UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR (15)d OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
_____________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period ________________ to ________________
Commission file number 001-13957
_________
WESTCOAST HOSPITALITY CORPORATION
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington
_______________________________________________________________________
(State or other jurisdiction of incorporation or organization)
91-1032187
_______________________________________________________________________
(I.R.S. Employer Identification No.)
201 W. North River Drive, Suite 100, Spokane, Washington 99201
_______________________________________________________________________
(Address of principal executive offices) (Zip Code)
(509) 459-6100
_______________________________________________________________________
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No
______ ______
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No |X|
______ ______
As of August 8, 2003 there were 13,004,657 shares of the Registrant's common
stock outstanding.
1
WESTCOAST HOSPITALITY CORPORATION
Form 10-Q
For the Quarter Ended June 30, 2003
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements: (unaudited)
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2003 and 2002 4
Consolidated Statements of Cash Flows
Six months Ended June 30, 2003 and 2002 5-6
Condensed Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings (a)
Item 2. Changes in Securities and Use of Proceeds (a)
Item 3. Defaults Upon Senior Securities (a)
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information (a)
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
(a) Item is omitted as it is not applicable for the period covered by this
report.
2
PART I -FINANCIAL INFORMATION
Item 1. Financial Statements
WestCoast Hospitality Corporation
Consolidated Balance Sheets (unaudited)
June 30, 2003 and December 31, 2002
($ in thousands, except share data)
June 30, December 31,
2003 2002
Assets:
Current assets:
Cash and cash equivalents $ 3,518 $ 752
Restricted cash 3,310 1,949
Accounts receivable, net 10,701 9,559
Inventories 1,919 2,040
Assets held for sale 21,705 34,408
Prepaid expenses and other 4,758 2,693
------------------ ------------------
Total current assets 45,911 51,401
------------------ ------------------
Property and equipment, net 250,008 241,255
Goodwill 28,042 28,042
Other intangible assets, net 14,804 15,188
Other assets, net 19,916 20,824
------------------ ------------------
Total assets $ 358,681 $ 356,710
================== ==================
Liabilities:
Current liabilities:
Accounts payable $ 7,865 $ 6,773
Accrued payroll and related benefits 4,788 6,173
Accrued interest payable 640 695
Advanced deposits 408 198
Other accrued expenses 10,515 8,494
Notes payable to bank - 52,100
Long-term debt, due within one year 5,804 4,889
Capital lease obligations, due within one year 84 268
------------------ ------------------
Total current liabilities 30,104 79,590
------------------ ------------------
Long-term debt, due after one year 153,708 101,206
Deferred revenue 2,483 2,626
Deferred income taxes 16,961 16,261
Minority interest in partnerships 2,780 2,911
------------------ ------------------
Total liabilities 206,036 202,594
------------------ ------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value;
$50 per share liquidation value:
Series A - 298,569 and 301,315 shares issued and outstanding 3 3
Series B - 298,569 and 301,315 shares issued and outstanding 3 3
Additional paid-in capital, preferred stock 29,851 30,125
Common stock - 50,000,000 shares authorized; $0.01 par value;
12,994,163 and 12,981,878 shares issued and outstanding 130 130
Additional paid-in capital, common stock 84,142 84,083
Retained earnings 38,516 39,772
------------------ ------------------
Total stockholders' equity 152,645 154,116
------------------ ------------------
Total liabilities and stockholders' equity $ 358,681 $ 356,710
================== ==================
The accompanying notes are an integral part of the consolidated financial statements.
3
WestCoast Hospitality Corporation
Consolidated Statements of Operations (unaudited)
For the Three Months and Six Months Ended June 30, 2003 and 2002
(in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Revenues:
Hotels and restaurants $ 43,346 $ 46,736 $ 77,442 $ 83,941
Franchise, central services and development 888 1,183 1,978 1,934
Entertainment 1,384 1,493 3,985 3,472
Real estate 2,363 2,139 4,665 4,611
Corporate services 87 72 174 134
--------------- -------------- --------------- --------------
Total revenues 48,068 51,623 88,244 94,092
--------------- -------------- --------------- --------------
Operating expenses:
Hotels and restaurants 35,124 37,174 67,755 71,694
Franchise, central services and development 413 568 892 1,019
Entertainment 1,291 1,467 3,481 2,911
Real estate 1,216 1,030 2,434 2,242
Corporate services 83 53 160 101
Depreciation and amortization 3,157 2,659 5,764 5,376
(Gain) loss on asset dispositions including recoveries 364 (83) 696 (3,097)
Conversion expenses 79 6 367 7
--------------- -------------- --------------- -------------
Total direct expenses 41,727 42,874 81,549 80,253
Undistributed corporate expenses 587 332 1,327 905
--------------- -------------- --------------- -------------
Total expenses 42,314 43,206 82,876 81,158
--------------- -------------- --------------- -------------
Operating income 5,754 8,417 5,368 12,934
Other income (expense):
Interest expense, net of amounts capitalized (2,713) (2,655) (5,355) (5,522)
Interest income 103 116 207 158
Other income (expense) (312) 9 (293) 4
Equity income (loss) in investments 21 16 80 (12)
Minority interest in partnerships 18 (61) 131 (66)
--------------- -------------- --------------- -------------
Income before income taxes 2,871 5,842 138 7,496
Income tax expense 1,078 2,062 113 2,646
--------------- -------------- --------------- -------------
Net income 1,793 3,780 25 4,850
Preferred stock dividend (640) (645) (1,281) (1,291)
--------------- -------------- --------------- -------------
Net income (loss) to common stockholders $ 1,153 $ 3,135 $ (1,256) $ 3,559
=============== ============== =============== =============
Net earnings (loss) per share:
Basic $ 0.09 $ 0.24 $ (0.10) $ 0.27
Diluted $ 0.09 $ 0.24 $ (0.10) $ 0.27
Weighted average shares outstanding - basic 12,994 12,970 12,993 12,970
=============== ============== =============== =============
Weighted average shares outstanding - diluted 13,280 13,315 12,993 13,319
=============== ============== =============== =============
The accompanying notes are an integral part of the consolidated financial statements.
4
WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows (unaudited)
For the Six Months Ended June 30, 2003 and 2002
($ in thousands)
Six Months Ended June 30,
2003 2002
Operating activities:
Net income $ 25 $ 4,850
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,764 5,376
(Gain) loss on disposition of property, equipment
and other assets 696 (3,097)
Non-cash reduction of preferred stock resulting in gain (230) -
Write-off of deferred loan fees 790 -
Deferred income tax provision 700 200
Minority interest in partnerships (131) 66
Equity in investments (80) 12
Compensation expense related to stock issuance 5 7
Provision for doubtful accounts 189 111
Change in current assets and liabilities:
Restricted cash (1,361) (594)
Accounts receivable (1,209) (1,112)
Inventories 121 (81)
Prepaid expenses and other (2,070) (1,676)
Accounts payable 1,068 3,972
Accrued payroll and related benefits (1,385) 875
Accrued interest payable (55) (36)
Other accrued expenses and advance deposits 1,596 1,495
-------------- --------------
Net cash provided by operating activities 4,433 10,368
-------------- --------------
Investing activities:
Purchases of property and equipment (4,117) (2,468)
Proceeds from disposition of property and equipment 17 1,828
Proceeds from disposition of investment 350 -
Other, net 69 142
-------------- --------------
Net cash used in investing activities (3,681) (498)
-------------- --------------
The accompanying notes are an integral part of the consolidated financial statements.
5
WestCoast Hospitality Corporation
Consolidated Statements of Cash Flows (unaudited), continued
For the Six Months Ended June 30, 2003 and 2002
($ in thousands)
Six Months Ended June 30,
2003 2002
Financing activities:
Proceeds from note payable to bank 35,300 -
Repayment of note payable to bank (87,400) (7,650)
Proceeds from long-term debt 55,200 -
Proceeds from short-term debt 2,658 -
Repayment of long-term debt (1,783) (1,563)
Proceeds from issuance of common stock under employee
stock purchase plan 54 49
Preferred stock dividend payments (646) (645)
Principal payments on capital lease obligations (184) (187)
Additions to deferred financing costs (1,185) (19)
-------------- --------------
Net cash provided by (used in) financing activities 2,014 (10,015)
-------------- --------------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 2,766 (145)
Cash and cash equivalents at beginning of period 752 4,613
-------------- --------------
Cash and cash equivalents at end of period $ 3,518 $ 4,468
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,410 $ 5,558
Income taxes $ 93 $ 801
Non-cash investing and financing activities:
Preferred stock dividends accrued $ 1,281 $ 1,291
Sale-operating leaseback of equipment $ 2,658 $ -
Non-cash reduction of working capital for
preferred stock $ 44 $ -
Reclassification of assets held for sale to property
and equipment $ 12,978 $ -
Addition of note receivable on sale of building $ - $ 2,607
Investment in real estate venture $ - $ 1,194
Assignment of debt to purchaser of building $ - $ 7,198
The accompanying notes are an integral part of the consolidated financial statements.
6
WestCoast Hospitality Corporation
Condensed Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS AND ORGANIZATION
WestCoast Hospitality Corporation ("the Company" or "WestCoast") is primarily
engaged in the ownership, management, development, and franchising of mid-scale,
full service hotels. As of June 30, 2003, the system contained 73 properties in
12 states and one Canandian province, totaling over 12,700 rooms and over
583,700 square feet of meeting space. At June 30, 2003, the Company owned an
interest in and operated 28 hotels, leased 14 hotels, managed six hotels owned
by others and franchised 25 hotels owned and operated by third parties. The
Company's hotel brands include WestCoast(R) and RedLion(R).
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 entertainment division and
owning, leasing, developing and managing commercial and residential properties
through its real estate services 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 consolidated financial statements include the accounts of WestCoast
Hospitality Corporation, its wholly owned subsidiaries, its general and limited
partnership interests in WHLP, a 50% interest in a limited partnership and its
equity basis investment in other limited partnerships. All significant
inter-company transactions and accounts have been eliminated in the consolidated
financial statements.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by WestCoast pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted as permitted by
such rules and regulations. The balance sheet as of December 31, 2002 has been
compiled from the audited balance sheet as of such date. The Company believes
that the disclosures included herein are adequate; however, these consolidated
statements should be read in conjunction with the financial statements and the
notes thereto for the year ended December 31, 2002 previously filed with the SEC
on Form 10-K.
In the opinion of management, these unaudited consolidated financial statements
contain all of the adjustments of a normal and recurring nature necessary to
present fairly the consolidated financial position of the Company at June 30,
2003 and the consolidated results of operations and cash flows for the periods
ended June 30, 2003 and 2002. The results of operations for the periods
presented may not be indicative of those which may be expected for a full year.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, the reported amounts of
revenues and expenses during the reporting period and the disclosures of
contingent liabilities. Accordingly, ultimate results could differ materially
from those estimates.
7
3. DEBT REFINANCE
On June 27, 2003, the Company completed the refinance of its revolving credit
facility by securing term debt of $55.2 million from a finance company under ten
separate promissory notes. The notes are collateralized by certain hotel
properties. The notes bear interest at 6.7% and utilize a 25-year amortization
period, but are due in full on July 11, 2013. In connection with securing this
term debt, the Company incurred loan fees and other costs totaling $1.1 million
which have been capitalized and will be amortized using the effective interest
method over the ten year period of the underlying promissory notes. Proceeds of
$1.7 million have been set aside in reserve accounts for taxes, insurance,
repairs and other reserves.
A portion of the proceeds from the new borrowings were used to pay down the
$51.5 million outstanding balance on the Company's primary revolving credit
facility. The credit facility agreement was then amended effective June 27,
2003, reducing the maximum borrowing amount to $4.0 million. The credit facility
is collateralized by certain property and equipment and interest is computed
based upon either the bank's prime rate or certain LIBOR rates at the Company's
option. At June 30, 2003, the Company had no outstanding balance under the
credit facility. The agreement contains certain restrictions and covenants, the
most restrictive of which require the Company to maintain a minimum fixed charge
ratio and a maximum debt to equity ratio. At June 30, 2003, the Company was in
compliance with all covenants under the agreement. The amended credit facility
does not require any principal payments until its maturity date of June 30,
2005. As a result, any possible future borrowings in 2003 would be reflected as
a long-term liability.
As of the date of the amendment to the credit facility, the balance of
unamortized deferred finance costs associated with the existing revolving credit
facility was $848 thousand. The amendment resulted in a 92% reduction of
borrowing capacity under the revolving credit facility. As such, in June 2003
the Company recorded a proportionate write-off of the existing deferred loan
costs of $790 thousand.
4. SALE AND SUBSEQUENT LEASEBACK OF EQUIPMENT
In June 2003, WestCoast completed the sale to a finance company of certain
capitalized software and equipment previously included in construction
in-process. The proceeds of approximately $2.7 million were used to repay the
outstanding balance on an interim note payable to the finance company in the
same amount. Certain other costs directly related to the software and equipment
were paid for directly by the finance company, totaling $451 thousand. WestCoast
then entered into an operating lease agreement with the finance company which
expires in June 2005 and requires monthly payments of approximately $52
thousand. At the option of WestCoast, the lease term is renewable for three
one-year terms. No gain or loss was recorded on this sale-leaseback transaction.
5. BUSINESS SEGMENTS
The Company has four operating segments: (1) hotels and restaurants; (2)
franchise, central services and development; (3) entertainment; and (4) real
estate. In addition, corporate services consists primarily of miscellaneous
revenues and expenses, cash and cash equivalents, certain receivables and
certain property and equipment, which are not specifically associated with an
operating segment. Management reviews and evaluates the operating segments
exclusive of interest expense, income tax expense, and other income (expense)
items. Therefore, these items are not allocated to the segments.
8
Selected information with respect to the segments is as follows
($ in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
Revenues:
Hotels and restaurants $ 43,346 $ 46,736 $ 77,442 $ 83,941
Franchise, central services and development 888 1,183 1,978 1,934
Entertainment 1,384 1,493 3,985 3,472
Real estate 2,363 2,139 4,665 4,611
Corporate services 87 72 174 134
-------------- --------------- ------------- ------------
$ 48,068 $ 51,623 $ 88,244 $ 94,092
============== =============== ============= ============
Operating income (loss):
Hotels and restaurants $ 4,960 $ 7,386 $ 3,539 $ 7,899
Franchise, central services and development 399 534 935 742
Entertainment 10 (54) 345 405
Real estate 1,195 1,016 2,327 2,119
Corporate services (810) (465) (1,778) 1,769
-------------- --------------- ------------- ------------
$ 5,754 $ 8,417 $ 5,368 $ 12,934
============== =============== ============= ============
6. EARNINGS (LOSS) PER SHARE
The following table presents a reconciliation of the numerators and denominators
used in the basic and diluted earnings per share computations ($ in thousands,
except per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
Numerator:
Net income $ 1,793 $ 3,780 $ 25 $ 4,850
Preferred stock dividend (640) (645) (1,281) (1,291)
-------------- --------------- ------------- ------------
Net income (loss) to common stockholders - basic 1,153 3,135 (1,256) 3,559
Effect of dilutive OP units (a) 7 31 - 56
-------------- --------------- ------------- ------------
Net income (loss) to common stockholders - diluted $ 1,160 $ 3,166 $(1,256) $ 3,615
============== =============== ============= ============
Denominator:
Weighted average shares outstanding - basic 12,994 12,970 12,993 12,970
Effect of dilutive OP units 286 286 - 286
Effect of dilutive common stock options and
convertible notes (a) - 59 - 63
-------------- --------------- ------------- ------------
Weighted average shares outstanding - diluted 13,280 13,315 12,993 13,319
============== =============== ============= ============
Net earnings (loss) per share - basic and diluted $ 0.09 $ 0.24 $ (0.10) $ 0.27
============== =============== ============= ============
(a) At June 30, 2003, 827,604 stock options were outstanding. The effects of the shares which would be issuable upon exercise of
these options have been excluded from the calculation of diluted earnings per share for the three month and six month periods
ending June 30, 2003 because they are anti-dilutive. At June 30, 2002, 1,232,341 stock options were outstanding, of which
872,568 were excluded from the calculation of diluted earnings per share for the three month and six month periods ending
June 30, 2002 because they are anti-dilutive. The operating partnership ("OP") units are excluded from the weighted-average
share calculation for the six month period ending June 30, 2003 because they are anti-dilutive. Convertible notes are
excluded from the weighted-average share calculation for all periods presented as they are anti-dilutive.
9
7. DISPOSITION OF INVESMENT
Effective April 2003, the Company sold its ownership investment in a hotel
venture to an unrelated party for $350 thousand. In addition, the Company
assigned its interest in the management agreement to the same party in exchange
for a structured payment arrangement totaling approximately $141 thousand with
payments through January 2004. The carrying value of the Company's investment at
the date of sale was $934 thousand, resulting in a loss on the transaction of
$443 thousand, which is included as a loss on asset dispositions in the
accompanying statement of operations.
8. ASSETS HELD FOR SALE
At June 30, 2003, assets held for sale consists of two office buildings with a
net carrying value of $21.7 million. One additional property was held for sale
at December 31, 2002, making the balance $34.4 million at that date.
As previously disclosed, the Company had entered into a purchase and sale
agreement with a potential buyer for the WestCoast Kalispell Center Hotel and
Mall. The Company and the buyer subsequently terminated this agreement, at which
time the Company determined that it was no longer in its best interest to
continue to market the property for sale. As a result of this decision, the net
book value of the related assets of approximately $13.0 million has been
reclassified from assets held for sale to property and equipment. A depreciation
adjustment of $520 thousand was recorded in June 2003, reflecting non-cash
expenses that would have been recognized had the assets been classified as held
and used since July 2002.
Depreciation of the other two assets remains suspended. Management is committed
to the sale of the assets and is actively marketing the properties. Both of the
properties are available for sale in their present condition at prices
management believes reasonable compared to their respective estimated fair
values. Management believes it is unlikely that significant changes to its plans
for sale of these properties will be made.
9. STOCK BASED COMPENSATION
In June 2003, the Company granted 60,468 options to purchase its common stock to
certain employees at an exercise price of $5.98 under the Company's 1998 stock
incentive plan. The market value of the Company's common stock on the date of
grant was $4.41 per share. The options vest 50% in June 2007 and 50% in June
2008, subject to accelerated vesting in the event of certain target market
prices for the Company's common stock are reached. The options expire in June
2013.
In July 2002, the Company offered eligible common stock option holders the
opportunity to exchange certain common stock options for new common stock
options. The new common stock options offered were to be issued at the fair
market value of the stock on or after the first business day that is six months
and one day after the date the original options were cancelled in the exchange.
On July 31, 2002, 571,661 options were cancelled pursuant to the terms of the
offer. The Company granted 261,251 new options in February 2003. The terms of
the transaction are disclosed in a Schedule TO and amendments thereto filed in
July and August 2002.
As permitted by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company has chosen to
measure compensation cost for stock-based employee compensation plans using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and to provide the
disclosure only requirements of SFAS No. 123. On December 31, 2002, the
Financial Accounting Standards Board ("FASB") amended the transition and
disclosure requirements of SFAS No. 123 through the issuance of Statement of
Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation
- - Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 amends the existing
disclosures to make more frequent and prominent disclosure of stock-based
compensation expense beginning with financial statements for fiscal periods
ending after December 15, 2002.
10
The Company has chosen not to record compensation expense using fair value
measurement provisions in the statement of operations. Had compensation cost for
plan been determined based on the fair value at the grant dates for awards under
the plans, reported net income or loss and earnings (loss) per share would have
been changed to the pro forma amounts indicated below
($ in thousands, except per share amounts):
Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
Reported net income (loss) applicable to common stockholders $ 1,153 $ 3,135 $ (1,256) $ 3,559
Add back: stock based employee compensation
expense, net of related tax effects - - 3 10
Deduct: Total stock-based employee compensation
expense determined under fair valued based
method for all awards, net of related tax effects (128) - (465) (202)
------------- ------------- ------------- ------------
Pro forma net income (loss) applicable to common stockholders $ 1,025 $ 3,135 $ (1,718) $ 3,367
============= ============= ============= ============
Basic and diluted net earnings (loss) per share:
Reported net earnings (loss) per share $ 0.09 $ 0.24 $ (0.10) $ 0.27
Stock-based employee compensation, fair value (0.01) - (0.03) (0.02)
------------- ------------- ------------- ------------
Pro forma basic and diluted net earnings (loss) per share $ 0.08 $ 0.24 $ (0.13) $ 0.25
============= ============= ============= ============
10. PREFERRED STOCK
In June 2003, the Company entered into a termination agreement with one of its
franchised properties. As consideration for the early termination of the
franchise agreement totaling $274 thousand, the Company received 2,746 shares
each of its own Series A and Series B preferred stock with a stated value of $50
per share. A termination gain of $230 thousand was recorded by the Company and
is included in revenues for franchise, central services, and development.
The Company is no longer restricted from the payment of dividends. On July 3,
2003, the Company paid a dividend to the shareholders of record as of June 30,
2003 of its Series A and Series B preferred stock totaling approximately $1.3
million, which represented all current dividends and dividends that were
previously accrued under the preferred stock agreement.
11
11. RECENT ACCOUNTING PRONOUNCEMENTS
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 No. 46"). FIN No. 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. FIN No. 46 is effective for WestCoast starting July 1, 2003 and
is not expected to have a material effect on the Company's consolidated
financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 149 is effective for all contracts created or modified
after June 30, 2003 except for hedging relationships designated after June 30,
2003. In addition, except as stated below, all provisions of SFAS No. 149 should
be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No.
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, should continue to be applied in accordance with
their respective effective dates. In addition, paragraphs 7(a) and 23(a), which
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. The Company does not believe
that the adoption of this standard will have a material effect on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 establishes standards on the classification and measurement
of certain financial instruments with characteristics of both liabilities and
equity. The provisions of SFAS No. 150 are effective for financial instruments
entered into or modified after May 31, 2003 and to all other instruments that
exist as of the beginning of the first interim financial reporting period
beginning after June 15, 2003. The Company does not believe that the adoption of
SFAS No. 150 will have a material impact on the Company's consolidated financial
statements.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor for Forward-Looking Statements
This Quarterly Report on Form 10-Q 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.
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 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 held for sale and the related effect of
potential depreciation recapture
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.
13
GENERAL
_______
The following discussion and analysis addresses the results of operations for
the Company for the three month and six month periods ended June 30, 2003. The
following should be read in conjunction with the unaudited Consolidated
Financial Statements and the Notes thereto. In addition to historical
information, the following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed above in "Safe Harbor for
Forward Looking Statements".
The Company's revenues are derived primarily from hotels and restaurants and
reflect revenue from rooms, food and beverage, third party management and other
sources, including telephone, guest services, banquet room rentals, gift shops
and other amenities. Hotel and restaurants revenue accounted for 90.2% of total
revenues in the three months ended June 30, 2003 and decreased 7.3% to $43.3
million in 2003 from $46.7 million in 2002. The balance of the Company's
revenues is derived from its franchise, central services and development,
entertainment, real estate, and corporate services segments. These revenues are
generated from franchise fees, ticket distribution handling fees, internet
services, real estate management fees, sales commissions, development fees and
rents. Franchise, central services and development accounted for 1.8% of the
Company's revenue for the three months ended June 30, 2003. Entertainment
accounted for 2.9% and real estate division accounted for 4.9% of total revenues
for the same period.
As is typical in the hospitality industry, revenue per available room
("RevPAR"), average daily rate ("ADR") and occupancy levels are important
performance measures. The Company's operating strategy is focused on enhancing
revenue and operating margins by increasing RevPAR, ADR, occupancy and operating
efficiencies of the hotels. These performance measures are impacted by a variety
of factors including national, regional and local economic conditions, degree of
competition with other hotels in their respective market areas and, in the case
of occupancy levels, changes in travel patterns.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
__________________________________________
A critical accounting policy is one which is both important to the portrayal of
the Company's financial condition and results of operations and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. All of the Company's significant accounting policies are described in
Note 2 to the 2002 consolidated financial statements included in the Form 10-K.
The more critical accounting policies and estimates used relate to:
Revenue is generally recognized as services are performed. Hotel and restaurant
revenues primarily represent room rental and food and beverage sales from owned,
leased and other consolidated hotels and are recognized at the time of the hotel
stay or sale of the restaurant services. Hotel and restaurant revenues also
include management fees the Company earns from managing third party owned
hotels. Franchise, central services and development fees represent fees received
in connection with the franchise of the Company's brand name as well as central
purchasing, development and other fees. Franchise fees are recognized as earned
in accordance with the contractual terms of the franchise agreements. Other fees
are recognized when the services are provided and collection is reasonably
assured.
Real estate division revenue represents leasing income on owned commercial and
retail properties as well as property management income, development fees and
leasing and sales commissions from residential and commercial properties managed
by the Company, typically under long-term contracts with the property owner.
Lease revenues are recognized over the period of the leases. The Company records
rental income from operating leases which contain fixed escalation clauses on
the straight-line method. The difference between income earned and lease
payments received from the tenants is included in other assets on the
consolidated balance sheets. Rental income from retail leases which is
contingent upon the lessees' revenues is recorded as income in the period
earned. Management fees and leasing and sales commissions are recognized as
these services are performed.
14
Entertainment derives revenue primarily from computerized event ticketing
services and promotion of Broadway shows and other special events. Where the
Company acts as an agent and receives a net fee or commission, it is recognized
as revenue in the period the services are performed. When the Company is the
promoter of an event and is at risk for the production, revenues and expenses
are recorded in the period of the event performance.
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.
The Company accounts for assets held for sale in accordance with Statement of
Financial Accounting Standards No. 144 ("SFAS No. 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 No. 144, depreciation would be recaptured for
the period they were classified on the balance sheet as held for sale.
The Company's intangible assets include brands and goodwill. The Company
accounts for its brands and goodwill in accordance with Statement of Financial
Accounting Standards No. 142 ("SFAS No. 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 No. 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 and other intangible assets.
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 agreements. The assessment of these
contracts requires the Company to make certain judgments, including estimated
future cash flow from the applicable properties.
The Company reviews the ability to collect individual accounts receivable 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 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 consolidated financial statements in accordance with FASB No. 45,
"Accounting for Franchise Fee Revenue".
15
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ materially from those
estimates.
(The remainder of this page is left intentionally blank)
16
OPERATING RESULTS AND STATISTICS
________________________________
The following table sets forth selected items from the consolidated statements
of operations as a percent of total revenues and certain other selected data:
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues:
Hotels and restaurants 90.2 % 90.6 % 87.8 % 89.2 %
Franchise, central services and development 1.8 2.3 2.2 2.1
Entertainment 2.9 2.9 4.5 3.7
Real estate 4.9 4.1 5.3 4.9
Corporate services 0.2 0.1 0.2 0.1
---------- ----------- ---------- ----------
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
========== =========== ========== ==========
Direct expenses 86.8 % 83.1 % 92.4 % 85.3 %
Undistributed corporate expenses 1.2 0.6 1.5 1.0
Operating income 12.0 16.4 6.1 13.8
Interest expense 5.6 5.0 6.1 5.9
Income tax expense 2.2 4.1 0.1 2.8
Net income 3.7 % 7.3 % 0.0 % 5.2 %
Hotel Statistics: (1)
Hotels open at end of period 73 90 73 90
Available rooms 12,760 15,855 12,760 15,855
RevPAR (2) (5) $ 41.83 $ 44.05 $ 37.28 $ 39.38
ADR (3) $ 71.14 $ 73.17 $ 69.24 $ 72.57
Average Occupancy (4) (5) 58.8 % 60.2 % 53.8 % 54.3 %
EBITDA ($ in thousands)(6) $ 9,275 $ 10,993 $ 11,828 $ 15,213
(1) "Hotels open at end of period" and "Available rooms" represents statistics for actual hotels owned, managed or franchised at
June 30, 2003 and 2002. However, RevPAR, ADR, and average occupancy statistics are calculated using statistics for
comparable hotels (owned, managed or franchised for greater than one year by Westcoast Hospitality Corporation).
(2) Revenue per available room ("RevPAR") represents total room and related revenues divided by total available rooms, net of rooms
out of service due to significant renovations.
(3) Average daily rate ("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.
(6) EBITDA represents income before income taxes, interest expense, interest income, depreciation, amortization, gain/loss on asset
dispositions, equity in investments, minority interest, 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 and invest in property and
equipment. EBITDA is not necessarily available for management's discretionary use due to restrictions included in the Company's
various borrowing agreements and other considerations. For additional details refer to the EBITDA reconciliation to cash flow
from operations.
17
The following is a reconciliation of EBITDA to its comparable measurement in
accordance with generally accepted accounting principles for each of the periods
presented ($ in thousands):
Three Months ended June 30, Six Months ended June 30,
2003 2002 2003 2002
EBITDA $ 9,275 $ 10,993 $ 11,828 $ 15,213
Income tax provision (1,078) (2,062) (113) (2,646)
Deferred income tax provision 350 100 700 200
Interest expense (2,713) (2,655) (5,355) (5,522)
Interest and other income, net (209) 125 (86) 162
Other non-cash operating activities 632 95 754 118
Change in working capital accounts (3,399) (2,009) (3,295) 2,843
--------------- ---------------- -------------- ---------------
Net cash provided by operating activities $ 2,858 $ 4,587 $ 4,433 $ 10,368
=============== ================ ============== ===============
RESULTS OF OPERATIONS
_____________________
Comparison of the Three Months Ended June 30, 2003 to the Three Months Ended
June 30, 2002
Revenues
Hotel and restaurant revenue for the three months ended June 30, 2003 was lower
than the prior year comparative period by $3.4 million or 7.3%. This is
primarily due to decreases in room revenue of $1.8 million, food revenue of $1.0
million and beverage revenue of $300 thousand. ADR at owned and leased hotels
for the second quarter of 2003 was $70.35, lower than the prior year comparitive
period by $0.43. Average occupancy for the three months ended June 30, 2003 for
owned and leased hotels was 58.4% versus 61.7% for the same period in 2002. The
resulting RevPAR finished $2.54 below prior year for owned and leased. These
results are indicative of the national trends of a decline in business travel
and excursion travel between comparative periods resulting in part from the
perception of a weak national economy, personal spending cut-backs, and certain
national security threats. It is also indicative of a higher percentage of
internet channel reservations which generally result in a lower room rate for
the Company. Also, management fee revenue for the three months ended June 30,
2003 is down $300 thousand from the comparative prior period. This decrease is
the result of both a decline in the number of hotels managed during the
comparative periods, from 11 down to six, and a general decline in the room
revenues for the managed properties, on which management fees are primarily
based.
Franchise, central services and development revenue for the three months ended
June 30, 2003 of $888 thousand was lower than the prior year comparative period
by $295 thousand or 24.9%. This is primarily due to the lost franchise revenue
from 14 franchise hotels that left the system in 2003, partially offset by
revenues from three new franchises that entered the system in 2003. It also is
the result of lower room revenues at the franchise hotels, on which most
franchise fees are based, partially offset by a $230 thousand gain related to
the termination of a franchise agreement during the period.
Entertainment revenue for the three months ended June 30, 2003 of $1.4 million
was lower than the prior year comparative period by $109 thousand or 7.3%.
During April 2002 two Broadway presentations took place, whereas no such
presentations took place in April 2003. This drop for the second quarter of 2003
was partially offset by increased ticket demand for TicketsWest Eastern
Washington and Colorado.
Real estate division revenue for the three months ended June 30, 2003 of $2.4
million increased from the prior year comparative period by $224 thousand or
10.5%. This is primarily due to rental income from new tenants at owned real
estate properties and commissions received on the sales and leasing of certain
real estate space on behalf of third parties.
18
Direct Expenses
Direct expenses decreased $1.1 million, or 2.7%, to $41.7 million in the second
quarter of 2003 from $42.9 million in 2002. The decline is principally due to
savings on labor resulting from the adjustments of our scalable workforce in
both the hotels and restaurants division and the entertainmnet division. This
includes utilization of part-time employees and reducing reliance on overtime
hours worked by non-exempt full time employees. The Company is also seeing the
realization from purposeful cost cutting measures enacted early in the year.
These gains were offset by commission expense incurred by the real estate
division, recapture of non-cash depreciation on the WestCoast Kalispell Hotel
and Mall described below, and a loss on the disposition of the Company's
ownership interest in a hotel property of $443 thousand.
Undistributed Corporate Expenses
Total undistributed corporate expenses for the three months ended June 30, 2003
increased $255 thousand to $587 thousand from $332 thousand for the same period
in 2002. This change is due to higher employee benefit costs and increases in
both insurance and professional services expenses experienced in 2003.
Interest Expense
Interest expense for the second quarter of 2003 increased 2.2% compared to the
same period in 2002 due to a slightly higher average balance outstanding on the
Company's primary revolving credit facility between periods, and the existence
of the note payable to a finance company related to the sale-operating leaseback
transaction which did not exist in 2002, partially offset by generally lower
rates on other variable rate borrowings.
Income Taxes
Income tax expense for the three months ended June 30, 2003 of $1.1 million is
lower than the comparative period in 2002 by $984 thousand due to a lower
taxable income based upon the results of operations.
Other Income (Expense)
Other income (expense) for the quarter decreased from 2002 by $321 thousand. The
balance for the second quarter of 2002 was de minimis. For the second quarter of
2003 the balance is comprised of a $790 thousand loan fee write-off, no longer
considered extraordinary under generally accepted accounting principles, offset
by a contract termination fee of $350 thousand and other net gains of $128
thousand.
Net Income
Net income for the three months ended June 30, 2003 compared to the same period
in 2002 is down $2.0 million or 52.6% due primarily to a $1.3 million drop in
direct operating profit for hotels and restaurants, and $700 thousand of other
changes related to depreciation, termination fees, loan fee write-offs and other
costs based on the reasons previously discussed.
Earnings Per Share
Earnings per share, after the effect of preferred stock dividends, decreased
$0.15 to earnings per share of $0.09 for the second quarter of 2003 from $0.24
per share for the same quarter of 2002. This is the result of the lower
operating results based on the reasons previously discussed.
19
Comparison of the Six Months Ended June 30, 2003 to the Six Months Ended June
30, 2002
Revenues
Hotel and restaurant revenues for the six months ended June 30, 2003 are down
compared to the prior year by $6.5 million or 7.7%. The decrease is primarily
due to declines of about $4.0 million in room revenue, $1.5 million in food
revenue and $300 thousand in beverage revenue. ADR at owned and leased hotels
for the first six months of 2003 was $67.88, lower than the comparative period
in the prior year by $2.31. Average occupancy for the six months ended June 30,
2003 at owned and leased hotels was 52.6% versus 54.9% for the same period in
2002. The resulting RevPAR finished $2.87 below the prior year for owned and
leased hotels. These trends are indicative of the decline in business travel and
excursion travel between comparative periods resulting from the perception of a
weak national economy, personal spending cut-backs, and certain national
security threats. It is also indicative of a higher percentage of internet
channel reservations which generally result in a lower room rate for the
Company. Additionally, in the first quarter of 2002, the Company's hotel in Salt
Lake City was positively impacted by the Winter Olympics. The lack of similar
activity during the first quarter of 2003 contributed to $1.3 million of the
decrease in revenues. Also, management fee revenue for the six months ended June
30, 2003 is down $400 thousand from the comparative prior period. This drop is
the result of both a decline in the number of hotels managed during the
comparative periods, from 11 down to six, and a general decline in the room
revenues for the managed properties, on which our management fees are primarily
based. Franchise, central services and development revenue for the six months
ended June 30, 2003 of $2.0 million decreased from the prior year comparative
period by $44 thousand or 2.3%. This is primarily due to the lost franchise
revenue from 14 franchise hotels that left the system in 2003, partially offset
by revenues from three new franchises that entered the system in 2003. It also
is the result of lower room revenues at the franchise hotels, on which most
franchise fees are based, partially offset by a $230 thousand gain related to
the termination of a franchise agreement during the period and project
development commissions during the first quarter.
Entertainment revenue for the six months ended June 30, 2003 increased from the
prior year comparative period by $513 thousand, or 14.8%. These increases are
due to increased ticket demand for TicketsWest Eastern Washington and Colorado,
especially during the ski lift ticket season in January and February.
Real estate revenue for the six months ended June 30, 2003 increased from the
prior year comparative period by $54 thousand or 1.2%. This is primarily due to
rental income from new tenants at owned real estate properties and commissions
received on the sales and leasing of certain real estate space on behalf of
third parties. These increases are offset by reduced lease revenue because of
the sale of an office building which closed in March 2002.
Direct Expenses
Direct expenses increased $1.3 million or 1.6% to $81.5 million in the first six
months of 2003 from $80.3 million in 2002. Direct expenses for the first quarter
of 2002 include a gain of $3.0 million on the sale of an office building.
Without the effect of that gain in 2002, direct expenses are down $1.7 million
for the first six months of 2003 including $443 thousand of loss on the
disposition of the Company's ownership interest in a hotel property, and $520
thousand of depreciation related to the WestCoast Kalispell Hotel and Mall
described below. The drop is principally due to savings on labor resulting from
the adjustments of our scalable workforce in both the hotels and restaurants
division and the entertainment division. This includes utilization of part-time
employees and reducing reliance on overtime hours worked by non-exempt full time
employees. The Company is also seeing the realization from purposeful cost
cutting measures early in the year. These gains were offset by certain
commissions paid from the real estate division and the completion of the
transition of its Red Lion brand into the system by rebranding 22 of its owned,
leased and managed hotels to Red Lion hotels, for which the Company incurred
$367 thousand for various conversion activities and for the costs of new branded
amenities.
20
Undistributed Corporate Expenses
Undistributed corporate expenses for the six months ended June 30, 2003
increased about $422 thousand to approximately $1.3 million from approximately
$900 thousand for the same period in 2002. This change is due to higher employee
benefit costs and increases in both insurance and professional services expenses
experienced in 2003.
Interest Expense
Interest expense for the first six months of 2003 decreased 3.0% compared to the
same period in 2002 due to generally lower rates on variable rate borrowings,
offset by the existence of the note payable to a finance company related to the
sale-operating leaseback transaction which did not exist in 2002 and a slightly
higher average balance outstanding on the Company's primary revolving credit
facility between periods.
Income Taxes
Income tax expense for the six months ended June 30, 2003 of $113 thousand is
lower than the comparative period in 2002 by $2.6 million due to a lower taxable
income based upon the results of operations.
Other Income (Expense)
Other income (expense) for the year to date period decreased from 2002 by $297
thousand. The balance for the first six months of 2002 was de minimis. For year
to date of 2003 the balance is comprised of a $790 thousand loan fee write-off,
no longer considered extraordinary under generally accepted accounting
principles, offset by a contract termination fee of $350 thousand and other net
gains of $147 thousand.
Net Income
Net income for the six months ended June 30, 2003 compared to the same period in
2002 is down $4.8 million due primarily to a $2.6 million decline in direct
operating profit for hotels and restaurants, $3.8 million due to the change in
asset dispositions between periods, and $1.5 million of other changes related to
depreciation, termination fees, loan fee write-offs, taxes and other costs based
on the reasons previously discussed.
Earnings (Loss) Per Share
Earnings per share, after the effect of preferred stock dividends, decreased
$0.37 to a loss per share of $0.10 for the six months ended June 30, 2003
compared to $0.27 earnings per share for the same period of 2002. This is the
result of the lower operating results based on the reasons previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
Overview
Net cash provided by operating activities totaled approximately $4.4 million for
the six months ended June 30, 2003 compared to $10.4 million for the same period
in 2002. The decrease in 2003 compared to 2002 was primarily the result of
working capital variances.
Net cash used in investing activities was $3.7 million for the first six months
of 2003 compared to $498 thousand of net cash used in investing activities
during the same period in 2002. Additions to property and equipment totaled $4.1
million in 2003 compared to $2.5 million in 2002. Capital additions included an
investment in signage related to rebranding and various other projects in the
operating divisions. It also included additions to the certain software and
equipment which was sold and then leased back as described below. The other
major variances between the two periods was the $1.8 million of proceeds from
asset dispositions received in the first quarter of 2002 compared to $350
thousand received in connection with the disposition of the Company's ownership
interest in a hotel property.
Net cash provided by financing activities totaled $2.0 million in 2003 which
generally relates to the short-term borrowing for the payment of the certain
software and equipment, the effects of the refinancing of the line of credit and
the payment of preferred stock dividends. Net cash used in financing activities
totaled $10.0 million in the first six months of 2002 which consists primarily
of revolving debt repayments.
21
At June 30, 2003, the Company had $6.8 million in cash and cash equivalents
including $3.3 million of cash restricted under certain borrowing arrangements.
The Company believes that its operating cash flow, revolving line-of-credit, and
proceeds from the sale of its non-core assets will be sufficient to meet its
liquidity needs. However, projections of working capital sources and future
financial needs are subject to uncertainty. Refer to "Safe Harbor" for
additional information of conditions that could affect future financial needs
and sources of working capital.
Financing
On June 27, 2003, the Company completed the refinance of its revolving credit
facility by securing term debt of $55.2 million from a finance company under ten
separate promissory notes. The notes are collateralized by certain hotel
properties. The notes bear interest at 6.7% and utilize a 25-year amortization
period, but are due in full on July 11, 2013. In connection with securing this
term debt, the Company incurred loan fees and other costs totaling $1.1 million
which have been capitalized and will be amortized using the effective interest
method over the ten year period of the underlying promissory notes. Proceeds of
$1.7 million have been set aside in reserve accounts for taxes, insurance,
repairs and other reserves.
A portion of the proceeds from the new borrowings were used to pay down the
approximate $51.5 million outstanding balance on the Company's primary revolving
credit facility. The credit facility agreement was then amended effective June
27, 2003, reducing the maximum borrowing amount to $4.0 million. The credit
facility is collateralized by certain property and equipment and interest is
computed based upon either the bank's prime rate or certain LIBOR rates at the
Company's option. At June 30, 2003, the Company had no outstanding balance under
the credit facility. The agreement contains certain restrictions and covenants,
the most restrictive of which require the Company to maintain a minimum fixed
charge ratio and a maximum debt to equity ratio. At June 30, 2003, the Company
was in compliance with all covenants under the agreement. The amended credit
facility does not require any principal payments until its maturity date of June
30, 2005. As such, any possible future borrowings in 2003 would be reflected as
a long-term liability.
In June 2003, WestCoast completed the sale to a finance company of certain
capitalized software and equipment previously included in construction
in-process. The proceeds of approximately $2.7 million were used to repay the
outstanding balance on the interim note payable to the finance company in the
same amount. Certain other costs directly related to the software and equipment
were paid for directly by the finance company, totaling $451 thousand. WestCoast
then entered into an operating lease agreement with the finance company which
expires in June 2005 requiring monthly payments of approximately $52 thousand.
At the option of WestCoast, the lease term is renewable for three one-year
terms.
In addition to the indebtedness noted above, the Company has debt and capital
lease obligations of approximately $104.4 million as of June 30, 2003 primarily
consisting of fixed rate and variable rate debt secured by individual
properties.
Having completed the refinance of its credit facility, management believes that
an adequate borrowing base exists to sustain the operations of the Company. The
Company is also pursuing the sale of certain non-core real estate assets
included in assets held for sale discussed below. Management has implemented
certain operational efficiencies and cost reduction plans that are expected to
improve operating performance. These actions are intended to reduce the
Company's dependence on its credit facility.
22
Assets Held for Sale
The Company continues to seek opportunities to divest its interest in its
non-core assets. At June 30, 2003, assets held for sale consists of two office
buildings with a net carrying value of $21.7 million. Depreciation of these two
assets remains suspended. Management is committed to the sale of the assets and
is actively marketing the properties. Both of the properties are available for
sale in their present condition at prices management believes reasonable
compared to their respective fair values. Management believes it is unlikely
that significant changes to its plans for sale of these properties will be made.
There can be no assurance that the Company will be able to successfully sell
these properties.
One additional property was held for sale at December 31, 2002. As previously
disclosed, the Company had entered into a purchase and sale agreement with a
potential buyer for the WestCoast Kalispell Center Hotel and Mall. The Company
and the buyer subsequently terminated this agreement, at which time the Company
determined that it was no longer in its best interest to continue to market the
property for sale. As a result of this decision, the net book value of the
related assets of approximately $13.0 million has been reclassified from assets
held for sale to property and equipment. A depreciation adjustment of $520
thousand was recorded in June 2003, reflecting non-cash expenses that would have
been recognized had the assets been classified as held and used since July 2002.
Preferred Stock Dividends
The Company is no longer restricted from the payment of dividends. On July 3,
2003 the Company paid a dividend to the shareholders of record as of June 30,
2003 of its Series A and Series B preferred stock, totaling approximately $1.3
million, which represented all current dividends and dividends that were
previously acrrued under the preferred stock agreement.
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.
INFLATION
_________
The effect of inflation, as measured by fluctuations in the Consumer Price
Index, has not had a material impact on the Company's revenues or net income
during the periods under review.
OTHER MATTERS
_____________
Recent Accounting Pronouncements
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 No. 46"). FIN No. 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. FIN No. 46 is effective for WestCoast starting July 1, 2003 and
is not expected to have a material effect on the Company's consolidated
financial statements.
23
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 149 is effective for all contracts created or modified
after June 30, 2003 except for hedging relationships designated after June 30,
2003. In addition, except as stated below, all provisions of SFAS No. 149 should
be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No.
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, should continue to be applied in accordance with
their respective effective dates. In addition, paragraphs 7(a) and 23(a), which
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. The Company does not believe
that the adoption of this standard will have a material effect on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 establishes standards on the classification and measurement
of certain financial instruments with characteristics of both liabilities and
equity. The provisions of SFAS No. 150 are effective for financial instruments
entered into or modified after May 31, 2003 and to all other instruments that
exist as of the beginning of the first interim financial reporting period
beginning after June 15, 2003. The Company does not believe that the adoption of
SFAS No. 150 will have a material impact on the Company's consolidated financial
statements.
(The remainder of this page is intentionally left blank)
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk has not changed significantly for the six months ended
June 30, 2003. See Item 7A of the Company's Form 10-K for the year ended
December 31, 2002.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
________________________________________________
An evaluation was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures were effective as of June 30,
2003.
Changes in Internal Controls
____________________________
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
June 30, 2003.
PART II - OTHER INFORMATION
(Items 1, 2, 3 and 5 of PART II are omitted as they are not applicable for the
period covered by this report.)
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders on May 16, 2003, the following actions
were taken with the noted results:
Total Outstanding Common Stock: 12,994,163 Shares
1. Election of Directors
Name Votes For Pct. Votes Withhold
_________________ _________ _____ ________________
Peter F. Stanton 12,094,420 93.1% 9,047
Stephen R. Blank 12,094,420 93.1% 9,047
2. Ratification of Auditors for the Year Ended December 31, 2003
Name Votes For Pct. Votes Against Votes Abstained
_________________ ___________ ______ ______________ _______________
BDO Seidman, LLP 12,099,126 93.1% 2,582 1,759
25
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Executive Employment Agreement dated April 13, 2003 between the
Registrant and Arthur Coffey.
10.2 Second Amended and Restated Credit Agreement, Dated as of June 27,
2003, Among WestCoast Hospitality Limited Partnership, U.S. Bank National
Association as Administrative Agent and the Other Financial Institutions
Party Thereto
10.3 Promissory Note dated effective as of June 27, 2003, in the original
principal amount of $5,100,000 issued by WHC807, LLC, a Delaware limited
liability company indirectly controlled by the Registrant ("WHC807"), to
Column Financial, Inc. ("Column") (the "WHC807 Promissory Note"). Nine
other Delaware limited liability companies indirectly controlled by the
Registrant (the "Other LLCs") simultaneously issued nine separate
Promissory Notes to Column in an aggregate original principal amount of
$50,100,000 and otherwise on terms and conditions substantially similar to
those of the WHC807 Promissory Note (these Promissory Notes and their
respective issuers and principal amounts are identified in Exhibit D to the
Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing filed as Exhibit 10.4).
10.4 Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing dated effective as of June 27, 2003, with WHC807 as grantor
and Column as beneficiary (the "WHC807 Deed of Trust"). Each of the Other
LLCs simultaneously executed a separate Deed of Trust, Assignment of Leases
and Rents, Security Agreement and Fixture Filing as grantor with Column as
beneficiary and otherwise on terms and conditions substantially similar to
those of the WHC807 Deed of Trust (these nine other documents and their
respective grantors and the respective parcels of real property encumbered
thereby are identified in Exhibit E to the WHC807 Deed of Trust).
10.5 Indemnity and Guaranty Agreement dated effective as of June 27, 2003,
between the Registrant and Column with respect to the WHC807 Promissory
Note and the WHC807 Deed of Trust. The Registrant and Column have entered
into nine separate Indemnity and Guaranty Agreements on substantially
similar terms and conditions with respect to the Other LLCs' Promissory
Notes and Deeds of Trust, Assignments of Leases and Rents, Security
Agreements and Fixture Filings referred to in Exhibits 10.3 and 10.4,
respectively.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
26
(b) Reports on Form 8-K
April 8, 2003
Item 7: WestCoast Hospitality Corporation Names New CEO and CFO
May 8, 2003
Item 9: WestCoast Hospitality Corporation Announces First Quarter Financial
Results
June 30, 2003
Item 9: WestCoast Hospitality Corporation Announces Completion of $55.2
Million Mortgage Refinance
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities stated and on the date indicated.
WESTCOAST HOSPITALITY CORPORATION
(Registrant)
Date: August 14, 2003
By: /s/ Peter P. Hausback
______________________________________________________
Peter P. Hausback
Vice President and Chief Financial Officer
Date: August 14, 2003
By: /s/ Anthony F. Dombrowik
______________________________________________________
Anthony F. Dombrowik
Corporate Controller and Principal Accounting Officer
27
Exhibit 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, is executed effective on April 3, 2003
("Effective Date") by and between WestCoast Hospitality Corporation, a
Washington corporation (the "Company"), and Arthur Coffey (the "Executive").
The Company desires to employ the Executive in the capacities of President,
Chief Executive Officer, and, for a temporary period of time, Chief Financial
Officer, and the Executive desires to be so employed, on the terms and subject
to the conditions set forth in this agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth herein and
other good and valuable consideration the parties hereto hereby agree as
follows:
1. Employment; Term.
The Company employs the Executive, and the Executive agrees to be employed by
the Company, upon the terms and subject to the conditions set forth herein, for
a term commencing on the Effective Date and terminating on December 31, 2004
unless terminated earlier in accordance with Section 5 of this Agreement;
provided, that such term shall automatically be extended from time to time for
additional periods of one calendar year from the date on which it would
otherwise expire unless the Executive, on one hand, or the Company, on the
other, gives notice to the other party or parties not less than 120 days prior
to such date that it elects to permit the term of this Agreement to expire
without extension on such date. (The initial term of this Agreement as the same
may be extended in accordance with the terms of this Agreement is hereinafter
referred to as the "Term").
2. Positions; Conduct.
(a) During the Term, the Executive will hold the titles and offices of, and
serve in the positions of, President and/or Chief Executive Officer of the
Company. Until such time as a replacement is designated by the Board of
Directors as Chief Financial Officer, the Executive will continue to serve in
his former position as Chief Financial Officer of the Company. The Executive
shall report to the Board of Directors of the Company and shall perform such
specific duties and services (including service as an officer, director or
equivalent position of any direct or indirect subsidiary without additional
compensation) as the Board of Directors shall reasonably request consistent with
the Executive's positions.
(b) During the Term, the Executive agrees to devote his full business time and
attention to the business and affairs of the Company and to faithfully and
diligently perform, to the best of his ability, all of his duties and
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to the following (the
"Exempted Activities"): (i) serving, with the approval of the Board of Directors
of the Company, as an officer, director, trustee or member of any organization,
(ii) engaging in charitable and community activities and (iii) managing his
personal investments and affairs. In no event shall the Exempted Activities
involve any material conflict of interest with the interests of the Company or,
individually or collectively, interfere materially with the performance by the
Executive of his duties and responsibilities under this Agreement. The Board of
Directors of the Company have approved as an Exempted Activity the Executive's
employment as a director and officer of Inland Northwest Corporation, previously
a wholly-owned subsidiary of the Company, for which the Company provides certain
management and administrative services.
(c) The Executive's office and place of rendering his services under this
Agreement shall be in the principal executive offices of the Company. During the
Term, the Company shall provide the Executive with executive office space, and
administrative and secretarial assistance and other support services consistent
with his positions and with his duties and responsibilities hereunder.
3. Board of Directors; Committees.
It is understood that the right to elect directors of the Company is by law
vested in the stockholders and directors of the Company, and it is mutually
contemplated that service on the Board of Directors or on any committee of the
Board of Directors is not a condition of this Agreement.
4. Salary; Additional Compensation; Perquisites and Benefits.
(a) During the Term, the Company and the Subsidiary will pay the Executive a
base salary at an annual rate of not less than $ 285,000 per annum, subject to
annual review by the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance with
the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be eligible to
receive a bonus on such terms as may from time to time be established by the
Compensation Committee.
(c) During the Term, the Executive will participate in all plans now existing or
hereafter adopted by the Company for the management employees or the general
benefit of the their employees, such as stock option or other incentive
compensation plans, life and health insurance plans, or other insurance plans
and benefits on the same basis and subject to the same qualifications as other
senior executive officers. To the extent permitted by law, the Executive shall
be given credit for his years of service to any predecessor entity of the
Company in determining all waiting periods and vesting periods under such plans.
(d) The Company will reimburse the Executive, in accordance with its standard
policies from time to time in effect, for all out-of-pocket business expenses as
may be incurred by the Executive in the performance of his duties under this
Agreement.
(e) The Executive shall be entitled to vacation time to be credited and taken in
accordance with the Company's policy from time to time in effect for senior
executives, which in any event shall not be less than a total of four weeks per
calendar year.
(f) The Company shall indemnify the Executive to the fullest extent permitted
under the law of the State of Washington.
5. Termination
(a) The Term will terminate upon the Executive's death or, upon notice by the
Company or the Executive to the other, in the case of a determination of the
Executive's Disability. As used herein the term "Disability" means the
Executive's inability to perform his duties and responsibilities under this
Agreement for a period of more than 120 consecutive days, or for more than 180
days, whether or not continuous, during any 365-day period, due to physical or
mental incapacity or impairment. A determination of Disability will be made by a
physician satisfactory to both the Executive and the Company; provided that if
they cannot agree as to a physician, then each shall select a physician and
these two together shall select a third physician whose determination of
Disability shall be binding on the Executive and the Company. Should the
Executive become incapacitated, his employment shall continue and all base and
other compensation due the Executive hereunder shall continue to be paid through
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
( b) The Term may be terminated by the Company upon notice to the Executive upon
the occurrence of any event constituting "Cause" as defined herein.
(c) The Term may be terminated by the Executive upon notice to the Company (i)
within six months of the occurrence of any event constituting "Good Reason" as
defined herein or (ii) within six months of a "Change of Control" as defined
herein.
6. Severance.
(a) If the Term is terminated by the Company for Cause, the Company will pay to
the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, additional salary payments in
lieu of the Executive's accrued and unused vacation time, unreimbursed business
expenses, unreimbursed medical, dental and other employee benefit expenses in
accordance with the applicable plans, and any and all other benefits provided
under the terms of applicable employee plans to terminated employees (the
"Standard Termination Payments").
(b) If the Term is terminated upon the Executive's death or Disability, the
Company and the Subsidiary will pay to the Executive's estate or the Executive,
as the case may be, the Standard Termination Payments and all death or
disability payments or other employee benefits under their employee benefit
plans.
(c) Subject to Section 6(d), if the Company terminates the Executive's
employment under this Agreement without Cause other than by reason of his death
or Disability or if the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the twice the
Executive's total compensation for the previous fiscal year (but not less than
twice $285,000) and (iii) continue in effect the Executive's benefits with
respect to life, health and insurance plans or their equivalent for two years.
(d) If, following a Change in Control: the Executive terminates his employment
hereunder within 6 months following such Change in Control; the Company shall
(i) pay the Executive the Standard Termination Payments, (ii) pay the Executive
a lump sum payment equal to twice the Executive's total cash compensation for
the previous fiscal year (but in no event less than twice $285,000) and (iii)
continue in effect the Executive's benefits with respect to life, health and
insurance plans or their equivalent for two years.
(e) If the initial Term is not extended pursuant to the proviso to Section 1 as
a result of the Company giving notice thereunder that it elects to permit the
term of this Agreement to expire without extension, the Company shall (i) pay
the Executive the Standard Termination Payments, (ii) pay the Executive a lump
sum payment equal to twice the Executive's total compensation for the previous
fiscal year (but not less than twice $285,000) and (iii) continue in effect the
Executive's benefits with respect to life, health and insurance plans or their
equivalent for two years.
(f) If the Company terminates the Executive's employment under this Agreement
without Cause other than by reason of his death or Disability, or if the initial
Term is not extended as a result of the Company giving notice that it elects to
permit the term of this Agreement to expire without extension, or if the
Executive terminates his employment hereunder pursuant to Section 5 (c.): all
stock options granted to the Executive shall immediately vest and be exercisable
and any stock grant to the Executive shall immediately vest and all Company
imposed restrictions on restricted stock issued to the Executive shall be
terminated.
(g) As used herein, the term "Cause" means: (i)the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this Agreement, if such breach is
not cured within 30 days after notice thereof to the Executive by the Company,
which notice shall state that such conduct shall, without cure, constitute Cause
and makes specific reference to this Section 6(g); (ii) any willful and
intentional act of the Executive involving fraud, theft, embezzlement or
dishonesty affecting the Company; or (iii) the Executive's conviction of (or a
plea of nolo contendere to) an offense which is a felony in the jurisdiction
involved.
(h) As used herein, the term "Good Reason" means: (i.) assignment of the
Executive of duties materially inconsistent with the Executive's positions as
described in Section 2(a), provided, however, it shall not be Good Reason if the
Company appoints a replacement for the Executive as Chief Financial Officer or,
at the discretion of the Board, separates the positions of Chief Executive
Officer and President so long as Executive continues to hold the position and
duties of Chief Executive Officer).; (ii) the removal of the Executive from the
positions as described in Section 2(a), provided, however, it shall not be Good
Reason if the Company appoints a replacement for the Executive as Chief
Financial Officer or, at the discretion of the Board, separates the positions of
Chief Executive Officer and President so long as Executive continues to hold the
position and duties of Chief Executive Officer).; (iii) the change in the
location of the Company's principal executive offices to a location outside the
Spokane, Washington metropolitan area without the Executive's consent which may
be withheld at his sole discretion; or (iv) any material breach of this
Agreement by the Company which is continuing.
(i) As used herein, the term "Change in Control" means the occurrence of any one
of the following events: (i.) the majority of the Board of Directors of the
Company consists of individuals other than Incumbent Members, which shall mean
the members of such Boards on the Effective Date; provided that any person
becoming a director subsequent to the Effective Date whose election or
nomination for election was supported by the Executive or a majority of the
directors who then comprised the Incumbent Directors shall be considered an
Incumbent Director; (ii) the Company adopts a plan of liquidation providing for
the distribution of all or substantially all of the assets of the Company on a
consolidated basis; (iii) the Company ceases to act as the general partner of
WestCoast Hospitality Limited Partnership, provided, however, the foregoing
shall not apply if substantially all of the assets of the partnership are
transferred to and owned by the Company or its Affiliates. As used herein, an
Affiliate of a person or other entity means a person or other entity that
directly or indirectly controls, is controlled by or is under common control
with the person or other entity specified (including without limitation any
investment entity managed by the person or other entity specified or a person or
entity that directly or indirectly controls, is controlled by or under common
control with the person or other entity specified).
(j) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company and the Subsidiary under this
Section 6.
7. Confidential Information.
(a) The Executive acknowledges that the Company and its subsidiaries or
affiliated ventures ("Company Affiliates") own and have developed and compile,
and will in the future own, develop and compile certain Confidential Information
and that during the course of his rendering services to the Company Confidential
Information has and will be disclosed to the Executive by the Company and its
Affiliates. The Executive hereby agrees that, during the Term (except as
required to conduct the business of the Company) and for a period of three years
thereafter, he will not use or disclose, furnish or make accessible to anyone,
directly or indirectly, any Confidential Information of the Company or its
Affiliates.
(b) As used herein, the term "Confidential Information" means any trade secrets,
confidential or proprietary information, or other knowledge, know-how,
information, documents or materials, owned, developed or possessed by a Company
Affiliate pertaining to its businesses the confidentiality of which such company
takes reasonable measures to protect, including, but not limited to, trade
secrets, techniques, know-how (including designs, plans, procedures, processes
and research records), software, computer programs, innovations, discoveries,
improvements, research, developments, test results, reports, specifications,
data, formats, marketing data and business plans and strategies, agreements and
other forms of documents, expansion plans, budgets, projections, and salary,
staffing and employment information. Notwithstanding the foregoing, Confidential
Information shall not in any event include information which (i) was generally
known or generally available to the public prior to its disclosure to the
Executive, (ii) becomes generally known or generally available to the public
subsequent to its disclosure to the Executive through no wrongful act of the
Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. Restrictive Covenants.
(a) The Executive agrees that during his employment hereunder and for a period
of twelve months thereafter the Executive will not, directly or indirectly,
engage or participate or make any financial investments in (other than ownership
of up to 5% of the aggregate of any class of securities of any corporation if
such securities are listed on a national stock exchange or under section 12(g)
of the Securities Exchange Act of 1934) or become employed by, or act as an
agent or principal of, or render advisory or other management services to or
for, any Competing Business in the Territory. As used herein the term "Competing
Business" means any business then conducted by the Company which produces over
10% of the Company's revenue and the term "Territory" means any state of the
United States or province of Canada or Mexico in which the Company conducts its
business. Notwithstanding the foregoing, nothing in this Agreement shall limit
or prohibit the Executive from engaging in the Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for a period
of twenty-four months thereafter he will not solicit, raid, entice or induce any
person that then is or at any time during the twelve-month period prior to the
end of the Term was an employee of the Company or a Company Affiliate (other
than a person whose employment with such Company Affiliate has been terminated
by such Company Affiliate), to become employed by any person, firm or
corporation.
9. Specific Performance.
(a) The Executive acknowledges that the services to be rendered by him hereunder
are of a special, unique, extraordinary and personal character and that the
Company Affiliates would sustain irreparable harm in the event of a violation by
the Executive of Section 7 or 8 hereof. Therefore, in addition to any other
remedies available, the Company shall be entitl