-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JKtNmnYGZ+5sM0IdQhKlwb010d8azO/0RAlz5j6ZrH+hEG/mPngp4OZHqP5EWmXQ RhEshcPmNfFF0JLHasfHxg== 0000950128-99-000618.txt : 19990329 0000950128-99-000618.hdr.sgml : 19990329 ACCESSION NUMBER: 0000950128-99-000618 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990326 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY INC/DE CENTRAL INDEX KEY: 0000016343 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 940358820 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09319 FILM NUMBER: 99574628 BUSINESS ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2148631000 MAIL ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY OPERATING CO DATE OF NAME CHANGE: 19970717 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA JOCKEY CLUB DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYNDHAM INTERNATIONAL INC CENTRAL INDEX KEY: 0000715273 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 942878485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09320 FILM NUMBER: 99574629 BUSINESS ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2148631000 MAIL ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY OPERATING CO\DE DATE OF NAME CHANGE: 19970723 FORMER COMPANY: FORMER CONFORMED NAME: BAY MEADOWS OPERATING CO DATE OF NAME CHANGE: 19920703 8-K 1 PATRIOT AMERICAN HOSPITALITY, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ------------------------- Date of Report (Date of earliest event reported): March 26, 1999 Commission File Number 1-9319 Commission File Number 1-9320 PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC. - ------------------------------------------------------ ----------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) (Exact Name of Registrant as Specified in its Charter) DELAWARE DELAWARE - ------------------------------------------------------ ----------------------------------------------------- (State or Other Jurisdiction of (State or Other Jurisdiction of Incorporation of Organization) Incorporation of Organization) 94-0358820 94-2878485 - ------------------------------------------------------ ----------------------------------------------------- (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Dallas, Texas 75207 - ------------------------------------------------------ ----------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (Address of Principal Executive Offices) (Zip Code) (214) 863-1000 (214) 863-1000 - ------------------------------------------------------ ----------------------------------------------------- (Registrant's telephone number, including area code) (Registrant's telephone number, including area code)
JAMES D. CARREKER Chief Executive Officer Patriot American Hospitality, Inc. Wyndham International, Inc. ------------------------------- copies to: GILBERT G. MENNA, P.C. KATHRYN I. MURTAGH, ESQ. Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 (617) 570-1000 ------------------------------- 2 Item 5. Other Events. REASONS FOR THE SPIN-OFF Before Patriot American Hospitality, Inc. and Wyndham International, Inc. (Patriot/Wyndham combined and separately Patriot and Wyndham) agreed to acquire Interstate Hotels Company (IHC) in December 1997, Patriot/Wyndham negotiated a non-binding letter of intent with Marriott International, Inc. (Marriott) to address Marriott's concerns regarding the acquisition of IHC, their largest franchisee, by a competitor, Patriot/Wyndham. Despite lengthy and intensive negotiations, Patriot/ Wyndham and Marriott were unable to reach a definitive agreement prior to the planned closing of the IHC merger and Marriott filed suit in March 1998 seeking to block the merger. Patriot/Wyndham, IHC and Marriott reached a settlement on May 27, 1998 which allowed the IHC merger to close on June 2, 1998. A major component of the settlement agreement was the transfer of certain operations, principally IHC's third-party hotel management business, to a newly created subsidiary of Patriot/Wyndham, Interstate Hotels Management, Inc. (Interstate Management), and the subsequent spin-off of Interstate Management from Patriot/Wyndham. THE SPIN-OFF When the spin-off is consummated, Patriot/Wyndham will distribute to their shareholders one Interstate Management share for every 19.57 Patriot/Wyndham securities owned on the record date for the spin-off. At the time of the spin-off, Marriott will also purchase four percent of the outstanding Interstate Management shares for approximately $2.3 million. We expect the spin-off to occur in April, 1999. OWNERSHIP OF INTERSTATE MANAGEMENT FOLLOWING THE SPIN-OFF At the time of the spin-off, Marriott will purchase four percent of Interstate Management outstanding shares for approximately $2.3 million. Following the spin-off, in order to reduce the percentage of Interstate Management shares owned by affiliates of Patriot/Wyndham, Interstate Management will redeem the 248,385 Interstate Management shares which are to be distributed in the spin-off to the holders of Series A Preferred Stock of Patriot/Wyndham. Following the spin-off and these transactions, holders of Patriot/Wyndham securities will own 92% of Interstate Management shares, Marriott will own four percent of Interstate Management shares and Patriot/Wyndham will own four percent of Interstate Management shares. This ownership structure was a negotiated part of the settlement agreement reached with Marriott and will allow each of Patriot/Wyndham and Marriott to maintain an equal interest in Interstate Management. This structure, in addition to certain rights to elect directors held by Wyndham and Marriott, will allow both Patriot/Wyndham and Marriott to have an influence on the management of Interstate Management affairs. OUR CORPORATE STRUCTURE After the spin-off, Interstate Management will initially have two principal subsidiaries, Interstate Hotels, LLC and IHC II, LLC. Interstate Management will own a 45% managing member interest in Interstate Hotels, LLC and a 99.99% interest in IHC II, LLC. Patriot will retain a 55% non-controlling ownership interest in Interstate Hotels, LLC and Marriott will own the remaining .01% interest in IHC II, LLC. Interstate Hotels, LLC is the entity that will operate the third-party hotel management business that Patriot/Wyndham acquired from IHC, as well as own equity interests representing in the aggregate an approximate 50.3% interest in The Charles Hotel Complex, a hotel, retail and office complex located in Cambridge, Massachusetts. IHC II, LLC will enter into arrangements under which Marriott will submanage eleven Marriott hotels acquired by Patriot/Wyndham from IHC. IHC II, LLC is not expected to make a profit on these arrangements, but rather will serve to insulate Patriot/Wyndham and Marriott from having a direct operational relationship with each other. 1 3 Included here in the printed version of this Form 8-K are two graphics which depict, using boxes to represent entities and arrows to represent ownership interests, the ownership structure of Interstate Management immediately prior to and immediately following the spin-off. The first graphic, which depicts the ownership structure of Interstate Management immediately prior to the spin-off, shows that: o Patriot will own 99% of Interstate Management and PAH-Interstate Holdings, Inc., a subsidiary owned 99% by Patriot and 1% by Wyndham Operating Partnership (itself a subsidiary of which Wyndham owns at least 85%), will own 1% of Interstate Management. o Interstate Management will own 100% of IHC II, LLC. o Interstate Management will own 45% of Interstate Hotels, LLC and PAH-Interstate Holdings, Inc. will own 55% of Interstate Hotels, LLC; o Interstate Hotels, LLC will own 99% of both Crossroads Hospitality Company, L.L.C. and Hilltop Equipment Leasing Company, L.P., and PAH-Interstate Member, Inc., a wholly-owned subsidiary of Interstate Hotels, LLC, will own 1% of both Crossroads Hospitality Company, L.L.C. and Hilltop Equipment Leasing Company, L.P.; o Interstate Hotels, LLC will own 100% of Colony Hotels and Resorts, Company, Northridge Insurance Company, Continental Design & Supplies Company, L.L.C., and several entities owning interests in leaseholds; and o Interstate Hotels, LLC will own 50.3% in the aggregate of several entities owning equity interests in The Charles Hotel Complex. 2 4 The second graphic, which depicts the ownership structure of Interstate Management immediately following the spin-off, shows that: o Marriott will own 4% of Interstate Management, the holders of Patriot/Wyndham securities will own 92% of Interstate Management, Wyndham will own three percent of Interstate Management and PAH-Interstate Holdings, Inc., a subsidiary owned 99% by Patriot and 1% by Wyndham Operating Partnership (itself a subsidiary of which Wyndham owns at least 85%), will own 1% of Interstate Management; o Interstate Management will own 99.99% of IHC II, LLC and Marriott will own .01% of IHC II, LLC; o Interstate Management will own 45% of Interstate Hotels, LLC and PAH-Interstate Holdings, Inc. will own 55% of Interstate Hotels, LLC; o Interstate Hotels, LLC will own 99% of both Crossroads Hospitality Company, L.L.C. and Hilltop Equipment Leasing Company, L.P., and PAH-Interstate Member, Inc., a wholly-owned subsidiary of Interstate Hotels, LLC, will own 1% of both Crossroads Hospitality Company, L.L.C. and Hilltop Equipment Leasing Company, L.P.; o Interstate Hotels, LLC will own 100% of Colony Hotels and Resorts, Company, Northridge Insurance Company, Continental Design & Supplies Company, L.L.C., and several entities owning interests in leaseholds; and o Interstate Hotels, LLC will own 50.3% in the aggregate of several entities owning equity interests in The Charles Hotel Complex. 3 5 Item 7. Financial Statements and Exhibits. (a) Financial Statements None. (b) Pro Forma Financial Information The separate and combined pro forma financial information for Interstate Hotels Management, Inc. is included on pages F-1--F-7 of this report. (c) Exhibits None. 4 6 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be filed on its behalf by the undersigned thereunto duly authorized. PATRIOT AMERICAN HOSPITALITY, INC. Dated: March 26, 1999 By: /s/ Lawrence S. Jones --------------------------------- Name: Lawrence S. Jones Title:Executive Vice President and Treasurer WYNDHAM INTERNATIONAL, INC. By: /s/ Lawrence S. Jones --------------------------------- Name: Lawrence S. Jones Title:Executive Vice President and Treasurer 5 7 Pro Forma Financial Information. The following unaudited pro forma financial information of Interstate Management assumes that Patriot/Wyndham has separated the third-party hotel management business they acquired through the merger of IHC into Patriot to create Interstate Management. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 1998, is presented as if this spin-off had occurred on that date. The Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1998 is presented as if the spin-off had occurred on January 1, 1998. The adjustments required to reflect the spin-off and related transactions are discussed in the accompanying notes. In management's opinion, all material adjustments necessary to reflect the effect of these transactions have been made. The historical combined financial statements of Interstate Management have been carved out of IHC and Patriot/Wyndham and principally include those historical assets, liabilities, revenues and expenses directly attributable to the third-party hotel management business of IHC that will succeed to Interstate Management. The unaudited pro forma financial data is presented for informational purposes only and may not reflect the future results of operations and financial position, or be necessarily indicative of what the actual results of operations and financial position of Interstate Management would have been had the spin-off occurred as of the dates indicated. F-1 8 INTERSTATE HOTELS MANAGEMENT, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA HISTORICAL (A) ADJUSTMENTS PRO FORMA -------------- ----------- --------- ASSETS Current assets: Cash and cash equivalents.......................... $ 1,652 $ 28,290(B) $ 29,942 Accounts receivable, net........................... 16,816 -- 16,816 Deferred income taxes.............................. 615 -- 615 Net investment in direct financing leases.......... 827 -- 827 Prepaid expenses and other assets.................. 741 -- 741 Related party receivables -- management contracts....................................... 1,085 (1,085)(C) -- -------- -------- -------- Total current assets....................... 21,736 27,205 48,941 Restricted cash...................................... 2,201 -- 2,201 Marketable securities................................ 2,609 -- 2,609 Property and equipment, net.......................... 4,076 -- 4,076 Officers and employees notes receivable.............. 2,803 -- 2,803 Affiliate receivables................................ 3,381 -- 3,381 Net investment in direct financing leases............ 1,680 -- 1,680 Investment in hotel real estate...................... 22,150 -- 22,150 Intangibles and other assets......................... 100,521 -- 100,521 -------- -------- -------- Total assets............................... $161,157 $ 27,205 $188,362 ======== ======== ======== LIABILITIES AND OWNERS' EQUITY Current liabilities: Accounts payable -- trade.......................... 2,413 -- 2,413 Accounts payable -- health trust................... 1,785 -- 1,785 Accounts payable -- related parties................ 18,597 (18,597)(B) -- Accrued payroll and related benefits............... 6,120 -- 6,120 Accrued rent....................................... 5,043 -- 5,043 Accrued merger costs............................... 9,344 -- 9,344 Other accrued liabilities.......................... 9,236 -- 9,236 -------- -------- -------- Total current liabilities.................. 52,538 (18,597) 33,941 Deferred income taxes................................ 11,053 -- 11,053 Deferred compensation................................ 2,609 -- 2,609 -------- -------- -------- Total liabilities.......................... 66,200 (18,597) 47,603 -------- -------- -------- Minority interest.................................... 2,350 67,875(D) 70,225 Commitments and contingencies........................ -- -- -- Owners' equity: Common stock, $0.01 par value...................... -- 100(E) 100 Paid-in capital.................................... -- 70,434(E) 70,434 Owners' equity..................................... 92,607 (92,607)(E) -- -------- -------- -------- Total owners' equity....................... 92,607 (22,073) 70,534 -------- -------- -------- Total liabilities and owners' equity....... $161,157 $ 27,205 $188,362 ======== ======== ========
The accompanying notes are an integral part of this Pro Forma Combined Balance Sheet. F-2 9 INTERSTATE HOTELS MANAGEMENT, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM ---------------------------- JAN. 1, 1998 JUNE 2, 1998 COMBINED PRO FORMA TO TO YEAR ENDED YEAR ENDED JUNE 1, 1998 DEC. 31, 1998 DECEMBER 31, PRO FORMA DECEMBER 31, (A) (A) 1998 ADJUSTMENTS 1998 ------------ ------------- ------------ ----------- ------------ Lodging revenues: Rooms.................... $ 74,265 $108,698 $182,963 -- $182,963 Other departmental....... 4,504 6,455 10,959 -- 10,959 Net management fees........ 18,018 22,763 40,781 $(10,794)(B) 29,987 Other fees................. 9,976 10,478 20,454 (3,725)(C) 16,729 -------- -------- -------- -------- -------- 106,763 148,394 255,157 (14,519) 240,638 Lodging expenses: Rooms.................... 17,173 26,567 43,740 -- 43,740 Other departmental....... 2,674 3,962 6,636 -- 6,636 Property costs........... 19,987 30,261 50,248 -- 50,248 General and administrative........... 6,115 5,822 11,937 500(D) 12,437 Payroll and related benefits................. 10,982 10,439 21,421 (3,971)(E) 17,450 Lease expense.............. 34,515 51,165 85,680 -- 85,680 Depreciation and amortization............. 2,152 10,659 12,811 5,373(F) 18,184 -------- -------- -------- -------- -------- Operating income........... 13,165 9,519 22,684 (16,421) 6,263 Other income: Interest, net............ 204 390 594 -- 594 Other, net............... 474 1,391 1,865 286(G) 2,151 -------- -------- -------- -------- -------- Income before income tax expense.................. 13,843 11,300 25,143 (16,135) 9,008 Income tax expense......... 5,528 4,436 9,964 (8,400)(H) 1,564 -------- -------- -------- -------- -------- Income before minority interest................. 8,315 6,864 15,179 (7,735) 7,444 Minority interest.......... 24 209 233 4,865(I) 5,098 -------- -------- -------- -------- -------- Net income................. $ 8,291 $ 6,655 $ 14,946 $(12,600) $ 2,346 ======== ======== ======== ======== ======== Basic net income per common share.................... $ 0.23(J) ======== Diluted net income per common share............. $ 0.23(J) ========
- ------------------------- The accompanying notes are an integral part of this Pro Forma Combined Statement of Operations. F-3 10 INTERSTATE HOTELS MANAGEMENT, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------ NOTE 1 -- PRO FORMA BALANCE SHEET ADJUSTMENTS: (A) Reflects the historical combined balance sheet of Interstate Management as of December 31, 1998. The historical balance sheet reflects the historical carrying amounts recorded on the books of Patriot. (B) Adjustments to reflect the net increase in cash and cash equivalents as follows: Cash contribution from Patriot to Interstate Hotels, LLC to fund working capital...................................... $ 31,887 Repayment of amounts owed to Wyndham to meet Interstate Management's short-term cash requirements................. (18,597) Cash proceeds of Marriott's purchase of a 4% ownership interest in Interstate Management......................... 2,314 Cash contribution from Patriot to Interstate Management to provide $15.0 million of working capital at the spin-off date...................................................... 12,686 -------- $ 28,290 ========
(C) Represents adjustments to eliminate management fees and other fee income receivables related to management contracts for the hotels formerly owned by IHC. Interstate Management will not hold the management contracts for these hotels subsequent to the spin-off. (D) Represents Patriot's 55% non-controlling ownership interest in Interstate Hotels, LLC, based on 55% of the historical recorded carrying amount of Interstate Management on the books of Patriot. Subsequent to the spin-off, Interstate Management will have two principal subsidiaries. Interstate Hotels, LLC, the successor to the third-party hotel management business conducted by IHC prior to its merger into Patriot, will own substantially all of the assets of Interstate Management immediately after the spin-off. Interstate Management will own a 45% managing member interest in Interstate Hotels, LLC, and therefore will control Interstate Hotels, LLC. Interstate Management's second subsidiary, IHC II, LLC, will contract with Wyndham to manage ten Marriott franchise hotels that were owned and managed by IHC, and one hotel that was owned by IHC and managed by Marriott, prior to the merger with Patriot. Marriott will submanage these hotels for IHC II, LLC. Historical book value of owners' equity..................... $ 92,607 Adjustment to eliminate management fees and other fee income receivable related to management contracts formerly owned by IHC that will not be held by Interstate Hotels, LLC, (as discussed in Note (C) above).......................... (1,085) Funding of working capital by Patriot....................... 31,887 -------- 123,409 Minority interest ownership percentage...................... 55% -------- Minority interest........................................... $ 67,875 ========
F-4 11 INTERSTATE HOTELS MANAGEMENT, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA--(CONTINUED) ------------------ NOTE 1 -- PRO FORMA BALANCE SHEET ADJUSTMENTS--(CONTINUED) (E) Represents adjustments to reflect the issuance of shares of common stock, par value $0.01, of Interstate Management in connection with the spin-off as follows:
NUMBER OF COMMON PAID-IN OWNERS' SHARES STOCK CAPITAL EQUITY ---------- ------ -------- -------- Shares distributed to Patriot's shareholders... 9,221,743 $ 92 $ 65,286 $ -- Shares retained by Patriot.................. 390,146 4 2,838 -- Shares purchased by Marriott................. 390,146 4 2,310 -- Eliminate historical owners' equity........... -- -- -- (92,607) ---------- ---- -------- -------- Total............ 10,002,035 $100 $ 70,434 $(92,607) ========== ==== ======== ========
In connection with the merger of IHC into Patriot, certain operations, principally, the third-party hotel management business, along with certain assets and liabilities will be transferred to Interstate Management. Ninety-two percent of the shares of Interstate Management will be distributed to Patriot's shareholders. Patriot will retain a 4% ownership interest in Interstate Management's common stock after the redemption discussed in Note 2. In connection with the spin-off of Interstate Management from Patriot, Marriott will purchase a 4% ownership interest in Interstate Management's common stock, after the redemption discussed in Note 2, for $2,314 in cash. NOTE 2 -- STOCK REDEMPTION: Following the spin-off, Interstate Management will redeem the 248,385 Interstate Management shares which are to be distributed in the spin-off to the holders of Series A Preferred Stock of Patriot. The purchase price for the shares to be redeemed will be the average trading price of Interstate Management shares over their first five trading days. Since this transaction will occur subsequent to the spin-off, it has been excluded from the Unaudited Pro Forma Combined Balance Sheet. If this transaction had been included in the Unaudited Pro Forma Combined Balance Sheet, assuming a $5.23 per share redemption price, the effect would have been to decrease the pro forma amounts to the following balances: Cash........................................................ $17,283 Total current assets........................................ 47,642 Total assets................................................ 187,063 Paid-in capital............................................. 69,135 Total owners' equity........................................ 69,235 Total liabilities and owners' equity........................ 187,063
F-5 12 INTERSTATE HOTELS MANAGEMENT, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA--(CONTINUED) ------------------ NOTE 3 -- PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1998 ------------ (A) Reflects the historical combined statements of operations of Interstate Management for the indicated period. (B) Adjustments to reflect the net decrease in net management fees: The elimination of management fee revenues related to ten Patriot-owned hotels that will be submanaged by Marriott pursuant to an arrangement with IHC II, LLC, to ten hotels that will be leased to Wyndham, converted to the Wyndham brand and managed by Wyndham, and to other hotels that will be leased by Patriot to Wyndham and will be managed by Wyndham. Prior to the merger of IHC into Patriot, these hotels were owned and managed by subsidiaries of IHC..................................... $(13,116) The addition of management fee revenues related to seven Patriot-owned hotels that will be managed by Interstate Management.............................................. 2,322 -------- $(10,794) ======== (C) Adjustments to reflect the net decrease in other fees: The elimination of fees for insurance services, purchasing, leasing and other ancillary services that Interstate Management provided to the hotels that were owned and managed by subsidiaries of IHC and are currently owned by Patriot, as discussed in Note (B) above. Interstate Management will not provide such services to these hotels subsequent to the spin-off..... $ (4,610) The addition of fees for insurance services, purchasing, leasing and other ancillary services that Interstate Management will provide to seven Patriot-owned hotels, as discussed in Note (B) above.......................... 885 -------- $ (3,725) ======== (D) Adjustment to general and administrative expense to reflect costs related to managing and administering a publicly held company................................... $ 500 ======== (E) Adjustment to payroll and related benefits expense to reflect the elimination of salaries and related benefits of employees who were terminated subsequent to the merger of IHC into Patriot and whose positions have been eliminated. The reduction in employees relates principally to the reduction in the size of Interstate Management subsequent to the merger..................... $ (3,971) ======== (F) Adjustments to depreciation and amortization to reflect the net increase in amortization of management and lease contract costs associated with the step-up in basis arising from the allocation of purchase price resulting from the merger of IHC into Patriot. The management and lease contract costs have been stated at their estimated fair market values and are being amortized using the straight-line method over five years for the management contracts and 11 and 13.5 years for the lease contracts. The management contracts' amortization period was determined using the average remaining life of the original contract terms, and the amortization period of the lease contracts is based on the remaining original lease life.............................................. $ 5,373 ========
F-6 13 INTERSTATE HOTELS MANAGEMENT, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA--(CONTINUED) ------------------ NOTE 3 -- PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1998 ------------ (G) Adjustment to other income to reflect the addition of equity in earnings for The Charles Hotel Complex for the period prior to Interstate Management's acquisition of additional interests in 1998 in The Charles Hotel Complex................................................. $ 286 ======== (H) Adjustment reflects the provision for income tax expense based on Interstate Management's estimated effective income tax rate of 40% after reduction of minority interests............................................... $ (8,400) ======== (I) Adjustment to minority interest to reflect Patriot's 55% non-controlling interest in Interstate Hotels, LLC..................................................... $ 4,865 ======== (J) Pro forma basic and diluted net income per common share has been calculated using 10,002,035 shares of Common Stock. The historical combined financial statements of Interstate Management have been carved out of IHC and Patriot, and principally include those historical assets, liabilities, revenues and expenses directly attributable to the third-party hotel management business to be conducted by Interstate Management. Historical earnings per share information for the carved out company has not been presented because management believes it is not meaningful.
F-7 -----END PRIVACY-ENHANCED MESSAGE-----