284,382 $ 42,323 $1,243,991 $1,416,356 $3,187,327 $3,187,327
Average Interest Rate.. 8.08% 8.98% 9.57% 8.95% 10.13% 9.73% 9.61%
Interest Rate Derivative
Financial Instruments
Related to Debt
Interest Rate Swaps..... $72,000 $ 30,088 $750,000 $ -- $ -- $ 700,000 $1,552,088 $ 11,701
Pay Fixed/Receive
Variable
Average Pay Rate....... 6.25% 6.27% 6.29% 6.40% 6.60% 6.60%
Average Receive Rate... 6.49% 6.89% 6.91% 6.96% 7.04% 7.16%
Interest Rate Caps
Notional Amount........ $ -- $ 57,347 $550,000 $250,000 $ 340,265 $ -- $1,197,612 $ 27,138
Strike Rate............ 5.78% 5.78% 5.97% 6.12% 7.12% --
Forward Rate........... 6.49% 6.89% 6.91% 6.96% 7.04% --
</TABLE>
26
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On February 3, 1999, McNeill Investment Company, Inc. filed a lawsuit
against Patriot in the United States District Court for the Western District
of Pennsylvania. In the lawsuit, captioned McNeill Investment Company, Inc. v.
Patriot American Hospitality, Inc., No 99-165, the plaintiff alleges that
Patriot breached its obligations under a registration rights agreement that
Patriot became obligated under through its merger transaction with Interstate
Hotels Corporation. The plaintiff claims approximately $9 million in damages.
On or about May 8, 2000, the parties to the litigation participated in a
voluntary mediation in which they agreed to settle the dispute. The settlement
provides for a payment by Wyndham of $3 million, subject to a refund of up to
approximately $750,000, due May 25, 2001, depending on the amount by which
Wyndham's stock price increases between now and May 8, 2001.
On May 7, 1999, Doris Johnson and Charles Dougherty filed a lawsuit in the
Northern District of California against Patriot, Wyndham, their respective
operating partnerships and Paine Webber Group, Inc. This action, Johnson, et
al. v. Patriot American Hospitality, Inc. et al., C-99-2153, was commenced on
behalf of all former stockholders of Bay Meadows stock during a class period
from June 2, 1997 to the date of filing. The action asserts securities fraud
claims and alleges that the purported class members wrongfully were induced to
tender their Bay Meadows shares as part of the Cal Jockey Merger based on a
fraudulent prospectus. The action further alleges that defendants continued to
defraud shareholders about their intentions to acquire numerous hotels and
saddle the Company with massive debt during the class period. Three other
actions against the same defendants subsequently were filed in the Northern
District of California: (i) Ansell v. Patriot American Hospitality, Inc., et
al., No. C-99-2239 (filed May 14, 1999), (ii) Sola v. Paine Webber Group,
Inc., et al., No. C-99-2770 (filed June 11, 1999), and (iii) Gunderson v.
Patriot American Hospitality, Inc., et al., No. C 99-3040 (filed June 23,
1999). Another action with substantially identical allegations, Susnow v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1354-T (filed June 15,
1999), also subsequently was filed in the Northern District of Texas. The
complaints in these actions seek unspecified damages but assert that the
defendants are liable for the diminution in value of Patriot stock held by
class members during the class period. By order of the Judicial Panel on
Multidistrict Litigation, these actions along with certain actions identified
below have been consolidated in Northern District of California for
consolidated purposes. To date, none of the defendants have been required to
answer, move or otherwise respond to the complaints, and no discovery has been
taken. Wyndham plans to vigorously defend those lawsuits.
On or about June 22, 1999, a putative class action lawsuit, captioned
Levitch v. Patriot American Hospitality, Inc., et al., No. 3-99-CV1416-D, was
filed in the Northern District of Texas against Patriot, Wyndham, James D.
Carreker and Paul A. Nussbaum. This action asserts securities fraud claims and
alleges that, during the period from January 5, 1998 to December 17, 1998, the
defendants defrauded shareholders by issuing false statements about Wyndham.
The complaint was filed on behalf of all shareholders who purchased Patriot
and Wyndham stock during that period. Three other actions, Gallagher v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1429-L, (filed on June
23, 1999), David Lee Meisenburg v. Patriot American Hospitality, Inc., Wyndham
International, Inc. James D. Carreker, and Paul A. Nussbaum, No. 3-99-CV1686-
X, (filed July 27, 1999) and Deborah Szekely v. Patriot American Hospitality,
Inc., et al., No. 3-99-CV1866-D, (filed on or about August 27, 1999), allege
substantially the same allegations. The complaints in these actions seek
unspecified damages but assert that the defendants are liable for the
diminution in value of Patriot stock held by class members during the class
period. By order of the Judicial Panel on Multidistrict Litigation, these
actions have been consolidated with certain other stockholder actions and
transferred to the Northern District of California for consolidated pre-trial
purposes. To date, none of the defendants have been required to answer, move
or otherwise respond to the complaint, and no discovery has been taken.
Wyndham plans to vigorously defend those lawsuits.
Wyndham has received a draft complaint which threatens to assert claims on
behalf of Golden Door, LLC, Golden Springs, LLC, Golden Door, Inc., Deer
Springs Ranch, LLC, Deborah Szekely and Sarah Livia Brightwood. The potential
plaintiffs appear to be the same as the plaintiffs who filed the action
referenced above,
27
<PAGE>
Deborah Szekely v. Patriot American Hospitality, Inc., et al., No. 3-99-
CV1866-D, however the allegations of the complaints are not the same. The
draft complaint purports to assert claims against Patriot, Wyndham and their
respective operating partnerships for securities fraud under California
securities code, common law fraud, breach of fiduciary duty and deceit in
connection with the purchase of Patriot of the Golden Door Spa in February
1998. The draft complaint seeks compensatory damages for the alleged lost
value of the potential plaintiff's stock and other unspecified damages.
Although the Company has received a draft complaint, to date no complaint has
been filed.
Patriot and PAH Stanley Ranch ("PAH") are engaged in a dispute with Carneros
Valley Investors involving a contract which calls for a purchase price of $14
million with and additional $5 million to be paid in PAH gets approval for a
development in the Napa Valley. PAH did not get approval for this development.
In September 1999, Carneros Valley Investors filed a complaint in the Superior
Court of California, San Francisco, which alleges that Patriot owes Carneros
Valley Investors $5 million and alleges that Patriot acted negligently,
fraudulently and in bad faith in attempting to get the approval for the
development. The complaint has been amended to allege fraud, purportedly
entitling the plaintiff to rescind the sale. Patriot has answered the
complaint, but to date, no discovery had been taken. A conditional settlement
of the case was reached on or about August 9, 2000, conditioned upon the sale
of the subject property to a third party to occur in December 2000. Further
prosecution of the case (by either party) is at a standstill pending the
closing of the sale. Wyndham intends to defend the suit vigorously should the
sale not occur or should the settlement otherwise not occur.
Patriot, IHC/Jacksonville Corporation and IHC Realty Partnership were
parties to a dispute with another limited partner of a partnership relating to
a proposed hotel development in Jacksonville, Florida. The case was captioned
C&M Investors Limited v. Patriot American Hospitality, Inc. et al., and was
originally filed in the Florida Circuit Court, Fourth Judicial Circuit, in and
for Duval County, Florida, but was later removed to the United States District
Court, Middle District of Florida, Jacksonville Division, Civil Action No. 98-
1236-Civ.-J- 20B. Patriot, IHC/Jacksonville Corporation, and IHC Realty
Partnership, L.P. (the "Defendants") vigorously defended the suit and on May
25, 2000, the Defendants entered into a settlement agreement with the
plaintiff C&M Investors Limited ("C&M") to settle and resolve all issues in
the suit. Pursuant to the settlement agreement, the suit was dismissed with
prejudice on May 31, 2000 and the Defendants received full and complete
releases from C&M. Pursuant to the settlement agreement, the Defendants also
received an option to purchase certain property in downtown Jacksonville,
Florida for an aggregate purchase price of $4 million less a $1.425 million
option payment made by the Defendants to C&M at the time of the settlement
agreement.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
28
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Wyndham held its annual meeting of stockholders on May 26, 2000. During this
meeting, stockholders were asked to consider and vote upon three proposals: to
amend the Company's 1997 Incentive plan, to ratify the appointment of the
Company's independent auditors, and to elect certain individuals to the Board
of Directors. At the annual meeting, a total of 144,472,345 shares of class A
common stock (aggregated to 144,472,345 votes) and 9,610,856 shares of series
B preferred stock (equivalent to 111,883,819 votes) were present and entitled
to vote. The holders of Class A common stock and Series B preferred stock were
entitled to vote together on all matters presented at the meeting, except that
only holders of class A common stock were entitled to vote for the election of
class A directors and only holders of series B preferred stock were entitled
to vote for the election of class B directors. For each proposal, the results
of the shareholder voting were as follows:
<TABLE>
<CAPTION>
Votes Broker
Votes FOR AGAINST Abstaining Non-Votes
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1. To amend the Company's 1997
Incentive Plan, as amended and
restated as of June 29, 1999 to
increase the number of shares
available for issuance pursuant
to awards made under such
plan;.......................... 175,248,748 22,593,580 93,909 58,419,927
2. To ratify the appointment of
PricewaterhouseCoopers LLP as
the Company's independent
auditors for the 2000 fiscal
year;.......................... 256,099,869 208,723 47,572 --
3. To elect to Wyndham's Board of
Directors six directors,
consisting of three Class A
Directors, two Class B directors
and one Class C Director, to
serve until 2003 annual meeting
of stockholders or until their
respective sucessors are duly
elected and qualified, as
follows:
Class A Directors
Leonard Boxer.................. 142,435,936 2,036,409 -- --
Fred J. Kleisner............... 142,434,443 2,037,902 -- --
Rolf E. Ruhfus................. 142,435,208 2,037,137 -- --
Class B Directors
Marc J. Rowan.................. 111,882,992 827 -- --
Scott M. Sperling.............. 111,882,992 827 -- --
Class C Director
Paul Fribourg.................. 254,318,509 2,037,655 -- --
</TABLE>
The following directors shall continue in office after the Company's annual
meeting of stockholders held on May 26, 2000:
<TABLE>
<C> <S>
Class A Karim Alibhai, James D. Carreker, Milton Fine, Susan T. Groenteman
and Sherwood Weiser
Class B Leon D. Black, Thomas H. Lee, Alan M. Leventhal, William L. Mack, Lee
S. Neibert and Scott Schoen
Class C Norman Brownstein and Stephen T. Clark
</TABLE>
Item 5. Other Information
None.
29
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Item No. Description
-------- -----------
<C> <S>
10.1* Executive Employment Agreement, dated April 12, 2000 between Wyndham
and Theodore Teng.
10.2* Executive Employment Agreement, dated May 31, 2000 between Wyndham
and Richard A. Smith.
10.3* Executive Employment Agreement dated August 1, 2000 between Wyndham
and David W. Johnson.
27.1* Financial Data Schedule.
</TABLE>
--------
* Filed herewith
(b) Reports on Form 8-K for the quarter ended June 30, 2000.
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
Wyndham International, Inc.
/s/ Richard A. Smith
By __________________________________
Richard A. Smith
Executive Vice President and Chief
Financial Officer (Authorized
Officer and Principal
Accounting and Financial Officer)
DATED: August 14, 2000
31
