SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549

                                 FORM 10-K

             [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                 FOR THE FISCAL YEAR ENDED JANUARY 3, 1997

                                     OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

                      COMMISSION FILE NO. 33-95060


                         HOST INTERNATIONAL, INC.
                (FORMERLY HOST MARRIOTT TRAVEL PLAZAS, INC.)


             DELAWARE                             52-1242334
 ---------------------------------   ---------------------------------------
   (State or Other Jurisdiction      (I.R.S. Employer Identification Number)
 of Incorporation or Organization)



                           6600 ROCKLEDGE DRIVE
                          BETHESDA, MARYLAND 20817
                               (301) 380-7000



        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



                     DOCUMENT INCORPORATED BY REFERENCE
               Notice of 1997 Annual Meeting and Proxy Statement
                    of Host Marriott Services Corporation



<PAGE>

  
                                  PART I


ITEMS 1 AND 2.  BUSINESS AND PROPERTIES

GENERAL

       Host International,  Inc. (the "Company"),  a wholly-owned  subsidiary of
Host Marriott Services  Corporation ("Host Marriott  Services"),  is the leading
operator  of  food,  beverage  and  merchandise   concessions  at  airports,  on
tollroads,  and at other travel and  entertainment  venues,  with  facilities at
nearly every major  commercial  airport and tollroad in the United  States.  The
Company operates or manages restaurants, gift shops and related facilities at 72
airports, at 92 travel plazas on 13 tollroads, and at 20 other venues (including
shopping  malls,  tourist  attractions,  stadiums  and  arenas).  The  Company's
concessions facilities provide air and tollroad travelers with convenient access
to food service and retail  merchandise  in locations  where such travelers have
limited  options.  The Company has grown  through  successfully  winning new and
retaining existing concessions contracts, introducing branded food, beverage and
retailing  concepts at both its airport and travel plaza locations and acquiring
complementary  businesses.  The  Company  has a  successful  history of renewing
contracts upon  expiration and has detailed  development  strategies in place to
maximize  revenues and cash flows. The Company operates  primarily in the United
States through its subsidiaries.  The Company manages six tollroad contracts for
Host Marriott  Tollroads,  Inc.  ("Host  Marriott  Tollroads"),  a  wholly-owned
subsidiary of Host Marriott  Services,  the  facilities of which are included in
the  facilities  discussed  above.  The Company also has  international  airport
concessions operations in The Netherlands, New Zealand, Australia and Canada.

       The  Company  has been a pioneer  in  providing  airport  travelers  with
well-known  branded  concessions such as Burger King, Pizza Hut, Cheers,  T.G.I.
Friday's,  California Pizza Kitchen, Chili's,  Cinnabon,  Starbucks Coffee, Taco
Bell,  Sbarro,  Dunkin Donuts,  TCBY (The Country's Best Yogurt),  Mrs.  Fields,
Nathan's  Famous,  Tie Rack, The Body Shop and specialty  microbreweries.  These
branded concepts typically perform better than non-branded concepts due to brand
advertising,  customer  familiarity with product offerings and the perception of
superior value and consistency.

        All of the Company's  airport  concessions  are operated under contracts
with airport  authorities  with original  terms  typically  ranging from 5 to 15
years.  Contracts are generally awarded through a competitive process, but lease
extensions are often negotiated  before contracts expire.  The  weighted-average
life remaining on the Company's airport contracts is approximately  seven years.
The portfolio of airport contracts is  geographically  diversified and no single
airport contract constitutes a material portion of the Company's total revenues.
The concentration of revenues from the Company's 10 largest airport  concessions
contracts  increased  to 37.8% of total  airport  revenues  from  35.0% of total
airport revenues in 1995. The Company's airport concession  revenues,  including
management  fees relating to six airport  contracts  transferred  to the Company
from Host Marriott during the fourth quarter of 1995, were approximately  80.0%,
76.8%  and  73.5%  of the  Company's  total  revenues  in 1996,  1995 and  1994,
respectively.

       The U.S. airport concession  industry is estimated by the Company to be a
$1.65  billion  market with food and  beverage  estimated to be $1.0 billion and
merchandise, excluding duty-free, to be $650 million in annual sales. Management
of the Company believes that the U.S. airport concession  industry will continue
to grow as a result of the proliferation of "no-frills," low-fare airlines,  and
strong demand for air travel generally. Industry experts predict that the number
of airline passengers will grow at a 4.1% compound average rate through the year
2008.  In  addition,  to sustain  low-fare  positioning,  and improve  financial
performance,  many airlines have reduced their costs by  eliminating or reducing
inflight services. Airport concessionaires will have an increased opportunity to
feed passengers  whose needs are not met in the air as a result of the reduction
in traditional inflight catering services.

       The European airport  concession  industry is estimated by the Company to
be a $900 million market.  The Company currently holds  approximately 5% of this
market. The Company has identified contract opportunities in the European market
over the next two years with annual revenues of approximately  $90 million.  The
Company is  establishing  a development  office in Europe to evaluate and pursue
these  and  other  opportunities,   including  joint  ventures  and  acquisition
opportunities.

                                   1


<PAGE>

       The  Company is the  leading  operator  of travel  plazas,  operating  or
managing 92 travel plazas on 13 tollroads.  Travel plazas operated or managed by
the  Company are located in Florida,  and in the  mid-Atlantic,  midwestern  and
northeastern  states. By offering high quality branded concepts in a clean, safe
environment,  the Company's  travel plaza  concessions are designed to appeal to
travelers who desire high-quality meals without exiting the tollroad. Unlike the
Company's airport concessions, travel plaza concessions are dominated by branded
concepts,  which comprised  almost 80% of travel plaza  concessions  revenues in
1996.  The core  business  of most  travel  plazas is a  mall-style  food  court
offering branded restaurants,  including Burger King, Roy Rogers, Bob's Big Boy,
Sbarro,  TCBY,  Miami Subs Grill and Dunkin Donuts.  The Company's travel plazas
are operated under contracts with highway  authorities which typically extend 10
to 15 years.  The average life  remaining on the  Company's  tollroad  contracts
(both managed and operated) is approximately eight years.  Contracts are awarded
through a  competitive  process,  but lease  extensions  often can be negotiated
before contracts expire. No single travel plaza contract  constitutes a material
portion of the Company's total revenues.  The Company's  travel plaza concession
revenues,  including  management  fees relating to six travel plazas managed for
Host Marriott  Tollroads,  were  approximately  15.3%,  17.8%,  and 18.4% of the
Company's total revenues in 1996, 1995 and 1994, respectively.

       The travel  plaza  concessions  industry  is an  estimated  $500  million
market, excluding gasoline sales. Total tollroad traffic in the United States is
projected by the International  Bridge,  Tunnel and Turnpike Association to grow
1% to 2%  annually.  The  combination  of  increased  tollroad  traffic  and the
Company's continued  introduction of new branded food and beverage concepts,  to
replace older brands, are expected to increase revenues.  Further,  management's
focus on operational excellence is expected to continue to enhance the operating
performance of the Company's travel plaza business line.

       The Company also holds 20 contracts to operate food courts,  restaurants,
concession  stands,  gift shops and related  facilities  at  shopping  malls and
sports and entertainment  venues,  which accounted for approximately  4.7%, 5.4%
and 8.1% of total revenues in 1996, 1995 and 1994, respectively.

       The United  States  shopping mall food court market is about $2.5 billion
and the mall  industry  is  consolidating,  reconcepting  and  renovating  which
creates a significant  opportunity  for the Company.  The Company  believes that
food court opportunities in large malls align well with the operating skills and
experience of the  management  team. By providing mall  developers  with turnkey
food  courts with  branded  concepts,  their  leasing  and  property  management
activities are simplified.  In addition, the Company believes that its operating
leverage  compared  to  the  leverage  of  individual   operators  will  provide
developers with better returns and more reliable service.

       Six airport  concessions  contracts were  transferred to the Company from
Host Marriott  Corporation  ("Host Marriott") on September 9, 1995. The revenues
and operating costs and expenses of these six airport concessions  contracts are
included in the  operating  results for 1996,  but are excluded  from  operating
results prior to the transfer  date of September 9, 1995.  Prior to the transfer
of these contracts,  the Company managed these six airport concessions contracts
for Host Marriott and received a management  fee for such  management  services.
The Company also  receives  fees for managing  six tollroad  contracts  for Host
Marriott  Tollroads.  Base  management  fees are  determined  as a percentage of
revenues with additional incentive management fees determined as a percentage of
available cash flow.  Management fees received related to concession  facilities
managed for affiliates totaled $13.9 million,  $15.2 million and $9.7 million in
1996, 1995 and 1994, respectively.

BUSINESS STRATEGY

       The Company's strategic objective is to generate higher revenues and cash
flows  by  increasing  revenues  per  enplaning  passenger  ("RPE")  at  airport
concession facilities,  increasing sales per vehicle at travel plaza facilities,
retaining existing contracts,  gaining incremental  business through winning new
contracts  in  core  markets  and   continuing  to  penetrate   the   profitable
international  airport concessions and shopping mall food court market segments.
Specifically,  key  elements  of the  Company's  business  strategy  include the
following:

                                   2

<PAGE>


INCREASING MARKET PENETRATION

       The  Company  has  increased  RPE and sales per  vehicle  by  introducing
branded  concepts at both its airport and travel  plaza  locations.  Since their
introduction  in 1984,  branded food and beverage  products at the travel plazas
have been a success,  representing  approximately  87.0% of operated and managed
travel  plaza  food and  beverage  sales in 1996  (80.0% of total  travel  plaza
revenues),  and their  success  reveals the  considerable  potential for revenue
growth in the airport and shopping mall and entertainment  business lines. Since
the  introduction  of branded  concepts at airports  in 1989,  branded  food and
beverage sales have increased sales per square foot.  Branded sales  represented
only 37.0% of 1996 airport food and beverage  sales,  respectively.  The airport
merchandise segment also has shown a high degree of growth in branded sales over
the past three years as a result of the successful roll out at several locations
of specialty  retailing  concepts  such as The Body Shop,  Tie Rack and Wilson's
Leather.

       The Company  continues to expand its  international  and regional branded
concept portfolio, and it now has the most brands in the industry to select from
when designing a concession plan for its airport, shopping mall and travel plaza
contracts.  This greater variety of concept and product  offerings is attracting
new consumers to the Company's  facilities.  The  increased  market  penetration
using  branded  concepts  has  resulted in  increased  revenues  which have been
partially offset by increased costs associated with operating branded concepts.

       The Company's  success in increasing  market  penetration  is affected by
industry  trends  to award  contracts  to  multiple  operators  and to  increase
participation  by woman- and  minority-owned  businesses in airport  concessions
operations.  The Company is committed to creating  opportunities  for woman- and
minority-owned businesses and currently participates with such businesses in the
substantial  majority  of its  airport  concessions  contracts.  While  contract
fracturing  by airport  authorities  and increased  participation  by woman- and
minority-owned  businesses  are  expected  in the  future,  the  impact of these
industry  trends on future  revenue  growth in the airport  business line is not
expected  to be  significant.  See  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations" for a discussion of the Company's
revenues, operating profit and net income.

RETAINING EXISTING CONTRACTS

       The Company has  maintained its market  leadership  position by providing
outstanding   service  to  its  customers  and  maintaining  high  standards  in
maintenance and innovation at each of its concession  facilities in airports, on
tollroads and in shopping malls and entertainment venues. The Company's customer
satisfaction rating improved by 10% in the airport food and beverage concessions
business  line during 1996,  following a similar 10%  improvement  in 1995.  The
Company's  strong  relationships  with airport and highway  authorities  and its
successful  concession  operations  have  enabled the Company to retain the vast
majority of its concession  contracts.  Since the beginning of 1994, the Company
has  retained  72.3% of the  annualized  revenues of existing  contracts  up for
renewal.  Over that same period,  21 new contracts were secured,  with estimated
annual  revenues of $135.3  million,  which  exceeded  lost and exited  contract
revenues by $19.8 million.

SECURING NEW CONTRACTS IN CORE MARKETS

       The  Company's  world  class  contract   development   teams  are  widely
recognized as among the most  experienced  and innovative in the industry with a
demonstrated  track  record of winning  new  contracts  at  attractive  economic
returns.  Securing  new  contracts  requires  considerable  management  time and
financial  resources.  These dedicated  business  development  teams provide the
Company with the expertise and depth to pursue multiple projects simultaneously.
Of the 21 new  contracts  secured since 1994,  15 were airport  contracts  which
represented approximately $104.3 million in annualized 1996 revenues.

EXPANDING PROFITABLY INTO NEW MARKETS AND VENUES

       The Company  continues  to enhance its strategy  for  expansion  into the
international  airport  concessions  and shopping mall food court  markets.  The
Company's capital resources,  world-class contract development teams,  extensive
portfolio of internationally  known brands and strong competitive  position will
provide for profitable  expansion into these markets.  The Company expects total
annual revenues to approach $2.0 billion in five years, with 25% of the revenues
coming from international airports and domestic food courts in shopping malls.

                                   3

<PAGE>

       During  1996,  the  Company's   international   expansion  efforts  added
contracts at Cairns International Airport, Australia, and Montreal International
Airport - Dorval in Canada. In 1997, the Company intends to focus heavily on the
European airport  concessions  market. The Company is establishing a development
office in Europe to evaluate and pursue these and other opportunities, including
joint ventures and potential acquisitions.

     During the fourth  quarter of 1996,  the Company  entered the shopping mall
food court  concessions  business with the opening of a 1,000 seat food court at
the Ontario Mills Mall in California. The Company announced in 1996 a definitive
agreement  on a second  mall  project at the  Grapevine  Mills  Mall  outside of
Dallas,  Texas.  The  mall is  expected  to open in the  fall of  1997,  and the
Company's food and beverage  operations will be similar in size and scope to the
Ontario Mills Mall project.

AIRPORT CONCESSIONS

         The Company is the leading  operator of airport food,  beverage,  gift,
news and  merchandise  concessions in the United States with 1996 and 1995 total
revenues  of  $911.9  million  and  $758.1   million,   respectively.   Domestic
concessions  revenues  comprised  93.8% and 95.8% of total airport  revenues for
1996 and 1995,  respectively.  Comparisons of results of operations for 1996 and
1995 are impacted by the transfer of six airport concessions contracts from Host
Marriott to the Company during the fourth quarter of 1995. Prior to the transfer
of these  contracts,  the Company had managed  these  concessions  contracts and
charged  management  fees based on a percentage of total revenues  earned during
the period by each  airport.  The revenues and  operating  costs and expenses of
these six airport  concessions  contracts are included in operating  results for
1996,  but are excluded from  operating  results for the period of 1995 prior to
the transfer on September 9, 1995. The amounts of revenues,  operating costs and
expenses,  and operating profit of these six airport concessions  contracts that
were  excluded  from the  operating  results in 1995 were $40.3  million,  $34.2
million,  and $6.1 million,  respectively.  The Company recorded  management fee
income  of $4.3  million  for  these  contracts  in 1995  which is  included  in
revenues.

       The Company  enters  into  long-term  operating  contracts  with  airport
authorities with original terms typically ranging from 5 to 15 years.  Contracts
are generally  awarded through a competitive  process,  but lease extensions are
often negotiated before contracts expire. The weighted-average life remaining on
the Company's airport contracts  increased in 1996 to approximately seven years.
Rents paid under the  contracts  averaged  16% of the  Company's  total  airport
revenues in 1996.  Rent  payments are  typically  determined  as a percentage of
sales  subject  to a minimum  annual  guarantee  which may be stated as either a
fixed  dollar  amount  per  year,  a  percentage  of  the  prior  year's  rental
obligation,  or calculated on a per enplaning passenger basis. During 1996, rent
payments for most of the Company's airport contracts exceeded the minimum annual
guarantee.

       The Company's portfolio of airport contracts is highly diversified in the
U.S. in terms of  geographic  location and airport  terminal  type and size.  No
single airport  contract  constitutes a material  portion of the Company's total
airport  revenues.  The  concentration of revenues from the Company's 10 largest
airport  concessions  contracts  increased to 37.8% of total airport revenues in
1996 from 35.0% of total  airport  revenues in 1995  (includes  management  fees
related to the six airports transferred to the Company in 1995).

       The Company is at the  forefront of the industry in terms of  introducing
new  concepts to attract an  increasing  number of  customers  and  maintain its
leadership position as an airport  concessionaire.  The Company offers a diverse
selection of  concession  outlets in an effort to attract the maximum  number of
passengers.

       The airport facilities  operated by the Company offer five major types of
product lines which are described below.

NON-BRANDED FOOD AND BEVERAGE CONCESSIONS

       These  concessions  are  operated  under a generic  name and  serve  both
branded and  non-branded  food and beverages in a restaurant or  cafeteria-style
setting.  The majority of the food sold in these  facilities  is prepared on the
premises  and  includes  fresh  salads,  hot dogs,  hamburgers,  sandwiches  and
desserts.  While  items such as Pizza Hut  Personal  Pan Pizza are sold  through
separate vending stands within these  facilities,  the majority of the sales are

                                   4

<PAGE>

non-branded  food  and  beverage  sales.  Non-branded  food and  beverage  sales
generated  approximately  40.4% and 43.0% of total  Company  airport  concession
sales in 1996 and 1995, respectively.  Sales of non-branded food and beverage at
airports  in which the Company  operates  were up $42.5  million,  or 13.0% , to
$368.5 million when comparing fiscal years 1996 and 1995.

BRANDED FOOD AND BEVERAGE CONCESSIONS

       The  Company  has been a pioneer  in  providing  airport  travelers  with
well-known  branded  concessions such as Burger King, Pizza Hut, Cheers,  T.G.I.
Friday's,  California Pizza Kitchen,  Chili's,  Cinnabon,  Starbucks Coffee, and
specialty  microbreweries.  These branded concepts  typically perform better and
produce  higher RPE as  compared to  non-branded  concepts.  Brand  advertising,
customer  familiarity  with product  offerings,  and the  perception of superior
value and  consistency  are all  factors  contributing  to higher RPE in branded
facilities,  which more than  offset  royalty  payments  required to operate the
concepts.  As a licensee of these brands,  the Company pays royalty fees ranging
from 4% to 10% of total sales.

       Branded  concession  facilities  have  proven  to be a highly  successful
marketing  concept.  Branded  revenues in  airports  have  increased  42.8% when
comparing  fiscal  years  1996 and 1995  through  the  introduction  of  branded
concepts in the Company's airports. This increase can be attributed to large new
branded concept  developments at Dulles  International  Airport (just outside of
Washington,  D.C.), San Diego International  Airport, Los Angeles  International
Airport, and Hartsfield Atlanta International Airport.  Branded product sales at
the Company's  airports  increased to $216.5 million,  or 23.7% of total airport
revenues,  for fiscal year 1996, compared with $151.6 million, or 20.0% of total
airport revenues, for fiscal year 1995.

ALCOHOLIC BEVERAGES

       The Company  serves  alcoholic  and  nonalcoholic  drinks,  together with
selected food items, through lounges (generally operated under the Premium Stock
name),   restaurants,   cafeterias,   and  specialty  microbrewery  pubs.  These
facilities are designed to provide a comfortable and convenient  environment for
passengers  waiting for their  flights.  During 1996,  the Company  continued to
introduce its increasingly  popular microbrewery pubs which include Samuel Adams
Brew House and  Shipyard  Brew Port.  These bar and grill  concepts  bring local
flavors  to  the  Company's  airport  contracts  and  complement  the  Company's
proprietary Premium Stock lounges.  Alcoholic beverages generated  approximately
17.7% and 18.0% of total  Company  airport  concessions  sales in 1996 and 1995,
respectively. Alcoholic beverage sales at airports in which the Company operates
were up $24.5 million,  or 17.9%,  in fiscal year 1996 when compared with fiscal
year 1995.

MERCHANDISE OUTLETS

       The  Company  operates  over 150  merchandise  outlets  at 20 U.S.  and 2
international  airports.  These  shops  sell  souvenirs,   gifts,  snack  items,
newspapers,  magazines  and other  convenience  items.  The Company  effectively
utilizes a team of merchandise  specialists  who,  based on extensive  research,
create exciting  visual  displays,  bring in  custom-designed  merchandise  that
reflects  the  regional  flavor and develop  marketing  programs  which  capture
customer  interest.  In an effort to  maximize  RPE,  the Company  continues  to
introduce  specialty  retail  concepts  such  as Tie  Rack  and The  Body  Shop.
Merchandise  outlets  currently  are  generating  approximately  13.6%  of total
Company airport  concession sales.  Merchandise sales increased by $10.8 million
in fiscal year 1996 to $124.5 million when compared with fiscal year 1995.

DUTY-FREE SHOPS

       Duty-free  shops sell items such as  liquor,  tobacco,  perfume,  leather
goods,  cosmetics  and  gifts on a tax-  and  duty-free  basis to  international
travelers. The duty-free market is estimated to be a $1.2 billion U.S. industry.
The  Company  operates  duty-free  shops at airport  locations  with the largest
operations being located at Sea-Tac  International  Airport,  Hartsfield Atlanta
International  Airport,  Detroit Metro International Airport and Minneapolis/St.
Paul   International   Airport.   Duty-Free   shops   currently  are  generating
approximately 4.5% of total Company airport concession sales.

                                   5


<PAGE>

OPERATING LOCATIONS

       The Company operates facilities at the following airports:

       UNITED STATES:  Anchorage,  AK; Atlanta,  GA; Austin, TX; Baltimore,  MD;
Billings,  MT;  Birmingham,  AL; Boston,  MA;  Charleston,  SC;  Charlotte,  NC;
Chicago, IL (O'Hare); Cincinnati, OH; Cleveland, OH; Columbia, SC; Columbus, OH;
Corpus Christi,  TX; Dallas, TX (DFW);  Dayton, OH; Des Moines, IA; Detroit, MI;
Grand Rapids, MI; Greensboro,  NC; Harlingen,  TX; Hartford,  CT; Honolulu,  HI;
Houston, TX; Indianapolis,  IN; Jackson, MS; Jacksonville,  FL; Kansas City, MO;
Kauai,  HI; Las Vegas, NV; Little Rock, AK; Los Angeles,  CA (LAX);  Louisville,
KY; Lubbock, TX; Maui, HI; Memphis,  TN; Miami, FL; Midland, TX; Milwaukee,  WI;
Minneapolis,  MN; New York, NY (JFK);  New York, NY (La  Guardia);  Newark,  NJ;
Omaha, NE; Ontario,  CA; Orange County, CA; Orlando,  FL; Phoenix, AZ; Portland,
ME; Raleigh,  NC; Reno, NV;  Sacramento,  CA; Salt Lake City, UT; San Diego, CA;
San Francisco,  CA (SFO); San Jose, CA; Sarasota, FL; Savannah, GA; Seattle, WA;
St. Louis, MO; Tampa, FL; Toledo,  OH; Washington,  D.C.  (Dulles);  Washington,
D.C. (National); and Wichita, KS.

       INTERNATIONAL:   Auckland,  New  Zealand;  Christchurch,  New  Zealand; 
Melbourne,  Australia;  Vancouver,  Canada; Montreal,  Canada, and Schiphol, The
Netherlands.

OUTLOOK

       The outlook is extremely  positive for the airport  concessions  business
line.  Increased passenger  enplanements and other favorable industry trends are
expected to increase  customer  traffic,  while the  continued  introduction  of
branded food and beverage and specialty  retailing concepts in airport terminals
will attract more customers.  Currently, branded food and beverage revenues make
up only 37.0% of the  Company's  total  food and  beverage  revenues  in airport
concessions  (23.7% of total airport  concessions  revenues),  demonstrating the
considerable  potential  for growth.  Further,  the Company has  redesigned  and
substantially  improved its business  development  processes and is committed to
refining its core operating processes to improve efficiencies,  reduce costs and
increase  revenues.  Initiatives to control costs that were  implemented  during
1996  include  the  roll  out of the  Store  Manager  concept  intended  to move
management  closer  to  the  customer  to  improve  customer  satisfaction;  the
renegotiation  of all  distributor  agreements  for books and  magazines  in the
Company's  airport and travel plazas to improve service;  in-stock  availability
and  cost  margins  as well as a  program  under  which  brand  experts  ("Brand
Champions")  are assigned to certain of the Company's  largest  selling  branded
concepts. The Brand Champions' function is to promote operational excellence and
create  operating  efficiencies  across all locations of a brand.  Further,  the
Company expects  continued success in 1997 and beyond in making its core airport
concessions  contracts  more  profitable  through  new  concepts  and  operating
excellence initiatives.

       The Company  expects  total annual  revenues to approach  $1.9 billion in
five years with 25% of the  revenues  coming from new  markets and venues.  With
respect to airport concessions, the Company intends to focus heavily on European
airports.  The  European  airport  concessions  market is  estimated  to be $900
million with the Company currently holding  approximately 5% of the market.  The
Company has identified  contract  opportunities  in the European market over the
next two years with annual revenues of approximately $90 million. The Company is
establishing  a  development  office in Europe to evaluate  and pursue these and
other opportunities, including joint ventures and acquisitions.

       The  Company  is  committed  to  creating  opportunities  for  woman- and
minority-owned businesses and currently participates with such businesses in the
substantial  majority  of its airport  concessions  contracts.  While  increased
participation by woman- and minority-owned businesses and contract fracturing by
airport  authorities  are expected in the future,  the impact of these  industry
trends on future revenue growth in the airport  business line is not expected to
be significant.

       Over the next three years, 24 airport concessions contracts  representing
approximately $202.2 million, or 22.2% of 1996 airport concessions revenues will
come up for renewal. The Company expects to retain most of these contracts based
upon its history of retaining  such  contracts and its commitment to the highest
levels of product quality and customer satisfaction. 

                                   6

<PAGE>

TRAVEL PLAZA CONCESSIONS

       The Company operates or manages 92 travel plazas on 13 tollroads  located
in the mid-Atlantic, midwestern, and northeastern states, as well as in Florida.
The Company operates or manages these travel plazas under contracts with highway
authorities  that typically  extend 10 to 15 years.  The  weighted-average  life
remaining  on the  Company's  managed  and  operated  travel  plaza  concessions
contracts is  approximately  eight years.  The Company's travel plazas generated
$160.3  million in  revenues  in 1996,  or 14.1% of total  revenues,  and $165.9
million in revenues in 1995, or 16.7% of total revenues.  The Company receives a
percentage  of gross  revenues in the form of a management  fee for managing six
travel plaza concessions contracts owned by Host Marriott Tollroads.  Management
fees relating to these tollroads totaled $13.9 million in 1996 and $10.9 million
in 1995.

       The  Company's  travel  plazas are  designed to appeal to  travelers  who
prefer  quick,  high-quality  meals  without  the  inconvenience  of leaving the
tollroad.  The core  business of most travel  plazas is a mall-style  food court
offering branded restaurants  including Burger King, Roy Rogers,  Bob's Big Boy,
Sbarro,  TCBY (The Country's Best Yogurt),  Miami Subs Grill, Dunkin Donuts, and
Popeye's. Branded food accounts for approximately 87.0% of travel plaza food and
beverage revenues (80.0% of total travel plaza concessions revenue). Merchandise
gift shops  selling  souvenirs,  postcards,  snacks,  newspapers  and  magazines
frequently  are  located  adjacent  to  these  food  courts  and  accounted  for
approximately  $12.8 million in sales in 1996. The travel plazas  generally also
include automated teller machines,  vending machines and business  centers.  All
facilities  are accessible to the disabled,  and many offer 24-hour  security to
create a safe, pleasant eating environment.

       The domestic  travel  plaza  concessions  industry is an  estimated  $500
million market,  excluding  gasoline sales. Total tollroad traffic in the United
States is  projected  to grow by 1% to 2%  annually.  Travel  plaza  concessions
revenues  generally  increase with traffic growth. The Company holds the leading
market  position on every tollroad on which it operates.  No single travel plaza
contract  constitutes a material portion of the Company's travel plaza revenues.
The  relatively  high level of traffic on, and long length of,  tollroads in the
mid-Atlantic   and   northeastern   states   make   those   roads  the   highest
revenue-producing  tollroads.  The five largest travel plaza contracts accounted
for  approximately  85.5% of travel plaza  revenues  (includes  management  fees
related to the six travel plazas  managed for Host  Marriott  Tollroads) in 1996
and 1995,  respectively.  The five largest travel plaza contracts  accounted for
approximately  13.1% of total  revenues  in 1996 and 15.2% of total  revenues in
1995.

OPERATING LOCATIONS

       The Company operates or manages travel plazas on the following tollroads:

       Atlantic City Expressway;  Delaware  Turnpike;  Florida  Turnpike;  
Garden State Parkway;  Illinois  Tollway;  Maine  Turnpike;  Maryland  Turnpike;
Massachusetts  Turnpike;  New Jersey Turnpike;  New York Thruway; Ohio Turnpike;
Pennsylvania Turnpike; and West Virginia Turnpike.

OUTLOOK

       The outlook is upbeat for the travel  plaza  concessions  business  line.
Moderate traffic increases and the introduction of new branded food and beverage
concepts,   to  replace  older  brands,   are  expected  to  increase  revenues.
Management's  continued  focus on operational  excellence is expected to further
enhance the operating performance of the travel plaza business line.

       Over the next three years,  4 owned travel  plaza  concessions  contracts
will come up for renewal. These contracts,  which represent  approximately $39.8
million, or 22.8% of 1996 travel plaza concessions revenues (includes management
fees for six travel plazas managed for Host Marriott  Tollroads).  Over the next
three years,  one contract  managed by the Company for Host  Marriott  Tollroads
will  come up for  renewal.  Management  fee  income  relating  to this  managed
contract  totaled  $1.5 million in 1996.  The Company  expects to retain most of
these contracts based on its history of retaining such contracts.

                                   7

<PAGE>


SHOPPING MALL AND ENTERTAINMENT CONCESSIONS

       The Company holds 20 contracts to operate food courts, restaurants,  gift
shops and related  facilities  in various  venues,  including  a shopping  mall,
tourist attractions,  stadiums and arenas. The facilities are typically attached
to a larger structure at the venue site.

       Shopping mall and  entertainment  concessions  generated $53.5 million in
revenues in 1996,  approximately  4.7% of total  Company  revenues and generated
$54.1 million in revenues in 1995, approximately 5.4% of total Company revenues.
Merchandise  sales,  including  souvenirs  sold at  sporting  events and tourist
attractions,  comprise  56.7% of the Company's  shopping mall and  entertainment
concession  revenues compared with 68.0% in 1995.  Unbranded food and beverages,
including alcoholic beverages, accounted for 36.5% of revenues in 1996, compared
with  30.0% in  1995.  Branded  food and  beverage  sales  increased  to 6.4% of
revenues in 1996, up from 2.0% in 1995, primarily due to food and beverage sales
at the Ontario Mills food court, which opened in November 1996.

       Shopping mall and entertainment concession contracts usually have initial
terms of five or more years. The Ontario Mills Mall contract has an initial term
of 12 years. The Company leases its premises at a fee which is negotiated at the
time the  concession  contract is awarded.  The Company's  portfolio of shopping
mall and entertainment  concession contracts is diversified in the U.S. in terms
of  geographic  location  and  type  and  size  of  venue.  No  single  contract
constitutes a material portion of the Company's total revenues. As of January 3,
1997, the average length of time remaining on the Company's 20 shopping mall and
entertainment concession contracts was approximately four years.

OUTLOOK

       The Company is actively  pursuing  new food court  contracts  in shopping
malls,  where the average visit time can be as high as four hours. The U.S. mall
food court market is about $2.5 billion, and the mall industry is consolidating,
reconcepting  and  renovating  which creates a significant  opportunity  for the
Company. The Company believes that food court opportunities in large malls align
well with the  operating  skills  and  experience  of the  management  team.  By
providing mall developers with turnkey food courts with branded concepts,  their
leasing and property  management  activities are  simplified.  In addition,  the
Company  believes  that its  operating  leverage  compared  to the  leverage  of
individual  operators  will  provide  developers  with  better  returns and more
reliable service.  The Company's foothold in the food court concessions  markets
at the Ontario  Mills Mall in California  and the Grapevine  Mills Mall in Texas
(opening in the fall of 1997) have provided a solid  foundation  for the Company
to build on in the future.

       Over  the  next  three  years,  9  entertainment   concessions  contracts
representing  approximately  $14.2  million,  or 26.6% of 1996 shopping mall and
entertainment concessions revenues, will come up for renewal.

RETAINING CONTRACTS AND SECURING NEW CONTRACTS

       The Company has a history of renewing  contracts  upon their  expiration.
The Company was awarded its first airport food and beverage  concession contract
at San Francisco  International  Airport in 1954.  The Company has retained this
contract for the past 42 years.  Since the original  contract award, the Company
has been  awarded  additional  merchandise  concession  contracts,  been granted
options to extend its various  contracts and rebid and won the original contract
three times.

       Contract  renewal  and new bids  are an  integral  part of the  Company's
business.  Securing new  contracts  requires  considerable  management  time and
financial  resources.  The Company has dedicated business development teams with
the expertise, talent and depth to pursue multiple projects simultaneously.  The
Company believes its business  development  resources are substantially  greater
than those of its  competitors.  Since the  beginning  of 1994,  the Company has
retained 72.3% of the annualized  revenues of existing  contracts up for renewal
and has won 21 new contracts with estimated  annual  revenues of $135.3 million.
Annualized  revenues on the new contracts exceed the annualized  revenues on the
contracts not retained by $19.8 million. The majority of the contracts that were
not retained were small,  unprofitable  contracts  that the Company chose not to
pursue. 

                                   8

<PAGE>

THE DISTRIBUTION

       On  December  29,  1995  (the   "Distribution   Date"),   Host   Marriott
distributed,  through a special  dividend to holders of Host  Marriott's  common
stock,  31.9  million  shares of common  stock of Host  Marriott  Services  (the
Company's parent),  resulting in the division of Host Marriott's operations into
two separate companies. The shares were distributed on the basis of one share of
Host  Marriott  Services'  common  stock for every five shares of Host  Marriott
stock.  Subsequent to the Distribution  Date, Host Marriott continues to conduct
its real estate related businesses and Host Marriott Services operates the food,
beverage  and  merchandise  concession  businesses  in travel and  entertainment
venues.

       In connection with the Distribution,  Host Marriott retained all cash and
cash equivalent balances of Host Marriott Services and its subsidiaries,  except
for a defined level of initial cash equaling $25.0 million,  adjusted to include
certain   estimated   future   restructuring   expenditures,   certain   capital
expenditures,  and  cash  maintained  at a  foreign  airport  operation.  At the
Distribution  Date,  the  Company  held cash in excess of the  defined  level of
initial  cash of $7.9  million  that was payable to Host  Marriott.  The Company
retained  certain  liabilities of Host Marriott  totaling $4.8 million as of the
Distribution Date.

       In  connection  with the  Distribution  and the sale of the Senior  Notes
(described below), the Company  transferred three full-service hotels and assets
and liabilities related to certain former restaurant operations to Host Marriott
or a subsidiary of Host Marriott. The Company entered into management agreements
related to certain restaurant  operations retained by Host Marriott.  Management
fees related to these contracts were $0.2 million, $1.2 million and $2.0 million
in 1996, 1995 and 1994, respectively.

RELATIONSHIP WITH HOST MARRIOTT CORPORATION

       For purposes of governing  certain of the ongoing  relationships  between
Host  Marriott  Services  and Host  Marriott  after the special  dividend and to
provide for an orderly  transition,  Host  Marriott  Services and Host  Marriott
entered into various agreements including a Distribution  Agreement, an Employee
Benefits  Allocation  Agreement,  a Tax  Sharing  Agreement  and a  Transitional
Services  Agreement.  Effective as of the  Distribution  Date,  these agreements
provide,  among  other  things,  for the  allocation  of assets and  liabilities
between Host Marriott  Services and Host Marriott,  including but not limited to
liabilities  related to employee stock and other benefit  plans.  The agreements
establish  certain  obligations for Host Marriott  Services to issue shares upon
exercise  of Host  Marriott  warrants  and to issue  shares  or pay cash to Host
Marriott  upon  exercise  of stock  options and upon  release of deferred  stock
awards held by certain former  employees of Host Marriott.  The agreements  also
provide that Host Marriott  Services will receive  corporate  services,  such as
accounting and computer systems support, and may receive  transitional  services
(cash management, accounting, and others) from Host Marriott.

RELATIONSHIP WITH MARRIOTT INTERNATIONAL

       On  October  8,  1993  (the  "MI  Distribution   Date"),   Host  Marriott
distributed through a special dividend to holders of Host Marriott common stock,
all  of  the  outstanding  shares  of  its  wholly-owned   subsidiary   Marriott
International, Inc. ("Marriott International").  In connection with the Marriott
International  distribution,  Host Marriott and Marriott  International  entered
into various management and transitional  service agreements.  In 1995 and 1994,
the Company  purchased  food and  supplies of $63.8  million and $65.2  million,
respectively,   from  affiliates  of  Marriott   International  under  one  such
agreement. In addition, under various service agreements,  Host Marriott paid to
Marriott  International  $11.9  million  and  $10.5  million  in 1995 and  1994,
respectively,  which  represented  the  Company's  allocated  portion  of  these
expenses.

       In  connection  with the  spin-off of Host  Marriott  Services  from Host
Marriott,  Host  Marriott  Services  and Marriott  International  entered into a
Continuing  Services  Agreement,  a  Noncompetition  Agreement,  and  a  License
Agreement.  These  agreements  provide,  among other things,  that Host Marriott
Services will receive (i) certain  corporate  services,  such as accounting  and
computer systems support, (ii) various product supply and distribution services,
and  (iii)  various  other  transitional   services.   In  accordance  with  the
agreements,  Host Marriott Services will compensate  Marriott  International for
services rendered  thereunder.  As a part of the Continuing  Services Agreement,
the Company paid 

                                   9

<PAGE>

Marriott  International $76.9 million for purchases of food and
supplies and paid $10.7 million for corporate support services during 1996.

SENIOR NOTES OFFERING

       The Company is the obligor on $400.0  million of senior notes due in 2005
(the "Senior Notes"). The Senior Notes are fully and unconditionally  guaranteed
(limited only to the extent  necessary to avoid such guarantees being considered
a fraudulent  conveyance  under  applicable law) on a joint and several basis by
certain  subsidiaries  of the Company (the  "Guarantors").  The Senior Notes are
also secured by a pledge of the stock of the Guarantors. The indenture governing
the Senior Notes (the "Senior Notes Indenture")  contains  covenants that, among
other  things,   limit  the  ability  of  the  Guarantors  to  incur  additional
indebtedness,  issue preferred stock, pay dividends or make other distributions,
repurchase  capital stock or  subordinated  indebtedness,  create certain liens,
enter into certain  transactions with affiliates,  sell certain assets, issue or
sell  capital  stock of the  Guarantors  and  enter  into  certain  mergers  and
consolidations.

COMPETITION

       The Company competes with certain national and several regional companies
to obtain the  rights  from  airport,  highway  and  municipal  authorities  and
shopping mall developers to operate food, beverage and merchandise  concessions.
The airport  food and  beverage  concession  market is  principally  serviced by
several  companies,   including  the  Company,  CA  One  Services,   Concessions
International,  Ogden Food  Services  and  McDonald's.  The airport  merchandise
concession industry is more fragmented with the major competitors being Paradies
Shops, W.H. Smith, Duty Free  International,  DFS Group Limited and Hudson News.
The U.S.  tollroad  market  principally is served by the Company and McDonald's,
with  Hardee's  holding a minor  share of the  segment.  The  shopping  mall and
entertainment  concessions segments are fragmented and principally  dominated by
individual  operators with a number of competitors  operating  contracts.  These
competitors include: ARAMARK Corporation,  Ogden Food Services, Service America,
Volume Services, McDonald's and Delaware North.

       To compete  effectively,  the Company  regularly  updates and refines its
product  offerings  (including the addition of branded products) and facilities.
Through these efforts,  the Company is able to generate  higher sales per square
foot of concession space and thereby increase returns to the airport and highway
authorities and as well as to the Company. Achieving these financial results, as
well as achieving high customer and landlord  satisfaction with the products and
services  provided,  enhances the Company's ability to renew contracts or obtain
new contracts.

GOVERNMENT REGULATION

       The Company is subject to various governmental  regulations incidental to
its  business,   such  as  environmental,   employment  and  health  and  safety
regulations.  The Company maintains  internal controls and procedures to monitor
and comply with such regulations.  The cost of the Company's compliance programs
is not material.

EMPLOYEES

       At January 3, 1997,  the  Company  directly  employed  or managed  23,108
employees.  Approximately  6,400 of these  employees  are covered by  collective
bargaining  agreements  which are  subject  to review  and  renewal on a regular
basis.  The Company has good relations  with its unions and has not  experienced
any material business interruption as a result of labor disputes.

OTHER PROPERTIES

       In addition to the  operating  properties  discussed  above,  the Company
leased 45,288 square feet of office space in Bethesda, Maryland, which served as
the  Company's  corporate  headquarters  as of the end of fiscal  year 1996.  In
February  1997,  the  Company  relocated  its  corporate  headquarters  to  6600
Rockledge  Drive,  Bethesda,  Maryland 20817.  The new office space lease is for
75,780  square  feet of space and has an initial  lease term  expiring  in seven
years on December 31, 2003.

                                   10


<PAGE>

       The Company's  telephone  number is (301) 380-7000.  Business results and
other financial  information is available at the Host Marriott  Services Website
on the Internet's World Wide Web, or by dialing 1-888-380-HOST.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

       The Company and its subsidiaries are involved in litigation incidental to
their  businesses.  Such  litigation  is  not  considered  by  management  to be
significant and its resolution  would not have a material  adverse effect on the
financial condition or results of operations of the Company or its subsidiaries.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None.


                                   11


<PAGE>


                                  PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

       The Company's common stock is not publicly traded.

ITEM 6. SELECTED HISTORICAL FINANCIAL DATA

       The following table presents summary selected  historical  financial data
derived from the Company's audited  consolidated  financial statements as of and
for the five most recent fiscal years ended January 3, 1997. The  information in
the table  should  be read in  conjunction  with  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations" and the consolidated
financial  statements of the Company included  elsewhere  herein.  The Company's
fiscal year ends on the Friday closest to December 31.

<TABLE>
<CAPTION>
-------------------------------------------------------- ----------- ----------- ----------- ---------- -----------
                                                            1996      1995 (1)    1994 (2)   1993 (3)    1992 (4)
-------------------------------------------------------- ----------- ----------- ----------- ---------- -----------

                                                                  (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<S>                                                         <C>          <C>        <C>        <C>          <C>

STATEMENT OF OPERATIONS DATA:
    Total revenues                                          $1,140        $993        $944       $871      $  729

    Operating profit                                            60           2          22         28          31
    Income (loss) before extraordinary item
       and cumulative effect of change in
       accounting principle                                     13         (42)        (14)        (7)          8
    Net income (loss)                                           13         (51)        (14)       (11)          8

BALANCE SHEET DATA:
    Total assets                                               536         473         523        546         548
    Total long-term debt                                       408         409         393        394         396
    Shareholder's equity (deficit)                            (130)       (150)        (47)        (5)         17

OTHER OPERATING DATA:
    Cash flows provided by operations                           99          46          57         61          38
    Cash flows used in investing activities                    (50)        (43)        (32)       (43)        (75)
    Cash flows provided by (used in) financing activities       (1)         18         (29)        (5)         42
    EBITDA (5)                                                 112          95          85         94          79
    Cash interest expense                                       39          40          41         40          36

<FN>
(1)    The results for 1995 included  $22.0 million of write-downs of long-lived
       assets  (reflecting the adoption of a new accounting  standard) and $14.5
       million of restructuring charges related to initiatives to improve future
       operating results.
(2)    The results for 1994 included a $12.0 million  charge for the transfer of
       an unprofitable  stadium concessions contract to a third party, which was
       partially offset by a $4.4 million  reduction in self insurance  reserves
       for general liability and workers' compensation claims.
(3)    Statement of Financial  Accounting  Standards (SFAS) No. 109, "Accounting
       for Income Taxes," was adopted in 1993 resulting in a  $4.8 million  
       noncash  charge to reflect its  adoption.  The Company also  recorded in
       1993 a restructuring charge of $7.4 million.
(4)    In  1992,  the  Company  acquired  26  food,   beverage  and  merchandise
       concessions   contracts   from  Dobb's   Houses,   Inc.   Excluding  this
       acquisition, airport revenues increased $6.0 million from 1992 to 1993.
(5)    EBITDA  consists of the sum of consolidated  net income (loss),  interest
       expense,  income taxes,  depreciation  and amortization and certain other
       noncash items (principally  restructuring reserves and asset write-downs,
       including   subsequent  payments  against  such  previously   established
       reserves).  EBITDA data is presented because such data is used by certain
       investors  to  determine  the  Company's  ability  to meet  debt  service
       requirements and is used in certain debt covenant  calculations  required
       under the Senior Notes Indenture.  The Company  considers EBITDA to be an
       indicative measure of the Company's operating performance.  EBITDA can be
       used to measure  the  Company's  ability to service  debt,  fund  capital
       expenditures and expand its business;  however,  such information  should
       not be considered an alternative to net income,  operating  profit,  cash
       flows from  operations,  or any other operating or liquidity  performance
       measure  prescribed by generally  accepted  accounting  principles.  Cash
       expenditures for various  long-term  assets,  interest expense and income
       taxes have been,  and will be,  incurred  which are not  reflected in the
       EBITDA  presentations.  The calculation of EBITDA for the Company may not
       be  comparable to the same  calculation  by other  companies  because the
       definition of EBITDA varies throughout the industry.
</FN>
</TABLE>

                                   12


<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

GENERAL

     On December 29, 1995, Host Marriott  Services  Corporation  ("Host Marriott
Services")  became a publicly  traded company and the successor to Host Marriott
Corporation's  ("Host  Marriott")  food,  beverage  and  merchandise  concession
businesses in travel and  entertainment  venues.  On that date,  31.9 million of
common stock of Host Marriott  Services were  distributed to the holders of Host
Marriott's common stock in a special dividend (the "Distribution" - see Note 2).
Host International ("the Company") is the principal  wholly-owned  subsidiary of
Host Marriott Services. The following analysis and the accompanying consolidated
financial  statements  are presented as if the Company were formed as a separate
entity of Host Marriott Services for all periods presented.

     Comparisons  of results of operations for 1996 and 1995 are impacted by the
transfer of six airport concessions  contracts to the Company from Host Marriott
during the fourth quarter of 1995. The revenues and operating costs and expenses
of these six airport concessions contracts are included in the operating results
for 1996, but are excluded from  operating  results for the period of 1995 prior
to the transfer on September 9, 1995. The amounts of revenues,  operating  costs
and expenses,  and operating profit of these six airport  concessions  contracts
that were excluded from the operating results in 1995 were $40.3 million,  $34.2
million,  and $6.1 million,  respectively.  The Company recorded  management fee
income of $4.3  million  for  these  contracts  in 1995,  which is  included  in
revenues.  Prior to the transfer of these  contracts,  the Company managed these
six airport concessions  contracts for Host Marriott and received an agreed-upon
management fee for such management services.

     The Company also receives fees for managing six tollroad contracts for Host
Marriott  Tollroads,  Inc. ("Host Marriott  Tollroads")  which is a wholly-owned
subsidiary  of Host Marriott  Services.  Base  management  fees related to these
travel plaza contracts are based on a percentage of total revenues earned by the
period by each of the travel plazas, with additional  incentive  management fees
determined  as a percentage  of available  cash flow.  Management  fees received
related these travel plaza concession  facilities  totaled $13.9 million,  $10.9
million and $5.4 million in 1996, 1995 and 1994, respectively.

     The Company's airport  concessions  contributed  approximately 80.0% of the
Company's  total  revenues in fiscal year 1996.  Since 1994,  airport  revenues,
including  management fees related to six airport  contracts  transferred to the
Company  during 1995,  have grown at a compound  annual  growth rate ("CAGR") of
14.6%  from  $694.5  million  in 1994 to $911.9  million  in 1996.  Since  1994,
operating profit at the Company's airport concessions  facilities has grown at a
CAGR of 16.6% and totaled $86.2 million in 1996.

     The Company's travel plazas concessions contributed  approximately 15.3% of
the  Company's  total  revenues in fiscal year 1996  (includes  management  fees
related to travel  plazas  managed  for Host  Marriott  Tollroads).  Since 1994,
travel plazas  revenues have grown at a CAGR of 0.2% from $173.5 million in 1994
to  $174.2  million  in 1996  (includes  the  aforementioned  management  fees).
Operating  profit  increased to $19.7  million in 1996, an increase of 6.5% over
1995,  primarily  reflecting  operational  improvements  achieved in 1996. Since
1994, operating profit at the Company's travel plaza concessions  facilities has
grown at a CAGR of 18.3%.

     Revenues representing 4.7% of the Company's fiscal year 1996 total revenues
were  generated  from the  operation  of  restaurants,  gift  shops and  related
facilities at food courts in shopping malls and at various tourist  attractions,
casinos,  stadiums and arenas.  The operating  results of this  component of the
Company's  business were negatively  affected by a large,  unprofitable  stadium
contract entered into in 1991 which was transferred to a third party in 1994.

1996 COMPARED TO 1995

REVENUES

      Revenues for the year ended January 3, 1997,  increased by $146.3 million,
or 14.7%,  to $1.1 billion  compared  with revenues of $1.0 billion for the year
ended December 29, 1995. Had the Company  included the $40.3 million of revenues
related to the six airport concessions contracts,  offset by the $4.3 million in


                                   13

<PAGE>

management  fees  recorded  as revenues  in 1995,  revenues  for 1996 would have
increased by $110.3  million,  or 10.7%,  over 1995. This increase was driven by
strong performance in the airport concessions business line.

AIRPORTS

       Airport concession revenues,  excluding the impact of the transfer of six
airport  concessions  contracts,  were up $153.8  million,  or 20.3%,  to $911.9
million for fiscal year 1996 compared with $758.1  million for fiscal year 1995.
Domestic airport concessions  revenues increased by $129.6 million, or 17.9%, to
$855.5  million for 1996 compared with $725.9  million for 1995. Had the Company
included the $40.3 million of revenues, offset by the $4.3 million in management
fees,  related to the six  transferred  airport  concessions  contracts in 1995,
total  airport  revenues  and  domestic  airport  revenues  for 1996  would have
increased by 14.8% and 12.3%.  International airport revenues were $56.4 million
in 1996, up substantially from the $32.2 million in 1995, respectively.  Revenue
growth in airport  concessions  can be attributed to strong  fundamentals in the
airport  business,  with  passenger  enplanements  at comparable  airports up an
estimated 7% over last year and the benefit of an additional  week of operations
(see  "Accounting  Period").  Revenue  growth at comparable  airport  locations,
including the impact of the six transferred airport concessions contracts,  grew
an  impressive  14.2% during 1996.  The  positive  effects of new  noncomparable
contracts,  primarily  Hartsfield  Atlanta  International  Airport and Amsterdam
Airport  Schiphol  in the  Netherlands,  were offset by the  negative  impact of
contracts  with  significant   changes  in  scope  of  operation  and  contracts
undergoing  significant  construction  of new  facilities.  Revenue per enplaned
passenger ("RPE") grew 6% at the Company's  comparable airport location in 1996.
The Company has benefited from annual passenger  enplanement growth in excess of
the FAA forecast,  which projected annual passenger  enplanement  growth of 4.1%
through the year 2008.  The growth in RPE can be  attributed  to the addition of
new branded locations, moderate increases in menu prices and benefits from other
strategic  initiatives.  The severe winter weather  throughout the United States
during the first quarter of 1996 caused  flight delays which  resulted in longer
visit times in airports for air travelers and translated into increased revenues
from the Company's airport food, beverage and retail concessions.

TRAVEL PLAZAS

       Travel plaza concession revenues for 1996 were $160.3 million, a decrease
of 3.4% compared with $165.9 million in 1995.  Excluding  revenues relating to a
low  margin  gasoline  service  contract  on one  tollroad  and a minor food and
beverage contract on another tollroad,  both of which the Company exited from in
the fourth  quarter of 1995,  revenue  growth for travel plaza  concessions on a
comparable  contract basis was 3.3% in 1996.  Growth in travel plaza concessions
revenues was  attributable to minor increases in customer  traffic on tollroads,
moderate price  increases and the benefit of an extra week of operations in 1996
(see  "Accounting  Period").  The harsh winter  weather that  benefited  airport
concessions constrained travel plaza revenues in the first quarter of 1996.

SHOPPING MALLS AND ENTERTAINMENT

       Shopping mall and entertainment concession revenues, primarily consisting
of  merchandise,  food and  beverage  sales at food  courts in  shopping  malls,
stadiums,  arenas,  and other tourist  attractions,  was $53.5 million for 1996,
down slightly from $54.1 million for 1995. The decrease in revenues was a result
of the Company's  planned exit from seven retail operations in the business line
that were deemed to be inconsistent with the Company's core strategies. Revenues
from the  Company's  entrance  into the  shopping  mall food  court  concessions
business at the Ontario  Mills Mall in  California  during 1996  largely  offset
decreased  revenues  from  the  seven  exited  retail  operations.  The  Company
announced in the second quarter of 1996 a definitive  agreement on a second mall
project with The Mills Corporation to operate food and beverage locations at the
Grapevine Mills Mall outside of Dallas,  Texas.  The mall is expected to open in
the fall of 1997, and the Company's operations will be similar in size and scope
to the Ontario Mills Mall project.

MANAGEMENT FEE INCOME

       Management  fee income for 1996 was $13.9  million,  compared  with $15.2
million for 1995.  Travel plaza management fee income increased to $13.9 million
for 1996, compared with $10.9 million 1995, reflecting  significant increases in
management fee percentages on all managed travel plaza  concessions.  There were
no fees 

                                   14

<PAGE>

received  from managing  airport  concessions  contracts  during 1996 as
compared to $4.3 million for 1995. The airport  management  fees received during
1995 were related to six airport  concessions  contracts  that were  transferred
from Host Marriott to the Company on September 9, 1995.

OPERATING COSTS AND EXPENSES

       The  Company's  total  operating  costs and expenses  (excluding  unusual
items) increased by $124.4 million, or 13.0%, to $1.1 billion for 1996, or 94.7%
total revenues,  compared with $1.0 billion for 1995 (excluding  unusual items),
or 96.2% of total revenues. The improved operating profit margin of 5.3% in 1996
compared  with  3.8% in  1995  (excluding  unusual  items),  reflects  operating
leverage  benefits  derived from revenue growth and reduced costs resulting from
the  implementation of several operating  initiatives.  Had the Company included
the $34.2  million of  operating  costs  related to the six airport  concessions
contracts  in 1995,  total  operating  costs and  expenses  for 1996  would have
increased by $90.2 million, or 9.1%, over 1995 (excluding unusual items).

       Cost of sales for 1996 was $335.9 million,  an increase of $31.1 million,
or 10.2%,  over  last  year.  Cost of sales as a  percentage  of total  revenues
decreased  120 basis  points  during  1996,  most  notably  due to various  cost
controlling  initiatives  implemented during the year. These initiatives include
the roll out of the Store Manager concept intended to move management  closer to
the  customer  to  improve  customer  satisfaction;  the  renegotiation  of  all
distributor  agreements  for books and magazines in the  Company's  airports and
travel plazas to improve service, in-stock availability and cost margins as well
as a program  under which brand  experts  ("Brand  Champions")  are  assigned to
certain of the Company's largest selling branded concepts.  The Brand Champion's
function is to promote operational  excellence and create operating efficiencies
across all locations of a particular  brand.  Also  contributing to the improved
cost of sales margin was the closure of a low margin gasoline  service  contract
on one tollroad during the fourth quarter of 1995.

       Payroll and benefits  totaled  $334.9  million  during 1996, a 15.5%,  or
$44.9 million increase over 1995.  Payroll and benefits as a percentage of total
revenues increased slightly from 29.2% in 1995 to 29.4% in 1996.

       Rent  expense  totaled  $181.1  million  for 1996,  an  increase of $24.3
million,  or 15.5%,  over  1995.  The  majority  of  increased  rent  expense is
attributable  to increased  revenues on contracts  with rentals  determined as a
percentage of revenues. Rent expense as a percentage of total revenues increased
to 15.9%  for  1996  from  15.8%  in 1995.  The  margin  increase  is  primarily
attributable to equipment rentals related to a new point of sale and back office
computer system rolled out to operating units in late 1995 and 1996.

       Royalties expense for 1996 increased by 29.4% to $20.7 million from $16.0
million for last year.  As a percentage  of total  revenues,  royalties  expense
increased  to 1.8%  for 1996  compared  with  1.6% for  1995.  The  increase  in
royalties  expense  reflects the  Company's  continued  introduction  of branded
concepts to its airport  concessions  operations.  Branded  facilities  generate
higher sales per square foot and contribute  toward  increased RPE, which offset
royalty  payments  required to operate the concepts.  Branded concepts in all of
the Company's  venues have grown at a CAGR of 12.2% over the last five years. No
single branded  concept  accounts for more than 10% of total  revenues.  Branded
revenues increased 24.1% in 1996, when compared with 1995, the majority of which
related to branded sales at airports.

       Branded revenues in airports have increased 42.8% when comparing 1996 and
1995 through the  introduction  of branded  concepts in the Company's  airports.
This  increase can be attributed to large new branded  concept  developments  at
Dulles  International  Airport (just  outside of  Washington,  D.C.),  San Diego
International  Airport, Los Angeles International Airport and Hartsfield Atlanta
International  Airport.  Airport  branded  product  sales for 1996  increased to
$216.5  million,  or 23.7% of  total  airport  revenues,  compared  with  $151.6
million, or 20.0% of total airport revenues in 1995.

       Depreciation  and  amortization  expense  included in operating costs and
expenses was $49.7  million for 1996,  down 3.3% compared with $51.4 million for
1995,  primarily reflecting the impact of the Company's adoption of SFAS No. 121
during  the  fourth  quarter  of 1995.  The  adoption  of SFAS No.  121  reduced
depreciation expense by $3.4 million in 1996.

                                   15

<PAGE>

       General and  administrative  expenses  were $50.6  million  for 1996,  an
increase of $5.1 million,  or 11.2%,  over the $45.5 million total for 1995. The
level of corporate  expenses  incurred during 1996 reflect increased general and
administrative  costs  incurred to operate the Company on a  stand-alone  basis,
including  additional  payroll and  benefits  for a newly  established  in-house
architectural and construction management department. Prior to 1996, the Company
had  purchased  and  capitalized   construction   management   services  from  a
third-party provider.

       Other operating  expenses,  which include utilities,  casualty insurance,
equipment  maintenance,  trash removal and other  miscellaneous  expenses,  were
$106.6  million  for 1996,  a $16.0  million  or 17.7%  increase  over the $90.6
million  total for 1995.  As a percentage  of total  revenues,  other  operating
expenses increased 30 basis points for 1996 when compared with 1995.

UNUSUAL ITEMS

The 1995 results reflect the following significant unusual items:

 *   The  Company  adopted a new  accounting  standard  for the  impairment  of
     long-lived assets that  resulted in the  recognition  of $22.0  million of
     asset write-downs in 1995. (See "Impairments of Long-Lived Assets").

 *   The Company  recognized  $14.5 million of  restructuring  charges in 1995,
     primarily representing  employee  severance and lease buy-out  costs.  The
     charges were taken to restructure the Company's business processes, thereby
     reducing  long-term  operating and general and  administrative  costs. (See
     "1995 Restructuring").

OPERATING PROFIT (LOSS)

       As a result of the changes in revenues and  operating  costs and expenses
discussed  above,  operating  profit  increased  to  $60.1  million,  or 5.3% of
revenues  for 1996.  Excluding  the effects of unusual  items  recorded in 1995,
operating  profit  was  $38.2  million,  or 3.8% of  revenues.  The  substantial
improvement  in the cost of sales  margin and the lower  depreciation  resulting
from the  adoption of SFAS No. 121 in 1995 were the primary  factors that caused
the  increase in the overall  operating  profit  margin.  Operating  profits for
airports and travel  plazas,  prior to the  allocation of corporate  general and
administrative  expenses and  excluding  unusual  items,  were $86.2 million and
$19.7 million,  respectively,  for 1996 as compared with $64.1 million and $18.5
million,  respectively,  for  1995.  Operating  profits  for  shopping  mall and
entertainment,  excluding general and administrative expenses and unusual items,
totaled $4.8 million and $1.1 million for 1996 and 1995, respectively.

       Operating profit margins increased,  excluding general and administrative
expenses and unusual items,  in all three  business  lines during 1996.  Airport
operating  profit margins,  excluding  general and  administrative  expenses and
unusual  items,  equaled 9.5% for 1996 compared  with 8.5% for 1995.  The travel
plazas operating profit margins,  excluding general and administrative  expenses
and unusual items, equaled 11.3% and 10.5% for 1996 and 1995, respectively.  The
shopping mall and entertainment  operating profit margin,  excluding general and
administrative  expenses and unusual items, increased to 9.0% for 1996 from 2.0%
for 1995.


INTEREST EXPENSE

       Interest  expense was $40.1  million for 1996 compared with $40.3 million
for  1995.  This  decrease  was  attributable  to  lower  interest  rates on the
Company's  debt as a result of the May 1995 issuance of $400.0 million in Senior
Notes at a fixed rate of 9.5%,  which is nearly 100 basis  points lower than the
debt that it replaced.  The favorable  effect of these lower  interest rates was
partially  offset by the cost of incremental debt that was incurred as a part of
the Senior Notes  issuance,  the cost of debt assumed in the  acquisition of the
Schiphol  contract,  as well as an increased  level of  amortization of deferred
financing costs.

INTEREST INCOME

       Interest  income totaled $2.2 million for 1996 compared with $0.7 million
for 1995.  This increase in interest income during 1996 was primarily due to the
Company  accelerating  the  transfer  of cash  balances  from  local  depository
accounts to corporate interest bearing consolidation  accounts as well as having
increased cash available from operations.

                                   16

<PAGE>

 INCOME TAXES

       The  provision  for income  taxes for 1996 and 1995 was $9.3  million and
$3.9 million,  respectively.  The  effective  income tax rate for 1996 was 41.9%
compared with 10.8% for 1995.  The provision in 1995 was affected by an increase
in the deferred tax asset valuation allowance of $17.0 million to reduce the net
deferred  tax asset to the amount  that is more  likely  than not to be realized
(see "Deferred Tax Assets").  The provision for this valuation  allowance offset
the tax benefit of the 1995 loss  included  in 1995  results.  The 1996  results
include a $5.2 million  decrease in the valuation  allowance due to the decrease
in the  state  effective  tax  rate  and the  expiration  of  purchase  business
combination tax credits.

EXTRAORDINARY ITEM

       During  the  second   quarter  of  1995,   the  Company   recognized   an
extraordinary  loss of $14.8 million ($9.6 million after the related  income tax
benefit of $5.2 million) in connection with the redemption and defeasance of the
Host Marriott  Hospitality,  Inc. Senior Notes. This loss primarily  represented
premiums of $7.0  million  paid on the  redemptions  and the  write-off  of $7.8
million of deferred financing costs.

NET INCOME (LOSS)

       The Company's net income for 1996 was $12.9 million,  compared with a net
loss of $51.4  million  for 1995.  The  increase  in the  Company's  net  income
primarily was due to certain unusual and extraordinary  items occurring in 1995,
including  $22.0 million of write-downs of long-lived  assets,  $14.5 million of
restructuring  charges and $9.6 million of losses on the  extinguishment of debt
(see "Unusual Items" and "Extraordinary Items").


1995 COMPARED TO 1994

REVENUES

       The  Company's  revenues  increased  5.2%,  or $49.1  million,  to $993.3
million for the year ended  December  29, 1995 from $944.2  million for the year
ended  December  30,  1994,  primarily  due to an increase in airport and travel
plaza  concession  revenues,  partially offset by a decline in shopping mall and
entertainment concessions revenues.

       Airport revenues  increased 9.8%, or $67.9 million,  to $758.1 million in
1995 from $690.2 million in 1994.  Domestic airport revenues  increased 6.5%, or
$44.5  million,  to $725.9  million in 1995 from  $681.4  million  in 1994.  The
increase in domestic  airport revenues was driven by an estimated 3% enplanement
growth during 1995 and new contract revenues generated in three airports,  which
were  partially   offset  by  lost  revenues  on  several   expired   contracts.
International airport revenues increased $23.4 million in 1995 to $32.2 million.
Increased  revenues  in the  international  sector  reflect  the  third  quarter
acquisition  of  operations at Schiphol  International  Airport in Amsterdam and
strong revenues at Vancouver Airport which opened in late 1994.

       Travel plaza concession  revenues,  excluding management fees relating to
six travel plazas managed for Host Marriott  Tollroads,  decreased 1.3%, or $2.2
million,  to $165.9 million from prior year revenues of $168.1  million,  due to
the loss of one minor  tollroad  contract with $7.0 million in annual  revenues.
Revenue growth for travel plaza  concessions on a comparable  contract basis was
1.0% for 1995 and can be  attributed to mild weather in the Northeast and strong
traffic growth on one tollroad.

       Shopping mall and entertainment concession revenues, primarily consisting
of merchandise, food and beverage sales at shopping malls, stadiums, arenas, and
other  tourist  attractions,  decreased  by 29.0%,  or $22.1  million,  to $54.1
million  for 1995,  from  $76.2  million  for 1994,  resulting  from the loss of
revenues from the transfer of one unprofitable stadium concessions contract to a
third party,  the loss of certain gift shop  contracts and the transfer of three
hotels to Host Marriott as part of the Distribution.

OPERATING COSTS AND EXPENSES

       The  Company's  total  operating  costs and expenses,  excluding  unusual
items, were $1.0 billion in 1995, or 96.2% of total revenues, compared to $914.4
million  in 1994,  or 96.8% of total  revenues.  The  overall  operating  profit
margin,  excluding  the effects of unusual  items,  was 3.8% in 1995 compared to
3.2% in 1994, despite management's  strategy of 

                                   17

<PAGE>

holding prices steady in 1995 to increase customer satisfaction.  Operating cost
increases  in 1995  reflect  higher  food,  merchandise  and other  supply costs
associated with the higher revenues.

UNUSUAL ITEMS

The 1995 and 1994 results reflect the following significant unusual items:

 *   The  Company  adopted a new  accounting  standard  for the  impairment  of
     long-lived  assets that  resulted in the  recognition  of $22.0  million of
     asset write-downs in 1995. (See "Impairments of Long-Lived Assets").

 *   The Company  recognized  $14.5 million of  restructuring  charges in 1995,
     primarily  representing  employee  severance and lease buy-out  costs.  The
     charges were taken to restructure the Company's business processes, thereby
     reducing  long-term  operating and general and  administrative  costs. (See
     "1995 Restructuring").

 *   The Company  recognized a $12.0 million charge in 1994 for the disposition
     of an unprofitable  stadium concessions  contract that was transferred to a
     third party.

 *   The Company  reduced  self-insurance  reserves by $4.4 million for general
     liability  and  workers'  compensation  claims  in  1994,  as a  result  of
     favorable claims experience.

OPERATING PROFIT (LOSS)

       As a result of the changes in revenues and  operating  costs and expenses
discussed above, operating profit decreased to $1.7 million, or 0.2% of revenues
in 1995, from $22.2 million, or 2.4% of revenues, for 1994. Excluding the impact
of unusual items,  operating  profit was $38.2 million in 1995 compared to $29.8
million in 1994, an increase of $8.4 million or 28.2%.

INTEREST EXPENSE

       Interest  expense  decreased $1.8 million to $40.3 million in 1995 due to
lower  interest  rates on the Company's  debt as a result of the issuance of the
Senior  Notes at a fixed  rate of 9.5%  (approximately  a 100 basis  point  rate
reduction as compared to the Hospitality Notes and line of credit).

INTEREST INCOME

       Interest  income totaled $0.7 million for 1995 compared with $0.1 million
for 1994.  This increase in interest income during 1995 was primarily due to the
Company having increased cash available from operations.

PROVISION (BENEFIT) FOR INCOME TAXES

       The  results for 1995 were also  affected by an increase in the  deferred
tax asset  valuation  allowance of $17.0  million to reduce its net deferred tax
asset to the amount that is more likely than not to be realized.  The  provision
for this valuation allowance offset the tax benefit of the 1995 loss included in
1995 earnings. (See "Deferred Tax Assets").

EXTRAORDINARY ITEM

       During  the  second   quarter  of  1995,   the  Company   recognized   an
extraordinary  loss of $14.8 million ($9.6 million after the related  income tax
benefit of $5.2 million) in connection with the redemption and defeasance of the
Host Marriott  Hospitality,  Inc. Senior Notes. This loss primarily  represented
premiums of $7.0  million  paid on the  redemptions  and the  write-off  of $7.8
million of deferred financing costs.

NET LOSS

       The Company's net loss for 1995 was $51.4 million, compared to a net loss
of $14.0 million for 1994.  The increase in the Company's net loss primarily was
due to certain  unusual and  extraordinary  items  occurring in 1995,  including
$22.0  million  of   write-downs   of  long-lived   assets,   $14.5  million  of
restructuring  charges and $9.6 million of losses on the  extinguishment of debt
(see "Unusual Items" and "Extraordinary Items").

                                   18


<PAGE>

PRO FORMA FISCAL YEAR FINANCIAL DATA

       The following table presents  summary  unaudited pro forma  statements of
operations  data for the fiscal  years ended  December 29, 1995 and December 30,
1994, as if the Distribution and related transactions  occurred at the beginning
of each fiscal year. The data is presented for  informational  purposes only and
may not reflect the Company's  future  results of operations or what the results
of  operations  would have been had such  transactions  occurred as of the dates
indicated.

       The  principal  assumptions  used in the  preparation  of the  pro  forma
consolidated  financial statements include the consummation of the Distribution,
the  issuance  of the $400.0  million of Senior  Notes,  the  transfer  of three
full-service  hotels to Host  Marriott,  the transfer of assets and  liabilities
related  to  certain  former  restaurant   operations  to  Host  Marriott,   the
establishment  of management  agreements  for the Company to manage certain Host
Marriott  restaurant  operations,  and the  recognition  of  certain  costs  for
operating the Company on a stand-alone basis.

PRO FORMA FISCAL YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------- --------------------- ---------------------
                                                                            1995                  1994
------------------------------------------------------------------- --------------------- ---------------------

                                                                     (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<S>                                                                          <C>                     <C>


REVENUES                                                                       $1,027.8                $995.0
------------------------------------------------------------------- --------------------- ---------------------

OPERATING COSTS AND EXPENSES                                                    1,023.0                 962.9
------------------------------------------------------------------- --------------------- ---------------------

OPERATING PROFIT                                                                    4.8                  32.1

   Interest expense                                                               (39.1)                (39.2)
   Interest income                                                                  0.8                   0.1
------------------------------------------------------------------- --------------------- ---------------------

LOSS BEFORE INCOME TAXES AND
   EXTRAORDINARY ITEM (1)                                                         (33.5)                 (7.0)

Provision (benefit) for income taxes                                                4.0                  (1.3)
------------------------------------------------------------------- --------------------- ---------------------
NET LOSS BEFORE EXTRAORDINARY ITEM (1)                                         $  (37.5)               $ (5.7)
===============================================================================================================
<FN>

(1)  The pro forma  statement of operations  for 1995 excludes an  extraordinary
     loss of  $9.6  million,  net of the  related  income  tax  benefit  of $5.2
     million,   recorded  in  the  1995  historical  consolidated  statement  of
     operations for the extinguishment of certain long-term debt.
</FN>
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

       The Company funds its capital requirements with a combination of existing
cash balances,  operating cash flow and debt and equity  financing.  The Company
believes that cash flow generated from ongoing operations, current cash balances
and funds  available from existing  credit  facilities are more than adequate to
finance   ongoing   capital   expenditures,   as  well  as,  meet  debt  service
requirements.  The  Company  also has the  ability  to fund its  planned  growth
initiatives  from the sources  identified  above;  however,  should  significant
growth   opportunities   arise,  such  as  business   combinations  or  contract
acquisitions,   alternative   financing   arrangements  will  be  evaluated  and
considered.

       In May 1995,  the  predecessor  corporation  to the Company issued $400.0
million of Senior Notes,  which are now  obligations of the Company.  The Senior
Notes,  which will mature in May, 2005,  were issued at par and have an interest
rate of 9.5%.  The net  proceeds  from the  issuance  were used to defease,  and
subsequently  redeem, bonds issued by another subsidiary of Host Marriott and to
pay  down  a  portion  of a line  of  credit  with  Marriott  International.  In
connection  with the  redemption  and  defeasance  of these  bonds,  the Company
recognized an extraordinary  loss in the second quarter of 1995 of approximately
$14.8 million ($9.6 million after taxes).

       The Company is required to make semi-annual cash interest payments on the
Senior Notes at a fixed  interest  rate of 9.5%.  The Company is not required to
make principal  payments on the Senior Notes until maturity  except in 

                                   19


<PAGE>

the event of (i) certain changes in control or (ii) certain asset sales in which
the proceeds are not invested in other  properties  within a specified period of
time.

       The  Senior  Notes  are  secured  by a pledge  of stock and are fully and
unconditionally  guaranteed  (limited only to the extent necessary to avoid such
guarantees being considered a fraudulent  conveyance under applicable law), on a
joint  and  several   basis  by  certain   subsidiaries   of  the  Company  (the
"Guarantors").  The Senior Notes Indenture  contains covenants that, among other
things,  limit the ability of the Guarantors' to incur  additional  indebtedness
and issue preferred stock, pay dividends or make other distributions, repurchase
capital stock or  subordinated  indebtedness,  create certain liens,  enter into
certain transactions with affiliates, sell certain assets, issue or sell capital
stock of the Guarantors, and enter into certain mergers and consolidations.

       The First National Bank of Chicago, as agent for a group of participating
lenders,  has provided  credit  facilities  ("Facilities")  to the Company in an
aggregate   principal  amount  of  $75.0  million  for  a  5-year  term  ("Total
Commitment").  The Total Commitment  consists of (i) a letter of credit facility
in the amount of $40.0 million ("Letter of Credit Facility") for the issuance of
financial  and  non-financial  letters  of credit  and (ii) a  revolving  credit
facility  in the  amount of $35.0  million  ("Revolver  Facility")  for  working
capital and general  corporate  purposes  other than hostile  acquisitions.  All
borrowings  under the Facilities  are senior  obligations of the Company and are
secured by Host  Marriott  Services  pledge of, and a first  perfected  security
interest  in,  all of the  capital  stock  of the  Company  and  certain  of its
subsidiaries.

       The loan agreements relating to the Facilities contain dividend and stock
retirement  covenants that are  substantially  similar to those set forth in the
Senior  Notes  Indenture,  provided  that  dividends  payable  to Host  Marriott
Services  are  limited  to 25% of the  Company's  consolidated  net  income  and
provided,  further,  that no dividends can be declared by the Company  within 18
months after the closing date of the  Facilities on December 29, 1995.  The loan
agreements  also  contain  certain  financial  ratio  and  capital   expenditure
covenants.  Outstanding borrowings under the Revolver Facility are also required
to be repaid in full for 30  consecutive  days  during  each  fiscal  year.  Any
indebtedness  outstanding  under the  Facilities may be declared due and payable
upon the  occurrence  of certain  events of  default,  including  the  Company's
failure to comply with the several  covenants  noted above, or the occurrence of
certain  events of default  under the Senior Notes  Indenture.  As of January 3,
1997, and  throughout  the year ended January 3, 1997,  there was no outstanding
indebtedness  under the Revolver Facility and the Company was in compliance with
the covenants described above.

    The Company's primary capital  requirements  consist of capital expenditures
and debt  service.  The Company  incurs  capital  expenditures  to build out new
facilities,   including  growth  initiatives,   expand  or  reposition  existing
facilities  and to maintain the quality and  operations of existing  facilities.
The Company's capital expenditures,  including  acquisitions,  in 1996, 1995 and
1994 totaled  $54.9  million,  $51.3  million and $37.1  million,  respectively.
Capital  expenditures  incurred in 1996 relating to the airport and travel plaza
concessions  business lines were $43.2 million,  approximately half of which was
invested in new  facilities at Hartsfield  Atlanta  International  Airport,  Los
Angeles  International Airport and San Diego International Airport The remaining
capital  expenditures  incurred  in 1996 were  related  to the food court at the
Ontario Mills  Shopping  Mall and the  installation  of a new financial  system.
During 1997,  the Company  expects to make capital  expenditure  investments  of
approximately  $78.0  million in its core markets  (domestic  airport and travel
plaza  business  lines) and in growth markets  (international  airports and food
courts in U.S. shopping malls).

    The  Company's  cash  flows  from  operating   activities  are  affected  by
seasonality.  Cash from  operations  generally  is the  strongest  in the summer
months between  Memorial Day and Labor Day. Cash provided by operations,  before
changes in working  capital,  totaled  $62.9  million for 1996 as compared  with
$42.5 million and $44.0 million for 1995 and 1994, respectively.

       The Company's cash used in financing activities in 1996 and 1994 was $0.8
million  and $29.0  million,  respectively,  while cash  provided  by  financing
activities  was $17.9 million in 1995.  The Company's  cash flows from financing
activities  primarily  consisted of net cash  transfers  to/from  Host  Marriott
during 1995 and 1994.

                                   20


<PAGE>

       The  Company  manages  its  working   capital   throughout  the  year  to
effectively  maximize the  financial  returns to the Company.  As a  cash-driven
business,  the Company benefits from maintaining  negative working capital.  The
Company's  working capital at year-end 1996 resulted in its current  liabilities
exceeding its current assets by $7.4 million.  If needed, the Company's Revolver
Facility  provides  funds  for  liquidity,  seasonal  borrowing  needs and other
general  corporate  purposes.  In  the  fourth  quarter  of  1996,  the  Company
transitioned to a new financial system, which included the centralization of the
accounts  payable  function.  As  a  result  of  the  transition,   the  Company
experienced  unusually high year-end  balances in cash and cash  equivalents and
current liabilities.

       The Company's  consolidated  earnings  before  interest  expense,  taxes,
depreciation,  amortization and other non-cash items ("EBITDA")  increased $17.7
million,  or 18.7%, to $112.4 million in 1996.  EBITDA totaled $94.7 million and
$84.9 million in 1995 and 1994,  respectively.  The Company's ratio of EBITDA to
cash interest  expense  (defined as GAAP interest  expense less  amortization of
deferred  financing  costs) was 2.9 to 1.0 in 1996  compared with 2.4 to 1.0 for
1995. EBITDA during 1996 significantly exceeded capital expenditures in core and
growth  markets  of $54.9  million  and  scheduled  interest  payments  of $38.8
million.  The year-to-date  comparisons reflect the impact of improved operating
results in 1996. The Company believes that EBITDA is a meaningful measure of its
operating performance and is used by certain investors to estimate the Company's
ability to meet debt service requirements and fund capital  investments.  EBITDA
information  should not be considered an  alternative  to net income,  operating
profit,  cash  flows  from  operations,  or any  other  operating  or  liquidity
performance  measure  recognized  by Generally  Accepted  Accounting  Principles
("GAAP"). The calculation of EBITDA for the Company may not be comparable to the
same  calculation  by other  companies  because the  definition of EBITDA varies
throughout the industry.

The following is a reconciliation of EBITDA to net income (loss):
<TABLE>
<CAPTION>
----------------------------------------------------------- ---------------------------------------------------------
                                                                  1996               1995                1994
----------------------------------------------------------- ------------------ ------------------ -------------------

                                                                                 (IN MILLIONS)

<S>                                                                <C>                <C>                    <C>

EBITDA                                                                $112.4             $ 94.7              $ 84.9
Interest expense                                                       (40.1)             (40.3)              (42.1)
Provision for income taxes                                              (9.3)              (3.9)                5.8
Extraordinary item, net of taxes                                         ---               (9.6)                ---
SFAS No. 121 and restructuring charges                                   ---              (36.6)               (7.6)
Depreciation and amortization                                          (50.4)             (52.3)              (51.0)
Other non-cash items                                                     0.3               (3.4)               (4.0)
----------------------------------------------------------- ------------------ ------------------ -------------------

NET INCOME (LOSS)                                                     $ 12.9             $(51.4)             $(14.0)
=====================================================================================================================
</TABLE>



IMPAIRMENTS OF LONG-LIVED ASSETS

       Effective  September 9, 1995, the Company adopted  Statement of Financial
Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). Under SFAS
No.  121,  the Company  reviews  its  long-lived  assets  (such as property  and
equipment) and certain  identifiable  intangible assets for impairment  whenever
events or circumstances  indicate that the carrying value of an asset may not be
recoverable.  If the sum of the  undiscounted  estimated future cash flows of an
asset is less than the carrying value of the asset,  an impairment loss equal to
the  difference  between the  carrying  value and the fair value of the asset is
recognized.  Fair value is estimated to be the present value of expected  future
cash flows,  as  determined by  management,  after  considering  such factors as
future air travel and toll-paying vehicle data and inflation.

       Historically, the Company reviewed such assets for impairment by grouping
along its three general business lines (i.e., airports, travel plazas and sports
and entertainment concessions). Although the Company has been aware that certain
operating  units were  generating  losses and cash flow deficits  since the late
1980s,  because the estimated future  undiscounted cash flows on a business-line
basis  exceeded  the carrying  amount of the  Company's  long-lived  

                                   21

<PAGE>

assets on a  business-line  basis,  the Company  offset such negative cash flows
with  positive cash flows from other  operating  units and did not recognize any
impairment charges in 1995 or 1994, prior to the adoption of SFAS No. 121. Under
SFAS No. 121,  the Company is required to assess  impairment  of its  long-lived
assets at the  operating  unit level  (representing  the lowest  level for which
there are identifiable cash flows that are largely independent of the cash flows
of other groups of assets). Generally, each airport and sports and entertainment
facility at which the Company  operates  and each  tollroad on which the Company
operates (as opposed to each travel plaza on a tollroad)  comprises an operating
unit.  As a result of its  adoption of SFAS No. 121,  the Company  recognized  a
noncash,  pretax charge  against  earnings  during the fourth quarter of 1995 of
$22.0 million.

        In adopting  SFAS No. 121 (and thereby  changing its method of measuring
long-lived  asset  impairments  from  a  business-line  basis  to an  individual
operating-unit  basis),  the Company wrote down the related assets to the extent
the carrying value of the assets  exceeded the fair value of the assets in 1995.
Eleven of the fourteen units had projected cash flow deficits,  and, accordingly
the assets of these units were  written  off in their  entirety.  The  remaining
three units had  projected  positive  cash flows and the assets  were  partially
written down to their estimated fair values. Approximately 43% of the total 1995
write-down related to the Orlando airport unit.

         Historically, the Company has incurred negative cash flows at 10 of the
14 individual  operating units, which aggregated  approximately $4.0 million and
$2.0 million in 1995, and 1994, respectively.  The Company incurred net positive
cash flows of $0.5  million in 1996.  These  cash  flows  were  included  in the
Company's reported cash flow from operations for each year. During 1996, five of
the  original  14  impaired  units  either  were  disposed  of or the lease term
expired.  As of the end of 1996,  the total cash flow deficit from the remaining
nine operating  units was projected to be  approximately  $17.6 million over the
remaining  weighted-average life of approximately 4 years.  Substantially all of
the remaining deficit is attributable to two airport units.

1995 RESTRUCTURING

       During 1995,  the Company  performed a review of its operating  structure
and core  business  processes  to identify  opportunities  to improve  operating
effectiveness.  As a  result  of  this  review,  management  approved  a  formal
restructuring   plan  in  October  1995  and  the  Company   recorded  a  pretax
restructuring charge to earnings of $14.5 million in the fourth quarter of 1995.
The  restructuring  charge  was  primarily  comprised  of  involuntary  employee
termination    benefits    (related   to   its    realignment   of   operational
responsibilities)   and  lease  cancellation  penalty  fees  and  related  costs
resulting from the Company's  plan to exit certain  activities in its sports and
entertainment business line.

       The employee  termination  benefits included in the restructuring  charge
reflect the  immediate  elimination  of  approximately  100  corporate and field
operations  positions and the elimination of approximately  200 additional field
operations  positions,   all  of  which  were  specifically  identified  in  the
restructuring plan. Certain initiatives of the restructuring plan were scheduled
to be systematically  implemented throughout the duration of the plan, resulting
in an extended period over which the 200 additional field  operations  positions
would be eliminated.  The Company expects to complete its plan to  involuntarily
terminate employees by the end of the second quarter of 1997, although severance
payments are expected to continue  beyond the end of the second  quarter of 1997
due to the provisions of the severance program that allow for extended severance
payments.  Termination  benefits accrued and charged to expense in 1995 amounted
to $11.6 million and are included in  restructuring  charges in the consolidated
statements of operations.  Actual termination  benefits paid and charged against
the liability as of January 3, 1997 were $4.8  million.  As of the end of fiscal
year 1996,  the Company had  terminated  185  positions in  connection  with the
restructuring plan.

     The exit plan specifically  identified ten operating units in the Company's
shopping  mall and  entertainment  business  line that were to be closed.  These
retail  operations  were  deemed  to be  inconsistent  with the  Company's  core
operating strategies. As of the end of fiscal year 1996, seven of the ten stores
had been closed, and the Company expects to complete the exit plan by the end of
the first quarter of 1997. Lease cancellation penalty fees and related costs and
asset write-downs accrued and charged to expense amounted to $2.9 million during
1995 and are included in restructuring charges in the consolidated statements of
operations.  Actual  penalty fees or related costs paid and charged  against the
liability  as of  January  3, 1997 were $3.0  million.  Revenues  and  operating
profits / (losses) of 

                                  22

<PAGE>

the ten stores amounted to $6.0 million and $40 thousand, respectively, in 1996,
$8.0 million and $(0.5)  million,  respectively,  in 1995,  and $8.4 million and
$(0.2) million, respectively, in 1994.

DEFERRED TAX ASSETS

       The Company has  recognized net assets of $78.7 million and $74.9 million
at January 3, 1997 and  December  29,  1995,  respectively,  related to deferred
taxes,  which generally  represent tax credit  carryforwards  and tax effects of
future available deductions from taxable income. Prior to the Distribution,  the
Company was  included in the Host  Marriott  Corporation  affiliated  group (the
"Host  Marriott  Group")  for  purposes  of  its  Federal  income  tax  filings.
Management believes that the realization of the net deferred tax assets recorded
through the Distribution  Date is more likely than not to occur because the Host
Marriott Group has deferred tax liabilities that must be paid in the future that
are substantially in excess of the Company's recognized net deferred tax assets.

       Upon  consummation  of the  Distribution,  the Company  became a separate
affiliated group for purposes of its Federal income tax filings.  Management has
considered  various  factors as described  below and believes that the Company's
recognized net deferred tax assets are more likely than not to be realized.

       Realization of the net deferred tax assets are dependent on the Company's
ability to generate future taxable  income.  During the period 1994 to 1996, the
Company  would have  generated  taxable  and pretax book income in each year and
cumulative  taxable and pretax book income for this period of $89.0  million and
$31.7  million,  respectively,  after  adjusting  for the pro forma  effects  of
certain  transfers  related  to the  Distribution  and for  unusual  income  and
charges.  The  relationship of pretax book income and taxable income is expected
to  continue   indefinitely  with  future  originating   temporary   differences
offsetting  the  reversal  of  existing  temporary  differences.  The  Company's
temporary differences relate primarily to property and equipment,  accrued rent,
reserves  and   alternative   minimum  tax  and  general   business  tax  credit
carryforwards.  All of these temporary  differences  represent  future available
credits or deductions from ordinary taxable income.

       Management  believes that it is more likely than not that future  taxable
income will be  sufficient  to realize the net deferred  tax assets  recorded at
January 3, 1997 and December 29, 1995. Management  anticipates that increases in
taxable  income  will  arise in  future  periods  primarily  as a result  of the
business  strategies  discussed  herein (see  "Business  Strategy")  and reduced
operating  costs  resulting  from the  ongoing  restructuring  of the  Company's
business processes. The anticipated improvement in operating results is expected
to increase the taxable income base to a level which would allow  realization of
the existing net deferred tax assets within nine to twelve years.

       Future  levels of operating  income and other taxable gains are dependent
upon general economic and industry  conditions,  including  airport and tollroad
traffic,  inflation,  competition  and demand for  development of concepts,  and
other factors beyond the Company's  control,  and no assurance can be given that
sufficient  taxable  income  will be  generated  for full  utilization  of these
temporary  deferred  deductions.  Management has considered the above factors in
reaching its conclusion  that it is more likely than not that  operating  income
will be sufficient to utilize these deferred deductions fully. The amount of the
net  deferred tax assets  considered  realizable,  however,  could be reduced if
estimates of future taxable income are not achieved.

STOCKHOLDERS' DEFICIT

       The level of long-term debt distributed to the Company in connection with
its spin-off from Host  Marriott was based on the Company's  ability to generate
sufficient  operating  cash  flow to  service  the  Senior  Notes.  The  Company
generated  EBITDA in excess of 2.8 times cash  interest  expense in 1996 and 2.4
times in both 1995 and 1994. The level of distributed long-term debt resulted in
the  Company  reflecting  a  shareholders  deficit of $130.0  million and $150.2
million as of January 3, 1997 and December 29, 1995, respectively.

                                   23

<PAGE>

INFLATION

       The Company's  expenses are impacted by inflation.  While price increases
can be instituted as inflation occurs,  many contracts require landlord approval
before prices can be increased,  which may temporarily  adversely  impact profit
margins.  Management believes that over time, however,  the Company will be able
to raise prices and sustain profit margins.

ACCOUNTING PERIOD

       The Company's 1996 fiscal year contained 53 weeks,  while the 1995 fiscal
year contained 52 weeks. The Company's fiscal year ends on the Friday nearest to
December 31.


FORWARD-LOOKING STATEMENTS

       Certain  matters  discussed and statements made within this Annual Report
on Form 10-K are  forward-looking  statements  within the meaning of the Private
Litigation  Reform Act of 1995 and as such may involve known and unknown  risks,
uncertainties,  and other factors that may cause the actual results, performance
or  achievements  of the  Company  to be  different  from  any  future  results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements.  Although the Company  believes the  expectations  reflected in such
forward-looking  statements are based on reasonable assumptions,  it can give no
assurance that its expectations will be attained.  These risks are detailed from
time  to  time  in the  Company's  filings  with  the  Securities  and  Exchange
Commission or other public statements.

                                   24


<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial information is included on the pages indicated.

                                                                        PAGE(S)

   Report of Independent Public Accountants                             26

   Consolidated Balance Sheets as of January 3, 1997 and 
      December 29, 1995                                                 27

   Consolidated Statements of Operations for the Fiscal Years 
      Ended January 3, 1997, December 29, 1995 and December 30, 1994    28

   Consolidated Statements of Cash Flows for the Fiscal Years Ended 
      January 3, 1997, December 29, 1995 and December 30, 1994          29

   Consolidated Statements of Shareholder's Deficit for the Fiscal 
      Years Ended January 3, 1997, December 29, 1995 and 
      December 30, 1994                                                 30

   Notes to Consolidated Financial Statements                           31 - 48


                                   25


<PAGE>

                REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholder of Host International, Inc.:

        We have audited the  accompanying  consolidated  balance  sheets of Host
International,  Inc.  and  subsidiaries,  as defined in Note 1, as of January 3,
1997  and  December  29,  1995,  and  the  related  consolidated  statements  of
operations,  cash flows and  shareholder's  deficit for each of the three fiscal
years in the period ended January 3, 1997.  These  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

        We conducted our audits in accordance with generally  accepted  auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

        In our opinion, the consolidated  financial statements referred to above
present  fairly,  in all  material  respects,  the  financial  position  of Host
International,  Inc.  and  subsidiaries  as of January 3, 1997 and  December 29,
1995,  and the results of their  operations and their cash flows for each of the
three fiscal  years in the period  ended  January 3, 1997,  in  conformity  with
generally accepted accounting principles.

        As explained in Note 3 to the  consolidated  financial  statements,  the
Company changed its method of accounting for impairments of long-lived assets in
1995.



                                                       ARTHUR ANDERSEN LLP


Washington, D.C.
February 4, 1997

                                   26


<PAGE>

HOST INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 3, 1997 AND DECEMBER 29, 1995
<TABLE>
<CAPTION>

-------------------------------------------------------------------------- ---------------- -----------------
                                                                                1996              1995
-------------------------------------------------------------------------- ---------------- -----------------

                                                                                    (IN MILLIONS)

<S>                                                                              <C>               <C>

                                 ASSETS
Current assets:
   Cash and cash equivalents                                                      $  93.1           $  45.3
   Accounts receivable, net                                                          26.2              25.6
   Inventories                                                                       40.8              35.5
   Deferred income taxes                                                             27.0              16.5
   Prepaid rent                                                                       5.9               5.1
   Other current assets                                                               3.4               2.7
-------------------------------------------------------------------------- ---------------- -----------------
   Total current assets                                                             196.4             130.7

Property and equipment, net                                                         245.1             239.6
Intangible assets                                                                    23.1              24.1
Deferred income taxes                                                                51.7              58.4
Other assets                                                                         19.6              20.4
-------------------------------------------------------------------------- ---------------- -----------------

Total assets                                                                      $ 535.9           $ 473.2
=============================================================================================================

                  LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities:
   Accounts payable                                                               $  93.1           $  81.1
   Accrued payroll and benefits                                                      45.7              35.3
   Accrued interest payable                                                           4.8               4.7
   Current portion of long-term debt                                                  0.8               1.2
   Other current liabilities                                                         59.4              45.6
-------------------------------------------------------------------------- ---------------- -----------------
   Total current liabilities                                                        203.8             167.9

Long-term debt                                                                      407.4             407.6
Other liabilities                                                                    54.7              47.9
-------------------------------------------------------------------------- ---------------- -----------------
Total liabilities                                                                   665.9             623.4

Common stock, no par value, 100 shares authorized,
   issued and outstanding                                                             ---               ---
Retained deficit                                                                   (130.0)           (150.2)
-------------------------------------------------------------------------- ---------------- -----------------
   Total shareholder's deficit                                                     (130.0)           (150.2)
-------------------------------------------------------------------------- ---------------- -----------------

Total liabilities and shareholder's deficit                                       $ 535.9           $ 473.2
=============================================================================================================
</TABLE>







        See   notes   to  the   consolidated   financial statements.


                                   27


<PAGE>

HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995 AND DECEMBER 30, 1994
<TABLE>
<CAPTION>

------------------------------------------------------------------ ----------------- ---------------- -----------------
                                                                         1996             1995              1994
------------------------------------------------------------------ ----------------- ---------------- -----------------

                                                                                      (IN MILLIONS)

<S>                                                                       <C>              <C>                <C>

REVENUES                                                                  $1,139.6         $  993.3            $944.2
------------------------------------------------------------------ ----------------- ---------------- -----------------

OPERATING COSTS AND EXPENSES
   Cost of sales                                                             335.9            304.8             282.6
   Payroll and benefits                                                      334.9            290.0             278.1
   Rent                                                                      181.1            156.8             156.5
   Royalties                                                                  20.7             16.0              10.6
   Depreciation and amortization                                              49.7             51.4              50.3
   Write-downs of long-lived assets                                            ---             22.0               ---
   Restructuring and other special charges, net                                ---             14.5               7.6
   General and administrative                                                 50.6             45.5              43.2
   Other                                                                     106.6             90.6              93.1
------------------------------------------------------------------ ----------------- ---------------- -----------------
Total operating costs and expenses                                         1,079.5            991.6             922.0

OPERATING PROFIT                                                              60.1              1.7              22.2

   Interest expense                                                          (40.1)           (40.3)            (42.1)
   Interest income                                                             2.2              0.7               0.1
------------------------------------------------------------------ ----------------- ---------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES AND
   EXTRAORDINARY ITEM                                                         22.2            (37.9)            (19.8)

Provision (benefit) for income taxes                                           9.3              3.9              (5.8)
------------------------------------------------------------------ ----------------- ---------------- -----------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                       12.9            (41.8)            (14.0)
   Extraordinary item - loss on extinguishment of debt
        (net of related income tax benefit of $5.2 million)                    ---             (9.6)              ---
------------------------------------------------------------------ ----------------- ---------------- -----------------

NET INCOME (LOSS)                                                         $   12.9         $  (51.4)          $ (14.0)
=======================================================================================================================
</TABLE>












       See   notes   to  the   consolidated   financial statements.


                                   28



<PAGE>

HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995 AND DECEMBER 30, 1994
<TABLE>
<CAPTION>

------------------------------------------------------------------ ----------------- ---------------- -----------------
                                                                         1996             1995              1994
------------------------------------------------------------------ ----------------- ---------------- -----------------

                                                                                      (IN MILLIONS)

<S>                                                                         <C>              <C>                <C>

OPERATING ACTIVITIES
Net income (loss)                                                           $ 12.9           $(51.4)           $(14.0)
Extraordinary item                                                             ---              9.6               ---
------------------------------------------------------------------ ----------------- ---------------- -----------------
Income (loss) before extraordinary item                                       12.9            (41.8)            (14.0)

Adjustments to reconcile cash from operations:
   Depreciation and amortization                                              51.7             53.0              52.0
   Income taxes                                                               (5.5)            (8.6)             (6.9)
   Write-downs of long-lived assets                                            ---             22.0               ---
   Restructuring and other special charges                                     ---             14.5               ---
   Other                                                                       3.8              3.4              12.9

   Working capital changes:
        (Increase) decrease in accounts receivable                             2.1              1.1              (3.8)
        Increase in inventories                                               (6.8)            (3.2)              ---
        (Increase) decrease in other current assets                           (1.6)             2.5               0.9
        Increase in accounts payable and accruals                             41.9              3.4              15.4
------------------------------------------------------------------ ----------------- ---------------- -----------------

Cash provided by operations                                                   98.5             46.3              56.5
------------------------------------------------------------------ ----------------- ---------------- -----------------

INVESTING ACTIVITIES
Capital expenditures                                                         (54.9)           (49.7)            (37.1)
Acquisitions                                                                   ---             (1.6)              ---
Net proceeds from the sale of assets                                           2.4              2.3               ---
Other, net                                                                     2.6              5.5               4.7
------------------------------------------------------------------ ----------------- ---------------- -----------------

Cash used in investing activities                                            (49.9)           (43.5)            (32.4)
------------------------------------------------------------------ ----------------- ---------------- -----------------

FINANCING ACTIVITIES
Repayments of long-term debt                                                  (0.8)          (392.8)             (1.3)
Issuance of long-term debt                                                     ---            388.3               ---
Transfers (to) from Host Marriott Corporation, net                             ---             22.4             (27.7)
------------------------------------------------------------------ ----------------- ---------------- -----------------

Cash provided by (used in) financing activities                               (0.8)            17.9             (29.0)
------------------------------------------------------------------ ----------------- ---------------- -----------------

INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                           47.8             20.7              (4.9)

CASH AND CASH EQUIVALENTS, beginning of year                                  45.3             24.6              29.5
------------------------------------------------------------------ ----------------- ---------------- -----------------

CASH AND CASH EQUIVALENTS, end of year                                      $ 93.1           $ 45.3            $ 24.6
=======================================================================================================================
</TABLE>




        See   notes   to  the   consolidated   financial statements.


                                   29


<PAGE>

HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
FISCAL YEARS ENDED JANUARY 3, 1997 AND DECEMBER 29, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>

------------------------------------------------ --------------- ---------------- ---------------- -----------------
                                                                   ADDITIONAL
                                                     COMMON          PAID IN         RETAINED
                                                     STOCK           CAPITAL          DEFICIT           TOTAL
------------------------------------------------ --------------- ---------------- ---------------- -----------------
<S>                                                     <C>              <C>              <C>               <C>

Balance, December 31, 1993                              $  ---           $  8.4         $  (13.3)         $   (4.9)

Net loss                                                   ---              ---            (14.0)            (14.0)
Net distributions to parent                                ---              ---            (28.8)            (28.8)
Deferred compensation                                      ---              1.2              ---               1.2
------------------------------------------------ --------------- ---------------- ---------------- -----------------
Balance, December 30, 1994                                 ---              9.6            (56.1)            (46.5)

Net loss                                                   ---              ---            (51.4)            (51.4)
Net distributions to parent                                ---             (9.6)           (42.7)            (52.3)
------------------------------------------------ --------------- ---------------- ---------------- -----------------
Balance, December 29, 1995                                 ---              ---           (150.2)           (150.2)

Net income                                                 ---              ---             12.9              12.9
Adjustments to distribution of
   capitalization of Company                               ---              ---              4.6               4.6
Deferred compensation and other                            ---              ---              2.7               2.7
------------------------------------------------ --------------- ---------------- ---------------- -----------------

BALANCE, JANUARY 3, 1997                                $  ---           $  ---          $(130.0)          $(130.0)
====================================================================================================================
</TABLE>











        See   notes   to  the   consolidated   financial statements.


                                    30


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (In millions, except per share amounts and as where indicated)



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Prior to December 21, 1995, Host International, Inc. (a Delaware corporation the
"Company") operated as a wholly-owned subsidiary of Host Marriott Travel Plazas,
Inc. ("HMTP"),  which was formed in 1993 to own and operate most of the airport,
travel  plaza  and  sports  and  entertainment  concessions  facilities  of Host
Marriott  Corporation  ("Host  Marriott").  HMTP  was an  indirect  wholly-owned
subsidiary  of Host  Marriott.  On December 21,  1995,  HMTP was merged into the
Company  with the Company  emerging  as the  surviving  entity.  Pursuant to the
merger, the Company became the operator or manager of all of the food,  beverage
and merchandise  concessions  businesses in travel and  entertainment  venues of
Host Marriott (formerly known as Host Marriott's "Operating Group"). The Company
also became the obligor on the $400.0 million of senior notes,  due in 2005 (the
"Senior Notes") which were issued by HMTP in May 1995 (see Note 6).
        On  December  29,  1995  (the   "Distribution   Date"),   Host  Marriott
distributed,  through a special  dividend to holders of Host  Marriott's  common
stock, 31.9 million shares of common stock of Host Marriott Services Corporation
("Host  Marriott  Services"),  resulting  in the  division  of  Host  Marriott's
operations into two separate  companies.  Through a series of transactions  that
were  consummated  prior  to  the  Distribution   Date,  the  Company  became  a
wholly-owned subsidiary of Host Marriott Services.
     The consolidated  financial  statements include the accounts of the Company
and its subsidiaries and controlled affiliates. Investments in 50% or less owned
affiliates  over  which the  Company  has the  ability to  exercise  significant
influence are accounted for using the equity method.  All material  intercompany
transactions  and balances  between the Company and its  subsidiaries  have been
eliminated. The Company's 1995 statement of financial position and 1995 and 1994
results  of  operations  and  cash  flows  are  presented  in  the  accompanying
consolidated  financial  statements  as if the Company were formed as a separate
entity of Host  Marriott.  Host  Marriott's and HMTP's  historical  bases in the
assets and liabilities of the Company have been carried over.

DESCRIPTION OF THE BUSINESS

The Company operates or manages  restaurants,  gift shops and related facilities
at 72 airports,  on 13 tollroads  (including  92 travel  plazas) and in 20 other
venues (including  shopping malls,  tourist  attractions,  stadiums and arenas).
Many of the  Company's  concessions  operate under  branded  names.  The Company
conducts its  operations  primarily in the United  States and manages the travel
plaza  concessions  business of its  affiliate,  Host Marriott  Tollroads,  Inc.
("Tollroads"),  a wholly-owned subsidiary of Host Marriott Services. The Company
also has international operations in The Netherlands, New Zealand, Australia and
Canada.

FISCAL YEAR

The Company's fiscal year ends on the Friday nearest to December 31, with fiscal
quarters  of 12 weeks in each of the first  three  quarters  and 16 weeks in the
fourth quarter (except in a 53-week year, which has a 17 week fourth quarter).
Fiscal year 1996 was a 53-week year.

REVENUES

The Company's revenues include sales of food, beverage and retail merchandise at
various  airport and travel plaza  locations  and at shopping  malls,  stadiums,
arenas and other tourist attractions.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents generally include all highly liquid investments with a
maturity  of three  months or less at the date of  purchase.  These  investments
include money market assets and commercial paper used as a part of the Company's
cash management activities.

INVENTORIES

Inventories consist of merchandise, food items and supplies, which are stated at
the lower of average  cost or market.  The cost of food  items and  supplies  is
determined using the first-in,  first-out method. Merchandise cost is determined
using the retail method.

                                   31


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost.  Replacements  and improvements are
capitalized.  Leasehold  improvements,  net of  estimated  residual  value,  are
amortized  over the shorter of the useful  life of the asset,  generally 5 to 15
years,  or the lease  term.  Depreciation  is computed  using the  straight-line
method over the  estimated  useful lives of the assets,  generally 3 to 10 years
for furniture and equipment.

INTANGIBLE ASSETS

Intangible  assets  consist of goodwill of $5.4 million in 1996 and $6.0 million
in 1995, and contract rights of $17.7 million in 1996 and $18.1 million in 1995.
These  intangibles are being amortized on a straight-line  basis over periods of
40 years for goodwill and the life of the contract, generally 5 to 15 years, for
contract rights. Amortization expense totaled $2.8 million in 1996, $2.7 million
in 1995 and $2.7 million in 1994. Accumulated amortization totaled $11.1 million
and $8.4 million as of January 3, 1997, and December 29, 1995, respectively.

IMPAIRMENTS OF LONG-LIVED ASSETS

Property  and  equipment  and  intangible  assets are  reviewed  for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of undiscounted expected future cash
flows is less than the carrying amount of an individual operating unit's assets,
the  Company  recognizes  an  impairment  loss  based on the amount by which the
carrying amount of the asset exceeds the fair value of the asset.  Fair value is
calculated as the present  value of expected  future cash flows on an individual
operating unit basis.

SELF-INSURANCE PROGRAM

Prior to October 1993,  Host  Marriott was  self-insured  for certain  levels of
general   liability  and  workers'   compensation.   Estimated  costs  of  these
self-insurance  programs were accrued at present values of projected settlements
for  known  and  anticipated   claims.   Host  Marriott's   costs  for  workers'
compensation and general liability insurance were allocated to the Company based
on specific  identification  of claims.  Host  Marriott,  including the Company,
discontinued its self-insurance program for claims arising subsequent to October
1993.  Self-insurance  liabilities of the Company  amounted to $10.1 million and
$16.2 million at January 3, 1997 and December 29, 1995, respectively.

FOREIGN CURRENCY TRANSLATION

Results of operations for foreign  entities are translated to U.S. dollars using
the  average  exchange  rates  during the  period.  Assets and  liabilities  are
translated  using  the  exchange  rate in  effect  at the  balance  sheet  date.
Resulting   translation   adjustments  are  reflected  in  shareholders'  equity
(deficit) as cumulative translation adjustments.

INCOME TAXES

The  Company  recognizes  deferred  tax  assets and  liabilities  based upon the
expected future tax consequences of existing  differences  between the financial
reporting and tax reporting  bases of assets and  liabilities and operating loss
and tax credit carryforwards.

NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

The Company  adopted SFAS No. 112,  "Employer's  Accounting  for  Postemployment
Benefits"  during  1994.  The  Company  adopted  SFAS No.  114,  "Accounting  by
Creditors  for  Impairment  of a Loan"  and SFAS No.  121,  "Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of"
during  1995.  The  adoption  of SFAS No.  112 and  SFAS No.  114 did not have a
material effect on the Company's consolidated financial statements, however, the
adoption of SFAS No. 121  resulted  in the  recognition  of a  non-cash,  pretax
charge against earnings in the fourth quarter of 1995 of $22.0 million (see Note
3).  The  Company  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting for Stock-Based Compensation," during 1996 (see Note 8).

USE OF ESTIMATES

The preparation of the consolidated  financial statements requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain  reclassifications were made to the prior years' financial statements to
conform to the 1996 presentation.

                                   32


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



2.  THE DISTRIBUTION

On December 29, 1995 (the  "Distribution  Date"),  Host Marriott  distributed to
holders  of its  common  stock,  31.9  million  shares of  common  stock of Host
Marriott Services through a special dividend. The shares were distributed on the
basis of one share of Host Marriott Services' common stock for every five shares
of Host Marriott stock.
     Prior to the  Distribution,  the Company  issued  $400.0  million of senior
notes due in 2005 (the "Senior Notes"). The proceeds from the sale of the Senior
Notes were  distributed  to a wholly owned  subsidiary of Host Marriott and were
used (i) to redeem  certain  senior  notes  and (ii) to repay a  portion  of the
borrowings  under a revolving  line of credit  agreement.  The Senior  Notes are
obligations of the Company and certain of its subsidiaries.
     Prior to the Distribution,  the Company operated as a unit of Host Marriott
Corporation,  utilizing Host Marriott's centralized systems for cash management,
payroll,  purchasing and  distribution,  employee  benefit plans,  insurance and
administrative services. Except for unit operating cash accounts,  substantially
all cash  received by the  Company was  deposited  in and  commingled  with Host
Marriott's general corporate funds. Operating expenses, capital expenditures and
other cash  requirements  of the Company were paid by Host  Marriott and charged
directly or allocated to the Company.  Certain general and administrative  costs
of Host  Marriott  were  allocated  to the  Company,  principally  based on Host
Marriott's specific  identification of individual cost items and otherwise based
upon  estimated  levels of effort  devoted  by its  general  and  administrative
departments to individual  entities or relative measures of size of the entities
based on assets or  operating  profit.  Such  allocated  amounts are included in
corporate  expenses  and were $8.0 million and $4.8 million in fiscal years 1995
and 1994, respectively. In the opinion of management, the methods for allocating
corporate  general  and  administrative  expenses  and  other  direct  costs are
reasonable in their  respective  years.  It is not  practicable  to estimate the
costs that would have been  incurred by the Company if it had been operated on a
stand-alone basis.
     In connection with the  Distribution,  Host Marriott  retained all cash and
cash  equivalent  balances  of the Company  and its  subsidiaries,  except for a
defined  level of initial  cash  equaling  $25.0  million,  adjusted  to include
certain   estimated   future   restructuring   expenditures,   certain   capital
expenditures,  and  cash  maintained  at a  foreign  airport  operation.  At the
Distribution  Date,  the  Company  held cash in excess of the  defined  level of
initial cash of $7.9 million that was payable to Host Marriott. The Company also
retained  certain  liabilities of Host Marriott  totaling $4.8 million as of the
Distribution  Date.  The net  liability  to Host  Marriott of $3.1 million as of
December  29,  1995  is  included  in  accounts   payable  in  the  accompanying
consolidated balance sheets.
     In  connection  with  the  Distribution,   the  Company  transferred  three
full-service  hotels  and  assets and  liabilities  related  to  certain  former
restaurant operations to Host Marriott. The Company also entered into management
agreements related to certain restaurant  operations  retained by Host Marriott.
Management fees related to these  contracts were $0.2 million,  $1.2 million and
$2.0  million  in  1996,  1995  and  1994,  respectively.   Host  Marriott  also
transferred  six  airport  concessions  contracts  and the  related  assets  and
liabilities  to the Company such that the  operations of these  facilities  were
included in the  Company's  results of operations  for the period  subsequent to
September 9, 1995 through  December  29, 1995.  Prior to September 9, 1995,  the
Company managed the six airport concessions  contracts referred to above, and in
connection therewith,  received management fees of $4.3 million and $4.3 million
in 1995 and 1994, respectively.
     Net  distributions to parent  reflected in the  consolidated  statements of
shareholder's  deficit include,  among  other  things,  asset,  cash  and  other
transfers between the Company and its parent. In 1995 and in connection with the
Distribution,  $84.0 million of assets were  transferred  to the parent and $7.0
million  of assets  were  received  from the  parent  through  the  transactions
described above.
     For purposes of governing certain of the ongoing  relationships between the
Company  and Host  Marriott  after the  special  dividend  and to provide for an
orderly  transition,   the  Company  and  Host  Marriott  entered  into  various
agreements including a Distribution  Agreement,  an Employee Benefits Allocation
Agreement,  a Tax Sharing  Agreement  (see Note 4) and a  Transitional  Services
Agreement.  Effective as of the Distribution  Date,  these  agreements  provide,
among other things,  for the  allocation of assets and  liabilities  between the
Company and Host  Marriott.  The  agreements  also provide that the Company will
receive corporate services, such as accounting and computer systems support, and
may receive transitional services (cash management,  accounting and others) from
Host

                                   33

<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Marriott.  Payments  made to Host  Marriott  relating to these  agreements
totaled $0.1 million in 1996.
     Summarized  unaudited pro forma data as of and for the years ended December
29, 1995 and December 30, 1994, assuming the above transactions  occurred at the
beginning of each year, are as follows:

<TABLE>
<CAPTION>

------------------------------- ----------- -----------
                                   1995        1994
------------------------------- ----------- -----------

                                    (IN MILLIONS)

<S>                               <C>          <C>

Revenues                         $1,027.8     $ 995.0
Operating profit                      4.8        32.1
Net loss before
   extraordinary item               (37.5)       (5.7)
Total assets                        473.2       485.0
Shareholder's deficit              (150.2)     (103.0)
------------------------------- ----------- -----------
</TABLE>


3.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>

-------------------------------- ----------- -----------
                                    1996        1995
-------------------------------- ----------- -----------

                                     (IN MILLIONS)

<S>                                 <C>          <C>  

Leasehold improvements             $ 362.0     $ 360.0
Furniture and equipment              201.0       201.9
Construction in progress              28.7        14.2
-------------------------------- ----------- -----------
Subtotal                             591.7       576.1
Less:  accumulated
       depreciation and
       amortization                 (346.6)     (336.5)
-------------------------------- ----------- -----------

Total property and equipment       $ 245.1     $ 239.6
========================================================
</TABLE>

     Under SFAS No. 121, the Company reviews the impairment of its assets 
employed in its  business  lines  (airports,  tollroads  and  shopping  mall and
entertainment) on an individual operating-unit basis.
     For each operating unit determined to be impaired, an impairment loss equal
to the  difference  between  the  carrying  value  and  the  fair  value  of the
individual  operating unit's assets is recognized.  Fair value, on an individual
operating-unit  basis,  is estimated to be the present value of expected  future
cash flows,  as  determined by  management,  after  considering  such factors as
future air travel and toll-paying vehicle data and inflation. As a result of the
adoption of SFAS No. 121,  the Company  recognized  a non-cash,  pre-tax  charge
against earnings during the fourth quarter of 1995 of $22.0 million.
     Prior to  September  9, 1995,  the Company  determined  the  impairment  of
operating unit assets on a business-line  basis. Using the business-line  basis,
if the net carrying costs exceeded the estimated future  undiscounted cash flows
from a  business-line  basis,  such  excess  costs  would be charged to expense.
Although the Company has been aware that certain operating units were generating
losses and cash flow deficits since the late 1980s, because the estimated future
undiscounted cash flow on a business-line  basis exceeded the carrying amount of
the Company's  long-lived  assets on a business-line  basis,  the Company offset
such negative cash flows with positive cash flows from other  operating units in
the  applicable  business  lines and did not recognize any  impairment  charges,
prior to the adoption of SFAS No. 121.
        Effective  September 9, 1995, the Company adopted SFAS No. 121 and wrote
down the assets of 14  individual  operating  units by  recognizing  a non-cash,
pretax charge against  earnings of $22.0  million.  Eleven of the fourteen units
had projected  cash flow deficits  and,  accordingly,  the assets of these units
were written off in their  entirety.  The  remaining  three units had  projected
positive  cash  flows,  and the  assets  were  partially  written  down to their
respective fair values.  Approximately 43% of the total 1995 write-down  related
to the Orlando  airport unit.  Historically,  the Company has incurred  negative
cash  flows  at 10 of  the  14  individual  operating  units,  which  aggregated
approximately $4.0 million and $2.0 million in 1995, and 1994, respectively. The
Company  incurred  positive cash flows of $0.5 million in 1996 relating to these
units.  These cash flows were included in the Company's  reported cash flow from
operations  for each year.  During 1996,  five of the original 14 impaired units
either were  disposed of or the lease term expired.  As of the end of 1996,  the
total cash flow deficit from the remaining nine operating units was projected to
be  approximately  $17.6 million over the remaining  weighted-average  life of 4
years. Substantially all of the remaining deficit is attributable to two airport
units.

                                   34

<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



4.  INCOME TAXES

The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>

------------------------- -------- ---------- ----------
                           1996      1995       1994
------------------------- -------- ---------- ----------

                                  (IN MILLIONS)

<S>                         <C>        <C>        <C>

Current:
   Federal                 $11.1     $  0.2      $(3.9)
   Foreign                   0.2        ---        ---
   State                     3.5        1.5        3.4
------------------------- -------- ---------- ----------
Total current
   provision                14.8        1.7       (0.5)
------------------------- -------- ---------- ----------

Deferred:
   Federal                  (2.3)     (11.7)      (4.2)
   Foreign                  (0.2)       ---        ---
   State                     2.2       (3.1)      (1.1)
   Increase (decrease)
      in valuation
      allowance             (5.2)      17.0        ---
------------------------- -------- ---------- ----------
Total deferred
   provision (benefit)      (5.5)       2.2       (5.3)
------------------------- -------- ---------- ----------

Total provision
   (benefit)               $ 9.3      $ 3.9      $(5.8)
========================================================
</TABLE>

     The tax effect of each type of temporary  difference and carryforward  that
gives rise to a significant portion of deferred tax assets and liabilities is as
follows:

<TABLE>
<CAPTION>

---------------------------------- ---------- ----------
                                     1996       1995
---------------------------------- ---------- ----------

                                      (IN MILLIONS)
<S>                                   <C>        <C>

Deferred tax assets:
   Tax credit carryforwards           $21.7      $30.0
   Property and equipment              49.3       49.9
   Casualty insurance                   7.8       10.4
   Reserves                            10.3       11.8
   Employee benefits                   16.7        8.0
   Accrued rent                        11.5       11.4
---------------------------------- ---------- ----------
Gross deferred tax assets             117.3      121.5

Less:  valuation allowance            (28.4)     (33.6)
---------------------------------- ---------- ----------
Net deferred tax assets                88.9       87.9
---------------------------------- ---------- ----------

Deferred tax liabilities:
   Safe harbor lease investments       (5.0)      (7.2)
   Other deferred tax liabilities      (5.2)      (5.8)
---------------------------------- ---------- ----------
Gross deferred tax liabilities        (10.2)     (13.0)
---------------------------------- ---------- ----------

Net deferred income taxes             $78.7      $74.9
========================================================
</TABLE>


     At the end of fiscal year 1996, the Company had approximately  $3.3 million
of alternative  minimum tax credit  carryforwards  that do not expire, and $18.4
million of other tax credits which expire through 2011. The Company  establishes
a valuation  allowance  to reduce its net deferred tax assets to the amount that
is more likely than not to be realized.  During 1996, the Company  decreased the
deferred tax asset and  valuation  allowance by $5.2 million due to the decrease
in the state effective tax rate and expiration of purchased business combination
tax credits. During 1995, the Company increased the valuation allowance by $17.0
million  based on its  assessment of the  realizability  of the net deferred tax
assets.
     Realization  of the net deferred  tax assets is dependent on the  Company's
ability to generate sufficient future taxable income during the periods in which
temporary  differences  reverse.  The  amount  of the net  deferred  tax  assets
considered realizable,  however, could be reduced if estimates of future taxable
income are not  achieved.  Although  realization  is not  assured,  the  Company
believes  it is more likely  than not that the net  deferred  tax assets will be
realized.
     A  reconciliation  of the  statutory  Federal  tax  rate  to the  Company's
effective income tax rate follows:

<TABLE>
<CAPTION>

---------------------- ----------- ---------- ----------
                          1996       1995       1994
---------------------- ----------- ---------- ----------

                                (IN MILLIONS)
<S>                       <C>         <C>        <C>

Statutory Federal
   tax rate                35.0 %    (35.0)%    (35.0)%
State income tax,
   net of Federal
   tax benefit              4.9        2.7        7.5
Tax credits                 6.5       (2.7)      (3.3)
Change in valuation
   allowance              (23.4)      45.9        ---
Effect of state tax
   rate changes on
   deferred taxes          13.8        ---        ---
Other, net                  5.1       (0.1)       0.8
---------------------- ----------- ---------- ----------

Effective income
   tax rate                41.9 %     10.8 %    (30.0)%
========================================================
</TABLE>


     Beginning  with  the  1996  fiscal  year,  the  Company  and  its  domestic
subsidiaries are included in the consolidated  Federal income tax return of Host
Marriott  Services.  Prior to fiscal year 1996,  the Company was included in the
consolidated Federal income tax return of Host Marriott and its affiliates.  The
income tax provision or benefit included in these 

                                   35

<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



financial  statements reflects the income tax provision or benefit and temporary
differences  attributable  to the operations of the Company on a separate income
tax return basis.
     In connection with the Distribution,  the Company and Host Marriott entered
into a tax sharing agreement (the "Tax Sharing  Agreement") that defines each of
their  rights and  obligations  with  respect  to  deficiencies  and  refunds of
Federal,  state and other income or franchise  taxes  relating to the  Company's
business for tax years prior to the Distribution and with respect to certain tax
attributes of the Company after the Distribution.
     In general,  with respect to periods ending on or before December 29, 1995,
Host Marriott is responsible for (i) filing both consolidated Federal income tax
returns for the Host  Marriott  affiliated  group and  combined or  consolidated
state tax returns for any group that  includes  any member of the Host  Marriott
affiliated  group and the Company or any of the Company's  subsidiaries  for the
relevant  periods of time that such  companies were members of the Host Marriott
affiliated group; and (ii) paying the taxes relating to such returns  (including
any  subsequent  adjustments  resulting  from  the  redetermination  of such tax
liabilities by the applicable taxing  authorities).  The Company reimburses Host
Marriott for a defined  portion of such taxes.  The Company is  responsible  for
filing its returns and paying the related taxes for all subsequent periods.
     Prior to the  existence  of the Tax  Sharing  Agreement,  all  current  tax
provision  amounts were treated as paid to, or received  from,  Host Marriott in
accordance with Host Marriott's tax sharing policy.
     The  Company  made income tax  payments  of $15.9  million in 1996 and paid
$12.6  million and $1.0  million to Host  Marriott  for income taxes in 1995 and
1994, respectively.


5.  DETAIL OF OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

<TABLE>
<CAPTION>

------------------------------- ----------- ----------
                                   1996       1995
------------------------------- ----------- ----------

                                    (IN MILLIONS)

<S>                                  <C>         <C>

Accrued rent                         $19.3      $11.0
Operating insurance accruals           9.6        6.3
Accrued restructuring costs            7.1       13.5
International accruals                 3.6        1.7
Accrued franchise fees                 1.7        0.8
Other                                 18.1       12.3
------------------------------- ----------- ----------

Total other current liabilities      $59.4      $45.6
======================================================
</TABLE>



6.  DEBT

Debt consists of the following:

<TABLE>
<CAPTION>

-------------------------------- ---------- ----------
                                   1996       1995
-------------------------------- ---------- ----------

                                    (IN MILLIONS)
<S>                               <C>         <C>

Senior Notes with a fixed rate
   of 9.5%, due 2005               $400.0     $400.0
Capital lease obligations             0.7        ---
Other                                 7.5        8.8
-------------------------------- ---------- ----------
Total debt                          408.2      408.8
Less:  current portion               (0.8)      (1.2)
-------------------------------- ---------- ----------

Total long-term debt               $407.4     $407.6
======================================================
</TABLE>


SENIOR NOTES

In May 1995,  the Company  (and its former  parent  corporation,  Host  Marriott
Travel Plazas,  Inc., which was merged into the Company),  issued $400.0 million
of senior notes due in 2005 (the "Senior Notes"), the net proceeds of which were
distributed to Host Marriott Hospitality,  Inc., ("Hospitality"),  and were used
to retire portions of Hospitality's  senior notes (the "Hospitality  Notes") and
to repay a portion of Hospitality's  line of credit (the "Line of Credit").  The
Senior  Notes are  fully and  unconditionally  guaranteed  (limited  only to the
extent  necessary  to  avoid  such  guarantees  being  considered  a  fraudulent
conveyance  under  applicable  law) on a joint  and  several  basis  by  certain
subsidiaries  of the  Company ( the  "Guarantors").  The  Senior  Notes are also
secured  by a pledge  of the  capital  stock of the  Guarantors.  The  indenture
governing the Senior Notes (the "Senior  Notes  Indenture")  contains  covenants
that,  among other  things,  limit the ability of the Company and certain of its
subsidiaries to incur  additional  indebtedness  and issue preferred  stock, pay
dividends or make other distributions,  repurchase capital stock or subordinated
indebtedness,  create  certain  liens,  enter  into  certain  transactions  with
affiliates,  sell certain assets,  issue or sell capital stock of the Guarantors
and enter into certain mergers and consolidations.
     At and subsequent to the issuance of the Senior Notes, distributions of the
Company's  equity,  including  earnings  accumulated  subsequent  to the date of
issuance will be  restricted  but available for the payment of dividends to Host
Marriott  Services to the extent that the  cumulative  amount of such  dividends
does  not  exceed  $25.0  million  plus an  amount  equal to the  excess  of the
Company's earnings before interest expense,  taxes,  depreciation,  amortization
and other  non-cash items  

                                   36


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



("EBITDA," as defined in the Senior Notes  Indenture)over  200% of the Company's
interest expense.
     As of January 3, 1997,  the  Company  had  approximately  $57.3  million of
unrestricted  funds available for  distribution to Host Marriott  Services under
the provisions of the Senior Notes Indenture.  However, certain covenants of the
loan  agreements  referred to below further  restrict the  Company's  ability to
dividend these funds to Host Marriott Services.

CREDIT FACILITIES

The  First  National  Bank of  Chicago,  as agent  for a group of  participating
lenders,  has provided  credit  facilities  ("Facilities")  to the Company in an
aggregate   principal  amount  of  $75.0  million  for  a  5-year  term  ("Total
Commitment").  The Total Commitment  consists of (i) a letter of credit facility
in the amount of $40.0 million for the issuance of financial  and  non-financial
letters of credit and (ii) a  revolving  credit  facility in the amount of $35.0
million ("Revolver Facility") for working capital and general corporate purposes
other than hostile acquisitions.  An annual commitment fee ranging from 0.25% to
0.375% is charged on the unused portion of the Facilities.  All borrowings under
the  Facilities  are senior  obligations  of the Company and are secured by Host
Marriott  Services' pledge of, and a first perfected  security  interest in, the
capital stock of the Company and certain of its subsidiaries.
     The loan agreements  relating to the Facilities  contain dividend and stock
retirement  covenants that are  substantially  similar to those set forth in the
Senior  Notes  Indenture,  provided  that  dividends  payable to the Company are
limited to 25% of the Company's  consolidated net income and provided,  further,
that no  dividends  can be declared by the  Company  within 18 months  after the
closing date of the  Facilities on December 29, 1995. The loan  agreements  also
contain certain financial ratio and capital expenditure  covenants.  Outstanding
borrowings  under the Revolver  Facility are also  required to be repaid in full
for 30 consecutive  days during each fiscal year. Any  indebtedness  outstanding
under the Facilities  will become due and payable upon the occurrence of certain
events of default,  including the  Company's  failure to comply with the several
covenants  noted above, or the occurrence of certain events of default under the
Senior Notes  Indenture.  As of the end of fiscal year 1996,  and throughout the
fiscal  year 1996,  there was no  outstanding  indebtedness  under the  Revolver
Facility, and the Company was in compliance with the covenants described above.


HOSPITALITY NOTES

In connection with the Marriott  International  Distribution ("MI Distribution")
discussed in Note 13, Host Marriott  completed an exchange  offer (the "Exchange
Offer") pursuant to which holders of notes, in the aggregate principal amount of
approximately  $1.2  billion  ("Old  Notes"),  exchanged  such Old  Notes  for a
combination  of (i)  cash,  (ii)  common  stock of Host  Marriott  and (iii) the
Hospitality  Notes.  The coupon and maturity date for each series of Hospitality
Notes was 100 basis points higher and generally four years later,  respectively,
than the series of Old Notes for which it was exchanged.  Host Marriott  secured
one  series of Old Notes due in 1995 that did not tender in the  Exchange  Offer
equally  and  ratably  with the New Notes  issued  in the  Exchange  Offer.  For
accounting purposes, such Old Notes were pushed down to Hospitality.
     The  Hospitality  Notes were secured by a pledge of the stock of, and fully
and  unconditionally,  jointly and severally  guaranteed  by,  Hospitality,  its
direct subsidiaries and most of Hospitality's indirect  subsidiaries,  including
the Company.  The indenture  governing the Hospitality Notes contained covenants
that, among other things,  limited the ability of Hospitality and the Company to
incur additional debt, create additional liens,  engage in certain  transactions
with related  parties,  or enter into agreements  which restrict a subsidiary in
paying dividends or making certain other payments.

LINE OF CREDIT

In connection with the MI Distribution, Host Marriott, through one of its wholly
owned subsidiaries, entered into the Line of Credit with Marriott International.
Pursuant  to the Line of Credit,  the parent  company of  Hospitality  (a wholly
owned  subsidiary of Host  Marriott) was entitled to borrow up to $630.0 million
for certain  permitted uses from Marriott  International  through 2007, with all
unpaid  advances due August 31, 2008.  Borrowings  under the Line of Credit bore
interest at LIBOR plus 4% (10.125% at December 30,  1994),  with any interest in
excess of 10.5% per annum  deferred.  An  annual  fee of 1% was  charged  on the
unused  portion of the  commitment.  The Line of Credit was  guaranteed  by Host
Marriott and certain of Host Marriott's subsidiaries.

                                   37


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



     Aggregate debt maturities,  excluding capital lease obligations, at the end
of fiscal year 1996 are as follows:

<TABLE>
<CAPTION>

---------------------------------- -------------------
Fiscal Years
---------------------------------- -------------------

                                     (IN MILLIONS)

<S>                                            <C>

1997                                           $  0.8
1998                                              0.9
1999                                              0.9
2000                                              1.0
2001                                              1.0
Thereafter                                      402.9
---------------------------------- -------------------

Total debt                                     $407.5
======================================================
</TABLE>


     Deferred financing costs,  which are included in other assets,  amounted to
$10.2  million  and  $11.2  million  at the end of  fiscal  year  1996 and 1995,
respectively.  Cash paid for interest was $38.8 million, $39.8 million and $40.5
million in 1996, 1995 and 1994, respectively.



7.  SHAREHOLDER'S DEFICIT

One  hundred  shares  of  common  stock,  without  par  value,  are  issued  and
outstanding  as of the end of fiscal years 1996 and 1995.  All of the shares are
owned by the Company's parent, Host Marriott Services.


HOST  MARRIOTT  STOCK  OPTIONS  AND  DEFERRED  STOCK  AWARDS  HELD  BY  MARRIOTT
INTERNATIONAL EMPLOYEES

On the Distribution  Date,  certain  employees of Marriott  International,  Inc.
("Marriott  International" - see Note 13) held Host Marriott  nonqualified stock
options (the "MI Host Marriott  Options") and deferred  stock  incentive  shares
(the "MI Deferred Stock"). As a result of the Distribution, the MI Host Marriott
Options  remained  options to acquire only shares of Host Marriott common stock,
except that the  exercise  price of, and the number of shares  underlying,  such
options were  adjusted to preserve the  intrinsic  value of the options to their
holders.  Likewise,  each award for MI Deferred Stock remained awards to be paid
using  Host  Marriott  common  stock and the number of shares  was  adjusted  to
preserve the intrinsic value. Host Marriott and the Company have agreed to share
the cost to Host Marriott of the adjustments to the MI Host Marriott Options and
the MI Deferred Stock.
     Host Marriott  Services may issue to Host Marriott up to 1.4 million shares
of  common  stock  upon  the  exercise  of  the MI  Host  Marriott  Options  and
approximately  204,000  shares upon the release of the MI Deferred  Stock.  Host
Marriott  Services has the option to satisfy these obligations by paying to Host
Marriott  cash  equal to the  value of such  shares of Host  Marriott  Services'
common  stock on the last  day of the  fiscal  year in  which  the  options  are
exercised or the deferred  shares are  released.  Host  Marriott  Services  will
receive  approximately 11% of the exercise price of each MI Host Marriott Option
exercised.
     These  obligations,  which are  included  as a component  of  shareholder's
deficit,  totaled  $8.6  million and $7.2  million as of year end 1996 and 1995,
respectively. The increase in the obligation during 1996 was attributable to the
adjustment  made to the  capitalization  of the Company in  connection  with its
spin-off from Host Marriott.


ADJUSTMENTS TO DISTRIBUTION OF CAPITALIZATION OF THE COMPANY

The  carrying  amounts of  certain  assets and  liabilities  distributed  to the
Company in connection  with the  Distribution  were based on  estimates.  During
1996, the Company  revised  certain of these estimates and recorded $4.6 million
of adjustments to the original capitalization of the Company.



8.  STOCK-BASED COMPENSATION PLANS

The employees of the Company participate in certain employee stock plans of Host
Marriott  Services,  including the  Comprehensive  Stock Plan and Employee Stock
Purchase Plan. Under the Comprehensive Stock Plan,  employees of the Company may
receive (i) awards of restricted shares of Host Marriott Services' common stock,
(ii) deferred  awards of shares of Host  Marriott  Services'  common stock,  and
(iii) awards of options to purchase Host  Marriott  Services'  common stock.  In
addition,  employees  of the  Company  participate  in Host  Marriott  Services'
Employee Stock Purchase  Plan.  Host Marriott  Services has reserved 6.5 million
and  750,000  shares  of  common  stock  for  issuance  in  connection  with the
Comprehensive Stock Plan and the Employee Stock Purchase Plan, respectively. The
compensation  costs related to restricted  stock and deferred stock awards under
these  plans  have  been  reflected  in the  operations  of the  Company  as all
employees of Host Marriott Services are employees of the Company.  The principal
terms and conditions of each of the plans are summarized below.

                                   38

<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



RESTRICTED STOCK AWARDS

Restricted  shares are  awarded  to certain  officers  and key  executives.  All
current  restricted  share  awards  expire  at the  end  of  fiscal  year  1998.
Compensation  expense is  recognized  over the award period and consists of time
and performance based components. The time-based expense is calculated using the
fair value of the shares on the date of issuance and is  contingent on continued
employment.  The performance-based expense is calculated using the fair value of
Host Marriott Services common stock during the award period and is contingent on
attainment of certain performance criteria.
     In 1993,  Host Marriott  issued 781,500 shares of Host Marriott  restricted
stock to certain  officers and key  executives  of the Company.  The  restricted
shares of Host Marriott stock  outstanding at the Distribution Date received the
stock dividend in accordance with the one-for-five  distribution  ratio.  During
the first 12 weeks of 1996,  all of the  Company's  executive  officers who held
restricted  shares of Host Marriott  stock  elected to convert those  restricted
shares into restricted shares of Host Marriott  Services' stock in a manner that
preserved the intrinsic value of the restricted shares to their holders,  except
that the intrinsic value was adjusted to provide a 15% conversion incentive.
     Host Marriott  Services  awarded 445,362 shares of new restricted  stock to
key executives of the Company in 1996.


DEFERRED STOCK AWARDS

Deferred stock  incentive  shares  granted to key employees  generally vest over
five to ten years in annual  installments  commencing one year after the date of
grant.  Certain  employees  may elect to defer  payments  until  termination  or
retirement.  The Company accrues  compensation expense for the fair market value
of the shares on the date of grant, less estimated forfeitures.
     In connection with the  Distribution,  the deferred stock incentive  shares
granted to employees of the Company and employees of Host Marriott were split in
accordance  with the  one-for-five  distribution  ratio.  During  1996 and 1995,
deferred stock incentive shares granted to employees totaled 163,813 and 31,600,
respectively.  Company  executives  holding  restricted  stock  awards  are  not
eligible  to  receive  new  deferred  stock  awards.  As of  January 3, 1997 and
December  29,  1995,  there were 265,202 and 146,809  deferred  stock  incentive
shares,  respectively,  of Host Marriott  Services that were granted and not yet
distributed to employees.  Subsequent to January 3, 1997, Host Marriott Services
granted  approximately  145,000  deferred  stock  incentive  shares to employees
relating to the 1996 fiscal year.


STOCK OPTION AWARDS

Employee  stock  options may be granted to key  employees  at not less than fair
market  value on the date of the grant.  Options  granted  before May 11,  1990,
expire 10 years after the date of grant and  nonqualified  options granted on or
after May 11,  1990,  expire from 10 to 15 years  after the date of grant.  Most
options vest ratably over each of the first four years following the date of the
grant.  There was no  compensation  cost  recognized by the Company  relating to
stock options during the 1996 and 1995 fiscal years. 
     In connection with the Distribution, the outstanding Host Marriott options 
held by current  employees of the Company and  employees of Host  Marriott  were
redenominated  in both Host Marriott  Services and Host  Marriott  stock and the
exercise  prices of the options  were  adjusted  based on the  relative  trading
prices of shares of the common stock of the two companies  immediately following
the Distribution.
     Presented below is a summary of stock option activity:

<TABLE>
<CAPTION>

------------------------------- ------------ ------------
                                               WEIGHTED
                                               AVERAGE
                                  SHARES        PRICE
------------------------------- ------------ ------------
<S>                                 <C>           <C>  

Balance, December 30, 1994          433,940        $3.75

Granted                               1,300         5.07
Exercised                               ---          ---
Forfeited/Expired                       ---          ---
------------------------------- ------------ ------------

Balance, December 29, 1995          435,240        $3.75

Granted                           1,660,800         7.21
Exercised                            72,231         3.57
Forfeited/Expired                    67,635         5.55
------------------------------- ------------ ------------

Balance, January 3, 1997          1,956,174        $6.63
=========================================================
</TABLE>


     The  weighted-average  fair value of Host Marriott Services' stock options,
calculated  using the  Black-Scholes  option-pricing  model,  granted during the
fiscal years ended 1996 and 1995 is $5.3 million and $4 thousand, respectively.
     At the end of fiscal  year 1995,  247,881  options  were  exercisable  with
exercise  prices ranging from $0.86 per share to $5.50 per share.  At the end of
fiscal year 1996,  254,970 of the 2.0 million  stock  options  outstanding  were
exercisable   and  had  exercise   prices  

                                   39


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



between $0.86 and $5.50, with a  weighted-average  exercise price of $3.35 and a
weighted-average  remaining  contractual  life of 11.0 years.  The remaining 1.7
million  options had exercise  prices between $4.03 and $8.88,  with a weighted-
average exercise price of $7.12 and a weighted-  average  remaining  contractual
life of 12.3 years.  Company  executives holding restricted stock awards are not
eligible to receive new stock option awards.

EMPLOYEE STOCK PURCHASE PLAN

Under the terms of the Employee  Stock  Purchase  Plan,  eligible  employees may
purchase Host Marriott  Services' common stock through payroll deductions at the
lower of the market value of the stock at the beginning or end of the plan year.
During the first quarter of 1997, 277,180 Host Marriott  Services' common shares
were sold to employees under the terms of the Employee Stock Purchase Plan at an
exercise price of $6.06 per share.  Proceeds  received by Host Marriott Services
from the sale of these shares were approximately $1.7 million. 
     There was no compensation cost  recognized  by the Company  relating to the
Employee  Stock  Purchase Plan during the 1996 and 1995 fiscal  years.  The fair
value option feature of the 277,180 shares,  calculated using the  Black-Scholes
option-pricing model, was $285 thousand.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The  Company has adopted the  disclosure-only  provisions  of SFAS No. 123,  but
applies Accounting  Principles Board Opinion No. 25 and related  interpretations
in  accounting  for its  plans.  Compensation  cost  recognized  by the  Company
relating  to  restricted  stock and  deferred  stock  awards  granted  under the
Comprehensive Stock Plan was $3.7 million and $0.8 million for fiscal years 1996
and 1995, respectively.
     Had the  Company  elected  to  recognize  compensation  cost for all awards
granted under Host Marriott Services'  Comprehensive Stock Plan and the Employee
Stock  Purchase  Plan based on the fair value of the awards at the grant  dates,
consistent  with the method  prescribed by SFAS No. 123, net income (loss) would
have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

---------------------- -------------- -------- -- ---------
                                       1996         1995
---------------------- -------------- -------- -- ---------

                                      (IN MILLIONS EXCEPT
                                       PER SHARE AMOUNTS)

<S>                                     <C>         <C>

Net income (loss):     As reported      $12.9      $(51.4)
                       Pro forma         12.3       (51.4)
---------------------- -------------- -------- -- ---------

<FN>

Note:  Because the SFAS No. 123 method of accounting has not been applied to 
       options granted prior to January 1, 1995, the resulting pro forma 
       compensation cost may not be representative of the effects on net income
       expected in future years.
</FN>
</TABLE>


     Fair values of stock  options  used to compute pro forma net income  (loss)
disclosures were determined using the  Black-Scholes  option-pricing  model. The
significant  weighted-average  assumptions  used in the  model for 1996 and 1995
included the following: a dividend yield of 0%; an expected volatility of 34.7%;
a  risk-free  interest  rate of 6.0%;  and an expected  holding  period of seven
years.



9.  PROFIT SHARING AND POSTEMPLOYMENT BENEFIT PLANS

Employees meeting certain  eligibility  requirements can elect to participate in
profit sharing and deferred  compensation plans. The amount to be matched by the
Company is determined annually by the Company's Board of Directors.  The cost of
these  plans is based on  salaries  and  wages of  participating  employees  and
totaled $2.5 million in 1996 and $2.0 million in both 1995 and 1994.
     The Company has a  supplemental  retirement  plan for certain key officers.
The liability  relating to this plan recorded as of the end of 1996 and 1995 was
$5.8 million and $5.6 million,  respectively.  The compensation  cost recognized
for each of the fiscal years of 1996, 1995 and 1994 was $0.3 million.
     Prior to the  Distribution,  the Company  provided  postretirement  medical
benefits  to a very  limited  number of retired  employees  meeting  restrictive
eligibility  requirements.  For the 1995 and 1994 fiscal years, medical expenses
accrued and/or paid under these  arrangements  were  immaterial to the financial
statements.  In  connection  with the  Distribution,  Host  Marriott  became the
obligor with respect to these postretirement benefits.

                                   40


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



10.  RESTRUCTURING

During 1995, the Company performed a review of its operating  structure and core
business processes to identify opportunities to improve operating effectiveness.
As a result of this review,  management approved a formal  restructuring plan in
October 1995 and the Company recorded a pretax  restructuring charge to earnings
of $14.5 million in the fourth  quarter of 1995.  The  restructuring  charge was
primarily comprised of involuntary employee termination benefits (related to its
realignment of operational responsibilities) and lease cancellation penalty fees
and related costs  resulting from the Company's plan to exit certain  activities
in its entertainment venues.
     The employee  termination  benefits  included in the  restructuring  charge
reflect the  immediate  elimination  of  approximately  100  corporate and field
operations  positions and the elimination of approximately  200 additional field
operations  positions,   all  of  which  were  specifically  identified  in  the
restructuring plan. Certain initiatives of the restructuring plan were scheduled
to be implemented  systematically throughout the duration of the plan, resulting
in an extended period over which the 200 additional field  operations  positions
would be eliminated.  The Company expects to complete its plan to  involuntarily
terminate employees by the end of the second quarter of 1997, although severance
payments are expected to continue  beyond the end of the second  quarter of 1997
due to the provisions of the program that allow for extended severance payments.
As of the end of fiscal year 1996,  the Company had  terminated 185 positions in
connection with the restructuring plan.
     The exit plan  specifically  identified 10 operating units in entertainment
venues  that  were to be  closed.  These  retail  operations  were  deemed to be
inconsistent  with the Company's  core  operating  strategies.  As of the end of
fiscal year 1996, 7 of the 10 stores had been closed, and the Company expects to
complete  the exit plan by the end of the first  quarter of 1997.  Revenues  and
operating  profits / (losses) of the 10 stores  amounted to $6.0 million and $40
thousand,  respectively, in 1996, $8.0 million and $(0.5) million, respectively,
in 1995, and $8.4 million and $(0.2) million, respectively, in 1994.

     The  following  table  sets forth the  restructuring  reserve  and  related
activity as of January 3, 1997:

<TABLE>
<CAPTION>

---------------- ----------- --------------------- ---------
                               ACTIVITY TO DATE
                             ---------------------
                                         CHANGES   RESERVE
                 PROVISION     COSTS       IN       AS OF
                  RECORDED   INCURRED   ESTIMATE    1/3/97
---------------- ----------- ---------- ---------- ---------

                               (IN MILLIONS)

<S>                   <C>        <C>        <C>        <C>

Employee
  termination
  benefits            $11.6      $ 5.3     $ ---      $ 6.3
Asset
  write-downs           0.5        0.8       0.3        ---
Lease
  cancellation
  penalty fees
  and related
  costs                 2.4        1.7      (0.3)       0.4
---------------- ----------- ---------- ---------- ---------

Total                 $14.5      $ 7.8     $ ---      $ 6.7
============================================================
</TABLE>



11.  COMMITMENTS AND CONTINGENCIES

Future minimum annual rental commitments for noncancellable  operating leases as
of January 3, 1997 are as follows:

<TABLE>
<CAPTION>

---------------------------------- -------------------
Fiscal Years
---------------------------------- -------------------

                                     (IN MILLIONS)

<S>                                            <C>

1997                                           $111.5
1998                                            100.8
1999                                             94.3
2000                                             74.9
2001                                             66.2
Thereafter                                      192.7
---------------------------------- -------------------

Total minimum lease payments                   $640.4
======================================================
</TABLE>


     The Company leases property and equipment under  noncancellable  leases.  A
number of leases are with airport and tollroad  authorities  and provide for the
Company's  exclusive right to operate concessions subject to stipulated sublease
arrangements  and certain  approvals  for  product  pricing  structures  and the
avoidance of events of uncured defaults.  Certain leases contain  provisions for
the payment of contingent rentals based on sales in excess of stipulated amounts
and many also contain  contractual rental payment increases  throughout the term
of the lease.  The minimum rent  increases  are  amortized  over the term of the
applicable  lease  on  a  straight-line  basis.  Future  minimum  annual  rental
commitments of $640.4 million have not been reduced by minimum  sublease rentals
of $39.3  million  

                                   41


<PAGE>

                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



payable to the Company under  noncancellable  subleases as of January 3, 1997.
     Certain  leases  require  a  minimum  level  of  capital  expenditures  for
renovations and facility  expansions during the lease terms. At January 3, 1997,
the Company was  committed  to invest  approximately  $69.4  million for initial
investment and mid-term  refurbishments over various contract dates ranging from
2 to 15 years.
     Rent expense consists of:

<TABLE>
<CAPTION>

---------------------- --------- ---------- ----------
                         1996      1995       1994
---------------------- --------- ---------- ----------

                               (IN MILLIONS)

<S>                      <C>        <C>        <C>

Minimum rental on
   operating leases      $111.4      $93.0      $97.4
Additional rental
   based on sales          69.7       63.8       59.1
---------------------- --------- ---------- ----------

Total rent expense       $181.1     $156.8     $156.5
======================================================
</TABLE>


     Certain of the Company's  leases  related to facilities  used in the former
restaurant business.  Most of these leases contained one or more renewal options
generally  for 5 or  10-year  periods.  Rent  expense on such  operating  leases
totaled  $2.3  million in 1995 and $3.3  million in 1994.  The Company  also had
capital lease obligations  related to its former restaurant  business with total
lease payments of $17.0 million and a present value of minimum lease payments of
$9.0 million at December 30, 1994. All of the restaurant  operations,  including
the  related  capital,   operating  and  contingent  lease   obligations,   were
transferred to Host Marriott in 1995.
     The Company's  facilities are operated under numerous long-term  concession
agreements   with  various  airport  and  tollroad   authorities.   The  Company
historically has been successful at retaining such  arrangements and winning new
business,  enabling  it to replace  lost  concession  facilities.  However,  the
expiration of certain of these agreements could have a significant impact on the
Company's  financial  condition and results of  operations,  and there can be no
assurance that the Company will succeed in replacing lost concession  facilities
and retaining the remainder of its facilities in the future.
     The Company is from time to time the subject of, or involved in, litigation
matters.  Management  believes  that any liability or loss  resulting  from such
matters will not have a material  adverse  effect on the  financial  position or
results of operations of the Company.



12.  FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the  Company's  financial  instruments,  including  cash and cash
equivalents,   accounts   receivable,   accounts   payable  and  other   accrued
liabilities,  the  carrying  amounts  approximate  fair value due to their short
maturities. The fair value of the Senior Notes are based on quoted market prices
and the fair  value of other  long-  term  debt  instruments  are  estimated  by
discounting  the  expected  future cash flows  using the current  rates at which
similar debt would be provided from lenders for the same remaining maturities.
     The carrying  values and fair values of certain of the Company's  financial
instruments are shown in the table below:

<TABLE>
<CAPTION>

------------------- -------------------- -------------------
                      JANUARY 3, 1997    DECEMBER 29, 1995
------------------- -------------------- -------------------
                    CARRYING     FAIR    CARRYING    FAIR
                     AMOUNT     VALUE     AMOUNT    VALUE
------------------- ---------- --------- --------- ---------

                                 (IN MILLIONS)
<S>                   <C>         <C>      <C>       <C>

Financial liabilities:
   Senior Notes        $400.0    $402.6    $400.0    $396.0
   Other debt             8.2       8.6       8.8       8.8
------------------- ---------- --------- --------- ---------
</TABLE>



13.  RELATIONSHIP WITH MARRIOTT INTERNATIONAL

On October  8, 1993 (the "MI  Distribution  Date"),  Host  Marriott  distributed
through a special  dividend to holders of Host Marriott  common stock all of the
outstanding shares of its wholly-owned subsidiary, Marriott International.
     In connection  with the MI  Distribution  on October 8, 1993, Host Marriott
and Marriott  International  entered into various  management  and  transitional
service agreements. In 1995 and 1994, the Company purchased food and supplies of
$63.8  million and $65.2  million,  respectively,  from  affiliates  of Marriott
International  under one such  agreement.  In addition,  under  various  service
agreements, Host Marriott paid to Marriott International $11.9 million and $10.5
million  in  1995  and  1994,  respectively,  which  represented  the  Company's
allocated portion of these expenses.
     In connection with the Distribution, the Company and Marriott International
entered into several transitional agreements, each of which is described below:

CONTINUING SERVICES AGREEMENT

This  agreement  provides  that the Company will  receive (i) various  corporate
services such as computer systems

                                   42


<PAGE>
                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




support and telecommunication  services; (ii) various procurement services, such
as developing  product  specifications,  selecting  vendors and distributors for
proprietary products and purchasing certain identified  products;  (iii) various
product supply and distribution  services;  (iv) casualty claims  administration
services  solely  for claims  which  arose on or before  October  8,  1993;  (v)
employee benefit  administration  services and (vi) a sublease for the Company's
headquarters office space. The sublease was terminated in February 1997 when the
Company relocated to its new corporate headquarters.
     As a part of the Continuing Services  Agreement,  the Company paid Marriott
International  $76.9  million for  purchases of food and supplies and paid $10.7
million for corporate support services during 1996.

NONCOMPETITION AGREEMENT

In connection with the MI Distribution, Host Marriott and Marriott International
entered   into  a   Noncompetition   Agreement   dated   October  8,  1993  (the
"Noncompetition   Agreement")   pursuant   to  which  Host   Marriott   and  its
subsidiaries,  including  those  comprising its food,  beverage and  merchandise
concession  businesses  (the  "Operating  Group"),  are prohibited from entering
into,  or  acquiring  an  ownership  interest in any entity that  operates,  any
business that (i) competes with the food and facilities  management  business as
currently  conducted  by  Marriott   International's   wholly-owned  subsidiary,
Marriott Management Services,  Inc. ("MMS," with such business being referred to
as the  "MMS  Business"),  provided  that  such  restrictions  do not  apply  to
businesses  that  constitute  part of the  business  comprising  the  then  Host
Marriott's  Operating Group or (ii) competes with the hotel management  business
as conducted by Marriott International,  subject to certain exceptions. Marriott
International  is  prohibited  from  entering  into,  or  acquiring an ownership
interest  in any entity that  operates,  any  business  that  competes  with the
businesses  comprising the then Host Marriott's Operating Group,  providing that
such  restrictions  do not apply to businesses that constitute a part of the MMS
Business. The Noncompetition  Agreement provides that the parties (including the
Company) and any successor thereto will continue to be bound by the terms of the
agreement until October 8, 2000.

LICENSE AGREEMENT

Pursuant to the terms of a License  Agreement between Host Marriott and Marriott
International dated October 8, 1993 (the "License Agreement"),  the right, title
and  interest in certain  trademarks,  including  "Marriott,"  were  conveyed to
Marriott  International and Host Marriott and its subsidiaries,  including those
comprising the Operating  Group. As a result,  the Company was granted a license
to use  such  trademarks  in its  corporate  name  and in  connection  with  the
Operating  Group  business  subject  to  certain  restrictions  set forth in the
License Agreement. In connection with the Distribution, the Company and Marriott
International entered into a new License Agreement pursuant to which the Company
and its subsidiaries  retained the license to use such trademarks subject to the
License Agreement.

                                   43


<PAGE>
                  HOST INTERNATIONAL, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




14.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               1996(1)
------------------------------------------------ ---------------------------------------------------------------------
                                                    FIRST         SECOND        THIRD         FOURTH        FISCAL
(IN MILLIONS)                                      QUARTER       QUARTER       QUARTER        QUARTER        YEAR
------------------------------------------------ ------------- ------------- ------------- -------------- ------------
<S>                                                  <C>           <C>           <C>             <C>         <C>

Revenues                                            $  236.3      $  258.5      $  294.6          $350.2     $1,139.6
Operating profit                                         2.4          14.2          32.1            11.4         60.1
Net income (loss)                                       (3.8)          3.0          13.6             0.1         12.9
</TABLE>



<TABLE>
<CAPTION>

                                                                               1995(1)
------------------------------------------------ ---------------------------------------------------------------------
                                                    FIRST         SECOND        THIRD         FOURTH        FISCAL
(IN MILLIONS)                                      QUARTER     QUARTER (2)     QUARTER      QUARTER (3)      YEAR
------------------------------------------------ ------------- ------------- ------------- -------------- ------------
<S>                                                  <C>           <C>           <C>             <C>         <C>

Revenues                                            $  197.1      $  217.0       $  258.2     $  321.0       $993.3
Operating profit (loss)                                 (2.6)          8.0           27.3        (31.0)         1.7
Income (loss) before extraordinary item                 (7.9)         (2.2)          11.6        (43.3)       (41.8)
Net income (loss)                                       (7.9)        (11.8)          11.6        (43.3)       (51.4)
</TABLE>


<TABLE>
<CAPTION>

                                                                               1994(1)
------------------------------------------------ ---------------------------------------------------------------------
                                                    FIRST         SECOND        THIRD         FOURTH        FISCAL
(IN MILLIONS)                                      QUARTER     QUARTER (4)     QUARTER        QUARTER        YEAR
------------------------------------------------ ------------- ------------- ------------- -------------- ------------
<S>                                                  <C>           <C>           <C>             <C>         <C>

Revenues                                              $188.3        $221.6         $252.4        $281.9       $944.2
Operating profit (loss)                                 (2.0)         (1.7)          23.5           2.4         22.2
Net income (loss)                                       (8.1)         (7.8)           9.0          (7.1)       (14.0)

------------------------------

<FN>
(1)  The first three  quarters of 1996 consist  of 12 weeks each, and the fourth
     quarter  includes  17 weeks.  The  first  three  quarters  of 1995 and 1994
     consist of 12 weeks each, and the fourth quarter includes 16 weeks.
(2)  Second quarter 1995 results  include an  extraordinary  loss on the  
     extinguishment of long-term debt of $9.6 million (net of related income tax
     benefit of $5.2 million).
(3)  Fourth  quarter 1995 results  include $22.0 million of  write-downs of long
     lived assets which reflected the adoption of a new accounting  standard and
     $14.5 million of  restructuring  charges  primarily  representing  employee
     severance  and lease buy-out  costs,  which were taken to  restructure  the
     Company's  business  processes,  thereby reducing  long-term  operating and
     general and administrative costs.
(4)  Second  quarter  results for 1994  include a $12.0  million  charge for the
     transfer of an unprofitable  stadium concessions contract to a third party,
     which was partially  offset by a $4.4 million  reduction in  self-insurance
     reserves for general liability and workers' compensation claims.
</FN>
</TABLE>

            -----------------------------------------------------


15.  SUPPLEMENTAL GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION

        All material subsidiaries of the Company guarantee the Senior Notes. The
separate financial  statements of each guaranteeing  subsidiary  (together,  the
"Guarantor Subsidiaries") are not presented because the Company's management has
concluded  that such  financial  statements  are not material to investors.  The
guarantee of each Guarantor  Subsidiary is full and  unconditional and joint and
several  and each  Guarantor  Subsidiary  is a  wholly-owned  subsidiary  of the
Company.  Certain of the Company's controlled  affiliates,  in which the Company
owns between  50.01% and 90%  interests,  are not guarantors of the Senior Notes
(the "Non-Guarantor  Subsidiaries").  The ability of the Company's Non-Guarantor
Subsidiaries to make dividends to the Company is restricted to the extent of the
minority  interests' share in the affiliates'  combined net assets.  There is no
subsidiary  of the Company the capital  stock of which  comprises a  substantial
portion of the  collateral  for the Senior Notes within the meaning of Rule 3-10
of Regulation S-X.
        The following condensed  consolidating  financial information sets forth
the combined  financial  position,  results of operations  and cash flows of the
parent, Guarantor Subsidiaries and Non-Guarantor Subsidiaries:

                                   44


<PAGE>

              SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                              1996
--------------------------------------- ----------------------------------------------------------------------------------
                                                        GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
                                           PARENT     SUBSIDIARIES     SUBSIDIARIES        ADJUSTMENTS      CONSOLIDATED
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Current assets:
   Cash and cash equivalents               $  75.3        $  16.1             $  1.7           $    ---         $  93.1
   Other current assets                        ---           93.5                9.8                ---           103.3
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

   Total current assets                       75.3          109.6               11.5                ---           196.4

Property and equipment, net                    ---          225.3               19.8                ---           245.1
Other assets                                   ---           94.4                 ---               ---            94.4
Investments in subsidiaries                  194.7            ---                 ---            (194.7)            ---
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

Total Assets                               $ 270.0        $ 429.3             $ 31.3            $(194.7)        $ 535.9
==========================================================================================================================

Current liabilities:
   Accounts payable                       $    ---        $  83.0             $ 10.1           $    ---         $  93.1
   Accrued payroll and benefits                ---           45.7                ---                ---            45.7
   Other current liabilities                   ---           65.0                ---                ---            65.0
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

   Total current liabilities                   ---          193.7               10.1                ---           203.8

Long-term debt                               400.0          407.4                ---             (400.0)          407.4
Other liabilities                              ---           49.9                ---                4.8            54.7
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

   Total Liabilities                         400.0          651.0               10.1             (395.2)          665.9

Owner's equity (deficit)                    (130.0)        (221.7)              21.2              200.5          (130.0)
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

Total Liabilities and Owner's Deficit      $ 270.0        $ 429.3             $ 31.3            $(194.7)        $ 535.9
==========================================================================================================================
</TABLE>


<TABLE>
<CAPTION>

                                                                              1995
--------------------------------------- ----------------------------------------------------------------------------------
                                                        GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
                                           PARENT     SUBSIDIARIES     SUBSIDIARIES        ADJUSTMENTS      CONSOLIDATED
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Current assets:
   Cash and cash equivalents               $  15.8        $  27.3              $  2.2          $    ---         $  45.3
   Other current assets                        ---           76.7                 8.7               ---            85.4
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

   Total current assets                       15.8          104.0                10.9               ---           130.7

Property and equipment, net                    ---          229.4                10.2               ---           239.6
Other assets                                   ---          102.9                 ---               ---           102.9
Investments in subsidiaries                  234.0            ---                 ---            (234.0)            ---
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

Total Assets                               $ 249.8        $ 436.3             $  21.1           $(234.0)        $ 473.2
==========================================================================================================================

Current liabilities:
   Accounts payable                       $    ---        $  72.4             $   8.7          $    ---         $  81.1
   Accrued payroll and benefits                ---           35.3                 ---               ---            35.3
   Other current liabilities                   ---           49.4                 2.1               ---            51.5
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

   Total current liabilities                   ---          157.1                10.8               ---           167.9

Long-term debt                               400.0          407.6                 ---            (400.0)          407.6
Other liabilities                              ---           46.9                 ---               1.0            47.9
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

   Total Liabilities                         400.0          611.6                10.8            (399.0)          623.4

Owner's equity (deficit)                    (150.2)        (175.3)               10.3             165.0          (150.2)
--------------------------------------- ------------- -------------- ------------------ ------------------ ---------------

Total Liabilities and Owner's Deficit      $ 249.8        $ 436.3             $  21.1           $(234.0)        $ 473.2
==========================================================================================================================
</TABLE>

                                   45


<PAGE>

          SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                               1996
----------------------------------------- --------------------------------------------------------------------------------
                                                        GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
                                            PARENT    SUBSIDIARIES     SUBSIDIARIES        ADJUSTMENTS      CONSOLIDATED
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Revenues                                   $   ---       $1,017.0             $122.6            $   ---        $1,139.6
Operating costs and expenses                   ---          963.3              116.2                ---         1,079.5
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Operating profit                               ---           53.7                6.4                ---            60.1
Interest expense                             (39.3)         (40.1)               ---               39.3           (40.1)
Interest income                                2.2            2.2                ---               (2.2)            2.2
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Income (loss) before income taxes            (37.1)          15.8                6.4               37.1            22.2
Provision (benefit) for income taxes           9.3            9.3                ---               (9.3)            9.3
Equity interest in affiliates                 59.3            ---                ---              (59.3)            ---
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Net income (loss)                           $ 12.9       $    6.5             $  6.4             $(12.9)       $   12.9
==========================================================================================================================
</TABLE>


<TABLE>
<CAPTION>

                                                                               1995
----------------------------------------- --------------------------------------------------------------------------------
                                                        GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
                                            PARENT    SUBSIDIARIES     SUBSIDIARIES        ADJUSTMENTS      CONSOLIDATED
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Revenues                                   $   ---         $894.3              $99.0            $   ---         $ 993.3
Operating costs and expenses                   ---          892.6               98.0                1.0           991.6
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Operating profit                               ---            1.7                1.0               (1.0)            1.7
Interest expense                             (39.2)         (40.3)               ---               39.2           (40.3)
Interest income                                0.7            0.7                ---               (0.7)            0.7
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Income (loss) before income taxes
  and extraordinary item                     (38.5)         (37.9)               1.0               37.5           (37.9)
Provision (benefit) for income taxes           3.9            3.9                ---               (3.9)            3.9
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Income (loss) before extraordinary item      (42.4)         (41.8)               1.0               41.4           (41.8)
Extraordinary item - loss on
  extinguishment of debt (net of
  income tax benefit of $5.2 million)         (9.6)          (9.6)               ---                9.6            (9.6)
Equity interest in affiliates                  0.6            ---                ---               (0.6)            ---
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Net income (loss)                           $(51.4)        $(51.4)             $ 1.0            $  50.4         $ (51.4)
==========================================================================================================================
</TABLE>


<TABLE>
<CAPTION>

                                                                               1994
----------------------------------------- --------------------------------------------------------------------------------
                                                        GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
                                            PARENT    SUBSIDIARIES     SUBSIDIARIES        ADJUSTMENTS      CONSOLIDATED
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Revenues                                   $   ---        $ 869.2           $   75.0            $   ---         $ 944.2
Operating costs and expenses                   ---          849.0               72.0                1.0           922.0
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Operating profit                               ---           20.2                3.0               (1.0)           22.2
Interest expense                             (41.1)         (42.1)               ---               41.1           (42.1)
Interest income                                0.1            0.1                ---               (0.1)            0.1
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Income (loss) before income taxes            (41.0)         (21.8)               3.0               40.0           (19.8)
Provision (benefit) for income taxes         (11.0)          (5.8)               ---               11.0            (5.8)
Equity interest in affiliates                 16.0            ---                ---              (16.0)            ---
----------------------------------------- ----------- -------------- ------------------ ------------------ ---------------

Net income (loss)                          $ (14.0)       $ (16.0)               3.0               13.0           (14.0)
==========================================================================================================================
</TABLE>

                                   46


<PAGE>

           SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             1996
---------------------------------------- ------------------------------------------------------------------------------
                                                                            NON-        ELIMINATIONS
                                                          GUARANTOR       GUARANTOR           &
                                            PARENT       SUBSIDIARIES   SUBSIDIARIES     ADJUSTMENTS     CONSOLIDATED
---------------------------------------- -------------- --------------- -------------- ---------------- ---------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Cash provided by (used in) operations        $ (35.8)         $ 90.9        $   7.6           $ 35.8          $ 98.5
---------------------------------------- -------------- --------------- -------------- ---------------- ---------------

Investing activities:
   Capital expenditures                          ---           (39.9)         (15.0)             ---           (54.9)
   Other                                         ---             5.0            5.7             (5.7)            5.0
   Advances (to) from subsidiaries              95.3           (66.4)           6.9            (35.8)            ---
---------------------------------------- -------------- --------------- -------------- ---------------- ---------------
   Cash provided by (used in)
      investing activities                      95.3          (101.3)          (2.4)           (41.5)          (49.9)
---------------------------------------- -------------- --------------- -------------- ---------------- ---------------

Financing activities:
   Repayments of debt                            ---            (0.8)           ---              ---            (0.8)
   Partnership contributions
     (distributions), net                        ---             ---           (5.7)             5.7             ---
---------------------------------------- -------------- --------------- -------------- ---------------- ---------------
   Cash used in
     financing activities                        ---            (0.8)          (5.7)             5.7            (0.8)
---------------------------------------- -------------- --------------- -------------- ---------------- ---------------

Increase (decrease) in cash and
     cash equivalents                         $ 59.5         $ (11.2)       $  (0.5)         $   ---          $ 47.8
=======================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                             1995
---------------------------------------- ------------------------------------------------------------------------------
                                                                            NON-        ELIMINATIONS
                                                          GUARANTOR       GUARANTOR          &
                                            PARENT      SUBSIDIARIES    SUBSIDIARIES    ADJUSTMENTS     CONSOLIDATED
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Cash provided by (used in) operations       $ (39.0)          $ 41.3          $ 5.0         $  39.0           $ 46.3
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------

Investing activities:
   Capital expenditures                         ---            (47.7)          (2.0)            ---            (49.7)
   Other                                        ---              6.2            ---             ---              6.2
   Advances from subsidiaries                  24.9            (13.4)           0.6           (12.1)             ---
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------
   Cash provided by (used in)
     investing activities                      24.9            (54.9)          (1.4)          (12.1)           (43.5)
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------

Financing activities:
   Repayments of debt                        (392.8)          (392.8)           ---           392.8           (392.8)
   Issuance of long-term debt                 388.3            388.3            ---          (388.3)           388.3
   Partnership contributions
       (distributions), net                     ---            (12.0)          (3.0)            3.0            (12.0)
   Transfers from Host Marriott
      Corporation, net                         34.4             34.4            ---           (34.4)            34.4
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------
   Cash provided by (used in)
     financing activities                      29.9             17.9           (3.0)          (26.9)            17.9
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------

Increase (decrease) in cash and
     cash equivalents                        $ 15.8           $  4.3        $   0.6        $    ---           $ 20.7
=======================================================================================================================
</TABLE>

                                   47


<PAGE>

<TABLE>
<CAPTION>
                                                                             1994
---------------------------------------- ------------------------------------------------------------------------------
                                                                            NON-        ELIMINATIONS
                                                          GUARANTOR       GUARANTOR          &
                                            PARENT      SUBSIDIARIES    SUBSIDIARIES    ADJUSTMENTS     CONSOLIDATED
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------
<S>                                           <C>           <C>              <C>                <C>             <C>

Cash provided by (used in) operations       $ (41.3)          $ 51.5          $ 5.0          $ 41.3           $ 56.5
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------

Investing activities:
   Capital expenditures                         ---            (37.1)           ---             ---            (37.1)
   Other                                        ---              4.7            ---             ---              4.7
   Advances from subsidiaries                  69.0              ---            ---           (69.0)             ---
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------
   Cash provided by (used in)
     investing activities                      69.0            (32.4)           ---           (69.0)           (32.4)
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------

Financing activities:
   Repayments of debt                           ---             (1.3)           ---             ---             (1.3)
   Partnership contributions
     (distributions), net                       ---              ---           (4.0)            4.0              ---
   Transfers from Host Marriott
   Corporation, net                           (27.7)           (27.7)           ---            27.7            (27.7)
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------
   Cash provided by (used in)
     financing activities                     (27.7)           (29.0)          (4.0)           31.7            (29.0)
---------------------------------------- ------------- ---------------- -------------- --------------- ----------------

Increase (decrease) in cash and
     cash equivalents                       $   ---           $ (9.9)         $ 1.0           $ 4.0           $ (4.9)
=======================================================================================================================
</TABLE>


     Certain  reclassifications  were made to  conform  all of the  supplemental
information to the financial presentation on a consolidated basis. The principal
eliminating   entries  eliminate  Company  debt  and  related  interest  charges
reflected  in the  financial  statements  of the  Company (as  obligor)  and the
Guarantor  Subsidiaries  (as  guarantors),  investments,  advances and equity in
earnings in subsidiaries  and the minority  interests'  equity  interests in the
partnership distributions and establish the minority interest liability.

                                   48

<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

           None.


                                  PART III

        The  information  called for by Items 10-13 is incorporated by reference
from  the  Host  Marriott  Services  Corporation  1997  Annual  Meeting  of  the
Shareholders--Notice  and Proxy  Statement--(to  be filed pursuant to Regulation
14A not later than 120 days after the close of the fiscal year).

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K

(a)   LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

      (1)  FINANCIAL STATEMENTS

           All financial  statements of the registrant as set forth under Item 8
           of this Report on Form 10-K.

      (2)  FINANCIAL STATEMENT SCHEDULES

           The following  financial  information  is filed herewith on the pages
           indicated.

           FINANCIAL SCHEDULES:                                            PAGE

           I.   Valuation and Qualifying Accounts                           S-1



        All other  schedules are omitted  because they are not applicable or the
required  information is included in the  consolidated  financial  statements or
notes thereto.



(3)  EXHIBITS

EXHIBIT
  NO.                        DESCRIPTION

  21           Listing of Subsidiaries of the Registrant

  27           Financial Data Schedule (EDGAR Filing Only)


                                   49

<PAGE>

                             SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned,  thereunto duly authorized, on this 2nd day of April,
1997.

                        HOST INTERNATIONAL, INC.


                        By: /S/ BRIAN W. BETHERS
                        ------------------------
                             Brian W. Bethers
               Vice President (Principal Financial Officer)

Pursuant to the  requirements of the Securities  Exchange Act of 1934, this Form
10-K  has  been  signed  below  by the  following  persons  in  their  indicated
capacities and on the date set forth above.

          SIGNATURE                                    TITLE
-------------------------------   ---------------------------------------------

  /S/  WILLIAM W. MCCARTEN        President, (Principal Executive Officer)
--------------------------           and Director
   William W. McCarten                  

  /S/  BRIAN W. BETHERS           Vice President (Principal Financial Officer)
--------------------------
     Brian W. Bethers

  /S/  BRIAN J. GALLANT           Vice President (Principal Accounting Officer)
--------------------------
     Brian J. Gallant

  /S/  RICHARD E. MARRIOTT        Director
--------------------------
   Richard E. Marriott

  /S/  JOHN J. MCCARTHY           Senior Vice President and Director
--------------------------
    John J. McCarthy


                                   50

<PAGE>

           REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES


To the Shareholder of Host International, Inc.:

      We have audited in accordance with generally accepted auditing  standards,
the  consolidated   financial   statements  of  Host  International,   Inc.  and
subsidiaries,  included  in this Form 10-K and have  issued our  report  thereon
dated  February  4,  1997.  Our audits  were made for the  purpose of forming an
opinion on the basic  consolidated  financial  statements  taken as a whole. The
schedule appearing on page S-2 is the responsibility of the Company's management
and is  presented  for purposes of complying  with the  Securities  and Exchange
Commission's  rules  and  are  not  part  of the  basic  consolidated  financial
statements.  These  schedules  have been  subjected to the  auditing  procedures
applied in the audits of the basic consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth  therein in relation to the basic  consolidated  financial  statements
taken as a whole.



                                                      ARTHUR ANDERSEN LLP


Washington, D.C.
February 4, 1997


                                   S-1


<PAGE>
                                                            SCHEDULE II


                        HOST INTERNATIONAL, INC.
                    VALUATION AND QUALIFYING ACCOUNTS
     FOR THE FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995 
                         AND DECEMBER 30, 1994


<TABLE>
<CAPTION>

---------------------------------------------- ---------------- -- ------------- -- ----------------- -- ---------------
                                                                    ADDITIONS
                                                 BALANCE AT         CHARGED TO                             BALANCE AT
                                                  BEGINNING         COSTS AND                                 END
               DESCRIPTION (2)                    OF PERIOD          EXPENSES        DEDUCTIONS (1)        OF PERIOD
---------------------------------------------- ---------------- -- ------------- -- ----------------- -- ---------------

                                                                            (IN MILLIONS)

<S>                                                   <C>                 <C>                 <C>                  <C>

Allowance for doubtful accounts
      1994                                                $4.6             $1.6               $(0.7)               $5.5
      1995                                                 5.5              3.7                (0.1)                9.1
      1996                                                 9.1              2.9                (1.7)               10.3


Allowance for notes receivable
      1994                                                $7.0              ---                (0.6)                6.4
      1995                                                 6.4              ---                (6.4)                ---
      1996                                                 ---              0.4                  ---                0.4

<FN>

(1)   Charges to the accounts are for the purpose for which the reserves were 
      created.
(2)   The deferred tax asset valuation allowance has been omitted from this 
      schedule because the required information is shown in the notes to the 
      financial statements.
</FN>
</TABLE>

                                   S-2