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 DECEMBER 31, 1999

                                       OR

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

           FOR THE TRANSITION PERIOD FROM ___________ TO ____________

                          COMMISSION FILE NO. 33-95060

                            HOST INTERNATIONAL, INC.
           ------------------------------------------------------
           (Exact name of registrant as specified in its charter)

          DELAWARE                                       52-124233
          --------                                       ---------
  (State or Other Jurisdiction           (I.R.S. Employer Identification Number)
of Incorporation or Organization)

   6600 ROCKLEDGE DRIVE
    BETHESDA, MARYLAND                                   20817
    ------------------                                   -----
(Address of principal executive offices)              (Zip Code)

                                 (301) 380-7000
                                 --------------
             (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   None

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___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Aggregate  market  value of the  voting and  non-voting  common  equity  held by
non-affiliates of the registrant: $0

                       DOCUMENTS INCORPORATED BY REFERENCE
   Host Marriott Services Corporation's Schedule 14D-9, filed on July 30, 1999


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                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Host International, Inc. (the "Company"), a wholly-owned subsidiary of Host
Marriott  Services  Corporation  ("Host  Marriott  Services"),  is  the  leading
provider of food, beverage and retail concessions at airports, on tollroads, and
in shopping malls, with facilities at nearly every major commercial  airport and
tollroad in the United States.  On September 1, 1999, Host Marriott Services was
acquired by Autogrill SpA (the "Acquisition"),  the leading food management firm
for travel venues in Europe, with operations in Italy, France, Germany,  Greece,
Belgium,  Luxembourg,  Spain,  Austria and The Netherlands.  Effective March 20,
2000, Host Marriott Services changed its name to HMSHost Corporation. References
within  this  document  to  Host  Marriott   Services   apply  also  to  HMSHost
Corporation.

       The  Company  operates   primarily  in  the  United  States  through  its
subsidiaries.  The Company  manages six  tollroad  contracts  for Host  Marriott
Tollroads,  Inc.  ("Tollroads,"  a  wholly-owned  subsidiary  of  Host  Marriott
Services) and receives  management fees for such services.  The Company also has
international  airport concessions  operations in The Netherlands,  New Zealand,
Australia,  Canada,  Malaysia  and the  People's  Republic  of  China as well as
shopping mall concessions in Poland.

     The Company's operations are grouped into three business segments: Airports
(including gift and news retail outlets in off-airport locations), Travel Plazas
and Shopping Malls, which represented 83.5%,  13.8% and 2.7%,  respectively,  of
total revenues in 1999. See Note 12 to the Consolidated Financial Statements for
financial information about the Company's business segments.

BUSINESS STRATEGY

      The Company's  strategic objective is to generate higher revenues and cash
flows by increasing  revenues per enplaning  passenger  ("RPE") and revenues per
vehicle ("RPV"),  as well as maximizing real estate at its existing  concessions
facilities,  retaining  existing  contracts,  and gaining  incremental  business
through securing new contracts. In connection with the Acquisition,  the Company
has decided to place greater  emphasis on its airport and travel plaza segments,
including  international airport expansion,  and to discontinue its expansion of
its shopping mall segment.  Specifically, key elements of the Company's business
strategy include the following:

MAXIMIZING PROFITABILITY AT EXISTING CONCESSION FACILITIES

     The Company continues to increase the average amount spent by each customer
by  transforming  its markets  from  generic  offerings  to a blend of local and
internationally known branded concepts,  improving customer service and offering
innovative facility designs.  The Company has the largest portfolio of brands in
the industry with more than 100  franchised,  licensed or  internally  developed
brands that are familiar to frequent  travelers.  The Company leads the industry
in brand development by researching customer  preferences,  targeting the latest
trends in retail as well as food and beverage,  identifying  the best brands and
then working to adapt them into its operating environment.  In 1999, the Company
continued to adapt and rollout successful unique and premium niche brands to its
portfolio,  including  Cheesecake  Factory Cafe,  California Pizza Kitchen ASAP,
Chili's too, Lands End and Johnston and Murphy.

     Branded  concept  revenues in all of the  Company's  venues have grown at a
compound annual growth rate of 16.8% since 1997.  Revenues from branded concepts
increased by 18.6% during 1999 and accounted for $541.9 million of the Company's
total  annual  revenues.  The  majority  of this  increase  was  related  to the
continued  expansion  of branded  sales at airports  and on tollroads as well as
revenues  from the  heavily  branded  mall food  court  segment.  The  Company's
exposure  to any one brand is limited  given the  diversity  of brands  that are
offered.
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RETAINING EXISTING CONTRACTS

     The Company has  maintained its market  leadership  position by striving to
provide  outstanding  service to its customers and maintaining high standards in
maintenance and innovation at each of its concession  facilities.  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 1997, the Company has retained
85.0% of contracts  managed or operated  that were up for  renewal,  weighted by
contract size.

     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 is expected in the future,
the  impact of this  industry  trend on  future  revenue  growth in the  airport
segment is  expected  to be more than offset by  operating  initiatives  and the
addition of branded concessions.

     During the past few years,  several contracts have been negatively affected
by  airport  authorities  fracturing  master  contracts  into  several  separate
contracts.  However,  the  Company  has been  successful  in  retaining  a major
operating presence at most locations through its development of unique,  branded
concepts.

SECURING NEW CONTRACTS

     The Company's  business  development  organization is widely  recognized as
among the most  experienced  and  innovative in the industry with a demonstrated
track record of securing new contracts at attractive economic returns.  Securing
new contracts requires considerable management time and financial resources. The
individuals in the business  development  organization  provide the Company with
the expertise and depth to pursue multiple projects simultaneously.  Since 1997,
the Company has secured 23 new  contracts,  with  estimated  annual  revenues of
$140.8 million.

     During 1999, the Company commenced  airport  operations at China's Shenzhen
Huangtian  International  Airport in the People's Republic of China, added a new
international  airport  in  Calgary,   Canada  and  commenced  mall  food  court
operations at the MacArthur Center mall in Norfolk, Virginia; the Jersey Gardens
mall in Elizabeth, New Jersey; the Concord Mills mall in North Carolina; and the
Warsaw Marki and Zabrze Metro malls in Poland.

     The  Company now has a presence  in seven  countries  outside of the United
States.

AIRPORT CONCESSIONS

     The Company is the leading provider of airport food,  beverage,  and retail
concessions  in the  United  States.  The  Company  operates  concessions  at 62
domestic airports,  9 international  airports and 9 off-airport  locations.  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 revenues.

     Revenues in the airport segment,  which include domestic and  international
airports as well as food, beverage,  gift and news retail outlets in off-airport
locations,  totaled  $1,136.3  million  and  $1,028.8  million in 1999 and 1998,
respectively.  This segment  represented 83.5% of total Company revenues in both
1999 and 1998.

     Revenues from airport  concessions were $1,095.1 million and $985.5 million
in 1999 and 1998, respectively. The concentration of revenues from the Company's
ten largest airport  contracts was 29.8% of the Company's total revenues in 1999
and 29.3% of total revenues in 1998.  Airport  revenues have grown at a compound
annual  growth  rate of 9.0% since 1997.  Revenues  from  off-airport  locations
decreased to $41.2 million in 1999 from $43.3 million in 1998.

                                       2
<PAGE>

     All of the Company's airport  concessions are operated under contracts with
original  terms  typically  ranging from 5 to 15 years.  Contracts are generally
awarded  by  airport  authorities  through  a  competitive  process,  but  lease
extensions are often negotiated  before contracts expire.  The  weighted-average
life remaining on the Company's airport contracts was approximately 6.3 years at
the end of 1999 compared with 7.0 years at the end of 1998. Rents paid under the
contracts  averaged 15.0% and 16.0% of the Company's  total airport  revenues in
1999 and  1998,  respectively.  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
1999,  rent payments for most of the Company's  airport  contracts  exceeded the
minimum annual guarantee on those contracts.

     The Company's  off-airport  concession contracts usually have initial terms
of five or more  years.  The  Company  leases its  premises  at a fee,  which is
negotiated at the time the concession contract is awarded.  The weighted-average
life  remaining on the  Company's  nine  off-airport  concession  contracts  was
approximately 2.0 years at the end of 1999.

OPERATING LOCATIONS

     The Company  operates or manages  concessions  facilities  at the following
airports:

     UNITED STATES:  Anchorage,  AK; Atlanta, GA; Baltimore,  MD; Billings,  MT;
Birmingham, AL; Boston, MA; Charleston, SC; Charlotte, NC; Chicago, IL (O'Hare);
Cincinnati, OH; Cleveland, OH; Corpus Christi, TX; Dallas, TX (DFW); Dayton, OH;
Detroit,  MI; Fort Myers, FL; Grand Rapids,  MI;  Harlingen,  TX; Hartford,  CT;
Honolulu,  HI; Houston,  TX; Indianapolis,  IN; Jackson,  MS; Jacksonville,  FL;
Kansas City,  MO; Kauai,  HI; Las Vegas,  NV; Little Rock,  AR; Los Angeles,  CA
(LAX);  Louisville,  KY; Lubbock,  TX;  Manchester,  NH; Maui, HI; Memphis,  TN;
Miami, FL; Milwaukee, WI; Minneapolis,  MN; New York, NY (JFK); New York, NY (La
Guardia);  Newark, NJ; 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. (Ronald Reagan Washington National);  West Palm Beach, FL; and
Wichita, KS.

INTERNATIONAL:  Auckland,  New Zealand;  Cairns,  Australia;  Christchurch,  New
Zealand;  Kuala  Lumpur,  Malaysia;  Melbourne,   Australia;  Montreal,  Canada;
Schiphol, The Netherlands and Shenzhen, China.

     The Company  operates or manages  concessions at the following  off-airport
locations:

     Houston  Space  Center,  Empire  State  Building  Observatory,  New Orleans
Aquarium,  Atlantic City (3 sites), Polynesian Cultural Center, Raleigh Crabtree
Hotel Gift Shop and Detroit Metropolitan Wayne County Airport Marriott Hotel.

     The airport segment  facilities  operated by the Company offer five product
lines, which are described below.

BRANDED FOOD AND BEVERAGE CONCESSIONS

     The  Company  has  been a  pioneer  in  providing  airport  travelers  with
well-known food and beverage branded concessions such as Burger King,  Starbucks
Coffee,  Pizza Hut,  Sbarro,  Cinnabon,  Cheesecake  Factory,  California  Pizza
Kitchen ASAP,  Nathan's Famous,  Chili's Too, TCBY "Treats",  Taco Bell,  Dunkin
Donuts and Popeyes.  These branded concepts typically perform better and produce
higher RPE as  compared  to  non-branded  concepts.  Brand  awareness,  customer
familiarity  with product  offerings,  and the  perception of superior value and
consistency are all factors contributing to higher RPE in branded facilities. As
a licensee or franchisee of these brands,  the Company pays royalty fees ranging
from 2% to 10% of  total  sales.  Royalties  expense  as a  percent  of  branded
revenues averaged 5.8% in 1999.

     Branded food and beverage  revenues in the airports  segment have increased
22.5% when  comparing  1999 and 1998.  This increase can be attributed to large,
new branded concept developments at Orlando, St. Louis, Phoenix,

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Cleveland, Las Vegas and Seattle  airports.  Airport  branded product sales
increased to $362.5 million,  or 31.9% of airport  segment  revenues,  for 1999
compared with $295.8 million, or 28.8% of airport segment revenues, for 1998.

NON-BRANDED FOOD AND BEVERAGE CONCESSIONS

     These  concessions  are operated  under a generic name and serve  primarily
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
branded  items such as Pizza Hut Personal  Pan Pizza are sold  through  separate
vending  stands  within  these  facilities,   the  majority  of  the  sales  are
non-branded food and beverage  revenues.  Non-branded food and beverage revenues
generated  approximately  33.8% of airport segment revenues in 1999 and 35.3% of
airport segment revenues in 1998,  reflecting the Company's efforts to transform
its airport markets from generic offerings to a blend of international, internal
and unique local branded  concepts.  In 1999,  revenues of non-branded  food and
beverage products were up $21.0 million,  or 5.8%, to $384.3 million compared to
1998.

ADULT BEVERAGES

     The  Company  serves  alcoholic  and  nonalcoholic  drinks,  together  with
selected food items,  through  specialty lounges  (generally  operated under the
Premium Stock Airpub name),  restaurants,  cafeterias,  and  microbrewery  pubs.
These facilities are designed to provide a comfortable and relaxing  environment
for passengers waiting for their flights.  During 1999, the Company continued to
introduce its popular  microbrewery  pubs, which include,  among others,  Samuel
Adams Brew House and Karl  Strauss  Microbrewery.  Other  microbrewery  concepts
which the Company has previously implemented in its concessions business include
popular  regional names such as Manhattan Beach Brewing  Company,  Red Brick Ale
House,  Redondo Beach Brewing  Company,  Wasatch  Brewing Company and Wild Goose
Microbrew.  These bar and grill  concepts  bring local  flavors to the Company's
airport contracts and complement the Company's  proprietary Premium Stock Airpub
lounges.  Other specialty lounges  introduced  include Fox Sports Sky Box, a bar
and grill concept developed with sports innovator Fox Sports;  the world's first
Jose Cuervo Tequilaria, developed in partnership with Jose Cuervo International,
Inc.; and Casa Bacardi,  developed in partnership with Bacardi-Martini USA, Inc.
Adult beverages  generated  approximately  16.3% of airport segment  revenues in
1999 and 16.8% of airport segment  revenues in 1998. Adult beverage sales in the
airport segment were up $12.6 million, or 7.3%, in 1999 when compared with 1998.

MERCHANDISE OUTLETS

       The Company  operates branded and non-branded  merchandise  outlets at 24
airport locations and 8 off-airport  locations.  The Company's merchandise shops
sell  newspapers,   magazines,   souvenirs,   gifts,  books,  snacks  and  other
convenience  items. The Company 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 add internally developed specialty retail concepts
such as Simply Books, Global News, News Connection and Aviation, Inc. as well as
develop and sublease  specialty  retail concepts such as Lands End, and Johnston
and Murphy. Merchandise outlets generated approximately 14.7% and 15.8% of total
airport  concession sales in 1999 and 1998,  respectively.  Merchandise sales in
the airport  segment  increased by $3.8  million in 1999 to $166.1  million when
compared with 1998.

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  Company's  largest  airport  duty-free  operations  are  located at Detroit
Metropolitan Wayne County Airport,  Sea-Tac  International  Airport,  Hartsfield
Atlanta  International Airport and Minneapolis/St.  Paul International  Airport.
Duty-free shops generated  approximately  3.3% of total airport segment revenues
in both 1999 and 1998. Duty-free  merchandise sales totaled $37.9 million during
1999,  an increase of 9.9% compared to 1998.  The  duty-free  sales in 1998 were
hindered by weaker enplanements  stemming from the slowdown in the Asian economy
and lower spending by Asian travelers.

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OUTLOOK

     In March of 2000, the Federal Aviation  Administration  ("FAA")  forecasted
long-term average annual passenger  enplanement  growth of U.S. carriers of 3.8%
through  the year 2011.  The  Company's  management  expects  long-term  average
world-wide  annual  passenger  enplanement  growth to  approximate  5%. The U.S.
airport  concession  industry is  expected  to  continue to benefit  from strong
industry  fundamentals  and the  expansion  of  low-fare  airline  carriers.  In
addition,  to sustain low-fare  positioning and improve  financial  performance,
most  airlines  have  lowered  their costs by reducing or  eliminating  inflight
catering services.

     The Company  believes  that the  transformation  of the  Company's  airport
markets from generic offerings to a blend of international,  internal and unique
local branded concepts will attract more customers.  Currently, branded food and
beverage  revenues make up only 48.5% of the  Company's  total food and beverage
revenues in the  airport  segment  (31.9% of total  airport  segment  revenues),
demonstrating  the considerable  potential for growth.  Further,  the Company is
committed to refining  its core  operating  processes  to improve  efficiencies,
reduce costs and  increase  revenues.  The Company has focused its  attention on
pricing,  expanded utilization of loss prevention programs,  increasing emphasis
on  recruitment  and  retention  as  well  as the  continued  use of  technology
previously put in place for labor  productivity  and  scheduling.  Further,  the
Company  expects  continued  success in 2000 and  beyond in making  its  airport
concessions  contracts  more  profitable  through  new  concepts  and  operating
excellence initiatives.

     Over the next three years, 35 airport  concessions  contracts  representing
approximately  $227.3 million, or 14.6% of annualized total revenues,  will come
up for  renewal.  The  Company  expects  continued  success  in  retaining  such
contracts and is committed to striving for the highest levels of product quality
and customer satisfaction.  Over that same period, eight off-airport concessions
contracts representing  approximately $21.5 million, or 1.4% of annualized total
revenues, will come up for renewal.

TRAVEL PLAZA CONCESSIONS

     The travel plazas segment consists of 92 travel plazas spread throughout 13
tollroads,  which is the  largest  network  of  travel  plazas  in the U.S.  The
Company's  travel  plazas  are  located  in  the  mid-Atlantic,  midwestern  and
northeastern  states,  as well as in Florida.  The  Company  operates or manages
these travel plazas and it currently  holds the leading market  position on each
of the top ten tollroads on which it operates or manages.  The  relatively  high
level of traffic on tollroads in the mid-Atlantic and northeastern  states makes
those roads the highest revenue-producing tollroads.

     Revenues in the travel plaza business segment,  including  management fees,
were  $187.5  million  and $181.1  million in 1999 and 1998,  respectively.  The
Company's travel plaza concession  revenues in 1999 and 1998 were  approximately
13.8% and 14.7%, of the Company's total revenues  (including  management  fees),
respectively.   The  five  largest   travel  plaza   contracts   accounted   for
approximately 16.6% and 12.5% of total revenues  (including  management fees) in
1999 and 1998,  respectively.  No single  travel plaza  contract  constitutes  a
material portion of the Company's total revenues.

     Travel  plazas  are  operated  or  managed  under  contracts  with  highway
authorities that are typically 10 to 15 years in duration. Contracts are awarded
through a  competitive  process,  but lease  extensions  often can be negotiated
before contracts expire.  The  weighted-average  remaining life of the Company's
managed and operated travel plaza contracts was  approximately  8.2 years at the
end of 1999.

     The Company offers branded concepts in a clean, safe environment, which are
designed to appeal to travelers who desire  high-quality  meals without  exiting
the tollroad.  Travel plaza concessions are dominated by branded concepts, which
comprised  78.7% of travel plaza  concessions  revenues in 1999 (87.6% of travel
plaza food and beverage revenues).  The core business of most travel plazas is a
food court offering branded concepts,  including Burger King, Roy Rogers,  Bob's
Big Boy, Sbarro, TCBY "Treats",  Starbucks Coffee, Pizza Hut Express, Miami Subs
Grill,  Dunkin  Donuts  and  Popeye's.  Retail  gift  shops  selling  souvenirs,
postcards,  snacks,  newspapers and magazines frequently are located adjacent to
these food courts and accounted for  approximately  $17.5  million,  or

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10.1% of travel plaza revenues in 1999.  Travel plazas generally include
automated teller machines,  vending  machines and business  centers and all of
the facilities are accessible to the disabled.

OPERATING LOCATIONS

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

     Atlantic City Expressway;  Delaware Turnpike;  Florida's  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 Parkways.

OUTLOOK

     Moderate  pricing  increases and the  introduction  of new branded food and
beverage  concepts,  not  previously  available  on the market,  are expected to
further increase revenues in 2000 and beyond. Management is focused on improving
operational  excellence,  renewing key  contracts,  adding new brands with lower
capital investment requirements and real-estate maximization.

     Over  the  next  three  years,  two  travel  plaza  concessions   contracts
representing  approximately  $32.3 million,  or 2.1% of annualized total Company
revenues, will come up for renewal. Over the next three years, no managed travel
plaza contracts will come up for renewal.  The Company expects continued success
in retaining both operated and managed contracts.

SHOPPING MALL CONCESSIONS

     The Shopping Malls segment  includes food facilities at 10 malls.  The food
facilities are  principally  located in a food court setting within the shopping
mall. The Company's portfolio of shopping mall concession  contracts in the U.S.
is diversified in terms of geographic  location and mall developer.  At year end
1999, the Company also operated concessions at two shopping malls in Poland.

     Shopping mall food court concessions generated $36.9 million of revenues in
1999,  approximately  2.7% of total Company revenues and generated $22.1 million
in revenues in 1998,  approximately  1.8% of total Company revenues.  Total food
and beverage  revenues  accounted for 99.7% of the  segment's  revenues in 1999,
compared with 98.2% in 1998. Retail sales comprised the remaining  shopping mall
concession  revenues.  No single contract  constitutes a material portion of the
Company's total revenues.

     Shopping mall food court  concessions  contracts usually have initial terms
of 10 to 12 years  with the  Company's  rights to extend an  additional  5 to 20
years.  Rent  payments  are  determined  as a percentage  of sales  subject to a
minimum fee, which is negotiated at the time the concession contract is awarded.
The  weighted-average   remaining  life,  including  extension  rights,  of  the
Company's  shopping mall contracts was approximately 17.2 years compared to 18.2
years in 1998.

OPERATING LOCATIONS

     The Company operates concessions at the following shopping mall locations:

     UNITED STATES. Concord Mills Mall, Charlotte,  NC; Grapevine Mills, Dallas,
TX;  Independence  Center,  Kansas City,  MO;  Jersey  Gardens,  Elizabeth,  NJ;
Leesburg Corner Premium Outlets,  Leesburg,  VA; MacArthur Center,  Norfolk, VA;
Ontario Mills, Ontario, CA; and Vista Ridge, Lewisville, TX.

     INTERNATIONAL.  Warsaw Marki, Poland; and Zabrze Metro, Poland.

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OUTLOOK

     In the first  quarter of 2000,  the Company  began  operations  at the Lodz
Brezinska  mall in Poland,  and expects the Times Square 42nd Street  Project in
New  York,  New York,  to open in the  second  quarter  of 2000.  The  Company's
operations at the Dolphin Mall in Miami Dade County,  Florida,  are now expected
to open in 2001. However, the Company has decided to concentrate on its existing
mall portfolio and to discontinue  its efforts to acquire new shopping mall food
court concessions.

THE DISTRIBUTION

     Host Marriott  Services is the  successor to the food,  beverage and retail
concession  businesses  of  Host  Marriott  Corporation  ("Host  Marriott").  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.

RELATIONSHIP WITH HOST MARRIOTT

      For purposes of  governing  certain of the ongoing  relationships  between
Host Marriott  Services and Host Marriott after the  Distribution 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 and a  Transitional  Services  Agreement.  The  agreements
established  certain obligations for Host Marriott Services to issue shares upon
exercise of Host  Marriott  warrants,  which Host  Marriott  Services  has since
fulfilled its obligation,  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. As a result of the Acquisition,  Host
Marriott Services will settle these obligations with cash.

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  connection  with the spin-off of Host  Marriott  Services  from Host
Marriott, Host Marriott Services and Marriott International entered into several
transitional agreements, each of which is described below:

     CONTINUING SERVICES  AGREEMENT.  This agreement provides that Host Marriott
Services will receive (i) various  corporate  services such as computer  systems
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 Host Marriott
Services'  headquarters  office  space.  The office  sublease was  terminated in
February  1997  when  Host  Marriott  Services  relocated  to its new  corporate
headquarters.  The Continuing  Services Agreement will be negotiated in 2000 and
some or all the services  provided  under it may be  terminated by Host Marriott
Services.  Such  terminations  will be pursuant  to the terms of the  Continuing
Services Agreement.

     As a part of the Continuing Services  Agreement,  the Company paid Marriott
International  $80.7  million,  $75.4 million and $77.3 million for purchases of
food and  supplies  and paid $8.6  million,  $8.8  million and $9.8  million for
corporate support services during 1999, 1998 and 1997, respectively.

     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")

                                       7

<PAGE>

pursuant to which Host Marriott and its subsidiaries, including those comprising
its food, beverage and retail 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 Host Marriott  Services) and any successor  thereto
will continue to be bound by the terms of the  agreement  until October 8, 2000.
On March 27, 1998,  the MMS Business  became the  principal  business of Sodexho
Marriott Services,  Inc., which was combined with the North American  operations
of Sodexho  Alliance S.A. The rights and duties of Host Marriott  Services under
the Noncompetition  Agreement with Marriott  International were preserved in the
transaction.   Sodexho   Marriott   Services,   Inc.  is  now  a  party  to  the
Noncompetition   Agreement  with  Host  Marriott  Services.  The  Noncompetition
Agreement expires 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 the
"Marriott" name, were conveyed to Marriott  International  and Host Marriott and
its  subsidiaries,  including those comprising the Operating Group. As a result,
Host  Marriott  Services  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,  Host Marriott Services and Marriott  International entered into a
new  License  Agreement  pursuant  to  which  Host  Marriott  Services  and  its
subsidiaries  retained the license to use such trademarks subject to the License
Agreement. The License Agreement expired on March 22, 2000.

COMPETITION

     The Company  competes  with  certain  international,  national  and several
regional  and local  companies  to obtain the rights from  airport,  highway and
municipal  authorities,  and shopping mall developers to operate food,  beverage
and retail concessions.  The U.S. airport food and beverage concession market is
principally  serviced  by  several  companies,  including  the  Company,  CA One
Services,  Concessions  International  and Anton Foods.  The U.S. airport retail
concession industry is more fragmented.  The major competitors include: 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
concessions  segment is  fragmented  and  principally  dominated  by  individual
operators. The international concession market is fragmented, with Compass Group
holding the leading market share in European  airports and Canadian  Airways and
Railway Association holding the leading market share in Canada.

     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  strives to generate higher sales per square
foot of concession space and thereby  increase returns to the Company's  clients
(airport and highway  authorities and mall  developers)  and brand partners,  as
well as to the Company.  Attaining these financial results,  as well as striving
to  achieve  higher  customer  and  client  satisfaction  levels,  enhances  the
Company's ability to renew contracts and obtain new contracts.

GOVERNMENT REGULATION

     The  Company  is  subject  to  various  governmental  regulations,  such as
environmental, employment, health and safety regulations and regulations related
to security of airports.  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.

                                       8

<PAGE>


EMPLOYEES

     At December 31, 1999,  the Company or its  subsidiaries  directly  employed
approximately  26,000  employees.  Approximately  7,500 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.

ITEM 2.  PROPERTIES

     In addition  to the  operating  properties  discussed  in Item 1.  Business
above,  Host  Marriott  Services  leased  88,000  square feet of office space in
Bethesda,   Maryland,   which  serves  as  Host  Marriott  Services'   corporate
headquarters. The majority of the leased space is covered under an initial lease
agreement  that expires on December 31, 2003 and Host Marriott  Services has the
right to renew the lease for one  five-year  term.  A second  lease for  certain
additional space expires on December 31, 2006.

     The Company's  telephone  number is (301)  380-7000.  Business  results and
financial reports for the Company can be accessed on Host Marriott Services' Web
Site at www.hmscorp.com on the Internet's World Wide Web.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

     The  Company  and its  subsidiaries  are  from  time to  time  involved  in
litigation  matters  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.


                                       9

<PAGE>


                                     PART II

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

The Company's common stock is not publicly traded.

ITEM 6. SELECTED 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 December 31, 1999.  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>

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

                                                               1999(1)    1998(2)    1997(3)    1996(4)    1995(5)
------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S>                                                              <C>        <C>        <C>        <C>         <C>
                                                                                  (IN MILLIONS)

STATEMENT OF OPERATIONS DATA:

    Total revenues                                              $1,361     $1,232     $1,146     $1,140       $993
    Operating profit                                                37         59         66         60          2
    Income (loss) before extraordinary item and cumulative
      effect of change in accounting principle                      11         23         20         13        (42)
    Net income (loss)                                               10         23         20         13        (51)
    Dividends declared and paid to parent                            7          6        ---        ---        ---

BALANCE SHEET DATA:

    Total assets                                                   623        531        500        538        473
    Borrowings under line-of-credit agreement                       38         12        ---        ---        ---
    Total long-term debt                                           406        407        407        408        409
    Shareholder's deficit                                          (85)       (94)      (111)      (130)      (150)

OTHER OPERATING DATA:

    Cash flows provided by operations(6)                            75         74         46         99         46
    Cash flows used in investing activities                       (116)      (104)       (75)       (50)       (43)
    Cash flows provided by (used in) financing activities           42          3         (4)        (1)        18
    EBITDA(7)                                                       99        119        120        110         94
    Cash interest expense                                           40         39         39         39         40

------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<FN>

(1)  The results for 1999  include $1.9 million of  write-downs  for  long-lived
     assets,  $22.6  million  of  special  charges  incurred  as a result of the
     Acquisition,  a $13.9 million  reversal of the deferred tax asset valuation
     allowance,  an  extraordinary  loss on the  extinguishment  of debt of $0.3
     million,  net of tax benefit of $0.1  million,  and a cumulative  effect of
     change in accounting principle for start-up activities of $0.7 million, net
     of tax benefit of $0.5 million.

(2)  The results for 1998  include  $5.9 million of  write-downs  of  long-lived
     assets  and a $11.1  million  tax  benefit  to  recognize  the  anticipated
     utilization of certain tax credits previously considered unrealizable.

(3)  The results for 1997  include  $4.2 million of  write-downs  of  long-lived
     assets, $3.9 million of restructuring  charge reversals related to the 1995
     restructuring  plan  and a  $1.9  million  tax  benefit  to  recognize  the
     utilization of certain tax credits previously considered unrealizable.

(4)  Fiscal year 1996 includes 53 weeks.  All other years include 52 weeks.

(5)  The results for 1995 include  $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.

(6)  Cash flows  provided by  operations  in 1996 and 1997 were  affected by the
     Company's  transition to a new financial system.  Current  liabilities were
     temporarily  high at the end of 1996 and were reduced to seasonal levels in
     1997.

(7)  EBITDA  consists of the sum of  consolidated  net income (loss),  interest,
     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 and income taxes have been,  and will be,  incurred  which are not
     reflected  in the  EBITDA  presentations.  In order to  conform to the 1998
     presentation, EBITDA has been revised for fiscal years 1995 through 1997 to
     exclude interest income.  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>

                                       10

<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 retail concession  businesses
in travel and entertainment  venues. On that date, 31.9 million shares 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
13). On September 1, 1999, Host Marriott  Services was acquired by Autogrill SpA
(the "Acquisition").  Host International,  Inc. (the "Company") is the principal
wholly-owned  subsidiary of Host Marriott  Services.  Effective  March 20, 2000,
Host  Marriott  Services  changed  its name to HMSHost  Corporation.  References
within  this  document  to  Host  Marriott   Services   apply  also  to  HMSHost
Corporation.

     The Company  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  generated by
each of the travel plazas, with additional  incentive management fees determined
as a percentage of available  cash flow.  Management  fees  received  related to
these travel plaza concession  facilities  totaled $15.1 million,  $14.6 million
and $13.9 million in 1999, 1998 and 1997, respectively.

     Over 83% of the Company's annual revenues,  excluding  management fees, are
generated from operating food and beverage  concessions with the remaining being
generated  from news,  gift and  specialty  retail  concessions.  The  Company's
domestic  airport and travel plaza  concessions  accounted for over 97% of total
1999  revenues.  The Company's  diversified  branded  concept  portfolio,  which
consists of over 100 internationally  known brands,  regional specialty concepts
and proprietary concepts, is a unique competitive advantage in the marketplace.

     The  Company's  revenues  and  operating  profit,   excluding  general  and
administrative  expenses  and  unusual  items,  have grown at a compound  annual
growth rate ("CAGR") of 9.0% and 6.5% since 1997  (including  management  fees).
Revenue  growth has been  driven  primarily  by  increased  customer  traffic in
airports  and on  tollroads,  improvements  in  product  offerings  through  the
introduction of branded concepts,  moderate increases in menu prices and success
in winning new business and retaining contracts.

     The Company's  airport segment,  which includes  domestic and international
airports as well as food, beverage,  gift and news retail outlets in off-airport
locations,  contributed  approximately  83.5% of the Company's total revenues in
fiscal year 1999. Airport segment revenues and operating profit,  before general
and administrative  expenses and unusual items, have grown at a CAGR of 9.0% and
7.2%, respectively, since 1997.

     The Company's travel plazas concessions contributed  approximately 13.8% of
the Company's  total revenues in fiscal year 1999 (including  management  fees).
Since 1997,  travel plazas  revenues and operating  profit,  before  general and
administrative  expenses  and  unusual  items,  have grown at a CAGR of 3.7% and
13.2%, respectively, including management fees.

     The remaining  2.7% of the Company's  1999 revenues were generated from the
operation  of food  court  facilities  at  shopping  malls.  The  shopping  mall
operating  profit,  excluding  general and  administrative  expenses and unusual
items, has been constrained by lower than expected customer traffic and start-up
inefficiencies of new mall projects.

     Certain minor  reclassifications  were made to the 1998 and 1997  financial
information to conform to the 1999 presentation.

                                       11

<PAGE>


1999 COMPARED TO 1998

REVENUES

     Revenues  for the  year  ended  December  31,  1999  increased  by 10.4% to
$1,360.7  million  compared with revenues of $1,232.0 million for the year ended
January 1, 1999.  Revenues were driven by strong  growth in comparable  domestic
airport  concessions  operations,  particularly from sales at locations recently
opening new branded  concepts.  An increase  in  enplanements,  solid  growth in
tollroad operations,  the opening of seven new mall contracts in the last twelve
months and the  conversion of the Miami  International  Airport  contract from a
management agreement to an operating agreement during the second quarter of 1998
all contributed to overall revenue growth.

     Also affecting the increase in revenues were the Northwest Airlines pilots'
strike and the slowdown in the Asian economy during 1998. The strike temporarily
reduced operations at Northwest Airlines' three principal  hubs--Minneapolis/St.
Paul, Detroit and Memphis. The slowdown in the Asian economy negatively affected
the Company's duty-free operations in several key gateway airports in the United
States, as well as international operations in Australia and New Zealand.

AIRPORTS

     Airport segment  revenues  increased 10.4% to $1,136.3 million in 1999 from
$1,028.8 million a year ago.

     Airport  concession  revenues were up 11.1% to $1,095.1  million for fiscal
year 1999.  Domestic airport concession  revenues grew 11.0% to $1,020.0 million
for 1999.  Comparable domestic airport concession revenues,  which comprise over
85% of total domestic  airport  revenues,  grew 9.7% for 1999, from an estimated
3.8% growth in domestic  passenger  enplanements and 5.9% growth in revenues per
enplaning  passenger ("RPE").  Comparable domestic airport contracts exclude the
negative affect of exited contracts, contracts with significant changes in scope
of operation and contracts undergoing significant construction of new facilities
as well as the  positive  impact of new  contracts.  During  1999,  the Detroit,
Minneapolis,  Miami,  Charlotte,  Fort Meyers,  Palm Beach,  Houston and Ontario
airport contracts were considered  noncomparable.  RPE is the primary measure of
how effective  the Company is at capturing  potential  customers and  increasing
customer spending. Moderate increases in menu prices, the opening of new branded
concepts at a number of the  Company's  larger  locations,  including Las Vegas,
Orlando,  St. Louis,  Phoenix,  Cleveland  and Seattle,  and various real estate
maximization efforts contributed to the growth in RPE.

     International airport revenues were up 12.3% to $75.1 million. The increase
is partially  attributable  to the opening of the  Company's  operations  at the
Shenzhen Huangtian International Airport as well as the addition of new concepts
and overall  enplanement  increases at Schiphol Airport in the Netherlands.  The
1998 results were  negatively  affected by weak  enplanements  stemming from the
Asian economic slowdown.

     Revenues in off-airport  locations decreased 4.8% to $41.2 million in 1999.
This  decrease  in  revenues  reflects  the  Company's  planned  exit  from five
off-airport contracts during 1999.

TRAVEL PLAZAS

     Travel plaza  concession  revenues for 1999 were up 3.5% to $172.4 million.
In  addition,  travel  plaza  management  fee income for 1999 was $15.1  million
compared with $14.6 million in 1998.  Revenue  growth  benefited  from increased
tollroad  traffic,  increases in menu prices and the introduction of new branded
concepts  to  selected  locations.  Travel  plazas,  including  management  fees
received,  consistently  produce a significant  portion of the Company's overall
cash flow,  contributing  approximately 19% and 21% of total operating cash flow
in 1999 and 1998, respectively.

SHOPPING MALLS

     Shopping mall food court  concession  revenues  increased  $14.8 million to
$36.9  million in 1999.  The  increase can be  attributed  to the opening of the
MacArthur  Center  mall in the first  quarter  of 1999 and the openings  of the

                                       12

<PAGE>

Concord Mills, Jersey Gardens, Warsaw Marki and Zabrze Metro malls in the fourth
quarter of 1999, as well as the openings of the Independence Center Mall and the
Leesburg  Corner  Premium  Outlets in the fourth  quarter of 1998.  Revenues  at
comparable  locations  that have been open at least one year  decreased  by 2.7%
compared to 1998. The Company's results reflect the negative impact of increased
competition in areas surrounding its mall locations. International shopping mall
revenues totaled $0.6 million for 1999.

OPERATING COSTS AND EXPENSES

     The  Company's  total  operating  costs and expenses  increased to 97.3% of
total  revenues  compared  with 95.2% of total  revenues in 1998.  The operating
profit margin  decreased to 2.7% in 1999  compared with 4.8% in 1998.  Operating
profit was  significantly  reduced in 1999 by $22.6  million in special  charges
relating to the  Acquisition,  primarily costs of cash settlement of stock-based
incentives;  incremental  Year 2000 costs;  and  consulting  costs related to an
organizational  effectiveness  study to identify cost savings  opportunities  in
administrative overhead costs.

     Cost of sales were 8.1% above last year to $391.4 million,  with a 60 basis
point decrease in the cost of sales margin, which totaled 28.8%. The improvement
in the cost of sales margin has been driven by food and beverage  locations  and
reflects  cost  management  initiatives  and the  expanded  utilization  of loss
prevention programs in 1999.

     Payroll and benefits  totaled  $417.2 million during 1999, a 12.3% increase
over 1998.  Payroll and benefits as a percentage of total revenues  increased 50
basis  points to 30.7%.  The  increase in the payroll  and  benefits  margin was
driven by an  increase in payroll  costs due to tight  labor  markets and higher
levels of staffing to drive revenues.  The Company is addressing the tight labor
markets with  increased  emphasis on  recruitment  and  retention as well as the
continued use of technology put in place for labor productivity and scheduling.

     Rent  expense  totaled  $199.5  million for 1999,  an increase of 5.8% from
1998.  Rent expense as a percentage of total revenues  decreased 60 basis points
in 1999 to 14.7% and can be  attributed  to sales  increases on  contracts  with
fixed rental rates and new or renewed contracts with favorable rent margins.

     Royalties  expense  for 1999  increased  by 18.0%  to $30.2  million.  As a
percentage of total  revenues,  royalties  expense  increased 10 basis points to
2.2%.  The  increase in  royalties  expense  reflects  the  Company's  continued
introduction of branded concepts to its airport  concessions  operations and the
heavily  branded  shopping  mall  food  court  concessions   business.   Branded
facilities  generate higher sales per square foot,  contribute  toward increased
RPE, and position the Company to win and retain concession contracts.  Royalties
expense as a percentage  of branded  sales  averaged  5.8% in 1999 compared with
6.0%   in   1998,   reflecting   the   addition   of   branded   concepts   with
lower-than-average royalty percentages.

     Depreciation and amortization expense,  excluding $1.7 million of corporate
depreciation  on property  and  equipment,  which is included as a component  of
general and  administrative  expenses,  was $64.1  million  for 1999,  up 22.6%,
excluding $2.0 million of corporate  depreciation  on property and equipment for
1998. The 50 basis point increase in the depreciation  and amortization  expense
margin is  attributed  to the  Company's  higher  success  rate in  winning  new
contracts  and  extending   existing   contracts,   as  well  as  the  continued
introduction of branded facilities.

     General  and  administrative  expenses  were  $75.3  million  for 1999,  an
increase of 29.8%.  The increase can be attributed to incremental  external Year
2000 costs of $1.5  million,  consulting  costs of $2.4 million and  Acquisition
related  compensation costs for deferred awards vesting through December 2001 of
$9.9 million.  The general and administrative  expense margin increased 80 basis
points for 1999.

     Other operating  expenses,  which include  utilities,  casualty  insurance,
equipment maintenance, trash removal and other miscellaneous expenses, increased
11.1% to $121.3 million total for 1999. Other operating expenses as a percentage
of total revenues increased 10 basis points.

                                       13

<PAGE>

UNUSUAL ITEMS

o    During  1999,  the  Company  incurred  special  charges  of  $20.3  million
     resulting  from the  Acquisition  related to the cash  settlement of vested
     employee  benefits and $0.8 million of related social security taxes,  $0.3
     million for cash settlement of deferred awards for Board of Directors fees,
     and $1.2 million of terminated debt refinancing costs.

o    During 1999, the Company  determined that its investment in a shopping mall
     food court  contract was fully  impaired and recorded a write-down  of $1.9
     million.  The full impairment was a result of lower than expected  customer
     traffic and  capture  rates that were  inadequate  to support the number of
     concepts developed (see "Impairments of Long-Lived Assets").

     During 1998,  the Company  determined  that its investment in an internally
     used software  system was partially  impaired  because all of the purchased
     modules of the system that were  originally  intended to provide  operating
     efficiencies  could  not be fully  implemented.  As a result,  the  Company
     recorded a partial write-down of $3.5 million of the remaining $5.5 million
     book value of the system. Also during 1998, the Company determined that its
     investment  in a shopping mall food court  contract was fully  impaired and
     recorded  a  write-down  of $2.4  million.  The food court  contract  was a
     regional mall where the  operating  real estate under the contract is being
     phased in to the Company over several years.  Customer  traffic and capture
     rates  at  this  mall  were  well  below  the  Company's  expectations  and
     insufficient to support the number of concepts  developed (see "Impairments
     of Long-Lived Assets").

o    During  1999,  the  Company  reversed  its  remaining  deferred  tax  asset
     valuation allowance of $13.9 million. The Company reversed the deferred tax
     valuation  allowance  because of a history  of  positive  earnings  and the
     expected  continuation  of  positive  earnings,  both of which were  strong
     positive  evidence  supporting the realization of all existing deferred tax
     assets (see "Deferred Tax Assets").

     During  1998,  the Company  recognized  the expected  utilization  of $11.1
     million  of  certain  tax  credits  previously   considered   unrealizable,
     resulting in a reduction in the deferred tax asset valuation allowance.

OPERATING PROFIT

     Operating profit,  excluding general and  administrative  costs and unusual
items,  increased 11.7% to $137.0 million.  The overall operating profit margin,
excluding general and  administrative  expenses and unusual items,  increased 10
basis  points to 10.1% in 1999  compared  to a year ago.  Operating  profit  for
airports,  prior to the  allocation  of  corporate  general  and  administrative
expenses and excluding  unusual items,  was $112.7 million and $99.2 million for
1999 and 1998,  respectively.  Operating  profit  for travel  plazas,  excluding
general and  administrative  expenses and unusual  items,  was $27.3 million and
$24.5 million for 1999 and 1998,  respectively.  Operating loss for the shopping
mall segment,  excluding general and administrative  expenses and unusual items,
totaled $3.0 million in 1999  compared with  operating  loss of $1.0 million for
1998.

     The  airport  segment  operating  profit  margin,   excluding  general  and
administrative  expenses and unusual items, showed a 20 basis point increase for
1999 and totaled 9.9%.  The  increased  margin  reflects  improved cost of sales
margins offset by increased depreciation related to capital investments,  higher
payroll cost margins due to tight labor markets and start-up  inefficiencies  at
new international locations.

     The  travel  plazas   operating  profit  margin,   excluding   general  and
administrative expenses and unusual items, increased to 14.6% in 1999 from 13.5%
in 1998. The increased  margin reflects solid revenue growth coupled with active
management of operating costs.

     The shopping  mall segment  operating  loss margin,  excluding  general and
administrative  expenses and unusual  items,  was 8.1% for 1999 compared with an
operating loss margin of 4.5% in 1997. The shopping mall segment  reflects lower
than  expected  customer  traffic  and  continues  to be  affected  by  start-up
inefficiencies  of new malls. On a comparable basis, the shopping mall operating
profit  margin  increased  from 2.4% in 1998 to 5.8% in 1999.

                                       14

<PAGE>

The shopping mall segment results were also negatively affected by the change in
accounting  principle  relating to pre-opening costs (see "Cumulative  Effect of
Change in Accounting Principle").

INTEREST EXPENSE

     Interest expense increased 4.5% to $41.7 million for 1999 compared to 1998.
The  increase in  interest  expense  reflects  additional  interest  incurred on
borrowings  under the revolving  credit  facility and  short-term,  non-recourse
borrowings  from Host  Marriott  Tollroads  and Host  Marriott  Services to fund
capital expenditures.

INTEREST INCOME

     Interest  income  decreased  $1.0  million  to $0.7  million  for  1999 and
reflects lower cash balances during the year.

INCOME TAXES

     The benefit for income taxes for 1999 totaled $15.2 million compared with a
benefit  for income  taxes of $2.5  million for 1998.  The  Company  reduced the
effective  tax  rates in 1999 as a result of  Acquisition-related  costs and the
reversal  of its  remaining  deferred  tax asset  valuation  allowance  of $13.9
million. The Company reversed the deferred tax asset valuation allowance because
of a history of positive  earnings  and the  expected  continuation  of positive
earnings, both of which were strong positive evidence supporting the realization
of all existing deferred tax assets.  The effective rate for 1998 was reduced to
reflect the reversal of the valuation  allowance  for the  estimated  benefit of
recognizing  certain  tax credits  previously  thought to be  unrealizable  (see
"Deferred Tax Assets").

EXTRAORDINARY ITEM

     As a  result  of the  Acquisition  in  1999,  the  Company  terminated  its
line-of-credit  facility with The First  National Bank of Chicago and recognized
an extraordinary loss of $0.4 million ($0.3 million after the related income tax
benefit  of $0.1  million).  This loss  represents  the  write-off  of  deferred
financing costs (see "Liquidity and Capital Resources").

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

       The  Company  adopted SOP 98-5  during the first  quarter of 1999,  which
resulted in a one-time  write-off of deferred  pre-opening  costs  totaling $1.2
million ($0.7 million after the related income tax benefit of $0.5 million). The
SOP requires pre-opening costs to be expensed as incurred in 1999 and beyond.

NET INCOME

     The Company's net income decreased by $12.7 million to $10.4 million.  This
decrease reflects Acquisition-related compensation costs and higher net interest
expense, offset by the reversal of the deferred tax asset valuation allowance.

1998 COMPARED TO 1997

REVENUES

     Revenues for the year ended  January 1, 1999  increased by 7.5% to $1,232.0
million compared with revenues of $1,146.3 million for the year ended January 2,
1998.  Revenues  were  driven by  strong  growth in  domestic  airport  food and
beverage concessions,  particularly from sales at locations recently opening new
branded  concepts.  An increase in enplanements,  customer traffic on tollroads,
the  opening of two new mall  contracts  in the  fourth  quarter of 1997 and the
conversion  of the  Miami  International  Airport  contract  from  a  management
agreement  to an  operating  agreement  during  the  second  quarter of 1998 all
contributed to overall revenue growth.

                                       15


<PAGE>


AIRPORTS

     Airport segment  revenues  increased 7.5% to $1,028.8  million in 1998 from
$956.7 million in 1997.

     Airport  concession  revenues  were up $72.0  million,  or 7.9%,  to $985.5
million for fiscal year 1998. Domestic airport concession revenues grew 8.1%, to
$918.6 million for 1998,  with passenger  enplanements up an estimated 1.7% over
1997 and revenue per enplaned  passenger up 6.3%. RPE is the primary  measure of
how effective  the Company is at capturing  potential  customers and  increasing
customer spending. Moderate increases in menu prices, the opening of new branded
concepts at a number of the Company's  larger  locations,  including  Miami, Los
Angeles,  San  Francisco,  Minneapolis  and  Cleveland,  and various real estate
maximization  efforts  contributed to the growth in RPE.  International  airport
revenues were up 5.2% to $66.9 million.  The opening of the Company's operations
at the Montreal International Airport - Dorval in Canada during 1997 contributed
to the increase in international  airport revenues.  International  results were
affected by exchange rate fluctuations and by weaker enplanements  stemming from
the slowdown in the Asian economy.  The slowdown in the Asian economy also had a
negative impact on a number of the Company's duty-free operations in several key
gateway airports in the United States.

     Revenues in off-airport  locations  increased  slightly to $43.3 million in
1998 from $43.2 million in 1997.

TRAVEL PLAZAS

     Travel plaza  concession  revenues for 1998 were up 3.9% to $166.5 million.
In  addition,  travel  plaza  management  fee income for 1998 was $14.6  million
compared with $13.9 million in 1997.  Revenue  growth  benefited  from increased
tollroad traffic due to low gasoline prices,  moderate  increases in menu prices
and the  introduction  of several  new branded  concepts to selected  locations,
including  Starbucks  Coffee and Pizza Hut  Express.  Travel  plazas,  including
management  fees  received,  consistently  produce a significant  portion of the
Company's  overall cash flow,  contributing  approximately  21% and 20% of total
operating cash flow in 1998 and 1997, respectively.

SHOPPING MALLS

     Shopping  mall food court  concession  revenues  increased  $6.7 million to
$22.1  million  in 1998 due to the  opening  of new  shopping  mall  food  court
concessions.  Results were below expectations at one regional mall project where
the operating real estate is being phased in to the Company over several years.

     During 1998, the Company opened its fourth food court concessions  location
at the Independence Center Mall near Kansas City,  Missouri,  and its fifth food
court  concessions  location at the Leesburg Corner Premium Outlets in Leesburg,
Virginia.  Also during 1998, the Company  announced that it reached an agreement
with  Forest  City Ratner  Companies  to develop  and manage  food and  beverage
operations at the 42nd Street  Entertainment  and Retail Project  located in New
York's  Times  Square;  a deal with The Taubman  Company to operate the food and
beverage  concessions  at  MacArthur  Center in Norfolk,  Virginia;  a deal with
Glimcher  Realty  Trust to operate the food and beverage  concessions  at Jersey
Gardens  Mall  in  Elizabeth,  New  Jersey;  and a deal  with  Michael  Swerdlow
Companies,  Inc. to operate the food and beverage concessions at Dolphin Mall in
Miami-Dade County, Florida.

OPERATING COSTS AND EXPENSES

     The  Company's  total  operating  costs and expenses  increased to 95.2% of
total  revenues  compared  with 94.2% of total  revenues in 1997.  The operating
profit margin decreased to 4.8% in 1998 compared with 5.8% in 1997 and reflected
a 60 basis  point  increase  in the cost of sales  margin  and a 60 basis  point
increase in the payroll  margin.  Further  constraints  on the operating  profit
margin  included  significant  facility  construction  at several key  airports,
shopping mall start-up activities and Year 2000 costs.  Several initiatives were
put in place to focus on loss  prevention,  recruiting and associate  selection,
development and training.  The Company also began  evaluating new ways to better
leverage its size through technology and process changes.

                                       16

<PAGE>

     Cost of sales increased 9.9% above 1997 to $362.2 million,  reflecting a 60
basis point  increase in the cost of sales  margin,  which  totaled  29.4%.  The
margins are influenced by a mix shift to higher cost of product  concepts,  such
as  Starbucks,  and the  lowering of menu  prices as part of large new  contract
renewals in 1998. In addition,  the Company experienced commodity cost increases
in produce,  premium  coffee beans and dairy  products when  comparing  1998 and
1997.

     Payroll and benefits  totaled  $371.5  million during 1998, a 9.8% increase
over 1997.  Payroll and benefits as a percentage of total revenues  increased 60
basis points to 30.2%. The increase in the payroll and benefits margin reflected
the  impact  of the  Northwest  Airline's  pilots  strike,  which,  despite  the
Company's  short-term  layoffs,  more than offset benefits from the use of labor
scheduling  software and the  implementation of store manager training programs.
In addition, payroll margins increased due to construction of new concessions at
several airports and to slight tightening in local labor markets.

     Rent  expense  totaled  $188.5  million for 1998,  an increase of 4.7% from
1997.  Rent expense as a percentage of total revenues  decreased 40 basis points
in 1998 to 15.3%.  Contract rent expense  determined as a percentage of revenues
decreased during 1998 and can be attributed to sales increases on contracts with
fixed rental rates and new or renewed contracts with favorable rent margins.

     Royalties  expense  for 1998  increased  by 13.8%  to $25.6  million.  As a
percentage of total  revenues,  royalties  expense  increased 10 basis points to
2.1%.  The increase in  royalties  expense  reflected  the  Company's  continued
introduction of branded concepts to its airport  concessions  operations and the
continued   expansion  into  the  heavily  branded   shopping  mall  food  court
concessions  business.  Royalties  expense  as a  percentage  of  branded  sales
averaged 6.0% in 1998 compared with 6.3% in 1997,  and reflected the addition of
branded concepts with lower-than-average royalty percentages. Branded facilities
generate  higher sales per square foot,  contribute  toward  increased  RPE, and
position the Company to win and retain concession contracts.

     Depreciation and amortization expense,  excluding $2.0 million of corporate
depreciation  on property  and  equipment,  which is included as a component  of
general  and  administrative  expenses,  was $52.3  million  for 1998,  up 5.4%,
excluding $1.7 million of corporate  depreciation  on property and equipment for
1997. Increased depreciation related to contract extensions, the buildout of new
branded  locations and amortization of pre-opening  costs for new mall contracts
was  partially  offset by lower  depreciation  related to the  write-down of one
impaired airport unit in the fourth quarter of 1997.

     General  and  administrative  expenses  were  $58.0  million  for 1998,  an
increase of 6.8%.  Approximately half of the increase related to $1.1 million in
external costs and approximately  $0.8 million of internal costs relating to the
Company's Year 2000 compliance program. The level of corporate expenses incurred
during 1998 also reflected  increased  costs related to annual salary  increases
and some additional corporate resources to focus on growth initiatives.

     Other operating  expenses,  which include  utilities,  casualty  insurance,
equipment maintenance, trash removal and other miscellaneous expenses, increased
3.5% to $109.2 million total for 1998. Other operating  expenses as a percentage
of total  revenues  decreased 30 basis points and reflected  operating  leverage
from revenue growth.

UNUSUAL ITEMS

o    During 1998, the Company  determined that its investment in an internally
     used software  system was partially  impaired  because all of the purchased
     modules of the system that were  originally  intended to provide  operating
     efficiencies  could  not be fully  implemented.  As a result,  the  Company
     recorded a partial write-down of $3.5 million of the remaining $5.5 million
     book value of the system. Also during 1998, the Company determined that its
     investment  in a shopping mall food court  contract was fully  impaired and
     recorded  a  write-down  of $2.4  million.  The food court  contract  was a
     regional mall where the  operating  real estate under the contract is being
     phased in to the Company over several years.  Customer  traffic and capture
     rates  at  this  mall  were  well  below  the  Company's  expectations  and
     insufficient to support the number of concepts  developed (see "Impairments
     of Long-Lived Assets").

                                       17

<PAGE>

     During 1997,  an  operating  cash flow  analysis of one airport  concession
     contract  revealed that the Company's  investment  was partially  impaired,
     resulting  in a $4.2 million  write-down.  The partial  impairment  was the
     result of  construction  cost  overruns,  airline  traffic  shifts and weak
     operating performance. Since the time of the write-down, two major airlines
     have increased  their  presence at this location,  resulting in significant
     unexpected enplanement growth. Accordingly, the outlook for 1999 and beyond
     for this airport location is very positive.

o    During 1998 and 1997, the Company  recognized  the expected  utilization of
     $11.1  million  and $1.9  million,  respectively,  of certain  tax  credits
     previously  considered  unrealizable,  resulting  in  a  reduction  in  the
     deferred tax asset valuation allowance.

o    The 1997 results include a $3.9 million  reversal of  substantially  all of
     the  remaining  restructuring  reserves  to reflect the  conclusion  of the
     restructuring plan created in 1995 (see "1995 Restructuring").

OPERATING PROFIT

     Operating profit, excluding unusual items, decreased 2.6% to $64.7 million.
The overall  operating  profit  margin,  excluding  general  and  administrative
expenses and unusual  items,  decreased to 10.0% in 1998  compared with 10.5% in
1997.  This  decrease was largely due to the negative  effects of the  Northwest
Airlines' strike and the Asian economic slowdown.  The remaining decrease in the
operating profit margin resulted from increases in the cost of sales and payroll
margins, offset by lower rent and other operating cost margins. Operating profit
for airports,  prior to the allocation of corporate  general and  administrative
expenses and excluding  unusual  items,  was $99.2 million and $98.1 million for
1998 and 1997,  respectively.  Operating  profit  for travel  plazas,  excluding
general and  administrative  expenses and unusual  items,  was $24.5 million and
$21.3 million for 1998 and 1997,  respectively.  Operating loss for the shopping
mall segment,  excluding general and administrative  expenses and unusual items,
totaled $1.0 million in 1998 compared with operating profits of $1.3 million for
1997.

     The  airport  segment  operating  profit  margin,   excluding  general  and
administrative expenses and unusual items, showed a 70 basis point reduction for
1998 and totaled 9.6%.  The travel plazas  operating  profit  margin,  excluding
general and  administrative  expenses and unusual  items,  increased to 13.5% in
1998 from 12.2% in 1997.  The  shopping  mall  segment  operating  loss  margin,
excluding  general and  administrative  expenses and unusual items, was 4.5% for
1998  compared with an operating  profit  margin of 8.4% in 1997.  The operating
loss in 1998 can be  attributed to $1.2 million in  pre-opening  expenses of new
mall projects and start-up inefficiencies; however, the Company also experienced
lower than anticipated operating performance at two locations.

INTEREST EXPENSE

     Interest expense was $39.9 million for 1998 compared with $39.8 million for
1997. The minimal variance  reflects the 9.5% fixed rate of interest on the $400
million of Senior Notes.

INTEREST INCOME

     Interest  income  decreased  $1.3  million to $1.7  million for 1998.  Cash
balances  during  1998  were  lower  due  to  the  increased  level  of  capital
expenditures  as well as share  repurchases.  Cash  balances  during  the  first
quarter of 1997 were  temporarily  higher due to a transition to a new financial
system at year-end  1996.  This  transition  resulted in beginning cash balances
being higher than the Company's normal seasonal level. The 1997 results included
$0.4 million of non-recurring interest income relating to a negotiated agreement
with an Airport Authority,  which reimbursed the Company for the cost of funding
certain capital  improvements.  The 1997 interest income also reflected slightly
higher short-term interest rates during 1997.

INCOME TAXES

     The benefit for income taxes for 1998 totaled $2.5 million  compared with a
provision for income taxes of $9.7 million for 1997.  The effective tax rate was
(12.2)% and 33.0% for 1998 and 1997, respectively.  The effective tax

                                       18

<PAGE>

rates  reflected  the  recognition  of $11.1 million and $1.9 million of certain
purchase business combination tax credits previously considered  unrealizable in
1998 and 1997, respectively (see "Deferred Tax Assets").

NET INCOME

     The Company's net income  increased  17.9% to $23.1 million.  This increase
reflected the benefit from recognizing certain tax credits previously thought to
be unrealizable, which was offset by a decrease in operating profit, write-downs
of certain long-lived assets and lower interest income.

LIQUIDITY AND CAPITAL RESOURCES

     Historically,  the  Company has funded its  ongoing  capital  expenditures,
debt-service  requirements and Host Marriott  Services' treasury share purchases
from cash flow generated from ongoing operations and current cash balances.  The
Company has more recently drawn on existing credit facilities and borrowed funds
from Host Marriott  Tollroads to fund increased  capital  spending and from Host
Marriott  Services to fund the settlement of  Acquisition-related  deferred cash
awards.  Given the Company's expected capital requirements in 1999 and 2000, the
existing  favorable  interest  rate  environment  and the  benefits of increased
financial flexibility for capital investment targets, the Company proceeded with
a debt refinancing  plan in the second quarter of 1999,  including a cash tender
offer for its Senior Notes. As a result of the Acquisition, the tender offer and
consent  solicitation  for the Senior  Notes were  terminated,  resulting in the
recognition  of $1.2  million  of  related  expenses.  In  connection  with  the
Acquisition, Host Marriott Services assumed the debt associated with the funding
of the Acquisition.  The Company and its subsidiaries,  however,  did not assume
any of the debt and are not obligated in any manner related to the debt.

     The Company's  Senior Notes,  which will mature in May 2005, were issued at
par and have a fixed  coupon  rate of  9.5%.  The  Senior  Notes  can be  called
beginning in May 2000 at a price of 103.56%, declining to par in May 2003.

     The Company  presently  contemplates the call of all of the Senior Notes in
May 2000, and any such call to be consistent  with the terms of the Senior Notes
and the  prevailing  business and market  conditions.  Subsequent  to the Senior
Notes being called,  debt funding will be provided by equity and an intercompany
loan from Host Marriott  Services,  which will use funding provided by Autogrill
SpA. As of March 22, 2000,  Autogrill Overseas S.A. had purchased $174.5 million
of the Senior Notes and Host Marriott  Services had  purchased  $11.2 million of
the Senior Notes at market price.

     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 the event
of (i) a change in control triggering event or (ii) certain asset sales in which
the proceeds are not invested in other  properties  within a specified period of
time. The Acquisition did not cause a change in control  triggering event as the
Senior Notes Indenture  defines a change of control  triggering  event as both a
change of control and a debt rating decline. The debt rating on the Senior Notes
was not reduced.

     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  (the  "Guarantors")  of the
Company. 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.

     Prior to the Acquisition,  The First National Bank of Chicago, as agent for
a group of participating lenders,  provided credit facilities (the "Facilities")
to the Company  consisting of a $75.0 million  revolving  credit  facility

                                       19

<PAGE>

and a $25.0 million letter of credit  facility.  As a result of the Acquisition,
the Company  terminated its  Facilities  with The First National Bank of Chicago
and  obtained a  temporary  facility  from  CARIPLO - Cassa di  Risparmio  delle
Provincie  Lombarde  SpA.  The $10.0  million  revolving  credit  facility  (the
"Temporary  Facility")  has a sublimit of $5.0  million  for standby  letters of
credit,  is payable upon demand and matures March 31, 2000. The Company plans to
extend the Temporary  Facility for one year. The Temporary Facility provides for
working capital and can be used for general corporate purposes. As of the end of
1999, there was no outstanding balance on the Temporary Facility.

     During the fourth  quarter of 1999,  the Company  signed a promissory  note
with SanPaolo IMI SpA, for an uncommitted,  unsecured, temporary credit facility
(the "New Facility") equal to 370 billion Lire, or approximately  $193.0 million
as of the date of the agreement.  The New Facility provides for working capital,
matures  August 31, 2001,  accrues  interest at Libor plus 12.5 basis points and
provides for the issuance of stand-by  letters of credit for up to one year.  As
of the end of 1999,  there was $38.0 million of outstanding  indebtedness  under
the New  Facility,  at an average  interest  rate of 5.77%.  The New Facility is
guaranteed  by  Autogrill  International  S.A.,  an  affiliated  company of Host
Marriott Services.

     The loan agreements related to the terminated Facilities contained dividend
and stock  retirement  covenants  that were  substantially  similar to those set
forth in the Senior Notes Indenture, and provided that dividends payable to Host
Marriott Services were limited to 25% of the Company's  consolidated net income,
as  defined in the loan  agreements.  In  compliance  with the  Facilities,  the
Company paid $6.5 million of dividends to Host Marriott Services during 1999 and
$5.6 million of dividends in 1998.

     During 1999, an international  subsidiary of the Company was granted a $7.5
million  credit  facility  by ABN AMRO Bank N.V.  consisting  of a $6.1  million
overdraft  facility with a variable  interest rate until  February 1, 2002 and a
five-year loan of $1.4 million to fund business  activities,  including  planned
capital  expenditures.  As of the end of 1999,  no funds  had been  drawn on the
facility.

     During  1999,  Host  Marriott  Tollroads  granted  up to $20.0  million  of
short-term,  non-recourse  borrowings  to the Company  with a variable  interest
rate. As of the end of 1999,  the Company had  borrowings  outstanding  of $16.5
million at an average interest rate of 6.26%.

     Also during 1999,  the Company  borrowed  $11.8  million from Host Marriott
Services in the form of a non-recourse loan to fund the cash settlement of stock
plan awards  converted to cash awards during the year.  At the end of 1999,  the
balance due Host Marriott Services was $10.3 million at an average interest rate
of 5.88%.

     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 and deferred income taxes,  totaled $86.5 million for
1999, $88.1 million for 1998, and $78.1 million for 1997, respectively.

     The  primary  uses  of  cash  in  investing   activities   is  for  capital
expenditures.   The  Company  incurs  capital  expenditures  to  build  out  new
facilities,  to expand or  reposition  existing  facilities  and to maintain the
quality  and   operations  of  existing   facilities.   The  Company's   capital
expenditures in 1999,  1998 and 1997 totaled $120.4  million,  $95.6 million and
$66.0 million, respectively.

     The  Company's  cash  provided by  financing  activities  in 1999 was $42.3
million  compared with cash provided by financing  activities of $3.0 million in
1998 and cash used in financing  activities of $4.0 million in 1997. The Company
had cash inflows from  line-of  credit  borrowings  totaling  $26.4  million and
short-term  borrowings from Host Marriott  Tollroads and Host Marriott  Services
totaling  $32.5  million.  Cash  outflows  for 1999  include  dividends  to Host
Marriott Services of $6.5 million, repayments of intercompany borrowings of $5.7
million,  repayments of long-term  debt of $1.2  million,  repayments of capital
lease obligations of $0.5 million and the settlement of the Company's obligation
to pay for the 1998 exercise of nonqualified  stock options and the 1998 release
of deferred  stock  incentive  shares held by certain  former  employees of Host
Marriott Corporation of $1.7 million and other of $1.0 million.

                                       20

<PAGE>

     Cash  provided by financing  activities  in 1998 included cash inflows from
the  line-of-credit  borrowings  totaling  $11.6  million and proceeds  from the
issuance of debt of $1.4  million,  offset by $5.6 million of dividends  paid to
Host Marriott  Services,  a $3.5 million payment of the Company's  obligation to
pay for the 1997 exercise of nonqualified  stock options and the 1997 release of
deferred  stock  incentive  shares  held by  certain  former  employees  of Host
Marriott Corporation as well as $1.1 million of debt repayments and $0.2 million
of capital lease repayments.

     The  Company's   consolidated   earnings   before  net   interest,   taxes,
depreciation, amortization and other non-cash items ("EBITDA") was $99.3 million
in 1999 compared  with $119.0  million in 1998 and $119.9  million in 1997.  The
EBITDA margin  decreased by 2.4% to 7.3% of revenues from 9.7% in 1998 and 10.5%
in 1997.  The  Company's  cash  interest  coverage  ratio  (defined as EBITDA to
interest expense less  amortization of deferred  financing costs) was 2.5 to 1.0
in 1999  compared  with 3.1 to 1.0 in 1998 and 3.2 to 1.0 in 1997.  The  Company
considers EBITDA to be a meaningful measure for assessing operating performance.
EBITDA can be used to measure  the  Company's  ability  to  service  debt,  fund
capital  investments and expand its business.  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 net income to EBITDA:
<TABLE>
<CAPTION>

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

                                                                1999           1998            1997
       ---------------------------------------------------- -------------- -------------- ---------------
        <S>                                                      <C>            <C>             <C>

                                                                           (IN MILLIONS)

       NET INCOME                                               $   10.4       $   23.1         $   19.6
       Interest, net                                                41.0           38.2             36.8
       (Benefit) provision for income taxes                        (15.2)          (2.5)             9.7
       Depreciation and amortization                                65.8           54.3             51.3
       Unusual items,  extraordinary items, net and change
           in accounting principle, net                              2.9            5.9              0.3
       Other non-cash items                                         (5.6)           ---              2.2
       ---------------------------------------------------- -------------- -------------- ---------------

       EBITDA                                                    $  99.3       $  119.0         $  119.9
       ---------------------------------------------------- -------------- -------------- ---------------
</TABLE>

     The Senior Notes Indenture and the Facilities require interest income to be
included in the EBITDA calculation. Under this definition, EBITDA totaled $100.0
million,   $120.7  million  and  $122.9   million  for  1999,   1998  and  1997,
respectively.

IMPAIRMENTS OF LONG-LIVED ASSETS

     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.

     During 1999, the Company  determined that its investment in a shopping mall
food  court  contract  was fully  impaired  and  recorded a  write-down  of $1.9
million.  The full  impairment  was a result  of lower  than  expected  customer
traffic and capture rates that were inadequate to support the number of concepts
developed.

      During 1998, the Company  determined  that its investment in an internally
used software system was partially impaired because all of the purchased modules
of the system that were originally  intended to provide  operating  efficiencies
could not be fully  implemented.  As a result,  the  Company  recorded a partial
write-down  of $3.5

                                       21

<PAGE>

million of the remaining  book value of the system of $5.5 million.  The Company
also  determined  that its investment in a shopping mall food court contract was
fully  impaired  and  recorded  a  write-down  of $2.4  million.  The food court
contract is a regional mall where the  operating  real estate under the contract
is being  phased in to the Company  over  several  years.  Customer  traffic and
capture  rates at this mall  were well  below  the  Company's  expectations  and
insufficient to support the number of concepts developed.

     During 1997,  an operating  cash flow analysis of one airport unit in which
the Company was  obligated to add new  facilities  revealed  that the  Company's
investment was partially impaired,  resulting in a $4.2 million write-down.  The
partial impairment was the result of construction cost overruns, airline traffic
shifts and weak operating performance.

1995 RESTRUCTURING

     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.  In the fourth quarter of 1997, the Company concluded the
restructuring plan and reversed substantially all of the remaining restructuring
reserve,  which resulted in a $3.9 million pretax  reduction of other  operating
expenses.

DEFERRED TAX ASSETS

     The Company has recognized net assets of $94.1 million and $79.7 million at
December 31, 1999 and January 1, 1999, respectively,  related to deferred taxes,
which  generally  represent tax credit  carryforwards  and tax effects of future
available deductions from taxable income.

     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 1995 to 1999, the
Company  would have  generated  taxable  and pretax book income in each year and
cumulative  taxable and pretax book income for this period of $142.0 million and
$71.7  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
deferred tax assets primarily  relate to temporary  differences for property and
equipment,  accrued rent and reserves and to alternative minimum tax and general
business  tax  credit  carryforwards.   All  of  these  items  represent  future
reductions in the Company's regular tax liabilities.

       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.  No assurance  can be given that
sufficient  taxable  income will be generated for full  utilization of these tax
credits and  deductible  temporary  differences.  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.

       At the  time of Host  Marriott  Services'  spin-off  from  Host  Marriott
Corporation,  the Company established a valuation allowance against its deferred
tax  assets.  The  Company  determined  that it was more  likely than not that a
portion of its deferred tax assets would not be realized  based on the Company's
three-year trend of operating  losses. At the end of the second quarter of 1999,
the Company had approximately  $13.9 million of valuation  allowance recorded on
the balance sheet.

                                       22

<PAGE>

     Due to the seasonal nature of its business,  the third quarter of each year
historically  produces a significant  portion of the Company's operating profit.
The Company  generated  taxable  income for each of the three fiscal years since
the spin-off and, exclusive of expenses related to the Acquisition,  the Company
generated  taxable  income  through  the end of 1999.  This trend is expected to
continue. The positive earnings history and its expected continuation are strong
positive  evidence  supporting  the  realization  of all  existing  deferred tax
assets.  Therefore,  as of the end of the third  quarter  of 1999,  the  Company
reversed the entire $13.9 million valuation allowance.

     During  1998,  the Company  recognized  $11.1  million of certain  purchase
business combination tax credits,  previously believed  unrealizable and reduced
the  valuation  allowance  established  against  these  credits to reflect their
probable  utilization.  The purchase business tax credits  carryforwards and the
related  valuation  allowance  was  further  reduced  by  $1.5  million  due  to
adjustments by the Internal Revenue Service.

SHAREHOLDER'S 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 level of
distributed  long-term debt resulted in the Company  reflecting a  shareholder's
deficit of $85.2  million and $94.4  million as of December 31, 1999 and January
1, 1999, respectively.

INFLATION

     The  Company's  expenses are affected by inflation.  While price  increases
generally can be instituted as inflation occurs, most contracts require landlord
approval before prices can be increased,  which may temporarily  have an adverse
impact on 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 1999, 1998 and 1997 fiscal years each contained 52 weeks. The
Company's fiscal year ends on the Friday nearest to December 31.

RISK FACTORS AND FORWARD-LOOKING STATEMENTS

     This report,  the Company's  other reports  filed with the  Securities  and
Exchange  Commission  and its public  statements  and press releases may contain
"forward-looking  statements" within the meaning of the federal securities laws,
including  statements  concerning the Company's outlook for 2000 and beyond; the
growth in total revenue and earnings in 2000 and  subsequent  years;  world-wide
enplanement growth;  anticipated retention rates of existing contracts;  capital
spending  plans;  projected cash flows from certain  operating  units;  business
strategies and their  anticipated  results;  and similar  statements  concerning
future events and expectations that are not historical facts.

     These  forward-looking   statements  are  subject  to  numerous  risks  and
uncertainties,  including  the  effects of  seasonality,  airline  and  tollroad
industry  fundamentals  and general  economic  conditions  (including  commodity
prices),  competitive  forces within the food,  beverage and retail  concessions
industries,  the availability of cash flow to fund future capital  expenditures,
government regulation and the potential adverse impact of union labor strikes on
operations.  Forward-looking  statements are inherently uncertain, and investors
must recognize that actual results could differ  materially from those expressed
or implied by the statements.

     SEASONALITY.  The  Company's  revenues and  operating  profit  margins have
varied,  and are  expected to continue to vary,  significantly  from  quarter to
quarter as a result of seasonal  traffic  patterns.  The  Company's  business is
seasonal in nature,  with the highest  vacation  traffic taking place during the
peak summer  travel  months,  particularly  between  Memorial Day and Labor Day.
Results of  operations  for any  particular  quarter  may not be  indicative  of
results of operations for future periods.

                                       23

<PAGE>

     INDUSTRY FUNDAMENTALS AND GENERAL ECONOMIC CONDITIONS. The Company could be
adversely affected during  inflationary  periods. If operating expenses increase
in the future due to  inflation,  the Company can recover some of the  increased
costs by  increasing  menu prices.  However,  most  contracts  require  landlord
approval before prices can be increased,  which could reduce profit margins.  In
addition, a significant  recession could reduce air travel or cause users of the
Company's  facilities to cancel,  reduce or postpone their use of the facilities
or cause  patrons to reduce their  spending on food,  beverage  and  merchandise
while at such facilities.

     COMPETITIVE  FORCES. The food and beverage and retail concessions  business
in  airports,  on tollroads  and in shopping  malls is highly  competitive.  The
Company  competes to retain existing  contracts and to obtain new contracts from
airport,  highway and municipal  authorities and shopping mall  developers.  The
Company's  contracts generally have a fixed term and in any fiscal year a number
of  these  contracts  either  expire  or come up for  renewal.  There  can be no
assurance that the Company will be able to retain and renew  existing  contracts
or obtain new contracts.  Competition within the industry is likely to intensify
as  the  Company  and  its  competitors  attempt  to  expand  operations.   Such
intensified  competition  could have a material  adverse impact on the Company's
business, financial condition and results of operations (see "Item 1. Business -
Competition").

     CAPITAL EXPENDITURES.  The Company incurs capital expenditures to build out
new  facilities,  expand or re-concept  existing  facilities and to maintain the
quality and improve  operations  of existing  facilities.  The Company funds its
capital  expenditures  with a combination  of cash flow  generated  from ongoing
operations,  current cash balances and existing credit facilities.  There can be
no assurance  that cash flow from  operations in future periods will be adequate
to sustain the level of capital expenditures made in prior periods.

     GOVERNMENT  REGULATION.  The food, beverage and retail concessions business
is  subject  to  numerous  federal,  state  and  local  government  regulations,
including  regulations relating to the sale of alcoholic beverages,  preparation
and  sale of  food,  employer/employee  relations  and  regulations  related  to
security of airports.  The application of these regulations to the Company, such
as the loss of a liquor license at an operating  location,  and changes in these
regulations,  such as any substantial increases in the minimum wage or mandatory
health care coverage,  could adversely affect the Company's business,  financial
condition and results of operations.

     UNION LABOR STRIKES.  The Company's  operations could be adversely impacted
by union labor  strikes,  such as the  Northwest  Airlines  pilots'  strike that
occurred  during the third  quarter of 1998.  While such strikes  have  occurred
infrequently  in the past, a prolonged  strike by an airline's union labor force
could reduce air travel,  especially in hub  locations  serviced by the affected
airline.  Due to the Company's  level of fixed  operating  costs,  a significant
reduction in passenger  enplanements  could reduce  operating  profit margins at
airport locations affected by the union strike.

OTHER MATTERS

     The Company  addressed  Year 2000 issues  with  action  plans for its:  (1)
information  systems,  (2)  embedded  chip  systems,  including  equipment  that
operates  such items as the Company's  freezers,  air  conditioning  and cooling
systems,  fryers and security  systems,  (3)  third-party  (vendor and supplier)
relationships and (4) contingency planning.

     The  Company  established  a Year 2000  Project  Team,  headed by the Chief
Information  Officer,  who reports to the Chief  Financial  Officer,  to resolve
significant  Year 2000 issues in a timely  manner as they were  identified.  The
project steering team included executive management and employees with expertise
from various disciplines including  information  technology,  finance,  internal
audit, legal and operations.  In addition,  the Company retained the services of
consulting firms with particular expertise in the Year 2000 problem. As a result
of its efforts,  the Company  experienced no material  adverse  effects from the
Year 2000 problem during the transition period from December 31, 1999 to January
1, 2000.

     INFORMATION  SYSTEMS.  The  Company  identified  20 internal  systems  that
required  correction.  The Company resolved Year 2000 issues through replacement
of  equipment,  modification  of software and  replacement  of certain

                                       24

<PAGE>

software systems. For mission critical systems, third-party experts were engaged
to  verify  Year 2000  compliance  testing.  All  mission  critical  information
technology systems are Year 2000 compliant.

     EMBEDDED  SYSTEMS.  A  comprehensive  inventory  of the  Company's  mission
critical  and  date-sensitive  embedded  systems  was  completed  for all of the
Company's locations. All manufacturers of inventoried components utilized in the
operations were contacted in order to determine  whether the components are Year
2000  compliant.  The  Company  remediated  or  replaced,  as  applicable,   any
identified  non-compliant  mission critical  systems.  Due to the quality of the
responses  received from  manufacturers,  the advice of the Company's  Year 2000
technical consultants and the estimated minimal impact of the individual systems
on the  Company,  the Company did not  conduct  independent  testing of embedded
systems.

     THIRD-PARTY  RELATIONSHIPS.  Formal  communications with all critical third
parties were  conducted to determine  potential  exposure  which would result in
their  failure to  remediate  their own Year 2000  issues.  These third  parties
included the Company's supply chain, airport authorities, financial institutions
and utility companies.  New business  relationships with alternate  providers of
products and services were considered when deemed necessary.

     RISKS/CONTINGENCY PLANS. As part of the Company's normal business practice,
it maintains plans to follow during emergency circumstances, some of which could
have arisen from Year 2000-related  problems. The Company's contingency planning
for the Year 2000  addressed  various  alternatives  and  included  assessing  a
variety of  scenarios  to which the Company  might have been  required to react.
Each  individual  location  developed a contingency  plan for the impact of Year
2000  business  interruptions.   The  Company's  operations  are  geographically
dispersed  and it has a large  supplier  base,  which would have  mitigated  any
adverse impact resulting from supplier problems.

     FINANCIAL IMPLICATIONS. During 1999, approximately $2.6 million in external
costs and approximately $1.1 million in internal costs were incurred relating to
Year 2000  implementation  compared with  approximately $1.1 million in external
costs and approximately $0.8 million in internal costs in 1998.

     The  statements   contained  in  this  section  are  "Year  2000  Readiness
Disclosures"  as  provided  for in  the  Year  2000  Information  and  Readiness
Disclosure Act.

                                       25


<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from  changes in interest  rates,  foreign
currency  exchange  rates and commodity  prices,  which could impact  results of
operations and financial  condition.  Changes in market  interest rates over the
next year would not  materially  impact  earnings or cash flow as the  Company's
cash  investments  are  short-term,  interest  rates under the revolving  credit
facilities  are  short-term  and the interest  rates on the  long-term  debt are
fixed. The Company's  exposure to changes in foreign currency  exchange rates is
not  material to earnings or cash flows.  Due to the  Company's  wide variety of
product  offerings  and diverse  brand  portfolio,  the Company would not expect
fluctuations in commodity prices to be material to earnings or cash flows.

     The fair  value of fixed rate  long-term  debt is  sensitive  to changes in
interest  rates,  which would  result in gains or losses in the market  value of
this debt due to differences  between the market interest rates and rates at the
inception of the debt  obligation.  Based on a hypothetical  immediate 150 basis
point  increase in interest  rates at the end of fiscal years 1999 and 1998, the
market  value of fixed rate  long-term  debt would  result in a net  decrease of
$27.1 million and $28.7  million,  respectively.  Conversely,  a 150 basis point
decrease in interest rates would result in a net increase in the market value of
fixed rate long-term  debt  outstanding at the end of fiscal years 1999 and 1998
of $26.0 million and $32.1 million,  respectively.  Changes in fair value of the
Company's long-term debt does not impact earnings or cash flows.

     Through  the end of 1999,  the  Company  had the  ability  to  borrow up to
approximately $193.0 million against an uncommitted,  unsecured credit facility.
As of the  end of  1999,  borrowings  outstanding  under  the  revolving  credit
facility totaled $38.0 million. The average balance was $3.3 million for 1999 at
an average  interest rate of 5.77%. A  hypothetical  10% increase or decrease in
interest rates would not have a material effect on earnings for 1999.

     Through  the end of 1999,  the  Company had the ability to borrow up to $10
million against a temporary  revolving credit  facility.  As of the end of 1999,
the Company had not drawn on this facility.

     Through the end of 1999,  the Company had the ability to borrow up to $20.0
million in short-term borrowings from Host Marriott Tollroads.  As of the end of
1999,  the Company had  outstanding  borrowings  of $16.5  million.  The average
balance  was $2.9  million  for 1999 at an  average  interest  rate of 6.26%.  A
hypothetical  10%  increase  or  decrease  in  interest  rates  would not have a
material effect on earnings for 1999.

     Through the end of 1999, the Company had an outstanding balance due to Host
Marriott  Services of $10.3 million.  The average  balance was $11.2 million for
1999 at an average  interest  rate of 5.88%.  A  hypothetical  10%  increase  or
decrease in  interest  rates  would not have a material  effect on earnings  for
1999.

     An international  subsidiary of the Company has the ability to borrow up to
$6.1 million against an overdraft facility. As of the end of 1999 and during the
past 12 months, no funds had been drawn on the facility.

     Significant  changes in  commodity  prices could  impact  future  operating
profit margins and cash flows. The Company has the ability to recover from sharp
increases in commodity  prices by increasing its menu prices.  However,  in some
instances, increases in menu prices require prior landlord approval, which would
cause a delay  in the  Company's  ability  to react to  significant  changes  in
commodity prices.

                                       26

<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                                  28

Consolidated Balance Sheets as of December 31, 1999
     and January 1, 1999                                                  29

Consolidated Statements of Operations for the Fiscal Years Ended
     December 31, 1999, January 1, 1999 and January 2, 1998               30

Consolidated Statements of Cash Flows for the Fiscal Years Ended
     December 31, 1999, January 1, 1999 and January 2, 1998               31

Consolidated Statements of Shareholder's Deficit for the Fiscal
     Years Ended December 31, 1999, January 1, 1999 and
     January 2, 1998                                                      32

Notes to Consolidated Financial Statements                              33 - 49


                                       27

<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 of December 31, 1999 and January 1,
1999,  and the related  consolidated  statements of  operations,  cash flows and
shareholder's  deficit for each of the three  fiscal  years in the period  ended
December 31, 1999.  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 auditing standards  generally
accepted in the United States.  Those standards require that we plan and perform
the  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 December  31, 1999 and January 1,
1999,  and the results of their  operations and their cash flows for each of the
three fiscal years in the period ended  December 31, 1999,  in  conformity  with
accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP
Vienna, Virginia
March 14, 2000

                                       28

<PAGE>


HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1999 AND JANUARY 1, 1999
<TABLE>
<CAPTION>

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

                                                                                  1999             1998
--------------------------------------------------------------------------- ----------------- ----------------
   <S>                                                                             <C>              <C>

                                                                                     (IN MILLIONS)

                                  ASSETS

Current assets:
   Cash and cash equivalents                                                        $  34.7          $  33.1
   Accounts receivable, net                                                            36.5             28.8
   Inventories                                                                         39.9             38.1
   Deferred income taxes                                                               14.3             19.7
   Prepaid rent                                                                         9.7              7.4
   Other current assets                                                                21.2              6.7
--------------------------------------------------------------------------- ----------------- ----------------
   Total current assets                                                               156.3            133.8

Property and equipment, net                                                           343.6            290.2
Intangible assets, net                                                                 23.0             25.5
Deferred income taxes                                                                  79.8             60.0
Other assets                                                                           20.3             21.2
--------------------------------------------------------------------------- ----------------- ----------------

Total assets                                                                        $ 623.0          $ 530.7
--------------------------------------------------------------------------- ----------------- ----------------

                  LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities:
   Accounts payable                                                                 $  87.2          $  75.8
   Accrued payroll and benefits                                                        60.9             44.5
   Accrued interest payable                                                             4.8              4.8
   Current portion of long-term debt                                                    1.3              1.1
   Borrowings under line-of-credit agreement                                           38.0             11.6
   Short-term borrowings from Host Marriott Tollroads, Inc.                            16.5              ---
   Short-term borrowings from Host Marriott Services Corporation                       10.3              ---
   Other current liabilities                                                           34.9             35.2
--------------------------------------------------------------------------- ----------------- ----------------
   Total current liabilities                                                          253.9            173.0

Long-term debt                                                                        405.0            405.9
Other liabilities                                                                      49.3             46.2
--------------------------------------------------------------------------- ----------------- ----------------
Total liabilities                                                                     708.2            625.1

Common stock, no par value, 100 shares authorized,
   issued and outstanding                                                               ---              ---
Accumulated other comprehensive (loss) income                                          (0.9)             0.1
Retained deficit                                                                      (84.3)           (94.5)
--------------------------------------------------------------------------- ----------------- ----------------
   Total shareholder's deficit                                                        (85.2)           (94.4)
--------------------------------------------------------------------------- ----------------- ----------------

Total liabilities and shareholder's deficit                                         $ 623.0          $ 530.7
--------------------------------------------------------------------------- ----------------- ----------------
</TABLE>




           See notes to the consolidated financial statements.

                                       29

<PAGE>


HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEARS ENDED DECEMBER 31, 1999, JANUARY 1, 1999 AND JANUARY 2, 1998
<TABLE>
<CAPTION>

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

                                                                          1999              1998             1997
-------------------------------------------------------------------- ---------------- ----------------- ----------------
<S>                                                                        <C>               <C>              <C>

                                                                                       (IN MILLIONS)

REVENUES                                                                   $1,360.7          $1,232.0         $1,146.3
-------------------------------------------------------------------- ---------------- ----------------- ----------------

OPERATING COSTS AND EXPENSES

   Cost of sales                                                              391.4             362.2            329.6
   Payroll and benefits                                                       417.2             371.5            338.4
   Rent                                                                       199.5             188.5            180.0
   Royalties                                                                   30.2              25.6             22.5
   Depreciation and amortization                                               64.1              52.3             49.6
   Write-downs of long-lived assets                                             1.9               5.9              4.2
   Special charges                                                             22.6               ---              ---
   Reversal of restructuring charges                                            ---               ---             (3.9)
   General and administrative                                                  75.3              58.0             54.3
   Other                                                                      121.3             109.2            105.5
-------------------------------------------------------------------- ---------------- ----------------- ----------------
Total operating costs and expenses                                          1,323.5           1,173.2          1,080.2

OPERATING PROFIT                                                               37.2              58.8             66.1

   Interest expense                                                           (41.7)            (39.9)           (39.8)
   Interest income                                                              0.7               1.7              3.0
-------------------------------------------------------------------- ---------------- ----------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
   CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
                                                                               (3.8)             20.6             29.3

(Benefit) provision for income taxes                                          (15.2)             (2.5)             9.7
-------------------------------------------------------------------- ---------------- ----------------- ----------------

Income before extraordinary item and cumulative effect of change
   in accounting principle                                                     11.4              23.1             19.6
Extraordinary item--loss on extinguishment of debt, net of tax
   benefit of $0.1 million                                                     (0.3)              ---              ---
Cumulative effect of change in accounting for start-up activities,
   net of tax benefit of $0.5 million                                          (0.7)              ---              ---
-------------------------------------------------------------------- ---------------- ----------------- ----------------

NET INCOME                                                                 $   10.4          $   23.1         $   19.6
-------------------------------------------------------------------- ---------------- ----------------- ----------------

</TABLE>





          See notes to the consolidated financial statements.

                                       30

<PAGE>


HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS ENDED DECEMBER 31, 1999, JANUARY 1, 1999 AND JANUARY 2, 1998
<TABLE>
<CAPTION>

                                                                              1999          1998             1997
--------------------------------------------------------------------------- --------- ----------------- ----------------
<S>                                                                             <C>           <C>            <C>

                                                                                           (IN MILLIONS)

OPERATING ACTIVITIES

Net income                                                                     $ 10.4            $ 23.1         $ 19.6
Cumulative effect of change in accounting principle, net of taxes                 0.7               ---            ---
Extraordinary item, net of taxes                                                  0.3               ---            ---
--------------------------------------------------------------------------- ----------- ----------------- --------------
                                                                                 11.4              23.1           19.6

Adjustments to reconcile cash from operations:

   Depreciation and amortization                                                 65.8              54.3           51.3
   Deferred financing                                                             1.3               1.3            1.3
   Deferred income taxes                                                        (14.4)            (11.5)          10.5
   Write-downs of long-lived assets                                               1.9               5.9            4.2
   Reversal of restructuring charges                                              ---               ---           (3.9)
   Other                                                                          6.1               3.5            5.6

   Working capital changes:
        (Increase) decrease in accounts receivable                               (6.0)             (4.7)           5.4
        (Increase) decrease in inventories                                       (2.5)             (0.4)           1.5
        Increase in other current assets                                        (12.4)             (2.1)          (5.7)
        Increase (decrease) in accounts payable and accruals                     23.8               4.3          (43.9)
--------------------------------------------------------------------------- ----------- ----------------- --------------

Cash provided by operations                                                      75.0              73.7           45.9
--------------------------------------------------------------------------- ----------- ----------------- --------------

INVESTING ACTIVITIES

Capital expenditures                                                           (120.4)            (95.6)         (66.0)
Other, net                                                                        4.7              (8.3)          (8.7)
--------------------------------------------------------------------------- ----------- ----------------- --------------

Cash used in investing activities                                              (115.7)           (103.9)         (74.7)
--------------------------------------------------------------------------- ----------- ----------------- --------------

FINANCING ACTIVITIES

Repayments of long-term debt                                                     (1.2)             (0.9)          (1.6)
Issuance of long-term debt                                                        ---               1.4            ---
Repayment of capital lease obligation                                            (0.5)             (0.2)          (0.1)
Net borrowings under line-of-credit agreement                                    26.4              11.6            ---
Proceeds from intercompany short-term borrowings                                 32.5              10.0            ---
Repayment of intercompany short-term borrowings                                  (5.7)            (10.0)           ---
Payment to Host Marriott Corporation for Marriott  International
   options and deferred shares                                                   (1.7)             (3.5)          (2.2)
Dividends to Host Marriott Services                                              (6.5)             (5.6)           ---
Other                                                                            (1.0)              0.2           (0.1)
--------------------------------------------------------------------------- ----------- ----------------- --------------

Cash provided by (used in) financing activities                                  42.3               3.0           (4.0)
--------------------------------------------------------------------------- ----------- ----------------- --------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  1.6             (27.2)         (32.8)

CASH AND CASH EQUIVALENTS, beginning of year                                     33.1              60.3           93.1
--------------------------------------------------------------------------- ----------- ----------------- --------------

CASH AND CASH EQUIVALENTS, end of year                                         $ 34.7            $ 33.1         $ 60.3
--------------------------------------------------------------------------- ----------- ----------------- --------------
</TABLE>

              See notes to the consolidated financial statements.

                                       31

<PAGE>

HOST INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT

FISCAL YEARS ENDED DECEMBER 31, 1999, JANUARY 1, 1999 AND JANUARY 2, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>

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

                                                                                              ACCUMULATED
                                                                                                 OTHER
                                                                  COMMON       RETAINED      COMPREHENSIVE
                                                                   STOCK       DEFICIT       INCOME (LOSS)       TOTAL

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

Balance, January 3, 1997                                            $  ---      $ (130.0)              $---     $ (130.0)

Comprehensive income:
   Net income                                                          ---          19.6                ---         19.6
   Foreign currency translation adjustments                            ---           ---               (0.1)        (0.1)
--------------------------------------------------------------- ------------ ------------- ------------------ ------------
Total comprehensive income                                             ---          19.6               (0.1)        19.5

Deferred compensation                                                  ---           1.4                ---          1.4
Payment to Host Marriott Corporation for Marriott
   International options and deferred shares                           ---          (2.2)               ---         (2.2)
--------------------------------------------------------------- ------------ ------------- ------------------ ------------
Balance, January 2, 1998                                               ---        (111.2)              (0.1)      (111.3)

Comprehensive income:
   Net income                                                          ---          23.1                ---         23.1
   Foreign currency translation adjustments                            ---           ---                0.2          0.2
--------------------------------------------------------------- ------------ ------------- ------------------ ------------
Total comprehensive income                                             ---          23.1                0.2         23.3

Deferred compensation                                                  ---           2.7                ---          2.7
Payment to Host Marriott Corporation for Marriott
   International options and deferred shares                           ---          (3.5)               ---         (3.5)
Dividend to Host Marriott Services                                     ---          (5.6)               ---         (5.6)
--------------------------------------------------------------- ------------ ------------- ------------------ ------------
Balance, January 1, 1999                                               ---         (94.5)               0.1        (94.4)

Comprehensive income:
   Net income                                                          ---          10.4                ---         10.4
   Foreign currency translation adjustments                            ---           ---               (1.0)        (1.0)
--------------------------------------------------------------- ------------ ------------- ------------------ ------------
Total comprehensive income                                             ---          10.4               (1.0)         9.4

Deferred compensation                                                  ---           5.9                ---          5.9
Income tax benefit from restricted stock and stock options             ---           2.1                ---          2.1
Payment to Host Marriott Corporation for Marriott
   International options and deferred shares                           ---          (1.7)               ---         (1.7)
Dividend to Host Marriott Services                                     ---          (6.5)               ---         (6.5)
--------------------------------------------------------------- ------------ ------------- ------------------ ------------
Balance, December 31, 1999                                          $  ---       $ (84.3)            $ (0.9)    $  (85.2)
--------------------------------------------------------------- ------------ ------------- ------------------ ------------

</TABLE>






              See notes to the consolidated financial statements.

                                       32


<PAGE>


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

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Prior to December 21, 1995, Host International,  Inc. (a Delaware  corporation -
the  "Company") was a  wholly-owned  subsidiary of Host Marriott  Travel Plazas,
Inc.  ("HMTP"),  a wholly-owned  subsidiary of Host Marriott  Corporation ("Host
Marriott"),  and  operated  most of the  airport,  travel  plaza and  sports and
entertainment  concessions  facilities 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.  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 5).

        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  Corporation  ("Host  Marriott  Services")  through a
special dividend,  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.

ACQUISITION OF HOST MARRIOTT SERVICES

Host Marriott  Services was acquired by Autogrill SpA ("Autogrill") on September
1, 1999 (the  "Acquisition").  Autogrill is the leading food management firm for
travel venues in Europe,  with  operations in Italy,  France,  Germany,  Greece,
Belgium, Luxembourg,  Spain, Austria and The Netherlands. Host Marriott Services
assumed the debt associated with the funding of the Acquisition. The Company and
its  subsidiaries  did not assume and are not obligated to the debt  obligations
associated with the funding.

     As a result  of the  Acquisition,  Host  Marriott  Services  converted  all
outstanding stock plan awards into cash awards, some of which were deferred over
future vesting periods. The Company recorded the related  compensation  expenses
for cash awards vested as of the end of 1999 (see Note 7).

     The Company had announced a refinancing  plan during 1999 that included the
launch of a cash tender offer and consent  solicitation for its Senior Notes and
the acquisition of a new credit  facility.  In connection with the  Acquisition,
the tender  offer and  consent  solicitation  and the  pursuit of the new credit
facility were terminated,  resulting in the recognition of related expenses (see
Note 5).

DESCRIPTION OF THE BUSINESS

The Company operates or manages  restaurants,  gift shops and related facilities
at 71 airports and 9 off-airport locations, on 13 tollroads (including 92 travel
plazas) and in 10 shopping malls. 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, Canada, Malaysia, Poland
and China.

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  years 1999,  1998 and 1997 include 52 weeks.  Fiscal year 1999  ("1999")
ended on December 31, 1999,  fiscal year 1998 ("1998")  ended on January 1, 1999
and fiscal year 1997 ("1997") ended on January 2, 1998.

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.

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.

                                       33


<PAGE>


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

PROPERTY AND EQUIPMENT

Property and  equipment  are recorded at cost.  Leasehold  improvements,  net of
estimated residual value, are amortized using the straight-line  method 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 $4.8 million in 1999 and $4.9 million
in 1998, and contract rights of $18.2 million in 1999 and $20.6 million in 1998.
These  intangibles  are  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 $2.9 million in 1999, $2.7 million
in 1998 and $3.3 million in 1997. Accumulated amortization totaled $17.0 million
and $15.1 million as of December 31, 1999 and January 1, 1999, 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  amounted to $4.4 million and $5.5 million at
December 31, 1999 and January 1, 1999, 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  shareholder's  deficit as
cumulative foreign currency translation adjustments.

INCOME TAXES

The Company recognizes deferred tax assets and liabilities based on 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

During 1999, the Company adopted Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer  Software  Developed or Obtained for Internal Use" and
SOP 98-5,  "Reporting on the Costs of Start-Up  Activities."  As a result of the
adoption of SOP 98-1,  the Company  capitalized  internal  payroll and  benefits
costs of $0.3  million in 1999 that  previously  would have been  expensed.  The
adoption of SOP 98-5  resulted in a $0.7 million  charge,  net of tax benefit of
$0.5  million,  for a  change  in  accounting  principle.  The  Company  adopted
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Instruments and Hedging Activities" during 1999 and the adoption did
not have a material effect on the Company's  consolidated  financial statements.
The Company adopted SFAS No. 130, "Reporting  Comprehensive Income," during 1998
and the adoption did not have a material  effect on the  Company's  consolidated
financial  statements.   The  Company  adopted  SFAS  No.  129,  "Disclosure  of
Information  about  Capital  Structure,"  and SFAS No. 131,  "Disclosures  about
Segments of an Enterprise and Related Information," during 1997. The adoption of
these  standards did not have a material  effect on the  Company's  consolidated
financial statements (see Note 12).

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.

                                       34

<PAGE>

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

RECLASSIFICATIONS

Certain  reclassifications were made to the prior years' financial statements to
conform to the 1999 presentation.

2.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>

------------------------------------ ---------- -----------
                                       1999        1998
------------------------------------ ---------- -----------
<S>                                     <C>         <C>

                                         (IN MILLIONS)

Leasehold improvements                $ 462.4     $ 413.5
Furniture and equipment                 245.8       214.4
Construction in progress                 43.5        37.2
------------------------------------ ---------- -----------
Total property and equipment            751.7       665.1
Less:  accumulated depreciation
       and amortization                (408.1)     (374.9)
------------------------------------ ---------- -----------

Property and equipment, net           $ 343.6     $ 290.2
------------------------------------ ---------- -----------
</TABLE>

     During 1999, an operating  cash flow  analysis  revealed that the Company's
investment in a shopping mall food court was fully  impaired.  As a result,  the
Company  recognized a non-cash,  pretax charge against earnings of $1.9 million.
The full  impairment  was a result of lower than expected  customer  traffic and
capture rates that were inadequate to support the number of concepts developed.

     During 1998, an operating  cash flow  analysis  revealed that the Company's
investment  in one  shopping  mall food  court was  fully  impaired  and that an
investment in an internally  used software system was partially  impaired.  As a
result, the Company recognized non-cash, pretax charges against earnings of $2.4
million and $3.5 million, respectively. The shopping mall contract is a regional
mall where the  operating  real estate  under the contract is being phased in to
the Company over several years.  Customer traffic and capture rates at this mall
were well below the  Company's  expectations  and  insufficient  to support  the
number of concepts developed.  The capitalized system software was determined to
be partially  impaired  because all of the purchased  modules of the system that
were originally  intended to provide operating  efficiencies  could not be fully
implemented.

3.  INCOME TAXES

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

--------------------------- -------- ---------- ----------
                             1999      1998       1997
--------------------------- -------- ---------- ----------
<S>                           <C>       <C>        <C>

                                    (IN MILLIONS)

Current:
   Federal                   $(4.6)    $  6.4      $(3.2)
   Foreign                     1.5        0.2        ---
   State                       1.7        2.4        2.4
--------------------------- -------- ---------- ----------
Total current
   (benefit) provision        (1.4)       9.0       (0.8)
--------------------------- -------- ---------- ----------

Deferred:
   Federal                     1.4        0.8       10.1
   Foreign                     ---        ---        ---
   State                      (1.9)       0.3        2.3
   Decrease in
     valuation allowance     (13.9)     (12.6)      (1.9)
--------------------------- -------- ---------- ----------
Total deferred
   (benefit) provision       (14.4)     (11.5)      10.5
--------------------------- -------- ---------- ----------
Total (benefit) provision   $(15.8)    $ (2.5)     $ 9.7
--------------------------- -------- ---------- ----------
</TABLE>

     At the  end of  1999,  the  Company  had  approximately  $10.6  million  of
alternative minimum tax credit carryforwards that do not expire and $1.2 million
of other tax credits that expire through 2019.

     The  Company  establishes  a valuation  allowance  in  accordance  with the
provisions  of  SFAS  No.  109,  "Accounting  for  Income  Taxes."  The  Company
continually reviews the adequacy of the valuation allowance and recognizes these
benefits only when  reassessment  indicates  that it is more likely than not the
benefits will be realized.

     In 1999,  the  Company  assessed  its past  earnings  history  and  trends,
forecasted  operating  results and  expiration  dates of  carryforwards  and has
determined  that it is more  likely  than not that the  Company  will be able to
realize all of its deferred tax assets.  Therefore,  the Company  eliminated its
entire valuation allowance of $13.9 million.

     In 1998,  the  Company  assessed  its past  earnings  history  and  trends,
forecasted   operating   results  and  expiration  dates  of  carryforwards  and
determined  that it was more  likely  than not that  $11.1  million  of  certain
purchase business  combination tax credits,  previously  believed  unrealizable,
would be realized. The valuation allowance established against these credits was
reduced to reflect their probable utilization.  The purchase business tax credit
carryforwards and the related  valuation  allowance were further reduced by $1.5
million due to adjustments by the Internal Revenue Service.

                                       35

<PAGE>


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

     During 1997, the Company also recognized the utilization of $1.9 million of
these  purchase  business  tax  credits  and  reduced  the  valuation  allowance
accordingly.

     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 or the tax credits are utilized. 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.

     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>

------------------------------------- --------- ----------
                                        1999      1998
------------------------------------- --------- ----------
<S>                                      <C>       <C>

                                         (IN MILLIONS)

Deferred tax assets:
   Tax credit carryforwards             $11.8      $18.0
   Property and equipment                62.6       57.7
   Casualty insurance                     8.7        8.7
   Employee benefits                      4.9        0.3
   Accrued rent                           8.3        9.4
   Other                                  3.5        6.7
------------------------------------- --------- ----------
Gross deferred tax assets                99.8      100.8

Less:  valuation allowance                ---      (13.9)
------------------------------------- --------- ----------
Net deferred tax assets                  99.8       86.9
------------------------------------- --------- ----------

Deferred tax liabilities:
   Safe harbor lease investments         (0.5)      (2.2)
   Other deferred tax liabilities        (5.2)      (5.0)
------------------------------------- --------- ----------
Gross deferred tax liabilities           (5.7)      (7.2)
------------------------------------- --------- ----------

Net deferred income taxes               $94.1      $79.7
------------------------------------- --------- ----------
</TABLE>

     A  reconciliation  of the  statutory  Federal  tax  rate  to the  Company's
effective income tax rate follows:

<TABLE>
<CAPTION>

-------------------------- ---------- ---------- ----------
                             1999       1998       1997
-------------------------- ---------- ---------- ----------
<S>                           <C>       <C>         <C>

Statutory Federal
   tax rate                   35.0 %     35.0 %     35.0 %
State income tax, net of
   Federal tax benefit         1.9        4.9        4.9
Tax credits                   25.5        1.3       (3.2)
Change in valuation
   allowance                 259.5      (61.2)      (6.5)
Foreign taxes                (22.3)      (0.7)       ---
Other, net                    (6.2)       8.5        2.8
-------------------------- ---------- ---------- ----------
Effective income
   tax rate                  293.4 %    (12.2)%     33.0 %
-------------------------- ---------- ---------- ----------
</TABLE>

     The  Company  files a  consolidated  Federal  income tax  return  with Host
Marriott  Services,  which  includes all of its  subsidiaries.  The Company made
income tax payments,  net of funds received,  of $6.7 million,  $9.1 million and
$2.5 million in 1999, 1998 and 1997, respectively.

4.  DETAIL OF OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

<TABLE>
<CAPTION>

---------------------------------- ---------- ---------
                                     1999       1998
---------------------------------- ---------- ---------
<S>                                   <C>        <C>

                                      (IN MILLIONS)

Accrued rent                           $ 5.1     $ 8.1
Operating insurance accruals             6.9      10.2
International accruals                   3.8       4.8
Accrued franchise fees                   2.6       2.3
Other                                   16.5       9.8
---------------------------------- ---------- ---------
Total other current liabilities        $34.9     $35.2
---------------------------------- ---------- ---------
</TABLE>

5.  DEBT

Debt consists of the following:

<TABLE>
<CAPTION>

------------------------------------ -------- -----------
                                      1999       1998
------------------------------------ -------- -----------
<S>                                    <C>        <C>

                                        (IN MILLIONS)

Senior Notes with a fixed rate
   of 9.5%, due 2005                   $400.0    $400.0
Capital lease obligations                 0.9       0.3
Short-term borrowing from Host
   Marriott Services                     10.3       ---
Short-term borrowing from Host
   Marriott Tollroads, Inc.              16.5       ---
Other                                     5.4       6.7
------------------------------------ ---------- ---------
Total debt                              433.1     407.0
Less:  current portion                  (28.1)     (1.1)
------------------------------------ ---------- ---------
Total long-term debt                   $405.0    $405.9
------------------------------------ ---------- ---------
</TABLE>

SENIOR NOTES

The  $400.0  million  of  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  capital
stock  of  the  Guarantors.  The  indenture  governing  the  Senior  Notes  (the
"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 repay  subordinated  indebtedness,  create certain liens, enter
into certain  transactions with affiliates,

                                       36

<PAGE>

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

sell certain  assets,  issue or sell capital stock of the  Guarantors  and enter
into certain mergers and consolidations.

     In connection with the Acquisition, Host Marriott Services assumed the debt
associated   with  the  funding  of  the   Acquisition.   The  Company  and  its
subsidiaries,  however,  did not assume any of the debt and are not obligated in
any manner related to the debt.

     As of December 31, 1999,  the Company had  approximately  $134.7 million of
unrestricted  funds available for  distribution to Host Marriott  Services under
the provisions of the Indenture. Prior to the Acquisition,  certain covenants of
the loan agreements with The First National Bank of Chicago,  referred to below,
further  restricted  the  Company's  ability  to  dividend  these  funds to Host
Marriott Services.

     The Company proceeded with a debt refinancing plan during 1999, including a
cash tender  offer for its Senior  Notes.  As a result of the  Acquisition,  the
tender  offer and consent  solicitation  for the Senior  Notes were  terminated,
resulting  in the  recognition  of $1.2 million of related  expenses,  which are
included in special charges in the accompanying statements of operations.

     The Senior Notes can be called beginning in May 2000 at a price of 103.56%,
declining to par in May 2003.

CREDIT FACILITIES

Prior to the  Acquisition,  The First  National Bank of Chicago,  as agent for a
group of participating lenders, provided credit facilities (the "Facilities") to
the Company  consisting of a $75.0 million revolving credit facility and a $25.0
million letter of credit facility.  As a result of the Acquisition,  the Company
terminated its Facilities with The First National Bank of Chicago and recorded a
loss on  extinguishment  of debt of $0.3  million,  net of tax  benefit  of $0.1
million.  This  extraordinary  item represents the remaining  deferred financing
charges as of the  termination  date of the  Facilities.  These loan  agreements
contained  dividend  and stock  retirement  covenants  that  were  substantially
similar to those set forth in the Indenture,  except that  dividends  payable to
the Company were limited to 25% of the  Company's  consolidated  net income,  as
defined in the loan  agreement.  During 1999 and in  compliance  with the credit
facilities,  the  Company  paid  $6.5  million  of  dividends  to Host  Marriott
Services.

     Also in connection with the  Acquisition,  the Company obtained a temporary
$10.0 million  revolving  credit  facility  (the  "Temporary  Facility")  with a
sublimit of $5.0  million for standby  letters of credit from CARIPLO - Cassa di
Risparmio  delle  Provincie  Lombarde SpA. The Temporary  Facility  provides for
working  capital and can be used for general  corporate  purposes.  The maturity
date of the  Temporary  Facility  is March 31,  2000 or payable  on demand.  The
interest rate of the Temporary Facility is Libor plus 30 basis points. As of the
end of 1999, there was no outstanding indebtedness under the Temporary Facility.

     During the fourth  quarter of 1999,  the Company  signed a promissory  note
with SanPaolo IMI SpA, for an uncommitted,  unsecured  temporary credit facility
(the "New Facility") equal to 370 billion Lire, or approximately  $193.0 million
as of the date of the agreement.  The New Facility provides for working capital,
matures  August 31, 2001  accrues  interest at Libor plus 12.5 basis  points and
provides for the issuance of stand-by  letters of credit for up to one year.  As
of the end of 1999,  there was $38.0 million of outstanding  indebtedness  under
the New  Facility,  at an average  interest  rate of 5.77%.  The New Facility is
guaranteed  by  Autogrill  International  S.A.,  an  affiliated  company of Host
Marriott Services.

     During 1999, an international  subsidiary of the Company was granted a $7.5
million  credit  facility  by ABN AMRO Bank N.V.  consisting  of a $6.1  million
overdraft  facility with a variable  interest rate until  February 1, 2002 and a
five-year loan of $1.4 million to fund business  activities,  including  planned
capital  expenditures.  As of the end of 1999,  no funds  had been  drawn on the
facility.

INTERCOMPANY LOANS

During 1999,  Tollroads granted up to $20.0 million of non-recourse,  short-term
borrowings to the Company with a variable  interest rate. As of the end of 1999,
the Company had borrowings  outstanding of $16.5 million at an average  interest
rate of 6.26%.

     Also during 1999,  the Company  borrowed  $11.8  million from Host Marriott
Services in the form of a non-recourse  loan to fund stock plan awards converted
to cash awards during the year. At the end of 1999, the remaining balance due to
Host Marriott Services was $10.3 million at an average interest rate of 5.88%.

CAPITAL LEASES

During 1999, the Company incurred $1.1 million of capital lease obligations.

DEBT MATURITIES

     Aggregate debt maturities,  excluding capital lease obligations, at the end
of 1999 are as follows:

                                       37

<PAGE>

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

<TABLE>
<CAPTION>

------------------------------------ ------------------
Year
------------------------------------ ------------------
<S>                                            <C>

                                       (IN MILLIONS)

2000                                           $  27.9
2001                                               1.3
2002                                               1.1
2003                                               1.0
2004                                               0.9
Thereafter                                       400.0
------------------------------------ ------------------
Total debt                                      $432.2
------------------------------------ ------------------
</TABLE>

     The  Company's  other  indebtedness  totaled  $5.4  million with an average
interest  rate of 7.83%.  Nearly $1.0  million of other debt is  denominated  in
Dutch Guilders.

     Deferred financing costs,  which are included in other assets,  amounted to
$6.2  million and $7.8 million at the end of 1999 and 1998,  respectively.  Cash
paid for interest was $40.4  million,  $38.6  million and $38.5 million in 1999,
1998 and 1997, respectively.

6.  SHAREHOLDER'S DEFICIT

One  hundred  shares  of  common  stock,  without  par  value,  are  issued  and
outstanding as of the end of 1999, 1998 and 1997. 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 Host Marriott 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 Host Marriott  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 Host Marriott Deferred Stock.

     Host Marriott Services had the option of issuing to Host Marriott shares of
common stock upon the exercise of the MI Host  Marriott  Options and the release
of the MI Host  Marriott  Deferred  Stock.  Host  Marriott  Services  could also
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. Additionally, Host Marriott Services will receive approximately 11% of
the exercise price of each MI Host Marriott Option exercised.

     Due  to  the  Acquisition,   the  Company  is  required  to  satisfy  these
obligations  by paying to Host Marriott cash equal to the  acquisition  price of
$15.75 per share for each exercised  option.  During 1999, the Company paid Host
Marriott  $1.7 million in partial  settlement  of its  obligation to pay for the
1998  exercise  of the MI Host  Marriott  Options and the release of the MI Host
Marriott  Deferred  Stock.  During  1998,  the Company paid Host  Marriott  $3.5
million for the 1997 exercise of the MI Host Marriott Options and the release of
the MI Host Marriott Deferred Stock.

     The obligations, which are recorded at an average price of $14.17 per share
in 1999  versus an  average  price of $5.29  per  share in 1998,  are shown as a
component of shareholder's deficit and totaled $11.8 million and $5.5 million as
of year-end 1999 and 1998, respectively.

7.  STOCK-BASED COMPENSATION PLANS

Prior to the Acquisition,  the employees of the Company  participated 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 could  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  participated in
Host Marriott  Services'  Employee Stock Purchase Plan. 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.

    As a  result  of the  Acquisition,  Host  Marriott  Services  converted  all
outstanding  stock plan awards under the  Comprehensive  Stock Plan and Employee
Stock  Purchase  Plan into cash awards,  some of which were deferred over future
vesting  periods,  based upon the $15.75  common share price.  Accordingly,  the
Company recorded $20.3 million of compensation expense for cash awards vested as
of the end of 1999.  The  remaining  $13.6  million of  expenses  related to the
unvested deferred awards at the Acquisition Date will be recognized over varying
periods from the  Acquisition  Date through  January 2002 and will be settled in
cash on various dates through  January 2002.  During 1999, the Company  recorded
$9.1 million of payroll and benefits  expense for deferred  awards vesting after
the

                                       38

<PAGE>

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

Acquisition Date in general and administrative expenses.

RESTRICTED STOCK AWARDS

Prior  to the  Acquisition,  restricted  shares  were  awarded  to  certain  key
executives.  As of the Acquisition Date, there were 1.0 million restricted share
awards outstanding. Compensation expense related to share awards granted in 1998
consisted  of an  annual  time-based  component  as well as a  performance-based
component,  both of which were calculated  using the fair value of the shares on
the date of issuance and was contingent on continued employment. The vesting and
corresponding   compensation  expense  under  the  annual  time-based  component
occurred  ratably over a  three-year  period  beginning  on the grant date.  The
vesting   and   corresponding   compensation   expense   of  shares   under  the
performance-based  component  could be  accelerated  from a  maximum  seven-year
period to a minimum  three-year period by the attainment of certain  performance
criteria during fiscal years 2001 through 2005.

     Compensation  expense  related to share grants prior to 1998 was recognized
over the award period and  consisted of time-and  performance-based  components.
The time-based  expense was calculated using the fair value of the shares on the
date  of   issuance   and  was   contingent   on   continued   employment.   The
performance-based  expense was calculated  using the fair value of the Company's
common stock during the award period and was contingent on attainment of certain
performance criteria.

     As a result of the  Acquisition,  all  outstanding  restricted  shares were
adjusted  to the grant  price of  $13.47,  resulting  in the  recording  of $7.4
million  of  compensation  expense.  As a  condition  of  the  Acquisition,  all
restricted shares were released.

DEFERRED STOCK AWARDS

Prior to the  Acquisition,  deferred stock incentive  shares were granted to key
employees  and vested over five to ten years in annual  installments  commencing
one year after the date of grant. The Company accrued  compensation  expense for
the  fair  market  value of the  shares  on the date of  grant,  less  estimated
forfeitures.

     Due to the Acquisition,  all existing  deferred stock awards were converted
to deferred  cash  awards.  The Company  recorded  compensation  expense of $3.1
million,  which equaled the difference  between the acquisition  price of $15.75
per share and the amount accrued to date of $1.9 million.

     The following is a detail of deferred stock award share activity:

<TABLE>
<CAPTION>

                                                 SHARES
---------------------------------------- ---- -------------
<S>                                                <C>

Balance, January 3, 1997                          265,202
Granted                                           210,180
Issued                                            (25,894)
Forfeited/expired                                 (26,941)
---------------------------------------- ---- -------------

Balance, January 2, 1998                          422,547
Granted                                             7,500
Issued                                            (38,091)
Forfeited/expired                                 (24,641)
---------------------------------------- ---- -------------

Balance, January 1, 1999                          367,315
Granted                                               ---
Issued                                            (33,826)
Forfeited/expired                                 (15,904)
Converted to cash awards                         (317,585)
---------------------------------------- ---- -------------

Balance, December 31, 1999                            ---
---------------------------------------- ---- -------------
</TABLE>

STOCK OPTIONS

Prior  to the  Acquisition,  employee  stock  options  could be  granted  to key
employees at not less than fair market value on the date of grant.  Most options
vested  ratably  over each of the first  four  years  following  the date of the
grant. As a result of the Acquisition, all outstanding options were converted to
cash awards,  some of which were deferred over future  vesting  periods.  During
1999,  expenses were incurred  related to vested options equal to the difference
between the grant price and the $15.75 acquisition price totaling $18.6 million.
Additional  expenses of $4.5 million will be incurred ratably  throughout fiscal
years 2000 and 2001.  There was no  compensation  cost recognized by the Company
relating to stock options during 1998 and 1997.

     The  weighted-average  fair value of the Company's  stock  options,  at the
grant date,  calculated using the Black-Scholes  option-pricing  model, for 1998
and 1997 totaled $7.6 million and $2.5 million, respectively.

     Presented below is a summary of the Company's stock option activity:

                                       39

<PAGE>

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

<TABLE>
<CAPTION>

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

Balance, January 3, 1997                1,956,174       $ 6.63
Granted                                   433,400        14.21
Exercised                                (161,718)        5.20
Forfeited/expired                        (120,360)        7.22
------------------------------------- ------------- -----------

Balance, January 2, 1998                2,107,496         8.27
Granted                                 1,564,609        12.71
Exercised                                (165,528)        5.85
Forfeited/expired                        (179,030)        7.11
------------------------------------- ------------- -----------

Balance, January 1, 1999                3,327,547        10.54
Granted                                   910,402         8.23
Exercised                                (106,421)        6.01
Forfeited/expired                        (244,531)       12.06
Converted to cash awards               (3,886,997)       15.75
------------------------------------- ------------- -----------

Balance, December 31, 1999                    ---       $  ---
------------------------------------- ------------- -----------
</TABLE>


     Presented below is a summary of the Company's exercisable and unexercisable
stock options as of the end of fiscal years 1998 and 1997:

<TABLE>
<CAPTION>

                              EXERCISABLE    UNEXERCISABLE
---------------------------- -------------- ----------------
<S>                              <C>              <C>

JANUARY 1, 1999
   Shares                          785,489        2,542,058
   Exercise price range       $0.86-$14.75     $5.07-$14.75
   Weighted-average
     exercise price                  $7.57           $11.46
   Weighted-average
     remaining contractual
     life in years                     9.8              9.7
---------------------------- -------------- ----------------

JANUARY 2, 1998
   Shares                          589,949        1,517,547
   Exercise price range        $0.86-$8.88     $5.07-$14.75
   Weighted-average
     exercise price                  $5.80            $9.23
   Weighted-average
     remaining contractual
     life in years                    10.9             10.9
---------------------------- -------------- ----------------
</TABLE>


EMPLOYEE STOCK PURCHASE PLAN

Prior to the Acquisition,  eligible employees of the Company could 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 in accordance
with the terms of the Employee  Stock  Purchase  Plan.  In  connection  with the
Acquisition,  the 1999 shares were  converted to deferred  cash awards at $15.75
per share less the share  issue  price of $10.13 per  share,  resulting  in $0.3
million of compensation expense.

     During the first quarter of 1999,  approximately 154,000 common shares were
sold to  employees at an exercise  price of $7.88 per share  related to the 1998
plan year.  During the first quarter of 1998,  194,573 Host  Marriott  Services'
common  shares were sold to  employees  at an exercise  price of $9.13 per share
related to the 1997 plan year.  During the first  quarter of 1997,  274,021 Host
Marriott  Services' common shares were sold to employees at an exercise price of
$6.06 per share related to the 1996 plan year. There was no compensation expense
recognized by the Company  relating to the Employee  Stock  Purchase Plan during
1998 and 1997.

     The fair value of the option  feature of the Employee  Stock Purchase Plan,
calculated  using the  Black-Scholes  option-pricing  model,  was  $170,000  and
$275,000 for 1998 and 1997, respectively.

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 $3.8  million and $4.0  million for 1998 and 1997,
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 would
have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

-------------------------------------------------------
                                   1998        1997
-------------------------------------------------------
<S>                                 <C>         <C>

                                     (IN MILLIONS)

Net income          As reported      $23.1       $19.6
                    Pro forma         21.3        18.6
-------------------------------------------------------
<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
disclosures were determined using the  Black-Scholes  option-pricing  model with
the following assumptions:

                                       40

<PAGE>

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

<TABLE>
<CAPTION>

                                 1998          1997
---------------------------------------------------------
<S>                                 <C>          <C>

Dividend yield                        0%            0%
Expected volatility                27.9%         30.8%
Risk-free interest rate             6.3%          6.3%
Expected holding
   period (in years)                   7             7
---------------------------------------------------------
</TABLE>


8.  PROFIT SHARING AND POSTRETIREMENT 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 $2.8  million,  $2.6  million and $2.5  million in 1999,  1998 and 1997,
respectively.

     The Company has a  supplemental  retirement  plan for certain key officers.
The liability  relating to this plan recorded as of the end of 1999 and 1998 was
$4.7 million and $4.9 million,  respectively.  The compensation  cost recognized
for each of the years 1999, 1998 and 1997 was $0.3 million.

9.  RESTRUCTURING

Management  approved  a formal  restructuring  plan in  October  of 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 the Company's  realignment
of operational responsibilities) and lease cancellation penalty fees and related
costs resulting from the Company's plan to exit certain off-airport  merchandise
contracts.

    In the fourth quarter of 1997, the Company concluded its restructuring  plan
and reversed  substantially all of the remaining  restructuring  reserve,  which
resulted in a $3.9 million pretax reduction of operating expenses.

10.  COMMITMENTS AND CONTINGENCIES

Future minimum annual rental commitments for noncancellable  operating leases as
of the end of 1999 are as follows:

<TABLE>
<CAPTION>

----------------------------------------- -------------
Years
----------------------------------------- -------------
<S>                                            <C>

                                          (IN MILLIONS)

2000                                            $156.7
2001                                             139.1
2002                                             116.4
2003                                              93.7
2004                                              74.1
Thereafter                                       314.4
----------------------------------------- -------------
Total minimum lease payments                    $894.4
----------------------------------------- -------------
</TABLE>

     The Company  leases  property and equipment  under  noncancellable  leases.
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 $894.4 million have not been reduced
by minimum  sublease  rentals of $87.6  million  payable  to the  Company  under
noncancellable subleases as of the end of 1999.

     Certain leases require a minimum level of capital  expenditures for initial
investment,  renovations and facility  expansions during the lease terms. At the
end of 1999, the Company was committed to invest  approximately $70.3 million in
capital expenditures over the various lease terms.

     Rent  expense,  included in the  accompanying  consolidated  statements  of
operations, consists of:

<TABLE>
<CAPTION>

------------------------ --------- ---------- ---------
                           1999      1998       1997
------------------------ --------- ---------- ---------
<S>                          <C>     <C>         <C>

                                 (IN MILLIONS)

Minimum rental on
   operating leases        $136.8     $126.4    $118.3
Additional rental
   based on sales            62.7       62.1      61.7
------------------------ --------- ---------- ---------
Total rent expense         $199.5     $188.5    $180.0
------------------------ --------- ---------- ---------
</TABLE>

     Rent expense  related to the Company's  corporate  operations,  included in
general and administrative expenses, totaled $3.7 million, $3.0 million and $2.9
million in 1999, 1998 and 1997, respectively.

     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

                                       41

<PAGE>

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

that the Company  will  succeed in  replacing  lost  concession  facilities  and
retaining the remaining facilities in the future.

     The  Company  is,  from  time  to  time,  involved  in  litigation  matters
incidental  to its  business.  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.

11.  FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the  Company's  financial  instruments,  including  cash and cash
equivalents,  accounts receivable,  accounts payable,  line-of-credit borrowings
and other accrued  liabilities,  the carrying amounts approximate fair value due
to their short maturities. The fair value of the Senior Notes is based on quoted
market prices at the date of the Acquisition of Host Marriott Services. The fair
value of the variable interest rate,  nonrecourse  borrowings from Tollroads and
Host  Marriott  Services  are equal to carrying  value.  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  instruments  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>

                              1999                 1998
--------------------- --------------------- -------------------
                       CARRYING     FAIR    CARRYING    FAIR
                        AMOUNT     VALUE     AMOUNT    VALUE
--------------------- ----------- --------- --------- ---------
<S>                         <C>      <C>       <C>       <C>

                                   (IN MILLIONS)

Financial liabilities:
  Senior Notes            $400.0    $415.4    $400.0    $415.4
  Other debt                 5.4       5.4       6.7       7.3

--------------------- ----------- --------- --------- ---------
</TABLE>


12.  BUSINESS SEGMENTS

     The Company's  principal  business is providing  food,  beverage and retail
concessions at airports,  in travel plazas and at shopping malls.  The Company's
management  evaluates  performance  of each segment based on profit or loss from
operations before  allocation of general and  administrative  expenses,  unusual
items,  interest and income taxes.  The accounting  policies of the segments are
the same as those  described in the summary of significant  accounting  policies
(see Note 1).

<TABLE>
<CAPTION>

(IN MILLIONS)                   1999         1998        1997
-----------------------------------------------------------------
<S>                              <C>           <C>        <C>

REVENUES:
   Airports                   $1,136.3     $1,028.8     $  956.7
   Travel Plazas                 187.5        181.1        174.2
   Shopping Malls                 36.9         22.1         15.4
-----------------------------------------------------------------
                              $1,360.7     $1,232.0     $1,146.3
-----------------------------------------------------------------

OPERATING PROFIT (LOSS)(1):
    Airports                  $  112.7     $   99.2     $   98.1
    Travel Plazas                 27.3         24.5         21.3
    Shopping Malls                (3.0)        (1.0)         1.3
-----------------------------------------------------------------
                              $  137.0      $ 122.7     $  120.7
-----------------------------------------------------------------

CAPITAL EXPENDITURES:
    Airports                 $    84.6    $    85.7      $  52.6
    Travel Plazas                  2.2          3.7          2.0
    Shopping Malls                24.6          5.1          6.9
-----------------------------------------------------------------
                              $  111.4    $    94.5    $    61.5
-----------------------------------------------------------------

DEPRECIATION AND
  AMORTIZATION:
    Airports                   $  52.9      $  41.0    $    39.5
    Travel Plazas                  8.8          8.8          8.6
    Shopping Malls                 2.4          2.5          1.5
-----------------------------------------------------------------
                               $  64.1      $  52.3    $    49.6
-----------------------------------------------------------------

ASSETS:
    Airports                  $  386.6     $  347.2
    Travel Plazas                 47.3         54.1
    Shopping Malls                35.7         12.8
-----------------------------------------------------
                              $  469.6     $  414.1
-----------------------------------------------------
<FN>

(1)  Before general and administrative expenses and unusual items.
</FN>
</TABLE>


Reconciliations of segment results to the Company's consolidated results follow:

                                       42

<PAGE>

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

<TABLE>
<CAPTION>

      (IN MILLIONS)             1999        1998        1997
 --------------------------------------------------------------
<S>                             <C>       <C>           <C>

OPERATING PROFIT:
  Segments                    $137.0       $122.7      $120.7
  General and
    administrative expenses    (75.3)       (58.0)      (54.3)
  Write-downs of
    long-lived assets           (1.9)        (5.9)       (4.2)
  Special charges              (22.6)         ---         ---
  Reversal of
    restructuring charges        ---          ---         3.9
---------------------------------------------------------------
                              $ 37.2       $ 58.8      $ 66.1
---------------------------------------------------------------

CAPITAL EXPENDITURES:
  Segments                    $111.4       $ 94.5      $ 61.5
  Corporate and other            9.0          1.1         4.5
---------------------------------------------------------------
                              $120.4       $ 95.6      $ 66.0
---------------------------------------------------------------

ASSETS:
  Segments                    $469.6       $414.1
  Corporate and other          153.4        116.6
---------------------------------------------------
                              $623.0       $530.7
---------------------------------------------------
</TABLE>

     Revenues for international operations totaled $75.7 million, $66.9 million,
and $63.6 million in 1999, 1998, and 1997, respectively.

     Property and equipment, net of accumulated depreciation,  for international
operations  was $31.1  million  and $23.6  million  at the end of 1999 and 1998,
respectively.

13.  RELATIONSHIP WITH MARRIOTT INTERNATIONAL AND HOST MARRIOTT

On October 8, 1993,  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 (the "MI Distribution").

      In  connection  with  the MI  Distribution,  Host  Marriott  and  Marriott
International   entered  into  various   management  and  transitional   service
agreements.  In connection  with the  Distribution,  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  purchased  food and
supplies through Marriott  International  totaling $80.7 million,  $75.4 million
and $77.3  million and paid $8.6  million,  $8.8  million  and $9.8  million for
corporate  support  services  during  1999,  1998 and  1997,  respectively.  The
Continuing  Services  Agreement  will be  negotiated in 2000 and some of all the
services  provided  under it may be terminated by Host Marriott  Services.  Such
terminations will be pursuant to the terms of the Continuing Services Agreement.
The  Noncompetition  Agreement expires October 8, 2000 and the License Agreement
expires on March 22, 2000.

     In connection  with the  Distribution,  the Company entered into management
agreements related to certain restaurant  operations  retained by Host Marriott.
Management fees related to these contracts were $40 thousand,  $200 thousand and
$100 thousand in 1999, 1998 and 1997,  respectively.  The restaurant  operations
ceased during 1999.

                                       43


<PAGE>


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



14.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                 1999(1)
------------------------------------------------- ----------------------------------------------------------------------
                                                     FIRST         SECOND        THIRD         FOURTH         FISCAL
(IN MILLIONS)                                      QUARTER(2)     QUARTER      QUARTER(3)    QUARTER(4)        YEAR
------------------------------------------------- ------------- ------------- ------------- -------------- -------------
<S>                                                  <C>           <C>           <C>           <C>           <C>
Revenues                                             $  281.9      $  313.8      $  351.1      $  413.9      $ 1,360.7
Operating profit                                          4.7          19.0           5.5           8.0           37.2
Net income (loss)                                        (3.5)          5.7          10.6          (2.4)          10.4




                                                                                 1998(1)
------------------------------------------------- ----------------------------------------------------------------------
                                                     FIRST         SECOND        THIRD         FOURTH         FISCAL
(IN MILLIONS)                                       QUARTER      QUARTER(5)    QUARTER(6)    QUARTER(7)        YEAR
------------------------------------------------- ------------- ------------- ------------- -------------- -------------

Revenues                                             $  252.0      $  288.7      $  317.8      $  373.5       $1,232.0
Operating profit                                          4.7          17.8          31.1           5.2           58.8
Net income (loss)                                        (2.4)          5.6          15.9           4.0           23.1





                                                                                 1997(1)
------------------------------------------------- ----------------------------------------------------------------------
                                                     FIRST         SECOND        THIRD         FOURTH         FISCAL
(IN MILLIONS)                                       QUARTER       QUARTER      QUARTER(8)    QUARTER(9)        YEAR
------------------------------------------------- ------------- ------------- ------------- -------------- -------------
Revenues                                             $  238.8      $  259.9      $  298.5      $  349.1       $1,146.3
Operating profit                                          3.4          15.7          32.9          14.1           66.1
Net income (loss)                                        (3.1)          4.4          16.6           1.7           19.6

<FN>

(1) The first three  quarters of 1999,  1998 and 1997  consist of 12 weeks each,
    and the fourth quarter includes 16 weeks.

(2) First quarter 1999 results include $0.7 million  cumulative effect of change
    in accounting for start-up activities, net of tax benefit of $0.5 million.

(3)  Third  quarter  1999  results  include  $22.6  million of  special  charges
     incurred  as a result of the  Acquisition,  $1.1  million  of  compensation
     expense  related to the vesting of stock plan awards that were converted to
     cash  awards  subsequent  to the  Acquisition  date,  and a  $13.9  million
     reversal of the deferred tax asset valuation allowance.

(4)  Fourth quarter 1999 results  include $8.8 million of  compensation  expense
     related to the  vesting of stock plan awards  that were  converted  to cash
     awards  subsequent to the Acquisition  date, $1.9 million of write-downs of
     long-lived assets and an extraordinary  loss on the  extinguishment of debt
     of $0.3 million, net of tax benefit of $0.1 million.

(5)  Second quarter 1998 results include a $2.5 million tax benefit to recognize
     the anticipated  utilization of certain tax credits  previously  considered
     unrealizable.

(6)  Third quarter 1998 results  include a $0.7 million tax benefit to recognize
     the anticipated  utilization of certain tax credits  previously  considered
     unrealizable.

(7)  Fourth  quarter  1998  results  include  $5.9  million  of  write-downs  of
     long-lived  assets  and  a  $7.9  million  tax  benefit  to  recognize  the
     anticipated  utilization  of  certain  tax  credits  previously  considered
     unrealizable.

(8)  Third quarter 1997 results  include a $1.9 million tax benefit to recognize
     the utilization of certain tax credits previously considered unrealizable.

(9)  Fourth  quarter  1997  results  include  $4.2  million  of  write-downs  of
     long-lived  assets and a $3.9  million  reversal of  restructuring  charges
     originally recorded in 1995.

</FN>
</TABLE>
                ----------------------------------------

                                       44

<PAGE>

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


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 are not guarantors of
the 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:




SUPPLEMENTAL CONSOLIDATING  BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                 1999
------------------------------------------ ----------------------------------------------------------------------------------
                                                           GUARANTOR       NON-GUARANTOR    ELIMINATIONS &
(IN MILLIONS)                                PARENT       SUBSIDIARIES     SUBSIDIARIES      ADJUSTMENTS      CONSOLIDATED
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
<S>                                          <C>               <C>               <C>             <C>               <C>
Current assets:
    Cash and cash equivalents                $   9.2           $  21.9           $  3.6          $    ---          $  34.7
    Other current assets                         ---              80.9             40.7               ---            121.6
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
    Total current assets                         9.2             102.8             44.3               ---            156.3

Property and equipment, net                      ---             279.1             64.5               ---            343.6
Other assets                                     ---             115.3              7.8               ---            123.1
Investments in subsidiaries                    370.4               ---              ---            (370.4)             ---
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
Total Assets                                 $ 379.6           $ 497.2          $ 116.6           $(370.4)         $ 623.0
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------

Current liabilities:
    Accounts payable                         $   ---           $  64.9           $ 22.3           $   ---          $  87.2
    Accrued payroll and benefits                 ---              59.1              1.8               ---             60.9
    Borrowings under line-of-credit
      agreement                                 38.0               ---              ---               ---             38.0
    Short-term borrowings from Host
      Marriott Tollroads                        16.5               ---              ---               ---             16.5
    Short-term borrowings from Host
      Marriott Services                         10.3               ---              ---               ---             10.3
    Other current liabilities                    ---              32.7              8.3               ---             41.0
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
    Total current liabilities                   64.8             156.7             32.4               ---            253.9

Long-term debt                                 400.0             402.8              2.2            (400.0)           405.0
Other liabilities                                ---              35.1              1.6              12.6             49.3
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
    Total Liabilities                          464.8             594.6             36.2            (387.4)           708.2

Shareholder's equity (deficit)                 (85.2)            (97.4)            80.4              17.0            (85.2)
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
Total Liabilities and Shareholder's Deficit  $ 379.6           $ 497.2          $ 116.6           $(370.4)         $ 623.0
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
</TABLE>

                                       45

<PAGE>

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

<TABLE>
<CAPTION>


                                                                                 1998
------------------------------------------ ----------------------------------------------------------------------------------
                                                           GUARANTOR       NON-GUARANTOR    ELIMINATIONS &
(IN MILLIONS)                                PARENT       SUBSIDIARIES     SUBSIDIARIES      ADJUSTMENTS      CONSOLIDATED
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
<S>                                             <C>              <C>             <C>              <C>              <C>

Current assets:
    Cash and cash equivalents                $   5.6           $  21.8           $  5.7          $    ---          $  33.1
    Other current assets                         ---              54.4             46.3               ---            100.7
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
    Total current assets                         5.6              76.2             52.0               ---            133.8

Property and equipment, net                      ---             236.8             53.4               ---            290.2
Other assets                                     ---             104.0              2.7               ---            106.7
Investments in subsidiaries                    311.6               ---              ---            (311.6)             ---
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
Total Assets                                 $ 317.2           $ 417.0          $ 108.1           $(311.6)         $ 530.7
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------

Current liabilities:
    Accounts payable                         $   ---           $  61.7          $  14.1           $   ---          $  75.8
    Accrued payroll and benefits                 ---              42.1              2.4               ---             44.5
    Borrowings under line-of-credit
       agreement                                11.6               ---              ---               ---             11.6
    Other current liabilities                    ---              33.1              8.0               ---             41.1
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
    Total current liabilities                   11.6             136.9             24.5               ---            173.0

Long-term debt                                 400.0             403.5              2.4            (400.0)           405.9
Other liabilities                                ---              33.4              2.4              10.4             46.2
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
    Total Liabilities                          411.6             573.8             29.3            (389.6)           625.1

Shareholder's equity (deficit)                 (94.4)           (156.8)            78.8              78.0            (94.4)
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
Total Liabilities and Shareholder's Deficit  $ 317.2           $ 417.0          $ 108.1           $(311.6)         $ 530.7
------------------------------------------ ------------ ----------------- ---------------- ----------------- ----------------
</TABLE>

                                       46

<PAGE>

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


SUPPLEMENTAL CONSOLIDATING STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                         1999
---------------------------------------------------- -----------------------------------------------------------------------------
                                                                  GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
(IN MILLIONS)                                         PARENT    SUBSIDIARIES     SUBSIDIARIES       ADJUSTMENTS     CONSOLIDATED
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------
<S>                                                      <C>         <C>               <C>                <C>            <C>

Revenues                                             $   ---       $1,092.1             $268.6           $   ---       $1,360.7
Operating costs and expenses                             ---        1,067.4              256.1               ---        1,323.5
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Operating profit                                         ---           24.7               12.5               ---           37.2
Interest expense                                       (39.3)         (41.7)               ---              39.3          (41.7)
Interest income                                          0.7            ---                ---               ---            0.7
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Income (loss) before income taxes, extraordinary
   item and cumulative effect of change in
   accounting principle                                (38.6)         (17.0)              12.5              39.3           (3.8)
(Benefit) provision for income taxes                   (13.1)         (19.6)               4.2              13.3          (15.2)
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------
Income (loss) before extraordinary item and
 cumulative effect of change in accounting principle   (25.5)           2.6                8.3              26.0           11.4
Extraordinary item--loss on extinguishment of
   debt, net of tax benefit of $0.1 million              ---           (0.3)               ---               ---           (0.3)
Cumulative effect of change in accounting for
   start-up activities, net of tax benefit of $0.5
   million                                               ---           (0.7)               ---               ---           (0.7)
Equity interest in affiliates                           35.9            ---                ---             (35.9)           ---
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Net income                                            $ 10.4       $    1.6             $  8.3             $(9.9)      $   10.4
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------
</TABLE>

<TABLE>
<CAPTION>

                                                                                         1998
---------------------------------------------------- -----------------------------------------------------------------------------
                                                                  GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
(IN MILLIONS)                                         PARENT    SUBSIDIARIES     SUBSIDIARIES       ADJUSTMENTS     CONSOLIDATED
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

<S>                                                  <C>           <C>                  <C>              <C>           <C>
Revenues                                             $   ---       $1,009.9             $222.1           $   ---       $1,232.0
Operating costs and expenses                             ---          957.5              215.7               ---        1,173.2
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Operating profit                                         ---           52.4                6.4               ---           58.8
Interest expense                                       (39.3)         (42.9)               3.0              39.3          (39.9)
Interest income                                          1.7            ---                ---               ---            1.7
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Income (loss) before income taxes                      (37.6)           9.5                9.4              39.3           20.6
(Benefit) provision for income taxes                     4.6           (1.1)              (1.1)             (4.9)          (2.5)
Equity interest in affiliates                           65.3            ---                ---             (65.3)           ---
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Net income                                            $ 23.1      $    10.6            $  10.5            $(21.1)      $   23.1
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------
</TABLE>

<TABLE>
<CAPTION>

                                                                                         1997
---------------------------------------------------- -----------------------------------------------------------------------------
                                                                  GUARANTOR      NON-GUARANTOR     ELIMINATIONS &
(IN MILLIONS)                                         PARENT    SUBSIDIARIES     SUBSIDIARIES       ADJUSTMENTS     CONSOLIDATED
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

<S>                                                  <C>             <C>                <C>              <C>           <C>
Revenues                                             $   ---         $980.4             $165.9           $   ---       $1,146.3
Operating costs and expenses                             ---          923.2              157.0               ---        1,080.2
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Operating profit                                         ---           57.2                8.9               ---           66.1
Interest expense                                       (39.3)         (38.5)              (1.3)             39.3          (39.8)
Interest income                                          2.6            0.3                0.1               ---            3.0
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Income (loss) before income taxes                      (36.7)          19.0                7.7              39.3           29.3
(Benefit) provision for income taxes                   (12.1)           6.3                2.5              13.0            9.7
Equity interest in affiliates                           44.2            ---                ---             (44.2)           ---
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------

Net income                                            $ 19.6         $ 12.7             $  5.2            $(17.9)      $   19.6
---------------------------------------------------- ---------- -------------- ------------------ ----------------- --------------
</TABLE>

                                       47

<PAGE>

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


SUPPLEMENTAL CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                         1999
------------------------------------------------------ --------------------------------------------------------------------------
                                                                                        NON-        ELIMINATIONS
                                                                     GUARANTOR       GUARANTOR           &
(IN MILLIONS)                                            PARENT     SUBSIDIARIES    SUBSIDIARIES    ADJUSTMENTS    CONSOLIDATED
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

<S>                                                     <C>              <C>           <C>               <C>             <C>
Cash (used in) provided by operations                   $ (37.3)         $ 36.8        $   38.2          $ 37.3          $75.0
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

Investing activities:
   Capital expenditures                                     ---           (98.4)          (22.0)            ---         (120.4)
   Other                                                    ---             4.7             9.7            (9.7)           4.7
   Advances (to) from subsidiaries                         (5.8)           60.2           (17.1)          (37.3)           ---
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
   Cash used in investing activities                       (5.8)          (33.5)          (29.4)          (47.0)        (115.7)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

Financing activities:
   Repayments of debt                                       ---            (0.5)           (0.7)            ---           (1.2)
   Repayments of capital lease obligation                   ---             ---            (0.5)            ---           (0.5)
   Net borrowings under line-of-credit agreement           26.4             ---             ---             ---           26.4
   Proceeds from intercompany short-term borrowings        32.5             ---             ---             ---           32.5
   Repayment of intercompany short-term borrowings         (5.7)            ---             ---             ---           (5.7)
   Payment to Host Marriott Corporation for
     Marriott International options and
     deferred shares                                        ---            (1.7)            ---             ---           (1.7)
   Dividend to Host Marriott Services                      (6.5)            ---             ---             ---           (6.5)
   Partnership (distributions) contributions, net           ---             ---            (9.7)            9.7            ---
   Other                                                                   (1.0)            ---             ---           (1.0)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
   Cash provided by (used in) financing activities         46.7            (3.2)          (10.9)            9.7           42.3
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
Increase (decrease) in cash and cash equivalents          $ 3.6          $  0.1         $  (2.1)        $   ---          $ 1.6
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
</TABLE>

<TABLE>
<CAPTION>

                                                                                         1998
------------------------------------------------------ --------------------------------------------------------------------------
                                                                                        NON-        ELIMINATIONS
                                                                     GUARANTOR       GUARANTOR           &
(IN MILLIONS)                                            PARENT     SUBSIDIARIES    SUBSIDIARIES    ADJUSTMENTS    CONSOLIDATED
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

<S>                                                      <C>             <C>           <C>              <C>              <C>
Cash (used in) provided by operations                    $(36.3)         $ 54.5        $   19.2         $  36.3          $73.7
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

Investing activities:
   Capital expenditures                                     ---           (67.7)          (27.9)            ---          (95.6)
   Other                                                    ---            (8.3)          (12.1)           12.1           (8.3)
   Advances from (to) subsidiaries                          4.1            22.9             9.3           (36.3)           ---
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
   Cash provided by (used in) investing activities          4.1           (53.1)          (30.7)          (24.2)        (103.9)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

Financing activities:
   Repayments of debt                                       ---            (0.5)           (0.4)            ---           (0.9)
   Issuance of debt                                         ---             ---             1.4             ---            1.4
   Repayments of capital lease obligation                   ---             ---            (0.2)            ---           (0.2)
   Net borrowings under line-of-credit agreement           11.6             ---             ---             ---           11.6
   Proceeds from intercompany short-term borrowings        10.0             ---             ---             ---           10.0
   Repayment of intercompany short-term borrowings        (10.0)            ---             ---             ---          (10.0)
   Payment to Host Marriott Corporation for
     Marriott International options and
     deferred shares                                        ---            (3.5)            ---             ---           (3.5)
   Dividend to Host Marriott Services                      (5.6)            ---             ---             ---           (5.6)
   Partnership contributions (distributions), net           ---             ---            12.1           (12.1)           ---
   Other                                                                    0.2             ---             ---            0.2
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
   Cash provided by (used in) financing activities          6.0            (3.8)           12.9           (12.1)           3.0
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
(Decrease) increase in cash and cash equivalents       $  (26.2)        $  (2.4)        $   1.4         $   ---       $  (27.2)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

</TABLE>

                                       48

<PAGE>

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


<TABLE>
<CAPTION>

                                                                                         1997
------------------------------------------------------ --------------------------------------------------------------------------
                                                                                        NON-        ELIMINATIONS
                                                                     GUARANTOR       GUARANTOR           &
(IN MILLIONS)                                            PARENT     SUBSIDIARIES    SUBSIDIARIES    ADJUSTMENTS    CONSOLIDATED
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

<S>                                                     <C>              <C>          <C>                <C>            <C>
Cash (used in) provided by operations                   $ (35.4)         $ 72.8       $   (26.9)         $ 35.4         $ 45.9
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

Investing activities:
   Capital expenditures                                     ---           (56.3)           (9.7)            ---          (66.0)
   Other                                                    ---            (8.7)          (32.1)           32.1           (8.7)
   Advances (to) from subsidiaries                         (8.1)            5.5            38.0           (35.4)           ---
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
   Cash used in investing activities                       (8.1)          (59.5)           (3.8)           (3.3)         (74.7)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

Financing activities:
   Repayments of debt                                       ---            (0.7)           (0.9)            ---           (1.6)
   Repayment of capital lease obligation                    ---             ---            (0.1)            ---           (0.1)
   Payment to Host Marriott Corporation
     for Marriott International options
     and deferred shares                                    ---            (2.2)            ---             ---           (2.2)
   Partnership contributions
     (distributions), net                                   ---             ---            32.1           (32.1)           ---
   Other                                                    ---            (0.1)            ---             ---           (0.1)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
   Cash (used in) provided by financing activities          ---            (3.0)           31.1           (32.1)          (4.0)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------
(Decrease) increase in cash and cash equivalents        $ (43.5)       $   10.3         $   0.4         $   ---         $(32.8)
------------------------------------------------------ ----------- --------------- --------------- --------------- --------------

</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  partners'  equity  interests in the
partnership distributions and establish the minority interest liability.

                                       49

<PAGE>


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

   None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS
---------
The following persons serve or served as directors of the Company:

John J. McCarthy    John J. McCarthy has been a Director of the Company since
Age: 53             1995 and an Executive Vice President, of Host Marriott
                    Services Corporation ("HMSC") and a Senior Vice President of
                    the Company.  Previously,  he was Regional  Vice  President
                    of  Host  Marriott  Corporation's (formerly Marriott
                    Corporation) Airport Division, Northeast.  He was appointed
                    Vice President of Travel Plazas Division in 1989.  In 1991,
                    he served as Senior Vice  President,  Travel Plazas
                    Operations.  In 1992, he was  appointed  Senior Vice
                    President, Corporate Development and Marketing. Mr. McCarthy
                    was  appointed   Senior  Vice  President  of  Host  Marriott
                    Corporation's Operating Group in 1993. In 1995, Mr. McCarthy
                    was appointed Executive Vice President for HMSC and a Senior
                    Vice President of the Company.

Brian W. Bethers    Brian W.  Bethers was a Director  of the  Company  from 1995
Age:  38            until his  resignation  on December 20,  1999.  He joined
                    Host   Marriott   Corporation   (formerly   Marriott
                    Corporation)   in  1985  as  a  financial   analyst  in  the
                    Operation,  Planning and Control Department. In 1989, he was
                    promoted to Director of the Host Operating  Group  Financial
                    Planning  Department.  In 1992, he became  Senior  Director,
                    Corporate  Development.  He was  appointed  Vice  President,
                    Corporate  Development  in 1993.  Mr.  Bethers  returned  to
                    Finance in 1995 when he was appointed  Senior Vice President
                    and  Chief  Financial   Officer  of  HMSC  and  Senior  Vice
                    President  of the  Company.  In  1999,  Mr. Bethers  became
                    Executive Vice President and Chief Financial Officer of
                    HMSC.

Lawrence E. Hyatt   Lawrence  E.  Hyatt  joined  HMSC  as  Executive   Vice
Age:  45            President  and Chief Financial Officer in 1999.  He became a
                    Director and a Senior Vice  President of the Company in
                    1999. He previously served  as  Executive  Vice  President
                    and  Chief Financial Officer of  Sodexho Marriott Services
                    and as Senior Vice President,  Finance and Planning for
                    Marriott  Management

                                       50

<PAGE>
                    Services.  He joined Host Marriott Corporation (formerly
                    Marriott Corporation) in 1981 and was Staff Auditor for
                    Corporate Internal Audit,  Manager of Financial Analysis for
                    Roy Rogers  Restaurants,  Director of Finance for Marriott
                    Services Group and Vice  President, Operations Planning and
                    Control.

Thomas G. O'Hare    Thomas G.  O'Hare  was a  Director  from 1995 until his
Age:  47            resignation  on December 20, 1999.  He was an Executive
                    Vice  President  of HMSC and a Senior Vice  President of the
                    Company at the time of his  resignation.  He previously  had
                    held  senior   operations   positions   with  Host  Marriott
                    Corporation (formerly Marriott Corporation) from 1987-1995.

John M. Green       John M.  Green  became a  Director  of the  Company  on
Age:  48            December 20,  1999.  He joined HMSC in 1998 as a Senior
                    Vice President.  Previously,  he held the position of Senior
                    Vice President at Marriott International,  Inc. in 1998, and
                    was with  Pepsi  Co.  for 11 years  prior  to  joining  Host
                    Marriott Corporation (formerly Marriott Corporation).

EXECUTIVE OFFICERS
------------------
In addition to Messrs.  McCarthy and Hyatt,  the following  persons  serve as
executive  officers of the Company.  Mr. Bethers and Mr. O'Hare also served as
executive  officers until their  resignations on December 20, 1999. Mr. Hyatt
became an executive officer of the Company on December 20, 1999.  Provided below
is information regarding these persons.

                                         BUSINESS EXPERIENCE PRIOR TO BECOMING
NAME AND TITLE             AGE            AN EXECUTIVE OFFICER OF THE COMPANY
--------------             ---           -------------------------------------

William W. McCarten       51   William W. McCarten is the President of the
   President                   Company and the President and Chief Executive
                               Officer of HMSC, the Company's parent. Prior to
                               1996, he  served as President of  Host Marriott
                               Corporation's  Operating  Group.  He  joined
                               Host  Marriott Corporation  (formerly  Marriott
                               Corporation)  in 1979, was elected  Vice
                               President,  Corporate  Controller  and  Chief
                               Accounting  Officer in 1985 and  Senior  Vice
                               President  in 1986. He was named Executive Vice
                               President, Host and Travel Plazas  in 1991 and
                               President,  Host and  Travel Plazas in 1992.  In
                               1993,  he  became President of Host Marriott
                               Corporation's Operating Group and in 1995
                               was  elected President and Chief Executive
                               Officer and a director of HMSC and President of
                               the Company. Mr. McCarten has served on the
                               Advisory  Board of the McIntire  School at the
                               University of Virginia and is a past chairman.

Joe P. Martin             53   Joe  P.  Martin  joined  Marriott   Corporation
   Senior Vice President,      in  1988  as Assistant  General Counsel for Labor
   General Counsel             Law and  Litigation.  In 1992,  he  became  Chief
   and Secretary               Labor  Counsel  for  Host  Marriott Corporation's
                               (formerly Marriott  Corporation) Lodging

                                       51

<PAGE>
                               Group and, in 1993, became Associate General
                               Counsel of Host Marriott Corporation, responsible
                               for labor, employment litigation, employee
                               benefits, and executive compensation matters.
                               Prior to joining Marriott Corporation, he was a
                               trial and appellate  litigator  with  the  law
                               firm  of Fulbright & Jaworski, and held senior
                               trial attorney positions with the Civil Rights
                               Division of the United  States  Department  of
                               Labor, J.C. Penney Company and CIGNA Corporation.
                               Mr. Martin became Senior Vice President and
                               General Counsel of HMSC and the Company in 1995
                               and Secretary of HMSC and the Company in 1997.

Timothy H. Pease          40   Timothy H. Pease  joined HMSC in 1995 as the
   Vice President, Controller  Senior  Director of  Corporate  Accounting.
   and Chief Accounting        Prior  to  joining  HMSC  and the Company,
   Officer                     Mr. Pease was a senior manager with Arthur
                               Andersen,   LLP.  In  1998,  Mr.  Pease  was
                               appointed  Vice President, Controller and Chief
                               Accounting Officer of HMSC and the Company.


ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following Summary Compensation Table sets forth the compensation paid by the
Company's  parent,  HMSC  during  the past  three  fiscal  years  to the  listed
executive  officers.  The Company  does not provide  compensation  to the listed
executive  officers separate from their compensation from HMSC. The compensation
amounts  in  the  following  table  represent  all  compensation  paid  to  each
individual  in connection  with his position  with HMSC in 1999,  1998 and 1997.
There  are  no  employment   agreements  between  the  Company  and  the  listed
executives.  The listed  executives  do  participate  in various  HMSC  employee
benefit plans and have vested  rights under certain of these plans.  These plans
include HMSC's Employee  Profit Sharing,  Retirement and Savings Plan and Trust,
and Executive Deferred Compensation Plan.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                             Long Term Compensation
                                                                       --------------------------------
                                           ANNUAL COMPENSATION                 AWARDS          PAYOUTS
                                     -------------------------------   ---------------------  ---------
                                                                       Restricted
                                                        Other Annual    Stock     Securities  LTIP        All Other
                             Fiscal  Salary    Bonus    Compensation    Awards    Underlying  Payouts    Compensation
Name and Principal Position   Year   (1)($)    (2)($)      (3)($)      (4)(5)($)   Options (#) (6)($)       (7)($)
---------------------------- ------- -------- --------- -------------- ----------- ----------- ---------- -------------

<S>                          <C>     <C>       <C>              <C>        <C>         <C>       <C>          <C>
William W. McCarten          1999    506,500   352,186          0             0             0  4,677,679     35,062
   President                 1998    485,000   267,720          0       990,635       245,518    470,139     35,109
                             1997    465,000   290,625          0             0             0  1,352,070     26,802
John J. McCarthy             1999    315,000   187,510          0             0             0  1,777,759     82,912
   Senior Vice President     1998    297,500   150,901          0       303,834       125,501    132,688    367,346
                             1997    285,000   165,870          0             0             0    381,600     98,278
Joe P. Martin                1999    205,000   110,245          0             0             0  1,062,292     17,611
   Senior Vice President,    1998    184,000    85,005          0       187,919        77,621     77,403     17,170
   General Counsel and       1997    176,000    93,104          0             0             0    217,300     10,319
   Secretary
Thomas G. O'Hare             1999    286,000   170,265          0             0             0  1,524,969     25,172
   Former Senior Vice        1998    260,000   131,880          0       265,530       109,682    121,633     24,770
   President                 1997    249,000   144,918          0             0             0    349,800     25,154
Brian W. Bethers             1999    233,077   138,758          0             0             0  1,300,698     19,135
   Former Senior Vice        1998    214,000    98,864          0       218,548        90,276     88,459     18,654
   President and Chief       1997    205,000   104,345          0             0             0    254,400     18,855
   Financial Officer


                                       52

<PAGE>

----------
<FN>

(1)      Salary  amounts  include base salary earned and paid in cash during the
         fiscal year and the amount of base salary  deferred at the  election of
         the  executive   officer  under  HMSC's   Employees'   Profit  Sharing,
         Retirement  and Savings Plan and Trust (the "Profit  Sharing Plan") and
         Executive  Deferred  Compensation  Plan  (the  "Deferred   Compensation
         Plan").

(2)      Bonus (annual cash incentive)  includes the amount of cash bonus earned
         pursuant  to the named  individual's  bonus plan during the fiscal year
         and paid  subsequent  to the end of each  fiscal  year.  The 1999 bonus
         payments were paid in February 2000.

(3)      Perquisites and other personal benefits, securities or property are not
         reported  since  they were equal to the lesser of $50,000 or 10% of the
         total of annual  salary and bonus for each  executive  officer for each
         year.

(4)      This column of the table reports  restricted shares subject to "General
         Restrictions".  Restricted shares with  "Performance  Restrictions" are
         reported  as  long-term  incentive  plan  ("LTIP")  awards  and are not
         reported  as  restricted  stock  awards  on  this  table.   Holders  of
         restricted  stock were entitled to  dividends,  if any, paid by HMSC to
         holders of its Common Stock.  No dividends  were paid in 1997,  1998 or
         1999.  In 1998,  new LTIP  restricted  stock  awards  were  made to the
         executives listed in the Table. The new 1998 awards vested ratably over
         a three-year  period beginning August 1998, and were subject to General
         Restrictions, including that the executive remain employed by HMSC. The
         values of the 1998 awards  were  calculated  at $10.344 per share,  the
         average  of the  high  and low of HMSC  stock  on the  New  York  Stock
         Exchange on the date of the grant.  These awards  vested in  connection
         with the tender and  change in  control  of HMSC by  Autogrill  S.p.A.,
         which  transaction is described in HMSC's Schedule 14D-9 filed with the
         SEC on July 30, 1999 and incorporated by reference herein.

(5)      HMSC's former parent, Host Marriott  Corporation ("HMC") made awards of
         HMC Deferred Bonus Stock to Mr. McCarten, Mr. McCarthy, Mr. Martin, Mr.
         O'Hare and Mr.  Bethers when they were  employees of HMC.  HMSC made no
         deferred  awards to the named  executives.  The  Deferred  Stock  Bonus
         Awards are stock awards granted by Host Marriott  Corporation  prior to
         the spinoff of HMSC in 1995 (the "Distribution"),  which were generally
         derived  based on dividing 20% of each  individual's  annual cash bonus
         award by the average of the high and low trading  prices for a share of
         Host Marriott  Corporation  common stock on the New York Stock Exchange
         on the last  trading  day of the  fiscal  year.  No  voting  rights  or
         dividends  are  attributed to these  Deferred  Stock Bonus Award shares
         until such award shares are  distributed.  Awards may be denominated as
         current  (pre-retirement)  awards or deferred  (retirement)  awards.  A
         current award is distributed in 10 annual  installments  commencing one
         year after the award is granted. A vested deferred award is distributed
         in a lump sum or in up to 10 annual installments  following termination
         of  employment.  These awards  generally  are not subject to forfeiture
         once the employee reaches age 55 and has 10 years of service,  or after
         20 years of service with Board  approval;  however,  the awards are not
         subject to  forfeiture  for any reason if the employee  dies or becomes
         permanently disabled.  Each share of Host Marriott Corporation Deferred
         Stock  Bonus  Awards  held  by each  executive  listed  in the  Summary
         Compensation Table was split at the Distribution into one share of HMSC
         Deferred Bonus Stock for each five shares of Host Marriott  Corporation
         Deferred Bonus Stock.  Under the terms of the  restricted  stock grants
         made to them, Mr.  McCarten,  Mr.  McCarthy,  Mr. O'Hare and Mr. Martin
         were not  eligible to receive  awards of Deferred  Bonus Stock in 1994,
         1995,  1996 and, in 1997, HMSC decided to no longer make Deferred Stock
         Bonus Awards.  Each of these individuals  received Deferred Bonus Stock
         awards for years prior to 1994 from Host  Marriott  Corporation,  which
         were split into Host Marriott Corporation and HMSC deferred shares. Mr.
         Bethers was eligible to receive Deferred Bonus Stock awards in 1994 and
         1995, but did not receive restricted stock in those years. In 1996, Mr.
         Bethers  received a restricted  stock award and became  ineligible  for
         1996 and thereafter to receive any further Deferred Bonus Stock Awards.
         In January 1999, Mr. McCarten,  Mr. McCarthy,  Mr. O'Hare,  Mr. Bethers
         and Mr. Martin  received a  distribution  of HMSC  deferred  stock from
         previous awards as follows: Mr. McCarten, 81 shares valued at $821; Mr.
         McCarthy,  284 shares valued at $2,877; Mr. O'Hare, 62 shares valued at
         $628;  Mr.  Bethers,  184 shares  valued at $1,864 and Mr.  Martin,  38
         shares  valued at $385.  Values  are based on $10.125  per  share,  the
         average of the high and low of the trading  prices of HMSC stock on the
         New York Stock Exchange as of January 4, 1999, the date the shares were
         released  to  each   executive.   No  further   HMSC   deferred   stock
         distributions will be made to any of the executives.

(6)      The awards  listed in the Column for LTIP payouts in 1999 reflect the
         vesting  of  long  term  stock  incentives  granted  by HMSC in 1998 in
         connection  with the acquisition of all of the common stocks of HMSC by
         a  subsidiary  of  Autogrill  S.p.A.  effectuated  by the merger of the
         acquisition  subsidiary and HMSC on September 1, 1999,  with HMSC being
         the surviving  corporation.  The Company continues to be a wholly-owned
         subsidiary  of HMSC.  The  payouts  to the  listed  executives  were at
         $15.75,  the  tender  price  paid  to all  shareholders  of  HMSC.  The
         transaction  is more fully  described in HMSC's  Schedule  14D-9 filing
         with the SEC dated July 30, 1999 and incorporated by reference herein.

 (7)     For 1999, amounts included as "All Other  Compensation"  represent HMSC
         contribution  amounts  received under one or more of the Profit Sharing
         Plan, the Deferred  Compensation  Plan or the  Supplemental  Retirement
         Plan for  certain  employees.  For 1999 for Mr.  McCarten,  $3,840  was
         attributable to the Profit Sharing Plan and $24,022 was attributable to
         the Deferred  Compensation Plan. For 1999 for Mr. McCarthy,  $3,804 was
         attributable  to the Profit Sharing Plan,  $12,908 was  attributable to
         the Deferred  Compensation  Plan, and $56,000 was  attributable  to the
         Supplemental  Retirement  Plan.

                                       53

<PAGE>

         For 1999 for Mr.  O'Hare,  $3,804  was attributable to the Profit
         Sharing Plan and $11,168 was attributable to the Deferred  Compensation
         Plan. For 1999 for Mr. Bethers,  $3,840 was attributable to the Profit
         Sharing Plan and $8,095 was  attributable to the Deferred  Compensation
         Plan. For 1999 for Mr.  Martin,  $3,758 was attributable to the Profit
         Sharing Plan and $6,653 was  attributable to the Deferred  Compensation
         Plan. Each of these executives also received $7,200  as a car
         allowance.  Mr.  O'Hare  and Mr.  McCarthy  also were eligible for up
         to $3,000 per year for supplemental medical expenses.

</FN>
</TABLE>

STOCK OPTIONS

The  Company  does not award  stock  options or any other form of stock or stock
appreciation  right. The tables below set forth information  regarding the award
and exercise  during fiscal year 1999 of certain  options to purchase  shares of
HMSC  Common  Stock  by each of the  persons  listed  on the  preceding  Summary
Compensation  Table and the value on December 31, 1999, the end of the Company's
fiscal  year,  of all  unexercised  options held by such  individuals.  No stock
appreciation  rights were  awarded to the listed  persons by HMSC in fiscal year
1999.

                        OPTION GRANTS IN LAST FISCAL YEAR

No stock option awards were made by the Company or HMSC to the persons listed in
the Summary Compensation Table in 1999.

                      AGGREGATED STOCK OPTION EXERCISES IN

               LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES*

The Company does not grant stock  options.  Stock  options in its parent,  HMSC,
were canceled in connection  with the  acquisition of all of the common stock of
HMSC by a subsidiary  of  Autogrill  S.p.A.,  effectuated  by a tender offer and
merger of HMSC following the tender on September 1, 1999. HMSC was the surviving
company  in  the  merger  and  continues  as the  parent  of  the  Company.  The
transaction  is described in HMSC's  Schedule  14D-9 filing with the SEC on July
30, 1999, which is incorporated by reference  herein.  The amounts stated in the
table below are the tender amounts paid for the canceled options.

<TABLE>
<CAPTION>

                                                                     NUMBER OF SECURITIES
                                                                UNDERLYING UNEXERCISED OPTIONS        NUMBER OF UNEXERCISED
                               SHARES ACQUIRED       VALUE                    AT                     IN-THE-MONEY OPTIONS AT
                                 ON EXERCISE       REALIZED            DECEMBER 31, 1999                DECEMBER 31, 1999
                                                                 -----------------------------     -----------------------------
           NAME                        (#)              ($)      EXERCISABLE     UNEXERCISABLE    EXERCISABLE     UNEXERCISABLE
           ----              ----------------------------------- -----------     -------------    -----------     -------------
<S>                                   <C>              <C>            <C>              <C>              <C>              <C>
William W. McCarten                   0                559,781        0                0                0                0
John J. McCarthy                      0                286,142        0                0                0                0

Joe P. Martin                         0                176,976        0                0                0                0
Thomas G. O'Hare                      0                250,075        0                0                0                0
Brian W. Bethers                      0                205,829        0                0                0                0

</TABLE>

--------------
     * No Stock Appreciation Rights (SARs) were granted in 1999.

                           LONG-TERM INCENTIVE AWARDS

No LTIP awards were made in 1999 by the Company or HMSC to the persons listed in
the Summary Compensation Table.

COMPENSATION OF DIRECTORS

None of the current or former directors of the Company received compensation for
service as a director during 1999.

                                       54

<PAGE>


EMPLOYMENT AND SEVERANCE AGREEMENTS

The Company does not have  employment or severance  agreements with any director
or executive  officer.  Two prior directors of the Company,  Mr. Bethers and Mr.
O'Hare,  entered  into  agreements  for  non-competition  which  prohibit  their
competition  with  the  Company,  each for a period  of two  years to 2002.  The
Company benefits from these non-competition agreements but is not a party to the
agreements.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no Compensation Committee interlocks.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The Company does not have any common equity that is publicly held.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE DISTRIBUTION

     Host  Marriott  Services  Corporation  ("Host  Marriott  Services")  is the
successor  to the  food,  beverage  and  retail  concession  businesses  of Host
Marriott Corporation ("Host Marriott").  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.  All of the common shares of HMSC were acquired in a tender
offer by a  subsidiary  of  Autogrill  S.p.A.,  in  1999,  such  transaction  is
described in HMSC's  Schedule 14-9D filing with the SEC dated July 30, 1999, and
incorporated by reference herein.

RELATIONSHIP WITH HOST MARRIOTT

      For purposes of  governing  certain of the ongoing  relationships  between
Host Marriott  Services and Host Marriott after the  Distribution 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 and a Transitional Services Agreement.

(i)      Tax Sharing  Agreement.  This Agreement defines the parties' rights and
         obligations with respect to deficiencies and refunds of federal,  state
         and other  income or  franchise  taxes  relating to the Company for tax
         years prior to the Distribution and with respect to certain tax matters
         of the Company after the Distribution.

(ii)     Employee  Benefits  Allocation  Agreement.  This  Agreement  allocates
         certain  responsibilities  with  respect  to  employee compensation,
         benefits and other employment and labor matters.

(iii)    Transitional  Services  Agreements.  The Company and Host Marriott also
         entered  into a number of  agreements  pursuant  to which each  company
         agreed to provide  certain  services to the other and their  respective
         subsidiaries  for a  transitional  period which has now  expired.  Such
         services were provided on market terms and conditions.

      In addition,  HMC has agreed to guarantee  the  Company's  performance  in
connection with certain  concessions  operated by the Company.  HMC has not been
required to make any payments  pursuant to these guarantees and the Company does
not anticipate that any such payments will be made in 2000.

                                       55

<PAGE>

      The agreements  established certain obligations for Host Marriott Services
to issue shares upon  exercise of Host  Marriott  warrants,  which Host Marriott
Services has since fulfilled its obligation,  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.  As a result of the
Acquisition, Host Marriott Services will settle these obligations with cash.

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  connection  with the spin-off of Host  Marriott  Services  from Host
Marriott, Host Marriott Services and Marriott International entered into several
transitional agreements, each of which is described below:

     CONTINUING SERVICES  AGREEMENT.  This agreement provides that Host Marriott
Services will receive (i) various  corporate  services such as computer  systems
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 Host Marriott
Services'  headquarters  office  space.  The office  sublease was  terminated in
February  1997  when  Host  Marriott  Services  relocated  to its new  corporate
headquarters. The Continuing Services Agreement will be renegotiated in 2000 and
some or all the services  provided  under it may be  terminated by Host Marriott
Services.  Such  terminations  will be pursuant  to the terms of the  Continuing
Services Agreement.

     As a part of the Continuing Services  Agreement,  the Company paid Marriott
International  $80.7  million,  $75.4 million and $77.3 million for purchases of
food and  supplies  and paid $8.6  million,  $8.8  million and $9.8  million for
corporate support services during 1999, 1998 and 1997, respectively.

     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
retail  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 Host
Marriott  Services) and any  successor  thereto will continue to be bound by the
terms of the  agreement  until  October  8,  2000.  On March 27,  1998,  the MMS
Business became the principal business of Sodexho Marriott Services, Inc., which
was combined with the North  American  operations  of Sodexho  Alliance S.A. The
rights and duties of Host Marriott Services under the  Noncompetition  Agreement
with Marriott International were preserved in the transaction.  Sodexho Marriott
Services, Inc. is now a party to the Noncompetition Agreement with Host Marriott
Services. The Noncompetition Agreement expires 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 the
"Marriott" name, were conveyed to Marriott  International  and Host Marriott and
its  subsidiaries,  including those comprising the Operating Group. As a result,
Host  Marriott  Services  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,  Host Marriott Services and Marriott  International entered into a

                                       56

<PAGE>

new  License  Agreement  pursuant  to  which  Host  Marriott  Services  and  its
subsidiaries  retained the license to use such trademarks subject to the License
Agreement. The License Agreement expired on March 22, 2000.

                                     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 to S-2

           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)

(b)   Reports on Form 8-K
      None

                                       57

<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 28th day of March,
1999.

                            HOST INTERNATIONAL, INC.

                            By: /S/ LAWRENCE E. HYATT
                            -------------------------
                                Lawrence E. Hyatt
        Senior Vice President (Principal Financial Officer and Director)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
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)
---------------------------------
William W. McCarten

/S/ LAWRENCE E. HYATT              Senior Vice President
---------------------------------  (Principal Financial Officer and Director)
Lawrence E. Hyatt

/S/ TIMOTHY H. PEASE               Vice President (Principal Accounting Officer)
---------------------------------
Timothy H. Pease

/S/ JOHN M. GREEN                  Senior Vice President and Director
---------------------------------
John M. Green

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


                                       58

<PAGE>



SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT:

No annual  report or proxy  materials  will be sent to  security  holders of the
registrant other than this annual report on Form 10-K.

                                       59

<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

To the Shareholder of Host International, Inc.:

        We have audited in accordance with auditing standards generally accepted
in  the  United  States,   the   consolidated   financial   statements  of  Host
International,  Inc. and subsidiaries included in this Form 10-K and have issued
our report thereon dated March 14, 2000. 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 is not part of the basic consolidated  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the  audits  of the  basic  consolidated  financial  statements  and,  in our
opinion, fairly states, 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
Vienna, Virginia
March 14, 2000

                                      S-1

<PAGE>

                                                                     SCHEDULE I

                            HOST INTERNATIONAL, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
         FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, JANUARY 1, 1999
                              AND JANUARY 2, 1998

<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
      1997                                              $10.3             $ 7.4            $ (0.1)            $ 17.6
      1998                                               17.6               1.4              (8.7)              10.3
      1999                                               10.3               5.2              (4.3)              11.2


Allowance for notes receivable
      1997                                                0.4               0.2               ---                0.6
      1998                                                0.6               0.9              (0.2)               1.3
      1999                                                1.3               0.1              (0.2)               1.2

--------------------------------------------- ---------------- -- -------------- -- --------------- --- -------------
<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