<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
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 June 16, 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 July 14, 1995
--------------------- ----------------
Common Stock, $1.00
par value per share 158,944,000
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<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
No.
----
<S> <C> <C>
Part I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
June 16, 1995 and December 30, 1994
Condensed Consolidated Statements of Operations - 4 - 7
Twelve Weeks and Twenty-four Weeks Ended
June 16, 1995 and June 17, 1994
Condensed Consolidated Statements of Cash Flows - 8
Twenty-four Weeks Ended June 16, 1995 and
June 17, 1994
Notes to Condensed Consolidated Financial 9 - 12
Statements
Management's Discussion and Analysis of Results of 13 - 17
Operations and Financial Condition
Part II. OTHER INFORMATION AND SIGNATURE 18 - 19
</TABLE>
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 16, December 30,
1995 1994
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Property and Equipment....................................... $3,044 $3,156
Investments in Affiliates.................................... 208 203
Notes Receivable............................................. 48 50
Accounts Receivable.......................................... 104 102
Inventories.................................................. 38 40
Other Assets................................................. 179 176
Cash and Cash Equivalents.................................... 128 95
------ ------
$3,749 $3,822
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Debt carrying a company guarantee of repayment.............. $1,424 $1,495
Debt not carrying a company guarantee of repayment.......... 866 764
------ ------
2,290 2,259
Accounts Payable and Accrued Expenses........................ 164 208
Deferred Income Taxes........................................ 438 453
Other Liabilities............................................ 186 192
------ ------
Total Liabilities......................................... 3,078 3,112
------ ------
Shareholders' Equity
Convertible Preferred Stock................................. 1 13
Common Stock, 300 million shares authorized; 158.4 million
shares and 153.6 million shares issued, respectively....... 158 154
Additional Paid-in Capital.................................. 492 479
Retained Earnings........................................... 20 64
------ ------
Total Shareholders' Equity................................ 671 710
------ ------
$3,755 $3,822
====== ======
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 3 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve weeks ended June 16, 1995 and June 17, 1994
(unaudited, in millions, except per common share amounts)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
REVENUES
Real estate group
Hotels................................................... $ 116 $ 82
Senior living communities................................ - 5
Net gains (losses) on property transactions)............. (9) 3
----- -----
107 90
----- -----
Operating group
Airports................................................. 176 166
Travel Plazas............................................ 71 71
Other.................................................... 15 32
----- -----
262 269
----- -----
Total revenues.............................................. 369 359
----- -----
OPERATING COSTS AND EXPENSES
Real estate group
Hotels................................................... 60 43
Senior living communities................................ - 1
Other.................................................... 3 2
----- -----
63 46
----- -----
Operating group
Airports................................................. 167 156
Travel Plazas............................................ 69 68
Other.................................................... 14 36
----- -----
250 260
----- -----
Total operating costs and expenses.......................... 313 306
----- -----
OPERATING PROFIT
Real estate group......................................... 44 44
Operating group........................................... 12 9
----- -----
Operating profit before corporate expenses and interest.. 56 53
Corporate expenses.......................................... (11) (10)
Interest expense............................................ (52) (49)
Interest income............................................. 8 6
----- -----
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM......................................... 1 -
Provision for income taxes.................................. (4) -
----- -----
LOSS BEFORE EXTRAORDINARY ITEM.............................. (3) -
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $14 million)....................... (27) -
----- -----
NET LOSS.................................................... $ (30) $ -
===== =====
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 4 -
<PAGE>
- Continued -
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
INCOME (LOSS) PER COMMON SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... $(.02) $ -
Extraordinary item - loss on extinguishment of debt
(net of income taxes)..................................... (.17) -
----- -----
NET INCOME (LOSS)........................................... $(.19) $ -
===== =====
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 5 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four weeks ended June 16, 1995 and June 17, 1994
(unaudited, in millions, except per common share amounts)
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
REVENUES
Real estate group
Hotels................................................... $ 213 $ 150
Senior living communities................................ - 11
Net gains (losses) on property transactions.............. (8) 3
----- -----
205 164
----- -----
Operating group
Airports................................................. 342 325
Travel Plazas............................................ 124 121
Other.................................................... 29 50
----- -----
495 496
----- -----
Total revenues.............................................. 700 660
----- -----
OPERATING COSTS AND EXPENSES
Real estate group
Hotels................................................... 118 87
Senior living communities................................ - 4
Other.................................................... 8 2
----- -----
126 93
----- -----
Operating group
Airports................................................. 329 311
Travel Plazas............................................ 126 123
Other.................................................... 29 56
----- -----
484 490
----- -----
Total operating costs and expenses.......................... 610 583
----- -----
OPERATING PROFIT
Real estate group......................................... 79 71
Operating group........................................... 11 6
----- -----
Operating profit before corporate expenses and interest.. 90 77
Corporate expenses.......................................... (21) (17)
Interest expense............................................ (101) (95)
Interest income............................................. 13 11
----- -----
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............. (19) (24)
Benefit for income taxes.................................... 2 6
----- -----
LOSS BEFORE EXTRAORDINARY ITEM.............................. (17) (18)
Extraordinary item - loss on extinguishment of debt
(net of income taxes of $14 million)....................... (27) -
----- -----
NET LOSS.................................................... $ (44) $ (18)
===== =====
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 6 -
<PAGE>
- Continued -
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
LOSS PER COMMON SHARE:
LOSS BEFORE EXTRAORDINARY ITEM.............................. $(.11) $(.12)
Extraordinary item - loss on extinguishment of debt
(net of income taxes)..................................... (.17) -
----- -----
NET LOSS.................................................... $(.28) $(.12)
===== =====
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 7 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four weeks ended June 16, 1995 and June 17, 1994
(unaudited, in millions)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (44) $ (18)
Extraordinary loss on extinguishment of debt, net of taxes.. 27 -
------- -----
Loss before extraordinary item........................... (17) (18)
Adjustments to reconcile to cash from operations:
Depreciation and amortization............................ 84 82
Income taxes............................................. (4) (11)
Limited service valuation adjustment..................... 10 -
Changes in operating accounts............................ (31) (19)
Other.................................................... 14 8
------- -----
Cash from operations........................................ 56 42
------- -----
INVESTING ACTIVITIES
Proceeds from sales of assets............................... 190 201
Less noncash proceeds.................................... (18) -
------- -----
Cash received from sales of assets.......................... 172 201
Acquisitions................................................ (45) (93)
Acquisition funds held in escrow............................ - 40
Capital expenditures:
Capital expenditures for renewals and replacements....... (34) (33)
Lodging construction funded by project financing......... (25) (29)
Other capital expenditures............................... (37) (38)
Note receivable collections................................. 40 28
Purchases of short-term marketable securities............... - (90)
Advances to affiliates, net................................. (5) (3)
Other....................................................... 14 (41)
------- -----
Cash from (used in) investing activities.................... 80 (58)
------- -----
FINANCING ACTIVITIES
Issuances of debt........................................... 1,088 27
Issuances of common stock................................... 7 235
Scheduled principal repayments.............................. (94) (35)
Debt prepayments............................................ (1,104) (72)
------- -----
Cash from (used in) financing activities.................... (103) 155
------- -----
INCREASE IN CASH AND CASH EQUIVALENTS....................... $ 33 $ 139
======= =====
</TABLE>
- See Notes to Condensed Consolidated Financial Statements -
- 8 -
<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 June 16, 1995
and December 30, 1994, the results of operations for the twelve and twenty-
four weeks ended June 16, 1995 and June 17, 1994, and cash flows for the
twenty-four weeks ended June 16, 1995 and June 17, 1994. Interim results are
not necessarily indicative of fiscal year performance because of the impact
of seasonal and short-term variations.
2. Revenues for the Real Estate Group represent house profit from the Company's
hotel properties, lease rentals for the Company's senior living communities
(for 1994) 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.
House profit generated by the Company's hotels for 1995 and 1994 consists
of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
-------------------- -----------------------
June 16, June 17, June 16, June 17,
1995 1994 1995 1994
-------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C>
Sales
Rooms.................... $ 209 $ 154 $ 404 $ 295
Food & Beverage.......... 82 56 159 107
Other.................... 18 12 35 24
----- ----- ----- -----
Total Hotel Sales....... 309 222 598 426
----- ----- ----- -----
Department Costs
Rooms.................... 50 37 99 74
Food & Beverage.......... 63 43 124 83
Other.................... 8 6 18 12
----- ----- ----- -----
Total Department Costs.. 121 86 241 169
----- ----- ----- -----
Department Profit.......... 188 136 357 257
Other Deductions........... 72 54 144 107
----- ----- ----- -----
House Profit............ $ 116 $ 82 $ 213 $ 150
===== ===== ===== =====
</TABLE>
3. 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
- 9 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 twenty-four weeks ended June 16, 1995 and June 17, 1994, as they
are antidilutive. Accordingly, the weighted average shares were 158.7
million and 152.3 million for the twelve weeks ended June 16, 1995 and June
17, 1994, respectively, and 157.4 million and 149.6 million for the twenty-
four weeks then ended, respectively.
4. 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 June 17, 1994, and a
loss of $1 million and income of $1 million, respectively, for the twenty-
four weeks ended June 16, 1995 and June 17, 1994, and is included in other
operating expenses for the Real Estate Group. For the twelve weeks ended
June 16, 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 Twenty-four Weeks Ended
-------------------- -----------------------
June 16, June 17, June 16, June 17,
1995 1994 1995 1994
-------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C>
Revenues................... $ 190 $ 183 $ 375 $ 340
Operating expenses:
Cash charges (including
interest)................ (120) (127) (240) (235)
Depreciation and other
noncash charges.......... (62) (60) (126) (139)
----- ----- ----- -----
Income (loss) before
extraordinary item..... 8 (4) 9 (34)
Extraordinary item -
forgiveness of debt.... -- 52 -- 99
----- ----- ----- -----
Net income.............. $ 8 $ 48 $ 9 $ 65
===== ===== ===== =====
</TABLE>
5. During the first quarter of 1995, the Company sold and leased back 21 of its
Courtyard properties to a real estate investment trust (REIT) for $179
million. During the second quarter of 1995, the Company entered into an
agreement to sell and lease back an additional 16 Courtyard properties to
the REIT for $150 million. Management anticipates that the sale and
leaseback transaction for the 16 properties will be completed in the third
quarter of 1995. Ten percent of the sale amount of both transactions is
deferred. The REIT also has an option, expiring in June 1996, to buy and
lease back up to 17 of the remaining Courtyard properties.
6. 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 has 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 $474 million at June 16, 1995.
7. In the first quarter of 1995, the Company acquired the 300-room Charlotte
Executive Park Marriott Hotel for $15 million. 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
- 10 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
8. During the first and second quarters of 1995, approximately 242,800
depository shares of convertible preferred stock were converted into
approximately 4.7 million shares of common stock. At June 16, 1995,
approximately 15,000 depository shares of convertible preferred stock were
outstanding, which are convertible into approximately 288,000 shares of
common stock.
9. 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 71 of the Company's 100 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 pay down the Line of Credit to $15
million. In connection with the redemptions and defeasance, the Company
recognized an extraordinary loss in the second quarter of 1995 of
approximately $41 million ($27 million after taxes), primarily representing
premiums of $20 million paid on the redemptions and the write-off of
deferred fees and discounts on the Hospitality bonds.
10. During the third quarter of 1995, the Company replaced its $630 million Line
of Credit with Marriott International 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.
11. The Company has been evaluating the strategic fit of its Operating Group
with the Company's real estate operations and is actively exploring
alternatives for changing the relationship between these two businesses.
These alternatives include the potential spin-off of the Operating Group
through a tax-free special dividend to the Company's existing shareholders.
However, it is also possible that the Company will determine not to pursue
any such course of action.
12. In the first quarter of 1995, the Company adopted SFAS No. 114, "Accounting
for 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
- 11 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SFAS No. 121 during 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 the Operating
Group in the range of $21 million to $27 million after taxes.
- 12 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
---------------------
The Company reported revenues of $369 million for the 1995 second quarter, a $10
million or 3% improvement over 1994. Year-to-date revenues rose $40 million, or
6%, to $700 million. Operating profit increased $3 million, or 6%, to $56
million in the 1995 second quarter. Year-to-date operating profit rose $13
million, or 17%, to $90 million.
The Real Estate Group posted a $17 million, or 19%, increase in revenues to $107
million in the 1995 second quarter and a $41 million, or 25%, increase to $205
million for year-to-date 1995. The Real Estate Group's operating profit of $44
million for the second quarter of 1995 was consistent with the 1994 second
quarter. Year-to-date Real Estate Group operating profit increased by $8
million, or 11%, to $79 million. The Real Estate Group's operating profit was
impacted by:
. the addition of 22 full-service hotel properties during 1994 and 1995;
. improved lodging results;
. the 1995 sale and leaseback of 21 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; and
. the 1994 and 1995 sales of the Company's Fairfield Inns.
Hotel revenues for the Real Estate Group increased $34 million, or 41%, to $116
million in the 1995 second quarter and $63 million, or 42%, to $213 million for
year-to-date 1995. Hotel operating profit increased $17 million, or 44%, to $56
million in the 1995 second quarter and $32 million, or 51%, to $95 million for
year-to-date 1995, as all three of the Company's lodging concepts reported
growth in room revenues generated per available room ("REVPAR"). As the hotels'
operating costs and expenses are generally fixed, the Company derives
substantial operating leverage from increases in revenue. The hotels added by
the Company in 1994 and 1995 provided $32 million and $53 million of revenue and
$17 million and $26 million of operating profit, respectively, in the second
quarter of 1995 and year-to-date 1995. Excluding the impact of the additional
22 full-service properties, the sales of the Fairfield Inns, and the sale and
leaseback of 21 Courtyards, comparable hotel revenues increased $4 million
(6%) and $16 million (13%) and comparable operating profit increased $4 million
(17%) and $11 million (22%) in the second quarter and year-to-date,
respectively, over 1994.
Overall second 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 second 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 10% and 9%
for the quarter and year-to-date, respectively, while average occupancy
decreased two percentage points for both periods. Several hotels, including the
New York Marriott Marquis, Fort Lauderdale Marina Marriott and the Miami Airport
Marriott, posted significant improvements in operating profit.
- 13 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Courtyard, the Company's moderate-priced lodging concept, reported an 8%
increase in REVPAR for the quarter and 8% year-to-date, fueled by an 8% increase
in average room rates, while average occupancy decreased slightly for the
quarter and year-to-date.
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 8% and 7% for the quarter and year-to-date,
respectively, combined with a one percentage point increase in average occupancy
for the same periods.
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.
Operating Group revenues decreased $7 million, to $262 million, in the 1995
second quarter and $1 million, to $495 million, year-to-date. Operating profit
for the Operating Group increased $3 million, or 33%, to $12 million for the
1995 second quarter and $5 million, or 83%, to $11 million year-to-date. Year-
over-year comparisons are impacted by the 1994 second quarter transfer of the
Company's rights under an unprofitable concessions contract to a third party and
the 1994 second quarter reduction in the Company's general liability and
workers' compensation self-insurance program reserves. Excluding these items,
operating profit for the 1995 second quarter decreased by $1 million and
increased by $1 million year-to-date.
Airport revenues increased $10 million, to $176 million, for the quarter and $17
million, to $342 million, year-to-date. Airport revenues benefited from 4%
enplanement growth and new contract revenues generated in three airports which
exceeded lost revenues on several expired contracts. Travel Plazas' revenues of
$71 million for the 1995 second quarter were consistent with the prior year and
increased $3 million to $124 million year-to-date due to mild weather in the
first quarter of 1995. Operating profit generated by increased revenues was
unfavorably impacted by higher food, merchandise and other supply costs. Other
Operating Group revenues decreased for the 1995 second quarter and year-to-date
due to the 1994 second quarter transfer of a contract to a third party
and the expiration of certain other contracts.
The Company's interest expense increased by 6% to $52 million in the 1995 second
quarter and 6% to $101 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 impact of the 1994 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 $41 million ($27 million after taxes), primarily representing premiums of $20
million paid on the redemptions and the write-off of deferred financing fees and
discounts on the debt.
EBITDA
------
The Company's consolidated Earnings Before Interest, Taxes, Depreciation,
Amortization and other non-cash items ("EBITDA") increased $8 million, or 8%, to
$107 million in the 1995 second quarter and $19 million, or 11%, to $185 million
year-to-date. The Company considers EBITDA to be an indicative
- 14 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
measure of the Company's operating performance due to the significance of the
Company's long-lived assets and because such data is used by certain investors
to determine the Company's ability to meet debt service requirements. EBITDA
measures the Company's ability to service debt, fund capital expenditures and
expand the business, however, such information should not be considered as an
alternative to net income, operating profit or any other performance measure
prescribed by generally accepted accounting principles.
The Real Estate Group reported EBITDA of $81 million, a $9 million, or 13%,
increase for the 1995 second quarter over 1994 results and $148 million, a $22
million, or 17%, increase year-to-date. Hotel EBITDA for comparable units
increased $6 million, or 10%, for the 1995 second quarter and $12 million, or
13%, year-to-date. All of the lodging concepts reported higher EBITDA for
comparable units. Full-service EBITDA increased $26 million, or 68%, to $63
million for the quarter and $48 million, or 74%, to $112 million year-to-date.
On a comparable basis, full-service EBITDA increased 12% for the quarter and 15%
year-to-date.
The Company's Operating Group contributed $27 million of EBITDA in the 1995
second quarter and $40 million year-to-date, compared to $27 million and $41
million, respectively, of EBITDA for 1994. The year over year comparison
reflects the impact of higher enplanements in 1995 offset by higher food,
merchandise and supply costs without corresponding price increases.
Cash Flows and Financial Condition
----------------------------------
The Company reported an increase in cash and cash equivalents of $33 million
during the first half of 1995. This increase is primarily due to proceeds from
the sale of certain assets, cash from operations, and issuances of debt offset
by the use of funds to acquire two full-service properties, repay debt, and fund
capital expenditures. Cash flow from operations increased $14 million, to $56
million, for 1995 primarily due to improved lodging results.
Cash from investing activities increased $138 million to $80 million in 1995,
including $172 million in net sales proceeds, principally from the
sale/leaseback of 21 of the Company's Courtyard properties and the sale of its
four remaining Fairfield Inns, and notes receivable sales and collections of $40
million. These sources of cash from investing activities were partially offset
by capital expenditures of $96 million, primarily related to the construction of
two full-service properties, one Residence Inn, and renewals and replacements on
existing properties, $45 million for two full-service hotel acquisitions, and $5
million for the net purchase of a note receivable of an affiliate from a third
party.
Cash used in financing activities increased $258 million to $103 million in
1995. Issuances of debt include the net proceeds of $973 million from the
issuance of senior notes, $87 million of borrowings under the Line of Credit,
$13 million of mortgage financing for the construction of the Philadelphia
Marriott Hotel, and a $15 million draw under the Acquisitions Revolver for the
acquisition of one full-service hotel. Scheduled principal repayments primarily
represent the repayment of the old Series I Notes. Debt prepayments include the
defeasance and redemption of $844 million of senior notes and the related $20
million in redemption premiums, $235 million of payments on the Line of Credit,
and a $5 million payment on the Acquisition Revolver.
In the first quarter of 1995, the Company acquired the 300-room Charlotte
Executive Park Marriott Hotel for $15 million. 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
- 15 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
the existing first mortgage. The Company may seek additional financing in
connection with further acquisitions, including debt secured by properties
acquired. Management believes it will have adequate sources of funding to permit
it to pursue its acquisition strategies. Under the indenture for the new senior
notes, proceeds from the sale of assets 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 $3 billion at June 16, 1995
($1.5 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.
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 71 of the Company's 100 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 pay down the Line of Credit to $15 million.
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.
The Company has been evaluating the strategic fit of its Operating Group with
the Company's real estate operations and is actively exploring alternatives for
changing the relationship between these two businesses. These alternatives
include the potential spin-off of the Operating Group through a tax-free special
dividend to the Company's existing shareholders. However, it is also possible
that the Company will determine not to pursue any such course of action.
In the first quarter of 1995, the Company adopted SFAS No 114, "Accounting for
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
1995.
- 16 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 the Operating Group in the range of $21 million
to $27 million, after taxes.
- 17 -
<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. 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. The Company believes that
all claims of the PPM Group are without merit and that the appeal will not be
successful.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company has entered into an agreement with its former president and
chief executive officer, Stephen F. Bollenbach, to provide financial and
strategic planning consulting services. The consulting agreement expires on
May 31, 1996.
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 for quarter ended June 16, 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.
. July 3, 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.
- 18 -
<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
August 10, 1995 /s/ Jeffrey P. Mayer
--------------- --------------------------------
Date Jeffrey P. Mayer
Senior Vice President, Finance
and Corporate Controller
(Chief Accounting Officer)
- 19 -
<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 Twenty-four Weeks Ended
-------------------- -----------------------
June 16, June 17, June 16, June 17,
1995 1994 1995 1994
-------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C>
Net income (loss)....................................... $ (30) $ -- $ (44) $ (18)
Less: Dividends on convertible preferred stock......... -- -- -- --
----- ----- ----- -----
Net income (loss) available for common shareholders..... $ (30) $ -- $ (44) $ (18)
===== ===== ===== =====
Primary Earnings (Loss) Per Common Share
----------------------------------------
Shares:
Weighted average number of common shares outstanding.. 158.7 152.3 157.4 149.6
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed
purchased at average market *........................ -- -- -- --
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 *............................................ -- -- -- --
----- ----- ----- -----
158.7 152.3 157.4 149.6
===== ===== ===== =====
Primary Earnings (Loss) Per Common Share................ $ (.19) $ -- $ (.28) $ (.12)
===== ===== ===== =====
Fully Diluted Earnings (Loss) Per Common Share
----------------------------------------------
Shares:
Weighted average number of common shares
outstanding.......................................... 158.7 152.3 157.4 149.6
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed
purchased at higher of average or ending market *.... -- -- -- --
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 *........................ -- -- -- --
----- ----- ----- -----
158.7 152.3 157.4 149.6
===== ===== ===== =====
Fully Diluted Earnings (Loss) Per Common Share.......... $(.19) $ -- $(.28) $(.12)
===== ===== ===== =====
</TABLE>
____________
* Common equivalent shares and other potentially dilutive securities were anti-
dilutive in the twelve and twenty-four week periods ended June 16, 1995 and
June 17, 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> 6-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> JUN-16-1995
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 152
<ALLOWANCES> 0
<INVENTORY> 38
<CURRENT-ASSETS> 0
<PP&E> 3,993
<DEPRECIATION> 949
<TOTAL-ASSETS> 3,749
<CURRENT-LIABILITIES> 0
<BONDS> 2,290
<COMMON> 158
0
1
<OTHER-SE> 512
<TOTAL-LIABILITY-AND-EQUITY> 3,749
<SALES> 0
<TOTAL-REVENUES> 700
<CGS> 0
<TOTAL-COSTS> 610
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (19)
<INCOME-TAX> 2
<INCOME-CONTINUING> (17)
<DISCONTINUED> 0
<EXTRAORDINARY> (27)
<CHANGES> 0
<NET-INCOME> (44)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
