UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed Pursuant to Section 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 18, 1997
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-12017 52-1979383
(State or other jurisdiction (Commission File (IRS Employer Identification
of incorporation) Number) Number)
1010 Wisconsin Avenue, N.W.
Suite 650
Washington, D.C. 20007
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 965-4455
<PAGE>
ITEM 2. ACQUISITIONS
On August 18, 1997, CapStar Hotel Company ("CapStar") completed the
acquisition of a controlling interest in MCV Venture, LLC, which owns the
Radisson Plaza Hotel and Vine Center Office Tower in Lexington, Kentucky
("Radisson Lexington"). CapStar acquired its controlling interest for an
aggregate purchase price of approximately $30.8 million in a partnership with
Webb Companies, affiliates of which will retain the remaining ownership
interest. The purchase price was funded through the refinancing of $24.0 million
of the partnership's existing debt and through borrowings under CapStar's senior
credit facility.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements:
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Members
MCV Venture, LLC
We have audited the accompanying balance sheets of MCV Venture, LLC, a
Kentucky limited liability company, formerly MCV Venture, as of December 31,
1996 and 1995, and the related statements of operations, members' equity
(deficit) and cash flows for the years then ended. The financial statements are
the responsibility of the Venture's management. Our responsibility is to express
an opinion on those financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MCV Venture, LLC as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 11, subsequent to December 31, 1996, the Company
refinanced its long-term debt with a new lender, and one of the members sold
its entire interest to a new member.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
February 7, 1997
<PAGE>
MCV VENTURE, LLC
FORMERLY
MCV VENTURE
BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 ---------------------------
(unaudited) 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Current Assets
Cash .......................................... $ 601,639 $ 408,881 $ 459,165
Accounts receivable, net of allowance of
$36,000 at June 30, 1997, December 31,
1996 and 1995 .............................. 986,508 826,451 702,467
Hotel supplies and inventory .................. 219,334 216,321 185,335
Prepaid expenses and other .................... 210,000 250,058 331,325
------------ ------------ ------------
Total current assets .................. 2,017,481 1,701,711 1,678,292
------------ ------------ ------------
Property and Deferred Charges, net
Hotel ......................................... 18,273,960 18,530,711 18,727,080
Office tower .................................. 13,055,478 13,418,505 13,544,242
------------ ------------ ------------
Total net property and deferred charges 31,329,438 31,949,216 32,271,322
------------ ------------ ------------
Total Assets ..................................... 33,346,919 33,650,927 33,949,614
============ ============ ============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt .......... 6,000,000 10,000,000 --
Trade accounts payable ........................ 782,400 788,822 776,246
Due to related parties ........................ -- 1,460,000 --
Accrued interest .............................. 294,371 5,550,249 2,220,571
Accrued expenses .............................. 136,794 264,713 342,481
Other ......................................... -- 95,147 186,286
------------ ------------ ------------
Total current liabilities ............. 7,213,565 18,158,931 3,525,584
------------ ------------ ------------
Long-Term Debt, less current maturities .......... 24,000,000 24,000,000 34,000,000
------------ ------------ ------------
Total liabilities ..................... 31,213,565 42,158,931 37,525,584
------------ ------------ ------------
Commitments and Contingencies (Notes 3, 5, 6,
8, 9 and 11)
Members' Equity (Deficit)
W/P/V/C, LLC (formerly Webb Properties) ...... (12,137,251) (16,910,881) (13,563,758)
Kentucky Central Life Insurance Company ....... -- 8,402,877 9,987,788
Premium Financial, Group LLC ................. 13,981,396 -- --
Vine Center Investors LLC...................... 289,209 -- --
------------ ------------ ------------
Total members' equity (deficit) ....... 2,133,354 (8,508,004) (3,575,970)
------------ ------------ ------------
Total Liabilities and Members' Equity
(Deficit) ..................................... $ 33,346,919 $ 33,650,927 $ 33,949,614
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MCV VENTURE, LLC
FORMERLY
MCV VENTURE
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED ----------------------------
June 30, 1997 1996 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Hotel Revenues ......................... $ 4,520,068 $ 10,145,807 $ 9,265,751
Operating Expenses ..................... 4,030,733 8,826,793 7,886,683
------------ ------------ ------------
Income (loss) from Hotel Operations . 489,335 1,319,014 1,379,068
------------ ------------ ------------
Office Rental Income ................... 1,660,275 3,225,114 2,465,921
Operating Expenses ..................... (779,757) 1,536,619 1,001,182
------------ ------------ ------------
Income from Office Leasing Operations 880,518 1,688,495 1,464,739
------------ ------------ ------------
Combined Operating Income .............. 1,369,853 3,007,509 2,843,807
Other Expenses
Depreciation and amortization ....... 1,283,950 1,893,864 1,888,293
Interest expense .................... 1,981,625 6,045,679 4,266,603
------------ ------------ ------------
Total other expenses ........... 3,265,575 7,939,543 6,154,896
------------ ------------ ------------
Net Loss Before Extraordinary Items .... (1,895,722) (4,932,034) (3,311,089)
Extraordinary Items
Gain on extinguishment of debt ...... 12,726,932 -- --
------------ ------------ ------------
Net Income (Loss) ...................... $ 10,831,210 $ (4,932,034) $ (3,311,089)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MCV VENTURE, LLC
FORMERLY
MCV VENTURE
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Kentucky
W/P/V/C, LLC Central Life Premium Vine Center
(formerly Webb Insurance Financial Investors,
Properties) Company Group, LLC LLC Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances-December 31, 1994..................... $(10,964,067) $ 10,699,186 $ -- $ -- $ (264,881)
Allocation of Net Loss for 1995:
Depreciation ............................... (1,863,947) -- -- -- (1,863,947)
Net operating loss excluding depreciation .. (723,571) (723,571) -- -- (1,447,142)
------------ ------------ ------------ ------------ ------------
Balances-December 31, 1995 .................... (13,551,585) 9,975,615 -- -- (3,575,970)
Allocation of Net Loss for 1996:
Depreciation ............................... (1,786,558) -- -- -- (1,786,558)
--
Net operating loss excluding depreciation .. (1,572,738) (1,572,738) -- (3,145,476)
------------ ------------ ------------ ------------ ------------
Balances-December 31, 1996 .................... (16,910,881) 8,402,877 -- -- (8,508,004)
Depreciation (unaudited)....................... (1,283,950) -- -- -- (1,283,950)
Net operating income excluding depreciation
(Kentucky Central Life Insurance Company was
allocated income through February 28, 1997) 6,057,580 28,160 5,908,832 120,588 12,115,160
Distributions (unaudited)...................... -- -- (189,852) -- (189,852)
Sale of Kentucky Central Life
Insurance Company interest (unaudited)...... -- (8,431,037) 8,262,416 168,621 --
------------ ------------ ------------ ------------ ------------
Balances- June 30, 1997 (unaudited) ........... $(12,137,251) $ -- $ 13,981,396 $ 289,209 $ 2,133,354
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MCV VENTURE, LLC
FORMERLY
MCV VENTURE
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------
1997 1996 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) ................................ $ 10,831,210 $ (4,932,034) $ (3,311,089)
Adjustments to reconcile net income (loss) to
each provided by operations:
Depreciation and amortization ................. 1,283,950 1,893,864 1,888,293
Gain on debt extinguishment ................... (12,726,932) -- --
Interest accrued and subsequently forgiven in
connection with the long-term debt
refinancing ................................ 1,020,000 -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable .... (160,057) (123,984) 13,701
Decrease (increase) in hotel supplies and
inventories ................................ (3,013) (30,986) 20,605
Decrease (increase) in prepaid expenses and
other ...................................... 40,058 81,267 (229,863)
Increase (decrease) in accounts payable ....... (6,422) 12,576 (76,980)
Increase in accrued interest .................. 294,372 3,829,678 2,220,570
Increase (decrease) in accrued expenses ....... (303,867) (77,768) (51,164)
Increase (decrease) in other .................. 80,801 (91,139) 126,210
------------ ------------ ------------
Net Cash Provided by Operating Activities ........ 350,100 561,474 600,283
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and increases in deferred
charges .................................... 65,317 (611,758) (207,164)
------------ ------------ ------------
Net Cash Used by Investing Activities ............ 65,317 (611,758) (207,164)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable .................... -- -- (316,667)
Distributions to members ...................... (189,852) -- --
Cash paid in connection with the long-term debt
refinancing ................................ (32,807) -- --
------------ ------------ ------------
Net Cash Provided (Used) by Financing Activities . (222,659) -- (316,667)
------------ ------------ ------------
Net Increase (Decrease) in Cash .................. 192,758 (50,284) 76,452
Cash at Beginning of the Period .................. 408,881 459,165 382,713
------------ ------------ ------------
Cash at end of the Period ........................ $ 601,639 $ 408,881 $ 459,165
============ ============ ============
Supplemental Disclosures
Cash paid for interest ........................ $ 856,934 $ 2,216,000 $ 2,029,706
Interest payments made by related parties ..... -- $ 500,000 --
Loan commitment fees paid by related parties .. $ -- $ 960,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MCV VENTURE, LLC
FORMERLY
MCV VENTURE
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND 1995
(1) DESCRIPTION OF MEMBERS' INTERESTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF MEMBERS' INTERESTS
MCV Venture, LLC ("MCV"), a Kentucky limited liability company
(formerly MCV Venture, a Kentucky general partnership), is a joint venture (the
"Venture") between W/P/V/C, LLC (formerly Webb Properties) ("Webb"), Premium
Financial Group, LLC and Vine Center Investors, LLC, collectively the "Members".
MCV developed and owns a hotel and office tower complex known as Vine Center in
Lexington, Kentucky. The hotel is operated under a franchise agreement with
Radisson Hotels. Prior to the sale transaction and effective name change
transaction described in Note 11, the entity MCV Venture, LLC (formerly MCV
Venture) operated as a Kentucky general partnership.
The "Amended and Restated Joint Venture Agreement of MCV Venture" (the
"Venture Agreement") provides, among other things, that the overall management
and control of the business affairs be vested jointly in the Partners. Webb
contributed to the capital of MCV, for a 50% interest, all of the net assets
owned by MCV prior to the Venture Agreement and Kentucky Central Life Insurance
Company ("Kentucky Central") contributed cash to MCV in the amount of
$10,000,000 for the remaining 50%. The venture agreement was to continue until
December 31, 2038, subject to certain terms of the Venture Agreement. Additional
provisions of the Venture Agreement relating to income allocation and
distributions are described in Note 8.
As of February 12, 1993, Kentucky Central entered into a rehabilitation
plan. As described in Note 11, effective February 28, 1997, the liquidator of
Kentucky Central sold its venture interest in MCV. Subsequent to the sale, the
operations are managed by Vine Center Investors, LLC.
HOTEL SUPPLIES AND INVENTORIES
Inventories are carried at cost based on the first-in, first-out method
of accounting and are expensed as used.
PROPERTY AND EQUIPMENT
Land and buildings are stated at carrying value at the date of
formation of MCV Venture, revalued pro rata, to fair value as a result of a
partnership change in 1988 accounted for as a purchase transaction. Furniture,
fixtures and equipment, and building improvements subsequent to 1988 are stated
at cost. Maintenance and repairs are charged to operations as incurred. Major
renewals and betterments are capitalized.
Buildings and equipment are depreciated using the straight-line method
over the estimated useful life of the assets, as follows:
Buildings.......................................... 28 years
2-10
Improvements....................................... years
5- 7
Furniture, fixtures and equipment.................. years
DEFERRED CHARGES
Deferred charges include deferred leasing commissions and financing
commitments fees. These costs are amortized on a straight-line basis over the
estimated period of benefit, ranging from two to ten years, the term of the
related leases or debt.
REVENUE RECOGNITION
Revenue is recognized as earned. In accordance with generally accepted
accounting principles, rental income has been recorded on a straight-line basis
with the effects of scheduled rent increases and rental concessions, if any,
recognized evenly over the term of the lease.
<PAGE>
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
INCOME TAXES
Earnings of MCV are allocated to the Members as prescribed in the
Venture Agreement for inclusion in the determination of the Members' taxable
income. Accordingly, the accompanying financial statements include no provision
for income taxes.
UNAUDITED PERIOD
The financial information as of June 30, 1997 and for the six months
ended June 30, 1997 is unaudited. In the opinion of management, such information
contains all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results for such period. The results of
operations for the interim period is not necessarily indicative of the results
of operations for the full fiscal year.
(2) PROPERTY AND DEFERRED CHARGES
The following items are included in property and deferred charges:
1996 1995
----------- -----------
HOTEL:
Land ............................................ $ 2,190,707 $ 2,190,707
Buildings and improvements ...................... 22,655,462 22,655,462
Furniture, fixtures and equipment ............... 2,695,819 2,183,513
Deferred charges ................................ 603,152 123,152
----------- -----------
Total ................................... 28,145,140 27,152,834
Less accumulated depreciation and amortization .. 9,614,429 8,425,754
----------- -----------
Net ............................................. $18,530,711 $18,727,080
=========== ===========
1996 1995
----------- -----------
OFFICE TOWER:
Land ............................................... $ 1,198,642 $ 1,198,642
Buildings and improvements ......................... 18,957,293 18,866,822
Furniture, fixtures and equipment .................. 14,346 14,346
Deferred charges ................................... 777,969 288,947
----------- -----------
Total ................................... 20,948,250 20,368,757
Less accumulated depreciation and amortization ..... 7,529,745 6,824,515
----------- -----------
Net ................................................ $13,418,505 $13,544,242
=========== ===========
Depreciation and amortization expense for the years ended December 31,
1996 and 1995 totaled 1,893,864 and 1,828,293, respectively, including
amortization expense of $107,304 and $24,346, respectively.
(3) LONG-TERM DEBT
Effective June 1995, MCV defaulted on its long-term debt. The Note in
the amount of $34,000,000, payable to a lender (the "original lender"), was due
for repayment in-full, November, 1995. MCV failed to make certain scheduled
repayments during 1995 and had not repaid the note as of December 31, 1996.
Interest expense has been accrued at the default rate of 18% from June 1995
through December 31, 1996. Accrued interest payable is included in current
liabilities in the accompanying balance sheets.
During 1996 MCV entered into an agreement with a lender (the "new
lender") to re-finance its long-term debt. In consideration of the agreement,
MCV incurred a loan commitment fee of $960,000 which was paid on its behalf by a
related entity in December, 1996. The loan fee has been recorded as a deferred
charge (included under the Hotel and the Office Tower, see Note 2) and will be
amortized from the date the re-financing becomes effective, over the life of the
note.
<PAGE>
The original lender obtained a judgment for foreclosure against MCV.
However, effective February 28, 1997, the original lender, in return for a cash
settlement of $26,950,000, agreed to cancel the original note and forgive all
unpaid accrued interest. As of the same date, MCV ratified an agreement with the
new lender to enter into a new note for $24,000,000. An additional $2,950,000 of
equity funding was obtained to finance the balance. The judgment for foreclosure
will remain in effect but may only be executed on by the new lender if MCV
defaults under the terms of the refinancing. The gain on extinguishment of the
original note has not been reflected in the December 31, 1996 financial
statements, and will be recorded during the year ended December 31, 1997.
The new note is an "interest only" obligation re-payable in full on
February 28, 2000. Interest will accrue at the Libor Rate plus 4 1/2%. The
classification of long-term debt in the balance sheet at December 31, 1996, as
described below, reflects the terms of the new note.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Mortgage note payable to a third party, bearing
interest, at the Libor Rate plus 4 1/2%, (new lender
rate) secured by mortgages on the office tower and
hotel and security interests in operating leases,
accounts receivable and hotel inventories, with
monthly payments of interest only, maturing
February 28, 2000 .................................. $ 34,000,000 $ --
Mortgage note payable to a third party, bearing
interest at 18% secured by mortgages on the office
tower and hotel and security interest in operating
leases, accounts receivable and hotel inventories,
extinguished February 28, 1997 ..................... -- 34,000,000
------------ ------------
34,000,000 34,000,000
Current portion of mortgage note,
extinguished in 1997 ................................. (10,000,000) --
------------ ------------
$ 24,000,000 $ 34,000,000
============ ============
</TABLE>
(4) LEASES
MCV is a lessor of office space under operating leases with terms
ranging from 1 to 6 years. Certain leases include renewal options varying from 3
to 20 years. Minimum lease payments receivable, excluding tentative
reimbursement of expenses, under non-cancelable operating leases in effect as of
December 31, 1996 are approximately as follows:
1997........................................... $ 3,066,250
1998........................................... 2,728,796
1999........................................... 2,553,971
2000........................................... 2,306,240
2001........................................... 1,800,328
-----------
$12,455,585
===========
(5) CONTINGENT LIABILITY
Under an agreement with the Commonwealth of Kentucky (the "Agreement")
for the financing and operation of a parking garage (the Vine Center parking
garage), MCV is contingently liable for 25% of the amount by which the Debt
Service is greater than the sum of the total rent paid plus the Net Operating
Revenue. Debt Service is defined as the amount necessary to pay the principal
and interest outstanding on the bonds issued by the Commonwealth to finance the
construction of the parking garage. Net Operating Revenue is defined to gross
receipts less gross expenses of the parking garage. The Agreement expires in
2023.
<PAGE>
(6) LEASE COMMITMENTS
MCV leases various office equipment under non-cancelable operating
leases. Lease expense was approximately $170,000 and $160,000 for the years
ended December 31, 1996 and 1995, respectively. Future minimum lease payments
under non-cancelable operating leases are as follows:
1997............................................ $137,113
1998............................................ 40,557
1999............................................ 25,410
--------
$203,080
========
(7) RELATED PARTIES
MCV entered into certain transactions with Webb and its affiliates.
Related party transactions and balances with these entities at December 31, 1996
and 1995 and for the years then ended are as follows:
1996 1997
---- ----
Transactions:
Lease commissions ............................. $146,713 $190,909
Management fees-Hotel ......................... 151,700 139,000
Management fees-Office Tower .................. 144,070 121,201
Management fees-other ......................... 6,628 7,176
Tenant services and general overhead .......... 146,789 180,863
Building and tenant improvements .............. 17,520 15,548
Balances:
Accounts payable .............................. 59,672 61,535
As discussed in Note 11, a related party purchased 50% of MCV
subsequent to year end.
In December 1996, MCV incurred a loan commitment fee of $960,000 (see
Note 3) which was paid on its behalf by a related entity. During 1996 another
related party made $500,000 in interest payments on MCV's behalf. These amounts
were still owed to related parties at December 31, 1996 and are reflected as due
to related parties in the accompanying balance sheet.
Included above are management fees for the management of the Hotel.
Under the terms of an Operating Agreement, Dawn Hotels of Kentucky, Inc. ("Dawn
Hotels"), a Webb affiliate, is the operator of the hotel through October, 1999
(with two additional five year renewal periods). In accordance with the
Operating Agreement, employees of the Hotel are employed by Dawn Hotels which
was reimbursed in 1996 and 1995 for all associated payroll costs.
Also included above are management fees for the management of the
Office Tower. Under the terms of a Property Management and Leasing Agreement,
The Webb Companies, also a Webb affiliate, is the managing and leasing agent for
the Office Tower through October, 1998. MCV pays a management fee to the Webb
Companies and reimburses The Webb Companies for direct operating costs.
(8) ALLOCATION AND DISTRIBUTION OF NET INCOME
As set-out in the Venture Agreement, net income or loss shall be
allocated to the members/partners in accordance with the following priorities:
1. Depreciation and debt prepayment penalties are charged
against the Webb equity account.
2. The lesser of the remaining net income or loss and net cash
flow distribution shall be allocated in the same percentage as any net
cash flow distribution.
3. Any remaining net income or loss shall be allocated 50% to
each of the members/partners.
MCV has made no net cash flow distributions during 1996 or 1995.
Net cash distributions, when made, shall first take account of the
members'/partners' Priority Returns, as set-out in the Venture Agreement, and
their Accumulated Priority Return Deficiencies. The Priority Return is equal to
8% per annum of $2,000,000 and $10,000,000 for
<PAGE>
Webb and Kentucky Central, respectively, reduced by all distributions to the
respective members/partners. The Accumulated Priority Return Deficiency is the
excess of respective Priority Returns to be paid to members/partners in any
fiscal year over the amounts actually distributed. At December 31, 1996, the
Accumulated Priority Return Deficiency for Webb and Kentucky Central was
$1,288,105 and $6,534,185, respectively.
(9) CONCENTRATION OF CREDIT RISK
MCV's business activities are primarily with customers located within
the State of Kentucky. Financial instruments which might potentially expose the
Company to credit loss include trade accounts receivable and cash. Accounts
receivable are not collateralized. Management evaluates accounts receivable
balances on an on-going basis and provides allowances as necessary for amounts
estimated to eventually become uncollectible. In the event of complete
non-performance of accounts receivable, the maximum exposure to the Company is
the amount shown on the balance sheet as the date of non-performance. As of
December 31, 1996, each balances included $412,850 of deposits in excess of
Federally insured limits. The Company limits its credit risk with respect to
cash by maintaining its cash balances with high credit quality financial
institutions.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 117, "Disclosure About
Fair Value of Financial Instruments" requires disclosure about the fair value of
all financial assets and liabilities for which it is practical to estimate.
Cash, accounts receivable, accounts payable and accrued expenses, and long-term
debt are all carried at amounts which reasonably approximate their fair values.
The long-term debt has a variable interest and accordingly fair value is deemed
to approximate the carrying amount.
(11) SUBSEQUENT EVENTS
As described in Note 3, effective February 28, 1997, MCV re-financed
its long-term debt. As discussed in Note 1, effective February 28, 1997,
Kentucky Central sold its 50% interest in the Venture to Premium Financial
Group, LLC and Vine Center Investors, LLC, both related parties, and the entity
as it then existed was dissolved. The assets were contributed to MCV Venture,
LLC, a Kentucky limited liability company with Vine Center Investors, LLC. (1%
interest) the managing member and Premium Financial Group, Inc. (49% interest)
and W/P/V/C,LLC (50% interest) the non-managing members. There was no effective
change in control as a result of this transaction and, therefore, the
transaction is treated as MCV Venture changing its name to MCV Venture, LLC in
conjunction with the sale of certain partnership interests for new membership
interests. As the new members are related parties, the sale of the partnership
interests for new membership interests does not result in any change in the
basis of the assets or liabilities.
<PAGE>
(b) Pro Forma Financial Information:
CAPSTAR HOTEL COMPANY UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
On August 18, 1997, CapStar acquired a controlling interest in the Radisson
Lexington. The acquisition was funded through a refinancing of an existing loan
and through external borrowings.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the aforementioned transaction had been consummated on June 30, 1997. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six
months ended June 30, 1997 and the year ended December 31, 1996 are presented as
if the aforementioned transaction had been consummated at the beginning of the
respective periods. In management's opinion, all adjustments necessary to
reflect the effects of the aforementioned transaction have been made.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet and Statements
of Operations are not necessarily indicative of what the Company's actual
financial position or operating results would have been had such event occurred
as of an earlier date, nor does it purport to represent the future financial
position or operating results of the Company.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Radisson Lexington Pro Forma
Pro Forma After
Historical (A) Adjustments (B) Radisson Lexington
<S> <C> <C> <C>
Assets
Cash .................................... $ 11,489 $ 25 $ 11,514
Property and equipment, net
Land .................................. 81,683 6,450 88,133
Building and improvements ............. 404,798 24,748 429,546
Furniture, fixtures and equipment ..... 44,556 1,055 45,611
Construction-in-progress .............. 5,314 -- 5,314
--------------- --------------- ---------------
Total property and equipment, net ....... 536,351 32,253 568,604
Other assets ............................ 60,233 (429) 59,804
--------------- --------------- ---------------
Total assets ............................ $ 608,073 $ 31,849 $ 639,922
=============== =============== ===============
Liabilities, Minority Interest and Equity
Other liabilities ....................... $ 35,333 $ 305 $ 35,638
Long-term debt .......................... 234,995 31,544 266,539
--------------- --------------- ---------------
Total liabilities ....................... 270,328 31,849 302,177
Minority interest ....................... 22,270 -- 22,270
Stockholders' equity .................... 315,475 -- 315,475
--------------- --------------- ---------------
Total liabilities, minority interest and
stockholders' equity .................. $ 608,073 $ 31,849 $ 639,922
=============== =============== ===============
</TABLE>
(A) Reflects the unaudited historical condensed consolidated balance sheet of
CapStar as of June 30, 1997.
(B) Reflects CapStar's cost basis and financing for the Radisson Lexington.
Included in the adjustments are the use of deposits recorded at June 30,
1997.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Six Months Ended June 30, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Radisson Lexington
Pro Forma Pro Forma After
Historical (A) Adjustments (B) Radisson Lexington
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms $ 79,254 $ 3,066 $ 82,320
Food and beverage 34,676 1,311 35,987
Other operating departments 5,664 143 5,807
Office rental and other revenue -- 1,660 1,660
Hotel management 2,225 -- 2,225
----------------- ----------------- -----------------
Total revenue 121,819 6,180 127,999
----------------- ----------------- -----------------
Hotel operating expenses by department:
Rooms 18,954 835 19,789
Food and beverage 27,338 1,258 28,596
Other operating departments 3,008 96 3,104
Office rental and other revenue -- 775 775
Undistributed operating expenses:
Administrative and general 19,839 418 20,257
Property operating costs 13,960 978 14,938
Property taxes, insurance and other 5,064 184 5,248
Depreciation and amortization 8,220 385 8,605
----------------- ----------------- -----------------
Total operating expenses 96,383 4,929 101,312
----------------- ----------------- -----------------
Net operating income 25,436 1,251 26,687
Interest expense, net 8,440 1,014 9,454
----------------- ----------------- -----------------
Income before minority interest and income taxes 16,996 237 17,233
Minority interest (620) -- (620)
----------------- ----------------- -----------------
Income before income taxes 16,376 237 16,613
Income taxes 6,288 90 6,378
----------------- ----------------- -----------------
Net income $ 10,088 $ 147 $ 10,235
================= ================= =================
Earnings per share (C) $ 0.62 $ 0.63
================= =================
</TABLE>
(A) Reflects the unaudited historical condensed consolidated statement of
operations of CapStar for the six months ended June 30, 1997.
(B) Reflects the historical operations of the Radisson Lexington adjusted
for (i) the elimination of management fee expense, (ii) depreciation on the
new cost basis, (iii) interest on the incremental debt individually
attributable to this acquisition based on the terms of CapStar's credit
facilities and (iv) federal and state income taxes at CapStar's combined
effective tax rate of 38%. Historical operations of the the Radisson
Lexington were derived from the hotel's unaudited financial statements for
the six months ended June 30, 1997 included in this current report on Form
8-K.
(C) The weighted average number of common shares and common share equivalents
used in calculating earnings per share was 16,356,343.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Radisson Lexington
Pro Forma Pro Forma After
Historical (A) Adjustments (B) Radisson Lexington
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms ........................................ $ 68,498 $ 6,523 $ 75,021
Food and beverage ............................ 30,968 3,251 34,219
Other operating departments .................. 5,981 372 6,353
Office rental and other revenue ................ -- 3,225 3,225
Hotel management ............................... 4,345 -- 4,345
--------------- --------------- ---------------
Total revenue .................................. 109,792 13,371 123,163
--------------- --------------- ---------------
Hotel operating expenses by department:
Rooms ........................................ 17,509 1,623 19,132
Food and beverage ............................ 24,589 2,832 27,421
Other operating departments .................. 2,513 205 2,718
Office rental and other revenue ................ -- 1,537 1,537
Undistributed operating expenses:
Aministrative and general .................... 20,448 1,093 21,541
Property operating costs ..................... 12,586 2,086 14,672
Property taxes, insurance and other .......... 4,565 412 4,977
Depreciation and amortization ................ 8,248 769 9,017
--------------- --------------- ---------------
Total operating expenses ....................... 90,458 10,557 101,015
--------------- --------------- ---------------
Net operating income ........................... 19,334 2,814 22,148
Interest expense, net .......................... 12,346 2,028 14,374
--------------- --------------- ---------------
Income before minority interest and income taxes 6,988 786 7,774
Minority interest .............................. 39 -- 39
--------------- --------------- ---------------
Income before income taxes ..................... 7,027 786 7,813
Income taxes ................................... 2,674 299 2,973
--------------- --------------- ---------------
Net income from continuing operations .......... $ 4,353 $ 487 $ 4,840
=============== =============== ===============
Earnings per share from continuing operations (C) $ 0.31 $ 0.35
=============== ===============
</TABLE>
(A) Reflects the historical condensed consolidated statement of operations of
CapStar for the year ended December 31, 1996.
(B) Reflects the historical operations of the Radisson Lexington adjusted for
(i) the elimination of management fee expense, (ii) depreciation on the new
cost basis, (iii) interest on the incremental debt individually
attributable to this acquisition based on the terms of CapStar's credit
facilities and (iv) federal and state income taxes at CapStar's combined
effective tax rate of 38%. Historical operations of the Radisson Lexington
were derived from the hotel's audited financial statements for the year
ended December 31, 1996 included in this current report on Form 8-K.
(C) In computing historical and pro forma earnings per share, income for the
period from CapStar's initial public offering to December 31, 1996 is used.
The weighted average number of common shares and common share equivalents
used in calculating earnings per share was 12,754,321.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CAPSTAR HOTEL COMPANY
(Registrant)
By: /S/ John Emery
-------------------------------
John Emery
Chief Financial Officer
Dated: September 2, 1997
