<PAGE>
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): March 2, 1998
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-12017 52-1979383
(State or other jurisdiction of (Commission File (IRS Employer Identification
incorporation) Number) Number)
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 965-4455
<PAGE>
The registrant hereby amends Items 7(a) and (b) of its Current Report on Form
8-K filed with the Commission on March 17, 1998 as set forth in the pages
attached hereto to file the financial statements and pro forma condensed,
consolidated statement of operations reflecting the acquisition by the
registrant of the Sheraton Grande Hotel.
Item 2. ACQUISITIONS
The Company has previously filed a report on Form 8-K as of March 17,
1998 with respect to the requirements of Item 2.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial statements of business acquired.
<PAGE>
Independent Auditors' Report
The Board of Directors
CapStar Hotel Company:
We have audited the accompanying statements of operations and cash flows of the
Sheraton Grande Hotel (the "Hotel") for the period from January 1, 1997 to
October 22, 1997 and the year ended December 31, 1996. These financial
statements are the responsibility of the Hotel'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 financial statements referred to above, present fairly, in
all material respects, the results of the Hotel's operations and its cash flows
for the period from January 1, 1997 to October 22, 1997 and the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 23, 1998
<PAGE>
SHERATON GRANDE HOTEL
Statements of Operations
For the period from January 1, 1997 to October 22, 1997 and
the year ended December 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Rooms $ 10,251,000 11,570,000
Food and beverage 4,573,000 6,129,000
Other operating departments 1,194,000 1,264,000
---------------- ----------------
Total revenues 16,018,000 18,963,000
---------------- ----------------
Operating costs and expenses:
Rooms 3,387,000 4,115,000
Food and beverage 4,082,000 5,352,000
Other operating departments 344,000 488,000
Undistributed operating expenses:
Administrative and general 1,454,000 1,864,000
Sales and marketing 1,281,000 1,424,000
Management fees 320,000 379,000
Property operating costs 2,058,000 2,322,000
Property taxes, insurance and other 458,000 1,372,000
Depreciation and amortization 1,984,000 2,382,000
Interest expense, net 2,000 4,663,000
---------------- ----------------
Net income (loss) $ 648,000 (5,398,000)
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SHERATON GRANDE HOTEL
Statements of Cash Flows
For the period from January 1, 1997 to October 22, 1997 and
the year ended December 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 648,000 (5,398,000)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 1,984,000 2,382,000
Decrease (increase) in receivables 206,000 (15,000)
Decrease in inventories 11,000 2,000
Decrease (increase) in prepaid
expenses and current assets (1,000) 36,000
Increase in accounts payable and
accrued expenses 181,000 1,555,000
---------- ---------
Net cash provided (used) by operating
activities 3,029,000 (1,438,000)
--------- -----------
Cash flows from investing activities -
additions to property and equipment (17,000) (227,000)
Cash flows from financing activities:
Payments on notes payable - (261,000)
Net capital contributed (distributed) (3,466,000) 3,156,000
Repayment of capital lease obligations (126,000) (140,000)
----------- ----------
Net cash provided (used ) by financing
activities (3,592,000) 2,755,000
----------- ---------
Net increase (decrease) in cash and
cash equivalents (580,000) 1,090,000
Cash and cash equivalents, beginning of period 1,268,000 178,000
--------- ---------
Cash and cash equivalents, end of period $ 688,000 1,268,000
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 42,000 2,769,000
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SHERATON GRANDE HOTEL
Notes to Financial Statements
For the period from January 1, 1997 to October 22, 1997 and
the year ended December 31, 1996
(1) Organization
The Sheraton Grande Hotel (the "Hotel") is located on 333 South Figueroa
Street in downtown Los Angeles. The hotel operates in the upper part of
the hospitality market providing accommodation, restaurant and bar
facilities to its guests. Additional income is generated by the
organization of conferences, banquets and other events. Various
restaurants and a gift shop are located on the premises.
Prior to December 26, 1996, the Hotel was owned by Hotel Grande
Associates (HGA), a limited partnership. On this date, HGA was dissolved
as Metropolitan Life Insurance Company (MetLife), the majority partner,
acquired the remaining interest in the Partnership. As a result of this
transaction, the mortgage loan and accrued interest owed to MetLife were
contributed to capital. The hotel was acquired by CapStar Hotel Company
from MetLife on December 18, 1997 for a purchase price of $56,800,000.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accounts of the Hotel were included in the financial records of its
various owners until the Hotel was sold to CapStar Hotel Company. The
accompanying statements of operations and cash flows include the accounts
of the Hotel only, as if it were a separate legal entity, and have been
prepared using the accrual basis of accounting.
The Hotel's monthly reporting period follows a cycle that does not
coincide with the last day of a given calendar month. October 22, 1997
corresponds to the end of the Hotel's tenth period in 1997.
Depreciation
Depreciation is computed on the cost of the Hotel property and equipment
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Building 40 years
Land improvements 15 years
Furniture, fixtures and equipment 5 to 15 years
</TABLE>
Costs of major improvements and replacements are capitalized; costs of
normal repairs and maintenance are charged to expense as incurred.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information
on debtors to establish an allowance for doubtful accounts. Write-offs
occur when management deems a receivable uncollectible.
<PAGE>
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes
since the Hotel was owned by a partnership and, therefore, all federal
income tax liabilities were passed through to the individual partners in
accordance with the partnership agreement and the Internal Revenue Code.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
judgments that affect revenues and expenses recognized during the
reporting period. Actual results could differ from these estimates.
(3) Interest Expense
MetLife had provided HGA with a mortgage loan on December 27, 1990, with
an original balance of $45,800,000. The loan had an annual interest rate
of 10.375%, requiring monthly principal and interest payments of
$419,200. The mortgage loan matured on September 1, 1996, and was
subsequently contributed to capital by MetLife upon dissolution of HGA.
Interest expense for the year ended December 31, 1996 amounted to
$4,663,000, and reflects interest costs recognized by HGA up to the date
of dissolution of HGA.
(4) Management Fees
Prior to acquisition by CapStar Hotel Company, the Hotel was managed by
Sheraton Operating Corporation for a 2% management fee based on gross
revenues.
(5) Related - Party Transaction
The Hotel did not recognize insurance expense subsequent to the
dissolution of HGA on December 26, 1996 as the Hotel was covered under
a MetLife corporate insurance policy.
<PAGE>
(b) Pro Forma Financial Information
The Company acquired the Sheraton Grande Hotel (the "Hotel")
from Metropolitan Life Insurance Company for an aggregate
purchase price of approximately $56.8 million. The acquisition
was funded from the Company's cash balances.
The unaudited pro forma Condensed Consolidated Statement of
Operations is presented as if the aforementioned transaction
had been consummated at the beginning of 1997. In
management's opinion, all adjustments necessary to reflect
the effects of the aforementioned transaction have been made.
This unaudited pro forma Condensed Consolidated Statement of
Operations is 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.
The balance sheet of the Hotel has been included in the
Company's most recent balance sheet on file with the
Commission.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical (A) Sheraton Grande Pro Forma
Pro Forma After Sheraton
Adjustments (B) Grande
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms $207,736 $10,251 $217,987
Food and beverage 86,298 4,573 90,871
Other operating departments 15,049 1,194 16,243
Office rental and other revenue 2,174 - 2,174
Hotel management 5,136 - 5,136
---------- ---------- ----------
Total revenue 316,393 16,018 332,411
---------- ---------- ----------
Hotel operating expenses by department:
Rooms 51,075 3,387 54,462
Food and beverage 68,036 4,082 72,118
Other operating departments 8,492 344 8,836
Office rental and other expenses 845 - 845
Undistributed operating expenses:
Administrative and general 50,332 2,735 53,067
Property operating costs 38,437 2,058 40,495
Property taxes, insurance and other 12,558 883 13,441
Lease expense 4,116 - 4,116
Depreciation and amortization 20,990 1,470 22,460
---------- ---------- ----------
Total operating expenses 254,881 14,959 269,840
---------- ---------- ----------
Net operating income 61,512 1,059 62,571
Interest expense, net 21,024 876 21,900
---------- ---------- ----------
Income before minority interest and income taxes 40,488 183 40,671
Minority interest (1,425) - (1,425)
---------- ---------- ----------
Income before income taxes 39,063 183 39,246
Income taxes 14,911 70 14,981
---------- ---------- ----------
Income from continuing operations $24,152 $113 $24,265
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share from
continuing operations (C) $1.29 $1.29
Diluted earnings per share from
continuing operations (C) $1.27 $1.27
---------- ----------
---------- ----------
</TABLE>
(A) Reflects audited historical condensed consolidated statement of operations
of the Company for the year ended December 31, 1997.
(B) Reflects the historical operations of the Hotel adjusted for (i) the
elimination of management fee expense, (ii) estimated insurance expense,
(iii) depreciation on the new cost basis, (iv) interest on the
incremental debt individually attributable to the acquisition based on
the terms of the Company's credit facilities and (v) federal and state
income taxes at the Company's combined effective tax rate of 38%.
Historical operations of the Hotel were derived from the hotel's audited
financial statements included elsewhere in this current report on Form
8-K/A.
(C) The weighted average number of common shares and common share equivalents
used in calculating basic and diluted earnings per share was 18,785 and
19,354 respectively. For diluted earnings per share, net income has been
adjusted for certain minority interests, net of tax, of $368.
<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: May 6, 1998
