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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
Commission File Number 1-9320
Wyndham International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-2878485
(State or other (I.R.S.
jurisdiction Employer Identification
of incorporation or No.)
organization)
1950 Stemmons Freeway,
Suite 6001 Dallas, Texas 75207
(Address of principal (Zip Code)
executive offices)
(214) 863-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par New York Stock Exchange
value $0.01 per share
Preferred Stock Purchase
Rights New York Stock Exchange
(Title of each class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act:
Series A Convertible Preferred Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
Wyndham International, Inc. as of March 19, 2002 was $125 million, based upon a
price of $.82 per share.
As of March 19, 2002, there were 167,847,940 shares of Wyndham class A
common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Part III is incorporated by reference to
the definitive proxy statement for the 2002 annual meeting of the stockholders
of Wyndham, which will be filed with the Securities and Exchange Commission not
later than April 30, 2002.
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WYNDHAM INTERNATIONAL, INC.
Form 10-K Annual Report
Index
Form 10-K
Item No. Report Page
- -------- -----------
PART I
1. Business............................................................................. 1
2. Properties........................................................................... 1
3. Legal Proceedings.................................................................... 17
4. Submission of Matters to a Vote of Security Holders.................................. 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters................ 19
6. Selected Financial Information....................................................... 21
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23
7a. Qualitative and Quantitative Disclosures about Market Risks.......................... 39
8. Financial Statements and Supplementary Data.......................................... 40
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 40
PART III................................................................................. 40
PART IV
14. Exhibits, Financial Statements and Schedules, and Reports on Form 8-K................ 41
SIGNATURES............................................................................... 44
i
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Overview
We are a fully-integrated and multi-branded hotel enterprise operating
primarily in the upper upscale and luxury segments of the hotel and resorts
industry. We are one of the largest United States based hotel owner/operators
with a portfolio consisting of 220 hotels with over 56,600 guest rooms as of
December 31, 2001. We are a Delaware corporation and our principal executive
office is located at 1950 Stemmons Freeway, Suite 6001, Dallas, Texas 75207.
Our History
Through a series of mergers and acquisitions, we have grown substantially
since our inception in 1995. Patriot American Hospitality, Inc., or Patriot,
was formed on April 17, 1995 as a self-administered real estate investment
trust, or REIT, to acquire equity interests in hotel properties. On October 2,
1995, Patriot completed an initial public offering of its common stock and
commenced its operations. Between October 2, 1995 and July 1, 1997, Patriot
acquired interests in 56 hotel properties and leased them to various third
party lessees.
On July 1, 1997, Patriot merged into California Jockey Club, or Cal Jockey,
which we will refer to as the "Cal Jockey merger" in this Form 10-K. As part of
this merger, Cal Jockey and Bay Meadows Operating Company, or Bay Meadows,
entered into a paired share arrangement under which both of their common stocks
were paired and traded together. Also, Cal Jockey changed its name to Patriot,
and Bay Meadows changed its name to "Patriot American Hospitality Operating
Company."
In January 1998, Wyndham Hotel Corporation merged into Patriot and, as part
of that merger, Patriot American Hospitality Operating Company changed its name
to "Wyndham International, Inc." We will refer to Wyndham International, Inc.
as it existed before June 30, 1999 as "old Wyndham."
During 1998, Patriot and old Wyndham grew primarily by acquiring hotels and
other related businesses using proceeds of over $4.5 billion. They financed
these acquisitions with funds drawn on their revolving credit facilities and
capital raised by issuing paired shares and by having their two operating
partnerships issue limited partnership interests. These acquisitions included:
. the acquisition of Wyndham Hotel Corporation in January 1998 referred to
above, as a result of which Patriot acquired 10 Wyndham hotels, 14
Clubhouse hotels, 52 management and franchise contracts, the Wyndham and
Clubhouse proprietary brand names, and the Wyndham hotel management
company;
. three resort hotels in Puerto Rico and a majority interest in a related
hotel company;
. Arcadian International Limited, which owned 10 hotels in England, one
hotel in Jersey, five owned and managed Malmaison hotels, two European
resorts under development, the Malmaison proprietary brand name, and a
50% interest in a property being developed in London;
. Interstate Hotels Company, or Interstate, which owned or had controlling
interests in 42 hotels, leases for 84 hotels, and management or service
agreements for 82 hotels;
. SF Hotel Company, L.P., which owned four Summerfield Suites(R) hotels,
leasehold and management interests in 24 Summerfield Suites(R), Sierra
Suites(R) and Sunrise Suites hotels, and management contracts and
franchise interests for 12 additional hotels; and
. the hospitality related business of CHC International, Inc., or CHCI,
which included the acquisition of 17 leases and 16 of the related
management contracts related to Patriot hotels, eight third party
management contracts, two third party asset management contracts, the
Grand Bay proprietary brand name, and certain other assets.
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On June 30, 1999, we restructured our organization. As part of this
restructuring:
. Patriot became a wholly-owned subsidiary of ours;
. we and Patriot terminated the paired share arrangement;
. each outstanding paired share was converted into one share of our class A
common stock; and
. Patriot terminated its status as a REIT effective January 1, 1999 and
became a taxable corporation as of that date.
Also on June 30, 1999, we completed a $1 billion series B preferred stock
equity investment and closed a new credit facility (comprised of a senior
credit facility and an increasing rate loan facility), which was amended and
restated as of January 24, 2002, and closed on additional mortgage debt.
Holders of our series B preferred stock are entitled to a quarterly dividend on
a cumulative basis at a rate of 9.75% per year, and our series B preferred
stock is convertible, at the holders' option, into shares of our class B common
stock. Also in 1999, we completed an offering of our series A preferred stock,
which, except for voting rights, has substantially similar terms to our series
B preferred stock. We used the proceeds of our series A preferred stock
offering to redeem some of our series B preferred stock. On September 30, 2001,
we issued approximately 1,120 shares of series A preferred stock and 205,736
shares of series B preferred stock.
Under the terms of our preferred stock, if cash dividends are in arrears and
unpaid for a period of 60 days or more, then an additional amount of dividends
accrue at a rate per annum of 2.0% of the stated amount of each share of
preferred stock then outstanding from the last payment date on which cash
dividends were to be paid in full until all cash dividends in arrears have been
paid in full. Such additional dividends are cumulative and payable in
additional shares of preferred stock. As of December 31, 2001, we had accrued
$11.6 million at a rate of 2.0% per annum as an additional dividend because
cash dividends totaling $14.6 million on the preferred stock had been in
arrears and unpaid for a period of more than 60 days. In addition, in our
amended and restated credit facilities, we agreed not to pay the cash portion
of the regular quarterly dividend on our preferred stock.
Also during 1999, we sold a racecourse, land adjacent to the racecourse, and
21 hotels for net cash proceeds of approximately $123.4 million. We also
distributed approximately 92% of the shares of Interstate in the form of a
dividend to our stockholders, which we will refer to as the "Interstate
spin-off".
During 2000, we agreed to the redemption of our aggregate 55% non-voting
economic interest in Interstate Hotels, LLC, a principal operating subsidiary
of Interstate. Interstate Hotels, LLC transferred to us a management agreement
for one hotel owned by us and amended management agreements with respect to six
other hotels owned by us to reduce the management fees and to permit
termination by the owner upon 30 days notice. In addition, approximately 9% of
our interest was redeemed by Interstate Hotels, LLC and substantially all of
the remainder was converted into a preferred membership interest in Interstate
Hotels, LLC. As additional consideration for the redemption and conversion of
our interest, we caused our representative on Interstate's board of directors
to resign and relinquished our right to appoint a member to Interstate's board
of directors in the future. In addition, we granted Interstate an option
exercisable within 90 days of October 20, 2000, to acquire all of Interstate's
stock owned by us at a weighted average trading price per share, provided that
the purchase price not be less than $3.00 per share nor more than $4.00 per
share. On December 3, 2000, the common stock was acquired for approximately
$597,000. On July 12, 2001, Interstate Hotels, LLC, pursuant to a redemption
agreement, called for the redemption of our preferred interest in Interstate
Hotels, LLC. In consideration for the redemption, we received $8.25 million in
cash and two promissory notes in the amounts of $750,000 and $3.68 million,
respectively. The notes bear interest at 9.75% and mature on July 1, 2002 and
July 1, 2004, respectively. We recorded a gain of $2 million, net of previously
recorded impairment of $16.5 million. The portion of our interest that was not
converted into a preferred membership interest will remain outstanding.
Thereafter, at any time on or after July 1, 2004, both we and Interstate
Hotels, LLC have the right to require Interstate Hotels, LLC to redeem the
remaining common interest at an amount that is the lesser of (a) the product
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of (i) five times Interstate Hotels, LLC's EBITDA as of December 31, 2003 and
(ii) the percentage of total equity interest in Interstate Hotels, LLC which is
represented by the remaining interest, or (b) approximately $433,000.
In 2000, we sold the following assets:
. the Sierra Suites(R) hotel brand, one owned and three leased properties,
17 franchise and management contracts for Sierra Suites(R), and nine
management contracts for Summerfield Suites(R) for net cash proceeds of
approximately $53.0 million, $29.8 million of which was used to relieve
future payment obligations related to the SF Hotel Company, L.P.
acquisitions in 1998 discussed above;
. 26 hotels (two of which were leased back to us) and the Clubhouse Inn
proprietary brand for net cash proceeds of approximately $175.0 million,
after we repaid approximately $70.4 million of mortgage debt; and
. investments in three hotels, two parcels of land, retail space, and a
garage for net cash proceeds of approximately $61.4 million, after we
repaid approximately $7.8 million of debt and a note receivable of $4.3
million.
In 2001, we sold the following assets:
. two hotels and a sewer company, in separate transactions for aggregate
net cash proceeds of approximately $8.6 million, after we repaid
approximately $21.8 million of debt;
. one hotel in which we retained a preferred equity interest for net cash
proceeds of approximately $19.7 million;
. three hotels and investments in four additional hotels in a single
transaction for net cash proceeds of approximately $58.7 million; and
. six hotels, which were exchanged for one hotel.
General Description of Our Business
We classify our business into two groups: (1) proprietary branded hotels and
(2) non-proprietary branded hotels, under which we manage our business. Our
proprietary branded hotels are Wyndham Hotels & Resorts(R), Wyndham Luxury
Resorts, Wyndham Garden Hotels(R), and Summerfield Suites by Wyndham consisting
of 156 owned, leased, managed, or franchised hotels with over 38,200 guest
rooms as of December 31, 2001. Wyndham Hotels & Resorts is our principal
proprietary branded group of assets. Through both our Wyndham Hotels &
Resorts(R) brand and our Wyndham Garden Hotels(R) brand, we offer upper
upscale, full-service accommodations to business and leisure travelers. Through
our Wyndham Luxury Resorts brand, we offer five-star luxury accommodations,
such as the Boulders and Carmel Valley Ranch. Through our Summerfield Suites by
Wyndham(TM) brand, we offer upper upscale, all-suite accommodations to business
and leisure travelers.
Our primary growth strategy for our proprietary brand has been to expand
through new management and franchise contracts, rebrand our nonproprietary
hotels to the Wyndham flag, operate efficiently through revenue generation and
cost containment programs and build the brand through innovative programs.
Our non-proprietary branded hotels consist of 64 owned, leased, managed or
franchised hotels with over 18,400 guest rooms as of December 31, 2001. All of
these hotels are operated under franchise or brand affiliations with nationally
recognized hotel companies, including Crowne Plaza(R), Hilton(R), Hyatt(R),
Radisson(R), Holiday Inn(R), Doubletree(R), Embassy Suites(R), Ramada(R),
Marriott(R) and Courtyard by Marriott(R). We manage all but 25 of these hotels.
Our non-proprietary branded hotels are operated primarily by Performance
Hospitality Management, or PHM, one of our management divisions. In addition to
our owned and leased assets, PHM manages 5 non-proprietary branded hotels for
third parties. We intend to continue to selectively dispose of our
non-proprietary branded hotels through asset sales and exchanges to create a
source of capital for us to (1) continue expanding the Wyndham proprietary
brand and (2) repay debt.
3
Our Business Strengths
. Strong Brand Name. Our proprietary brands all have at least a 17-year
history and our Wyndham brand is highly recognized in our industry. Our
Wyndham brand, including Summerfield Suites by Wyndham(TM), serves to
identify high quality assets with a consistent and high level of customer
service and reliability.
. Geographically Diverse Portfolio. To help mitigate the effects of
regional downturns in the hotel industry, we have assembled a
geographically diverse portfolio of hotels and resorts.
. Control over Property Execution. We own or operate approximately 86% of
our proprietary branded portfolio. As a result, we can more efficiently
and effectively implement brand-enhancing programs, such as the Wyndham
Brand Standards, the program we implemented in 2000 to standardize the
stay experience in all of our hotels, and Wyndham ByRequest(R), our
innovative guest recognition program which builds brand loyalty by
allowing our guests to customize their stay at any of our properties. We
were able to implement both of these programs in our proprietary branded
properties in less than one year. In addition, through economies of
scale, we benefit from greater purchasing and negotiating power when
addressing company-wide marketing, insurance, and other hotel services.
Furthermore, in markets where we have multiple hotels, we are able to
create more consistent operating performance and reduce costs by
combining certain operating functions.
. Personalized Guest Experience. Through our innovative brand-enhancing
program Wyndham ByRequest, we are able to provide each ByRequest member a
personalized stay experience. Based on the member's personal ByRequest
profile, we arrange their guest room amenities before check-in. In
addition, Wyndham ByRequest allows us to customize on-going
communications with members and tailor future travel benefits to our
members ByRequest profile. As a result of this program, the number of our
repeat guests has more than doubled compared to 18 months ago.
. Captured Market Share. We have continued to capture market share versus
our competitors since our June 30, 1999 reorganization with programs such
as our Women on Their Way, which is designed to serve the needs of the
female traveler. Our Women on Their Way program and our on-going
commitment to diversity have enabled us to capture a substantial share of
the emerging market segment of the young, female business traveler, the
fastest growing segment of all business travelers.
Our Business Strategy
Since our June 30, 1999 reorganization, we have been singularly focused on
increasing our proprietary branded assets by either disposing of or rebranding
our non-strategic assets. We have been building our brand by growing our
management and franchise business and implementing innovative programs.
Additionally, we have created brand operating efficiencies with revenue
generation and cost containment programs.
. Dispose of non-strategic assets. We intend to sell all our
non-strategic, non-convertible assets. These are properties that do not
fit our proprietary brand profile because of the quality of the asset or
the fact that it is encumbered by a long-term licensing agreement with a
non-Wyndham brand. By disposing of these assets, we are able to focus
solely on being a branded operating company, as well as reduce our debt
with the net proceeds from these asset sales. Since implementing this
plan in June of 1999, we have sold 82 assets with gross proceeds of
approximately $895 million. We have 56 non-strategic assets remaining to
be sold. These assets will be held until such time as the sales price
meets or exceeds management's assessment of fair value.
. Rebrand existing hotels. Where opportunities exist, we continue to
rebrand eligible non-proprietary assets that fit our Wyndham brand.
Rebranded properties benefit from our global distribution system and our
brand defining programs. By rebranding these hotels, we benefit by
increasing the geographical distribution of our Wyndham properties, which
enables us to offer our guests a consistent Wyndham experience in more
locations. We also benefit by eliminating the need to pay franchise and
related fees to our competitors. We have converted 16 assets from other
brands to the Wyndham brand. We also
4
have converted 12 Wyndham Garden hotels to full Wyndham Hotels, which
enable us to offer more services to our customers.
. Grow our management and franchise business. We have and will continue to
focus our growth efforts in the area of new management and franchise
contracts. This growth will enable us to expand our brand distribution
and increase our EBITDA through the fee income associated with these
contracts. During the past three years, we have signed 16 management
contracts and 14 franchise agreements. We are aggressively pursuing new
management and franchise opportunities and will continue to
geographically target major metropolitan areas and resort destinations.
We have extensive experience in the lodging industry and we believe our
industry knowledge, relationships and access to market information
provide us a competitive edge with respect to identifying, evaluating and
signing new hotel assets to the Wyndham brand.
. Build the Wyndham brand. We continue to support and implement programs
to build Wyndham brand.
. Our Women on Their Way program has been successful in capturing
substantial market share in the emerging market segment of young,
female business traveler and has helped create an advantage in
attracting more guests to our hotels.
. We have implemented consistent brand standards in all of our Wyndham
branded assets by including Herman Miller Aeron chairs and Golden
Door Amenities, both of which are exclusive to Wyndham, in our rooms.
This helps ensure a consistent stay experience in all Wyndham branded
properties.
. Our innovative guest recognition program, Wyndham ByRequest, allows
our guests to personalize their stay at any of our branded
properties. We customize on-going communication and future travel
benefits to our members' profiles, which we believe builds loyalty to
the Wyndham brand.
. Operate efficiently. From a revenue generation standpoint, we have
continued to streamline our sales and booking efforts. After our June 30,
1999 reorganization, we brought all of our branded assets under one
global distribution chain code "WY". This has enabled our central
reservations office to efficiently cross sell our properties and, thus,
achieve a greater maximization of revenues.
Beginning with our June 30, 1999 reorganization and continuing throughout
2001, we have continued to implement cost containment programs. We have
closed eight satellite offices and have relocated all corporate
operations to Dallas, Texas. We implemented three rounds of cost
reduction programs during 2001 to counteract the economic recession and
implemented additional cuts in response to the tragic events of September
11th. The programs include, among other things, a permanent reduction in
our workforce at both our corporate office and our properties; a
temporary furloughing of employees at our properties; reduced restaurant
hours and closed floors and wings of hotels commensurate with occupancy
levels; and the renegotiation of service agreements and trade contracts.
We have continued to maintain the two-to-one ratio between revenue per
available room changes and EBITDA changes, as well as achieve benchmark
flow through on revenue changes to EBITDA changes.
Our Proprietary Brands
We market all of our proprietary products under the Wyndham brand umbrella,
which includes four-star, upper upscale hotels that offer full-service
accommodations to business and leisure travelers, and a five-star luxury resort
brand. With hotels in major urban, suburban and resort markets, our Wyndham
brand offers products geared to the specific needs of travelers based on their
location, facilities and travel purpose.
Wyndham Hotels & Resorts(R). This brand includes our principal proprietary
brand of hotels and resorts. Our hotel brand features upper upscale,
full-service hotels that contain an average of 300 hotel rooms, generally
between 15,000 and 250,000 square feet of meeting space and a full range of
guest services and amenities for business and leisure travelers as well as
conferences and conventions. These hotels, which are located primarily
5
in the central business districts and dominant suburbs of major metropolitan
markets, target business groups, meetings and individual business and leisure
travelers. These hotels offer elegantly appointed facilities and high levels of
quality guest service.
Our distinctive, full-service Wyndham Resorts feature owned, leased or
managed resorts that contain an average of 410 rooms and a full range of guest
services for leisure travelers and business groups. We are the largest
owner/operator of resorts in the Carribean and Florida.
Wyndham Luxury Resorts. This brand includes five-star, luxury hotel
properties featuring between 50 and 200 rooms, numerous fine dining options and
other luxury and recreational amenities. These luxury resorts distinguish
themselves by focusing on incorporating the local environment into every aspect
of the property, from decor to cuisine to recreation. Our luxury resort
collection includes the Golden Door(R), one of the world's preeminent spas
based in Escondido, California. Our luxury resorts are also located in Arizona,
California, Massachusetts and Mexico.
Wyndham Garden Hotels. This brand includes hotels that are located
principally near major airports and suburban business districts and serve
individual business travelers and small business groups. These full-service
hotels feature between 150 and 230 guest rooms, and include up to 5,000 square
feet of meeting space. Their amenities and services generally include a
three-meal restaurant, signature Wyndham Garden(R) libraries and laundry and
room service.
Summerfield Suites by Wyndham(TM). This brand offers guests one of the
highest quality lodging experiences in the upper upscale, all-suites segment.
Each suite contains a fully equipped kitchen, a spacious living room and a
private bedroom. Many of the suites feature two bedroom, two bath units. Each
hotel also has a swimming pool, exercise room and other amenities to serve
business and leisure travelers. Each hotel features 90 to 280 suites in either
interior or exterior corridor design.
Our Non-Proprietary Brands
Among our non-proprietary branded hotels, we own and operate 31 hotels
aggregating over 8,700 rooms under franchise or brand affiliations with
nationally recognized hotel companies, including Crowne Plaza(R), Hilton(R),
Hyatt(R), Radisson(R), Holiday Inn(R), Doubletree(R), Embassy Suites(R),
Ramada(R), Marriott(R) and Courtyard by Marriott(R). The majority of our
non-proprietary branded hotels are full-service hotels that operate in the
upscale and upper upscale segments of the hotel industry. Our full-service
hotels generally offer a range of conference facilities and banquet space, food
and beverage accommodations, gift shops and recreational areas, including
swimming pools. These hotels target both business and leisure travelers,
including meetings, groups and individuals.
Lodging Information
The following table sets forth, for each of our owned and leased hotels as
of December 31, 2001, the hotels and number of rooms and, for the year ended
December 31, 2001, total revenue, average daily rate, average occupancy rate,
and revenue per available room.
Revenue
Number Average per
of Total Daily Available
Property Name City State Rooms Revenue Rate Occupancy Room
------------- --------- ----- ------ ------- ------- --------- ---------
(Total Revenue in thousands)
Wyndham Hotels & Resorts
Wyndham Andover................. Andover MA 293 $11,643 $104.19 61.7% $ 64.33
Wyndham Arlington............... Arlington TX 310 $12,729 $ 94.24 70.2% $ 66.11
Wyndham Atlanta................. Atlanta GA 312 $13,538 $134.77 58.6% $ 79.03
Wyndham Baltimor-e--Inner Harbor Baltimore MD 707 $30,618 $119.99 66.0% $ 79.20
Wyndham Bel Age................. Hollywood CA 200 $13,803 $154.63 73.7% $114.03
Wyndham Billerica............... Billerica MA 210 $ 7,656 $126.28 55.4% $ 69.96
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Revenue
Number Average per
of Total Daily Available
Property Name City State Rooms Revenue Rate Occupancy Room
------------- ---------------- ------- ------ ------- ------- --------- ---------
Wyndham Bloomington..................... Bloomington MN 209 $ 7,369 $ 87.54 73.4% $ 64.26
Wyndham Boston.......................... Boston MA 362 $23,900 $188.17 71.2% $133.98
Wyndham Bristol Place--Toronto
Airport................................ Toronto Ontario 287 $12,749 $ 84.31 78.3% $ 66.05
Wyndham Buttes Resort................... Tempe AZ 353 $24,178 $134.91 68.8% $ 92.83
Wyndham Casa Marina Resort & Beach House Key West FL 311 $26,779 $199.34 80.6% $160.57
Wyndham Chicago......................... Chicago IL 417 $21,488 $156.82 58.5% $ 91.80
Wyndham City Center..................... Washington DC 352 $14,622 $109.13 70.8% $ 77.28
Wyndham Colorado Springs................ Colorado Springs CO 311 $10,281 $ 87.01 60.2% $ 52.34
Wyndham Commerce........................ Commerce CA 201 $ 7,058 $ 92.67 64.6% $ 59.86
Wyndham Dallas Market Center............ Dallas TX 228 $ 5,671 $ 92.47 50.4% $ 46.60
Wyndham Denver Tech Center.............. Denver CO 180 $ 4,677 $ 97.53 49.8% $ 48.55
Wyndham El Conquistador Resort & Country
Club................................... Fajardo PR 750 $95,307 $225.51 66.6% $150.10
Wyndham El San Juan Hotel & Casino...... San Juan PR 382 $63,364 $224.01 78.3% $175.51
Wyndham Emerald Plaza................... San Diego CA 436 $23,818 $132.47 78.5% $103.99
Wyndham Grand Bay--Coconut Grove........ Miami FL 177 $11,854 $200.03 54.0% $108.05
Wyndham Greenspoint..................... Houston TX 472 $22,418 $ 95.22 73.8% $ 70.24
Wyndham Harbour Island.................. Tampa FL 299 $15,571 $132.63 68.2% $ 90.42
Wyndham Indianapolis.................... Indianapolis IN 171 $ 4,470 $ 85.70 56.5% $ 48.43
Wyndham Lisle........................... Lisle IL 242 $10,293 $ 98.84 56.5% $ 55.87
Wyndham Miami Airport................... Miami FL 408 $11,367 $ 78.41 66.9% $ 52.48
Wyndham Miami Beach Resort.............. Miami FL 424 $23,048 $133.12 70.5% $ 93.83
Wyndham Midtown Atlanta................. Atlanta GA 191 $ 7,539 $112.95 72.5% $ 81.83
Wyndham Myrtle Beach Resort and Arcadian
Shores Golf Club....................... Myrtle Beach SC 385 $16,261 $ 99.59 66.9% $ 66.60
Wyndham Nashville....................... Nashville TN 180 $ 4,451 $ 69.12 69.0% $ 47.72
Wyndham New Orleans..................... New Orleans LA 438 $29,766 $171.76 75.7% $130.00
Wyndham Newark.......................... Newark NJ 396 $ 24 $ 44.40 10.5% $ 4.65
Wyndham Northwest Chicago............... Itasca IL 408 $24,000 $113.63 56.9% $ 64.64
Wyndham Palace Resort & Spa............. Lake Buena Vista FL 1,013 $69,033 $153.28 70.0% $107.35
Wyndham Peachtree Conference Center..... Peachtree City GA 250 $12,845 $111.63 53.1% $ 59.23
Wyndham Peaks Resort & Golden
Door Spa............................... Telluride CO 174 $18,349 $323.33 49.6% $160.22
Wyndham Philadelphia at Franklin Plaza.. Philadelphia PA 758 $34,373 $110.32 63.4% $ 69.95
Wyndham Phoenix Airport................. Phoenix AZ 210 $ 6,110 $ 89.21 63.2% $ 56.35
Wyndham Pickwick Hotel.................. San Francisco CA 188 $ 5,886 $112.31 66.5% $ 74.68
Wyndham Pittsburgh Airport.............. Corapolis PA 314 $14,418 $106.61 65.4% $ 69.73
Wyndham Reach Resort.................... Key West FL 150 $11,500 $180.25 79.2% $142.68
Wyndham Resort & Spa.................... Fort Lauderdale FL 496 $19,777 $115.50 48.4% $ 55.91
Wyndham Richmond Airport................ Richmond VA 155 $ 4,227 $ 64.61 73.2% $ 47.26
Wyndham Riverfront...................... New Orleans LA 202 $ 8,911 $142.37 69.6% $ 99.11
Wyndham Roanoke Airport................. Roanoke VA 320 $ 8,625 $ 69.99 67.9% $ 47.50
Wyndham Rose Hall & Resort
Country Club........................... Montego Bay Jamaica 488 $25,795 $105.63 72.8% $ 76.91
Wyndham Salt Lake City.................. Salt Lake City UT 381 $11,641 $ 77.12 72.4% $ 55.87
Wyndham San Diego....................... San Diego CA 180 $ 7,371 $122.53 70.2% $ 86.07
Wyndham Santa Maria..................... Key West FL 51 $ 640 $ 74.79 45.4% $ 33.95
Wyndham Seattle--Tacoma Airport......... Seattle WA 204 $ 7,025 $ 87.00 79.5% $ 69.17
Wyndham Sunnyvale....................... Sunnyvale CA 180 $ 8,060 $136.72 74.3% $101.54
Wyndham Syracuse........................ Syracuse NY 250 $10,773 $ 87.85 64.8% $ 56.91
Wyndham Toledo.......................... Toledo OH 241 $ 8,090 $ 80.96 67.0% $ 54.26
Wyndham Valley Forge.................... Wayne PA 229 $ 9,929 $125.62 66.7% $ 83.77
Wyndham Vinings......................... Atlanta GA 159 $ 4,667 $ 95.80 61.3% $ 58.71
Wyndham Washington, D.C................. Washington DC 400 $19,819 $127.11 72.1% $ 91.61
Wyndham Westborough..................... Westborough MA 223 $11,308 $115.64 67.6% $ 78.15
Wyndham Westshore--Tampa................ Tampa FL 324 $17,410 $103.37 72.8% $ 75.26
Wyndham Windwatch....................... Haupauge NY 360 $21,001 $133.03 73.1% $ 97.22
7
Revenue
Number Average per
of Total Daily Available
Property Name City State Rooms Revenue Rate Occupancy Room
------------- ------------- ----- ------ ------- ------- --------- ---------
Bourbon Orleans--A Wyndham
Historic Hotel.............................. New Orleans LA 216 $ 9,820 $142.51 74.4% $106.04
The Fairmount Hotel--A Wyndham Historic Hotel San Antonio TX 37 $ 2,004 $127.01 68.2% $ 86.61
The Mayfair--A Wyndham
Historic Hotel.............................. St Louis MO 182 $ 4,695 $ 87.59 60.0% $ 52.51
The Tremont Boston--A Wyndham
Historic Hotel.............................. Boston MA 322 $16,466 $133.52 79.7% $106.42
The Tutwiler--A Wyndham
Historic Hotel.............................. Birmingham AL 147 $ 5,328 $ 99.82 63.9% $ 63.77
Wyndham Grand Heritage U.S. Grant............ San Diego CA 284 $16,263 $130.78 69.7% $ 91.10
The Union Station--A Wyndham
Historic Hotel.............................. Nashville TN 124 $ 5,304 $103.11 68.8% $ 70.95
Wyndham Luxury Resorts
Carmel Valley Ranch--A Wyndham Luxury Resort. Carmel Valley CA 144 $18,611 $234.11 70.8% $165.79
The Boulders--A Wyndham Luxury Resort........ Carefree AZ 160 $41,546 $326.65 66.0% $215.71
The Lodge at Ventana Canyon--A Wyndham Luxury
Resort...................................... Tucson AZ 50 $13,798 $190.94 66.5% $127.05
Wyndham Garden Hotels
Wyndham Garden Hotel--Bothell................ Bothell WA 166 $ 5,023 $ 96.14 62.6% $ 60.20
Wyndham Garden Hotel--Brookfield............. Brookfield WI 178 $ 4,530 $ 73.57 63.7% $ 46.84
Wyndham Garden Hotel--Chandler............... Chandler AZ 159 $ 3,520 $ 79.41 57.1% $ 45.36
Wyndham Garden Hotel--Charlotte.............. Charlotte NC 173 $ 3,254 $ 65.44 53.1% $ 34.74
Wyndham Garden Hotel--Dallas Park Central.... Dallas TX 197 $ 3,137 $ 65.59 44.4% $ 29.09
Wyndham Garden Hotel--LaGuardia.............. East Elmhurst NY 229 $10,934 $134.35 86.0% $115.61
Wyndham Garden Hotel--Las Colinas............ Irving TX 168 $ 4,691 $ 99.30 58.3% $ 57.86
Wyndham Garden Hotel--Naperville............. Naperville IL 143 $ 3,960 $ 87.45 63.6% $ 55.62
Wyndham Garden Hotel--Novi................... Novi MI 148 $ 4,040 $ 86.59 62.3% $ 53.93
Wyndham Garden Hotel--Overland Park.......... Overland Park KS 180 $ 3,242 $ 72.43 48.1% $ 34.81
Wyndham Garden Hotel--Perimeter.............. Atlanta GA 143 $ 2,846 $ 81.18 50.4% $ 40.87
Wyndham Garden Hotel--Pleasanton............. Pleasanton CA 171 $ 4,285 $ 94.61 58.9% $ 55.76
Wyndham Garden Hotel--Schaumburg............. Schaumburg IL 188 $ 3,697 $ 88.07 48.0% $ 42.23
Wyndham Garden Hotel--Wood Dale.............. Wood Dale IL 162 $ 4,490 $ 96.91 55.9% $ 54.17
Wyndham Garden Hotel--North Phoenix.......... Phoenix AZ 166 $ 2,926 $ 70.82 53.0% $ 37.51
Summerfield Suites by Wyndham
Summerfield by Wyndham--Addison.............. Addison TX 132 $ 3,614 $ 91.46 77.1% $ 70.50
Summerfield by Wyndham--Belmont.............. Belmont CA 132 $ 6,646 $159.55 81.8% $130.46
Summerfield by Wyndham--Buckhead............. Atlanta GA 88 $ 2,482 $103.06 71.7% $ 73.93
Summerfield by Wyndham--Chatsworth........... Chatsworth CA 114 $ 3,968 $107.98 85.5% $ 92.36
Summerfield by Wyndham--Denver............... Englewood CO 136 $ 3,174 $ 84.48 72.3% $ 61.04
Summerfield by Wyndham--Dulles............... Herndon VA 112 $ 3,507 $124.77 66.8% $ 83.32
Summerfield by Wyndham--El Segundo........... El Segundo CA 122 $ 4,568 $119.53 81.5% $ 97.37
Summerfield by Wyndham--Lake Buena Vista..... Orlando FL 150 $ 5,638 $118.02 80.1% $ 94.59
Summerfield by Wyndham--Las Colinas.......... Irving TX 148 $ 4,802 $105.36 80.5% $ 84.83
Summerfield by Wyndham--Malvern.............. Malvern PA 120 $ 4,286 $123.31 73.5% $ 90.61
Summerfield by Wyndham--Miami................ Miami FL 156 $ 4,850 $ 91.82 84.5% $ 77.57
Summerfield by Wyndham--Morristown........... Morristown NJ 133 $ 6,640 $157.35 82.3% $129.54
Summerfield by Wyndham--Mt. Laurel........... Mt Laurel NJ 116 $ 3,643 $ 93.09 86.0% $ 80.03
Summerfield by Wyndham--Orlando.............. Orlando FL 146 $ 5,218 $114.46 77.8% $ 89.09
Summerfield by Wyndham--Parisppany/Whippany.. Whippany NJ 136 $ 5,746 $137.42 79.3% $108.98
Summerfield by Wyndham--Perimeter............ Atlanta GA 122 $ 2,936 $ 91.54 69.2% $ 63.34
Summerfield by Wyndham--Princeton............ Princeton NJ 124 $ 5,117 $135.32 79.4% $107.40
Summerfield by Wyndham--San Francisco Airport San Bruno CA 92 $ 4,244 $131.89 88.0% $116.02
Summerfield by Wyndham--San Jose............. San Jose CA 114 $ 4,409 $149.37 68.4% $102.12
Summerfield by Wyndham--Schaumburg........... Schaumburg IL 112 $ 3,052 $107.99 64.9% $ 70.08
Summerfield by Wyndham--Seattle.............. Seattle WA 193 $ 6,669 $119.68 73.0% $ 87.35
Summerfield by Wyndham--Somerset............. Somerset NJ 140 $ 5,817 $140.97 76.1% $107.31
Summerfield by Wyndham--Sunnyvale............ Sunnyvale CA 138 $ 6,128 $162.86 72.3% $117.72
8
Revenue
Number Average per
of Total Daily Available
Property Name City State Rooms Revenue Rate Occupancy Room
------------- ----------------- ----- ------ ------- ------- --------- ---------
Summerfield by Wyndham--Sunrise Suites. Tinton Falls NJ 96 $ 2,993 $106.15 75.8% $ 80.49
Summerfield by Wyndham--Torrance....... Torrance CA 144 $ 4,616 $ 99.61 83.0% $ 82.70
Summerfield by Wyndham--Waltham........ Waltham MA 136 $ 5,357 $141.08 73.3% $103.40
Summerfield by Wyndham--Westport....... St Louis MO 106 $ 2,967 $ 92.31 78.9% $ 72.86
Non-Proprietary Brand Properties
Condado Plaza.......................... San Juan PR 570 $69,986 $157.71 74.2% $116.97
Courtyard by Marriott--Beachwood....... Beachwood OH 113 $ 1,343 $ 96.89 61.9% $ 59.98
Crowne Plaza Ravinia................... Atlanta GA 495 $24,207 $119.84 63.1% $ 75.61
Doubletree--Allen Center............... Houston TX 350 $20,185 $136.24 76.8% $104.64
Doubletree--Anaheim.................... Orange CA 454 $16,073 $ 91.96 68.6% $ 63.10
Doubletree--Des Plaines................ Des Plaines IL 246 $ 5,386 $ 85.48 54.9% $ 46.93
Doubletree Glenview.................... Glenview IL 252 $ 8,841 $101.76 58.8% $ 59.83
Doubletree--Miami...................... Miami FL 266 $ 5,151 $ 67.87 63.1% $ 42.86
Doubletree--Minneapolis................ Minneapolis MN 230 $ 6,256 $107.47 57.2% $ 61.50
Doubletree--Overland Park.............. Overland Park KS 356 $13,947 $ 95.85 65.8% $ 63.10
Doubletree--Park Place................. Minneapolis MN 297 $10,885 $ 95.05 57.9% $ 55.06
Doubletree--Post Oak................... Houston TX 449 $25,017 $115.26 76.5% $ 88.20
Doubletree--St. Louis.................. Chesterfield MO 223 $10,750 $ 95.52 56.7% $ 54.14
Doubletree--Tallahassee................ Tallahassee FL 244 $ 7,192 $ 90.91 62.6% $ 56.92
Doubletree--Tulsa...................... Tulsa OK 417 $10,430 $ 74.97 56.6% $ 42.42
Embassy Suites Chicago................. Chicago IL 358 $20,274 $174.64 77.4% $135.11
Hilton Cleveland....................... Independence OH 191 $10,267 $ 90.92 65.0% $ 59.06
Hilton Columbus........................ Columbus GA 177 $ 4,670 $ 81.60 61.7% $ 50.39
Hilton DelMar.......................... San Diego CA 245 $11,192 $115.58 72.6% $ 83.90
Hilton Denver.......................... Greenwood Village CO 305 $ 9,242 $ 99.59 51.7% $ 51.51
Hilton Ft. Lauderdale.................. Dania FL 383 $14,877 $ 86.10 79.6% $ 68.55
Hilton Hunnington...................... Melville NY 302 $21,587 $158.11 72.3% $114.33
Hilton Parsippany...................... Parsippany NJ 510 $26,798 $147.72 63.5% $ 93.74
Hilton Newark.......................... Newark NJ 253 $14,047 $139.93 78.1% $109.31
Holiday Inn Aristocrat................. Dallas TX 172 $ 3,796 $ 97.74 50.7% $ 49.52
Holiday Inn Dallas..................... Dallas TX 377 $ 8,109 $ 72.55 52.6% $ 38.20
Holiday Inn Houston.................... Houston TX 193 $ 3,685 $ 68.96 57.4% $ 39.57
Holiday Inn San Angelo................. San Angelo TX 148 $ 2,982 $ 68.72 64.6% $ 44.42
Holiday Inn San Francisco.............. San Francisco CA 224 $ 7,999 $106.28 68.7% $ 72.99
Holiday Inn Westlake................... Westlake OH 266 $ 5,153 $ 76.07 41.7% $ 31.71
Hyatt Lexington........................ Lexington KY 365 $11,421 $ 92.06 51.8% $ 47.69
Hyatt Newporter........................ Newport Beach CA 405 $21,522 $138.62 56.9% $ 78.87
Marriott Atlanta North Central......... Atlanta GA 287 $10,086 $ 94.96 60.1% $ 57.09
Marriott Harrisburg.................... Harrisburg PA 348 $14,798 $104.25 68.6% $ 71.51
Marriott Houston North at Greenspoint.. Houston TX 391 $13,932 $ 92.86 69.3% $ 64.32
Marriott Indian River Plantation Resort Stuart FL 297 $18,043 $127.18 64.8% $ 82.42
Marriott Philadelphia West............. Conshohocken PA 286 $17,867 $152.59 72.6% $110.81
Marriott St. Louis West................ St Louis MO 300 $13,284 $106.77 64.1% $ 68.44
Marriott Troy.......................... Troy MI 350 $22,787 $143.24 70.5% $100.98
Marriott Tyson's Corner................ Vienna VA 390 $20,560 $141.20 66.2% $ 93.51
Marriott Warner Center................. Woodland Hills CA 463 $27,065 $121.96 80.2% $ 97.77
Park Shore............................. Honolulu HI 226 $ 3,978 $ 73.21 50.1% $ 36.69
Radisson Akron......................... Akron OH 128 $ 1,814 $ 68.41 45.5% $ 31.11
Radisson Burlington.................... Burlington VT 256 $12,412 $116.46 78.2% $ 91.10
Radisson Dallas........................ Dallas TX 199 $ 4,476 $ 69.68 65.2% $ 45.41
Radisson Englewood..................... Englewood NJ 194 $ 6,775 $105.73 67.6% $ 71.46
Radisson Ft. Magruder.................. Williamsburg VA 303 $ 8,697 $ 79.18 64.9% $ 51.40
Radisson New Orleans................... New Orleans LA 759 $22,893 $107.07 57.1% $ 61.14
Radisson Town & Country................ Houston TX 173 $ 4,082 $ 87.75 67.0% $ 58.82
Ramada Beachwood....................... Beachwood OH 196 $ 3,559 $ 67.68 50.2% $ 34.00
Ramada Nashville Downtown.............. Nashville TN 285 $ 4,175 $ 64.47 51.1% $ 32.96
Ramada San Francisco................... San Francisco CA 323 $ 6,138 $ 69.58 57.3% $ 39.89
Regency................................ San Juan PR 127 $ 3,514 $113.49 56.3% $ 63.86
9
Revenue
Number Average per
of Total Daily Available
Property Name City State Rooms Revenue Rate Occupancy Room
------------- ------- ----- ------ ------- ------- --------- ---------
Sheraton Saginaw Saginaw MI 156 $ 2,818 $62.44 70.9% $44.28
Valley River Inn Eugene OR 257 $10,766 $93.86 65.4% $61.35
Total Portfolio
Owned Leased Managed Franchised Total
----- ------ ------- ---------- -----
Wyndham Hotel & Resorts........... 55 11 17 6 89
Wyndham Luxury Resorts............ 3 -- 3 -- 6
Wyndham Garden Hotels............. 10 5 3 6 24
Summerfield Suites by Wyndham..... 6 21 -- 10 37
--- -- -- -- ---
Proprietary Brand Hotels--subtotal 74 37 23 22 156
Non-Proprietary Brand Hotels...... 56 -- 8 -- 64
--- -- -- -- ---
Total............................. 130 37 31 22 220
=== == == == ===
Franchise and Brand Affiliations
As of December 31, 2001, all but five of our owned hotels operated under
franchise or brand affiliations with nationally recognized hotel companies.
Franchisors and brand operators provide a variety of benefits for our hotels,
including national advertising, publicity and other marketing programs designed
to increase brand awareness, training of personnel, continuous review of
quality standards and centralized reservation systems. We generally are the
licensee under the franchise agreements related to such hotels. Under these
franchise agreements, franchise royalties and fees generally range up to
approximately 10% of room revenue. The duration of these franchise agreements
vary, but generally may be terminated upon prior notice or upon payment of
certain specified fees.
Management of Hotels
As of December 31, 2001, we managed 31 hotels for third parties that owned
these hotels pursuant to management agreements under which we are responsible
for the day-to-day operations of these hotels. Of these managed hotels, we
managed 23 hotels under our proprietary brands and 8 hotels under our
non-proprietary brands. The day-to-day operations of these hotels include
managing hotel accommodations, meeting rooms and food and beverage services as
well as hiring and training staff, planning and providing sales and marketing
services, purchasing operating supplies, inventories and furniture, fixtures
and equipment, providing routine repairs and maintenance, and performing hotel
accounting functions, including the preparation of monthly financial
statements. Management fees generally range up to approximately 5% of total
revenue per managed hotel. The terms of the management agreements vary from
hotel to hotel, but range from 1 to 20 years. As of December 31, 2001, the
average remaining term for the management agreements was approximately six
years.
Employees
As of December 31, 2001, we employed approximately 25,000 employees. In our
opinion, we have good relationships with our employees and we retain
appropriate support personnel to manage our operations.
Certain Risk Factors
Set forth below are important risks and uncertainties that could cause our
actual results to differ materially from those expressed in forward-looking
statements made by us.
General Business Risks
We may fail to compete effectively and lose business. The profitability of
our hotels is subject to general economic conditions, competition, the
desirability of particular locations, the relationship between supply of and
10
demand for hotel rooms, and other factors. We generally operate in markets that
contain numerous competitors and our continued success will depend, in large
part, upon our ability to compete in areas such as access, location, quality of
accommodations, amenities, specialized services, cost containment, and, to a
lesser extent, the quality and scope of food and beverage services and
facilities. Our operational and growth prospects also depend on the strength
and desirability of our brands and our ability to maintain positive relations
with our employees.
Changes in supply and demand, and other conditions, in our industry may
adversely affect our revenues and profits. Our revenues and profitability may
be adversely affected by (1) supply additions, (2) international, national and
regional economic conditions, (3) changes in travel patterns, (4) taxes and
government regulations that influence or determine wages, prices, interest
rates, construction procedures and costs, and (5) the availability of capital
to allow us and potential hotel owners to fund investments. In particular,
over-building in one or more sectors of our industry and/or in one or more
geographic regions could lead to excess supply compared to demand and a
decrease in hotel occupancy and/or room rates.
The aftermath of the September 11, 2001 attacks may continue to adversely
impact our financial results and growth. The terrorist attacks of September
11, 2001, their immediate aftermath and other subsequent national and world
events have created a significant amount of uncertainty about future prospects
and national and world economies. The overall long-term effect on us and the
lodging industry is also uncertain. Domestic and international business and
leisure travel, which already had been adversely affected by the recent
economic downturn in the United States and internationally, have decreased
further and are likely to remain depressed over the near term as potential
travelers reduce or avoid discretionary air and other travel in light of the
increased safety concerns and anticipated travel delays. The attacks also have
decreased consumer confidence, and a resulting further decline in the U.S. and
global economies could further reduce travel. In the face of uncertainty, we
have developed and implemented a contingency plan focused particularly on cost
management. At the present time, however, it is not possible to predict either
the severity or duration of such declines, but weaker hotel performance will,
in turn, have an adverse impact on our business, financial condition, and
results of operations.
Risk Related to Exchange Listing
The price and marketability of our class A common stock could be materially
adversely affected if we lose our New York Stock Exchange listing. Our class A
common stock is listed and traded on the New York Stock Exchange, or NYSE. We
received notice from the NYSE that we are not in compliance with their
continued listing standards because the average closing stock price of our
class A common stock was below $1.00 for a consecutive 30-day trading period
prior to the date of the notice. The NYSE rules require us to bring the average
share price of our class A common stock back above $1.00 for a consecutive
thirty-day trading period within the six months following our receipt of the
notification. Otherwise, our class A common stock will be subject to suspension
and de-listing in June 2002. The suspension of trading and de-listing of our
class A common stock could have a material adverse effect on the liquidity and
market price of our common stock. No assurance can be given that trading in our
class A common stock on the NYSE will not be suspended or that our class A
common stock will not be de-listed. We are exploring several options, including
a reverse stock split or seeking to list our class A common stock on another
exchange.
Industry Risks
Our business is subject to operating risks common to the hotel
industry. Our primary business is owning, leasing and managing hotels. This
business is subject to operating risks common to the hotel industry, including:
. competition for guests from other hotels, a number of which may have
greater marketing and financial resources and experience than us and our
hotel management companies;
. increases in operating costs due to inflation and other factors, which
may not be offset by increased room rates;
11
. dependence on business and commercial travelers and tourism, which may
fluctuate and be seasonal;
. increases in energy costs and other travel expenses, which may deter
travelers; and
. adverse effects of general and local economic conditions.
These factors could adversely affect our ability to generate revenues and our
business, financial condition and results of operations.
We may be unable to obtain or transfer necessary operating licenses in hotel
acquisitions. When we acquire hotels or hotel operating companies, we may be
unable to transfer certain operating licenses or obtain new licenses in a
timely manner, such as food and beverage licenses. Although hotels can sell
alcoholic beverages under interim licenses or licenses obtained before we
acquire them, there can be no assurance that these licenses will remain in
effect until we (or the hotel management companies) obtain new licenses. If a
hotel fails to have a food and beverage license or other operating licenses,
this failure would adversely affect the hotel's ability to generate revenues
and could adversely affect our business, financial condition and results of
operations.
Consumers could develop brand loyalties to Internet based hotel reservation
systems rather than to our lodging brands. A percentage of our hotel rooms are
booked through Internet travel intermediaries such as Expedia.com,
Travelocity.com, Hotwire.com, Priceline.com and Click-It weekends. As this
percentage increases, these intermediaries may be able to obtain higher
commissions, reduced room rates or other significant contract concessions from
us. Moreover, some of these Internet travel intermediaries are attempting to
commoditize hotel rooms by increasing the importance of price and general
indicators of quality at the expense of brand identification. These agencies
hope that consumers will eventually develop brand loyalties to their
reservation systems rather than to our lodging brands. If this occurs, it could
adversely affect our business, financial condition and results of operations.
Unexpected hotel renovation costs and capital expenditures could adversely
affect our business. In general, hotels have an ongoing need for renovations
and other capital improvements, particularly in older structures, including
periodically replacing or refurbishing furniture, fixtures and equipment. Under
the terms of our leases with third parties and mortgages on owned hotels, we
must establish a reserve to pay for certain capital expenditures and for
periodically replacing or refurbishing furniture, fixtures and equipment. If
capital expenditures exceed our expectations, this excess would have an adverse
effect on our available cash. In addition, we may acquire hotels that require
significant renovation. When we renovate hotels, we incur risks, including the
risk of environmental problems, construction cost overruns and delays,
uncertainties as to market demand after we renovate, market demand
deterioration after we begin renovating, and unanticipated competition emerging
from other hotels.
We face significant competition for hotel acquisition opportunities. We may
be competing for hotel acquisition opportunities with entities that have
substantially greater financial resources. These entities may generally be able
to accept more risk than we can prudently manage, including risks of a hotel
operator's creditworthiness or a target hotel's geographic location.
Competition may generally reduce the number of hotel acquisition opportunities
that we believe suitable.
Seasonality of the hotel industry could make it difficult to predict the
revenues of our various properties. The hotel industry is seasonal in nature;
however, the periods during which our hotel properties experience higher
revenues vary from property to property and depend predominantly on the
property's location. Our revenues typically have been higher in the first and
second quarters than in the third and fourth quarters.
Real Estate Risks
Changes in the real estate sector could adversely affect our
operations. Our ability to generate revenues from our hotels may be adversely
affected by risks common to the ownership, leasing or operation of real
property, including:
. changes in national economic conditions;
. changes in local market conditions due to changes in general or local
economic conditions and neighborhood characteristics;
12
. changes in interest rates;
. changes in the availability, cost and terms of mortgage funds;
. the impact of present or future environmental legislation and compliance
with environmental laws;
. the ongoing need for capital improvements, particularly in older
structures;
. changes in real estate tax rates and other operating expenses;
. adverse changes in governmental rules and fiscal policies;
. adverse changes in zoning laws;
. civil unrest;
. the impact of terrorist activity, threats of terrorist activity and
responses thereto;
. acts of God, including earthquakes and other natural disasters (which may
result in uninsured losses); and
. other factors that are beyond our control.
We may be unable to sell properties when appropriate because real estate
investments are illiquid. Real estate is a relatively illiquid asset.
Therefore, our ability to respond to changes in economic and other conditions
will be limited. If we must sell a property, there can be no assurance that we
will be able to dispose of it in the time period we desire or that the sales
price of any property will equal or exceed the amount of our initial investment
in the property.
We would be adversely affected if our property taxes increased. Our
properties are subject to real property taxes. The real property taxes on our
properties may increase or decrease as property tax rates change and as the
value of the properties are assessed or reassessed by taxing authorities.
Increases in property taxes may adversely affect our business, financial
condition and results of operations.
We may be unable to obtain consents of ground lessors required for sale of
certain hotels. Some of our properties are subject to ground leases with third
party lessors. In addition, we may acquire properties in the future that are
subject to ground leases. If we wish to sell a property that is subject to a
ground lease or wish to assign our leasehold interest in the ground lease, we
may need the consent of third party lessors. As a result, we may not be able to
sell or assign our interest in these properties without the consent of these
lessors.
Environmental problems are possible and can be costly. Our operating costs
may be affected by the cost of complying with existing and future environmental
laws, ordinances and regulations. Under various federal, state and local
environmental laws, ordinances and regulations, we may be liable for the costs
of removing or remediating hazardous or toxic substances on, under, or in real
property currently or previously owned or operated by us. These laws often
impose liability whether or not we knew of, or were responsible for, the
presence of hazardous or toxic substances. In addition, our ability to borrow
by using real property as collateral may be adversely affected by the presence
of hazardous or toxic substances, or the failure to remediate the property
properly. By arranging for the transportation, disposal or treatment of
hazardous or toxic substances, we may also be liable for the costs of removing
or remediating these substances at the disposal or treatment facility, even if
we never owned or operated the disposal or treatment facility. We could be held
liable under environmental laws used to impose liability for releases of
hazardous materials, including asbestos-containing materials, into the
environment. Third parties may seek recovery from us for personal injuries
associated with exposure to hazardous materials on real property owned or
operated by us. Environmental laws may also impose restrictions on the manner
in which we may use or transfer a property or in which we operate our business
on a property. In connection with our hotels, we may be potentially liable for
any environmental costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect our business, financial condition and
results of operations.
13
Also, there may be material environmental liabilities or compliance concerns of
which we are currently unaware. We have not been notified by any governmental
authority, and we have no other knowledge of, any material noncompliance,
liability or claim relating to hazardous or toxic substances or other
environmental substances in connection with any of our properties.
Some potential losses are not covered by insurance. Each of our leases with
third parties and mortgages on owned hotels specifies comprehensive insurance
to be maintained on each of the applicable hotels, including liability, fire
and extended coverage. We believe this specified coverage is of the type and
amount customarily obtained for hotels. Leases or mortgages for subsequently
acquired hotels will contain similar provisions. However, there are certain
types of losses, generally of a catastrophic nature such as earthquakes and
floods that may be uninsurable or not economically insurable. We will use our
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to maintaining appropriate insurance coverage on our
investments at a reasonable cost and on suitable terms. This may result in
insurance coverage that, in the event of a substantial loss, would not be
sufficient to pay the full current market value or current replacement cost of
the lost investment. Inflation, changes in building codes and ordinances,
environmental considerations, and other factors also might make it impractical
to use insurance proceeds to replace the property after it has been damaged or
destroyed. Under these circumstances, the insurance proceeds received might not
be adequate to restore our economic position with respect to the damaged
property.
Hotels that we acquire or develop may fail to perform according to our
expectations. Under appropriate circumstances, we may pursue acquisitions of
additional hotels and hotel operating companies and, may pursue development
opportunities. Acquisitions entail risks that the acquired hotels or hotel
operating companies will fail to perform according to our expectations or that
our cost estimates to acquire, operate and market properties will prove
inaccurate. In addition, hotel development is subject to other risks, including
risks of construction delays or cost overruns that may increase project costs,
new project commencement risks such as receiving zoning, occupancy and other
required governmental approvals and permits, and incurring development costs
for projects that are not pursued to completion.
Third party owners may terminate our management contracts. We manage hotels
for third party owners pursuant to management contracts. These contracts may be
acquired, terminated, renegotiated or converted to franchise agreements in the
ordinary course of our business. However, the hotel property owner may
terminate these management contracts if we fail to meet certain performance
standards, if the property is sold to a third party, if the owner defaults on
indebtedness encumbering the property, upon a foreclosure of the property,
closing of the property and certain business combinations involving us in which
our name or current management team does not survive.
There can be no assurance that we will be able to replace terminated
management contracts, or that the terms of renegotiated or converted contracts
will be as favorable as the terms that existed before such renegotiations or
conversion. We also will be subject to the risk that a hotel property owner
will be unable to pay management fees to us. In addition, in certain
circumstances, we may be required to make loans to or capital investments in
hotel properties in connection with management contracts. If any of these hotel
properties suffers poor operating results or if we lose our management
contract, we may not recover our loan or capital investment.
Risks of Operating Hotels under Franchise or Brand Affiliations
We operate some of our hotels under franchise or brand affiliations. In
addition, we may acquire hotels in the future that are operated under franchise
or brand affiliations. Each franchised hotel must meet specified operating
standards and other terms and conditions to continue its franchise license. The
continued use of a brand generally depends upon the continuation of the
management agreement related to that hotel with the hotel's management entity.
Franchisors typically inspect licensed properties periodically to confirm
adherence to operating standards. Actions by us, our affiliates or the hotel
management entities could cause a breach of these standards or other terms and
conditions of a franchise license or the loss or cancellation of a franchise
license. It
14
is possible that a franchisor could condition the continuation of a franchise
license on the completion of capital improvements that we determine are too
expensive or otherwise unwarranted in light of general economic conditions or
the operating results or prospects of the affected hotel. In that event, we may
elect to allow the franchise license to lapse, which could result in our
incurring significant termination costs. If a franchise or brand affiliation is
terminated for any reason, we may try to obtain a suitable replacement
franchise or brand affiliation, or to operate the hotel independent of a
franchise or brand affiliation. If we lose a franchise or brand affiliation, we
will lose the associated name recognition, marketing support and centralized
reservation systems provided by the franchisor or brand owner. This loss could
adversely affect the value of the hotel and our results of operations.
Risks Relating to Gaming Operations
Our gaming operations depend on decisions by gaming authorities. We own and
operate several casino gaming facilities at some of our hotels, including El
San Juan, El Conquistador, Condado Plaza and Old San Juan in Puerto Rico. Each
of these gaming operations is subject to extensive licensing, permitting and
regulatory requirements administered by various governmental entities.
Typically, gaming regulatory authorities have broad powers related to the
gaming operations licenses. They may revoke, suspend, condition or limit our
gaming approvals and licenses, impose substantial fines and take other actions,
any of which could have a material adverse effect on our business and the value
of our hotel/casinos. Our directors, officers and some key employees are
subject to licensing or suitability determinations by various gaming
authorities. If any of those gaming authorities were to find someone
unsuitable, we would have to sever our relationship with that person.
Volatility in the high-end gaming business could adversely impact our
financial condition. The high-end gaming business is more volatile than other
forms of gaming. Fluctuations in customers' high-end gaming activities could
have an adverse impact on our business, financial condition and results of
operations. In addition, a significant portion of our table gaming is
attributable to a relatively small number of international customers. If the
most significant of these customers reduces or quits his or her gaming, it
could have an adverse effect on our business, financial condition and results
of operations.
Risks Relating to Our Indebtedness
We anticipated that as a result of the effects on our business of the events
of September 11, 2001, we would likely not be able to comply with certain of
the financial ratio covenants in our credit agreement and increasing rate loan
agreement. Accordingly, shortly after the events of September 11, 2001, the
lenders under the bank credit facilities granted us a waiver of certain
financial covenants through February 28, 2002. In an agreement dated as of
January 24, 2002, we amended and restated our bank credit facilities. Under the
terms of the amendment and restatement, all financial covenants, other than the
interest coverage ratio test, have been eliminated. The minimum interest
coverage ratio has been reduced from 1.75:1.00 to 1.05:1.00 through December
31, 2003, and to 1.25:1.00 thereafter. Pursuant to the amendment and
restatement, we provided additional collateral to the lenders, agreed to an
increase in the interest rates payable under the term loans and revolving
credit facility, and agreed to limit our capital expenditures to $125 million
per year, plus $25 million per year for emergency capital expenditures. We also
agreed that we would use 100% of the net cash proceeds from sales of the
lenders' collateral, 75% of the proceeds from other asset sales and proceeds
from mortgage refinancings and 100% of the proceeds from new debt issuances to
reduce debt outstanding under the bank credit facilities. We also agreed not to
pay the cash portion of the regular quarterly dividend on our series A and
series B convertible preferred stock.
Despite our successful efforts to amend our credit facilities and as a
result of the effects of September 11, 2001 and the current economic recession,
there can be no assurance that we will be able to meet our debt service
obligations and, to the extent that we cannot, we may lose some or all of our
assets, including hotel properties.
15
Continuing adverse economic conditions could cause the terms on which we borrow
to worsen. Those circumstances, if we are in need of funds to repay
indebtedness, could force us to liquidate one or more investments in properties
at times that may not permit realization of the maximum return on those
investments. The foregoing risks associated with our debt obligations may
inhibit our ability to raise capital in both the public and private markets and
may have a negative impact on our credit rating.
Our Executive Officers
Set forth below are the names, ages and certain other information concerning
our executive officers:
Fred J. Kleisner is the Chairman of the Board and Chief Executive Officer.
He has served as Chairman of the Board since October 13, 2000 and as Chief
Executive Officer since March 27, 2000. From August 1999 to October 2000, Mr.
Kleisner served as President. From August 1999 to March 2000, Mr. Kleisner also
served as Chief Operating Officer. From March 1998 to August 1999, he was
President and Chief Operating Officer of The Americas, for Starwood Hotels &
Resorts Worldwide, Inc. Hotel Group. His experience in the industry also
includes senior positions with Westin Hotels and Resorts, where he was
President and Chief Operating Officer from 1995 to 1998; Interstate, where he
was Executive Vice President and Group President of Operations from 1990 to
1995; The Sheraton Corporation, where he was Senior Vice President, Director of
Operations, North America Division-East from 1985 to 1990; and Hilton Hotels,
where for 16 years he served as General Manager of several landmark hotels,
including The Waldorf Astoria and The Waldorf Towers in New York, The Capital
Hilton in Washington, D.C., and The Hilton Hawaiian Village in Honolulu. Mr.
Kleisner, who holds a B.A. degree in Hotel Management from Michigan State
University, completed advanced studies at the University of Virginia and
Catholic University of America. Mr. Kleisner is 57 years old.
Ted Teng joined us in May 2000 as Chief Operating Officer. He assumed the
additional title of President in October 2000. He oversees our core branded
hotel products--Wyndham Hotels & Resorts, Wyndham Luxury Resorts and
Summerfield Suites by Wyndham Hotels--as well as the Performance Hospitality
Management division and the Asset Management division. His responsibilities
also include sales and marketing, human resources, information technology and
procurement. He previously served as President, Asia Pacific, for Starwood
Hotels & Resorts Worldwide, Inc. from April 1998 to May 2000, where he oversaw
the integration of that company's branded hotel operations in the region, and
the operating and financial performance of over 70 hotels and resorts in 17
countries. From July 1996 to April 1998, Mr. Teng served as the President of
Asia-Pacific for Westin Hotels. Prior to this time, he served for 14 years in a
variety of senior and strategic capacities with ITT Sheraton. Mr. Teng
graduated from the Cornell University School of Hotel Administration and holds
an M.B.A. from the University of Hawaii. Mr. Teng is 46 years old.
Rick Smith was named Executive Vice President and Chief Financial Officer in
April 2000 and is responsible for finance strategy and operations. Mr. Smith
joined us in September 1999 as Senior Vice President and Treasurer, overseeing
capital market activity, corporate banking relationships, cash management, risk
management and debt compliance. He came from Starwood Hotels & Resorts
Worldwide, Inc., where he served as Vice President, Corporate Finance from 1996
to 1999. He previously worked for Atlantic Richfield Company and Coopers &
Lybrand LLP. Mr. Smith is a certified public accountant. He graduated from the
University of Tennessee where he received a B.S. in accounting and business
law. Mr. Smith is 39 years old.
Michael A. Grossman has served as Executive Vice President and divisional
president of the management services division since January 1998. From 1977 to
1993, Mr. Grossman owned and operated Grossman and Associates, a hotel
management company. Mr. Grossman joined Patriot American Hospitality L.P. in
August 1993 as a Senior Vice President heading up its hotel division. Mr.
Grossman was subsequently appointed Chief Operating Officer of Gencom American
Hospitality, which initially served as a third party manager for Patriot and
was subsequently acquired by Patriot. Mr. Grossman holds a B.B.A. from the
University of Texas and a J.D. from Southern Methodist University. Mr. Grossman
is 49 years old.
16
Dave Johnson became our Executive Vice President, Chief Marketing Officer,
in March 2000. He previously served as president of the Wyndham hotel division
from August 1999 to March 2000, and president of the Wyndham Garden division
from January 1998 to August 1999. Prior to these positions, Mr. Johnson was
Senior Vice President of Operations for the Eastern United States. His career
began with Wyndham Hotels and Resorts in 1987 as Director of Sales & Marketing.
Dave Johnson holds a B.A. and M.A. from Northeastern Illinois University. Mr.
Johnson is 40 years old.
Joseph Champ became our Executive Vice President, Business Development and
Chief Investment Officer in March 2001. He previously served as Senior Vice
President, Acquisitions and Development with Starwood Hotels & Resorts from
1998 to 2001. Before these positions, Mr. Champ served as Vice President,
Development with Westin Hotels from 1997 to 1998. Mr. Champ obtained his B.A.
from Middlebury College and a M.B.A. from J. L. Kellogg School of Management at
Northwestern University. Mr. Champ is 44 years old.
ITEM 3. LEGAL PROCEEDINGS
On May 7, 1999, Doris Johnson and Charles Dougherty filed a lawsuit in the
Northern District of California against us, Patriot, our operating partnerships
and Paine Webber Group, Inc. This action, captioned Johnson v. Patriot American
Hospitality, Inc., et al., No. C-99-2153, was commenced on behalf of all former
holders of Bay Meadows stock during a class period from June 2, 1997 to the
date the lawsuit was filed. The action asserts securities fraud claims and
alleges that the purported class members were wrongfully induced to tender
their shares as part of the Cal Jockey merger based on a fraudulent prospectus.
The action further alleges that defendants continued to defraud shareholders
about their intentions to acquire numerous hotels and incur massive debt during
the class period. Three other actions against the same defendants subsequently
were filed in the Northern District of California: (i) Ansell v. Patriot
American Hospitality, Inc., et al., No. C-99-2239 (filed May 14, 1999), (ii)
Sola v. Paine Webber Group, Inc., et al., No. C-99-2770 (filed June 11, 1999),
and (iii) Gunderson v. Patriot American Hospitality, Inc., et al., No.
C-99-3040 (filed June 23, 1999). Another action with substantially identical
allegations, Susnow v. Patriot American Hospitality, Inc., et al., No.
3-99-CV1354-T (filed June 15, 1999), also subsequently was filed in the
Northern District of Texas. By order of the Judicial Panel on Multidistrict
Litigation, these actions along with certain actions identified in the
following paragraph have been consolidated in the Northern District of
California for consolidated pretrial purposes. On or about August 15, 2001, the
court granted the defendants' motions to dismiss the action, dismissing some of
the claims with prejudice and granting leave to replead certain other claims in
the complaint. On or about October 15, 2001, the plaintiffs filed an amended
complaint seeking monetary damages but did not specify the amount of damages
being sought. On December 20, 2001, the defendants moved to dismiss the amended
complaint. The defendants' motion has not yet been fully submitted to the
Court. We intend to defend the suits vigorously.
On or about June 22, 1999, a lawsuit captioned Levitch v. Patriot American
Hospitality, Inc., et al., No. 3-99-V1416-D, was filed in the Northern District
of Texas against us, Patriot, James D. Carreker and Paul A. Nussbaum. This
action asserts securities fraud claims and alleges that, during the period from
January 5, 1998 to December 17, 1998, the defendants defrauded shareholders by
issuing false statements about us and Patriot. The complaint was filed on
behalf of all shareholders who purchased shares of our capital stock and
Patriot's capital stock during that period. Three other actions, Gallagher v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV-1429-L, filed on June
23, 1999, David Lee Meisenburg, et al., v. Patriot American Hospitality, Inc.,
Wyndham International, Inc., James D. Carreker, and Paul A. Nussbaum Case No.
3-99-CV1686-X, filed July 27, 1999 and Deborah Szekely v. Patriot American
Hospitality, Inc., et al., No. 3-99-CV1866-D, filed on or about August 27,
1999, allege substantially the same allegations. By orders of the Judicial
Panel on Multidistrict Litigation, these actions have been consolidated with
certain other shareholder actions discussed in the above paragraph and
transferred to the Northern District of California for consolidated pre-trial
purposes. On or about August 15, 2001, the court granted the defendants'
motions to dismiss the action, dismissing some of the claims with prejudice and
granting leave to replead certain other claims in the complaint. On or about
October 15, 2001, the plaintiffs filed an amended complaint seeking monetary
damages but did not specify the amount of damages being sought. On December 20,
2001, the defendants moved to dismiss the amended complaint. The defendants'
motion has not yet been fully submitted to the court. We intend to defend the
suits vigorously.
17
We have received a draft complaint which threatens to assert claims on
behalf of Golden Door, LLC, Golden Springs, LLC, Golden Door, Inc., Deer
Springs Ranch, LLC, Deborah Szekely and Sarah Livia Brightwood. The potential
plaintiffs appear to be the same as the plaintiffs who filed the action
discussed above, captioned Deborah Szekely v. Patriot American Hospitality,
Inc., etal., No. 3-99-CV1866-D. However, the draft complaint sets forth
different allegations. The draft complaint purports to assert claims against
us, Patriot and our operating partnerships for securities fraud under
California securities code, common law fraud, breach of fiduciary duty and
deceit in connection with the purchase by Patriot of the Golden Door Spa in
February 1998. The draft complaint seeks compensatory damages for the alleged
lost value of the potential plaintiff's stock and other unspecified damages.
Although we have received a draft complaint, to date no complaint has been
served on us.
On or about May 8, 2001, a demand for arbitration was filed on behalf of
John W. Cullen, IV, William F. Burruss, Heritage Hotel Management & Investment
Ltd. and GH-Resco, L.L.C. naming one of our operating partnerships as a
respondent. A similar arbitration was originally filed on or about October 26,
2000 against us. The Supreme Court of the State of New York, however, ruled
that we did not agree to arbitrate any claims with the claimants and stayed the
arbitration with respect to us. The claimants then recommended an identical
arbitration, dropped us and named our operating partnership as a respondent.
The demand for arbitration claims that the claimants and our operating
partnership are parties to a contribution agreement dated February 28, 1997 and
that our operating partnership is in breach of that agreement. The claimants
assert that our operating partnership breached its agreement to pay respondents
additional consideration under the contribution agreement by, among other
things, allegedly denying the claimants compensation due to them in connection
with various transactions initiated by the claimants and provided to our
operating partnership, which allegedly provided our operating partnership with
growth and added revenue. In addition, the claimants assert that our operating
partnership failed to provide the claimants with various other amounts due
under the contribution agreement, failed to indemnify the claimants for certain
expenses and intentionally and negligently mismanaged our operating
partnership's business. The claimants do not specify the amount of damages
sought. We intend to defend the claims vigorously.
We were named as a defendant in four lawsuits stemming from hotels charging
energy surcharges in addition to room rates. The lawsuits were filed in
California (Bryant v. Wyndham International, Inc. and Judd v. Wyndham
International, Inc.), Illinois (Nicolloff v. Wyndham International, Inc.) and
Florida (Soper v. Wyndham International, Inc.). All of these cases are class
actions, with two being on behalf of purported nationwide classes. The basis
for each of the cases is that an energy surcharge was not disclosed at the time
the room rate was quoted, and the cases allege various causes of action for
breach of contract and unfair business practices under state law. Additionally,
the attorneys general of Florida, Texas, New Jersey and California are
investigating the issue of energy surcharges. We have received subpoenas in
Florida, Texas and New Jersey. Finally, the Office of Consumer Affairs of
Suffolk County, New York received a complaint related to an energy surcharge,
and has asked for our response. We have agreed to settle the two California
cases (Bryant and Judd) and plaintiffs' counsel have agreed to dismiss the
Illinois and Florida cases. The settlements and dismissals will resolve all of
the pending lawsuits. The basic terms of the settlement are that each person
who paid an energy surcharge will be entitled to a coupon for $15 off a future
night's stay. If the redemption rate of these coupons is less than 6%, we will
make up the difference by donating room nights, conference rooms, ballrooms or
the equivalent to charitable or governmental entities. However, in no event
will this amount exceed $1.5 million. Additionally, we have agreed to pay
plaintiff's attorneys' fees of up to $410,000. If the court preliminarily
approves the settlement and certifies settlement class, notice will be mailed
to the class members, who will have an opportunity to object or opt out of the
settlement. If more than 10% of the class members opt out of the settlement, we
can void the settlement. Then there will be a hearing for the court to finally
approve the settlement. We have not resolved any of the attorney general
actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The following table sets forth the quarterly high and low sale prices per
share of our class A common stock as reported on the NYSE (symbol "WYN").
Per Share
High Low Dividend
------- ------- ---------
2000:
First Quarter.. $2.9375 $ 1.75 $ --
Second Quarter. $ 2.625 $1.6875 $ --
Third Quarter.. $ 2.50 $1.6875 $ --
Fourth Quarter. $2.0625 $1.3125 $ --
2001:
First Quarter.. $ 2.50 $ 1.50 $ --
Second Quarter. $ 3.00 $ 1.73 $ --
Third Quarter.. $ 2.75 $ .60 $ --
Fourth Quarter. $ .77 $ .34 $ --
Holders
As of March 19, 2002, there were approximately 1,524 record holders of our
class A common stock, including shares held in "street name" by nominees who
are record holders, and approximately 19,600 shareholders.
Dividends
We do not anticipate paying a dividend to our common shareholders and we are
prohibited under the terms of our senior credit facility and increasing rate
loans facility from paying dividends on our class A common stock. For the six
year period beginning September 30, 1999, dividends on our series A and series
B preferred stock are payable partly in cash and partly in additional shares of
our series A and series B preferred stock, with the cash portion aggregating
$29.25 million per year, so long as there is no redemption or conversion of our
series A and series B preferred stock. For the following four years, dividends
are payable in cash or additional shares of our series A or series B preferred
stock, as the case may be, as determined by our board of directors. After year
ten, dividends are payable solely in cash.
We anticipated that we would not be in compliance at September 30, 2001 with
certain financial ratio covenants in our senior credit facility and increasing
rate loans facility due to the tragic events of September 11, 2001.
Accordingly, on September 28, 2001, we and our leaders entered into a waiver of
the financial covenants for the third and fourth quarters of 2001. The waiver
is effective through February 28, 2002. As a condition of the waiver, we agreed
to certain additional restrictions during the time period the waiver is in
effect, including requirements that cash dividends on our series A and B
preferred stock could be paid only if concurrently with the payment of these
dividends, the cash would be loaned back to us on a subordinated basis. Thus,
since July 1, 2001, we have not paid the cash portion of the regular quarterly
dividends on our series A and B preferred stock.
In an agreement dated as of January 24, 2002, we amended and restated our
bank credit facilities. We are prohibited under the terms of our recent waiver
and amendments to the senior credit facility and increasing rate loans facility
from paying cash dividends on our preferred stock. As of December 31, 2001, we
had deferred
19
payments of the cash portion of the preferred stock dividend totaling
approximately $14.6 million. This amount has been included in accounts payable
and accrued expenses as of December 31, 2001. In addition, according to the
terms of our series A and B preferred stock, if the cash dividends on the
preferred stock are in arrears and unpaid for at least 60 days, then an
additional amount of dividends will accrue at an annual rate of 2.0% of the
stated amount of each share of preferred stock then outstanding from the last
payment date on which cash dividends were to be paid in full until the cash
dividends in arrears have been paid in full. These additional dividends are
cumulative and payable in additional shares of preferred stock. As a result, an
additional dividend of $11.6 million, payable in preferred shares, has been
included in accounts payable and accrued expenses as of December 31, 2001.
Recent Sales of Unregistered Securities
None
20
ITEM 6. SELECTED FINANCIAL INFORMATION
The following tables set forth selected consolidated historical financial
information of ours. This financial information should be read in conjunction
with, and is qualified in its entirety by, our historical financial statements
and notes thereto included elsewhere in this Annual Report on Form 10-K. Our
selected financial and other data for 2001, 2000, 1999, 1998 and 1997 have been
derived from our consolidated financial statements.
WYNDHAM INTERNATIONAL
Selected Condensed Consolidated Historical Financial Data
Year Ended December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ----------- ----------- -----------
(in thousands, except per share data)
Operating Data:
Total revenue....................................... $2,105,430 $2,498,595 $ 2,495,335 $ 2,056,341 $ 335,035
(Loss) income before income tax provision,
minority interests, accounting change
and extraordinary item............................. (213,116) (523,014) (491,335) (112,508) 4,142
(Loss) income before accounting change and
extraordinary item................................. (126,738) (324,671) (1,062,131) (126,406) 362
Net loss............................................ $ (138,940) $ (324,671) $(1,071,969) $ (158,223) $ (2,172)
Per Share Data (1):
Basic loss per common share:
(Loss) income before accounting change and
extraordinary item............................. $ (1.49) $ (2.56) $ (7.02) $ (1.13) $ 0.01
Accounting change............................... (.06) -- -- -- --
Extraordinary loss.............................. (.01) -- (0.06) (0.23) (0.04)
---------- ---------- ----------- ----------- -----------
Net loss per common share....................... $ (1.56) $ (2.56) $ (7.08) $ (1.36) $ (0.03)
========== ========== =========== =========== ===========
Diluted loss per common share (2), (3).......... $ (1.56) $ (2.56) $ (7.20) $ (2.57) $ (0.03)
========== ========== =========== =========== ===========
Dividends per share (4)......................... $ -- $ -- $ -- $ 1.0362 $ 1.0878
========== ========== =========== =========== ===========
Cash Flow Data:
Cash provided by operating activities............... $ 158,359 $ 246,838 $ 202,302 $ 244,493 $ 108,110
Cash (used in) provided by investing activities..... (63,427) 37,272 (356,564) (2,107,223) (1,202,124)
Cash (used in) provided by financing activities..... 18,134 (383,397) 181,889 1,940,635 1,134,846
As of December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ----------- ----------- -----------
(in thousands)
Balance Sheet Data:
Investment in real estate and related improvements
and land held for development, at cost, net........ $4,496,039 $4,711,495 $ 5,413,178 $ 5,585,616 $ 2,044,649
Total assets........................................ 5,768,071 6,066,899 7,003,490 7,415,670 2,507,853
Total debt.......................................... 3,445,995 3,398,950 3,643,556 3,857,521 1,112,709
Minority interest in Operating Partnerships......... 21,416 21,416 22,435 253,970 220,177
Minority interest in other consolidated subsidiaries 91,657 164,906 166,483 229,537 49,694
Shareholders' equity................................ 1,588,221 1,794,187 2,137,662 2,603,037 989,892
Year Ended December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ----------- ----------- -----------
(in thousands)
Other Data:
Weighted average number of common shares
outstanding........................................ 167,698 167,308 161,255 137,764 64,260
Ratio of (losses) earnings to fixed charges......... (.32) (0.39) (0.36) 0.59 1.08
Deficiency of earnings to fixed charges............. 213,116 523,014 491,335 112,508 --
21
Notes to Selected Financial Information
(1) When we refer to our basic earnings per share, diluted earnings per share,
dividends per share, and weighted average number of shares outstanding, we
have adjusted these amounts to reflect the following as though they
occurred on January 1, 1997:
. On January 30, 1997, Patriot declared a 2-for-1 stock split of its common
stock effected in the form of a stock dividend, which was paid on March
18, 1997;
. On July 1, 1997, in connection with the Cal Jockey merger, each share of
Patriot common stock was converted into .51895 paired shares pursuant to
the pairing arrangement between Cal Jockey and Bay Meadows;
. On July 10, 1997, Patriot and old Wyndham declared a 1.927-for-1 stock
split of Patriot and old Wyndham common stocks effected in the form of a
stock dividend, which was paid on July 25, 1997;
. On December 22, 1998, Patriot declared a stock dividend of $.44 per share
of Patriot common stock in the form of, at the option of each
stockholder, additional paired shares of Patriot and old Wyndham common
stocks or shares of Patriot Series B cumulative perpetual preferred
stock, which was paid on January 25, 1999; and
. Our June 30, 1999 restructuring pursuant to which, among other things,
each outstanding paired share was converted into one share of our class A
common stock.
In addition, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 "Earnings Per
Share", which specifies computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
We have restated our earnings per share amounts to reflect the impact of
this statement.
(2) For 2001, we did not include in our computation of diluted earnings per
share the dilutive effect of unvested stock grants of 4,613,000, the option
to purchase 52,000 shares of our class A common stock and 138,592,000
shares of our series A and B preferred stock because they are
anti-dilutive. For 2000, we did not include in our computation of diluted
earnings per share the dilutive effect of unvested stock grants of 645,000,
the option to purchase 104,000 shares of our class A common stock and
129,073,000 shares of our series A and B preferred stock because they are
anti-dilutive. For 1999, we did not include in our computation of diluted
earnings per share the dilutive effect of unvested stock grants of 825,000,
the option to purchase 59,000 shares of our class A common stock and
60,213,000 shares of our series A and B preferred stock because they are
anti-dilutive. For 1998, we did not include in our computation of diluted
earnings per share the dilutive effect of unvested stock grants of 880,000,
the option to purchase 753,000 shares of our class A common stock and
shares issued in connection with forward equity contracts of 2,507,000
because they are anti-dilutive.
(3) For 2001, we did not include in our computation of diluted earnings per
share outstanding options to purchase 14,041,000 shares of our class A
common stock at prices ranging from $1.75 to $30.40 because the options'
exercise prices were greater than the average market price of our class A
common shares and, therefore, the effect would be anti-dilutive. For 2000,
we did not include in our computation of diluted earnings per share
outstanding options to purchase 12,157,000 shares of our class A common
stock at prices ranging from $2.0625 to $30.40 because the options'
exercise prices were greater than the average market price of our class A
common shares and, therefore, the effect would be anti-dilutive. For 1999,
we did not include in our computation of diluted earnings per share
outstanding options to purchase 9,702,000 shares of our class A common
stock at prices ranging from $4.75 to $30.40 because the options' exercise
prices were greater than the average market price of our class A common
shares and, therefore, the effect would be anti-dilutive. For 1998, we did
not include in our computation of diluted earnings per share outstanding
options to purchase 4,650,000 shares of our class A common stock at prices
ranging from $19.45 to $33.58 because the options' exercise price was
greater than the average market price of our class A common shares and,
therefore, the effect would be anti-dilutive.
22
(4) Dividends for the year ended December 31, 1998 include a $0.44 stock
dividend declared by Patriot. Dividends paid for the year ended December
31, 1997 include a special dividend of $0.06 per share paid by Patriot's
predecessor on June 30, 1997. To maintain its qualification as a REIT prior
to consummation of the Cal Jockey merger, Patriot was required to
distribute to its stockholders any undistributed "real estate investment
trust taxable income" for its short taxable year ended with the
consummation of the Cal Jockey merger. Old Wyndham did not pay any
dividends for the six months ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this Form 10-K constitute "forward-looking statements"
as that term is defined under (S)21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995. We have
based these forward-looking statements on our current expectations and
projections about future events. Statements that are predictive in nature, that
depend upon or refer to future events or conditions, or that include words such
as "expects," "anticipates," "intends," "plans," "believes," "estimates,"
"thinks," and similar expressions, are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results and performance to be materially different
from any future results or performance expressed or implied by these
forward-looking statements. These factors include, among other things, those
matters discussed under the caption "Risk Factors," as well as the following:
. the impact of general economic conditions in the United States;
. industry conditions, including competition;
. our ability to effect sales of our assets on terms and conditions
favorable to us;
. our ability to integrate acquisitions into our operations and management;
. risks associated with the hotel industry and real estate markets in
general;
. the impact of terrorist activity, threats of terrorist activity and
responses to terrorist activity on the economy in general and the travel
and hotel industries in particular;
. capital expenditure requirements;
. legislative or regulatory requirements; and
. access to capital markets.
Although we believe that these statements are based upon reasonable
assumptions, we can give no assurance that our goals will be achieved. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking statements
are made as of the date of this annual report. We assume no obligation to
update or revise them or provide reasons why actual results may differ.
Background
Organization
Through a series of mergers and acquisitions, we have grown substantially
since our inception in 1995. Patriot American Hospitality, Inc., or Patriot,
was formed on April 17, 1995 as a self-administered real estate investment
trust, or REIT, to acquire equity interests in hotel properties. On October 2,
1995, Patriot completed an initial public offering of its common stock and
commenced its operations. Between October 2, 1995 and July 1, 1997, Patriot
acquired interests in 56 hotel properties and leased them to various third
party lessees.
On July 1, 1997, Patriot merged into California Jockey Club, or Cal Jockey,
which we will refer to as the "Cal Jockey merger" in this Form 10-K. As part of
this merger, Cal Jockey and Bay Meadows Operating
23
Company, or Bay Meadows, entered into a paired share arrangement under which
both of their common stocks were paired and traded together. Also, Cal Jockey
changed its name to Patriot, and Bay Meadows changed its name to "Patriot
American Hospitality Operating Company."
In January 1998, Wyndham Hotel Corporation merged into Patriot and, as part
of that merger, Patriot American Hospitality Operating Company changed its name
to "Wyndham International, Inc." We will refer to Wyndham International, Inc.
as it existed before June 30, 1999 as "old Wyndham."
During 1998, Patriot and old Wyndham grew primarily by acquiring hotels and
other related businesses using proceeds of over $4.5 billion. They financed
these acquisitions with funds drawn on their revolving credit facilities and
capital raised by issuing paired shares and by having their two operating
partnerships issue limited partnership interests. These acquisitions included:
. the acquisition of Wyndham Hotel Corporation in January 1998 referred to
above, as a result of which Patriot acquired 10 Wyndham hotels, 14
Clubhouse hotels, 52 management and franchise contracts, the Wyndham and
Clubhouse proprietary brand names, and the Wyndham hotel management
company;
. three resort hotels in Puerto Rico and a majority interest in a related
hotel company;
. Arcadian International Limited, which owned 10 hotels in England, one
hotel in Jersey, five owned and managed Malmaison hotels, two European
resorts under development, the Malmaison proprietary brand name, and a
50% interest in a property being developed in London;
. Interstate Hotels Company, or Interstate, which owned or had controlling
interests in 42 hotels, leases for 84 hotels, and management or service
agreements for 82 hotels;
. SF Hotel Company, L.P., which owned four Summerfield Suites(R) hotels,
leasehold and management interests in 24 Summerfield Suites(R), Sierra
Suites(R) and Sunrise Suites hotels, and management contracts and
franchise interests for 12 additional hotels; and
. the hospitality related business of CHC International, Inc., or CHCI,
which included the acquisition of 17 leases and 16 of the related
management contracts related to Patriot hotels, eight third party
management contracts, two third party asset management contracts, the
Grand Bay proprietary brand name, and certain other assets.
On June 30, 1999, we restructured our organization. As part of this
restructuring:
. Patriot became a wholly-owned subsidiary of ours;
. we and Patriot terminated the paired share arrangement;
. each outstanding paired share was converted into one share of our class A
common stock; and
. Patriot terminated its status as a REIT effective January 1, 1999 and
became a taxable corporation as of that date.
Also on June 30, 1999, we completed a $1 billion series B preferred stock
equity investment and closed a new credit facility (comprised of a senior
credit facility and an increasing rate loan facility), which was amended and
restated as of January 24, 2002, and closed on additional mortgage debt.
Holders of our series B preferred stock are entitled to a quarterly dividend on
a cumulative basis at a rate of 9.75% per year, and our series B preferred
stock is convertible, at the holders' option, into shares of our class B common
stock. Also in 1999, we completed an offering of our series A preferred stock,
which, except for voting rights, has substantially similar terms to our series
B preferred stock. We used the proceeds of our series A preferred stock
offering to redeem some of our series B preferred stock.
Under the terms of our preferred stock, if cash dividends are in arrears and
unpaid for a period of 60 days or more, then an additional amount of dividends
accrue at a rate per annum of 2.0% of the stated amount of each
24
share of preferred stock then outstanding from the last payment date on which
cash dividends were to be paid in full until all cash dividends in arrears have
been paid in full. Such additional dividends are cumulative and payable in
additional shares of preferred stock. As of December 31, 2001, we had accrued
$11.6 million at a rate of 2.0% per annum as an additional dividend because
cash dividends totaling $14.6 million on the preferred stock had been in
arrears and unpaid for a period of more than 60 days. In addition, in our
amended and restated credit facilities, we agreed not to pay the cash portion
of the regular quarterly dividend on our preferred stock.
Also during 1999, we sold a racecourse, land adjacent to the racecourse, and
21 hotels for net cash proceeds of approximately $123.4 million. We also
distributed approximately 92% of the shares of Interstate in the form of a
dividend to our stockholders, which we will refer to as the "Interstate
spin-off".
During 2000, we agreed to the redemption of our aggregate 55% non-voting
economic interest in Interstate Hotels, LLC, a principal operating subsidiary
of Interstate. Interstate Hotels, LLC transferred to us a management agreement
for one hotel owned by us and amended management agreements with respect to six
other hotels owned by us to reduce the management fees and to permit
termination by the owner upon 30 days notice. In addition, approximately 9% of
our interest was redeemed by Interstate Hotels, LLC and substantially all of
the remainder was converted into a preferred membership interest in Interstate
Hotels, LLC. As additional consideration for the redemption and conversion of
our interest, we caused our representative on Interstate's board of directors
to resign and relinquished our right to appoint a member to Interstate's board
of directors in the future. In addition, we granted Interstate an option
exercisable within 90 days of October 20, 2000, to acquire all of Interstate's
stock owned by us at a weighted average trading price per share, provided that
the purchase price not be less than $3.00 per share nor more than $4.00 per
share. On December 3, 2000, the common stock was acquired for approximately
$597,000. On July 12, 2001, Interstate Hotels, LLC, pursuant to a redemption
agreement, called for the redemption of our preferred interest in Interstate
Hotels, LLC. In consideration for the redemption, we received $8.25 million in
cash and two promissory notes in the amounts of $750,000 and $3.68 million,
respectively. The notes bear interest at 9.75% and mature on July 1, 2002 and
July 1, 2004, respectively. We recorded a gain of $2 million, net of previously
recorded impairment of $16.5 million. The portion of our interest that was not
converted into a preferred membership interest will remain outstanding.
Thereafter, at any time on or after July 1, 2004, both we and Interstate
Hotels, LLC have the right to require Interstate Hotels, LLC to redeem the
remaining common interest at an amount that is the lesser of (a) the product of
(i) five times Interstate Hotels, LLC's EBITDA as of December 31, 2003 and (ii)
the percentage of total equity interest in Interstate Hotels, LLC which is
represented by the remaining interest, or (b) approximately $433,000.
In 2000, we sold the following assets:
. the Sierra Suites(R) hotel brand, one owned and three leased properties,
17 franchise and management contracts for Sierra Suites(R), and nine
management contracts for Summerfield Suites(R) for net cash proceeds of
approximately $53.0 million, $29.8 million of which was used to relieve
future payment obligations related to the SF Hotel Company, L.P.
acquisitions in 1998 discussed above;
. 26 hotels (two of which were leased back to us) and the Clubhouse Inn
proprietary brand for net cash proceeds of approximately $175.0 million,
after we repaid approximately $70.4 million of mortgage debt; and
. investments in three hotels, two parcels of land, retail space, and a
garage for net cash proceeds of approximately $61.4 million, after we
repaid approximately $7.8 million of debt and a note receivable of $4.3
million.
In 2001, we sold the following assets:
. two hotels and a sewer company, in separate transactions for aggregate
net cash proceeds of approximately $8.6 million, after we repaid
approximately $21.8 million of debt;
. one hotel in which we retained a preferred equity interest for net cash
proceeds of approximately $19.7 million;
25
. three hotels and investments in four additional hotels in a single
transaction for net cash proceeds of approximately $58.7 million; and
. six hotels, which were exchanged for one hotel.
At December 31, 2000, we had approximately $1.2 billion of assets classified
as held for sale, net of impairment. We classify certain assets as held for
sale based on our management having the authority and intent of entering into
commitments for sale transactions expected to close in the next twelve months.
Based on the estimated sale proceeds, we recorded a provision for loss on
assets held for sale of $361.6 million in operating expenses for the year ended
December 31, 2000. At December 31, 2000, we also recorded an impairment of
$39.7 million in operating expenses on real estate assets held for use where
current facts, circumstances and analysis indicate that the assets might be
impaired.
Due to the tragic events of September 11, 2001, we reclassified certain
assets previously categorized as held for sale to held for use. This
reclassification resulted from delays in our anticipated disposition of these
assets beyond one year. An impairment charge was also necessary with respect to
these assets due to market changes that could impact the prices received for
these assets. Consequently, we recorded an impairment of $16.3 million for
assets held for sale at December 31, 2001, and a provision of $7.9 million on
real estate assets held for use at December 31, 2001.
We anticipated that as a result of the effects on our business of the events
of September 11, 2001, we would likely not be able to comply with certain of
the financial ratio covenants in our credit agreement and increasing rate loan
agreement. Accordingly, shortly after the events of September 11, 2001, the
lenders under the bank credit facilities granted us a waiver of certain
financial covenants through February 28, 2002. In an agreement dated as of
January 24, 2002, we amended and restated our bank credit facilities. Under the
terms of the amendment and restatement, all financial covenants, other than the
interest coverage ratio test, have been eliminated. The minimum interest
coverage ratio has been reduced from 1.75:1.00 to 1.05:1.00 until December 31,
2003, and to 1.25:1.00 thereafter. Pursuant to the amendment and restatement,
we provided additional collateral to the lenders, agreed to an increase in the
interest rates payable under the term loans and revolving credit facility, and
agreed to limit our capital expenditures to $125 million per year, plus $25
million per year for emergency capital expenditures. We also agreed that we
would use 100% of the net cash proceeds from sales of the lenders' collateral,
75% of the proceeds from other asset sales and proceeds from mortgage
refinancings and 100% of the proceeds from new debt issuances to reduce debt
outstanding under the bank credit facilities. We also agreed not to pay the
cash portion of the regular quarterly dividend on our series A and series B
convertible preferred stock.
Critical Accounting Policies and Estimates - The preparation of consolidated
financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to, impairment of assets;
assets held for sale; bad debts; income taxes; and contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We periodically review the carrying value of our assets,
including intangible assets, to determine if events and circumstances exist
indicating that assets might be impaired. If facts and circumstances support
this possibility of impairment, our management will prepare undiscounted and
discounted cash flow projections which require judgments that are both
subjective and complex.
26
Our management uses judgment in projecting which assets will be sold by us
within the next twelve months. These judgments are based on our management's
knowledge of the current market and the status of current negotiations with
third parties. If assets are expected to be sold within 12 months, they are
reclassified as assets held for sale on the balance sheet.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made.
Likewise, should we determine that we would not be able to realize all or part
of our net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made.
We are a defendant in lawsuits that arise out of, and are incidental to, the
conduct of our business. Our management uses its judgment, with the aid of
legal counsel, to determine if accruals are necessary as a result of any
pending actions against us.
Results of Operations: Year Ended December 31, 2001 Compared with Year Ended
December 31, 2000
Our hotel revenues were $2,068,723,000 and $2,421,603,000 for the years
ended December 31, 2001 and 2000, respectively. Approximately $110,352,000 of
the decrease in our hotel revenues is attributable to those hotels that have
been sold since 2000. The remaining decrease is attributable to declining
revenues throughout our owned and leased hotel portfolio. RevPAR decreased
10.6% for the year ended December 31, 2001 as compared to the same period in
2000.
Our hotel expenses were $1,557,985,000 and $1,747,601,000 for the years
ended December 31, 2001 and 2000, respectively. As with revenues, our hotel
expenses were impacted by the hotel sales discussed above. Approximately
$76,888,000 of the decrease in our hotel expenses can be attributed to hotels
that have been sold since 2000. The remaining decrease is attributable to
staffing reductions at the hotels and other cost saving initiatives we
implemented as our hotel revenues declined.
Our management fee and service fee income was $26,451,000 and $46,028,000
for the years ended December 31, 2001 and 2000, respectively. The decrease is
primarily a result of reductions in hotel revenue upon which the fees are based
and the sale and termination of certain contracts since December 31, 2000.
Our interest and other income was $10,256,000 and $30,964,000 for the years
ended December 31, 2001 and 2000, respectively. In 2000, we recognized a
termination fee of $14,746,000 resulting from the termination of a portfolio of
17 management contracts and $800,000 from the termination of another contract.
Our general and administrative expenses were $101,901,000 and $97,766,000
for the years ended December 31, 2001 and 2000, respectively. Our general and
administrative expenses in 2001 were impacted by increases in conversion costs
of $12,819,000 resulting from our implementation of brand standards, the write
off of $5,523,000 for receivables deemed not collectible and $5,239,000 in
reservation and marketing funds not reimbursed by hotels. This increase was
offset in part by a reduction in legal costs, training costs and the size of
our corporate staff during 2001.
Our interest expense was $308,524,000 and $371,855,000 for the years ended
December 31, 2001 and 2000, respectively. This decrease is primarily a result
of a reduction in interest rates. At December 31, 2001 and 2000,
27
we had approximately $3.4 billion of debt. The average one-month LIBOR rate was
3.88% and 6.43% for the years ended December 31, 2001 and 2000, respectively.
This reduction of interest rates was partially offset by derivatives we put in
place that fixed the interest rate on a portion of our debt.
Our depreciation and amortization expense was $254,209,000 and $304,785,000
for the years ended December 31, 2001 and 2000, respectively. During the third
and fourth quarters of 2000, we identified certain assets held for sale. In
accordance with Statement of Financial Accounting Standards No. 121, once we
identify an asset for sale, depreciation is no longer recorded. Thus,
depreciation for the year ended December 31, 2001 was reduced. In addition, in
December 2000, certain intangible assets were written off thus reducing
amortization expense for the year ended December 31, 2001.
During the year ended December 31, 2001, we classified five assets as held
for sale based on our management having the authority and intent of entering
into commitments for sale transactions expected to close in the next twelve
months. Based on the estimated net sales proceeds, we recorded a reserve for
impairment for loss on real estate assets held for sale of $16,251,000. The
provision reduces the carrying value of the five owned hotels to the estimated
net sales proceeds less estimated costs to sell. Due to the events of September
11, 2001, which delayed certain sales transactions, other than the five assets,
all remaining assets classified as held for sale as of December 31, 2000 have
been reclassified as held for use as of December 31, 2001. In addition, we
recorded a reserve for impairment on three assets held for use of $7,908,000.
The benefit for income taxes was $96,438,000 and $205,912,000 for the years
ended December 31, 2001 and 2000, respectively. The decrease in the tax benefit
is in part due to increased operating profitability and in part to the
classification of certain assets as held for sale in accordance with generally
accepted accounting principles, or GAAP, resulting in differences in GAAP and
tax depreciation.
Minority interests' share of income in consolidated subsidiaries was
$10,060,000 and $7,569,000 for the years ended December 31, 2001 and 2000,
respectively. The increase in the allocation of income is due to the increased
profitability of certain partnerships, which resulted from the fact that no
depreciation expense was recorded because assets in these partnerships were
held for sale. The increase was partially offset by the sale of one of those
partnership interests in June 2001.
The adoption of the Statement of Financial Accounting Standards No. 133, as
amended, on January 1, 2001 resulted in the cumulative effect of an accounting
change of $10,364,000 being recognized in the consolidated statement of
operations and a charge of $21,691,000 in other comprehensive income. In
addition, for the year ended December 31, 2001, we recorded a loss of
$32,227,000 for the change in the fair value through earnings, and a charge of
$6,646,000 through other comprehensive income. Also, during 2001, we paid
$15,373,000 in settlement payments for the ineffective hedges.
During the year ended December 31, 2001, we recorded a charge of $1,838,000,
net of taxes, as an extraordinary item resulting from the write-off of
unamortized deferred financing costs for debt that has been repaid.
Our resulting net loss for the year ended December 31, 2001 was $138,940,000
compared to a net loss of $324,671,000 for the year ended December 31, 2000.
Due to the implementation of Statement of Financial Accounting Standards No.
142, we will take a charge of $326,843,000 for the writeoff of goodwill in the
first quarter of 2002, which is expected to materially adversely affect our net
operating results for 2002. See "Newly Issued Accounting Standards" below.
Results of Operations: Year Ended December 31, 2000 Compared with Year Ended
December 31, 1999
Our hotel revenues were $2,421,603,000 and $2,409,046,000 for the years
ended December 31, 2000 and 1999, respectively. Although our hotel revenues
remained relatively stable between periods, increases during the
28
year ended December 31, 2000 from acquisitions, assets placed in service, and
increases in RevPAR throughout our portfolio of properties were offset by the
assets sales during 2000 and the Interstate spin-off on June 18, 1999.
Our hotel expenses were $1,747,601,000 and $1,772,724,000 for the years
ended December 31, 2000 and 1999, respectively. As with our revenues, our
expenses remained relatively stable between periods. The decrease in our
expenses resulting from assets sales was partially offset by increases in our
expenses resulting from acquisitions and new assets placed in service during
the previous year.
Our management fee and service fee income was $46,028,000 and $69,278,000
for the years ended December 31, 2000 and 1999, respectively. The decrease is
primarily the result of the loss of management contracts associated with the
Interstate spin-off, the sale of the third party management contracts in the
Sierra transaction in the first quarter of 2000, and the loss of a portfolio of
17 management contracts during 2000.
Our interest and other income was $30,964,000 and $11,256,000 for the years
ended December 31, 2000 and 1999, respectively. This increase was primarily due
to our recognition of a termination fee of $14,746,000 related to the
termination of 17 management contracts in 2000 and interest income from funds
held in escrow for all of 2000. In 1999, certain of the funds were escrowed for
only six months because the debt was not obtained until June 1999.
Our general and administrative expenses were $97,766,000 and $178,039,000
for the years ended December 31, 2000 and 1999, respectively. This decrease was
primarily a result of expenditures incurred in 1999, in part associated with
our June 30, 1999 restructuring, but not incurred in 2000. Those 1999 costs
included:
. $13,047,000 of strategic reorganization costs, including fees to settle
forward equity contracts and vesting of employees' stock awards;
. $3,917,000 associated with the write off of bond offering costs;
. $5,435,000 of costs associated with the Interstate spin-off;
. $13,530,000 of abandoned transaction costs;
. $21,131,000 of costs associated with conversion costs and becoming year
2000 compliant; and
. $4,695,000 associated with the write-off of receivables from a managed
hotel in which we terminated the management contract.
In addition, in 1999 we incurred approximately $29,829,000 of general and
administrative expenses for divisional offices located in Pittsburgh, Wichita,
and Phoenix. We incurred minimal costs during 2000 because those offices were
closed during 1999 and the first quarter of 2000. However, in 2000, we incurred
approximately $12,085,000 in severance related expenses for certain executive
officers who resigned in 2000. In addition, during 2000, we incurred
approximately $7,439,000 in costs associated with the settlement of certain
lawsuits and legal fees related to those lawsuits.
Also in 1999, we recorded $285,267,000 of costs associated with our June 30,
1999 restructuring. These costs primarily relate to the non-cash write down of
assets of approximately $265,962,000 as we exited from certain business
sectors, and focused on our core brands and products. In our attempt to
streamline our organization, we closed offices in New York, London, Phoenix,
and Wichita. We recorded costs of $19,305,000 as a result of severance, lease
cancellation costs, legal costs and other costs related to this exit.
Our interest expense was $371,855,000 and $353,227,000 for the years ended
December 31, 2000 and 1999, respectively. This increase in our interest expense
is primarily related to higher interest rate spreads on our current credit
facilities as compared to the old credit facility and higher interest rates
during 2000 as compared to
29
1999. Our derivative financial instruments in part negated the impact of these
higher rates. However, we also had increases in the amortization of loan costs
associated with the amortization of the premiums for $1.5 billion in new
derivatives acquired in March 2000.
During the year ended December 31, 2000, we recognized losses on the sale of
assets of $12,987,000. During the year ended December 31, 1999, we recognized
losses of $10,702,000 on the sale of assets.
At December 31, 2000, we had classified 50 assets as held for sale based on
our management having the authority and intent of entering into commitments for
sale transactions expected to close in the next twelve months. Based on the
estimated net sales proceeds, we recorded a reserve for impairment for loss on
real estate assets held for sale of $361,571,000. In addition, we recorded a
write-down for impairment of $39,654,000 on assets held for use, $45,174,000 on
management contract costs, and a reserve for impairment of $40,259,000 on
investments in unconsolidated subsidiaries that were held for sale.
Our depreciation and amortization expense was $304,785,000 and $302,890,000
for the years ended December 31, 2000 and 1999, respectively. This increase was
primarily due to the increase in capital renovations during 2000, as well as
the placement in service of additional assets that were previously under
development, offset in part by the asset sales that occurred during 2000, and
the placement of certain assets held for sale.
Our share of equity in earnings (losses) from unconsolidated subsidiaries
was $2,491,000 and $(7,746,000) for the years ended December 31, 2000 and 1999,
respectively. This increase is due primarily from the allocation of income from
one of its investments, which was in development in 1999 but in operation in
2000. In addition, the 1999 amount was impacted by loss allocations from one
subsidiary, which resulted in the write-down of certain leaseholds.
The benefit (provision) for income taxes was $205,912,000 and ($571,421,000)
for the years ended December 31, 2000 and 1999, respectively. The change in the
provision is due to a 1999 charge of $675,000,000 as a result of Patriot's
conversion from a REIT to a C corporation, the restructuring of certain special
purpose controlled subsidiaries, which previously could not be consolidated
with our taxable income or loss, and charges taken in 2000 for the impairment
of certain assets held for sale.
Minority interest's share of loss associated with the Operating Partnerships
was $6,642,000 for the year ended December 31, 1999. There was no minority
interest's share of the income (loss) associated with the operating
partnerships for the year ended December 31, 2000 due to amendments in the
partnership agreements at June 30, 1999 that changed the allocation of profit
and loss to the limited partners.
In connection with our debt financing on June 30, 1999, we wrote off the
remaining balance of unamortized deferred financing costs associated with the
old credit facility resulting in an extraordinary loss of $9,838,000, net of
minority interest and income taxes, in 1999.
As a result, our net loss was $324.7 million and $1.07 billion for years
ended December 31, 2000 and 1999, respectively.
Results of reporting segments
Our results of operations are classified into seven reportable segments: (1)
Wyndham Hotels & Resorts(R), (2) Wyndham Luxury Resorts, (3) Wyndham
Gardens(R), (4) Summerfield Suites by Wyndham(TM), (5) other proprietary
branded hotel properties, (6) non-proprietary branded properties and (7) other.
We have restated reportable segments for 2000 and 1999 to conform to the 2001
presentation.
For the year ended December 31, 2001 compared with the year ended December
31, 2000
Wyndham Hotels & Resorts(R) represented approximately 49.5% and 45.1% of our
total revenue for the years ended December 31, 2001 and 2000, respectively.
Total revenue for this segment was $1,042,415,000 compared
30
to $1,128,073,000 for the years ended December 31, 2001 and 2000, respectively.
Operating income for this segment was $243,050,000 compared to $293,380,000 for
the years ended December 31, 2001 and 2000, respectively. Decreases in revenue
and operating income for this segment can be primarily attributed to declines
in occupancy of 5.2% due to the slowing economy and the events of September 11,
2001.
Wyndham Luxury Resorts represented approximately 4.2% and 4.1% of our total
revenue for the years ended December 31, 2001 and 2000, respectively. Total
revenue for this segment was $88,697,000 compared to $103,654,000 for the years
ended December 31, 2001 and 2000, respectively. Operating income for this
segment was $18,031,000 compared to $26,907,000 for the years ended December
31, 2001 and 2000, respectively. The decreases in both revenues and operating
income for this segment can be primarily attributed to decreases in average
daily rate, or ADR, and occupancy of 12.2% and 3.0%, respectively, due to the
slowing economy and the events of September 11, 2001.
Wyndham Gardens(R) represented approximately 3.3% and 3.4% of our total
revenue for the years ended December 31, 2001 and 2000, respectively. Total
revenue for this segment was $70,090,000 compared to $84,730,000 for the years
ended December 31, 2001 and 2000, respectively. Operating income for this
segment was $10,429,000 compared to $15,689,000 for the years ended December
31, 2001 and 2000, respectively. The decreases in both revenue and operating
income for this segment resulted primarily from a decline in occupancy of 8.7%
in 2001 due to the slowing economy and the events of September 11, 2001. In
addition, six Wyndham Garden hotels were sold in June 2000.
Summerfield Suites by Wyndham(TM) represented approximately 6.6% and 5.7% of
our total revenue for the years ended December 31, 2001 and 2000, respectively.
Total revenue for this segment was $138,407,000 compared to $142,442,000 for
the years ended December 31, 2001 and 2000, respectively. Operating income for
this segment was $22,562,000 compared to $29,519,000 for the years ended
December 31, 2001 and 2000, respectively. Decrease in revenues and operating
income for this segment were primarily due to declines in ADR and occupancy of
3.9% and 5.4%, respectively, due to the slowing economy and the events of
September 11, 2001. These were partially offset by the absorption of certain
job functions and costs by the hotels and the corporate office in Dallas that
were previously performed by the Wichita divisional office that was closed
March 31, 2000.
Other proprietary branded properties represented approximately .2% and 1.6%
of our total revenue for the years ended December 31, 2001 and 2000,
respectively. Total revenue for this segment was $4,297,000 compared to
$41,197,000 for the years ended December 31, 2001 and 2000, respectively.
Operating income for this segment was $602,000 and $11,955,000 for the years
ended December 31, 2001 and 2000, respectively. The decrease in both revenues
and operating income was primarily a result of the sale of the Sierra branded
hotels in March 2000, the Clubhouse branded hotels in June 2000, and the
Malmaison properties in November 2000. As of December 31, 2001, only one hotel
remained in this segment.
Non-proprietary branded properties, including Hilton(R), Holiday Inn(R),
Marriott(R), Ramada(R), Radisson(R), and other major hotel franchises,
represented approximately 34.4% and 36.9% of our total revenue for each of the
years ended December 31, 2001 and 2000, respectively. Total revenue for this
segment was $724,817,000 compared to $921,507,000 for the years ended December
31, 2001 and 2000, respectively. Operating income for this segment was
$171,728,000 and $248,036,000 for the years ended December 31, 2001 and 2000,
respectively. The decrease in both revenue and operating income is due in part
to the sale of non-proprietary branded assets since 2000. Operating results
have also been impacted by declines in occupancy of 5.1% in 2001 due to the
slowing economy and the events of September 11, 2001.
Other represents revenue from various operating businesses, including
management and other service companies. Expenses in this segment are primarily
interest, depreciation, amortization and corporate general and administrative
expenses. Total revenue for the segment was $36,707,000 and $76,992,000 for the
years ended December 31, 2001 and 2000, respectively. The overall $40,285,000
decrease in this segment's revenue was
31
primarily the result of lost management fees from contracts sold and terminated
in 2000 and 2001, including a $14,746,000 termination fee recognized in 2000.
Operating loss for this segment was $683,018,000 and $1,150,991,000 for the
years ended December 31, 2001 and 2000, respectively. This decrease in
operating loss is primarily attributable to decreases in certain expenses such
as impairment expense and depreciation expense. The decrease in depreciation
expense of $50,576,000 was primarily a result of the increase in the number of
assets held for sale with respect to which depreciation is no longer recorded.
In addition, for the year ended December 31, 2001, we recorded $24,159,000 of
impairment charges compared to $441,484,000 recorded for the year ended
December 31, 2000.
For the year ended December 31, 2000 compared with the year ended December
31, 1999
Wyndham Hotels & Resorts(R) represented approximately 45.1% and 39.8% of our
total revenue for the years ended December 31, 2000 and 1999, respectively.
Total revenue for this segment was $1,128,073,000 compared to $992,353,000 for
the years ended December 31, 2000 and 1999, respectively. Operating income for
this segment was $293,380,000 compared to $244,435,000 for the years ended
December 31, 2000 and 1999, respectively. The increases in revenues and
operating income for this segment can be primarily attributed to our
acquisition of four hotels that were branded Wyndham hotels and the
stabilization of revenues in 2000 for two additional flagship hotels that
opened during 1999. The revenue increase attributed to these five hotels was
$96,109,000. This segment also had strong improvement in both occupancy and ADR
for the year ended December 31, 2000 as compared to 1999.
Wyndham Luxury Resorts represented approximately 4.1% and 3.9% of our total
revenue for the years ended December 31, 2000 and 1999, respectively. Total
revenue for this segment was $103,654,000 compared to $97,422,000 for the years
ended December 31, 2000 and 1999, respectively. Operating income for this
segment was $26,907,000 compared to $22,050,000 for the same periods,
respectively. The increases in revenues and operating income for this segment
can be attributed in large part to an increase in ADR of 2.0% and occupancy of
1.8% in 2000.
Wyndham Gardens(R) represented approximately 3.4% and 3.7% of our total
revenue for the years ended December 31, 2000 and 1999, respectively. Total
revenue for this segment was $84,730,000 compared to $92,776,000 for the years
ended December 31, 2000 and 1999, respectively. Operating income for this
segment was $15,689,000 compared to $23,044,000 for the same periods,
respectively. Decreases in both revenue and operating income for this segment
were due primarily to the sale of six Wyndham Garden hotels in June 2000.
Summerfield Suites by Wyndham(TM) represented approximately 5.7% and 5.3% of
our total revenue for the years ended December 31, 2000 and 1999, respectively.
Total revenue for this segment was $142,442,000 compared to $132,772,000 for
the years ended December 31, 2000 and 1999, respectively. Operating income for
this segment was $29,519,000 compared to $26,785,000 for the same periods,
respectively. Increases in revenues and operating income for this segment were
primarily due to the opening of a new hotel in Miami during late 1999, and
overall increases in ADR of 2.0% and occupancy of 2.4% in 2000.
Other proprietary branded properties, including Malmaison, Sierra Suites,
Clubhouse and hotels acquired in the Arcadian acquisition, represented
approximately 1.6% and 4.1% of our total revenue for the years ended December
31, 2000 and 1999, respectively. Total revenue for this segment was $41,197,000
compared to $101,796,000 for the years ended December 31, 2000 and 1999,
respectively. Operating income for this segment was $11,955,000 and $27,680,000
for the years ended December 31, 2000 and 1999, respectively. The decrease in
both revenue and operating income was primarily as a result of the sale of 11
hotels in December 1999 acquired in the Arcadian acquisition, the sale of the
Sierra branded hotels in March 2000, the sale of the Clubhouse branded hotels
in June 2000, and the sale of the Malmaison hotels in November 2000. As of
December 31, 2000, only one hotel remained in this segment.
Non-proprietary branded properties, including Hilton(R), Holiday Inn(R),
Marriott(R), Ramada(R), Radisson(R), and other major hotel franchises,
represented approximately 36.9% and 39.8% of our total revenue for the years
32
ended December 31, 2000 and 1999, respectively. Total revenue for this segment
was $921,507,000 compared to $991,927,000 for the years ended December 31, 2000
and 1999, respectively. Operating income for this segment was $248,036,000 and
$240,028,000 for the years ended December 31, 2000 and 1999, respectively. The
decrease in revenue is due primarily to the spin-off of several leases in
connection with the Interstate spin-off on June 18, 1999, as well as the sale
of non-proprietary branded assets throughout 2000. Total revenue included in
the years ended December 31, 2000 and 1999 for these assets sold was
$13,996,000 and $131,137,000, respectively. This decrease resulting from the
sale of these assets was in part offset by increases in ADR of 3.8% and
occupancy of 0.6% in 2000. Operating income for this segment benefited from
these increases in ADR and occupancy as well as a result of the Interstate
spin-off because certain of those Interstate leases were generating operating
losses.
Other represents revenue from various operating businesses including
management and other service companies, and participating lease revenue for one
hotel and a parcel of land. Expenses in this segment are primarily interest,
depreciation, amortization and corporate general and administrative expenses.
Total revenue for this segment was $76,992,000 and $86,289,000 for the years
ended December 31, 2000, and 1999, respectively. The $9,297,000 decrease in
this segment's revenue was caused primarily by decreases in management and
service fee income from the Interstate spin-off and the sale of third party
management contracts in the Sierra transaction. This was partially offset by
the recognition of a $14,746,000 termination fee. Operating loss for this
segment was $1,150,991,000 and $1,067,611,000 for the years ended December 31,
2000, and 1999, respectively. In 1999, the operating loss was impacted by
restructuring charges of $285,287,000 from our June 30, 1999 restructuring and
our decision to streamline our organization and focus on our core brands and
strategic assets. In addition, operating loss was impacted by reductions in
general and administrative expenses as we made efforts to streamline our
organization, including consolidating our divisional and sales offices in
Dallas and eliminating layers of our management. In 2000, however, the
operating loss was impacted by a $441,484,000 impairment reserve recognized for
certain assets.
Statistical Information
During 2001, our portfolio of 167 owned and leased hotels experienced a
decline in both ADR and RevPAR of approximately 2.4% and 11.0%, respectively,
with a decrease in occupancy of 8.8%. We attribute these declines primarily to
a sluggish economy and the events of September 11, 2001. The following table
sets forth certain statistical information for our 167 owned and leased hotels
for 2001 and 2000 as if the hotels were owned or leased for the entire periods
presented.
Occupancy ADR RevPAR
---------- --------------- ---------------
2001 2000 2001 2000 2001 2000
---- ---- ------- ------- ------- -------
Wyndham Hotels & Resorts..... 67.4% 73.2% $126.32 $129.81 $ 85.11 $ 94.99
Wyndham Luxury Resorts....... 68.1 73.3 268.73 306.99 182.88 224.85
Wyndham Garden Hotels........ 58.1 67.8 89.73 91.39 52.12 61.95
Summerfield Suites by Wyndham 77.2 82.6 119.06 123.91 91.93 102.42
Non-proprietary brands....... 64.2 71.0 108.74 110.37 69.79 78.37
---- ---- ------- ------- ------- -------
Weighted average.......... 66.4% 72.8% $118.35 $121.25 $ 78.57 $ 88.25
==== ==== ======= ======= ======= =======
Liquidity and Capital Resources
Our cash and cash equivalents as of December 31, 2001 were $165.7 million,
and our restricted cash was $85.9 million. Our cash and cash equivalents as of
December 31, 2000 were $52.5 million, and our restricted cash was $98.1 million.
Cash Flow Provided by Operating Activities
Our principal source of cash flow is from the operations of the hotels that
we own, lease and manage. Cash flows from operating activities were $158.4
million, $246.8 million and $202.3 million for 2001, 2000 and 1999,
33
respectively. Our operating cash flows were negatively impacted by the sluggish
economy and the terrorist attacks of September 11, 2001. Occupancies dropped
sharply in the days following the attacks, which negatively impacted the
operations of our hotels.
Cash Flows from Investing and Financing Activities
Cash flows used in our investing activities were $63.4 million for the year
ended December 31, 2001, resulting primarily from renovation expenditures at
certain hotels. This was partially offset by proceeds received from asset sales
during 2001. Cash flows provided by our financing activities of $18.1 million
for the year ended December 31, 2001 were primarily related to us borrowing
under our senior credit facility, which was partially offset by dividend
payments made by us on our Series A and B preferred stock.
Cash flows provided by our investing activities were approximately $37.3
million for 2000, resulting primarily from our sale of hotel properties and
other investments along with cash distributions we received from our
investments in certain unconsolidated subsidiaries. This was offset in part by
the acquisition of the remaining partnership interest in one hotel, the
amendment of the Wyndham Anatole management contract, payment of additional
purchase consideration in connection with the Summerfield transaction, and
capital improvements and renovations at the hotel properties.
Cash flows used in our financing activities were $383.4 million for 2000,
resulting primarily from the repayment of debt and dividend payments made on
our series A and B preferred stock. In addition, we paid $34.4 million in
premiums to enter into financial derivatives with a total notional amount of
$1.5 billion to limit our exposure to rising interest rates.
Cash flows used in our investing activities were approximately $356.6
million for 1999, resulting primarily from our acquisition of hotel properties,
property renovations and improvements, and cash deposited as escrows and
property improvement reserves.
Cash flows provided by our financing activities of approximately $181.9
million for 1999 were primarily related to the net proceeds from the sale of
the series B preferred stock, the net proceeds from our new credit facilities
and the net proceeds from our new mortgage debt, partially offset by the
repayment of our old credit facility, term loans, and the settlement of our
forward equity contracts.
Credit Facilities
As of December 31, 2001, we had approximately $303.5 million outstanding
under our revolving credit facility, $1.3 billion outstanding on term loans,
and $482.1 million outstanding under increasing rate loans. Additionally, we
had outstanding letters of credit totaling $53.9 million. Also, as of December
31, 2001, we had over $1.3 billion of mortgage debt outstanding that encumbered
58 hotels and capital leases and other debt of $44.7 million, resulting in
total indebtedness of approximately $3.4 billion. This $3.4 billion in total
indebtedness includes approximately $30.4 million of debt associated with
assets held for sale. As of December 31, 2001, after giving effect to the
amendments to our senior credit facility and increasing rate loans facility, we
had $142.6 million of availability under the revolving credit facility.
We anticipated that we would not be in compliance at September 30, 2001 with
certain financial ratio covenants in our senior credit facility and our
increasing rate loans facility due to the tragic events of September 11, 2001.
Accordingly, on September 28, 2001, we and our lenders entered into a waiver of
the financial covenants for the third and fourth quarters of 2001. The waiver
was effective through February 28, 2002. As a condition of the waiver, we
agreed to certain additional restrictions during the time period that the
waiver was in effect, including requirements that (a) availability under the
revolving portion of our senior credit facility would not be less than $100
million, (b) all of the net proceeds received from sales of our assets would be
used to repay indebtedness outstanding under these loan facilities, with
proceeds being applied 50% to repay increasing rate loans, 37.5% to repay term
loans, and 12.5% to repay the revolving loans, (c) certain of our
34
capital expenditures would be limited and our capital expenditures and
investments could not exceed $85 million, and (d) cash dividends on our series
A and series B preferred stock could be paid only if concurrently with the
payment of these dividends the cash would be loaned back to us on a
subordinated basis.
On January 24, 2002, we successfully reached an agreement with the lenders
under our senior credit facility and our increasing rate loans facility to
permanently amend these facilities. The key terms of the amendments are as
follows:
. The total leverage ratio and the senior secured leverage ratio
requirements have been eliminated from the facilities;
. The interest coverage ratio decreased from 1.75 to 1.00 to 1.05 to 1.00
until December 31, 2003, at which time it will increase to 1.25 to 1.00;
. We granted mortgages on 59 of our properties that were not previously
encumbered;
. The interest rate on our term loans increased to LIBOR plus 4.75% per
annum;
. The interest rate on our revolving credit facility increased to LIBOR
plus 3.75% per annum;
. 100% of the net cash proceeds from sales of the lenders' collateral, and
75% of the net cash proceeds we receive from other asset sales and any
excess proceeds we receive from any mortgage debt refinancing must be
used to reduce the amounts outstanding under the senior credit facility
and the increasing rate loans facility;
. 100% of the net cash proceeds we receive from any new debt issuance must
be used to reduce the amounts outstanding under the senior credit
facility and the increasing rate loans facility;
. Our capital and development spending cannot exceed $125 million per
annum, with $25 million available for use in certain emergencies; and
. We cannot pay the cash portion of the regular quarterly dividends on our
series A and series B preferred stock.
We have considered our short-term liquidity needs and the adequacy of
adjusted estimated cash flows and other expected liquidity sources to meet
these needs. We believe that our principal short-term liquidity needs are to
fund our normal recurring expenses and our debt service requirements. We
anticipate that these needs will be fully funded from our cash flows provided
by operating activities and, when necessary, from our revolving credit
facility. In the past, we have generally met our long-term liquidity
requirements for the funding of activities, such as development and scheduled
debt maturities, major renovations, expansions and other non-recurring capital
improvements, through long-term secured and unsecured indebtedness and the
proceeds from the sale of our assets.
Under the terms of the applicable credit facility, loan agreement, and lease
agreement, as of December 31, 2001, our principal amortization and balloon
payment requirements and our future five year minimum lease payments are
summarized as follows:
Payments due by year
----------------------------------------------------------------------
2007 and
Total 2002 2003 2004 2005 2006 thereafter
---------- -------- -------- ---------- -------- ---------- ----------
(in thousands)
Long term debt and capital lease
obligations.................... $3,445,995 $117,484 $452,088 $1,210,423 $168,683 $1,252,838 $244,479
Office leases................... 11,332 2,146 2,097 2,062 1,838 1,838 1,351
Hotel and ground leases......... 924,304 62,323 62,420 61,841 61,633 61,633 614,454
---------- -------- -------- ---------- -------- ---------- --------
Total........................... $4,381,631 $181,953 $516,605 $1,274,326 $232,154 $1,316,309 $860,284
========== ======== ======== ========== ======== ========== ========
During 2002, we have scheduled principal payments and debt maturities of
approximately $117.5 million. Of that amount, as of March 2002, we have
extended $56.6 million to 2004 or beyond. We are seeking to
35
refinance the remaining mortgages prior to their maturities in 2002; however,
there can be no assurance that we will be able to do so. During 2003, we have
scheduled principal payments and debt maturities of approximately $452 million.
Of that amount, the Company can elect to extend $179.4 million for two
additional twelve month periods. We believe that both we and the lodging
industry will continue to be adversely affected by the September 11, 2001
terrorist attacks and their aftermath. Immediately following the attacks, our
hotels experienced significant short-term declines in occupancy compared to the
prior year. Although occupancies have improved from these very depressed
levels, at present, it is not possible to predict the duration of such declines
in the medium or long term. We are currently unable to estimate the medium or
long-term negative impact that the September 11, 2001 terrorist attacks and
their aftermath could have on operations, liquidity, and capital resources (see
"Risks Related to Our Indebtedness" on page 15).
Dividends
We do not anticipate paying a dividend to our common shareholders and we are
prohibited under the terms of our senior credit facility and increasing rate
loans facility from paying dividends on our class A common stock. For the six
year period beginning September 30, 1999, dividends on our series A and series
B preferred stock are payable partly in cash and partly in additional shares of
our series A and series B preferred stock, with the cash portion aggregating
$29.25 million per year, so long as there is no redemption or conversion of our
series A and series B preferred stock. For the following four years, dividends
are payable in cash or additional shares of our series A or series B preferred
stock, as the case may be, as determined by our board of directors. After year
ten, dividends are payable solely in cash.
We anticipated that we would not be in compliance at September 30, 2001 with
certain financial ratio covenants in our senior credit facility and increasing
rate loans facility due to the tragic events of September 11, 2001.
Accordingly, on September 28, 2001, we and our leaders entered into a waiver of
the financial covenants for the third and fourth quarters of 2001. The waiver
is effective through February 28, 2002. As a condition of the waiver, we agreed
to certain additional restrictions during the time period the waiver is in
effect, including requirements that cash dividends on our series A and B
preferred stock could be paid only if concurrently with the payment of these
dividends, the cash would be loaned back to us on a subordinated basis. Thus,
since July 1, 2001, we have not paid the cash portion of the regular quarterly
dividends on our series A and B preferred stock.
We are prohibited under the terms of our recent waiver and amendments to the
senior credit facility and increasing rate loans facility from paying cash
dividends on our preferred stock. As of December 31, 2001, we had deferred
payments of the cash portion of the preferred stock dividend totaling
approximately $14.6 million. This amount has been included in accounts payable
and accrued expenses as of December 31, 2001. In addition, according to the
terms of our series A and B preferred stock, if the cash dividends on the
preferred stock are in arrears and unpaid for at least 60 days, then an
additional amount of dividends will accrue at an annual rate of 2.0% of the
stated amount of each share of preferred stock then outstanding from the last
payment date on which cash dividends were to be paid in full until the cash
dividends in arrears have been paid in full. These additional dividends are
cumulative and payable in additional shares of preferred stock. As a result, an
additional dividend of $11.6 million, payable in preferred shares, has been
included in accounts payable and accrued expenses as of December 31, 2001.
Renovations and Capital Improvements
During 2001, we invested approximately $213.6 million in capital
improvements and renovations. These capital expenditures included (i) costs
related to converting hotels to one of our proprietary brands, (ii) costs
related to enhancing the revenue-producing capabilities of our hotels, and
(iii) costs related to recurring capital maintenance reserves and technological
initiatives. During 2002, we anticipate spending approximately $120 million in
capital expenditures primarily for costs related to recurring maintenance
capital expenditures and technological initiatives.
We attempt to schedule renovations and improvements during traditionally
lower occupancy periods in an effort to minimize disrupting our hotels'
operations. Therefore, we do not believe such renovations and capital
improvements will have a material effect on the results of operations of our
hotels. We will finance capital expenditures through capital expenditure
reserves or with working capital.
36
Inflation
Operators of hotels, in general, possess the ability to adjust room rates
quickly. However, competitive pressures may limit our availability to raise
room rates in the face of inflation.
Seasonality
The hotel industry is seasonal in nature; however, the periods during which
our hotel properties experience higher revenues vary from property to property
and depend predominantly on the property's location. Our revenues typically
have been higher in the first and second quarters than in the third or fourth
quarters.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to, impairment of assets; assets held for sale; bad debts; income
taxes; and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We periodically review the carrying value of our assets,
including intangible assets, to determine if events and circumstances exist
indicating that assets might be impaired. If facts and circumstances support
this possibility of impairment, our management will prepare undiscounted and
discounted cash flow projections which require judgments that are both
subjective and complex.
Our management uses judgment in projecting which assets will be sold by us
within this next twelve months. These judgments are based on our management's
knowledge of the current market and the status of current negotiations with
third parties. If assets are expected to be sold within 12 months, they are
reclassified as assets held for sale on the balance sheet.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made.
Likewise, should we determine that we would not be able to realize all or part
of our net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made.
We are a defendant in lawsuits that arise out of, and are incidental to, the
conduct of our business. Our management uses its judgment, with the aid of
legal counsel, to determine if accruals are necessary as a result of any
pending actions against us.
Newly Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by Statements
37
of Financial Accounting Standards No. 137 and No. 138, which we are required to
adopt effective January 1, 2001. This statement also requires that derivatives
be recorded on the balance sheet as an asset or liability at fair value. SFAS
133, as amended, requires that derivatives that are not hedges be recorded at
fair value through earnings. Special accounting for qualifying hedges allows a
derivative instrument's gains and losses to offset related results on the
hedged item in the income statement, to the extent effective. This statement
also allows special hedge accounting for fair value and cash flow hedges. The
gain or loss on a fair value hedging instrument as well as the offsetting loss
or gain on the hedged item attributable to the hedged risk be recognized
currently in earnings in the same accounting period. The effective portion of
the gain or loss on a cash flow hedging instrument be reported as a component
of other comprehensive income and be reclassified into earnings in the same
period or periods during which the hedged forecasted transaction affects
earnings. The ineffective portion of a derivative's change in fair value is
recognized currently through earnings regardless of whether the instrument is
designated as a hedge. By adopting this statement on January 1, 2001, we
recognized in 2001 the cumulative effect of an accounting change of $10.4
million in our consolidated statement of operations and a charge of $21.7
million in our other comprehensive income in the first quarter of 2001.
In June 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards 141, "Business Combinations," and
Statement of Financial Accounting Standards 142, "Goodwill and Other Intangible
Assets," collectively referred to as the "Standards". Statement 141 supersedes
APB No. 16, "Business Combination." The provisions of Statement 141, (1)
require that we use the purchase method of accounting for all business
combinations initiated after June 30, 2001, (2) provide specific criteria for
the initial recognition and measurement of intangible assets apart from
goodwill, and (3) require that unamortized negative goodwill be written off
immediately as an extraordinary gain instead of being deferred and amortized.
Statement 141 also requires that upon adoption of Statement 142, the Company
reclassify carrying amounts of certain intangible assets into or out of
goodwill, based on certain criteria. Statement 142 supersedes APB 17,
"Intangible Assets," and is effective for fiscal years beginning after December
15, 2001. Statement 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their initial recognition. The provisions of
Statement 142, (1) prohibit the amortization of goodwill and indefinite-lived
intangible assets, (2) require that goodwill and indefinite-lived intangibles
assets be tested annually for impairment (and in interim periods if certain
events occur indicating that the carrying value of goodwill and/or
indefinite-lived assets may be impaired), (3) require that reporting units be
identified for the purpose of assessing potential future impairments of
goodwill, and (4) remove the forty-year limitation on the amortization period
of intangible assets that have finite lives.
The provisions of the Standards also apply to equity-method investments made
both before and after June 30, 2001. Statement 141 requires that the
unamortized deferred credit related to an excess over cost arising from an
investment that was accounted for using the equity method (equity-method
negative goodwill), and that was acquired before July 1, 2001, must be
written-off immediately and recognized as the cumulative effect of a change in
accounting principle. Equity-method negative goodwill arising from equity
investments made after June 30, 2001 must be written-off immediately and
recorded as an extraordinary gain, instead of being deferred and amortized.
Statement 142 prohibits amortization of the excess of cost over the underlying
equity in the net assets of an equity-method investee that is recognized as
goodwill.
We will adopt the provisions of Statement 142 in the first quarter of 2002.
We are in the process of preparing for its adoption of Statement 142 and are
making the determinations as to what our reporting units are and what amounts
of goodwill, intangible assets, other assets, and liabilities should be
allocated to those reporting units. In connection with the adoption of
Statement 142, we expect that we will no longer annually record $12.2 million
of amortization relating to our existing goodwill and indefinite-lived
intangibles, as adjusted for the reclassifications just mentioned.
Statement 142 requires that goodwill be tested annually for impairment using
a two-step process. The first step is to identify a potential impairment and,
in transition, this step must be measured as of the beginning of the fiscal
year. However, a company has six months from the date of adoption to complete
the first step. We expect
38
to complete that first step of the goodwill impairment test during the first
quarter of 2002. The second step of the goodwill impairment test measures the
amount of the impairment loss (measured as of the beginning of the year of
adoption), if any, and must be completed by the end of our fiscal year.
Intangible assets deemed to have an indefinite life will be tested for
impairment using a one-step process which compares the fair value to the
carrying amount of the asset as of the beginning of the fiscal year, and
pursuant to the requirements of Statement 142 will be completed during the
first quarter of 2002. Any impairment loss resulting from the transitional
impairment tests will be reflected as the cumulative effect of a change in
accounting principle in the first quarter 2002. We are currently evaluating the
potential impairment loss, but anticipate our goodwill will be impaired with a
charge of $326.8 million in the first quarter of 2002.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations". Statement No. 143
requires that we recognize the fair value of a liability for an asset
retirement obligation in the period in which it is incurred if we can make a
reasonable estimate of fair value. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. Statement
No. 143 will be effective for financial statements issued for fiscal years
beginning after June 15, 2002. We will recognize the cumulative effect of
adoption of Statement No. 143 as a change in accounting principle. We are
currently evaluating the impact this statement will have on our financial
position and results of operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 "Accounting for the Impairment and Disposal of Long-Lived Assets".
Statement No. 144 supercedes Statement No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Statement
No. 144 primarily addresses significant issues relating to the implementation
of Statement No. 121 and develops a single accounting model for long-lived
assets to be disposed of, whether previously held and used or newly acquired.
The provisions of Statement No. 144 will be effective for fiscal years
beginning after December 15, 2001. We are currently evaluating the impact this
statement will have on our financial position and results of operations.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
Our primary market risk exposure is to future changes in interest rates
related to our derivative financial instruments and other financial
instruments, including debt obligations, interest rate swaps, interest rate
caps, and future debt commitments.
We manage our debt portfolio by periodically entering into interest rate
swaps and caps to achieve an overall desired position of fixed and floating
rates or to limit our exposure to rising interest rates.
39
The following table provides information about our derivative and other
financial instruments that are sensitive to changes in interest rates.
. For fixed rate debt obligations, the table presents principal cash flows
and related weighted-average interest rates by expected maturity date and
contracted interest rates at December 31, 2001. For variable rate debt
obligations, the table presents principal cash flows by expected maturity
date and contracted interest rates at December 31, 2001.
. For interest rate swaps and caps, the table presents notional amounts and
weighted-average interest rates or strike rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the contractual
cash flows to be exchanged under the contract. Weighted average variable
rates are based on implied forward rates in the yield curve at December
31, 2001.
2002(1) 2003(2) 2004 2005 2006 Thereafter Face Value Fair Value
-------- -------- ---------- -------- ---------- ---------- ---------- ----------
(dollars in thousands)
Debt
Long-term Debt Obligations
Including Current Portion
Fixed Rate................. $ 50,577 $ 7,654 $ 52,971 $ 53,242 $ 8,688 $227,713 $ 400,845 $ 454,496
Average Interest Rate...... 8.96% 8.77% 8.24% 7.71% 9.03% 8.49%
Variable Rate.............. $ 66,907 $444,434 $1,157,452 $115,441 $1,244,150 $ 16,766 $3,045,150 $3,045,150
Average Interest Rate...... 5.20% 6.70% 8.70% 8.55% 10.67% 7.04%
Interest Rate Derivative
Financial Instruments
Related to Debt
Interest Rate Swaps
Pay Fixed/Receive Variable. $750,000 $ 45,000 -- $700,000 -- -- $1,495,000 $ (63,983)
Average Pay Rate........... 6.09% 6.51% 6.80% 6.80% -- --
Average Receive Rate....... 2.23% 4.07% 5.37% 6.03% -- --
Interest Rate Caps
Notional Amount............ $550,000 $429,374 $ 346,111 $106,000 -- -- $1,431,485 $ (9,507)
Strike Rate................ 6.27% 6.91% 7.96% 9.75% -- --
Forward Rate............... 2.23% 4.07% 5.37% 6.03% -- --
- --------
(1) Subsequent to December 31, 2001, we extended the maturity of $56.6 million
of mortgage debt to 2004 or beyond.
(2) We can elect to extend $179.4 million for two additional twelve month
periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' report and our financial statements and financial
statement schedules listed in the accompanying index are filed as part of this
report. See Index to Financial Statements and Financial Statement Schedules on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information called for by this Part III (other than the information
required by Item 10 with respect to executive officers, which information
appears under the heading "Our Executive Officers" in Part I hereof) is, in
accordance with General Instruction G(3) to Form 10-K, incorporated herein by
reference to the information contained in our definitive proxy statement for
the 2002 annual meeting of our stockholders, which we intend to file with the
Securities and Exchange Commission not later than April 30, 2002.
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The index to the audited financial statements and financial statement
schedules is included on page F-1 of this report. The financial statements
are included herein at pages F-1 through F-47. The following financial
statement schedule is included herein at pages F-48 through F-57:
Schedule III--Real Estate and Accumulated Depreciation for Wyndham
International, Inc.
All other schedules for which provision is made in Regulation S-X are
either not required to be included herein under the related instructions or
are inapplicable or the related information is included in the footnotes to
the applicable financial statement and, therefore, have been omitted.
(b) Reports on Form 8-K for the quarter ended December 31, 2001:
We filed a Current Report on Form 8-K on October 3, 2001 to report (1) some
of the short-term impacts of the events of September 11, 2002 on us, (2)
our entering into the September 28, 2001 waiver of the financial covenants
in our senior credit facility and increasing rate loans facility, and (3)
some recovery plans we made in response to the September 11 events.
We filed a Current Report on Form 8-K on January 29, 2002 to report that we
entered into an agreement with our lenders on January 24, 2002 to amend our
senior credit facility and increasing rate loans facility.
(c) Exhibits:
Exhibit
Number Description
- ------ -----------
2.1 Securities Purchase Agreement, dated as of February 18, 1999, by and among Patriot American
Hospitality, Inc. ("Patriot"), Wyndham International, Inc. ("Wyndham"), Patriot American
Hospitality Partnership, L.P., Wyndham International Operating Partnership, L.P. and the Investors
named therein, incorporated by reference to Exhibit 2.1 to Wyndham's Registration Statement on
Form S-4/A (SEC file no. 333-79527) filed June 1, 1999.
2.2 Amendment to Securities Purchase Agreement, dated as of June 28, 1999, by and among Patriot,
Wyndham, Patriot American Hospitality Partnership, L.P., Wyndham International Operating
Partnership, L.P. and the parties identified on the signature page as the Original Investors, incorporated
by reference to Exhibit 2.2 to Wyndham's Current Report on Form 8-K filed July 13, 1999.
2.3 Restructuring Plan, incorporated by reference to Exhibit 2.2 to Wyndham's Registration Statement
on Form S-4/A (SEC file no. 333-79527) filed June 1, 1999.
2.4 Agreement and Plan of Merger, dated as of March 26, 1999, by and among Wyndham, Wyndham
International Acquisition Subsidiary, Inc. and Patriot, incorporated by reference to Exhibit 2.3 to
Wyndham's Registration Statement on Form S-4/A (SEC file no. 333-79527) filed June 1, 1999.
3.1 Amended and Restated Certificate of Incorporation of Wyndham, incorporated by reference to
Exhibit 3.1 to Wyndham's Registration Statement on Form S-8 filed July 2, 1999.
3.2 Amended and Restated Bylaws of Wyndham, incorporated by reference to Exhibit 3.2 to Wyndham's
Registration Statement on Form S-8 filed July 2, 1999.
3.3 Amendment No. 1 to Amended and Restated Bylaws of Wyndham, incorporated by reference to
Exhibit 2.1 to Wyndham's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2000.
4.1 Certificate of Designation of Series A Convertible Preferred Stock of Wyndham, incorporated by
reference to Exhibit 99.5 to Wyndham's and Patriot's Current Report on Form 8-K filed March 2, 1999.
4.2 Certificate of Designation of Series B Convertible Preferred Stock of Wyndham, incorporated by
reference to Exhibit 4.2 to Wyndham's Registration Statement on Form S-4/A (SEC file
no. 333-79527) filed June 1, 1999.
41
Exhibit
Number Description
- ------ -----------
4.3 Certificate of Designation of Series C Junior Participating Cumulative Preferred Stock of Wyndham,
incorporated by reference to Exhibit 3.1 to Wyndham's Current Report on Form 8-K filed July 12, 1999.
4.4 Registration Rights Agreement, dated as of February 18, 1999, by and among Wyndham and the
holders of Series B Convertible Preferred Stock of Wyndham party thereto, incorporated by
reference to Exhibit 4.1 to Wyndham's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.
4.5 Registration Rights Agreement, dated as of June 30, 1999, by and among Wyndham and former
Operating Partnership unitholders party thereto, incorporated by reference to Exhibit 10.1 to
Wyndham's Registration Statement on Form S-3 (SEC file no. 333-86189) filed August 30, 1999.
4.6 Shareholder Rights Agreement, dated as of June 29, 1999, between Wyndham and American Stock
Transfer and Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 to
Wyndham's Current Report on Form 8-K, filed July 12, 1999.
4.7 Amendment No. 1 to the Shareholder Rights Agreement, dated May 12, 2000, by and between
Wyndham and American Stock Transfer and Trust Company, incorporated by reference to
Exhibit 4.2 to Wyndham's Registration Statement on Form 8-A filed May 30, 2000.
10.1 Credit Agreement, dated as of June 30, 1999, by and among Wyndham and the lenders named
therein, incorporated by reference to Exhibit 10.1 to Wyndham's Annual Report on Form 10-K for
the year ended December 31, 1999.
10.2 Increasing Rate Note Purchase and Loan Agreement, dated as of June 30, 1999, by and among
Wyndham and the lenders named therein, incorporated by reference to Exhibit 10.2 to Wyndham's
Annual Report on Form 10-K for the year ended December 31, 1999.
10.3 Executive Employment Agreement as Amended and Restated, dated as of April 19, 1999, between
Wyndham and Michael A. Grossman, incorporated by reference to Exhibit 10.5 to Wyndham's
Annual Report on Form 10-K for the year ended December 31, 1999.
10.4 Executive Employment Agreement, dated as of March 27, 2000, between Wyndham and Fred J.
Kleisner, incorporated by reference to Exhibit 10.4 to Wyndham's Annual Report on Form 10-K for
the year ended December 31, 2000.
10.5 Letter Agreement, dated July 7, 1999, between Wyndham and Karim Alibhai, incorporated by
reference to Exhibit 10.4 to Wyndham's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
10.6 Second Amendment and Restatement of the Wyndham 1997 Incentive Plan, incorporated by reference
to Exhibit 4.1 to Wyndham's Registration Statement on Form S-8 filed on September 6, 2001.
10.7 Executive Employment Agreement, dated April 12, 2000 between Wyndham and Theodore Teng,
incorporated by reference to Exhibit 10.1 to Wyndham's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000.
10.8 Executive Employment Agreement, dated May 31, 2000 between Wyndham and Richard A. Smith,
incorporated by reference to Exhibit 10.2 to Wyndham's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000.
10.9 Executive Employment Agreement, dated August 1, 2000 between Wyndham and David W.
Johnson, incorporated by reference to Exhibit 10.3 to Wyndham's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2000.
10.10 Letter Agreement, dated March 1, 2001, between James D. Carreker and Wyndham, incorporated by
reference to Exhibit 10.16 to Wyndham's Annual Report on Form 10-K for the year ended
December 31, 2000.
42
Exhibit
Number Description
- ------ -----------
10.11 Amendment and Restatement to the Credit Agreement, dated September 25, 2000, by Wyndham and
the lenders named therein incorporated by reference to Exhibit 10.2 to Wyndham's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2000.
10.12 Amendment and Restatement to the Increasing Rate Note Purchase and Loan Agreement, dated
September 25, 2000, by Wyndham and the lenders named therein, incorporated by reference to
Exhibit 10.18 to Wyndham's Annual Report on Form 10-K for the year ended December 31, 2000.
10.13 Employment Agreement dated March 19, 2001 between Joseph Champ and Wyndham, incorporated
by reference to Exhibit 10.1 to Wyndham's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2001 (as amended).
10.14 Loan Agreement, dated as of July 18, 2001, by and among W-Baltimore, LLC, Posadas De San Juan
Associates, W-Atlanta, LLC, W-Boston LLC and Travis Real Estate Group Joint Venture (wholly-owned
subsidiaries of Wyndham) and Lehman Brothers Bank FSB, incorporated by reference to Exhibit 10.1 to
Wyndham's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001.
10.15 Form of Restricted Unit Award Agreement, incorporated by reference to Exhibit 10.2 to Wyndham's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001.
10.16 Waiver to the Credit Agreement, dated as of September 25, 2001, by Wyndham and the lenders
named therein, incorporated by reference to Exhibit 10.1 to Wyndham's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2001.
10.17* Addendum to Employment Agreement, effective as of July 13, 2001, between Wyndham and Fred J.
Kleisner.
10.18* Addendum No. 2 to Employment Agreement, effective as of November 14, 2001, between Wyndham
and Fred J. Kleisner.
10.19* Second Amendment and Restatement to the Credit Agreement, dated as of January 16, 2002, by
Wyndham and the lenders named therein.
10.20* Second Amendment and Restatement to the Increasing Note Purchase and Loan Agreement, dated as
of January 16, 2002, by Wyndham and the lenders named therein.
10.21* Addendum to Employment Agreement, effective as of August 30, 2001, between Wyndham and
Theodore Teng.
10.22* Addendum No. 2 to Employment Agreement, effective as of December 31, 2001, between Wyndham
and Theodore Teng.
10.23* Addendum to Employment Agreement, effective as of August 10, 2001, between Wyndham and
Michael Grossman.
10.24* Addendum No. 2 to Employment Agreement, effective as of December 21, 2001, between Wyndham
and Michael Grossman.
10.25* Addendum to Employment Agreement, effective as of August 16, 2001, between Wyndham and
Richard Smith.
10.26* Addendum No. 2 to Employment Agreement, effective as of December 21, 2001, between Wyndham
and Richard Smith.
10.27* Addendum to Employment Agreement, effective as of September 14, 2001, between Wyndham and
David Johnson.
10.28* Addendum No. 2 to Employment Agreement, effective as of December 31, 2001, between Wyndham
and David Johnson.
10.29* Addendum to Employment Agreement, effective as of August 10, 2001, between Wyndham and
Joseph Champ.
10.30* Addendum No. 2 to Employment Agreement, effective as of December 31, 2001, between Wyndham
and Joseph Champ.
12.1* Statement Regarding Computation of Ratios.
21.1* Significant Subsidiaries of Wyndham.
23.1* Consent of PricewaterhouseCoopers LLP.
- --------
* Filed herewith
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: March 25, 2002
WYNDHAM INTERNATIONAL, INC.
By: /s/ FRED J. KLEISNER
-----------------------------
Fred J. Kleisner
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Capacities in which signed Date
--------- -------------------------- ----
/s/ FRED J. KLEISNER Chairman of the Board and March 25, 2002
- ----------------------------- Chief Executive Officer
Fred J. Kleisner (principal executive
officer)
/s/ THEODORE TENG President and Chief Operating March 25, 2002
- ----------------------------- Officer
Theodore Teng
/s/ RICHARD A. SMITH Executive Vice President and March 25, 2002
- ----------------------------- Chief Financial Officer
Richard A. Smith (principal financial and
accounting officer)
/s/ KARIM ALIBHAI Director March 25, 2002
- -----------------------------
Karim Alibhai
/s/ LEONARD BOXER Director March 25, 2002
- -----------------------------
Leonard Boxer
/s/ MILTON FINE Director March 25, 2002
- -----------------------------
Milton Fine
/s/ SUSAN T. GROENTEMAN Director March 25, 2002
- -----------------------------
Susan T. Groenteman
/s/ ROLF E. RUHFUS Director March 25, 2002
- -----------------------------
Rolf E. Ruhfus
/s/ LEON D. BLACK Director March 25, 2002
- -----------------------------
Leon D. Black
/s/ NORMAN BROWNSTEIN Director March 25, 2002
- -----------------------------
Norman Brownstein
44
Signature Capacities in which signed Date
--------- -------------------------- ----
/s/ STEPHEN T. CLARK Director March 25, 2002
- -----------------------------
Stephen T. Clark
/s/ PAUL FRIBOURG Director March 25, 2002
- -----------------------------
Paul Fribourg
/s/ THOMAS H. LEE Director March 25, 2002
- -----------------------------
Thomas H. Lee
/s/ ALAN M. LEVENTHAL Director March 25, 2002
- -----------------------------
Alan M. Leventhal
/s/ WILLIAM MACK Director March 25, 2002
- -----------------------------
William Mack
/s/ LEE S. NEIBERT Director March 25, 2002
- -----------------------------
Lee S. Neibert
/s/ MARC J. ROWAN Director March 25, 2002
- -----------------------------
Marc J. Rowan
/s/ SCOTT A. SCHOEN Director March 25, 2002
- -----------------------------
Scott Schoen
/s/ SCOTT M. SPERLING Director March 25, 2002
- -----------------------------
Scott M. Sperling
/s/ LYNN C. SWANN Director March 25, 2002
- -----------------------------
Lynn C. Swann
/s/ SHERWOOD M. WEISER Director March 25, 2002
- -----------------------------
Sherwood M. Weiser
45
WYNDHAM INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
HISTORICAL FINANCIAL INFORMATION
Page
----
Wyndham International, Inc.:
Report of Independent Accountants--PricewaterhouseCoopers LLP.............................. F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000............................... F-3
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999. F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001,
2000 and 1999............................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999. F-7
Notes to Consolidated Financial Statements................................................. F-9
Financial Statement Schedule:
Schedule III--Real Estate and Accumulated Depreciation..................................... F-48
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Wyndham International, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing on page F-1 present fairly, in all material respects, the financial
position of Wyndham International, Inc. and its subsidiaries at December 31,
2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
index appearing on page F-1 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of Wyndham International, Inc.'s
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2001, Wyndham International, Inc. adopted the provisions of
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 5, 2002
F-2
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
December 31, December 31,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents............................................................................ $ 165,702 $ 52,460
Restricted cash...................................................................................... 85,932 98,070
Accounts receivable.................................................................................. 120,283 188,381
Inventories.......................................................................................... 17,742 21,211
Prepaid expenses and other assets.................................................................... 5,716 12,296
Assets held for sale, net of accumulated depreciation of $25,685 in 2001 and $205,242 in 2000........ 96,783 1,196,272
----------- -----------
Total current assets................................................................................ 492,158 1,568,690
----------- -----------
Investment in real estate and related improvements, net of accumulated depreciation of $856,732 in 2001
and $497,669 in 2000.................................................................................. 4,399,256 3,515,223
Investment in unconsolidated subsidiaries.............................................................. 77,619 104,814
Notes and other receivables............................................................................ 50,385 48,976
Management contract costs, net of accumulated amortization of $18,714 in 2001 and $18,034 in 2000...... 95,227 109,106
Leasehold costs, net of accumulated amortization of $29,889 in 2001 and $21,128 in 2000................ 111,125 125,044
Trade names and franchise costs, net of accumulated amortization of $24,041 in 2001 and $17,560 in 2000 97,779 104,249
Deferred acquisition costs............................................................................. 4,662 2,936
Goodwill, net of accumulated amortization of $49,015 in 2001 and $36,826 in 2000....................... 326,843 339,032
Deferred expenses, net of accumulated amortization of $54,416 in 2001 and $42,599 in 2000.............. 71,214 105,441
Other assets........................................................................................... 41,803 43,388
----------- -----------
Total assets........................................................................................ $ 5,768,071 $ 6,066,899
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................................ $ 213,596 $ 210,592
Deposits............................................................................................. 36,079 38,943
Mortgage debt associated with assets held for sale................................................... 30,441 505,836
Current portion of borrowings under credit facility, term loans, mortgage notes and capital lease
obligations......................................................................................... 117,484 155,728
----------- -----------
Total current liabilities........................................................................... 397,600 911,099
----------- -----------
Borrowings under credit facility, term loans, mortgage notes and capital lease obligations............. 3,298,070 2,737,386
Derivative financial instruments....................................................................... 73,490 --
Deferred income taxes.................................................................................. 290,259 430,030
Deferred income........................................................................................ 7,358 7,875
Minority interest in the Operating Partnerships........................................................ 21,416 21,416
Minority interest in other consolidated subsidiaries................................................... 91,657 164,906
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 150,000,000 shares; shares issued and outstanding:
11,905,060 in 2001 and 11,087,390 in 2000........................................................... 119 111
Common stock, $0.01 par value; authorized: 750,000,000 shares; shares issued and outstanding:
167,847,940 in 2001 and 167,416,376 in 2000......................................................... 1,678 1,674
Receivables from shareholders and affiliates......................................................... (18,121) (17,161)
Additional paid in capital........................................................................... 3,912,656 3,828,900
Accumulated other comprehensive income............................................................... (29,007) (811)
Accumulated deficit.................................................................................. (2,279,104) (2,018,526)
----------- -----------
Total shareholders' equity.......................................................................... 1,588,221 1,794,187
----------- -----------
Total liabilities and shareholders' equity......................................................... $ 5,768,071 $ 6,066,899
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
-----------------------------------
2001 2000 1999
---------- ---------- -----------
Revenue:
Hotel revenue............................................................ $2,068,723 $2,421,603 $ 2,409,046
Participating lease revenue.............................................. -- -- 1,194
Racecourse facility and land lease revenue............................... -- -- 4,561
Management fee and service fee income.................................... 26,451 46,028 69,278
Interest and other income................................................ 10,256 30,964 11,256
---------- ---------- -----------
Total revenue........................................................... 2,105,430 2,498,595 2,495,335
---------- ---------- -----------
Expenses:
Hotel expenses........................................................... 1,557,985 1,747,601 1,772,724
Racing facility operations............................................... -- -- 3,867
General and administrative............................................... 101,901 97,766 178,039
Interest expense......................................................... 308,524 371,855 353,227
Termination of management, leasehold and license agreements.............. 16,466 47,622 1,296
Loss on sale of assets................................................... 11,202 12,987 10,702
Loss on derivative financial instruments................................. 47,600 -- --
Impairment loss on assets................................................ 24,159 441,484 70,912
Restructuring charge..................................................... -- -- 285,267
Depreciation and amortization............................................ 254,209 304,785 302,890
---------- ---------- -----------
Total expenses.......................................................... 2,322,046 3,024,100 2,978,924
---------- ---------- -----------
Operating loss............................................................. (216,616) (525,505) (483,589)
Equity in earnings (losses) of unconsolidated subsidiaries............... 3,500 2,491 (7,746)
---------- ---------- -----------
Loss before income tax provision, minority interests, accounting change and
extraordinary item........................................................ (213,116) (523,014) (491,335)
Income tax benefit (provision)........................................... 96,438 205,912 (571,421)
---------- ---------- -----------
Loss before minority interests, accounting change and extraordinary item... (116,678) (317,102) (1,062,756)
Minority interest in the Operating Partnerships.......................... -- -- 6,642
Minority interest in consolidated subsidiaries........................... (10,060) (7,569) (6,017)
---------- ---------- -----------
Loss before accounting change and extraordinary item....................... (126,738) (324,671) (1,062,131)
Cumulative effect of change in accounting principle, net of taxes........ (10,364) -- --
Extraordinary loss from early extinguishment of debt, net of minority
interest and income taxes............................................... (1,838) -- (9,838)
---------- ---------- -----------
Net loss................................................................... $ (138,940) $ (324,671) $(1,071,969)
========== ========== ===========
Basic loss attributable to common shareholders:
Net loss................................................................. $ (138,940) $ (324,671) $(1,071,969)
Adjustment for equity forwards........................................... -- -- (19,372)
Preferred stock dividends................................................ (122,621) (103,522) (50,190)
Excess of fair value of consideration to redeem preferred stock.......... -- -- (115)
---------- ---------- -----------
Basic net loss attributable to common shareholders....................... $ (261,561) $ (428,193) $(1,141,646)
========== ========== ===========
Basic loss per common share:
Loss before accounting change and extraordinary item..................... $ (1.49) $ (2.56) $ (7.02)
Cumulative effect of change in accounting principle...................... (0.06) -- --
Extraordinary loss....................................................... (0.01) -- (0.06)
---------- ---------- -----------
Net loss per common share............................................... $ (1.56) $ (2.56) $ (7.08)
========== ========== ===========
Diluted loss attributable to common shareholders:
Net loss................................................................. $ (138,940) $ (324,671) $(1,071,969)
Adjustment for equity forwards........................................... -- -- (39,322)
Preferred stock dividends................................................ (122,621) (103,522) (50,190)
Excess of fair value of consideration to redeem preferred stock.......... -- -- (115)
---------- ---------- -----------
Diluted net loss attributable to common shareholders..................... $ (261,561) $ (428,193) $(1,161,596)
========== ========== ===========
Diluted loss per common share:
Loss before extraordinary item........................................... $ (1.49) $ (2.56) $ (7.14)
Cumulative effect of change in accounting principle...................... (0.06) -- --
Extraordinary loss....................................................... (0.01) -- (0.06)
---------- ---------- -----------
Net loss per common share............................................... $ (1.56) $ (2.56) $ (7.20)
========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share
amounts)
Preferred Stock Common Stock
---------------- -----------------------------------
Patriot Wyndham Additional
Number Par Number of Number of Par Paid in
of Shares Value Shares Shares Value Capital
---------- ----- ------------ ------------ ------- ----------
Balance as of December 31, 1998........................ 8,981,886 $ 90 213,521,647 213,521,647 $ 4,270 $3,024,540
Settlement of forward equity contracts................ -- -- (100,701,863) (100,701,863) (2,014) (327,466)
Merger of PAH Inc. into Wyndham International Inc..... (4,860,876) (50) (142,865,949) 4,860,876 (1,380) 1,430
Exchange of Old Wyndham preferred stock to common
stock................................................ (3,562,354) (36) -- 3,562,354 36 --
Redemption of PAH Inc. Preferred B stock.............. (558,656) (5) -- -- -- (13,961)
Issuance of shares net of offering expenses........... 10,000,000 100 29,239,336 29,239,336 585 917,306
Issues of shares to employees and directors........... -- -- 538,496 955,757 14 11,820
Issuance of shares to redeem OP units................. -- -- 268,333 15,390,452 156 114,381
Issuance of shares for mergers and acquisition of
properties........................................... -- -- -- 1,336,276 13 6,030
Accrued interest on notes receivable from shareholders
and affiliates....................................... -- -- -- -- -- --
Amortization of unearned stock compensation........... -- -- -- -- -- --
Retirement of stock................................... -- -- -- (971,139) (8) (15,307)
Net loss.............................................. -- -- -- -- -- --
Foreign currency translation adjustment............... -- -- -- -- -- --
Unrealized loss on securities held for sale........... -- -- -- -- -- --
---------- ---- ------------ ------------ ------- ----------
Comprehensive income...................................
---------- ---- ------------ ------------ ------- ----------
Interstate spin-off dividend.......................... -- -- -- -- -- --
Cash dividends........................................ -- -- -- -- -- --
Stock dividends....................................... 344,662 4 -- -- -- 34,462
---------- ---- ------------ ------------ ------- ----------
Balance as of December 31, 1999........................ 10,344,662 103 -- 167,193,696 1,672 3,753,235
---------- ---- ------------ ------------ ------- ----------
Receivables
From Accumulated
Shareholders Unearned Deficit and
and Stock Dividend
Affiliates Compensation Distributions
------------ ------------ -------------
Balance as of December 31, 1998........................ $(16,364) $(5,494) $ (405,509)
Settlement of forward equity contracts................ -- -- --
Merger of PAH Inc. into Wyndham International Inc..... -- -- --
Exchange of Old Wyndham preferred stock to common
stock................................................ -- -- --
Redemption of PAH Inc. Preferred B stock.............. -- -- (896)
Issuance of shares net of offering expenses........... -- -- --
Issues of shares to employees and directors........... -- (611) --
Issuance of shares to redeem OP units................. -- -- --
Issuance of shares for mergers and acquisition of
properties........................................... -- -- --
Accrued interest on notes receivable from shareholders
and affiliates....................................... (846) -- 846
Amortization of unearned stock compensation........... -- 5,850 --
Retirement of stock................................... -- -- --
Net loss.............................................. -- -- (1,071,969)
Foreign currency translation adjustment............... -- -- --
Unrealized loss on securities held for sale........... -- -- --
-------- ------- -----------
Comprehensive income...................................
-------- ------- -----------
Interstate spin-off dividend.......................... -- -- (64,602)
Cash dividends........................................ -- -- (14,711)
Stock dividends....................................... -- -- (34,466)
-------- ------- -----------
Balance as of December 31, 1999........................ (17,210) $ (255) (1,591,307)
-------- ------- -----------
Accumulated Other
Comprehensive Income
----------------------------------
Unrealized Unrealized
Foreign Loss on Loss on
Currency Derivative Securities
Exchange Instruments Held for Sale Total
-------- ----------- ------------- -----------
Balance as of December 31, 1998........................ $ 2,749 $ -- $(1,245) $ 2,603,037
Settlement of forward equity contracts................ -- -- -- (329,480)
Merger of PAH Inc. into Wyndham International Inc..... -- -- -- --
Exchange of Old Wyndham preferred stock to common
stock................................................ -- -- -- --
Redemption of PAH Inc. Preferred B stock.............. -- -- -- (14,862)
Issuance of shares net of offering expenses........... -- -- -- 917,991
Issues of shares to employees and directors........... -- -- -- 11,223
Issuance of shares to redeem OP units................. -- -- -- 114,537
Issuance of shares for mergers and acquisition of
properties........................................... -- -- -- 6,043
Accrued interest on notes receivable from shareholders
and affiliates....................................... -- -- --
Amortization of unearned stock compensation........... -- -- -- 5,850
Retirement of stock................................... -- -- -- (15,315)
Net loss.............................................. -- -- -- (1,071,969)
Foreign currency translation adjustment............... (10,325) -- -- (10,325)
Unrealized loss on securities held for sale........... -- -- 245 245
-------- ---- ------- -----------
Comprehensive income................................... -- (1,082,049)
-------- ---- ------- -----------
Interstate spin-off dividend.......................... -- -- -- (64,602)
Cash dividends........................................ -- -- -- (14,711)
Stock dividends....................................... -- -- -- --
-------- ---- ------- -----------
Balance as of December 31, 1999........................ (7,576) $ -- (1,000) 2,137,662
-------- ---- ------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share amounts)
Preferred Stock Common Stock
----------------- -------------------------------
Patriot Wyndham Additional
Number Par Number Number of Paid in
of Shares Value of Shares Shares Par Value Capital
---------- ----- --------- ----------- --------- ----------
Issuance of shares net of offering expenses............... -- -- -- -- 222,470 2 1,398
Redemption of Preferred A stock........................... (18) -- -- -- 210 -- --
Accrued interest on notes receivable from shareholders and
affiliates............................................... -- -- -- -- -- -- --
Amortization of unearned stock compensation............... -- -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- -- -- --
Unrealized loss on securities held for sale............... -- -- -- -- -- -- --
---------- ---- --- --- ----------- ------ ----------
Comprehensive income.......................................
---------- ---- --- --- ----------- ------ ----------
Cash dividends............................................ -- -- -- -- -- -- --
Stock dividends........................................... 742,746 8 -- -- -- -- 74,267
---------- ---- --- --- ----------- ------ ----------
Balance as of December 31, 2000............................ 11,087,390 $111 -- -- 167,416,376 $1,674 $3,828,900
---------- ---- --- --- ----------- ------ ----------
Issuance of shares, net of offering expenses.............. -- -- -- -- 429,719 4 1,982
Redemption of Preferred A stock........................... (158) -- -- -- 1,845 -- --
Accrued interest on notes receivable from shareholders and
affiliates............................................... -- -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- -- -- --
Unrealized loss on derivative instruments................. -- -- -- -- -- -- --
Unrealized loss on securities held for sale............... -- -- -- -- -- -- --
---------- ---- --- --- ----------- ------ ----------
Comprehensive income.......................................
---------- ---- --- --- ----------- ------ ----------
Cash dividends............................................ -- -- -- -- -- -- --
Stock dividends........................................... 817,828 8 -- -- -- -- 81,774
---------- ---- --- --- ----------- ------ ----------
Balance as of December 31, 2001............................ 11,905,060 $119 -- -- 167,847,940 $1,678 $3,912,656
========== ==== === === =========== ====== ==========
Receivables
From Accumulated
Shareholders Unearned Deficit and
and Stock Dividend
Affiliates Compensation Distributions
------------ ------------ -------------
Issuance of shares net of offering expenses............... -- -- --
Redemption of Preferred A stock........................... -- -- --
Accrued interest on notes receivable from shareholders and
affiliates............................................... 49 -- 975
Amortization of unearned stock compensation............... -- 255 --
Net loss.................................................. -- -- (324,671)
Foreign currency translation adjustment................... -- -- --
Unrealized loss on securities held for sale............... -- -- --
-------- ---- -----------
Comprehensive income.......................................
-------- ---- -----------
Cash dividends............................................ -- -- (29,248)
Stock dividends........................................... -- -- (74,275)
-------- ---- -----------
Balance as of December 31, 2000............................ $(17,161) $ -- $(2,018,526)
-------- ---- -----------
Issuance of shares, net of offering expenses.............. -- -- --
Redemption of Preferred A stock........................... -- -- --
Accrued interest on notes receivable from shareholders and
affiliates............................................... (960) -- 982
Net loss.................................................. -- -- (138,940)
Foreign currency translation adjustment................... -- -- --
Unrealized loss on derivative instruments................. -- -- --
Unrealized loss on securities held for sale............... -- -- --
-------- ---- -----------
Comprehensive income.......................................
-------- ---- -----------
Cash dividends............................................ -- -- (40,838)
Stock dividends........................................... -- -- (81,782)
-------- ---- -----------
Balance as of December 31, 2001............................ $(18,121) $ -- $(2,279,104)
======== ==== ===========
Accumulated Other
Comprehensive Income
---------------------------------
Unrealized Unrealized
Foreign Loss on Loss on
Currency Derivative Securities
Exchange Instruments Held for Sale Total
-------- ----------- ------------- ----------
Issuance of shares net of offering expenses............... -- -- -- 1,400
Redemption of Preferred A stock........................... -- -- -- --
Accrued interest on notes receivable from shareholders and
affiliates............................................... -- -- -- 1,024
Amortization of unearned stock compensation............... -- -- -- 255
Net loss.................................................. -- -- -- (324,671)
Foreign currency translation adjustment................... 7,412 -- -- 7,412
Unrealized loss on securities held for sale............... -- -- 353 353
------ -------- ----- ----------
Comprehensive income....................................... (316,906)
------ -------- ----- ----------
Cash dividends............................................ -- -- -- (29,248)
Stock dividends........................................... -- -- -- --
------ -------- ----- ----------
Balance as of December 31, 2000............................ $ (164) -- $(647) $1,794,187
------ -------- ----- ----------
Issuance of shares, net of offering expenses.............. -- -- -- 1,986
Redemption of Preferred A stock........................... -- -- -- --
Accrued interest on notes receivable from shareholders and
affiliates............................................... -- -- -- 22
Net loss.................................................. -- -- -- (138,940)
Foreign currency translation adjustment................... 198 -- -- 198
Unrealized loss on derivative instruments................. -- (28,337) -- (28,337)
Unrealized loss on securities held for sale............... -- -- (57) (57)
------ -------- ----- ----------
Comprehensive income....................................... (167,136)
------ -------- ----- ----------
Cash dividends............................................ -- -- -- (40,838)
Stock dividends........................................... -- -- -- --
------ -------- ----- ----------
Balance as of December 31, 2001............................ $ 34 $(28,337) $(704) $1,588,221
====== ======== ===== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
---------------------------------
2001 2000 1999
--------- --------- -----------
Cash flows from operating activities:
Net loss.................................................................. $(138,940) $(324,671) $(1,071,969)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................ 254,209 304,785 302,890
Amortization of deferred compensation.................................... 2,104 255 5,850
Amortization of deferred loan costs...................................... 22,017 27,566 34,946
Loss on sale of assets................................................... 11,202 12,987 10,702
Impairment loss on assets................................................ 24,159 441,484 203,731
Write-off of intangible assets........................................... 12,883 45,174 133,143
Write-off of deferred acquisition costs.................................. 1,904 1,208 8,349
Provision for bad debt expense........................................... 6,994 1,925 7,898
Recognition of deferred termination fee.................................. -- (14,746) --
Loss on derivative financial instruments................................. 47,600 -- --
Equity in (earnings) losses of unconsolidated subsidiaries............... (3,500) (2,491) 7,746
Minority interest in the Operating Partnerships.......................... -- -- (6,642)
Minority interest in consolidated subsidiaries........................... 10,060 7,569 6,017
Deferred income taxes.................................................... (112,785) (226,133) 539,313
Cumulative effect of change in accounting principle...................... 10,364 -- --
Extraordinary items...................................................... 1,838 -- 9,838
Changes in assets and liabilities:
Accounts receivable.................................................... 60,014 (1,011) (6,168)
Prepaid expenses and other assets...................................... 3,311 15,001 6,552
Lease revenue receivable............................................... -- -- 3,440
Deferred income........................................................ (517) 7,079 --
Accounts payable and accrued expenses.................................. (54,558) (49,143) 6,666
--------- --------- -----------
Net cash provided by operating activities............................ 158,359 246,838 202,302
--------- --------- -----------
Cash flows from investing activities:
Acquisition of hotel properties and related working capital assets, net of
cash acquired........................................................... -- (20,626) (264,086)
Improvements and additions to hotel properties............................ (213,610) (202,292) (230,653)
Proceeds from sale of assets.............................................. 130,655 337,630 205,553
Payment of contingent liability........................................... -- (32,825) --
Acquisition of management contracts....................................... (1,001) (67,372) --
Termination of management contracts....................................... -- -- 16,086
Changes in restricted cash accounts....................................... 12,138 4,410 (66,611)
Change in other assets.................................................... 3,585 610 (772)
Collection on other notes receivable...................................... 6,278 569 5,038
Advances on other notes receivable........................................ (2,684) (1,273) (10,429)
Deferred acquisition costs................................................ (3,937) (1,906) (613)
Investment in unconsolidated subsidiaries................................. (1,956) (5,022) (10,077)
Distributions from unconsolidated subsidiaries............................ 7,105 25,369 --
--------- --------- -----------
Net cash (used in) provided by investing activities.................. (63,427) 37,272 (356,564)
--------- --------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
WYNDHAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued (in thousands)
Years Ended December 31,
---------------------------------
2001 2000 1999
--------- --------- -----------
Cash flows from financing activities:
Borrowings under line of credit facility and mortgage notes.......... 580,500 533,081 2,930,205
Repayments of borrowings under credit facility and other debt........ (535,419) (841,257) (3,153,525)
Payment of deferred loan costs....................................... (6,394) (8,492) (110,655)
Net proceeds from issuance of preferred stock........................ -- -- 921,702
Cost to retire Patriot series B preferred stock...................... -- -- (13,966)
Cash settlement with Interstate upon spin-off........................ -- -- (17,102)
Contributions received from minority interest in consolidated
subsidiaries....................................................... 300 -- 180
Distribution made to minority interest in other partnerships......... (6,209) (9,711) (29,907)
Payments to redeem OP units.......................................... -- (64) --
Dividends and distributions paid..................................... (14,624) (29,248) (15,607)
Proceeds received from amendments to derivative financial instruments -- 6,654 --
Premiums paid for derivative financial instruments................... -- (34,360) --
Forward equity settlements........................................... -- -- (329,480)
Other................................................................ (20) -- 44
--------- --------- -----------
Net cash provided by (used in) financing activities............... 18,134 (383,397) 181,889
--------- --------- -----------
Foreign currency translation adjustment.............................. 176 7,414 (6,379)
Net increase (decrease) in cash and cash equivalents................. 113,242 (91,873) 21,248
Cash and cash equivalents at beginning of year....................... 52,460 144,333 123,085
--------- --------- -----------
Cash and cash equivalents at end of year............................. $ 165,702 $ 52,460 $ 144,333
========= ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................ $ 304,160 $ 356,217 $ 338,675
========= ========= ===========
Cash paid during the year for income taxes........................ $ 4,207 $ 24,076 $ 31,978
========= ========= ===========
See Note 15 for additional supplemental disclosure of cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements
F-8
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share amounts)
1. Organization:
Wyndham International, Inc. (together with its consolidated subsidiaries,
"Wyndham" or the "Company") is a fully integrated and multi-branded hotel
enterprise that operates primarily in the upper upscale and luxury segments.
Through a series of acquisitions, Wyndham has since 1995 grown from 20 hotels
to become one of the largest U.S. based hotel owner/operators. As of December
31, 2001, Wyndham owned interests in 130 hotels with over 37,400 guestrooms and
leased 37 hotels from third parties with over 5,700 guestrooms. In addition,
Wyndham managed 31 hotels for third party owners with over 9,500 guestrooms and
franchised 22 hotels with over 4,000 guestrooms.
Wyndham as currently constituted, was formed through the June 30, 1999
restructuring and reorganization of Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Patriot") and Wyndham International, Inc.
(collectively with its subsidiaries, "Old Wyndham"). Prior to June 30, 1999,
the shares of common stock of Patriot were paired and traded together with the
shares of Old Wyndham, on a one for one basis, as a single unit pursuant to a
stock pairing arrangement, and were referred to as paired shares.
Patriot was formed April 17, 1995 as a self-administered real estate
investment trust ("REIT") for the purpose of acquiring equity interests in
hotel properties. Old Wyndham was formed in connection with Patriot's merger
with and into California Jockey Club and Bay Meadows Operating Company on July
1, 1997 (the "Cal Jockey Merger").
Effective June 30, 1999, a subsidiary of Old Wyndham merged with and into
Patriot with Patriot being the surviving entity and becoming a subsidiary of
Old Wyndham. In connection with this restructuring, the pairing agreement
between Patriot and Old Wyndham was terminated. Patriot's status as a REIT
terminated effective January 1, 1999, and Patriot became a taxable corporation
as of that date. This merger converted each previously outstanding paired share
into one share of Wyndham class A common stock.
The restructuring was reflected as a reorganization of two companies under
common control and was accounted for in a manner similar to that used in
pooling of interest accounting. As such, there was no revaluation of the assets
and liabilities of Old Wyndham or Patriot.
2. Summary of Significant Accounting Policies:
Principles of Consolidation-- The consolidated financial statements include
the accounts of Wyndham, its wholly-owned subsidiaries, and the partnerships,
corporations, and limited liability companies in which Wyndham owns a
controlling interest, after the elimination of all significant intercompany
accounts and transactions.
Partnerships-- The condition for control is the ownership of a majority
voting interest and the ownership of the general partnership interest.
Corporations and Limited Liability Companies-- The condition for control is
the ownership of a majority voting interest.
The financial statements prior to the reorganization are presented on a
combined basis and include the combined accounts of Patriot and its
subsidiaries with Old Wyndham and its subsidiaries.
Critical Accounting Policies and Estimates-- The preparation of consolidated
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
the Company evaluates
F-9
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
its estimates, including those related to, impairment of assets; assets held
for sale; bad debts; income taxes; and contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. The Company periodically reviews the
carrying value of its assets, including intangible assets, to determine if
events and circumstances exist indicating that assets might be impaired. If
facts and circumstances support this possibility of impairment, management will
prepare undiscounted and discounted cash flow projections which require
judgments that are both subjective and complex.
The Company's management uses judgment in projecting which assets will be
sold by the Company within the next twelve months. These judgments are based on
management's knowledge of the current market and the status of current
negotiations with third parties. If assets are expected to be sold within 12
months, they are reclassified as assets held for sale on the balance sheet.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may
be required.
The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. While the Company
has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event the Company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such
determination was made. Likewise, should the Company determine that it would
not be able to realize all or part of its net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to income in the
period such determination was made.
The Company is a defendant in law suits that arise out of, and are
incidental to, the conduct of its business. Management uses judgment, with the
aid of legal counsel, to determine if accruals are necessary as a result of any
pending actions against the Company.
Investment in Real Estate and Related Improvements
The hotel properties are stated at cost. Depreciation is computed using the
straight-line method based upon estimated useful lives of the assets of 35 to
40 years for the hotel buildings and improvements and 3 to 10 years for
furniture, fixtures and equipment. These estimated useful lives are based on
management's knowledge of the properties and the industry in general.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and the related accumulated depreciation are removed
from the accounts and the gain or loss is included in operations.
Interest associated with borrowings used to finance substantial hotel
renovations is capitalized and amortized over the estimated useful life of the
assets. Interest of $3,852, $3,170 and $6,910 was capitalized in 2001, 2000 and
1999, respectively.
F-10
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
In accordance with the Statement of Financial Accounting Standards ("SFAS")
No. 121, the Company periodically reviews the carrying value of each property
to determine if events and circumstances exist indicating that the assets might
be impaired. If facts or circumstances support the possibility of impairment,
the Company will prepare projections of undiscounted cash flows, without
interest charges, of the specific property, to determine if the amounts
estimated to be generated by those assets are less than the carrying amounts of
those assets. If impairment is indicated, an adjustment will be made to the
carrying amount based on the difference between the sum of the expected future
discounted net cash flows and the carrying amount of the asset. During 2001 and
2000, the Company recorded an impairment of $7,908 and $39,654, respectively,
in operating expenses for assets held for use.
When management identifies an asset held for sale, the Company estimates the
net selling price of such asset. If the net selling price of the asset is less
than the carrying amount of the asset, a reserve for loss is established.
Depreciation is no longer recorded once management has identified an asset held
for sale. Net selling price is estimated as the amount at which the asset could
be bought or sold (fair value) less costs to sell. Fair value is determined at
prevailing market conditions, appraisals or current estimated net sales
proceeds from pending offers, if appropriate. The Company recorded impairment
of $16,251, $361,571 and $70,912 in operating expenses on assets held for sale
for the years ended December 31, 2001, 2000 and 1999, respectively (See Note 3).
During 1999, the Company recorded a restructuring charge of $132,819
associated with the write-down of assets to estimated fair market value, as the
Company exited from these business sectors. The Company also recognized
approximately $11,202, $12,987 and $10,702, net of impairment, of losses
related to assets sold during 2001, 2000 and 1999, respectively.
Cash and Cash Equivalents
All highly liquid investments with an original maturity date of three months
or less when purchased are considered to be cash equivalents.
Restricted Cash
Restricted cash includes real estate tax, insurance, interest and capital
reserve deposits required pursuant to certain of the Company's mortgage loan
and lease requirements.
Inventories
Inventories consist of food, beverages, china, linen, glassware and
silverware and are stated at cost, which approximates market.
Investment in Unconsolidated Subsidiaries
The Company's investments in unconsolidated subsidiaries include investments
in 9 entities ranging from approximately 1% to 49%. Investments in partnerships
and joint ventures are accounted for using the equity method of accounting when
the Company has a 20% or more ownership interest or exercises significant
influence over the venture. If the Company's ownership is less than 20% and
does not exercise significant influence, the investment is accounted for under
the cost method. During 2000, the Company recorded an impairment loss of
$40,259 as a result of changes in the estimated fair value for certain
investments held for sale. These investments were sold in 2001.
F-11
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Management contracts, trade names and franchise costs
The costs associated with the acquisition of management contracts, trade
names and franchises have been recorded as deferred costs. Amortization of
management contracts is computed using the straight-line method over the term
of the related management agreements. During 2001 and 2000, the Company
recognized a charge for the remaining unamortized cost for management contracts
lost of $7,408 and $45,174, respectively. Amortization of trade names and
franchise costs is computed using the straight-line method over estimated
useful lives ranging from 12 to 20 years.
Leaseholds
The costs associated with the acquisition of leaseholds for hotel properties
leased from third party owners have been recorded as deferred costs. Leasehold
costs are amortized using the straight-line method over the terms of the
related leasehold agreement. During 2001, the Company recognized a charge for
the remaining unamortized cost for a leasehold contract lost of $4,057.
Goodwill
Goodwill recognized in connection with the acquisition of certain businesses
is amortized utilizing the straight-line method over a period of 10 to 40
years. The carrying value of goodwill is reviewed based on undiscounted cash
flows over the remaining amortization period. Should this review indicate that
the goodwill will not be recoverable, a reserve for impairment is established.
During 1999, the Company recorded a write-down of goodwill and intangibles of
$112,702, as a result of the Company's restructuring plan. See recent
pronouncements below for impact of implementation of SFAS 142 in the first
quarter of 2002.
Deferred Expenses
Deferred expenses consist of the following:
December 31,
------------------
2001 2000
-------- --------
Deferred loan costs............ $114,457 $144,175
Costs of non-compete agreements 917 1,479
Franchise fees................. 1,110 1,024
Other.......................... 9,146 1,362
-------- --------
125,630 148,040
Less: accumulated amortization. (54,416) (42,599)
-------- --------
$ 71,214 $105,441
-------- --------
Deferred loan costs are amortized to interest expense on a straight-line
basis (which approximates the interest method) over the terms of the related
loans, which range from two to ten years. Costs of non-compete agreements are
amortized using the straight-line method over the terms of the related
agreement. Franchise costs are amortized using the straight-line method over
the terms of the related franchise agreements.
Other Assets
Insurance premiums included in other assets are expensed on a pro-rata basis
over the life of the related policies. Security deposits paid in connection
with certain leasehold agreements of approximately $40,443 are included in long
term other assets.
F-12
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Deposits
Deposits represent cash received from guests for future hotel reservations
at the hotels that Wyndham owns and leases.
Income Taxes
Wyndham records its provision for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes". Under the liability method of SFAS No. 109,
deferred taxes are determined based on the difference between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect in the years the differences are expected to reverse (see Note 12).
In 1999, Wyndham recorded a one-time charge of $675,000 to establish a
deferred tax liability that resulted from Patriot's change in tax status from a
REIT to a C corporation, as required by Statement of Financial Accounting
Standard No. 109. This charge is included in income tax expense in the
accompanying 1999 consolidated statement of operations.
Minority Interest in the Operating Partnerships
Minority interest in the Operating Partnerships includes adjustments for the
minority partners' share of the net income as defined by the partnership
agreement and certain other adjustments for the issuance or redemption of OP
units.
Minority Interest in Other Consolidated Subsidiaries
The Company has entered into a number of joint ventures in which a third
party owns a minority interest. For financial reporting purposes, the financial
position and results of operations for each joint venture are included in the
consolidated financial statements of the Company.
Dividends
At June 30, 1999, as a result of the reorganization, Patriot's status as a
REIT terminated effective January 1, 1999, and Patriot became a taxable
corporation as of that date. The Company does not anticipate paying a dividend
to its common shareholders.
Earnings per Share
The Company has adopted SFAS No. 128 "Earnings Per Share" which specifies
the computation, presentation and disclosure requirements for basic earnings
per share and diluted earnings per share. Earnings per share disclosures for
all periods presented have been calculated in accordance with requirements of
SFAS No. 128. Basic earnings per share is computed based upon the weighted
average number of shares of common stock outstanding during the period
presented. Shares of common stock granted to officers and employees of the
Company are included in the computation only after the shares become fully
vested. Diluted earnings per share is computed based upon the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the periods presented. The diluted earnings per share
computations also include the dilutive impact of options to purchase common
stock which were outstanding during the period calculated by the "treasury
stock" method, unvested stock grants and other restricted awards to officers
and employees, convertible preferred shares and collateral shares issued in
conjunction with certain forward equity transactions (see Note 7).
F-13
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Stock Compensation
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and intends to continue to do so. See Note 11
for a discussion of the Company's stock compensation arrangements and pro forma
disclosure of the effect on income from operations and earnings per share of
such arrangements pursuant to the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation."
Revenue Recognition
The Company primarily owns, operates and manages hotel properties. Hotel
revenue, management fees, service and other fees, are recognized when earned.
Foreign Currency Translation
Financial statements of foreign subsidiaries not maintained using U.S.
dollars are remeasured into the U.S. dollar functional currency for
consolidation and reporting purposes. Assets and liabilities of non-U.S.
operations are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date. Revenues and expenses of non-U.S. operations are
translated at the weighted average exchange rate during the year. Resulting
translation adjustments are reflected in shareholders' equity. Realized foreign
currency gains and losses are included in results of operations.
Advertising Costs
The Company participates in various advertising and marketing programs. All
costs are expensed in the period incurred. The Company has recognized
advertising expenses of $46,089, $52,894 and $68,834 for 2001, 2000 and 1999,
respectively.
Self Insurance
The Company is self-insured for various levels of general liability,
workers' compensation and employee medical coverage up to certain levels.
Accrued expenses include the estimated cost from unpaid incurred claims.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations
The Company currently invests primarily in hotel properties. The hotel
industry is highly competitive and the Company's hotel investments are subject
to competition from other hotels for guests. Each of the Company's hotels
competes for guests primarily with other similar hotels in its immediate
vicinity and other similar hotels in its geographic market. The Company
believes that brand recognition, location, quality of the hotel, services
provided and price are the principal competitive factors affecting its hotel
investments.
The Company's financial instrument exposure to concentration of credit risk
consists primarily of cash and cash equivalents. The Company's funds are
deposited with high-credit-quality financial institutions and at times, these
funds may be in excess of the federal depository insurance limit.
F-14
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107 requires disclosures
about the fair value for all financial instruments, whether or not recognized,
for financial statement purposes. Disclosures about fair value of financial
instruments are based on pertinent information available to management as of
December 31, 2001. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Management estimates the fair values of (i) accounts receivable, accounts
payable and accrued expenses approximate the carrying value due to the
relatively short maturity of these instruments; (ii) the notes receivable
approximate carrying value based upon effective borrowing rates for issuance of
debt with similar terms and remaining maturities; and (iii) the borrowings
under the Revolving Credit Facility, Term Loan and various other mortgage notes
approximate carrying value because these borrowings accrue interest at floating
interest rates based on market. The Company estimates the fair value of its
fixed rate debt generally using discounted cash flow analysis based on the
Company's current borrowing rates for debt with similar maturities. The
estimated fair value of the fixed rate debt at December 31, 2001 was
approximately $454,496.
Derivative Instruments and Hedging Activities
On January 1, 2001, the Company changed its method of accounting for its
derivative instruments in accordance with its adoption of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137 and No. 138.
The adoption of the SFAS No. 133, as amended, on January 1, 2001 resulted in
the cumulative effect of an accounting change of $10,364 (net of taxes of
$6,911) being recognized in the consolidated statement of operations and a
charge of $21,691 (net of taxes of $14,460) in other comprehensive income in
the first quarter of 2001. In addition, the Company recorded the changes in the
fair value of its derivatives of $43,303 with a loss of $32,227 for the change
in the fair market value through earnings, and a charge of $6,646 (net of taxes
of $4,430) through other comprehensive income. Also during 2001, the Company
paid $15,373 in settlement payments for the ineffective hedges.
Over the next twelve months, the reclassification to earnings of the
transition adjustment that was recorded in accumulated other comprehensive
income will be $9,600 (net of taxes of $6,400). Gains and losses on derivatives
that arose prior to the initial application of SFAS No. 133 and that were
previously deferred as adjustments of the carrying amount of hedged items were
not adjusted and were not included in the transition adjustments described
above.
On the date the Company enters into a derivative contract, it designates the
derivative as a hedge of (a) a forecasted transaction or (b) the variability of
cash flows that are to be received or paid in connection with a recognized
asset or liability (a "cash flow hedge"). Currently, the Company has only
entered into derivative contracts, designated as cash flow hedges. Changes in
the fair value of a derivative that is highly effective and that is designated
and qualifies as a cash flow hedge, to the extent that the hedge is effective,
are recorded in other comprehensive income, until earnings are affected by the
variability of cash flows of the hedged transaction
F-15
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
(e.g., until periodic settlements of a variable-rate asset or liability are
recorded in earnings). Any hedge ineffectiveness (which represents the amount
by which the changes in the fair value of the derivative exceed the variability
in the cash flows of the forecasted transaction) is recorded in current-period
earnings. Changes in the fair value non-hedging instruments are reported in
current-period earnings.
The Company occasionally purchases a financial instrument in which a
derivative instrument is "embedded." Upon purchasing the financial instrument,
the Company assesses whether the economic characteristics of the embedded
derivative are clearly and closely related to the economic characteristics of
the remaining component of the financial instrument (i.e., the host contract)
and whether a separate, non-embedded instrument with the same terms as the
embedded instrument would meet the definition of a derivative instrument. When
it is determined that (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic
characteristics of the host contract and (2) a separate, stand-alone instrument
with the same terms would qualify as a derivative instrument, the embedded
derivative is separated from the host contract, carried at fair value, and
designated as either (1) a cash flow or (2) a trading or non-hedging derivative
instrument. However, if the entire contract were to be measured at fair value,
with changes in fair value reported in current earnings, or if the Company
could not reliably identify and measure the embedded derivative for purposes of
separating that derivative from its host contract, the entire contract would be
carried on the balance sheet at fair value and not be designated as a hedging
instrument.
The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as cash flow hedges to (1) specific assets and
liabilities on the balance sheet or (2) specific firm commitments or forecasted
transactions. The Company also formally assesses (both at the hedge's inception
and on an ongoing basis) whether the derivatives that are used in hedging
transactions have been highly effective in offsetting changes in the cash flows
of hedged items and whether those derivatives may be expected to remain highly
effective in future periods. When it is determined that a derivative is not (or
has ceased to be) highly effective as a hedge, the Company discontinues hedge
accounting prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the cash flows of a hedged item (including hedged items such as firm
commitments or forecasted transactions); (2) the derivative expires or is sold,
terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; (4) a hedged firm commitment no longer meets the
definition of a firm commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate.
When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, the gain or loss on the derivative remains in accumulated other
comprehensive income and is reclassified into earnings when the forecasted
transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period
or within an additional two-month period of time thereafter, the gains and
losses that were accumulated in other comprehensive income will be recognized
immediately in earnings. In all situations in which hedge accounting is
discontinued and the derivative remains outstanding, the Company will carry the
derivative at its fair value on the balance sheet, recognizing changes in the
fair value in current-period earnings.
Seasonality
The hotel industry is seasonal in nature; however, the periods during which
the Company's hotel properties experience higher revenues vary from property to
property and depend predominantly on the property's location. The Company's
revenues typically have been higher in the first and second quarters than in
the third and fourth quarters.
F-16
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and No. 138,
which is required to be adopted effective January 1, 2001. SFAS 133, as
amended, requires that derivatives be recorded on the balance sheet as an asset
or liability at fair value. SFAS 133, as amended, requires that derivatives
that are not hedges be recorded at fair value through earnings. Special
accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement, to
the extent effective, and requires that a company formally document, designate
and assess the effectiveness of transactions that receive hedge accounting.
SFAS 133, as amended, in part, allows special hedge accounting for fair value
and cash flow hedges. The Statement provides that the gain or loss on a
derivative instrument designated and qualifying as a fair value hedging
instrument as well as the offsetting loss or gain on the hedged item
attributable to the hedged risk be recognized currently in earnings in the same
accounting period. SFAS 133, as amended, provides that the effective portion of
the gain or loss on a derivative instrument designated and qualifying as a cash
flow hedging instrument be reported as a component of other comprehensive
income and be reclassified into earnings in the same period or periods during
which the hedged forecasted transaction affects earnings. The ineffective
portion of a derivative's change in fair value is recognized currently through
earnings regardless of whether the instrument is designated as a hedge. The
adoption of the new statement on January 1, 2001 resulted in the cumulative
effect of an accounting change of $10,364, net of tax, being recognized in the
consolidated statement of operations and a charge of $21,691, net of tax, in
other comprehensive income in the first quarter of 2001.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets,
collectively referred to as the "Standards". SFAS 141 supersedes APB No. 16,
Business Combination. The provisions of SFAS 141, (1) require that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, (2) provide specific criteria for the initial recognition and
measurement of intangible assets apart from goodwill, and (3) require that
unamortized negative goodwill be written off immediately as an extraordinary
gain instead of being deferred and amortized. SFAS 141 also requires that upon
adoption of SFAS 142, the Company reclassify carrying amounts of certain
intangible assets into or out of goodwill, based on certain criteria. SFAS 142
supersedes APB 17, Intangible Assets, and is effective for fiscal years
beginning after December 15, 2001. SFAS 142 primarily addresses the accounting
for goodwill and intangible assets subsequent to their initial recognition. The
provisions of SFAS 142, (1) prohibit the amortization of goodwill and
indefinite-lived intangible assets, (2) require that goodwill and
indefinite-lived intangibles assets be tested annually for impairment (and in
interim periods if certain events occur indicating that the carrying value of
goodwill and/or indefinite-lived assets may be impaired), (3) require that
reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and (4) remove the forty-year limitation on the
amortization period of intangible assets that have finite lives.
The provisions of the Standards also apply to equity-method investments made
both before and after June 30, 2001. SFAS 141 requires that the unamortized
deferred credit related to an excess over cost arising from an investment that
was accounted for using the equity method (equity-method negative goodwill),
and that was acquired before July 1, 2001, must be written-off immediately and
recognized as the cumulative effect of a change in accounting principle.
Equity-method negative goodwill arising from equity investments made after June
30, 2001 must be written-off immediately and recorded as an extraordinary gain,
instead of being deferred and amortized. SFAS 142 prohibits amortization of the
excess of cost over the underlying equity in the net assets of an equity-method
investee that is recognized as goodwill.
F-17
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
The Company will adopt the provisions of SFAS 142 in the first quarter of
2002. The Company is in the process of preparing for its adoption of SFAS 142
and is making the determinations as to what its reporting units are and what
amounts of goodwill, intangible assets, other assets, and liabilities should be
allocated to those reporting units. In connection with the adoption of SFAS
142, the Company expects that it will no longer annually record $12,200 of
amortization relating to its existing goodwill and indefinite-lived
intangibles, as adjusted for the reclassifications just mentioned.
SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, a company has six months from the date of adoption to complete the
first step. The Company expects to complete that first step of the goodwill
impairment test during the first quarter of 2002. The second step of the
goodwill impairment test measures the amount of the impairment loss (measured
as of the beginning of the year of adoption), if any, and must be completed by
the end of the Company's fiscal year. Intangible assets deemed to have an
indefinite life will be tested for impairment using a one-step process which
compares the fair value to the carrying amount of the asset as of the beginning
of the fiscal year, and pursuant to the requirements of SFAS 142 will be
completed during the first quarter of 2002. Any impairment loss resulting from
the transitional impairment tests will be reflected as the cumulative effect of
a change in accounting principle in the first quarter 2002. The Company is
currently evaluating the potential impairment loss, but anticipates its
goodwill will be impaired with a charge of $326,843 in the first quarter of
2002.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 will be effective for financial statements
issued for fiscal years beginning after June 15, 2002. An entity shall
recognize the cumulative effect of adoption of SFAS No. 143 as a change in
accounting principle. The Company is currently evaluating the impact this
statement will have on its financial position or results of operations.
In October 2001, FASB issued SFAS No. 144 "Accounting for the Impairment and
Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of". SFAS No. 144 primarily addresses significant issues
relating to the implementation of SFAS No. 121 and develops a single accounting
model for long-lived assets to be disposed of, whether previously held and used
or newly acquired. The provisions of SFAS No. 144 will be effective for fiscal
years beginning after December 15, 2001. The Company is currently evaluating
the impact this statement will have on its financial position or results of
operations.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation with no effect on previously reported amounts of income or
retained earnings.
F-18
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
3. Investments in Real Estate and Related Improvements and Assets Held for Sale:
Investment in Real Estate and Related Improvements and Assets Held for Sale
consists of the following:
December 31, 2001
------------------------------------
Investment in
Real Estate Assets Held
Held for Use for Sale Total
------------- ----------- ----------
Land.............................. $ 420,319 $ 15,702 $ 436,021
Land held for development......... 29,013 -- 29,013
Buildings and improvements........ 4,039,925 163,438 4,203,363
Furniture, fixtures and equipment. 937,074 26,433 963,507
Renovations in progress........... 25,070 22 25,092
---------- -------- ----------
5,451,401 205,595 5,656,996
Less: impairment.................. (195,413) (83,127) (278,540)
Less: accumulated depreciation.... (856,732) (25,685) (882,417)
---------- -------- ----------
$4,399,256 $ 96,783 $4,496,039
========== ======== ==========
December 31, 2000
------------------------------------
Investment in
Real Estate Assets Held
Held for Use for Sale Total
------------- ----------- ----------
Land.............................. $ 318,189 $ 114,601 $ 432,790
Land held for development......... 33,050 -- 33,050
Buildings and improvements........ 2,987,909 1,447,517 4,435,426
Furniture, fixtures and equipment. 620,634 207,503 828,137
Renovations in progress........... 144,694 13,502 158,196
---------- ---------- ----------
4,104,476 1,783,123 5,887,599
Less: impairment.................. (91,584) (381,609) (473,193)
Less: accumulated depreciation.... (497,669) (205,242) (702,911)
---------- ---------- ----------
$3,515,223 $1,196,272 $4,711,495
========== ========== ==========
Management classifies certain assets as held for sale based on management
having the authority and intent of entering into commitments for sale
transactions expected to close in the next twelve months. Due to the events of
September 11, 2001, the Company reclassified certain assets it previously
categorized as held for sale to held for use. The reclassification resulted
from delays in the disposition of these assets beyond one year. Assets
transferred from held for sale to held for use were recorded at the lower of
(a) carrying value (net of previous impairment) or (b) undepreciated cost at
the time of the original classification as held for sale less additional
depreciation calculated for the period the asset was held for sale. The
depreciation expense related to these assets was $14,260 at December 31, 2001.
At December 31, 2001, certain assets were classified as held for sale and
continue to be considered held for sale. An impairment charge was necessary due
to market changes that could impact the prices received for these assets. The
Company recorded an impairment of $16,251 for these assets at December 31,
2001. The assets held for sale had income from operations of $12,254, net of
amounts owned by third party limited partners. In addition, the Company also
recorded a provision for assets held for use of $7,908 at December 31, 2001.
F-19
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Based on estimated sale proceeds, during 2000, the Company recorded a
provision for loss on assets held for sale of $361,571. The assets held for
sale had income from operations of $148,128, net of amounts owned by third
party limited partners. The Company also recorded a provision of $39,654 during
2000 on real estate assets held for use where current facts, circumstances and
analysis indicate that the assets might be impaired.
Investments in Hotel Properties
During 2000, the Company invested approximately $20,626 in the acquisition
of the remaining interest in Wyndham Chicago. The Company now consolidates
mortgage debt associated with the property of $38,910.
Asset Sales
During 2001, the Company sold 6 hotels, a sewer company and investments in
four hotels for net cash proceeds of $100,531. In addition, the Company
exchanged six hotels with a net book value of $70,134, for one hotel with an
estimated fair value of $61,308. As a result of asset sales and the exchange,
the Company recorded a net loss of $13,205, net of previously recorded
impairments of $89,354.
During 2000, the Company sold 26 hotel properties, including the Clubhouse
Inn brand and received net cash proceeds of approximately $174,978, after the
repayment of mortgage debt of $70,406. The Company also sold investments in
three hotels, two parcels of land, retail space and a garage and received net
cash proceeds of $61,355 after the repayment of debt of $7,847 and a note
receivable of $4,319. The Company recorded a net loss of $12,830, net of
impairment of $66,821 as a result of these transactions.
Two of the hotel properties sold in 2000 were leased back to the Company
under two long-term operating leases. The leases have an initial term of 15
years and three optional five-year renewal periods exercisable at the Company's
option. Under the terms of the leases, yearly base rent aggregates $4,345 plus
a contingent rent paid based on a percentage of revenues over certain
thresholds as specified in the leases. The leases require the Company to pay
substantially all expenses associated with the operation of the leased hotels,
including real estate taxes and insurance.
Effective March 31, 2000, the Company sold its Sierra Suites hotel brand,
properties and related assets (the "Sierra transaction") to Sierra Suites Hotel
Company, L.P., an entity affiliated with Mr. Rolf Ruhfus, a director of
Wyndham, for approximately $53,000. The transaction included the sale by the
Company of one owned and three leaseholds, 17 franchise and management
contracts for Sierra Suites and nine management contracts for Summerfield
Suites. Pursuant to the purchase agreement, the Company received net cash
proceeds of $23,045 and relieved $29,770 of future obligations due under the
purchase and sale agreement of the acquisition of SF Hotel Company L.P. in June
of 1998 (the "Summerfield transaction"). As a result of the transaction, the
Company recorded a net loss of $157.
Interstate
Effective June 18, 1999, Patriot distributed approximately 92% of the shares
of Interstate Hotel Corporation ("IHC") in the form of a dividend to
shareholders. Shareholders of record on June 7, 1999 received one share of New
Interstate stock for every thirty shares of Patriot common stock, Patriot
series A preferred stock, Old Wyndham series A and B preferred stock, Patriot
common and preferred OP units, and Old Wyndham class A and C preferred OP
units. The remaining 8% was owned equally by Wyndham and Marriott
International, Inc. ("Marriott").
As a result of the spin-off, the Company owned an approximate 55%
non-controlling in Interstate Hotels, LLC ("IH LLC"), a subsidiary of IHC that
operates the third-party management business that Patriot acquired from
Interstate.
F-20
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
During 2000, Wyndham agreed to the redemption of its aggregate 55%
non-voting economic interest (the "Wyndham Interest") in IH LLC, a principal
operating subsidiary of IHC. IH LLC transferred to Wyndham a management
agreement for one hotel owned by Wyndham and amended management agreements with
respect to six other hotels owned by Wyndham to reduce the management fees and
to permit termination by the owner upon 30 days notice. In addition,
approximately 9% of the Wyndham Interest was redeemed by IH LLC and
substantially all of the remainder was converted into a preferred membership
interest in IH LLC. As additional consideration for the redemption and
conversion of the Wyndham Interest, Wyndham caused its representative on IHC's
Board of Directors to resign and relinquished its right to appoint a member to
IHC's Board of Directors in the future. In addition, Wyndham granted IHC an
option exercisable within 90 days of October 20, 2000, to acquire all of IHC's
stock owned by Wyndham at a weighted average trading price per share, provided
that the purchase price not be less than $3.00 per share nor more than $4.00
per share. On December 3, 2000, the common stock was acquired for approximately
$597. On July 12, 2001, IH LLC, pursuant to a redemption agreement, called for
the redemption of Wyndham's preferred interest in IH LLC. In consideration for
the redemption, Wyndham received $8,250 in cash and two promissory notes in the
amounts of $750 and $3,682, respectively. The notes bear interest at 9.75% and
mature on July 1, 2002 and July 1, 2004, respectively. The Company recorded a
gain of $2,003, net of previously recorded impairment of $16,499. The portion
of the Wyndham Interest that was not converted into a preferred membership
interest will remain outstanding. Thereafter, at any time on or after July 1,
2004, both IH LLC and Wyndham have the right to require that IH LLC redeem the
remaining common interest at an amount that is the lesser of (a) the product of
(i) five times IH LLC's EBITDA as of December 31, 2003 and (ii) the percentage
of total equity interest in IH LLC which is represented by the remaining
interest, or (b) approximately $433.
4. Restructuring charges:
During 1999, the Company recorded a restructuring charge of $285,267 as a
result of the termination of the paired share structure and management's
decision to streamline its organization and focus on its core brands and
strategic assets. The restructuring activities primarily relate to: (1) the
termination of the paired share structure, resulting in the write-down of the
unamortized intangible asset of $83,094, and $4,675 related to the elimination
of job responsibilities, resulting in the costs to sever employees in New York
and Dallas, (2) the exiting of the European market for its non-branded assets,
resulting in the write-down of $69,491 for assets held for sale to estimated
fair value, the write-down of $28,394 in goodwill, the reduction in the
European workforce resulting in severance costs of $3,578, lease abandonments
of $1,907, and other costs necessary to reduce the infrastructure in Arcadian
International of $4,062, (3) the exiting of the limited service hotel sector,
resulting in a write-down of $63,328 of those assets held for sale and the
write-off of management contracts of $8,834, (4) the closure of the Phoenix
division office, resulting in the costs to sever employees of $2,006 and lease
abandonments $492, (5) the closure of the Wichita division office, resulting in
the costs to sever employees of $1,872, and (6) the elimination of certain
brands, resulting in the write-down of those trade name intangible assets of
$12,821 and other costs of $713.
The Company plans associated with these costs were substantially completed
during 2000 with many of the costs associated with the reduction in workforce
being incurred and paid in 1999. The total number of employees terminated was
177. The accrued balance as of December 31, 2001 and 2000 was $284 and $504,
respectively. During 2001, continuing cash payments were made against the
accrued liability with the remaining accruals to be relieved throughout fiscal
2002, as leases expire and severance payments are made.
F-21
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
5. Line of Credit Facility, Term Loans, Mortgage and Other Notes and Capital
Lease Obligations:
Outstanding borrowings as of December 31, 2001 and 2000 under the line of
credit, term loans, various mortgage and other notes and capital lease
obligations consist of the following:
Description 2001 2000 Amortization Interest Rate Maturity
----------- ---------- ---------- ------------ ------------------ ---------------
Revolving Credit Facility......... $ 303,500 $ 85,000 None Libor + 3.00% (1) June 30, 2004
Term Loans........................ 1,284,150 1,300,000 (2) Libor + 4.25% (3) June 30, 2006
Increasing Rate Loans............. 482,139 617,000 None Libor + 4.75% (4) June 30, 2004
Bear, Stearns Funding, Inc.(5).... 307,825 340,960 None Libor + 0.82%-4.5% July 1, 2004
Lehman Brothers Holdings Inc.(6).. 202,186 232,533 None Libor + 3.5% July 1, 2003
Lehman Brothers Holdings Inc.(7).. 179,374 -- (7) Libor + 1.8% August 10, 2003
Metropolitan Life Insurance (8)... 96,271 97,501 (9) 8.08% October 1, 2007
Other Mortgage Notes Payable (10). 545,842 673,273 Various (11) (11)
Unsecured financing............... 1,509 3,510 None 10.5% May 15, 2006
Capital lease obligations......... 43,199 49,173
---------- ----------
$3,445,995 $3,398,950
Less current portion:
Mortgage debt-assets held for sale (30,441) (505,836)
Current portion of borrowings..... (117,484) (155,728)
---------- ----------
Long term debt.................... $3,298,070 $2,737,386
========== ==========
- --------
(1) The one-month LIBOR rate at December 31, 2001 was 1.87%. The rate increased
to LIBOR plus 3.75% on January 24, 2002.
(2) On December 30, 2001, the Company repaid $10,000 under the term loans and
$5,000 is to be repaid each six months thereafter, with the final payment
of principal due on June 30, 2006.
(3) The rate increased to LIBOR plus 4.75% on January 24, 2002.
(4) Interest rates for the increasing rate term loans are based on LIBOR rates
plus 3.50% through September 30, 1999 and increasing 0.50% every three
months, with a cap of LIBOR plus 4.75%.
(5) The loan was originally collateralized by 25 hotel properties. During 2000,
one of those properties was sold, and debt was repaid in the amount of
$5,040. During 2001, three properties were included in an exchange of
assets, resulting in a repayment of $33,135. The net book value of the
remaining 21 properties is $557,476, net of impairment, as of December 31,
2001.
(6) The loan was originally collateralized by 10 hotel properties. During 2001,
two properties were sold and debt was repaid in the amount of $30,347. The
net book value of the remaining 8 properties is $261,384, net of
impairment, as of December 31, 2001. In December 2001, the Company elected
to extend the term of the loan for an additional twelve month period. The
Company paid an extension fee of $2,021. The loan requires that the
borrower make principal payments of excess net cash flow when the quarterly
debt-service coverage ratio is not met. In the first quarter of 2000, the
Company failed to meet the required debt-service coverage ratio and made a
principal payment of $2,467. The loan agreement specifies an interest rate
floor of 8%.
(7) The loan is collaterized by 4 hotel properties with a net book value of
$246,910 at December 31, 2001. The Company must make scheduled amortization
payments as set forth in the loan agreement. The loan agreement provides
that the Company can elect to extend the term of the loan for two
additional twelve month periods.
(8) The loan is collateralized by 6 Doubletree hotels with a net book value of
$179,082 at December 31, 2001.
(9) The loan, which was entered into September 1997, requires monthly payments
of principal and interest in the amount of $755 until the October 1, 2007
maturity date.
F-22
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
(10) The loans are collateralized by 19 hotel properties and a parcel of land
with a net book value of $1,058,595 at December 31, 2001.
(11) Interest rates range from fixed rates of 6.5% to 9.75% and variable rates
of LIBOR plus 1.5% to Prime plus 2.5%. The mortgages have a weighted
average interest rate at December 31, 2001 of 5.23%. Maturity dates range
from 2002 through 2023.
Under the terms of the related loan agreements and capital lease
obligations, principal amortization and balloon payment requirements at
December 31, 2001 are as follows for each of the next five years:
Year Amount
---- ----------
2002............... $ 117,484(1)
2003............... 452,088(2)
2004............... 1,210,423
2005............... 168,683
2006............... 1,252,838
2007 and thereafter 244,479
----------
$3,445,995
==========
(1) Subsequent to December 31, 2001, the Company extended the maturity of
$56,600 to 2004 or beyond.
(2) The Company can elect to extend $179.4 million for two additional twelve
month periods.
The Company anticipated that it would not be in compliance at September 30,
2001 with certain financial ratio covenants in its credit agreement and
increasing rate loan agreement (the "Loan Agreements") due to the events of
September 11, 2001. Accordingly, on September 28, 2001, the Company and the
other parties to the Loan Agreements (the "Lenders") entered into a waiver of
the financial covenants (the "Waiver") for the third and fourth quarters of
2001. The Waiver is effective through February 28, 2002.
On January 24, 2002, we reached an agreement with our lenders to permanently
amend our senior credit facility and increasing rate loans facility. As of
December 31, 2001, these facilities included $1.3 billion in term loans
maturing in June 2006 and $482.1 million in increasing rate loans and a
revolver with capacity of $500 million both maturing in June 2004. Among other
things, these amendments provide for mortgage collateral for 59 properties that
were previously unencumbered; an increase in interest rates; a restriction on
capital and development spending; a prohibition on paying the cash dividends on
our series A and B preferred stock; restrictions on the use of asset sale
proceeds and mortgage debt refinancing; and an interest coverage ratio of 1.05
to 1.00 until December 31, 2003 at which time it will increase to 1.25 to 1.00.
The applicable interest rate margins are as follows: LIBOR plus 3.75% for the
revolving term loans, LIBOR plus 4.75% for the term loans and increasing rate
loans. The fees paid in connection with the amendment was approximately $9,586
and will be amortized over the lives of the Loan Agreements.
In July 2001, the Company completed a $180,000 mortgage financing through
Lehman Brothers, which is secured by four hotel properties. The loan bears
interest at LIBOR plus 1.80% and matures August 10, 2003. The proceeds from the
loan were used to repay existing mortgage indebtedness and reduce balances on
the Company's increasing rate term loans and revolving credit facility
Effective March 30, 2001, the Company amended a mortgage note with a balance
of $15,000 with Credit Lyonnais. The amendment extended the maturity from March
30, 2001 to March 29, 2002. The note bears interest at LIBOR plus 2.25%. In
March 2002, the maturity date was extended to March 30, 2005.
F-23
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Effective March 30, 2001, the Company amended a mortgage note with a balance
of $29,540 with Credit Lyonnais. The amendment extended the maturity date from
March 30, 2001 to September 28, 2001. On July 30, 2001, the Company refinanced
the loan with Credit Lyonnais. The loan was increased to $45,000 and bears
interest at LIBOR plus 2.25% and matures July 30, 2003. In February 2002, the
maturity date was extended to July 30, 2005.
In connection with the exchange of the hotel assets and asset sales during
2001, the Company repaid mortgage debt owed to Lehman Brothers in the amount of
$30,347 and Bear, Stearns Funding Inc. in the amount of $33,135. As a result of
the repayment of debt, the Company recorded a charge of $1,838, net of taxes of
$1,225 as an extraordinary item resulting from the write-off of unamortized
deferred financing costs.
6. Derivatives:
The Company manages its debt portfolio by using interest rate caps and swaps
to achieve an overall desired position of fixed and floating rates. The fair
value of interest rate hedge contracts is estimated based on quotes from the
market makers of these instruments and represents the estimated amounts the
Company would expect to receive or pay to terminate the contracts. Credit and
market risk exposures are limited to the net interest differentials. The
estimated fair value of the interest rate swaps and caps represented a
liability of $63,983 and $9,507 respectively.
The Company has no embedded derivatives under SFAS 133, as amended, at
December 31, 2001.
F-24
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
The following tables represent the derivatives in place as of December 31,
2001:
Fair Market Value
Notional Amount Maturity Date Swap Rate Cap Rate Floor Rate Trigger Level at 12/31/01
--------------- ------------- --------- --------- ---------- ------------- -----------------
Type of Hedge:
Interest Rate Cap..... $ 179,374 08/10/2003 n/a 7.25% n/a n/a $ 59
Interest Rate Corridor 550,000 12/07/2002 n/a 5.25% n/a 7.25% 23
Interest Rate Cap--3
year Knockout........ 100,000 03/06/2003 n/a 4.75% n/a 7.50% 40
Interest Rate Cap--3
year Knockout........ 75,000 03/06/2003 n/a 4.75% n/a 7.50% 31
Interest Rate Cap--3
year Knockout........ 75,000 03/06/2003 n/a 4.75% n/a 7.50% 29
Interest Rate Cap..... 18,990 07/03/2004 n/a 6.50% n/a n/a 88
Interest Rate Cap..... 27,680 07/03/2004 n/a 7.10% n/a n/a 88
Interest Rate Cap..... 42,760 07/03/2004 n/a 8.10% n/a n/a 73
Interest Rate Cap..... 42,760 07/03/2004 n/a 9.70% n/a n/a 27
Interest Rate Cap..... 27,025 08/02/2004 n/a 8.50% n/a n/a 40
Structured Collar..... 180,000 11/04/2004 n/a 6.6%(1) 5.65%(2) n/a (10,222)
Interest Rate Cap..... 6,896 10/01/2004 n/a 9.75% n/a n/a 1
Interest Rate Cap..... 106,000 07/01/2005 n/a 9.75% n/a n/a 216
---------- --------
$1,431,485 $ (9,507)
========== ========
Interest Rate Swap.... $ 45,000 07/30/2003 4.36% n/a n/a n/a $ (1,044)
Interest Rate Swap.... 375,000 03/01/2002 6.26% n/a n/a n/a (2,645)
Interest Rate Swap.... 125,000 03/01/2002 5.56% n/a n/a n/a (758)
Interest Rate Swap.... 250,000 03/01/2002 5.84% n/a n/a n/a (2,429)
Interest Rate Swap--
5 year Knockout...... 150,000 03/06/2005 6.10%-6.75% n/a n/a 7.00%-8.50% (12,065)
Interest Rate Swap--
5 year Knockout...... 550,000 03/07/2005 6.10%-6.75% n/a n/a 7.00%-8.50% (45,042)
---------- --------
$1,495,000 $(63,983)
========== ========
- --------
(1) If on a reset date LIBOR is greater than or equal to 8% but less than 9.5%,
cap shall be of no force. If on a reset date LIBOR is equal to or greater
than 9.5%, then the cap rate shall be 9.5%
(2) If on a reset date LIBOR is equal to or less than 5.1%, then the floor rate
is 5.65%
F-25
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
7. Computation of Earnings Per Share:
Basic and diluted earnings per share have been computed as follows:
Combined Basic and Diluted Earnings per Share
Year Ended Year Ended Year Ended
December 31, 2001 December 31, 2000 December 31, 1999
--------------------- --------------------- ------------------------
Basic Diluted (2) Basic Diluted (2) Basic Diluted (2)
--------- ----------- --------- ----------- ----------- -----------
(in thousands, except per share amounts)
Loss before accounting change
and extraordinary item..... $(126,738) $(126,738) $(324,671) $(324,671) $(1,062,131) $(1,062,131)
Adjustment for equity
forwards (1)............... -- -- -- -- (19,372) (39,322)
Preferred stock dividends.... (122,621) (122,621) (103,522) (103,522) (50,190) (50,190)
Excess consideration paid to
redeem preferred stock..... -- -- -- -- (115) (115)
--------- --------- --------- --------- ----------- -----------
Loss attributable to common
shareholders before
cumulative effect of
accounting change and
extraordinary item......... (249,359) (249,359) (428,193) (428,193) (1,131,808) (1,151,758)
Cumulative effect of
accounting change.......... (10,364) (10,364) -- -- -- --
Extraordinary loss........... (1,838) (1,838) -- -- (9,838) (9,838)
--------- --------- --------- --------- ----------- -----------
Net loss..................... $(261,561) $(261,561) $(428,193) $(428,193) $(1,141,646) $(1,161,596)
========= ========= ========= ========= =========== ===========
Weighted average number of
shares outstanding......... 167,698 167,698 167,308 167,308 161,255 161,255
========= ========= ========= ========= =========== ===========
Loss per share:
Loss before accounting
change and extraordinary
item...................... $ (1.49) $ (1.49) $ (2.56) $ (2.56) $ (7.02) $ (7.14)
Accounting change........... (0.06) (0.06) -- -- -- --
Extraordinary loss.......... (0.01) (0.01) -- -- (0.06) (0.06)
--------- --------- --------- --------- ----------- -----------
Net loss..................... $ (1.56) $ (1.56) $ (2.56) $ (2.56) $ (7.08) $ (7.20)
========= ========= ========= ========= =========== ===========
- --------
(1) The adjustment relates to the mark-to-market adjustment for the forward
equity transactions with UBS and the Nations Banc, which could be settled
in cash or stock, at the Company's option.
(2) For 2001, the dilutive effect of unvested stock grants of 4,613, the option
to purchase 52 shares of common stock and 138,592 shares of preferred stock
were not included in the computation of diluted earnings per share for the
year ended December 31, 2001 because they are anti-dilutive. For 2000, the
dilutive effect of unvested stock grants of 645, the option to purchase 104
shares of common stock and 129,073 shares of preferred stock were not
included in the computation of diluted earnings per share for the year
ended December 31, 2000 because they are anti-dilutive. For 1999, the
dilutive effect of unvested stock grants of 803, the option to purchase 59
shares of common stock and 64,367 shares of preferred stock were not
included in the computation of diluted earnings per share for the year
ended December 31, 1999 because they are anti-dilutive. See Note 11 for a
discussion of the impact of SFAS No.123 ("Accounting for Stock-Based
Compensation") on earnings per share.
F-26
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
For 2001, options to purchase 14,041 shares of common stock at prices
ranging from $1.75 to $30.40 were outstanding but not included in the
computation because the options' exercise prices were greater than the
average market price of the common shares and, therefore, the effect would
be anti-dilutive. For 2000, options to purchase 12,157 shares of common
stock at prices ranging from $2.0625 to $30.40 were outstanding but not
included in the computation because the options' exercise prices were
greater than the average market price of the common shares and, therefore,
the effect would be anti-dilutive. For 1999, options to purchase 9,702
shares of common stock at prices ranging from $4.75 to $30.40 were
outstanding but not included in the computation because the options'
exercise prices were greater than the average market price of the common
shares and therefore the effect would be anti-dilutive.
8. Commitments and Contingencies:
Office Lease
The Company has entered into agreements to lease office space for its
corporate headquarters and other regional offices. In general, the agreements
provide for monthly payments of rent plus reimbursement for certain other costs
as specified per each agreement and are accounted for as operating leases for
financial reporting purposes. The leases have terms from 5 to 25 years. Annual
rental payments of $4,109, $3,451, and $3,484 for 2001, 2000 and 1999,
respectively, are reflected in general and administrative expense in the
accompanying financial statements. Future five-year minimum lease payments
under these lease agreements are as follows:
Rent
Year Amount
---- -------
2002............... $ 2,146
2003............... 2,097
2004............... 2,062
2005............... 1,838
2006............... 1,838
2007 and thereafter 1,351
-------
$11,332
=======
Hotel and Ground Leases
The Company leases both land and hotels under agreements with terms ranging
from one to 100 years. The Company has incurred rent expense totaling $77,506,
$78,433, and $117,420 for 2001, 2000 and 1999, respectively. Future five year
minimum lease payments under these lease agreements are as follows:
Rent
Year Amount
---- --------
2002............... $ 62,323
2003............... 62,420
2004............... 61,841
2005............... 61,633
2006............... 61,633
2007 and thereafter 614,454
--------
$924,304
========
F-27
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Employment Agreements
The Company has entered into employment agreements with each of its
executive officers. Generally, the agreements provide for annual base
compensation with any increases during the terms of the agreements to be
approved by the Compensation Committee of the Board of Directors, as applicable.
On February 26, 1999, the Company and Paul A. Nussbaum entered into a
Separation Agreement (the "Separation Agreement") whereby Mr. Nussbaum resigned
his position as Chairman of the Board of Directors and Chief Executive Officer
of Patriot. Pursuant to the Separation Agreement, Mr. Nussbaum remained as a
Director of Wyndham until 2000, and did not seek reelection after the
expiration of his term.
In accordance with terms of the Separation Agreement, the Company paid
severance of $3,200 reduced by interest payments made by the Company on a loan
through June 30, 1999. The severance amount was paid as follows: $2,000 payable
on the consummation of the $1 billion equity investment and the remaining
$1,200 was paid in twelve monthly installments commencing with the first day of
the month next following the date of the $2,000 payment.
Additionally, Mr. Nussbaum's outstanding unvested options to purchase shares
vested and will remain fully exercisable for the period of their respective
terms. Mr. Nussbaum elected to exchange his options on a Black Scholes neutral
basis for new options with an exercise price equal to the fair market value of
a share on the election date. On June 1, 1999, Mr. Nussbaum exchanged 3,078,406
options at varying prices from $11.18 to $33.58 for 1,154,448 options at
$5.1875. Mr. Nussbaum also received 250,000 shares which have vested as of
December 31, 2001. Additionally any restrictions were lifted from existing
shares held by Mr. Nussbaum.
As a condition to receiving the second and third installments of the shares,
Mr. Nussbaum has agreed to provide non-exclusive consulting services to Wyndham
for a period of two years following the resignation date. Additionally, Mr.
Nussbaum will receive other amounts as provided for in the Separation Agreement.
On October 16, 2000, the Company announced the resignation of James D.
Carreker from his position as chairman of the Board of Directors. As a result,
Wyndham will pay Mr. Carreker a severance payment in accordance with current
severance policies, but at a minimum, Mr. Carreker would be entitled to a
severance payment (the "Severance Amount") equal to the greater of (a) $3,000
or (b) three times the sum of his "applicable base salary" (determined in
accordance with the employment agreement) and average incentive compensation
(determined in accordance with the employment agreement). Additionally, for a
period of three years, Wyndham will provide Mr. Carreker with an office and
related facilities and an assistant at a location of his respective choosing.
For a period of one year, Wyndham would pay for Mr. Carreker the cost of
executive placement services. All unvested stock options and stock-based grants
held by Mr. Carreker will immediately vest and become exercisable for one year
or the remaining option term (not to exceed four years). Additionally, for
three years Wyndham will pay health insurance premiums for Mr. Carreker, his
spouse and other dependents and provide certain benefits to Mr. Carreker,
including payment of disability and life insurance premiums. At December 31,
2001, the Company had accruals remaining of $2,760 for amounts due under the
employment contract.
During 2000, the Company accepted the resignations of three senior executive
officers. As a result, Wyndham will pay severance subject to conditions set
forth in their respective employment agreements. Options awarded will continue
to vest for a period of two years following the date of resignation and will
remain exercisable under the terms of the stock option agreement. As of
December 31, 2001, the Company had accruals remaining of $1,730 for amounts due
under their employment contracts.
F-28
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Additionally, Patriot had assumed notes receivables from four former senior
executive officers. As a part of these senior executive officers' amended
employment contracts and separation agreements, the maturity dates of these
notes were extended from dates ranging from July 31, 2004 through April 2006.
As of December 31, 2001, these promissory notes had an outstanding balance of
$18,121, including accrued interest. The notes bear interest at 6% per annum
and are secured by the pledge of shares of the Company held by the note
obligators. These notes receivable and related accrued interest are receivables
from shareholders in the statement of shareholders' equity.
Earnout Obligations
In connection with the merger with the hospitality business of CHCI
International Inc. ("CHCI") and the acquisition of Gencom American Hospitality
("GAH"), the Company may be obligated to pay CHCI shareholders and a Gencom
related entity additional purchase consideration in 2002, in each case based on
the performance of certain specified assets.
As part of the merger with Wyndham Hotel Corporation, Patriot entered into
an Omnibus Purchase and Sale Agreement with various descendants of Mr. and Mrs.
Trammell Crow, and various corporations, partnerships, trusts and other
entities beneficially owned or controlled by such persons (collectively, the
"Crow Family members"). As part of the agreement, Crow Family members and
certain Wyndham senior executives retained the right to receive additional
consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden La Guardia as
set forth in the Omnibus Purchase and Sale Agreement. In April 2000, the
Company paid $9,556 and $7,156 respectively, as additional consideration.
In connection with the Summerfield transaction, the purchase price was
subject to future purchase price adjustments. The Company was obligated to pay
in cash or OP units additional purchase consideration if certain performance
criteria were met based on (i) the market price of the paired shares through
the end of 1998, (ii) achievement of certain performance criteria through 2000
for managed hotels which were not open for business (or had recently opened) as
of the date of acquisition, and (iii) fulfillment of the Company's obligation
to develop seven hotels. A final payment of $32,825 under these obligations was
made in 2000.
Forward Equity Transactions
The Company was party to transactions with three counterparties involving
the sale of an aggregate of 13.3 million paired shares with related purchase
price adjustment mechanisms. The Company's aggregate obligation under the
forward equity transactions was approximately $335,800 at June 30, 1999.
Effective June 30, 1999, the Company settled in full all of the forward equity
transactions in cash, with part of the proceeds of the $1 billion equity
investment. The 100.7 million shares owned or held by the counterparties were
retired effective June 30, 1999.
Contingencies
On May 7, 1999, Doris Johnson and Charles Dougherty filed a lawsuit in the
Northern District of California against the Company, Patriot, the operating
partnerships and Paine Webber Group, Inc. This action, captioned Johnson v.
Patriot American Hospitality, Inc., et al., No. C-99-2153, was commenced on
behalf of all former holders of Bay Meadows stock during a class period from
June 2, 1997 to the date the lawsuit was filed. The action asserts securities
fraud claims and alleges that the purported class members were wrongfully
induced to tender their shares as part of the Cal Jockey merger based on a
fraudulent prospectus. The action further alleges
F-29
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
that defendants continued to defraud shareholders about their intentions to
acquire numerous hotels and incur massive debt during the class period. Three
other actions against the same defendants subsequently were filed in the
Northern District of California: (i) Ansell v. Patriot American Hospitality,
Inc., et al., No. C-99-2239 (filed May 14, 1999), (ii) Sola v. Paine Webber
Group, Inc., et al., No. C-99-2770 (filed June 11, 1999), and (iii) Gunderson
v. Patriot American Hospitality, Inc., et al., No. C-99-3040 (filed June 23,
1999). Another action with substantially identical allegations, Susnow v.
Patriot American Hospitality, Inc., et al., No. 3-99-CV1354-T (filed June 15,
1999), also subsequently was filed in the Northern District of Texas. By order
of the Judicial Panel on Multidistrict Litigation, these actions along with
certain actions identified in the following paragraph have been consolidated in
the Northern District of California for consolidated pretrial purposes. On or
about August 15, 2001, the court granted the defendants' motions to dismiss the
action, dismissing some of the claims with prejudice and granting leave to
replead certain other claims in the complaint. On or about October 15, 2001,
the plaintiffs filed an amended complaint seeking monetary damages but did not
specify the amount of damages being sought. On December 20, 2001, the
defendants moved to dismiss the amended complaint. The defendants' motion has
not yet been fully submitted to the Court. The Company intends to defend the
suits vigorously.
On or about June 22, 1999, a lawsuit captioned Levitch v. Patriot American
Hospitality, Inc., et al., No. 3-99-V1416-D, was filed in the Northern District
of Texas against the Company, Patriot, James D. Carreker and Paul A. Nussbaum.
This action asserts securities fraud claims and alleges that, during the period
from January 5, 1998 to December 17, 1998, the defendants defrauded
shareholders by issuing false statements about Wyndham and Patriot. The
complaint was filed on behalf of all shareholders who purchased shares of the
Company's capital stock and Patriot's capital stock during that period. Three
other actions, Gallagher v. Patriot American Hospitality, Inc., et al., No.
3-99-CV-1429-L, filed on June 23, 1999, David Lee Meisenburg, et al.,
v. Patriot American Hospitality, Inc., Wyndham International, Inc., James D.
Carreker, and Paul A. Nussbaum Case No. 3-99-CV1686-X, filed July 27, 1999 and
Deborah Szekely v. Patriot American Hospitality, Inc., et al., No.
3-99-CV1866-D, filed on or about August 27, 1999, allege substantially the same
allegations. By orders of the Judicial Panel on Multidistrict Litigation, these
actions have been consolidated with certain other shareholder actions discussed
in the above paragraph and transferred to the Northern District of California
for consolidated pre-trial purposes. On or about August 15, 2001, the court
granted the defendants' motions to dismiss the action, dismissing some of the
claims with prejudice and granting leave to replead certain other claims in the
complaint. On or about October 15, 2001, the plaintiffs filed an amended
complaint seeking monetary damages but did not specify the amount of damages
being sought. On December 20, 2001, the defendants moved to dismiss the amended
complaint. The defendants' motion has not yet been fully submitted to the
court. The Company intends to defend the suits vigorously.
The Company has received a draft complaint which threatens to assert claims
on behalf of Golden Door, LLC, Golden Springs, LLC, Golden Door, Inc., Deer
Springs Ranch, LLC, Deborah Szekely and Sarah Livia Brightwood. The potential
plaintiffs appear to be the same as the plaintiffs who filed the action
discussed above, captioned Deborah Szekely v. Patriot American Hospitality,
Inc., etal., No. 3-99-CV1866-D. However, the draft complaint sets forth
different allegations. The draft complaint purports to assert claims against
the Company, Patriot and our operating partnerships for securities fraud under
California securities code, common law fraud, breach of fiduciary duty and
deceit in connection with the purchase by Patriot of the Golden Door Spa in
February 1998. The draft complaint seeks compensatory damages for the alleged
lost value of the potential plaintiff's stock and other unspecified damages.
Although the Company has received a draft complaint, to date no complaint has
been served.
On or about May 8, 2001, a demand for arbitration was filed on behalf of
John W. Cullen, IV, William F. Burruss, Heritage Hotel Management & Investment
Ltd. and GH-Resco, L.L.C. naming one of the operating
F-30
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
partnerships as a respondent. A similar arbitration was originally filed on or
about October 26, 2000 against the Company. The Supreme Court of the State of
New York, however, ruled that the Company did not agree to arbitrate any claims
with the claimants and stayed the arbitration with respect to the Company. The
claimants then recommended an identical arbitration, dropped the Company and
named the operating partnership as a respondent. The demand for arbitration
claims that the claimants and the operating partnership are parties to a
contribution agreement dated February 28, 1997 and that the operating
partnership is in breach of that agreement. The claimants assert that the
operating partnership breached its agreement to pay respondents additional
consideration under the contribution agreement by, among other things,
allegedly denying the claimants compensation due to them in connection with
various transactions initiated by the claimants and provided to the operating
partnership, which allegedly provided the operating partnership with growth and
added revenue. In addition, the claimants assert that the operating partnership
failed to provide the claimants with various other amounts due under the
contribution agreement, failed to indemnify the claimants for certain expenses
and intentionally and negligently mismanaged the operating partnership's
business. The claimants do not specify the amount of damages sought. The
Company intends to defend the claims vigorously.
The Company was named as a defendant in four lawsuits stemming from hotels
charging energy surcharges in addition to room rates. The lawsuits were filed
in California (Bryant v. Wyndham International, Inc. and Judd v. Wyndham
International, Inc.), Illinois (Nicolloff v. Wyndham International, Inc.) and
Florida (Soper v. Wyndham International, Inc.). All of these cases are class
actions, with two being on behalf of purported nationwide classes. The basis
for each of the cases is that an energy surcharge was not disclosed at the time
the room rate was quoted, and the cases allege various causes of action for
breach of contract and unfair business practices under state law. Additionally,
the attorneys general of Florida, Texas, New Jersey and California are
investigating the issue of energy surcharges. The Company has received
subpoenas in Florida, Texas and New Jersey. Finally, the Office of Consumer
Affairs of Suffolk County, New York received a complaint related to an energy
surcharge, and has asked for a response. The Company has agreed to settle the
two California cases (Bryant and Judd) and plaintiffs' counsel have agreed to
dismiss the Illinois and Florida cases. The settlements and dismissals will
resolve all of the pending lawsuits. The basic terms of the settlement are that
each person who paid an energy surcharge will be entitled to a coupon for $15
(not in thousands) off a future night's stay. If the redemption rate of these
coupons is less than 6%, the Company will make up the difference by donating
room nights, conference rooms, ballrooms or the equivalent to charitable or
governmental entities. However, in no event will this amount exceed $1.5
million. Additionally, the Company has agreed to pay plaintiff's attorneys'
fees of up to $410. If the court preliminarily approves the settlement and
certifies settlement class, notice will be mailed to the class members, who
will have an opportunity to object or opt out of the settlement. If more than
10% of the class members opt out of the settlement, the Company can void the
settlement. Then there will be a hearing for the court to finally approve the
settlement. The Company has not resolved any of the attorney general actions.
The Company is a party to a number of other claims and lawsuits arising out
of the normal course of business. However, the Company does not consider the
ultimate liability with respect to these other claims and lawsuits to be
material in relation to the consolidated financial condition or operations of
the Company.
9. Related Party Transactions:
Crow Family Members
During 2001, 2000 and 1999, the Company recognized as revenue hotel
management and service fees in the aggregate amount of approximately $6,681,
$8,900 and $6,460, respectively, from the partnerships owning the hotels.
Various descendants of Mr. and Mrs. Trammell Crow and various corporations,
partnerships, trusts and other entities beneficially owned or controlled by
such descendants hold an ownership interest in each of these
F-31
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
hotels. The Company will refer to these descendants as the "Crow family
members". The Company received these payments as reimbursements for certain
administrative, tax, legal, accounting, finance, risk management, sales and
marketing services that were provided to these hotels.
During 1996, certain of the former senior executive officers incurred
indebtedness to Wyndham Finance Limited Partnership, or WFLP, a partnership
owned by the Crow family members. Such promissory notes, which are payable to
the Company, accrue interest at 6% per annum and are secured by the pledge of
shares of class A common stock held by the note obligor. As part of these
former senior executive officers' amended employment agreements and separation
agreements, the maturity dates of these notes were extended to dates ranging
from July 31, 2004 through April 19, 2006. As of December 31, 2001, these
promissory notes had an aggregate outstanding balance of $18,121 including
accrued interest.
As of December 31, 2001, Wynright Insurance, an entity owned by the Crow
family members, owed the Company $3,700.
In 2001, the Company made payments in the aggregate amount of $288 to the
Kinetic Group Limited Partnership, an entity 50% owned by Trammell Crow Company
and 50% owned by an entity owned by the Crow family members. The Company made
the payments pursuant to the terms of an agreement entered into following the
purchase of the Kinetic Group Limited Partnership in August 2000.
In August 2000, the Company amended its management agreement for the Wyndham
Anatole Hotel, which is owned by a limited partnership owned by the Crow family
members. This amendment, among other things, extended the termination date of
the management agreement to August 31, 2020. In consideration for this
amendment, the Company paid $67,000 to the hotel owner and agreed to make
certain other loans, investments and financial accommodations for the benefit
of the hotel owner and the hotel. These other loans, investments and financial
accommodations include:
. extending the maturity date of a $10,000 loan that was made to the hotel
owner in 1997 from May 9, 2004 to the date that is 180 days after the
management agreement expires or is terminated, which loan was made in
connection with the renovation of the Trinity Hall exhibit hall located
at the hotel;
. investment of $4,000 in the hotel to convert a portion of the Verandah
Club health club located at the hotel to a Golden Door City Spa;
. investment of an additional $10,000 in the hotel for expansion of a
ballroom and upgrades of meeting and exhibit space; and
. providing a $21,000 letter of credit as partial security for the hotel's
primary mortgage indebtedness and a preferred financial return to the
hotel owner.
The $4,000 investment must be repaid from the hotel's health club and spa
income, if any, in excess of specific target performance amounts. Any amounts
not paid by August 31, 2020 or the date of any earlier termination of the
management agreement will be canceled. Under the terms of the $10,000
investment, the Company will receive a 12% per annum required return, and the
investment must be repaid on August 31, 2020 or in connection with any earlier
termination of the management agreement.
As part of the purchase and sale agreement of two hotels, Crow Family
members and certain Wyndham senior executives retained the right to receive
additional consideration on April 30, 2000 based on a formula pertaining to the
performance of Wyndham Riverfront New Orleans and Wyndham Garden La Guardia. In
April
F-32
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
2000, the Company paid $9,556 and $7,156 respectively, as additional
consideration. Pursuant to a promissory note, the Company previously loaned
$1,920 to WHC-LG Hotel Partners, LP, an entity owned by the Crow family
members. The loan bears interest at 9.00% and matures in December 2005. As of
December 31, 2001, principal and accrued interest in the amount of $2,424
remained outstanding on the loan.
The Company previously advanced $473 to San Juan Associates, LP SE, an
entity owned primarily by the Crow family members. The advance bears interest
at 14.50% and is payable as the related hotel's cash flows permit. As of
December 31, 2001, principal and accrued interest in the amount of $767
remained outstanding on the advance. The Company also advanced an additional
$2,095 to San Juan Associates, LP SE. The Company is not accruing interest on
this advance, which is payable when permanent financing becomes available.
The Company made rent payments totaling $1,417 related to an agreement with
an affiliate of Mr. Harlan Crow to lease office space for the Company's
corporate headquarters in Dallas, Texas in 1999. During 1999, the affiliate of
Mr. Crow sold its interest in the building.
During 1999, $371 was paid to Wyndham Travel Management Ltd, an entity owned
by Lucy Billingsley (daughter of Mr. Trammell Crow) for travel services
provided to Wyndham.
Transactions with Certain of our Directors
During 2001, 2000 and 1999, the Company received hotel management and
service fees in the aggregate amount of approximately $6,133, $6,400 and
$12,700, respectively, from the owners of hotels in which Karim Alibhai, Rolf
Ruhfus, Sherwood Weiser or Milton Fine holds an ownership interest.
In September 2000, the Company entered into a Memorandum of Understanding
with an entity affiliated with Mr. Alibhai concerning receivables due to the
Company from entities affiliated with Mr. Alibhai. As of December 31, 2001, six
hotels in which Mr. Alibhai holds an ownership interest owed approximately
$4,600 for management fees, service fees, and reimbursements.
As of December 31, 2001, two hotels in which Mr. Weiser holds an ownership
interest owed approximately $2,600 for management fees.
Norman Brownstein, one of our directors, serves as chairman of Brownstein
Hyatt & Farber P.C., a law firm that has advised the Company on certain matters
related to litigation and real property transactions. During 2001, the Company
paid Brownstein Hyatt & Farber, P.C. approximately $44 in legal fees.
Messrs. Alibhai and Weiser may each be deemed to have shared beneficial
ownership of 48.4% of the outstanding common stock of Interstate Hotels
Company, or Interstate, by virtue of their indirect control of certain
partnerships that own preferred stock and notes convertible into 48.4% of the
outstanding common stock of Interstate. The Company previously held a 55%
preferred interest in Interstate Hotel, LLC, or IHC, LLC, a significant
subsidiary of Interstate. On July 12, 2001, IHC, LLC, pursuant to a redemption
agreement, called for the redemption of the preferred interest in IHC, LLC. In
consideration for this redemption, the Company received $8.25 million in cash
and two promissory notes in the amounts of $750 and $3,700, respectively. The
notes bear interest at 9.75% and mature on July 1, 2002 and July 1, 2004,
respectively.
In connection with the merger of Interstate and Patriot, Interstate,
Patriot, Mr. Fine and certain other parties entered into a shareholders
agreement, dated December 2, 1997. Pursuant to the terms of the shareholders
agreement, Patriot must indemnify Mr. Fine for certain tax liabilities until
December 2, 2007 or Mr. Fine's death, whichever occurs first.
F-33
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
In connection with the sale on August 16, 1996 of certain property to the
Company from an entity affiliated with Mr. Alibhai, the Company granted the
entity affiliated with Mr. Alibhai a profit participation interest. If the
Company sells, exchanges or enters into a similar transaction with respect to
the property and receives the minimum return set forth in the governing
agreement, the entity affiliated with Mr. Alibhai will be entitled to receive
25% of the proceeds in excess of the minimum return.
In September 2000, the Company entered into a consulting agreement, which
has a term of three years, with Lynn Swann. Pursuant to the terms of the
consulting agreement, Mr. Swann agreed to, among other things, make a certain
number of personal appearances on the Company's behalf as well as make himself
available for a certain number of advertisements in order to promote the
Company. In return for his services, the Company must pay Mr. Swann $200 per
year. In addition, on September 1, 2000, the Company granted Mr. Swann an
option to purchase 125,000 shares of class A common stock at an exercise price
of $2.19 per share. The option vests in three equal installments on the first,
second and third anniversaries of the date of grant.
One of the Company's indirect subsidiaries, GAH-II, L.P., or GAH, owns legal
title to a 79% limited partnership interest in Braeswood Hospitality, L.P., or
Braeswood, and to 100% of the common stock of Braeswood Operating Corporation,
or Braeswood GP, the sole general partner of Braeswood. GAH became a subsidiary
pursuant to transactions concluded in 1997 and 1998. In 1994, before the
Company's involvement, Braeswood became the sublessee of a hotel in Houston,
Texas, and executed a promissory note. GAH guaranteed the sublease and entered
into a management agreement for the hotel with Braeswood. In September 1995,
Patriot American Hospitality, L.P., now known as Patriot American Hotel Notes
Partnership, L.P., or PAH, sold its 50% interest in GAH to CHC REIT Management
Corporation, or CRMC, which at that time was not affiliated with the Company.
PAH and the other owner of GAH at the time, Gencom Hospitality, L.P., or
Gencom, an affiliate of Mr. Alibhai, gave several indemnities whereby each of
PAH and Gencom agreed to restore to GAH 50% of any losses sustained in respect
of Braeswood's obligations. Also as part of that transaction, GAH terminated
its management agreement with Braeswood and agreed that it was holding title to
its interests in Braeswood and Braeswood GP for the benefit of Gencom and PAH.
Gencom also assumed responsibility for the operation and management of
Braeswood. In 1998, one of the Company's subsidiaries acquired the parent of
CRMC and thus succeeded to the rights of CRMC in respect of the September 1995
indemnities from PAH and Gencom. Additionally, in October 1997, as part of the
acquisition of the interests of Mr. Alibhai and certain of his affiliates in
GAH, Mr. Alibhai, as successor to Gencom, reaffirmed his September 1995
indemnity and gave an additional indemnity in respect of losses with respect to
Braeswood and Braeswood GP attributable to the interest in GAH then being
acquired. In November 2000, the sublessor under the sublease to Braeswood and
holder of the note from Braeswood asserted claims of approximately $2.65
million with respect to breach of the sublease and nonpayment of the note.
Certain of the Company's subsidiaries are actively pursuing their rights under
the foregoing indemnities.
Effective March 31, 2000, in connection with the Sierra transaction, certain
assets were sold to an entity affiliated with Mr. Rolf E. Rufhus, for net cash
proceeds of $23,045 and alleviation of a future obligation due under the
Summerfield transaction of $29,770.
In 2000 and 1999, the Company incurred lease expenses in the aggregate
amount of $882 and $3,150, respectively, for lease obligations to entities
owned in whole or in part by Mr. Ruhfus. As a part of the Sierra transaction,
these leases were sold to an entity affiliated with Mr. Ruhfus. In 1999, the
Company paid $88 as a consulting fee to Mr. Ruhfus.
F-34
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Loans to Certain of our Executive Officers
In 1999, in connection with his employment agreement, the Company loaned Mr.
Kleisner $500 pursuant to a recourse note for use in purchasing a residence in
Dallas, Texas. The note bears no interest. In 1999 and 2001, in connection with
his employment agreement, the Company also loaned Mr. Kleisner $850 and $665,
respectively, pursuant to nonrecourse notes. The notes bear interest at a rate
equal to the rate on our senior credit facility. As of December 31, 2001, the
principal and accrued interest in the amount of $2,000 remained outstanding on
these loans.
In 2000, in connection with his employment agreement, the Company loaned Mr.
Teng $1,000 pursuant to a recourse note. The note bears interest at a rate
equal to the rate on the senior credit facility. Pursuant to the terms of his
employment agreement, subject to Mr. Teng's continuing employment, the Company
has agreed to forgive the principal amount of the note and all accrued but
unpaid interest on such forgiven principal amount in equal monthly installments
over a three-year period. As of December 31, 2001, principal and accrued
interest in the amount of $444 remained outstanding on the loan.
In 2001, in connection with his employment agreement, the Company loaned Mr.
Champ $250 pursuant to a recourse note. The note bears no interest. Pursuant to
the terms of his employment agreement, subject to Mr. Champ's continuing
employment, the Company has agreed to forgive the principal amount of the note
in equal annual installment over a five-year period. In addition, the Company
also loaned Mr. Champ $450 pursuant to a nonrecourse note. The note bears
interest at a rate equal to the rate on the senior credit facility. As of
December 31, 2001, principal and accrued interest in the amount of $700
remained outstanding on these loans.
Apollo Investors
During 2001, 2000 and 1999, the Company recognized as revenue hotel
management, service and franchise fees in the aggregate amount of $1,358,
$1,771 and $316, respectively, from hotels in which certain entities affiliated
with the Apollo Investors hold an ownership interest.
In 2000, the Company entered into a time share agreement with Tempus Resorts
International, Ltd., or Tempus, an entity affiliated with the Apollo Investors.
The time share operates under the name Wyndham Vacation Club.
In 2000, the Company entered into a contract with Rare Medium, Inc., a
company in which certain entities affiliated with the Apollo Investors hold an
equity interest. Under this contract, Rare Medium, Inc. will, on a project
basis, provide software, services related to e-commerce, and similar technology
to the Company. The agreement has a three-year term but may be terminated by
the Company at any time. During 2001, the Company paid Rare Medium, Inc. fees
totaling $2,600 for software and services provided.
10. Minority Interest in the Operating Partnerships:
Pursuant to the Operating Partnerships' respective limited partnership
agreements, the common limited partners of the Operating Partnerships,
including certain affiliates of Patriot, received rights (the "Redemption
Rights") that enable them to cause the Operating Partnerships to redeem each
pair of OP units (consisting of one OP unit of the Patriot Partnership and the
one OP unit of the Wyndham Partnership) in exchange for cash equal to the value
of a paired share (or, at the Company's election, the Company may purchase each
pair of OP units offered for redemption for one share of common stock). In the
case of the Wyndham Partnership's Class A preferred OP units and Class C
preferred OP units described below, each of these preferred OP units may be
F-35
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
redeemed for cash equal to the value of a share (or, at Wyndham's election,
Wyndham may purchase each preferred OP unit offered for redemption for one
share of common stock). The Redemption Rights generally may be exercised at any
time after one year following the issuance of the OP units. The number of
shares of common stock issuable upon exercise of the Redemption Rights will be
adjusted for share splits, mergers, consolidations or similar pro rata
transactions which would have the effect of diluting the ownership interests of
the limited partners of the Operating Partnerships or the shareholders of the
Company.
During 2000, 30,719 OP units in the Patriot Partnership and Wyndham
Partnership were redeemed for cash of $64. As of December 31, 2001 and 2000,
the Patriot Partnership and Wyndham Partnership had 1,139,247 OP units that
were held by minority partners, which represent the minority interest in the
operating partnerships.
11. Shareholders' Equity:
Capital Stock
On June 30, 1999, Wyndham and Patriot completed a $1 billion equity
investment and related restructuring (the "Restructuring") of the two companies
in accordance with the terms of the securities purchase agreement and related
restructuring plan between the Wyndham and Patriot and the investors.
As required by the Restructuring Plan, Wyndham and Patriot each effectuated
a one-for-twenty reverse stock split (the "Reverse Stock Splits") of their
respective common stock. In addition, the Amended and Restated Certificate of
Incorporation of Wyndham was also further amended and restated (the "Wyndham
Charter Amendment") so that each share of Wyndham common stock, par value $0.01
per share, issued and outstanding immediately prior to the effectiveness of the
Wyndham Charter Amendment was automatically converted into one share of Wyndham
class A common stock, par value $0.01 per share.
Under the terms of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of March 26, 1999, by and among Patriot, Wyndham and
Wyndham International Acquisition Subsidiary, Inc. ("Acquisition Sub"),
Acquisition Sub was merged with and into Patriot (the "Merger"). As a result of
the Merger, Patriot became a wholly-owned subsidiary of Wyndham. Each
outstanding share of common stock of Acquisition Sub was converted into one
share of the common stock of Patriot, $0.01 par value per share ("Patriot
Common Stock"). Pursuant to the Merger Agreement each share of Patriot common
stock was then converted into 19 shares of Wyndham common stock.
Prior to the Restructuring, the shares of common stock of Wyndham and shares
of common stock of Patriot were "paired" pursuant to a pairing agreement and
traded together as a single unit. The pairing agreement between the companies
was terminated as part of the Restructuring. The end result of the Reverse
Stock Splits, the Wyndham Charter Amendment and the Merger was to convert each
previously outstanding paired share into one share of Wyndham class A common
stock.
The Company has the authority to issue 750,000,000 shares of class A common
stock, 750,000,000 shares of class B common stock, par value $0.01 per share,
and 150,000,000 shares of preferred stock, par value $0.01.
Effective June 30, 1999, Wyndham completed a $1 billion equity investment
with a group of investors. Pursuant to the terms of this investment, Wyndham
issued 9.55 million shares of series B preferred stock in exchange for gross
proceeds of $955,000. On July 1, 1999, the remaining $45,000 was funded through
the transfer of one of the investor's loan receivable from PAH Realty Company,
LLC which is secured by a
F-36
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
mortgage on the Battery March Hotel, to Wyndham for the purchase of 450,000
shares of series B preferred stock. Wyndham incurred approximately $77,571 in
costs attributable to the equity investment. This series B preferred stock has
the following terms, among others:
. dividends payable quarterly, on a cumulative basis, at a rate of 9.75%
per year;
. for the first six years, the dividends are structured to ensure an
aggregate fixed cash dividend payment of $29,250 per year, so long as
there is no redemption or conversion of the investors' series B preferred
stock; therefore, for that period, dividends are payable partly in cash
and partly in additional shares of series B preferred stock, with the
cash component initially equal to 30% for the first dividend and
declining over the period to approximately 19.8% for the final dividend
in year six;
. for the next four years, dividends are payable in cash or additional
shares of series B preferred stock as determined by the Board of
Directors; and, after year 10, dividends are payable solely in cash;
. if any dividends are paid on the Wyndham class A common stock, additional
dividends will be paid in the amount that would have been paid on the
shares of Wyndham class A common stock into which the series B preferred
stock is then convertible;
. if a change in control or a liquidation of Wyndham occurs within six
years following the investment, any dividends remaining for the six years
will be accelerated and paid;
. not redeemable by Wyndham for six years, except that up to $300 million
of the series B preferred stock may be redeemed during the 170 day period
following the closing of the investment;
. voting with the Wyndham common stock on an as-converted basis on matters
submitted to the common stockholders and voting as a separate class on
specified matters, with special rules applying to the election of
directors; and
. convertible, at the holder's option, into a number of shares of Wyndham
class A common stock equal to $100.00 divided by the conversion price,
initially equal to $8.59 but subject to potential downward adjustments.
The investors will also have preemptive rights for the first five years
following their investment as long as they own more than 15% of the Wyndham
common stock.
For a period of 170 days following the completion of the investment, Wyndham
was entitled to redeem up to $300 million of the series B preferred stock at a
redemption price of $102.00 per share (102% of the stated amount) plus all
accrued dividends, with the proceeds from a rights offering. In the fall of
1999, Wyndham issued to the holders of its class A common stock rights and
holders of OP units in the Operating Partnerships to subscribe for up to $300
million of series A preferred stock, with the proceeds from the offering to be
used to redeem a portion of the series B preferred stock. The rights offering
was completed December 13, 1999 with the issuance by Wyndham of 55,992 shares
of series A preferred stock in exchange for gross proceeds of $5,599. Wyndham
incurred approximately $1,151 in costs attributable to the issuance of this
stock. Wyndham used these proceeds to redeem 55,992 shares of series B
preferred stock at a redemption price of $102.00 per share and accrued
dividends of $2.0583 per share, or an aggregate of $5,826 in cash. The series A
preferred stock generally has the same economic terms as the series B preferred
stock but has no voting rights, except as required by law and except for a
limited right to elect two directors if dividends are in arrears for six
quarterly periods.
F-37
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
Shareholders Rights Agreement
Wyndham is party to a Shareholder Rights Agreement dated as of June 29, 1999
(the "Rights Agreement"). Pursuant to the Rights Agreement, the Board of
Directors of Wyndham declared (a) for each outstanding share of common stock of
Wyndham outstanding on July 9, 1999 (the "Record Date"), a dividend
distribution of one preferred stock purchase right (a "Right"), and (b) for
each outstanding share of Wyndham series A or series B preferred stock
outstanding on the Record Date, a dividend distribution of a number of Rights
equal to the number of shares of common stock into which each such share is
convertible. In addition, Rights will automatically attach to each share of
common stock, series A preferred stock and series B preferred issued between
the Record Date and the Distribution Date (as defined in the Rights Agreement).
Each Right entitles the registered holder thereof to purchase from Wyndham one
one-thousandth of a share of series C participating preferred stock, par value
$0.01 per share, at a cash exercise price of $35.00, subject to adjustment. The
Rights may only become exercisable under certain circumstances involving actual
or potential acquisitions of beneficial ownership of 15% or more of the class A
common stock, subject to certain exceptions. The Rights will expire in June
2009 unless earlier exercised or redeemed.
Dividends and Stock Splits
The holders of the preferred stock are entitled to receive on a quarterly
basis, a dividend equal to 9.75% per annum on a cumulative basis payable in
cash and additional shares of preferred stock. If the cash dividends on the
preferred stock are in arrears and unpaid for a period of 60 days or more, then
an additional amount of dividends shall accrue at a rate per annum equal to
2.0% of the stated amount of each share of preferred stock then outstanding
from the last payment date on which cash dividends were to be paid in full
until such time as all cash dividends in arrears have been paid in full. Such
additional dividends shall be cumulative and payable in additional shares of
preferred stock. As of December 31, 2001, the Company had accrued $11,590 at a
rate of 2.0% per annum as an additional dividend as cash dividends on the
preferred stock have been in arrears and unpaid for a period of more than 60
days.
On December 31, 2001, the Company issued approximately 1,148 shares of
series A preferred stock and 210,757 shares of series B preferred stock. The
Company deferred payment of the cash portion of the dividend of approximately
$7,312. The amount has been included in accounts payable and accrued expenses
in the accompanying consolidated balance sheet.
On September 30, 2001, the Company issued approximately 1,120 shares of
series A preferred stock and 205,736 shares of series B preferred stock. The
Company deferred payment of the cash portion of the dividend of approximately
$7,312. The amount has been included in accounts payable and accrued expenses
in the accompanying condensed consolidated balance sheet.
On June 30, 2001, the Company paid a quarterly dividend, at an annual rate
of 9.75%, on its series A and B preferred stock. The dividend was paid
partially in cash and partially in additional shares of preferred stock. The
Company paid a total of $7,312 in cash and issued approximately 1,094 shares of
series A preferred stock and 200,840 shares of series B preferred stock.
On March 31, 2001, the Company paid a quarterly dividend, at an annual rate
of 9.75%, on its series A and B preferred stock. The dividend was paid
partially in cash and partially in additional shares of preferred stock. The
Company paid a total of $7,312 in cash and issued approximately 1,070 shares of
series A preferred stock and 196,063 shares of series B preferred stock.
On December 31, 2000, the Company paid a quarterly dividend, at an annual
rate of 9.75%, on its series A and B preferred stock. The dividend was paid
partly in cash and partly in additional shares of preferred stock. The Company
paid a total of $7,312 in cash and issued approximately 1,046 shares of series
A preferred stock and 191,404 shares of series B preferred stock.
F-38
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
On September 30, 2000, the Company paid a quarterly dividend, at an annual
rate of 9.75%, on its series A and B preferred stock. The dividend was paid
partly in cash and partly in additional shares of preferred stock. The Company
paid a total of $7,312 in cash and issued approximately 1,020 shares of series
A preferred stock and 186,846 shares of series B preferred stock.
On June 30, 2000, the Company paid a quarterly dividend, at an annual rate
of 9.75%, on its series A and B preferred stock. The dividend was paid partly
in cash and partly in additional shares of preferred stock. The Company paid a
total of $7,312 in cash and issued approximately 996 shares of series A
preferred stock and 182,400 shares of series B preferred stock.
On March 31, 2000, the Company paid a quarterly dividend, at an annual rate
of 9.75%, on its series A and B preferred stock. The dividend was paid partly
in cash and partly in additional shares of preferred stock. The Company paid a
total of $7,312 in cash and issued approximately 972 shares of series A
preferred stock and 178,062 shares of series B preferred stock.
Stock Incentive Plans
The Company has adopted certain employee incentive programs for the purpose
(i) attracting and retaining employees, directors and others, (ii) providing
incentives to those deemed important to the success of the Company and (iii)
associating the interests of these individuals with the interests of the
Company and its shareholders through opportunities for increased stock
ownership. Certain of the stock options and restricted stock grants issued
under the incentive stock programs vested and became non-forfeitable with
consummation of the $1 billion equity investment.
The 1997 Incentive Plans. Prior to their amendment in 1999, the 1997
Incentive Plans provided for the award of stock options, stock awards or
performance shares to each eligible employee and director of Patriot and Old
Wyndham. Under each 1997 Incentive Plan, the aggregate number of paired shares
available for grants of awards was the sum of (i) 3,000,000 paired shares plus
(ii) 10% of any future net increase in the total number of shares of paired
common stock.
Under the 1997 Incentive Plans, each independent director could elect to
take all or a portion of his/her fees in the form of deferred paired share
units. Prior to the amendment in 1999, the independent directors of Patriot and
Old Wyndham were automatically granted a non-qualified stock option,
immediately exercisable in full, to acquire 10,000 paired shares at an exercise
price per paired share equal to the fair market value of a paired share on the
date of grant. Option terms were fixed by the Compensation Committees of
Patriot and Old Wyndham and may not exceed ten years from the date of grant.
On June 29, 1999, the 1997 Incentive Plans were amended, as a result of
Patriot's merger into Wyndham. As part of the merger, Wyndham assumed Patriot's
obligations under each existing option to purchase shares of Patriot common
stock that was outstanding immediately prior to the merger. The assumed options
did not terminate in connection with the merger and continue to have, and be
subject to, the same terms and conditions set forth in the stock option plans
and agreements in effect immediately prior to the merger. All references to
Patriot in the assumed options are now deemed to be references to Wyndham and
each option is exercisable for one share of Wyndham class A common stock.
On May 26, 2000, the stockholders approved an amendment to the 1997
Incentive Plan, as amended and restated as of June 29, 1999 (the "Plan"). The
amendment increased the number of shares available for grant under the Plan to
an amount equal to 7.5% of the shares of class A common stock on a fully
diluted basis.
F-39
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
On May 24, 2001, the stockholders approved an amendment to the Plan, the
Second Amendment and Restatement of Wyndham International, Inc. 1997 Incentive
Plan, (the "Amended Plan"). Among other things, the amendment increases the
number of shares available for grant under the Amended Plan to an amount equal
to 10.0% of the outstanding shares of class A common stock on a fully diluted
basis. Under the Amended Plan, "fully diluted basis" means the assumed
conversion of all outstanding shares of series A and B convertible preferred
stock, the assumed exercise of all outstanding stock options and the assumed
conversion of all units of partnership interest in the Patriot Partnership and
the Wyndham Partnership that are subject to redemption. The Amended Plan also
permits the compensation committee to provide in the agreement governing a
restricted unit award that following a change in control in which the shares of
class A common stock are changed into or exchanged for a different kind of
stock or other securities or cash or other property, the unvested portion of a
restricted unit award shall thereafter upon vesting be settled in stock, other
securities, cash or other property upon such terms and subject to such
conditions as the compensation committee may determine.
The Amended Plan also (i) deleted certain provisions from the Plan that by
their terms are no longer applicable to the Company following the restructuring
in June 1999, (ii) added a provision requiring that the compensation committee,
which administers the Plan, have at least two members, and (iii) made certain
other minor provisions to the Plan.
Stock Grant Awards
During 1997, pursuant to the Incentive Plans, the Board of Directors awarded
547,867 paired shares of common stock to certain officers of Patriot and Old
Wyndham. In 1999, 121,053 shares were awarded to an officer of the Company. The
Company recorded a total of $611 and $12,897 (the aggregate value of the common
stock based on the market price at the date of the award) as unearned stock
compensation in 1999 and 1997, respectively, which is being amortized over the
vesting periods of one to five years. For 2000 and 1999 amortization of stock
compensation related to stock grants of $255 and $5,850, respectively, is
included in general and administrative expense in the accompanying consolidated
financial statements. Amounts had fully amortized in 2000, thus no deferred
compensation expense was recognized for these awards in 2001.
During 2001, 2000 and 1999, pursuant to the 1997 Incentive Plans, the Board
of Directors awarded 10,837,476 (including those amounts awarded through the
tender offer, discussed below), 200,000 and 1,036,332 restricted awards,
respectively, to certain officers and employees of the Company. The Company has
recorded $2,104, $1,158 and $10,004 in 2001, 2000 and 1999, respectively,
related to the restricted awards and such amount is included in general and
administrative expense in the accompanying consolidated financial statements.
Upon the consummation of the $1 billion equity investment, certain of the
stock grants and restricted awards issued under the incentive stock programs
fully vested. The deferred compensation expense of $6,987 was fully recognized
in general and administrative expense in 1999, as a result of the accelerated
vesting of these certain awards.
Tender Offer
In November 2001, the Company offered a voluntary exchange program for
certain eligible employees of the Company. Eligible employees holding options
granted on or after January 1, 2000 under the Amended Plan were able to
exchange those options for restricted unit awards. One restricted unit was
granted for each share of class A common stock underlying the eligible options
held by eligible employees. All tendered eligible options were cancelled upon
the expiration of the offer on December 18, 2001. The restricted units were
granted under
F-40
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
the Amended Plan and will vest on the third, fourth and fifth anniversaries of
the date of grant. Those restricted units awarded will result in additional
compensation expense. The expense will be based on the value of the shares of
class A common stock on the date of grant. The amount will be expensed as
compensation expense ratably over a period of five years commencing on the date
of grant. As a result of the offer, all eligible options that are not tendered
and accepted will be treated as variable awards. The total number of eligible
options to be tendered was 5,598,326, of which 5,324,976 were tendered.
Stock Option Awards
As of December 31, 2001, pursuant to the incentive plans, the Company has
authorized the grant of options for up to 14,224,582 shares with exercise
prices of $1.625 to $30.40 per share. As of December 31, 2001, 9,621,086 were
exercisable. During 2001, a total of 10,500 shares were issued pursuant to
exercise of options at an exercise of $2.00, resulting in net proceeds of $21.
As of December 31, 2000, 7,260,242 were exercisable; no options were exercised
during 2000. As of December 31, 1999, 3,995,711 options were exercisable; no
options were exercised during 1999.
SFAS No. 123 "Accounting for Stock-Based Compensation"
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for its compensatory employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weight-average assumptions for 2001, 2000, and 1999,
respectively: risk-free interest rates of 4.84%, 6.2%, and 5.78%; dividend
yields of 0%; volatility factors of the expected market price of the Company's
common stock of 1.084, 0.577, and 0.596 and a weighted average expected life of
the options of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair market value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options that have
vesting periods and are non-transferable.
F-41
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
2001 2000 1999
--------- --------- -----------
Basic
Pro forma net loss attributable to common shareholders $(266,178) $(434,641) $(1,146,361)
Pro forma earnings per share:......................... $ (1.58) $ (2.60) $ (7.11)
Diluted
Pro forma net loss attributable to common shareholders $(266,178) $(434,641) $(1,166,311)
Pro forma earnings per share:......................... $ (1.58) $ (2.60) $ (7.23)
A summary of the Company's stock option activity, and related information
for the years ended December 31 is as follows:
2001 2000 1999
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- --------
Outstanding, beginning of year................ 20,116 $8.23 14,410 $6.57 7,717 $19.28
Granted....................................... 365 2.01 8,491 1.98 11,450 4.69
Exercised..................................... (11) 2.00 -- -- -- --
Forfeited..................................... (6,246) 2.33 (2,785) 4.37 (4,757) 22.04
------ ----- ------ ----- ------ ------
Outstanding, end of year...................... 14,224 $6.07 20,116 $4.92 14,410 $ 6.57
====== ====== ======
Exercisable at end of year.................... 9,621 $7.35 7,260 $8.23 3,996 $10.77
Weighted average fair value of options granted
during year................................. $ -- $ -- $ 0.95
Exercise prices for options outstanding as of December 31, 2001 and 2000
ranged from $.61 to $30.40. The weighted average remaining contractual life of
those options was 4.7 and 7.4 years, respectively. Exercise prices for options
outstanding as of December 31, 1999 ranged from $2.6875 to $30.40. The weighted
average remaining contractual life of those options was 8.5 years.
12. Income Taxes:
The income tax provision of Wyndham for the year ended December 31, 2001,
2000 and 1999, respectively, consists of the following:
2001 2000 1999
--------- --------- --------
Current:
Federal...................................... $ 2,916 $ 3,405 $ 15,500
State........................................ 10,691 13,383 3,475
--------- --------- --------
Total current................................... 13,607 16,788 18,975
--------- --------- --------
Deferred:
Federal...................................... (90,645) (197,579) 546,983
State........................................ (19,400) (25,121) (1,447)
--------- --------- --------
Total deferred.................................. (110,045) (222,700) 545,536
--------- --------- --------
Total income tax (benefit) provision..... $ (96,438) $(205,912) $564,511
========= ========= ========
F-42
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
The reason for the difference between total tax expense and the amount
computed by applying the statutory Federal income tax rate of 35% to income
before income taxes is as follows:
2001 2000 1999
-------- --------- ---------
Tax at statutory rate............... $(74,590) $(183,054) $(171,967)
State income taxes.................. (8,709) (11,738) 2,028
Valuation allowance................. -- (8,109) 7,625
Goodwill............................ 3,724 3,700 34,387
One time Charge C-Corp Conversion... -- -- 675,000
Minority interest and other......... (16,863) (6,711) 17,438
-------- --------- ---------
Total income tax (benefit) provision $(96,438) $(205,912) $ 564,511
======== ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. On January 1, 1999,
Patriot, previously a REIT (non-taxable entity), converted to a C-corporation
and is now a subsidiary of Wyndham. Upon the conversion of the REIT to a
C-corporation, Wyndham recognized a deferred tax liability of $675,000 that was
recognized in continuing operations as a tax provision. Significant components
of Wyndham's deferred tax assets and liabilities for the year ended December
31, 2001 and 2000, respectively are as follows:
2001 2000
--------- ---------
Deferred tax assets:
Net operating losses............................ $ 151,245 $ 84,530
Disposition of assets........................... -- 2,687
Hedging instruments............................. 38,692 --
Other non-current assets........................ 17,002 21,879
--------- ---------
Total deferred tax assets................... 206,939 109,096
Valuation allowance............................. (17,382) (17,382)
--------- ---------
Net deferred asset....................... $ 189,557 91,714
========= =========
Deferred tax liabilities:
Depreciation.................................... (441,351) (467,690)
Management contracts and tradenames............. (36,454) (48,578)
Other non-current liabilities................... (2,011) (5,476)
--------- ---------
Total deferred tax liabilities.............. (479,816) (521,744)
--------- ---------
Net deferred income tax liability........ $(290,259) $(430,030)
========= =========
As of December 31, 2001, Wyndham and certain affiliated subsidiaries have
net operating loss carry forwards for federal income tax purposes of
approximately $348,000 which are available to offset future taxable income, if
any, through 2021.
13. Employee Benefit Plans:
The Company sponsors 401(k) retirement savings plans. Employees who are over
21 years of age and have completed one year of service are eligible to
participate in the plans. The aggregate expense under the plans totaled $978,
$733 and $506 for 2001, 2000 and 1999, respectively.
F-43
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
The Company maintains a self-insured group health plan through a Voluntary
Employee Benefit Association referred to hereinafter as VEBA. The plan is
funded to the limits provided by the Internal Revenue Service, and liabilities
have been recorded for estimated incurred but unreported claims. Aggregate and
stop loss insurance exists at amounts that limit exposure to the Company. The
Company has recognized expense related to the plan of $6,133, $3,206 and $2,415
for 2001, 2000 and 1999, respectively.
14. Segment Reporting:
The Company classifies its business into proprietary owned brands and
non-proprietary brand hotel divisions, under which it manages the business.
Wyndham is the brand umbrella under which all of its proprietary products
are marketed. It includes three four-star, upscale hotel brands that offer
full-service accommodations to business and leisure travelers, as well as the
five-star luxury resort brand.
Description of reportable segments
The Company has seven reportable segments: Wyndham Hotel & Resorts(R),
Wyndham Luxury Resorts, Summerfield Suites by Wyndham(TM),Wyndham Gardens(R),
other proprietary branded hotel properties, non-proprietary branded hotel
properties and other. Prior years' reportable segments have been restated to
conform to current year presentation.
. Wyndham Hotels & Resorts(R) are upper upscale, full-service hotel
properties that contain an average of 300 hotel rooms, generally between
15,000 and 250,000 square feet of meeting space and a full range of
guest services and amenities for business and leisure travelers, as well
as conferences and conventions. The hotels are located primarily in the
central business districts and dominant suburbs of major metropolitan
markets and are targeted to business groups, meetings, and individual
business and leisure travelers. These hotels offer elegantly appointed
facilities and high levels of guest service.
. Wyndham Luxury Resorts are five-star hotel properties that are
distinguished by their focus on incorporating the local environment into
every aspect of the property, from decor to cuisine to recreation. The
luxury collection includes the Golden Door Spa, one of the world's
preeminent spas.
. Wyndham Garden Hotels(R) are full-service properties, which serve
individual business travelers and are located principally near major
airports and suburban business districts. Amenities and services
generally include a three-meal restaurant, signature Wyndham Garden
Hotels(R) libraries and laundry and room service.
. Summerfield Suites by Wyndham(TM) offers guests the highest quality
lodging in the upper upscale all-suites segment. Each suite has a fully
equipped kitchen, a spacious living room and a private bedroom. Many
suites feature two bedroom, two bath units. The hotels also have a
swimming pool, exercise room and other amenities to serve business and
leisure travelers.
. Other proprietary branded hotel properties include Malmaison, Sierra
Suites, Clubhouse and hotels acquired in the Arcadian acquisition. As of
December 31, 2000, the Company has sold its interests in Sierra Suites,
Clubhouse, and the hotels acquired in the Arcadian acquisition and the
Malmaison properties. As of December 31, 2001, only one hotel remained
in this segment.
. Non-proprietary branded properties include all properties which are not
Wyndham branded hotel properties or other proprietary branded
properties. The properties consist of non-Wyndham branded assets, such
as Crowne Plaza(R), Embassy Suites(R), Marriott(R), Courtyard by
Marriott(R), Sheraton(R) and independents.
F-44
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
. Other includes management fee and service fee income, racecourse
facility revenue and expenses, interest and other income, general and
administrative costs, interest expense, depreciation and amortization
and other charges. General and administrative costs, interest expense
and depreciation and amortization are not allocated to each reportable
segment; therefore, they are reported in the aggregate within this
segment.
Factors management used to identify the reportable segments
The Company's reportable segments are determined by brand affiliation and
type of property. The reportable segments are each managed separately due to
the specified characteristics of each segment.
Measurement of segment profit or loss
The Company evaluates performance based on the operating income or loss from
each business segment. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
Wyndham Wyndham Summerfield Other Non
Year ended Hotels & Luxury Wyndham Suites by proprietary proprietary
December 31, 2001 Resorts Resorts Gardens Wyndham branded branded Other(1) Total
----------------- ---------- -------- -------- ----------- ----------- ----------- ----------- ----------
Total revenue.......... $1,042,415 $ 88,697 $ 70,090 $138,407 $ 4,297 $ 724,817 $ 36,707 $2,105,430
Operating income (loss) 243,050 18,031 10,429 22,562 602 171,728 (683,018) (216,616)
Segment assets......... 2,680,527 236,377 138,163 237,608 19,165 1,544,835 911,396 5,768,071
Capital additions...... 121,888 13,045 4,101 9,483 82 45,459 19,552 213,610
- --------
(1) Operating income (loss) for 2001 includes $24,159 of impairment charges
related to certain assets and $32,227 of charges related to losses on
derivative instruments.
Wyndham Wyndham Summerfield Other Non
Year ended Hotels & Luxury Wyndham Suites by proprietary proprietary
December 31, 2000 Resorts Resorts Gardens Wyndham branded branded Other(2) Total
----------------- ---------- -------- -------- ----------- ----------- ----------- ----------- ----------
Total revenue.......... $1,128,073 $103,654 $ 84,730 $142,442 $ 41,197 $ 921,507 $ 76,992 $2,498,595
Operating income (loss) 293,380 26,907 15,689 29,519 11,955 248,036 (1,150,991) (525,505)
Segment assets......... 2,644,924 247,766 138,017 252,844 14,371 1,855,913 913,064 6,066,899
Capital additions...... 77,885 4,247 34,032 4,117 1,719 36,203 27,670 185,873
- --------
(2) Operating income (loss) for 2000 includes $441,484 of impairment charges
related to certain assets.
Wyndham Wyndham Summerfield Other Non
Year ended Hotels & Luxury Wyndham Suites by proprietary proprietary
December 31, 1999 Resorts Resorts Gardens Wyndham branded branded Other(3) Total
----------------- ---------- -------- -------- ----------- ----------- ----------- ----------- ----------
Total revenue.......... $ 992,353 $ 97,422 $ 92,776 $132,772 $101,796 $ 991,927 $ 86,289 $2,495,335
Operating income (loss) 244,435 22,050 23,044 26,785 27,680 240,028 (1,067,611) (483,589)
Segment assets......... 2,608,066 249,193 243,815 260,131 193,216 2,301,811 1,147,258 7,003,490
Capital additions...... 72,675 8,782 10,764 20,270 18,779 56,550 46,896 234,716
- --------
(3) Operating income (loss) for 1999 includes $285,267 of restructuring charges
and $70,912 of impairment loss on assets held for sale.
F-45
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
The following table represents revenue and long-lived asset information by
geographic area for the years ended December 31, 2001, 2000 and 1999. Revenues
are attributed to the United States and its territories and Europe based on the
location of hotel properties.
2001 United States Europe Total
---- ------------- -------- ----------
Revenues...... $2,099,208 $ 6,222 $2,105,430
Segment assets 5,702,487 65,584 5,768,071
2000 United States Europe Total
---- ------------- -------- ----------
Revenues...... $2,468,253 $ 30,342 $2,498,595
Segment assets 5,996,427 70,472 6,066,899
1999 United States Europe Total
---- ------------- -------- ----------
Revenues...... $2,419,228 $ 76,107 $2,495,335
Segment assets 6,778,228 225,262 7,003,490
15. Supplemental Cash Flow Disclosure:
During 1999, in connection with the reorganization of the Company, the
distribution of approximately 92% of the shares of Interstate Hotel Corporation
in the form of a dividend to shareholders, the issuance of preferred stock
dividends, and acquisition of hotel properties and other assets, the Company
had net non-cash financing and investing activities of $99,338.
During 2000, the Company acquired the remaining interest in a partnership
for $20,626 in cash. As a result, the Company now consolidates this entity in
the financial statements and recorded increases in mortgage debt of $38,910 and
assumed a capital lease obligation of $15,125 related to the rental of building
space of the property. Additionally during 2000, the Company incurred capital
lease obligations related to equipment of $9,659.
During 2001 and 2000, the Company issued a stock dividends of 817,828 and
742,746 shares of series A and series B preferred stock with a value of $81,782
and $74,275, respectively. The Company deferred payment of the cash portion of
the third and fourth quarter dividend totaling $14,624. In addition, the
Company accrued $11,590 at a rate of 2.0% per annum as an additional dividend
as cash dividends on the preferred stock were in arrears as of December 31,
2001.
Effective March 31, 2000, in connection with the Sierra transaction, the
Company sold one owned and three leased properties, 17 franchise and management
contracts for Sierra Suites and nine management contracts for Summerfield
Suites for net cash proceeds of $23,045 and was relieved of $29,770 of future
obligations.
On July 12, 2000, the Company sold an investment included in unconsolidated
subsidiaries with a net book value of $7,225 for $4,319, which was paid in the
form of a note receivable. The $4,319 was paid in May 2001.
The adoption of SFAS No. 133, as amended, on January 1, 2001, resulted in a
liability of $30,187 and a reduction of deferred expenses of $23,239
representing the difference between the carrying value and the fair value of
the derivatives with the offset recognized in the cumulative effect of an
accounting change of $10,364 (net of taxes of $6,911) being recognized in the
consolidated statement of operations and a charge of $21,691 (net of taxes of
$14,460) in other comprehensive income. In addition, the Company recorded the
change in the fair value of its derivatives of $43,303 with a loss of $32,227
for the change in the fair market value through earnings, and a charge of
$6,646 (net of taxes of $4,430) through other comprehensive income. Also during
2001, the Company paid $15,373 in settlement payments for the ineffective
hedges.
F-46
WYNDHAM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share amounts)
During 2001, the Company exchanged six assets with a net book value of
$70,134 for the acquisition of one hotel with an estimated fair value of
$61,308.
During 2001, in connection with the termination of several contracts, the
Company wrote off the unamortized balance of management contract costs of
$7,408 and leasehold costs of $4,057.
During 2001, in connection with the redemption of the preferred stock in IH
LLC, the Company received two promissory notes in the aggregate amount of
$4,432 as partial consideration for the redemption.
16. Quarterly Financial Information (unaudited):
Three Months Ended
-------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
2001
Total revenue.......................................... $616,356 $589,144 $ 448,789 $ 451,141
Income (loss) before extraordinary item and accounting
change............................................... $ 22,880 $(11,585) $ (80,950) $ (57,083)
Net income (loss)...................................... $ 12,516 $(12,304) $ (82,069) $ (57,083)
Net loss per common share:
Basic.............................................. $ (0.09) $ (0.24) $ (0.66) $ (0.57)
Diluted............................................ $ (0.09) $ (0.24) $ (0.66) $ (0.57)
2000
Total revenue.......................................... $653,626 $662,995 $ 574,466 $ 607,508
Income (loss) before extraordinary item................ $ 11,597 $(46,517) $(119,339) $(170,412)
Net income (loss)...................................... $ 11,597 $(46,517) $(119,339) $(170,412)
Net loss per common share:
Basic.............................................. $ (0.08) $ (0.43) $ (0.87) $ (1.18)
Diluted............................................ $ (0.08) $ (0.43) $ (0.87) $ (1.18)
F-47
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
---------------------- -------------------- ---------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ -------- ------------- ------ ------------- -------- ------------- ----------
Wyndham Brand Properties:
Wyndham Atlanta
Atlanta, Georgia........... $ 25,929 $ 3,500 $ 12,712 $ -- $ 25,213 $ 3,500 $ 37,925 $ 41,425
Wyndham Arlington
Arlington, Texas........... -- -- 63,045 -- 849 -- 63,894 63,894
Wyndham Baltimore
Baltimore, Maryland........ 35,149 1,129 49,491 -- (13,643) 1,129 35,848 36,977
Wyndham Bel Age
Hollywood, California...... 15,524 5,653 32,212 -- 3,341 5,653 35,553 41,206
Wyndham Bristol Place Hotel
Toronto, Canada............ -- 3,048 15,503 -- 5 3,048 15,508 18,556
Wyndham Boston
Boston, Massachusetts...... 45,392 7,458 33,900 -- 41,285 7,458 75,185 82,643
Wyndham Andover
Andover, Massachusetts..... -- 2,318 33,245 -- 11,964 2,318 45,209 47,527
Wyndham Westborough
Westborough, Massachusetts. -- 1,500 41,968 -- 192 1,500 42,160 43,660
Wyndham Palace Resort & Spa
Orlando, Florida........... 45,563 -- 144,264 -- 8,707 -- 152,971 152,971
Wyndham Buttes Resort
Tempe, Arizona............. 35,471 -- 55,297 -- 836 -- 56,133 56,133
Wyndham New Orleans
New Orleans, Louisiana..... -- 12,750 86,141 -- 2,609 12,750 88,750 101,500
Wyndham Chicago
Chicago, Illinois.......... -- 4,963 33,752 -- 31,796 4,963 65,548 70,511
Wyndham City Center
Washington, District of
Columbia.................. -- 3,675 30,569 (18) 2,096 3,657 32,665 36,322
Wyndham Colorado Springs
Colorado Springs,
Colorado.................. -- 1,783 53,252 -- 69 1,783 53,321 55,104
Wyndham Emerald Plaza
San Diego, California...... 26,068 5,551 60,462 17 376 5,568 60,838 66,406
Wyndham Philadelphia at
Franklin Plaza
Philadelphia, Pennsylvania. 47,366 4,878 62,793 -- 2,642 4,878 65,435 70,313
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Wyndham Brand Properties:
Wyndham Atlanta
Atlanta, Georgia........... $ (2,562) 1999 1998
Wyndham Arlington
Arlington, Texas........... (6,367) 1985 1998
Wyndham Baltimore
Baltimore, Maryland........ (5,388) 1968 1997
Wyndham Bel Age
Hollywood, California...... (3,806) 1984 1997
Wyndham Bristol Place Hotel
Toronto, Canada............ (1,753) 1974 1998
Wyndham Boston
Boston, Massachusetts...... (5,098) 1999 1998
Wyndham Andover
Andover, Massachusetts..... (3,756) 1985 1998
Wyndham Westborough
Westborough, Massachusetts. (4,138) 1985 1998
Wyndham Palace Resort & Spa
Orlando, Florida........... (16,182) 1977 1998
Wyndham Buttes Resort
Tempe, Arizona............. (6,697) 1986 1997
Wyndham New Orleans
New Orleans, Louisiana..... (5,017) 1984 1999
Wyndham Chicago
Chicago, Illinois.......... (3,820) 1999 2000
Wyndham City Center
Washington, District of
Columbia.................. (3,798) 1969 1997
Wyndham Colorado Springs
Colorado Springs,
Colorado.................. (5,252) 1989 1998
Wyndham Emerald Plaza
San Diego, California...... (6,932) 1991 1997
Wyndham Philadelphia at
Franklin Plaza
Philadelphia, Pennsylvania. (7,455) 1979 1997
F-48
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- -------------------- ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ------ ------------- ------ ------------- ------ ------------- ------
Wyndham Greenspoint
Houston, Texas............ 38,659 1,930 39,815 20 2,113 1,950 41,928 43,878
Wyndham Harbour Island
Tampa, Florida............ -- -- 22,836 -- 71 -- 22,907 22,907
Wyndham Miami Beach
Resort
Miami, Florida............ -- 13,000 54,875 -- 683 13,000 55,558 68,558
Wyndham Miami Airport
Miami, Florida............ -- 2,561 23,009 -- 541 2,561 23,550 26,111
Wyndham Myrtle Beach
Resort & Golf Club
Myrtle Beach,
South Carolina........... -- 5,644 26,470 61 7,656 5,705 34,126 39,831
Wyndham Newark
Newark, New Jersey........ -- 30,281 -- -- 31,435 30,281 31,435 61,716
Wyndham Northwest
Chicago
Itasca, Illinois.......... 48,955 1,212 52,025 -- 2,319 1,212 54,344 55,556
Wyndham Resort & Spa
Fort Lauderdale, Florida.. -- 2,134 16,448 23 9,419 2,157 25,867 28,024
Wyndham Peachtree
Conference Center
Peachtree City (Atlanta),
Georgia.................. 17,131 3,059 21,915 33 4,937 3,092 26,852 29,944
Wyndham Pittsburgh Airport
Corapolis, Pennsylvania... 14,112 3,000 54,780 -- 96 3,000 54,876 57,876
Wyndham Richmond Airport
Richmond, Virginia........ -- -- 4,262 -- 3,240 -- 7,502 7,502
Wyndham Santa Maria
Key West, Florida......... 4,000 5,341 -- (3,471) 3,605 1,870 3,605 5,475
Wyndham Toledo
Toledo, Ohio.............. -- -- 16,082 -- (8,112) -- 7,970 7,970
Wyndham Riverfront Hotel
New Orleans, Louisiana.... -- 2,774 28,023 -- 10,581 2,774 38,604 41,378
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Wyndham Greenspoint
Houston, Texas............ (3,943) 1985 1996
Wyndham Harbour Island
Tampa, Florida............ (4,435) 1986 1998
Wyndham Miami Beach
Resort
Miami, Florida............ (5,479) 1962 1998
Wyndham Miami Airport
Miami, Florida............ (2,802) 1976 1997
Wyndham Myrtle Beach
Resort & Golf Club
Myrtle Beach,
South Carolina........... (4,015) 1974 1997
Wyndham Newark
Newark, New Jersey........ (48) 2001 2001
Wyndham Northwest
Chicago
Itasca, Illinois.......... (6,056) 1983 1997
Wyndham Resort & Spa
Fort Lauderdale, Florida.. (3,438) 1961 1996
Wyndham Peachtree
Conference Center
Peachtree City (Atlanta),
Georgia.................. (4,480) 1984 1995
Wyndham Pittsburgh Airport
Corapolis, Pennsylvania... (5,547) 1987 1998
Wyndham Richmond Airport
Richmond, Virginia........ (1,648) 1997 1998
Wyndham Santa Maria
Key West, Florida......... (102) 1951 1998
Wyndham Toledo
Toledo, Ohio.............. (1,388) 1985 1997
Wyndham Riverfront Hotel
New Orleans, Louisiana.... (3,685) 1996 1997
F-49
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- ------------------ ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ------ ------------- ---- ------------- ------ ------------- -------
Wyndham Roanoke Airport
Roanoke, Virginia......... -- 1,653 27,693 -- 200 1,653 27,893 29,546
Wyndham Syracuse
Syracuse, New York........ 9,893 1,150 29,236 -- 649 1,150 29,885 31,035
Wyndham Valley Forge
Valley Forge,
Pennsylvania............. -- 2,619 41,997 -- 14,874 2,619 56,871 59,490
Wyndham Washington D.C.
Washington, District of
Columbia................... -- 4,750 40,439 -- 383 4,750 40,822 45,572
Wyndham Lisle
Lisle, Illinois........... 21,976 1,995 24,726 -- 1,128 1,995 25,854 27,849
Wyndham Westshore Hotel
Tampa, Florida............ -- 1,448 31,565 -- 615 1,448 32,180 33,628
Wyndham Windwatch
Haupauge, New York........ -- 6,471 21,831 270 49 6,741 21,879 28,620
Wyndham Rose Hall
Montego Bay, Jamaica...... -- 5,610 55,467 -- 953 5,610 56,420 62,030
Wyndham El San Juan
San Juan, Puerto Rico..... 81,702 22,337 34,244 -- 23,736 22,337 57,980 80,317
Wyndham El Conquistador
Fajardo, Puerto Rico...... 124,896 20,256 190,607 -- 13,950 20,254 204,557 224,811
Wyndham Casa Marina
Resort
Key West, Florida......... 44,818 15,158 85,078 -- 2,253 15,158 87,331 102,489
Wyndham Reach Resort
Key West, Florida......... 14,610 10,029 24,947 -- 1,541 10,029 26,488 36,517
Wyndham Garden Hotel-
Brookfield
Brookfield, Wisconsin..... 11,640 1,787 17,564 -- 118 1,787 17,682 19,469
Wyndham Garden Hotel-
Charlotte
Charlotte, North Carolina. 10,067 792 17,535 -- 147 792 17,682 18,474
Wyndham Hotel-Commerce
Commerce, California...... -- 2,116 26,497 -- 580 2,116 27,077 29,193
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Wyndham Roanoke Airport
Roanoke, Virginia......... (2,732) 1983 1998
Wyndham Syracuse
Syracuse, New York........ (2,975) 1977 1998
Wyndham Valley Forge
Valley Forge,
Pennsylvania............. (4,704) 1985 1998
Wyndham Washington D.C.
Washington, District of
Columbia................... (4,024) 1983 1998
Wyndham Lisle
Lisle, Illinois........... (2,526) 1987 1998
Wyndham Westshore Hotel
Tampa, Florida............ (3,897) 1984 1997
Wyndham Windwatch
Haupauge, New York........ (3,230) 1989 1996
Wyndham Rose Hall
Montego Bay, Jamaica...... (6,287) 1972 1998
Wyndham El San Juan
San Juan, Puerto Rico..... (7,384) 1983 1998
Wyndham El Conquistador
Fajardo, Puerto Rico...... (22,514) 1993 1998
Wyndham Casa Marina
Resort
Key West, Florida......... (8,701) 1980 1998
Wyndham Reach Resort
Key West, Florida......... (2,621) 1978 1998
Wyndham Garden Hotel-
Brookfield
Brookfield, Wisconsin..... (1,485) 1990 1998
Wyndham Garden Hotel-
Charlotte
Charlotte, North Carolina. (1,482) 1989 1998
Wyndham Hotel-Commerce
Commerce, California...... (3,011) 1991 1998
F-50
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ------------------ ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ----- ------------- ---- ------------- ----- ------------- ------
Wyndham Hotel-Indianapolis
Indianapolis, Indiana... 7,093 513 15,497 -- 802 513 16,299 16,812
Wyndham Garden Hotel-
LaGuardia
East Elmhurst, New York. -- 1,800 16,443 -- 8,029 1,800 24,472 26,272
Wyndham Garden Hotel-Las
Colinas
Irving, Texas........... 10,382 1,884 16,963 -- 844 1,884 17,807 19,691
Wyndham Hotel-Market Center
Dallas, Texas........... -- 967 12,796 -- 612 967 13,408 14,375
Wyndham Midtown
Atlanta, Georgia........ 14,392 2,322 13,785 26 1,371 2,348 15,156 17,504
Wyndham Garden Hotel-Novi
Novi, Michigan.......... 7,098 555 10,401 -- 229 555 10,630 11,185
Wyndham Garden Hotel-
Overland Park
Overland Park, Kansas... -- 769 3,532 -- 22 769 3,554 4,323
Wyndham Garden Hotel-
Pleasanton
Pleasanton, California.. 8,351 1,568 12,845 (81) 183 1,487 13,028 14,515
Wyndham Garden Hotel-
Park Central
Dallas, Texas........... -- 4,523 -- 1 9,854 4,524 9,854 14,378
Wyndham Garden Hotel-
Schaumburg
Schaumburg, Illinois.... 7,545 1,613 14,464 -- 198 1,613 14,662 16,275
Wyndham Vinings
Atlanta, Georgia........ 9,675 1,700 22,853 -- 880 1,700 23,733 25,433
Wyndham Garden Hotel-
Wood Dale
Wood Dale, Illinois....... 8,383 2,266 12,939 -- 223 2,266 13,162 15,428
Wyndham-Bourbon Orleans
New Orleans, Louisiana.. 11,863 1,942 14,209 171 2,216 2,113 16,425 18,538
Wyndham-Fairmount
San Antonio, Texas...... -- -- 2,957 -- 210 -- 3,167 3,167
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Wyndham Hotel-Indianapolis
Indianapolis, Indiana... (1,771) 1990 1998
Wyndham Garden Hotel-
LaGuardia
East Elmhurst, New York. (1,519) 1988 1997
Wyndham Garden Hotel-Las
Colinas
Irving, Texas........... (1,475) 1986 1997
Wyndham Hotel-Market Center
Dallas, Texas........... (1,459) 1968 1998
Wyndham Midtown
Atlanta, Georgia........ (2,271) 1987 1996
Wyndham Garden Hotel-Novi
Novi, Michigan.......... (904) 1988 1997
Wyndham Garden Hotel-
Overland Park
Overland Park, Kansas... (299) 1971 1998
Wyndham Garden Hotel-
Pleasanton
Pleasanton, California.. (1,103) 1985 1997
Wyndham Garden Hotel-
Park Central
Dallas, Texas........... (598) 1998 1998
Wyndham Garden Hotel-
Schaumburg
Schaumburg, Illinois.... (1,223) 1985 1998
Wyndham Vinings
Atlanta, Georgia........ (2,604) 1985 1998
Wyndham Garden Hotel-
Wood Dale
Wood Dale, Illinois....... (1,186) 1986 1997
Wyndham-Bourbon Orleans
New Orleans, Louisiana.. (2,727) 1800s 1995
Wyndham-Fairmount
San Antonio, Texas...... (517) 1906 1995
F-51
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
-------------------- ------------------- ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ------ ------------- ----- ------------- ------ ------------- -------
Wyndham-Mayfair
St. Louis, Missouri....... -- 250 7,559 3 1,359 253 8,918 9,171
Wyndham Pickwick
San Francisco, California. -- 2,000 11,922 22 5,450 2,022 17,372 19,394
Wyndham-Tutwiler
Birmingham, Alabama....... -- 1,444 8,124 (27) (582) 1,417 7,542 8,959
Wyndham-Tremont
Boston, Massachusetts..... -- 1,776 14,066 18 10,542 1,794 24,608 26,402
Wyndham-Union Station
Nashville, Tennessee...... -- -- 7,512 -- 744 -- 8,256 8,256
Wyndham-US Grant
San Diego, California..... -- 4,092 54,515 -- 32 4,092 54,547 58,639
Wyndham-Coconut Grove
Miami, Florida............ -- 3,066 28,442 1,235 (4,183) 4,301 24,259 28,560
Wyndham-Peaks Resort & Spa
Telluride, Colorado....... -- 5,141 13,997 (572) 872 4,569 14,869 19,438
Wyndham Luxury Resorts:
Carmel Valley Ranch
Carmel, California........ -- 4,430 14,704 334 10,916 4,764 25,620 30,384
The Boulders
Carefree, Arizona......... -- 13,188 121,700 (363) 9,113 12,825 130,813 143,638
The Lodge at Ventana Canyon
Tucson, Arizona........... 28,489 13,287 23,332 -- 602 13,287 23,934 37,221
Summerfield Suites:
Summerfield-Denver South
Englewood, Colorado....... -- 1,072 8,183 18 41 1,090 8,224 9,314
Summerfield-Hanover
Whippany, New Jersey...... -- 2,223 18,585 -- 158 2,223 18,743 20,966
Summerfield-Morristown
Morristown, New Jersey.... -- 3,050 20,920 -- 69 3,050 20,989 24,039
Summerfield-Seattle
Seattle, Washington....... -- 1,515 24,276 16 2,689 1,531 26,965 28,496
Summerfield-Waltham
Waltham, Massachusetts.... -- 2,639 16,351 -- 86 2,639 16,437 19,076
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Wyndham-Mayfair
St. Louis, Missouri....... (1,263) 1925 1996
Wyndham Pickwick
San Francisco, California. (2,293) 1928 1996
Wyndham-Tutwiler
Birmingham, Alabama....... (1,169) 1913 1996
Wyndham-Tremont
Boston, Massachusetts..... (3,422) 1925 1996
Wyndham-Union Station
Nashville, Tennessee...... (1,032) 1986 1997
Wyndham-US Grant
San Diego, California..... (844) 1880s 2001
Wyndham-Coconut Grove
Miami, Florida............ (3,110) 1983 1997
Wyndham-Peaks Resort & Spa
Telluride, Colorado....... (2,126) 1992 1997
Wyndham Luxury Resorts:
Carmel Valley Ranch
Carmel, California........ (3,180) 1987 1997
The Boulders
Carefree, Arizona......... (17,353) 1985 1997
The Lodge at Ventana Canyon
Tucson, Arizona........... (3,315) 1985 1997
Summerfield Suites:
Summerfield-Denver South
Englewood, Colorado....... (906) 1997 1998
Summerfield-Hanover
Whippany, New Jersey...... (1,864) 1997 1998
Summerfield-Morristown
Morristown, New Jersey.... (2,067) 1997 1998
Summerfield-Seattle
Seattle, Washington....... (4,098) 1985 1996
Summerfield-Waltham
Waltham, Massachusetts.... (1,689) 1997 1998
F-52
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ----- ------------- ---- ------------- ----- ------------- ------
Summerfield-Miami
Miami, Florida............ -- 3,327 10,913 -- 46 3,327 10,959 14,286
Non-Proprietary Brand
Properties:
Crowne Plaza Ravinia
Atlanta, Georgia.......... 23,586 2,996 34,798 -- 3,621 2,996 38,419 41,415
Doubletree Anaheim
Orange, California........ 13,110 2,464 23,297 -- 655 2,464 23,952 26,416
Doubletree Overland Park
Overland Park, Kansas..... 21,329 3,317 38,088 -- 550 3,317 38,638 41,955
Doubletree Post Oak
Houston, Texas............ 28,960 4,441 43,672 -- 1,410 4,441 45,082 49,523
Doubletree St. Louis
Chesterfield, Missouri.... 13,012 2,160 18,300 -- 972 2,160 19,272 21,432
Doubletree Allen Center
Houston, Texas............ 10,860 2,280 24,707 -- 2,569 2,280 27,276 29,556
Doubletree Guest Suites
Glenview, Illinois........ 22,278 3,237 19,709 -- (1,356) 3,237 18,353 21,590
Doubletree Tallahassee
Tallahassee, Florida...... 5,500 2,127 7,779 -- 3,100 2,127 10,879 13,006
Doubletree Des Plaines
Des Plaines, Illinois..... 6,149 1,903 5,555 -- 3,528 1,903 9,083 10,986
Doubletree Minneapolis
Minneapolis, Minnesota.... -- 1,650 15,895 -- 1,358 1,650 17,253 18,903
Doubletree Tulsa
Tulsa, Oklahoma........... 8,999 1,428 18,596 -- 93 1,428 18,689 20,117
Doubletree Park Place
Minneapolis, Minnesota.... -- 2,188 13,531 -- 3,893 2,188 17,424 19,612
Doubletree Miami
Miami, Florida............ 4,895 3,808 7,052 -- 2,519 3,808 9,571 13,379
Embassy Suites Chicago
Chicago, Illinois......... 39,786 -- 82,017 -- 15 -- 82,032 82,032
Hyatt Newporter
Newport Beach, California. -- -- 15,611 -- 2,966 -- 18,577 18,577
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Summerfield-Miami
Miami, Florida............ (689) 1999 1999
Non-Proprietary Brand
Properties:
Crowne Plaza Ravinia
Atlanta, Georgia.......... (6,417) 1986 1995
Doubletree Anaheim
Orange, California........ (2,931) 1984 1997
Doubletree Overland Park
Overland Park, Kansas..... (3,653) 1982 1997
Doubletree Post Oak
Houston, Texas............ (5,523) 1982 1997
Doubletree St. Louis
Chesterfield, Missouri.... (1,774) 1984 1997
Doubletree Allen Center
Houston, Texas............ (3,826) 1978 1996
Doubletree Guest Suites
Glenview, Illinois........ (1,784) 1988 1997
Doubletree Tallahassee
Tallahassee, Florida...... (1,525) 1977 1996
Doubletree Des Plaines
Des Plaines, Illinois..... (1,266) 1969 1996
Doubletree Minneapolis
Minneapolis, Minnesota.... (1,842) 1986 1997
Doubletree Tulsa
Tulsa, Oklahoma........... (2,671) 1982 1996
Doubletree Park Place
Minneapolis, Minnesota.... (1,718) 1981 1997
Doubletree Miami
Miami, Florida............ (1,110) 1975 1996
Embassy Suites Chicago
Chicago, Illinois......... (4,687) 1991 1998
Hyatt Newporter
Newport Beach, California. (2,624) 1962 1996
F-53
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ----- ------------- ---- ------------- ----- ------------- ------
Hyatt Regency
Lexington, Kentucky......... -- -- 11,958 -- 1,358 -- 13,316 13,316
Hilton Cleveland
Independence, Ohio.......... 6,317 2,760 12,264 29 659 2,789 12,923 15,712
Hilton Del Mar
San Diego, California....... 12,408 1,900 11,435 20 795 1,920 12,230 14,150
Hilton Newark
Newark, New Jersey.......... 12,866 1,740 31,262 -- (8,262) 1,740 23,000 24,740
Hilton Columbus
Columbus, Georgia........... 5,379 570 13,132 -- (3,487) 570 9,645 10,215
Hilton Denver
Greenwood Village,
Colorado................... -- 1,800 42,003 -- (21,290) 1,800 20,713 22,513
Hilton Ft. Lauderdale
Dania, Florida.............. -- 2,651 24,748 -- 10,974 2,651 35,722 38,373
Hilton Huntington
Melville, New York.......... 21,917 3,000 49,435 -- 1,486 3,000 50,921 53,921
Hilton Parsipanny
Parsipanny, New Jersey...... 53,681 5,350 87,775 -- 2,071 5,350 89,846 95,196
Holiday Inn Aristocrat
Dallas, Texas............... -- 144 7,806 2 245 146 8,051 8,197
Holiday Inn San Angelo
San Angelo, Texas........... -- 428 3,982 11 236 439 4,218 4,657
Holiday Inn Houston
Houston, Texas.............. -- 333 2,324 4 470 337 2,794 3,131
Holiday Inn Dallas
Dallas, Texas............... -- 3,045 15,786 33 (3,715) 3,078 12,071 15,149
Holiday Inn Westlake
Westlake, Ohio.............. -- 2,843 14,218 -- (6,627) 2,843 7,591 10,434
Holiday Inn San Francisco
San Francisco, California... -- -- 18,807 -- 113 -- 18,920 18,920
Marriott Atlanta North Central
Atlanta, Georgia............ -- -- 36,462 -- 483 -- 36,945 36,945
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Hyatt Regency
Lexington, Kentucky......... (2,030) 1977 1996
Hilton Cleveland
Independence, Ohio.......... (2,354) 1980 1995
Hilton Del Mar
San Diego, California....... (1,945) 1989 1996
Hilton Newark
Newark, New Jersey.......... (2,978) 1971 1998
Hilton Columbus
Columbus, Georgia........... (1,142) 1982 1998
Hilton Denver
Greenwood Village,
Colorado................... (3,490) 1982 1998
Hilton Ft. Lauderdale
Dania, Florida.............. (2,798) 1988 1998
Hilton Huntington
Melville, New York.......... (5,028) 1988 1998
Hilton Parsipanny
Parsipanny, New Jersey...... (8,925) 1981 1998
Holiday Inn Aristocrat
Dallas, Texas............... (1,385) 1925 1995
Holiday Inn San Angelo
San Angelo, Texas........... (721) 1984 1995
Holiday Inn Houston
Houston, Texas.............. (453) 1982 1995
Holiday Inn Dallas
Dallas, Texas............... (2,852) 1979 1995
Holiday Inn Westlake
Westlake, Ohio.............. (1,542) 1980 1997
Holiday Inn San Francisco
San Francisco, California... (2,383) 1964 1997
Marriott Atlanta North Central
Atlanta, Georgia............ (2,631) 1975 1998
F-54
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
------------------- ----------------- ------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ----- ------------- ---- ------------- ----- ------------- ------
Marriott Houston
Greenspoint North
Houston, Texas............ -- 3,600 44,211 -- 110 3,600 44,321 47,921
Marriott Harrisburg
Harrisburg, Pennsylvania.. 14,744 3,400 38,304 -- 273 3,400 38,577 41,977
Marriott St. Louis West
St. Louis, Missouri....... 15,913 1,800 48,251 -- 188 1,800 48,439 50,239
Marriott Tyson's Corner
Vienna, Virginia.......... -- 3,650 64,333 -- 19,834 3,650 84,167 87,817
Marriott Warner Center
Woodland Hills,
California............... 47,724 6,250 100,063 -- (38,499) 6,250 61,564 67,814
Radisson Burlington
Burlington, Vermont....... 19,197 935 28,453 -- 688 935 29,141 30,076
Radisson Englewood
Englewood, New Jersey..... -- -- 26,320 -- (3) -- 26,317 26,317
Radisson Dallas
Dallas, Texas............. -- 1,011 8,276 10 (1,420) 1,021 6,856 7,877
Radisson New Orleans
New Orleans, Louisiana.... -- 2,463 23,630 43 1,647 2,506 25,277 27,783
Radisson Town & Country
Houston, Texas............ 5,085 655 9,725 7 718 662 10,443 11,105
Ramada Beachwood
Beachwood, Ohio........... 5,116 2,226 11,129 -- (5,862) 2,226 5,267 7,493
Radisson Akron
Akron, Ohio............... -- 1,136 5,678 -- (3,171) 1,136 2,507 3,643
Ramada San Francisco
San Francisco, California. -- -- 15,853 -- 260 -- 16,113 16,113
Sheraton Saginaw
Saginaw, Michigan......... -- 773 6,451 8 (1,559) 781 4,892 5,673
Valley River Inn
Eugene, Oregon............ -- 1,754 15,839 19 (1,233) 1,773 14,606 16,379
Radisson Fort Magruder
Williamsburg, Virginia.... -- 2,192 22,499 -- (8,278) 2,192 14,221 16,413
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Marriott Houston
Greenspoint North
Houston, Texas............ (3,184) 1981 1998
Marriott Harrisburg
Harrisburg, Pennsylvania.. (2,733) 1980 1998
Marriott St. Louis West
St. Louis, Missouri....... (3,081) 1990 1998
Marriott Tyson's Corner
Vienna, Virginia.......... (4,968) 1981 1998
Marriott Warner Center
Woodland Hills,
California............... (7,206) 1986 1998
Radisson Burlington
Burlington, Vermont....... (1,937) 1975 1998
Radisson Englewood
Englewood, New Jersey..... (1,798) 1989 1998
Radisson Dallas
Dallas, Texas............. (1,437) 1986 1995
Radisson New Orleans
New Orleans, Louisiana.... (4,182) 1924 1995
Radisson Town & Country
Houston, Texas............ (1,774) 1986 1995
Ramada Beachwood
Beachwood, Ohio........... (1,209) 1968 1997
Radisson Akron
Akron, Ohio............... (598) 1989 1997
Ramada San Francisco
San Francisco, California. (2,017) 1962 1997
Sheraton Saginaw
Saginaw, Michigan......... (1,117) 1984 1995
Valley River Inn
Eugene, Oregon............ (2,489) 1973 1996
Radisson Fort Magruder
Williamsburg, Virginia.... (1,942) 1975 1998
F-55
WYNDHAM INTERNATIONAL, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
As of December 31, 2001
Costs Capitalized
Subsequent Gross Amounts at Which Carried
Initial Cost to Acquisition at Close of Period (a)
--------------------- -------------------- -------------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements Total
----------- ------------ ------- ------------- ------ ------------- ------- ------------- ---------
Park Shore
Honolulu, Hawaii.......... -- -- 24,339 -- 2,948 -- 27,287 27,287
Le Mannoir de Gressey
Seine et Maine Near Paris. 7,090 1,209 7,181 137 3,367 1,346 10,548 11,894
Regency
San Juan, Puerto Rico..... -- 4,910 4,208 -- 922 4,910 5,130 10,040
Condado Plaza
San Juan, Puerto Rico..... 42,961 5,700 72,982 -- 9,441 5,700 82,423 88,123
Other:
Golden Door Spa
Escondido, California..... -- 5,800 3,000 -- 343 5,800 3,343 9,143
--------- ------- --------- ------ ------- ------- --------- ---------
Assets Held for Use......... 1,301,054 422,262 3,746,086 (1,941) 293,840 420,319 4,039,925 4,460,244
--------- ------- --------- ------ ------- ------- --------- ---------
Marriott Indian River
Plantation
Stuart, Florida........... -- 6,800 48,606 1,499 (9) 8,301 48,598 56,899
Marriott Troy
Troy, Michigan............ 30,441 1,790 29,220 19 2,187 1,809 31,407 33,216
Marriott Philadelphia West
West Conshohocken,
Pennsylvania............. -- 2,500 67,279 -- 93 2,500 67,372 69,872
Courtyard by Marriott
Beachwood
Beachwood, Ohio........... -- 1,510 7,553 -- 1,077 1,510 8,630 10,140
Ramada - Nashville
Downtown
Nashville, Tennessee...... -- 1,582 12,337 -- (4,906) 1,582 7,431 9,013
--------- ------- --------- ------ ------- ------- --------- ---------
Assets Held for Sale........ 30,441 14,182 164,995 1,518 (1,558) 15,702 163,438 179,140
--------- ------- --------- ------ ------- ------- --------- ---------
Total....................... 1,331,495 436,444 3,911,081 (423) 292,282 436,021 4,203,363 4,639,384
========= ======= ========= ====== ======= ======= ========= =========
Accumulated Year Date of
Description Depreciation (b)(c) Built Acquisition
----------- ------------------- ----- -----------
Park Shore
Honolulu, Hawaii.......... (3,095) 1968 1997
Le Mannoir de Gressey
Seine et Maine Near Paris. (5,689) 1993 1999
Regency
San Juan, Puerto Rico..... (939) 1963 1998
Condado Plaza
San Juan, Puerto Rico..... (8,798) 1959 1998
Other:
Golden Door Spa
Escondido, California..... (308) 1954 1998
--------
Assets Held for Use......... (429,245)
--------
Marriott Indian River
Plantation
Stuart, Florida........... (3,508) 1987 1998
Marriott Troy
Troy, Michigan............ (4,605) 1990 1995
Marriott Philadelphia West
West Conshohocken,
Pennsylvania............. (4,841) 1991 1998
Courtyard by Marriott
Beachwood
Beachwood, Ohio........... (899) 1986 1997
Ramada - Nashville
Downtown
Nashville, Tennessee...... (1,224) 1991 1998
--------
Assets Held for Sale........ (15,077)
--------
Total....................... (444,322)
========
56
WYNDHAM INTERNATIONAL INC.
NOTES TO SCHEDULE III
(in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
(a) Reconciliation of Real Estate
Balance at beginning of period................................... 4,868,216 5,106,723 $4,995,837
Additions during period:
Acquisitions................................................. 58,607 38,715 267,975
Improvements................................................. 73,719 40,473 166,574
Deductions during period:
Sale of properties........................................... (361,158) (317,695) (269,493)
Basis adjustments in accordance with the purchase method
of accounting due to the exchange of OP Units and
acquisition of third party's minority interest............. -- -- (54,170)
---------- ---------- ----------
Balance at end of period..................................... $4,639,384 $4,868,216 $5,106,723
========== ========== ==========
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of period................................... 377,945 273,272 $ 132,809
Additions during period:
Depreciation for the period.................................. 92,658 122,949 151,184
Deductions during period:
Sale of properties........................................... (26,281) (18,276) (10,721)
---------- ---------- ----------
Balance at the end of period..................................... $ 444,322 $ 377,945 $ 273,272
========== ========== ==========
(c) Depreciation is computed on buildings and improvements based upon a useful
life of 35 years.
F-57