SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 6, 1996 Commission File No. 1-5664
HOST MARRIOTT CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 53-0085950
(State of Incorporation) (I.R.S. Employer
Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Class Shares outstanding
Common Stock, $1.00 at October 4, 1996
par value per share 195,165,112
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
September 6, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Thirty-six Weeks Ended
September 6, 1996 and September 8, 1995
Condensed Consolidated Statements of Cash Flows - 6
Thirty-six Weeks Ended September 6, 1996 and
September 8, 1995
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of 10
Operations and Financial Condition
Part II. OTHER INFORMATION AND SIGNATURE 15
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 6, December 29,
1996 1995
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Property and Equipment, net............................................... $3,280 $2,882
Notes and Other Receivables (including amounts due from
affiliates of $164 million and $170 million, respectively).............. 199 210
Due from Hotel Managers................................................... 73 72
Investments in Affiliates................................................. 13 26
Other Assets.............................................................. 247 166
Cash and Cash Equivalents................................................. 647 201
------ ------
.......................................................................... $4,459 $3,557
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt
Debt carrying a parent company guarantee of repayment.................... $ 220 $ 262
Debt not carrying a parent company guarantee of repayment................ 2,362 1,916
------ ------
2,582 2,178
Accounts Payable and Accrued Expenses...................................... 67 52
Deferred Income Taxes...................................................... 465 504
Other Liabilities.......................................................... 265 148
------ ------
Total Liabilities..................................................... 3,379 2,882
------ ------
Shareholders' Equity
Common Stock, 300 million shares authorized; 195.1 million
shares and 159.7 million shares issued and outstanding,
respectively........................................................... 195 160
Additional Paid-in Capital............................................... 876 499
Retained Earnings........................................................ 9 16
------ ------
Total Shareholders' Equity 1,080 675
------ ------
$4,459 $3,557
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve weeks ended September 6, 1996 and September 8, 1995
(unaudited, in millions, except per common share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Hotels............................................................... $ 164 $ 103
Net gains on property transactions................................... 1 4
Other ............................................................... 2 3
------- -------
Total revenues..................................................... 167 110
------- -------
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$22 million and $14 million in 1996 and 1995, respectively)........ 110 65
Other ............................................................... 8 7
------- -------
Total operating costs and expenses................................. 118 72
------- -------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST........................................................... 49 38
Corporate expenses....................................................... (8) (8)
Interest expense......................................................... (53) (39)
Interest income.......................................................... 13 5
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.................................................... 1 (4)
Provision for income taxes............................................... (3) --
-------- -------
LOSS FROM CONTINUING OPERATIONS.......................................... (2) (4)
DISCONTINUED OPERATIONS
Income from discontinued operations
(net of income taxes of $5 million in 1995)........................ -- 10
Provision for loss on disposal (net of income tax benefit
of $2 million in 1995)............................................. -- (11)
------- -------
NET LOSS ................................................................ $ (2) $ (5)
======= =======
LOSS PER COMMON SHARE:
Continuing operations................................................... $ (.01) $ (.02)
Discontinued operations (net of income taxes)........................... -- (.01)
------- -------
NET LOSS................................................................ $ (.01) $ (.03)
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirty-six weeks ended September 6, 1996 and September 8, 1995
(unaudited, in millions, except per common share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Hotels..................................................................... $ 455 $ 315
Net losses on property transactions........................................ (1) (5)
Equity in earnings (losses) of affiliates.................................. 2 (1)
Other ..................................................................... 8 10
------ ------
Total revenues........................................................... 464 319
------ ------
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$63 million and $43 million in 1996 and 1995, respectively).............. 291 182
Other ..................................................................... 24 19
------ ------
Total operating costs and expenses....................................... 315 201
------ ------
OPERATING PROFIT BEFORE MINORITY INTEREST,
CORPORATE EXPENSES AND INTEREST.............................................. 149 118
Minority interest.............................................................. (2) --
Corporate expenses............................................................. (25) (26)
Interest expense............................................................... (152) (122)
Interest income................................................................ 29 18
------ ------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.......................................................... (1) (12)
Provision for income taxes..................................................... (6) (1)
------ ------
LOSS FROM CONTINUING OPERATIONS................................................ (7) (13)
DISCONTINUED OPERATIONS
Loss from discontinued operations
(net of income tax benefit of $3 million in 1995)........................ -- (8)
Provision for loss on disposal (net of income tax benefit
of $2 million in 1995)................................................. -- (11)
------ ------
LOSS BEFORE EXTRAORDINARY ITEM................................................. (7) (32)
Extraordinary item - loss on extinguishment of debt
(net of income tax benefit of $9 million in 1995)............................ -- (17)
------ ------
NET LOSS ...................................................................... $ (7) $ (49)
====== ======
LOSS PER COMMON SHARE:
Continuing operations......................................................... $ (.04) $ (.08)
Discontinued operations (net of income taxes)................................. -- (.12)
Extraordinary item - loss on extinguishment of debt (net of income taxes)..... -- (.11)
------ ------
NET LOSS........................................................................$ (.04) $ (.31)
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-six weeks ended September 6, 1996 and September 8, 1995
(unaudited, in millions)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations.............................................. $ (7) $ (13)
Adjustments to reconcile to cash from operations:
Depreciation and amortization............................................ 108 85
Income taxes............................................................. (36) (1)
Equity in (earnings) losses of affiliates................................ (2) 1
Changes in operating accounts............................................ 19 (16)
Other.................................................................... 30 25
------- -------
Cash from continuing operations.......................................... 112 81
Cash from (used in) discontinued operations.............................. (4) 61
------- -------
Cash from operations..................................................... 108 142
------- -------
INVESTING ACTIVITIES
Proceeds from sales of assets................................................ 362 341
Less noncash proceeds.................................................... (33) (33)
------- -------
Cash received from sales of assets .......................................... 329 308
Acquisitions................................................................. (283) (147)
Capital expenditures:
Renewals and replacements................................................ (55) (37)
Lodging construction funded by project financing......................... (2) (34)
Other.................................................................... (44) (39)
Note receivable collections.................................................. 7 42
Affiliate collections (advances), net........................................ 6 (11)
Other ....................................................................... (37) 20
------- -------
Cash from (used in) investing activities from continuing operations...... (79) 102
Cash used in investing activities from discontinued operations........... -- (38)
------- -------
Cash from (used in) investing activities................................. (79) 64
------- -------
FINANCING ACTIVITIES
Issuances of debt............................................................ 37 766
Issuances of common stock.................................................... 407 9
Scheduled principal repayments............................................... (18) (96)
Debt prepayments ............................................................ (37) (740)
Other ....................................................................... 28 --
------- -------
Cash from (used in) financing activities from continuing operations...... 417 (61)
Cash used in financing activities from discontinued operations........... -- (1)
------- -------
Cash from (used in) financing activities................................. 417 (62)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS........................................ $ 446 $ 144
======= =======
Non-cash investing and financing activities:
Assumption of mortgage debt for the acquisition of
certain hotel properties............................................... $ 449
=======
See Notes to Condensed Consolidated Financial Statements.
- 6 -
</TABLE>
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of Host
Marriott Corporation and subsidiaries (the "Company") have been prepared by
the Company without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes the disclosures made are adequate to make the
information presented not misleading. However, the condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 29, 1995.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of the Company as of September 6,
1996 and December 29, 1995, the results of operations for the twelve and
thirty- six weeks ended September 6, 1996 and September 8, 1995, and cash
flows for the thirty-six weeks ended September 6, 1996 and September 8,
1995. Interim results are not necessarily indicative of fiscal year
performance because of the impact of seasonal and short-term variations.
During the second and third quarters of 1996, the Company changed the
estimated depreciable life and salvage value for certain large hotel
properties to more closely conform with the depreciable lives used for the
Company's other hotel properties and the industry. This resulted in
additional depreciation expense of $6 million (.02 per share) for the 1996
third quarter and $9 million (.03 per share) year-to-date.
2. On December 29, 1995, the Company distributed to its shareholders through a
special tax-free dividend (the "Special Dividend") all of the outstanding
shares of common stock of Host Marriott Services Corporation ("HM
Services"), formerly a wholly-owned subsidiary of the Company, which, as of
the date of the Special Dividend, owned and operated food, beverage and
merchandise concessions businesses at airports, on tollroads and at
stadiums, arenas and other attractions (the "Operating Group"). The
condensed consolidated financial statements for 1995 have been restated to
reflect the Operating Group results as discontinued operations. Revenues
for the Company's discontinued operations totaled $310 million and $799
million for the twelve and thirty-six weeks ended September 8, 1995,
respectively. Cash used in discontinued operations through the third
quarter of 1996 represents the 1996 payment of expenses related to the
Special Dividend accrued during 1995.
3. Revenues primarily represent house profit from the Company's hotel
properties, net gains (losses) on property transactions, and equity in
earnings (losses) of affiliates. House profit reflects the net revenues
flowing to the Company as property owner and represents hotel operating
results less property-level expenses excluding depreciation, real and
personal property taxes, ground rent, insurance and management fees, which
are classified as operating costs and expenses.
- 7 -
<PAGE>
House profit generated by the Company's hotels for 1996 and 1995 consists of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
Sales
Rooms......................... $ 309 $ 208 $ 839 $ 609
Food & Beverage............... 107 73 316 232
Other......................... 29 19 81 53
------- ------- ------- -------
Total Hotel Sales........... 445 300 1,236 894
------- ------- ------- -------
Department Costs
Rooms......................... 74 53 202 151
Food & Beverage............... 90 57 252 180
Other......................... 13 13 41 31
------- ------- ------- -------
Total Department Costs...... 177 123 495 362
------- ------- ------- -------
Department Profit................ 268 177 741 532
Other Deductions................. 104 74 286 217
------- ------- ------- -------
House Profit................ $ 164 $ 103 $ 455 $ 315
======= ======= ======= =======
</TABLE>
4. Net loss per common share is computed on a fully diluted basis by dividing
net loss by the weighted average number of outstanding common and common
equivalent shares. Common equivalent shares and other potentially dilutive
securities have been excluded from the weighted average number of
outstanding shares for the twelve and thirty-six weeks ended September 6,
1996 and the twelve weeks and thirty-six weeks ended September 8, 1995, as
they are antidilutive. The weighted average shares were 194.8 million and
158.8 million for the twelve weeks ended September 6, 1996 and September 8,
1995, respectively, and 183.1 million and 157.9 million for the thirty-six
weeks then ended, respectively.
5. The Company has minority interests in 28 affiliates that own an aggregate
of 258 properties, 38 of which are full-service properties, managed by
Marriott International, Inc. The Company's equity in earnings of affiliates
was $2 million for the thirty-six weeks ended September 6, 1996, and the
equity in losses of affiliates was $1 million for the thirty-six weeks
ended September 8, 1995. For the twelve weeks ended September 6, 1996 and
September 8, 1995, the Company's equity in earnings of affiliates was not
significant.
Combined summarized operating results reported by affiliates follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
Revenues........................................$ 170 $ 191 $ 541 $ 566
Operating expenses:
Cash charges (including interest)............ (112) (113) (335) (353)
Depreciation and other non-cash charges...... (55) (54) (171) (180)
Income before extraordinary item................ 3 24 35 33
Extraordinary item - forgiveness of debt........ -- 146 -- 146
------- ------- ------- -------
Net income...................................$ 3 $ 170 $ 35 $ 179
======= ======= ======= =======
</TABLE>
On June 18, 1996, the Company successfully completed the tender offer for a
majority of the limited partnership units of Marriott Hotel Properties II
Limited Partnership ("MHP II"), an affiliated partnership of the Company in
which the Company owned a 1.67% general partner interest, by purchasing 377
units for approximately $57 million, or $150,000 per unit. MHP II owns the
1,290- room New Orleans Marriott hotel, the 999-room San Antonio Marriott
Rivercenter hotel, the 368- room San Ramon Marriott hotel and a 50% limited
partner interest in the 754-room Santa Clara
- 8 -
<PAGE>
Marriott hotel. As a result of this transaction, a wholly-owned subsidiary
of the Company became the majority limited partner in MHP II and the
Company consolidated the MHP II partnership in the third quarter of
1996.
On September 23, 1996 the Company successfully completed the refinancing of
the MHP II mortgage debt, as well as the mortgage debt of the Santa Clara
Partnership under substantially identical terms. The new mortgages,
totalling approximately $266 million, bear interest at a fixed rate of
8.22% and mature in 2007.
6. On March 27, 1996, the Company completed the issuance of 31.6 million
shares of common stock for net proceeds of nearly $400 million. From
December 30, 1995 through September 6, 1996, .6 million warrants have been
exercised and shares of Company stock issued. Under the terms of the
warrant agreement, the warrant exercise price increased from $8.00 per
share to $10.00 per share on October 9, 1996. Since September 6, 1996, 6.3
million additional warrants have been exercised. On October 11, 1996,
approximately .6 million warrants were issued and outstanding, and are
exercisable at $10 per share.
7. In February 1996, the Company entered into an agreement with a real estate
investment trust (the "REIT") to sell and lease back 16 of its Courtyard
properties and 18 of its Residence Inn properties for $349 million (10% of
which would be deferred). The sale and leaseback of the properties was
completed during the first and second quarters of 1996 (two of the 16
Courtyard properties remain in escrow pending resolution of certain title
issues which must be accomplished by December 31, 1996). A gain on the
transactions of approximately $42 million has been deferred and will be
amortized over the initial term of the leases.
8. During the first quarter of 1996, the Company acquired a controlling
interest in the San Diego Marriott Hotel and Marina (1,355 rooms), in which
it had previously held a five percent interest, for $216 million consisting
of a cash contribution of $10 million and $206 million in assumed debt.
Also during the first quarter of 1996, the Company acquired a controlling
interest in a venture which owns two hotels in Mexico City, Mexico (914
rooms). In addition, the Company acquired the Toronto Delta Meadowvale
Hotel and Conference Center (374 rooms) for $25 million.
During the second quarter of 1996, the Company acquired the 254-room Dulles
Airport Marriott Suites for $29 million and acquired, for approximately $17
million, a 95% interest in a venture that acquired the 400-room Pittsburgh
Hyatt Regency Hotel. The Pittsburgh Hyatt was renovated and converted to
the Marriott brand and re-opened in July 1996. In addition, the Company
acquired the 354-room Oklahoma City Marriott for $23 million and the
256-room Jacksonville Marriott for $21 million.
During the third quarter of 1996, the Company acquired a majority of the
limited partnership units of Marriott Hotel Properties II Limited
Partnership, in which it had previously held a 1.67% general partner
interest for $270 million, including $57 million in cash and $213 million
in assumed debt. In addition, the Company acquired, through foreclosure, a
controlling interest in the 250-room Newport Beach Marriott Suites. The
Company had purchased an 83% interest in the mortgage loans secured by the
hotel for $18 million in the first quarter of 1996.
During the fourth quarter of 1996, the Company has acquired a controlling
interest in the partnership that owns the 463-room Ritz-Carlton in Naples,
Florida and the 553-room Ritz-Carlton, Buckhead in Atlanta, Georgia for
$269 million, including $45 million in cash and $224 million in assumed
debt. The Company also acquired the 447-room Ritz-Carlton in downtown
Atlanta for $62 million and the 279-room Palm Beach Gardens Marriott for
$28 million.
- 9 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
REVENUES. Revenues primarily represent house profit from the Company's hotel
properties, net gains (losses) on property transactions and equity in earnings
(losses) of affiliates. Revenues increased $57 million, or 52%, to $167 million
for the third quarter of 1996 from $110 million for the third quarter of 1995.
Year-to-date revenues rose $145 million, or 45%, to $464 million. The Company's
revenue and operating profit were impacted by:
- - improved lodging results for comparable full-service hotel properties;
- - the addition of nine full-service hotel properties during 1995 and twelve
full-service properties through the third quarter of 1996;
- - a $4 million charge in the 1996 second quarter to write down an undeveloped
land parcel to its net realizable value based on expected sales value
(included in "Net gains (losses) on property transactions");
- - the 1996 sale and leaseback of 16 of the Company's Courtyard properties and
18 of the Company's Residence Inns;
- - the 1996 change in the estimated depreciable life and salvage value for
certain hotel properties which resulted in additional depreciation expense
of $6 million for the 1996 third quarter and $9 million year-to-date;
- - the 1995 sale and leaseback of 37 of the Company's Courtyard properties;
- - the 1995 sale of four Fairfield Inns; and
- - a $10 million charge in the 1995 second quarter to write down the carrying
value of certain Courtyard and Residence Inn properties held for sale to
their net realizable value. Such charge is included in revenues as part of
"Net gains (losses) on property transactions."
Hotel revenues increased $61 million, or 59%, to $164 million in the third
quarter of 1996 and $140 million, or 44%, to $455 million year-to-date, as all
three of the Company's lodging concepts reported growth in room revenues
generated per available room ("REVPAR"). Improved results for the Company's
full-service hotels were driven by strong increases in REVPAR for comparable
units of almost 15% for the 1996 third quarter and 12% year-to-date. Results
were further enhanced by over a two percentage point increase in the house
profit margin for comparable properties for the quarter and year-to- date. Hotel
sales increased $145 million, or 48%, to $445 million for the quarter and $342
million, or 38%, to $1,236 million year-to-date, reflecting the REVPAR increases
for comparable units and the addition of full-service properties during 1995 and
1996. On a comparable basis for the Company's full- service properties, average
room rates increased 10% for the 1996 third quarter and 8% year-to-date, while
average occupancy increased three percentage points for the quarter and
year-to-date, respectively.
The Company's moderate-price Courtyard properties reported a REVPAR increase of
9% for the quarter and 8% year-to-date. The increases in REVPAR are primarily a
result of a 9% and 7% increase in average room rates for the quarter and
year-to-date, respectively, and a slight increase in average occupancy
year-to-date.
- 10 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's extended-stay Residence Inns reported increases in REVPAR of 7%
for the 1996 third quarter and 6% year-to-date, due primarily to increases in
average room rates of 8% for the quarter and 6% year-to-date, while average
occupancy decreased slightly. Due to the high occupancy of these properties, the
Company expects future increases in REVPAR to be driven by room rate increases,
rather than occupancy increases. However, there can be no assurance that REVPAR
will continue to increase in the future.
During the second quarter of 1996, the Company recorded a charge of $4 million
to write down one undeveloped land parcel to its new net realizable value based
on current negotiations for the sale of this parcel. The previous net realizable
value was based on an agreement to sell the parcel to a single buyer which was
terminated.
OPERATING COSTS AND EXPENSES. Operating costs and expenses principally consist
of depreciation, management fees, real and personal property taxes, ground,
building and equipment rent, insurance and certain other costs. The Company's
operating costs and expenses increased $46 million to $118 million in the third
quarter of 1996 from $72 million in the third quarter of 1995, primarily
representing increased hotel operating costs, including depreciation.
Year-to-date operating costs and expenses increased $114 million to $315
million. Hotel operating costs increased $45 million to $110 million for the
third quarter of 1996 and $109 million to $291 million year-to-date primarily
due to the addition of 21 full-service properties during 1995 and 1996,
increased management fees and rentals tied to improved property results and a
change in the depreciable life and salvage value for certain large hotel
properties ($6 million for the quarter and $9 million year-to-date). As a
percentage of hotel revenues, hotel operating costs and expenses increased to
67% and 64% of revenues in the third quarter of 1996 and year-to-date 1996,
respectively, from 63% and 58% of revenues in the third quarter of 1995 and
year-to- date 1995, respectively, reflecting the impact of the lease payments on
the Courtyard and Residence Inn properties which have been sold and leased back,
and the change in depreciable lives and salvage value for certain large hotel
properties discussed above, as well as the shifting emphasis to full-service
properties. Full-service hotel rooms accounted for 100% of the Company's total
hotel rooms at the end of the third quarter of 1996 versus 70% at the end of the
third quarter of 1995.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, the Company's operating profit increased $11 million,
or 29%, to $49 million for the third quarter of 1996 and $31 million, or 26%, to
$149 million year-to-date. Hotel operating profit increased $16 million, or 42%,
to $54 million, or 33% of hotel revenues, for the third quarter of 1996 from $38
million, or 37% of hotel revenues, for the third quarter of 1995. Year-to-date
hotel operating profit increased $31 million, or 23%, to $164 million, or 36% of
hotel revenues, for 1996 compared to $133 million, or 42% of hotel revenues, for
1995. Across the board, the Company's hotels recorded substantial improvements
in comparable operating results. In addition, several hotels, including the New
York Marriott Marquis, the New York Marriott East Side, the Philadelphia
Marriott, and the Miami Airport Marriott posted particularly significant
improvements in operating profit for both the quarter and year-to-date. The
Company's Atlanta properties also posted outstanding results due to the 1996
summer Olympics. Additionally, several hotels recently converted to the Marriott
brand, including the Denver Marriott Tech Center, the Vail Marriott Mountain
Resort and the Williamsburg Marriott recorded strong results compared to the
prior year. The San Francisco Marriott had an outstanding quarter compared to
the prior year and is now slightly ahead of its 1995 year-to-date performance
after a poor 1996 first quarter.
- 11 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CORPORATE EXPENSES. Corporate expenses remained the same for the 1996 third
quarter and decreased $1 million year-to-date. As a percentage of revenues,
corporate expenses decreased to 5% of revenues in the third quarter of 1996 from
7% in the third quarter of 1995 and 5% of revenues through the third quarter of
1996 from 8% through the third quarter of 1995. This reflects the Company's
efforts to carefully control its corporate administrative expenses in spite of
the substantial growth in revenues.
INTEREST EXPENSE. Interest expense increased 36% to $53 million in the third
quarter of 1996 and 25% to $152 million year-to-date, primarily due to the
additional debt of approximately $590 million incurred in connection with the
1995 and 1996 full-service hotel additions, partially offset by the net impact
of the 1995 redemptions of Host Marriott Hospitality, Inc. notes.
LOSS FROM CONTINUING OPERATIONS. The loss from continuing operations for the
third quarter of 1996 was $2 million, compared to a $4 million loss for the
third quarter of 1995. The year-to-date loss from continuing operations
decreased $6 million to $7 million. The income tax provision included in the
year- to-date net losses for 1995 and 1996 reflect the impact of taxes on
certain foreign source income and the non-deductibility of losses in certain
state jurisdictions.
NET LOSS. The Company's net loss for the third quarter of 1996 was $2 million,
compared to a loss of $5 million in the third quarter of 1995. The loss for the
third quarter of 1995 included the impact of $10 million in income from
discontinued operations and an $11 million extraordinary loss on the
extinguishment of debt. The net loss was $7 million for year-to-date 1996 and
$49 million for year-to- date 1995. The 1995 year-to-date loss includes a $19
million loss from discontinued operations and a $17 million extraordinary loss
primarily representing premiums paid on bond redemptions and the write- off of
deferred financing fees and discounts on the debt. The net loss for the third
quarter of 1996 was $.01 per share and the year-to-date loss was $.04 per share,
compared to losses of $.03 and $.31 per share for the third quarter of 1995 and
year-to-date 1995, respectively.
EBITDA
The Company's consolidated Earnings Before Interest Expense, Taxes,
Depreciation, Amortization and other non-cash items ("EBITDA") increased $37
million, or 58%, to $101 million in the 1996 third quarter and $71 million, or
33%, to $283 million year-to-date. The Company considers EBITDA to be an
indicative measure of the Company's operating performance due to the
significance of the Company's long-lived assets and because such data can be
used to measure the Company's ability to service debt, fund capital expenditures
and expand its business, however, such information should not be considered as
an alternative to net income, operating profit, cash from operations, or any
other operating or liquidity performance measure prescribed by generally
accepted accounting principles. Cash expenditures for various long-term assets,
interest expense, and income taxes have been, and will be, incurred which are
not reflected in the EBITDA presentation.
Hotel EBITDA increased $28 million, or 41%, to $96 million in the third quarter
of 1996 and $58 million, or 26%, to $277 million year-to-date. Full-service
hotel EBITDA increased $40 million, or 78%, to $91 million for the third quarter
of 1996 and $92 million, or 56%, to $256 million year-to-date. Full-service
hotel EBITDA from comparable hotel properties increased 24% for the third
quarter of 1996 and 18% year-to-date. Full-service hotel EBITDA increased to 95%
of hotel EBITDA in the third quarter of 1996 and 92% of hotel EBITDA
year-to-date due to the sale and leaseback of the Company's remaining limited
service hotel properties and the impact of the 1996 full-service hotel
additions.
- 12 -
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a reconciliation of EBITDA to the Company's loss from
continuing operations:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
EBITDA...............................................$ 101 $ 64 $ 283 $ 212
Interest expense..................................... (53) (39) (152) (122)
Depreciation and amortization........................ (41) (28) (108) (85)
Income taxes......................................... (3) -- (6) (1)
Loss on dispositions of assets and other non-cash
charges, net........................................ (6) (1) (24) (17)
------- ------- ------- -------
Loss from continuing operations...................$ (2) $ (4) $ (7) $ (13)
======= ======= ======= =======
</TABLE>
CASH FLOWS AND FINANCIAL CONDITION
The Company reported an increase in cash and cash equivalents of $446 million
during the thirty-six weeks ended September 6, 1996. This increase is primarily
due to the issuance of 31.6 million shares of common stock for net proceeds of
approximately $400 million and proceeds of approximately $315 million from the
sale and leaseback of the Company's remaining limited service properties. This
increase is offset by the use of funds to acquire twelve full-service
properties, repay debt, fund capital expenditures and the payment of income
taxes related to prior years. Cash flow from continuing operations decreased $34
million, to $108 million, through the third quarter of 1996 primarily due to a
$45 million payment of taxes related to the settlement of issues with the
Internal Revenue Service through the 1990 tax year.
Cash used in investing activities from continuing operations was $79 million
through the third quarter of 1996, while cash from investing activities from
continuing operations was $102 million through the third quarter of 1995. Cash
used in investing activities through the third quarter of 1996 includes capital
expenditures of $101 million, primarily related to renewals and replacements on
existing properties and the construction of one urban Residence Inn near
National Airport ($7 million through the third quarter of 1996), and $283
million for twelve full-service hotel acquisitions, partially offset by $317
million in net sales proceeds, principally from the sale/leaseback of
thirty-four of the Company's Courtyard and Residence Inn properties.
During the first quarter of 1996, the Company acquired a controlling interest in
the San Diego Marriott Hotel and Marina (1,355 rooms), in which it had
previously held a five percent interest, for $216 million consisting of a cash
contribution of $10 million and $206 million in assumed debt. Also during the
first quarter of 1996, the Company acquired a controlling interest in a venture
which owns two hotels in Mexico City, Mexico (914 rooms). In addition, the
Company acquired the Toronto Delta Meadowvale Hotel and Conference Center (374
rooms) in the first quarter of 1996 for $25 million.
During the second quarter of 1996, the Company acquired the 254-room Dulles
Airport Marriott Suites for $29 million and, for approximately $17 million,
acquired a 95% interest in a venture that acquired the 400-room Pittsburgh Hyatt
Regency hotel, which was renovated, converted to the Marriott brand and
re-opened in July 1996. The Company also acquired the 354-room Oklahoma City
Marriott for $23 million and the 256-room Jacksonville Marriott for $21 million.
The Company completed the sale and leaseback of 16 of its Courtyard properties
and 18 of its Residence Inn properties (two of the 16 Courtyard properties
- 13 -
<PAGE>
remain in escrow pending resolution of certain title issues which must be
accomplished by December 31, 1996) for $349 million (10% of which was deferred).
During the third quarter of 1996, the Company successfully completed the tender
offer for a majority of the limited partnership units of Marriott Hotel
Properties II Limited Partnership ("MHP II"), an affiliated partnership of the
Company in which the Company owned a 1.67% general partner interest, by
purchasing 377 units for approximately $57 million, or $150,000 per unit. MHP II
owns the 1,290-room New Orleans Marriott hotel, the 999-room San Antonio
Marriott Rivercenter hotel, the 368-room San Ramon Marriott hotel and a 50%
limited partner interest in the 754-room Santa Clara Marriott hotel. As a result
of this transaction, a wholly-owned subsidiary of the Company became the
majority limited partner in MHP II. In the third quarter of 1996, the Company
consolidated the MHP II partnership. In addition, the Company acquired, through
foreclosure, a controlling interest in the 250-room Newport Beach Marriott
Suites. The Company had purchased an 83% interest in the mortgage loans secured
by the hotel for $18 million in the first quarter of 1996. Additionally, in the
third quarter of 1996, the JW Marriott Hotel Mexico City opened.
Also during the fourth quarter of 1996, the Company acquired a controlling
interest in the partnership that owns the 463-room Ritz-Carlton in Naples,
Florida and the 553-room Ritz-Carlton, Buckhead, in Atlanta, Georgia for $269
million consisting of a cash contribution of $45 million and $224 million in
assumed debt. In addition, the Company acquired the 447-room Ritz-Carlton in
downtown Atlanta for $62 million and the 279-room Palm Beach Gardens Marriott
for $28 million.
Cash from financing activities from continuing operations was $417 million
through the third quarter of 1996, while cash used in financing activities from
continuing operations was $61 million through the third quarter of 1995. Cash
from financing activities through the third quarter of 1996 includes the
issuance of 31.6 million shares of common stock for net proceeds of nearly $400
million and the issuance of debt of $29 million related to the acquisition of
the two hotels in Mexico City. The proceeds from the equity offering, along with
the proceeds from the 1996 sale and leaseback of the Courtyard and Residence Inn
properties, will be utilized to acquire full-service hotel properties and for
general corporate purposes.
During 1996, 6.9 million warrants have been exercised and shares of Company
stock issued (including the exercise of 6.3 million of warrants since September
6, 1996). Under the terms of the warrant agreement, effective October 9, 1996,
the warrants are exercisable at $10.00 per share; prior to October 8, 1996, the
warrants were exercisable at $8.00 per share.
- 14 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit:
#11 Statement Re: Computation of Loss Per Common Share
b. Reports on Form 8-K:
- June 18, 1996 -- Report of the announcement that the Company
successfully completed the tender offer for a majority of the
Partnership (MHP II). Financial statements of MHP II, along with pro
forma financial information of the Company, were included in the Form
8-K.
- July 11, 1996 -- Report of the announcement that the Company appointed
Robert M. Baylis to its board of directors.
- 15 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOST MARRIOTT CORPORATION
October 11, 1996 /s/ Donald D. Olinger
Date ---------------------------------------
Donald D. Olinger
Vice President and Corporate Controller
(Chief Accounting Officer)
- 16 -
<PAGE>
EXHIBIT 11
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF LOSS PER COMMON SHARE
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
September 6, September 8, September 6, September 8,
1996 1995 1996 1995
------------------------- --------------------------
<S> <C> <C> <C> <C>
Net loss................................................... $ (2) $ (5) $ (7) $ (49)
====== ====== ====== ======
Primary Loss Per Common Share
Shares:
Weighted average number of common shares
outstanding.......................................... 194.8 158.8 183.1 157.9
Assuming distribution of common shares granted
under comprehensive stock plan, less shares
assumed purchased at average market *................ -- -- -- --
Assuming distribution of common shares issuable
for warrants, less shares assumed purchased
at average market *.................................. -- -- -- --
..................................................... 194.8 158.8 183.1 157.9
------ ------ ------ ------
Primary Loss Per Common Share.............................. $ (.01) $ (.03) $ (.04) $ (.31)
====== ====== ====== ======
Fully Diluted Loss Per Common Share
Shares:
Weighted average number of common shares
outstanding.......................................... 194.8 158.8 183.1 157.9
Assuming distribution of common shares granted
under comprehensive stock plan, less shares
assumed purchased at higher of average or
ending market *...................................... -- -- -- --
Assuming distribution of common shares issuable
for warrants, less shares assumed purchased
at higher of average or ending market *.............. -- -- -- --
------ ------ ------ ------
194.8 158.8 183.1 157.9
====== ====== ====== ======
Fully Diluted Loss Per Common Share........................ $ (.01) $ (.03) $ (.04) $ (.31)
====== ====== ====== ======
</TABLE>
____________
* Common equivalent shares and other potentially dilutive
securities were anti-dilutive for all periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Host
Marriott Corporation's Condensed Consolidated Balance Sheets and Condensed
Consolidated Statements of Operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000314733
<NAME> Host Marriott Corproation
<MULTIPLIER> 1,000,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jan-3-1997
<PERIOD-START> Dec-30-1995
<PERIOD-END> Sep-6-1996
<EXCHANGE-RATE> 1
<CASH> 647
<SECURITIES> 0
<RECEIVABLES> 73
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,000
<DEPRECIATION> 720
<TOTAL-ASSETS> 4,459
<CURRENT-LIABILITIES> 0
<BONDS> 2,582
0
0
<COMMON> 195
<OTHER-SE> 885
<TOTAL-LIABILITY-AND-EQUITY> 4,459
<SALES> 0
<TOTAL-REVENUES> 464
<CGS> 0
<TOTAL-COSTS> 315
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> (1)
<INCOME-TAX> (6)
<INCOME-CONTINUING> (7)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
