<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 September 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 November 8, 2000, was
167,887,537.
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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 September 30, 2000
(unaudited) and December 31, 1999 ..................................... 3
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2000 and 1999 (unaudited)................... 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited).......................... 5
Notes to Condensed Consolidated Financial Statements as of September 30,
2000 (unaudited)....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 19
Item 3. Qualitative and Quantitative Disclosures about Market Risks....... 29
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................................. 30
Item 2. Changes in Securities and Use of Proceeds......................... 31
Item 3. Defaults Upon Senior Securities................................... 31
Item 4. Submission of Matters to Vote of Security Holders................. 32
Item 5. Other Information................................................. 32
Item 6. Exhibits and Reports on Form 8-K:
Exhibits................................................................ 32
Reports on Form 8-K..................................................... 32
Signature................................................................. 33
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
WYNDHAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 102,178 $ 144,333
Restricted cash................................... 100,550 102,480
Accounts and lease revenue receivables............ 221,974 186,321
Inventories....................................... 20,965 23,304
Prepaid expenses and other assets................. 20,164 21,197
----------- -----------
Total current assets.............................. 465,831 477,635
----------- -----------
Investment in real estate and related improvements
net of accumulated depreciation of $655,859 in
2000 and $478,494 in 1999......................... 5,039,237 5,413,178
Investment in unconsolidated subsidiaries.......... 106,979 165,663
Notes and other receivables........................ 45,845 42,653
Management contract costs, net of accumulated
amortization of $31,637 in 2000 and $26,359 in
1999.............................................. 157,380 129,362
Leasehold costs, net of accumulated amortization of
$21,930 in 2000 and $15,305 in 1999............... 124,112 133,102
Trade names and franchise costs, net of accumulated
amortization of $15,864 in 2000 and $11,328 in
1999.............................................. 105,978 116,521
Deferred acquisition costs......................... 2,851 2,584
Goodwill, net of accumulated amortization of
$41,369 in 2000 and $30,141 in 1999............... 362,455 378,916
Deferred expenses, net of accumulated amortization
of $34,505 in 2000 and $46,614 in 1999............ 106,977 97,767
Other assets....................................... 47,905 46,109
----------- -----------
Total assets...................................... $ 6,565,550 $ 7,003,490
=========== ===========
LIABILITES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 229,294 $ 322,195
Deposits.......................................... 43,961 39,452
Current portion of borrowings under the credit
facility, term loans, mortgage notes and capital
lease obligations................................ 154,268 130,177
----------- -----------
Total current liabilities......................... 427,523 491,824
----------- -----------
Borrowings under the credit facility, term loans,
mortgage notes and capital lease obligations...... 3,398,043 3,513,379
Deferred income taxes.............................. 571,941 656,164
Deferred income.................................... 9,734 15,543
Minority interest in operating partnerships........ 22,146 22,435
Minority interest in other consolidated
subsidiaries...................................... 167,170 166,483
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
150,000,000 shares; shares issued and
outstanding: 10,894,960 in 2000 and 10,344,662 in
1999............................................. 109 103
Common stock, $0.01 par value; authorized:
750,000,000 shares; shares issued and
outstanding: 167,415,229 in 2000 and 167,193,696
in 1999.......................................... 1,674 1,672
Additional paid in capital........................ 3,809,656 3,753,235
Receivable from shareholders and affiliates....... (16,913) (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.. (593) (1,000)
Unrealized foreign exchange loss.................. (3,134) (7,576)
Accumulated deficit............................... (1,821,806) (1,591,307)
----------- -----------
Total shareholders' equity........................ 1,968,993 2,137,662
----------- -----------
Total liabilities and shareholders' equity........ $ 6,565,550 $ 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 Nine Months Ended
September 30, September 30,
------------------- ----------------------
2000 1999 2000 1999
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Hotel revenue................... $ 560,911 $562,720 $1,829,984 $1,829,882
Participating and land lease
revenue........................ -- 341 -- 929
Racecourse facility............. -- -- -- 4,561
Management fee and service fee
income......................... 9,215 13,968 34,237 57,186
Interest and other income....... 4,340 2,252 26,866 8,951
--------- -------- ---------- ----------
Total revenue................... 574,466 579,281 1,891,087 1,901,509
--------- -------- ---------- ----------
Expenses:
Hotel expenses.................. 421,959 430,070 1,309,949 1,327,485
Racing facility operations...... -- -- -- 3,867
General and administrative...... 23,257 31,538 72,951 142,560
Restructuring costs............. -- 3,906 -- 189,288
Interest expense................ 95,333 85,478 280,623 266,678
Depreciation and amortization... 79,631 75,653 238,078 232,558
Impairment loss on assets held
for sale....................... 134,016 -- 211,316 --
Net (gain) loss on sale of
assets......................... (9,305) (1,104) 4,747 4,223
--------- -------- ---------- ----------
Total expenses.................. 744,891 625,541 2,117,664 2,166,659
--------- -------- ---------- ----------
Operating loss................... (170,425) (46,260) (226,577) (265,150)
Equity in earnings (losses) of
unconsolidated subsidiaries.... 1,518 (931) 5,487 3,000
--------- -------- ---------- ----------
Loss before income taxes,
minority interests and
extraordinary item.............. (168,907) (47,191) (221,090) (262,150)
Income tax benefit (provision)... 51,952 3,386 72,649 (651,053)
--------- -------- ---------- ----------
Loss before minority interests
and extraordinary item.......... (116,955) (43,805) (148,441) (913,203)
Minority interest in the
operating partnerships.......... -- -- -- 6,642
Minority interest in other
consolidated subsidiaries....... (2,384) (760) (5,818) (4,824)
--------- -------- ---------- ----------
Loss before extraordinary item... (119,339) (44,565) (154,259) (911,385)
Extraordinary loss from early
extinguishment of debt, net of
minority interest and income
taxes........................... -- -- -- (9,838)
--------- -------- ---------- ----------
Net loss......................... (119,339) $(44,565) $ (154,259) $ (921,223)
========= ======== ========== ==========
Basic loss attributable to common
shareholders:
Net loss........................ $(119,339) $(44,565) $ (154,259) $ (921,223)
Adjustment for equity forwards.. -- -- -- (19,372)
Preferred stock dividends....... (26,099) (24,375) (76,968) (25,276)
--------- -------- ---------- ----------
Basic net loss.................. $(145,438) $(68,940) $ (231,227) $ (965,871)
========= ======== ========== ==========
Basic loss per common share:
Loss before extraordinary item.. $ (0.87) $ (0.41) $ (1.38) $ (6.00)
Extraordinary loss.............. -- -- -- (0.06)
--------- -------- ---------- ----------
Net loss per common share....... $ (0.87) $ (0.41) $ (1.38) $ (6.06)
========= ======== ========== ==========
Diluted loss attributable to
common shareholders:
Net loss........................ $(119,339) $(44,565) $ (154,259) $ (921,223)
Adjustment for equity forwards.. -- -- -- (39,322)
Preferred stock dividends....... (26,099) (24,375) (76,968) (25,276)
--------- -------- ---------- ----------
Diluted net loss................ $(145,438) $(68,940) $ (231,227) $ (985,821)
========= ======== ========== ==========
Diluted loss per common share:
Loss before extraordinary item.. $ (0.87) $ (0.41) $ (1.38) $ (6.13)
Extraordinary loss.............. -- -- -- (0.06)
--------- -------- ---------- ----------
Net loss per common share....... $ (0.87) $ (0.41) $ (1.38) $ (6.19)
========= ======== ========== ==========
</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>
Nine Months Ended
September 30,
---------------------
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(154,259) $ (921,223)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.......................... 238,078 232,558
Amortization of unearned stock compensation............ 255 5,697
Amortization of deferred loan costs.................... 19,855 29,633
Net loss on sale of assets............................. 4,747 4,223
Equity in earnings of unconsolidated subsidiaries...... (5,487) (3,000)
Minority interest in operating partnerships............ -- (6,642)
Minority interest in other consolidated subsidiaries... 5,818 4,824
Deferred income taxes.................................. (84,223) 622,025
Recognition of deferred termination fee................ (14,746) --
Write-off of deferred acquisition costs................ 1,283 --
Impairment loss on assets held for sale................ 211,316 53,524
Write-off of intangible assets......................... -- 119,751
Bad debt expense....................................... 1,405 5,495
Extraordinary loss from early extinguishment of debt... -- 9,838
Other.................................................. -- 602
Changes in assets and liabilities:
Accounts and lease revenue receivable and other
assets................................................ (29,089) (14,207)
Inventories............................................ 2,293 184
Accounts payable and accrued expenses.................. (43,576) (39,124)
Deferred income........................................ 8,937 --
--------- ----------
Net cash provided by operating activities.............. 162,607 104,158
--------- ----------
Cash flows from investing activities:
Acquisition of hotel properties and related working
capital assets........................................ (20,626) (69,951)
Cash received in acquisition of real estate and hotel
leases................................................ 609 1,100
Improvements and additions to hotel properties......... (124,309) (146,542)
Gross proceeds from asset sales........................ 227,814 70,108
Earnest deposit on assets held for sale................ 11,072 --
Payment of contingent liability........................ (32,825) --
Acquisition of management contracts.................... (67,008) (5,695)
Investment in unconsolidated subsidiaries.............. (10,763) (13,720)
Deferred acquisition costs............................. (1,550) (7,230)
Increase (decrease) in restricted cash accounts........ 1,929 (62,973)
Net payments collected from unconsolidated
subsidiaries.......................................... 11,886 --
Proceeds from termination of management contracts...... -- 16,086
Advances on other notes receivable..................... (1,309) (11,229)
Collections on mortgage and other notes receivable..... 457 4,654
Other.................................................. (22) 5,065
--------- ----------
Net cash used in investing activities.................. (4,645) (220,327)
--------- ----------
Cash flows from financing activities:
Borrowings under credit facility, term loans, mortgage
notes and capital lease obligations................... 452,081 2,718,430
Repayments on credit facility, mortgage notes, and
capital lease obligations............................. (597,237) (3,036,685)
Payment of deferred loan costs......................... (3,174) (107,244)
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.............. -- 1,000,000
Cost to retire Patriot series B preferred stock........ -- (13,966)
Cash settlement with Interstate upon spinoff........... -- (17,102)
Payment of offering costs.............................. -- (76,942)
Distribution to minority interest holders.............. (6,563) (23,168)
Dividends and distributions paid....................... (21,936) (8,211)
Other.................................................. -- 222
Foreign currency translation adjustment................ 4,418 994
--------- ----------
Net cash (used in) provided by financing activities.... (200,117) 106,847
--------- ----------
Net decrease in cash and cash equivalents............... (42,155) (9,322)
--------- ----------
Cash and cash equivalents at beginning of period........ 144,333 123,085
--------- ----------
Cash and cash equivalents at end of period.............. $ 102,178 $ 113,763
========= ==========
</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 (the "Company"), 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 REIT
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 September 30, 2000, the Company owned interests in 144 hotels with an
aggregate of over 40,300 guest rooms and leased 38 hotels from third parties
with over 5,800 guest rooms. In addition, the Company managed 38 hotels for
third party owners with over 12,300 guest rooms and franchised 29 hotels with
over 5,400 guest rooms.
Principles of consolidation and combination
The unaudited consolidated financial statements for September 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, after the elimination of all significant
intercompany accounts and transactions.
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 nine months ended September 30, 2000 are
6
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
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 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.
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. The Company will
adopt these standards effective January 1, 2001 and is currently assessing the
initial effects of adoption.
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.
2. Real Estate
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. The Company recorded a net loss of $1,682 net of impairment of
$2,330.
In addition, effective March 31, 2000, the Company sold its Sierra Suites
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
7
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
owned and three leased properties, seventeen franchise and management
contracts for Sierra Suites and nine management contracts for Summerfield
Suites. Pursuant to the purchase agreement, the Company received net cash
proceeds of $23,045 and relieved $29,770 of future obligations with respect to
a related agreement.
During the second quarter of 2000, the Company sold its interests in 17
hotels, including 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. The
Company recorded a net loss of $5,686, net of impairment of $64,492. 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 leases, yearly base rent aggregates $4,345 plus a
contingent rent paid based on a percentage of revenues over certain thresholds
as specified in the leases. The leases require the Company to pay
substantially all expenses associated with the operation of the leased hotels,
including real estate taxes and insurance.
During the third quarter of 2000, the Company sold two hotel properties and
two investments for a gross sales price of $32,769 and received net proceeds
of $27,448 and a note receivable of $4,319. The note bears interest at LIBOR
plus 2.75% per annum and matures March 31, 2001.
Assets held for sale
During the nine months ended September 30, 2000, the Company identified an
additional 20 owned hotel assets to be held for sale based on management
having the authority and intent of entering into commitments for sales
transactions expected to close in the next twelve months. The Company recorded
a provision for loss on eight of those assets held for sale of $157,775. The
provision reduces the carrying value to the estimated net sales proceeds less
estimated costs to sell.
At September 30, 2000, the Company has approximately $723,299, net of
impairment of $229,743, of assets held for sale which are included in
investments in real estate and related improvements in the accompanying
financial statements.
In addition, the Company recorded an additional provision for loss of
$53,541 as a result of changes in the estimated fair value of certain
investments held for sale. The impairment is included in investments in
unconsolidated subsidiaries in the accompanying financial statements.
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.
8
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
During the first nine 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 9/30/00
----------- ------------- ------------- ----------- -------- ----------
<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) 250 (250)
Downsizing European
division
Write-down of assets
held for sale.......... Non-cash (69,491) -- -- --
Write-down of intangible
assets................. Non-cash (28,394) -- -- --
Severance packages...... Cash (3,578) (2,458) 2,314 (144)
Lease cancellations and
commitments............ Cash (1,907) (1,907) 1,807 (100)
Other exit costs........ Cash (4,062) (2,408) 2,173 (235)
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) 214 (107)
Closing of the Wichita
division office
Severance packages...... Cash (1,872) (1,872) 1,872 --
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 (33) (25)
--------- ------- ------ -----
Total................... $(285,267) $(9,770) $8,909 $(861)
========= ======= ====== =====
</TABLE>
4. Credit Facility, Term Loans, Mortgage and Other Notes:
Effective September 25, 2000, the Company amended certain terms of its
credit agreement. As a part of the amendment, the applicable interest rate
margins of the $1,300,000 term loan would be increased by .50% if the balance
of the increasing rate term loans in the aggregate amount was greater than
$325,000, or .25% should the balance be equal to or less than $325,000. As of
September 30, 2000, the balance of the increasing rate loans was $650,000.
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.
9
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
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 acres of real property located in
Fajardo, Puerto Rico, adjacent to the Wyndham El Conquistador resort.
At September 30, 2000, the LIBOR rate was 6.62% and averaged 6.33% for the
nine months ended September 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
September 30, 2000, the Company has reflected a reduction of interest expense
of approximately $6,450 from the effectiveness of these hedges.
<TABLE>
<CAPTION>
Notional
Hedge Amount Terms Rate Trigger Level
----- -------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Interest Rate Swaps............ $700,000 5 years 6.10% - 6.75% 7.00% - 8.50%
Interest Rate Caps............. $250,000 3 years 4.75% 7.50%
Interest Corridor.............. $550,000 3 years 5.25% 7.50%
</TABLE>
The Company also 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>
10
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
In connection with the refinancing of El Conquistador, in July 2000, the
Company entered into two additional amortizing interest rate caps for notional
amounts of $106,000 and $10,000. The interest rate caps have an interest rate
of 9.75% and mature on July 1, 2005 and October 1, 2004, respectively.
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 unrealized loss on the Company's interest
rate swaps was approximately $822 at September 30, 2000, which represents the
amount the Company would pay if the interest rate swaps were terminated. The
fair value of the interest rate caps are based upon quoted market prices and
approximated $19,476 at September 30, 2000.
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 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net loss........................ $(119,339) $(44,565) $(154,259) $(921,223)
Unrealized (loss) gain on
securities available for sale.. (73) (676) 407 185
Unrealized foreign exchange gain
(loss)......................... 8,667 9,935 4,442 (2,455)
--------- -------- --------- ---------
Total comprehensive loss...... $(110,745) $(35,306) $(149,410) $(923,493)
========= ======== ========= =========
</TABLE>
7. Computation of Earnings Per Share
Earnings per share have been computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Month Ended
September 30, 2000 September 30, 1999
--------------------- --------------------
Basic Diluted(1) Basic Diluted(1)
--------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Net loss.......................... $(119,339) $(119,339) $(44,565) $(44,565)
Preferred stock dividends......... (26,099) (26,099) (24,375) (24,375)
--------- --------- -------- --------
Net loss attributable to common
shareholders..................... $(145,438) $(145,438) $(68,940) $(68,940)
========= ========= ======== ========
Weighted average number of common
shares outstanding............... 167,361 167,361 166,954 166,954
========= ========= ======== ========
Net loss per share................ $ (0.87) $ (0.87) $ (0.41) $ (0.41)
========= ========= ======== ========
</TABLE>
--------
(1) For the three months ended September 30, 2000, the dilutive effect of
unvested stock grants of 563, the option to purchase common stock of 460
and preferred stock of 126,833 were not included in the computation of
diluted earnings per share because they are anti-dilutive. For the three
months ended September 30, 1999, the dilutive effect of unvested stock
grants of 733, the option to purchase common stock of 19, and 116,414 of
preferred shares were not included in the computation of diluted earnings
per share because they are anti-dilutive.
11
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
--------------------- ---------------------
Basic Diluted(1) Basic Diluted(1)
--------- ---------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Net loss......................... $(154,259) $(154,259) $(911,385) $(911,385)
Adjustment for equity
forwards(2)..................... -- -- (19,372) (39,322)
Preferred stock dividends........ (76,968) (76,968) (25,276) (25,276)
--------- --------- --------- ---------
Loss attributable to common
shareholders before
extraordinary item.............. (231,227) (231,227) (956,033) (975,983)
Extraordinary loss............... -- -- (9,838) (9,838)
--------- --------- --------- ---------
Net loss attributable to common
shareholders.................... $(231,227) $(231,227) $(965,871) $(985,821)
========= ========= ========= =========
Weighted average number of common
shareholders outstanding........ 167,272 167,272 159,254 159,254
========= ========= ========= =========
Loss per share:
Loss before extraordinary
item.......................... $ (1.38) $ (1.38) $ (6.00) $ (6.13)
Extraordinary loss............. -- -- (0.06) (0.06)
========= ========= ========= =========
Net loss per share............... $ (1.38) $ (1.38) $ (6.06) $ (6.19)
========= ========= ========= =========
</TABLE>
--------
(1) For the nine months ended September 30, 2000, the dilutive effect of
unvested stock grants of 706, the option to purchase common stock of 288
and preferred stock of 126,833 were not included in the computation of
diluted earnings per share because they are anti-dilutive. For the nine
months ended September 30, 1999, the dilutive effect of unvested stock
grants of 795, the option to purchase common stock of 32, and 44,785 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
Interstate Hotels, LLC
Wyndham has agreed to the redemption of its aggregate 55% non-voting
economic interest in Interstate Hotels, LLC ("IH, LLC"), a principal operating
subsidiary of Interstate Hotel Corporation ("IHC"). At the closing of the
transaction, IH, LLC will cause certain management agreement assets to be
transferred to Wyndham in partial redemption of Wyndham's interest in IH, LLC.
Additionally, at the closing, a portion of the remainder of Wyndham's interest
will be converted into a preferred membership interest in IH, LLC. At any time
on or after July 1, 2001, both IH, LLC and Wyndham will have the right to
require that IH, LLC redeem the preferred membership interest for $12,682 to
be paid with a combination of cash and notes. The portion of Wyndham's
interest that is not redeemed at the closing or converted into a preferred
membership interest at the closing will remain outstanding after the preferred
membership interest is redeemed. At any time on or after July 1, 2004, both
IH, LLC and Wyndham will have the right to require that IH, LLC redeem the
remaining interest at an amount that is the lesser of (a) the product of (i)
five times IH, LLC's EBITDA as of December 31, 2003 and (ii) the percentage of
total equity interest in IH, LLC which is represented by the remaining
interest or (b) $433. As additional consideration for the redemption and
conversion of Wyndham's interest, Wyndham has agreed to cause its current
representative on IHC's Board of Directors to resign, to relinquish all of its
right to appoint a member to IHC's Board of Directors in the future, and to
grant IHC an option, exercisable within 90 days of closing, to acquire all of
Wyndham's stock in IHC. As a result, the Company recorded an impairment loss
of $29,285 on its investment in IH, LLC. (see note 12)
12
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
Earn-out Obligations
In connection with the acquisition of the partnership interest 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.
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, Old Wyndham, their respective
operating partnerships and Paine Webber Group, Inc. This action, Johnson v.
Patriot American Hospitality, Inc., et al., No. C-99-2153, was commenced on
behalf of all former holders 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 were wrongfully induced to tender
their shares as part of the Patriot/Bay Meadows 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
Patriot and Old Wyndham 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. By order
of the Judicial Panel on Multidistrict Litigation, these actions along with
certain actions identified below have been consolidated in the Northern
District of California for consolidated pretrial purposes. On or about
October 13, 2000, the defendants moved to dismiss the actions. The Court has
scheduled a hearing on motions to dismiss the actions for December 14, 2000.
Wyndham intends to defend the suits vigorously.
13
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
On or about June 22, 1999, a 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, Old 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 Patriot and Old Wyndham. The
complaint was filed on behalf of all shareholders who purchased Patriot and
Old 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, et al. v. Patriot American Hospitality,
Inc., Wyndham International, Inc., James D. Carreker, and Paul A. Nussbaum
Case 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. By orders of the
Judicial Panel on Multidistrict Litigation, these actions have been
consolidated with certain other shareholder actions and transferred to the
Northern District of California for consolidated pre-trial purposes. On or
about October 20, 2000, the defendants moved to dismiss the actions. The Court
has scheduled a hearing on motions to dismiss the actions for December 14,
2000. Wyndham intends to defend the suits vigorously.
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 by 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 an additional $5 million to be paid if 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
14
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
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.
On or about October 26, 2000, a demand for arbitration was filed on behalf
of John W. Cullen, IV, William F. Burruss, Heritage Hotel Management &
Investment Ltd. And GH-Resco, L.L.C. naming Wyndham International, Inc. f/k/a
Patriot American Hospitality, Inc. as respondent. The Demand for Arbitration
claims that the claimants and Wyndham are parties to a Contribution Agreement
dated February 28, 1997 and that Wyndham is in breach of that agreement.
Claimants assert that Wyndham breached its agreement to pay respondents
additional consideration under the Contribution Agreement by, among other
things, allegedly denying claimants compensation due to them in connection
with various transactions initiated by claimants and provided to Wyndham,
which allegedly provided Wyndham with growth and added revenue. In addition,
claimants assert that Wyndham failed to provide claimants with various other
amounts due under the Contribution Agreement, failed to indemnify claimants
for certain expenses and intentionally and negligently mismanaged Wyndham's
business. Claimants do not specify the amount of damages sought. To date,
Wyndham has not responded to the Demand for Arbitration. Wyndham intends to
defend the claims vigorously.
9. Related Party Transactions
In July 2000, the Company amended its management agreement for the Wyndham
Anatole hotel. In consideration for the amendment, the Company paid $67,000 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 $4,000 to convert a portion of the Verandah Club to a Golden Door
City Spa and make a new loan in the principal amount of $10,000 to be applied
to the costs of expanding a certain ballroom. The loan shall bear interest at
a rate of 12% per annum and will mature upon the expiration or termination of
the amended management agreement. In addition, the Company has extended the
term of an existing $10,000 loan to the expiration or termination of the
amended management agreement.
10. Dividends
On September 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 1,020 shares of series
A preferred stock and 186,846 shares of series B preferred stock.
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.
15
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
11. 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 brand umbrella 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 Wyndham(TM), 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 Wyndham(TM) 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. As of
September 30, 2000, the Company has sold its interests in Sierra Suite,
Clubhouse, and the hotels acquired in the Arcadian acquisition. In
addition, subsequent to September 30, 2000, the properties included in
Malmaison were sold.
. 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 expense 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.
16
<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 nine months ended September 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
September 30, 2000
Total revenue........... $254,009 $19,749 $19,287 $ 38,716 $ 8,227 $220,923 $ 13,555 $ 574,466
Operating income
(loss)................. $ 54,425 $ 2,107 $ 3,543 $ 8,234 $ 2,479 $ 55,265 $(296,478) $ (170,425)
Three Months Ended
September 30, 1999
Total revenue........... $223,597 $20,142 $23,030 $ 35,166 $29,112 $231,673 $ 16,561 $ 579,281
Operating income
(loss)................. $ 39,172 $ 1,700 $ 5,924 $ 7,974 $ 8,284 $ 58,591 $(167,905) $ (46,260)
Nine Months Ended
September 30, 2000
Total revenue........... $861,280 $77,244 $66,421 $108,460 $32,301 $684,278 $ 61,103 $1,891,087
Operating income
(loss)................. $236,142 $19,944 $12,388 $ 24,091 $ 8,660 $187,443 $(715,245) $ (226,577)
Nine Months Ended
September 30, 1999
Total Revenues.......... $745,295 $71,422 $70,673 $100,189 $79,104 $763,199 $ 71,627 $1,901,509
Operating income
(loss)................. $195,282 $14,123 $17,928 $ 22,067 $22,078 $184,536 $(721,164) $ (265,150)
</TABLE>
The following table represents revenue information by geographic area for
the three and nine months ended September 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 Nine months ended
September 30, 2000 September 30, 2000
------------------------- -----------------------------
United United
States Europe Total States Europe Total
-------- ------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $566,238 $ 8,228 $574,466 $1,866,351 $24,736 $1,891,087
<CAPTION>
Three Months Ended Nine months ended
September 30, 1999 September 30, 1999
------------------------- -----------------------------
United United
States Europe Total States Europe Total
-------- ------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $556,918 $22,363 $579,281 $1,841,991 $59,518 $1,901,509
</TABLE>
17
<PAGE>
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share amounts)
(unaudited)
12. Subsequent Events
On October 20, 2000, Wyndham announced it had agreed to the redemption of
its aggregate 55% non-voting economic interest in Interstate Hotels, LLC ("IH,
LLC"), a principal operating subsidiary of Interstate Hotel Corporation
("IHC"). At the closing of the transaction, IH, LLC will cause certain
management agreement assets to be transferred to Wyndham in partial redemption
of Wyndham's interest in IH, LLC. Additionally, at the closing, a portion of
the remainder of Wyndham's interest will be converted into a preferred
membership interest in IH, LLC. At any time on or after July 1, 2001, both IH,
LLC and Wyndham will have the right to require that IH, LLC redeem the
preferred membership interest for $12,682 to be paid with a combination of
cash and notes. The portion of Wyndham's interest that is not redeemed at the
closing or converted into a preferred membership interest at the closing will
remain outstanding after the preferred membership interest is redeemed. At any
time on or after July 1, 2004, both IH, LLC and Wyndham will have the right to
require that IH, LLC redeem the remaining interest at an amount that is the
lesser of (a) the product of (i) five times IH, LLC's EBITDA as of December
31, 2003 and (ii) the percentage of total equity interest in IH, LLC which is
represented by the remaining interest or (b) $433. As additional consideration
for the redemption and conversion of Wyndham's interest, Wyndham has agreed to
cause its current representative on IHC's Board of Directors to resign, to
relinquish all of its right to appoint a member to IHC's Board of Directors in
the future, and to grant IHC an option, exercisable within 90 days of closing,
to acquire all of Wyndham's stock in IHC. As a result, the Company recorded an
impairment loss of $29,285 on its investment in IH, LLC.
On November 6, 2000, Wyndham announced it completed the sale of the
Malmaison brand and hotel properties for gross proceeds of approximately
$111,000.
18
<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
on 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.
19
<PAGE>
Results of operations:
General
As of September 30, 2000, the Company had 182 owned and leased hotels with
46,100 guest rooms as compared to 214 owned and leased hotels with over 48,700
guest rooms at September 30, 1999. This reduction results from the sale of 36
hotels during the twelve-month period, partially offset by the acquisition and
development of 4 hotels during the period.
Quarter ended September 30, 2000 compared with the quarter ended September
30, 1999
Hotel revenues were $560,911,000 and $562,720,000 for the quarters ended
September 30, 2000 and 1999, respectively. Although hotel revenues remained
relatively stable between periods, hotel revenues associated with assets sales
have been in part offset by assets acquired and developed. Included in the
quarter ended September 30, 1999 were revenues of $35,247,000 associated with
assets that have subsequently been sold. Adjusted for the asset sales,
revenues actually increased by $33,438,000. This increase in revenue can be
attributed to revenues of $16,913,000 associated with four assets that were
developed and acquired subsequent to September 30, 1999. In addition, revenues
at two flagship hotels which opened in 1999 increased by $6,745,000 as
occupancy stabilized in 2000. The remainder of the increase in hotel revenues
can be attributed primarily to increases in revenues per available room
("RevPAR") throughout the Company's portfolio.
Hotel expenses were $421,959,000 and $430,070,000 for the quarters ended
September 30, 2000 and 1999, respectively. As with revenues, hotel expenses
remained relatively stable between periods, with the decline in expenses
related to asset sales offset in part by hotels acquired and developed during
the period. Included in the quarter ended September 30, 2000 were expenses of
$24,889,000 associated with assets that have been sold. Adjusted for asset
sales, expenses actually increased by $16,778,000. This increase in expenses
can be attributed primarily to expenses associated with four assets that were
developed and acquired subsequent to September 30, 1999.
Management fee and service fee income was $9,215,000 and $13,968,000 for the
quarters ended September 30, 2000 and 1999, respectively. The decrease is
primarily a result of the management contracts sold in the Sierra transaction
and the loss of a portfolio of 17 management contracts. For the quarter ended
September 30, 1999, fees earned from these contracts were $3,283,000 and
1,318,000, respectively.
General and administrative expenses were $23,257,000 and $31,538,000 for the
quarters ended September 30, 2000 and 1999, respectively. In the quarter ended
September 30, 1999, the Company incurred $2,028,000 of expenses associated
with becoming Year 2000 compliant, $2,000,000 of additional professional fees
related to the reorganization of the Company and $1,391,000 of costs related
to the Interstate spin-off transaction. In addition, included in the quarter
ended September 30, 1999 are $3,020,000 of general and administrative expenses
for divisional offices located in Wichita and Phoenix which have been
subsequently closed. Management has also made efforts to streamline the
organization such as consolidating the Company's sales offices in Dallas and
eliminating certain layers of management in an effort to reduce general and
administrative expenses.
Depreciation and amortization expense was $79,631,000 and $75,653,000 for
the quarters ended September 30, 2000 and 1999, respectively. The increase in
depreciation was primarily due to the placement in service of additional
assets that were previously under development and the capital improvements
made during the period, offset in part by the asset sales that have occurred
during the period.
During the quarter ended September 30, 1999, the Company recorded a
restructuring charge of $3,906,000 for the third quarter of 1999. Wyndham
recorded these costs primarily due to realignment of the luxury division. This
resulted in the closure of the Phoenix division office and costs associated
with severance payments for staffing reductions, and office lease cancellation
costs.
Interest expense was $95,333,000 and $85,478,000 for the quarters ended
September 30, 2000 and 1999, respectively. The increase in interest expense is
in part attributed to increase in LIBOR rates. The average LIBOR rates were
6.62% and 5.28% for the quarters ended September 30, 2000 and 1999,
respectively. The Company's
20
<PAGE>
derivative financial instruments in part negated the Company's exposure to the
rise in interest rates. However, the Company also had increases in the
amortization of loan costs associated with the amortization of the premiums
for the $1.5 billion in new derivatives acquired in March.
The Company's share of equity in earnings (losses) from unconsolidated
subsidiaries was $1,518,000 and $(931,000) for the quarters ended September
30, 2000 and 1999, respectively. The increase is due primarily from the
allocation of income from one of its investments which was in development in
1999 but in operation in 2000.
The benefit for income taxes was $51,952,000 and 3,386,000 for the quarters
ended September 30, 2000 and 1999, respectively. The change is due in part to
the charge taken in the third quarter of 2000 for the impairment of certain
assets held for sale.
During the quarter ended September 30, 2000, the Company realized gains on
the sale of assets of $9,305,000. During the quarter ended September 30, 1999,
the Company recognized gains of $1,104,000 on the sale of one hotel asset and
a parcel of land.
During the quarter ended September 30, 2000, the Company classified an
additional 15 assets as held for sale based on management having the authority
and intent of entering into commitments for sale transactions expected to
close in the next twelve months. Based on the estimated net sales proceeds,
the Company recorded a reserve for impairment for loss on real estate assets
held for sale of $82,163,000. The provision reduces the carrying value of six
owned hotels to the estimated net sales proceeds less estimated costs to sell.
In addition, the Company recorded a reserve for impairment for certain
investments held for sale of $51,853,000.
The resulting net loss for the quarter ended September 30, 2000, was
$119,339,000 compared to net loss of $44,565,000 for the quarter ended
September 30, 1999.
Results of operations:
Nine months ended September 30, 2000 compared with the nine months ended
September 30, 1999
Hotel revenues were $1,829,984,000 and $1,829,882,000 for the nine months
ended September 30, 2000 and 1999, respectively. Although hotel revenues
remained relatively stable between periods, increases during the nine months
ended September 30, 2000 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
spin-off of Interstate Hotel Corporation (the "Interstate spin-off") on June
18, 1999.
Hotel expenses were $1,309,949,000 and $1,327,485,000 for the nine months
ended September 30, 2000 and 1999, respectively. As with revenues, expenses
remained relatively stable between periods. The decrease in expenses resulting
from assets sales were offset by acquisitions and new assets placed in service
during the previous twelve months.
Management fee and service fee income was $34,237,000 and $57,186,000 for
the nine months ended September 30, 2000 and 1999, respectively. The decrease
is primarily the result of the loss of management contracts associated with
the Interstate spin-off, the sale of the third party management contracts in
the Sierra transaction in the first quarter of 2000, and the loss of a
portfolio of 17 management contracts during 2000.
Interest and other income was $26,866,000 and $8,951,000 for the nine months
ended September 30, 2000 and 1999, respectively. This increase was primarily
due to the recognition of a termination fee of $14,746,000 related to the
termination of 17 management contracts.
General and administrative expenses were $72,951,000 and $142,560,000 for
the nine months ended September 30, 2000 and 1999, respectively. The decrease
of expenses was primarily a result of expenditures incurred in 1999, in part
associated with the restructuring of the organization, but not incurred in
2000. Those costs were as follows:
. $6,737,000 due to the acceleration of vesting of employees' stock awards
21
<PAGE>
. $3,818,000 reviewing different strategic alternatives
. $4,681,000 in legal and unwind fees to settle the forward equity
contracts
. $3,710,000 associated with the write off of bond offering costs
. $5,095,000 of costs associated with the Interstate spin-off
. $5,228,000 of abandoned transaction costs
. $5,703,000 of costs associated with conversion costs and becoming year
2000 compliant
. $4,695,000 associated with the write-off of receivables from a managed
hotel in which Wyndham terminated the management contract
In addition, in 1999 the Company incurred approximately $28,068,000 of
general and administrative expenses for divisional offices located in
Pittsburgh, Wichita, and Phoenix. As those offices were closed during the past
twelve months, minimal costs were incurred during 2000. 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 the nine months ended September 30, 1999, Wyndham recorded
$189,288,000 of costs associated with the restructuring. The costs primarily
consisted of the following: $83,094,000 for the write off of an intangible
asset associated with the paired share structure which was abandoned on June
30, 1999, and $4,675,000 associated with severance payments due to the
elimination of job responsibilities. In addition, Wyndham reflected
$82,957,000 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 $7,226,000 in
staffing reductions and other exit costs, primarily lease cancellations,
necessary to reduce Wyndham's infrastructure in Arcadian International,
Wyndham's management division in Europe. Wyndham also recorded a charge of
$8,263,000 for the write-off of the Carefree trade name. In the third quarter,
Wyndham decided to close its Phoenix division office and recorded $2,500,000
of costs associated with severance, lease cancellations, and other exit costs,
and $573,000 of additional professional fees.
Depreciation and amortization expense was $238,078,000 and $232,558,000 for
the nine months ended September 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 $280,623,000 and $266,678,000 for the nine months ended
September 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 nine months of 2000 as compared to 1999. The Company's
derivative financial instruments in part negated the impact of these higher
rates. However, the Company also had increases in the amortization of loan
costs associated with the amortization of the premiums for the $1.5 billion in
new derivatives acquired in March.
The benefit (provision) for income taxes was $72,649,000 and ($651,053,000)
for the nine months ended September 30, 2000 and 1999, respectively. The
change in the provision is due to a 1999 charge of $675,000,000 due to Patriot
converting from a REIT to a C corporation, the restructuring of certain
special purpose controlled subsidiaries, which previously could not be
consolidated with Wyndham's taxable income or loss, and charges taken in 2000
for the impairment of certain assets held for sale.
Minority interest's share of loss associated with the operating partnerships
was $6,642,000 for the nine months ended September 30, 1999. There was no
minority interest's share of the income (loss) associated with the operating
partnerships for the nine months ended September 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.
During the nine months ended September 30, 2000, the Company realized losses
on the sale of assets of $4,747,000. During the nine months ended September
30, 1999, the Company recognized losses of $4,223,000 on the sale of assets.
22
<PAGE>
During the nine months ended September 30, 2000, the Company classified an
additional 20 assets as held for sale based on management having the authority
and intent of entering into commitments for sale transactions expected to
close in the next twelve months. Based on the estimated net sales proceeds,
the Company recorded a reserve for impairment for loss on real estate assets
held for sale of $157,775,000. The provision reduces the carrying value of the
eight owned hotels to the estimated net sales proceeds less estimated costs to
sell. In addition, the Company recorded a reserve for impairment on six
investments held for sale of $53,541,000.
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 $154,259,000 and $921,223,000 for the nine
months ended September 30, 2000 and 1999, respectively.
Results of reporting segments:
Quarter ended September 30, 2000 compared with the quarter ended September
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 Wyndham(TM), other
proprietary branded hotel properties, non-proprietary branded properties and
other.
Wyndham Hotels & Resorts(R) represent approximately 44.2% and 38.6% of total
revenue for the quarters ended September 30, 2000 and 1999, respectively.
Total revenue was $254,009,000 compared to $223,597,000 for the quarters ended
September 30, 2000 and 1999, respectively. Operating income was $54,425,000
compared to $39,172,000 for the quarters ended September 30, 2000 and 1999,
respectively. The increases in revenues and operating income can be primarily
attributed to the acquisition of three hotels that became Wyndham branded
hotels and the stabilization of revenues in 2000 for an additional two
flagship hotels which opened during 1999. The revenue increase attributed to
these five hotels was $22,393,000 for the quarter. The remaining increase can
be attributed to growth in the average daily rate ("ADR") and occupancy in
this segment during the quarter ended September 30, 2000.
Wyndham Luxury Resorts represent approximately 3.4% and 3.5% of total
revenue for the quarters ended September 30, 2000 and 1999, respectively.
Total revenue was $19,749,000 compared to $20,142,000 for the quarters ended
September 30, 2000 and 1999, respectively. The decrease in revenue between
quarters was in part a result of $1,650,000 of rollover membership fee revenue
and expense recorded in the third quarter of 1999 at the club of one of the
Wyndham Luxury Resorts. This resulted in an increase to both hotel revenues
and expenses in the third quarter 1999, with no impact to operating income.
Operating income was $2,107,000 compared to $1,700,000 for the same period,
respectively.
Wyndham Gardens(R) represents approximately 3.4% and 4.0% of total revenue
for the quarters September 30, 2000 and 1999, respectively. Total revenue was
$19,287,000 compared to $23,030,000 for the quarters ended September 30, 2000
and 1999, respectively. Operating income was $3,543,000 compared to $5,924,000
for the same period respectively. Decreases in both revenue and operating
income were primarily due to the sale of six Wyndham Garden hotels in June of
2000. Hotel revenue and operating income included in the quarter ended
September 30, 1999 for those assets sold were approximately $4,589,000 and
$1,426,000, respectively.
Summerfield Suites by Wyndham(TM) represents approximately 6.7% as compared
to 6.1% of total revenue for the quarters ended September 30, 2000 and 1999,
respectively. Total revenue was $38,716,000 compared to $35,166,000 for the
quarters ended September 30, 2000 and 1999, respectively. Operating income was
$8,234,000 compared to $7,974,000 for the same period, respectively. Revenues
and operating results remained relatively consistent, increasing slightly
between periods, as this segment experienced growth in occupancy of 7.2% with
only a slight decrease in ADR of 1.3%.
23
<PAGE>
Other proprietary branded properties, including Malmaison, Sierra Suites,
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 1.4% and 5.0% of total revenue for the quarters ended September
30, 2000 and 1999, respectively. Total revenue was $8,227,000 compared to
$29,112,000 for the quarters ended September 30, 2000 and 1999, respectively.
Operating income for these properties was $2,479,000 and $8,284,000 for the
quarters ended September 30, 2000 and 1999, respectively. The decrease in both
revenues and operating income was primarily 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 of 2000, and the sale of the Clubhouse branded hotels
in June of 2000. Hotel revenue and operating income included in the quarter
ended September 30, 1999 for those assets sold were approximately $20,590,000
and $6,429,000, respectively. Subsequent to September 30, 2000, the Malmaison
properties were sold.
Non-proprietary branded properties, including Hilton(R), Holiday Inn(R),
Marriott(R), Ramada(R), Radisson(R), and other major hotel franchises,
represent approximately 38.5% and 40.0% of total revenue for the quarters
ended September 30, 2000 and 1999, respectively. Total revenue was
$220,923,000 compared to $231,673,000 for the quarters ended September 30,
2000 and 1999, respectively. Operating income for these properties was
$55,265,000 and $58,591,000 for the quarter ended September 30, 2000 and 1999,
respectively. The decrease in both revenue and operating income is due
primarily to the sale of non-proprietary branded assets throughout the year.
Hotel revenue and operating income included in the quarter ended September 30,
1999 for those assets sold were approximately $10,067,000 and $3,493,000,
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 $13,555,000 and $16,561,000
for the quarters ended September 30, 2000, and 1999, respectively. The
$3,006,000 decrease was primarily the result of lost management fees from the
Sierra transaction. Operating losses for the segment were $296,478,000 and
$167,905,000 for the quarters ended September 30, 2000, and 1999,
respectively. In 2000, the operating loss was impacted by the impairment
reserve recognized of $134,016,000 in the third quarter of 2000.
Results of reporting segments:
Nine months ended September 30, 2000 compared with the nine months ended
September 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 Wyndham(TM), other
proprietary branded hotel properties, non-proprietary branded properties and
other.
Wyndham Hotels & Resorts(R) represent approximately 45.5% and 39.2% of total
revenue for the nine months ended September 30, 2000 and 1999, respectively.
Total revenue was $861,280,000 compared to $745,295,000 for the nine months
ended September 30, 2000 and 1999, respectively. Operating income was
$236,142,000 compared to $195,282,000 for the nine months ended September 30,
2000 and 1999, respectively. The increases in revenues and operating income
can be primarily attributed to the acquisition of three hotels which were
branded Wyndham hotels and the stabilization of revenues in 2000 for an
additional two flagship hotels which opened during 1999. The revenue increase
attributed to these five hotels was $74,313,000. This segment also had strong
improvement in both occupancy and ADR for the nine months ended September 30,
2000 as compared to the same period in 1999.
Wyndham Luxury Resorts represent approximately 4.1% and 3.8% of total
revenue for the nine months ended September 30, 2000 and 1999, respectively.
Total revenue was $77,244,000 compared to $71,422,000 for the nine months
ended September 30, 2000 and 1999, respectively. Operating income was
$19,944,000 compared to $14,123,000 for the same period, respectively. The
increases in revenues and operating income can be attributed in large part to
increases in ADR of 3.7% and occupancy of 1.2%.
24
<PAGE>
Wyndham Gardens(R) represent approximately 3.5% and 3.7% of total revenue
for the nine months ended September 30, 2000 and 1999, respectively. Total
revenue was $66,421,000 compared to $70,673,000 for the nine months ended
September 30, 2000 and 1999, respectively. Operating income was $12,388,000
compared to $17,928,000 for the same period respectively. Decreases in both
revenue and operating income were impacted by the sale of six Wyndham Garden
hotels in June of 2000. Total revenue included in the nine months ended
September 30, 2000 and 1999 for those assets sold was $7,444,000 and
$12,486,000, respectively. Operating income included in the nine months ended
September 30, 2000 and 1999 for those assets sold was $1,368,000 and
$3,541,000, respectively.
Summerfield Suites by Wyndham(TM) represent approximately 5.7% as compared
to 5.3% of total revenue for the nine months ended September 30, 2000 and
1999, respectively. Total revenue was $108,460,000 compared to $100,189,000
for the nine months ended September 30, 2000 and 1999, respectively. Operating
income was $24,091,000 compared to $22,067,000 for the same period,
respectively. Revenues and operating results increased slightly as there were
increases in ADR of 1.2% and occupancy of 2.2%.
Other proprietary branded properties, including Malmaison, Sierra Suites,
Clubhouse and hotels acquired in the Arcadian acquisition, represent
approximately 1.7% and 4.2% of total revenue for the nine months ended
September 30, 2000 and 1999, respectively. Total revenue was $32,301,000
compared to $79,104,000 for the nine months ended September 30, 2000 and 1999,
respectively. Operating income for these properties was $8,660,000 and
$22,078,000 for the nine months ended September 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 of 2000, and
the sale of the Clubhouse branded hotels in June of 2000. Total revenue
included in the nine months ended September 30, 2000 and 1999 for those assets
sold was $7,564,000 and $56,456,000, respectively. Operating income included
in the nine months ended September 30, 2000 and 1999 for those assets sold was
$1,780,000 and $16,311,000, respectively.
Non-proprietary branded properties, including Hilton(R), Holiday Inn(R),
Marriott(R), Ramada(R), Radisson(R), and other major hotel franchises,
represent approximately 36.2% and 40.1% of total revenue for the nine months
ended September 30, 2000 and 1999, respectively. Total revenue was
$684,278,000 compared to $763,199,000 for the nine months ended September 30,
2000 and 1999, respectively. Operating income for these properties was
$187,443,000 and $184,536,000 for the nine months ended September 30, 2000 and
1999, respectively. The decrease in both revenue and operating income 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. Total revenue included in the nine months ended
September 30, 2000 and 1999 for those assets sold was $13,977,000 and
$121,924,000, respectively. Operating income included in the nine months ended
September 30, 2000 and 1999 for those assets sold was $2,927,000 and
$12,315,000, respectively. This decrease resulting from the sale of these
assets was in part offset due to increases in ADR of 3.7% and occupancy by
1.2%.
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 $61,103,000 and $71,627,000
for the nine months ended September 30, 2000, and 1999, respectively. The
$10,524,000 decrease in this segment's revenue was caused primarily by
decreases in management and service fee income from the Interstate spin-off
and the sale of third party management contracts in the Sierra transaction.
This was partially offset by the recognition of a $14,746,000 termination fee.
Operating losses for the segment were $715,245,000 and $721,164,000 for the
nine months ended September 30, 2000, and 1999, respectively. In 1999, the
operating loss was impacted by the restructuring charges of $189,288,000 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 $238,078,000 impairment reserve
recognized for certain assets held for sale.
25
<PAGE>
Statistical information
During 2000, the Company's portfolio of owned and leased hotels experienced
growth in both ADR and REVPAR of approximately 3.2% and 7.0% for the three
months ended September 30, 2000 and 2.5% and 4.6% for the nine months ended
September 30, 2000 as compared to the same periods in 1999, respectively.
Occupancy also increased during the periods by 3.7% and 1.9% for the three and
nine months ended September 30, 2000 as compared to the same period in 1999.
Management attributes this 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 nine months ended
September 30, 2000 and 1999 as if the hotels were owned at the beginning of
the periods presented.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine months ended September 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................ 74.6% 71.1% $118.56 $114.56 $ 88.43 $ 81.47 74.9% 73.0% $130.47 $128.56 $ 97.69 $ 93.85
Wyndham Luxury Resorts.. 71.4% 70.6% $250.41 $240.56 $178.70 $169.72 73.5% 72.6% $308.83 $297.77 $226.88 $216.17
Wyndham Garden Hotels... 71.2% 69.0% $ 90.64 $ 90.35 $ 64.56 $ 62.34 69.8% 67.7% $ 90.76 $ 93.26 $ 63.38 $ 63.15
Summerfield Suites by
Wyndham................ 88.8% 82.8% $125.33 $126.92 $111.33 $105.14 83.9% 82.1% $124.30 $122.83 $104.25 $100.81
Other Proprietary
Branded Hotels......... 86.2% 84.7% $124.92 $121.65 $107.74 $103.14 81.6% 83.9% $126.33 $124.23 $103.13 $104.30
Non-Proprietary Branded
Hotels................. 74.2% 72.8% $107.18 $103.21 $ 79.53 $ 75.11 72.9% 72.0% $108.99 $105.09 $ 79.46 $ 75.70
---- ---- ------- ------- ------- ------- ---- ---- ------- ------- ------- -------
Weighted average....... 75.4% 72.7% $113.92 $110.37 $ 85.93 $ 80.29 74.5% 73.1% $120.11 $117.15 $ 89.48 $ 85.58
==== ==== ======= ======= ======= ======= ==== ==== ======= ======= ======= =======
</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.
26
<PAGE>
During the first nine 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
Restructuring Balance Balance
Description Cash/Non-Cash Charge at 12/31/99 Activity at 9/30/00
----------- ------------- ------------- ----------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Organizational Restruc-
turing
Write-down of intangible
assets................. Non-cash $ (83,094) $ -- $ -- $ --
Severance packages...... Cash/non-cash (4,675) (500) 250 (250)
Downsizing European di-
vision
Write-down of assets
held for sale.......... Non-cash (69,491) -- -- --
Write-down of intangible
assets................. Non-cash (28,394) -- -- --
Severance packages...... Cash (3,578) (2,458) 2,314 (144)
Lease cancellations and
commitments............ Cash (1,907) (1,907) 1,807 (100)
Other exit costs........ Cash (4,062) (2,408) 2,173 (235)
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) 214 (107)
Closing of the Wichita
division office
Severance packages...... Cash (1,872) (1,872) 1,872 --
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 (33) (25)
--------- ------- ------ -----
Total................... $(285,267) $(9,770) $8,909 $(861)
========= ======= ====== =====
</TABLE>
Liquidity and Capital Resources
Cash and cash equivalents as of September 30, 2000 was $102.2 million and
restricted cash was $100.6 million. Cash and cash equivalents as of September
30, 1999 was $113.8 million and restricted cash was $102.3 million.
Cash flows 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. Cash flows from operating activities were $162.6 million for the
nine months ended September 30, 2000 and $104.2 million for the nine months
ended September 30, 1999.
Cash flows from investing and financing activities
Cash flows used in investing activities were $4.6 million for the nine
months ended September 30, 2000. Sources of cash resulting from the proceeds
of asset sales during the year were offset by uses of cash for the amendment
of the Wyndham Anatole management contract, payment of additional purchase
consideration in connection with the acquisition of SF Hotel Company, L.P.
(see Note 8), and capital improvements and renovations at the hotel
properties. Cash flows used by financing activities were $200.1 million for
the nine months ended September 30, 2000. This primarily was a result of 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 of Wyndham were $220.3 million for
the nine months ended September 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 $106.8 million for the nine months ended
September 30, 1999 were primarily related to
27
<PAGE>
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 September 30, 2000, the Company had approximately $1.3 billion
outstanding under the term loan, $650 million outstanding under the increasing
rate loan facility, and $184 million outstanding under the revolving credit
facility. Additionally, the Company had outstanding letters of credit totaling
$23.3 million. As of September 30, 2000, the Company also had approximately
$1.4 billion of mortgage debt outstanding that encumbered 67 hotels and
approximately $43.8 million in other debt and capital lease obligations,
resulting in total indebtedness of approximately $3.6 billion. As of September
30, 2000, the Company had $292.7 million of additional availability under the
revolving credit facility.
Renovations and capital improvements
During the first nine months of 2000, the Company invested approximately
$124.3 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. The Company will
adopt these standards effective January 1, 2001 and is currently assessing the
initial effects of adoption.
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
28
<PAGE>
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 September 30, 2000. For variable rate
debt obligations, the table presents principal cash flows by expected
maturity date and contracted interest rates at September 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 September 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............. $ 2,181 $ 18,617 $ 46,693 $ 7,113 $ 52,638 $ 289,203 $ 416,445 $ 396,543
Average Interest Rate.. 8.92% 8.02% 8.92% 8.71% 8.23% 8.37% 8.40%
Variable Rate.......... $ 2,252 $188,563 $280,787 $ 41,189 $1,241,098 $1,381,977 $3,135,866 $3,135,866
Average Interest Rate.. 9.53% 9.53% 10.07% 9.04% 10.17% 10.86% 10.33%
Interest Rate Derivative
Financial Instruments
Related to Debt
Interest Rate Swaps
Notional Amount........ $72,000 $ 29,905 $750,000 $ -- $ -- $ 700,000 $1,551,905 ($822)
Pay Fixed/Receive
Variable...............
Average Pay Rate....... 6.25% 6.27% 6.29% 6.60% 6.60% 6.60%
Average Receive Rate... 6.46% 6.43% 6.40% 6.56% 6.70% 6.85%
Interest Rate Caps
Notional Amount........ -- $ 57,219 $550,000 $250,000 $ 340,090 $ 115,648 $1,312,957 $ 19,476
Strike Rate............ 5.78% 5.78% 5.70% 6.12% 7.12% 9.75%
Forward Rate........... 6.46% 6.43% 6.40% 6.56% 6.70% 6.85%
</TABLE>
29
<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, Old Wyndham, their respective
operating partnerships and Paine Webber Group, Inc. This action, Johnson v.
Patriot American Hospitality, Inc., et al., No. C-99-2153, was commenced on
behalf of all former holders 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 were wrongfully induced to tender
their shares as part of the Patriot/Bay Meadows 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
Patriot and Old Wyndham 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. 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 pretrial purposes. On or about October 13,
2000, the defendants moved to dismiss the actions. The Court has scheduled a
hearing on motions to dismiss the actions for December 14, 2000. Wyndham
intends to defend the suits vigorously.
On or about June 22, 1999, a 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, Old 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 the Company. The complaint was
filed on behalf of all shareholders who purchased Patriot and Old 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, et al. v. Patriot American Hospitality, Inc., Wyndham
International, Inc., James D. Carreker, and Paul A. Nussbaum Case 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. By orders of the Judicial
Panel on Multidistrict Litigation, these actions have been consolidated with
certain other shareholder actions and transferred to the Northern District of
California for consolidated pre-trial purposes. On or about October 20, 2000,
the defendants moved to dismiss the actions. The Court has scheduled a hearing
on motions to dismiss the actions for December 14, 2000. Wyndham intends to
defend the suits vigorously.
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,
30
<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 by 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 an additional $5 million to be paid if 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.
On or about October 26, 2000, a demand for arbitration was filed on behalf
of John W. Cullen, IV, William F. Burruss, Heritage Hotel Management &
Investment Ltd. And GH-Resco, L.L.C. naming Wyndham International, Inc. f/k/a
Patriot American Hospitality, Inc. as respondent. The Demand for Arbitration
claims that the claimants and Wyndham are parties to a Contribution Agreement
dated February 28, 1997 and that Wyndham is in breach of that agreement.
Claimants assert that Wyndham breached its agreement to pay respondents
additional consideration under the Contribution Agreement by, among other
things, allegedly denying claimants compensation due to them in connection
with various transactions initiated by claimants and provided to Wyndham,
which allegedly provided Wyndham with growth and added revenue. In addition,
claimants assert that Wyndham failed to provide claimants with various other
amounts due under the Contribution Agreement, failed to indemnify claimants
for certain expenses and intentionally and negligently mismanaged Wyndham's
business. Claimants do not specify the amount of damages sought. To date,
Wyndham has not responded to the Demand for Arbitration. Wyndham intends to
defend the claims vigorously.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
31
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Item No. Description
-------- -----------
<C> <S>
10.1* Amendment and Restatement to the Credit Agreement, dated September
25, 2000, by Wyndham and the Lenders named therein
10.2* Letter Agreement, dated July 19, 2000, between Leslie V. Bentley and
Wyndham
27.1* Financial Data Schedule
</TABLE>
--------
*Filed herewith
(b) Reports on Form 8-K for the quarter ended September 30, 2000.
(1) Current Report on Form 8-K of Wyndham International, Inc. dated
October 16, 2000 (01-9320) reporting under Item 5, the resignation of the
Chairman of its Board of Directors and the appointment of a new Chairman of
its Board of Directors.
32
<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: November 13, 2000
33
