SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 1, 2003
Date of Report (Date of earliest event reported)
WESTCOAST HOSPITALITY CORPORATION
(Exact Name of Registrant as Specified in Charter)
Washington 001-13957 91-1032187
(State or Other Jurisdiction (Commission file number) (I.R.S. Employer
of Incorporation) Identification No.)
201 W. North River Drive
Suite 100
Spokane, Washington 99201
(Address of Principal Executive Offices, Zip Code)
(509) 459-6100
(Registrant's Telephone Number, Including Area Code)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
The following exhibits are furnished pursuant to Item 9 and Item 12 hereof and
should not be deemed to be "filed" under the Securities Exchange Act of 1934:
Exhibit No. Exhibit
------------- -----------------------------------------------------------------
99.1 Press release dated May 1, 2003 reporting first quarter 2003
financial results
99.2 Transcript of first quarter 2003 earnings release conference call
ITEM 9. REGULATION FD DISCLOSURE
The following information is furnished pursuant to Item 9, "Regulation FD
Disclosure" and Item 12, "Disclosure of Results of Operations and Financial
Condition":
On May 1, 2003, the registrant issued a press release setting forth its first
quarter 2003 earnings. A copy of the press release is furnished as Exhibit 99.1
to this Form 8-K pursuant to Item 12.
The press release disclosed that the registrant's net cash provided by operating
activities for the three months ended March 31, 2003 and March 31, 2002 was
$1,906,000 and $6,379,000, respectively. EBITDA (income before income taxes,
interest expense and income, depreciation and amortization, other
income/(expense), gain/(loss) on asset disposal, minority interest and equity
income/(loss) in investments) for the same periods was $2,554,000 and
$4,221,000, respectively. A reconciliation of EBITDA to net cash provided by
operating activities for these periods was attached to the press release.
On May 1, 2003, the registrant conducted a conference call to discuss its
results for the quarter ended March 31, 2003. A transcript of that call is
furnished as Exhibit 99.2 to this Form 8-K pursuant to Item 12.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTCOAST HOSPITALITY CORPORATION
Dated: May 7, 2003 By: /s/ Peter P. Hausback
Vice President,
Chief Financial Officer
and Principal Accounting Officer
EXHIBIT INDEX
Exhibit No. Exhibit
------------ -----------------------------------------------------------------
99.1 Press release dated May 1, 2003 reporting first quarter 2003
financial results
99.2 Transcript of first quarter 2003 earnings release conference call
Exhibit 99.1
WestCoast Hospitality Corporation Announces First Quarter Financial Results
May 1, 2003
SPOKANE, Wash. - WestCoast Hospitality Corporation (NYSE:WEH) today reported
first quarter financial results for the period ended March 31, 2003. Total
revenue decreased $2.3 million during the quarter, from $42.5 million in the
first quarter of 2002 to $40.2 million in the comparable period of 2003, while
EBITDA (see definition in footnote to Consolidated Statement of Operations)
declined $1.7 million, from $4.2 million to $2.6 million. Three primary factors
impacted the year on year financial comparisons for the quarter. First, results
from the first quarter of 2002 included a $3.0 million pre-tax gain on the sale
of an office building plus the full quarter of operating results from the
building, adding approximately $0.15 of earnings per share to the 2002 first
quarter results. Second, the one time event of the Olympics in Salt Lake City
during the first quarter of 2002 positively affected the results of the
Company's 393 room Salt Lake City hotel during that quarter and third, during
the first quarter of 2003, the Company had more than $690 thousand of conversion
expenses and non cash write down of signage related to the re-branding of hotels
to the Red Lion name. Earnings per share for the first quarter of 2003 were
negative $0.19 compared to a positive $0.03 in the first quarter of 2002.
The Company recently announced a number of changes among top management. In
March, the Company announced the retirement of Chairman, President and CEO,
Donald Barbieri, who is retaining his position as Chairman of the Board.
Subsequent to the announcement, Arthur Coffey was named President and CEO and
Peter Hausback was named Vice President and Chief Financial Officer. Arthur
Coffey previously held the position of Executive Vice President and Chief
Financial Officer of WestCoast Hospitality Corporation and President of
WestCoast Hotels. Mr. Coffey has been with the Company for 22 years and has
extensive background in both operational and financial roles within the Company.
Mr. Hausback started with the Company in 2002 as Corporate Controller and
Principal Accounting Officer. Mr. Hausback has a strong financial background
including prior experience as CFO at two publicly traded companies.
During the quarter, the Company completed the transition of its Red Lion brand
into its system by re-branding 22 of its owned and managed hotels to Red Lion
Hotels. The re-branding increased the number of Red Lion Hotels to 63, the
largest number of hotels in the brand's history. In association with the
re-branding, the Company also implemented a number of new initiatives. In
February, the Company integrated the best features of its Red Lion Club and
WestAwards Frequency Program in order to enhance guest services with a single
expanded guest loyalty program, GuestAwards. The Company continues to promote
guest loyalty through GuestAwards by providing guests the flexibility to earn
air miles with each qualifying hotel stay or points for every eligible dollar
charged. Additionally, in February, the Company launched a new central
reservations system that enhances the Company's ability to manage single image
inventory and execute rate management strategies through its distribution
channels to include voice, Internet and Global Distribution Systems.
During the quarter, hotel and restaurant revenue decreased 8.4%, from $37.2
million in the first quarter of 2002 to $34.1 million in the same period of
2003. During the same period, hotel and restaurant operating expenses declined
5.5%, from $34.5 million to $32.6 million. RevPAR (Revenue Per Available Room)
declined 5.1% during the period, on slightly higher occupancy and a 5.5% decline
in average daily rate. During the first quarter of 2002, the Company's 393 room
hotel in Salt Lake City was positively impacted by the Winter Olympics.
Excluding this hotel from 2002 and 2003 first quarter results, hotel division
RevPAR declined only 2.7%, and hotel and restaurant revenue declined 5.4%, from
$34.4 million to $32.6 million.
Sharon Sanchez, Executive Vice President of Hotel Operations stated, "In mid
January we experienced a sharp drop in demand, possibly associated with
heightened security alerts in the United States. Like many companies in this
time of international and economic uncertainty, we aggressively managed our
costs while pursuing additional business. We were fortunate that our re-branding
efforts and associated promotions and program implementations added visibility
to our brands, and March room revenue was approximately the same as last year's
results. However, the economy remains sluggish, and though we are encouraged by
March results, we need additional indicators before we can identify any positive
long-term trends."
Revenue in TicketsWest, the Company's entertainment division, increased 31.4%
during the quarter, from $2.0 million in the first quarter of 2002 to $2.6
million in same period of 2003. Increased revenue was a result of a higher
revenue generating mix of ticketed events and additional venues served by the
Company. Operating profit margins decreased during the quarter, from 27.0% of
revenue in the first quarter of 2002 to 15.8% in the same quarter of 2003,
primarily due to higher call center expenses as well as increased marketing
expenses.
During the quarter, TicketsWest announced a number of new venue contracts in
Seattle, Yakima and Tri-Cities, Washington and re-branded its Oregon operation
from the name Fastixx to TicketsWest. TicketsWest acquired Fastixx in 1999,
leaving the name in place. As the division continues its expansion, it will
leverage the TicketsWest name. The Oregon area re-branding follows similar
efforts in Colorado and Eastern Washington. All entertainment ticketing provided
by the Company now operates under TicketsWest.
Revenue in the Real Estate division declined $170 thousand during the quarter,
from $2.5 million in the first quarter of 2002 to $2.3 million in the comparable
period of 2003. The revenue decline was primarily due to the sale of an office
building in March 2002. Prior to the sale, during the first quarter of 2002 the
office building generated more than $455 thousand in revenue. Excluding this
revenue from the 2002 results, revenue in the division increased 14.1%, from
$2.0 million to $2.3 million.
"We spent a good part of 2002 preparing for the many changes that occurred
during the quarter," said Arthur Coffey, President and CEO. "We're excited to
have our re-branding completed and to be operating our central reservations with
technology that provides the functionality to manage our inventory more
efficiently and effectively. The cutover to our new software platform was
successful and our Company is positioned well as we look toward the summer
months."
The Company remains focused on managing its balance sheet and reducing
outstanding debt. Interest expense declined 7.8% during the quarter, from $2.9
million to $2.6 million, primarily due to lower interest rates charged on the
Company's variable rate debt. The Company continues the process of refinancing
the majority of debt outstanding on its revolving credit facility to
non-recourse fixed rate debt in an effort to lock in favorable interest rates.
The Company also continues to market non-core assets held for sale. During the
quarter, the Company had a positive $1.9 million of net cash provided by
operating activities and expects higher amounts in the second and third
quarters, as the first and fourth quarters are typically the lowest revenue
quarters of the year due to seasonality.
WestCoast Hospitality Corporation owns, manages and franchises and develops
hotels providing care, comfort and value. Red Lion Hotels and WestCoast Hotels
focus on serving business, convention and leisure travelers in first, second and
third tier markets. WestCoast provides entertainment services through
TicketsWest, including event ticketing for venues in the United States and
Canada, and aggregates content for travel and entertainment that is sold in
real-time at its www.ticketswest.com website. TicketsWest also includes
WestCoast Entertainment, a Broadway and special event presenting company. G&B
Real Estate Services is the real estate division of WestCoast Hospitality
Corporation and owns and manages commercial and residential properties.
Registered trademarks of WestCoast Hospitality Corporation and its affiliates
protect the use of "WestCoast", "Red Lion", "TicketsWest" and "G&B" and various
derivatives of those usages.
This press release contains forward-looking statements with the meaning of
federal securities law, including statements concerning plans, objectives,
goals, strategies, projections of future events or performance and underlying
assumptions (many of which are based, in turn upon further assumptions). The
forward-looking statements in this press release are inherently subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those expressed. Such risks and uncertainties include, among
others, economic cycles; international conflicts; changes in future demand and
supply for hotel rooms; competitive conditions in the lodging industry;
relationships with franchisees and properties; impact of government regulations;
ability to obtain financing; changes in energy, healthcare, insurance and other
operating expenses; ability to sell non-core assets; ability to locate lessees
for rental property and managing and leasing properties owned by third parties;
dependency upon the ability and experience of executive officers and ability to
retain or replace such officers as well as other matters discussed in the
Company's annual report on Form 10K for the 2002 fiscal year and other matters
disclosed in the documents filed by the Company with the Securities and Exchange
Commission.
WestCoast Hospitality Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands)
Three months ended March 31,
2003 2002 $ Change % Change
---------------------------------------------------------
Revenues:
Hotels & restaurants $ 34,096 $ 37,205 $ (3,109) -8.4%
Franchise, central services and development 1,089 751 338 45.0%
TicketsWest 2,601 1,979 622 31.4%
Real estate division 2,302 2,472 (170) -6.9%
Corporate services 88 62 26 41.9%
-----------------------------------------
Total revenues 40,176 42,469 (2,293) -5.4%
-----------------------------------------
Operating expenses:
Hotels & restaurants 32,631 34,520 (1,889) -5.5%
Franchise, central services and development 479 451 28 6.2%
TicketsWest 2,190 1,444 746 51.7%
Real estate division 1,217 1,212 5 0.4%
Corporate services 77 48 29 60.4%
Depreciation and amortization 2,607 2,717 (110) -4.0%
(Gain)/loss on asset dispositions including recoveries 332 (3,011) 3,343 111.0%
Conversion expenses 288 1 287 28700.0%
-----------------------------------------
Total direct expenses 39,821 37,382 2,439 6.5%
Undistributed corporate expenses 740 572 168 29.4%
-----------------------------------------
Total expenses 40,561 37,954 2,607 6.9%
-----------------------------------------
Operating income/(loss) (385) 4,515 (4,900) -108.5%
Other income/(expense):
Interest (expense) (2,642) (2,867) (225) -7.8%
Interest income 104 42 62 147.6%
Other income/(expense) 19 (3) 22 733.3%
Equity income/(loss) in investments 58 (28) 86 307.1%
Minority interest in partnerships 112 (5) 117 2340.0%
-----------------------------------------
Income/(loss) before income taxes (2,734) 1,654 (4,388) -265.3%
Income tax (benefit)/expense (965) 584 (1,549) -265.2%
-----------------------------------------
Net income/(loss) (1,769) 1,070 (2,839) -265.3%
Preferred stock dividend (640) (646) (6) -0.9%
--------------------------------------------
Net income/(loss) to common shareholders $ (2,409) $ 424 $ (2,833) -668.2%
============================================
EBITDA (1) $ 2,554 $ 4,221 $ (1,667) -39.5%
EBITDA % of revenues 6.4% 9.9%
(1) Represents income before income taxes, interest expense and income,
depreciation and amortization, other income/(expense), gain/(loss) on asset
disposal, minority interest and equity income/(loss) in investments. EBITDA is
not intended to represent cash flow from operations as defined by generally
accepted accounting principles and such information should not be considered as
an alternative to net income, cash flow from operations or any other measure of
performance prescribed by generally accepted accounting principles. While not
all companies calculate EBITDA in the same fashion and therefore EBITDA as
presented may not be comparable to similarly titled measures of other companies,
EBITDA is included herein because management believes that certain investors
find it to be a useful tool for measuring the Company's ability to service debt.
EBITDA is not necessarily available for management's discretionary use due to
restrictions included in the Revolving Credit Facility and other considerations.
For additional details refer to EBITDA reconciliation.
WestCoast Hospitality Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
Three months ended March 31,
2003 2002 $ Change % Change
---------------------------------------------------------------------------
Net (loss)/earnings per share:
Basic $ (0.19) $ 0.03
Diluted $ (0.19) $ 0.03
Weighted average shares - basic 12,992,341 12,970,473
Weighted average shares - diluted 12,992,341(a) 13,322,834
Hotel Statistics:
Combined (owned, managed and franchised) (1)
Average Occupancy (2) (5) 50.3% 50.1%
ADR (3) $ 70.62 $ 74.73 $ (4.11) -5.5%
RevPAR (4) (5) $ 35.50 $ 37.41 $ (1.91) -5.1%
(a) Options and operating partnership units were anti-dilutive.
(1) Includes hotels owned, managed and franchised for greater than one year by
WestCoast Hospitality Corporation.
(2) Average occupancy represents total paid rooms occupied divided by total
available rooms. Total available rooms represents the number of rooms available
multiplied by the number of days in the reported period.
(3) Average daily rate (ADR) represents total room revenues divided by the total
number of paid rooms occupied by hotel guests.
(4) Revenue per available room (RevPAR) represents total room and related
revenues divided by total available rooms, net of rooms out of service due to
significant renovations.
(5) Rooms under renovation were excluded from RevPAR and average occupancy
percentage. Due to the short duration of renovation, in the opinion of
management, excluding these rooms did not have a material impact on RevPAR and
average occupancy.
WestCoast Hospitality Corporation
Consolidated Balance Sheet at March 31, 2003
(unaudited)
($ in thousands, except share data)
Assets:
Current assets:
Cash and cash equivalents $ 4,480
Accounts receivable, net 9,269
Inventories 1,905
Assets held for sale 34,517
Prepaid expenses and other 4,075
------------
Total current assets 54,246
Property and equipment, net 241,174
Goodwill 28,042
Intangible assets, net 14,991
Other assets, net 20,593
------------
Total assets $ 359,046
============
Liabilities:
Current liabilities:
Accounts payable $ 6,289
Accrued payroll and related benefits 5,731
Accrued interest payable 705
Advance deposits 363
Other accrued expenses 10,756
Notes payable to bank 54,300
Note payable 1,800
Long-term debt, due within one year 4,977
Capital lease obligations, due within one year 169
------------
Total current liabilities 85,090
Long-term debt, due after one year 100,225
Deferred revenue 2,554
Deferred income taxes 16,611
Minority interest in partnerships 2,799
------------
Total liabilities 207,279
------------
Stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value
602,630 shares issued and outstanding 6
Additional paid-in capital, preferred stock 30,125
Common stock - 50,000,000 shares authorized; $0.01 par value;
12,994,163 shares issued and outstanding 130
Additional paid-in capital, common stock 84,143
Retained earnings 37,363
------------
Total stockholders' equity 151,767
------------
Total liabilities and stockholders' equity $ 359,046
============
WestCoast Hospitality Corporation
Consolidated Statement of Cash Flows
Three Months Ended March 31, 2003
(unaudited)
($ in thousands)
Operating activities:
Net loss $ (1,769)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,607
Loss on disposition of property and equipment and other assets 332
Deferred income tax provision 350
Minority interest in partnerships (112)
Equity in investments (58)
Compensation expense related to stock issuance 5
Provision for doubtful accounts 111
Change in current assets and liabilities:
Accounts receivable 139
Inventories 135
Prepaid expenses and other (1,345)
Accounts payable (484)
Accrued payroll and related benefits (442)
Accrued interest payable 10
Other accrued expenses and advance deposits 2,427
------------------
Net cash provided by operating activities 1,906
------------------
Investing activities:
Additions to property and equipment (2,658)
Proceeds from disposition of property and equipment 5
Other, net 136
------------------
Net cash used in investing activities (2,517)
------------------
Financing activities:
Proceeds from note payable to bank 22,200
Repayment of note payable to bank (20,000)
Proceeds from short-term debt 1,800
Repayment of long-term debt (893)
Proceeds from issuance of common stock under
employee stock purchase plan 55
Preferred stock dividend payments (646)
Principal payments on capital lease obligations (99)
Additions to deferred financing costs (27)
------------------
Net cash provided by financing activities 2,390
------------------
Change in cash and cash equivalents:
Net increase in cash and cash equivalents 1,779
Cash and cash equivalents at beginning of period 2,701
------------------
Cash and cash equivalents at end of period $ 4,480
==================
The following is a reconciliation of EBITDA to its comparable measurement in
accordance with generally accepted accounting principles for each of the periods
presented ($ in thousands):
Period ended March 31,
2003 2002
-----------------------------------
EBITDA $ 2,554 $ 4,221
Income tax provision 965 (584)
Deferred income tax provision 350 100
Interest expense (2,642) (2,867)
Interest and other income, net 123 39
Other non-cash operating activities 116 102
Change in working capital accounts 440 5,368
-----------------------------------
Net cash provided by operating activities $ 1,906 $ 6,379
===================================
Exhibit 99.2
First Quarter 2003 Earnings Release Conference Call
WESTCOAST HOSPITALITY CORPORATION
May 1, 2003
10:00 a.m. PT
Moderator
Thank you for standing by. Welcome the First Quarter 2003 Earnings Release
Conference Call. At this time all participants are in a listen-only mode. Later
we will conduct a question and answer session with instructions given at that
time. As a reminder, this conference is being recorded. I would now like to turn
the conference over to your host, Mr. Art Coffey, President and CEO. Please go
ahead.
A. Coffey
Good morning, everyone. Thank you for joining us for this first earnings call
for the fiscal year of 2003, and my first as the President and CEO. I'm very
honored to be selected to lead the company at this very important and dynamic
stage in WestCoast Hospitality's history. We owe a great deal of honor and
thanks to Don Barbieri for his leadership that he's provided to the company for
decades. Don will continue to be a great resource and advisor to the company, as
the Chairman of the Board.
As part of the succession process, we have named Peter Hausback, as the Vice
President and Chief Financial Officer, who will take on my former duties. Peter
started with the company last year, as the Controller and Principle Accounting
Officer. He has an excellent background and previously was CFO with two other
publicly traded companies. He also has extensive experience in the food and
beverage areas of the hospitality business. I'm very pleased to have a
professional of this character, education, and practical background. He has also
clearly demonstrated the ability to deliver on excellence, and Peter will be
giving you an overview of the financial performance for the quarter and will be
available for questions at the end of the call.
Also with us is Sharon Sanchez, Executive Vice President of the hotel
operations. She will also be giving us an update on the major initiatives and
operating results for the hotel division. But before I ask Sharon to give you
the hotel division update, I want to give you an overview of what we've been
seeing as trends in our business and our strategy to capitalize on our strength.
During the quarter we concluded transitioning over 20 hotels to the Red Lion
brand. There are currently 63 Red Lion hotels, which bring it to the largest
number of hotels under the flag in its history. We have dramatically
strengthened the brand penetration, which is now in 13 states and provinces. The
average size of a Red Lion hotel is approximately 170 rooms with 7,300 square
feet of meeting space. We believe that the Red Lion brand will add value to
these properties, because it's going to expand the reach of the consumer
awareness.
The expansion of the brand penetration, with these zone properties, should also
had to the attractiveness of the Red Lion brands for third party hotel owners
and asset managers. Our goal is to continue to expand the brand reach, with
high-quality, three-diamond, full-service hotels that serve a well-balanced mix
of group, corporate, and leisure travelers.
In order to better serve both the Red Lion and the WestCoast branded hotels, in
the first quarter, we also completed the installation of the new Micro Scidelio
Opera Reservation System. This system combines the network of all of our hotels,
both WestCoast and Red Lion branded properties, into one system to enhance cross
selling, revenue management, GDS, and EDS distribution. This provides our
company with a very solid system that will serve to drive the revenue for the
company in a technology-advanced manner.
Customer demand in the hotel division has been impacted by a weak economy, and
it appears to have been hindered by the repeated terrorism warnings and war.
While these threats have diminished in recent weeks, it's too early to have a
good indication at how the ongoing business trends will be affected. We have not
been providing earnings guidance until we see these trends stabilize and become
more predictable.
We do believe we are well positioned with our locations and products to
capitalize on the leisure market this summer. Our marketing programs will focus
on stimulating the leisure consumer demand, as we go into this lucrative season.
You are probably aware that the first and fourth quarters are our low seasons,
and the second and third are, historically, the most profitable.
In Tickets West, it continues to grow its market reach, and added two new venues
in the quarter that it will serve as the exclusive ticket distribution seller.
Both of these venues are in markets, where we have multiple hotels, which will
make it exciting to see how we can capitalize and leverage on the leisure and
entertainment packages that these properties can offer.
The real estate division had year-on-year revenue declines, but that's really
all because of the impact of the sale of the WHC building. For former results
with that building's income excluded, the real estate division grew revenues by
over 14%. We are continuing with our strategy to market our own commercial real
estate to capture the equities from these assets. At the same time, we intend to
expand on the base of management and leasing contracts for third-party owners.
Our focus on operating activities for this year is to concentrate on six primary
areas that impact each of the three divisions. These included: guest experience,
where we will excel in our delivery systems and enhance what really counts,
which is the customer's satisfaction; organic growth and franchise expansion,
our goal is to leverage the assets we currently own to deliver increased profits
and build on the brand's strength; we continue to build on the team's spirit and
culture, company-wide; and associate development through formalized mentoring
and customer-focused training programs; technology enhancements that have a
solid return on investment through enhancing customer service; marketing
penetration; cost control; and physical asset improvement plans that will
provide for the long-term investment returns and enhance the brand consistency.
We have a great team that's working on these issues every day and we'll continue
to stay focused on making sure we are adding value to the company for the
long-term, bottom-line results. The quarter had a tough year-on-your net income
comparison, because of the sale of the WHC building, Salt Lake City Olympics in
2002, and the one-time rebranding activities of 22 hotels that was completed in
this year. I'm very proud, however, of the team, how it was proactive in
controlling costs in the tough economy and continue to position the company for
an improving economic environment. As we go into the next two quarters, we're
optimistic that the easing of the geo political tension will add a stimulus to
the travel demand.
I've asked Sharon Sanchez, our Executive Vice President of hotel operations, to
give more detail on the division's performance. Sharon.
S. Sanchez
Thanks, Art. Good morning, everybody. I appreciate the time to make just a few
comments about our performance in the first quarter. As Art mentioned, it was an
extremely busy time for us with the rebranding, the reservation system
implementation, and the promotions that surrounded the events. Fortunately,
we've seen some initial positive marketplace impact in our rebranded hotels,
especially in rate, and the promotions had a good response. The Team Red
community outreach program that we initiated in conjunction with the rebranding
is up and running, and has created some great enthusiasm in the hotels and in
the communities we serve. We also successfully merged our frequency programs to
the new Guest Awards Platform that we had mentioned before, on several other
calls, that include the well-received meeting planner component to attract and
retain meeting planners.
And, of course, like most of the industry, we struggled in revenues overall. For
the quarter, in our own hotels, we were down to prior year in both room nights
and rate, but when we removed the Olympics impact, rate was mostly flat to prior
years. So that shows our ability to hold our own in this economy in rate. Our
room night shortfall was mostly in the group and leisure and non-qualified
corporate transient segments, but we saw good, qualified corporate and
government volumes compared to last year. We've maintained the success in
securing and retaining contractor base business in our hotels.
We also have, at minimum, maintained our market share overall, which is
extremely encouraging. As Art indicated, we're hopeful that anticipated trends
for more backyard leisure travel will, in fact, come to fruition, and we're
poised to promote and capture this business this summer. We're also intensely
focused on streamlining the way we operate the electronic booking channels for
optimum performance, which is obviously a big going concern in our industry
these days.
Cost control was also paramount in the first quarter. We joined many of our
peers with some aggressive initiatives to insure operating margins were
maintained in light of the lighter revenue stream. The hotels performed
extremely well and deserve an enormous amount of credit for their ongoing
efforts. Cost per occupied room was below last year. Food profit margins
exceeded last year, and all of the departments were in line. The industry
standard, 50% flow-through of revenue shortfalls, was substantially exceeded at
both the GOP and EBITDA levels. So we're extremely proud of their results.
Now that the integration of the Red Lion and the WestCoast, and so many major
initiatives are complete we're working diligently to insure we're fine-tuning
our resources and using them to their fullest. That's our number one focus right
now. Our teams are energized, dedicated to operating differently, which is a
requirement in these dynamic times. We believe there's a lot of opportunity
ahead of us.
Again, I appreciate the opportunity to share this information on behalf of the
operations team today, and I'll turn the call over to Peter Hausback, VP and
Chief Financial Officer, for further comments. Peter.
P. Hausback
Thank you, Sharon. I would like to take a few minutes to highlight some key
financial areas for you. First of all, I would like to summarize the quarter
versus quarter EPS impact, as a result of the three primary financial changes
discussed in the earnings release. Number one, the sale of the WestCoast office
building impacted EPS in the first quarter of 2002, by a positive $0.15.
The second item, rebranding costs in the first quarter of 2003, which included
both the non-cash write off of old signage, along with the conversion expenses,
negatively impacted EPS by $0.04. The third item that affected EPS was a
non-recurring impact from the Olympics in Salt Lake City last year. Even with
strong current quarter sales we could not make up for last year. The resulting
EPS impact was $0.03. These three factors accounted for a decrease of $0.22 in
the EPS between the two quarters.
Even within a very difficult economy, during the first quarter, we were able to
generate $1.9 million in net cash flow from operations, and as a result, we
increased our cash on hand. The first quarter is typically one of the weakest
quarters, due to seasonality. During the first quarter we invested $2.7 million
back into property and equipment, which included the central reservation system
and signs for the newly rebranded hotels.
In addition to strong cash flow, our debt service coverage ratios remain very
strong. During a quarter, which saw a continual slump in the economy, along with
the war in Iraq, each of the operating divisions generated a profit. On a
quarter-on-quarter comparison, the hotel division's operating margins dropped
2.9% but they improved significantly from the last quarter.
The franchise and central services group's margins remain consistent at 39%, and
the operating margins for Ticket West were at 16% compared to 27% last year.
This decrease was primarily due to higher call center costs and increased
marketing and advertising, in both existing and new markets. Lastly, the real
estate division continues to generate consistent and solid cash flow for the
company. The real estate margins remain very strong, at 47% versus 51% in the
prior year.
Some of the specific areas that we are focusing on include: One is a continual
focus on cost controls throughout each division, without impacting the high
quality of our business; second, is a focus on reducing debt, as we proceed
through the year; next, we continue the process of refinancing the majority of
our debt outstanding on our revolving credit facility into non-recourse fixed
debt to lock into lower interest rates. Upon completion of the refinancing our
current ratio will improve significantly. Lastly, another focus continues to be
the sale of various non-core assets. With a future anticipated sale of various
assets, our cash position will continue to improve. The cash will provide us
various opportunities for not only paying down debt, but will be used for other
corporate purposes.
At this time, I would like to open up the call for any questions.
Moderator
e have a question from the line of William James with Mayer Investment. Please
go ahead.
W. James
Peter, could you just give us the trailing 12 months EBITDA?
P. Hausback
I'll look for that. I know I have it here.
W. James
You're reticent to give us 2003 EBITDA projected?
A. Coffey
We're not prepared to start giving guidance for the year until we see some of
this economy and the effect that it's settling down a little bit, so it's a
little bit more predictable.
W. James
Okay.
P. Hausback
I'll have to get back to you. I don't have it in front of me right now.
W. James
Okay. Thanks.
Moderator
Thank you. We have a question from the line of David Lobe with FBR. Please go
ahead.
D. Lobe
I have just a couple questions. Can you give us a read on the Red part
performance for April, and any changes from the trend in March?
S. Sanchez
The Red part performance in April is not looking as strong as March. We are
seeing a down turn. And talking to our peers, many of them are. Of course, a lot
of companies have cited the impact of Easter, year-on-year, and things like
that, and we're certainly seeing some of those variations as well. But really
what we're seeing is just simply softer demand.
D. Lobe
Sharon, I know this is a squishier subject, but now that the rebranding is done
and the initiatives are done, are you feeling any impact or seeing any booking
trends that are showing you the benefit of having the Red Lion name on these
hotels?
S. Sanchez
We are. As I mentioned in my opening remarks, one of the things that we have
seen, we're tracking on a weekly basis, specifically the rebranding hotels, but
all of them we're really focused on the rebranding hotels to check how we're
capturing share in the marketplace, both in terms of occupancy and rate, pre
rebranding and post rebranding in those specific hotels. And we are seeing some
positive impact, especially as it relates to rate. We are seeing some positive
impact in occupancy, but our occupancy has always been fairly close to our
competitors in that regard. It's rate that we've really been focused on.
So, yes, we have seen some definite positive impact. We saw some great impact in
demand in March, but we also had quite a few promotions running due to the
rebranding, and so that has tapered off to what we believe is fairly normal
levels now. Call volumes may be continuing to pace up a little bit, but our
conversion, still people shopping around a lot. Closure is maybe not as
significant as it was. Then in the non-rebranded hotels, one of the benefits
that you have too when you now have more of a mass of one brand of hotel is that
we've implemented some rate initiatives, now that we can bolster some confidence
in those hotels to charge a little bit more, and we're starting to see some
impact there as well. So we really do believe like we're starting to get the
gain out of the rebranding.
D. Lobe
I was actually going to ask if you were seeing it in the hotels that were
previously Red Lion, so thank you for answering that. The hotel in Bellevue,
which rebranded earlier than the others seemed to be a bit of a special case,
but do you think that some of the other rebranded hotels will follow, at least,
a similar path if not quite such an extreme benefit?
S. Sanchez
That was an extreme benefit for a lot of reasons. It happens to be just a very
well placed hotel in that marketplace, and it's a great asset that was cast in
terms of what it could charge in rate with their previous brand. So it did have
some special circumstances. However, it also is dead center in a marketplace
that Red Lion was extremely strong in and they have received just phenomenal
results, as you say. We have also seen some of that same response in Salt Lake.
We've seen some of it in Olympia. We have seen it in some of our other markets.
We know that we potentially are seeing it in Seattle, but unfortunately, Seattle
is such a down market and it is so dynamic right now it's really hard to tell
what the effects are there. But certainly, we are seeing it in other locations
as well.
D. Lobe
Great. Thank you.
Moderator
Thank you. We have a question from the line of Dale Benson with Benson and
Associates. Please go ahead.
D. Benson
Most of them have been answered, but I'm just kind of curious how come margins
in Ticket West were down versus a big increase in revenue? And secondly, you
said April is not as strong as March. Do you have any forward bookings? Do you
have anything like that that would indicate strength coming in the summer?
A. Coffey
Let me take this last one, just for a second. Dale, this is Art. In the Tickets
West area, it's really in three primary categories. One is in the mix of the
business, as far as the amount between actual events that were presented by
WestCoast entertainment, and the costs associated with those. The operating
margins are not quite as attractive on those particular events. But then, also,
we increased the advertising for the system wide in some of our markets a little
bit more aggressive than what we have in the previous year on the year-to-year
comparison. And our call center expenses were up. So those are kind of the three
primary areas. We think that the cost control of those margins going forward
that some of those are anomalies and we'll get those back in line.
D. Benson
Okay.
S. Sanchez
Dale, I'll go ahead and respond to your other question about how we feel about
the marketplace coming into summer. We're encouraged in some regards. We're
certainly still fighting for group pace, and to stay on group pace for the year.
We haven't lost any ground, but we haven't gained any either, which we consider
in this economy as probably .... Our third party providers in the group segment
are saying that they're seeing 30% to 40% shortfall in pick ups. We're seeing
about 14%. So we compare that we maybe are encouraged by that.
In terms of the transient segment, it's somewhat anybody's guess. We, actually,
in spite of what the industry saw in the first quarter in terms of leisure
business, we actually believe we saw some decline in the leisure business in the
first quarter where some of our peers saw an increase. We believe that's
somewhat marketplace driven, our markets saw that, and we don't have some of
those big leisure destination locations that might get that winter traffic. A
lot of our leisure locations you don't really go to in the wintertime. Just like
everybody else, I think we're waiting to see.
Booking patterns have shortened up significantly. So we're ready to respond very
quickly and very aggressively, as the marketplace changes. As Art said, we have
some great leisure advertising that's going to break and some really good
placements. We've saved up a little bit to have maybe a better push in the early
summer than we otherwise would have. And so we're still encouraged that backyard
leisure travel is going to be strong for us in the summer.
D. Benson
The strategy, from the very beginning, was not to butt heads with some of the
bigger players in the industry and be in those markets where you probably play a
dominant role. I'm just curious if that's still the case.
S. Sanchez
It is. April, it's always a volatile month in the industry. It's always been a
good group month. Unless you have group business it could go either way. And we
know that with the way that everything has gone in the economy and with the
world, some of that segment hasn't been as strong. So we don't necessarily
consider April a good benchmark.
D. Benson
Okay. Thank you.
Moderator
Thank you. Mr. Coffey, there are no question in queue. Please continue.
A. Coffey
Thank you for joining us for the call today. You should know that we have a
dedicated team, very experienced managers that have a proven ability to manage
in difficult economic environments. But even more impressive to me is that this
team is clearly focused on delivering the long-term results and to continue to
position the company as a strong competitor. And we're ready to leverage all of
our excellent resources, or excellent assets that we have for the upside, as
this economy begins to improve.
We look forward to seeing you, as many of you as possible, at our annual
shareholders meeting. That's going to be held on May 16th, at 9:00 a.m., at the
Red Lion at the Park in Spokane. Thank you very much.
Moderator
Thank you, ladies and gentlemen. That does conclude our conference for today.
Thank you for your participation and for using AT&T Executive Teleconference.
You may now disconnect.