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UNITED STATES 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, 2003
     
    OR
     
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the transition period                 to                
     
    Commission file number 001-13957

WESTCOAST HOSPITALITY CORPORATION

(Exact name of registrant as specified in its charter)
     
Washington   91-1032187
 
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
         
201 W. North River Drive, Suite 100, Spokane, Washington     99201  
(Address of principal executive offices)     (Zip Code)  
 
(509) 459-6100
(Registrant’s telephone number, including area code)

Indicated 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 [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

As of November 10, 2003 there were 13,005,765 shares of the registrant’s common stock outstanding.

1

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Condensed Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

Table of Contents

WESTCOAST HOSPITALITY CORPORATION

Form 10-Q
For the Quarter Ended September 30, 2003

INDEX

                 
PART I – FINANCIAL INFORMATION
Item 1.  
Financial Statements: (unaudited)
        
        Consolidated Balance Sheets
September 30, 2003 and December 31, 2002		     3  
        Consolidated Statements of Operations
Three months and Nine Months Ended September 30, 2003 and 2002		     4  
        Consolidated Statements of Cash Flows
Nine months Ended September 30, 2003 and 2002		     5  
       
Condensed Notes to Consolidated Financial Statements
     7  
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     14  
Item 3.  
Quantitative and Qualitative Disclosures About Market Risk
     29  
Item 4.  
Controls and Procedures
     30  
PART II – OTHER INFORMATION
Item 1.  
Legal Proceedings
     30  
Item 2.  
Changes in Securities and Use of Proceeds
     (a )
Item 3.  
Defaults Upon Senior Securities
     (a )
Item 4.  
Submission of Matters to a Vote of Security Holders
     (a )
Item 5.  
Other Information
     (a )
Item 6.  
Exhibits and Reports on Form 8-K
     30  
      Signatures  
 
     31  

       (a) Item is omitted as there is nothing to disclose for the period covered by this report.

2

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

WestCoast Hospitality Corporation
Consolidated Balance Sheets (unaudited)
September 30, 2003 and December 31, 2002
(in thousands, except share data)

                         
            September 30,   December 31,
            2003   2002
           
 
Assets:
                
 
Current assets:
                
   
Cash and cash equivalents
   $ 10,068     $ 752  
   
Restricted cash
     4,089       1,949  
   
Accounts receivable, net
     9,846       9,559  
   
Inventories
     1,960       2,040  
   
Assets held for sale
     —       34,408  
   
Prepaid expenses and other
     2,593       2,693  
   
 
    
     
 
       
Total current assets
     28,556       51,401  
 
Property and equipment, net
     268,050       241,255  
 
Goodwill
     28,042       28,042  
 
Intangible assets, net
     14,601       15,188  
 
Other assets, net
     20,138       20,824  
   
 
    
     
 
       
Total assets
   $ 359,387     $ 356,710  
   
 
    
     
 
Liabilities:
                
 
Current liabilities:
                
   
Accounts payable
   $ 6,690     $ 6,773  
   
Accrued payroll and related benefits
     6,291       6,173  
   
Accrued interest payable
     780       695  
   
Advance deposits
     267       198  
   
Other accrued expenses
     10,064       8,494  
   
Long-term debt, due within one year
     5,947       4,889  
   
Notes payable to bank
     —       52,100  
   
Capital lease obligations, due within one year
     —       268  
   
 
    
     
 
       
Total current liabilities
     30,039       79,590  
 
Long-term debt, due after one year
     152,542       101,206  
 
Deferred income
     2,411       2,626  
 
Deferred income taxes
     16,761       16,261  
 
Minority interest in partnerships
     2,767       2,911  
   
 
    
     
 
       
Total liabilities
     204,520       202,594  
   
 
    
     
 
Stockholders’ equity:
                
 
Preferred stock - 5,000,000 shares authorized; $0.01 par value; $50 per share liquidation value:
                
     
Series A - 294,362 and 301,315 shares issued and outstanding
     3       3  
     
Series B - 294,362 and 301,315 shares issued and outstanding
     3       3  
 
Additional paid-in capital, preferred stock
     29,430       30,125  
 
Common stock - 50,000,000 shares authorized; $0.01 par value; 13,004,573 and 12,981,878 shares issued and outstanding
     130       130  
 
Additional paid-in capital, common stock
     84,187       84,083  
 
Retained earnings
     41,114       39,772  
   
 
    
     
 
       
Total stockholders’ equity
     154,867       154,116  
   
 
    
     
 
       
Total liabilities and stockholders’ equity
   $ 359,387     $ 356,710  
   
 
    
     
 

The accompanying condensed notes are an integral part of the consolidated financial statements.

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Table of Contents

WestCoast Hospitality Corporation
Consolidated Statements of Operations (unaudited)
For the Three Months and Nine Months Ended September 30, 2003 and 2002
(in thousands, except per share data)

                                     
        Three Months Ended September 30,   Nine Months Ended September 30,
        2003   2002   2003   2002
       
 
 
 
Revenues:
                                
 
Hotels and restaurants
   $ 49,230     $ 50,518     $ 126,671     $ 134,459  
 
Franchise, central services and development
     973       1,406       2,950       3,340  
 
Entertainment
     2,023       1,508       6,008       4,980  
 
Real estate
     2,177       2,186       6,843       6,797  
 
Corporate services
     81       67       256       201  
 
 
    
     
     
     
 
   
Total revenues
     54,484       55,685       142,728       149,777  
 
 
    
     
     
     
 
Operating expenses:
                                
 
Hotels and restaurants
     38,848       39,824       106,603       111,517  
 
Franchise, central services and development
     376       535       1,268       1,554  
 
Entertainment
     1,845       1,245       5,327       4,156  
 
Real estate
     1,191       1,293       3,624       3,535  
 
Corporate services
     83       61       242       162  
 
Depreciation and amortization
     4,284       2,561       10,047       7,938  
 
(Gain) loss on asset dispositions
     (117 )     (69 )     579       (3,165 )
 
Conversion expenses
     24       1       392       8  
 
 
    
     
     
     
 
   
Total direct expenses
     46,534       45,451       128,082       125,705  
 
Undistributed corporate expenses
     712       747       2,040       1,650  
 
 
    
     
     
     
 
   
Total expenses
     47,246       46,198       130,122       127,355  
 
 
    
     
     
     
 
Operating income
     7,238       9,487       12,606       22,422  
Other income (expense):
                                
 
Interest expense, net of amounts capitalized
     (2,886 )     (2,613 )     (8,241 )     (8,135 )
 
Interest income
     96       96       303       254  
 
Other income (expense), net
     87       1       (205 )     4  
 
Equity income in investments, net
     20       42       99       30  
 
Minority interest in partnerships
     14       (42 )     144       (108 )
 
 
    
     
     
     
 
   
Income before income taxes
     4,569       6,971       4,706       14,467  
Income tax expense
     1,337       2,461       1,449       5,107  
 
 
    
     
     
     
 
 
Net income
     3,232       4,510       3,257       9,360  
Preferred stock dividend
     (634 )     (646 )     (1,915 )     (1,937 )
 
 
    
     
     
     
 
   
Net income applicable to common shareholders
   $ 2,598     $ 3,864     $ 1,342     $ 7,423  
 
 
    
     
     
     
 
Earnings per common share:
                                
 
Basic
   $ 0.20     $ 0.30     $ 0.10     $ 0.57  
 
 
    
     
     
     
 
 
Diluted
   $ 0.20     $ 0.29     $ 0.10     $ 0.56  
 
 
    
     
     
     
 
Weighted average shares outstanding - basic
     13,003       12,982       12,997       12,975  
 
 
    
     
     
     
 
Weighted average shares outstanding - diluted
     13,289       13,268       13,283       13,302  
 
 
    
     
     
     
 

The accompanying condensed notes are an integral part of the consolidated financial statements.

4

Table of Contents

WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, 2003 and 2002
(in thousands)

                       
          Nine Months Ended September 30,
          2003   2002
         
 
Operating activities:
                
 
Net income
   $ 3,257     $ 9,360  
 
Adjustments to reconcile net income to net cash provided by operating activities:
                
   
Depreciation and amortization
     10,047       7,938  
   
(Gain) loss on disposition of property, equipment and other assets
     579       (3,165 )
   
Non-cash reduction of preferred stock resulting in gain
     (522 )     —  
   
Write-off of deferred loan fees
     790       —  
   
Deferred income tax provision
     500       300  
   
Minority interest in partnerships
     (144 )     108  
   
Equity in investments
     (99 )     (30 )
   
Compensation expense related to stock issuance
     5       15  
   
Provision for doubtful accounts
     337       184  
   
Change in current assets and liabilities:
                
     
Restricted cash
     (2,140 )     (987 )
     
Accounts receivable
     (314 )     (1,086 )
     
Inventories
     80       216  
     
Prepaid expenses and other
     114       (901 )
     
Accounts payable and income taxes payable
     476       3,775  
     
Accrued payroll and related benefits
     118       593  
     
Accrued interest payable
     85       (97 )
     
Other accrued expenses and advance deposits
     997       3,874  
 
 
    
     
 
   
Net cash provided by operating activities
     14,166       20,097  
 
 
    
     
 
Investing activities:
                
 
Additions to property and equipment
     (5,141 )     (6,201 )
 
Proceeds from disposition of property and equipment
     398       1,839  
 
Proceeds from disposition of investment
     441       165  
 
Other, net
     62       44  
 
 
    
     
 
   
Net cash used in investing activities
     (4,240 )     (4,153 )
 
 
    
     
 

The accompanying condensed notes are an integral part of the consolidated financial statements.

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Table of Contents

WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows (unaudited), continued
For the Nine Months Ended September 30, 2003 and 2002
(in thousands)

                     
        Nine Months Ended September 30,
        2003   2002
       
 
Financing activities:
                
 
Proceeds from note payable to bank
     47,700       —  
 
Repayment of note payable to bank
     (99,800 )     (10,050 )
 
Proceeds from long-term debt
     55,200       —  
 
Proceeds from short-term debt
     2,658       —  
 
Repayment of long-term debt
     (2,806 )     (2,842 )
 
Proceeds from issuance of common stock under employee stock purchase plan
     99       103  
 
Preferred stock dividend payments
     (1,927 )     (1,291 )
 
Principal payments on capital lease obligations
     (268 )     (284 )
 
Additions to deferred financing costs
     (1,466 )     (710 )
 
Distribution to stockholders and partners
     —       (23 )
 
 
   &