<PAGE>
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): SEPTEMBER 22, 1997
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-12017 52-1979383
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification
Number)
</TABLE>
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>
FORM 8-K
ITEM 5. OTHER EVENTS
CapStar Hotel Company (the "Company") has entered into a contract with
certain affiliates of Medallion Hotels, Inc., to purchase a portfolio of six
upscale, full-service hotels containing 1,960 rooms (the "Medallion
Portfolio") for a purchase price of $150.0 million. For purposes of
incorporation by reference into the Company's Registration Statement on Form
S-3 (Registration No. 333-34253), as amended, attached hereto as Exhibit 99.1
are certain consolidated financial statements for the Medallion Portfolio in
accordance with Rule 3-05 of Regulation S-X under the Securities Act of 1933,
as amended.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
99.1 -- Consolidated Financial Statements of Atgen Holdings, Inc. and
Subsidiaries as of and for the years ended January 31, 1997 and 1996
and the six months ended July 31, 1997
1
<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.
Date: September 22, 1997
CAPSTAR HOTEL COMPANY
By: /s/ JOHN EMERY
-----------------
John Emery
Chief Financial Officer
2
<PAGE>
EXHIBIT 99.1
Independent Auditor's Report
----------------------------
The Board of Directors
Atgen Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Atgen
Holdings, Inc. and Subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of operations and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atgen
Holdings, Inc. and Subsidiaries at January 31, 1997 and 1996 and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
PANNELL KERR FORSTER PC
New York, N.Y.
April 30, 1997
1
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
Assets
<TABLE>
<CAPTION>
January 31
July 31, -------------------------------
1997 1997 1996
------------ -------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash $ 426,258 $ 572,345 $ 1,121,820
Restricted cash (notes 6 and 7) 14,100 317,109 19,287
Accounts receivable (net of allowance for
doubtful accounts of $113,513 and $93,162
in 1997 and 1996, respectively) 3,891,796 2,921,612 2,702,887
Due from affiliates (note 5) - 192,909 318,971
Income tax receivable - 3,284 14,338
Inventories (note 2) 423,853 445,231 401,118
Prepaid expenses 747,496 394,045 460,352
----------- -------------- ---------------
Total current assets 5,503,503 4,846,535 5,038,773
----------- -------------- ---------------
Property and equipment (note 2)
Land 10,918,364 10,918,364 10,918,364
Buildings and improvements 59,119,521 59,094,735 56,087,296
Furniture, fixtures and equipment 25,086,899 24,634,478 20,875,548
Construction-in-progress 3,802,466 1,886,214 1,774,542
----------- -------------- ---------------
98,927,250 96,533,791 89,655,750
Less accumulated depreciation 26,977,497 24,450,437 20,537,208
----------- -------------- ---------------
71,949,753 72,083,354 69,118,542
----------- -------------- ---------------
Other assets (note 2)
Deposits 106,798 29,614 52,678
Deferred loan costs 204,873 204,873 71,250
Organization costs 60,943 70,945 101,924
Goodwill 1,525 1,525 1,643
Other 456,452 73,819 69,169
----------- -------------- ---------------
830,591 380,776 296,664
----------- -------------- ---------------
Total assets $ 76,283,847 $ 77,310,665 $ 74,453,979
----------- -------------- ---------------
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
Liabilities and Stockholder's (Deficit)
<TABLE>
January 31
July 31, --------------------------
1997 1997 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current liabilities
Cash overdraft........................................ $ 180,600 $ 297,771 $ 22,487
Accounts payable...................................... 2,254,171 2,091,885 2,159,189
Taxes payable and accrued............................. 1,210,028 162,518 85,351
Accrued expenses...................................... 1,879,202 3,141,142 2,899,295
Advance deposits...................................... 338,064 718,454 635,368
Other................................................. 10,744 67,392 31,679
Current portion of notes payable (note 7)............. 1,455,598 1,480,127 1,698,146
------------ ------------ ------------
Total current liabilities....................... 7,328,407 7,959,289 7,531,515
Notes payable, net of current portion (note 7).......... 12,015,706 12,587,593 10,297,720
Other liabilities....................................... -- 236,691 21,269
Due to parent (note 5).................................. 73,829,082 73,284,082 72,709,082
------------ ------------ ------------
Total liabilities............................... 93,173,195 94,067,655 90,559,586
------------ ------------ ------------
Stockholder's (deficit)
Capital stock - authorized 10,000 shares, issued
and outstanding 1,000 shares at $.01 par............ 10 10 10
Additional paid-in capital............................ 19,990 19,990 19,990
------------ ------------ ------------
20,000 20,000 20,000
------------ ------------ ------------
Accumulated (deficit)
Balance - beginning of year......................... (16,776,990) (16,125,607) (14,517,586)
Net income (loss) for the year...................... 1,867,642 (651,383) (1,608,021)
------------ ------------ ------------
Balance - end of year............................... (14,909,348) (16,776,990) (16,125,607)
------------ ------------ ------------
Total stockholder's (deficit)................... (14,889,348) (16,756,990) (16,105,607)
------------ ------------ ------------
Total liabilities and stockholder's (deficit)... $ 78,283,847 $ 77,310,665 $ 74,453,979
------------ ------------ ------------
</TABLE>
3
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Six Months Year Ended
Ended January 31
July 31, ---------------------------
1997 1997 1996
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Revenues
Rooms $ 18,152,849 $ 32,833,403 $31,089,320
Food 7,679,373 14,431,447 14,137,932
Beverage 622,357 1,155,367 1,220,816
Telephone 689,796 1,279,224 1,359,760
Rentals (note 8) 164,119 528,797 583,103
Interest income 22,065 10,608 1,538
Management fees (note 5) - 20,953 110,304
Miscellaneous operating revenue 535,408 949,416 830,121
Other income 43,792 259,420 140,651
------------- ------------- ------------
Total revenues 27,909,759 51,468,835 49,473,545
------------- ------------- ------------
Costs and expenses
Rooms 4,572,824 9,094,745 8,865,679
Food and beverage 6,754,328 13,075,371 13,470,369
Telephone 396,964 768,598 803,821
Other operating expenses 484,311 837,026 768,845
General and administrative 3,689,327 8,124,662 8,275,505
Marketing 2,426,435 4,698,340 4,550,030
Human resources 777,649 1,000,987 1,035,150
Loss on sales of equipment - 562,227 41,276
Property operation, maintenance and
energy 2,997,165 5,961,487 5,926,191
Insurance, rent and taxes 825,291 1,471,345 1,434,597
Interest expense 580,761 1,463,343 1,071,210
Depreciation and amortization 2,537,062 5,061,887 4,838,893
------------- ------------- ------------
Total costs and expenses 26,042,117 52,120,018 51,081,566
------------- ------------- ------------
Net income (loss) $ 1,867,642 $ (651,383) $(1,608,021)
------------- ------------- ------------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Year Ended
Ended January 31
July 31, ------------------------------
1997 1997 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,867,642 $ (651,383) $ (1,608,021)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 2,537,062 5,061,887 4,838,893
Loss on sales of equipment - 562,227 41,276
Changes in certain other accounts
Deposits (77,184) 23,064 (35,163)
Accounts receivable (970,184) (218,725) (188,447)
Inventories 21,378 (44,113) (69,695)
Prepaid expenses (353,451) 66,307 (124,103)
Other assets (382,634) (4,650) (32,843)
Accounts payable 162,286 (67,304) (545,534)
Accrued expenses (1,261,940) 247,034 (318,260)
Taxes payable and accrued 1,047,510 77,167 (44,813)
Advance deposits (380,390) 83,086 66,720
Income tax receivable 3,284 11,054 18,129
Due from affiliates 192,909 126,062 112,083
----------- ----------- ------------
Net cash provided by operating activities 2,406,288 5,271,713 2,110,222
----------- ----------- ------------
Cash flows from investing activities
Purchase of property and equipment (2,135,060) (8,160,556) (5,302,700)
Proceeds from sales of equipment - 107 4,570
Purchase of subsidiary stock - - (200,000)
Organization costs - - (44,276)
Release of escrow loan to parent company - - 516,404
----------- ----------- ------------
Net cash (used) by investing activities (2,135,060) (8,160,449) (5,026,002)
----------- ----------- ------------
Cash flows from financing activities
Change in bank overdraft (117,171) 275,284 2,727
Payments of other liabilities (293,339) (64,218) (90,599)
Advances from parent company 545,000 575,000 2,997,000
Proceeds from notes payable - 16,400,000 1,600,000
Principal payments on notes payable (854,814) (14,328,146) (1,096,204)
Payment of deferred loan costs - (215,650) (75,000)
Increases in restricted cash 303,009 (303,009) -
----------- ----------- ------------
Net cash provided by financing activities (417,315) 2,339,261 3,337,924
----------- ----------- ------------
Net increase (decrease) in cash (146,087) (549,475) 422,144
Cash at beginning of year 572,345 1,121,820 699,676
----------- ----------- ------------
Cash at end of year $ 426,258 $ 572,345 $ 1,121,820
----------- ----------- ------------
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes $ - $ 15,035 $ 27,625
----------- ----------- ------------
Cash paid during the year for interest $ 580,761 $ 1,197,703 $ 1,060,178
----------- ----------- ------------
Supplemental disclosure of noncash investing activities
Two subsidiaries purchased equipment under capital
lease obligations for $258,399 (unaudited), $315,353
and $36,339 in the six month period ended July 31,
1997 and the years ended January 31, 1997 and
1996, respectively.
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1997 (Unaudited)
Note 1 - Summary of significant accounting policies and organization
Organization
Atgen Holdings, Inc. (the Company) was formed on September 25, 1989. The
Company is a wholly-owned subsidiary of General Atlantic Corporation (the
Parent). Six of the Company's wholly-owned subsidiaries own and operate
hotels located in Texas, Oklahoma and Kentucky. Another subsidiary provides
management services to these hotels.
Principles of consolidation
The Company has the following wholly owned subsidiaries:
Southeast Texas Hotels Corp.
West Texas Hotels, Inc.
ATX Hotels, Inc.
The Seelbach Louisville, Inc.
Farmers Branch Hotels Corp.
Central Oklahoma Hotels Corp.
Medallion Hotels, Inc.
In the preparation of the consolidated financial statements, all significant
intercompany transactions have been eliminated.
Note 2 - Summary of significant accounting policies
Basis of presentation
The Company prepares its financial statements in conformity with generally
accepted accounting principles, which require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Interim unaudited financial information
The accompanying interim consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission and generally accepted accounting principles applicable to interim
financial statements. In the opinion of management all adjustments and
eliminations, consisting only of normal recurring adjustments necessary to
present the Company's consolidated fairly financial position and the results
of operations and cash flows for the six month period ended July 31, 1997
have been included. The results of operations for such interim periods are
not necessarily indicative of the results for the full year.
Property and equipment
Property and equipment are stated at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
assets as follows;
Buildings and improvements 15 to 39 years
Furniture, fixtures and equipment 3-7 years
6
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
July 31, 1997 (Unaudited)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Concentration of risk
The Company and some of the subsidiaries maintain cash accounts with major
banks whose amounts exceed the insured limit of $100,000. The term of these
deposits are on demand to minimize risk. The Company and its subsidiaries
have not incurred any losses related to these deposits.
Organization costs
Two of the hotels incurred organization costs totaling approximately
$155,600. These costs are being amortized using the straight-line method over
5 years. Accumulated amortization amounted to $93,951 (unaudited), $83,949
and $52,970 at July 31, 1997, January 31, 1997 and 1996, respectively.
Deferred loan costs
Fees incurred in connection with obtaining the note payable are being
amortized using the straight-line basis over the term of the note.
Reclassification
Certain accounts in 1996 have been reclassified to conform with the 1997
financial statement presentation.
Note 3 - Income taxes
The Company is included in the consolidated Federal Income tax return of its
Parent. The allocation of consolidated income tax to the Company is based on
the tax expense or benefit that would be provided if the Company were not a
member of a controlled group of companies. Accordingly, Federal income taxes
are payable to or receivable from the parent rather than the Federal
Government. The Company has available net operating loss carryforwards of
approximately $9,353,000 at January 31, 1997 which expire in fiscal years
ended 2005 through 2012.
The Company recognizes deferred tax assets and liabilities for the expected
future consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
the enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
The composition of the deferred tax asset and the related tax effects is as
follows:
<TABLE>
January 31
July 31 -----------------------
1997 1997 1996
------------- --------- --------
(Unaudited)
<S> <C> <C> <C>
Deferred tax asset resulting from net
operating loss carryforwards......... $3,838,116 $3,836,116 $3,647,743
Valuation allowance.................... (3,838,116) (3,838,116) (3,647,743)
---------- ---------- ----------
Net deferred tax asset...... $ - $ - $ -
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
7
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
July 31, 1997 (Unaudited)
Changes in the valuation allowance account applicable to deferred tax assets
are as follows:
<TABLE>
<CAPTION>
January 31
July 31 -----------------------
1997 1997 1996
------------- --------- --------
(Unaudited)
<S> <C> <C> <C>
Valuation allowance - beginning of
period.............................. $3,838,116 $3,647,743 $3,154,087
Increase during the period............ - 190,373 493,656
---------- ---------- ----------
Valuation allowance - end of period... $3,838,116 $3,838,116 $3,647,743
---------- ---------- ----------
</TABLE>
The Company has recorded a valuation allowance to offset the deferred tax
assets which may not be realized due to continuing operating losses.
Note 4 - Commitments
Franchise and license agreements
The Company, through two of its subsidiaries, has entered into franchise
agreements with Hilton Inns, Inc. The agreements provide for royalty fees of
up to 5% and 4% of gross room revenues. Franchise fee expense for the six
month period ended July 31, 1997 and the years ended January 31, 1997 and
1996 amounted to $211,073 (unaudited), $389,951 and $390,207, respectively.
One of the subsidiaries also has a franchise license agreement with Super 8
Motels, Inc. for part of its hotel property. The agreement provides for
royalty fees of 4% of gross room revenues, and advertising fees of 2% of
gross room revenues. The total franchise expense for the six month period
ended July 31, 1997 and the years ended January 31, 1997 and 1996 amounted to
$23,871 (unaudited), $61,833 and $66,694, respectively.
Barter agreement
During the fiscal year ended January 31, 1996, one of the subsidiaries
entered into an barter agreement with a customer whereby the subsidiary
agreed to cover the cost of the customer's annual convention at its hotel. In
exchange the customer agreed to cover the cost of purchasing a portion of the
subsidiary's fixed asset additions and repairs and maintenance. The value of
the barter agreement amounted to $46,000.
During the fiscal year ended January 31, 1997, the subsidiary paid for the
total cost of the customer's convention and incurred additional fees which
were added to the amount of the barter. The subsidiary did not purchase
significant fixed asset additions or incur significant repairs and
maintenance expenses for which the customer would cover the cost. These
transactions resulted in a net barter receivable from the customer of $81,000
at January 31, 1997.
Purchase commitment
As of January 31, 1997, two of the subsidiaries have entered into commitments
for capital improvements of approximately $1,215,000.
Note 5 - Related party transactions
Funds advanced to the subsidiaries from the Parent and amounts due from
affiliates are noninterest-bearing and have no specific due date.
8
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
July 31, 1997 (Unaudited)
Sublease agreements exist whereby the Beverage Corp., an affiliated
entity, leases hotel liquor sales outlets from four of the Company's
subsidiaries for a percentage of liquor sales revenues. Rent earned under
these agreements for the six month period ended July 31, 1997 and the
years ended January 31, 1997 and 1996 amounted to $44,090 (unaudited)
$247,042 and $223,800, respectively.
A subsidiary entered into an office rental agreement on a month-to-month
basis with the Parent. The rental agreement provides for monthly rent of
$5,000, which includes utilities.
Note 6-Self-Insurance
The Company offers a self-insured medical and dental plan to its employees of
the hotels. The policy is obtained through the management company subsidiary.
The Company is liable for insurance claims up to $50,000 per participant per
year. An insurance carrier provides coverage for individual claims in excess
of $50,000 up to $1,000,000 which is the maximum lifetime coverage. Individual
employees are responsible for any claims in excess of the $1,000,000 lifetime
maximum. The hotels are billed for their share of premiums and claims by the
management company subsidiary. The plan is not a funded plan and costs of the
plan are charged against operations when incurred. A restricted cash account
has been established to pay for submitted claims. The balance in the account
amounted to $14,100 (unaudited) at July 31, 1997, $14,100 and $19,287 at
January 31, 1997 and 1996, respectively.
Note 7-Long-term debt
Notes payable
(a) The Company obtained a note payable amounting to $10,000,000 with
Inter-Pacific Group, Inc. In July 1995, Inter-Pacific Group, Inc. assigned
the note to Inter-Pacific Investment, Inc. The loan accrued interest
annually at the prime rate plus 2% payable quarterly in arrears and was
refinanced with a new lender on October 29, 1996 (see (d)).
(b) During fiscal 1995 one of the subsidiaries obtained an additional
note with the Kentucky Economic Development Finance Authority in the amount
of $500,000. The note requires monthly payments of $8,764 applied first to
interest at 2% per annum and the balance to the reduction of principal. The
note is secured by a letter of credit for 105% of the outstanding principal
balance and matures on December 22, 1999.
(c) During fiscal 1996, one of the subsidiaries obtained a revolving
credit loan from a bank. The loan required monthly payments of interest
only at prime with principal due at maturity on October 26, 1996. The loan,
with an outstanding balance of $4,000,000, was refinanced with a new lender
on October 29, 1996 (see (d)).
(d) On October 29, 1996, the Company obtained a $14,000,000 term
loan from a third party lender. The loan requires monthly payments of
principal of $115,000 and per annum interest calculated at the lender's
Euro-Rate, as defined, plus 2.6% (7.17% at July 31, 1997). The note
matures on November 1, 2001, at which time all outstanding and related
accrued interest becomes due.
9
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
July 31, 1997 (Unaudited)
As security for the loan, the Company has granted the lender a first and
priority security interest in the issued and outstanding stock of The
Seelbach Louisville, Inc., ATX Hotels, Inc., Farmers Branch Hotels Corp. and
Medallion Hotels, Inc. As further security, the loan is guaranteed by a first
and prior mortgage on the hotel properties and the assets of Seelbach, ATX,
and Farmers Branch. The Company has also granted the lender a first and
priority security interest in all loans receivable from the subsidiaries.
Payment of all obligations to the Company by the guarantors and to the Parent
by the Company have been subordinated.
The agreement requires the Company to maintain a replacement reserve escrow
account which is to be funded quarterly to the extent of 6% of combined rooms
revenues of Seelbach, ATX and Farmers Branch, net of actual expenditures for
capital improvements for such quarter. The account is assigned to the lender
as additional security for the loan and a minimum balance of $300,000 must be
maintained. The balance in the account amounted to $0 (unaudited), $303,009
at July 31, 1977 and January 31, 1997, respectively.
Future minimum payments on notes payable for the next five years are as
follows:
Year Ending
January 31
-----------
1998 $ 1,480,127
1999 1,482,148
2000 1,475,445
2001 1,380,000
2002 8,250,000
-----------
$14,067,720
-----------
Note 8 - Operating leases
Two of the subsidiaries lease retail, restaurant and office space under
leases which expire at various dates from March 31, 1997 through August 31,
2001. One of the subsidiaries also leases space to various tenants on a
month-to-month basis. Certain leases contain renewal options.
Minimum future rental income to be received over the next five years is as
follows:
Year Ending
January 31
-----------
1998 $ 222,018
1999 127,973
2000 113,850
2001 104,390
2002 92,113
-----------
$ 660,344
-----------
10
