-----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, Br6LLykZQIwGliDeKXJkqvZA3YdDLRXA2BayGpvWflEYNpCPZmd9BLW5LAlpuCBN uYlg1ch1C53FJTeeWeORaA== 0000930661-98-000316.txt : 19980217 0000930661-98-000316.hdr.sgml : 19980217 ACCESSION NUMBER: 0000930661-98-000316 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980209 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY INC/DE CENTRAL INDEX KEY: 0000016343 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942872485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09319 FILM NUMBER: 98534781 BUSINESS ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2148631000 MAIL ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 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: WYNDHAM INTERNATIONAL INC CENTRAL INDEX KEY: 0000715273 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 942878485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09320 FILM NUMBER: 98534782 BUSINESS ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2148631000 MAIL ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY OPERATING CO\DE DATE OF NAME CHANGE: 19970723 FORMER COMPANY: FORMER CONFORMED NAME: BAY MEADOWS OPERATING CO DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K 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) FEBRUARY 9, 1998 COMMISSION FILE NUMBER 1-9319 COMMISSION FILE NUMBER 1-9320 PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC. - ------------------------------------ ------------------------------------ (Exact name of registrant as (Exact name of registrant as specified in its charter) specified in its charter) DELAWARE DELAWARE - ------------------------------------ ------------------------------------ (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 94-0358820 94-2878485 - ------------------------------------ ------------------------------------ (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 1950 STEMMONS FREEWAY, SUITE 6001 1950 STEMMONS FREEWAY, SUITE 6001 DALLAS, TEXAS 75207 DALLAS, TEXAS 75207 - ------------------------------------ ------------------------------------ (Address of principal (Address of principal executive offices) (Zip Code) executive offices) (Zip Code) (214) 863-1000 (214) 863-1000 - ------------------------------------ ------------------------------------ (Registrant's telephone number, (Registrant's telephone number, including area code) including area code) - ------------------------------------ ------------------------------------ (Former name, former address and (Former name, former address and former fiscal year, if changed former fiscal year, if changed since last report) since last report) PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. ITEM 5. OTHER EVENTS Patriot American Hospitality, Inc. ("Patriot"), Wyndham International, Inc. ("Wyndham International") and CHC International, Inc. ("CHCI") entered into an Agreement and Plan of Merger dated as of September 30, 1997, providing, subject to regulatory approvals, for the merger of the hospitality-related businesses of CHCI with and into Wyndham International with Wyndham International being the surviving company (the "CHCI Merger"). Subject to regulatory approvals, CHCI's gaming operations will be transferred to a new legal entity prior to the CHCI Merger and such operations will not be a part of the transaction. It is anticipated that the CHCI Merger will be consummated in the first or second quarter of 1998, although the precise timing is subject to receipt of all necessary regulatory approvals. The financial statements of CHCI as of and for the fiscal years ended November 30, 1995, 1996 and 1997 (unaudited) have been included in this Joint Current Report on Form 8-K of Patriot and Wyndham International. On February 12, 1998, Patriot and Wyndham International announced fourth quarter 1997 and year end 1997 operating results. A copy of the press release dated February 12, 1998 is attached hereto as Exhibit 99.1 and is incorporated herein by reference. ITEM 7. EXHIBITS Exhibit No. Description - ----------- ----------- 99.1 Press Release dated February 12, 1998, Patriot American Hospitality, Inc. and Wyndham International, Inc. Announce Fourth Quarter and Year-End Operating Results SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrants have duly caused the report to be signed on their behalf by the undersigned thereunto duly authorized. DATED: February 12, 1998 PATRIOT AMERICAN HOSPITALITY, INC. By: /s/ Anne L. Raymond ------------------------------------------- Anne L. Raymond Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) WYNDHAM INTERNATIONAL, INC. By: /s/ Rex E. Stewart ------------------------------------------- Rex E. Stewart Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) [LETTERHEAD OF PRICE WATERHOUSE LLP APPEARS HERE] Report of Independent Certified Public Accountants -------------------------------------------------- To the Board of Directors and Shareholders of CHC International, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of the hospitality division of CHC International, Inc. at November 30, 1995 and 1996, and the results of operations and its cash flows for the years ended November 30, 1995 and 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements were prepared on the basis of presentation as described in Note 1. /s/ PRICE WATERHOUSE LLP Price Waterhouse, L.L.P. Miami, Florida October 3, 1997 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
November 30, ------------ 1995 1996 1997 ---- ---- ---- ASSETS (unaudited) ------ Current Assets Cash and cash equivalents $ 1,105 $ 1,627 $ 8,907 Trade accounts receivable , net of allowance for doubtful accounts of $1,352, $699 and $669 at November 30, 1995, 1996 and 1997, respectively 1,150 1,482 7,817 Trade accounts receivable - affiliates, net of allowance for doubtful accounts of $488, $716 and $1,135 at November 30, 1995, 1996 and 1997, respectively 1,261 1,108 1,244 Notes receivable - affiliates and officers 340 480 1,036 Receivables, net 7,200 -- -- Deferred income tax -- -- 9,386 Other current assets 713 921 2,119 -------- -------- -------- Total current assets 11,769 5,618 30,509 Property and equipment, net 623 669 1,718 Investments in and advances to affiliates 8,324 8,457 8,424 Receivables, net 1,900 1,900 1,950 Receivables - affiliates and officers -- -- 2,656 Deferred income tax -- -- 1,114 Deferred charges, net 1,932 1,609 933 Intangibles, net 6,716 6,047 5,472 Other assets 1,859 1,939 2,353 -------- -------- -------- Total Assets $ 33,123 $ 26,239 $ 55,129 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- Current Liabilities Accounts payable $ 903 $ 672 $ 4,606 Due to affiliates and officers 1,069 1,617 9,144 Deferred compensation plan liability -- -- 5,374 Accrued interest 70 414 37 Accrued expenses 5,204 5,878 16,680 Current portion of long-term debt and capital lease obligations 1,566 12,069 13,457 -------- -------- -------- Total current liabilities 8,812 20,650 49,298 Deferred compensation plan liability 5,537 6,102 2,494 Long-term debt 17,272 5,459 1,360 Due to affiliates -- -- 4,995 Other liabilities 1,710 108 179 -------- -------- -------- Total liabilities 33,331 32,319 58,326 -------- -------- -------- Commitments and contingencies (Note 11) -- -- -- Stockholders' Equity (Deficit) Preferred stock, $.01 par value; 1,000 shares authorized; no shares issued or outstanding -- -- -- Common stock, $.005 par value; 20,000 shares authorized; 10,355, 10,621 and 10,621 shares issued and outstanding at November 30, 1995, 1996 and 1997, respectively 52 53 53 Additional paid-in capital 17,050 13,853 16,112 Accumulated deficit (10,217) (12,012) (11,663) Notes receivable stock purchases - affiliates (6,686) (7,675) (7,675) Unearned compensation (407) (299) (24) -------- -------- -------- Total stockholders (deficit) (208) (6,080) (3,197) -------- -------- -------- Total liabilities and stockholders' equity (deficit) $ 33,123 $ 26,239 $ 55,129 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-1 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION STATEMENTS OF OPERATIONS (IN THOUSANDS)
Year Ended November 30, ------------- 1995 1996 1997 ---- ---- ---- (Unaudited) Revenues Rooms $ 4,638 $ 5,282 $ 25,331 Food and beverage 3,907 4,351 15,953 Management service fees - from affiliates 5,212 4,284 5,703 Management service fees - from non-affiliates 5,391 4,748 4,773 -------- -------- -------- Total revenues 19,148 18,665 51,760 -------- -------- -------- Operating Expenses Rooms 1,075 1,223 5,553 Food and beverage 2,386 2,772 8,883 Participating lease payments -- -- 10,251 Other costs and expenses 14,455 14,097 26,849 Depreciation and amortization 832 853 1,045 -------- -------- -------- Total operating expenses 18,748 18,945 52,581 -------- -------- -------- Income (loss) from operations before equity in net earnings (losses) of affiliates 400 (280) (821) Equity in net earnings of affiliates 355 1,003 (346) -------- -------- -------- Income (losses) from operations 755 723 (1,167) -------- -------- -------- Other Income (Expense) Interest income 1,720 686 846 Interest expense (2,365) (3,304) (2,340) Loss on impairment of notes receivable (4,431) -- -- Transaction and other costs -- -- (8,800) Other income (expense) (104) 29 1,298 -------- -------- -------- Total other income (expense) (5,180) (2,589) (8,996) Minority interests 148 163 108 -------- -------- -------- Loss before provision (benefit) for income taxes (4,277) (1,703) (10,055) Provision (benefit) for income taxes 131 92 (10,404) -------- -------- -------- Net income (loss) $ (4,408) $ (1,795) $ 349 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-2 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED NOVEMBER 30, 1995 AND 1996 AND YEAR ENDED NOVEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS)
Notes Receivable Total Common Stock Additional Stock Stockholders' ------------ Paid-in Accumulated Purchases- Unearned Equity Shares Amount Capital Deficit Affiliates Compensation (Deficit) ------ ------ ------- ------- ---------- ------------ --------- Balance, November 30, 1994 10,355 $ 52 $ 22,645 $ (5,809) $ (7,350) $ (523) $ 9,015 Receipts from notes receivable stock purchases - affiliates -- -- -- -- 664 -- 664 Amortization of unearned compensation -- -- -- -- -- 116 116 Net change in gaming division -- -- (5,595) -- -- -- (5,595) intercompany account Net loss -- -- -- (4,408) -- -- (4,408) -------- -------- -------- -------- -------- --------- -------- Balance, November 30, 1995 10,355 52 17,050 (10,217) (6,686) (407) (208) -------- -------- -------- -------- -------- --------- -------- Additional common shares issued 266 1 2,999 -- (3,000) -- -- Receipts from notes receivable stock purchases - affiliates -- -- -- -- 2,011 -- 2,011 Amortization of unearned compensation -- -- -- -- -- 108 108 Net change in gaming division -- -- (6,196) -- -- -- (6,196) intercompany account Net loss -- -- -- (1,795) -- -- (1,795) -------- -------- -------- -------- -------- --------- -------- Balance, November 30, 1996 10,621 53 13,853 (12,012) (7,675) (299) (6,080) -------- -------- -------- -------- -------- --------- -------- Amortization of unearned compensation -- -- -- -- -- 275 275 Net change in gaming division -- -- 2,259 -- -- -- 2,259 intercompany account Net income -- -- -- 349 -- -- 349 -------- -------- -------- -------- -------- --------- -------- Balance, November 30, 1997 (unaudited) 10,621 $ 53 $ 16,112 $(11,663) $ (7,675) $ (24) $ (3,197) ======== ======== ======== ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-3 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION STATEMENTS OF CASH FLOWS (IN THOUSANDS) (PAGE 1 OF 2)
Year Ended November 30, ------------ 1995 1996 1997 ---- ---- ---- (Unaudited) Cash flows from operating activities: Net income (loss) $ (4,408) $ (1,795) $ 349 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Provision (benefit) for losses or impairments on receivables and equity investments 5,765 (212) 96 Depreciation and amortization 832 853 1,045 Amortization of deferred charges 844 1,533 949 Undistributed equity in net earnings of affiliates (355) (1,003) 346 Minority interests (148) (163) (108) Gain on sale of hotel investments -- -- (1,245) Change in assets and liabilities: (Increase) decrease in: Trade accounts receivable (292) 313 (450) Trade accounts receivable - affiliates (796) 227 428 Deferred income tax -- -- (10,500) Deferred charges (28) (1,084) 88 Other assets and other receivables (964) (707) 1,675 Increase (decrease) in: Accounts payable (667) (231) 24 Accrued interest 37 344 (277) Accrued expenses (239) (822) 4,466 Deferred compensation plan liability 600 565 1,766 Other liabilities (34) 56 181 -------- -------- -------- Net cash provided (used) by operating activities 147 (2,126) (1,167) -------- -------- -------- Cash flows from investing activities: Sales of notes receivable -- 7,200 -- Purchases of property and equipment (168) (134) (1,470) Investments in and advances to affiliates (2,645) (50) (1,089) Cash and cash equivalents from consolidation of CHC Lease Partners -- -- 8,830 Sales of or distributions from investments in affiliates 959 834 1,959 Project loans and advances (1,900) -- (2,160) -------- -------- -------- Net cash flows (used) provided by investing activities (3,754) 7,850 6,070 -------- -------- -------- Cash flows from financing activities: Receipts from notes receivable stock purchases - affiliates 7,756 2,011 -- Increase (decrease) in due to affiliates (1,145) 408 (919) Borrowings 2,900 500 2,880 Payments of debt and capital lease obligations and other deferred charges (577) (1,926) (1,843) Net change in gaming division intercompany account (5,595) (6,195) 2,259 -------- -------- -------- Net cash flows provided (used) by financing activities 3,339 (5,202) 2,377 -------- -------- -------- Net increase (decrease) in cash and equivalents (268) 522 7,280 Cash and cash equivalents at beginning of year 1,373 1,105 1,627 -------- -------- -------- Cash and cash equivalents at end of year $ 1,105 $ 1,627 $ 8,907 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-4 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION STATEMENTS OF CASH FLOWS (IN THOUSANDS) (PAGE 2 OF 2)
Year Ended November 30, ------------ 1995 1996 1997 ---- ---- ---- (Unaudited) Supplemental disclosure of cash flow information: Cash paid during the period for interest (net of amount capitalized) $ 1,626 $ 1,718 $ 1,438 ======== ======== ======== Cash paid during the period for income taxes $ 96 $ 89 $ 40 ======== ======== ======== Cash received during the period for income taxes $ 29 $ 36 ======== ======== Supplemental Schedule of noncash investing and financing activities: Investments in Affiliates: Loan for purchase of interest in GAH-II, L.P. $ 3,750 Loan for investment in CHC Lease Partners 1,088 Operating partnership units received as payment of interest 572 Operating partnership units received as payment of notes receivable stock purchases - affiliates 388 -------- Total investments in affiliates $ 5,798 ======== Consolidation of CHC Lease Partners: Cash and cash equivalents $ 8,830 Non-cash assets 14,459 Liabilities (17,401) -------- Net assets 5,888 Net assets distributed to Gencom Lessee, L. P (2,944) -------- Net assets consolidated $ 2,944 ======== Other: Common stock issued for notes receivable stock purchase-affiliates $ 3,000 ======== Capital leases $ 166 $ 41 ======== ========
The accompanying notes are an integral part of these financial statements F-5 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- The financial statements of CHC International, Inc. - Hospitality Division (the "Company") have been prepared pursuant to the Agreement and Plan of Merger by and among Wyndham International, Inc. (formerly Patriot American Hospitality Operating Company) ("Wyndham"), Patriot American Hospitality, Inc. ("PAH") and CHC International, Inc. ("CHC") dated as of September 30, 1997 (the "Merger Agreement"). The Merger Agreement contemplates, subject to appropriate approvals, (i) CHC's contribution of its gaming business to a wholly-owned subsidiary ("Spinco"), (ii) CHC's distribution of all of the common stock of Spinco to the stockholders of CHC pro rata based on their ownership in CHC, (iii) CHC's retention of its hospitality business and (iv) CHC merging into Wyndham subsequent to the distribution of Spinco. CHC's major operations consist of (i) the hospitality business including managing, leasing and developing of and investing in hotel and resort properties and (ii) the gaming business including owning, managing and developing casino properties. The financial statements have been prepared as if the Company has operated as an independent, stand alone entity for all periods presented and give no effect to the net changes of assets and liabilities contemplated by the Merger Agreement. Such financial statements have been prepared using the historical basis of accounting and include all of the assets, liabilities, revenues and expenses previously included in CHC's consolidated financial statements prior to the transactions contemplated by the Merger Agreement, except for all the assets, liabilities, (including contingent liabilities), revenues and expenses of the gaming business of CHC and its subsidiaries. Consequently, these financial statements include certain balances for goodwill and other assets and liabilities related to the Company that were previously included in CHC's consolidated financial statements including (i) the allocation of certain fixed assets and related depreciation expense, (ii) notes receivable and borrowings and related interest income and expense and (iii) other liabilities and related expenses. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 55 ("SAB 55"), the Company's financial statements exclude certain corporate expenses incurred by CHC on the gaming division's behalf. The Company's fiscal year ends on November 30. All significant intercompany balances and transactions have been eliminated. Investments in less than majority-owned non-gaming businesses, in which a significant equity ownership interest is held, are accounted for on the equity method. Summary of Significant Accounting Policies - ------------------------------------------ These financial statements have been prepared in accordance with generally accepted accounting principles. Significant accounting policies are summarized below. F-6 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Accounting Estimates - -------------------- 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition - ------------------- Hotel room and food and beverage revenues and expenses from leased hotel operations are included in the statements of operations during the lease term. Revenues from rooms and food and beverage sales are recognized at the time the related service is performed. Revenue from management service fees for management of hotels are based upon contracted terms and are recognized when the services are performed. Reimbursed Operating Expenses - ----------------------------- The Company is fully reimbursed by certain managed hotels for salaries and related costs for hotel personnel employed by the Company in accordance with management contract terms and the administration of services consisting primarily of sales, marketing and reservations. These costs amounted to $47,324 and $50,237 for the years ended November 30, 1995 and 1996, respectively. All such costs and related reimbursements have been netted in the statements of operations, with reimbursable amounts and accrued salaries and related costs reflected as trade accounts receivable and accrued expenses, respectively, in the balance sheets. During the year ended November 30, 1995 the Company was reimbursed for $1,400 of costs incurred in conjunction with an unconsummated transaction previously expensed in the statements of operations during the period inception (February 3, 1994) to November 30, 1994. Stock Based Compensation - ------------------------ In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation". SFAS No. 123, the disclosure provisions of which must be implemented for fiscal years beginning subsequent to December 15, 1995, establishes a fair value based method of accounting for stock based compensation plans, the effect of which can either be disclosed or recorded. The Company intends to adopt the provisions of SFAS No. 123 in fiscal 1997 and upon adoption intends to retain its intrinsic value method of accounting for stock based compensation. F-7 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include short-term investments with original purchase maturities of 90 days or less. Trade Accounts Receivable and Trade Accounts Receivable - Affiliates - -------------------------------------------------------------------- Trade accounts receivable are from non-affiliated hotels under management and lease, and hotel customers. Trade accounts receivable - affiliates are receivables from hotel or other entities in which the Company, CHC, its stockholders or officers have an investment interest. The Company provides an allowance for doubtful accounts based upon a periodic review of outstanding receivables and evaluation of aggregate collectibility. Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over estimated useful lives of the assets. Useful lives range from three to five years. Expenditures for repairs and maintenance are charged to expenses as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing equipment, are capitalized and depreciated. Equipment held under capital leases is amortized over the lesser of useful life or lease term. Deferred Charges - ---------------- Costs incurred in connection with the Company's term loan are recorded as deferred charges and are amortized over the term of the loan. Trademark and organization costs are amortized on a straight line basis over 40 and 5 years, respectively. Deferred charges consist of the following at November 30,: 1995 1996 ---- ---- Deferred debts costs $ 2,022 $ 3,197 Trademark and organization costs 1,180 1,110 ------- ------- 3,202 4,307 Accumulated amortization (1,270) (2,698) ------- ------- Deferred charges, net $ 1,932 $ 1,609 ======= ======= F-8 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Intangibles - ----------- Goodwill is amortized on a straight line basis over 30 to 40 years. Management contract intangibles are amortized on a straight-line basis over 9 to 25 years. The Company periodically assesses the future benefit associated with management contract intangibles through a review on a contract by contract basis of estimated undiscounted future operating cash flow. Any impairment of intangible assets is charged to operations and reflected as a reduction of the related intangible asset account. Impairment of Long-Lived Assets - ------------------------------- The Company during fiscal 1996 adopted SFAS No. 121, "Accounting for Impairment of Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-term assets, including related goodwill, be reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Income Taxes - ------------ Income taxes are provided based on the liability method of accounting pursuant to SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are recorded to reflect tax consequences on future years' differences between tax bases of assets and liabilities and their financial reporting amounts at each year-end as if the Company were a stand alone taxpayer. Unaudited Financial Information - ------------------------------- The financial statements for the year ended November 30, 1997 are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Concentration of Credit Risk - ---------------------------- Financial instruments which potentially subject The Company to concentrations of credit risk exist principally in receivable balances. The Company provides its services to the hotel industry. Hotel management services are contracted for terms normally ranging from 1 to 20 years, and in limited instances on a month-to-month basis. To reduce credit risk, the Company, through its management of such hotels, monitors the hotels' financial condition. The Company does not generally require collateral. Five management contracts accounted for 26% of management service fees revenues for each of the years ended November 30, 1995 and 1996. F-9 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The Company has a note receivable from the Rhode Island Convention Center Authority in conjunction with agreements to develop and operate a hotel. To reduce credit risk with respect to the note receivable from the Rhode Island Convention Center Authority, the Company, through its management of the property, which is the primary source of repayment, monitors the hotel's financial condition, and management believes the credit risk related to the receivable is minimal. The Company has notes receivable from certain stockholders for the purchase of the Company's common stock. Management believes the concentration of credit risk with respect to the notes from certain stockholders for the purchase of company common stock is minimal. (See note 13.) The estimated fair value of financial instruments have been determined by the Company using available market and effective interest rate information for such instruments and the carrying amounts approximate their fair value. NOTE 2 - RECEIVABLES Noncurrent receivables consist of a $1,900 note receivable from the Rhode Island Convention Center Authority (the "Authority") with an interest rate equal to the lesser of manager share of net cash flow as defined or 11% (effective interest rate of 3.90% and 1.0% as of November 30, 1995 and 1996, respectively) payable annually, interest only, with principal due on earlier of December 30, 2024 or the date the management agreement between the Authority and the Company is terminated. The Company owned nonrecourse subordinated notes in the amount of $12,500 ("Notes Receivable Crystal Palace") secured by a leasehold interest in the Crystal Palace Hotel. The Company originally recorded a discount of $1,000 on the Notes Receivable Crystal Palace. On December 29, 1995, The Company sold its interest in the Notes Receivable Crystal Palace to the issuer for $7,200, plus accrued interest. The Company recorded a loss on the impairment in value for the Notes Receivable Crystal Palace of $4,431 during the year ended November 30, 1995. F-10 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at November 30,: 1995 1996 ---- ---- Furniture, fixtures and other equipment $ 509 $ 615 Leasehold improvements 195 198 Equipment under capital leases 335 384 ------ ------ 1,039 1,197 Accumulated depreciation and amortization (416) (528) ------ ------ Property and equipment, net $ 623 $ 669 ====== ====== Depreciation expense was $82 and $129 for the years ended November 30, 1995 and 1996, respectively. NOTE 4 - LEASES Capital Leases - -------------- The Company leases certain equipment under capital leases. Minimum rentals under such capital leases are as follows at November 30, 1996: YEAR ENDING NOVEMBER 30,: ------------------------ 1997 $ 69 1998 70 1999 59 2000 55 2001 9 ------ Total minimum lease payments 262 Less amount representing interest 54 ------ Net obligations 208 Less current portion 47 ------ Long-term portion $ 161 ====== The long-term portion of capital lease obligations is included in long-term debt. F-11 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Operating Leases - ---------------- The Company leases office and warehouse space under operating lease agreements. The Company also leases office space from a partnership owned 58% by certain of its officers under an operating lease whose term runs through April 30, 2004 (see Note 14). The Company entered into an agreement to lease and operate the Washington Duke Inn, located in Durham, North Carolina. The initial lease term, which is through July 31, 1997 and can be extended through July 31, 1998, includes payment of $95 on or before August 1, 1996 and a monthly rent of $134 plus 6% of gross revenues through July 31, 1996; $134 plus 7% of gross revenues through July 31, 1997; and $155 plus 7% of gross revenues from August 1, 1997 through July 31, 1998 (See Note 15). Future minimum lease payments, for all operating leases with non-cancelable terms in excess of one year are as follows at November 30, 1996: YEAR ENDING NOVEMBER 30,: ------------------------ 1997 $2,008 1998 1,558 1999 319 2000 319 2001 319 Thereafter 772 ------ Total minimum lease payments $5,295 ====== Rental expense amounted to $2,143, and $2,437 for the years ended November 30, 1995 and 1996, respectively. F-12 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5 - INVESTMENTS IN AND ADVANCES TO AFFILIATES On October 2, 1995 the Company and a principal owner of the Gencom group of companies (which includes GAH-II, L.P. noted below) formed CHC Lease Partners, with each owning 50%. At November 30, 1996, CHC Lease Partners leases 24 hotels pursuant to operating leases with terms averaging 11 years from Patriot American Hospitality Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Patriot American Hospitality, Inc., a publicly traded, self-administered real estate investment trust. CHC Lease Partners entered into separate management agreements with a wholly-owned subsidiary of the Company and the Company's 50% owned subsidiary, GAH-II, L.P. ("GAH"), a Houston, Texas based hotel management business, to manage the leased hotels. Management fees earned under such agreements are subordinate to CHC Lease Partners' obligations to the Operating Partnership under the lease agreements. If, after payment of management fees at the contract rate, CHC Lease Partners would be deficient in lease payments to the Operating Partnership under any of the lease agreements in any year, the Company and GAH would be required to refund and forego the management fee for each of the hotels which are deficient in lease payments. If after the management fees are refunded and foregone, CHC Lease Partners would still be deficient in lease payments under any of the lease agreements, the Company and GAH would each be required to pay CHC Lease Partners up to 50% of the total management fees earned. Summarized balance sheet and statement of operations information for CHC Lease Partners, which is accounted for using the equity method, at November 30, 1995 and 1996 and the period from inception (October 2, 1995) to November 30, 1995 and the year ended November 30, 1996 are as follows: Summarized Balance Sheet Information - ------------------------------------ November 30, ------------ 1995 1996 ---- ---- Current assets $ 18,768 $25,245 Investments 5,100 5,100 Other assets 100 391 -------- ------- Total assets $ 23,968 $30,736 ======== ======= Current liabilities $ 12,530 $19,376 Long-term liabilities 2,020 2,369 -------- ------- Total liabilities 14,550 21,745 -------- ------- Net assets $ 9,418 $ 8,991 ======== ======= F-13 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Summarized Statement of Operations Information - ---------------------------------------------- NOVEMBER 30, ------------ 1995 1996 ---- ---- Revenues $ 22,807 $156,086 -------- -------- Income before lessee income (expense) $ 957 $ 2,921 -------- -------- Lessee income (expense) $ (639) $ (2,258) -------- -------- Net income $ 318 $ 663 -------- -------- CHC Lease Partners is required to maintain minimum net worth and adequate working capital for the term of the leases. At inception, the Company and its partner each contributed to CHC Lease Partners cash of $2,000 and units of limited partnership interest in the Operating Partnership ("O.P. Units"), which after an appropriate discount from the fair market value of Patriot American Hospitality, Inc. common stock, were valued at $2,550. The O.P. Units may be redeemed for, subject to certain restrictions, the common stock of PAH. The Company received distributions from CHC Lease Partners of $545 for the year ended November 30, 1996. On October 2, 1995 the Company purchased a 50% ownership interest in GAH from Patriot American Hospitality, L.P. for a nonrecourse note in the amount of $3,750 (See Note 9) and also contributed $150 to GAH. Summarized balance sheet and statement of operations information for GAH, which is accounted for using the equity method, at December 31, 1995 and 1996 and the period date of acquisition (October 2, 1995) to December 31, 1995 and the year ended December 31, 1996 is as follows: Summarized Balance Sheet Information - ------------------------------------ DECEMBER 31, ------------ 1995 1996 ---- ---- Current assests $ 761 $ 1,983 Other assets 344 1,077 ------ ------- Total assets $1,105 $ 3,060 ====== ======= Current liabilities $ 640 $ 1,586 Long-term liabilities 103 107 ------ ------- Total liabilitiies 743 1,693 ------ ------- Net assets $ 362 $ 1,367 ====== ======= Summarized Statement of Operations Information - ---------------------------------------------- DECEMBER 31, ------------ 1995 1996 ---- ---- Revenues $ 1,149 $ 7,284 ======= ======= Income (loss) before minority interest $ (30) $ 1,211 ======= ======= Net income (loss) $ (33) $ 1,194 ======= ======= F-14 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The cost of the Company's initial investment in excess of its interest in the net assets has been assigned principally to management contracts and goodwill which are being amortized on a straight-line basis over 12 and 30 years, respectively. The unamortized excess of the Company's investment over the Company's interest in GAH is $3,627 and $3,425 at November 30, 1995 and 1996 respectively. The Company received distributions of $123 from GAH for the year ended November 30, 1996. The Company's remaining investments in and advances to affiliates in the aggregate are not significant. NOTE 6 - INTANGIBLES Intangibles are summarized as follows: Management Contract Total Intangibles Goodwill Intangibles ----------- -------- ----------- Net balance, November 30, 1994 $ 2,389 $ 4,966 $ 7,355 Amortization, net (490) (149) (639) --------- -------- --------- Net balance, November 30, 1995 1,899 4,817 6,716 Amortization, net (521) (148) (669) --------- -------- --------- Net balance, November 30, 1997 $ 1,378 $ 4,669 $ 6,047 ========= ======== ========= The Company has included in amortization the write-off of $35 and $83 of management contract intangibles related to terminated contracts for the years ended November 30, 1995 and 1996, respectively. NOTE 7 - EMPLOYEE BENEFIT PLANS The Company maintains a non-qualified defined benefit deferred compensation plan which covers most management employees and provides an annual retirement benefit, after twenty-five years of service, equal to 50% of the participant's average last five years, pay reduced by social security benefits and further reduced for years of service less than twenty-five, on a pro rata basis. Benefits are vested on an eleven year cliff basis. Assets designated to cover plan liabilities include cash, accounts receivable, life insurance policies on the lives of certain participants, short-term investments and a loan to an officer. While it is the intention of management to utilize the assets designated for the deferred compensation plan to pay plan benefits, such assets have not been placed in trust and are not otherwise restricted and accordingly, they are available for general corporate purposes. F-15 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Under the terms of the life insurance policies, the Company receives the cash surrender value if the policies are terminated or all benefits due upon the death of the insured. In addition, the Company can borrow against the available net cash surrender value of the policies. The following is a summary of the assets designated for the deferred compensation plan which are included in other assets at November 30,: 1995 1996 ---- ---- Gross cash surrender value of insurance policies $ 1,170 $ 1,225 Less policy loans (1,085) (1,157) ------- ------- Cash surrender value of insurance policies, net 85 68 Accounts receivable 82 82 Cash and cash equivalents 625 614 Loan to officer 1,006 1,077 ------- ------- Total assets designated for the deferred compensation plan $ 1,798 $ 1,841 ======= ======= Deferred compensation plan costs, net of forfeitures, included in the combined statements of operations for the years ended November 30, 1995 and 1996 were approximately $569 and $374, respectively. The earnings rate for the deferred compensation plan benefit liability was 7% for the years ended November 30, 1995 and 1996. Deferred compensation plan costs, net of forfeitures, for the years ended November 30, 1995 and 1996, includes the following components: 1995 1996 ---- ---- Service cost $ 381 $ 142 Interest cost on projected benefit obligation 188 232 ----- ----- Deferred compensation plan costs $ 569 $ 374 ===== ===== The following table details the status of the plan at November 30: 1995 1996 ---- ---- Actuarial present value of benefit obligations: Vested benefits $ 4,257 $ 5,016 Non-vested benefits 1,280 1,086 ------- ------- Projected benefit obligations $ 5,537 $ 6,102 ======= ======= Plans assets less than projected benefit obligations $(5,537) $(6,102) ======= ======= F-16 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The Company plans to adopt a new non-qualified defined contribution deferred compensation plan which, when enacted, will be effective retroactively to January 1, 1992. The cost of the new plan will be substantially the same as the existing plan. NOTE 8 - INCOME TAXES The Company files income tax returns as part of CHC's consolidated group. Income taxes in the accompanying financial statements are computed as if the Company had been a separate taxable entity. The Company's provision for income taxes attributable to continuing operations is comprised of the following for the years ended November 30, 1995 and 1996: 1995 1996 ---- ---- Current tax expense: State $ 81 $ 52 Foreign 50 40 ----- ----- Total provision for income taxes $ 131 $ 92 ===== ===== The Company generated a tax net operating loss carryforward of approximately $3,661 during the year ended November 30, 1996 and has accumulated tax net operating loss carryforwards of approximately $4,221 as of November 30, 1996. Approximately $560 and $3,661 of the net operating loss carryforwards will expire in the years 2009 and 2011, respectively. The tax net operating loss carryforward is generally available to offset future taxable earnings. The difference between the taxes provided for continuing operations at the U.S. federal statutory rate and the Company's actual tax provision is reconciled below for the years ended November 30, 1995 and 1996: 1995 1996 ---- ---- Taxes provided at statutory rate $ -- $ -- State tax expense 81 52 Foreign tax expense 50 40 ---- ---- Total provision for income $131 $ 92 ==== ==== F-17 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The approximate effect of the Company's temporary differences and carryforwards that give rise to deferred tax balances at November 30, were as follows: 1995 1996 ---- ---- Net operating loss carryforwards $ 224 $ 1,688 Deferred compensation plan liability 2,106 2,330 Allowance for doubtful account receivable 559 800 Valuation allowance for notes receivable 1,772 -- Other, net 1,275 878 ------- ------- 5,936 5,696 Deferred tax asset valuation allowance (5,936) (5,696) ------- ------- Noncurrent deferred tax asset $ -- $ -- ======= ======= In accordance with SFAS No.109, the Company recorded a valuation allowance on the entire amount of the deferred tax asset at November 30, 1995 and 1996 because the Company sustained taxable losses and there was no assurance that a deferred tax asset would be realized. The net decrease in the valuation allowance for deferred tax assets of approximately $240 during the year ended November 30, 1996 was primarily due to increases in deferred tax assets in net operating loss carryforwards and allowance for doubtful receivables reduced for the sale of Notes Receivable Crystal Palace. F-18 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 9 - LONG-TERM DEBT Long-term debt is comprised of the following as of November 30,
1995 1996 ---- ---- Variable-rate term loan (effective interest rate of 10.375% and 10.0% at November 30, 1995 and 1996, respectively) interest payable quarterly with balance due at maturity February 28, 1997 (see below) $ 11,500 $ 11,500 Variable rate non-recourse loan (effective interest rate of 9.0% at November 30, 1995 and 1996) interest and principal payable quarterly from 25% of net cash flow of GAH, as defined, with balance due October 2, 2000 3,750 3,750 Variable rate loan (effective interest rate of 10.75% and 10.25% at November 30, 1995 and 1996, respectively) interest payable monthly and principal payable in annual installments of $190 from December 30, 1995 with balance due December 30, 1997 1,900 1,710 Variable rate unsecured demand loans (effective interest rate of 9.75% at November 1,000 -- 30, 1995) interest payable monthly. 8% note payable - interest payable annually and principal payable in annual 480 360 installments of $120 through October 10, 1999 Capital lease obligations (see Note 4) 208 208 -------- -------- Total debt 18,838 17,528 Current portion (1,566) (12,069) -------- -------- Total long-term debt $ 17,272 $ 5,459 ======== ========
Aggregate principal payments for the long-term debt including capital lease obligations are as follows at November 30, 1996: YEAR ENDING NOVEMBER 30,: ------------------------ 1997 $12,069 1998 1,906 1999 381 2000 3,163 2001 9 --------- Total $17,528 ========= F-19 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The Company's $11,500 variable-rate term loan (the "Term Loan"), as amended, (i) bears interest at the bank's base lending rate plus 2.0% or, at the Company's option, London Interbank Market Rate (LIBOR) plus 4 1/2%, (ii) is secured by substantially all of the Company's assets and (iii) matures February 28, 1997. On February 28, 1997, the Term Loan was further amended whereby the Term Loan (i) bears interest at the bank's lending rate plus 1.5% or, at the Company's option, LIBOR plus 2.5% and (ii) matures in quarterly installments of 2.5% of the principal amount outstanding commencing June 30, 1997 with the balance due June 30, 1998. The Company has also agreed to pay the lender a fee equal to 1.5% of the fair market value of the Company, but in no event less than $2,500 or more than $6,000. The fee is payable at the lender's option at any time during the ten-year period commencing February 28, 1997. Interest expense for the years ended November 30, 1995 and 1996 include $500 and $1,200 respectively related to the lender fee. The Term Loan agreement contains customary financial covenants, and various covenants including limitations on indebtedness, liabilities, liens, distributions, dividends, redemptions, prepayments of other indebtedness, mergers, purchases and sales of assets, loans, investments and guarantees, and prohibitions of any change of control. In December, 1994, the Company entered into a loan agreement with a commercial bank in the amount of $1,900. The loan bears interest at the bank prime rate plus 2% per annum payable monthly. Principal is payable in annual installments of $190 in December 1995 and 1996, with the balance due in December 1997. In October 1995, in connection with the Company's purchase of a 50% interest in GAH (see Note 5), the Company entered into a nonrecourse loan agreement with the seller in the amount of $3,750. The loan bears interest at the lesser of 9.0% and the maximum non-usurious amount permissible. Interest and principal are payable quarterly commencing January 25, 1996 from 25% of GAH net cash flow, as defined, continuing until the earlier of October 2, 2000 and the date all amounts outstanding under the nonrecourse term loan are paid in full. In January 1996, CHC established a $750 line of credit on an unsecured basis with a commercial bank guaranteed by two shareholders of CHC. Advances under the line of credit bear interest at the bank rate plus 1% per annum payable on demand. No amounts are currently outstanding under the line of credit. F-20 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Related Party Borrowings - ------------------------ In October 1995, the Company borrowed 53,314 O.P. Units from certain shareholders. As permitted by the securities loan agreement, the O.P. Units, valued after an appropriate discount, at $1,088, were contributed by the Company to CHC Lease Partners (see Note 5). The Company must return O.P. Units to the shareholders on demand and pay to the shareholders interest equal to distributions received by the Company from the O.P. Units. The obligation under the O.P. Units borrowing is included in due to affiliates and officers in the balance sheets. NOTE 11 - COMMITMENTS AND CONTINGENCIES In the ordinary course of its business, the Company is named as defendant in legal proceedings resulting from incidents taking place at hotels it manages, or in which it has an ownership interest. The Company maintains comprehensive liability insurance and also requires hotel owners to maintain adequate insurance coverage. Management believes such coverage to be of a nature and amount sufficient to ensure that the Company is adequately protected from any material financial loss as a result of such claims. The Company owns a 30% interest in Plaza Associates Limited Partnership ("Plaza Associates") which owns and operates the Holiday Inn - Dayton Mall in Dayton, Ohio. The Company has joint and severally guaranteed partial payment of two Plaza Associates notes payable. The joint and several guaranty is mitigated by a contribution agreement among Plaza Associates partners which reduced the Company's obligation to 30% of the guaranty. The total maximum potential liability to the Company under the guaranty after giving effect to the contribution agreement is as follows: through December 31, 1999 up to $375; January 1, 2000 to December 31, 2002 up to $225; January 1, 2003 to March 1, 2004 up to $150 and zero thereafter. In addition, The Company has joint and severally guaranteed payment of certain other Plaza Associates obligations, the maximum potential liability to the Company is $540. In November 1996, the Company entered into an agreement with Grant Hotels, Inc. to manage the Sam Lord's Castle Resort in Barbados, West Indies and provide consulting and technical services with respect to the conversion of the resort to a Carnival Resort. The agreement provides the Company will loan the resort up to $900 for conversion of the resort, working capital, referral fees and certain other expenses of which no amounts have been advanced as of November 30, 1996. NOTE 12 - MINORITY INTEREST The Company owns a 75% interest in the TCC-Registry Joint Venture (the "Registry Venture") acquired in October 1994. The Company's combined financial statements include 100% of the assets, liabilities and operations of the Registry Venture. The effects of the minority interests have F-21 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) been reflected in the accompanying combined statements of operations. Included in other liabilities in the accompanying combined balance sheets is minority interest of the Registry Venture of $78 and $108 as of November 30, 1995 and 1996, respectively. NOTE 13 - STOCKHOLDERS' EQUITY (DEFICIT) As a result of the basis of presentation as outlined in Note 1, including the allocation of certain assets and liabilities to the gaming division, the Company's equity (deficit) includes balances arising from the net change in the gaming divisions' intercompany account with the Company. In June 1994, the Company granted to an executive officer 155,000 shares of common stock valued at $3.75 per share, subject to forfeiture if employment is terminated prior to vesting. The stock grant originally scheduled to vest over five years has been accelerated and now vests as to 50% of the shares of common stock in January 1997 and 50% of the shares of common stock in January 1998. The amortization period of the unearned compensation has been revised accordingly. The stock grant also becomes fully vested on the earlier to occur of any termination of employment due to death or disability, or May 1997, if the Company does not offer to extend the employment agreement until May 1999 for any reason other than cause. Compensation expense for the stock grant was $116 and $108 for the years ended November 30, 1995 and 1996, respectively. Pursuant to the terms of a stock purchase agreement dated November 30, 1994 between the Company, Carnival Corporation and certain shareholders, the Company agreed to sell to such persons an aggregate of 4,000,000 shares of common stock at $6.25 per share. The aggregate purchase price of $25,000 was satisfied by the conversion of a $10,000 principal balance due by the Company to Carnival Corporation under a revolving credit loan, $9,350 in notes payable to the Company due November 1998 and the balance in cash. The notes bear interest at 7.1% payable annually with principal installments due annually of $2,337. The installment due November 30, 1995, was partially satisfied by cash payments of $2,106 and $125 of O.P. Units. In addition, prepayments totaling $432 of O.P. Units were received during the year ended November 30, 1995. The installment due November 30, 1996 less prepayments received was satisfied by cash payments of $2,011. The notes are secured by a pledge of all purchased shares of common stock. Pursuant to the terms of a stock purchase agreement dated November 29, 1996 between the Company and CHC Investor Partners, L.P. ("CHC Investor"), a Texas limited partnership controlled by a principal owner of the Gencom group of companies, the Company agreed to sell 265,513 shares of common stock at $11.30 per share and grant non-qualified stock options to purchase 61,130 shares of common stock at a per share exercise price of $11.30. The aggregate purchase price of $3,000 was satisfied with a note. The note is due in installments of $500 on November 29, 1997 and $2,500 on November 29, 1998; however, the note plus accrued interest becomes due and payable 180 days after any public offering by the Company. The note bears interest at 7.1% payable annually. F-22 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The Company has an Employee Stock Option Plan (the "Plan") which provides for the grant to employees of both incentive stock options (within the meaning of Section 422 of the Internal Revenue Code) and non-statutory stock options to eligible employees (including officers and directors) and non-employee directors. A total of 1,700,000 shares of common stock has been reserved for issuance under the Plan. The table below summarizes common stock option activity as of and for the years ended November 30, 1995 and 1996: 1995 1996 ---- ---- Options outstanding, beginning of period 988,052 988,052 Granted -- 264,317 Returned -- (30,564) ------- --------- Options outstanding, end of year 988,052 1,221,805 ======= ========= Options exercisable end of year 197,610 419,672 ======= ========= Exercise price per share $6.25 $6.25 of options exercisable to to during the period $6.25 $11.50 ===== ====== All options issued were granted at the fair market value of CHC's common stock on the date of grant, have a term of ten years, and generally become exercisable with respect to 20% of the covered shares commencing one year after grant, and are generally exercisable with respect to an additional 20% of the covered shares after each additional year until fully exercisable. NOTE 14 - RELATED PARTY TRANSACTIONS AND ALLOCATIONS The Company provides services and pays certain costs which are reimbursable under management agreements with hotels, which are affiliated with the Company by virtue of common ownership. Total fees earned from affiliated hotels for the years ended November 30, 1995 and 1996 were $5,212 and $4,284, respectively. Total fees and reimbursable expenses due from affiliated hotels were $1,261 and $1,108 at November 30, 1995 and 1996, respectively. In March, 1994, CHC and Carnival Corporation entered into a 20 year Trademark License Agreement providing for CHC's use of the "Carnival" trademark so that CHC may do business as "Carnival Hotels and Casinos" (and the Company may do business as "Carnival Hotels and Resorts"). Fees due under the agreement are the greater of $100, or 1% of CHC's revenues, as defined. The trademark license fees for the Company the years ended November 30, 1995 and 1996 were $115 and $150, respectively. F-23 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Certain of the Company's officers hold a 58% interest in a partnership which owns the office building in which the Company's executive offices are located. Under this lease, rental expense for the years ended November 30, 1995 and 1996 were $401 and $375, respectively. The Company provides accounting services, at cost, to certain entities owned and controlled by certain of its officers. The entities are obligated to reimburse the Company for such services provided. The cost of such services were $175 and $145 for the years ended November 30, 1995 and 1996, respectively. Pursuant to the terms of a stock purchase agreement dated November 30, 1994 between certain shareholders and Carnival Corporation, certain shareholders agreed to buy at $6.25 per share, 2,610,000 shares of Company common stock from Carnival Corporation. The aggregate purchase price of $16,313 was paid in promissory notes due November 30, 1998 subject to certain condition as defined in the stock purchase agreement. The notes bear interest at 6.0% payable at maturity. The stock purchase agreement provides certain shareholders a put option which requires Carnival Corporation to repurchase at $6.25 per share plus a rate of return of 6.1% per annum, all of the 2,610,000 shares of Company common stock, by November 30, 1998. The stock purchase agreement also requires Carnival Corporation to reduce its ownership in the Company's common stock (assuming exercise of the put option ) to less than 25% of the Company's outstanding common stock no later than November 30, 1998, as defined in the stock purchase agreement (See Note 13). Pursuant to the terms of a stock purchase agreement dated November 29, 1996 between the Company, certain shareholders and CHC Investor, CHC Investor agreed to buy at $11.30 per share 265,513 shares of Company common stock from certain shareholders for $3,000 in cash (See Note 13). The Company entered into a borrowing arrangement with certain shareholders (See Note 9). CHC has allocated a portion of its corporate expenses to the gaming division. These expenses include management and corporate overhead; benefit administration; risk management/insurance administration, and other support and executive functions. Allocations and charges were based on either a direct cost pass through or a percentage allocation for such services provided based on factors such as revenues, management time, or headcount. Such allocations and charges totaled $3,734 and $3,720 for the years ended November 30, 1995 and 1996, respectively. Management believes that the basis used for allocating corporate services is reasonable and that the terms of these transactions would not materially differ from those that would result from transactions among unrelated parties. F-24 CHC INTERNATIONAL, INC. - HOSPITALITY DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 15 - SUBSEQUENT EVENTS Effective January 1, 1997, the Company entered into a new agreement to lease and operate the Washington Duke Inn which supersedes the previous agreement. The term which is through December 31, 2002 includes rent for each year of 22% of gross revenues up to $10,000, adjusted annually, plus 30% of gross revenues in excess of $10,000, adjusted annually, provided in any event a minimum rent of $1,800. Rent is payable monthly. In addition, the Company purchased $1,505 of furniture, fixtures and equipment in exchange for a promissory note and is required to fund a reserve account for furniture, fixtures and equipment expenditures in an amount not less than 3% of gross revenues in 1997 and 4% of gross revenues thereafter. The loan bears interest at 7% per annum. Principal and interest are payable monthly installments of $26 with balance due December 31, 2002. The loan is secured by the furniture, fixtures and equipment and limits the sale or encumbrance of the furniture, fixtures and equipment. In connection with the expiration of the lease, the Company has the right to resell the furniture, fixtures and equipment to the original seller and the original seller has the right to repurchase the furniture, fixtures and equipment for $1,505. NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED) In conjunction with the Merger Agreement and certain related agreements, CHC Lease Partners distributed eight participating lease agreements to one of its two partners and declared distributions of its working capital and O.P. Units equally to its partners. Accordingly, the Company became the sole owner of the remaining participating lease agreements, assets and liabilities. The Company accounted for CHC Lease Partners using the equity method through August 31, 1997 and began consolidating CHC Lease Partners on September 1, 1997. Concurrent with the Merger Agreement, the Company also entered into a Hospitality Advisory, Asset Management and Support Services Agreement with Wyndham whereby Wyndham will provide certain hospitality advisory, asset management and support services to the Company for base fees aggregating $350 per month plus 50% of the amount of gross management fees, leakage and other income in excess of $350. The cost of such services were $1,466 during the year ended November 30, 1997. Management believes it is more likely than not that a portion of its net deferred tax assets will be realized based upon future income projections. Accordingly, the Company released a portion of its valuation allowance on its net deferred tax assets resulting in a benefit for income taxes during the year ended November 30, 1997. **************************** F-25 EX-99.1 2 PRESS RELEASE DATED FEBRUARY 12, 1998 EXHIBIT 99.1 [LETTERHEAD OF PATRIOT AMERICAN APPEARS HERE] PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. ANNOUNCE FOURTH QUARTER AND YEAR-END OPERATING RESULTS Pro Forma FFO of 48 Cents Per Share on Pro Forma Total Revenue of $278.4 Million; Pro Forma RevPAR Increase of 8.1% for Fourth Quarter DALLAS, TX - (FEBRUARY 12, 1998) - PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. (NYSE: PAH), ("THE COMPANIES") WHOSE SHARES ARE PAIRED AND TRADE AS A SINGLE UNIT, today announced combined pro forma and historical results for the fourth quarter and fiscal year ended December 31, 1997. For the fourth quarter, pro forma combined funds from operations (FFO) totaled $53.4 million. Pro forma total revenue for the fourth quarter was $278.4 million, as compared to actual total revenue of $23.3 million for the fourth quarter of 1996. The 1997 pro forma results assume that Patriot American's acquisition of Wyndham Hotel Corporation and the related acquisition of Wyndham hotels from partnerships affiliated with the Trammell Crow family had occurred on October 1, 1997. On a net income basis, Patriot American and Wyndham International reported pro forma net income of $5.9 million, or six cents per share, for the fourth quarter. The pro forma net income figure was impacted by write-offs of $9.4 million for merger expenses (10 cents per share) and $10.7 million for leasehold acquisition costs (11 cents per share) which were expensed in the fourth quarter. These transaction-related write-offs had no impact on pro forma FFO for the period. Without these charges, the Companies would have reported combined pro forma net income of $25.9 million, or 26 cents per share, for the quarter. "The fourth quarter marked a period of significant transition for Patriot American, as we worked to complete our acquisitions of Wyndham Hotel Corporation and WHG Resorts & Casinos, Inc., both of which were completed in January, and as we negotiated the acquisitions of Interstate Hotels Company and Arcadian International," said Paul A. Nussbaum, chairman and chief executive officer of Patriot American. "In the months prior to the consummation of the merger, Patriot American and Wyndham Hotel Corporation worked closely together such that, when we closed the Wyndham merger on January 5, the integration process was well underway. During this period, we also completed the rebranding of several of our owned hotels, including the former Registry Resort & Spa in Fort Lauderdale, the Peachtree Executive Conference Center in Atlanta, and the Buttes Resort in Tempe, Arizona to the Wyndham brand. We expect to realize the benefits of this continuing rebranding process in 1998 and more fully in future years as we convert nearly 50 of our owned hotels and resorts to Wyndham, our core upscale brand, or one of our other proprietary brands." more... PATRIOT AMERICAN HOSPITALITY ADD 1 The Companies also announced actual results for the fourth quarter on a pre-merger basis. The Companies reported combined FFO of $33.4 million, or 40 cents per share, on combined total revenue of $180.5 million. FOURTH-QUARTER OWNED HOTEL AND RESORT OPERATING PERFORMANCE: REVPAR UP 8.1% ON PRO FORMA BASIS; REVPAR UP 8.9% FOR WYNDHAM-BRANDED AND MANAGED PORTFOLIO James D. Carreker, chairman and chief executive officer of Wyndham International, said that in 1998, the Companies expect earnings growth to be driven principally by internal factors, including growth in average daily rate (ADR), revenues per available room (RevPAR) and operating margins at the companies' owned and leased hotels, as well as at the Companies' properties under management. "In this regard, we are pleased that the combined portfolio operating performance for the quarter was in line with our expectations," he said. The owned portfolio operating performance data for the fourth quarter and full year presented below are pro forma for all hotels currently owned by the Companies, and exclude room nights taken out of service at properties which remained open while undergoing significant renovation, including the recently converted Wyndham Resort & Spa in Fort Lauderdale; the Doubletree Club Hotel in Miami; the Union Station Hotel in Nashville; the Sheraton Park Place in Minneapolis; and, six ClubHouse Inns under renovation prior to rebranding as Wyndham Garden Hotels. The rooms taken out of service represented approximately four percent of the total owned portfolio for the fourth quarter and for the full year. Fourth-quarter operating performance across the Companies' owned portfolio improved over the same period in 1996, as reflected in increased ADR and RevPAR. On a pro forma basis for the quarter ended December 31, 1997, ADR increased 8.1 percent to $95.71 versus $88.55 in 1996, while RevPAR increased 8.1 percent to $63.63 compared to $58.86 in 1996. The Companies also reported strong portfolio operating performance for the Wyndham-branded and managed hotel portfolio during the fourth quarter. RevPAR for Wyndham's domestic comparable hotel group increased 8.9 percent to $65.26 from $59.90 for last year's fourth quarter, while ADR and occupancy for these hotels was $96.85 and 67.4 percent respectively, up from $90.53 and 66.2 percent in the 1996 fourth quarter. FULL YEAR OWNED HOTEL AND RESORT OPERATING PERFORMANCE: REVPAR UP 8.7% ON PRO FORMA BASIS; REVPAR UP 10.6% FOR WYNDHAM-BRANDED AND MANAGED PORTFOLIO For the fiscal year ended December 31, 1997, the Companies' owned portfolio reflected an increase of 8.6 percent in ADR, to $95.83 compared to $88.23 last year. RevPAR increased 8.7 percent, to $67.70 for the twelve-month period versus $62.27 in 1996. For the full year, RevPAR for Wyndham's domestic comparable hotel group increased 10. 6 percent to $69.65 from $62.96 in 1996, while ADR and occupancy for these hotels was $96.60 and 72.1 percent respectively, up from $90.32 and 69.7 percent for the 1996 fiscal year. ACQUISITION OF WYNDHAM HOTEL CORPORATION COMPLETED On January 5, 1998, Patriot American completed the acquisition of Wyndham Hotel Corporation, a transaction which added 25 owned hotels representing nearly 4,500 rooms to Patriot's portfolio, on January 5, 1998. Patriot also acquired Wyndham's branded hotel management business as well as the proprietary Wyndham brand. After the merger was completed, Patriot American Hospitality Operating Company was renamed Wyndham International, Inc. The merger originally had been scheduled for completion in the fourth quarter, but was delayed in order to allow Patriot to prepare and distribute supplemental proxy materials regarding the proposed acquisition of Interstate Hotels Company (NYSE: IHC), which was announced in December. more... PATRIOT AMERICAN HOSPITALITY ADD 2 "While the acquisition of Wyndham was not completed until early January, our management teams have worked consistently over the last several months to complete the integration of the two companies so that, upon completion of the merger, we could focus principally on implementing our internal and external growth strategies," said Nussbaum. "As a result, we began 1998 as a fully integrated and branded hotel company with the infrastructure in place to grow internally, through improvements in occupancy, ADR and RevPAR, and by realizing economies of scale produced by brand conversions of our owned hotels. We also will sustain our aggressive external growth strategy through the acquisition of properties and companies which meet our investment objectives," he said. ACQUISITION OF INTERSTATE HOTELS COMPANY IN PROCESS In December, Patriot American announced a definitive agreement to acquire Interstate Hotels Company, the nation's largest independent hotel management company, for $37.50 per share in paired stock and cash, with the exchange ratio for the stock consideration subject to certain cap and collar mechanisms. When combined with Interstate's outstanding indebtedness, the transaction is valued at approximately $2.1 billion. The Companies and Interstate filed preliminary proxy materials for the merger in January and expect to complete the merger by early April. Under the terms of the merger agreement, Patriot American will acquire all of Interstate's assets, including its portfolio of 41 owned, primarily upscale full-service hotels and resorts, with an aggregate of 11,928 rooms, located throughout the United States; leases for 89 hotels with an aggregate of 10,258 rooms; and, management and/or service agreements for 92 hotels with an aggregate of 23,227 rooms throughout the United States and in Canada, the Caribbean and Russia. Upon completion of the acquisition, Interstate Hotels Company will become the management services division of Wyndham International, operating Patriot's non-proprietary branded assets as well as hotels owned by third parties. FOURTH-QUARTER TRANSACTION SUMMARY In the fourth quarter, Patriot American completed the acquisition of 15 full-service hotel and resort properties representing 4,498 rooms, for total consideration of approximately $566 million. These major market property acquisitions include four Wyndham Hotels and five Wyndham Garden Hotels, representing 2,446 rooms, acquired from partnerships affiliated with the Trammell Crow Family for $296 million: the 758-room Wyndham Franklin Plaza in Philadelphia; the 200-room Wyndham Bel Age in Hollywood, CA; the 202-room Wyndham Riverfront Hotel in New Orleans; the 408-room Wyndham Northwest Chicago; the 229-room Wyndham Garden Hotel-LaGuardia in Queens, NY; the 171-room Wyndham Garden Hotel-Pleasanton in Pleasanton, CA; the 162-room Wyndham Garden Hotel-Wood Dale in Chicago; the 168-room Wyndham Garden Hotel-Las Colinas in Dallas; and, the 148-room Wyndham Garden Hotel-Novi in Detroit. In December, Wyndham concluded its relationship with Homegate Hospitality, Inc. as previously disclosed. Finally, on December 31, Patriot American also acquired the 436-room Wyndham Emerald Plaza in San Diego for approximately $73.8 million. During the fourth quarter, Patriot American strengthened its presence in Florida with its acquisitions of the 178-room Grand Bay Miami in Coconut Grove for $32.5 million; the 408-room Sheraton Gateway Miami for $29 million; and, the 324-room Sheraton Grand Tampa for $34.7 million. The company also acquired its first asset in the Washington D.C. market, the 353-room Sheraton City Centre, for $36.8 million. All three Sheraton hotels will be renovated and rebranded as Wyndham Hotels during 1998. Finally, Patriot American acquired The Buttes, a 353-room conference center and resort in Tempe, AZ, for $63.6 million. This resort, originally developed and managed by Carefree Resorts, was converted to The Buttes-A Wyndham Conference Resort on January 1. In total, Patriot American invested approximately $1.3 billion in 1997 to complete the acquisition of 45 hotels, representing more than 12,000 rooms. This total does not include Patriot American's acquisition of Wyndham Hotel Corporation and its portfolio of owned hotels, nor the acquisition of WHG Resorts & Casinos, Inc., both of which were completed in January 1998. more... PATRIOT AMERICAN HOSPITALITY ADD 3 ACQUISITION OF HOSPITALITY MANAGEMENT BUSINESS OF CARNIVAL HOTELS AND GENCOM AMERICAN HOSPITALITY At the beginning of the fourth quarter, Patriot American completed the acquisition of the hospitality management business of Gencom American Hospitality and announced the acquisition of the hospitality management business of Carnival Hotels and Resorts and CHC Lease Partners, a joint venture of Carnival and Gencom which had previously been Patriot's largest independent lessee. In connection with these acquisitions, which were valued at approximately $486 million, Patriot acquired interests in 10 hotels, representing 3,109 rooms, including the 408-room Sheraton Gateway in Miami, the 324-room Sheraton Grand in Tampa and the landmark, 178-room Grand Bay Hotel in Coconut Grove (Miami), FL. The Companies also acquired rights to the proprietary Registry and Grand Bay luxury brand names. The transaction also includes the remaining 50 percent interest in the 707-room Omni Baltimore, as well as the management operations of Gencom American Hospitality. The Companies anticipate that a number of the hotels acquired in connection with the Carnival and Gencom transactions, all of which are currently managed by Wyndham International, will be converted to the Wyndham brand or one of the Companies' other proprietary brands. With the completion of the acquisition of CHC Lease Partners, the first phases of which were completed in 1997 and the final phase of which is expected to close in the first quarter of 1998, Wyndham International will acquire existing leases for 17 additional hotels currently owned by Patriot American, thereby further increasing the number of hotels in Patriot's portfolio which are leased to, and managed by, its paired operating company. A number of these hotels are also being considered for conversion to the Wyndham brand. ACQUISITION OF WHG RESORTS & CASINOS, INC. COMPLETED IN JANUARY On January 16, Patriot American completed its acquisition of WHG Resorts & Casinos, Inc.(NYSE: WHG) for approximately $148 million in stock. As part of this acquisition, Patriot acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino, and a 23.3% interest in the 751-room El Conquistador Resort & Country Club, all in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc., the management company for the three hotels and the Las Casitas Village at the El Conquistador. With this acquisition, the Companies added one of the finest management organizations in the Caribbean to the Wyndham International management team. PATRIOT AMERICAN ANNOUNCES TENDER OFFER FOR ARCADIAN INTERNATIONAL PLC On January 20, 1998, Patriot American announced a tender offer to acquire all the issued and to-be-issued shares of Arcadian International PLC, a leading hotel developer and operator based in Surrey, England, for 60 pence per share. The transaction is valued at approximately (pound)92 million (approximately $152 million, based on the exchange rate on February 5) which will include Patriot's acquisition of Arcadian's 50% partnership interest in the redevelopment and subsequent operation of the Great Eastern Hotel in London; 10 fully owned hotel properties throughout England; three partially owned and managed Malmaison Hotels, as well as two in development; L'Horizon Hotel in Jersey; two resorts under development in Tuscany, Italy and Paris, France; and, equity interest in the proprietary Malmaison brand name. The innovative Malmaison concept recently was designated by Cunard/Tatler magazine as "Best Hotel in the World under 100 Pounds per Night." HOTEL CONVERSIONS ACCELERATE In the fourth quarter, Patriot American converted three of its owned or managed properties to the Wyndham brand. In conjunction with the $7 million renovation begun in early December, Patriot American rebranded the 528-room Crowne Plaza Miami-Biscayne Bay as the Wyndham Hotel Miami-Biscayne Bay. The renovation will include a complete redesign of the hotel entrance and motor lobby areas, as well as an upgrade of all guest rooms and public areas. more... PATRIOT AMERICAN HOSPITALITY ADD 4 Patriot's 250-room Peachtree Conference Center in Atlanta has been rebranded as the Wyndham Peachtree Conference Center and, as part of this rebranding, is now undergoing a $7 million expansion which includes a new 20,000 square foot meeting wing with nine meeting rooms and two breakout areas. All guest rooms and bathrooms are being renovated, with completion of the total refurbishment and expansion slated for the second quarter. Finally, Patriot American converted its 492-room Registry Resort & Spa in Fort Lauderdale to the Wyndham Resort & Spa. In preparation for this conversion, Patriot American invested approximately $16 million to complete a total renovation and upgrade of the property. CAPITAL MARKET ACTIVITIES In December, Patriot American announced that it had entered into two transactions with affiliates of Union Bank of Switzerland ("UBS"). In one transaction, the Company completed a private placement to UBS of 3,250,000 paired shares at a price of $28.8125 per paired share (the closing price on December 30, 1997) to UBS Securities. Proceeds from this placement were used to reduce existing indebtedness under Patriot's unsecured revolving credit facility. Separately, Patriot entered a hedging agreement with UBS which provides that during the preliminary term of one year, Patriot American will have the right to deliver or receive paired shares at any time in settlement of the agreement, based on the market price of the paired shares at the time of election. In connection with its tender offer to acquire Arcadian International PLC, Patriot American announced on January 20 that it had received a commitment from affiliates of PaineWebber Incorporated to purchase up to $160 million of Patriot American common stock. This commitment includes a simultaneous swap agreement that provides that during the term of one year, Patriot American will have the right to deliver paired shares or receive cash at any time in settlement of the agreement, based on the market price of the paired shares at the time of election. Additionally, Patriot American has entered into an exchange rate swap agreement to hedge foreign currency risks. QUARTERLY DIVIDEND PAID ON JANUARY 30, 1998 Patriot American paid an increased quarterly dividend of 32 cents per share on January 30, 1998 to shareholders of record on January 8, 1998. This dividend represented a 22 percent increase in Patriot's quarterly dividend payment. ABOUT PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. Based in Dallas, Texas, Patriot American Hospitality, Inc. (NYSE: PAH) is currently the nation's second-largest hotel real estate investment trust (REIT) with a portfolio comprised of 197 owned, managed, leased or franchised hotels and resorts with more than 49,000 rooms. Paired together with Wyndham International, Patriot American is currently one of only two paired-share hotel REITs in the country. Wyndham International, comprised of the Luxury Hotel Division, the Wyndham Hotel Group, and the Management Services Group, leases, manages and franchises primarily upscale and luxury hotel and resort properties represented by its proprietary brands, including Carefree Resorts, Grand Bay Hotels and Resorts, Wyndham Hotels, Wyndham Resorts, Wyndham Garden Hotels, Wyndham Grand Heritage, and ClubHouse Inns, and provides management services for third-party owned hotels and resorts. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include competition for guests from other hotels, dependence upon business and commercial travelers and tourism, the seasonality of the hotel industry, availability of equity or debt financing at terms and conditions favorable to the Companies, and the status of proposed tax legislation regarding the paired-share structure. TABLES TO FOLLOW... more... PATRIOT AMERICAN ADD 5 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED CONDENSED STATEMENTS OF INCOME QUARTER ENDED DECEMBER 31, 1997 (in thousands, except per share data) (Unaudited)
1997 1997 1996 Pro Forma(1) Actual Actual ------------- ------------ ------------ Revenues: Hotel revenues $ 214,514 $ 137,455 $ -- Participating lease revenues 18,321 19,949 23,158 Management fee and service fee income 14,777 5,195 -- Racecourse income 15,483 15,483 -- Interest and other income 15,263 2,414 188 ------------- ------------ ------------ Total revenues 278,358 180,496 23,346 ------------- ------------ ------------ Operating costs and expenses: Hotel expenses 167,555 108,150 3,062 Racing facility operations 12,407 12,407 -- General and administrative 13,295 7,567 1,227 Interest expense 29,356 19,693 2,899 Depreciation and amortization 27,279 20,887 5,792 Cost of acquiring leaseholds 10,679 10,679 -- Merger expenses 9,411 -- -- ------------- ------------ ------------ Total operating costs and expenses 269,982 179,383 12,980 ------------- ------------ ------------ Operating income 8,376 1,113 10,366 Equity in earnings from unconsolidated subsidiaries 1,605 1,527 1,468 ------------- ------------ ------------ Income before minority interests and income taxes 9,981 2,640 11,834 Income attributable to minority interests 153 586 1,678 ------------- ------------ ------------ Income before income taxes 9,828 2,054 10,156 Provision for income taxes 4,002 387 -- ------------- ------------ ------------ Net income $ 5,826 $ 1,667 $ 10,156 ============= ============ ============ Funds from operations ("FFO") $ 53,392(2) $ 33,430 $ 18,334 ============= ============ ============ FFO per share - diluted $ 0.48 $ 0.40 $ 0.36 ============= ============ ============ Earnings per share: Basic Income before merger expenses and cost of leaseholds acquired $ 0.27 $ 0.18 $ 0.24 Net income $ 0.06 $ 0.02 $ 0.24 Diluted Income before merger expenses and cost of leaseholds acquired $ 0.26 $ 0.17 $ 0.23 Net income $ 0.06 $ 0.02 $ 0.23 Weighted average number of common shares and common share equivalents outstanding: Basic 94,742 68,287 43,171 Diluted 98,091 70,857 44,116 Diluted shares and Op Units 111,834 84,600 51,076
(1) The pro forma information assumes completion of the acquisition of Wyndham Hotel Corporation and the acquisition of nine hotels and two leaseholds from partnerships affiliated with members of the Trammell Crow family as if such transaction had occurred at the beginning of the period presented. (2) Funds from operations exclude the cost of acquiring leaseholds and merger expenses. more... PATRIOT AMERICAN ADD 6 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1997 (in thousands, except per share data) (Unaudited)
1997 1997 1996 Pro Forma(1) Actual Actual ----------- ----------- ----------- Revenues: Hotel revenues $ 244,785 $ 167,726 $ -- Participating lease revenues 125,405 127,033 75,893 Management fee and service fee income 16,353 6,771 -- Racecourse income 26,344 26,344 -- Interest and other income 20,226 7,377 600 ----------- ----------- ----------- Total revenues 433,113 335,251 76,493 ----------- ----------- ----------- Operating costs and expenses: Hotel expenses 199,717 140,312 8,225 Racing facility operations 21,620 21,620 -- General and administrative 22,805 17,077 4,500 Interest expense 60,617 50,954 7,380 Depreciation and amortization 59,077 52,685 17,420 Cost of acquiring leaseholds 54,499 54,499 -- Merger expenses 9,411 -- -- ----------- ----------- ----------- Total operating costs and expenses 427,746 337,147 37,525 ----------- ----------- ----------- Operating income (loss) 5,367 (1,896) 38,968 Equity in earnings from unconsolidated subsidiaries 6,093 6,015 5,845 ----------- ----------- ----------- Income before minority interests and income taxes 11,460 4,119 44,813 Income attributable to minority interests 2,843 3,276 6,822 ----------- ----------- ----------- Income before income taxes and extraordinary item 8,617 843 37,991 Provision for income taxes 4,096 481 -- ----------- ----------- ----------- Income before extraordinary item 4,521 $ 362 $ 37,991 Extraordinary item (2,534) (2,534) -- ----------- ----------- ----------- Net income (loss) $ 1,987 $ (2,172) $ 37,991 =========== =========== =========== Funds from operations ("FFO")(2) $ 131,504 $ 111,542 $ 64,463 =========== =========== =========== FFO per share - diluted $ 1.81 $ 1.69 $ 1.53 =========== =========== =========== Earnings per share: Basic Income before merger expenses and cost of leaseholds acquired and extraordinary item $ 1.12 $ 1.01 $ 1.07 Net income $ 0.03 $ (.04) $ 1.07 Diluted Income before merger expenses and cost of leaseholds acquired and extraordinary item $ 1.09 $ 0.98 $ 1.06 Net income $ 0.03 $ (0.04) $ 1.06 Weighted average number of common shares and common share equivalents outstanding: Basic 60,869 54,201 35,400 Diluted 62,885 56,022 35,938 Diluted shares and Op Units 72,844 65,981 42,200
(1) The pro forma information assumes completion of the acquisition of Wyndham Hotel Corporation and the acquisition of nine hotels and two leaseholds from partnerships affiliated with members of the Trammell Crow family as if such transaction had occurred on October 1, 1997, and includes historical results for prior periods. (2) Funds from operations exclude the cost of acquiring leaseholds, merger expenses and extraordinary item. more... PATRIOT AMERICAN HOSPITALITY ADD 7 PATRIOT AMERICAN HOSPITALITY, INC./WYNDHAM INTERNATIONAL, INC. HOTEL STATISTICS
THREE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 % CHANGE 1997 1996 % CHANGE ---- ---- -------- ---- ---- -------- OWNED PORTFOLIO(1) (EXCLUDING HOTELS UNDER RENOVATION) Average daily rate $ 95.71 $ 88.55 $ 95.83 $ 88.23 Occupancy 66.5% $ 66.5% 70.7% 70.6% RevPAR $ 63.63 $ 58.86 8.1% $ 67.70 $ 62.27 8.7% WYNDHAM DOMESTIC MANAGED PORTFOLIO(2) WYNDHAM HOTELS Average daily rate $ 106.65 $ 101.74 $ 105.39 $ 99.56 Occupancy 67.2% $ 66.5% 71.3% 69.7% RevPAR $ 71.66 $ 67.71 5.8% $ 75.11 $ 69.44 8.2% WYNDHAM GARDEN HOTELS Average daily rate $ 86.56 $ 79.03 $ 86.93 $ 79.82 Occupancy 67.8% 65.8% 72.9% 69.5% RevPAR $ 58.67 $ 52.03 12.8% $ 63.40 $ 55.50 14.2% WYNDHAM RESORTS Average daily rate $ 103.79 $ 99.15 $ 123.38 $ 113.74 Occupancy 49.8% 48.8% 58.5% 61.1% RevPAR $ 51.68 $ 48.37 6.8% $ 72.23 $ 69.47 4.0% MANAGEMENT SERVICES Average daily rate $ 118.10 $ 104.29 $ 111.99 $ 101.45 Occupancy 72.6% 75.3% 78.7% 77.2% RevPAR $ 85.76 $ 78.57 9.2% $ 88.17 $ 78.31 12.6% TOTAL Average daily rate $ 96.85 $ 90.53 $ 96.60 $ 90.32 Occupancy 67.4% 66.2% 72.1% 69.7% RevPAR $ 65.26 $ 59.90 8.9% $ 69.65 $ 62.96 10.6%
(1) Includes all hotels currently owned by the companies. (2) The Comparable Hotel Group includes hotels that were in the portfolio for one full common fiscal quarter in both periods presented. In instances where a hotel was not open throughout both years being compared, the data relating to that hotel is only included for the full common fiscal quarter(s) that it was open in both periods. -----END PRIVACY-ENHANCED MESSAGE-----