SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
APRIL 22, 1999
HOST MARRIOTT SERVICES CORPORATION
DELAWARE 1-14040 52-1938672
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification Number)
6600 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
(301) 380-7000
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
None.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
None.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
None.
ITEM 5. OTHER EVENTS.
On April 22, 1999, the Company held a conference call for investors and
analysts that focused on first quarter 1999 earnings. As part of the call,
supplemental charts with forward-looking information were provided (see
Exhibit 99). During the conference call, the Company stated that it expects
that price increases in the first quarter of 1999 at two large contracts
could increase operating profit by $1.0 million in 1999. The Company
reduced its 1999 corporate overhead budget by $2.0 million, up less than 2%
excluding Year 2000 costs in both years, and established a $2.0 million
cost reduction goal in its field overhead structure. Through the first
quarter of 1999, the Company invested approximately $33 million and expects
to spend $125 to $135 million in capital investments, with $35 million in
new markets for the 1999 fiscal year. Depreciation was 4.2% of revenues in
1998 and the Company expects the depreciation margin to increase by 20 to
30 basis points in 1999. The Company is targeting depreciation to remain in
this range over the next several years. Free cash flow is expected to
increase significantly in the Company's core business in 2001 and beyond.
For 1999 and 2000, the Company has increased its after tax return
requirements for all new projects to 12% which is two percentage points
above its cost of capital. For a typical ten-year project, this would
increase the cash on cash return from 20% to 25%, after corporate cost
allocations, in the first stabilized year of operations. A typical project
for the Company approved during the past eighteen months had a 2 to 1 sales
to investment ratio and cash-on-cash returns forecast to exceed the
Company's target. As discussed in the attached press release, the Company
was granted an option for an additional five-year term at Phoenix Terminal
IV with sales to investment ratio and cash-on-cash returns for the
five-year extension projected to be three times and 50%, respectively. The
Company forecasts borrowing approximately $40 million under its $75 million
bank line by the end of 1999 and is preparing for its interest payment on
the Company's senior notes in May of 2000. The Company will consider other
alternative sources of funds such as issuing unsecured debt or tendering
early for its $400 million of senior notes and recapitalizing the Company
to allow for increased share repurchases, enhanced financial flexibility
and the potential for reducing interest rates.
The statements described above and made during the conference call
concerning the Company's outlook for 1999 and beyond, the growth in total
earnings before interest and taxes (EBIT), earnings before interest, taxes,
depreciation, amortization and other non-cash items (EBITDA) and earnings
per diluted share for 1999 and beyond, projected capital investments,
projected free cash flow in 2001 and beyond, depreciation margins in 1999
and beyond, after tax internal rate of return on projects in 1999 and
beyond, cash-on-cash return forecasts in 1999 and beyond, sales to
investment ratio in 1999 and beyond, borrowings under the line-of-credit
agreement for 1999 and beyond and similar statements concerning events and
expectations that are not historical facts are "forward-looking statements"
within the meaning of federal securities laws. These forward-looking
statements are subject to numerous risks and uncertainties, including the
effects of seasonality, airline and tollroad industry fundamentals, general
economic conditions (including the current economic downturn in Asia),
government regulation, the potential adverse impact of union labor strikes
and the Year 2000 issue on operations, competitive forces within the food,
beverage and retail concessions industries, and the availability of cash
flow to fund future capital expenditures. Forward-looking statements are
inherently uncertain, and investors must recognize that actual results could
differ materially from those expressed or implied by the statements. A
detailed discussion of these risks and uncertainties is contained in the
Company's 1998 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
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ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
None.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
EXHIBIT NO.
20 Press Release dated April 22, 1999 announcing first quarter
1999 earnings and containing forward-looking statements.
99 Conference call charts
ITEM 8. CHANGE IN FISCAL YEAR.
None.
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SIGNATURES
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 hereunto duly authorized.
HOST MARRIOTT SERVICES CORPORATION
APRIL 22, 1999 /S/ BRIAN W. BETHERS
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Date Brian W. Bethers
Senior Vice President and Chief Financial Officer