001-13957 91-1032187
------------------------ -------------------
(Commission File Number) (I.R.S. Employer
Identification No.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 31, 2001, WestCoast Hospitality Corporation (Company) acquired all of the outstanding stock of Red Lion Hotels, Inc., a Delaware corporation (Red Lion). The seller was Doubletree Corporation, a Delaware corporation (Seller).
As of the date of the acquisition and this disclosure, Red Lion owns nine hotel properties, holds the lessee interest on long term leases for 12 hotel properties (one of which is held through its wholly owned subsidiary Boise-Red Lion/Down-Towner, Inc., an Idaho corporation), franchises the Red Lion brand and system to 22 independently owned hotel properties, holds marketing and brand license agreements with four hotels located in Seattle and Yakima, Washington; Austin, Texas; and Denver, Colorado, and holds operating assets supporting those assets and operations. Red Lion used those assets and operations prior to the acquisition in the conduct of its hospitality business, which the Company intends to continue.
The transaction is fully described in and was completed in accordance with a Purchase Agreement dated December 21, 2001, among the Company, Seller and Hilton Hotels Corporation.
The total purchase price was Fifty Million Six Hundred Twenty-Eight Thousand Six
Hundred Thirty-Nine Dollars ($50,628,639), which was paid at closing as follows:
Forty percent (40%) (Twenty Million Two Hundred Fifty One Thousand Five Hundred
Thirty Nine Dollars ($20,251,539)) in cash; thirty percent (30%) by issuance to
Seller of 303,771 shares of the Company's Series A Preferred Stock; and thirty
percent (30%) by issuance to Seller of 303,771 shares of the Company's Series B
Preferred Stock. The source of funds for the cash portion of the purchase price
was loan proceeds from the Company's credit facility with U.S. Bank National
Association and the other financial institutions party thereto.
The purchase price was negotiated at arm's length between the Company and Seller, which is an unrelated third party.
This Form 8-K/A amends the Form 8-K filed on January 15, 2002 to include the financial information required under Regulation S-X.
(a) Financial statements of business acquired
(b) Pro forma financial information
(c) Exhibits
99.4 Audited combined financial statements of Red Lion
99.5 Unaudited combined financial statements of Red Lion
99.6 Pro forma condensed combined balance sheet and statement of operations of WestCoast Hospitality Corporation and Red Lion as of and for the nine months ended September 30, 2001 and for the year ended December 31, 2000.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized.
Dated: March 15, 2002 WESTCOAST HOSPITALITY CORPORATION
By: /s/ Arthur M. Coffey
------------------------------------------------
Executive Vice President/Chief Financial Officer
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Red Lion Hotels, Inc.
We have audited the accompanying combined balance sheet of certain Red Lion and Doubletree Hotels (collectively "Red Lion"), as defined in Note 1, as of December 31, 2000 and the related combined statements of income and stockholder's net investment, and cash flows for the year then ended. These financial statements are the responsibility of Red Lion's management. Our responsibility is to express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. These statements require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined 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 audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all material respects, the financial position of Red Lion at December 31, 2000 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
February 8, 2002
Spokane, Washington
DECEMBER 31, 2000
ASSETS
CURRENT ASSETS
Cash and equivalents $ 3,687,830
Accounts receivable, net of allowance for possible
losses of approximately $111,500 3,277,276
Inventories 775,473
Prepaid expenses, deposits and other 894,102
Deferred income taxes (Note 6) 411,297
------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 9,045,978
PROPERTY AND EQUIPMENT, net (Notes 1, 3 and 7) 45,486,263
INTANGIBLE ASSETS, net (Notes 1 and 4) 46,529,467
------------------------------------------------------------------------------
TOTAL ASSETS $101,061,708
==============================================================================
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LIABILITIES AND STOCKHOLDER'S NET INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 1,476,982
Accrued expenses (Note 5) 3,833,559
------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,310,541
DEFERRED INCOME TAXES (Note 6) 13,123,382
------------------------------------------------------------------------------
TOTAL LIABILITIES 18,433,923
COMMITMENTS (Note 7)
STOCKHOLDER'S NET INVESTMENT 82,627,785
------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S NET INVESTMENT $101,061,708
==============================================================================
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See accompanying notes to combined financial statements.
YEAR ENDED DECEMBER 31, 2000
REVENUES
Hotels and restaurants $ 81,811,772
Other fees and income 2,696,678
--------------------------------------------------------------------------------
TOTAL REVENUES 84,508,450
--------------------------------------------------------------------------------
OPERATING EXPENSES
Hotel and restaurant operations 50,515,812
Management fees (Note 8) 2,535,277
Other operating expenses (Note 8) 24,644,067
Depreciation and amortization of tangible assets (Note 3) 4,235,675
Amortization of intangible assets (Note 4) 1,256,800
--------------------------------------------------------------------------------
TOTAL EXPENSES 83,187,631
--------------------------------------------------------------------------------
OPERATING INCOME 1,320,819
OTHER EXPENSE 707,020
--------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 613,799
INCOME TAX PROVISION (Note 6) 118,000
--------------------------------------------------------------------------------
NET INCOME 495,799
NET TRANSFERS TO HILTON (Note 1) (553,134)
STOCKHOLDER'S NET INVESTMENT, beginning of year 82,685,120
--------------------------------------------------------------------------------
STOCKHOLDER'S NET INVESTMENT, end of year $ 82,627,785
================================================================================
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See accompanying notes to combined financial statements.
YEAR ENDED DECEMBER 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 495,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,492,475
Deferred income tax benefit (859,659)
Changes in assets and liabilities:
Accounts receivable (86,257)
Inventories (89,925)
Prepaid expenses, deposits and income taxes refundable 317,715
Accounts payable and accrued expenses 754,559
--------------------------------------------------------------------------------
Net cash provided by operating activities 6,024,707
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (3,258,865)
--------------------------------------------------------------------------------
Net cash used by investing activities (3,258,865)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfers to Hilton (553,134)
--------------------------------------------------------------------------------
Net cash used by financing activities (553,134)
--------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS
Net increase in cash and cash equivalents 2,212,708
Cash and cash equivalents, beginning of year 1,475,122
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 3,687,830
================================================================================
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See accompanying notes to combined financial statements.
1. ORGANIZATION Red Lion Hotels, Inc. is a wholly-owned subsidiary of
AND BASIS OF Doubletree Corporation. Red Lion Hotels, Inc. and
PRESENTATION Doubletree Corporation are primarily engaged in the
ownership, management and development of hotels and the
franchising of lodging properties.
On November 30, 1999, Red Lion Hotels, Inc. and Doubletree
Corporation were included with numerous other entities that
were acquired by Hilton Hotels Corporation ("Hilton")
through Hilton's acquisition of Promus Hotel Corporation
("Promus"). The acquisition of Promus by Hilton was a
business combination accounted for under the purchase
method of accounting. The purchase price was allocated to
the estimated fair values of the liabilities assumed and
the assets acquired (including identifiable intangibles
related to leases and the Red Lion brand name). At the time
of the Promus acquisition, Red Lion Hotels, Inc.'s assets
and operations included several hotels in addition to the
hotels owned by Red Lion Hotels, Inc., which were sold in
2001 to WestCoast Hospitality Corporation ("WestCoast").
On December 31, 2001, WestCoast acquired all of the
outstanding stock of Red Lion Hotels, Inc. from Doubletree
Corporation. As of the date of the acquisition, Red Lion
Hotels, Inc. owned nine hotel properties, held the lessee
interest on long-term leases for 12 hotel properties,
franchised the Red Lion brand and system to 22
independently owned hotel properties, held marketing and
brand license agreements with four hotels located in
Seattle and Yakima, Washington; Austin, Texas; and Denver,
Colorado, and held operating assets supporting those assets
and operations. Red Lion Hotels, Inc. uses those assets and
operations in the conduct of its hospitality business in
select markets throughout the United States, predominately
in the western states.
The combined financial statements include the accounts of
the nine owned and 12 leased hotel properties, which were
owned by Red Lion Hotels, Inc. at the time Red Lion Hotels,
Inc. was acquired by WestCoast and reflect the historical
results of operations and cash flows of these hotel
properties, and certain intangible assets of Red Lion
Hotels, Inc. related to those operations. All of these
properties were
6
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RED LION
NOTES TO COMBINED FINANCIAL STATEMENTS
|
under the common ownership of Red Lion Hotels, Inc. as of and for the year ended December 31, 2000; and are collectively referred to as "Red Lion." All significant intercompany transactions and accounts have been eliminated in the combined financial statements. The combined financial statements do not include the franchise and marketing operations of Red Lion Hotels, Inc., which was also acquired by WestCoast, as these revenues and expenses were not separated from other corporate operations. The accounts of other entities and properties or franchises under the common ownership of Red Lion Hotels, Inc., which were not included in the acquisition by WestCoast, have also not been included in the combined financial statements.
During the period presented in these financial statements, Red Lion was an integral part of Hilton's overall operations and separate financial statements were not prepared for Red Lion. The accompanying financial statements have been prepared from the historical accounting records of Red Lion and are based upon the purchase price allocation of the assets and liabilities acquired by Hilton in the Promus acquisition and the historical results of operations of the Red Lion properties.
The properties included in the combined financial statements are as follows:
Owned properties:
Stockholder's net investment in these combined financial statements represents Hilton's net investment in Red Lion (through Hilton's wholly-owned subsidiaries, Red Lion Hotels, Inc. and Doubletree Corporation). The net transfers to Hilton represent the change in intercompany payables and receivables between Hilton and the Red Lion properties for the period, which had not been settled as of December 31, 2000. The financial information included herein may not reflect the financial status, operating results, changes in stockholder's net investment and cash flows of Red Lion in the future or what they would have been had Red Lion been a separate stand-alone entity during the period presented.
The combined financial statements of Red Lion include fees
paid to Hilton affiliates in connection with the management
of the hotels, including centralized legal, accounting,
treasury, real estate, information technology,
distribution, customer service, sales and marketing, and
other Hilton corporate services and infrastructure costs.
These fees have been determined on the bases that Hilton
and Red Lion consider to be reasonable reflections of the
utilization of services provided or the benefit received by
Red Lion. Additionally, the combined financial statements
include an allocated marketing fee, which is paid to Hilton
for centralized marketing expenses related to the Red Lion
properties. The management fee and other costs and expenses
were principally allocated to Red Lion based on revenues,
headcount, or number of hotel rooms. No intercompany
interest expense has been allocated to, or included in, the
accompanying combined financial statements.
These allocated costs and expenses, which management
believes are reasonable, may not necessarily be indicative
of the results that would have been attained by Red Lion
had it been operated as a separate entity.
2. SUMMARY OF CASH AND CASH EQUIVALENTS
ACCOUNTING
POLICIES Cash equivalents consist of short-term, highly liquid
investments with remaining maturities at time of purchase
of three months or less. Red Lion places its cash with high
quality credit institutions. At times, cash balances may be
in excess of federal insurance limits.
INVENTORIES
Inventories consist of food and beverage products held for
sale at the properties operated by Red Lion. Inventories
are valued at the lower of cost, determined on a first-in,
first-out basis, or net realizable value.
9
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RED LION
NOTES TO COMBINED FINANCIAL STATEMENTS
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Property and equipment is stated at cost. The cost of some property and equipment is based upon the estimated fair value determined in the acquisition by Hilton (Note 1). Depreciation is provided using the straight-line method over the lesser of the estimated useful lives of the related assets or the lease term. The service lives of assets are generally 40 years for buildings and eight years for building improvements and furniture and equipment.
Major additions and betterments are capitalized. Costs of maintenance and repairs, which do not improve or extend the lives of the respective assets are expensed currently. When items are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized in operations.
Intangible assets consist of amounts allocated to the Red Lion brand name and long-term leases arising from the allocation of the purchase price of the acquisition which was in excess of the estimated fair values of tangible assets acquired and liabilities assumed (see Note 1).
The brand name was valued based on an independent valuation of the estimate of the amount of royalty income that could be generated from the brand name if it was licensed to an independent third-party owner. The resulting cash flow was discounted using the estimated weighted average cost of capital for the brand name. The brand name is amortized on a straight-line basis over 40 years. Accumulated amortization of the brand totaled approximately $705,000 at December 31, 2000.
Leases arising in connection with the purchase acquisition are amortized over the term of the related leases using the straight-line method. Accumulated amortization of leases totaled approximately $656,500 at December 31, 2000.
The carrying value of the Red Lion's long-lived assets are reviewed when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on expected future cash flows, then a loss is recognized in the statement of income using a fair value based model.
The income tax attributes and operating results of Red Lion historically have been included in Hilton's consolidated U.S. and state income tax returns. The provision for income taxes in Red Lion's combined financial statements has been determined on a separate-return basis. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.
Revenue is generally recognized as services are performed. Owned and leased hotel revenue represents primarily room rental and food and beverage sales from owned and leased hotels.
In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that a company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase
business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that a company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that a company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires a company to complete a transitional goodwill impairment test six months from the date of adoption. Red Lion is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.
The acquisition of Promus (which included Red Lion Hotels, Inc.) by Hilton was accounted for using the purchase method and no goodwill was allocated to the Red Lion Hotels, Inc. portion. As of December 31, 2000, the net carrying amount of intangible assets other than goodwill is approximately $46,529,000. Amortization expense during the year ended December 31, 2000 was approximately $1,256,800. Currently, Red Lion is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." The effective date for implementation of this new standard is January 1, 2001. Adoption of the statement had no impact on Red Lion's combined financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, which summarized the SEC's views and provides guidance on the topic of revenue recognition. Adoption of the SAB did not have any impact on Red Lion's results of operations.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
3. PROPERTY AND Property and equipment at December 31, 2000 were as
EQUIPMENT follows:
Buildings and leasehold improvements $ 29,153,266
Furniture, fixtures and equipment 18,141,053
Landscaping and land improvements 1,119,692
-----------------------------------------------------------
48,414,011
Less accumulated depreciation and
amortization 5,721,417
-----------------------------------------------------------
42,692,594
Land 2,793,669
-----------------------------------------------------------
$ 45,486,263
===========================================================
4. INTANGIBLE Intangible assets at December 31, 2000 were as follows:
ASSETS
Brand name $ 26,032,000
Leases 21,859,000
-----------------------------------------------------------
47,891,000
Less accumulated amortization (1,361,533)
-----------------------------------------------------------
$ 46,529,467
===========================================================
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RED LION
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5. ACCRUED Accrued expenses at December 31, 2000 were as follows:
EXPENSES
Accrued compensation and benefits $ 2,855,582 Deposits 253,332 Accrued sales and occupancy tax 536,706 Accrued property tax 30,020 Other accrued expenses 157,919 ----------------------------------------------------------- Total $ 3,833,559 =========================================================== |
6. INCOME TAXES Income taxes for the year ended December 31, 2000 were as follows:
Current:
Federal $ 795,659
State 182,000
-----------------------------------------------------------
Total current expense 977,659
-----------------------------------------------------------
Deferred:
Federal (718,659)
State (141,000)
-----------------------------------------------------------
Total deferred benefit (859,659)
-----------------------------------------------------------
Income tax provision $ 118,000
===========================================================
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The reconciliation of the federal income tax rate to Red Lion's effective rate for December 31, 2000 is as follows:
Amount Percent
-----------------------------------------------------------------------------
Provision at statutory rate $ 208,692 34.0%
Effect of tax credits (141,100) (23.0)
State taxes, net of federal benefit 27,000 4.4
Other 23,408 3.8
-----------------------------------------------------------------------------
$ 118,000 19.2%
=============================================================================
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Components of the net deferred tax assets and liabilities at December 31, 2000 were as follows:
Deferred
Deferred Tax
Tax Assets Liabilities
-----------------------------------------------------------------------------
Property and equipment $ 4,557,754 $ -
Compensation 368,910 -
Reserves 42,387 -
Intangible assets - 17,681,136
-----------------------------------------------------------------------------
Totals 4,969,051 17,681,136
Current deferred taxes 411,297 -
-----------------------------------------------------------------------------
Noncurrent deferred taxes $ 4,557,754 $ 17,681,136
=============================================================================
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7. OPERATING Red Lion leases certain hotel properties and land under
LEASES operating leases. As of December 31, 2000, 12 of the hotel
properties are leased. The leases require the payment of
rent equal to the greater of a fixed base rent or
percentage rent based on a percentage of revenue, and
expire through July 2020, with varying renewal options. The
lessor has a security interest in the leasehold
improvements on the properties.
The land leases represent ground leases for certain owned
hotels and, in addition to minimum base rental payments,
may require the payment of additional rents based on
varying percentages of revenue or income. Total rent
expense incurred under the hotel property and land leases
was approximately $6.1 million in 2000. Minimum lease
commitments under noncancellable operating leases,
approximate $5.3 million annually through 2002, $5.1
million annually from 2003 through 2005 and an aggregate
commitment thereafter of $76.7 million through 2020.
8. RELATED PARTY During 2000, Red Lion paid approximately $2.5 million for
TRANSACTIONS management fees and $1.6 million for marketing fees to
Hilton and affiliated entities (See Note 1).
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9. FAIR VALUE The following estimated fair value amounts have been
OF FINANCIAL determined using available market information and
INSTRUMENTS appropriate valuation methodologies. However, considerable
judgment is required to interpret market data and to
develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative
of the amounts Red Lion could realize in a current market
exchange.
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate that value. Potential
income tax ramifications related to the realization of
unrealized gains and losses that would be incurred in an
actual sale or settlement have not been taken into
consideration.
The carrying amounts for cash and cash equivalents,
accounts receivable and current liabilities are reasonable
estimates of their fair values.
The estimated fair values of financial instruments at
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Carrying Fair
Amount Value
-----------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 3,687,830 $ 3,687,830
Accounts receivable 3,277,276 3,277,276
Financial liabilities:
Current liabilities $ 5,310,541 $ 5,310,541
=============================================================================
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SEPTEMBER 30, 2001
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,126,461
Accounts receivable, net of allowance for possible
losses of approximately $90,500 3,380,279
Inventories 740,069
Prepaid expenses, deposits and other 1,101,063
Deferred income taxes 411,297
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,759,169
PROPERTY AND EQUIPMENT, net 45,952,755
INTANGIBLE ASSETS, net 45,586,867
--------------------------------------------------------------------------------
TOTAL ASSETS $99,298,791
================================================================================
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LIABILITIES AND STOCKHOLDER'S NET INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,172,401
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 6,172,401
DEFERRED INCOME TAXES 13,123,382
--------------------------------------------------------------------------------
TOTAL LIABILITIES 19,295,783
STOCKHOLDER'S NET INVESTMENT 80,003,008
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S NET INVESTMENT $99,298,791
================================================================================
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See accompanying notes to combined financial statements.
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000
REVENUES
Hotels and restaurants $ 62,454,800 $ 63,541,222
Other fees and income 1,803,467 2,124,264
--------------------------------------------------------------------------------
TOTAL REVENUES 64,258,267 65,665,486
--------------------------------------------------------------------------------
OPERATING EXPENSES
Hotel and restaurant operations 33,696,111 31,361,320
Other operating expenses 24,169,502 27,374,955
Depreciation and amortization of
tangible assets 4,199,245 3,379,516
Amortization of intangible assets 942,600 942,600
--------------------------------------------------------------------------------
TOTAL EXPENSES 63,007,458 63,058,391
--------------------------------------------------------------------------------
OPERATING INCOME 1,250,809 2,607,095
OTHER EXPENSE (INCOME) (2,441) 192,371
--------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,253,249 2,414,724
INCOME TAX PROVISION 352,000 770,000
--------------------------------------------------------------------------------
NET INCOME $ 901,249 1,644,724
================================================================================
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See accompanying notes to combined financial statements.
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 901,249 $ 1,644,724
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,141,845 4,648,971
Changes in assets and liabilities:
Accounts receivable (103,002) (971,525)
Inventories 35,404 685,548
Prepaid expenses, deposits and income taxes refundable (206,961) (637,159)
Accounts payable and accrued expenses 861,860 1,515,887
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,630,395 (6,886,446)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (4,665,737) (6,091,142)
------------------------------------------------------------------------------------------------------
Net cash used by investing activities (4,665,737) (6,091,142)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net transfers to Hilton (3,526,027) (571,949)
------------------------------------------------------------------------------------------------------
Net cash used by financing activities (3,526,027) (571,949)
------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS
Net increase (decrease) in cash and cash equivalents (1,561,369) 223,355
Cash and cash equivalents, beginning of period 3,687,830 1,475,122
------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,126,461 $ 1,698,477
======================================================================================================
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See accompanying notes to combined financial statements.
1. ORGANIZATION Red Lion Hotels, Inc. is a wholly-owned subsidiary of
AND BASIS OF Doubletree Corporation. Red Lion Hotels, Inc. and
PRESENTATION Doubletree Corporation are primarily engaged in the
ownership, management and development of hotels and the
franchising of lodging properties.
On December 31, 2001, WestCoast Hospitality Corporation
acquired all of the outstanding stock of Red Lion Hotels,
Inc. from Doubletree Corporation. The combined financial
statements include the accounts of the nine owned and 12
leased hotel properties, which were owned by Red Lion
Hotels, Inc. at the time Red Lion Hotels, Inc. was
acquired by WestCoast and reflect the historical results
of operations and cash flows of these hotel properties,
and certain intangible assets of Red Lion Hotels, Inc.
related to those operations. (collectively referred to as
"Red Lion").
2. INTERIM The unaudited combined financial statements included
FINANCIAL herein have been prepared by Red Lion (the Company)
INFORMATION pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain and footnote
disclosures normally included in financial statements
prepared in accordance accepted accounting principles have
been condensed or omitted as permitted by such rules and
regulations. The Company believes that the disclosures
included herein are adequate; however, these combined
statements should be read in conjunction with the
financial statements and the notes thereto for the year
ended December 31, 2000 filed as Exhibit 99.4 of this Form
8-K/A.
In the opinion of management, these unaudited financial
statements contain all of the adjustments (normal and
recurring in nature) necessary to present fairly the
combined financial position of the Company at September
30, 2001 and the combined results of operations for the
nine months ended September 30, 2001 and 2000 and cash
flows for the nine months ended September 30, 2001 and
2000. The results of operations for the periods presented
may not be indicative of those, which may be expected for
a full year.
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The following condensed pro forma combined balance sheet and condensed pro forma combined statements of operations, collectively, the "Pro Forma Financial Statements", were prepared by WestCoast Hospitality Corporation ("WestCoast"), to illustrate the estimated effects of the business combination to be accounted for as a purchase under generally accepted accounting principles. Effective December 31, 2001, WestCoast acquired all of the outstanding stock of Red Lion Hotels, Inc. (Red Lion).
The financial information of WestCoast and Red Lion has been combined as if the acquisition occurred as of January 1, 2000 for purposes of the condensed pro forma combined statement of operations, and as of September 30, 2001, for purposes of the condensed pro forma combined balance sheet. There are no differences between WestCoast's and Red Lion's accounting policies which are expected to have a material impact on the Pro Forma Financial Statements. The Pro Forma Financial Statements do not purport to present the combined financial position or results of operations if the combination had occurred at the beginning of the period or to project the combined financial position or results of operations for any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the historical consolidated financial statements, including the notes thereto, of WestCoast Hospitality Corporation, which are included in the Company's 2000 Form 10K and the audited combined financial statements of Red Lion, which are included elsewhere in this document. The combined financial statements of Red Lion presented in Exhibit 99.4 include the accounts of the nine owned hotel properties and the 12 leased hotel properties which were acquired by WestCoast and reflect the historical results of operations and cash flows of these hotel properties, and certain intangible assets of Red Lion Hotels, Inc. related to those operations. The combined financial statements do not include the franchise and marketing operations of Red Lion Hotels, Inc., which was also acquired by WestCoast, as these revenues and expenses could not be specifically carved out of the corporate operations of Red Lion Hotels, Inc. for the separate combined financial statements. Therefore, the Pro Forma Financial Statements also exclude these revenues and expenses.
The Pro Forma Financial Statements are presented utilizing the purchase method
of accounting whereby the fair value of the identified tangible and intangible
assets acquired and the fair value of the liabilities assumed have been
recorded. The purchase price was not in excess of these net assets acquired and
therefore no goodwill has been recorded. The combined pro forma results of
operations presented herein are not necessarily indicative of the future results
of operations.
--------------------------------------------------------------------------------------------------------------------------
WESTCOAST RED LION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 3,587 $ 2,127 $ $ 5,714
Accounts receivable 6,761 3,380 10,141
Inventories 1,159 740 1,899
Prepaid expenses and deposits 1,355 1,101 2,456
Deferred income taxes 411 (411)(e) 0
------------ ------------ ------------ ------------
Total current assets 12,862 7,759 (411) 20,210
Property and equipment, net 244,847 45,953 (10,624)(a) 280,176
Intangible assets, net 28,255 45,587 (33,568)(b) 40,274
Other assets, net 22,409 22,409
------------ ------------ ------------ ------------
Total assets $ 308,373 $ 99,299 $ (44,603) $ 363,069
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable and other accrued expenses $ 3,360 $ 2,860 $ 2,605 (c) $ 8,825
Accrued payroll and related benefits 4,256 3,313 7,569
Accrued interest payable 2,362 2,362
Income taxes payable 5,922 5,922
Long-term debt, due within one year 3,189 3,189
Capital lease obligations, due within one year 393 393
------------ ------------ ------------ ------------
Total current liabilities 19,482 6,173 2,605 28,260
Long-term debt, due after one year 114,653 114,653
Notes payable to bank 33,100 20,252 (d) 53,352
Capital lease obligations, due after one year 365 365
Deferred income taxes 18,773 13,123 (17,834)(e) 14,062
Minority interest in partnerships 3,009 3,009
------------ ------------ ------------ ------------
Total liabilities 189,382 19,296 5,023 213,701
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock $ 0 30,377 (f) 30,377
Common stock 130 130
Additional paid-in capital 83,966 83,966
Retained earnings 34,895 34,895
Stockholders' net investment 80,003 (80,003)(g)
------------ ------------ ------------ ------------
Total stockholders' equity 118,991 80,003 (49,626) 149,368
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 308,373 $ 99,299 $ (44,603) $ 363,069
============ ============ ============ ============
|
SEE NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------------------------------------------------
WESTCOAST RED LION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
REVENUES:
Hotels and Restaurants $ 106,540 $ 84,508 $ $ 191,048
Franchise, Central Services and Development 3,643 3,643
TicketsWest 5,705 5,705
Real Estate Division 9,540 9,540
Corporate Services 378 378
------------ ------------ ------------ ------------
Total revenues 125,806 84,508 0 210,314
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Direct:
Hotels and Restaurants 78,626 77,695 156,321
Franchise, Central Services and Development 1,207 1,207
TicketsWest 5,702 5,702
Real Estate Division 4,378 4,378
Corporate Services 227 227
Depreciation and amortization of tangible assets 9,578 4,236 (3,537)(h) 10,277
Amortization of intangible assets 874 1,257 (1,023)(h) 1,108
------------ ------------ ------------ ------------
Total direct expenses 100,592 83,188 (4,560) 179,220
Undistributed corporate expenses 1,666 0 1,666
------------ ------------ ------------ ------------
Total expenses 102,258 83,188 (4,560) 180,886
------------ ------------ ------------ ------------
Operating income 23,548 1,320 4,560 29,428
Other income (expense), net (14,421) (707) (980)(i) (16,108)
------------ ------------ ------------ ------------
Income before income taxes 9,127 613 3,580 13,320
Income tax provision (benefit) 3,306 118 1,400 (j) 4,824
------------ ------------ ------------ ------------
Income from continuing operations before
nonrecurring charges or credits directly
attributable to the transaction $ 5,821 $ 495 2,180 $ 8,496
============ ============
Preferred stock dividends (2,582) (2,582)
------------ ------------
Income available to common shareholders $ (402) $ 5,914
============ ============
Net income per share - basic and diluted $ 0.45 $ 0.46
============ ============
Weighted average shares outstanding - basic 12,941 12,941
============ ============
Weighted average shares outstanding - diluted 13,237 13,237
============ ============
|
--------------------------------------------------------------------------------------------------------------------------
WESTCOAST RED LION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
REVENUES:
Hotels and Restaurants $ 78,541 $ 64,258 $ $ 142,799
Franchise, Central Services and Development 2,571 2,571
TicketsWest 5,645 5,645
Real Estate Division 7,411 7,411
Corporate Services 246 246
------------ ------------ ------------ ------------
Total revenues 94,414 64,258 0 158,672
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Direct:
Hotels and Restaurants 57,174 57,865 115,039
Franchise, Central Services and Development 1,254 1,254
TicketsWest 5,342 5,342
Real Estate Division 3,412 3,412
Corporate Services 132 132
Depreciation and amortization of tangible assests 7,637 4,199 (3,675)(h) 8,161
Amortization of goodwill and intangible assets 642 943 (767)(h) 818
------------ ------------ ------------ ------------
Total direct expenses 75,593 63,007 (4,442) 134,158
Undistributed corporate expenses 1,756 1,756
------------ ------------ ------------ ------------
Total expenses 77,349 63,007 (4,442) 135,914
------------ ------------ ------------ ------------
Operating income 17,065 1,251 4,442 22,758
Other income (expense), net (4,161) 2 (735)(i) (4,894)
------------ ------------ ------------ ------------
Income before income taxes 12,904 1,253 3,707 17,864
Income tax provision 4,749 352 1,473 (j) 6,574
------------ ------------ ------------ ------------
Income from continuing operations before
nonrecurring charges or credits directly
attributable to the transaction $ 8,155 $ 901 2,234 11,290
============ ============
Preferred stock dividends (1,937)(k) (1,937)
------------ ------------
Income available to common shareholders $ 297 $ 9,353
============ ============
Net income per share - basic and diluted $ 0.63 $ 0.72
============ ============
Weighted average shares outstanding - basic 12,951 12,951
============ ============
Weighted average shares outstanding - diluted 13,237 13,237
============ ============
|
WestCoast acquired Red Lion Hotels, Inc. on December 31, 2001. The acquisition has been accounted for as a purchase. The purchase price has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
Purchase price and liabilities assumed:
Cash paid through draw on line-of-credit $ 20,252
Preferred stock issued 30,377
Cost of acquisition and other liabilities assumed 2,673
---------
Total purchase price and liabilities assumed $ 53,302
=========
Fair value of assets acquired:
Identified intangibles $ 12,019
Deferred taxes related to the acquisition 4,711
Net current assets 1,243
Property and equipment 35,329
---------
$ 53,302
=========
|
The following balance sheet adjustments were made to reflect the combination of WestCoast and Red Lion as of September 30, 2001.
(a) The purchase price has been allocated to the acquired land, buildings, furniture and fixtures as follows based upon the estimated fair value of the components (in thousands):
Depreciable
Amount Life
---------- -----------
Land $ 11,993
Buildings 20,559 35 years
Furniture and fixtures 2,777 15 years
----------
$ 35,329
Red Lion historical carrying value 45,953
----------
Pro forma adjustment $ (10,624)
==========
|
Brand name $ 6,878
Leases 4,332
Franchise agreements 809
----------
$ 12,019
Red Lion historical carrying value 45,587
----------
Pro forma adjustment $ (33,568)
==========
|
The leases and franchise agreements are being amortized over the average remaining term of the agreements of 30 years and 9 years, respectively. The brand name is considered to have an indefinite remaining life and is therefore not being amortized.
(c) Represents the cost of acquisition and other liabilities assumed of $2,673,000 reduced by $68,000 as the difference between the actual net current assets (excluding deferred taxes) at September 30, 2001 and the net current assets of $1,234,000 as defined by the purchase agreement.
(d) Represents the amount of the purchase price which will be financed by the Company's revolving line-of-credit agreement.
(e) Represents the net adjustment to recognize deferred tax assets resulting from the difference between the historical tax basis of the assets and the purchase price of the acquisition as follows (in thousands):
Net deferred tax asset $ 4,711
Red Lion historical net deferred tax liability (12,712)
---------
Pro forma adjustment $ (17,423)
=========
|
(f) Represents the amount of the purchase price which will be financed through issuance of preferred stock.
(g) Represents the elimination of Red Lion historical net equity.
The following adjustments were made to the pro forma statements of operations to
reflect the combination of WestCoast and Red Lion as if they occurred on January
1, 2000. The combined pro forma results of operations presented herein are not
necessarily indicative of the future results of operations of the combined
companies.
Depreciation Amortization
---------- ----------
Year ended December 31, 2000
Red Lion historical expense $ 4,236 $ 1,257
Expense based on allocation
of purchase price 699 234
---------- ----------
Pro Forma Adjustment $ (3,537) $ (1,023)
========== ==========
Nine months ended September 30, 2001
Red Lion historical expense 4,199 943
Expense based on allocation
of purchase price 524 176
---------- ----------
Pro Forma adjustment $ (3,675) $ (767)
========== ==========
|
(i) Represents the additional interest expense which would be incurred by the Company based on the purchase price of Red Lion, which will be financed under the Company's revolving line-of-credit agreement. The interest rate used in the pro forma adjustments was 4.8375% based upon the borrowing rate under the Company's line-of-credit agreement as of December 31, 2001. If the rate increased or decreased by 0.25%, the Company's pro forma interest expense, net income and earnings per share for the nine months ended September 30, 2001 would increase or decrease by approximately $38 thousand, $25 thousand, and $0.0, respectively. If the rate increased or decreased by 0.25%, the Company's pro forma interest expense, net income and earnings per share for the year ended December 31, 2000 would increase or decrease by approximately $51 thousand, $32 thousand and $0.0, respectively.
(j) Represents estimated income taxes related to the tax effects of the acquisition and the pro forma adjustments based on the Company's historical effective tax rate.
(k) Represents dividends which would be incurred by the Company related to the $30,377,000 of preferred stock issued as part of the purchase price.