SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 14, 1996 Commission File No. 1-5664
HOST MARRIOTT CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 53-0085950
(State of Incorporation) (I.R.S. Employer Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Class Shares outstanding
Common Stock, $1.00 at July 12, 1996
par value per share 194,697,000
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
June 14, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Twenty-four Weeks Ended
June 14, 1996 and June 16, 1995
Condensed Consolidated Statements of Cash Flows - 6
Twenty-four Weeks Ended June 14, 1996 and
June 16, 1995
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of 10
Operations and Financial Condition
Part II. OTHER INFORMATION AND SIGNATURE 14
- 2 -
PART I. FINANCIAL INFORMATION
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
June 14, December 29,
1996 1995
(unaudited)
----------- ------------
ASSETS
Property and Equipment, Net.................................................... $ 3,025 $ 2,882
Notes and Other Receivables (including amounts due from
affiliates of $162 million and $170 million, respectively)................... 218 210
Due from Hotel Managers........................................................ 81 72
Investments in Affiliates...................................................... 13 26
Other Assets................................................................... 241 166
Cash and Cash Equivalents...................................................... 666 201
--- ---
$ 4,244 $ 3,557
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt
Debt carrying a parent company guarantee of repayment........................ $ 220 $ 262
Debt not carrying a parent company guarantee of repayment.................... 2,156 1,916
----- -----
2,376 2,178
Accounts Payable and Accrued Expenses.......................................... 39 52
Deferred Income Taxes.......................................................... 507 504
Other Liabilities.............................................................. 245 148
--- ---
Total Liabilities......................................................... 3,167 2,882
----- -----
Shareholders' Equity
Common Stock, 300 million shares authorized; 194.8 million
shares and 159.7 million shares issued and outstanding,
respectively............................................................... 195 160
Additional Paid-in Capital................................................... 871 499
Retained Earnings............................................................ 11 16
--- ---
Total Shareholders' Equity 1,077 675
----- ---
` $ 4,244 $ 3,557
======== ========
See Notes to Condensed Consolidated Financial Statements.
- 3 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve weeks ended June 14, 1996 and June 16, 1995
(unaudited, in millions, except per common share amounts)
1996 1995
---- ----
REVENUES
Hotels......................................................................$ 165 $ 116
Net gains (losses) on property transactions................................. (3) (10)
Equity in earnings of affiliates............................................ 1 --
Other ...................................................................... 4 3
--- ---
Total revenues............................................................ 167 109
--- ---
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$24 million and $15 million in 1996 and 1995, respectively)............... 98 60
Other ...................................................................... 7 4
--- ---
Total operating costs and expenses........................................ 105 64
--- ---
OPERATING PROFIT BEFORE MINORITY INTEREST,
CORPORATE EXPENSES AND INTEREST............................................... 62 45
Minority interest............................................................... (1) --
Corporate expenses.............................................................. (8) (9)
Interest expense................................................................ (51) (43)
Interest income................................................................. 10 8
--- ---
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................................................... 12 1
Provision for income taxes...................................................... (5) (2)
--- ---
INCOME (LOSS) FROM CONTINUING OPERATIONS........................................ 7 (1)
DISCONTINUED OPERATIONS
Loss from discontinued operations
(net of income tax benefit of $3 million in 1995)............................. -- (12)
--- ---
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM......................................... 7 (13)
Extraordinary item - loss on extinguishment of debt
(net of income tax benefit of $9 million in 1995)............................. -- (17)
--- ---
NET INCOME (LOSS)...............................................................$ 7 $ (30)
========= =========
INCOME (LOSS) PER COMMON SHARE:
Continuing operations...........................................................$ .03 $ (.01)
Discontinued operations......................................................... -- (.07)
Extraordinary item - loss on extinguishment of debt............................. -- (.11)
--- ---
NET INCOME (LOSS)...............................................................$ .03 $ (.19)
========= =========
See Notes to Condensed Consolidated Financial Statements.
- 4 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four weeks ended June 14, 1996 and June 16, 1995
(unaudited, in millions, except per common share amounts)
1996 1995
---- ----
REVENUES
Hotels......................................................................$ 291 $ 212
Net losses on property transactions......................................... (2) (9)
Equity in earnings (losses) of affiliates................................... 2 (1)
Other ...................................................................... 6 7
--- ---
Total revenues............................................................ 297 209
--- ---
OPERATING COSTS AND EXPENSES
Hotels (including Marriott International management fees of
$41 million and $29 million in 1996 and 1995, respectively)............... 181 117
Other ...................................................................... 16 12
--- ---
Total operating costs and expenses........................................ 197 129
--- ---
OPERATING PROFIT BEFORE MINORITY INTEREST,
CORPORATE EXPENSES AND INTEREST............................................... 100 80
Minority interest............................................................... (2) --
Corporate expenses.............................................................. (17) (18)
Interest expense................................................................ (99) (83)
Interest income................................................................. 16 13
--- ---
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................................................... (2) (8)
Provision for income taxes...................................................... (3) (1)
--- ---
LOSS FROM CONTINUING OPERATIONS................................................. (5) (9)
DISCONTINUED OPERATIONS
Loss from discontinued operations
(net of income tax benefit of $8 million in 1995)......................... -- (18)
--- ---
LOSS BEFORE EXTRAORDINARY ITEM.................................................. (5) (27)
Extraordinary item - loss on extinguishment of debt
(net of income tax benefit of $9 million in 1995)............................. -- (17)
--- ---
NET LOSS .......................................................................$ (5) $ (44)
========= ========
LOSS PER COMMON SHARE:
Continuing operations...........................................................$ (.03) $ (.06)
Discontinued operations......................................................... -- (.11)
Extraordinary item - loss on extinguishment of debt............................. -- (.11)
--- ---
NET LOSS........................................................................$ (.03) $ (.28)
========= ========
See Notes to Condensed Consolidated Financial Statements.
- 5 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four weeks ended June 14, 1996 and June 16, 1995
(unaudited, in millions)
1996 1995
---- ----
OPERATING ACTIVITIES
Loss from continuing operations.................................................$ (5) $ (9)
Adjustments to reconcile to cash from operations:
Depreciation and amortization............................................... 67 57
Income taxes................................................................ 6 (1)
Equity in (earnings) losses of affiliates................................... (2) 1
Changes in operating accounts............................................... 4 (33)
Other....................................................................... 24 22
--- ---
Cash from continuing operations............................................. 94 37
Cash from (used in) discontinued operations................................. (4) 16
--- ---
Cash from operations........................................................ 90 53
--- ---
INVESTING ACTIVITIES
Proceeds from sales of assets................................................... 350 190
Less noncash proceeds....................................................... (33) (18)
--- ---
Cash received from sales of assets ............................................. 317 172
Acquisitions.................................................................... (255) (45)
Capital expenditures:
Capital expenditures for renewals and replacements.......................... (42) (24)
Lodging construction funded by project financing............................ (2) (25)
Other capital expenditures ................................................. (33) (23)
Note receivable collections..................................................... 3 40
Affiliate collections (advances), net........................................... 8 (5)
Other .......................................................................... (42) 14
--- ---
Cash from (used in) investing activities from continuing operations......... (46) 104
Cash used in investing activities from discontinued operations.............. -- (24)
--- ---
Cash from (used in) investing activities.................................... (46) 80
--- ---
FINANCING ACTIVITIES
Issuances of debt............................................................... 38 698
Issuances of common stock....................................................... 404 7
Scheduled principal repayments.................................................. (16) (94)
Debt prepayments ............................................................... (33) (713)
Other .......................................................................... 28 --
--- ---
Cash from (used in) financing activities from continuing operations......... 421 (102)
Cash used in financing activities from discontinued operations.............. -- (1)
--- ---
Cash from (used in) financing activities.................................... 421 (103)
--- ---
INCREASE IN CASH AND CASH EQUIVALENTS...........................................$ 465 $ 30
========= =========
See Notes to Condensed Consolidated Financial Statements.
- 6 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of Host
Marriott Corporation and subsidiaries (the "Company") have been prepared by
the Company without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted.
The Company believes the disclosures made are adequate to make the
information presented not misleading. However, the condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 29, 1995.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of Host Marriott Corporation and subsidiaries as of June
14, 1996 and December 29, 1995, the results of operations for the twelve
and twenty-four weeks ended June 14, 1996 and June 16, 1995, and cash flows
for the twenty-four weeks ended June 14, 1996 and June 16, 1995. Interim
results are not necessarily indicative of fiscal year performance because
of the impact of seasonal and short-term variations.
2. On December 29, 1995, the Company distributed to its shareholders through a
special tax-free dividend (the "Special Dividend") all of the outstanding
shares of common stock of Host Marriott Services Corporation ("HM
Services"), formerly a wholly-owned subsidiary of the Company, which, as of
the date of the Special Dividend, owned and operated food, beverage and
merchandise concessions businesses at airports, on tollroads and at
stadiums, arenas and other attractions (the "Operating Group"). The
condensed consolidated financial statements for 1995 have been restated to
reflect the Operating Group results as discontinued operations. Revenues
for the Company's discontinued operations totaled $258 million and $489
million for the twelve and twenty-four weeks ended June 16, 1995,
respectively. Cash used in discontinued operations for the first half of
1996 represents the 1996 payment of expenses related to the Special
Dividend accrued during 1995.
3. Revenues primarily represent house profit from the Company's hotel
properties, net gains (losses) on property transactions, and equity in
earnings (losses) of affiliates. House profit reflects the net revenues
flowing to the Company as property owner and represents hotel operating
results less property-level expenses excluding depreciation, real and
personal property taxes, ground rent, insurance and management fees which
are classified as operating costs and expenses.
House profit generated by the Company's hotels for 1996 and
1995 consists of:
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
Sales
Rooms .......................................................$ 283 $ 210 $ 530 $ 404
Food & Beverage ............................................. 111 82 209 159
Other........................................................ 27 18 52 35
--- --- --- ---
Total Hotel Sales.......................................... 421 310 791 598
--- --- --- ---
Department Costs
Rooms ....................................................... 66 50 128 99
Food & Beverage ............................................. 83 63 162 124
Other ....................................................... 15 8 28 18
--- --- --- ---
Total Department Costs .................................... 164 121 318 241
--- --- --- ---
Department Profit .......................................... 257 189 473 357
Other Deductions ............................................. 92 73 182 145
--- --- --- ---
House Profit .............................................$ 165 $ 116 $ 291 $ 212
====== ====== ====== =====
- 7 -
4. Net income (loss) per common share is computed on a fully diluted basis by
dividing net loss by the weighted average number of outstanding common and
common equivalent shares, plus other potentially dilutive securities.
Common equivalent shares and other potentially dilutive securities have
been excluded from the weighted average number of outstanding shares for
the twenty-four weeks ended June 14, 1996 and the twelve weeks and
twenty-four weeks ended June 16, 1995, as they are antidilutive. The
weighted average shares were 201.9 million and 158.7 million for the twelve
weeks ended June 14, 1996 and June 16, 1995, respectively, and 177.3
million and 157.4 million for the twenty-four weeks then ended,
respectively.
5. The Company has minority interests in 28 affiliates that own an aggregate
of 258 properties, 38 of which are full-service properties, managed by
Marriott International. The Company's equity in earnings of affiliates was
$1 million and $2 million for the twelve weeks and the twenty-four weeks
ended June 14, 1996, respectively, and the equity in losses of affiliates
was $1 million for the twenty-four weeks ended June 16, 1995. For the
twelve weeks ended June 16, 1995, the Company's equity in earnings of
affiliates was not significant.
Combined summarized operating results reported by affiliates follows:
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in millions)
Revenues................................................$ 195 $ 190 $ 371 $ 375
Operating expenses:
Cash charges (including interest).................... (113) (120) (223) (240)
Depreciation and other non-cash charges.............. (57) (62) (116) (126)
--- --- --- ---
Net income.........................................$ 25 $ 8 $ 32 $ 9
======= ====== ====== ======
On June 18, 1996, the Company successfully completed the tender offer for a
majority of the limited partnership units of Marriott Hotel Properties II
Limited Partnership ("MHP II"), an affiliated partnership of the Company in
which the Company owns a 1.67% general partner interest, by purchasing 377
units for approximately $57 million or $150,000 per unit. MHP II owns the
1,290-room New Orleans Marriott hotel, the 999-room San Antonio Marriott
Rivercenter hotel, the 368-room San Ramon Marriott hotel and a 50% limited
partner interest in the 754-room Santa Clara Marriott hotel. As a result of
this transaction, a wholly-owned subsidiary of the Company became the
majority limited partner in MHP II and the Company will consolidate the MHP
II partnership in the third quarter of 1996.
6. On March 27, 1996, the Company completed the issuance of 31.6 million
shares of common stock for net proceeds of nearly $400 million.
7. In February 1996, the Company entered into an agreement with a real estate
investment trust (the "REIT") to sell and lease back 16 of its Courtyard
properties and 18 of its Residence Inn properties for $349 million (10% of
which would be deferred). On March 22, 1996, the sale and leaseback of
three Courtyard and five Residence Inn properties was completed for
approximately $91 million (10% of which was deferred). On April 4, 1996,
the Company completed the sale and leaseback of the remaining 26 properties
(two of these 26 properties remain in escrow pending resolution of certain
title issues which must be accomplished by December 31, 1996) for $258
million. A gain on the transactions of approximately $40 million has been
deferred and will be amortized over the initial term of the leases.
8. During the first quarter of 1996, the Company acquired a controlling
interest in the San Diego Marriott Hotel and Marina (1,355 rooms), in which
it had previously held a five percent interest,
- 8 -
for $216 million consisting of a cash contribution of $10 million and $206
million in assumed debt. Also during the first quarter of 1996, the Company
acquired a controlling interest in a venture which owns two hotels in
Mexico City, Mexico (914 rooms). In addition, the Company acquired the
Toronto Delta Meadowvale Hotel and Conference Center (374 rooms) for $25
million, and the Company also acquired an 83% interest in the mortgage
loans secured by the Newport Beach Marriott Suites for $18 million.
During the second quarter of 1996, the Company acquired the 254-room Dulles
Airport Marriott Suites for $29 million and acquired, for $18 million, a
95% interest in a venture that acquired the 400-room Pittsburgh Hyatt
Regency Hotel. The Pittsburgh Hyatt is being converted to the Marriott
brand and is scheduled to re-open in July 1996. In addition, the Company
acquired the 354-room Oklahoma City Marriott for $23 million and the
256-room Jacksonville Marriott for $21 million.
- 9 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
REVENUES. Revenues primarily represent house profit from the Company's hotel
properties, net gains (losses) on property transactions and equity in earnings
(losses) of affiliates. Revenues increased $58 million, or 53%, to $167 million
for the second quarter of 1996 from $109 million for the second quarter of 1995.
Year-to-date revenues rose $88 million, or 42%, to $297 million. The Company's
revenue and operating profit were impacted by:
- - improved lodging results for comparable hotel properties;
- - the addition of nine full-service hotel properties during 1995 and seven
full-service properties during the first half of 1996 (an eighth 1996
addition is under construction and did not impact revenue or operating
profit);
- - a $4 million charge in the 1996 second quarter to write down an undeveloped
land parcel to its net realizable value based on expected sales value
(included in "Net gains (losses) on property transactions");
- - the 1996 sale and leaseback of 16 of the Company's Courtyard properties and
18 of the Company's Residence Inns;
- - the 1995 sale and leaseback of 37 of the Company's Courtyard properties;
- - the 1995 sale of four Fairfield Inns; and
- - a $10 million charge in the 1995 second quarter to write down the carrying
value of certain Courtyard and Residence Inn properties held for sale to
their net realizable value. Such charge is included in revenues as part of
"Net gains (losses) on property transactions."
Hotel revenues increased $49 million, or 42%, to $165 million in the second
quarter of 1996 and $79 million, or 37%, to $291 million for year-to-date 1996,
as all three of the Company's lodging concepts reported growth in room revenues
generated per available room ("REVPAR"). Improved results for the Company's
full-service hotels were driven by strong increases in REVPAR for comparable
units of almost 13% for the 1996 second quarter and over 10% year-to-date.
Results were further enhanced by a two percentage point increase in the house
profit margin for the quarter and over a one percentage point increase
year-to-date. On a comparable basis for the Company's full-service properties,
average room rates increased 8% for the 1996 second quarter and 7% year-to-date,
while average occupancy increased almost four percentage points for the 1996
second quarter and three percentage points year-to-date.
The Company's moderate-price Courtyard properties reported an increase of almost
8% in REVPAR for both the 1996 second quarter and year-to-date due to a 6%
increase in average room rates and a one percentage point increase in average
occupancy.
The Company's extended-stay Residence Inns reported a 5% increase in REVPAR for
both the 1996 second quarter and year-to-date due primarily to an increase in
average room rates of 6%, while average occupancy decreased slightly. Due to the
high occupancy of these properties, the Company expects future increases in
REVPAR to be driven by room rate increases, rather than occupancy increases.
However, there can be no assurance that REVPAR will continue to increase in the
future.
- 10 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During the second quarter of 1996, the Company recorded a charge of $4 million
to write down one undeveloped land parcel to its new net realizable value based
on current negotiations for the sale of this parcel. The previous net realizable
value was based on an agreement to sell the parcel to a single buyer which was
terminated.
OPERATING COSTS AND EXPENSES. Operating costs and expenses principally consist
of depreciation, management fees, real and personal property taxes, ground,
building and equipment rent, insurance and certain other costs. The Company's
operating costs and expenses increased $41 million to $105 million in the second
quarter of 1996 from $64 million in the second quarter of 1995, primarily
representing increased hotel operating costs. Year-to-date operating costs and
expenses increased $68 million to $197 million. Hotel operating costs increased
$38 million to $98 million for the second quarter of 1996 and $64 million to
$181 million year-to-date primarily due to the addition of 16 full-service
properties during 1995 and 1996 and increased management fees and rentals tied
to improved property results. As a percentage of hotel revenues, hotel operating
costs and expenses increased to 59% and 62% of revenues in the second quarter of
1996 and year-to-date 1996, respectively, from 52% and 55% of revenues in the
second quarter of 1995 and year-to-date 1995, respectively, reflecting the
impact of the lease payments on the Courtyard and Residence Inn properties which
have been sold and leased back, as well as the shifting emphasis to full-service
properties. Full-service hotel rooms accounted for 100% of the Company's total
hotel rooms at the end of the first half of 1996 versus 69% at the end of the
first half of 1995.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, the Company's operating profit increased $17 million,
or 38%, to $62 million for the second quarter of 1996 and $20 million, or 25%,
to $100 million year-to-date. Hotel operating profit increased $11 million, or
20%, to $67 million, or 41% of hotel revenues, for the second quarter of 1996
from $56 million, or 48% of hotel revenues, for the second quarter of 1995.
Year-to-date hotel operating profit increased $15 million, or 16%, to $110
million, or 38% of hotel revenues, for 1996 compared to $95 million, or 45% of
hotel revenues, for 1995. Several hotels, including the New York Marriott
Marquis, the New York Marriott East Side, the Philadelphia Marriott, the Vail
Marriott Mountain Resort and the Santa Clara Marriott posted significant
improvements in operating profit. The San Francisco Marriott reported a
significant decrease in operating profit due to a rooms renovation and lower
than anticipated transient business.
CORPORATE EXPENSES. Corporate expenses decreased $1 million for both the 1996
second quarter and year-to-date. As a percentage of revenues, corporate expenses
decreased to 5% of revenues in the second quarter of 1996 from 8% in the second
quarter of 1995 and 6% of revenues in the first half of 1996 from 9% in the
first half of 1995.
INTEREST EXPENSE. Interest expense increased 19% to $51 million in the second
quarter of 1996 and 19% to $99 million year-to-date, primarily due to the
additional debt of approximately $500 million incurred in connection with the
1995 and 1996 full-service hotel additions, partially offset by the net impact
of the 1995 redemptions of Hospitality Notes and the line of credit with
Marriott International.
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations for
the second quarter of 1996 was $7 million, compared to a $1 million loss for the
second quarter of 1995. The year-to-date loss from continuing operations
decreased $4 million to $5 million. The income tax provision included in the
year-to-date net losses for 1995 and 1996 reflect the impact of taxes on certain
foreign source income and the non- deductibility of losses in certain state
jurisdictions.
- 11 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NET INCOME (LOSS). The Company's net income for the second quarter of 1996 was
$7 million, compared to a loss of $30 million in the second quarter of 1995. The
loss for the second quarter of 1995 included the impact of a $12 million loss
from discontinued operations and a $17 million extraordinary loss on the
extinguishment of debt. The net loss was $5 million for year-to-date 1996 and
$44 million for year-to- date 1995. The 1995 year-to-date loss includes an $18
million loss from discontinued operations and the $17 million extraordinary
loss. The net income for the second quarter of 1996 was $.03 per share and the
year-to-date loss was $.03 per share, compared to losses of $.19 and $.28 per
share for the second quarter of 1995 and year-to-date 1995, respectively.
EBITDA
- ------
The Company's consolidated Earnings Before Interest Expense, Taxes,
Depreciation, Amortization and other non-cash items ("EBITDA") increased $26
million, or 32%, to $107 million in the 1996 second quarter and $34 million, or
23%, to $182 million year-to-date. The Company considers EBITDA to be an
indicative measure of the Company's operating performance due to the
significance of the Company's long-lived assets and because such data can be
used to measure the Company's ability to service debt, fund capital expenditures
and expand its business, however, such information should not be considered as
an alternative to net income, operating profit, cash from operations, or any
other operating or liquidity performance measure prescribed by generally
accepted accounting principles. Cash expenditures for various long-term assets,
interest expense, and income taxes have been, and will be, incurred which are
not reflected in the EBITDA presentation.
Hotel EBITDA increased $22 million, or 26%, to $104 million in the second
quarter of 1996 and $30 million, or 20%, to $181 million year-to-date.
Full-service hotel EBITDA increased $34 million, or 53%, to $99 million for the
second quarter of 1996 and $52 million, or 46%, to $165 million year-to- date.
Full-service hotel EBITDA from comparable hotel properties increased 19% for the
second quarter of 1996 and 16% year-to-date. Full-service hotel EBITDA increased
to 95% of hotel EBITDA in the second quarter of 1996 and 91% of hotel EBITDA
year-to-date due to the sale and leaseback of the Company's remaining limited
service hotel properties and the impact of the 1996 full-service hotel
additions.
The following is a reconciliation of EBITDA to the Company's income (loss) from
continuing operations:
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
EBITDA.................................................................$ 107 $ 81 $ 182 $ 148
Interest expense....................................................... (51) (43) (99) (83)
Depreciation and amortization.......................................... (33) (27) (67) (57)
Income taxes........................................................... (5) (2) (3) (1)
Gain (loss) on dispositions of assets and other non-cash charges, net.. (11) (10) (18) (16)
--- --- --- ---
Income (loss) from continuing operations............................$ 7 $ (1) $ (5) $ (9)
====== ====== ====== ======
Cash Flows and Financial Condition
- ----------------------------------
The Company reported an increase in cash and cash equivalents of $465 million
for the first half of 1996. This increase is primarily due to the issuance of
31.6 million shares of common stock for net proceeds
- 12 -
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
of approximately $400 million and proceeds of approximately $315 million from
the sale and leaseback of the Company's remaining limited service properties.
This increase is offset by the use of funds to acquire eight full-service
properties (one of which is still under construction), repay debt, and fund
capital expenditures. Cash flow from continuing operations increased $57
million, to $94 million, for the first half of 1996 primarily due to improved
lodging results and seasonal fluctuations in working capital.
Cash used in investing activities for continuing operations was $46 million in
the first half of 1996, while cash from investing activities from continuing
operations was $104 million for the first half of 1995. Cash used in investing
activities for the first half of 1996 includes capital expenditures of $77
million, primarily related to renewals and replacements on existing properties
and the construction of one urban Residence Inn near National Airport ($6
million for the first half of 1996), and $255 million for eight full-service
hotel acquisitions, partially offset by $317 million in net sales proceeds,
principally from the sale/leaseback of thirty-four of the Company's Courtyard
and Residence Inn properties.
During the first quarter of 1996, the Company acquired a controlling interest in
the San Diego Marriott Hotel and Marina (1,355 rooms), in which it had
previously held a five percent interest, for $216 million consisting of a cash
contribution of $10 million and $206 million in assumed debt. Also during the
first quarter of 1996, the Company acquired a controlling interest in a venture
which owns two hotels in Mexico City, Mexico (914 rooms). One of the hotels (314
rooms) is under construction and will open in the third quarter of 1996. In
addition, the Company acquired the Toronto Delta Meadowvale Hotel and Conference
Center (374 rooms) in the first quarter of 1996 for $25 million and an 83%
interest in the mortgage loans secured by the Newport Beach Marriott Suites for
$18 million.
During the second quarter of 1996, the Company acquired the 254-room Dulles
Airport Marriott Suites for $29 million and, for $18 million, acquired a 95%
interest in a venture that acquired the 400-room Pittsburgh Hyatt Regency hotel,
which is being converted to the Marriott brand and is scheduled to re- open in
July 1996. The Company also acquired the 354-room Oklahoma City Marriott for $23
million and the 256-room Jacksonville Marriott for $21 million. On April 4,
1996, the Company completed the sale and leaseback of 16 of its Courtyard
properties and 18 of its Residence Inn properties (two of these 34 properties
remain in escrow pending resolution of certain title issues which must be
accomplished by December 31, 1996) for $349 million (10% of which was deferred).
Cash from financing activities from continuing operations was $421 million for
the first half of 1996, while cash used in financing activities was $102 million
for the first half of 1995. Cash from financing activities for the first half of
1996 includes the issuance of 31.6 million shares of common stock for net
proceeds of nearly $400 million and the issuance of debt of $29 million related
to the acquisition of the two hotels in Mexico City. The proceeds from the
equity offering, along with the proceeds from the 1996 sale and leaseback of the
Courtyard and Residence Inn properties, will be utilized to acquire full-
service hotel properties and for general corporate purposes.
On June 18, 1996, the Company successfully completed the tender offer for a
majority of the limited partnership units of Marriott Hotel Properties II
Limited Partnership ("MHP II"), an affiliated partnership of the Company in
which the Company owns a 1.67% general partner interest, by purchasing 377 units
for approximately $57 million, or $150,000 per unit. MHP II owns the 1,290-room
New Orleans Marriott hotel, the 999-room San Antonio Marriott Rivercenter hotel,
the 368-room San Ramon Marriott hotel and a 50% limited partner interest in the
754-room Santa Clara Marriott hotel. As a result of this transaction, a
wholly-owned subsidiary of the Company became the majority limited partner in
MHP II and the Company will consolidate the MHP II partnership in the third
quarter of 1996.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In September 1994, the Company and certain holders and purchasers of certain of
the Company's bonds (the "PPM Group") went to trial as a result of litigation
initiated by the PPM Group in response to the Marriott International
Distribution. In October 1994, the judge declared a mistrial based on the
inability of the jury to reach a verdict. In January 1995, the judge granted the
Company's motion for judgment in its favor on the PPM Group's claims as a matter
of law. An appeal was filed by the PPM Group in February 1995 and the appeal was
argued in February 1996. In March 1996, the Company settled the litigation for a
payment of $1.25 million. The settlement leaves in place the trial court's
judgment in favor of the Company on all of the PPM Group's claims. The
settlement did not have a material effect on the Company's financial condition
and results of operations.
The Company is from time to time the subject of, or involved in, judicial
proceedings. Management believes that any liability or loss resulting from such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit:
#11 Statement Re: Computation of Earnings (Loss) Per Common Share
b. Reports on Form 8-K:
- - January 11, 1996 -- Report of the announcement that the Company (i) has
reached agreements to acquire controlling interests in the San Diego
Marriott Hotel and Marina, two hotels in Mexico City and the Pittsburgh
Hyatt, and to purchase the Delta Meadowvale Hotel and Conference Center in
Toronto, Canada; (ii) has recorded a charge in the fourth quarter of 1995
to reduce an undeveloped land site to its estimated sale value; (iii) filed
a registration statement with the Securities and Exchange Commission for
the public offering of 25 million shares of the Company's common stock; and
(iv) has filed pro forma financial information of the Company.
- - January 17, 1996 -- Amendment to Current Report on Form 8-K dated November
3, 1995 and December 22, 1995 by filing financial statements of the Toronto
Eaton Centre Marriott and the New York Vista Hotel.
- - February 28, 1996 -- Report of the announcement that the Company filed
amendment no. 1 to a registration statement with the Securities and
Exchange Commission for the public offering of 25
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million shares of the Company's common stock. The Company filed the amended
registration statement as an exhibit.
- - March 7, 1996 -- Amendment to Current Report on Form 8-K/A dated January
17, 1996 by filing updated financial statements of the New York Vista.
- - May 31, 1996 -- Report of the announcement that the Company named Bruce D.
Wardinski, senior vice president and treasurer, replacing Scott A. LaPorta
who announced plans to join Hilton Hotels Corporation, along with T. Edward
Middleton and Jonathan A. Benowitz.
- - June 18, 1996 -- Report of the announcement that the Company successfully
completed the tender offer for a majority of the Partnership (MHP II).
Financial statements of MHP II, along with pro forma financial information
of the Company, were included in the Form 8-K.
- - July 11, 1996 -- Report of the announcement that the Company appointed
Robert M. Baylis to its board of directors.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOST MARRIOTT CORPORATION
July 25, 1996 /s/ Donald D. Olinger
- ------------- ---------------------
Date Donald D. Olinger
Vice President and Corporate Controller
(Chief Accounting Officer)
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