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
QUARTER ENDED JUNE 14, 1996 COMMISSION FILE NO. 33-95060
HOST INTERNATIONAL, INC.
(FORMERLY HOST MARRIOTT TRAVEL PLAZAS, INC.)
DELAWARE 52-1242334
------------------------- --------------------------------------
(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 -
For the Twelve Weeks and Twenty-Four Weeks Ended
June 14, 1996 and June 16, 1995 3
Condensed Consolidated Balance Sheets -
As of June 14, 1996 and December 29, 1995 4
Condensed Consolidated Statements of Cash Flows -
For the Twenty-Four Weeks Ended June 14, 1996 and
June 16, 1995 5
Condensed Consolidated Statement of Shareholder's Deficit -
For the Twenty-Four Weeks Ended June 14, 1996 6
Notes to Condensed Consolidated Financial Statements 7-13
Management's Discussion and Analysis of Results of
Operations and Financial Condition 14-20
PART II. OTHER INFORMATION AND SIGNATURE:
Legal Proceedings 21
Changes in Securities 21
Defaults Upon Senior Securities 21
Submission of Matters to a Vote of Security Holders 21
Other Information 22
Exhibits and Reports on Form 8-K 23
Signature 24
2
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------------ ------------------------------
JUNE 14, JUNE 16, JUNE 14, JUNE 16,
1996 1995 1996 1995
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES $258.5 $217.0 $494.8 $414.1
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
OPERATING COSTS AND EXPENSES
Cost of sales 76.6 66.4 147.6 126.8
Payroll and benefits 75.7 63.2 149.7 125.3
Rent 43.4 35.6 84.3 69.4
Royalties 4.5 3.3 8.3 6.1
Depreciation and amortization 11.0 11.3 21.6 21.1
Other 21.2 18.9 42.8 39.5
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
Total operating costs and expenses 232.4 198.7 454.3 388.2
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
OPERATING PROFIT BEFORE CORPORATE
EXPENSES AND INTEREST 26.1 18.3 40.5 25.9
Corporate expenses (11.9) (10.3) (23.9) (20.5)
Interest expense (9.3) (9.3) (18.5) (18.8)
Interest income 0.2 --- 0.4 0.1
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 5.1 (1.3) (1.5) (13.3)
Provision (benefit) for income taxes 2.1 0.9 (0.7) (3.2)
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 3.0 (2.2) (0.8) (10.1)
Extraordinary item--loss on extinguishment of debt
(net of related income tax benefit of $5.2 --- (9.6) --- (9.6)
million)
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
NET INCOME (LOSS) $ 3.0 $(11.8) $ (0.8) $(19.7)
- ------------------------------------------------------ --------------- -------------- -- --------------- --------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions)
<TABLE>
<CAPTION>
JUNE 14, DECEMBER 29,
1996 1995
- ------------------------------------------------------------------------------ ----------------- -- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48.1 $ 45.3
Accounts receivable, net 33.4 28.9
Inventories 35.6 35.5
Deferred income taxes 17.5 16.5
Prepaid rent 4.5 5.1
Other current assets 2.0 2.7
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total current assets 141.1 134.0
Property and equipment, net 244.6 239.6
Intangible assets 22.8 24.1
Deferred income taxes 62.1 58.4
Other assets 19.2 20.4
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total assets $ 489.8 $ 476.5
- ------------------------------------------------------------------------------ ----------------- -- ----------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 86.3 $ 81.1
Accrued payroll and benefits 37.8 35.3
Current portion of long-term debt 1.3 1.2
Other current liabilities 54.7 50.3
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total current liabilities 180.1 167.9
Long-term debt 406.9 407.6
Other liabilities 53.7 51.2
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total liabilities 640.7 626.7
Common stock, no par value, 100 shares authorized,
issued and outstanding --- ---
Additional paid-in capital --- ---
Retained deficit (150.9) (150.2)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total shareholder's deficit (150.9) (150.2)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total liabilities and shareholder's deficit $ 489.8 $ 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>
TWENTY-FOUR WEEKS ENDED
-------------------------------------
JUNE 14, JUNE 16,
1996 1995
- ------------------------------------------------------------------------------ ----------------- -- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (0.8) $(19.7)
Extraordinary loss, net of taxes --- 9.6
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Net loss before extraordinary item (0.8) (10.1)
Adjustments to reconcile net loss to cash from operations:
Depreciation and amortization 22.9 23.4
Income taxes (4.7) (4.2)
Other 0.5 0.5
Working capital changes:
(Increase) decrease in accounts receivable (4.7) 5.5
(Increase) decrease in inventories (0.1) 0.3
(Increase) decrease in other current assets 1.3 3.7
Increase (decrease) in accounts payable and accruals 14.9 (10.2)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Cash provided by operations 29.3 8.9
INVESTING ACTIVITIES
Capital expenditures (23.8) (19.8)
Net proceeds from the sale of assets 0.7 0.8
Other, net 1.0 8.1
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Cash used in investing activities (22.1) (10.9)
FINANCING ACTIVITIES
Repayments of long-term debt (0.6) (392.2)
Issuance of long-term debt --- 390.1
Transfers (to) from affiliates, net (3.8) ---
Transfers (to) from Host Marriott Corporation, net --- 10.3
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Cash (used in) provided by financing activities (4.4) 8.2
INCREASE IN CASH AND CASH EQUIVALENTS 2.8 6.2
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 45.3 24.6
- ------------------------------------------------------------------------------ ----------------- -- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 48.1 $ 30.8
- ------------------------------------------------------------------------------ ----------------- -- ----------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT (UNAUDITED)
TWENTY-FOUR WEEKS ENDED JUNE 14, 1996
(In millions)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
- -------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance, December 29, 1995 $ --- $ --- $(150.2) $(150.2)
Net loss --- --- (0.8) (0.8)
Foreign exchange translation adjustment --- --- 0.1 0.1
- -------------------------------------------- ----------------- ---------------- ----------------- -----------------
BALANCE, JUNE 14, 1996 $ --- $ --- $(150.9) $(150.9)
- -------------------------------------------- ----------------- ---------------- ----------------- -----------------
</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. (the "Company", a wholly owned subsidiary of Host
Marriott Services Corporation) and its subsidiaries, have been prepared
without audit. Six airport concessions contracts were transferred to the
Company from Host Marriott Corporation during the second half of 1995. The
revenues and operating costs and expenses of these six airport concessions
contracts are included in the operating results for the twelve weeks and
twenty-four weeks ("first half") ended June 14, 1996, but are excluded from
operating results for the same periods in 1995. Prior to the transfer of
these contracts, 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. Base management fees are determined as a
percentage of revenues, with additional incentive management fees
determined as a percentage of available cash flow.
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. Capitalized terms not otherwise defined
herein have the meanings specified in the Annual Report on Form 10-K.
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
consolidated financial position of the Company as of June 14, 1996 and
December 29, 1995 and the results of operations and cash flows for the
interim periods presented. 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.
A supplemental pro forma statement of operations for the twelve and
twenty-four weeks ended June 16, 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. 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 periods.
Actual results could differ from those estimates.
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 June 14,
1996 were $2.9 million. The number of employees actually terminated as of
June 14, 1996 was 109.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 has plans to close ten retail concessions stores that are included
in the sports and entertainment business line and as of June 14, 1996,
three of the ten stores had been closed. 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 June 14, 1996 were $75 thousand.
4. SUPPLEMENTAL GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION
Certain 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 separate 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% interest, 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 and
adjusting entries reflect (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>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED JUNE 14, 1996
----------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $232.4 $ 26.1 $ --- $258.5
Operating costs and expenses --- 207.7 24.7 --- 232.4
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Operating profit before corporate
expenses and interest --- 24.7 1.4 --- 26.1
Corporate expenses --- (11.9) --- --- (11.9)
Interest expense (9.3) (9.3) --- 9.3 (9.3)
Interest income 0.2 0.2 --- (0.2) 0.2
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before income taxes
and extraordinary item (9.1) 3.7 1.4 9.1 5.1
Provision (benefit) for income taxes 2.1 2.1 --- (2.1) 2.1
Equity interest in affiliates 14.2 --- --- (14.2) ---
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before extraordinary item 3.0 1.6 1.4 (3.0) 3.0
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED JUNE 16, 1995
----------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $195.0 $ 22.0 $ --- $217.0
Operating costs and expenses --- 177.7 21.0 --- 198.7
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Operating profit before corporate
expenses and interest --- 17.3 1.0 --- 18.3
Corporate expenses --- (10.3) --- --- (10.3)
Interest expense (9.3) (9.3) --- 9.3 (9.3)
Interest income --- --- --- --- ---
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before income taxes
and extraordinary item (9.3) (2.3) 1.0 9.3 (1.3)
Provision (benefit) for income taxes 0.9 0.9 --- (0.9) 0.9
Equity interest in affiliates 8.0 --- --- (8.0) ---
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before extraordinary item (2.2) (3.2) 1.0 2.2 (2.2)
Extraordinary item--loss on
extinguishment of debt (net of related
income tax benefit of $5.2 million) (9.6) (9.6) --- 9.6 (9.6)
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Net income (loss) $(11.8) $(12.8) $ 1.0 $ 11.8 $(11.8)
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
</TABLE>
9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS, CONTINUED
(IN MILLIONS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 14, 1996
----------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $440.7 $ 54.1 $ --- $494.8
Operating costs and expenses --- 403.8 50.5 --- 454.3
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Operating profit before corporate
expenses and interest --- 36.9 3.6 --- 40.5
Corporate expenses --- (23.9) --- --- (23.9)
Interest expense (18.5) (18.5) --- 18.5 (18.5)
Interest income 0.4 0.4 --- (0.4) 0.4
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before income taxes
and extraordinary item (18.1) (5.1) 3.6 18.1 (1.5)
Provision (benefit) for income taxes (0.7) (0.7) --- 0.7 (0.7)
Equity interest in affiliates 16.6 --- --- (16.6) ---
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Net income (loss) $ (0.8) $ (4.4) $ 3.6 $ 0.8 $ (0.8)
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 16, 1995
----------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $373.1 $ 41.0 $ --- $414.1
Operating costs and expenses --- 349.2 39.0 --- 388.2
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Operating profit before corporate
expenses and interest --- 23.9 2.0 --- 25.9
Corporate expenses --- (20.5) --- --- (20.5)
Interest expense (18.8) (18.8) --- 18.8 (18.8)
Interest income 0.1 0.1 --- (0.1) 0.1
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before income taxes
and extraordinary item (18.7) (15.3) 2.0 18.7 (13.3)
Provision (benefit) for income taxes (3.2) (3.2) --- 3.2 (3.2)
Equity interest in affiliates 5.4 --- --- (5.4) ---
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Income (loss) before extraordinary item (10.1) (12.1) 2.0 10.1 (10.1)
Extraordinary item--loss on
extinguishment of debt (net of related
income tax benefit of $5.2 million) (9.6) (9.6) --- 9.6 (9.6)
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
Net income (loss) $(19.7) $(21.7) $ 2.0 $ 19.7 $(19.7)
- ------------------------------------------ ------------ --------------- -------------- --------------- ----------------
</TABLE>
10
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 14, 1996
-------------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 30.8 $ 15.1 $ 2.2 $ --- $ 48.1
Other current assets --- 82.0 11.0 --- 93.0
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Total current assets 30.8 97.1 13.2 --- 141.1
Property and equipment, net --- 229.2 15.4 --- 244.6
Other assets --- 104.1 --- --- 104.1
Investments in subsidiaries 218.3 --- --- (218.3) ---
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Total Assets $ 249.1 $ 430.4 $ 28.6 $(218.3) $ 489.8
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Current liabilities:
Accounts payable $ --- $ 72.8 $ 13.5 $ --- $ 86.3
Accrued payroll and benefits --- 37.8 --- --- 37.8
Other current liabilities --- 56.0 --- --- 56.0
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Total current liabilities --- 166.6 13.5 --- 180.1
Long-term debt 400.0 406.9 --- (400.0) 406.9
Other liabilities --- 50.6 --- 3.1 53.7
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Total Liabilities 400.0 624.1 13.5 (396.9) 640.7
Owner's equity (deficit) (150.9) (193.7) 15.1 178.6 (150.9)
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Total Liabilities and Owner's Deficit $ 249.1 $ 430.4 $ 28.6 $(218.3) $ 489.8
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
</TABLE>
11
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS, CONTINUED
(IN MILLIONS)
<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>
12
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 14, 1996
-------------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash from (used in) operations $ (18.1) $ 24.0 $ 5.3 $ 18.1 $ 29.3
Investing activities:
Capital expenditures --- (17.4) (6.4) --- (23.8)
Other --- 1.7 --- --- 1.7
Advances from subsidiaries 15.0 --- --- (15.0) ---
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Cash from (used in)
investing activities 15.0 (15.7) (6.4) (15.0) (22.1)
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Financing activities:
Repayments of debt (0.6) (0.6) --- 0.6 (0.6)
Issuance of long-term debt --- --- --- --- ---
Partnership contributions
(distributions, net) --- --- 1.1 (1.1) ---
Transfers (to) from affiliates, net (3.8) (3.8) --- 3.8 (3.8)
Transfers (to) from Host Marriott
Corporation, net --- --- --- --- ---
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Cash from (used in)
financing activities (4.4) (4.4) 1.1 3.3 (4.4)
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Increase (decrease) in cash and
cash equivalents $ (7.5) $ 3.9 $ --- $ 6.4 $ 2.8
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 16, 1995
-------------------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash from (used in) operations $ (18.7) $ 2.9 $ 6.0 $ 18.7 $ 8.9
Investing activities:
Capital expenditures --- (19.8) --- --- (19.8)
Other --- 8.9 --- --- 8.9
Advances from subsidiaries 10.5 --- --- (10.5) ---
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Cash from (used in)
investing activities 10.5 (10.9) --- (10.5) (10.9)
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Financing activities:
Repayments of debt (392.2) (392.2) --- 392.2 (392.2)
Issuance of long-term debt 390.1 390.1 --- (390.1) 390.1
Partnership contributions
(distributions, net) --- --- (3.0) 3.0 ---
Transfers (to) from affiliates, net --- --- --- --- ---
Transfers from Host Marriott
Corporation, net 10.3 10.3 --- (10.3) 10.3
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Cash from (used in)
financing activities 8.2 8.2 (3.0) (5.2) 8.2
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
Increase (decrease) in cash and
cash equivalents $ --- $ 0.2 $ 3.0 $ 3.0 $ 6.2
- --------------------------------------- -------------- ---------------- -------------- --------------- ----------------
</TABLE>
13
<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 second quarter and twenty-four
weeks ("first half") of 1996 and 1995 are impacted by the transfer of six
airport concessions contracts from Host Marriott Corporation to the Company
during the second half of 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 second quarter
and first half of 1996, but are excluded from operating results for the same
periods 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 second
quarter of 1995 was $12.6 million, $11.0 million, and $1.6 million,
respectively. The amount of revenues, operating costs and expenses, and
operating profit before corporate expenses and interest of the aforementioned
six airport concessions excluded from operating results of the first half of
1995 was $25.0 million, $21.3 million, and $3.7 million, respectively. The
Company recorded management fee income of $1.3 million and $2.3 million for
these contracts in the second quarter and first half of 1995, respectively,
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). Base 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, with additional incentive management fees
determined as a percentage of available cash flow.
REVENUES. Revenues for the second quarter of 1996 increased by $41.5 million, or
19.1% to $258.5 million compared with revenues of $217.0 million in the second
quarter of 1995. Revenues for the first half of 1996 totaled $494.8 million, an
increase of $80.7 million, or 19.5% from $414.1 million during the same period
in 1995. Had the Company included the $12.6 million and $25.0 million of
revenues related to the six airport concessions contracts, offset by the $1.3
million and $2.3 million in management fees recorded as revenue in the second
quarter and first half of 1995, respectively, revenues for the second quarter
and first half of 1996 would have increased by $30.2 million (13.2%) and $58.0
million (13.3%), respectively, over the same periods of 1995.
AIRPORTS
The Company's revenue growth during the second quarter of 1996, excluding the
impact of the transfer of six airport concessions contracts, was driven
primarily by strong performance in the airport concessions business line.
Airport concession revenues were up $43.5 million, or 26.7% to $206.7 million
for the second quarter of 1996 compared with $163.2 million for the same period
in 1995. Domestic airport concession revenues increased by $32.8 million to
$193.3 million for the second quarter of 1996 compared to $160.5 million for the
same period in 1995. Had the Company included the $12.6 million of revenues,
offset by $1.3 million in management fees, related to the six transferred
airport concessions contracts in the second quarter of 1995, total airport
revenues and domestic airport revenues for the second quarter of 1996 would have
increased by 18.5% and 12.5%, respectively. International airport revenues were
$13.4 million for the second quarter of 1996, up substantially from the $2.7
million for the second quarter of last year. New contracts, primarily at
Atlanta's Hartsfield International Airport and Amsterdam Airport Schiphol,
contributed significantly to the revenue increase. Excluding the effects of
these new contracts and contracts undergoing significant construction of new
facilities, revenues at comparable airport locations grew by 15% in the second
quarter of 1996. Strong comparable revenue growth can be attributed to an
estimated 7% growth in passenger enplanements and an estimated 8% growth in
revenue per enplaned passenger ("RPE") at airports in which the Company
operates. The Company has benefited from annual passenger enplanement growth in
excess of the FAA forecast released in March of 1996, which projected annual
passenger enplanement growth of 4.5% through the year 2000. The growth in RPE
can be attributed to the addition of new branded locations, moderate increases
in menu prices and benefits from other strategic initiatives.
Growth in revenues for the first half of 1996 was also due to strong performance
in the airport concessions business line with airport revenues totaling $403.0
million during the period, an increase of $86.3 million, or 27.2% from the
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
same period in 1995. Domestic airport concessions revenues increased by $65.9
million, or 21.1%, to $377.6 million for the first half of 1996 compared with
$311.7 million for the first half of 1995. Had the Company included the $25.0
million of revenues, offset by $2.3 million in management fees related to the
six transferred airport concessions contracts in the first half of 1995, total
airport revenues and domestic airport revenues for the first half of 1996 would
have increased by 18.7% and 12.9%, respectively. International airport revenues
totaled $25.4 million and $5.0 million for the first twenty-four weeks of 1996
and 1995, respectively. On a year-to-date basis, the new contracts at Atlanta's
Hartsfield International Airport and Amsterdam Airport Schiphol in the
Netherlands, contributed significantly to the airport concessions revenue
increase. Excluding the effects of these new contracts and contracts undergoing
significant construction of new facilities, revenues at comparable airport
locations grew by 14% in the first half of 1996. Increased revenues during the
first half of 1996 reflect the aforementioned second quarter growth in passenger
enplanements and RPE. The severe winter weather throughout the United States
caused flight delays during the first quarter of 1996 which resulted in longer
visit times in the airport for air travelers, and translated into increased
revenues from the Company's food, beverage and retail concessions. Moderate
price increases implemented across all of the Company's business lines during
the first quarter of 1996 was another factor creating increased revenues.
TRAVEL PLAZAS
Travel plaza concession revenues for the second quarter of 1996 were $36.1
million, a decrease of $2.3 million compared to the same quarter a year ago.
Excluding revenues recorded during the second quarter of 1995 relating to a low
margin gas contract on one tollroad and a minor food and beverage contract on
another tollroad, both of which the Company exited from in the fourth quarter of
1995, the travel plaza business line achieved 1.1% growth for the second quarter
of 1996. This growth was the result of moderate increases in tollroad traffic
and prices.
Travel plaza concession revenues for the first half of 1996 and 1995 totaled
$62.2 million and $66.3 million, respectively, a decrease of $4.1 million.
Excluding the revenues related to the aforementioned tollroad contracts exited
during the fourth quarter of 1995, the travel plaza business line achieved 1.0%
growth for the first half of 1996. Growth in travel plaza concessions revenues
on a year-to-date basis was constrained by a decline in tollroad traffic volumes
in the first quarter of 1996 due to harsh winter weather.
SPORTS AND ENTERTAINMENT
Sports and entertainment concession revenues, primarily consisting of
merchandise, food and beverage sales at stadiums, arenas, and other tourist
attractions, increased by $0.2 million, to $12.2 million for the second quarter
of 1996, from $12.0 million for the same period in 1995. Sports and
entertainment concession revenues totaled $23.8 million and $25.7 million for
the first half of 1996 and 1995, respectively, a decrease of $1.9 million, or
7.4%. These decreases were a result of the Company's exit from several hotel and
casino gift shops in 1995 and in the first half of 1996, as reflected in the
Company's announced plan to exit unprofitable entertainment concessions.
SHOPPING MALLS
During the first quarter of 1996, the Company announced a contract to operate
the food and beverage outlets at the Ontario Mills Outlet Mall in Southern
California with operations anticipated to begin in late November. The Company
recently announced a definitive agreement on a second deal with The Mills
Corporation to operate the food and beverage locations at the Grapevine Mills
Outlet Mall outside of Dallas, Texas. The mall is expected to open in the Fall
of 1997, and the Company's operations will be similar in size and scope to the
Ontario Mills Outlet Mall project.
MANAGEMENT FEE INCOME. Management fee income for the second quarter and first
half of 1996 was $3.5 million and $5.8 million, respectively, compared with $3.4
million and $5.4 million for the same periods of 1995. Travel plaza management
fee income increased to $3.4 million and $5.7 million for the second quarter and
first half of 1996, respectively, up from $2.0 million and $3.0 million for the
same periods 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 second quarter and first
half of 1996, as compared to
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
$1.3 million and $2.3 million for the second quarter and first half of 1995,
respectively. The airport management fees received during the second quarter and
first half of 1995 were related to six airport concessions contracts that were
transferred from Host Marriott Corporation to the Company on during the second
half of 1995.
OPERATING COSTS AND EXPENSES. The Company's total operating costs and expenses
were $232.4 million for the second quarter of 1996, or 89.9% of total revenues,
compared with $198.7 million for the second quarter of 1995, or 91.6% of total
revenues. Operating costs and expenses totaled $454.3 million for the first half
of 1996, or 91.8% of total revenues, compared with $388.2 million, or 93.7% of
total revenues for the same period in 1995. The improved operating profit
margins quarter-to-quarter and year-to-date of 1.7% and 1.9%, respectively,
reflect operating leverage derived from revenue growth and improved cost
management.
Cost of sales for the second quarter of 1996 was $76.6 million, an increase of
$10.2 million or 15.4% over the second quarter of last year. Cost of sales as a
percentage of total revenues decreased 100 basis points during the second
quarter of 1996, most notably due to only moderate increases in merchandise and
promotion costs. Also contributing to the improved cost of sales margin was the
closure of a low margin gas contract on one tollroad during the fourth quarter
of 1995, and moderate price increases described above. Cost of sales for the
first half of 1996 increased $20.8 million, or 16.4% from $126.8 million in 1995
to $147.6 million in 1996. Cost of sales as a percentage of total revenues
decreased 80 basis points for the first half of 1996 due to the aforementioned
minimal increases in merchandise and promotion costs, the closure of the low
margin gas contract and moderate price increases.
Payroll and benefits totaled $75.7 million during the second quarter of 1996, a
19.8% or $12.5 million increase over the second quarter of 1995. Payroll and
benefits as a percentage of total revenues for the second quarter of 1996
increased 20 basis points when compared with the same period in 1995. Payroll
and benefits totaled $149.7 million for the first half of 1996, an increase of
$24.4 million, or 19.5% when compared to the same period in 1995. Although total
payroll and benefits increased, the payroll and benefits margin for the first
half of 1996 was level with the payroll and benefits margin for the first half
of 1995.
Rent expense totaled $43.4 million for the second quarter of 1996, an increase
of $7.8 million or 21.9% over the second quarter of 1995. Rent expense for the
first half of 1996 increased $14.9 million, or 21.5% to $84.3 million from $69.4
million for the same period in 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 $0.9 million, or 11.5%, and
$2.2 million, or 14.8%, of the rent expense increases, respectively. This new
technology is designed to improve customer service and provide the Company's
operating managers with timely access to sales information to enable them to
more effectively manage operating costs. This new technology combined with a new
accounting system to be installed in late 1996 is expected to generate operating
cost savings during 1997 to offset the increased equipment rent expense. The
remaining increase in rent is attributable to increased revenues on contracts
with rentals determined as a percentage of revenues.
Royalties expense for the second quarter of 1996 increased by 36.4% to $4.5
million from $3.3 million for the second quarter of last year. As a percentage
of total revenues, royalties expense increased to 1.7% for the second quarter of
1996 compared with 1.5% for the second quarter of 1995. Royalties expense
totaled $8.3 million and $6.1 million for the first half of 1996 and 1995,
respectively, an increase of $2.2 million, or 36.1%. These increases reflect 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 included in operating costs and expenses
for the second quarter of 1996 was $11.0 million, down 2.7% compared with $11.3
million for the second quarter of 1995. Depreciation and amortization increased
$0.5 million when comparing year-to-date 1996 and 1995.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
Other operating expenses were $21.2 million for the second quarter of 1996, a
$2.3 million, or 12.2% increase over the $18.9 million total for the second
quarter of 1995. Other operating expenses totaled $42.8 million for the first
half of 1996, an increase of $3.3 million, or 8.4% when compared with the same
period in 1995. As a percentage of total revenues, other operating expenses
decreased 50 basis points and 90 basis points for the second quarter and first
half of 1996, respectively, when compared with the same periods in 1995,
primarily due to operating leverage.
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 $26.1 million, or 10.1% of revenues for the second quarter
of 1996, from $18.3 million, or 8.4% of revenues for the second quarter of 1995.
Operating profits for airports and travel plazas were $20.0 million and $4.4
million, respectively, for the second quarter of 1996 as compared with $14.9
million and $3.7 million, respectively, for the second quarter of 1995.
Operating profits for sports and entertainment totaled $1.7 million for the
second quarter of 1996 compared with operating losses of $0.3 million for the
same period in 1995.
Operating profit for the twenty-four weeks ended June 14, 1996 totaled $40.5
million, or 8.2% of revenues, an increase of $14.6 million, or 56.4%, from $25.9
million, or 6.3% of revenues for the same period in 1995. Operating profit for
airports and travel plazas year-to-date 1996 were $35.4 million and $3.0
million, respectively, as compared with $25.4 million and $1.3 million for the
same period in 1995. Operating profit for sports and entertainment for the first
half of 1996 totaled $2.1 million compared with operating losses of $0.8 million
in 1995.
CORPORATE EXPENSES. Corporate expenses were $11.9 million for the second quarter
of 1996, an increase of $1.6 million or 15.5% over the $10.3 million for the
second quarter of 1995. Year-to-date corporate expenses totaled $23.9 million
and $20.5 million for 1996 and 1995, respectively. The level of corporate
expenses incurred during the second quarter and first half of 1996 reflect
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
architectural and 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 $9.3 million and $18.5 million for the
second quarter and first half of 1996, respectively, as compared with $9.3
million and $18.8 million for the same periods of 1995. Interest expense was
reduced by 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 offset by the cost
of incremental debt that was incurred as a part of the Senior Notes issuance,
the cost of debt assumed in the acquisition of the Schiphol contract, as well as
an increased level of amortization of deferred financing costs.
INTEREST INCOME. Interest income totaled $0.2 million and $0.4 million for the
second quarter and first half of 1996, respectively, compared with $36 thousand
and $0.1 million for the same periods in 1995. These increases were primarily
due to the Company accelerating the transfer of cash balances from local
depository accounts to corporate interest bearing consolidation accounts.
INCOME TAXES. The provision for income taxes for the second quarter of 1996 and
1995 was $2.1 million and $0.9 million, respectively. Income tax benefits
totaled $0.7 million and $3.2 million for the first twenty-four weeks of 1996
and 1995, respectively.
EXTRAORDINARY ITEM. During the second quarter of 1995, the Company recognized an
extraordinary loss of $14.8 million ($9.6 million after taxes) in connection
with the redemption and defeasance of the Host Marriott Hospitality, Inc. Senior
Notes. This loss primarily represented premiums of $7.0 million paid on the
redemptions and the write-off of $7.8 million of deferred financing costs on the
Hospitality Notes.
NET INCOME (LOSS). The Company's net income for the second quarter of 1996 was
$3.0 million compared with a net loss of $11.8 million for the second quarter of
1995. Net loss for the first half of 1996 and 1995 totaled $0.8 million and
$19.7 million, respectively.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
EBITDA
The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA") increased $6.1
million, or 30.0%, to $26.4 million in the second quarter of 1996. EBITDA
totaled $39.9 million and $29.2 million for the first half of 1996 and 1995,
respectively, an increase of $10.7 million, or 36.6%. The quarter-to-quarter and
year-to-date comparisons reflect the impact of improved operating results in
1996. 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 income (loss):
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------------- -------------------------------
JUNE 14, JUNE 16, JUNE 14, JUNE 16,
(IN MILLIONS) 1996 1995 1996 1995
- ---------------------------------------------------- --------------- --------------- - --------------- ---------------
<S> <C> <C> <C> <C>
EBITDA $ 26.4 $ 20.3 $ 39.9 $ 29.2
Interest expense (8.9) (9.1) (17.9) (18.5)
(Provision) benefit for income taxes (2.1) (0.9) 0.7 3.2
Extraordinary item, net of taxes --- (9.6) --- (9.6)
Depreciation and amortization (11.9) (12.8) (22.9) (23.4)
Other non-cash items (0.5) 0.3 (0.6) (0.6)
- ---------------------------------------------------- --------------- --------------- - --------------- ---------------
NET INCOME (LOSS) $ 3.0 $(11.8) $ (0.8) $(19.7)
- ---------------------------------------------------- --------------- --------------- - --------------- ---------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its capital requirements with a combination of operating cash
flow and debt and equity financing. The Company believes that cash flow
generated from ongoing operations and funds available from existing credit
facilities are adequate to finance ongoing capital expenditures, as well as meet
debt service requirements. The Company also has the ability to fund its planned
growth initiatives from the sources identified above; however, should
significant growth opportunities arise, such as business combinations or
contract acquisitions, alternative financing arrangements will be evaluated and
considered.
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, 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
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
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 June 14, 1996,
and throughout the twelve and twenty-four weeks ended June 14, 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 $17.9 million for the first half of 1996 as compared
with $9.6 million for the same period in 1995. Operating cash flow was strong
during what has historically been a weaker seasonal quarter. The Company funded
an interest payment on the Senior Notes and planned capital expenditures while
increasing cash and cash equivalents and without drawing on its $35.0 million
Revolver Facility.
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 improve operations of existing facilities. The Company's capital
expenditures in the first half of 1996 and 1995 totaled $23.8 million and $19.8
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 1996 expenditures with its operating cash flow.
The Company's cash used in financing activities in the first half of 1996 was
$4.4 million, compared with cash provided by financing activities of $8.2
million for the same period in 1995.
At June 14, 1996, the Company's working capital resulted in its current
liabilities exceeding its current assets by $39.0 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 Revolver 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
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
operating unit ($9.0 million). The total cash flow deficit from the 14 operating
units is projected to be approximately $40.4 million during the remaining terms
of the lease agreements, of which $27.8 million relates to the one operating
unit referred to above.
DEFERRED INCOME TAXES
Realization of the net deferred tax assets totaling $79.6 million as of June 14,
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 June 14,
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.
20
<PAGE>
PART II. OTHER INFORMATION AND SIGNATURE
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 its resolution 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.
21
<PAGE>
ITEM 5. OTHER INFORMATION
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (1)
(In millions)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED (1) (2) TWENTY-FOUR WEEKS ENDED (1) (2)
--------------------------------------- --------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
JUNE, 14 JUNE 16, JUNE 16, JUNE, 14 JUNE 16, JUNE 16,
1996 1995 1995 1996 1995 1995
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $258.5 $226.6 $217.0 $494.8 $436.9 $414.1
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Cost of sales 76.6 69.8 66.4 147.6 133.3 126.8
Payroll and benefits 75.7 67.2 63.2 149.7 133.3 125.3
Rent 43.4 36.9 35.6 84.3 71.8 69.4
Royalties 4.5 3.8 3.3 8.3 6.9 6.1
Depreciation and amortization 11.0 11.8 11.3 21.6 22.3 21.1
Other 21.2 18.2 18.9 42.8 37.6 39.5
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
TOTAL OPERATING COSTS AND EXPENSES 232.4 207.7 198.7 454.3 405.2 388.2
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
OPERATING PROFIT BEFORE CORPORATE
EXPENSES AND INTEREST 26.1 18.9 18.3 40.5 31.7 25.9
Corporate expenses (11.9) (10.8) (10.3) (23.9) (21.9) (20.5)
Interest expense (9.3) (8.9) (9.3) (18.5) (17.8) (18.8)
Interest income 0.2 --- --- 0.4 0.1 0.1
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 5.1 (0.8) (1.3) (1.5) (7.9) (13.3)
Provision (benefit) for income taxes 2.1 1.1 0.9 (0.7) (1.3) (3.2)
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 3.0 (1.9) (2.2) (0.8) (6.6) (10.1)
Extraordinary item--loss on
extinguishment of debt (net of
related
income tax benefit of $5.2 million) --- --- (9.6) --- --- (9.6)
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
NET INCOME (LOSS) $ 3.0 $ (1.9) $(11.8) $ (0.8) $ (6.6) $(19.7)
- ----------------------------------------- ------------- ------------ ------------ -- ------------ ------------ ------------
<FN>
(1) Pro forma data for the second quarter and first half 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 periods because historical
results do not reflect the spin-off until the distribution date of
December 29, 1995.
</FN>
</TABLE>
22
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
23
<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.
JULY 26, 1996 /S/ BRIAN W. BETHERS
- ----------------------------- ------------------------------
Date Brian W. Bethers
Vice President (Principal
Financial Officer)
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> JUN-14-1996
<CASH> 48,100
<SECURITIES> 0
<RECEIVABLES> 34,300
<ALLOWANCES> 0
<INVENTORY> 35,600
<CURRENT-ASSETS> 141,100
<PP&E> 556,200
<DEPRECIATION> 311,600
<TOTAL-ASSETS> 489,800
<CURRENT-LIABILITIES> 180,100
<BONDS> 408,200
0
0
<COMMON> 0
<OTHER-SE> (150,900)
<TOTAL-LIABILITY-AND-EQUITY> 489,800
<SALES> 494,800
<TOTAL-REVENUES> 494,800
<CGS> 147,600
<TOTAL-COSTS> 454,300
<OTHER-EXPENSES> 23,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,500
<INCOME-PRETAX> (1,500)
<INCOME-TAX> (700)
<INCOME-CONTINUING> (800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (800)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
