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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.
 
For the quarterly period ended September 6, 2002.
 
OR
 
 
[_]
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 001-14625
 
HOST MARRIOTT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
     
53-0085950
(State of Incorporation)
     
(I.R.S. Employer Identification No.)
6903 Rockledge Drive, Suite 1500, Bethesda, Maryland
     
20817
(Address of Principal Executive Offices)
     
(Zip Code)
 
(240) 744-1000
(Registrant’s telephone number, including area code)
 
10400 Fernwood Road, Bethesda, Maryland 20817
(Former name, former address and former fiscal year, if changed since last report)
 
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. x Yes ¨ No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
The registrant had 265,872,606 shares of its $0.01 par value common stock outstanding as of October 11, 2002.
 

 
INDEX
 
 
 
PART I.    FINANCIAL INFORMATION
 
           
Page No.
Item 1.
   
Financial Statements (Unaudited):
       
    
Condensed Consolidated Balance Sheets—September 6, 2002 and December 31, 2001
     
3
    
Condensed Consolidated Statements of Operations—Twelve Weeks and Thirty-six Weeks Ended September 6, 2002 and September 7, 2001
     
4
    
Condensed Consolidated Statements of Cash Flows—Thirty-six Weeks Ended September 6, 2002 and September 7, 2001
     
6
    
Notes to Condensed Consolidated Financial Statements
     
8
Item 2.
   
Management’s Discussion and Analysis of Results of Operations and Financial Condition
     
15
Item 3.
   
Quantitative and Qualitative Disclosures about Market Risk
     
29
Item 4.
   
Controls and Procedures
     
30
    
PART II.    OTHER INFORMATION AND SIGNATURE
       
Item 1.
   
Legal Proceedings
     
31
Item 2.
   
Changes in Securities and Use of Proceeds
     
31
Item 6.
   
Exhibits and Reports on Form 8-K
     
31
 

2

 
HOST MARRIOTT CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
 
    
September 6,
2002
     
December 31,
2001
  
    
(unaudited)
         
ASSETS
                  
Property and equipment, net
   
$
7,102
 
   
$
6,999
 
Notes and other receivables (including amounts due from affiliates of $6 million and $6 million, respectively)
   
 
54
 
   
 
54
 
Due from Managers
   
 
62
 
   
 
141
 
Investments in affiliates
   
 
139
 
   
 
142
 
Other assets
   
 
523
 
   
 
536
 
Restricted cash
   
 
120
 
   
 
114
 
Cash and cash equivalents
   
 
394
 
   
 
352
 
    
  
    
$
8,394
 
   
$
8,338
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Debt
                  
Senior notes
   
$
3,246
 
   
$
3,235
 
Mortgage debt
   
 
2,304
 
   
 
2,261
 
Other
   
 
103
 
   
 
106
 
    
  
    
 
5,653
 
   
 
5,602
 
Accounts payable and accrued expenses
   
 
154
 
   
 
121
 
Other liabilities
   
 
250
 
   
 
321
 
    
  
Total liabilities
   
 
6,057
 
   
 
6,044
 
    
  
Minority interest
   
 
240
 
   
 
210
 
Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary whose sole assets are convertible subordinated debentures due 2026 (“Convertible Preferred Securities”)
   
 
475
 
   
 
475
 
Shareholders’ equity
                  
Cumulative redeemable preferred stock (liquidation preference $354 million), 50 million shares authorized; 14.1 million shares issued and outstanding
   
 
339
 
   
 
339
 
Common stock, par value $.01, 750 million shares authorized; 265.8 million shares and 263.2 million shares issued and outstanding, respectively
   
 
3
 
   
 
3
 
Additional paid-in capital
   
 
2,100
 
   
 
2,051
 
Accumulated other comprehensive loss
   
 
(1
)
   
 
(5
)
Deficit
   
 
(819
)
   
 
(779
)
    
  
Total shareholders’ equity
   
 
1,622
 
   
 
1,609
 
    
  
    
$
8,394
 
   
$
8,338
 
    
  
 
 
See Notes to Condensed Consolidated Statements

3

 
HOST MARRIOTT CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve and Thirty-six Weeks Ended September 6, 2002 and September 7, 2001
(unaudited, in millions, except per share amounts)
 
      
Twelve Weeks Ended
     
Thirty-six Weeks Ended
  
      
September 6,
2002
       
September 7,
2001
     
September 6,
2002
     
September 7,
2001
  
REVENUES
                                        
Rooms
     
$
481
 
     
$
528
 
   
$
1,489
 
   
$
1,640
 
Food and beverage
     
 
224
 
     
 
234
 
   
 
756
 
   
 
782
 
Other
     
 
64
 
     
 
67
 
   
 
184
 
   
 
204
 
      
    
  
  
Total hotel sales
     
 
769
 
     
 
829
 
   
 
2,429
 
   
 
2,626
 
Rental income
     
 
20
 
     
 
19
 
   
 
70
 
   
 
89
 
      
    
  
  
Total revenues
     
 
789
 
     
 
848
 
   
 
2,499
 
   
 
2,715
 
      
    
  
  
OPERATING COSTS AND EXPENSES
                                        
Rooms
     
 
125
 
     
 
133
 
   
 
365
 
   
 
389
 
Food and beverage
     
 
182
 
     
 
188
 
   
 
562
 
   
 
587
 
Hotel departmental costs and deductions
     
 
225
 
     
 
229
 
   
 
646
 
   
 
669
 
Management fees
     
 
30
 
     
 
37
 
   
 
110
 
   
 
143
 
Taxes, insurance, and other property-level expenses
     
 
69
 
     
 
69
 
   
 
203
 
   
 
209
 
Depreciation and amortization
     
 
86
 
     
 
86
 
   
 
254
 
   
 
263
 
Corporate expenses
     
 
8
 
     
 
7
 
   
 
28
 
   
 
24
 
Other expenses
     
 
3
 
     
 
2
 
   
 
12
 
   
 
9
 
Lease repurchase expense
     
 
—
 
     
 
—
 
   
 
—
 
   
 
5
 
      
    
  
  
OPERATING PROFIT
     
 
61
 
     
 
97
 
   
 
319
 
   
 
417
 
Minority interest income (expense)
     
 
3
 
     
 
—
 
   
 
(8
)
   
 
(26
)
Interest income
     
 
7
 
     
 
5
 
   
 
14
 
   
 
25
 
Interest expense
     
 
(107
)
     
 
(103
)
   
 
(318
)
   
 
(310
)
Net gains on property transactions
     
 
1
 
     
 
3
 
   
 
3
 
   
 
4
 
Equity in earnings (losses) of affiliates
     
 
(3
)
     
 
(1
)
   
 
(6
)
   
 
3
 
Dividends on Convertible Preferred Securities
     
 
(7
)
     
 
(7
)
   
 
(22
)
   
 
(22
)
      
    
  
  
INCOME (LOSS) BEFORE INCOME TAXES
     
 
(45
)
     
 
(6
)
   
 
(18
)
   
 
91
 
Benefit from (provision) for income taxes
     
 
7
 
     
 
—
 
   
 
(8
)
   
 
(15
)
      
    
  
  
INCOME (LOSS) FROM CONTINUING OPERATIONS
     
 
(38
)
     
 
(6
)
   
 
(26
)
   
 
76
 
DISCONTINUED OPERATIONS
                                        
Income (loss) from operations
     
 
—
 
     
 
—
 
   
 
7
 
   
 
(1
)
      
    
  
  
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS
     
 
(38
)
     
 
(6
)
   
 
(19
)
   
 
75
 
Extraordinary gain (loss) on the extinguishment of debt
     
 
—
 
     
 
(1
)
   
 
6
 
   
 
(1
)
      
    
  
  
NET INCOME (LOSS)
     
$
(38
)
     
$
(7
)
   
$
(13
)
   
$
74
 
      
    
  
  
Less: Dividends on preferred stock
     
 
(9
)
     
 
(9
)
   
 
(27
)
   
 
(23
)
      
    
  
  
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
     
$
(47
)
     
$
(16
)
   
$