SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NO. 1-14040
HOST MARRIOTT SERVICES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1938672
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6600 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(301) 380-7000
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
The total number of shares of common stock issued and outstanding as of April
17, 1998, was 33,965,113.
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION (UNAUDITED):
Condensed Consolidated Statements of Operations -
For the Twelve Weeks Ended March 27, 1998 and
March 28, 1997 2
Condensed Consolidated Balance Sheets -
As of March 27, 1998 and January 2, 1998 3
Condensed Consolidated Statements of Cash Flows -
For the Twelve Weeks Ended March 27, 1998 and
March 28, 1997 4
Condensed Consolidated Statement of Shareholders' Deficit -
For the Twelve Weeks Ended March 27, 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Quantitative and Qualitative Disclosure about Market Risk n/a
PART II. OTHER INFORMATION AND SIGNATURE:
Legal Proceedings 17
Changes in Securities and Use of Proceeds 17
Defaults Upon Senior Securities 17
Submission of Matters to a Vote of Security Holders 17
Other Information 17
Exhibits and Reports on Form 8-K 17
Signature 18
Computations of Loss Per Common Share 19
1
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
-------------------------------
MARCH 27, MARCH 28,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $277.3 $263.1
- ---------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of sales 82.5 75.0
Payroll and benefits 89.9 84.1
Rent 44.4 44.0
Royalties 5.9 5.3
Depreciation and amortization 12.0 12.1
General and administrative 13.6 12.5
Other 27.0 28.8
- ---------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 275.3 261.8
- ---------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 2.0 1.3
Interest expense (9.2) (9.2)
Interest income 0.7 0.8
- ---------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (6.5) (7.1)
Benefit for income taxes (2.6) (2.8)
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS $ (3.9) $ (4.3)
- ---------------------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE:
Basic $(0.11) $(0.12)
Diluted $(0.11) $(0.12)
Weighted Average Common Shares Outstanding:
Basic 34.4 34.6
Diluted 34.4 34.6
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 27, JANUARY 2,
1998 1998
- ------------------------------------------------------------------------------ ----------------- -- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 59.5 $ 78.1
Accounts receivable, net 20.2 24.5
Inventories 40.0 41.1
Deferred income taxes 11.6 11.5
Prepaid rent 8.2 7.0
Other current assets 9.7 7.0
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total current assets 149.2 169.2
Property and equipment, net 283.6 279.9
Intangible assets 21.5 22.1
Deferred income taxes 56.2 56.4
Other assets 20.1 20.4
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total assets $ 530.6 $ 548.0
- ------------------------------------------------------------------------------ ----------------- -- ----------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 69.7 $ 72.2
Accrued payroll and benefits 40.7 46.0
Accrued interest payable 13.5 4.8
Current portion of long-term debt 1.1 1.0
Other current liabilities 36.4 41.5
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total current liabilities 161.4 165.5
Long-term debt 406.1 405.8
Other liabilities 51.1 52.9
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total liabilities 618.6 624.2
Common stock, no par value, 100 million shares authorized, 34,918,156 shares
issued as of March 27, 1998 and 34,733,815 shares issued as of January 2, 1998 --- ---
Contributed deficit (106.0) (107.7)
Retained earnings 31.2 35.1
Accumulated other comprehensive income 0.1 (0.1)
Treasury stock - 975,700 shares at March 27, 1998
and 253,100 shares at January 2, 1998 (13.3) (3.5)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total shareholders' deficit (88.0) (76.2)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total liabilities and shareholders' deficit $ 530.6 $ 548.0
- ------------------------------------------------------------------------------ ----------------- -- ----------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
--------------------------------------
MARCH 27, MARCH 28,
1998 1997
- ------------------------------------------------------------------------------ -------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3.9) $ (4.3)
Adjustments to reconcile net income to cash from operations:
Depreciation and amortization 12.5 12.5
Amortization of deferred financing costs 0.3 0.2
Income taxes 0.1 (0.7)
Other 1.8 1.0
Working capital changes:
Decrease (increase) in accounts receivable 4.3 (4.4)
Decrease in inventories 0.9 1.5
Increase in other current assets (4.2) (1.7)
Decrease in accounts payable and accruals (5.3) (13.2)
- ------------------------------------------------------------------------------ ----------------- -- -----------------
Cash provided by (used in) operations 6.5 (9.1)
INVESTING ACTIVITIES
Capital expenditures (16.1) (13.1)
Other, net (2.0) 1.4
- ------------------------------------------------------------------------------ ----------------- -- -----------------
Cash used in investing activities (18.1) (11.7)
FINANCING ACTIVITIES
Repayments of long-term debt (0.4) (0.2)
Issuance of long-term debt 0.9 ---
Proceeds from stock issuances 2.1 1.9
Purchases of treasury stock (9.8) ---
Foreign currency translation adjustments 0.2 (0.1)
- ------------------------------------------------------------------------------ ----------------- -- -----------------
Cash (used in) provided by financing activities (7.0) 1.6
DECREASE IN CASH AND CASH EQUIVALENTS (18.6) (19.2)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 78.1 104.2
- ------------------------------------------------------------------------------ ----------------- -- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 59.5 $ 85.0
- ------------------------------------------------------------------------------ ----------------- -- -----------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT (UNAUDITED)
TWELVE WEEKS ENDED MARCH 27, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON OTHER
SHARES COMMON CONTRIBUTED RETAINED COMPREHENSIVE TREASURY
OUTSTANDING STOCK DEFICIT EARNINGS INCOME STOCK TOTAL
- ----------- ------------------------------------- ---------- -------------- ----------- ----------------- ----------- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
34.5 Balance, January 2, 1998 $ --- $(107.7) $ 35.1 $ (0.1) $ (3.5) $ (76.2)
- ----------- ------------------------------------- ---------- -------------- ----------- ----------------- ----------- -----------
Comprehensive loss:
--- Net loss --- --- (3.9) --- --- (3.9)
Foreign currency translation
--- adjustments --- --- --- 0.2 --- 0.2
- ----------- ------------------------------------- ---------- -------------- ----------- ----------------- ----------- -----------
--- Total comprehensive loss --- --- (3.9) 0.2 --- (3.7)
Common stock issued for
0.2 employee stock and option plans --- 2.1 --- --- --- 2.1
(0.7) Treasury stock purchases --- --- --- --- (9.8) (9.8)
(0.1) Deferred compensation --- (0.4) --- --- --- (0.4)
- ----------- ------------------------------------- ---------- -------------- ----------- ----------------- ----------- ----------
33.9 BALANCE, MARCH 27, 1998 $ --- $(106.0) $ 31.2 $ 0.1 $ (13.3) $ (88.0)
- ----------- ------------------------------------- ---------- -------------- ----------- ----------------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed consolidated financial statements of Host
Marriott Services Corporation and subsidiaries (the "Company") have been
prepared without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes the disclosures made are adequate to make the
information presented not misleading. However, the condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 2, 1998 ("Form
10-K"). Capitalized terms not otherwise defined herein have the meanings
specified in the Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
consolidated financial position of the Company as of March 27, 1998 and the
results of operations and cash flows for the interim periods presented.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations.
The consolidated financial statements include the accounts of the Company
and its subsidiaries and controlled affiliates. Investments in 50% or less
owned affiliates over which the Company has the ability to exercise
significant influence are accounted for using the equity method. All
material intercompany transactions and balances between the Company and its
subsidiaries have been eliminated. Certain reclassifications were made to
the prior year financial statements to conform to the 1998 presentation.
2. Basic and diluted loss per common share for the twelve weeks ended March
27, 1998 and March 28, 1997 were computed by dividing net income by the
weighted average number of outstanding common shares. Potentially dilutive
securities have been excluded from the diluted loss per share calculations
because they were antidilutive.
3. Restricted shares are issued to certain officers and key executives. As of
the end of the first quarter of 1998, there were 409,142 restricted share
awards outstanding. All current restricted share awards expire at the end
of fiscal year 1998. Compensation expense is recognized over the award
period and consists of time- and performance-based components. The
time-based expense is calculated using the fair value of the shares on the
date of issuance and is contingent on continued employment. The
performance-based expense is calculated using the fair value of the
Company's common stock during the award period and is contingent on
attainment of certain performance criteria.
4. The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in
the first quarter of 1998 and the adoption did not have a material effect
on the Company's condensed consolidated financial statements. The Company
adopted SFAS No. 128, "Earnings Per Share," SFAS No. 129, "Disclosure of
Information about Capital Structure," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" during 1997. The
adoption of these standards did not have a material effect on the Company's
1997 consolidated financial statements. Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" and SOP 98-5, "Reporting on the Costs of Start-Up Activities"
were issued subsequent to the end of fiscal year 1997 and are required to
be adopted in fiscal years beginning after December 15, 1998, with earlier
adoption permitted. The Company will adopt SOP 98-1 and SOP 98-5 for its
1999 fiscal year and is currently evaluating the financial statement impact
of the adoptions.
5. In March 1993, Host Marriott Corporation, the Company's former parent
corporation, settled a class action lawsuit involving certain of its
bondholders by issuing to the bondholders warrants to purchase up to 7.7
million shares of Host Marriott Corporation common stock, approximately 7.3
million of which were unissued as of the Distribution Date. As a result of
the Distribution, such warrants are exercisable for one share of Host
Marriott Corporation's common stock and one fifth of one share of the
Company's common stock.
6
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of March 27, 1998, the Company had issued 1,381,668 common shares of the
Company resulting from the exercise of Host Marriott Corporation warrants.
Proceeds received from the issuance of these common shares were $5.9
million. As of March 27, 1998, the Company remains obligated to issue
56,517 shares of common stock for the remaining unexercised Host Marriott
Corporation warrants at a price of $5.33 per Company share. The warrants
expire on October 8, 1998.
6. The Company has three reportable operating segments: airports, travel
plazas and shopping malls and entertainment. The Company's management
evaluates performance of each segment based on profit or loss from
operations before allocation of general and administrative expenses,
unusual and extraordinary items, interest and income taxes. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies in the Company's Form 10-K. Financial
information for the Company's three operating segments are provided in the
following tables.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
-----------------------------------------
MARCH 27, MARCH 28,
(IN MILLIONS) 1998 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Airports $ 207.7 $ 197.9
Travel plazas 55.2 52.7
Shopping malls
and entertainment 14.4 12.5
------------------------------------------------------------------------------------------
Total segment revenues $ 277.3 $ 263.1
------------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS):(1)
Airports $ 18.7 $ 16.9
Travel plazas (3.7) (3.6)
Shopping malls
and entertainment 0.6 0.5
------------------------------------------------------------------------------------------
Total segment operating profit $ 15.6 $ 13.8
------------------------------------------------------------------------------------------
<FN>
(1) Before general and administrative expenses.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MARCH 27, JANUARY 2,
(IN MILLIONS) 1998 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Airports $ 291.4 $ 272.9
Travel plazas 91.6 95.7
Shopping malls
and entertainment 28.7 32.9
---------------------------------------------------------------------------------------------
Total segment assets $ 411.7 $ 401.5
---------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Reconciliations of segment data to the Company's consolidated data follow:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
-------------------------------------
MARCH 27, MARCH 28,
(IN MILLIONS) 1998 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING PROFIT:
Segments $ 15.6 $ 13.8
General and administrative expenses (13.6) (12.5)
------------------------------------------------------------------------------------------
Total operating profit $ 2.0 $ 1.3
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 27, JANUARY 2,
(IN MILLIONS) 1998 1998
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Segments $ 411.7 $ 401.5
Corporate and other(1) 118.9 146.5
-------------------------------------------------------------------------------------------
Total assets $ 530.6 $ 548.0
-------------------------------------------------------------------------------------------
<FN>
(1)The majority of the decrease in corporate and other was
related to a decrease in corporate cash concentration
accounts with a significant amount related to $9.8 million of
treasury stock purchases during the quarter.
</FN>
</TABLE>
8
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES. Revenues for the twelve weeks ("quarter") ended March 27, 1998
increased by 5.4% to $277.3 million from the same period in 1997, with revenue
growth experienced in all business lines. The increase in revenues was driven by
solid performance in comparable domestic airport concessions operations, an
increase in customer traffic on tollroads and the opening of two new mall
contracts in the fourth quarter of 1997. The increase was partially offset by
decreased revenues at noncomparable domestic airport contracts, which include
Chicago, St. Louis and Columbus, as well as foreign currency translations.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
----------------------------
MARCH 27, MARCH 28,
(IN MILLIONS) 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES BY BUSINESS LINE
AIRPORTS:
Domestic $193.7 $184.9
International 14.0 13.0
--------------------------------------------------------------------------------------------------
Total airports 207.7 197.9
--------------------------------------------------------------------------------------------------
TRAVEL PLAZAS 55.2 52.7
SHOPPING MALLS AND ENTERTAINMENT 14.4 12.5
--------------------------------------------------------------------------------------------------
Total revenues $277.3 $263.1
--------------------------------------------------------------------------------------------------
</TABLE>
The Company's diversified branded concept portfolio, which consists of over 80
internationally known brands, regional specialty concepts and proprietary
concepts, is a unique competitive advantage in the marketplace. Brand awareness,
customer familiarity with product offerings, and the perception of superior
value and consistency are all factors contributing to higher revenue per
enplaned passenger ("RPE") in branded facilities. Branded revenues increased
15.1% for the first quarter of 1998 compared to a year ago, the majority of
which related to the continued expansion of branded revenues at airports and
revenues from new shopping mall food courts, which consist primarily of branded
food and beverage. Branded revenues in all of the Company's venues have grown at
a compound annual growth rate of 8.1% over the last five fiscal years. The
Company's exposure to any one brand is limited given the diversity of brands
that are offered and given that the Company's largest branded concept, Burger
King, accounts for only 10% of total revenues. Half of the $27.6 million in
revenues from Burger King concepts during the first quarter of 1998 were
generated from concepts located on travel plazas, with the remainder primarily
generated from locations in airports.
AIRPORTS
Airport concession revenues were up 5.0% to $207.7 million for the first quarter
of 1998 compared to a year ago. Domestic airport concession revenues were up
4.8% and international airport revenues were up 7.8% for the first quarter of
1998. The opening of the Montreal International Airport - Dorval in Canada
during the second quarter of 1997 contributed significantly to the increase in
international airport revenues, which was partially offset by the negative
impact of exchange rate fluctuations and weak enplanements stemming from the
Asian economic situation in the first quarter of 1998.
Comparable domestic airport contracts exclude the negative impact of exited
contracts, contracts with significant changes in scope of operation and
contracts undergoing significant construction of new facilities, as well as, the
positive impact of new contracts. During the first quarter of 1998, the Chicago,
St. Louis and Columbus airport contracts were considered noncomparable. Revenue
growth at comparable domestic airport locations grew a solid 6.8% over the first
quarter of 1997. Revenue growth at comparable domestic airports, which comprise
over 90% of total airport revenues, was impacted during the first quarter by
slower growth in airline traffic. Passenger enplanements at comparable domestic
airports were up an estimated 1.2% over last year's first quarter. In March
9
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
1998, the FAA forecasted annual U.S. passenger enplanement growth of U.S.
carriers of 3.7% through the year 2009. First quarter 1998 results were below
the FAA's long range forecast.
RPE grew 5.6% at the Company's comparable domestic airport locations in the
first quarter of 1998 over last year. The growth in RPE can be attributed to the
continued addition of branded locations, some selective moderate increases in
menu prices and various real estate maximization efforts. Strong RPE growth of
5.6% was achieved despite disruption to business from planned construction
projects in several comparable domestic airport locations, including
Minneapolis/St. Paul, Cleveland and Los Angeles, where the Company is
introducing branded concepts. Branded revenues in airports showed an increase of
13.6% when comparing the first quarter of 1998 to the same period in 1997.
Airport branded revenues in the first quarter increased to $62.0 million, or
29.8% of total airport revenues, compared with $54.6 million, or 27.6% of total
airport revenues, in the first quarter of 1997.
During the first quarter of 1998, the Company announced a new domestic airport
contract at the Southwest Florida International Airport in Fort Myers. This ten
year contract is for the development and operation of 16,000 square feet of food
and beverage concessions space throughout the airport's main terminal and its
two concourses.
Also during the first quarter of 1998, the Company announced several
international concession facilities at Kuala Lumpur International Airport and
Vancouver International Airport.
The new Kuala Lumpur airport complex is scheduled to open in the first half of
1998. The Company, along with its 51% Malaysian joint venture partner, Dewina
Berhad, was awarded several facilities at the airport. The joint venture will
operate over 8,000 square feet of food and beverage concessions space and will
feature a mixture of international and local brand offerings. This contract is
the Company's first Southeast Asian contract, a key step in establishing the
Company's presence in Southeast Asia.
The Company was awarded two new concession facilities at the Vancouver
International Airport, adding to the Company's existing operations in the
domestic terminal. The new facilities include a Bar and Grill concept and a
Starbucks Coffee location. This airport was the Company's first Canadian airport
contract, and since its opening, the Company has received several awards on the
design of the food and beverage and retail operations at the airport.
Subsequent to the end of the first quarter of 1998, the Company announced that
it has been selected as the food and beverage master developer/operator at the
Miami International Airport, until the year 2007. The new contract is for the
development and operation of more than 56,000 square feet of food and beverage
space located throughout nine concourses and the main terminal of the airport.
Prior to this award, the Company operated the existing generic facilities for
Dade County under a management agreement and recorded management fees. The
Company will record revenues and operating profit under the new agreement. When
the facilities are completed in 2000, the estimated annualized revenues are
expected to be approximately $30.0 million.
TRAVEL PLAZAS
Travel plaza concession revenues for the first quarter of 1998 were up 4.7% to
$55.2 million when compared to the same period in 1997. This growth was the
result of increased tollroad traffic due to low gasoline prices and favorable
winter weather in the northeast, as well as moderate increases in menu prices.
Low gasoline prices, higher household income and record-high consumer confidence
have led the Energy Department to forecast strong growth in vehicle miles
traveled for this summer.
SHOPPING MALLS AND ENTERTAINMENT
Shopping malls and entertainment concession revenues, primarily consisting of
merchandise, food and beverage sales at food courts in shopping malls, stadiums,
arenas, and other tourist attractions, increased by 15.2% to $14.4 million for
the first quarter of 1998 when compared with the first quarter of 1997. This
increase can be attributed to the opening of the Grapevine Mills Mall and the
Vista Ridge Mall in the fourth quarter of 1997.
10
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Subsequent to the end of the first quarter of 1998, the Company announced its
first mall food court project with Chelsea GCA Realty, Inc. to master lease
13,000 square feet of food and beverage facilities, including a food court and a
500 seat common area, at the Leesburg Corner Premium Outlets in Virginia. The
upscale outlet center will be built in three phases with the first phase
scheduled to open in the fall of 1998.
OPERATING COSTS AND EXPENSES. The Company's total operating costs and expenses
were $275.3 million for the first quarter of 1998, or 99.3% of total revenues,
compared with $261.8 million for the first quarter of 1997, or 99.5% of total
revenues. The improved operating profit margin of 20 basis points reflects
operating leverage benefits derived from revenue growth and reduced costs,
primarily in other operating expenses.
Cost of sales for the first quarter of 1998 increased 10.0% to $82.5 million
when compared to the first quarter of 1997. Cost of sales as a percentage of
total revenues increased 120 basis points during the first quarter of 1998. The
margin is influenced by temporary changes in merchandise product mix from low
to higher margin goods at existing locations, as well as start-up activities at
new food and beverage concepts that result in product waste.
Payroll and benefits totaled $89.9 million during the first quarter of 1998, a
6.9% increase over the first quarter of 1997. Payroll and benefits as a
percentage of total revenues for the first quarter of 1998 increased 50 basis
points to 32.4% as a result of staffing initiatives (such as the Store Manager
Program) put in place to increase revenues and decrease other cost areas.
Rent expense totaled $44.4 million for the first quarter of 1998, an increase of
0.9% above the first quarter of 1997. Rent expense as a percentage of total
revenues improved 70 basis points and can be attributed to sales increases on
contracts with fixed rental rates, as well as new or renewed contracts with
favorable rent margins.
Royalties expense for the first quarter of 1998 increased by 11.3% to $5.9
million when compared with the first quarter of 1997. As a percentage of total
revenues, royalties expense increased by 10 basis points for the first quarter
of 1998. The increase in royalties expense reflects the Company's continued
introduction of branded concepts to its concessions operations. Royalties
expense as a percentage of branded sales totaled 6.0% and 6.4% in the first
quarter of 1998 and 1997, respectively. This margin decrease was attributable to
the addition of branded concepts with lower-than-average royalty percentages.
Branded facilities generate higher sales per square foot and contribute toward
increased RPE, which offset royalty payments required to operate the concepts.
Depreciation and amortization expense, excluding $0.5 million of corporate
depreciation on property and equipment which is included as a component of
general and administrative expenses, was $12.0 million for the first quarter of
1998, compared to $12.1 million, excluding $0.4 million of corporate
depreciation on property and equipment, for the first quarter of 1997. Increased
depreciation from new contracts was offset by lower depreciation related to the
write-down of one impaired airport unit in the fourth quarter of 1997 and the
amortization of pre-opening costs in the first quarter of 1997 related to mall
contracts.
General and administrative expenses were $13.6 million for the first quarter of
1998, an increase of 8.8% from a year ago. This increase was primarily
attributable to the addition of corporate resources in accounting, systems,
business development and strategic planning and marketing to focus on growth
initiatives in the Company's core markets and new venues, as well as increased
consulting costs associated with systems initiatives.
Other operating expenses, which includes utilities, casualty insurance,
equipment maintenance, trash removal and other miscellaneous expenses, were
$27.0 million for the first quarter of 1998, a 6.3% decrease from the $28.8
million reported in the first quarter of 1997. As a percentage of total
revenues, other operating expenses improved 120 basis points for the first
quarter of 1998 when compared with the same period in 1997. The majority of this
improvement was due to lower supplies, utilities and service contract expenses.
11
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased to $2.0 million or 0.7% of
revenues for the first quarter of 1998, from $1.3 million or 0.5% of revenues
for the first quarter of 1997. Operating profit margins improved in all business
lines, despite international airport results being negatively impacted by
exchange rate fluctuations and weak enplanements stemming from the Asian
economic situation.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
---------------------------
MARCH 27, MARCH 28,
(IN MILLIONS) 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING PROFIT (LOSS) BY BUSINESS LINE (1)
AIRPORTS:
Domestic $ 18.5 $ 16.5
International 0.2 0.4
------------------------------------------------------------------------------------------------
Total airports 18.7 16.9
------------------------------------------------------------------------------------------------
TRAVEL PLAZAS (3.7) (3.6)
SHOPPING MALLS AND ENTERTAINMENT 0.6 0.5
------------------------------------------------------------------------------------------------
Total operating profit $ 15.6 $ 13.8
------------------------------------------------------------------------------------------------
<FN>
(1) Before general and administrative expenses
</FN>
</TABLE>
Airport operating profit, before general and administrative expenses, was 9.0%
of airport revenues for the first quarter of 1998 as compared with 8.5% of
airport revenues for the first quarter of 1997. Travel plaza operating loss,
before general and administrative expenses, improved 10 basis points to 6.7% for
the first quarter of 1998. Operating profit for shopping malls and
entertainment, excluding general and administrative expenses, improved 20 basis
points to 4.2% for the first quarter of 1998.
INTEREST EXPENSE. Interest expense remained flat at $9.2 million for the first
quarter of 1998 and 1997, reflecting the 9.5% fixed rate of interest on the $400
million of Senior Notes.
INTEREST INCOME. Interest income decreased slightly to $0.7 million for the
first quarter of 1998. Cash balances during the first quarter of 1997 were
temporarily higher due to a transition to a new financial system at year-end
1996. This transition resulted in beginning cash balances being higher than the
Company's normal seasonal level.
INCOME TAXES. The benefit for income taxes for the first quarter of 1998 and
1997 was $2.6 million and $2.8 million, respectively, reflecting an effective
tax rate of 39.5% for both quarters.
NET LOSS AND LOSS PER COMMON SHARE. The Company's net loss for the first quarter
of 1998 decreased 9.3% to $3.9 million, or $0.11 per common share, compared with
a net loss of $4.3 million for the first quarter of 1997, or $0.12 per common
share. The decrease in net loss for the first quarter of 1998 reflects improved
operating performance.
WEIGHTED AVERAGE SHARES OUTSTANDING. The weighted average number of common
shares outstanding for the first quarter of 1998 and 1997 used to calculate
basic and diluted loss per common share was 34.4 million and 34.6 million,
respectively. Common equivalent shares were excluded from the diluted
calculations because they were antidilutive.
During the first quarter of 1998, common shares issued and outstanding decreased
by approximately 0.6 million and totaled 33.9 million, primarily reflecting 0.7
million shares purchased under the Company's share repurchase program offset by
the issuance of shares under the Company's Employee Stock Purchase Plan.
12
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its capital requirements with a combination of existing cash
balances and operating cash flow. The Company believes that cash flow generated
from ongoing operations and current cash balances are more than adequate to
finance ongoing capital expenditures, as well as meet debt service requirements.
The Company also has the ability to fund its planned growth initiatives from
existing credit facilities and from the sources identified above; however,
should significant growth opportunities arise, such as business combinations or
contract acquisitions, alternative financing arrangements will be evaluated and
considered.
The Company's Senior Notes, which will mature in May 2005, were issued at par
and have a fixed coupon rate of 9.5%. The Senior Notes can be called beginning
in May 2000 at a price of 103.56%, declining to par in March 2003.
The Company is required to make semi-annual cash interest payments on its Senior
Notes at a fixed interest rate of 9.5%. The Company is not required to make
principal payments on the Senior Notes until maturity except in the event of (i)
certain changes in control or (ii) certain asset sales in which the proceeds are
not invested in other properties within a specified period of time. Management
does not expect either of these events to occur.
The Senior Notes are secured by a pledge of stock and are fully and
unconditionally guaranteed on a joint and several basis by certain subsidiaries
(the "Guarantors") of Host International, Inc. ("Host International"). Host
International is the primary operating subsidiary of the Company. The indenture
governing the Senior Notes (the "Indenture") contains covenants that, among
other things, limit the ability of Host International and certain of its
subsidiaries to incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, repurchase capital stock or subordinated
indebtedness, create certain liens, enter into certain transactions with
affiliates, sell certain assets, issue or sell capital stock of the Guarantors,
and enter into certain mergers and consolidations.
The First National Bank of Chicago, as agent for a group of participating
lenders, has provided credit facilities (the "Facilities") to Host International
consisting of a $75.0 million revolving credit facility (the "Revolver
Facility") and a $25.0 million letter of credit facility. During 1997, the
Company negotiated several enhancements to the Facilities. The enhancements
increased the aggregate availability and extended the maturity of the Facilities
from $75.0 million through 2001 to $100.0 million through April 2002 (the "Total
Commitment"). The $75.0 million Revolver Facility provides for working capital
and general corporate purposes other than hostile acquisitions. The $25.0
million letter of credit facility provides for the issuance of financial and
nonfinancial letters of credit. Any borrowings under the Facilities are senior
obligations of Host International and are secured by the capital stock of Host
International and certain of its subsidiaries.
The loan agreements relating to the Facilities contain dividend and stock
retirement covenants that are substantially similar to those set forth in the
Senior Notes Indenture, except that dividends payable to the Company are limited
to 25% of Host International's consolidated net income, as defined in the loan
agreement. During the first quarter of 1998 and in compliance with the
Facilities, Host International paid $4.7 million of dividends to the Company.
The enhancements to the Facilities during 1997 eliminated the Revolver
Facility's annual 30-day repayment provision. The loan agreements also contain
certain financial ratio and capital expenditure covenants. Any indebtedness
outstanding under the Facilities may be declared due and payable upon the
occurrence of certain events of default, including the Company's failure to
comply with the several covenants noted above, or the occurrence of certain
events of default under the Senior Notes Indenture. As of March 27, 1998 and
throughout the twelve weeks ended March 27, 1998, there was no outstanding
indebtedness under the Revolver Facility and the Company was in compliance with
the covenants described above.
The Company's cash flows from operating activities are affected by seasonality.
Cash from operations generally is the strongest in the summer months between
Memorial Day and Labor Day. Cash provided by operations,
13
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
before changes in working capital and income taxes, totaled $10.7 million for
the first quarter of 1998 as compared with $9.4 million for the same period in
1997.
The primary use of cash in investing activities consists of capital
expenditures. The Company incurs capital expenditures to build out new
facilities, including growth initiatives, to expand or reposition existing
facilities and to maintain the quality and operations of existing facilities.
The Company's capital expenditures in the first quarter of 1998 and 1997 totaled
$16.1 million and $13.1 million, respectively. For the entire fiscal year of
1998, the Company presently expects to make capital expenditure investments of
approximately $60 million in its core markets (domestic airport and travel plaza
business lines) and $15.0 million in growth markets (international airports,
food courts in U.S. shopping malls and other venues). The timing of actual
capital expenditures can vary from expected timing due to project scheduling and
delays inherent in the construction and approval process. The Company expects to
fund 1998 expenditures with its operating cash flow.
The Company's cash used in financing activities in the first quarter of 1998 was
$7.0 million, compared with cash provided by financing activities of $1.6
million for the same period in 1997. The Company announced a share repurchase
program during 1997 for the repurchase of up to $15.0 million of the Company's
stock on the open market over a two-year period and as of the end of 1997,
shares had been repurchased at an aggregate purchase price of $3.5 million. The
Company purchased additional treasury stock during the first quarter of 1998
totaling $9.8 million. Offsetting the $9.8 million of cash payments for treasury
stock in the first quarter were proceeds received for the issuance of common
shares relating to the Company's employee stock and option plans totaling $2.1
million. Cash provided by financing activities in 1997 was primarily due to the
issuance of common shares relating to the Company's employee stock and option
plans totaling $1.9 million.
Working capital is managed throughout the year to effectively maximize the
financial returns to the Company. If needed, the Company's Revolver Facility
provides funds for liquidity, seasonal borrowing needs and other general
corporate purposes.
The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA") increased $1.1
million, or 7.4%, to $16.0 million in the first quarter of 1998. The EBITDA
margin improved 10 basis points to 5.8% of revenues, up from 5.7% in the first
quarter of 1997. The Company's cash interest coverage ratio (defined as EBITDA
to interest expense less amortization of deferred financing costs) was 3.4 to
1.0 in the first quarter of 1998 compared with 3.1 to 1.0 for the same period in
1997. The Company believes that EBITDA is one meaningful measure of its
operating performance and is used by certain investors to estimate the Company's
ability to service debt, fund capital investments and expand its business.
EBITDA information should not be considered an alternative to net income,
operating profit, cash flows from operations, or any other operating or
liquidity performance measure recognized by Generally Accepted Accounting
Principles ("GAAP"). The calculation of EBITDA for the Company may not be
comparable to the same calculation by other companies because the definition of
EBITDA varies throughout the industry.
14
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The following is a reconciliation of net loss to EBITDA:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
---------------------------
MARCH 27, MARCH 28,
(IN MILLIONS) 1998 1997
---------------------------------- --------- --------- ------------- -------------- ------------
<S> <C> <C>
NET LOSS $ (3.9) $ (4.3)
Interest expense (1) 9.2 9.2
Benefit for income taxes (2.6) (2.8)
Depreciation and amortization 12.5 12.5
Other non-cash items 0.8 0.3
---------------------------------- --------- --------- ------------- -------------- ------------
EBITDA $ 16.0 $ 14.9
---------------------------------- --------- --------- ------------- -------------- ------------
<FN>
(1) Amortization of deferred financing costs of $0.3 million and $0.2
million for the first quarter of 1998 and 1997, respectively, is
included as a component of interest expense.
</FN>
</TABLE>
IMPAIRMENTS OF LONG-LIVED ASSETS
Effective September 9, 1995, the Company adopted SFAS No. 121, which requires
that an impairment loss be recognized when the carrying amount of an asset
exceeds the sum of the estimated undiscounted future cash flows of the asset. In
adopting SFAS No. 121 (and thereby changing its method of measuring long-lived
asset impairments from a business-line basis to an individual operating-unit
basis), the Company wrote down the assets (primarily leasehold improvements and
equipment) of 15 individual operating units to the extent the carrying value of
the assets exceeded the fair value of the assets in 1995. Twelve of the fifteen
units had projected cash flow deficits, and, accordingly the assets of these
units were written-off in their entirety. The remaining three units had
projected positive cash flows and the assets were partially written down to
their estimated fair values.
During 1996 and 1997, 6 of the original 15 impaired units were either disposed
of or the lease term expired. As of March 27, 1998, the total cash flow deficit
(including operating cash flows and necessary capital expenditures) from the
remaining 9 operating units was projected to be approximately $10.4 million over
the remaining weighted-average life of the contracts of 4.0 years. Substantially
all of the remaining deficit is attributable to three operating units, which
include two airport units and one tollroad unit.
DEFERRED INCOME TAXES
Realization of the net deferred tax assets totaling $67.8 million as of March
27, 1998, is dependent on the Company's ability to generate future taxable
income. Management believes that it is more likely than not that future taxable
income will be sufficient to realize the net deferred tax assets recorded at
March 27, 1998. Management anticipates that increases in taxable income will
arise in future periods primarily as a result of the Company's growth strategies
and reduced operating costs resulting from several strategic initiatives and
ongoing improvements to the Company's business processes. The anticipated
improvement in operating results is expected to increase the taxable income base
to a level that would allow realization of the existing net deferred tax assets
within nine to twelve years. During the third quarter of 1997, the Company
recorded a $1.9 million benefit to recognize certain tax credits that were
previously considered unrealizable.
Future levels of operating income and other taxable gains are dependent upon
general economic and industry conditions, including airport and tollroad
traffic, inflation, competition, demand for development of concepts and other
factors beyond the Company's control, and no assurance can be given that
sufficient taxable income will be generated for full utilization of the tax
credits and deductible temporary differences giving rise to the net deferred tax
asset. Management has considered these factors in reaching its conclusion that
it is more likely than not that operating income will be sufficient to utilize
these tax credits and temporary deferred deductions fully. The
15
amount of the net deferred tax assets considered realizable, however, could be
reduced if estimates of future taxable income are not achieved.
FORWARD LOOKING STATEMENTS
This report, the Company's other reports filed with the Securities and Exchange
Commission or furnished to shareholders and its public statements and press
releases may contain "forward-looking statements" within the meaning of the
federal securities laws, including statements concerning the Company's outlook
for 1998 and beyond; the growth in total revenue in 1998 and subsequent years;
the amount of additional revenues expected from new domestic and international
airport and domestic shopping mall food court contracts that were added in 1997
or that are expected to be added or renewed in 1998 and subsequent years;
anticipated retention rates of existing contracts in core business lines;
capital spending plans; projected cash flows from certain operating units;
business strategies and their anticipated results; and similar statements
concerning future events and expectations that are not historical facts. These
forward-looking statements are subject to numerous risks and uncertainties,
including the effects of seasonality, airline and tollroad industry fundamentals
and general economic conditions (including the current economic downturn in
Asia), competitive forces within the food, beverage and retail concessions
industries, the availability of cash flow to fund future capital expenditures,
government regulation and the potential adverse impact of the Year 2000 issue on
operations. For further information concerning risks applicable to the Company's
operations, see the Company's Form 10-K. Forward-looking statements are
inherently uncertain, and investors must recognize that actual results could
differ materially from those expressed or implied by the statements.
OTHER MATTERS
The Company is currently working to resolve the potential impact of the Year
2000 on the Company's operations. An action plan consisting of three phases was
formulated in 1997 and phase one was completed in the first quarter of 1998. The
first phase consisted of a formulation of an overall assessment of the issues
and documentation of an action plan. Full completion of the action plan should
occur in 1999. The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year. Any
of the Company's programs or computer hardware and electronic equipment that
have time-sensitive software or computer chips may recognize a date using "00"
as a date other than the Year 2000, which could result in miscalculations or
system failures. If the Company, its customers or its vendors are unable to
resolve such processing issues in a timely manner, it could result in a material
financial risk. Accordingly, the Company is devoting resources to resolve all
significant Year 2000 issues in a timely manner as they are identified. The
Company currently anticipates the cost of funding its Year 2000 systems
compliance program will total approximately $1.5 million in 1998, $1.5 million
in 1999 and $0.5 million in 2000. Additionally, final remediation may require
further capital investments to replace equipment and software.
In addition to the risks noted above, the Company's operations may also be
affected by Year 2000 issues facing the Federal Aviation Administration related
to air traffic control and security systems used in airports. These issues could
potentially lead to degraded flight safety, grounded or delayed flights,
increased airline costs and customer inconvenience. Since the Company is not
responsible for addressing these issues, it cannot control or predict the impact
on future operations of the Year 2000 as it pertains to air traffic control and
airport security systems.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
16
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION AND SIGNATURE
ITEM 1. LEGAL PROCEEDINGS
LITIGATION
The Company and its subsidiaries are involved in litigation incidental to
their businesses. Such litigation is not considered by management to be
significant and its resolution would not have a material adverse effect on
the financial condition or results of operations of the Company or its
subsidiaries.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
11 Computations of Loss Per Common Share
27 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K:
Form 8-K dated February 5, 1998 announcing fiscal year 1997 results
and containing forward-looking statements.
17
<PAGE>
HOST MARRIOTT SERVICES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION AND SIGNATURE, CONTINUED
SIGNATURE
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 thereunto duly authorized.
HOST MARRIOTT SERVICES CORPORATION
MAY 8, 1998 /S/ BRIAN W. BETHERS
- ---------------------- ---------------------------------------
Date Brian W. Bethers
Senior Vice President and Chief Financial Officer
(duly authorized officer and
chief financial officer)
18
EXHIBIT 11
HOST MARRIOTT SERVICES CORPORATION
COMPUTATIONS OF LOSS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWELVE WEEKS ENDED
MARCH 27, 1998 MARCH 28, 1997
------------------------------- -----------------------------
BASIC DILUTED BASIC DILUTED
------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Net loss available to common shareholders $ (3.9) $ (3.9) $ (4.3) $ (4.3)
- --------------------------------------------------------- ------------- ----------------- -- ------------ ----------------
Shares:
Weighted average number of common
shares outstanding 34.4 34.4 34.6 34.6
Assuming distribution of shares issuable for Host
Marriott Corporation warrants in 1996, less
shares assumed purchased at applicable
market (1) --- --- --- ---
Assuming distribution of shares issuable for stock
options granted under the comprehensive stock
plan, less shares assumed purchased at
applicable market (1) --- --- --- ---
Assuming distribution of shares issuable for Host
Marriott Corporation stock options held by former
employees of Host Marriott Corporation, less shares
assumed purchased at applicable market (1) --- --- --- ---
Assuming distribution of shares issuable for Host
Marriott Corporation deferred stock held by former
employees of Host Marriott Corporation, less shares
assumed purchased at applicable market (1) --- --- --- ---
Assuming distribution of shares reserved under
employee stock purchase plan, based on
withholdings to date, less shares assumed
purchased at applicable market (1) --- --- --- ---
Assuming distribution of shares granted under
deferred stock incentive plan, less shares
assumed purchased at applicable market (1) --- --- --- ---
- --------------------------------------------------------- ------------- ----------------- -- ------------ ----------------
Total Weighted Average Common Shares Outstanding 34.4 34.4 34.6 34.6
- --------------------------------------------------------- ------------- ----------------- -- ------------ ----------------
Loss Per Common Share $(0.11) $(0.11) $(0.12) $(0.12)
- --------------------------------------------------------- ------------- ----------------- -- ------------ ----------------
<FN>
(1) The applicable market price for diluted earnings per common share is the
average market price for the period.
</FN>
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> MAR-27-1998
<CASH> 59,500
<SECURITIES> 0
<RECEIVABLES> 40,200
<ALLOWANCES> 18,500
<INVENTORY> 40,000
<CURRENT-ASSETS> 149,200
<PP&E> 692,900
<DEPRECIATION> 409,300
<TOTAL-ASSETS> 530,600
<CURRENT-LIABILITIES> 161,400
<BONDS> 407,200
0
0
<COMMON> 0
<OTHER-SE> (88,000)
<TOTAL-LIABILITY-AND-EQUITY> 530,600
<SALES> 277,300
<TOTAL-REVENUES> 277,300
<CGS> 82,500
<TOTAL-COSTS> 275,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,200
<INCOME-PRETAX> (6,500)
<INCOME-TAX> (2,600)
<INCOME-CONTINUING> (3,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,900)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
