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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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): DECEMBER 31, 1996
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
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The registrant hereby amends Items 7(a) and (b) of its Current Report on
Form 8-K filed with the Commission on December 31, 1996 as set forth in the
pages attached hereto to file the financial statements and pro forma
condensed, consolidated balance sheet and statements of operations reflecting
the acquisition by the registrant of five hotels from MBL Life Assurance
Corporation.
ITEM 2. ACQUISITION OF ASSETS
The Company has previously filed a report on Form 8-K as of
December 31, 1996 with respect to the requirements of Item 2.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired.
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INDEPENDENT AUDITORS' REPORT
Board of Directors
CapStar Hotel Company:
We have audited the accompanying combined balance sheets of the Muben Hotels
(the "Hotels") as of September 30, 1996, December 31, 1995 and 1994 and related
combined statements of operations, owners' capital and cash flows for the nine
months ended September 30, 1996 and the years ended December 31, 1995 and 1994.
These combined financial statements are the responsibility of the Hotels'
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Muben
Hotels as of September 30, 1996, December 31, 1995 and 1994, and the results of
their combined operations and their combined cash flows for the nine months
ended September 30, 1996 and the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick, LLP
Washington, D.C.
January 10, 1997
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MUBEN HOTELS
Combined Balance Sheets
September 30, 1996, December 31, 1995 and 1994
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ASSETS 1996 1995 1994
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Cash and cash equivalents $2,540,021 2,100,027 1,795,991
Accounts receivable 1,520,016 1,009,479 1,347,062
Inventory and other assets 1,000,652 1,004,098 1,100,562
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Total current assets 5,060,689 4,113,604 4,243,615
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Property and equipment:
Land 14,454,496 14,454,496 14,454,496
Building 49,190,163 48,816,467 48,792,386
Furniture, fixtures and equipment 19,744,427 19,968,593 18,993,252
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83,389,086 83,239,556 82,240,134
Less - accumulated depreciation (35,118,050) (32,623,613) (29,307,378)
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Total net property and equipment 48,271,036 50,615,943 52,932,756
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Total assets $53,331,725 54,729,547 57,176,371
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LIABILITIES AND OWNERS' CAPITAL
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Accounts payable and accrued expenses $3,622,343 2,778,452 3,022,008
Advance deposits 114,175 41,927 45,436
Intercompany income taxes
payable (note 4) 2,485,345 995,677 81,080
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Total liabilities 6,221,863 3,816,056 3,148,524
Owners' capital 47,109,862 50,913,491 54,027,847
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Total liabilities and owners' capital $53,331,725 54,729,547 57,176,371
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See accompanying notes to combined financial statements.
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MUBEN HOTELS
Combined Statements of Operations
For the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994
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1996 1995 1994
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Revenue:
Rooms $18,337,641 21,925,991 21,147,009
Food and beverage 8,117,806 10,442,474 10,513,519
Other operating departments 1,265,677 1,613,934 1,591,255
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27,721,124 33,982,399 33,251,783
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Operating costs and expenses:
Rooms 4,513,632 5,751,406 5,673,951
Food and beverage 6,874,250 9,198,740 9,407,042
Other operating departments 669,595 904,143 933,992
Undistributed operating expenses:
Administrative and general 2,505,580 3,342,110 3,314,554
Sales and marketing 1,811,948 2,320,060 2,343,494
Management fees (note 3) 628,182 1,065,175 1,051,710
Property operating costs 3,505,572 4,407,863 4,353,126
Property taxes, insurance and other 993,759 1,390,174 1,519,555
Depreciation and amortization 2,494,437 3,316,235 4,451,660
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23,996,955 31,695,906 33,049,084
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Net income before income taxes 3,724,169 2,286,493 202,699
Income taxes (note 4) 1,489,668 914,597 81,080
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Net income $2,234,501 1,371,896 121,619
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See accompanying notes to combined financial statements.
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MUBEN HOTELS
Combined Statements of Owners' Capital
For the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994
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Balance at December 31, 1993 $ 55,146,114
Contributions 1,485,114
Distributions (2,725,000)
Net income 121,619
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Balance at December 31, 1994 54,027,847
Contributions 215,327
Distributions (4,701,579)
Net income 1,371,896
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Balance at December 31, 1995 50,913,491
Contributions 173,601
Distributions (6,211,731)
Net income 2,234,501
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Balance at September 30, 1996 $ 47,109,862
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See accompanying notes to combined financial statements.
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MUBEN HOTELS
Combined Statements of Cash Flows
For the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994
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1996 1995 1994
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Cash flows from operating activities:
Net income $2,234,501 1,371,896 121,619
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,494,437 3,316,235 4,451,660
Decrease (increase) in accounts
receivable (510,537) 337,583 (77,086)
Decrease in inventory
and other assets 3,446 96,464 22,741
Decrease in notes
receivable - - 100,000
Increase (decrease) in accounts
payable and accrued expenses 843,891 (243,556) (312,119)
Increase (decrease) in advance
deposits 72,248 (3,509) (10,866)
Increase in intercompany
income taxes payable 1,489,668 914,597 81,080
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TOTAL ADJUSTMENTS 4,393,153 4,417,814 4,255,410
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Net cash provided by operating
activities 6,627,654 5,789,710 4,377,029
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Cash flows from investing
activities - purchases of
furniture and equipment (149,530) (999,422) (2,285,579)
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Cash flows from financing activities:
Capital contributions 173,601 215,327 1,485,114
Capital distributions (6,211,731) (4,701,579) (2,725,000)
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Net cash used by financing activities (6,038,130) (4,486,252) (1,239,886)
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Net increase in cash
and cash equivalents 439,994 304,036 851,564
Cash and cash equivalents at
beginning of period 2,100,027 1,795,991 944,427
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Cash and cash equivalents at
end of period $2,540,021 2,100,027 1,795,991
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See accompanying notes to combined financial statements.
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MUBEN HOTELS
Notes to Combined Financial Statements
September 30,1996, December 31,1995 and 1994
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(1) ORGANIZATION
The combined financial statements consist of five hotels which are part of
MBL Life Assurance Corporation. This portfolio of hotels is known as the
Muben Hotels (the "Hotels"). Two of the hotels are in California
(Sacramento Hilton and Santa Barbara Inn); one is in Louisiana (Lafayette
Hilton), one is in Colorado (Holiday Inn) and the other is in Washington,
D.C. (Embassy Row).
CapStar Hotel Company purchased the Hotels for approximately $68,400,000 on
December 17, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotels are included in the financial records of the MBL
Life Assurance Corporation. The accompanying combined financial statements
include the accounts of the Hotels only, as if they were a separate legal
entity, and have been prepared using the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
The Hotels consider all highly liquid instruments with an original maturity
date of three months or less to be cash equivalents.
INVENTORIES
Inventories, consisting primarily of china, tableware, linens and food and
beverage items, are stated at cost, using the first-in, first-out ("FIFO")
method of inventory valuation.
PROPERTY AND EQUIPMENT
Property and equipment are reflected in the balance sheets at their fair
value at the time of contribution. Depreciation is computed on the
buildings and building improvements using the straight-line method over
their useful lives of 18 to 39 years. Furniture, fixtures and equipment
are depreciated using the straight-line method over five years.
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MUBEN HOTELS
Notes to Combined Financial Statements
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(2) CONTINUED
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur
when management deems a receivable uncollectible.
REVENUE
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
INCOME TAXES
The accounts of the Hotels are included in the financial records of the MBL
Life Assurance Corporation and therefore the Hotels were not subject to
income taxes on a separate basis. For purposes of these financial
statements, the Hotels have calculated their tax provision on the separate
return basis to approximate tax expense as if they were a separate legal
entity.
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
combined financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(3) RELATED-PARTY TRANSACTIONS
All of the Hotels, except for Embassy Row, are managed by CapStar Hotel
Company. The hotels managed by CapStar Hotel Company paid base management
fees based on gross revenue plus incentive management fees if the hotels'
operating results exceeded levels specified in the management contract.
These four hotels incurred management fees of $563,455 in 1996; $926,737 in
1995; $929,013 in 1994; and $1,008,719 in 1993.
CapStar Hotel Company began managing Embassy Row on September 25, 1996.
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MUBEN HOTELS
Notes to Combined Financial Statements
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(4) INCOME TAXES
The Hotels' income tax expense is comprised of the following:
1996 1995 1994
________________________________________
Federal $1,151,118 706,741 62,653
State and local 338,550 207,856 18,427
________________________________________
$1,489,668 914,597 81,080
________________________________________
The "expected" tax expense, based on the U.S. federal statutory rate of
34% for each of the periods above, differs from the actual tax expense,
calculated at an effective rate of 40%, due to state and local taxes, net
of federal tax benefit.
The Hotels' deferred tax assets and liabilities are insignificant to these
financial statements and are therefore not presented.
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(b) Pro Forma Financial Information.
CAPSTAR HOTEL COMPANY PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
On December 17, 1996, CapStar Hotel Company (the "Company")
acquired five hotels with 1,121 rooms, known as the MUBEN hotels,
from MBL Life Assurance Corporation. The aggregate purchase price
for the MUBEN hotels was $69.4 million, and was paid through
external borrowings.
The unaudited pro forma Condensed Consolidated Balance Sheet is
presented as if the aforementioned transaction had been consummated on
September 30, 1996. The unaudited pro forma Consolidated Statements
of Operations 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 events occurred as of an earlier date, nor does it
purport to represent the future financial position or operating
results of the Company.
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CAPSTAR HOTEL COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
At September 30, 1996 (Unaudited)
(In thousands)
MUBEN HOTELS PRO FORMA AFTER
PRO FORMA ACQUISITION OF
HISTORICAL(A) ADJUSTMENTS(B) MUBEN HOTELS
------------- ----------------- -----------------
Assets
Restricted and
unrestricted cash 10,161 (3,500) 6,661
Property and
equipment, net 215,824 68,939 284,763
Other Assets 21,120 506 21,626
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TOTAL ASSETS 247,105 65,945 313,050
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Liabilities, Minority
Interest and Equity
Notes payable 73,225 65,198 138,423
Other liabilities 13,663 747 14,410
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Total Liabilities 86,888 65,945 152,833
Minority interest 625 -- 625
Equity 159,592 -- 159,592
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Total liabilities,
minority interest
and equity 247,105 65,945 313,050
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Notes:
(A) Reflects the Company's historical consolidated balance sheet as of
September 30, 1996.
(B) Reflects the pro forma adjustments related to the MUBEN hotels:
(1) total acquisition costs of $69,445;
(2) use of the Company's purchase deposit of $3,500;
(3) external borrowings of $65,198; and
(4) the assumption of other liabilities of $747.
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CAPSTAR HOTEL COMPANY
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 1996 (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA AFTER
MUBEN HOTELS ACQUISITION OF
PRO FORMA MUBEN
HISTORICAL(A) ADJUSTMENTS(B) HOTELS
<S> <C> <C> <C>
Rooms 48,960 18,338 67,298
Food and beverage 20,525 8,118 28,643
Management fees and other 7,643 703 8,346
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Total Revenue 77,128 27,159 104,287
Hotel operating expenses by department:
Rooms 12,232 4,514 16,746
Food and beverage 16,620 6,874 23,494
Other operating departments 1,798 670 2,468
Undistributed operating expenses:
Administrative and general 14,897 4,318 19,215
Property operating costs 8,920 3,506 12,426
Property taxes, insurance and other 3,225 994 4,219
Depreciation and amortization 5,955 1,459 7,414
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Total operating expenses 63,647 22,335 85,982
Interest expense, net 10,428 4,463 14,891
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Total expenses 74,075 26,798 100,873
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Income before minority interest and income taxes 3,053 361 3,414
Minority interest (20) - (20)
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Income before income taxes 3,073 361 3,434
Income tax provision 1,092 281 1,373
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Net income 1,981 80 2,061
------- -------- ---------
------- -------- ---------
Earnings per share (C) $0.13 $0.16
------- ---------
------- ---------
</TABLE>
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For the year ended December 31, 1995 (Unaudited)
(In thousand, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA AFTER
MUBEN HOTELS ACQUISITION OF
PRO FORMA MUBEN
HISTORICAL(A) ADJUSTMENTS(B) HOTELS
<S> <C> <C> <C>
Rooms 14,456 21,926 36,382
Food and beverage 5,900 10,442 16,342
Management fees and other 6,007 687 6,694
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Total Revenue 26,363 33,055 59,418
Hotel operating expenses by department:
Rooms 4,190 5,751 9,941
Food and beverage 4,924 9,199 14,123
Other operating departments 513 904 1,417
Undistributed operating expenses:
Administrative and general 8,078 5,662 13,740
Property operating costs 2,624 4,408 7,032
Property taxes, insurance and other 1,311 1,390 2,701
Depreciation and amortization 2,098 1,945 4,043
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Total operating expenses 23,738 29,259 52,997
Interest expense, net 2,413 6,203 8,616
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Total expenses 26,151 35,462 61,613
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Income (loss) before minority interest and income taxes 212 (2,407) (2,195)
Minority interest (17) - (17)
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Income (loss) before income taxes 229 (2,407) (2,178)
Income tax benefit - (871) (871)
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Net income(loss) 229 (1,536) (1,307)
-------- -------- ---------
-------- -------- ---------
Earnings per share(C) $(0.10)
---------
---------
</TABLE>
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CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1996
and the Year Ended December 31, 1995
(Unaudited)
(In thousands, except share amounts)
Adjustments:
(A) Reflects the Company's historical consolidated statements of
operations for the nine months ended September 30, 1996 and the
year ended December 31, 1995.
(B) Pro forma adjustments for the purchase of the MUBEN hotels
reflect the historical operating activity of the properties
acquired except that:
(1) interest expense reflects the expense the Company expects
to incur on the funds borrowed to acquire the properties
($4,463 of interest expense for the nine months
ended September 30, 1996 and $6,203 for the year ended
December 31, 1995);
(2) depreciation expense is based on the new accounting basis
for the properties acquired;
(3) management fee income earned by the Company for managing
four of the five hotels has been eliminated ($563 in 1996
and $926 in 1995); and
(4) income tax expense has been adjusted for (1), (2), and
(3) above and to include taxes on historical income.
(C) Calculated using weighted average number of shares of
12,754,321. Historical earnings per share is calculated
on earnings since August 20, 1996, the date of the initial
public offering.
(c) Exhibits.
There are no exhibits required to be filed with this amendment to
the report on Form 8-K.
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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.
Date: February 12, 1997
CAPSTAR HOTEL COMPANY
(Registrant)
By: /s/ William M. Karnes
-------------------------
William M. Karnes
Senior Executive Vice President
