SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q (Amendment No. 1)
[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
Quarter Ended March 22, 1996 Commission File No. 33-95060
HOST INTERNATIONAL, INC.
(formerly Host Marriott Travel Plazas, Inc.)
Delaware 52-1822044
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-7000
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 __
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Statements of Operations -
Twelve Weeks Ended March 22, 1996 and March 24, 1995 3
Condensed Consolidated Balance Sheets -
March 22, 1996 and December 29, 1995 4
Condensed Consolidated Statements of Cash Flows -
Twelve Weeks Ended March 22, 1996 and March 24, 1995 5
Condensed Consolidated Statement of Shareholder's Deficit -
Twelve Weeks Ended March 22, 1996 6
Notes to Condensed Consolidated Financial Statements 7-12
Management's Discussion and Analysis of Results of Operations
and Financial Condition 13-17
PART II. OTHER INFORMATION AND SIGNATURE:
Legal Proceedings 18
Changes in Securities 18
Defaults Upon Senior Securities 18
Submission of Matters to a Vote of Security Holders 18
Other Information 19
Exhibits and Reports on Form 8-K 20
Signature 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions)
<TABLE>
<CAPTION>
Twelve Weeks Ended
- ------------------------------------------------------------------
March 22, March 24,
1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
REVENUES ................................. $ 236.3 $ 197.1
- ------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of sales ....................... 71.0 60.4
Payroll and benefits ................ 74.0 62.1
Rent ................................ 40.9 33.8
Royalties ........................... 3.8 2.8
Depreciation and amortization ....... 10.6 9.8
Other ............................... 21.6 20.6
- ------------------------------------------------------------------
Total operating costs and expenses 221.9 189.5
- ------------------------------------------------------------------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST ........................ 14.4 7.6
Corporate expenses .................. 12.0 10.2
Interest expense .................... 9.0 9.4
- ------------------------------------------------------------------
LOSS BEFORE INCOME TAXES ................. (6.6) (12.0)
Provision (benefit) for income taxes (2.8) (4.1)
- ------------------------------------------------------------------
NET LOSS ................................. $ (3.8) $ (7.9)
==================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
March 22, December 29,
1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ........................... $ 47.4 $ 45.3
Accounts receivable, net ............................ 32.3 28.9
Inventories ......................................... 34.7 35.5
Deferred income taxes ............................... 16.5 16.5
Prepaid rent ........................................ 5.4 5.1
Other current assets ................................ 2.3 2.7
- -----------------------------------------------------------------------------------
Total current assets .............................. 138.6 134.0
Property and equipment, net .............................. 240.4 239.6
Notes receivable ......................................... 0.7 0.8
Intangible assets ........................................ 23.3 24.1
Deferred income taxes .................................... 61.2 58.4
Other assets ............................................. 18.8 19.6
- -----------------------------------------------------------------------------------
Total assets ...................................... $ 483.0 $ 476.5
===================================================================================
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Accounts payable .................................... $ 80.0 $ 81.1
Accrued payroll and benefits ........................ 35.4 35.3
Current portion of long-term debt ................... 1.1 1.2
Other current liabilities ........................... 59.9 50.3
- -----------------------------------------------------------------------------------
Total current liabilities ......................... 176.4 167.9
Long-term debt ........................................... 407.3 407.6
Other liabilities ........................................ 53.1 51.2
- -----------------------------------------------------------------------------------
Total liabilities ................................. 636.8 626.7
- -----------------------------------------------------------------------------------
Shareholder's deficit
Common stock, no par value, 100 shares
issued and outstanding ............................ -- --
Additional paid-in capital .......................... -- --
Accumulated deficit ................................. (153.8) (150.2)
- -----------------------------------------------------------------------------------
Total shareholder's deficit ....................... (153.8) (150.2)
- -----------------------------------------------------------------------------------
Total liabilities and shareholder's deficit ....... $ 483.0 $ 476.5
===================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
<TABLE>
<CAPTION>
Twelve Weeks Ended
- --------------------------------------------------------------------------------
March 22, March 24,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ................................................. $ (3.8) $ (7.9)
Adjustments to reconcile net loss to cash from operations:
Depreciation and amortization ....................... 11.0 10.6
Income taxes ........................................ (2.8) (4.1)
Other ............................................... 0.1 0.9
Working capital changes:
Accounts receivable ............................ 0.8 4.6
Inventories .................................... 0.8 2.4
Other current assets ........................... 0.1 (1.7)
Accounts payable and accruals .................. 8.7 (5.3)
- --------------------------------------------------------------------------------
Cash provided by (used in) operations .................... 14.9 (0.5)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures ..................................... (11.8) (5.4)
Net proceeds from the sale of assets ..................... 0.3 0.7
Other .................................................... (0.9) 0.8
- --------------------------------------------------------------------------------
Cash used in investing activities ........................ (12.4) (3.9)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayments of long-term debt ............................. (0.4) (0.1)
Issuance of long-term debt ............................... -- --
Transfers from parent, net ............................... -- 1.0
- --------------------------------------------------------------------------------
Cash provided by (used in) financing activities .......... (0.4) 0.9
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......... 2.1 (3.5)
CASH AND CASH EQUIVALENTS, beginning of quarter .......... 45.3 24.6
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of quarter ................ $ 47.4 $ 21.1
================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
TWELVE WEEKS ENDED MARCH 22, 1996
(Unaudited, in millions)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 29, 1995 ...... $ -- $ -- $ (150.2) $ (150.2)
Net loss ................... -- -- (3.8) (3.8)
Foreign exchange translation
adjustment................. -- -- 0.2 0.2
- -----------------------------------------------------------------------------
Balance, March 22, 1996 ......... $ -- $ -- $ (153.8) $ (153.8)
=============================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollar amounts in millions, except as where indicated)
1. The accompanying condensed consolidated financial statements of Host
International, Inc. and subsidiaries (the "Company," a wholly owned
subsidiary of Host Marriott Services Corporation), have been prepared
without audit. Six airport concessions contracts were transferred to the
Company from Host Marriott Corporation on September 9, 1995. The revenues
and operating costs and expenses of these six airport concessions contracts
are included in the operating results in the first quarter of 1996, but are
excluded from operating results for the first quarter of 1995. Prior to
September 9, 1995, the Company managed these six airport concessions
contracts for Host Marriott Corporation and received an agreed-upon
management fee for such management services. The Company also manages
travel plazas on six tollroads for Host Marriott Tollroads, Inc. (a
wholly owned subsidiary of Host Marriott Services Corporation) and receives
management fees for such services. Management fees are determined as a
percentage of revenues.
A supplemental pro forma statement of operations for the twelve weeks ended
March 24, 1995, is included in Part II herein as if the spin-off of the
Company from Host Marriott Corporation and the transactions related to the
spin-off occurred at the beginning of 1995. 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, and incorporated herein by reference. Capitalized terms not
otherwise defined herein have the meanings specified in the Annual Report
on Form 10-K. The preparation of the historical and pro forma consolidated
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of March 22, 1996 and December 29,
1995, and the results of operations and cash flows for the twelve weeks
ended March 22, 1996 and March 24, 1995. Interim results are not
necessarily indicative of fiscal year performance because of the impact of
seasonal and short-term variations.
The consolidated financial statements include the accounts of the Company
and its subsidiaries and controlled affiliates. Investments in 50% or less
owned affiliates over which the Company has the ability to exercise
significant influence are accounted for using the equity method. All
material intercompany transactions and balances between the Company and its
subsidiaries have been eliminated. Certain reclassifications were made to
the prior year financial statements to conform to the 1996 presentation.
2. The Company is required to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation," no later than its fiscal year ending January 3, 1997.
Management expects to adopt SFAS No. 123 utilizing the method which
provides for disclosure of the impact of stock-based compensation grants.
3. In October 1995, management approved a plan to involuntarily terminate
certain employees as part of a restructuring. The plan is expected to
result in the termination of approximately 300 employees, primarily
representing operations personnel in management, accounting and human
resources positions. Termination benefits accrued and charged to expense
during the fourth quarter of 1995 amounted to $11.6 million. Actual
termination benefits paid and charged against the liability as of March 22,
1996 were $1.9 million. The number of employees actually terminated as of
March 22, 1996 was 108.
7
<PAGE>
Also as part of the restructuring, the Company committed to a plan to exit
certain activities that will result in costs, other than employee
termination costs, that have no future economic benefit to the Company. The
Company plans to close ten retail concessions stores that are included in
the sports and entertainment business line. Lease cancellation penalty fees
and related costs accrued and charged to expense during the fourth quarter
of 1995 amounted to $2.9 million. Actual penalty fees or related costs paid
and charged against the liability as of March 22, 1996 were $30 thousand.
4. Supplemental Guarantor and Non-Guarantor Subsidiary Information
All material subsidiaries of the Company guarantee the Senior Notes. The
separate financial statements of each guaranteeing subsidiary (together,
the "Guarantor Subsidiaries") are not presented because the Company's
management has concluded that such financial statements are not material to
investors. The guarantee of each Guarantor Subsidiary is full and
unconditional and joint and several and each Guarantor Subsidiary is a
wholly owned subsidiary of the Company. Certain of the Company's controlled
affiliates, in which the Company owns between 50% and 90% interests, are
not guarantors of the Senior Notes. The ability of the Company's
Non-Guarantor Subsidiaries to make dividends to the Company is restricted
to the extent of the minority interests' share in the affiliates' combined
net assets. There is no subsidiary of the Company the capital stock of
which comprises a substantial portion of the collateral for the Senior
Notes within the meaning of Rule 3-10 of Regulation S-X. The following
condensed consolidating financial information sets forth the results of
operations, combined financial position, and cash flows of the parent,
Guarantor Subsidiaries and Non-guarantor Subsidiaries. Certain
reclassifications were made to conform all of the supplemental information
to the financial presentation on a consolidated basis. The principal
eliminating entries eliminate (i) Company debt and related interest charges
reflected in the financial statements of the Company (as obligor) and also
the Guarantor Subsidiaries, (as guarantors), (ii) investments, advances and
equity in earnings in subsidiaries, and (iii) the minority interests'
equity interests in the partnership distributions and the minority interest
liabilities.
8
<PAGE>
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Weeks Ended March 22, 1996
- -----------------------------------------------------------------------------------------------------------
Non- Eliminations
Guarantor Guarantor &
Parent Subsidiaries Subsidiaries Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ -- $ 208.3 $ 28.0 $ -- $ 236.3
Operating costs and expenses ............. -- 196.1 25.8 -- 221.9
- -----------------------------------------------------------------------------------------------------------
Operating profit before corporate expenses
and interest ........................... -- 12.2 2.2 -- 14.4
Corporate expenses ....................... -- 12.0 -- -- 12.0
Interest expense ......................... 9.0 9.0 -- (9.0) 9.0
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes ........ (9.0) (8.8) 2.2 9.0 (6.6)
Benefit for income taxes ................. (2.8) (2.8) -- 2.8 (2.8)
Equity interest in affiliates ............ 2.4 -- -- (2.4) --
- -----------------------------------------------------------------------------------------------------------
Net income (loss) ........................ $ (3.8) $ (6.0) $ 2.2 $ 3.8 $ (3.8)
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Twelve Weeks Ended March 24, 1995
- -----------------------------------------------------------------------------------------------------------
Non- Eliminations
Guarantor Guarantor &
Parent Subsidiaries Subsidiaries Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ -- $ 178.1 $ 19.0 $ -- $ 197.1
Operating costs and expenses ............. -- 171.5 18.0 -- 189.5
- -----------------------------------------------------------------------------------------------------------
Operating profit before corporate expenses
and interest ........................... -- 6.6 1.0 -- 7.6
Corporate expenses ....................... -- 10.2 -- -- 10.2
Interest expense ......................... 9.4 9.4 -- (9.4) 9.4
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes ........ (9.4) (13.0) 1.0 9.4 (12.0)
Benefit for income taxes ................. (4.1) (4.1) -- 4.1 (4.1)
Equity interest in affiliates ............ (2.6) -- -- 2.6 --
- -----------------------------------------------------------------------------------------------------------
Net income (loss) ........................ $ (7.9) $ (8.9) $ 1.0 $ 7.9 $ (7.9)
===========================================================================================================
</TABLE>
9
<PAGE>
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
March 22, 1996
- -----------------------------------------------------------------------------------------------------------
Non- Eliminations
Guarantor Guarantor &
Parent Subsidiaries Subsidiaries Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ........... $ 29.3 $ 15.9 $ 2.2 $ -- $ 47.4
Other current assets ................ -- 83.2 8.0 -- 91.2
- -----------------------------------------------------------------------------------------------------------
Total current assets ................ 29.3 99.1 10.2 -- 138.6
Property and equipment, net .............. -- 224.3 16.1 -- 240.4
Other assets ............................. -- 104.0 -- -- 104.0
Investments in subsidiaries .............. 216.9 -- -- (216.9) --
- -----------------------------------------------------------------------------------------------------------
Total Assets ........................ $ 246.2 $ 427.4 $ 26.3 $ (216.9) $ 483.0
===========================================================================================================
Current liabilities
Accounts payable .................... $ -- $ 69.0 $ 11.0 $ -- $ 80.0
Accrued payroll and benefits ........ -- 35.4 -- -- 35.4
Other current liabilities ........... -- 61.0 -- -- 61.0
- -----------------------------------------------------------------------------------------------------------
Total current liabilities ........... -- 165.4 11.0 -- 176.4
Long-term debt ........................... 400.0 407.3 -- (400.0) 407.3
Other liabilities ........................ -- 50.3 -- 2.8 53.1
- -----------------------------------------------------------------------------------------------------------
Total Liabilities ................... 400.0 623.0 11.0 (397.2) 636.8
Owner's equity (deficit) ................. (153.8) (195.6) 15.3 180.3 (153.8)
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Owner's Deficit $ 246.2 $ 427.4 $ 26.3 $ (216.9) $ 483.0
===========================================================================================================
</TABLE>
10
<PAGE>
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, 1995
- -----------------------------------------------------------------------------------------------------------
Non- Eliminations
Guarantor Guarantor &
Parent Subsidiaries Subsidiaries Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ........... $ 15.8 $ 27.3 $ 2.2 $ -- $ 45.3
Other current assets ................ -- 80.0 8.7 -- 88.7
- -----------------------------------------------------------------------------------------------------------
Total current assets ................ 15.8 107.3 10.9 -- 134.0
Property and equipment, net .............. -- 229.4 10.2 -- 239.6
Other assets ............................. -- 102.9 -- -- 102.9
Investments in subsidiaries .............. 234.0 -- -- (234.0) --
- -----------------------------------------------------------------------------------------------------------
Total Assets ........................ $ 249.8 $ 439.6 $ 21.1 $ (234.0) $ 476.5
===========================================================================================================
Current liabilities
Accounts payable .................... $ -- $ 72.4 $ 8.7 $ -- $ 81.1
Accrued payroll and benefits ........ -- 35.3 -- -- 35.3
Other current liabilities ........... -- 49.4 2.1 -- 51.5
- -----------------------------------------------------------------------------------------------------------
Total current liabilities ........... -- 157.1 10.8 -- 167.9
Long-term debt ........................... 400.0 407.6 -- (400.0) 407.6
Other liabilities ........................ -- 50.2 -- 1.0 51.2
- -----------------------------------------------------------------------------------------------------------
Total Liabilities ................... 400.0 614.9 10.8 (399.0) 626.7
Owner's equity (deficit) ................. (150.2) (175.3) 10.3 165.0 (150.2)
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Owner's Deficit $ 249.8 $ 439.6 $ 21.1 $ (234.0) $ 476.5
===========================================================================================================
</TABLE>
11
<PAGE>
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Weeks Ended March 22, 1996
- -----------------------------------------------------------------------------------------------------------
Non- Eliminations
Guarantor Guarantor &
Parent Subsidiaries Subsidiaries Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash from (used in) operations ............... $ -- $ 11.3 $ 3.6 $ -- $ 14.9
Investing Activities
Capital expenditures .................... -- (5.5) (6.3) -- (11.8)
Other ................................... -- (0.6) -- -- (0.6)
Advances from subsidiaries .............. 13.6 -- -- (13.6) --
- -----------------------------------------------------------------------------------------------------------
Cash from (used in) investing activities 13.6 (6.1) (6.3) (13.6) (12.4)
- -----------------------------------------------------------------------------------------------------------
Financing Activities
Repayments of debt ..................... -- (0.4) -- -- (0.4)
Issuance of long-term debt .............. -- -- -- -- --
Partnership contributions(distributions),
net.................................... -- -- 2.7 (2.7) --
Transfers from parent, net .............. -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Cash from (used in) financing activities -- (0.4) 2.7 (2.7) (0.4)
- -----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents ............................. $13.6 $ 4.8 $ -- (16.3) $ 2.1
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Twelve Weeks Ended March 24, 1995
- -----------------------------------------------------------------------------------------------------------
Non- Eliminations
Guarantor Guarantor &
Parent Subsidiaries Subsidiaries Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash from (used in) operations ............... $ (9.3) $ (1.5) $ 1.0 $ 9.3 $ (0.5)
Investing Activities
Capital expenditures .................... -- (5.4) -- -- (5.4)
Other ................................... -- 1.5 -- -- 1.5
Advances from subsidiaries .............. 8.3 -- -- (8.3) --
- -----------------------------------------------------------------------------------------------------------
Cash from (used in) investing activities 8.3 (3.9) -- (8.3) (3.9)
- -----------------------------------------------------------------------------------------------------------
Financing Activities
Repayments of long-term debt ........... -- (0.1) -- -- (0.1)
Issuance of long-term debt .............. -- -- -- -- --
Partnership contributions(distributions),
net.................................... -- -- (1.0) 1.0 --
Transfers from parent, net .............. 1.0 1.0 -- (1.0) 1.0
- -----------------------------------------------------------------------------------------------------------
Cash from (used in) financing activities 1.0 0.9 (1.0) -- 0.9
- -----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents ............................. $ -- $ (4.5) $ -- $ 1.0 $ (3.5)
===========================================================================================================
</TABLE>
12
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Results of Operations
Comparisons of results of operations for the first quarters of 1996 and 1995 are
impacted by the transfer of six airport concessions contracts from Host Marriott
Corporation to the Company on September 9, 1995. Prior to the transfer of these
contracts, the Company had managed these concessions contracts and charged
management fees based on a percentage of total revenues earned during the period
by each airport. The revenues and operating costs and expenses of these six
airport concessions contracts are included in operating results for the first
quarter of 1996, but are excluded from operating results for the first quarter
of 1995. The amount of revenues, operating costs and expenses, and operating
profit before corporate expenses and interest of these six airport concessions
contracts that was excluded from the operating results of the first quarter of
1995 was $12.4 million, $10.3 million, and $2.1 million, respectively. The
Company recorded management fee income of $1.0 million for these contracts in
the first quarter of 1995, which is included in revenues.
The Company also manages travel plaza concessions contracts on six tollroads for
Host Marriott Tollroads, Inc. (a wholly owned subsidiary of Host Marriott
Services Corporation). Management fees related to these travel plaza contracts
are based on a percentage of total revenues earned during the period by each of
the travel plazas.
Revenues. Revenues for the first quarter of 1996 increased by $39.2 million or
20% to $236.3 million compared to revenues of $197.1 million in the first
quarter of 1995. Had the Company included the $12.4 million of revenues related
to the six airport concessions contracts (net of the $1.0 million in management
fees recorded as revenue) in the first quarter of 1995, revenues for the first
quarter of 1996 would have increased by $27.8 million, or 13% over the same
period of 1995.
The Company's revenue growth during the first quarter of 1996 was driven
primarily by strong performance in the airport concessions business line.
Airport concession revenues were up $42.8 million or 28% to $196.3 million for
the first quarter of 1996 compared to $153.5 million for the first quarter of
1995. Domestic airport concession revenues increased by $33.1 million to $184.3
million for the first quarter of 1996 compared to $151.2 million for the first
quarter of 1995. International airport revenues were $12.0 million for the first
quarter of 1996, up substantially from the $2.3 million for the first quarter of
last year. New contracts, primarily at Atlanta's Hartsfield International
Airport and Amsterdam Airport Schiphol in the Netherlands, contributed $13.1
million of the airport concessions revenue increase, which was partially offset
by a decrease of $2.7 million from closed or terminated facilities. Moderate
increases in enplanements, and therefore customer traffic, had a positive impact
on revenue growth throughout the airport concessions business line. The Air
Transport Association (ATA) reported that U.S. airline industry enplanements for
the first quarter of 1996 were up 4% over the comparable quarter a year ago.
Also contributing toward revenue growth in the quarter was the severe winter
weather throughout the United States. Flight delays caused by the weather
resulted in longer visit times in the airport for air travelers, which
translated into increased revenues from our food, beverage and retail
concessions. Also contributing to the increase in revenues were moderate price
increases implemented across all of our business lines during the first quarter
of 1996. This was the first comprehensive price increase in the past three
years.
Travel plaza concession revenues for the first quarter of 1996 were $26.1
million, a decrease of $1.8 million or 6% compared to the same quarter a year
ago. Excluding revenues recorded during the first quarter of 1995 relating to a
low margin gas contract on one tollroad and two unprofitable travel plazas on
another tollroad, all of which the Company exited from in the fourth quarter of
1995, the travel plaza business line achieved 2% growth for the first quarter of
1996. Growth in travel plaza concessions revenues was constrained by a decline
in tollroad traffic volumes due to harsh winter weather.
Sports and entertainment concession revenues, primarily consisting of
merchandise, food and beverage sales at stadiums, arenas, and other tourist
attractions, decreased by $2.1 million, to $11.6 million for the first quarter
of 1996, from $13.7 million for the first quarter of 1995. This decrease is
primarily a result of the loss of revenues reflecting the Company's exit from
several hotel and casino gift shops in 1995, as reflected in the Company's
announced plan to exit unprofitable entertainment concessions.
13
<PAGE>
Management fee income for the first quarter of 1996 was $2.3 million, compared
to $2.0 million for the first quarter of 1995. Travel plaza management fee
income increased to $2.3 million for the first quarter of 1996, up from $1.0
million for the same quarter a year ago, reflecting significant increases in
management fee percentages on all managed travel plaza concessions. There were
no fees received from managing airport concessions contracts during the first
quarter of 1996, as compared to $1.0 million for the first quarter of 1995. The
airport management fees received during the first quarter of 1995 were related
to six airport concessions contracts that were transferred from Host Marriott
Corporation to the Company on September 9, 1995.
Operating Costs and Expenses. The Company's total operating costs and expenses
were $221.9 million for the first quarter of 1996, or 93.9% of total revenues,
compared to $189.5 million for the first quarter of 1995, or 96.1% of total
revenues. The widening operating profit margin of 2.2% reflects operating
leverage derived from revenue growth and improved cost management. Had the
Company included the $10.3 million of operating costs and expenses related to
the six airport concessions contracts in the first quarter of 1995, operating
costs and expenses for the first quarter of 1996 would have increased by $22.1
million, or 11% over the same period of 1995.
Cost of sales for the first quarter of 1996 was $71.0 million, an increase of
$10.6 million or 18% over the first quarter of last year. Cost of sales as a
percentage of total revenues decreased slightly during the first quarter of
1996, partly due to the closure of a low margin gas contract on one tollroad
during the fourth quarter of 1995, and the moderate price increases reflected
above.
Payroll and benefits totaled $74.0 million during the first quarter of 1996, a
19% or $11.9 million increase over the first quarter of 1995. Payroll and
benefits as a percentage of total revenues decreased slightly during the first
quarter of 1996, partly due to improved cost management resulting from the
restructuring.
Rent expense totaled $40.9 million for the first quarter of 1996, an increase of
$7.1 million or 21% over the first quarter of 1995. Equipment rentals, which are
related to a new point of sale and back office computer system that the Company
is rolling out to each of its operating units, accounted for $1.2 million or 3%
of this increase. This new technology is designed to improve customer service
and provide our operating managers with timely access to statistical information
to enable them to more effectively manage operating costs. The remaining
increase in rent is attributable to increased revenues on contracts with rentals
determined as a percentage of revenues.
Royalties expense for the first quarter of 1996 increased by 36% to $3.8 million
from $2.8 million for the first quarter of last year. As a percentage of total
revenues, royalties expense increased to 1.6% for the first quarter of 1996
compared to 1.4% for the first quarter of 1995. This slight increase is in line
with the Company's continued introduction of branded concepts to its airport
concessions operations. Branded facilities generate higher sales per square
foot, which offset royalty payments required to operate the concepts.
Depreciation and amortization expense for the first quarter of 1996 was $10.6
million, up 8% compared to $9.8 million for the first quarter of 1995. As a
percentage of revenues, depreciation and amortization decreased to 4.5% for the
first quarter of 1996, down from 5.0% for the first quarter a year ago. This
decrease reflects the reduction in the company's asset base from the $22.1
million write-down of long-lived assets recognized in the fourth quarter of
1995.
Other operating expenses were $21.6 million for the first quarter of 1996, a
$1.0 million or 5% increase over the $20.6 million for the first quarter of
1995.
Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit before corporate expenses and
interest increased to $14.4 million, or 6.1% of revenues for the first quarter
of 1996, from $7.6 million, or 3.9% of revenues for the first quarter of 1995.
Operating profits (losses) for airports, travel plazas and sports and
entertainment, including management fees, were $15.4 million, $(1.4) million and
$0.4 million, respectively, for the first quarter of 1996 as compared to $10.6
million, $(2.4) million and $(0.6) million, respectively, for the first quarter
of 1995.
14
<PAGE>
Corporate Expenses. Corporate expenses were $12.0 million for the first quarter
of 1996, an increase of $1.8 million or 18% over the $10.2 million for the first
quarter of 1995. The level of corporate expenses incurred during the first
quarter of 1996 reflects increased general and administrative costs incurred to
operate the Company on a stand-alone basis, as well as inflationary increases
for existing corporate staff and additional payroll and benefits for a newly
established in-house construction management department. Prior to 1996, the
Company had purchased and capitalized construction management services from a
third-party provider.
Interest Expense. Interest expense was $9.0 million for the first quarter of
1996, as compared to $9.4 million for the first quarter of 1995. This decrease
is attributable to lower interest rates on the Company's debt as a result of the
issuance of $400.0 million in Senior Notes at a fixed rate of 9.5%, which is
nearly 100 basis points lower than the debt that it replaced. The favorable
effect of these lower interest rates on interest expense was partially offset by
additional interest costs associated with certain incremental debt that was
incurred as a part of the Senior Notes issuance.
Benefit for Income Taxes. The benefit for income taxes for the first quarter of
1996 was $2.8 million as compared to a benefit of $4.1 million for the first
quarter of last year.
Net Loss. The Company's net loss for the first quarter of 1996 was $3.8 million,
compared to a net loss of $7.9 million for the first quarter of 1995.
EBITDA
The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA") increased $4.6
million, to $13.5 million in the first quarter of 1996, from $8.9 million in the
first quarter of 1995. EBITDA was $12.2 million on a pro forma basis in the
first quarter of 1995, which reflects the pro forma adjustments described under
Item 5 of Part II of this report. The Company believes that EBITDA is a
meaningful measure of its operating performance and is used by certain investors
to estimate the Company's ability to meet debt service requirements. EBITDA
information should not be considered an alternative to net income, operating
profit, cash flows from operations, or any other operating or liquidity
performance measure recognized by Generally Accepted Accounting Principles
("GAAP").
The following is a reconciliation of EBITDA to net loss:
<TABLE>
<CAPTION>
Twelve Weeks Ended
- ----------------------------------------------------------
March 22, March 24,
1996 1995
- ----------------------------------------------------------
<S> <C> <C>
EBITDA ............................. $ 13.5 $ 8.9
Interest expense ................... (9.0) (9.4)
(Provision) benefit for income taxes 2.8 4.1
Depreciation and amortization ...... (11.0) (10.6)
Other non-cash items ............... (0.1) (0.9)
- ----------------------------------------------------------
NET LOSS ........................... $ (3.8) $ (7.9)
==========================================================
</TABLE>
Liquidity and Capital Resources
The Company funds its capital requirements with a combination of operating cash
flow and debt financing. The Company believes that the financial resources
generated from ongoing operations, and existing financing will be sufficient to
enable it to meet its capital expenditure and debt service needs for the
foreseeable future. However, certain events such as significant acquisitions
would require additional financing. The Company currently is not pursuing any
significant acquisitions; however, as opportunities arise, they will be
15
<PAGE>
evaluated and considered. Any such acquisitions will be funded from operations,
or from additional funding as permitted under the Senior Notes Indenture
discussed below.
The Company is required to make semi-annual cash interest payments on the Senior
Notes at a fixed interest rate of 9.5%. The Company is not required to make
principal payments on the Senior Notes until maturity except in the event of (i)
certain changes in control or (ii) certain asset sales in which the proceeds are
not invested in other properties within a specified period of time.
The Senior Notes mature in 2005 and are secured by a pledge of stock of, and
fully and unconditionally guaranteed (limited only to the extent necessary to
avoid such guarantees being considered a fraudulent conveyance under applicable
law), on a joint and several basis by certain subsidiaries of the Company (the
"Guarantors"). The Senior Notes Indenture contains covenants that, among other
things, limit the ability of the Guarantors' to incur additional indebtedness
and issue preferred stock, pay dividends or make other distributions, repurchase
capital stock or subordinated indebtedness, create certain liens, enter into
certain transactions with affiliates, sell certain assets, issue or sell capital
stock of the Guarantors, and enter into certain mergers and consolidations.
The First National Bank of Chicago ("First Chicago"), as agent for a group of
participating lenders, has provided credit facilities ("Facilities") to the
Company in an aggregate principal amount of $75.0 million for a 5-year term
("Total Commitment"). The Total Commitment consists of (i) a letter of credit
facility in the amount of $40.0 million ("Letter of Credit Facility") for the
issuance of financial and non-financial letters of credit and (ii) a revolving
credit facility in the amount of $35.0 million ("Revolver Facility") for working
capital and general corporate purposes other than hostile acquisitions. All
borrowings under the Facilities are senior obligations of the Company and are
secured by Host Marriott Services Corporation's (the Company's parent) pledge
of, and a first perfected security interest in, all of the capital stock of the
Company and certain of its subsidiaries.
The loan agreements relating to the Facilities contain dividend and stock
retirement covenants that are substantially similar to those set forth in the
Senior Notes Indenture, provided that dividends payable to Host Marriott
Services Corporation are limited to 25% of the Company's consolidated net income
and provided, further, that no dividends can be declared by the Company within
18 months after the closing date of the Facilities on December 20, 1995. The
loan agreements also contain certain financial ratio and capital expenditure
covenants. Outstanding borrowings under the Revolver Facility are also required
to be repaid in full for 30 consecutive days during each fiscal year. Any
indebtedness outstanding under the Facilities may be declared due and payable
upon the occurrence of certain events of default, including the Company's
failure to comply with the several covenants noted above, or the occurrence of
certain events of default under the Senior Notes Indenture. As of March 22,
1996, and throughout the twelve weeks ended March 22, 1996, there was no
outstanding indebtedness under the Revolver Facility and the Company was in
compliance with the covenants described above.
The Company's cash flows from operating activities are affected by seasonality.
Cash from operations generally is the strongest in the summer months between
Memorial Day and Labor Day. Cash provided by operations, before changes in
working capital, totaled $4.5 million for the first quarter of 1996, as compared
to cash used in operations, before changes in working capital, of $0.5 million
for the first quarter of 1995.
The primary uses of cash in investing activities consist of capital expenditures
and acquisitions. The Company incurs capital expenditures to build out new
facilities, expand or re-concept existing facilities, and to maintain the
quality and operations of existing facilities. The Company's capital
expenditures, including acquisitions, in the first quarters of 1996 and 1995,
totaled $11.8 million and $5.4 million, respectively. For the entire fiscal year
of 1996, the Company expects to make capital expenditure investments of
approximately $46.7 million in its core domestic airport and travel plaza
business lines and approximately $16.6 million in growth markets and for a new
financial system. The Company expects to fund these expenditures for 1996 with
its operating cash flow.
The Company's cash used in financing activities in the first quarter of 1996 was
$0.4 million, compared to cash provided by financing activities of $0.9 million
for the first quarter of 1995.
16
<PAGE>
At March 22, 1996, the Company's working capital resulted in its current
liabilities exceeding its current assets by $37.8 million. As a cash driven
business, the Company benefits from maintaining negative working capital. The
working capital is managed throughout the year to effectively maximize the
financial returns to the Company. The Company's revolving credit facility
provides funds for liquidity, seasonal borrowing needs and other general
corporate purposes.
Impairments of Long-Lived Assets
Effective September 9, 1995, the Company adopted SFAS No. 121, which requires
that an impairment loss be recognized when the carrying amount of an asset
exceeds the sum of the estimated undiscounted future cash flows of the asset. In
adopting SFAS No. 121 (and thereby changing its method of measuring long-lived
asset impairments from a business-line basis to an individual operating-unit
basis), the Company wrote down substantially all of the long-lived assets
(primarily leasehold improvements and equipment) of 14 individual operating
units in the fourth quarter of 1995. Approximately 43% of the total write-down
of $22.1 million taken in the fourth quarter of 1995 related to one operating
unit ($9.0 million). The total cash flow deficit from the 14 operating units is
projected to be approximately $41.7 million during the remaining terms of the
lease agreements, including $28.9 million related to the one operating unit.
Deferred Income Taxes
Realization of the net deferred tax assets totaling $77.7 million as of March
22, 1996, is dependent on the Company's ability to generate future taxable
income. Management believes that it is more likely than not that future taxable
income will be sufficient to realize the net deferred tax assets recorded at
March 22, 1996. Future levels of operating income and other taxable gains are
dependent upon general economic and industry conditions, including airport and
tollroad traffic, inflation, competition, and other factors beyond the Company's
control, and no assurance can be given that sufficient taxable income will be
generated for full utilization of these temporary deferred deductions.
Management has considered these factors in reaching its conclusion that it is
more likely than not that operating income will be sufficient to utilize these
deferred deductions fully. The amount of the net deferred tax assets considered
realizable, however, could be reduced if estimates of future taxable income are
not achieved.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Litigation
The Company and its subsidiaries are involved in litigation incidental to
their businesses. Such litigation is not considered by management to be
significant and would not have a material adverse effect on the financial
condition or results of operations of the Company or its subsidiaries.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
18
<PAGE>
Item 5. Other Information
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)
(Unaudited, in millions)
<TABLE>
<CAPTION>
First Quarter (1) (2)
- ----------------------------------------------------------------------------
1995 1995
1996 Pro Forma Historical
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES ................................. $ 236.3 $ 210.3 $ 197.1
- ----------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of sales ....................... 71.0 63.5 60.4
Payroll and benefits ................ 74.0 66.1 62.1
Rent ................................ 40.9 34.9 33.8
Royalties ........................... 3.8 3.1 2.8
Depreciation and amortization ....... 10.6 10.5 9.8
Other ............................... 21.6 19.4 20.6
- ----------------------------------------------------------------------------
Total operating costs and expenses 221.9 197.5 189.5
- ----------------------------------------------------------------------------
OPERATING PROFIT BEFORE CORPORATE EXPENSES
AND INTEREST ........................ 14.4 12.8 7.6
Corporate expenses .................. 12.0 11.1 10.2
Interest expense .................... 9.0 8.8 9.4
- ----------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES ................. (6.6) (7.1) (12.0)
Provision (benefit) for income taxes (2.8) (2.4) (4.1)
- ----------------------------------------------------------------------------
NET LOSS ................................. $ (3.8) $ (4.7) $ (7.9)
============================================================================
<FN>
(1) Pro forma data for the first quarter of 1995 reflect (i) the elimination
of the revenues and operating costs of three full-service hotels
transferred to Host Marriott Corporation in connection with the spin-off
of the Company and its parent, Host Marriott Services Corporation, on
December 29, 1995, (ii) the elimination of the revenues, operating costs,
and interest expense on capital leases related to certain former
restaurant operations transferred to Host Marriott Corporation, (iii)
recording of revenues and operating costs and expenses related to six
airport concessions contracts transferred to the Company from Host
Marriott Corporation in the fourth quarter of 1995, (iv) recording of
management fee income for Host Marriott Corporation's retained restaurant
operations, (v) adjustment to reduce interest expense to reflect the
decrease in interest rates as a result of the issuance of the Senior
Notes and to reflect additional interest expense on certain incremental
debt, (vi) increase in general and administrative costs to operate the
Company on a stand-alone basis, and (vii) the income tax impact of pro
forma adjustments at statutory rates.
(2) Pro forma presentation reflects results as if the spin-off of the Company
from Host Marriott Corporation and the related transactions had occurred
at the beginning of 1995. Comparisons on a pro forma basis are better
indicators of relative performance between quarters because historical
results do not reflect the spin-off until the distribution date of
December 29, 1995.
</FN>
</TABLE>
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
20
<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 INTERNATIONAL, INC.
June 21, 1996 /s/ Brian W. Bethers
- ------------------ --------------------------
Date Brian W. Bethers
Vice President (Principal Financial Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> MAR-22-1996
<CASH> 47,400
<SECURITIES> 0
<RECEIVABLES> 33,000
<ALLOWANCES> 0
<INVENTORY> 34,700
<CURRENT-ASSETS> 138,600
<PP&E> 546,000
<DEPRECIATION> 305,600
<TOTAL-ASSETS> 483,000
<CURRENT-LIABILITIES> 176,400
<BONDS> 408,400
0
0
<COMMON> 0
<OTHER-SE> (153,800)
<TOTAL-LIABILITY-AND-EQUITY> 483,000
<SALES> 236,300
<TOTAL-REVENUES> 236,300
<CGS> 71,000
<TOTAL-COSTS> 221,900
<OTHER-EXPENSES> 12,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> (6,600)
<INCOME-TAX> (2,800)
<INCOME-CONTINUING> (3,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,800)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
