-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P3ovxHH3EEfnmPYOdOj/wfGSlkOpXUhoYBOV+d+zxr206ZtX4DxPnqUCYY9IN3Vz wd2aN7+/zQx1uA1J2Y9WkA== 0000930661-97-001760.txt : 19970723 0000930661-97-001760.hdr.sgml : 19970723 ACCESSION NUMBER: 0000930661-97-001760 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970622 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970722 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY INC// CENTRAL INDEX KEY: 0000016343 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 940358820 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09319 FILM NUMBER: 97643505 BUSINESS ADDRESS: STREET 1: 2600 S DELAWARE ST STREET 2: P O BOX 1117 CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 4155734514 MAIL ADDRESS: STREET 1: 2600 S DELAWARE ST CITY: SAN MATEO STATE: CA ZIP: 94402 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY OPERATING CO DATE OF NAME CHANGE: 19970717 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA JOCKEY CLUB DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT AMERICAN OPERATING CO CENTRAL INDEX KEY: 0000715273 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 942872485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09320 FILM NUMBER: 97643506 BUSINESS ADDRESS: STREET 1: 2600 S DELEWARE ST STREET 2: P O BOX 5050 CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 4155747223 MAIL ADDRESS: STREET 1: 2600 S DELAWARE ST CITY: SAN MATEO STATE: CA ZIP: 94402 FORMER COMPANY: FORMER CONFORMED NAME: BAY MEADOWS OPERATING CO DATE OF NAME CHANGE: 19920703 8-K 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): JULY 22, 1997 PATRIOT AMERICAN HOSPITALITY, INC. (Exact Name of Registrant as specified in its charter) DELAWARE 01-9319 94-0358820 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (972) 888-8000 PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY (Exact Name of Registrant as specified in its charter) DELAWARE 01-9320 94-2878485 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (972) 888-8000 Item 5. Other Events - ------- ------------ On April 14, 1997, Patriot American Hospitality, Inc. (the "Corporation") entered into a merger agreement and a related stock purchase agreement (collectively, the "Wyndham Merger Agreement") pursuant to which Wyndham Hotel Corporation ("Wyndham") will merge with and into the Corporation with the Corporation being the surviving company (the "Wyndham Acquisition"). As a result of the Wyndham Acquisition, the Corporation will acquire all of the assets and liabilities of Wyndham, including Wyndham portfolio of 23 owned and leased hotels with an aggregate of 4,877 rooms, management and franchise agreements for Wyndham's 64 managed and franchised properties throughout North America, management and franchise agreements that have been executed for 15 properties that are currently closed for renovation or construction or are in the process of being converted to the Wyndham brand, and the proprietary brand names Wyndham/SM/, Wyndham Garden/R/ and Wyndham Hotels & Resorts/SM/. Pursuant to the Wyndham Merger Agreement, upon consummation of the Wyndham Acquisition, each issued and outstanding share of common stock of Wyndham ("Wyndham Common Stock") will be converted into the right to receive 0.712 shares of common stock, $.01 par value of the Corporation which are paired and trade as a unit with shares of common stock, $.01 par value of Patriot American Hospitality Operating Company (the "Operating Company and, together with the Corporation, the "Companies") (such stock, the "Paired Common Stock") (the "Wyndham Exchange Ratio"). The Wyndham Exchange Ratio is subject to adjustment under certain circumstances to a maximum exchange ratio of 0.746. Additionally, if the Average Closing Price (as defined in the Wyndham Merger agreement) of the Paired Common Stock is less than 40.21, Wyndham has the right, waivable by it, to terminate the Wyndham Merger Agreement without liability. On July 18, 1997, the closing price of the Paired Common Stock as reported on the NYSE was $46 9/16. In lieu of receiving Paired Common Stock, Wyndham stockholders have the right to elect to receive cash (up to an aggregate of $100 million) in an amount per share equal to the Wyndham Exchange Ratio multiplied by the average closing price of the Paired Common Stock over the five trading days immediately preceding the closing of the Wyndham Acquisition. If stockholders holding shares of Wyndham Common Stock with a value in excess of $100 million elect to receive cash, such cash will be allocated on a pro rata basis among such stockholders. In connection with the Wyndham Acquisition, the Corporation also will assume or retire all of Wyndham's existing indebtedness, which totaled approximately $151 million as of June 30, 1997. Concurrently with the execution of the Wyndham Merger Agreement, the Corporation also entered into agreements with partnerships affiliated with members of the Trammell Crow family providing for the acquisition of 11 full- service Wyndham-branded hotels with 3,072 rooms, located throughout the United States, for approximately $332 million in cash, plus approximately $14 million in additional consideration, if two hotels meet certain operational targets (the "Crow Properties Acquisition" and, together with the Wyndham Acquisition, the "Wyndham Transactions"). The Wyndham Transactions, which are expected to be consummated concurrently, are subject to various conditions including, without limitation, approval of the Wyndham Acquisition by the stockholders of the Companies and Wyndham. The Wyndham Acquisition is also conditioned on the Corporation's completion of a substantial portion of the Crow Properties Acquisition. Accordingly, no assurances can be given that the Wyndham Transactions will be consummated. It is currently anticipated that the stockholder meetings to approve the Wyndham Acquisition will occur in the fourth quarter of 1997. If the Wyndham Transactions are approved and consummated, it is anticipated that the current stockholders of the Corporation and the Operating Company would hold in the aggregate approximately 67% of the outstanding Paired Common Stock following consummation of the Wyndham Transactions (assuming no Wyndham stockholders exercise their cash election rights in the Wyndham Acquisition). The Unaudited Pro Forma Financial Statements set forth in this Current Report on Form 8-K show the effects of the Wyndham Transactions on the Corporation and Operating Company. Item 7. Financial Statements and Exhibits - ------- --------------------------------- (a) Financial Statements of Businesses to be Acquired: The index to the financial information for Wyndham Hotel Corporation and the Crow Family Hotel Partnerships is included on page F-1 of this report. (b) Pro Forma Financial Information: The index to the pro forma financial information for the Corporation, Operating Company, and the Combined Lessees is included on page F-1 of this report. 2 (c) Exhibits: Exhibit No. Description - ----------- ----------- 2.1 Agreement and Plan of Merger, dated as of April 14, 1997, between Patriot American Hospitality, Inc. and Wyndham Hotel Corporation (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 2.2 Stock Purchase Agreement, dated as of April 14, 1997, between Patriot American Hospitality, Inc. and CF Securities, L.P. (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 2.3 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by and among the Crow Family Entities and Patriot American Hospitality Partnership, L.P. (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 2.4 Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of April 18, 1997 between Patriot American Hospitality, Inc. and PW Acquisitions IV, LLC. (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Arthur Andersen LLP. 99.1 Ratio of Earnings to Fixed Charges 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. Dated: July 22, 1997 PATRIOT AMERICAN HOSPITALITY, INC. /s/ Rex E. Stewart ____________________________________ By: Rex E. Stewart Its: Chief Financial Officer Dated: July 22, 1997 PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY /s/ Rex E. Stewart _____________________________________ By: Rex E. Stewart Its: Chief Financial Officer 4 PATRIOT AMERICAN HOSPITALITY, INC. AND PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY INDEX TO FINANCIAL INFORMATION FINANCIAL STATEMENTS OF BUSINESSES TO BE ACQUIRED: Page ---- Wyndham Hotel Corporation: Report of Independent Accountants - Coopers & Lybrand L.L.P.............. F-2 Consolidated Balance Sheets at December 31, 1995 and 1996................ F-3 Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996............................................... F-4 Consolidated Statements of Partners' Capital and Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996........... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996....................................... F-6 Notes to Consolidated Financial Statements............................... F-7 Consolidated Balance Sheets at December 31, 1996 and March 31, 1997 (unaudited)............................................ F-26 Consolidated Statements of Income for the three months ended March 31, 1996 and 1997 (unaudited)................................... F-27 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1997 (unaudited)................................... F-28 Notes to Consolidated Financial Statements (unaudited)................... F-29 Crow Family Hotel Partnerships: Report of Independent Public Accountants - Arthur Andersen LLP........... F-36 Combined Balance Sheets as of December 31, 1996 and 1995 and March 31, 1997 (unaudited)............................................ F-37 Combined Statements of Operations for the years ended December 31, 1996, 1995 and 1994 and for the three months ended March 31, 1997 and 1996 (unaudited)............................................. F-38 Combined Statements of Partners' Deficit for the years ended December 31, 1996, 1995 and 1994 and for the three months ended March 31, 1997 (unaudited)...................................... F-39 Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and for the three months ended March 31, 1997 (unaudited)...................................................... F-40 Notes to Combined Financial Statements................................... F-41 PRO FORMA FINANCIAL INFORMATION: Corporation and Operating Company: Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1996 (unaudited).............................. F-51 Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 1997 (unaudited)......................... F-53 Pro Forma Condensed Combined Balance Sheet as of March 31, 1997 (unaudited)...................................................... F-56 Corporation: Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1996 (unaudited).............................. F-59 Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 1997 (unaudited)......................... F-61 Operating Company: Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1996 (unaudited).............................. F-63 Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 1997 (unaudited)......................... F-65 Combined Lessees: Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1996 (unaudited).............................. F-68 Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 1997 (unaudited)......................... F-69 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders Wyndham Hotel Corporation: We have audited the accompanying consolidated balance sheets of Wyndham Hotel Corporation (the "Company") as of December 31, 1995 and 1996 and the related consolidated statements of income, partners' capital and stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1995 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Dallas, Texas February 19, 1997 F-2 Consolidated Balance Sheets WYNDHAM HOTEL CORPORATION
DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- 1995 1996 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 4,160 $ 11,517 Cash, restricted 3,053 865 Accounts receivable, less allowance of $267 and $941 in 1995 and 1996, respectively 10,838 13,330 Due from affiliates 3,584 12,686 Inventories 1,020 1,430 Deferred income taxes -- 1,539 Other 769 1,412 --------- --------- Total current assets 23,424 42,779 Investment in hotel partnerships 2,597 1,125 Notes and other receivables from affiliates 7,674 7,685 Notes receivable 2,450 6,307 Property and equipment, net 87,604 134,176 Management contract costs, net 7,579 7,766 Security deposits 243 15,288 Deferred income taxes -- 14,148 Other 1,832 13,688 --------- --------- Total assets $ 133,403 $ 242,962 ========= ========= LIABILITIES, PARTNERS' CAPITAL AND STOCKHOLDERS' EOUITY Current liabilities: Accounts payable and accrued expenses $ 8,454 $ 23,556 Accounts payable and accrued expenses due to affiliates 1,578 -- Deposits 1,667 959 Deposits from affiliates 354 344 Current portion of long-term debt and capital lease obligations 16,035 510 Due to affiliates 2,592 -- --------- --------- Total current liabilities 30,680 25,369 --------- --------- Payable to affiliates 2,627 -- Payable to minority interest 218 -- Long-term debt and capital lease obligations 74,943 129,944 Deferred gain -- 12,065 --------- --------- 77,788 142,009 --------- --------- Minority interest 7,378 -- --------- --------- Commitments and contingencies Partners' capital and stockholders' equity: Common stock -- par value $.0l, 45,000 shares authorized, 20,018 shares issued and outstanding 200 Additional paid-in capital -- 84,342 Retained earnings -- 11,714 Notes receivable from stockholders -- (19,449) Receivable from affiliates (2,303) (1,223) Partners' capital 19,860 -- --------- --------- Total partners' capital and stockholders' equity 17,557 75,584 --------- --------- Total liabilities and equity $ 133,403 $ 242,962 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF INCOME WYNDHAM HOTEL CORPORATION
YEAR ENDED DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------ 1994 1995 1996 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues: Hotel revenues $ 51,799 $ 54,673 $ 104,620 Management fees 5,930 7,354 8,556 Management fees--affiliates 7,372 9,567 15,257 Service fees 1,671 2,192 1,428 Service fees--affiliates 1,234 1,928 2,878 Reimbursements 3,110 4,378 6,593 Reimbursements--affiliates 4,893 6,458 8,384 Other 257 1,340 359 --------- --------- --------- Total revenues 76,266 87,890 148,075 --------- --------- --------- Operating costs and expenses: Hotel expenses 36,744 37,125 77,016 Selling, general and administrative expenses 10,645 15,001 19,050 Equity participation compensation 2,802 3,992 2,919 Reimbursable expenses 3,110 4,378 6,593 Reimbursable expenses--affiliates 4,893 6,458 8,384 Depreciation and amortization 5,735 6,311 8,110 --------- --------- --------- Total operating costs and expenses 63,929 73,265 122,072 --------- --------- --------- Operating income 12,337 14,625 26,003 Interest income 178 344 1,175 Interest income--affiliates - - 100 716 Interest expense (7,705) (8,465) (11,810) Equity in earnings of hotel partnerships 1,237 l,664 870 Foreign currency gain 404 405 -- Amortization of deferred gain -- -- 505 --------- --------- --------- Income before minority interests, income taxes and extraordinary item 6,451 8,673 17,459 Income attributable to minority interests 186 724 571 --------- --------- --------- Income before income taxes and extraordinary item 6,265 7,949 16,888 Income tax benefit -- -- 8,209 --------- --------- --------- Income before extraordinary item 6,265 7,949 25,097 Extraordinary item (less applicable income tax benefit of $270) -- -- (l,131) --------- --------- --------- Net income $ 6,265 $ 7,949 $ 23,966 ========= ========= ========= Pro forma income tax adjustment (unaudited) -- $ 3,140 $ -- Historical net income as adjusted for pro forma income taxes (unaudited) -- $ 4,809 $ -- Earnings per share: Income before extraordinary item -- $ -- $ 1.26 Extraordinary item -- $ -- $ (.06) Net income -- $ -- $ 1.20 Historical net income as adjusted -- $ .24 $ -- Average number of common shares outstanding -- -- 20,018 Pro forma number of common shares outstanding -- 20,018 --
The accompanying notes are an integral part of the consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY WYNDHAM HOTEL CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------- NOTES ADDITIONAL RECEIVABLE RECEIVABLE PARTNERS' COMMON PAID-IN RETAINED FROM FROM STOCK- CAPITAL STOCK CAPITAL EARNINGS AFFILIATES HOLDERS TOTAL ------- ----- ------- -------- ---------- ------- ----- (IN THOUSANDS) Balance at January 1, 1994 $ 462 $ -- $ -- $ -- $ -- $ -- $ 462 Capital contributions 2,120 -- -- -- -- -- 2,120 Capital distributions (7,728) -- -- -- -- -- (7,728) Equity participation compensation 2,802 -- -- -- -- -- 2,802 Net income 6,265 -- -- -- -- -- 6,265 -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1994 3,921 -- -- -- -- -- 3,921 Capital contributions 14,795 -- -- -- -- -- 14,795 Capital distributions (10,931) -- -- -- -- -- (10,931) Distribution made to withdrawing partner (2,577) -- -- -- -- -- (2,577) Affiliate stock options 2,711 -- -- -- -- -- 2,711 Equity participation compensation 3,992 -- -- -- -- -- 3,992 Net income 7,949 -- -- -- -- -- 7,949 Receivable from affiliates -- -- -- -- (2,303) -- (2,303) -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1995 19,860 -- -- -- (2,303) -- 17,557 Capital contributions 4,801 -- -- -- -- -- 4,801 Capital distributions (29,593) -- -- -- -- -- (29,593) Issuance of common stock (1,998) 200 78,184 -- -- (195) 76,191 Equity participation compensation -- -- 2,919 -- -- -- 2,919 Payment to affiliate for release from obligations under an agreement -- -- -- (6,000) -- -- (6,000) Deferred income taxes from incorporation -- -- 3,239 -- -- -- 3,239 Notes receivable from stockholders -- -- -- -- -- (18,576) (18,576) Receivable from affiliates -- -- -- -- 1,080 -- 1,080 Accrued interest on notes receivable from stockholders -- -- -- 678 -- (678) -- Net income 6,930 -- -- 17,036 -- -- 23,966 -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1996 $ -- $ 200 $ 84,342 $ 11,714 $ (1,223) $(19,449) $ 75,584 ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS WYNDHAM HOTEL CORPORATION
YEAR ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 ---- ---- ---- (IN THOUSANDS) Cash flows from operating activities: Net income $ 6,265 $ 7,949 $ 23,966 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,735 6,311 7,328 Provision for bad debt 84 265 1,018 Deferred income taxes -- -- (12,958) Amortization of deferred debt issuance costs -- -- 782 Write-off of predecessor deferred debt issuance costs -- -- 1,401 Amortization of deferred gain -- -- (505) Equity in (earnings) loss of hotel partnership (36) 372 -- Foreign currency translation gain (404) (405) -- Equity participation compensation 2,802 3,992 2,919 Minority interest 186 724 571 Net (deposits to)/withdrawals from restricted cash 360 (485) 2,576 Changes to operating assets and liabilities, net of effects from purchase of hotels: Accounts receivable (1,487) (1,842) (4,038) Due from affiliates (850) (137) (761) Inventories and other (2,592) 196 (3,555) Current income taxes -- -- 5,390 Accounts payable and accrued expenses (758) (63) 7,975 Accounts payable and accrued expenses due to affiliates 4,036 (2,458) (2,507) Deposits 45 453 (1,796) Security deposits -- -- (13,738) Due to affiliates (684) 1,555 (4,323) --------- --------- --------- Net cash provided by operating activities 12,702 16,427 9,745 --------- --------- --------- Cash flows from investing activities: Purchase of property and equipment (2,101) (3,556) (11,272) Proceeds from sale of property and equipment -- -- 136,374 Purchase of equity investment in hotel partnership -- -- (1,125) Investments in management contracts (285) (4,346) (1,536) Notes and other receivables from affiliates -- (7,674) (11) Notes receivable -- (2,451) (3,857) Payment for purchase of hotels, net of cash acquired -- -- (33,470) Acquisition of minority interest -- -- (5,479) Decrease (increase) in long-term restricted cash 2,383 (212) (1,661) Other 1,770 (3,316) -- --------- --------- --------- Net cash provided by (used in) investing activities 1,767 (21,555) 77,963 --------- --------- --------- Cash flows from financing activities: Partners' contributed capital 2,120 14,795 4,801 Partner's capital distributions (7,728) (10,932) (29,593) Distribution made to withdrawing partner -- (2,577) (982) Decrease (increase) in receivable from affiliates (255) (98) 996 Decrease in payable to affiliates (597) (2,353) (2,627) Increase (decrease) in payable to minority interest holders 24 15 (218) Proceeds from issuance of common stock -- -- 69,504 Proceeds from long-term borrowings and issuance of debt 51 13,600 94,383 Repayments on long-term debt and capital lease obligations (5,291) (6,782) (197,726) Notes receivable from stockholders -- -- (18,889) --------- --------- --------- Net cash provided by (used in) financing activities (11,676) 5,668 (80,351) --------- --------- --------- Increase in cash and cash equivalents 2,793 540 7,357 Cash and cash equivalents at beginning of year 827 3,620 4,160 --------- --------- --------- Cash and cash equivalents at end of year $ 3,620 $ 4,160 $ 11,517 ========= ========= =========
The accompanying notes are an integral of the consolidated financial statements. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WYNDHAM HOTEL CORPORATION 1. THE FORMATION AND THE FINANCING PLAN: The Formation Wyndham Hotel Corporation ("WHC") was formed in Delaware in February 1996 to succeed to the business of Wyndham Hotel Company Ltd. (the "Old Management Company"), which, directly and through its subsidiaries, manages and franchises the Wyndham brand hotels and manages non-Wyndham brand hotels, as well as succeed to the ownership of six Wyndham brand hotels, a leasehold interest relating to the Garden Hotel Associates L.P. ("GHALP") lease (the "GHALP Lease") and an additional leased hotel (an aggregate of 12 leased Wyndham brand hotels) and a contract to purchase a single additional hotel (collectively, the "Assigned Businesses"). The Assigned Businesses and WHC are referred to collectively as (the "Company"). In March 1996, the Company entered into certain agreements with the owners of direct and indirect interests in the Old Management Company and hotels (the "Formation Agreement"), which collectively provided for the transfer to the Company of the Assigned Businesses, as well as certain other transactions described below that involved the parties thereto. In addition, on March 10, 1996, the Company entered into an agreement (the "Bedrock Exchange Agreement") with various affiliates of Hampstead Group L.L.C. (together with certain of its affiliates, "Bedrock"), pursuant to which Bedrock transferred to the Company options to acquire equity interests in the Old Management Company (the "Bedrock Options"), and Bedrock contributed $10.0 million (the "Bedrock Contribution"). GHALP has historically owned 11 Wyndham Garden Hotels managed by the Company (the "GHALP Properties"). A 30% interest in GHALP was owned by a partnership owned by Mr. and Mrs. Trammell Crow (together with various descendants of Mr. and Mrs. Crow and various corporations and entities beneficially owned or controlled by such person, the "Crow Family Members") and four senior executive officers of the Company (the "Senior Executive Officers"), and the remaining 70% was held by an unaffiliated third party. On May 2, 1996, Crow Family Members and the Senior Executive Officers acquired the remaining 70% ownership interest from the third party for a purchase price of approximately $29.5 million. The purchase price was funded from the proceeds of the sale of GHALP Properties to Hospitality Properties Trust (including its subsidiaries, "HPT"), a publicly traded real estate investment trust ("REIT"), for $135.3 million, which properties were leased back pursuant to one or more long-term leases with an initial term of approximately 17 years to a new partnership ("GHALP II"), the ownership of which mirrors the ownership of GHALP. As part of the Company's formation, the Company succeeded to GHALP II's interest in the GHALP Lease and continues to manage the hotels. Pursuant to the Formation Agreement, the Company indemnified certain of the owners of the Assigned Businesses and Bedrock for liabilities arising in connection with the Formation resulting from claims brought by unaffiliated third parties. The Financing Plan The Company implemented a "Financing Plan" in order to fund the cash payments associated with the Formation, repay certain mortgage and other indebtedness assumed in connection with the Formation and provide liquidity for the Company's operating and growth strategies. Under the Financing Plan, the Company (i) concurrently offered $100.0 million of 10.5% senior subordinated notes due 2006 (the "Notes"); (ii) con-currently offered 4,l97,500 shares of common stock (the "Common Stock") in an equity offering, and thereby raised approximately $67.2 million in gross proceeds (together with the $100.0 million debt offering, the "Offerings"), (iii) entered into a $100.0 million revolving credit facility with a financial institution (the "Revolving Credit Facility"); (iv) received the Bedrock Contribution in the amount of $10.0 million; and (v) eliminated $7.5 million of outstanding indebtedness under the Company's previous revolving credit facility with another financial institution upon the financial institution's exercise of its option to purchase from the Company 504,032 shares of the Common Stock. 2. BASIS OF PRESENTATION: The accompanying consolidated financial statements of the Company at December 31, 1996 and for the period since WHC's implementation of the Formation and the Financing Plan in May 1996 through December 31, 1996 include the accounts of WHC, its wholly-owned F-7 subsidiaries resulting from the Formation and subsequent acquisitions. Financial statements at December 31, 1995 and for the periods prior to the Formation (January 1, 1994 through May 24, 1996) include the combined accounts of WHC and its majority owned entities. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements at December 31, 1996 include the accounts of the Company which consist of the following entities: Management entities: Wyndham Management Corporation (a Delaware corporation) WHCMB, Inc. (a Delaware corporation) Waterfront Management Corporation (a Delaware corporation) WHCMB, Toronto, Inc. (a Canada corporation) Wyndham Hotels & Resorts Management, Ltd. (a Bermuda corporation) Wyndham Hotels & Resorts (Aruba) N. V. (an Aruba corporation) WHCMB Overland Park, Inc. (a Kansas corporation) A management subsidiary for a non-branded hotel (a Delaware corporation) Hotel entities: Wyndham Hotel Corporation (a Delaware corporation) GHALP Corporation (a Delaware corporation) WHC Vinings Corporation (a Delaware corporation) WHC Development Corporation (a Delaware corporation) WHC Franchise Corporation (a Delaware corporation) WHC Columbus Corporation (a Delaware corporation) Wyndham IP Corporation (a Delaware corporation) WHC Salt Lake City Corporation (a Delaware corporation) XERXES Limited (a Texas corporation) WH Interests, Inc. (a Texas corporation) WHC Caribbean Limited (a Jamaican corporation) Partnership entity: Rose Hall Associates, L.P. (a Texas limited partnership) The Company has a 30% investment in a hotel partnership which owns a hotel located in Columbus Ohio. The Company does not have voting or operational control over this hotel partnership; therefore, the investment is accounted for using the equity method in the accompanying financial statements. The management entities were formed to provide management and development services to hotel property owners. As of December 31, 1996, 82 properties, located in 25 states, the District of Columbia, Ontario, Canada and 5 Caribbean islands were owned and operated by the Company or under management or franchise contracts. The Company operates 21 Wyndham Hotels, 44 Wyndham Garden Hotels and 7 Wyndham Resort Hotels. The Company provides management services to 3 non- Wyndham brand hotels, and 7 extended stay hotels. The hotel entities, which own 10 hotels and lease 12 hotels, were formed for the purpose of acquiring, owning, leasing and operating hotels throughout the United States, and the Caribbean. Hotel revenues are primarily dependent upon the individual business traveler and small business groups. The partnership entity, which is comprised of 1 limited partnership, was formed for the purpose of managing and investing in a hotel entity. Use of Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash investments. The Company maintains cash and cash equivalents in accounts with major financial institutions in excess of the amount insured by the Federal Deposit Insurance Corporation. Management believes credit risk related to these deposits is minimal. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. F-8 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash For purposes of reporting cash flows, all highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. As of December 31, 1996, restricted cash included a depository account balance of $865,000 which collateralizes a letter of credit. Management anticipates the deposit will be reduced concurrent with reductions in the letter of credit commitment. Inventories Inventories consisting of food, beverage, china, linen, glassware, silverware, uniforms, and supplies are stated at cost which approximates market, with cost determined using the first-in, first-out method. Property and Equipment Buildings are carried at cost and depreciated over forty years using the straight-line method. Furniture and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives, which range from three to nine years. Assets recorded under capital leases and leasehold improvements are amortized over the shorter of the lives of the assets or the terms of the related leases. Normal repairs and maintenance are charged to expense as incurred. The Company periodically reviews its property and equipment to determine if its carrying cost will be recovered from future operating cash flows. In cases when the Company does not expect to recover its carrying cost, the Company recognizes an impairment loss. No such losses have been recognized to date. Management Contracts The Company has entered into management agreements which required payment of certain costs associated with the change in the management of hotels. These costs have been recorded as deferred management contract costs and are being amortized on a straight-line basis over the terms of the agreements. The Company periodically evaluates the recoverability of management contract costs to determine whether such costs will be recovered from future operations. Certain management agreements include repayment provisions if termination occurs prior to the term of the agreement. During 1996, the Company received $516,000 for termination of management contracts that is included in other revenues (net of write-off of the unamortized costs). Other Assets At December 31, 1996, other assets consisted primarily of unamortized debt costs totaling $7.6 million incurred in connection with the offering of the Notes and the Revolving Credit Facility which is being amortized over the terms of the Notes and the Revolving Credit Facility using the straight-line method, a $2.1 million deposit for the acquisition of a lease agreement on a hotel property and $1.2 million of capitalized legal costs for defending a trademark which is being amortized over 17 years. Also included in other assets are restricted cash for the acquisition of property and equipment in the amounts of approximately $616,000 and $2.3 million, at December 31, 1995 and 1996, respectively. At December 31, 1995, other assets included loan costs of approximately $746,000. The related loans were repaid with the proceeds from the Offerings. As a result, the unamortized loan costs were written off and are reported as an extraordinary item. Advance Deposits Deposits represent cash received from guests for future hotel reservations at the hotel entities and cash received from the owners of certain hotels managed by the Company for various operating expenses paid by the Company on behalf of managed properties. Upon termination of the management contracts, the excess, if any, of the deposits over the actual operating expenses owed to the Company would be refunded to the owners. Income Taxes Since the Company's Formation in May 1996, federal income taxes have been provided in accordance with Statement of Financial Accounting Standard No. 109 ("SFAS 109"). Under the liability method of SFAS 109, deferred taxes are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years the differences are expected to reverse. In accordance with SFAS 109, the Company has recorded a net F-9 income tax benefit of $8.2 million (before extraordinary item) since its Formation. See Note 15 for the components of deferred tax assets and income tax benefit. For periods prior to the Company's Formation, each of the combined companies was either a partnership, an S corporation or a nontaxable Bermuda corporation, and consequently, was not subject to federal income taxes. Thus, taxable income or loss was allocated directly to the taxable income of the individual partners and stockholders. The Company's tax returns and the amount of allocable income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes to income or loss, the tax liability of the partners and stockholders could be changed accordingly. Revenue Recognition Hotel revenue, management fees, service fees, reimbursements and other income are recognized when earned. Foreign Currency Translation Financial statements of foreign subsidiaries not maintained using U.S. dollars are remeasured into the U.S. dollar functional currency for consolidation and reporting purposes. Assets and liabilities of non-U.S. operations are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of non-U. S. operations are translated at the weighted average exchange rate during the year. Resulting translation adjustments are reflected in stockholders' equity. Realized foreign currency gains and losses are included in results of operation. Self Insurance The Company is self insured for various levels of general liability, workers' compensation and employee medical coverages. Accrued expenses include the estimated cost from unpaid incurred claims. Adoption of Authoritative Statement Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation" accounting requirements became effective for transactions entered into in fiscal years that begin after December 15, 1995. SFAS No. 123 defines a fair value based method of accounting for employee stock options or similar instruments and permits companies to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows a company to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." The Company has elected to measure compensation cost in conformity with APB No. 25 and to make pro forma disclosures of net income and earnings per share for the year ended December 31, 1996 as if the fair value based method of accounting defined in SFAS No. 123 had been applied. See Note 17. Stock-Based Compensation Plans. Earnings Per Share Earnings per share for the year ended December 31, 1996 are computed based on the weighted average number of shares of common stock outstanding. The impact of common stock equivalents to earnings per share is immaterial. Earnings per share data for the years ended December 31, 1994 and 1995 relates to periods prior to the Company's formation and therefore is not presented. 4. ACQUISITIONS: On May 2, 1996, a 70% partnership interest in GHALP, owned by an unaffiliated third party, was acquired by a newly formed partnership owned by an affiliate and Senior Executive Officers. In a subsequent series of transactions the properties were sold to an unaffiliated real estate investment trust and all debt was repaid. The hotel properties were leased back to a newly formed limited partnership owned by the affiliate and Senior Executive Officers under eleven long-term operating leases. These leases were transferred to a subsidiary of the Company in connection with the formation of the Company. Each of the leases has an initial term of seventeen years and four optional twelve-year renewal periods exercisable at the Company's option for all hotels. Under the terms of these leases, yearly base rent aggregates $13.6 million plus a contingent rent paid based on a percentage of excess revenue over base year revenues. These leases require the Company to pay substantially all expenses associated with the operation of the leased hotels, including real estate taxes and insurance. F-10 In May 1996, the Company acquired, from an unaffiliated party, the Wyndham Garden Hotel-Vinings, a 159 room hotel. The purchase price was approximately $12.5 million, comprised of a cash payment of $3.6 million and the assumption of existing indebtedness encumbering the property. In July 1996, the Company, in separate transactions, acquired a 181 room hotel in Kansas ("Overland Park") and a 254 room hotel in Dallas, Texas ("Dallas Market Center") for a total purchase price of $13.7 million. On August 30, 1996, the Company acquired a 287 room hotel, the Bristol Place Hotel in Toronto, Canada (the "Bristol Place in Toronto"). The total investment approximated $19.9 million with a purchase price of $17.4 million and renovation and other costs of $2.5 million. The renovation is expected to be completed in 1997. These acquisitions were accounted for using the purchase method and accordingly, the acquired assets, which consisted primarily of property and equipment, were recorded based on their estimated fair values at the date of acquisition. These acquisitions were funded with a portion of the net proceeds from the Offerings. For pro forma financial information relating to these acquisitions see Note 25. In November 1996, the Company purchased a 30% interest in a hotel partnership and related management contract of a 217 room hotel property in Columbus, Ohio, ("Columbus Hotel") with a purchase price of $1.6 million (including related management contract acquisition costs of $500,000). The acquisition was accounted for using the equity method. In November 1996, the Company also entered into a letter of intent for a hotel in Salt Lake City, Utah. The transaction, which was executed in January 1997, required the Company to make deposits totaling $10.0 million with the lessor. The deposits were funded with cash borrowed under the Revolving Credit Facility. 5. INVESTMENT IN HOTEL PARTNERSHIPS: In November 1996, the Company acquired a 30% equity interest in the Columbus Hotel. Pursuant to the partnership agreement, the Company was not allocated any profits or losses of the partnership for the period ended December 31, 1996. The Company's 30% equity investment in GHALP ceased on May 2, 1996 following the acquisition of the remaining 70% interest as part of the Company's Formation and all GHALP account balances have been included in the Company's consolidated financial statements. The summary of the significant financial information of GHALP for 1994 and 1995, is as follows (in thousands):
DECEMBER 31, 1995 -------- ASSETS Total current assets $ 6,770 Property and equipment, net 103,798 Other 1,947 -------- $112,515 ======== LIABILITIES AND PARTNERS' EQUITY Total current liabilities $ 5,049 Long-term debt, excluding current portion 93,000 Partners' equity 14,466 -------- $112,515 ========
YEARS ENDED DECEMBER 31, 1994 1995 -------- -------- Revenues $ 50,917 $ 56,976 Expenses 46,795 51,429 -------- -------- Net income $ 4,122 $ 5,547 ======== ========
The Company's initial contribution upon formation of GHALP was $7,000,000 of the total initial aggregate contributions of $36,000,000. 6. NOTES AND OTHER RECEIVABLES FROM AFFILIATES: As of December 31, 1995 and 1996, notes and other receivables from affiliates consisted of the following (in thousands):
DECEMBER 31, 1995 1996 ------ ------ Promissory notes bearing interest at 9% per annum, payable in 2005 $6,396 $6,431 Promissory note bearing interest at prime plus 2% (8.25% at December 31, 1996) per annum, payable in 2000 1,278 1,254 ------ ------ $7,674 $7,685 ====== ======
The promissory notes represent loans made to affiliated entities to acquire hotels which then have executed management agreements with the Company. The loans are collateralized by the partnership interests in the respective entities. Interest income of $100,000 and $716,000 was earned for the years ended December 31, 1995 and 1996, respectively. F-11 7. NOTES RECEIVABLE: As of December 31, 1995 and 1996, notes receivable consisted of the following (in thousands):
DECEMBER 31, 1995 1996 ------ ------ Promissory note bearing interest at 13.5% per annum, payable in 2011 $ -- $4,329 Promissory note, non interest bearing, payable in installments based on the hotel's excess gross operating profit and excess proceeds from capital transactions, as defined in the management contract 105 1,878 Promissory note bearing interest at prime plus .5%, due in 2005, sold to a related party in 1996 (see Note 22) 2,345 -- Promissory note bearing interest at 9.5% per annum, payable in 2001 -- 100 ------ ------ $2,450 $6,307 ====== ======
The promissory notes represent loans made to entities to renovate hotels or to cover working capital deficits. The entities then have executed management agreements with the Company. Pursuant to the terms of a management agreement obtained in 1996, the Company is obligated to provide $4,750,000 of working capital to a hotel partnership. As of December 31, 1996, $4,329,000 of this obligation has been funded. 8. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consist of the following (in thousands):
DECEMBER 31, 1995 1996 -------- -------- Land $ 9,955 $ 16,078 Buildings and improvements 77,108 111,698 Furniture, fixtures and equipment 28,057 36,801 Work in progress -- 3,513 Leasehold improvements 247 205 -------- -------- 115,367 168,295 Less accumulated depreciation and amortization (27,763) (34,119) -------- -------- $ 87,604 $134,176 ======== ========
9. MANAGEMENT SERVICES AND RELATED REVENUES: The Company has entered into management agreements for hotels. The owners of certain hotels the Company manages are affiliates related by common ownership or control. Management fees earned for hotels owned by affiliates in 1994, 1995 and 1996 were $7,372,000, $9,528,000 and $15,257,000, respectively. Various operating expenses have been paid by Wyndham on behalf of managed properties. As of December 31, 1994, 1995 and 1996, accounts receivable from hotels owned by affiliates were $2,520,000, $3,002,000 and $5,582,000, respectively. The Company provides centralized accounting services such as accounts payable, payroll and financial statement preparation for certain managed hotels. The Company charges an accounting fee to these hotels for such services. Design fees are additional service fees paid to the Company for the development, and design and construction of new hotels as well as for the refurbishment of existing hotels. In addition, the Company receives purchasing fees based on a percentage of cost of goods ordered for purchasing various items. Reimbursements represent revenues recognized for the reimbursement of expenses associated with providing sales and marketing, centralized reservations, partnership accounting and other support services. Included in reimbursable expenses are advertising and promotional expenses of $3,655,000, $4,905,000 and $6,217,000 for the years ended December 31, 1994, 1995 and 1996, respectively. 10. SECURITY DEPOSITS: Security deposits represent cash payments made by the Company related to various leases of real estate and equipment. At December 31, 1996, security deposits consisted primarily of $13.6 million in deposits related to the GHALP Properties. 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31, 1995 1996 ------- ------- Accounts payable $ 3,648 $ 5,719 Due to medical benefit trusts -- 2,756 Due for managed hotels' insurance liabilities -- 3,602 Taxes 1,486 2,799 Payroll and related costs 2,055 5,284 Accrued interest 880 1,390 Other 385 2,006 ------- ------- $ 8,454 $23,556 ======= =======
F-12 12. LONG-TERM DEBT: Long-term debt consists of the following (in thousands):
DECEMBER 31, 1995 1996 ------- -------- Senior subordinated notes, interest payable semi-annually at 10.5%, principal maturing May 15, 2006, redeemable after May 15, 2001 at prices ranging from 105.25% to 100.00% of the principal $ -- $100,000 Industrial Revenue Bond indebtedness, collateralized by a first lien mortgage, interest payable monthly to trustee at 5.72%, maturing October 1, 2025, required to be refinanced in February 1997 -- 9,675 Mortgage loan, a hotel property is pledged as collateral, interest payable monthly at prime (8.50% at December 31, 1995) plus .5% and principal due in installments based on cash flow, matured May 2, 1996 12,607 -- Mortgage loan, a hotel property is pledged as collateral, interest payable monthly at LIBOR (5.44% at December 31, 1995) plus 1.75% and principal due in installments based on cash flow, maturing December 31, 1999, repaid in May 1996 10,034 -- Mortgage loan, a hotel property is pledged as collateral, interest payable monthly at LIBOR plus 1.5% and principal due in installments based on cash flow, maturing December 31, 1999, repaid in May 1996 10,115 -- Mortgage loan, a hotel property is pledged as collateral, interest payable monthly at LIBOR plus 3.25%, and principal maturing May 21, 2000, repaid in May 1996 5,400 -- Mortgage loan, a hotel property is pledged as collateral, interest payable monthly at prime plus 1.25%, and principal due in installments based on cash flow, maturing August 28, 1997, repaid in May 1996 8,734 -- Mortgage loan, a hotel property is pledged as collateral, interest payable quarterly at 86% of LIBID, and principal payable quarterly and maturing November 15, 1999, repaid in May 1996 5,870 -- Revolving credit agreement, substantially all of the assets of Wyndham are pledged as collateral, interest payable quarterly at 9%, and principal maturing June 30, 2002, repaid in May 1996 12,500 -- Note payable to seller of a hotel, partnership interest pledged as collateral, interest payable quarterly at 8%, principal payable quarterly and maturing May 21, 1997, repaid in May 1996 2,392 -- Note payable to seller of a hotel, interest payable quarterly at 11.5%, principal due quarterly and maturing November 15, 1999, repaid in May 1996 2,348 -- Note payable to bank, interest payable quarterly at Jamaican prime plus 1.5%, principal payable quarterly and maturing November 15, 1999, repaid in May 1996 195 -- ------- -------- 70,195 109,675 Current portion of long-term debt 15,653 -- ------- -------- Long-term debt, excluding current portion $54,542 $109,675 ======= ========
The outstanding balance of the long-term debt of $109,675,000 at December 31, 1996 is payable after the year 2001. On February 28, 1997, the Industrial Revenue Bonds were refinanced. See Note 24. Subsequent Events. In May 1996, as a part of the implementation of the Company's Financing Plan, the Company obtained the Revolving Credit Facility. The Revolving Credit Facility provides for up to $100.0 million of revolving loan borrowings. The Revolving Credit Facility is a direct obligation of the Company and is fully and unconditionally guaranteed by each of the Company's subsidiaries. While no amount has been drawn under this facility at December 31, 1996, approximately $42.3 million aggregate principal amount was available for borrowing at that date in accordance with the terms of the facility. In January 1997, the Company borrowed $10.8 million at an average interest rate of 7.81% under the Revolving Credit Facility to meet the requirement of a new hotel lease agreement. The Revolving Credit Facility will mature in May 2000. The indentures of the $100.0 million senior subordinated notes and the Revolving Credit Facility contain covenants restricting the Company's ability to incur indebtedness, pay dividends and otherwise limiting the Company's activities. The loan agreement for the Revolving Credit Facility, which contains the most restrictive covenants, requires the Company to maintain a minimum net worth of $55.0 million, maintain annually increasing consolidated fixed charge coverage ratios (before and after capital expenditures) as defined in the covenants, and maintain annually decreasing consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization (before and after capital expenditures) ratios as defined in the covenants. The outstanding balance of a revolving credit agreement at December 31, 1995 (subsequently increased to $15.0 million) was repaid at the Company's initial public offering. The Company paid $7.5 million in cash to the financial institution. The remaining one-half of the $15.0 million was discharged upon the financial institution's election to exercise its option, pursuant to the modified credit agreement, to purchase 504,032 shares of the Company's Common Stock for a total purchase price of $7.5 million. See Note 1. The Formation and the Financing Plan. F-13 13. LEASES: The Company leases various types of property including land and buildings of hotel properties, office facilities and equipment under agreements ranging from 1 to 30 years. Leased capital assets included in property and equipment at December 31, 1995 and 1996 are as follows (in thousands):
DECEMBER 31, 1995 1996 ------- ------- Property $14,530 $14,530 Equipment 3,434 3,734 ------- ------- 17,964 18,264 Accumulated amortization (5,721) (7,132) ------- ------- $12,243 $11,132 ======= =======
The Company incurred rental expense totaling $1,707,000, $1,199,000 and $10,319,000, respectively, in 1994, 1995 and 1996. The 1996 rental expense included $9,067,000 on the GHALP Lease. The future minimum lease payments required under the capital lease (together with the present value of net minimum lease payments) and future minimum lease payments required under operating leases that have an initial term or remaining noncancelable lease term in excess of one year at December 31, 1996 are as follows (in thousands):
CAPITAL OPERATING LEASES ------- -------- YEAR ENDING DECEMBER 31: 1997 $ 2,555 $ 14,902 1998 2,492 14,566 1999 2,390 14,566 2000 2,379 13,886 2001 2,333 13,886 Thereafter 37,183 164,158 ------- -------- Total minimum lease payments 49,332 $235,964 ======== Less imputed interest 28,553 ------- Present value of net minimum lease payments 20,779 Less current portion 510 ------- Long term portion of net minimum lease payments $20,269 =======
WH Interests, Inc. ("WHI") has a lease agreement for the property which is accounted for as a capital lease. This agreement provides for payments of contingent rent based on a percentage of net operating income, as defined, less base rent and the management fee (base amount). For lease years 1990 through 1999, contingent rent payable to the landlord is 20% of the excess of net operating income, as defined, over the base amount and 50% of the excess for lease years thereafter. Contingent rent expense for the years ended December 31, 1994, 1995 and 1996 was $108,000, $59,000 and $185,000 respectively. This capital lease agreement provides for a reserve for capital expenditures equal to 4% of the gross income of the respective hotel. At the end of the lease term, the Company is required to refund to the lessor the excess of amounts reserved over actual capital expenditures. At December 31, 1995 and 1996 the reserved amount exceeded expenditures by $1,039,000 and $974,000, respectively. 14. DEFERRED GAIN: The deferred gain represents the gain resulting from the sale of the land, buildings, furnishings and equipment of GHALP to HPT in the sale and lease back transaction as described in Note 1. The gain is being amortized over the initial term of the GHALP lease of 17 years. 15. INCOME TAXES: The Company's provision for income taxes is comprised of the following (in thousands):
MAY 24, 1996 THROUGH DEC. 31 1996 ---- Federal $3,453 State 516 ------ Total current expense 3,969 ------ Deferred Federal 472 State 38 ------ Total deferred expense 510 ------ Total income tax expense $4,479 ======
A reconciliation of the statutory federal income tax rate and the effective tax rate to income before income taxes and extraordinary items as included in the consolidated statements of income is as follows:
MAY 24, 1996 THROUGH DEC. 31 1996 ---- Federal 35.0% State 3.0% Tax reduction due to FICA tax credit (2.3)% Other 3.4% ---- Total current expense 39.1% ====
F-14 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets consist of the following (in thousands):
DEC. 31 1996 ------- Deferred tax assets: Other current assets $ 674 Land 99 Depreciation and amortization 800 Management contracts 7,439 Other current liabilities 754 Long-term lease 7,632 Deferred gain 4,557 ------- Total deferred tax assets 21,955 ------- Deferred tax liabilities: Other non-current liabilities (522) Security deposits (5,746) ------- Total deferred tax liabilities (6,268) ------- Net deferred tax assets $15,687 =======
On May 24,1996, the Company, previously a non-taxable entity, became a taxable entity. Upon the conversion of a non-taxable to a taxable entity, the Company recognized a deferred tax asset of approximately $16.2 million, of which $3.2 million was recognized in retained earnings and $13.0 million was recognized in continuing operations as a tax benefit. The book income for the period from May 24, 1996 through December 31, 1996 was approximately $11.5 million. 16. STOCKHOLDERS' EQUITY: In connection with the initial public offering, the Company authorized Common Stock of 45,000,000 shares, $.01 par value per share. At December 31, 1996, 20,018,299 shares were issued and outstanding. Holders of the Common Stock have no preemptive or conversion rights and the Common Stock is not subject to further calls or assessment by the Company. There are no redemption or sinking fund provisions with respect to the Common Stock. The Company's Certificate of Incorporation ("Certificate") authorized 5,000,000 shares of preferred stock ("Preferred Stock"), none of which is outstanding. The Board of Directors (the "Board") has the authority, without any further vote or action by the stockholders, to issue Preferred Stock in one or more series and to fix the number of shares, designations, and relative rights. In the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities subject to prior distribution rights of any Preferred Stock then outstanding. The Company has no present intention to issue shares of Preferred Stock. 17. STOCK-BASED COMPENSATION PLANS: The Company sponsors the "Wyndham Hotel Corporation 1996 Long Term Incentive Plan" (the "Plan"), which is a stock-based incentive compensation plan as described below. The Company applies APB Opinion 25 and related Interpretations in accounting for the Plan. In 1995, the FASB issued FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of SFAS 123 is optional, and the Company has decided not to elect these provisions of SFAS 123. However, pro forma disclosures as if the Company adopted the cost recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below. Under the Plan, the Company is authorized to issue shares of Common Stock or cash pursuant to "Awards" granted in the form of incentive stock options qualified under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, restricted shares, stock appreciation rights, and performance units. Awards may be granted to key executives and other key employees of the Company, including officers of the Company and its subsidiaries. According to the Plan, Awards may be granted with respect to a maximum of 2,133,811 shares of Common Stock. No participant may be granted, in any year, Awards with respect to more than 500,000 shares of Common Stock. The Compensation Committee administers the Plan and has broad discretion in selecting Plan participants and determining the vesting period and other terms applicable to Awards granted under the Plan. In 1996, the Company granted a total of 820,700 nonqualified stock options under the Plan. A summary of the status of the Company's stock options as of December 31, 1996 and the changes during the year ended on that date is presented on the following page. F-15
NUMBER OF WEIGHTED SHARES OF AVERAGE UNDERLYING EXERCISE OPTIONS OPTIONS -------- ------- Outstanding at beginning of the year -- $ -- Granted 820,700 $ 16.09 Exercised -- $ -- Forfeited (128,000) $(16.00) Expired -- $ -- -------- ------- Outstanding at end of year 692,700 $ 16.11 ======== Exercisable at end of year -- N/A Weighted-average fair value 0 $ 3.20
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted- average assumptions: no dividends, risk-free interest rates are different for each grant and range from 6.05% to 6.41%; the expected lives of options are 5 years; and volatility of 36.54% for all grants. As of December 31, 1996, there were 692,700 options outstanding with a weighted-average remaining contractual life of 9.39 years and a weighted-average exercise price of $16.11. None of these options were exercisable at that time. Had the compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company's net income and net income per common share for 1996 would approximate the pro forma amounts below (in thousands, except per share amounts):
AS REPORTED PRO FORMA DEC. 31, DEC. 31, 1996 1996 ------- ------- SFAS 123 charge $ - - $ 577 APB25 charge $ -- $ -- Net income $23,966 $23,615 Net income per common share $ 1.20 $ 1.18
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to 1995, and the Company anticipates making awards in the future under its stock-based compensation plans. 18. RECEIVABLES FROM AFFILIATES: Management fees for one managed hotel, owned by an affiliate of the Company, are deferred until certain operating criteria, as defined in the partnership's management agreement and loan agreement, are met. As of December 31, 1995 and 1996, this deferred balance, a receivable from an affiliate included in partners' capital, was $1,223,000. These management fees will be collected upon meeting the operating criteria as defined in the agreement. In addition, included in partners' capital at December 31, 1995 were receivables from affiliates which include certain partner capital contributions and accrued interest of $1,080,000. 19. COMMITMENTS AND CONTINGENCIES: Litigation has been initiated against the Company pertaining to the right to use the Wyndham name for hotel service in the New York metropolitan area. On January 29, 1996, a temporary restraining order was issued by the Supreme Court of the State of New York which, pending the outcome of a trial, prevents the Company from using the Wyndham name in the New York area. An adverse decision in the litigation could prevent the Company from operating Wyndham brand hotels or advertising the Wyndham name in connection with the operation of a Wyndham brand hotel within a 50 mile radius of a hotel in Manhattan operated under the "Wyndham" name. It is management's opinion, based on legal counsel, that the range of losses resulting from the ultimate resolution of the aforementioned claim cannot be determined. The cost of $1,187,000 at December 31, 1996 for defending the trademark has been capitalized and is being amortized over 17 years, pending the ultimate resolution. An adverse decision may result in the immediate write-off of those capitalized costs. The Company received a Notice of Intent to make Sales and Use Tax audit changes from the Tampa Region of the Florida Department of Revenue for the period from July 31, 1990 through June 30, 1995. The audit assessed additional taxes of $584,000, penalty of $224,000 and interest of $201,000 for a total assessment of $1,009,000. The previous owners (an affiliate) have agreed to indemnify the Company with respect to any additional sales and use tax paid by the Company for the audit period. Management, after review and consultation with legal counsel, believes the Company has meritorious defenses to this matter and that any potential liability in excess of the $189,000 initially recorded would not materially effect the Company's consolidated financial statements. F-16 On February 29, 1996, an affiliate and the Company were served with a complaint filed on November 22, 1995 by an owner of a hotel managed by the affiliate. The claim involved the collection of a promissory note relating to an earlier litigation between the affiliate and the owner. The owner alleged that the transfer of certain management contracts by the affiliate to the Company was a fraudulent conveyance that rendered the affiliate insolvent. Liability for payment of the promissory note was not transferred to or assumed by the Company. This litigation was settled during 1996 at no cost to the Company. The Company has pending several other claims incurred in the normal course of business which, in the opinion of management, based on the advice of legal counsel, will not have a material effect on the consolidated financial statements. Pursuant to the terms of a management agreement of a hotel in which the Company has a 30% ownership, the Company has committed to fund up to $2.5 million for the renovation of the hotel property. The loan will bear an interest rate at 10% and will be collateralized by the outstanding partnership interest of owners. Interest will be due monthly and principal is payable in installments beginning January 1998 based on the operating income of the hotel. At December 31, 1996, none of such amount has been advanced. The Company also guarantees $2,340,000 in indebtedness of this hotel. Pursuant to the terms of the management agreements of two affiliate-owned hotels under construction, the Company has undertaken certain commitments to provide furniture, fixtures and equipment for each hotel at a fixed price totaling $8.1 million. As of December 31, 1996, the Company has funded such commitments totaling $5.0 million. The Company has indirectly paid the excess amount of approximately $300,000 by contributing such amount to the partnership that owns one of the hotels. The Company also paid certain pre-opening expenses for one of the hotels in the amount of $495,000. The Company has guaranteed to fund up to $230,000 in working capital per year for three years after one of the hotels is opened in the event that the hotel generates inadequate cash flow and the Company has guaranteed $875,000 in indebtedness. Pursuant to the terms of a management agreement for a resort hotel property, the Company has under-taken, subject to certain contingencies, certain commitments to provide approximately $2.0 million, approximately $1.6 million of which shall be used for preopening expenses and the purchase of furniture, fixtures and equipment and the remainder of which shall be used to fund working capital for the hotel. As of December 31, 1996, approximately $659,000 of such commitments has been funded. Pursuant to the terms of a management agreement of a hotel owned by an affiliate, the Company has guaranteed to fund up to $600,000 of working capital per year to the extent the entity experiences operating deficits, with a maximum required contribution of $2.3 million over the term of the guarantee extending from 1995 to 2000. The Company has not to date been required to make any capital contribution under the guarantee. The Company is subject to environmental regulations related to the ownership, management, development and acquisition of real estate (hotels). The cost of complying with the environmental regulations was not material to the Company's consolidated statements of income for the years ended December 31, 1994, 1995 and 1996. The Company is not aware of any environmental condition on any of its properties which is likely to have a material adverse effect on the Company's financial statements. 20. EMPLOYEE BENEFIT PLANS: The Company sponsors 401(k) retirement savings plans. Employees who are over 21 years of age and have completed one year of service are eligible to participate in the plans. The Company matches employee contributions up to 4% of an employee's salary. The aggregate expense under the plans amounted to approximately $166,000, $202,000 and $229,000 for the years ended December 31, 1994, 1995 and 1996, respectively. The Company maintains a self-insured group health plan through a Voluntary Employee Benefit Association ("VEBA"). This plan is funded to the limits provided in the Internal Revenue Code, and liabilities have been recorded for estimated incurred but unreported claims. Aggregate and stop loss insurance exists at amounts which limit exposure to the Company. The Company has recognized expenses related to the plan of $687,000, $832,000 and $1,504,000 for the years ended December 31, 1994, 1995 and 1996, respectively. F-17 Certain management employees are partners in an equity participation plan, Wyndham Employees, Ltd. ("WEL"). The Company has accounted for WEL in a manner similar to a formula unit incentive plan. Partners are admitted into WEL and partnership units are awarded at the discretion of Wyndham's Senior Executive Officers. Units vest five years after award date and are payable by WEL upon certain events. Unit values are determined by formulas related to appreciation in value of Wyndham and other affiliated entities. In addition, the Senior Executive Officers own limited partner interests in Wyndham and several affiliates of Wyndham. These limited partner interests were purchased by these Senior Executive Officers for amounts equal to the fair value of such interests. The Senior Executive Officers borrowed the funds used to purchase such limited partner interests from an affiliate of Wyndham and collateralized such borrowings with their limited partner interests. The Senior Executive Officers' shares of the distributable cash of the limited partnerships is used to repay such affiliate loans. For financial reporting purposes, the Company has recognized compensation expense under WEL and the Senior Executive Officer equity participation of $2,802,000, $3,992,000 and $2,919,000 for the years ended December 31, 1994, 1995 and 1996, respectively. The primary component of such expense was fixed at the Company's initial public offering price, and the Company will not incur additional expense for periods subsequent to the initial public offering. In February 1997, WEL was terminated upon the distribution of 646,696 shares of the Company's Common Stock held by WEL to its participants. 21. FAIR VALUE: The Company has estimated the fair value of its financial instruments at December 31, 1996 as required by Statement of Financial Accounting Standards No. 107. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values. Long-term debt had a fair value of $112,135,000 at December 31, 1996, based on the quoted market prices. The carrying values of fixed rate debt are reasonable estimates of their fair values based on their discounted cash flows at discount rates currently available to the Company for debt with similar terms and remaining maturities at December 31, 1996. 22. TRANSACTIONS WITH RELATED PARTIES: The following discussion of certain relationships and transactions includes (i) hotel management and related fees paid to the Company by certain affiliates, (ii) capital contributions, loans and other payments made by the Company to certain affiliates in connection with the Company's entry into hotel management contracts with related parties, (iii) transactions between the Company and Crow Family Members and the Senior Executive Officers and (iv) loans made to the Senior Executive Officers of the Company that the Company purchased in connection with its formation. During 1994, 1995 and 1996, the Senior Executive Officers incurred indebtedness to Wyndham Finance Limited Partnership ("WFLP"), a partnership owned by Crow Family Members. In addition, Wyndham Employees Ltd. ("WEL"), in which certain executive officers of the Company have an interest, incurred indebtedness to WFLP. Notes representing such loans were purchased by the Company in May of 1996 in connection with its Formation for a cash payment to WFLP in the amount of $18,576,000 which is equivalent to the aggregate outstanding principal and accrued interest severally owing by the Senior Executive Officers and WEL to WFLP. Such promissory notes, which are made payable to the Company, accrue interest at 6% per annum and are fully collateralized by the pledge of shares of Common Stock held by the note obligors. The outstanding principal and accrued interest (compounded quarterly) is payable in a single lump sum in May 2001. The aggregate principal amounts of such loans, including interest, purchased by the Company in connection with its Formation, are as follows (in thousands):
1995 1996 ------ ------ James D. Carreker $1,868 $5,135 Leslie V. Bentley $ 767 $1,890 Anne L. Raymond $4,418 $4,625 Stanley M. Koonce, Jr $ 547 $1,926 Eric Danziger* $1,116 $2,829 WEL $ 881 $3,044
*Resigned in 1996. F-18 During 1994, 1995 and 1996, the Company made cash advances in the aggregate amounts of $1,093,000, $1,381,000 and $329,000, respectively, to the Hotel Partnerships in which Bedrock has an ownership interest. The advances were used to pay certain renovation costs for Wyndham Garden hotels that were redeveloped by Bedrock. The advances are repaid through Bedrock's redevelopment fund. At December 31, 1996 no amounts were outstanding. During 1994, 1995 and 1996, the Company made payments in the aggregate amounts of $1,352,000, $1,740,000 and $1,742,000, respectively, to Wyndham Travel Management Ltd., an entity owned by Lucy Billingsley (the daughter of Mr. and Mrs. Trammell Crow), for travel services provided to the Company. During 1994 and 1995, the Company made payments in the aggregate amounts of $701,000 and $830,000, respectively, to Caribbean Hotel Management Company ("CHMC"), which is owned by Crow Family Members. The Company's payment obligations under the agreement were released and discharged in connection with the Formation of the Company in exchange for a cash payment paid by the Company to CHMC. During 1994, 1995 and 1996, the Company made payments in the aggregate amounts of $744,000, $875,000 and $850,000, respectively, as lease payments for its corporate office space to Tower 2001 Limited Partnership, a partnership in which Crow Family Members have an ownership interest. The Company's current lease on its corporate office space expires in May 1997. Following this period, the lease reverts to a month-to-month term. During 1994 and 1995, the owners of hotels owned or leased by the Company made contributions to a loss prevention fund in the amounts of $620,000 and $624,000, which funds were deposited to WFLP pending the use of such contributions by the loss prevention fund. The contributions were used to cover a portion of the deductible on insurance policies for such hotels in connection with insured claims made against the hotels. In 1995, the Company made payments in connection with entering into a management contract for the Wyndham Anatole Hotel, in which Crow Family Members have an ownership interest. The amount of such payment was $523,000 and the purpose was to pay costs associated with converting the property to the Wyndham brand. During 1994, 1995 and 1996, the Company made payments in the aggregate amounts of $321,000, $332,000, and $289,000, respectively, to GHMB, Inc., an entity owned by a Senior Executive Officer for the operation of liquor concessions at a Wyndham Garden hotel. During 1995 and 1996, the Company received payments in the aggregate amount of $73,000 and $514,000 from Convention Center Boulevard Hotel Limited, Waterfront Hotel Associates, S.E. and WHC-LG Hotel Associates, L.P., Hotel Partnerships in which Crow Family Members and some or all of the Senior Executive Officers have an interest. The payments were received as construction and renovation fees for the Wyndham Riverfront and Wyndham San Juan Hotels and for the Company's La Guardia Airport hotel. Pursuant to the terms of its management agreement relating to the Wyndham Hotel at Los Angeles Airport (the "LAX"), Wyndham agreed to loan $4,560,000 to be applied to costs of refurbishment of the LAX. The refurbishment loan is evidenced by a promissory note (the "Note Receivable"), which has been partially funded in the amount of $3,974,000 as of December 31, 1996. The Company's obligation to make the remaining advances under the refurbishment loan is collateralized by a letter of credit, which, in turn, is collateralized by $865,000 as of December 31, 1996 in cash. Prior to the Formation of the Company, WHC LAX Associates, L.P. ("WHC LAX"), a limited partnership owned by Crow Family Members and the Senior Executive Officers, paid to Wyndham $4,560,000 in return for Wyndham's agreement to pay to WHC LAX all payments that Wyndham receives under the Note Receivable. Wyndham also agreed that, insofar as WHC LAX's $4,560,000 payment to the Company exceeds advances that Wyndham is obligated to make, but has not yet made, under the Note Receivable, it would pay to WHC LAX interest at a variable rate that has ranged from 5.25% to 5.81% per annum on the unfunded amounts. As of December 31, 1996, the Company has accrued such interest in the amount of $32,000. The Company has entered into a five year service agreement with ISIS 2000, an entity owned by Crow Family Members and the Senior Executive Officers, F-19 whereby ISIS 2000 will provide centralized reservations and property management services to all Wyndham brand hotels. The services will be provided for a fee comprised of an initial link-up charge plus a per reservation fee and a per hotel charge for the property management system. The service fee payable by the Company totaled $772,000 in 1996. The Company has entered into an asset management agreement with ISIS 2000 providing for human resource, finance, accounting, payroll, legal and tax services. In addition, the Company has guaranteed operating leases on behalf of ISIS 2000 in the approximate amount of $2.4 million as of December 31, 1996. In 1995 and 1996, the Company made payments to Trammell Crow Company in the amount of $387,000 and $937,000, respectively, for contract labor (including related costs) provided to the Company for management information services. The Company has made insurance premium payments to Wynright Insurance ("Wynright"), an entity owned by Crow Family Members and the Senior Executive Officers, with respect to certain insurance policies maintained for the benefit of the Company and hotels owned or leased by the Company. Such payments totaled $593,000 in 1996. The Company also will enter into an asset management agreement with Wynright providing for human resource, finance, accounting, payroll, legal and tax services. In 1996, a subsidiary of the Company entered into a master management agreement (the "Agreement") with Homegate, an affiliated entity, which provides for the Company to manage up to 60 extended-stay hotel properties and to provide Homegate with other services. The Company and Homegate have agreed that Homegate will pay Wyndham or an affiliate a one-time fee of $25,000 for Wyndham's provision of design services in developing the initial prototype, certain other fees for the provision of software and other services, and a commission of 5% of the aggregate purchase price of all items that Homegate purchases through Wyndham's purchasing department. Homegate also must reimburse Wyndham for up to $100,000 for the costs incurred in developing Homegate's payroll and accounts payable software and for developing a marketing database, which costs will be reimbursed ratably upon the signing of the first 10 management contracts. Wyndham and Homegate will agree upon any fees to be paid with respect to ongoing systems support and maintenance services. The Company currently manages seven extended stay hotel properties for Homegate. In connection with the execution of the Agreement, certain Crow Family Members have agreed to grant Wyndham a right of first refusal affording Wyndham a preferential right to purchase their shares in connection with any proposed sale by any of such parties or their affiliates. In May 1994, the Company entered into an Investment Agreement and an Option Agreement (collectively, the "Bedrock Agreements") with Bedrock pursuant to which, as amended, Bedrock agreed to provide up to $335 million in equity and debt capital (the "Investment Program") to acquire hotels or hotel management companies and to make hotel related investments that are approved by both the Company and Bedrock. Approximately $196 million of debt and equity capital has been invested pursuant to the Investment Program as of December 31, 1996. Although the commitments of certain of the participants in the Investment Program expire in mid-1997, the Company will be entitled to manage any Investment Program hotel for a term of 15 years. Pursuant to the terms of the Investment Agreement, Bedrock is not required to invest a minimum amount of capital through the Investment Program, and Wyndham has not invested in any of the 17 hotels acquired pursuant to the Investment Program. Pursuant to the Investment Agreement, as amended, the Company and Bedrock have agreed that the Company will be permitted to manage any hotel with 250 or fewer rooms that is sourced by Bedrock. Subject to certain limitations, certain Crow Family Members have the right to co-invest with Bedrock in the Investment Program. The Company also has certain limited rights to co-invest with Bedrock in the Investment Program; provided, however, that once the Company elects to co-invest in Investment Program projects, it must co-invest in each subsequent project or it would forfeit additional rights to co-invest. At December 31, 1994, 1995 and 1996, the Company had executed management contracts with Bedrock for 11, 15 and 17 Wyndham brand hotels, respectively, through the Investment Program. F-20 Bedrock has certain registration rights with respect to 2,276,055 shares of Common Stock. Bedrock also entered into the Stockholders' Agreement with the Company, Crow Family Members, the Senior Executive Officers and WEL, which provides for, among other things, representation on the Company's Board of Directors. 23. SUPPLEMENTAL CASH FLOWS INFORMATION: The following table sets forth certain cash and non-cash investing and financing activities and other cash flow information (in thousands):
YEAR ENDED DECEMBER 31, 1994 1995 1996 ------ ------ ------- Supplemental cash flow information: Interest paid $7,694 $8,154 $11,292 Income taxes paid -- -- 3,939 Non-cash activities: Capital lease obligations incurred 115 283 429 Acquisitions of businesses: Fair value of assets acquired -- -- 49,967 Liabilities assumed -- -- 16,497 Common stock issued for repayment of revolving credit agreement -- -- 7,500
24. SUBSEQUENT EVENTS: In November 1996, the Company executed a contract for a hotel in Salt Lake City, Utah. The transaction, which closed in January 1997, required the Company to make deposits totaling $10.0 million with the lessor. The deposits were funded with cash borrowed under the Revolving Credit Facility. In February 1997, the Company, through a financial institution and a county authority, issued $9,675,000 in aggregate principal amount of revenue bonds. The bonds are issued to refinance the existing bonds that the Company assumed in the acquisition of the Wyndham Vinings Hotel. The bonds initially bear interest at a weekly rate (the "Weekly Rate Period") determined in accordance with the indenture of the bonds based on prevailing financial market conditions for revenue bonds (at March 17, 1997, such rate was 3.9%) plus a 2% credit enhancement fee as defined. The weekly rate may be converted to another interest rate determination method on the first business day of any calendar month at the Company's option, subject to the terms and conditions set forth in the indenture. The bonds mature in February 2023 and are subject to redemption in whole or in part during the Weekly Rate Period. The outstanding refinanced bonds at December 31, 1996 are recorded as long-term debt in the accompanying consolidated financial statements. The bonds are credit enhanced by a letter of credit in the amount of $9.675 million issued under the Revolving Credit Facility. See Note 12. 25. PRO FORMA FINANCIAL INFORMATION (UNAUDITED): The unaudited pro forma condensed consolidated statements of income of the Company are presented as if the initial public equity offering, the issuance of $100.0 million aggregate principal amount of 10.5% subordinated notes, the GHALP transaction, the closing of the Revolving Credit Facility and the subsequent acquisition of four additional hotel properties had occurred on January 1, 1995. These unaudited pro forma condensed consolidated statements of income are not necessarily indicative of what actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1995, nor do they purport to represent the results of operations for future periods.
YEAR ENDED DECEMBER 31, 1995 1996 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues $160,261 $180,298 Operating income $ 20,687 $ 29,612 Income before income taxes $ 8,193 $ 18,730 Net income $ 4,958 $ 11,332 Earnings per common share outstanding $ .25 $ .57
26. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES: In connection with the issuance of the Notes, all of the Company's subsidiaries, with the exception of a number of subsidiaries (which subsidiaries are individually and collectively inconsequential), are fully and unconditionally guaranteeing the Company's obligations under the Notes on a joint and several basis (the "Guarantor Subsidiaries"). Accordingly, the condensed combined financial information set forth below summarizes financial information for all of the Guarantor Subsidiaries on a combined basis. Separate complete financial statements and other disclosure for the Guarantor Subsidiaries have not been presented because management does not believe that such information is material to investors. Condensed combined financial information of the Guarantor Subsidiaries (see notes to condensed combined financial information) as of December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 are presented on the following page: F-21 GUARANTOR SUBSIDIARIES CONDENSED COMBINED BALANCE SHEETS
DECEMBER 31, - ------------------------------------------------------------------------------------------- 1995 1996 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 3,708 $ 9,673 Cash, restricted 2,595 865 Accounts receivable, net 13,732 22,485 Other 1,606 2,466 ------- -------- Total current assets 21,641 35,489 Investment in an affiliate's hotel partnership 2,597 -- Notes and other receivables from affiliates 7,674 7,685 Notes receivable 2,450 1,978 Property and equipment, net 47,321 61,062 Management contract costs, net 7,579 7,766 Security deposits -- 15,105 Other 1,068 2,502 ------- -------- Total assets $90,330 $131,587 ======= ======== LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 6,600 $ 18,169 Deposits 1,914 1,147 Current portion of long-term debt and capital lease obligations 3,428 510 Due to affiliates 1,454 42,666 ------- -------- Total current liabilities 13,396 62,492 ------- -------- Payable to affiliates 2,627 -- Payable to minority interest 218 -- Long-term debt and capital lease obligations 40,659 29,944 ------- -------- 43,504 29,944 ------- -------- Minority interest 7,379 -- ------- -------- Partners' capital and stockholders' equity: Receivables from affiliates (1,927) (1,223) Partners' capital 27,978 -- Additional paid-in capital -- 31,071 Retained earnings -- 9,303 ------- -------- Total partners' capital and stockholders' equity 26,051 39,151 ------- -------- Total liabilities and equity $90,330 $131,587 ======= ========
See notes to the condensed combined financial information. F-22 GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------- 1994 1995 1996 ---- ---- ---- (IN THOUSANDS) Revenues $55,611 $65,524 $118,930 ------- ------- -------- Operating costs and expenses 42,659 51,210 87,957 Depreciation and amortization 3,328 3,929 4,667 Other 175 105 654 ------- ------- -------- Total operating costs and expenses 46,162 55,244 93,278 ------- ------- -------- Operating income 9,449 10,280 25,652 Interest expense, net (4,194) (3,816) (2,600) Equity in earnings of hotel partnership 1,237 1,664 870 Foreign currency gain 404 405 -- ------- ------- -------- Income before minority interests, income taxes and extraordinary item 6,896 8,533 23,922 Income attributable to minority interests 186 724 571 ------- ------- -------- Income before income taxes and extraordinary items 6,710 7,809 23,351 Income taxes -- -- 6,308 ------- ------- -------- Income before extraordinary item 6,710 7,809 17,043 Extraordinary item (less applicable tax benefits) -- -- (1,028) ------- ------- -------- Net income $ 6,710 $ 7,809 $ 16,015 ======= ======= ========
See notes to the condensed combined financial information. F-23 GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, - --------------------------------------------------------------------------------------- 1994 1995 1996 ---- ---- ---- (IN THOUSANDS) Net cash provided by operating activities $11,823 $ 13,144 $ 11,823 ------- -------- --------- Cash flows from investing activities: Purchase of property and equipment (1,820) (2,917) (6,584) Sale of property and equipment -- -- 133,778 Investments in management contracts (285) (4,346) (1,537) Notes and other receivables from affiliates -- (7,674) (11) Notes receivable -- (2,451) (1,252) Payments for purchase of hotels, net of cash acquired -- -- (2,520) Acquisition of minority interest -- -- (5,479) Other 1,903 (3,080) 1,674 ------- -------- --------- Net cash provided by (used in) investing activities (202) (20,468) 118,069 ------- -------- --------- Cash flows from financing activities: Partners' contributed capital 1,781 13,711 26,502 Partners' capital distributions (6,368) (10,672) (42,572) Distribution made to withdrawing partners -- (2,577) -- Decrease in receivable from affiliates -- -- 2,933 Increase (decrease) in payable to affiliate (1,035) (1,215) 35,251 Decrease in payable to minority interest -- -- (218) Proceeds from long-term borrowings and issuance of debt -- 13,600 2,500 Repayments on long-term debt and capital lease obligations (3,858) (4,201) (148,323) Other (219) (83) -- ------- -------- --------- Net cash provided by (used in) financing activities (9,699) 8,563 (123,927) ------- -------- --------- Increase in cash and cash equivalents 1,922 1,239 5,965 Cash and cash equivalents at beginning of year 547 2,469 3,708 ------- -------- --------- Cash and cash equivalents at end of year $ 2,469 $ 3,708 $ 9,673 ======= ======== =========
See notes to the condensed combined financial information. F-24 NOTES TO CONDENSED COMBINED FINANCIAL INFORMATION 1. The foregoing condensed combined financial information for 1994 and 1995 includes Wyndham (100%), WHI Limited Partnership (100%) and Rose Hall Associates (62.5%). Also reflected in this information is an investment in Garden Hotel Associates L.P. (30%), which was being accounted for using the equity method. 2. The foregoing condensed combined financial information for 1996 includes GHALP Corporation, Waterfront Management Corporation, WHCMB, Inc., Wyndham Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC Vinings Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose Hall Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC Development Corporation, WHC Franchise Corporation, WHCMB Overland Park, Inc., WHCMB, Toronto Inc., WHC Columbus Corporation, Wyndham Hotels & Resorts Management Ltd., and WHC Salt Lake City Corporation, and a subsidiary for a non-branded hotel. They all are wholly-owned subsidiaries of the Company at December 31, 1996. NOTE 27. QUARTERLY FINANCIAL DATA (UNAUDITED): Quarterly financial data for 1995 and 1996 are summarized as follows (in thousands, except per share data):
QUARTER ENDED 1995 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- Total revenues $21,919 $21,315 $22,267 $22,389 Operating income 4,978 3,740 3,309 2,598 Net income 3,019 2,177 1,705 1,048
QUARTER ENDED 1996 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- Total revenues $26,484 $34,042 $41,415 $46,134 Operating income 6,615 3,803 7,079 8,506 Income before extraordinary item 5,168 13,624 2,769 3,536 Net income 5,168 12,493 2,769 3,536 Earnings per common share outstanding: Income before extraordinary item -- .67 .14 .18 Net income -- .61 .14 .18
Note: Earnings per share data for 1995 and March quarter of 1996 relates to periods prior to the Company's formation and therefore is not presented. F-25 WYNDHAM HOTEL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, March 31, 1996 1997 ----------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents........................... $ 11,517 $ 7,087 Cash, restricted.................................... 865 450 Accounts receivable, less allowance of $941......... at December 31, 1996 and $1,335 at March 3l, 1997. 13,330 18,743 Due from affiliates................................. 12,686 19,665 Inventories......................................... 1,430 1,417 Deferred income taxes............................... 1,539 2,045 Other............................................... 1,412 1,174 -------- -------- Total current assets............................. 42,779 50,581 Investment in a hotel partnerships..................... 1,125 1,091 Notes and other receivables from affiliates............ 7,685 7,685 Notes receivable....................................... 6,307 6,340 Property and equipment, net............................ 134,176 140,923 Management contract costs, net......................... 7,766 9,990 Security deposits...................................... 15,288 24,456 Deferred income taxes.................................. 14,148 13,584 Other.................................................. 13,688 12,944 -------- -------- Total assets...................................... $242,962 $267,594 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses................ $ 23,556 $ 32,879 Deposits............................................. 959 963 Deposits from affiliates............................. 344 344 Current portion of long-term debt and capital lease obligations......................... 510 522 -------- -------- Total current liabilities......................... 25,369 34,708 -------- -------- Borrowings under revolving credit facility............. - 8,000 Long-term debt and capital lease obligations........... 129,944 129,809 Deferred gain.......................................... 12,065 11,880 -------- -------- 142,009 149,689 -------- -------- Stockholders' equity: Common stock......................................... 200 200 Additional paid-in capital........................... 84,342 84,342 Retained earnings.................................... 11,714 16,549 Receivables from affiliates.......................... (1,223) (1,255) Notes receivable from stockholders................... (19,449) (16,639) -------- -------- Total stockholders' equity........................ 75,584 83,197 -------- -------- Total liabilities and stockholders' equity........ $242,962 $267,594 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-26 WYNDHAM HOTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amount)
Three Months Ended March 31, ------------------------ 1996 1997 --------- --------- (Unaudited) Revenues: Hotel revenues ................................................................... $ 16,829 $ 42,325 Management fees .................................................................. 2,601 2,121 Management fees - affiliates ..................................................... 2,601 3,978 Service fees ..................................................................... 410 494 Service fees - affiliates ........................................................ 554 566 Reimbursements ................................................................... 1,626 1,341 Reimbursements - affiliates ...................................................... 1,956 2,028 Other ............................................................................ 33 - ----------- ----------- Total revenues ............................................................. 26,610 52,853 ----------- ----------- Operating costs and expenses: Hotel expenses ................................................................... 10,352 31,186 Selling, general and administrative expenses ..................................... 4,273 5,395 Reimbursable expenses ............................................................ 1,626 1,341 Reimbursable expenses - affiliates ............................................... 1,956 2,028 Depreciation and amortization .................................................... 1,661 2,559 ----------- ----------- Total operating costs and expenses ......................................... 19,868 42,509 ----------- ----------- Operating income .................................................................... 6,742 10,344 Interest income ..................................................................... 126 445 Interest income - affiliates ........................................................ 178 186 Interest expense .................................................................... (2,114) (3,550) Equity in earnings (loss) of hotel partnerships ..................................... 828 (34) Amortization of deferred gain ....................................................... - 185 ----------- ----------- Income before minority interests and income taxes ................................... 5,760 7,576 Income attributable to minority interests ........................................... 593 - ----------- ----------- Income before income taxes .......................................................... 5,167 7,576 Provision for income taxes .......................................................... - 2,992 ----------- ----------- Net income .......................................................................... $ 5,167 $ 4,584 =========== =========== Earnings per share: Primary and fully diluted ....................................... N/A $ .23 Average number of common shares outstanding ......................................... N/A 20,018
The accompanying notes are an integral part of the consolidated financial statements. F-27 WYNDHAM HOTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Month, Ended March 31, -------------------- 1996 1997 --------- --------- (Unaudited) Cash flows from operating activities: Net income .................................................................. $ 5,167 $ 4,584 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................. 1,661 2,223 Deferred income taxes ..................................................... -- 58 Provision for bad debt .................................................... 119 423 Amortization of deferred debt issuance costs .............................. -- 336 Amortization of deferred gain ............................................. -- (185) Equity in (earnings) loss of hotel partnerships ........................... (455) 34 Minority interest.......................................................... 593 -- Net withdrawals from restricted cash ...................................... 120 416 Changes to operating assets and liabilities: Accounts receivable ....................................................... (2,904) (6,166) Net change in due to from affiliates ...................................... (716) (6,980) Inventories ............................................................... (42) 12 Other ..................................................................... 239 (1,454) Current income taxes ...................................................... -- 2,934 Accounts payable and accrued expenses ..................................... 757 6,388 Deposits .................................................................. (714) 4 Deposits from affiliates .................................................. (38) -- Security deposits ......................................................... -- (7,107) ------- ------- Net cash provided by (used in) operating activities ................... 3,787 (4,480) ------- ------- Cash flows from investing activities: Purchase of property and equipment ........................................ (562) (8,733) Investments in management contracts ....................................... (23) (2,078) Notes and other receivables from affiliates ............................... (36) -- Advances on notes receivable .............................................. -- (53) Increase in long-term restricted cash ..................................... (32) (45) Collections on notes receivable ........................................... -- 20 Other ..................................................................... (2,474) -- ------- ------- Net cash used in investing activities ................................. (3,127) (10,889) ------- ------- Cash flows from financing activities: Partners' contributed capital ............................................... 4,791 -- Partners' capital distributions ............................................. (4,980) -- Increase in payable to minority interest .................................... 4 -- Proceeds from borrowings under revolving credit facilitv .................... -- 10,750 Repayments on revolving credit facility ..................................... -- (2,750) Proceeds from long-term borrowings .......................................... 2,540 9,675 Repayments on long-term borrowings and capital lease obligations ............ (1,091) (9,798) Collections on notes receivable from stockholders ........................... -- 3,062 ------- ------- Net cash provided by financing activities ............................. 1,264 10,939 ------- ------- Increase (decrease) in cash and cash equivalents ............................... 1,924 (4,430) Cash and cash equivalents at beginning of period ............................... 4,160 11,517 ------- ------- Cash and cash equivalents at end of period ..................................... $ 6,084 $ 7,087 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-28 WYNDHAM HOTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: Wyndham Hotel Corporation ("WHC") was incorporated and formed in February 1996. The accompanying consolidated financial statements of WHC at December 31, 1996 and March 31, 1997 and for the three months ended March 31, 1997 include the accounts of WHC, its wholly owned subsidiaries and a 30% owned hotel entity which is accounted for using the equity method (collectively, the "Company"). Financial statements for the three months ended March 31, 1996 relating to the period prior to the Company's formation include the combined accounts of WHC and its majority owned entities. All significant intercompany balances and transactions have been eliminated. These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation at March 31, 1997 have been included. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the operating results for the year ending December 31, 1997. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K of the Company for the year ended December 31, 1996. Certain prior period amounts have been reclassified to conform to the current period presentation. 2. ACQUISITION OF LEASE AGREEMENT: In January 1997, the Company entered into a lease agreement relating to the Wyndham hotel property in Salt Lake City. The lease is qualified as an operating lease. The lease required the Company to make deposits totaling $10.0 million with the lessor. The deposits were funded with cash borrowed under the revolving credit facility. The minimum rent under the lease is $4.4 million per year. Beginning January 1998 through the end of the term of the lease, additional rent ranging from 5% to 8% of the excess total hotel sales, as defined, will be paid. 3. EARNINGS PER SHARE: Earnings per share for the quarter ended March 31, 1997 are computed based on the weighted average number of shares of common stock outstanding. The impact of common stock equivalents to earnings per share is immaterial. Earnings per share data for the quarter ended March 31, 1996 relates to period prior to the Company's initial public offerings and therefore is not presented. In February 1997, Financial Accounting Standard Board issued Statement of Financial Accounting Standards No.128 ("SFAS 128"), Earnings Per Share ("EPS"). SFAS 128 requires basic EPS to be computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period and diluted EPS to reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement of all prior period EPS data presented. Earlier application is not permitted. The impact of the implementation of SFAS 128 on the Company's consolidated financial statements is expected to be immaterial. Basic EPS and diluted EPS would have been $.23 and $.22, respectively, for the quarter ended March 31, 1997 if SFAS 128 were adopted. F-29 4. REFINANCE OF DEBT: In February 1997, the Company, through a financial institution and a county authority, issued revenue bonds totaling $9,675,00O. The bonds were issued to refinance the existing bonds that the Company assumed in the acquisition of the Wyndham Vinings Hotel in May 1996. The bonds initially bear interest at a weekly rate (the "Weekly Rate Period") determined in accordance with the indenture of the bonds based on prevailing financial market conditions for the revenue bonds (at March 31, 1997, such rate was 3.6%) plus a 2% credit enhancement fee. The weekly rate may be converted to another interest rate determination method on the first business day of any calendar month at the Company's option, subject to the terms and conditions set forth in the indenture. The bonds mature in February 2023 and are subject to redemption in whole or in part during the Weekly Rate Period. The bonds are credit enhanced by a letter of credit in the amount of $9,794,281 issued under the revolving credit facility. 5. COMMITMENTS AND CONTINGENCIES: Litigation has been initiated against the Company pertaining to the right to use the Wyndham name for hotel service in the New York metropolitan area. On January 29, 1996, a temporary restraining order was issued by the Supreme Court of the State of New York which, pending the outcome of a trial, prevents the Company from using the Wyndham name in the New York area. An adverse decision in the litigation could prevent the Company from operating Wyndham brand hotels or advertising the Wyndham name in connection with the operation of a Wyndham brand hotel within a 50 mile radius of a hotel in Manhattan operated under the "Wyndham" name. It is management's opinion, based on legal counsel, that the range of losses resulting from the ultimate resolution of the aforementioned claim cannot be determined. The cost of $1,274,000 at March 31, 1997 for defending the trademark has been capitalized and is being amortized over 17 years, pending the ultimate resolution. An adverse decision may result in the immediate write-off of those capitalized costs. The Company received a Notice of Intent to make Sales and Use Tax audit changes from the Tampa Region of the Florida Department of Revenue for the period from July 31, 1990 through June 30, 1995. The audit assessed additional taxes of $584,000, penalty of $224,000 and interest of $201,000 for a total assessment of $1,009,000. The previous owners (an affiliate) have agreed to indemnify the Company with respect to any additional sales and use tax paid by the Company for the audit period. Management, after review and consultation with legal counsel, believes the Company has meritorious defenses to this matter and that any potential liability in excess of the $189,000 recorded would not materially effect the Company's consolidated financial statements. The Company has pending several other claims incurred in the normal course of business which, in the opinion of management, based on the advice of legal counsel, will not have a material effect on the consolidated financial statements. Pursuant to the terms of the management agreements of two affiliate- owned hotels under construction, the Company has undertaken certain commitments to provide furniture, fixtures and equipment for each hotel at a fixed price totaling $8.1 million. As of March 31, 1997, the Company has satisfied commitments totaling $5.4 million. The Company has indirectly paid the excess over the fixed price amount of approximately $444,000 by contributing such amount to the partnership that owns one of the hotels. The Company has guaranteed to fund up to $230,000 in working capital per year for three years after one of the hotels is opened in the event that the hotel generates inadequate cash flow and the Company has guaranteed $875,000 in indebtedness. Pursuant to the terms of a management agreement of a hotel in which the Company has a 30% ownership, the Company has committed to fund up to $2.5 million for the renovation of the hotel property. The loan will bear an interest rate at 10% and will be collateralized by the outstanding partnership interest of the owners. Interest will be due monthly and principal is payable in installments beginning January 1998 based on the operating income of the hotel. As of March 31 1997, the Company has not made any of such advances. The Company also guarantees $2,340,000 in indebtedness of this hotel. F-30 Pursuant to the terms of a management agreement of a hotel owned by an affiliate, the Company has guaranteed to fund up to $600,000 of working capital per year to the extent the entity experiences operating deficits, with a maximum required contribution of $2.3 million over the term of the guarantee extending from 1995 to 2000. The Company has not to date been required to make any capital contribution under the guarantee. The Company is subject to environmental regulations related to the ownership, management, development and acquisition of real estate (hotels). The cost of complying with the environmental regulations was not material to the Company's consolidated statements of income for the three months ended March 31, 1996 and 1997. The Company is not aware of any environmental condition on any of its properties which is likely to have a material adverse effect on the Company's financial statements. 6. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES: In connection with the issuance of the $100 million subordinated notes ("Notes"), all of the Company's direct and indirect subsidiaries, with the exception of a number of subsidiaries (which subsidiaries are individually and collectively inconsequential), are fully and unconditionally guaranteeing the Company's obligations under the Notes on a joint and several basis (the "Guarantor Subsidiaries"). Accordingly, the condensed combined financial information set forth below summarizes financial information for all of the Guarantor Subsidiaries on a combined basis. Separate complete financial statements and other disclosure for the Guarantor Subsidiaries have not been presented because management does not believe that such information is material to investors. The condensed combined financial information of the Guarantor Subsidiaries as of December 31, 1996 and March 31, 1997, and for the three months ended March 31, 1996 and 1997 are presented as follows: F-31 GUARANTOR SUBSIDIARIES CONDENSED COMBINED BALANCE SHEETS (in thousands)
December 31, March 31, 1996 1997 ----------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents .............................................. $ 9,673 $ 5,912 Cash, restricted ....................................................... 865 373 Accounts receivable, net ............................................... 22,085 38,510 Other .................................................................. 2,466 2,054 --------- --------- Total current assets ............................................ 35,089 46,849 Notes and other receivables from affiliates ............................... 7,685 7,685 Notes receivable .......................................................... 1,978 2,031 Property and equipment, net ............................................... 61,062 62,397 Management contract costs, net ............................................ 8,166 9,990 Security deposits ......................................................... 15,105 24,275 Other ..................................................................... 2,502 3,221 --------- --------- Total assets .................................................... $ 131,587 $ 156,448 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities ............................... $ 18,169 $ 23,002 Deposits ............................................................... 1,147 972 Current portion of long-term debt and capital lease obligations ........ 510 522 Due to affiliates ...................................................... 42,666 56,666 --------- --------- Total current liabilities ....................................... 62,492 81,162 --------- --------- Long-term debt and capital lease obligations .............................. 29,944 29,809 --------- --------- Stockholder's equity: Receivable from affiliates ............................................. (1,223) (1,255) Additional paid-in capital ............................................. 31,071 31,071 Retained earnings ...................................................... 9,303 15,661 --------- --------- Total stockholder's equity ...................................... 39,151 45,477 --------- --------- Total liabilities and stockholder's equity ................... $ 131,587 $ 156,448 ========= =========
See note to the condensed combined financial information. F-32 GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF INCOME (in thousands)
Three Months Ended March 31, -------------------- 1996 1997 -------- -------- (Unaudited) Revenues ........................................ $ 21,145 $ 43,831 -------- -------- Operating costs and expenses .................... 14,009 31,445 Depreciation and amortization ................... 1,069 1,421 Other ........................................... 96 134 -------- -------- Total operating costs and expenses ........ 15,174 33,000 -------- -------- Operating income ................................ 5,971 10,831 Interest expense, net ........................... (889) (322) Equity in earnings of hotel partnerships ........ 829 -- -------- -------- Income before minority interests and income taxes 5,911 10,509 Income attributable to minority interests ....... 593 -- -------- -------- Income before income taxes ...................... 5,318 10,509 Income taxes .................................... -- 4,151 -------- -------- Net income ................................ $ 5,318 $ 6,358 ======== ========
See note to the condensed combined financial information. F-33 GUARANTOR SUBSIDIARIES CONDENSED COMBINED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended March 31, -------------------- 1996 1997 ------- -------- (Unaudited) Net cash provided by (used in) operating activities ........ $ 4,177 $ (9,496) ------- -------- Cash flows from investing activities: Purchase of property and equipment ...................... (361) (2,470) Investments in management contracts ..................... (23) (2,078) Notes and other receivable from affiliates .............. (36) -- Decrease in long-term restricted cash ................... -- 533 Other ................................................... (2,223) (53) ------- -------- Net cash used in investing activities ........ (2,643) (4,068) ------- -------- Cash flows from financing activities: Partners' contributed capital ........................... 4,579 -- Partners' capital distributions ......................... (4,807) -- Increase in receivables from affiliates ................. -- (4,074) Increase (decrease) in payables to affiliates ........... (1,162) 14,000 Proceeds from long-term borrowings ...................... 2,540 9,675 Repayment of long-term debt and capital lease obligations (843) (9,798) Other ................................................... 4 -- ------- -------- Net cash provided by financing activities .... 311 9,803 ------- -------- Increase (decrease) in cash and cash equivalents ........... 1,845 (3,761) Cash and cash equivalents at beginning of period ........... 3,708 9,673 ------- -------- Cash and cash equivalents at end of period ................. $ 5,553 $ 5,912 ======= ========
Note to Condensed Combined Financial Information: (1) The foregoing condensed combined financial information includes GHALP Corporation, Waterfront Management Corporation, WHCMB, Inc., Wyndham Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC Vinings Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose Hall Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC Development Corporation, WHC Franchise Corporation, WHCMB Overland Park, Inc., WHCMB, Toronto, Inc., WHC Columbus Corporation, Wyndham Hotels & Resorts Management Ltd, and a management subsidiary for a non-branded hotel. They all are wholly-owned subsidiaries of the Company at March 31, 1997. 7. SUBSEQUENT EVENTS: On April 14, 1997, the Company entered into a merger agreement with Patriot American Hospitality, Inc. ("Patriot"), which also entered into a related stock purchase agreement (collectively, the "Patriot Merger Agreement"), pursuant to which the Company will merge with and into the successor to Patriot ("New Patriot REIT") following Patriot's merger with and into California Jockey Club (the "Cal-Jockey Merger"), with New Patriot REIT being the surviving company (the "Patriot Merger"). As a result of the Patriot Merger, New Patriot REIT will acquire all of the assets of the Company, including the Company's portfolio of 23 owned and leased hotels, with an aggregate of 4,877 rooms, as well as the Company's 79 managed and franchised properties throughout North America and the Wyndham, Wyndham Garden and Wyndham Hotels & Resorts proprietary brand names. Pursuant to the Patriot Merger Agreement, each outstanding share of common stock of the Company ("Wyndham Common Stock") will be converted into the right to receive 0.712 shares (the "Patriot Exchange Ratio") F-34 of common stock of each of New Patriot REIT and Patriot American Hospitality Operating Company ("New Patriot Operating Company", known as Bay Meadows Operating Company prior to the Cal-Jockey Merger), which shares be paired and transferable and trade together as a single unit following the Cal-Jockey Merger (the "Paired Shares"). The Patriot Exchange Ratio is subject to adjustment in the event that the average of the closing prices of the Paired Shares on the twenty trading days preceding the fifth trading day prior to the Company's stockholders' meeting called to approve the Patriot Merger (the "Average Trading Price") is less than $42.13 per Paired Share. If the Average Trading Price is between $40.21 and $42.13 per Paired Share, the Patriot Exchange Ratio will be adjusted so that each outstanding share of Wyndham Common Stock will be converted into the right to receive a number of Paired Share equal to $30.00 divided by the Average Trading Price. If the Average Trading Price is less than $40.21 per Paired Share, there will be no further adjustments to the Patriot Exchange Ratio, which at that point would equate to 0.746 Paired Shares per share of Wyndham Common Stock; however, in such circumstances, the Company has the right, waivable by it, to terminate the Patriot Merger Agreement without liability. In lieu of receiving Paired Shares, the Company's stockholders have the right to elect to receive cash in an amount per share equal to the Patriot Exchange Ratio (as it may be adjusted) multiplied by the average of the closing prices of the Paired Shares on the five trading days immediately preceding the closing of the Patriot Merger, up to a maximum aggregate amount of $100 million. If stockholders holding shares of Wyndham Common Stock with a value in excess of this amount elect to receive cash, such cash will be allocated on a pro rata basis among such stockholders. In connection with the Patriot Merger, New Patriot REIT will assume the Company's existing indebtedness, which is approximately $138 million as of April 14, 1997. In connection with the execution of the Patriot Merger Agreement Patriot also entered into agreements with partnerships affiliated with members of the Trammell Crow family providing for the acquisition by New Patriot REIT of 11 full-service Wyndham branded hotels with 3,072 rooms, located throughout the United States, for approximately $331.7 million in cash, plus approximately $14 million in additional consideration if two hotels meet certain operational targets (the "Crow Acquisition" and, collectively with the Patriot Merger, the "Proposed Patriot Transactions"). The Patriot Merger and the Crow Acquisition, which will be consummated concurrently, are subject to various conditions including, without limitation, the consummation of the Cal-Jockey Merger and the transactions related thereto and the approval of the Patriot Merger and certain of the related transactions by the stockholders of New Patriot REIT, New Patriot Operating Company and the Company. It is currently anticipated that the stockholder meetings to approve the Proposed Patriot Transactions will occur in the fourth quarter of 1997. On April 14, 1997, an action styled Kwalburn v. James D. Carreker, et. al., was filed in the Delaware Court of Chancery in and for New Castle County, purportedly as a class action on behalf of the Company's stockholders,against the Company, Patriot and the members of the Board of Directors of the Company. The complaint alleges that the Company's Board of Directors breached its fiduciary duties owed to the Company's public stockholders in connection with the Board of Director's approval of the Patriot Merger. In particular, the compliant alleges that the Patriot Merger was negotiated at the expense of the Company's public stockholders, and that the Company's Board of Directors permitted Patriot to negotiate on more favorable terms the Crow Acquisition with members of the Trammell Crow family. The complaint seeks to enjoin, preliminarily and permanently consummation of the Patriot Merger under the terms presently proposed and also seeks unspecified damages. The defendants deny the allegations in the complaint and expect to defend the action vigorously. In April 1997, the Company acquired a 200 room hotel property in Dallas, Texas. The acquisition was paid with cash borrowed under the revolving credit facility. F-35 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners Crow Family Hotel Partnerships We have audited the accompanying combined balance sheets of Crow Family Hotel Partnerships (identified in Note 1) (collectively the "Partnerships") as of December 31, 1996 and 1995 and the related combined statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying combined financial statements were prepared to present the balance sheets and related results of operations and cash flows of the Partnerships, which are to be acquired by Patriot American Hospitality, Inc., and may not necessarily reflect the financial position, results of operations and cash flows of the Partnerships that might have resulted had they actually operated as a stand-alone entity. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Partnerships as of December 31, 1996 and 1995 and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Dallas, Texas May 6, 1997 F-36 CROW FAMILY HOTEL PARTNERSHIPS COMBINED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31 MARCH 31 ------------------ ----------- 1995 1996 1997 -------- -------- ----------- (UNAUDITED) ASSETS ------ Current assets: Cash and cash equivalents.................... $ 1,443 $ 2,377 $ 4,172 Cash, restricted............................. 2,626 3,062 2,771 Accounts receivable, less allowance of $119 and $112 in 1995 and 1996, respectively..... 5,284 6,733 8,087 Inventories.................................. 988 1,002 954 Prepaid expenses and other................... 1,123 1,429 2,166 -------- -------- -------- Total current assets....................... 11,464 14,603 18,150 Cash, restricted for noncurrent assets......... 4,567 3,593 4,248 Property and equipment, net.................... 164,429 176,501 180,276 Other assets................................... 8,846 8,773 8,438 -------- -------- -------- Total assets............................... $189,306 $203,470 $211,112 ======== ======== ======== LIABILITIES AND PARTNERS' DEFICIT --------------------------------- Current liabilities: Accounts payable and accrued expenses........ $ 18,070 $ 18,951 $ 17,419 Due to affiliates............................ 4,206 384 5,727 Due to operator.............................. 1,925 2,855 3,662 Advance deposits............................. 857 1,206 1,310 Current portion of long-term debt (net of discount of $1,779 and $1,746 in 1995 and 1996) and capital lease obligations......... 1,901 68,078 69,582 -------- -------- -------- Total current liabilities.................. 26,959 91,474 97,700 -------- -------- -------- Advances from partners......................... 4,679 4,911 5,358 Long-term debt and capital lease obligations... 219,804 163,858 164,255 -------- -------- -------- 224,483 168,769 169,613 -------- -------- -------- Commitments and contingencies Partners' deficit.............................. (62,136) (56,773) (56,201) -------- -------- -------- Total liabilities and partners' deficit.... $189,306 $203,470 $211,112 ======== ======== ========
The accompanying notes are an integral part of the combined financial statements. F-37 CROW FAMILY HOTEL PARTNERSHIPS COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31 QUARTER ENDED MARCH 31 ------------------------- ------------------------ 1994 1995 1996 1996 1997 ------- ------- ------- ----------- ----------- (UNAUDITED) Revenues: Rooms................... $48,038 $56,608 $70,450 $ 15,113 $ 20,031 Food and beverage....... 34,163 37,238 39,330 7,861 10,311 Telephone............... 2,711 3,746 4,727 1,039 1,238 Other departmental reve- nues................... 2,284 2,916 3,167 705 809 Other income............ 790 1,302 1,893 325 551 ------- ------- ------- ----------- ----------- 87,986 101,810 119,567 25,043 32,940 ------- ------- ------- ----------- ----------- Operating costs and expenses: Rooms................... 11,464 13,826 16,418 3,752 4,444 Food and beverage....... 23,997 26,784 28,832 6,290 7,767 Telephone............... 1,181 1,552 1,745 417 478 Lease expense........... 2,274 2,298 2,296 549 641 Management fees......... 3,632 4,370 5,783 862 1,169 Energy costs............ 3,574 4,383 4,584 1,139 1,304 Property insurance and taxes.................. 3,499 4,002 4,233 1,066 1,147 General and administra- tive................... 17,780 20,979 24,290 5,740 6,485 Depreciation and amorti- zation................. 6,429 7,178 8,784 1,874 2,533 Other expenses.......... 2,494 2,531 3,244 515 647 ------- ------- ------- ----------- ----------- 76,324 87,903 100,209 22,204 26,615 ------- ------- ------- ----------- ----------- Operating income...... 11,662 13,907 19,358 2,839 6,325 Interest income........... 85 179 76 -- -- Interest expense.......... (18,415) (20,465) (21,258) (4,930) (5,753) ------- ------- ------- ----------- ----------- Net income (loss)......... $(6,668) $(6,379) $(1,824) $ (2,091) $ 572 ======= ======= ======= =========== ===========
The accompanying notes are an integral part of the combined financial statements. F-38 CROW FAMILY HOTEL PARTNERSHIPS COMBINED STATEMENTS OF PARTNERS' DEFICIT (IN THOUSANDS) Balance at December 31, 1993........................................ $ (88,878) Capital contributions............................................. 14,558 Contribution of note payable...................................... 11,608 Capital distributions............................................. (610) Net loss.......................................................... (6,668) --------- Balance at December 31, 1994........................................ (69,990) Capital contributions............................................. 16,379 Capital distributions............................................. (2,146) Net loss.......................................................... (6,379) --------- Balance at December 31, 1995........................................ (62,136) Capital contributions............................................. 7,740 Capital distributions............................................. (553) Net loss.......................................................... (1,824) --------- Balance at December 31, 1996........................................ (56,773) Net income (unaudited)............................................ 572 --------- Balance at March 31, 1997 (unaudited)............................... $ (56,201) =========
The accompanying notes are an integral part of the combined financial statements. F-39 CROW FAMILY HOTEL PARTNERSHIPS COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
QUARTER ENDED YEAR ENDED DECEMBER 31 MARCH 31 ------------------------- ----------- 1994 1995 1996 1997 ------- ------- ------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)..................... $(6,668) $(6,379) $(1,824) $ 572 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization....... 6,429 7,178 8,784 2,533 Amortization of loan cost........... 385 704 538 194 (Increase) decrease in accounts re- ceivable........................... (2,634) 1,256 (1,449) (1,354) Net decrease (increase) in due from affiliates......................... 181 (218) (1,464) 5,343 (Increase) decrease in inventories.. (268) 76 (14) 48 (Increase) decrease in prepaid ex- penses............................. (81) 234 (327) (737) Decrease (increase) in other as- sets............................... 562 (1,102) (343) (141) Increase (decrease) in accounts payable and accrued expenses....... 3,823 1,665 788 (1,532) Increase in due to operator......... 141 524 930 807 Increase in advance deposits........ 12 238 349 104 (Increase) decrease in restricted cash............................... (487) (148) (435) 291 ------- ------- ------- ------ Net cash provided by operating ac- tivities......................... 1,395 4,028 5,533 6,128 ------- ------- ------- ------ Cash flow from investing activities: Property and equipment additions...... (28,148) (37,283) (19,916) (6,026) (Increase) decrease in cash restricted for noncurrent assets................ (1,058) 893 975 (655) ------- ------- ------- ------ Net cash used in investing activi- ties............................. (29,206) (36,390) (18,941) (6,681) ------- ------- ------- ------ Cash flows from financing activities: Net (increase) decrease in advances from partners........................ (637) (1,740) (2,126) 447 Proceeds from long-term debt.......... 22,256 21,481 12,299 2,908 Repayments of long-term debt and capi- tal lease obligations................ (6,546) (2,667) (3,019) (1,007) Partners' contributions............... 14,558 16,379 7,740 -- Partners' distributions............... (610) (2,146) (552) -- Other................................. (901) (20) -- -- ------- ------- ------- ------ Net cash provided by financing ac- tivities......................... 28,120 31,287 14,342 2,348 ------- ------- ------- ------ Increase (decrease) in cash and cash equivalents............................ 309 (1,075) 934 1,795 Cash and cash equivalents at beginning of year................................ 2,209 2,518 1,443 2,377 ------- ------- ------- ------ Cash and cash equivalents at end of year................................... $ 2,518 $ 1,443 $ 2,377 $4,172 ======= ======= ======= ====== Supplemental cash flow information: Cash paid for interest................ $14,795 $18,943 $21,619 $6,900 Noncash activity: Capital lease obligations............. 265 259 -- -- Interest added to principal of notes payable.............................. 401 448 1,161 -- Contribution of note payable.......... 11,608 -- -- --
The accompanying notes are an integral part of the combined financial statements. F-40 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS 1. COMBINED PARTNERSHIPS DESCRIPTION AND BASIS OF PRESENTATION: The accompanying combined financial statements include the accounts of 11 hotel partnerships (the "Partnerships") which are owned by various corporations, partnerships and joint ventures. These partnerships are beneficially owned or controlled by various members of the family of Trammell Crow. The Partnerships along with Wyndham Hotel Corporation ("WHC"), which manages the 11 hotels, are being considered for acquisition by Patriot American Hospitality, Inc., a publicly traded real estate investment trust ("REIT"). The accompanying combined financial statements were prepared to present the balance sheets and related results of operations and cash flows of the Partnerships and may not necessarily reflect the financial position, results of operations and cash flows of the Partnerships that might have resulted had they actually operated as a stand-alone entity. The accounts of the Partnerships and related hotels consist of the following hotel entities:
PARTNERSHIPS HOTELS ------------ ------ Hotel Bel Age Associates, L.P. Wyndham Bel Age Franklin Plaza Associates Wyndham Franklin Plaza MTD Associates Wyndham Milwaukee Center Itasca Hotel Company Wyndham Northwest Chicago WHC-LG Hotel Associates, L.P. Garden Hotel at LaGuardia Airport CLC Limited Partnership Wyndham Garden Hotel-Las Colinas Novi Garden Hotel Associates Wyndham Garden Hotel-Novi Pleasanton Hotel Associates, Ltd. Wyndham Garden Hotel-Pleasanton Wood Dale Garden Hotel Partnership Wyndham Garden Hotel-Wood Dale Convention Center Boulevard Hotel, Limited Wyndham Riverfront Hotel and Convention Center Partners I-XI, Ltd. Wyndham Palm Springs
Interim Financial Statements The interim financial statements have been prepared by the Partnerships without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations; nevertheless, management believes that the disclosures herein are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Partnerships with respect to the results of their operations for the interim periods from January 1, 1996 to March 31, 1996, and from January 1, 1997 to March 31, 1997, have been included herein. The results of operations for the interim periods are not necessarily indicative of the results for the full year. Use of Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments that potentially subject the Partnerships to concentration of credit risk consist principally of cash investments. The Partnerships maintain cash and cash equivalents in accounts with major F-41 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) financial institutions in excess of the amount insured by the Federal Deposit Insurance Corporation. Management believes credit risk related to these deposits is minimal. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash and cash equivalents For purposes of reporting cash flows, all highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. Restricted cash consists of amounts in escrow for the payment of property taxes and interest. Cash restricted for noncurrent assets consists of a reserve for fixed asset repairs and replacements and hotel renovations. Inventories Inventories consisting of food, beverage, china, linen, glassware, silverware, uniforms and supplies are stated at cost which approximates market, with cost determined using the first-in, first-out method. Property and Equipment Buildings and site improvements are carried at cost and are depreciated using the straight-line method over 40 and 20 years, respectively. Furniture and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives of approximately 5 years. Normal repairs and maintenance are charged to expense as incurred. Investment in property is recorded at cost, except when it has been determined that the property has sustained a permanent impairment in value. At such time, a write-down is recorded to reduce the property to its estimated recoverable amount. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Cost of assets under construction are reported as construction in progress. Construction in progress is not depreciated until the construction is completed and the related assets are in use. Interest and taxes incurred during the construction period are capitalized as part of the building cost. Other Assets Other assets consist primarily of unamortized loan costs, capitalized organization costs and capitalized lease acquisition costs. Other assets are stated at cost, except when it has been determined that the asset has sustained a permanent impairment in value. These costs are amortized using the straight-line method over the following periods: Loan costs Over the term of the loan Organization costs 60 months Preopening expenses 12 months Lease acquisition costs Over the term of the lease
Income Taxes The Partnerships are not taxable entities and the results of their operations are included in the tax returns of the partners. The Partnerships' tax returns and the amount of allocable income or loss are subject to examination F-42 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) by federal and state taxing authorities. If such examinations result in changes to income or loss, the tax liability of the partners could be changed accordingly. Revenue Recognition Room, food and beverage, telephone and other revenues are recognized when earned. Self-Insurance The Partnerships are self-insured for various levels of general liability, workers' compensation and employee medical coverages. The general and auto liability premiums are paid to a related party who maintains a loss reserve fund. Workers' compensation premiums are paid to an independent insurance company. The Partnerships' workers' compensation insurance is subject to a "retro adjustment" which could result in additional premiums or a refund of premiums based on actual claims settled by the insurance company. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following (in thousands):
DECEMBER 31 ------------------ 1995 1996 -------- -------- Land.................................................. $ 18,575 $ 21,924 Buildings............................................. 148,644 162,764 Furniture, fixtures and equipment..................... 23,124 28,763 Construction in progress.............................. 12,329 8,345 -------- -------- 202,672 221,796 Less accumulated depreciation......................... (38,243) (45,295) -------- -------- $164,429 $176,501 ======== ========
Substantially all the Partnerships' property and equipment are pledged as collateral for mortgage notes payable. 4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS: The Partnerships entered into management agreements with a wholly-owned subsidiary of Wyndham Hotel Corporation (the "Operator"). These management agreements, having terms ranging from 10 to 22 years, provide for base management fees and chain service fees ranging from 2.5% to 5% of gross revenues, plus incentive fees ranging from 14% to 25% of income after fixed charges or excess cash, as defined in the respective management agreements. The Partnerships incurred incentive management fees of $509,000, $870,000 and $1,638,000, during the years ended December 31, 1994, 1995 and 1996, respectively. In addition, the agreements require the Partnerships to pay a marketing contribution to the Operator equal to 1.5% of monthly room revenues. The Partnerships made marketing contributions of $721,000, $850,000 and $1,056,000 in 1994, 1995 and 1996, respectively. Due to operator represents management fees, chain service fees and other expenses payable to the Operator. The Partnerships receive services from and provide services to affiliates, which are reimbursed in the normal course of business. In 1994, 1995 and 1996, the Partnerships reimbursed the Operator for services such as administrative, tax, legal, accounting, finance, risk management, sales and central reservations totaling $1,283,000, $1,566,000 and $1,497,000, respectively. F-43 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Certain partnerships, in the normal course of business, have made advances to or received advances from (including operating deficit loans) the partners and their affiliates. Such amounts are classified as "Due to affiliates" in the accompanying combined financial statements and accrue interest at rates ranging from 2.62% to 10%. Interest expense of $222,000, $305,000 and $303,000 in 1994, 1995 and 1996, respectively, on advances from partners and affiliates is included in other accrued expenses in the accompanying combined financial statements. No due dates have been specified for these advances and such advances may be repaid from available cash flow. Pursuant to one of the partnership agreements, the general partner of the partnership earns an annual management fee for services rendered in connection with the business of the partnership equal to 1% of gross revenues ($207,000, $220,000 and $233,000 in 1994, 1995 and 1996, respectively). Unpaid general partner management fees are classified as "Due to affiliates" in the accompanying combined financial statements. The Partnerships participate in a centralized cash management system with affiliates who are excluded from these combined financial statements. Gross receipts from the hotels are deposited into the centralized cash management system, from which operating expenses and other disbursements are paid. The net position with the pool is reported as "Due to affiliates" in the accompanying combined financial statements. 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31 --------------- 1995 1996 ------- ------- Accounts payable............................................... $ 4,092 $ 4,755 Taxes.......................................................... 3,219 3,067 Accrued interest............................................... 6,716 6,136 Payroll and related costs...................................... 2,433 2,961 Other.......................................................... 1,610 2,032 ------- ------- $18,070 $18,951 ======= =======
F-44 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 6. LONG-TERM DEBT: Substantially all of the hotel property is pledged as collateral for long- term debt consisting of the following (in thousands):
DECEMBER 31 --------------- 1995 1996 ------- ------- Mortgage note, bearing interest at 10% with monthly payments of interest only, maturing August 1, 1997.................... $11,308 $11,308 Mortgage note, bearing interest at 10%, with monthly payments of interest only at 5%, pay rate increasing 1% per year (7% and 8% at December 31, 1995 and 1996). Net cash flow, as de- fined, is payable quarterly and is applied first to deferred interest with balance, if any, applied to principal. Note ma- tures August 1, 1997......................................... 7,627 6,662 Note payable to a financial institution, for which payment is guaranteed by certain partners, bearing interest at 9.75%. Interest only is payable through November 1, 1996, with prin- cipal and interest payable in monthly installments commencing November 1, 1996. Additional interest of 30% of net cash flow, as defined, is payable quarterly. Note matures October 31, 2000..................................................... 8,500 8,470 Mortgage note, bearing interest at 10%, with monthly payments of interest only. Note matures August 1, 1997................ 10,521 10,521 Mortgage note, bearing interest at 10.71%, with current pay rate of 6.5% increasing to 8.5% on January 1, 1997, with an- nual increases of .5% per year to maturity. The difference between the amount of interest accrued and that paid is pay- able quarterly from available gross income, as defined. The amounts accrued at December 31, 1995 and 1996, respectively, were $3,132,000 and $1,866,000. In addition, additional in- terest, based on net cash flows, as defined, is payable through December 31, 1997. No additional interest was paid in 1994, 1995, or 1996. At maturity, April 1, 2001, or upon sale, an additional amount equal to 40% of the residual val- ue, as defined, is due....................................... 47,000 47,000 Noninterest bearing mortgage shortfall payable, maturing April 1, 2001...................................................... 2,917 2,917 Mortgage note, bearing interest at 9.82%, principal and inter- est payable in monthly installments through October, 1999, maturing October 13, 1999.................................... 10,781 10,591 Mortgage note, bearing interest at 10.875%, principal and in- terest payable in monthly installments, contingent interest equal to 5% of gross room sales, as defined, payable monthly, principal maturing December 31, 2023......................... 17,774 17,701 Mortgage note, bearing interest at annually increasing rates ranging from 5.78% to 13.07%. Specified interest payments are due monthly, with the difference between the amount of inter- est paid and accrued at the contract rate added to the prin- cipal of the note. Additional interest is due quarterly equal to 30% of adjusted gross revenue, as defined. The note ma- tures on October 13, 2004. At maturity, the lender is due Shared Appreciation Interest, as defined. The note is call- able after February 1, 2000. The loan has an interest reserve account of $1,028,000 and $1,000,000, as of December 31, 1995 and 1996, respectively. The related partnership may make withdrawals from this reserve to cover any interest shortfalls, as defined. The loan agreement provides for a re- lease of the interest reserve account to the related partner- ship after October 1, 1997, if certain conditions are met.... 9,219 9,378 Mortgage note, bearing interest at 11%, principal and interest payable monthly through July 1997, maturing August 1997...... 24,928 24,446 Note payable, due on April 21, 2003, or on demand by lender... 10 10
F-45 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31 ------------------ 1995 1996 -------- -------- Mortgage note, bearing interest at 9.25% with interest only. Payments through January 1, 1998, and principal and interest payable monthly beginning February 1, 1998, based upon a twenty year amortization. In addition, net cash flow, as defined, is payable quarterly. On December 31, 2000, all remaining principal and interest are due, net cash flow, as defined, payable quarterly.................. 6,876 12,610 Mortgage note, bearing interest at an initial rate of 9.125%, adjusted for the Citibank Base Rate plus .625%. All principal and interest payable on January 12, 1997, extended to April 12, 1997. The loan was subsequently refinanced with a $13,750,000 note bearing interest at 8.25%, with monthly payments of principal and interest totaling $118,150 through September 2001, with the remaining balance due October 1, 2001..................... 6,105 13,430 Certificates of Participation, bearing interest at a variable rate, adjusted weekly to be the rate necessary to remarket the certificates at par (4.8% and 4% at December 31, 1995 and 1996). Interest payments are due monthly, and principal payments are due annually until maturity in 2014. Upon the occurrence of certain events, the variable interest rate will convert to a fixed rate. The certificates were issued at a discount of $2,046,000 which is being amortized to interest expense over the life of the certificates using the effective interest method. In addition to the hotel property, the certificates are secured by letters of credit totaling the outstanding principal balance of the certificates. The letters of credit are secured by other property and ownership interests owned by the partners of the hotel partnership. The letters of credit bear an annual fee of 2% of the outstanding principal balance of the certificates. Until expiration in December 1995, pursuant to the terms of an interest rate swap agreement, interest payments were fixed at 5.69% for the hotel partnership, and the counterparty paid interest at one half of its daily prime rate. The original cost of the agreement was capitalized as an other asset and amortized over the life of the swap agreement using the straight line method. Additional interest expense incurred as a result of the swap agreement totaled $1,130 and $449 in 1994 and 1995.......................... 59,300 58,200 Discount on certificates................................... (1,779) (1,746) -------- -------- 221,087 231,498 Current portion of long-term debt.......................... (1,720) (67,893) -------- -------- Long-term debt, excluding current portion.................. $219,367 $163,605 ======== ========
The annual principal requirements of the long-term debt for the five years subsequent to December 31, 1996 (excluding a discount of $1,746,000) are as follows (in thousands): Year ending December 31: 1997 $ 67,893 1998 1,864 1999 11,874 2000 22,303 2001 52,244 Thereafter.................................................... 77,066 -------- Total long-term debt at December 31, 1996................... $233,244 ========
As discussed above, certain of the mortgage notes payable contain provisions which require additional payments to the lenders based on residual values or shared appreciation of the properties at the maturity of the F-46 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) loan or sale of the property. If the properties are acquired, management estimates that additional payments related to these provisions ranging from $11,500,000 to $14,000,000 will be paid to the lenders from the proceeds of the sale. These amounts are considered as additional costs to sell the properties and they will be reflected in the financial statements at the time the transaction is completed. The terms of substantially all of the mortgage notes require the respective partnerships to make deposits, on a monthly basis, to tax escrow accounts for the payment of real estate and personal property taxes and assessments. The terms of the mortgage notes also require hotel partnerships to maintain furniture, fixture and equipment reserve accounts ("FF&E Reserve") equal to an amount ranging from 3% to 4% of gross revenues, as defined, to be used for capital expenditures. The balances of the tax escrow accounts and the FF&E Reserve are included in "Cash, restricted" and "Cash, restricted for noncurrent assets", respectively, in the accompanying combined financial statements. The Partnerships will use the proceeds from the sale of the properties to repay existing debt. Approximately $67,900,000 of the combined partnerships' debt matures in 1997. In the event the assets are not sold before the debt matures, management intends to extend or refinance these existing mortgage notes. 7. CONTRIBUTION OF NOTE PAYABLE: In May 1994, a revolving credit facility utilized by one of the hotel partnerships was converted to a related party note payable and was then contributed by the partners to the hotel partnership. This contribution is reflected on the accompanying combined statement of partners' deficit for the year ended December 31, 1994. Prior to the conversion, the revolving credit facility bore interest at LIBOR plus .65% and was secured by property owned by affiliates of the partners of the hotel partnership. 8. EMPLOYEE BENEFIT PLANS: All employees at the Partnerships are employees of WHC. The Partnerships reimburse WHC for all expenses and charges related to the employees' participation in any of the WHC benefit programs. Included in these plans are the Wyndham Employees Savings and Retirement Plan, a 401(k) retirement savings plan (the "Plan") and a self-insured group health plan. Employees who are over 21 years of age and have completed one year of service are eligible to participate in the Plan. The Plan matches employee contributions up to 4% of the employee's salary. For the years ended December 31, 1994, 1995 and 1996, the Partnerships reimbursed WHC $215,000, $198,000 and $282,000, respectively for the Plan. The Partnerships also reimburse WHC for costs related to the employees' participation in a self-insured group health plan. For the years ended December 31, 1994, 1995 and 1996, the Partnership reimbursed WHC $910,000, $1,036,000 and $1,112,000, respectively. One hotel makes contributions, based on monthly rates per employee, as specified in union agreements, to union-administered, multi-employer, defined benefit retirement plans. Because the plans cover numerous employees from many organizations, no plan benefit information is presented. Expenses relating to these plans totaled $82,000, $80,000 and $105,000 in 1994, 1995 and 1996 respectively. F-47 CROW FAMILY HOTEL PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 9. COMMITMENTS AND CONTINGENCIES: Certain hotel partnerships lease equipment and land under capital and operating leases having noncancellable agreements extending beyond one year. Capital leases have imputed interest rates ranging from 8% to 14.29%. Future minimum lease payments required under the capital leases (together with the present value of net minimum lease payments) and operating leases at December 31, 1996 are as follows (in thousands):
CAPITAL OPERATING LEASES LEASE ------- --------- Year ending December 31: 1997 $224 $ 1,639 1998 172 1,616 1999 68 1,508 2000 45 1,499 2001 -- 1,482 Thereafter............................................ -- 49,367 ---- ------- Total minimum lease payments............................ 509 $57,111 ======= Less imputed interest................................... 71 ---- Present value of net minimum lease payment.............. 438 Less current portion.................................... 185 ---- Long-term portion of net minimum lease payments......... $253 ====
A partnership leases the land on which the hotel is built through two lease agreements. Rent of $1 is payable annually to one of the partners under one of these leases. The partner financed this purchase of land with an interest-free advance from the partnership of $3,625,000. The remainder of the land is leased from a state authority for $653,000 annually, payable in quarterly installments of $163,000. These leases are dated July 31, 1978, with an initial term of 65 years, and two renewal options of 15 years each, subject to the term of the lessor's legal existence. Another hotel partnership leases the land on which the hotel is built under a sub-lease effective January 1, 1985, with an initial term of 75 years and one renewal option of 25 years. Lease payments include two components: (1) "basic rent" which escalate every 5 years based on the consumer price index, and (2) "additional rent," as defined in the master lease, to the extent that it exceeds basic rent. Basic rent payments are due annually on December 20 on a prepaid basis, and the current basic rent payment is $672,000 per year. To date, no additional rent has been paid as the basic rent exceeds all amounts calculated as additional rent. The Partnerships incurred rent expense totaling $2,245,000, 2,272,000 and $2,259,000 in 1994, 1995 and 1996, respectively, which includes operating leases and the three land leases. The Partnerships may be subject to certain litigation and claims in the ordinary course of business which are generally covered by insurance policies. In management's opinion, litigation and claims will not have a material adverse effect upon the financial position or results of operations of the Partnerships. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Partnerships have estimated the fair value of its financial instruments at December 31, 1996 as required by Statement of Financial Accounting Standards No. 107. The carrying values of cash and cash equivalents, accounts receivable and accrued expenses are reasonable estimates of their fair values due to their short-term maturities. Long-term debt had a fair value of approximately $226,265,000 and $238,581,000 at December 31, 1995 and 1996, respectively. Fair value was estimated using an interest rate of prime plus one percent at December 31, 1995 and 1996. F-48 CORPORATION AND OPERATING COMPANY ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) On July 1, 1997, pursuant to an Agreement and plan of Merger, dated as of February 24, 1997, as amended and restated as of May 28, 1997 (the "Merger Agreement") by and among Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"), Patriot American Hospitality Partnership, L.P., a Virginia limited partnership (the "Realty Partnership"), California Jockey Club, a Delaware corporation ("Cal Jockey") and Bay Meadows Operating Company, a Delaware corporation ("Bay Meadows"), Patriot was merged with and into Cal Jockey (the "Merger") with Cal Jockey as the surviving corporation in the Merger. In connection with the Merger, Cal Jockey's name was changed to "Patriot American Hospitality, Inc." (hereinafter, the "Corporation") and Bay Meadows' name was changed to "Patriot American Hospitality Operating Company" (hereinafter, "Operating Company"). Cal Jockey and Bay Meadows are collectively referred to herein as "CJC/BMOC". In connection with the Merger, Bay Meadows formed an operating partnership (the "Operating Partnership") into which Bay Meadows contributed certain of its assets in exchange for limited partnership units ("OP Units") of the Operating Partnership. In addition, Cal Jockey contributed certain of its assets to the Realty Partnership in exchange for OP Units of the Realty Partnership. Upon completion of the Merger and the related transactions, substantially all of the operations of the Corporation and the Operating Company will be conducted through their respective operating partnerships (collectively, the Operating Partnership and the Realty Partnership are referred to herein as the "Patriot Partnerships"). On April 14, 1997, the Corporation entered into a merger agreement and a related stock purchase agreement (collectively, the "Wyndham Merger Agreement" pursuant to which Wyndham Hotel Corporation ("Wyndham") will merge with and into the Corporation with the Corporation being the surviving company (the "Wyndham Acquisition"). As a result of the Wyndham Acquisition, the Corporation will acquire all of the assets and liabilities of Wyndham, including Wyndham's portfolio of 23 owned and leased hotels with an aggregate of 4,877 rooms, management and franchise agreements for Wyndham's 64 managed and franchised properties, management and franchise agreements that have been executed for 15 properties that are currently closed for renovation or construction or are in the process of being converted to the Wyndham brand, and the proprietary brand names Wyndham/SM/, Wyndham Garden(R) and Wyndham Hotels & Resort/SM/. Pursuant to the Wyndham Merger Agreement, upon consummation of the Wyndham Acquisition each issued and outstanding share of common stock of Wyndham ("Wyndham Common Stock") will be converted into the right to receive 0.712 shares of common stock, $.01 par value of the Corporation which are paired and trade as a unit with shares of common stock, $.01 par value of the Operating Company (such stock, the "Paired Common Stock," and such ratio, the "Wyndham Exchange Ratio"), subject to certain adjustments based on the average trading price of the Paired Common Stock. In lieu of receiving Paired Common Stock, Wyndham stockholders have the right to elect to receive cash (up to an aggregate of $100,000) in an amount per share equal to the Wyndham Exchange Ratio (as it may be adjusted) multiplied by the average closing price of the Paired Common Stock over the five trading days immediately preceding the closing of the Wyndham Acquisition. If stockholders holding shares of Wyndham Common Stock with a value in excess of $100,000 elect to receive cash, such cash will be allocated on a pro rata basis among such stockholders. Following the Wyndham Acquisition, the Corporation, through certain of its subsidiaries, will own the ten Wyndham hotels and will lease such hotels to Operating Company. The 13 hotel leases assumed by the Corporation will be sub- leased to Operating Company. The 79 management and franchise contracts; the Wyndham, Wyndham Garden and Wyndham Hotels & Resorts proprietary brand names; and the Wyndham hotel management company will be transferred to corporate subsidiaries of the Corporation (collectively, the "New Wyndham Entities"). The Corporation will own a 99% non-voting interest and Operating Company will own the 1% controlling voting interest in each of the New Wyndham Entities. Therefore, the operating results of the New Wyndham Entities will be consolidated with those of Operating Company for financial reporting purposes. The Corporation will account for its investment in the New Wyndham Entities using the equity method of accounting. The Corporation will also assume Wyndham's existing indebtedness, substantially all of which is expected to be refinanced with funds drawn on a new credit facility. The Pro Forma Financial Statements have been adjusted for the purchase method of accounting whereby the hotels and related improvements and other assets and liabilities owned by Wyndham are adjusted to estimated fair market value. The fair market value of the assets and liabilities of Wyndham has been determined based upon preliminary estimates and is subject to change as additional information is obtained. Management of the Corporation does not anticipate that the preliminary allocation of purchase costs based upon the estimated fair market value of the assets and liabilities of Wyndham will materially change; however, the allocation of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value as of the close of the transaction. Therefore, the allocation reflected in the following unaudited Pro Forma Financial Statements may differ from the amounts ultimately determined. Concurrently with the execution of the Wyndham Merger Agreement, the Corporation also entered into agreements with partnerships affiliated with members of the Trammell Crow family providing for the acquisition of 11 full- service Wyndham-branded hotels with 3,072 rooms for approximately $331,664 in cash, plus approximately $14,000 in additional consideration if two hotels meet certain operational targets (the "Crow Properties Acquisition" and, together with the Wyndham Acquisition, the "Wyndham Transactions"). Subsequent F-49 to the Crow Properties Acquisition, the Corporation will lease the 11 hotels to the Operating Company. In addition, in connection with the Crow Properties Acquisition, the leases related to the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel will be terminated and the Corporation will lease these hotel properties to Operating Company. The Wyndham Transactions, which are expected to be consummated concurrently, are subject to various conditions, including, without limitation, the approval of the Wyndham Acquisition by the stockholders of the Corporation, Operating Company and Wyndham. The Wyndham Acquisition is also conditioned on the Corporation's completion of a substanstial portion of the Crow Properties Acquisition. Accordingly, no assurances can be give that the Wyndham Transactions will be consummated. It is currently anticipated that the stockholder meetings to approve the Wyndham Acquisition will occur in the fourth quarter of 1997. The following unaudited Pro Forma Condensed Combined Statements of Operations as adjusted for the Wyndham Transactions for the year ended December 31, 1996 and the three months ended March 31, 1997 assume the Wyndham Transactions occurred on January 1, 1996. The Pro Forma Condensed Combined Statements of Operations are derived from the Corporation and Operating Company Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1996 and the three months ended March 31, 1997 filed with the Corporation's and the Operating Company's Current Report on Form 8-K dated July 1, 1997, the Consolidated Statements of Income of Wyndham for the year ended December 31, 1996 and the three months ended March 31, 1997 included elsewhere in this Current Report on Form 8-K, and the Combined Crow Family Hotel Partnerships financial statements for the year ended December 31, 1996 and the three months ended March 31, 1997 included elsewhere in this Current Report on Form 8-K. During 1996, one of the hotels (The La Guardia Airport Hotel) was closed for renovation. As a result, the hotel reported no historical results of operations for 1996 and therefore is not included in the following unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1996 and the three months ended March 31, 1997. In management's opinion, all material adjustments necessary to reflect the effects of these transactions have been made. The Corporation and Operating Company pro forma information is also presented as if: (i) the Merger and the related transactions were consummated on terms set forth in the Merger Agreement; (ii) substantially all of the land of Cal Jockey, excluding the land subject to a certain lease (the "Borders Lease"), was sold to an affiliate of PaineWebber Incorporated ("PaineWebber") for a purchase price of $78.05 million (the "PaineWebber Land Sale"), the PaineWebber affiliate leased that portion of the Cal Jockey land upon which the Bay Meadows Racecourse (the "Racecourse") is situated to the Corporation, and the Corporation subleased this land to the Operating Company; (iii) the Corporation leased certain land to Borders, Inc. pursuant to the Borders Lease; and (iv) the Corporation had acquired ownership interests in four hotel properties: the Radisson Overland Park Hotel in Overland Park, Kansas, the Radisson Hotel in Northbrook, Illinois, the Luxeford Suites Hotel in Minneapolis, Minnesota and the Holiday Inn Redmont Hotel in Birmingham, Alabama (the "Recent Acquisitions") and four resort properties: The Boulders in Scottsdale, Arizona, Carmel Valley Ranch in Carmel, California, The Lodge at Ventana Canyon in Tucson, Arizona and The Peaks Resort and Spa in Telluride, Colorado (the "Carefree Resorts") as of the beginning of the periods presented. Such pro forma information is based in part upon the Separate and Combined Statements of Income of the Corporation and the Operating Company (formerly known as Cal Jockey and Bay Meadows) filed with CJC/BMOC's Annual Report on Form 10-K for the year ended December 31, 1996 and the Quarterly Report on Form 10-Q for the three months ended March 31, 1997, as amended; the Consolidated Statements of Operations of Patriot for the year ended December 31, 1996 and the three months ended March 31, 1997 filed in the Corporation's and the Operating Company's Current Report on Form 8-K dated July 1, 1997; and the Pro Forma Condensed Combined Statements of Operations of the Lessees included elsewhere in this Current Report on Form 8-K. The following unaudited Pro Forma Condensed Combined Statements of Operations are not necessarily indicative of what the actual results of operations of the Corporation and Operating Company as adjusted for the Merger and the related transactions and the Wyndham Transactions would have been assuming such transactions had been completed as of the beginning of the periods presented, nor do they purport to represent the results of operations for future periods. Further, the unaudited Pro Forma Condensed Combined Statement of Operations for the interim period ended March 31, 1997 is not necessarily indicative of the results of operations for the full year. F-50 CORPORATION AND OPERATING COMPANY ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
OPERATING CORPORATION COMPANY AND WYNDHAM AND WYNDHAM PRO FORMA PRO FORMA PRO FORMA ELIMINATIONS TOTAL ----------- ----------- ------------ ---------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Revenue: Participating lease revenue............... $187,791 $ -- $ (92,207)(A) $ 95,584 Hotel revenue.......... -- 324,862 (B) -- 324,862 Club and spa revenue... -- 24,710 -- 24,710 Racecourse facility revenue and hotel lease revenue......... 18,451 51,946 (18,117)(C) 52,280 Management fees........ -- 15,815 -- 15,815 Club membership revenue............... -- 4,277 -- 4,277 Shopping center revenue............... -- 1,730 -- 1,730 Service fees........... -- 3,962 -- 3,962 Reimbursement fees..... -- 14,506 -- 14,506 Interest and other income................ 11,265 33,187 (1,204)(D) 43,248 -------- -------- --------- -------- Total revenue.......... 217,507 474,995 (111,528) 580,974 -------- -------- --------- -------- Expenses: Departmental costs-- hotel operations...... -- 171,649 -- 171,649 Racing facility operations............ -- 47,180 (6,348)(C) 40,832 Ground lease and hotel lease expense......... 16,485 11,769 (11,769)(C) 16,485 Direct operating costs of management company............... -- 12,035 -- 12,035 Service department expenses.............. -- 4,970 -- 4,970 Reimbursement expenses.............. -- 15,448 -- 15,448 General and administrative........ 6,292 31,554 (34)(D) 37,812 Repair and maintenance........... -- 18,941 -- 18,941 Utilities.............. -- 14,306 -- 14,306 Interest expense....... 83,664 1,300 (1,170)(D) 83,794 Real estate and personal property taxes and casualty insurance............. 21,831 398 -- 22,229 Marketing.............. -- 26,229 -- 26,229 Management fees........ -- 3,194 -- 3,194 Depreciation and amortization.......... 64,498 16,879 -- 81,377 Participating lease payments.............. -- 92,207 (92,207)(A) -- General liability insurance............. -- 3,964 -- 3,964 Equity participation compensation.......... -- 2,919 -- 2,919 Miscellaneous.......... -- 1,426 -- 1,426 -------- -------- --------- -------- Total expenses......... 192,770 476,368 (111,528) 557,610 -------- -------- --------- -------- Income (loss) before equity in earnings of unconsolidated subsidiaries, income tax provision and minority interests..... 24,737 (1,373) -- 23,364 Equity in earnings of unconsolidated subsidiaries.......... 4,987 -- 2,573 (E) 7,560 -------- -------- --------- -------- Income (loss) before income tax provision and minority interests.............. 29,724 (1,373) 2,573 30,924 Income tax provision... (175) (2,192) -- (2,367) -------- -------- --------- -------- Income (loss) before minority interests..... 29,549 (3,565) 2,573 28,557 Minority interests in the Patriot Partnerships.......... (2,842) 97 -- (2,745) Minority interest in consolidated subsidiaries and other partnerships.......... (553) 2,573 (2,573)(E) (553) -------- -------- --------- -------- Net income (loss) applicable to common shareholders........... $ 26,154 $ (895) $ -- $ 25,259 (F) ======== ======== ========= ======== Net income (loss) per common paired share(G)............... $ 0.60 $ (0.02) $ 0.58 (F) ======== ======== ======== Weighted average number of common paired shares and common paired share equivalents outstanding............ 43,721 43,721 43,721 (F) ======== ======== ========
- -------- (A) Represents elimination of participating lease revenue and expense related to the 29 hotel properties leased by the Corporation to Operating Company. (B) Hotel revenue includes revenue from rooms of $225,202 and food and beverage sales of $99,660. (C) Represents elimination of rental income and expense related to the Racecourse facility, land leased and the hotels sub-leased by the Corporation to Operating Company. (D) Represents the elimination of $1,170 of interest income and expense related to a note receivable issued to the Corporation in connection with the sale of certain assets to PAH RSI Lessee, which assets are assumed to be acquired by Operating Company and the elimination of other intercompany income and expense items. (E) Represents the elimination of equity in losses of the New Wyndham Entities. F-51 (F) The pro forma amounts presented assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. Set forth below is a summary comparison of the net impact to pro forma net income applicable to common shareholders and net income per paired share (i) assuming no Wyndham stockholders elect to receive cash ("All Stock"); (ii) assuming approximately 3,295 shares of Wyndham Common Stock are purchased for cash ("Cash Option") (based on total funds available of $100,000, an estimated market price per paired share of $42.61 (based upon the average closing price for the five days prior to May 12, 1997 of Patriot's Common Stock of $22.12) and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock); and (iii) assuming an interest rate of 7.30% on the incremental borrowings per annum related to the term loan (representing LIBOR plus 1.75%) on outstanding debt obligations of approximately $482,089 for All Stock and $582,089 for Cash Option with terms of 3 to 5 years.
ALL CASH STOCK OPTION ------- ------- Increase in interest expense as a result of additional borrowings to fund the purchase of Wyndham Common Stock.................................................. $ -- $ 7,300 ======= ======= Income before minority interests in the Patriot Partnerships and income tax provision (after minority interest in consolidated subsidiaries and other partnerships).......................................... $30,371 $23,071 Income tax provision.................................... (2,367) (2,367) Minority interests in the Patriot Partnerships.......... (2,745) (2,132) ------- ------- Net income applicable to common shareholders............ $25,259 $18,572 ======= ======= Net income per paired share............................. $ 0.58 $ 0.45 ======= ======= Estimated minority interest percentage in the Patriot Partnerships subsequent to the Wyndham Transactions........................................... 9.8% 10.3% ======= ======= Weighted average number of common paired shares and common paired share equivalents outstanding............ 43,721 41,375 ======= =======
The Wyndham Exchange Ratio is subject to adjustment in the event that the Average Trading Price of the paired shares is less than $42.13 per paired share. If the Average Trading Price is less than $42.13 per paired share, the Wyndham Exchange Ratio will be adjusted so that each outstanding share of Wyndham Common Stock will be converted into the right to receive a number of paired shares equal to $30.00 divided by the Average Trading Price. However, if the Average Trading Price is less than $40.21 per paired share, there will be no further adjustments to the Wyndham Exchange Ratio; but in such circumstances Wyndham has the right, waivable by it, to terminate the Wyndham Merger Agreement without liability. As a result, the maximum Wyndham Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common Stock (the "Maximum Wyndham Exchange Ratio"). On a pro forma basis, the effect of the Maximum Wyndham Exchange Ratio assuming All Stock would result in a decrease in total consideration to approximately $600,482 which would decrease pro forma amortization of goodwill by $265. As a result, pro forma net income would be $25,499 and net income per common paired share would be $0.58. On a pro forma basis, the effect of the Maximum Wyndham Exchange Ratio assuming Cash Option would result in net income of $18,810 and net income per common paired share of $0.45. Additionally, the following table presents the net impact to pro forma net income applicable to common shareholders and net income per common paired share assuming the interest rate increases by 0.25%.
ALL CASH STOCK OPTION ------- ------- Increase in interest expense as a result of additional borrowings to fund the purchase of Wyndham Common Stock.................................................. $ -- $ 7,550 ======= ======= Income before income tax provision and minority interests in the Patriot Partnerships (after minority interest in consolidated subsidiaries and other partnerships).......................................... $27,845 $20,295 Income tax provision.................................... (2,367) (2,367) Minority interests in the Patriot Partnerships......... (2,497) (1,847) ------- ------- Net income applicable to common shareholders............ $22,981 $16,081 ======= ======= Net income per paired share............................. $ 0.53 $ 0.39 ======= ======= Estimated minority interest percentage in the Patriot Partnerships subsequent to the Wyndham Transactions........................................... 9.8% 10.3% ======= ======= Weighted average number of common paired shares and common paired share equivalents outstanding............ 43,721 41,375 ======= =======
The Corporation has entered into a commitment letter with PaineWebber Real Estate Securities, Inc. ("PaineWebber Real Estate"), and The Chase Manhattan Bank ("Chase") which will modify and extend the Corporation's Line of Credit up to $700,000 and provide for a term loan of $500,000. The additional availability under this New Credit Facility (the "New Credit Facility") will be primarily used to finance future acquisitions and the term loan will be used to finance the Wyndham Transactions. Deferred loan costs of approximately $6,175 related to the financing associated with the Wyndham Transactions has been reflected in the pro forma financial information. (G) In February 1997, the Financial Accounting Standards Board issued Statement 128 which specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Management believes that adoption of Statement 128 will not have a material effect on the earnings per share of the Corporation and Operating Company. F-52 CORPORATION AND OPERATING COMPANY ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
OPERATING CORPORATION COMPANY AND WYNDHAM AND WYNDHAM PRO FORMA PRO FORMA PRO FORMA ELIMINATIONS TOTAL ----------- ----------- ------------ ---------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Revenue: Participating lease revenue............... $52,665 $ -- $(28,107)(A) $ 24,558 Hotel revenue.......... -- 95,879 (B) -- 95,879 Club and spa revenue... -- 8,706 -- 8,706 Racecourse facility revenue and hotel lease revenue......... 7,189 20,269 (7,106)(C) 20,352 Management fees........ -- 4,809 -- 4,809 Club membership revenue............... -- 348 -- 348 Shopping center revenue............... -- 474 -- 474 Service fees........... -- 1,062 -- 1,062 Reimbursement fees..... -- 3,370 -- 3,370 Interest and other income................ 2,669 10,866 (317)(D) 13,218 ------- -------- -------- -------- Total revenue.......... 62,523 145,783 (35,530) 172,776 ------- -------- -------- -------- Expenses: Departmental costs-- hotel operations...... -- 44,381 -- 44,381 Racing facility operations............ -- 16,949 (1,677)(C) 15,272 Ground lease and hotel lease expense......... 6,505 5,429 (5,429)(C) 6,505 Direct operating costs of management company............... -- 4,243 -- 4,243 Service department expenses.............. -- 1,152 -- 1,152 Reimbursement expenses.............. -- 3,370 -- 3,370 General and administrative........ 3,577 8,845 -- 12,422 Repair and maintenance........... -- 5,499 -- 5,499 Utilities.............. -- 4,089 -- 4,089 Interest expense....... 21,361 319 (317)(D) 21,363 Real estate and personal property taxes and casualty insurance............. 6,717 129 -- 6,846 Marketing.............. -- 7,779 -- 7,779 Management fees........ -- 1,482 -- 1,482 Depreciation and amortization.......... 16,402 4,457 -- 20,859 Participating lease payments.............. -- 28,107 (28,107)(A) -- General liability insurance............. -- 994 -- 994 Miscellaneous.......... -- (6) -- (6) ------- -------- -------- -------- Total expenses......... 54,562 137,218 (35,530) 156,250 ------- -------- -------- -------- Income before equity in earnings of unconsolidated subsidiaries, income tax provision and minority interests..... 7,961 8,565 -- 16,526 Equity in earnings of unconsolidated subsidiaries.......... 1,950 -- (963)(E) 987 ------- -------- -------- -------- Income before income tax provision and minority interests.............. 9,911 8,565 (963) 17,513 Income tax provision... (44) (4,031) -- (4,075) ------- -------- -------- -------- Income before minority interests.............. 9,867 4,534 (963) 13,438 Minority interests in the Patriot Partnerships.......... (946) (350) -- (1,296) Minority interest in consolidated subsidiaries and other partnerships.......... (219) (963) 963(E) (219) ------- -------- -------- -------- Net income applicable to common shareholders.... $ 8,702 $ 3,221 $ -- $ 11,923 (F) ======= ======== ======== ======== Net income per common paired share(G)........ $ 0.20 $ 0.07 $ 0.27 (F) ======= ======== ======== Weighted average number of common paired shares and common paired share equivalents outstanding............ 44,214 44,214 44,214 (F) ======= ======== ========
- -------- (A) Represents elimination of participating lease revenue and expense related to the 29 hotel properties leased by the Corporation to Operating Company. (B) Hotel revenue includes revenue from rooms of $66,280 and food and beverage sales of $29,599. (C) Represents elimination of rental income and expense related to the Racecourse facility, land leased and the hotels sub-leased by the Corporation to Operating Company. (D) Represents primarily the elimination of $293 of interest income and expense related to a note receivable issued to the Corporation in connection with the sale of certain assets to PAH RSI Lessee, which assets are assumed to be acquired by Operating Company and the elimination of other intercompany income and expense items. F-53 (E) Represents the elimination of equity in income of the New Wyndham Entities. (F) The pro forma amounts presented assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. Set forth below is a summary comparison of the net impact to pro forma net income applicable to common shareholders and net income per paired share (i) assuming Wyndham stockholders elect to receive cash All Stock; (ii) assuming approximately 3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash Option (based on total funds available of $100,000, an estimated market price per paired share of $42.61 (based upon the average closing for the five days prior to May 12, 1997 of Patriot's Common Stock of $22.12) and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock); and (iii) assuming an average interest rate of 7.251% per annum related to the term loan (representing LIBOR plus 1.75%) on outstanding debt obligations of approximately $482,089 for All Stock and $582,089 for Cash Option with terms of 3 to 5 years.
ALL CASH STOCK OPTION ------- ------- Increase in interest expense as a result of additional borrowings to fund the purchase of Wyndham Common Stock.................................................. $ -- $ 1,813 ======= ======= Income before minority interests in the Patriot Partnerships and income tax provision (after minority interest in consolidated subsidiaries and other partnerships).......................................... $17,294 $15,481 Income tax provision.................................... (4,075) (4,075) Minority interests in the Patriot Partnerships.......... (1,296) (1,175) ------- ------- Net income applicable to common shareholders............ $11,923 $10,231 ======= ======= Net income per paired share............................. $ 0.27 $ 0.24 ======= ======= Estimated minority interest percentage in the Patriot Partnerships subsequent to the Wyndham Transactions........................................... 9.8% 10.3% ======= ======= Weighted average number of common paired shares and common paired share equivalents outstanding............ 44,214 41,868 ======= =======
The Wyndham Exchange Ratio is subject to adjustment in the event that the Average Trading Price of the paired shares is less than $42.13 per paired share. If the Average Trading Price is less than $42.13 per paired share, the Wyndham Exchange Ratio will be adjusted so that each outstanding share of Wyndham Common Stock will be converted into the right to receive a number of paired shares equal to $30.00 divided by the Average Trading Price. However, if the Average Trading Price is less than $40.21 per paired share, there will be no further adjustments to the Wyndham Exchange Ratio; but in such circumstances Wyndham has the right, waivable by it, to terminate the Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange Ratio assuming All Stock would result in a decrease in total consideration to approximately $600,482 which would decrease pro forma amortization of goodwill by $66. As a result pro forma net income would be $11,984 and net income per common paired share would be $0.27. On a pro forma basis, the effect of the Maximum Wyndham Exchange Ratio assuming Cash Option would result in net income of $10,291 and net income per common paired share of $0.25. Additionally, the following table presents the net impact to pro forma net income applicable to common stockholders and net income per common paired share assuming the interest rate increases by 0.25%.
ALL CASH STOCK OPTION ------- ------- Increase in interest expense as a result of additional borrowings to fund the purchase of Wyndham Common Stock.................................................. $ -- $ 1,875 ======= ======= Income before income tax provision and minority interests in the Patriot Partnerships (after minority interest in consolidated subsidiaries and other partnerships).......................................... $16,631 $14,756 Income tax provision.................................... (4,075) (4,075) Minority interests in the Patriot Partnerships.......... (1,231) (1,100) ------- ------- Net income applicable to common shareholders............ $11,325 $ 9,581 ======= ======= Net income per paired share............................. $ 0.26 $ 0.23 ======= ======= Estimated minority interest percentage in the Patriot Partnerships subsequent to the Wyndham Transactions........................................... 9.8% 10.3% ======= ======= Weighted average number of common paired shares and common paired share equivalents outstanding............ 44,214 41,868 ======= =======
The Corporation has entered into a commitment letter with PaineWebber Real Estate and Chase which will modify and extend the Corporation's Line of Credit up to $700,000 and provide for a term loan of $500,000. The additional availability under this New Credit Facility will be primarily used to finance future acquisitions and the term loan will be used to finance the Wyndham Transactions. Deferred loan costs of approximately $6,175 related to the financing associated with the Wyndham Transactions has been reflected in the pro forma financial information. (G) In February 1997, the Financial Accounting Standards Board issued Statement 128 which specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Management believes that adoption of Statement 128 will not have a material effect on the earnings per share of the Corporation and Operating Company. F-54 CORPORATION AND OPERATING COMPANY ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED BALANCE SHEET The following unaudited Pro Forma Condensed Combined Balance Sheet is presented as if the Wyndham Transactions had occurred as of March 31, 1997. The Pro Forma Condensed Combined Balance Sheet is also derived from the Corporation and Operating Company Pro Forma Condensed Combined Balance Sheet as of March 31, 1997 filed with the Corporation's and the Operating Company's Current Report on Form 8-K dated July 1, 1997 which is presented as if (i) the Merger and related transactions were consummated on terms set forth in the Merger Agreement; (ii) the PaineWebber Land Sale was consummated, the PaineWebber affiliate leased that portion of the land upon which the Racecourse is situated to the Corporation and the Corporation subleased this land to Operating Company; and (iii) the Corporation leased certain land to Borders, Inc. Such pro forma information is based in part upon Wyndham's Consolidated Balance Sheet as of March 31, 1997, Patriot's Consolidated Balance Sheet as of March 31, 1997, and CJC/BMOC's Combined Balance Sheet as of March 31, 1997 and should be read in conjunction with the financial statements filed with Wyndham's, and CJC/BMOC's respective Quarterly Reports on Form 10-Q for the three months ended March 31, 1997 and the Corporation's and Operating Company's Current Report on Form 8-K dated July 1, 1997. In management's opinion, all material adjustments necessary to reflect the effect of these transactions have been made. The accompanying Pro Forma Condensed Combined Balance Sheet reflects adjustments to record the net assets of the Wyndham Transactions at their estimated fair market values and the elimination of Wyndham's historical shareholders' equity. The fair market values of the assets and liabilities of Wyndham have been determined based upon preliminary estimates and are subject to change as additional information is obtained. Management of the Corporation does not anticipate that the preliminary allocation of purchase costs based upon the estimated fair market values of the assets and liabilities of Wyndham will materially change; however, the allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value as of the close of the transaction. Therefore, the allocations reflected in the following unaudited Pro Forma Condensed Combined Balance Sheet may differ from the amounts ultimately determined. The following unaudited Pro Forma Condensed Combined Balance Sheet is not necessarily indicative of what the actual financial position would have been assuming such transactions had been completed as of March 31, 1997, nor does it purport to represent the future financial position of the Corporation and Operating Company as adjusted for the Merger and the related transactions and the Wyndham Transactions. F-55 CORPORATION AND OPERATING COMPANY ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED)
CORPORATION AND OPERATING CROW COMPANY PROPERTIES PRO FORMA ACQUISITION WYNDHAM PRO FORMA TOTAL(A) PRO FORMA(B) HISTORICAL(C) ADJUSTMENTS TOTAL ------------- ------------ ------------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Net investment in hotel and resort properties and land held for sale................... $ 947,722 $343,388 $140,923 $174,962 (D) $1,606,995 Net investment in Racecourse facility and related improvements... 24,265 -- -- -- 24,265 Mortgage notes and other receivables from unconsolidated subsidiaries........... 73,622 -- -- -- 73,622 Notes and other receivables from affiliates............. -- -- 27,350 -- 27,350 Notes receivable........ 103,952 -- 6,340 -- 110,292 Investment in unconsolidated subsidiaries........... 12,140 -- 1,091 -- 13,231 Cash and cash equivalents............ 13,979 -- 7,087 -- 21,066 Restricted cash......... 78,050 -- 450 -- 78,500 Securities available for sale................... 5,609 -- -- -- 5,609 Accounts receivable, net.................... 16,917 -- 18,743 -- 35,660 Goodwill................ 97,216 -- -- 280,695 (E) 377,911 Deferred expenses, net.. 14,447 -- 7,629 (1,454)(F) 20,622 Management contract costs.................. -- -- 11,290 52,292 (G) 63,582 Trade name and franchise costs.................. -- -- -- 85,550 (H) 85,550 Prepaid expenses and other assets........... 19,079 -- 31,062 -- 50,141 Deferred income taxes... 227 -- 15,629 (15,551)(I) 305 ---------- -------- -------- -------- ---------- Total assets........... $1,407,225 $343,388 $267,594 $576,494 $2,594,701 ========== ======== ======== ======== ========== LIABILITIES AND SHARE- HOLDERS' EQUITY Borrowings under a line of credit and mortgage notes.................. $ 579,862 $343,388 $138,331 $ 30,026 (J) $1,091,607 Dividends and distributions payable.. 13,938 -- -- -- 13,938 Accounts payable and accrued expenses....... 34,968 -- 32,912 -- 67,880 Deferred income tax liability.............. 520 -- -- 50,609 (I) 51,129 Deposits................ -- -- 1,307 -- 1,307 Deferred gain........... -- -- 11,880 (11,880)(I) -- Due to unconsolidated subsidiaries........... 6,098 -- -- -- 6,098 Minority interests in the Patriot Partnerships........... 127,262 -- -- -- 127,262 Minority interest in other partnerships..... 13,774 -- -- -- 13,774 Shareholders' equity: Common stock........... 573 -- 200 85 (K) 858 Paid-in capital........ 646,792 -- 84,342 540,203 (L) 1,271,337 Unearned stock compen- sation, net........... (16,261) -- -- (16,261) Unrealized gain from exchange loss......... -- -- (33) -- (33) Notes receivable from stockholders.......... -- -- (16,639)(M) -- (16,639) Receivable from affili- ates.................. -- -- (1,255)(N) -- (1,255) Retained earnings...... (301) -- 16,549 (32,549)(L) (16,301) ---------- -------- -------- -------- ---------- Total shareholders' eq- uity.................. 630,803 -- 83,164 507,739 1,221,706 ---------- -------- -------- -------- ---------- Total liabilities and shareholders' equity.. $1,407,225 $343,388 $267,594 $576,494 $2,594,701 ========== ======== ======== ======== ==========
See notes on following page. F-56 - -------- (A) Represents the Pro forma Condensed Combined Balance Sheet of the Corporation and Operating Company as of March 31, 1997 which reflects the Merger and the related transactions. (B) Represents adjustments to the Corporation's and Operating Company's pro forma financial position assuming the acquisition of the 11 hotel properties from partnerships affiliated with members of the Trammell Crow family had occurred at March 31, 1997. (C) Represents historical balance sheet of Wyndham as of March 31, 1997. (D) Represents adjustment for the purchase method of accounting whereby the investments in hotel properties owned by Wyndham are adjusted to record the assets at their estimated fair market values. (E) Represents the purchase consideration in excess of fair market value of the net assets of Wyndham. (F) Represents the additional loan fees to be incurred in conjunction with the financing for the Wyndham Transactions, net of Wyndham's historical deferred loan fees. (G) Represents adjustment for the purchase method of accounting whereby the management contracts held by Wyndham are adjusted to their estimated fair market values. Wyndham holds management contracts with certain of its affiliates and with unrelated third parties for 79 hotels. The contracts have an average remaining life of 14.6 years and provide for payment of management fees ranging from 1% to 5% of gross revenues plus certain incentive fees based on specified criteria as defined in the respective management agreements. (H) Represents the estimated fair market value of the Wyndham tradenames and other franchise related assets. (I) Pursuant to the Wyndham Acquisition, deferred income taxes, the deferred income tax liability and the deferred gain which resulted from the sale and lease-back of the hotel properties leased by GHALP, Inc., an affiliate of Wyndham, have been adjusted to reflect the effects of the Wyndham Acquisition. (J) Represents financing of $6,175 of additional loan fees related to the financing of the Wyndham Transactions, estimated mortgage prepayment penalties of $16,000, and $7,851 of acquisition-related costs incurred in connection with the Wyndham Transactions. (K) Represents the exchange of Wyndham Common Stock, for shares of Paired Common Stock. Pursuant to the Wyndham Acquisition, Wyndham stockholders are entitled to receive, for each share of Wyndham Common Stock held by them, the Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock. At March 31, 1997, 20,018 shares of Wyndham Common Stock were outstanding which were assumed to be exchanged for approximately 14,253 shares of Paired Common Stock, resulting in an adjustment to increase Wyndham Common Stock. (L) Pursuant to the Wyndham Merger Agreement, Wyndham stockholders may elect to receive for each share of Wyndham Common Stock held by them either (i) cash for shares or (ii) 0.712 shares of Corporation Common Stock and 0.712 shares of Operating Company Common Stock. The estimated market price per paired share is $42.88 (based upon the closing price on April 11, 1997, the business day prior to the date of the execution of the Wyndham Merger Agreement, of Patriot's Common Stock of $22.25). Based on 20,018 shares of Wyndham Common Stock outstanding, the total purchase consideration is approximately $611,099. The adjustments to shareholders' equity eliminate Wyndham's historical equity accounts totaling $101,091 and record equity based on the number of shares of Paired Common Stock issued in the exchange. The pro forma balances assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. Set forth below is a summary comparison of the net impact to pro forma borrowings and shareholders' equity (i) assuming Wyndham stockholders elect to receive All Stock; (ii) assuming approximately 3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash Option (based on total funds available of $100,000, an estimated market price per paired share of $42.61, based upon the average closing price for the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12, and the Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock); and (iii) assuming an interest rate of 7.251% related to the term loan (representing LIBOR plus 1.75%) on outstanding debt obligations of approximately $482,089 for All Stock and approximately $582,089 for the Cash Option with terms of 3 to 5 years.
ALL STOCK CASH OPTION --------- ----------- Number of shares of Wyndham Common Stock purchased for cash........................................... -- 3,295 ======== ======== Cash paid for shares of Wyndham Common Stock (assumed to be financed through the New Credit Facility or other similar financing sources)....... $ -- $100,000 Number of paired shares issued pursuant to the Wyndham Acquisition................................ 14,253 11,906 ======== ======== Purchase consideration for shares................... $611,099 $511,099 Adjustment to common stock for paired shares issued............................................. (285) (238) Outstanding options to purchase common stock assumed in the Wyndham Acquisition......................... 13,731 13,731 Book value of Wyndham paid-in capital............... (84,342) (84,342) -------- -------- Adjustment to paid-in capital....................... 540,203 440,250 -------- -------- Mortgage prepayment penalties incurred from refinancing of Wyndham debt........................ (16,000) (16,000) Elimination of historical retained earnings......... (16,549) (16,549) -------- -------- Adjustment to retained earnings..................... (32,549) (32,549) Adjustment to common stock.......................... 85 38 -------- -------- Adjustment to shareholders' equity................. $507,739 $407,739 ======== ========
The Wyndham Exchange Ratio is subject to adjustment in the event that the Average Trading Price of the paired shares is less than $42.13 per paired share. If the Average Trading Price is less than $42.13 per paired share, the Wyndham Exchange Ratio will be adjusted so that each outstanding share of Wyndham Common Stock will be converted into the right to receive a number of paired shares equal to $30.00 divided by the Average Trading Price. However, if the Average Trading Price is less than $40.21 per paired share, there will be no further adjustments to the Wyndham Exchange Ratio; but in such circumstances Wyndham has the right, waivable by it, to terminate the Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange Ratio would decrease total consideration to approximately $600,482. F-57 In connection with the Wyndham Acquisition, options to purchase approximately 1,064 shares of Wyndham Common Stock which were issued by Wyndham to certain officers and employees of Wyndham will be converted to options to purchase 757 shares of Paired Common Stock. Such options to purchase paired shares will vest immediately upon consummation of the Wyndham Acquisition. The stated exercise prices will be adjusted to reflect the Wyndham Exchange Ratio. The excess of the estimated value of a share of Paired Common Stock on the date the Wyndham Acquisition is consummated (based upon the closing price on April 11, 1997, the business day prior to the date of the execution of the Wyndham Merger Agreement, of Patriot's Common Stock of $22.25 and the Wyndham Exchange Ratio) over the stated exercise price of the options (as adjusted for the Wyndham Exchange Ratio) is reflected as additional purchase consideration for the Wyndham Acquisition. (M) Represents shareholder notes purchased by Wyndham in conjunction with its initial offering. In connection with the Wyndham Acquisition, the Corporation will acquire these notes at their historical cost which approximates their estimated fair value. (N) Represents deferred management fees owed by an affiliate of Wyndham that are deferred until certain operating criteria, as defined per the management and loan agreement, are met. Such deferred management fees will be acquired by the Corporation at their stated historical cost, which approximates their estimated fair value, as a result of the Wyndham Acquisition. F-58 CORPORATION ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
CROW CORPORATION PROPERTIES WYNDHAM PRO FORMA ACQUISITION ACQUISITION PRO FORMA TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL ----------- ------------ ------------ ----------- --------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Revenue: Participating lease revenue............... $130,570 $38,046 $ 19,175 $ -- $187,791 Rental of Racecourse facility, land and hotels................ 6,682 -- 9,404 2,365 (D) 18,451 Interest and other income................ 10,765 -- 500 -- 11,265 -------- ------- -------- ------ -------- Total revenue.......... 148,017 38,046 29,079 2,365 217,507 -------- ------- -------- ------ -------- Expenses: Ground and hotel lease expense............... 5,354 1,325 9,806 -- 16,485 General and administrative........ 5,992 100 (E) 200 (E) -- 6,292 Interest expense....... 45,201 25,068 (F) 11,810 (F) 1,585 (F) 83,664 Real estate and personal property taxes and casualty insurance............. 13,372 4,233 4,226 -- 21,831 Depreciation and amortization.......... 38,335 13,077 (G) 13,086 (G) -- 64,498 -------- ------- -------- ------ -------- Total expenses......... 108,254 43,803 39,128 1,585 192,770 -------- ------- -------- ------ -------- Income (loss) before equity in earnings of unconsolidated subsidiaries, income tax provision and minority interests..... 39,763 (5,757) (10,049) 780 24,737 Equity in earnings (losses) of unconsolidated subsidiaries.......... 7,560 -- -- (2,573)(H) 4,987 -------- ------- -------- ------ -------- Income (loss) before income tax provision and minority interests.............. 47,323 (5,757) (10,049) (1,793) 29,724 Income tax provision... -- -- -- (175)(I) (175) -------- ------- -------- ------ -------- Income (loss) before mi- nority interests....... 47,323 (5,757) (10,049) (1,968) 29,549 Minority interest in the Realty Partner- ship.................. (6,548) 564 (J) 985 (J) 2,157 (J) (2,842) Minority interest in other partnerships.... (553) -- -- -- (553) -------- ------- -------- ------ -------- Net income (loss) applicable to common shareholders........... $ 40,222 $(5,193) $ (9,064) $ 189 $ 26,154 (K) ======== ======= ======== ====== ======== Net income per common share(L)............... $ 1.40 $ 0.60 (K) ======== ======== Weighted average number of common shares and common share equivalents outstanding............ 28,793 43,721 (K) ======== ========
- ------- (A) Represents the pro forma results of operations of the Corporation for the year ended December 31, 1996 which reflects the impact of the Merger and the related transactions. (B) Represents adjustments to the Corporation's results of operations assuming the Crow Properties Acquisition had occurred at the beginning of the period presented. One of the hotels was closed during 1996 due to renovation. As a result, the pro forma results of operations for the Crow Properties Acquisition reflects the results of operations for ten hotels for the year ended December 31, 1996. (C) Represents adjustments to the Corporation's results of operations assuming the Wyndham Acquisition had been consummated at the beginning of the period presented. (D) Represents the increase in hotel lease revenue for those hotels which are leased by the Corporation from third parties and then sub-leased to Operating Company. (E) Represents adjustment for estimated incremental administrative salaries and other expenses expected to be incurred by the Corporation. (F) For the Crow Properties Acquisition, the adjustment represents interest expense incurred on net borrowings under the New Credit Facility which will be used to purchase the hotel properties. For the Wyndham Acquisition, the adjustment represents interest expense on current debt obligations and interest expense related to certain capital lease obligations which are expected to be assumed in connection with the Wyndham Acquisition. The Corporation expects to refinance Wyndham's long-term debt with borrowings under the New Credit Facility. The Corporation will pay an estimated $16,000 in mortgage prepayment penalties. This amount will be reported as an extraordinary item in the Corporation's results of operations following the completion of the Wyndham Transactions and has been reflected as an adjustment to retained earnings for pro forma presentation purposes. Certain of the debt to be repaid contains restrictions regarding the payment of dividends with which the Corporation would be unable to comply. In addition, the New Credit Facility generally has a more favorable interest rate than the debt expected to be repaid. The adjustment of $1,585 represents amortization of $1,235 related to additional loan fees to be incurred in connection with new borrowings for the Wyndham Transactions and incremental interest expense of $350. The deferred loan costs are being amortized using the straight-line method over the terms of the loans. Interest expense incurred on the New Credit Facility borrowings F-59 assumes an average interest rate of 7.30% per annum related to the term loan (representing LIBOR plus 1.75%). An increase of 0.25% in the interest rate would increase pro forma interest expense to $86,191, decrease net income applicable to common shareholders to $23,876 and decrease net income per common share to $0.55. (G) Depreciation is computed using the straight-line method and is based upon the estimated useful lives of 35 years for hotel buildings and improvements and 5 to 7 years for F, F & E . These estimated useful lives are based on management's knowledge of the properties and the hotel industry in general. (H) Represents equity in losses of the New Wyndham Entities which own the Wyndham tradenames and franchise related assets, the management and franchising contracts and the hotel management company, which will be controlled by Operating Company. (I) Represents provision for the Corporation's estimated state tax liability. (J) Represents the adjustments to minority interest to reflect the estimated minority interest percentage subsequent to the Wyndham Transactions of approximately 9.8%. The estimated minority interest percentage subsequent to the Merger (and prior to the Wyndham Transactions) is approximately 14.0%. (K) The pro forma amounts presented assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. If the maximum number of shares of Wyndham Common Stock are purchased for cash (based on total funds available of $100,000, an estimated market price per paired share of $42.61, based upon the average closing price for the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock), pro forma interest expense would increase by $7,300, net income would be $19,461, and net income per common share would be $0.47, based on 41,375 weighted average number of common shares and common share equivalents outstanding. (L) In February 1997, the Financial Accounting Standards Board issued Statement 128 which specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Management believes that adoption of Statement 128 will not have a material effect on the earnings per share of the Corporation. F-60 CORPORATION ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
CORPORATION CROW PROPERTIES WYNDHAM PRO FORMA ACQUISITION ACQUISITION PRO FORMA TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL --------- --------------- ------------ ----------- --------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Revenue: Participating lease revenue............... $36,551 $10,851 $ 5,263 $ -- $52,665 Rental of Racecourse facility, land and hotels................ 1,760 -- 4,838 591 (D) 7,189 Interest and other income................ 2,669 -- -- -- 2,669 ------- ------- -------- ------ ------- Total revenue.......... 40,980 10,851 10,101 591 62,523 ------- ------- -------- ------ ------- Expenses: Ground and hotel lease expense............... 1,336 331 4,838 -- 6,505 General and administrative........ 3,502 25 (E) 50 (E) -- 3,577 Interest expense....... 11,709 6,225 (F) 3,550 (F) (123)(F) 21,361 Real estate and personal property taxes and casualty insurance............. 3,404 1,156 2,157 -- 6,717 Depreciation and amortization.......... 9,862 3,269 (G) 3,271 (G) -- 16,402 ------- ------- -------- ------ ------- Total expenses......... 29,813 11,006 13,866 (123) 54,562 ------- ------- -------- ------ ------- Income (loss) before equity in earnings of unconsolidated subsidiaries, income tax provision and minority interests..... 11,167 (155) (3,765) 714 7,961 Equity in earnings (losses) of unconsolidated subsidiaries.......... 1,021 -- (34) 963 (H) 1,950 ------- ------- -------- ------ ------- Income (loss) before income tax provision and minority interests.............. 12,188 (155) (3,799) 1,677 9,911 Income tax provision... -- -- -- (44)(I) (44) ------- ------- -------- ------ ------- Income (loss) before mi- nority interests....... 12,188 (155) (3,799) 1,633 9,867 Minority interest in the Realty Partner- ship.................. (1,676) 15 (J) 372 (J) 343 (J) (946) Minority interest in other partnerships.... (219) -- -- -- (219) ------- ------- -------- ------ ------- Net income (loss) applicable to common shareholders........... $10,293 $ (140) $ (3,427) $1,976 $ 8,702 (K) ======= ======= ======== ====== ======= Net income (loss) per common share(L)........ $ 0.35 $ 0.20 (K) ======= ======= Weighted average number of common shares and common share equivalents outstanding............ 29,074 44,214 (K) ======= =======
- -------- (A) Represents the pro forma results of operations of the Corporation for the three months ended March 31, 1997 which reflects the impact of the Merger and the related transactions. (B) Represents adjustments to the Corporation's results of operations assuming the Crow Properties Acquisition had occurred at the beginning of the period presented. One of the hotels was closed during 1996 due to renovation. As a result, the pro forma results of operations for the Crow Properties Acquisition reflects the results of operations for ten hotels for the three months ended March 31, 1997. (C) Represents adjustments to the Corporation's results of operations assuming the Wyndham Acquisition had been consummated at the beginning of the period presented. (D) Represents the increase in hotel lease revenue for those hotels which are leased by the Corporation from third parties and then sub-leased to Operating Company. (E) Represents adjustment for estimated incremental administrative salaries and other expenses expected to be incurred by the Corporation. (F) For the Crow Properties Acquisition, the adjustment represents interest expense incurred on net borrowings under the New Credit Facility which will be used to purchase the hotel properties. For the Wyndham Acquisition, the adjustment represents interest expense on current debt obligations and interest expense related to certain capital lease obligations which are expected to be assumed in connection with the Wyndham Acquisition. The Corporation expects to refinance Wyndham's long-term debt with borrowings under the New Credit Facility. The Corporation will pay approximately $16,000 in mortgage prepayment penalties. This amount will be reported as an extraordinary item in the Corporation's results of operations following the completion of the Wyndham Transactions and has been reflected as an adjustment to retained earnings for pro forma presentation purposes. Certain of the debt to be repaid contains restrictions regarding the payment of dividends with which the Corporation would be unable to comply. In addition, the New Credit Facility generally has a more favorable interest rate than the debt expected to be repaid. The adjustment of $(123) represents amortization of $408 related to additional loan fees to be incurred in connection with new borrowings for the Wyndham Transactions and reduction in interest expense of $531. The deferred loan costs are being amortized using the straight-line method over the terms of the F-61 loans. Interest expense incurred on the New Credit Facility borrowings assumes an average interest rate of 7.251% per annum related to the term loan (representing LIBOR plus 1.75%). An increase of 0.25% in the interest rate would increase pro forma interest expense to $22,023, decrease net income applicable to common shareholders to $8,104 and decrease net income per common share to $0.18, based on 44,214 weighted average number of common shares and common share equivalents outstanding. (G) Depreciation is computed using the straight-line method and is based upon the estimated useful lives of 35 years for hotel buildings and improvements and 5 to 7 years for F, F & E. These estimated useful lives are based on management's knowledge of the properties and the hotel industry in general. (H) Represents equity in income of the New Wyndham Entities which own the Wyndham tradenames and franchise related assets, the management and franchising contracts and the hotel management company, which will be controlled by Operating Company. (I) Represents provision for the Corporation's estimated state tax liability. (J) Represents the adjustments to minority interest to reflect the estimated minority interest percentage subsequent to the Wyndham Transactions of approximately 9.8%. The estimated minority interest percentage subsequent to the Merger (and prior to the Wyndham Transactions) is approximately 14.0%. (K) The pro forma amounts presented assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. If the maximum number of shares of Wyndham Common Stock are purchased for cash (based on total funds available of $100,000, an estimated market price per paired share of $42.61, based upon the average closing price for the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock), pro forma interest expense would increase by $1,813, net income would be $7,028, and net income per common share would be $0.17, based on 41,868 weighted average number of common shares and common share equivalents outstanding. (L) In February 1997, the Financial Accounting Standards Board issued Statement 128 which specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Management believes that adoption of Statement 128 will not have a material effect on the earnings per share of the Corporation. F-62 OPERATING COMPANY ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
ADJUSTMENTS ------------------------------------------ OPERATING CROW COMPANY PROPERTIES WYNDHAM PRO FORMA ACQUISITION ACQUISITION WYNDHAM PRO FORMA TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------ ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Room revenue............ $ 38,940 $ 70,450 $ 99,584 $16,228 $ -- $225,202 Food and beverage....... 19,745 39,330 32,206 8,379 -- 99,660 Club and spa revenue.... 24,710 -- -- -- -- 24,710 Pari-mutuel revenue..... 41,476 -- -- -- -- 41,476 Other racing income..... 10,470 -- -- -- -- 10,470 Management fees......... -- -- 22,524 -- (6,709)(E) 15,815 Club membership revenue................ 4,277 -- -- -- -- 4,277 Shopping center revenue................ 1,730 -- -- -- -- 1,730 Service fees............ -- -- 3,962 -- -- 3,962 Reimbursement income.... -- -- 14,506 -- -- 14,506 Telephone and other hotel revenue.......... 10,338 9,744 6,988 1,931 -- 29,001 Interest and other income................. 1,936 -- 2,250 -- -- 4,186 -------- -------- -------- ------- -------- -------- Total revenue........... 153,622 119,524 182,020 26,538 (6,709) 474,995 -------- -------- -------- ------- -------- -------- Expenses: Departmental costs-- hotel, club and spa operations............. 47,280 49,367 65,053 9,949 -- 171,649 Direct operating costs of Racecourse facility............... 20,950 -- -- -- -- 20,950 Purses and incentive awards................. 17,054 -- -- -- -- 17,054 Commissions, concession costs and racing facility rental........ 9,176 -- -- -- -- 9,176 Ground lease and hotel lease expense.......... -- -- -- -- 11,769 (F) 11,769 Direct operating costs of management company ....................... -- -- 12,035 -- -- 12,035 Service department expenses............... -- -- 4,970 -- -- 4,970 Reimbursement expenses.. -- -- 15,448 -- -- 15,448 General and administrative......... 10,181 10,314 7,888 2,971 200 (G) 31,554 Repair and maintenance.. 8,045 5,219 4,533 1,144 -- 18,941 Utilities............... 4,082 4,584 4,585 1,055 -- 14,306 Marketing............... 7,767 9,104 7,620 1,738 -- 26,229 Management fees......... 3,194 5,783 -- 926 (6,709)(E) 3,194 Depreciation and amortization........... 1,072 -- 8,110 (H) -- 7,697 (H) 16,879 Participating lease payments............... 25,967 (I) 38,046 (I) 19,175 (I) 9,019 (I) -- 92,207 Interest expense........ 1,300 -- -- -- -- 1,300 Real estate and personal property taxes and insurance.............. 398 -- -- -- -- 398 General liability insurance.............. 656 624 2,449 235 -- 3,964 Equity participation compensation .......... -- -- 2,919 -- -- 2,919 Miscellaneous .......... -- 871 555 99 (99) 1,426 -------- -------- -------- ------- -------- -------- Total expenses.......... 157,122 123,912 155,340 27,136 12,858 476,368 -------- -------- -------- ------- -------- -------- Income (loss) before income tax provision and minority interests...... (3,500) (4,388) 26,680 (598) (19,567) (1,373) Income tax (provision) benefit................ (62) -- (3,991)(J) -- 1,861 (J) (2,192) -------- -------- -------- ------- -------- -------- Income (loss) before mi- nority interests........ (3,562) (4,388) 22,689 (598) (17,706) (3,565) Minority interest in the Operating Partnership............ 499 430 (K) (2,224)(K) 59 (K) 1,333 (K) 97 Minority interest in consolidated subsidiaries........... -- -- -- -- 2,573 (L) 2,573 -------- -------- -------- ------- -------- -------- Net income (loss) applicable to common shareholders............ $ (3,063) $ (3,958) $ 20,465 $ (539) $(13,800) $ (895)(M) ======== ======== ======== ======= ======== ======== Net income (loss) per common share(N)......... $ (0.11) $ (0.02)(M) ======== ======== Weighted average number of common shares and common share equivalents outstanding............. 28,793 43,721 (M) ======== ========
See notes on following page. F-63 - -------- (A) Represents the pro forma results of operations of Operating Company for the year ended December 31, 1996 which reflects the Merger and the related transactions. (B) Represents adjustments to Operating Company's results of operations assuming the Crow Properties Acquisition had occurred at the beginning of the period presented. One of the hotels was closed during 1996 due to renovation. As a result, the pro forma results of operations for the Crow Properties Acquisition reflects the results of operations for ten hotels for the year ended December 31, 1996. (C) Represents adjustments to Operating Company's results of operations assuming the Wyndham Acquisition had been consummated at the beginning of the period presented. (D) Represents adjustments to Operating Company's results of operations assuming the two hotels currently leased by Crow Hotel Lessee, Inc. (the "Wyndham Lessee") were leased by Operating Company at the beginning of the period presented. (E) Represents the elimination of management fees for the hotels previously leased to the Wyndham Lessee which are assumed to be leased by Operating Company and managed by a New Wyndham Entity. (F) Represents pro forma lease expense related to the sub-lease agreement with the Corporation for those hotel properties leased by the Corporation from third party owners. (G) Represents incremental general and administrative expenses expected to be incurred by Operating Company. (H) Represents adjustments to depreciation of furniture and equipment and amortization of goodwill, tradenames and franchise-related intangible assets. Depreciation is computed using the straight-line method and is based upon the estimated useful lives of 5 to 7 years for F, F & E. Amortization of goodwill, tradenames and franchise costs is computed using the straight-line method over a 40-year estimated useful life. Amortization of management contracts is computed using the straight-line method over the 14.6-year average remaining term of the related franchise agreements. (I) Represents lease payments from Operating Company to the Corporation calculated on a pro forma basis by applying the provisions of the Participating Leases to the historical revenue of the hotels for the period presented. (J) Represents adjustments to Operating Company's estimated federal and state tax provision for the Wyndham Transactions. (K) Represents the adjustments to minority interest to reflect the estimated minority interest percentage subsequent to the Wyndham Transactions of approximately 9.8%. The estimated minority interest percentage subsequent to the Merger (and prior to the Wyndham Transactions) is approximately 14.0%. (L) Represents adjustment for minority interest in the New Wyndham Entities held by the Corporation. (M) The pro forma amounts presented assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. If the maximum number of shares of Wyndham Common Stock are purchased for cash (based on total funds available of $100,000, an estimated market price per paired share of $42.61, based upon the average closing price for the five days prior to May 12, 1997, of Patriot's Common Stock averaging $22.12, and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock), pro forma net loss would be $(890), and net loss per common share would be $(0.02), based on 41,375 weighted average number of common shares and common share equivalents outstanding. (N) In February 1997, the Financial Accounting Standards Board issued Statement 128 which specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Management believes that adoption of Statement 128 will not have a material effect on the earnings per share of Operating Company. F-64 OPERATING COMPANY ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
ADJUSTMENTS OPERATING ------------------------------------------ COMPANY CROW PROPERTIES WYNDHAM PRO FORMA ACQUISITION ACQUISITION WYNDHAM PRO FORMA TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL ----------- --------------- ------------ ------------ ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue: Room revenue........... $13,177 $20,031 $28,576 $4,496 $ -- $ 66,280 Food and beverage...... 5,891 10,311 11,060 2,337 -- 29,599 Club and spa revenue... 8,706 -- -- -- -- 8,706 Pari-mutuel revenue.... 17,099 -- -- -- -- 17,099 Other racing income.... 3,170 -- -- -- -- 3,170 Management fees........ -- -- 6,098 -- (1,289)(E) 4,809 Club membership revenue............... 348 -- -- -- -- 348 Shopping center revenue............... 474 -- -- -- -- 474 Service fees........... -- -- 1,062 -- -- 1,062 Reimbursement income... -- -- 3,370 -- -- 3,370 Telephone and other hotel revenue......... 3,769 2,598 2,688 490 -- 9,545 Interest and other income................ 690 -- 631 -- -- 1,321 ------- ------- ------- ------ ------- -------- Total revenue.......... 53,324 32,940 53,485 7,323 (1,289) 145,783 ------- ------- ------- ------ ------- -------- Expenses: Departmental costs-- hotel, club and spa operations............ 13,828 13,298 14,641 2,614 -- 44,381 Operating expense...... -- -- 4,243 -- -- 4,243 Service department expenses.............. -- -- 1,152 -- -- 1,152 Reimbursement expenses.............. -- -- 3,370 -- -- 3,370 Direct operating costs of Racecourse facilities............ 6,608 -- -- -- -- 6,608 Purses and incentive awards................ 7,240 -- -- -- -- 7,240 Commissions, concessions costs and racing facility rental................ 3,101 -- -- -- -- 3,101 General and administrative........ 2,591 2,841 2,642 729 50 (G) 8,853 Sublease for GHALP Hotels................ -- -- -- -- 5,429 (F) 5,429 Repair and maintenance........... 2,247 1,346 1,636 270 -- 5,499 Utilities.............. 949 1,304 1,577 259 -- 4,089 Marketing.............. 1,870 2,502 2,951 456 -- 7,779 Management fees........ 1,482 1,050 -- 239 (1,289)(E) 1,482 Depreciation and amortization.......... 268 -- 2,559 -- 1,630 (H) 4,457 Participating lease payments.............. 9,428 10,851 (I) 5,263 (I) 2,565 (I) -- 28,107 Interest expense....... 319 -- -- -- -- 319 Real estate and personal property taxes and casuality insurance ............ 129 -- -- -- -- 129 General liability insurance ............ 252 97 612 33 -- 994 Foreign currency exchange.............. -- -- (6) -- -- (6) Other.................. -- 39 (47) 54 (54) (8) ------- ------- ------- ------ ------- -------- Total expenses......... 50,312 33,328 40,593 7,219 5,766 137,218 ------- ------- ------- ------ ------- -------- Income (loss) before income tax provision and minority interests.............. 3,012 (388) 12,892 104 (7,055) 8,565 Income tax (provision) benefit............... (1,205) -- (2,992)(J) -- 166 (J) (4,031) ------- ------- ------- ------ ------- -------- Income (loss) before mi- nority interests....... 1,807 (388) 9,900 104 (6,889) 4,534 Minority interest in the Operating Partnership........... (253) 38 (K) (970)(K) (10)(K) 845 (K) (350) Minority interest in consolidated subsidiaries.......... -- -- -- -- (963)(L) (963) ------- ------- ------- ------ ------- -------- Net income (loss) applicable to common shareholders........... $ 1,554 $ (350) $ 8,930 $ 94 $(7,007) $ 3,221 (M) ======= ======= ======= ====== ======= ======== Net income per common share(N)............... $ 0.05 $ 0.07 (M) ======= ======== Weighted average number of common shares and common share equivalents outstanding............ 29,074 44,214 (M) ======= ========
See notes on following page. F-65 - -------- (A) Represents the pro forma results of operations of Operating Company for the three months ended March 31, 1997 which reflects the Merger and the related transactions. (B) Represents adjustments to Operating Company's results of operations assuming the Crow Properties Acquisition had occurred at the beginning of the period presented. One of the hotels was closed during 1996 due to renovation. As a result, the pro forma results of operations for the Crow Properties Acquisition reflects the results of operations for ten hotels for the year ended December 31, 1996. (C) Represents adjustments to Operating Company's results of operations assuming the Wyndham Acquisitions had been consummated at the beginning of the period presented. (D) Represents adjustments to Operating Company's results of operations assuming the two hotels currently leased by Wyndham Lessee has been leased by Operating Company at the beginning of the period presented. (E) Represents the elimination of management fees for the hotels previously leased to the Wyndham Lessee which are assumed to be leased by Operating Company and managed by a New Wyndham Entity. (F) Represents pro forma lease expense related to the sub-lease agreement with the Corporation for those hotel properties leased by the Corporation from third party owners. (G) Represents incremental general and administrative expenses expected to be incurred by Operating Company. (H) Represents adjustments to depreciation of furniture and equipment and amortization of goodwill, tradenames and franchise-related intangible assets. Depreciation is computed using the straight-line method and is based upon the estimated useful lives of 5 to 7 years for F, F & E. Amortization of goodwill, tradenames and franchise costs is computed using the straight-line method over a 40-year estimated useful life. Amortization of management contracts is computed using the straight-line method over the 14.6-year average remaining term of the related franchise agreements. (I) Represents lease payments from Operating Company to the Corporation calculated on a pro forma basis by applying the provisions of the Participating Leases to the historical revenue of the hotels for the period presented. (J) Represents adjustments to Operating Company's estimated federal and state tax provision for the Wyndham Transactions. (K) Represents the adjustments to minority interest to reflect the estimated minority interest percentage subsequent to the Wyndham Transactions of approximately 9.8%. The estimated minority interest percentage subsequent to the Merger (and prior to the Wyndham Transactions) is approximately 14.0%. (L) Represents adjustment for minority interest in the New Wyndham Entities held by the Corporation. (M) The pro forma amounts presented assume all of the outstanding Wyndham Common Stock is exchanged for shares of Paired Common Stock. If the maximum number of shares of Wyndham Common Stock are purchased for cash (based on total funds available of $100,000, an estimated market price per paired share of $42.61, based upon the average closing price for the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham Exchange Ratio equal to 0.712 shares of Paired Common Stock for each share of Wyndham Common Stock), pro forma net income would be $3,203, and net income per common share would be $0.08, based on 41,868 weighted average number of common shares and common share equivalents outstanding. (N) In February 1997, the Financial Accounting Standards Board issued Statement 128 which specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Management believes that adoption of Statement 128 will not have a material effect on the earnings per share of Operating Company. F-66 COMBINED LESSEES ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS As of March 31, 1997, Patriot leased each of its hotels, except the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel, which are separately owned through special purpose non-controlled subsidiaries, to Lessees. The Combined Lessees subsequent to the Wyndham Transactions and the Merger and the related transactions are expected to consist of CHC Lease Partners which leases 25 hotels, NorthCoast Hotels, L.L.C. (the "NorthCoast Lessee") which leases 9 hotels, DTR North Canton, Inc. (the "Doubletree Lessee") which leases 6 hotels, Metro Hotels Leasing Corporation ("Metro Lease Partners") which leases 1 hotel and Grand Heritage Leasing, L.L.C. (the "Grand Heritage Lessee") which leases 3 hotels. With respect to the hotels leased to PAH RSI, L.L.C. ("PAH RSI Lessee") subsequent to completion of the Merger and the related transactions, the Operating Company expects to acquire the membership interests in PAH RSI Lessee. With respect to the two hotels currently leased to Crow Hotel Lessee, Inc. (the "Wyndham Lessee") (the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel), subsequent to the completion of the Wyndham Transactions, the Corporation expects to terminate its leases with Wyndham Lessee and re-lease such hotels to Operating Company. The Participating Leases provide for staggered terms of ten to twelve years and the payment of the greater of base or participating rent, plus certain additional charges, as applicable. The following Combined Lessees' unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1996 and the three months ended March 31, 1997 are presented as if the hotels that Patriot leased as of March 31, 1997 to the Combined Lessees pursuant to Participating Leases had been leased as of January 1, 1996. Six of the hotels leased to PAH RSI Lessee (excluding the Sheraton Park Place Hotel which was acquired in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort which was acquired by Patriot in May 1997) and the two hotels leased to Wyndham Lessee are assumed to have been leased to Operating Company and, therefore, have been eliminated from the Pro Forma Condensed Combined Statements of Operations for the Combined Lessees. The pro forma information is based in part upon the Statements of Operations of CHC Lease Partners, the Statement of Operations of NorthCoast Lessee and the Statement of Operations of PAH RSI Lessee and the Pro Forma Statement of Operations of the Combined Lessees filed with the Corporation's and the Operating Company's Current Report on Form 8-K dated July 1, 1997. In management's opinion, all material adjustments necessary to reflect the effects of these transactions have been made. The unaudited Pro Forma Condensed Combined Statements of Operations are not necessarily indicative of what the actual results of operations of the Combined Lessees would have been assuming such transactions had been completed as of the beginning of the periods presented, nor do they purport to represent the results of operations for future periods. Further, the unaudited Pro Forma Condensed Combined Statement of Operations for the interim period ended March 31, 1997 is not necessarily indicative of the results of operations for the full year. F-67 COMBINED LESSEES ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
COMBINED LESSEES WYNDHAM PRO FORMA LESSEE PRO FORMA TOTAL(A) PRO FORMA(B) TOTAL --------- ------------ --------- (IN THOUSANDS) Revenue: Room.................................... $222,051 $(16,228) $205,823 Food and beverage....................... 85,489 (8,379) 77,110 Conference center....................... 2,354 -- 2,354 Telephone and other..................... 21,919 (1,931) 19,988 -------- -------- -------- Total revenue........................ 331,813 (26,538) 305,275 -------- -------- -------- Expenses: Departmental costs and expenses......... 130,581 (9,949) 120,632 General and administrative.............. 31,549 (2,971) 28,578 Ground lease expense.................... 2,064 -- 2,064 Repair and maintenance.................. 16,415 (1,144) 15,271 Utilities............................... 15,711 (1,055) 14,656 Marketing............................... 29,315 (1,738) 27,577 Interest expense........................ 3 -- 3 Insurance............................... 2,225 (235) 1,990 Participating lease payments............ 104,603 (C) (9,019) 95,584 -------- -------- -------- Total expenses....................... 332,466 (26,111) 306,355 -------- -------- -------- Income (loss) before lessee income (expense)............................... (653) (427) (1,080) -------- -------- -------- Dividend and interest income............. 1,543 (D) -- 1,543 Management fees.......................... (7,070)(E) 926 (6,144) Lessee general and administrative........ (1,676)(F) 99 (1,577) -------- -------- -------- (7,203) 1,025 (6,178) -------- -------- -------- Net loss................................. $ (7,856) $ 598 $ (7,258) ======== ======== ========
- -------- (A) The Combined Lessees pro forma results of operations represent the combined pro forma operating results of the Lessees after consummation of the Merger and the related transactions. These Lessees' pro forma results of operations include (i) the combined historical results of operations of CHC Lease Partners and Metro Lease Partners for the year ended December 31, 1996 and the combined historical results of operations of NorthCoast Lessee, Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the period from their respective inception of operations through December 31, 1996 and (ii) adjustments to the combined Lessees results of operations assuming the 46 hotels leased by Patriot to the Lessees as of March 31, 1997 (excluding six of the hotel properties leased to PAH RSI Lessee as of March 31, 1997 and excluding the Sheraton Park Place Hotel acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by Patriot in May 1997) had been leased at the beginning of the period presented. (B) Represents the elimination of the pro forma results of operations for the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are currently leased to the Wyndham Lessee and which, following the Wyndham Transactions, are expected to be leased to Operating Company. (C) Represents lease payments calculated on a pro forma basis by applying the provisions of the Participating Leases to the historical revenue of the hotels. (D) Includes dividend income on OP Units in the Realty Partnership which form a portion of the required capitalization of CHC Lease Partners and NorthCoast Lessee, respectively. Pro forma amounts exclude additional dividend income earned on OP Units held by certain Lessees, and pro forma interest income earned on invested cash balances. (E) Represents pro forma management fees paid to the Operators under the terms of their respective management agreements with the Lessees. (F) Represents pro forma overhead expenses, which include an estimate of the Lessees' salaries and benefits, professional fees, insurance costs and administrative expenses. F-68 COMBINED LESSEES ADJUSTED FOR THE WYNDHAM TRANSACTIONS PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
COMBINED LESSEES WYNDHAM PRO FORMA LESSEE PRO FORMA TOTAL(A) PRO FORMA(B) TOTAL --------- ------------ --------- (IN THOUSANDS) Revenue: Room..................................... $56,685 $(4,496) $52,189 Food and beverage........................ 22,000 (2,337) 19,663 Conference center........................ 748 -- 748 Telephone and other...................... 5,431 (490) 4,941 ------- ------- ------- Total revenue......................... 84,864 (7,323) 77,541 ------- ------- ------- Expenses: Departmental costs and expenses.......... 32,504 (2,614) 29,890 General and administrative............... 7,683 (729) 6,954 Ground lease expense..................... 320 -- 320 Repair and maintenance................... 4,075 (270) 3,805 Utilities................................ 3,673 (259) 3,414 Marketing................................ 7,676 (456) 7,220 Insurance................................ 501 (33) 468 Participating lease payments............. 27,123 (C) (2,565) 24,558 ------- ------- ------- Total expenses........................ 83,555 (6,926) 76,629 ------- ------- ------- Income (loss) before lessee income (expense)................................ 1,309 (397) 912 ------- ------- ------- Dividend and interest income.............. 945 (D) -- 945 Management fees........................... (1,635)(E) 239 (1,396) Lessee general and administrative......... (455)(F) 54 (401) ------- ------- ------- (1,145) 293 (852) ------- ------- ------- Net income (loss)......................... $ 164 $ (104) $ 60 ======= ======= =======
- -------- (A) The Combined Lessees' pro forma results of operations represent the combined pro forma operating results of the Lessees after consummation of the Merger and the related transactions. These Lessees' pro forma results of operations include (i) the combined historical results of operations of CHC Lease Partners, Metro Lease Partners, NorthCoast Lessee, Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the three months ended March 31, 1997 and (ii) adjustments to the combined Lessees results of operations assuming the 46 hotels leased by Patriot to the Lessees as of March 31, 1997 (excluding six of the hotel properties leased to PAH RSI Lessee as of March 31, 1997 and excluding the Sheraton Park Place Hotel acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by Patriot in May 1997) had been leased at the beginning of the period presented. (B) Represents the elimination of the pro forma results of operations for the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are currently leased to the Wyndham Lessee and which, following the Wyndham Transactions, are expected to be leased to Operating Company. (C) Represents lease payments calculated on a pro forma basis by applying the provisions of the Participating Leases to the historical revenue of the hotels. (D) Includes dividend income on OP Units in the Realty Partnership which form a portion of the required capitalization of CHC Lease Partners and NorthCoast Lessee, respectively. Pro forma amounts exclude additional dividend income earned on OP Units held by certain Lessees, and pro forma interest income earned on invested cash balances. (E) Represents pro forma management fees paid to the Operators under the terms of their respective management agreements with the Lessees. (F) Represents pro forma overhead expenses, which include an estimate of the Lessees' salaries and benefits, professional fees, insurance costs and administrative expenses. F-69 PATRIOT AMERICAN HOSPITALITY, INC. AND PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY EXHIBIT INDEX Exhibit Number Description - ------- ----------------------------------- 2.1 Agreement and Plan of Merger, dated as of April 14, 1997, between Patriot American Hospitality, Inc. and Wyndham Hotel Corporation (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 2.2 Stock Purchase Agreement, dated as of April 14, 1997, between Patriot American Hospitality, Inc. and CF Securities, L.P. (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 2.3 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by and among the Crow Family Entities and Patriot American Hospitality Partnership, L.P. (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 2.4 Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of April 18, 1997 between Patriot American Hospitality, Inc. and PW Acquisitions IV, LLC. (incorporated by reference from the Registration Statement on Form S-4 (File No. 333-28085 and 333-28085-01) dated May 30,1997 of the Corporation (formerly known as California Jockey Club) and the Operating Company (formerly known as Bay Meadows Operating Company) 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Arthur Andersen LLP 99.1 Ratio of Earnings to Fixed Charges EX-23.1 2 CONSENT OF COOPERS & LYBRAND L.L.P. EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of Patriot American Hospitality, Inc. and Patriot American Hospitality Operating Company on Form S-3 (File No. 333-29671) of our report dated February 19, 1997, on our audits of the consolidated financial statements of Wyndham Hotel Corporation as of December 31, 1996 and 1995 and for each of the years ended December 31, 1996, 1995 and 1994, which report in the December 31, 1996 included in this current report on Form 8-K dated July 22, 1997. /s/ COOPERS & LYBRAND L.L.P. Dallas, Texas July 22, 1997 EX-23.2 3 CONSENT OF ARTHUR ANDERSEN L.L.P. EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS As Independent Public Accountants, we hereby consent to the incorporation by reference in the Registration Statement of Patriot American Hospitality, Inc. and Patriot American Hospitality Operating Company on Form S-3 (File No. 333- 29671) of our report dated May 6, 1997, on our audits of the combined financial statements of Crow Family Hotel Partnerships as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996 and use of our report (and to all references to our Firm) included in this Current Report on Form 8-K dated July 22, 1997. /s/ ARTHUR ANDERSEN LLP Dallas, Texas July 21, 1997 EX-99.1 4 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 99.1 RATIO OF EARNINGS TO FIXED CHARGES PATRIOT AMERICAN HOSPITALITY, INC. (PATRIOT) (in thousands)
3 Months Year Inception Ended Ended Through 03/31/97 12/31/96 12/31/95 -------- -------- --------- Earnings: Income before minority interest $13,780 $44,813 $7,064 Add back: fixed charges 7,888 7,471 89 -------------------------------- $21,668 $52,284 $7,153 ================================ Fixed Charges: Interest expense, including amort of DLC $ 7,805 $ 7,380 $ 89 Capitalized interest 83 91 - -------------------------------- $ 7,888 $ 7,471 $ 89 ================================ Ratio: 2.75 7.00 80.37 ================================
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