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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
|X| ANNUAL report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 2002
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 001-13957
WESTCOAST HOSPITALITY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WASHINGTON
(State or Other Jurisdiction of Incorporation or Organization)
201 W. NORTH RIVER DRIVE, SUITE 100
SPOKANE WASHINGTON
(Address of Principal Executive Offices)
99201-2293
(Zip Code)
91-1032187
(I.R.S. Employer Identification No.)
Registrant's Telephone Number, Including Area Code:
(509) 459-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, New York Stock Exchange
par value $.01 per share
Securities registered pursuant to section 12(g) of the Exchange Act: None
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 ________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.|_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |X| No ________
Page 1
The aggregate market value of the registrant's common stock held by
non-affiliates was $53,626,800 as of June 30, 2002. There were 12,994,163 shares
of the Registrant's common stock outstanding as of March 6, 2003.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's Proxy Statement for its 2003 Annual Meeting of
Shareholders, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the end of the Registrant's 2002
fiscal year is incorporated by reference herein in Part III.
TABLE OF CONTENTS
Part Item No. Description Page No.
I 1 Business.................................... 3
I 2 Properties.................................. 6
I 3 Legal Proceedings........................... 6
I 4 Submission of Matters to a Vote of Security
Holders .................................... 6
I 5 Market For Registrant's Common Equity and
Related Stockholder Matters ................ 7
II 6 Selected Financial Data..................... 8
II 7 Management's Discussion and Analysis Of
Financial Condition and Results of Operations 9
II 7A Quantitative and Qualitative Disclosures
About Market Risk .......................... 18
II 8 Financial Statements and Supplementary Data 19
II 9 Changes In and Disagreements With Accountants
On Accounting and Financial Disclosure 43
III 10 Directors and Executive Officers Of
The Registrant ............................. 44
III 11 Executive Compensation ..................... 45
III 12 Security Ownership Of Certain Beneficial
Owners and Management ......................
III 13 Certain Relationships and Related Transactions 45
III 14 Controls and Procedures .................... 45
IV 15 Exhibits, Financial Statement Schedules
and Reports on Form 8-K .................... 45
Page 2
PART I
This Annual Report on Form 10-K contains forward looking statements within the
meaning of Section 12E of the Securities Exchange Act of 1934. Forward-looking
statements should be read with the cautionary statements and important factors
included in this Annual Report on Form 10-K at Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Safe Harbor for
Forward-Looking Statements." Forward-looking statements are all statements other
than statements of historical fact, including without limitation those that are
identified by the use of words such as, but not limited to, "will",
"anticipates", "seeks to", "estimates", "expects", "intends", "plans",
"predicts" and similar expressions. Such statements are inherently subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those expressed.
ITEM 1. BUSINESS
GENERAL INFORMATION
Operations
WestCoast Hospitality Corporation (the "Company") is primarily engaged in the
ownership, management, development, and franchising of mid scale, full service
hotels. As of December 31, 2002, the system contained 86 properties in 15
states, totaling over 15,000 rooms and over 717,000 square feet of meeting
space. The Company owned an interest in and operated 29 hotels, leased 14
hotels, managed seven hotels owned by others and franchised 36 hotels owned and
operated by third parties at December 31, 2002. The Company's hotel brands
include WestCoast(R) and Red Lion(R). All properties are located in the United
States.
The Company is also engaged in activities related or supplementary to the
operation of hotels. These activities include computerized ticketing services
and presenting entertainment productions through its TicketsWest division and
owning, leasing, developing and managing commercial and residential properties
through its G&B Real Estate division.
The Company was incorporated in the State of Washington on April 25, 1978. A
substantial portion of the Company's assets are held in WestCoast Hospitality
Limited Partnership ("WHLP"). WHLP was formed in the State of Delaware on
October 23, 1997. The Company is the sole general partner and approximately 98%
owner of WHLP and manages its operations. The Company's principal executive
offices are located at 201 W. North River Drive, Suite 100, Spokane, Washington
99201 and its telephone number is (509) 459-6100. The Company maintains internet
websites at www.redlion.com and www.westcoasthotels.com where annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports are available, without charge, as soon as reasonably
practicable following the time they are filed with or furnished to the
Securities Exchange Commission.
Recent Developments
In March 2003, the United States declared war. The Company's future operating
performance is affected by, among other things, international conflicts, the
effects of actual and threatened terrorist attacks and national and regional
economic conditions. Due to the war and the perception of a weak economy, the
Company gives no assurance that its future operating performance will provide
adequate cash flow for the Company's needs.
In March 2003, the Company's President and Chief Executive Officer, Donald K.
Barbieri, announced his retirement effective upon appointment of his successor
by the Company's Board of Directors. He will continue to serve as Chairman of
the Board of Directors.
In February 2003, the Company completed the transition of its Red Lion brand
into its system by re-branding 22 of its owned and managed hotels to Red Lion
and implementing a state-of-the-art central reservation system and guest loyalty
program that integrates service to its WestCoast and Red Lion brands.
In December 2002, three significant covenants under the Company's revolving
credit facility were amended: total funded debt ratio, recourse funded debt
ratio and fixed charge ratio to provide greater flexibility during the weaker
economic environment. As of December 31, 2002, the Company was in compliance
with its debt covenants.
In October 2002, the Company has entered into an agreement subject to various
contingencies for the sale a non-core asset. For additional information, refer
to "Property and Equipment" and "Assets Held for Sale" in the Notes to
Consolidated Financial Statements on page 29 and 34, respectively.
In May 2002, the Company implemented a refreshed quality assurance performance
measurement program.
In March 2002, the Company divested its majority interest in an office building.
In January 2002, the Company commenced a national sales strategy to promote
cross selling between hotel properties and entertainment events.
In December 2001, the Company acquired the capital stock of the Red Lion hotel
chain from Hilton Hotels Corporation. The Red Lion portfolio consisted of nine
owned, 12 leased and 26 franchised hotels on the consummation date.
For additional details surrounding recent developments, refer to "Hotel
Operations".
Page 3
Industry Segments
The Company operates in four reportable business segments: hotels and
restaurants; franchise, central service and development; ticketing services and
entertainment productions; and real estate. For additional information, refer to
"Business Segments" in the Notes to Consolidated Financial Statements on page
42.
HOTEL OPERATIONS
Hotel Properties
Owned Hotels
The Company owned or had an ownership interest in and operated 29 hotels
totaling 5,371 rooms with over 246,000 square feet of meeting space as of
December 31, 2002. The number of owned properties included three hotels for
which the underlying land is leased. The lease expiration dates range from 2014
to 2062, with certain leases containing renewal options. Under these land
leases, the Company is responsible for repairs and maintenance, operating
expenses and management of operations. For additional information, refer to
"Operating Lease Commitments" in the Notes to the Consolidated Financial
Statements on page 39.
Leased Hotels
As of December 31, 2002, the Company leased 14 hotels representing 2,292 rooms
and totaling over 111,000 square feet of meeting space. Under these leases, the
Company is responsible for hotel operations and management. The Company
recognizes revenues and associated expenses with leased hotel operations.
Furniture, fixtures and equipment are generally the owner's responsibility;
however, under certain leases the Company is obligated to replace these items on
an as needed basis. Lease terms typically require the Company to pay fixed
monthly rent and variable rent based on a percentage of revenue. In addition,
the Company is responsible for repairs and maintenance, operating expenses and
management of operations. Refer to "Operating Lease Commitments" in the Notes to
the Consolidated Financial Statements for additional information on page 39.
Managed Hotels
The Company managed seven hotels with 1,330 rooms and over 93,000 square feet of
meeting space as of December 31, 2002. These managed hotels are operated for the
owner's benefit under management agreements. Under the Company's management
agreements, the owner is responsible for operating and other related and/or
incidental expenses.
The management fee received by the Company is typically based on a percentage of
the hotel's gross revenue plus an incentive fee based on operating performance.
The Company is generally reimbursed for out-of-pocket costs. Management
agreements are for various terms and typically contain renewal options, subject
to certain termination rights.
Franchised Hotels
As of December 31, 2002, the Company franchised 36 hotels with 6,256 rooms and
meeting space totaling over 267,000 square feet. Franchised hotels are owned and
operated by third parties under brand names which are licensed to the owners by
the Company. In addition to the licensed use of brand names, the Company
provides certain services to franchised properties although it does not manage
or operate the franchise hotels. These services include reservations systems,
advertising and national sales, guest affinity programs, revenue management
tools, quality inspections and brand standards. The Company typically receives
royalty payments for use of the brand names and contributions to the central
services programs administered by the Company for the franchisees.
Hotel Brands
The Company's hotels primarily operate under the WestCoast(R) and the Red
Lion(R) brands. Recently, the Company re-branded 22 hotels to Red Lion Hotels(R)
bringing the 63 hotels under the Red Lion brand to its largest size in the
history of the Red Lion brand.
Page 4
Statistical Information
The following table provides certain information about the Company's hotel
portfolio as of and for the year ended December 31, 2002.
Hotels Rooms Mtg Space Average Occupancy % ADR RevPar
(Sq Ft) (1), (3), (6) (1), (4) (1), (5), (6)
----------- -------- ----------- -------------------- ------------ ----------
Owned (2) 29 5,371 246,217 56.2 $72.08 $40.47
Leased 14 2,292 110,756 58.6 $66.43 $38.90
Managed (7) 7 1,330 93,234 67.0 $89.94 $60.23
Franchised (7) 36 6,256 267,214 61.5 $87.39 $53.73
----------- -------- -----------
Total 86 15,249 717,421 59.4 $78.23 $46.44
=========== ======== ===========
(1) Average occupancy, average daily rate (ADR) and room revenue per available
room (RevPar) are for comparable hotels (owned, leased, managed, and franchised
by the Company since January 1, 2002) and include hotels in the Company's system
as of December 31, 2002.
(2) Owned properties include hotels owned by partnerships in which the Company
holds interest as of December 31, 2002 and one hotel property that is expected
to be sold in 2003.
(3) Average occupancy represents total paid rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms available,
net of rooms under renovation, multiplied by the number of days in the reported
period.
(4) ADR represents total room revenues divided by the total number of paid rooms
occupied by hotel guests.
(5) RevPar represents total room and related revenues divided by total available
rooms, net of rooms under renovation.
(6) Rooms under renovation were excluded from RevPar and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPar or
average occupancy percentage.
(7) In early 2003, agreements related to 13 franchised hotels and one managed
property expire. Additionally, in early 2003, the Company entered into one
franchised license agreement and two pending applications for franchised hotels.
Refer to Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for additional
information.
Financial Information
The Company's financial information is disclosed in the consolidated financial
statements and notes thereto. The Company's working capital practices are
disclosed in Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources".
Growth Plan
The Company continues to seek opportunities to expand both domestically and
internationally while maintaining its product quality. The Company intends to
grow its brand primarily through franchising and management contracts, but may
seek to acquire equity interests in hotel properties on a selective basis.
Additionally, the Company maintains a consistent quality level at hotels through
its maintenance, renovation and capital expenditure programs.
Loyalty Program
In February 2003, the Company integrated the best features of its Red Lion Club
and WestAwards frequency program in order to enhance guest services with a
single expanded guest loyalty program, GuestAwards. The Company continues to
promote guest loyalty by providing guests the flexibility to earn air miles with
each qualifying hotel stay or points for every eligible dollar charged to the
guest room. GuestAward points are redeemable for complimentary hotel stays, air
miles or travel, car rental, merchandise, entertainment and other incentives.
E-Business
In February 2003, the Company launched a new hotel reservation system. This
technology allows the Company to manage single image inventory through its
distribution channels, execute rate management strategies through channels of
distribution including voice, Global Distribution Systems and Internet sites,
craft individual property.
In addition, the Company provides effective and efficient guest service
including online hotel reservations, GuestAwards enrollment and ticketing of
TicketsWest events, through its various domain names (www.redlion.com,
www.westcoasthotels.com, www.guestawards.com, www.ticketswest.com).
Team Red
In February 2003, the Company launched "Team Red", an innovative community
outreach program designed to benefit local communities while rewarding employees
and guests for volunteer work. The Company continues to build on its long-term
commitment to assist and support its local communities through "Team Red" and
other civic initiatives.
Page 5
ADDITIONAL INFORMATION
Marketing
The Company's marketing strategy provides quality and value to its hotels
through its national reach and regional focus. Through consistent messaging in
high visibility markets, the Company targets the majority of market segments and
distribution channels for its hotel portfolio. In addition, the Company offers
intelligence tools such as rate management strategies, competitive set
benchmarking and market demand reports to the majority of its hotels to increase
its regional reach with individuality focused on the property's customer base.
Trademarks
The Company owns the following trademarks in the United States, Canada or
Mexico: Red Lion(R), WestCoast(R), WestAwards(R), TicketsWest(R), G&B(R) and
various derivatives of those usages. The Company has applied to register
GuestAwards as a trademark in the United States. The Company's trademarks and
associated name recognition are valuable to its business.
Non-core Asset Sales
The Company continues to divest its interest in non-core assets in order to
capture equity, pay down debt and adhere to its long term strategic plan. Refer
to "General Information - Recent Developments" for a description of assets sold
and held for sale in 2002.
Seasonality
The Company's business is subject to seasonal fluctuations. Significant portions
of the Company's revenues and profits are realized from May through October. The
Company's results for any quarter may not be indicative of the results that may
be achieved for the full fiscal year. In addition, results are affected by the
Company's rapid growth; national and regional economic conditions, including the
magnitude and duration of the current economic slowdown in the United States;
actual and threatened terrorist attacks and international conflicts and their
impact on travel; and weather conditions.
Competition
The lodging industry is highly competitive. Competition in the industry is
primarily based on service quality, range of services, brand name recognition,
convenience of location, room rates, guest amenities and quality of
accommodations. The Company competes with other national limited and full
service hotel companies, including various regional and local hotels. Many of
the Company's competitors have a larger network of locations and greater
financial resources than the Company. Additionally, new and existing competitors
may offer significantly lower rates, greater convenience, services and
amenities, expand or improve facilities, which may adversely impact the
Company's operations. Demographics and other changes in the Company's markets
may also adversely impact the convenience or desirability of the hotel location.
The Company strives to enhance its core business by its national Red Lion brand
name; expanded, multi-tiered guest loyalty program; new reservation software;
effective cost control; maximizing operating efficiencies; property
enhancements; and continued effort to create a feel of comfort, care and value
in its hotels.
Employees
As of December 31, 2002, the Company employed approximately 4,400 persons,
approximately 3,900 in hotel operations and the remainder in the Company's
administrative office and its TicketsWest and G&B Real Estate divisions.
Approximately 300 persons in hotel operations were covered by various collective
bargaining agreements providing, generally, for basic pay rates, working hours,
other conditions of employment and orderly settlement of labor disputes. The
Company believes its employee relations are satisfactory.
Item 2. PROPERTIES
The Company's hotel properties provide caring service and comfortable
accommodations at competitive prices consistent with the markets they serve. The
Company's hotel portfolio maintains consistent quality and offers valuable
services such as dining, fitness centers, business services and other unique
offerings at the majority of its locations. In addition, guest rooms are well
equipped with products important to both leisure and business travelers. Most
hotels offer flexible meeting space to service the group and convention markets.
The Company continues to invest in its hotel properties to maintain quality
condition. Refer to the Company's websites at www.redlion.com or
www.westcoasthotels.com for a complete listing of hotel properties.
Refer to Item 1 - "Hotel Operations - Statistical Information" for information
on the Company's owned, leased, managed and franchised hotel properties.
Item 3. LEGAL PROCEEDINGS
At any given time, the Company is subject to claims and actions incident to the
operation of its business. While the outcome of these proceedings cannot be
predicted, it is the opinion of management that none of such proceedings,
individually or in the aggregate, will have a material adverse effect on the
Company's business, financial condition, cash flow or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2002.
Page 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "WEH". The following table sets forth for the periods indicated
the high and low closing sale prices for the common stock on the NYSE.
High Low
2002:
Fourth Quarter (ended December 31, 2002) $5.80 $5.00
Third Quarter (ended September 30, 2002) $7.00 $5.40
Second Quarter (ended June 30, 2002) $7.75 $6.69
First Quarter (ended March 31, 2002) $8.00 $6.20
2001:
Fourth Quarter (ended December 31, 2001) $6.49 $5.93
Third Quarter (ended September 30, 2001) $7.98 $6.00
Second Quarter (ended June 30, 2001) $7.48 $5.08
First Quarter (ended March 31, 2001) $5.56 $4.95
The last reported sale price of the common stock on the NYSE on March 25, 2003
was $4.36. As of March 25, 2003, there were approximately 86 shareholders of
record of the common stock.
The Company does not anticipate paying any cash dividends on the common stock in
the foreseeable future. The Company intends to retain earnings to provide funds
for the continued growth and development of its business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Any determination to pay cash
dividends in the future will be at the discretion of the Board of Directors and
will depend upon, among other things, the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board. As of December 31, 2002, the Company was restricted from paying
dividends on its common stock under the terms and conditions of its Revolving
Credit Facility.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2002 regarding
compensation plans (including individual compensation arrangements) under which
equity securities of WestCoast Hospitality Corporation are authorized for
issuance:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity Compensation Plans
Approved by Security
Holders 537,895 $8.29 862,105
Equity Compensation Plans
not Approved by
Security Holders -0- N/A -0-
---------- ---------- ------------
Total 537,895 $8.29 862,105
========== ========== ============
Page 7
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for the years ended December 31, 1998, 1999, 2000, 2001 and
2002. The selected consolidated statement of operations and balance sheet data
are derived from the Company's audited financial statements. The audited
consolidated financial statements for certain of these periods are included
elsewhere in this Report.
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Report.
Fiscal Year Ended
December 31
(in thousands except per share data)
2002 2001 2000 1999 1998
Statements of Operations Data:
Total revenues $ 194,171 $ 120,633 $ 125,806 $ 110,055 $86,333
Operating income 22,681 24,046 23,354 21,035 20,310
Net income (1) 8,007 7,579 5,821 8,029 7,508
Income applicable to common shareholders 5,430 7,579 5,821 8,029 7,508
Earnings per common share-basic 0.42 0.59 0.45 0.63 0.66
Earnings per common share-diluted 0.41 0.59 0.45 0.63 0.66
Balance Sheet Data(2):
Working capital (28,189) 14,090 (2,991) (12,105) 28
Total assets 356,710 359,649 304,834 309,132 244,903
Long-term debt and capital leases 101,206 167,795 160,018 159,882 128,378
Current portion, long-term debt and 57,257 4,137 2,922 8,068 2,172
capital leases
Other Data:
EBITDA (3) 30,032 30,121 33,754 28,967 26,425
Net cash provided by operating activities 15,133 17,490 11,954 19,067 14,271
Net cash used in investing activities (8,656) (22,928) (7,482) (13,572) (108,745)
Net cash provided by (used in) (9,511) 7,697 (5,353) (5,405) 93,786
financing activities
(1) The Company incurred extraordinary expense net of income taxes for the
write-off of prepayment penalties and deferred loan fees in connection with the
repayment of indebtedness of $23,000 in 2001, $10,000 in 1999 and $546,378 in
1998.
(2) The balance sheet data as of December 31, 1999 and 2001 reflects the
acquisitions of WestCoast Hotels, Inc. and Red Lion Hotels, Inc. on December 31,
1999 and December 31, 2001, respectively. However the results of operations of
these acquired entities are included in operations only from the acquisition
date forward.
(3) EBITDA represents income before income taxes, extraordinary item, cumulative
effect of accounting changes, interest expense (net of interest income),
depreciation, amortization, gain on asset disposal, equity in investments,
minority interests, and other income/expenses. EBITDA is not intended to
represent cash flow from operations as defined by generally accepted accounting
principles and such information should not be considered as an alternative to
net income, cash flow from operations or any other measure of performance
prescribed by generally accepted accounting principles. While not all companies
calculate EBITDA in the same fashion and therefore EBITDA as presented may not
be comparable to similarly titled measures of other companies, EBITDA is
included herein because management believes that certain investors find it to be
a useful tool for measuring the Company's ability to service debt. EBITDA is not
necessarily available for management's discretionary use due to restrictions
included in the Revolving Credit Facility and other considerations.
Page 8
The following is a reconciliation of EBITDA to its comparable measurement in
accordance with generally accepted accounting principles for each of the years
presented (in thousands):
Year ended December 31,
2002 2001 2000 1999 1998
EBITDA (as presented above) $ 30,032 $ 30,121 $ 33,754 $ 28,967 $ 26,425
Income tax provision (4,369) (4,503) (3,306) (3,737) (4,310)
Deferred income tax provision 1,921 2,240 1,524 2,392 934
Interest expense (10,717) (12,092) (14,660) (9,384) (8,127)
Interest and other income, net 392 247 449 388 356
Other non-cash operating activities 1,068 366 555 167 174
Change in working capital accounts (3,194) 1,111 (6,362) 274 (1,181)
------------ ---------- --------- --------- ----------
Net cash provided by operating activities $ 15,133 $ 17,490 $ 11,954 $ 19,067 $ 14,271
============ ========== ========= ========= ==========
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Intangible
Assets", which revises the accounting for purchased goodwill and intangible
assets. Under SFAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized, but will be tested for impairment annually and also
in the event of an impairment indicator. The adoption of SFAS No. 142 on January
1, 2002, resulted in the elimination of goodwill amortization of $856,000 for
the year ended December 31, 2002.
Net income and earnings per share adjusted for goodwill amortization for 2001
and years prior compared to fiscal 2002 is as follows (in thousands):
2002 2001 2000 1999 1998
Reported net income to common shareholders $ 5,430 $ 7,579 $ 5,821 $ 8,029 $ 7,508
Add back: goodwill amortization, net of tax - 537 542 19 25
--------- ----------- ----------- ----------- ----------
Adjusted net income to common shareholders $ 5,430 $ 8,116 $ 6,363 $ 8,048 $ 7,533
========= =========== =========== =========== ==========
Basic earnings per share:
Reported net income $ 0.42 $ 0.59 $ 0.45 $ 0.63 $ 0.66
Goodwill amortization - 0.04 0.04 - -
--------- ----------- ----------- ----------- ----------
Adjusted earnings per share-basic $ 0.42 $ 0.63 $ 0.49 $ 0.63 $ 0.66
========= =========== =========== =========== ==========
Diluted earnings per share:
Reported net income $ 0.41 $ 0.59 $ 0.45 $ 0.63 $ 0.66
Goodwill amortization - 0.04 0.04 - -
--------- ----------- ----------- ----------- ----------
Adjusted earnings per share-diluted $ 0.41 $ 0.63 $ 0.49 $ 0.63 $ 0.66
========= =========== =========== =========== ==========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE COMPANY
The Company is primarily engaged in the ownership, management, development, and
franchising of mid scale, full service hotels. As of December 31, 2002, the
hotel system contained 86 properties in 15 states, totaling over 15,000 rooms
and over 717,000 square feet of meeting space. The Company's hotel brands
include WestCoast and Red Lion. In addition, the Company is engaged in
activities related or supplementary to the operation of hotels. These activities
include computerized ticketing services and presenting entertainment productions
and owning, leasing and/or managing commercial and residential properties.
The Company operates in four reportable segments: hotels and restaurants;
franchise, central service and development; computerized ticketing services and
presenting entertainment productions; and real estate. The hotels and
restaurants segment derives revenue primarily from room rentals and food and
beverage operations at the Company's owned and leased properties and management
fees charged to hotel owners. Management fees are typically based on a
percentage of the hotel's gross revenue plus an incentive fee based on operating
performance. The franchise, central service and development segment primarily
provides licensing of the Company's brand names to franchisees. This segment
generates revenue from royalty fees charged to hotel owners. Royalty fees are
generally based on a percent of room revenue in exchange for the use of the
Company's brand name and right to participate in central services programs to
include reservation system, guest affinity programs, national and regional
sales, revenue management tools, quality inspections, advertising and brand
standards. The ticketing and entertainment productions segment derives revenue
primarily from computerized event ticketing services and promotion of Broadway
shows and other special events. The real estate segment generates its revenue
from owning, managing, leasing and developing commercial and residential
properties.
Page 9
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States require the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. On an ongoing basis, the Company evaluates its estimates and
assumptions, including those related to valuation of long-lived assets, assets
held for sale, intangible assets, other assets, self-insurance reserves,
collectibility of accounts receivable, contingencies and litigation. The Company
bases its estimates and judgments on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. The Company
believes the following critical accounting policies, among others, affect its
more significant estimates and assumptions used in preparing its consolidated
financial statements. Actual results could differ from estimates and
assumptions.
Property and equipment are stated at cost less accumulated depreciation. The
Company also has investments in partnerships that own and operate hotel
properties. The assessment of long-lived assets for possible impairment requires
the Company to make judgments, regarding real estate values, estimated future
cash flow from the respective properties and other matters. The Company reviews
the recoverability of its long-lived assets when events or circumstances
indicate that the carrying amount of an asset may not be recoverable. For the
year ended December 31, 2002, the Company recognized an impairment loss of
approximately $73 thousand with respect to a partnership investment.
The Company accounts for assets held for sale in accordance with Statement of
Financial Accounting Standard No. 144 (SFAS 144). The Company's assets held for
sale are recorded at the lower of their historical carrying value (cost less
accumulated depreciation) or market value. Depreciation is terminated when the
asset is determined to be held for sale. If the assets are ultimately not sold
within the guidelines of SFAS 144, depreciation is reinstated for the period
they were held for sale. The Company believes that its assets held for sale will
be completed in 2003, unless circumstances arise that were previously considered
unlikely.
The Company's intangible assets include brands and goodwill. The Company
accounts for its brands and goodwill in accordance with Statement of Financial
Accounting Standard No. 142 (SFAS 142). The Company expects to receive future
benefits from previously acquired brands and goodwill over an indefinite period
of time and therefore, effective January 1, 2002, no longer amortizes its brands
and goodwill in accordance with SFAS 142. The annual impairment review requires
the Company to make certain judgments, including estimates of future cash flow
with respect to brands and estimates of the Company's fair value and its
components with respect to goodwill. The Company completed its impairment review
of brands, goodwill and other intangible assets which did not result in an
impairment loss during 2002.
The Company's other intangible assets include management, marketing and lease
contracts. The value of these contracts is amortized on a straight-line basis
over the weighted average life of the respective agreement. The assessment of
these contracts requires the Company to make certain judgments, including
estimated future cash flow from the applicable properties.
The Company is self-insured for various levels of general liability, workers'
compensation and employee medical and dental coverage. Insurance reserves
include the present values of projected settlements for claims. Projected
settlements are estimated based on, among other things, historical trends and
actuarial data.
The Company reviews accounts receivable for collectibility on a routine basis.
The Company records an allowance for doubtful accounts based on specifically
identified amounts that it believes to be uncollectible and amounts that are
past due beyond a certain date. The receivable is written off against the
allowance for doubtful accounts if collection attempts fail. The Company's
estimate for its allowance for doubtful accounts is impacted by, among other
things, national and regional economic conditions, including the magnitude and
duration of the economic downturn of the United States.
Effective January 1, 2002 the Company established the WestCoast Central Program
Fund (CPF), organized in accordance with various domestic franchise agreements.
The CPF is responsible for certain advertising services, frequent guest program
administration, reservation services, national sales promotions and brand and
revenue management services intended to increase sales and enhance the
reputation of the Company and its franchise owners including the WestCoast and
Red Lion branded properties. Contributions by the Company to the CPF for owned
and managed hotels and contributions by the franchisees, through the individual
franchise agreements, total up to 5% of room revenue or can be based on
reservation fees, frequent guest program dues and other services. While the
Company administers the functions of the CPF, the net assets and transactions of
the CPF are not commingled with the working capital of the Company. The net
assets and transactions of the CPF are, therefore, not included in the
accompanying financial statements in accordance with FASB No. 45, "Accounting
for Franchise Fee Revenue".
Page 10
LIQUIDITY AND CAPITAL RESOURCES
Overview
Net cash provided by operating activities totaled approximately $15.1 million,
$17.5 million and $12.0 million for the years ended December 31, 2002, 2001 and
2000, respectively. The decrease in 2002 compared to 2001 was primarily the
result of lower operating results and working capital variances. The increase in
2001 over 2000 was also primarily due to gains on property sales, insurance
recoveries and working capital variances offset by lower level of business at
the hotel properties.
Net cash used in investing activities decreased $14.3 million from approximately
$22.9 million in 2001 to $8.7 million in 2002 primarily due to the purchase of
Red Lion hotels in 2001, slightly offset by an increase in capital expenditures
in 2002. Net cash used in investing activities increased $15.4 million from
approximately $7.5 million in 2000 to $22.9 million in 2001 primarily due to the
purchase of Red Lion Hotels, offset by the proceeds from asset dispositions and
a lower level of capital expenditures in 2001.
Net cash used in financing activities totaled approximately $9.5 million in 2002
which generally relates to the pay down of debt and payment of preferred stock
dividends. Net cash provided by financing activities totaled $7.7 million in
2001 which consists primarily of revolving debt borrowings to fund the Red Lion
acquisition. Net cash used in financing activities totaled approximately $5.4
million in 2000 which consists primarily of debt repayment.
Cash and cash equivalents totaled $2.7 million at December 31, 2002, a decrease
of approximately $3.0 million from December 31, 2001. The Company believes that
its operating cash flow, ability to amend and refinance its revolving credit
facility with long-term non-recourse debt by securing mortgages on certain hotel
properties financing secured by hotels and proceeds from the sale of its
non-core assets will be sufficient to meet its liquidity needs. However,
projections of sources of working capital and future financial needs are subject
to uncertainty. Refer to "Other Matters - Safe Harbor for Forward Looking
Statements" for additional information of conditions that could affect future
financial needs and sources of working capital.
Financing
The Company has a revolving credit facility. In 2001, the Company refinanced a
portion of its revolving credit facility with long term fixed rate mortgages on
certain properties and lowered its commitment to $70 million. In December 2002,
the Company reduced its commitment to $58.5 million. As of December 31, 2002,
approximately $52.1 million of borrowings were outstanding under its $58.5
million revolver.
Although the revolving credit facility matures in June 2005, the Company
classified its outstanding borrowings under its $58.5 million revolver as
current debt as of December 31, 2002 due to an anticipatory breach of some of
the existing covenants in 2003, which have currently not been waived by the
lenders. If the Company breaches its covenants and the breach is not waived by
the lender one of the lender's remedies under the credit facility is to call the
debt due at that time.
The Company intends to refinance its revolving credit facility either with its
existing lender or other lenders into non-recourse and revolving debt.
Management believes that an adequate borrowing base exists to secure the
necessary financing. The Company is also pursuing the sale of certain non-core
real estate assets, some of which are included in assets held for sale discussed
in Note 5 of the Notes to Consolidated Financial Statements. Management has
implemented certain operational efficiencies and cost reduction plans that are
expected to improve covenant ratios. These actions are intended to reduce the
Company's dependence on the revolving credit facility.
The historical cash flow of the Company has been adequate to service all its
normal operating needs, service all interest and regularly scheduled principal
payments and capital improvements. Due to the war and the perception of a weak
economy there can be no assurance that future operating performance will provide
adequate cash flow for the Company's needs. The ability of the Company to
improve its working capital position through the refinance of its revolving
credit facility, improve operating results and disposal of non-core assets is
dependent upon lending market conditions, the achievement of future operating
efficiencies and the liquidity of the real estate market where the Company's
assets are located. There can be no assurance that these efforts will be
successful. For additional information, refer to "Financial Liquidity" in the
Notes to the Consolidated Financial Statements on page 33.
Provisions under the Company's revolving credit facility agreement require the
Company to comply with certain covenants which include limiting the amount of
outstanding indebtedness. The Company's revolving credit facility contains three
significant financial covenants: total funded debt ratio, recourse funded debt
ratio and fixed charge ratio which were amended in December 2002 to provide
greater flexibility during the softer economic environment. The Company is in
compliance with its debt covenants as of December 31, 2002.
In addition to the $52.1 million outstanding on the revolver, the Company has
debt and capital lease obligations of approximately $106 million as of December
31, 2002 primarily consisting of variable and fixed rate debt secured by
individual properties.
Page 11
In December 2001, the Company issued 303,771 of Class A and Class B preferred
shares, respectively, in connection with its acquisition of Red Lion Hotels,
Inc. As a result of cancelled franchise agreements in 2002, 2,456 shares of
Preferred Series A and B, respectively, were cancelled totaling approximately
$246 thousand. Dividends paid on Class A and Class B preferred shares were
$3.50/share and $5.00/share, respectively, for the year ended December 31, 2002,
totaling approximately $1.9 million. For additional information, refer to
"Stockholders' Equity" in the Notes of the Consolidated Financial Statements on
page 51.
The following table summarizes the Company's significant contractual obligations
as of December 31, 2002 (in thousands):
Contractual Obligations Payments Due by Period
Total Less Than 1 Year 1-3 Years 4-5 Years After 5 Years
Long-term debt $ 158,195 $ 56,989 $ 15,740 $ 14,179 $ 71,287
Capital lease obligations 268 268 - - -
Operating leases (1) 103,953 7,113 16,989 11,326 68,525
Preferred stock dividend (2) 10,496 2,561 5,926 2,009 -
------------ -------------- ------------- -------------- -------------
Total contractual obligations $ 272,912 $ 66,931 $ 38,655 $ 27,514 $139,812
============ ============== ============= ============== =============
(1) Operating lease amounts are net of estimated annual sublease income totaling
$9.9 million. In early 2003, the Company anticipates entering into a sales
leaseback agreement for its hotel reservation system totaling approximately $4.1
million and believes this lease will be classified as an operating lease. The
anticipated sales leaseback obligation is not included in the above operating
lease obligations.
(2) Class A and Class B preferred stock quarterly dividends increase from 7% to
14% if not redeemed by January 2005 and from 10% to 20% if not redeemed by
January 2008, respectively. The above preferred stock dividend obligation
assumes Class A and Class B are redeemed in January 2005 and 2008, respectively.
For additional information, refer to "Stockholders' Equity" in the Notes to the
Consolidated Financial Statements on page 51.
Asset Dispositions
In March 2002, the Company sold a majority interest in an office building
resulting in net proceeds of approximately $1.7 million. The sale resulted in a
pre-tax gain of $5.8 million. The Company recognized approximately $3.2 million
of the gain for the year ended December 31, 2002. The remaining portion of the
gain is deferred over the six year lease term due to the Company's leaseback of
a portion of the building. Refer to "Property and Equipment" in the Notes to the
Consolidated Financial Statements on page 37 for additional information.
Assets Held for Sale
The Company continues to seek opportunities to divest its interest in its
non-core assets. The Company recently entered into an agreement subject to
various contingencies for the sale of an owned hotel property, a mall and excess
land. In addition, the Company has two office buildings with a net book value of
approximately $21.5 million classified as assets held for sale as of December
31, 2002. The Company anticipates completing the sale of these assets in 2003
and using the net proceeds of up to approximately $21 million to pay down its
revolving credit facility, if the transaction is consummated prior to the
Company's anticipated refinance of its $58.5 million revolver, and/or to further
expand operations. Two of these properties have been held for sale for a year.
There can be no assurance that the Company will be able to successfully sell
these properties. For further discussion, refer to the "Financing" section.
Capital Spending
The Company continues to invest in normal capital replacements to maintain a
consistent quality level at hotels. However, the Company may defer its capital
spending depending on economic conditions. The Company spent approximately $10.7
million on various capital expenditures in 2002 including routine improvements
and technology, public area, guest room, lounge and restaurant renovations at
owned and leased properties and a new central reservation system. The Company
anticipates spending approximately $9.6 million on capital expenditures in 2003.
The Company also anticipates exercising its lease option to purchase a hotel
property totaling approximately $5.2 million in 2003. Additionally, in early
2003, the Company anticipates entering into a sales leaseback agreement for its
hotel reservation system totaling approximately $4.1 million. The Company
believes the lease will be classified as an operating lease.
Development
The Company intends to grow its brands primarily through franchising and
management contracts, but may seek to acquire equity interests in hotel
properties on a selective basis.
In early 2003, franchise and management contracts related to 13 franchised
hotels and one managed hotel expired. Revenue related to these contracts totaled
approximately $1.6 million for the year ended December 31, 2002. Additionally,
in early 2003, the Company entered into one franchised license agreement and two
pending applications for franchised hotels.
The Company's ability to grow the number of franchised and managed hotels is
affected by, among other things, national and regional economic conditions,
including the magnitude and duration of current economic slowdown of the United
States; the effects of actual and threatened terrorist attacks and wars; credit
availability; relationships with franchisees and owners; and competition from
other hotel brands. For additional information, refer to "Other Matters - Safe
Harbor for Forward Looking Statements".
Page 12
RESULTS OF OPERATIONS
The Company operates in four reportable segments: hotels and restaurants;
franchise, central service and development; ticketing services and entertainment
productions; and real estate. The Company's results of operations are
significantly impacted by occupancy and room rates achieved by hotels, ability
to manage costs and the relative mix of owned, leased, managed and franchised
hotels. Future operating results could be adversely impacted by many factors
including those discussed in "Other Matters - Safe Harbor for Forward Looking
Statements".
Fiscal 2002 Compared With Fiscal 2001
A summary of the Company's consolidated results and hotel statistics for the
years ended December 31, 2002 and 2001 is as follows (dollars in thousands,
except per share amounts):
2002 2001 % Change
Hotels and Restaurants $ 173,320 $ 99,495 74%
Franchise, Central Services and Development 4,137 3,213 29%
TicketsWest 7,430 7,497 -1%
Real Estate Division 9,001 10,114 -11%
Corporate Services 283 314 -10%
------- ------- ----
Total Revenues 194,171 120,633 61%
Total Direct Expenses 169,373 94,691 79%
Undistributed Corporate Expenses 2,117 1,896 12%
Operating Income 22,681 24,046 -6%
Net Income 8,007 7,579 6%
Preferred Stock Dividend 2,577 - 100%
Basic EPS 0.42 0.59 -29%
Diluted EPS 0.41 0.59 -31%
Hotel Statistics (1)
2002 2001 % Change
Hotels at 12/31 (2) 86 93 -8%
Rooms at 12/31 15,249 16,095 -5%
REV PAR (3), (6) $ 50.40 $ 53.17 -5%
ADR (4) $ 85.19 $ 87.78 -3%
Ave. Occupancy (5), (6) 59.2% 60.6% -1.4%
(1) Hotel statistics include actual hotels and rooms at December 31, 2002 and
2001, respectively. Therefore, the 2001 number of hotels and rooms include the
hotels which the Company acquired from Red Lion Hotels, Inc. on December 31,
2001. However, revenue per available room (RevPar), average daily rate (ADR),
and average occupancy statistics do not include Red Lion Hotels, Inc. as this
acquisition was completed on December 31, 2001 and their results of operations
were not included in the consolidated revenues and hotel operating statistics
until 2002. Revpar, ADR and occupancy statistics in 2002 and 2001 are presented
for comparable hotels (owned, leased, managed and franchised by the Company for
more than one year).
(2) Agreements related to 13 franchised hotels and one managed property expired
in early 2003. Additionally, in early 2003, the Company entered into one
franchised license agreement and two pending applications for franchised hotels.
Refer to Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for additional
information.
(3) RevPar represents total room and related revenues divided by total available
rooms, net of rooms out of service due to significant renovations.
(4) ADR represents total room revenues divided by the total number of paid rooms
occupied by hotel guests.
(5) Average occupancy represents total paid rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms available
multiplied by the number of days in the reported period.
(6) Rooms under renovation were excluded from RevPar and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPar and
average occupancy percentage.
Revenues
Total revenues for 2002 were $194 million, an increase of approximately $74
million or 61% from 2001. Overall increase in revenues from 2001 to 2002 is
attributed to the following:
Hotel and restaurant revenues increased approximately $74 million or 74% from
$99.5 million in 2001 to $173.3 million in 2002. Approximately $79 million of
the increase in hotel and restaurant revenues resulted primarily from the
acquisition of Red Lion Hotels, Inc. which closed on December 31, 2001. This
overall increase was offset by a continued soft U.S. economy, resulting in a
decrease in demand throughout most segments. This continued sluggish demand in
2002 resulted in a lower room and occupancy rate which contributed to the
Company's decrease in RevPar, ADR and average occupancy over 2001.
Page 13
Franchise, central services and development revenues increased approximately
$900 thousand or 29% from $3.2 million in 2001 to $4.1 million in 2002.
Approximately 25% or $1.0 million of the increase was primarily from franchise
and management contracts acquired through the purchase of Red Lion Hotels, Inc.
in 2001. This increase was partially offset by a reduced franchise application
fee combined with system wide RevPar declines in 2002 compared to 2001 given the
continued softness of the U.S. economy.
TicketsWest revenues decreased approximately $67 thousand or 1% from $7.5
million in 2001 to $7.4 million in 2002. This decrease was primarily due to the
removal of call center service revenues and related expenses from the ticketing
and entertainment production division to a central program fund which is
administered by the Company effective January 2002. This decrease was offset by
an overall increase in operating revenue as a result of an increase in venues
and a favorable event mix in 2002 compared to 2001.
Real Estate Division revenues decreased approximately $1.1 million or 11% from
$10.1 million in 2001 to $9.0 million in 2002 primarily from reduced lease
revenue which resulted from the sale of the Company's majority interest in an
office building in March 2002.
Direct Expenses
Direct expenses increased approximately $75 million or 79% from $94.7 million in
2001 to $169.4 million in 2002. Approximately $73 million of the increase was
due to additional hotels operated by the Company given the acquisition of Red
Lion Hotels in December 2001. In addition, this increase was impacted by the
$1.9 million decrease in the net gain on asset dispositions and insurance
settlements in 2002 compared to 2001.
The overall increase is offset by reduced amortization expense of approximately
$855 thousand related to brand names and goodwill and reduced call center
expense due to the January 2002 move of call center services are provided by a
central program fund for franchisees.
Undistributed Corporate Expenses
Undistributed corporate expenses increased approximately $200 thousand or 12%
from $1.9 million in 2001 to $2.1 million in 2002. The increase was primarily
due to a one-time severance payment related to the integration of the Red Lion
acquisition.
Operating Income
Operating income decreased approximately $1.4 million or 6% from $24.0 million
in 2001 to $22.7 million in 2002. The decrease was primarily due to continued
soft market and weak U.S. economy resulting in rate and occupancy declines
combined with the approximate $1.9 million decrease related to the net gain on
asset dispositions in 2002 compared to 2001.
Interest Expense
Interest expense decreased approximately $1.4 million or 11% from $12.1 million
in 2001 to $10.7 million in 2002. The decrease was attributed to repayment of
outstanding borrowings and a decrease in interest rates charged on the Company's
variable rate debt.
Income Taxes
The effective income rate for 2002 decreased to 35% from 37% in 2001. The
decrease in the effective tax rate was primarily due to the elimination of in
goodwill amortization expense in 2002 compared to 2001.
Net Income
Net income increased approximately $400 thousand or 6% from $7.6 million in 2001
to $8.0 million in 2002.
Income applicable to common shareholders decreased approximately $2.1 million or
28% from $7.6 million in 2001 to $5.4 million in 2002 due to lower operating
results compared to 2001 combined with approximately $2.6 million of preferred
stock dividends in 2002 which did not occur in 2001 as they relate to the
acquisition of Red Lion Hotels, Inc. in December 2001.
Earnings Per Share
Basic earnings per share decreased approximately 29% from $.59 in 2001 to $.42
in 2002. Diluted earnings per share decreased approximately 31% from $.59 in
2001 to $.41 in 2002. These decreases were primarily attributed to lower
operating results given the continued soft U.S. economy in 2002 compared to
2001.
Page 14
Fiscal 2001 Compared With Fiscal 2000
A summary of the Company's consolidated results and hotel statistics for the
years ended December 31, 2001 and 2000 is as follows (dollars in thousands,
except per share amounts):
2001 2000 % Change
Revenues:
Hotels and Restaurants $ 99,495 $ 106,540 -7%
Franchise, Central Services and Development 3,213 3,643 -12%
TicketsWest 7,497 5,705 31%
Real Estate Division 10,114 9,540 6%
Corporate Services 314 378 -17%
--------- ---------- -----
Total Revenues 120,633 125,806 -4%
Total Direct Expenses 94,691 100,786 -6%
Undistributed Corporate Expenses 1,896 1,666 14%
Operating Income 24,046 23,354 3%
Net Income 7,579 5,821 30%
Basic and Diluted EPS 0.59 0.45 31%
Hotel Statistics (1)
2001 2000 % Change
Hotels at 12/31 93 45 107%
Rooms at 12/31 16,095 8,704 85%
REV PAR (2), (5) $ 53.26 $ 54.93 -3%
ADR (3) $ 88.08 $ 87.47 1%
Average Occupancy (4), (5) 60.5% 62.8% -2.3%
(1) Hotel statistics include actual hotels and rooms at December 31, 2001 and
2000, respectively. Therefore, the 2001 number of hotels and rooms include the
hotels which the Company acquired from Red Lion Hotels, Inc. on December 31,
2001. However, revenue per available room (RevPar), average daily rate (ADR),
and average occupancy statistics do not include Red Lion Hotels, Inc. as this
acquisition was completed on December 31, 2001 and their results of operations
were not included in the consolidated revenues and hotel operating statistics
until 2002. Revpar, ADR and occupancy statistics in 2001 and 2000 are presented
for comparable hotels (owned, leased, managed and franchised by the Company for
more than one year).
(2) RevPar represents total room and related revenues divided by total available
rooms, net of rooms out of service due to significant renovations.
(3) ADR represents total room revenues divided by the total number of paid rooms
occupied by hotel guests.
(4) Average occupancy represents total paid rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms available
multiplied by the number of days in the reported period.
(5) Rooms under renovation were excluded from RevPar and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPar and
average occupancy percentage.
Revenues
Total revenues decreased $5.2 million, or 4%, from $125.8 million in 2000 to
$120.6 million in 2001. This decrease is attributed primarily to general
economic conditions following the September 11 terrorist attacks, decreases in
total rooms occupied and REVPAR decreases at the Comparable Hotels (Hotels
owned, managed and franchised by the company for more than one year). REVPAR
decreased due to the decrease in occupied paid rooms.
Total hotel and restaurant revenues decreased $7.0 million or 7% to $99.5
million in 2001 from $106.5 million in 2000. Comparable Hotel ADR increased
$0.61 or 0.7% to $88.08 in 2001 from $87.47 in 2000. Comparable Hotel REVPAR
decreased $1.67 or 3% to $53.26 in 2001 from $54.93 in 2000.
The Company completed the acquisition of Red Lion Hotels, Inc. effective
December 31, 2001 which adds annually 1,180,775 room nights under ownership and
1,516,210 room nights for which the Company has management or franchise
contracts. Due to the timing of the Red Lion Hotels, Inc. acquisition, it did
not affect 2001 operating results. On a pro-forma basis including the Red Lion
hotels, comparable hotel ADR increased $1.53 or 1.9% to $81.26 in 2001 from
$79.73 in 2000. Comparable hotel pro forma REVPAR decreased $1.16 or 2.3% to
$49.50 in 2001 from $50.66 in 2000.
The franchise, central Services and development revenues decreased $0.4 million
or 11.8% to $3.2 million in 2001 from $3.6 million in 2000. The revenue decline
is primarily related to a decrease in fee income from central purchasing
services for franchised and third party owned hotels.
TicketsWest revenues increased $1.8 million, or 31.4%, to $7.5 million in 2001
from $5.7 million in 2000. TicketsWest revenue increased primarily due to the
expanded venues the Company services with its expansion into Colorado and the
increased shows presented by the Company and increased attendance at
entertainment events.
Page 15
Real Estate Division revenue increased $0.6 million, or 6.0%, to $10.1 million
in 2001 from $9.5 million in 2000 primarily due to increases in leasing income
at the company owned office buildings, and management income from additional
third party management contracts.
Direct Expenses
Direct expenses decreased $6.1 million, or 6%, to $94.7 million in 2001 from
$100.8 million in 2000, primarily due to gain on asset disposition and insurance
proceeds, and the decrease in the number of hotel guests served and enhanced
cost controls in the company owned hotels, partially offset by the increased
costs of increased transaction and sales by the TicketsWest division. This
represents a decrease in direct operating expenses as a percentage of total
revenues to 79% in 2001 from 80% in 2000. The increase in direct operating
expense percentages is primarily attributed to decreased hotel revenues and
increased depreciation for improvements placed in service during 2001.
Undistributed Corporate Expenses
Undistributed corporate operating expenses increased $0.2 million or 14%, to
$1.9 million in 2001 from $1.7 million in 2000. Total undistributed corporate
operating expenses as a percentage of total revenues increased 0.3% to 1.6% in
2001 from 1.3% in 2000.
Operating income increased $692 thousand, or 3%, to $24.0 million in 2001 from
$23.4 million in 2000. As a percentage of total revenues, operating income
increased to 20% in 2001 from 19% in 2000. This increase is primarily due to the
gain on asset dispositions and insurance settlement. The insurance settlement
related to the insurance recoveries in excess of the net book value of the
assets which were destroyed in the fire at one of the Company's commercial
office buildings.
Interest Expense
Interest expense decreased $2.6 million, or 18%, to $12.1 million in 2001 from
$14.7 million in 2000. This decrease is primarily related to lower interest
rates charged on the Company's variable rate debt, reduced borrowing due to debt
repayments made by the Company, and the lower borrowing cost of long term fixed
rate debt implemented during 2001.
Income Taxes
Income tax expense increased 36%, to $4.5 million in 2001 from $3.3 million in
2000, due to the increase in income before taxes. The effective income tax
provision rate was 37% for 2001 and 36% for 2000.
Net Income
Net income increased $1.8 million, or 30%, to $7.6 million in 2001 from $5.8
million in 2000.
Earnings Per Share
Basic and diluted earnings per share increased approximately 31% to $.59 in 2001
from $.45 in 2000.
OTHER MATTERS
New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations," which amends SFAS No. 19. This statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The requirements of this statement must be
implemented for fiscal years beginning after June 15, 2002; however, early
adoption is encouraged. The adoption of this statement is not expected to have a
material effect on the Company's consolidated financial statements.
The FASB also issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." This Statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. The
adoption of this statement on January 1, 2002 did not have a material effect on
the Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements, by rescinding SFAS No. 4, which required all gains and losses
from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Accounting Principles Board Opinion No. 30 will now be used to classify those
gains and losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require that
certain lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
Finally, SFAS No. 145 also makes technical corrections to existing
pronouncements. While those corrections are not substantive in nature, in some
instances, they may change accounting practice. The provisions of SFAS No. 145
that amend SFAS No. 13 are effective for transactions occurring after May 15,
2002 with all other provisions of SFAS No. 145 being required to be adopted by
the Company on January 1, 2003. The adoption of SFAS No. 145 in 2003 has not had
a material impact on the Company's consolidated financial statements.
Page 16
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146
replaces the prior guidance that was provided by EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. Management currently believes that the adoption of SFAS No.
146 will not have a material impact on the Company's consolidated financial
statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation, Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of SFAS No. 123
to require prominent disclosure about the effects of reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends APB Opinion No. 28, "Interim
Financial Reporting", to require disclosure about those effects in interim
financial information. The amendments to SFAS No. 123, which provides
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation is
effective for financial statements for fiscal years ending after December 15,
2002. The amendment to SFAS No. 123 relating to disclosures and the amendment to
Opinion 28 is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. Management
currently believes that the adoption of SFAS No. 148 will not have a material
impact on the financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting for Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of FASB Statements No.
5, 57 and 107 and rescission of FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the
requirements for a guarantor's accounting for and disclosure of certain
guarantees issued and outstanding. It also requires a guarantor to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. This interpretation also incorporates
without consideration the guidance in FASB Interpretation No. 34, which is being
superseded. The adoption of FIN 45 will not have a material effect on the
consolidated financial statements and will be applied prospectively.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("FIN 46"). FIN 46 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 adoption of FIN 46 will not have a material effect on the consolidated
financial statements.
Inflation
Inflation has been moderate in recent years, as measured by fluctuations in the
Consumer Price Index, and has not had a significant impact on the Company's
business.
Safe Harbor for Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. The Company is
including the following cautionary statement to make applicable, and to take
advantage of, the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf of,
the Company. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, projections of future events or performance, and
underlying assumptions (many of which are based, in turn, upon further
assumptions). Forward-looking statements are all statements other than
statements of historical fact, including without limitation those that are
identified by the use of words such as, but not limited to, "will,"
"anticipates," "seeks to," "estimates," "expects," "intends," "plans,"
"predicts," and similar expressions, but the absence of these words does not
mean a statement is not forward-looking. From time to time, the Company may
publish or otherwise make available forward-looking statements of this nature.
All such subsequent forward-looking statements, whether written or oral and
whether made by or on behalf of the Company, are also expressly qualified by
these cautionary statements.
Page 17
Such statements are inherently subject to a variety of risks and uncertainties
that could cause actual results to differ materially from those expressed. Such
risks and uncertainties include, among others:
o magnitude and duration of war, international conflicts, economic cycles,
including fluctuations in regional economic conditions and seasonality of
lodging industry
o actual and threatened terrorist attacks and international conflicts, and their
impacts on travel
o changes in future demand and supply for hotel rooms
o competitive conditions in the lodging industry
o relationships with franchisees and properties
o changes in energy, healthcare, insurance and other operating expenses
o impact of government regulations
o ability to obtain financing through debt and/or equity issuance
o ability to sell non-core assets
o ability to locate lessees for rental property and managing and leasing
properties owned by third parties
o dependency upon the ability and experience of executive officers and ability
to retain or replace such officers
The Company's expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis, including without
limitation management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that the Company's expectations, beliefs or
projections will be achieved or accomplished. Furthermore, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances that occur after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor on
the Company's business or the extent to which any such factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables summarize the financial instruments held by the Company at
December 31, 2002 and 2001, which are sensitive to changes in interest rates. At
December 31, 2002, approximately 40.2% of the Company's debt and capital lease
obligations are subject to changes in market interest rates and are sensitive to
those changes.
The following table presents principal cash flows for debt and capital leases
outstanding at December 31, 2002, by maturity date and the related average
interest rate (in thousands).
Outstanding Debt and Capital Lease Obligations
2003 2004 2005 2006 2007 There-after Total Fair Value
Note payable to bank (a) $52,100 $ - $ - $ - $ - $ - $52,100 $52,100
Long-term debt:
Fixed rate 4,044 2,985 6,832 3,069 3,298 74,222 94,450 94,450
Weighted-average
interest rate 7.78% 7.80% 7.81% 7.81% 7.83% 7.85%
Variable rate 845 893 949 1,012 702 7,244 11,645 11,645
Weighted-average
interest rate 5.48% 5.47% 5.47% 5.46% 5.45% 5.41%
Capital lease obligations 268 - - - - - 268 268
Weighted-average
interest rate 8.58% - % - % - % - % - %
(a) The interest rate on the note payable is based on LIBOR plus a variable
interest margin based on the Company's funded debt ratio. The interest margin
can vary from 205 - 350 basis points. At December 31, 2002, the interest margin
was 275 basis points.
The following table presents principal cash flows for debt and capital leases
outstanding at December 31, 2001, by maturity date and the related average
interest rate (in thousands).
Outstanding Debt and Capital Lease Obligations
2002 2003 2004 2005 2006 There-after Total Fair Value
Note payable to bank (a) $ - $54,250 $ - $ - $ - $ - $54,250 $54,250
Long-term debt:
Fixed rate 2,861 4,586 2,869 6,742 2,967 80,365 100,390 100,390
Weighted-average
interest rate 7.66% 7.67% 7.69% 7.70% 7.71% 7.73%
Variable rate 892 953 1,032 1,113 1,202 11,448 16,640 16,640
Weighted-average
interest rate 6.99% 7.02% 7.04% 7.06% 7.09% 7.13%
Capital lease obligations 384 268 - - - - 652 652
Weighted-average
interest rate 8.23% 8.59% - % - % - % - %
(a) The interest rate on the note payable is based on LIBOR plus a variable
interest margin based on the Company's funded debt ratio. The interest margin
can vary from 180 - 325 basis points. At December 31, 2001, the interest margin
was 250 basis points.
Page 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this report for information with respect to the financial
statements filed as a part hereof, including financial statements filed pursuant
to the requirements of this Item 8.
Selected Quarterly Data
Unaudited - dollars in thousands except per share amounts
First Second Third Fourth
Quarter Quarter Quarter Quarter
2002
Revenues $42,469 $51,623 $55,685 $44,394
Operating income 4,574 8,426 9,419 262
Income (loss) before income tax 1,654 5,842 6,971 (2,091)
Net income (loss) 1,070 3,780 4,510 (1,353)
Earnings (loss) per common share - Basic 0.03 0.24 0.30 (0.15)
Earnings (loss) per common share - Diluted 0.03 0.24 0.29 (0.15)
2001
Revenues $28,152 $32,418 $33,844 $26,219
Operating income 3,307 6,495 7,263 1,912
Income (loss) before tax 676 4,555 2,924 (553)
Net income (loss) 676 4,532 2,924 (553)
Earnings (loss) per common share - Basic & Diluted 0.05 0.35 0.23 (0.04)
Page 19
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
WestCoast Hospitality Corporation
Spokane, Washington
We have audited the accompanying consolidated balance sheets of WestCoast
Hospitality Corporation and its subsidiaries as of December 31, 2002 and 2001
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WestCoast
Hospitality Corporation and its subsidiaries at December 31, 2002 and 2001, and
the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for goodwill in 2002.
BDO Seidman, LLP
February 5, 2003
Spokane, Washington
Page 20
Report of Independent Accountants
The Board of Directors and Stockholders
WestCoast Hospitality Corporation
In our opinion, the consolidated statements of income, of changes in
stockholders' equity and of cash flows for the year ended December 31, 2000
present fairly, in all material respects, the results of operations and cash
flows of WestCoast Hospitality Corporation and its subsidiaries for the year
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Portland, Oregon
February 1, 2001
Page 21
WestCoast Hospitality Corporation
Consolidated Balance Sheets
December 31, 2002 and 2001
(in thousands, except share data)
2002 2001
Assets:
Current assets:
Cash and cash equivalents $ 2,701 $ 5,735
Accounts receivable, net 9,559 9,101
Inventories 2,040 2,380
Assets held for sale 34,408 21,403
Prepaid expenses and other 2,693 1,410
------------------ ------------------
Total current assets 51,401 40,029
------------------ ------------------
Property and equipment, net 241,255 257,656
Goodwill 28,042 28,042
Other intangible assets, net 15,188 16,518
Other assets, net 20,824 17,404
------------------ ------------------
Total assets $ 356,710 $ 359,649
================== ==================
Liabilities:
Current liabilities:
Accounts payable $ 6,773 $ 4,756
Accrued payroll and related benefits 6,173 6,866
Accrued interest payable 695 777
Income taxes payable - 822
Advanced deposits 198 1,542
Other accrued expenses 8,494 7,039
Notes payable to bank 52,100 -
Long-term debt, due within one year 4,889 3,753
Capital lease obligations, due within one year 268 384
------------------ ------------------
Total current liabilities 79,590 25,939
------------------ ------------------
Long-term debt, due after one year 101,206 113,277
Notes payable to bank - 54,250
Capital lease obligations, due after one year - 268
Deferred income 2,626 -
Deferred income taxes 16,261 14,160
Minority interest in partnerships 2,911 2,940
------------------ ------------------
Total liabilities 202,594 210,834
------------------ ------------------
Commitments and contingencies (Notes 3, 14 and 15)
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value;
$50 per share liquidation value:
Class A - 301,315 and 303,771 shares issued and outstanding 3 3
Class B - 301,315 and 303,771 shares issued and outstanding 3 3
Additional paid-in capital, preferred stock 30,125 30,371
Common stock - 50,000,000 shares authorized; $0.01 par value;
12,981,878 and 12,959,700 shares issued and outstanding 130 130
Additional paid-in capital, common stock 84,083 83,966
Retained earnings 39,772 34,342
------------------ ------------------
Total stockholders' equity 154,116 148,815
------------------ ------------------
Total liabilities and stockholders' equity $ 356,710 $ 359,649
================== ==================
The accompanying notes are an integral part of the consolidated financial statements.
Page 22
WestCoast Hospitality Corporation
Consolidated Statements of Income
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands, except per share data)
2002 2001 2000
Revenues:
Hotels and Restaurants $ 173,320 $ 99,495 $ 106,540
Franchise, Central Services and Development 4,137 3,213 3,643
TicketsWest 7,430 7,497 5,705
Real Estate Division 9,001 10,114 9,540
Corporate Services 283 314 378
---------------- ---------------- ----------------
Total revenues 194,171 120,633 125,806
---------------- ---------------- ----------------
Operating expenses:
Direct:
Hotels and Restaurants 148,675 74,560 78,626
Franchise, Central Services and Development 1,990 1,796 1,207
TicketsWest 6,343 7,258 5,702
Real Estate Division 4,778 4,734 4,378
Corporate Services 222 183 227
Depreciation and amortization 10,517 10,323 9,578
Amortization of goodwill - 855 874
Gain on asset dispositions including recoveries (3,166) (5,103) (52)
Conversion expense 14 85 246
---------------- ---------------- ----------------
Total direct expenses 169,373 94,691 100,786
Undistributed corporate expenses 2,117 1,896 1,666
---------------- ---------------- ----------------
Total expenses 171,490 96,587 102,452
---------------- ---------------- ----------------
Operating income 22,681 24,046 23,354
Other income (expense):
Interest expense, net of amounts capitalized (10,717) (12,092) (14,660)
Interest income 372 247 315
Other income 20 - 134
Equity in investments 28 92 100
Minority interest in partnerships (8) (188) (116)
---------------- ---------------- ----------------
Income before income taxes 12,376 12,105 9,127
Income tax provision 4,369 4,503 3,306
---------------- ---------------- ----------------
Income before extraordinary item 8,007 7,602 5,821
Extraordinary item, net of tax benefit - (23) -
---------------- ---------------- ----------------
Net income 8,007 7,579 5,821
Preferred stock dividend (2,577) - -
---------------- ---------------- ----------------
Income applicable to common shareholders $ 5,430 $ 7,579 $ 5,821
================ ================ ================
Page 23
WestCoast Hospitality Corporation
Consolidated Statements of Income, Continued
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands, except per share data)
2002 2001 2000
Earnings per common share:
Income per common share before extraordinary item $ 0.42 $ 0.59 $ 0.45
Extraordinary item - - -
------------ ------------ ----------
Earnings per share - basic $ 0.42 $ 0.59 $ 0.45
============ ============ ==========
Earnings per share - diluted $ 0.41 $ 0.59 $ 0.45
============ ============ ==========
Weighted-average shares outstanding - basic 12,975 12,953 12,941
============ ============ ==========
Weighted-average shares outstanding - diluted 13,285 13,239 13,237
============ ============ ==========
The accompanying notes are an integral part of the consolidated financial statements.
Page 24
WestCoast Hospitality Corporation
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands, except share data)
Preferred Stock Common Stock
----------------------------------- --------------------------------------
Additional Additional
Paid-In Paid-In Retained
Shares Amount Capital Shares Amount Capital Earnings
Balances, January 1, 2000 - $ - $ - 12,925,276 $ 129 $ 83,761 $ 20,942
Net income 5,821
Stock issued under employee
stock purchase plan 26,429 175
Stock issued to directors 1,578 12
Retirement of stock (20,177) (103)
----------------------------------------------------------------------------------------------
Balances, December 31, 2000 - - - 12,933,106 129 83,845 26,763
Net income 7,579
Stock issued under employee
stock purchase plan 24,139 1 106
Stock issued for acquisition
of subsidiaries 607,542 6 30,371
Stock issued to directors 2,455 15
----------------------------------------------------------------------------------------------
Balances, December 31, 2001 607,542 6 30,371 12,959,700 130 83,966 34,342
Net income 8,007
Preferred stock dividends:
Series A ($3.50 per share) (1,061)
Series B ($5.00 per share) (1,516)
Retirement of stock
Series A (2,456) - (123)
Series B (2,456) - (123)
Stock issued under employee
stock purchase plan 19,902 102
Stock issued to directors 2,276 15
----------------------------------------------------------------------------------------------
Balances, December 31, 2002 602,630 $ 6 $ 30,125 12,981,878 $ 130 $ 84,083 $ 39,772
==============================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Page 25
WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
Operating activities:
Net income $ 8,007 $ 7,579 $ 5,821
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,517 11,178 10,452
(Gain) loss on disposition of property and equipment (3,166) (1,353) 194
Gain on insurance settlement - (3,782) -
Deferred income tax provision 1,921 2,240 1,524
Minority interest in partnerships 8 188 116
Equity in investments (28) (92) (100)
Extraordinary item, write-off of deferred loan fees - 9 -
Compensation expense related to stock issuance 15 15 12
Provision for doubtful accounts 1,053 397 297
Change in assets and liabilities, net of effects of
purchase of subsidiary:
Accounts receivable (1,556) (71) 1,019
Inventories 105 (7) (20)
Prepaid expenses, deposits and income taxes
refundable (1,322) (393) 145
Accounts payable and income taxes payable 1,046 129 (2,275)
Accrued payroll and related benefits (693) 1,448 (571)
Accrued interest payable (82) 69 (13)
Other accrued expenses and advance deposits (692) (64) (4,647)
------------ ------------ ------------
Net cash provided by operating activities 15,133 17,490 11,954
------------ ------------ ------------
Investing activities:
Additions to property and equipment (10,708) (6,769) (7,739)
Proceeds from disposition of property and equipment 1,845 1,792 -
Cash paid for acquisition of subsidiary, net of cash received - (17,816) -
Distribution from partnership investments 192 - -
Payment received on note receivable - 67 -
Other, net 15 (202) 257
------------ ------------ ------------
Net cash used in investing activities (8,656) (22,928) (7,482)
------------ ------------ ------------
Financing activities:
Distributions to minority owners (37) (129) (33)
Proceeds from note payable to bank 10,800 21,150 15,137
Repayment of note payable to bank (12,950) (73,400) (9,900)
Proceeds from long-term debt - 74,400 -
Repayment of long-term debt (4,257) (12,624) (9,707)
Proceeds from issuance of common stock under employee
stock purchase plan 102 107 175
Preferred stock dividend payments (1,937) - -
Principal payments on capital lease obligations (384) (534) (648)
Additions to deferred financing costs (848) (1,273) (377)
------------ ------------ ------------
Net cash provided by (used in) financing activities (9,511) 7,697 (5,353)
------------ ------------ ------------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents (3,034) 2,259 (881)
Cash and cash equivalents at beginning of year 5,735 3,476 4,357
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,701 $ 5,735 $ 3,476
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
Page 26
WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows, Continued
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest (net of amount capitalized) $ 10,799 $ 12,023 $ 14,673
Income taxes $ 4,376 $ 1,424 $ 1,791
Noncash investing and financing activities:
Addition of note receivable on sale of building $ 2,607 $ - $ -
Investment in real estate venture exchanged for property $ 1,194 $ - $ -
Assignment of debt to purchaser of building $ 7,198 $ - $ -
Preferred stock dividends declared $ 2,577 $ - $ -
Retirement of preferred stock for refund of contracts $ (246) $ - $ -
Note payable for real estate $ 520 $ - $ -
Assumption of capital leases $ - $ - $ 108
Acquisitions of property through debt, liabilities or
reduction of note receivable $ - $ - $ 602
Issuance of stock for acquisition of subsidiary $ - $ 30,377 $ -
Redemption of stock for satisfaction of receivable