<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 17, 1996
-------------------------
HOST MARRIOTT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-5664 53-0085950
(STATE OR OTHER JURISDICTION (COMMISSION FILE (I.R.S. EMPLOYER
OF INCORPORATION) NUMBER) IDENTIFICATION NUMBER)
10400 FERNWOOD ROAD, BETHESDA, MARYLAND 20817
(ADDRESS OF PRINCIPLE EXECUTIVE OFFICES) (ZIP CODE)
-------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 380-9000
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
================================================================================
<PAGE>
FORM 8-K/A
ITEM 5. OTHER EVENTS
The Registrant hereby amends its Current Reports on Form 8-K dated
November 20, 1995 and January 8, 1996 by filing financial statements of the
acquired businesses, the TEC Entities, owner of the Toronto Eaton Centre
Marriott and the New York Vista. Pro Forma financial information of the
Registrant was previously filed in the Registrant's Form 8-K dated January 17,
1996.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS OF THE TEC ENTITIES (TORONTO EATON CENTRE MARRIOTT)
Report of Independent Accountants........................................ 3
Combined Statements of Assets, Liabilities and Deficit as of December 30,
1994 and December 31, 1993.............................................. 4
Combined Statements of Operations for the Two Fiscal Years in the Period
Ended December 30, 1994................................................. 5
Combined Statements of Cash Flows for the Two Fiscal Years in the Period
Ended December 30, 1994................................................. 6
Notes to Combined Financial Statements................................... 7
Combined Statement of Assets, Liabilities and Deficit as of September 8,
1995 (unaudited)........................................................ 10
Combined Statements of Operations for the Thirty-six Weeks Ended
September 8, 1995 and September 9, 1994 (unaudited)..................... 11
Combined Statements of Cash Flows for the Thirty-six Weeks Ended
September 8, 1995 and September 9, 1994 (unaudited)..................... 12
Notes to Combined Financial Statements................................... 13
FINANCIAL STATEMENTS OF THE NEW YORK VISTA (renamed Marriott World Trade
Center subsequent to acquisition by the Registrant)
Report of Independent Auditors........................................... 14
Statements of Assets and Liabilities as of December 31, 1994 and 1993 ... 15
Statements of Revenues and Expenses for the Years Ended December 31, 1994
and 1993................................................................ 16
Statements of Cash Flows for the Years Ended December 31, 1994 and 1993.. 17
Notes to Financial Statements............................................ 18
Statement of Revenues and Expenses for the Eight Months Ended August 31,
1995 (unaudited)........................................................ 24
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOST MARRIOTT CORPORATION
By: /s/ CHRISTOPHER G. TOWNSEND
------------------------------------
Christopher G. Townsend
Senior Vice President and Secretary
Date: January 17, 1996
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE OWNERS OF THE TEC ENTITIES (as defined in Note 1):
We have audited the accompanying combined statements of assets, liabilities
and deficit of the TEC Entities, as defined in Note 1, as of December 30, 1994
and December 31, 1993, and the related combined statements of operations and
cash flows for the years then ended. These financial statements are the
responsibility of the management of the TEC Entities (as defined in Note 1). Our
responsibility is to express an opinion on these financial statements 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 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 financial statements referred to above present fairly, in
all material respects, the combined financial position of the TEC Entities (as
defined in Note 1) as of December 30, 1994 and December 31, 1993, and the
combined results of its operations and cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
December 15, 1995
3
<PAGE>
TEC ENTITIES
COMBINED STATEMENTS OF ASSETS, LIABILITIES AND DEFICIT
AS OF DECEMBER 30, 1994 AND DECEMBER 31, 1993
(IN CANADIAN DOLLARS AND IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ -------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 3,395 $ 2,936
Due from manager............................................ 374 789
Property and equipment, net................................. 44,054 46,160
Property improvement fund................................... 877 318
Other assets................................................ 1,040 1,561
-------- --------
$ 49,740 $ 51,764
======== ========
<CAPTION>
LIABILITIES AND DEFICIT
-----------------------
<S> <C> <C>
Revolving credit facility................................... $ 13,489 $ 7,689
Mortgage debt............................................... 70,664 70,664
Accounts payable and accrued expenses....................... 224 137
-------- --------
Total liabilities......................................... 84,377 78,490
Deficit..................................................... (34,637) (26,726)
-------- --------
$ 49,740 $ 51,764
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TEC ENTITIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 31, 1993
(IN CANADIAN DOLLARS AND IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
REVENUES.................................................... $ 5,915 $ 4,674
------- --------
OPERATING COSTS AND EXPENSES
Depreciation.............................................. 2,246 2,227
Ground rent............................................... 637 541
Base and incentive management fees........................ 699 610
Real estate tax........................................... 2,673 2,642
Equipment rent, insurance and other....................... 757 1,257
------- --------
Total operating costs and expenses...................... 7,012 7,277
------- --------
OPERATING LOSS BEFORE INTEREST AND WRITE-DOWN............... (1,097) (2,603)
Interest expense............................................ 6,001 6,544
Write-down of property...................................... -- 26,565
------- --------
NET LOSS.................................................... $(7,098) $(35,712)
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
TEC ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 31, 1993
(IN CANADIAN DOLLARS AND IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(7,098) $(35,712)
Depreciation and amortization............................. 2,767 2,747
Interest converted to revolver debt....................... 5,481 5,519
Write-down of asset to fair value......................... -- 26,565
Changes in other assets and liabilities................... 502 (888)
------- --------
Cash provided by (used in) operations................... 1,652 (1,769)
------- --------
INVESTING ACTIVITIES
Contributions to property improvement fund................ (699) (412)
------- --------
Cash used in investing activities....................... (699) (412)
------- --------
FINANCING ACTIVITIES
Changes in net advances from co-tenants................... (813) 15,646
Issuance (repayments) of debt............................. 319 (11,476)
------- --------
Cash provided by (used in) financing activities......... (494) 4,170
------- --------
CHANGE IN CASH AND CASH EQUIVALENTS......................... 459 1,989
CASH AND CASH EQUIVALENTS at beginning of year.............. 2,936 947
------- --------
CASH AND CASH EQUIVALENTS at end of year.................... $ 3,395 $ 2,936
------- --------
SUPPLEMENTAL INFORMATION
Cash paid for interest.................................. $ 52 $ 1,159
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TEC ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
On November 3, 1995 ("Sale Date"), HMC Toronto E.C., Inc., a wholly-owned
indirect subsidiary of Host Marriott Corporation, acquired all interests in the
Toronto Eaton Centre Marriott (the "Hotel"), located in Toronto, Canada from
1028796 Ontario Limited, a subsidiary of the Bank of Nova Scotia, and Marriott
Corporation of Canada, Ltd., a subsidiary of Marriott International, Inc., for
approximately $44 million Canadian. These interests included 100% investments in
T.E.C. Hotels, Ltd. ("TEC Hotels"), T.E.C. Operations, Ltd. ("TEC Ops"),
and a Canadian co-tenancy between 1028796 Ontario Limited and Marriott
Corporation of Canada Ltd. (the "Co-tenancy") (collectively, as the "TEC
Entities") and the assumption of the ground lease obligation discussed in Note
8. Under the pre-acquisition organization structure, TEC Ops leased the Hotel
from the Co-tenancy, who in turn, leased the Hotel from TEC Hotels. For purposes
of the combined financial statements presented, these lease agreements have been
eliminated in consolidation. The Hotel, with 459 rooms, was opened on September
16, 1991 and is operated by Marriott International, Inc. as part of the Marriott
Hotels, Resorts and Suites full-service hotel system.
These financial statements present the combined assets, liabilities and
deficit, results of operations and cash flows related to the business of the
Toronto Eaton Centre Marriott (including the Co-tenancy, TEC Hotels and TEC
Ops) in Canadian dollars which represents the functional currency of the
Hotel.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Hotel's records are maintained on the accrual basis of accounting and
its fiscal year ends on the Friday nearest to December 31.
Property and Equipment
Property and equipment is recorded at its net realizable value. Replacements
and improvements are capitalized as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally 40
years for buildings and 5 to 6 years for furniture and equipment.
Cash and Cash Equivalents
The Hotel considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Deferred Financing Costs
Deferred financing costs, net of amortization and included in other assets,
amounted to $1,040,424 at December 30, 1994. These costs are being amortized
over the life of the debt. Accumulated amortization as of December 30, 1994 and
December 31, 1993 was $1,720,701 and $1,199,701, respectively.
Income Taxes
No net provision for Federal or provincial income taxes has been made in the
accompanying combined financial statements because the individual entities
included in the combined statements incurred losses in all years since
inception. Although the cumulative amount of taxable losses is available to
offset future taxable income, management has determined that it is not likely
that the benefits of such losses will be realized.
7
<PAGE>
TEC ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. REVENUES
Revenues (house profit) consists of the following Hotel operating results
for the years ended December 30, 1994 and December 31, 1993 (in Canadian
dollars and in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
SALES
Rooms.................................................. $14,017 $11,892
Food and beverage...................................... 7,442 7,118
Other.................................................. 1,842 1,549
------- -------
23,301 20,559
------- -------
DEPARTMENTAL COSTS
Rooms.................................................. 4,299 3,779
Food and beverage...................................... 6,609 6,186
Other hotel operating expenses......................... 6,478 5,920
------- -------
17,386 15,885
------- -------
REVENUES................................................. $ 5,915 $ 4,674
======= =======
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment as of December 30, 1994 and December 31, 1993
consists of the following (in Canadian dollars and in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Leasehold land.......................................... $ 1,414 $ 1,414
Buildings and leasehold improvements.................... 41,457 41,457
Furniture and equipment................................. 8,540 8,400
------- -------
51,411 51,271
Less accumulated depreciation and amortization.......... (7,357) (5,111)
------- -------
Net property and equipment.............................. $44,054 $46,160
======= =======
</TABLE>
During 1993, management concluded that the future estimated cash flows of the
Hotel would not be adequate to recover the carrying value of the property and
the property was written down to its estimated market value.
NOTE 5. DEBT
Revolving Credit Agreement
On July 7, 1993, the Co-tenancy entered into a $15,000,000 Canadian revolving
credit facility (the "Facility") with the Bank of Nova Scotia (the "Lender"),
secured by the receivables of the Hotel and a guarantee by the co-tenants. The
Facility matures January 1, 1997 and bears an interest rate equal to the
Canadian prime rate, which was 6.9% for 1994.
Construction Loan
On July 7, 1993, the Co-tenancy borrowed $70,664,000 Canadian (the
"Construction Loan") from the Bank of Nova Scotia, secured by the Hotel. The
Construction Loan matures January 1, 1997 and bears an interest rate equal to
the Canadian prime rate.
8
<PAGE>
TEC ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Co-tenancy's operations could not support the interest payments due under
the Construction Loan in 1994, and a majority of the interest payments due were
transferred from the revolving credit facility. As a result, the Facility was
fully utilized and entered into default in 1995. On November 3, 1995, the
Lender called the $15 million guarantee from the Co-tenants relating to the
revolver, the Co-tenancy paid down an additional $42 million with the proceeds
of the sale of the Hotel and all remaining debt balances were forgiven by the
Lender. An extraordinary gain of $29 million was recognized in 1995 as a result
of this forgiveness.
NOTE 6. MANAGEMENT AGREEMENT
Marriott International, Inc. (the "Manager") operates the Hotel pursuant to a
long-term management agreement (the "Management Agreement") with an initial term
expiring in 2016. The Manager maintains the option to renew the Management
Agreement for five successive 10 year terms upon expiration. The Management
Agreement provides for a base fee equal to 3% of Hotel sales (as defined), which
totalled $699,000 and $610,000 for 1994 and 1993, respectively. The Management
Agreement also provides for an incentive management fee equal to 20% of
operating profit, as defined. There were no incentive management fees earned in
1994 or 1993. Pursuant to the terms of the Management Agreement, the Manager is
required to furnish the Hotel with certain services such as central training,
advertising and promotion, a national reservation system, computerized payroll
and accounting services, and such additional services as needed which may be
more efficiently performed on a centralized basis ("Chain Services") and, are
generally provided on a central or regional basis to all hotels in the Manager's
full-service hotel system. Costs and expenses incurred in providing such
services are allocated among all domestic full-service hotels managed, owned or
leased by the Manager or its subsidiaries and, in accordance with these
arrangements, the Hotel paid Chain Services of $534,000 and $596,000 in 1994 and
1993, respectively. In addition, the Hotel also participates in the Manager's
Honored Guest Awards Program. The cost of this program is charged to all hotels
in the Manager's full-service hotel system.
The Management Agreement also provides for the establishment of a property
improvement fund for the Hotel to cover (a) the cost of certain non-routine
repairs and maintenance to the Hotel which are normally capitalized; and (b)
the cost of replacements and renewals to the Hotel's property and improvements.
Contributions to the property improvement fund were 3% and 2% of Hotel sales in
1994 and 1993, respectively.
NOTE 7. OPERATING LEASES
Future minimum and annual rental commitments for all non-cancelable operating
leases entered into by the Manager on behalf of the TEC Entities and assumed by
HMC Toronto E.C. at the Sale Date are as follows (in Canadian dollars and in
thousands):
<TABLE>
<S> <C>
1995.................................................................... $178
1996.................................................................... 113
1997.................................................................... 19
1998.................................................................... 4
1999 and thereafter..................................................... --
----
$314
====
</TABLE>
NOTE 8. GROUND LEASE
TEC Hotels leased the land under the hotel from the Incorporated Synod of
Diocese of Toronto pursuant to an agreement which commenced on September 21,
1983 with an initial term of 99 years, expiring September 2082 (the "Land
Rent"). Annual base rent is $506,000 per year through expiration. Annual
percentage rent is calculated as 4.5% of gross room sales between $11,111,111
and $15,000,000 and 4% of gross room sales over $15,000,000.
9
<PAGE>
TEC ENTITIES
COMBINED STATEMENT OF ASSETS, LIABILITIES AND DEFICIT
AS OF SEPTEMBER 8, 1995
(UNAUDITED, IN CANADIAN DOLLARS AND IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash and cash equivalents.............................................. $ 3,365
Due from manager....................................................... 193
Property and equipment, net............................................ 42,700
Property improvement fund.............................................. 1,271
Other assets........................................................... 680
-------
$48,209
=======
<CAPTION>
LIABILITIES AND DEFICIT
-----------------------
<S> <C>
Revolving credit facility.............................................. $15,000
Mortgage debt.......................................................... 70,664
Accounts payable and accrued expenses.................................. 2,810
-------
Total liabilities.................................................... 88,474
Deficit................................................................ (40,265)
-------
$48,209
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
TEC ENTITIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 1995 AND SEPTEMBER 9, 1994
(UNAUDITED, IN CANADIAN DOLLARS AND IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
REVENUES..................................................... $ 5,330 $ 3,830
------- -------
OPERATING COSTS AND EXPENSES
Depreciation............................................... 1,570 1,553
Ground rent................................................ 448 405
Real estate tax............................................ 1,857 1,791
Base and incentive management fees......................... 514 466
Equipment rent, insurance and other........................ 492 514
------- -------
Total operating costs and expenses....................... 4,881 4,729
------- -------
OPERATING INCOME/(LOSS) BEFORE INTEREST...................... 449 (899)
Interest expense............................................. 5,654 4,154
------- -------
NET LOSS..................................................... $(5,205) $(5,053)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
TEC ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 1995 AND SEPTEMBER 9, 1994
(UNAUDITED, IN CANADIAN DOLLARS AND IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss................................................... $(5,205) $(5,053)
Depreciation............................................... 1,928 1,913
Interest converted to revolver debt........................ 1,511 3,702
Changes in other assets and liabilities.................... 2,767 941
------- -------
Cash provided by operations................................ 1,001 1,503
------- -------
INVESTING ACTIVITIES
Contributions to property improvement fund................. (609) (466)
------- -------
FINANCING ACTIVITIES
Changes in net advances from co-tenants.................... (422) (1,612)
Issuance (repayments) of debt.............................. -- 150
------- -------
Cash used in financing activities.......................... (422) (1,462)
------- -------
CHANGE IN CASH AND CASH EQUIVALENTS.......................... (30) (425)
CASH AND CASH EQUIVALENTS at beginning of year............... 3,395 2,936
------- -------
CASH AND CASH EQUIVALENTS at end of period................... $ 3,365 $ 2,511
======= =======
SUPPLEMENTAL INFORMATION
Cash paid for interest..................................... $ 915 $ 52
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
TEC ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1.
The accompanying combined financial statements of T.E.C. Hotels, Ltd., T.E.C.
Operations, Ltd. and a Canadian co-tenancy between 1028796 Ontario Limited and
Marriott Corporation of Canada, Ltd. (collectively, the "TEC Entities") have
been prepared without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been omitted. The hotel believes
the disclosures made are adequate to make the information presented not
misleading. However, the combined financial statements should be read in
conjunction with the audited financial statements and notes thereto for the two
fiscal years ended December 30, 1994, specifically with respect to the sale of
the hotel assets and forgiveness of debt in November 1995.
In the opinion of the TEC Entities, the accompanying unaudited combined
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the combined financial
position of the TEC Entities as of September 8, 1995 and the combined results
of operations and cash flows for the thirty-six weeks ended September 8, 1995
and September 9, 1994. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term variations.
NOTE 2.
Revenues (house profit) for the thirty-six weeks ended September 8, 1995 and
September 9, 1994 consist of (in Canadian dollars and in thousands):
<TABLE>
<CAPTION>
THIRTY-SIX WEEKS ENDED
-------------------------
SEPTEMBER 8, SEPTEMBER 9,
1995 1994
------------ ------------
<S> <C> <C>
SALES
Rooms............................................ $10,874 $ 9,541
Food and beverage................................ 4,883 4,727
Other............................................ 1,386 1,261
------- -------
17,143 15,529
------- -------
DEPARTMENTAL COSTS
Rooms............................................ 3,051 2,941
Food and beverage................................ 4,184 4,353
Other hotel operating expenses................... 4,578 4,405
------- -------
11,813 11,699
------- -------
REVENUES........................................... $ 5,330 $ 3,830
======= =======
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Hilton International Co.
We have audited the accompanying statements of assets and liabilities of New
York Vista (a facility of The Port Authority of New York and New Jersey) as of
December 31, 1994 and 1993, and the related statements of revenues and expenses
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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.
As more fully described in Note 6, the Company has not obtained actuarial
information regarding pension expense for the years ended December 31, 1994 and
1993 and the minimum liability, if any, for the unfunded accumulated benefit
obligation over plan assets. Generally accepted accounting principles require
that pension costs and any minimum liability be accounted for in accordance
with Financial Accounting Standards Board Statement No. 87, "Employers'
Accounting for Pensions." The effect of this departure from generally accepted
accounting principles on the assets and liabilities, revenues and expenses, and
cash flows has not been determined.
In our opinion, except for the omission of the information discussed in the
preceding paragraph, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of New York Vista at
December 31, 1994 and 1993, and its revenues and expenses and cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
As more fully described in Note 7 to the financial statements, during 1993
and 1994, the Company filed insurance claims with its business interruption
insurance carrier requesting reimbursement of damages incurred as a result of
an explosion in February 1993. The total amount to be ultimately received from
the insurance carrier cannot be determined at this time.
Ernst & Young LLP
January 20, 1995 (except for Note 8,
which the date is January 5, 1996)
14
<PAGE>
NEW YORK VISTA
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993*
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 313,403 $ 3,216,248
Receivables--trade (less allowance for doubtful
accounts of $8,505 in 1994 and $140,276 in
1993)........................................... 1,386,395 364,718
Business interruption insurance claim receivable
(Note 7)........................................ 10,405,062 6,525,610
Inventories:
Food and beverage.............................. 359,298 287,419
Operating supplies............................. 221,826 48,913
Prepaid expenses................................. 6,165 3,437
------------ ------------
Total current assets............................... 12,692,149 10,446,345
Restricted cash (Notes 2 and 4).................... 321,646 2,781,953
Other assets....................................... 16,395 3,945
------------ ------------
Total assets....................................... $ 13,030,190 $ 13,232,243
============ ============
LIABILITIES
Current liabilities:
Accounts payable--trade.......................... $ 2,994,581 $ 1,332,549
Accrued liabilities:
Payroll and related taxes...................... 1,086,344 634,244
Sales and occupancy taxes...................... 538,460 273,280
Hotel renovation............................... 1,200,184 29,605
Other.......................................... 341,559 235,032
Due to Inhil Co., Inc............................ 1,243,950 1,304,510
Due to other affiliated companies................ 377,989 83,021
Deferred revenue................................. 2,367,211 --
------------ ------------
Total current liabilities.......................... 10,150,278 3,892,241
Reserve for replacement of furniture, fixtures and
equipment and for capital expenditures (Notes 2
and 4)............................................ 3,368,254 5,117,370
Loan payable, Inhil Co., Inc. (Note 2)............. 16,837,050 14,565,987
Difference between assets and liabilities repre-
senting amount due from the Port Authority of New
York and New Jersey (Note 3)...................... (17,325,392) (10,343,355)
------------ ------------
Total liabilities.................................. $ 13,030,190 $ 13,232,243
============ ============
</TABLE>
- --------
* Reclassified and restated to conform with 1994 presentation.
See accompanying notes.
15
<PAGE>
NEW YORK VISTA
STATEMENTS OF REVENUES AND EXPENSES
(NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1993*
------------ -----------
<S> <C> <C>
OPERATING REVENUES:
Rooms.............................................. $ 2,692,164 $ 3,492,775
Food............................................... 854,246 814,255
Beverage........................................... 342,000 261,429
Other operated departments......................... 110,523 166,528
Other income (Note 7).............................. 5,930,582 15,946,482
------------ -----------
9,929,515 20,681,469
------------ -----------
OPERATING EXPENSES:
Cost of sales:
Food............................................. 243,100 197,952
Beverage......................................... 52,920 61,060
Other operated departments....................... 117,816 111,360
------------ -----------
Total cost of sales................................ 413,836 370,372
Payroll and related expenses....................... 4,649,422 5,249,580
Provision for operating equipment.................. 53,872 11,442
Other operating expenses........................... 628,666 660,027
------------ -----------
5,745,796 6,291,421
------------ -----------
Gross operating income............................... 4,183,719 14,390,048
------------ -----------
DEDUCTIONS FROM GROSS OPERATING INCOME:
General and administrative expenses................ 2,384,134 2,620,586
Marketing expenses................................. 912,620 915,555
Property operation, maintenance and energy costs... 6,111,606 2,896,632
------------ -----------
9,408,360 6,432,773
------------ -----------
Gross operating (loss)/profit........................ (5,224,641) 7,957,275
------------ -----------
OTHER DECUCTIONS/(INCOME):
Real estate taxes (Note 5)......................... 1,707,696 2,620,758
(Credit)/provision for replacement of furniture,
fixtures and equipment (Note 4).................... (809,005) 1,843,078
(Credit)/provision for capital expenditures (Note
4)................................................ (207,022) 413,837
Insurance.......................................... 319,332 41,694
Pre-opening and other business restoration costs... 5,234,869 --
Interest expense................................... 1,447,900 1,094,213
Other.............................................. 317,935 360,785
------------ -----------
8,011,705 6,374,365
------------ -----------
Excess of (expenses over revenues)/revenues over ex-
penses.............................................. $(13,236,346) $ 1,582,910
============ ===========
</TABLE>
- --------
* Reclassified and restated to conform with 1994 presentation.
See accompanying notes.
16
<PAGE>
NEW YORK VISTA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1993*
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Excess of (expenses over evenues)/revenues over
expenses.......................................... $(13,236,346) $ 1,582,910
Adjustments to reconcile excess of (expenses over
revenues)/revenues over expenses to net cash (used
in)/provided by operating activities:
(Credit)/provision for replacement of furniture,
fixtures and equipment and capital
expenditures.................................... (1,016,027) 2,256,915
Expenses payable to Port Authority............... 2,187,767 2,838,202
Interest expense................................. 1,447,900 1,094,213
Changes in operating assets and liabilities:
Accounts receivable, net....................... (1,021,677) 2,975,216
Insurance claim receivable..................... (4,089,804) (6,525,610)
Inventories.................................... (244,792) (42,377)
Prepaid expenses and other assets.............. (15,178) 28,764
Accounts payable............................... 1,662,032 87,340
Accrued liabilities............................ 823,807 (1,277,350)
Due to other affiliated companies.............. 294,968 --
------------ -----------
Net cash (used in)/provided by operating
activities........................................ (13,207,350) 3,018,223
------------ -----------
INVESTING ACTIVITIES
Transfer of funds from/(to) restricted cash........ 1,790,218 (609,362)
------------ -----------
FINANCING ACTIVITIES
Advances from Port Authority, net.................. 13,761,490 --
Hotel renovation payments.......................... (3,892,608) (1,028,327)
Other payments on behalf of Port Authority......... (1,294,035) (60,272)
(Payments to)/advances from Inhil Co., Inc......... (60,560) 1,028,327
------------ -----------
Net cash provided by/(used in) financing
activities........................................ 8,514,287 (60,272)
------------ -----------
Net (decrease)/increase in cash.................... (2,902,845) 2,348,589
Cash at beginning of year.......................... 3,216,248 867,659
------------ -----------
Cash at end of year................................ $ 313,403 $ 3,216,248
============ ===========
</TABLE>
- --------
* Reclassified and restated to conform with 1994 presentation.
See accompanying notes.
17
<PAGE>
NEW YORK VISTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
New York Vista ("Vista"), the hotel located in the World Trade Center in New
York City, is a facility of The Port Authority of New York and New Jersey (the
"Port Authority"). Significant asset and liability accounts related to Vista
are recorded on the books of the Port Authority and, accordingly, are not
reflected on Vista's financial statements (such amounts relate principally to
property, furnishings and mortgage). Vista is operated by Inhil Co., Inc.
("Inhilco"), a wholly-owned subsidiary of Hilton International Co. ("Hilton"),
under a management agreement ("Management Agreement").
Vista has no separate legal status or existence. Vista's assets are legally
available for the satisfaction of debts of the Port Authority and not solely
those appearing on the accompanying statements of assets and liabilities, as
its debts may result in claims against assets not appearing thereon.
On February 26, 1993, an explosion caused damage to the structure and
interior of the Vista, as well as the adjoining World Trade Center complex. As
a result of the damage, all hotel operations were suspended as of that date.
Certain limited hotel operations resumed on November 1, 1994.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
Furniture, Fixtures and Equipment
In accordance with the Management Agreement, annual charges to operations are
made for the replacement of furniture, fixtures and equipment. Expenditures for
the replacement of furniture, fixtures and equipment are charged to the related
reserve (see Note 4).
Operating Equipment
The cost of operating equipment, consisting primarily of linen, silverware
and other utensils, is charged in full to operating expenses when purchased.
Income Taxes
Provisions for Federal, state or local income taxes are not reflected in the
accompanying financial statements since the Port Authority is a nontaxable
entity.
Preopening and Other Business Restoration Costs
Preopening and other business restoration costs, which primarily consists of
contract labor and other clean-up costs as well as employee payroll, employee
training expense and marketing expenses incurred in connection with Vista's
resumption of operations, were charged to expense as incurred.
Pension Plans
Certain nonunion employees of Vista are covered by a noncontributory defined
benefit pension plan of Hilton, which provides for normal retirement at age 65
after a minimum of five years' service. Hilton may terminate the plan at any
time. Union employees are covered by a noncontributory pension plan under their
union contract.
18
<PAGE>
NEW YORK VISTA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassification and Restatement
Certain December 31, 1993 amounts have been reclassified to conform to the
December 31, 1994 presentation. The statement of revenues and expenses for the
year ended December 31, 1993 has been restated to remove rent of $1,349,276
which was previously indicated as to be received from the Port Authority and to
include interest expense of $1,094,213 in connection with the loan payable,
Inhil Co., Inc. Such amounts were previously included in the difference between
assets and liabilities representing amount due from The Port Authority of New
York and New Jersey on the statement of assets and liabilities as of December
31, 1993 and, accordingly, such amount does not change as a result of the
restatement:
<TABLE>
<S> <C>
Excess of revenues over expenses for the year ended December
31, 1993 as originally reported............................. $ 4,026,399
Removal of rent credit from Port Authority................... (1,349,276)
Inclusion of interest expense................................ (1,094,213)
------------
Excess of revenues over expenses for the year ended December
31, 1993 as restated........................................ $ 1,582,910
============
</TABLE>
2. MANAGEMENT AGREEMENT
Vista is managed by Inhilco under the terms of an amended Management
Agreement which, among other matters, provides (i) for payment to Inhilco,
under certain circumstances, of a management fee equal to 3% of revenues, as
defined, and an incentive fee based on a formula, as provided, and (ii) for the
refurbishment of the guest rooms over a three-year period which commenced in
May 1992 at a cost not to exceed $17,600,000. Under the agreement, Inhilco is
required to finance the first $15,000,000 of refurbishment costs. Refurbishment
costs in excess of $15,000,000 are to be funded by the reserves for capital
expenditures and replacement of furniture, fixtures and equipment to the extent
such funds are available. Interest expense on amounts advanced by Inhilco
accrues at 10% per annum. The amount payable to Inhilco in connection with the
refurbishment, including accrued interest with respect thereto, which is
reflected as loan payable, Inhil Co., Inc. in the accompanying balance sheet,
includes the following:
Loan payable, Inhil Co., Inc.
<TABLE>
<CAPTION>
AGGREGATE
YEAR ENDED DECEMBER 31 THROUGH
------------------------ DECEMBER 31,
1994 1993 1994
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of year......... $14,565,987 $ 8,558,123 $ --
Expenditures by Inhil Co., Inc. for
hotel renovation.................... 858,348 5,223,637 13,740,124
Increase/(decrease) in year-end ac-
crual............................... (35,185) (309,986) 265,551
Interest............................. 1,447,900 1,094,213 2,831,375
----------- ----------- -----------
$16,837,050 $14,565,987 $16,837,050
=========== =========== ===========
</TABLE>
For the period subsequent to the commencement of refurbishment (May 1992),
Vista is required to expend revenue proceeds, as defined, in the following
priority: (i) the payment of operating expenses, as defined, (ii) the funding
of the reserves for furniture, fixtures and equipment and capital expenditures,
(iii) the payment of current and past due debt service on a certain mortgage
payable, (iv) the payment of current and past due interest on amounts advanced
by Inhilco during the refurbishment period and, after the refurbishment period,
the payment of current and past due principal and interest on amounts advanced
by Inhilco amortized at 10% per annum over 7 years, (v) the payment of past due
and current management fees and (vi) the payment of the incentive fee.
19
<PAGE>
NEW YORK VISTA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The repayment period with respect to principal and interest on amounts
advanced by Inhilco is based on a 7 year amortization period, but it will be
extended for as long as necessary for Inhilco to recover such amounts. However,
if the repayment period extends beyond 7 years, additional interest will not
accrue. With respect to the management fee, any portion of a management fee not
payable to Inhilco from revenue proceeds in the current or four subsequent
years is forfeited. With respect to the incentive fee, such fee will commence
the later of May 1, 2002 or the date of final repayment of amounts advanced by
Inhilco. There is no carryforward of unpaid incentive fee.
No management fee expense was recognized for any periods between May 1, 1992
through December 31, 1994 as during such periods revenue proceeds were
insufficient to require payment of such fee and, as described above, such fees
are forfeitable. The management fee attributable to such periods, approximately
$300,000 (1994), $620,000 (1993) and $800,000 (1992), will be recognized as
expense at such time as payment is probable.
The Management Agreement expires in March 2021. The Port Authority is
required to either extend the Management Agreement for a single 20-year period
or offer a certain lease agreement to Inhilco for such 20-year period in lieu
of the Management Agreement.
In addition, Vista has agreed to perform and finance certain additional hotel
construction. Vista shall be reimbursed the cost of such additional
construction by the Port Authority upon its completion. Amounts due Vista in
connection with such additional construction, which are included in the
difference between assets and liabilities representing the amount due from the
Port Authority, are as follows:
<TABLE>
<CAPTION>
AGGREGATE
YEAR ENDED DECEMBER 31 THROUGH
----------------------- DECEMBER
1994 1993 31, 1994
----------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of year............. $ 1,057,932 $ -- $ --
----------- ----------- ----------
Expenditures for hotel renovation (Port
Authority).............................. 3,892,608 1,028,327 4,920,935
Increase/(decrease) in year-end accrual.. 1,170,579 29,605 1,200,184
----------- ----------- ----------
5,063,187 1,057,932 6,121,119
----------- ----------- ----------
$ 6,121,119 $ 1,057,932 $6,121,119
=========== =========== ==========
</TABLE>
3. RELATED PARTY TRANSACTIONS
Hilton
Hilton and various of its subsidiaries charge Vista for certain advertising,
promotion, purchasing and other services which they perform on behalf of Vista.
Such charges, which are billed as agreed upon by the various parties, totaled
approximately $200,000 and $355,000 for the years ended December 31, 1994 and
1993, respectively.
20
<PAGE>
NEW YORK VISTA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Port Authority
The amount indicated on the accompanying balance sheet as the difference
between assets and liabilities representing the amount due from the Port
Authority includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Balance at beginning of year.................... $(10,343,355) $ (8,773,349)
Excess of (expenses over revenues)/revenues over
expenses....................................... (13,236,346) 1,582,910
Renovation costs incurred by Inhil Co., Inc. on
behalf of Port Authority....................... (823,163) (4,913,651)
Renovation costs incurred by Vista on behalf of
Port Authority................................. (5,063,187) (1,057,932)
Expenses payable to Port Authority.............. 2,187,767 2,838,202
Advances from Port Authority, net............... 13,761,490 --
Other payments on behalf of Port Authority...... (3,871,598) (60,272)
Interest earned on restricted cash account
payable to Port Authority...................... 63,000 40,737
------------ ------------
Balance at end of year.......................... $(17,325,392) $(10,343,355)
============ ============
</TABLE>
4. RESERVES FOR REPLACEMENT OF FURNITURE, FIXTURES AND EQUIPMENT AND CAPITAL
EXPENDITURES
The Management Agreement requires annual charges to operations to provide for
the replacement of furniture, fixtures and equipment. The annual charge is
equivalent to 5% of gross revenues, to the extent revenues exceed expenses. The
Management Agreement also requires that beginning January 1, 1992 the following
percentages of gross revenue, to the extent revenues exceed expenses, be
charged to operations for capital expenditures: 1% for the first three years;
1.5% for the next five years; and 2% for the following years until termination
of the agreement.
Due to the suspension of operations resulting from the explosion in February
1993, the above provisions for 1993 are based on actual revenue through
February 26, 1993 and, for the subsequent period, Vista's operating budget for
such period and related business interruption insurance claim. For 1994, the
credit reflects the reduction to the 1993 provisions to record the effect of
the reimbursement offered by the insurance carrier.
21
<PAGE>
NEW YORK VISTA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Management Agreement requires that beginning January 1, 1992 cash from
the operating account equal to the above provisions be deposited by Vista into
a segregated interest bearing bank account. The funds, including interest
earned thereon, shall be used by Vista to pay for capital expenditures,
replacements of furniture, fixtures and equipment and certain refurbishment
costs (see Note 2). As of December 31, 1994 and 1993, unfunded restricted cash
was approximately $3,047,000 and $2,335,000, respectively. Interest earned on
the restricted cash account is reflected as a payable to the Port Authority and
is included with amounts due (from)/to the Port Authority (see Note 3).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
----------- ----------
<S> <C> <C>
RESTRICTED CASH
Balance at beginning of year.................... $ 2,781,953 $2,207,972
Purchases..................................... (733,089) (76,118)
Interest income............................... 63,000 40,737
Transfer (to)/from operating account, net..... (1,790,218) 609,362
----------- ----------
Balance at end of year.......................... $ 321,646 $2,781,953
=========== ==========
RESERVE FOR REPLACEMENT FOR FURNITURE, FIXTURES
AND EQUIPMENT AND FOR CAPITAL EXPENDITURES
Balance at beginning of year.................... $ 5,117,370 $2,936,573
(Credit)/provision............................ (1,016,027) 2,256,915
Purchases..................................... (733,089) (76,118)
----------- ----------
Balance at end of year.......................... $ 3,368,254 $5,117,370
=========== ==========
</TABLE>
5. REAL ESTATE TAXES
Vista accrues for payments in lieu of real estate taxes to the Port Authority
based upon space occupied by Vista in the World Trade Center. The hotel is
currently disputing the expense attributable to the years ended December 31,
1994 and 1993.
6. PENSION PLANS
Certain nonunion employees of Vista are covered by a defined benefit
noncontributory pension plan of Hilton, which provides for normal retirement at
age 65 after a minimum of five years' service. Hilton may terminate the Plan at
any time. Unfunded past service costs are amortized over thirty years. Vista's
policy is to fund pension costs accrued, subject to full funding limitations
under the Employee Retirement Income Security Act of 1974. The assets of the
Plan are invested primarily in listed stocks and bonds.
Vista has not obtained actuarial information for the nonunion plan regarding
pension expense for the years ended December 31, 1994 and 1993 and the minimum
liability, if any, for the unfunded accumulated benefit obligation over plan
assets. Generally accepted accounting principles require that pension costs and
any minimum liability be accounted for in accordance with Financial Accounting
Standards Board Statement No. 87, "Employers' Accounting for Pensions." The
total pension expense for 1994 and 1993 was approximately $75,000 and $19,000,
respectively. Vista makes annual contributions to the plan equal to the amount
accrued for pension expense. The pension liability at December 31, 1993
approximated $138,000. There was no pension liability at December 31, 1994.
Vista, under a Collective Bargaining Agreement with the New York Hotel and
Motel Trade Council AFL-CIO, makes contributions into a multi-employer pension
plan. This plan provides defined benefits to union employees. Pension expense
for this plan for the years ended December 31, 1994 and 1993 was approximately
$77,000 and $117,000, respectively.
22
<PAGE>
NEW YORK VISTA
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
7. CONTINGENCIES
During 1993 and 1994, Vista filed insurance claims with its business
interruption insurance carrier requesting reimbursement of damages incurred as
a result of an explosion in February 1993. Other income includes approximately
$5,800,000 (1994) and $15,800,000 (1993) in connection with such insurance
claims. The 1993 financial statements reflect as income the reimbursement
requested for 1993. The 1994 financial statements reflect as income the total
reimbursement offered by the insurance carrier net of the insurance claims
reflected as income in 1993 and amounts applicable to 1995. The total amount to
be ultimately received from the insurance carrier cannot be determined at this
time.
Inhilco has filed a claim against a vendor alleging that damage to the glass
and aluminum facade of Vista resulted from cleaning work performed by such
vendor. The Port Authority has advised Inhilco that if Vista is unable to
recover sufficient amounts from such vendor or the insurer of the hotel to make
the necessary repairs, it would seek to hold Inhilco responsible for the cost.
Inhilco believes it has defenses available to it in the event that such a claim
would be asserted by the Port Authority.
Vista has been named as a defendant in a legal proceeding arising out of a
labor dispute. The management of Vista believes that the ultimate resolution of
such litigation will not have a material adverse effect on Vista's financial
condition.
8. SUBSEQUENT EVENTS
Inhilco terminated their Management Agreement of the Vista with the Port
Authority effective August 31, 1995. This termination also releases and
discharges Inhilco from any obligations and claims. Under the terms of the
terminated Management Agreement, the Port Authority has the right to be
reimbursed by Inhilco for losses sustained greater than $340,000, within six
months after the termination date, as a result of the breach of certain
representations made by Inhilco.
23
<PAGE>
NEW YORK VISTA
STATEMENT OF REVENUES AND EXPENSES
EIGHT MONTHS ENDED AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<S> <C>
OPERATING REVENUES:
Rooms............................................................ $15,841,225
Food............................................................. 3,406,572
Beverage......................................................... 1,222,266
Other operated departments....................................... 773,271
Other income..................................................... 2,363,065
-----------
23,606,399
-----------
OPERATING EXPENSES:
Cost of sales:
Food........................................................... 794,587
Beverage....................................................... 314,441
Other operated departments..................................... 288,718
-----------
Total cost of sales.............................................. 1,397,746
Payroll and related expenses..................................... 10,014,146
Provision for operating equipment................................ 109,018
Other operating expenses......................................... 1,827,643
-----------
13,348,553
-----------
Gross operating income............................................. 10,257,846
-----------
DEDUCTIONS FROM GROSS OPERATING INCOME:
General and administrative expenses.............................. 3,187,491
Marketing expenses............................................... 1,479,830
Property operation, maintenance and energy costs................. 5,825,575
-----------
10,492,896
-----------
Gross operating loss............................................... (235,050)
-----------
OTHER DEDUCTIONS/(INCOME):
Real estate taxes ............................................... 1,446,216
Insurance........................................................ 206,267
Pre-opening and other business restoration costs................. 1,442,244
Interest expense................................................. 715,425
Other............................................................ 267,835
-----------
4,077,987
-----------
Excess of expenses over revenues................................... $(4,313,037)
===========
</TABLE>
24
