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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL 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 FISCAL YEAR ENDED DECEMBER 30, 1994 COMMISSION FILE NO. 1-5664
HOST MARRIOTT CORPORATION
DELAWARE 53-0085950
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $1.00 par value (153,600,000 shares New York Stock Exchange
outstanding as of December 30, 1994) Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
8 1/4% Series A Cumulative Convertible Preferred New York Stock Exchange
Stock, without par value (258,000 depositary
shares outstanding as of December 30, 1994)
</TABLE>
The aggregate market value of shares of common stock held by non-affiliates
at February 28, 1995 was $1,463,800,000.
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
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DOCUMENT INCORPORATED BY REFERENCE
Notice of 1995 Annual Meeting and Proxy Statement
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PART I
ITEMS 1 & 2. BUSINESS AND PROPERTIES
GENERAL
Host Marriott Corporation (the "Company") is one of the largest owners of
lodging properties in the world. The Company is also the leading operator of
airport and tollroad food, beverage, and merchandise concessions, with
facilities in nearly every major U.S. commercial airport and on 14 tollroads.
The Company's 119 owned lodging properties as of December 30, 1994 are
generally operated under Marriott brand names and managed by Marriott
International, Inc. ("Marriott International"), formerly a wholly-owned
subsidiary of the Company. The Company also holds minority interests in various
partnerships that own, in the aggregate, over 260 additional properties
operated by Marriott International. The Company's properties span several
market segments, including full service (primarily Marriott Hotels, Resorts and
Suites), moderate-priced (Courtyard by Marriott), extended-stay (Residence Inn
by Marriott) and economy (Fairfield Inn by Marriott). The Company's primary
emphasis, however, is on the growth of its full-service lodging portfolio. In
1994, the Company sold 26 of its 30 Fairfield Inns. The Company also sold its
14 senior living communities in 1994, which were leased to Marriott
International under long-term leases.
The Real Estate Group, the majority of which was formerly classified in the
"Lodging" segment, is comprised of the Company's existing business of ownership
of lodging properties, its partnership investments and undeveloped land
parcels, which together are sometimes referred to as the Company's "Ownership
and Development Business." The Operating Group, formerly included in the
"Contract Services" segment, consists of the food, beverage and merchandise
operations at airports, on tollroads and at tourist attractions, stadiums and
arenas, as well as restaurant operations, which together are sometimes referred
to as the Company's "Host/Travel Plazas Business." The new segments reflect the
Company's current business segments and operating environment.
The Company, through its Operating Group, is also the leading operator of
airport and tollroad food and merchandise concessions, with facilities in most
major commercial airports in the U.S. The Company operates restaurants, gift
shops and related facilities at over 70 airports, on 14 tollroads (including
over 95 travel plazas) and at more than 35 tourist attractions, stadiums and
arenas. Many of the Company's concessions operate under branded names,
including Pizza Hut, Burger King, Taco Bell, Sbarro's, Dunkin' Donuts,
Starbucks, TCBY (The Country's Best Yogurt), Mrs. Fields, and Cheers.
REAL ESTATE GROUP
At the beginning of 1994, the Real Estate Group consisted of the Company's
lodging properties (four hotel concepts plus the senior living communities),
real estate partnership investments, and undeveloped and leased land
operations. As of year-end 1994, the Real Estate Group consisted of 119 hotels,
31 partnership investments, the leased land operations, and 50 parcels of
undeveloped land comprising approximately 470 acres.
LODGING
The Company's principal focus in lodging is on the acquisition and ownership
of full-service hotels, resorts, and suites. Accordingly, all of the Company's
acquisitions made during 1994 were in this category. Other hotel lodging
properties represent quality assets in the limited-service (moderate-priced,
extended-stay, and economy) lodging segment. During 1994, the Company disposed
of its senior living communities and most of its Fairfield Inn properties.
Subsequent to year-end, the Company entered into a sale/leaseback
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agreement with a real estate investment trust for 21 Courtyard properties
(3,004 rooms). Further sales of limited-service lodging properties are likely
over time.
The Real Estate Group's hotel properties are generally operated by Marriott
International under four Marriott brand lodging concepts which offer distinct
choices to meet consumers' specialized needs whenever they travel. These brands
have achieved favorable results compared to competitive hotels.
One commonly used indicator of market performance for hotels is revenue per
available room, or REVPAR, which measures daily room revenues generated on a
per room basis. This does not include food and beverage or other ancillary
revenues generated by the property. REVPAR represents the combination of the
average daily room rate charged and the average daily occupancy achieved. Each
of the Company's four lodging concepts reported annual increases in REVPAR from
1992 to 1994.
The following table sets forth information as of February 28, 1995 regarding
the hotel properties that comprise the Company's lodging segment.
<TABLE>
<CAPTION>
NUMBER NUMBER
OF FACILITIES OF ROOMS
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<S> <C> <C>
Hotels, Resorts and Suites (full-service)............. 46(1) 21,763
Courtyard Hotels (moderate-priced).................... 54 7,940
Residence Inns (extended-stay)........................ 19(2) 2,478
Fairfield Inns (economy).............................. 4 453
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Total............................................... 123 32,634
=== ======
</TABLE>
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(1) Includes the Philadelphia Convention Center Marriott which opened in
January 1995, the Philadelphia Airport Marriott which is currently under
construction and scheduled for completion in December 1995, and the
Charlotte Executive Park Marriott which was acquired in January 1995.
(2) Includes a Residence Inn currently under construction and scheduled for
completion in early 1996.
As part of the Company's annual capital expenditure program, its properties
are improved or upgraded on a regular basis. The Company expends approximately
$50 million to $60 million annually on the renovation and refurbishment of the
Company's existing lodging properties. The expenditures provide for full
utilization of the properties through their estimated useful lives of generally
40 years.
HOTELS, RESORTS AND SUITES. As of December 30, 1994, full-service hotels
included 41 Marriott-branded hotels, resorts, and suites, and two other hotel
brands offering similar amenities. All but one of the Marriott-branded hotels
are managed by Marriott International under long-term agreements; the other is
operated by Marriott International's largest full-service franchisee. These
hotels generally contain from 300 to 600 rooms. The Company's convention hotels
are larger and contain up to 1,900 rooms. Hotel facilities typically include
convention and banquet facilities, a variety of restaurants and lounges,
swimming pools, gift shops, and parking facilities. The Company's full-service
hotels primarily serve business and pleasure travelers and group meetings at
locations in downtown and suburban areas, near airports and at resort locations
throughout the United States. The full-service hotels showed growth in both
rate and occupancy in 1994 to achieve the strong REVPAR growth for comparable
hotels. On a non-comparable basis, REVPAR grew 19% due to the inclusion of the
New York Marriott Marquis, which has both very high room rates and occupancy
levels, and hotels added in 1994, which generally had higher room rates than
the portfolio of hotels owned prior to 1994. Total hotel sales growth in 1994
was below the growth of room sales, as food, beverage and other less profitable
operations grew at a slower pace. Overall, this resulted in strong house profit
margins and excellent growth in reported revenues for 1994, which expanded at a
14% rate for comparable hotels. The average age
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of the full-service properties is 13 years. The chart below sets forth
performance information for such hotels for fiscal years 1992 through 1994.
<TABLE>
<CAPTION>
COMPARABLE
1994 1994 1993(b) 1992(a,b)
------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Number of properties................... 43 24 24 23
Number of rooms........................ 17,554 (c) 10,560 10,560 10,276
Average daily rate..................... $102.84 (c) $93.89 $89.61 $88.81
Occupancy percentage................... 77.4%(c) 76.2% 74.9% 72.3%
REVPAR................................. $ 79.59 (c) $71.52 $67.12 $64.21
REVPAR % change........................ 19.0%(c) 6.6% 4.5% 8.4%
</TABLE>
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(a) Excludes seven properties which were sold during 1992.
(b) Excludes the New York Marriott Marquis, which was not treated as an owned
hotel until December 31, 1993.
(c) Excludes the seven properties acquired in the last two weeks of fiscal year
1994.
The success of this segment in 1994 came from improvements at all but one
property, reflecting the growing strength of the full-service lodging market.
This improvement was achieved through steady increases in customer demand, as
well as sophisticated yield management techniques applied by the manager to
maximize REVPAR on a property-by-property basis.
A number of the Company's 1994 full-service hotel acquisitions were converted
to the Marriott brand upon acquisition, and the performance of these properties
is on target. The acquired properties are already showing improvements as the
benefits of Marriott International's marketing and reservation programs and
customer service initiatives take hold. The Company actively manages these
transitions and, in many cases, has worked closely with the operator to
selectively invest in enhancements to the physical product to be more
attractive to guests or more efficient to operate.
The Company's focus is on maximizing profitability throughout the portfolio
by concentrating on some key objectives. Some examples include evaluating
marginal restaurant operations, exiting low rate airline room contracts in
strengthening markets, reducing property-level overhead by sharing management
positions with other managed hotels in the vicinity, and selectively making
additional investments where favorable incremental returns are expected. These
objectives, while principally manager-initiated, have the Company's strong
support and the Company seeks to ensure their prompt implementation wherever
practical. Examples of these initiatives include the construction of an
additional ballroom at the Nashua Marriott Hotel and the conversion of certain
full-service rooms at the Miami Airport Marriott Hotel to limited-service
concepts.
Prospects for 1995 are promising with the full-year impact of 1994's
acquisitions and the opening of the Philadelphia Marriott Hotel adding to the
Company's strong base. Continued strength in demand, combined with improved
skills by the manager in capitalizing on opportunities, should result in
superior REVPAR growth. Further acquisitions are also anticipated.
The Company will continue to focus on cost control to ensure that hotel sales
increases serve to maximize house and operating profit. While certain levels of
fixed costs serve to increase profit margins as hotel sales increase,
successful performance is also resulting in more properties reaching levels
that allow the manager to share in the growth of profits in the form of higher
management fees. The Company views this as a positive development as it helps
to strengthen the alignment of the managers' interests with the Company's.
The Company recently completed construction of the Philadelphia Marriott
Hotel (1,200 rooms; opened in January 1995), which is the largest hotel in
Pennsylvania, and is constructing the Philadelphia Airport Hotel (419 rooms,
completion scheduled for December 1995), which, when completed, will be
operated by Marriott International. The Philadelphia Airport Hotel has been
largely financed through the issuance of
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$40 million of industrial revenue bonds. The Philadelphia Marriott Hotel has
been financed, in part, by a mortgage loan provided by Marriott International.
During 1994, the Company acquired 15 full-service hotels totalling
approximately 6,000 rooms in several transactions for approximately $443
million. The Company also provided 100% financing totalling approximately $35
million to an affiliated partnership, in which the Company owns the sole
general partner interest, for the acquisition of two full-service hotels (684
rooms). Additionally, the Company acquired a controlling interest in one 662-
room full-service hotel through an equity investment of $16 million and debt
financing of $36 million (the debt was subsequently sold in 1995). The Company
considers all 18 of these properties as owned hotels for accounting purposes.
The Company is continually engaged in discussions with respect to other
acquisition opportunities and, subsequent to year-end, acquired the 300-room
Charlotte Executive Park Marriott Hotel for $15 million.
COURTYARD HOTELS. The Company's moderate-priced Courtyard hotels are
positioned to compete in their respective markets directly with major national
franchised moderate-priced hotel chains. Aimed at individual business and
pleasure travelers, as well as families, Courtyard hotels typically have about
150 rooms at locations in suburban areas and near airports throughout the
United States. Well-landscaped grounds include a courtyard with a pool and
socializing areas. Each hotel features meeting rooms and a restaurant and
lounge with approximately 80 seats. The operating systems developed for these
hotels allow Courtyard to be price competitive while providing value through
superior product and guest service. The 54 Courtyard hotels owned by the
Company are among the newest in the Courtyard hotel system, averaging only five
years old. The Company's Courtyard properties have substantially matured and
are operating at exceptionally high occupancy rates. The Company believes this
competitive position will enable the manager to continue to improve
profitability by adjusting the mix of business to build room rates. The chart
below sets forth comparable performance information for fiscal years 1992
through 1994.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Number of properties.................................... 54 54 54
Number of rooms......................................... 7,940 7,940 7,896
Average daily rate...................................... $68.86 $64.58 $61.54
Occupancy percentage.................................... 80.4% 79.7% 76.3%
REVPAR.................................................. $55.37 $51.47 $46.96
REVPAR % change......................................... 7.6% 9.6% 20.6%
</TABLE>
The Company's Courtyard hotels benefited in 1994 from higher demand, driving
room rates 6.6% higher than last year, about twice the rate of inflation.
Coupled with a small occupancy increase, room revenues advanced almost 8%.
Overall sales growth was somewhat lower, as the growth in food and beverage
operations was moderate due to repositioning of restaurant operations where
profitability is low. House profit margins also increased by two percentage
points, reflecting the operating leverage inherent in properties already
running at near capacity.
Subsequent to year-end, the Company entered into a sale/leaseback agreement
with a real estate investment trust (REIT) for 21 of the Company's Courtyard
properties for $179 million (10% of which is deferred) with the REIT having an
option to buy and lease back up to 33 of the remaining Courtyard properties
within one year. The lease provides the Company with the ability to realize a
substantial portion of the future cash flows from these properties. From 50% to
75% of the proceeds from the sale will be used to pay down publicly-held debt,
as required.
RESIDENCE INNS. Residence Inn is the market leader in the extended-stay
lodging segment, enjoying solid customer preference, high guest satisfaction
and strong intent-to-return. The extended-stay lodging segment caters primarily
to business and family travelers who stay more than five consecutive nights.
Residence Inns typically have 80 to 130 studio and two-story penthouse suites
which are generally located in suburban settings throughout the United States.
Each Inn features a series of residential style buildings with
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landscaped walkways, courtyards and recreational areas. The Inns do not have
restaurants, but offer complimentary continental breakfast, and most provide a
complimentary evening hospitality hour. Each suite contains a fully equipped
kitchen, and many suites have woodburning fireplaces.
The 18 Residence Inns owned by the Company are among the newest in the
Residence Inn system, averaging only four years old. The table below sets forth
performance information for such Inns for fiscal years 1992 through 1994. The
following table excludes information with respect to the 11 Residence Inns that
are no longer consolidated with the Company as of December 31, 1993.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Number of properties.................................... 18 18 18
Number of rooms......................................... 2,178 2,178 2,178
Average daily rate...................................... $79.58 $74.70 $73.38
Occupancy percentage.................................... 85.6% 84.5% 77.4%
REVPAR.................................................. $68.12 $63.12 $56.80
REVPAR % change......................................... 7.9% 11.1% 12.2%
</TABLE>
In 1994, the Residence Inn hotels performed well with advances in room rates
of almost twice the inflation rate, while also increasing occupancy by over one
percentage point. Continued popularity of this product with customers combined
with increasing business travel resulted in superior performance for 1994. At
an average occupancy rate of 85.6% for 1994, these properties were near full
occupancy during the business week and enjoyed high occupancies during the
weekends. Given this strong demand, the Company's Residence Inns were able to
improve room rates through managing their mix of business.
During 1993, the Company sold the majority of its equity interest in a
partnership owning 11 Residence Inns. The Company is currently constructing one
additional Residence Inn property in Pentagon City, Virginia, just outside of
Washington, D.C., which is scheduled for completion in early 1996.
FAIRFIELD INNS. The Company's Fairfield Inns are positioned to compete in
their respective markets directly with major national economy motel chain
operators. Aimed at budget conscious individual business and pleasure
travelers, the Company's Fairfield Inns have 105 to 117 rooms. Fairfield Inns
have limited public space and do not include restaurants, however, they do
offer a complimentary breakfast program. The four Fairfield Inns owned by the
Company average only four years old. The chart below sets forth performance
information for the Company's Inns for fiscal years 1992 through 1994.
<TABLE>
<CAPTION>
1994(A) 1993 1992
------- ------ ------
<S> <C> <C> <C>
Number of properties.................................... 4 30 30
Number of rooms......................................... 453 3,632 3,632
Average daily rate...................................... $35.85 $39.82 $38.41
Occupancy percentage.................................... 73.4% 79.3% 78.7%
REVPAR.................................................. $26.31 $31.58 $30.23
REVPAR % change......................................... N/A 4.5% 16.4%
</TABLE>
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(a) Excludes 26 properties which were sold during 1994.
In the third quarter of 1994, the Company completed the sale of 26 of its
Fairfield Inns to an unrelated party. The net proceeds from the sale were
approximately $114 million, which exceeded the carrying value of the hotels by
approximately $12 million. Approximately $27 million of the proceeds were
payable in the form of a note from the purchaser. Subsequent to year-end, the
Company signed an agreement to sell its four remaining Fairfield Inns.
SENIOR LIVING COMMUNITIES. Until mid-1994, the Company owned 14 senior living
communities (one of which opened in February 1994). These communities were
located in seven states and offer independent living
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apartments, assisted living services and skilled nursing care. Certain of these
senior living communities are operated under the trade names Brighton Gardens
and Stratford Court. Commencing with the Distribution, these communities have
been leased to and operated by Marriott International.
During the second and third quarters of 1994, the Company sold its 14 senior
living communities to an unrelated party for $320 million, which approximated
the communities' carrying value.
INVESTMENTS IN AFFILIATED PARTNERSHIPS
The Company and certain of its subsidiaries also manage the Company's
partnership investments and conduct the partnership services business (the
"Partnership Business"). As such, the Company and/or its subsidiaries own an
equity investment in, and serve as the general partner or managing general
partner for, 31 partnerships which collectively own 45 Marriott full-service
hotels, 120 Courtyard hotels, 50 Residence Inns and 50 Fairfield Inns. In
addition, the Company holds notes receivable (net of reserves) from
partnerships totalling $174 million.
As the managing general partner, the Company or its subsidiaries are
responsible for the day-to-day management of partnership operations, which
includes payment of partnership obligations from partnership funds, preparation
of financial reports and tax returns and communications with lenders, limited
partners and regulatory bodies. The Company or its subsidiary is usually
reimbursed for the cost of providing these services.
Hotel properties owned by the partnerships generally were acquired from the
Company or its subsidiaries in connection with limited partnership offerings.
These hotel properties are currently operated under management agreements with
Marriott International. As the managing general partner of such partnerships,
the Company and its subsidiaries oversee and monitor Marriott International's
performance pursuant to these agreements.
The Company's interests in these partnerships range from 1% to 50%. Cash
distributions provided from these partnerships are tied to the overall
performance of the underlying properties and the overall level of debt owed by
the partnership. Partnership distributions to the Company approximated $4
million in 1994 and $6 million in 1993. All partnership debt is non-recourse to
the Company and its subsidiaries, except to the extent of limited debt service
guarantees discussed below.
The Company is contingently liable under various guarantees of debt
obligations of certain of these partnerships. Such commitments are limited in
the aggregate to $236 million at December 30, 1994. In most cases, fundings of
such guarantees represent loans to the respective partnerships.
OTHER REAL ESTATE GROUP INVESTMENTS
The Company owns 49 undeveloped parcels of vacant land, totalling
approximately 250 acres, originally purchased for the development of hotels or
senior living communities. The Company sold 15 parcels during 1994 for proceeds
of $23 million. In addition, the Company owns a 210-acre parcel of undeveloped
land in Germantown, Maryland, suitable for commercial use. The Company may sell
these properties from time-to-time when market conditions are favorable. Some
of the properties may be developed as part of a long-term strategy to realize
the maximum value of these parcels. The Company also has lease and sublease
activity relating primarily to its former restaurant operations.
OPERATING GROUP
The Operating Group operates food, beverage and merchandise concessions at
airports, travel plazas and other locations. The Company, through the Operating
Group, is the leading operator of airport concessions in the United States with
restaurants, gift shops and related facilities at nearly 70 domestic airports
and four foreign airports. The Company's foreign airport operations include
concessions at two
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airports in New Zealand, one airport in Australia, and one airport in Canada.
The Company's airport concessions operate primarily under the trade name "Host"
and "Host Marriott" and include restaurants, cafeterias, snack bars and gift
shops. Payments by the Company under operating contracts with airport
authorities are typically based on percentages of sales subject to an annual
minimum. The terms of such agreements vary, but generally have initial terms of
ten or more years for food and beverage concessions, and five or more years for
merchandise facilities. Additionally, the Company operates restaurants, gift
shops and related facilities at more than 35 major tourist attractions,
stadiums and arenas.
During the fourth quarter of 1992, a wholly-owned subsidiary of the Company
acquired the airport concessions business of Dobbs Houses, Inc. for
approximately $47 million, adding 32 contracts at 19 airports and two hotel
gift shops to the concessions business. In addition, during 1993, the Company
acquired the National Airport concession contract in Washington, D.C. for $9
million.
The Company is also the leading operator of travel plazas in the United
States, with over 95 travel plazas on 14 tollroads. The Company currently
operates such facilities under contracts with the highway authorities which
typically extend 15 years. The highway systems are located primarily in the
Mid-Atlantic, Midwest and New England states as well as in Florida. Travel
plazas typically include restaurants, snack bars, vending areas and merchandise
facilities.
The Operating Group employs 27 different food, beverage and merchandise
concepts at its airports and tollroads, including Pizza Hut, Burger King, Taco
Bell, Sbarro's, Dunkin Donuts, Starbucks, TCBY yogurt, Mrs. Fields cookies,
Nathan's Famous hot dogs and Cheers. As a licensee of these brands, the Company
typically pays royalties based on a percentage of sales.
In November 1993, the Operating Group announced a plan to redesign its
operations structure to improve the effectiveness and competitiveness of the
business. In the fourth quarter of 1993, the Company recorded a restructuring
charge of approximately $7 million, principally for severance, relocation, and
the write-off of development costs for a data processing system no longer
required under the new organizational structure. Implementation of the new
structure was completed in early 1994.
THE DISTRIBUTION
Prior to October 8, 1993, the Company was named "Marriott Corporation." In
addition to conducting its existing businesses of developing and owning lodging
properties and senior living service communities (the "Ownership Business") and
operating restaurants, cafeterias, gift shops and related facilities at
airports, stadiums, arenas, tourist attractions and on highway systems, the
Company engaged in lodging and senior living services management, timeshare
resort development and operation, food service and facilities management and
other contract services businesses (the "Management Business"). On October 8,
1993, the Company made a special tax-free dividend consisting of the
Distribution (the "Distribution") to holders of outstanding shares of common
stock, on a share-for-share basis, of all outstanding shares of its wholly-
owned subsidiary, Marriott International, which at the time of the Distribution
held all of the assets relating to the Management Business. Marriott
International now conducts the Management Business as a separate publicly-
traded company.
The Distribution was designed to separate two types of businesses with
distinct financial, investment and operating characteristics so that each could
adopt strategies and pursue objectives appropriate to its specific needs. As a
result of the Distribution, the Company believes it is better able to
concentrate its attention and financial resources on its core businesses and to
manage its Ownership Business and Host/Travel Plazas Business for cash flow.
The Company and Marriott International are parties to several important ongoing
arrangements, including (i) agreements pursuant to which Marriott International
manages nearly all of the Company's portfolio of lodging properties, (ii) an
agreement pursuant to which Marriott International provides a $630 million line
of credit (the "Line of Credit") to the Company's wholly-owned subsidiary, HMH
Holdings, Inc. ("Holdings"), (iii) up to $125 million of first mortgage
financing for up to 60% of the
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development and construction costs of the Philadelphia Convention Center Hotel,
(iv) assumption by Marriott International of 90% of the Company's LYONs
obligation, (v) guarantees by Marriott International of the Company's
performance to certain lenders and other third parties under certain Company
guarantees and other obligations and (vi) various transitional services
agreements.
THE EXCHANGE OFFER
In connection with the Distribution, the Company also completed an Exchange
Offer (the "Exchange Offer") pursuant to which holders of the Company's
existing Senior Notes (the "Old Notes") in the aggregate principal amount of
approximately $1.2 billion exchanged the Old Notes for a combination of (i)
cash, (ii) common stock and (iii) New Notes (the "New Notes") issued by Host
Marriott Hospitality, Inc. ("Hospitality"), an indirect wholly-owned subsidiary
of the Company. The interest rate for each series of New Notes is 100 basis
points higher and the maturity date is four years later than the series of Old
Notes for which it was exchanged (except that the maturity of the New Notes
issued in exchange for the Old Series L Senior Notes due 2012 was shortened by
five years). The Company also conducted a consent solicitation pursuant to
which, as a condition to participation in the Exchange Offer, holders of Old
Notes were required to deliver a consent to the Distribution and a waiver of
any defaults, claims or rights under the Old Note Indenture relating thereto, a
release and discharge of legal or equitable claims relating to the Distribution
and a consent to the deletion of a negative pledge covenant in the Old Note
Indenture to permit the Restructuring (see below) and grant of a stock pledge
under the New Note Indenture.
The Company received tenders for approximately $1.2 billion of Old Notes.
Excluding the Series F Senior Notes due 1995 (the "Old Series F Notes") and the
Series I Senior Notes due 1995 (the "Old Series I Notes"), the Company received
tenders for 82% of the aggregate amount of Old Notes subject to the Exchange
Offer. The Company redeemed all of the Old Series F Notes that did not tender
in the Exchange Offer, and secured the Old Series I Notes equally and ratably
with the New Notes issued in the Exchange Offer.
THE RESTRUCTURING
In connection with the Exchange Offer, the Company effected the Restructuring
of its assets (the "Restructuring"). As a result of the Restructuring, the
Company's most significant asset is the capital stock of Holdings, although the
Company conducts certain operations directly and holds interests in various
other subsidiaries. Holdings is a holding company, the primary asset of which
is the capital stock of Hospitality, and is the borrower under the Line of
Credit. Hospitality is also a holding company which owns the capital stock of
HMH Properties, Inc. ("HMH Properties") and Host Marriott Travel Plazas, Inc.
("HMTP"). In the Restructuring, most of the assets relating to the Ownership
Business were transferred to HMH Properties and its subsidiaries, and most of
the assets relating to the Host/Travel Plazas Business were transferred to HMTP
and its subsidiaries.
COMPETITION
The cyclical nature of the U.S. lodging industry has been demonstrated over
the past two decades. Low hotel profitability during the 1974-75 recession led
to a prolonged slump in new construction and, over time, high occupancy rates
and real price increases in the late 1970s and early 1980s. Changes in tax and
banking laws during the early 1980s precipitated a construction boom that
peaked in 1986 but created an oversupply of hotel rooms that has not yet been
fully absorbed by increased demand. The Company expects the U.S. hotel
supply/demand imbalance to continue to improve gradually over the next few
years as room demand continues to grow and room supply growth is expected to be
minimal, especially in the full-service segment.
The Company believes that its lodging properties will continue to enjoy
competitive advantages arising from their participation in the Marriott
International hotel system. Repeat guest business in the Marriott hotel system
is enhanced by the Marriott Honored Guest Awards program, which awards frequent
travelers
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with free stays at Marriott Hotels, Resorts and Suites, and by frequent stay
programs established by Courtyard (Courtyard Club). Marriott International's
nationwide marketing programs and reservation systems as well as the advantage
of increasing customer preference for Marriott brands should also help these
properties to maintain or increase their premium over competitors in both
occupancy and room rates.
Through its Operating Group, the Company competes with certain national and
regional companies to obtain the rights from airport and highway authorities to
operate food, beverage and merchandise concessions. To compete effectively, the
Company regularly updates and refines its product offerings (including the
addition of branded products) and facilities. Through these efforts, the
Company is able to generate higher sales and thereby increase returns both to
the airport and highway authorities and the Company. Generating these financial
results, as well as achieving high satisfaction with the products and services
provided, better positions the Operating Group to be a preferred choice when
renewing contracts or obtaining new contracts.
The Operating Group's contracts generally do not contain extension or renewal
provisions, although they are frequently extended on month-to-month leases at
contract completion while a rebidding procedure is completed. In any given
year, a number of the Operating Group's contracts expire and are rebid. Based
upon the Company's successful track record in obtaining renewals and extensions
of its existing base of contracts and gaining new contracts, management expects
that most of these contracts will be renewed and a limited number of new
contracts also will be awarded to the Company.
No major Operating Group airport contracts expire in 1995. Of the three that
expired in 1994, all continue to operate on an interim month-to-month basis,
with two of the contracts expected to be awarded in 1995 and the third
anticipated to be awarded in 1996. These three contracts represent
approximately 12% of the total annual concessions' revenue. The Company has
detailed development strategies in place with respect to each of these airports
in order to maintain a significant presence on a profitable basis. The
strategies include, in many cases, the inclusion of minority or locally-owned
business enterprises as part of the proposal team, which is being mandated by
landlords as a requirement for doing business. These arrangements often have
the negative financial effect of spreading the Company's fixed costs over a
diminished revenue base. The Operating Group is utilizing unique strategies,
such as a hybrid operator/developer structure, to minimize the financial impact
of these arrangements.
EMPLOYEES
At December 30, 1994, the Company and its subsidiaries collectively had
approximately 22,000 employees. Approximately 5,600 of the employees of the
Company and its subsidiaries are covered by collective bargaining agreements.
ITEM 3. LEGAL PROCEEDINGS
In March 1993, the Company reached agreement in principle (the "Class Action
Settlement") with certain holders and recent purchasers of the Company's old
notes, who had either instituted or threatened litigation in response to the
Distribution. In August 1993, the United States District Court approved the
Class Action Settlement. In connection with this settlement, the Company issued
warrants in 1994 to purchase up to 7.7 million shares of Host Marriott common
stock. Such warrants are exercisable for five years from the Distribution Date,
at $8.00 per share during the first three years and $10.00 per share during the
last two years.
A group of bondholders (the "PPM Group"), who purported to have at one time
owned approximately $120 million of Senior Notes, and another group purporting
to hold approximately $7.5 million of Senior Notes, opted out of the Class
Action Settlement. The PPM Group alleged that federal securities laws had been
violated in connection with the sale by the Company of certain series of its
Senior Notes and debentures and claimed damages of approximately $30 million.
The group purporting to hold $7.5 million of Senior
9
<PAGE>
Notes settled with the Company in April 1994. Under the terms of the
settlement, the Company repurchased the Senior Notes at their par value.
In September 1994, the Company settled with certain members of the PPM Group
whose claims represent 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.
The Company is from time to time the subject of, or involved in, judicial
proceedings. Management believes that any liability or loss resulting from such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock is listed on the New York Stock Exchange and on several
regional exchanges, and since consummation of the Distribution is traded under
the symbol "HMT." The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per share of the common stock as
reported on the New York Stock Exchange Composite Tape and the cash dividends
paid per share of common stock. All periods presented in the table below prior
to the fourth quarter of 1993 are prior to the Distribution. Therefore those
stock prices and dividends paid are not indicative of the Company's current
stock price or dividend policies. As of December 30, 1994, there were
approximately 72,000 holders of record of common stock.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PAID
---- ---- ---------
<S> <C> <C> <C>
1993
1st Quarter......................................... $27 3/8 $20 3/4 $.07
2nd Quarter......................................... 26 5/8 24 .07
3rd Quarter......................................... 29 24 3/8 .07
4th Quarter(1)...................................... 33 3/8 27 5/8 --
4th Quarter(2)...................................... 10 6 1/8 --
1994
1st Quarter......................................... $13 3/4 $ 8 3/4 --
2nd Quarter......................................... 11 1/8 8 3/4 --
3rd Quarter......................................... 11 7/8 9 1/2 --
4th Quarter......................................... 11 1/2 8 1/4 --
</TABLE>
--------
(1) Pre-Distribution
(2) Post-Distribution
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (in millions, except per share amounts)
<TABLE>
<CAPTION>
1994 1993(1)(2)(3) 1992(3) 1991 1990(8)
------ ------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $1,501 $1,753 $8,722 $8,331 $7,646
Operating profit before corporate
expenses and interest............ 191 134 483 464 353
Interest expense.................. 206 201 235 251 183
Income before extraordinary item
and cumulative effect of
accounting changes(4)............ (19) 57 85 82 47
Net income (loss)................. (25) 50 85 82 47
Earnings (loss) per common
share:(5)
Income (loss) before
extraordinary item and
cumulative effect of accounting
changes(4)(7).................. (.13) .40 .64 .80 .46
Net income (loss)............... (.17) .35 .64 .80 .46
Total assets...................... 3,822 3,848 6,346 6,509 7,034
Debt(6)........................... 2,259 2,499 2,981 3,241 3,608
Cash dividends declared per common
share............................ -- .14 .28 .28 .28
</TABLE>
--------
(1) Certain revenues and costs and expenses for 1993 have been reclassified to
conform to the Company's new income statement presentation.
(2) Operating results for 1993 include the operations of Marriott International
through the Distribution date of October 8, 1993. These operations had a
net pre-tax effect on 1993 pre-tax income of $211 million. They are
recorded as "Profit from operations distributed to Marriott International"
on the Company's consolidated statement of operations for 1993 and are,
therefore, not included in revenues, operating profit before corporate
expenses and interest, interest expense and interest income for the same
period. The net pre-tax effect of these operations is, however, included in
income before income taxes, extraordinary item and cumulative effect of
changes in accounting principles and in net income for 1993.
(3) Operating results in 1993 and 1992 included pre-tax costs related to the
Distribution totaling $13 million and $21 million, respectively, and a $7
million pre-tax restructuring charge for the Operating Group in 1993.
(4) Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted in the first fiscal quarter of 1993. In the second
fiscal quarter of 1993, the Company changed its accounting method for
assets held for sale. Also, the Company recognized a $5 million
extraordinary loss (net-of-tax) on the completion of the Exchange Offer.
(5) 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 common shares for 1994, as they are
antidilutive.
(6) Includes convertible subordinated debt of $20 million at December 31, 1993,
$228 million at January 1, 1993 and $210 million at January 3, 1992.
(7) Operating results in 1994 include a $6 million extraordinary loss, net-of-
taxes of $3 million, on the required redemption of New Notes. Operating
results in 1990 included pre-tax restructuring charges and write-offs, net
of certain non-recurring gains, of $153 million related to continuing
operations.
(8) Operating results in 1990 included pre-tax restructuring charges and write-
offs, net of certain non-recurring gains, of $153 million related to
continuing operations.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As described in Part I, Items 1 & 2, "Business and Properties", the Company's
assets, liabilities and business operations substantially changed when the
Company completed the Distribution, Exchange Offer and Restructuring on October
8, 1993. Because of these changes, the fiscal year 1994 historical consolidated
financial statements differ substantially compared to the 1993 and 1992
historical consolidated financial statements.
Management believes that it is more meaningful and relevant in understanding
the present and ongoing Company operations to compare the Company's historical
1994 operating results to the pro forma results for 1993 and to compare the pro
forma operating results for 1993 to the pro forma operating results for 1992.
Accordingly, the Company's pro forma consolidated statements of operations for
fiscal 1993 and 1992 are presented below. These pro forma consolidated
statements of operations were prepared as if the Distribution, Exchange Offer,
Restructuring and the implementation of the various related agreements entered
into with Marriott International, including the lodging management and senior
living community leases, occurred at the beginning of each period and include
only the operations of the businesses retained by the Company, and exclude,
among other items, certain non-recurring costs, accounting changes and
extraordinary losses. See the notes to the consolidated financial statements
for discussion of the Distribution, Exchange Offer, Restructuring and the
related transactions and agreements.
The following pro forma consolidated statements of operations for 1993 and
1992 and the management's discussion and analysis related thereto are presented
in the format that the Company adopted as of January 1, 1994 and reflect the
impact of the Distribution and related transactions. This format breaks down
the Company's operations into the Real Estate Group, consisting of the results
of all of the Company's owned hotel properties and senior living communities,
as well as its partnership investments and investments in certain other
financial assets, and the Operating Group, consisting of food, beverage and
merchandise operations at airports, travel plazas and other locations. These
pro forma consolidated statements of operations do not purport to be indicative
of results which may occur in the future.
12
<PAGE>
The following 1994 historical and 1993 and 1992 pro forma consolidated
statements of operations and related analysis should be read in conjunction
with the Company's consolidated financial statements and notes thereto included
in Part II, Item 8.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ----------------------------
1994 1993 1992
--------------- ------------- -------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Real Estate Group
Hotels........................ $ 340 $ 251 $ 239
Senior living communities..... 14 23 21
Net gains (losses) on property
transactions................. 6 (1) 3
------------- ------------- -------------
360 273 263
------------- ------------- -------------
Operating Group
Airports...................... 747 690 566
Travel Plazas................. 304 296 279
Other......................... 90 95 90
------------- ------------- -------------
1,141 1,081 935
------------- ------------- -------------
Total revenues............... 1,501 1,354 1,198
------------- ------------- -------------
Operating Costs and Expenses
Real Estate Group
Hotels........................ 200 157 151
Senior living communities..... 5 12 10
Other......................... 8 25 21
------------- ------------- -------------
213 194 182
------------- ------------- -------------
Operating Group
Airports...................... 712 659 523
Travel Plazas................. 292 282 261
Other (including restructuring
charges of $7 million in
1993)........................ 93 97 94
------------- ------------- -------------
1,097 1,038 878
------------- ------------- -------------
Total operating costs and
expenses.................... 1,310 1,232 1,060
------------- ------------- -------------
Operating Profit
Real Estate Group.............. 147 79 81
Operating Group................ 44 43 57
------------- ------------- -------------
Operating profit before
corporate expenses and
interest..................... 191 122 138
Corporate expenses.............. (37) (28) (24)
Interest expense................ (206) (190) (198)
Interest income................. 29 26 28
------------- ------------- -------------
Loss before income taxes,
extraordinary item and
accounting changes............. (23) (70) (56)
Benefit for income taxes........ 4 10 19
------------- ------------- -------------
Loss before extraordinary item
and accounting
changes(1)(2)(4)............... $ (19) $ (60) $ (37)
============= ============= =============
Loss per common share before
extraordinary item and
accounting changes............. $ (.13) $ (.51) $ (.33)
============= ============= =============
Weighted average shares
outstanding(3)................. 151.5 116.7 112.2
============= ============= =============
</TABLE>
--------
(1) Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" was adopted in the first fiscal quarter of 1993. In the second
quarter of 1993, the Company changed its accounting method for assets held
for sale. See the notes to the consolidated financial statements included
in Part II, Item 8.
13
<PAGE>
(2) The Company recognized a $5 million, net-of-taxes, extraordinary loss on
the completion of the Exchange Offer in 1993. See Note 2 to the
consolidated financial statements included in Part II, Item 8.
(3) 1993 and 1992 pro forma weighted average shares are based on weighted
average common shares of Marriott Corporation adjusted to reflect (i) the
conversion of Marriott Corporation preferred stock into 10.6 million shares
of common stock prior to the Distribution, and (ii) the issuance by
Marriott Corporation of 1.8 million shares of its common stock, prior to
the Distribution, in connection with the refinancing of certain of its
senior debt.
(4) The Company recognized a $6 million, net-of-taxes, extraordinary loss on
the redemption of bonds in 1994. See Note 8 to the consolidated financial
statements included in Part II, Item 8.
1994 COMPARED TO PRO FORMA 1993
The Company reported 1994 revenues of $1,501 million, a $147 million or 11%
improvement over pro forma 1993 results. Operating profit increased $69
million, or 57%, to $191 million in 1994. The Real Estate Group posted a
significant increase in operating profit-up $68 million over pro forma 1993
results to $147 million, while the Operating Group posted a $1 million increase
to $44 million. The 1994 loss before extraordinary item and accounting changes
decreased $41 million, or 68%, to $19 million ($.13 per share) over pro forma
1993 results.
The REAL ESTATE GROUP posted a 32% increase in revenues in 1994 to $360
million. Operating profit increased 86% over 1993 pro forma results. The
revenue and operating profit increases are primarily due to improved lodging
results and the addition of 18 full-service hotel properties during 1994,
coupled with a reduction in equity losses on the Company's partnership
investments, mainly due to the consolidation of the partnership owning the New
York Marriott Marquis Hotel (Times Square) on December 31, 1993, offset by the
impact of the 1994 sales of the senior living communities and 26 of the 30
Fairfield Inns. The increase in operating profit was also aided by certain non-
recurring items, including real estate tax refunds and manager-initiated cost
reductions.
Hotel revenues for the Real Estate Group increased $89 million to $340
million year-to-date over pro forma 1993 amounts, as all four of the Company's
lodging concepts reported growth in room revenues generated per available room
("REVPAR") for comparable units. In addition to the 1994 hotel acquisitions and
the Times Square consolidation, other non-comparable hotel transactions include
the 1994 sale of 26 Fairfield Inns in the third quarter and the 1993 sale of 11
Residence Inns near year-end. Excluding the impact of these non-comparable
items, hotel revenues increased $31 million (14%). Operating profit increased
$23 million (31%) over pro forma 1993 levels on a comparable basis.
Overall revenues and operating profits for the Company's full-service hotels,
resorts, and suites were improved or comparable to 1993 results with the
exception of the Miami Airport Marriott Hotel which achieved very high
occupancy levels in early 1993 resulting from Hurricane Andrew in 1992.
Improved results were driven by strong improvements in REVPAR. The Company's
full-service hotels posted a 7% increase in REVPAR for comparable units.
Average occupancy climbed over one percentage point for comparable units, while
average room rates increased 5%. Full-service hotel operating profit increases
were partially offset by an overall 56% increase in depreciation expense from
the New York Marriott Marquis and the 18 properties added during 1994.
The Company's moderate-priced lodging concept, Courtyard, reported
significant increases in operating profit in 1994 primarily due to REVPAR
increases. Courtyard's REVPAR increased 8%, fueled by a 7% increase in average
room rates and a one percentage point increase in average occupancy.
Residence Inn, the Company's extended-stay lodging concept, also reported
significant increases in operating profit in 1994 due to REVPAR increases.
Residence Inn's REVPAR increased 8% for comparable units due primarily to an
increase in average room rates of 7%, combined with a one percentage point
increase in average occupancy.
On August 5, 1994, the Company sold 26 of its Fairfield Inns to an unrelated
party for net proceeds of $114 million. Prior to their sale, year-to-date
revenues and operating profit were comparable to the prior year.
14
<PAGE>
Year-to-date revenues and operating profit for the four remaining Fairfield
Inns were comparable to the 1993 pro forma amounts.
Senior living communities' revenues consist of rentals earned under the lease
agreements with Marriott International. During the first quarter of 1994, the
Company executed an agreement to sell all of its senior living communities to
an unrelated party for $320 million, which approximated the communities'
carrying value. The sale of the communities was completed during the second and
third quarters of 1994. Prior to their sales, year-to-date revenues and
operating profit for senior living communities were comparable to fiscal year
1993.
The OPERATING GROUP generated a $60 million, or 6%, revenue increase in 1994
to $1,141 million. Airport concessions drove the strong performance reflecting
a 7% enplanement growth during the year and benefiting from flight delays
earlier in the year during severe winter weather. Airport revenues increased
$57 million, or 8%, to $747 million in 1994. Travel Plazas' units posted modest
increases in sales over last year primarily from the completion of plazas on
one tollroad.
During 1994, the Operating Group was awarded new contracts in such key
airports as Atlanta and Washington-Dulles and expanded its international
presence by commencing operations at the Vancouver, British Columbia airport.
At the same time, the Operating Group has, on a selective basis, elected to
reduce or end its involvement in certain contract situations where continuing
involvement was not economically justified. The Operating Group has also
undertaken a number of cost control initiatives, including the organizational
restructuring announced in late 1993, which has achieved its profitability
objectives.
The Operating Group's cost structure was negatively impacted in 1994 by
increasing contractual rentals on certain existing contracts, increasing
participation by local and minority-owned business enterprises and higher
employee costs.
Due to favorable claims experience for the general liability and workers'
compensation self-insurance programs, the Company reduced its related
actuarially estimated reserves by $8 million in 1994, which is reflected as a
reduction in the Operating Group's operating costs and expenses.
In June 1994, the Company transferred its rights under an unprofitable
concessions contract to a third party. In connection with the decision to
discontinue servicing the contract, the Company wrote off related assets of
approximately $8 million and established a reserve of approximately $4 million
for amounts which are to be paid to the third party transferee over the next
six years. Management believes the transfer of this contract will have a
positive impact on future earnings and cash flow.
On a pro forma basis, Corporate expenses increased $9 million, to $37
million, due to employee restricted stock award expenses and higher
administrative costs.
Interest expense increased by 8% to $206 million in 1994 due to the
consolidation of the partnership owning the New York Marriott Marquis and the
impact of rising interest rates on the Company's floating rate debt and
interest rate swap agreements, partially offset by the impact of bond
redemptions in the second half of 1994.
During 1994, the Company redeemed approximately $292 million of New Notes at
their face value. In connection with the redemptions, the Company recognized an
extraordinary loss of $6 million, net of taxes of $3 million, representing the
excess of the redemption price over their net carrying value. The net loss for
1994 was $25 million, or $.17 per share.
15
<PAGE>
PRO FORMA 1993 COMPARED TO PRO FORMA 1992
The Company reported a pro forma loss before extraordinary item and
accounting changes in 1993 of $60 million, versus the 1992 pro forma loss of
$37 million. Comparisons of the pro forma 1993 results to the preceding year
were affected by the following items:
. The $10 million pre-tax gain recorded in 1993 from the sale of the Company's
15% interest in the partnership owning the Boston Copley Marriott Hotel.
. The $11 million pre-tax charge recorded in 1993 to write down the carrying
value of Fairfield Inns held as available for sale.
. The restructuring costs of $7 million, pre-tax, recorded in 1993 as a result
of the reorganization of the Operating Group.
. The effect on the income tax provision in 1993 resulting from the increase
in corporate income tax rates due to tax legislation.
Excluding the impact of these items, the loss before extraordinary item and
accounting changes was relatively unchanged between years.
Hotel revenues represent house profit which is hotel operating results less
property-level expenses, excluding depreciation, property taxes, ground rent
expense, insurance and management fees. As described in Note 1 to the
consolidated financial statements, subsequent to the Distribution, the Company
does not report the gross operations of the individual hotels but, rather, the
net results which are distributed to it in accordance with the terms of the
management agreements. Revenues and operating costs and expenses have been
reclassified in the pro forma operating data to reflect those operations
consistently with the new policy. Pro forma hotel revenues increased 5% from
$239 million in 1992 to $251 million in 1993 due to (i) the combined increase
in room revenues generated per available room (REVPAR) for comparable
properties of approximately 7% and (ii) higher house profit margins offset by
the sale of seven properties in mid-1992.
Hotel operating profits increased 7% over 1992 to $94 million as a result of
increased revenues, as discussed above, offset by higher ground rent expense
and management fees tied to improved property performance. Excluding the impact
of the Fairfield Inn write-down in 1993, the sale of seven full service hotels
and 13 Courtyard hotels in 1992 and higher deferred gain amortization in 1992,
the Real Estate Group's operating profit increased 29% to $90 million in 1993.
Senior living community revenues consist of rentals earned under the lease
agreements with Marriott International. The terms of the leases call for annual
payments of $28 million (with all 14 properties fully operational) plus a
percentage of certain annual revenues from operation of the facilities in
excess of $72 million on a combined basis. The increase in pro forma revenues
is due to the opening of additional properties through 1993 and the
corresponding commencement of the rental payments for such properties.
Operating profits for senior living communities represent rentals less
depreciation expense. The increase in operating profits for these senior living
communities in 1993 is in direct relation to their increase in revenues.
Net gains (losses) on property transactions consists of gains and losses on
the sale of real estate or financial assets. Included, as well, are write-downs
in connection with other property-related transactions. Such transactions are
included in lodging operating profit in the Company's historical consolidated
financial statements with respect to owned hotel transactions and corporate
expenses with respect to partnership and other financial asset transactions. In
1993, profits were earned from the sales of the Company's interests in the
Boston Copley Marriott and The Jefferson senior living community condominium
units and were reduced by the charge recorded to write down the carrying value
of certain Fairfield Inns held for sale and by certain partnership
transactions. The amount of net gain on property transactions in 1992 primarily
consisted of gains on the sales of condominium units at The Jefferson.
16
<PAGE>
Included in Other Expenses for the Real Estate Group are the net equity in
earnings for the Company's equity investments in partnerships and the carrying
costs of the Company's undeveloped land parcels. Such expenses are included in
Corporate expenses in the Company's historical consolidated financial
statements. There was an increase in these expenses to $25 million in 1993,
principally from an increase in the proportion of losses recorded for the New
York Marriott Marquis partnership.
Revenues for the Operating Group grew by 16% in 1993 to $1,081 million,
mainly due to the acquisition of 32 Dobbs contracts in September 1992.
Operating profit for the Operating Group was down 12% from the prior year to
$43 million excluding restructuring charges of $7 million, despite higher
revenues. This decline was due to (i) higher employee benefit costs, (ii)
reduced operating efficiencies as locally and minority-owned business
participation reduced market share and (iii) higher rents and depreciation
expense for certain contracts. Depreciation increased $13 million (24%) on
higher asset balances, principally from the Dobbs contract acquisitions.
During the fourth quarter of 1993, the Company recorded a $7 million pre-tax
restructuring charge for the costs of redesigning its operating structure. Such
costs represent $4 million of severance and relocation payments, a $2.5 million
write-off of developments costs for a data processing system no longer required
under the new organization structure and $500,000 of other charges. Most of
these expenditures were incurred in the first quarter of 1994. The Company
expects to realize improved operating profits of approximately $2 million
annually as a result of the restructuring.
Corporate expenses include executive management and administrative costs. On
a pro forma basis, these costs were up $4 million in 1993 to $28 million,
principally due to increased minority interest expense and higher
administrative costs.
Interest expense decreased by 4% to $190 million in 1993 due to the paydown
in debt from the proceeds of hotel sales in 1992 and other asset sales
occurring in late 1993. Declining interest rates on variable rate debt also had
a favorable impact on interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its capital requirements with a combination of operating
cash flow, debt and equity financing, and proceeds from sales of selected
properties and other assets. The Company utilizes these sources of capital to
acquire new properties, fund capital additions and improvements, and make
principal payments on debt.
The Company believes that the financial resources generated from ongoing
operations, as well as funds available from other sources and the cash and cash
equivalent balances at December 30, 1994, will be sufficient to enable it to
meet its debt service and capital expenditure needs for the foreseeable future.
However, certain events, such as significant acquisitions, would require
additional debt or equity financing.
CAPITAL TRANSACTIONS. In January 1994, the Company raised $230 million of net
proceeds from the sale of 20.1 million shares of common stock. Additionally,
the Company obtained a revolving line of credit (the "Revolver") for up to $230
million with a group of commercial banks for the acquisition of full-service
hotels. At December 30, 1994, $168 million was outstanding under the Revolver.
The common stock and Revolver proceeds were, and the remaining proceeds will
continue to be, utilized to fund the acquisition of full-service hotel
properties.
The Company owns a portfolio of real estate which can be sold and used to
secure new financings. Property and equipment totalled $3.2 billion at December
30, 1994, $1.7 billion of which had not been pledged or mortgaged. As the
Company continues to execute its strategy of acquiring full-service hotels, it
may engage in additional capital transactions from time to time as market
conditions permit or funds are required for a particular use. Such capital
transactions may be in the form of additional stock offerings, or
17
<PAGE>
the Company may secure long-term financing and (subject, among other things, to
compliance with its existing debt agreements, including requirements to use the
proceeds of certain refinancings to repay indebtedness) may use unencumbered
assets as security for future financings, if such financings are determined to
be advantageous.
There are no plans to pay regular cash dividends on the Company's common or
preferred stock in the near future, and the Company is prohibited from doing so
on its common stock while amounts are outstanding under its Line of Credit with
Marriott International.
The Company intends to evaluate the strategic fit of its Operating Group with
the Company's real estate operations and may examine possible alternatives for
restructuring of the relationship between these two businesses. Such
possibilities could include (among other things) the separate financing of the
Operating Group and/or the potential spin-off of the Operating Group. However,
it is also possible that the Company will determine not to pursue any such
course of action.
ASSET DISPOSITIONS. The Company may, from time to time, consider
opportunities to sell certain of its real estate properties if price targets
can be achieved. During the second and third quarters of 1994, the Company sold
14 senior living communities to an unrelated party for $320 million, which
approximated the communities' carrying value. Additionally, during the third
quarter of 1994, the Company sold 26 of its Fairfield Inns to an unrelated
party. The net proceeds from the sale of the hotels was approximately $114
million, which exceeded the carrying value of the hotels by approximately $12
million, and such excess has been deferred. Approximately $27 million of the
Fairfield Inn proceeds was payable in the form of a note from the purchaser.
The Company sold 15 undeveloped land parcels during 1994 for proceeds of
approximately $23 million.
Subsequent to year-end, the Company entered into a sale/leaseback agreement
with a real estate investment trust (REIT) for 21 of the Company's Courtyard
properties for $179 million (10% of which is deferred), with an option to buy
and lease back up to 33 of the remaining Courtyard properties within one year.
From 50% to 75% of the proceeds from these sales will be used to paydown
publicly-held debt, as required.
In cases where the Company has made a decision to dispose of particular
properties, the Company assesses impairment of each individual property to be
sold on the basis of expected sales price less estimated costs of disposal.
Otherwise, the Company assesses impairment of its real estate properties based
on whether it is probable that undiscounted future cash flows from such
properties will be less than their net book value. As previously discussed, the
Company recorded an $11 million charge in the fourth quarter of 1993 to write-
down 15 individual Fairfield Inn properties to their net realizable value,
although the overall sales transaction generated a net gain.
CAPITAL ACQUISITIONS, ADDITIONS AND IMPROVEMENTS. The Company seeks to grow
primarily through opportunistic acquisitions of full-service hotels. The
Company believes that the full-service segment of the market offers
opportunities to acquire assets at attractive multiples of cash flow and at
discounts to replacement value, including under-performing hotels which can be
improved under new management. During 1994, the Company acquired 15 full-
service hotels totalling approximately 6,000 rooms for approximately $443
million. The Company also provided 100% financing totalling approximately $35
million to an affiliated partnership, in which the Company owns the sole
general partner interest, for the acquisition of two full-service hotels
(totalling another 684 rooms). Additionally, the Company acquired a controlling
interest in one 662-room full-service hotel through an equity investment of $16
million and debt financing of $36 million (the debt was subsequently sold in
1995). The Company considers all 18 of these properties as owned hotels for
accounting purposes. The Company is continually engaged in discussions with
respect to other acquisition opportunities and, subsequent to year-end,
acquired the 300-room Charlotte Executive Park Marriott Hotel for $15 million.
18
<PAGE>
For certain full-service properties, the Company is required under the terms
of its management agreements to fund escrow accounts for the purpose of keeping
its properties in good condition. These escrow accounts are funded at a rate of
3% to 6% of gross hotel sales and typically cover all the capital needs of the
properties, including major guest room and common area renovations which occur
every five to six years. The Company anticipates spending approximately $50
million to $60 million annually on the renovation and refurbishment of the
Company's existing lodging properties.
The Company recently completed the construction of the 1,200-room
Philadelphia Marriott Hotel, which opened on January 27, 1995. The construction
costs of the Hotel were funded 60% through a loan from Marriott International
totalling $88 million at December 30, 1994. A second hotel in Philadelphia, the
419-room Philadelphia Airport Marriott Hotel, is currently under construction
and is scheduled to open in December 1995. The Airport Hotel is principally
financed from the $40 million of proceeds from an industrial development
financing bond. Unused proceeds of this financing at December 30, 1994 are in
an escrow fund totalling $17 million and will be used to pay construction costs
as incurred. The Company is also constructing a 300-room Residence Inn in
Pentagon City, Virginia, scheduled for completion in early 1996. Capital
expenditures for these three hotels totalled $104 million in 1994 and $60
million in 1993. The remaining costs of construction for these hotels will be
funded from operating cash flow or from borrowings.
The Operating Group invests to maintain and enhance its facilities under
existing contracts and as a condition to extending or acquiring new contracts.
The Operating Group generally expends up to $50 million annually for such
items. During 1994, the Company incurred approximately $40 million of such
costs.
In September 1992, the Company acquired 32 Dobbs House concession contracts
at 19 airports for approximately $47 million. In addition, during 1993, the
Company acquired the National Airport concession contract in Washington, D.C.
for $9 million.
DEBT PAYMENTS. At December 30, 1994, the Company had outstanding $1.1 billion
in senior notes bearing interest at an average rate of approximately 10.2%. The
Company is also obligated on approximately $431 million of other recourse debt.
Included in this other debt is the $163 million outstanding balance of the Line
of Credit provided by Marriott International which bears interest at LIBOR plus
4% and the $168 million outstanding balance of the Revolver which bears
interest based on LIBOR plus 1.75% at December 30, 1994.
Required amortization of these corporate obligations is generally limited to
$278 million over the next five years. However, to the extent that certain
asset sales or financings take place, certain senior notes are required to be
repaid to the extent of 50% to 75% of certain asset sales and 100% of
refinancing proceeds. During 1994, the Company redeemed approximately $292
million of senior notes from the proceeds of asset sales. The Company will make
further redemptions and offers to repurchase as and when necessary based on
future net proceeds from qualifying asset sales. The Company may also from
time-to-time make open market purchases of its debt securities, including the
New Notes, to the extent such purchases are viewed as an attractive use of
available cash. During 1994, The Company purchased $15 million of senior notes
on the open market with excess cash from operations. Beginning in 1995, the
Line of Credit with Marriott International requires payments to the extent of
certain available excess cash flow, as defined.
The remainder of the Company's debt ($764 million) is secured by specific
hotel properties and has been classified as "Debt Not Carrying a Company
Guarantee". Payments on this debt generally come solely from the specific cash
flows generated by the related assets, and the lender is limited to seizure of
the asset as its sole recourse in the case of non-payment or other defaults.
Maturities over the next five years total $378 million, comprised principally
of the maturity of the mortgage on the New York Marriott Marquis in 1998.
During 1994, the Company reduced its total debt outstanding from $2,479
million at December 31, 1993 to $2,259 million at December 30, 1994. The
Company's ratio of debt to total assets decreased to 59% in 1994 from 64% in
1993.
19
<PAGE>
The Company is also party to five interest rate exchange agreements with
notional amounts of $100 million each. These agreements with Citibank, N.A. New
York, First National Bank of Chicago, and Salomon Brothers (the contracting
parties) require the Company to pay interest based on specified floating rates
of one to six month LIBOR (average rate of 6.7% at December 30, 1994) and
collect interest at fixed rates (average rate of 7.6% at December 30, 1994).
The Company realized a net reduction of interest expense of $11 million in 1994
and $21 million in 1993 and 1992, respectively, related to the interest rate
exchange agreements. One $100 million swap agreement expires in May 1995 and
the remaining agreements expire in 1997. The Company monitors the credit
worthiness of its contracting parties by evaluating credit exposure and
referring to the ratings of widely accepted credit rating services. The
Standard and Poors' long-term debt ratings for the contracting parties are all
BBB+ or better. The Company is exposed to credit loss in the event of non-
performance by the contracting parties; however, the Company does not
anticipate non-performance by the contracting parties.
LODGING PROPERTIES FORMERLY HELD FOR SALE. Historically and prior to the
Distribution, the Company developed and sold lodging properties to syndicated
limited partnerships, while continuing to operate the properties under long-
term agreements. Those agreements provided the Company with specified
percentages of sales and operating profits as compensation for operating the
properties for the owners.
Most lodging properties developed by the Company since the early 1980s were
reported as assets held for sale prior to 1992. The Company used this
classification because the sale of newly-developed lodging properties, subject
to long-term operating agreements, was the principal method of financing the
Company's lodging property development during this period. Sales of such
properties also enabled the Company to transfer the risk of real estate
ownership. Most of these properties were in the Company's Courtyard, Fairfield
Inn and Residence Inn brands, and were sold in large groups with a balanced
geographical mix of properties of the same brand.
In April 1992, as a result of continuing unfavorable conditions in the real
estate markets, the Company decided it was no longer appropriate to view such
sales of lodging properties as a primary means of long-term financing.
Accordingly, the Company discontinued classification of these properties as
assets held for sale.
During the period the Company classified lodging properties as assets held
for sale, it determined the net realizable value of such assets on a property-
by-property basis in the case of full-service hotels, resorts and suites, and
on an aggregate basis, by brand, in the case of its limited service (i.e.,
Courtyard, Fairfield Inn and Residence Inn) lodging properties. On this basis,
carrying value of these properties was not in excess of their net realizable
value based on estimated selling prices, although, as a result of deteriorating
market conditions, certain individual properties within a limited service brand
had carrying values in excess of their estimated selling prices. In certain
cases, these unrealized losses related to properties constructed during 1990
and 1991 where total development and construction costs exceeded net realizable
value. Following the reclassification of these properties, the Company assesses
impairment of its owned real estate properties based on whether it is probable
that undiscounted future cash flows from such properties will be less than
their net book value.
Beginning in the second fiscal quarter of 1993, under a new accounting policy
adopted by the Company, net realizable value of assets held for sale are
determined on a property-by-property basis as to all lodging properties,
whereas formerly such determination was made on an aggregate basis by hotel
brand as to Courtyard hotels, Fairfield Inns and Residence Inns. The after-tax
cumulative effect of this change on years prior to 1993 of $32 million was
recorded in the quarter ended June 18, 1993. The reduction in the annual
depreciation charge as a result of this change did not have a material effect
on 1993 results of operations.
PARTNERSHIP ACTIVITIES. The Company serves as general partner or the managing
general partner of numerous limited partnerships which own hotels. Debt of the
hotel limited partnerships is typically secured by first mortgages on the
properties and generally is nonrecourse to the partnership and the partners.
However, the Company has committed to advance amounts to these affiliated
limited partnerships, if
20
<PAGE>
necessary, to cover certain future debt service requirements. Such commitments
were limited, in the aggregate, to $236 million at December 30, 1994. Funding
under these guarantees amounted to $2 million in 1994.
LINE OF CREDIT. An additional source of liquidity for the Company is the $630
million Line of Credit from Marriott International available through 2007. As
of December 30, 1994, $163 million was outstanding under the Line of Credit.
Once the New Notes' balance is reduced to $630 million, the total amount
available under the Line of Credit is reduced by an amount equal to New Note
redemptions.
LEASES. The Company leases certain property and equipment under non-
cancelable operating leases. Leases related to the Company's Real Estate Group
include long-term ground leases for certain hotels, generally with multiple
renewal options. Leases related to the Company's Operating Group generally do
not have renewal or extension provisions.
Certain leases contain provisions for the payment of contingent rentals based
on a percentage of sales in excess of stipulated amounts. Certain leases also
contain contractual rental payment increases throughout the term of the lease.
The minimum rent increases are amortized over the term of the lease on a
straight-line basis. The Company remains contingently liable on certain leases
related to divested properties. Management considers the likelihood of any
substantial funding related to these leases to be remote.
INFLATION. The Company's lodging properties are impacted by inflation through
its effect on increasing costs and on the operator's ability to increase room
rates. Unlike other real estate, hotels have the ability to change room rates
on a daily basis, so the impact of higher inflation can be passed on to
customers.
The Operating Group expenses are similarly impacted by inflation. While price
increases can be instituted as inflation occurs, many contracts require
landlord approval before prices can be increased. Over time, this should not
inhibit the Company's ability to raise prices and sustain profitability.
A substantial portion of the Company's debt bears interest at fixed rates.
This debt structure largely mitigates the impact of changes in the rate of
inflation on future interest costs. However, the Company does participate in
five interest rate swap agreements aggregating $500 million with Citibank, N.A.
New York, First National Bank of Chicago, and Salomon Brothers. Under these
agreements, the Company collects interest at fixed rates (average rate of 7.6%
at December 30, 1994) and pays interest based on specified floating interest
rates of one to six month LIBOR (average rate of 6.7% at December 30, 1994).
One $100 million swap agreement expires in May 1995, and the remaining
agreements expire in 1997. Additionally, outstanding borrowings under the Line
of Credit with Marriott International, the Revolver, and a portion ($163
million at December 30, 1994) of the New York Marriott Marquis mortgage bear
interest based on variable rates. Accordingly, the amount of the Company's
interest expense under the interest rate swap agreements and the floating rate
debt for a particular year will be affected by changes in short-term interest
rates.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial information is included on the pages indicated:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.................................. 23
Consolidated Balance Sheets............................................... 24
Consolidated Statements of Operations..................................... 25-27
Consolidated Statements of Shareholders' Equity........................... 28
Consolidated Statements of Cash Flows..................................... 29
Notes to Consolidated Financial Statements................................ 30-51
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Host Marriott Corporation:
We have audited the accompanying consolidated balance sheets of Host Marriott
Corporation (formerly Marriott Corporation) and subsidiaries as of December 30,
1994 and December 31, 1993, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three fiscal
years in the period ended December 30, 1994. These financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Host
Marriott Corporation and subsidiaries as of December 30, 1994 and December 31,
1993, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended December 30, 1994 in conformity with
generally accepted accounting principles.
As discussed in Notes 3 and 6 to the consolidated financial statements, in
1993 the Company changed its methods of accounting for assets held for sale and
income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index at
Item 14(a)(2) are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
February 24, 1995
23
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1994 AND DECEMBER 31, 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
ASSETS
Property and Equipment........................................... $3,156 $3,026
Investments in Affiliates........................................ 203 220
Notes Receivable................................................. 50 111
Accounts Receivable.............................................. 102 80
Inventories...................................................... 40 52
Other Assets..................................................... 176 256
Cash and Cash Equivalents........................................ 95 103
------ ------
$3,822 $3,848
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt
Debt carrying a company guarantee of repayment................. $1,495 $1,700
Debt not carrying a company guarantee of repayment............. 764 779
------ ------
2,259 2,479
Accounts Payable and Accrued Expenses............................ 208 194
Deferred Income Taxes............................................ 453 442
Other Liabilities................................................ 192 208
Convertible Subordinated Debt.................................... -- 20
------ ------
Total Liabilities............................................ 3,112 3,343
------ ------
Shareholders' Equity
Convertible Preferred Stock.................................... 13 14
Common Stock, 300 million shares authorized; 153.6 million
shares and 129.7 million shares issued and outstanding,
respectively.................................................. 154 130
Additional Paid-in Capital..................................... 479 253
Retained Earnings.............................................. 64 108
------ ------
Total Shareholders' Equity................................... 710 505
------ ------
$3,822 $3,848
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
REVENUES
Real Estate Group
Hotels....................................................... $ 340 $ 606
Senior living communities.................................... 14 67
Net gains (losses) on property transactions.................. 6 (1)
------ ------
360 672
------ ------
Operating Group
Airports..................................................... 747 690
Travel Plazas................................................ 304 296
Other........................................................ 90 95
------ ------
1,141 1,081
------ ------
Total revenues.............................................. 1,501 1,753
------ ------
OPERATING COSTS AND EXPENSES
Real Estate Group
Hotels....................................................... 200 498
Senior living communities.................................... 5 58
Other........................................................ 8 25
------ ------
213 581
------ ------
Operating Group
Airports..................................................... 712 659
Travel Plazas................................................ 292 282
Other........................................................ 93 97
------ ------
1,097 1,038
------ ------
Total operating costs and expenses.......................... 1,310 1,619
------ ------
OPERATING PROFIT
Real Estate Group............................................. 147 91
Operating Group............................................... 44 43
------ ------
Operating profit before corporate expenses, interest and
profit from distributed operations.......................... 191 134
Corporate expenses............................................. (37) (41)
Interest expense............................................... (206) (201)
Interest income................................................ 29 26
Profit from operations distributed to Marriott International... -- 211
------ ------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES......... (23) 129
Benefit (provision) for income taxes........................... 4 (72)
------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES........................... (19) 57
Extraordinary item--Loss on extinguishment of debt (net of
income taxes of $3 million in 1994 and $4 million in 1993).... (6) (5)
Cumulative effect of a change in accounting for income taxes... -- 30
Cumulative effect of a change in accounting for assets held for
sale (net of income taxes of $22 million)..................... -- (32)
------ ------
NET INCOME (LOSS).............................................. (25) 50
Dividends on preferred stock................................... -- (8)
------ ------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK................... $ (25) $ 42
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS--(CONTINUED)
FISCAL YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
EARNINGS (LOSS) PER COMMON SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES................................ $(.13) $ .40
Extraordinary item--Loss on extinguishment of debt (net of income
taxes).......................................................... (.04) (.04)
Cumulative effect of a change in accounting for income taxes..... -- .25
Cumulative effect of a change in accounting for assets held for
sale (net of income taxes)...................................... -- (.26)
----- -----
NET INCOME (LOSS)................................................ $(.17) $ .35
===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 1, 1993
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
1992
------
<S> <C>
SALES
Lodging............................................................... $4,551
Contract Services..................................................... 4,171
------
8,722
------
OPERATING COSTS AND EXPENSES
Lodging............................................................... 4,218
Contract Services..................................................... 4,021
------
8,239
------
OPERATING PROFIT
Lodging............................................................... 333
Contract Services..................................................... 150
------
Operating profit before corporate expenses and interest............... 483
Corporate expenses, (including restructuring charges of $21 million).... (129)
Interest expense........................................................ (235)
Interest income......................................................... 31
------
INCOME BEFORE INCOME TAXES.............................................. 150
Provision for income taxes.............................................. (65)
------
NET INCOME.............................................................. 85
Dividends on preferred stock............................................ (17)
------
NET INCOME AVAILABLE FOR COMMON STOCK................................... $ 68
======
EARNINGS PER COMMON SHARE:
NET INCOME.............................................................. $ .64
======
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993 AND JANUARY 1, 1993
<TABLE>
<CAPTION>
COMMON CONVERTIBLE ADDITIONAL
SHARES PREFERRED COMMON PAID-IN RETAINED TREASURY
OUTSTANDING STOCK STOCK CAPITAL EARNINGS STOCK
------------------------------------------------------------------------------------------
(IN MILLIONS) (IN MILLIONS, EXCEPT PER COMMON SHARE)
<S> <C> <C> <C> <C> <C> <C>
95.5 Balance, January 3,
1992................... $ 200 $105 $ 35 $ 583 $(244)
-- Net income............. -- -- -- 85 --
5.3 Common stock issued for
employee stock pur-
chase, stock option,
and profit sharing
plans.................. -- -- 1 (68) 135
-- Cash dividends on com-
mon stock ($.28 per
share) and preferred
stock ($4.125 per
share)................. -- -- -- (45) --
-- Foreign currency trans-
lation adjustments..... -- -- (2) -- --
------------------------------------------------------------------------------------------
100.8 Balance, January 1,
1993................... 200 105 34 555 (109)
-- Net income............. -- -- -- 50 --
-- Distribution of stock
of Marriott
International, Inc..... -- -- (40) (417) --
7.9 Common stock issued for
the comprehensive stock
and employee stock pur-
chase plans............ -- 4 13 (58) 109
-- Cash dividends on com-
mon stock ($.14 per
share) and preferred
stock ($2.062 per
share)................. -- -- -- (22) --
8.3 Conversion of subordi-
nated debt............. -- 8 15 -- --
1.8 Common stock issued in
conjunction with the
Exchange Offer......... -- 2 58 -- --
10.9 Conversion of preferred
stock to common stock.. (186) 11 175 -- --
-- Foreign currency trans-
lation adjustments..... -- -- (2) -- --
------------------------------------------------------------------------------------------
129.7 Balance, December 31,
1993................... 14 130 253 108 --
-- Net loss............... -- -- -- (25) --
-- Adjustment to distribu-
tion of stock of
Marriott International,
Inc.................... -- -- -- (19) --
2.5 Common stock issued for
the comprehensive stock
and employee stock pur-
chase plans............ -- 2 15 -- --
.7 Conversion of subordi-
nated debt to common
stock.................. -- 1 1 -- --
.6 Conversion of preferred
stock to common stock.. (1) 1 -- -- --
20.1 Common stock issued in
stock offering......... -- 20 210 -- --
------------------------------------------------------------------------------------------
153.6 Balance, December 30,
20.1 .................. $ 13 $154 $479 $ 64 $--
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993 AND JANUARY 1, 1993
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................ $ (25) $ 50 $ 85
Adjustments to reconcile to cash from operations:
Depreciation and amortization.......................... 174 265 284
Income taxes........................................... (18) 11 (28)
Extraordinary loss on extinguishment of debt, net of
taxes................................................. 6 5 --
Cumulative effect of changes in accounting principles,
net................................................... -- 2 --
Restructuring charges.................................. -- 20 21
Proceeds from sales of timeshare notes receivable...... -- -- 41
Amortization of deferred income........................ (5) (14) (19)
Fairfield Inn net realizable value write-down.......... -- 11 --
Equity in net income (losses) of affiliates............ -- 27 24
Other.................................................. 35 23 (23)
Changes in operating accounts:
Accounts receivable................................... (6) (101) (40)
Inventories........................................... -- (10) (16)
Accounts payable and accrued expenses................. (3) 132 (14)
Other................................................. -- 8 106
----- ----- ------
Cash from continuing operations........................ 158 429 421
Cash used in discontinued operations................... -- -- (11)
----- ----- ------
Cash from operations................................... 158 429 410
----- ----- ------
INVESTING ACTIVITIES
Proceeds from sales of assets.......................... 480 83 484
Less non-cash proceeds................................ (54) (5) (97)
----- ----- ------
Cash received from sales of assets..................... 426 78 387
Capital expenditures for renewals and replacements..... (62) (60) (57)
Acquisitions........................................... (532) (29) (47)
Acquisition funds held in escrow....................... 40 (40) --
Lodging construction funded by project financing....... (67) (40) --
Other capital expenditures............................. (69) (135) (153)
Purchases of short-term marketable securities.......... (90) -- --
Sales of short-term marketable securities.............. 90 -- --
Notes receivable collections........................... 60 37 12
Affiliate collections (advances), net.................. 10 (45) (51)
Other. ................................................ 2 (28) (43)
----- ----- ------
Cash (used in) from investing activities............... (192) (262) 48
----- ----- ------
FINANCING ACTIVITIES
Issuances of debt...................................... 211 375 917
Issuances of common stock.............................. 238 12 7
Scheduled principal repayments......................... (72) (471) (1,124)
Debt prepayments....................................... (351) -- (55)
Dividends paid......................................... -- (33) (41)
Cash distributed to Marriott International............. -- (272) --
----- ----- ------
Cash from (used in) financing activities............... 26 (389) (296)
----- ----- ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (8) (222) 162
CASH AND CASH EQUIVALENTS, beginning of year............. 103 325 163
----- ----- ------
CASH AND CASH EQUIVALENTS, end of year................... $ 95 $ 103 $ 325
===== ===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The structure of Host Marriott Corporation (the "Company," formerly Marriott
Corporation) was substantially altered on October 8, 1993 (the "Distribution
Date") when the Company distributed the stock of a wholly-owned subsidiary,
Marriott International, Inc. ("Marriott International") in a special dividend
(the "Distribution"). See Note 2 for a description of the Distribution and
related transactions. As of December 30, 1994, the Company owned 119 lodging
properties generally operated under Marriott brand names and generally managed
by Marriott International. The Company also holds minority interests in various
partnerships that own over 260 additional properties operated by Marriott
International. The Company's properties span several market segments, including
full-service (hotels, resorts and suites), moderate-priced (Courtyard by
Marriott), and extended-stay (Residence Inn by Marriott).
The Company also operates restaurants, gift shops and related facilities at
over 70 airports, on 14 tollroads (including over 95 travel plazas) and at more
than 35 tourist attractions, stadiums and arenas. Many of the Company's
concessions operate under branded names utilizing franchise and license
agreements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries and controlled affiliates. Investments in 50% or less owned
affiliates over which the Company has the ability to exercise significant
influence are accounted for using the equity method. The Company's equity in
net income (losses) of these affiliates is included in the Real Estate Group's
other operating costs and expenses for 1994 and 1993. All material intercompany
transactions and balances have been eliminated.
The Company's financial statements include the results of operations and cash
flows of Marriott International through the Distribution Date. Marriott
International's results of operations through the Distribution Date included in
the accompanying consolidated financial statements consist of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN MILLIONS)
<S> <C> <C>
Sales...................................................... $ 5,555 $ 6,971
Operating Costs and Expenses............................... (5,283) (6,645)
Corporate Expenses......................................... (46) (67)
Net Interest Expense....................................... (15) (22)
------- -------
Income Before Income Taxes............................... $ 211 $ 237
======= =======
</TABLE>
Financial Statement Presentation
As a result of the Distribution and its effect on the structure of the
Company, the Company has altered its financial statement presentation to better
reflect the Company's current business segments and operating environment.
Certain financial statement information for 1993, as presented in prior
filings, has been reformatted and reclassified to reflect the Company's current
business segments and operating environment. Additionally, the Company's assets
are primarily related to its Real Estate Group and, accordingly, the balance
sheet has been presented in a non-classified format. Financial statement
information for 1992 is presented as previously filed.
30
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fiscal Year
The Company's fiscal year ends on the Friday nearest to December 31 for U.S.
operations and on November 30 for most non-U.S. operations. Fiscal 1994, 1993
and 1992, which ended December 30, 1994, December 31, 1993 and January 1, 1993
for U.S. Operations, respectively, include 52 weeks.
Revenues and Expenses
Subsequent to the Distribution, revenues for the Real Estate Group include
house profit from the Company's owned hotel properties, lease rentals for the
Company's owned senior living communities and net 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. Operating Group revenues and expenses include sales and
related costs of food, beverage and merchandise concession operations of
airports, travel plazas and other locations.
Prior to the Distribution, Real Estate Group, or Lodging, revenues included
room sales and food and beverage sales at both owned and managed hotel
properties, franchise fees for franchised hotel properties, sales of timeshare
units, and sales from senior living communities. Operating Group, or Contract
Services, revenues included sales of food, beverages and merchandise at various
airports, travel plazas and other locations, as well as contract revenue from
various facility management contracts, and distribution service revenues. In
1993, revenues related to Marriott International are included in profits from
operations distributed to Marriott International in the accompanying statement
of operations.
Prior to the Distribution, the Company operated 388 hotels under long-term
management agreements whereby payments to owners were based primarily on hotel
profits. Working capital and operating results of managed hotels operated with
the Company's employees were consolidated because the operating
responsibilities associated with such hotels were substantially the same as
those for owned and leased hotels.
Earnings (Loss) Per Common Share
Earnings (loss) per common share are 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, aggregating 151.5 million in 1994, 121.3
million in 1993 and 106.5 million in 1992. Common equivalent shares and other
potentially dilutive securities have been excluded from the weighted average
number of outstanding shares for 1994 as they are anti-dilutive.
During 1993, the Company issued 1.8 million common shares to former holders
of certain Senior Notes and debentures of the Company as part of the Exchange
Offer, 10.9 million common shares to former holders of the Company's preferred
stock and during 1993 and 1994, 9.0 million common shares to holders of the
LYONs notes upon their conversion (see Note 9). Supplemental earnings per
share, giving effect to the transactions discussed above as if they had
occurred as of the first day of the period presented, was $.42 and $.74 for the
fiscal years ended December 31, 1993 and January 1, 1993, respectively.
Weighted average shares outstanding, giving effect to the transactions
discussed above as if they had occurred as of the first day of the period
presented, were 138 million and 128 million for the fiscal years ended December
31, 1993 and January 1, 1993, respectively.
International Operations
The consolidated statements of operations include the following amounts
related to non-U.S. subsidiaries and affiliates; revenues of $258 million in
1993 (including $223 million related to Marriott International) and
31
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$355 million in 1992, and income before income taxes of $26 million in 1993 and
$24 million in 1992. International sales and income before income taxes,
subsequent to the Distribution, were not material.
Property and Equipment
Property and equipment is recorded at cost, including interest, rent and real
estate taxes incurred during development and construction. Replacements and
improvements are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally 40 years for buildings and three to 10
years for furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or the useful lives of the related buildings.
Gains on sales of properties are recognized at the time of sale or deferred
to the extent required by generally accepted accounting principles. Deferred
gains are recognized as income in subsequent periods as conditions requiring
deferral are satisfied or expire without further cost to the Company.
In cases where management is holding for sale particular lodging properties,
the Company assesses impairment based on whether the net realizable value
(estimated sales price less costs of disposal) of each individual property to
be sold is less than the net book value. A lodging property is considered to be
held for sale when the Company has made the decision to dispose of the
property. Otherwise, the Company assesses impairment of its real estate
properties based on whether it is probable that undiscounted future cash flows
from each individual property will be less than its net book value.
Inventories
Merchandise, food items and supplies are stated at the lower of average cost
or market. Senior living service condominium units held for sale are carried at
a cost of $3 million and $14 million at December 30, 1994 and December 31,
1993, respectively, which did not exceed the net realizable value.
Intangible Assets
Intangible assets amounted to $22 million and $25 million at December 30,
1994 and December 31, 1993, respectively, and primarily consist of contract
rights. These intangibles are included in other assets and are being amortized
on a straight-line basis over periods of five to 40 years. Amortization expense
totalled $3 million in 1994, $26 million in 1993, and $33 million in 1992.
Pre-Opening Costs
Costs of an operating nature incurred prior to opening of lodging and senior
living service properties are deferred and amortized over three years. Such
costs, which are included in other assets, amounted to $6 million and $16
million at December 30, 1994 and December 31, 1993, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Self-Insurance Programs
Prior to the Distribution Date, the Company was self-insured for certain
levels of general liability, workers' compensation and employee medical
coverage. Estimated costs of these self-insurance programs
32
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
were accrued at present values of projected settlements for known and
anticipated claims. The Company discontinued its self-insurance programs for
claims arising subsequent to the Distribution Date.
Interest Rate Swap Agreements
The Company has entered into interest rate swap agreements to diversify a
portion of its debt to a variable rate basis. The interest rate differential to
be paid or received on interest rate swap agreements is accrued as interest
rates change and is recognized as an adjustment to interest expense.
New Statements of Financial Accounting Standards
The Company adopted Statements of Financial Accounting Standards ("SFAS") No.
112, "Employers' Accounting for Postemployment Benefits," and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," during
1994. Adoption of these statements did not have a material effect on the
Company's consolidated financial statements. The Company is also required to
adopt SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," no
later than its fiscal year ending December 29, 1995. Adoption of SFAS No. 114
will not have any material effect on the Company's consolidated financial
statements.
2. THE DISTRIBUTION
On October 8, 1993 (the "Distribution Date"), Marriott Corporation
distributed, through a special tax-free dividend (the "Distribution"), to
holders of Marriott Corporation's common stock (on a share-for-share basis),
approximately 116.4 million outstanding shares of common stock of an existing
wholly-owned subsidiary, Marriott International, resulting in the division of
Marriott Corporation's operations into two separate companies. The distributed
operations included the former Marriott Corporation's lodging management,
franchising and resort timesharing operations, senior living service
operations, and the institutional food service and facilities management
business. The Company retained the former Marriott Corporation's airport and
tollroad food, beverage and merchandise concessions operations, as well as most
of its real estate properties. Effective at the Distribution Date, Marriott
Corporation changed its name to Host Marriott Corporation. Subsequent to the
Company's announcement in late 1992 of the planned Distribution, the Company
recorded a reserve of $21 million, representing management's best estimate, at
that time, of the anticipated costs to complete the Distribution. During 1993,
the Company recognized an additional $13 million of charges based on
management's revised estimate of the ultimate cost of completing the
Distribution. The costs include $30 million payable to attorneys, investment
bankers, consultants and financial institutions, and $4 million in employee
compensation awards. Substantially all of the unpaid costs at December 31, 1993
were paid during 1994. The other notes to the financial statements discuss
further the agreements and events relating to the Distribution.
In connection with the Distribution, the Company completed an exchange offer
("Exchange Offer") pursuant to which holders of senior notes in an aggregate
principal amount of approximately $1.2 billion ("Old Notes") exchanged such Old
Notes for a combination of (i) cash, (ii) common stock and (iii) New Notes
("New Notes") issued by an indirect wholly-owned subsidiary of the Company,
Host Marriott Hospitality, Inc. ("Hospitality"). The coupon and maturity date
for each series of New Notes is 100 basis points higher and four years later,
respectively, than the series of Old Notes for which it was exchanged (except
that the maturity of the New Notes issued in exchange for the Series L Senior
Notes due 2012 was shortened by five years). The Company redeemed all of the
old Series F Senior Notes that did not tender in the Exchange Offer, and
secured the old Series I Notes equally and ratably with the New Notes issued in
the Exchange Offer. The Exchange Offer was treated as an extinguishment of debt
and, accordingly, the Company recognized an extraordinary loss of $5 million,
net of taxes of $4 million.
33
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Exchange Offer, the Company effected a Restructuring
(the "Restructuring"). As a result of the Restructuring, the Company's most
significant asset is the capital stock of a wholly-owned subsidiary, HMH
Holdings, Inc. ("Holdings"). Holdings' primary asset is the capital stock of
Hospitality, and Holdings is the borrower under a line of credit (the "Line of
Credit") with Marriott International. In the Restructuring, most of the
Company's real estate and operating assets were transferred to subsidiaries of
Hospitality. Certain assets relating to such businesses (the "retained
business") were retained directly by the Company and certain of its other
subsidiaries (the "retained business subsidiaries").
The following condensed unaudited pro forma income statement data for the
Company is presented as if the Distribution, Exchange Offer and Restructuring
had occurred at the beginning of each period shown. This pro forma data has
been presented for informational purposes only. It does not purport to be
indicative of the results which may occur in the future.
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Revenues.................................................... $1,354 $1,198
Operating profit before corporate expenses and interest..... $ 122 $ 138
Loss before extraordinary item and accounting changes....... $ (60) $ (37)
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Land and land improvements................................... $ 419 $ 432
Buildings and leasehold improvements......................... 2,821 2,707
Furniture and equipment...................................... 584 585
Construction in progress..................................... 244 151
------ ------
4,068 3,875
Less accumulated depreciation and amortization............... (912) (849)
------ ------
$3,156 $3,026
====== ======
</TABLE>
Interest cost capitalized in connection with the Company's development and
construction activities totaled $10 million in 1994, $11 million in 1993, and
$14 million in 1992.
Most hotels developed by the Company since the early 1980s were reported as
assets held for sale prior to 1992. In early 1992, the Company decided it was
no longer appropriate to view sales of lodging properties, subject to operating
agreements, as a primary means of long-term financing. Accordingly, the Company
discontinued classification of these properties (with an aggregate carrying
value of approximately $1,150 million at that time) as assets held for sale.
Following discussions with the Staff of the Securities and Exchange
Commission, the Company agreed in the second quarter of 1993 to change its
method of determining net realizable value of assets reported as held for sale.
The Company previously determined net realizable value of such assets on a
property-by-
34
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
property basis in the case of full-service hotels, resorts and suites, and on
an aggregate basis, by hotel brand, in the case of Courtyard hotels, Fairfield
Inns and Residence Inns. Beginning in the second fiscal quarter of 1993 and
thereafter, under the Company's new accounting policy, net realizable value of
all assets held for sale is determined on a property-by-property basis. The
after-tax cumulative effect of this change on periods prior to the second
quarter of 1993 of $32 million is reflected as a cumulative effect of a change
in accounting for assets held for sale in the accompanying consolidated
statement of operations for the fiscal year ended December 31, 1993. The
reduction in the annual depreciation charge as a result of this change did not
have a material effect on results of operations. There was no pro forma effect
of this change on the results of operations for 1993 and 1992.
During the fourth quarter of 1993, the Company engaged in formal negotiations
to sell the majority of its Fairfield Inns and executed a letter of intent in
January 1994. In the fourth quarter of 1993, the Company considered these
hotels as held for sale and recorded a pre-tax charge to earnings of $11
million to write-down the carrying value of 15 such properties to their
individual estimated net realizable value. In the third quarter of 1994, the
Company completed the sale of 26 of its Fairfield Inns to an unrelated third
party. The net proceeds from the sale of such hotels were approximately $114
million, which exceeded the carrying value of the hotels by approximately $12
million. Approximately $27 million of the proceeds was payable in the form of a
note from the purchaser. The gain on the sale of these hotels has been
deferred.
4. INVESTMENTS IN AFFILIATES
Investments in affiliates consist of the following:
<TABLE>
<CAPTION>
OWNERSHIP
INTERESTS 1994 1993
--------- ---- ----
(IN
MILLIONS)
<S> <C> <C> <C>
Equity investments
Hotel partnerships which own 45 Marriott Hotels,
120 Courtyard hotels, 50 Residence Inns and
50 Fairfield Inns operated by Marriott
International, Inc., as of December 30, 1994........ 1%-50% $ 29 $ 31
Receivables............................................ -- 174 189
---- ----
$203 $220
==== ====
</TABLE>
Hotel properties owned by affiliates generally were acquired from the Company
in connection with limited partnership offerings. The Company or one of its
subsidiaries typically serve as a general partner of each partnership and the
hotels are operated under long-term agreements by Marriott International.
At December 31, 1993, the Company owned a 50% interest in Times Square
Marquis Hotel, L.P. ("Times Square"), formerly Times Square Hotel Company, the
owner of the New York Marriott Marquis, and held security interests in an
additional 39% of the partnership interests as collateral for loans made to
certain partners. The partners were in default on the loans and the Company,
for accounting purposes, realized an in-substance foreclosure of their
partnership interests. In the first quarter of 1994, the Company foreclosed on
a 29% partnership interest and completed the transfer of an additional 7%
partnership interest in Times Square in full satisfaction of the loans. As a
result, the Company holds an 86% partnership interest in Times Square at
December 30, 1994. In 1993, the Company began reporting substantially all the
losses of Times Square and on December 31, 1993 began consolidating Times
Square. The Company's December 31,
35
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1993 balance sheet was impacted by an increase in debt and other long-term
liabilities of approximately $451 million, and a corresponding increase in
assets (principally property and equipment).
In December 1993, the Company sold its 15% interest in the partnership owning
the Boston Copley Marriott Hotel for $10.4 million.
In 1993, the Company sold portions of its equity interests in Residence Inns
USA partnership for $31 million. These sales reduced the Company's ownership by
the fourth quarter of 1993 to 16.6% and allowed the Company to be released from
certain debt guarantee obligations. Accordingly, the Company deconsolidated the
partnership and removed $64 million of debt and $96 million of property and
equipment from its consolidated balance sheet at December 31, 1993. In 1994,
the Company sold an additional portion of its equity interests in the
partnership for $7 million. A gain on the sale transactions totalling $14
million has been deferred and is being amortized through 1996.
In the fourth quarter of 1993, a Company-owned addition to a hotel owned by a
partnership in which the Company is a general partner was taken through
foreclosure by the hotel's lender. The Company's investment in the addition was
written off at that time.
Receivables from affiliates are reported net of reserves of $200 million at
December 30, 1994 and $196 million at December 31, 1993. Receivables from
affiliates at December 30, 1994 included a $150 million mortgage note at 9%
which amortizes through 2003, and net debt service and other advances totalling
$14 million which are generally secured by subordinated liens on the
properties. The Company has committed to advance additional amounts to
affiliates, if necessary, to cover certain debt service requirements. Such
commitments are limited, in the aggregate, to an additional $236 million at
December 30, 1994. Net amounts funded under these commitments totalled $2
million in 1994 and $14 million in 1993.
The Company's pre-tax income from affiliates includes the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Management fees, net of direct costs........................ $-- $ 67 $ 82
Ground rental income........................................ -- 14 19
Interest income............................................. 17 16 16
Equity in net income (losses)............................... -- (27) (24)
---- ---- ----
$ 17 $ 70 $ 93
==== ==== ====
</TABLE>
Combined summarized balance sheet information for the Company's affiliates
follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Property and equipment....................................... $3,358 $3,446
Other assets................................................. 346 369
------ ------
Total assets............................................... $3,704 $3,815
====== ======
Debt, principally mortgages.................................. $3,658 $3,736
Other liabilities............................................ 839 856
Partners' deficit............................................ (793) (777)
------ ------
Total liabilities and partners' deficit.................... $3,704 $3,815
====== ======
</TABLE>
36
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Combined summarized operating results reported by these affiliates follow:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Revenues............................................... $ 705 $ 731 $ 704
Operating expenses:
Cash charges (including interest).................... (491) (511) (548)
Depreciation and other non-cash charges.............. (296) (299) (335)
----- ----- -----
Loss before extraordinary item...................... (82) (79) (179)
Extraordinary item--forgiveness of debt............. 113 -- --
----- ----- -----
Net income (loss)................................... $ 31 $ (79) $(179)
===== ===== =====
</TABLE>
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Other Assets
Escrow deposits............................................. $ 62 $ 117
Deferred financing fees..................................... 38 42
Intangible assets........................................... 22 25
Other....................................................... 54 72
------ ------
$ 176 $ 256
====== ======
Other Liabilities
Deferred ground rent........................................ $ 59 $ 49
Casualty insurance.......................................... 42 49
Deferred income............................................. 20 20
Other....................................................... 71 90
------ ------
$ 192 $ 208
====== ======
</TABLE>
6. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), during the first quarter of 1993.
Prior to such adoption, the Company deferred the past tax effects of timing
differences between amounts recorded for financial reporting purposes and
taxable income. SFAS 109 requires the recognition of deferred tax assets and
liabilities equal to the expected future tax consequences of temporary
differences.
The $30 million cumulative credit resulting from this change in accounting
principle has been reflected as a cumulative effect of a change in accounting
for income taxes in the consolidated statements of operations for 1993.
37
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total deferred tax assets and liabilities at December 30, 1994 and December
31, 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Gross deferred tax assets................................... $ 222 $ 257
Less: Valuation allowance................................... (22) (22)
------ ------
Net deferred tax assets..................................... 200 235
Gross deferred tax liabilities.............................. (653) (677)
------ ------
Net deferred income tax liability........................... $ (453) $ (442)
====== ======
</TABLE>
The valuation allowance required under SFAS 109 primarily represents prior
purchase business combination tax credits of $17 million and net operating loss
carryforwards (NOLs) of $4 million, the benefits of which were not previously
recorded, but which have been recorded under SFAS 109 as deferred tax assets
with an offsetting valuation allowance. Any subsequent reduction in the
valuation allowance related to the prior purchase business combination tax
credits and NOLs will be recorded as a reduction of income tax expense. There
was no change in the valuation allowance during 1994 and 1993.
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as
of December 30, 1994 and December 31, 1993 follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Investments in affiliates................................... $ (308) $ (279)
Property and equipment...................................... (172) (199)
Safe harbor lease investments............................... (104) (109)
Deferred tax gain........................................... (69) (90)
Reserves.................................................... 116 150
Tax credit carryforwards.................................... 46 50
Other, net.................................................. 38 35
------ ------
Net deferred income tax liability........................... $ (453) $ (442)
====== ======
</TABLE>
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current--Federal.............................................. $ (6) $ 57 $39
--State.................................................... 5 30 3
--Foreign.................................................. -- 11 20
---- ---- ---
(1) 98 62
---- ---- ---
Deferred--Federal............................................. (3) (16) (6)
--State.................................................... -- (10) 10
--Foreign.................................................. -- -- (1)
---- ---- ---
(3) (26) 3
---- ---- ---
$ (4) $ 72 $65
==== ==== ===
</TABLE>
38
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to 1993, deferred income taxes resulted from timing differences in the
recognition of income and expenses for financial and tax reporting purposes.
Tax effects of these differences for 1992, as reported under the Company's
previous method of accounting for income taxes, consist of the following at
January 1, 1993 (in millions):
<TABLE>
<S> <C>
Depreciation.......................................................... $(15)
Capitalized interest.................................................. 2
Partnership interests................................................. 41
Purchased tax lease benefits.......................................... (4)
Asset dispositions.................................................... (31)
Capitalized operations................................................ --
Casualty claims....................................................... (17)
Employee benefit plans................................................ (2)
Restructuring costs................................................... 1
Other, net............................................................ 28
----
$ 3
====
</TABLE>
At December 30, 1994, the Company has net operating loss carryforwards of $12
million which expire through 2001. Additionally, the Company has approximately
$41 million of alternative minimum tax credit carryforwards which do not
expire, and $5 million of other tax credits which expire through 2009.
A reconciliation of the statutory Federal tax rate to the Company's effective
income tax rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate............................... (35.0)% 35.0% 34.0%
State income taxes, net of Federal tax benefit........... 15.2 10.1 6.4
Tax credits.............................................. (3.6) (2.9) (2.3)
Additional tax on foreign source income.................. 1.0 3.2 --
Enacted tax rate increase................................ -- 5.1 --
Other, net............................................... 5.0 5.5 5.2
----- ---- ----
Effective income tax rate............................... (17.4)% 56.0% 43.3%
===== ==== ====
</TABLE>
As part of the Distribution, the Company and Marriott International entered
into a tax sharing agreement which reflects each party's rights and obligations
with respect to deficiencies and refunds, if any, of Federal, state or other
taxes relating to the businesses of the Company and Marriott International
prior to the Distribution. The majority of the 1994 adjustment to the
Distribution of stock of Marriott International related to deferred income
taxes.
Cash paid for income taxes, net of refunds received, was $14 million in 1994,
$64 million in 1993, and $93 million in 1992.
39
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASES
Future minimum annual rental commitments for all non-cancelable leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
(IN MILLIONS)
<S> <C> <C>
1995...................................................... $ 2 $ 120
1996...................................................... 2 115
1997...................................................... 2 105
1998...................................................... 2 106
1999...................................................... 1 99
Thereafter................................................ 10 648
--- ------
Total minimum lease payments............................... 19 $1,193
======
Less amount representing interest.......................... (8)
---
Present value of minimum lease payments.................... $11
===
</TABLE>
The Company leases certain property and equipment under non-cancelable
operating leases. Leases related to the Company's Real Estate Group include
long-term ground leases for certain hotels, generally with multiple renewal
options. Leases related to the Company's Operating Group generally do not have
renewal or extension provisions. Certain leases contain provisions for the
payment of contingent rentals based on a percentage of sales in excess of
stipulated amounts. Certain leases also contain contractual rental payment
increases throughout the term of the lease. The minimum rent increases are
amortized over the term of the applicable lease on a straight-line basis.
Certain of the leases included above relate to facilities used in the former
restaurant business. Most leases contain one or more renewal options, generally
for five or 10-year periods. Future rentals on leases have not been reduced by
aggregate minimum sublease rentals of $149 million payable to the Company under
non-cancelable subleases.
The Company remains contingently liable at December 30, 1994 on certain
leases relating to divested properties. Such contingent liabilities aggregated
$156 million at December 30, 1994. However, management considers the likelihood
of any substantial funding related to these leases to be remote.
Rent expense consists of:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Minimum rentals on operating leases.......................... $128 $199 $195
Additional rentals based on sales............................ 94 87 88
Payments to owners of managed and leased hotels based
primarily on profits........................................ -- 476 607
---- ---- ----
$222 $762 $890
==== ==== ====
</TABLE>
40
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
New Senior Notes (New Notes), with an average rate of 10.4% at
December 30, 1994, maturing through 2011..................... $ 929 $1,234
Old Senior Notes (Old Notes), with an average rate of 9.0% at
December 30, 1994, maturing through 2012..................... 135 143
Notes secured by $1,086 million of real estate assets, with an
average rate of 8.6% at December 30, 1994, maturing through
2012......................................................... 758 799
Line of Credit, with a variable rate of LIBOR plus 4% (10.125%
at December 30, 1994), due 2008.............................. 163 193
Acquisition Revolver, secured by $358 million of real estate
assets, variable rate of LIBOR plus 1.75% (7.8125% at
December 30, 1994), due 2001................................. 168 --
Other notes, with an average rate of 5.6% at December 30,
1994, maturing through 2017.................................. 95 97
Capital lease obligations..................................... 11 13
------ ------
$2,259 $2,479
====== ======
</TABLE>
In connection with the Distribution, the Company entered into the Line of
Credit with Marriott International. Pursuant to the Line of Credit, Holdings
may borrow up to $630 million for certain permitted uses from Marriott
International through 2007, with all unpaid advances due August 31, 2008.
Borrowings under the Line of Credit bear interest at LIBOR plus 4%, with any
interest in excess of 10.5% per annum deferred. An annual fee of one percent is
charged on the unused portion of the commitment. The Line of Credit is
guaranteed by the Company and certain subsidiaries.
The Line of Credit imposes certain restrictions on the ability of the Company
and certain of its subsidiaries to incur additional debt, impose liens or
mortgages on their properties (other than various types of liens arising in the
ordinary course of business), extend new guarantees (other than replacement
guarantees), pay dividends, repurchase their common stock, make investments and
incur capital expenditures.
Hospitality is the issuer of the New Notes, which are secured by a pledge of
the stock of, and guaranteed by, Holdings, Hospitality and certain of its
subsidiaries. The indenture governing these notes contains covenants that,
among other things, limit the ability of Hospitality to pay dividends and make
other distributions and restricted payments, to incur additional debt, create
additional liens on their respective assets, engage in certain transactions
with related parties, enter into agreements which restrict a subsidiary in
paying dividends or making certain other payments and limit the activities and
businesses of Holdings. The net assets of Hospitality at December 30, 1994 were
approximately $650 million, substantially all of which are restricted.
Under the terms of the New Notes indenture, Hospitality is obligated to use
50% to 75% of the net proceeds from the sale of certain assets to prepay New
Notes on a pro-rata basis. The Company redeemed approximately $292 million of
New Notes in 1994. In connection with the 1994 redemptions, the Company
recognized an extraordinary loss of $6 million, net-of-taxes of $3 million.
Additionally, under certain circumstances and subject to certain limitations,
the Company is required to redeem the New Notes with certain proceeds from
refinancing and the sale of equity interests by Hospitality or its
subsidiaries. The New Notes are not otherwise subject to redemption prior to
maturity.
The Company has available up to $125 million of first mortgage financing from
Marriott International for approximately 60% of the construction and
development costs of the Philadelphia Marriott Hotel. As of
41
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 30, 1994, the outstanding loan balance was $88 million. The loan bears
interest at LIBOR plus 3% (9.0625% at December 30, 1994) for the period ending
two years after construction. For the following 10 years, the loan bears
interest at 10% per annum with an additional 2% per annum deferred.
During 1993, the Company defeased $100 million of Old Series G Senior Notes
due in February 1994 for an amount substantially equal to its net carrying
value.
In November 1994, the Company, through its wholly-owned subsidiary, HMC
Acquisition Properties, obtained a $230 million secured, seven-year revolving
and term loan facility (the "Revolver") for funding future acquisitions of
full-service hotels and required improvements thereon. The Revolver bears
interest based on LIBOR plus 1.75% and/or the prime rate plus .75%. In November
1996, the Revolver converts to a five-year amortizing loan maturing in November
2001. An annual fee of .5% is charged on the unused portion of the commitment.
The Revolver is secured by substantially all of the assets of HMC Acquisition
Properties and its subsidiaries and is guaranteed by the Company.
In August 1994, the Times Square first mortgage loan was extended for five
years from its original maturity of December 1993. In connection with the
extension, $39 million of principal payments were made on the loan. The
principal balance of the loan of $328 million is scheduled to mature as
follows: $5 million in each of 1995 through 1997, and $313 million in 1998.
Interest on $165 million of the loan is fixed at approximately 8.4% and
interest on the remaining portion of the loan is based on LIBOR plus 1.5%.
Annual minimum principal amortization of $5 million a year is required and all
additional cash flow will be applied as additional amortization until the
principal amount of the loan is paid down to $300 million. Once the principal
amount of the loan is paid down to $300 million, 75% of future cash flow in
excess of minimum amortization requirements ranging up to $9 million per year
will be applied to further principal amortization and the remaining 25% will be
available for other obligations of Times Square, including loans due to the
Company. The Company provides a $10 million debt service guarantee of principal
and interest on the loan.
At December 30, 1994, the Company was party to $500 million aggregate
notional amount of interest rate exchange agreements with two financial
institutions and one investment bank (the contracting parties). Under these
agreements, the Company collects interest at fixed rates (average rate of 7.6%
at December 30, 1994) and pays interest based on specified floating interest
rates (average rate of 6.7% at December 30, 1994) through 1997. The Company
monitors the credit worthiness of its contracting parties by evaluating credit
exposure and referring to the ratings of widely accepted credit rating
services. The Standard and Poors' long-term debt ratings for the contracting
parties are all BBB+ or better. The Company is exposed to credit loss in the
event of non-performance by the contracting parties to the interest rate swap
agreements; however, the Company does not anticipate non-performance by the
contracting parties.
Aggregate debt maturities at December 30, 1994, excluding capital lease
obligations, are:
<TABLE>
<CAPTION>
NOT
CARRYING CARRYING
COMPANY COMPANY
GUARANTEE GUARANTEE
--------- ---------
(IN MILLIONS)
<S> <C> <C>
1995........................................................ $ 93 $ 6
1996........................................................ 70 50
1997........................................................ 50 6
1998........................................................ 20 314
1999........................................................ 45 2
Thereafter.................................................. 1,217 375
------ ----
$1,495 $753
====== ====
</TABLE>
42
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Debt not carrying a Company guarantee includes debt with partial recourse
where the Company's exposure is limited to $22 million.
Cash paid for interest, net of amounts capitalized, was $198 million in 1994,
$214 million in 1993, and $209 million in 1992. Deferred financing costs, which
are included in other assets, amounted to $38 million and $42 million at
December 30, 1994 and December 31, 1993, respectively.
9. CONVERTIBLE SUBORDINATED DEBT
In June 1991, the Company issued $675 million (principal amount at maturity)
of zero coupon convertible subordinated debt in the form of Liquid Yield Option
Notes (LYONs) due 2006. Pursuant to the Distribution, Marriott International
assumed 90% and the Company retained 10% of the debt obligations evidenced by
the LYONs. The LYONs were convertible into 13.277 shares each of the Company's
and Marriott International's common stock for each $1,000 principal amount of
LYONs. On December 13, 1993, the Company initiated a call of the LYONs
redeemable on January 25, 1994. Substantially all of the LYONs' holders elected
to convert their LYONs into common stock prior to the redemption. Such
conversions represented 8.3 million shares of the Company's common stock issued
in 1993 and .7 million shares issued in 1994.
10. SHAREHOLDERS' EQUITY
Three hundred million shares of common stock, with a par value of $1 per
share, are authorized, of which 153.6 million and 129.7 million were issued and
outstanding as of December 30, 1994 and December 31, 1993, respectively. One
million shares of preferred stock, without par value, are authorized, of which
258 shares (equivalent to 258,000 depositary shares) of 8.25% Series A
cumulative convertible preferred stock ("Series A Preferred") were issued and
outstanding as of December 30, 1994. Additional paid-in capital at December 30,
1994 includes deferred compensation credits of $15 million.
On January 27, 1994, the Company completed the issuance of 20.1 million
shares of common stock for net proceeds of $230 million. In connection with the
class action settlement discussed in Note 17, the Company issued warrants to
purchase up to 7.7 million shares of the Company's common stock in 1994.
Each Series A Preferred depositary share was convertible at any time at the
option of the holder into approximately 2.87 shares of common stock. In
September 1993, approximately 92%, or 3.7 million depositary shares, were
converted into 10.6 million shares of Company common stock. From the
Distribution through February 24, 1995, an additional 5% converted. On
September 30, 1993, the Company's Board of Directors adjusted the conversion
rate of the Company's remaining depositary shares to 19.16 shares of common
stock per depository share to reflect the Distribution. Dividends, if declared,
are payable quarterly. The Company has not paid six quarterly dividend payments
since the Distribution, and, accordingly, the remaining holders of the Series A
Preferred stock would be entitled to elect two directors of the Company.
Beginning on January 15, 1996, the Series A Preferred stock is redeemable, in
whole or in part, at the Company's option, at $52.48 per depositary share,
declining ratably to $50 per depositary share in 2002, plus accrued and unpaid
dividends to the redemption date.
In February 1989, the Board of Directors adopted a shareholder rights plan
under which a dividend of one preferred stock purchase right was distributed
for each outstanding share of the Company's common stock to shareholders of
record on February 20, 1989. Each right entitles the holder to buy 1/1,000th of
a share of a newly issued series of junior participating preferred stock of the
Company at an exercise price of $150 per share. The rights will be exercisable
10 days after a person or group acquires beneficial ownership of 20% or more of
the Company's common stock, or begins a tender or Exchange Offer for 30% or
more of
43
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Company's common stock. Shares owned by a person or group on February 3,
1989 and held continuously thereafter are exempt for purposes of determining
beneficial ownership under the rights plan. The rights are nonvoting and will
expire on February 2, 1999, unless exercised or previously redeemed by the
Company for $.01 each. If the Company is involved in a merger or certain other
business combinations not approved by the Board of Directors, each right
entitles its holder, other than the acquiring person or group, to purchase
common stock of either the Company or the acquirer having a value of twice the
exercise price of the right.
11. EMPLOYEE STOCK PLANS
Total shares of common stock reserved and available under employee stock
plans at December 30, 1994 are:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Comprehensive plan............................................. 22.7
Employee stock purchase plan................................... 3.5
----
26.2
====
</TABLE>
Under the comprehensive stock plan (the "comprehensive plan"), the Company
may award to participating employees (i) options to purchase the Company's
common stock, (ii) deferred shares of the Company's common stock and (iii)
restricted shares of the Company's common stock. In addition, the Company has
an employee stock purchase plan (the "stock purchase plan"). The principal
terms and conditions of the two plans are summarized below.
Employee stock options may be granted to officers and key employees at not
less than fair market value on the date of grant. Options granted before May
11, 1990 expire 10 years after the date of grant and nonqualified options
granted on or after May 11, 1990 expire up to 15 years after the date of grant.
Most options vest ratably over each of the first four years. In connection with
the Distribution, the Company issued an equivalent number of Marriott
International options and adjusted the exercise prices of its options then
outstanding based on the relative trading prices of shares of the common stock
of the two companies. Therefore, the options outstanding at December 30, 1994
and December 31, 1993 reflect these revised exercise prices. Option activity is
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Balance at January 3, 1992............................ 14.5 $7-39
Granted............................................... 3.2 15-19
Exercised............................................. (.8) 7-18
Cancelled............................................. (1.2) 8-37
----
Balance at January 1, 1993............................ 15.7 8-39
Granted............................................... 1.2 8-26
Exercised............................................. (2.3) 2-29
Cancelled............................................. (1.0) 2-39
----
Balance at December 31, 1993.......................... 13.6 2- 8
Granted............................................... .6 10
Exercised............................................. (2.2) 2- 8
Cancelled............................................. (.3) 2- 8
----
Balance at December 30, 1994.......................... 11.7 2-10
====
Exercisable at December 30, 1994...................... 8.1
====
</TABLE>
44
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred stock incentive plan shares granted to officers and key employees
after 1990 generally vest over 10 years in annual installments commencing one
year after the date of grant. Certain employees may elect to defer payments
until termination or retirement. Deferred stock incentive plan shares granted
in 1990 and prior years generally vest in annual installments commencing one
year after the date of grant and continuing until retirement. Employees also
could elect to forfeit one-fourth of their deferred stock incentive plan award
in exchange for accelerated vesting over a 10-year period. The Company accrues
compensation expense for the fair market value of the shares on the date of
grant, less estimated forfeitures. In 1994, 1993 and 1992, 159,000, 489,000,
and 671,000 shares were granted, respectively, under this plan.
In 1993, restricted stock plan shares under the comprehensive plan were
issued to officers and key executives and will be distributed over the next
three to ten years in annual installments based on continued employment and the
attainment of certain performance criteria. The Company recognizes compensation
expense over the restriction period equal to the fair market value of the
shares on the date of issuance adjusted for forfeitures, and where appropriate,
the level of attainment of performance criteria and fluctuations in the fair
market value of the stock. Prior to 1993, restricted stock shares were issued
to officers and key employees and are distributed over 10 years in annual
installments, subject to certain prescribed conditions including continued
employment. The Company recognizes compensation expense on these pre-1993
awards over the restriction period equal to the fair market value of the shares
on the date of issuance. The Company issued 3,537,000, and 32,000 shares under
these plans in 1993 and 1992, respectively. The Company recorded compensation
expense of $6 million and $400,000 in 1994 and 1993, respectively, related to
these awards.
Under the terms of the stock purchase plan, eligible employees may purchase
common stock through payroll deductions at the lower of market value at the
beginning or end of the plan year.
12. PROFIT SHARING AND POSTEMPLOYMENT BENEFIT PLANS
The Company contributes to profit sharing and other defined contribution
plans for the benefit of employees meeting certain eligibility requirements and
electing participation in the plans. The amount to be matched by the Company is
determined annually by the Board of Directors, and totalled $2 million for
1994, $20 million for 1993, and $25 million for 1992.
The Company provides medical benefits to a limited number of retired
employees meeting restrictive eligibility requirements. The Company adopted
Statement of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits" during 1994. Adoption of SFAS 112 did
not have a material effect on the accompanying financial statements.
13. OPERATING GROUP RESTRUCTURING
In November 1993, the Company's Operating Group announced a plan to redesign
its operations structure to improve the effectiveness and competitiveness of
the business. Implementation of the new structure was completed in the first
quarter of 1994. The Company incurred costs of approximately $7 million,
principally for severance, relocation, and the write-off of development costs
for a data processing system no longer required under the new organizational
structure, which was accrued as a restructuring charge in the fourth quarter of
1993.
14. ACQUISITIONS AND DISPOSITIONS
In 1994, the Company acquired 15 full-service hotels totalling approximately
6,000 rooms in several transactions for approximately $443 million. The Company
also provided 100% financing totalling approximately $35 million to an
affiliated partnership, in which the Company owns the sole general partner
45
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest, for the acquisition of two full-service hotels (totalling another 684
rooms). Additionally, the Company acquired a controlling interest in one 662-
room full-service hotel through an equity investment of $16 million and debt
financing of $36 million (the debt was subsequently sold in 1995). The Company
accounts for all 18 of these properties as owned hotels for accounting
purposes. The Company's summarized, consolidated pro forma results of
operations, assuming the hotel additions occurred on January 2, 1993, are as
follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
1994 1993
------ ------
(UNAUDITED)
<S> <C> <C>
Revenue...................................................... $1,560 $1,835
Net income (loss) available for common stock................. (13) 63
Income (loss) per common share............................... (.09) .45
</TABLE>
During 1994, the Company sold its 14 senior living communities to an
unrelated party for $320 million, which approximated the communities' carrying
value. See Note 3 for a discussion of the 1994 sale of 26 Fairfield Inns.
During the fourth quarter of 1993, the Company realized proceeds of
approximately $42 million on the disposition of two preferred stock
investments.
In February 1992, the Company sold 13 Courtyard hotels for $146 million in a
sale/leaseback transaction. The Company also sold seven full service hotels in
1992, for total proceeds of $200 million. Pre-tax gains on these full service
hotel sales of approximately $15 million were offset by adjustments to
previously established reserves, resulting in no net gain or loss.
In 1992, the Company sold with recourse certain timeshare notes receivable
taken by its vacation resorts division in connection with the sale of
timesharing units. Net proceeds from these transactions totaled $34 million in
1992.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of certain financial assets and liabilities and other
financial instruments are shown below.
<TABLE>
<CAPTION>
DECEMBER 30, 1994 DECEMBER 31, 1993
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- -------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Receivables from affiliates............ $ 174 $ 172 $ 189 $ 187
Notes receivable and other............. 50 109 150 232
FINANCIAL LIABILITIES
Debt................................... 2,248 2,198 2,466 2,470
OTHER FINANCIAL INSTRUMENTS
Affiliate debt service commitments..... -- -- -- 5
Interest rate swap agreements.......... -- 12 -- 33
</TABLE>
Receivables from affiliates, notes and other financial assets are valued
based on the expected future cash flows discounted at risk-adjusted rates.
Valuations for secured debt are determined based on the expected future
payments discounted at risk-adjusted rates. The fair values of the Line of
Credit, the Revolver, and other notes are estimated to be equal to their
carrying value. Senior Notes are valued based on quoted market prices.
46
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is contingently liable under various guarantees of obligations of
certain affiliates (affiliate debt service commitments) with a maximum
commitment of $236 million at December 30, 1994 and $271 million at December
31, 1993. A fair value is assigned to commitments with expected future
fundings. The fair value of the commitments represents the net expected future
payments discounted at risk-adjusted rates. Such payments are accrued on an
undiscounted basis.
The fair value of interest rate swap agreements is based on the estimated
amount the Company would receive to terminate the swap agreements. The
aggregate notional amount of the agreements was $500 million at December 30,
1994 and December 31, 1993.
16. RELATIONSHIP WITH MARRIOTT INTERNATIONAL
In connection with the Distribution, the Company and Marriott International
entered into agreements which provide, among other things, that (i) lodging
properties owned by the Company as of the Distribution Date will be managed by
Marriott International under agreements with initial terms of 20 years and
which are subject to renewal at the option of Marriott International for up to
three additional 10-year terms; (ii) the Company will lease its owned senior
living communities to Marriott International prior to their disposal (see Note
14); (iii) Marriott International guarantees the Company's performance in
connection with certain loans and other obligations; (iv) the Company can
borrow up to $630 million for certain permitted uses under the Line of Credit
and up to $125 million of first mortgage financing for construction of the
Philadelphia Marriott Hotel (see Note 8); and (v) Marriott International
assumed 90% of the LYONs obligation (see Note 9). Additionally, 15 management
agreements with Marriott International were added or extended in 1994 as a
result of the 1994 hotel acquisitions.
The management agreements generally provide for base management or system
fees of three or four percent of gross revenues, a formula based incentive
management fee limited to 20 percent of cumulative hotel operating profit, as
defined, and reimbursement for certain system-wide operating costs. The Company
has the option to terminate certain management agreements if specified
performance thresholds are not satisfied.
In 1994 and from the Distribution Date through December 31, 1993, the Company
paid to Marriott International $41 million and $5 million, respectively, in
lodging management fees, $23 million and $5 million in interest and commitment
fees under the Revolving Line of Credit and Philadelphia Marriott Hotel
mortgage, and $11 million and $3 million under the various transitional service
agreements, and earned $14 million and $5 million under the senior living
community leases during 1994 and 1993. The Company purchased $65 million and
$14 million, respectively, of food and supplies in 1994 and 1993 (after the
Distribution Date) from affiliates of Marriott International.
Additionally, Marriott International has the right to purchase up to 20% of
the voting stock of the Company if certain events involving a change in control
of the Company occur. Marriott International also has the right of first offer
if the Company decides to sell the Operating Group.
17. LITIGATION
In March 1993, the Company reached agreement in principle (the "Class Action
Settlement") with certain holders and recent purchasers of the Company's Old
Notes, who had either instituted or threatened litigation in response to the
Distribution. In August 1993, the United States District Court approved the
Class Action Settlement. In connection with this settlement, the Company issued
warrants in 1994 to purchase up to 7.7 million shares of Host Marriott common
stock. Such warrants are exercisable for five years from the Distribution Date,
at $8.00 per share during the first three years and $10.00 per share during the
last two years.
47
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A group of bondholders (the "PPM Group"), purported to have at one time owned
approximately $120 million of Senior Notes, and another group purporting to
hold approximately $7.5 million of Senior Notes, opted out of the Class Action
Settlement. The PPM Group alleges that laws had been violated in connection
with the sale by the Company of certain series of its Senior Notes and
debentures and claimed damages of approximately $30 million. The group
purporting to hold $7.5 million of Senior Notes settled with the Company in
April 1994. Under the terms of the settlement, the Company repurchased the
Senior Notes at their par value in the second quarter of 1994.
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.
18. BUSINESS SEGMENTS
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Identifiable assets
Real Estate Group.................................... $3,163 $3,117 $3,925
Operating Group...................................... 455 476 1,497
Other................................................ 204 255 880
------ ------ ------
3,822 3,848 6,302
Discontinued operations.............................. -- -- 44
------ ------ ------
$3,822 $3,848 $6,346
====== ====== ======
Capital expenditures
Real Estate Group.................................... $ 155 $ 158 $ 125
Operating Group...................................... 40 70 79
Other................................................ 3 7 4
------ ------ ------
198 235 208
Discontinued operations.............................. -- -- 2
------ ------ ------
$ 198 $ 235 $ 210
====== ====== ======
Depreciation and amortization
Real Estate Group.................................... $ 113 $ 130 $ 148
Operating Group...................................... 60 119 122
Other................................................ 1 16 14
------ ------ ------
$ 174 $ 265 $ 284
====== ====== ======
</TABLE>
The Real Estate Group is, subsequent to the Distribution, comprised of the
Company's owned full-service hotels, resorts and suites, Courtyard hotels,
Residence Inns and Fairfield Inns, and senior living communities through their
disposition in 1994. Prior to the Distribution, this segment also included the
lodging management and vacation ownership resort operations which were
distributed to Marriott International.
48
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Operating Group segment now consists of food, beverage and merchandise
operations at airports, on tollroads and at stadiums, arenas and other
attractions. The business units providing food and facilities management
services, operation of senior living communities, and distribution services of
food and related products were also distributed to Marriott International.
The results of operations of the Company's business segments are reported in
the consolidated statement of operations. Segment operating expenses include
selling, general and administrative expenses directly related to the operations
of the businesses, aggregating $54 million in 1994, $61 million in 1993
(excluding $316 million related to Marriott International) and $457 million in
1992. Gains and losses resulting from the disposition of assets identified with
each segment are included in segment operating profit.
Current assets and current liabilities of the Operating Group approximated
$100 million each at December 30, 1994 and December 31, 1993, respectively.
As discussed in Note 1, subsequent to the Distribution, revenues for the Real
Estate Group include house profit from the Company's owned hotel properties.
Accordingly, the following table presents the details of hotel revenues for
1994 and 1993, and revenues and expenses for 1992.
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Rooms................................................ $ 668 $ 524 $2,843
Food and Beverage.................................... 250 162 1,190
Other................................................ 56 39 518
----- ----- ------
Total Hotel Revenues............................... 974 725 $4,551
----- ----- ======
Department Costs
Rooms................................................ 170 130 $ 676
Food and Beverage.................................... 195 130 917
Other................................................ 29 19 2,625
----- ----- ------
Total Department Costs............................. 394 279 $4,218
----- ----- ======
Department Profit...................................... 580 446
Other Deductions....................................... (240) (195)
----- -----
House Profit........................................... $ 340 251
=====
Revenues from Owned Hotels in Excess of House Profit
Prior to Distribution................................. 355
-----
Revenues per Statement of Operations................... $ 606
=====
</TABLE>
49
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1994
--------------------------------------
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------------------------------------------------------------------------------
(UNAUDITED, IN MILLIONS, EXCEPT PER
COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues........................... $301 $359 $387 $454 $1,501
Operating profit before corporate
expenses and interest............. 24 53 61 53 191
Income (loss) before extraordinary
item.............................. (18) -- 11 (12) (19)
Net income (loss).................. (18) -- 8 (15) (25)
Net income (loss) available for
common stock...................... (18) -- 8 (15) (25)
Income (loss) per common share:
Income (loss) before
extraordinary item.............. (.12) -- .07 (.08) (.13)
Net income (loss)................ (.12) -- .05 (.10) (.17)
<CAPTION>
1993
--------------------------------------
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $386 $439 $491 $437 $1,753
Operating profit before profit of
distributed operations, corporate
expenses, and interest............ 19 47 56 12 134
Income (loss) before extraordinary
item and cumulative effect of
accounting changes................ 19 36 27 (25) 57
Net income (loss).................. 17 36 27 (30) 50
Dividends on preferred stock....... (4) (4) -- -- (8)
Net income (loss) available for
common stock...................... 13 32 27 (30) 42
Income (loss) per common share:
Income (loss) before
extraordinary item and
cumulative effect of accounting
changes......................... .14 .29 .25 (.21) .40
Net income (loss)................ .12 .29 .25 (.25) .35
</TABLE>
The first three quarters consist of 12 weeks each, and the fourth quarter
includes 16 weeks.
Third and fourth quarter 1994 results include extraordinary after-tax losses
of $3 million, respectively, on the extinguishment of debt. In the second
quarter of 1994, the Company recorded $12 million of termination expenses for
the transfer of the Company's rights under an unprofitable concessions contract
to a third party, which was partially offset by an $8 million reduction in
general liability and workers' compensation insurance reserves due to favorable
claims experience.
Fourth quarter 1993 results include pre-tax costs of $13 million related to
the Distribution (see Note 2). Also, fourth quarter 1993 results include a
charge of $11 million related to a write-down of lodging properties (see Note
3), a charge of $7 millon related to the Operating Group Restructuring (see
Note 13) and the extraordinary after-tax loss of $5 million on the
extinguishment of debt (see Note 2). As a result of the Distribution, Marriott
International's operations have been substantially eliminated from the fourth
quarter 1993 data.
The sum of the earnings (loss) per common share for the four quarters in 1993
differs from the annual earnings per common share due to the required method of
computing the weighted average number of shares in the respective periods.
50
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The first and second quarter 1993 income and per share data have been
restated to reflect the cumulative effect of the change in accounting for
assets held for sale as if it had occurred in the first quarter of 1993 (see
Note 3). First quarter 1993 earnings per common share was also impacted by the
Company's accounting change for income taxes (see Note 6).
20. SUBSEQUENT EVENT (UNAUDITED)
In March 1995, the Company entered into a sale/leaseback agreement with a
real estate investment trust for 21 of the Company's Courtyard properties for
$179 million (10% of which is deferred), with the purchaser having the option
to buy and lease back up to 33 of the remaining Courtyard properties within one
year.
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Items 10--13 is incorporated by reference from
the Host Marriott Corporation 1995 Annual Meeting of the Shareholders--Notice
and Proxy Statement--(to be filed pursuant to Regulation 14A not later than 120
days after the close of fiscal year).
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
All financial statement of the registrant as set forth under Item 8 of
this Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
The following financial information is filed herewith on the pages
indicated.
Financial Schedules:
<TABLE>
<CAPTION>
PAGE
----------
<S> <C> <C>
I. Condensed Financial Information of Registrant............. S-1 to S-5
III. Real Estate and Accumulated Depreciation.................. S-6 to S-7
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial statements or
notes thereto.
52
<PAGE>
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
2.(i) Memorandum of Understanding between Marriott Corporation and
Certain Bondholders dated as of March 10, 1993 (incorporated by
reference to Current Report on Form 8-K dated March 17, 1993).
2.(ii) Stipulation and Agreement of compromise and Settlement
(incorporated by reference to Registration Statement No. 33-62444).
3.1(i) Restated Certificate of Incorporation of Host Marriott Corporation
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
3.1(ii) Certificate of Correction filed to correct a certain error in the
Restated Certificate of Incorporation of Host Marriott Corporation
filed in the Office of the Secretary of State of Delaware on August
11, 1992, filed in the Office of the Secretary of State of Delaware
on October 11, 1994.
3.2 Amended Host Marriott Corporation Bylaws (incorporated by reference
to Current Report on Form 8-K dated October 23, 1993).
4.1(i) Indenture between Marriott Corporation and The First National Bank
of Chicago dated as of March 1, 1985 (incorporated by reference to
Registration Statement No. 2-97034).
4.1(ii) Second Supplemental Indenture between Marriott Corporation and the
First National Bank of Chicago dated as of February 1, 1986
(incorporated by reference to Current Report on Form 8-K dated
February 4, 1986).
4.1(iii) Third Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of December 1, 1986
(incorporated by reference to Current Report on Form 8-K dated
December 10, 1986).
4.1(iv) Fourth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of May 1, 1987
(incorporated by reference to Current Report on Form 8-K dated May
7, 1987).
4.1(v) Fifth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of June 12, 1987
(incorporated by reference to current Report on Form 8-K dated June
18, 1987).
4.1(vi) Sixth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of October 23, 1987
(incorporated by reference to Current Report on Form 8-K dated
October 30, 1987).
4.1(vii) Seventh Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of January 15, 1988
(incorporated by reference to Current Report on Form 8-K dated
January 26, 1988).
4.1(viii) Eighth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of February 1, 1988
(incorporated by reference to Current Report on Form 8-K dated
February 8, 1988).
4.1(ix) Ninth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of May 1, 1988
(incorporated by reference to Current Report on Form 8-K dated May
9, 1988).
4.1(x) Tenth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of May 2, 1988
(incorporated by reference to Current Report on Form 8-K dated May
24, 1988).
4.1(xi) Eleventh Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of August 27, 1990
(incorporated by reference to Current Report on Form 8-K dated
September 4, 1990).
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
4.1(xii) Twelfth Supplemental Indenture between Marriott Corporation and The
First National Bank of Chicago dated as of July 11, 1991
(incorporated by reference to Current Report on Form 8-K dated
July 19, 1991).
4.1(xiii) Thirteenth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of April 22, 1992
(incorporated by reference to Current Report on Form 8-K dated
April 29, 1992).
4.1(xiv) Fourteenth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of April 28, 1992
(incorporated by reference to Current Report on Form 8-K dated
May 5, 1992).
4.1(xv) Fifteenth Supplemental Indenture between Marriott Corporation and
Bank One, Columbus, NA. dated as of October 8, 1993 (incorporated
by reference to Current Report on Form 8-K dated October 23, 1993).
4.2(i) Indenture between Marriott Corporation and Chemical Bank dated as
of June 5, 1991 (incorporated by reference to Registration
Statement No. 33-39858).
4.2(ii) First Supplemental Indenture dated as of September 30, 1993 among
Marriott Corporation, Chemical Bank and Marriott International,
Inc. (incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
4.3(i) Marriott Corporation Certificate of Designation of the Series A
Cumulative Convertible Preferred Stock dated December 17, 1991
(incorporated by reference to Current Report on Form 8-K dated
December 23, 1991).
4.3(ii) Marriott Corporation Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
(incorporated by reference to Registration Statement No. 33-39858).
4.4(i) Rights Agreement between Marriott Corporation and the Bank of New
York as Rights Agent dated February 3, 1989 (incorporated by
reference to Registration Statement No. 33-62444).
4.4(ii) First Amendment to Rights Agreement between Marriott Corporation
and Bank of New York as Rights Agent dated as of October 8, 1993
(incorporated by reference to Registration Statement No. 33-51707).
4.5 Indenture by and among Host Marriott Hospitality, Inc. as Issuer,
HMH Holdings, Inc., as Parent Guarantor, HMH Properties, Inc., Host
Marriott Travel Plazas, Inc., Gladieux Corporation, Host
International, Inc., Marriott Family Restaurants, Inc.,Marriott
Financial Services, Inc., HMH Courtyard Properties, Inc., and
Marriott Retirement Communities, Inc. and certain of their
Subsidiaries as Subsidiary Guarantors and Marine Midland Bank,
N.A., as Trustee, with respect to the New Notes (including the Form
of New Notes) (incorporated by reference to Current Report on Form
8-K dated October 23, 1993).
4.6(i) Form of Warrant Agreement by and between Host Marriott Corporation
and First Chicago Trust Company of New York as Warrant Agent.
4.6(ii) Form of Warrant Certificate.
10.1 Marriott Corporation Executive Deferred Compensation Plan dated as
of December 6, 1990 (incorporated by reference to Exhibit 19(i) of
the Annual Report on Form 10-K for the fiscal year ended
December 28, 1991).
10.2 Host Marriott Corporation 1993 Comprehensive Stock Incentive Plan
effective as of October 8, 1993 (incorporated by reference to
Current Report on Form 8-K dated October 23, 1993).
10.3 Distribution Agreement dated as of September 15, 1993 between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference to Current Report on Form 8-K dated October 23, 1993).
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
10.4 Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference to Current Report on Form 8-K dated October 23, 1993).
10.5 Assignment and License Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.6 Corporate Services Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.7 Procurement Services Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.8 Supply Agreement dated as of October 8, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference to Current Report on Form 8-K dated October 23, 1993).
10.9 Casualty Claims Administration Agreement dated as of October 8,
1993 by and between Marriott Corporation and Marriott
International, Inc. (incorporated by reference to Current Report on
Form 8-K dated October 23, 1993).
10.10 Employee Benefits Administration Agreement dated as of October 8,
1993 by and between Marriott Corporation and Marriott
International, Inc. (incorporated by reference to Current Report on
Form 8-K dated October 23, 1993).
10.11 Tax Administration Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.12 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of October 8, 1993 by and between Marriott Corporation and
Marriott International, Inc. (incorporated by reference to Current
Report on Form 8-K dated October 23, 1993).
10.13 Noncompetition Agreement dated as of October 8, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference to Current Report on Form 8-K dated October 23, 1993).
10.14(i) Host Marriott Lodging Management Agreement--Marriott Hotels,
Resorts and Suites by and between Marriott Corporation and Marriott
International, Inc. dated September 25, 1993 (incorporated by
reference to Registration Statement No. 33-51707).
10.14(ii) Host Marriott Lodging Management Agreement--Courtyard Hotels by and
between Marriott Corporation and Marriott International, Inc. dated
September 25, 1993 (incorporated by reference to Registration
Statement No. 33-51707).
10.14(iii) Host Marriott Lodging Management Agreement--Residence Inns by and
between Marriott Corporation and Marriott International, Inc. dated
September 25, 1993 (incorporated by reference to Registration
Statement No. 33-51707).
10.14(iv) Host Marriott Lodging Management Agreement--Fairfield Inns by and
between Marriott Corporation and Marriott International, Inc. dated
September 25, 1993 (incorporated by reference to Registration
Statement No. 33-51707).
10.15(i) Consolidation Letter Agreement pertaining to Courtyard Hotels dated
September 25, 1993 between a subsidiary of Marriott International,
Inc. and a subsidiary of the Company (incorporated by reference to
Registration Statement No. 33-51707).
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<S> <C>
10.15(ii) Consolidation Letter Agreement pertaining to Residence Inns dated
September 25, 1993 between a subsidiary of Marriott International,
Inc. and a subsidiary of the Company (incorporated by reference to
Registration Statement No. 33-51707).
10.15(iii) Consolidation Letter Agreement pertaining to Fairfield Inns dated
September 25, 1993 between a subsidiary of Marriott International,
Inc. and a subsidiary of the Company (incorporated by reference to
Registration Statement No. 33-51707).
10.16 Marriott Senior Living Services Communities Lease by and between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference to Registration Statement No. 33-51707).
10.17(i) Line of Credit and Guarantee Reimbursement Agreement by and among
HMH Holdings, Inc. as borrower, Marriott International, Inc. as
lender and Host Marriott Corporation and certain subsidiaries as
guarantors dated as of October 8, 1993 (incorporated by reference
to Current Report on Form 8-K dated October 23, 1993).
10.17(ii) Amendment No. 1 to Line of Credit and Guarantee Reimbursement
Agreement among HMH Holdings, Inc. as Borrower, Marriott
International, Inc. as Lender and Host Marriott Corporation; HMC
Acquisitions, Inc.; Host Marriott GTN Corporation; Host LaJolla,
Inc.; Marriott Properties, Inc. and Willmar Distributors, Inc. as
Guarantors (incorporated by reference to Registration Statement No.
33-51707).
10.17(iii) Amendment No. 2 to Line of Credit and Guarantee Reimbursement
Agreement dated as of October 4, 1994, among HMH Holdings, Inc. as
Borrower, Marriott International, Inc. as Lender, and Host Marriott
Corporation; HMC Acquisitions, Inc.; Host Marriott GTN Corporation;
Host LaJolla, Inc.; Marriott Properties, Inc. and Willmar
Distributors, Inc. as Guarantors (incorporated by reference to
Registration Statement No. 33-54545).
*10.17(iv) Amendment No. 3 to Line of Credit and Guarantee Reimbursement
Agreement dated as of November 29, 1994, among HMH Holdings, Inc.
as Borrower, Marriott International, Inc. as Lender, and Host
Marriott Corporation; HMC Acquisitions, Inc.; Host Marriott GTN
Corporation; Host LaJolla, Inc.; Marriott Properties, Inc. and
Willmar Distributors, Inc. as Guarantors.
10.18 Philadelphia Convention Center Hotel Mortgage dated as of October
8, 1993 by and between Philadelphia Market Street Marriott Hotel
Limited Partnership and Marriott International, Inc. (incorporated
by reference to Registration Statement No. 33-51707).
10.19 LYONs Allocation Agreement dated as of September 30, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.20 Host Consulting Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.21 Architecture and Construction Services Agreement dated as of
October 8, 1993 by and between Marriott Corporation and Marriott
International, Inc. (incorporated by reference to Current Report on
Form 8-K dated October 23, 1993).
10.22 Marriott/Host Marriott Employees' Profit Sharing Retirement and
Savings Plan and Trust (incorporated by reference to Registration
Statement No. 33-62444).
10.23 Working Capital Agreement by and between Host Marriott Corporation
and Marriott International, Inc. dated as of September 25, 1993
(incorporated by reference to Registration Statement No. 33-51707).
11. Statement Re: Computation of Per Share Earnings
22. Subsidiaries of Host Marriott Corporation
23. Consent of Independent Public Accountants
</TABLE>
--------
* Filed herewith
56
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS FORM 10-K TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 29TH DAY OF MARCH, 1995.
Host Marriott Corporation
/s/ Matthew J. Hart
By___________________________________
Matthew J. Hart
Executive Vice President
and Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS FORM 10-K
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURES TITLE
/s/ Stephen F. Bollenbach President, Chief Executive Officer
_____________________________________ (Principal Executive Officer) and
Stephen F. Bollenbach Director
/s/ Matthew J. Hart Executive Vice President and Chief
_____________________________________ Financial Officer (Principal
Matthew J. Hart Financial Officer)
/s/ Jeffrey P. Mayer Senior Vice President--Finance and
_____________________________________ Corporate Controller (Principal
Jeffrey P. Mayer Accounting Officer)
/s/ Richard E. Marriott Chairman of the Board of Directors
_____________________________________
Richard E. Marriott
/s/ R. Theodore Ammon Director
_____________________________________
R. Theodore Ammon
/s/ J. W. Marriott, Jr. Director
_____________________________________
J. W. Marriott, Jr.
/s/ Ann Dore McLaughlin Director
_____________________________________
Ann Dore McLaughlin
/s/ Harry L. Vincent, Jr. Director
_____________________________________
Harry L. Vincent, Jr.
/s/ Andrew J. Young Director
_____________________________________
Andrew J. Young
57
<PAGE>
SCHEDULE I
PAGE 1 OF 5
HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1994 1993
------------ ------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Property and Equipment...... $1,750 $1,249
Investments in Affiliates... 31 66
Notes Receivable............ 11 84
Accounts Receivable......... 47 37
Inventories................. 6 7
Investment in and advances
to Holdings................ 820 783
Other Assets................ 57 161
Cash and Cash Equivalents... 45 55
------ ------
Total Assets............ $2,767 $2,442
====== ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt
Debt carrying a Company
guarantee of repayment... $ 612 $ 488
Debt not carrying a
Company guarantee of
repayment................ 754 749
------ ------
1,366 1,237
Accounts Payable and Accrued
Expenses................... 67 74
Deferred Income Taxes....... 476 442
Other Liabilities........... 148 164
Convertible Subordinated
Debt....................... -- 20
------ ------
Total Liabilities....... 2,057 1,937
------ ------
Shareholders' Equity
Convertible Preferred
Stock.................... 13 14
Common Stock.............. 154 130
Additional Paid-in
Capital.................. 479 253
Retained Earnings......... 64 108
------ ------
710 505
------ ------
Total Liabilities and
Shareholders' Equity... $2,767 $2,442
====== ======
</TABLE>
--------
The Notes to Consolidated Financial Statements of Host Marriott Corporation and
Subsidiaries are an integral part of these statements.
See Accompanying Notes to Condensed Financial Information.
S-1
<PAGE>
SCHEDULE I
PAGE 2 OF 5
HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
Fiscal years ended December 30, 1994; December 31, 1993; and January 1, 1993
<TABLE>
<CAPTION>
1994 1993 1992
---- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Revenues.................................................... $352 $ 467 $ 548
Operating costs and expenses................................ 294 445 500
---- ----- -----
Operating profit before corporate expenses and interest... 58 22 48
Corporate expenses.......................................... (20) (28) (48)
Interest expense............................................ (86) (164) (214)
Interest income............................................. 12 12 7
---- ----- -----
Loss before income taxes, equity in earnings of subsidiaries
and cumulative effect of changes in accounting principles.. (36) (158) (207)
Equity in earnings of Holdings.............................. 7 71 120
Benefit for income taxes.................................... 4 16 38
---- ----- -----
Loss before equity in earnings of Marriott International and
cumulative effect of changes in accounting principles...... (25) (71) (49)
Equity in earnings of Marriott International, net-of-tax.... -- 123 134
---- ----- -----
Income (loss) before cumulative effect of changes in
accounting principles...................................... (25) 52 85
Cumulative effect of changes in accounting principles....... -- (2) --
---- ----- -----
Net income (loss)........................................... $(25) $ 50 $ 85
==== ===== =====
</TABLE>
--------
The Notes to Consolidated Financial Statements of Host Marriott Corporation and
Subsidiaries are an integral part of these statements.
See Accompanying Notes to Condensed Financial Information.
S-2
<PAGE>
SCHEDULE I
PAGE 3 OF 5
HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
Fiscal years ended December 30, 1994; December 31, 1993; and January 1, 1993
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FROM OPERATIONS.................................... $ 34 $ 81 $ 67
----- ----- -------
INVESTING ACTIVITIES
Net proceeds from sale of assets...................... 45 46 377
Capital expenditures.................................. (133) (100) (34)
Acquisitions.......................................... (417) -- --
Other................................................. 99 (32) (77)
----- ----- -------
Cash from (used in) investing activities.............. (406) (86) 266
----- ----- -------
FINANCING ACTIVITIES
Issuances of debt..................................... 211 287 519
Issuances of common stock............................. 238 12 7
Repayments of debt.................................... (91) (453) (1,123)
Transfers from Marriott International and Holdings,
net.................................................. 4 357 380
Dividends paid........................................ -- (33) (41)
Cash distributed to Marriott International............ -- (272) --
----- ----- -------
Cash from (used in) financing activities.............. 362 (102) (258)
----- ----- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ (10) $(107) $ 75
===== ===== =======
</TABLE>
--------
The Notes to Consolidated Financial Statements of Host Marriott Corporation and
Subsidiaries are an integral part of these statements.
See Accompanying Notes to Condensed Financial Information.
S-3
<PAGE>
SCHEDULE I
PAGE 4 OF 5
HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
A) On October 8, 1993, Host Marriott Corporation (the "Parent Company",
formerly Marriott Corporation) completed a Distribution of Marriott
International common stock and an Exchange Offer. See Note 2 to the
Company's consolidated financial statements for more information about the
Distribution and Exchange Offer.
In connection with the Exchange Offer, the Parent Company effected a
Restructuring (the "Restructuring"). As a result of the Restructuring, the
Parent Company's most significant asset is the capital stock of a wholly-
owned subsidiary, HMH Holdings, Inc. ("Holdings"). Holdings' primary asset
is the capital stock of Host Marriott Hospitality, Inc. ("Hospitality"),
and Holdings is the borrower under a $630 million Line of Credit with
Marriott International.
In the Restructuring, most of the Parent Company's real estate and
operating assets were transferred to subsidiaries of Hospitality. The
remaining assets were retained directly by the Parent Company and certain
of its other subsidiaries (the "Retained Businesses") and are unrestricted.
Hospitality is the issuer of senior notes (the "New Notes") secured by a
pledge of the stock of, and guaranteed by, Holdings, Hospitality and
certain of its subsidiaries. The indenture governing these New Notes
contain covenants that, among other things, limit the ability of
Hospitality to pay dividends and make other distributions and restricted
payments, incur additional debt, create additional liens on its
subsidiaries' assets, engage in certain transactions with related parties,
enter into agreements which restrict a subsidiary in paying dividends or
making certain other payments and limit the activities and businesses of
Holdings. At December 30, 1994, substantially all of Hospitality's net
assets are restricted.
Accordingly, the accompanying financial statements present the operations
of the Parent Company and Retained Businesses with the investment in, and
operations of, Holdings and Hospitality presented on the equity method of
accounting.
B) The accompanying financial statements present the financial position,
results of operations and cash flows of the Parent Company and Retained
Businesses as if the organizational structure described in Note A was in
place for all periods presented. Marriott Corporation's historical basis in
the assets and liabilities of the Parent Company and Retained Businesses has
been carried over. All material intercompany transactions between the
companies have been eliminated.
C) As a result of the Distribution and its effect on the structure of the
Parent Company and Retained Businesses, the financial statement presentation
has been altered to better reflect the Parent Company and Retained
Businesses' current business segments and operating environment.
Accordingly, certain financial statement information for 1993 and 1992 has
been reformatted and reclassified to reflect the Parent Company and Retained
Businesses' current business segments and operating environment.
D) Under the terms of the Exchange Offer, Hospitality issued New Notes as
partial consideration for Old Notes, originally issued by the Company.
Additionally, the Company has secured the Old Series I Notes as discussed in
Note 2 to the Company's consolidated financial statements. Accordingly, for
the twelve-week period from October 8, 1993 through December 31, 1993, and
for the fiscal year ended December 30, 1994, Hospitality's financial
statements reflect the impact of the New Notes actually issued plus the
effects of the Old Series I Notes which have been pushed down to
Hospitality. For the periods presented up to October 8, 1993, Hospitality's
financial statements reflect the pushed down effects of 100% of that portion
of the Old Notes that would have been replaced with New Notes had the
Company received tenders for 100% of the aggregate amount of Old Notes that
were subject to the Exchange Offer.
S-4
<PAGE>
SCHEDULE I
PAGE 5 OF 5
HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION--(CONTINUED)
Investments in and advances to Holdings and debt include $87 million at
December 30, 1994 and December 31, 1993 which has been pushed down to
Hospitality. Related interest expense of $8 million, $94 million and $125
million fiscal 1994, 1993, and 1992, respectively, is included in interest
expense in the accompanying condensed statements of income.
Aggregate debt maturities at December 30, 1994 are (in millions):
<TABLE>
<S> <C>
1995................................................................ $ 97
1996................................................................ 118
1997................................................................ 54
1998................................................................ 334
1999................................................................ 25
Thereafter.......................................................... 738
------
$1,366
======
</TABLE>
E) The accompanying statements of income reflect the equity in earnings of
Holdings, including its wholly-owned subsidiary Hospitality after
elimination of interest expense (see Note D) and before income taxes.
Holdings is included in the consolidated income tax returns of Host Marriott
Corporation.
F) Corporate expenses in 1993 and 1992 reflect pre-tax costs of $13 million and
$16 related to the Distribution discussed in Note A.
S-5
<PAGE>
SCHEDULE III
PAGE 1 OF 2
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 30, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT
INITIAL COSTS DECEMBER 30, 1994
----------------- SUBSEQUENT ------------------------ DATE OF
BUILDINGS & COSTS BUILDINGS & ACCUMULATED COMPLETION OF DATE
DESCRIPTION DEBT LAND IMPROVEMENTS CAPITALIZED LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
----------- ---- ---- ------------ ----------- ---- ------------ ------ ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full-service
Hotels:
New York Marriott Marquis
New York, NY....... $354 $ 0 $ 552 $ 14 $ 0 $ 566 $ 566 $ (81) 1986 N/A
San Francisco
Moscone Center,
San Francisco, CA.. 230 0 278 2 0 280 280 (22) 1989 N/A
Other full-service
properties, each
less than 5% of
total.............. 254 115 786 193 115 979 1,094 (173) various various
---- ---- ------ ---- ---- ------ ------ -----
Total full-
service........ 838 115 1,616 209 115 1,825 1,940 (276)
Courtyard.......... 0 112 395 7 112 402 514 (42) various N/A
Residence Inn...... 0 38 104 21 40 123 163 (10) various N/A
Other properties,
each less than 5%
of total........... 0 129 5 23 152 5 157 (1) various N/A
---- ---- ------ ---- ---- ------ ------ -----
Total.......... $838 $394 $2,120 $260 $419 $2,355 $2,774 $(329)
==== ==== ====== ==== ==== ====== ====== =====
<CAPTION>
DEPRECIATION
DESCRIPTION LIFE
----------- ------------
<S> <C>
Full-service
Hotels:
New York Marriott Marquis
New York, NY....... 50
San Francisco
Moscone Center,
San Francisco, CA.. 50
Other full-service
properties, each
less than 5% of
total.............. 40
Total full-
service........
Courtyard.......... 40
Residence Inn...... 40
Other properties,
each less than 5%
of total........... various
Total..........
</TABLE>
S-6
<PAGE>
SCHEDULE III
PAGE 2 OF 2
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 30, 1994
(IN MILLIONS)
NOTES:
(A) The change in total cost of properties for the year ended December 30, 1994
is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1993....................................... $2,668
Additions:
Acquisitions..................................................... 502
Capital expenditures............................................. 40
Deductions:
Dispositions and other........................................... (436)
------
Balance at December 30, 1994....................................... $2,774
======
</TABLE>
(B) The change in accumulated depreciation and amortization for the year ended
December 30, 1994 is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1993....................................... $ 298
Depreciation and amortization..................................... 58
Dispositions and other............................................ (27)
------
Balance at December 30, 1994....................................... $ 329
======
</TABLE>
(C) The aggregate cost of properties for Federal income tax purposes is
approximately $2,231 million at December 30, 1994.
(D) The total cost of properties excludes construction-in-progress properties.
S-7
<PAGE>
EXHIBIT 1017(iv)
[CONFORMED COPY]
===============================================================================
Amendment No. 3 to
Line of Credit and Guarantee
Reimbursement Agreement
--------------------------------
Dated as of November 29, 1994
--------------------------------
Among
HMH Holdings, Inc.
as Borrower,
Marriott International, Inc.
as Lender,
and
Host Marriott Corporation; HMC Acquisitions, Inc.;
Host Marriott GTN Corporation; Host La Jolla, Inc.;
Marriott Properties, Inc.; and Willmar Distributors, Inc.
as Guarantors
===============================================================================
<PAGE>
AMENDMENT NO. 3 TO
LINE OF CREDIT AND
GUARANTEE REIMBURSEMENT
AGREEMENT
This Amendment No. 3 to Line of Credit and Guarantee Reimbursement Agreement
(the "Amendment") dated as of November 29, 1994 between HMH Holdings, Inc., a
Delaware corporation, as borrower, Marriott International, Inc., a Delaware
corporation, as lender, and Host Marriott Corporation (formerly Marriott
Corporation), a Delaware corporation ("Host Marriott"), as guarantor, and
certain other Subsidiaries of Host Marriott signatory to this Amendment, as
additional guarantors.
RECITALS:
Whereas, the parties hereto are party to that certain Line of Credit and
Guarantee Reimbursement Agreement dated as of October 8, 1993, as amended by
that certain Amendment No. 1 dated as of January 19, 1994 and that certain
Amendment No. 2 dated as of October 4, 1994 (as so amended, the "Existing
Agreement"); and
Whereas, HMC Acquisition Properties, Inc., a wholly-owned direct subsidiary
of Acquisitions, wishes to enter into the Initial HMCAP Facility, as defined
below, which is conditioned upon, among other things, the delivery by Host
Marriott of a Permitted Host Marriott HMCAP Guarantee, as defined below; and
Whereas, Marriott International is willing to allow a Permitted Host Marriott
HMCAP Guarantee, although it is prohibited by Section 5.2(c)(1) of the Existing
Agreement, and because, among other things, Marriott International expects to
benefit from the opportunity to operate additional lodging properties for the
Host Marriott Group; and
Whereas, the parties now wish to further amend the Existing Agreement to
permit Host Marriott to enter into the Permitted Host Marriott HMCAP Guarantee;
and
Whereas, subject to the terms and conditions set forth below, the parties
hereto have agreed to amend the Existing Agreement as hereafter provided;
AGREEMENT:
Now, therefore, it is agreed:
A. CAPITALIZED TERMS. All capitalized terms used herein, unless otherwise
defined herein, shall have the same meanings as set forth in the Existing
Agreement.
B. SECTION 1.1 AND EXHIBIT A; NEW DEFINED TERMS. The following defined
terms are added to Exhibit A to the Agreement (as defined below):
<PAGE>
"HMCAP" means HMC Acquisition Properties, Inc., a wholly-owned direct
subsidiary of Acquisitions.
"HMCAP FACILITY" means, at any time, the Initial HMCAP Facility as amended
(including any amendment and restatement thereof), modified and
supplemented at such time in accordance with its terms.
"HMCAP RELEASE DATE" means the date on which all of the following have
occurred: (i) the HMCAP Facility and any Replacement HMCAP Facility
have been canceled, (ii) all Permitted Host Marriott HMCAP Guarantees
have been terminated and cancelled, and (iii) all draws under any
Permitted Host Marriott HMCAP Guarantees described in clauses (ii) and
(iii) have been repaid in full.
"INITIAL HMCAP FACILITY" means the Credit Agreement dated as of November
29, 1994 among Acquisitions, HMCAP, Citibank, N.A., Credit Lyonnais
Cayman Island Branch, National Westminster Bank PLC, The Bank of Nova
Scotia and The First National Bank of Chicago, as Co-Agents, Bankers
Trust Company, as Administrative Agent, and the other lenders from
time to time party thereto, together with the "Credit Documents" and
the "Security Documents" as defined in such Credit Agreement,
including, without limitation, the "Host Marriott Guaranty" and the
agreement between Marriott International and the lenders thereunder
pursuant to which Marriott International, upon the occurrence and
continuation of an "Event of Default" thereunder, is entitled but not
obligated to purchase the loans thereunder at par plus all other
amounts then owing thereunder, in each case in the form in which such
documents existed on November 29, 1994, without giving any effect to
any subsequent amendment, supplement or other modification.
"PERMITTED HOST MARRIOTT HMCAP GUARANTEE" means
(1) the Host Marriott Guarantee under the Initial HMCAP Facility;
(2) the Host Marriott Guarantee under the HMCAP Facility so long as
(A) the provisions thereof are no more restrictive in any material
respect than those of the Host Marriott Guarantee under the
Initial HMCAP Facility and (B) the changes from the Host Marriott
Guarantee under the Initial HMCAP Facility do not materially and
adversely affect Marriott International's rights for repayment
under this Agreement, it being understood and agreed that
extensions of restrictive and financial covenants for periods
beyond the initial periods set forth in the HMCAP Facility shall
not be considered to be more restrictive so long as such
extensions are done on a reasonable basis;
(3) Any Host Marriott Guarantee of any Replacement HMCAP Facility
where, and only for so long as, all of the following conditions
are satisfied:
2
<PAGE>
(A) The principal amount of such Replacement HMCAP Facility does
not exceed the principal amount outstanding under the HMCAP
Facility (or Replacement HMCAP Facility) which is Replaced
thereby (determined at the time of such Replacement and
including for this purpose any available but unutilized
portion(s) of up to $10,000,000 in aggregate working capital
facilities under the HMCAP Facility and/or any Replacement
HMCAP Facilities) plus accrued but unpaid interest and fees
thereunder and reasonable refinancing costs at the time of
such Replacement;
(B) Host Marriott's Maximum Guarantee Exposure under such Host
Marriott Guarantee does not exceed the principal amount under
such Replacement HMCAP Facility as set forth in clause (A)
above plus interest thereon;
(C) The restrictive and financial covenants (regardless of whether
set forth in the form of covenants or events of default) under
such Replacement HMCAP Facility are not more restrictive in
any material respect than those included in the HMCAP
Facility, it being understood and agreed that extensions of
restrictive and financial covenants for periods beyond the
initial periods set forth in the HMCAP Facility shall not be
considered to be more restrictive so long as such extensions
are done on a reasonable basis; and
(D) Such Replacement HMCAP Facility provides Marriott
International with the right to buy the loans or securities
thereunder at par plus all other amounts owing thereunder
(including, without limitation, any yield maintenance
premiums, make-whole premiums, other similar prepayment
premiums and charges and breakage costs) upon an event of
default thereunder.
"REPLACEMENT HMCAP FACILITY" means each and every loan document, indenture,
or other debt-related document which evidences or otherwise forms a
part of any Replacement for the HMCAP Facility (except that to the
extent that the HMCAP Facility remains in effect after any such
Replacement, said HMCAP Facility shall not also constitute a
"Replacement HMCAP Facility," it being the intention of the parties
that no credit facility shall be deemed to be both the "HMCAP
Facility" and a "Replacement HMCAP Facility" for purposes of this
Agreement).
C. SECTION 1.1 AND EXHIBIT A; SUBJECT GUARANTEES. Paragraph (3) of the
definition of Subject Guarantees in Exhibit A is amended and restated as
follows:
(3) Guarantees made by any Parent Group Member entered into after the
Distribution Date to the extent such Guarantees are permitted under
the terms of Section 5.2(c)(1)(C), provided, however, that in no
event shall the Permitted Host Marriott HMCAP Guarantee constitute a
Subject Guarantee.
3
<PAGE>
D. SECTION 2.10(A)(6); USE OF PROCEEDS. Section 2.10(a)(6) of the Agreement
is amended and restated as follows:
(6) (A) payments under Subject Guarantees of the Parent Group when
due under the terms of such Subject Guarantees; and (B) payments under any
Permitted Host Marriott HMCAP Guarantee in an aggregate amount not to
exceed (for all such Permitted Host Marriott HMCAP Guarantees) the lesser
of (i) $46 million or (ii) 20% of the then remaining principal balance
under the HMCAP Facility (or, as the case may be, any Replacement HMCAP
Facility which is beneficiary of the Permitted Host Marriott HMCAP
Guarantee) on the date of any determination under this paragraph (without
giving effect to any repayments under the HMCAP Facility or such
Replacement HMCAP Facility, as the case may be, after the occurrence of an
event of default thereunder from sources other than the proceeds of
Regular Advances), it being the intention of the parties that the direct
and indirect support that this Agreement may provide for the Permitted
Host Marriott HMCAP Guarantee shall in no event exceed such amount.
E. SECTION 5.2(C)(1)(C); CERTAIN PARENT GROUP GUARANTEES. Section
5.2(c)(1)(C)(iv) of the Existing Agreement is deleted and replaced with the
following:
(iv) Permitted Host Marriott HMCAP Guarantees with an
aggregate Maximum Guarantee Exposure of not more than $230,000,000,
plus accrued and unpaid interest and fees under the HMCAP Facility
or Replacement HMCAP Facility, as the case may be, and reasonable
refinancing costs.
(v) Notwithstanding the foregoing, the aggregate Maximum
Guarantee Exposure of Parent Group Members under all Guarantees
permitted by clauses (i), (ii) and (iii) of this Section
5.2(c)(1)(C) may not exceed $104,000,000 at any time.
F. SECTION 5.4(E); COVENANTS PERTAINING TO ACQUISITIONS GROUP: OUTSTANDING
ADVANCES IN EXCESS OF $450 MILLION. The following is added as Section 5.4(e)(3)
of the Existing Agreement:
(3) Notwithstanding the foregoing, the provisions of this Section
5.4(e) shall not be applicable while any HMCAP Facility or Replacement
HMCAP Facility which is both permitted under Section 5.4(g)(2) and
supported by a Permitted Host Marriott HMCAP Guarantee remains in effect.
G. SECTION 5.4(F); COVENANTS PERTAINING TO ACQUISITIONS GROUP:
TRANSACTIONS WITH AFFILIATES. The following is added to the end of
Section 5.4(f) of the Existing Agreement:
Marriott International acknowledges that this Section 5.4(f) is only
intended to apply to transactions between Acquisitions Group Members and
other Host Marriott Group Members or Affiliates who are not members of the
Acquisitions Group, and accordingly
4
<PAGE>
is not intended to apply to transactions solely among Acquisitions Group
Members.
H. SECTIONS 5.4(G); HMCAP FACILITY PROVISIONS. The following is added as
Section 5.4(g) of the Agreement:
(g) HMCAP Facilities Provisions.
(1) HMCAP Facilities Covenants. Holdings, Host Marriott and
Acquisitions shall, at all times prior to the HMCAP Release Date, comply,
and cause HMCAP and each other Member of the Host Marriott Group which is
a party to the HMCAP Facility or any Replacement HMCAP Facility to comply,
with all of the affirmative and negative covenants of the HMCAP Facility
and any Replacement HMCAP Facility, as the case may be, as such covenants
may be duly waived, modified or amended from time to time by the lenders
or holders under the HMCAP Facility or any Replacement HMCAP Facility for
so long as such waiver, modification or amendment is effective. In
furtherance and not in limitation of the foregoing, the following
covenants and events of default shall be deemed to be incorporated herein
by reference to the same extent as if fully set forth herein, in each case
with such modifications as would be necessary to make Marriott
International, rather than the lenders under the applicable credit
facility, the beneficiary thereof:
(A) for so long as the HMCAP Facility or any Replacement HMCAP
Facility is in effect, each of the covenants and events of default
under such facility(ies), as in effect from time to time, which are
most closely analogous to those set forth in Sections 7, 8 and 9.12 of
the Credit Agreement under the Initial HMCAP Facility and Sections 12
and 13 of Host Marriott Guaranty under the Initial HMCAP Facility
(including without limitation any covenants which may be added after
the date of the Initial HMCAP Facility, whether such covenants take
the form of covenants or events of default), in each case as such
covenants or events of default may be duly waived, modified or amended
from time to time by the lenders or holders under such facility(ies)
for so long as such waiver, modification or amendment is effective; or
(B) If neither the HMCAP Facility nor any Replacement HMCAP
Facility remains in effect but the HMCAP Release Date has not
occurred, each of the covenants and events of default set forth in
Sections 7, 8 and 9.12 of the Credit Agreement under the Initial HMCAP
Facility and Sections 12 and 13 of the Host Marriott Guaranty under
the Initial HMCAP Facility.
Notwithstanding the foregoing, no provision of, or incorporated by
reference in, this Section 5.4(g)(1) which pertains to Host Marriott or
any Acquisitions Group Member or the of Host Marriott property of any
Acquisitions Group Member shall give rise to an Event of Default hereunder
until such time as all payments under Permitted Host Marriott HMCAP
Guarantees which are made from the proceeds of Regular Advances exceed in
the aggregate the amount specified in Section 2.10(a)(6)(B).
5
<PAGE>
(2) Acquisitions Group Indebtedness. Holdings, Host Marriott and
Acquisitions shall not at any time prior to the HMCAP Release Date permit
any Acquisitions Group Member to create, incur or assume, or otherwise
become liable with respect to (collectively, "incur") any Indebtedness
other than
(A) Indebtedness incurred pursuant to the HMCAP Facilities and
any Replacement HMCAP Facility, provided that the aggregate principal
amount outstanding under all Replacement HMCAP Facilities may not at
any time exceed (i) the aggregate principal amount of Indebtedness
under the HMCAP Facility that was Replaced thereby (determined at the
time of such Replacement and including for this purpose any available
but unutilized portion(s) of up to $10,000,000 in aggregate working
capital facilities under the HMCAP Facility and/or any Replacement
HMCAP Facilities) as reduced by any permanent principal repayment made
from any source other than the proceeds of a Replacement HMCAP
Facility plus (ii) accrued and unpaid interest and fees thereunder and
other reasonable refinancing costs, and provided further that each
such HMCAP Facility or Replacement HMCAP Facility shall require that
interest thereunder accrue and be due and payable in full no less
often than annually;
(B) Unsecured subordinated Indebtedness of Acquisitions or
HMCAP in an aggregate principal amount not to exceed $150,000,000 and
on terms and conditions approved in advance in writing by Marriott
International. Provided further that the holders of such Indebtedness
shall have entered into a subordination agreement acceptable to
Marriott International whereby, among other things, such Indebtedness
is fully subordinated to (1) all payments, due or previously deferred,
to Marriott International or any of its subsidiaries relating to its
role as manager or operator for an Acquisitions Group Member
(including without limitation payment of management fees and any other
amounts due) and (2) payments by Acquisitions or HMCAP, as applicable
to Host Marriott (whether in the form of a dividend, a repayment of
advances, or otherwise) in an aggregate amount equal to all payments
made by Host Marriott under any Permitted Host Marriott HMCAP
Guarantee, together with interest thereon.
(C) Intercompany Indebtedness of any Acquisitions Group Member
owing to any other Acquisitions Group Member or Host Marriott incurred
in the ordinary course of business;
(D) Indebtedness owing to any officer, director or employee of
any Acquisitions Group Member incurred in the ordinary course of
business as presently conducted pursuant to any Host Marriott Group
employee benefit plan;
(E) Interest Swap Obligations related to the HMCAP Facility or
any Replacement HMCAP Facility;
(F) Capitalized leases of equipment and machinery (including
telephone equipment, computer hardware and software, other office
equipment
6
<PAGE>
and vehicles) used in connection with the operation of a hotel
property incurred in the ordinary course of business the proceeds of
which are not used, directly or indirectly, to purchase land or
hotels; and
(G) Other Indebtedness incurred by Acquisitions Group Members
in the ordinary course of business for working capital and capital
expenditures to maintain existing hotels in an aggregate outstanding
principal amount not to exceed $10,000,000 the proceeds of which are
not used, directly or indirectly, to purchase land or hotels;
provided, that the aggregate principal amount of all Indebtedness under
clauses (A) and (B) above may not at any time exceed $380,000,000 plus
accrued and unpaid interest and fees thereunder, and reasonable
refinancing costs.
(3) Waiver by Marriott International of Certain Rights.
Notwithstanding anything to the contrary in this Agreement, for so long as
the HMCAP Facility or any Replacement HMCAP Facility which benefits from a
Permitted Host Marriott HMCAP Guarantee remains outstanding, Marriott
International agrees not to exercise its rights to receive Acquisitions
Group Net Cash Flow under Sections 5.4(e), 6.2(c) or 6.4(a) of this
Agreement, and none of Holdings, Host Marriott or Acquisitions shall be
required to comply with the portions of such provisions which relate to
Acquisitions Group Net Cash Flow nor shall an Event of Default occur as a
result thereof. Notwithstanding the foregoing, this Section 5.4(g)(3)
shall not impair either any of Marriott International's other rights or
any Host Marriott Group Member's other obligations under such provisions,
including, without limitation, rights and obligations with respect to
Parent Group Net Cash Flow.
(4) Indemnification for Subordinated Management Fees. Host
Marriott and Holdings hereby jointly, severally, and unconditionally agree
to indemnify Marriott International and its Subsidiaries for any fee which
would otherwise be payable under a Marriott International Operating
Agreement by an Acquisitions Group Member which at such time owns or
leases the applicable lodging property, but which fee is not then paid as
a result of any Management Subordination Agreement under the HMCAP
Facility or any similar agreement under any Replacement HMCAP Facility.
Accordingly, Holdings hereby further agrees and makes the irrevocable
direction to Marriott International that, if Host Marriott or Holdings
does not pay Marriott International or its applicable Subsidiary an amount
equal to such fee within five (5) Business Days after receipt of an
invoice therefor, such amount shall constitute a deemed Advance under
Section 2.1(b) and shall further constitute a Guarantee Advance for all
purposes hereunder as of the date such amount would have otherwise been
payable under the applicable Marriott International Operating Agreement.
To the extent that an Acquisitions Group Member subsequently pays any such
fee to Marriott International or its applicable Subsidiary, the amount of
such payment shall be treated as a prepayment under Section 2.5(b) as of
the date of such payment. Notwithstanding the foregoing, in the event
that the Available Commitment is insufficient to make any Regular Advance
requested for the purpose specified in
8
<PAGE>
Section 2.10(a)(6)(B), the Available Commitment shall, solely for the
purpose of determining the availability of such Regular Advance under
Section 2.1(a), be deemed to be increased by the lesser of (i) that
portion of such Advance which will be used for the purpose specified in
Section 2.10(a)(6)(B) and (ii) the excess, if any, of (x) all deemed
Advances under this Section 5.4(g)(4) over (y) the sum of all deemed
prepayments under this Section 5.4(g)(4) and all amounts by which the
Available Commitment was previously deemed increased pursuant to this
sentence.
I. REPRESENTATIONS AND WARRANTIES.
1. The Agreement and the Amendment. Each Host Marriott Party represents
and warrants that (a) each of the representations and warranties contained in
Section 4.1 through 4.4, inclusive, of the Existing Agreement is true and
correct with respect to such Host Marriott Party on and as of the date hereof,
as though made on and as of such date and (b) no Default or Event of Default has
occurred and is continuing on and as of the date hereof. Without limiting the
generality of the foregoing, each representation made in clause (a) with respect
to this Agreement shall be deemed to apply independently to both (i) this
Amendment and (ii) the Agreement.
2. Absence of Defaults. Each of Host Marriott, Holdings and Acquisitions
represents that, as of the date hereof, no event has occurred and is continuing,
or will result from the execution and delivery of this Amendment or the Initial
HMCAP Facility, which constitutes (A) a Default, (B) an Event of Default, (C) an
"Event of Default" under the Initial HMCAP Facility, or (D) an event that would
constitute an "event of Default" under the Initial HMCAP Facility but for the
requirement that notice be given or time elapse or both.
J. EXHIBIT E; REPORTING REQUIREMENTS. The following additional reporting
requirement is added to Exhibit E to the Existing Agreement:
XII. HMCAP INFORMATION. Host Marriott shall provide Marriott
International with (1) a copy of each document or instrument which
forms a part of the HMCAP Facility, forms a part of any Replacement
HMCAP Facility, or is entered into in connection with any Indebtedness
described in Section 5.4(g)(2)(B), within three Business days of the
date upon which such document or instrument first becomes effective;
(2) a copy of each notice or report delivered by a Host Marriott Group
Member to the lenders under, holders of, or trustee for any of the
foregoing concurrently with such delivery; and (3) a copy of each
notice from any of such lenders,
8
<PAGE>
holders or trustees to any Host Marriott Group Member within three
Business Days of receipt thereof.
K. LIMITATION ON MARRIOTT INTERNATIONAL'S RIGHT OF SET-OFF. In accordance
with Section 9.5(b) of the Agreement, Marriott International agrees that until
all of the lenders under the HMCAP Facility and any Replacement HMCAP Facility
which benefits from a Permitted Host Marriott HMCAP Guaranty have been paid in
full and none of the HMCAP Facility, any Replacement HMCAP Facility and any
subordinated Indebtedness permitted under Section 5.4(g)(2)(B) remain in effect,
Marriott International's right of set-off under Section 9.5 of the Agreement
shall not apply to (and Marriott International will not exercise any right of
set-off in connection with amounts owing under this Agreement, whether under
this Agreement or applicable law, against) the Acquisitions Group or its assets.
L. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective when
(such date, the "Amendment Effective Date"), and only when:
1. Marriott International shall have received (i) an original of this
Amendment fully executed by all Persons who are Host Marriott Parties as of
the Amendment Effective Date, (ii) certified copies of any resolutions of the
Board of Directors of each such Host Marriott Party which authorize such Host
Marriott Party to enter into this Amendment and which have not been
previously provided to Marriott International, and (iii) an opinion of
counsel dated as of the Amendment Effective Date substantially the form
attached hereto as Exhibit D-1; and
2. Holdings shall have received (i) an original of this Amendment fully
executed by Marriott International, and (ii) an opinion of counsel dated as
of the Amendment Date substantially the form attached hereto as Exhibit D-2.
M. REFERENCE TO AND EFFECT ON THE AGREEMENT. On and after the occurrence of
the Amendment Effective Date each reference in the Existing Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Agreement shall mean and be a reference to the Agreement as amended hereby.
Except as specifically amended hereby, the Existing Agreement is and shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Marriott International nor constitute a waiver of any
provision of the Agreement.
N. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same agreement.
O. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND.
9
<PAGE>
In witness whereof, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first written above.
LENDER: BORROWER:
Marriott International, Inc. HMH Holdings, Inc.
By: /s/ Raymond G. Murphy By: /s/ Scott A. LaPorta
--------------------- --------------------
Senior Vice President Vice President
and Treasurer
GUARANTORS:
Host Marriott Corporation
By: /s/ Matthew J. Hart
-------------------
Vice President
HMC Acquisitions, Inc.
By: /s/ Scott A. LaPorta
--------------------
Vice President
SUBSIDIARY GUARANTORS:
Host Marriott GTN Corporation
Host La Jolla, Inc.
Marriott Properties, Inc.
Willmar Distributors, Inc.
By: /s/ C. G. Townsend
------------------
Vice President of each of the
Subsidiary Guarantors listed above
10
<PAGE>
EXHIBIT 11
PAGE 1 OF 2
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Net income (loss)........................................ $ (25) $ 50 $ 85
Less: Dividends on convertible preferred stock........... -- 8 17
------ ------ ------
Net income (loss) available for common shareholders...... $ (25) $ 42 $ 68
====== ====== ======
Primary Earnings (Loss) Per Common Share
Shares--
Weighted average number of common shares outstanding... 151.5 107.4 99.8
Assuming distribution of common shares reserved under
employee stock purchase plan, based on withholdings to
date, less shares assumed purchased at average
market(1)............................................. -- .1 .1
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed
purchased at average market(1)........................ -- 5.5 5.8
Assuming distribution of common shares issuable for
warrants, less shares assumed purchased at average
market(1)(2).......................................... -- -- --
------ ------ ------
151.5 113.0 105.7
====== ====== ======
Primary Earnings (Loss) Per Common Share................. $ (.17) $ .37 $ .64
====== ====== ======
</TABLE>
--------
(1) Common equivalent shares and other potentially dilutive securities were
antidilutive in 1994.
(2) Stock warrants were issued in 1994.
E-1
<PAGE>
EXHIBIT 11
PAGE 2 OF 2
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (CON'T)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS
---------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Fully Diluted Earnings (Loss) Per Common Share
Shares--
Weighted average number of common shares outstanding... 151.5 107.4 99.8
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(1)........................... -- .1 .2
Assuming distribution of common shares granted under
comprehensive stock plan, less shares assumed
purchased at higher of average or ending market(1).... -- 7.6 6.5
Assuming distribution of common shares issuable for
warrants, less shares assumed purchased at higher of
average or ending market(1)(2)........................ -- -- --
Assuming issuance of common shares upon conversion of
subordinated debt(3).................................. -- .7 --
Assuming issuance of common shares upon conversion of
convertible preferred stock(3)........................ -- 5.5 --
------ ------ ------
151.5 121.3 106.5
====== ====== ======
Fully Diluted Earnings (Loss) Per Common Share........... $ (.17) $ .35 $ .64
====== ====== ======
</TABLE>
--------
(1) Common equivalent shares and other potentially dilutive securities were
antidilutive in 1994.
(2) Stock warrants were issued in 1994.
(3) Convertible subordinated debt and convertible preferred stock were
antidilutive in 1992 and 1994.
E-2
<PAGE>
EXHIBIT 22
PAGE 1 OF 2
HOST MARRIOTT CORPORATION
SUBSIDIARIES
1)Beachfront Properties, Inc.
2)CBM One Corporation
3)CBM Two Corporation
4)Cincinnati Terminal Services, Inc.
5)Cleveland Airport Service, Inc.
6)Deerfield Capital Trust
7)Farrell's Ice Cream Parlour Restaurants, Inc.
8)G.L. Insurance Corporation
9)Gladieux Corporation
10)HMC Acquisition Properties, Inc.
11)HMC Acquisitions, Inc.
12)HMC Eastside Financial Corporation
13)HMC Eastside, Inc.
14)HMC GP Holdings, Inc.
15)HMC Leisure Park Corporation
16)HMC Retirement Properties, Inc.
17)HMC SFO, Inc.
18)HMC Ventures, Inc.
19)HMC Ventures One, Inc.
20)HMC Ventures Two, Inc.
21)HMH Courtyard Properties, Inc.
22)HMH Holdings, Inc.
23)HMH Pentagon Corporation
24)HMH Properties, Inc.
25)HMH Westport Corporation
26)Host Airport Hotels, Inc.
27)Host Gifts, Inc.
28)Host International, Inc.
29)Host International of Canada
30)Host International, Inc. of Kansas
31)Host International, Inc. of Maryland
32)Host Investment, Inc.
33)Host La Jolla, Inc.
34)Host Marriott BCH Hotel Corporation
35)Host Marriott GTN Corporation
36)Host Marriott Hospitality, Inc.
37)Host Marriott Travel Plazas, Inc.
38)Host Services of New York, Inc.
39)Host Services, Inc.
40)Hot Shoppes, Inc.
41)Hotel Management of Tucson, Inc
42)Hotel Properties Management, Inc.
43)Interdistributing Corporation
44)Las Vegas Terminal Restaurants, Inc.
45)MOHS Corporation
46)Marriott Airport Terminal Services, Inc.
E-3
<PAGE>
EXHIBIT 22
PAGE 2 OF 2
HOST MARRIOTT CORPORATION
SUBSIDIARIES
47)Marriott Argentine Airline Catering, Inc.
48)Marriott Barbados Limited
49)Marriott Condominium Development Corporation
50)Marriott Desert Springs Corporation
51)Marriott FIBM One Corporation
52)Marriott Family Restaurants, Inc.
53)Marriott Family Restaurants, Inc. of Illinois
54)Marriott Family Restaurants, Inc. of Vermont
55)Marriott Family Restaurants, Inc. of Wisconsin
56)Marriott Financial Services, Inc.
57)Marriott Hanover Hotel Corporation
58)Marriott MDAH One Corporation
59)Marriott MHP Two Corporation
60)Marriott Marquis Corporation
61)Marriott PLP Corporation
62)Marriott Park Ridge Corporation
63)Marriott Properties, Inc.
64)Marriott RIBM Three Corporation
65)Marriott RIBM Two Corporation
66)Marriott Realty Sales, Inc.
67)Marriott SBM One Corporation
68)Marriott SBM Two Corporation
69)Marriott YBG Corporation
70)Marriott's Bickford's Family Fare, Inc.
71)Marriott/Portman Finance Corporation (non-consolidated)
72)Michigan Host, Inc.
73)Montana Food and Beverage Services, Inc.
74)Philadelphia Airport Hotel Corporation
75)Philadelphia Market Street Hotel Corporation
76)RIBM One Corporation
77)S.D. Hotels, Inc.
78)SFM Finance Corporation
79)Saga Property Leasing Corporation
80)Saga Restaurants, Inc.
81)Sparky's Virgin Islands, Inc.
82)Straw Hat Franchising Company, Inc.
83)Sunshine Parkway Restaurants, Inc.
84)The Gift Collection, Inc.
85)Turnpike Restaurants, Inc.
86)Willmar Distributors, Inc.
E-4
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements: Registration Statement No. 33-54264; Registration
Statement No. 33-52842; Registration Statement No. 33-52840; Registration
Statement No. 33-45444; Registration Statement No. 33-44076; Registration
Statement No. 33-42940; Registration Statement No. 33-41385; Registration
Statement No. 33-35307; Registration Statement No. 33-33634; Registration
Statement No. 33-23466; Registration Statement No. 33-18387; Registration
Statement No. 33-14836; Registration Statement No. 2-73935; Registration
Statement No. 2-59558; Registration Statement No. 2-56121; Registration
Statement No. 2-51552; Registration Statement No. 2-49851; Registration
Statement No. 2-46237; Registration Statement No. 33-66622; Registration
Statement No. 33-70822; and Registration Statement No. 33-54545.
Arthur Andersen LLP
Washington, D.C.
March 29, 1995
E-5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Host
Marriott Corporation and Subsidiaries Consolidated Balance Sheets and
Consolidated Statements of Operations as of and for the year ended December 30,
1994 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-30-1994
<PERIOD-END> Dec-30-1994
<CASH> 95
<SECURITIES> 0
<RECEIVABLES> 102
<ALLOWANCES> 0
<INVENTORY> 40
<CURRENT-ASSETS> 0
<PP&E> 4,068
<DEPRECIATION> 912
<TOTAL-ASSETS> 3,822
<CURRENT-LIABILITIES> 0
<BONDS> 2,259
<COMMON> 154
0
13
<OTHER-SE> 543
<TOTAL-LIABILITY-AND-EQUITY> 3,822
<SALES> 0
<TOTAL-REVENUES> 1,501
<CGS> 0
<TOTAL-COSTS> 1,310
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> (23)
<INCOME-TAX> (4)
<INCOME-CONTINUING> (19)
<DISCONTINUED> 0
<EXTRAORDINARY> (6)
<CHANGES> 0
<NET-INCOME> (25)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
