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HOST MARRIOTT SERVICES REPORTS 13% INCREASE IN
FIRST QUARTER 1999 EBITDA
COMPANY ANNOUNCES CONTRACT AWARDS OF $63 MILLION
BETHESDA, MD, APRIL 22, 1999 -- Host Marriott Services [NYSE:HMS], one of the
world's leading food, beverage and retail concessionaires, today reported that
revenues for the first quarter of 1999 increased 11% to $308.9 million and
operating profit increased 25% to $2.5 million compared to the same quarter in
1998. Earnings before interest, taxes, depreciation, amortization and other
non-cash items (EBITDA) grew 13% to $17.3 million for the first quarter of 1999
when compared to the first quarter of 1998. Operating profit and EBITDA margins
improved slightly for the first quarter of 1999. In its seasonally low first
quarter, the company reported a net loss, before a cumulative effect of a change
in accounting for start-up costs, of $4.1 million, or $(0.12) per share for the
first quarter of 1999, compared to a net loss of $3.9 million, or $(0.11) per
share for the first quarter of 1998. The increase in net loss over the prior
year resulted from increased Year 2000 costs combined with higher net interest
expense due to increased revolving credit borrowings to fund capital
requirements and share repurchases.
William W. McCarten, President and Chief Executive Officer, noted, "We
are making a significant investment in the creation of dramatic new concessions
in our business, and we are beginning to see the benefits in our operating
results. I am pleased by the strong growth in revenues, operating profits and
EBITDA reported for the quarter. We have built momentum early in 1999 with solid
performance in our seasonally slow first quarter and are well positioned to
achieve our goals for the remainder of the year."
Airport concession revenues grew by 13%, or $28.8 million in the first
quarter of 1999, driven by new contracts, strong growth in revenues per enplaned
passenger ("RPE") and moderate growth in passenger enplanements. New contracts,
including Miami International Airport and Palm Beach International Airport,
generated nearly $11.0 million of the year-over-year revenue growth. Comparable
domestic airport revenues were also strong, growing by nearly 9% from an
estimated 7% growth in RPE and 2% growth in domestic passenger enplanements for
the first quarter of 1999. Operating profit in the
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airport business line increased by 4%, or $0.7 million during the quarter. The
airport operating profit margin declined, reflecting an increase in depreciation
related to the company's capital investments to win new contracts, extend
existing contracts and introduce new branded restaurants. Higher payroll cost
margins due to tight labor markets were offset by improved cost of sales
margins.
Travel plaza revenues increased by 4%, or $2.3 million during the first
quarter of 1999. Moderate increases in menu prices and the introduction of new
branded concepts contributed to the revenue growth for this business line. Solid
operating cost management reduced the seasonal operating loss by 27%, or $1.0
million compared to the first quarter of 1998.
Revenues for the first quarter of 1999 in the shopping mall business line
were up 11% over the first quarter of 1998. The opening of a new mall food court
in the first quarter of 1999 and the openings of two new mall food courts in
late 1998 contributed significantly to the revenue increase. Operating losses
for the shopping mall business line increased by $0.5 million in the first
quarter of 1999. The operating loss for the first quarter of 1999 resulted from
seasonally low customer traffic and start-up inefficiencies related to the
opening of three new malls during the previous six months. In the first quarter
of 1999, the company adopted Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities," which required the company to write off any deferred
pre-opening costs as of the beginning of the 1999 fiscal year and to expense
pre-opening costs as incurred in 1999 and beyond. In adopting the new standard,
the company recorded a one-time, after-tax write-off of $0.7 million, or $0.02
per share, in the form of a cumulative effect of adopting a change in accounting
principle.
In the first quarter of 1999, the company incurred and expensed $0.4
million of pre-opening costs, which approximated the amortization of deferred
pre-opening costs recorded in the first quarter of 1998.
General and administrative expenses in the first quarter of 1999 include
$1.0 million of external Year 2000 costs compared to $0.2 million in the first
quarter of 1998. Excluding pre-opening and Year 2000 costs in both 1999 and
1998, operating profit would have increased by 50%, EBITDA would have increased
by 21% and the net loss before the accounting change would have been $(0.09) per
share, or a $0.01 per share improvement over the prior year.
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In the first quarter, the company successfully extended six contracts
with annualized sales of $55 million. Most significant was the five-year
contract extension for food and beverage at Terminal IV at the Phoenix Sky
Harbor International Airport. The other contract extensions ranged from two to
fifteen years in length. The company was also successful in winning a five-year
contract for two newly built travel plazas on the Ohio Turnpike with annualized
revenues of $8.0 million. The company's existing locations on the turnpike will
be closed for renovation by the authority later this year and rebid in early
2000.
* * * * *
Host Marriott Services, with its worldwide headquarters in Bethesda, Maryland,
is the leading food, beverage and retail concessionaire at nearly 200 travel and
entertainment venues, with approximately 24,000 employees in seven countries
around the globe. Host Marriott Services is unique in its custom solutions
business approach that combines internationally known brands with regional
favorites in airports, travel plazas and shopping malls. Many of the company's
concessions are operated under license agreements with branded partners such as
Burger King, Starbucks Coffee, Pizza Hut, Chili's, Cinnabon, TCBY "Treats,"
Sbarro, Taco Bell, Cheers, California Pizza Kitchen, The Cheesecake Factory, Tie
Rack and The Body Shop.
NOTES:
In fiscal year 1998, the company changed the calculation of EBITDA to exclude
interest income, which is more consistent with industry standards. The 1998
EBITDA has been restated to conform to the 1999 presentation.
The company's results of operations are significantly affected by the various
travel and shopping seasons. Customer traffic is generally the strongest in the
summer vacation months, particularly from Memorial Day through Labor Day, which
has historically produced seasonally strong third quarter earnings. Shopping
mall food court customer traffic is generally the busiest during the fall and
winter holiday season.
Enplanement statistics were obtained from the Air Transport Association whose
member airlines represent over 95% of all passenger traffic in the United
States.
This press release contains "forward-looking statements" within the meaning of
federal securities laws, including, but not limited to, statements concerning
the company's outlook for 1999. 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.
FOR MORE INFORMATION:
MEDIA INQUIRIES: INVESTOR RELATIONS: WEBSITE / TELEPHONE:
- ---------------- ------------------- --------------------
Wendy Watkins:(301)380-7903 Sharon Whiting:(301)380-7215 http://www.hmscorp.com
1-888-380-HOST
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HOST MARRIOTT SERVICES CORPORATION
CONSOLIDATED OPERATING RESULTS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
TWELVE TWELVE
WEEKS ENDED WEEKS ENDED
MARCH 26, MARCH 27,
1999 1998 (A)
------------------------------------------------------------------------ -- ------- -------------------- ------------------
OPERATING SUMMARY
REVENUES $ 308.9 $ 277.3
OPERATING COSTS AND EXPENSES 306.4 275.3
------------------------------------------------------------------------ -- ------- -------------------- ------------------
OPERATING PROFIT 2.5 2.0
Interest expense (9.4) (9.2)
Interest income 0.2 0.7
------------------------------------------------------------------------ -- ------- -------------------- ------------------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (6.7) (6.5)
Benefit for income taxes (2.6) (2.6)
------------------------------------------------------------------------ -- ------- -------------------- ------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (4.1) (3.9)
Cumulative effect of change in accounting for start-up activities
(net of related income tax benefit of $0.5 million) (0.7) ---
------------------------------------------------------------------------ -- ------- -------------------- ------------------
NET LOSS $ (4.8) $ (3.9)
------------------------------------------------------------------------ -- ------- -------------------- ------------------
LOSS PER COMMON SHARE
Loss before cumulative effect of change in accounting principle $ (0.12) $ (0.11)
Cumulative effect of change in accounting for start-up activities (0.02) ---
------------------------------------------------------------------------ -- ------- -------------------- ------------------
Net loss $ (0.14) $ (0.11)
------------------------------------------------------------------------ -- ------- -------------------- ------------------
Weighted Average Common Shares Outstanding 33.8 34.4
EBITDA $ 17.3 $ 15.3
------------------------------------------------------------------------ -- ------- -------------------- ------------------
REVENUES BY BUSINESS LINE
Airports $ 246.3 $ 217.5
Travel Plazas 57.5 55.2
Shopping Malls 5.1 4.6
------------------------------------------------------------------------ -- ------- -------------------- ------------------
Total revenues $ 308.9 $ 277.3
------------------------------------------------------------------------ -- ------- -------------------- ------------------
OPERATING PROFIT (LOSS) BY BUSINESS LINE (B)
Airports $ 20.2 $ 19.5
Travel Plazas (2.7) (3.7)
Shopping Malls (0.7) (0.2)
------------------------------------------------------------------------ -- ------- -------------------- ------------------
Total operating profit $ 16.8 $ 15.6
------------------------------------------------------------------------ -- ------- -------------------- ------------------
PERIOD END BALANCE SHEET DATA MARCH 26, March 27,
1999 1998
-------------------- ------------------
Cash and cash equivalents $ 27.5 $ 59.5
Total assets 564.9 530.6
Borrowings under line-of-credit agreement 15.0 ---
Long-term debt 406.1 406.1
------------------------------------------------------------------------ -- ------- -------------------- ------------------
<FN>
(A) Certain minor reclassifications were made to the prior year financial
statements to conform to the 1999 presentation.
(B) Before general and administrative expenses and cumulative effect of change
in accounting.
</FN>