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 June 18, 2004.
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)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No
The registrant had 347,224,216 shares of its $0.01 par value common stock outstanding as of July 15, 2004.
| Page No. | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements (unaudited): | |||
| Condensed Consolidated Balance Sheets- June 18, 2004 and December 31, 2003 | 3 | |||
| Condensed Consolidated Statements of Operations- Quarter Ended and Year-to-Date June 18, 2004 and June 20, 2003 | 4 | |||
| Condensed Consolidated Statements of Cash Flows- Year-to-Date June 18, 2004 and June 20, 2003 | 5 | |||
| Notes to Condensed Consolidated Financial Statements | 7 | |||
| Item 2. |
Management’s Discussion and Analysis of Results of Operations and Financial Condition | 12 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 27 | ||
| Item 4. |
Controls and Procedures | 27 | ||
| PART II. OTHER INFORMATION AND SIGNATURE | ||||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 28 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 28 | ||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
June 18, 2004 and December 31, 2003
(unaudited, in millions, except per share amounts)
| June 18, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Property and equipment, net |
$ | 7,031 | $ | 7,085 | ||||
| Assets held for sale |
— | 73 | ||||||
| Notes and other receivables |
54 | 54 | ||||||
| Due from managers |
92 | 62 | ||||||
| Investments in affiliates |
83 | 74 | ||||||
| Deferred financing costs, net |
75 | 82 | ||||||
| Furniture, fixtures and equipment replacement fund |
156 | 144 | ||||||
| Other |
152 | 138 | ||||||
| Restricted cash |
124 | 116 | ||||||
| Cash and cash equivalents |
771 | 764 | ||||||
| Total assets |
$ | 8,538 | $ | 8,592 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Debt |
||||||||
| Senior notes, including $490 million, net of discount, of Exchangeable Senior Debentures as of June 18, 2004 |
$ | 2,884 | $ | 3,180 | ||||
| Mortgage debt |
2,094 | 2,205 | ||||||
| Convertible Subordinated Debentures |
492 | — | ||||||
| Other |
99 | 101 | ||||||
| Total debt |
5,569 | 5,486 | ||||||
| Accounts payable and accrued expenses |
93 | 108 | ||||||
| Liabilities associated with assets held for sale |
— | 2 | ||||||
| Other |
161 | 166 | ||||||
| Total liabilities |
5,823 | 5,762 | ||||||
| Interest of minority partners of Host Marriott L.P. |
133 | 130 | ||||||
| Interest of minority partners of other consolidated partnerships |
88 | 89 | ||||||
| Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary whose sole assets are convertible subordinated debentures due 2026 (“Convertible Preferred Securities”) |
— | 475 | ||||||
| Shareholders’ equity |
||||||||
| Cumulative redeemable preferred stock (liquidation preference $453.5 million), 50 million shares authorized; 18.1 million shares issued and outstanding |
436 | 339 | ||||||
| Common stock, par value $.01, 750 million shares authorized; 347.0 million shares and 320.3 million shares issued and outstanding, respectively |
4 | 3 | ||||||
| Additional paid-in capital |
2,914 | 2,617 | ||||||
| Accumulated other comprehensive income |
24 | 28 | ||||||
| Deficit |
(884 | ) | (851 | ) | ||||
| Total shareholders’ equity |
2,494 | 2,136 | ||||||
| Total liabilities and shareholders’ equity |
$ | 8,538 | $ | 8,592 | ||||
See notes to condensed consolidated statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter and Year-to-Date Ended June 18, 2004 and June 20, 2003
(unaudited, in millions, except per share amounts)
| Quarter ended |
Year-to-date ended |
|||||||||||||||
| June 18, 2004 |
June 20, 2003 |
June 18, 2004 |
June 20, 2003 |
|||||||||||||
| REVENUES |
||||||||||||||||
| Rooms |
$ | 544 | $ | 482 | $ | 1,013 | $ | 930 | ||||||||
| Food and beverage |
300 | 267 | 554 | 507 | ||||||||||||
| Other |
59 | 55 | 110 | 107 | ||||||||||||
| Total hotel sales |
903 | 804 | 1,677 | 1,544 | ||||||||||||
| Rental income |
24 | 24 | 53 | 51 | ||||||||||||
| Other income |
— | — | — | 2 | ||||||||||||
| Total revenues |
927 | 828 | 1,730 | 1,597 | ||||||||||||
| EXPENSES |
||||||||||||||||
| Rooms |
132 | 116 | 249 | 226 | ||||||||||||
| Food and beverage |
215 | 192 | 404 | 371 | ||||||||||||
| Hotel departmental expenses |
241 | 217 | 456 | 421 | ||||||||||||
| Management fees |
39 | 35 | 71 | 67 | ||||||||||||
| Other property-level expenses |
71 | 76 | 140 | 145 | ||||||||||||
| Depreciation and amortization |
83 | 81 | 165 | 165 | ||||||||||||
| Corporate expenses |
12 | 12 | 25 | 25 | ||||||||||||
| Total expenses |
793 | 729 | 1,510 | 1,420 | ||||||||||||
| OPERATING PROFIT |
134 | 99 | 220 | 177 | ||||||||||||
| Interest income |
2 | 2 | 5 | 5 | ||||||||||||
| Interest expense, including interest expense for the Convertible Subordinated Debentures in 2004 |
(130 | ) | (107 | ) | (248 | ) | (216 | ) | ||||||||
| Net gains on property transactions |
4 | 2 | 5 | 3 | ||||||||||||
| Loss on foreign currency and derivative contracts |
— | (1 | ) | — | (2 | ) | ||||||||||
| Minority interest income (expense) |
1 | 1 | (2 | ) | 2 | |||||||||||
| Equity in losses of affiliates |
(3 | ) | (3 | ) | (8 | ) | (9 | ) | ||||||||
| Dividends on Convertible Preferred Securities |
— | (8 | ) | — | (15 | ) | ||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES |
8 | (15 | ) | (28 | ) | (55 | ) | |||||||||
| Provision for income taxes |
(11 | ) | (6 | ) | (8 | ) | (2 | ) | ||||||||
| LOSS FROM CONTINUING OPERATIONS |
(3 | ) | (21 | ) | (36 | ) | (57 | ) | ||||||||
| Income from discontinued operations. |
20 | 7 | 22 | 9 | ||||||||||||
| NET INCOME (LOSS) |
17 | (14 | ) | (14 | ) | (48 | ) | |||||||||
| Less: dividends on preferred stock |
(10 | ) | (9 | ) | (19 | ) | (18 | ) | ||||||||
| NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS |
$ | 7 | $ | (23 | ) | $ | (33 | ) | $ | (66 | ) | |||||
| BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE |
$ | .02 | $ | (.09 | ) | $ | (.10 | ) | $ | (.25 | ) | |||||
See notes to condensed consolidated statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year-to-Date Ended June 18, 2004 and June 20, 2003
(unaudited, in millions)
| June 18, 2004 |
June 20, 2003 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net loss |
$ | (14 | ) | $ | (48 | ) | ||
| Adjustments to reconcile to cash provided by operations: |
||||||||
| Depreciation and amortization |
165 | 165 | ||||||
| Discontinued operations: |
||||||||
| Gain on dispositions |
(19 | ) | — | |||||
| Depreciation |
1 | 9 | ||||||
| Amortization of deferred financing costs |
16 | 9 | ||||||
| Income taxes |
2 | (20 | ) | |||||
| Net gains on property transactions |
(5 | ) | (3 | ) | ||||
| Equity in losses of affiliates |
8 | 9 | ||||||
| Minority interest expense (income) |
2 | (2 | ) | |||||
| Changes in other assets |
(59 | ) | (5 | ) | ||||
| Changes in other liabilities |
(15 | ) | (18 | ) | ||||
| Cash provided by operations |
82 | 96 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Acquisitions |
(89 | ) | (3 | ) | ||||
| Deposits for hotel acquisitions |
(9 | ) | — | |||||
| Proceeds from sale of assets, net |
155 | 25 | ||||||
| Distribution from equity investments |
1 | 3 | ||||||
| Capital expenditures: |
||||||||
| Renewals and replacements |
(84 | ) | ||||||