UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Commission file number: 001-13957

WESTCOAST HOSPITALITY CORPORATION

(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 May 6, 2004 there were 13,045,549 shares of the registrant’s common stock outstanding.

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WESTCOAST HOSPITALITY CORPORATION

Form 10-Q
For the Quarter Ended March 31, 2004

TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WestCoast Hospitality Corporation

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

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WestCoast Hospitality Corporation

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

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WestCoast Hospitality Corporation

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

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WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows (unaudited), (continued)
For the Three Months Ended March 31, 2004 and 2003

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

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WestCoast Hospitality Corporation

1. Organization

     WestCoast Hospitality Corporation (“WestCoast” or the “Company”) is a NYSE-listed hospitality and leisure company primarily engaged in the ownership, management, development and franchising of mid-scale, full service hotels under its WestCoast and Red Lion brands. As of March 31, 2004, the hotel system contained 68 hotels located in 12 states and one Canadian province, with more than 11,600 rooms and 550,000 square feet of meeting space. The Company managed 46 of these hotels, consisting of 27 owned hotels, 15 leased hotels and four third-party owned hotels. The remaining 22 hotels were owned and operated by third-party franchisees.

     The Company is also engaged in entertainment and real estate operations. Through the entertainment division, which includes TicketsWest.com, Inc., the Company engages in event ticket distribution and promotion and presents a variety of entertainment productions in communities targeted for hotel market penetration. The real estate division engages in the traditional real estate related services that the Company has pursued since its predecessor was originally founded in 1937, including developing, managing and acting as a broker for sales and leases of commercial and multi-unit residential properties.

     The Company was incorporated in the State of Washington on April 25, 1978. The financial statements encompass the accounts of WestCoast Hospitality Corporation and all of its consolidated subsidiaries, including its 100% ownership of Red Lion Hotels, Inc. and WestCoast Hotels, Inc., its approximately 98% ownership of WestCoast Hospitality Limited Partnership (“WHLP”), and a 50% interest in a real estate limited partnership. The financial statements also include an equity method investment in a 19.9% owned real estate limited partnership and certain cost method investments in various entities included as other assets, over which the Company does not exercise significant influence. All significant inter-company transactions and accounts have been eliminated upon consolidation.

2. Basis of Presentation

     The unaudited consolidated financial statements included herein have been prepared by WestCoast pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. The balance sheet as of December 31, 2003 has been compiled from the audited balance sheet as of such date. The Company believes that the disclosures included herein are adequate; however, these consolidated statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 2003 previously filed with the SEC on Form 10-K.

     In the opinion of management, these unaudited consolidated financial statements contain all of the adjustments of a normal and recurring nature necessary to present fairly the consolidated financial position of the Company at March 31, 2004 and the consolidated results of operations and cash flows for the periods ended March 31, 2004 and 2003. The results of operations for the periods presented may not be indicative of those which may be expected for a full year.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting period and the disclosures of contingent liabilities. Accordingly, ultimate results could differ materially from those estimates.

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3. Trust Preferred Offering

     During the first quarter of 2004 the Company completed a public offering of $46 million of trust preferred securities through WestCoast Hospitality Capital Trust (the “Trust”), a Delaware statutory trust sponsored by the Company. The securities, which have been listed on the New York Stock Exchange, entitle holders to cumulative cash distributions at a 9.5% annual rate and the securities mature on February 24, 2044. In addition, the Company invested $1.4 million in trust common securities, representing 3% of the total capitalization of the Trust.

     The Trust used the proceeds of the offering and the Company’s investment to purchase from the Company $47.4 million of its junior subordinated debentures with payment terms that mirror the distribution terms of the trust securities. The cost of the trust preferred offering totaled $2.3 million, including $1.7 million of underwriting commissions and expenses and $614 thousand of costs incurred directly by the Trust. The Trust paid these costs utilizing an advance from the Company. The advance to the Trust is included with other long-term assets on the accompanying consolidated balance sheet. The proceeds from the debenture sale, net of the costs of the trust preferred offering and the Company’s investment in the Trust, were $43.7 million. Our accounting treatment for these events follows the guidance further discussed in Note 9.

     The Company used approximately $29.8 million of the net proceeds to pay accrued dividends on, and redeem in full, all outstanding shares of its Series A and Series B preferred stock on February 24, 2004. The Company is using the $13.9 million balance of the net proceeds for general corporate purposes including capital improvements.

4. Hotel Acquisition

     As part of a business combination in 1999 the Company assumed a lease on a hotel in Yakima, Washington and have operated the property since that date. The lease, as amended, included an option to purchase the property by December 31, 2003. In September 2003, the Company exercised our option to purchase the Red Lion Hotel Yakima Gateway and closed the purchase transaction in January 2004 utilizing certain tax deferred proceeds from the sale of the Red Lion River Inn completed in 2003. The gross purchase price of the hotel under the option, paid in cash, totaled $5.3 million. In addition, the Company maintained an option with a cost basis of $1.0 million that has become part of the new basis in the property and equipment.

5. Business Segments

     The Company has four operating segments: (1) hotels and restaurants; (2) franchise, central services and development; (3) entertainment; and (4) real estate. Corporate services and other consists primarily of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables and certain property and equipment which are not specifically associated with an operating segment. Management reviews and evaluates the operating segments exclusive of interest expense. Therefore, interest expense is not allocated to the segments.

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     Selected information with respect to the segments is as follows (in thousands):

6. Loss Per Common Share

     The following table presents a reconciliation of the numerators and denominators used in the basic and diluted loss per common share computations for the three months ended March 31, 2004 and 2003 (in thousands, except per share amounts):

	(a)		At March 31, 2004 and 2003, the effect of converting operating partnership (“OP”) Units would be anti-dilutive and the units are therefore excluded from the above calculation.
	(b)		At March 31, 2004 and 2003, 680,755 and 796,333 options to purchase common shares, respectively, were outstanding. The effect of the shares that would be issuable upon exercise of these options would be anti-dilutive and the options are therefore excluded from the above calculation.
	(c)		Convertible notes are excluded from the above calculation for all periods presented as they would be antidilutive.

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7. Stock Based Compensation

     As permitted by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”), the Company has chosen to measure compensation cost for stock-based employee compensation plans using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and to provide the disclosure only requirements of SFAS No. 123, including frequent and prominent disclosure of stock-based compensation expense.

     The Company has chosen not to record compensation expense using fair value measurement provisions in the statement of operations. Had compensation cost for the plan been determined based on the fair value at the grant dates for awards under the plans, reported net loss and loss per share would have been changed to the pro forma amounts indicated below (in thousands, except per share amounts):

During the first quarter of 2004, a total of 26,587 options to purchase common shares were exercised by employees under the terms of their options agreements, resulting in proceeds to the Company totaling approximately $140 thousand.

8. Subsequent Events

     In December 2003, the Company exercised its option to purchase the Red Lion Hotel Bellevue for $12.0 million. The Company completed the purchase of this hotel on April 17, 2004.

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9. Recent Accounting Pronouncements

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). In December 2003, the FASB issued a revision to this interpretation (“FIN No. 46(r)”). FIN No. 46(r) clarifies the application of Accounting Research Bulletin No. 51 to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company adopted FIN No. 46 on July 1, 2003 for those provisions then in effect, and adopted FIN No. 46(r) in its revised entirety for financial statements effective January 1, 2004. As a result of the issuance of FIN No. 46(r) and the accounting profession’s application of the guidance provided by the FASB, issuer trusts, like WestCoast Hospitality Capital Trust, are generally variable interest entities. We have determined that we are not the primary beneficiary under the trust, and accordingly the Company will not consolidate the financial statements of the Trust into its consolidated financial statements.

Based upon the foregoing accounting authority, these consolidated financial statements present the debentures issued to the trust as a related party liability, and reflect offsetting assets relative to the cash and common securities received from the trust in the consolidated balance sheet. For financial reporting purposes, the Company records interest expense on the corresponding debentures in its consolidated statements of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This quarterly report on Form 10-Q includes forward-looking statements. We have based these statements on our current expectations and projections about future events. When words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “should,” “will” and similar expressions or their negatives are used in this annual report, these are forward-looking statements. Many possible events or factors, including those discussed in “Risk Factors Relating to Our Business” beginning on page 9 of our 2003 annual report filed on Form 10-K, could affect our future financial results and performance, and could cause actual results or performance to differ materially from those expressed. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report.

     In this report, “we,” “us,” “our,” “our company” and “the company” refer to WestCoast Hospitality Corporation and, as the context requires, its wholly and partially owned subsidiaries, and “WestCoast” refers to WestCoast Hospitality Corporation. The term “the system” or “system of hotels” refers to our entire group of owned, leased, managed and franchised hotels.

     The following discussion and analysis should be read in connection with our consolidated financial statements and the condensed notes thereto and the other financial information included elsewhere in this quarterly report.

Overview

     We operate in four reportable segments: hotels and restaurants; franchise, central services and development; entertainment; and real estate. The hotels and restaurants segment derives revenue primarily from room rentals and food and beverage operations at our owned and leased hotels and from management fees charged to the owners of our managed hotels. Management fees are typically based on a percentage of the hotel’s gross revenues plus an incentive fee based on operating performance. The franchise, central services and development segment is engaged primarily in licensing our brands to franchisees. This segment generates revenue from royalty fees that are typically based on a percent of room revenues and are charged to hotel owners in exchange for the use of our brands and access to our central services programs (reservation system, guest loyalty program, national and regional sales, revenue management tools, quality inspections, advertising and brand standards.) The entertainment segment derives revenue primarily from ticketing services and promotion of entertainment productions. The real estate segment generates revenue from owning, managing, leasing and developing commercial and multi-unit residential properties.

Hospitality Industry Performance Measures

     We believe that the following performance measures, which are widely used in the hospitality industry and appear throughout this quarterly report, are important to our discussion of operating performance:

	•		Total available rooms represents the number of rooms available multiplied by the number of days in the reported period. We use total available rooms as a measure of capacity in our system of hotels. Rooms under significant renovation are excluded from total available rooms.
	•		Average occupancy represents total paid rooms occupied divided by total available rooms. We use average occupancy as a measure of the utilization of capacity in our system of hotels.
	•		Revenue per available room, or RevPAR, represents total room and related revenues divided by total available rooms. We use RevPAR as a measure of performance yield in our system of hotels.
	•		Average daily rate, or ADR, represents total room revenues divided by the total number of paid rooms occupied by hotel guests. We use ADR as a measure of room pricing in our system of hotels.

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Comparable hotels are hotels that have been owned, leased, managed or franchised by us for more than one year. Throughout this quarterly report, unless otherwise stated, RevPAR, ADR and average occupancy statistics are calculated using statistics for comparable hotels.

Operating Results and Statistics

     A summary of our consolidated results, balance sheet data and hotel statistics for the three months ended March 31, 2004 and 2003 is as follows (in thousands, except hotel statistics):