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
OCTOBER 8, 1998
HOST MARRIOTT SERVICES CORPORATION
DELAWARE 1-14040 52-1938672
- ------------------------ ------------ ---------------------
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification Number)
6600 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
(301) 380-7000
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
None.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
None.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
None.
ITEM 5. OTHER EVENTS.
Press Release dated October 8, 1998 announcing third quarter earnings
and containing forward-looking statements.
On October 8, 1998, the Company held a conference call for investors
and analysts that focused on third quarter 1998 earnings. During the
conference call, the Company stated that, barring a downturn in the
U.S. economy and a decline in its projected enplanement growth rate, it
expects revenue growth of approximately 8% and earnings per diluted
share in the range of $0.77 - $0.79 for the 1999 fiscal year. The
Company's profit margins will need to increase slightly to achieve this
rate of growth. The 1999 earnings per diluted share projection does not
include the impact of adopting SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The adoption of this new statement of position is
required in the first quarter of 1999 and requires all previously
capitalized start-up costs to be expensed at the beginning of the 1999
fiscal year and all future start-up costs to be expensed as incurred.
The statements described above and made during the conference call
concerning the Company's outlook for 1999, the growth in total revenues
and earnings per diluted share for 1999, projected enplanement growth
rates, economic growth forecasts and similar statements concerning
events and expectations that are not historical facts are
"forward-looking statements" within the meaning of federal securities
laws. These forward-looking statements are subject to numerous risks
and uncertainties, including the effects of seasonality, airline and
tollroad industry fundamentals, general economic conditions (including
the current economic downturn in Asia), the potential adverse impact of
the Year 2000 issue on operations, competitive forces within the food,
beverage and retail concessions industries, and the availability of
cash flow to fund future capital expenditures. Forward-looking
statements are inherently uncertain, and investors must recognize that
actual results could differ materially from those expressed or implied
by the statements. A detailed discussion of these risks and
uncertainties is contained in the company's 1997 Annual Report on Form
10-K filed with the Securities and Exchange Commission.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
None.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
None.
ITEM 8. CHANGE IN FISCAL YEAR.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOST MARRIOTT SERVICES CORPORATION
OCTOBER 8, 1998 /S/ BRIAN W. BETHERS
- ------------------ -------------------------------------------------
Date Brian W. Bethers
Senior Vice President and Chief Financial Officer
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EXHIBIT 20
PAGE 1 OF 5
HOST MARRIOTT SERVICES REPORTS THIRD QUARTER NET INCOME OF $18.5 MILLION
COMPANY ALSO ANNOUNCES THREE NEW MALL CONTRACTS
BETHESDA, MD, OCTOBER 8, 1998 -- Host Marriott Services [NYSE:HMS] today
reported net income for the third quarter of 1998 of $18.5 million, or $0.52 per
diluted share, compared to net income of $18.9 million, or $0.52 for the third
quarter of 1997. Revenues for the third quarter of 1998 totaled $362.2 million,
an increase of $21.5 million, or 6% over the third quarter of 1997. Earnings
before interest expense, taxes, depreciation, amortization and other non-cash
items (EBITDA) was $49.5 million for the third quarter of 1998, compared to
EBITDA of $50.4 million for the third quarter of 1997.
As the company has previously announced, during the third quarter, the company's
airport business line was negatively impacted by the Northwest Airlines pilots
strike. The impact was most evident in Northwest's hub locations in Minneapolis
/ St. Paul, Detroit and Memphis, where the airline accounts for approximately
75%-80% of total enplanements. In addition, the slowdown in the Asian economy
has negatively impacted a number of the company's international locations as
well as its duty-free operations in several key gateway airports in the United
States. The Northwest strike and the Asian slowdown had an estimated combined
negative effect on earnings per share of $0.05.
William W. McCarten, President and Chief Executive Officer, noted, "We are very
pleased that the Northwest strike has been settled and that our sales at
Northwest locations have returned to close to pre-strike levels. Our long-term
fundamentals and growth prospects remain strong, as demonstrated by our recent
success in signing three mall contracts and adding Shenzhen, China to our
international portfolio."
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EXHIBIT 20
PAGE 2 OF 5
Net income for the first three quarters of 1998 increased to $20.8 million, or
$0.58 per diluted share, compared to net income of $19.7 million, or $0.54, for
the first three quarters of 1997. Revenues totaled $962.1 million for the first
three quarters of 1998, which represented a 7% increase over the same period in
1997. EBITDA grew to $98.9 million for the first three quarters of 1998, an
increase of 3% over the comparable period in 1997.
Operating profit for the third quarter of 1998 was $35.2 million, down from
$36.6 million last year, reflecting the impact of the Northwest strike and the
economic slowdown in Asia. Operating profit for the first three quarters of 1998
increased to $55.7 million compared to $54.5 million in 1997, an increase of 2%,
also reflecting the factors noted above.
The company's effective income tax rate for the third quarter of 1998 and 1997
was 30.5% and 32.7%, respectively. The effective rates reflect benefits recorded
to recognize utilization of certain tax credits previously projected to expire
unrealized.
Overall, airport concession revenues grew by 7% or $15.3 million during the
third quarter of 1998. Revenues at comparable domestic airports also grew by 7%
during the third quarter of 1998, reflecting an estimated 4% growth in passenger
enplanements and a 3% increase in revenues per enplaned passenger ("RPE").
Revenues at comparable domestic airports comprise over 85% of the company's
total domestic airport revenues. Operating profit during the third quarter in
the airport business line decreased by $2.8 million or 9%, primarily from the
negative impact of the Northwest strike and the economic slowdown in Asia.
Travel plaza revenues increased by $3.9 million or 4% for the third quarter of
1998. An increase in tollroad traffic due to low gasoline prices, as well as
moderate increases in menu prices resulted in
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EXHIBIT 20
PAGE 3 OF 5
solid revenue growth in this business line. For the third quarter, operating
profit in the travel plaza business line was up by $800 thousand or 5% over the
same quarter of last year.
Revenues for the third quarter of 1998 in the shopping mall and entertainment
business line were up 18% over a year ago. The openings of the Grapevine Mills
Mall and the Vista Ridge Mall food courts in late 1997 contributed significantly
to the increase. Operating profit for the third quarter in the shopping mall and
entertainment business line increased by $200 thousand compared to the same
period a year ago, primarily due to the solid performance in entertainment
concessions which was partially offset by start-up costs associated with new
mall contracts.
In separate press releases dated today, the company announced three new shopping
mall food court contracts with combined projected annual revenues of
approximately $30 million. The first contract is a 12-year deal with The Taubman
Company to operate the food and beverage concessions in a 6,700 square foot food
court in the 1.0 million square foot MacArthur Center in Norfolk, Virginia,
beginning in March of 1999. The second contract is a ten-year deal with Glimcher
Realty Trust to operate the food and beverage concessions in a 10,800 square
foot food court in the 1.3 million square foot Jersey Gardens Mall in Elizabeth,
New Jersey, beginning in the late Fall of 1999. The third contract is a ten-year
deal with Michael Swerdlow Companies, Inc. to operate the food and beverage
concessions in a 9,000 square foot food court in the 1.4 million square foot
Dolphin Mall in Miami-Dade County, Florida, beginning in late 1999. The company
has now secured ten shopping mall food court contracts with terms of ten years
or more each with eight separate mall developers.
In August, the company announced a two-year 1.9 million share repurchase program
to offset employee stock ownership plans. To date, the company has purchased
approximately 900,000 shares under this new share repurchase program.
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EXHIBIT 20
PAGE 4 OF 5
* * * * * * *
Host Marriott Services, with its worldwide headquarters in Bethesda, Maryland,
is the leading food, beverage and retail concessionaire at nearly 200 travel and
entertainment venues, with approximately 24,000 employees in seven countries
around the globe. Host Marriott Services is best known for its custom solutions
business approach that combines internationally known brands with regional
favorites in airports, travel plazas, shopping malls and entertainment
attractions. Many of the company's concessions are operated under license
agreements with branded partners such as Burger King, Starbucks Coffee, Pizza
Hut, Chili's, Cinnabon, TCBY "Treats," Sbarro, Taco Bell, Cheers, California
Pizza Kitchen, Cool Planet, Tie Rack and The Body Shop.
NOTE: The company's results of operations are significantly affected by the
various travel and shopping seasons. Customer traffic is generally the strongest
in the summer vacation months, particularly from Memorial Day through Labor Day,
which has historically produced seasonally strong third quarter earnings.
Shopping mall food court customer traffic is generally the busiest during the
fall and winter holiday season.
This press release contains "forward-looking statements" within the meaning of
federal securities laws, including, but not limited to, statements concerning
the company's outlook for 1998 and beyond; the growth in total revenue for 1998
and subsequent years; business strategies and anticipated results and similar
statements concerning 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, general economic conditions (including the current
economic downturn in Asia), the potential adverse impact of the Year 2000 issue
on operations, competitive forces within the food, beverage and retail
concessions industries, and the availability of cash flow to fund future capital
expenditures. Forward-looking statements are inherently uncertain, and investors
must recognize that actual results could differ materially from those expressed
or implied by the statements. A detailed discussion of these risks and
uncertainties is contained in the company's 1997 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
FOR MORE INFORMATION:
MEDIA INQUIRIES: INVESTOR RELATIONS: WEBSITE / TELEPHONE:
Wendy Watkins: Sharon Whiting: http://www.hmscorp.com
(301) 380-7903 (301) 380-7215 1-888-380-HOST
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EXHIBIT 20
PAGE 5 OF 5
HOST MARRIOTT SERVICES CORPORATION
CONSOLIDATED OPERATING RESULTS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE TWELVE THIRTY-SIX THIRTY-SIX
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
SEPTEMBER 11, SEPTEMBER 12, SEPTEMBER 11, SEPTEMBER 12,
1998 1997 (A) 1998 1997 (A)
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
OPERATING SUMMARY
REVENUES $ 362.2 $ 340.7 $ 962.1 $ 896.4
OPERATING COSTS AND EXPENSES 327.0 304.1 906.4 841.9
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
OPERATING PROFIT 35.2 36.6 55.7 54.5
Interest expense (9.3) (9.2) (27.7) (27.6)
Interest income 0.7 0.7 2.0 2.5
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
INCOME BEFORE INCOME TAXES 26.6 28.1 30.0 29.4
Provision for income taxes 8.1 9.2 9.2 9.7
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
NET INCOME $ 18.5 $ 18.9 $ 20.8 $ 19.7
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
INCOME PER COMMON SHARE
Basic $ 0.55 $ 0.54 $ 0.61 $ 0.57
Diluted $ 0.52 $ 0.52 $ 0.58 $ 0.54
Weighted Average Common Shares Outstanding
Basic 34.1 34.7 34.2 34.6
Diluted 35.7 36.6 35.8 36.4
EBITDA $ 49.5 $ 50.4 $ 98.9 $ 96.0
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
REVENUES BY BUSINESS LINE
Airports $ 245.3 $ 230.0 $ 684.3 $ 634.7
Travel Plazas 101.7 97.8 232.4 223.3
Shopping Malls and Entertainment 15.2 12.9 45.4 38.4
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
Total revenues $ 362.2 $ 340.7 $ 962.1 $ 896.4
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
OPERATING PROFIT BY BUSINESS LINE (B)
Airports $ 28.3 $ 31.1 $ 72.4 $ 69.2
Travel Plazas 17.9 17.1 20.0 19.4
Shopping Malls and Entertainment 1.2 1.0 2.6 3.0
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
Total operating profit $ 47.4 $ 49.2 $ 95.0 $ 91.6
- -------------------------------------------------------- ------------------- ------------------ ------------------ -----------------
PERIOD END BALANCE SHEET DATA SEPTEMBER 11, September 12,
1998 1997
------------------- ------------------
Cash and cash equivalents $ 77.5 $ 93.2
Total assets 573.5 571.2
Long-term debt 406.1 406.4
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<FN>
(A) Certain minor reclassifications were made to the prior year financial
statements to conform to the 1998 presentation.
(B) Before general and administrative expenses.
</FN>
</TABLE>
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