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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 March 25, 1994 Commission File No. 1-5664
HOST MARRIOTT CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20058
(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
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Shares outstanding
Class at April 22, 1994
- - ------------------- -----------------
Common Stock, $1.00
par value per share 152,303,666
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HOST MARRIOTT CORPORATION AND SUBSIDIARIES
INDEX
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Page
No.
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Part I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
March 25, 1994 and December 31, 1993
Condensed Consolidated Statements of Operations - 4 - 5
Twelve Weeks Ended March 25, 1994 and
March 26, 1993
Condensed Consolidated Statements of Cash Flows - 6
Twelve Weeks Ended March 25, 1994 and
March 26, 1993
Notes to Condensed Consolidated Financial 7 - 11
Statements
Management's Discussion and Analysis of Results of 12 - 15
Operations and Financial Condition
Part II. OTHER INFORMATION AND SIGNATURE 16 - 17
PART I. FINANCIAL INFORMATION
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions)
March 25, December 31,
1994 1993
---- ----
ASSETS
------
Property and Equipment.......................... $ 3,058 $ 3,026
Investments in Affiliates....................... 224 220
Notes Receivable................................ 72 111
Accounts Receivable............................. 92 80
Inventories..................................... 48 52
Other Assets.................................... 223 256
Cash and Cash Equivalents....................... 316 103
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$ 4,033 $ 3,848
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Debt carrying a company guarantee of repayment..... $ 1,668 $ 1,700
Debt not carrying a company guarantee of repayment. 773 779
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2,441 2,479
Accounts Payable and Accrued Expenses................ 209 194
Deferred Income...................................... 26 26
Deferred Income Taxes................................ 435 442
Other Liabilities.................................... 192 182
Convertible Subordinated Debt........................ -- 20
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Total Liabilities 3,303 3,343
Shareholders' Equity
Convertible Preferred Stock........................ 14 14
Common Stock, 300 million shares authorized; 152.3
million shares and 129.7 million shares issued,
respectively.................................... 152 130
Additional Paid-in Capital......................... 474 253
Retained Earnings.................................. 90 108
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Total Shareholders' Equity 730 505
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$ 4,033 $ 3,848
======= =======
- See Notes To Condensed Consolidated Financial Statements -
-3-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve weeks ended March 25, 1994 and March 26, 1993
(unaudited, in millions, except per common share amounts)
Historical Pro Forma
---------------
1994 1993 1993
-------- ----- -----
REVENUES
Real estate group
Hotels........................................... $ 68 $ 153 $ 54
Senior living communities........................ 6 18 5
Net gains (losses) on property transactions...... - 1 1
----- ----- -----
74 172 60
----- ----- -----
Operating group
Airports......................................... 159 149 149
Travel Plazas.................................... 50 49 49
Other............................................ 18 16 16
----- ----- -----
227 214 214
----- ----- -----
Total revenues.................................. 301 386 274
----- ----- -----
OPERATING COSTS AND EXPENSES
Real estate group
Hotels.......................................... 45 130 35
Senior living communities....................... 3 16 4
Other........................................... - 7 7
----- ----- -----
48 153 46
----- ----- -----
Operating group
Airports......................................... 155 145 145
Travel Plazas.................................... 55 52 52
Other............................................ 19 17 17
----- ----- -----
229 214 214
----- ----- -----
Total operating costs and expenses.............. 277 367 260
----- ----- -----
OPERATING PROFIT (LOSS)
Real estate group................................ 26 19 14
Operating group.................................. (2) - -
----- ----- -----
Operating profit before corporate expenses,
interest and profit from distributed operations. 24 19 14
Corporate expenses................................ (7) (6) (6)
Interest expense.................................. (46) (47) (43)
Interest income................................... 5 6 6
Profit from operations distributed to Marriott
International.................................... - 63 -
----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES....... (24) 35 (29)
(Provision) benefit for income taxes.............. 6 (16) 5
----- ----- -----
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES......................... (18) 19 $ (24)
=====
Cumulative effect of a change in accounting for
income taxes..................................... - 30
Cumulative effect of a change in accounting for
assets held for sale (net of income taxes of $22
million)......................................... - (32)
----- -----
NET INCOME (LOSS)................................. (18) 17
Dividends on preferred stock...................... - (4)
----- -----
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK...... $ (18) $ 13
===== =====
- See Notes To Condensed Consolidated Financial Statements -
-4-
- - - Continued -
Historical
-------------- Pro Forma
1994 1993 1993
-------- ----- ----------
EARNINGS (LOSS) PER COMMON SHARE:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES................. $(.12) $ .14 $(.21)
=====
Cumulative effect of a change in accounting for
income taxes..................................... - .28
Cumulative effect of a change in accounting for
assets held for sale (net of income taxes)....... - (.30)
----- -----
NET INCOME (LOSS)................................. $(.12) $ .12
===== =====
- See Notes To Condensed Consolidated Financial Statements -
-5-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve weeks ended March 25, 1994 and March 26, 1993
(unaudited, in millions)
1994 1993
------ ------
OPERATING ACTIVITIES
Net income (loss).................................... $ (18) $ 17
Adjustments to reconcile to cash from operations:
Depreciation and amortization...................... 40 66
Cumulative effect of a change in accounting
for income taxes.................................. - (30)
Cumulative effect of a change in accounting
for assets held for sale, net of income taxes..... - 32
Income taxes....................................... (10) (17)
Other.............................................. 7 (3)
Changes in operating accounts........................ (7) 2
----- -----
Cash from operations................................. 12 67
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INVESTING ACTIVITIES
Proceeds from sales of assets........................ 8 17
Less noncash proceeds.............................. - (1)
----- -----
Cash received from sales of assets................... 8 16
Capital expenditures for renewals and replacements... (11) (22)
Lodging construction funded by project financing..... (20) -
Other new unit capital expenditures.................. (7) (49)
Note receivable collections.......................... 24 5
Other................................................ 10 (54)
----- -----
Cash from (used in) investing activities............. 4 (104)
----- -----
FINANCING ACTIVITIES
Issuances of debt.................................... 15 134
Issuances of common stock............................ 235 2
Scheduled principal repayments....................... (21) (6)
Prepayments of debt.................................. (32) -
Dividends paid....................................... - (11)
----- -----
Cash from financing activities....................... 197 119
----- -----
INCREASE IN CASH AND CASH EQUIVALENTS................ $ 213 $ 82
===== =====
- 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", formerly Marriott Corporation)
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 31, 1993.
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 March 25, 1994
and December 31, 1993, and the results of operations for the twelve weeks
ended March 25, 1994 and March 26, 1993, and cash flows for the twelve weeks
ended March 25, 1994 and March 26, 1993. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
2. On October 8, 1993 (the "Distribution Date"), Marriott Corporation
distributed, through a special tax-free dividend (the "Distribution"), to
holders of Marriott Corporation's common stock (on a share-for-share basis),
approximately 116.4 million outstanding shares of common stock of an existing
wholly-owned subsidiary, Marriott International, resulting in the division of
Marriott Corporation's operations into two separate companies. The
distributed operations included the former Marriott Corporation's lodging
management, franchising and resort timesharing operations, senior living
service operations, and the institutional food service and facilities
management business. Effective at the Distribution Date, Marriott
Corporation changed its name to Host Marriott Corporation.
In connection with the Distribution, the Company completed an Exchange Offer
("Exchange Offer") pursuant to which holders of senior notes and debentures
in an aggregate principal amount of approximately $1.2 billion ("Old Notes")
exchanged such Old Notes for a combination of (i) cash, (ii) common stock and
(iii) New Notes ("New Notes") issued by an indirect wholly-owned subsidiary
of the Company, Host Marriott Hospitality, Inc. ("Hospitality"). The coupon
and maturity date for each series of New Notes is 100 basis points higher and
four years later, respectively, than the series of Old Notes for which it was
exchanged (except that the maturity of the New Notes issued in exchange for
the Series L Senior Notes due 2012 was shortened by five years). The Company
redeemed all of the old Series F Senior Notes that did not tender in the
Exchange Offer, and secured the old Series I Notes equally and ratably with
the New Notes issued in the Exchange Offer.
In connection with the Exchange Offer, the Company effected a Restructuring
(the "Restructuring"). As a result of the Restructuring, the Company's
primary asset is the capital stock of a wholly-owned subsidiary, HMH
Holdings, Inc. ("Holdings"). Holdings'
-7-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
primary asset is the capital stock of Hospitality, and Holdings is the
borrower under a Revolving Line of Credit with Marriott International. In
the Restructuring, most of the assets relating to the Real Estate Group and
the Operating Group were transferred to subsidiaries of Hospitality. Certain
assets relating to such businesses were retained directly by the Company and
certain of its other subsidiaries. In addition, HMC Ventures, Inc., an
unrestricted subsidiary, was capitalized during the twelve weeks ended March
25, 1994 with approximately $50 million from recent asset dispositions.
3. The Distribution referred to in Note 2 substantially altered the structure of
the Company. Historical operating results for the twelve weeks ended March
26, 1993, as presented in prior filings, have been reformatted to reflect the
Company's current business segments and operating environment. The Real
Estate Group is comprised of the development and ownership businesses,
partnership investments and undeveloped land parcels. The Operating Group
consists of the food, beverage and merchandise operations at airports, on
tollroads and at tourist attractions, stadiums and arenas, as well as
restaurant operations. The 1993 pro forma statement of operations was
prepared as if the Distribution, Exchange Offer and Restructuring and the
implementation of the various related agreements entered into with Marriott
International, including the lodging management and senior living community
leases, occurred at the beginning of the period and include only the
operations retained by the Company. The other differences between the 1993
pro forma amounts and the 1993 historical operating results are:
. The 1993 historical condensed consolidated statement of operations include
the revenues, operating costs and expenses, corporate expenses, interest
expense and interest income relating to Marriott International in the
caption, "Profit from Operations Distributed to Marriott International,"
while the 1993 pro forma amounts have such results removed. Marriott
International's results of operations for the twelve weeks ended March 26,
1993 included in the accompanying condensed consolidated financial
statements consists of the following:
Sales................................................. $1,685
Operating costs and expenses.......................... (1,602)
Corporate expense..................................... (15)
Net interest expense.................................. (5)
-----
Income before income taxes.......................... $ 63
=====
. In the 1994 historical and 1993 pro forma condensed consolidated
statements of operations, revenues for the Real Estate Group represent
house profit from the Company's owned hotel properties, lease rentals for
the Company's owned senior living communities and gains/losses on property
transactions. House profit 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.
-8-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The 1993 historical condensed consolidated statement of operations reports
the Real Estate Group revenues as gross sales of the Company's owned
hotels and senior living communities, while the related property-level
expenses are included in operating costs and expenses. House profit
generated by the Company's owned hotels for the first quarter of 1994 and
1993 pro forma consists of:
Twelve Weeks Ended
----------------------
Pro Forma
March 25, March 26,
1994 1993
--------- ---------
Sales
Rooms.................... $ 141 $ 116
Food & Beverage.......... 51 35
Other.................... 12 9
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Total Hotel Sales....... 204 160
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Department Costs
Rooms.................... 37 28
Food & Beverage.......... 40 28
Other.................... 6 5
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Department Profit......... 121 99
Other Deductions.......... 53 45
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House Profit............ $ 68 $ 54
======= =======
. The 1993 pro forma condensed consolidated statement of operations reflects
adjustments to interest expense for the impact of the Revolving Line of
Credit with Marriott International (commitment fees and interest), the
effects of the Exchange Offer, debt assumed by Marriott International and
the income tax impact of the pro forma adjustments.
. In connection with the Exchange Offer, the Company issued 1.8 million
common shares to former holders of certain senior notes and debentures and
issued 10.6 million common shares to former holders of the Company's
preferred stock, upon such holders' conversion. The pro forma 1993 loss
per share gives effect to these transactions as if they had occurred at
the first day of the twelve-week period ended March 26, 1993. The related
weighted average shares outstanding were 113.9 million.
Additionally, the majority of the Company's assets are primarily related to
its Real Estate Group and, accordingly, the balance sheet has been presented
in a non-classified format.
At March 25, 1994, the Company's Operating Group held $93 million of current
assets and $102 million of current liabilities. At December 31, 1993, these
amounts were $94 million and $92 million, respectively.
-9-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Earnings (loss) per common share is computed on a fully diluted basis by
dividing net income (loss) available for common stock 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 twelve weeks ended March 25, 1994, as
they are antidilutive. Accordingly, the weighted average shares were 146.9
million and 108.7 million for the twelve weeks ended March 25, 1994 and March
26, 1993, respectively.
5. The Company has minority interests in 28 affiliates, most of which own hotels
operated by Marriott International or its subsidiaries under long-term
agreements. The Company's equity in net losses of affiliates of $1 million
and $7 million for the twelve weeks ended March 25, 1994 and March 26, 1993,
respectively, is included in other operating expenses for the Real Estate
Group.
Combined summarized operating results reported by affiliates follow:
Twelve Weeks Ended
-----------------------
March 25, March 26,
1994 1993
--------- ---------
(in millions)
Revenues................................... $ 156 $ 193
Operating expenses:
Cash charges (including interest)....... (106) (154)
Depreciation and other noncash charges.. (79) (80)
------- --------
Loss before extraordinary item....... (29) (41)
Extraordinary item................... 46 -
------- --------
Net income (loss).................... $ 17 $ (41)
======= ========
6. On January 20, 1994, the Company completed the issuance of 20.1 million
shares of common stock for net proceeds of $231 million. HMC Acquisitions,
Inc. ("HMC Acquisitions"), a newly-formed subsidiary, was capitalized with
$210 million of the proceeds from the common stock offering. The amount used
to capitalize HMC Acquisitions and any earnings therefrom will be available
for investment on an unrestricted basis. HMC Acquisitions is a guarantor
under the Revolving Line of Credit with Marriott International.
7. During the first quarter of 1994, the Company signed an agreement to sell its
14 senior living communities to an unrelated entity for $320 million which
exceeds the communities' carrying value. The sale is expected to close by
the end of the second quarter of 1994. Consummation of the transaction is
subject to certain conditions, including regulatory approvals and filings.
-10-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. During the twelve weeks ended March 25, 1994, the Company foreclosed on a 29%
interest and completed the transfer of an additional 7% interest in the Times
Square Hotel Company ("TSHCO"), the owner of the New York Marriott Marquis,
to the Company. The Company currently holds an 86% interest in TSHCO, which
is consolidated in the Company's financial statements.
9. The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" and Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Debt and
Equity Securities" during the first quarter of 1994. Implementation of these
statements did not have a material effect on the Company's financial position
or results of operations.
-11-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- - ---------------------
As described in Notes 2 and 3, the Company's assets, liabilities and business
operations changed substantially when the Company completed the Distribution,
Exchange Offer and Restructuring. The management's discussion and analysis of
financial condition presented herein compares the 1994 historical results with
pro forma 1993 results. Management believes that due to the substantial
differences in comparability between the Company's 1994 and 1993 historical
results, the use of pro forma results for 1993 provides a more meaningful basis
for comparison because the pro forma results assume that the aforementioned
transactions occurred at the beginning of 1993 and include only the operations
retained by the Company.
The Company reported revenues of $301 million for the 1994 first quarter, a $27
million improvement over pro forma 1993 results. Operating profit increased 71%
to $24 million in the 1994 quarter. The Real Estate Group posted a significant
increase in operating profit -- up $12 million over pro forma 1993 results.
This increase was partially offset by an operating loss of $2 million for the
Operating Group compared with breakeven performance in the 1993 quarter.
The Real Estate Group, consisting of the Company's ownership and development
business, posted a 23% increase in revenues and an 86% increase in operating
profit over 1993 pro forma results. The operating profit increase is due
primarily to improved lodging results coupled with a reduction in equity losses
on the Company's partnership investments. Equity in net losses were down $6
million, mainly due to the consolidation of the partnership owning the New York
Marriott Marquis Hotel (TSHCO) in 1994. During the 1994 first quarter, the
Company increased its ownership interest in TSHCO to 86%.
Hotel revenues for the Real Estate Group increased $14 million over pro forma
1993 amounts, as all four of the Company's lodging concepts reported growth in
comparable revenues, occupancy and room rates. Hotel revenues reflect the
addition of three full-service hotels: the New York Marriott Marquis; the Ft.
Lauderdale Marina Marriott; and the Washingtonian Marriott in Gaithersburg,
Maryland, which are included in the 1994 operating results. These properties
contributed $12 million in hotel revenues and $3 million of hotel operating
profit during 1994. Also, 1993 pro forma results include $4 million of hotel
revenues and $2 million in hotel operating profit relating to eleven Residence
Inn properties that were sold in late 1993. Excluding the impact of these
noncomparable items, hotel revenues increased $6 million (12%) and operating
profit increased $3 million (17%) over pro forma 1993 levels.
Marriott Hotels, Resorts and Suites, the Company's full-service product posted a
4% increase in room revenues generated per available room ("REVPAR") for
comparable units. Average occupancy climbed two percentage points for
comparable units while average room rates increased slightly. Overall operating
results for most full-service properties were up or comparable to 1993 results
with the exception of the Newport Beach, California property which experienced
reduced profits due to the southern California earthquake in late 1993 and the
Miami Airport, Florida property which achieved very high occupancy levels in
early 1993 resulting from Hurricane Andrew in 1992.
-12-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's moderate-priced product, Courtyard, reported significant increases
in operating profit in 1994. Courtyard's REVPAR increased 7% over the first
quarter of 1993 fueled by a 6% increase in average room rates and a one
percentage point increase in average occupancy. Courtyard's improved results
also reflect enhanced efficiencies in food service operations and reduced
overhead costs.
Residence Inn, the Company's extended-stay product, reported a 7% increase in
REVPAR due primarily to an increase in average room rate for comparable units of
6%, combined with a one percentage point increase in average occupancy.
Fairfield Inn, the Company's economy lodging product, generated a 5% increase in
REVPAR, with the average room rate up 4%, while average occupancy remained
constant.
Senior living communities' revenues consist of rentals earned under the lease
agreements with Marriott International. The increase over 1993 pro forma
revenues and operating profit is due to the opening of two additional properties
and the corresponding commencement of the rental payment for such properties.
On March 17, 1994, the Company executed an agreement to sell all of its senior
living communities to an unrelated entity for $320 million. This sale is
expected to close by the end of the second quarter of 1994.
The Operating Group generated a 6%, or $13 million, increase in revenues over
1993 performance. Airport revenues increased $10 million, benefiting from
enplanement growth and severe winter weather conditions, which boosted sales as
the result of flight delays. Travel Plazas and other Operating Group revenues
posted modest increases in sales over last year's performance. These increases
are primarily attributed to the completion of the remaining New York Thruway
plazas and increased attendance at the Dallas Reunion Arena. Increased profits
driven by sales growth were offset by contractual rent increases and increased
depreciation at one airport in anticipation of renovation. Airport operations
experienced margin erosion due to shifts in sales mix and lost leverage on fixed
overhead costs as minority-owned business participation reduced market share.
Interest expense increased by 7% to $46 million in 1994 as a result of
additional expense associated with the consolidation of TSHCO debt offset by the
impact of declining interest rates on the Company's variable rate debt.
EBITDA
- - ------
The Company's consolidated Earnings Before Interest, Taxes, Depreciation,
Amortization and other non-cash items ("EBITDA") increased 12% to $67 million
over pro forma 1993 amounts. After excluding the impact of the noncomparable
items mentioned above, EBITDA increased $1 million, or 2%, over pro forma 1993
amounts. 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. EBITDA measures the Company's economic profitability, its abil-
ity to service debt, fund capital expenditures and expand the business, however,
such information
-13-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
should not be considered as an alternative to net income, operating performance
or any other performance measure prescribed by generally accepted accounting
principles.
The Real Estate Group reported EBITDA of $54 million, a $9 million (20%)
increase over pro forma 1993 results. All of the lodging concepts and the
senior living communities, with the exception of the Fairfield Inns, reported
higher EBITDA for comparable units.
The Company's Operating Group contributed $14 million of EBITDA in the 1994 and
1993 first quarters.
Cash Flows and Financial Condition
- - ----------------------------------
The Company reported an increase in cash and cash equivalents of $213 million
during the first quarter of 1994. This increase is primarily due to proceeds
from the sale of common stock and issuance of debt offset by the use of funds to
repay debt and fund capital expenditures.
Cash from investing activities of $4 million in 1994 includes a $25 million
deposit received on the pending sale of the Company's senior living communities
and paydowns of notes receivable of $24 million. These sources of cash from
investing are offset by capital expenditures of $38 million.
Cash from financing activities of $197 million during the first quarter of 1994
includes $231 million from the January 1994 common stock offering, $15 million
of debt financing from the mortgage loan provided by Marriott International for
the construction of the Philadelphia Convention Center Hotel offset by a $30
million paydown on the $630 million Revolving Line of Credit from Marriott
International and other debt repayments of $21 million. At March 25, 1994, $163
million was outstanding under the Revolving Line of Credit.
The Company expects to use the majority of the net proceeds of its January 1994
common stock offering for acquisitions of full-service lodging properties or
related assets, to the extent that attractive acquisition opportunities become
available. The Company is actively engaged in purchase negotiations with a
number of owners of individual hotel properties and lodging chains. The Company
may seek additional debt or equity financing in connection with such
acquisitions, including debt secured by properties acquired. The Company
believes it will have adequate sources of funding to permit it to pursue its
acquisition strategy.
The Company owns a portfolio of real estate which can be sold or used to secure
new financings. Property and equipment totalled $3 billion at March 25, 1994
($1.8 billion of which had not been pledged or mortgaged). The Company may
secure long-term financing and (subject, among other things, to compliance with
its existing debt agreements, including require-ments to use the proceeds of
certain refinancings to repay indebtedness) may use unencumbered assets as
security for future financings, if such financings are determined to be
advantageous.
-14-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Such financings could take the form of traditional secured real estate
financings or could be effected through vehicles such as formation of a real
estate investment trust (REIT) or collateralized mortgage financings.
In addition, the Company may, from time to time, consider opportunities to sell
certain of its real estate properties if price targets can be achieved. The
Company currently has outstanding agreements to sell all of its Fairfield Inns
and all of its senior living communities. These sales are expected to close by
the end of the second quarter of 1994. All of the Fairfield Inns and the senior
living communities to be sold are owned by subsidiaries of Hospitality, the
issuer of the notes issued in the Exchange Offer. Under the terms of the New
Notes Indenture, Hospitality will be obligated to use 50% of the net proceeds of
these asset sales to prepay New Notes on a pro-rata basis and must offer to
utilize an additional 25% of the net proceeds to make additional New Note
prepayments on a pro-rata basis. Hospitality may also from time to time make
open market purchases of its debt securities. Subsequent to the end of the 1994
first quarter, Hospitality purchased $5 million of bonds with excess cash from
operations.
-15-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Between October 9, 1992 and approximately January 4, 1993, following the
announcement of the Distribution, ten plaintiffs who were all holders, or former
holders, of Old Notes (the "Class Action Plaintiffs") filed lawsuits against the
Company purportedly brought on behalf of classes of holders and purchasers of
Old Notes (the "Class Action Lawsuits").
On October 29, 1992, a second group of plaintiffs (the "PPM Group") purporting
to hold approximately $120 million of principal amount of Old Notes filed
lawsuits against the Company (the "PPM Lawsuit") in the United States District
Court for the District of Maryland. The PPM Group alleges that it has incurred
damages of approximately $30 million. The PPM Lawsuit is limited to claims that
the sale by the Company of certain series of its Old Notes was fraudulent and
violated federal securities laws and similar state laws. The Company has
counterclaimed against certain members of the PPM Group, asserting tortious
interference with business relationships.
On or about March 25, 1993, the State Board of Administration of Florida (the
"Florida Plaintiff"), holding approximately $7.5 million of principal amount of
Old Notes, filed an additional lawsuit, purportedly on behalf of certain classes
of holders of Old Notes. The Florida Lawsuit was settled on April 28, 1994.
Under the terms of this settlement, the Company agreed to repurchase the Old
Notes held by the Florida Plaintiff for their par value.
The Company reached an agreement to settle the Class Action Lawsuits (the "Class
Action Settlement"), which settlement was approved by the court on August 30,
1993. The Class Action Settlement disposes of all legal claims challenging the
Distribution, other than disclosure claims by certain holders and former holders
of Old Notes (principally members of the PPM Group) who have "opted out" of the
Class Action Settlement. As part of the Class Action Settlement, the Company
effected the Exchange Offer, paid certain legal fees and expenses of the Class
Action Plaintiffs and agreed to issue warrants to purchase up to 7.7 million
shares of the Company's common stock. The warrants will be issued by the
Company in the near future.
The PPM Group continues to litigate its claims. On December 17, 1993, the
Company filed a motion for summary judgment asking the court to enter judgment
in favor of the Defendants on all the claims. The PPM Group also filed a motion
for summary judgment with respect to the Company's counterclaim. Final briefs
by the parties were submitted on March 4, 1994, argument on these motions took
place on March 11, 1994, and the parties are awaiting a decision from the court.
The Company believes the claims are without merit and that the litigation
pursued by those who have opted out of the Class Action Settlement will not have
a material effect on the financial condition of the Company. Nevertheless,
there can be no certainty as to the ultimate outcome of such litigation.
-16-
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 28, 1994. The
shareholders voted on the following proposals:
. Defeated a shareholder proposal to limit the compensation payable to
senior executive officers and directors by a vote of 7,860,932 for;
88,707,614 against; 7,245,720 abstentions and 15,259,962 broker non-votes.
. Defeated a shareholder proposal to reinstate the annual election of all
directors by a vote of 26,091,536 for; 71,210,239 against; 6,512,491
abstentions and 15,259,962 broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit:
#11 Statement Re: Computation of Earnings Per Common Share
b. Reports on Form 8-K:
None
-17-
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
May 9, 1994
- - ----------- ------------------------------
Date Jeffrey P. Mayer
Senior Vice President, Finance
and Corporate Controller
(Chief Accounting Officer)
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
May 9, 1994 /s/ Jeffrey P. Mayer
- - ----------- ------------------------------
Date Jeffrey P. Mayer
Senior Vice President, Finance
and Corporate Controller
(Chief Accounting Officer)
EXHIBIT 11
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS (LOSS) PER COMMON SHARE
(in millions, except per share amounts)
Twelve Weeks Ended
---------------------
March 25, March 26,
1994 1993
--------- ---------
Net income (loss).................................... $ (18) $ 17
Less: Dividends on convertible preferred stock...... -- (4)
------- --------
Net income (loss) available for common shareholders.. $ (18) $ 13
======= ========
Primary Earnings (Loss) Per Common Share
- - ----------------------------------------
Shares:
Weighted average number of common shares outstanding.. 146.9 101.4
Assuming distribution of common shares issuable for
warrants in 1994 and granted under comprehensive
stock plan, less shares assumed purchased at
average market*.................................... -- 6.9
------- --------
146.9 108.3
======= ========
Primary Earnings (Loss) Per Common Share................. $ (.12) $ .12
======= ========
Fully Diluted Earnings (Loss) Per Common Share
- - ----------------------------------------------
Shares:
Weighted average number of common shares outstanding.. 146.9 101.4
Assuming distribution of common shares issuable for
warrants in 1994 and granted under comprehensive
stock plan, less shares assumed purchased at
higher of average or ending market*................ -- 7.3
Assuming issuance of common shares upon conversion of
convertible subordinated debt*..................... -- --
Assuming issuance of common shares upon conversion of
convertible preferred stock*....................... -- --
------- --------
146.9 108.7
======= ========
Fully Diluted Earnings (Loss) Per Common Share........... $ (.12) $ .12
======= ========
____________
* Convertible subordinated debt and convertible preferred stock, issued in
1991, were antidilutive in the twelve week periods ended March 25, 1994 and
March 26, 1993. Common equivalent shares and other potentially dilutive
securities were antidilutive in the twelve week period ended March 25, 1994.