<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 8, 1995 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 6, 1995
- ------------------- ------------------
Common Stock, $1.00
par value per share 159,288,000
-----------
================================================================================
<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 8, 1995 and December 30, 1994
Condensed Consolidated Statements of Operations - 4 - 5
Twelve Weeks and Thirty-six Weeks Ended
September 8, 1995 and September 9, 1994
Condensed Consolidated Statements of Cash Flows - 6
Thirty-six Weeks Ended September 8, 1995 and
September 9, 1994
Notes to Condensed Consolidated Financial 7 - 11
Statements
Management's Discussion and Analysis of Results of 12 - 16
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 17 - 23
</TABLE>
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
September 8, December 30,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
------
Property and Equipment....................................... $ 2,700 $ 2,837
Investments in Affiliates.................................... 209 202
Accounts Receivable.......................................... 74 80
Notes Receivable............................................. 40 49
Other Assets................................................. 167 131
Cash and Cash Equivalents.................................... 211 67
------- -------
$ 3,401 $ 3,366
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Debt carrying a company guarantee of repayment.............. $ 1,067 $ 1,111
Debt not carrying a company guarantee of repayment.......... 858 760
------- -------
1,925 1,871
Accounts Payable and Accrued Expenses........................ 54 69
Net Investment in Discontinued Operations.................... 81 41
Deferred Income Taxes........................................ 528 537
Other Liabilities............................................ 143 138
------- -------
Total Liabilities......................................... 2,731 2,656
------- -------
Shareholders' Equity
Convertible Preferred Stock................................. 1 13
Common Stock, 300 million shares authorized; 159.0 million
shares and 153.6 million shares issued, respectively....... 159 154
Additional Paid-in Capital.................................. 495 479
Retained Earnings........................................... 15 64
------- -------
Total Shareholders' Equity................................ 670 710
------- -------
$ 3,401 $ 3,366
======= =======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 3 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE WEEKS ENDED SEPTEMBER 8, 1995 AND SEPTEMBER 9, 1994
(UNAUDITED, IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
REVENUES
Hotels ................................................................ $ 103 $ 74
Senior living communities (received from Marriott International)....... -- 3
Net gains on property transactions .................................... 4 2
Equity in earnings of affiliates ...................................... -- 1
Other ................................................................. 3 3
------ ------
Total revenues........................................................ 110 83
------ ------
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$14 million and $9 million in 1995 and 1994, respectively)............ 65 46
Senior living communities.............................................. -- 1
Other.................................................................. 7 5
------ ------
Total operating costs and expenses.................................... 72 52
------ ------
Operating profit before corporate expenses and interest.................. 38 31
Corporate expenses....................................................... (8) (6)
Interest expense......................................................... (39) (38)
Interest income.......................................................... 5 8
------ ------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES..................................................... (4) (5)
Benefit (provision) for income taxes..................................... -- 2
------ ------
LOSS FROM CONTINUING OPERATIONS.......................................... (4) (3)
DISCONTINUED OPERATIONS
Income from discontinued operations
(net of income taxes of $5 million in each of 1995 and 1994).......... 10 14
Provision for loss on disposal (net of income tax benefit of $2 million) (11) --
------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................................. (5) 11
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $1 million)..................................... -- (3)
------ ------
NET INCOME (LOSS)........................................................ $ (5) $ 8
====== ======
INCOME (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS.................................................... $ (.02) $ (.02)
Discontinued operations (net of income taxes)............................ (.01) .09
Extraordinary item - loss on extinguishment of debt
(net of income taxes)................................................... -- (.02)
------ ------
NET INCOME (LOSS)........................................................ $ (.03) $ .05
====== ======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 4 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 1995 AND SEPTEMBER 9, 1994
(UNAUDITED, IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
REVENUES
Hotels.................................................................... $ 315 $ 223
Senior living communities (received from Marriott International) ......... -- 14
Net gains (losses) on property transactions (5) 5
Equity in earnings (losses) of affiliates................................. (1) 2
Other 10 17
------ ------
Total revenues 319 261
------ ------
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$43 million and $27 million in 1995 and 1994, respectively) 182 131
Senior living communities -- 5
Other 19 17
------ ------
Total operating costs and expenses 201 153
------ ------
Operating profit before corporate expenses and interest..................... 118 108
Corporate expenses.......................................................... (26) (21)
Interest expense............................................................ (122) (114)
Interest income............................................................. 18 19
------ ------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................................................ (12) (8)
Benefit (provision) for income taxes........................................ (1) 1
------ ------
LOSS FROM CONTINUING OPERATIONS............................................. (13) (7)
DISCONTINUED OPERATIONS
Loss from discontinued operations (net of income tax benefit
of $3 million in 1995 and $2 million in 1994).............................. (8) --
Provision for loss on disposal (net of income tax benefit of $2 million)... (11) --
------ ------
LOSS BEFORE EXTRAORDINARY ITEM.............................................. (32) (7)
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $9 million and $1 million, respectively)........... (17) (3)
------ ------
NET LOSS.................................................................... $ (49) $ (10)
====== ======
LOSS PER COMMON SHARE:
CONTINUING OPERATIONS....................................................... $ (.08) $ (.05)
Discontinued operations (net of income taxes)............................... (.12) --
Extraordinary item - loss on extinguishment of debt
(net of income taxes)...................................................... (.11) (.02)
------ ------
NET LOSS.................................................................... $ (.31) $ (.07)
====== ======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 5 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 1995 AND SEPTEMBER 9, 1994
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................... $ (49) $ (10)
Adjustments to reconcile to cash from operations:
Extraordinary loss on extinguishment of debt, net of taxes.. 27 3
Depreciation and amortization............................... 125 121
Income taxes................................................ (2) (10)
Limited-service valuation adjustment........................ 10 --
Discontinued operations reserve............................. 19 --
Changes in operating accounts............................... 6 14
Other....................................................... 19 10
-------- --------
Cash from operations.......................................... 155 128
-------- --------
INVESTING ACTIVITIES
Proceeds from sales of assets................................. 343 450
Less noncash proceeds....................................... (33) (79)
-------- --------
Cash received from sales of assets............................ 310 371
Acquisitions.................................................. (150) (277)
Acquisition funds held in escrow.............................. -- 40
Capital expenditures:
Capital expenditures for renewals and replacements.......... (51) (52)
Lodging construction funded by project financing............ (34) (39)
Other capital expenditures.................................. (62) (48)
Note receivable collections................................... 42 53
Purchases of short-term marketable securities................. -- (90)
Sales of short-term marketable securities..................... -- 40
Advances to affiliates, net................................... (11) (5)
Other......................................................... 20 1
-------- --------
Cash from (used in) investing activities...................... 64 (6)
-------- --------
FINANCING ACTIVITIES
Issuances of debt............................................. 1,156 34
Issuances of common stock..................................... 9 237
Scheduled principal repayments................................ (96) (68)
Debt prepayments.............................................. (1,131) (193)
-------- --------
Cash from (used in) financing activities...................... (62) 10
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS......................... $ 157 $ 132
======== ========
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 6 -
<PAGE>
HOST MARRIOTT 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") 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 30, 1994.
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 8,
1995 and December 30, 1994, the results of operations for the twelve and
thirty-six weeks ended September 8, 1995 and September 9, 1994, and cash
flows for the thirty-six weeks ended September 8, 1995 and September 9,
1994. Interim results are not necessarily indicative of fiscal year
performance because of the impact of seasonal and short-term variations.
2. On August 9, 1995 (the "Announcement Date"), the Company announced that it
intends to distribute to its shareholders through a special dividend (the
"Special Dividend") its operating group which comprises its food, beverage
and merchandise concessions business at airports, on tollroads and at
stadiums, arenas and other attractions (the "Operating Group"). Prior to the
Special Dividend, the Operating Group business will be contributed to Host
Marriott Services Corporation ("HM Services"), a newly-formed, wholly-owned
subsidiary of the Company. The Special Dividend will provide the Company's
shareholders with one share of common stock of HM Services for every five
shares of the Company's common stock held on the record date. The
distribution is conditioned upon declaration of the Special Dividend by the
Company's Board of Directors and the receipt of an affirmative ruling from
the Internal Revenue Service that the Special Dividend will be tax-free to
shareholders. Once the foregoing conditions are met, the Special Dividend is
expected to be distributed by the end of 1995.
The condensed consolidated financial statements have been restated to
reflect the results of the Operating Group as discontinued operations. The
income (loss) from discontinued operations for 1995 includes the loss from
December 31, 1994 through the Announcement Date. The provision for loss on
disposal includes estimated future losses from discontinued operations of $4
million before taxes from the Announcement Date through the anticipated
Special Dividend date of December 29, 1995 and estimated expenses related to
the Special Dividend of $9 million before taxes. The net investment in
discontinued operations on the accompanying condensed consolidated balance
sheets represent the net assets of the Operating Group. As of September 8,
1995, total assets and liabilities of the discontinued operations were $549
million (including $41 million of cash and cash equivalents) and $630
million (including $409 million of debt obligations), respectively.
- 7 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The detail of the results of operations for the Company's discontinued
operations are as follows for the twelve weeks and thirty-six weeks ended
September 8, 1995 and September 9, 1994:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
---------------------------- ---------------------------
September 8, September 9, September 8, September 9,
1995 1994 1995 1994
----------- ----------- ----------- -----------
(in millions)
<S> <C> <C> <C> <C>
Revenues
Airports............................................. $ 199 $ 190 $ 540 $ 515
Travel Plazas........................................ 99 97 223 218
Other................................................ 12 16 36 55
------- ------- ------- -------
310 303 799 788
------- ------- ------- -------
Operating costs and expenses
Airports............................................. 176 169 492 469
Travel Plazas........................................ 83 81 206 201
Other................................................ 11 13 34 60
General and administrative........................... 10 12 30 32
------- ------- ------- -------
280 275 762 762
------- ------- ------- -------
Operating profit...................................... 30 28 37 26
Interest expense...................................... (9) (9) (28) (28)
Interest income....................................... 1 -- 1 --
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item............................... 22 19 10 (2)
(Provision) benefit for income taxes.................. (8) (5) (5) 2
------- ------- ------- -------
Income (loss) before extraordinary item............... 14 14 5 --
Extraordinary item -- loss on extinguishment of debt
(net of taxes of $5 million)......................... -- -- (10) --
------- ------- ------- -------
Net income (loss)..................................... $ 14 $ 14 $ (5) $ --
======= ======= ======= =======
</TABLE>
3. Revenues primarily represent house profit from the Company's hotel
properties, lease rentals for the Company's senior living communities (for
1994), gains/losses on property transactions, and equity in earnings of
affiliates. House profit reflects the net revenues flowing to the Company as
property owner and 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.
- 8 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
House profit generated by the Company's hotels for 1995 and 1994 consists
of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
------------------------- -------------------------
September 8, September 9, September 8, September 9,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales
Rooms........................................ $ 208 $ 151 $ 609 $ 444
Food & Beverage.............................. 73 50 232 157
Other........................................ 19 9 53 33
------ ------ ------ ------
Total Hotel Sales........................... 300 210 894 634
------ ------ ------ ------
Department Costs
Rooms........................................ 53 39 151 112
Food & Beverage.............................. 57 38 180 121
Other........................................ 13 6 31 18
------ ------ ------ ------
Total Department Costs...................... 123 83 362 251
------ ------ ------ ------
Department Profit............................. 177 127 532 383
Other Deductions.............................. (74) (53) (217) (160)
------ ------ ------ ------
House Profit................................ $ 103 $ 74 $ 315 $ 223
====== ====== ====== ======
</TABLE>
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
number of outstanding shares for the twelve and thirty-six weeks ended
September 8, 1995 and the thirty-six weeks ended September 9, 1994, as they
are antidilutive. The weighted average shares were 158.8 million and 166.4
million for the twelve weeks ended September 8, 1995 and September 9, 1994,
respectively, and 157.9 million and 151.2 million for the thirty-six weeks
then ended, respectively.
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 income (losses) of affiliates
was income of $1 million for the twelve weeks ended September 9, 1994, and a
loss of $1 million and income of $2 million, respectively, for the thirty-
six weeks ended September 8, 1995 and September 9, 1994, and is included in
equity in earnings of affiliates. For the twelve weeks ended September 8,
1995, the Company's equity in net income of affiliates was not significant.
Combined summarized operating results reported by affiliates follow:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
------------------------- -------------------------
September 8, September 9, September 8, September 9,
1995 1994 1995 1994
----------- ----------- ----------- -----------
(in millions)
<S> <C> <C> <C> <C>
Revenues....................................... $ 191 $ 147 $ 566 $ 487
Operating expenses:
Cash charges (including interest)........... (113) (106) (353) (341)
Depreciation and other noncash charges...... (54) (69) (180) (208)
------- ------- ------- -------
Income (loss) before extraordinary item... 24 (28) 33 (62)
------- ------- ------- -------
Extraordinary item - forgiveness of debt.. 146 16 146 115
------- ------- ------- -------
Net income (loss)......................... $ 170 $ (12) $ 179 $ 53
======= ======= ======= =======
</TABLE>
- 9 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. During the first quarter of 1995, 21 of the Company's Courtyard properties
were sold to and leased back from a real estate investment trust (REIT) for
$179 million. During the third quarter of 1995, an additional 16 Courtyard
properties were sold to and leased back from the REIT for $150 million. The
Company received net proceeds from the two transactions of approximately
$297 million and will receive approximately $33 million upon expiration of
the leases. A deferred gain of $14 million on the sale/leaseback
transactions will be amortized over the initial term of the leases. The
leases, which are accounted for as operating leases, have an initial term
expiring at the end of fiscal year 2006 and are renewable at the option of
the Company. Minimum rent of approximately $8 million for the remainder of
1995 and $33 million annually thereafter (with future minimum obligations at
September 8, 1995 aggregating approximately $369 million over the initial
lease term) and additional rent based upon sales levels are payable to the
REIT under the terms of the lease. The REIT also has an option, expiring in
June 1996, to buy and lease back up to 17 of the Company's remaining
Courtyard properties.
7. In the second quarter of 1995, the Company made a determination that its
owned Courtyard and Residence Inn properties were held for sale. While
management expects to sell these properties as part of one or more
portfolios, the Company recorded a $10 million charge to write down the
carrying value of five individual Courtyard and Residence Inn properties to
their estimated net realizable values. These properties have a net book
value of $336 million at September 8, 1995.
8. In the first quarter of 1995, the Company acquired the 300-room Charlotte
Executive Park Marriott Hotel for $15 million, with a draw under the
Acquisitions Revolver. In the second quarter of 1995, the Company acquired
the 500-room San Antonio Marriott Riverwalk Hotel for $50 million, $19
million of which was financed through the assumption of an existing first
mortgage loan. In the third quarter of 1995, the Company acquired Marriott's
Grand Hotel in Point Clear, Alabama for $27 million ($24 million of which
was financed by a first mortgage loan provided by Marriott International),
the Dallas/Fort Worth Airport Marriott for $44 million (financed by a draw
on the Acquisitions Revolver), and the 252-room Plaza San Antonio Hotel for
$30 million (financed by available Company cash).
9. During the thirty-six weeks ended September 8, 1995, approximately 244,000
depository shares of convertible preferred stock were converted into
approximately 4.7 million shares of common stock. At September 8, 1995,
approximately 13,800 depository shares of convertible preferred stock were
outstanding, which are convertible into approximately 264,000 shares of
common stock.
10. The Company repaid the old Series I Notes (with a principal balance of $87
million) upon their maturity on May 24, 1995 with a draw on its line of
credit (the "Line of Credit") with Marriott International. Additionally, and
pursuant to the then-existing bond indenture, bonds issued by Host Marriott
Hospitality, Inc. ("Hospitality"), a wholly-owned, indirect subsidiary of
the Company, were required to be repaid to the extent of 50% to 75% of net
proceeds from certain asset sales (at par) and 100% of net refinancing
proceeds (generally at 103% of the principal amount). Based on net proceeds
from qualifying asset sales for the first quarter of 1995, the Company
redeemed $100 million of Hospitality bonds in the second quarter of 1995.
On May 25, 1995, two wholly-owned subsidiaries of Hospitality issued an
aggregate $1 billion of debt in two concurrent offerings to several initial
purchasers (the "Bond Offerings"). HMH Properties, Inc. ("Properties"), the
owner of 55 of the Company's 86 lodging properties, and Host Marriott Travel
Plazas, Inc. ("HMTP"), the operator/manager of the Company's food, beverage
and
- 10 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
merchandise concessions business, issued $600 million and $400 million,
respectively, of senior notes secured by the stock of certain of their
respective subsidiaries. The bonds were issued at par and carry a 9.5%
coupon rate with a final maturity of May 2005. The net proceeds to the
Company, after deducting commissions, totalled $974 million. The net
proceeds from the Bond Offerings were used to defease, and subsequently
redeem, all of Hospitality's remaining bonds and to repay borrowings under
the Line of Credit. In connection with the redemptions and defeasance, the
Company recognized an extraordinary loss in the second quarter of 1995 of
$41 million ($27 million after taxes), primarily representing premiums paid
on the redemptions and the write-off of deferred fees and discounts on the
Hospitality bonds.
11. During the third quarter of 1995, the Company replaced its Line of Credit
with a new $225 million revolving line of credit (the "New Line of Credit")
with Marriott International. The New Line of Credit bears interest at LIBOR
plus 3% (4% when the outstanding balance exceeds $112.5 million) and matures
in June 1998. An annual commitment fee of 5/8% is charged on the unused
portion of the New Line of Credit. There were no borrowings outstanding
under the New Line of Credit at September 8, 1995.
12. In the first quarter of 1995, the Company adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan." Adoption of SFAS No. 114 did not
have a material effect on the Company's consolidated financial statements.
The Company is also required to adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," no later than its fiscal year ending January 3, 1997. The Company
plans to adopt SFAS No. 121 during the fourth quarter of 1995. Management is
still developing its plan of adoption but believes that the Company will be
required to record an adjustment for impairment of certain of its leasehold
improvement assets in HM Services in the range of $40 million to $50 million
before taxes.
- 11 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 9, 1995, the Company announced that it intends to distribute to its
shareholders through a special dividend (the "Special Dividend") its operating
group which comprises its food, beverage and merchandise concessions business at
airports, on tollroads, at stadiums and arenas and other attractions (the
"Operating Group"). Prior to the Special Dividend, the Operating Group business
will be contributed to Host Marriott Services Corporation ("HM Services"), a
newly-formed, wholly-owned subsidiary of the Company. The Special Dividend will
provide the Company's shareholders with one share of common stock of HM Services
for every five shares of the Company's common stock held on the record date. The
distribution is conditioned upon declaration of the Special Dividend by the
Company's Board of Directors and the receipt of an affirmative ruling from the
Internal Revenue Service that the Special Dividend will be tax-free to
shareholders. Once the conditions are met, the Special Dividend is expected to
be distributed by the end of 1995. The Company will continue to conduct the real
estate business, which primarily consists of the ownership of 85 lodging
properties with over 28,000 rooms.
As a result of the proposed distribution, management believes that separate
discussions of the results of the Company's continuing operations and
discontinued operations for the twelve weeks and thirty-six weeks ended
September 8, 1995 would be relevant to the Company's shareholders. Accordingly,
management has provided such discussions of continuing operations and
discontinued operations below.
RESULTS OF CONTINUING OPERATIONS
- --------------------------------
The Company reported revenues from continuing operations of $110 million for the
1995 third quarter, a $27 million, or 33%, improvement over the third quarter of
1994. Year-to-date revenues rose $58 million, or 22%, to $319 million.
Operating profit from continuing operations increased $7 million, or 23%, to $38
million in the 1995 third quarter. Year-to-date operating profit rose $10
million, or 9%, to $118 million. The Company's revenue and operating profit
from continuing operations were impacted by:
. improved lodging results;
. the addition of 25 full-service hotel properties during 1994 and 1995;
. the 1995 sale and leaseback of 37 of the Company's Courtyard properties;
. a $10 million charge in the 1995 second quarter to write down the carrying
value of certain Courtyard and Residence Inn properties held for sale to
their net realizable value;
. the 1994 sale of the Company's senior living communities;
. the 1994 and 1995 sales of the Company's Fairfield Inns, and
. the 1994 reduction in general liability and workers' compensation self-
insurance program reserves related to the Company's continuing operations
of $4 million.
Hotel revenues increased $29 million, or 39%, to $103 million in the 1995 third
quarter and $92 million, or 41%, to $315 million for year-to-date 1995. Hotel
operating profit increased $10 million, or 36%, to $38 million in the 1995 third
quarter and $41 million, or 45%, to $133 million for year-to-date 1995, as all
three of the Company's lodging concepts reported growth in room revenues
generated per available
- 12 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
room ("REVPAR"). The hotels added by the Company in 1994 and 1995 provided $21
million and $73 million of revenue and $14 million and $40 million of operating
profit, respectively, in the third quarter of 1995 and year-to-date 1995.
Excluding the impact of the addition of full-service properties, the sales of
the Fairfield Inns, and the sale and leaseback of 37 Courtyards, comparable
hotel revenues increased $6 million (10%) and $20 million (12%) and comparable
operating profit increased $3 million (16%) and $15 million (25%) in the third
quarter and year-to-date, respectively, over 1994.
Overall third quarter and year-to-date revenue and operating profit for nearly
all of the Company's full-service Hotels, Resorts and Suites were improved or
comparable to third quarter 1994 results. Improved results were driven by
strong increases in REVPAR of 7% for comparable units for both the quarter and
year-to-date. On a comparable basis, average room rates increased 9% for both
periods, while average occupancy decreased one percentage point for the quarter
and two percentage points year-to-date. Several hotels, including the New York
Marriott Marquis, Fort Lauderdale Marina Marriott and the Miami Airport
Marriott, posted significant improvements in operating profit.
Courtyard, the Company's moderate-priced lodging concept, reported a 6% increase
in REVPAR for the quarter and 7% year-to-date, fueled by a 6% increase in
average room rates for the quarter and 7% year-to-date, while average occupancy
decreased slightly in both periods.
Residence Inn, the Company's extended-stay lodging concept, reported a 9%
increase in REVPAR for both the quarter and year-to-date due primarily to an
increase in average room rate of 7% for both the quarter and year-to-date
combined with a one percentage point increase in average occupancy for the same
periods. Due to the high occupancy of these properties, the Company expects
future increases in REVPAR to be driven by room rate increases, rather than
occupancy increases.
In the third quarter of 1994, the Company sold 26 of its 30 Fairfield Inns for
$114 million and in the second quarter of 1995, the Company sold its four
remaining Fairfield Inns to the same buyer for $6 million. Through their
disposition, 1995 revenues and operating profit for the four remaining Fairfield
Inns were comparable to 1994.
The net gains (losses) on property transactions for the thirty-six weeks ended
September 8, 1995 includes the $10 million charge to write down the carrying
value of five individual Courtyard and Residence Inn properties to their
estimated net realizable values.
Corporate expenses increased $2 million, to $8 million, in the third quarter of
1995 and $5 million, to $26 million, year-to-date due to an increase in the
number of employees and overall higher corporate administrative and travel
costs.
The Company's interest expense increased by 3% to $39 million in the 1995 third
quarter and 7% to $122 million year-to-date due to the additional debt incurred
in connection with the 1994 and 1995 full-service hotel acquisitions, increased
interest rates on the Company's variable rate debt, and the decreased benefit
from the Company's interest rate swap agreements, which was partially offset by
the net impact of the 1994 and 1995 bond redemptions.
In connection with the redemption and defeasance of certain of the Company's
debt in the second quarter of 1995, the Company recognized an extraordinary loss
of $26 million ($17 million after taxes), primarily representing premiums paid
on the redemptions of $13 million and the write-off of deferred financing fees
and discounts on the debt.
- 13 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF DISCONTINUED OPERATIONS
- ----------------------------------
Revenues from discontinued operations increased $7 million, to $310 million, in
the 1995 third quarter and $11 million, to $799 million, year-to-date.
Operating profit from discontinued operations increased $2 million, or 7%, to
$30 million for the 1995 third quarter and increased $11 million, or 42%, to $37
million year-to-date. Year-to-date comparisons were impacted by the 1994 second
quarter charge of $12 million for the transfer of the Company's rights under an
unprofitable concession contract to a third party and the 1994 second quarter
reduction in the Company's general liability and workers' compensation self-
insurance program reserves of $4 million. Excluding these items, operating
profit increased by $3 million year-to-date.
Airport revenues increased $9 million, to $199 million, for the quarter and $25
million, to $540 million, year-to-date. Airport revenues benefited from an
estimated 4% enplanement growth and new contract revenues generated in three
airports which exceeded lost revenues on several expired contracts. Travel
Plazas' revenues increased $2 million to $99 million for the 1995 third quarter
and increased $5 million to $223 million year-to-date due to mild weather in the
first quarter of 1995. Other revenues decreased for the 1995 third quarter and
year-to-date primarily due to the 1994 second quarter transfer of an
unprofitable stadium and arenas contract to a third party.
In connection with the redemption and defeasance of certain of HM Services' debt
in the second quarter of 1995, HM Services recognized an extraordinary loss of
$15 million ($10 million after taxes), primarily representing premiums paid on
the redemptions of $7 million and the write-off of deferred financing fees and
discounts on the debt.
EBITDA
- ------
The Company's consolidated Earnings Before Interest Expense, Taxes,
Depreciation, Amortization and other non-cash items ("EBITDA") from continuing
operations increased $5 million, or 8%, to $64 million in the 1995 third quarter
and $26 million, or 14%, to $212 million year-to-date. The Company considers
EBITDA to be an indicative measure of the Company's operating performance due to
the significance of the Company's long-lived assets and because such data can be
used to measure the Company's ability to service debt, fund capital expenditures
and expand its business, however, such information should not be considered as
an alternative to net income, operating profit, cash from operations, or any
other operating or liquidity performance measure prescribed by generally
accepted accounting principles. Cash expenditures for various long-term assets,
interest expense, and income taxes have been, and will be, incurred which are
not reflected in the EBITDA presentation.
Hotel EBITDA for comparable units increased $5 million, or 12%, for the 1995
third quarter and $15 million, or 13%, year-to-date. All of the Company's
lodging concepts reported higher EBITDA for comparable units. Full-service
EBITDA increased $23 million, or 85%, to $50 million for the quarter and $70
million, or 77%, to $161 million year-to-date. On a comparable basis, full-
service EBITDA increased 16% for the quarter and 15% year-to-date.
EBITDA from the Operating Group, which is treated as discontinued operations for
accounting purposes, totalled $42 million in the 1995 third quarter and the
Operating Group, which is treated as $79 million year-to-date, compared to $41
million and $80 million, respectively, of EBITDA for 1994.
- 14 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CASH FLOWS AND FINANCIAL CONDITION
- ----------------------------------
The Company reported an increase in cash and cash equivalents of $157 million
during the thirty-six weeks ended September 8, 1995. This increase is primarily
due to proceeds from the sale of certain assets, cash flow from continuing
operations, and issuances of debt offset by the use of funds to acquire five
full-service properties, repay debt, and fund capital expenditures. Cash flow
from operations increased $27 million, to $155 million, for 1995 primarily due
to improved lodging results.
Cash from investing activities increased $70 million to $64 million in 1995,
including $310 million in net sales proceeds, principally from the
sale/leaseback of 37 of the Company's Courtyard properties and the sale of its
four remaining Fairfield Inns, and notes receivable sales and collections of $42
million. These sources of cash from investing activities were partially offset
by capital expenditures of $147 million, primarily related to the construction
of two full-service properties, one Residence Inn, and renewals and replacements
on existing properties, $150 million for five full-service hotel acquisitions,
and $11 million in advances to affiliates.
Cash used in financing activities increased $72 million to $62 million in 1995.
Issuances of debt include the net proceeds of $971 million from the issuance of
senior notes, $87 million of borrowings under the Line of Credit, $15 million of
mortgage financing for the construction of the Philadelphia Marriott Hotel, $59
million of draws under the Acquisitions Revolver for the acquisition of two
full-service hotels, and $24 million of first mortgage financing for the
acquisition of a full-service hotel.
Scheduled principal repayments primarily represent the repayment of the old
Series I Notes. Debt prepayments include the defeasance and redemption of $845
million of senior notes and the related $20 million in redemption premiums, $250
million of payments on the Line of Credit, and $16 million in payments on the
Acquisition Revolver.
In the first quarter of 1995, the Company acquired the 300-room Charlotte
Executive Park Marriott Hotel for $15 million, with a draw under the
Acquisitions Revolver. In the second quarter of 1995, the Company acquired the
500-room San Antonio Marriott Riverwalk Hotel for $50 million, $19 million of
which was financed through the assumption of the existing first mortgage. In
the third quarter of 1995, the Company acquired Marriott's Grand Hotel in Point
Clear, Alabama for $27 million ($24 million of which was financed by a first
mortgage loan provided by Marriott International), the 491-room Dallas/Fort
Worth Airport Marriott for $44 million (which was financed by a draw on the
Acquisitions Revolver), and the 252-room Plaza San Antonio Hotel for $30 million
(financed by available cash). The Company may seek additional financing in
connection with further acquisitions, including debt secured by the properties
to be acquired. Management believes that the Company has adequate sources of
funding available to permit it to pursue its acquisition strategies. Under the
indenture for the new senior notes, proceeds from the sale of assets within the
subsidiary issuing the notes may now be used for the acquisition of new
properties under certain conditions.
The Company owns a portfolio of real estate which can be sold or used to secure
new financings. Property and equipment totalled $2.7 billion at September 8,
1995 ($1.0 billion of which had not been pledged or mortgaged). 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. In the second quarter
of 1995, the Company made a determination that its owned Courtyard and Residence
Inn properties were held for sale and recorded a $10 million charge to write
down the carrying value of five individual Courtyard and Residence Inn
properties to their estimated net realizable values.
- 15 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company repaid the old Series I Notes (with a principal balance of $87
million) upon their maturity on May 24, 1995 with a draw on the Line of Credit.
Additionally, and pursuant to the then-existing bond indenture, bonds issued by
Hospitality were required to be repaid to the extent of 50% to 75% of net
proceeds from certain asset sales (at par) and 100% of net refinancing proceeds
(generally at 103% of the principal amount). Based on net proceeds from
qualifying asset sales for the first quarter of 1995, the Company redeemed $100
million of Hospitality bonds in the second quarter of 1995.
On May 25, 1995, two wholly-owned subsidiaries of Hospitality issued an
aggregate $1 billion of debt in two concurrent offerings to several initial
purchasers (the "Bond Offerings"). HMH Properties, Inc. ("Properties"), the
owner of 55 of the Company's 86 lodging properties, and Host Marriott Travel
Plazas, Inc. ("HMTP"), the operator/manager of the Company's food, beverage and
merchandise concessions business, issued $600 million and $400 million,
respectively, of senior notes secured by the stock of certain of their
subsidiaries. The bonds were issued at par and carry a 9.5% coupon rate with a
final maturity of May 2005. The net proceeds to the Company, after deducting
commissions, totalled $974 million. The net proceeds from the Bond Offerings
were used to defease, and subsequently redeem, all of Hospitality's remaining
bonds and to repay borrowings under the Line of Credit.
During the third quarter of 1995, the Company replaced the $630 million Line of
Credit with a new $225 million revolving line of credit (the "New Line of
Credit") with Marriott International. The New Line of Credit bears interest at
LIBOR plus 3% (4% when the outstanding balance exceeds $112.5 million) and
matures in June 1998. An annual commitment fee of 5/8% is charged on the unused
portion of the New Line of Credit. At September 8, 1995, there was no
outstanding balance due under the New Line of Credit.
In connection with the Special Dividend, the Operating Group is reviewing its
core business. It is anticipated that this review will identify opportunities to
restructure the Operating Group's business processes, thereby reducing long-term
operating, selling, and general and administrative costs. Management estimates
that such a restructuring of the Operating Group's business processes may result
in the Operating Group incurring approximately $7 million to $10 million in one-
time costs to implement the changes.
In the first quarter of 1995, the Company adopted SFAS No 114, "Accounting by
Creditors for Impairment of a Loan." Adoption of SFAS No. 114 did not have a
material effect on the Company's consolidated financial statements. The Company
is also required to adopt SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," no later than its
fiscal year ending January 3, 1997. The Company plans to adopt SFAS No. 121 in
the fourth quarter of 1995. Management is still developing its plan of adoption
but believes that it will be required to record an adjustment for impairment of
certain of its leasehold improvement assets in HM Services in the range of $40
million to $50 million before taxes.
- 16 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A group of bondholders (the "PPM Group"), purported to have at one time owned
approximately $120 million of Senior Notes, continues to allege that laws have
been violated in connection with the sale, by the Company, of certain series of
its Senior Notes and debentures and the Company's subsequent announcement of its
intention to proceed with the Distribution of Marriott International. The PPM
Group initially claimed damages of approximately $30 million.
In September 1994, the Company settled with certain members of the PPM Group
whose claims represented about 40% of the PPM Group's aggregate claims. The
claims of the remainder of the PPM Group went to trial in September 1994, and in
October 1994, the judge declared a mistrial based on the inability of the jury
to reach a verdict. In January 1995, the judge granted the Company's motion for
summary judgment to dismiss the PPM Group's claims as a matter of law. An
appeal was filed by the PPM Group in February 1995. Management believes that
all claims of the PPM Group are without merit and that the appeal will not be
successful.
In an unrelated matter, the Company previously reported that the jury entered a
verdict in favor of the general contractor in a lawsuit filed by the general
contractor against the parent corporation of the structural steel contractor for
the construction of the New York Marriott Marquis. The Company would be the
primary beneficiary of any such award. Upon appeal, the verdict was overturned
and the case will be retried. Management believes that the eventual outcome of
the retrial will not have a material adverse effect on the financial position or
results of operations of the Company.
In a companion case against the hotel's electrical contractor and its bonding
company, in late July the trial judge awarded no damages to the general
contractor and awarded the electrical contractor $2.6 million on its
counterclaim. Since the award would carry interest from the fall of 1985, the
terms of a Liguidation Agreement with the general contractor, Host Marriott has
primary responsibility for this counterclaim. The Liquidation Agreement also
provides that any liability from the electric contractor case would be netted
against any recovery in the steel case referred to above. Management believes
that the trial court was in error and has appealed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
CHRISTOPHER J. NASSETTA
- -----------------------
The Company announced that Christopher J. Nassetta joined the Company as
Executive Vice President. Mr. Nassetta will be responsible for overseeing real
estate operations, asset management and administration.
SPECIAL DIVIDEND
- ----------------
On August 9, 1995, the Company announced that it intends to distribute to its
shareholders through a special dividend (the "Special Dividend") its operating
group which comprises its food, beverage and merchandise concessions business at
airports, on tollroads and at stadiums, arenas and other attractions (the
"Operating Group"). Prior to the Special Dividend, the Operating Group business
will be contributed to Host Marriott Services Corporation ("HM Services"), a
newly-formed, wholly-owned subsidiary of the Company. The Special Dividend will
provide the Company's shareholders with one share of common stock of HM Services
for every five shares of the Company's common stock held on the record date.
The distribution is conditioned upon declaration of the Special Dividend by the
Company's Board of Directors and the receipt of an affirmative ruling from the
Internal Revenue Service that the Special Dividend will be tax-free to
shareholders. Once the foregoing conditions are met, the Special Dividend is
expected to be distributed by the end of 1995. The condensed consolidated
financial statements have been restated to reflect the results of the Operating
Group as discontinued operations. See the accompanying Pro Forma Condensed
Consolidated Statements of Operations.
- 17 -
<PAGE>
HOST MARRIOTT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
The unaudited Pro Forma Condensed Consolidated Statements of Operations of
the Company reflect the following transactions for the thirty-six weeks ended
September 8, 1995 and for the fiscal year ended December 30, 1994, as if such
transactions had been completed at the beginning of each period:
. 1994 addition of 18 full-service properties
. 1994 sale of 14 senior living communities
. 1994 sale of 26 Fairfield Inns
. 1995 addition of five full-service properties
. March 1995 sale/leaseback of 21 Courtyard properties
. April 1995 sale of the Company's remaining four Fairfield Inns
. August 1995 sale/leaseback of an additional 16 Courtyard properties
. Consummation of the May 1995 debt offering
During 1994, the Company added 16 full-service hotels to its lodging
portfolio plus two hotels for which a subsidiary of the Company provided 100%
non-recourse financing to an affiliate of the Company for the acquisition of the
hotels (which the Company treats as owned for accounting purposes). Through the
third quarter of 1995, the Company added five full-service hotels to its lodging
portfolio.
During 1994, the Company sold all 14 of its senior living communities and
26 of its 30 Fairfield Inns. During 1995, 37 of the Company's Courtyard
properties were sold to and leased back from an unrelated real estate investment
trust (the "REIT"), in two separate transactions, and the Company sold its four
remaining Fairfield Inns.
In May 1995, a wholly-owned subsidiary of Host Marriott Hospitality, Inc.
("Hospitality"), a wholly-owned indirect subsidiary of the Company, issued $600
million of debt to several initial purchasers (the "Offering"). The bonds were
issued at par and carry a 9.5% coupon rate with a final maturity of May 2005.
The net proceeds to the Company, after deducting commissions, totalled $584
million and were used to defease, and subsequently redeem, a substantial portion
of Hospitality's bonds which carried a weighted average interest rate of 10.4%,
and to pay down a portion of the line of credit with Marriott International.
Additionally, the Company replaced its $630 million line of credit with Marriott
International with a new $225 million revolving line of credit with Marriott
International.
All of the above transactions are reflected in the Company's balance sheet
as of September 8, 1995.
The adjustments required to reflect the above transactions are set forth in
the "Disposition Pro Forma Adjustments" column and the "Acquisition & Other Pro
Forma Adjustments" column. The "Host Marriott Corporation Historical" column in
the accompanying Pro Forma Condensed Consolidated Statements of Operations
excludes the results of the Operating Group, which are considered as
discontinued operations.
The Pro Forma Condensed Consolidated Statements of Operations of the
Company are unaudited and presented for informational purposes only and may not
reflect the Company's future results of operations and financial position or
what the results of operations and financial position of the Company would have
been had such transactions occurred as of the dates indicated. The unaudited
Pro Forma Condensed Consolidated Statements of Operations and Notes thereto
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" included in the Company's Annual
Report on Form 10-K for the year ended December 30, 1994 and elsewhere in this
Form 10-Q.
- 18 -
<PAGE>
HOST MARRIOTT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 1995
-----------------------------------------------------------------------
ACQUISITION
HOST MARRIOTT DISPOSITION & OTHER HOST MARRIOTT
CORPORATION PRO FORMA PRO FORMA CORPORATION
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------------ ----------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues
Hotels..................................... $ 315 $ (1) (A) $ 16 (E) $ 330
Other...................................... 4 -- -- 4
----- ----- ----- -----
319 (1) 16 334
----- ----- ----- -----
Operating costs and expenses
Hotels..................................... 182 (1)(A) 9 (E) 200
5 (B)
5 (C)
Other....................................... 19 -- -- 19
----- ----- ----- -----
201 9 9 219
----- ----- ----- -----
Operating profit............................ 118 (10) 7 115
Corporate expenses.......................... (26) -- -- (26)
Interest expense............................ (122) 4 (D) (2)(E) (119)
3 (F)
(2)(k)
Interest income............................. 18 -- -- 18
----- ----- ----- -----
Loss from continuing operations before
income taxes and
extraordinary item (12) (6) 6 (12)
(Provision) benefit for income taxes........ (1) 2 (J) (2)(J) (1)
----- ----- ----- -----
Loss from continuing operations before
extraordinary item......................... $ (13) $ (4) $ 4 $ (13)
===== ===== ===== =====
</TABLE>
See Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations.
- 19 -
<PAGE>
HOST MARRIOTT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 30, 1994
----------------------------------------------------------
ACQUISITION
HOST MARRIOTT DISPOSITION & OTHER HOST MARRIOTT
CORPORATION PRO FORMA PRO FORMA CORPORATION
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues
Hotels............................................... $ 338 $ (2) (A) $ 29 (E) $ 414
(10) (G) 59 (I)
Other................................................ 43 (14) (H) -- 29
----- ------ ----- -----
381 (26) 88 443
----- ------ ----- -----
Operating costs and expenses
Hotels............................................... 198 (1) (A) 18 (E) 264
13 (B) 27 (I)
12 (C)
(3) (G)
Other................................................ 26 (5) (H) -- 21
----- ------ ----- -----
224 16 45 285
----- ------ ----- -----
Operating profit...................................... 157 (42) 43 158
Corporate expenses.................................... (32) -- -- (32)
Interest expense...................................... (165) 34 (D) (4) (E) (143)
1 (H) 5 (F)
(14) (K)
Interest income....................................... 29 -- (5) (I) 24
----- ------ ----- -----
Loss from continuing operations before
income taxes and extraordinary item.................. (11) (7) 25 7
(Provision) benefit for income taxes.................. 2 2 (J) (9) (J) (5)
----- ------ ----- -----
Income (loss) from continuing operations
before extraordinary item............................ $ (9) $ (5) $ 16 $ 2
===== ====== ===== =====
</TABLE>
See Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations.
- 20 -
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
A. Represents the adjustment to eliminate the revenues and the operating costs
for the 1995 sale of the four remaining Fairfield Inns.
B. Represents the adjustments to eliminate the depreciation expense and record
the incremental lease expense for the 1995 sale/leaseback of the 21 Courtyard
properties.
C. Represents the adjustments to eliminate the depreciation expense and record
the lease expense for the 1995 sale/leaseback of the 16 Courtyard properties.
D. Represents the adjustment to reduce interest expense for the paydown of
Hospitality bonds with the net sales proceeds from the 26 Fairfield Inns, 14
senior living communities and 21 Courtyard properties.
E. Represents the adjustment to reflect the incremental increase in revenue,
operating costs and interest expense for the 1995 addition of five full-
service properties, as if they were added at the beginning of the applicable
period.
F. Represents the adjustment to reduce interest expense to reflect the decrease
in interest rates as a result of the Offering and the decrease in commitment
fees as a result of the new line of credit with Marriott International.
Extraordinary losses of approximately $17 million, after taxes, related to
the 1995 redemption of certain of Hospitality's bonds are not reflected in
the accompanying Pro Forma Condensed Consolidated Statements of Operations.
G. Represents the adjustment to eliminate the revenues and the operating costs
for the 26 Fairfield Inns sold during 1994.
H. Represents the adjustments to eliminate the revenues, operating costs and the
secured debt interest expense for the 14 senior living communities sold
during 1994.
I. Represents the adjustment to reflect the incremental increase in revenue and
operating costs for the 1994 addition of 18 full-service properties, mainly
utilizing proceeds from the common stock offering and the $230 million
acquisition credit facility, and the related decrease in interest income.
J. Represents the income tax impact of pro forma adjustments at statutory rates.
K. Represents the increase in interest expense on the draws under the
acquisition credit facility utilized for the acquisition of certain full-
service hotels.
- 21 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit:
#11 Statement Re: Computation of Earnings (Loss) Per Common Share
#27 Financial Data Schedule -- Thirty-six weeks ended September 8, 1995
b. Reports on Form 8-K:
. April 4, 1995 -- Report of the announcement of the resignation of
Stephen F. Bollenbach as President and Chief Executive Officer of the
Company.
. May 15, 1995 -- Report of the announcement that two of the Company's
subsidiaries intend to issue $1 billion of debt in two concurrent
offerings.
. May 25, 1995 -- Report of the announcement that two of the Company's
subsidiaries closed the previously announced $1 billion of debt
offerings.
. June 19, 1995 -- Report of the announcement that the Company acquired
the 500-room San Antonio Marriott Riverwalk Hotel.
. July 17, 1995 -- Report that the Company entered into a new $225 million
revolving line of credit with Marriott International, replacing the
previous $630 million line of credit with Marriott International.
. August 9, 1995 -- Report of the announcement that the Company will spin
off its airport and tollroad concessions business through a special
dividend.
. August 22, 1995 -- Report of the announcement that the Company acquired
the 491-room Dallas/Fort Worth Airport Marriott Hotel.
. August 29, 1995 -- Amendment to Current Report on Form 8-K dated June
19, 1995 by filing financial statements of the San Antonio Marriott
Riverwalk Hotel and pro forma financial information for the Company.
. September 28, 1995 - Report of the announcement that Robert E. Parsons
has been named Executive Vice President and Chief Financial Officer,
replacing Matthew J. Hart, and Scott A. LaPorta has been named Senior
Vice President and Treasurer.
- 22 -
<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 23, 1995 /s/ Jeffrey P. Mayer
- ---------------- ------------------------------
Date Jeffrey P. Mayer
Senior Vice President, Finance
and Corporate Controller
(Chief Accounting Officer)
- 23 -
<PAGE>
EXHIBIT 11
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS (LOSS) PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
-------------------------- ---------------------------
September 8, September 9, September 8, September 9,
1995 1994 1995 1994
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss).................................................. $ (5) $ 8 $ (49) $ (10)
Less: Dividends on convertible preferred stock.................... -- -- -- --
------- ------- ------- --------
Net income (loss) available for common shareholders................ $ (5) $ 8 $ (49) $ (10)
======= ======= ======= ========
Primary Earnings (Loss) Per Common Share
- ----------------------------------------
Shares:
Weighted average number of common shares outstanding............. 158.8 152.7 157.9 151.2
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed purchased
at average market *............................................. -- 8.4 -- --
Assuming distribution of common shares reserved under
employee stock purchase plan, based on withholdings
to date, less shares assumed purchased at average market *...... -- -- -- --
Assuming distribution of common shares issuable for warrants,
less shares assumed purchased at average market *............... -- -- -- --
------- ------- ------- --------
158.8 161.1 157.9 151.2
======= ======= ======= ========
Primary Earnings (Loss) Per Common Share........................... $ (.03) $ .05 $ (.31) $ (.07)
======= ======= ======= ========
Fully Diluted Earnings (Loss) Per Common Share
- ----------------------------------------------
Shares:
Weighted average number of common shares outstanding............. 158.8 152.7 157.9 151.2
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed purchased
at higher of average or ending market *......................... -- 8.8 -- --
Assuming distribution of common shares reserved under
employee stock purchase plan, based on withholdings
to date, less shares assumed purchased at higher of
average or ending market *...................................... -- -- -- --
Assuming distribution of common shares issuable for
warrants, less shares assumed purchased at higher
of average or ending market *................................... -- -- -- --
Assuming issuance of common shares upon conversion of
convertible preferred stock *................................... -- 4.9 -- --
------- ------- ------- --------
158.8 166.4 157.9 151.2
======= ======= ======= ========
Fully Diluted Earnings (Loss) Per Common Share..................... $ (.03) $ .05 $ (.31) $ (.07)
======= ======= ======= ========
</TABLE>
____________
* Common equivalent shares and other potentially dilutive securities were
anti-dilutive in the twelve and thirty-six weeks ended September 8, 1995
and the thirty-six weeks ended September 9, 1994, respectively.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Host
Marriott corporation and Subsidiaries Condensed Consolidated Balance Sheets and
Condensed Consolidated Statements of Operations and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> SEP-08-1995
<CASH> 211
<SECURITIES> 0
<RECEIVABLES> 74
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,254
<DEPRECIATION> 554
<TOTAL-ASSETS> 3,401
<CURRENT-LIABILITIES> 0
<BONDS> 1,925
<COMMON> 159
0
1
<OTHER-SE> 510
<TOTAL-LIABILITY-AND-EQUITY> 3,401
<SALES> 0
<TOTAL-REVENUES> 319
<CGS> 0
<TOTAL-COSTS> 201
<OTHER-EXPENSES> 26
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> (12)
<INCOME-TAX> 1
<INCOME-CONTINUING> (13)
<DISCONTINUED> (19)
<EXTRAORDINARY> (17)
<CHANGES> 0
<NET-INCOME> (49)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
