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
FOR THE QUARTERLY PERIOD ENDED JUNE 19, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NO. 33-95060
HOST INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1242334
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6600 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(301) 380-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 (or for such shorter period that the registrant was
required to file such reports), 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 19, 1998 and June 20, 1997 2
Condensed Consolidated Balance Sheets -
As of June 19, 1998 and January 2, 1998 3
Condensed Consolidated Statements of Cash Flows -
For the Twenty-Four Weeks Ended June 19, 1998
and June 20, 1997 4
Condensed Consolidated Statement of Shareholder's Deficit -
For the Twenty-Four Weeks Ended June 19, 1998 5
Notes to Condensed Consolidated Financial Statements 6-11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-21
Quantitative and Qualitative Disclosure About Market Risk n/a
PART II. OTHER INFORMATION AND SIGNATURE:
Legal Proceedings 22
Changes in Securities and Use of Proceeds 22
Defaults Upon Senior Securities 22
Submission of Matters to a Vote of Security Holders 22
Other Information 22
Exhibits and Reports on Form 8-K 22
Signature 23
1
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------------- -------------------------------
JUNE 19, JUNE 20, JUNE 19, JUNE 20,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $288.7 $259.9 $540.7 $498.7
- ---------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Cost of sales 83.7 74.9 158.0 142.3
Payroll and benefits 84.5 77.0 164.3 151.7
Rent 44.7 41.0 84.9 80.9
Royalties 6.0 5.2 11.2 9.8
Depreciation and amortization 12.5 11.1 23.6 22.3
General and administrative 13.5 12.0 27.1 24.5
Other 26.0 23.0 49.1 48.1
- ---------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 270.9 244.2 518.2 479.6
- ---------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 17.8 15.7 22.5 19.1
Interest expense (9.2) (9.2) (18.4) (18.4)
Interest income 0.2 0.8 0.7 1.5
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 8.8 7.3 4.8 2.2
Provision for income taxes 3.2 2.9 1.6 0.9
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5.6 $ 4.4 $ 3.2 $ 1.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 19, JANUARY 2,
1998 1998
- ------------------------------------------------------------------------------ ----------------- -- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38.4 $ 60.3
Accounts receivable, net 20.6 23.3
Inventories 39.2 38.5
Deferred income taxes 12.9 12.9
Prepaid rent 8.2 7.0
Other current assets 6.7 6.2
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total current assets 126.0 148.2
Property and equipment, net 265.3 252.5
Intangible assets 21.9 21.9
Deferred income taxes 56.4 55.3
Other assets 23.2 22.1
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total assets $ 492.8 $ 500.0
- ------------------------------------------------------------------------------ ----------------- -- ----------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 64.9 $ 67.7
Accrued payroll and benefits 47.0 46.1
Accrued interest payable 3.3 4.7
Current portion of long-term debt 1.0 1.0
Other current liabilities 38.4 36.4
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total current liabilities 154.6 155.9
Long-term debt 406.0 405.8
Other liabilities 47.0 49.6
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total liabilities 607.6 611.3
Common stock, no par value, 100 shares authorized,
issued and outstanding --- ---
Accumulated other comprehensive income (0.2) (0.1)
Retained deficit (114.6) (111.2)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total shareholder's deficit (114.8) (111.3)
- ------------------------------------------------------------------------------ ----------------- -- ----------------
Total liabilities and shareholder's deficit $ 492.8 $ 500.0
- ------------------------------------------------------------------------------ ----------------- -- ----------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED
--------------------------------------
JUNE 19, JUNE 20,
1998 1997
- ------------------------------------------------------------------------------ ----------------- -- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3.2 $ 1.3
Adjustments to reconcile net income to cash from operations:
Depreciation and amortization 24.6 23.1
Amortization of deferred financing costs 0.6 0.6
Income taxes (1.1) (1.7)
Other 4.4 2.0
Working capital changes:
Decrease in accounts receivable 2.7 0.9
Increase in inventories (1.0) (1.3)
(Decrease) increase in other current assets (2.5) 1.7
Decrease in accounts payable and accruals (2.6) (41.8)
- ------------------------------------------------------------------------------ ----------------- -- -----------------
Cash provided by (used in) operations 28.3 (15.2)
INVESTING ACTIVITIES
Capital expenditures (36.6) (26.2)
Other, net (5.6) 4.6
- ------------------------------------------------------------------------------ ----------------- -- -----------------
Cash used in investing activities (42.2) (21.6)
FINANCING ACTIVITIES
Repayments of long-term debt (0.6) (0.7)
Issuance of long-term debt 0.9 ---
Proceeds from a short-term loan from Host Marriott Tollroads, Inc. 10.0 ---
Repayment of short-term loan from Host Marriott Tollroads, Inc. (10.0) ---
Payment to Host Marriott Corporation for Marriott
International options and deferred shares (3.5) (2.2)
Dividend to Host Marriott Services Corporation (4.7) ---
Foreign currency translation adjustments (0.1) (0.4)
- ------------------------------------------------------------------------------ ----------------- -- -----------------
Cash used in financing activities (8.0) (3.3)
DECREASE IN CASH AND CASH EQUIVALENTS (21.9) (40.1)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 60.3 93.1
- ------------------------------------------------------------------------------ ----------------- -- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38.4 $ 53.0
- ------------------------------------------------------------------------------ ----------------- -- -----------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT (UNAUDITED)
TWENTY-FOUR WEEKS ENDED JUNE 19, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK DEFICIT INCOME TOTAL
- -------------------------------------------- -------------- -------------- ------------------- -------------
<S> <C> <C> <C> <C>
Balance, January 2, 1998 $ --- $ (111.2) $ (0.1) $(111.3)
- -------------------------------------------- -------------- -------------- ------------------- -------------
Comprehensive income:
Net income --- 3.2 --- 3.2
Foreign currency translation
adjustments --- --- (0.1) (0.1)
- -------------------------------------------- -------------- -------------- ------------------- -------------
Total comprehensive income --- 3.2 (0.1) 3.1
Payment to Host Marriott Corporation
for Marriott International options
and deferred shares (3.5) --- (3.5)
Dividend to Host Marriott
Services Corporation --- (4.7) --- (4.7)
Deferred compensation --- 1.6 --- 1.6
- -------------------------------------------- -------------- -------------- ------------------- -------------
BALANCE, JUNE 19, 1998 $ --- $ (114.6) $ (0.2) $(114.8)
- -------------------------------------------- -------------- -------------- ------------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. The Company is the leading operator of food, beverage and
merchandise concessions at airports, on tollroads, and at other travel and
entertainment venues, with facilities at nearly every major commercial
airport and tollroad in the United States. The Company 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 January 2, 1998 ("Form 10-K"). Capitalized terms not otherwise
defined herein have the meanings specified in the 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 19, 1998 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 1998 presentation.
2. The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in
the first quarter of 1998 and the adoption did not have a material effect
on the Company's condensed consolidated financial statements. The Company
adopted SFAS No. 129, "disclosure of Information about Capital Structure,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" during 1997. The adoption of these standards did not have a
material effect on the Company's 1997 consolidated financial statements.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and SOP 98-5, "Reporting
on the Costs of Start-Up Activities" were issued subsequent to the first
quarter of 1998 and are required to be adopted in fiscal years beginning
after December 15, 1998, with earlier adoption permitted. The Company will
adopt SOP 98-1 and SOP 98-5 for its 1999 fiscal year and is currently
evaluating the financial statement impact of the adoptions.
3. The Company has three reportable operating segments: airports, travel
plazas and shopping malls and entertainment. The Company's management
evaluates performance of each segment based on profit or loss from
operations before allocation of general and administrative expenses,
unusual and extraordinary items, interest and income taxes. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies in the Company's Form 10-K. Financial
information for the Company's three operating segments are provided in the
following tables.
6
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
--------------------------- -----------------------------
JUNE 19, JUNE 20, JUNE 19, JUNE 20,
(IN MILLIONS) 1998 1997 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Airports $ 231.3 $ 206.8 $ 439.0 $ 404.7
Travel plazas 41.6 40.1 71.5 68.5
Shopping malls
and entertainment 15.8 13.0 30.2 25.5
-----------------------------------------------------------------------------------------
Total segment revenues $ 288.7 $ 259.9 $ 540.7 $ 498.7
-----------------------------------------------------------------------------------------
OPERATING PROFIT:(1)
Airports $ 25.4 $ 21.2 $ 44.1 $ 38.1
Travel plazas 5.1 5.0 4.1 3.5
Shopping malls
and entertainment 0.8 1.5 1.4 2.0
-----------------------------------------------------------------------------------------
Total segment operating profit $ 31.3 $ 27.7 $ 49.6 $ 43.6
-----------------------------------------------------------------------------------------
<FN>
(1) Before general and administrative expenses.
</FN>
</TABLE>
<TABLE>
<CAPTION>
JUNE 19, JANUARY 2,
(IN MILLIONS) 1998 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Airports $ 291.4 $ 272.9
Travel plazas 56.9 59.2
Shopping malls
and entertainment 28.0 32.9
---------------------------------------------------------------------------------------------
Total segment assets $ 376.3 $ 365.0
---------------------------------------------------------------------------------------------
<FN>
(1) Before general and administrative expenses.
</FN>
</TABLE>
Reconciliations of segment data to the Company's consolidated data follow:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
--------------------------- ------------------------------
JUNE 19, JUNE 20, JUNE 19, JUNE 20,
(IN MILLIONS) 1998 1997 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING PROFIT:
Segments $ 31.3 $ 27.7 $ 49.6 $ 43.6
General and administrative (13.5) (12.0) (27.1) (24.5)
expenses
-----------------------------------------------------------------------------------------------
Total operating profit $ 17.8 $ 15.7 $ 22.5 $ 19.1
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 19, JANUARY 2,
(IN MILLIONS) 1998 1998
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Segments $ 376.3 $ 365.0
Corporate and other(1) 116.5 135.0
-------------------------------------------------------------------------------------------
Total assets $ 492.8 $ 500.0
-------------------------------------------------------------------------------------------
<FN>
(1) The majority of the decrease in corporate and other was
related to a decrease in corporate cash concentration
accounts with a significant amount related to dividends to
Host Marriott Services Corporation to fund treasury stock
purchases.
</FN>
</TABLE>
7
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
5. 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. The Company's controlled
affiliates, in which the Company owns between 50% and 90% interest, are not
guarantors of the Senior Notes (together, the "Non-Guarantor
Subsidiaries"). The ability of the Company's Non-Guarantor Subsidiaries to
pay 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 combined results of
operations, 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.
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED JUNE 19, 1998
- ----------------------------------------- ---------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATIONS &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $ 250.1 $38.6 $ --- $288.7
Operating costs and expenses --- 234.1 36.8 --- 270.9
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Operating profit --- 16.0 1.8 --- 17.8
Interest expense (9.1) (9.2) --- 9.1 (9.2)
Interest income 0.2 --- --- --- 0.2
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Income (loss) before income taxes (8.9) 6.8 1.8 9.1 8.8
Provision (benefit) for income taxes (2.3) 2.7 0.5 2.3 3.2
Equity interest in affiliates 12.2 --- --- (12.2) ---
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Net income (loss) $ 5.6 $ 4.1 $ 1.3 $ (5.4) $ 5.6
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED JUNE 20, 1997
- ----------------------------------------- ---------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATIONS &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $227.0 $32.9 $ --- $ 259.9
Operating costs and expenses --- 213.6 30.6 --- 244.2
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Operating profit (loss) --- 13.4 2.3 --- 15.7
Interest expense (9.1) (9.2) --- 9.1 (9.2)
Interest income 0.4 0.4 --- --- 0.8
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Income (loss) before income taxes (8.7) 4.6 2.3 9.1 7.3
Provision (benefit) for income taxes (3.4) 1.9 0.9 3.5 2.9
Equity interest in affiliates 9.7 --- --- (9.7) ---
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Net income (loss) $ 4.4 $ 2.7 $ 1.4 $(4.1) $ 4.4
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
</TABLE>
8
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 19, 1998
- ----------------------------------------- ---------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATIONS &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $ 470.5 $70.2 $ --- $540.7
Operating costs and expenses --- 451.3 66.9 --- 518.2
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Operating profit --- 19.2 3.3 --- 22.5
Interest expense (18.1) (18.4) --- 18.1 (18.4)
Interest income 0.7 --- --- --- 0.7
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Income (loss) before income taxes (17.4) 0.8 3.3 18.1 4.8
Provision (benefit) for income taxes (5.7) 0.3 1.1 5.9 1.6
Equity interest in affiliates 14.9 --- --- (14.9) ---
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Net income (loss) $ 3.2 $ 0.5 $ 2.2 $ (2.7) $ 3.2
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 20, 1997
- ----------------------------------------- ---------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATIONS &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ --- $ 434.5 $64.2 $ --- $ 498.7
Operating costs and expenses --- 421.4 58.2 --- 479.6
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Operating profit (loss) --- 13.1 6.0 --- 19.1
Interest expense (18.1) (18.4) --- 18.1 (18.4)
Interest income 1.1 0.4 --- --- 1.5
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Income (loss) before income taxes (17.0) (4.9) 6.0 18.1 2.2
Provision (benefit) for income taxes (6.7) (1.9) 2.4 7.1 0.9
Equity interest in affiliates 11.6 --- --- (11.6) ---
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
Net income (loss) $ 1.3 $ (3.0) $ 3.6 $ (0.6) $ 1.3
- ----------------------------------------- ----------- -------------- ------------------- ------------------ ---------------
</TABLE>
9
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 19, 1998
- ---------------------------------------- -----------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATIONS &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 16.6 $ 20.6 $ 1.2 $ --- $ 38.4
Other current assets --- 77.0 10.6 --- 87.6
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total current assets 16.6 97.6 11.8 --- 126.0
Property and equipment, net --- 230.7 34.6 --- 265.3
Other assets --- 100.3 1.2 --- 101.5
Investments in subsidiaries 268.6 --- --- (268.6) ---
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total Assets $ 285.2 $ 428.6 $ 47.6 $(268.6) $ 492.8
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Current liabilities:
Accounts payable $ --- $ 58.6 $ 6.3 $ --- $ 64.9
Accrued payroll and benefits --- 47.0 --- --- 47.0
Other current liabilities --- 38.6 4.1 --- 42.7
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total current liabilities --- 144.2 10.4 --- 154.6
Long-term debt 400.0 405.3 0.7 (400.0) 406.0
Other liabilities --- 36.8 --- 10.2 47.0
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total Liabilities 400.0 586.3 11.1 (389.8) 607.6
Owner's equity (deficit) (114.8) (157.7) 36.5 121.2 (114.8)
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total Liabilities and Owner's Deficit $ 285.2 $ 428.6 $ 47.6 $(268.6) $ 492.8
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 2, 1998
- ---------------------------------------- -----------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATIONS &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 31.8 $ 27.2 $ 1.3 $ --- $ 60.3
Other current assets --- 80.7 7.2 --- 87.9
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total current assets 31.8 107.9 8.5 --- 148.2
Property and equipment, net --- 225.4 27.1 --- 252.5
Other assets --- 99.0 0.3 --- 99.3
Investments in subsidiaries 256.9 --- --- (256.9) ---
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total Assets $ 288.7 $ 432.3 $ 35.9 $(256.9) $ 500.0
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Current liabilities:
Accounts payable $ --- $ 60.1 $ 7.6 $ --- $ 67.7
Accrued payroll and benefits --- 46.1 --- --- 46.1
Other current liabilities --- 38.3 3.8 --- 42.1
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total current liabilities --- 144.5 11.4 --- 155.9
Long-term debt 400.0 405.8 --- (400.0) 405.8
Other liabilities --- 41.7 --- 7.9 49.6
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total Liabilities 400.0 592.0 11.4 (392.1) 611.3
Owner's equity (deficit) (111.3) (159.7) 24.5 135.2 (111.3)
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
Total Liabilities and Owner's Deficit $ 288.7 $ 432.3 $ 35.9 $(256.9) $ 500.0
- ---------------------------------------- ----------- --------------- ------------------- ------------------ ----------------
</TABLE>
10
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 19, 1998
- ---------------------------------------------------- -----------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash (used in) provided by operations $ (16.8) $ 27.3 $ 1.0 $ 16.8 $ 28.3
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Investing activities:
Capital expenditures --- (26.8) (9.8) --- (36.6)
Other --- (5.6) (8.6) 8.6 (5.6)
Advances (to) from subsidiaries 1.6 7.2 8.0 (16.8) ---
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Cash provided by (used in)
investing activities 1.6 (25.2) (10.4) (8.2) (42.2)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Financing activities:
Repayments of debt --- (0.4) (0.2) --- (0.6)
Issuance of debt --- --- 0.9 --- 0.9
Proceeds from a short-term loan from Host
Marriott Tollroads, Inc. 10.0 --- --- --- 10.0
Repayment of short-term loan from Host Marriott
Tollroads, Inc. (10.0) --- --- --- (10.0)
Payment to Host Marriott Corporation for
Marriott International options and
deferred shares --- (3.5) --- --- (3.5)
Foreign exchange translation
adjustments --- (0.1) --- --- (0.1)
Dividend to Host Marriott
Services Corporation --- (4.7) --- --- (4.7)
Partnership contributions
(distributions), net --- --- 8.6 (8.6) ---
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Cash (used in) provided by financing activities --- (8.7) 9.3 (8.6) (8.0)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Decrease in cash and cash equivalents $ (15.2) $ (6.6) $(0.1) $ --- $ (21.9)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED JUNE 20, 1997
- ---------------------------------------------------- -----------------------------------------------------------------------
NON- ELIMINATIONS
GUARANTOR GUARANTOR &
(IN MILLIONS) PARENT SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash (used in) provided by operations $ (15.9) $(22.2) $ 7.0 $ 15.9 $ (15.2)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Investing activities:
Capital expenditures --- (23.0) (3.2) --- (26.2)
Other --- 4.6 1.0 (1.0) 4.6
Advances (to) from subsidiaries (24.4) 42.9 (2.6) (15.9) ---
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Cash (used in) provided by
investing activities (24.4) 24.5 (4.8) (16.9) (21.6)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Financing activities:
Repayments of debt --- (0.7) --- --- (0.7)
Payment to Host Marriott Corporation for
Marriott International options and
deferred shares --- (2.2) --- --- (2.2)
Foreign exchange translation
adjustments --- (0.4) --- --- (0.4)
Partnership contributions
(distributions), net --- --- (1.0) 1.0 ---
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
Cash used in financing activities --- (3.3) (1.0) 1.0 (3.3)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
(Decrease) increase in cash and
cash equivalents $(40.3) $ (1.0) $ 1.2 $ --- $ (40.1)
- ---------------------------------------------------- ---------- -------------- --------------- -------------- --------------
</TABLE>
11
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company 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 generated by each of the travel plazas,
with additional incentive management fees determined as a percentage of
available cash flow.
REVENUES. Revenues for the twelve weeks ("quarter") ended June 19, 1998
increased by 11.1% to $288.7 million from the same period in 1997, with revenue
growth experienced in all business lines. Revenues for the twenty-four weeks
("first half") ended June 19, 1998 totaled $540.7 million, an increase of 8.4%.
These increases in revenues were driven by strong growth in domestic airport
food and beverage concessions particularly from sales at locations with recent
openings of new branded concepts. Revenue growth was also aided by an increase
in enplanements, customer traffic on tollroads, the opening of two new mall
contracts in the fourth quarter of 1997 and the conversion of the Miami
International Airport contract from a management agreement to an operating
agreement during the second quarter of 1998.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
-------------------------- ----------------------------
JUNE 19, JUNE 20, JUNE 19, JUNE 20,
(IN MILLIONS) 1998 1997 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES BY BUSINESS LINE
AIRPORTS:
Domestic $215.8 $191.9 $409.5 $376.8
International 15.5 14.9 29.5 27.9
--------------------------------------------------------------------------------------------------
Total airports 231.3 206.8 439.0 404.7
--------------------------------------------------------------------------------------------------
TRAVEL PLAZAS 41.6 40.1 71.5 68.5
SHOPPING MALLS AND ENTERTAINMENT 15.8 13.0 30.2 25.5
--------------------------------------------------------------------------------------------------
Total revenues $288.7 $259.9 $540.7 $498.7
--------------------------------------------------------------------------------------------------
</TABLE>
The Company's diversified branded concept portfolio, which consists of over 100
internationally known brands, regional specialty concepts and proprietary
concepts, is a unique competitive advantage in the marketplace. Brand awareness,
customer familiarity with product offerings, and the perception of superior
value and consistency are all factors contributing to higher revenue per
enplaned passenger ("RPE") in branded facilities. Branded revenues increased
19.4% and 17.0% for the second quarter and first half of 1998 compared to a year
ago, the majority of which related to the continued expansion of branded
revenues at airports and revenues from new shopping mall food courts, which
consist primarily of branded food and beverage. Branded revenues in all of the
Company's venues have grown at a compound annual growth rate of 18.2% over the
last three fiscal years. The Company's exposure to any one brand is limited
given the diversity of brands that are offered and given that no single branded
concept accounts for more than 10% of total revenues.
AIRPORTS
Airport concession revenues were up 11.8% to $231.3 million for the second
quarter of 1998 compared to a year ago, with domestic airport concession
revenues up 12.5% and international airport revenues up 4.0%. International
revenues reflect increased revenues at the Montreal International Airport -
Dorval in Canada and the Schiphol Airport in the Netherlands offset by the
negative impact of exchange rate fluctuations and weak enplanements stemming
from the Asian economic situation.
Comparable domestic airport contracts exclude the negative impact of exited
contracts, contracts with significant changes in scope of operation and
contracts undergoing significant construction of new facilities, as well as, the
positive impact of new contracts. During the second quarter of 1998, the
Chicago, St. Louis, Miami and Columbus airport contracts were considered
noncomparable. Revenue growth at comparable domestic airport
12
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
locations, which comprise almost 90% of total domestic airport revenues, grew a
solid 11.4% over the second quarter of 1997. Passenger enplanements at
comparable domestic airports were up an estimated 3.0% over last year's second
quarter while RPE grew 8.2%. In March 1998, the FAA forecasted annual U.S.
passenger enplanement growth of U.S. carriers of 3.7% through the year 2009.
Second quarter 1998 enplanement growth was below the FAA's long range forecast.
RPE, which is the primary measure of how effective the Company is capturing
potential customers and increasing customer spending, grew 8.2% at the Company's
comparable domestic airport locations in the second quarter of 1998 over the
same period last year. Approximately half of the RPE growth achieved during the
quarter can be attributed to the opening of new branded concepts at a number of
the Company's larger locations, including Los Angeles, San Francisco,
Minneapolis and Cleveland. In addition, moderate increases in menu prices and
various real estate maximization efforts also contributed to the 8.2% growth
rate. Branded revenues in airports showed an increase of 24.4% when comparing
the second quarter of 1998 to the same period in 1997. Airport branded revenues
in the second quarter increased to $69.3 million, or 30.0% of total airport
revenues, compared with $55.7 million, or 26.9% of total airport revenues, in
the second quarter of 1997.
Airport concession revenues were up 8.5% to $439.0 million for the first half of
1998 compared to a year ago, with domestic airport concession revenues up 8.7%
and international airport concession revenues up 5.7%. The opening of the
Montreal International Airport - Dorval in Canada during the second quarter of
1997 contributed significantly to the increase in international airport
revenues, which was partially offset by the negative impact of exchange rate
fluctuations and weak enplanements stemming from the Asian economic situation.
During the first half of 1998, the Chicago, St. Louis, Miami, Columbus and
Montreal airport contracts were considered noncomparable. Revenue growth at
comparable domestic airport locations grew a solid 9.2% over the first half of
1997. Passenger enplanements at comparable domestic airports were up an
estimated 1.8% over the first half of 1997.
RPE grew 7.2% at the Company's comparable domestic airport locations in the
first half of 1998 over the same period last year. Branded revenues in airports
showed an increase of 19.0% when comparing the first half of 1998 to the same
period in 1997. Airport branded revenues in the first half of 1998 increased to
$131.3 million, or 29.9% of total airport revenues, compared with $110.3
million, or 27.3% of total airport revenues, in the first half of 1997.
During the first quarter of 1998, the Company announced a new domestic airport
contract at the Southwest Florida International Airport in Fort Myers. This ten
year contract is for the development and operation of 16,000 square feet of food
and beverage concessions space throughout the airport's main terminal and its
two concourses.
Also during the first quarter of 1998, the Company announced several
international concession facilities at Kuala Lumpur International Airport and
Vancouver International Airport, both of which opened in the second quarter of
1998. The Company, along with its 51% Malaysian joint venture partner, Dewina
Berhad, was awarded several facilities at the Kuala Lumpur airport. The joint
venture will operate over 8,000 square feet of food and beverage concessions
space and will feature a mixture of international and local brand offerings.
This contract is the Company's first Southeast Asian contract, a key step in
establishing the Company's presence in Southeast Asia. The Company was awarded
two new concession facilities at the Vancouver International Airport, adding to
the Company's existing operations in the domestic terminal. The new facilities
include a Bar and Grill concept and a Starbucks Coffee location. This airport
was the Company's first Canadian airport contract, and since its opening, the
Company has received several awards on the design of the food and beverage and
retail operations at the airport.
During the second quarter of 1998, the Company announced that it has been
selected as the food and beverage master developer/operator at the Miami
International Airport, until the year 2007. The new contract is for the
development and operation of more than 56,000 square feet of food and beverage
space located throughout nine
13
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
concourses and the main terminal of the airport. Prior to this award, the
Company operated the existing generic facilities for Dade County under a
management agreement and recorded management fees. The Company will record
revenues and expenses under the new agreement. When construction of the
facilities is fully complete in 2000, the estimated annualized revenues are
expected to be approximately $30.0 million. The Company also announced a new
joint venture with Cool Planet, Inc., a subsidiary of Planet Hollywood
International, Inc., to bring a new ice cream and dessert concept called Cool
Planet to the Company's venues. The 50/50 joint venture was formed to open up to
10 Cool Planet locations, five likely within the next year.
Subsequent to the end of the second quarter of 1998, the Company announced
several development achievements. Food and beverage extensions were obtained at
the Jacksonville International Airport in Florida and at Terminal 3 of JFK
International Airport in New York. The Company won a new contract to operate
retail concessions in the north terminal at San Francisco International Airport
and announced a planned expansion at Chicago O'Hare International Airport with
the recent approval for a new 8,000 square foot business center at the airport.
Also, the Company has been selected by the Palm Beach Airport Authority to take
over food and beverage operations in October of 1998 in West Palm Beach. The
Company's selection requires the positive vote of the Palm Beach County Board of
Commissioners and the vote is expected in August.
The contracts won or renewed in core markets during or subsequent to the second
quarter described above are expected to generate more than $50 million in
revenues once opened and redeveloped.
TRAVEL PLAZAS
Travel plaza concession revenues for the second quarter of 1998 were up 3.5% to
$38.1 million when compared to the same period in 1997 due to low gasoline
prices, offset by inclement weather experienced throughout the northeastern U.S.
during much of the second quarter. In addition, travel plaza management fee
income for the second quarter of 1998 increased 6.1% to $3.5 million compared to
the second quarter of last year. Revenues for the travel plazas segment grew
4.3% to $65.6 million for the first half of 1998. In addition, management fee
income for the first half of 1998 increased 5.4% to $5.9 million compared with
the same period in 1997. The growth in revenues for the first half of 1998 was
the result of increased tollroad traffic due to low gasoline prices, as well as
moderate increases in menu prices. Low gasoline prices, higher household income
and record-high consumer confidence have led the Energy Department and the
Travel Institute of America to forecast strong growth in vehicle miles traveled
for this summer of 3.9% and 3%, respectively.
The Company started to introduce the Starbucks concept to a number of travel
plazas during the first half of 1998 in an effort to increase customer capture
and enhance real estate productivity on the tollroads. Travel plazas in Maryland
and Pennsylvania are currently operating Starbucks kiosks and 12 more Starbucks
locations are planned.
SHOPPING MALLS AND ENTERTAINMENT
Shopping malls and entertainment concession revenues, primarily consisting of
merchandise, food and beverage sales at food courts in shopping malls, stadiums,
arenas, and other tourist attractions, increased by 21.5% to $15.8 million for
the second quarter of 1998 when compared with the second quarter of 1997.
Revenues for the shopping malls and entertainment segment grew 18.4% to $30.2
million for the first half of 1998 compared to the same period in 1997. These
increases can be attributed to the opening of the Grapevine Mills Mall and the
Vista Ridge Mall in the fourth quarter of 1997, as well as a significant
increase in revenues at an entertainment location.
During the second quarter of 1998, the Company announced its first mall food
court project with Chelsea GCA Realty, Inc. to master lease 13,000 square feet
of food and beverage facilities, including a food court and a 500 seat common
area, at the Leesburg Corner Premium Outlets in Virginia. The upscale outlet
center will be built in three phases with the first phase scheduled to open in
the fall of 1998.
Also during the second quarter of 1998, the Company announced that it reached an
agreement with Forest City Ratner Companies to develop and manage 35,000 square
feet of food and beverage operations in its 42nd Street Entertainment and Retail
Project in New York. This project will be one of the Company's largest mall and
14
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
entertainment projects with annual sales expected to exceed $15 million once
construction of the units has been completed in late 1999.
The Company currently has seven mall contracts with five leading developers and
discussions underway with many more developers. A number of projects are under
discussion, including two in Europe.
OPERATING COSTS AND EXPENSES. Total operating costs and expenses were $270.9
million for the second quarter of 1998, or 93.8% of total revenues, compared
with $244.2 million for the second quarter of 1997, or 94.0% of total revenues.
Total operating costs and expenses for the first half of 1998 were $518.2
million, or 95.8% of total revenues, compared with $479.6 million, or 96.2% of
total revenues for the first half of 1997. The improved operating profit margins
reflect operating leverage benefits derived from revenue growth and reduced
costs, primarily in other operating expenses.
Cost of sales for the second quarter of 1998 increased 11.7% to $83.7 million
when compared to the same period in 1997. Cost of sales for the first half of
1998 increased 11.0% to $158.0 million when compared with the first half of
1997. Cost of sales as a percentage of total revenues increased 20 basis points
and 70 basis points during the second quarter and first half of 1998,
respectively. The margins are influenced by start-up activities at new food and
beverage concepts that result in product waste. In addition, the Company
experienced commodity cost increases in dairy products and premium coffee beans.
Payroll and benefits totaled $84.5 million during the second quarter of 1998, a
9.7% increase over the second quarter of 1997. Payroll and benefits increased
8.3% to $164.3 million during the first half of 1998 when compared to the same
period in 1997. Payroll and benefits as a percentage of total revenues decreased
30 basis points for the second quarter and remained flat for the first half of
1998, reflecting benefits from the use of labor scheduling software and the
implementation of store manager training programs.
Rent expense totaled $44.7 million and $84.9 million for the second quarter and
first half of 1998, an increase of 9.0% and 4.9% above the second quarter and
first half of 1997, respectively. Rent expense as a percentage of total revenues
improved 30 basis points for the second quarter and 50 basis points for the
first half of 1998 and can be attributed to sales increases on contracts with
fixed rental rates, as well as new or renewed contracts with favorable rent
margins.
Royalties expense for the second quarter and first half of 1998 increased by
15.4% and 14.3% to $6.0 million and $11.2 million, respectively, when compared
with the same periods in 1997. As a percentage of total revenues, royalties
expense increased by 10 basis points for both the second quarter and first half
of 1998. These increases in royalties expense reflects the Company's continued
introduction of branded concepts to its concessions operations. Royalties
expense as a percentage of branded sales totaled 6.2% and 6.6% in the second
quarter of 1998 and 1997, respectively, and totaled 6.1% and 6.6% in the first
half of 1998 and 1997, respectively. These margin decreases were attributable to
the addition of branded concepts with lower-than-average royalty percentages.
Branded facilities generate higher sales per square foot and contribute toward
increased RPE, which more than offset royalty payments required to operate the
concepts.
Depreciation and amortization expense, excluding $0.5 million of corporate
depreciation on property and equipment which is included as a component of
general and administrative expenses, was $12.5 million for the second quarter of
1998, compared to $11.1 million, excluding $0.3 million of corporate
depreciation on property and equipment, for the second quarter of 1997.
Depreciation and amortization for the first half of 1998 and 1997 totaled $23.6
million and $22.3 million, excluding $1.0 million and $0.7 million of corporate
depreciation on property and equipment, respectively. Increased depreciation
related to the buildout of new branded locations and additional amortization of
pre-opening costs related to new mall contracts was partially offset by lower
depreciation related to the write-down of one impaired airport unit in the
fourth quarter of 1997.
15
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
General and administrative expenses were $13.5 million for the second quarter of
1998, an increase of 12.5% from a year ago. General and administrative expenses
for the first half of 1998 increased 10.6% to $27.1 million compared to the
first half of 1997. These increases were primarily attributable to the addition
of corporate resources in accounting, systems, business development and
strategic planning and marketing to focus on growth initiatives in the Company's
core markets and new venues, as well as increased consulting costs associated
with systems initiatives. During the first half of 1998, $400 thousand in
external costs was included in general and administrative expenses relating to
the Company's Year 2000 compliance program.
Other operating expenses, which includes utilities, casualty insurance,
equipment maintenance, trash removal and other miscellaneous expenses, were
$26.0 million for the second quarter of 1998, a 13.0% increase from the second
quarter of 1997. Other operating expenses increased 2.1% in the first half of
1998 to $49.1 million compared to a year ago. As a percentage of total revenues,
other operating expenses increased 20 basis points for the second quarter and
decreased 50 basis points for the first half of 1998 when compared with the same
periods in 1997. The majority of the margin improvement for the first half of
1998 was due to lower supplies expenses.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, operating profit increased 13.4% to $17.8 million or
6.2% of revenues for the second quarter of 1998, from $15.7 million or 6.0% of
revenues for the second quarter of 1997. Operating profit improved 17.8% to
$22.5 million for the first half of 1998, or 4.2% of revenues compared with
$19.1 million, or 3.8% of revenues for the same period in 1997.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------ ---------------------------
JUNE 19, JUNE 20, JUNE 19, JUNE 20,
(IN MILLIONS) 1998 1997 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING PROFIT BY BUSINESS LINE (1)
AIRPORTS:
Domestic $ 24.5 $ 20.4 $ 43.0 $ 36.9
International 0.9 0.8 1.1 1.2
------------------------------------------------------------------------------------------------------------
Total airports 25.4 21.2 44.1 38.1
------------------------------------------------------------------------------------------------------------
TRAVEL PLAZAS 5.1 5.0 4.1 3.5
SHOPPING MALLS AND ENTERTAINMENT 0.8 1.5 1.4 2.0
------------------------------------------------------------------------------------------------------------
Total operating profit $ 31.3 $ 27.7 $ 49.6 $ 43.6
------------------------------------------------------------------------------------------------------------
<FN>
(1) Before general and administrative expenses
</FN>
</TABLE>
Operating profit margins, before general and administrative expenses, increased
for the airports business line, totaling 11.0% of airport revenues for the
second quarter of 1998 as compared with 10.3% of airport revenues for the second
quarter of 1997. Airport operating profit margin, before general and
administrative expenses, improved 60 basis points to 10.0% in the first half of
1998 compared to the same period in 1997.
Travel plaza operating profit margin, before general and administrative
expenses, decreased 20 basis points to 12.3% for the second quarter of 1998 and
improved 60 basis points to 5.7% for the first half of 1998. The decrease in the
travel plaza operating profit margin for the second quarter can be attributed to
inclement weather experienced throughout the northeastern U.S. during much of
the second quarter, as well as increased cost of sales and upward pressure on
wages. The improved operating profit margin for the first half of 1998 was due
to increased tollroad traffic and management fee income, as well as moderate
price increases which more than offset the inclement weather, increased cost of
sales and upward pressure on wages experienced in the second quarter of 1998.
The operating profit margin for shopping malls and entertainment, excluding
general and administrative expenses, decreased to 5.1% for the second quarter of
1998 from 11.5% in the second quarter of 1997 and decreased to 4.6%
16
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
in the first half of 1998 from 7.8% reported in the first half of 1997. The
shopping mall and entertainment operating profit margin was constrained by
start-up costs, including the amortization of pre-opening costs, related to the
opening of two new mall contracts, the negative impact of the Asian crisis at
one Hawaiian location and costs associated with the closing of an entertainment
location in Florida.
INTEREST EXPENSE. Interest expense remained flat at $9.2 million and $18.4
million for the second quarter and first half of 1998 when compared to the same
periods in 1997, reflecting the 9.5% fixed rate of interest on the $400 million
of Senior Notes.
INTEREST INCOME. Interest income decreased to $0.2 million for the second
quarter of 1998 compared with $0.8 million in the second quarter of 1997. The
second quarter of 1997 included $0.4 million of non-recurring interest income
relating to a negotiated agreement with an Airport Authority which reimbursed
the Company for the cost of funding certain capital improvements. Interest
income decreased to $0.7 million for the first half of 1998 compared with $1.5
million for the same period in 1998. The decrease in first half of 1998 interest
income reflects the non-recurring interest income in the second quarter of 1997,
as well as decreased corporate concentration account balances in the first half
of 1998 compared to the same period in 1997.
INCOME TAXES. The provision for income taxes for the second quarter of 1998 and
1997 was $3.2 million and $2.9 million, reflecting an effective tax rate of
37.4% and 39.5% for the respective quarters. Provision for income taxes for the
first half of 1998 and 1997 was $1.6 million and $0.9 million, respectively,
reflecting an effective tax rate of 33.0% and 39.5% for the respective periods.
The decline in 1998 effective tax rates reflects the reversal of the valuation
allowance for the estimated benefit of recognizing certain tax credits
previously thought to be unrealizable.
NET INCOME. Net income for the second quarter of 1998 increased 27.3% to $5.6
million compared with $4.4 million for the second quarter of 1997. Net income
for the first half of 1998 increased to $3.2 million compared with $1.3 million
for the same period in 1997. The increase in net income for the second quarter
and first half of 1998 reflects strong revenue growth, slightly improved
operating profit margins and a favorable reduction in the corporate tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its capital requirements with a combination of existing cash
balances and operating cash flow. The Company believes that cash flow generated
from ongoing operations and current cash balances are more than 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
existing credit facilities and 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's Senior Notes, which will mature in May 2005, were issued at par
and have a fixed coupon rate of 9.5%. The Senior Notes can be called beginning
in May 2000 at a price of 103.56%, declining to par in March 2003.
The Company is required to make semi-annual cash interest payments on its 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. Management
does not expect either of these events to occur.
The Senior Notes are secured by a pledge of stock and are fully and
unconditionally guaranteed on a joint and several basis by certain subsidiaries
(the "Guarantors") of the Company. The indenture governing the Senior Notes (the
"Indenture") contains covenants that, among other things, limit the ability of
the Company and certain
17
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
of its subsidiaries 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 (the "Facilities") to the Company
consisting of a $75.0 million revolving credit facility (the "Revolver
Facility") and a $25.0 million letter of credit facility. The $75.0 million
Revolver Facility provides for working capital and general corporate purposes
other than hostile acquisitions. The $25.0 million letter of credit facility
provides for the issuance of financial and nonfinancial letters of credit. Any
borrowings under the Facilities are senior obligations of the Company and are
secured by Host Marriott Services' 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, except that dividends payable to Host Marriott Services
are limited to 25% of the Company's consolidated net income, as defined in the
loan agreement. During the first quarter of 1998 and in compliance with the
Facilities, the Company paid dividends to Host Marriott Services in the amount
of $4.7 million. The loan agreements also contain certain financial ratio and
capital expenditure covenants. 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 19, 1998 and throughout the twenty-four weeks ended
June 19, 1998, 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 and income taxes, totaled $32.8 million for the first half of
1998 as compared with $27.0 million for the same period in 1997. Working capital
is managed throughout the year to effectively maximize the financial returns to
the Company. If needed, the Company's Revolver Facility provides funds for
liquidity, seasonal borrowing needs and other general corporate purposes.
The primary use of cash in investing activities consists of capital
expenditures. The Company incurs capital expenditures to build out new
facilities, including growth initiatives, to expand or reposition existing
facilities and to maintain the quality and operations of existing facilities.
The Company's capital expenditures in the first half of 1998 and 1997 totaled
$36.6 million and $26.2 million, respectively. For the entire fiscal year of
1998, the Company presently expects to make capital expenditure investments of
approximately $60.0 million in its core markets (domestic airport and travel
plaza business lines) and $15.0 million in growth markets (international
airports, food courts in U.S. shopping malls and other venues). The timing of
actual capital expenditures can vary from that expected due to issues arising
pertaining to project scheduling inherent in the construction and approval
process. The Company expects to fund 1998 expenditures with its operating cash
flow.
The Company's cash used in financing activities in the first half of 1998 was
$8.0 million, compared with cash used in financing activities of $3.3 million
for the same period in 1997. The majority of cash used in financing activities
during the first half of 1998 was attributable to $4.7 million of dividends paid
to Host Marriott Services, a $3.5 million payment in settlement of the Company's
obligation to pay for the 1997 exercise of nonqualified stock options and the
1997 release of deferred stock incentive shares held by certain former employees
of Host Marriott Corporation and $0.6 million of debt repayments. Offsetting
these cash outflows for financing activities during the first half of 1998 was
cash provided by the issuance of debt totaling $0.9 million. During the second
quarter of 1998 and in compliance with the debt covenants, Host Marriott
Tollroads, Inc. (a wholly owned subsidiary of Host Marriott Services) made a
short-term loan to the Company in the amount of $10.0 million. The
18
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
loan carried a fixed rate of interest at 2-month Libor of 6.9%. The loan was
paid in full by the end of the second quarter of 1998.
Cash used in financing activities in the first half of 1997 was primarily due to
a cash payment in settlement of the Company's obligation to pay for the 1996
exercise of options and release of deferred stock incentive shares held by
certain former employees of Host Marriott Corporation during the second quarter
of 1997 totaling $2.2 million. In addition, the Company had $0.7 million of debt
repayments and $0.4 million of foreign currency translation adjustments.
The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA") increased $2.8
million, or 9.8%, to $31.4 million in the second quarter of 1998. The EBITDA
margin decreased 10 basis points to 10.9% of revenues from 11.0% in the second
quarter of 1997. EBITDA increased $4.3 million, or 9.7%, to $48.8 million in the
first half of 1998. The EBITDA margin improved 10 basis points to 9.0% of
revenues in the first half of 1998 from 8.9% of revenues in the first half of
1997. The Company's cash interest coverage ratio (defined as EBITDA to interest
expense less amortization of deferred financing costs) was 3.6 to 1.0 in the
first half of 1998 compared with 4.0 to 1.0 in the first half of 1997. The
Company believes that EBITDA is one meaningful measure of its operating
performance and is used by certain investors to estimate the Company's ability
to service debt, fund capital investments and expand its business. 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 calculation of EBITDA for the Company may not be comparable to the
same calculation by other companies because the definition of EBITDA varies
throughout the industry.
The following is a reconciliation of net income to EBITDA:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------- -----------------------------
JUNE 19, JUNE 20, JUNE 19, JUNE 20,
(IN MILLIONS) 1998 1997 1998 1997
------------------------------------- ----------- ------------- -- --------------- -------------
<S> <C> <C> <C> <C>
NET INCOME $ 5.6 $ 4.4 $ 3.2 $ 1.3
Interest expense (1) 9.2 9.2 18.4 18.4
Provision for income taxes 3.2 2.9 1.6 0.9
Depreciation and amortization 13.0 11.4 24.6 23.0
Other non-cash items 0.4 0.7 1.0 0.9
------------------------------------- ----------- ------------- -- --------------- -------------
EBITDA $ 31.4 $ 28.6 $ 48.8 $ 44.5
------------------------------------- ----------- ------------- -- --------------- -------------
<FN>
(1) Amortization of deferred financing costs of $0.3 million and $0.4
million for the second quarter of 1998 and 1997, respectively, is
included as a component of interest expense. Amortization of
deferred financing costs of $0.6 million and $0.6 million for the
first half of 1998 and 1997, respectively, is included in interest
expense.
</FN>
</TABLE>
Excluding the $0.4 million in non-recurring interest income in the second
quarter of 1997, EBITDA would have increased by 11.4% for the second quarter of
1998 compared to the same period in 1997 and the EBITDA margin would have
remained level at 10.9% between the periods. Excluding the non-recurring
interest income, EBITDA would have increased by 10.7% for the first half of 1998
compared to the same period in 1997 and the EBITDA margin would have increased
to 9.0% in the first half of 1998 from 8.8% in the first half of 1997.
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 the assets
19
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
(primarily leasehold improvements and equipment) of 14 individual operating
units to the extent the carrying value of the assets exceeded the fair value of
the assets in 1995. Eleven of the fourteen units had projected cash flow
deficits, and, accordingly, the assets of these units were written-off in their
entirety. The remaining three units had projected positive cash flows and the
assets were partially written down to their estimated fair values.
During 1996 and 1997, 6 of the original 14 impaired units were either disposed
of or the lease term expired. As of June 19, 1998 and as a result of improved
operating performance, the remaining eight operating units had projected net
positive cash flows of approximately $1.7 million (including operating cash
flows and necessary capital expenditures) over the remaining weighted-average
life of the contracts of 2.9 years.
DEFERRED INCOME TAXES
Realization of the net deferred tax assets totaling $69.3 million as of June 19,
1998, 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 19,
1998. Management anticipates that increases in taxable income will arise in
future periods primarily as a result of the Company's growth strategies and
profit improvement resulting from several strategic initiatives focused on the
Company's business processes. The anticipated improvement in operating results
is expected to increase the taxable income base to a level that would allow
realization of the existing net deferred tax assets within nine to twelve years.
During the second quarter of 1998, the Company revised its interim effective tax
rate to reflect the reversal of the valuation allowance for the estimated
benefit of recognizing certain tax credits that were previously considered
unrealizable. During the third quarter of 1997, the Company recorded a $1.9
million benefit to recognize certain tax credits that were previously considered
unrealizable.
Future levels of operating income and other taxable gains are dependent upon
general economic and industry conditions, including airport and tollroad
traffic, inflation, competition, demand for development of concepts 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 the tax
credits and deductible temporary differences giving rise to the net deferred tax
assets. Management has considered these factors in reaching its conclusion that
it is more likely than not that operating income will be sufficient to realize
the net deferred tax assets. The amount of the net deferred tax assets
considered realizable, however, could be reduced if estimates of future taxable
income are not achieved.
YEAR 2000
The Company is currently working to resolve the potential impact of the Year
2000 on the Company's operations. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs or computer hardware and
electronic equipment that have time-sensitive software or computer chips may
recognize a date using "00" as a date other than the Year 2000, which could
result in miscalculations or system failures. If the Company, its customers or
its vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company is devoting
resources to resolve all significant Year 2000 issues in a timely manner as they
are identified. An action plan consisting of three phases was formulated in 1997
and phase one was completed in the first quarter of 1998. The first phase
consisted of a formulation of an overall assessment of the issues and
documentation of an action plan. The Company anticipates that all mission
critical information technology systems at corporate headquarters, which perform
financial management processes, will be Year 2000 compliant by the end of 1998.
Full completion of the action plan should occur in 1999.
The Company currently anticipates the funding of external cost for its Year 2000
systems compliance program will total approximately $1.5 million in 1998, $1.5
million in 1999 and $0.5 million in 2000. Additionally, final
20
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
remediation may require further capital investments to replace equipment and
software. During the first half of 1998, $0.4 million in external costs were
incurred relating to Year 2000 implementation.
In addition to the risks noted above, the Company's operations may also be
affected by Year 2000 issues facing the Federal Aviation Administration related
to air traffic control and security systems used in airports. These issues could
potentially lead to degraded flight safety, grounded or delayed flights,
increased airline costs and customer inconvenience. Since the Company is not
responsible for addressing these issues, it cannot control or predict the impact
on future operations of the Year 2000 as it pertains to air traffic control and
airport security systems.
FORWARD LOOKING STATEMENTS
This report, the Company's other reports filed with the Securities and Exchange
Commission or furnished to shareholders and its public statements and press
releases may contain "forward-looking statements" within the meaning of the
federal securities laws, including statements concerning the Company's outlook
for 1998 and beyond; the growth in total revenue in 1998 and subsequent years;
the amount of additional revenues expected from new domestic and international
shopping mall food court and airport contracts that were added in 1997 or that
are expected to be added or renewed in 1998 and subsequent years; anticipated
retention rates of existing contracts in core business lines; capital spending
plans; projected cash flows from certain operating units; business strategies
and their anticipated results; and similar statements concerning future events
and expectations that are not historical facts.
These forward-looking statements are subject to numerous risks and
uncertainties, including the effects of seasonality, airline and tollroad
industry fundamentals and general economic conditions (including the current
economic downturn in Asia), competitive forces within the food, beverage and
retail concessions industries, the availability of cash flow to fund future
capital expenditures, government regulation and the potential adverse impact of
the Year 2000 issue on operations. For further information concerning risks
applicable to the Company's operations, see the Company's Form 10-K.
Forward-looking statements are inherently uncertain, and investors must
recognize that actual results could differ materially from those expressed or
implied by the statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
21
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
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 AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K:
None.
22
<PAGE>
HOST INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION AND SIGNATURE, CONTINUED
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 31, 1998 /S/ BRIAN W. BETHERS
--------------- -------------------------------------------
Date Brian W. Bethers
Vice President
(Principal Financial Officer and Director)
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> JUN-19-1998
<CASH> 38,400
<SECURITIES> 0
<RECEIVABLES> 41,300
<ALLOWANCES> 19,100
<INVENTORY> 39,200
<CURRENT-ASSETS> 126,000
<PP&E> 635,200
<DEPRECIATION> 369,900
<TOTAL-ASSETS> 492,800
<CURRENT-LIABILITIES> 154,600
<BONDS> 407,000
0
0
<COMMON> 0
<OTHER-SE> (114,800)
<TOTAL-LIABILITY-AND-EQUITY> 492,800
<SALES> 540,700
<TOTAL-REVENUES> 540,700
<CGS> 158,000
<TOTAL-COSTS> 518,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,400
<INCOME-PRETAX> 4,800
<INCOME-TAX> 1,600
<INCOME-CONTINUING> 3,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,200
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
