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
JANUARY 27, 1999
HOST MARRIOTT SERVICES CORPORATION
DELAWARE 1-14040 52-193867
- ------------------------ ------------ ---------------------
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification Number)
6600 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
(301) 380-7000
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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 January 27, 1999 announcing fourth quarter 1998
earnings and containing forward-looking statements.
On January 27, 1999, the Company held a conference call for investors
and analysts that focused on 1998 earnings. During the conference
call, the Company stated that it expects 1999 EPS, before the change
in accounting for start-up costs, to range from $0.58 to $0.60 per
diluted share. In addition, the impact of adopting SOP 98-5,
"Reporting on the Costs of Start-Up Activities," during the first
quarter of 1999 will result in a one-time, after-tax charge of
approximately $0.7 million, or $0.02 per share, in the form of a
cumulative effect of a change in accounting principle. The Company
expects to spend $4.0 million in external costs to address Year 2000
issues in 1999 with an additional $0.5 million to be spent in 2001.
The impact of incremental Year 2000 costs on 1999 EPS is expected to
be $0.05 per share. The Year 2000 cost estimates do not include the
potential costs to repair or replace non-information technology
equipment that may be determined to be noncompliant. The EBITDA
margin, excluding Year 2000 costs, is expected to improve in 1999 due
primarily to a recovery from the Northwest pilots strike that occured
in 1998. Capital investments in 1999 are forecasted at approximately
$125.0 million, of which approximately $35.0 million will be in new
markets.
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
JANUARY 27, 1999 /S/ BRIAN W. BETHERS
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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 1998 NET INCOME OF $24.1 MILLION
BETHESDA, MD, JANUARY 27, 1999 -- Host Marriott Services [NYSE:HMS] today
reported net income for fiscal year 1998 of $24.1 million, or $0.68 per diluted
share, compared to net income of $20.8 million, or $0.57 for fiscal year 1997.
Contributing to the year-over-year increase in earnings were federal income tax
credits partially offset by asset adjustments required by SFAS No. 121. Revenues
for 1998 totaled $1.38 billion, an increase of $93.0 million, or 7% over 1997.
Earnings before interest, taxes, depreciation, amortization and other non-cash
items (EBITDA) was $125.7 million for 1998, compared to $125.4 million in 1997.
William W. McCarten, President and Chief Executive Officer, noted, "We achieved
7% growth in revenues during a very challenging year for the airport concession
industry. This growth is clear evidence that our branding strategy is working.
Earnings were impacted, however, by the Northwest strike, the slowdown in the
Asian economy, start-up costs associated with our entry into the shopping mall
food court business, as well as by extensive construction activity. We won or
extended contracts in our core markets with annual revenues of approximately $90
million, added five new mall contracts with annualized revenues of nearly $50
million and were awarded our first airport food and beverage contract in China.
Our new business pipeline is strong and we continue to be excited about the
growth opportunities ahead of us."
The company increased its contract retention rate to 82% for the last three
years and lengthened its weighted average remaining contract life to 7.3 years.
Annualized revenues from new and extended contracts exceeded revenues from
exited contracts during the same three year period by approximately $100
million.
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EXHIBIT 20
PAGE 2 OF 5
Overall, airport concession revenues grew by 8% or $72.0 million during 1998,
reflecting an estimated 2% growth in passenger enplanements and a 6% increase in
revenues per enplaned passenger ("RPE"). Operating profit in the airport
business line increased by $0.8 million or 1% during 1998, despite the
significant impact of the Northwest Airlines pilots strike and of the economic
slowdown in Asia on certain airport locations.
Travel plaza revenues increased by $14.2 million or 5% during 1998. Moderate
increases in menu prices, the introduction of new branded concepts and higher
tollroad traffic, due to low gasoline prices, resulted in solid revenue growth
in this business line. Operating profit in 1998 for the travel plaza business
line was up by $3.0 million or 13% over last year.
Revenues for 1998 in the shopping mall and entertainment business line were up
12% over a year ago. The openings of two new mall food courts in late 1998 and
the full-year impact of two mall food courts that opened in late 1997
contributed significantly to the revenue increase. Operating profit during 1998,
before unusual items, in the new shopping mall and entertainment business line
decreased by $2.0 million compared to last year, reflecting lower than
anticipated revenue combined with start-up costs associated with the company's
entry into this new venue.
During the fourth quarter of 1998, the company recorded $5.9 million of
non-cash, pretax write-downs of impaired long-lived assets. The write-downs,
required under SFAS No. 121, included a $3.5 million partial impairment of
certain capitalized system software costs and a $2.4 million impairment of one
shopping mall food court contract. During the fourth quarter of last year, the
company recorded a net $0.3 million non-cash, pretax charge against earnings for
unusual items.
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EXHIBIT 20
PAGE 3 OF 5
Excluding the effect of the unusual items noted above that were recorded in 1998
and 1997, the company's operating profit for 1998 was $65.5 million, compared to
$67.4 million in 1997. Further adjusting for the impact of the Northwest strike,
operating profit would have increased slightly in 1998 over 1997.
The company's 1998 income tax benefit reflects the reversal of $11.1 million of
valuation reserves for certain tax credits, which the company has now determined
will be utilized prior to their expiration. Similar income tax benefits of $1.9
million were recognized in 1997.
Net income for the fourth quarter of 1998 was $3.3 million, or $0.09 per diluted
share, compared to net income of $1.1 million, or $0.03, for the fourth quarter
of 1997. Revenues totaled $415.5 million for the fourth quarter of 1998, an
increase of 7% over the same quarter in 1997. EBITDA was $28.8 million for the
fourth quarter of 1998, a decrease of $3.1 million compared to the same quarter
a year ago.
The company is adopting Statement of Position 98-5, "Reporting the Costs of
Start-up Activities," in the first quarter of 1999. Adoption of the statement
will result in a one-time, after-tax charge of approximately $0.7 million, in
the form of a cumulative effect of a change in accounting principle. In addition
to the one-time charge, the company also expects a year-over-year increase in
pretax start-up costs of $3.0 million associated with the accounting change and
a higher level of development activity anticipated in 1999.
The company estimates that it will spend $4.0 million in external costs in 1999
associated with its Year 2000 compliance program, compared with $1.1 million in
Year 2000 expenditures in 1998.
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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, The Cheesecake Factory, Tie Rack and The Body Shop.
NOTES:
In fiscal year 1998, the company changed the calculation of EBITDA to exclude
interest income, which is more consistent with industry standards. Interest
income was subtracted from 1997 EBITDA for comparability purposes.
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 1999 and beyond; the growth in total revenue for 1999
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:
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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>
SIXTEEN SIXTEEN FIFTY-TWO FIFTY-TWO
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
1999 1998 (A) 1999 1998 (A)
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
OPERATING SUMMARY
REVENUES $ 415.5 $ 388.2 $ 1,377.6 $ 1,284.6
OPERATING COSTS AND EXPENSES
Operating costs 405.7 375.3 1,312.1 1,217.2
Write-downs of long lived assets 5.9 4.2 5.9 4.2
Reversal of restructuring charges --- (3.9) --- (3.9)
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
Total Operating Costs and Expenses 411.6 375.6 1,318.0 1,217.5
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
OPERATING PROFIT 3.9 12.6 59.6 67.1
Interest expense (12.2) (12.2) (39.9) (39.8)
Interest income 0.5 1.2 2.5 3.7
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
INCOME (LOSS) BEFORE INCOME TAXES (7.8) 1.6 22.2 31.0
Provision (benefit) for income taxes (B) (11.1) 0.5 (1.9) 10.2
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
NET INCOME $ 3.3 $ 1.1 $ 24.1 $ 20.8
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INCOME PER COMMON SHARE
Basic $ 0.10 $ 0.03 $ 0.71 $ 0.60
Diluted $0.09 $0.03 $ 0.68 $ 0.57
Weighted Average Common Shares Outstanding
Basic 33.7 34.5 34.0 34.6
Diluted 35.1 36.6 35.6 36.5
EBITDA $ 28.8 $ 31.9 $ 125.7 $ 125.4
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
REVENUES BY BUSINESS LINE
Airports $ 301.2 $ 278.8 $ 985.5 $ 913.5
Travel Plazas 94.3 89.2 326.7 312.5
Shopping Malls and Entertainment 20.0 20.2 65.4 58.6
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
Total revenues $ 415.5 $ 388.2 $ 1,377.6 $ 1,284.6
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
OPERATING PROFIT BY BUSINESS LINE (C)
Airports $ 22.7 $ 25.1 $ 95.1 $ 94.3
Travel Plazas 5.3 2.9 25.3 22.3
Shopping Malls and Entertainment 0.5 2.1 3.1 5.1
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
Total operating profit $ 28.5 $ 30.1 $ 123.5 $ 121.7
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
PERIOD END BALANCE SHEET DATA JANUARY 1, January 2,
1999 1998
----------------- ------------------
Cash and cash equivalents $ 44.4 $ 78.1
Total assets 567.0 548.0
Short-term revolving credit 11.6 ---
Long-term debt 405.9 405.8
- --------------------------------------------------------- ----------------- ------------------ ------------------ -----------------
<FN>
(A) Certain minor reclassifications were made to the prior year financial
statements to conform to the 1998 presentation.
(B) The company's 1998 income tax benefit reflects the reversal of $11.1 million
($7.9 million in the fourth quarter) of valuation reserves for certain tax
credits that the company has now determined will be utilized prior to their
expiration. Similar income tax benefits of $1.9 million were recognized in 1997.
(C) Before general and administrative expenses and unusual items.
</FN>
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