<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): January 6, 1998
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-12017 52-1979383
(State or other juridiction of (Commission File (IRS Employer
incorporation) Number) Identification 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>
The registrant hereby amends Items 7(a) and (b) of its Current Report on Form
8-K filed with the Commission on January 21, 1998, 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 six hotels from Medallion Hotels, Inc.
Item 2. ACQUISITIONS
The Company has previously filed a report on Form 8-K as of January 21,
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 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
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 31
OCTOBER 31, ----------------------------
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets
Cash.............................................................. $ 504,570 $ 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
$87,524, $113,513 and $93,162 at October 31, 1997 and January
31, 1997 and 1996, respectively)................................ 4,263,339 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).............................................. 442,255 445,231 401,118
Prepaid expenses.................................................. 645,659 394,045 460,352
------------- ------------- -------------
Total current assets........................................ 5,869,923 4,846,535 5,038,773
------------- ------------- -------------
Property and equipment (note 2)
Land.............................................................. 10,918,364 10,918,364 10,918,364
Buildings and improvements........................................ 59,297,456 59,094,735 56,087,296
Furniture, fixtures and equipment................................. 25,389,137 24,634,478 20,875,548
Construction-in-progress.......................................... 4,164,367 1,886,214 1,774,542
------------- ------------- -------------
99,769,324 96,533,791 89,655,750
Less accumulated depreciation................................. 28,116,619 24,450,437 20,537,208
------------- ------------- -------------
71,652,705 72,083,354 69,118,542
------------- ------------- -------------
Other assets (note 2)
Deposits.......................................................... 163,250 29,614 52,678
Deferred loan costs............................................... 204,873 204,873 71,250
Organization costs................................................ 54,684 70,945 101,924
Goodwill.......................................................... 1,525 1,525 1,643
Other............................................................. 458,698 73,819 69,169
------------- ------------- -------------
883,030 380,776 296,664
------------- ------------- -------------
Total assets................................................ $ 78,405,658 $ 77,310,665 $ 74,453,979
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
LIABILITIES AND STOCKHOLDER'S (DEFICIT)
<TABLE>
<CAPTION>
JANUARY 31
OCTOBER 31, ----------------------------
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current liabilities
Cash overdraft.................................................... $ 110,163 $ 297,771 $ 22,487
Accounts payable.................................................. 1,733,083 2,091,885 2,159,189
Taxes payable and accrued......................................... 1,506,263 162,518 85,351
Accrued expenses.................................................. 1,834,913 3,141,142 2,899,295
Advance deposits.................................................. 358,827 718,454 635,368
Other............................................................. 2,696 67,392 31,679
Current portion of notes payable (note 7)......................... 38,466 1,480,127 1,698,146
------------- ------------- -------------
Total current liabilities................................... 5,584,411 7,959,289 7,531,515
Notes payable, net of current portion (note 7)...................... 13,056,968 12,587,593 10,297,720
Other liabilities................................................... -- 236,691 21,269
Due to parent (note 5)............................................. 73,904,082 73,284,082 72,709,082
------------- ------------- -------------
Total liabilities........................................... 92,545,461 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 period.................................... (16,776,990) (16,125,607) (14,517,586)
Net income (loss) for the period................................ 2,617,187 (651,383) (1,608,021)
------------- ------------- -------------
Balance--end of period.......................................... (14,159,803) (16,776,990) (16,125,607)
------------- ------------- -------------
Total stockholder's (deficit)............................... (14,139,803) (16,756,990) (16,105,607)
------------- ------------- -------------
Total liabilities and stockholder's (deficit)............... $ 78,405,658 $ 77,310,665 $ 74,453,979
------------- ------------- -------------
</TABLE>
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JANUARY 31
OCTOBER 31, ----------------------------
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues
Rooms............................................................. $ 27,177,370 $ 32,833,403 $ 31,089,320
Food.............................................................. 11,532,680 14,431,447 14,137,932
Beverage.......................................................... 909,258 1,155,367 1,220,816
Telephone......................................................... 1,013,071 1,279,224 1,359,760
Rentals (notes 5 and 8)........................................... 259,187 528,797 583,103
Interest income................................................... 16,452 10,608 1,538
Management fees................................................... -- 20,953 110,304
Miscellaneous operating revenue................................... 806,045 949,416 830,121
Other income...................................................... 105,654 259,420 140,651
------------- ------------- -------------
Total revenues.............................................. 41,819,717 51,468,635 49,473,545
------------- ------------- -------------
Costs and expenses
Rooms............................................................. 7,018,663 9,094,745 8,865,679
Food and beverage................................................. 10,128,846 13,075,371 13,470,369
Telephone......................................................... 603,595 768,598 803,821
Other operating expenses.......................................... 699,245 837,026 768,845
General and administrative........................................ 5,716,706 8,124,662 8,275,505
Marketing......................................................... 3,537,983 4,698,340 4,550,030
Human resources................................................... 1,178,748 1,000,987 1,035,150
Loss on sales of equipment........................................ -- 562,227 41,276
Property operation, maintenance and energy........................ 4,496,361 5,961,487 5,926,191
Insurance, rent and taxes......................................... 1,278,358 1,471,345 1,434,597
Interest expense.................................................. 861,583 1,463,343 1,071,210
Depreciation and amortization..................................... 3,682,442 5,061,887 4,838,893
------------- ------------- -------------
Total costs and expenses.................................... 39,202,530 52,120,018 51,081,566
------------- ------------- -------------
Net income (loss)........................................... $ 2,617,187 $ (651,383) $ (1,608,021)
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JANUARY 31
OCTOBER 31, --------------------------
1997 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities
Net income (loss)................................................... $ 2,617,187 $ (651,383) $ (1,608,021)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization..................................... 3,682,442 5,061,887 4,838,893
Loss on sales of equipment........................................ -- 562,227 41,276
Changes in certain other accounts
Deposits........................................................ (133,636) 23,064 (35,163)
Accounts receivable............................................. (1,341,727) (218,725) (188,447)
Inventories..................................................... 2,976 (44,113) (69,695)
Prepaid expenses................................................ (251,614) 66,307 (124,103)
Other assets.................................................... (384,879) (4,650) (32,843)
Accounts payable................................................ (358,802) (67,304) (545,534)
Accrued expenses................................................ (1,306,229) 247,034 (318,260)
Taxes payable and accrued....................................... 1,343,745 77,167 (44,813)
Advance deposits................................................ (359,627) 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..................... 3,706,029 5,271,713 2,110,222
------------ ------------ ------------
Cash flows from investing activities
Purchase of property and equipment.................................. (3,235,532) (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....................... (3,235,532) (8,160,449) (5,026,002)
------------ ------------ ------------
Cash flows from financing activities
Change in cash overdraft............................................ (187,608) 275,284 2,727
Payments of other liabilities....................................... (301,387) (64,218) (90,599)
Advances from parent company........................................ 620,000 575,000 2,997,000
Proceeds from notes payable......................................... -- 16,400,000 1,600,000
Principal payments on notes payable................................. (972,286) (14,328,146) (1,096,204)
Payment of deferred loan costs...................................... -- (215,650) (75,000)
Decrease (increase) in restricted cash.............................. 303,009 (303,009) --
------------ ------------ ------------
Net cash provided (used) by financing activities.............. (538,272) 2,339,261 3,337,924
------------ ------------ ------------
Net increase (decrease) in cash............................... (67,775) (549,475) 422,144
Cash at beginning of period........................................... 572,345 1,121,820 699,676
------------ ------------ ------------
Cash at end of period................................................. $ 504,570 $ 572,345 $ 1,121,820
------------ ------------ ------------
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes........................ $ -- $ 15,035 $ 27,625
------------ ------------ ------------
Cash paid during the period for interest............................ $ 861,583 $ 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 nine month
period ended October 31, 1997 and the years ended January 31, 1997
and 1996, respectively.
</TABLE>
See notes to consolidated financial statements
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 fairly the Company's consolidated financial position and the results of
operations and cash flows for the nine month period ended October 31, 1997 have
been included. The results of operations for such interim period 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;
<TABLE>
<S> <C>
Buildings and improvements................................... 15 to 39
years
Furniture, fixtures and equipment............................ 3-7 years
</TABLE>
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 (UNAUDITED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $100,210 (unaudited), $83,949 and
$52,970 at October 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 ending 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>
<CAPTION>
JANUARY 31
OCTOBER 31, ----------------------------
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax asset resulting from net operating loss carryforwards... $ 3,838,116 $ 3,838,116 $ 3,647,743
Valuation allowance.................................................. (3,838,116) (3,838,116) (3,647,743)
------------- ------------- -------------
Net deferred tax asset....................................... $ -- $ -- $ --
------------- ------------- -------------
</TABLE>
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 (UNAUDITED)
NOTE 3--INCOME TAXES (CONTINUED)
Changes in the valuation allowance account applicable to deferred tax assets
are as follows:
<TABLE>
<CAPTION>
JANUARY 31
OCTOBER 31, ----------------------------
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
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 nine month
period ended October 31, 1997 and the years ended January 31, 1997 and 1996
amounted to $319,600 (unaudited), $389,351 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 nine month period ended October
31, 1997 and the years ended January 31, 1997 and 1996 amounted to $34,809
(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.
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 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
nine month period ended October 31, 1997 and the years ended January 31, 1997
and 1996 amounted to $204,605 (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 October 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 October 31, 1997). The note matures on November
1, 2001, at which time all outstanding and related accrued interest becomes
due.
<PAGE>
ATGEN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 (UNAUDITED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
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 $ --(unaudited) at
October 31, 1997 and $303,009 at January 31, 1997 and 1996.
Future minimum payments on notes payable for the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
-------------
<S> <C>
1998....... $ 1,480,127
1999....... 1,482,148
2000....... 1,475,445
2001....... 1,380,000
2002....... 8,250,000
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
-------------
<S> <C>
1998....... $ 222,018
1999....... 127,973
2000....... 113,850
2001....... 104,390
2002....... 92,113
------------
$ 660,344
------------
</TABLE>
<PAGE>
(b) Pro Forma Financial Information
On January 6, 1998, CapStar Hotel Company (the Company) acquired six
hotels with 1,960 rooms (the "Medallion Portfolio") from
Medallion Hotels, Inc. The aggregate purchase price for the Medallion
Portfolio was $150 million, and was paid using existing cash and
borrowings from the Company's credit facilities.
This unaudited pro forma Condensed Consolidated Balance Sheet is
presented as if the aforementioned transaction had been consummated on
September 30, 1997. The unaudited pro forma Consolidated Statements of
Operations for the nine months ended September 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
September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Historical (A) Medallion Pro Forma
Portfolio After
Pro Forma Medallion
Adjustments (B) Portfolio
<S> <C> <C> <C>
Assets
Cash $14,781 $ - $14,781
Property and equipment, net
Land 114,097 22,227 136,324
Building and improvements 588,351 116,767 705,118
Furniture, fixtures and equipment 59,479 13,245 72,724
Construction-in-progress 7,705 - 7,705
-------- -------- --------
Total property and equipment, net 769,632 152,239 921,871
Other assets 56,404 - 56,404
-------- -------- --------
Total assets $840,817 $152,239 $993,056
-------- -------- --------
-------- -------- --------
Liabilities, Minority Interest and
Stockholders' Equity
Other liabilities $43,684 $ - $43,684
Long-term debt 455,127 152,239 607,366
-------- -------- --------
Total liabilities 498,811 152,239 651,050
Minority interest 22,451 - 22,451
Stockholders' equity 319,555 - 319,555
-------- -------- --------
Total liabilities, minority interest
and stockholders' equity
$840,817 $152,239 $993,056
-------- -------- --------
-------- -------- --------
</TABLE>
(A) Reflects the unaudited historical condensed consolidated balance sheet of
the Company as of September 30, 1997.
(B) Reflects the Company's cost basis and financing for the Medallion
Portfolio.
<PAGE>
CapStar Hotel Company
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical (A) Medallion Pro Forma
Portfolio After
Pro Forma Medallion
Adjustments (B) Portfolio
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms $141,018 $27,177 $168,195
Food and beverage 56,387 12,442 68,829
Other operating departments 10,933 1,942 12,875
Office rental and other revenue - 259 259
Hotel management 3,521 - 3,521
--------- ------- --------
Total revenue 211,859 41,820 253,679
--------- ------- --------
Hotel operating expenses by department:
Rooms 33,547 7,019 40,566
Food and beverage 45,265 10,129 55,394
Other operating departments 5,803 1,303 7,106
Undistributed operating expenses:
Administrative and general 33,088 10,434 43,522
Property operating costs 25,227 4,496 29,723
Property taxes, insurance and other 9,283 1,278 10,561
Depreciation and amortization 13,988 3,608 17,596
--------- ------- --------
Total operating expenses 166,201 38,267 204,468
--------- ------- --------
Net operating income 45,658 3,553 49,211
Interest expense, net 15,262 2,835 18,097
--------- ------- --------
Income before minority interest and
income taxes 30,396 718 31,114
Minority interest (994) - (994)
--------- ------- --------
Income before income taxes 29,402 718 30,120
Income taxes 11,237 273 11,510
--------- ------- --------
Net income $18,165 $445 $18,610
--------- ------- --------
--------- ------- --------
Basic earnings per share from
continuing operations (C) $1.06 $1.09
--------- --------
--------- --------
Diluted earnings per share from
continuing operations (C) $1.04 $1.07
--------- --------
--------- --------
</TABLE>
(A) Reflects unaudited historical condensed consolidated statement of
operations of the Company for the nine months ended September 30, 1997.
(B) Reflects the historical operations of the Medallion Portfolio adjusted
for (i) depreciation on the new cost basis, (ii) interest on the incremental
debt individually attributable to the acquisition based on the terms of the
Company's credit facilities and (iii) federal and state income taxes at the
Company's combined effective tax rate of 38%. Historical operations of the
Medallion Portfolio were derived from the hotel's unaudited financial
statements included elsewhere in this current report on Form 8-K.
(C) The weighted average number of common shares and common share equivalents
used in calculating basic and diluted earnings per share was 17,061,644 and
17,961,499, respectively. For diluted earnings per share, net income has been
adjusted for certain minority interests, net of tax, of $604.
<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>
Historical (A) Medallion Pro Forma
Portfolio After
Pro Forma Medallion
Adjustments (B) Portfolio
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms $68,498 $32,833 $101,331
Food and beverage 30,968 15,587 46,555
Other operating departments 5,981 2,520 8,501
Office rental and other revenue - 529 529
Hotel management 4,345 - 4,345
------- ------- --------
Total revenue 109,792 51,469 161,261
------- ------- --------
Hotel operating expenses by department:
Rooms 17,509 9,095 26,604
Food and beverage 24,589 13,075 37,664
Other operating departments 2,513 1,606 4,119
Undistributed operating expenses:
Administrative and general 20,448 13,824 34,272
Property operating costs 12,586 6,524 19,110
Property taxes, insurance and other 4,565 1,471 6,036
Depreciation and amortization 8,248 4,811 13,059
------- ------- --------
Total operating expenses 90,458 50,406 140,864
------- ------- --------
Net operating income 19,334 1,063 20,397
Interest expense, net 12,346 3,780 16,126
------- ------- --------
Income (loss) before minority interest
and income taxes 6,988 (2,717) 4,271
Minority interest 39 - 39
------- ------- --------
Income (loss) before income taxes 7,027 (2,717) 4,310
Income taxes 2,674 (1,087) 1,587
------- ------- --------
Net income (loss) from continuing
operations $4,353 $(1,630) $2,723
------- ------- --------
------- ------- --------
Basic earnings per share from continuing
operations (C) $0.31 $0.19
------- --------
------- --------
Diluted earnings per share
from continuing operations (C) $0.31 $0.19
------- --------
------- --------
</TABLE>
(A) Reflects the historical condensed consolidated statement of operations of
the Company for the year ended December 31, 1996.
(B) Reflects the historical operations of the Medallion Portfolio adjusted
for (i) depreciation on the new cost basis, (ii) interest on the incremental
debt individually attributable to the acquisition based the terms of the
Company's credit facilities and (iii) federal and state income taxes at
Company's combined effective tax rate of 40%. Historical operations of the
Medallion Portfolio were derived from the hotel's audited financial
statements for the year ended December 31, 1996 included elsewhere in this
current report on Form 8-K.
(C) In computing historical and pro forma earnings per share, income for the
period from Company's initial public offering to December 31, 1996 is used. The
weighted average number of common shares and common share equivalents used in
calculating basic and diluted 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: March 5, 1998
