<PAGE>
File No. 33-54545
Rule 424(b)(3) & (c)
PROSPECTUS SUPPLEMENT NO. 1
To Prospectus Dated October 17, 1994
HOST MARRIOTT CORPORATION
7,700,000 Warrants to Acquire Shares of Common Stock
7,700,000 Shares of Common Stock
--------------------------------------
This Supplement supplements the Prospectus dated October 17, 1994 (the
"Prospectus") relating to the issuance of (i) 7,700,000 warrants (the
"Warrants") to acquire shares of common stock, $1.00 par value per share
("Common Stock") of Host Marriott Corporation (the "Company") in connection with
the settlement of class action lawsuits instituted against the Company and
certain individual defendants by certain holders and purchasers of senior notes
and debentures of the Company and (ii) 7,700,000 shares of Common Stock issuable
upon exercise of the Warrants. Unless otherwise defined herein, capitalized
terms used herein have the same meanings as in the Prospectus.
Quarterly Report on Form 10-Q
The attached Quarterly Report on Form 10-Q for the fiscal quarter ended
September 9, 1994 of the Company which includes the unaudited consolidated
financial statements of the Company and its consolidated subsidiaries
supplements the information set forth in the Prospectus and should be read in
conjunction therewith.
Pending Litigation
On October 19, 1994, the Court in the PPM Lawsuit declared a mistrial after
the jury was unable to reach a verdict during three days of deliberations. The
Company expects to file a motion seeking to have the Court enter a judgment on
its behalf as a matter of law. The Court will schedule a re-trial of the
allegations raised in the PPM Lawsuit only if it declines to award the Company
judgment as a matter of law. The Court is not expected to rule on such a motion
until early 1995.
Recent Acquisitions
On October 21, 1994, the Company agreed to acquire 7 hotels (totalling
2,287 rooms) from the Equitable Life Insurance Company for approximately $149
million. The Company expects the acquisition to close during the fourth quarter
of 1994. The Company has also recently acquired 2 hotels (totalling 891 rooms)
in separate transactions with third parties for approximately $56 million.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND CONSENT SOLICITATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
The date of this Supplement is October 24, 1994
<PAGE>
================================================================================
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
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 9, 1994 COMMISSION FILE NO. 1-5664
HOST MARRIOTT CORPORATION
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
Delaware 53-0085950
- ----------------------- ----------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
SHARES OUTSTANDING
CLASS AT OCTOBER 7, 1994
- ------------------- ------------------
Common Stock, $1.00
par value per share 153,262,970
-----------
================================================================================
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
September 9, 1994 and December 31, 1993
Condensed Consolidated Statements of Operations - 4-7
Twelve Weeks and Thirty-six Weeks Ended
September 9, 1994 and September 10, 1993
Condensed Consolidated Statements of Cash Flows - 8
Thirty-six Weeks Ended September 9, 1994 and
September 10, 1993
Notes to Condensed Consolidated Financial 9-13
Statements
Management's Discussion and Analysis of Results of 14-17
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 18-20
</TABLE>
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
September 9, December 31,
1994 1993
-------- --------
(Unaudited)
ASSETS
------
<S> <C> <C>
Property and Equipment....................................... $ 2,883 $ 3,026
Investments in Affiliates.................................... 226 220
Notes Receivable............................................. 60 111
Accounts Receivable.......................................... 85 80
Inventories.................................................. 45 52
Other Assets................................................. 227 256
Cash and Cash Equivalents.................................... 235 103
Investment in Short-term Marketable Securities............... 50 --
------ ------
Total Assets $ 3,811 $ 3,848
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Debt carrying a company guarantee of repayment.............. $ 1,485 $ 1,700
Debt not carrying a company guarantee of repayment.......... 755 779
------ ------
2,240 2,479
Accounts Payable and Accrued Expenses........................ 218 194
Deferred Income.............................................. 17 20
Deferred Income Taxes........................................ 435 442
Other Liabilities............................................ 160 188
Convertible Subordinated Debt................................ -- 20
------ ------
Total Liabilities 3,070 3,343
------ ------
Shareholders' Equity
Convertible Preferred Stock................................. 13 14
Common Stock, 300 million shares authorized; 153.2 million
shares and 129.7 million shares issued, respectively....... 153 130
Additional Paid-in Capital.................................. 477 253
Retained Earnings........................................... 98 108
------ ------
Total Shareholders' Equity.................................. 741 505
------ ------
$ 3,811 $ 3,848
======= =======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 3 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE WEEKS ENDED SEPTEMBER 9, 1994 AND SEPTEMBER 10, 1993
(UNAUDITED, IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
-------------- Pro Forma
1994 1993 1993
------ ------ ----------
<S> <C> <C> <C>
REVENUES
Real estate group
Hotels...................................................... $ 75 $ 174 $ 61
Senior living communities................................... 3 18 5
Net gains on property transactions.......................... 2 2 2
------ ------ ----------
80 194 68
------ ------ ----------
Operating group
Airports.................................................... 191 173 173
Travel Plazas............................................... 97 96 96
Other....................................................... 19 28 28
------ ------ ----------
307 297 297
------ ------ ----------
Total revenues............................................. 387 491 365
------ ------ ----------
OPERATING COSTS AND EXPENSES
Real estate group
Hotels...................................................... 46 143 35
Senior living communities................................... 1 17 2
Other....................................................... 1 10 10
------ ------ ----------
48 170 47
------ ------ ----------
Operating group
Airports.................................................... 175 156 156
Travel Plazas............................................... 84 82 82
Other....................................................... 19 27 27
------ ------ ----------
278 265 265
------ ------ ----------
Total operating costs and expenses......................... 326 435 312
------ ------ ----------
OPERATING PROFIT
Real estate group............................................ 32 24 21
Operating group.............................................. 29 32 32
------ ------ ----------
Operating profit before corporate expenses, interest
and profit from distributed operations...................... 61 56 53
Corporate expenses............................................ (8) (6) (6)
Interest expense.............................................. (47) (45) (43)
Interest income............................................... 8 5 5
Profit from operations distributed to Marriott International.. - 48 -
------ ------ ----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM....................................... 14 58 9
Provision for income taxes.................................... (3) (31) (3)
------ ------ ----------
INCOME BEFORE EXTRAORDINARY ITEM.............................. 11 27 $ 6
==========
Extraordinary item - Loss on extinguishment of debt
(net of income taxes of $1 million).......................... (3) -
------ ------
NET INCOME.................................................... 8 27
Dividends on preferred stock.................................. - (4)
------ ------
NET INCOME AVAILABLE FOR COMMON STOCK......................... $ 8 $ 23
====== ======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
-4-
<PAGE>
- - Continued -
<TABLE>
<CAPTION>
Historical
------------- Pro Forma
1994 1993 1993
------ ------ ----------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEM.............................. $ .07 $ .21 $ .05
==========
Extraordinary item - Loss on extinguishment of debt
(net of income taxes)....................................... (.02) -
------ ------
NET INCOME.................................................... $ .05 $ .21
====== ======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
-5-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 1994 AND SEPTEMBER 10, 1993
(UNAUDITED, IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
---------------- Pro Forma
1994 1993 1993
------- ------- ----------
<S> <C> <C> <C>
REVENUES
Real estate group
Hotels....................................................... $ 225 $ 496 $ 181
Senior living communities.................................... 14 55 16
Net gains on property transactions........................... 5 4 4
------- ------- ----------
244 555 201
------- ------- ----------
Operating group
Airports..................................................... 516 479 479
Travel Plazas................................................ 218 214 214
Other........................................................ 69 68 68
------- ------- ----------
803 761 761
------- ------- ----------
Total revenues.............................................. 1,047 1,316 962
------- ------- ----------
OPERATING COSTS AND EXPENSES
Real estate group
Hotels....................................................... 133 408 106
Senior living communities.................................... 5 50 8
Other........................................................ 3 21 21
------- ------- ----------
141 479 135
------- ------- ----------
Operating group
Airports..................................................... 486 449 449
Travel Plazas................................................ 207 198 198
Other........................................................ 75 68 68
------- ------- ----------
768 715 715
------- ------- ----------
Total operating costs and expenses.......................... 909 1,194 850
------- ------- ----------
OPERATING PROFIT
Real estate group............................................. 103 76 66
Operating group............................................... 35 46 46
------- ------- ----------
Operating profit before corporate expenses, interest
and profit from distributed operations....................... 138 122 112
Corporate expenses............................................. (25) (20) (20)
Interest expense............................................... (142) (140) (131)
Interest income................................................ 19 19 19
Profit from operations distributed to Marriott International... - 177 -
------- ------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES.......................................... (10) 158 (20)
Benefit (provision) for income taxes........................... 3 (76) 2
------- ------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES..................................................... (7) 82 $ (18)
==========
Extraordinary item - Loss on extinguishment of debt
(net of income taxes of $1 million)........................... (3) -
Cumulative effect of a change in accounting for income taxes... - 30
Cumulative effect of a change in accounting for assets held
for sale (net of income taxes of $22 million)................. - (32)
------- -------
NET INCOME (LOSS).............................................. (10) 80
Dividends on preferred stock................................... - (12)
------- -------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK................... $ (10) $ 68
======= =======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
-6-
<PAGE>
- - Continued -
<TABLE>
<CAPTION>
Historical
------------------ Pro Forma
1994 1993 1993
-------- -------- ----------
<S> <C> <C> <C>
EARNINGS (LOSS) PER COMMON SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES................................................... $ (.05) .65 $ (.16)
==========
Extraordinary item - Loss on extinguishment of debt
(net of income taxes)........................................ (.02) -
Cumulative effect of a change in accounting for income taxes.. - .27
Cumulative effect of a change in accounting for assets held
for sale (net of income taxes)............................... - (.29)
------- -------
NET INCOME (LOSS)............................................. $ (.07) $ .63
======= =======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
-7-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 1994 AND SEPTEMBER 10, 1993
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................. $ (10) $ 80
Adjustments to reconcile to cash from operations:
Depreciation and amortization.............................. 121 200
Extraordinary loss on extinguishment of debt, net of taxes. 3 -
Cumulative effect of changes in accounting principles, net. - 2
Income taxes............................................... (10) 21
Changes in operating accounts.............................. 14 77
Other...................................................... 10 9
------ ------
Cash from operations........................................... 128 389
------ ------
INVESTING ACTIVITIES
Proceeds from sales of assets.................................. 450 44
Less noncash proceeds...................................... (79) (3)
------ ------
Cash received from sales of assets............................. 371 41
Acquisitions................................................... (277) (29)
Capital expenditures for renewals and replacements............. (52) (55)
Lodging construction funded by project financing............... (39) -
Other capital expenditures..................................... (48) (129)
Purchases of short-term marketable securities.................. (90) -
Sales of short-term marketable securities...................... 40 -
Note receivable collections.................................... 53 8
Advances to affiliates, net.................................... (5) (36)
Other.......................................................... 41 (46)
------ ------
Cash used in investing activities.............................. (6) (246)
------ ------
FINANCING ACTIVITIES
Issuances of debt.............................................. 34 151
Issuances of common stock...................................... 237 10
Scheduled principal repayments................................. (68) (273)
Debt prepayments............................................... (193) -
Dividends paid................................................. - (34)
------ ------
Cash from (used in) financing activities....................... 10 (146)
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... $ 132 $ (3)
====== ======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
-8-
<PAGE>
HOST MARRIOT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of Host Marriott
Corporation and subsidiaries (the "Company", formerly Marriott Corporation)
have been prepared by the Company 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 December 31, 1993.
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 financial
position of Host Marriott Corporation and subsidiaries as of September 9,
1994 and December 31, 1993, the results of operations for the twelve and
thirty-six weeks ended September 9, 1994 and September 10, 1993, and cash
flows for the thirty-six weeks ended September 9, 1994 and September 10,
1993. Interim results are not necessarily indicative of fiscal year
performance because of the impact of seasonal and short-term variations.
2. On October 8, 1993 (the "Distribution Date"), Marriott Corporation
distributed, through a special tax-free dividend (the "Distribution"), to
holders of Marriott Corporation's common stock (on a share-for-share basis),
approximately 116.4 million outstanding shares of common stock of an existing
wholly-owned subsidiary, Marriott International, resulting in the division of
Marriott Corporation's operations into two separate companies. The
distributed operations included the former Marriott Corporation's lodging
management, franchising and resort timesharing operations, senior living
service operations, and the institutional food service and facilities
management business. Effective at the Distribution Date, Marriott Corporation
changed its name to Host Marriott Corporation.
In connection with the Distribution, the Company completed an Exchange Offer
("Exchange Offer") pursuant to which holders of senior notes and debentures
in an aggregate principal amount of approximately $1.2 billion ("Old Notes")
exchanged such Old Notes for a combination of (i) cash, (ii) common stock and
(iii) New Notes ("New Notes") issued by an indirect wholly-owned subsidiary
of the Company, Host Marriott Hospitality, Inc. ("Hospitality"). The coupon
and maturity date for each series of New Notes is 100 basis points higher and
four years later, respectively, than the series of Old Notes for which it was
exchanged (except that the maturity of the New Notes issued in exchange for
the Series L Senior Notes due 2012 was shortened by five years). The Company
redeemed all of the old Series F Senior Notes that did not tender in the
Exchange Offer, and secured the old Series I Notes equally and ratably with
the New Notes issued in the Exchange Offer.
In connection with the Exchange Offer, the Company effected a Restructuring
(the "Restructuring"). As a result of the Restructuring, the Company's
primary asset is the capital stock of a wholly-owned subsidiary, HMH
Holdings, Inc. ("Holdings"). Holdings' primary asset is the capital stock of
Hospitality, and Holdings is the borrower under a Revolving Line of Credit
with Marriott International. In the Restructuring, most of the assets
relating to the Real Estate Group and the
-9-
<PAGE>
HOST MARRIOT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Operating Group were transferred to subsidiaries of Hospitality. Certain
assets relating to such businesses were retained directly by the Company and
certain of its other subsidiaries. In addition, HMC Ventures, Inc., an
unrestricted subsidiary, was capitalized during the first quarter of 1994
with approximately $50 million from recent asset dispositions.
3. The Distribution, Exchange Offer and Restructuring referred to in Note 2
substantially altered the structure of the Company. Historical operating
results for the twelve and thirty-six weeks ended September 10, 1993, as
presented in prior filings, have been reformatted to reflect the Company's
current business segments and operating environment. The Real Estate Group is
comprised of the hotel development and ownership businesses, partnership
investments and undeveloped land parcels. The Operating Group consists of the
food, beverage and merchandise operations at airports, on tollroads and at
tourist attractions, stadiums and arenas, as well as restaurant operations.
The 1993 pro forma statement of operations was prepared as if the
Distribution, Exchange Offer and Restructuring and the implementation of the
various related agreements entered into with Marriott International,
including the lodging management and senior living community leases, occurred
at the beginning of the period and include only the operations retained by
the Company. The other differences between the 1993 pro forma amounts and the
1993 historical operating results are:
. The 1993 historical condensed consolidated statements of operations
include the revenues, operating costs and expenses, corporate expenses,
interest expense and interest income relating to Marriott International in
the caption, "Profit from Operations Distributed to Marriott
International," while the 1993 pro forma amounts have such results
removed. Marriott International's results of operations for the twelve and
thirty-six weeks ended September 10, 1993 included in the accompanying
condensed consolidated financial statements consist of the following (in
millions):
<TABLE>
<CAPTION>
Twelve Thirty-six
Weeks Ended Weeks Ended
September 10, 1993 September 10, 1993
------------------- -------------------
<S> <C> <C>
Sales.............................. $ 1,532 $ 4,926
Operating costs and expenses....... (1,467) (4,696)
Corporate expenses................. (12) (39)
Net interest expense............... (5) (14)
------- -------
Income before income taxes......... $ 48 $ 177
======= =======
</TABLE>
. In the 1994 historical and 1993 pro forma condensed consolidated
statements of operations, revenues for the Real Estate Group represent
house profit from the Company's owned hotel properties, lease rentals for
the Company's owned senior living communities and gains/losses on property
transactions. House profit represents hotel operating results less
property-level expenses excluding depreciation, real and personal property
taxes, ground rent, insurance and management fees which are classified as
operating costs and expenses.
The 1993 historical condensed consolidated statements of operations report
the Real Estate Group revenues as gross sales of the Company's owned
hotels and senior living communities,
-10-
<PAGE>
HOST MARRIOT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
while the related property-level expenses are included in operating costs
and expenses. House profit generated by the Company's owned hotels for
1994 and 1993 (on a pro forma basis) consists of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
-------------------- -----------------------
Pro Forma Pro Forma
September 9, September 10, September 9, September 10,
1994 1993 1994 1993
------------- -------------- ------------- --------------
(in millions)
<S> <C> <C> <C> <C>
Revenues
Rooms.................... $ 152 $ 122 $ 447 $ 367
Food & Beverage.......... 50 32 157 108
Other.................... 9 9 33 27
--------- ---------- --------- ---------
Total Hotel Revenues.... 211 163 637 502
--------- ---------- --------- ---------
Department Costs
Rooms.................... 39 31 113 89
Food & Beverage.......... 38 24 121 84
Other.................... 6 6 18 16
--------- ---------- --------- ---------
Total Department Costs.. 83 61 252 189
--------- ---------- --------- ---------
Department Profit......... 128 102 385 313
Other Deductions.......... (53) (41) (160) (132)
--------- ---------- --------- ----------
House Profit........... $ 75 $ 61 $ 225 $ 181
========= ========== ========= ==========
</TABLE>
. The 1993 pro forma condensed consolidated statements of operations
reflect adjustments to interest expense for the impact of the Revolving
Line of Credit with Marriott International (commitment fees and interest),
the effects of the Exchange Offer, debt assumed by Marriott International
and the income tax impact of the pro forma adjustments.
. In connection with the Exchange Offer, the Company issued 1.8 million
common shares to former holders of certain senior notes and debentures and
issued 10.6 million common shares to former holders of the Company's
preferred stock, upon such holders' conversion. The pro forma 1993
earnings (loss) per share before cumulative effect of changes in
accounting principles gives effect to these transactions as if they had
occurred as of the first day of the fiscal year 1993. The related
weighted average shares outstanding were 122.6 million and 114.7 million,
for the twelve and thirty-six week periods ended September 10, 1993,
respectively.
Additionally, the Company's assets are primarily related to its Real Estate
Group and, accordingly, the balance sheet has been presented in a non-
classified format.
4. Earnings (loss) per common share is computed on a fully diluted basis by
dividing net income (loss) available for common stock by the weighted average
number of outstanding common and common equivalent shares, plus other
potentially dilutive securities. Common equivalent shares and other
potentially dilutive securities have been excluded from the weighted average
aumber of outstanding shares for the thirty-six weeks ended September 9,
1994, as they are antidilutive. The weighted
-11-
<PAGE>
HOST MARRIOT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
average shares were 166.4 million and 110.1 million for the twelve weeks
ended September 9, 1994 and September 10, 1993, respectively, and 151.2
million and 109.8 million, respectively, for the thirty-six weeks then
ended.
5. The Company has minority interests in 28 affiliates, most of which own
hotels operated by Marriott International or its subsidiaries under long-
term agreements. The Company's equity in net gains (losses) of affiliates of
$1 million and $(10) million for the twelve weeks ended September 9, 1994
and September 10, 1993, respectively, and $2 million and $(21) million for
the thirty-six weeks then ended, respectively, is included in other
operating expenses for the Real Estate Group.
Combined summarized operating results reported by affiliates follow:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
---------------------------- ----------------------------
September 9, September 10, September 9, September 10,
1994 1993 1994 1993
------------ ------------- ------------ -------------
(in millions)
<S> <C> <C> <C> <C>
Revenues.................................................. $ 147 $ 184 $ 487 $ 591
Operating expenses:
Cash charges (including interest)........................ (106) (153) (341) (461)
Depreciation and other noncash charges................... (69) (73) (208) (231)
-------- -------- --------- ---------
Loss before extraordinary item......................... (28) (42) (62) (101)
Extraordinary item..................................... 16 - 115 -
-------- -------- --------- ---------
Net income (loss)................................. $ (12) $ (42) $ 53 $ (101)
======== ======== ========= =========
</TABLE>
6. On January 20, 1994, the Company completed the issuance of 20.1 million
shares of common stock for net proceeds of $231 million. HMC Acquisitions,
Inc. ("HMC Acquisitions"), a newly-formed, wholly-owned subsidiary, was
capitalized with $210 million of the proceeds from the common stock offering.
The amount used to capitalize HMC Acquisitions and any earnings therefrom
will be available for investment on an unrestricted basis under the terms of
the Revolving Line of Credit with Marriott International. HMC Acquisitions
is a guarantor under the Revolving Line of Credit.
7. During the twelve weeks ended March 25, 1994, the Company foreclosed on a 29%
interest and completed the transfer of an additional 7% interest in the Times
Square Hotel Company ("TSHCO"), the owner of the New York Marriott Marquis,
to the Company. The Company currently holds an 86% interest in TSHCO, which
is consolidated in the Company's financial statements.
In August 1994, the TSHCO first mortgage loan was extended for five years
from its original maturity of December 1993. In connection with the
extension, a $10 million principal payment was made on the loan. The current
principal balance of the loan of $336 million has minimum maturities of: $5
million in each of 1994 through 1997, and $316 million in 1998.
Interest on $165 million of the loan is fixed at 8.4% and interest on the
remaining portion of the loan is based on LIBOR plus 150 basis points. All
cash flow in excess of annual minimum
-12-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
principal amortization will be applied as additional amortization until the
principal amount of the loan is paid down to $300 million. Once the
principal amount of the loan is paid down to $300 million, 75% of future
cash flow in excess of annual minimum amortization requirements ranging up
to $9 million per year will be applied to further principal amortization and
the remaining 25% will be available for other obligations of TSHCO. The
Company provided a $10 million guarantee of principal and interest on the
loan.
8. During the first quarter of 1994, the Company signed an agreement to sell
its 14 senior living communities to an unrelated party for $320 million,
which approximated the communities' carrying value. The sale of nine of the
communities was completed in the second quarter and the sale of the five
remaining communities was completed in the third quarter of 1994.
9. In the third quarter of 1994, the Company sold 26 of its Fairfield Inn by
Marriott hotels to an unrelated third party. The net proceeds from the sale
of such hotels were approximately $114 million, which exceeded the carrying
value of the hotels by approximately $12 million. Approximately $27 million
of the proceeds are payable in the form of a note from the purchaser. The
gain on the sale of these hotels has been deferred.
10. Under the terms of the New Note Indenture, Hospitality is obligated to use
50% of the net proceeds of the asset sales to prepay New Notes on a pro-rata
basis and must offer to utilize an additional 25% of the net proceeds to
make additional New Note prepayments on a pro-rata basis. Based on
qualifying proceeds from asset sales of approximately $183 million through
June 17, 1994, Hospitality redeemed approximately $137 million of New Notes
in the third quarter of 1994. Based on qualifying proceeds from asset sales
of approximately $211 million received in the third quarter of 1994,
Hospitality initiated the process of redemption of $106 million of New Notes
and has initiated an offer to repurchase up to an additional $53 million of
New Notes during the fourth quarter of 1994. In connection with the 1994
third quarter redemption, the Company recognized an extraordinary loss of $3
million, net of taxes of $1 million.
11. Through the third quarter of 1994, the Company has acquired six full-service
hotels totaling approximately 2,850 rooms in separate transactions for
approximately $236 million. The Company also provided 100% financing
totaling approximately $35 million to an affiliated partnership, in which
the Company owns the sole general partner interest, for the acquisition of
two full-service hotels (totaling another 685 rooms). Subsequent to
September 9, 1994, the Company acquired a controlling interest in a 665-
room, full-service hotel through an investment of $52 million. The Company
accounts for these properties as owned hotels.
12. Subsequent to September 9, 1994, the Company's S-1 Registration Statement to
register warrants to purchase up to 7.7 million shares of the Company's
common stock was declared effective by the Securities and Exchange
Commission. The Company anticipates issuing the warrants early in the fourth
quarter of 1994.
-13-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
As described in Notes 2 and 3, the Company's assets, liabilities and business
operations changed substantially when the Company completed the Distribution,
Exchange Offer and Restructuring. The management's discussion and analysis of
financial condition presented herein compares the 1994 historical results with
pro forma 1993 results. Management believes that due to the substantial
differences in comparability between the Company's 1994 and 1993 historical
results, the use of pro forma results for 1993 provides a more meaningful basis
for comparison because the pro forma results assume that the aforementioned
transactions occurred at the beginning of 1993 and include only the operations
retained by the Company.
The Company reported revenues of $387 million for the 1994 third quarter, a $22
million or 6% improvement over pro forma 1993 results. Year-to-date revenues
rose $85 million, or 9%, over the prior year to $1,047 million. Operating
profit increased $8 million, or 15%, to $61 million in the 1994 third quarter.
The Real Estate Group posted a significant increase in operating profit for the
quarter -- up $11 million over pro forma 1993 results to $32 million. This
increase was partially offset by a $3 million decrease in operating profit for
the Operating Group. Year-to-date operating profit rose $26 million, or 23%, to
$138 million, due to the strong performance of the Real Estate Group.
The REAL ESTATE GROUP posted an 18% increase in revenues in the 1994 third
quarter to $80 million and a 21% increase year-to-date to $244 million.
Operating profit increased 52% in the quarter and 56% year-to-date over 1993 pro
forma results. The revenue and operating profit increases are primarily due to
improved lodging results and the addition of eight full-service hotel properties
during 1994, coupled with a reduction in equity losses on the Company's
partnership investments, mainly due to the consolidation of the partnership
owning the New York Marriott Marquis Hotel (TSHCO) on December 31, 1993.
Hotel revenues for the Real Estate Group increased $14 million to $75 million in
the 1994 third quarter and $44 million to $225 million year-to-date over pro
forma 1993 amounts, as all four of the Company's lodging concepts reported
growth in room revenues generated per available room ("REVPAR") for comparable
units for the quarter and year-to-date. In addition to the 1994 hotel
acquisitions and the TSHCO consolidation, other non-comparable hotel
transactions include the 1994 sale of 26 Fairfield Inns and the 1993 sale of 11
Residence Inns. Excluding the impact of these non-comparable items, hotel
revenues increased $5 million (9%) for the quarter and $15 million (10%) year-
to-date. Operating profit increased $3 million (14%) for the quarter and $9
million (14%) year-to-date over pro forma 1993 levels on a comparable basis.
Overall third quarter and year-to-date revenue and operating profit for all
Marriott Hotels, Resorts and Suites, the Company's full-service lodging concept,
were improved or comparable to 1993 results with the exception of the Miami
Airport property which achieved very high occupancy levels in early 1993
resulting from Hurricane Andrew in 1992. Improved results were driven by strong
improvements in REVPAR. The Company's full-service hotels posted a 9% increase
in REVPAR for comparable units for the quarter and 6% year-to-date. Average
occupancy climbed two percentage points for comparable units for the quarter and
year-to-date, while average room rates increased 6% for the quarter and 3% year-
to-date.
-14-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's moderate-priced lodging concept, Courtyard, reported significant
increases in operating profit in 1994 primarily due to REVPAR increases.
Courtyard's REVPAR increased 10% for the quarter and 8% year-to-date fueled by
an 8% increase in average room rates for the quarter and 6% year-to-date and a
one percentage point increase in average occupancy for the quarter and year-to-
date.
Residence Inn, the Company's extended-stay lodging concept, also reported
significant increases in operating profit in 1994 due to REVPAR increases.
Residence Inn's REVPAR increased 7% for the quarter and year-to-date for
comparable units due primarily to an increase in average room rate of 6% for the
quarter and year-to-date, combined with a slight increase in average occupancy
for the quarter and a one percentage point increase year-to-date.
On August 5, 1994, the Company sold 26 of its Fairfield Inns to an unrelated
party for net proceeds of $114 million. Year-to-date revenues and operating
profit for the four remaining Fairfield Inns were comparable to 1993 pro forma
amounts.
Senior living communities' revenues consist of rentals earned under the lease
agreements with Marriott International. During the first quarter of 1994, the
Company executed an agreement to sell all of its senior living communities to an
unrelated party for $320 million, which approximated the communities' carrying
value. The sale of nine of the communities was completed during the second
quarter and the sale of the five remaining communities was completed in the
third quarter of 1994. Prior to their sales, year-to-date revenues and
operating profit for senior living communities were comparable to the previous
year.
The OPERATING GROUP generated a $10 million, or 3%, revenue increase in the 1994
third quarter to $307 million and a 6% increase of $42 million to $803 million
year-to-date. Airport concessions have driven the strong performance reflecting
a 6% enplanement growth during the summer and benefiting from flight delays
earlier in the year during the severe winter. Airport revenues increased $18
million, or 10%, to $191 million in the third quarter, and were up $37 million,
or 8%, to $516 million year-to-date. Travel Plazas' units posted modest
increases in sales over last year's performance. These increases are primarily
attributed to the completion of the remaining New York Thruway plazas and
increased attendance at the Dallas Reunion Arena. Higher Operating Group
revenues in the third quarter and year-to-date have been offset by increased
contractual rents and employee compensation costs.
During the second quarter of 1994, due to favorable claims experience for the
general liability and workers' compensation self-insurance programs, the Company
reduced its related actuarially estimated reserves by $8 million, which is
reflected as a reduction in the Operating Group's operating costs and expenses.
In June 1994, the Company transferred its rights under an unprofitable
concessions contract to a third party. In connection with the decision to
discontinue servicing the contract, the Company wrote off related assets of
approximately $8 million in the second quarter and established a reserve of
approximately $4 million for amounts which are to be paid to the third party
transferee over the next six years. Management believes the transfer of this
contract will have a positive impact on future earnings and cash flow.
-15-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION
Interest expense increased by 9% to $47 million in the 1994 third quarter and 8%
to $142 million year-to-date mainly as a result of additional expense associated
with the consolidation of TSHCO debt.
During the 1994 third quarter, the Company redeemed approximately $137 million
of New Notes at their face value. In connection with the redemption, the
Company recognized an extraordinary loss of $3 million, net of taxes of $1
million, representing the excess of the redemption price over their net carrying
value.
CASH FLOWS AND FINANCIAL CONDITION
- ----------------------------------
The Company reported an increase in cash and cash equivalents and marketable
securities of $182 million during 1994. This increase is primarily due to
proceeds from the sale of common stock and certain assets and cash from
operations, offset by the use of funds to acquire full-service properties, make
required bond redemptions, repay other debt, and fund capital expenditures.
Cash used in investing activities of $6 million in 1994 includes approximately
$371 million in sales proceeds, principally from the sale of the Company's
senior living communities and 26 Fairfield Inns, and paydowns of notes
receivable of $53 million. These sources of cash from investing activities are
offset by capital expenditures of $139 million, primarily related to the
construction of two full-service properties, one Residence Inn, and renewals and
replacements on existing properties, and $277 million for the acquisition of
full-service properties. Cash from investing activities was also decreased by
the net investment of $50 million in marketable securities.
Cash from financing activities of $10 million in 1994 includes $231 million from
the January 1994 common stock offering, $34 million of mortgage financing for
the construction of the Philadelphia Convention Center Hotel, offset by the
redemption of $137 million of New Notes from asset sales proceeds as required
under the New Note Indenture, a $30 million paydown on the $630 million
Revolving Line of Credit from Marriott International, $15 million of open market
repurchases of New Notes, the repurchase of approximately $7.5 million of Old
Notes in settlement of litigation, and other debt repayments of $71 million. At
September 9, 1994, $163 million was outstanding under the Revolving Line of
Credit.
The Company has used most of the net proceeds of its January 1994 common stock
offering for acquisitions of full-service lodging properties. The Company is
actively engaged in purchase negotiations with a number of owners of individual
hotel properties and lodging chains. Through the third quarter of 1994, the
Company has acquired six full-service properties totalling approximately 2,850
rooms in separate transactions for approximately $236 million. The Company also
provided 100% financing totaling approximately $35 million to an affiliated
partnership, in which the Company owns the sole general partner interest, for
the acquisition of two full-service hotels (685 rooms). Subsequent to September
9, 1994, the Company acquired a controlling interest in a 665-room, full-service
hotel through an investment of $52 million. The Company accounts for these
properties as owned hotels. These acquired properties are managed by Marriott
International, Inc., using the Marriott brand name under management agreements
that were in place with the previous owners or negotiated
-16-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
in connection with the acquisitions. The terms of the contracts vary, but are
generally similar to the terms for hotels owned prior to the Distribution. The
Company may seek additional financing in connection with such acquisitions,
including debt secured by properties acquired. Management believes it will have
adequate sources of funding to permit it to pursue its acquisition strategy.
The Company owns a portfolio of real estate which can be sold or used to secure
new financings. Property and equipment totalled $2.9 billion at September 9,
1994 ($1.8 billion of which had not been pledged or mortgaged). The Company may
secure long-term financing and (subject, among other things, to compliance with
its existing debt agreements, including requirements to use the proceeds of
certain refinancings to repay indebtedness) may use unencumbered assets as
security for future financings, if such financings are determined to be
advantageous.
Such financings could take the form of traditional secured real estate
financings or could be effected through vehicles such as formation of a real
estate investment trust (REIT) or collateralized mortgage financings. In
addition, the Company may, from time to time, consider opportunities to sell
certain of its real estate properties if price targets can be achieved. All of
the Fairfield Inns and the senior living communities sold were owned by
subsidiaries of Hospitality, the issuer of the New Notes. Under the terms of
the New Note Indenture, Hospitality is obligated to use 50% of the net proceeds
of these asset sales to prepay New Notes on a pro-rata basis and must offer to
utilize an additional 25% of the net proceeds to make additional New Note
prepayments on a pro-rata basis. Based on proceeds from asset sales of
approximately $183 million through June 17, 1994, Hospitality redeemed
approximately $137 million of New Notes in the third quarter of 1994. Based on
proceeds from assets sales of approximately $211 million received in the third
quarter of 1994, Hospitality initiated the process for redemption of $106
million of New Notes and has initiated an offer to repurchase up to an
additional $53 million of New Notes during the fourth quarter of 1994.
Hospitality may also, from time to time, make open market purchases of its debt
securities. Through the third quarter of 1994, Hospitality purchased
approximately $15 million of its bonds with excess cash from operations.
In August 1994, the TSHCO first mortgage was extended for five years from its
original maturity of December 1993. Under the terms of the mortgage, annual
minimum principal amortization of $5 million is required. In addition, a
portion of the cash flow in excess of these annual minimum principal reductions
will be required, subject to limitations, to reduce the mortgage obligation.
-17-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Between October 9, 1992 and approximately January 4, 1993, following the
announcement of the Distribution, ten plaintiffs who were all holders, or former
holders, of Old Notes (the "Class Action Plaintiffs") filed lawsuits against the
Company purportedly brought on behalf of classes of holders and purchasers of
Old Notes (the "Class Action Lawsuits"). The Class Action Lawsuits were
consolidated under the caption United Apple Sales Incorporated Profit Sharing
----------------------------------------------
Trust u/a DTD 8/1/71, et al. vs. Marriott Corporation et al. in the United
- ------------------------------------------------------------
States District Court for the District of Maryland. The Class Action Lawsuit
asserted various claims related to the Distribution and related disclosures.
On October 29, 1992, a second group of plaintiffs (the "PPM Group") purporting
to hold approximately $120 million of principal amount of Old Notes filed
lawsuits against the Company (the "PPM Lawsuit") in the United States District
Court for the District of Maryland. The PPM Lawsuit is limited to claims that
the sale by the Company of certain series of its Old Notes was fraudulent and
violated federal securities laws and similar state laws. The PPM Group alleges
that it has incurred damages of approximately $18 million.
On or about March 25, 1993, the State Board of Administration of Florida (the
"Florida Plaintiff"), holding approximately $7.5 million of principal amount of
Old Notes, filed an additional lawsuit asserting claims relating to the
Distribution (the "Florida Lawsuit"), purportedly on behalf of certain classes
of holders of Old Notes. The Florida Lawsuit was settled on April 28, 1994.
Under the terms of this settlement, the Company agreed to repurchase the Old
Notes held by the Florida Plaintiff for their par value.
The Company reached an agreement to settle the Class Action Lawsuits (the "Class
Action Settlement"), which settlement was approved by the court on September 10,
1993. The Class Action Settlement disposes of all legal claims challenging the
Distribution, other than disclosure claims by certain holders and former holders
of Old Notes (principally members of the PPM Group) who have "opted out" of the
Class Action Settlement. As part of the Class Action Settlement, the Company
effected the Exchange Offer, paid certain legal fees and expenses of the Class
Action Plaintiffs and agreed to issue warrants to purchase up to 7.7 million
shares of the Company's common stock. The Company recently filed an S-1
Registration Statement for the warrants, and the warrants will be issued by the
Company in the near future.
The PPM Group continues to litigate its claims. On December 17, 1993, the
Company filed a motion for summary judgment asking the court to enter judgment
in favor of the defendants in the PPM Lawsuit. The PPM Group also filed a
motion for summary judgment with respect to the Company's counterclaim that some
of the PPM Group plaintiffs tortiously interfered with the Company's contractual
relationship with some of its financial advisors. On May 23, 1994, the Court
issued an order granting in part and denying in part the Company's motion for
summary judgment on the remaining claims of the PPM Group. Specifically, the
Court dismissed claims brought by 13 of the 16 plaintiffs comprising the PPM
Group for alleged violations of Sections 11 and 12(2) of the Securities Act.
The Court denied the Company's motion for summary judgment on the PPM Group's
claims for violation of Section 10(b) of the Securities and Exchange Act of 1934
and for common law fraud, as well as the Sections 11 and 12(2) claims brought by
three of the plaintiffs in the PPM Group. In addition, the Court granted
plaintiff's motion for summary judgment dismissing the Company's counterclaim.
-18-
<PAGE>
The Company has reached a settlement of all claims with five of the sixteen
plaintiffs comprising the PPM Group whereby the Company agreed to make a payment
primarily representing certain legal expenses incurred by these plaintiffs.
Under the terms of the settlement, these plaintiffs may, in certain
circumstances, receive additional amounts based on a percentage of any judgment
against, or settlement with, the Company obtained by the remaining eleven
plaintiffs comprising the PPM Group. Trial for the PPM Group litigation
commenced on September 26, 1994. During the trial, the claims brought by three
of the sixteen plaintiffs alleging violation of Section 11 of the Securities
Act, which were not dismissed pursuant to the Court's order dated May 23, 1994,
were voluntarily dismissed by the plaintiffs. Additionally, the Court has
directed a verdict in favor of the Company on claims brought by all plaintiffs
alleging common law fraud (under which such plaintiffs had requested punitive
damages). The trial ended on October 19, 1994, with the jury hopelessly
deadlocked and the judge declaring a mistrial.
The Company believes that the remaining claims of the PPM Group are without
merit and that the litigation will not have a material effect on the financial
condition or results of operations of the Company. Nevertheless, there can be
no certainty as to the ultimate outcome of such litigation.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit:
#11 Statement Re: Computation of Earnings (Loss) Per Common Share
b. Reports on Form 8-K:
None
-19-
<PAGE>
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 CORPORATION
October 24, 1994 /s/ Jeffrey P. Mayer
- ---------------- ______________________________
Date Jeffrey P. Mayer
Senior Vice President, Finance
and Corporate Controller
(Chief Accounting Officer)
-20-
