##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-Q





(Mark One)


|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------




For the quarterly period ended September 30, 2002





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





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WYNDHAM INTERNATIONAL, INC.


(Exact name of registrant as specified in its charter)





Delaware

94-2878485(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





1950 Stemmons Freeway, Suite 6001


Dallas, Texas 75207


(Address of principal executive offices) (Zip Code)





(214) 863-1000


(Registrants telephone number, including area code)





N/A


(Former name, former address and former fiscal year, if changed since last report)





---




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  ̈





The number of shares outstanding of the registrants class A common stock, par value $.01 per share, as of the close of business on
November 8, 2002, was 167,999,126.





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##### Table of Contents

WYNDHAM INTERNATIONAL, INC.





INDEX





PART IFINANCIAL INFORMATION





PageItem 1.

Financial Statements

3Wyndham International, Inc.:Condensed Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001

3Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001 (unaudited)

4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (unaudited)

5Notes to Condensed Consolidated Financial Statements as of September 30, 2002(unaudited)

6Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

24Item 3.

Qualitative and Quantitative Disclosures about Market Risks

39Item 4.

Controls and Procedures

39PART IIOTHER INFORMATIONItem 1.

Legal Proceedings

40Item 2.

Changes in Securities and Use of Proceeds

41Item 3.

Defaults Upon Senior Securities

41Item 4.

Submission of Matters to Vote of Security Holders

41Item 5.

Other Information

41Item 6.

Exhibits and Reports on Form 8-K:

42Exhibits

42Reports on Form 8-K

42Signature

43Certifications

44







2




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##### Table of Contents

PART I:    FINANCIAL INFORMATION





ITEM 1.    
FINANCIAL STATEMENTS





WYNDHAM INTERNATIONAL, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except share amounts)


(unaudited)





September 30, 2002


December 31, 2001ASSETSCurrent assets:Cash and cash equivalents

$
52,735


$
165,702Restricted cash


112,629



85,932Accounts receivable


111,600



120,283Inventories


16,293



17,742Prepaid expenses and other assets


8,323



7,598Assets held for sale, net of accumulated depreciation of $105,271 in 2002 and $25,685 in 2001


466,499



96,783Total current assets


768,079



494,040Investment in real estate and related improvements, net of accumulated depreciation of $953,907 in 2002 and $856,732 in
2001


3,796,145



4,399,256Investment in unconsolidated subsidiaries


72,327



77,619Notes and other receivables


46,174



50,385Management contract costs, net of accumulated amortization $23,491in 2002 and $18,714 in 2001


89,626



95,227Leasehold costs, net of accumulated amortization of $36,506 in 2002 and $29,889 in 2001


104,508



111,125Trade names and franchise costs, net of accumulated amortization of $28,768 in 2002 and $24,041 in 2001


95,036



97,779Deferred acquisition costs


4,385



4,662Goodwill, net of accumulated amortization of $54 in 2002 and $49,015 in 2001


391



326,843Deferred expenses, net of accumulated amortization of $74,635 in 2002 and $54,416 in 2001


62,442



71,214Other assets


40,776



41,803Total assets

$
5,079,889


$
5,769,953LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses

$
238,179


$
215,478Deposits


29,228



36,079Borrowings associated with assets held for sale


228,182



30,441Current portion of borrowings under credit facility, term loans, mortgage notes and capital lease
obligations


388,633



117,484Total current liabilities


884,222



399,482Borrowings under credit facility, term loans, mortgage notes and capital lease obligations


2,670,183



3,298,070Derivative financial instruments


96,707



73,490Deferred income taxes


203,299



290,259Deferred income


9,530



7,358Minority interest in the Operating Partnerships


21,368



21,416Minority interest in other consolidated subsidiaries


70,020



91,657Commitments and contingenciesShareholders equity:Preferred stock, $0.01 par value; authorized: 150,000,000 shares; shares issued and outstanding:12,872,927 in 2002 and 11,905,060 in 2001


129



119Common stock, $0.01 par value; authorized: 750,000,000 shares; shares issued and outstanding:167,999,126 in 2002 and 167,847,940 in 2001


1,680



1,678Additional paid in capital


4,009,889



3,912,656Receivables from shareholders and affiliates


(18,856
)


(18,121
)Accumulated other comprehensive income


(20,038
)


(29,007
)Accumulated deficit


(2,848,244
)


(2,279,104
)Total shareholders equity


1,124,560



1,588,221Total liabilities and shareholders equity

$
5,079,889


$
5,769,953





The accompanying notes are an integral part of these consolidated financial
statements.




3




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##### Table of Contents

WYNDHAM INTERNATIONAL, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share amounts)


(unaudited)





Three Months Ended September
30,


Nine Months Ended September
30,2002


2001


2002


2001Revenue:Hotel revenue

$
382,644


$
392,796


$
1,286,682


$
1,474,739Management fee and service fee income


4,361



5,178



13,404



15,560Interest and other income


1,466



2,339



5,371



7,585Total revenue


388,471



400,313



1,305,457



1,497,884Expenses:Hotel expenses


326,390



317,155



1,004,855



1,079,766General and administrative


14,129



41,797



50,599



81,992Bond offering cancellation costs










4,504



Interest expense


56,789



71,160



176,855



232,071Depreciation and amortization


65,680



56,911



198,371



168,013Loss on sale of assets


12,373



1,715



18,240



14,638Impairment loss on assets held for sale










162



Loss on derivative instruments


36,327



42,783



69,370



29,596Total expenses


511,688



531,521



1,522,956



1,606,076Operating loss from continued operations


(123,217
)


(131,208
)


(217,499
)


(108,192
)Equity in earnings of unconsolidated subsidiaries


69



1,534



967



3,131Loss from continued operations before income taxes and minority interest


(123,148
)


(129,674
)


(216,532
)


(105,061
)Income tax benefit


(44,701
)


(48,025
)


(79,371
)


(35,381
)Loss from continued operations before minority interest


(78,447
)


(81,649
)


(137,161
)


(69,680
)Minority interest in consolidated subsidiaries


102



(1,498
)


(776
)


(8,342
)Loss from continued operations


(78,345
)


(83,147
)


(137,937
)


(78,022
)Discontinued operations:Income (loss) from discontinued operations, net of taxes and minority interest


151



2,197



(1,147
)


8,367Loss before accounting change and extraordinary item


(78,194
)


(80,950
)


(139,084
)


(69,655
)Cumulative effect of change in accounting principle, net of taxes










(323,656
)


(10,364
)Extraordinary item from early extinguishment of debt, net of taxes






(1,119
)






(1,838
)Net loss

$
(78,194
)

$
(82,069
)

$
(462,740
)

$
(81,857
)Preferred stock dividends


(36,556
)


(27,998
)


(107,136
)


(82,529
)Net loss attributable to common shareholders

$
(114,750
)

$
(110,067
)

$
(569,876
)

$
(164,386
)Basic and diluted loss per common share:Loss from continued operations

$
(0.68
)

$
(0.66
)

$
(1.45
)

$
(0.96
)(Loss) income from discontinued operations, net of taxes






0.01



(0.01
)


0.05Cumulative effect of change in accounting principle, net of taxes










(1.93
)


(0.06
)Extraordinary item






(0.01
)






(0.01
)Net loss per common share

$
(0.68
)

$
(0.66
)

$
(3.39
)

$
(0.98
)





The accompanying notes are an integral part of these consolidated financial
statements.




4




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##### Table of Contents

WYNDHAM INTERNATIONAL, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)


(unaudited)





Nine Months Ended September
30,2002


2001Cash flows from operating activities:Net loss

$
(462,740
)

$
(81,857
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


217,930



177,173Amortization of unearned stock compensation


2,648



1,450Amortization of deferred loan costs


19,329



16,375Net loss on sale of assets


18,240



14,638Loss on derivative financial instruments


38,647



22,018Impairment loss on assets


162



Write-off of intangible assets


2,216



11,627Write-off of deferred acquisition costs


1,063



1,449Provision for bad debt expense


2,999



5,567Equity in earnings of unconsolidated subsidiaries


(967
)


(3,131
)Minority interest in consolidated subsidiaries


871



8,507Deferred income taxes


(92,917
)


(41,890
)Cumulative effect of change in accounting principle


324,102



10,364Extraordinary items






1,838Changes in assets and liabilities:Accounts receivable and other assets


8,203



41,532Inventory


1,450



2,435Deferred income


765



(607
)Accounts payable and other accrued expenses


(1,338
)


(48,182
)Net cash provided by operating activities


80,663



139,306Cash flows from investing activities:Improvements and additions to hotel properties


(50,658
)


(153,520
)Proceeds from sale of assets


42,954



114,347Changes in restricted cash accounts


(26,697
)


(8,710
)Collection on notes receivable


6,536



6,205Advances on other notes receivable


(2,293
)


(1,887
)Deferred acquisition costs


(1,015
)


(3,536
)Management contract costs


(335
)


(1,289
)Investment in unconsolidated subsidiaries


(349
)


(1,700
)Distributions from unconsolidated subsidiaries


1,468



4,191Other






1,551Net cash used in investing activities


(30,389
)


(44,348
)Cash flows from financing activities:Borrowings under line of credit facility and mortgage notes


67,000



500,500Repayments of borrowings under credit facility and other debt


(213,636
)


(505,181
)Payment of deferred loan costs


(15,628
)


(3,857
)Contribution received from minority interest in consolidated subsidiaries


1,075



Distribution made to minority interest in other partnerships


(2,483
)


(6,198
)Dividends and distributions paid






(14,624
)Other


(72
)


21Net cash used in financing activities


(163,744
)


(29,339
)Foreign currency translation adjustment


503



(123
)Net (decrease) increase in cash and cash equivalents


(112,967
)


65,496Cash and cash equivalents at beginning of period


165,702



52,460Cash and cash equivalents at end of period

$
52,735


$
117,956





The accompanying notes are an integral part of these consolidated financial
statements.







5




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##### Table of Contents

WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(in thousands, except share amounts)


(unaudited)





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 September 30, 2002,
Wyndham owned interests in 126 hotels with over 36,500 guestrooms and leased 37 hotels from third parties with over 5,700 guestrooms. In addition, Wyndham managed 29 hotels for third party owners with over
9,000 guestrooms and franchised 25 hotels with over 4,700 guestrooms.





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.





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 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 its 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




6




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




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 lawsuits that arise out of, and are incidental to, the conduct of its business. Management uses its judgment, with the aid of legal counsel, to determine if accruals are
necessary as a result of any pending actions against the Company.





These financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2001.





Recent PronouncementsIn June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets, collectively referred to as the Standards. SFAS 141 supersedes Accounting Principles Board Opinion (APB) No. 16, Business Combinations. 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 intangible 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.




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







On January 1, 2002, the Company completed the two step process
prescribed by SFAS 142 for (1) testing for impairment and (2) determining the amount of impairment loss related to goodwill associated with the reporting unit. Accordingly, in January 2002, the Company recorded an impairment charge of
$324,102 as a cumulative effect of a change in accounting principle. In connection with the adoption of SFAS 142, the Company did not record $9,102 of amortization in the first nine months of 2002, and will not record $12,136 of
amortization annually.





The impact of the adoption of SFAS 142 on the net loss, and basic and diluted loss per
share is presented in the following table:





Three Months Ended September 30, 2002


Three Months Ended September 30, 2001


Nine Months Ended September 30, 2002


Nine Months Ended September 30, 2001Reported net loss

$
(78,194
)

$
(82,069
)

$
(462,740
)

$
(81,857
)Add back: Goodwill amortization






3,445







9,102Adjusted net loss

$
(78,194
)

$
(78,624
)

$
(462,740
)

$
(72,755
)Reported basic and diluted loss per share

$
(0.68
)

$
(0.66
)

$
(3.39
)

$
(0.98
)Goodwill amortization






0.02







0.05Adjusted basic and diluted loss per share

$
(0.68
)

$
(0.64
)

$
(3.39
)

$
(0.93
)





The changes in the carrying amount of goodwill for the nine months
ended September 30, 2002 were as follows:





Other Segment
(1)Balance (net of amortization) as of January 1, 2002

$
326,843Reclassification to franchise costs


(2,350
)Impairment losses


(324,102
)Balance as of September 30, 2002

$
391


---

|(1) |  | The fair value of the reporting unit was estimated using the expected present value of future cash flows. The hotel management subsidiaries, which is where
goodwill is recorded, are included in the Other Segment as described on page 30 under Results of Reporting Segments. The Other Segment includes management fee and service fee income, interest and other
income, general and administrative costs, interest expense, depreciation and amortization and other charges.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




In October 2001, the FASB issued SFAS 144 Accounting for the Impairment and Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS 144 primarily addresses significant issues relating to the implementation of SFAS 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 144 are effective for fiscal years beginning after December 15, 2001. In the first quarter of 2002, the Company adopted SFAS 144. See subsequent event footnote 12 regarding SFAS 144
implementation. The assets held for sale as of December 31, 2001 continue to be accounted for in accordance with SFAS 121.




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







In April 2002, the FASB issued SFAS 145, Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The statement, which is effective for financial statements issued for fiscal years beginning after May 15, 2002 and interim
periods within those fiscal years, updates, clarifies and simplifies existing accounting pronouncements. SFAS 145 rescinds SFAS 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect. As a result of this recission, the criteria in APB 30 will now be used to classify those gains and losses, which could result in the gains and losses being reported in income
before extraordinary items. Also, SFAS 145 amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The Company
is currently evaluating the impact this statement will have on its financial position or results of operations.





In July 2002, the FASB issued SFAS 146, Accounting for Exit or Disposal Activities. SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The scope of SFAS 146 also includes (1) costs related to terminating a contract that is not a
capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract.
SFAS 146 will be effective for exit or disposal activities initiated after December 31, 2002. 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 accumulated deficits.





2.    Disposition of
Assets





During the nine months ended September 30, 2002, the Company sold three hotel properties and an
investment in a restaurant venture. The Company received net cash proceeds of approximately $36,253, after the repayment of mortgage debt of $6,911. The Company recorded a net loss of $11,674 as a result of these asset sales. Also, $20,065 of the
net cash proceeds from the sale of one hotel was used by the Company to pay down the balance of its term loans, increasing rate loans and revolver.




9




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







3.    Line of Credit Facility, Term Loans, Mortgage and Other Notes
and Capital Lease Obligations:





Outstanding borrowings as of September 30, 2002 and December 31,
2001 under the line of credit, term loans, various mortgage and other notes and capital lease obligations consisted of the following:





Description

September 30, 2002


December 31, 2001


Amortization


Interest Rate

MaturityRevolving Credit Facility

$
210,157


$
303,500


None


Libor + 3.75%(1)

June 30, 2004Term Loans


1,265,674



1,284,150


(2
)

Libor + 4.75%(3)

June 30, 2006Increasing Rate Loans


478,915



482,139


None


Libor + 4.75%(3)

June 30, 2004Bear, Stearns Funding, Inc.(4)


307,825



307,825


None


Libor + 0.82% to 4.5%

July 1, 2004Lehman Brothers Holdings Inc.(5)


179,281



202,186


None


Libor + 3.5%

July 1, 2003Lehman Brothers Holdings Inc.(6)


177,892



179,374


(6
)

Libor + 1.9%

August 10, 2003Lehman Brothers Holdings Inc.(7)


40,000






(7
)

Libor + 5.0%

September 10, 2004Metropolitan Life Insurance(8)


95,286



96,271


(9
)

8.08%

October 1, 2007Other Mortgage Notes Payable(10)


489,447



545,842


Various


(11)

(10)Unsecured financing


1,509



1,509


None


10.5%

May 15, 2006Capital lease obligations


41,012



43,199$
3,286,998


$
3,445,995Less current portion:Mortgage debt-assets held for sale (12)


(228,182
)


(30,441
)Current portion of borrowings


(388,633
)


(117,484
)Long term debt

$
2,670,183


$
3,298,070


---

|(1) |  | The one-month LIBOR rate at September 30, 2002 was 1.8113%. The rate was increased to LIBOR plus 3.75% on January 24, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(2) |  | On July 1, 2002, $5,000 was repaid 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) |  | During 2001, three properties were included in an exchange of assets, resulting in a repayment of $33,135. As of September 30, 2002, the net book value of
the remaining 21 properties is $536,480, net of impairment.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | During 2001, two properties collateralizing the debt were sold and debt was repaid in the amount of $30,347. The net book value of the remaining eight
properties is $250,611, net of impairment, as of September 30, 2002. 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 agreement
specifies an interest rate floor of 8%.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | The loan is collaterized by four hotel properties with a net book value of $239,385 at September 30, 2002. 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 three additional twelve month periods.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




|(7) |  | The loan is collaterized by three hotel properties with a net book value of $110,208 at September 30, 2002. 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 six Doubletree hotels with a net book value of $172,305 at September 30, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------

|(9) |  | The loan requires monthly payments of principal and interest in the amount of $755 until the October 1, 2007 maturity date.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(10) |  | The loans are collateralized by 14 hotel properties and a parcel of land with a net book value of $699,910 at September 30, 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Interest rates range from fixed rates of 6.50% to 11.99% and variable rates of LIBOR plus 1.5% to prime plus 2.5%. The mortgages have a weighted average
interest rate at September 30, 2002 of 5.92%. Maturity dates range from 2002 through 2023.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Subsequent to September 30, 2002, mortgage debt was paid down by a total of $10,319 due to the sale of assets.
|---- |  | --------------------------------------------------------------------------------------------------------------




On January 24, 2002, the Company reached an agreement with its lenders to permanently amend the senior credit facility and increasing
rate loans facility. As of September 30, 2002, these facilities included approximately $1.3 billion in term loans maturing in June 2006 and $479 million in increasing rate loans and a revolver with capacity of $497 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 the 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 and LIBOR plus 4.75% for the term loans and increasing rate loans. The fees paid in connection with the amendment were approximately
$12 million and will be amortized over the lives of these facilities.





On May 3, 2002, the Company
entered into a third amendment and restatement of its senior credit facility and increasing rate loans facility. The third amendment and restatement permits the issuance of certain debt securities and, in the event that the Company issues such debt
securities, the maturity of the outstanding revolving loans held by the bank lenders who have consented to the third amendment and restatement would be extended from June 30, 2004 to June 30, 2006.





This amendment and restatement directs the net cash proceeds received from any such offering of debt securities to be applied as follows:





| |  |  | first, to repay all of the outstanding increasing rate loans and cancel the increasing rate loans facility; and
| | - |  | ---------------------------------------------------------------------------------------------------------------




| |  |  | second, to repay the outstanding revolving loans the maturity of which has been extended to June 30, 2006 and the term loans prorata, based on their
outstanding principal amounts, with the revolving commitment of these repaid revolving loans reduced by the amount of the principal repayment thereof.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The proceeds from any such offering of debt securities would not be used to repay any of the revolving loans whose maturity remains June 30, 2004.




11




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







The third amendment and restatement also specifically permits the
Company to refinance two or more of its existing mortgages in a single transaction. In such a transaction, the refinancing of the mortgaged properties may be secured by the properties that secured the mortgage being refinanced and/or certain
specified unencumbered properties.





In the event that the Company issues certain debt securities, the third
amendment and restatement will also change the application of proceeds from asset dispositions, exchanges and certain incurrences of indebtedness among the various loan facilities. In addition, the third amendment and restatement allows the Company
to sell certain non-core assets for consideration consisting of marketable securities, assumed indebtedness and cash.





In connection with the credit agreement, the Company also entered into an increasing rate note purchase and loan agreement, originally dated June 30, 1999 and modified by the first amendment and restatement dated
September 25, 2000 and the second amendment and restatement effective as of January 24, 2002, with Bear Stearns Corporate Lending Inc., as co-arranger and syndication agent, Deutsche Bank Trust Company Americas (formerly known as Bankers
Trust Company), as syndication agent, and J.P. Morgan Securities Inc. (formerly known as Chase Securities Inc.), as lead arranger and book manager. This facility has no scheduled amortization. As of September 30, 2002, the Company had a
$479 million increasing rate term loan facility.





Upon receipt of the proceeds from any offering of debt
securities and repayment of the term loans and the revolving loans whose maturity has been extended in the third amendment to June 30, 2006, the outstanding amounts of the revolving loans held by the lenders who consent to the third amendment
and restatement would be converted to term loans and would constitute a new class of loans under the senior credit facility having the same interest rate and term as the existing senior credit facility. The new term loans would be amortized
semi-annually by 0.5% with balance paid on the maturity date. The extended revolving loans and the revolving loans which maintain a maturity of June 30, 2004 would have the same interest rate, but would be treated differently for purposes of
prepayments due to asset sales and incurrence of debt.





On June 7, 2002, the Company withdrew a proposed
offering of debt securities due to unfavorable market conditions.





In August 2002, the Company completed a $40,000
mortgage financing through Lehman Brothers Holdings Inc. (Lehman Brothers), which is secured by three hotel properties. The loan bears interest at LIBOR plus 5.0% with a 4.5% floor on the mortgage portion and 5.5% floor on the mezzanine
portion. The loan matures September 10, 2004, with an election to extend the term for two additional twelve month periods. The proceeds from the loan were used to repay existing mortgage indebtedness.





On June 26, 2002, the Company amended a mortgage note with a balance of $3,999 with TIB/Bank of the Keys. The amendment extended the
maturity from June 26, 2002 to December 26, 2002. The note bears interest at prime plus 2.50%.





Effective
May 1, 2002, the Company amended a mortgage note with a balance of $14,092 with MassMutual. The amendment extended the maturity from May 1, 2002 to September 1, 2002. The note bears interest at 11.99%. In August 2002, the Company
refinanced the note as part of the $40,000 mortgage financing with Lehman Brothers discussed above.





Effective
March 1, 2002, the Company amended a mortgage note with a balance of $25,657 with GMAC Commercial Mortgage. The amendment extended the maturity from August 1, 2002 to May 1, 2004. The note bears interest at LIBOR plus 3.75%. On
March 13, 2002, the Company amended a mortgage note with a balance




12




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




of $14,615 with Credit Lyonnais. The amendment extended the maturity from March 30, 2002 to March 30, 2005. The note bears interest at LIBOR plus 2.5%. On March 14, 2002, the
Company refinanced a mortgage note with a balance of $15,000 with Lincoln National Bank. The refinancing extended the maturity from May 1, 2002 to March 1, 2007. The note bears interest at prime not to exceed 7.50% with an initial rate of
4.75%.





In connection with the refinancing of the $15,000 mortgage note with Lincoln National Bank, the joint
venture partnership agreement between the Company and Maryville Hotel Associates I, L.L.C. was amended on March 1, 2002. Pursuant to the amendment, Maryville Hotel Associates I, L.L.C. became the managing general partner of the
partnership effective April 1, 2002. As a result, the Company now accounts for its 50% interest in the partnership using the equity method of accounting.





4.    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. At September 30, 2002, the estimated fair value of the interest rate hedges
represented a liability of $96,707.





The Company has no embedded derivatives under SFAS 133, as amended, at
September 30, 2002.





The following table represents the derivatives in place as of September 30, 2002:





Notional Amount

Maturity Date

Swap Rate


Cap Rate


Floor Rate


Trigger Level


Fair Market ValueType of Hedge:Interest Rate Cap

$
177,892

08/10/2003

n/a


7.25
%

n/a


n/a


$
Interest Rate Corridor


550,000

12/07/2002

n/a


5.25
%

n/a


7.25
%


Interest Rate Cap3 year Knockout


100,000

03/06/2003

n/a


4.75
%

n/a


7.50
%


Interest Rate Cap3 year Knockout


75,000

03/06/2003

n/a


4.75
%

n/a


7.50
%


Interest Rate Cap3 year Knockout


75,000

03/06/2003

n/a


4.75
%

n/a


7.50
%


Interest Rate Cap


18,990

07/03/2004

n/a


6.50
%

n/a


n/a



8Interest Rate Cap


27,680

07/03/2004

n/a


7.10
%

n/a


n/a



8Interest Rate Cap


42,760

07/03/2004

n/a


8.10
%

n/a


n/a



8Interest Rate Cap


42,760

07/03/2004

n/a


9.70
%

n/a


n/a



4Interest Rate Cap


26,500

08/02/2004

n/a


8.50
%

n/a


n/a



5Structured Collar


180,000

11/04/2004

n/a


6.60
%(1)

5.65
%(2)

n/a



(14,508
)Interest Rate Cap


5,150

07/01/2005

n/a


9.75
%

n/a


n/a



Interest Rate Cap


106,000

07/01/2005

n/a


9.75
%

n/a


n/a



61$
1,427,732















$
(14,414
)Interest Rate Swap

$
14,541

04/01/2005

3.92
%-4.73%

6.50
%

n/a


5.50
%

$
(838
)Interest Rate Swap


44,438

08/01/2005

4.36
%-5.25%

7.85
%

n/a


5.75
%


(3,339
)Interest Rate Swap5 year Knockout


150,000

03/06/2005

6.10
%-6.75%

n/a


n/a


7.00
%-8.50%


(16,653
)Interest Rate Swap5 year Knockout


550,000

03/07/2005

6.10
%-6.75%

n/a


n/a


7.00
%-8.50%


(61,463
)$
758,979















$
(82,293
)




13




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




|(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%
|--- |  | -------------------------------------------------------------------------------------




In the third quarter of 2002, the Company recorded a loss of $23,057 for the change in the fair market value of the interest rate hedge contracts through earnings, and
an increase of $30 (net of taxes of $20) to other comprehensive income. Also, in the third quarter of 2002, the Company recorded amortization of $1,717 (net of taxes of $1,144) to earnings as a reduction of the transitional adjustment that was
recorded in other comprehensive income in 2001. Additionally, the Company paid $10,408 in settlement payments for the ineffective hedges during the third quarter of 2002.





In the second quarter of 2002, the Company recorded a loss of $18,533 for the change in the fair market value of the interest rate hedge contracts through earnings, and an
increase of $103 (net of taxes of $69) to other comprehensive income. Also, in the second quarter of 2002, the Company recorded amortization of $3,084 (net of taxes of $2,056) to earnings as a reduction of the transitional adjustment that was
recorded in other comprehensive income in 2001. Additionally, the Company paid $10,705 in settlement payments for the ineffective hedges during the second quarter of 2002.





In the first quarter of 2002, the Company recorded a gain of $16,084 for the change in the fair market value of the interest rate hedge contracts through earnings, and a
charge of $1,508 (net of taxes of $1,005) through other comprehensive income. Also, in the first quarter of 2002, the Company recorded amortization of $3,084 (net of taxes of $2,056) to earnings as a reduction of the transitional adjustment that was
recorded in other comprehensive income in 2001. Additionally, the Company paid $9,610 in settlement payments for the ineffective hedges during the first quarter of 2002.





Accounting for Derivatives and Hedging Activities





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 (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 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.




14




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







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.





5.    Comprehensive Income:





SFAS No. 130, Reporting Comprehensive Income establishes standards for reporting and
displaying comprehensive income and its components. Total comprehensive income for the relevant periods is calculated as follows:





Three Months Ended September
30,


Nine Months Ended September 30,2002


2001


2002


2001Net loss

$
(78,194
)

$
(82,069
)

$
(462,740
)

$
(81,857
)Unrealized loss on securities held for sale


(383
)


(758
)


(322
)


(266
)Unrealized foreign exchange (loss) gain


1,196



(596
)


35



(73
)Unrealized gain (loss) on derivative instruments


1,687



(763
)


9,259



(41,884
)Total comprehensive income

$
(75,694
)

$
(84,186
)

$
(453,768
)

$
(124,080
)




15




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







6.    Computation of Earnings Per Share:





Basic and diluted loss per share have been computed as follows:





Three Months Ended September
30, 2002


Three Months Ended September
30, 2001Basic


Diluted (1), (2)


Basic


Diluted (1), (2)Loss from continued operations

$
(78,345
)

$
(78,345
)

$
(83,148
)

$
(83,148
)Income from discontinued operations


151



151



2,197



2,197Preferred stock dividends


(36,556
)


(36,556
)


(27,998
)


(27,998
)Loss attributable to common shareholders before extraordinary item


(114,750
)


(114,750
)


(108,949
)


(108,949
)Extraordinary item










(1,119
)


(1,119
)Net loss attributable to common shareholders

$
(114,750
)

$
(114,750
)

$
(110,068
)

$
(110,068
)Weighted average number of shares outstanding


167,977



167,977



167,810



167,810Loss per share:Loss before extraordinary item

$
(0.68
)

$
(0.68
)

$
(0.66
)

$
(0.66
)Income from discontinued operations










0.01



0.01Extraordinary item










(0.01
)


(0.01
)Net loss per common share

$
(0.68
)

$
(0.68
)

$
(0.66
)

$
(0.66
)


---

|(1) |  | For the three months ended September 30, 2002, the dilutive effect of unvested stock grants of 13,536 and 149,859 shares of preferred stock were not
included in the computation of diluted earnings per share because they are anti-dilutive. No option to purchase shares of common stock was issued for the three months ended September 30, 2002. For the three months ended September 30, 2001,
the dilutive effect of unvested stock grants of 5,858, the option to purchase 702 shares of common stock and 136,125 shares of preferred stock were not included in the computation of diluted earnings per share because they are
anti-dilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | For the three months ended September 30, 2002, options to purchase 13,224 shares of common stock at prices ranging from $0.61 to $30.40 were
outstanding but not included in the computation because the effect would be anti-dilutive. For the three months ended September 30, 2001, options to purchase 13,183 shares of common stock at prices ranging from $2.15 to $30.40 were
outstanding but not included in the computation because the effect would be anti-dilutive.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







Nine Months Ended September
30, 2002


Nine Months Ended September
30, 2001Basic


Diluted (1), (2)


Basic


Diluted (1), (2)Loss from continued operations

$
(137,937
)

$
(137,937
)

$
(78,022
)

$
(78,022
)(Loss) income from discontinued operations


(1,147
)


(1,147
)


8,367



8,367Preferred stock dividends


(107,136
)


(107,136
)


(82,529
)


(82,529
)Loss attributable to common shareholders before extraordinary item and cumulative effect of accounting
change


(246,220
)


(246,220
)


(152,184
)


(152,184
)Extraordinary item










(1,838
)


(1,838
)Cumulative effect of accounting change


(323,656
)


(323,656
)


(10,364
)


(10,364
)Net loss attributable to common shareholders

$
(569,876
)

$
(569,876
)

$
(164,386
)

$
(164,386
)Weighted average number of shares outstanding


167,925



167,925



167,644



167,644Loss per share:Loss from continued operations

$
(1.45
)

$
(1.45
)

$
(0.96
)

$
(0.96
)(Loss) income from discontinued operations


(0.01
)


(0.01
)


0.05



0.05Extraordinary item










(0.01
)


(0.01
)Accounting change


(1.93
)


(1.93
)


(0.06
)


(0.06
)Net loss per common share

$
(3.39
)

$
(3.39
)

$
(0.98
)

$
(0.98
)


---

|(1) |  | For the nine months ended September 30, 2002, the dilutive effect of unvested stock grants of 13,541 and 149,859 shares of preferred stock were not
included in the computation of diluted earnings per share because they are anti-dilutive. No option to purchase shares of common stock was issued for the nine months ended September 30, 2002. For the nine months ended September 30, 2001,
the dilutive effect of unvested stock grants of 3,951, the option to purchase 666 shares of common stock and 136,125 shares of preferred stock were not included in the computation of diluted earnings per share because they are
anti-dilutive.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | For the nine months ended September 30, 2002, options to purchase 13,224 shares of common stock at prices ranging from $0.61 to $30.40 were
outstanding but not included in the computation because the effect would be anti-dilutive. For the nine months ended September 30, 2001, options to purchase 12,895 shares of common stock at prices ranging from $2.15 to $30.40 were
outstanding but not included in the computation because the effect would be anti-dilutive.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




7.    Commitments and Contingencies:





On May 7, 1999, Doris Johnson and
Charles Dougherty filed a lawsuit in the Northern District of California against Patriot, Wyndham, their respective operating partnerships and Paine Webber Group, Inc. This action, 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 of filing. The action asserts securities fraud claims and alleges that the purported class members were
wrongfully induced to tender their shares as part of the Patriot/Bay Meadows merger based on a fraudulent prospectus. The action further alleges that defendants continued to defraud shareholders about their intentions to acquire numerous hotels and
saddle the company with 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.,




17




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




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 below have been consolidated in the Northern District
of California for consolidated pretrial purposes. On or about October 13, 2000, the defendants moved to dismiss the actions. On or about August 15, 2001, the court granted 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, plaintiff filed an amended complaint seeking substantially the same relief as in the original complaint. On or about
December 20, 2001, the defendants moved to dismiss the amended complaint. On or about September 3, 2002, the court granted in part and denied in part Defendants motion to dismiss. The Court did not dismiss certain of Plaintiffs
claims under Section 11 of the Securities Act of 1933 and Section 12(b) of the Securities Exchange Act of 1934. The defendants have moved the court for reargument of those portions of the order which did not dismiss the complaint. An
answer to the complaint has not yet been filed. 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-CV1416-D, was filed in the Northern District of Texas against Patriot, Wyndham, 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 the Company. The complaint was filed on behalf of
all shareholders who purchased Patriot American and Wyndham stock during that period. Three other actions, Gallagher v. Patriot American Hospitality, Inc., et al., No. 3-99-CV1429-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 and transferred to the Northern District of California for consolidated pre-trial purposes. On or about October 20, 2000, the defendants moved to dismiss the actions. On or about August 15, 2001, the court granted
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, plaintiff filed an amended complaint seeking
substantially the same relief as in the original complaint. On or about December 20, 2001, the defendants moved to dismiss the amended complaint. On or about September 3, 2002, the court dismissed in its entirety the complaint and granted
plaintiffs leave to amend. Plaintiffs have not yet filed an amended complaint. The Company intends to defend the suits vigorously.





On or about October 26, 2000, 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 Wyndham
International, Inc. f/k/a Patriot American Hospitality, Inc. as respondent. The Demand for Arbitration claims that the claimants and Wyndham are parties to a Contribution Agreement dated February 28, 1997 and that Wyndham is in breach of
that agreement. Claimants assert that Wyndham breached its agreement to pay respondents additional consideration under the Contribution Agreement by, among other things, allegedly denying claimants compensation due to them in connection with various
transactions initiated by claimants and provided to Wyndham, which allegedly provided Wyndham with growth and added revenue. In addition, claimants assert that Wyndham failed to provide claimants with various other amounts due under the Contribution
Agreement,




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




failed to indemnify claimants for certain expenses and intentionally and negligently mismanaged Wyndhams business. Claimants do not specify the amount of damages sought. The Company intends
to defend the claims vigorously.





On May 29, 2002, the State of Florida Office of the Attorney General Department
of Legal Affairs filed a lawsuit in Leon County, Florida (Case No. 02-CA-1296) naming us, Patriot and four current or former Wyndham employees as defendants. In this case, the Attorney General alleged that the imposition of energy surcharges
violated the States Deceptive and Unfair Trade Practices Act and False Claims Act. The Company filed a motion to dismiss this suit which was granted in part. The Attorney General has filed a notice of appeal, appealing the dismissal of the
individual defendants. The Company intends to vigorously defend this appeal.





On June 20, 2002, plaintiffs in
the case entitled Roller-Edelstein, et al. v. Wyndham International, Inc., et al., filed an amended complaint in Dallas County District Court (case no. 02-04946-A) alleging that resort fees charged to hotel guests constituted
common law fraud, breach of contract and violated Texas Deceptive Trade Practices Act. The plaintiffs claim to represent a nationwide class and have estimated damages in excess of ten million dollars. The Company has answered this complaint
and anticipates vigorously defending it.





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.





8.    Dividends





The Company does not anticipate paying a dividend to the common shareholders and is prohibited under the terms of the senior credit facility and increasing rate loans facility from paying dividends on
the class A common stock. Also, the Company is prohibited under the terms of the January 24, 2002 amendments to the senior credit facility and increasing rate loans facility from paying the cash portion of any dividends on the preferred stock.
However, 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.





On September 30, 2002, the Company issued approximately 1,233 shares of series A preferred stock and 226,547 shares of
series B preferred stock as part of the quarterly dividend. As of September 30, 2002, the Company has deferred payments of the cash portion of the preferred stock dividend totaling $36,560. The amount has been included in accounts payable
and accrued expenses in the accompanying condensed consolidated balance sheet. In addition, according to the terms of the 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. On September 30, 2002, the Company issued approximately 350 shares of series A preferred stock and
64,311 shares of series B preferred stock in payment of the additional 2.0% penalty dividends for the three months ended September 30, 2002.





On June 30, 2002, the Company issued approximately 1,204 shares of series A preferred stock and 221,152 shares of series B preferred stock as part of the quarterly dividend. In
addition, the Company issued an additional stock dividend of 236,033 shares of series A and series B preferred stock with a value of $23,603 in




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WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




payment of previously accrued additional dividends at a rate of 2.0% per annum as cash dividends on the preferred stock that was in arrears for at least 60 days as of June 30, 2002.





On March 31, 2002, the Company issued approximately 1,176 shares of series A preferred stock and
215,889 shares of series B preferred stock as part of the quarterly dividend.





9.    Segment Reporting:





The Company classifies its business into proprietary owned brands and non-proprietary branded 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 Hotels & Resorts   ® , Wyndham Luxury Resorts, Summerfield Suites by Wyndham    , Wyndham Gardens   ® , other proprietary branded hotel properties, non-proprietary branded hotel properties and other.





| |  |  | Wyndham Hotels & Resorts®are 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 Gardens®are full-service properties that 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 Gardens®libraries and laundry and room service.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Summerfield Suites by Wyndhamoffer guests the highest quality lodging in the 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | In January 2002, the Company sold Manoir de Gressy, the only hotel remaining in the other proprietary branded 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 Doubletree®, Hilton®, Holiday Inn®,
Ramada®, Crowne Plaza®, Embassy Suites®, Marriott®, Courtyard by Marriott®, Sheraton®and independents.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







| |  |  | Other includes management fee and service fee income, 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 Note 1. The total revenue and operating income (loss) for each segment for the three and nine months ended September 30, 2002 and 2001 are as follows:





Three Months Ended September 30, 2002

Wyndham Hotels & Resorts®

Wyndham Luxury Resorts


Wyndham Gardens®

Summerfield Suites byWyndham

Other Proprietary Branded

Non Proprietary Branded

Other


TotalTotal revenue

$
217,542

$
16,950


$
15,865

$
28,434

$


$
103,853

$
5,827


$
388,471Operating income (loss)


27,139


(520
)


846


980





18,307


(169,969
)


(123,217
)Three Months Ended September 30, 2001

Wyndham Hotels & Resorts®

Wyndham Luxury Resorts


Wyndham Gardens®

Summerfield Suites by Wyndham

Other Proprietary Branded

Non Proprietary Branded

Other


TotalTotal revenue

$
216,156

$
15,873


$
16,712

$
32,143

$
977

$
110,935

$
7,517


$
400,313Operating income (loss)


34,952


545



2,308


5,063


207


23,333


(197,616
)


(131,208
)Nine Months Ended September 30, 2002

Wyndham Hotels & Resorts®

Wyndham Luxury Resorts


Wyndham Gardens®

Summerfield Suites by Wyndham

Other Proprietary Branded

Non Proprietary Branded

Other


TotalTotal revenue

$
747,433

$
68,225


$
48,520

$
82,833

$
288

$
339,383

$
18,775


$
1,305,457Operating income (loss)


155,654


11,980



4,178


3,600





75,091


(468,002
)


(217,499
)Nine Months Ended September 30, 2001

Wyndham Hotels & Resorts®

Wyndham Luxury Resorts


Wyndham Gardens®

Summerfield Suites by Wyndham

Other Proprietary Branded

Non Proprietary Branded

Other


TotalTotal revenue

$
805,489

$
68,239


$
55,512

$
101,178

$
3,410

$
440,911

$
23,145


$
1,497,884Operating income (loss)


202,985


14,475



9,590


17,590


431


115,344


(468,607
)


(108,192
)




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)







The following table represents revenue information by geographic area
for the three and nine months ended September 30, 2002 and 2001, respectively. Revenues are attributed to the United States and its territories or International based on the location of hotel properties.





Three Months ended September 30, 2002United States

International

TotalRevenues

$
382,631

$
5,840

$
388,471Three Months ended September 30, 2001United States

International

TotalRevenues

$
393,657

$
6,656

$
400,313Nine Months ended September 30, 2002United States

International

TotalRevenues

$
1,285,819

$
19,638

$
1,305,457Nine Months ended September 30, 2001United States

International

TotalRevenues

$
1,473,566

$
24,318

$
1,497,884





10.    Supplemental Cash Flow Disclosure:





During the three months ended September 30, 2002, the Company issued a stock dividend of 227,780 shares of series A
and series B preferred stock with a value of $22,778. 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. In addition, the Company issued an additional stock dividend of 64,661 shares of series A and series B preferred stock with a value of $6,466 in payment of additional dividends at a rate of 2.0% per annum
as cash dividends on the preferred stock were in arrears for at least 60 days as of September 30, 2002.





During the three months ended June 30, 2002, the Company issued a stock dividend of 222,356 shares of series A and series B preferred stock with a value of $22,236. 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. In addition, the Company issued an additional stock dividend of
236,033 shares of series A and series B preferred stock with a value of $23,603 in payment of previously accrued additional dividends at a rate of 2.0% per annum as cash dividends on the preferred stock were in arrears for at least
60 days as of June 30, 2002.





During the three months ended March 31, 2002, the Company issued a
stock dividend of 217,065 shares of series A and series B preferred stock with a value of $21,706. 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.





During the three months ended
September 30, 2002, the Company recorded an accrual of $23,107 as a result of the change in the fair market value of the derivatives with the offset recognized as a loss of $23,057 and an




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##### Table of Contents



WYNDHAM INTERNATIONAL, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(in thousands, except share
amounts)


(unaudited)




increase to other comprehensive income of $30 (net of taxes of $20). Also, in the third quarter of 2002, the Company recorded amortization of $1,717 (net of taxes of $1,144) to earnings as a
reduction of the transitional adjustment that was recorded in other comprehensive income in 2001. Additionally, the Company paid $10,408 in settlement payments for the ineffective hedges.





During the three months ended June 30, 2002, the Company recorded an accrual of $18,706 as a result of the change in the fair market value of the derivatives with the
offset recognized as a loss of $18,533 and an increase to other comprehensive income of $103 (net of taxes of $69). Also, in the second quarter of 2002, the Company recorded amortization of $3,084 (net of taxes of $2,056) to earnings as a reduction
of the transitional adjustment that was recorded in other comprehensive income in 2001. Additionally, the Company paid $10,705 in settlement payments for the ineffective hedges.





During the three months ended March 31, 2002, the Company recorded an accrual of $18,596 as a result of the change in the fair market value of the derivatives with the
offset recognized as a gain of $16,084 and a charge through other comprehensive income of $1,508 (net of taxes of $1,005). Also, in the first quarter of 2002, the Company recorded amortization of $3,084 (net of taxes of $2,056) to earnings as a
reduction of the transitional adjustment that was recorded in other comprehensive income in 2001. Additionally, the Company paid $9,610 in settlement payments for the ineffective hedges.





The Company adopted the provisions of SFAS 142 in the first quarter of 2002 and recorded an impairment charge of $324,102 as a cumulative effect of a change in
accounting principle.





11.    Exchange Listing





On October 15, 2002, the Companys class A common stock began trading on the American Stock Exchange (AMEX). The Companys class A common
stock was previously listed and traded on the New York Stock Exchange (NYSE). The Company received notice from the NYSE that it was not in compliance with their continued listing standards because the average closing stock price of the
Companys class A common stock was below $1.00 for a consecutive 30-day trading period prior to the date of the notice. The Company explored several options to ensure that its class A common stock would continue to be publicly traded
and the Company believes that the AMEX provided the Company with the best solution.





12.    Subsequent Event:





On September 24, 2002, the Company announced that it had entered into a definitive agreement with
Westbrook Hotel Partners IV, LLC to sell thirteen properties for approximately $447 million. The sale is expected to close by the end of 2002. These properties have been reclassified as assets held for sale in the balance sheet as of
September 30, 2002. As a result of the implementation of SFAS 144, the results of operations for twelve of the thirteen assets have been reported separately as discontinued operations. The thirteenth hotel is accounted for under
SFAS 121 as it was previously held for sale.





On November 1, 2002, the Company sold the Wyndham Columbus
for $11 million. As part of the sale agreement, Wyndham Columbus will retain the Wyndham flag for ten years under a franchise agreement. This property has been classified as an asset held for sale in the balance sheet as of September 30,
2002. The results of operations have been reported separately as discontinued operations.







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##### Table of Contents

ITEM 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations





The following discussion and analysis should be read in conjunction with the Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on
Form 10-K for the year ended December 31, 2001.





Certain statements in this Form 10-Q constitute
forward-looking statements as that term is defined under §21E of the Securities and 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 in our 2001 Annual Report on Form 10-K 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 or war, threats of terrorist activity or war 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 Form 10-Q. We assume no obligation to update or revise them or provide reasons why actual results may differ.





Results of operations:





General





As of September 30, 2002, we had 163 owned and leased hotels with
approximately 42,300 guestrooms as compared to 167 owned and leased hotels with approximately 43,000 guestrooms at September 30, 2001. This decrease was a result of hotels sold during that twelve month period. As of
September 30, 2002, we managed 29 hotels and franchised 25 hotels as compared to 31 managed hotels and 29 franchised hotels at September 30, 2001.





The residual effects of the terrorist attacks of September 11, 2001, a sluggish economy, investor lack of confidence in the stock market and other 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. 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.




24




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##### Table of Contents




In an agreement dated as of January 24, 2002, we amended and restated our
senior credit facility and increasing rate loans facility. 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
senior 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 apply the net cash proceeds from asset sales and
refinancings of existing mortgage indebtedness (other than the credit facilities) in the following manner: first, the initial $10,000,000 of such proceeds each year may be retained by us; second, the next $10,000,000 of such proceeds each year are
applied to scheduled term loan prepayments; third, subject to certain limitations set forth in the credit facilities, 75% of such proceeds are applied to repay indebtedness under the credit facilities and 25% of such proceeds may be retained by us
up to a maximum of $50,000,000 so retained during the period between January 24, 2002 and January 24, 2003; fourth, after we have retained $50,000,000 of such proceeds in the year 2002, 100% of such proceeds are applied to repay indebtedness under
the credit facilities pro rata basis. We also agreed to use 100% of the net cash proceeds from new debt issuances (other than refinancings of existing mortgage indebtedness other than the credit facilities) to reduce debt outstanding under the
credit facilities pro rata basis.





On May 3, 2002, we entered into a third amendment and restatement of our
credit facilities. The third amendment and restatement permits the issuance of certain debt securities and, in the event that we issue such debt securities, the maturity of the outstanding revolving loans held by the lenders who have consented to
the third amendment and restatement would be extended from June 30, 2004 to June 30, 2006.





This
amendment and restatement directs the net cash proceeds we receive from any such offering of debt securities to be applied as follows:





| |  |  | first, to repay all of the outstanding increasing rate loans and cancel the increasing rate loans facility; and
| | - |  | ---------------------------------------------------------------------------------------------------------------




| |  |  | second, to repay the outstanding revolving loans the maturity of which has been extended to June 30, 2006 and the term loans equally, based on their
outstanding principal amounts, with the revolving commitment of these repaid revolving loans reduced by the amount of the principal repayment thereof.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The proceeds from any such offering of debt securities would not be used to repay any of the revolving loans whose maturity remains June 30, 2004.





The third amendment and restatement also specifically permits us to refinance two or more of our existing mortgages in a single
transaction. In such a transaction, the refinancing of the mortgaged properties may be secured by the properties that secured the mortgage being refinanced and/or certain specified unencumbered properties.





In the event that we issue certain debt securities, the third amendment and restatement will also change the application of proceeds from
asset dispositions, exchanges and certain incurrences of indebtedness among the various loan facilities. In addition, the third amendment and restatement allows us to sell certain non-core assets for consideration consisting of marketable
securities, assumed indebtedness and cash.





In connection with the credit agreement, we also entered into an
increasing rate note purchase and loan agreement, originally dated June 30, 1999 and modified by the first amendment and restatement dated September 25, 2000 and the second amendment and restatement effective as of January 24, 2002,
with Bear Stearns Corporate Lending Inc, as co-arranger and syndication agent, Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company), as syndication agent, and J.P. Morgan Securities Inc. (formerly known as Chase Securities
Inc.), as lead arranger and book manager. This facility has no scheduled amortization. As of September 30, 2002, we had a $479 million increasing rate term loan facility.




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##### Table of Contents




Upon our receipt of the proceeds from any offering of debt securities and
repayment of the term loans and the revolving loans whose maturity has been extended in the third amendment and restatement to June 30, 2006, the outstanding amounts of the revolving loans held by the lenders who consent to the third amendment
and restatement would be converted to term loans and would constitute a new class of loans under the senior credit facility having the same interest rate and term as the existing senior credit facility. The new term loans would be amortized
semi-annually by 0.5% with balance paid on the maturity date. The extended revolving loans and the revolving loans which maintain a maturity of June 30, 2004 would have the same interest rate, but would be treated differently for purposes of
prepayments due to asset sales and incurrence of debt.





On June 7, 2002, we withdrew a proposed offering of
debt securities due to unfavorable market conditions.





Results of Operations: Three months ended
September 30, 2002 compared with the three months ended September 30, 2001





Our hotel revenues were
$382,644,000 and $392,796,000 for the three months ended September 30, 2002 and 2001, respectively. Approximately $8,815,000 of the decrease in our hotel revenues is attributable to those hotels that were sold in 2001. The remaining decrease is
attributable to declining revenues throughout our owned and leased hotel portfolio. Revenue per available room, or RevPAR, decreased 2.4% for the quarter ended September 30, 2002 as compared to the same period in 2001.





Our hotel expenses were $326,390,000 and $317,155,000 for the three months ended September 30, 2002 and 2001, respectively.
Approximately $6,054,000 of the increase in our hotel expenses is attributable to increases in our property insurance premium in 2002 due to the changes in the insurance industry as a result of the terrorist attack of September 11, 2001. In
addition, utility surcharge credits that were taken against hotel expenses in the three months ended September 30, 2001, are no longer applicable in 2002.





Our management fee and service fee income was $4,361,000 and $5,178,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease is primarily a result of reductions in
hotel revenue upon which the fees are based and the termination of certain contracts since September 30, 2001.





Our general and administrative expenses were $14,129,000 and $41,797,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease in our general and administrative expenses for the quarter ended
September 30, 2002 is primarily related to the following 2001 expenses: write-off of a receivable deemed not collectible for $4,605,000, $3,014,000 in severance costs paid, $12,414,000 of costs associated with the termination of management and
leasehold contracts, and $5,239,000 in reservation and marketing funds not reimbursed by the hotels.





Our interest
expense was $56,789,000 and $71,160,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease in interest expense is primarily a result of a reduction of interest rates. The average one-month LIBOR rate for the
three months ended September 30, 2002 was 1.8163% as compared to 3.5475% for the three months ended September 30, 2001. The weighted average interest rate as of September 30, 2002 was 6.14% as compared to 6.6% as of September 30,
2001.





We recorded a loss of $23,057,000 and $37,694,000 for the three months ended September 30, 2002 and
2001, respectively, for the change in the fair market value of interest rate hedge contracts. In addition, $30,000 (net of taxes of $20,000) and $763,000 (net of taxes of $508,000) were charged through other comprehensive income for the three months
ended September 30, 2002 and 2001, respectively, for such change. Also, during the third quarter of 2002, we paid $10,408,000 in settlement payments for ineffective hedges and recorded amortization of $1,717,000 (net of taxes of $1,144,000) to
earnings as a reduction of the transitional adjustment that was recorded in other comprehensive income in 2001.




26




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##### Table of Contents




Our depreciation and amortization expense was $65,680,000 and $56,911,000 for the
three months ended September 30, 2002 and 2001, respectively. During the fourth quarter of 2001, we transferred back to held for use certain assets that were previously held for sale thus increasing depreciation expense in the third quarter of
2002 by $14,658,000. The remainder of the increase is due to asset additions subsequent to the third quarter of 2001. This increase was offset by our adopting SFAS 142 during the first quarter of 2002 which impaired our goodwill by $324,102,000 thus
reducing amortization expense by $3,445,000 for the three months ended September 30, 2002.





The benefit for
income taxes was $44,701,000 and $48,025,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease in tax benefit was due to smaller operating losses in the three months ended September 30, 2002 as compared to
the three months ended September 30, 2001.





Minority interests share of income in consolidated
subsidiaries was $102,000 and $1,498,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease in the allocation of income used in the computation of minority interest was in part due to depreciation expense now
being recorded for assets previously held for sale in 2001 and in part due to a decrease in operating income.





Income from discontinued operations was $151,000 and $2,197,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease in income was due primarily to depreciation in 2002 on assets that were
previously held for sale during the three months ended September 30, 2001 and in part due to a decrease in operating income.





During the three months ended September 30, 2001, we recorded a charge of $1,119,000, net of taxes, as an extraordinary item resulting from the write-off of unamortized deferred financing costs for debt that was repaid.





Our resulting net loss for the three months ended September 30, 2002 was $78,195,000 as compared to net loss
of $82,069,000 for the three months ended September 30, 2001.





Results of Operations: Nine months ended
September 30, 2002 compared with the nine months ended September 30, 2001





Our hotel revenues were
$1,286,682,000 and $1,474,739,000 for the nine months ended September 30, 2002 and 2001, respectively. Approximately $8,815,000 of the decrease in our hotel revenues is attributable to those hotels that were sold in 2001. The remaining decrease
is attributable to declining revenues throughout our owned and leased hotel portfolio. RevPAR decreased 10.9% for the nine months ended September 30, 2002 as compared to the same period in 2001.





Our hotel expenses were $1,004,855,000 and $1,079,766,000 for the nine months ended September 30, 2002 and 2001, respectively.
Approximately $7,299,000 of the decrease in our hotel expenses is attributable to those hotels that were sold in 2001. The remaining decrease is attributable to staffing reductions at hotels and other cost saving initiatives we implemented as our
hotel revenues declined.





Our management fee and service fee income was $13,404,000 and $15,560,000 for the nine
months ended September 30, 2002 and 2001, respectively. The decrease is primarily a result of reductions in hotel revenue upon which the fees are based and the termination of certain contracts since 2001.





Our general and administrative expenses were $50,599,000 and $81,992,000 for the nine months ended September 30, 2002 and 2001,
respectively. The decrease in our general and administrative expenses for the nine months ended September 30, 2002 is partly related to the decrease in conversion costs of $8,927,000 resulting from the implementation of brand standards in our
portfolio of hotels during the nine months ended September 30, 2001. The decrease is also due to the following 2001 expenses: write-off of a receivable deemed not collectible for $4,605,000, $13,179,000 of costs associated with the termination
of management and




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leasehold contracts, $5,239,000 in reservation and marketing funds not reimbursed by the hotels and $9,539,000 of severance costs. This decrease was offset in 2002 in part by an increase in debt
restructuring costs of $1,507,000 and amortization of retention bonuses of $6,525,000.





During the nine months
ended September 30, 2002, our bond offering cancellation costs were $4,504,000. We withdrew a proposed offering of debt securities during the second quarter of 2002 due to unfavorable market conditions.





Our interest expense was $176,855,000 and $232,071,000 for the nine months ended September 30, 2002 and 2001, respectively. The
decrease in interest expense is primarily a result of a reduction of interest rates. The average one-month LIBOR rate for the nine months ended September 30, 2002 was 1.8362% as compared to 4.446% for the nine months ended September 30,
2001. The weighted average interest rate as of September 30, 2002 was 6.14% as compared to 6.6% as of September 30, 2001.





We recorded a loss of $25,508,000 and $22,018,000 for the nine months ended September 30, 2002 and 2001, respectively, for the change in the fair market value of interest rate hedge contracts. In addition, $1,375,000 (net of
taxes of $916,000) and $20,193,000 (net of taxes of $13,462,000) were charged through other comprehensive income as of September 30, 2002 and 2001, respectively, for such change. Also, during the nine months ended September 30, 2002, we
paid $30,723,000 in settlement payments for ineffective hedges and recorded amortization of $7,884,000 (net of taxes of $5,256,000) to earnings during the nine months ended September 30, 2002 as a reduction of the transitional adjustment that
was recorded in other comprehensive income in 2001.





Our depreciation and amortization expense was $198,371,000
and $168,013,000 for the nine months ended September 30, 2002 and 2001, respectively. During the fourth quarter of 2001, we transferred back to held for use certain assets that were previously held for sale thus increasing depreciation expense
for the nine months ended September 30, 2002 by $39,151,000. The remainder of the increase is due to asset additions subsequent to the third quarter of 2001. This increase was offset by our adopting SFAS 142 during the first quarter of
2002 which impaired our goodwill by $324,102,000 thus reducing amortization expense by $9,102,000 for the nine months ended September 30, 2002.





The benefit for income taxes was $79,371,000 and $35,381,000 for the nine months ended September 30, 2002 and 2001, respectively. The tax benefit was in part due to operating losses and in part
due to depreciation of certain assets that were previously held for sale during the nine months ended September 30, 2001, resulting in differences in GAAP and tax depreciation.





Minority interests share of income in consolidated subsidiaries was $776,000 and $8,342,000 for the nine months ended September 30, 2002 and 2001, respectively.
The decrease in the allocation of income used in the computation of minority interest was in part due to depreciation expense now being recorded for assets previously held for sale in 2001 and in part due to lower operating income. Also,
approximately $3,283,000 of the decrease in minority interest is attributable to those hotels that were sold in 2001.





Loss from discontinued operations was $1,147,000 for the nine months ended September 30, 2002 and income from discontinued operations was $8,367,000 for the nine months ended September 30, 2001. The decrease in income was
due primarily to depreciation in 2002 on assets that were previously held for sale during the nine months ended September 30, 2001.





Our adoption of SFAS No. 142 during the nine months ended September 30, 2002 resulted in the cumulative effect of an accounting change of $326,656,000 being recognized in our condensed consolidated statement of
operations as compared to $10,364,000 (net of taxes of $6,911,000) for the adoption of SFAS No. 133 for the nine months ended September 30, 2001.




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During the nine months ended September 30, 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 was repaid.





Our resulting net loss for the nine months ended September 30, 2002 was $462,740,000 as compared to net loss of $81,857,000 for the nine months ended September 30, 2001.





Results of reporting segments:





Our results of operations are classified into seven reportable segments. Those segments include (1) Wyndham Hotels & Resorts   ® , (2) Wyndham Luxury Resorts,
(3) Wyndham Gardens   ® , (4) Summerfield Suites by Wyndham    , (5) other proprietary branded
hotel properties, (6) non-proprietary branded properties and (7) other.





Three months ended
September 30, 2002 compared with the three months ended September 30, 2001





Wyndham Hotels &
Resorts   ® represented approximately 56% and 54% of our total revenue for the three months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was $217,542,000
compared to $216,156,000 for the three months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $27,139,000 compared to $34,952,000 for the three months ended September 30, 2002 and 2001, respectively.
The decrease in operating income for this segment can be primarily attributed to increases in our fixed expenses, such as property insurance, without an offsetting proportional increase in our revenues in 2002 due to the sluggish economy and the
residual effects of September 11, 2001.





Wyndham Luxury Resorts represented approximately 4.4% and 4% of our
total revenue for the three months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was $16,950,000 compared to $15,873,000 for the three months ended September 30, 2002 and 2001, respectively. Operating loss
for this segment was $520,000 compared to operating income of $545,000 for the same periods, respectively. The increase in revenue can be primarily attributed to an increase in occupancy of 10% while ADR remained flat. The increase in operating loss
for this segment can be primarily attributed to increases in our fixed expenses, such as property insurance.





Wyndham Gardens   ® represented approximately 4.1% and 4.2% of our total revenue for the three months ended September 30, 2002 and 2001, respectively. Total
revenue for this segment was $15,865,000 compared to $16,712,000 for the three months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $846,000 compared to $2,308,000 for the same periods, respectively. The
decreases in both revenue and operating income for this segment resulted primarily from a decline in ADR of 6.6% in 2002. The decline in ADR was partially offset by an increase in occupancy of 6.2%. Also, operating results were impacted by increases
in our fixed expenses, such as property insurance.





Summerfield Suites by Wyndham    represented approximately 7.3% and 8% of our total revenue for the three months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was $28,434,000 compared to $32,143,000 for the
three months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $980,000 compared to $5,063,000 for the same periods, respectively. The decreases in both revenue and operating income were primarily due to a
decline in ADR of 15.3% in 2002. Also, operating results were impacted by increases in our fixed expenses, such as property insurance.





The decrease in other proprietary branded properties was a result of our sale of Manoir de Gressy in January 2002. No hotel remains in this segment.





Non-proprietary branded properties, including Doubletree   ® , Hilton   ® ,
Holiday Inn   ® , Marriott   ® , Ramada   ® , Radisson   ® ,
and other major hotel franchises, represented approximately 26.7% and 27.7% of our total revenue for the three months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was




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$103,853,000 compared to $110,935,000 for the three months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $18,307,000 and $23,333,000 for the quarters
ended September 30, 2002 and 2001, respectively. The decreases in both revenue and operating income was due to the sale of non-proprietary branded assets in 2001. Also, operating results were impacted by declines in ADR and occupancy of 5.1%
and 1.6%, respectively, and by increases in our fixed expenses, such as property insurance.





We have identified 51
of these non-proprietary branded hotels as non-strategic assets which we intend to sell. However, these non-strategic assets will be held until such time as the sales price meets or exceeds managements assessment of fair value. These
51 assets represented approximately 29% of our revenue and 36% of our adjusted EBITDA for the three months ended September 30, 2002 and 31% of our revenue and 40% of our adjusted EBITDA for the three months ended September 30, 2001.
EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is presented because it provides useful information regarding our ability to service debt. EBITDA should not be considered as an alternative measure of operating
results or cash flow from operations, as determined by generally accepted accounting principles. EBITDA as presented by us may not be comparable to other similarly titled measures used by other companies. Adjusted EBITDA is EBITDA adjusted for
certain non-recurring items.





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 this segment was $5,827,000 and $7,517,000 for the three months ended
September 30, 2002 and 2001, respectively. Operating losses for the segment were $169,969,000 and $197,616,000 for the three months ended September 30, 2002 and 2001, respectively. The decrease in operating loss of $27,647,000 is primarily
attributable to decreases in the following 2001 expenses: write-off of a receivable deemed not collectible for $4,605,000, $3,014,000 in severance costs paid, $12,414,000 of costs associated with the termination of management and leasehold
contracts, and $5,239,000 in reservation and marketing funds not reimbursed by the hotels.





Nine months ended
September 30, 2002 compared with the nine months ended September 30, 2001





Wyndham Hotels &
Resorts   ® represented approximately 57.3% and 53.8% of our total revenue for the nine months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was $747,433,000
compared to $805,489,000 for the nine months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $155,654,000 compared to $202,985,000 for the nine months ended September 30, 2002 and 2001, respectively.
Decreases in revenue and operating income for this segment can be primarily attributed to decline in ADR of 9.4% in 2002 while occupancy remained flat. Also, operating results were impacted by increases in our fixed expenses, such as property
insurance.





Wyndham Luxury Resorts represented approximately 5.2% and 4.6% of our total revenue for the nine
months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was $68,225,000 compared to $68,239,000 for the nine months ended September 30, 2002 and 2001, respectively. Operating income for this segment was
$11,980,000 compared to $14,475,000 for the same periods, respectively. Revenue was flat but the decrease in operating income for this segment can be primarily attributed to decrease in ADR of 13.9% in 2002. The decrease in ADR was partially offset
by an increase in occupancy of 9%. Also, operating results were impacted by increases in our fixed expenses, such as property insurance.





Wyndham Gardens   ® represented approximately 3.7% and 3.7% of our total revenue for the nine months ended September 30, 2002 and 2001, respectively. Total
revenue for this segment was $48,520,000 compared to $55,512,000 for the nine months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $4,178,000 compared to $9,590,000 for the same periods, respectively.
The decreases in both revenue and operating income for this segment resulted primarily from decline in ADR of 14.4% in 2002 while occupancy remained flat. Also, operating results were impacted by increases in our fixed expenses, such as property
insurance.




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Summerfield Suites by Wyndham    represented approximately 6.3% and 6.8% of our total revenue for the nine months ended September 30, 2002 and 2001, respectively. Total revenue for this segment was $82,833,000 compared to $101,178,000 for the nine months ended
September 30, 2002 and 2001, respectively. Operating income for this segment was $3,600,000 compared to $17,590,000 for the same periods, respectively. The decrease in both revenue and operating income for this segment resulted primarily from
decline in ADR of 16.1% in 2002 while occupancy remained flat. Also, operating results were impacted by increases in our fixed expenses, such as property insurance.





The decrease in other proprietary branded properties was a result of our sale of Manoir de Gressy in January 2002. No hotel remains in this segment.





Non-proprietary branded properties, including Doubletree   ® ,
Hilton   ® , Holiday Inn   ® , Marriott   ® , Ramada   ® , Radisson   ® , and other major hotel franchises, represented approximately 26% and 29.4% of our total revenue for the nine months ended September 30,
2002 and 2001, respectively. Total revenue for this segment was $339,383,000 compared to $440,911,000 for the nine months ended September 30, 2002 and 2001, respectively. Operating income for this segment was $75,091,000 and $115,344,000 for
the nine months ended September 30, 2002 and 2001, respectively. The decrease in both revenue and operating income was due primarily to the sale of non-proprietary branded assets in 2001. Also, operating results were impacted by declines in ADR
and occupancy of 6.8% and 5.6%, respectively, in 2002, and by increases in our fixed expenses, such as property insurance.





We have identified 51 of these non-proprietary branded hotels as non-strategic assets which we intend to sell. However, these non-strategic assets will be held until such time as the sales price meets or exceeds managements
assessment of fair value. These 51 assets represented approximately 28% of our revenue and 28% of our adjusted EBITDA for the nine months ended September 30, 2002 and 27% of our revenue and 27% of our adjusted EBITDA in 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 this segment was $18,775,000 and $23,145,000 for the nine months ended September 30, 2002 and 2001, respectively.
The $4,370,000 decrease was primarily the result of lost management fees from contracts lost and the decline in hotel revenue. Operating losses for the segment were $468,002,000 and $468,607,000 for the nine months ended September 30, 2002 and
2001, respectively. The decrease in operating loss of $605,000 was primarily attributable to a decrease in conversion costs of $8,927,000 resulting from the implementation of brand standards in our portfolio of hotels during the nine months ended
September 30, 2001. The decrease is also due to the following 2001 expenses: write-off of a receivable deemed not collectible for $4,605,000, $13,179,000 of costs associated with the termination of management and leasehold contracts, $5,239,000
in reservation and marketing funds not reimbursed by the hotels, $9,539,000 of severance costs and $55,216,000 of interest expense. This decrease was offset in 2002 in part by an increase in debt restructuring costs of $1,507,000, amortization of
retention bonuses of $6,525,000, loss on derivative instruments of $39,774,000, bond offering cancellation costs of $4,504,000 and depreciation expense of $30,358,000.





Recent Events





On September 17, 2002, we entered into an
employment agreement with Mark A. Solls. Pursuant to the terms of the employment agreement, Mr. Solls has agreed to serve as an Executive Vice President, General Counsel and Chief Legal Officer for us for an initial three-year term beginning on
September 30, 2002.





On September 17, 2002, Susan T. Groenteman resigned her position as a Class A-III director
due to time constraints.





In 1999, we loaned Fred J. Kleisner, now our Chairman of the Board and Chief Executive
Officer, $850,000 pursuant to a non-recourse, no personal liability note due on September 12, 2002. Despite the fact that the note is non-recourse and has no personal liability to Mr. Kleisner, he has informed us that he intends to repay the note in
full (principal plus interest) by the end of December 2002, solely from his personal funds.




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Statistical Information





During 2002, our portfolio of 163 owned and leased hotels experienced a decline in ADR and REVPAR for the three and nine months ended September 30, 2002 as compared to
the three and nine months ended September 30, 2001 although occupancy increased or stayed constant over such period. The following table sets forth certain statistical information for the 163 owned and leased hotels for 2002 and 2001 as if the
hotels were owned or leased for the entire periods presented.





Three months ended September 30,

Nine months ended September 30,Occupancy


ADR

REVPAR

Occupancy


ADR

REVPAR2002


2001


2002

2001

2002

2001

2002


2001


2002

2001

2002

2001Wyndham Hotels & Resorts

71.5
%

66.5
%

$
104.52

$
110.33

$
74.69

$
73.29

70.7
%

70.8
%

$
118.74

$
131.11

$
83.97

$
92.78Wyndham Luxury Resorts

70.5


64.1



184.69


184.74


130.3


118.5

74.8


68.6



237.02


275.41


177.31


189.08Wyndham Garden Hotels

61.3


57.7



77.99


88.62


47.79


51.14

60.5


61.0



78.84


92.1


47.68


56.12Summerfield Suites by Wyndham

85.3


78.9



99.55


117.53


84.93


92.77

80.5


79.9



103.08


122.93


82.96


98.2Non-Proprietary Branded Hotels

63.7


64.9



97.71


103.0


62.21


66.77

62.8


66.6



100.77


108.09


63.31


71.97Weighted average

69.1
%

66.3
%

$
100.96

$
107.82

$
69.76

$
71.5

68.0
%

69.3
%

$
100.02

$
111.18

$
74.83

$
84.03





Liquidity And Capital Resources





Our cash and cash equivalents as of September 30, 2002 were $52.7 million and our restricted cash was $112.6 million. Our
cash and cash equivalents as of September 30, 2001 were $118.0 million and our restricted cash was $106.8 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 $80.7 million and $139.3 million for the nine months ended September 30, 2002 and 2001, respectively. Operational cash flows were negatively impacted by those hotels that
were sold in 2001, the sluggish economy and the residual effects of the terrorist attacks of September 11, 2001.





Cash Flows from Investing and Financing Activities





Cash flows used in investing activities
were $30.4 million for the nine months ended September 30, 2002, resulting primarily from renovation expenditures at certain hotels and changes in our restricted cash reserves. This was offset by proceeds received from the sale of assets during
the period. Cash flows used in financing activities of $163.7 million for the nine months ended September 30, 2002 were primarily related to principal repayments made on our debt and distributions made to limited partners.





Cash flows used in investing activities were $44.3 million for the nine months ended September 30, 2001, resulting
primarily from renovation expenditures at certain hotels. This was offset by proceeds received from asset sales during the period.





Cash flows used in financing activities of $29.3 million for the nine months ended September 30, 2001 were primarily related to principal payments made on our debt, distributions made to limited partners and
dividend payments made on our preferred stock.





Exchange Listing





On October 15, 2002, our class A common stock began trading on the American Stock Exchange (AMEX). Our class A
common stock was previously listed and traded on the New York Stock Exchange (NYSE). We received notice from the NYSE that we were not in compliance with their continued listing




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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. We explored several options
to ensure that our class A common stock would continue to be publicly traded and we believe that AMEX provided us with the best solution.





Credit Facilities





As of September 30, 2002, we had approximately
$210 million outstanding under our revolving credit facility, $1.3 billion outstanding on term loans, and $479 million outstanding under increasing rate loans facility. Additionally, we had outstanding letters of credit totaling
$64.4 million. Also as of September 30, 2002, we had over $1.29 billion of mortgage debt outstanding that encumbered 115 hotels and capital leases and other debt of $42.5 million, resulting in total indebtedness of approximately
$3.28 billion. Included in the total indebtedness is approximately $228 million of debt associated with assets held for sale. As of September 30, 2002, we had $222.1 million of additional availability under the revolving credit
facility.





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;
| | - |  | -------------------------------------------------------------------------------------------




| |  |  | The net cash proceeds from asset sales and refinancings of existing mortgage indebtedness (other than the credit facilities) is applied in the following manner:
first, the initial $10,000,000 of such proceeds each year may be retained by us; second, the next $10,000,000 of such proceeds, each year are applied to the scheduled term loan prepayment; third, subject to certain limitations set forth in the
credit facilities, 75% of such proceeds are applied to repay indebtedness under the credit facilities and 25% of such proceeds may be retained by us up to a maximum of $50,000,000 so retained in the year 2002; fourth, after we have retained
$50,000,000 of such proceeds during the period between January 24, 2002 and January 24, 2003, 100% of such proceeds are applied to repay indebtedness under the credit facilities pro rata basis;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | 100% of the net cash proceeds from new debt issuances (other than refinancings of existing mortgage indebtedness, other than the credit facilities) is applied
to reduce debt outstanding under the credit facilities pro rata basis;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------




On May 3, 2002, we entered into a third amendment and restatement of our senior credit facility and our increasing rate
loans facility. The third amendment and restatement permits the issuance of certain debt securities and, in the event that we issue such debt securities, the maturity of the outstanding revolving loans held by the lenders who have consented to the
third amendment and restatement would be extended from June 30, 2004 to June 30, 2006, as of the date of the issuance of the debt securities.




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This amendment and restatement directs the net cash proceeds we receive from any
such offering of debt securities to be applied as follows:





| |  |  | first, to repay all of the outstanding increasing rate loans and cancel the increasing rate loans facility; and
| | - |  | ---------------------------------------------------------------------------------------------------------------




| |  |  | second, to repay the outstanding revolving loans the maturity of which has been extended to June 30, 2006 and the term loans equally, based on their
outstanding principal amounts, with the revolving commitment of these repaid revolving loans reduced by the amount of the principal repayment thereof.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The proceeds from any such offering of debt securities would not be used to repay any of the revolving loans whose maturity remains June 30, 2004.





The third amendment and restatement also specifically permits us to refinance two or more of our existing mortgages in a single
transaction. In such a transaction, the refinancing of the mortgaged properties may be secured by the properties that secured the mortgage being refinanced and/or certain specified unencumbered properties.





In the event that we issue certain debt securities, the third amendment and restatement will also change the application of proceeds from
asset dispositions, exchanges and certain incurrences of indebtedness among the various loan facilities. In addition, the third amendment and restatement allows us to sell certain non-core assets for consideration consisting of marketable
securities, assumed indebtedness and cash.





In connection with the credit agreement, we also entered into an
increasing rate note purchase and loan agreement, originally dated June 30, 1999 and modified by the first amendment and restatement dated September 25, 2000 and the second amendment and restatement effective as of January 24, 2002,
with Bear Stearns Corporate Lending Inc, as co-arranger and syndication agent, Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company), as syndication agent, and J.P. Morgan Securities Inc. (formerly known as Chase Securities
Inc.), as lead arranger and book manager. This facility has no scheduled amortization. As of September 30, 2002, we had a $479 million increasing rate term loan facility.





Upon our receipt of the proceeds from any offering of debt securities and repayment of the term loans and the revolving loans whose maturity has been extended in the third
amendment and restatement to June 30, 2006, the outstanding amounts of the revolving loans held by the lenders who consent to the third amendment and restatement would be converted to term loans and would constitute a new class of loans under
the senior credit facility having the same interest rate and term as the existing senior credit facility. The new term loans would be amortized semi-annually by 0.5% with the balance paid on the maturity date. The extended revolving loans and the
revolving loans which maintain a maturity of June 30, 2004 would have the same interest rate, but would be treated differently for purposes of prepayments due to asset sales and incurrence of debt.





On June 7, 2002, we withdrew a proposed offering of debt securities due to unfavorable market conditions.





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, 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.




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Under the terms of the applicable credit facility, loan agreement, and lease
agreement, as of September 30, 2002, our principal amortization and balloon payment requirements and our future five year minimum lease payments are summarized as follows:





Payments due by yearTotal

Remainder of 2002


2003

2004

2005

2006

2007 and thereafter(in thousands)Long term debt and capital lease obligations

$
3,286,998

$
19,218
(B)

$
388,875

$
1,176,463

$
220,740

$
1,244,317

$
237,385Office leases(A)


9,723


537



2,097


2,062


1,838


1,838


1,351Hotel and ground leases(A)


877,562


15,581



62,420


61,841


61,633


61,633


614,454Total

$
4,174,283

$
35,336


$
453,392

$
1,240,366

$
284,211

$
1,307,788

$
853,190


---

|(A) |  | Office, hotel and ground leases are operating leases and are included in operating expenses.
|--- |  | --------------------------------------------------------------------------------------------




|(B) |  | Subsequent to September 30, 2002, the mortgage debt was paid down by a total of $10,319 due to the sale of assets.
|--- |  | ------------------------------------------------------------------------------------------------------------------




For the remainder of 2002, we have scheduled principal payments and debt maturities of approximately $19.2 million of
which, subsequent to September 30, 2002, $10.3 million was paid down due to the sale of assets. During 2003, we have scheduled principal payments and debt maturities of approximately $388.9 million. Of that amount, we can elect to extend
$178.4 million for three additional twelve month periods. We are seeking to refinance the scheduled principal payments and debt prior to their maturities in 2003; however, there can be no assurance that we will be able to do so. In addition, of
the $1.2 billion scheduled principal payments and debt maturities in 2004, we can elect to extend $40 million for two additional twelve month periods. Although occupancies have improved from very depressed levels following the events of
September 11, 2001, at present, it is not possible to predict either the severity or the duration of declines in the medium or long term on operations, liquidity, and capital resources (see our December 31, 2001 Form 10-K 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 the 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 $29.2 million per year, so long as there is no redemption or conversion of our series A and series B preferred stock. For the four years following such
six year period, 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 are prohibited under the terms of the January 24, 2002 amendments to the senior credit facility and
increasing rate loans facility from paying cash dividends on the preferred stock. As of September 30, 2002, we have deferred payments of the cash portion of the preferred stock dividend totaling approximately $36.5 million. This amount has
been included in accounts payable and accrued expenses as of September 30, 2002. 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 of the quarter ended September 30, 2002, we issued an additional stock dividend of 300,694
shares of series A and series B preferred stock with a value of $30.1 million.




35




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##### Table of Contents




Renovations and Capital Improvements





During the first nine months of 2002, we invested approximately $50.7 million in capital improvements and renovations. These capital expenditures included
(i) costs related to enhancing the revenue-producing capabilities of our hotels and (ii) costs related to recurring maintenance. During 2002, we anticipate spending approximately $100 million in capital expenditures primarily for
recurring maintenance capital expenditures and technological initiatives. We are limited to capital expenditures of $125 million per year, plus $25 million per year for emergency capital expenditures under the terms of the January 24,
2002 amendments to the senior credit facility and increasing rate loans facility.





We attempt to schedule
renovations and improvements during traditionally lower occupancy periods in an effort to minimize disruption to the hotels operations. Therefore, we do not believe such renovations and capital improvements will have a material effect on the
results of operations of the hotels. Capital expenditures will be financed through capital expenditure reserves or with working capital.





Inflation





Operators of hotels in general possess the ability to adjust room rates quickly.
However, competitive pressures may limit our ability 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 our 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.




36




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##### Table of Contents




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, should we 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 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 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, we 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.





We adopted the provisions of SFAS 142 in the first quarter of 2002 and recorded an impairment charge of $324,102,000 as a cumulative effect of a change in accounting principle. In connection with the adoption of
SFAS 142, we did not record $9,102,000 of amortization in the first nine months of 2002 and will not record $12,136,000 annually.





The impact of the adoption of SFAS 142 on our net loss, and basic and diluted loss per share is presented in the following tables:





Three Months Ended September 30, 2002


Three Months Ended September 30, 2001


Nine Months Ended September 30, 2002


Nine Months Ended September 30, 2001Reported net loss

$
(78,194
)

$
(82,069
)

$
(462,740
)

$
(81,857
)Add back: Goodwill amortization






3,445







9,102Adjusted net loss

$
(78,194
)

$
(78,624
)

$
(462,740
)

$
(72,755
)Reported basic and diluted loss per share

$
(0.68
)

$
(0.66
)

$
(3.39
)

$
(0.98
)Goodwill amortization






0.02







0.05Adjusted basic and diluted loss per share

$
(0.68
)

$
(0.64
)

$
(3.39
)

$
(0.93
)




37




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##### Table of Contents




The changes in the carrying amount of goodwill for the quarter ended September
30, 2002 were as follows:





Other Segment(1)Balance (net of amortization) as of January 1, 2002

$
326,843Reclassification to franchise costs


(2,350
)Impairment losses


(324,102
)Balance as of September 30, 2002

$
391


---

|(1) |  | The fair value of the reporting unit was estimated using the expected present value of future cash flows. The hotel management subsidiaries, which is where
goodwill is recorded, are included in the Other Segment as described on page 30 under Results of Reporting Segments. The Other Segment includes management fee and service fee income, interest and other
income, general and administrative costs, interest expense, depreciation and amortization and other charges.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




In October 2001, the FASB issued SFAS 144 Accounting for the Impairment and Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. SFAS 144 primarily addresses significant issues relating to the implementation of SFAS 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 144 will be effective for fiscal years beginning after December 15, 2001. In the first quarter of 2002, we adopted SFAS 144. On September 24, 2002, we announced that we had
entered into a definitive agreement with Westbrook Hotel Partners IV, LLC to sell thirteen properties for approximately $447 million. The sale is expected to close by the end of 2002. These properties have been reclassified as assets held
for sale in the balance sheet as of September 30, 2002. As a result of the implementation of SFAS 144, the results of operations for twelve of the thirteen assets have been reported separately as discontinued operations. The thirteenth
hotel is accounted for under SFAS 121 as it was previously held for sale. On November 1, 2002, we sold the Wyndham Columbus for $11 million. As part of the sell agreement, Wyndham Columbus will retain the Wyndham flag for ten years
under a franchise agreement. This property has been classified as an asset held for sale in the balance sheet as of September 30, 2002. The results of operations have been reported separately as discontinued operations.





In April 2002, the FASB issued SFAS 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. The statement, which is effective for financial statements issued for fiscal years beginning after May 15, 2002 and interim periods within those fiscal years, updates, clarifies and simplifies
existing accounting pronouncements. SFAS 145 rescinds SFAS 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As
a result of this recission, the criteria in APB 30 will now be used to classify those gains and losses, which could result in the gains and losses being reported in income before extraordinary items. Also, SFAS 145 amends SFAS 13 to
require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. We are currently evaluating the impact this statement will have on our
financial position or results of operations.





In July 2002, the FASB issued SFAS 146, Accounting for
Exit or Disposal Activities. SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The scope of SFAS 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities initiated after December 31, 2002. We are
currently evaluating the impact this statement will have on our financial position or results of operations.




38




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##### Table of Contents

Item 3.    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.





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 September 30, 2002. For variable rate debt obligations, the table presents principal cash flows by expected maturity date and contracted interest rates at September 30, 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | 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 September 30, 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Remainder of
2002


2003(1)


2004(2)


2005


2006


Thereafter


Face Value

Fair Value(dollars in thousands)DebtLong-term debt obligations including current portionFixed Rate

$
7,398


$
10,019


$
63,470


$
48,765


$
8,688


$
227,710


$
366,050

$
401,098Average Interest Rate


9.53
%


8.35
%


6.95
%


7.53
%


9.03
%


8.44
%Variable Rate

$
11,820


$
378,855


$
1,112,993


$
171,976


$
1,235,629


$
9,675


$
2,920,948

$
2,920,948Average Interest Rate


5.21
%


6.79
%


9.07
%


8.42
%


11.14
%


1.80
%Interest Rate Derivative Financial Instruments Related to DebtInterest Rate SwapsPay Fixed/Receive Variable

$



$



$



$
758,979


$







$
758,979

$
(82,293
)Average Pay Rate


6.14
%


6.51
%


6.67
%


6.68
%






Average Receive Rate


1.81
%


2.11
%


3.34
%


4.24
%






Interest Rate CapsNotional Amount

$
550,000


$
427,892


$
338,690


$
111,150


$







$
1,427,732

$
(14,414
)Strike Rate


6.26
%


6.89
%


7.93
%


9.75
%






Forward Rate


1.81
%


2.11
%


3.34
%


4.24
%









---

|(1) |  | We can elect to extend $179.4 million for three additional twelve month periods
|--- |  | -------------------------------------------------------------------------------

|(2) |  | We can elect to extend $40 million for two additional twelve month periods
|--- |  | --------------------------------------------------------------------------




Item 4.    Controls and Procedures





Within 90 days before the date
of this report on Form 10-Q, under the supervision and with the participation of our management, including our Chairman of the Board and Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal
financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on this evaluation, our Chairman
of the Board and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.





There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation.







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##### Table of Contents

PART II:    OTHER INFORMATION





Item 1.    Legal Proceedings





On May 7, 1999, Doris Johnson and
Charles Dougherty filed a lawsuit in the Northern District of California against Patriot, Wyndham, their respective operating partnerships and Paine Webber Group, Inc. This action, 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 of filing. The action asserts securities fraud claims and alleges that the purported class members were
wrongfully induced to tender their shares as part of the Patriot/Bay Meadows merger based on a fraudulent prospectus. The action further alleges that defendants continued to defraud shareholders about their intentions to acquire numerous hotels and
saddle the company with 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 below have been consolidated in the Northern District of California for consolidated pretrial purposes.
On or about October 13, 2000, the defendants moved to dismiss the actions. On or about August 15, 2001, the court granted 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, plaintiff filed an amended complaint seeking substantially the same relief as in the original complaint. On or about December 20, 2001, the defendants moved to
dismiss the amended complaint. On or about September 3, 2002, the court granted in part and denied in part Defendants motion to dismiss. The Court did not dismiss certain of Plaintiffs claims under Section 11 of the Securities Act of
1933 and Section 12(b) of the Securities Exchange Act of 1934. The defendants have moved the court for reargument of those portions of the order which did not dismiss the complaint. An answer to the complaint has not yet been filed. 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-CV1416-D, was filed in the Northern District of Texas against Patriot, Wyndham, 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 the company. The complaint was filed on behalf of all shareholders who purchased Patriot American and Wyndham stock
during that period. Three other actions, Gallagher v. Patriot American Hospitality, Inc., et al., No. 3-99-CV1429-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 and transferred to the Northern District of
California for consolidated pre-trial purposes. On or about October 20, 2000, the defendants moved to dismiss the actions. On or about August 15, 2001, the court granted 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, plaintiff filed an amended complaint seeking substantially the same relief as in the original complaint. On or about
December 20, 2001, the defendants moved to dismiss the amended complaint. On or about September 3, 2002, the court dismissed in its entirety the complaint and granted plaintiffs leave to amend. Plaintiffs have not yet filed an amended
complaint. We intend to defend the suits vigorously.





On or about October 26, 2000, 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 Wyndham International, Inc. f/k/a Patriot American Hospitality, Inc. as respondent. The Demand for
Arbitration claims that the claimants and Wyndham are parties to a Contribution Agreement dated February 28, 1997 and that Wyndham




40




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##### Table of Contents

is in breach of that agreement. Claimants assert that Wyndham breached its agreement to pay respondents additional consideration under the Contribution Agreement by, among other things, allegedly
denying claimants compensation due to them in connection with various transactions initiated by claimants and provided to Wyndham, which allegedly provided Wyndham with growth and added revenue. In addition, claimants assert that Wyndham failed to
provide claimants with various other amounts due under the Contribution Agreement, failed to indemnify claimants for certain expenses and intentionally and negligently mismanaged Wyndhams business. Claimants do not specify the amount of
damages sought. We intend to defend the claims vigorously.





On May 29, 2002, the State of Florida Office of the
Attorney General Department of Legal Affairs filed a lawsuit in Leon County, Florida (Case No. 02-CA-1296) naming us, Patriot and four current or former Wyndham employees as defendants. In this case, the Attorney General alleged that the
imposition of energy surcharges violated the States Deceptive and Unfair Trade Practices Act and False Claims Act. We filed a motion to dismiss this suit which was granted in part. The Attorney General has filed a notice of appeal, appealing
the dismissal of the individual defendants. We intend to vigorously defend this appeal.





On June 20, 2002,
plaintiffs in the case entitled Roller-Edelstein, et al. v. Wyndham International, Inc., et al., filed an amended complaint in Dallas County District Court (case no. 02-04946-A) alleging that resort fees charged to hotel guests
constituted common law fraud, breach of contract and violated Texas Deceptive Trade Practices Act. The plaintiffs claim to represent a nationwide class and have estimated damages in excess of ten million dollars. We have answered this
complaint and anticipate vigorously defending it.





Item 2.    Changes in Securities and Use of Proceeds





None.





Item 3.    Defaults Upon Senior Securities





We are prohibited under
the terms of the January 24, 2002 amendments to our senior credit facility and increasing rate loans facility from paying cash dividends on our preferred stock. As of September 30, 2002, we had aggregate deferred payments of the cash portion of
the preferred stock dividend totaling approximately $36.5 million. This amount has been included in accounts payable and accrued expenses as of September 30, 2002. 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
of the quarter ended September 30, 2002, we issued an additional stock dividend of 300,694 shares of series A and series B preferred stock with a value of $30.1 million.





Item 4.    Submission of Matters to a Vote of Security Holders





None.





Item 5.    Other Information





None.




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##### Table of Contents




Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits:





Item No.

Description10.1*

Employment Agreement, dated September 17, 2002, between Wyndham and Mark A. Solls.99.1*

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2*

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


---

* Filed herewith





(b)  Reports on Form 8-K for the quarter ended September 30, 2002:





We filed
a Current Report on Form 8-K on August 13, 2002, reporting under Item 9, the delivery by our chief executive officer and our chief financial officer of their sworn statements to the Securities and Exchange Commission as required by
SEC Order 4-460, dated June 27, 2002.





We filed a Current Report on Form 8-K on September 25,
2002, announcing a definitive agreement to sell thirteen hotel properties for approximately $447 million.




42




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##### Table of Contents

SIGNATURE





Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.





WYNDHAM INTERNATIONAL, INCBy

/s/    RICHARD A.
SMITHRichard A. Smith Executive
Vice President and Chief Financial Officer (Authorized Officer and Principal Accounting and Financial Officer)





DATED:    November 12, 2002




43




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##### Table of Contents




CERTIFICATION





I, Fred J. Kleisner, Chief Executive Officer of Wyndham International, Inc., certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of Wyndham International, Inc.;
|-- |  | ----------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:  November 12, 2002



By:

/s/    Fred J. KleisnerName:    Fred J. Kleisner Title:    Chief Executive Officer




44




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##### Table of Contents

CERTIFICATION





I, Richard A. Smith, Chief Financial Officer of Wyndham International, Inc., certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of Wyndham International, Inc.;
|-- |  | ----------------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
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| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
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| | (c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
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|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
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| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
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| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
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|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date:  November 12, 2002



By:

/s/    Richard A. SmithName:    Richard A. Smith Title:    Chief Financial Officer




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