1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
------------------------
INTERSTATE HOTELS COMPANY
FOSTER PLAZA TEN
680 ANDERSEN DRIVE
PITTSBURGH, PENNSYLVANIA 15220
(412) 937-0600
PENNSYLVANIA 1-11731 25-1788101
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
The Company (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
The number of shares of the Company's Common Stock, par value $0.01 per
share, outstanding at May 12, 1998 was 35,505,753.
================================================================================
2
INDEX
INTERSTATE HOTELS COMPANY
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)............................ 2
Consolidated Balance Sheets--December 31, 1997 and March 31,
1998........................................................ 2
Consolidated Statements of Operations--Three Months Ended
March 31, 1997 and March 31, 1998........................... 3
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1997 and March 31, 1998........................... 4
Notes to Consolidated Financial Statements.................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 11
3
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
INTERSTATE HOTELS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
---------------------
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(A) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 31,988 $ 35,090
Accounts receivable, net.................................. 40,827 57,865
Deferred income taxes..................................... 2,104 4,147
Prepaid expenses and other assets......................... 13,837 15,337
---------- ----------
Total current assets.................................... 88,756 112,439
Restricted cash............................................. 3,823 7,395
Property and equipment, net................................. 1,153,911 1,201,291
Investments in hotel real estate............................ 41,297 41,494
Officers and employees notes receivable..................... 12,157 11,687
Intangible and other assets................................. 73,519 72,664
---------- ----------
Total assets............................................ $1,373,463 $1,446,970
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade................................... 16,015 15,037
Accounts payable--health trust............................ 90 2,882
Accrued payroll and related benefits...................... 21,861 16,369
Income taxes payable...................................... -- 3,814
Other accrued liabilities................................. 40,730 54,046
Current portion of long-term debt......................... 53,001 89,061
---------- ----------
Total current liabilities............................... 131,697 181,209
Long-term debt.............................................. 747,123 706,657
Deferred income taxes....................................... 19,376 22,445
Other liabilities........................................... 1,715 1,711
---------- ----------
Total liabilities....................................... 899,911 912,022
---------- ----------
Minority interests.......................................... 17,177 67,600
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 25,000 shares authorized;
no shares outstanding................................... -- --
Common stock, $.01 par value; 75,000 shares authorized;
35,504 shares issued and outstanding as of March 31,
1998.................................................... 354 355
Paid-in capital........................................... 411,808 413,680
Retained earnings......................................... 45,018 54,110
Unearned compensation..................................... (805) (797)
---------- ----------
Total shareholders' equity.............................. 456,375 467,348
---------- ----------
Total liabilities and shareholders' equity.............. $1,373,463 $1,446,970
========== ==========
- ---------
(A) The year-end balance sheet information was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The accompanying notes are an integral part of the consolidated financial
statements.
2
4
INTERSTATE HOTELS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
---------------------
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1998
-------- --------
Lodging revenues:
Rooms..................................................... $ 85,217 $131,863
Food and beverage......................................... 25,756 43,679
Other departmental........................................ 7,360 11,826
Management and related fees................................. 11,523 9,865
-------- --------
129,856 197,233
-------- --------
Lodging expenses:
Rooms..................................................... 19,136 29,890
Food and beverage......................................... 20,150 31,688
Other departmental........................................ 3,133 5,085
Property costs............................................ 34,649 53,275
General and administrative.................................. 2,788 4,889
Payroll and related benefits................................ 4,741 6,549
Lease expense............................................... 12,568 18,771
Depreciation and amortization............................... 8,388 12,878
Merger-related expenses..................................... -- 2,744
-------- --------
105,553 165,769
-------- --------
Operating income....................................... 24,303 31,464
Other expense:
Interest, net............................................. 7,355 15,276
Other, net................................................ 483 777
-------- --------
Income before income tax expense....................... 16,465 15,411
Income tax expense.......................................... 6,257 6,319
-------- --------
Net income............................................. $ 10,208 $ 9,092
======== ========
Earnings per common share and common share equivalent:
Basic..................................................... $ .29 $ .26
======== ========
Diluted................................................... $ .29 $ .25
======== ========
Weighted average number of common shares and common share
equivalents outstanding:
Basic..................................................... 35,222 35,437
======== ========
Diluted................................................... 35,612 36,028
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
5
INTERSTATE HOTELS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
---------------------
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
--------- --------
Cash flows from operating activities:
Net income................................................ $ 10,208 $ 9,092
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 8,388 12,878
Minority interests' share of equity income from
investments in hotel real estate...................... 662 1,563
Deferred income taxes.................................. 1,908 1,026
Other.................................................. (122) (570)
Cash (used) provided by assets and liabilities:
Accounts receivable, net............................... (20,475) (17,038)
Prepaid expenses and other assets...................... 2,122 (1,558)
Accounts payable....................................... 710 1,814
Income taxes payable................................... 1,818 3,814
Accrued liabilities.................................... 11,700 7,824
--------- --------
Net cash provided by operating activities............ 16,919 18,845
--------- --------
Cash flows from investing activities:
Change in restricted cash................................. (12,416) (22,894)
Acquisition of hotels, net of cash received............... (84,344) (18,071)
Purchase of property and equipment, net................... (15,032) (25,427)
Restricted funds used to purchase property and
equipment.............................................. 21,598 19,322
Investments in hotel real estate.......................... (6,417) 324
Change in notes receivable, net........................... (854) 470
Other..................................................... (3,812) (364)
--------- --------
Net cash used in investing activities................ (101,277) (46,640)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 75,500 66,500
Repayment of long-term debt............................... (6,948) (85,475)
Financing costs paid, net................................. (334) (861)
Contributions from minority interests..................... 4,864 49,553
Distributions to minority interests....................... (1,907) (693)
Proceeds from issuance of Common Stock.................... 16,090 1,873
--------- --------
Net cash provided by financing activities............ 87,265 30,897
--------- --------
Net increase in cash and cash equivalents................... 2,907 3,102
Cash and cash equivalents at beginning of period............ 32,323 31,988
--------- --------
Cash and cash equivalents at end of period.................. $ 35,230 $ 35,090
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 7,392 $ 16,142
Cash paid for income taxes................................ 74 1,299
Supplemental disclosure of noncash investing and financing
activities:
Assumption of long-term debt related to a hotel
acquisition............................................ $ 21,776 $ 14,569
The accompanying notes are an integral part of the consolidated financial
statements.
4
6
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS)
---------------------
1. ORGANIZATION AND BASIS OF PRESENTATION:
Interstate Hotels Company (the "Company) was formed in April 1996 in
anticipation of an initial public offering of the Company's Common Stock in June
1996. At March 31, 1998, the Company owned, managed, leased or performed related
services for a portfolio of 214 hotels with a total of 43,447 rooms. The Company
owned or had a controlling interest in 41 of these hotels with 11,928 rooms (the
"Owned Hotels"). In addition, the Company had entered into long-term operating
leases for 79 hotels with 9,490 rooms (the "Leased Hotels") in connection with
and since the acquisition of the management and leasing businesses affiliated
with Equity Inns, Inc., a publicly traded real estate investment trust, in
November 1996.
The consolidated financial statements of the Company consist of the
historical results of Interstate Hotels Corporation and Affiliates, the
Company's predecessors, and the operations of the Owned Hotels from their
respective acquisition dates. The working capital and operating results of the
Leased Hotels are also included in the Company's consolidated financial
statements since their respective inception dates because the operating
performance associated with such hotels is guaranteed by the Company.
The accompanying consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations. The consolidated interim financial statements should be
read in conjunction with the financial statements, notes thereto and other
information included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
The accompanying unaudited consolidated financial statements reflect, in
the opinion of management, all adjustments necessary for a fair presentation, in
all material respects, of the financial position and results of operations for
the periods presented. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire year.
2. ACQUISITIONS:
During the three months ended March 31, 1998, the Company acquired a 98.0%
interest in one Owned Hotel with 348 rooms for a total acquisition price of
$31,900 with closing costs of $800. The acquisition was accounted for using the
purchase method of accounting. In addition, an unrelated third party acquired a
47.8% interest in a partnership which owns three Owned Hotels in exchange for a
capital contribution of $49,200. These transactions have not been presented in
pro forma financial information of the Company as the pro forma presentation of
these transactions would not differ materially the historical financial
statements presented herein.
3. MERGER WITH PATRIOT AMERICAN HOSPITALITY, INC.:
On December 2, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Patriot American Hospitality, Inc.
("Patriot") and Wyndham International, Inc. (formerly Patriot American
Hospitality Operating Company and, together with Patriot, the "Patriot
Companies") pursuant to which the Company would be merged with and into Patriot,
with Patriot being the surviving corporation (the "Merger"). Pursuant to the
Merger Agreement, each share of Company Common Stock is to be converted, at the
election of the holder thereof, into the right to receive $37.50 in cash or
1.341 paired shares of common stock of the Patriot Companies (subject to
proration to ensure that generally 40% of the shares of Company Common
5
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED, DOLLARS IN THOUSANDS)
---------------------
3. MERGER WITH PATRIOT AMERICAN HOSPITALITY, INC.--CONTINUED
Stock are converted into the right to receive cash and 60% of the shares of
Company Common Stock are converted into the right to receive paired shares). The
completion of the Merger is subject to various conditions.
During the three months ended March 31, 1998, the Company incurred
Merger-related expenses totaling $2,744. These expenses were incurred for legal
and other professional fees, as well as other corporate expenditures, in
connection with the proposed Merger. As a result of these expenses, a $761
income tax benefit was recorded during the three months ended March 31, 1998.
On March 30, 1998, Marriott International, Inc. ("Marriott") filed a
lawsuit in the United States District Court for the District of Maryland seeking
to enjoin the Merger until the Company complies with certain rights of
notification and first refusal which Marriott alleges would be triggered by the
Merger. On May 4, 1998, an agreement in principle was reached with Marriott to
settle the actions brought by Marriott.
The agreement in principle is not a definitive settlement agreement and is
not binding on any party. There can be no assurance that a definitive settlement
will be reached, neither can any assurances be made regarding whether, or upon
what terms, the Merger will be consummated.
4. SUBSEQUENT EVENT:
In May 1998, the Company opened one limited-service hotel with 156 rooms
that it had developed for a total cost of $12.7 million.
6
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
During the first quarter of 1998, the Company acquired a 98.0% interest in
one Owned Hotel, the 348-room Harrisburg Marriott in Harrisburg, Pennsylvania,
for a total acquisition cost, including closing costs, of $32.7 million. In
addition, an unrelated third party acquired a 47.8% interest in a partnership
which owns three Owned Hotels in exchange for a capital contribution of $49,200.
At March 31, 1998, the Company owned, managed, leased or performed related
services for a portfolio of 214 hotels with a total of 43,447 rooms. The Company
owned or had a controlling interest in 41 of these hotels with 11,928 rooms, as
compared to 30 hotels with 8,650 rooms at March 31, 1997, and had entered into
long-term operating leases for 89 hotels with 10,258 rooms, compared to
long-term operating leases for 65 hotels with 7,308 rooms at March 31, 1997.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total revenues increased by $67.3 million, or 51.9%, from $129.9 million in
the three months ended March 31, 1997 (the "1997 Three Months") to $197.2
million in the three months ended March 31, 1998 ("the 1998 Three Months"). The
most significant portion of this increase related to lodging revenues, which
consist of rooms, food and beverage and other departmental revenues. Lodging
revenues increased by $69.1 million, or 58.3%, from $118.3 million in the 1997
Three Months to $187.4 million in the 1998 Three Months. This increase was due
to the acquisitions of 11 Owned Hotels and the addition of 24 Leased Hotels
since March 31, 1997.
The average daily room rate ("ADR") for the Owned Hotels increased by 6.6%,
from $113.44 during the 1997 Three Months to $120.93 during the 1998 Three
Months, and the average occupancy rate remained constant at 70.3%. This resulted
in an increase in room revenue per available room ("REVPAR") of 6.6% to $85.03
during the 1998 Three Months. Management and related fees decreased by $1.6
million, or 14.4%, from $11.5 million in the 1997 Three Months to $9.9 million
in the 1998 Three Months primarily due to the Company's acquisitions of
previously managed hotels, which resulted in the elimination of third-party
management and related fees.
Lodging expenses, which consist of rooms, food and beverage, property costs
and other departmental expenses, increased by $42.8 million, or 55.6%, from
$77.1 million in the 1997 Three Months to $119.9 million in the 1998 Three
Months. This increase was due to the acquisitions of 11 Owned Hotels and the
addition of 24 Leased Hotels since March 31, 1997. The operating margin of the
Owned and Leased Hotels increased from 34.9% during the 1997 Three Months to
36.0% during the 1998 Three Months. This increase was attributed to the REVPAR
growth of the Owned Hotels and the overall improvement in operating performance
and operating efficiencies of the Owned and Leased Hotels.
General and administrative expenses are associated with the management of
hotels and consist primarily of centralized management expenses such as
operations management, sales and marketing, finance and other hotel support
services, as well as general corporate expenses. General and administrative
expenses increased by $2.1 million, or 75.4%, from $2.8 million in the 1997
Three Months to $4.9 million in the 1998 Three Months. This increase was
primarily due to incremental expenses of approximately $0.6 million associated
with the acquisitions of 11 Owned Hotels since March 31, 1997, as well as
increased development costs of approximately $0.3 million. In addition,
increased legal and accounting costs, associated with the growth of the Company,
of approximately $0.6 million were incurred. As a result, general and
administrative expenses as a percentage of revenues increased to 2.5% during the
1998 Three Months compared to 2.1% during the 1997 Three Months.
Payroll and related benefits expenses increased by $1.8 million, or 38.1%,
from $4.7 million in the 1997 Three Months to $6.5 million in the 1998 Three
Months. Approximately $0.9 million of this increase was related to the addition
of corporate management and staff personnel as the Company's portfolio of hotels
grew, primarily resulting from the addition of the Leased Hotels for which the
Company provides centralized accounting services. The remaining increase was
attributed to increases in incentive bonuses for certain executive officers and
key personnel. Payroll and related benefits expenses as a percentage of revenues
decreased to 3.3% during the 1998 Three Months compared to 3.6% during the 1997
Three Months.
7
9
Lease expense represents base rent and participating rent that is based on
a percentage of rooms and food and beverage revenues from the Leased Hotels.
Lease expense increased by $6.2 million, or 49.4%, from $12.6 million in the
1997 Three Months to $18.8 million in the 1998 Three Months. This increase was
due to the addition of 24 Leased Hotels since March 31, 1997. The ADR for the
Leased Hotels increased by 5.4%, from $66.35 during the 1997 Three Months to
$69.90 during the 1998 Three Months, and the average occupancy rate decreased to
64.3% in the 1998 Three Months from 67.2% in the 1997 Three Months. This
resulted in a slight increase in REVPAR to $44.93 during the 1998 Three Months.
Depreciation and amortization increased by $4.5 million, or 53.5%, from
$8.4 million in the 1997 Three Months to $12.9 million in the 1998 Three Months
due to incremental depreciation related to the acquisitions of 11 Owned Hotels
since March 31, 1997, and the amortization of deferred financing fees.
Merger-related expenses of $2.7 million in the 1998 Three Months represent
legal and other professional fees, as well as other corporate expenditures,
incurred in connection with the proposed Merger discussed in Note 3 to the
consolidated financial statements.
Operating income (exclusive of Merger-related expenses) increased by $9.9
million, or 40.8%, from $24.3 million in the 1997 Three Months to $34.2 million
in the 1998 Three Months. The operating margin decreased from 18.7% during the
1997 Three Months to 17.3% during the 1998 Three Months. This increase in
operating income and decrease in the operating margin reflects the additional
Owned and Leased Hotels since March 31, 1997 and the increase in general and
administrative and payroll and related benefits expenses.
Net interest expense increased by $7.9 million, or 107.7%, from $7.4
million in the 1997 Three Months to $15.3 million in the 1998 Three Months
primarily due to additional borrowings related to the acquisitions of 11 Owned
Hotels since the same period a year ago.
Other expense in the 1997 and 1998 three-month periods consisted primarily
of minority interests.
Income tax expense in the 1997 and 1998 three-month periods was computed
based on an effective tax rate of 38% and 41%, respectively. The increase in the
effective tax rate in 1998 resulted from increased state income taxes and the
non-deductibility or certain Merger-related expenses for income tax purposes.
As a result of the changes noted above, net income decreased by $1.1
million, or 10.9%, from $10.2 million in the 1997 Three Months to $9.1 million
in the 1998 Three Months. The net income margin decreased from 7.9% during the
1997 Three Months to 4.6% during the 1998 Three Months. Excluding Merger-related
expenses and the related income tax benefit, net income increased by $0.9
million, or 8.5%, from $10.2 million in the 1997 Three Months to $11.1 million
in the 1998 Three Months.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent assets were $35.1 million at March
31, 1998 compared to $32.0 million at December 31, 1997. At March 31, 1998,
current liabilities exceeded current assets by $68.8 million partially as a
result of the Company's acquisition of one Owned Hotel which was financed with a
$31.0 million short-term non-recourse loan maturing on December 31, 1998. In
addition, the Company entered into a subordinated bridge debt facility that
provides for up to $75.0 million of short-term borrowings. The Company borrowed
$14.0 million under this facility, along with a $20.4 million short-term
non-recourse loan, to finance the acquisition of one Owned Hotel in January
1998.
The Company's principal sources of liquidity during the 1998 Three Months
were cash from operations and borrowings under its credit facility. Net cash
provided by operations was $18.8 million in the 1998 Three Months compared to
$16.9 million in the 1997 Three Months. The Company used cash of $46.6 million
in investing activities in the 1998 Three Months, which principally related to
the acquisition of one Owned Hotel and investments in hotel real estate in the
amount of $17.7 million and capital expenditures of $25.4 million. The Company's
capital expenditure budget relating to existing operations for 1998 is $50.5
million. Net cash provided by financing activities in the amount of $30.9
million in the 1998 Three Months was primarily used to finance hotel
acquisitions. The principal source of this cash was $66.5 million from proceeds
from long-term debt, offset
8
10
by long-term debt repayments of $85.5 million, and a $49.2 million capital
contribution related to an acquired interest in a partnership which owns three
Owned Hotels.
At March 31, 1998, the Company's total indebtedness was $795.7 million,
comprised of $411.5 million of term loans, $188.1 million of borrowings under
its revolving credit facility, $14.0 million of borrowings under its
subordinated bridge debt facility, $29.3 million of mortgage indebtedness
encumbering six Owned Hotels in which the Company owns a controlling interest,
$152.2 million of loans related to the acquisitions of seven Owned Hotels, and
$0.6 million of other debt.
The Company utilizes various interest rate hedge contracts to limit its
interest rate exposure on indebtedness. Future changes in interest rates
applicable to outstanding borrowings are therefore not expected to have a
material impact on the Company's results of operations. Management of the
Company believes that, with respect to its current operations, the Company's
cash on hand and funds from operations will be sufficient to cover its
reasonably foreseeable working capital, ongoing capital expenditure and debt
service requirements.
The Company's credit facility contains certain restrictive covenants,
including several financial ratios and restrictions on the payment of dividends,
among other things. At March 31, 1998, the Company made expenditures relating to
employee loans which exceeded amounts permitted by such covenants. The lenders
have waived the non-compliance with such covenants resulting from such
expenditures, and the Company currently anticipates satisfying all such
covenants in the future.
The Company has pursued a growth-oriented strategy involving, among other
things, the acquisition of interests in additional hotel properties and hotel
management companies, as well as the acquisition of additional management
contracts (which may from time to time require capital expenditures by the
Company). The Company is also pursuing selective development projects,
particularly in the limited-service segment. At March 31, 1998, the Company had
two limited-service hotels under construction with total projected development
costs of $22.8 million. These properties consist of a Residence Inn by Marriott
hotel in Pittsburgh, Pennsylvania, which opened in May 1998, and a Courtyard by
Marriott hotel in St. Louis, Missouri. The total cost incurred through March 31,
1998 on these projects was $12.9 million. Management believes that the capital
resources available to the Company will be sufficient to pursue the Company's
acquisition strategy and to fund its other presently foreseeable capital
requirements.
The Company believes that, absent a presently unforeseen change, additional
acquisition and development opportunities will continue to exist for the
foreseeable future and, depending upon conditions in the capital and other
financial markets as well as other factors, the Company may increase its
borrowing capacity and consider the issuance of equity or debt securities, the
proceeds of which could be used to finance acquisitions and development, to
repay or refinance outstanding indebtedness or for other general corporate
purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The new standard requires that all public
business enterprises report information about operating segments, as well as
specifies revised guidelines for determining an entity's operating segments and
the type and level of financial information to be disclosed. Management believes
that the new standard, which is effective for the fiscal year ending December
31, 1998, will not have a material financial impact on the Company.
In February 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative
Financial Instruments and Derivative Commodity Instruments and Disclosure of
Quantitative and Qualitative Information about Market Risk Inherent in
Derivative Financial Instruments, Other Financial Instruments and Derivative
Commodity Instruments." The new standard requires enhanced disclosure of
accounting policies for derivative financial instruments and derivative
commodity instruments in the footnotes to the financial statements. In addition,
the standard expands disclosure requirements to include quantitative and
qualitative information about market risk inherent in market risk sensitive
instruments. Management believes that the new standard, which is effective for
the fiscal year ending December 31, 1998, will not have a material financial
impact on the Company.
9
11
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management, as well as assumptions made by and information currently available
to the Company's management. When used herein, words such as "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, relating to the operations and results of operations of the
Company, the Company's rapid expansion, the ownership and leasing of real
estate, competition from other hospitality companies and changes in economic
cycles, as well as the other factors described herein. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein as anticipated, estimated, expected or intended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The quantitative and qualitative disclosures required by this Item 3 and by
Rule 305 of SEC Regulation S-K are not applicable to the Company at this time.
Interest rate exposure on indebtedness is discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
10
12
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
(B) Reports on Form 8-K.
None.
11
13
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Pittsburgh, in the
Commonwealth of Pennsylvania, on May 15, 1998.
INTERSTATE HOTELS COMPANY
By: /s/ J. WILLIAM RICHARDSON
----------------------------------
J. William Richardson
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
12